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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934 [No Fee Required]
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 Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $0.50 Par Value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
Preferred Stock, Series H, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series I, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series J, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series K, $1.00 Par Value New York Stock Exchange
7-1/4% Convertible Subordinated Capital Notes Due 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
As of February 15, 1994, there were 63,583,252 shares outstanding of the
registrant's voting common stock, $0.50 par value per share, of which
63,073,355 common shares having a market value of $3,405,961,000 were held by
nonaffiliates. As of such date, there were 2,236,226 shares outstanding of the
registrant's Series D Junior Preferred Stock, $1.00 par value per share, of
which 2,164,154 shares having an aggregate issue price of $37,873,000 were held
by nonaffiliates. Such shares of Series D Junior Preferred Stock, which are
not publicly traded, are subject to voting covenants.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this Annual Report.
Mellon Bank Corporation 1994 Proxy Statement-Part III
Mellon Bank Corporation 1993 Annual Report to Shareholders-
Parts I, II and IV
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The Form 10-K filed with the Securities and Exchange Commission contains the
Exhibits listed on the Index to Exhibits beginning on page 27, including the
Financial Review and Statements and Notes; Principal Locations and Operating
Entities; Directors and Senior Management Committee; and Corporate Information
Sections of the Registrant's 1993 Annual Report to Shareholders. Copies of the
Registrant's 1993 Annual Report to Shareholders and the Proxy Statement for its
1994 Annual Meeting may be obtained free of charge by writing to:
Secretary,
Mellon Bank Corporation
Room 1820
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
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MELLON BANK CORPORATION
Form 10-K Index
________________________________________________________________________________
<TABLE>
<CAPTION>
PART I Page
<S> <C> <C>
Item 1. Business
Description of Business 4
Supervision and Regulation 7
Competition 9
Employees 10
Statistical Disclosure by Bank Holding Companies 10
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 20
Executive Officers of the Registrant 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 23
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 24
Item 11. Executive Compensation 24
Item 12. Security Ownership of Certain Beneficial Owners and Management 24
Item 13. Certain Relationships and Related Transactions 24
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 25
</TABLE>
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PART I
ITEM 1. BUSINESS
Description of Business
Mellon Bank Corporation (the "Corporation") is a multibank holding company
incorporated under the laws of Pennsylvania in August 1971 and registered under
the Federal Bank Holding Company Act of 1956, as amended. The Corporation
provides a comprehensive range of financial products and services in domestic
and selected international markets. The Corporation's banking subsidiaries are
located in the states of Pennsylvania, Massachusetts, Delaware and Maryland,
while other subsidiaries are located in key business centers throughout the
United States and abroad. At December 31, 1993, the Corporation was the
twenty-third largest bank holding company in the United States in terms of
assets.
The Corporation's principal wholly owned subsidiaries are Mellon Bank, N.A.
("Mellon Bank"), The Boston Company, Inc. ("TBC"), Mellon Bank (DE) National
Association, Mellon Bank (MD) and a number of companies known as Mellon
Financial Services Corporations. The Corporation's banking subsidiaries engage
in domestic retail banking, worldwide commercial banking, trust banking,
investment management and other financial services and various
securities-related activities.
Mellon Bank, which has its executive offices in Pittsburgh, Pennsylvania,
became a subsidiary of the Corporation in November 1972. With its
predecessors, Mellon Bank has been in business since 1869. Mellon Bank is
comprised of six operating regions:
Mellon Bank-Western Region, which includes Mellon Bank's
Pittsburgh-based executive offices, serves consumer and small to
mid-sized commercial markets in western Pennsylvania, as well as
large commercial and financial institution markets throughout the
United States and selected international markets.
Mellon Bank-Central Region, headquartered in State College,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in central Pennsylvania.
Mellon Bank-Commonwealth Region, headquartered in Harrisburg,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in south central Pennsylvania.
Mellon Bank-Northern Region, headquartered in Erie, Pennsylvania,
serves consumer and small to mid-sized commercial markets in
northwestern Pennsylvania.
Mellon Bank - Northeastern Region, headquartered in Wilkes-Barre,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in northeastern Pennsylvania.
Mellon PSFS, headquartered in Philadelphia, Pennsylvania, serves
consumer and small commercial markets in eastern Pennsylvania and
mid-sized commercial customers in eastern Pennsylvania and portions
of New Jersey.
On December 21, 1993, the Corporation completed its acquisition of
AFCO Credit Corporation (AFCO) and CAFO, Inc. AFCO is headquartered
in New York, New York, while CAFO is headquartered in Toronto,
Canada. These companies provide property and casualty insurance
premium financing to small, mid-size and large companies. AFCO is a
subsidiary of Mellon Bank, N.A. CAFO is a subsidiary of Mellon Bank
Canada.
TBC, through Boston Safe Deposit and Trust Company and other subsidiaries,
engages in the business of mutual fund administration, institutional trust and
custody, institutional asset management and private banking services. TBC is
headquartered in Boston, Massachusetts.
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Description of Business (continued)
Mellon Bank (DE) National Association, headquartered in Wilmington, Delaware,
serves consumer and small to mid-sized commercial markets throughout Delaware,
and provides nationwide cardholder processing services. Mellon Bank (MD) is
headquartered in Rockville, Maryland, and serves consumer and small to
mid-sized commercial markets throughout Maryland. Mellon Bank (MD) has a
Maryland state charter and is a member of the Federal Reserve System.
The Corporation's banking subsidiaries operate 631 domestic retail banking
locations, including 432 branch offices. The deposits of the national banking
subsidiaries, Boston Safe Deposit and Trust and Mellon Bank (MD) are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law.
Other subsidiaries of the Corporation provide a broad range of bank-related
services -- including commercial financial services, equipment leasing,
residential real estate loan financing, commercial loan financing, stock
transfer services, cash management, mortgage servicing, numerous trust and
investment management services and real estate investment management services.
The types of financial products and services offered by the Corporation's
subsidiaries are subject to ongoing change.
For analytical purposes, management has focused the Corporation into four
business sectors: Wholesale Banking, Retail Financial Services and Service
Products, which comprise the core business sectors, and Real Estate Banking.
Further information regarding the Corporation's designated business sectors is
presented in the Business Sectors section on pages 20 through 22 of the
Corporation's 1993 Annual Report to Shareholders, which pages are incorporated
herein by reference. A brief discussion of the business sectors is presented
below. There is considerable interrelationship among these sectors.
Wholesale Banking
The Corporation provides lending and other wholesale banking
services to domestic and selected international markets through its
Corporate Banking, Capital Markets and Leasing departments. These
markets generally include large domestic commercial and industrial
customers, U.S. operations of foreign companies, multinational
corporations and various financial institutions--including banks,
securities broker/dealers, insurance companies, finance companies
and mutual funds. The Corporation also offers corporate finance and
rate/risk management products; syndicates, participates out and
sells loans; offers a variety of capital markets products and
services, including private placements and money market and foreign
exchange transactions; and provides equipment leasing, financing and
lease advisory services. The Corporation maintains foreign offices
in London, Tokyo, Hong Kong, Toronto, and Grand Cayman, British West
Indies. Through these offices, the Corporation conducts trade
finance activities, engages in correspondent banking, provides
corporate banking and capital markets services, and engages in
funding and trading activities.
As part of the Corporation's Wholesale Banking sector, Middle Market
Banking serves companies in the Central Atlantic region with annual
sales between $10 million and $250 million and provides specialized
lending expertise to state and local governments in its regional
markets and health care on a national basis. It also operates a
nationwide asset-based lending division which provides secured
lending, principally through accounts receivable and inventory
financing. The Middle Market Banking department sells the
Corporation's full complement of banking products and services to
its customers.
Retail Financial Services
Retail financial products and services are offered through the
Corporation's banking subsidiaries in the Central Atlantic region.
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Description of Business (continued)
Retail Financial Services
This banking network provides a full range of products to
individuals and small businesses including short and long-term
credit facilities, mortgages, credit cards, investment products,
checking, savings, and time deposits, money market accounts, money
transfer, safe deposit facilities, access to automated teller
machines and cash management services. These services are delivered
through a combination of the Corporation's 402 branch offices, 29
supermarket facilities, 586 ATMs, 7 loan sales offices and a
telephone banking center.
Service Products
The Corporation offers a number of service products through its
various subsidiaries. These fee-based businesses generally are not
as asset or capital intensive as are the Wholesale and Retail
Financial Services sectors.
The Corporation's subsidiaries provide a wide variety of trust and
investment management services operating under the umbrella name
"Mellon Trust". These include corporate trust, master trust,
personal trust, investment-related services, mutual fund
administration, custody and account administration services. The
Corporation also owns a number of subsidiaries that provide a
variety of active and passive equity and fixed income investment
management services, including management of international
securities and real estate assets; security transfer agency
services; and accounting and processing related services. Through
these functions, the Corporation serves the employee benefit,
institutional and individual markets.
On May 21, 1993, the Corporation completed its acquisition of TBC.
The Corporation now ranks among the largest national competitors in
each of these major trust and investment businesses: mutual fund
administration; institutional trust and custody; institutional asset
management; and private banking management. In December 1993, the
Corporation entered into a definitive agreement to merge with The
Dreyfus Corporation (Dreyfus). Completion of the merger is subject
to the approval of the shareholders of the Corporation and Dreyfus,
various regulatory approvals and certain approvals by the
shareholders of the mutual funds advised by Dreyfus. Upon
completion of the merger with Dreyfus, the Corporation expects to
substantially increase its trust and investment management fee
revenue and become the largest bank manager of mutual funds.
Further information regarding these transactions is presented in the
Corporation's 1993 Annual Report to Shareholders in the Significant
events in 1993 section on page 19 and in note 21 of Notes to
Financial Statements on pages 71 and 72, which portions are
incorporated herein by reference.
The Global Cash Management department provides a broad range of cash
management services, including check collections and disbursements,
remittance processing, electronic funds transfer services,
information reporting and automated investment services.
Also included in the service products sector are the core servicing
functions of the Corporation's mortgage banking operations, located
in Houston, Denver and Cleveland, through which the Corporation
originates and services residential and commercial mortgages for
institutional investors and makes residential mortgage loans.
Real Estate Banking
Real estate banking consists of the Corporation's commercial real
estate lending activities, through which it originates financing for
residential, commercial, multifamily and other projects.
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Description of Business (continued)
The 1993 Annual Report to Shareholders summarizes principal locations and
operating entities on pages 78 through 80, which pages are incorporated herein
by reference. Exhibit 21.1 to this Annual Report on Form 10-K presents a list
of the subsidiaries of the Corporation as of December 31, 1993.
Supervision and Regulation
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended (the "Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Generally, the Act limits the business of bank holding companies to
banking, managing or controlling banks, performing certain servicing activities
for subsidiaries, and engaging in such other activities as the Federal Reserve
Board may determine to be closely related to banking and a proper incident
thereto. Certain of the Corporation's subsidiaries are themselves bank holding
companies under the Act.
The Corporation's national banking subsidiaries are subject to primary
supervision, regulation and examination by the Office of the Comptroller of the
Currency (the "OCC"); Boston Safe Deposit and Trust Company ("BSDT") is subject
to supervision, regulation and examination by the Federal Deposit Insurance
Corporation (the "FDIC") and the Massachusetts Office of the Commissioner of
Banks; and Mellon Bank (MD) is subject to supervision, regulation and
examination by the Federal Reserve Board and the State of Maryland. Mellon
Securities Trust Company and Boston Safe Deposit and Trust Company of New York
are New York trust companies and are supervised by the New York State
Department of Banking. Boston Safe Deposit and Trust Company of California is
a California trust company and is supervised by the State of California Banking
Department.
The Corporation's securities-related subsidiaries are regulated by the
Securities and Exchange Commission (the "SEC"). InvestNet, a subsidiary
of the Corporation, conducts a brokerage operation and Mellon Investment
Products Company, a subsidiary of Mellon Bank, engages in the sale, as agent,
of certain mutual fund and unit investment trust products. Both InvestNet and
Mellon Investment Products Company are registered broker/dealers and members of
the National Association of Securities Dealers, Inc., a securities industry
self-regulatory organization.
Certain subsidiaries of the Corporation are registered investment advisers
under the Investment Advisers Act of 1940 and, as such, are supervised by the
SEC. Certain of the Corporation's public finance activities are regulated by
the Municipal Securities Rulemaking Board. Mellon Bank and certain of the
Corporation's other subsidiaries are registered with the Commodity Futures
Trading Commission (the "CFTC") as commodity pool operators or commodity
trading advisors and, as such, are subject to CFTC regulation.
The Corporation and its subsidiaries are subject to an extensive scheme of
banking laws and regulations that are intended primarily for the protection of
the customers and depositors of the Corporation's subsidiaries rather than
holders of the Corporation's securities. These laws and regulations govern
such areas as permissible activities, loans and investments, rates of interest
that can be charged on loans and reserves. The Corporation and its
subsidiaries also are subject to general U.S. federal laws and regulations and
to the laws and regulations of the states or countries in which they conduct
their business. Set forth below are brief descriptions of selected laws and
regulations applicable to the Corporation and its subsidiaries.
Pennsylvania legislation authorizes bank holding companies in any state to
acquire Pennsylvania banks or bank holding companies provided that Pennsylvania
bank holding companies enjoy reciprocal privileges in those jurisdictions.
Most states outside the Southeast currently have such reciprocal laws. As a
result, the Corporation can acquire banks in any state which has a reciprocal
law.
There are certain restrictions on the ability of the Corporation and certain of
its non-bank affiliates to borrow from, and engage in other transactions with,
its banking subsidiaries and on the ability of such banking subsidiaries to pay
dividends to the Corporation. These restrictions are discussed in note 16 of
the Notes to Financial Statements on page 62 of the Corporation's 1993 Annual
Report to Shareholders. This note is incorporated herein by reference.
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Supervision and Regulation (continued)
The OCC has authority under the Financial Institutions Supervisory Act to
prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to
the Corporation, its Maryland banking subsidiary and its non-bank subsidiaries,
including Mellon Securities Trust Company, a member of the Federal Reserve
System. The FDIC has similar authority with respect to BSDT.
The deposits of each of the banking subsidiaries are insured up to applicable
limits by the FDIC and are subject to deposit insurance assessments to maintain
the Bank Insurance Fund ("BIF") of the FDIC. The FDIC has adopted a risk-based
assessment system to replace the previous flat-rate system. The risk-based
system imposes insurance premiums based upon a matrix that takes into account a
bank's capital level and supervisory rating. Under this risk-based system, the
assessment rate imposed on banks ranges from 23 cents for each $100 of domestic
deposits for the healthiest institutions to 31 cents for each $100 of domestic
deposits for the weakest institutions.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision which could result in any insured
depository institution owned by the Corporation being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other depository institution owned by the Corporation. Also, under
Federal Reserve Board policy, the Corporation may be expected to act as a
source of financial strength to each of its banking subsidiaries and to commit
resources to support each such bank in circumstances where such bank might not
be in a financial position to support itself.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the depository institution regulatory and funding
provisions of the Federal Deposit Insurance Act and made revisions to several
other federal banking statutes. Among other things, federal banking regulators
are required to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA identifies
the following capital tiers for financial institutions: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
Rules adopted by the federal banking agencies under FDICIA provide that an
institution is deemed to be: "well capitalized" if the institution has a Total
risk-based capital ratio of 10.0% or greater, a Tier I risk-based ratio of 6.0%
or greater, and a leverage ratio of 5.0% or greater, and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific level for any capital measure;
"adequately capitalized" if the institution has a Total risk-based capital
ratio of 8.0% or greater, a Tier I risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater
if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines), and the
institution does not meet the definition of a well capitalized institution;
"undercapitalized" if the institution has a Total risk-based capital ratio that
is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or
a leverage ratio that is less than 4.0% (or a leverage ratio that is less than
3.0% if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines) and the
institution does not meet the definition of a significantly undercapitalized or
critically undercapitalized institution; "significantly undercapitalized" if
the institution has a Total risk-based capital ratio that is less than 6.0%, a
Tier I risk-based capital ratio that is less than 3.0%, or a leverage ratio
that is less than 3.0% and the institution does not meet the definition of a
critically undercapitalized institution; and "critically undercapitalized" if
the institution has a ratio of tangible equity to total assets that is equal to
or less than 2.0%. FDICIA imposes progressively more restrictive constraints
on operations, management and capital distributions, depending on the capital
category in which an institution is classified.
At December 31, 1993, the Corporation and all of the Corporation's banking
subsidiaries fell into the well capitalized category based on the ratios and
guidelines noted above.
The appropriate Federal banking agency may, under certain circumstances,
reclassify a well capitalized insured depository institution as adequately
capitalized. The appropriate agency is also permitted to require an adequately
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Supervision and Regulation (continued)
capitalized or undercapitalized institution to comply with the supervisory
provisions as if the institution were in the next lower category (but not treat
a significantly undercapitalized institution as critically undercapitalized)
based on supervisory information other than the capital levels of the
institution.
The statute provides that an institution may be reclassified if the appropriate
Federal banking agency determines (after notice and opportunity for hearing)
that the institution is in an unsafe or unsound condition or deems the
institution to be engaging in an unsafe or unsound practice.
Legislation enacted in August 1993 provides that deposits and certain claims
for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
During 1993, regulatory guidelines were adopted, and legislation was proposed
in Congress, to address concerns regarding retail sales by banks of various
nondeposit investment products, including mutual funds. Legislative and
regulatory attention to these matters is likely to continue, and may intensify,
in the future. Although existing statutory and regulatory requirements in this
regard have not had a significant effect on the Corporation's business, there
can be no assurance that future requirements will not have such an effect on
the Corporation's business, as currently conducted or as proposed to be
conducted after the proposed merger with The Dreyfus Corporation. Various
other legislation, including proposals to restructure the banking regulatory
system, provide for nationwide interstate banking and to limit the investments
that a depository institution may make with insured funds, are from time to
time introduced in Congress. The Corporation cannot determine the ultimate
effect that any such potential legislation, if enacted, would have upon its
financial condition or operations.
Competition
The Corporation and its subsidiaries continue to be subject to intense
competition in all aspects and areas of their businesses from banks; other
domestic and foreign financial institutions, such as savings and loan
associations, savings banks, finance companies and credit unions; and other
providers of financial services, such as money market funds, brokerage firms,
investment companies, credit companies and insurance companies. The
Corporation also competes with nonfinancial institutions, including retail
stores and manufacturers of consumer products that maintain their own credit
programs, as well as governmental agencies that make available loans to certain
borrowers. Also, in the Service Products business sector, the Corporation
competes with a wide range of technologically capable service providers.
In terms of domestic deposits, Mellon Bank is the largest commercial banking
institution in Pennsylvania where it competes with approximately 260 commercial
banks, 140 thrifts and numerous credit unions and consumer finance
institutions. Mellon Bank competes with approximately 30 commercial banks and
40 thrifts in the six-county Pittsburgh area of Western Pennsylvania. Mellon
Bank competes with approximately 45 commercial banks and 50 thrifts in the
five-county Philadelphia area, one of the largest metropolitan areas in the
United States. In most of the markets in which the Corporation's banking
subsidiaries operate, they compete with large regional and other banking
organizations in making commercial, industrial and consumer loans, and in
providing products and services.
Competition has continued to increase in recent years in many areas in which
the Corporation and its subsidiaries operate, in substantial part because other
types of financial institutions and other entities are increasingly engaging in
activities traditionally engaged in by commercial banks. Commercial banks face
significant competition in acquiring quality assets due to such factors as the
increase in commercial paper and long-term debt issued by industrial companies,
increased activities by foreign banks and credit unions, and the increased
lending powers granted to and
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Competition (continued)
employed by many types of thrift institutions and credit unions. Commercial
banks also face competition in attracting deposits at reasonable prices due to
the activities of money market funds; increased activities of non-bank deposit
takers, including brokerage firms; alternatives presented by foreign banks; and
the increased availability of demand deposit type accounts at thrift
institutions and credit unions. Unlike the Corporation, many of these
competitors, with the particular exception of thrift institutions, are not
subject to regulation as extensive as that described under the "Supervision and
Regulation" section and, as a result, they may have a competitive advantage
over the Corporation in certain respects.
Employees
The Corporation and its subsidiaries had approximately 21,400 full-time
equivalent employees in December 1993.
Statistical Disclosure by Bank Holding Companies
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Information required by this section of Securities Act Industry Guide 3,
or Exchange Act Industry Guide 3, ("Guide 3") is presented in the
Rate/Volume Variance Analysis on page 11. Required information is also
presented in the Financial Section of the Corporation's 1993 Annual
Report to Shareholders in the Consolidated Balance Sheet -- Average
Balances and Interest Yields/Rates on pages 76 and 77, and in Net
Interest Revenue, on page 22, which is incorporated herein by reference.
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Statistical Disclosure by Bank Holding Companies (continued)
RATE/VOLUME VARIANCE ANALYSIS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31,
-----------------------------------------------------------------------
1993 over (under) 1992 1992 over (under) 1991
------------------------ --------------------------
Due to change in Net Due to change in Net
---------------- ----------------
(in millions) Rate Volume change Rate Volume change
----- ------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
revenue from interest-earning
assets:
Interest-bearing deposits with banks $ (5) $ 28 $ 23 $ (21) $ 6 $ (15)
Federal funds sold and securities
purchased under agreements to resell (4) 31 27 (17) 9 (8)
Other money market investments - 3 3 - 1 1
Trading account securities (3) (3) (6) (2) - (2)
Securities:
U.S. Treasury and agency securities (99) (96) (195) (60) 98 38
Obligations of states and political
subdivisions (1) - (1) (1) (33) (34)
Other (7) (10) (17) (6) (15) (21)
Loans (includes loan fees) (142) 267 125 (251) (26) (277)
----- ----- ----- ----- ----- -----
Total (261) 220 (41) (358) 40 (318)
Increase (decrease) in interest
expense on interest-bearing
liabilities:
Deposits in domestic offices:
Demand (44) 6 (38) (28) 11 (17)
Money market and other savings accounts (106) 61 (45) (105) 33 (72)
Retail savings certificates (82) (1) (83) (179) (38) (217)
Negotiable certificates of deposit (2) (2) (4) 10 (39) (29)
Other time deposits (1) - (1) (3) 2 (1)
Deposits in foreign offices (14) 5 (9) (21) (12) (33)
Federal funds purchased and securities
sold under agreements to repurchase (6) (17) (23) (42) (33) (75)
Other short-term borrowings 1 (17) (16) (19) 3 (16)
Notes and debentures (with original
maturities over one year) (12) 39 27 (17) (6) (23)
----- ----- ----- ----- ----- -----
Total (266) 74 (192) (404) (79) (483)
----- ----- ----- ----- ----- -----
Increase in net
interest revenue $ 5 $ 146 $ 151 $ 46 $ 119 $ 165
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</TABLE>
Note: Amounts are calculated on a taxable equivalent basis where applicable, at
tax rates approximating 35% in 1993 and 34% in 1992 and 1991, and are before
the effect of reserve requirements. Changes in interest revenue or interest
expense arising from the combination of rate and volume variances are allocated
proportionally to rate and volume based on their relative absolute magnitudes.
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Statistical Disclosure by Bank Holding Companies (continued)
II. Securities Portfolio
A. Book values of securities at year end are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1993 1992 1991
------ ------ ------
(in millions)
<S> <C> <C> <C>
U.S. Treasury and agency securities $4,737 $5,340 $5,049
Obligations of states and political
subdivisions 6 2 39
Other securities:
Other mortgage-backed securities 107 168 463
Bonds, notes and debentures 103 174 139
Stock of Federal Reserve Bank 44 38 38
Other 15 16 16
------ ------ ------
Total other securities 269 396 656
------ ------ ------
Total securities $5,012 $5,738 $5,744
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</TABLE>
B. Maturity Distribution of Securities
Information required by this section of Guide 3 is presented in the
Financial Section of the Corporation's 1993 Annual Report to Shareholders
in note 3 of Notes to Financial Statements on Securities on pages 50
through 52, which note is incorporated herein by reference.
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Statistical Disclosure by Bank Holding Companies (continued)
III. Loan Portfolio
A. Types of Loans
Information required by this section of Guide 3 is presented in the
Credit Risk and Asset Quality section of the Financial Section of
the Corporation's 1993 Annual Report to Shareholders on pages 31
through 40 which portions are incorporated herein by reference.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
Maturity distribution of loans at December 31, 1993:
<TABLE>
<CAPTION>
(in millions) Within 1 year* 1-5 years Over 5 years Total
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:**
Commercial and financial $4,543 $2,829 $1,719 $ 9,091
Commercial real estate 484 786 451 1,721
---------------------------------------------------------------------------------------------------------------------
Total domestic 5,027 3,615 2,170 10,812
International 601 104 245 950
---------------------------------------------------------------------------------------------------------------------
Total $5,628 $3,719 $2,415 $11,762
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Maturity distributions are based on remaining contractual
maturities.
* Includes demand loans and loans with no stated maturity.
** Excludes consumer mortgages, other consumer credit and lease
finance assets.
Sensitivity of loans at December 31, 1993 to Changes in Interest
Rates:
<TABLE>
<CAPTION>
Domestic International
(in millions) operations* operations Total
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans due in one year or less** $ 5,027 $601 $ 5,628
Loans due after one year:
Variable rates 4,942 221 5,163
Fixed rates 843 128 971
---------------------------------------------------------------------------------------------------------------------
Total loans $10,812 $950 $11,762
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Maturity distributions are based on remaining contractual
maturities.
* Excludes consumer mortgages, other consumer credit and lease
finance assets.
** Includes demand loans and loans with no stated maturity.
C. Risk Elements
Information required by this section of Guide 3 is presented in the
Financial Section of the Corporation's 1993 Annual Report to
Shareholders in the Credit Risk and Asset Quality section on pages
31 through 40, which portions are incorporated herein by reference.
13
<PAGE> 14
Statistical Disclosure by Bank Holding Companies (continued)
IV. Summary of Loan Loss Experience
The Corporation employs various estimation techniques in developing
the credit loss reserve. Management reviews the specific
circumstances of individual loans subject to more than the customary
potential for exposure to loss. In establishing the level of the
reserve, management also identifies market concentrations, changing
business trends, industry risks and general economic conditions that
may adversely affect loan collectibility. In addition, management
assesses volatile factors such as interest rates and real estate
market conditions that may significantly alter loss potential. Based
on this evaluation, management believes that the credit loss reserve
is adequate to absorb future losses inherent in the portfolio.
The reserve is not specifically associated with individual loans or
portfolio segments. Thus, the reserve is available to absorb credit
losses arising from any individual loan or portfolio segment. When
losses on specific loans are identified, management charges off the
portion deemed uncollectible. In view of the fungible nature of the
reserve and management's practice of charging off known losses, the
Corporation does not maintain truly specific reserves on any loan.
However, management has developed a loan loss reserve methodology
designed to provide procedural discipline in assessing the adequacy of
the reserve. The allocation of the Corporation's reserve for credit
losses presented below is based on this loan loss reserve methodology.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
(in millions)
<S> <C> <C> <C> <C> <C>
Domestic reserve:
Commercial and financial $182 $170 $193 $163 $136
Real estate:
Commercial 189 212 277 242 145
Consumer 91 18 9 9 7
Consumer credit 102 83 77 48 44
Lease financing 15 4 6 6 6
---- ---- ---- ---- ----
Total domestic reserve 579 487 562 468 338
International reserve 21 19 34 57 272
---- ---- ---- ---- ----
Total reserve $600 $506 $596 $525 $610
==== ==== ==== ==== ====
</TABLE>
Further information on the Corporation's credit policies, the factors
that influenced management's judgment in determining the level of the
reserve for credit losses, and the analyses of the credit loss reserve
for the years 1989-1993 are set forth in the Financial Section of the
Corporation's 1993 Annual Report to Shareholders in the Credit
Management section on page 31, the Reserve for Credit Losses and
Review of Net Credit Losses section on pages 39 and 40, in note 1 of
Notes to Financial Statements under Reserve for Credit Losses on page
48 and in note 5 on page 52; which portions are incorporated herein by
reference.
14
<PAGE> 15
Statistical Disclosure by Bank Holding Companies (continued)
IV. Summary of Loan Loss Experience (continued)
For each category on the prior page, the ratio of loans to
consolidated total loans is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Domestic banking:
Commercial and financial 37.2% 40.7% 43.3% 43.2% 49.1%
Real estate:
Commercial 7.0 9.4 10.3 11.8 13.7
Consumer 33.4 21.4 17.3 15.6 7.6
Consumer credit 15.6 18.1 18.4 17.5 17.3
Lease financing 2.9 3.2 3.4 3.7 2.2
----- ----- ----- ----- -----
Total domestic loans 96.1 92.8 92.7 91.8 89.9
International loans 3.9 7.2 7.3 8.2 10.1
----- ----- ----- ----- -----
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
V. Deposits
Maturity distribution of domestic time deposits at December 31, 1993
<TABLE>
<CAPTION>
Within 4-6 7-12 Over
(in millions) 3 months months months 1 year Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit in denominations
of $100,000 or greater $ 401 $ 189 $ 110 $ 236 $ 936
Time certificates of deposit in denominations
of less than $100,000 1,950 1,734 920 1,524 6,128
-----------------------------------------------------------------------------------------------------------------------
Total time certificates of deposit 2,351 1,923 1,030 1,760 7,064
-----------------------------------------------------------------------------------------------------------------------
Other time deposits in denominations
of $100,000 or greater 145 1 - 28 174
Other time deposits in denominations
of less than $100,000 36 - 1 1 38
-----------------------------------------------------------------------------------------------------------------------
Total other time deposits 181 1 1 29 212
-----------------------------------------------------------------------------------------------------------------------
Total domestic time deposits $2,532 $1,924 $1,031 $1,789 $7,276
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The majority of foreign deposits of approximately $1.2 billion at
December 31, 1993 were in amounts in excess of $100,000. Additional
information required by this section of Guide 3 is set forth in the
Financial Section of the Corporation's 1993 Annual Report to
Shareholders in Consolidated Balance Sheet -- Average Balances and
Interest Yields/Rates on pages 76 and 77, which portions are
incorporated herein by reference.
15
<PAGE> 16
Statistical Disclosure by Bank Holding Companies (continued)
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
(1) Return on total assets(a), based on:
Net income 1.04% 1.46% .96%
Net income applicable to common
stock(b) .87 1.30 .80
(2) Return on equity(a):
Return on common shareholders' equity,
based on net income applicable to
common stock(b) 11.93 21.12 15.80
Return on total shareholders' equity,
based on net income 11.37 18.58 14.68
Return on total shareholders' equity
and Series A redeemable preferred
stock(c), based on net income 11.37 18.58 14.30
(3) Dividend payout ratio of common
stock, based on:
Primary net income per share 33.04 20.26 30.04
Fully diluted net income
per share 33.06 20.61 30.37
(4) Equity to total assets(a),
based on:
Common shareholders' equity 7.29 6.16 5.09
Total shareholders' equity 9.13 7.87 6.55
Total shareholders' equity and
Series A redeemable preferred
stock(c) 9.13 7.87 6.73
</TABLE>
(a) Computed on a daily average basis.
(b) Computed using net income applicable to common stock after adding
back Series D preferred stock dividends.
(c) The Series A redeemable preferred stock was redeemed by the
Corporation in July 1991.
VII. Short-Term Borrowings
Information required by this section of Guide 3 is contained in the
Financial Section of the Corporation's 1993 Annual Report to
Shareholders in the Consolidated Balance Sheet on page 44, and in note
9 of Notes to Financial Statements on Short-term borrowings on pages
53 and 54, which portions are incorporated herein by reference.
16
<PAGE> 17
ITEM 2. PROPERTIES
Pittsburgh properties
In 1983, Mellon Bank entered into a long-term lease of One Mellon Bank Center,
a 54-story office building in Pittsburgh, Pennsylvania. At December 31, 1993,
Mellon Bank occupied approximately 59% of the building's 1,525,000 square feet
of rentable space and subleased substantially all of the remaining space to
third parties.
During 1984, Mellon Bank entered into a sale/leaseback arrangement of the Union
Trust Building in Pittsburgh, Pennsylvania, also known as Two Mellon Bank
Center, while retaining title to the land thereunder. At December 31, 1993,
Mellon Bank occupied approximately 74% of this building's approximately 595,000
square feet of rentable space and subleased substantially all of the remaining
space to third parties.
Mellon Bank owns the 41-story office building in Pittsburgh, Pennsylvania,
known as Three Mellon Bank Center. At December 31, 1993, Mellon Bank occupied
approximately 96% of the approximately 943,000 square feet of rentable space,
with the remainder leased to third parties.
Philadelphia properties
Mellon Bank owns a building known as One Mellon Bank Center located at the
corner of Broad and Chestnut Streets in the Center City area of Philadelphia,
Pennsylvania. At December 31, 1993, Mellon Bank occupied all of One Mellon
Bank Center's approximately 63,700 square feet of rentable space.
Mellon Bank also leases a large portion of a building in Philadelphia,
Pennsylvania, known as Mellon Independence Center. At December 31, 1993,
Mellon Bank leased approximately 74% of Mellon Independence Center's
approximately 881,700 square feet of rentable space. Of the space leased by
Mellon Bank, approximately 200,000 square feet was subleased to third parties
at December 31, 1993.
In 1987, Mellon Bank entered into a 25-year lease for a portion of a 53-story
office building known as Mellon Bank Center, at the corner of 18th and Market
Streets in the Center City area of Philadelphia, Pennsylvania. At December 31,
1993, Mellon Bank leased approximately 19% of the building's approximately
1,245,000 square feet of rentable space.
Boston properties
The Boston Company leases space in two downtown Boston office buildings:
41-story One Boston Place located at the corner of Court Street and Washington
Street and 41-story Exchange Place located at 53 State Street. As of December
31, 1993, The Boston Company leased approximately 30% of One Boston Place's
769,150 square feet of rentable space and approximately 26% of Exchange Place's
1,063,750 square feet of rentable space. Of The Boston Company's leased space
at Exchange Place, 141,900 square feet is subleased to third parties. The
Boston Company also leases 82,900 square feet in the Park Square Building, 31
St. James Avenue, Boston.
As of December 31, 1993, The Boston Company also occupies space in two office
buildings in the Wellington Business Center located in Medford, MA, about two
miles north of downtown Boston. The Boston Company owns a substantial interest
in and fully occupies the 117,000 square foot building known as Client Services
Center II. Across the street, The Boston Company leases 100% of the 319,600
square foot facility known as Client Services Center III. Approximately 40% of
Client Services Center III is subleased to a third party.
Other properties
Mellon Bank owns and occupies 100% of an office building in State College,
Pennsylvania, which serves as the headquarters for Mellon Bank-Central Region.
Mellon Bank owns and occupies 100% of two small office buildings in Erie,
Pennsylvania which serves as the headquarters of Mellon Bank-Northern Region.
17
<PAGE> 18
PROPERTIES (continued)
Mellon Bank owns its five-story Mellon Bank-Commonwealth Region headquarters
building, which includes a banking office in Harrisburg, Pennsylvania. Mellon
Bank occupies approximately 80% of the approximately 75,000 square feet of
rentable space in this building.
Mellon Bank owns the Mellon Bank-Northeastern Region headquarters building in
Wilkes-Barre, Pennsylvania. Mellon Bank occupies approximately 9% of this
building's approximately 142,000 square feet, with the remainder leased to
third parties.
Mellon Bank (DE) owns a three-story office building known as the Pike Creek
Building in New Castle County, Delaware, and currently occupies the building's
entire 84,000 square feet of available floor space. Mellon Bank (DE) also
leases approximately 16%, or 34,000 square feet, of an 18-story office building
in Wilmington, Delaware.
Mellon Bank (MD) leases approximately 40% of an office building in Rockville,
Maryland, which is used for its headquarters.
The banking subsidiaries' branches are located in 33 counties in western,
northwestern, central, northeastern and eastern Pennsylvania, all three of
Delaware's counties, four Maryland counties in the northern suburbs of
Washington, D.C. and a single retail branch in Boston, Massachusetts. At
December 31, 1993, the banking subsidiaries of the Corporation owned 215 of the
Corporation's 432 bank branch buildings and leased the remainder with leases
expiring at various times through 2020.
Other subsidiaries of the Corporation lease office space primarily for their
operations at many of the locations listed on pages 78 through 80 of the
Principal Locations and Operating Entities Section of the Corporation's 1993
Annual Report, which pages are incorporated herein by reference. For
additional information on the Corporation's premises and equipment, see note 6
of Notes to Financial Statements on page 52 of the Corporation's 1993 Annual
Report, which note is incorporated herein by reference.
ITEM 3. 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 punitive damages cannot exceed the amount of the compensatory
damages. The Corporation intends to petition the Colorado Court of Appeals for
rehearing and it is possible that the other parties may also appeal. Because
of the uncertainty as to the ultimate resolution, no provision has been made in
the financial statements for this matter.
On August 7, 1992, a judge in the United States District Court for the Eastern
District of Pennsylvania entered a judgment ordering Mellon Bank to reimburse
certain of its trust customers the amount of sweep fees which were charged
18
<PAGE> 19
Legal Proceedings (continued)
to their trust accounts since 1981, plus interest. In this class-action
proceeding, the plaintiffs claimed that Mellon Bank, and other banks, breached
their fiduciary duties with regard to the provision of sweep services, alleging
that the banks charged unreasonable fees, failed to disclose fully their fees
for sweep services and wrongfully invested sweep funds in internal or
affiliated accounts or investment vehicles. The court found that the total
amount of sweep fees collected by Mellon Bank since 1981 for both fiduciary and
non-fiduciary accounts was approximately $55 million. On May 18, 1993, the
Third Circuit Court of Appeals vacated the judgment entered by the district
court and remanded the case for dismissal. On June 18, 1993, the Third Circuit
Court of Appeals denied plaintiff's Petition for Rehearing. The district court
ordered the case dismissed on July 6, 1993. On September 13, 1993, the
plaintiffs petitioned the United States Supreme Court for a writ of certiorari,
and on November 8, 1993, the Supreme Court denied this petition.
On July 28, 1993, a second lawsuit arising out of Mellon Bank's sweep fees
practices was filed with the United States District Court for the Eastern
District of Pennsylvania against Mellon Bank and its directors. On August 30,
1993, a third lawsuit, similar to the second, was filed in the same court and
was consolidated with the second. On December 16, 1993, these suits also were
dismissed. Plaintiffs initially appealed this dismissal but the appeals have
been withdrawn.
On September 10, 1993, the Corporation filed complaints in the United States
District Court for the Western District of Pennsylvania against four financial
services companies. The complaints involved claims arising from the breach of
the contract under which the Corporation purchased The Boston Company, as well
as violations of other obligations to the Corporation. The claims related to
administration services the Corporation provides to a family of mutual funds
then known as the Smith Barney Shearson Funds. The defendant companies were:
Smith Barney, Harris Upham & Co. Incorporated (Smith Barney); its parent
organization, Primerica Corporation (now The Travelers Inc.); Lehman Brothers
Inc. (formerly Shearson Lehman Brothers); and its parent organization,
American Express Company. The Corporation's mutual funds administration
services are provided through The Boston Company.
In its complaint against Smith Barney and Primerica (which purchased Shearson's
mutual fund and brokerage businesses in 1993), the Corporation asserted that,
despite expressly agreeing that they were bound by, and would comply with, the
terms and provisions of the contract between Shearson and the Corporation,
Smith Barney and Primerica violated that contract. The Corporation sought
money damages against each of the defendants and further sought a court order
requiring that Smith Barney and Primerica cease their unlawful conduct and
honor the contract between the Corporation and Shearson.
A hearing was held in November 1993. As a result, the Corporation was granted
injunctive relief preventing Smith Barney, for a period of seven years, from
competing with Mellon in providing administration services to funds in the
Smith Barney Shearson family, other than Smith Barney funds that existed prior
to Smith Barney's March 12, 1993, agreement to purchase Shearson Lehman
Brothers' mutual fund and brokerage businesses. The injunction covered all new
funds created or underwritten by Smith Barney, however named, after March 12,
1993, and obligated Smith Barney to recommend Mellon as the provider of
administration services.
Effective January 1, 1994, Mellon and Smith Barney Shearson Inc. settled their
litigation. Under the terms of the settlement agreement, which will remain in
effect through May 2000, the companies will work together to provide
administration services to certain funds affiliated with Smith Barney. Smith
Barney will seek to be appointed administrator for certain of its affiliated
funds, in addition to its current roles as investment advisor and distributor.
Smith Barney would, in turn, enter into sub-administration agreements with
Mellon for certain administration services.
Incorporated in the settlement agreement are certain Smith Barney Shearson
funds that existed prior to Smith Barney's March 12, 1993, agreement to
purchase Shearson Lehman Brothers' mutual fund and brokerage businesses, as
well as certain Smith Barney Shearson sponsored funds covered by the above
injunction. In connection with such settlement, actions against all defendants
were dismissed.
Subsequent to the announcement of the proposed merger with Dreyfus described in
Item 1 above, plaintiffs who claim to be shareholders of Dreyfus commenced six
purported class action suits in the Supreme Court of the State of New York,
19
<PAGE> 20
Legal Proceedings (continued)
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth
quarter of 1993.
20
<PAGE> 21
EXECUTIVE OFFICERS OF THE REGISTRANT
The name and age of, and the positions and offices held by, each executive
officer of the Corporation as of December 31, 1993, together with the offices
held by each such person during the last five years, are listed below. Certain
of the executive officers have executed employment contracts with the
Corporation. All other executive officers serve at the pleasure of their
appointing authority. No executive officer has a family relationship to any
other listed executive officer.
<TABLE>
<CAPTION>
Age Position and Year Elected
--- -------------------------
<S> <C> <C> <C>
Frank V. Cahouet 61 Chairman, President and Chief Executive 1990 (1)
Officer of the Corporation and of Mellon
Bank
Thomas F. Donovan 60 Vice Chairman of the Corporation and of 1990
Mellon Bank
Chairman, President and Chief Executive 1988
Officer of Mellon PSFS
Steven G. Elliott 47 Vice Chairman and Chief Financial 1992 (2)
Officer of the Corporation and
of Mellon Bank
Treasurer of Mellon Bank Corporation 1990
Richard A. Gaugh 53 Vice Chairman, Special Banking Services of 1993 (3)
the Corporation and of Mellon Bank
Martin G. McGuinn 51 Vice Chairman, Retail Financial Services of 1993 (4)
the Corporation and of Mellon Bank
Jeffrey L. Morby 56 Vice Chairman, Wholesale Banking of the 1990 (5)
Corporation and of Mellon Bank
Keith P. Russell 48 Vice Chairman, Credit Policy and Chief 1992 (6)
Credit Officer of the Corporation
and of Mellon Bank
Chairman, Credit Policy Committee of 1991
Mellon Bank Corporation
W. Keith Smith 59 Vice Chairman of the Corporation 1993 (7)
and of Mellon Bank
Chairman and Chief Executive Officer, The 1993
Boston Company
</TABLE>
(continued)
21
<PAGE> 22
Executive Officers of the Registrant (continued)
<TABLE>
<S> <C> <C> <C>
Michael K. Hughey 42 Senior Vice President and Controller of 1990 (8)
the Corporation and Senior Vice
President, Director of Taxes and
Controller of Mellon Bank
</TABLE>
(1) From June 1987 to January 1990, Mr. Cahouet was Chairman and Chief
Executive Officer of the Corporation and of Mellon Bank. In January 1990,
he assumed the additional title of President. Mr. Cahouet has executed an
employment contract with the Corporation which terminates May 31, 1997.
(2) From August 1987 to January 1990, Mr. Elliott was Executive Vice President
and head of the Finance Department of Mellon Bank. From February 1988 to
January 1990, Mr. Elliott was Assistant Treasurer of Mellon Bank
Corporation. From January 1990 to June 1992, Mr. Elliott was Executive
Vice President, Chief Financial Officer and Treasurer of the Corporation
and Executive Vice President and Chief Financial Officer of Mellon Bank.
(3) From July 1985 to January 1990, Mr. Gaugh was Executive Vice President and
head of Retail Banking of Mellon Bank. From January 1990 to November
1993, Mr. Gaugh was Vice Chairman, Retail Bank of the Corporation and of
Mellon Bank.
(4) From February 1988 to January 1990, Mr. McGuinn was General Counsel and
Secretary of the Corporation and General Counsel of Mellon Bank. From
January 1990 to October 1990, he assumed the additional title of Vice
Chairman, Administration of the Corporation and of Mellon Bank. From
November 1990 to October 1992, Mr. McGuinn was Vice Chairman, Real Estate
Finance, General Counsel and Secretary of the Corporation and Vice
Chairman, Real Estate Finance and General Counsel of Mellon Bank. From
October 1992 to November 1993, Mr. McGuinn was Vice Chairman, Special
Banking Services of the Corporation and of Mellon Bank.
(5) From June 1988 to January 1990, Mr. Morby was a special consultant to the
Chairman and to the President of Mellon Bank.
(6) From 1983 to August 1991, Mr. Russell was President and Chief Operating
Officer of GLENFED/Glendale Federal Bank. From September 1991 to November
1991, Mr. Russell was Executive Vice President, Information Management and
Research, Technology Products and Mortgage Banking of Mellon Bank. From
November 1991 to June 1992, Mr. Russell was Executive Vice President,
Credit Policy of the Corporation and of Mellon Bank.
(7) From July 1987 to January 1990, Mr. Smith was Vice Chairman, Chief
Financial Officer and Treasurer of the Corporation and Vice Chairman and
Chief Financial Officer of Mellon Bank. From January 1990 to November
1993, Mr. Smith was Vice Chairman, Service Products of the Corporation and
of Mellon Bank. Mr. Smith has executed an employment contract with the
Corporation which terminates on July 31, 1996.
(8) From 1986 to 1990, Mr. Hughey was Senior Vice President and Director of
Taxes of Mellon Bank.
22
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth in the Financial Section of
the Corporation's 1993 Annual Report to Shareholders in Liquidity and Dividends
on pages 28 and 29, in Selected Quarterly Data on page 42, in note 16 of Notes
to Financial Statements on page 62 and in Corporate Information on page 84,
which portions are incorporated herein by reference.
In August 1989, the Corporation adopted a Shareholder Protection Rights Plan
under which each shareholder receives one Right for each share of common stock
or Series D Junior Preferred Stock of the Corporation (together, the "voting
stock") held. The Rights are currently represented by the certificates for,
and trade only with, the voting stock. The Rights would separate from the
voting stock and become exercisable only if a person or group acquires 20
percent or more of the voting power of the voting stock or ten days after a
person or group commences a tender offer that would result in ownership of 20
percent or more of such voting power. At that time, each Right would entitle
the holder to purchase for $200 (the "exercise price") one one-hundredth of a
share of participating preferred stock. Each share of such preferred stock
would be entitled to cumulative dividends equal to 1 percent per annum, plus
the amount of dividends that would be payable on 100 shares of the
Corporation's common stock, and would have a liquidation preference of the
greater of 100 times the exercise price or the amount to be distributed in
liquidation to a holder of 100 shares of the Corporation's common stock.
Should a person or group actually acquire 20 percent or more of the voting
power of the voting stock, each Right held by the acquiring person or group (or
their transferees) would become void and each Right held by the Corporation's
other shareholders would entitle those holders to purchase for the exercise
price a number of shares of the Corporation's common stock having a market
value of twice the exercise price. Should the Corporation be involved in a
merger or similar transaction with a 20 percent owner or sell more than 50
percent of its assets or assets generating more than 50 percent of its
operating income or cash flow to any person or group, each outstanding Right
would then entitle its holder to purchase for the exercise price a number of
shares of such other company having a market value of twice the exercise price.
In addition, if any person or group acquires between 20 percent and 50 percent
of the voting power of the voting stock, the Corporation may, at its option,
exchange one share of common stock for each outstanding Right. The Rights are
not exercisable until the above events occur and will expire on August 15, 1999
unless earlier exchanged or redeemed by the Corporation. The Corporation may
redeem the Rights for $.01 per Right under certain circumstances. The
distribution of the Rights was not a taxable event.
Common shares outstanding or issuable at December 31, 1993
<TABLE>
<CAPTION>
Maximum Common shares assumed issued
common for book value per
(number of shares) shares common share computation
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common shares issuable from options and potentially
dilutive securities:
Stock options (at exercise prices of
$19.75 to $60.125) 3,596,005 -
Series D preferred stock (conversion price $23.00) 1,701,476 1,701,476
Subscription rights on Series D preferred stock 1,444 -
Warrants (exercise price $25.00 and $50.00) 3,014,605 -
7-1/4% Convertible Subordinated Capital Notes
(conversion price $50.51) 89,527 -
- --------------------------------------------------------------------------------------------------------------------------------
Total common shares issuable 8,403,057 1,701,476
Common shares issued and outstanding 63,477,793 63,477,793
- --------------------------------------------------------------------------------------------------------------------------------
Total common shares outstanding or issuable 71,880,850 65,179,269
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Corporation's 1993
Annual Report to Shareholders in the Financial Summary on page 17, in the
Overview of 1993 results on pages 18 and 19, in the Significant events in 1993
on
23
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA (continued)
page 19, in note 1 of Notes to Financial Statements on pages 47 through 49, and
in the Consolidated Balance Sheet -- Average Balances and Interest Yields/Rates
on pages 76 and 77, which portions are incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is set forth in the Corporation's 1993
Annual Report to Shareholders in the Financial Review on pages 17 through 42
and in note 16 of Notes to Financial Statements on page 62, which portions are
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14 on page 25 hereof for a detailed listing of the
items under Financial Statements, Financial Statement Schedules, and Other
Financial Data which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item pertaining to directors of the
Corporation is included in the Corporation's proxy statement for its 1994
Annual Meeting of Shareholders (the "1994 Proxy Statement") in the Election of
Directors-Biographical Summaries of Nominees section on pages 3 through 5, and
is incorporated herein by reference. The information required by this Item
pertaining to executive officers of the Corporation has been included in Part I
of this Form 10-K under the heading "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1994 Proxy Statement
in the Directors' Compensation section on pages 7 and 8 and in the Executive
Compensation section on pages 13 through 21, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1994 Proxy Statement
in the Beneficial Ownership of Stock section on pages 10 through 12, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1994 Proxy Statement
in the Business Relationships; Related Transactions and Certain Legal
Proceedings section on pages 8 and 9, and is incorporated herein by reference.
24
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements and schedules required for the Annual Report of
the Corporation on Form 10-K are included, attached or incorporated by
reference as indicated in the following index. Page numbers below refer
to pages of the Financial Section of the Corporation's 1993 Annual Report
to Shareholders:
<TABLE>
<CAPTION>
(i) Financial Statements Page No.
<S> <C>
Mellon Bank Corporation (and its subsidiaries):
Consolidated Income Statement 43
Consolidated Balance Sheet 44
Consolidated Statement of Cash Flows 45
Consolidated Statement of Changes in Shareholders' Equity 46
Notes to Financial Statements 47 through 74
Report of Independent Auditors 75
(ii) Financial Statement Schedules
Schedules I and II and all other schedules are omitted either because
they are not required or are not applicable, or because the required
information is shown in the financial statements or notes thereto.
(iii) Other Financial Data
Selected Quarterly Data 42
</TABLE>
(b) Current Reports on Form 8-K during the fourth quarter of 1993:
A report dated October 12, 1993, which included the Corporation's press
release regarding third quarter and year-to-date 1993 financial results.
A report dated October 19, 1993, which included the Corporation's press
release announcing the redemption of the Corporation's Series B Preferred
Stock and 8.6% Debentures Due 2009. Also included in this filing was a
second press release announcing the Corporation's expectation to
repurchase up to 1 million shares of its common stock.
A report dated November 16, 1993, which included the Corporation's press
release announcing the increase in the Corporation's common stock
dividend and the elimination of the discount offered on purchases made
under the Corporation's Dividend Reinvestment and Common Stock Purchase
Plan.
A report dated December 1, 1993, which included the Corporation's press
release announcing that an injunction had been granted to the Corporation
against Smith Barney Shearson Inc. in its mutual fund administration
case. Also included in this filing was a second press release announcing
that the Corporation completed the sale of two of its outsourcing
businesses to FIserv, Inc.
A report dated December 2, 1993, which included a joint press release of
the Corporation and Electronic Payment Services, Inc. (EPS) announcing
that the Corporation intends to become an equity partner in EPS.
A report dated December 6, 1993, which included a joint press release of
the Corporation and The Dreyfus Corporation announcing the definitive
agreement to merge the two entities.
(c) Exhibits
The exhibits listed on the Index to Exhibits on pages 27 through 31
hereof are incorporated by reference or filed herewith in response to
this item.
25
<PAGE> 26
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Mellon Bank Corporation
By: /s/ Frank V. Cahouet
--------------------------
Frank V. Cahouet
Chairman, President
and Chief Executive
Officer
DATED: March 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacities
- ----------------------------------------- ---------------------------
<S> <C>
By: /s/ Frank V. Cahouet
------------------------------------ Director and Principal
Frank V. Cahouet Executive Officer
By: /s/ Steven G. Elliott
----------------------------------- Principal Financial Officer
Steven G. Elliott and Principal Accounting
Officer
Burton C. Borgelt; Carol R. Brown; Directors
J. W. Connolly; Charles A. Corry;
C. Frederick Fetterolf; Ira J. Gumberg;
Pemberton Hutchinson; Rotan E. Lee;
John C. Marous; Andrew W. Mathieson;
Robert Mehrabian; Seward Prosser Mellon;
David S. Shapira; H. Robert Sharbaugh;
Richard M. Smith; W. Keith Smith;
Joab L. Thomas; Wesley W. von Schack;
and William J. Young
By: /s/ James M. Gockley DATED: March 23, 1994
------------------------------
James M. Gockley
Attorney-in-fact
</TABLE>
26
<PAGE> 27
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- -----------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Previously filed as Exhibit 3.1 to
Mellon Bank Corporation, as amended the Quarterly Report on Form 10-Q for
and restated as of September 2, 1993. quarter ended September 30, 1993, and
incorporated herein by reference.
3.2 Statement Affecting Series B Preferred Filed herewith
Stock, $1.00 Par Value.
3.3 By-Laws of Mellon Bank Corporation, Previously filed as Exhibit 3.2 to
as amended, effective July 17, 1990. Annual Report on Form 10-K for the
year ended December 31, 1990, and
incorporated herein by reference.
4.1 Instruments defining the rights See Exhibits 3.1, 3.2 above
of securities holders. and the undertaking on page 31.
4.2 Shareholder Protection Rights Agreement Previously filed as Exhibit 1 to Form
between Mellon Bank Corporation and 8-A Registration Statement dated
Mellon Bank, N.A., as Rights Agent, August 15, 1989, and incorporated
dated as of August 15, 1989. herein by reference.
4.3 Form of Warrant Agreement and Form Previously filed as Exhibit 4.1
of Warrant Certificate. to Registration Statement on Form
S-3 (Registration No. 33-61822) and
is incorporated herein by reference.
10.1 Purchase Agreement, dated as of Previously filed as Exhibit 10.1
July 25, 1988, among Mellon Bank to Quarterly Report on Form 10-Q
Corporation (as Seller) and Warburg, for the quarter ended September 30,
Pincus Capital Company, L.P. and 1988, and incorporated herein by
Warburg, Pincus Capital Partners, reference.
L.P. (as Purchasers) relating to the
sale and purchase of Mellon Series D
Junior Preferred Stock.
10.2 Purchase Agreement, dated as of Previously filed as Exhibit 10.2
July 25, 1988, between Mellon Bank to Quarterly Report on Form 10-Q for
Corporation (as Seller) and Drexel the quarter ended September 30,
Burnham Lambert Incorporated (as 1988, and incorporated herein by
Purchaser) relating to the sale reference.
and purchase of Mellon Series
D Junior Preferred Stock.
</TABLE>
27
<PAGE> 28
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------------------------------- -------------------------------
<S> <C> <C>
10.3 Exchange Agreement dated as of Previously filed as Exhibit 10.4
March 30, 1990, between Warburg, to Annual Report on Form 10-K for
Pincus Capital Company, L. P., the year ended December 31, 1990,
Warburg, Pincus Capital Partners, and incorporated herein by
L. P. and Mellon relating to the reference.
exchange of Series D Preferred Stock
for shares of Mellon's Common Stock.
10.4 Lease dated as of February 1, 1983, Previously filed as Exhibit 10.4
between 500 Grant Street Associates to Annual Report on Form 10-K for
Limited Partnership and Mellon the year ended December 31, 1992,
Bank, N.A. with respect to One Mellon and incorporated herein by
Bank Center. reference.
10.5 First Amendment to Lease Agreement Previously filed as Exhibit 10.1
dated as of November 1, 1983, to Registration Statement on Form
between 500 Grant Street S-15 (Registration No. 2-88266)
Associates Limited Partnership and incorporated herein by
and Mellon Bank, N.A. reference.
10.6* Mellon Bank Corporation Profit Previously filed as Exhibit 10.7
Bonus Plan, as amended. to Annual Report on Form 10-K for
the year ended December 31, 1990,
and incorporated herein by reference.
10.7* Mellon Bank Corporation Long-Term Previously filed as Exhibit 10.1 to
Profit Incentive Plan (1981), Quarterly Report on Form 10-Q for
as amended. the quarter ended June 30, 1993,
and incorporated herein by reference.
10.8* Mellon Bank Corporation Stock Previously filed as Exhibit 10.2
Option Plan for Outside Directors to Quarterly Report on Form 10-Q for
(1989), as amended. the quarter ended June 30, 1993, and
incorporated herein by reference.
10.9* Mellon Bank Corporation 1990 Previously filed as Exhibit 19.1
Elective Deferred Compensation Plan to Quarterly Report on Form 10-Q
for Directors and Members of the for the quarter ended September 30,
Advisory Board, as amended and 1992, and incorporated herein by
restated, effective July 21, 1992. reference.
10.10* Mellon Bank Corporation Elective Previously filed as Exhibit 19.2
Deferred Compensation Plan for to Quarterly Report on Form 10-Q
Senior Officers, as amended and for the quarter ended September 30,
restated, effective July 21, 1992. 1992, and incorporated herein by
reference.
</TABLE>
* Management contract or compensatory plan arrangement.
28
<PAGE> 29
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- -----------------------------------
<S> <C> <C>
10.11* Mellon Bank IRC Section 401(a)(17) Previously filed as Exhibit 10.11 to
Plan, as amended and restated, effective Annual Report on Form 10-K for year
January 1, 1993. ended December 31, 1992, and
incorporated herein by reference.
10.12* Mellon Bank Optional Life Previously filed as Exhibit 10.12 to
Insurance Plan, effective January 1, Annual Report on Form 10-K for year
1993. ended December 31, 1992, and
incorporated herein by reference.
10.13* Mellon Bank Executive Life Previously filed as Exhibit 10.13 to
Insurance Plan, effective January 1, Annual Report on Form 10-K for year
1993. ended December 31, 1992, and
incorporated herein by reference.
10.14* Mellon Bank Senior Executive Previously filed as Exhibit 10.14 to
Life Insurance Plan, effective Annual Report on Form 10-K for year
January 1, 1993. ended December 31, 1992, and
incorporated herein by reference.
10.15* Employment Agreement between Previously filed as Exhibit 10.1
Mellon Bank, N.A. and Frank V. to Quarterly Report on Form 10-Q
Cahouet, effective as of for the quarter ended September 30,
July 25, 1993. 1993, and incorporated herein by
reference.
10.16* Employment Agreement between Previously filed as Exhibit 10.2
Mellon Bank, N.A. and to Quarterly Report on Form 10-Q
W. Keith Smith, effective as of for the quarter ended September 30,
July 25, 1993. 1993, and incorporated herein by
reference.
10.17 Revolving Credit Agreement dated Filed herewith
as of July 23, 1993, among Mellon
Financial Company, Mellon Bank
Corporation, the Banks listed
therein and The Chase Manhattan
Bank (National Association) as Agent.
10.18 Stock Purchase Agreement dated as Previously filed as Exhibit 2.1
of September 14, 1992, between to Current Report on Form 8-K
Shearson Lehman Brothers Inc. and dated September 14, 1992, and
the Corporation (including the form incorporated herein by reference.
of Warrant Agreement attached
thereto as Exhibit C).
</TABLE>
* Management contract or compensatory plan arrangement.
29
<PAGE> 30
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- --------------------------------
<S> <C> <C>
10.19 Agreement and Plan of Merger dated Omitted. Confidential treatment
as of December 5, 1993, by and among requested pursuant to Rule 24b-2.
Mellon Bank Corporation, Mellon Filed separately with the Commission.
Bank, N.A., XYZ Sub Corporation and
The Dreyfus Corporation
11.1 Computation of Primary and Fully Filed herewith
Diluted Net Income Per Common Share.
12.1 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends--parent
Corporation.
12.2 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed
Charges and Preferred Stock
Dividends--Mellon Bank Corporation
and its subsidiaries.
13.1 All portions of the Mellon Bank Corporation Filed herewith
1993 Annual Report to Shareholders that
are incorporated herein by reference.
21.1 List of Subsidiaries of the Filed herewith
Corporation.
23.1 Consent of Independent Accountants. Filed herewith
24.1 Powers of Attorney. Filed herewith
</TABLE>
30
<PAGE> 31
Index to Exhibits (continued)
The documents identified below, which define the rights of holders of long-term
debt of the Corporation, are not filed herewith as the total amount of
securities authorized under each of them does not exceed 10% of the total
assets of the Corporation and its subsidiaries on a consolidated basis. The
Corporation hereby agrees to furnish a copy of such documents to the Securities
and Exchange Commission upon request.
1 Indenture dated as of September 10, 1987, between the Corporation
and Bank of New York, as Trustee, relating to 7-1/4% Convertible
Subordinated Capital Notes Due 1999.
2 Indenture dated as of May 2, 1988, as supplemented by the First
Supplemental Indenture dated as of November 29, 1990, among Mellon
Financial Company, the Corporation and The Chase Manhattan Bank
(National Association), as Trustee, providing for the issuance of
debt securities in series from time to time.
3 Fiscal Agency Agreement dated as of July 14, 1989, between the
Corporation, as Issuer, and Chemical Bank, as Fiscal Agent,
relating to U.S. $200,000,000 Floating Rate Notes Due July 1994.
4 Indenture dated as of April 15, 1991, as supplemented by the First
Supplemental Indenture dated as of November 24, 1992, among Mellon
Financial Company, the Corporation and Continental Bank, National
Association, providing for the issuance of subordinated debt
securities in series from time to time.
5 Fiscal and Paying Agency Agreement dated as of May 17, 1993,
between Mellon Bank, N.A. as Issuer, and The Chase Manhattan Bank
(National Association), as Fiscal and Paying Agent relating to
6-1/2% Subordinated Notes due August 1, 2005 and 6-3/4%
Subordinated Notes due June 1, 2003.
31
<PAGE> 1
EX-3.2
MELLON BANK CORPORATION
STATEMENT AFFECTING SERIES B PREFERRED STOCK
$1.00 PAR VALUE
DECREASING THE AUTHORIZED NUMBER OF SHARES OF SUCH SERIES
---------------------------------------------------------
PURSUANT TO THE REQUIREMENTS OF SECTION 1522 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW
The undersigned Corporation, desiring to decrease
the authorized number of shares of its Series B Preferred
Stock, $1.00 par value (the "Series B Preferred Stock"),
hereby certifies that:
1. The name of the Corporation is Mellon Bank
Corporation.
2. The resolution of the Board of Directors of
the Corporation establishing and designating
the Series B Preferred Stock as the second
series of Preferred Stock, $1.00 par value,
of the Corporation authorized to be issued by
Article FIFTH of its Articles, as heretofore
restated and amended, was filed with the
Department of State in a Statement of
Designation on April 1, 1986 and amended by a
Statement Affecting Series B Preferred Stock
and Statement of Designation of Stated Rate
Auction Preferred Stock Series C-1, filed
September 14, 1987.
3. By resolutions dated October 19, 1993, (copy
attached hereto), the Board of Directors
authorized the Corporation to redeem all
outstanding shares of its Series B Preferred
Stock and further established the terms and
conditions of such redemption. Pursuant to
such authorization, all outstanding shares of
the Series B Preferred Stock were redeemed on
December 1, 1993.
4. Accordingly, the number of shares of
preferred stock previously designated as
Series B Preferred Stock is hereby decreased
from 2,780,000 shares to -0- shares.
5. The aggregate number of authorized shares of
Series B Preferred Stock as of December 1,
1993, is -0- shares.
<PAGE> 2
6. This Statement shall be effective upon the
filing thereof in the Department of State.
IN TESTIMONY WHEREOF, the undersigned Corporation
has caused this Statement to be signed by a duly
authorized officer thereof this 3rd day of December, 1993.
MELLON BANK CORPORATION
(SEAL)
By:/s/ Steven G. Elliott
-----------------------------
Steven G. Elliott
Vice Chairman,
Chief Financial Officer and
Treasurer
Attest:
/s/ James M. Gockley
- --------------------------
James M. Gockley
Secretary
<PAGE> 3
RESOLUTIONS REGARDING REDEMPTION
OF THE SERIES B PREFERRED STOCK
WHEREAS, The Corporation has issued and
outstanding a series of preferred stock, par
value $1.00 per share, designated as Series B
Preferred Stock (the "Series B Preferred Stock");
and
WHEREAS, Under the terms of the Series B
Preferred Stock Statement of Designation, such
stock is redeemable at the option of the
Corporation, in whole or from time to time in
part, at any time after May 1, 1991, at a
redemption price equal to $25.00 per share, plus
accrued and unpaid dividends; and
WHEREAS, The Executive Committee of the Board of
Directors approved, and has recommended that the
Board of Directors consider, the redemption of
the Series B Preferred Stock and has further
recommended the adoption by the Board of
Directors of the following resolutions; and
WHEREAS, The Board of Directors has reviewed and
considered the redemption of the Series B
Preferred Stock and believes such redemption is
in the best interests of the Corporation; NOW,
THEREFORE, BE IT
RESOLVED, That the Corporation be, and it hereby
is, authorized to redeem all the outstanding
shares of its Series B Preferred Stock on
December 1, 1993 (the "Redemption Date"), at a
redemption price of $25.00 per share, plus all
dividends accrued and unpaid on such shares to
the Redemption Date, even though not yet
declared, (collectively such funds to be referred
to as the "Redemption Funds"); and it is further
RESOLVED, That in accordance with the terms of
the Series B Preferred Stock Statement of
Designation, the Secretary of the Corporation be,
and he hereby is, authorized to send via first
class mail to all holders of Series B Preferred
Stock, at their respective addresses on the books
of the Corporation, a notice, substantially in
the form attached hereto (the "Redemption
Notice"), with such changes and modifications as
<PAGE> 4
the Chairman, the Chief Executive Officer, the
President, any Vice Chairman or the Secretary of
the Corporation shall approve, the approval of
such officer and of this Board to be evidenced
conclusively by sending of such notice by the
Secretary; and it is further
RESOLVED, That on or before the Redemption Date,
an amount of money equal to the Redemption Funds,
be deposited in a separate account with the
Corporation's Stock Transfer Agent (Mellon Bank,
N.A.) to be held in trust for the account of the
holders of the shares of Series B Preferred
Stock, with irrevocable instructions and
authority to pay the Redemption Funds to the
registered holders of such shares upon surrender
of certificates therefor at any time on or after
the Redemption Date; and
WHEREAS, In accordance with the terms of the
Series B Preferred Stock, any shares of such
stock so redeemed, shall be restored to the
status of authorized but unissued shares of
preferred stock of the Corporation, without
designation as to series, until such shares are
once more designated as part of a particular
series by the Board; NOW, THEREFORE, BE IT
RESOLVED, That in connection with the redemption
of the Series B Preferred Stock as authorized
hereby and upon the issuance of the Redemption
Notice, the deposit of the Redemption Funds and
the occurrence of the Redemption Date, the
Chairman, the Chief Executive Officer, the
President, any Vice Chairman, the Secretary or
any Assistant Secretary of the Corporation be,
and each hereby is, authorized and directed in
the name and on behalf of the Corporation, under
the corporate seal of the Corporation attested by
its Secretary or any Assistant Secretary, to
execute and to cause a Statement Affecting Series
B Preferred Stock to be filed with the Department
of State of the Commonwealth of Pennsylvania in
accordance with Section 1522 of the Pennsylvania
Business Corporation Law; and it is further
RESOLVED, That the Chairman, the Chief Executive
Officer, the President, any Vice Chairman or the
Secretary of the Corporation be, and each hereby
is, authorized and directed in the name and on
behalf of the Corporation to execute any and all
agreements and other documents, make such filings
and take any other such actions as such officer
may deem necessary, appropriate or desirable to
effectuate the purposes of the foregoing
resolutions.
-2-
<PAGE> 1
EX-10.17
*****************************************************************
MELLON FINANCIAL COMPANY
MELLON BANK CORPORATION
----------
$200,000,000
REVOLVING CREDIT AGREEMENT
Dated as of July 23, 1993
----------
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as Agent
****************************************************************
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Accounting Matters....................... 1
1.01 Certain Defined Terms.................................... 1
1.02 Accounting Terms and Determinations...................... 10
Section 2. Commitments.............................................. 11
2.01 Syndicated Loans......................................... 11
2.02 Borrowing of Syndicated Loans............................ 11
2.03 Money Market Loans....................................... 12
2.04 Changes of Commitments................................... 16
2.05 Fees..................................................... 16
2.06 Lending Offices.......................................... 17
2.07 Several Obligations; Remedies Independent................ 17
2.08 Notes.................................................... 17
2.09 Prepayments.............................................. 18
2.10 Extension of Revolving Credit Termination Date........... 18
Section 3. Payments of Principal and Interest....................... 19
3.01 Repayment of Loans....................................... 19
3.02 Interest................................................. 19
Section 4. Payments; Pro Rata Treatment; Computations; Etc.......... 20
4.01 Payments................................................. 20
4.02 Pro Rata Treatment....................................... 21
4.03 Computations............................................. 21
4.04 Non-Receipt of Funds by the Agent........................ 22
4.05 Sharing of Payments, Etc................................. 23
Section 5. Yield Protection and Illegality.......................... 24
5.01 Additional Costs......................................... 24
5.02 Limitation on Types of Loans............................. 27
5.03 Illegality............................................... 27
5.04 Base Rate Loans pursuant to Sections
5.01 at 5.03........................................... 27
5.05 Compensation............................................. 28
5.06 Replacement.............................................. 28
Section 6. Conditions Precedent..................................... 29
6.01 Initial Loan............................................. 29
6.02 Initial and Subsequent Loans............................. 30
Section 7. Representations and Warranties........................... 31
7.01 Corporate Existence...................................... 31
7.02 Financial Condition...................................... 31
7.03 Litigation............................................... 32
7.04 No Breach................................................ 32
7.05 Corporate Action......................................... 32
7.06 Approvals................................................ 32
(i)
<PAGE> 3
Page
7.07 Use of Loans............................................. 33
7.08 ERISA.................................................... 33
7.09 Taxes.................................................... 33
7.10 Investment Company Act................................... 33
7.11 Public Utility Holding Company Act....................... 33
7.12 Hazardous Materials...................................... 34
Section 8. Covenants................................................ 34
8.01 Financial Statements..................................... 34
8.02 Litigation............................................... 37
8.03 Corporate Existence, Etc................................. 37
8.04 Use of Proceeds.......................................... 38
8.05 Disposition of Bank Stock................................ 38
8.06 Non-Banking Subsidiary Borrowings........................ 38
8.07 Outstanding Advances..................................... 38
8.08 Negative Covenants....................................... 39
8.09 Sale of Non-Banking Subsidiaries......................... 39
8.10 Capital Requirements..................................... 39
8.11 Maintenance of Property and Leases....................... 40
8.12 Insurance................................................ 40
Section 9. Guarantee................................................ 40
9.01 Guarantee................................................ 40
9.02 Obligations Unconditional................................ 41
9.03 Reinstatement............................................ 42
9.04 Subrogation.............................................. 42
9.05 Remedies................................................. 42
9.06 Continuing Guarantee..................................... 43
Section 10. Events of Default....................................... 43
Section 11. The Agent............................................... 46
11.01 Appointment, Powers and Immunities...................... 46
11.02 Reliance by Agent....................................... 47
11.03 Defaults................................................ 47
11.04 Rights as a Bank........................................ 47
11.05 Indemnification......................................... 48
11.06 Non-Reliance on Agent and other Banks................... 48
11.07 Failure to Act.......................................... 48
11.08 Resignation or Removal of Agent......................... 49
11.09 Agency Fee.............................................. 49
Section 12. Miscellaneous........................................... 49
12.01 Waiver.................................................. 49
12.02 Notices................................................. 49
12.03 Expenses, Etc........................................... 50
12.04 Amendments, Etc......................................... 50
12.05 Successors and Assigns.................................. 51
(ii)
<PAGE> 4
Page
12.06 Assignments and Participations.......................... 51
12.07 Replacement of Banks.................................... 53
12.08 Confidentiality......................................... 53
12.09 No Set-offs, Etc. by the Company........................ 54
12.10 Survival................................................ 54
12.11 Captions................................................ 54
12.12 Counterparts............................................ 54
12.13 Governing Law; Submission to Jurisdiction............... 55
12.14 WAIVER OF JURY TRIAL.................................... 55
12.15 Termination of Existing Agreement....................... 55
12.16 Severability............................................ 55
12.17 Entire Agreement........................................ 55
12.18 Bank's In-House Counsel................................. 55
Schedule I - List of Material Subsidiaries
Schedule II - Outstanding Indebtedness of
Non-Banking Subsidiaries
EXHIBIT A-1 - Form of Note for Syndicated Loans
EXHIBIT A-2 - Form of Note for Money Market Loans
EXHIBIT B - Form of Opinion of Counsel to the Company
and the Guarantor
EXHIBIT C - Form of Opinion of Special
New York Counsel to the Banks
EXHIBIT D - Form of Money Market Quote Request
EXHIBIT E - Form of Money Market Quote
EXHIBIT F - Form of Confidentiality Agreement
EXHIBIT G - Form of Company Extension Request
EXHIBIT H - Form of Bank Consent to Extension
</TABLE>
<PAGE> 5
REVOLVING CREDIT AGREEMENT (this "Agreement") dated as
of July 23, 1993 among: MELLON FINANCIAL COMPANY, a corporation
duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania (the "Company"); MELLON BANK
CORPORATION, a corporation duly organized and validly existing
under the laws of the Commonwealth of Pennsylvania (the
"Guarantor"); each of the lenders that is a signatory hereto and
their respective successors and permitted assigns (individually,
a "Bank" and, collectively, the "Banks"); and THE CHASE MANHATTAN
BANK (NATIONAL ASSOCIATION), as agent for the Banks (in such
capacity, together with its successors in such capacity, the
"Agent").
The Company has requested that the Banks make loans to
it guaranteed by the Guarantor in an aggregate amount not
exceeding $200,000,000 at any one time outstanding, and the Banks
are prepared to make such loans upon the terms hereof.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
1.01 Certain Defined Terms. As used herein, the
following terms shall have the following meanings (all terms
defined in this Section 1 or in other provisions of this
Agreement in the singular to have the same meanings when used in
the plural and vice versa):
"Additional Costs" shall have the meaning set forth in
Section 5.01(a) hereof.
"Applicable Facility Fee Percentage" shall mean, for
any day: (a) .15 of 1% per annum, if Rating Level 1 is
prevailing on such day, (b) .1875 of 1% per annum, if Rating
Level 2 is prevailing on such day, (c) .25 of 1% per annum, if
Rating Level 3 is prevailing on such day and (d) .375 of 1% per
annum, in all other cases. Each change in the Applicable
Facility Fee Percentage resulting from a change in the Guarantor
Rating shall become effective on the date of announcement or
publication by the respective rating agencies of a change in such
rating or, in the absence of such announcement or publication, on
the effective date of such changed rating.
"Applicable Lending Office" shall mean, for each Bank
and for each type of Loan, the Lending Office of such Bank (or of
an affiliate of such Bank) designated for such type of Loan on
the signature pages hereof or such other office of such Bank (or
of an affiliate of such Bank) as such Bank may from time to time
specify to the Agent and the Company as the office by which its
Loans of such type are to be made and maintained.
"Applicable Margin" shall mean, for any day: (a) with
respect to Base Rate Loans, 0; and (b) with respect to Eurodollar
<PAGE> 6
2
Loans: (i) .25 of 1% per annum, if Rating Level 1 is prevailing
on such day, (ii) .3125 of 1% per annum, if Rating Level 2 is
prevailing on such day, (iii) .45 of 1% per annum, if Rating
Level 3 is prevailing on such day, and (iv) .65 of 1% per annum,
in all other cases. Each change in the Applicable Margin for any
type of Loan resulting from a change in the Guarantor Rating
shall become effective on the date of announcement or publication
by the respective rating agencies of a change in such rating or,
in the absence of such announcement or publication, on the
effective date of such changed rating.
"Base Rate" shall mean, with respect to any Base Rate
Loan, for any day, the higher of (a) the Federal Funds Rate for
such day plus 1/2 of 1% per annum or (b) the Prime Rate for such
day. Each change in any interest rate provided for herein based
upon the Base Rate resulting from a change in the Base Rate shall
take effect at the time of such change in the Base Rate.
"Base Rate Loans" shall mean Loans which bear interest
at rates based upon the Base Rate.
"Business Day" shall mean any day on which commercial
banks are not authorized or required to close in New York City or
Pittsburgh, Pennsylvania and, where such term is used in the
definition of "Quarterly Dates" in this Section 1.01 or if such
day relates to the giving of notices or quotes in connection with
a LIBOR Auction or to a borrowing of, a payment or prepayment of
principal of or interest on, or the Interest Period for, a
Eurodollar Loan or a LIBOR Market Loan or a notice by the Company
with respect to any such borrowing, payment, prepayment or
Interest Period, which is also a day on which dealings in Dollar
deposits are carried out in the London interbank market.
"Chase" shall mean The Chase Manhattan Bank (National
Association).
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Commitment" shall mean, as to each Bank, the
obligation of such Bank to make Syndicated Loans pursuant to
Section 2.01 hereof in an aggregate amount at any one time
outstanding equal to the amount set opposite such Bank's name on
the signature pages hereof under the caption "Commitment" (as the
same may be reduced pursuant to Section 2.04 hereof).
"Commitment Termination Date" shall mean July 22, 1994
or such earlier date as may be specified by the Company as
provided in Section 2.04(b) hereof or such later date as may be
agreed to pursuant to Section 2.10 hereof; provided that if any
Commitment Termination Date would otherwise fall on a day that is
not a Business Day, such Commitment Termination Date shall be the
Business Day next preceding such day.
<PAGE> 7
3
"Consolidated Net Worth" shall mean the aggregate of
the capital stock, capital surplus, paid-in capital and retained
earnings of the Guarantor and its consolidated Subsidiaries, but
excluding treasury stock, redeemable preferred stock and capital
stock subscribed and unissued, all determined on a consolidated
basis.
"Default" shall mean an Event of Default or an event
which with notice or lapse of time or both would become an Event
of Default.
"Dollars" and "$" shall mean lawful money of the United
States of America.
"Double Leverage" shall mean at any time the ratio of
(a) the Guarantor's Intangibles plus the aggregate investment of
the Guarantor in the capital stock of its Subsidiaries (including
the Guarantor's interest in undistributed earnings of its
Subsidiaries) to (b) Consolidated Net Worth.
"Environmental Laws" shall mean any and all federal,
state, local and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment including, without
limitation, ambient air, surface water, ground water, or land, or
otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, chemicals, or industrial, toxic or
hazardous substances or wastes.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade
or business which is a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the Code)
as the Company or the Guarantor or is under common control
(within the meaning of Section 414(c) of the Code) with the
Company or the Guarantor.
"Eurodollar Loans" shall mean Syndicated Loans the
interest rates on which are determined on the basis of rates
referred to in the definition of "Fixed Base Rate" in this
Section 1.01.
"Event of Default" shall have the meaning assigned to
that term in Section 10 hereof.
<PAGE> 8
4
"Federal Funds Rate" shall mean, for any day, the rate
per annum (rounded upwards, if necessary, to the nearest 1/100th
of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business
Day next succeeding such day, provided that (i) if the day for
which such rate is to be determined is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published
on the next succeeding Business Day, and (ii) if such rate is not
so published for any day, the Federal Funds Rate for such day
shall be the average rate charged to Chase on such day on such
transactions as determined by the Agent.
"Fixed Base Rate" shall mean, for a Fixed Rate Loan,
the arithmetic mean, as determined by the Agent, of the rate per
annum (rounded upwards, if necessary, to the nearest 1/16 of 1%)
quoted by each Reference Bank at approximately 11:00 a.m. London
time (or as soon thereafter as practicable) two Business Days
prior to the first day of the Interest Period for such Loan for
the offering by such Reference Bank to leading banks in the
London interbank market of Dollar deposits having a term
comparable to such Interest Period and in an amount comparable to
the principal amount of the Fixed Rate Loan to be made by such
Reference Bank for such Interest Period.
If any Reference Bank is not participating in any Fixed
Rate Loan, the Fixed Base Rate for such Loan shall be determined
by reference to the rate or rates provided by the other Reference
Bank(s), and, if no Reference Bank is participating in any Fixed
Rate Loan, the Fixed Base Rate for such Loan shall be determined
by the Agent by reference to the amount of the Loan which the
Reference Banks would have made had they been participating in
such Loan; provided that in the case of any LIBOR Market Loan,
the Fixed Base Rate for such Loan shall be determined with
reference to deposits of $10,000,000. If any Reference Bank does
not timely furnish such information for determination of the
Fixed Base Rate, the Agent shall determine the Fixed Base Rate on
the basis of information timely furnished by the remaining
Reference Banks.
"Fixed Rate" shall mean, for any Fixed Rate Loan, a
rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the Fixed
Base Rate for such Loan for the Interest Period for such Loan.
"Fixed Rate Loans" shall mean Eurodollar Loans and, for
the purposes of the definition of "Fixed Base Rate" herein and
Section 5 hereof, LIBOR Market Loans.
"Guarantee" shall mean, with respect to any Person, any
obligation, contingent or otherwise, of such Person directly or
<PAGE> 9
5
indirectly guaranteeing any Indebtedness or other payment
obligation of any other Person or in any manner providing for the
payment of any Indebtedness of any other Person or otherwise
protecting the holder of such Indebtedness or other payment
obligation against loss (whether by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, or to take-or-pay or otherwise),
provided that the term "Guarantee" does not include endorsements
for collection or deposit in the ordinary course of business.
"Guarantor Rating" shall mean, as of any date of
determination thereof, the highest rating most recently published
by Standard & Poor's Corporation or Moody's Investor Service,
Inc. relating to the senior long-term unsecured debt securities
of the Guarantor which are then outstanding.
"Indebtedness" shall mean, as to any Person, (without
duplication) (i) all indebtedness and other obligations of such
Person for borrowed money (including, bonds, debentures, notes
and other similar instruments and the sale of Property to another
Person subject to an understanding or agreement contingent or
otherwise to repurchase such Property from such Person) or for
the purchase price of any fixed or capital assets other than
indebtedness under nonrecourse leases or leveraged leases or
similar nonrecourse transactions undertaken in the ordinary
course of business, (ii) all indebtedness and other obligations
of other Persons for borrowed money or for the purchase price of
any fixed or capital assets in respect of which such Person is
liable, contingently or otherwise, to pay or advance money or
property as guarantor, endorser or otherwise (except as endorser
for collection in the ordinary course of business), or which such
Person has agreed to purchase or otherwise acquire, and (iii)
capitalized lease obligations of such Person.
"Insured Subsidiary" shall mean, as to any Person, any
insured depositary institution (as defined in 12 U.S.C. Section 1813(c)
(or any successor provision), as amended, re-enacted or
redesignated from time to time) that is controlled (within the
meaning of 12 U.S.C. Section 1841 (or for any successor provision), as
amended, re-enacted or redesignated from time to time) by such
Person.
"Intangibles" shall mean, as to any Person, the book
value of such Person's good will, mortgage servicing rights,
formula, patents, trademarks, service marks, trade names,
copyrights, charters, franchises, certificates, permits and
licenses determined in accordance with generally accepted
accounting principles.
<PAGE> 10
6
"Interest Period" shall mean:
(a) With respect to any Eurodollar Loan, the period
commencing on the date such Eurodollar Loan is made and ending on
the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, as the Company may select as
provided in Section 2.02 hereof, except that each Interest Period
which commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in
the appropriate subsequent calendar month) shall end on the last
Business Day of the appropriate subsequent calendar month.
(b) With respect to any Base Rate Loan, the period
commencing on the date such Base Rate Loan is made and ending on
the date 30 days thereafter.
(c) With respect to any Set Rate Loan, the period
commencing on the date such Set Rate Loan is made and ending on
any Business Day up to 180 days thereafter, as the Company may
select as provided in Section 2.03(b) hereof; and
(d) With respect to any LIBOR Market Loan, the period
commencing on the date such LIBOR Market Loan is made and ending
on the numerically corresponding day in the first, second, third
or sixth calendar month thereafter, as the Company may select as
provided in Section 2.03(b) hereof, except that each Interest
Period which commences on the last Business Day of a calendar
month (or any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on
the last Business Day of the appropriate subsequent calendar
month.
Notwithstanding the foregoing: (i) if any Interest
Period would otherwise commence before and end after the
Commitment Termination Date, such Interest Period shall end on
the Commitment Termination Date; (ii) each Interest Period which
would otherwise end on a day which is not a Business Day shall
end on the next succeeding Business Day (or, in the case of an
Interest Period for Eurodollar Loans or LIBOR Market Loans, if
such next succeeding Business Day falls in the next succeeding
calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period for any
Eurodollar Loans or LIBOR Market Loans shall have a duration of
less than one month and, if the Interest Period for such Loans
would otherwise be a shorter period, such Loans shall not be
available hereunder.
"LIBO Rate" shall mean, for any LIBOR Market Loan, a
rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) determined by the Agent to be equal to the rate of
interest specified in the definition of "Fixed Base Rate" in this
Section 1.01 for the Interest Period for such Loan.
<PAGE> 11
7
"LIBOR Auction" shall mean a solicitation of Money
Market Quotes setting forth Money Market Margins based on the
LIBO Rate pursuant to Section 2.03 hereof.
"LIBOR Market Loans" shall mean Money Market Loans the
interest rates on which are determined on the basis of LIBO Rates
pursuant to a LIBOR Auction.
"Lien" shall mean, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset. For the purposes of this
Agreement, any Person shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such
asset.
"Loans" shall mean Money Market Loans and Syndicated
Loans.
"Majority Banks" shall mean, subject to the last paragraph
of Section 12.04 hereof and the second proviso in this definition, (a) at
any time while either no Loans are outstanding or only Money Market Loans
are outstanding, Banks having at least 66-2/3% of the aggregate amount of
the Commitments and (b) at any time while only Syndicated Loans or both
Money Market Loans and Syndicated Loans are outstanding, Banks holding at
least 66-2/3% of the aggregate outstanding principal amount of the
Syndicated Loans; provided that such percentages shall be 51% for
purposes of such term as used in Section 12.07 hereof and provided
further that for purposes of Section 10 hereof "Majority Banks" shall
mean (a) while no Loans are outstanding, Banks having at least 51% of the
aggregate amount of the Commitments and (b) at any time while Loans are
outstanding, Banks holding at least 51% of the aggregate outstanding
principal amount of the Loans.
"Material Subsidiary" shall mean the Subsidiaries of the
Guarantor listed in Schedule I hereto and any Subsidiary now or at any
time hereafter meeting any one of the following conditions: (a) the
assets of such Subsidiary, or the investments in or advances to such
Subsidiary by the Guarantor and other Subsidiaries, exceed 5% of the
aggregate assets appearing on the consolidated balance sheet of the
Guarantor and its consolidated Subsidiaries for the most recently ended
fiscal year, or (b) if positive, the net income of such Subsidiary for
the fiscal year of the Guarantor most recently ended exceeds 5% of the
total consolidated net income of the Guarantor and its consolidated
Subsidiaries for such fiscal year, or (c) the equity of such Subsidiary
for the fiscal year of the Guarantor most recently ended exceeds 5% of
the total consolidated equity of the Guarantor and its consolidated
Subsidiaries for such fiscal year, or (d) such Subsidiary has one or more
Subsidiaries and together therewith would, if considered in the
aggregate, constitute a Material Subsidiary within the terms of
subdivisions (a), (b) and (c) hereof.
<PAGE> 12
8
"Money Market Borrowing" shall have the meaning assigned to
such term in Section 2.03(b) hereof.
"Money Market Loans" shall mean the loans provided for
by Section 2.03 hereof.
"Money Market Margin" shall have the meaning assigned
to such term in Section 2.03(c)(ii)(C) hereof.
"Money Market Quote" shall mean an offer in accordance
with Section 2.03(c) hereof by a Bank to make a Money Market Loan
with one single specified interest rate.
"Money Market Quote Request" shall have the meaning
assigned to such term in Section 2.03(b) hereof.
"Money Market Rate" shall have the meaning assigned to
such term in Section 2.03(c)(ii)(D) hereof.
"Multiemployer Plan" shall mean a plan defined as such
in Section 3(37) of ERISA to which contributions have been made
by the Company, the Guarantor or any ERISA Affiliate since
September 1, 1982 and which is covered by Title IV of ERISA.
"Net Income" shall mean, for any fiscal period, the
"net income" of the Guarantor and its consolidated Subsidiaries
for such period determined in accordance with generally accepted
accounting principles.
"Non-Banking Subsidiaries" shall mean the Material
Subsidiaries of the Guarantor other than Mellon Bank, N.A., any
other bank or trust company which is a Subsidiary or any Material
Subsidiary thereof.
"Notes" shall mean the promissory notes provided for by
Section 2.08 hereof.
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Person" shall mean an individual, a corporation, a
company, a voluntary association, a partnership, a trust, an
unincorporated organization or a government or any agency,
instrumentality or political subdivision thereof.
"Plan" shall mean an employee benefit or other plan
established or maintained by the Company, the Guarantor or any
ERISA Affiliate since September 1, 1982 and which is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any
principal of any Loan or any other amount payable by the Company
under this Agreement or any Note which is not paid when due
(whether at stated maturity, by acceleration or otherwise), a
rate per annum during the period commencing on the due date until
<PAGE> 13
9
such amount is paid in full equal to 2% above the Base Rate as in
effect from time to time (provided that, if such amount in
default is principal of a Eurodollar Loan or a Money Market Loan
and the due date is a day other than the last day of the Interest
Period therefor, the "Post-Default Rate" for such principal shall
be, for the period commencing on the due date and ending on the
last day of the Interest Period therefor, 2% above the interest
rate for such Loan as provided in Section 3.02 hereof and,
thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time
to time announced by Chase at the Principal Office as its prime
commercial lending rate.
"Principal Office" shall mean the principal office of
the Agent and Chase, presently located at 1 Chase Manhattan
Plaza, New York, New York 10081.
"Properties" shall mean assets and properties whether
owned as of the date of this Agreement or thereafter acquired and
whether real, personal or mixed, tangible or intangible.
"Quarterly Dates" shall mean the first Business Day of
each March, June, September and December, the first of which
shall be the first such day after the date of this Agreement.
"Quotation Date" shall have the meaning set forth in
Section 2.03(b)(v) hereof.
"Rating Level 1" shall be deemed to be prevailing on
any date of determination on which the Guarantor Rating by
Standard & Poor's Corporation is at least A and the Guarantor
Rating by Moody's Investors Service, Inc. is at least A2.
"Rating Level 2" shall be deemed to be prevailing on
any date of determination on which the Guarantor Rating by
Standard & Poor's Corporation is at least A- or the Guarantor
Rating by Moody's Investors Service, Inc. is at least A3 and in
either case on which Rating Level 1 is not prevailing.
"Rating Level 3" shall be deemed to be prevailing on
any date of determination on which the Guarantor Rating by
Standard & Poor's Corporation is at least BBB or the Guarantor
Rating by Moody's Investors Service, Inc. is at least Baa2 and in
either case on which neither Rating Level 1 nor Rating Level 2 is
prevailing.
"Reference Banks" shall mean Chase, Morgan Guaranty
Trust Company of New York and Chemical Bank (or their Applicable
Lending Offices, as the case may be).
"Regulations A and D" shall mean, respectively,
Regulations A and D of the Board of Governors of the Federal
<PAGE> 14
10
Reserve System (or any successor), as the same may be amended or
supplemented from time to time.
"Regulatory Change" shall mean, with respect to any
Bank, any change after the date of this Agreement in United
States Federal, state or foreign laws or regulations (including
Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of
banks including such Bank of or under any United States Federal,
state or foreign laws or regulations (whether or not having the
force of law) by any court or governmental or monetary authority
charged with the interpretation or administration thereof.
"Senior Officer" shall mean the Chairman, the
President, the Chief Executive Officer, each Vice Chairman, each
Vice President, the Secretary and Treasurer of the Guarantor or
of the Company.
"Set Rate Auction" shall mean a solicitation of Money
Market Quotes setting forth Money Market Rates pursuant to
Section 2.03 hereof.
"Set Rate Loans" shall mean Money Market Loans the
interest rates on which are determined on the basis of Money
Market Rates pursuant to a Set Rate Auction.
"Subsidiary" shall mean any corporation of which at
least a majority of the outstanding shares of stock having by the
terms thereof ordinary voting power to elect a majority of the
board of directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Guarantor or one or more of
its Subsidiaries or by the Guarantor and one or more of its
Subsidiaries. "Wholly-Owned Subsidiary" shall mean any such
corporation of which all of such shares, other than directors'
qualifying shares, are so owned or controlled.
"Syndicated Loans" shall mean the loans provided for by
Section 2.01 hereof.
"Tangible Net Worth" shall mean, as to any Person, the
aggregate of the capital stock, capital surplus, paid-in capital
and retained earnings (including the balance of the current
profit and loss account not transferred to retained earnings) of
such Person, but excluding treasury stock, redeemable preferred
stock and capital stock subscribed and unissued, and Intangibles.
1.02 Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein
shall be interpreted, all determinations with respect to
accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters
required to be furnished to the Agent or the Banks hereunder
shall be prepared, in accordance with generally accepted
<PAGE> 15
11
accounting principles as in effect from time to time applied on a
basis consistent with the audited consolidated financial
statements of the Guarantor and the consolidated Subsidiaries
referred to in Section 7.02 hereof (except for changes concurred
with by the Company's independent public accountants). To enable
the ready and consistent determination of compliance with the
covenants set forth in Section 8 hereof, the Guarantor will not
change the last day of its fiscal year from December 31, or the
last day of the first three fiscal quarters in each of its fiscal
years from March 31, June 30 and September 30, respectively.
Section 2. Commitments.
2.01 Syndicated Loans. Each Bank severally agrees, on
the terms of this Agreement, to make loans to the Company during
the period from and including the date hereof to but excluding
the Commitment Termination Date in an aggregate principal amount
at any one time outstanding up to but not exceeding the amount of
such Bank's Commitment as then in effect. Subject to the terms
of this Agreement, during such period the Company may borrow,
repay and reborrow the amount of the Commitments; provided that
the aggregate principal amount of all Money Market Loans,
together with the aggregate principal amount of all Syndicated
Loans, at any one time outstanding shall not exceed the aggregate
amount of the Commitments at such time; and provided, further,
that there may be no more than eight different Interest Periods
for both Syndicated Loans and Money Market Loans outstanding at
the same time (for which purpose Interest Periods described in
different lettered clauses of the definition of the term
"Interest Period" shall be deemed to be different Interest
Periods even if they are coterminous). The Syndicated Loans may
be Base Rate Loans or Eurodollar Loans (each a "type" of
Syndicated Loan).
2.02 Borrowing of Syndicated Loans. The Company shall
give the Agent (which shall promptly notify the Banks) notice of
each borrowing of Syndicated Loans hereunder, which notice shall
be irrevocable and effective only upon receipt by the Agent,
shall specify the aggregate amount (which shall be at least
$10,000,000 and in multiples of $1,000,000 in the case of
Eurodollar Loans), the type and date (which shall be a Business
Day) of the Syndicated Loans to be borrowed and (in the case of
Eurodollar Loans) the duration of the Interest Period therefor
and shall be given not later than 10:00 a.m. New York time on the
day which is the same day of, or not less than the number of
Business Days prior to, as the case may be, the date of such
borrowing specified below opposite the type of such Syndicated
Loans:
<TABLE>
<CAPTION>
Type Number of Business Days
<S> <C>
Base Rate Loans same day
Eurodollar Loans 3
</TABLE>
<PAGE> 16
12
Not later than 1:00 p.m. New York time on the date specified for
each borrowing of Syndicated Loans hereunder, each Bank shall
make available the amount of the Syndicated Loan to be made by it
on such date to the Agent, at account number NYAO-DI-900-9-000002
maintained by the Agent with Chase at the Principal Office, in
immediately available funds, for account of the Company. The
amount so received by the Agent shall, subject to the terms and
conditions of this Agreement, be made available promptly to the
Company by depositing the same, in immediately available funds,
in an account of the Company designated by the Company and
maintained with the Agent at the Principal Office.
2.03 Money Market Loans.
(a) In addition to borrowings of Syndicated Loans, the
Company may, as set forth in this Section 2.03, request the Banks
to make offers to make Money Market Loans to the Company in
Dollars. The Banks may, but shall have no obligation to, make
such offers and the Company may, but shall have no obligation to,
accept any such offers in the manner set forth in this Section
2.03. Money Market Loans may be LIBOR Market Loans or Set Rate
Loans (each a "type" of Money Market Loan), provided that:
(i) there may be no more than eight different Interest
Periods for both Syndicated Loans and Money Market Loans
outstanding at the same time (for which purpose Interest
Periods described in different lettered clauses of the
definition of the term "Interest Period" shall be deemed to
be different Interest Periods even if they are coterminous);
and
(ii) the aggregate principal amount of all Money Market
Loans, together with the aggregate principal amount of all
Syndicated Loans, at any one time outstanding shall not
exceed the aggregate amount of the Commitments at such time.
(b) When the Company wishes to request offers to make
Money Market Loans, it shall give the Agent (which shall promptly
notify the Banks) notice (a "Money Market Quote Request") so as
to be received no later than 11:00 a.m. New York time on (x) the
fourth Business Day prior to the date of borrowing proposed
therein, in the case of a LIBOR Auction or (y) the Business Day
next preceding the date of borrowing proposed therein, in the
case of a Set Rate Auction (or, in any such case, such other time
and date as the Company and the Agent, with the consent of the
Majority Banks, may agree). The Company may request offers to
make Money Market Loans for up to three different Interest
Periods in a single notice (for which purpose Interest Periods in
different lettered clauses of the definition of the term
"Interest Period" shall be deemed to be different Interest
Periods even if they are coterminous); provided that the request
<PAGE> 17
13
for each separate Interest Period shall be deemed to be a
separate Money Market Quote Request for a separate borrowing
("Money Market Borrowing"). Each such notice shall be
substantially in the form of Exhibit D hereto and shall specify
as to each Money Market Borrowing:
(i) the proposed date of such borrowing, which shall
be a Business Day;
(ii) the aggregate amount of such Money Market
Borrowing, which shall be at least $10,000,000 (or in larger
multiples of $1,000,000) but shall not cause the limits
specified in Section 2.03(a) hereof to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Money Market Quotes requested are to
set forth a Money Market Margin or a Money Market Rate; and
(v) if the Money Market Quotes requested are to set
forth a Money Market Rate, the date on which the Money
Market Quotes are to be submitted if it is before the
proposed date of borrowing (the date on which such Money
Market Quotes are to be submitted is called the "Quotation
Date").
Except as otherwise provided in this Section 2.03(b), no Money
Market Quote Request shall be given within five Business Days (or
such other number of days as the Company and the Agent, with the
consent of the Majority Banks, may agree) of any other Money
Market Quote Request.
(c) (i) Each Bank may submit one or more Money Market
Quotes, each containing an offer to make a Money Market Loan in
response to any Money Market Quote Request; provided that, if the
Company's request under Section 2.03(b) hereof specified more
than one Interest Period, such Bank may make a single submission
containing one or more Money Market Quotes for each such Interest
Period. Each Money Market Quote must be submitted to the Agent
not later than (x) 2:00 p.m. New York time on the fourth Business
Day prior to the proposed date of borrowing, in the case of a
LIBOR Auction or (y) 10:00 a.m. New York time on the Quotation
Date, in the case of a Set Rate Auction (or, in any such case,
such other time and date as the Company and the Agent, with the
consent of the Majority Banks, may agree); provided that any
Money Market Quote submitted by Chase (or its Applicable Lending
Office) may be submitted, and may only be submitted, if Chase (or
such Applicable Lending Office) notifies the Company of the terms
of the offer contained therein not later than (x) 1:00 p.m. New
York time on the fourth Business Day prior to the proposed date
of borrowing, in the case of a LIBOR Auction or (y) 9:45 a.m. New
York time on the Quotation Date, in the case of a Set Rate
<PAGE> 18
14
Auction. Subject to Sections 5.02, 5.03, 6.01, 6.02 and 10
hereof, any Money Market Quote so made shall be irrevocable
except with the written consent of the Agent given on the
instructions of the Company.
(ii) Each Money Market Quote shall be substantially in
the form of Exhibit E hereto and shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount
shall be at least $5,000,000 or a larger multiple of
$1,000,000 and the aggregate principal amount of the Money
Market Loans for which such offers are being made; provided
that the aggregate principal amount of all Money Market
Loans for which a Bank submits Money Market Quotes (x) may
be greater or less than the Commitment of such Bank but (y)
may not exceed the principal amount of the Money Market
Borrowing for which offers were requested;
(C) in the case of a LIBOR Auction, the margin above
or below the applicable LIBO Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed
as a percentage (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) to be added to or subtracted from
the applicable LIBO Rate;
(D) in the case of a Set Rate Auction, the rate of
interest per annum (rounded upwards, if necessary, to the
nearest 1/10,000th of 1%) offered for each such Money Market
Loan (the "Money Market Rate"); and
(E) the identity of the quoting Bank.
Unless otherwise agreed by the Agent and the Company, no Money
Market Quote shall contain qualifying, conditional or similar
language or propose terms other than or in addition to those set
forth in the applicable Money Market Quote Request and, in
particular, no Money Market Quote may be conditioned upon
acceptance by the Company of all (or some specified minimum) of
the principal amount of the Money Market Loan for which such
Money Market Quote is being made.
(d) The Agent shall (x) in the case of a Set Rate
Auction, as promptly as practicable after the Money Market Quote
is submitted (but in any event not later than 10:15 a.m. New York
time) or (y) in the case of a LIBOR Auction, by 4:00 p.m. New
York time on the day a Money Market Quote is submitted, notify
the Company of the terms (i) of any Money Market Quote submitted
by a Bank that is in accordance with Section 2.03(c) hereof and
(ii) of any Money Market Quote that amends, modifies or is
<PAGE> 19
15
otherwise inconsistent with a previous Money Market Quote
submitted by such Bank with respect to the same Money Market
Quote Request. Any such subsequent Money Market Quote shall be
disregarded by the Agent unless such subsequent Money Market
Quote is submitted solely to correct a manifest error in such
former Money Market Quote. The Agent's notice to the Company
shall specify (A) the aggregate principal amount of the Money
Market Borrowing for which offers have been received and (B) the
respective principal amounts and Money Market Margins or Money
Market Rates, as the case may be, so offered by each Bank
(identifying the Bank that made each Money Market Quote).
(e) Not later than 11:00 a.m. New York time on (x) the
third Business Day prior to the proposed date of borrowing, in
the case of a LIBOR Auction or (y) the Quotation Date, in the
case of a Set Rate Auction (or, in any such case, such other time
and date as the Company and the Agent, with the consent of the
Majority Banks, may agree), the Company shall notify the Agent of
its acceptance or nonacceptance of the offers so notified to it
pursuant to Section 2.03(d) hereof (and the failure of the
Company to give such notice by such time shall constitute
nonacceptance) and the Agent shall promptly notify each affected
Bank. In the case of acceptance, such notice shall specify the
aggregate principal amount of offers for each Interest Period
that are accepted. The Company may accept any Money Market Quote
in whole or in part (provided that any Money Market Quote
accepted in part shall be at least $5,000,000 or in larger
multiples of $1,000,000); provided that:
(i) the aggregate principal amount of each Money
Market Borrowing may not exceed the applicable amount set
forth in the related Money Market Quote Request;
(ii) the aggregate principal amount of each Money
Market Borrowing shall be at least $10,000,000 (or in larger
multiples of $1,000,000) but shall not cause the limits
specified in Section 2.03(a) hereof to be violated;
(iii) acceptance of offers may be made only in ascending
order of Money Market Margins or Money Market Rates, as the
case may be; and
(iv) the Company may not accept any offer where the
Agent has advised the Company that such offer fails to
comply with Section 2.03(c)(ii) hereof or otherwise fails to
comply with the requirements of this Agreement (including,
without limitation, Section 2.03(a) hereof).
If offers are made by two or more Banks with the same Money
Market Margins or Money Market Rates, as the case may be, for a
greater aggregate principal amount than the amount in respect of
which offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such
<PAGE> 20
16
offers are accepted shall be allocated by the Company among such
Banks as nearly as possible (in multiples of $1,000,000) in
proportion to the aggregate principal amount of such offers.
Determinations by the Company of the amounts of Money Market
Loans shall be conclusive in the absence of manifest error.
(f) Any Bank whose offer to make any Money Market Loan
has been accepted shall, not later than 1:00 p.m. New York time
on the date specified for the making of such Loan, make the
amount of such Loan available to the Agent at account number
NYAO-DI-900-9-000002 maintained by the Agent with Chase at the
Principal Office in immediately available funds, for account of
the Company. The amount so received by the Agent shall, subject
to the terms and conditions of this Agreement, be made available
promptly to the Company on such date by depositing the same, in
immediately available funds, in an account of the Company
designated by the Company and maintained with Chase at the
Principal Office.
(g) The amount of any Money Market Loan made by any
Bank shall not constitute a utilization of such Bank's Commitment
for purposes hereof.
2.04 Changes of Commitments.
(a) Unless theretofore terminated pursuant to
paragraph (b) below, the aggregate amount of the Commitments
shall be reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right to terminate or
reduce the unused amount of the Commitments at any time or from
time to time upon not less than three Business Days' prior
written notice to the Agent (which shall promptly notify the
Banks) of such termination or reduction, which notice shall
specify the effective date thereof and the amount of any such
reduction (which shall not be less than $5,000,000) and shall be
irrevocable and effective only upon receipt by the Agent;
provided that no such termination or reduction of Commitments is
permitted if in connection therewith the Company is required to
make a payment under Section 2.09(b) hereof; and provided that,
without the consent of the Majority Banks, the Company shall not
have the right to reduce the aggregate amount of the Commitments
to less than $50,000,000 without terminating the Commitments.
(c) The Commitments once terminated or reduced may not
be reinstated.
2.05 Fees. (a) The Company shall pay to the Agent for
the account of each Bank a facility fee on the daily average
amount of such Bank's Commitment (whether or not utilized) for
the period from and including the date of the execution and
delivery of this Agreement to but not including the earlier of
the date such Commitment is terminated pursuant to this Agreement
<PAGE> 21
17
and the Commitment Termination Date, calculated for each day at a
rate per annum equal to the Applicable Facility Fee Percentage
from time to time in effect. The facility fee shall be payable
in arrears on each Quarterly Date hereafter and on the earlier of
(i) the date the Commitments are terminated or (ii) the
Commitment Termination Date.
(b) For each day when the aggregate principal amount
of Syndicated Loans outstanding exceeds 50% of the aggregate
amount of the Commitments, the Company shall pay to the Agent for
the account of each Bank a utilization fee on the aggregate
principal amount of such Bank's Syndicated Loans outstanding on
such day, at a rate per annum equal to 1/8 of 1%. The
utilization fee shall be payable in arrears on each Quarterly
Date hereafter and on the earlier of (i) the date the Commitments
are terminated or (ii) the Commitment Termination Date.
2.06 Lending Offices. The Loans of each type made by
each Bank shall be made and maintained at such Bank's Applicable
Lending Office for Loans of such type.
2.07 Several Obligations; Remedies Independent. The
failure of any Bank to make any Loan to be made by it on the date
specified therefor shall not relieve any other Bank of its
obligation to make its Loan on such date, but no Bank shall be
responsible for the failure of any other Bank to make a Loan to
be made by such other Bank. The amounts payable by the Company
at any time hereunder and under the Notes to each Bank shall be a
separate and independent debt, and each Bank shall be entitled to
protect and enforce its rights arising out of this Agreement and
the Notes, and it shall not be necessary for any other Bank or
the Agent to consent to, or be joined as an additional party in,
any proceedings for such purposes.
2.08 Notes.
(a) The Syndicated Loans made by each Bank shall be
evidenced by a single promissory note, in substantially the form
of Exhibit A-1 hereto, dated the date of the delivery of such
Note to the Agent under this Agreement, payable to such Bank in a
principal amount equal to the amount of its Commitment as
originally in effect and otherwise duly completed. The date,
amount, type, interest rate and maturity date of each Syndicated
Loan made by each Bank, and all payments made on account of the
principal thereof, shall be recorded by such Bank on its books
and, prior to any transfer of such Note held by it, endorsed by
such Bank on the schedule attached to such Note or any
continuation thereof; provided that the failure of such Bank to
make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any
amount owing under such Note.
<PAGE> 22
18
(b) The Money Market Loans made by any Bank shall be
evidenced by a single promissory note of the Company in
substantially the form of Exhibit A-2 hereto, dated the date of
the delivery of such Note to the Agent under this Agreement,
payable to such Bank and otherwise duly completed. The date,
amount, type, interest rate and maturity date of each Money
Market Loan made by each Bank to the Company, and each payment
made on account of the principal thereof, shall be recorded by
such Bank on its books and, prior to any transfer of any such
Note held by it, endorsed by such Bank on the schedule attached
to such Note or any continuation thereof; provided that the
failure of such Bank to make any such recordation or endorsement
shall not affect the obligations of the Company to make a payment
when due of any amount owing under such Note.
(c) No Bank shall be entitled to have its Note or
Notes, as the case may be, subdivided, by exchange for promissory
notes of lesser denominations or otherwise, except in connection
with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Note or Notes, as the case may be, pursuant
to Section 12.06(b) hereof.
2.09 Prepayments.
(a) The Company may prepay Base Rate Loans upon not
less than 1 Business Day's prior notice to the Agent (which shall
promptly notify the Banks), which notice shall specify the
prepayment date (which shall be a Business Day) and the aggregate
amount of the prepayment (which shall be at least $5,000,000 or
such lesser amount as shall be outstanding) and shall be
irrevocable and effective only upon receipt by the Agent,
provided that interest on the principal prepaid, accrued to the
prepayment date, shall be paid on the prepayment date. The
Company may not prepay any Eurodollar Loans or Money Market Loans
on a date other than the last day of the Interest Period thereof
(provided that this sentence shall not affect the Company's
obligation to prepay Loans pursuant to paragraph (b) of this
Section 2.09 or the obligations of the Company pursuant to
Section 10 hereof).
(b) If, after giving effect to any termination or
reduction of the Commitments pursuant to Section 2.04 hereof, the
outstanding aggregate principal amount of the Loans exceeds the
aggregate amount of the Commitments, the Company shall pay or
prepay the Loans on the date of such termination or reduction in
an aggregate principal amount equal to the excess, together with
interest thereon accrued to the date of such payment or
prepayment and any amounts payable pursuant to Section 5.05
hereof in connection therewith.
2.10 Extension of Revolving Credit Termination Date.
The Company may, one time (and not from time to time), by notice,
substantially in the form of Exhibit G hereto, to the Agent
<PAGE> 23
19
(which shall promptly deliver a copy thereof to each of the
Banks) not less than 60 days and not more than 90 days prior to
the Commitment Termination Date initially in effect hereunder,
request that the Banks extend the Commitment Termination Date for
one additional 364 day period. If each Bank, acting in its sole
discretion (including, at its discretion, after making a new
credit evaluation of the Guarantor or the Company), by notice to
the Guarantor, the Company and the Agent, substantially in the
form of Exhibit H hereto, on or after the date (the "Consent
Date") falling 30 days prior to the Commitment Termination Date
then in effect, agrees to such request, then, effective as of the
Consent Date, such Commitment Termination Date shall be extended
to the date falling 364 days after the Consent Date; provided
that such extension shall not be effective unless (i) no Default
shall have occurred and be continuing on either the date of the
notice requesting such extension or on the Consent Date (both
prior to and after giving effect to such extension), (ii) each of
the representations and warranties of the Guarantor and the
Company in Section 7 hereof shall be true and correct on and as
of each of the date of such notice and the Consent Date (prior to
giving effect to such extension) with the same force and effect
as if made on and as of each such date (or, if any such
representation or warranty is expressly stated to have been made
as of a specific date, as of such specific date) and (iii) each
Bank shall have agreed to such extension by delivering a notice
thereof, substantially in the form of Exhibit H hereto, to the
Agent, the Guarantor and the Company.
Section 3. Payments of Principal and Interest.
3.01 Repayment of Loans. The Company will pay to the
Agent for the account of each Bank the principal of each Loan
made by such Bank, and each Loan shall mature, on the last day of
the Interest Period therefor.
3.02 Interest. The Company will pay to the Agent for
the account of each Bank interest on the unpaid principal amount
of each Loan made by such Bank for the period commencing on the
date of such Loan to but excluding the date such Loan shall be
paid in full, at the following rates per annum:
(a) if such Loan is a Base Rate Loan, the Base Rate
(as in effect from time to time);
(b) if such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Fixed Rate for such
Eurodollar Loan for such Interest Period plus the Applicable
Margin (as in effect from time to time);
(c) if such Loan is a LIBOR Market Loan, the LIBO Rate
for such Loan for the Interest Period therefor plus (or
<PAGE> 24
20
minus) the Money Market Margin quoted by the Bank making
such Loan in accordance with Section 2.03 hereof; and
(d) if such Loan is a Set Rate Loan, the Money Market
Rate for such Loan for the Interest Period therefor quoted
by the Bank making such Loan in accordance with Section 2.03
hereof.
Notwithstanding the foregoing, the Company will pay to the Agent
for account of each Bank interest at the applicable Post-Default
Rate on any principal of any Loan made by such Bank, and on any
other amount payable by the Company hereunder or under the Notes
held by such Bank to or for account of such Bank, which shall not
be paid in full when due (whether at stated maturity, by
acceleration or otherwise), for the period commencing on the due
date thereof until the same is paid in full. Accrued interest
(i) on Base Rate Loans shall be payable in arrears on each
Quarterly Date and (ii) on each Loan other than a Base Rate Loan
shall be payable on the last day of the Interest Period therefor
and, if such Interest Period is longer than 90 days (in the case
of a Set Rate Loan) or three months (in the case of a Eurodollar
Loan or LIBOR Market Loan), at 90-day or three-month intervals
following the first day of such Interest Period, except that
interest payable at the Post-Default Rate shall be payable from
time to time on demand and interest on any Eurodollar Loan that
is converted into a Base Rate Loan (pursuant to Section 5.04
hereof) shall be payable on the date of conversion (but only to
the extent so converted). Promptly after the determination of
any interest rate provided for herein or any change therein, the
Agent shall notify the Banks to which such interest is payable
and the Company thereof.
Section 4. Payments; Pro Rata Treatment; Computations;
Etc.
4.01 Payments. Except to the extent otherwise
provided herein, all payments of principal, interest and other
amounts to be made by the Company or the Guarantor, as the case
may be, under this Agreement and the Notes shall be made in
Dollars, in immediately available funds, to the Agent at account
number NYAO-DI-900-9-000002 maintained by the Agent at the
Principal Office, not later than 1:00 p.m. New York time on the
date on which such payment shall become due (each such payment
made after such time on such due date to be deemed to have been
made on the next succeeding Business Day). The Company or the
Guarantor, as the case may be, shall, at the time of making each
payment under this Agreement or any Note, specify to the Agent
the Loans or other amounts payable by the Company or the
Guarantor, as the case may be, hereunder to which such payment is
to be applied (and in the event that it fails to so specify, or
if an Event of Default has occurred and is continuing, the Agent
may distribute such payment to the Banks in such manner as it or
<PAGE> 25
21
the Majority Banks may determine to be appropriate, subject to
Section 4.02 hereof). Each payment received by the Agent under
this Agreement or any Note for account of a Bank shall be paid
promptly to such Bank, in immediately available funds, for
account of such Bank's Applicable Lending Office for the Loan in
respect of which such payment is made. If the due date of any
payment under this Agreement or any Note would otherwise fall on
a day which is not a Business Day such date shall be extended to
the next succeeding Business Day (unless, in the case of any
payment of the principal of, or interest on, any Eurodollar Loan
or LIBOR Market Loan, such succeeding Business Day shall fall in
another calendar month, in which case the date for such payment
shall be the next preceding Business Day), and interest shall be
payable for any principal so extended for the period of such
extension.
4.02 Pro Rata Treatment. Except to the extent
otherwise provided in Section 5 hereof: (a) each borrowing from
the Banks under Section 2.01 hereof shall be made from the Banks
and each payment of fees under Section 2.05 hereof shall be made
for account of the Banks, and each termination or reduction of
the amount of the Commitments under Section 2.04 hereof shall be
applied to the Commitments of the Banks, pro rata according to
the amounts of their respective Commitments; (b) each payment of
principal of Syndicated Loans by the Company shall be made for
account of the Banks pro rata in accordance with the respective
unpaid principal amounts of the Syndicated Loans held by the
Banks; provided that if immediately prior to giving effect to any
such payment in respect of any Syndicated Loans the outstanding
principal amount of the Syndicated Loans shall not be held by the
Banks pro rata in accordance with their respective Commitments in
effect at the time such Loans were made (by reason of a failure
of a Bank to make a Loan hereunder in the circumstances described
in the last paragraph of Section 12.04 hereof), then such payment
shall be applied to the Syndicated Loans in such manner as shall
result, as nearly as practicable, in the outstanding principal
amount of the Syndicated Loans being held by the Banks pro rata
in accordance with their respective Commitments; and (c) each
payment of interest on Syndicated Loans by the Company shall be
made for account of the Banks pro rata in accordance with the
amounts of interest on Syndicated Loans due and payable to the
respective Banks.
4.03 Computations. Interest on Money Market Loans and
Eurodollar Loans and fees shall be computed on the basis of a
year of 360 days and actual days elapsed (including the first day
but excluding the last day) occurring in the period for which
payable and interest on Base Rate Loans shall be computed on the
basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed (including the first day but excluding the
last day) occurring in the period for which payable.
<PAGE> 26
22
4.04 Non-Receipt of Funds by the Agent. Unless the
Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment
to the Agent of (in the case of a Bank) the proceeds of a Loan to
be made by such Bank hereunder or (in the case of the Company) a
payment to the Agent for account of one or more of the Banks
hereunder (such payment being herein called the "Required
Payment"), which notice shall be effective upon receipt, that the
Payor does not intend to make the Required Payment to the Agent,
the Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required
to), make the amount thereof available to the intended
recipient(s) on such date; and, if the Payor has not in fact made
the Required Payment to the Agent, the recipient(s) of such
payment shall, on demand, repay to the Agent the amount so made
available together with interest thereon in respect of each day
during the period commencing on the date (the "Advance Date")
such amount was so made available by the Agent until the date the
Agent recovers such amount at a rate per annum equal to the
Federal Funds Rate for such day and, if such recipient(s) shall
fail promptly to make such payment, the Agent shall be entitled
to recover such amount, on demand, from the Payor, together with
interest as aforesaid, provided that if neither the recipient(s)
nor the Payor shall return the Required Payment to the Agent
within three Business Days of the Advance Date, then,
retroactively to the Advance Date, the Payor and the recipient(s)
shall each be obligated to pay interest on the Required Payment
as follows:
(i) if the Required Payment shall represent a payment
to be made by the Company to the Banks, the Company and the
recipient(s) shall each be obligated retroactively to the
Advance Date to pay interest in respect of the Required
Payment at the Post-Default Rate (and, in case the
recipient(s) shall return the Required Payment to the Agent,
without limiting the obligation of the Company under Section
3.02 hereof to pay interest to such recipient(s) at the
Post-Default Rate in respect of the Required Payment) and
(ii) if the Required Payment shall represent proceeds
of a Loan to be made by the Banks to the Company, the Payor
and the Company shall each be obligated retroactively to the
Advance Date to pay interest in respect of the Required
Payment at (a) if such Payor is a Bank, the Federal Funds
Rate and (b) if such Payor is the Company, a rate of
interest provided for such Loan in Section 3.02 hereof (and,
in case the Company shall return the Required Payment to the
Agent, without limiting any claims the Company may have
against the Payor in respect of the Required Payment).
<PAGE> 27
23
4.05 Sharing of Payments, Etc.
(a) The Company agrees that, in addition to (and
without limitation of) any right of set-off, bankers' lien or
counterclaim a Bank may otherwise have, each Bank shall be
entitled, at its option, to offset balances held by it for
account of the Company at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any
of such Bank's Loans, or any other amount payable to such Bank
hereunder, which is not paid when due (regardless of whether such
balances are then due to the Company), in which case it shall
promptly notify the Company and the Agent thereof, provided that
such Bank's failure to give such notice shall not affect the
validity thereof.
(b) If any Bank shall obtain payment of any principal
of or interest on any Syndicated Loan made by it to the Company
under this Agreement through the exercise of any right of
set-off, banker's lien or counterclaim or similar right or
otherwise, and, as a result of such payment, such Bank shall have
received a greater percentage of the principal or interest then
due hereunder by the Company to such Bank in respect of
Syndicated Loans than the percentage received by any other Banks,
it shall promptly purchase from such other Banks participations
in (or, if and to the extent specified by such Bank, direct
interests in) the Syndicated Loans made by such other Banks (or
in interest due thereon, as the case may be) in such amounts, and
make such other adjustments from time to time as shall be
equitable, to the end that all the Banks shall share the benefit
of such excess payment (net of any expenses which may be incurred
by such Bank in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid principal and/or interest on
the Syndicated Loans held by each of the Banks; provided that if
at the time of such payment the outstanding principal amount of
the Syndicated Loans shall not be held by the Banks pro rata in
accordance with their respective Commitments in effect at the
time such Loans were made (by reason of a failure of a Bank to
make a Loan hereunder in the circumstances described in the last
paragraph of Section 12.04 hereof), then such purchases of
participations and/or direct interests shall be made in such
manner as will result, as nearly as practicable, in the
outstanding principal amount of the Syndicated Loans being held
by the Banks pro rata according to the amounts of such
Commitments. To such end all the Banks shall make appropriate
adjustments among themselves (by the resale of participations
sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing a
participation (or direct interest) in the Syndicated Loans made
by other Banks (or in interest due thereon, as the case may be)
may exercise all rights of set-off, bankers' lien, counterclaim
or similar rights with respect to such participation as fully as
<PAGE> 28
24
if such Bank were a direct holder of Syndicated Loans in the
amount of such participation.
(d) Nothing contained herein shall require any Bank to
exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right
with respect to any other indebtedness or obligation of the
Company.
(e) If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a
set-off to which this Section 4.05 applies, such Bank shall, to
the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Banks
entitled under this Section 4.05 to share in the benefits of any
recovery on such secured claim.
Section 5. Yield Protection and Illegality.
5.01 Additional Costs.
(a) The Company shall pay directly to each Bank from
time to time such amounts as such Bank may reasonably determine
to be necessary to compensate it for any costs which such Bank
determines are attributable to its making or maintaining of any
Fixed Rate Loans or its obligation to make any Fixed Rate Loans
hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation
(such increases in costs and reductions in amounts receivable
being herein called "Additional Costs"), resulting from any
Regulatory Change which:
(i) changes the basis of taxation of any amounts
payable to such Bank under this Agreement or its Notes in
respect of any of such Loans (other than taxes imposed on
the overall net income of such Bank or of its Applicable
Lending Office for any of such Loans); or
(ii) imposes or modifies any reserve, special deposit,
minimum capital, capital ratio or similar requirements
(other than in the case of any Bank for any period as to
which the Company is required to pay any amount under
paragraph (e) below, the reserves against "Eurocurrency
liabilities" under Regulation D therein referred to)
relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of, such Bank
(including any of such Loans or any deposits referred to in
the definition of "Fixed Base Rate" in Section 1.01 hereof),
or any Commitment of such Bank; or
<PAGE> 29
25
(iii) imposes any other condition affecting this
Agreement or the Notes (or any of such extensions of credit
or liabilities) or the Commitments.
If any Bank requests compensation from the Company under this
Section 5.01(a), the Company may, by notice to such Bank (with a
copy to the Agent), suspend the obligation of such Bank to make
additional Loans of the type with respect to which such
compensation is requested until the Regulatory Change giving rise
to such request ceases to be in effect (in which case the
provisions of Section 5.04 hereof shall be applicable) or replace
such Bank pursuant to Section 5.06 hereof.
(b) Without limiting the effect of the provisions of
Section 5.01(a) hereof, in the event that, by reason of any
Regulatory Change, any Bank either (i) incurs Additional Costs
based on or measured by the excess above a specified level of the
amount of a category of deposits or other liabilities of such
Bank which includes deposits by reference to which the interest
rate on Fixed Rate Loans is determined as provided in this
Agreement or a category of extensions of credit or other assets
of such Bank which includes Fixed Rate Loans or (ii) becomes
subject to restrictions on the amount of such a category of
liabilities or assets which it may hold, then, if such Bank so
elects by notice to the Company (with a copy to the Agent), the
obligation of such Bank to make additional Loans of such type
hereunder shall be suspended until such Regulatory Change ceases
to be in effect (in which case the provisions of Section 5.04
hereof shall be applicable).
(c) Without limiting the effect of the foregoing
provisions of this Section 5.01 (but without duplication), the
Company shall pay directly to each Bank from time to time on
request such amounts as such Bank may reasonably determine to be
necessary to compensate such Bank for any costs which it
determines are attributable to the maintenance by such Bank (or
any Applicable Lending Office), pursuant to any law or regulation
or any interpretation, directive or request (whether or not
having the force of law) of any court or governmental or monetary
authority, of capital in respect of its Commitment or Loans (such
compensation to include, without limitation, an amount equal to
any reduction of the rate of return on assets or equity of such
Bank (or any Applicable Lending Office) to a level below that
which such Bank (or any Applicable Lending Office) could have
achieved but for such law, regulation, interpretation, directive
or request). Each Bank will notify the Company that it is
entitled to compensation pursuant to this Section 5.01(c) as
promptly as practicable after it determines to request such
compensation.
(d) Each Bank will notify the Company of any event
occurring after the date of this Agreement that will entitle such
Bank to compensation under paragraph (a) or (c) of this Section
<PAGE> 30
26
5.01 as promptly as practicable, but in any event within 60 days,
after such Bank obtains actual knowledge thereof; provided,
however, that if any Bank fails to give such notice within 60
days after it obtains such actual knowledge of such an event,
such Bank shall, with respect to compensation payable pursuant to
this Section 5.01 in respect of any costs resulting from such
event, only be entitled to payment under this Section 5.01 for
costs incurred from and after the date that such Bank does give
such notice; and provided, further, that each Bank will designate
a different Applicable Lending Office for the Loans of such Bank
affected by such event if such designation will avoid the need
for, or reduce the amount of, such compensation and will not, in
the sole opinion of such Bank, be disadvantageous to such Bank,
except that such Bank shall have no obligation to designate an
Applicable Lending Office located in the United States of
America. Each Bank will furnish to the Company a certificate
setting forth the basis and amount of each request by such Bank
for compensation under paragraph (a) or (c) of this Section 5.01.
Determinations and allocations by any Bank for purposes of this
Section 5.01 of the effect of any Regulatory Change pursuant to
Section 5.01(a) or (b) hereof, or of the effect of capital
maintained pursuant to Section 5.01(c) hereof, on its costs or
rate of return of maintaining Loans or its obligation to make
Loans or on amounts receivable by it in respect of Loans, and of
the amounts required to compensate such Bank under this Section
5.01, shall be conclusive absent manifest error, provided that
such determinations and allocations are presented to the Company
in reasonable detail and are made accurately and on a reasonable
basis.
(e) Without limiting the effect of the foregoing, the
Company shall pay to each Bank on the last day of each Interest
Period so long as such Bank is maintaining reserves against
"Eurocurrency liabilities" under Regulation D (or, unless the
provisions of paragraph (b) above are applicable, so long as such
Bank is, by reason of any Regulatory Change, maintaining reserves
against any other category of liabilities which includes deposits
by reference to which the interest rate on Eurodollar or LIBOR
Market Loans is determined as provided in this Agreement or
against any category of extensions of credit or other assets of
such Bank which includes any Eurodollar or LIBOR Market Loans) an
additional amount (determined by such Bank and notified to the
Company through the Agent) equal to the product of the following
for each Eurodollar or LIBOR Market Loan for each day during such
Interest Period:
(i) the principal amount of such Eurodollar or LIBOR
Market Loan outstanding on such day; and
(ii) the remainder of (x) a fraction the numerator of
which is the rate (expressed as a decimal) at which interest
accrues on such Eurodollar or LIBOR Market Loan for such
Interest Period as provided in this Agreement (less the
<PAGE> 31
27
Applicable Margin) and the denominator of which is one minus
the effective rate (expressed as a decimal) at which such
reserve requirements are imposed on such Bank on such day
minus (y) such numerator; and
(iii) 1/360.
5.02 Limitation on Types of Loans. Anything herein to
the contrary notwithstanding, if, on or prior to the
determination of any Fixed Base Rate for any Interest Period the
Agent determines (which determination shall be conclusive) that
quotations of interest rates for the relevant deposits referred
to in the definition of "Fixed Base Rate" in Section 1.01 hereof
are not being provided in the relevant amounts or for the
relevant maturities for purposes of determining rates of interest
for any type of Fixed Rate Loans as provided herein then the
Agent shall give the Company and each Bank prompt notice thereof,
and so long as such condition remains in effect, the Banks (or
such quoting Bank) shall be under no obligation to make
additional Loans of such type; provided that in the event that
the Company shall have delivered a notice of borrowing to the
Agent pursuant to Section 2.02 hereof prior to the receipt of
notice from the Agent under this Section 5.02, the provisions of
Section 5.04 hereof shall be applicable to the Loans requested in
such notice of borrowing.
5.03 Illegality. Notwithstanding any other provision
of this Agreement, in the event that it becomes unlawful or
impossible for any Bank or its Applicable Lending Office to honor
its obligation to make or maintain Eurodollar Loans or LIBOR
Market Loans hereunder, then such Bank shall promptly notify the
Company thereof (with a copy to the Agent) and such Bank's
obligation to make Eurodollar Loans shall be suspended until such
time as such Bank may again make and maintain Eurodollar Loans
(in which case the provisions of Section 5.04 hereof shall be
applicable), and such Bank shall no longer be obligated to make
any LIBOR Market Loan that it has offered to make and the
provisions of Section 5.04 hereof shall be applicable to any
outstanding LIBOR Market Loans of such Bank.
5.04 Base Rate Loans pursuant to Sections 5.01 and
5.03. If the obligation of any Bank to make any type of Fixed
Rate Loan shall be suspended pursuant to Section 5.01 or 5.03
hereof (Loans of such type being herein called "Affected Loans"
and such type being herein called the "Affected Type"), all Loans
(other than Money Market Loans) which would otherwise be made by
such Bank as Loans of the Affected Type shall be made instead as
Base Rate Loans (and, if an event referred to in Section 5.01(b)
or 5.03 hereof has occurred and such Bank so requests by notice
to the Company with a copy to the Agent, all Affected Loans of
such Bank then outstanding shall be automatically converted into
Base Rate Loans on the date specified by such Bank in such
notice) and, to the extent that Affected Loans are so made as (or
<PAGE> 32
28
converted into) Base Rate Loans, all payments of principal which
would otherwise be applied to such Bank's Affected Loans shall be
applied instead to its Base Rate Loans.
5.05 Compensation. The Company shall pay to the Agent
for account of each Bank, upon the request of such Bank through
the Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss,
cost or expense which such Bank reasonably determines are
attributable to:
(a) any payment or conversion of a Fixed Rate Loan or
a Set Rate Loan made by such Bank for any reason (including,
without limitation, the replacement of a Bank pursuant to
Section 5.06 or 12.07 hereof and the acceleration of the
Loans pursuant to Section 10 hereof, but excluding any
conversion of a Fixed Rate Loan to a Base Rate Loan pursuant
to Section 5.04 hereof) on a date other than the last day of
the Interest Period for such Loan; or
(b) any failure by the Company for any reason
(including, without limitation, the failure of any of the
conditions precedent specified in Section 6 hereof to be
satisfied) to borrow a Fixed Rate Loan or a Set Rate Loan
(with respect to which, in the case of a Money Market Loan,
the Company has accepted a Money Market Quote) from such
Bank on the date for such borrowing specified in the
relevant notice of borrowing given pursuant to Section 2.02
or 2.03(b) hereof; or
(c) any reserve requirements, including, without
limitation, any such requirement imposed by the Board of
Governors of the Federal Reserve System (including
Regulation D) relating to the extensions of Eurodollar Loans
or LIBOR Market Loans by such Bank to the Company;
provided, however, that if any such payment, conversion or
determination is given or made pursuant to this Section 5, such
loss, cost or expense shall not include any loss of margin or
profit.
5.06 Replacement. Provided that no Default shall have
occurred and be continuing, the Company may, at any time, replace
any Bank that has requested compensation from the Company
pursuant to Section 5.01 hereof and whose Commitment at such time
(together with the Commitments of all other Banks being replaced
pursuant to this Section 5.06 and Section 12.07 hereof within the
six-month period prior to such time) does not exceed 25% of the
aggregate amount of the Commitments at such time by giving not
less than ten Business Days' prior notice to the Agent (which
shall promptly notify such Bank), that it intends to replace such
Bank with respect to its Commitment with one or more banks or
other entities selected by the Company and reasonably acceptable
<PAGE> 33
29
to the Agent and the Majority Banks (it being expressly
understood that neither the Agent nor the Bank being replaced
shall have the responsibility for selecting or finding such
replacement bank or entity) and that such Bank being replaced
will, within 30 days after such notification, assign without any
recourse whatsoever all of its Loans, Notes and Commitment
hereunder to the bank or entity so selected by the Company for a
purchase price equal to the principal amount outstanding under
the Note(s) of such Bank being replaced together with accrued
interest and fees thereon to the date of assignment. Upon the
effective date of any replacement under this Section 5.06 (and as
a condition thereto) (i) the Company shall pay, or shall cause
the replacement bank to pay, to the Bank being replaced any
amounts owing to such Bank hereunder and all out-of-pocket costs
and expenses (including reasonable legal fees and disbursements)
incurred by such Bank in connection with such replacement, (ii)
the Company shall execute and deliver Notes to the Agent for such
replacement bank in accordance with Section 2.08 hereof and (iii)
such Bank being replaced shall deliver its Notes to the Company,
whereupon such replacement bank shall become a "Bank" for all
purposes of this Agreement having a Commitment in the amount of
such Bank's Commitment assumed by it, and such Commitment of the
Bank being replaced shall be terminated upon such effective date
and all of such Bank's rights and obligations under this
Agreement shall terminate (provided that the obligations of the
Company under Sections 5.01, 5.05 and 12.03 hereof to such Bank
shall survive such replacement as provided in Section 12.10
hereof); all subject to documentation in form and substance
reasonably satisfactory to such Bank, such replacement bank, the
Company and the Agent. If the Commitment of any Bank that is a
Reference Bank (or whose Applicable Lending Office is a Reference
Bank, as the case may be) shall terminate (other than pursuant to
Section 10 hereof), the Agent (after consultation with the
Company) shall, by notice to the Company and the Banks, designate
another Bank as a Reference Bank, so that there shall be at all
times be no fewer than three Reference Banks.
Section 6. Conditions Precedent.
6.01 Initial Loan. The obligation of the Banks to
make the initial Loans hereunder is subject to the receipt by the
Agent of the following, each of which shall be satisfactory to
the Agent or the Banks (if otherwise specified below) in form and
substance:
(a) Certified copies of the charter and by-laws of the
Company and the Guarantor and all corporate action taken by
the Company and the Guarantor approving this Agreement and,
in the case of the Company, the Notes and borrowings by the
Company hereunder (including, without limitation,
certificates setting forth the resolutions of the Boards of
<PAGE> 34
30
Directors of the Company and the Guarantor adopted in
respect of the transactions contemplated hereby).
(b) Certificates of the Company and the Guarantor in
respect of each of their respective officers (i) who is
authorized to sign this Agreement and/or the Notes, in the
case of the Company, and (ii) who will, until replaced by
another officer or officers duly authorized for that
purpose, act as their respective representatives for the
purposes of signing documents and giving notices and other
communications in connection with this Agreement and the
transactions contemplated hereby. The Agent and each Bank
may conclusively rely on such certificates until they
receive notice in writing from the Company or the Guarantor,
as the case may be, to the contrary.
(c) A certificate of a Senior Officer of the Company
to the effect set forth in the first sentence of Section
6.02 hereof.
(d) An opinion of James M. Gockley, Esq., Assistant
General Counsel of the Guarantor, substantially in the form
of Exhibit B hereto.
(e) The Notes, duly completed and executed.
(f) An opinion of Milbank, Tweed, Hadley & McCloy,
special New York counsel to the Banks, substantially in the
form of Exhibit C hereto.
(g) All loans and other amounts payable by the Company
and the Guarantor under the Revolving Credit Agreement dated
as of July 24, 1992 among the Guarantor, the Company, the
banks named therein and The Chase Manhattan Bank (National
Association), as agent for such banks, shall have been paid
in full and the commitments of the financial institutions
party thereto to make loans thereunder shall have
terminated.
(h) Such other documents as the Agent or any Bank or
special New York counsel to the Banks may reasonably
request.
6.02 Initial and Subsequent Loans. The obligation of
each Bank to make any Loan to the Company upon the occasion of
each borrowing hereunder (including the initial borrowing) is
subject to the further conditions precedent that as of the date
of such Loans and after giving effect thereto: (a) no Event of
Default and, if such borrowing is a Money Market Loan or will
increase the outstanding principal amount of the Syndicated
Loans, no Default shall have occurred and be continuing; and (b)
the representations and warranties made by the Company and the
Guarantor in Section 7 hereof (other than, if such borrowing is
<PAGE> 35
31
not a Money Market Loan and will not increase the outstanding
aggregate principal amount of the Syndicated Loans, the last
sentence of Section 7.02 hereof and Section 7.03 hereof) shall be
true on and as of the date of the making of such Loans with the
same force and effect as if made on and as of such date. Each
notice of borrowing by the Company hereunder shall constitute a
certification by the Company to the effect set forth in the
preceding sentence (both as of the date of such notice and,
unless the Company otherwise notifies the Agent prior to the date
of such borrowing, as of the date of such borrowing).
Section 7. Representations and Warranties. The
Company and the Guarantor jointly and severally represent and
warrant to the Banks that:
7.01 Corporate Existence. The Guarantor, the Company
and each Material Subsidiary (a) is a corporation duly organized
and validly existing under the laws of the jurisdiction of its
incorporation; (b) has all requisite corporate power, and has all
material governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business
as now being or as proposed to be conducted; and (c) is qualified
to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualification necessary and
where failure so to qualify would have a material adverse effect
on the business, financial condition or operations of the
Guarantor and its consolidated Subsidiaries taken as a whole.
7.02 Financial Condition. The consolidated balance
sheet of the Guarantor and the consolidated Subsidiaries as at
December 31, 1992 and the related consolidated statements of
operations, cash flows, changes in financial position and changes
in shareholders' equity of the Guarantor and the consolidated
Subsidiaries for the fiscal year ended on said date, with the
opinion thereon of KMPG Peat Marwick, and the unaudited
consolidated balance sheet of the Guarantor and the consolidated
Subsidiaries as at March 31, 1993 and the related consolidated
statements of operations, cash flows, changes in financial
position and changes in shareholders' equity of the Guarantor and
the consolidated Subsidiaries for the three-month period ended on
such date, heretofore furnished to each of the Banks, fairly
present the consolidated financial condition of the Guarantor and
the consolidated Subsidiaries as at each of said dates and the
consolidated results of their operations for the fiscal year and
three-month period ended on said dates (subject, in the case of
such financial statements as at March 31, 1993, to normal
year-end audit adjustments), all in accordance with generally
accepted accounting principles and practices applied on a
consistent basis. Neither the Guarantor nor any of the
Subsidiaries had on said dates any material contingent
liabilities, liabilities for taxes, unusual forward or long-term
commitments or unrealized or anticipated losses from any
<PAGE> 36
32
unfavorable commitments, except as referred to or reflected or
provided for in said balance sheets as at said dates. Since
March 31, 1993, there has been no material adverse change in the
consolidated financial condition or results of operations of the
Guarantor and the consolidated Subsidiaries from that set forth
in said financial statements as at said date.
7.03 Litigation. Except as disclosed to the Banks in
writing prior to the date of this Agreement, there are no legal
or arbitral proceedings or any proceedings by or before any
governmental or regulatory authority or agency, now pending or
(to the knowledge of the Guarantor or the Company) threatened
against the Guarantor or the Company or any Subsidiary which may
reasonably be expected to have a material adverse effect on the
consolidated financial condition or results of operations of the
Guarantor and the consolidated Subsidiaries.
7.04 No Breach. None of the execution and delivery of
this Agreement and the Notes, the consummation of the
transactions herein contemplated and compliance with the terms
and provisions hereof will conflict with or result in a breach
of, or require any consent under, the charter or by-laws of the
Guarantor or the Company, or any applicable law or regulation, or
any order, writ, injunction or decree of any court or
governmental authority or agency, or any material agreement or
instrument to which the Guarantor, the Company or any Material
Subsidiary is a party or by which it is bound or to which it is
subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of the Guarantor, the Company
or any Material Subsidiary pursuant to the terms of any such
agreement or instrument.
7.05 Corporate Action. Each of the Guarantor and the
Company has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Agreement
and the Notes (in the case of the Company); and the execution,
delivery and performance by each of the Guarantor and the Company
of this Agreement and the Notes (in the case of the Company) have
been duly authorized by all necessary corporate action on its
part; and this Agreement has been duly and validly executed and
delivered by each of the Guarantor and the Company and
constitutes, and, in the case of the Company, each of the Notes
when executed and delivered will constitute, its legal, valid and
binding obligation, enforceable in accordance with its terms.
7.06 Approvals. No authorizations, approvals or
consents of, and no filings or registrations with, any
governmental or regulatory authority or agency are necessary for
the execution, delivery or performance by the Guarantor or the
Company of this Agreement or (in the case of the Company) the
Notes or for the validity or enforceability thereof.
<PAGE> 37
33
7.07 Use of Loans. Neither the Guarantor, the Company
nor any Subsidiary is engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation U or X of
the Board of Governors of the Federal Reserve System), and no
part of the proceeds of any Loan hereunder will be used to buy or
carry any such margin stock.
7.08 ERISA. Each of the Guarantor, the Company and
the ERISA Affiliates has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to
each Plan and has not incurred any liability to the PBGC, other
than liability for termination insurance premiums, or to any Plan
or Multiemployer Plan other than for required contributions which
are not yet overdue. Each Plan, and, to the best knowledge of
each of the Company, the Guarantor and the ERISA Affiliates, each
Multiemployer Plan is in compliance in all material respects
with, and has been administered in all material respects in
compliance with, the applicable provisions of ERISA and the Code,
and as of the date of this Agreement no event or condition is
occurring or exists with respect to any Plan or Multiemployer
Plan concerning which the Company or the Guarantor would be under
an obligation to furnish a report to the Banks in accordance with
Section 8.01(e) hereof.
7.09 Taxes. United States Federal income tax returns
of the Guarantor and the Subsidiaries have been examined and
closed through the calendar tax year of the Guarantor ended
December 31, 1983. Each of the Guarantor and the Subsidiaries
has filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by it
and has paid all taxes due pursuant to such returns or pursuant
to any assessment received by the Guarantor or any Subsidiary
prior to the date on which penalties would have attached thereto,
other than any such tax, assessment or charge that is being
contested in good faith and by appropriate proceedings and which
contest operates to stay any material adverse effect of such
nonpayment and for which adequate reserves have been made. The
charges, accruals and reserves on the books of the Guarantor and
the Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of the Guarantor, adequate.
7.10 Investment Company Act. Neither the Guarantor
nor the Company is an "investment company", or a company
"controlled" by an "investment company", within the meaning of
the Investment Company Act of 1940, as amended.
7.11 Public Utility Holding Company Act. Neither the
Guarantor nor the Company is a "holding company", or an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
<PAGE> 38
34
7.12 Hazardous Materials. To the best knowledge of
the Guarantor and the Company, the Guarantor, the Company and
each of their respective Subsidiaries have obtained all permits,
licenses and other authorizations which are required under all
Environmental Laws, the failure to obtain which would have a
material adverse effect on the consolidated financial condition
or results of operations of the Guarantor and its consolidated
Subsidiaries. To the best knowledge of the Guarantor and the
Company, the Guarantor, the Company and each of their respective
Subsidiaries are in compliance with the terms and conditions of
all such permits, licenses and authorizations, and are also in
compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and
timetables contained in any applicable Environmental Law or in
any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved
thereunder, except to the extent failure to comply would not have
a material adverse effect on the consolidated financial condition
or results of operations of the Guarantor and its consolidated
Subsidiaries.
Section 8. Covenants. The Company and the Guarantor
jointly and severally agree that, so long as any of the
Commitments are in effect and until payment in full of all Loans
hereunder, all interest thereon and all other amounts payable by
the Company hereunder:
8.01 Financial Statements. The Company or the
Guarantor shall deliver to each of the Banks:
(a) as soon as available and in any event within 60
days after the end of each of the first three fiscal
quarterly periods of each fiscal year of the Guarantor,
consolidated statements of operations, changes in financial
position and changes in shareholders' equity of the
Guarantor and the consolidated Subsidiaries for such period
and for the period from the beginning of the respective
fiscal year to the end of such period, and the related
consolidated balance sheet as at the end of such period,
setting forth in each case in comparative form the
corresponding figures for the corresponding period in the
preceding fiscal year, accompanied by a certificate of a
senior financial officer of the Guarantor, which certificate
shall state that said financial statements fairly present
the consolidated financial condition and results of
operations of the Guarantor and the consolidated
Subsidiaries in accordance with generally accepted
accounting principles, consistently applied, as at the end
of, and for, such period (subject to normal year-end audit
adjustments);
<PAGE> 39
35
(b) as soon as available and in any event within 120
days after the end of each fiscal year of the Guarantor,
consolidated statements of operations, changes in financial
position and changes in shareholders' equity of the
Guarantor and the consolidated Subsidiaries for such year
and the related consolidated balance sheet as at the end of
such year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year, and
accompanied by an opinion thereon of independent certified
public accountants of recognized national standing, which
opinion shall state that said financial statements fairly
present the consolidated financial condition and results of
operations of the Guarantor and the consolidated
Subsidiaries as at the end of, and for, such fiscal year,
and a certificate of such accountants stating that, in
making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any
Default;
(c) promptly upon their becoming available, copies of
all registration statements and regular periodic reports
which the Guarantor or the Company shall have filed with the
Securities and Exchange Commission (or any governmental
agency substituted therefor) or any national securities
exchange;
(d) promptly upon the mailing thereof to the
shareholders of the Guarantor or the Company generally,
copies of all financial statements, reports and proxy
statements so mailed;
(e) as soon as possible, and in any event within ten
days after a Senior Officer of the Guarantor knows or has
reason to know that any of the events or conditions
specified below have occurred or exist, a statement signed
by a Senior Officer of the Guarantor, setting forth details
respecting such event or condition and the action, if any,
which the Guarantor, the Company or an ERISA Affiliate, as
the case may be, proposes to take with respect thereto (and
a copy of any report or notice required to be filed with or
given to PBGC by the Guarantor, the Company or an ERISA
Affiliate, as the case may be, with respect to such event or
condition):
(i) any reportable event, as defined in
Section 4043(b) of ERISA and the regulations issued thereunder,
with respect to a Plan, as to which PBGC has not by
regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the
occurrence of such event (provided that a failure to
meet the minimum funding standard of Section 412 of the
Code or Section 302 of ERISA shall be reportable
<PAGE> 40
36
event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code);
(ii) the filing under Section 4041 of ERISA of a
notice of intent to terminate any Plan or the
termination of any Plan;
(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or
the receipt by the Guarantor, the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that
such action has been taken by PBGC with respect to such
Multiemployer Plan;
(iv) the complete or partial withdrawal by the
Guarantor, the Company or any ERISA Affiliate under
Section 4201 of ERISA from a Multiemployer Plan or the
receipt by the Guarantor, the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that it
is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA; and
(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against the
Guarantor, the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not
dismissed within 30 days;
(f) promptly upon their becoming available, the
"Consolidated Reports of Condition and Income" of the bank
Subsidiaries that are Material Subsidiaries and the "Parent
Company Only Financial Statements for Bank Holding
Companies" (report no. FRY 9LP or any successor form of the
Federal Reserve System) of the Guarantor;
(g) promptly after a Senior Officer of the Guarantor
or the Company knows or has reason to know that any Default
has occurred and is continuing, a notice of such Default
with the caption "Notice of Default", describing the same in
reasonable detail and, together with such notice or as soon
thereafter as possible, a description of the action that the
Guarantor or the Company has taken and proposes to take with
respect thereto;
(h) if at any time the value of all margin stock
(within the meaning of Regulation U or X of the Board of
Governors of the Federal Reserve System) owned by the
Guarantor, the Company and their respective consolidated
Subsidiaries exceeds 25% of the value of the total assets of
the Guarantor and its consolidated Subsidiaries, in each
<PAGE> 41
37
case as reasonably determined by the Guarantor, prompt
notice of such fact;
(i) promptly after the Company or the Guarantor knows
that a change in the Rating Levels has occurred, a notice
describing the same; and
(j) from time to time such other information regarding
the business, affairs or financial condition of the
Guarantor, the Company or any of their respective
Subsidiaries (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information
required to be filed under ERISA) as any Bank or the Agent
may reasonably request.
The Guarantor will furnish to each Bank, at the time it furnishes
each set of financial statements pursuant to paragraph (a) or (b)
above, a certificate of a senior financial officer of the
Guarantor (i) to the effect that no Default has occurred and is
continuing (or, if any Default has occurred and is continuing,
describing the same in reasonable detail and describing the
action which the Guarantor or the Company has taken and proposes
to take with respect thereto) and (ii) setting forth in
reasonable detail the computations necessary to determine whether
the Guarantor or the Company, as the case may be, is in
compliance with Sections 8.08A and 8.08B hereof as of the end of
the respective fiscal quarter or fiscal year.
8.02 Litigation. The Guarantor or the Company shall
promptly give to each Bank and the Agent notice of all legal or
arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency and any material
development in respect of such legal or other proceedings,
affecting the Guarantor, the Company or any Subsidiary, which may
reasonably be expected to have a material adverse effect on the
consolidated financial condition or operations, taken as whole of
the Guarantor and the consolidated Subsidiaries.
8.03 Corporate Existence, Etc. Except as permitted in
Section 8.09 hereof, the Guarantor and the Company shall, and
shall cause each Subsidiary to, preserve and maintain its
corporate existence and all of its material rights, privileges
and franchises; and it shall, and shall cause each Subsidiary to,
comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities
if failure to comply with such requirements would materially and
adversely affect the consolidated financial condition or results
of operations of the Guarantor and the consolidated Subsidiaries;
pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of
its Property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper
<PAGE> 42
38
proceedings and against which adequate reserves are being
maintained; and permit representatives of any Bank or the Agent,
during normal business hours, to examine, copy and make extracts
from its books and records, to inspect its Properties, and to
discuss its business and affairs with its officers, all to the
extent reasonably requested by such Bank or the Agent (as the
case may be).
8.04 Use of Proceeds. The Company shall use the
proceeds of the Loans hereunder solely for general corporate
purposes and, in any event, in compliance with all applicable
legal and regulatory requirements, including, without limitation,
Regulations U and X of the Board of Governors of the Federal
Reserve System and the Securities Act of 1933 and the Securities
Exchange Act of 1934 and the regulations thereunder. The Company
shall not use the proceeds of the Loans hereunder to acquire
directly or indirectly the stock or assets of any Person except
with the prior written consent of the Board of Directors of such
Person.
8.05 Disposition of Bank Stock. The Guarantor shall
continue to own directly all of the issued and outstanding stock
of Mellon Bank, N.A.
8.06 Non-Banking Subsidiary Borrowings. The Guarantor
shall not permit any Non-Banking Subsidiary (other than the
Company) to (a) directly or indirectly create, incur or suffer to
exist any Indebtedness except (i) Indebtedness payable to the
Guarantor, the Company or another Non-Banking Subsidiary, (ii)
Indebtedness to finance the acquisition of Property to be used by
such Subsidiary in the ordinary course of its business, (iii)
Indebtedness evidenced by promissory notes of such Subsidiary
outstanding on the date of the execution and delivery of this
Agreement by the parties hereto and set forth in Schedule II
hereto, (iv) Indebtedness arising out of customer deposits taken
by such Subsidiary in the ordinary course of business, (v)
Indebtedness incurred in the ordinary course of business of such
Subsidiary aggregating (when taken together with similar
Indebtedness of all other Subsidiaries) not more than
$10,000,000, (vi) Indebtedness permitted under 12 U.S.C. Section 371c,
and (vii) Indebtedness consisting of repurchase obligations of
such Non-Banking Subsidiary arising in connection with the
mortgage warehousing program of such Subsidiary or (b) directly
or indirectly make, be or remain liable on any Guarantees
(provided, however, that as used in this Section 8.06 the term
"Guarantee" shall not include letters of credit issued by any
Non-Banking Subsidiary in the ordinary course of business).
8.07 Outstanding Advances. The Guarantor and the
Company shall not permit any entity which was a Non-Banking
Subsidiary to directly or indirectly be or remain liable to the
Guarantor or the Company for any Indebtedness after such entity
<PAGE> 43
39
shall cease to be a Subsidiary as a result of a sale or transfer
of the stock or assets of such Non-Banking Subsidiary.
8.08 Negative Covenants. The Guarantor and the
Company jointly and severally agree that, so long as the
Commitments are in effect and until payment in full of all Loans
hereunder, all interest thereon and all other amounts payable by
the Company hereunder, unless the Majority Banks otherwise agree:
A. Minimum Tangible Net Worth. The Guarantor shall
not permit the Tangible Net Worth of it and its consolidated
Subsidiaries, determined on a consolidated basis, to be less
than $1,600,000,000 at any time.
B. Double Leverage. The Guarantor shall not permit
the Double Leverage to exceed 1.30 to 1.00 at any time.
C. Negative Pledge. The Guarantor and the Company
shall not create, incur, assume or suffer to exist any Lien
on its Properties or any Lien on the stock of any Material
Subsidiary, except:
(a) Liens for taxes not delinquent or being
contested in good faith;
(b) deposits or pledges to secure the payment of
workmen's compensation, unemployment insurance, old age
pensions or other social security; and
(c) deposits or pledges to secure the performance
of bids, tenders, contracts (other than contracts for
the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other
deposits or pledges for purposes of like general nature
in the ordinary course of business.
8.09 Sale of Non-Banking Subsidiaries. The Guarantor
shall not sell or otherwise transfer all or any substantial part
of the stock or assets of any Non-Banking Subsidiary to any other
Person (other than (a) sales or transfers in the ordinary course
of business of such Non-Banking Subsidiary or (b) sales or
transfers of a Non-Banking Subsidiary or the assets thereof to
another Non-Banking Subsidiary or the Guarantor) unless payment
for such sale or transfer shall be in an amount at least equal to
the fair market value of the stock or assets sold or transferred
and provided that if any of the proceeds of such sale or transfer
are to be evidenced by a note payable to the Guarantor in an
amount equal to or greater than $50,000,000 then the Guarantor
shall obtain the written consent of the Majority Banks to the
consummation of such sale or transfer. Upon any such sale or
transfer the Guarantor shall use the proceeds of such sale or
transfer (plus any additional amount received by the Guarantor or
the Company constituting repayment by such Non-Banking Subsidiary
<PAGE> 44
40
of advances made by the Guarantor or the Company to such
Non-Banking Subsidiary) to repay on the due date of the Loans
then outstanding the aggregate principal amount thereof.
8.10 Capital Requirements. The Guarantor and the
banking Subsidiaries shall at all times maintain such amount of
capital as may be prescribed by the Board of Governors of the
Federal Reserve System from time to time, whether by regulation,
agreement or order. The Guarantor shall at all times ensure that
none of its Insured Subsidiaries shall be "undercapitalized",
"significantly undercapitalized" or "critically undercapitalized"
for purposes of 12 U.S.C. Section 1831o, as amended, re-enacted or
redesignated from time to time.
8.11 Maintenance of Property and Leases. Each of the
Guarantor and the Company will maintain and keep its Properties,
and will cause each Subsidiary to maintain and keep its
Properties, in good repair, working order and condition, and from
time to time each of the Guarantor and the Company will make, and
will cause each Subsidiary to make, all needful and proper
repairs, renewals, replacements, additions and improvements
thereto so that its business may be properly and advantageously
conducted at all times. Each of the Guarantor and the Company
will comply, and will cause each Subsidiary to comply, at all
times, with the provisions of all leases to which it is a party
as lessee or under which it occupies property, so as to prevent
any loss or forfeiture thereof or thereunder which would have a
material adverse effect on the Guarantor and its Subsidiaries
taken as a whole.
8.12 Insurance. Each of the Guarantor and the Company
will keep its and its Subsidiaries' assets, which are of an
insurable character and which are customarily insured by
companies owning similar Properties or engaged in the same or
similar businesses, insured by financially sound and reputable
insurers against loss or damage by fire, explosion and hazards by
extended coverage to a reasonable, proper and a prudent extent in
light of the nature of the business and Properties of the
Guarantor and its Subsidiaries. Each of the Guarantor and the
Company will maintain with financially sound and reputable
insurers, insurance against other hazards and risks and liability
to persons and Property of the Guarantor and its Subsidiaries to
the extent and in the manner customary for companies in similar
businesses similarly situated.
Section 9. Guarantee.
9.01 Guarantee. The Guarantor hereby guarantees to
each Bank and the Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated
maturity, by acceleration or otherwise) of the principal of and
interest on the Loans made by the Banks to, and the Notes held by
<PAGE> 45
41
each Bank of, the Company and all other amounts from time to time
owing to the Banks or the Agent by the Company under this
Agreement and under the Notes, in each case strictly in
accordance with the terms thereof (such obligations being herein
collectively called the "Guaranteed Obligations"). The Guarantor
hereby further agrees that if the Company shall fail to pay in
full when due (whether at stated maturity, by acceleration or
otherwise) any of the Guaranteed Obligations, the Guarantor will
promptly pay the same, without any demand or notice whatsoever,
and that in the case of any extension of time of payment or
renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by
acceleration or otherwise) in accordance with the terms of such
extension or renewal.
9.02 Obligations Unconditional. The obligations of
the Guarantor under Section 9.01 hereof are absolute and
unconditional, irrespective of the value, genuineness, validity,
regularity or enforceability of this Agreement, the Notes or any
other agreement or instrument referred to herein or therein, or
any substitution, release or exchange of any other guarantee of
or security for any of the Guaranteed Obligations, and, to the
fullest extent permitted by applicable law, irrespective of any
other circumstance whatsoever which might otherwise constitute a
legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 9.02 that the obligations of
the Guarantor hereunder shall be absolute and unconditional under
any and all circumstances. Without limiting the generality of
the foregoing, it is agreed that the occurrence of any one or
more of the following shall not affect the liability of the
Guarantor hereunder:
(i) at any time or from time to time, without notice
to the Guarantor, the time for any performance of or
compliance with any of the Guaranteed Obligations shall be
extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions
of this Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be done or
omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations
shall be modified, supplemented or amended in any respect,
or any right under this Agreement or the Notes or any other
agreement or instrument referred to herein or therein shall
be waived or any other guarantee of any of the Guaranteed
Obligations or any security therefor shall be released or
exchanged in whole or in part or otherwise dealt with; or
<PAGE> 46
42
(iv) any lien or security interest granted to, or in
favor of, the Agent or any Bank or Banks as security for any
of the Guaranteed Obligations shall fail to be perfected.
The Guarantor hereby expressly waives diligence, presentment,
demand of payment, protest and all notices whatsoever, and any
requirement that the Agent or any Bank exhaust any right, power
or remedy or proceed against the Company under this Agreement or
the Notes or any other agreement or instrument referred to herein
or therein, or against any other Person under any other guarantee
of, or security for, any of the Guaranteed Obligations.
9.03 Reinstatement. The obligations of the Guarantor
under this Section 9 shall be automatically reinstated if and to
the extent that for any reason any payment by or on behalf of the
Company in respect of the Guaranteed Obligations is rescinded or
must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise and the Guarantor agrees that it
will indemnify the Agent and each Bank on demand for all
reasonable costs and expenses (including, without limitation,
fees of counsel) incurred by the Agent or such Bank in connection
with such rescission or restoration.
9.04 Subrogation. The Guarantor hereby waives any
claim or other right which it might now have or hereafter acquire
against the Company or any Person that is primarily or
contingently liable on the Guaranteed Obligations that arises
from the existence or performance of the Guarantor's obligations
under its guarantee in Section 9.01, including, without
limitation, any right of subrogation, reimbursement, exoneration,
contribution or indemnification or any right to participate in
any claim or remedy of the Banks against the Company or any
collateral security therefor which the Banks now have or
hereafter acquire, whether or not such claim, remedy or right
arises in equity, or under contract, statute, or common law.
9.05 Remedies. The Guarantor agrees that, as between
the Guarantor and the Banks, the obligations of the Company under
this Agreement and the Notes may be declared to be forthwith due
and payable as provided in Section 10 hereof (and shall be deemed
to have become automatically due and payable in the circumstances
provided in said Section 10) for purposes of Section 9.01 hereof
notwithstanding any stay, injunction or other prohibition
preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Company and that,
in the event of such declaration (or such obligations being
deemed to have become automatically due and payable), such
obligations (whether or not due and payable by the Company) shall
forthwith become due and payable by the Guarantor for purposes of
said Section 9.01.
<PAGE> 47
43
9.06 Continuing Guarantee. The guarantee in this
Section 9 is a continuing guarantee, and shall apply to all
Guaranteed Obligations whenever arising.
Section 10. Events of Default. If one or more of the
following events (herein called "Events of Default") shall occur
and be continuing:
(a) The Company (i) shall default in the payment of
any principal of any Loan when due; or (ii) shall default in
the payment of interest on any Loan or any other amount
payable by it hereunder when due and such default shall
continue for a period of more than three days; or
(b) (i) The Guarantor, the Company or any Material
Subsidiary shall default in the payment when due of any
principal of or interest on any of its other Indebtedness
aggregating $10,000,000 or more; or (ii) any event specified
in any note, agreement, indenture or other document
evidencing or relating to any of its other Indebtedness
aggregating $10,000,000 or more shall occur if the effect of
such event is to cause such Indebtedness to become due prior
to its stated maturity; or (iii) any event specified in any
note, agreement, indenture or other document evidencing or
relating to any of its other Indebtedness aggregating
$50,000,000 or more shall occur if the effect of such event
is to cause or (with the giving of any notice or the lapse
of time or both) to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder
or holders) to cause, such Indebtedness to become due, or to
be prepaid in full, prior to its stated maturity; or
(c) Any representation, warranty or certification made
or deemed made herein by the Guarantor or the Company, or
any certificate furnished to any Bank or the Agent pursuant
to the provisions hereof, shall prove to have been false or
misleading as of the time made or furnished in any material
respect; or
(d) The Guarantor or the Company, as the case may be,
(i) shall default in the performance of any of its
obligations under Sections 8.01(g) or 8.04 through 8.10
(inclusive) hereof; or (ii) shall default in the performance
of any of its other obligations under this Agreement and
such default shall continue unremedied for a period of 30
days after notice thereof to the Guarantor or the Company,
as the case may be, by the Agent or any Bank (through the
Agent); or
(e) The Guarantor, the Company or any Material
Subsidiary shall admit in writing its inability to, or be
<PAGE> 48
44
generally unable to, pay its debts as such debts become due;
or
(f) The Guarantor, the Company or any Material
Subsidiary shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian,
trustee or liquidator in any insolvency, readjustment of
debts, marshalling of assets or similar proceedings of or
relating to itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of
its creditors, (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect) or other
similar proceedings, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the
Bankruptcy Code or other similar proceedings, or under any
other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment
of debts, or (vi) take any corporate action for the purpose
of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without
the application or consent of the Guarantor, the Company or
any Material Subsidiary, in any court of competent
jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the
Guarantor, the Company or such Material Subsidiary or of all
or any substantial part of its assets, or (iii) similar
relief in respect of the Guarantor, the Company or such
Material Subsidiary under any law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall
continue undismissed for a period of 60 days; or an order,
judgment or decree granting any such relief shall be entered
by any such court in any such proceeding or case and
continue unstayed and in effect, or an order for relief
against the Guarantor, the Company or such Material
Subsidiary shall be entered in an involuntary case under the
Bankruptcy Code or under any other similar law; or
(h) A final judgment or judgments for the payment of
money in excess of $5,000,000 in the aggregate shall be
rendered by a court or courts, or a governmental agency or
governmental agencies, against the Guarantor, the Company or
any Material Subsidiary and the same shall not be discharged
(or provision shall not be made for such discharge), or a
stay of execution thereof shall not be procured, within 30
days from the date of entry thereof and the Guarantor, the
<PAGE> 49
45
Company or the relevant Material Subsidiary shall not,
within said period of 30 days, or such longer period during
which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 8.01(e)
hereof shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result of such event or
condition, together with all other such events or
conditions, the Guarantor, the Company or any ERISA
Affiliate shall incur or in the opinion of the Majority
Banks shall be reasonably likely to incur a liability to a
Plan, a Multiemployer Plan, PBGC, a Section 4049 Trust
(within the meaning of Section 4049 of ERISA) or a Section
4042 Trustee (or any combination of the foregoing) which in
the aggregate exceeds 5% of Consolidated Net Worth and which
is, in the determination of the Majority Banks, material in
relation to the consolidated financial position of the
Guarantor and the consolidated Subsidiaries; or
(j) Any bank Subsidiary which is a Material Subsidiary
shall cease accepting deposits or making commercial loans on
the instruction of any federal, state or other regulatory
body with authority to give such instruction other than
pursuant to an instruction applicable to national banks
generally or a substantial portion thereof or banks located
in a particular state or substantial portion thereof; or
(k) The Comptroller of the Currency shall, pursuant to
12 U.S.C. Section 55 or any successor statute, notify any bank
Subsidiary which is a Material Subsidiary and a national
bank, or any other federal or state regulatory authority
having jurisdiction to regulate any other bank Subsidiary
which is a Material Subsidiary shall, pursuant to any
comparable federal or state statute, notify such other bank
Subsidiary, that such bank Subsidiary's capital stock has
become impaired; or any bank Subsidiary which is a Material
Subsidiary shall cease to be an insured bank under the
Federal Deposit Insurance Act, as amended, and the rules and
regulations promulgated thereunder; or
(l) Any Insured Subsidiary of the Guarantor as of the
date hereof shall be required (whether or not the time
allowed by the appropriate Federal banking agency for the
submission of such plan has been established or elapsed) to
submit a capital restoration plan of the type referred to in
12 U.S.C. Section 1831o(b)(2)(C), as amended, re-enacted or
redesignated from time to time; or
(m) The Guarantor shall Guarantee in writing
(voluntarily or otherwise) the capital of any Insured
Subsidiary of the Guarantor as of the date hereof as part of
<PAGE> 50
46
or in connection with any agreement or arrangement with any
appropriate Federal banking agency;
THEREUPON: (i) in the case of an Event of Default other than one
referred to in clause (e), (f) or (g) of this Section 10 with
respect to the Company or the Guarantor, the Agent shall, upon
request of the Majority Banks, by notice to the Company and the
Guarantor, cancel the Commitments and/or declare the principal
amount then outstanding of, and the accrued interest on, the
Loans and all other amounts payable by the Company hereunder and
under the Notes to be forthwith due and payable, whereupon such
amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which
are hereby expressly waived by the Company and the Guarantor; and
(ii) in the case of the occurrence of an Event of Default
referred to in clause (e), (f) or (g) of this Section 10 with
respect to the Company or the Guarantor the Commitments shall be
automatically canceled and the principal amount then outstanding
of, and the accrued interest on, the Loans and all other amounts
payable by the Company hereunder and under the Notes shall become
automatically immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which
are hereby expressly waived by the Company and the Guarantor.
Section 11. The Agent.
11.01 Appointment, Powers and Immunities. Each Bank
hereby irrevocably appoints and authorizes the Agent to act as
its agent hereunder with such powers as are specifically
delegated to the Agent by the terms of this Agreement, together
with such other powers as are reasonably incidental thereto. The
Agent (which term as used in this sentence and in Section 11.05
and the first sentence of Section 11.06 hereof shall include
reference to its affiliates and its own and its affiliates'
officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in
this Agreement and shall not by reason of this Agreement be a
trustee for any Bank; (b) shall not be responsible to the Banks
for any recitals, statements, representations or warranties
contained in this Agreement, or in any certificate or other
document referred to or provided for in, or received by any of
them under, this Agreement, or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other document referred to or provided
for herein or for any failure by the Company, the Guarantor or
any other Person to perform any of its obligations hereunder or
thereunder; (c) shall not be required to initiate or conduct any
litigation or collection proceedings hereunder; and (d) shall not
be responsible for any action taken or omitted to be taken by it
hereunder or under any other document or instrument referred to
or provided for herein or in connection herewith, except for its
own gross negligence or willful misconduct. The Agent may employ
<PAGE> 51
47
agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith. The Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof
unless and until a written notice of the assignment or transfer
thereof shall have been filed with the Agent.
11.02 Reliance by Agent. The Agent shall be entitled
to rely in good faith upon any certification, notice or other
communication (including any thereof by telephone, telex,
telegram or cable) believed by it to be genuine and correct and
to have been signed or sent by or on behalf of the proper Person
or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by the Agent.
As to any matters not expressly provided for by this Agreement,
the Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder in accordance with instructions
signed by the Majority Banks, and such instructions of the
Majority Banks and any action taken or failure to act pursuant
thereto shall be binding on all of the Banks.
11.03 Defaults. The Agent shall not be deemed to have
knowledge of the occurrence of a Default (other than the
non-payment of principal of, or interest on, the Loans) unless
the Agent has received notice from a Bank, the Company or the
Guarantor specifying such Default and stating that such notice is
a "Notice of Default". In the event that the Agent receives such
a notice of the occurrence of a Default, the Agent shall give
prompt notice thereof to the Banks (and shall give each Bank
prompt notice of each such non-payment). The Agent shall
(subject to Section 11.07 hereof) take such action with respect
to such Default as shall be directed by the Banks, provided that,
unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Default
as it shall deem advisable in the best interest of the Banks.
11.04 Rights as a Bank. With respect to its
Commitment and the Loans made by it, Chase (and any successor
acting as Agent) in its capacity as a Bank hereunder shall have
the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not acting as the Agent, and
the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include the Agent in its individual capacity. Chase
(and any successor acting as Agent) and its affiliates may
(without having to account therefor to any Bank) accept deposits
from, lend money to and generally engage in any kind of banking,
trust or other business with the Company or the Guarantor (and
any of their affiliates) as if it were not acting as the Agent,
and Chase and its affiliates may accept fees and other
consideration from the Company or the Guarantor for services in
connection with this Agreement or otherwise without having to
account for the same to the Banks.
<PAGE> 52
48
11.05 Indemnification. The Banks agree to indemnify
the Agent (to the extent not reimbursed under Section 12.03
hereof, but without limiting the obligations of the Company under
said Section 12.03), ratably in accordance with the aggregate
principal amount of the Loans made by the Banks (or, if no Loans
are at the time outstanding, ratably in accordance with their
respective Commitments), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this
Agreement or any other documents contemplated by or referred to
herein or the transactions contemplated hereby (including,
without limitation, the costs and expenses which the Company is
obligated to pay under Section 12.03 hereof but excluding, unless
a Default has occurred and is continuing, normal administrative
costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof
or of any such other documents, provided that no Bank shall be
liable for any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Agent.
11.06 Non-Reliance on Agent and other Banks. Each
Bank agrees that it has, independently and without reliance on
the Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit
analysis of the Guarantor and the Subsidiaries and decision to
enter into this Agreement and that it will, independently and
without reliance upon the Agent or any other Bank, and based on
such documents and information as it shall deem appropriate at
the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. Except as
otherwise expressly set forth herein, the Agent shall not be
required to keep itself informed as to the performance or
observance by the Guarantor or the Company of this Agreement or
any other document referred to or provided for herein or to
inspect the Properties or books of the Guarantor, the Company or
any Subsidiary. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks
by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other
information concerning the affairs, financial condition or
business of the Guarantor, the Company or any Subsidiary (or any
of their affiliates) which may come into the possession of the
Agent or any of its affiliates.
11.07 Failure to Act. Except for action expressly
required of the Agent hereunder the Agent shall in all cases be
fully justified in failing or refusing to act hereunder unless it
shall be indemnified to its satisfaction by the Banks against any
and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
<PAGE> 53
49
11.08 Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided
below, the Agent may resign at any time by giving notice thereof
to the Banks, the Guarantor and the Company and the Agent may be
removed at any time with or without cause by the Majority Banks.
Upon any such resignation or removal, the Banks shall have the
right to appoint a successor Agent. If no successor Agent shall
have been so appointed by the Banks and shall have accepted such
appointment within 30 days after the retiring Agent's giving of
notice of resignation or the Banks' removal of the retiring
Agent, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank with
a combined capital and surplus of at least $100,000,000. Upon
the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Section 11 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by
it while it was acting as the Agent.
11.09 Agency Fee. The Company shall pay to the Agent
for its own account a non-refundable agency fee (which fee shall
not be pro-rated if the Commitments are available or Loans are
outstanding for a period which is less than twelve months), for
each twelve month period, so long as Commitments are available or
Loans are outstanding on the last Business Day of each such
twelve month period in an amount equal to the lesser of (i)
$25,000 or (ii) the product of $2,000 and the aggregate number of
borrowings and amendments to this Agreement occurring in such
twelve-month period, such fee to be payable in arrears on the
earlier of each anniversary of the date of this Agreement or the
date the Commitments are terminated.
Section 12. Miscellaneous.
12.01 Waiver. No failure on the part of the Agent or
any Bank to exercise and no delay in exercising, and no course of
dealing with respect to, any right, power or privilege under this
Agreement or any Note shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or
privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right,
power or privilege. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
12.02 Notices. All notices and other communications
provided for herein (other than any modifications of, or waivers
or consents under, this Agreement or any Note) shall be given or
made by telephone (to be confirmed in writing promptly
<PAGE> 54
50
thereafter), telex, telecopy, telegraph, cable or in writing and
telexed, telecopied, telegraphed, cabled, mailed or delivered to
the intended recipient at the "Address for Notices" specified
below its name on the signature pages hereof; or, as to any
party, at such other address as shall be designated by such party
in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have
been duly given when transmitted by telex or telecopier,
delivered to the telegraph or cable office or personally
delivered or, in the case of a mailed notice, upon receipt or, in
the case of a telephone notice, when confirmed in writing, in
each case given or addressed as aforesaid.
12.03 Expenses, Etc. The Company agrees to pay or
reimburse each of the Banks and the Agent for paying (a) all
reasonable out-of-pocket costs and expenses of the Agent
(including, without limitation, the reasonable fees and expenses
of Messrs. Milbank, Tweed, Hadley & McCloy, special New York
counsel to the Banks), in connection with (i) the negotiation,
preparation, execution and delivery of this Agreement and the
Notes and the making of the Loans hereunder and (ii) any
amendment, modification or waiver of any of the terms of this
Agreement or any of the Notes; (b) all reasonable costs and
expenses of the Banks and the Agent (including reasonable
counsels' fees) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom or in
connection with the negotiation of any restructuring or "work-
out" (whether or not consummated), of the obligations of the
Company hereunder and (ii) the enforcement of this Section 12.03;
and (c) all transfer, stamp, documentary or other similar taxes,
assessments or charges levied by any governmental or revenue
authority in respect of this Agreement, any of the Notes or any
other document referred to herein.
Each of the Guarantor and the Company hereby jointly
and severally agrees to indemnify the Agent and each Bank and
their respective directors, officers, employees and agents from,
and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them
arising out of or by reason of any investigation or litigation or
other proceedings (including any threatened investigation or
litigation or other proceedings) relating to any actual or
proposed use by the Company or any of its Subsidiaries of the
proceeds of any of the Loans, including, without limitation, the
reasonable fees and disbursements of counsel incurred in
connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims,
damages or expenses incurred by reason of the gross negligence or
willful misconduct of the Person to be indemnified).
12.04 Amendments, Etc. Except as otherwise expressly
provided in this Agreement, any provision of this Agreement may
be amended or modified only by an instrument in writing signed by
<PAGE> 55
51
the Guarantor, the Company, the Agent and the Majority Banks, or
by the Guarantor, the Company and the Agent acting with the
consent of the Majority Banks, and any provision of this
Agreement may be waived by the Majority Banks or by the Agent
acting with the consent of the Majority Banks; provided that no
amendment, modification or waiver shall, unless by an instrument
signed by all of the Banks or by the Agent acting with the
consent of all of the Banks: (i) increase or extend the term, or
extend the time or waive any requirement for the reduction or
termination, of the Commitments, (ii) extend the date fixed for
the payment of principal of or interest on any Loan, (iii) reduce
the amount of any payment of principal thereof or the rate at
which interest is payable thereon or any fee is payable to the
Banks hereunder, (iv) alter the terms of this Section 12.04, (v)
amend the definition of the term "Majority Banks"; and provided,
further, that any amendment of Section 11 hereof, or which
increases the obligations of the Agent hereunder, shall require
the consent of the Agent, or (vi) release the Guarantor from its
obligations under Section 9 hereof.
Anything in this Agreement to the contrary
notwithstanding, if at a time when the conditions precedent set
forth in Section 6 hereof to any Syndicated Loan hereunder are,
in the opinion of the Majority Banks, satisfied, any Bank shall
fail to fulfill its obligations to make such Loan and such
failure continues for at least two Business Days then, for so
long as such failure shall continue, such Bank shall (unless the
Majority Banks, determined as if such Bank were not a "Bank"
hereunder, shall otherwise consent in writing) be deemed for all
purposes relating to amendments, modifications, waivers or
consents under this Agreement (including, without limitation,
under this Section 12.04) to have no Loans or Commitments, shall
not be treated as a "Bank" hereunder when performing the
computation of Majority Banks, and shall have no rights under the
preceding paragraph of this Section 12.04; provided that any
action taken by the other Banks with respect to the matters
referred to in clauses (i) through (vi) of the preceding
paragraph shall not be effective as against such Bank.
12.05 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.
12.06 Assignments and Participations.
(a) Neither the Company nor the Guarantor may assign
its rights or obligations hereunder or under the Notes without
the prior consent of all of the Banks and the Agent.
(b) No Bank may assign any of its Loans, its Notes or
its Commitment without the prior consent of the Guarantor and the
Company, which consent shall not be unreasonably withheld.
<PAGE> 56
52
(c) A Bank may sell to one or more other Persons a
participation in all or any part of its Commitment or any Loan
held by it, in which event each such participant shall be
entitled to the rights and benefits of the provisions of Section
8.01(j) hereof with respect to its participation in such
Commitment or Loan as if (and the Guarantor and the Company shall
be directly obligated to such participant under such provisions
as if) such participant were a "Bank" for purposes of said
Section, but shall not have any other rights or benefits under
this Agreement or any Note (the participant's rights against such
Bank in respect of such participation to be those set forth in
the agreement (the "Participation Agreement") executed by such
Bank in favor of the participant). All amounts payable by the
Company to any Bank under Section 5 hereof shall be determined as
if such Bank had not sold any participations in such Commitment
or Loan and as if such Bank were funding all of such Loan in the
same way that it is funding the portion of such Loan in which no
participations have been sold. In no event shall a Bank that
sells a participation be obligated to the participant under the
Participation Agreement to take or refrain from taking any action
hereunder or under such Bank's Notes except that such Bank may
agree in the Participation Agreement that it will not, without
the consent of the participant, agree to (i) the extension of any
date fixed for the payment of principal of or interest or fees on
the related Loan or Loans, (ii) the reduction of any payment of
principal thereof, or (iii) the reduction of the rate at which
either interest is payable thereon or (if the participant is
entitled to any part thereof) of the fees payable hereunder to a
level below the rate at which the participant is entitled to
receive interest or such fees (as the case may be) in respect of
such participation.
(d) Subject to Section 12.08 hereof, a Bank may
furnish any information concerning the Guarantor, the Company or
any of their respective Subsidiaries in the possession of such
Bank from time to time to assignees and participants (including
prospective assignees and participants).
(e) In addition to the assignments and participations
permitted under the foregoing provisions of this Section 12.06,
any Bank may assign and pledge all or any portion of its Loans
and its Note to any Federal Reserve Bank as collateral security
pursuant to Regulation A and any Operating Circular issued by
such Federal Reserve Bank. No such assignment shall release the
assigning Bank from its obligations hereunder.
(f) Anything in this Section 12.06 to the contrary
notwithstanding, no Bank may assign or participate any interest
in any Loan held by it hereunder to the Company or any of its
affiliates or Subsidiaries without the prior written consent of
each Bank.
<PAGE> 57
53
12.07 Replacement of Banks. The Guarantor, the
Company, the Agent and each of the Banks agree that if a Bank (a
"Replaced Bank") shall be unacceptable to the Company, the
Company shall so notify such Bank in writing (a "Replacement
Notice") and may, provided that no Default shall have occurred
and be continuing and that the Commitment of such Replaced Bank
(together with the Commitments of all other Banks being replaced
pursuant to Section 5.06 hereof and this Section 12.07 within the
six-month period prior to such time) does not exceed 25% of the
aggregate amount of the Commitments at such time, require such
Bank, within 30 days after such notification, to assign without
any recourse whatsoever all of its Loans, Notes and Commitment
hereunder to another bank or other entity selected by the Company
and reasonably acceptable to the Agent and the Majority Banks (it
being expressly understood that neither the Agent nor such
Replaced Bank shall have the responsibility for selecting or
finding such replacement bank or entity) for a purchase price
equal to the principal amount outstanding under such Replaced
Bank's Note or Notes, as the case may be, together with accrued
interest and fees to the date of assignment. Upon the effective
date of any replacement under this Section 12.07 (and as a
condition thereto) (i) the Company shall pay, or shall cause the
replacement bank to pay, to the Replaced Bank any amounts owing
to such Replaced Bank hereunder and all out-of-pocket expenses
(including reasonable legal fees and disbursements) incurred by
such Replaced Bank in connection with such assignment, (ii) the
Company shall execute and deliver Notes to the Agent for such
replacement bank in accordance with Section 2.08 hereof and (iii)
such Replaced Bank shall deliver its Notes to the Company,
whereupon such replacement bank shall become a "Bank" for all
purposes of this Agreement having a Commitment in the amount of
such Replaced Bank's Commitment assumed by it, and such
Commitment of the Replaced Bank shall be terminated upon such
effective date and all of such Replaced Bank's rights and
obligations under this Agreement shall terminate (provided that
the obligations of the Company under Sections 5.01, 5.05 and
12.03 hereof to such Replaced Bank shall survive such replacement
as provided in Section 12.10 hereof); all subject to
documentation in form and substance reasonably satisfactory to
such Replaced Bank, such replacement bank, the Company and the
Agent. If the Commitment of any Bank that is a Reference Bank
(or whose Applicable Lending Office is a Reference Bank, as the
case may be) shall terminate (other than pursuant to Section 10
hereof), the Agent (after consultation with the Company) shall,
by notice to the Company and the Banks, designate another Bank as
a Reference Bank, so that there shall at all times be no fewer
than three Reference Banks.
12.08 Confidentiality. Each Bank and the Agent agrees
(on behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable
precautions to keep confidential, in accordance with their
customary procedures for handling confidential information of
<PAGE> 58
54
this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the
Company or the Guarantor pursuant to this Agreement which is
identified by the Company or the Guarantor as being confidential
at the time the same is delivered to the Banks or the Agent,
provided that nothing herein shall limit the disclosure of any
such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for any of the
Banks or the Agent, (iii) to bank examiners, auditors or
accountants, (iv) to the Agent or any other Bank, (v) in
connection with any litigation to which any one or more of the
Banks is a party or (vi) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first
executes and delivers to the respective Bank a Confidentiality
Agreement in substantially the form of Exhibit F hereto;
provided, further, that, unless specifically prohibited by
applicable law or court order, each Bank shall, prior to
disclosure thereof, notify the Guarantor and the Company of any
request for disclosure of any such non-public information (x) by
any governmental agency or representative thereof (other than any
such request in connection with an examination of the financial
condition of such Bank by such governmental agency) or (y)
pursuant to legal process; and provided, finally, that in no
event shall any Bank or the Agent be obligated or required to
return any materials furnished by the Company or the Guarantor.
Each Bank agrees that it will not use any non-public information
supplied to it by the Company or the Guarantor pursuant to this
Agreement which is identified by the Company or the Guarantor as
being confidential for any purpose unrelated to this Agreement
and the Loans.
12.09 No Set-offs, Etc. by the Company. Each of the
Company and the Guarantor agrees that its obligations hereunder
and under the Notes shall be absolute and unconditional, and
shall not be affected by any circumstances whatsoever, including,
without limitation, any set-off, counterclaim, recoupment,
defense or other right that it may have against any Bank or the
Agent for any reason whatsoever.
12.10 Survival. The obligations of the Company under
Sections 2.05, 5.01, 5.05, 11.09 and 12.03 hereof shall survive
the repayment of the Loans and the termination of the
Commitments.
12.11 Captions. Captions and section headings
appearing herein are included solely for convenience of reference
and are not intended to affect the interpretation of any
provision of this Agreement.
12.12 Counterparts. This Agreement may be executed in
any number of counterparts, all of which taken together shall
constitute one and the same instrument and any of the parties
<PAGE> 59
55
hereto may execute this Agreement by signing any such
counterpart.
12.13 Governing Law; Submission to Jurisdiction. This
Agreement and the Notes shall be governed by, and construed in
accordance with, the laws of the State of New York. Each of the
Guarantor and the Company hereby submits to the nonexclusive
jurisdiction of the United States District Court for the Southern
District of New York and of any New York State Court sitting in
New York City for the purposes of all legal proceedings arising
out of or relating to this Agreement or the transactions
contemplated hereby. Each of the Guarantor and the Company
irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been
brought in an inconvenient forum.
12.14 WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR,
THE COMPANY, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
12.15 Termination of Existing Agreement. On the date
of the execution and delivery of this Agreement, the Company
agrees to pay in full all amounts owing under the Credit
Agreement dated as of July 25, 1989 among the Company, the
Guarantor, the banks named therein, and Chase, as agent for such
banks and also agrees that the commitments of Chase and such
other banks party to such Credit Agreement to extend credit to
the Company shall be deemed terminated.
12.16 Severability. If any provision hereof is
invalid and unenforceable in any jurisdiction, then, to the
fullest extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Agent and the Banks
in order to carry out the intentions of the parties hereto as
nearly as may be possible and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction
shall not affect the validity or enforceability of such provision
in any other jurisdiction.
12.17 Entire Agreement. This Agreement and the Notes
constitute the entire understanding among the parties hereto with
respect to the subject matter hereof.
12.18 Bank's In-House Counsel. All references
contained in this Agreement to legal fees and expenses of any
Bank shall be deemed to include, at such Bank's option, either
(i) the fees and expenses of outside counsel to such Bank or (ii)
the allocated cost of in-house counsel of such Bank.
<PAGE> 60
56
The parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
MELLON FINANCIAL COMPANY
By /s/ Steven G. Elliott
----------------------
Name: Steven G. Elliott
Title: President and Chief
Executive Officer
Address for Notices:
One Mellon Bank Center
7th Floor
Pittsburgh, Pennsylvania 15258
Telex No.: 199103 or 199151
Telecopier No.: (412) 234-6283
Telephone No.: (412) 234-5601
Attention: Charles M. Johnston
MELLON BANK CORPORATION
as Guarantor
By /s/ Steven G. Elliott
----------------------
Name: Steven G. Elliott
Title: Vice Chairman, Chief
Financial Officer and
Treasurer
Address for Notices:
One Mellon Bank Center
7th Floor
Pittsburgh, Pennsylvania 15258
Telex No.: 199103 or 199151
Telecopier No.: (412) 234-6283
Telephone No.: (412) 234-5601
Attention: Charles M. Johnston
<PAGE> 61
57
Commitment THE CHASE MANHATTAN BANK
$40,000,000.00 (NATIONAL ASSOCIATION)
By /s/ William P. Donohue
----------------------
Name: William P. Donohue
Title: Managing Director
Lending Office for Base Rate Loans:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Lending Office for Loans Other
than Base Rate Loans:
The Chase Manhattan Bank
(National Association)
Cayman Island, B.W.I.
c/o The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
(National Association)
1 Chase Manhattan Plaza
New York, New York 10081
Telecopier No.: (212) 552-7879
Telephone No.: (212) 552-2301
Attention: William P. Donohue
<PAGE> 62
58
Commitment MORGAN GUARANTY TRUST COMPANY OF
$40,000,000.00 NEW YORK
By /s/ Richard J. Herder
---------------------
Name: Richard J. Herder
Title: Vice President
Lending Office for Base Rate Loans
and CD Loans:
Morgan Guaranty Trust Company of
New York
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, Delaware 19713
Lending Office for Eurodollar Loans
or LIBOR Market Loans:
Morgan Guaranty Trust Company of
New York
Nassau, Bahamas Office
c/o J.P. Morgan Services Inc.
Euro-Loan Servicing Unit
500 Stanton Christiana Road
Newark, Delaware 19713
Address for Notices:
Morgan Guaranty Trust Company of
New York
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, Delaware 19713
Telex No.: 177615
Answer Back: MGT UT
Telecopier No.: (302) 992-1094
Telephone No.: (302) 992-1800
Attention: Multi-Option Facility
Unit
<PAGE> 63
59
Commitment THE FIRST NATIONAL BANK
$20,000,000.00 OF CHICAGO
By /s/ Robert E. O'Connell
-----------------------
Name: Robert E. O'Connell
Title: Vice President
Lending Office for all Loans:
The First National Bank
of Chicago
One First National Plaza
Chicago, Illinois 60670
Address for Notices:
The First National Bank
of Chicago
One First National Plaza
Suite 0162 - 12th Floor
Chicago, Illinois 60670-0162
Telex No.: 190201 FNBC UT
Answer Back: 4330251 FNBC UI
Telecopier No.: (312) 732-6222
Telephone No.: (312) 732-2552
Attention: Robert E. O'Connell
Vice President
<PAGE> 64
60
Commitment CHEMICAL BANK
$20,000,000.00
By /s/ Robert J. Juelis
--------------------
Name: Robert J. Juelis
Title: Vice President
Lending Office for all Loans:
Chemical Bank
52 Broadway - 4th Floor
New York, New York 11041
Address for Notices:
Chemical Bank
270 Park Avenue - 9th Floor
New York, New York 10017
Telex No.: 422803
Answer Back: CBUNUI
Telecopier No.: (212) 986-5194
Telephone No.: (212) 270-5043
Attention: Robert J. Juelis
<PAGE> 65
61
Commitment CREDIT SUISSE
$20,000,000.00
By /s/ Christopher Eldin
---------------------
Name: Christopher Eldin
Title: Member of Senior Management
By /s/ Andrea Shkane
-----------------
Name: Andrea Shkane
Title: Associate
Lending Office for all Loans:
Credit Suisse
Tower 49
12 East 49th Street
New York, New York 10017
Address for Notices:
Credit Suisse
Tower 49
12 East 49th Street
New York, New York 10017
Telex No.: 420-149
Answer Back: CREDSWIS
Telecopier No.: (212) 238-5389
Telephone No.: (212) 238-5352
Attention: Christopher Eldin
<PAGE> 66
62
Commitment THE BANK OF NEW YORK
$20,000,000.00
By /s/ David G. Dobbins
--------------------
Name: David G. Dobbins
Title: Vice President
Lending Office for all Loans:
The Bank of New York
One Wall Street
New York, New York 10286
Address for Notices:
The Bank of New York
One Wall Street
New York, New York 10286
Telex No.: 62763
Telecopier No.: (212) 809-9499
Telephone No.: (212) 635-7908
Attention: David G. Dobbins
Vice President
<PAGE> 67
63
Commitment BARCLAYS BANK PLC
$20,000,000.00
By /s/ Richard A. Sexton
---------------------
Name: Richard A. Sexton
Title: Vice President
Lending Office for all Loans:
Barclays Bank PLC
222 Broadway
New York, New York 10038
Address for Notices:
Barclays Bank PLC
222 Broadway
New York, New York 10038
Telex No.: 12694 BARCLADOM NYK
Telecopier No.: (212) 412-7665
Telephone No.: (212) 412-7661
Attention: Richard A. Sexton
<PAGE> 68
64
Commitment BANK OF AMERICA NATIONAL TRUST
$20,000,000.00 AND SAVINGS ASSOCIATION
By /s/ Cheryl A. Borgmier
----------------------
Name: Cheryl A. Borgmier
Title: Vice President
Lending Office for
Syndicated Loans: Bank of America
NT & SA Bank of America Payment
Services Account Administration 6570
1850 Gateway Boulevard
Concord, CA 94520
Telex No.: 34346
Telecopier No.: (415) 675-7531
Telephone No.: (510) 675-8253
Attention: Eileen Rakish
Lending Office for Money Market
Loans:
Bank of America NT & SA
Short Term Asset Sales 5670
555 California Street, 10th Floor
San Francisco, CA 94104
Telecopier No.: (415) 622-2235
Telephone No.: (415) 622-2020
Attention: Carolyn Alberts
Address for Notices:
Bank of America NT & SA
555 California Street, Unit 5179
San Francisco, CA 94104
Telecopier No.: (415) 622-1173
Telephone No.: (415) 622-6184
Attention: Cheryl Borgmier
<PAGE> 69
65
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By /s/ William P. Donohue
----------------------
Name: William P. Donohue
Title: Managing Director
Address for Notices to
Chase as Agent:
4 Chase Metrotech Center
13th Floor
Brooklyn, New York 11245
Telex No.: 6720516
Answer Back: CMBNYAUW
Telecopier No.: (718) 242-6900
Telephone No.: (718) 242-7980
Attention: New York Agency
<PAGE> 70
SCHEDULE I
LIST OF MATERIAL SUBSIDIARIES
-----------------------------
Mellon Bank N.A.
Mellon Financial Services Corporation #1
Mellon Bank (DE) N.A.
Mellon Mortgage Company
MBC Investments Corporation
Mellon Financial Services Corporation #11
The Boston Company, Inc.
Mellon Properties Company
Boston Group Holdings, Inc.
Boston Safe Deposit and Trust Company
<PAGE> 71
SCHEDULE II
OUTSTANDING INDEBTEDNESS OF
NON-BANKING SUBSIDIARIES
NONE
<PAGE> 72
EXHIBIT A-1
[Form of Note for Syndicated Loans]
PROMISSORY NOTE
$_________________ ____________, 1993
New York, New York
FOR VALUE RECEIVED, MELLON FINANCIAL COMPANY, a
corporation organized under the laws of the Commonwealth of
Pennsylvania (the "Company"), hereby promises to pay to
__________________________________________________ (the "Bank"),
for the account of its respective Applicable Lending Offices
provided for by the Credit Agreement referred to below, at the
principal office of The Chase Manhattan Bank (National
Association) at 1 Chase Manhattan Plaza, New York, New York
10081, the principal sum of _________ DOLLARS (or such lesser
amount as shall equal the aggregate unpaid principal amount of
the Syndicated Loans made by the Bank to the Company under the
Credit Agreement), in lawful money of the United States of
America and in immediately available funds, on the dates and in
the principal amounts provided in the Credit Agreement, and to
pay interest on the unpaid principal amount of each such
Syndicated Loan, at such office, in like money and funds, for the
period commencing on the date of such Syndicated Loan until such
Syndicated Loan shall be paid in full, at the rates per annum and
on the dates provided in the Credit Agreement.
The date, amount, type, interest rate and maturity date
of each Syndicated Loan made by the Bank to the Company, and each
payment made on account of the principal thereof, shall be
recorded by the Bank on its books and, prior to any transfer of
this Note, endorsed by the Bank on the schedule attached hereto
or any continuation thereof.
This Note is one of the Notes referred to in the
Revolving Credit Agreement (as at any time amended, the "Credit
Agreement") dated as of July 23, 1993 among the Company, the
Guarantor named therein, the Banks named therein (including the
Bank) and The Chase Manhattan Bank (National Association), as
Agent, and evidences Syndicated Loans made by the Bank
thereunder. Capitalized terms used in this Note have the
respective meanings assigned to them in the Credit Agreement.
The Credit Agreement provides for the acceleration of
the maturity of this Note upon the occurrence of certain events
and for prepayments of Syndicated Loans upon the terms and
conditions specified therein.
<PAGE> 73
Except as permitted by Section 12.06(b) of the Credit
Agreement, this Note may not be assigned by the Bank to any other
Person.
This Note shall be governed by and construed in
accordance with the laws of the State of New York.
MELLON FINANCIAL COMPANY
By ___________________________
Name:
Title:
<PAGE> 74
SCHEDULE OF LOANS
This Note evidences Syndicated Loans made under the
within described Revolving Credit Agreement to the Company, on
the dates, in the principal amounts, of the types, bearing
interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Date of Paid or Principal Notation
Loan Loan Loan Loan Prepaid Amount Made By
- ---- ------ ---- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 75
EXHIBIT A-2
[Form of Note for Money Market Loans]
PROMISSORY NOTE
____________, 1993
New York, New York
FOR VALUE RECEIVED, MELLON FINANCIAL COMPANY, a
corporation organized under the laws of the Commonwealth of
Pennsylvania (the "Company"), hereby promises to pay
____________________________________ (the "Bank"), for account of
its respective Applicable Lending Offices provided for by the
Credit Agreement referred to below, at the principal office of
The Chase Manhattan Bank (National Association) at 1 Chase
Manhattan Plaza, New York, New York 10081, the aggregate unpaid
principal amount of the Money Market Loans made by the Bank to
the Company under the Credit Agreement, in lawful money of the
United States of America and in immediately available funds, on
the dates and in the principal amounts provided in the Credit
Agreement, and to pay interest on the unpaid principal amount of
each such Money Market Loan, at such office, in like money and
funds, for the period commencing on the date of such Money Market
Loan until such Money Market Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, type, interest rate and maturity date
of each Money Market Loan made by the Bank to the Company, and
each payment made on account of the principal thereof, shall be
recorded by the Bank on its books and, prior to any transfer of
this Note, endorsed by the Bank on the schedule attached hereto
or any continuation thereof.
This Note is one of the Notes referred to in the
Revolving Credit Agreement (as modified and supplemented and in
effect from time to time, the "Credit Agreement") dated as of
July 23, 1993 among the Company, the Guarantor named therein, the
Banks named therein (including the Bank) and The Chase Manhattan
Bank (National Association), as Agent, and evidences Money Market
Loans made by the Bank thereunder. Capitalized terms used in
this Note have the respective meanings assigned to them in the
Credit Agreement.
The Credit Agreement provides for the acceleration of
the maturity of this Note upon the occurrence of certain events
and for prepayments of Money Market Loans upon the terms and
conditions specified therein.
<PAGE> 76
Except as permitted by Section 12.06(b) of the Credit
Agreement, this Note may not be assigned by the Bank to any other
Person.
This Note shall be governed by, and construed in
accordance with, the law of the State of New York.
MELLON FINANCIAL COMPANY
By ________________________
Name:
Title:
<PAGE> 77
SCHEDULE OF LOANS
This Note evidences Money Market Loans made under the
within described Revolving Credit Agreement to the Company, on
the dates, in the principal amounts, of the types, bearing
interest at the rates and maturing on the dates set forth below,
subject to the payments and prepayments of principal set forth
below:
<TABLE>
<CAPTION>
Principal
Date Amount Type Maturity Amount Unpaid
of of of Date of Paid or Principal Notation
Loan Loan Loan Loan Prepaid Amount Made By
- ---- -------- ---- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 78
EXHIBIT B
[Form of Opinion of Counsel to the Company and the Guarantor]
_____________, 1993
To the Banks party to the Credit
Agreement referred to below and
The Chase Manhattan Bank
(National Association), as Agent
Gentlemen:
I am Managing Counsel-Finance and Assistant Corporate
Secretary of Mellon Bank Corporation, a Pennsylvania corporation
(the "Guarantor"), and in that capacity I have acted as counsel
to Mellon Financial Company (the "Company") and the Guarantor in
connection with the Revolving Credit Agreement (the "Credit
Agreement") dated as of July 23, 1993 among the Company, the
Guarantor, the Banks named therein and The Chase Manhattan Bank
(National Association), as Agent, providing for loans to be made
to the Company in the aggregate principal amount at any time
outstanding not to exceed $200,000,000. This opinion is being
furnished to you pursuant to Section 6.01(d) of the Credit
Agreement.
In furnishing this opinion, I have examined the
originals or conformed copies of such corporate records,
agreements and instruments of the Company and the Guarantor,
certificates of public officials and of officers of the Company
and the Guarantor, and such other documents and records, and such
matters of law, as I have deemed necessary or appropriate to
provide a basis for the opinions set forth below. In this
examination, I have assumed (except in the case of signatures of
officers of the Company or the Guarantor and documents submitted
by the Company or the Guarantor) the genuineness of all
signatures and the authenticity of all documents submitted to me
as original documents and the conformity to original documents of
all documents submitted to me as certified, conformed or
photostatic copies. Capitalized terms used herein and not
otherwise defined have the meanings ascribed to them in the
Credit Agreement.
Based upon the foregoing and subject to the
qualifications and limitations hereinafter expressed, I am of the
opinion that:
1. Each of the Company and the Guarantor is a
corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
Each of the Company and the Guarantor has the necessary
<PAGE> 79
2
corporate power to make and perform the Credit Agreement
and, in the case of the Company, the Notes and, in the case
of the Company, to borrow under the Credit Agreement and, in
the case of the Guarantor, to guarantee the obligations of
the Company under the Credit Agreement and the Notes.
2. The making and performance by the Company and the
Guarantor of the Credit Agreement and the Notes and, in the
case of the Company, the borrowings thereunder and, in the
case of the Guarantor, the guarantee thereunder, have been
duly authorized by all necessary corporate action, and do
not and will not violate any statute or any order, rule or
regulation of any court or governmental agency or body
having jurisdiction over the Company or the Guarantor, nor
will such action result in any violation of the provisions
of the articles of incorporation, as amended, or the
by-laws, as amended, of the Company or the Guarantor or
result in the breach of, or constitute a default or require
any consent under, or result in the creation of any Lien
upon any of the properties, revenues or assets of the
Company or the Guarantor pursuant to, any agreement
evidencing or governing Indebtedness or any other material
agreement or instrument to which the Company, the Guarantor
or any Subsidiary is a party or by which the Company, the
Guarantor or any Subsidiary or their respective properties
may be bound (in respect of the opinion expressed above in
this paragraph 2, I have relied as to matters of fact
relating to the existence of agreements and instruments
referred to therein, upon certificates of officers of the
Guarantor, and I believe that I am justified in relying upon
such certificates).
3. The Credit Agreement has been duly executed and
delivered by the Company and the Guarantor, and assuming the
due authorization, execution and delivery thereof by the
Agent and the Banks, the Credit Agreement constitutes the
legal, valid and binding obligation of the Company and the
Guarantor enforceable against the Guarantor and the Company
in accordance with its terms; subject, as to enforcement, to
bankruptcy, moratorium, insolvency, reorganization and other
similar laws of general applicability relating to or
affecting creditors' rights generally and to general equity
principles. I express no opinion as to (i) Section 4.05(c)
of the Credit Agreement, (ii) the second sentence of Section
12.13 of the Credit Agreement, insofar as such sentence
relates to the subject matter jurisdiction of the United
States District Court of the Southern District of New York
to adjudicate any controversy related to the Credit
Agreement or the Notes (iii) the waiver of inconvenient
forum set forth in Section 12.13 of the Credit Agreement
with respect to proceedings in the United States District
Court for the Southern District of New York, or (iv) Section
12.14. I also wish to point out that the provisions of the
<PAGE> 80
3
Credit Agreement which permit the Agent or any Bank to take
action or make determinations, or to benefit from
indemnities and similar undertakings of the Company and the
Guarantor, may be subject to a requirement that such action
be taken or such determinations be made, and that any action
or inaction by the Agent or a Bank which may give rise to a
request for payment under such an undertaking be taken or
not taken, on a reasonable basis and in good faith.
4. The Notes, when duly executed and delivered by the
Company in accordance with the Credit Agreement, will
constitute the legal, valid and binding obligations of the
Company enforceable in accordance with their respective
terms, subject, as to enforcement, to bankruptcy,
moratorium, insolvency, reorganization and other similar
laws of general applicability relating to or affecting
creditors' rights generally and to general equity
principles.
5. To the best of my knowledge after due inquiry,
there are no legal, arbitral or governmental proceedings
pending to which the Guarantor, the Company or any
Subsidiary is a party or of which any property of the
Guarantor, the Company or any Subsidiary is the subject,
other than as disclosed in writing to the Banks pursuant to
Section 7.03 of the Credit Agreement, which, taking into
account the likelihood of the outcome, the damages or other
relief sought and other relevant factors, would individually
or in the aggregate have a material adverse effect on the
financial position, shareholders' equity or results of
operation of the Guarantor and the Subsidiaries on a
consolidated basis; and to the best of my knowledge, no such
proceedings are threatened or contemplated by governmental
authorities or threatened by others.
6. No authorizations, consents, approvals, licenses,
filings or registrations with, any governmental or
regulatory authority or agency are required in connection
with the execution, delivery or performance by the Company
or the Guarantor of the Credit Agreement or the Notes or for
the validity or enforceability thereof other than compliance
with the periodic reporting requirements of the Securities
Exchange Act of 1934.
I do not purport to be an expert as to the laws of any
jurisdiction other than the laws of the Commonwealth of
Pennsylvania and the laws of the United States of America as
applied to bank holding companies and their Subsidiaries, and I
express no opinion as to any matters governed by any laws, other
than the laws of the Commonwealth of Pennsylvania and the laws of
the United States of America.
<PAGE> 81
4
This opinion is being rendered solely for the benefit
of the Banks party to the Credit Agreement referred to above and
The Chase Manhattan Bank (National Association), as Agent, in
connection therewith. You may not rely on this opinion for any
other purpose without my written consent. This opinion is
rendered as of the date hereof, and I am under no obligation to
update it or to advise you of any subsequent event which could
affect it.
Very truly yours,
<PAGE> 82
EXHIBIT C
[Form of Opinion of Special New York Counsel to the Banks]
___________, 1993
To the Banks party to the Credit
Agreement referred to below and
The Chase Manhattan Bank
(National Association), as Agent
Gentlemen:
We have acted as your special New York counsel in
connection with the Revolving Credit Agreement (the "Credit
Agreement") dated as of July 23, 1993 among Mellon Financial
Company (the "Company"), Mellon Bank Corporation (the
"Guarantor"), the Banks named therein and The Chase Manhattan
Bank (National Association), as Agent, providing for loans in an
aggregate principal amount at any time outstanding not to exceed
$200,000,000. All capitalized terms defined in the Credit
Agreement are used with the same meanings, unless otherwise
defined, in this opinion letter.
In rendering the opinions expressed below, we have
examined (a) the Credit Agreement and the Notes (collectively,
the "Loan Documents") and (b) such corporate records of the
Company and the Guarantor and such other documents as we have
deemed necessary as a basis for the opinions expressed below. In
our examination, we have assumed the genuineness of all
signatures, the authenticity of documents submitted to us as
originals and the conformity with authentic original documents of
all documents submitted to us as copies. When relevant facts
were not independently established, we have relied upon
statements of governmental officials and upon representations
made in or pursuant to the Loan Documents and certificates of
appropriate representatives of the Company and the Guarantor.
In rendering the opinions expressed below, we have
assumed that all of the documents referred to in this opinion
have been duly authorized by, have been or (in the case of the
Notes) will be duly executed and delivered by, and (except, to
the extent set forth below, as to the Company and the Guarantor)
constitute legal, valid, binding and enforceable obligations of,
all of the parties to such documents, that all signatories to
such documents have been duly authorized and that all such
parties are duly organized and validly existing and have the
power and authority (corporate or other) to execute, deliver and
perform such documents.
Based upon and subject to the foregoing and subject
also to the comments and qualifications set forth below, and
<PAGE> 83
2
having considered such questions of law as we have deemed
necessary as a basis for the opinions expressed below, we are of
the opinion that:
(i) The Credit Agreement constitutes, and the Notes
when duly executed and delivered for value will constitute,
the legal, valid and binding obligations of the Company,
enforceable against it in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting the rights of creditors generally and except as
the enforceability of such Loan Documents is subject to the
application of general principles of equity (regardless of
whether considered in a proceeding in equity or at law),
including without limitation (i) the possible unavailability
of specific performance, injunctive relief or any other
equitable remedy and (ii) concepts of materiality,
reasonableness, good faith and fair dealing.
(ii) The Credit Agreement constitutes the legal, valid
and binding obligation of the Guarantor, enforceable against
it in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of
creditors generally and except as the enforceability of the
Credit Agreement is subject to the application of general
principles of equity (regardless of whether considered in a
proceeding in equity or at law), including without
limitation (i) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy
and (ii) concepts of materiality, reasonableness, good faith
and fair dealing.
The foregoing opinions are also subject to the
following comments and qualifications:
(a) The enforceability of Sections 5.01, 5.05 and
12.03 of the Credit Agreement may be limited by laws
rendering unenforceable indemnification contrary to Federal
or state securities laws and the public policy underlying
such laws.
(b) The enforceability of provisions in the Loan
Documents to the effect that terms may not be waived or
modified except in writing may be limited under certain
circumstances.
(c) We express no opinion as to (i) the effect of the
laws of any jurisdiction in which any Bank is located (other
than New York) that limits the interest, fees or other
charges it may impose, (ii) Section 4.05(c) of the Credit
Agreement, (iii) the second sentence of Section 12.13 of the
Credit Agreement insofar as such sentence relates to the
<PAGE> 84
3
subject matter jurisdiction of the United States District
Court for the Southern District of New York to adjudicate
any controversy related to the Loan Documents and (iv) the
waiver of inconvenient forum set forth in Section 12.13 of
the Credit Agreement with respect to proceedings in the
United States District Court for the Southern District of
New York.
The foregoing opinions are limited to matters involving
the Federal laws of the United States and the laws of the State
of New York, and we do not express any opinion as to the laws of
any other jurisdiction.
This opinion letter is provided to you by us as your
special New York counsel pursuant to Section 6.01 of the Credit
Agreement and may not be relied upon by any other person or for
any purpose other than in connection with the transactions
contemplated by the Loan Documents without our prior written
consent in each instance.
Very truly yours,
RMG/CDP
<PAGE> 85
EXHIBIT D
[Form of Money Market Quote Request]
[Date]
To: The Chase Manhattan Bank, N.A.,
as Agent
From: Mellon Financial Company
Re: Money Market Quote Request
Pursuant to Section 2.03 of the Revolving Credit
Agreement (the "Credit Agreement") dated as of July 23, 1993
among Mellon Financial Company, Mellon Bank Corporation, the
Banks referred to therein and The Chase Manhattan Bank, N.A.,
Agent, we hereby give notice that we request Money Market Quotes
for the following proposed Money Market Borrowing(s):
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date 1/ Amount 2/ Type 3/ Period 4/
--------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C>
</TABLE>
Terms used herein have the meanings assigned to them in
the Credit Agreement.
Mellon Financial Company
By ____________________________
Title:
* All numbered footnotes appear on the last page of this
Exhibit
<PAGE> 86
2
_______________
1/ For use if a Money Market Rate in a Set Rate Auction is
requested to be submitted before the Borrowing Date.
2/ Each amount must be $10,000,000 or a larger multiple of
$1,000,000.
3/ Insert either "Margin" (in the case of LIBOR Market Loans)
or "Rate" (in the case of Set Rate Loans).
4/ 1, 2, 3 or 6 months, in the case of a LIBOR Market Loan or,
in the case of a Set Rate Loan, a period of up to 180 days
after the making of such Set Rate Loan and ending on a
Business Day.
<PAGE> 87
EXHIBIT E
[Form of Money Market Quote]
The Chase Manhattan Bank, N.A.,
as Agent
2 Chase Manhattan Plaza
4th Floor
New York, New York 10081
Attention:
Re: Money Market Quote to
Mellon Financial Company (the "Borrower")
This Money Market Quote is given in accordance with
Section 2.03(c) of the Revolving Credit Agreement (the "Credit
Agreement") dated as of July 23, 1993 among Mellon Financial
Company, Mellon Bank Corporation, the Banks referred to therein
and The Chase Manhattan Bank, N.A., as Agent. Terms defined in
the Credit Agreement are used herein as defined therein.
In response to the Borrower's invitation dated
__________, 19__, we hereby make the following Money Market
Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Money Market Loan(s) in
the following principal amounts, for the following Interest
Periods and at the following rates:
<TABLE>
<CAPTION>
Borrowing Quotation Interest
Date Date 1/ Amount 2/ Type 3/ Period 4/ Rate 5/
- --------- ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
</TABLE>
4. The aggregate principal amount of such Money
Market Loans for which such offers are being made is _________.
_______________
* All numbered footnotes appear on the last page of this
Exhibit.
<PAGE> 88
2
We understand and agree that the offer(s) set forth
above, subject to the satisfaction of the applicable conditions
set forth in the Credit Agreement, irrevocably obligate(s) us to
make the Money Market Loan(s) for which any offer(s) [is] [are]
accepted, in whole or in part (subject to the third sentence of
Section 2.03(e) of the Credit Agreement).
Very truly yours,
[Name of Bank]
Dated: By:____________________________
_______________ Authorized Officer
1/ As specified in the related Money Market Quote Request.
2/ The principal amount bid for each Interest Period may not
exceed the principal amount requested. Bids must be made
for at least $5,000,000 or a larger multiple of $1,000,000.
3/ Indicate "Margin" (in the case of LIBOR Market Loans) or
"Rate" (in the case of Set Rate Loans).
4/ 1, 2, 3 or 6 months in the case of a LIBOR Market Loan or,
in the case of a Set Rate Loan, a period of up to 180 days
after the making of such Set Rate Loan and ending on a
Business Day, as specified in the related Money Market Quote
Request.
5/ For a LIBOR Market Loan, specify margin over or under the
London interbank offered rate determined for the applicable
Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS". For
a Set Rate Loan, specify rate of interest per annum (rounded
to the nearest 1/10,000 of 1%).
<PAGE> 89
EXHIBIT F
[Form of Confidentiality Agreement]
[Date]
CONFIDENTIALITY AGREEMENT
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Revolving Credit Agreement dated as of July 23,
1993 among Mellon Financial Company, Mellon Bank
Corporation, the banks party thereto, and The
Chase Manhattan Bank (National Association), as
Agent
Dear __________:
As a Bank party to the above-referenced Revolving
Credit Agreement (the "Credit Agreement"), we have agreed with
Mellon Financial Company (the "Company") and Mellon Bank
Corporation (the "Guarantor") pursuant to Section 12.08 of the
Credit Agreement to use reasonable precautions to keep
confidential, except as otherwise provided therein, all
non-public information identified by the Company and the
Guarantor as being confidential at the time the same is delivered
to us pursuant to the Credit Agreement.
As provided in said Section 12.08, we are permitted to
provide you, as a prospective [holder of a participation in the
Loans (as defined in the Credit Agreement)] [assignee Bank], with
certain of such non-public information subject to the execution
and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such
information will not be made available to you until your
execution and return to us of this Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you
agree (on behalf of yourself and each of your affiliates,
directors, officers, employees and representatives) that (A) such
information will not be used by you except in connection with the
proposed [participation] [assignment] mentioned above and (B) you
shall use reasonable precautions, in accordance with your
customary procedures for handling confidential information and in
accordance with safe and sound banking practices, to keep such
information confidential, provided that nothing herein shall
limit the disclosure of any such information (i) to the extent
required by statute, rule, regulation or judicial process, (ii)
<PAGE> 90
2
to your counsel or to counsel for any of the Banks or the Agent,
(iii) to bank examiners, auditors or accountants, (iv) to the
Agent or any other Bank, (v) in connection with any litigation to
which you or any one or more of the Banks is a party; provided,
further, that, unless specifically prohibited by applicable law
or court order, you agree, prior to disclosure thereof, to notify
the Company and the Guarantor of any request for disclosure of
any such non-public information (x) by any governmental agency or
representative thereof (other than any such request in connection
with an examination of your financial condition by such
governmental agency) or (y) pursuant to legal process; and
provided finally that in no event shall you be obligated to
return any materials furnished to you pursuant to this
Confidentiality Agreement.
Would you please indicate your agreement to the
foregoing by signing at the place provided below the enclosed
copy of this Confidentiality Agreement.
Very truly yours,
[Insert Name of Bank]
By_________________________
The foregoing is agreed to
as of the date of this letter.
[Insert name of prospective
participant or assignee]
By_________________________
<PAGE> 91
EXHIBIT G
[Form of Company Extension Request]
[Date]1/
To: The Chase Manhattan Bank, N.A., as Agent
From: Mellon Financial Company
Re: Extension of Commitment Termination Date
Pursuant to Section 2.10 of the Revolving Credit
Agreement (the "Credit Agreement") dated as of July 23, 1993
among Mellon Financial Company, Mellon Bank Corporation, the
Banks referred to therein and The Chase Manhattan Bank, N.A., as
Agent we hereby give notice that we request that the Banks extend
the Commitment Termination Date to the date which is 364 days
after the Consent Date (June 21, 1995).
We hereby represent that on and as of the date hereof
(i) no Default has occurred and is continuing, and (ii) each of
the representations and warranties of the Guarantor and the
Company in Section 7 of the Credit Agreement is true and correct
on and as of the date hereof with the same force and effect as if
made on and as of the date hereof (or, if any such representation
or warranty is expressly stated to have been made as of a
specific date, as of such specific date).
Terms used herein have the meanings assigned to them in
the Credit Agreement.
Mellon Financial Company
By____________________________
Title:
_______________
1/ Insert a date which is not less than 60 days and not more
than 90 days prior to the Commitment Termination Date
initially in effect.
<PAGE> 92
EXHIBIT H
[Form of Bank Consent to Extension]
[Date]
To: The Chase Manhattan Bank, N.A., as Agent
cc: Mellon Financial Company
cc: Mellon Bank Corporation
From: [Name of Bank]
Re: Extension of Commitment Termination Date
Pursuant to Section 2.10 of the Revolving Credit
Agreement (the "Credit Agreement") dated as of July 23, 1993
among Mellon Financial Company, Mellon Bank Corporation, the
Banks referred to therein and The Chase Manhattan Bank, N.A., as
Agent, we hereby give you notice that, subject to the terms of
the Credit Agreement, we hereby agree to the extension of the
Commitment Termination Date to the date which is 364 days after
the Consent Date (June 21, 1995).
Terms used herein have the meanings assigned to them in
the Credit Agreement.
[Name of Bank]
By____________________________
Title:
<PAGE> 1
EX-10.19
OMITTED. CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 24b-2.
FILED SEPARATELY WITH THE COMMISSION.
<PAGE> 1
Ex- 11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Year ended December 31,
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $301,808,000 $388,951,000 $233,784,000
- --------------------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 62,028,788 52,925,666 47,900,612
Common shares issuable upon conversion
of Series D preferred stock 1,640,421 1,552,413 1,470,784
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (b):
Series D preferred stock subscription rights 36,904 68,180 56,218
Common stock subscription rights 91,804 178,924 152,474
Stock options 1,106,046 694,983 266,240
Warrants 274,829 492,087 344,412
- --------------------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 65,178,792 55,912,253 50,190,740
- --------------------------------------------------------------------------------------------------------------------------------
Net income per common share $4.63 $6.96 $4.66
- --------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $301,808,000 $388,951,000 $233,784,000
Series B convertible preferred stock dividends
and the after-tax benefit of interest expense
on the assumed conversion of 7-1/4% Convertible
Subordinated Capital Notes, if dilutive (c) 200,000 4,900,000 332,000
- --------------------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to
common stock $302,008,000 $393,851,000 $234,116,000
- --------------------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 62,028,788 52,925,666 47,900,612
Common shares issuable upon conversion of
Series D preferred stock 1,640,421 1,552,413 1,470,784
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (d) 1,509,583 2,096,960 1,287,121
Other dilutive items (e) 90,998 983,804 98,003
- --------------------------------------------------------------------------------------------------------------------------------
Total 65,269,790 57,558,843 50,756,520
- --------------------------------------------------------------------------------------------------------------------------------
Net income per common share $4.63 $6.84 $4.61
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes on following page.
<PAGE> 2
Ex- 11.1
(continued)
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Mellon Bank Corporation (and its subsidiaries)
(a) After adding back Series D preferred stock dividends of $4 million in 1993
and $3 million in 1992 and 1991. Series D preferred stock is considered a
common stock equivalent.
(b) Shares were assumed repurchased at the average common share price of
$56.07 in 1993, $42.03 in 1992 and $30.35 in 1991.
(c) Convertible securities consisted of the 7-1/4% Convertible Subordinated
Capital Notes in 1993, the Series B convertible preferred stock and the
7-1/4% Convertible Subordinated Capital Notes in 1992 and the 7-1/4%
Convertible Subordinated Capital Notes in 1991.
(d) Includes shares issuable upon assumed conversion of stock options,
warrants, common stock subscriptions and Series D preferred stock
subscription rights in 1993, 1992 and 1991. Shares were assumed
repurchased at the beginning of the period using the average common share
price of $56.07 at December 31, 1993 and the ending common share price of
$53.00 and $34.875 at December 31, 1992 and December 31, 1991,
respectively.
(e) Other dilutive items consisted of the average shares issuable upon the
assumed conversion of the convertible securities described in Note (c)
above.
<PAGE> 1
Ex- 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
(parent Corporation)(a)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------------
(dollar amounts in thousands) 1993 1992 1991 1990 1989
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1. Income before income taxes, extra-
ordinary gains and equity in
undistributed net income
(loss) of subsidiaries $197,634 $113,331 $125,845 $ 91,841(c) $90,412
2. Fixed charges: interest expense,
one-third of rental expense net
of income from subleases, and
amortization of debt issuance costs 110,739 79,709 103,001 149,446 172,817
------- -------- --------- -------- -------
3. Income before income taxes,
extraordinary gains and
equity in undistributed net
income (loss) of subsidiaries,
plus fixed charges (line 1 + line 2) $308,373 $193,040 $228,846 $241,287 $263,229
======== ======== ======== ======== ========
4. Preferred stock dividend
requirements (b) $104,749 $ 57,625 $ 53,852 $ 55,904 $ 58,452
======== ======== ======== ======== ========
5. Ratio of earnings (as defined)
to fixed charges
(line 3 divided by line 2) 2.78 2.42 2.22 1.61(c) 1.52(d)
6. Ratio of earnings (as defined)
to combined fixed charges and
preferred stock dividends
[line 3 divided by
(line 2 + line 4)] 1.43 1.41 1.46 1.18(c) 1.14(d)
</TABLE>
- ----------------------
(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. For purposes of computing
these ratios, earnings represent parent Corporation income before taxes,
and before extraordinary gains on early retirement of debt and equity in
undistributed net income (loss) of subsidiaries, plus the fixed charges of
the parent Corporation. Fixed charges represent interest expense,
one-third (the proportion deemed representative of the interest factor) of
rental expense net of income from subleases, and amortization of debt
issuance costs. Because the ratio excludes from earnings the equity in
undistributed net income (loss) of subsidiaries, the ratio varies with the
payment of dividends by such subsidiaries.
(continued)
<PAGE> 2
Ex- 12.1
(continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
(parent Corporation)(a)
(b) Preferred stock dividend requirements for all years presented represent the
pretax amount required to cover preferred stock dividends. Series K
Nonredeemable Preferred Stock was issued on January 25, 1993; Series J
Nonredeemable Preferred Stock was issued on January 21, 1992; Series I
Nonredeemable Preferred Stock was issued August 8, 1991 and Series H
Nonredeemable Preferred Stock was issued March 29, 1990. Accordingly,
preferred stock dividends were not accrued for these securities prior to
their respective issue dates. In the first quarter of 1990, common stock
was issued in exchange for approximately 83% of the outstanding shares of
Series D preferred stock in order to avoid exceeding the limitation on the
amount of preferred stock that could qualify as Tier I capital under the
Federal Reserve Board's 1992 risk-based capital regulations. The Series
C-1 Stated Rate Auction Preferred Stock was redeemed on July 18, 1990, the
Series A Redeemable Preferred Stock was redeemed on July 19, 1991, the
Series G preferred stock was redeemed on November 15, 1991, the Series C-2
Stated Rate Auction Preferred Stock was redeemed on November 16, 1992 and
the Series B preferred stock was redeemed on December 1, 1993.
Accordingly, preferred stock dividends were not accrued for these
securities subsequent to their respective redemption dates.
(c) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1990, exclude from earnings (as defined) the $73,562,000 gain
on the sale of a Chicago-based consumer finance subsidiary. Had these
computations included this gain, the ratio of earnings (as defined) to
fixed charges would have been 2.11 and the ratio of earnings (as defined)
to combined fixed charges and preferred stock dividends would have been
1.53.
(d) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1989, exclude from earnings (as defined) $29,193,000 of
extraordinary gains on the early retirement of debt. Had these
computations included these extraordinary gains, the ratio of earnings (as
defined) to fixed charges would have been 1.69, and the ratio of earnings
(as defined) to combined fixed charges and preferred stock dividends would
have been 1.26.
<PAGE> 1
Ex- 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
and its subsidiaries(a)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------------
(dollar amounts in thousands) 1993 1992 1991 1990 1989
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
1. Net income before extraordinary
gains $ 360,802 $ 436,784 $ 279,541 $ 100,655(c) $ 181,348
2. Provision for income taxes 239,133 55,601 28,499 19,338 23,092
--------- ---------- ---------- ---------- ----------
3. Net income before extraordinary
gains and provision
for income taxes (line 1 + line 2) $ 599,935 $ 492,385 $ 308,040 $ 119,993(c) $ 204,440
========== ========== ========== ========== ==========
4. Fixed charges:
a. Interest expense (excluding
interest on deposits) $ 200,911 $ 211,978 $ 325,972 $ 466,096 $ 632,653
b. One-third of rental expense
(net of income from
subleases) and amortization
of debt issuance costs 33,420 24,904 25,166 23,996 23,127
--------- ---------- ---------- ---------- ----------
c. Total fixed charges
(excluding interest on
deposits) (line 4a + line 4b) 234,331 236,882 351,138 490,092 655,780
d. Interest on deposits 453,442 634,787 1,002,906 1,321,738 1,370,447
--------- ---------- ---------- ---------- ----------
e. Total fixed charges
(line 4c + line 4d) $ 687,773 $ 871,669 $1,354,044 $1,811,830 $2,026,227
========== ========== ========== ========== ==========
5. Preferred stock dividend
requirements (b) $ 104,749 $ 57,625 $ 53,852 $ 55,904 $ 58,452
========== =========== =========== =========== ===========
6. Net income before extraordinary
gains and provision for income
taxes, plus total fixed charges:
a. Excluding interest on
deposits (line 3 + line 4c) $ 834,266 $ 729,267 $ 659,178 $ 610,085 $ 860,220
========== ========== ========== ========== ==========
b. Including interest on
deposits (line 3 + line 4e) $1,287,708 $1,364,054 $1,662,084 $1,931,823 $2,230,667
========== ========== ========== ========== ==========
</TABLE>
(continued)
<PAGE> 2
Ex- 12.2
(continued)
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(a)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------------------
(dollar amounts in thousands) 1993 1992 1991 1990 1989
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
7. Ratio of earnings (as defined)
to fixed charges:
a. Excluding interest on deposits
(line 6a divided by line 4c) 3.56 3.08 1.88 1.24(c) 1.31(d)
b. Including interest on deposits
(line 6b divided by line 4e) 1.87 1.56 1.23 1.07(c) 1.10(d)
8. Ratio of earnings (as defined) to
combined fixed charges and
preferred stock dividends
a. Excluding interest on deposits
[line 6a divided by (line 4c +
line 5)] 2.46 2.48 1.63 1.12(c) 1.20(d)
b. Including interest on deposits
[line 6b divided by (line 4e +
line 5)] 1.62 1.47 1.18 1.03(c) 1.07(d)
</TABLE>
- ----------------------
(a) For purposes of computing these ratios, earnings represent consolidated net
income, before income taxes and extraordinary gains on early retirement of
debt, plus consolidated fixed charges. Fixed charges, excluding interest
on deposits, include interest expense (other than on deposits), one-third
(the proportion deemed representative of the interest factor) of rental
expense net of income from subleases, and amortization of debt issuance
costs. Fixed charges, including interest on deposits, include all interest
expense, one-third (the proportion deemed representative of the interest
factor) of rental expense net of income from subleases, and amortization of
debt issuance costs.
(b) Preferred stock dividend requirements for all years presented represent the
pretax amount required to cover preferred stock dividends. Series K
Nonredeemable Preferred Stock was issued on January 25, 1993; Series J
Nonredeemable Preferred Stock was issued on January 21, 1992; Series I
Nonredeemable Preferred Stock was issued August 8, 1991; Series H
Nonredeemable Preferred Stock was issued March 29, 1990. Accordingly,
preferred stock dividends were not accrued for these securities prior to
their respective issue dates. In the first quarter of 1990, common stock
was issued in exchange for approximately 83% of the outstanding shares of
Series D preferred stock in order to avoid exceeding the limitation on the
amount of preferred stock that could qualify as Tier I capital under the
Federal Reserve Board's 1992 risk-based capital regulations. The Series
C-1 Stated Rate Auction Preferred Stock was redeemed on July 18, 1990, the
Series A Redeemable Preferred Stock was redeemed on July 19, 1991, the
Series G preferred stock was redeemed on November 15, 1991, the Series C-2
Stated Rate Auction Preferred Stock was redeemed on November 16, 1992 and
the Series B preferred stock was redeemed on December 1, 1993.
Accordingly, preferred stock dividends were not accrued for these
securities subsequent to their respective redemption dates.
(continued)
<PAGE> 3
Ex- 12.2
(continued)
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(a)
(c) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1990, exclude from earnings (as defined) the $73,562,000 gain
on the sale of a Chicago-based consumer finance subsidiary. Had these
computations included this gain, the ratio of earnings (as defined) to
fixed charges would have been 1.39 excluding interest on deposits, and 1.11
including interest on deposits. Including this gain, the ratio of earnings
to combined fixed charges and preferred stock dividends would have been
1.25 excluding interest on deposits, and 1.07 including interest on
deposits.
(d) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1989, exclude from earnings (as defined) $29,193,000 of
extraordinary gains on the early retirement of debt. Had these
computations included these extraordinary gains, the ratio of earnings to
fixed charges would have been 1.36 excluding interest on deposits, and 1.12
including interest on deposits. Including extraordinary gains, the ratio
of earnings to combined fixed charges and preferred stock dividends would
have been 1.25 excluding interest on deposits, and 1.08 including interest
on deposits.
<PAGE> 1
Ex - 13.1
FINANCIAL REVIEW
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY
(dollar amounts in millions, except per share amounts) 1993 1992 1991 1990 1989 1988
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
Net interest revenue $ 1,307 $ 1,154 $ 974 $ 867 $ 819 $ 838
Provision for credit losses 125 185 250 315 297 321
Fee revenue 1,189 844 757 670 664 649
Gains on sale of securities(a) 87 121 78 8 2 5
Gain on sale of consumer finance subsidiary -- -- -- 74 -- --
Other noninterest revenue -- 7 13 70 119 71
Operating expense 1,858 1,449 1,264 1,181 1,103 1,279
Provision for income taxes 239 55 28 19 23 28
- -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary gains $ 361 $ 437 $ 280 $ 174 $ 181 $ (65)
Extraordinary gains on early retirement of debt -- -- -- -- 29 --
Net income (loss) 361 437 280 174 210 (65)
- -------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income (loss) before extraordinary gains $ 4.63 $ 6.96 $ 4.66 $ 2.83 $ 3.33 $ (3.65)
Net income (loss) 4.63 6.96 4.66 2.83(b) 4.01 (3.65)
Dividends 1.52 1.40 1.40 1.40 1.40 1.40
Book value at year end 41.75 36.96 31.29 28.51 27.42 23.89
- -------------------------------------------------------------------------------------------------------------------------------
PRO FORMA FULLY TAXED(c)
Net income $ 420 $ 307 $ 191 $ 120 $ 127 NM
Net income per common share 5.59 4.63 2.89 1.63 2.07 NM
Return on average assets 1.21% 1.03% .66% .40% .41% NM
Return on average common shareholders' equity 14.06 13.58 8.72 4.56 6.19 NM
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Money market investments $ 3,521 $ 1,663 $ 1,344 $ 2,752 $ 6,204 $ 4,407
Securities 4,426 6,052 5,333 4,722 3,298 3,432
Loans 21,755 18,227 18,509 18,840 17,958 19,423
Interest-earning assets 29,971 26,250 25,495 26,592 27,693 27,410
Total assets 34,736 29,889 29,050 30,216 30,555 30,237
Deposits 26,511 22,641 21,384 22,029 21,240 20,605
Notes and debentures 1,991 1,365 1,448 1,722 1,762 1,950
Redeemable preferred stock -- -- 51 94 94 94
Common shareholders' equity 2,531 1,842 1,479 1,336 1,114 892
Total shareholders' equity 3,172 2,351 1,904 1,732 1,442 1,158
- ------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (based on balance sheet averages)
Return on assets 1.04% 1.46% .96% .58%(b) .59%(d) *
Return on common shareholders' equity 11.93 21.12 15.80 9.56 (b) 12.97 (d) *
Net interest margin:
Taxable equivalent basis 4.39 4.44 3.93 3.38 3.10 3.24%
Without taxable equivalent increments 4.36 4.39 3.82 3.26 2.96 3.06
Efficiency ratio 65 66 69 70 66 70
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Common shareholders' equity to assets 7.53% 6.62% 5.61% 4.50% 3.88% 2.81%
Total shareholders' equity to assets 9.17 8.10 7.06 5.82 4.92 3.86
Tier I capital ratio 7.39 7.62 6.56 5.10 4.59 3.09
Total (Tier I plus Tier II) capital ratio 10.97 11.30 10.73 9.01 8.77 6.18
Leverage capital ratio 6.88 7.10 6.28 4.79 4.32 2.87
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Loss
NM--Not meaningful
(a) After-tax gains on the sale of securities were as follows: 1993--$53
million; 1992--$108 million; 1991--$74 million; 1990--$8 million;
1989--2 million; and 1988--$4 million.
(b) Excluding the $74 million gain on the sale of the consumer finance
subsidiary, net income per common share would have been $1.20; return on
assets would have been .33%; and return on common shareholders' equity would
have been 4.06%.
(c) Pro forma results for 1993 exclude $112 million after-tax in restructuring
expense and $53 million in after-tax gains on the sale of securities related
to the Corporation's acquisition of The Boston Company. Pro forma fully
taxed results for periods prior to 1993 were calculated by applying a
normalized effective tax rate of approximately 38% to pretax income. The
unrecorded tax benefit that existed at the beginning of the periods was
included in the determination of the return on common shareholders' equity.
(d) Excludes extraordinary gains. Including extraordinary gains, return on
assets was .69% and return on common shareholders' equity was 15.59%.
17
<PAGE> 2
FINANCIAL REVIEW
RESULTS OF OPERATIONS
- ---------------------------------------
OVERVIEW OF 1993 RESULTS
Mellon Bank Corporation reported 1993 net income, excluding a restructuring
charge and securities gains, of $420 million, or $5.59 per common share. These
1993 results compare with pro forma fully taxed net income of $307 million, or
$4.63 per common share, in 1992. Return on assets and return on common
shareholders' equity in 1993, excluding the effect of restructuring expense and
securities gains, were 1.21% and 14.06%, respectively. These ratios compare with
pro forma fully taxed return on assets and return on common shareholders' equity
of 1.03% and 13.58% in 1992.
The Corporation's 1993 results included a restructuring charge of $175
million taken in connection with The Boston Company acquisition and gains on
sales of securities of $87 million taken as part of the financing plan and
balance sheet restructuring related to this acquisition. The Corporation's 1992
results were favorably affected by tax benefits created by losses in 1987 and
1988. These benefits were exhausted in 1992 and, as a result, the Corporation
returned to a fully taxed status in 1993.
Including the restructuring charge and securities gains, the Corporation's
full-year 1993 net income and earnings per common share were $361 million and
$4.63, respectively; and return on assets and return on common shareholders'
equity were 1.04% and 11.93%, respectively. In 1992, the Corporation's net
income and net income per common share, including tax benefits of $130 million,
were $437 million and $6.96, respectively; and return on assets and return on
common shareholders' equity were 1.46% and 21.12%, respectively.
The financial results of the Corporation in 1993 reflected the impact of
management's efforts to diversify and expand revenue sources and to strengthen
asset quality. Compared with 1992, the Corporation's 1993 results reflected a
substantial improvement in net interest and noninterest revenue as well as lower
credit quality expense, offset in part by higher operating expense.
Net interest revenue increased by $153 million, or 13%, in 1993 compared
with 1992, primarily reflecting the effect of a higher level of interest-earning
assets resulting from the second quarter 1993 acquisition of The Boston Company
and the December 1992 Meritor branch acquisition. The improvement also was
attributable to a lower level of nonperforming assets. The net interest margin
was 4.36% in 1993, down slightly from 4.39% in 1992.
Fee revenue surpassed $1 billion for the first time in the Corporation's
history, totaling $1.189 billion in 1993, up 41% over 1992. The increase was
attributable to fee revenue from The Boston Company as well as internal growth.
Gains on the sale of securities were $87 million in 1993, compared with $121
million a year earlier.
The provision for credit losses was $125 million in 1993, the lowest
provision since 1984, down $60 million from $185 million in 1992. Net credit
losses totaled $139 million in 1993, a decrease of 50% from $277 million in
1992. Nonperforming assets totaled $341 million at December 31, 1993, down 43%
from $595 million at the prior year end. The reserve for credit losses increased
to 297% of nonperforming loans at December 31, 1993, up from 152% a year
earlier.
Operating expense for 1993 was $1.858 billion, compared with $1.449 billion
in 1992. The $409 million increase was principally attributable to The Boston
Company and Meritor branch acquisitions, including the $175 million
restructuring expense related to The Boston Company acquisition.
Capital levels continued to improve in 1993 as the Corporation completed
its financing of The Boston Company and Meritor acquisitions. Common
shareholders' equity increased $631 million, or 30%, compared with year-end
1992. The ratio of common shareholders' equity to assets improved 91 basis
points, to 7.53% at December 31, 1993, and the Tier I capital and leverage
capital ratios remained strong at 7.39% and 6.88%, respectively.
The Corporation reported net income of $437 million, or $6.96 per
common share, in 1992. This compared with net income of $280 million,
or $4.66 per common share, in 1991. Net interest revenue increased by
$180 million in 1992, compared with 1991, primarily reflecting the effect of
wider spreads and a low-interest-rate environment. The provision for credit
losses was $185 million in 1992, down $65 million from the prior year. Fee
revenue increased by $87 million in 1992, reflecting the continued strength of
the service products businesses and increased
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
COMPONENTS OF REVENUE
- ----------------------------
(Millions of dollars)
1991 1992 1993
---------------------------------
<S> <C> <C> <C>
Net Interest $ 974 $1,154 $1,307
Noninterest 770 851 1,189
Securities Gains 78 121 87
---------------------------------
Total $1,822 $2,126 $2,583
</TABLE>
18
<PAGE> 3
OVERVIEW OF 1993 RESULTS continued
business activity in a variety of fee-based services. Other revenue of $128
million and $91 million in 1992 and 1991, respectively, primarily reflected $121
million and $78 million of gains on the sale of securities. Operating expense in
1992 was up $185 million compared with 1991, resulting from increased net
expense of acquired property, restructuring expenses related to the Meritor
branch acquisition and the Corporation's expense reduction program as well as
acquisition-related increases.
SIGNIFICANT EVENTS IN 1993
Acquisition of The Boston Company
On May 21, 1993, the Corporation completed its acquisition of The
Boston Company, Inc. (TBC). The Corporation now ranks among the largest
national competitors in each of these major trust and investment businesses:
mutual fund administration; institutional trust and custody; institutional
asset management; and private asset management. The Corporation had
approximately $755 billion of assets under custody and management at December
31, 1993. The combined trust and investment business of Mellon Bank and TBC now
uses the umbrella name "Mellon Trust." TBC is headquartered in Boston,
Massachusetts, and employs approximately 3,200.
Additional information regarding the Corporation's acquisition of TBC is
presented in note 21 of Notes to Financial Statements.
Sale of Information Services Businesses
On December 1, 1993, the Corporation completed its sale of two of its
information services outsourcing businesses, known as Financial Institution
Outsourcing and Data-Link Systems, Inc., to FIserv, Inc. for approximately $52
million. FIserv may make additional payments to the Corporation contingent upon
the revenue growth of the businesses over the next three years. The sale of
these businesses will have a minimal impact on the Corporation's future
earnings. The businesses, which were no longer central to the Corporation's
strategic priorities, employed approximately 600.
Acquisition of AFCO Credit Corporation
On December 21, 1993, the Corporation completed its acquisition of AFCO Credit
Corporation and CAFO, Inc., the insurance premium financing subsidiaries of The
Continental Corporation (Continental). AFCO, headquartered in New York City, has
25 locations in the United States and Canada and employs approximately 450
full-time employees. This acquisition gives the Corporation the leading market
share in the insurance premium financing business. The purchase price was $100
million in cash, with a contingent payment over five years of up to $78 million
based on loan originations during the five years after the purchase. AFCO is a
subsidiary of Mellon Bank, N.A., the Corporation's principal banking subsidiary.
CAFO is a subsidiary of Mellon Bank Canada.
AFCO and CAFO's combined total assets at December 31, 1993, were $1.2
billion, consisting almost entirely of collateralized commercial loans.
Pending equity position in Electronic Payment Services
On December 2, 1993, the Corporation signed a definitive agreement to become an
equity partner in Electronic Payment Services, Inc. (EPS), the holding company
for Money Access Service (MAC), the largest processor of automated teller
machine transactions in the United States, and BUYPASS Corporation, the nation's
leading third-party processor of electronic transactions. The Corporation is
expected to contribute its Network Services Division and invest approximately
$29 million in cash for a first-tier equity ownership interest in EPS. The
transaction is expected to be completed during the first half of 1994, pending
regulatory approval.
Pending Dreyfus Corporation Merger
On December 5, 1993, the Corporation entered into a definitive agreement to
merge with The Dreyfus Corporation (Dreyfus). Dreyfus is the nation's sixth-
largest mutual fund company, with approximately $80 billion of assets under
management and administration. The merger of the Corporation and Dreyfus would
create a diversified financial services organization with revenues of more than
$3 billion, including fee revenues of about $1.6 billion. Dreyfus is
headquartered in New York City and employs approximately 2,000.
The transaction will be accounted for as a pooling-of-interests and will
involve an exchange of .88017 shares of the Corporation's common stock for each
of the approximately 37 million Dreyfus shares outstanding. As a result of the
additional shares of the Corporation's common stock to be issued to the Dreyfus
shareholders in this transaction, the Corporation anticipates that its earnings
per share growth will slow somewhat for the next several years. Nonetheless, it
expects continued growth in earnings per share over that period. Completion of
the merger is contingent upon the approval of the shareholders of the
Corporation and Dreyfus, subject to various regulatory approvals and certain
approvals by the shareholders of the mutual funds advised by Dreyfus. Additional
information regarding the pending merger with Dreyfus is presented in note 21 of
Notes to Financial Statements.
19
<PAGE> 4
FINANCIAL REVIEW
BUSINESS SECTORS (a)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in Retail
millions, averages Wholesale Banking Financial Services Service Products Total core sectors
in billions) 1993 1992 1991 1993 1992 1991 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue(b) $ 343 $ 333 $ 308 $ 998 $ 892 $ 774 $1,134 $ 745 $ 689 $2,475 $1,970 $1,771
Credit quality
expense 31 28 83 60 66 75 4 -- (2) 95 94 156
Operating expense 127 143 137 612 582 533 849 549 522 1,588 1,274 1,192
- -----------------------------------------------------------------------------------------------------------------------------------
Income before
taxes(b) 185 162 88 326 244 166 281 196 169 792 602 423
Income taxes(b) 69 58 32 130 103 77 116 71 62 315 232 171
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $ 116 $ 104 $ 56 $ 196 $ 141 $ 89 $ 165 $ 125 $ 107 $ 477 $ 370 $ 252
- -----------------------------------------------------------------------------------------------------------------------------------
Average assets $10.9 $10.8 $11.5 $17.4 $ 16.2 $ 14.8 $ 4.8 $ 1.2 $ .8 $ 33.1 $ 28.2 $ 27.1
Average common
equity $ .7 $ .6 $ .5 $ 1.0 $ .8 $ .8 $ .6 $ .3 $ .3 $ 2.3 $ 1.7 $ 1.6
Return on assets 1.07% .96% .49% 1.13% .87% .60% NM NM NM 1.44% 1.31% .93%
Return on common
equity 15 16 7 17 16 11 24% 32% 26% 19 19 13
Efficiency ratio 37 43 44 61 65 69 75 74 76 64 65 67
- -----------------------------------------------------------------------------------------------------------------------------------
Actual reported
results including
tax benefits(d):
Net income $ 143 $ 78 $ 209 $ 140 $ 171 $ 149 $ 523 $ 367
Return on assets 1.32% .68% 1.29% .95% NM NM 1.85% 1.36%
Return on common
equity 24 13 25 21 48% 42% 30 23
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Real Estate Banking Other Total all sectors
1993 1992 1991 1993 1992 1991 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue(b) $ 46 $ 10 $ (5) $ 72 $ 159 $ 85 $2,593 $2,139 $1,851
Credit quality expense 89 177 142 -- 9 (11) 184 280 287
Operating expense 27 28 27 184 52 8 1,799 1,354 1,227
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes(b) (70) (195) (174) (112) 98 88 610 505 337
Income taxes(b) (25) (71) (58) (41) 37 33 249 198 146
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (45) $ (124) $ (116) $ (71) $ 61 $ 55 $ 361 $ 307 $ 191
- -----------------------------------------------------------------------------------------------------------------------------------
Average assets $ 1.6 $ 1.5 $ 1.8 $ -- $ .2 $ .2 $ 34.7 $ 29.9 $ 29.1
Average common equity $ .2 $ .1 $ .1 $ -- $ -- $ (.2) $ 2.5 $ 1.8 $ 1.5
Return on assets * * * NM NM NM 1.04%(c) 1.03% .66%
Return on common equity * * * NM NM NM 12(c) 14 9
Efficiency ratio NM NM NM NM NM NM 65 66 69
- -----------------------------------------------------------------------------------------------------------------------------------
Actual reported
results including
tax benefits(d):
Net income (loss) $ (174) $ (167) $ 88 $ 80 $ 437 $ 280
Return on assets * * NM NM 1.46% .96%
Return on common equity * * NM NM 21 16
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Results for 1992 and 1991 are reported on a pro forma fully taxed basis
calculated by applying a normalized effective tax rate of approximately 38%
to pretax income. The unrecorded tax benefit that existed at the beginning
of the period was included in the determination of the return on common
shareholders' equity.
(b) Fully taxable equivalent basis.
(c) Excluding $112 million after-tax in restructuring expense and $53 million in
after-tax gains on the sale of securities related to the acquisition of The
Boston Company, return on assets and return on common shareholders' equity
were 1.21% and 14%, respectively.
(d) There were no tax benefits in 1993.
NM--Not a meaningful measure of performance for this sector.
* Loss
Note: This table presents the operating results of the major business sectors
within the Corporation, analyzed on an internal management reporting basis.
Capital is allocated using the federal regulatory guidelines as a basis, coupled
with management's 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.
20
<PAGE> 5
BUSINESS SECTORS continued
Income before taxes, on a fully taxable equivalent basis, for the Corporation's
core sectors was $792 million in 1993, up $190 million, or 32%, compared with
1992. The improvement resulted primarily from the impact of The Boston Company
and Meritor acquisitions as well as improved productivity and revenue growth.
Return on assets for the core sectors was 1.44% in 1993, compared with 1.31% in
1992 and return on common shareholders' equity was 19% in both 1993 and 1992.
Results in 1993 also reflected the significant improvement in the Real Estate
Banking sector. This sector's net loss before taxes in 1993 of $70 million was
$125 million lower than the prior year. Real Estate Banking's continued
improvement in 1993 was evidenced by reporting results nearing break-even in the
fourth quarter 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 by $23 million, or 14%, compared with 1992. This
improvement resulted primarily from higher net interest revenue, deposit and
syndication fees, and foreign currency and trading revenue as well as lower
operating expense. Return on common shareholders' equity was 15% in 1993,
compared with 16% and 7% in 1992 and 1991, respectively.
Retail Financial Services
Retail Financial Services' income before taxes was $326 million in 1993, an
increase of $82 million, or 34%, compared with the prior-year period. This
increase resulted primarily from the December 1992 Meritor branch acquisition, a
lower cost of funds, growth in credit card and home equity loans, and increased
revenue from personal investment services. The lower cost of funds reflected the
lower retail deposit rates in 1993 compared with 1992. The increase in operating
expense in 1993 resulted primarily from the Meritor branch acquisition. Return
on assets for this sector was 1.13% in 1993, compared with .87% in 1992. Return
on common shareholders' equity was 17% in 1993, compared with 16% the prior
year.
Service Products
Service Products, which primarily includes trust and investment, cash
management, information services, jumbo mortgage lending, and mortgage loan
origination and servicing, continued to be very profitable in 1993. Income
before taxes for the Service Products sector was $281 million in 1993, an
increase of $85 million, or 43%, compared with 1992. This improvement primarily
reflected earnings from The Boston Company. The improvement in revenue resulted
primarily from higher trust and investment fees as well as higher mortgage
origination and servicing and cash management fees. Trust and investment fees
increased by $238 million in 1993, resulting primarily from $218 million of fees
earned at The Boston Company. Higher mortgage origination and servicing fees
resulted from growth in both originated and acquired servicing portfolios.
Improved cash management fees resulted from higher volumes. Partially offsetting
the revenue growth was higher operating expense resulting from The Boston
Company and in support of the revenue growth. The pretax operating margin in
this sector was 25% in 1993, compared with 26% and 25% in 1992 and 1991,
respectively.
Real Estate Banking
Real Estate Banking includes commercial real estate lending and mortgage banking
recovery operations. This sector's pretax loss was $70 million in 1993, compared
with a $195 million pretax loss in the prior year. The $125 million improvement
primarily reflected a decrease of $88 million in credit quality expense in 1993,
resulting from improving trends in asset quality for this sector. Revenue in
this sector improved by $36 million in 1993, reflecting a lower cost of carry on
nonperforming assets and revenue from the commercial real estate loans acquired
in the Meritor branch acquisition. This sector showed continued quarterly
improvement in 1993 and reported results nearing break-even in the fourth
quarter of 1993.
Other
The "Other" sector's pretax loss of $112 million in 1993 primarily reflected a
$175 million restructuring charge related to the Corporation's acquisition of
The Boston Company, partially offset by $87 million in gains on the sale of
securities. Results in this sector in 1992 included $121 million in gains on the
sale of securities and $36 million in restructuring expenses.
Review of 1992 vs. 1991
Income before taxes for the total core sectors increased by $179 million, or
42%, in 1992, compared with 1991. The improvement resulted from higher net
interest and fee revenue and lower credit quality expense, offset in part by
higher operating expenses.
Compared with 1991, Wholesale Banking income before taxes increased by $74
million in 1992 as a result of a lower credit quality expense and an increase in
net interest revenue, loan fees and trading and other revenue. Retail Financial
Services' income before taxes improved by $78 million in 1992 from the
21
<PAGE> 6
FINANCIAL REVIEW
BUSINESS SECTORS continued
previous year, primarily reflecting higher net interest revenue. Income before
taxes for the Service Products sector was $27 million higher in 1992 than in
1991. The increase was due to growth in the trust and investment, information
services, mortgage loan origination and servicing, and cash management
businesses. The Real Estate Banking sector's $21 million increase in its
pretax loss in 1992, compared with 1991, primarily reflected a higher credit
quality expense. Income before taxes in the "Other" sector in 1992 included $121
million in securities gains, compared with $78 million of securities gains in
1991. Expenses in this sector in 1992 included restructuring expenses of $36
million.
NET INTEREST REVENUE
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(taxable equivalent basis,
dollar amounts in millions) 1993 1992 1991
- ---------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue $ 1,317 $ 1,166 $ 1,001
Average interest-earning
assets 29,971 26,250 25,495
- ---------------------------------------------------------
Net interest margin:
Without taxable
equivalent increments 4.36% 4.39% 3.82%
Taxable equivalent basis 4.39 4.44 3.93
- ---------------------------------------------------------
</TABLE>
The continued improvement in net interest revenue in 1993, compared with the
prior year, primarily reflected a higher level of interest-earning assets
resulting from the second quarter 1993 acquisition of The Boston Company and the
December 1992 Meritor branch acquisition. Net interest revenue on a fully
taxable equivalent basis totaled $1.317 billion in 1993, up $151 million, or
13%, compared with 1992, while the net interest margin was down slightly at
4.39% in 1993.
Net interest revenue and the margin also benefited from a lower level of
nonperforming assets. Partially offsetting these positive factors was the impact
from the reduction in higher-yielding securities that were sold in the first
quarter of 1993 as part of the financing plan and balance sheet restructuring
related to the acquisition of The Boston Company. Also impacting net interest
revenue and the net interest margin was a higher level of long-term debt that
was issued in connection with this acquisition.
Net interest revenue will be favorably impacted in 1994 by the full-year
effect of The Boston Company and AFCO acquisitions.
Net interest revenue on a taxable equivalent basis in 1992 increased by
$165 million compared with 1991, reflecting an increase of 51 basis points in
the net interest margin. The improvement primarily reflected the impact of wider
spreads in a declining interest rate environment in 1992 compared with 1991.
Also contributing to the improvement was the positive effect of an increase in
the level of higher-yielding credit card receivables, achieved in part through
mid-1991 credit card portfolio acquisitions.
CREDIT QUALITY EXPENSE
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(in millions) 1993 1992 1991
- ---------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $125 $185 $250
Net expense of acquired
property 59 95 37
- ---------------------------------------------------------
Credit quality expense $184 $280 $287
- ---------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense of acquired property, was $184 million in 1993, down $96 million
compared with the prior year, reflecting continuing improvement in the credit
quality of the loan portfolio and a lower level of real estate acquired. The
Corporation currently expects that credit quality expense will again decline
significantly in 1994.
The Corporation recorded a $125 million provision for credit losses in
1993, the lowest provision since 1984. A $185 million provision was recorded in
1992. The net expense of acquired property was $59 million in 1993, down from
$95 million in 1992. The net expense of acquired property is discussed in the
"Operating expense" section beginning on page 24.
Net credit losses were $139 million in 1993, down $138 million, or 50%,
compared with 1992. The decrease resulted from lower net credit losses in most
loan categories, with commercial real estate net credit losses decreasing by $94
million. Net credit losses totaled $277 million in 1992 and $229 million in
1991.
The provision for credit losses was $250 million in 1991. The net expense
of acquired property was $37 million in 1991.
Additional information on the loan loss reserve and net credit losses is
presented in the "Credit Risk and Asset Quality" section beginning on page 31.
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
CREDIT QUALITY EXPENSE*
- -------------------------------------------
(Millions of dollars)
Year Amount
--------------- --------------
<S> <C>
1991 $287
1992 280
1993 184
</TABLE>
*Provision for credit losses and net expense of acquired property
22
<PAGE> 7
NONINTEREST REVENUE
<TABLE>
<CAPTION>
- -----------------------------------------------------------
(in millions) 1993 1992 1991
- -----------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Institutional trust $ 184 $117 $107
Institutional asset
management 121 76 71
Personal trust 119 98 92
Mutual fund 105 -- --
- -----------------------------------------------------------
Total trust and investment
management 529 291 270
Cash management and deposit
transaction charges 192 182 153
Information services 152 142 130
Mortgage servicing 62 41 31
Credit card 61 54 46
Foreign currency and securities
trading 45 19 15
Letters of credit and acceptance
financing 24 23 22
Other 124 92 90
- -----------------------------------------------------------
Total fee revenue 1,189 844 757
Gains on sale of securities 87 121 78
Other noninterest revenue -- 7 13
- -----------------------------------------------------------
Total noninterest revenue $1,276 $972 $848
- -----------------------------------------------------------
</TABLE>
Fee revenue grew $345 million, or 41%, in 1993, resulting primarily from $252
million of fee revenue attributable to The Boston Company as well as continued
growth in the fee-based service products businesses. Excluding the impact of
acquisitions and divestitures in 1993 and $18 million of favorable one-time
accrual adjustments made in 1992, fee revenue increased 11% compared with 1992.
Trust and investment advisory services are provided to both individuals and
corporations and represent the largest segment of the Corporation's fee-based
services. Trust and investment management fees increased $238 million, or 82%,
over the prior year. This increase was attributable primarily to $218 million of
fee revenue earned by The Boston Company as well as successful sales and
marketing efforts of existing products and the overall strength in U.S. debt and
equity markets. The market value of assets under management and custody was
approximately $755 billion at December 31, 1993, compared with approximately
$380 billion a year earlier. The increase reflected the addition of
approximately $305 billion of assets, at acquisition date, of The Boston
Company. Upon completion of the merger with The Dreyfus Corporation, the
Corporation expects to substantially increase its trust and investment
management fee revenue and become the largest bank manager of mutual funds. At
December 31, 1993, The Dreyfus Corporation had approximately $80 billion of
mutual fund assets under management and administration.
The Corporation provides a broad array of cash management services,
including remittance processing, collections and disbursements, electronic wire
transfer and check processing. Cash management and deposit transaction charges
totaled $192 million in 1993. Revenues of $182 million in 1992 included a $13
million one-time accrual adjustment. Excluding this adjustment, cash management
and deposit transaction charges increased 14% in 1993, primarily reflecting
increased volume of existing products provided to large corporate customers.
The Corporation's information services businesses primarily include data
processing and stock transfer services. Information services fees totaled $152
million in 1993 compared with $142 million in 1992, which included a $5 million
one-time accrual adjustment. The improvement was primarily due to revenue from a
Canadian stock transfer company. During the second quarter of 1993, the
Corporation increased its ownership interest in this company from 10% to 80%. In
December 1993, the Corporation sold two of its information outsourcing
businesses. These two businesses generated monthly revenues of approximately $7
million. Information services fees in 1994 will be further reduced following the
Corporation's acquisition of an equity position in Electronic Payment Services,
Inc. (EPS). The Corporation will contribute its Network Services Division and
cash in exchange for an equity ownership. Net results from this investment will
be reported in Other Fee Revenue in 1994.
Mortgage servicing fees increased by $21 million, or 53%, in 1993, compared
with 1992, primarily reflecting the full-year effect of servicing portfolio
acquisitions in 1992. The Corporation's servicing portfolio increased to $20
billion at December 31, 1993, compared with $19 billion at December 31, 1992.
Credit card fee revenue, which consists principally of interchange and
cardholder fees, increased by $7 million, or 13%, in 1993. This increase
reflected
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
TRUST ASSETS UNDER MANAGEMENT AND CUSTODY
- -------------------------------------------
(Billions of dollars)
Year Amount
--------------- --------------
<S> <C>
1991 $305
1992 380
1993 755
</TABLE>
23
<PAGE> 8
FINANCIAL REVIEW
NONINTEREST REVENUE continued
successful marketing efforts within the Corporation's region in 1993. Average
credit card assets increased to $1.351 billion in 1993, from $1.185 billion in
1992. Credit card fee revenue in 1994 also will be impacted by the contribution
of the Corporation's Network Services Division to EPS. Credit card processing
fees of $13 million were recorded by this division in 1993.
Foreign currency and securities trading fees increased to $45 million,
more than double the $19 million earned in 1992. This increase was
attributable primarily to foreign exchange fees earned, principally from
global custody customers, at The Boston Company.
Compared with 1991, fee revenue grew by $69 million, or 9%, in 1992,
excluding the one-time 1992 accrual adjustments resulting from a change in
accounting methodology. The improvement primarily reflected increases of 8% in
trust and investment management fees, 10% in cash management and deposit
transaction charges, 32% in mortgage servicing fees, 16% in credit card revenue
and 5% in information services fees.
The Corporation recorded $87 million in gains on the sale of securities
from the available for sale portfolio in 1993. These securities sales were
undertaken as part of the financing plan and balance sheet restructuring related
to the acquisition of The Boston Company. Gains on the sale of securities were
$121 million in 1992. These sales were undertaken primarily to reduce the
Corporation's exposure to prepayment risk associated with certain of its U.S.
agency mortgage-backed securities, as well as to enhance capital in anticipation
of The Boston Company acquisition. As a result of securities purchases, sales
and maturities during 1993, the fully taxable equivalent yield on the total
securities portfolio at December 31, 1993, was 5.11%, compared with 7.39% at
year-end 1992. Additional information regarding the Corporation's securities
portfolio is presented in note 3 of Notes to Financial Statements.
OPERATING EXPENSE
Operating expense before the net expense of acquired property and restructuring
expenses totaled $1.624 billion in 1993, an increase of $306 million, or 23%,
compared with $1.318 billion in 1992. The combined effect of The Boston
Company and Meritor branch acquisitions was the primary reason for higher
expenses in nearly all expense categories. Excluding the effect of
acquisitions, operating expense before the net expense of acquired property
and restructuring expense was essentially flat in 1993 compared with 1992.
Operating expense
<TABLE>
<CAPTION>
- ------------------------------------------------------------
(dollar amounts in millions) 1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $ 745 $ 578 $ 553
Net occupancy expense 168 147 142
Professional, legal and other
purchased services 150 119 111
Amortization of goodwill and
other intangibles 122 79 58
Equipment expense 113 98 95
Business development 75 63 51
Communications expense 71 62 55
FDIC assessment and regulatory
examination fees 60 53 47
Office supplies 37 28 26
Other expense 83 91 89
- ------------------------------------------------------------
Operating expense before the
net expense of acquired
property and restructuring
expenses 1,624 1,318 1,227
- ------------------------------------------------------------
Net expense of acquired
property 59 95 37
- ------------------------------------------------------------
Restructuring expenses 175 36 --
- ------------------------------------------------------------
Total operating expense $1,858 $1,449 $1,264
- ------------------------------------------------------------
Average full-time equivalent
staff 20,200 17,500 16,300
- ------------------------------------------------------------
Efficiency ratio*:
Including amortization of
intangibles 65% 66% 69%
Excluding amortization of
intangibles 60 62 66
- ------------------------------------------------------------
</TABLE>
* Operating expense before the net expense of acquired property and
restructuring expense as a percentage of net interest revenue on a taxable
equivalent basis and noninterest revenue, excluding securities gains and
nonrecurring items
The $36 million decrease in the net expense of acquired property in 1993,
compared with 1992, resulted primarily from a lower provision to the reserve for
real estate acquired (OREO), reflecting the lower level of OREO.
A restructuring charge of $175 million pretax, or $112 million after-tax,
was recorded in the first quarter of 1993 to reflect management's estimate of
restructuring costs associated with The Boston Company.
The increase in the average full-time equivalent staff level in 1993,
compared with the prior-year period, was due primarily to the addition of the
employees of The Boston Company and the Meritor branches. The impact of the May
1993 acquisition of The Boston Company on the average full-time equivalent staff
level was approximately 1,900 in 1993. The Boston Company had a full-time
equivalent staff level of approximately 3,200 at December 31, 1993.
Operating expense in 1992 increased by $185 million, or 15% over 1991.
Approximately half of the increase resulted from higher net expense of real
24
<PAGE> 9
OPERATING EXPENSE continued
estate acquired and restructuring expenses. The remaining increase primarily
resulted from the Corporation's year-end 1991 acquisition of United Penn Bank
(UPB), as well as from new business ventures and other asset acquisitions.
Restructuring expenses for 1992 included $18 million related to the December
1992 Meritor branch acquisition and $18 million related to the Corporation's
expense reduction program.
The Corporation adopted Statement of Financial Accounting Standards No. 106
(FAS No. 106), "Employers' Accounting for Postretirement Benefits Other than
Pensions" in 1993, by beginning to amortize the transition obligation over a
20-year transition period. Adoption of this standard increased benefits expense
by approximately $3 million in 1993, compared with the prior-year period.
Additional information regarding the Corporation's adoption of this standard is
presented in note 15 of Notes to Financial Statements.
In November 1992, the Financial Accounting Standards Board released FAS No.
112, "Employers' Accounting for Postemployment Benefits." FAS No. 112 requires
employers 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. This
standard becomes effective in 1994. The Corporation estimates that adoption of
FAS No. 112 will not be material to the Corporation's financial position or
results of operations.
TAXES
The Corporation returned to a fully taxable status in 1993 as all remaining tax
benefit carryforwards from losses in 1987 and 1988 were exhausted in late 1992.
The provision for income taxes totaled $239 million in 1993, for an effective
tax rate of approximately 40%, compared with $55 million in 1992 and $28 million
in 1991. Without the availability of unrecognized tax benefits to offset federal
income taxes, the Corporation's provision for income taxes in 1992 and 1991
would have been approximately $185 million and $128 million, respectively.
New tax legislation was enacted during the third quarter of 1993 that
resulted in a net benefit for the Corporation. Under the new tax legislation,
the Corporation revalued its net federal deferred tax asset to reflect a change
in the statutory tax rate and is permitted to deduct the amortization of certain
intangibles. The combined effect of these items more than offset the statutory
tax rate increase on earnings. Primarily as a result of the deductibility of
certain intangibles amortization, the Corporation's effective tax rate was 38.5%
for the third and fourth quarters, down from 41% for the first six months of
1993. The Corporation currently estimates that the ongoing effective tax rate
will be 38.5% until the completion of the merger with The Dreyfus Corporation,
after which it is currently anticipated that the effective tax rate will
increase to approximately 39%.
The Corporation adopted FAS No. 109 "Accounting for Income Taxes," on a
prospective basis in 1993. The cumulative effect of this change in accounting
for income taxes was less than $1 million and was included in income tax
expense. Additional information regarding the Corporation's adoption of this
standard is presented in note 14 of Notes to Financial Statements.
BALANCE SHEET REVIEW
- ----------------------------------------------------------------
ASSET/LIABILITY MANAGEMENT
<TABLE>
<CAPTION>
- -----------------------------------------------------------
(average balances in millions) 1993 1992 1991
- -----------------------------------------------------------
ASSETS
- -----------------------------------------------------------
<S> <C> <C> <C>
Money market investments $ 3,521 $ 1,663 $ 1,344
Trading account securities 269 308 309
Securities 4,426 6,052 5,333
Loans 21,755 18,227 18,509
- -----------------------------------------------------------
Total interest-earning
assets 29,971 26,250 25,495
Noninterest-earning assets 5,330 4,228 4,096
Reserve for credit losses (565) (589) (541)
- -----------------------------------------------------------
Total assets $34,736 $29,889 $29,050
- -----------------------------------------------------------
FUNDS SUPPORTING TOTAL
ASSETS
- -----------------------------------------------------------
Core funds $30,534 $24,786 $23,114
Wholesale funds 2,249 2,301 2,407
Purchased funds 1,953 2,802 3,478
Redeemable preferred stock -- -- 51
- -----------------------------------------------------------
Funds supporting total
assets $34,736 $29,889 $29,050
- -----------------------------------------------------------
</TABLE>
Balance sheet mix
The change in the mix and size of the Corporation's average balance sheet in
1993 was largely a result of the May 1993 acquisition of The Boston Company,
including the related financing plan and balance sheet restructuring, and the
December 1992 Meritor branch acquisition. The Boston Company and the Meritor
branch acquisitions added approximately $5 billion to total average assets and
$4 billion to average core funds in 1993. The assets acquired in these
acquisitions were primarily loans. Additional factors that
25
<PAGE> 10
FINANCIAL REVIEW
ASSET/LIABILITY MANAGEMENT continued
affected the mix of average assets were the sale of securities related to the
financing and balance sheet restructuring for The Boston Company acquisition and
sluggish loan demand in 1993. A portion of the proceeds from the securities
sales and loan repayments were temporarily invested in money market investments
in 1993.
For balance sheet management purposes, the Corporation has identified core,
wholesale and purchased funds as its key sources of funding. Core funds, which
are considered to be stable sources of funding, are defined principally as all
money market and other savings deposits, savings certificates, demand deposits,
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 funds averaged 115% of
core assets in 1993, up from 113% in 1992 and 105% in 1991, primarily
reflecting the average impact of core deposits related to the acquisition
of The Boston Company and the Meritor branch acquisition. The improvement
in core funds also was attributable to an increase in average shareholders'
equity and notes and debentures.
Wholesale and purchased funds are defined as federal funds purchased and
securities sold under agreements to repurchase, deposits in foreign offices and
other time deposits, negotiable certificates of deposit, U.S. Treasury tax and
loan demand notes, commercial paper and other borrowed funds. Average wholesale
and purchased funds decreased by $901 million compared with a year ago,
reflecting the additional core funding from the Meritor and The Boston Company
acquisitions, and declined to 12% of total average assets in 1993, compared with
17% in 1992 and 20% in 1991.
Securities
In May 1993, the Financial Accounting Standards Board released FAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." FAS No. 115
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and all investments in debt securities and
other securitized assets. Investment securities are to be classified into the
following three categories: debt securities that the Corporation has the
positive intent and ability to hold to maturity are classified as "held to
maturity securities" and reported at amortized cost; debt and equity securities
that are bought and held principally for the purpose of resale in the near
future are classified as "trading securities" and reported at fair value, with
unrealized gains and losses included in current period earnings; and debt and
equity securities not classified as either held to maturity securities or
trading securities are classified as "available for sale securities" and
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of shareholders' equity. This
standard becomes effective in the first quarter of 1994. The Corporation
currently estimates that adoption of FAS No. 115 will not initially have a
material impact on shareholders' equity; however, increased volatility of
shareholders' equity and related capital ratios could result from changes in
unrealized gains and losses on assets classified as available for sale.
Additional information regarding the Corporation's securities portfolio is
presented in note 3 of Notes to Financial Statements.
CAPITAL
Selected capital data
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
December 31,
(dollar amounts in millions, -----------------------------
except per share amounts) 1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $2,721 $2,090 $1,648
Common shareholders' equity
to assets ratio 7.53% 6.62% 5.61%
Tangible common equity
ratio(a) 5.37 5.48 4.90
Total shareholders' equity $3,313 $2,557 $2,073
Total shareholders' equity
to assets ratio 9.17% 8.10% 7.06%
Tier I capital ratio 7.39 7.62 6.56
Total (Tier I plus Tier II)
capital ratio 10.97 11.30 10.73
Leverage capital ratio 6.88 7.10 6.28
Book value per common
share(b) $41.75 $36.96 $31.29
Closing common stock price 53.00 53.00 34.875
- ----------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill divided by total assets less
goodwill.
(b) The book value per common share assumes full conversion of the Series D
preferred stock to common stock. Accordingly, this includes the additional
paid-in capital on the Series D preferred stock because this paid-in capital
has no liquidation preference over the common stock.
The Corporation's capital position continued to improve in 1993. Common
shareholders' equity increased $631 million in 1993 to $2.7 billion, or 7.53% of
total assets, at December 31, 1993, compared with 6.62% of total assets at
year-end 1992. Total shareholders' equity improved to 9.17% of total assets at
December 31, 1993, from 8.10% at year-end 1992. These improvements resulted from
the common and preferred stock and warrants issued in connection with The Boston
Company and Meritor branch acquisitions and earnings retention.
26
<PAGE> 11
CAPITAL continued
In January 1993, the Corporation raised $229 million of net proceeds from
the issuance of 4.3 million shares of common stock and $193 million of net
proceeds from the issuance of 8 million shares of 8.20% Series K preferred stock
issued as part of the financing plan for the acquisition of The Boston Company
and the December 1992 Meritor branch acquisition. In May 1993, the Corporation
issued $115 million of common stock and $37 million of warrants as part of the
purchase price of The Boston Company. Partially offsetting the increase in total
shareholders' equity was the redemption of the $68 million of Series B
convertible preferred stock in December 1993.
During the fourth quarter of 1993, the Corporation repurchased
approximately 1 million shares of its common stock to be used to meet current
and near-term requirements for its stock-based benefit plans. Approximately
366,000 of these shares remained in treasury at December 31, 1993.
Upon consummation of the merger with The Dreyfus Corporation, which will be
accounted for as a pooling-of-interests, the Corporation expects to issue
approximately 32 million shares of common stock in exchange for the Dreyfus
common stock. The capital ratios of the Corporation following this merger will
be substantially higher than the year-end 1993 ratios. On a pro forma basis,
book value per common share would have been approximately 13% lower than the
year-end 1993 amount. Additional information regarding the Corporation's merger
with The Dreyfus Corporation is presented in note 21 of Notes to Financial
Statements.
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY
- -------------------------------------------
(Millions of dollars at year end)
1991 1992 1993
---------------------------------------
<S> <C> <C> <C>
Common Equity $1,648 $2,090 $2,721
Preferred Equity 425 467 592
---------------------------------------
Total Equity $2,073 $2,557 $3,313
</TABLE>
Risk-based and leverage capital ratios at
December 31, 1993
<TABLE>
<CAPTION>
- --------------------------------------------------------
(dollar amounts in millions)
- --------------------------------------------------------
<S> <C>
Tier I capital:
Common shareholders' equity(a) $ 2,684
Qualifying preferred stock(a) 629
Minority interest 12
Goodwill and other intangibles (926)
- --------------------------------------------------------
Total Tier I capital 2,399
Tier II capital 1,160
- --------------------------------------------------------
Total qualifying capital $ 3,559
- --------------------------------------------------------
Risk-adjusted assets:
On-balance sheet $23,754
Off-balance sheet 8,689
- --------------------------------------------------------
Total $32,443
- --------------------------------------------------------
Average assets--leverage capital basis $34,890
- --------------------------------------------------------
Tier I capital ratio 7.39%
Total capital ratio 10.97
Leverage capital ratio 6.88
- --------------------------------------------------------
</TABLE>
(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."
Tier I and Total capital are expressed as a percentage of risk-adjusted assets,
which include various risk-weighted percentages of assets on the balance sheet
as well as off-balance-sheet exposures. The leverage capital ratio evaluates
capital adequacy on the basis of the ratio of Tier I capital to quarterly
average total assets as reported on the Corporation's regulatory financial
statements, net of the loan loss reserve, goodwill and certain other
intangibles.
The positive effect of the equity issuances and earnings retention in 1993
were offset by the effect of a higher level of goodwill and other intangibles
and higher asset levels. Although the Corporation's risk-based and leverage
capital ratios decreased slightly in 1993, they remained well above the
supervisory minimums.
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 under-capitalized. For an institution to qualify
as well capitalized, Tier I capital, Total capital and leverage capital must
be at least 6%, 10% and 5%, respectively. All of the Corporation's banking
subsidiaries qualified as well capitalized at December 31, 1993. The
27
<PAGE> 12
FINANCIAL REVIEW
CAPITAL continued
Corporation intends to maintain the ratios of its banking subsidiaries at the
well capitalized levels.
The Corporation deducts goodwill and intangibles acquired subsequent to
February 19, 1992, except mortgage servicing rights and purchased credit card
intangibles, when computing Tier I capital. The components of the Corporation's
intangible assets are presented in the table below.
Goodwill and other intangibles
<TABLE>
<CAPTION>
- -------------------------------------------------------------
December 31,
---------------------------------
(in millions) 1993 1992 1991
- -------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 825 $380 $220
Purchased mortgage
servicing rights 160 140 52
Purchased core deposit
intangible 155 215 168
Covenant not to compete 57 7 16
Purchased credit card
intangibles 44 49 57
Other intangibles 46 32 38
- -------------------------------------------------------------
Total $1,287 $823 $551
- -------------------------------------------------------------
</TABLE>
The increase in goodwill and other intangibles during 1993 resulted from
$402 million of goodwill and a $55 million noncompete covenant recorded in
connection with The Boston Company acquisition and approximately $55 million of
goodwill and a $5 million noncompete covenant related to the acquisition of
AFCO. During 1993, the Corporation reclassified approximately $26 million from
purchased core deposit intangibles to goodwill following receipt of an
independent appraisal of the intangibles and the final valuation of Meritor's
assets and liabilities. The increase in purchased mortgage servicing rights
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
TOTAL COMMON EQUITY TO ASSETS AND
TANGIBLE COMMON EQUITY TO ASSETS*
- -------------------------------------------
(Percentage)
1991 1992 1993
-----------------------------
<S> <C> <C> <C>
Total Common Equity 5.61% 6.62% 7.53%
Tangible Common Equity 4.90% 5.48% 5.37%
</TABLE>
*Common shareholders' equity less goodwill divided by total
assets less goodwill
(PMSR) in both 1993 and 1992, resulted from mortgage servicing portfolio
acquisitions. A test for the impairment of value of PMSRs is conducted
quarterly. The estimated fair value of the PMSRs exceeded the carrying value at
December 31, 1993. For a further discussion of the Corporation's accounting
policy for PMSRs, see note 1 of Notes to Financial Statements. The increase in
goodwill and other intangibles during 1992 resulted principally from the
December 1992 Meritor branch acquisition and the purchase of mortgage servicing
portfolios.
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. The revolving credit facility contains tangible net worth and double
leverage ratio covenants, as discussed in note 9 of Notes to Financial
Statements.
During the second quarter of 1993, Moody's, a public credit rating agency,
upgraded its ratings on the Corporation's senior debt securities and other
obligations, primarily as a result of the Corporation's improved capital
position, lower level of nonperforming assets and continued growth in core
earnings. This upgrade should enable the Corporation to issue debt at lower
rates of interest and, overall, enhance the Corporation's access to funding
markets.
<TABLE>
<CAPTION>
- ------------------------------------------------------------
December 31,
--------------------------
SENIOR DEBT RATINGS 1993 1992 1991
- ------------------------------------------------------------
<S> <C> <C> <C>
MELLON BANK CORPORATION
Moody's A3 Baa1 Baa1
Standard & Poor's A- A- A-
- ------------------------------------------------------------
</TABLE>
As shown in the Consolidated Statement of Cash Flows, cash and due from
banks increased by $195 million during 1993 to $2.169 billion at December 31,
1993. The increase primarily reflected $1.392 billion in net cash provided by
operating activities and $2.137 billion of net cash provided by investing
activities, offset in part by $3.347 billion of net cash used by financing
activities. Net cash
28
<PAGE> 13
LIQUIDITY AND DIVIDENDS continued
provided by investing activities was the result of cash received from the sales
and maturities of securities net of purchases and the reduction in term deposits
offset in part by the purchase of The Boston Company. Cash used by financing
activities principally reflected a net reduction in customer deposits and the
repayment of AFCO borrowings at the acquisition date. Cash generated by
operating activities reflected $361 million of net income adjusted for noncash
charges and credits. Completion of the pending merger with The Dreyfus
Corporation will add approximately $750 million of cash and securities to the
total liquid assets of the Corporation.
In connection with the financing plan for the acquisition of The Boston
Company and the December 1992 Meritor branch acquisition, the Corporation raised
$229 million of net proceeds from the issuance of 4.3 million new shares of
common stock and $193 million of net proceeds from the issuance of 8 million
shares of 8.20% Series K preferred stock. Also in connection with these
acquisitions, the Corporation issued $199 million of 6 1/2% Senior Notes Due
1997, $150 million of 6 7/8% Subordinated Debentures due 2003 and $200 million
of Floating Rate Senior Notes Due 1996.
Several other issuances and redemptions of debt were undertaken in 1993
primarily to reposition and to reduce the overall cost of the Corporation's
long-term debt. The Corporation redeemed the entire $153 million of its 8 7/8%
Subordinated Capital Notes, the entire $68 million of its 9% notes due 1996 and
the entire $33 million of 8.6% Debentures Due 2009. The Corporation's principal
bank subsidiary, Mellon Bank, N.A., redeemed the entire $250 million of its
Floating Rate Subordinated Capital Notes due 1996. Mellon Bank, N.A., issued
$249 million of 6 1/2% Subordinated Notes due 2005 and $149 million of 6 3/4%
Subordinated Notes due 2003 during the year. Other 1993 activity included the
redemption of $68 million of Series B convertible preferred stock in the fourth
quarter of 1993.
Contractual maturities of the Corporation's term debt totaled $60 million
in 1993 and primarily included the $52 million maturity of fixed-and
variable-rate Medium Term Notes. Contractual matur-
ities of existing debt will total $219 million in 1994. The Corporation expects
to fund its 1994 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 has on file with
the Securities and Exchange Commission a debt shelf registration statement on
which up to an additional $200 million of debt may be issued.
The Corporation paid $156 million of dividends on its outstanding shares of
common and preferred stock during 1993. The Corporation increased its annual
dividend on common stock to $1.52 per share in January 1993, an increase of 9%
from $1.40 per share in 1992. This resulted in a common stock dividend payout
ratio of 33% in 1993, compared with 20% in 1992. In November 1993, the
Corporation announced an increase in the dividend on its common stock commencing
in the first quarter of 1994 to $2.24 per share, an increase of 47% from $1.52.
Using the new common stock dividend rate, annual dividend requirements in 1994
for the common and preferred stock are expected to be approximately $205
million. Completion of the pending merger with The Dreyfus Corporation will
increase the outstanding common shares of the Corporation by approximately 32
million shares. This increase in outstanding common shares will result in an
increase in annual common dividends of approximately $72 million.
The parent Corporation's principal sources of cash are interest and
dividends from its subsidiaries. The ability of national bank subsidiaries to
pay dividends to the parent Corporation is subject to certain limitations, as
discussed in note 16 of Notes to Financial Statements. Under the currently more
restrictive of these limitations, the Corporation's national bank subsidiaries
can, without prior regulatory approval, declare dividends subsequent to December
31, 1993, of approximately $492 million, less any dividends declared and plus or
minus net profits or losses, as defined, between January 1, 1994, and the date
of any such dividend declaration. The national bank subsidiaries declared
dividends to the parent Corporation of $158 million in 1993, $130 million in
1992 and $129 million in 1991. Dividends paid to the parent Corporation by
nonbank subsidiaries totaled $116 million in 1993, including $62 million
attributable to The Boston Company, compared with $26 million in 1992 and $32
million in 1991. In addition, The Boston Company returned $300 million of
capital to the parent Corporation in 1993.
Banking regulators have issued additional guidelines that require bank
holding companies and subsidiary banks to continuously evaluate the level of
cash dividends in relation to their respective operating income, capital needs,
asset quality and overall financial condition. Dividends from the bank
subsidiaries to the parent Corporation in 1994 are not expected to exceed
earnings for those subsidiaries.
29
<PAGE> 14
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- --------------------------------
<S> <C> <C>
10.19 Agreement and Plan of Merger dated Omitted. Confidential treatment
as of December 5, 1993, by and among requested pursuant to Rule 24b-2.
Mellon Bank Corporation, Mellon Filed separately with the Commission.
Bank, N.A., XYZ Sub Corporation and
The Dreyfus Corporation
11.1 Computation of Primary and Fully Filed herewith
Diluted Net Income Per Common Share.
12.1 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends--parent
Corporation.
12.2 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed
Charges and Preferred Stock
Dividends--Mellon Bank Corporation
and its subsidiaries.
13.1 All portions of the Mellon Bank Corporation Filed herewith
1993 Annual Report to Shareholders that
are incorporated herein by reference.
21.1 List of Subsidiaries of the Filed herewith
Corporation.
23.1 Consent of Independent Accountants. Filed herewith
24.1 Powers of Attorney. Filed herewith
</TABLE>
30
<PAGE> 15
CREDIT RISK AND ASSET QUALITY
- ---------------------------------------
CREDIT MANAGEMENT
The Corporation's credit management philosophy is designed to achieve controlled
asset generation while maintaining an appropriate balance between risk and
return. Essential to this process are stringent underwriting of new loans,
active monitoring of all loan portfolios, and the early identification of
potential problems and their prompt resolution. These are accomplished by
establishing internal ownership, responsibility and accountability for all
aspects of asset quality. Notwithstanding this process, however, asset quality
is dependent in large part upon local, national, international and industry
segment economic conditions that are beyond the Corporation's control.
Management maintains a comprehensive centralized process through which the
Corporation extends new loans, monitors credit quality, actively manages problem
credits and disposes of nonperforming assets. To help ensure adherence to the
Corporation's credit policies, senior department credit officers report to both
the chief credit officer and the head of each respective lending department. The
responsibilities of these senior credit officers include all aspects of the
credit process except credit review, credit recovery, and aggregate portfolio
management, which are centralized at the corporate level.
The Corporation manages credit risk by maintaining a well-diversified
credit portfolio and by adhering to its written credit policies, which specify
general underwriting criteria as well as underwriting standards by industry, and
control credit exposure by borrower, degree of risk, industry and country. These
measures are adopted by the Credit Policy Committee and are regularly updated to
reflect the committee's evaluation of developments in economic, political and
operating environments that could affect lending risks. The Corporation may
adjust credit exposure to individual industries or customers through loan sales,
syndications and participations.
Except for certain well-defined loans made by the Retail Financial Services
sector, primarily to consumers and small businesses, all credit extensions are
approved jointly by officers of the Credit Policy Department and officers of the
lending departments. The number and level of officer approvals required are
determined by the dollar amount and risk characteristics of the credit
extension. The amount of collateral, if any, obtained by the Corporation upon
the extension of credit is based on industry practice as well as on the credit
assessment of the customer. The type and amount of collateral vary, but the form
generally includes: accounts receivable; inventory; property, plant and
equipment; other assets; and/or existing income-producing commercial properties
with appraised values that exceed the contractual amount of the credit
facilities by pre-approved ratios.
The Corporation continually assesses the quality of its commercial credit
facilities and assigns a numerical quality rating to substantially all
extensions of credit in its commercial, real estate and international
portfolios. Lending officers have the primary responsibility for monitoring
their portfolios, identifying emerging problem loans and recommending changes in
quality ratings. In order to anticipate or detect problems that may result from
economic downturns or deteriorating conditions in certain markets, lending units
and credit management utilize a process designed to identify potential credit
problems, both for specific customers and for industries that could be affected
by adverse market or economic conditions. When signs of credit deterioration are
detected, credit recovery or other specialists become involved to minimize the
Corporation's exposure to potential future credit losses. The Credit Review
Department provides an independent assessment of credit ratings, credit quality
and adherence to the credit management process.
31
<PAGE> 16
FINANCIAL REVIEW
COMPOSITION OF LOAN PORTFOLIO AT YEAR END
The increase in the loan portfolio in 1993 resulted primarily from the addition
of $4.4 billion in loans related to the acquisition of The Boston Company and
$1.2 billion in collateralized loans related to the acquisition of AFCO.
Excluding the effect of these acquisitions, period-end loans decreased in 1993
by approximately $1.1 billion, or 6%, compared with a year ago, reflecting the
weak demand primarily in commercial loans. Principally as a result of the
consumer loans acquired in The Boston Company acquisition, the Corporation's
loan portfolio is almost equally composed of consumer and commercial loans. At
December 31, 1993, the loan portfolio was composed of 51% commercial loans and
49% consumer loans. At year-end 1992, the split of commercial and consumer loans
was 60% and 40%, respectively.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1993(a)(b) 1992(a) 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $ 9,091 $ 8,115 $ 8,270 $ 8,096 $ 9,532
- ----------------------------------------------------------------------------------------------------------------------------
Commercial real estate:
Commercial construction 423(c) 504 636 990 1,362
Commercial mortgage 1,298 1,357 1,340 1,220 1,295
- ----------------------------------------------------------------------------------------------------------------------------
Total commercial real estate 1,721(d) 1,861 1,976 2,210 2,657
- ----------------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 8,180 4,278 3,296 2,921 1,475
Other consumer credit 3,813 3,618 3,508 3,289 3,348
- ----------------------------------------------------------------------------------------------------------------------------
Total consumer credit 11,993 7,896 6,804 6,210 4,823
- ----------------------------------------------------------------------------------------------------------------------------
Lease finance assets 718 650 658 688 424
- ----------------------------------------------------------------------------------------------------------------------------
Total domestic loans 23,523 18,522 17,708 17,204 17,436
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 950 1,434 1,395 1,534 1,962
- ----------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $24,473 $19,956 $19,103 $18,738 $19,398
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) At December 31, 1993, commercial loans, commercial construction loans and
commercial mortgages included $58 million, $8 million and $223 million,
respectively, of loans acquired in the Meritor branch acquisition which are
subject to the FDIC loss sharing arrangement as further discussed in note 8
of Notes to Financial Statements.
(c) Includes $321 million of loans related to real estate projects that 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 project is located.
(d) Includes $432 million of loans secured by owner-occupied commercial real
estate but not made for the purpose of real estate construction or
financing.
Note: There were no concentrations of loans to borrowers engaged in similar
activities, other than those shown on the table above, that exceeded 10% of
total loans at year end.
Commercial and financial
The domestic commercial and financial loan portfolio consists primarily of loans
to corporate borrowers in the manufacturing, service, energy, communications,
wholesale and retail trade, public utilities and financial services industries.
The Corporation diversifies risk within this portfolio by closely monitoring
industry concentrations and portfolios to ensure that established lending
guidelines are not exceeded. Diversification is intended to limit the risk of
loss from any single unexpected economic trend or event. Total domestic
commercial and financial loans increased by $976 million, or 12%, during 1993,
due to the acquisition of $1.2 billion in high-quality loans related to the AFCO
acquisition, offset partially by the reduced demand for loans in 1993. The level
of commercial loans continued to decrease in 1993, excluding the effect of
acquisitions, as the Corporation's customers recently have accessed the public
debt and equity markets more frequently, and as a consequence borrow less from
the Corporation. Commercial and financial loans represented 37% and 41% of the
total loan portfolio at December 31, 1993 and 1992, respectively. At year-end
1993, nonperforming domestic commercial and financial loans and leases were .41%
of total domestic commercial and financial loans and leases compared with 1.25%
at December 31, 1992.
Commercial real estate
The Corporation's $1.7 billion domestic commercial real estate loan portfolio
consists of commercial mortgages, which generally are secured by
32
<PAGE> 17
COMPOSITION OF LOAN PORTFOLIO AT YEAR END continued
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 $231 million of loans acquired in
the December 1992 Meritor branch acquisition that are subject to a five year 95%
loss sharing arrangement with the FDIC. Domestic commercial real estate loans
decreased by $140 million, or 8%, in 1993. The decrease was primarily a result
of paydowns, net credit losses, transfers to OREO and sales, partially offset by
new loan originations in 1993. Domestic commercial real estate loan commitments
originated in 1993 totaled $95 million. Commercial real estate loan commitments
were $307 million at December 31, 1993, down slightly from $325 million at
December 31, 1992. Domestic commercial real estate loans were 7% of total loans
at December 31, 1993, down from 9% a year earlier. Nonperforming domestic
commercial real estate loans were 5.17% of total domestic commercial real estate
loans at December 31, 1993, compared with the peak level of 19.02% at September
30, 1991.
Management's strategy in real estate lending has been to limit the
Corporation's exposure to weakened real estate markets by concentrating
primarily on its existing selected customer base, adhering to stringent
underwriting criteria for new loans and strengthening the process for managing
nonperforming loans. The commercial real estate loan portfolio has been reduced
by approximately 55% since year-end 1986 despite the addition of commercial real
estate loans acquired in the Meritor branch, United Penn Bank and PSFS
acquisitions.
Distribution of domestic commercial real estate by size at December 31, 1993
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(dollar amounts in millions) Percent
of total
Principal amounts Outstandings outstandings
- ---------------------------------------------------------
<S> <C> <C>
Less than $10 $1,139 66%
$10 to $20 318 (a) 19
$20 to $40 206 (b) 12
$40 to $60 58 (c) 3
- ---------------------------------------------------------
Total $1,721 100%
- ---------------------------------------------------------
</TABLE>
(a) Represents loans to 23 borrowers.
(b) Represents loans to 7 borrowers.
(c) Represents a loan to a single borrower.
Consumer credit
Consumer mortgages grew to $8.2 billion, or 33% of total loans, at December 31,
1993. The $3.9 billion increase in this portfolio from year end 1992 reflected
the addition of approximately $4.2 billion of consumer mortgages, primarily
jumbo mortgages, from The Boston Company. At December 31, 1993, the geographic
distribution of the jumbo mortgages at The Boston Company was as follows: 33% in
New York; 28% in California; 25% in New England; and 14% in other areas. For the
Corporation's entire domestic consumer mortgage portfolio, nonperforming
mortgages were .75% of total consumer mortgages at December 31, 1993.
Other consumer credit, which consists principally of installment loans,
credit cards, personal credit lines and student loans, increased by $195 million
from year end 1992. This increase reflected the consumer loans added from The
Boston Company acquisition.
Other loans
Lease finance assets increased to $718 million, up from $650 million at year end
1992. Loans to international borrowers decreased to $950 million at December 31,
1993.
Highly leveraged transactions
A highly leveraged transaction (HLT) loan is a commercial loan involving a
leveraged buyout, acquisition or recapitalization of an existing business. In
addition, the loan substantially increases the borrower's leverage ratio. Given
the borrower's generally higher ratio of debt compared with equity, there may be
higher risk of default inherent in these transactions than in more traditional
financings.
The level of the Corporation's HLTs continued to decrease in 1993. Total
HLT loans were $498 million at December 31, 1993, down $90 million, or 15%, from
the prior year end. Total HLT credit exposure decreased by $89 million during
1993 to $693 million. These reductions primarily reflected payments received, as
well as the delisting of certain credit exposures that no longer met the revised
HLT definition. At December 31, 1993, HLT loans were 2% of total loans. The
largest HLT exposure by industry was cable television, with 10 companies and
credit exposure of $202 million at December 31, 1993. The credit quality of HLT
outstandings improved in 1993. Nonaccrual HLT loans at December 31, 1993
decreased to $11 million, or 2.23%, of total HLT loans compared with $24
million, or 4.11%, at December 31, 1992. The elimination of HLT activity would
not have a material impact on the Corporation's earnings.
33
<PAGE> 18
FINANCIAL REVIEW
COMPOSITION OF LOAN PORTFOLIO AT YEAR END continued
Distribution of domestic commercial real estate loans at December 31, 1993
<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 $196 $ 46 $ 46 $36 $12 $ 6 $ 342
Retail 155 70 45 22 11 -- 303
Hotels 72 49 10 6 12 -- 149
Industrial 50 2 2 5 3 -- 62
Apartments 31 -- 17 -- 3 -- 51
Undeveloped land 6 18 10 9 -- -- 43
Health care 11 9 -- 4 4 -- 28
Residential 17 -- -- 3 4 -- 24
Other project types 56 -- -- -- -- -- 56
- -----------------------------------------------------------------------------------------------------------------------------
Subtotal $594(a) $194(b) $130(c) $85(d) $49(e) $ 6 $1,058
- -----------------------------------------------------------------------------------------------------------------------------
Meritor loss share loans 231(f)
Owner-occupied loans 432(g)
- -----------------------------------------------------------------------------------------------------------------------------
Total $1,721
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $417 million of loans to borrowers located in Pennsylvania.
(b) Includes $75 million of loans to borrowers located in Florida.
(c) Includes $32 million of loans to borrowers located in Ohio.
(d) Includes $71 million of loans to borrowers located in California.
(e) Includes $25 million of loans to borrowers located in Texas.
(f) Commercial real estate loans acquired from the Meritor branch acquisition
that are subject to the FDIC loss sharing arrangement. Meritor commercial
real estate loans that become nonperforming loans are transferred to
segregated assets.
(g) Loans that are secured by owner-occupied commercial real estate but not
made for the purpose of real estate construction or financing.
Distribution of nonperforming commercial real estate loans and real estate
acquired at December 31, 1993
<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 $ 12 $26 $10 $ 7 $22 $ 8 $-- $ 85
Office complexes (a) 48 3 1 -- 8 -- -- 60
Retail 5 12 -- 10 -- -- 16 43
Hotels 5 22 -- -- -- -- -- 27
Residential 13 9 -- 2 2 1 -- 27
Industrial 9 -- 1 -- -- -- -- 10
Other project types 12 -- -- -- -- -- -- 12
-----------------------------------------------------------------------------------------------------------------------------
Total by region $104(b) $72(c) $12(d) $19(e) $32(f) $ 9(g) $16(h) $264(i)(j)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes certain multi-use projects.
(b) Includes $38 million of nonperforming loans to borrowers and $22 million
of OREO located in Pennsylvania.
(c) Includes $22 million of nonperforming loans to borrowers and $35 million
of OREO located in Florida.
(d) Includes $10 million of nonperforming loans to borrowers located in
Illinois.
(e) Entire amount is OREO located in California.
(f) Includes $27 million of OREO located in Texas.
(g) Includes $8 million of OREO located in Massachusetts.
(h) Entire amount is OREO located in Quebec.
(i) Excludes segregated assets, as well as the reserve for real estate
acquired of $37 million.
(j) Includes approximately $21 million of consumer OREO.
34
<PAGE> 19
NONPERFORMING ASSETS
Nonperforming and past-due assets
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1993(a) 1992(a) 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 37 $109 $129 $ 96 $106
Commercial real estate:
Commercial construction 33 37 166 228 113
Commercial mortgage 42 135 187 180 46
Consumer credit:
Consumer mortgage 61 29 13 14 13
Other consumer credit 4 1 1 1 6
- ---------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 177 311 496 519 284
International nonaccrual loans 7 8 32 7 168
- ---------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 184 319 528 526 452
- ---------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 4 -- -- -- --
Commercial real estate 14 15 -- -- 40
- ---------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 18 15 -- -- 40
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 195 326 496 519 324
International 7 8 32 7 168
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans(b) $202 $334 $528 $526 $492
- ---------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired through foreclosures 100 96 245 159 155
In-substance foreclosures 75 154 140 112 11
Reserve for real estate acquired (37) (10) (21) (18) (42)
- ---------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 138 240 364 253 124
Other assets acquired 1 21 41 2 4
- ---------------------------------------------------------------------------------------------------------------------------
Total acquired property 139 261 405 255 128
- ---------------------------------------------------------------------------------------------------------------------------
Investment in GSNB senior preferred stock,
net of deferred collection fees -- -- -- -- 76
- ---------------------------------------------------------------------------------------------------------------------------
Total acquired property 139 261 405 255 204
- ---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $341 $595 $933 $781 $696
- ---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective loan
portfolio segments:
Domestic commercial and financial loans and leases .41% 1.25% 1.44% 1.09% 1.07%
Domestic commercial real estate loans 5.17 10.03 17.87 18.47 7.51
Domestic consumer mortgage loans .75 .68 .40 .46 .86
Total loans .83 1.67 2.77 2.81 2.54
Nonperforming assets as a percentage of total loans, net acquired
property and net investment in GSNB senior preferred stock 1.39 2.94 4.78 4.11 3.55
- ---------------------------------------------------------------------------------------------------------------------------
Past-due loans:
Domestic loans:
Consumer credit $53 $50 $44 $33 $17
Real estate, primarily consumer mortgages 25 46 23 15 15
Commercial 6 1 2 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total domestic loans $84 $97 $69 $48 $32
International loans -- -- 6 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total past-due loans $84 $97 $75 $48 $32
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) Includes $74 million, $187 million, $278 million, $293 million and $31
million, respectively, of loans with both principal and interest less than
90 days past due but placed on nonaccrual status by management discretion.
35
<PAGE> 20
FINANCIAL REVIEW
NONPERFORMING ASSETS continued
"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 the Corporation's
practices for placing assets on nonaccrual status is presented in note 1 of
Notes to Financial Statements.
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 decreased in 1993 as the Corporation continued to
emphasize loan quality. At December 31, 1993, nonperforming assets totaled $341
million, the lowest level in more than 11 years, down $254 million, or 43%, from
the prior year end. Nonperforming assets have been reduced by nearly $1.4
billion from the peak level at June 30, 1987.
Domestic nonperforming real estate assets, which consist of nonperforming
commercial and consumer real estate loans and OREO net of the reserve, totaled
$288 million at December 31, 1993, a decrease of $168 million, or 37%, from the
previous year end. The reduction resulted primarily from asset sales, returns to
accrual status and credit losses, offset in part by an increase in nonperforming
consumer mortgages, primarily from The Boston Company. Nonperforming real estate
assets were 85% of total nonperforming assets at December 31, 1993. Domestic
commercial and financial nonperforming loans decreased by $68 million during
1993. The decrease primarily reflected repayments and credit losses.
Change in nonperforming loans
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Domestic
--------------------------------------------
Commercial Commercial Consumer Total
(in millions) & Financial Real Estate Credit International 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of year $109 $187 $ 30 $ 8 $ 334 $ 528
Additions 59 102 50 3 214 460
Acquired from TBC 7 -- 46 -- 53 --
Payments(a) (72) (43) (18) -- (133) (186)
Return to accrual status (16) (85) (18) -- (119) (40)
Credit losses (46) (51) (14) (4) (115) (215)
Transfers to acquired property -- (21) (11) -- (32) (213)
- ---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at end of year(b) $ 41 $ 89 $ 65 $ 7 $ 202 $ 334
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes interest applied to principal and sales.
(b) Excludes segregated assets.
Acquired property consists of OREO and other assets acquired in connection
with loan settlements. OREO, net of the reserve, totaled $138 million at
December 31, 1993, down $102 million compared with year-end 1992. The decrease
resulted primarily from sales and write-downs, partially offset by new transfers
to OREO. Net gains on the sale of OREO were $8 million in 1993. Other assets
acquired totaled $1 million at December 31, 1993, down from $21 million a year
earlier. The decrease resulted primarily from asset sales and write-downs.
36
<PAGE> 21
NONPERFORMING ASSETS continued
Change in acquired property
<TABLE>
<CAPTION>
- ---------------------------------------------------------
December 31,
(in millions) 1993 1992
- ---------------------------------------------------------
<S> <C> <C>
OREO at beginning of year, net of
reserve $240 $ 364
Foreclosures(a) 44 224
OREO acquired from TBC 15 --
Sales (81) (213)
Write-downs, credit losses, OREO
provision and other (80) (135)
- ---------------------------------------------------------
OREO at end of period $138 $ 240
- ---------------------------------------------------------
Other acquired assets 1 21
- ---------------------------------------------------------
Total acquired property(b) $139 $ 261
- ---------------------------------------------------------
</TABLE>
(a) Includes foreclosures and in-substance foreclosures from loans and the
mortgage servicing portfolio.
(b) Excludes segregated assets.
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 for 1993, 1992 and 1991 is presented in the table
below.
Reserve for real estate acquired
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(in millions) 1993 1992 1991
- ----------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $ 10 $ 21 $ 18
UPB reserve acquired -- -- 1
Write-downs on real
estate acquired (27) (116) (37)
Provision charged to
operating expense 54 105 39
- ----------------------------------------------------------
Ending balance $ 37 $ 10 $ 21
- ----------------------------------------------------------
</TABLE>
Additional domestic nonaccrual loan data
<TABLE>
<CAPTION>
- --------------------------------------------------------
December 31,
(dollars in millions) 1993 1992
- --------------------------------------------------------
<S> <C> <C>
Book balance $177 $311
Contractual balance of nonaccrual
loans 252 433
Book balance as a percentage of
contractual balance 70% 72%
Full-year interest receipts applied to
reduce principal $ 10 $ 9
Full-year interest receipts recognized
in interest revenue 11 14
- --------------------------------------------------------
</TABLE>
Note: Excludes segregated assets.
In May 1993, the FASB 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.
At this point in the 1993 Annual Report there appears a line graph as set out
in the following table:
<TABLE>
<CAPTION>
NONPERFORMING ASSETS AS A PERCENTAGE
OF LOANS AND ACQUIRED ASSETS
- -------------------------------------------
Year Amount
--------------- --------------
<S> <C>
1989 3.55%
1990 4.11%
1991 4.78%
1992 2.94%
1993 1.39%
</TABLE>
37
<PAGE> 22
FINANCIAL REVIEW
NONPERFORMING ASSETS continued
Foregone interest on nonperforming loans at year end
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractual interest due $21 $32 $58 $62 $94
Interest revenue recognized 7 13 10 30 33
- --------------------------------------------------------------------------------------------------------------------------
Interest revenue foregone $14 $19 $48 $32 $61
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: This table includes interest revenue foregone on loans that were included
as nonperforming at the end of each year. Interest receipts that the Corporation
applied, for accounting purposes, to reduce principal balances of nonaccrual
loans are included in contractual interest due, but not in interest revenue
recognized.
SEGREGATED ASSETS
At December 31, 1993, segregated assets totaled $187 million, or $183 million
net of the $4 million reserve, compared with $259 million, or $241 million net
of an $18 million reserve, at December 31, 1992.
Credit losses on segregated assets totaled $14 million in 1993, principally
as a result of losses on commercial real estate loans. These losses represented
the Corporation's share of the losses on the acquired Meritor loans.
Additional information regarding the Corporation's segregated assets is
presented in note 8 of Notes to Financial Statements.
Segregated assets at year end
<TABLE>
<CAPTION>
- --------------------------------------------------------
(in millions) 1993 1992
- --------------------------------------------------------
<S> <C> <C>
Nonaccrual loans:
Commercial real estate loans $ 84 $ 233
Commercial loans 28 26
- --------------------------------------------------------
Total nonaccrual loans 112 259
- --------------------------------------------------------
Real estate acquired 75 --
- --------------------------------------------------------
Total segregated assets $ 187 $ 259
Less: FDIC loss sharing(a) (178) (237)
- --------------------------------------------------------
Maximum credit exposure $ 9 $ 22
- --------------------------------------------------------
CREDIT LOSS ACTIVITY
- --------------------------------------------------------
Segregated asset losses:
Commercial real estate loans $ 10 $ --
Commercial loans 4 --
- --------------------------------------------------------
Total 14 --
- --------------------------------------------------------
Segregated asset recoveries -- --
- --------------------------------------------------------
Segregated assets losses $ 14 $ --
- --------------------------------------------------------
CHANGE IN RESERVE FOR SEGREGATED
ASSETS
- --------------------------------------------------------
Reserve for segregated assets at
beginning of period $ 18 $ --
Initial allowance -- 18
Segregated asset losses 14 --
- --------------------------------------------------------
Reserve at end of period(b) $ 4 $ 18
- --------------------------------------------------------
- --------------------------------------------------------
Past-due loans subject to
loss sharing $ -- $ 15
- --------------------------------------------------------
</TABLE>
(a) Represents the FDIC loss sharing arrangement of 80% of the first $60 million
of credit losses and 95% of the remaining balance of segregated assets.
At December 31, 1993, 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 credit losses on segregated assets, before
FDIC loss sharing, were $97 million in 1993.
(b) This reserve is not included in the reserve for credit losses.
38
<PAGE> 23
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at year end $600(a) $506(a) $596 $525 $610
Reserve as a percentage of:
Total loans 2.45% 2.54% 3.12% 2.80% 3.15%
Nonperforming loans 297 152 113 100 124
Net credit losses as a percentage of average loans .64 1.52 1.24 2.15 3.33
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes reserve for segregated assets.
The Corporation maintains a credit loss reserve which, in management's judgment,
is adequate to absorb future losses inherent in the loan portfolio.
Management reviews the adequacy of the reserve at least quarterly. For
analytical purposes, the reserve methodology estimates loss potential in both
the commercial and consumer loan portfolios. This methodology includes an
evaluation of loss potential on individual problem credits as well as a review
of market concentrations, changing business trends, industry risks, legislative
actions and general economic conditions that may adversely affect loan
collectibility.
Other factors considered in determining the level of the reserve include:
trends in portfolio volume, quality, maturity and composition; historical loss
experience; lending policies; new products; the status and amount of
nonperforming and past-due loans; adequacy of collateral; and current, as well
as anticipated, economic and industry-specific conditions that may affect
certain borrowers. In addition, management assesses volatile factors such as
interest rates and real estate market conditions that may significantly alter
loss potential. The loss reserve methodology also provides for a portion of the
reserve to act as an additional buffer against credit quality deterioration or
risk of estimation error. Although the determination of the adequacy of the
reserve is based upon these factors, the reserve is not specifically associated
with individual loans or portfolio segments.
The level of credit losses relative to outstanding loans can vary from
period to period due to the size and number of individual credits that may
require charge off, and the effects of changing economic conditions.
The reserve for credit losses was $600 million at December 31, 1993, or
2.45% of total loans, compared with $506 million at December 31, 1992, or 2.54%
of total loans. The increase at year-end 1993, compared with the prior year end,
resulted primarily from a $99 million addition to the reserve from The Boston
Company acquisition. The reserve continues to indicate strong reserve coverage
of nonperforming loans, increasing to 297% of nonperforming loans at December
31, 1993, compared with 152% at the prior year end. This higher coverage
resulted from the decrease in nonperforming loans in 1993 as well as the higher
reserve level.
Net credit losses totaled $139 million in 1993, down $138 million, or 50%,
compared with 1992. The decrease resulted from lower net credit losses in most
loan categories, with commercial real estate net credit losses decreasing by $94
million. The Corporation currently expects continued moderation in the level of
credit losses in 1994, particularly in the level of commercial real estate
credit losses.
39
<PAGE> 24
FINANCIAL REVIEW
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES continued
Credit loss reserve activity
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve at beginning of year $ 506 $ 596 $ 525 $ 610 $ 909
Net change in reserves from acquisitions and
divestitures 108 2 50 5 2
Credit losses:
Domestic:
Commercial and financial (54) (70) (65) (51) (43)
Commercial real estate:
Commercial construction (9) (87) (38) (73) (43)
Commercial mortgage (65) (74) (47) (55) (23)
Consumer credit:
Credit cards (46) (49) (41) (24) (22)
Consumer mortgage (13) (7) (2) (2) (1)
Other consumer credit (22) (24) (26) (27) (31)
Lease financing (1) (1) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total domestic (210) (312) (219) (232) (163)
- --------------------------------------------------------------------------------------------------------------------------
International (6) (19) (37) (221) (464)
- --------------------------------------------------------------------------------------------------------------------------
Total credit losses (216) (331) (256) (453) (627)
- --------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial 40 25 8 14 10
Commercial real estate:
Commercial construction 1 1 1 1 2
Commercial mortgage 12 5 2 -- 1
Consumer credit:
Credit cards 7 6 5 5 4
Consumer mortgage 2 1 1 -- --
Other consumer credit 10 10 7 7 10
- --------------------------------------------------------------------------------------------------------------------------
Total domestic 72 48 24 27 27
- --------------------------------------------------------------------------------------------------------------------------
International 5 6 3 21 2
- --------------------------------------------------------------------------------------------------------------------------
Total recoveries 77 54 27 48 29
- --------------------------------------------------------------------------------------------------------------------------
Net credit losses:
Domestic:
Commercial and financial (14) (45) (57) (37) (33)
Commercial real estate:
Commercial construction (8) (86) (37) (72) (41)
Commercial mortgage (53) (69) (45) (55) (22)
Consumer credit:
Credit cards (39) (43) (36) (19) (18)
Consumer mortgage (11) (6) (1) (2) (1)
Other consumer credit (12) (14) (19) (20) (21)
Lease financing (1) (1) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total domestic (138) (264) (195) (205) (136)
- --------------------------------------------------------------------------------------------------------------------------
International (1) (13) (34) (200) (462)
- --------------------------------------------------------------------------------------------------------------------------
Total net credit losses (139) (277) (229) (405) (598)
- --------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 125 185 250 315 297
- --------------------------------------------------------------------------------------------------------------------------
Reserve at end of year $ 600(a) $ 506(a) $ 596 $ 525 $ 610
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes reserve for segregated assets.
40
<PAGE> 25
OFF-BALANCE-SHEET RISK
- ---------------------------------------
A detailed discussion of the Corporation's off-balance-sheet financial
instruments, including disclosures about the risk of accounting loss and
concentrations of credit risk arising from both on-and off-balance-sheet
activities, is presented in note 18 of the Notes to Financial Statements.
FOURTH QUARTER REVIEW
- ---------------------------------------
The Corporation reported net income of $114 million, or $1.50 per common share,
in the fourth quarter of 1993. These results compare with pro forma fully taxed
net income of $76 million, or $1.10 per common share, in the fourth quarter of
1992.
Annualized return on assets and return on common shareholders' equity were
1.26% and 14.62%, respectively, in the fourth quarter of 1993, compared with pro
forma fully taxed returns on assets and common shareholders' equity of 1.00% and
12.41%, respectively, in the fourth quarter of 1992.
Including tax benefits of $29 million, the Corporation's net income in the
fourth quarter of 1992 was $105 million, or $1.62 per common share. Annualized
return on assets and return on common shareholders' equity in the fourth quarter
of 1992 were 1.39% and 18.30%, respectively.
Compared with the fourth quarter of 1992, the Corporation's fourth quarter
1993 results reflected higher net interest and noninterest revenue, as well as a
lower provision for credit losses, offset in part by higher operating expense.
Net interest revenue totaled $339 million in the fourth quarter of 1993, up
$38 million or 12%, compared with the fourth quarter of 1992. The improvement
primarily reflected a higher level of interest-earning assets resulting from The
Boston Company and the Meritor branch acquisitions. A reduction in nonperforming
assets also contributed to the improved net interest revenue compared with the
prior-year period. Partially offsetting these positive factors was the impact on
net interest revenue and the net interest margin from the reduction in higher
yielding securities that were sold in the first quarter of 1993 as part of the
financing plan and balance sheet restructuring related to the acquisition of The
Boston Company. The net interest margin on a taxable equivalent basis was 4.39%
in the fourth quarter of 1993, down from 4.59% in the fourth quarter of 1992.
Credit quality expense, defined as the provision for credit losses plus the
net expense of acquired property, was $32 million in the fourth quarter of 1993,
down $34 million, 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. Net credit losses were $22 million, down $61 million
compared with the fourth quarter of 1992, primarily resulting from lower
commercial real estate net credit losses.
Fee revenue increased to $342 million, up 48%, in the fourth quarter of
1993, compared with $232 million in the fourth quarter of 1992. This increase
primarily reflected $109 million of fee revenue attributable to The Boston
Company.
Excluding the effect of acquisitions and divestitures and adjustments made
in the fourth quarter of 1992, fee revenue increased 9% in the fourth quarter of
1993, compared with the fourth quarter of 1992.
Trust and investment management fees improved $104 million, over the
prior-year period, principally as a result of fees earned at The Boston Company.
Cash management and deposit transaction charges decreased $8 million, compared
with the fourth quarter of 1992, as the result of a $13 million one-time accrual
adjustment in the fourth quarter of 1992, partially offset by increased volume.
Information services fees decreased $4 million compared with the prior-year
period, primarily as a result of a $5 million one-time accrual adjustment in the
fourth quarter of 1992, as well as the Corporation's completed sale of two
information services businesses. Partially offsetting the decrease in
information services fees was an increase in revenue from the Corporation's
Canadian stock transfer company. Foreign currency and securities trading
increased $12 million over the prior-year period primarily as a result of
foreign exchange fees earned at The Boston Company.
Operating expense was $471 million in the fourth quarter of 1993, an
increase of $90 million, or 24%, over the prior-year period. The increase was
primarily the result of The Boston Company and the Meritor branch acquisitions.
41
<PAGE> 26
SELECTED QUARTERLY DATA*
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Quarter ended,
1993 1992
----------------------------------------- -------------------------------------------
(dollar amounts in millions, DEC. SEPT. JUNE MARCH Dec. Sept. June March
except per share amounts) 31 30 30 31 31 30 30 31
- ----------------------------------------------------------------------------------------------------------------------------
QUARTERLY CONSOLIDATED
INCOME STATEMENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest revenue $ 339 $ 337 $ 314 $ 317 $ 301 $ 292 $ 281 $ 280
Provision for credit losses 25 30 35 35 35 40 50 60
Fee revenue 342 334 281 232 232 207 203 202
Gains on sale of securities -- -- -- 87 -- 76 -- 45
Other noninterest revenue -- -- -- -- 2 4 3 (2)
Operating expense 471 463 391 533 381 368 333 367
- ----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 185 178 169 68 119 171 104 98
Provision for income taxes 71 64 70 34 14 15 14 12
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME 114 114 99 34 105 156 90 86
Dividends on preferred stock 16 16 16 15 12 14 12 13
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO
COMMON STOCK $ 98 $ 98 $ 83 $ 19 $ 93 $ 142 $ 78 $ 73
- ----------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.50 $ 1.50 $ 1.32 $ .31 $ 1.62 $ 2.57 $ 1.41 $ 1.36
- ----------------------------------------------------------------------------------------------------------------------------
PRO FORMA(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 114 $ 114 $ 99 $ 93 $ 76 $ 106(b) $ 64 $ 61
Net income applicable to common stock 98 98 83 78 64 92 52 48
Net income per common share $ 1.50 $ 1.50 $ 1.32 $ 1.27 $ 1.10 $ 1.68 $ .95 $ .90
Annualized return on assets 1.26% 1.24% 1.16% 1.17% 1.00% 1.45% .88% .80%
Annualized return on common
shareholders' equity 14.62 14.95 13.69 13.86 12.41 19.29 11.37 10.90
- ----------------------------------------------------------------------------------------------------------------------------
QUARTERLY AVERAGE BALANCES
- ----------------------------------------------------------------------------------------------------------------------------
Money market investments $ 2,786 $ 3,822 $ 4,477 $ 2,997 $ 1,836 $ 1,493 $ 1,618 $ 1,704
Trading account securities 206 266 312 293 244 289 323 380
Securities 4,541 4,375 4,136 4,654 5,687 6,128 6,406 5,991
Loans 23,220 23,223 20,623 19,900 18,550 17,658 17,855 18,847
Interest-earning assets 30,753 31,686 29,548 27,844 26,317 25,568 26,202 26,922
Total assets 35,769 36,562 34,421 32,133 30,075 29,073 29,753 30,660
Deposits 27,476 27,747 25,886 24,893 23,427 22,135 22,409 22,592
Notes and debentures 2,019 2,124 2,050 1,765 1,399 1,348 1,295 1,417
Shareholders' equity 3,329 3,285 3,124 2,945 2,520 2,402 2,293 2,186
- ----------------------------------------------------------------------------------------------------------------------------
Net interest margin (non FTE) 4.36% 4.23% 4.27% 4.61% 4.55% 4.54% 4.31% 4.18%
- ----------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (dollars per share)(c)
- ----------------------------------------------------------------------------------------------------------------------------
Market price range:
High $59 1/8 $60 1/4 $67 3/8 $ 62 $55 1/2 $ 45 $ 43 $42 1/4
Low 51 3/4 53 1/4 51 1/4 51 1/2 42 3/8 39 3/8 35 1/2 33 3/4
Average 54.25 56.19 56.40 57.49 47.83 41.67 40.17 38.34
Close 53 55 56 3/8 60 3/4 53 43 1/2 41 1/8 39
Dividends .38 .38 .38 .38 .35 .35 .35 .35
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unaudited.
(a) Pro forma results for first quarter 1993 exclude $112 million after-tax in
restructuring expense and $53 million in after-tax gains on the sale of
securities related to the Corporation's acquisition of The Boston Company.
Pro forma fully taxed results for 1992 were calculated by applying a
normalized effective tax rate of approximately 38% to pretax income. The
unrecorded tax benefit that existed at the beginning of the 1992 periods was
included in the determination of the return on common shareholders' equity.
(b) Includes $46 million in after-tax gains on the sale of securities. These
gains contributed 84 cents to third quarter 1992 income per common share.
(c) At December 31, 1993, there were 20,322 shareholders registered with the
Corporation's stock transfer agent, compared with 20,283 at year-end 1992
and 20,765 at year-end 1991. In addition, there were approximately 17,597;
14,300; and 13,600 Mellon employees at December 31, 1993, 1992 and 1991,
respectively, who participated in the Corporation's 401(k) Retirement
Savings Plan. All shares of Mellon Bank Corporation common stock held by the
plan for its participants are registered in the name of Mellon Bank, N. A.,
as trustee.
42
<PAGE> 27
CONSOLIDATED INCOME STATEMENT
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(dollar amounts in millions, except per share amounts) 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE Loans $1,517 $1,395 $1,680
Loan fees 70 65 53
Interest-bearing deposits with banks 58 35 50
Federal funds sold and securities purchased under
agreements to resell 54 27 35
Other money market investments 4 1 --
Trading account securities 15 21 23
Securities:
U.S. Treasury and agency securities 225 420 382
Obligations of states and political subdivisions -- 1 24
Other 18 35 56
----------------------------------------------------------------------------------------------
Total interest revenue 1,961 2,000 2,303
- -------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE Deposits in domestic offices 414 585 921
Deposits in foreign offices 40 49 82
Federal funds purchased and securities sold under
agreements to repurchase 33 56 131
U.S. Treasury tax and loan demand notes 6 23 36
Commercial paper 6 6 13
Other funds borrowed 34 33 29
Notes and debentures 121 94 117
----------------------------------------------------------------------------------------------
Total interest expense 654 846 1,329
- -------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE NET INTEREST REVENUE 1,307 1,154 974
Provision for credit losses 125 185 250
----------------------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR
CREDIT LOSSES 1,182 969 724
- -------------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE Fee revenue 1,189 844 757
Gains on sale of securities 87 121 78
Other noninterest revenue -- 7 13
----------------------------------------------------------------------------------------------
Total noninterest revenue 1,276 972 848
- -------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE Staff expense 745 578 553
Net occupancy expense 168 147 142
Professional, legal and other purchased services 150 119 111
Amortization of goodwill and other intangibles 122 79 58
Equipment expense 113 98 95
Business development 75 63 51
Communications expense 71 62 55
FDIC assessment and regulatory examination fees 60 53 47
Office supplies 37 28 26
Other expense 83 91 89
Net expense of acquired property 59 95 37
Restructuring expenses 175 36 --
----------------------------------------------------------------------------------------------
Total operating expense 1,858 1,449 1,264
- -------------------------------------------------------------------------------------------------------------------------
INCOME Income before income taxes 600 492 308
Provision for income taxes 239 55 28
----------------------------------------------------------------------------------------------
NET INCOME 361 437 280
Dividends on preferred stock 63 51 49
----------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 298 $ 386 $ 231
----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE Primary net income $ 4.63 $ 6.96 $ 4.66
Fully diluted net income $ 4.63 $ 6.84 $ 4.61
----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
43
<PAGE> 28
CONSOLIDATED BALANCE SHEET
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 2,169 $ 1,974
Interest-bearing deposits with banks 889 994
Federal funds sold and securities purchased under agreements to
resell 574 276
Other money market investments 4 210
Trading account securities 116 106
Securities available for sale (approximate market value of $2,920
and $3,707) 2,916 3,613
Investment securities (approximate market value of $2,139 and
$2,128) 2,096 2,125
Loans, net of unearned discount of $74 and $62 24,473 19,956
Reserve for credit losses (600) (506)
------------------------------------------------------------------------------------------
Net loans 23,873 19,450
Customers' acceptance liability 146 114
Premises and equipment 463 433
Acquired property, net of reserves of $37 and $10 139 261
Goodwill 825 380
Other intangibles 462 443
Segregated assets, net of reserves of $4 and $18 183 241
Other assets 1,284 954
------------------------------------------------------------------------------------------
Total assets $36,139 $31,574
------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES Noninterest-bearing deposits in domestic offices $ 6,905 $ 5,633
Interest-bearing deposits in domestic offices 19,450 18,557
Noninterest-bearing deposits in foreign offices 9 7
Interest-bearing deposits in foreign offices 1,174 933
------------------------------------------------------------------------------------------
Total deposits 27,538 25,130
Federal funds purchased and securities sold under agreements
to repurchase 978 1,097
U.S. Treasury tax and loan demand notes 712 266
Commercial paper 134 179
Other funds borrowed 302 168
Acceptances outstanding 146 114
Other liabilities 1,026 476
Notes and debentures (with original maturities over one year) 1,990 1,587
------------------------------------------------------------------------------------------
Total liabilities 32,826 29,017
- ---------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock 592 467
EQUITY Common stock--$.50 par value
Authorized--200,000,000 and 120,000,000 shares
Issued--63,843,493 and 54,962,761 shares 32 27
Additional paid-in capital 1,774 1,349
Retained earnings 898 708
Warrants 37 6
Treasury stock--365,700 shares at cost (20) --
------------------------------------------------------------------------------------------
Total shareholders' equity 3,313 2,557
------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $36,139 $31,574
------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
44
<PAGE> 29
CONSOLIDATED STATEMENT OF CASH FLOWS
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net income $ 361 $ 437 $ 280
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 204 155 134
Provision for credit losses 125 185 250
Provision for real estate acquired and other losses 65 108 52
Restructuring expenses 175 36 --
Net gains on sale of assets (91) (124) (81)
Net decrease in accrued interest receivable 68 51 49
Deferred income tax expense (benefit) 30 (25) (7)
Net (increase) decrease in trading account securities
activity (1) (15) 21
Net decrease in accrued interest payable, net of
amounts prepaid (18) (52) (4)
Net increase (decrease) in other operating activities 474 (510) (62)
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,392 246 632
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net (increase) decrease in term deposits 1,054 (389) (388)
INVESTING ACTIVITIES Net (increase) decrease in federal funds sold and
securities purchased under agreements to resell (298) 167 187
Funds invested in securities (12,096) (3,809) (4,581)
Proceeds from sales of securities 9,511 2,795 3,372
Proceeds from maturities of securities 4,663 1,473 475
Net increase in credit card receivables (114) (188) (183)
Net principal collected on loans to customers 788 748 723
Loan portfolio purchases (83) (223) (351)
Proceeds from the sale of loan portfolios 116 191 --
Purchases of premises and equipment (98) (81) (61)
Proceeds from sale of acquired property 102 245 82
Cash paid in purchases of The Boston Company, AFCO and
CAFO and UPB, net of cash received (1,233) -- (40)
Cash received in purchases of Meritor and Standard
Federal branches, net of cash paid -- 269 --
Net (increase) decrease in other investing activities (175) 15 181
---------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities 2,137 1,213 (584)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net increase (decrease) in transaction and savings
FINANCING ACTIVITIES deposits 1,275 2,042 (211)
Net decrease in customer term deposits (2,726) (2,311) (1,396)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (676) (508) 312
Net increase (decrease) in U.S. Treasury tax and loan
demand notes 435 (499) 230
Net decrease in commercial paper (45) (8) (75)
Decrease in other borrowed funds (614) (20) (25)
Repayment of AFCO borrowings (1,058) -- --
Repayments of longer-term debt (1,070) (453) (386)
Net proceeds from issuance of longer-term debt 950 534 453
Net proceeds from issuance of common and preferred stock 502 221 325
Redemption of preferred stock (65) (55) (194)
Dividends paid on common and preferred stock (156) (125) (116)
Repurchase of common stock (54) -- --
Net increase (decrease) in other financing activities (45) 49 67
---------------------------------------------------------------------------------------------
Net cash used in financing activities (3,347) (1,133) (1,016)
Effect of foreign currency exchange rates 13 13 9
- ------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND Net increase (decrease) in cash and due from banks 195 339 (959)
DUE FROM BANKS Cash and due from banks at beginning of year 1,974 1,635 2,594
---------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 2,169 $ 1,974 $ 1,635
---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Interest paid $ 672 $ 895 $ 1,333
DISCLOSURES Net income taxes paid 143 88 38
---------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
45
<PAGE> 30
CONSOLIDATED STATEMENT OF
CHANGES IN SHAREHOLDERS' EQUITY
MELLON BANK CORPORATION (consolidated and parent Corporation)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Total
Additional share-
Preferred Common paid-in Retained Treasury holders'
(in millions) stock stock capital earnings Warrants stock equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $380 $22 $1,035 $236 $15 $(14) $1,674
Net income 280 280
Issuance of 5.75 million shares of common
stock, net of issuance costs 3 146 149
Series I preferred stock issued,
net of issuance costs 145 145
Series G preferred stock redemption (100) (100)
Dividends on common stock at
$1.40 per share (66) (66)
Dividends on preferred stock (49) (49)
Exercise of warrants 1 15 (4) 12
Common stock issued under dividend
reinvestment and common stock
purchase plan 11 11
Common stock issued from treasury stock
for employee benefit plans 2 7 9
Exercise of subscription rights 7 7
Other 1 1
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1991 425 26 1,217 401 11 (7) 2,073
Net income 437 437
Series J preferred stock issued,
net of issuance costs 97 97
Series C-2 preferred stock redemption (55) (55)
Dividends on common stock at
$1.40 per share (74) (74)
Dividends on preferred stock (51) (51)
Common stock issued under dividend
reinvestment and common stock
purchase plan 1 78 79
Exercise of stock options 17 3 20
Exercise of warrants 25 (5) 20
Exercise of subscription rights 7 7
Other 5 (5) 4 4
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 467 27 1,349 708 6 -- 2,557
NET INCOME 361 361
ISSUANCE OF 6.81 MILLION SHARES OF COMMON
STOCK, NET OF ISSUANCE COSTS 4 340 344
ISSUANCE OF WARRANTS 37 37
SERIES K PREFERRED STOCK
ISSUED, NET OF ISSUANCE COSTS 193 193
SERIES B PREFERRED STOCK
REDEMPTION/CONVERSION (68) 1 2 (65)
DIVIDENDS ON COMMON STOCK AT
$1.52 PER SHARE (94) (94)
DIVIDENDS ON PREFERRED STOCK (63) (63)
PURCHASE OF TREASURY STOCK (54) (54)
COMMON STOCK ISSUED UNDER DIVIDEND
REINVESTMENT AND COMMON STOCK
PURCHASE PLAN 35 6 41
EXERCISE OF STOCK OPTIONS 11 (11) 24 24
EXERCISE OF WARRANTS 1 24 (6) 19
EXERCISE OF SUBSCRIPTION RIGHTS 8 8
OTHER 6 (3) 2 5
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 $592 $32 $1,774 $898 $37 $(20) $3,313
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements.
</TABLE>
46
<PAGE> 31
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of presentation
The accounting and financial reporting policies of Mellon Bank Corporation (the
Corporation), a multibank holding company, conform to generally accepted
accounting principles and prevailing industry practices.
The consolidated financial statements of the Corporation include the
accounts of the Corporation and its majority-owned subsidiaries. Investments in
companies less than 20% owned are carried at cost. Intracorporate transactions
are not reflected in the consolidated financial statements. The consolidated
income statement includes results of acquired subsidiaries and businesses from
the dates of acquisition.
The parent Corporation financial statements in note 22 include the accounts
of the Corporation and those of a wholly owned financing subsidiary that
functions as a financing entity for the Corporation and its subsidiaries by
issuing commercial paper and other debt guaranteed by the Corporation. Financial
data for the Corporation and the financing subsidiary are combined for
financial reporting due to this limited function of the financing subsidiary
and the unconditional guarantee by the Corporation of the financing
subsidiary's obligations.
Trading account securities, securities available for sale and investment
securities
When purchased, securities are classified in either the trading account
securities portfolio, the securities available for sale portfolio, or the
investment securities portfolio. Securities are classified as trading account
securities when the intent is profit maximization through market appreciation
and resale. Securities are classified as available for sale when management
intends to hold the securities for an indefinite period of time or when the
securities may be utilized for tactical asset/liability purposes and may be sold
from time to time to effectively manage interest rate exposure, prepayment
risk and liquidity needs. Securities are classified as investment securities
when it is management's intent to hold these securities until maturity.
Trading account securities, including interest rate agreements, are stated
at market value. Trading revenue includes both realized and unrealized gains and
losses. The liability incurred on short-sale transactions, representing the
obligation to deliver securities, is included in other funds borrowed at market
value.
Securities available for sale are stated at the lower of aggregate cost or
market value, adjusted for amortization of premium and accretion of discount on
a level-yield basis. Investment securities are stated at cost, adjusted for
amortization of premium and accretion of discount on a level-yield basis. The
cost of securities available for sale and investment securities sold is
determined on a specific identification basis.
Loans
Loans are reported net of any unearned discount. Interest revenue on
nondiscounted loans is recognized based on the principal amount outstanding.
Interest revenue on discounted loans is recognized based on methods that
approximate a level yield. Loan origination and commitment fees, as well as
certain direct loan origination and commitments costs, are deferred and
amortized as a yield adjustment over the lives of the related loans. Deferred
fees and costs are netted against outstanding loan balances.
Commercial loans generally are placed on nonaccrual status when either
principal or interest is past due 90 days or more, unless the loan is
well-secured and in the process of collection. Management also places loans on
nonaccrual status when the collection of principal or interest becomes doubtful.
When a loan is placed on nonaccrual status, previously accrued and uncollected
interest is reversed against current-period interest revenue. Interest receipts
on nonaccrual loans are recognized as interest revenue or are applied to
principal when management believes the ultimate collectibility of principal is
in doubt. Nonaccrual loans generally are restored to an accrual basis when
principal and interest payments become current or when the loan becomes well
secured and is in the process of collection.
Residential mortgage loans generally are placed on nonaccrual status when,
in management's judgment, collection is in doubt or the loans have out-
standing balances of $250 thousand or greater and are 90 days or more
delinquent, or have balances of less than $250 thousand and are delinquent
12 months or more. Consumer loans, other than residential mortgages, and
certain secured commercial loans of less than $5 thousand are charged off upon
reaching various stages of delinquency depending upon the loan type.
47
<PAGE> 32
NOTES TO FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES continued
Unearned revenue on direct financing leases is accreted over the lives of
the leases in decreasing amounts to provide a constant rate of return on the net
investment in the leases. Revenue on leveraged leases is recognized on a basis
to achieve a constant yield on the outstanding investment in the lease, net of
the related deferred tax liability, in the years in which the net investment is
positive. Gains on sales of lease residuals are included in other noninterest
revenue.
Reserve for credit losses
The reserve for credit losses is maintained to absorb future losses inherent in
the credit portfolio based on management's judgment. Factors considered in
determining the level of the reserve include trends in portfolio volume,
quality, maturity and composition; industry concentrations; lending policies;
new products; adequacy of collateral; historical loss experience; the status and
amount of nonperforming and past-due loans; specific known risks; and current,
as well as anticipated, economic, legislative and industry-specific conditions
that may affect certain borrowers. Credit losses are charged against the
reserve; recoveries are added to the reserve.
Acquired property
Property acquired in connection with loan settlements, including real estate
acquired, is stated at the lower of estimated fair value less estimated costs to
sell, or the carrying amount of the loan. A reserve for real estate acquired is
maintained on a property-by-property basis to recognize estimated potential
declines in value that might occur between appraisal dates. Provisions for the
estimated potential decrease in fair value between annual appraisals, net gains
on the sale of real estate acquired and net direct operating expense
attributable to these assets are included in net expense of acquired property.
In-substance foreclosures are reflected in real estate acquired when the
borrower has minimal equity in the property; the Corporation expects repayment
of the loan to come only from the operation or sale of the property; and the
borrower either has abandoned control of the property or is unlikely to rebuild
equity or otherwise meet the terms of the loan in the foreseeable future.
Premises and equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are calculated over the
estimated useful lives of the assets, limited in the case of leasehold
improvements to the lease term, using the straight-line method.
Goodwill and other intangibles
Intangible assets are amortized using straight-line and accelerated methods over
the remaining estimated benefit periods which approximated, on a weighted-
average basis at December 31, 1993, 18 years for goodwill, seven years for core
deposit intangibles and eight years for all other intangible assets except
purchased mortgage servicing rights.
Goodwill and other intangible assets are reviewed for possible impairment
when events or changed circumstances may affect the underlying basis of the
asset. Purchased mortgage servicing rights (PMSRs) are recorded at cost and are
amortized over 12 years or the remaining economic life of the portfolio,
whichever is shorter. PMSRs are subsequently evaluated for possible impairment
on a quarterly basis using the undiscounted disaggregate method, consensus
industry prepayment estimates and current portfolio and economic factors. On a
weighted average basis at December 31, 1993, the serviced loan portfolio had an
interest rate of approximately 8.25%.
Taxes
The Corporation, its domestic subsidiaries and Mellon Bank Canada file a
consolidated U.S. income tax return. The provision for U.S. income taxes of each
subsidiary is recorded as if each subsidiary filed a separate return, except
that tax benefits of current-year losses, tax credits and tax benefit
carryforwards are allocated to the subsidiaries incurring such losses or credits
to the extent they reduce consolidated tax expense.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated
to U.S. dollars at the rate of exchange on the balance sheet date. Revenue and
expense accounts are translated monthly at month-end rates of exchange. Net
foreign currency positions are valued at rates of exchange--spot or future, as
appropriate--prevailing at the end of the period, and resulting gains or losses
are included in the consolidated income statement. Premiums and discounts on
hedging contracts are amortized over the lives of the contracts. Translation
gains and losses on investments in foreign entities with functional currency
that is not the U.S. dollar are included in shareholders' equity.
48
<PAGE> 33
1. ACCOUNTING POLICIES continued
Fees on letters of credit
Fees on standby letters of credit are recognized over the commitment term, while
fees on commercial letters of credit, because of their short-term nature,
are recognized when received. Fees on standby and commercial letters of credit
are recorded in fee revenue.
Interest rate agreements and futures
and forward contracts
The Corporation enters into interest rate swaps to manage its interest rate
sensitivity position, to accommodate customers, and to a lesser degree as part
of its trading operations. For swaps used to manage the Corporation's interest
rate sensitivity position, interest is accrued to interest revenue or interest
expense over the terms of the swap agreements, while transaction fees are
deferred and amortized to interest revenue or interest expense over the terms
of the swap agreements. For swap agreements undertaken as part of its trading
activities, the Corporation records the change in the market value, less
accruals for credit and administrative expenses, in trading revenue.
Gains and losses on futures and forward contracts and interest rate
agreements used to hedge certain interest-sensitive assets and liabilities are
deferred and either are recognized as income or loss at the time of disposition
of the assets or liabilities being hedged, or are amortized over the life of
the hedged transaction as an adjustment to interest revenue or interest
expense. Gains and losses on futures and forward contracts and options used in
conjunction with trading account activities are recognized in trading revenue.
Statement of cash flows
For the purpose of reporting cash flows, the Corporation has defined cash and
cash equivalents as cash and due from banks. Cash flows from assets and
liabilities that have an original maturity date of three months or less
generally are reported on a net basis. Cash flows from assets and liabilities
that have an original maturity date greater than three months generally
are reported on a gross basis.
Net income per common share
Primary net income per common share is computed using the "if-converted" method
by dividing net income applicable to common stock by the average number of
shares of common stock and common stock equivalents outstanding, net of shares
assumed to be repurchased using the treasury stock method. Common stock
equivalents arise from the assumed conversion of outstanding stock options,
warrants, the Series D preferred stock and subscription rights. If the inclusion
of the Series D preferred stock as common stock equivalents is dilutive,
dividends on the Series D preferred stock are added back to net income for the
purpose of calculating net income per common share. The average number of shares
of common stock and equivalents used to compute primary net income per common
share in 1993, 1992 and 1991 was 65.179 million, 55.912 million and 50.191
million, respectively.
Fully diluted net income per common share is computed by dividing net
income applicable to common stock by the average number of shares of common
stock and common stock equivalents outstanding for items that are dilutive, net
of shares assumed to be repurchased using the treasury stock method. These
shares are increased by the assumed conversion of convertible items if dilutive.
The average number of shares of common stock and equivalents used to compute
fully diluted net income per common share in 1993, 1992 and 1991 was 65.270
million, 57.559 million and 50.757 million, respectively.
2. CASH AND DUE FROM BANKS
Cash and due from banks includes reserve balances that the Corporation's
subsidiary banks are required to maintain with a Federal Reserve bank. These
required reserves are based primarily on deposits outstanding and were $663
million at December 31, 1993, and $578 million at December 31, 1992. These
balances averaged $615 million in 1993 and $472 million in 1992.
49
<PAGE> 34
NOTES TO FINANCIAL STATEMENTS
3. SECURITIES
Securities available for sale
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 December 31, 1992
--------------------------------------------- ----------------------------------------------
BOOK GROSS UNREALIZED MARKET Book Gross unrealized Market
(in millions) VALUE GAINS LOSSES VALUE value Gains Losses value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 510 $ 2 $-- $ 512 $1,352 $31 $-- $1,383
U.S. agency mortgage-backed
securities 559 3 4 558 1,999 56 1 2,054
Other U.S. agency securities 1,788 -- -- 1,788 30 -- -- 30
- ----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 2,857 5 4 2,858 3,381 87 1 3,467
Obligations of states and
political subdivisions 1 -- -- 1 1 -- -- 1
Other mortgage-backed
securities 22 -- -- 22 42 1 -- 43
Other securities 36 3 -- 39 189 7 -- 196
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $2,916 $ 8 $ 4 $2,920 $3,613 $95 $ 1 $3,707
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Maturity distribution of securities available for sale
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1993
Obligations Total
U.S. agency Total of states Other securities
(dollar amounts U.S. mortgage- Other U.S. Treasury and political mortgage- Other available
in millions) Treasury backed U.S. agency and agency subdivisions backed securities for sale
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year
Book value $490 $-- $1,788 $2,278 $-- $-- $14 $2,292
Market value 492 -- 1,788 2,280 -- -- 14 2,294
Yield 4.23% -- 3.14% 3.37% -- -- 4.89% 3.38%
1 to 5 years
Book value 20 -- -- 20 -- -- 6 26
Market value 20 -- -- 20 -- -- 6 26
Yield 6.77% -- -- 6.77% -- -- 6.10% 6.61%
5 to 10 years
Book value -- -- -- -- 1 -- 1 2
Market value -- -- -- -- 1 -- 1 2
Yield -- -- -- -- 9.23% -- 8.99% 9.06%
Over 10 years
Book value -- -- -- -- -- -- 15 15
Market value -- -- -- -- -- -- 18 18
Yield -- -- -- -- -- -- 6.35% 6.35%
Mortgage-backed
securities
Book value -- 559 -- 559 -- 22 -- 581
Market value -- 558 -- 558 -- 22 -- 580
Yield -- 5.15% -- 5.15% -- 4.07% -- 5.11%
- ----------------------------------------------------------------------------------------------------------------------------------
Total book value $510 $559 $1,788 $2,857 $1 $22 $36 $2,916
Total market value 512 558 1,788 2,858 1 22 39 2,920
Total yield 4.32% 5.15% 3.14% 3.74% 9.23% 4.07% 5.83% 3.77%
Weighted average
contractual years
to maturity .30 --(a) .08 .13(b) 6.17 --(a) 7.27 --
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 8.9 years and 2.0 years,
respectively, at December 31, 1993. Approximately 90% of the "U.S.
agency mortgage-backed securities" are floating rate securities
that reprice annually.
(b) Excludes maturities of "U.S. agency mortgage-backed" securities.
Note: Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. Rates are calculated on a taxable equivalent
basis using a 35% federal income tax rate.
50
<PAGE> 35
3. SECURITIES continued
Investment securities
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 December 31, 1992
-------------------------------------------- ---------------------------------------
BOOK GROSS UNREALIZED MARKET Book Gross unrealized Market
(in millions) VALUE GAINS LOSSES VALUE value Gains Losses value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 17 $-- $-- $ 17 $ 2 $-- $-- $ 2
U.S. agency mortgage-backed
securities 1,863 46 4 1,905 1,957 13 12 1,958
- ---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and agency
securities 1,880 46 4 1,922 1,959 13 12 1,960
Obligations of states and political
subdivisions 5 -- -- 5 1 -- -- 1
Other mortgage-backed securities 85 -- -- 85 126 2 -- 128
Other investment securities 126 1 -- 127 39 -- -- 39
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities $2,096 $47 $ 4 $2,139 $2,125 $15 $12 $2,128
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Maturity distribution of investment securities
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1993
Obligations
U.S. agency Total of states Other Total
(dollar amounts U.S. mortgage- U.S. Treasury and political mortgage- Other investment
in millions) Treasury backed and agency subdivisions backed investments(a) securities
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Within one year
Book value $ 1 $ -- $ 1 $-- $-- $ 26 $ 27
Market value 1 -- 1 -- -- 26 27
Yield 9.53% -- 9.53% -- -- 4.63% 4.86%
1 to 5 years
Book value 16 -- 16 5 -- 55 76
Market value 16 -- 16 5 -- 56 77
Yield 4.61% -- 4.61% 8.08% -- 7.43% 6.86%
5 to 10 years
Book value -- -- -- -- -- -- --
Market value -- -- -- -- -- -- --
Yield -- -- -- -- -- -- --
Over 10 years
Book value -- -- -- -- -- 45 45
Market value -- -- -- -- -- 45 45
Yield -- -- -- -- -- 5.90% 5.90%
Mortgage-backed
securities
Book value -- 1,863 1,863 -- 85 -- 1,948
Market value -- 1,905 1,905 -- 85 -- 1,990
Yield -- 7.05% 7.05% -- 6.61% -- 7.03%
- -----------------------------------------------------------------------------------------------------------------------------
Total book value $17 $1,863 $1,880 $ 5 $85 $126 $2,096
Total market value 17 1,905 1,922 5 85 127 2,139
Total yield 4.95% 7.05% 7.03% 8.08% 6.61% 6.31% 6.98%
Weighted average
contractual years
to maturity 2.21 --(b) 2.21(c) 3.19 --(b) .98 --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes Federal Reserve Bank stock of $44 million with a yield of 6.00% and
no stated maturity.
(b) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 6.1 years and 2.9 years,
respectively, at December 31, 1993.
(c) Excludes maturities of "U.S. agency mortgage-backed" securities.
Note: Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Rates are calculated on a taxable equivalent basis
using a 35% federal income tax rate.
51
<PAGE> 36
NOTES TO FINANCIAL STATEMENTS
3. SECURITIES continued
Gross realized gains on the sale of securities available for sale were $87
million and $76 million in 1993 and 1992, respectively. There were no sales of
investment securities during 1993. Gross realized gains and losses on the sale
of investment securities, prior to the Corporation's adoption of a methodology
to classify certain securities as "available for sale," were $48 million and
$3 million, respectively in 1992, and $94 million and $16 million, respectively
in 1991. Proceeds from the sale of securities available for sale totaled
$9.5 billion in 1993, compared with $1.8 billion in 1992. Proceeds from the
sale of investment securities totaled $980 million and $3.4 billion in 1992
and 1991, respectively.
Securities available for sale, investment securities, trading account
securities and loans, with book values of $3.7 billion at December 31, 1993, and
$1.2 billion at December 31, 1992, were required to be pledged to secure
public and trust deposits, and repurchase agreements, as well as for other
purposes.
4. LOANS
For details of the loans outstanding at December 31, 1993 and 1992, see the 1993
and 1992 columns of the "Composition of loan portfolio at year end" table on
page 32. The information in those columns is incorporated by reference into
these Notes to Financial Statements.
For details of the nonperforming and past-due loans at December 31, 1993
and 1992, see the amounts in the 1993 and 1992 columns of the "Nonperforming and
past-due assets" table on page 35. The information in those columns is
incorporated by reference into these Notes to Financial Statements. There was no
foregone interest on restructured loans in 1993 and 1991. Foregone interest on
restructured loans was less than $2 million in 1992.
5. RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 506 $ 596 $ 525
Net change in reserves from acquisitions and divestitures 108 2 50
Additions (deductions):
Credit losses (216) (331) (256)
Recoveries 77 54 27
- ---------------------------------------------------------------------------------------------------------------------
Net credit losses (139) (277) (229)
Provision for credit losses 125 185 250
- ---------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 600 $ 506 $ 596
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------
<S> <C> <C>
December 31,
(in millions) 1993 1992
- --------------------------------------------------------
Land $ 30 $ 24
Buildings 243 230
Equipment 451 493
Leasehold improvements 135 128
- --------------------------------------------------------
Subtotal 859 875
Accumulated depreciation and
amortization (396) (442)
- --------------------------------------------------------
Total premises and equipment $ 463 $ 433
- --------------------------------------------------------
</TABLE>
The table above includes capital leases for premises and equipment, at a net
book value of less than $1 million at December 31, 1993 and 1992.
Rental expense was $90 million, $72 million and $71 million, respectively,
net of related sublease revenue of $29 million, $24 million and $23 million in
1993, 1992 and 1991, respectively. Depreciation and amortization expense totaled
$82 million, $76 million and $76 million in 1993, 1992 and 1991, respectively.
Maintenance, repairs and utilities expenses amounted to $82 million, $72 million
and $63 million in 1993, 1992 and 1991, respectively.
As of December 31, 1993, the Corporation and its subsidiaries are obligated
under noncancelable leases (principally for banking premises) with expiration
dates through 2020. A summary of the future minimum rental payments under
noncancelable leases, net of related sublease revenue totaling $110 million, is
as follows: 1994--$94 million; 1995-- $90 million; 1996--$88 million; 1997--$86
million; 1998--$85 million; and thereafter--$985 million.
52
<PAGE> 37
7. RESERVE FOR REAL ESTATE ACQUIRED
An analysis of the changes in the reserve for real estate acquired in 1993, 1992
and 1991 is presented in the "Reserve for real estate acquired" table on
page 37 and is incorporated by reference into these Notes to Financial
Statements.
8. SEGREGATED ASSETS
Segregated assets totaled $183 million at December 31, 1993. This amount
includes gross segregated assets of $187 million and a $4 million reserve for
credit losses. At December 31, 1992, segregated assets totaled $241 million,
including gross segregated assets of $259 million and an $18 million reserve for
credit losses.
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 Federal Deposit Insurance Corporation (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.
As a result of the loss sharing arrangement with the FDIC, any of the
performing commercial loans or performing commercial real estate loans acquired
in the Meritor branch acquisition that become nonaccrual before December 31,
1997, will be reclassified to segregated assets. The loss sharing provisions of
the arrangement stipulate that, during the first five years, the FDIC will pay
to Mellon Bank, N.A., 80% of the net credit losses on acquired commercial real
estate and other commercial loans.
During the sixth and seventh years of the arrangement, Mellon Bank, N.A.,
will pay to the FDIC 80% of any recoveries of charge-offs on such acquired loans
that had occurred during the first five years of the arrangement. At the end of
the seventh year, the FDIC will pay to Mellon Bank, N.A., an additional 15% of
the sum of net charge-offs on the acquired loans that occurred during the first
five years less the recoveries during the sixth and seventh years of the
arrangement, in excess of $60 million. The $60 million credit loss threshold was
reached in the first quarter of 1993.
The FDIC will also reimburse Mellon Bank, N.A., for expenses incurred to
recover amounts owed and net expenses incurred with respect to foreclosed
properties derived from the acquired commercial real estate or commercial loans.
Expenses are reimbursed by the FDIC in the same proportion as the reimbursement
of net loan losses. In addition, the FDIC will reimburse the bank for up to 90
days of delinquent interest on the assets covered by the loss sharing
arrangement.
Mellon Bank, N.A., is required to administer assets entitled to loss
sharing protection in the same manner as assets held by Mellon Bank, N.A., for
which no loss sharing exists.
9. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
represent funds acquired for securities transactions and other funding
requirements. Federal funds purchased mature on the business day after
execution. Selected balances and rates are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold under agreements to repurchase:
Maximum month-end balance $1,406 $2,698
Average daily balance 1,096 1,623
Average rate during the year 3.0% 3.5%
Average rate at December 31 2.8 2.9
Federal funds purchased and securities sold under agreements to repurchase, net of
federal funds sold and securities purchased under agreements to resell:
Maximum month-end balance $ 708 $1,570
Average daily balance (704) 835
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 38
NOTES TO FINANCIAL STATEMENTS
9. SHORT-TERM BORROWINGS continued
The average daily balance of commercial paper was $198 million in 1993.
During 1993, the Corporation signed a $200 million one-year revolving credit
agreement with several financial institutions that serves as a commercial paper
support facility. This revolving credit facility has several restrictions,
including a 1.30 maximum double leverage limitation and a minimum tangible net
worth limitation of $1.6 billion. At December 31, 1993, the Corporation's double
leverage ratio was 1.12 and tangible net worth was $2.0 billion. The revolving
credit facility is supplemented by a $25 million backup line of credit, bringing
total commercial paper support facilities to $225 million. The Corporation
expects to negotiate another revolving credit facility upon the expiration of
the current agreement, which is scheduled to expire in mid-1994.
There were no other lines of credit to subsidiaries of the Corporation at
December 31, 1993 or 1992. No borrowings were made under any facility in 1993 or
1992. Commitment fees totaled less than $1 million in each of the years 1991
through 1993.
<TABLE>
<CAPTION>
10. NOTES AND DEBENTURES (WITH ORIGINAL MATURITIES OVER ONE YEAR)
- ---------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Corporation:
Floating Rate Notes due 1994 (3.58% at December 31, 1993, and 3.73% at December 31, 1992) $ 200 $ 200
Floating Rate Senior Notes due 1996 (3.68% at December 31, 1993) 200 --
7 5/8% Senior Notes due 1999 200 200
6 1/8% Senior Notes due 1995 200 200
6 1/2% Senior Notes due 1997 199 --
6 7/8% Subordinated Debentures due 2003 150 --
9 1/4% Subordinated Debentures due 2001 100 100
5 3/8% Senior Notes due 1995 100 100
9 3/4% Subordinated Debentures due 2001 99 99
Medium Term Notes, Series A, due 1994-2001 (9.10% to 10.50% at December 31, 1993,
and 8.93% to 10.50% at December 31, 1992) 60 91
Senior Medium Term Notes, Series B, due 1995 (8.85% to 9.00% at December 31, 1993,
and 4.38% to 9.00% at December 31, 1992) 26 31
Various notes due 1999 (7.25% at December 31, 1993, and 7.25% to 8.60% at
December 31, 1992) 5 21
8 7/8% Subordinated Capital Notes due 1998 -- 142
9% Notes due 1996 -- 68
8.6% Debentures due 2009 -- 33
Subsidiaries:
6 1/2% Subordinated Notes due 2005 249 --
6 3/4% Subordinated Notes due 2003 149 --
Medium Term Bank Notes due 1998-2007 (6.57% to 8.55% at December 31, 1993, and
7.00% to 8.55% at December 31, 1992) 35 32
Various notes and obligations under capital leases due 1994-1999 (3.92% to 15.29% at
December 31, 1993, and 4.91% to 21.68% at December 31, 1992) 18 20
Floating Rate Subordinated Capital Notes due 1996 (5.25% at December 31, 1992) -- 250
- ---------------------------------------------------------------------------------------------------------------------
Total unsecured notes and debentures (with original maturities over one year) $1,990 $1,587
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Floating Rate Notes due 1994 pay interest quarterly at a rate of .20% per
annum above LIBOR for three-month Eurodollar deposits. These notes are listed on
the Luxembourg Stock Exchange and do not trade in the United States. The notes
are redeemable, in whole or in part, at the option of the Corporation at 100% of
their principal amount plus accrued interest on any interest payment date.
The Floating Rate Senior Notes due 1996, issued in April 1993, pay interest
quarterly at a rate of .30% per annum above LIBOR for three-month Eurodollar
deposits. The notes are redeemable at the option of the Corporation, beginning
April 1, 1994, at 100% of their principal amount plus accrued interest.
The following notes pay interest semiannually and are not redeemable prior
to maturity: 7 5/8%, 6 1/8%, 6 1/2%, and 5 3/8% Senior Notes; 6 7/8%, 9 1/4% and
9 3/4% Subordinated Debentures.
The fixed-and variable-rate Medium Term Notes, Series A and B, were issued
from December 1990 through May 1991. During 1993, $31 million of fixed-rate
notes and all of the variable-rate notes matured. The remaining notes pay
interest semiannually and are not redeemable prior to maturity.
54
<PAGE> 39
10. NOTES AND DEBENTURES (WITH ORIGINAL MATURITIES OVER ONE YEAR) continued
The 8 7/8% Subordinated Capital Notes due 1998 and 9% Notes due 1996 were
redeemed at the option of the Corporation in 1993 at 100% of their principal
amount plus accrued interest. The 8.6% Debentures due 2009 were redeemed at the
option of the Corporation in December 1993, at a redemption price of 103.74% of
the principal amount plus accrued interest.
The 6 1/2% and 6 3/4% Subordinated Notes due 2005 and 2003, respectively,
were issued in 1993. The notes pay interest semiannually and are not redeemable
prior to maturity. The notes are subordinated to obligations to depositors and
other creditors of Mellon Bank, N.A.
The fixed-rate Medium Term Bank Notes due 1998 through 2007 were issued in
May 1992 through April 1993. The notes pay interest semiannually and are not
redeemable prior to maturity.
The Floating Rate Subordinated Capital Notes due 1996 were redeemed at the
option of Mellon Bank, N.A., in August 1993 at 100% of their principal amount
plus accrued interest.
The aggregate amounts of notes and debentures that mature during the five
years 1994 through 1998 are as follows: $219 million, $331 million, $224
million, $206 million and $18 million, respectively.
11. PREFERRED STOCK
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Liquidation Balances at 1993 Dividends
(dollar amounts in millions, preference Shares Shares December 31, ---------------------
except per share amounts) per share authorized issued 1993 1992 1991 Per share Aggregate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Junior convertible preferred stock
(Series D) $ 1.00 4,388,117 2,236,226 $ 2 $ 2 $ 2 $ 1.75 $ 4
10.40% preferred stock (Series H) 25.00 6,400,000 6,400,000 155 155 155 2.60 17
9.60% preferred stock (Series I) 25.00 6,000,000 6,000,000 145 145 145 2.40 14
8.50% preferred stock (Series J) 25.00 4,000,000 4,000,000 97 97 -- 2.13 9
8.20% preferred stock (Series K) 25.00 8,000,000 8,000,000 193 -- -- 1.91 15
Convertible preferred stock (Series B) 25.00 -- -- -- 68 68 1.54 4
Stated rate auction preferred stock
(Series C-2) 100.00 -- -- -- -- 55 -- --
----- ---- ----
Total preferred stock $592 $467 $425
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has authorized 50,000,000 shares of Series Preferred Stock, par
value $1.00 per share, at December 31, 1993. The table above summarizes the
Corporation's preferred stock outstanding at December 31, 1993, 1992 and 1991.
The Series D junior convertible preferred stock was issued in a private
placement in July 1988. The stock bears noncumulative dividends at the rate of
1.15 times the regular cash dividend paid on the common stock and participates
with the common stock in noncash and extraordinary dividends. Each share of
Series D preferred stock is convertible into .7609 shares of common stock.
On March 30, 1990, the Corporation issued approximately 7,393,000 shares of
common stock in exchange for approximately 8,755,000 shares, or 83%, of its
outstanding Series D preferred stock. The economic terms of this exchange were
designed to be substantially neutral to both the Corporation and the exchanging
holders of the Series D preferred stock. The shareholders who participated in
the exchange were required to reinvest a portion of their dividends in
additional shares of common stock so that, subject to certain conditions, the
common shares outstanding held by the Series D shareholders who participated
in the exchange would be equal to the number of common shares into which
their Series D stock would have been converted had the exchange not occurred.
The original holders of the Series D preferred stock agreed to certain
limitations on the ownership, voting and disposition of these shares and of any
common shares resulting from the conversion or exchange of the Series D
preferred stock. The provisions agreed to by the original holders limited their
ability to transfer the shares of Series D preferred stock--and any common stock
issued resulting from the conversion or exchange of the Series D preferred
stock--for a period of five years. These provisions expired in 1993. The
provisions also contain additional terms that ensure a broad distribution of
such shares should the holders decide to sell their shares in years 1994 through
1998. The Corporation has retained the right of first refusal should the holders
seek to sell such shares in a registered public offering in years 1994 through
1998.
Holders of Series D preferred stock will vote as a single class with the
common stock, with each share of Series D preferred stock being entitled to one
vote. The holders also have agreed to vote all of the voting stock they control,
including common stock, in favor of the
55
<PAGE> 40
NOTES TO FINANCIAL STATEMENTS
11. PREFERRED STOCK continued
Corporation's nominees for election to the board of directors and may vote on
all other matters at their discretion. In the event, however, that they
determine not to vote their shares in favor of a position recommended by the
board of directors, they shall allocate their votes so that such shares are
voted no less favorably to the position recommended by the board of directors
than the allocation of the votes by all other shareholders. The provisions of
the stock purchase agreements also provide that, in the event a tender offer is
made for the Corporation's shares and the board of directors recommends against
such tender offer, the holders agree not to tender their shares to such bidder.
Generally, these limitations on voting and distribution had an original
term of 10 years, but are subject to earlier termination at the option of the
holders upon the occurrence of certain events. These events include any person
acquiring more than 50% of the outstanding voting securities of the Corporation
or replacing a majority of the board of directors; failure of the Corporation
to meet certain financial tests; or the departure of the current chief
executive officer.
The Series H preferred stock, issued in March 1990, bears an annual
cumulative dividend of $2.60 per share. The stock is redeemable, in whole or
in part, at the option of the Corporation at $26.30 per share plus accrued
dividends during the 12-month period beginning March 1, 1995. The redemption
price declines $.26 per share, during each of the following 12-month periods,
until a final redemption price of $25 per share is set on March 1, 2000, at
which price the shares will be redeemable thereafter.
The Series I preferred stock, issued in August 1991, bears an annual
cumulative dividend of $2.40 per share. The stock is redeemable, in whole or in
part, at the option of the Corporation at $25 per share plus accrued dividends
at any time on or after August 15, 1996.
The Series J preferred stock, issued in January 1992, bears an annual
cumulative dividend of $2.125 per share. The stock is redeemable, in whole or in
part, at the option of the Corporation at $25 per share plus accrued dividends
at any time on or after February 15, 1997.
The Series K preferred stock, issued in January 1993 to partially finance
the purchase price of TBC and the Meritor branches, bears an annual cumulative
dividend of $2.05 per share. The stock is redeemable, in whole or in part, at
the option of the Corporation at $25 per share plus accrued dividends at any
time on or after February 15, 1998.
The Series B convertible preferred stock was redeemed at the option of the
Corporation on December 1, 1993, at a price of $25 per share plus accrued
dividends. The effective annualized dividend rate was $1.6875 per share for
1993.
In the event that the equivalent of six quarterly dividends, whether or not
consecutive, payable on Series H, Series I, Series J or Series K preferred
stocks, are unpaid and not set aside for payment, the number of directors of the
Corporation will be increased by two. The holders of the series of preferred
stock for which dividends are unpaid, voting as a single class, will be entitled
to elect the two additional directors to serve until all dividends in arrears
have been paid or declared and set aside for payment.
In the event of liquidation or dissolution of the Corporation, the rights of
the Series H, Series I, Series J and Series K preferred stock are senior to the
Series D preferred stock and the common stock with respect to dividends and
distributions. Upon liquidation or dissolution, holders of the Series D
preferred stock are entitled to receive $1.00 per share and then participate
pro rata with the common shareholders. The Series D preferred stock is on a
parity with the common stock with respect to dividends. Common shareholders'
equity includes the additional paid-in capital on the Series D preferred
stock because this preferred stock is, in almost all respects, a direct
substitute for common stock, and its additional paid-in capital has no
liquidation preference over the common stock.
12. EQUITY PURCHASE OPTIONS (WARRANTS)
In May 1993, in connection with the acquisition of The Boston Company, the
Corporation issued three million 10-year equity purchase options (warrants),
each exercisable for one share of common stock. The warrants are exercisable at
$50 per share at any time until their expiration on May 21, 2003. At December
31, 1993, all three million warrants were outstanding.
In 1988, the Corporation issued three million equity purchase options
(warrants), each exercisable for one share of common stock. The warrants are
exercisable at $25 per share at any time until their expiration on August 7,
1994. At December 31, 1993, there were approximately 14,600 of these warrants
outstanding, compared with approximately 800,000 warrants outstanding at
December 31, 1992. The reduction in warrants outstanding resulted from the
exercise of warrants for common stock.
All of the Corporation's warrants are registered with the Securities and
Exchange Commission and are noncallable.
56
<PAGE> 41
13. NONINTEREST REVENUE
The components of noninterest revenue for the three years ended December 31,
1993, are presented in the "Noninterest revenue" table on page 23. This table is
incorporated by reference into these Notes to Financial Statements.
14. TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 (FAS No. 109), "Accounting for Income
Taxes." Under the asset and liability method of FAS No. 109, deferred tax assets
and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered or
settled. Under FAS No. 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
The Corporation adopted FAS No. 109 as of January 1, 1993, on a prospective
basis. The cumulative effect of this change in accounting for income taxes was
less than $1 million and was included in income tax expense.
Income tax expense consists of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
(in millions) 1993 1992 1991
- ----------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $175 $ 76 $ 25
State 34 5 7
Foreign -- (1) 2
- ----------------------------------------------------------
Total current taxes 209 80 34
- ----------------------------------------------------------
Deferred taxes:
Federal 37 (21) (8)
State (8) 2 3
Foreign 1 (6) (1)
- ----------------------------------------------------------
Total deferred taxes 30 (25) (6)
- ----------------------------------------------------------
Provision for income
taxes $239 $ 55 $ 28
- ----------------------------------------------------------
</TABLE>
In addition to the items in the table above, $5 million of income tax benefit
was recorded as an adjustment to goodwill for recognition of deferred tax assets
on prior purchase business combinations with purchased excess tax basis, and $9
million of income tax benefit was recorded as additional paid-in capital for the
tax effect of compensation expense for tax purposes in excess of amounts
recognized for financial reporting purposes.
Significant components of deferred tax expense for the year ended December 31,
1993, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
(in millions) 1993
- --------------------------------------------------------
<S> <C>
Deferred tax benefit, excluding the effect of
other components listed below $(28)
Adjustment to deferred tax assets and liabilities
for enacted changes in tax laws and rates (4)
Investment tax credit carryforward 29
Alternative minimum tax credit carryforward 33
- --------------------------------------------------------
Total deferred tax expense $ 30
- --------------------------------------------------------
</TABLE>
The effective tax rates for 1993, 1992 and 1991 were 40%, 11% and 9%,
respectively. Income tax expense was different from the amounts computed by
applying the statutory federal income tax rate to income before income taxes
because of the items listed in the following table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(dollar amounts in millions) 1993 1992 1991
- ---------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35% 34% 34%
Tax expense computed at
statutory rate $ 210 $ 167 $ 105
Increase (decrease)
resulting from:
State income taxes, net of
federal tax benefit 17 5 6
Alternative minimum tax -- (13) 6
Tax-exempt income from
loans and securities (4) (6) (15)
Amortization of goodwill 9 5 5
Impact of book versus tax
basis of acquired assets 14 16 15
Recognized tax benefits -- (130) (100)
Other, net (7) 11 6
- ---------------------------------------------------------
Provision for income
taxes $ 239 $ 55 $ 28
- ---------------------------------------------------------
</TABLE>
57
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS
14. TAXES continued
For the years ended December 31, 1992 and 1991, deferred income tax benefits of
$25 and $6, respectively, resulted from temporary differences in the recognition
of income and expense for income tax and financial reporting purposes. The
principal items of income and expense that give rise to deferred income taxes
are shown, for those years, in the following table.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(in millions) 1992 1991
- ---------------------------------------------------------
<S> <C> <C>
Deferred loss on sale of assets to GSNB $ 13 $ 26
Provision for credit losses and
write-downs of real estate acquired 23 (27)
Investment tax credit 20 7
Lease financing revenue 21 9
Depreciation and amortization 9 3
Alternative minimum tax (13) (27)
Tax loss carryforward 36 96
Other, net (4) 7
- ---------------------------------------------------------
Net deferred tax expense before
recognized tax benefits 105 94
Recognized tax benefits (130) (100)
- ---------------------------------------------------------
Deferred tax benefit recognized $ (25) $ (6)
- ---------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1993,
are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------
Deferred tax Deferred tax
(in millions) assets liabilities
- -------------------------------------------------------
<S> <C> <C>
Provision for credit
losses and write-downs
on real estate
acquired $259 $ --
Lease financing revenue -- 207
Salaries and employee
benefits -- 38
Accrued expense not
deductible until paid 92 --
Net occupancy expense 72 --
Other 26 12
- -------------------------------------------------------
Total gross deferred
tax assets and
liabilities 449 257
Less: valuation allowance 7 --
- -------------------------------------------------------
Net deferred tax assets
and liabilities $442 $257
- -------------------------------------------------------
</TABLE>
The Corporation determined that it was not required to establish a
valuation allowance for deferred tax assets upon adoption of FAS No. 109 since
it is more likely than not that the deferred tax asset will be realized through
carryback to taxable income in prior years, future reversals of existing taxable
temporary differences, and, to a lesser extent, future taxable income. However,
the Corporation did record a valuation allowance upon the acquisition of The
Boston Company, Inc., and subsidiaries. This valuation allowance is primarily
for federal net operating loss carryforwards that are subject to limitation on
their usage.
The Corporation's locations domiciled outside of the United States
generated pretax loss of $15 million, in both 1993 and 1992 and $16 million in
1991.
58
<PAGE> 43
15. EMPLOYEE BENEFITS
Pension plans
The Corporation's two largest subsidiaries, Mellon Bank, N.A., and The Boston
Company, sponsor trusteed, non-contributory, defined benefit pension plans.
Together, the two plans cover substantially all salaried employees of the
Corporation. The plans provide benefits that are based on employees' years of
service and compensation. In addition, several unfunded plans exist for certain
employees or for purposes that are not addressed by the funded plans.
Effective January 1, 1991, the actuarial assumptions for mortality and
employee turnover were changed to reflect recent experience. The Corporation
amortizes all actuarial gains and losses and prior service costs over a 10-year
period.
The tables below report the combined data of these plans. These plans are
appropriately funded with the Mellon Bank plan significantly overfunded and the
fair market value of the plan assets of The Boston Company approximately equal
to its accumulated benefit obligation.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1991
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded Funded Unfunded
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assumptions used in the accounting:
Rates used for expense at January 1:
Rate on obligation 6.9% 6.9% 7.6% 7.6% 8.4% 8.4%
Rate of return on assets 10.0 -- 10.0 -- 10.0 --
Actuarial salary scale 2.9 2.9 3.6 3.6 4.4 4.4
- ---------------------------------------------------------------------------------------------------------------------------
Components of pension expense:
Service cost $ 15 $1 $ 10 $1 $ 9 $1
Interest cost on projected benefit
obligation 17 2 13 1 11 1
Return on plan assets (71) -- (58) -- (105) --
Net amortization and deferral 27 -- 20 -- 72 --
- ---------------------------------------------------------------------------------------------------------------------------
Total pension expense (credit) $(12) $3 $(15) $2 $ (13) $2
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1993 1992
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used in the accounting:
Rates used for obligation at December 31:
Rate on obligation 6.0% 6.0% 6.9% 6.9%
Actuarial salary scale 3.0 3.0 2.9 2.9
- -------------------------------------------------------------------------------------------------------------------------
Present value of benefit obligation at December 31:
Vested $255 $ 31 $163 $ 17
Nonvested 37 2 12 --
- -------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 292 33 175 17
- -------------------------------------------------------------------------------------------------------------------------
Effect of projected future compensation levels 50 2 35 1
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $342 $ 35 $210 $ 18
- -------------------------------------------------------------------------------------------------------------------------
Plan assets at fair market value at December 31:
Cash and U.S. Treasury securities $107 $ -- $ 98 $ --
Corporate debt obligations 54 -- 27 --
Mellon Bank Corporation common stock* 27 -- 52 --
Other common stock and investments 457 -- 347 --
- -------------------------------------------------------------------------------------------------------------------------
Total plan assets at fair market value $645 $ -- $524 $ --
- -------------------------------------------------------------------------------------------------------------------------
Reconciliation of funded status with financial statements:
Funded status at December 31 $303 $(35) $314 $(18)
Unamortized net transition (asset) obligation (21) 2 (24) 2
Unrecognized prior service cost 13 -- 3 --
Net deferred actuarial (gain) loss (52) 8 (74) 2
Adjustment required to recognize minimum liability -- (8) -- --
- -------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) expense at December 31 $243 $(33) $219 $(14)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents 500,000 and 972,887 shares at December 31, 1993 and 1992,
respectively.
59
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
15. EMPLOYEE BENEFITS continued
Long-Term Profit Incentive Plan (1981)
The Long-Term Profit Incentive Plan provides for the issuance of stock options,
stock appreciation rights, performance units, deferred cash incentive awards and
shares of restricted stock to officers and key employees of the Corporation and
its subsidiaries as approved by the Human Resources Committee of the board of
directors. During 1993 and 1991, the Long-Term Profit Incentive Plan was amended
with shareholder approval to increase the shares available for grant by
3,000,000 and 2,500,000 shares, respectively. Stock options may be granted at
prices not less than the fair market value of the common stock on the date of
grant. Options may be exercised during fixed periods of time not to exceed 10
years from the date of grant. In the event of certain changes in control of the
Corporation, these options may become immediately exercisable.
Total outstanding grants as of December 31, 1993, were 3,394,942 shares, of
which 1,293,015 shares were exercisable. During 1993, 1992 and 1991, options for
1,036,429; 1,406,500; and 631,050 shares, respectively, were granted. As of
December 31, 1993, options for 3,226,049 shares were available for grant.
Included in the December 31, 1993, 1992 and 1991 outstanding grants were
options for 420,902; 582,040; and 296,928 shares, respectively, that were issued
at exercise prices ranging from $19.75 to $56.63 per share. These options become
exercisable near the end of their 10-year terms, but exercise dates may be
accelerated by the Human Resources Committee of the board of directors, based on
the optionee's performance. If so accelerated, compensation will be paid in the
form of deferred cash incentive awards to reimburse the exercise price of these
options if exercised prior to the original vesting date. The Corporation
recognized $8 million of compensation expense for these options in 1993, $7
million in 1992 and $5 million in 1991. As of December 31, 1993, the exercise
date had been accelerated on options for 698,186 shares, of which 200,988;
137,356; and 140,411 were exercised in 1993, 1992 and 1991, respectively.
Options for 1,002,096; 711,565; and 204,132 shares were exercised in 1993,
1992 and 1991, respectively, under the Long-Term Profit Incentive Plan,
including the 200,988; 137,356; and 140,411 shares on which the exercise date
was accelerated.
Options outstanding under this plan were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Price of
Number of shares shares under option
------------------------------- ----------------------------
Eligible Aggregate
Under option for exercise Per share (in millions)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993 3,394,942 1,293,015 $19.75-60.13 $150
December 31, 1992 3,477,166 1,482,207 19.75-60.13 130
December 31, 1991 2,933,014 1,540,441 19.75-60.13 96
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock Option Plan for Outside Directors (1989)
The Corporation's Stock Option Plan for Outside Directors provides for the
granting of options for shares of common stock to outside directors and advisory
board members of the Corporation. During 1993, the Stock Option plan for Outside
Directors was amended with shareholder approval to increase the shares available
for grant by 200,000 shares. The timing, amounts, recipients and other terms of
the option grants are determined by the provisions of, or formulas in, the
Directors' Options Plan. The exercise price of the options is equal to the fair
market value of the common stock on the grant date. All options have a term of
10 years from the date of grant and become exercisable one year from the grant
date. Directors elected during the course of the year are granted options on a
pro rata basis having terms identical to those granted to the directors at the
start of the year.
Total outstanding grants as of December 31, 1993, were 201,063 shares,
of which 168,648 were exercisable. During 1993, 1992 and 1991, options for
33,765; 65,759; and 48,012 shares, respectively, were granted at prices
ranging from $30.88 to $56.00 per share. As of December 31, 1993, 171,851
shares were available for grant. Options for 18,486; 6,600; and 2,000 shares
were exercised in 1993, 1992 and 1991, respectively.
Retirement Savings Plan
Since April 1988, employees' payroll deductions for deposit into retirement
savings accounts have been matched by the Corporation's contribution of common
stock, at the rate of $.50 on the dollar, up to six percent of the employee's
annual base salary with an annual maximum corporate contribution of $3,000 per
employee. In 1993, 1992 and 1991, the Corporation recognized $9 million, $6
million and $5 million,
60
<PAGE> 45
15. EMPLOYEE BENEFITS continued
respectively, of expense related to this plan and contributed 152,878; 146,505;
and 174,543 shares, respectively, into this plan. Certain shares contributed in
1993 and 1992 and all of the shares contributed in 1991 were issued from
treasury stock. The plan held 1,003,535; 930,124; and 831,094 shares of common
stock at December 31, 1993, 1992 and 1991, respectively.
Profit Bonus Plan
Awards are made to key employees at the discretion of the Human Resources
Committee of the board of directors of the Corporation. At the committee's
election, awards may be paid in a lump sum or may be deferred and paid over a
period of up to 15 years. Payouts under this plan were $19 million, $13 million
and $11 million for 1993, 1992 and 1991, respectively.
Employee Stock Ownership Plan
In 1989, an Employee Stock Ownership Plan was formed to hold certain shares of
Mellon Bank Corporation common stock previously held in other defined
contribution plans sponsored by the Corporation and its subsidiaries. At
December 31, 1993, 1992 and 1991, this plan held 77,578; 88,460; and 91,321
shares, respectively, of the Corporation's common stock that previously were
held in other plans. The Corporation may make contributions to this plan from
time to time. No contributions were made in 1993, 1992 or 1991.
Postretirement benefits other than pensions
The Corporation shares in the cost of providing certain health care and life
insurance benefits for retired employees. These benefits are provided through
various insurance carriers whose premiums are based on claims paid during the
year. The cost of providing these benefits amounted to $8 million in 1993, $4
million in 1992, and $3 million in 1991.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106 (FAS No. 106), "Employers' Accounting
for Postretirement Benefits Other than Pensions." FAS No. 106 requires sponsors
of plans providing certain health care and life insurance benefits to retired
employees to expense the cost of these benefits over the estimated working lives
of these employees, rather than expensing the costs as paid.
Effective January 1, 1993, the Corporation adopted FAS No. 106 on a
prospective basis by beginning to amortize the transition obligation over a
20-year period. The incremental expense for adopting FAS No. 106 was
approximately $3 million for the full year 1993.
The Boston Company adopted FAS No. 106 in 1992 by electing to recognize the
entire transition obligation into income in 1992.
The Corporation shares in the cost of providing certain health care and
life insurance benefits for active and retired employees. The Corporation shares
in the cost of providing managed care, Medicare supplement, and/or major medical
programs for employees who retired prior to January 1, 1991. Employees who
retire subsequent to January 1, 1991, who were between the ages of 55 and 65 on
January 1, 1991, and had at least 15 years of service, are provided with a
defined dollar supplement to assist them in purchasing health insurance. Early
retirees who do not meet these age and service requirements are eligible to
purchase health coverage at their own expense under the standard plans that are
offered to active employees. In addition to the arrangements above, the
Corporation provides a small subsidy toward health care coverage for other
active employees when they retire.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
- -------------------------------------------------------------------------------------------------------------------------
Accrued Accumulated Unrecognized
Postretirement Postretirement Transition
Benefit Cost Benefit Obligation Obligation
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1993 $(5) $(63) $58
- -------------------------------------------------------------------------------------------------------------------------
Acquisition of TBC -- (5) --
Recognition of components of net periodic
postretirement benefit costs:
Service cost --(a) --(a) --
Interest cost (5) (5) --
Amortization of transition obligation (3) -- (3)
- -------------------------------------------------------------------------------------------------------------------------
(8) (10) (3)
Change in APBO actuarial assumptions including a
change in the discount rate from 8% to 7% -- (15) --
Benefit payments 5 5 --
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1993 $(8) $(83) $55
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts were less than $1 million in 1993.
61
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS
15. EMPLOYEE BENEFITS continued
A weighted average discount rate of 8% was used to determine the net
periodic benefit cost and a 7% rate was used to value the accumulated
postretirement benefit obligation at year end. A health care cost trend rate was
used to recognize the effect of expected changes in future health care costs due
to medical inflation, utilization changes, technological changes, regulatory
requirements and Medicare cost shifting. The future annual increase assumed in
the cost of health care benefits was 12% for 1994 and was decreased gradually to
6% in 2002 and thereafter. The health care cost trend rate assumption can have a
significant impact on the amounts reported. Increasing the assumed health care
cost trend by one percentage point in each year would increase the accumulated
postretirement benefit obligation by approximately $6 million and the aggregate
of the service and interest cost components of net periodic postretirement
health care benefit cost by less than $1 million.
16. RESTRICTIONS ON DIVIDENDS AND REGULATORY LIMITATIONS
The prior approval of the Office of the Comptroller of the Currency (OCC) is
required if the total of all dividends declared by a national bank subsidiary in
any calendar year exceeds the bank subsidiary's net profits, as defined by the
OCC, for that year, combined with its retained net profits for the preceding two
calendar years. Additionally, national bank subsidiaries may not declare
dividends in excess of net profits on hand, as defined, after deducting the
amount by which the principal amount of all loans on which interest is past due
for a period of six months or more exceeds the reserve for credit losses.
Under the first and currently more restrictive of the foregoing dividend
limitations, the Corporation's national bank subsidiaries can, without prior
regulatory approval, declare dividends subsequent to December 31, 1993, of up to
approximately $492 million of their retained earnings of $1.229 billion at
December 31, 1993, less any dividends declared and plus or minus net profits or
losses, as defined, between January 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 $158 million in 1993, $130
million in 1992 and $129 million in 1991.
The Federal Reserve Act limits extensions of credit by the Corporation's
bank subsidiaries to the Corporation and to certain other affiliates of the
Corporation, requires such extensions to be collateralized, and limits the
amount of investments by the banks in these entities. At December 31, 1993, such
extensions of credit and investments were limited to $397 million as to the
Corporation and any other affiliate and to $794 million as to the Corporation
and all of its other affiliates. Outstanding extensions of credit totaled $154
million at December 31, 1993.
17. 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.
The Corporation intends to petition the Colorado Court of Appeals for rehearing
and it is possible that the other parties
62
<PAGE> 47
17. LEGAL PROCEEDINGS continued
may also appeal. Because of the uncertainty as to the ultimate resolution, no
provision has been made in the financial statements for this matter.
On August 7, 1992, a judge in the United States District Court for the
Eastern District of Pennsylvania entered a judgment ordering Mellon Bank to
reimburse certain of its trust customers the amount of sweep fees which were
charged to their trust accounts since 1981, plus interest. In this class-action
proceeding, the plaintiffs claimed that Mellon Bank, and other banks, breached
their fiduciary duties with regard to the provision of sweep services, alleging
that the banks charged unreasonable fees, failed to disclose fully their fees
for sweep services and wrongfully invested sweep funds in internal or affiliated
accounts or investment vehicles. The court found that the total amount of sweep
fees collected by Mellon Bank since 1981 for both fiduciary and non-fiduciary
accounts was approximately $55 million. On May 18, 1993, the Third Circuit Court
of Appeals vacated the judgment entered by the district court and remanded the
case for dismissal. On June 18, 1993, the Third Circuit Court of Appeals denied
plaintiff's Petition for Rehearing. The district court ordered the case
dismissed on July 6, 1993. On September 13, 1993, the plaintiffs petitioned the
United States Supreme Court for a writ of certiorari, and on November 8, 1993,
the Supreme Court denied this petition.
On July 28, 1993, a second lawsuit arising out of Mellon Bank's sweep fees
practices was filed with the United States District Court for the Eastern
District of Pennsylvania against Mellon Bank and its directors. On August 30,
1993, a third lawsuit, similar to the second, was filed in the same court and
was consolidated with the second. On December 16, 1993, these suits also were
dismissed. Plaintiffs have appealed this decision to the Third Circuit.
On September 10, 1993, the Corporation filed complaints in the United
States District Court for the Western District of Pennsylvania against four
financial services companies. The complaints involved claims arising from the
breach of the contract under which the Corporation purchased The Boston Company,
as well as violations of other obligations to the Corporation. The claims
related to administration services the Corporation provides to a family of
mutual funds now known as the Smith Barney Shearson Funds. The defendant
companies were: Smith Barney, Harris Upham & Co. Incorporated (Smith Barney);
its parent organization, Primerica Corporation (now The Travelers Inc.); Lehman
Brothers Inc. (formerly Shearson Lehman Brothers); and its parent organization,
American Express Company. The Corporation's mutual funds administration services
are provided through The Boston Company.
In its complaint against Smith Barney and Primerica (which purchased
Shearson's mutual fund and brokerage businesses in 1993), the Corporation
asserted that, despite expressly agreeing that they were bound by, and would
comply with, the terms and provisions of the contract between Shearson and the
Corporation, Smith Barney and Primerica violated that contract. The Corporation
sought money damages and a court order requiring that Smith Barney and Primerica
cease their unlawful conduct and honor the contract between the Corporation and
Shearson.
A hearing was held in November 1993. As a result, the Corporation was
granted injunctive relief preventing Smith Barney, for a period of seven years,
from competing with Mellon in providing administration services to funds in the
Smith Barney Shearson family, other than Smith Barney funds that existed prior
to Smith Barney's March 12, 1993, agreement to purchase Shearson Lehman
Brothers' mutual fund and brokerage businesses. The injunction covered all new
funds created or underwritten by Smith Barney, however named, after March 12,
1993, and obligated Smith Barney to recommend Mellon as the provider of
administration services.
Effective January 1, 1994, Mellon and Smith Barney Shearson Inc. settled
their litigation. Under the terms of the settlement agreement, which will remain
in effect through May 2000, the companies will work together to provide
administration services to certain funds affiliated with Smith Barney. Smith
Barney will seek to be appointed administrator for certain of its affiliated
funds, in addition to its current roles as investment advisor and distributor.
Smith Barney would, in turn, enter into sub-administration agreements with
Mellon for certain administration services.
Incorporated in the settlement agreement are certain Smith Barney Shearson
funds that existed prior to Smith Barney's March 12, 1993, agreement to purchase
Shearson Lehman Brothers' mutual fund and brokerage businesses, as well as
certain Smith Barney Shearson sponsored funds covered by the above injunction.
63
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
Off-balance-sheet financial instruments
<TABLE>
<CAPTION>
- ---------------------------------------------------------
December 31,
(in millions) 1993(a) 1992
- ---------------------------------------------------------
<S> <C> <C>
Financial instruments with contract
amounts that represent credit
risk:
Commitments to extend credit $12,507 $11,606
Standby letters of credit and
foreign guarantees 2,952 2,966
Commercial letters of credit 140 122
Custodian securities lent with
indemnification 11,152 841
Financial instruments with notional
or contract amounts that exceed
the amount of credit risk:(b)
Foreign currency contracts:
Commitments to purchase 9,219 5,223
Commitments to sell 9,216 5,229
Foreign currency and other option
contracts written:
Commitments to purchase 354 221
Commitments to sell 175 188
Foreign currency and other option
contracts purchased:
Commitments to purchase 345 233
Commitments to sell 161 190
Futures and forward contracts:
Commitments to purchase 107 3,482
Commitments to sell 426 614
Interest rate agreements (notional
principal amounts):
Interest rate swaps 13,647 11,888
Other interest rate products 2,560 1,882
Forward rate agreements 595 --
- ---------------------------------------------------------
</TABLE>
(a) Increases in off-balance-sheet financial instruments at December 31, 1993,
compared with December 31, 1992, were due primarily to the May 1993
acquisition of The Boston Company.
(b) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract on which a counterparty has defaulted.
Credit risk associated with these instruments is discussed by type of
instrument in the following paragraphs.
In the normal course of business, the Corporation becomes a party to various
financial transactions that generally do not involve funding. These transactions
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 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 activities.
Off-balance-sheet financial instruments involve varying degrees of market
and credit risk that exceed the amounts recognized on the balance sheet. 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.
Commitments to extend credit
The Corporation enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specific rates and for
specific purposes. Substantially all of the Corporation's commitments to extend
credit are contingent upon customers maintaining specific credit standards at
the time of loan funding. The majority of the Corporation's commitments to
extend credit include material adverse change clauses within the commitment
contracts. These clauses allow the Corporation to deny funding a loan commitment
if the borrower's financial condition deteriorates during the commitment, such
that the customer no longer meets the Corporation's credit standards. The
Corporation's exposure to credit loss in the event of nonperformance by the
customer is represented by the contractual amount of the commitment to extend
credit. Accordingly, the credit policies utilized in committing to extend credit
and in the extension of loans are the same. Market risk arises if interest
rates, at the time a fixed-rate commitment is funded, have moved adversely
subsequent to the extension of the commitment. The Corporation believes the
market risk associated with commercial commitments is minimal. Since many of the
commitments are expected to expire without being drawn upon, the total
contractual amounts do not necessarily represent future cash requirements. The
amount and type of collateral obtained by the Corporation is based upon industry
practice, as well as its credit assessment of the customer. Of the $13 billion
of contractual commitments for which the Corporation has received a commitment
fee or which were otherwise legally binding--excluding credit card
plans--approximately 30% of the commitments are scheduled to expire within one
year, and an additional 56% are scheduled to expire within five years.
Letters of credit and foreign guarantees
There are two major types of letters of credit--standby and commercial letters
of credit. The off-balance-sheet credit risk involved in issuing standby and
commercial
64
<PAGE> 49
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK continued
letters of credit is represented by their contractual amounts and is essentially
the same as the credit risk involved in commitments to extend credit. The
Corporation minimizes this risk by adhering to its written credit policies and
by requiring security and debt covenants similar to those contained in loan
agreements. The Corporation believes the market risk associated with letters of
credit and foreign guarantees is minimal.
Standby letters of credit and foreign guarantees obligate the Corporation
to disburse funds to a third-party beneficiary if the Corporation's customer
fails to perform under the terms of an agreement with the beneficiary. Standby
letters of credit and foreign guarantees are used by the customer as a credit
enhancement and typically expire without being drawn upon.
The Corporation has issued standby letters of credit to customers who
currently are experiencing financial difficulties. During 1993, certain
customers with standby letters of credit failed to perform according to the
terms of the agreements with the beneficiaries, resulting in credit losses of
$16 million being recognized. The Corporation recognizes losses in these
situations based on the estimated fair value of the underlying collateral. The
Corporation evaluates various approaches that would enable the Corporation not
to fund these standby letters of credit. Should these approaches prove
unsuccessful, the Corporation would have access to the underlying collateral.
While the Corporation has provided for specific losses on $8 million of
exposures under standby letters of credit to customers experiencing financial
difficulties, management believes that the loss potential is substantially less
than the amount of the exposures due to the existence of the collateral.
Management believes that the Corporation has provided adequate reserves for
potential losses on these instruments.
A commercial letter of credit is normally a short-term instrument used to
finance a commercial contract for the shipments of goods from a seller to a
buyer. This type of letter of credit ensures prompt payment to the seller in
accordance with the terms of the contract. Although the commercial letter of
credit is contingent upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on the underlying
transaction. Normally, reimbursement from the buyer is coincidental with payment
to the seller under commercial letter of credit drawings. As a result, the total
contractual amounts do not necessarily represent future cash requirements.
Outstanding standby letters of credit and foreign guarantees
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Weighted-average
years to maturity
December 31, at December 31,
(dollar amounts in millions) 1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Standby letters of credit and foreign guarantees:*
Commercial paper and other debt $ 335 $ 391 1.6 1.9
Tax-exempt securities 703 589 2.1 2.4
Bid-or performance-related 1,055 813 1.0 .9
Other 859 1,173 .7 .8
------ ------
Total standby letters of credit and foreign guarantees $2,952 $2,966 1.3 1.3
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of participations and cash collateral totaling $320 million and $348
million at December 31, 1993 and 1992, respectively.
Securities Lending
A securities loan is a fully collateralized transaction in which the owner of a
security agrees to lend the security through an agent (the Corporation) to a
borrower, usually a broker/dealer or bank, on an open, overnight or term basis,
under the terms of a pre-arranged contract. The borrower will collateralize the
loan at all times, generally with cash or U.S. government securities, at a
minimum of 100% of the market value of the loan, plus any accrued interest on
debt obligations. The borrower will also pay a fee to the lender for the
duration of the loan. The level of securities lent with indemnification
increased following the acquisition of The Boston Company.
The Corporation currently enters into two types of securities lending
arrangements, lending with and without indemnification. In securities lending
transactions without indemnification, the Corporation bears no risk of loss. For
transactions in which the Corporation provides an indemnification, risk of loss
occurs if the borrower defaults and the value of the collateral declines. The
Corporation currently does not anticipate any losses on the securities lending
transactions with indemnification.
65
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK continued
Foreign currency contracts
Commitments to purchase and sell foreign currency facilitate the management of
market risk by ensuring that, at some future date, the Corporation or a customer
will have a specified currency at a specified rate. Market risk arises from
changes in the market value of contractual positions due to movements in
currency rates. The Corporation limits its exposure to market risk by entering
into generally matching or offsetting positions and by establishing and
monitoring limits on unmatched positions. Credit risk relates to the ability of
the Corporation's counterparty to meet its settlement obligations under the
contract and generally is limited to the estimated aggregate replacement cost of
those foreign currency contracts in a gain position. In general, such
replacement cost is significantly smaller than the amount of the contract and
totaled approximately $116 million and $93 million at December 31, 1993 and
1992, respectively. There were no settlement or counterparty default losses on
foreign currency contracts in 1993, 1992 or 1991. The Corporation manages credit
risk by dealing only with approved counterparties under specific credit limits
and by monitoring the amount of outstanding contracts by customer and in the
aggregate against such limits. The future cash requirements, if any, related to
foreign currency contracts are represented by the net contractual settlement
between the Corporation and its counterparties.
Foreign currency and other option contracts
Foreign currency and other option contracts grant the contract "purchaser" the
right, but not the obligation, to purchase or sell a specified amount of a
foreign currency or other financial instrument during a specified period at a
predetermined price. The Corporation acts as both a "purchaser" and "seller" of
foreign currency and other option contracts. Market risk arises from changes in
the value of contractual positions due to fluctuations in currency rates,
interest rates and security values underlying the option contracts. Market risk
is managed by entering into generally matching or offsetting positions, and by
establishing and monitoring limits on unmatched positions. Credit risk and
future cash requirements are similar to those of foreign currency contracts. The
estimated aggregate replacement cost of purchased foreign currency and other
option contracts in gain positions was approximately $6 million at December 31,
1993, and 1992. There were no settlement or counterparty default losses on
foreign currency and other option contracts in 1993, 1992 or 1991.
Futures and forward contracts
Futures and forward contracts on securities or money market instruments
represent future commitments to purchase or sell a specified instrument at a
specified price and date. Futures contracts are standardized and are traded on
organized exchanges, while forward contracts are traded in over-the-counter
markets and generally do not have standardized terms. The Corporation uses
futures and forward contracts in connection with its trading activities and to
hedge its asset, liability and off-balance-sheet positions.
For instruments that are traded on a regulated exchange, the exchange
assumes the credit risk that a counterparty will not settle and generally
requires a margin deposit of cash or securities as collateral to minimize
potential credit risk. The Corporation has established policies governing which
exchanges and exchange members can be used to conduct these activities, as well
as the number of contracts permitted with each member and the total dollar
amount of outstanding contracts. Credit risk associated with futures and forward
contracts is limited to the estimated aggregate replacement cost of those
futures and forward contracts in a gain position and totaled less than $1
million at December 31, 1993 and $1 million at December 31, 1992. Credit risk
related to futures contracts is substantially mitigated by daily cash
settlements with the exchanges for the net change in futures contract value.
There were no settlement or counterparty default losses on futures and forward
contracts in 1993, 1992 or 1991.
Market risk is similar to the market risk associated with foreign currency
and other option contracts. The future cash requirements, if any, related to
futures and forward contracts, are represented by the net contractual settlement
between the Corporation and its counterparties.
Interest rate agreements
Interest rate agreements obligate two parties to exchange, or contingently
exchange, one or more payments calculated with reference to fixed or
periodically reset rates of interest applied to a specified notional principal
amount. Notional principal is the amount upon which interest rates are applied
to determine the payment streams under interest rate agreements. Such notional
principal amounts often are used to express the volume of these transactions but
are not actually exchanged between the counterparties. Interest rate swaps
obligate each party to make periodic payments based upon a contractual fixed or
periodically reset rate of interest. Other
66
<PAGE> 51
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK continued
interest rate products obligate a contract "seller" to make payments to a
contract "purchaser" in the event a designated rate index exceeds a contractual
"ceiling" level or, alternatively, falls below a specified "floor" level. The
Corporation acts as both a "purchaser" and "seller" with respect to such
contracts. Forward rate agreements obligate each party contingently to make a
one-time payment, the amount and direction of which is determined by the
difference between a contractual rate of interest and the future level of a
designated interest rate index. The Corporation enters into interest rate
agreements to hedge its interest rate risk, primarily on deposit liabilities,
and part of its trading activities. The weighted average original maturity of
these interest rate agreements was less than five years. There were no deferred
gains or losses from terminated interest rate agreements at December 31, 1993.
The credit risk associated with interest rate agreements is limited to the
estimated aggregate replacement cost of those agreements in a gain position, and
was $306 million and $220 million at December 31, 1993 and 1992, respectively.
Credit risk is managed through credit approval procedures which establish
specific lines for individual counterparties and limits of credit exposure to
various portfolio segments. Counterparty and portfolio outstandings are
monitored against such limits on an ongoing basis. Credit risk is further
mitigated by contractual arrangements with the Corporation's counterparties that
provide for netting replacement cost gains and losses on multiple transactions
with the same counterparty. The Corporation has entered into collateral
agreements with certain counterparties to interest rate agreements to further
secure amounts due. The collateral is generally cash and/or U.S. government
securities. There were no counterparty default losses on interest rate
agreements in 1993 or 1992, compared with $5 million in 1991. Off-balance-sheet
market risk arises from changes in the market value of contractual positions due
to movements in interest rates. The Corporation limits its exposure to market
risk by entering into generally matching or offsetting positions and by
establishing and monitoring limits on unmatched positions. The future cash
requirements of interest rate agreements are limited to the net amounts payable
under these agreements.
Concentrations of credit risk
In its normal course of business, the Corporation engages in activities with a
significant number of domestic and international counterparties. The maximum
risk of accounting loss from on-and off-balance-sheet financial instruments with
these counterparties is represented by their respective balance sheet amounts
and the contractual or replacement cost of the off-balance-sheet financial
instruments.
Approximately 34% of the Corporation's total on-and off-balance-sheet
financial instruments with credit risk at December 31, 1993, were with consumers
and consumer-related industries, compared with approximately 28% at December 31,
1992. This credit exposure consisted principally of loans and the related
interest receivable on the balance sheet and off-balance-sheet loan commitments
and letters of credit.
Consumers to whom the Corporation has credit exposure are located primarily
within the Central Atlantic region and are affected by economic conditions
within that region. As a result of the TBC acquisition, the Corporation has
increased its consumer credit exposure in California and the Northeast.
Financial institutions--which include finance-related companies; domestic
and international banks and depository institutions; securities and commodities
brokers; and insurance companies--accounted for approximately 17% of the
Corporation's total on-and off-balance-sheet financial instruments with credit
risk at December 31, 1993, compared with approximately 18% at December 31, 1992.
The Corporation's on-balance-sheet credit exposure to financial institutions
included short-term liquid assets consisting of due from banks and money market
investments, loans and the related interest receivable and investment
securities. In addition, the Corporation had off-balance-sheet credit exposure
to financial institutions consisting of commitments to extend credit and letters
of credit.
The Corporation had credit exposure to the federal government, including
its corporations and agencies, totaling approximately 10% of its on-and off-
balance-sheet financial instruments with credit risk at December 31, 1993
compared with approximately 12% at December 31, 1992. Substantially all of this
exposure consisted of investment securities and the related interest receivable
on the balance sheet. No other concentration of credit risk exceeded 10% of the
Corporation's total credit risk arising from on-and off-balance-sheet financial
instruments at December 31, 1993 and 1992, respectively.
Impact of FASB Interpretation No. 39
In March 1992, the FASB released Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts." This interpretation is applicable to the balance
sheet presentation of unrealized gains and losses recognized for interest rate
and foreign exchange contracts. It generally requires the reporting of
unrealized gains as assets and unrealized losses as
67
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS
18. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK continued
liabilities. This interpretation becomes effective in 1994.
The Corporation currently reports unrealized gains and losses related to
foreign exchange contracts, interest rate agreements, and similar contracts on a
net basis. The adoption of this interpretation for balance sheet presentation
purposes will not affect the net income or capital of the Corporation. At
December 31, 1993, the Corporation's assets and liabilities would have increased
by approximately $250 million under this interpretation. The balance sheet
impact of this interpretation at future dates will fluctuate as the unrealized
gains and losses on these contracts increase or decrease with changes in
remaining maturity and market rates, as well as the ability to net amounts under
master netting arrangements.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (FAS No. 107), "Disclosures
about Fair Value of Financial Instruments," requires the Corporation to disclose
the estimated fair value of its on-and off-balance-sheet financial instruments.
A financial instrument is defined by FAS No. 107 as cash, evidence of an
ownership interest in an entity, or a contract that creates a contractual
obligation or right to deliver to or receive cash or another financial
instrument from a second entity on potentially favorable terms.
Fair value estimates are made at a point in time, based on relevant market
data and information about the financial instrument. FAS No. 107 specifies that
fair values should be calculated based on the value of one trading unit without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, estimated
transaction costs that may result from bulk sales or the relationship between
various financial instruments. Because no readily available market exists for a
significant portion of the Corporation's financial instruments, fair value
estimates for these instruments are based on judgments regarding current
economic conditions, currency-and interest-rate risk characteristics, loss
experience and other factors. Many of these estimates involve uncertainties and
matters of significant judgment and cannot be determined with precision.
Therefore, the calculated fair value estimates cannot always be substantiated by
comparison to independent markets and, in many cases, may not be realizable in a
current sale of the instrument. Changes in assumptions could significantly
affect the estimates. Fair value estimates do not include anticipated future
business and the value of assets, liabilities and customer relationships that
are not considered financial instruments. For example, the Corporation's
significant Service Products businesses--which contributed approximately 45% of
revenue in 1993--is not incorporated into the fair value estimates. Other
significant assets and liabilities that are not considered financial instruments
include lease finance assets, deferred tax assets, lease contracts, premises and
equipment and intangible assets. Accordingly, the estimated fair value amounts
of financial instruments do not represent the entire value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating the fair value of its financial instruments at December 31, 1993:
Short-term financial instruments
The carrying amounts reported on the Corporation's balance sheet generally
approximate fair value for financial instruments that reprice or mature in 90
days or less, with no significant change in credit risk. The carrying amounts
approximate fair value for cash and due from banks; money market investments;
acceptances; demand deposits; money market and other savings accounts; federal
funds purchased and securities sold under agreements to repurchase; U.S.
Treasury tax and loan demand notes; commercial paper; and certain other assets
and liabilities.
Trading account securities, securities available for sale and investment
securities
Trading account securities are recorded at market value on the Corporation's
balance sheet, including appropriate amounts for off-balance-sheet instruments
held for trading purposes. Market values of trading account securities,
securities available for sale and investment securities are generally based on
quoted market prices or dealer quotes, if available. If a quoted market price is
not available, market value is estimated using quoted market prices for
securities with similar credit, maturity and interest rate characteristics. The
tables in note 3 present in greater detail the carrying value and market value
of securities available for sale and investment securities at December 31, 1993
and 1992.
68
<PAGE> 53
19. FAIR VALUE OF FINANCIAL INSTRUMENTS continued
Loans
The estimated fair value of performing commercial loans and certain consumer
loans that reprice or mature in 90 days or less approximates their respective
carrying amounts adjusted for a credit risk factor based upon the Corporation's
historical credit loss experience. The estimated fair value of performing loans,
except for consumer mortgages and credit card receivables, that reprice or
mature in more than 90 days is estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality and for similar maturities.
Fair value of consumer mortgage loans is estimated using market quotes or
discounting contractual cash flows, adjusted for prepayment estimates. Discount
rates were obtained from secondary market sources, adjusted to reflect
differences in servicing, credit and other characteristics.
The estimated fair value of credit card receivables is based on the loan
balances existing at December 31, 1993 and 1992. Cash flows and maturities are
estimated based on contractual interest rates and historical experience and are
discounted using market rates adjusted for differences in servicing, credit and
other costs. This estimate does not include the value that relates to new loans
that will be generated from existing cardholders over the remaining life of the
portfolio, a value that is typically reflected in market prices realized in
portfolio sales.
The estimated fair value for nonperforming commercial real estate loans is
the "as is" appraised value of the underlying collateral. For other
nonperforming loans, the estimated fair value represents carrying value less a
credit risk adjustment based upon the Corporation's historical credit loss
experience.
The estimated fair value of the Corporation's variable-rate loans which
reprice in more than 90 days and fixed-rate loans was favorably impacted by the
low-interest-rate environment at December 31, 1993.
Deposit liabilities
FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be equal to the amount payable on demand. Although market premiums
paid for depository institutions reflect an additional value for these low-cost
deposits, FAS No. 107 prohibits adjusting fair value for any value expected to
be derived from retaining those deposits for a future period of time or from the
benefit that results from the ability to fund interest-earning assets with these
deposit liabilities. The fair value of fixed-maturity deposits that reprice or
mature in more than 90 days is estimated using the rates currently offered for
deposits of similar remaining maturities.
Notes and debentures
The fair value of the Corporation's notes and debentures is estimated using
quoted market yields for the same or similar issues or the current yields
offered by the Corporation for debt with the same remaining maturities.
The table on the following page includes financial instruments, as defined
by FAS No. 107, whose estimated fair value is not represented by the carrying
value as reported on the Corporation's balance sheet. Contractual yields,
repricing/maturity periods and discount rates presented are for financial
instruments that reprice or mature in more than 90 days. Management has made
estimates of fair value discount rates that it believes to be reasonable
considering expected prepayment rates, rates offered in the geographic areas in
which the Corporation competes, credit risk and liquidity risk. However, because
there is no active market for many of these financial instruments, management
has no basis to verify whether the resulting fair value estimates would be
indicative of the value negotiated in an actual sale.
69
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS
19. FAIR VALUE OF FINANCIAL INSTRUMENTS continued
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993
------------------------------------------
Carrying Amount AVERAGE Estimated fair value
----------------- REPRICING ----------------------
December 31, CONTRACTUAL OR MATURITY DISCOUNT December 31,
(dollars in millions) 1993 1992 YIELD (YEARS) RATES USED 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale(a) $ 2,916 $ 3,613 -- -- -- $ 2,920 $ 3,707
Investment securities(a) 2,096 2,125 -- -- -- 2,139 2,128
Loans(b):
Commercial and
financial 10,041 9,549 3.6-14.0% 2.6 3.5- 9.2% 10,019 9,489
Commercial real estate 1,721 1,861 5.5-10.5 4.1 3.5- 9.7 1,695 1,827
Consumer mortgage 8,180 4,278 6.0-10.4 12.2 3.9-11.8 8,280 4,268
Other consumer credit 3,813 3,618 8.6-12.3 1.1 7.3-14.5 3,927 3,704
------- -------
Total loans 23,755 19,306
Reserve for credit
losses(b) (585) (502) -- -- -- -- --
------- ------- ------- -------
Net loans 23,170 18,804 23,921 19,288
Segregated assets(c) 108 241 NM NM NM 108 241
Other assets(c) 720 580 NM NM NM 737 595
Fixed-maturity
deposits(d):
Retail savings
certificates 6,813 8,459 2.3- 7.4 1.2 2.3-5.5 6,837 8,483
Negotiable
certificates of
deposit 251 246 3.2- 5.7 1.3 3.4-3.6 258 260
Other time deposits 644 735 0.3-10.5 13.5 2.5-8.2 649 736
Other funds borrowed(c) 151 66 NM NM NM 151 66
Other liabilities(c) 179 106 NM NM NM 179 106
Notes and debentures(a) 1,990 1,586 -- -- -- 2,086 1,641
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NM--Not meaningful.
(a) Market or dealer quotes were used to value the reported balance of these
financial instruments.
(b) Approximately 76% and 80% of total performing loans, excluding consumer
mortgages and credit card receivables, reprice or mature within 90 days at
December 31,1993 and 1992, respectively. Excludes lease finance assets of
$718 and $650 million as well as the related reserve for credit losses of
$15 million and $4 million at December 31, 1993 and 1992, respectively.
Lease finance assets are not considered financial instruments as defined by
FAS No. 107.
(c) Excludes nonfinancial instruments.
(d) FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be equal to the amount payable on demand. Therefore, the
positive effect of the Corporation's $19.830 billion and $15.690 billion of
such deposits at December 31, 1993 and 1992, respectively, are not included
in this table.
Commitments to extend credit, standby letters of credit and foreign guarantees
These financial instruments generally are not sold or traded, and estimated fair
values are not readily available. However, the fair value of commitments to
extend credit and standby letters of credit and foreign guarantees is estimated
by discounting the remaining contractual fees over the term of the commitment
using the fees currently charged to enter into similar agreements and the
present creditworthiness of the counterparties.
Other off-balance-sheet financial instruments
The estimated fair value of off-balance-sheet financial instruments used for
hedging purposes--which includes futures and forward contracts and interest rate
agreements--is estimated by obtaining quotes from brokers. These values
represent the estimated amount the Corporation would receive or pay to terminate
the agreements, considering current interest and currency rates, as well as the
current creditworthiness of the counterparties. Off-balance-sheet financial
instruments are further discussed in note 18, "Financial instruments with
off-balance-sheet risk and concentrations of credit risk."
70
<PAGE> 55
19. FAIR VALUE OF FINANCIAL INSTRUMENTS continued
The estimated fair values for the Corporation's off-balance-sheet financial
instruments, excluding instruments in trading account securities which are
carried at market value, are summarized below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993 December 31, 1992
CONTRACT ASSET (LIABILITY) Contract Asset (Liability)
OR NOTIONAL ---------------------------- or notional ----------------------------
PRINCIPAL CARRYING ESTIMATED principal Carrying Estimated
(in millions) AMOUNT AMOUNT (a) FAIR VALUE amount amount (a) fair value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitments to extend credit $12,507 $ 3 $53 $11,606 $ 3 $45
Standby letters of credit and
foreign guarantees 2,952 2 25 2,966 2 25
Futures and forward contracts -- -- -- 3,148 (1) (1)
Interest rate swaps 8,568 40 72 6,891 42 96
Other interest rate products 768 2 3 263 4 7
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amounts shown under "carrying amount" represent the on-balance-sheet
receivables or deferred income arising from these unrecognized financial
instruments.
20. SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Noncash investing and financing transactions that, appropriately, are not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net transfers to real estate acquired $ 33 $ 223 $ 224
In-substance foreclosure of other assets -- 3 40
Net transfers to segregated assets 134 -- --
Acquisitions(a):
Fair value of noncash assets acquired 8,582 2,702 1,433
Liabilities assumed 7,197 2,973 1,393
Stock issued 115 -- --
Warrants issued 37 -- --
-------- ------ ------
Net cash received (paid) (1,233) 271 (40)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Acquisitions include: The Boston Company, Inc., in 1993; AFCO and CAFO in
1993; Meritor Savings Bank and Standard Federal Savings Bank branches in
1992; and United Penn Bank in 1991.
21. ACQUISITION AND PENDING MERGER
Acquisition of The Boston Company, Inc.
On May 21, 1993, the Corporation completed its acquisition of The Boston
Company, Inc. (TBC), a Shearson Lehman Brothers Inc. (Shearson) subsidiary based
in Boston. TBC, through Boston Safe Deposit and Trust Company and other
subsidiaries, engages in the businesses of mutual fund administration,
institutional trust and custody, institutional asset management and private
asset management. TBC had total assets of $6.3 billion at December 31, 1993,
including $4.4 billion of loans, $462 million of securities and $483 million of
money market investments. Deposit liabilities totaled $3.6 billion and consisted
primarily of money market, demand and time deposits.
Under the terms of the stock purchase agreement with Shearson, the
Corporation acquired all of the stock of Boston Group Holdings, Inc., the
holding company for TBC and its subsidiaries, and paid to Shearson at the
closing a combination of $1.291 billion in cash, 2.5 million shares of the
Corporation's common stock and 10-year warrants to purchase an additional 3
million shares of the Corporation's common stock at $50 per share.
This transaction was recorded under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. The condensed pro
forma combined operating results provided in the table are presented as if the
acquisition had been effective on January 1, 1993 and January 1, 1992,
respectively. The condensed pro forma combined operating results for the year
ended December 31, 1993, combines The Boston Company's results of operations for
the period January 1, 1993 through May 20, 1993 and the Corporation's historical
results of operations for the year ended December 31, 1993,
71
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS
21. ACQUISITION AND PENDING MERGER continued
which include The Boston Company's results of operations from May 21, 1993, to
December 31, 1993. The excess of the purchase price over the estimated fair
value of tangible net assets acquired on May 21, 1993, was approximately $457
million. This includes a $55 million noncompete covenant with Shearson. The
estimated lives used for the straight-line amortization of the noncompete
covenant and goodwill are seven and 20 years, respectively. Goodwill and other
intangible valuations may vary as a final appraisal and additional information
becomes available. The pro forma results include adjustments for the effect of
the amortization of goodwill and other intangibles, the elimination of certain
assets and liabilities at the closing of the transaction, as well as the
elimination of the revenues and expense attributable to nine subsidiaries of The
Boston Company that were conveyed via dividend to Shearson prior to the closing
date of the transaction. In addition, restructuring expenses of $175 million, or
$112 million after-tax, have been eliminated from the combined historical
results of operations for the year ended December 31, 1993, as these expenses do
not represent ongoing expenses of the Corporation. This charge reflected
management's estimates of additional loan loss reserve, systems conversion
costs, severance, legal and consulting expenses and other restructuring charges.
The pro forma information is intended for informational purposes only and is not
necessarily indicative of the future results of operations of the Corporation,
or the results of operations that would have actually occurred had the
acquisition been in effect for the periods presented.
<TABLE>
<CAPTION>
- ---------------------------------------------------------
(Unaudited)
Pro forma
combined
for the
year ended
(dollar amounts in millions, December 31,
except per share amounts) 1993 1992
- ---------------------------------------------------------
<S> <C> <C>
Net interest income $1,368 $1,310
Income before cumulative effect
of changes in accounting
principles 489 467
Net income 489 527
Earnings per share:
Income before cumulative effect
of changes in accounting
principles 6.48 6.36
Net income per common share 6.48 7.32
- ---------------------------------------------------------
</TABLE>
Pending Dreyfus Corporation Merger
On December 5, 1993, the Corporation entered into a definitive agreement to
merge with The Dreyfus Corporation, the sixth-largest mutual fund company in the
United States. The transaction will be accounted for as a pooling-of-interests.
Under the terms of the definitive agreement, Dreyfus shareholders will receive
.88017 shares of the Corporation's common stock for each share of Dreyfus common
stock outstanding.
At December 31, 1993, Dreyfus had approximately 37 million common shares
outstanding. In connection with the transaction, the Corporation expects to
record a one-time after-tax restructuring charge of approximately $73 million to
be recorded at closing, which is anticipated in mid-1994.
Completion of the merger is contingent upon the approval of the
shareholders of the Corporation and Dreyfus, subject to various regulatory
approvals and certain approvals by the shareholders of the mutual funds advised
by Dreyfus. Subsequent to the announcement of the proposed merger with Dreyfus,
public 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
Corporation and the individual directors of Dreyfus as defendants, with respect
to the transactions contemplated by the agreement to merge. The Corporation
believes that these complaints lack merit and intends to defend them vigorously.
At December 31, 1993, Dreyfus had approximately $80 billion of assets under
management and administration. Dreyfus' revenue for 1993 was $386 million and
net income was $99 million.
72
<PAGE> 57
22. MELLON BANK CORPORATION (PARENT CORPORATION)
The condensed financial statements for Mellon Bank
Corporation and its wholly owned financing subsidiary
are as follows:
Condensed Income Statement
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiaries $ 158 $130 $129
Dividends from nonbank subsidiaries 116 26 32
Interest revenue from bank subsidiaries 34 35 62
Interest revenue from nonbank subsidiaries 26 24 22
Dividends on GSNB senior preferred stock -- -- 4
Other revenue 2 -- 3
- ---------------------------------------------------------------------------------------------------------------------------
Total revenue 336 215 252
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense on commercial paper 6 6 13
Interest expense on notes and debentures 100 73 88
Operating expense 32 23 25
- ---------------------------------------------------------------------------------------------------------------------------
Total expense 138 102 126
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET
INCOME (LOSS) OF SUBSIDIARIES 198 113 126
Provision for income taxes 11 (20) (8)
Equity in undistributed net income (loss):
Bank subsidiaries 277 216 183
Nonbank subsidiaries (103) 88 (37)
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME 361 437 280
Dividends on preferred stock 63 51 49
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 298 $386 $231
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Condensed Balance Sheet
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and money market investments with bank subsidiary $ 226 $ 324
Other money market investments 1 200
Securities available for sale 260 --
Loans and other receivables due from nonbank subsidiaries 486 424
Investment in bank subsidiaries 3,443 2,485
Investment in nonbank subsidiaries 270 119
Subordinated debt and other receivables due from bank subsidiaries 344 490
Other assets 33 23
- ---------------------------------------------------------------------------------------------------------------------
Total assets $5,063 $4,065
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 134 $ 179
Other liabilities 77 44
Notes and debentures (with original maturities over one year) 1,539 1,285
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 1,750 1,508
- ---------------------------------------------------------------------------------------------------------------------
Shareholders' equity 3,313 2,557
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,063 $4,065
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS
22. MELLON BANK CORPORATION (PARENT CORPORATION) continued
Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 361 $ 437 $ 280
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 20 8 9
Change in equity of subsidiaries from
undistributed net income after dividends (174) (304) (146)
Net decrease in accrued interest receivable 1 3 --
Net increase (decrease) in other operating
activities 49 18 (22)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 257 162 121
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in term deposits 199 (199) --
Net (increase) decrease in short-term deposits
with affiliate banks 103 83 (117)
Funds invested in securities (1,251) -- --
Proceeds from maturities of securities 849 -- --
Proceeds from sales of securities 142 -- --
Loans made to subsidiaries (1,066) (1,803) (781)
Principal collected on loans to subsidiaries 1,292 1,690 815
Cash paid in purchase of The Boston Company (1,291) -- --
Capital contributions to subsidiaries (5) (189) (78)
Decrease in investment in subsidiaries 300 20 --
Proceeds from the retirement of GSNB senior
preferred stock -- 9 16
Net increase in other investing activities (10) (9) --
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (738) (398) (145)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in commercial paper (45) (8) (75)
Repayments of long-term debt (306) (294) (357)
Net proceeds from issuance of long-term debt 545 497 439
Net proceeds from issuance of common and
preferred stock 502 221 325
Redemption of preferred stock (65) (55) (194)
Repurchase of common stock (54) -- --
Dividends paid on common and preferred stock (156) (125) (116)
Net increase in other financing activities 65 -- 2
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 486 236 24
- ---------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS:
Net change in cash and due from banks 5 -- --
Cash and due from banks at beginning of year -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 5 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
- ---------------------------------------------------------------------------------------------------------------------
Interest paid $ 109 $ 87 $ 94
Net income taxes paid (refunded) (34) (22) 13
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING TRANSACTIONS
- ---------------------------------------------------------------------------------------------------------------------
Purchase of The Boston Company:
Fair value of assets acquired, net of
liabilities assumed $ 1,443 $ -- $ --
Stock and warrants issued (152) -- --
- ---------------------------------------------------------------------------------------------------------------------
Cash paid $ 1,291 $ -- $ --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
74
<PAGE> 59
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
MELLON BANK CORPORATION:
We have audited the accompanying consolidated balance sheets of Mellon Bank
Corporation and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1993.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mellon Bank
Corporation and subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick
Pittsburgh, Pennsylvania
January 13, 1994
75
<PAGE> 60
CONSOLIDATED BALANCE SHEET--AVERAGE
BALANCES AND INTEREST YIELDS/RATES
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1993
AVERAGE
AVERAGE YIELDS/
(dollar amounts in millions) BALANCE INTEREST RATES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks $ 1,592 $ 58 3.62%
Federal funds sold and securities purchased under
agreements to resell 1,800 54 3.02
Other money market investments 129 4 3.01
Trading account securities 269 15 5.71
Securities:
U.S. Treasury and agency securities 4,090 225 5.49
Obligations of states and political subdivisions 4 -- 4.75
Other 332 18 5.39
Loans, net of unearned discount 21,755 1,597 7.34
-------- -------
Total interest-earning assets 29,971 $1,971 6.58%
Cash and due from banks 2,164
Customers' acceptance liability 133
Premises and equipment 469
Net acquired property 198
Other assets 2,366
Reserve for credit losses (565)
-------------------------------------------------------------------------------------------
Total assets $34,736
-------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES, INTEREST-BEARING LIABILITIES:
REDEEMABLE Deposits in domestic offices:
PREFERRED STOCK Demand $ 2,034 $ 2 .11%
AND SHAREHOLDERS' Money market and other savings accounts 8,739 145 1.66
EQUITY Retail savings certificates 7,556 241 3.19
Negotiable certificates of deposit 224 17 7.40
Other time deposits 198 9 4.42
Deposits in foreign offices 1,024 40 3.89
-------- -------
Total interest-bearing deposits 19,775 454 2.29
Federal funds purchased and securities sold under
agreements to repurchase 1,096 33 3.01
U.S. Treasury tax and loan demand notes 224 6 2.85
Commercial paper 198 6 3.22
Other funds borrowed 540 34 6.31
Notes and debentures (with original maturities over
one year) 1,991 121 6.08
-------- -------
Total interest-bearing liabilities 23,824 $ 654 2.75%
Deposits in domestic offices--noninterest-bearing 6,728
Deposits in foreign offices--noninterest-bearing 8
--------
Total noninterest-bearing deposits 6,736
Acceptances outstanding 134
Other liabilities 870
-------------------------------------------------------------------------------------------
Total liabilities 31,564
-------------------------------------------------------------------------------------------
Redeemable preferred stock --
-------------------------------------------------------------------------------------------
Shareholders' equity 3,172
-------------------------------------------------------------------------------------------
Total liabilities, redeemable preferred stock and
shareholders' equity $34,736
-------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
RATES YIELD ON TOTAL INTEREST-EARNING ASSETS 6.58%
COST OF FUNDS SUPPORTING INTEREST-EARNING ASSETS 2.19
-------------------------------------------------------------------------------------------
NET INTEREST MARGIN:
TAXABLE EQUIVALENT BASIS 4.39%
WITHOUT TAXABLE EQUIVALENT INCREMENTS 4.36
-------------------------------------------------------------------------------------------
</TABLE>
Note: Interest and yields were calculated on a taxable equivalent basis at
rates approximating 35% in 1993 and 34% in all other years presented, using
dollar amounts in thousands and actual number of days in the years, 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 yields/rates.
76
<PAGE> 61
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1992 1991 1990
Average Average Average
Average yields/ Average yields/ Average yields/
balance Interest rates balance Interest rates balance Interest rates
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 837 $ 35 4.20% $ 733 $ 50 6.79% $1,383 $ 127 9.18%
788 27 3.47 605 35 5.76 1,076 92 8.51
38 1 3.47 6 -- 5.92 293 27 9.43
308 21 6.74 309 23 7.41 278 22 8.06
5,556 420 7.56 4,322 382 8.84 3,856 331 8.60
7 1 10.82 308 35 11.35 365 42 11.30
489 35 7.22 703 56 8.11 501 41 8.28
18,227 1,472 8.08 18,509 1,749 9.44 18,840 2,006 10.64
------ -------- ------ -------- ------ --------
26,250 $2,012 7.67% 25,495 $2,330 9.14% 26,592 $2,688 10.11%
1,973 1,813 1,866
115 187 305
442 427 445
371 312 163
1,327 1,357 1,319
(589) (541) (474)
- --------------------------------------------------------------------------------------------------------------
$29,889 $29,050 $30,216
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
$1,728 $ 40 2.31% $1,398 $ 57 4.07% $1,213 $ 54 4.46%
6,323 190 3.02 5,474 262 4.79 5,370 318 5.94
7,581 324 4.27 8,202 541 6.60 7,136 583 8.17
253 21 8.30 750 50 6.66 2,052 166 8.08
200 10 5.06 153 11 6.77 149 13 8.37
922 49 5.36 1,100 82 7.49 2,006 188 9.35
------ -------- ------ -------- ------ --------
17,007 634 3.73 17,077 1,003 5.87 17,926 1,322 7.37
1,623 56 3.46 2,333 131 5.62 2,680 220 8.21
664 23 3.42 664 36 5.50 430 34 7.94
173 6 3.70 222 13 6.04 357 29 8.21
440 33 7.47 350 29 8.01 287 30 10.28
1,365 94 6.88 1,448 117 8.08 1,722 153 8.90
------ -------- ------ -------- ------ --------
21,272 $ 846 3.98% 22,094 $1,329 6.01% 23,402 $1,788 7.64%
5,624 4,294 4,086
10 13 17
------ ------ ------
5,634 4,307 4,103
115 187 305
517 507 580
- --------------------------------------------------------------------------------------------------------------
27,538 27,095 28,390
- --------------------------------------------------------------------------------------------------------------
-- 51 94
- --------------------------------------------------------------------------------------------------------------
2,351 1,904 1,732
- --------------------------------------------------------------------------------------------------------------
$29,889 $29,050 $30,216
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
7.67% 9.14% 10.11%
3.23 5.21 6.73
- --------------------------------------------------------------------------------------------------------------
4.44% 3.93% 3.38%
4.39 3.82 3.26
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
1989
Average
Average yields/
balance Interest rates
- -------------------------------------------
<S> <C> <C>
$2,886 $ 265 9.17%
2,827 264 9.34
491 31 6.45
233 21 8.88
2,313 179 7.74
379 43 11.22
606 54 8.92
17,958 2,004 11.16
------ -------
27,693 $2,861 10.33%
1,687
289
450
94
1,175
(833)
- -------------------------------------------
$30,555
- -------------------------------------------
- -------------------------------------------
$1,077 $ 50 4.61%
4,783 314 6.58
4,480 382 8.51
3,351 302 9.03
180 16 8.85
3,479 306 8.81
------ -------
17,350 1,370 7.90
3,862 357 9.25
335 30 9.10
526 49 9.18
357 32 8.82
1,762 165 9.38
------ ------
24,192 $2,003 8.28%
3,870
20
------
3,890
289
648
- -------------------------------------------
29,019
- -------------------------------------------
94
- -------------------------------------------
1,442
- -------------------------------------------
$30,555
- -------------------------------------------
- -------------------------------------------
10.33%
7.23
- -------------------------------------------
3.10%
2.96
- -------------------------------------------
</TABLE>
77
<PAGE> 62
PRINCIPAL LOCATIONS AND
OPERATING ENTITIES
BANKING SUBSIDIARIES
AND REGIONS
Mellon Bank Corporation operates three domestic banking subsidiaries: Mellon
Bank, N.A.; Mellon Bank (DE) National Association; and Mellon Bank (MD).
MELLON BANK, N.A. comprises six regions:
MELLON BANK-CENTRAL REGION serves consumer and small to mid-size commercial
markets in central Pennsylvania.
Headquarters:
State College, Pennsylvania
Chairman, President and CEO:
Ralph J. Papa
MELLON BANK-COMMONWEALTH REGION serves consumer and small to mid-size commercial
markets in south central Pennsylvania.
Headquarters:
Harrisburg, Pennsylvania
Chairman and CEO:
Stephen R. Burke
MELLON BANK-NORTHEASTERN REGION serves consumer and small to mid-size commercial
markets in northeastern Pennsylvania.
Headquarters:
Wilkes-Barre, Pennsylvania
Chairman, President and CEO:
Glenn Y. Forney
MELLON BANK-NORTHERN REGION serves consumer and small to mid-size commercial
markets in northwestern Pennsylvania.
Headquarters:
Erie, Pennsylvania
Chairman, President and CEO:
Robert D. Davis
MELLON BANK-WESTERN REGION serves consumer and small to mid-size commercial
markets in western Pennsylvania, and large commercial and financial institution
markets throughout the United States and in selected international markets.
Headquarters:
Pittsburgh, Pennsylvania
Mellon Bank, N.A. Chairman,
President and CEO:
Frank V. Cahouet
MELLON PSFS*-In the Philadelphia area, MELLON BANK, N.A. uses the name "MELLON
PSFS" and serves consumer and small commercial markets in eastern Pennsylvania
and mid-size customers in eastern Pennsylvania and portions of New Jersey.
Headquarters:
Philadelphia, Pennsylvania
Chairman and CEO:
Thomas F. Donovan
MELLON BANK (DE) NATIONAL ASSOCIATION serves consumer and small to mid-size
commercial markets throughout Delaware. Also provides nationwide cardholder
processing services.
Headquarters:
Wilmington, Delaware
Chairman, President and CEO:
Warner S. Waters, Jr.
MELLON BANK (MD) serves consumer and small to mid-size commercial
markets throughout Maryland.
Headquarters:
Rockville, Maryland
Chairman, President and CEO:
Kenneth R. Dubuque
OTHER DOMESTIC AND
INTERNATIONAL LOCATIONS
AFCO CREDIT CORPORATION, and its Canadian affiliate CAFO, Inc., is the nation's
largest insurance premium financing company with 25 offices in the United States
and Canada.
Location: New York, New York
THE ASSET BASED LENDING GROUP markets a broad range of commercial finance
products and banking services to corporations with borrowing requirements that
exceed $2 million in the Central Atlantic region and exceed $5 million beyond
that region.
Locations: Chicago, Illinois
Rockville, Maryland
Edison, New Jersey
Cleveland, Ohio
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
THE BOSTON COMPANY, INC. is a leading provider of institutional trust and
custody, institutional asset management, private asset management and mutual
fund administration services.
Locations: Boston, Massachusetts
Pittsburgh, Pennsylvania
THE BOSTON COMPANY ADVISORS, INC. is the legal entity providing custody and
administrative services to registered investment companies (mutual funds).
Location: Boston, Massachusetts
THE BOSTON COMPANY INSTITUTIONAL INVESTORS, INC. provides institutional
investment management services.
Locations: Greenbrae, California
Boston, Massachusetts
*Mellon PSFS is a service mark of Mellon Bank, N.A.
78
<PAGE> 63
BOSTON SAFE DEPOSIT AND TRUST COMPANY
is the bank subsidiary affiliated with The Boston Company, offering
trust and custody administration for institutional and private clients, private
asset management and jumbo mortgage lending.
Locations: Los Angeles, California
Newport Beach, California
Palo Alto, California
San Francisco, California
Medford, Massachusetts
Boston, Massachusetts
New York, New York
McLean, Virginia
London, England
CCF-MELLON PARTNERS, a joint venture with Credit Commercial de France, markets
investment advisory and discretionary money management services in North America
and Europe.
Location: Pittsburgh, Pennsylvania
THE CAPITAL MARKETS REPRESENTATIVE OFFICE markets credit and other banking
services to broker-dealers.
Location: New York, New York
COMMUNITY DEVELOPMENT CORPORATION, one of 100 bank CDCs chartered nationwide,
supports development of affordable housing and of minority-
owned businesses in low-and moderate-income areas of Delaware, Maryland and
Pennsylvania.
Location: Pittsburgh, Pennsylvania
CONSUMER REPRESENTATIVE OFFICES market credit products to consumers, including
home equity credit lines and loans.
Locations: Baltimore, Maryland
Columbus, Ohio
CORPORATE BANKING REPRESENTATIVE OFFICES market credit and related services to
large corporate customers, exclusive of financial institutions.
Locations: Los Angeles, California
Chicago, Illinois
Boston, Massachusetts
New York, New York
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Houston, Texas
FRANKLIN PORTFOLIO ASSOCIATES TRUST provides investment management services for
employee benefit funds and institutional clients.
Location: Boston, Massachusetts
GLOBAL CASH MANAGEMENT REGIONAL OPERATING AND MARKETING SITES provide cash
management operating services to corporations and financial institutions.
Locations: Los Angeles, California
Atlanta, Georgia
Chicago, Illinois
Boston, Massachusetts
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Dallas, Texas
London, England
INTERNATIONAL BRANCH OFFICES provide international banking services, including
trade banking, demand deposits, loans, capital markets products and foreign
exchange to domestic and international customers.
Locations: London, England
Grand Cayman, British
West Indies
INTERNATIONAL REPRESENTATIVE OFFICES serve as a liaison between the
Corporation's banking subsidiaries and overseas customers.
Locations: Tokyo, Japan
Hong Kong
INVESTNET(R) CORPORATION provides a full range of securities brokerage services
for individuals and institutional clients.
Location: Pittsburgh, Pennsylvania
THE LEASING GROUP markets a broad range of leasing and lease-related services to
corporations throughout the United States with annual sales of more than $250
million, as well as to corporations in the Central Atlantic region with annual
sales between $10 million and $250 million.
Locations: Chicago, Illinois
Pittsburgh, Pennsylvania
MELLON ACCOUNTING SERVICES, INC. provides operations outsourcing, trust
accounting software and institutional custody services to the domestic and
international financial services industry.
Locations: Chicago, Illinois
Pittsburgh, Pennsylvania
MELLON BANK CANADA is a chartered Canadian bank providing services to the
corporate market throughout Canada.
Location: Toronto, Ontario, Canada
MELLON BOND ASSOCIATES provides structured management for bond portfolios of
large national institutional clients.
Location: Pittsburgh, Pennsylvania
79
<PAGE> 64
PRINCIPAL LOCATIONS AND
OPERATING ENTITIES
MELLON CAPITAL MANAGEMENT
CORPORATION provides portfolio and investment management services.
Location: San Francisco, California
MELLON EQUITY ASSOCIATES provides specialized equity management services to the
national pension and public fund markets.
Location: Pittsburgh, Pennsylvania
MELLON EUROPE LTD., a United Kingdom-chartered bank, provides trust and cash
management services in Europe.
Location: London, England
MELLON/MCMAHAN REAL ESTATE
ADVISORS, INC. provides real estate investment management and consulting
services.
Locations: Phoenix, Arizona
San Francisco, California
Boston, Massachusetts
MELLON SECURITIES TRANSFER SERVICES provides securities transfer and shareholder
services.
Locations: Ridgefield Park, New Jersey
Pittsburgh, Pennsylvania
MELLON SECURITIES TRUST COMPANY
provides securities processing and custody services.
Location: New York, New York
MELLON TRUST* is the umbrella name under which the Corporation provides various
trust and investment services to individuals, institutions, corporations and
public entities.
MIDDLE MARKET BANKING REPRESENTATIVE OFFICES market a full range of financial
and banking services to commercial customers with annual sales between $10
million and $250 million.
Locations: Los Angeles, California
Wilmington, Delaware
Rockville, Maryland
Boston, Massachusetts
Cherry Hill, New Jersey
Edison, New Jersey
Buffalo, New York
Altoona, Pennsylvania
Erie, Pennsylvania
Harrisburg, Pennsylvania
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Plymouth Meeting,
Pennsylvania
State College, Pennsylvania
Wilkes-Barre, Pennsylvania
MELLON MORTGAGE COMPANY focuses on the origination, purchasing and servicing of
residential mortgage loans as well as the brokering and servicing of income
property mortgage loans.
Locations: Denver, Colorado
Cleveland, Ohio
Houston, Texas
THE NETWORK SERVICES DIVISION provides electronic funds transfer services,
including automated teller machine processing and full-service merchant payment
systems, to financial institutions and corporations.
Location: Pittsburgh, Pennsylvania
PARETO PARTNERS provides investment management services for employee benefit
funds and institutional and high net worth clients.
Locations: London, England
New York, New York
PREMIER UNIT TRUST ADMINISTRATION
is a leading servicer of unit trusts, the British equivalent of mutual funds, in
the United Kingdom.
Location: Brentwood, Essex, England
THE R-M TRUST COMPANY, a joint venture with Royal Trustco Limited of Toronto,
provides stock transfer and indenture trustee services to Canadian clients.
Locations: Calgary, Alberta, Canada
Vancouver, British Columbia,
Canada
Winnipeg, Manitoba, Canada
Halifax, Nova Scotia, Canada
Toronto, Ontario, Canada
Montreal, Quebec, Canada
Regina, Saskatchewan, Canada
ADDITIONAL LOCATIONS
Through Mellon Bank-Central Region, Mellon Bank-Commonwealth Region, Mellon
Bank-Northeastern Region, Mellon Bank-Northern Region, Mellon Bank-Western
Region, Mellon PSFS, Mellon Bank (DE) National Association and
Mellon Bank (MD), the Corporation operates 631 domestic retail banking
locations, including 432 branch offices. Mortgage Banking and the Mellon
Mortgage Company operate 25 mortgage banking offices in 10 states.
* Mellon Trust is a service mark of Mellon Bank Corporation.
Principal Locations and Operating Entities as of December 31, 1993
80
<PAGE> 65
<TABLE>
<CAPTION>
DIRECTORS AND SENIOR MANAGEMENT
COMMITTEE
<S> <C> <C>
DIRECTORS
MELLON BANK CORPORATION
Burton C. Borgelt (5)(6) Pemberton Hutchinson (3)(5)(6) Richard M. Smith (1)(2)(3)(5)
Chairman Chairman Retired Vice Chairman
Dentsply International, Inc. Westmoreland Coal Company Bethlehem Steel Corporation
Manufacturer of artificial teeth Coal mining company Integrated steel producer engaged
and consumable dental products primarily in the manufacture and
Rotan E. Lee sale of steel and steel products
Carol R. Brown (6) Partner
President Fox, Rothschild, W. Keith Smith (1)
The Pittsburgh Cultural Trust O'Brien & Frankel Vice Chairman
Cultural and economic growth Full service Law firm encompass- Mellon Bank Corporation and
assistance in downtown Pittsburgh ing corporate law to litigation Mellon Bank, N.A.
Chairman and Chief
Frank V. Cahouet (1) John C. Marous (1)(3)(4) Executive Officer
Chairman, President and Retired Chairman and The Boston Company
Chief Executive Officer Chief Executive Officer
Mellon Bank Corporation and Westinghouse Electric Joab L. Thomas
Mellon Bank, N.A. Corporation President
Diversified provider of electronic The Pennsylvania State
J. W. Connolly (2)(4) products and services University
Retired Senior Vice President A major public research
H. J. Heinz Company Andrew W. Mathieson (1)(3)(4) university
Food Manufacturer Executive Vice President
Richard K. Mellon and Sons Wesley W. von Schack (1)(2)(6)
Charles A. Corry (1)(2)(4) Investments and philanthropy Chairman, President and
Chairman and Chief Executive Officer
Chief Executive Officer Robert Mehrabian DQE
USX Corporation President Energy services holding company
Diversified company engaged Carnegie Mellon University
principally in the energy A private co-educational William J. Young(4)(5)
and steel businesses research institution Retired President
Portland Cement Association
C. Frederick Fetterolf (4)(6) Seward Prosser Mellon Trade association for the Portland
Retired President and President cement industry
Chief Operating Officer Richard K. Mellon and Sons
Aluminum Company of America Investments and philanthropy
Production and sale of alumina and CHAIRMEN EMERITI
chemical products, primary David S. Shapira (1)(2)(5) J. David Barnes
aluminum and aluminum mill Chief Executive Officer William B. Eagleson, Jr.
products Giant Eagle, Inc. James H. Higgins
Retail grocery store chain Nathan W. Pearson
Ira J. Gumberg (1)(2)
President and H. Robert Sharbaugh (1)(2)(4) ADVISORY BOARD
Chief Executive Officer Retired Chairman John M. Arthur
J. J. Gumberg Co. Sun Company, Inc. Howard O. Beaver, Jr.
Real estate management and Energy Alexander W. Calder
development Edward Donley
H. Bryce Jordan
Masaaki Morita
Nathan W. Pearson
Leon H. Sullivan
(1) Executive Committee
(2) Audit Committee
(3) Nominating Committee
(4) Human Resources Committee
(5) Trust and Investment Committee
(6) Community Responsibility Committee
</TABLE>
Directors as of January 1, 1994
81
<PAGE> 66
<TABLE>
<CAPTION>
DIRECTORS AND SENIOR MANAGEMENT
COMMITTEE
<S> <C> <C> <C>
REGIONAL SUBSIDIARY
BOARDS BOARDS
MELLON BANK- MELLON BANK- MELLON BANK-
CENTRAL REGION NORTHERN REGION NORTHEASTERN REGI0N MELLON BANK(DE)
Frederick K. Beard James D. Berry III Joseph B. Conahan, Jr. John S. Barry
James E. Davis Conrad A. Conrad Frank J. Dracos Robert D. Burris
Galen E. Dreibelbis Eugene Cross Alan J. Finlay Robert C. Cole, Jr.
John Lloyd Hanson Robert D. Davis Glenn Y. Forney Carl DeMartino
Carol Herrmann William S. DeArment R. Dale Hughes Arden B. Engebretsen
Daniel B. Hoover Steven G. Elliott Thomas M. Jacobs Robert F. Gurnee
S. Wade Judy John J. Finn Allan M. Kluger Garrett B. Lyons
Michael M. Kranich, Sr. M. Fletcher Gornall Richard F, Laux Martin G. McGuinn
Edwin E. Lash Robert G. Liptak, Jr. John L. McDowell III W. Charles Paradee, Jr.
Dale W. Miller Gary W. Lyons Joseph R. Nardone Bruce M. Stargatt
Robert W. Neff Charles J. Myron Joseph F. Palchak, Jr. Warner S. Waters, Jr.
Ralph J. Papa Ruthann Nerlich Richard L. Pearsall
Nicholas Pelick John S. Patton Joseph L. Persico MELLON BANK (MD)
Alvin L. Snowiss Paul D. Shafer, Jr. Arthur K. Ridley Michael A. Besche
Robert M. Welham Cyrus R. Wellman Phyllis Rubin Lawrence Brown, Jr.
Keith P. Russell Thomas F. Donovan
MELLON BANK- MELLON BANK- Rhea P. Simms Kenneth R. Dubuque
COMMONWEALTH REGION WESTERN REGION Albert R. Hinton
Glenn R. Aldinger Burton C. Borgelt MELLON PSFS Norman Robertson
Burton C. Borgelt Carol R. Brown Paul C. Brucker
Stephen R. Burke Frank V. Cahouet Frank J. Coyne THE BOSTON COMPANY,
Jack P. Cook J. W. Connolly Thomas F. Donovan INC. AND BOSTON
Thomas F. Donovan Charles A. Corry Hiliary H. Holloway SAFE DEPOSIT AND
Ruth Leventhal C. Frederick Fetterolf Roger S. Hillas TRUST COMPANY
Henry E. L. Luhrs Ira J. Gumberg Pemberton Hutchinson Dwight L. Allison, Jr.*
Horace G. McCarty Pemberton Hutchinson Rotan E. Lee Robert M. Boyles
R. Wesley Shope Rotan E. Lee Roland Morris Christopher M. Condron
Gregory L. Sutliff John C. Marous Francis R. Strawbridge III James E. Conway*
Andrew W. Mathieson James A. Sutton Charles C. Cunningham, Jr.
Robert Mehrabian Steven A. Van Dyck Hans H. Estin
Seward Prosser Mellon William J. Young Avram L. Goldberg
David S. Shapira Lawrence S. Kash
H. Robert Sharbaugh Robert P. Mastrovita
Richard M. Smith Jeffrey L. Morby
W. Keith Smith George Putnam
Joab L. Thomas Charles W. Schmidt
Wesley W. von Schack W. Keith Smith
William J. Young C. Vincent Vappi
*Directors of The Boston Company, Inc. only
Regional Boards as of February 15, 1994
</TABLE>
82
<PAGE> 67
<TABLE>
<CAPTION>
SENIOR MANAGEMENT COMMITTEE
<S> <C> <C> <C>
OFFICE OF THE CHAIRMAN** SENIOR MANAGERS** Darryl J. Fluhme Robert W. Stasik
Frank V. Cahouet Frederick K. Beard Executive Vice President Executive Vice President
Chairman, President and Executive Vice President Institutional Trust Global Cash Management
Chief Executive Officer and Chief Credit Officer Services
Wholesale Banking Jamie B. Stewart, Jr.
Thomas F. Donovan Richard L. Holl Executive Vice President
Vice Chairman Richard B. Berner Executive Vice President Global Corporate Banking
Chairman and Senior Vice President Real Estate Credit Recovery
Chief Executive Officer Economics Donald W. Titzel
Mellon PSFS Chief Economist Lawrence S. Kash Executive Vice President
Executive Vice President Retail Financial Services
Steven G. Elliott Robert M. Boyles Investment Services
Vice Chairman Executive Vice President President D. Bruce Wheeler
Chief Financial Officer Global Asset Management The Boston Company Executive Vice President
and Treasurer Retail Financial Services
Larry F. Clyde Daniel M. Kilcullen
Richard A. Gaugh Executive Vice President Executive Vice President Sherman White
Vice Chairman Capital Markets Global Securities Executive Vice President
Special Banking Services Services Credit Recovery
Sarah B. Collins
Martin G. McGuinn Senior Vice President Allan C. Kirkman Allan P. Woods
Vice Chairman Credit Review Executive Vice President Executive Vice President
Retail Financial Services Real Estate Finance Mellon Information Services
Christopher M. Condron
Jeffrey L. Morby Executive Vice President Jeffery L. Leininger OTHER CORPORATE OFFICERS
Vice Chairman Private Asset Management Executive Vice President Michael E. Bleier
Wholesale Banking and Institutional Trust Middle Market Banking General Counsel
President
Keith P. Russell Boston Safe Deposit and David R. Lovejoy James M. Gockley
Vice Chairman Trust Company Executive Vice President Secretary
Credit Policy Strategic Planning
Chief Credit Officer Kenneth R. Dubuque Michael K. Hughey
Executive Vice President J. David Officer Corporate Controller
W. Keith Smith Mellon Bank, N.A. Executive Vice President
Vice Chairman Chairman, President and Mellon Private Asset
Mellon Trust Chief Executive Officer Management
Chairman and Chief Mellon Bank (MD)
Executive Officer Donald J. O'Reilly
The Boston Company Senior Vice President
Auditing
Corporate Chief Auditor
D. Michael Roark
Executive Vice President
Human Resources
Philip R. Roberts
Executive Vice President
Mellon Global Asset
Management
Peter Rzasnicki
Executive Vice President
Mortgage Banking and
Insurance Premium Finance
William J. Stallkamp
Executive Vice President
Mellon Bank, N.A.
Director
Wholesale Banking, Trust
and Service Products
Mellon PSFS
**As of February 1, 1994
</TABLE>
83
<PAGE> 68
<TABLE>
<CAPTION>
CORPORATE INFORMATION
- --------------------------------------------------------------------------------------------------------------
<S> <C>
ANNUAL MEETING The Annual Meeting of Shareholders will be held in Room 201 of the Pennsylvania
Convention Center, northeast corner of 12th and Arch Streets, Philadelphia,
Pennsylvania, on Tuesday, April 19, 1994, at 10 a.m.
- --------------------------------------------------------------------------------------------------------------
EXCHANGE LISTING Mellon Bank Corporation's common, Series H preferred, Series I preferred, Series J
preferred and Series K preferred stock 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. The Transfer Agent and Registrar is Mellon Bank, N.A., P.O. Box 444,
Pittsburgh, PA 15230-0444.
- --------------------------------------------------------------------------------------------------------------
STOCK PRICES Current prices for Mellon Bank Corporation's common and preferred stocks can be
obtained from any touch-tone telephone by dialing (412) 236-0834 (in Pittsburgh)
or 1 800 648-9496 (outside Pittsburgh). When prompted to "enter I.D.," press MEL#
(or 635#) to receive the information. This service is available free of charge, 24
hours a day, seven days a week, from anywhere in the continental United States.
- --------------------------------------------------------------------------------------------------------------
DIVIDEND PAYMENTS Subject to approval of the board of directors, dividends are paid on Mellon Bank
Corporation's common and preferred stocks on or about the 15th day of February,
May, August and November.
- --------------------------------------------------------------------------------------------------------------
DIVIDEND Under the Dividend Reinvestment and Common Stock Purchase Plan, registered holders
REINVESTMENT AND of Mellon Bank Corporation's common stock may purchase additional common shares at
COMMON STOCK the market value for such shares through reinvestment of common dividends and/or
PURCHASE PLAN optional cash payments. Purchases of shares through optional cash payments are
subject to limitations. Plan details are in a Prospectus dated December 15,1993,
which may be obtained from the Secretary of the Corporation.
- --------------------------------------------------------------------------------------------------------------
ELECTRONIC DEPOSIT Registered holders may have quarterly dividends paid on Mellon Bank Corporation's
OF DIVIDENDS common and preferred stocks electronically deposited to their checking or savings
account, free of charge. If you wish to have your dividends electronically
deposited, please write to Mellon Bank Corporation, P.O. Box 590, Ridgefield Park,
NJ 07660-9940. If you need more information, please call (412) 236-8000.
- --------------------------------------------------------------------------------------------------------------
FORM 10-K A copy of the Corporation's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, will be furnished, free of charge, upon
written request to the Secretary of the Corporation, 1820 One Mellon Bank Center,
Pittsburgh, PA 15258-0001.
- --------------------------------------------------------------------------------------------------------------
REGULATORY A copy of the Corporation's Management Report on internal controls, as filed with
the appropriate regulatory agencies, will be furnished, free of charge, upon
written request to the Secretary of the Corporation, 1820 One Mellon Bank Center,
Pittsburgh, PA 15258-0001.
- --------------------------------------------------------------------------------------------------------------
PHONE CONTACTS Corporate Communications (412) 236-1264
Dividend Reinvestment Plan (412) 236-8000
Investor Relations (412) 234-5601
Publication requests (412) 234-8252
Stock Transfer Agent (412) 236-8000
- --------------------------------------------------------------------------------------------------------------
ELIMINATION OF If you receive duplicate mailings at one address, or if more than one person in
DUPLICATE your household receives Mellon materials and you wish to discontinue such
MAILINGS mailings, please write to Mellon Bank Corporation, P.O. Box 590, Ridgefield Park,
NJ 07660-9940, stating your full name and address the way it appears on your
account and explaining your request. By doing so, you will enable the Corporation
to avoid unnecessary duplication of effort and related costs. If you need more
information, please call (412) 236-8000.
- --------------------------------------------------------------------------------------------------------------
CHARITABLE A report on Mellon's comprehensive community involvement, including charitable
CONTRIBUTIONS contributions, is available by calling (412) 234-8252.
----------------------------------------------------------------------------------
MELLON ENTITIES ARE EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE
ACTION EMPLOYERS.
Mellon is committed to providing equal employment
opportunities to every employee and every applicant for
employment, regardless of, but not limited to such factors as
race, color, religion, sex, national origin, age, familial or
marital status, ancestry, citizenship, sexual orientation,
veteran status or being a qualified individual with a
disability.
</TABLE>
84
<PAGE> 69
Appendix to Graphic Material
Graphic material has been omitted from Exhibit 13.1. The description of the
omitted graphic material is in the appropriate section of Exhibit 13.1 as
listed below:
COMPONENTS OF REVENUE chart in the Overview section on page 18
CREDIT QUALITY EXPENSE chart in the Credit Quality expense section on page 22
TRUST ASSETS UNDER MANAGEMENT AND CUSTODY chart in the Noninterest Revenue
section on page 23
SHAREHOLDERS' EQUITY chart in the Capital section on page 27
TOTAL COMMON EQUITY TO ASSETS AND TANGIBLE COMMON EQUITY TO ASSETS chart in the
Capital section on page 28
NONPERFORMING ASSETS AS A PERCENTAGE OF LOANS AND ACQUIRED ASSETS chart in the
Nonperforming assets section on page 37
<PAGE> 1
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993*
Central Counties Corporation
State of Incorporation: Pennsylvania
Collection Services Corporation
State of Incorporation: Pennsylvania
Girard Corporation
State of Incorporation: Pennsylvania
InvestNet Corporation
State of Incorporation: Delaware
Mellon Accounting Services, Inc.
State of Incorporation: Delaware
Mellon Asia Limited
Incorporation: Hong Kong
Mellon Bank Community Development Corporation
State of Incorporation: Pennsylvania
Mellon Bank, N.A.
Incorporation: United States
o AFCO Credit Corporation
State of Incorporation: New York
oo AFCO Acceptance Corporation
State of Incorporation: California
oo AFCO Service, Inc.
State of Incorporation: California
o A P Beaumeade, Inc.
State of Incorporation: Delaware
o A P Colorado, Inc.
State of Incorporation: Colorado
* Certain subsidiaries have been omitted from this list. These subsidiaries,
when considered in the aggregate as a single subsidiary, do not constitute
a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X.
<PAGE> 2
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-2-
o A P Colorado, Inc. #2
State of Incorporation: Colorado
o APD Chimney Lakes, Inc.
State of Incorporation: Florida
o APD Cross Creek, Inc.
State of Incorporation: Florida
o APD Cypress Springs, Inc.
State of Incorporation: Florida
o A P East, Inc.
State of Incorporation: Delaware
o A P Management, Inc.
State of Incorporation: Pennsylvania
o AP Properties Minnesota, Inc.
State of Incorporation: Minnesota
o AP Residential Realty, Inc.
State of Incorporation: Pennsylvania
o A P Rural Land, Inc.
State of Incorporation: Pennsylvania
o APME Company, Inc.
State of Incorporation: Wisconsin
o APU Chimney Lakes, Inc.
State of Incorporation: Florida
o APU Cross Creek, Inc.
State of Incorporation: Florida
o APU Cypress Springs, Inc.
State of Incorporation: Florida
o Citmelex Corporation
State of Incorporation: Delaware
o Commonwealth National Mortgage Company
State of Incorporation: Pennsylvania
<PAGE> 3
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-3-
o East Properties Inc.
State of Incorporation: Delaware
o Isleworth Properties, Inc.
State of Incorporation: Florida
o Mellon Bank Canada
Incorporation: Canada
oo CAFO, Inc.
Incorporation: Canada
oo Mellon Bank Canada Leasing, Inc.
Incorporation: Canada
oo The R-M Trust Company
Incorporation: Canada (80% ownership)
o Mellon Consumer Leasing Corporation
State of Incorporation: Pennsylvania
o Mellon Europe Limited
Incorporation: England
o Mellon Financial Services Corporation #3
State of Incorporation: Pennsylvania
oo Mellon International Leasing Company
State of Incorporation: Delaware
oo Pontus, Inc.
State of Incorporation: Delaware
o Mellon Investment Products Company
State of Incorporation: Delaware
o Mellon Overseas Investment Corporation
Incorporation: United States
oo Mellon Bank Representacoes, Ltda.
Incorporation: Brazil
oo Mellon International Investment Corporation
Incorporation: British West Indies
<PAGE> 4
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-4-
oo Mellon Securities Limited
State of Incorporation: Pennsylvania
oo B.I.E. Corporation
Incorporation: British West Indies
o Melnamor Corporation
State of Incorporation: Pennsylvania
oo A P Colorado, Inc. #3
State of Incorporation: Colorado
oo A P Meritor, Inc.
State of Incorporation: Minnesota
oo Baldorioty de Castro Development Corporation
Incorporation: Puerto Rico
oo Bridgewater Land Company, Inc.
State of Incorporation: Massachusetts
oo Cacalaba, Inc.
State of Incorporation: New Mexico
oo Casals Development Corporation
Incorporation: Puerto Rico
oo CEBC, Inc.
Incorporation: Puerto Rico
oo Costamar Development Corporation
Incorporation: Puerto Rico
oo FSFC, Inc.
State of Incorporation: Pennsylvania
oo Festival, Inc.
State of Incorporation: Virginia
oo Holiday Properties, Inc.
State of Incorporation: Alabama
oo Laplace Land Company, Inc.
State of Incorporation: Louisiana
<PAGE> 5
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-5-
oo Promenade, Inc.
State of Incorporation: California
oo SKAP #7, Inc.
State of Incorporation: Texas
oo Texas AP, Inc.
State of Incorporation: Texas
oo Trilem, Inc.
State of Incorporation: Pennsylvania
oo Vacation Properties, Inc.
State of Incorporation: North Carolina
o Mellon/McMahan Real Estate Advisors, Inc.
State of Incorporation: California
o MelPenn Realty Company
State of Incorporation: Pennsylvania
o Meritor Capital Resources, Inc.
State of Incorporation: Delaware
o Meritor Mortgage Corporation - East
State of Incorporation: Pennsylvania
oo Central Valley Management Co., Inc.
State of Incorporation: Pennsylvania
o Vertical Technologies, Inc.
State of Incorporation: North Carolina
o XYZ Sub Corporation
State of Incorporation: New York
Boston Group Holdings, Inc.
State of Incorporation: Massachusetts
o Shearson Venture Capital Inc.
State of Incorporation: Delaware
oo Shearson Summit Euromanagement Inc.
State of Incorporation: Delaware
<PAGE> 6
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-6-
oo Shearson Summit Europartners Inc.
State of Incorporation: Delaware
oo Shearson Summit Management Inc.
State of Incorporation: Delaware
oo Shearson Summit Partners Inc.
State of Incorporation: Delaware
o The Boston Company, Inc.
State of Incorporation: Massachusetts
oo Boston Safe Deposit and Trust Company
State of Incorporation: Massachusetts
- Boston Safe (Nominees) Limited
Incorporation: England
- MY, Inc.
State of Incorporation: Massachusetts
- Reco, Inc.
State of Incorporation: Massachusetts
- TBC Securities Co., Inc.
State of Incorporation: Massachusetts
oo Boston Safe Deposit and Trust Company of California
State of Incorporation: California
oo Boston Safe Deposit and Trust Company of New York
State of Incorporation: New York
oo First Boylston Corporation
State of Incorporation: Massachusetts
oo Premier Unit Trust Administration Limited
Incorporation: England
<PAGE> 7
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-7-
oo The Boston Company Advisors, Inc.
State of Incorporation: Massachusetts
- TBCA The Boston Company Advisors S.A.
Incorporation: Switzerland
- The Boston Company Advisors (Bermuda) Ltd.
Incorporation: Bermuda
oo The Boston Company Energy Advisors, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Financial Strategies Group, Inc.
State of Incorporation: Massachusetts
- Boston Hambro Corp.
State of Incorporation: Massachusetts (50% ownership)
oo The Boston Company Financial Strategies, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Income Securities Advisors, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Institutional Investors, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Overseas Banking Corporation
State of Incorporation: New York
oo The Boston Company of Southern California
State of Incorporation: California
oo The Boston Finance Company
State of Incorporation: Delaware
oo Wellington-Medford II Properties, Inc.
State of Incorporation: Massachusetts
<PAGE> 8
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-8-
Mellon Bank (DE) National Association
Incorporation: United States
o MBC Insurance Agency, Inc.
State of Incorporation: Delaware
o The Shelter Group, Inc.
State of Incorporation: Delaware
o Wilprop, Inc.
State of Incorporation: Delaware
Mellon EFT Services Corporation
State of Incorporation: Pennsylvania
Mellon Financial Company
State of Incorporation: Pennsylvania
Mellon Financial Corporation (MD)
State of Incorporation: Maryland
o Mellon Bank (MD)
State of Incorporation: Maryland
oo Baltimore Realty Corporation
State of Incorporation: Maryland
oo Colgate Properties Corporation
State of Incorporation: Texas
MBC Investments Corporation
State of Incorporation: Delaware
o Franklin Portfolio Associates Trust
State of Incorporation: Massachusetts
o Laurel Capital Advisors
State of Incorporation: Pennsylvania
o Mellon Bond Associates
State of Incorporation: Pennsylvania
o Mellon Capital Management Corporation
State of Incorporation: Delaware
<PAGE> 9
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-9-
o Mellon Equity Associates
State of Incorporation: Pennsylvania
o Mellon Financial Services Corporation #1
State of Incorporation: Delaware
oo Allomon Corporation
State of Incorporation: Pennsylvania
- APT Holdings Corporation
State of Incorporation: Delaware
- Lucien Land Company, Inc.
State of Incorporation: Florida
- APD Crossings, Inc.
State of Incorporation: Florida
oo Mellon Financial Services Corporation #2
State of Incorporation: Delaware
oo Mellon Financial Services Corporation #4
State of Incorporation: Pennsylvania
- Beaver Valley Leasing Corporation
State of Incorporation: Pennsylvania
- Katrena Corporation
State of Incorporation: Delaware (80% ownership)
- Mellon Financial Services Corporation #13
State of Incorporation: Alabama
- Mellon International Aircraft Leasing Corporation #1
State of Incorporation: Delaware
- MFS Leasing Corp.
State of Incorporation: Delaware
oo Mellon Financial Services Corporation #11
State of Incorporation: Delaware
- Mellon Financial Services Corporation #5
State of Incorporation: Louisiana
<PAGE> 10
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1993
-10-
- Mellon Financial Services Corporation #10
State of Incorporation: Louisiana
- Mellon Mortgage Company
State of Incorporation: Colorado
- Mellon Properties Company
State of Incorporation: Louisiana
oo Mellon Financial Services Corporation #20
(Mellon Universe Management Group)
State of Incorporation: Delaware
o Mellon-France Corporation
State of Incorporation: Pennsylvania
oo CCF-Mellon Partners
State of Incorporation: Pennsylvania (50% ownership)
o Mellon Global Investing Corp.
State of Incorporation: New York
oo Pareto Partners (Pareto Partners, New York)
State of Incorporation: New York (65% ownership)
o Mellon Insurance Agency, Inc.
State of Incorporation: Pennsylvania
o MGIC-UK Ltd.
Incorporation: England
oo Pareto Partners (Pareto Partners, U.K.)
Incorporation: England (65% ownership)
o Mellon Life Insurance Company
State of Incorporation: Delaware
Mellon Financial Services Corporation #17
(Mellon Securities Transfer Services)
State of Incorporation: Delaware
Mellon Securities Trust Company
State of Incorporation: New York
<PAGE> 1
EX-23.1
The Board of Directors
of Mellon Bank Corporation
We consent to incorporation by reference in Registration Statement Nos. 2-73272
(Form S-8), 2-98357 (Form S-8), 33-16658 (Form S-3), 33-21838 (Form S-8),
33-23635 (Form S-8), 33-29630 (Form S-3), 33-34430 (Form S-8), 33-41796
(Form S-8), 33-48486 (Form S-3), 33-55226 (Form S-3), 33-61822 (Form S-3),
33-65824 (Form S-8), and 33-65826 (Form S-8) of Mellon Bank Corporation of our
report dated January 13, 1994, relating to the consolidated balance sheets of
Mellon Bank Corporation and its subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in shareholders'
equity and cash flows for each of the years in the three-period ended December
31, 1993, which report is incorporated by reference in the December 31, 1993
annual report on Form 10-K of Mellon Bank Corporation.
/s/ KPMG Peat Marwick
Pittsburgh, Pennsylvania
March 23, 1994
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Steven G. Elliott and James M. Gockley,
and each of them, such person's true and lawful attorney-in-fact and agent,
with full power of substitution and revocation, for such person and in such
person's name, place and stead, in any and all capacities, to sign one or more
Annual Reports on Form 10-K pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, for Mellon Bank Corporation for the year
ended December 31, 1993, and any and all amendments thereto, and to file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and with the New York Stock
Exchange, Inc., granting unto said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent and each of
them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
WITNESS the due execution hereof by the following persons in the
capacities indicated on this 15th day of February, 1994.
/s/ Frank V. Cahouet /s/ Charles A. Corry
- ------------------------------- -------------------------------
Frank V. Cahouet, Director and Charles A. Corry, Director
Principal Executive Officer
/s/ Burton C. Borgelt /s/ C. Frederick Fetterolf
- ------------------------------- -------------------------------
Burton C. Borgelt, Director C. Frederick Fetterolf, Director
/s/ Carol R. Brown /s/ Ira J. Gumberg
- ------------------------------- -------------------------------
Carol R. Brown, Director Ira J. Gumberg, Director
/s/ J. W. Connolly /s/ Pemberton Hutchinson
- ------------------------------- -------------------------------
J. W. Connolly, Director Pemberton Hutchinson, Director
<PAGE> 2
/s/ Rotan E. Lee /s/ H. Robert Sharbaugh
- ------------------------- --------------------------------
Rotan E. Lee, Director H. Robert Sharbaugh, Director
/s/ John C. Marous /s/ Richard M. Smith
- ------------------------- --------------------------------
John C. Marous, Director Richard M. Smith, Director
/s/ Andrew W. Mathieson /s/ W. Keith Smith
- ------------------------- --------------------------------
Andrew W. Mathieson, Director W. Keith Smith, Director
/s/ Robert Mehrabian /s/ Joab L. Thomas
- ------------------------- --------------------------------
Robert Mehrabian, Director Joab L. Thomas, Director
/s/ Seward Prosser Mellon /s/ Wesley W. von Schack
- ------------------------- --------------------------------
Seward Prosser Mellon, Director Wesley W. von Schack, Director
/s/ David S. Shapira /s/ William J. Young
- ------------------------- --------------------------------
David S. Shapira, Director William J. Young, Director
-2-
