<PAGE> 1
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code -- (412) 234-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class September 30, 1995
----- ------------------
<S> <C>
Common Stock, $.50 par value 141,309,226
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Financial Highlights 2
Management's Discussion and Analysis
of Financial Condition and
Results of Operations (Item 2) 3
Financial Statements (Item 1):
Consolidated Income Statement 38
Consolidated Balance Sheet 40
Consolidated Statement of Cash Flows 41
Consolidated Statement of Changes
in Shareholders' Equity 42
Notes to Financial Statements 43
Selected Statistical Information:
Consolidated Balance Sheet - Average Balances and
Interest Yields/Rates 48
Deposits 50
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings (Item 1) 50
Exhibits and Reports on Form 8-K (Item 6) 50
Signature 51
Corporate Information 52
Index to Exhibits 53
</TABLE>
<PAGE> 3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Three months ended Nine months ended
(dollar amounts in millions, September 30, September 30,
except per share amounts) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $175 $ 78 $517 $ 392
Net income applicable to common stock 166 63 488 347
Dividends paid on common stock 71 43 211 128
Per common share:
Net income $1.15 $ .42 $3.32 $2.35
Dividends paid .50 .37 1.45 1.12
Annualized return on
common shareholders' equity 17.98% 6.76% 17.67% 12.77%
Annualized return on assets 1.70% .81% 1.74% 1.39%
Efficiency ratio 62% 64% 63% 65%
Efficiency ratio excluding
amortization of intangibles (a) 59% 61% 60% 62%
Average common shares and equivalents
outstanding (in thousands) 143,969 149,893 146,916 149,248
- -----------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (B)
- -----------------------------------------------------------------------------------
Net income $175 $ 167 $517 $ 481
Net income applicable to common stock 166 152 488 436
Net income per common share $1.15 $1.02 $3.32 $2.95
Annualized return on
common shareholders' equity 17.98% 16.10% 17.67% 15.99%
Annualized return on assets 1.70% 1.74% 1.74% 1.70%
- -----------------------------------------------------------------------------------
BALANCES AT SEPTEMBER 30 1995 1994
- -----------------------------------------------------------------------------------
Loans $28,073 $26,012
Total assets 41,907 39,251
Deposits 29,311 27,132
Common shareholders' equity 3,693 3,695
Market capitalization 6,324 5,510
Closing common stock price $44.75 $ 37.50
Book value per common share 26.13 25.15
Common shareholders' equity to assets ratio 8.81% 9.41%
Tier I capital ratio 8.77% 10.03%
Total (Tier I plus Tier II) capital ratio 12.00% 13.50%
Leverage capital ratio 8.20% 9.16%
- -----------------------------------------------------------------------------------
<FN>
(a) Excludes amortization of goodwill and other intangible assets recorded
in connection with purchase acquisitions.
(b) Results for the third quarter and first nine months of 1994 exclude $79
million after tax of Dreyfus merger-related expense and $10 million
after tax of losses on the disposition of securities available for sale
previously owned by Dreyfus.
</TABLE>
Note: Throughout this report, ratios are based on unrounded numbers, and
factors contributing to changes between periods are noted in descending
order of materiality.
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
- --------------------------------------------------------------------------------
ACQUISITION OF METMOR FINANCIAL, INC.
On August 31, 1995, Mellon Mortgage Company, the Corporation's mortgage
banking subsidiary, completed its acquisition of Metmor Financial, Inc.
(Metmor), the residential and commercial mortgage banking subsidiary of
Metropolitan Life Insurance Company. Mellon Mortgage Company acquired 24
residential branch mortgage origination offices in the southwestern and
midwestern United States and 8 commercial origination offices nationwide,
as well as Metmor's $13 billion residential and commercial loan servicing
portfolio. This acquisition makes Mellon Mortgage Company the eleventh
largest servicer of residential mortgages in the country with a
residential servicing portfolio of approximately $45.7 billion and the
seventh largest servicer of commercial mortgages with a commercial
servicing portfolio of approximately $5.6 billion. The purchase price of
this cash transaction was $165 million.
COMMON STOCK REPURCHASE AND COMMON DIVIDEND INCREASE
On October 17, 1995, the board of directors of Mellon Bank Corporation
authorized the repurchase of up to 8 million shares of the Corporation's
common stock. The repurchases will be made from time to time in the open
market or through privately negotiated transactions and, subject to
market conditions, are expected to be completed by March 31, 1996.
In addition to the share repurchase, the board of directors approved a
10% increase in the quarterly cash dividend to $.55 per common share.
The dividend is payable on November 15, 1995, to shareholders of record
on October 31, 1995. This is the Corporation's fourth common stock
dividend increase in two years, resulting in increases during that period
totaling 117%.
The Corporation expects the 8 million share repurchase to increase
annualized earnings per common share by approximately $.17 and annual
return on common equity by approximately 1.7 percentage points. If the
transaction had been completed as of July 1, 1995, annualized return on
common equity for the third quarter would have increased from 17.98% to
19.7%. After giving effect to the share repurchase, the Corporation's
capital ratios will be reduced by approximately 1%. Based upon capital
at September 30, 1995, the common equity ratio would have been reduced
from 8.81% to approximately 7.8%, and the tangible common equity ratio
would have been reduced from 6.66% to approximately 5.7%. The
Corporation's capital ratios will remain well in excess of the FDIC's
well-capitalized thresholds. The pro forma book value per common share
at September 30, 1995, would be $24.70, down from $26.13. The 8 million
share repurchase will reduce the cash requirement for the Corporation's
annual common stock dividend by approximately $18 million.
Upon completion of the 8 million common share repurchase, the Corporation
will have reduced through repurchases its common shares outstanding and
common share equivalents by about 16 million shares, net of shares reissued
for benefit plans, representing approximately $750 million of common equity.
The Corporation will have reduced, through repurchases, its common and
preferred equity by approximately $910 million since its August 1994 merger
with The Dreyfus Corporation.
3
<PAGE> 5
BUSINESS SECTORS
- --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
Consumer Corporate/Institutional
(dollar amounts in millions, Investment Services Banking Services Investment Services Banking Services
averages in billions) 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 98 $ 94 $ 347 $ 311 $230 $234 $ 110 $ 104
Credit quality expense (revenue) - - 49 15 - - - -
Operating expense 65 71 217 195 183 188 41 43
- -----------------------------------------------------------------------------------------------------------------
Income before taxes 33 23 81 101 47 46 69 61
Income taxes 14 10 31 38 20 20 25 22
- -----------------------------------------------------------------------------------------------------------------
Net income $ 19 $ 13 $ 50 $ 63 $ 27 $ 26 $ 44 $ 39
- -----------------------------------------------------------------------------------------------------------------
Average assets $0.4 $0.4 $22.5 $20.4 $1.8 $0.9 $13.5 $13.1
Average common equity $0.2 $0.2 $ 1.2 $ 1.0 $0.4 $0.5 $ 1.1 $ 1.0
Return on common
shareholders' equity (a) 44% 30% 17% 25% 24% 23% 16% 15%
Return on assets (a) NM NM .88% 1.20% NM NM 1.32% 1.21%
Pretax operating margin 34% 25% 24% 32% 20% 20% 63% 58%
Pretax operating margin
excluding amortization of
intangibles 34% 25% 28% 37% 23% 23% 65% 60%
Efficiency ratio excluding
amortization of intangibles 66% 75% 58% 58% 77% 77% 35% 40%
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized.
NM - Not meaningful.
</TABLE>
- --------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
Consumer Corporate/Institutional
(dollar amounts in millions, Investment Services Banking Services Investment Services Banking Services
averages in billions) 1995 1994 1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $282 $284 $1,016 $ 929 $696 $729 $ 305 $ 318
Credit quality expense (revenue) - - 113 47 - - (4) 2
Operating expense 192 197 640 622 549 563 119 138
- -----------------------------------------------------------------------------------------------------------------
Income before taxes 90 87 263 260 147 166 190 178
Income taxes 37 37 101 100 60 73 68 64
- -----------------------------------------------------------------------------------------------------------------
Net income $ 53 $ 50 $ 162 $ 160 $ 87 $ 93 $ 122 $ 114
- -----------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.4 $ 21.8 $20.8 $1.7 $0.9 $13.3 $13.1
Average common equity $0.2 $0.2 $ 1.1 $ 1.0 $0.4 $0.4 $ 1.1 $ 1.1
Return on common
shareholders' equity (a) 42% 39% 19% 21% 26% 28% 15% 15%
Return on assets (a) NM NM .99% 1.02% NM NM 1.23% 1.17%
Pretax operating margin 32% 30% 26% 28% 21% 23% 63% 56%
Pretax operating margin
excluding amortization of
intangibles 33% 31% 30% 33% 24% 26% 64% 58%
Efficiency ratio excluding
amortization of intangibles 67% 69% 59% 62% 76% 74% 37% 42%
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized.
NM - Not meaningful.
Note: The tables above and discussion that follows present the operating
results of the Corporation's major business sectors, analyzed on an internal
management reporting basis. Amounts are presented on a fully taxable
equivalent basis. Capital is allocated quarterly using the federal
regulatory guidelines as a basis, coupled with management's judgment
regarding the operational risks inherent in the businesses. The capital
allocations may not be representative of the capital levels that would be
required if these sectors were nonaffiliated business units.
</TABLE>
4
<PAGE> 6
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 785 $ 743 $ 3 $ 2 $ 33 $ 21 $ 821 $ 766
49 15 (22) (12) - - 27 3
506 497 1 2 2 108 509 607
- ----------------------------------------------------------------------------------------
230 231 24 12 31 (87) 285 156
90 90 9 4 11 (16) 110 78
- ----------------------------------------------------------------------------------------
$ 140 $ 141 $ 15 $ 8 $ 20 $(71) $ 175 $ 78
- ----------------------------------------------------------------------------------------
$ 38.2 $ 34.8 $0.2 $0.3 $2.6 $2.9 $ 41.0 $ 38.0
$ 2.9 $ 2.7 $ - $ - $0.7 $1.1 $ 3.6 $ 3.8
19% 21% NM NM NM NM 18% 7%
1.47% 1.61% NM NM NM NM 1.70% .81%
29% 31% NM NM NM NM 35% 20%
32% 34% NM NM NM NM 38% 38%
61% 64% NM NM NM NM 59% 61%
- ----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$2,299 $2,260 $ 9 $ 8 $100 $ 97 $2,408 $2,365
109 49 (54) (21) - 4 55 32
1,500 1,520 4 7 12 129 1,516 1,656
- ----------------------------------------------------------------------------------------
690 691 59 22 88 (36) 837 677
266 274 22 8 32 3 320 285
- ----------------------------------------------------------------------------------------
$ 424 $ 417 $ 37 $ 14 $ 56 $(39) $ 517 $ 392
- ----------------------------------------------------------------------------------------
$ 37.1 $ 35.2 $0.2 $0.4 $2.4 $2.3 $ 39.7 $ 37.9
$ 2.8 $ 2.7 $ - $ - $0.9 $1.0 $ 3.7 $ 3.7
20% 21% NM NM NM NM 18% 13%
1.52% 1.58% NM NM NM NM 1.74% 1.39%
30% 31% NM NM NM NM 35% 29%
33% 34% NM NM NM NM 38% 37%
62% 64% NM NM NM NM 60% 62%
- ----------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 7
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
Upon completion of the merger with Dreyfus, the Corporation's core business
lines were realigned to reflect the distinct customers that are serviced--
consumers and corporations/institutions--and the products that are offered-
- -investment and banking. Accordingly, the business sector results for the
third quarter and first nine months of 1994, have been realigned to reflect
the change in methodology used by the Corporation to report business sector
results.
Income before taxes for the Corporation's core sectors was $230 million in
the third quarter of 1995, down $1 million compared with the prior-year
quarter. This decrease resulted from a $34 million increase in credit
quality expense, primarily related to the CornerStone(sm) credit card
product, and a $9 million increase in operating expense offset by a $42
million increase in revenue, primarily net interest revenue and mortgage
servicing fee revenue. Income before taxes for the core sectors in the
first nine months of 1995 totaled $690 million, down $1 million from the
prior-year period. A $60 million increase in credit quality expense offset
a $39 million increase in revenue and a $20 million decrease in operating
expense. Return on common shareholders' equity for the core sectors was
19% and 20% in the third quarter and first nine months of 1995, compared
with 21% in the third quarter and first nine months of 1994. Return on
assets was 1.47% and 1.52% in the third quarter and first nine months of
1995, compared with 1.61% and 1.58% in the third quarter and first nine
months of 1994. The Real Estate Workout sector showed higher
profitability, as a result of lower credit quality expense, with income
before taxes improving to $24 million and $59 million in the third quarter
and first nine months of 1995, compared with $12 million and $22 million in
the comparable 1994 periods.
Consumer Investment Services
Consumer Investment Services includes private asset management services and
retail mutual funds. Income before taxes for the Consumer Investment
sector was $33 million in the third quarter of 1995, an increase of $10
million from the prior-year period. The increase was a result of higher
fees in the mutual fund business of approximately 8% resulting from a
higher average level of assets managed and lower operating expense. Income
before taxes for the first nine months of 1995 was $90 million, compared
with $87 million in the first nine months of 1994. This increase was due
to lower operating expense, partially offset by lower revenue. This sector
continued to provide excellent returns, as annualized return on common
shareholders' equity equaled 44% and 42% in the third quarter and first
nine months of 1995, respectively.
Consumer Banking Services
Consumer Banking Services includes consumer lending, business banking,
branch banking, credit card, mortgage loan origination and servicing and
jumbo residential mortgage lending. Income before taxes for this sector
totaled $81 million in the third quarter of 1995, compared with $101
million in the third quarter of 1994. Revenue increased $36 million
compared with the prior-year period, primarily as a result of increased
levels of average loans and higher mortgage servicing fees, including $4
million related to the Metmor acquisition. The increase in credit quality
expense principally reflected higher credit card losses resulting from the
significant increase in CornerStone(sm) credit card outstanding balances.
The increase in operating expense reflected higher expenses in support of
mortgage servicing and credit card acquisitions, including an increase in
the amortization of purchased mortgage servicing rights and purchased
credit card relationships. Partially offsetting the higher operating
expenses was the reduction of the FDIC deposit insurance premium in the
third quarter of 1995. Income before taxes for the first nine months of
1995 was $263 million, an increase of $3 million compared with the first
nine months of 1994. The increase in revenue reflects the same factors
responsible for the third quarter increase partially offset by a decline in
revenue as the Corporation elected not to offer its seasonal tax refund
anticipation loan program in 1995. The increase in credit quality expense
reflects the same factors responsible for the third quarter increase. The
increase in operating expense primarily resulted from the same factors
responsible for the third quarter increase, partially offset by a decrease
resulting from higher marketing expense in 1994 related to the January 1994
introduction of the CornerStone(sm) credit card. The annualized return on
common shareholders' equity for this sector was 17% and 19% in the third
quarter and first nine months of 1995, compared with 25% and 21% in the
third quarter and first nine months of 1994.
6
<PAGE> 8
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
Corporate/Institutional Investment Services
Corporate/Institutional Investment Services includes institutional trust
and custody, institutional asset and institutional mutual fund management
and administration, securities lending, foreign exchange, cash management
and stock transfer. Income before taxes for this sector was $47 million in
the third quarter of 1995, an increase of $1 million, compared with the
third quarter of 1994. Revenue decreased $4 million primarily as a result
of a decrease in mutual fund administration and custody fees and lower fee
revenue resulting from the previously announced CMSS joint venture.
Partially offsetting these decreases was an increase in revenue from
custody related foreign exchange fees. The $5 million decrease in
operating expense reflected the formation of the CMSS joint venture, offset
partially by expense growth in support of higher transaction volumes and
investments. Income before taxes for the first nine months of 1995 was
$147 million, a decrease of $19 million compared with the first nine months
of 1994, primarily as a result of lower mutual fund administration and
custody fees including the second quarter 1994 sale of the Boston-based
third-party mutual fund administration business and lower securities
lending revenue. The annualized return on common shareholders' equity for
this sector was 24% and 26% in the third quarter and first nine months of
1995, respectively, compared with 23% and 28% in the third quarter and
first nine months of 1994.
Corporate/Institutional Banking Services
Corporate/Institutional Banking Services includes large corporate and
middle market lending, asset-based lending, certain capital markets and
leasing activities, commercial real estate lending and insurance premium
financing. Income before taxes for the Corporate/Institutional Banking
sector was $69 million for the third quarter of 1995, an increase of $8
million, compared with the third quarter of 1994. Revenue increased
primarily as a result of higher net interest revenue on higher loan levels
as well as higher loan syndication fee revenue. The decrease in operating
expense reflects the results of infrastructure reengineering in the
insurance premium finance business and overall expense management efforts.
Income before taxes in the first nine months of 1995 was $190 million, an
increase of $12 million, compared with the first nine months of 1994.
Revenue decreased primarily as a result of lower insurance premium finance
spreads and a decline in securities trading revenue, partially offset by
revenue from higher loan levels and higher loan syndication fee revenue.
The decrease in credit quality expense was primarily the result of credit
recoveries. The decline in operating expense principally reflects the
factors responsible for the third quarter decline, as well as lower
overhead charges. The annualized return on common shareholders' equity for
this sector was 16% and 15% in the third quarter and first nine months of
1995, respectively, compared with 15% in the third quarter and first nine
months of 1994.
Real Estate Workout
Real Estate Workout includes commercial real estate recovery and mortgage
banking recovery operations. Income before taxes for Real Estate Workout
was $24 million and $59 million in the third quarter and first nine months
of 1995, compared with $12 million and $22 million in the third quarter and
first nine months of 1994. The improvement primarily reflected a lower
level of required loan loss reserves given the decline in both the volume
and loss experience of the portfolio, as well as credit loss recoveries.
Other
The Other sector's pretax income of $31 million and $88 million in the
third quarter and first nine months of 1995 principally reflected earnings
on capital above that required in the core sectors. The results for the
third quarter and first nine months of 1994 primarily reflect the merger
expenses and loss on disposition of securities recorded in conjunction with
the Dreyfus merger. In addition, the 1994 results reflect earnings on
capital above that required in the core sectors, the results of operations
from certain divestitures and approximately $13 million in net gains,
recorded at Dreyfus, from the sale of nonstrategic partnership interests.
7
<PAGE> 9
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
The following tables distribute net income and return on common
shareholders' equity for the Corporation's core sectors between customers
serviced and products offered.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Customers serviced
------------------------------
Total
Total Corporate/
FOR THE THREE MONTHS ENDED SEPTEMBER 30, Consumer Institutional
(dollar amounts in millions) 1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 69 $ 76 $ 71 $ 65
Return on common
shareholders' equity (a) 21% 26% 18% 18%
- ------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------
Net income $215 $210 $209 $207
Return on common
shareholders' equity (a) 22% 24% 18% 19%
- ------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Products offered
------------------------------
Total Total
For the three months ended September 30, Investment Banking
(dollar amounts in millions) 1995 1994 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 46 $ 39 $ 94 $102
Return on common
shareholders' equity (a) 29% 25% 16% 20%
- ------------------------------------------------------------------------------
For the nine months ended September 30,
- ------------------------------------------------------------------------------
Net income $140 $143 $284 $274
Return on common
shareholders' equity (a) 30% 31% 17% 18%
- ------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
8
<PAGE> 10
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED
<TABLE>
<CAPTION>
Consumer Corporate/Institutional
Investment Services Banking Services Investment Services Banking Services
(dollar amounts in SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30,
millions, averages in billion) 1995 1995 1995 1995 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 98 $ 92 $ 347 $ 336 $230 $233 $ 110 $ 99
Credit quality expense (revenue) - - 49 35 - - - (4)
Operating expense 65 64 217 216 183 182 41 39
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes 33 28 81 85 47 51 69 64
Income taxes 14 11 31 32 20 20 25 23
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 19 $ 17 $ 50 $ 53 $ 27 $ 31 $ 44 $ 41
- --------------------------------------------------------------------------------------------------------------------------------
Average assets $0.4 $0.3 $22.5 $21.7 $ 1.8 $ 1.8 $13.5 $13.0
Average common equity $0.2 $0.2 $ 1.2 $ 1.1 $ .4 $ 0.4 $ 1.1 $ 1.1
Return on common
shareholders' equity (a) 44% 40% 17% 19% 24% 28% 16% 15%
Return on assets (a) NM NM .88% .98% NM NM 1.32% 1.26%
Pretax operating margin 34% 31% 24% 25% 20% 22% 63% 64%
Pretax operating margin excluding
amortization of intangibles 34% 31% 28% 29% 23% 25% 65% 66%
Efficiency ratio excluding
amortization of intangibles 66% 69% 58% 60% 77% 75% 35% 38%
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30,
1995 1995 1995 1995 1995 1995 1995 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 785 $ 760 $ 3 $ 2 $ 33 $ 32 $ 821 $794
Credit quality expense (revenue) 49 31 (22) (19) - - 27 12
Operating expense 506 501 1 2 2 5 509 508
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes 230 228 24 19 31 27 285 274
Income taxes 90 86 9 7 11 9 110 102
- --------------------------------------------------------------------------------------------------------------------------------
Net income $ 140 $ 142 $ 15 $ 12 $ 20 $ 18 $ 175 $172
- --------------------------------------------------------------------------------------------------------------------------------
Average assets $38.2 $36.8 $0.2 $0.2 $2.6 $2.4 $41.0 $39.4
Average common equity $ 2.9 $ 2.8 $ - $ - $0.7 $0.9 $ 3.6 $3.7
Return on common
shareholders' equity (a) 19% 20% NM NM NM NM 18% 17%
Return on assets (a) 1.47% 1.55% NM NM NM NM 1.70% 1.75%
Pretax operating margin 29% 30% NM NM NM NM 35% 35%
Pretax operating margin
excluding amortization of
intangibles 32% 33% NM NM NM NM 38% 38%
Efficiency ratio excluding
amortization of intangibles 61% 63% NM NM NM NM 59% 61%
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized.
NM - Not meaningful.
</TABLE>
9
<PAGE> 11
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Customers serviced
----------------------------------------------
Total
Total Corporate/
Consumer Institutional
FOR THE THREE MONTHS ENDED SEPT. 30, June 30, SEPT. 30, June 30,
(dollar amounts in millions) 1995 1995 1995 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $69 $70 $71 $72
Return on common
shareholders' equity (a) 21% 22% 18% 19%
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Products offered
----------------------------------------------
Total Total
Investment Banking
FOR THE THREE MONTHS ENDED SEPT. 30, June 30, SEPT. 30, June 30,
(dollar amounts in millions) 1995 1995 1995 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $46 $48 $94 $94
Return on common
shareholders' equity (a) 29% 31% 16% 17%
- ----------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
Income before taxes for the total core sectors was $230 million in the
third quarter of 1995 compared with $228 million in the second quarter of
1995. This increase primarily resulted from a $25 million increase in
revenue which more than offset an $18 million increase in credit quality
expense and a $5 million increase in operating expense. The increase in
revenue was primarily driven by: an $11 million increase in revenue from
the Consumer Banking Services sector which resulted from higher mortgage
servicing fees and higher loan levels; an $11 million increase in the
Corporate/Institutional Banking Services sector primarily resulting from
higher loan levels and higher loan syndication fee revenue; and revenue in
the Consumer Investment Services sector that increased $6 million as a
result of higher fees in the mutual fund business reflecting the higher
level of assets managed. The decrease in revenue in the Corporate
Institutional Investment Services sector resulted from the formation of the
CMSS joint venture. The increase in credit quality expense in the Consumer
Banking Services sector reflected higher credit card losses from the
CornerStone(sm) credit card product. The increase in operating expense in
the Consumer Banking Services sector primarily represents expense growth in
support of the retail branch delivery system realignment primarily offset
by the reduction of the FDIC deposit insurance premium in the third quarter
of 1995.
10
<PAGE> 12
OVERVIEW FOR THE THIRD QUARTER AND FIRST NINE MONTHS OF 1995
- -------------------------------------------------------------------------------
The Corporation recorded earnings per common share of $1.15 and net income
applicable to common stock of $166 million in the third quarter of 1995,
compared with $.42 per common share and $63 million, respectively, in the
third quarter of 1994. Annualized return on common shareholders' equity
and return on assets were 17.98% and 1.70% in the third quarter of 1995,
compared with 6.76% and .81%, respectively, in the third quarter of 1994.
Excluding the $89 million after tax impact of Dreyfus merger-related
charges in the third quarter of 1994, earnings per common share was $1.02
and net income applicable to common stock was $152 million while annualized
return on common shareholders' equity and return on assets were 16.10% and
1.74%.
Net interest revenue was $392 million in the third quarter of 1995, up from
$376 million in the prior-year period, primarily as a result of a higher
level of loans. Fee revenue was $422 million, an increase of $23 million
from $399 million in the third quarter of 1994, primarily as a result of
increases in mortgage servicing revenue and mutual fund management revenues
at Dreyfus.
Operating expense before net revenue from acquired property and Dreyfus
merger expenses was $509 million for the third quarter of 1995, up 1% from
$503 million in the third quarter of 1994.
The provision for credit losses was $30 million in the third quarter of
1995, compared with $15 million in the third quarter of 1994. Net credit
losses were $39 million, up from $16 million in the third quarter of 1994,
principally reflecting higher losses on the CornerStone(sm) credit card
product. At September 30, 1995, this product had outstandings of $1.0
billion, compared with $500 million at September 30, 1994. Nonperforming
assets totaled $261 million at September 30, 1995, down from $276 million
at June 30, 1995, and up slightly from $260 million at September 30, 1994.
At September 30, 1995, the Corporation's ratio of nonperforming assets to
total loans and net acquired property was .93%, compared with .99% at
June 30, 1995 and September 30, 1994.
For the first nine months of 1995, the Corporation recorded earnings per
common share of $3.32 and net income applicable to common stock of $488
million, compared with $2.35 per common share and $347 million for the
first nine months of 1994. Annualized return on common shareholders'
equity and return on assets were 17.67% and 1.74% in the first nine months
of 1995, compared with 12.77% and 1.39%, respectively, in the first nine
months of 1994. Excluding the after tax impact of Dreyfus merger-related
charges, earnings per common share was $2.95 and net income applicable to
common stock was $436 million in the first nine months of 1994, while the
annualized return on common shareholders' equity and return on assets were
15.99% and 1.70%.
11
<PAGE> 13
NET INTEREST REVENUE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1995 1994 1995 1994
(taxable equivalent basis, AVERAGE AVERAGE Average Average AVERAGE AVERAGE Average Average
dollar amounts in millions) BALANCE RATE balance rate BALANCE RATE balance rate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market investments $ 1,286 5.68% $ 1,466 4.41% $ 1,228 5.88% $ 1,806 3.83%
Trading account securities 363 6.26 351 6.60 300 6.82 413 6.05
Securities (a) 4,938 6.48 5,421 5.90 4,836 6.54 5,178 5.57
Loans (a) 27,774 8.93 25,084 7.80 27,177 8.96 24,658 7.47
------- ------- ------- -------
Total interest-earning assets $34,361 8.43% $32,322 7.32% $33,541 8.48% $32,055 6.94%
- -------------------------------------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing liabilities $28,159 4.72% $25,601 3.35% $27,486 4.63% $25,128 2.91%
Noninterest-bearing liabilities 6,202 - 6,721 - 6,055 - 6,927 -
------- ------- ------- -------
Total $34,361 3.87% $32,322 2.66% $33,541 3.80% $32,055 2.28%
- -------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 395 4.56% $ 380 4.66% $ 1,174 4.68% $ 1,118 4.66%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Balances and rates include adjustments to fair value required by FAS No. 115.
Note: Average rates are annualized and are calculated on a taxable equivalent basis at tax rates approximating 35%.
Loan fees, as well as nonaccrual loans and their related income effect, have been included in the calculation of average rates.
</TABLE>
Net interest revenue, on a fully taxable equivalent basis, for the third
quarter of 1995 totaled $395 million, up $15 million compared with the
third quarter of 1994. The net interest margin was 4.56% in the third
quarter of 1995, down 10 basis points from 4.66% in the third quarter of
1994.
The improvement in net interest revenue in the third quarter of 1995,
compared with the third quarter of 1994, primarily resulted from higher
loan levels. Average loans increased $2.7 billion, or 11%, primarily as a
result of a $900 million increase in credit card loans, including $600
million related to the CornerStone(sm) credit card product, a $700 million
increase in retail loans, a $700 million increase in mortgage warehouse
loans and a $500 million increase in domestic wholesale loans. The
increase in retail loans resulted from increases in several categories
including personal credit lines, home equity loans and student loans, while
the increase in wholesale loans primarily was driven by middle market
lending and corporate/institutional banking. The decrease in the net
interest margin in the third quarter of 1995, compared with the prior-year
period, primarily reflects a higher level of wholesale funding, in support
of loan growth.
Net interest revenue and the net interest margin, on a fully taxable
equivalent basis, were $1,174 million and 4.68% in the first nine months of
1995, compared with $1,118 million and 4.66% in the first nine months of
1994.
12
<PAGE> 14
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(in millions) 1995 1994 Increase 1995 1994 Increase
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for credit losses $30 $ 15 $15 $ 70 $ 55 $15
Net revenue from acquired property (3) (12) 9 (15) (23) 8
- ------------------------------------------------------------------------------------------------------
Credit quality expense $27 $ 3 $24 $ 55 $ 32 $23
- ------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses less
the net revenue from acquired property, increased in the third quarter and
first nine months of 1995, compared with the prior-year periods, as a
result of a higher provision for credit losses and lower gains on the sale
of acquired property. The higher provision for credit losses was made in
response to credit losses from the CornerStone(sm) credit card portfolio.
A summary of the Corporation's net credit losses is presented in the table
on the following page. The $23 million increase in net credit losses in
the third quarter of 1995, compared with the prior-year period, resulted
from a $36 million increase in net credit card losses, including a $29
million increase related to the CornerStone(sm) portfolio. The Corporation
currently expects a modest increase in the level of CornerStone(sm) credit
losses in the fourth quarter of 1995, compared with the third quarter. At
September 30, 1995, the CornerStone(sm) portfolio had total outstandings of
$1.0 billion, substantially unchanged from June 30, 1995. CornerStone(sm)
outstandings were $757 million at December 31, 1994 and $500 million at
September 30, 1994. Net credit losses increased $64 million in the first
nine months of 1995, compared with the first nine months of 1994,
reflecting the higher level of credit card losses. Partially offsetting
credit losses were strong credit recoveries in the second and third
quarters of 1995. In the first nine months of 1995, credit loss
recoveries on commercial real estate loans totaled $26 million, commercial
and financial loans totaled $21 million, and consumer credit recoveries
totaled $18 million.
The Corporation maintains a reserve for credit losses that, in
management's judgment, is adequate to absorb future losses inherent in the
loan portfolio. Management establishes the credit loss reserve using a
documented loan loss assessment process that estimates loss potential in
the portfolio as a whole. For further information regarding the
methodology used in determining the adequacy of the reserve, see the
"Reserve for credit losses and review of net credit losses" discussion in
the Corporation's 1994 Annual Report on Form 10-K. The reserve for credit
losses totaled $574 million at September 30, 1995, compared with $611
million at September 30, 1994. The ratio of the loan loss reserve to
nonperforming loans at September 30, 1995, was 313%, compared with 391% at
September 30, 1994. This ratio is not the result of a target or
objective, but rather is an outcome of two interrelated but separate
processes: the establishment of an appropriate loan loss reserve level
for the portfolio as a whole, including but not limited to the
nonperforming component in the portfolio; and the classification of
certain assets as nonperforming in accordance with established accounting,
regulatory and management policies. The ratio can vary significantly over
time as the credit quality characteristics of the entire loan portfolio
change. This ratio can also vary with shifts in loan portfolio mix.
13
<PAGE> 15
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CREDIT LOSS RESERVE ACTIVITY (A) Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(dollar amounts in millions) 1995 1994 (Dec) 1995 1994 (Dec)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve at beginning of period $583 $609 $(26) $607 $600 $ 7
Reserve acquired in acquisition - 3 (3) 8 3 5
Credit losses:
Domestic:
Commercial and financial 7 11 (4) 12 30 (18)
Commercial real estate 1 3 (2) 7 8 (1)
Consumer credit:
Credit cards 53 15 38 127 42 85
Consumer mortgage 1 3 (2) 6 8 (2)
Other consumer credit 5 4 1 13 12 1
Lease financing - - - 16 - 16
- ---------------------------------------------------------------------------------------------------------------
Total domestic 67 36 31 181 100 81
- ---------------------------------------------------------------------------------------------------------------
International - - - - 4 (4)
- ---------------------------------------------------------------------------------------------------------------
Total credit losses 67 36 31 181 104 77
- ---------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial (5) (10) (5) (21) (24) (3)
Commercial real estate (15) (2) 13 (26) (10) 16
Consumer credit:
Credit cards (4) (2) 2 (10) (7) 3
Consumer mortgage - (1) (1) (2) (3) (1)
Other consumer credit (3) (5) (2) (6) (12) (6)
- ---------------------------------------------------------------------------------------------------------------
Total domestic (27) (20) 7 (65) (56) 9
- ---------------------------------------------------------------------------------------------------------------
International (1) - 1 (5) (1) 4
- ---------------------------------------------------------------------------------------------------------------
Total recoveries (28) (20) 8 (70) (57) 13
- ---------------------------------------------------------------------------------------------------------------
Net credit losses (recoveries):
Domestic:
Commercial and financial 2 1 1 (9) 6 (15)
Commercial real estate (14) 1 (15) (19) (2) (17)
Consumer credit:
Credit cards 49 13 36 117 35 82
Consumer mortgage 1 2 (1) 4 5 (1)
Other consumer credit 2 (1) 3 7 - 7
Lease financing - - - 16 - 16
- ---------------------------------------------------------------------------------------------------------------
Total domestic 40 16 24 116 44 72
- ---------------------------------------------------------------------------------------------------------------
International (1) - (1) (5) 3 (8)
- ---------------------------------------------------------------------------------------------------------------
Total net credit losses 39 16 23 111 47 64
- ---------------------------------------------------------------------------------------------------------------
Provision for credit losses 30 15 15 70 55 15
- ---------------------------------------------------------------------------------------------------------------
Reserve at end of period $574 $611 $(37) $574 $611 $(37)
- ---------------------------------------------------------------------------------------------------------------
Reserve as a percentage of total loans 2.04% 2.35% (31)bp 2.04% 2.35% (31)bp
- ---------------------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .57% .25% 32bp .55% .25% 30bp
- ---------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes the reserve for segregated assets and net credit losses on segregated assets.
</TABLE>
14
<PAGE> 16
NONINTEREST REVENUE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(in millions) 1995 1994 (Dec) 1995 1994 (Dec)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 80 $ 72 $ 8 $ 227 $ 222 $ 5
Administration/Custody 30 36 (6) 90 124 (34)
Institutional trust 54 56 (2) 156 173 (17)
Institutional asset management 32 34 (2) 100 108 (8)
Private asset management 37 34 3 104 102 2
- ------------------------------------------------------------------------------------------------
Total trust and investment
management 233 232 1 677 729 (52)
Cash management and deposit transaction
charges 49 49 - 144 148 (4)
Mortgage servicing fees 32 21 11 82 54 28
Foreign currency and securities trading 24 21 3 73 54 19
Credit card fees 21 19 2 62 51 11
Other 63 57 6 188 211 (23)
- ------------------------------------------------------------------------------------------------
Total fee revenue 422 399 23 1,226 1,247 (21)
Losses on sale of securities - (15) 15 - (5) 5
- ------------------------------------------------------------------------------------------------
Total noninterest revenue $422 $384 $38 $1,226 $1,242 $(16)
- ------------------------------------------------------------------------------------------------
</TABLE>
Reflecting the Corporation's strategy of maintaining a well-balanced
revenue base, revenues from the fee-generating businesses represented 52%
of the Corporation's total revenue for the quarter. Fee revenue increased
$23 million in the third quarter of 1995, compared with the third quarter
of 1994, reflecting an increase in all categories.
The $1 million increase in trust and investment management fees in the
third quarter of 1995, compared with the prior-year period, primarily
resulted from an $8 million increase in mutual fund management revenue and
a $3 million increase in private asset management fees. Partially
offsetting these increases was a $6 million decrease in mutual fund
administration and custody fees. The higher revenue from the management of
mutual funds resulted from a higher average level of mutual fund assets
managed and lower fee waivers at Dreyfus. Mutual fund management revenues
have grown to $80 million in the third quarter from $76 million in the
second quarter and $71 million in the first quarter, paralleling the growth
in these assets.
As shown in the table on the following page, the market value of assets
under management and administration/custody for the Corporation was $926
billion at September 30, 1995, up $16 billion compared with $910 billion at
June 30, 1995. The $10 billion increase in the market value of assets
under administration/custody reflected new institutional trust business and
a general market increase, offset partially by lost mutual fund
administration/custody business. The market value of assets under
management increased $6 billion primarily as a result of new business and
the general market increase, partially offset by client attrition related
to TBC Asset Management, which is part of the institutional asset
management business. At September 30, 1995, compared with June 30, 1995,
the S&P 500 index increased 7.28%, while the Lehman Brothers Long Term
Government Bond index increased 2.19%.
15
<PAGE> 17
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1995 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Management $ 2 $ 3 $ 3 $ 3 $ 2
Administration/Custody 645 621 599 568 538
Mutual fund:
Management 80 79 76 73 76
Administration/Custody 55 71 69 76 108
Institutional asset management:
Management 103 98 97 93 101
Private asset management:
Management 24 23 22 21 22
Administration/Custody 17 15 14 13 13
- --------------------------------------------------------------------------------------------------
Total:
Management $209 $203 $198 $190 $201
Administration/Custody $717 $707 $682 $657 $659
- --------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees are based upon the average net assets of each
fund. Average proprietary funds managed at Dreyfus in the third quarter of
1995 were $77 billion, compared with $72 billion in the second quarter of
1995 and $68 billion in the first quarter of 1995. These increases
primarily resulted from higher average institutional money market funds, as
well as an overall increase in the market values of assets managed,
paralleling the improvement in the bond and equity markets in 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1995 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $23 $22 $19 $18 $18
Individuals 11 10 11 10 10
Tax-exempt money market funds 8 8 7 7 8
Tax-exempt bond funds 18 18 18 18 19
Fixed-income funds 5 5 4 4 4
Equity funds 11 10 10 9 10
- --------------------------------------------------------------------------------------------------
Total proprietary funds 76 73 69 66 69
Other managed funds 4 6 7 7 7
- --------------------------------------------------------------------------------------------------
Total managed mutual fund assets $80 $79 $76 $73 $76
- --------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND FEE REVENUE Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(in millions) 1995 1994 (Dec) 1995 1994 (Dec)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed mutual fund fees $91 $87 $4 $261 $264 $(3)
Less: Fees waived 9 12 (3) 27 34 (7)
Less: Fund expense reimbursements 2 3 (1) 7 8 (1)
- ------------------------------------------------------------------------------------------------
Net managed mutual fund fees $80 $72 $8 $227 $222 $ 5
- ------------------------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $12 $10 $2 $ 34 $ 33 $ 1
Individuals 10 9 1 29 30 (1)
Tax-exempt money market funds 6 5 1 17 15 2
Tax-exempt bond funds 26 26 - 74 78 (4)
Fixed income funds 6 5 1 17 16 1
Equity funds 17 14 3 47 41 6
- ------------------------------------------------------------------------------------------------
Total proprietary funds 77 69 8 218 213 5
Other managed funds 3 3 - 9 9 -
- ------------------------------------------------------------------------------------------------
Net managed mutual fund fees $80 $72 $8 $227 $222 $ 5
- ------------------------------------------------------------------------------------------------
</TABLE>
The $11 million increase in mortgage servicing fees, compared with the
prior-year period, resulted from acquisitions of mortgage servicing rights.
The $13 billion residential and commercial loan servicing portfolio
acquired in the August 31, 1995, Metmor transaction generated $4 million in
servicing revenue in the last month of the third quarter. The Corporation
expects the Metmor servicing portfolio, at current levels, to generate
servicing revenue of approximately $13 million per quarter. At
September 30, 1995, the Corporation's total servicing portfolio was $51
billion, up approximately 60% compared with $32 billion at September 30,
1994.
The $3 million increase in foreign currency and securities trading fee
revenue in the third quarter of 1995 was attributable to higher foreign
exchange fees earned, primarily as a result of increased global custody and
corporate customer activity.
The $2 million increase in credit card fee revenue in the third quarter of
1995, compared with the third quarter of 1994, primarily resulted from fee
revenue generated by portfolio acquisitions and the Corporation's
CornerStone(sm) credit card product.
The $15 million pretax, or $10 million after tax, loss on the sale of
securities available for sale in the third quarter of 1994 related to the
disposition of securities held by Dreyfus prior to its merger with the
Corporation, that did not meet the investment objectives, interest rate or
credit risk characteristics required by the Corporation.
Fee revenue was $1,226 million in the first nine months of 1995, compared
with $1,247 million in the prior-year period. The decrease in fee revenue
in the first nine months of 1995, compared with the prior-year period,
resulted from lower trust and investment management fees and lower other
fee revenue in the first half of 1995, which more than offset the third
quarter increases. The primary factor impacting the comparison of year-to-
date other fee revenue was the Corporation's election not to offer its
seasonal tax refund anticipation loan program in 1995, resulting in a $30
million decrease in other fee revenue.
17
<PAGE> 19
OPERATING EXPENSE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, Inc/ September 30, Inc/
(dollar amounts in millions) 1995 1994 (Dec) 1995 1994 (Dec)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $240 $237 $ 3 $ 709 $ 719 $ (10)
Net occupancy expense 54 50 4 153 152 1
Professional, legal and other
purchased services 47 51 (4) 135 148 (13)
Equipment expense 35 30 5 103 97 6
Business development 33 35 (2) 103 128 (25)
Amortization of goodwill and other
intangible assets 24 23 1 72 73 (1)
Communications expense 22 21 1 64 62 2
Amortization of mortgage servicing
rights and purchased credit card
relationships 17 9 8 43 31 12
FDIC assessment and regulatory
examination fees 1 15 (14) 31 47 (16)
Other expense 36 32 4 103 95 8
- ------------------------------------------------------------------------------------------------
Operating expense before net
revenue from acquired property
and merger expense 509 503 6 1,516 1,552 (36)
Net revenue from acquired property (3) (12) 9 (15) (23) 8
Merger expense - 104 (104) - 104 (104)
- ------------------------------------------------------------------------------------------------
Total operating expense $506 $595 $ (89) $1,501 $1,633 $(132)
- ------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,200 24,400 (200) 24,200 24,100 100
- ------------------------------------------------------------------------------------------------
Efficiency ratio (a) 62% 64% (2) 63% 65% (2)
Efficiency ratio excluding
amortization of goodwill and other
intangible assets 59 61 (2) 60 62 (2)
- ------------------------------------------------------------------------------------------------
<FN>
(a) Operating expense before net revenue from acquired property and merger expense as a
percentage of revenue, computed on a taxable equivalent basis, excluding securities
gains (losses).
</TABLE>
Operating expense before net revenue from acquired property and merger
expense increased $6 million in the third quarter of 1995, compared with
the prior-year period. This increase primarily resulted from increases in
the amortization of mortgage servicing rights and purchased credit card
relationships and equipment expense. The increase in the amortization of
mortgage servicing rights reflects the increase in the Corporation's
mortgage servicing portfolio. The increase in equipment expense primarily
reflects the internalization of certain data processing operations at The
Boston Company as well as various equipment upgrades. This increase is
partially offset by a reduction in expense for purchased data processing
services. Primarily offsetting these increases was a $14 million decrease
in the third quarter in the FDIC deposit insurance premium from $.23 to
$.04 for every $100 of deposits, retroactive to June 1, 1995. Using the
new rate, the FDIC premium will now be approximately $2 million per
quarter, compared with approximately $13 million per quarter prior to the
rate reduction. Partially offsetting this benefit will be lower fee and/or
net interest revenue of approximately $2 million per quarter from cash
management customers where the FDIC premium on deposits is passed through
to these customers.
Operating expense before the net revenue from acquired property and merger
expense totaled $1,516 million in the first nine months of 1995, compared
with $1,552 million in the first nine months of 1994. The decrease
primarily resulted from lower marketing expense related to the
CornerStone(sm) credit card, a lower FDIC assessment charge, a reduction in
professional, legal and other purchased services and lower staff expense.
18
<PAGE> 20
OPERATING EXPENSE (CONTINUED)
- -------------------------------------------------------------------------------
Merger expense of $104 million, or $79 million after tax, was recorded in
the third quarter of 1994 to reflect expense associated with the Dreyfus
merger. In addition, merger expense of $175 million, or $112 million after
tax, was recorded in the first quarter of 1993 for expenses associated with
the acquisition of The Boston Company. The tables below show expenditures
through September 30, 1995.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MERGER EXPENSE ANALYSIS (THE DREYFUS CORPORATION)
Expected
Expenditures expenditures
and asset ----------------------------
Total adjustments at Fourth quarter Full year
(in millions) expenses Sept. 30, 1995 of 1995 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit and severance programs $ 42 $35 $- $7
Professional, consulting and other 27 27 - -
Facilities and assets 25 25 - -
Proxy solicitation 10 10 - -
- --------------------------------------------------------------------------------------------------
Total merger expense $104 $97 $- $7
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
MERGER EXPENSE ANALYSIS (THE BOSTON COMPANY)
Expenditures
and asset
Total adjustments at Fourth quarter
(in millions) expenses Sept. 30, 1995 of 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Systems integration $ 67 $ 62 $ 5
Adjustment to The Boston Company
credit loss reserve 51 51 -
Professional and consulting 16 15 1
Severance, incentive retention plan,
relocation and travel 12 10 2
Facilities expense 8 5 3
Other 21 19 2
- --------------------------------------------------------------------------------------------------
Total merger expense $175 $162 $13
- --------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
- -------------------------------------------------------------------------
The provision for income taxes totaled $304 million in the first nine
months of 1995, compared with $269 million in the first nine months of
1994. The Corporation's effective tax rate for the third quarter and the
first nine months of 1995 was 37% and it is currently anticipated that the
effective tax rate will be approximately 37% for the foreseeable future.
19
<PAGE> 21
ASSET/LIABILITY MANAGEMENT
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended
September 30,
(average balances in millions) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Money market investments $ 1,286 $ 1,466
Trading account securities 363 351
Securities 4,938 5,421
Loans 27,774 25,084
- -------------------------------------------------------------------------
Total interest-earning assets 34,361 32,322
Noninterest-earning assets 7,180 6,311
Reserve for credit losses (586) (617)
- -------------------------------------------------------------------------
Total assets $40,955 $38,016
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $31,275 $31,510
Wholesale and purchased funds 9,680 6,506
- -------------------------------------------------------------------------
Funds supporting total assets $40,955 $38,016
- -------------------------------------------------------------------------
</TABLE>
The increase in the Corporation's average assets in the third quarter of
1995, compared with the third quarter of 1994, reflects a higher level of
loans. Average loans increased $2.7 billion while securities and money
market investments decreased $483 million and $180 million, respectively.
The increase in average loans resulted from a $900 million increase in
credit card loans, including $600 million related to the CornerStone(sm)
credit card product, a $700 million increase in retail loans, a $700
million increase in mortgage warehouse loans and a $500 million increase in
domestic wholesale loans. The change in the mix of the Corporation's
funding in the third quarter of 1995, compared with the prior-year quarter,
reflects the use of wholesale and purchased funds to support loan growth.
Core funds, which are considered to be the most stable sources of funding,
are defined principally as money market and other savings deposits, demand
deposits, savings certificates, shareholders' equity and notes and
debentures with original maturities over one year. Core funds primarily
support core assets, which consist of loans, net of the reserve and
noninterest-earning assets. Average core assets increased $3.6 billion in
the third quarter of 1995 from the prior-year period, primarily reflecting
the increased loan levels. Average core funds decreased $235 million in
the third quarter of 1995 from the prior-year period, primarily reflecting
a lower level of money market and savings deposits. Core funds averaged
91% of core assets in the third quarter of 1995, down from 92% in the
second quarter of 1995 and 102% in the third quarter of 1994.
Wholesale and purchased funds are defined as deposits in foreign offices
and other time deposits, federal funds purchased and securities under
repurchase agreements, negotiable certificates of deposit, U.S. Treasury
tax and loan demand notes, commercial paper and other funds borrowed.
Average wholesale and purchased funds increased $3.2 billion compared with
a year ago, primarily reflecting an increase in overnight foreign office
deposits as the Corporation continued to take advantage of slightly lower-
cost short-term Eurodeposit rates. As a percentage of total average
assets, average wholesale and purchased funds increased to 24% in the third
quarter of 1995, from 22% in the second quarter of 1995 and 17% in the
prior-year period.
20
<PAGE> 22
COMPOSITION OF LOAN PORTFOLIO
- --------------------------------------------------------------------------------
The loan portfolio increased $2,061 million, or 8%, at September 30, 1995,
compared with September 30, 1994, primarily as a result of increased loan
demand and the CornerStone(sm) credit card product. Loan totals at
September 30, 1995, compared with September 30, 1994, reflected an $814
million increase in credit card loans, a $651 million increase in consumer
mortgages and a $414 million increase in commercial and financial loans.
At September 30, 1995, the composition of the loan portfolio was 52%
consumer and 48% commercial.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1995 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $10,317(a) $10,163 $ 9,820 $10,015 $ 9,903
- --------------------------------------------------------------------------------------------------
Commercial real estate 1,505(b) 1,512 1,588 1,624 1,608
- --------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 9,154 9,031 8,686 8,680 8,503
Credit card 2,799 2,766 2,423 2,381 1,985
Other consumer credit 2,625 2,641 2,534 2,455 2,418
- --------------------------------------------------------------------------------------------------
Total consumer credit 14,578 14,438 13,643 13,516 12,906
- --------------------------------------------------------------------------------------------------
Lease finance assets 828 807 815 815 744
- --------------------------------------------------------------------------------------------------
Total domestic loans 27,228 26,920 25,866 25,970 25,161
- --------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 845 845 830 763 851
- --------------------------------------------------------------------------------------------------
Total loans, net of unearned
discount(c) $28,073 $27,765 $26,696 $26,733 $26,012
- --------------------------------------------------------------------------------------------------
<FN>
(a) Includes $22 million of FDIC loss share loans.
(b) Includes $114 million of FDIC loss share loans.
(c) Excludes segregated assets.
</TABLE>
Commercial and financial
The domestic commercial and financial loan portfolio primarily consists of
loans to corporate borrowers in the manufacturing, service, energy,
communications, wholesale and retail trade, public utilities and financial
services industries. Total domestic commercial and financial loans
increased by $414 million, or 4%, at September 30, 1995, compared to
September 30, 1994, primarily as a result of increases in middle market
banking. Commercial and financial loans represented 37% of the total loan
portfolio at September 30, 1995 and 38% at September 30, 1994. At
September 30, 1995, nonperforming domestic commercial and financial loans
and leases were .78% of total domestic commercial and financial loans and
leases, compared with .67% at September 30, 1994. This ratio has been less
than 1% for the last ten quarters.
Commercial real estate
The Corporation's $1,505 million domestic commercial real estate loan
portfolio consists of commercial mortgages, which generally are secured by
nonresidential and multifamily residential properties and commercial
construction loans generally with maturities of 60 months or less. Also
included in this portfolio are loans that 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 $114
million of loans acquired in the December 1992 Meritor acquisition that are
subject to a five-year 95% loss-sharing arrangement with the FDIC.
Domestic commercial real estate loans decreased by $103 million, or 6%, at
September 30, 1995, compared with September 30, 1994. The decrease
primarily was a result of paydowns and transfers to OREO partially offset
by new loan originations. Domestic commercial real estate loans were 5% of
total loans at September 30, 1995, down from 6% a year earlier.
Nonperforming commercial real estate loans were 2.12% of total domestic
commercial real estate loans at September 30, 1995, compared with 1.98% at
September 30, 1994.
21
<PAGE> 23
COMPOSITION OF LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
Consumer mortgage
The consumer mortgage portfolio includes jumbo residential mortgages,
traditional one-to-four family residential mortgages, home equity loans and
personal loans secured by residential properties. At September 30, 1995,
this portfolio totaled $9,154 million, up 8% from $8,503 million at
September 30, 1994. The $651 million increase in this portfolio from the
prior-year period primarily reflects increases in residential mortgage
loans held in the residential warehouse portfolio, as well as personal
loans secured by residential properties and home equity loans.
Jumbo mortgages are variable rate residential mortgages that range from
$250,000 to $3,000,000. These loans decreased approximately $177 million
from September 30, 1994, to $4.0 billion at September 30, 1995, as a result
of loan sales and accelerated prepayments.
Loans secured by one-to-four family residential mortgages, primarily in the
residential warehouse portfolio, increased approximately $505 million to
$2.3 billion and personal loans secured by residential properties increased
approximately $164 million to $1.2 billion. Home equity loans increased
approximately $158 million to $1.6 billion. Nonperforming consumer
mortgages were .68% of total consumer mortgages at September 30, 1995,
compared with .61% at September 30, 1994.
Credit card
At September 30, 1995, credit card loans totaled $2,799 million, an $814
million, or 41%, increase from September 30, 1994. This increase primarily
was driven by the CornerStone(sm) credit card product that was introduced in
January 1994, as well as portfolio acquisitions. This product had total
outstanding balances of $1.0 billion at September 30, 1995, $985 million at
June 30, 1995 and $500 million at September 30, 1994. Credit card loans
are charged-off after reaching 180 days delinquent and as such are not
placed on nonperforming status prior to charge-off. The ratio of credit
card loans 90 days or more past due to total credit card loans was 2.01% at
September 30, 1995, compared with 1.96% at June 30, 1995 and .93% at
September 30, 1994.
Other loans
Other consumer credit, which principally consists of installment loans,
unsecured personal credit lines and student loans, increased by $207
million from September 30, 1994. This increase reflected growth in the
student loan portfolio. Lease finance assets were $828 million, up from
$744 million at September 30, 1994. Loans to international borrowers
decreased to $845 million at September 30, 1995, from $851 million at
September 30, 1994.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT CREDIT RISK
- --------------------------------------------------------------------------------------------
September 30,
(in millions) 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $18,904(a) $14,453
Standby letters of credit and foreign guarantees 2,974(b) 2,826
Commercial letters of credit 105 150
Residential mortgage loans serviced with recourse 165 193
Custodian securities lent with indemnification
against broker default of return of securities 18,610 14,057
- --------------------------------------------------------------------------------------------
<FN>
(a) Approximately 29% of these commitments are scheduled to expire within one
year, with an additional 55% scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $233 million.
</TABLE>
22
<PAGE> 24
CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, SEPT. 30, June 30, Dec. 31, Sept. 30,
except per share amounts) 1995 1995 1994 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $3,693 $ 3,643 $ 3,687 $3,695
Common shareholders' equity to assets ratio 8.81% 9.10% 9.54% 9.41%
Tangible common equity to assets ratio (a) 6.66 6.78 7.05 6.88
Total shareholders' equity $4,128 $ 4,078 $ 4,122 $4,285
Total shareholders' equity to assets ratio 9.85% 10.19% 10.67% 10.92%
Tier I capital ratio 8.77 8.98 9.48 10.03
Total (Tier I plus Tier II) capital ratio 12.00 12.31 12.90 13.50
Leverage capital ratio 8.20 8.32 8.67 9.16
Book value per common share $26.13 $ 25.59 $ 25.06 $25.15
Closing common stock price 44.75 41.625 30.625 37.50
Market capitalization 6,324 5,925 4,507 5,510
- --------------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill, and other intangibles recorded in connection with purchase
acquisitions divided by total assets less goodwill, and other intangibles recorded in connection
with purchase acquisitions.
</TABLE>
The increase in the Corporation's common and total shareholders' equity at
September 30, 1995, compared with June 30, 1995, primarily resulted from
earnings retention offset in part by a higher level of treasury stock
repurchased on the open market. The decrease in the Corporation's equity
ratios from June 30, 1995, resulted from asset growth.
The decrease in the Corporation's common and total shareholders' equity at
September 30, 1995, compared with September 30, 1994, resulted from the
second quarter 1995 repurchase of the common stock and warrants issued in
1993 as part of the purchase price of The Boston Company and the redemption
of the Corporation's $160 million Series H preferred stock. The repurchase
of the common stock and warrants in the second quarter of 1995 increased
earnings per common share by $.02 in the third quarter. It is anticipated
that this transaction will enhance earnings per common share by
approximately $.05 for the full year 1995. This transaction increased the
third quarter return on common shareholders' equity by approximately 80
basis points, reduced the September 30, 1995 book value per share by $.80
and reduced the capital ratios by 50 to 60 basis points.
On July 18, 1995, the Corporation's board of directors authorized the
repurchase of up to 2.5 million shares of the Corporation's common stock to
be used to meet the Corporation's current and near-term common stock
requirements for its stock-based benefit plans and its dividend
reinvestment plan. In 1994, the Corporation authorized similar repurchases
of up to 3 million shares. As of September 30, 1995, the Corporation had
repurchased approximately 4.3 million shares under both programs and had
reissued 2.2 million of these shares. The repurchase of the remaining 1.2
million shares under this authorization was completed in the fourth quarter
of 1995.
On October 17, 1995, the board of directors of Mellon Bank Corporation
authorized the repurchase of up to 8 million additional shares of the
Corporation's common stock. The repurchases will be made from time to time
in the open market or through privately negotiated transactions and,
subject to market conditions, are expected to be completed by March 31,
1996. The Corporation expects the 8 million share repurchase to increase
annualized earnings per common share by approximately $.17 and annual
return on common equity by approximately 1.7 percentage points. If the
transaction had been completed as of July 1, 1995, annualized return on
common equity for the third quarter would have increased from 17.98% to
19.7%. After giving effect to the share repurchase, the Corporation's
capital ratios will be reduced by approximately 1%. Based upon capital at
September 30, 1995, the common equity ratio would have been reduced from
8.81% to approximately 7.8%, and the tangible common equity ratio would
have been reduced
23
<PAGE> 25
CAPITAL (CONTINUED)
- --------------------------------------------------------------------------------
from 6.66% to approximately 5.7%. The Corporation's capital ratios will
remain well in excess of the FDIC's well-capitalized thresholds. The pro
forma book value per common share at September 30, 1995, would be $24.70,
down from $26.13.
Upon completion of the 8 million common share repurchase and including the
repurchase of the common shares and warrants issued in The Boston Company
acquisition and the common shares repurchased for benefit plans and the
dividend reinvestment plan, the Corporation will have reduced through
repurchases its common shares and common share equivalents by about 16
million shares, net of 2 million of shares reissued for benefit plans,
representing approximately $750 million of common equity. The Corporation
will have reduced through repurchases its common and preferred equity by
approximately $910 million since its August 1994 merger with The Dreyfus
Corporation.
The Corporation's qualifying capital under the Federal Reserve Board's
risk-based capital regulations is shown in the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
RISK-BASED AND lEVERAGE CAPITAL RATIOS September 30,
(dollar amounts in millions) 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a) $ 3,710 $ 3,727
Qualifying preferred stock 435 590
Other items (8) 13
Goodwill and certain other intangibles (853) (929)
- -----------------------------------------------------------------------
Total Tier I capital $ 3,284 $ 3,401
Tier II capital 1,211 1,178
- -----------------------------------------------------------------------
Total qualifying capital $ 4,495 $ 4,579
- -----------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $27,523 $25,482
Off-balance-sheet 9,935 8,441
- -----------------------------------------------------------------------
Total risk-adjusted assets $37,458 $33,923
- -----------------------------------------------------------------------
Average assets-leverage capital basis $40,063 $37,117
- -----------------------------------------------------------------------
Tier I capital ratio (b) 8.77% 10.03%
Total capital ratio (b) 12.00 13.50
Leverage capital ratio (b) 8.20 9.16
- -----------------------------------------------------------------------
<FN>
(a) Regulatory guidelines require that any adjustment to shareholders'
equity required by FAS No. 115 be excluded from the calculation of
risk-based capital. Therefore, unrealized losses on assets classified
as available for sale of $17 million and $32 million, net of tax, at
September 30, 1995 and 1994, respectively, have been excluded.
(b) The required minimum Tier I, Total and Leverage capital ratios are 4%,
8% and 3%, respectively.
</TABLE>
Tier I and Total capital are expressed as a percentage of risk-adjusted
assets, which include various credit risk-weighted percentages of on-
balance-sheet assets, 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.
Federal regulators have adopted a capital-based supervisory system for all
insured financial institutions. Should a financial institution's capital
ratios decline below predetermined levels, it would become subject to a
series of increasingly restrictive regulatory actions. The system
categorizes a financial institution's capital position into one of five
categories ranging from well capitalized to critically undercapitalized.
For an institution to qualify as well capitalized, Tier I, Total and
Leverage capital ratios must be at least 6%, 10% and 5%, respectively. All
of the Corporation's banking subsidiaries qualified as well capitalized at
September 30, 1995. The Corporation intends to maintain the ratios of its
banking subsidiaries at the well capitalized levels.
24
<PAGE> 26
CAPITAL (CONTINUED)
- --------------------------------------------------------------------------------
When computing Tier I capital, the Corporation deducts all goodwill and
certain other identifiable intangibles acquired subsequent to February 19,
1992, except mortgage servicing rights and purchased credit card
relationships.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1995 1995 1994 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $787 $806 $824 $843
- -------------------------------------------------------------------------------
</TABLE>
The $56 million decrease in goodwill at September 30, 1995, compared with
September 30, 1994, primarily resulted from amortization. Based upon the
current level and amortization schedule, the future amortization of
goodwill over the next 12 months is expected to be approximately $52
million. The future annual amortization of goodwill for the full years
1996 through 2000 is expected to remain at approximately $52 million.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1995 1995 1994 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased core deposit intangible $116 $121 $133 $138
Covenants not to compete 26 30 38 43
Other identified intangibles 39 40 41 43
- -------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $181 $191 $212 $224
- -------------------------------------------------------------------------------
</TABLE>
Based upon the current level and amortization schedule, the future annual
amortization of purchased core deposit and other identified intangibles
over the next 12 months will be approximately $43 million. The future
annual amortization of purchased core deposit and other identified
intangibles for the full years 1996 through 2000 is anticipated to be
approximately $42 million, $31 million, $26 million, $26 million and $14
million, respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1995 1995 1994 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage servicing rights $544 $336 $292 $266
Purchased credit card relationships 93 96 60 57
- -------------------------------------------------------------------------------
Total mortgage servicing rights and
purchased credit card relationships $637 $432 $352 $323
- -------------------------------------------------------------------------------
</TABLE>
During the quarter, $227 million of servicing rights were capitalized in
connection with both mortgage servicing portfolio purchases and loan
originations, including $186 million from the Metmor acquisition. Mortgage
servicing rights are amortized in proportion to, and over the period of,
estimated net servicing income over the estimated life of the servicing
portfolio. Amortization expense totaled $14 million in the third quarter.
The estimated fair value of capitalized mortgage servicing rights was $608
million at September 30, 1995.
In March 1995, the Financial Accounting Standards Board released FAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." FAS No. 121 established guidelines for
recognition of impairment losses related to long-lived assets and certain
intangibles and related goodwill for both assets to be held and used as
well as assets held for disposition. This statement excludes financial
instruments, long-term customer relationships of financial institutions,
mortgage and other servicing rights and deferred tax assets. This standard
becomes effective on January 1, 1996. Adoption of FAS No. 121 is not
expected to result in material changes to the Corporation's financial
position or results of operations.
25
<PAGE> 27
LIQUIDITY AND DIVIDENDS
- --------------------------------------------------------------------------------
The Corporation's liquidity management objective is to maintain the ability
to meet commitments to fund loans and to purchase securities, as well as to
repay deposits and other liabilities in accordance with their terms,
including during periods of market or financial stress. The Corporation's
overall approach to liquidity management is to ensure that sources of
liquidity are sufficient in amount and diversity to accommodate changes in
loan demand and core funding routinely without a material adverse impact on
net income. The Corporation's funding needs are evaluated continually and
its liquidity position is managed 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 three-year $300 million revolving
credit agreement and a $25 million backup line of credit to provide support
facilities for its commercial paper borrowings and for general corporate
purposes.
As shown in the Consolidated Statement of Cash Flows, cash and due from
banks increased by $230 million during the first nine months of 1995 to
$2,515 million at September 30, 1995. The increase reflected $2,381
million of net cash provided by financing activities partially offset by
$1,879 million of net cash used in investing activities and $287 million of
net cash used by operating activities. Net cash provided by financing
activities primarily reflected increases in customer deposits and short-
term borrowings. Net cash used in investing activities principally
reflected a net increase in loans and money market investments.
Included in noncash charges and credits is the amortization expense of
goodwill, core deposit and other identified intangibles that the
Corporation has recorded as a result of accounting for business
combinations under the purchase method of accounting. Had the Corporation
accounted for these transactions under the pooling of interests method of
accounting, these intangibles and their related amortization would not have
been reported. Net income applicable to common stock, excluding the after-
tax impact of the amortization of these intangibles, is shown in the table
below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(in millions) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income applicable to common stock
excluding the Dreyfus merger-related expenses $166 $152 $488 $436
After-tax impact of amortization of intangibles
from purchase acquisitions 18 16 55 56
- -----------------------------------------------------------------------------------------------------------
Total $184 $168 $543 $492
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Contractual maturities of the Corporation's term debt were $100 million in
the third quarter of 1995. Contractual maturities of term debt will total
$200 million in the fourth quarter of 1995 and $20 million in 1996. The
Corporation expects to fund its debt maturities with a combination of cash
presently on hand, other internal funding sources and, if necessary, with
the proceeds from additional public and/or private issuance of securities.
At September 30, 1995, the Corporation's senior debt was rated "A2" by
Moody's and "A" by Standard and Poor's and the subordinated debt for Mellon
Bank, N.A., the Corporation's principal banking subsidiary was rated "A2"
by Moody's and "A" by Standard and Poor's.
During the third quarter, the Corporation's $1.5 billion debt shelf
registration statement was declared effective by the Securities and
Exchange Commission. The issuance of any debt securities from this debt
shelf registration will depend on future market conditions, funding needs
and other factors.
26
<PAGE> 28
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
The Corporation paid $211 million in common stock dividends in the first
nine months of 1995, compared with $128 million in the prior-year period.
In addition, the Corporation paid $29 million in dividends on its
outstanding shares of preferred stock in the first nine months of 1995,
compared with $46 million in the first nine months of 1994. The common
stock dividend payout ratio was 43% in the third quarter of 1995. In the
third quarter of 1994, the board of directors of the Corporation declared
both the third and fourth quarter common dividends. The common stock
dividend payout ratio was 68% in the third quarter of 1994 excluding the
fourth quarter dividend.
On October 17, 1995, the board of directors of the Corporation approved a
10% increase in the quarterly common dividend to $.55 per share, payable on
November 15, 1995. Based upon the new quarterly common stock dividend rate
of $.55 per share and current shares outstanding, annualized dividend
requirements for the common and preferred stock would be approximately $350
million. The 8 million share repurchase will reduce the cash requirement
for the Corporation's annual common stock dividend by approximately $18
million.
The parent Corporation's principal sources of cash are dividends and
interest from its subsidiaries. There are, however, certain limitations on
the payment of dividends to the parent Corporation by its national bank
subsidiaries. For a discussion of these limitations, see note 17 in the
Corporation's 1994 Annual Report on Form 10-K. Under the more restrictive
limitation, the Corporation's national bank subsidiaries can, without prior
regulatory approval, declare dividends subsequent to September 30, 1995, of
up to approximately $547 million, less any dividends declared and plus or
minus net profits or losses, as defined, between October 1, 1995, and the
date of any such dividend declaration.
The national bank subsidiaries declared dividends to the parent Corporation
of $301 million in the first nine months of 1995, $366 million in the full-
year 1994 and $185 million in 1993. Dividends paid to the parent
Corporation by nonbank subsidiaries totaled $21 million in the first nine
months of 1995, $122 million in the full-year 1994 and $116 million in
1993. In addition, in the second quarter of 1995 Mellon Bank, N.A.
returned $300 million of capital to the parent Corporation.
INTEREST RATE SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
The Corporation actively manages its interest rate sensitivity position
through the use of on- and off-balance-sheet financial instruments, in
order to maintain an appropriate balance between the repricing
characteristics of its assets and liabilities. Financial instruments that
the Corporation uses to manage interest rate sensitivity include securities
classified as available for sale, money market assets, interest rate swaps,
futures and forwards, and interest rate caps and floors. The interest rate
sensitivity table on page 29 shows the repricing characteristics of the
Corporation's interest-earning assets and supporting funds at September 30,
1995. The data are based upon contractual repricing or maturities and,
where applicable, management's assumptions as to the estimated repricing
characteristics of certain assets and supporting funds.
At September 30, 1995, the Corporation had an asset-sensitive interest rate
risk position at the one-year repricing period. Generally, an asset-
sensitive gap indicates that rising interest rates could positively affect
net interest revenue, and falling rates could negatively affect net
interest revenue. Assets and liabilities with similar contractual
repricing characteristics, however, may not reprice at the same time or to
the same degree. As a result, the Corporation's static interest rate
sensitivity gap position does not necessarily predict the impact of changes
in general levels of interest rates on net interest revenue.
27
<PAGE> 29
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- ------------------------------------------------------------------------------
The cumulative gap at the one-year repricing period, before the utilization
of off-balance-sheet instruments, was asset-sensitive in the amount of $4.9
billion, or 11.7% of total assets, at September 30, 1995. However, because
the Corporation did not want to accept the level of interest rate risk
presented by its naturally asset-sensitive balance sheet, it entered into
interest rate swaps and other off-balance-sheet instruments that resulted
in a net reduction of $1.5 billion in this cumulative asset-sensitive
position. These instruments reduced the cumulative gap at the one-year
repricing period to an asset-sensitive amount of $3.4 billion, or 8.1% of
total assets. The Corporation uses off-balance-sheet instruments primarily
to convert fixed-rate long-term deposits to variable-rate deposits that
generally reprice quarterly. Alternatively, the Corporation could have
acquired additional fixed-rate investment securities or other fixed-rate
interest-earning assets of approximately $1.5 billion to accomplish this
objective. Correspondingly, the Corporation would also have had to acquire
a comparable amount of wholesale funds in order to fund these additional
interest-earning assets. By using off-balance-sheet instruments to manage
interest rate risk, the effect is a smaller, more efficient balance sheet,
with a lower wholesale funding requirement and a higher return on assets
and net interest margin with a comparable level of net interest revenue and
return on common shareholders' equity.
The Corporation's principal method of managing interest rate sensitivity is
through modeling, which is a more relevant method of measuring interest
rate risk than the less sophisticated interest rate sensitivity table. In
order to measure the effects of interest rate fluctuations on the
Corporation's net interest margin, management simulates the potential
effects of changing interest rates, incorporating both the current gap
position and the expected magnitude of the repricing of specific asset and
liability categories. The simulation analysis of the impact of a 50 basis
point, 100 basis point and 200 basis point upward or downward movement in
interest rates is shown in the following table. This analysis was done
assuming earning asset levels at September 30, 1995, remained constant,
that the level of loan fees remains unchanged and excludes the impact of
interest receipts on nonperforming loans recognized in interest revenue.
The impact of the rate movements was developed by simulating the effect of
rates changing over a six-month period from the September 30, 1995 levels.
The simulated impact of rate changes shown in the following table is
compared to the third quarter actual results annualized.
INTEREST RATE SENSITIVITY ANALYSIS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Movements in interest rates from September 30, 1995 rates
- --------------------------------------------------------------------------------------------------------------
Anticipated impact in the next 12 months Increase Decrease
compared with third quarter 1995 ----------------------------- -----------------------------
actual results annualized: +50bp +100bp +200bp -50bp -100bp -200bp
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest revenue inc/(dec) -% (.1)% (.2)% (.4)% (.7)% (2.3)%
Return on common equity
inc/(dec) -% - % (.1)% (.1)% (.2)% (.6)%
Earnings per share inc/(dec) $- $(.01) $(.01) $(.02) $(.05) $(.15)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The anticipated impact on net interest revenue over the next twelve months
of either an upward or downward change in interest rates is generally
negative compared to third quarter 1995 actual results annualized. The
impact on net interest revenue under the 50, 100 and 200 basis point
increase scenarios primarily results from short-term liabilities repricing
more quickly than certain adjustable rate assets. The Corporation has
approximately $4.4 billion of adjustable rate assets that have an interest
rate cap feature that limits the interest rate increase to 100 or 200 basis
points every 12 months. The decrease in net interest revenue under the 50,
100 and 200 basis point decrease scenarios is consistent with the
Corporation's asset-sensitive gap position at September 30, 1995.
28
<PAGE> 30
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- ------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Repricing period
---------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 1,320 $ 26 $ 20 $ 2 $ 2 $ - $ 1,370
Trading account securities 302 - - - - - 302
Securities 1,239 371 722 928 1,011 1,194 5,465
Loans 11,682 5,584 2,846 1,717 3,866 2,378 28,073
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $14,543 $ 5,981 $ 3,588 $ 2,647 $ 4,879 $ 3,572 $35,210
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 5,864 $ 6,227 $ 2,698 $ 1,527 $ 2,720 $ 3,751 $22,787
Other borrowed funds 3,456 854 373 235 - 117 5,035
Notes and debentures (with original
maturities over one year) 6 200 20 - 631 785 1,642
Noninterest-bearing liabilities 108 21 205 71 - 5,341 5,746
- -----------------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 9,434 $ 7,302 $ 3,296 $ 1,833 $ 3,351 $ 9,994 $35,210
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal $ 5,109 $(1,321) $ 292 $ 814 $ 1,528 $(6,422) $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(2,210) $(1,234) $ 867 $ 1,076 $ 1,420 $ 81 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 2,899 $(2,555) $ 1,159 $ 1,890 $ 2,948 $(6,341) $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 2,899 $ 344 $ 1,503 $ 3,393 $ 6,341 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 6.9% 0.8% 3.6% 8.1% 15.1%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Repricing periods for securities, loans, interest-bearing deposits,
noninterest-bearing liabilities and off-balance-sheet instruments are based
upon contractual maturities, where applicable, as well as the Corporation's
historical experience of the impact of interest rate fluctuations on the
prepayment, repricing and withdrawal patterns of certain assets and
liabilities.
OFF-BALANCE-SHEET RISK
The Corporation offers off-balance-sheet financial instruments to enable
its customers to meet their financing objectives and manage their interest-
and currency-rate risk. Supplying these instruments provides the
Corporation with 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 part of its proprietary
trading and funding activities. These off-balance-sheet instruments are
subject to credit and market risk. Credit risk is limited to the estimated
aggregate replacement cost of contracts in a gain position, should
counterparties fail to perform under the terms of those contracts and any
underlying collateral proves to be of no value. Credit risk is managed by
subjecting the counterparties to the Corporation's credit approval and
monitoring policies and procedures. Counterparty limits are monitored on
an ongoing basis. Credit risk is further mitigated by contractual
agreements to net replacement cost gains and losses on multiple
transactions with the same counterparty through the use of master netting
agreements. The Corporation has master netting agreements in place with
the vast majority of its counterparties. Market risk arises from changes
in the market value of contracts as a result of the fluctuations in
interest and 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.
29
<PAGE> 31
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
Position limits are set by the Finance Committee, approved by the board of
directors and monitored daily by senior managers. Portfolio outstandings
are monitored against such limits on an ongoing basis. The Corporation
also manages market risk by adjusting its portfolio of customer and
corporate off-balance-sheet instrument dealer positions when necessary.
MANAGING INTEREST RATE RISK WITH OFF-BALANCE-SHEET INSTRUMENTS
The Corporation uses off-balance-sheet instruments, primarily interest rate
swaps, in managing the interest rate risk on specific liabilities and
assets. These instruments provide the Corporation flexibility in adjusting
its interest rate risk position without exposure to principal risk and
funding requirements because swaps only involve the exchange of fixed or
floating interest rate payments, not the notional amounts. The Corporation
uses non-leveraged generic and index amortizing swaps to accomplish its
objectives. Generic swaps involve the exchange of fixed and variable
interest rates based upon underlying contractual notional amounts. Index
amortizing swaps involve the exchange of fixed and variable interest rates;
however, their notional amount and maturities vary based upon certain
underlying indices. In addition, the Corporation has entered into other
off-balance-sheet instruments, primarily interest rate caps and floors and
futures and forward contracts, to manage interest rate sensitivity on
specific liability and asset instruments. The Corporation's off-balance-
sheet instruments used to manage its interest rate risk are shown in the
table on the following page.
30
<PAGE> 32
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE
RISK AT SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Total at
Sept. 30,
(notional amounts in millions) 1995 1996 1997 1998 1999 2000+ 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $ 58 $ 267 $ 160 $ 15 $2,125 $ 400 $3,025
Weighted average rate:
Receive 6.05% 5.34% 6.36% 5.22% 5.29% 6.32% 5.50%
Pay 5.82% 5.93% 5.91% 5.94% 5.87% 5.95% 5.89%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $914 $1,410 $ 549 $ 181 $ 148 $ 519 $3,721
Weighted average rate:
Receive 5.83% 4.64% 6.71% 7.13% 7.13% 7.19% 5.81%
Pay 5.91% 5.90% 5.92% 5.93% 5.93% 5.93% 5.91%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 1 $ 20 $2,128 $ 18 $ 2 $ 10 $2,179
Weighted average rate:
Receive 7.35% 6.23% 5.87% 2.17% 7.35% 6.16% 5.84%
Pay 8.41% 9.45% 4.75% 5.26% 8.41% 6.49% 4.81%
Other products (c) $ 5 $ 512 $ 100 $ 4 $ 2 $ 103 $ 726
- ------------------------------------------------------------------------------------------------
Total notional amount $978 $2,209 $2,937 $ 218 $2,277 $1,032 $9,651
- ------------------------------------------------------------------------------------------------
<FN>
(a) Generic swaps' notional amounts and lives are not based on interest rate indices.
(b) Amortizing swaps' notional amounts and lives change, based on certain interest rate indices.
Generally, as rates fall, the notional amounts decline more rapidly and, as rates increase,
notional amounts decline more slowly.
(c) Average rates are not meaningful for these products.
</TABLE>
The gross notional amount of off-balance-sheet products used to manage the
Corporation's interest rate risk was $9.7 billion at September 30, 1995, a
decrease of $648 million, $1.7 billion and $3.0 billion from June 30, 1995,
December 31, 1994 and September 30, 1994, respectively. This gross
notional amount, which is presented in the table above, must be viewed in
the context of the Corporation's overall interest rate risk management
activities in order to assess its impact on the net interest margin. As
discussed on pages 27 and 28, these off-balance-sheet instruments modified
the Corporation's asset-sensitive position, including the modification of
the cumulative asset-sensitive position at the one-year repricing period,
of $4.9 billion, before the utilization of these instruments, to a
cumulative one-year asset-sensitive position of $3.4 billion at
September 30, 1995.
The table on the following page presents the gross notional amounts of off-
balance-sheet instruments used to manage interest rate risk, identified by
the underlying interest rate-sensitive instruments.
31
<PAGE> 33
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(notional amounts in millions) September 30, 1995
- ----------------------------------------------------------------------------
<S> <C>
Instruments associated with deposits $7,481
Instruments associated with other liabilities 670
Instruments associated with loans 1,500
- ----------------------------------------------------------------------------
Total notional amount $9,651
- ----------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet instruments to reduce
the natural interest rate risk embedded in its assets and liabilities. The
interest received and interest paid are recorded on an accrual basis in
interest revenue and interest expense associated with the underlying assets
and liabilities. The net differential resulted in interest expense of less
than $1 million in the third quarter and $3 million in the first nine
months of 1995, compared with interest revenue of $23 million and
$109 million in the third quarter and first nine months of 1994. The lower
net interest revenue impact in the 1995 periods, compared with the 1994
periods, resulted from the effect of an increase in interest rates. The
Corporation's analysis using current interest rate scenarios indicates that
off-balance-sheet instruments will have a positive impact of approximately
$1 million on the net interest margin in the fourth quarter of 1995.
The Corporation periodically issues notes and debentures for general
corporate purposes, including the funding of debt maturities. Included in
the tables on page 31 and above is a $250 million forward rate agreement
carried by the Corporation to lock in the cost of a 10-year debt issuance
expected to be issued in the first half of 1996.
The Corporation did not terminate any interest rate agreements used for
interest rate risk management purposes, in the first nine months of 1995.
Terminations of interest rate swaps in 1994 resulted in the amortization of
less than $1 million of net deferred gains into net interest revenue in the
first nine months of 1995. These gains were amortized over the remaining
period of the original hedge, which was less than one year.
The estimated unrealized fair value of the Corporation's interest rate
management off-balance-sheet instruments at September 30, 1995, was a
negative $26 million, compared with a negative $39 million at June 30,
1995. This improvement was consistent with the slight decrease in long-
term interest rates during the third quarter of 1995, which had the
corresponding effect of decreasing the fair value of on-balance-sheet core
deposits. These values should be viewed in the context of the overall
financial structure of the Corporation, including the aggregate net
position of all on- and off-balance-sheet instruments.
OFF-BALANCE-SHEET INSTRUMENTS USED FOR OTHER THAN INTEREST RATE RISK
MANAGEMENT PURPOSES
The Corporation offers off-balance-sheet financial instruments, primarily
foreign exchange contracts, currency and interest rate option contracts,
interest rate swaps and interest rate caps and floors, to enable customers
to meet their financing objectives and to manage their interest- and
currency-rate risk. These instruments are carried at market value with
realized and unrealized gains and losses included in foreign currency and
securities trading revenue. Supplying these instruments provides the
Corporation with fee revenue. The Corporation also uses the instruments
previously mentioned, as well as futures and forward contracts, as part of
its proprietary trading account activities. In the third quarter and first
nine months of 1995, the Corporation recorded $21 million and $70 million
of fee revenue from these activities, compared with $18 million and $54
million in the third quarter and first nine months of 1994, primarily from
foreign exchange contracts entered into on behalf of customers. The total
notional values of these contracts were
32
<PAGE> 34
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- ----------------------------------------------------------------------------
$39 billion at September 30, 1995, $37 billion at June 30, 1995 and $34
billion at September 30, 1994, and are included on the "Off-balance-sheet
instruments used for other than interest rate risk management purposes"
table below. The total credit risk of contracts used for other than
interest rate risk management purposes, which is included in "Other assets"
in the balance sheet, was $578 million at September 30, 1995.
The Corporation measures the effects of interest rate and currency value
fluctuations on the portfolio used for other than interest rate risk
management through modeling. Because the Corporation generally matches or
offsets positions, the analyses indicate that even a severe one day
movement in interest rates or foreign currency values would impact net
income by less than $1 million. For additional information on off-balance-
sheet financial instruments, see note 19 in the Corporation's 1994 Annual
Report on Form 10-K.
OFF-BALANCE-SHEET INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
(notional amounts in millions) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Interest rate agreements (a):
Interest rate swaps $8,925 $12,231
Options, caps and floors purchased (b) 464 356
Futures and forward contracts 262 71
Other products 84 15
- -------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited
to the cost of replacing a contract in a gain position, on which a
counterparty has defaulted. Credit risk associated with interest rate
agreements was $7 million at September 30, 1995.
(b) At September 30, 1995, there were no options, caps or floors written.
Options, caps and floors purchased and written are aggregated for
September 30, 1994.
</TABLE>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR OTHER THAN INTEREST RATE RISK
MANAGEMENT PURPOSES
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30,
(notional amounts in millions) 1995 1994
- -------------------------------------------------------------------------
<S> <C> <C>
Foreign currency contracts (a):
Commitments to purchase $14,214 $10,901
Commitments to sell 14,327 10,988
Foreign currency and other option contracts written 306 412
Foreign currency and other option contracts purchased 340 720
Futures and forward contracts 1,511 1,156
Interest rate agreements (a):
Interest rate swaps 4,550 4,482
Options, caps and floors purchased 1,943 4,924(b)
Options, caps and floors written 1,835 -(b)
Forward rate agreements 296 -
- -------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited
to the cost of replacing a contract in a gain position, on which a
counterparty has defaulted. Credit risk associated with foreign
currency contracts and interest rate agreements was $537 million and
$41 million, respectively, at September 30, 1995.
(b) Options, caps and floors purchased and written are aggregated for
September 30, 1994.
</TABLE>
33
<PAGE> 35
NONPERFORMING ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1995 1995 1995 1994 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $183 $199 $156 $151 $156
Acquired property, net of the OREO reserve 78 77 87 88 104
- -----------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $261 $276 $243 $239 $260
- -----------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .65% .72% .58% .56% .60%
Total nonperforming assets as a percentage of
total loans and net acquired property .93% .99% .91% .89% .99%
- -----------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
"Nonperforming assets" is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily other
real estate owned (OREO) acquired in connection with the collection effort
on loans. Nonperforming loans include both nonaccrual and "troubled debt"
restructured loans. Nonperforming assets do not include the segregated
assets acquired in the December 1992 Meritor retail office acquisition.
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. Past-due commercial loans are those that are contractually
past due 90 days or more, but are not on nonaccrual status because they are
well-secured and in the process of collection. Additional information
regarding nonperforming assets is presented in the "Nonperforming assets"
discussion and in note 1 in the Corporation's 1994 Annual Report on Form 10-K.
At September 30, 1995, nonperforming assets totaled $261 million, a
decrease of $15 million compared with June 30, 1995, as a result of a lower
level of nonperforming loans. Total nonperforming loans decreased $16
million as repayments, returns to accrual status and credit losses more
than offset additions. Total nonperforming assets increased $1 million
compared with September 30, 1994, as an increase in nonperforming loans was
substantially offset by a decrease in acquired property.
On January 1, 1995, the Corporation adopted FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and FAS No. 118, "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure."
See note 2 in the Notes to Financial Statements for a further discussion of
FAS Nos. 114 and 118. A loan is considered impaired when, based upon
current information and events, it is probable that the Corporation will be
unable to collect all principal and interest amounts due according to the
contractual terms of the loan agreement. At September 30, 1995, the
Corporation's impaired loans totaled $183 million, which was equal to the
nonperforming loans total. Included in these impaired loans were $79
million which has a related impairment reserve of $13 million, and $104
million that does not have a related reserve as a result of interest
payments applied to reduce principal or credit losses previously taken on
these loans. Average impaired loans during the third quarter and first
nine months of 1995 were $193 million and $175 million, respectively.
During the quarter, the Corporation recognized $5 million of interest
revenue on impaired loans, all of which was recognized using the cash basis
method of income recognition.
Acquired property consists of OREO and other assets acquired in connection
with loan settlements. Acquired property totaled $78 million at
September 30, 1995, compared with $77 million at June 30, 1995, and $104
million at September 30, 1994. The decrease from September 30, 1994
resulted from sales.
34
<PAGE> 36
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NONPERFORMING AND PAST-DUE ASSETS (a) SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 87 $ 92 $ 55 $ 61 $ 62
Commercial real estate 31 39 34 25 29
Consumer credit:
Consumer mortgage 62 59 58 56 51
Other consumer credit 2 2 2 - 1
- ----------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 182 192 149 142 143
International nonaccrual loans - - - 1 1
- ----------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 182 192 149 143 144
- ----------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial - 4 4 5 9
Commercial real estate 1 3 3 3 3
- ----------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 1 7 7 8 12
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 183 199 156 150 155
International - - - 1 1
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 183 199 156 151 156
- ----------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 99 98 112 116 133
Reserve for real estate acquired (21) (21) (26) (29) (30)
- ----------------------------------------------------------------------------------------------------------------
Net real estate acquired 78 77 86 87 103
Other assets acquired - - 1 1 1
- ----------------------------------------------------------------------------------------------------------------
Total acquired property 78 77 87 88 104
- ----------------------------------------------------------------------------------------------------------------
Total nonperforming assets $261 $276 $243 $239 $260
- ----------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective
loan portfolio segments:
Domestic commercial and financial loans
and leases .78% .87% .55% .60% .67%
Domestic commercial real estate loans 2.12 2.80 2.31 1.73 1.98
Domestic consumer mortgage loans .68 .66 .67 .64 .61
Total loans .65 .72 .58 .56 .60
Nonperforming assets as a percentage of
total loans and net acquired property .93 .99 .91 .89 .99
- ----------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Consumer:
Mortgages $ 32 $ 32 $ 32 $ 27 $ 19
Ratio (c) .35% .36% .37% .31% .24%
Credit card 56 54 44 32 19
Ratio (c) 2.01% 1.96% 1.82% 1.35% .93%
Student - Government guaranteed 39 32 30 36 41
Ratio (c) 2.78% 2.36% 2.22% 2.72% 3.22%
Other consumer 1 1 1 1 1
Ratio (c) .07% .08% .09% .07% .09%
- ----------------------------------------------------------------------------------------------------------------
Total Consumer $128 $119 $107 $ 96 $ 80
Ratio (c) .87% .82% .78% .71% .63%
Commercial 6 6 9 10 45
- ----------------------------------------------------------------------------------------------------------------
Total past-due loans $134 $125 $116 $106 $125
- ----------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $103 million, $113 million, $69 million, $58 million and $60 million, respectively, of loans with
both principal and interest less than 90 days past due but placed on nonaccrual status by management
discretion.
(c) 90 days past due as a percentage of respective period-end loan portfolios.
</TABLE>
35
<PAGE> 37
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE THREE MONTHS ENDED SEPTEMBER 30 (a)
Domestic
--------------------------------------- Total
Commercial Commercial Consumer -------------------
(in millions) & Financial Real Estate Credit International 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of period $96 $42 $61 $ - $199 $155
Acquired from Glendale Bancorporation - - - - - 13
Additions 5 2 15 - 22 57
Payments (b) (4) (2) (8) - (14) (34)
Return to accrual status (3) (4) (1) - (8) (16)
Credit losses (7) (1) (1) - (9) (16)
Transfers to acquired property - (5) (2) - (7) (3)
- --------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at September 30 $87 $32 $64 $ - $183 $156
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE NINE MONTHS ENDED SEPTEMBER 30 (a)
Domestic
--------------------------------------- Total
Commercial Commercial Consumer -------------------
(in millions) & Financial Real Estate Credit International 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of period $66 $28 $56 $ 1 $151 $202
Acquired from Glendale Bancorporation - - - - - 13
Additions 89 24 39 - 152 143
Payments (b) (46) (4) (13) (1) (64) (83)
Return to accrual status (10) (4) (6) - (20) (68)
Credit losses (11) (7) (5) - (23) (43)
Transfers to acquired property (1) (5) (7) - (13) (8)
- --------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at September 30 $87 $32 $64 $ - $183 $156
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL NONPERFORMING LOAN DATA (a) September 30,
(dollar amounts in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Book balance $183 $156
Contractual balance of nonperforming loans 226 218
Book balance as a percentage of
contractual balance 81% 72%
Interest receipts applied to reduce principal
Third quarter $ - $ -
Year-to-date 3 5
Interest receipts recognized in interest revenue
Third quarter 5 3
Year-to-date 11 8
- -------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
36
<PAGE> 38
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY Three months ended Nine months ended
September 30, September 30,
(in millions) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OREO at beginning of period, net of the OREO reserve $77 $108 $87 $138
OREO acquired from Glendale Bancorporation - 3 - 3
Foreclosures 9 5 19 11
Sales (8) (13) (30) (44)
Write-downs, credit losses, OREO
provision and other - - 2 (5)
- -----------------------------------------------------------------------------------------------------------------
OREO at end of period, net of the OREO reserve 78 103 78 103
Other acquired assets - 1 - 1
- -----------------------------------------------------------------------------------------------------------------
Total acquired property at end of period, net of the OREO reserve (a) $78 $104 $78 $104
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
The Corporation recognizes any estimated potential decline in the value of
OREO between appraisal dates on a property-by-property basis through
periodic additions to the OREO reserve. Write-downs charged against this
reserve are taken when OREO is sold at a loss or upon the receipt of
appraisals that indicate a deterioration in the fair value of the property.
Activity in the Corporation's OREO reserve is presented in the following
table.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE) Three months ended Nine months ended
September 30, September 30,
(in millions) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $21 $31 $29 $37
Write-downs on real estate acquired - (1) (2) (7)
Provision - - (6) -
- -----------------------------------------------------------------------------------------------------------------
Ending balance $21 $30 $21 $30
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 39
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- -----------------------------------------------------------------------------------------------------------------------------------
Nine months ended
--------------------
SEPT. 30, Sept. 30,
(in millions, except per share amounts) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue Interest and fees on loans (loan fees of $55, $65, $20, $19, $16, $22 and $18) $1,815 $1,371
Interest-bearing deposits with banks 25 26
Federal funds sold and securities under resale agreements 27 21
Other money market investments 1 4
Trading account securities 15 19
Securities 235 213
------------------------------------------------------------------------------------------------------------
Total interest revenue 2,118 1,654
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 491 312
Deposits in foreign offices 161 51
Federal funds purchased and securities under repurchase agreements 94 46
Other short-term borrowings 117 55
Notes and debentures 89 83
------------------------------------------------------------------------------------------------------------
Total interest expense 952 547
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 1,166 1,107
revenue Provision for credit losses 70 55
------------------------------------------------------------------------------------------------------------
Net interest revenue after provision for losses 1,096 1,052
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest Trust and investment management fees 677 729
revenue Cash management and deposit transaction charges 144 148
Mortgage servicing fees 82 54
Foreign currency and securities trading 73 54
Credit card fees 62 51
Other income 188 211
------------------------------------------------------------------------------------------------------------
Total fee revenue 1,226 1,247
Gains (losses) on sale of securities - (5)
------------------------------------------------------------------------------------------------------------
Total noninterest revenue 1,226 1,242
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Staff expense 709 719
expense Net occupancy expense 153 152
Professional, legal and other purchased services 135 148
Equipment expense 103 97
Amortization of goodwill and other intangible assets 72 73
FDIC assessment and regulatory examination fees 31 47
Amortization of mortgage servicing rights and purchased
credit card relationships 43 31
Other expense 270 285
Net revenue from acquired property (15) (23)
Securities lending charge - -
Merger expense - 104
------------------------------------------------------------------------------------------------------------
Total operating expense 1,501 1,633
- -----------------------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 821 661
Provision for income taxes 304 269
------------------------------------------------------------------------------------------------------------
Net income 517 392
Dividends on preferred stock 29 45
------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 488 $ 347
------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Per common share Primary net income $ 3.32 $ 2.35
Fully diluted net income $ 3.30 $ 2.35
------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
38
<PAGE> 40
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Three months ended
- --------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
1995 1995 1995 1994 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$623 $ 609 $ 583 $555 $491
10 8 7 8 8
8 8 11 9 7
- 1 - 2 1
6 3 6 5 6
80 77 78 77 80
- --------------------------------------------------------------------------
727 706 685 656 593
- --------------------------------------------------------------------------
169 169 153 135 120
58 51 52 41 25
32 33 29 30 23
44 39 34 22 22
32 29 28 27 27
- --------------------------------------------------------------------------
335 321 296 255 217
- --------------------------------------------------------------------------
392 385 389 401 376
30 20 20 15 15
- --------------------------------------------------------------------------
362 365 369 386 361
- --------------------------------------------------------------------------
233 225 219 224 232
49 48 47 49 49
32 25 25 24 21
24 25 24 22 21
21 22 19 21 19
63 60 65 65 57
- --------------------------------------------------------------------------
422 405 399 405 399
- 1 (1) - (15)
- --------------------------------------------------------------------------
422 406 398 405 384
- --------------------------------------------------------------------------
240 229 240 237 237
54 48 51 54 50
47 50 38 62 51
35 34 34 35 30
24 24 24 25 23
1 15 15 16 15
17 13 13 9 9
91 95 84 85 88
(3) (8) (4) (5) (12)
- - - 223 -
- - - - 104
- --------------------------------------------------------------------------
506 500 495 741 595
- --------------------------------------------------------------------------
278 271 272 50 150
103 99 102 9 72
- --------------------------------------------------------------------------
175 172 170 41 78
9 10 10 30 15
- --------------------------------------------------------------------------
$166 $ 162 $ 160 $ 11 $ 63
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
$1.15 $1.09 $1.08 $ .07 $ .42
- --------------------------------------------------------------------------
$1.14 $1.09 $1.07 $ .07 $ .42
- --------------------------------------------------------------------------
</TABLE>
39
<PAGE> 41
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Dec. 31, Sept. 30,
(dollar amounts in millions) 1995 1994 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and due from banks $ 2,515 $ 2,285 $ 2,222
Interest-bearing deposits with banks 692 429 472
Federal funds sold and securities under resale agreements 594 383 513
Other money market investments 84 48 40
Trading account securities 302 71 310
Securities available for sale 2,276 1,881 2,847
Investment securities (approximate fair value
of $3,211, $3,033 and $3,130) 3,189 3,244 3,301
Loans, net of unearned discount of $56, $62 and $72 28,073 26,733 26,012
Reserve for credit losses (574) (607) (611)
Customers' acceptance liability 231 234 219
Premises and equipment 550 558 546
Acquired property, net of reserves of $21, $29 and $30 78 88 104
Goodwill and other intangibles 968 1,036 1,067
Mortgage servicing rights and purchased
credit card relationships 637 352 323
Other assets 2,292 1,909 1,886
-------------------------------------------------------------------------------------------------------------------
Total assets $41,907 $38,644 $39,251
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 6,524 $ 5,979 $ 5,728
Interest-bearing deposits in domestic offices 17,410 18,121 18,244
Interest-bearing deposits in foreign offices 5,377 3,470 3,160
-------------------------------------------------------------------------------------------------------------------
Total deposits 29,311 27,570 27,132
Federal funds purchased and securities under
repurchase agreements 1,900 2,023 2,591
Term federal funds purchased 1,075 333 234
U.S. Treasury tax and loan demand notes 450 567 939
Commercial paper 99 178 242
Other funds borrowed 1,511 371 509
Acceptances outstanding 231 234 219
Other liabilities 1,560 1,678 1,528
Notes and debentures (with original maturities over one year) 1,642 1,568 1,572
-------------------------------------------------------------------------------------------------------------------
Total liabilities 37,779 34,522 34,966
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 435 435 590
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 200,000,000 shares
Issued - 147,165,480; 147,165,480; and 146,934,696 shares 74 74 73
Additional paid-in capital 1,846 1,851 1,844
Retained earnings 2,039 1,780 1,773
Warrants - 37 37
Net unrealized loss on assets
available for sale (net of taxes) (17) (55) (32)
Treasury stock of 5,856,254; - ; and - shares, at cost (249) - -
-------------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,693 3,687 3,695
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,128 4,122 4,285
-------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $41,907 $38,644 $39,251
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
40
<PAGE> 42
CONSOLIDATED STATEMENT OF CASH FLOWS
Mellon Bank Corporation (and its subsidiaries)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in millions) 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $517 $392
operating activities Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Amortization of goodwill and other intangible assets 72 73
Amortization of mortgage servicing rights and
purchased credit card relationships 43 31
Depreciation and other amortization 79 71
Deferred income tax expense 114 38
Provision for credit losses 70 55
Provision for real estate acquired and other losses (4) 1
Merger expense - 104
Net gains on dispositions of acquired property (9) (24)
Net increase in accrued interest receivable (40) (39)
Net increase in trading account securities (229) (192)
Net increase in accrued interest payable,
net of amounts prepaid 47 35
Net (increase) decrease in residential mortgages held for sale (473) 188
Net decrease in other operating activities (474) (51)
----------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (287) 682
- ----------------------------------------------------------------------------------------------------------------
Cash flows from Net (increase) decrease in term deposits and other money market
investing activities investments (299) 680
Net (increase) decrease in federal funds sold and
securities under resale agreements (211) 61
Funds invested in securities available for sale (4,274) (9,838)
Proceeds from sales of securities available for sale 1,668 2,370
Proceeds from maturities of securities available for sale 2,279 7,718
Funds invested in investment securities (170) (1,408)
Proceeds from maturities of investment securities 221 381
Net increase in credit card loans (304) (484)
Net principal disbursed on loans to customers (719) (1,028)
Loan portfolio purchases (294) (182)
Proceeds from the sale of loan portfolios 454 136
Purchases of premises and equipment (60) (112)
Proceeds from sales of premises and equipment 2 1
Proceeds from sales of acquired property 40 70
Cash paid in purchase of Metmor Financial, Inc., including
warehouse loans purchased of $166 million, net of
cash received and escrow deposits (130) -
Cash paid in purchase of U.S. Bancorp Mortgage Company,
including warehouse loans purchased of $81 million, net of
escrow deposits - (98)
Cash paid in purchase of Glendale Bancorporation, net of
cash received - (13)
Net increase in other investing activities (82) (2)
--------------------------------------------------------------------------------------
Net cash used in investing activities (1,879) (1,748)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
41
<PAGE> 43
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Mellon Bank Corporation (and its subsidiaries)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
(in millions) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net increase (decrease) in transaction and savings deposits 453 (849)
financing activities Net increase in customer term deposits 1,052 148
Net increase (decrease) in federal funds purchased and
securities under repurchase agreements (123) 1,613
Net increase (decrease) in U.S. Treasury tax and loan demand notes (117) 228
Net increase in short-term bank notes 931 -
Net increase in term federal funds purchased 742 226
Net increase (decrease) in commercial paper (79) 108
Repurchase and repayments of longer-term debt (128) (420)
Net proceeds from issuance of longer-term debt 202 1
Series H preferred stock redemption (155) -
Proceeds from issuance of common stock 42 14
Dividends paid on common and preferred stock (259) (174)
Repurchase of common stock and warrants related to the
1993 TBC acquisition (213) -
Repurchase of common stock for employee benefit purposes (174) -
Net increase in other financing activities 207 209
----------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,381 1,104
Effect of foreign currency exchange rates 15 13
- -------------------------------------------------------------------------------------------------------------------------
Change in cash and Net increase in cash and due from banks 230 51
due from banks Cash and due from banks at beginning of period 2,285 2,171
----------------------------------------------------------------------------------------------
Cash and due from banks at end of period $2,515 $2,222
----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $ 905 $ 512
disclosures Net income taxes paid 121 217
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Mellon Bank Corporation (and its subsidiaries)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
September 30,
(dollar amounts in millions) 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $4,122 $4,138
Net income 517 392
Dividends on preferred stock:
Series I (11) (11)
Series J (6) (6)
Series K (12) (12)
Series D - (3)
Series H - (13)
Dividends on common stock (211) (194)
Repurchase of common stock for employee benefit purposes (174) -
Repurchase of warrants (54) -
Repurchase of common stock - related to the 1993 TBC
acquisition (159) -
Common stock issued under dividend reinvestment and
common stock purchase plan 10 8
Exercise of stock options 48 8
Unrealized gain (loss), net of tax, on assets classified as
available for sale 38 (32)
Other 20 10
----------------------------------------------------------------------------------------------
Balance at end of period $4,128 $4,285
----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 -- Basis of presentation
The unaudited consolidated financial statements of the Corporation are
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. These financial statements should be read in
conjunction with the Corporation's 1994 Annual Report on Form 10-K. In the
opinion of management, all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for
the periods have been included.
Note 2 -- Adoption of Financial Accounting Standards
On January 1, 1995, the Corporation adopted FAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and FAS No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosure."
FAS No. 114 provides guidelines for measuring impairment losses on loans.
A loan is considered to be impaired when it is probable that the
Corporation will be unable to collect all principal and interest amounts
due according to the contractual terms of the loan agreement. Under FAS
No. 114, impaired loans subject to the statement are required to be
measured based upon the present value of expected future cash flows
discounted at the loan's initial effective interest rate or at the loan's
market price or fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the recorded value of the
loan, an impairment reserve must be established for the difference. The
impairment reserve is established by either an allocation of the reserve
for credit losses or by a provision for credit losses, depending on the
adequacy of the reserve for credit losses. FAS No. 118 permits existing
income recognition practices to continue.
At September 30, 1995, all of the Corporation's nonperforming loans were
considered to be impaired loans and totaled $183 million. Included in
these impaired loans were $79 million which has a related impairment
reserve of $13 million and $104 million that does not have a related
reserve as a result of interest payments applied to reduce principal or
credit losses previously taken on these loans. Average impaired loans
during the third quarter and first nine months of 1995 were $193 million
and $175 million, respectively. During the quarter, the Corporation
recognized $5 million of interest revenue on impaired loans, all of which
was recognized using the cash basis method of income recognition.
The Corporation also adopted FAS No. 122, "Accounting for Mortgage
Servicing Rights," effective April 1, 1995. FAS No. 122 amends FAS No. 65
to require the recognition as separate assets the rights to service
mortgage loans for others, however those servicing rights are acquired.
This statement eliminates the accounting distinction between servicing
rights acquired through purchase transactions and those acquired through
loan originations. FAS No. 122 also requires the assessment of capitalized
mortgage servicing rights for impairment to be based on the current fair
value of those rights.
During the quarter, $227 million of servicing rights, including $6 million
related to the adoption of FAS No. 122, were capitalized in connection with
both mortgage servicing portfolio purchases and loan originations. The
carrying value of mortgage servicing rights totaled $544 million at
September 30, 1995. Mortgage servicing rights are amortized in proportion
to, and over the period of, estimated net servicing income over the
estimated life of the servicing portfolio. Amortization expense totaled
$14 million in the third quarter.
The estimated fair value of capitalized mortgage servicing rights was $608
million at September 30, 1995. Quoted market prices are used, when
available, as the basis of measuring the fair value of servicing rights.
When quoted market prices are not available, fair values are based upon the
present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved.
The carrying amount of the servicing rights is measured for impairment each
quarter. For servicing rights acquired after April 1, 1995, the servicing
portfolio is first stratified by loan type and then by interest rates
within the loan type for measuring impairment. If the carrying value of an
individual stratum exceeds its fair value, a valuation allowance would be
established. No valuation allowances were recorded at September 30, 1995,
as the carrying values of the
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 2 -- Adoption of Financial Accounting Standards (continued)
various stratifications were less than their respective fair value.
Servicing rights acquired prior to April 1, 1995, are stratified by
acquisition and evaluated for possible impairment using fair market values.
Note 3 -- Foreign currency and securities trading revenue
The Corporation's trading activities involve a variety of financial
instruments, including U.S. government securities, municipal securities and
money market securities, as well as off-balance-sheet instruments. The
majority of the Corporation's trading revenue is earned by structuring and
executing off-balance-sheet instruments for customers. The resulting risks
are limited by entering into generally matching or offsetting positions.
The Corporation also enters into positions in the interest rate, foreign
exchange and debt markets based upon expectations of future market
conditions. Unmatched positions are monitored through established limits.
In order to maximize net trading revenues, the market-making and
proprietary positions are managed together, by product. The results of the
Corporation's foreign currency and securities trading activities are
presented in the table below, by class of financial instrument.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
FOREIGN CURRENCY AND SECURITIES TRADING REVENUE Three months ended Nine months ended
September 30, September 30,
(in millions) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts $22 $18 $70 $52
Debt instruments 3 3 3 -
Interest rate contracts - 1 - 2
Futures contracts (1) (1) - -
- --------------------------------------------------------------------------------------------------
Total foreign currency and securities trading revenue $24 $21 $73 $54
- --------------------------------------------------------------------------------------------------
</TABLE>
Note 4 -- Supplemental information to the Consolidated Statement of Cash Flows
Noncash investing and financing transactions that appropriately were not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Nine months ended
September 30,
(in millions) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Transfers to real estate acquired $19 $11
Net transfers to segregated assets 7 3
Purchase of Metmor Financial, Inc.:
Fair value of noncash assets acquired 385
Liabilities and escrow deposits assumed (255)
----
Net cash paid, including warehouse loans
purchased of $166 million 130
Purchase of U.S. Bancorp Mortgage Company:
Fair value of noncash assets acquired 154
Liabilities and escrow deposits assumed (56)
----
Net cash paid, including warehouse loans
purchased of $81 million 98
Purchase of Glendale Bancorporation:
Fair value of noncash assets acquired 236
Liabilities assumed (223)
----
Net cash paid 13
- --------------------------------------------------------------------------------------------------
</TABLE>
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 5 -- Securities
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 September 30, 1994
-------------------------------------- ---------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 245 $ - $ - $ 245 $1,138 $- $ - $1,138
U.S. agency mortgage-backed 652 3 7 648 534 1 33 502
Other U.S. agency 1,296 1 - 1,297 1,090 - - 1,090
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,193 4 7 2,190 2,762 1 33 2,730
Obligations of states and
political subdivisions 6 - - 6 1 - - 1
Other mortgage-backed 7 - - 7 10 - - 10
Other securities 67 7 1 73 103 4 1 106
- ------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,273 $11 $ 8 $2,276 $2,876 $5 $34 $2,847
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: Gross realized gains in the first nine months of 1995 and 1994 were $1 million and $14 million, respectively.
Gross realized losses were $1 million and $19 million in the first nine months of 1995 and 1994, respectively.
Proceeds from the sale of securities available for sale totaled $1.668 billion and $2.370 billion in the first nine months
of 1995 and 1994, respectively.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1995 September 30, 1994
-------------------------------------- ---------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 30 $ 1 $ - $ 31 $ 43 $- $ 1 $ 42
U.S. agency mortgage-backed 2,986 28 9 3,005 3,023 2 172 2,853
Other U.S. agency 1 - - 1 4 - - 4
- ------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 3,017 29 9 3,037 3,070 2 173 2,899
Obligations of states and
political subdivisions 56 1 - 57 105 - 1 104
Other mortgage-backed 42 - - 42 52 - - 52
Other investment securities 74 1 - 75 74 1 - 75
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities $3,189 $31 $ 9 $3,211 $3,301 $3 $174 $3,130
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Note 6 -- Other assets
- -----------------------------------------------------------------------------------------------------------------
Sept. 30, Dec. 31, Sept. 30,
(in millions) 1995 1994 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense:
Pension $ 271 $ 252 $ 248
Other 43 42 55
Interest receivable 239 199 195
Accounts receivable 192 218 184
Receivables related to
off-balance-sheet instruments 581 257 197
Segregated assets, net of reserve (a) 32 85 111
Other 934 856 896
- -----------------------------------------------------------------------------------------------------------------
Total other assets $2,292 $1,909 $1,886
- -----------------------------------------------------------------------------------------------------------------
<FN>
(a) Additional information regarding segregated assets is presented in note 8 in the Corporation's 1994 Annual
Report on Form 10-K.
</TABLE>
Note 7 -- Preferred stock
The following table summarizes the Corporation's preferred stock outstanding.
Each series of preferred stock has a par value of $1.00 per share. A
detailed description of the Corporation's outstanding preferred stock is
provided in note 11 in the Corporation's 1994 Annual Report on Form 10-K.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Balances at
Liquidation ------------------------------------
(dollar amounts in millions, preference Shares Shares Sept. 30, Dec. 31, Sept. 30,
except per share amounts) per share authorized issued 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9.60% preferred stock (Series I) $25.00 6,000,000 6,000,000 $145 $145 $145
8.50% preferred stock (Series J) 25.00 4,000,000 4,000,000 97 97 97
8.20% preferred stock (Series K) 25.00 8,000,000 8,000,000 193 193 193
10.40% preferred stock (Series H) 25.00 - - - - 155
- ----------------------------------------------------------------------------------------------------------------------------------
Total preferred stock $435 $435 $590
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 8 -- Legal proceedings
A discussion of legal actions and proceedings against the Corporation and
its subsidiaries is presented in Part II, Item 1, of this Form 10-Q.
46
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Note 9 -- Computation of primary and fully diluted net income per common share
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
(dollar amounts in millions, except per September 30, September 30,
share amounts; common shares in thousands) 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $ 166 $ 64 $ 488 $ 351
- ---------------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 141,897 145,591 144,740 144,355
Common shares issuable upon conversion
of Series D preferred stock - 1,692 - 2,263
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 2,072 2,012 1,817 2,086
Warrants (d) - 597 359 543
Series D preferred stock subscription rights - 1 - 1
- ---------------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 143,969 149,893 146,916 149,248
- ---------------------------------------------------------------------------------------------------------------------------
Primary net income per common share (c) $ 1.15 $ .42 $ 3.32 $ 2.35
- ---------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a)(b) $ 166 $ 64 $ 488 $ 351
- ---------------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 141,897 145,591 144,740 144,355
Common shares issuable upon conversion of
Series D preferred stock - 1,692 - 2,263
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method 2,317 2,612 3,066 2,632
7 1/4% Convertible Subordinated Capital Notes 126 133 129 134
- ---------------------------------------------------------------------------------------------------------------------------
Total stock, stock equivalents
and other dilutive items 144,340 150,028 147,935 149,384
- ---------------------------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (c) $ 1.14 $ .42 $ 3.30 $ 2.35
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) After adding back Series D preferred stock dividends of $1 million in the third quarter of 1994 and $4 million in
the first nine months of 1994.
(b) The after-tax benefit of interest expense on assumed conversion of the 7 1/4% Convertible Subordinated Capital Notes
was less than $1 million for all periods shown.
(c) Calculated based on unrounded numbers.
(d) The warrants were repurchased in June 1995.
</TABLE>
47
<PAGE> 49
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine months ended
-------------------------------------------------
SEPT. 30, 1995 Sept. 30, 1994
AVERAGE AVERAGE Average Average
(dollar amounts in millions) BALANCE YIELDS/RATES balance yields/rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets Interest-earning assets:
Interest-bearing deposits with banks $ 536 6.27% $ 865 4.06%
Federal funds sold and securities under resale agreements 649 5.61 772 3.60
Other money market investments 43 5.01 169 3.74
Trading account securities 300 6.82 413 6.05
Securities:
U.S. Treasury and agency securities (a) 4,586 6.52 4,698 5.63
Obligations of states and political subdivisions (a) 64 7.64 114 7.23
Other (a) 208 5.97 389 4.14
Loans, net of unearned discount (a) 27,217 8.95 24,664 7.47
------- -------
Total interest-earning assets 33,603 8.48% 32,084 6.94%
Cash and due from banks 2,271 2,395
Customers' acceptance liability 214 139
Premises and equipment 555 530
Net acquired property 83 118
Other assets (a) 3,655 3,241
Reserve for credit losses (599) (612)
--------------------------------------------------------------------------------------------------------------------
Total assets $39,782 $37,895
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand (b) $ 1,933 1.99% $ 2,159 (.20)%
equity Money market and other savings accounts 8,678 3.11 9,613 1.84
Retail savings certificates 6,742 5.02 6,586 3.46
Other time deposits 212 4.41 272 6.24
Deposits in foreign offices 3,702 5.81 1,710 4.02
------- -------
Total interest-bearing deposits 21,267 4.10 20,340 2.39
Federal funds purchased and securities under
repurchase agreements 2,139 5.89 1,582 3.88
U.S. Treasury tax and loan demand notes 464 5.70 603 3.67
Commercial paper 220 5.91 144 4.00
Other funds borrowed 1,718 6.85 625 7.28
Notes and debentures (with original maturities over one year) 1,678 7.07 1 ,834 6.04
------- -------
Total interest-bearing liabilities 27,486 4.63% 25,128 2.91%
Total noninterest-bearing deposits 6,348 6,904
Acceptances outstanding 214 139
Other liabilities 1,571 1,440
--------------------------------------------------------------------------------------------------------------------
Total liabilities 35,619 33,611
--------------------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 4,163 4,284
--------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $39,782 $37,895
- ------------------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 8.48% 6.94%
Cost of funds supporting interest-earning assets 3.80% 2.28%
--------------------------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.68% 4.66%
Without taxable equivalent increments 4.65% 4.62%
--------------------------------------------------------------------------------------------------------------------
<FN>
(a) Amounts and yields exclude adjustments to fair value required by FAS No. 115.
(b) In the first nine months of 1994, revenue generated through the use of off-balance-sheet instruments more than
offset the interest expense on demand deposits.
Note: Average rates are annualized and calculated on a taxable equivalent basis, at tax rates
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended
- ------------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, 1995 June 30, 1995 March 31, 1995 Dec. 31, 1994 Sept. 30, 1994
AVERAGE AVERAGE Average Average Average Average Average Average Average Average
BALANCE YIELDS/RATES balance yields/rates balance yields/rates balance yields/rates balance yields/rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 621 6.23% $ 552 6.33% $ 431 6.26% $ 416 7.63% $ 670 4.58%
613 5.28 578 5.79 757 5.75 730 5.20 697 4.24
52 3.97 35 6.71 42 4.90 67 7.11 99 4.40
363 6.26 220 6.65 316 7.59 281 7.23 351 6.60
4,681 6.48 4,429 6.59 4,640 6.49 4,761 6.04 5,021 5.88
59 7.67 64 7.67 70 7.57 97 6.83 108 7.23
202 6.12 207 5.91 214 5.89 242 6.35 326 5.09
27,804 8.92 27,124 9.03 26,717 8.88 26,423 8.35 25,103 7.80
- ------- ------- ------- ------- -------
34,395 8.43% 33,209 8.58% 33,187 8.42% 33,017 7.92% 32,375 7.32%
2,554 2,147 2,109 2,164 2,253
253 198 190 245 147
553 554 557 557 541
78 83 87 99 108
3,727 3,826 3,415 3,366 3,245
(586) (606) (607) (618) (617)
- ------------------------------------------------------------------------------------------------------------------------------------
$40,974 $39,411 $38,938 $38,830 $38,052
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,881 1.87% $ 1,924 2.13% $ 1,997 1.96% $ 2,094 1.46% $ 2,162 .79%
8,724 3.26 8,606 3.16 8,703 2.92 8,924 2.46 9,372 2.13
6,594 5.18 6,807 5.15 6,828 4.74 6,632 4.19 6,495 3.73
232 4.83 194 5.92 208 2.52 167 5.16 165 10.77
4,034 5.69 3,452 5.94 3,616 5.82 3,072 5.18 2,265 4.33
- ------- ------- ------- ------- -------
21,465 4.20 20,983 4.19 21,352 3.90 20,889 3.33 20,459 2.81
2,207 5.76 2,208 6.06 1,996 5.85 2,354 5.13 2,039 4.45
387 5.69 437 5.86 571 5.57 450 4.98 528 4.35
145 5.76 249 6.02 268 5.90 190 5.06 181 4.53
2,146 6.75 1,716 6.82 1,281 7.06 919 6.15 776 7.36
1,809 6.91 1,643 7.13 1,582 7.18 1,571 6.76 1,618 6.52
- ------- ------- ------- ------- -------
28,159 4.72% 27,236 4.73% 27,050 4.44% 26,373 3.83% 25,601 3.35%
6,952 6,117 5,966 6,371 6,504
253 198 190 245 147
1,508 1,658 1,545 1,490 1,418
- ------------------------------------------------------------------------------------------------------------------------------------
36,872 35,209 34,751 34,479 33,670
- ------------------------------------------------------------------------------------------------------------------------------------
4,102 4,202 4,187 4,351 4,382
- ------------------------------------------------------------------------------------------------------------------------------------
$40,974 $39,411 $38,938 $38,830 $38,052
- ------------------------------------------------------------------------------------------------------------------------------------
8.43% 8.58% 8.42% 7.92% 7.32%
3.87% 3.89% 3.62% 3.07% 2.66%
- ------------------------------------------------------------------------------------------------------------------------------------
4.56% 4.69% 4.80% 4.85% 4.66%
4.53% 4.66% 4.76% 4.82% 4.62%
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
approximating 35%, using dollar amounts in thousands and actual number of days in the periods and are before the effect of reserve
requirements. Loan fees, as well as nonaccrual loans and their related income effect, have been included in the calculation of
average interest yields/rates.
</TABLE>
49
<PAGE> 51
SELECTED STATISTICAL INFORMATION
- -------------------------------------------------------------------------------
DEPOSITS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1995 1995 1995 1994 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
Demand deposit accounts $ 1,859 $ 1,922 $ 1,979 $ 2,125 $ 2,121
Money market and other savings accounts 8,804 8,760 8,795 9,090 9,391
Retail savings certificates 6,520 6,730 6,832 6,707 6,566
Other time deposits 227 239 169 199 166
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 17,410 17,651 17,775 18,121 18,244
Noninterest-bearing 6,524 5,908 5,504 5,979 5,728
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 23,934 23,559 23,279 24,100 23,972
- ----------------------------------------------------------------------------------------------------------------------------------
Deposits in foreign offices 5,377 3,248 3,726 3,470 3,160
- ----------------------------------------------------------------------------------------------------------------------------------
Total deposits $29,311 $26,807 $27,005 $27,570 $27,132
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Various legal actions and proceedings are pending or are threatened against
the Corporation and its subsidiaries, some of which seek relief or damages
in amounts that are substantial. These actions and proceedings arise in
the ordinary course of the Corporation's businesses and include suits
relating to its lending, collections, servicing, investment, mutual fund,
advisory, trust and other activities. Because of 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.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.1 Employment Agreement between Mellon Bank, N.A. and Frank V.
Cahouet, effective as of July 25, 1993 and amended and restated
as of September 19, 1995. (Management contract or compensatory
plan arrangement.)
10.2 Employment Agreement between Mellon Bank, N.A. and W. Keith
Smith, effective as of July 25, 1993 and amended and restated as
of August 1, 1995. (Management contract or compensatory plan
arrangement.)
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (Mellon Bank Corporation and its subsidiaries).
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information only
and not filed.
50
<PAGE> 52
(b) Reports on Form 8-K
During the third quarter of 1995, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated July 18, 1995, which included, under Item 7, the
Corporation's press release regarding second quarter and first
six months 1995 financial results.
(2) A report dated September 20, 1995, which included, under Items
5 and 7, the Corporation's press release regarding the extension
of the employment contract of Frank V. Cahouet.
51
<PAGE> 53
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
(Registrant)
Date: November 10, 1995 By: /s/ Steven G. Elliott
-------------------------------
Steven G. Elliott
Vice Chairman,
Chief Financial Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer of
the Registrant)
52
<PAGE> 54
CORPORATE INFORMATION
- -------------------------------------------------------------------------------
Business Mellon Bank Corporation is a multibank holding company
of the incorporated under the laws of Pennsylvania in August 1971 and
Corporation registered under the Federal Bank Holding Company Act of 1956,
as amended. Its principal wholly owned subsidiaries are Mellon
Bank, N.A., The Boston Company, Inc., Mellon Bank (DE) National
Association, Mellon Bank (MD), Mellon PSFS (NJ) National
Association and the companies known as Mellon Financial Services
Corporations. The Corporation also owns a federal savings bank
headquartered in New Jersey, Mellon Bank, F.S.B. The Dreyfus
Corporation, one of the nation's largest mutual fund companies,
is a wholly owned subsidiary of Mellon Bank, N.A. The
Corporation's banking subsidiaries engage in retail financial
services, commercial banking, trust and investment management
services, residential real estate loan financing, mortgage
servicing, mutual fund and securities-related activities. The
Mellon Financial Services Corporations, through their
subsidiaries and joint ventures, provide a broad range of
bank-related services - including equipment leasing, commercial
loan financing, stock transfer services, cash management and
numerous trust and investment management services. The
Corporation's principal executive office is located at One
Mellon Bank Center, 500 Grant Street, Pittsburgh, PA 15258-0001
(Telephone: 412-234-5000).
Exchange Mellon Bank Corporation's common, Series I preferred, Series J
listing preferred and Series K preferred stocks are traded on the New
York Stock Exchange. The trading symbols are MEL (common stock)
and MEL Pr I, MEL Pr J and MEL Pr K (preferred stocks). The
Transfer Agent and Registrar is Mellon Bank, N.A., c/o Chemical
Mellon Shareholder Services, 85 Challenger Road, Overpeck Centre,
Ridgefield Park, NJ 07660-9940.
Dividend Subject to approval of the board of directors, dividends are
payments paid on Mellon Bank Corporation's common and preferred stocks on
or about the 15th day of February, May, August and November.
Dividend Under the Dividend Reinvestment and Common Stock Purchase Plan,
Reinvestment registered holders of Mellon Bank Corporation's common stock may
and Common purchase additional common shares at the market value for such
Stock Pur- shares through reinvestment of common dividends and/or optional
chase Plan cash payments. Purchases of shares through optional cash payments
are subject to limitations. Plan details are in a Prospectus
dated December 15, 1993, which may be obtained from the Secretary
of the Corporation.
Phone Corporate Communications/Media Relations (412) 234-6436
contacts Dividend Reinvestment Plan (412) 236-8000
Investor Relations (412) 234-5601
Publication Requests (412) 234-8252
Stock Transfer Agent (412) 236-8000
Press Mellon Bank Corporation press releases are available at no
Releases charge through PR Newswire's Company News On-Call fax service and
on PRN's Web site. For a menu of available Mellon Bank
Corporation press releases or to retrieve a specific release,
call 1-800-758-5804, ext. 552187, or http://www.prnewswire.com
on the Internet.
53
<PAGE> 55
Index to Exhibits
Exhibit No. Description
---------- ------------------------------------------------------
10.1 Employment Agreement between Mellon Bank, N.A. and
Frank V. Cahouet, effective as of July 25, 1993 and
amended and restated as of September 19, 1995.
(Management contract or compensatory plan arrangement.)
10.2 Employment Agreement between Mellon Bank, N.A. and W.
Keith Smith, effective as of July 25, 1993 and amended
and restated as of August 1, 1995. (Management contract
or compensatory plan arrangement.)
12.1 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends (Mellon Bank Corporation and
its subsidiaries).
27.1 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and not filed.
54
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
between
Mellon Bank, N.A.
and
Frank V. Cahouet
Effective as of July 25, 1993
(As Amended and Restated
Effective September 19,1995)
<PAGE> 2
THIS AGREEMENT, made effective as of July 25, 1993 by and between Mellon Bank,
N.A. (the "Company"), a national banking association, and Frank V. Cahouet (the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Executive, who has served as Chairman and Chief Executive Officer
of the Company and Mellon Bank Corporation (the "Holding Company"), effective
as of June 19, 1987, is willing to continue to serve in such capacity, and the
Company desires to retain the Executive in such capacity on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. The Company agrees to continue to employ the Executive, and the
Executive agrees to continue to be employed by the Company, for the Term
provided in paragraph 3(a) below and upon the other terms and conditions
hereinafter provided. The Executive hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid
and binding agreement, enforceable against him according to its terms, and that
its execution and performance by him does not violate the terms of any existing
agreement or understanding to which the Executive is a party. In addition, the
Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in
accordance with its terms.
2. POSITION AND RESPONSIBILITIES. During the Term, the Executive (a) agrees to
serve as the Chairman and Chief Executive Officer of the Company and the
Holding Company, and to be responsible for the general management of the
affairs of the Company and the Holding Company, reporting directly to the
respective Boards of Directors of the Company (the "Board") and the Holding
Company, and as a member of such boards for the period for which he is and
shall from time to time be elected, (b) shall be given such
<PAGE> 3
authority as is appropriate to carry out the duties described above, and
(c) agrees to serve, if elected, as an officer and director of any other
subsidiary or affiliate of the Company or the Holding Company.
3. TERM AND DUTIES.
(a) TERM OF EMPLOYMENT. The term of the Executive's employment under this
Agreement shall be deemed to have commenced on July 25, 1993 and shall
continue thereafter through December 31, 1998 (the "Term").
(b) DUTIES. During the Term, and except for illness or incapacity and
reasonable vacation periods of no more than 4 weeks in any calendar year (or
such other period as shall be consistent with the Company's policies for other
key executives), the Executive shall devote all of his business time,
attention, skill and efforts exclusively to the business and affairs of the
Company and the Holding Company and their subsidiaries and affiliates, shall
not be engaged in any other business activity, and shall perform and discharge
well and faithfully the duties which may be assigned to him from time to time
by the board of directors of the Company or the Holding Company; provided,
however, that nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for:
(i) serving, in accordance with the Company's policies and with the prior
approval of the Board, as a director or member of a committee of any
company or organization involving no actual or potential conflict of interest
with the Company or the Holding Company or any of their subsidiaries or
affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
- 2 -
<PAGE> 4
(iv) investing his personal assets in businesses in which his participation is
solely that of an investor in such form or manner as will not violate Section 7
below or require any services on the part of the Executive in the operation or
the affairs of such business, provided, however, that such activities do not
materially affect or interfere with the performance of the Executive's duties
and obligations to the Company or the Holding Company.
4. COMPENSATION. For all services rendered by the Executive in any capacity
required hereunder during the Term, including, without limitation, services as
an executive, officer, director, or member of any committee of the Company, the
Holding Company or any subsidiary, affiliate or division thereof, the Executive
shall be compensated as follows:
(a) BASE SALARY. The Company shall pay the Executive a fixed salary ("Base
Salary") of $760,000 per annum, subject to such periodic review (which shall
occur at least annually) and such periodic increases as the Board shall deem
appropriate in accordance with the Company's customary procedures and practices
regarding the salaries of senior officers; provided, however, in determining
such increases, the Board shall take into consideration the base salaries of
the chief executive officers of the 10 largest bank holding companies in the
United States, ranked by total assets, the performance of which is
substantially similar to that of the Holding Company. Base Salary shall be
payable in accordance with the customary payroll practices of the Company, but
in no event less frequently than monthly.
(b) BONUS. The Company shall pay the Executive such amounts, if any, as may be
due under the terms of the Mellon Bank Corporation Profit Bonus Plan (or any
successor plan), with such payments of bonus to be made in accordance with the
terms of such bonus plan. For the Profit Bonus Plan award for 1994 (payable in
1995) and for future years, it is understood that the Executive may receive
some
- 3 -
<PAGE> 5
portion of his Profit Bonus Plan award in the form of restricted stock or
phantom stock units, such awards are to be made on the same terms as apply to
other members of the Office of the Chairman.
(c) STOCK OPTIONS. The Holding Company shall from time to time after the date
of this Agreement consider the grant to the Executive of options to purchase
shares of the Holding Company's Cornmon Stock (the "Common Stock"). Such
options shall be granted under and subject in all respects to the terms of the
Holding Company's Long-Term Profit Incentive Plan (1981) (or any successor
plan) and, in the event of retirement, shall be exercisable through their
stated expiration date.
(d) ADDITIONAL BENEFITS. Except as modified by this Agreement, the Executive
shall be entitled to participate in all compensation or employee benefit plans
or programs, and to receive all benefits, perquisites and emoluments for which
any salaried employees are eligible under any plan or program, now or hereafter
established and maintained by the Company or the Holding Company for senior
officers, to the extent permissible under the general terms and provisions of
such plans or programs and in accordance with the provisions thereof, including
group hospitalization, health, dental care, senior executive life or other life
insurance, travel or accident insurance, disability plans, tax-qualified or
non-qualified pension, savings, thrift and profit-sharing plans, deferred
compensation plans, termination pay programs, sick-leave plans, auto allowance
or auto lease plans, and executive contingent compensation plans, including,
without limitation, capital accumulation programs and stock purchase,
restricted stock or stock option plans.
Specifically, but not by way of limitation, the Company shall furnish the
Executive, without cost to him, with life insurance for the benefit of the
Executive's designated beneficiary in an amount at least equal to twice his
Base Salary (without regard to any deferrals of Base Salary made by the
Executive).
- 4 -
<PAGE> 6
Notwithstanding the foregoing, nothing in this Agreement shall preclude the
amendment or termination of any such plan or program, on the condition that
such amendment or termination is applicable generally to all of the senior
officers of the Company or any subsidiary or affiliate and that no such
amendment may result in a reduction of the amount of benefits provided to the
Executive under any such plan or program or the life insurance provided for the
benefit of the Executive's designated beneficiary.
(e) PERQUISITES. The Company will also furnish the Executive, without cost to
him, with (i) a Company-owned or leased automobile and driver, (ii) membership
in one country club located within the Pittsburgh metropolitan area and one
business club located in Pittsburgh, (iii) an annual physical examination of
the Executive by a physician selected by the Executive, (iv) participation in
the Company's matching gifts program, and (v) personal financial, investment or
tax advice, not to exceed a reasonable sum per annum, to the extent costs or
expenses of the Executive to be reimbursed are properly documented for Federal
income taxation purposes to preserve any deduction for such reimbursements to
which the Company may be entitled.
5. BUSINESS EXPENSES. The Company shall pay or reimburse the Executive for all
reasonable travel or other expenses incurred by the Executive (and his spouse
where there is a legitimate business reason for his spouse to accompany him in
connection with the performance of his duties and obligations under this
Agreement, subject to the Executive's presentation of appropriate vouchers in
accordance with such procedures as the Company may from time to time establish
for senior officers and to preserve any deductions for Federal income taxation
purposes to which the Company may be entitled.
- 5 -
<PAGE> 7
6. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) In the event the Executive's employment hereunder terminates due to either
Permanent Disability, a Without Cause Termination, or a Constructive Discharge,
the Company shall, as liquidated damages or severance pay, or both, continue,
subject to the provisions of Section 7 below, to pay the Executive's Base
Salary as in effect at the time of such termination from the date of
termination until the end of the Term, provided, however, that in the case of
Permanent Disability, such payments shall be offset by any amounts otherwise
paid to the Executive under the Company's disability program generally
available to other employees. In addition, earned but unpaid Base Salary as of
the date of termination of employment shall be payable in full and the target
bonus award (or, if higher, the bonus award the Executive would have received
had he been employed throughout the bonus year), including any restricted stock
or phantom stock units payable in lieu of any portion of the Profit Bonus Plan
award, shall be payable on a pro-rated basis for the year in which such
termination of employment occurs only. The Executive shall continue to
participate through the end of the Term, or such longer period as shall be
prescribed in any plan or program, in all compensation or employee benefit
plans or programs maintained by the Company or the Holding Company in which he
was participating on the date of termination, including group hospitalization,
health, dental care, senior executive life or other life insurance, travel or
accident insurance, disability plans, tax qualified savings plans, thrift and
profit-sharing plans and deferred compensation plans, all in accordance with
the terms and conditions of the applicable employee benefit plans in effect
from time to time as applied to employees. The Executive shall continue to
receive years of service credit under all tax-qualified or non-qualified
retirement plans and related excess benefit plans maintained by the Company for
the Executive through the end of the Term and shall be 100% vested in such
plans as of the date of the termination of his employment. The Perquisites set
forth in Paragraphs 4(e)(i), (ii) and (v) shall continue through the first
anniversary of the Executive's termination of employment (except for the driver
- 6 -
<PAGE> 8
which shall continue only for the 90-day period following the Executive's
termination of employment). Any options to purchase shares of the Holding
Company's Common Stock or shares of restricted stock which are unvested as of
the date of the Executive's termination of employment shall continue to vest
and be exercisable through the end of the Term and thereafter, as permitted by
the applicable plan. The Executive shall have no duty or obligation to seek
other employment through the end of the Term or thereafter.
(b) In the event the Executive's employment hereunder terminates due to a
Termination for Cause or the Executive terminates employment with the Company
for reasons other than a Constructive Discharge, Permanent Disability or
retirement pursuant to Section 8 below, earned but unpaid Base Salary as of the
date of termination of employment shall be payable in full. However, no other
payments shall be made, or benefits provided, by the Company under this
Agreement except for stock options to the extent already vested and
exercisable, and except for benefits, which have already become vested, under
the Supplemental Pension provided in Section 8 of this Agreement and under the
terms of employee benefit programs maintained by the Company or its affiliates
for its employees generally.
(c) For purposes of this Agreement, the following terms have the following
meanings:
(i) The term, "Termination for Cause", means, to the maximum extent
permitted by applicable law, a termination of the Executive's employment by
the Company by a vote of a majority of the Board members then in office,
because the Executive has (a) been convicted of a criminal offense covered by
Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. Section 1829, or (b)
has entered a plea of nolo contendere thereto, or (c) has breached or failed to
perform his duties hereunder, and such breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness, (within the meaning of
- 7 -
<PAGE> 9
Section 1713(a) of the Pennsylvania Business Corporation Law, as amended),
or a final determination has been reached that the Executive has violated the
representations made in Section 1 above, or the provisions of Section 7,
below; provided, however, that the Board has given the Executive advance
notice of such Termination for Cause including the reasons therefor, together
with a reasonable opportunity for the Executive to appear with counsel before
the Board and to reply to such notice.
(ii) The term, "Constructive Discharge", means a termination of the Executive's
employment by the Executive due to a failure of the Company or its successors
to fulfill the obligations under this Agreement in any material respect,
including (a) any failure to elect or reelect or to appoint or reappoint the
Executive to the offices of Chairman and Chief Executive Officer of the Company
and the Holding Company or as a member of each of their boards of directors or
(b) any other material change by the Company and the Holding Company in the
functions, duties or responsibilities of the Executive's position with the
Company and the Holding Company which would reduce the ranking or level,
dignity, responsibility, importance or scope of such position, (c) any
imposition on the Executive of a requirement to be permanently based at a
location more than fifty miles from the principal office of the Company without
the consent of the Executive, or (d) any reduction without the consent of the
Executive in the Executive's salary below the amount then provided for under
Paragraph 4(a) hereof.
(iii) The term "Without Cause Termination" means a termination of the
Executive's employment by the Company, upon 30 days notice to the
Executive, other than due to Permanent Disability or expiration of the Term
and other than a Termination for Cause.
- 8 -
<PAGE> 10
(iv) The term "Permanent Disability" means the inability of the Executive to
work for a period of six full calendar months during any eight consecutive
calendar months due to illness or injury of a physical or mental nature,
supported by the completion by the Executive's attending physician of a
medical certification form outlining the disability and treatment.
7. OTHER DUTIES OF EXECUTIVE DURING AND AFTER TERM.
(a) CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that
certain information pertaining to the affairs, business, clients, or customers
of the Holding Company or any of its subsidiaries or affiliates (any or all of
such entities hereinafter referred to as the "Business"), as such information
may exist from time to time, is confidential information and is a unique and
valuable asset of the Business, access to and knowledge of which are essential
to the performance of his duties under this Agreement. The Executive shall not,
through the end of the Term or thereafter, except to the extent reasonably
necessary in the performance of his duties under this Agreement, divulge to any
person, firm, association, corporation or governmental agency, any information
concerning the affairs, business clients, or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process or such information which is or shall become part of
the public realm through no fault of the Executive), or make use of any such
information for his own purposes or for the benefit of any person, firm,
association or corporation (except the Business) and shall use his reasonable
best efforts to prevent the disclosure of any such information by others. All
records, memoranda, letters, books, papers, reports, accountings or other data,
and other records and documents relating to the Business, whether made by the
Executive or otherwise coming into his possession are, shall be, and shall
remain the property of the Business. No copies thereof shall be made which are
not retained by the Business, and the Executive agrees, on termination of his
- 9 -
<PAGE> 11
employment, or on demand of the Holding Company, to deliver the same to the
Holding Company.
(b) NON-COMPETE. Through the end of the Term, the Executive shall not without
express prior written approval by order of the Board, directly or indirectly
own or hold any proprietary interest in, or be employed by or receive
remuneration from, any corporation, partnership, sole proprietorship or other
entity engaged in competition with the Company, the Holding Company or any of
their affiliates (a "Competitor"), other than for severance type benefits from
entities constituting prior employers of the Executive. The Executive also
agrees that he will not solicit for the account of any Competitor, any customer
or client of the Company, the Holding Company or their affiliates, or, in the
event of the Executive's termination of employment, any entity or individual
that was such a customer or client during the 12 month period immediately
preceding the Executive's termination of employment. The Executive also agrees
not to act on behalf of any Competitor to interfere with the relationship
between the Company, the Holding Company or their affiliates and their
employees.
For purposes of the preceding sentence, (i) the term, "Proprietary interest",
means direct or indirect legal or equitable ownership, whether through
stockholdings or otherwise, of an equity interest in a business, firm or entity
other than ownership through mutual funds or other similar diversified
vehicles; provided, however, that the Executive shall not be required to divest
any previously acquired equity interest and (ii) an entity shall be considered
to be "engaged in competition" if such entity is a commercial bank located in
Pittsburgh, Pennsylvania or any other major money center commercial bank or
major regional commercial bank, in either case, with principal offices in any
state east of the Mississippi River. Notwithstanding the foregoing, it is
understood that the Executive is subject to all policies and procedures of the
Company and the Holding Company regarding investment in securities of
competitors.
- 10 -
<PAGE> 12
(c) REMEDIES. The Company's obligation to make payments or provide for or
increase any benefits under this Agreement (except to the extent vested) shall
cease upon any violation of the preceding provisions of this section; provided,
however, that the Executive shall first have the right to appear before the
Board with counsel and that such cessation of payments or benefits shall
require a vote of a majority of the Board members then in office, and provided,
further, that in the event of a violation of the preceding provisions of this
Section following a "change in control" (as defined for purposes of the
severance arrangements for employees of the Company adopted by the Board in a
resolution dated June 15, 1987) the Company's obligations to make payments or
provide for any benefits under this Agreement shall cease only to the extent of
the Executive's remuneration from subsequent employers, or income from self
employment which is subject to FICA taxation, during the period liquidated
damages or severance compensation is to be paid by the Company. The Executive's
agreement as set forth in this Section 7 shall survive the Executive's
termination of employment with the Company.
8. RETIREMENT.
(a) The Executive may elect, upon not less than 12 months' advance written
notice, to retire under this Agreement, if then in effect, on the first day of
any month coincident with or after his attainment of age 62. In the event of
such retirement, the Term and the Company's obligation to make payments under
Section 4 above shall cease as of the retirement date, except for (i) earned
but unpaid Base Salary which shall be payable in full and the target bonus
award (or, if higher, the bonus award the Executive would have received had he
been employed throughout the bonus year), including any restricted stock or
phantom stock units payable in lieu of any portion of the Profit Bonus Plan
award, which shall be payable on a pro-rated basis for the year of retirement,
(ii) vested benefits under Company plans or programs maintained for employees
generally and (iii) the delivery of shares or cash
- 11 -
<PAGE> 13
upon the exercise of stock options held by the Executive pursuant to the terms
of the Holding Company's stock option plan. In addition, the Company shall pay
a monthly supplemental retirement benefit to the Executive, commencing
immediately and continuing for the remainder of his life, which benefit shall
be payable in the form of a 50% joint and survivor annuity which shall be
unreduced for the actuarial value of the survivor's benefit. If the Executive's
spouse at the time of his death is not more than three years younger than the
Executive, the survivor benefit shall be equal to 50% of the Executive's
benefit and shall be payable for the remainder of the spouse's life. If the
Executive's spouse at the time of his death is more than three years younger
than the Executive, the benefit payable to the survivor shall be reduced to a
benefit having the same actuarial value as the benefit that would have been
payable had the spouse been three years younger than the Executive. The
Executive shall also have the right to elect a 100% joint and survivor annuity,
on an actuarially-reduced basis or a lump-sum payment, on an actuarially-
reduced basis (if the Executive makes a timely lump-sum election which avoids
constructive receipt), or any other form of payment available or provided
under the "Supplemental Plans" defined in this Paragraph. Actuarial reductions
shall be based on the actual ages of the Executive and his spouse at the time
of retirement. In the event that the Executive elects a form of payment other
than the automatic 50% joint and survivor annuity or other than a lump sum
payment, and remarries subsequent to retirement, the benefits payable under
this Section shall be actuarially adjusted at the time of the Executive's
death to reflect the age of the subsequent spouse. If the Executive elects a
lump sum payment at retirement, no further benefits will be payable under this
section. The amount of the monthly retirement benefit as an unreduced 50% joint
and survivor annuity shall be equal to the product of (A) the "Compensation
Percentage" multiplied by (B) the Executive's "Final Average Compensation"
multiplied by (C) the Executive's "Vesting Percentage", with such product
reduced by (D) the total monthly amount of benefit (measured for purposes of
this offset as if the Executive elected a 50% joint and survivor annuity upon
retirement) provided to or in respect of the Executive under
- 12 -
<PAGE> 14
all tax-qualified retirement plans and related excess benefit and other benefit
restoration plans maintained by the Company or the Holding Company for the
Executive, including the Mellon Bank Benefit Restoration Plan and the Mellon
Bank IRC Section 401(a)(17) Plan (the "Supplemental Plans") and benefits paid
pursuant to Section 4.7 of the Mellon Bank Corporation Elective Deferred
Compensation Plan for Senior Officers, but not including payments of any
compensation previously deferred under any deferred compensation plan of the
Company or the Holding Company, or interest thereon, or payments from the
Mellon Bank Corporation Retirement Savings Plan, a 401 (k) plan.
The Executive owns interest in life insurance policies (the "Policies") as a
participant in the Mellon Bank Senior Executive Life Insurance Plan. The
supplemental retirement benefit payable to the Executive hereunder shall be
further reduced by the Executive's interest in the cash value of the Policies.
This reduction shall be calculated in the same manner as under the Supplemental
Plans.
The Executive shall elect the form of payment of his supplemental retirement
benefit at the same time and subject to the same provisions (including timing
requirements and all reductions and/or penalties for late elections) as
provided under the Supplemental Plans. After retirement, the Executive (or
beneficiary who is receiving payments) may elect to receive his remaining
supplemental retirement benefits which are payable hereunder in a lump sum
payment, calculated in the same manner and subject to the same reductions as
under the Supplemental Plans. In the event that the Executive elects a form of
payment of his supplemental retirement benefits which provides for payments to
continue after his death and the Executive dies without having received all
payments of supplemental retirement benefits that may be payable hereunder,
then the unpaid balance of such benefits shall be paid in accordance with the
form of payment elected by the Executive. Any such remaining payments shall be
made to the Executive's beneficiary
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<PAGE> 15
provided under the Supplemental Plans, subject to any contrary written
instructions from the Executive designating a different beneficiary for such
payments.
(b) The Executive may also elect, upon not less than 12 months' advance written
notice, to retire under this Agreement on the first day of any month coincident
with or after his attainment of age 60. Benefits will be computed on the basis
of the years of service, "Final Average Compensation", "Compensation
Percentage" and "Vesting Percentage" determined at the date of such retirement
prior to age 62 and shall be actuarially reduced from the unreduced full
payment required under this Agreement at age 62 to reflect such early
retirement. In the event of such retirement, the Term and the Company's
obligations to make payments under Section 4 above shall cease as of the
retirement date.
(c) Notwithstanding the foregoing, in no event shall the Executive receive any
payments under this Section 8 or be deemed to be retired from the Company while
the Executive is entitled to payments under Paragraph 6(a).
(d) As used in this Agreement, "Compensation Percentage" means 50% plus 2.5%
for each full year of employment which the Executive has completed under this
Agreement as of the date his active employment with the Company terminates,
plus 2.5% for each full year the Executive receives payments under Paragraph
6(a) hereof (with such percentage pro-rated for the partial contract year in
which such final termination of the Executive's employment occurs or in which
such final payments under Paragraph 6(a) hereof are made, whichever shall be
applicable).
(e) As used in this Agreement, "Final Average Compensation" means the average
monthly amount of the Executive's Base Salary and any bonus award for the 36
consecutive months of the Executive's employment by the Company, under this
Agreement or prior agreements, which produces the highest average amount. The
cash value of any portion of bonus payable as either restricted stock or
phantom
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<PAGE> 16
stock units (in lieu of any portion of the Profit Bonus Plan award) shall be
determined on the date such restricted stock or phantom stock units are granted
for purposes of determining Final Average Compensation. Any portion of the
Executive's Base Salary and bonus award which is deferred by the Executive
under prior agreements with the Company or under any Company or Holding Company
employee benefit plan shall be included for purposes of determining Final
Average Compensation.
(f) As used in this Agreement, the term "Vesting Percentage" shall be
determined from the following vesting schedule on the basis of the number
of full months of employment with the Company which the Executive has completed
under this Agreement as of the date his active employment with the Company
terminates plus the number of months during which the Executive receives
payments under Paragraph 6(a).
VESTING SCHEDULE
----------------
Vesting Interval Vesting Percentage
---------------- ------------------
Less than 11 85%
11 or more 100%
In the event the Executive's employment is terminated during the first 11
months of the Term, the Executive's vesting percentage shall be 85% increased
by a pro rata portion of the remaining 15% determined by dividing the number of
whole months worked during such 11-month period by 11.
In the event the Executive's termination of employment is due to death, prior
to the commencement of the payment of pension benefits under this Section, and
he shall be survived by a spouse, such spouse shall be entitled to receive a
pre-retirement death benefit, payable in the form of a lifetime annuity, equal
in value to the benefit which would have been payable to the Executive
hereunder had he retired
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<PAGE> 17
immediately prior to the date of his death and elected the unreduced 50% joint
and survivor annuity provided under Paragraph (a) of this Section 8. If the
Executive's spouse at the time of his death is more than three years younger
than the Executive, the benefit payable to the survivor shall be reduced to a
benefit having the same actuarial value as the benefit that would have been
payable had the spouse been three years younger than the Executive.
9. LIMITATION AS TO AMOUNTS PAYABLE.
(a) SECTION 280G LIMITATION. In the event that any payment, coverage or benefit
provided under this Agreement would, in the opinion of counsel for the Company,
not be deemed to be deductible in whole or in part in the calculation of the
Federal income tax of the Company, or any other person making such payment or
providing such coverage or benefit, by reason of Section 280G of the Code, the
aggregate payments, coverages or benefits provided hereunder shall be reduced
to the "safe harbor" level under Section 280G of the Code so that no portion of
such amount which is paid to the Executive is not deductible by reason of
Section 280G of the Code. Executive may determine which payments, coverages or
benefits will be reduced in order to satisfy the "safe harbor" level under
Section 280G. Furthermore, the Company shall hold such portions not paid to
the Executive in escrow pending a final determination of whether such amounts
would be deductible if paid to the Executive, and the Company shall use its
best efforts to seek a ruling from the Internal Revenue Service that any
portion of such payments, coverages or benefits not paid to the Executive
pursuant to this Section 9(a) would continue to be deductible if paid to the
Executive and the Company shall pay to the Executive any portion of such
amounts for which such a ruling is received. In the event the IRS will not rule
on such matter, the Company shall pay to the Executive such amounts maintained
in escrow pursuant to this Section 9(a) as shall be determined at some point in
time by a counsel, selected by the Company and the Executive, is likely to be
deductible if paid to the Executive or shall be forfeited by the Executive in
the
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<PAGE> 18
event of a final determination by the IRS that such amounts are not deductible.
For purposes of this Paragraph, the value of any non-cash benefit or coverage
or any deferred or contingent payment or benefit shall be determined by the
independent auditors of the Company in accordance with the principles of
Section 280G of the Code.
(b) OFFSET. Within 90 days following any termination of his employment which
constitutes a Without Cause Termination or Constructive Discharge (as such
terms are defined in Section 6(c)), Executive may elect, by written notice to
Employer, to have the provisions of this Section 9(b) apply to reduce the
aggregate payments, coverages and benefits provided under this Agreement during
the remainder of the Term of this Agreement following his termination of
employment (hereafter the "Applicable Period"). If Executive does not make such
election, this Section 9(b) shall have no application or effect under this
Agreement.
If Executive elects to have this Section 9(b) apply, the aggregate payments,
coverages and benefits provided to Executive under this Agreement during the
Applicable Period following his termination of employment shall be reduced by
"mitigation" (as defined below) to comply with Regulations under Section 280G
of the Code, including, in particular, Question and Answer 42(b). "Mitigation"
shall mean that payments which are made and benefits which are provided by the
Employer during the Applicable Period after termination of Executive's
employment and which are attributable to the Applicable Period and not to any
other period will be reduced by all earned income (within the meaning of
Section 911 (d)(2)(A) of the Code) received by Executive from persons or
entities other than the Employer or from self employment during the Applicable
Period.
Not less frequently than annually (by December 31 of each year) during the
Applicable Period, Executive shall account to the Employer with respect to all
payments and benefits received by Executive from other employment or self
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<PAGE> 19
employment during the Applicable Period which are required by reason of his
duty of "mitigation" hereunder to be offset against payments or benefits
received by Executive from the Employer during the Applicable Period. During
the Applicable Period, if the Employer has paid amounts in excess of those to
which Executive was entitled (after giving effect to the offsets provided
above), Executive shall reimburse the Employer for such excess by December 31
of such year.
If Executive receives earned income from other employment or self employment
during only a portion, but not all, of the Applicable Period, only payments
which are made and benefits which are provided by the Employer that are
attributable to the portion of the Applicable Period during which Executive
receives earned income from other employment or self employment shall be
subject to reduction and offset as provided above.
If Executive elects to have this Section 9(b) apply, Executive may elect, at
any time, to be subject to a greater (but not lesser) duty of "mitigation" than
otherwise provided above in this Section 9(b), if counsel selected by Executive
determines that such greater duty of "mitigation" is advisable in order to
comply with Regulations under Section 280G.
10. LEGAL FEES, RELATED EXPENSES. The Company agrees to promptly reimburse the
Executive for his reasonable legal and consulting fees incurred in the
preparation and negotiation of this Agreement. In addition, in the event of any
litigation or other proceeding between the Company and the Executive with
respect to the subject matter of this Agreement and the enforcement of rights
hereunder, the Company shall reimburse the Executive for his reasonable costs
and expenses relating to such litigation or other proceeding, including
attorneys' fees and expenses, provided that such litigation or proceeding
results in any: (i) settlement requiring the Company to make a payment to the
Executive; or (ii) judgment, order or award in favor of the Executive, unless
such judgment, order or award is subsequently reversed on appeal or in a
collateral proceeding.
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<PAGE> 20
11. WITHHOLDING TAXES. The Company may directly or indirectly withhold from any
payments made under this Agreement all Federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
12. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this Agreement shall
preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term, "Company", as used herein shall mean such other
corporation and this Agreement shall continue in full force and effect.
13. NOTICES. All notices, requests, demands and other communications required
or permitted hereunder shall be given in writing and shall be deemed to have
been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail as follows:
(a) To the Company:
Director-Human Resources Department
Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, Pennsylvania 15258
(b) To the Executive:
615 East Drive
Sewickley, Pennsylvania 15143
with copies to:
Peter Mullin
Management Compensation Group
644 S. Figueroa Street
Los Angeles, California 90017
Joseph D. Mandel
15478 Longbow Drive
Sherman Oaks, California 91403
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<PAGE> 21
or to such other address as either party shall have previously specified in
writing to the other.
14. NO ATTACHMENT. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect, provided, however, that nothing in this Section
14 shall preclude the assumption of such rights by executors, administrators,
or other legal representatives of the Executive or his estate and their
assigning any rights hereunder to the person or persons entitled thereto.
15. SOURCE OF PAYMENTS. All payments provided for under this Agreement shall be
paid in cash from the general funds of the Company. The Company shall not be
required to establish a special or separate fund or other segregation of assets
to assure such payments, and, if the Company shall make any investments to aid
it in meeting its obligations hereunder, the Executive shall have no right,
title, or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument relating to
such investments. Nothing contained in this Agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and the Executive or
any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.
16. BINDING AGREEMENT. This Agreement shall be binding upon, and shall inure to
the benefit of, the Executive and the Company and, as permitted by this
Agreement, their respective successors, assigns, heirs, beneficiaries and
representatives.
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<PAGE> 22
17. GOVERNING LAW. The validity, interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which, when executed, shall be deemed to be an original and both of which
together shall be deemed to one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and
its seal to be affixed hereunto by its officers thereunto duly authorized, and
the Executive has signed this Agreement, all as of the first date above
written.
ATTEST: Mellon Bank, N.A.
Elaine Beck Oresti By: D. Michael Roark
- ---------------------- -----------------------
Elaine Beck Oresti D. Michael Roark
Secretary Head of the Human
Resources Department
Frank V. Cahouet
-----------------------
Frank V. Cahouet
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
between
Mellon Bank, N.A.
and
W. Keith Smith
Effective as of July 25, 1993
(As Amended and Restated
Effective August 1, 1995)
<PAGE> 2
THIS AGREEMENT, made effective as of July 25, 1993 by and between
Mellon Bank, N.A. (the "Company"), a national banking association, and
W. Keith Smith (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive, who has served as Vice Chairman of the Company
and of Mellon Bank Corporation (the "Holding Company"), effective as of
July 8, 1987, is willing to continue to serve in such capacity, and the
Company desires to retain the Executive in such capacity on the terms
and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT. The Company agrees to continue to employ the
Executive, and the Executive agrees to continue to be employed by the
Company, upon the terms and conditions hereinafter provided for a
period commencing as of July 25, 1993 and ending on July 31, 1996 (the
"Term"). The Executive hereby represents and warrants that he has the
legal capacity to execute and perform this Agreement, that it is a
valid and binding agreement, enforceable against him according to its
terms, and that its execution and performance by him does not violate
the terms of any existing agreement or understanding to which the
Executive is a party. In addition, the Executive represents and
warrants that he knows of no reason why he is not physically capable of
performing his obligations under this Agreement in accordance with its
terms.
2. POSITION AND DUTIES. During the Term, the Executive agrees to
serve as a Vice Chairman of the Company and the Holding Company,
reporting to the Chairman and Chief Executive Officer (the "CEO") of
the Company and the Holding Company and having such powers and duties
as may be conferred upon him by the CEO or by the
<PAGE> 3
Board of Directors of the Company (the "Board") or the Board of
Directors of the Holding Company. During the Term, and except for illness or
incapacity and reasonable vacation periods of no more than 4 weeks in any
calendar year (or such other period as shall be consistent with the Company's
policies for other key executives), the Executive shall devote all of his
business time, attention, skill and efforts exclusively to the business and
affairs of the Company and the Holding Company and their subsidiaries and
affiliates, shall not be engaged in any other business activity, and shall
perform and discharge well and faithfully the duties which may be assigned to
him from time to time by the Board of Directors of the Company or the Holding
Company; provided, however, that nothing in this Agreement shall preclude the
Executive from devoting time during reasonable periods required for:
(i) serving, in accordance with the Company's policies and with the
prior approval of the Board, as a director or member of a committee of
any company or organization involving no actual or potential conflict
of interest with the Company or the Holding Company or any of their
subsidiaries or affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
(iv) investing his personal assets in businesses in which his
participation is solely that of an investor in such form or manner as
will not violate section 6 below or require any services on the part of
the Executive in the operation of the affairs of such business,
provided, however, that such activities do not materially affect or
interfere with the performance of the Executive's duties and
obligations to the Company or the Holding Company.
3. COMPENSATION. For all services rendered by the Executive in any
capacity required hereunder during the Term, including, without
limitation, services as an executive,
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<PAGE> 4
officer, director, or member of any committee of the Company, the Holding
Company or any subsidiary, affiliate or division thereof, the Executive shall
be compensated as follows:
(a) BASE SALARY. The Company shall pay the Executive a fixed salary
of $400,000 per annum or such higher annual amount as is being paid
from time to time pursuant to the terms hereof ("Base Salary"). The
Base Salary shall be subject to such periodic review (which shall occur
as least annually) and such periodic increases as the Board shall deem
appropriate in accordance with the Company's customary procedures and
practices regarding the salaries of senior officers. Base Salary shall
be payable in accordance with the customary payroll practices of the
Company, but in no event less frequently than monthly. The employee
will receive a tax reimbursement payment at the end of each year which
will compensate the employee for any additional state and local taxes
imposed in excess of those that the employee would have borne had he
resided and worked exclusively in Pennsylvania. This payment will be
grossed up each year to cover federal, state, local, social security,
medicare and similar taxes thereon.
(b) BONUS. The Company shall pay the Executive such amounts, if any,
as may be due under the terms of the Mellon Bank Corporation Profit
Bonus Plan (or any successor plan), which currently provides for
payment of up to 100% of Base Salary for each calendar year, with such
payments of bonus to be made in accordance with the terms of such bonus
plan. For the Profit Bonus Plan award for 1994 (payable in 1995) and
for future years, it is understood that the Executive may receive some
portion of his Profit Bonus Plan award in the form of restricted stock
or phantom stock units, such awards to be made on the same terms as
apply to other members of the Office of the Chairman.
(c) ADDITIONAL BENEFITS. Except as modified by this Agreement, the
Executive shall be entitled to participate in all compensation or
employee benefit plans or programs,
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<PAGE> 5
and to receive all benefits, perquisites and emoluments for which
any salaried employees are eligible under any plan or program, now
or hereafter established and maintained by the Company or the Holding
Company for senior officers, to the fullest extent permissible under
the general terms and provisions of such plans or programs and in
accordance with the provisions thereof, including group
hospitalization, health, dental care, senior executive life or
other life insurance, travel or accident insurance, disability plans,
tax-qualified pension, savings, thrift and profit-sharing plans,
deferred compensation plans, termination pay programs, sick-leave
plans, auto allowance or auto lease plans, and executive contingent
compensation plans, including, without limitation, capital
accumulation programs and stock purchase, restricted stock or
stock option plans.
Specifically, but not by way of limitation, the Executive shall be
eligible to receive payments under the special severance arrangements
(the "Severance Arrangements") and the special pension protection
arrangements adopted by resolution of the Board of Directors of the
Holding Company on June 15, 1987 for employees of the Holding Company
and its affiliates.
Notwithstanding the foregoing, nothing in this Agreement shall preclude
the amendment or termination of any such plan or program, provided that
such amendment or termination is applicable generally to all of the
senior officers of the Company or any subsidiary or affiliate.
(d) PERQUISITES. The Company will also furnish the Executive, without
cost to him except associated tax liability, with (i) membership in one
country club located within the Pittsburgh metropolitan area and one
business club located in Pittsburgh, (ii) an annual physical
examination of the Executive by a physician selected by the Executive
and (iii) personal financial planning and tax planning and preparation
services to be provided at the reasonable expense of the Company.
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<PAGE> 6
4. BUSINESS EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable travel or other expenses incurred by the
Executive (and his spouse where there is a legitimate business reason
for his spouse to accompany him) in connection with the performance of
his duties and obligations under this Agreement, subject to the
Executive's presentation of appropriate vouchers in accordance with
such procedures as the Company may from time to time establish for
senior officers and to preserve any deductions for Federal income
taxation purposes to which the Company may be entitled.
5. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) CERTAIN TERMINATIONS. In the event the Executive's employment
hereunder terminates due to either Permanent Disability, a Without
Cause Termination or a Constructive Discharge, the Company, shall as
liquidated damages or severance pay, or both, continue, subject to the
provisions of Section 6 below, to pay the Executive's Base Salary as in
effect at the time of such termination until the expiration of the Term
and the one-year period beginning with the end of the Term (the
"Severance Period"), provided, however, that in the case of Permanent
Disability, such payments shall be offset by any amounts otherwise paid
to the Executive under the Company's disability plan generally
available to other employees, and, provided, further, that in the case
of a change in control (as defined for purposes of the Severance
Arrangements) such payments shall be offset by any amounts otherwise
paid to the Executive under the Severance Arrangements. In addition,
earned but unpaid Base Salary as of the date of termination of
employment shall be payable in full and any bonus award the Executive
would have received had he been employed throughout the bonus year,
including any restricted stock or phantom stock units payable in lieu
of any portion of the Profit Bonus Plan award, shall be payable on a
pro-rated basis for the year in which such termination of employment
occurs only. The Executive shall continue to participate through the
end of the Severance Period in all compensation or employee benefit
programs maintained by the Company or the Holding Company in which he
was participating
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<PAGE> 7
on the date of termination, including group hospitalization,
health, dental care, life, senior executive life or other insurance,
travel or accident insurance, disability plans, tax-qualified pension,
savings, thrift and profit-sharing plans and deferred compensation
plans, all in accordance with the terms and conditions of the
applicable employee benefit plans in effect from time to time as
applied to employees, and outstanding stock options and shares of
restricted stock shall continue to vest and be exercisable, as
permitted by the applicable plan. The perquisites set forth in
Paragraph 3(d)(i) and (iii) shall continue through the first
anniversary of the Executive's termination of employment. The
Executive shall have no duty or obligation to seek other employment
through the end of the Severance Period.
(b) OTHER TERMINATIONS. In the event the Executive's employment
hereunder terminates due to a Termination for Cause or the
Executive terminates employment with the Company for reasons other than
a Constructive Discharge, Permanent Disability or retirement pursuant
to the Mellon Bank Retirement Plan, or any successor plan, earned but
unpaid Base Salary as of the date of termination of employment shall be
payable in full. However, no other payments shall be made, or benefits
provided, by the Company under this Agreement except for restricted
shares of stock and stock options to the extent already vested, and
except for benefits that have already become vested under the terms of
employee benefit programs maintained by the Company or its affiliates
for its employees generally.
(c) DEFINITIONS. For purposes of this Agreement, the following terms
have the following meanings:
(i) The term "Termination for Cause" means, to the maximum
extent permitted by applicable law, a termination of the
Executive's employment by the Company by a vote of a majority of
the Board members then in office, because the Executive has (a)
been convicted of a criminal offense covered by
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<PAGE> 8
Section 19 of the Federal Deposit Insurance Act, 12 U.S.C. Section
1829, or (b) has entered a plea of nolo contendere thereto, or
(c) the Executive has breached or failed to perform his duties
hereunder, and such breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness (within the
meaning of Section 1713(a) of the Pennsylvania Business
Corporation Law, as amended), or a final determination has been
reached that the Executive has violated the representations made
in Section 1 above, or the provisions of Section 6, below;
provided, however, that the Board has given the Executive advance
notice of such Termination for Cause including the reasons
therefor, together with a reasonable opportunity for the Executive
to appear with counsel before the Board and to reply to such
notice.
(ii) The term "Constructive Discharge" means a termination of
the Executive's employment by the Executive due to a failure of
the Company or its successors to fulfill the obligations under
this Agreement in any material respect, including (a) any failure
to elect or reelect or to appoint or reappoint the Executive to
the offices of Vice Chairman of the Company and the Holding
Company or as a member of their boards of directors, (b) any other
material change by the Company and the Holding Company in the
functions, duties or responsibilities of the Executive's position
with the Company and the Holding Company which would reduce the
ranking or level, dignity, responsibility, importance or scope of
such position, (c) any imposition on the Executive of a
requirement to be permanently based at a location more than fifty
miles from the principal office of the Company without the consent
of the Executive, or (d) any reduction in the Executive's salary
below the amount then provided for under Section 3(a) hereof.
(iii) The term "Without Cause Termination" means a termination of
the Executive's employment by the Company upon 30 days notice
to the
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<PAGE> 9
Executive, other than due to Permanent Disability or
expiration of the Term and other than a Termination for Cause.
(iv) The term "Permanent Disability" means the inability of
the Executive to work for a period of six full calendar months
during any eight consecutive calendar months due to illness or
injury of a physical or mental nature, supported by the completion
by the Executive's attending physician of a medical certification
form outlining the disability and treatment.
(d) For purposes of calculating benefits accruing to the Executive
under any severance program now or hereafter in effect for employees of
the Holding Company or any of its subsidiaries, the Executive has been
granted and has been vested in a credit for 8 years of past service to
the Company, its subsidiaries and affiliates, such credit to be added
to any years of actual service that the Executive shall have accrued
prior to severance. In addition, under Paragraph 7(a)(ii) of this
Agreement, on and after August 1, 1994 the Executive may earn and
become vested in up to an additional 5 years of service for the purpose
of calculating severance benefits.
6. OTHER DUTIES OF EXECUTIVE DURING AND AFTER TERM.
(a) CONFIDENTIAL INFORMATION. The Executive recognizes and
acknowledges that all information pertaining to the affairs, business,
clients or customers of the Holding Company or any of its subsidiaries
or affiliates (any or all of such entities being hereinafter referred
to as the "Business"), as such information may exist from time to time,
other than information that the Holding Company or any of its
subsidiaries or affiliates has previously made publicly available, is
confidential information and is a unique and valuable asset of the
Business, access to and knowledge of which are essential to the
performance of the Executive's duties under this Agreement. The
Executive shall not, through the end of the Severance Period, except to
the
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<PAGE> 10
extent reasonably necessary in the performance of his duties under
this Agreement, divulge to any person, firm, association, corporation,
or governmental agency, any information concerning the affairs,
business, clients or customers of the Business (except such information
as is required by law to be divulged to a government agency or pursuant
to lawful process), or make use of any such information for his own
purposes or for the benefit of any person, firm, association or
corporation (except the Business) and shall use his reasonable best
efforts to prevent the disclosure of any such information by others.
All records, memoranda, letters, books, papers, reports, accountings,
experience or other data, and other records and documents relating to
the Business, whether made by the Executive or otherwise coming into
his possession, are confidential information and are, shall be, and
shall remain the property of the Business. No copies thereof shall be
made which are not retained by the Business, and the Executive agrees,
on termination of his employment or on demand of the Holding Company to
deliver the same to the Holding Company.
(b) NON-COMPETE. Through the end of the Severance Period, the
Executive shall not without express prior written approval of the CEO,
directly or indirectly, own or hold any proprietary interest in, or be
employed by or receive remuneration from, any corporation, partnership,
sole proprietorship or other entity engaged in competition with the
Company, the Holding Company or any of their affiliates (a
"Competitor"), other than severance-type benefits from entities
constituting prior employers of the Executive. The Executive also
agrees that he will not solicit for the account of any Competitor, any
customer or client of the Company, the Holding Company or their
affiliates, or, in the event of the Executive's termination of
employment, any entity or individual that was such a customer or client
during the 12 month period immediately preceding the Executive's
termination of employment. The executive also agrees not to act on
behalf of any Competitor to interfere with the relationship between the
Company, the Holding Company or their affiliates and their employees.
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<PAGE> 11
For purposes of the preceding paragraph, (i) the term "proprietary
interest" means direct or indirect legal or equitable ownership,
whether through stockholdings or otherwise, of an equity interest in a
business, firm or entity, other than ownership through mutual funds or
other similar diversified vehicles; provided, however, that the
Executive shall not be required to divest any previously acquired
equity interest and (ii) an entity shall be considered to be "engaged
in competition" if such entity is a commercial bank located in
Pittsburgh, Pennsylvania or any other major money center commercial
bank or major regional commercial bank, in either case, with principal
offices in any state east of the Mississippi River. Notwithstanding
the foregoing, it is understood that the Executive is subject to all
Policies and Procedures of the Company and the Holding Company
regarding investment in securities of competitors.
(c) REMEDIES. The Company's obligation to make payments, deliver
shares of Stock or provide for any benefits under this Agreement
(except to the extent vested) shall cease upon a violation of the
preceding provisions of this Section; provided, however, that in the
event of a violation of the preceding provisions of this section
following a "change in control" (as defined for purposes of the
severance arrangements for employees of the Holding Company adopted by
resolution of the Board of Directors of the Holding Company on June 15,
1987) the Company's obligations to make payments, deliver shares of
stock or provide for any benefit under this Agreement shall cease only
to the extent of the Executive's remuneration from subsequent
employers, or income from self-employment which is subject to FICA
taxation, during the period such severance compensation is to be paid
by the Company. The Executive's agreement as set forth in this Section
6 shall survive the Executive's termination of employment with the
Company.
- 10 -
<PAGE> 12
7. RETIREMENT.
(a) PAST SERVICE CREDIT.
(i) For purposes of calculating benefits accruing to the Executive
under the Mellon Bank Retirement Plan or any successor plan (the
"Retirement Plan") and all related excess benefit and other benefit
restoration plans maintained by the Company, the Executive has been
granted a credit for 8 years of past service to the Company, such
credit to be added to any years of actual service with the Company and
the Holding Company or their subsidiaries and affiliates that the
Executive shall have accrued upon his retirement. The Executive has
been and shall be considered to be fully vested in such additional
years of service for all purposes under the Retirement Plan and all
related excess benefit and other benefit restoration plans maintained
by the Company.
(ii) The Executive may also earn and be granted upon his retirement an
additional credit for up to 5 years of service. Such service credit
shall be added to the above past service credit and to the years of
service with the Company and the Holding Company and their subsidiaries
and affiliates that the Executive shall have accrued upon his
retirement for the purposes of calculating benefits under the
Retirement Plan and all related excess benefit and other benefit
restoration plans maintained by the Company. The service credit
granted to the Executive under this Paragraph (ii) shall equal 5 times
a fraction whose numerator equals (A) and whose denominator equals (B),
where:
(A) is the Executive's actual months of service with the
Company and the Holding Company and their subsidiaries and
affiliates after August 1, 1994 through the date of his
retirement (but not to exceed 63 months); and
(B) is 63.
- 11 -
<PAGE> 13
This additional service credit will continue to be earned after the end
of the Term; provided, that the Executive continues to be employed by
the Company or Holding Company or their subsidiaries or affiliates.
(b) CALCULATION. For purposes of calculating the Executive's final
average compensation under the Retirement Plan, notwithstanding
provisions to the contrary in the Retirement Plan, the Executive's
compensation in any year shall be deemed to include any bonus awarded
to the Executive for that year under the Profit Bonus Plan, or any
successor plan, including the cash value of any restricted stock or
phantom stock units payable in lieu of any portion of the Profit Bonus
Plan award. For purposes of calculating final average compensation,
the cash value of any portion of bonus payable as either restricted
stock or phantom stock units shall be determined on the date such
restricted stock or phantom stock units are granted.
(c) SOURCE OF FUNDS. Any payments hereunder in excess of those which
would have been received under the Retirement Plan without regard to
this Section 7, shall be paid out of the general assets of the Company
and not from the assets of the Retirement Plan.
The amount of the monthly supplemental retirement benefit payable to
the Executive hereunder shall be reduced by the total monthly amount of
benefits provided to or in respect of the Executive under all
tax-qualified retirement plans and related excess benefit and other
benefit restoration plans maintained by the Company or the Holding
Company for the Executive, including the Mellon Bank Benefit
Restoration Plan and the Mellon Bank IRC Section 401(a)(17) Plan (the
"Supplemental Plans") but not including the Holding Company's
Retirement Savings Plan, a section 401(k) plan.
The Executive owns interests in life insurance policies (the
"Policies") as a participant in the Mellon Bank Senior Executive Life
Insurance Plan. The
- 12 -
<PAGE> 14
supplemental retirement benefit payable to the Executive hereunder
shall be further reduced by the Executive's interest in the cash value
of the Policies. This reduction shall be calculated in the same
manner as under the Supplemental Plans.
The Executive shall elect the form of payment of his supplemental
retirement benefit in the same manner and subject to the same
provisions (including timing requirements and all reductions and/or
penalties for late elections) as provided under the Supplemental Plans.
The Executive may elect any optional form of payment permitted under
the Supplemental Plans, including a timely lump-sum election which
avoids constructive receipt.
In the event that the Executive elects a form of payment of his
supplemental retirement benefits which provides for payments to
continue after his death and dies without having received all payments
of supplemental retirement benefits that may be payable hereunder, then
the unpaid balance of such benefits shall be paid in accordance with
the form of payment elected by the Executive. Any such remaining
payments shall be made to the Executive's beneficiary provided under
the Supplemental Plans, subject to any contrary written instructions
from the Executive designating a different beneficiary for such
payments.
8. LIMITATION AS TO AMOUNTS PAYABLE.
(a) SECTION 280G LIMITATION. In the event that any payment, coverage
or benefit provided under this Agreement would, in the opinion of
counsel for the Company, not be deemed to be deductible in whole or in
part in the calculation of the Federal income tax of the Company, or
any other person making such payment or providing such coverage or
benefit, by reason of Section 280G of the Code, the aggregate payments,
coverages or benefits provided hereunder shall be reduced to the "safe
harbor" level under Section 280G so that no portion of such amount
which is paid to the Executive is not deductible by reason of Section
280G of the Code. Executive
- 13 -
<PAGE> 15
may determine which payments, coverages or benefits will be
reduced in order to satisfy the "safe harbor" level under Section
280G. Furthermore, the Company shall hold such portions not paid to
the Executive in escrow pending a final determination of whether such
amounts would be deductible if paid to the Executive, and the Company
shall use its best efforts to seek a ruling from the Internal Revenue
Service that any portion of such payments, coverages or benefits not
paid to the Executive pursuant to this Section 8(a) would continue to
be deductible if paid to the Executive and the Company shall pay to the
Executive any portion of such amounts for which such a ruling is
received. In the event the IRS will not rule on such matter, the
Company shall pay to the Executive such amounts maintained in escrow
pursuant to this Section 8(a) as shall be determined at some point in
time by a counsel, selected by the Company and the Executive, is likely
to be deductible if paid to the Executive or shall be forfeited by the
Executive in the event of a final determination by the IRS that such
amounts are not deductible. For purposes of this paragraph, the value
of any non-cash benefit or coverage or any deferred to contingent
payment or benefit shall be determined by the independent auditors of
the Company in accordance with the principles of Section 280G of the
Code.
(b) OFFSET. Within 90 days following any termination of his
employment which constitutes a Without Cause Termination or
Constructive Discharge (as such terms are defined in Section 5(c)),
Executive may elect, by written notice to Employer, to have the
provisions of this Section 8(b) apply to reduce the aggregate payments,
coverages and benefits provided under this Agreement during the
remainder of the Term of this Agreement following his termination of
employment (hereafter the "Applicable Period"). If Executive does not
make such election, this Section 8(b) shall have no application or
effect under this Agreement.
If Executive elects to have this Section 8(b) apply, the aggregate
payments, coverages and benefits provided to Executive under this
Agreement during the
- 14 -
<PAGE> 16
Applicable Period following his termination of employment shall
be reduced by "mitigation" (as defined below) to comply with
Regulations under Section 280G of the Code, including, in particular,
Question and Answer 42(b). "Mitigation" shall mean that payments which
are made and benefits which are provided by the Employer during the
Applicable Period after termination of Executive's employment and which
are attributable to the Applicable Period and not to any other period
will be reduced by all earned income (within the meaning of Section
911(d)(2)(A) of the Code) received by Executive from persons or
entities other than the Employer or from self-employment during the
Applicable Period.
Not less frequently than annually (by December 31 of each year) during
the Applicable Period, Executive shall account to the Employer with
respect to all payments and benefits received by Executive from other
employment or self-employment during the Applicable Period which are
required by reason of his duty of "mitigation" hereunder to be offset
against payments or benefits received by Executive from the Employer
during the Applicable Period. During the Applicable Period, if the
Employer has paid amounts in excess of those to which Executive was
entitled (after giving effect to the offsets provided above), Executive
shall reimburse the Employer for such excess by December 31 of such
year.
If Executive receives earned income from other employment or
self-employment during only a portion, but not all, of the Applicable
Period, only payments which are made and benefits which are provided by
the Employer that are attributable to the portion of the Applicable
Period during which Executive receives earned income from other
employment or self-employment shall be subject to reduction and offset
as provided above.
If Executive elects to have this Section 8(b) apply, Executive may
elect, at any time, to be subject to a greater (but no lesser) duty of
"mitigation" than otherwise provided above in this Section 8(b), if
counsel selected by Executive determines
- 15 -
<PAGE> 17
that such greater duty of "mitigation" is advisable in order to
comply with Regulations under Section 280G.
9. WITHHOLDING TAXES. The Company may directly or indirectly withhold
from any payments made under this Agreement all Federal, state, city or
other taxes as shall be required pursuant to any law or governmental
regulation or ruling.
10. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this
Agreement shall preclude the Company from consolidating or merging into
or with, or transferring all or substantially all of its assets to,
another corporation which assumes this Agreement and all obligations
and undertakings of the Company hereunder. Upon such a consolidation,
merger or transfer of assets and assumption, the term "Company" as used
herein shall mean such other corporation and this Agreement shall
continue in full force and effect.
11. NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be
deemed to have been duly given if delivered or mailed, postage prepaid,
by same day or overnight mail as follows:
(a) To the Company:
Head of Human Resources Department
Mellon Bank, N.A.
One Mellon Bank Center, Room 720
Pittsburgh, Pennsylvania 15258
(b) To the Executive:
W. Keith Smith
Mellon Bank, N.A.
One Mellon Bank Center, Room 4700
Pittsburgh, Pennsylvania 15258
- 16 -
<PAGE> 18
or to such other address as either party shall have previously
specified in writing to the other.
12. NO ATTACHMENT. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge,
or hypothecation or to execution, attachment, levy, or similar process
or assignment by operation of law, and any attempt voluntary or
involuntary, to effect any such action shall be null, void and of no
effect; provided, however, that nothing in this Section 12 shall
preclude the assumption of such rights by executors, administrators, or
other legal representatives of the Executive or his estate and their
assigning any rights hereunder to the person or persons entitled
thereto.
13. SOURCE OF PAYMENTS. All payments provided for under this
agreement shall be paid in cash from the general funds of the Company.
The Company shall not be required to establish a special or separate
fund or other segregation of assets to assure such payments, and, if
the Company shall make any investments to aid it in meeting its
obligations hereunder, the Executive shall have no right, title or
interest whatever in or to any such investments except as may otherwise
be expressly provided in a separate written instrument relating to such
investments. Nothing contained in this agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a
trust of any kind, or a fiduciary relationship, between the Company and
the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such
right, without prejudice to rights which employees may have, shall be
no greater than the right of an unsecured creditor of the Company.
14. BINDING AGREEMENT. This Agreement shall be binding upon, and
shall inure to the benefit of, the Executive and the Company and, as
permitted by this Agreement, their respective successors, assigns,
heirs, beneficiaries and representatives.
- 17 -
<PAGE> 19
15. GOVERNING LAW. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an
original and all of which together shall be deemed to be one and the
same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto
duly authorized, and the Executive has signed this Agreement, all as of
the first date above written.
ATTEST: Mellon Bank, N.A.
Elaine Beck Oresti By: D. Michael Roark
- --------------------- ---------------------------
Elaine Beck Oresti D. Michael Roark
Secretary Head of the Human
Resources Department
W. Keith Smith
---------------------------
W. Keith Smith
- 18 -
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (parent Corporation)(a)
- --------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in thousands) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries $ 93,611 $195,584 $279,942 $315,144
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 24,365 22,829 73,295 72,244
- --------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $117,976 $218,413 $353,237 $387,388
- --------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements(b) $ 15,596 $ 26,464 $ 46,786 $ 76,475
- --------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 4.84 9.57 4.82 5.36
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 2.95 4.43 2.94 2.60
- --------------------------------------------------------------------------------------------------------------
<FN>
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation") and Mellon Financial Company, a wholly
owned subsidiary of the Corporation that functions as a financing
entity for the Corporation and its subsidiaries by issuing commercial
paper and other debt guaranteed by the Corporation. Because these
ratios exclude from earnings the equity in undistributed net income
(loss) of subsidiaries, these ratios vary with the payment of dividends
by such subsidiaries.
(b) Preferred stock dividend requirements represent the pretax amounts
required to cover preferred stock dividends.
</TABLE>
<PAGE> 1
EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in thousands) 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes $278,044 $150,364 $ 820,995 $ 661,095
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 118,485 81,547 333,125 212,833
- --------------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 396,529 231,911 1,154,120 873,928
Interest on deposits 227,438 144,720 652,074 363,433
- --------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $623,967 $376,631 $1,806,194 $1,237,361
- --------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 15,596 $ 26,464 $ 46,786 $ 76,475
- --------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 3.35 2.84 3.46 4.11
Including interest on deposits 1.80 1.66 1.83 2.15
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 2.96 2.15 3.04 3.02
Including interest on deposits 1.73 1.49 1.75 1.90
- --------------------------------------------------------------------------------------------------------------
<FN>
(a) Preferred stock dividend requirements represent the pretax amounts
required to cover preferred stock dividends.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,515
<INT-BEARING-DEPOSITS> 692
<FED-FUNDS-SOLD> 594
<TRADING-ASSETS> 302
<INVESTMENTS-HELD-FOR-SALE> 2,276
<INVESTMENTS-CARRYING> 3,189
<INVESTMENTS-MARKET> 3,211
<LOANS> 28,073
<ALLOWANCE> (574)
<TOTAL-ASSETS> 41,907
<DEPOSITS> 29,311
<SHORT-TERM> 5,035
<LIABILITIES-OTHER> 1,791
<LONG-TERM> 1,642
<COMMON> 74
0
435
<OTHER-SE> 3,619
<TOTAL-LIABILITIES-AND-EQUITY> 41,907
<INTEREST-LOAN> 1,815
<INTEREST-INVEST> 235
<INTEREST-OTHER> 53
<INTEREST-TOTAL> 2,118
<INTEREST-DEPOSIT> 652
<INTEREST-EXPENSE> 952
<INTEREST-INCOME-NET> 1,166
<LOAN-LOSSES> 70
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,501
<INCOME-PRETAX> 821
<INCOME-PRE-EXTRAORDINARY> 821
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 517
<EPS-PRIMARY> 3.32
<EPS-DILUTED> 3.30
<YIELD-ACTUAL> 4.68
<LOANS-NON> 183
<LOANS-PAST> 134
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 607
<CHARGE-OFFS> 181
<RECOVERIES> (70)
<ALLOWANCE-CLOSE> 574
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
