<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 JUNE 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 June 30, 1995
----- -------------
<S> <C>
Common Stock, $.50 par value 142,353,221
</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 Balance Sheet 39
Consolidated Income Statement 40
Consolidated Statement of Cash Flows 42
Consolidated Statement of Changes in Shareholders' Equity 43
Notes to Financial Statements 44
Selected Statistical Information:
Consolidated Balance Sheet - Average Balances and Interest Yields/Rates 50
Deposits 52
Part II - Other Information
---------------------------
Legal Proceedings (Item 1) 52
Submission of Matters to a Vote of Security Holders (Item 4) 52
Exhibits and Reports on Form 8-K (Item 6) 53
Signature 54
Corporate Information 55
Index to Exhibits 56
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Three months Six months
ended June 30, ended June 30,
(dollar amounts in millions, except per share amounts) 1995 1994 (a) 1995 1994 (a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 172 $158 $ 342 $ 314
Net income applicable to common stock 162 143 322 284
Dividends paid on common stock 74 42 140 85
Per common share:
Net income $1.09 $.97 $2.17 $1.93
Dividends (b) .50 .37 .95 .75
Annualized return on common shareholders' equity 17.47% 15.75% 17.51% 15.93%
Annualized return on assets 1.75% 1.69% 1.76% 1.68%
Efficiency ratio 64% 65% 63% 66%
Efficiency ratio excluding amortization of intangibles (c) 61% 63% 60% 63%
Average common shares and equivalents
outstanding (in thousands) 148,055 149,105 148,398 148,818
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
BALANCES AT JUNE 30 1995 1994 (a)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans $27,765 $24,731
Total assets 40,016 37,908
Deposits 26,807 26,208
Common shareholders' equity 3,643 3,716
Market capitalization 5,925 5,400
Closing common stock price $41.625 $ 37.50
Book value per common share 25.59 25.35
Common shareholders' equity to assets ratio 9.10% 9.80%
Tier I capital ratio 8.98% 10.27%
Total (Tier I plus Tier II) capital ratio 12.31% 13.74%
Leverage capital ratio 8.32% 9.54%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts have been restated to reflect the merger with Dreyfus, which was
accounted for as a pooling of interests. Per share amounts have also been
restated to reflect the three-for-two common stock split.
(b) Dividends per common share have not been restated to reflect the Dreyfus
merger.
(c) Excludes amortization of goodwill and other intangible assets.
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 IN THE SECOND QUARTER OF 1995
--------------------------------------------------------------------------------
DIVIDEND INCREASE
On April 17, 1995, the directors of the Corporation approved an 11% increase in
the quarterly cash dividend to $.50 per common share. The increased dividend
was paid on May 15, 1995, to shareholders of record on April 28, 1995. This is
the third common dividend increase that the Corporation has announced since the
beginning of 1994, resulting in a total common dividend per share increase of
97%.
MELLON BANK CORPORATION AND CHEMICAL BANKING CORPORATION JOINT VENTURE
In May 1995, the Corporation and Chemical Banking Corporation (Chemical)
completed their previously announced joint venture and formed Chemical Mellon
Shareholder Services (CMSS), the nation's largest company that focuses
exclusively on providing stock transfer and related shareholder services to
publicly held companies. The Corporation contributed the assets and business
of its Mellon Securities Transfer Services subsidiary to the joint venture and
Chemical contributed its Geoserve Shareholder Services unit to the joint
venture. CMSS has more than 13 million shareholder accounts and more than
2,000 corporate clients, including the lead share of companies listed on both
the New York Stock Exchange and the American Stock Exchange.
REPURCHASE OF COMMON STOCK AND WARRANTS
In June, the Corporation repurchased from American Express Travel Related
Services Company, Inc., a subsidiary of American Express Company, the common
stock and equity purchase options (warrants) issued in 1993 as part of the
purchase price of The Boston Company, Inc., in a privately negotiated
transaction. The Corporation repurchased 3,750,000 common shares and warrants
for an additional 4,500,000 common shares for $213 million. This transaction
was funded with cash on hand. The repurchased shares were returned to the
Corporation's treasury account.
The repurchase of the common stock and warrants increased earnings per common
share by less than $.01 in the second quarter of 1995. It is anticipated that
this transaction will enhance earnings per common share by approximately $.05
for the full year 1995 and will enhance the quarterly return on common
shareholders' equity by approximately 80 basis points. This transaction reduced
the June 30, 1995, book value per share by $.80 and the capital ratios by 50 to
60 basis points. Average common stock and stock equivalents used for the
primary earnings per share computation was approximately 148 million shares for
the second quarter and first half of 1995. Following this common share and
warrant repurchase, average primary common stock and stock equivalents, at the
June 30, 1995, share price, will be approximately 143.7 million shares and
146.7 million shares for the third quarter and first nine months of 1995,
respectively.
3
<PAGE> 5
<TABLE>
<CAPTION>
BUSINESS SECTORS
-----------------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED JUNE 30,
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 $ 92 $ 95 $ 336 $ 313 $233 $243 $ 99 $ 102
Credit quality expense (revenue) - - 35 13 - - (4) 3
Operating expense 64 60 216 201 182 188 39 46
---------------------------------------------------------------------------------------------------------------------------
Income before taxes 28 35 85 99 51 55 64 53
Income taxes 11 15 32 38 20 26 23 19
---------------------------------------------------------------------------------------------------------------------------
Net income $ 17 $ 20 $ 53 $ 61 $ 31 $ 29 $ 41 $ 34
---------------------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.4 $21.7 $20.2 $1.8 $0.8 $13.0 $13.0
Average common equity $0.2 $0.2 $ 1.1 $ 1.0 $0.4 $0.5 $ 1.1 $ 1.0
Return on common
shareholders' equity (a) 40% 47% 19% 24% 28% 26% 15% 13%
Return on assets (a) NM NM .98% 1.20% NM NM 1.26% 1.06%
Pretax operating margin 31% 37% 25% 31% 22% 23% 64% 53%
Pretax operating margin
excluding amortization of
intangibles 31% 37% 29% 36% 25% 26% 66% 54%
Efficiency ratio excluding
amortization of intangibles 69% 63% 60% 60% 75% 74% 38% 43%
---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized.
NM - Not meaningful.
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
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 $184 $190 $ 669 $ 618 $466 $495 $ 195 $ 214
Credit quality expense (revenue) - - 64 32 - - (4) 2
Operating expense 127 126 423 427 366 375 78 95
---------------------------------------------------------------------------------------------------------------------------
Income before taxes 57 64 182 159 100 120 121 117
Income taxes 23 27 70 62 40 53 43 42
---------------------------------------------------------------------------------------------------------------------------
Net income $ 34 $ 37 $ 112 $ 97 $ 60 $ 67 $ 78 $ 75
---------------------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.4 $21.5 $21.0 $1.6 $0.8 $13.1 $13.2
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) 40% 43% 20% 19% 28% 30% 15% 14%
Return on assets (a) NM NM 1.06% .93% NM NM 1.19% 1.15%
Pretax operating margin 31% 33% 27% 26% 21% 24% 62% 55%
Pretax operating margin
excluding amortization of
intangibles 32% 34% 31% 30% 25% 28% 64% 56%
Efficiency ratio excluding
amortization of intangibles 69% 66% 59% 64% 75% 72% 38% 43%
---------------------------------------------------------------------------------------------------------------------------
<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>
$ 760 $ 753 $ 2 $ 3 $ 32 $ 34 $ 794 $ 790
31 16 (19) (2) - 3 12 17
501 495 2 3 5 13 508 511
-----------------------------------------------------------------------------------------------------------------------------
228 242 19 2 27 18 274 262
86 98 7 1 9 5 102 104
-----------------------------------------------------------------------------------------------------------------------------
$ 142 $ 144 $ 12 $ 1 $ 18 $ 13 $ 172 $ 158
-----------------------------------------------------------------------------------------------------------------------------
$36.8 $34.4 $0.2 $0.4 $2.4 $2.7 $ 39.4 $ 37.5
$2.8 $ 2.7 $ - $ - $0.9 $1.0 $ 3.7 $ 3.7
20% 22% NM NM NM NM 17% 16%
1.55% 1.68% NM NM NM NM 1.75% 1.69%
30% 32% NM NM NM NM 35% 33%
33% 35% NM NM NM NM 38% 35%
63% 63% NM NM NM NM 61% 63%
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<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>
$1,514 $1,517 $ 6 $ 6 $ 67 $ 76 $1,587 $1,599
60 34 (32) (9) - 4 28 29
994 1,023 3 5 10 21 1,007 1,049
-----------------------------------------------------------------------------------------------------------------------------
460 460 35 10 57 51 552 521
176 184 13 4 21 19 210 207
-----------------------------------------------------------------------------------------------------------------------------
$ 284 $ 276 $ 22 $ 6 $ 36 $ 32 $ 342 $ 314
-----------------------------------------------------------------------------------------------------------------------------
$ 36.5 $ 35.4 $0.2 $0.4 $2.4 $2.0 $ 39.1 $ 37.8
$ 2.8 $ 2.7 $ - $ - $0.9 $0.9 $ 3.7 $ 3.6
21% 21% NM NM NM NM 18% 16%
1.57% 1.57% NM NM NM NM 1.76% 1.68%
30% 30% NM NM NM NM 35% 33%
34% 34% NM NM NM NM 38% 35%
62% 64% NM NM NM NM 60% 63%
-----------------------------------------------------------------------------------------------------------------------------
</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 second quarter and first half of 1994, have been realigned to reflect the
change in methodology used by the Corporation to report business sector results
and to reflect the merger with Dreyfus which was accounted for as a pooling of
interests.
Income before taxes for the Corporation's core sectors was $228 million
in the second quarter of 1995, down $14 million, or 6%, compared with the
prior-year quarter. This decrease primarily resulted from higher credit
quality expense primarily related to credit cards including CornerStone(sm).
Income before taxes for the core sectors in the first half of 1995 totaled $460
million, unchanged from the prior-year period. Higher credit quality expense
was offset, by lower operating expenses. Return on common shareholders' equity
for the core sectors was 20% and 21% in the second quarter and first half of
1995, compared with 22% and 21% in the second quarter and first half of 1994.
Return on assets was 1.55% and 1.57% in the second quarter and first half of
1995, compared with 1.68% and 1.57% in the second quarter and first half of
1994. Results in the real estate workout sector also showed improvement, as a
result of lower credit quality expense, with income before taxes improving to
$19 million and $35 million in the second quarter and first half of 1995,
compared with $2 million and $10 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 $28 million in the second quarter of 1995, a decrease of $7 million
from the prior-year period. The decline was a result of lower fees in the
mutual fund business resulting from a lower average level of assets managed and
higher operating expenses in private asset management services. Income before
taxes for the first half of 1995 was $57 million, compared with $64 million in
the first half of 1994. This decrease primarily resulted from the same factors
responsible for the second quarter decrease. This sector continued to provide
excellent returns, as annualized return on common shareholders' equity equaled
40% in the second quarter and first half of 1995.
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 $85
million in the second quarter of 1995, compared with $99 million in the second
quarter of 1994. Revenue increased $23 million compared with the prior-year
period, primarily as a result of increased levels of average loans and higher
mortgage servicing fees, partially offset by a decline in other fee revenue as
the Corporation elected not to offer its seasonal tax refund anticipation loan
program in 1995. 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. Income before taxes for the first six months of 1995 was
$182 million, an increase of $23 million compared with the first six months of
1994. The increases in revenue and credit quality expense reflect the same
factors responsible for the second quarter increases. The decrease in
operating expense primarily resulted from higher marketing expense in 1994
related to the January 1994 introduction of the CornerStone(sm) credit card,
partially offset by higher levels of expenses associated with mortgage
servicing and credit card acquisitions. The annualized return on common
shareholders' equity for this sector was 19% and 20% in the second quarter and
first half of 1995, compared with 24% and 19% in the second quarter and first
half 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 $51 million in the second
quarter of 1995, a decrease of $4 million, compared with the second quarter of
1994. Revenue decreased $10 million primarily as a result of a decrease in
mutual fund administration and custody fees, lower fee revenue resulting from
the CMSS joint venture and lower securities lending revenue. The decline in
mutual fund administration and custody fees was due in part to the second
quarter 1994 sale of the Boston-based third-party mutual fund administration
business. Partially offsetting these decreases was an increase in revenue from
foreign exchange fees. See the table on page 18 for a further discussion of
the changes in fee revenue. The $6 million decrease in operating expense
primarily reflected lower incentive accruals, formation of the CMSS joint
venture and the sale of the third-party mutual fund business, offset partially
by expense growth in support of investments. Income before taxes for the first
half of 1995 was $100 million, a decrease of $20 million compared with the first
half of 1994, primarily as a result of the same factors responsible for the
second quarter decrease. The annualized return on common shareholders' equity
for this sector was 28% in the second quarter and first half of 1995,
compared with 26% and 30% in the second quarter and first six 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 $64
million for the second quarter of 1995, an increase of $11 million, compared
with the second quarter of 1994. Revenue decreased primarily as a result of
lower insurance premium finance spreads and a decline in securities trading
revenue. The decrease in credit quality expense primarily was a result of
credit recoveries. The decrease in operating expense which more than offset
the decrease in revenue, reflects lower overhead charges, the results of
infrastructure reengineering in the insurance premium finance business and
overall cost control efforts. Income before taxes in the first half of 1995
was $121 million, an increase of $4 million, compared with the first six months
of 1994, primarily reflecting the same factors responsible for the second
quarter increase. The annualized return on common shareholders' equity for
this sector was 15% in the second quarter and first half of 1995, compared with
13% and 14% in the second quarter and first half 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
$19 million and $35 million in the second quarter and first half of 1995,
compared with $2 million and $10 million in the second quarter and first half
of 1994. The improvement primarily reflected a lower level of required
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 $27 million and $57 million in the second
quarter and first half of 1995 principally reflected earnings on capital above
that required in the core sectors. The results for the second quarter and
first half of 1994 primarily reflected earnings on capital above that required
in the core sectors, as well as the results of operations from certain
divestitures. The results for the first six months of 1994 also reflected
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 JUNE 30, Consumer Institutional
(dollar amounts in millions) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 70 $ 81 $ 72 $63
Return on common shareholders' equity (a) 22% 28% 19% 17%
-----------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------------------------------
Net income $146 $134 $138 $142
Return on common shareholders' equity (a) 23% 23% 18% 19%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Products offered
--------------------------------------
Total Total
FOR THE THREE MONTHS ENDED JUNE 30, Investment Banking
(dollar amounts in millions) 1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $48 $ 49 $ 94 $ 95
Return on common shareholders' equity (a) 31% 32% 17% 19%
-----------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------------------------------------------------------
Net income $94 $104 $190 $172
Return on common shareholders' equity (a) 31% 34% 18% 17%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
8
<PAGE> 10
BUSINESS SECTORS (CONTINUED)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
Consumer Corporate/Institutional
(dollar amounts in Investment Services Banking Services Investment Services Banking Services
millions, averages JUNE 30, March 31, JUNE 30, March 31, JUNE 30, March 31, JUNE 30, March 31,
in billions) 1995 1995 1995 1995 1995 1995 1995 1995
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 92 $ 92 $ 336 $ 333 $233 $233 $ 99 $ 96
Credit quality expense (revenue) - - 35 29 - - (4) -
Operating expense 64 63 216 207 182 184 39 39
---------------------------------------------------------------------------------------------------------------------------
Income before taxes 28 29 85 97 51 49 64 57
Income taxes 11 12 32 38 20 20 23 20
---------------------------------------------------------------------------------------------------------------------------
Net income $ 17 $ 17 $ 53 $ 59 $ 31 $ 29 $ 41 $ 37
---------------------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.4 $21.7 $21.3 $1.8 $1.4 $13.0 $13.3
Average common equity $0.2 $0.2 $ 1.1 $ 1.1 $0.4 $0.4 $ 1.1 $ 1.0
Return on common
shareholders' equity (a) 40% 39% 19% 22% 28% 27% 15% 14%
Return on assets (a) NM NM .98% 1.13% NM NM 1.26% 1.12%
Pretax operating margin 31% 31% 25% 29% 22% 21% 64% 59%
Pretax operating margin
excluding amortization of
intangibles 31% 32% 29% 33% 25% 24% 66% 62%
Efficiency ratio excluding
amortization of intangibles 69% 68% 60% 58% 75% 76% 38% 38%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
JUNE 30, March 31, JUNE 30, March 31, JUNE 30, March 31, JUNE 30, March 31,
1995 1995 1995 1995 1995 1995 1995 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 760 $ 754 $ 2 $ 4 $ 32 $ 35 $ 794 $ 793
Credit quality expense (revenue) 31 29 (19) (13) - - 12 16
Operating expense 501 493 2 1 5 5 508 499
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes 228 232 19 16 27 30 274 278
Income taxes 86 90 7 6 9 12 102 108
-----------------------------------------------------------------------------------------------------------------------------
Net income $ 142 $ 142 $ 12 $ 10 $ 18 $ 18 $ 172 $ 170
-----------------------------------------------------------------------------------------------------------------------------
Average assets $36.8 $36.4 $0.2 $0.2 $2.4 $2.3 $39.4 $38.9
Average common equity $ 2.8 $ 2.7 $ - $ - $0.9 $1.0 $ 3.7 $ 3.7
Return on common
shareholders' equity (a) 20% 21% NM NM NM NM 17% 18%
Return on assets (a) 1.55% 1.58% NM NM NM NM 1.75% 1.77%
Pretax operating margin 30% 31% NM NM NM NM 35% 35%
Pretax operating margin
excluding amortization of
intangibles 33% 34% NM NM NM NM 38% 38%
Efficiency ratio excluding
amortization of intangibles 63% 62% NM NM NM NM 61% 60%
-----------------------------------------------------------------------------------------------------------------------------
<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 JUNE 30, March 31, JUNE 30, March 31,
(dollar amounts in millions) 1995 1995 1995 1995
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 70 $ 76 $ 72 $66
Return on common shareholders' equity (a) 22% 24% 19% 18%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Products offered
---------------------------------------------------
Total Total
Investment Banking
FOR THE THREE MONTHS ENDED JUNE 30, March 31, JUNE 30, March 31,
(dollar amounts in millions) 1995 1995 1995 1995
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $48 $46 $94 $96
Return on common shareholders' equity (a) 31% 31% 17% 18%
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Annualized
</TABLE>
Income before taxes for the total core sectors was $228 million in the second
quarter of 1995 compared with $232 million in the first quarter of 1995. This
decrease primarily resulted from an $8 million increase in operating expense
which more than offset a $6 million increase in revenue. The increase in
operating expense was primarily driven by a $9 million increase in operating
expense in the Consumer Banking Services sector, which reflected higher
expenses in support of mortgage servicing and credit card portfolio
acquisitions and retail loan growth. The increase in revenue from the Consumer
Banking sector primarily resulted from higher levels of average loans and
higher mortgage servicing fees, partially offset by a $6 million decline in
fees generated from the electronic filing of income tax returns. The tax return
filing fees are primarily earned in the first quarter of the year. The
increase in revenue in the Corporate/Institutional Banking sector was due to
loan growth, as well as increased securities trading revenue. In addition,
revenue in the Consumer and Corporate/Institutional Investment Services sector
was unchanged as a $5 million increase in mutual fund management fees at
Dreyfus was offset by a decrease in revenue resulting from the formation of the
CMSS joint venture.
10
<PAGE> 12
OVERVIEW
------------------------------------------------------------------------------
The Corporation recorded earnings per common share of $1.09 and net income
applicable to common stock of $162 million in the second quarter of 1995
compared with $.97 per common share and $143 million, respectively, in the
second quarter of 1994. Annualized return on common shareholders' equity and
return on assets were 17.47% and 1.75% in the second quarter of 1995, compared
with 15.75% and 1.69%, respectively, in the second quarter of 1994.
Net interest revenue was $385 million in the second quarter of 1995, up from
$364 million in the same prior-year period, primarily as a result of a higher
level of interest-earning assets. Fee revenue was $405 million, down slightly
from $412 million in the second quarter of 1994, primarily because the
Corporation elected not to offer its seasonal tax refund anticipation loan
program in 1995. Lower mutual fund administration and custody fees, partially
reflecting the 1994 sale of the Boston-based third-party mutual fund
administration business, also contributed to the decline in fee revenue.
Partially offsetting the decline in fee revenue were increases in foreign
currency and securities trading and mortgage servicing revenue.
The provision for credit losses was $20 million in the second quarter of 1995,
unchanged from the prior-year period. Net credit losses were $46 million, up
from $14 million in the second quarter of 1994, principally reflecting higher
losses on the CornerStone(sm) credit card product. At June 30, 1995, this
product had total outstandings of $985 million, compared with $221 million at
June 30, 1994. Nonperforming assets totaled $276 million at June 30, 1995, up
from $243 million at March 31, 1995, and $264 million at June 30, 1994. At
June 30, 1995, the Corporation's ratio of nonperforming assets to total loans
and net acquired property was .99%, compared with .91% at March 31, 1995 and
1.06% at June 30, 1994.
Operating expense before net revenue from acquired property was $508 million
for the second quarter of 1995, down from $511 million in the second quarter of
1994. This decrease primarily resulted from a reduction in staff expense
driven by the formation of CMSS, lower incentive accruals and lower pension
expense.
For the first six months of 1995, the Corporation recorded earnings per common
share of $2.17 and net income applicable to common stock of $322 million,
compared with $1.93 per common share and $284 million for the first six months
of 1994. Annualized return on common shareholders' equity and return on assets
were 17.51% and 1.76% in the first six months of 1995, compared with 15.93% and
1.68%, respectively, in the first six months of 1994.
11
<PAGE> 13
NET INTEREST REVENUE
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Three months ended June 30, Six months ended June 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 $ 1,165 6.07% $ 1,813 3.89% $ 1,197 5.99% $ 1,979 3.61%
Trading account securities 220 6.65 386 6.15 268 7.20 444 5.82
Securities 4,681 6.60 5,306 5.48 4,785 6.56 5,055 5.40
Loans 27,076 9.05 24,251 7.38 26,874 8.97 24,442 7.30
------- ------- ------- -------
Total interest-earning assets $33,142 8.58% $31,756 6.85% $33,124 8.51% $31,920 6.75%
------------------------------------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing liabilities $27,236 4.73% $24,922 2.83% $27,144 4.59% $24,887 2.68%
Noninterest-bearing liabilities 5,906 - 6,834 - 5,980 - 7,033 -
------- ------- ------- -------
Total $33,142 3.89% $31,756 2.22% $33,124 3.76% $31,920 2.09%
------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 387 4.69% $ 367 4.63% $ 779 4.75% $ 738 4.66%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Net interest revenue, on a fully taxable equivalent basis, for the second
quarter of 1995 totaled $387 million, up $20 million, compared with the second
quarter of 1994. The net interest margin was 4.69% in the second quarter of
1995, up six basis points from 4.63% in the second quarter of 1994.
The improvement in net interest revenue and the net interest margin in the
second quarter of 1995, compared with the second quarter of 1994, primarily
resulted from a higher level of interest-earning assets, as well as a
higher-yielding asset mix as lower-yielding money market assets and securities
were replaced with higher-yielding loans. Partially offsetting this
improvement was a higher level of interest-bearing liabilities and a higher
cost of funds.
Average loans increased $2.8 billion, or 12%, while money market investments
decreased $648 million and securities decreased $625 million. The increase in
average loans resulted primarily from a $1.1 billion increase in credit card
loans, including $800 million related to the CornerStone(sm) credit card
product, a $900 million increase in retail loans and a $700 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
corporate/institutional banking and middle market lending.
Net interest revenue and the net interest margin, on a fully taxable equivalent
basis, were $779 million and 4.75% in the first six months of 1995, compared
with $738 million and 4.66% in the first half of 1994. The improvement
principally resulted from the same factors responsible for the second quarter
increase. Partially offsetting this increase was the loss of revenue from the
Corporation's seasonal tax refund anticipation loan program that was not
offered in 1995. This program contributed five basis points to the net
interest margin in the first six months of 1994.
12
<PAGE> 14
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30, ended June 30,
(in millions) 1995 1994 Inc/(Dec) 1995 1994 Inc/(Dec)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for credit losses $20 $20 $ - $ 40 $ 40 $ -
Net revenue from acquired property (8) (3) (5) (12) (11) (1)
------------------------------------------------------------------------------------------------------------------------------
Credit quality expense $12 $17 $(5) $ 28 $ 29 $(1)
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses less the net
revenue from acquired property, decreased in the second quarter and first half
of 1995, compared with the prior-year periods, as a result of higher net
revenue from acquired property. The provision for credit losses was unchanged
for both periods.
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 $583 million at June 30, 1995, compared
with $609 million at June 30, 1994. The ratio of the loan loss reserve to
nonperforming loans at June 30, 1995, was 293%, compared with 392% at June 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.
A summary of the Corporation's net credit losses is presented in the table on
the following page. The increase in net credit losses in the second quarter of
1995, compared with the prior-year period, primarily resulted from a $29
million increase in net credit card losses, including $24 million related to
the CornerStone(sm) portfolio. The Corporation believes that credit losses from
the CornerStone(sm) portfolio have not yet peaked and expects modestly higher
levels of credit losses from this portfolio in the third and fourth quarters of
1995, compared with the second quarter. At June 30, 1995, the CornerStone(sm)
portfolio had total outstandings of $985 million, compared with $757 million at
December 31, 1994 and $221 million at June 30, 1994. Also impacting second
quarter 1995 net credit losses were $16 million of losses on lease finance
assets. Partially offsetting credit losses were strong credit recoveries in
the second quarter of 1995. Credit loss recoveries on commercial and financial
loans totaled $10 million, commercial real estate recoveries totaled $8 million
and consumer recoveries totaled $7 million. Net credit losses increased $41
million in the first six months of 1995 compared with the first half of 1994,
primarily reflecting the higher level of credit card losses.
13
<PAGE> 15
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY (A) Three months Six months
ended June 30, Inc/ ended June 30, Inc/
(dollar amounts in millions) 1995 1994 (Dec) 1995 1994 (Dec)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Reserve at beginning of period $601 $603 $ (2) $607 $600 $ 7
Reserve acquired in acquisition 8 - 8 8 - 8
Credit losses:
Domestic:
Commercial and financial 2 8 (6) 5 19 (14)
Commercial real estate 3 3 - 6 5 1
Consumer credit:
Credit cards 45 15 30 74 27 47
Consumer mortgage 3 2 1 5 5 -
Other consumer credit 4 3 1 8 8 -
Lease financing 16 - 16 16 - 16
------------------------------------------------------------------------------------------------------------------------------
Total domestic 73 31 42 114 64 50
------------------------------------------------------------------------------------------------------------------------------
International - 1 (1) - 4 (4)
------------------------------------------------------------------------------------------------------------------------------
Total credit losses 73 32 41 114 68 46
------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial (10) (6) 4 (16) (14) 2
Commercial real estate (8) (3) 5 (11) (8) 3
Consumer credit:
Credit cards (4) (3) 1 (6) (5) 1
Consumer mortgage (1) (1) - (2) (2) -
Other consumer credit (2) (4) (2) (3) (7) (4)
------------------------------------------------------------------------------------------------------------------------------
Total domestic (25) (17) 8 (38) (36) 2
------------------------------------------------------------------------------------------------------------------------------
International (2) (1) 1 (4) (1) 3
------------------------------------------------------------------------------------------------------------------------------
Total recoveries (27) (18) 9 (42) (37) 5
------------------------------------------------------------------------------------------------------------------------------
Net credit losses (recoveries):
Domestic:
Commercial and financial (8) 2 (10) (11) 5 (16)
Commercial real estate (5) - (5) (5) (3) (2)
Consumer credit:
Credit cards 41 12 29 68 22 46
Consumer mortgage 2 1 1 3 3 -
Other consumer credit 2 (1) 3 5 1 4
Lease financing 16 - 16 16 - 16
------------------------------------------------------------------------------------------------------------------------------
Total domestic 48 14 34 76 28 48
------------------------------------------------------------------------------------------------------------------------------
International (2) - (2) (4) 3 (7)
------------------------------------------------------------------------------------------------------------------------------
Total net credit losses 46 14 32 72 31 41
------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 20 20 - 40 40 -
------------------------------------------------------------------------------------------------------------------------------
Reserve at end of period $583 $609 $(26) $583 $609 $(26)
------------------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of total loans 2.10% 2.46% (36) bp 2.10% 2.46% (36) bp
------------------------------------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .67% .24% 43 bp .54% .25% 29 bp
------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes the reserve for segregated assets and net credit losses on
segregated assets.
</TABLE>
14
<PAGE> 16
<TABLE>
<CAPTION>
NONINTEREST REVENUE
--------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30, Inc/ ended June 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 $ 76 $ 74 $ 2 $147 $150 $ (3)
Administration/Custody 30 41 (11) 60 88 (28)
Institutional trust 51 55 (4) 102 117 (15)
Institutional asset management 34 38 (4) 68 74 (6)
Private asset management 34 34 - 67 68 (1)
----------------------------------------------------------------------------------------------------------------------------
Total trust and investment management 225 242 (17) 444 497 (53)
Cash management and deposit transaction charges 48 48 - 95 99 (4)
Mortgage servicing 25 17 8 50 33 17
Foreign currency and securities trading 25 14 11 49 33 16
Credit card 22 18 4 41 32 9
Other 60 73 (13) 125 154 (29)
----------------------------------------------------------------------------------------------------------------------------
Total fee revenue 405 412 (7) 804 848 (44)
Gains on sale of securities 1 8 (7) - 10 (10)
----------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue $406 $420 $(14) $804 $858 $(54)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reflecting the Corporation's strategy of maintaining a well-balanced revenue
base, revenues from the fee-generating businesses represented 51% of the
Corporation's total revenue for the quarter. Fee revenue decreased $7 million
in the second quarter of 1995, compared with the second quarter of 1994,
primarily because the Corporation elected not to offer its seasonal tax refund
anticipation loan program in 1995 as well as lower trust and investment
management fees. Partially offsetting the decline in fee revenue were increases
in foreign currency and securities trading and mortgage servicing revenue.
The $17 million decrease in trust and investment management fees in the second
quarter of 1995, compared with the prior-year period, primarily resulted from a
decrease in mutual fund administration and custody fees and securities lending
revenue. Mutual fund administration and custody fees decreased $11 million,
including a $4 million decrease in revenue related to the second quarter 1994
sale of the Boston-based third-party mutual fund administration business.
Securities lending revenue, which is included in institutional trust revenue,
decreased $5 million. The decrease in securities lending revenue primarily
resulted from narrower margins in 1995 compared with 1994, as well as a
slightly lower volume of securities lent in the second quarter of 1995.
15
<PAGE> 17
NONINTEREST REVENUE (CONTINUED)
-----------------------------------------------------------------------------
As shown in the table below, the market value of assets under management and
administration/custody for the Corporation was $910 billion at June 30, 1995,
up $30 billion compared with $880 billion at March 31, 1995. The $25 billion
increase in the market value of assets under administration/custody primarily
reflected a general market increase. The market value of assets under
management increased $5 billion primarily as a result of the improved bond and
equity markets, partially offset by a loss of clients in the institutional
asset management business. At June 30, 1995, compared with March 31, 1995, the
Lehman Brothers Long Term Government Bond index increased 11%, while the S&P
500 index increased 9%.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
June 30, March 31, Dec. 31, Sept. 30, June 30,
(in billions) 1995 1995 1994 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Management $ 3 $ 3 $ 3 $ 2 $ 2
Administration/Custody 621 599 568 538 498
Mutual fund:
Management 79 76 73 76 77
Administration/Custody 71 69 76 108 107
Institutional asset management:
Management 98 97 93 101 100
Private asset management:
Management 23 22 21 22 21
Administration/Custody 15 14 13 13 13
-----------------------------------------------------------------------------------------------------------------------------
Total:
Management $203 $198 $190 $201 $200
Administration/Custody $707 $682 $657 $659 $618
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY
June 30, March 31, Dec. 31, Sept. 30, June 30,
(in billions) 1995 1995 1994 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $22 $19 $18 $18 $19
Individuals 10 11 10 10 10
Tax-exempt money market funds 8 7 7 8 9
Tax-exempt bond funds 18 18 18 19 19
Fixed-income funds 5 4 4 4 5
Equity funds 10 10 9 10 9
-----------------------------------------------------------------------------------------------------------------------------
Total proprietary funds 73 69 66 69 71
Other managed funds 6 7 7 7 6
-----------------------------------------------------------------------------------------------------------------------------
Total managed mutual fund assets $79 $76 $73 $76 $77
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE> 18
<TABLE>
<CAPTION>
NONINTEREST REVENUE (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND FEE REVENUE Three months Six months
ended June 30, Inc/ ended June 30, Inc/
(in millions) 1995 1994 (Dec) 1995 1994 (Dec)
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Managed mutual fund fees $87 $87 $ - $170 $177 $(7)
Less: Fees waived 9 10 (1) 18 22 (4)
Less: Fund expense reimbursements 2 3 (1) 5 5 -
-----------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees $76 $74 $ 2 $147 $150 $(3)
-----------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $12 $11 $ 1 $ 22 $ 23 $(1)
Individuals 9 11 (2) 19 21 (2)
Tax-exempt money market funds 6 5 1 11 10 1
Tax-exempt bond funds 25 25 - 48 52 (4)
Fixed income funds 6 5 1 11 11 -
Equity funds 15 14 1 30 27 3
-----------------------------------------------------------------------------------------------------------------------------
Total proprietary funds 73 71 2 141 144 (3)
Other managed funds 3 3 - 6 6 -
-----------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees $76 $74 $ 2 $147 $150 $(3)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees are based upon the average net assets of each fund.
Average proprietary funds managed at Dreyfus in the second quarter of 1995 were
$72 billion, an increase of $4 billion from the first quarter of 1995 and
unchanged from the second quarter of 1994. The increase from the first quarter
of 1995 primarily resulted from a $3 billion increase in existing customer
activity in average institutional money market funds managed.
The $8 million increase in mortgage servicing fees, compared with the
prior-year period, primarily resulted from acquisitions of mortgage servicing
rights. At June 30, 1995, the Corporation's total servicing portfolio was $37
billion, compared with $28 billion at June 30, 1994. Additionally, on July 26,
1995, Mellon Mortgage Company, the Corporation's mortgage banking subsidiary,
signed a definitive agreement with Metropolitan Life Insurance Company to
purchase its residential and commercial mortgage banking subsidiary, Metmor
Financial, Inc. (Metmor) for $165 million. Metmor services more than $13
billion in residential and commercial mortgage loans. On a pro forma basis
including the Metmor transaction, the Corporation's servicing portfolio at June
30, 1995, would have been approximately $50 billion. The Corporation expects
the acquisition of Metmor to increase mortgage servicing revenue by
approximately $13 million on a quarterly basis. The transaction is expected to
be completed in the third quarter of 1995, pending approvals.
The $11 million increase in foreign currency and securities trading fee revenue
in the second quarter of 1995 was attributable to higher foreign exchange fees
earned, primarily as a result of increased global custody and corporate
customer activity.
17
<PAGE> 19
NONINTEREST REVENUE (CONTINUED)
------------------------------------------------------------------------------
The $4 million increase in credit card fee revenue in the second quarter of
1995, compared with the second quarter of 1994, primarily resulted from
fee revenue generated by portfolio acquisitions and the Corporation's
CornerStone(sm) credit card product.
The $13 million decrease in other fee revenue in the second quarter of 1995,
compared with the prior-year period, resulted from several factors. The
Corporation elected not to offer its seasonal tax refund anticipation loan
program in 1995, resulting in a $19 million reduction in other fee revenue
compared with the second quarter of 1994. In addition, the May 1995 formation
of CMSS resulted in a $6 million reduction in other fee revenue. The
Corporation accounts for the joint venture under the equity method of
accounting by reporting its share of the net results of the joint venture as
other fee revenue, rather than reporting the revenues and expenses of CMSS
separately. These reductions were partially offset by a $10 million increase
in gains from the disposition of assets, including equity securities.
Gains on the sale of securities available for sale were $1 million in the
second quarter of 1995, compared with $8 million in the second quarter of 1994.
The gains in the second quarter of 1994 were recorded at Dreyfus prior to the
August 1994 merger of Dreyfus with the Corporation.
Fee revenue was $804 million in the first six months of 1995, compared with
$848 million in the prior-year period. This decrease primarily resulted from
the same factors responsible for the second quarter decrease. Also impacting
the year-to-date results were $13 million in one-time net gains recorded at
Dreyfus in the first quarter of 1994 on the sale of certain nonstrategic
interests in partnerships, in anticipation of the merger with the Corporation.
The following table summarizes the major components of the changes in fee
revenue in the second quarter and first six months of 1995, compared with the
same periods in 1994.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SUMMARY OF MAJOR COMPONENTS OF THE CHANGE IN FEE REVENUE
FROM PRIOR-YEAR PERIODS Second quarter First half
(in millions) 1995 vs 1994 1995 vs 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax refund anticipation loan fees-discontinued in 1995 $(19) $(29)
Mutual fund administration and custody fees:
The Boston Company (including $4 million and
$12 million relating to divestitures) (10) (23)
Dreyfus (1) (5)
Securities lending revenue (5) (15)
Impact of CMSS joint venture (6) (6)
Foreign currency and securities trading revenue 11 16
Gains on the disposition of assets, equity securities
and partnerships 10 (4)
Mortgage servicing revenue 8 17
Other 5 5
-----------------------------------------------------------------------------------------------------------------------------
Total change in fee revenue $ (7) $(44)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
OPERATING EXPENSE
-----------------------------------------------------------------------------------------------------------------------------
Three months Six months
ended June 30, Inc/ ended June 30, Inc/
(dollar amounts in millions) 1995 1994 (Dec) 1995 1994 (Dec)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Staff expense $229 $237 $(8) $ 469 $ 482 $(13)
Net occupancy expense 48 52 (4) 99 102 (3)
Professional, legal and other purchased services 50 51 (1) 88 97 (9)
Equipment expense 34 30 4 68 67 1
Business development 37 39 (2) 70 92 (22)
Amortization of goodwill and other
intangible assets 24 23 1 48 50 (2)
Communications expense 20 20 - 42 41 1
FDIC assessment and regulatory examination fees 15 16 (1) 30 32 (2)
Amortization of mortgage servicing rights
and purchased credit card relationships 13 10 3 26 22 4
Other expense 38 33 5 67 64 3
----------------------------------------------------------------------------------------------------------------------------
Operating expense before net
revenue from acquired property 508 511 (3) 1,007 1,049 (42)
Net revenue from acquired property (8) (3) (5) (12) (11) (1)
----------------------------------------------------------------------------------------------------------------------------
Total operating expense $500 $508 $(8) $ 995 $1,038 $(43)
----------------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,100 24,000 100 24,200 23,900 300
----------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (a) 64% 65% (1) 63% 66% (3)
Efficiency ratio excluding amortization of
goodwill and other intangible assets 61 63 (2) 60 63 (3)
----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Operating expense before net revenue from acquired property as a
percentage of revenue, computed on a taxable equivalent basis, excluding
securities gains.
</TABLE>
Operating expense before net revenue from acquired property decreased $3
million in the second quarter of 1995, compared with the prior-year period.
The formation of the CMSS joint venture resulted in a $3 million reduction in
staff expense and a $1 million reduction in other expense categories. The
reduction in staff expense also reflected lower incentive accruals and lower
pension expense. The remaining expense categories reflected modest variances
in the second quarter of 1995 compared with the second quarter of 1994, as a
result of a variety of factors.
Operating expense before the net revenue from acquired property totaled $1,007
million in the first six months of 1995, compared with $1,049 million in the
first half of 1994. The decrease primarily was the result of the same factors
responsible for the second quarter decrease, as well as lower marketing expense
related to the CornerStone(sm) credit card. Marketing expense is included in
business development in the table above. In addition, the reduction in
professional, legal and other purchased services resulted from the
internalization of data processing operations at The Boston Company and lower
consulting expense.
In August, 1995, the Federal Deposit Insurance Corporation (FDIC)
approved a reduction in the premium banks pay for deposit insurance. For
well-capitalized institutions, the premium will be reduced by 83% from $.23 for
every $100 of deposits to $.04 for every $100 of deposits. At June 30, 1995,
all of the Corporation's banking subsidiaries qualified as well-capitalized.
The Corporation's banking subsidiaries prepaid Deposit-insurance premiums of
$13 million for the third quarter of 1995. Under the new rate, assuming a July
1, 1995 effective date, the premium would have been $3 million, a quarterly
reduction of $10 million. The FDIC has indicated that a refund will be received
for any third quarter 1995 overpayment, following the FDIC's confirmation that
the Bank Insurance Fund has met its designated level of $1.25 per every $100 of
insured deposits.
19
<PAGE> 21
OPERATING EXPENSE (CONTINUED)
-------------------------------------------------------------------------------
Merger expenses of $104 million pretax, or $79 million after tax, were recorded
in the third quarter of 1994 to reflect expenses associated with the Dreyfus
merger. In addition, merger expenses of $175 million, or $112 million after
tax, were recorded in the first quarter of 1993 for expenses associated with
the acquisition of The Boston Company. The tables below show expenditures
through June 30, 1995.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE DREYFUS CORPORATION)
Expected
Expenditures expenditures
and asset -------------------------------
Total adjustments at Remainder of Full year
(in millions) expenses June 30, 1995 1995 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit and severance programs $ 42 $32 $3 $7
Professional, consulting and other 27 27 - -
Facilities and assets 25 25 - -
Proxy solicitation 10 10 - -
-----------------------------------------------------------------------------------------------------------------------------
Total merger expenses $104 $94 $3 $7
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE BOSTON COMPANY)
Expenditures
and asset Expected
Total adjustments at expenditures
(in millions) expenses June 30, 1995 remainder of 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Systems integration $ 67 $ 57 $10
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 18 3
-----------------------------------------------------------------------------------------------------------------------------
Total merger expenses $175 $156 $19
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INCOME TAXES
The provision for income taxes totaled $201 million in the first six months of
1995, compared with $197 million in the first six months of 1994. The
Corporation's effective tax rate for the first half of 1995 was 37%, compared
with 38.5% for the first six months of 1994. It is currently anticipated that
the effective tax rate will be approximately 37% for the remainder of 1995.
20
<PAGE> 22
<TABLE>
<CAPTION>
ASSET/LIABILITY MANAGEMENT
---------------------------------------------------------------------------------------------------------------------------
Three months ended
June 30,
(average balances in millions) 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Money market investments $ 1,165 $ 1,813
Trading account securities 220 386
Securities 4,681 5,306
Loans 27,076 24,251
---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 33,142 31,756
Noninterest-earning assets 6,834 6,351
Reserve for credit losses (606) (610)
---------------------------------------------------------------------------------------------------------------------------
Total assets $39,370 $37,497
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $30,725 $32,270
Wholesale and purchased funds 8,645 5,227
---------------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $39,370 $37,497
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The change in the mix of the Corporation's average assets in the second quarter
of 1995, compared with the second quarter of 1994, reflects a higher level of
interest-earning assets and a higher-yielding asset mix. Average loans
increased $2.8 billion while money market investments and securities decreased
$648 million and $625 million, respectively. The mix of the Corporation's
funding changed substantially in the second quarter of 1995, compared with the
prior-year quarter, as a decrease in money market and savings deposits and
demand deposits was replaced with wholesale and purchased funds.
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 $3.3 billion in the second quarter of
1995 from the prior-year period, primarily reflecting increased consumer and
commercial and financial loan levels. Average core funds decreased $1.5
billion in the second quarter of 1995 from the prior-year period, primarily
reflecting a lower level of money market and savings and demand deposits. Core
funds averaged 92% of core assets in the second quarter of 1995, down from 94%
in the first quarter of 1995 and 108% in the second 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 $3.4 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 22% in the second quarter of 1995 from 21% in the
first quarter of 1995 and 14% in the prior-year period.
21
<PAGE> 23
COMPOSITION OF LOAN PORTFOLIO
-------------------------------------------------------------------------------
The loan portfolio increased $3,034 million, or 12%, at June 30, 1995, compared
with June 30, 1994, primarily as a result of increased loan demand and a new
credit card product. Loan growth at June 30, 1995 compared with June 30, 1994,
reflects a $1,100 million increase in credit card loans, an $875 million
increase in consumer mortgages and a $824 million increase in commercial and
financial loans. At June 30, 1995, the composition of the loan portfolio was
52% consumer and 48% commercial.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $10,163 (A) $ 9,820 $10,015 $ 9,903 $ 9,339
-----------------------------------------------------------------------------------------------------------------------------
Commercial real estate 1,512 (B) 1,588 1,624 1,608 1,622
-----------------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 9,031 8,686 8,680 8,503 8,156
Credit card 2,766 2,423 2,381 1,985 1,666
Other consumer credit 2,641 2,534 2,455 2,418 2,378
-----------------------------------------------------------------------------------------------------------------------------
Total consumer credit 14,438 13,643 13,516 12,906 12,200
-----------------------------------------------------------------------------------------------------------------------------
Lease finance assets 807 815 815 744 704
-----------------------------------------------------------------------------------------------------------------------------
Total domestic loans 26,920 25,866 25,970 25,161 23,865
-----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 845 830 763 851 866
-----------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount (c) $27,765 $26,696 $26,733 $26,012 $24,731
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $26 million of FDIC loss share loans.
(b) Includes $109 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 $824 million, or 9%, at June 30, 1995, compared to June 30, 1994, primarily
as a result of increases in corporate/institutional banking and middle market
banking. Commercial and financial loans represented 37% of the total loan
portfolio at June 30, 1995 and 38% at June 30, 1994. At June 30, 1995,
nonperforming domestic commercial and financial loans and leases were .87% of
total domestic commercial and financial loans and leases, compared with .51% at
June 30, 1994. This ratio has been less than 1% for the last nine quarters.
Commercial real estate
The Corporation's $1,512 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 $109 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 $110 million, or 7%, at June 30, 1995 compared with June 30, 1994.
The decrease primarily was a result of paydowns, sales and transfers to OREO
partially offset by new loan originations. Domestic commercial real estate
loans were 5% of total loans at June 30, 1995, down from 7% a year earlier.
Nonperforming commercial real estate loans were 2.80% of total domestic
commercial real estate loans at June 30, 1995, compared with 2.15% at June 30,
1994.
22
<PAGE> 24
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 June 30, 1995, this
portfolio totaled $9,031 million, up from $8,156 million at June 30, 1994. The
$875 million increase in this portfolio from the prior-year period primarily
reflects increases in adjustable rate one-to-four family residential mortgage
loans, 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 increased approximately $38 million from
June 30, 1994, to $4.2 billion at June 30, 1995. Home equity loans increased
approximately $146 million to $1.5 billion, resulting from successful marketing
efforts, as well as an improving economy. Personal loans secured by
residential properties increased approximately $180 million to $1.2 billion and
loans secured by one-to-four family residential mortgages increased
approximately $509 million to $2.1 billion. Nonperforming consumer mortgages
were .66% of total consumer mortgages at June 30, 1995, compared with .75% at
June 30, 1994.
Credit card
At June 30, 1995, credit card loans totaled $2,766 million, a $1,100 million,
or 66%, increase from June 30, 1994. This increase primarily was driven by the
CornerStone(sm) credit card product which was introduced in January 1994, as
well as portfolio acquisitions. At June 30, 1995, this product had total
outstanding balances of $985 million, compared with $902 million at March 31,
1995 and $221 million at June 30, 1994.
Other loans
Other consumer credit, which principally consists of installment loans,
unsecured personal credit lines and student loans, increased by $263 million
from June 30, 1994. This increase reflected growth in the student loan
portfolio. Lease finance assets were $807 million, up from $704 million at
June 30, 1994. Loans to international borrowers decreased to $845 million at
June 30, 1995, from $866 million at June 30, 1994.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT CREDIT RISK
-----------------------------------------------------------------------------------------------------------------------------
June 30,
(in millions) 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $16,707 (A) $13,268
Standby letters of credit and foreign guarantees 2,959 (B) 3,154
Commercial letters of credit 141 166
Residential mortgage loans serviced with recourse 167 203
Custodian securities lent with indemnification
against broker default of return of securities 16,312 13,515
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Approximately 26% of these commitments are scheduled to expire within
one year, with an additional 56% scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $244 million.
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
CAPITAL
-------------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, JUNE 30, March 31, Dec. 31, June 30,
except per share amounts) 1995 1995 1994 1994
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $ 3,643 $3,755 $ 3,687 $3,716
Common shareholders' equity to assets ratio 9.10% 9.48% 9.54% 9.80%
Tangible common equity to assets ratio (a) 6.78 7.10 7.05 7.33
Total shareholders' equity $ 4,078 $4,190 $ 4,122 $4,308
Total shareholders' equity to assets ratio 10.19% 10.57% 10.67% 11.37%
Tier I capital ratio 8.98 9.49 9.48 10.27
Total (Tier I plus Tier II) capital ratio 12.31 12.86 12.90 13.74
Leverage capital ratio 8.32 8.84 8.67 9.54
Book value per common share $ 25.59 $25.63 $ 25.06 $25.35 (b)
Closing common stock price 41.625 40.75 30.625 37.50
Market capitalization 5,925 5,969 4,507 5,400
-------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill, core deposit and other
identified intangibles divided by total assets less goodwill, core deposit
and other identified intangibles.
(b) The June 30, 1994, book value per common share assumed full conversion of
the Series D preferred stock to common stock. Accordingly, this included
the additional paid-in capital on the Series D preferred stock because this
paid-in capital had no liquidation preference over the common stock. The
Series D preferred stock was converted into common stock in August 1994,
pursuant to the terms of the Series D statement of designation.
</TABLE>
In June, the Corporation repurchased from American Express Travel Related
Services Company, Inc. a subsidiary of American Express Company, the common
stock and equity purchase options (warrants) issued in 1993 as part of the
acquisition of The Boston Company, Inc., in a privately negotiated transaction.
The Corporation repurchased 3,750,000 common shares and warrants for an
additional 4,500,000 common shares for $213 million. The repurchase increased
earnings per common share by less than $.01 in the second quarter. It is
anticipated that this transaction will enhance earnings per common share by
approximately $.05 for the full year 1995 and will enhance the quarterly return
on common shareholders' equity by approximately 80 basis points. This
transaction reduced the June 30, 1995, book value per share by $.80 and the
capital ratios by 50 to 60 basis points. Average common stock and stock
equivalents used for the primary earnings per share computation was
approximately 148 million shares for the second quarter and first half of 1995.
Following this common share and warrant repurchase, average primary common
stock and stock equivalents, at the June 30, 1995, share price, will be
approximately 143.7 million shares and 146.7 million shares for the third
quarter and first nine months of 1995, respectively.
The decrease in the Corporation's common and total shareholders' equity at June
30, 1995, compared with March 31, 1995 and June 30, 1994, resulted from the
repurchase of the common stock and warrants, partially offset by earnings
retention. In addition, the remaining decrease in total shareholders' equity,
compared with June 30, 1994, resulted from the March 1995 redemption of the
Corporation's $160 million Series H preferred stock.
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, and
as of June 30, 1995 had repurchased approximately 2.7 million shares under that
authority. Including the remaining 300,000 shares to be repurchased under the
1994 authorization, the Corporation expects to make additional repurchases of
up to 2.8 million shares in the second half of 1995.
24
<PAGE> 26
CAPITAL (CONTINUED)
-------------------------------------------------------------------------------
In accordance with the January 1, 1994, adoption of FAS No. 115, certain assets
available for sale are reported at fair value at June 30, 1995, with the
unrealized loss of $21 million, net of taxes, included in common shareholders'
equity. The impact of recording the unrealized loss at June 30, 1995, resulted
in a reduction of book value per common share of $.14 and a reduction of five
basis points in the common shareholders' equity to assets ratio. Increased
volatility of shareholders' equity, certain related capital ratios and book
value per common share could result from future changes in unrealized gains and
losses on assets classified as available for sale.
The Corporation's qualifying capital under the Federal Reserve Board's
risk-based capital regulations is shown in the table below.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS June 30,
(dollar amounts in millions) 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a)(b) $ 3,664 $ 3,722
Qualifying preferred stock (b) 435 629
Other items (13) 12
Goodwill and certain other intangibles (876) (867)
----------------------------------------------------------------------------------------------------------------------------
Total Tier I capital $ 3,210 $ 3,496
Tier II capital 1,189 1,180
---------------------------------------------------------------------------------------------------------------------------
Total qualifying capital $ 4,399 $ 4,676
---------------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $26,868 $24,694
Off-balance-sheet 8,869 9,343
---------------------------------------------------------------------------------------------------------------------------
Total risk-adjusted assets $35,737 $34,037
---------------------------------------------------------------------------------------------------------------------------
Average assets-leverage capital basis $38,585 $36,665
---------------------------------------------------------------------------------------------------------------------------
Tier I capital ratio (c) 8.98% 10.27%
Total capital ratio (c) 12.31 13.74
Leverage capital ratio (c) 8.32 9.54
---------------------------------------------------------------------------------------------------------------------------
<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 $21 million and $43 million, net of tax, at June 30, 1995 and
1994, respectively, have been excluded.
(b) For the purpose of this computation, the additional paid-in capital on the
Series D preferred stock, totaling $37 million at June 30, 1994, was
included in "Qualifying preferred stock" rather than in "Common
shareholders' equity."
(c) 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 June 30, 1995. The Corporation
intends to maintain the ratios of its banking subsidiaries at the well
capitalized levels.
25
<PAGE> 27
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>
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1995 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $806 $813 $824 $776
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $30 million increase in goodwill at June 30, 1995, compared with June 30,
1994, primarily resulted from acquisitions, partially offset by amortization of
$51 million during the last 12 months. 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>
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1995 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchased core deposit intangible $121 $127 $133 $144
Covenants not to compete 30 34 38 47
Other identified intangibles 40 40 41 43
-----------------------------------------------------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $191 $201 $212 $234
-----------------------------------------------------------------------------------------------------------------------------
</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,
$30 million, $26 million, $26 million and $14 million, respectively.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, June 30,
(in millions) 1995 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage servicing rights $336 $317 $292 $201
Purchased credit card relationships 96 58 60 58
-----------------------------------------------------------------------------------------------------------------------------
Total mortgage servicing rights and
purchased credit card relationships $432 $375 $352 $259
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in mortgage servicing rights at June 30, 1995, compared with March
31, 1995, primarily resulted from the ongoing acquisition of mortgage servicing
rights. On a pro forma basis including the mortgage servicing rights to be
acquired in the Metmor transaction, the Corporation's mortgage servicing rights
at June 30, 1995, would have been approximately $515 million. The increase in
mortgage servicing rights at June 30, 1995, compared with March 31, 1995,
included the effect of adopting Financial Accounting Standard (FAS) No. 122,
"Accounting for Mortgage Servicing Rights", which was adopted by the
Corporation effective April 1, 1995. The statement requires recognition of
mortgage servicing rights as separate assets, whether those rights are
purchased or relate to loans originated for sale. Prior to April 1, 1995, only
mortgage servicing rights purchased by the Corporation were recognized as
assets.
During the quarter, $29 million of servicing rights, which included $1 million
from the adoption of FAS No. 122, were capitalized in connection with both loan
portfolio purchases and loan originations. The carrying value of mortgage
26
<PAGE> 28
CAPITAL (CONTINUED)
-----------------------------------------------------------------------------
servicing rights totaled $336 million at June 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 $10 million in the second quarter. The estimated
fair value of capitalized mortgage servicing rights was $378 million at June
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.
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
decreased by $67 million during the first half of 1995 to $2,218 million at
June 30, 1995. The decrease reflected $732 million of net cash used in
investing activities and $432 million of net cash used by operating activities
offset, in part, by $1,089 million of net cash provided by financing
activities. Net cash used in investing activities principally reflected a net
increase in loan balances. Net cash provided by financing activities primarily
reflected increases in short-term borrowings offset, in part, by a decrease in
transaction and savings deposits.
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 Six months
ended June 30, ended June 30,
(in millions) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income applicable to common stock $162 $143 $322 $284
After-tax impact of amortization of intangibles
from purchase acquisitions 19 19 37 40
-----------------------------------------------------------------------------------------------------------------------------
Total $181 $162 $359 $324
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contractual maturities of the Corporation's term debt were $26 million in the
second quarter of 1995. Contractual maturities of term debt will total $300
million in the second half of 1995 and $120 million, including $100 million of
Medium Term Bank Notes at Mellon Bank, N.A., in 1996. On June 19, 1995,
27
<PAGE> 29
LIQUIDITY AND DIVIDENDS (CONTINUED)
------------------------------------------------------------------------------
the Corporation issued $200 million of debt at a fixed rate of 6.30% maturing
in the year 2000. The proceeds from this issuance will be used to fund debt
maturing in the second half of 1995. The Corporation also 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 June 30, 1995, the Corporation's
senior debt was rated "A2" by Moody's and "A" by Standard and Poor's.
On April 17, 1995, the directors of the Corporation approved an 11% increase in
the quarterly cash dividend to $.50 per common share. The increased dividend
was paid on May 15, 1995, to shareholders of record on April 28, 1995. This
was the third common dividend increase that the Corporation has announced since
the beginning of 1994, resulting in a total common dividend per share increase
of 97%.
The Corporation paid $140 million in common dividends in the first half of
1995, compared with $85 million in the prior-year period. In addition, the
Corporation paid $20 million in dividends on its outstanding shares of
preferred stock in the first half of 1995, compared with $30 million in the
first half of 1994. The common stock dividend payout ratio was 45% in the
second quarter of 1995, compared with 31% in the second quarter of 1994. Based
upon the current common stock dividend rate and current shares outstanding,
annualized dividend requirements for the common and preferred stock would be
approximately $325 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 June 30, 1995, of up to approximately $490 million,
less any dividends declared and plus or minus net profits or losses, as
defined, between July 1, 1995, and the date of any such dividend declaration.
The national bank subsidiaries declared dividends to the parent Corporation of
$201 million in the first half of 1995, $366 million in the full-year 1994 and
$185 million in 1993. Dividends paid to the parent Corporation by nonbank
subsidiaries totaled $13 million in the first half 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 30
shows the repricing characteristics of the Corporation's interest-earning
assets and supporting funds at June 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 June 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.
28
<PAGE> 30
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 $5.3
billion, or 13.3% of total assets, at June 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 $3.8 billion, or 9.4% 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. 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 both a 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 June 30, 1995, remained constant and assumes an unchanged level of
loan fees. The impact of the rate movements was developed by simulating the
effect of rates changing over a six-month period from the June 30, 1995 levels.
The simulated impact of rate changes shown in the following table is compared
to the second quarter actual results annualized.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS
Movements in interest rates from June 30, 1995 rates
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Anticipated impact in the next 12 months Increase Decrease
compared with second quarter 1995 ------------------------ -----------------------
actual results annualized: +100bp +200bp -100bp -200bp
-----------------------------------------------------------
Net interest revenue increase/(decrease) 1.43% .60% (.52)% (1.83)%
Earnings per share increase/(decrease) $.10 $.04 $(.04) $(.13)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The anticipated increase in net interest revenue in the next 12 months,
compared with annualized second quarter 1995 actual results, is less favorable
under the 200 basis point increase scenario compared with the 100 basis point
increase scenario as a result of the impact of interest rate caps on $3.4
billion of adjustable rate mortgage (ARM) loans and $1.5 billion of ARM
securities carried by the Corporation. At June 30, 1995, these ARMs have an
interest rate cap feature that limits the interest rate increase to 200 basis
points and 100 basis points, respectively, every 12 months. Consistent with the
Corporation's asset sensitive gap position at June 30, 1995, a decrease in
interest rates would cause a corresponding decrease in net interest revenue.
29
<PAGE> 31
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT JUNE 30, 1995
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 $ 777 $ 2 $ 46 $ 5 $ 3 $ - $ 833
Trading account securities 267 - - - - - 267
Securities 420 660 437 1,557 905 1,107 5,086
Loans 11,083 6,270 2,903 1,578 3,650 2,281 27,765
-----------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $12,547 $ 6,932 $3,386 $3,140 $4,558 $ 3,388 $33,951
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 4,414 $ 5,622 $2,707 $1,539 $2,737 $ 3,880 $20,899
Other borrowed funds 4,358 379 795 - - 116 5,648
Notes and debentures (with original
maturities over one year) - 100 225 120 659 764 1,868
Noninterest-bearing liabilities 35 134 219 35 - 5,113 5,536
-----------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,807 $ 6,235 $3,946 $1,694 $3,396 $ 9,873 $33,951
-----------------------------------------------------------------------------------------------------------------------------
Subtotal $ 3,740 $ 697 $ (560) $1,446 $1,162 $(6,485) $ -
-----------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(3,068) $(1,288) $1,187 $1,605 $1,167 $ 397 $ -
-----------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 672 $ (591) $ 627 $3,051 $2,329 $(6,088) $ -
-----------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 672 $ 81 $ 708 $3,759 $6,088 $ - $ -
-----------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 1.7% 0.2% 1.8% 9.4% 15.2%
-----------------------------------------------------------------------------------------------------------------------------
</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 on interest rate swaps, interest rate
caps and floors, options contracts, futures contracts and forward rate
agreements. 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. Position limits are
30
<PAGE> 32
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
-------------------------------------------------------------------------------
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.
31
<PAGE> 33
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK AT JUNE 30, 1995
Total at
June 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 $ 90 $ 260 $ 160 $ 15 $2,125 $ 400 $ 3,050
Weighted average rate:
Receive 5.87% 5.30% 6.36% 5.22% 5.29% 6.32% 5.50%
Pay 6.17% 6.11% 6.15% 6.13% 6.21% 6.45% 6.23%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $ 582 $2,228 $ 642 $ 53 $ 603 $ 230 $ 4,338
Weighted average rate:
Receive 5.70% 5.21% 6.19% 7.19% 7.11% 7.19% 5.81%
Pay 6.17% 6.16% 6.14% 6.19% 6.19% 6.19% 6.16%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 1 $ 37 $2,128 $ 3 $ 3 $ 10 $ 2,182
Weighted average rate:
Receive 2.86% 4.62% 6.21% 7.22% 7.22% 6.22% 6.19%
Pay 4.80% 7.18% 4.75% 8.41% 8.41% 6.49% 4.80%
Other products (c) $ 15 $ 505 $ 100 $ 4 $ 2 $ 103 $ 729
-----------------------------------------------------------------------------------------------------------------------------
Total notional amount $ 688 $3,030 $3,030 $ 75 $2,733 $ 743 $10,299
-----------------------------------------------------------------------------------------------------------------------------
<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 $10.3 billion at June 30, 1995, a decrease
of $635 million, $1,035 million and $2,749 million from March 31, 1995,
December 31, 1994 and June 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 28 and 29,
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 $5.3 billion, before the utilization of
these instruments, to a cumulative one-year asset-sensitive position of $3.8
billion at June 30, 1995.
The following table presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
interest rate-sensitive instruments.
32
<PAGE> 34
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
(notional amounts in millions) June 30, 1995
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Instruments associated with deposits $ 7,911
Instruments associated with other liabilities 670
Instruments associated with loans 1,718
-----------------------------------------------------------------------------------------------------------------------------
Total notional amount $10,299
-----------------------------------------------------------------------------------------------------------------------------
</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 was interest expense of $3 million in the
second quarter and first half of 1995, compared with interest revenue of $37
million and $86 million in the second quarter and first half 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. As
expected, this impact was offset by higher net interest revenue generated from
on-balance-sheet instruments as demonstrated by a net interest margin of 4.69%
in the second quarter of 1995 versus 4.63% in the second quarter of 1994. The
effect on the Corporation's financial statements of utilizing off-balance-sheet
instruments as part of its interest rate risk management, versus using
on-balance-sheet assets and liabilities, is a smaller, more efficient balance
sheet, reduced wholesale funding requirements and a higher return on assets and
net interest margin. Utilization of off-balance-sheet instruments versus
on-balance-sheet instruments results in a comparable amount of net interest
revenue, net income and return on common shareholders' equity. The
Corporation's analysis using current interest rate scenarios indicates that
off-balance-sheet instruments will have a negative impact on the net interest
margin in the remainder of 1995 before considering the positive effect of
on-balance-sheet instruments.
The Corporation periodically issues notes and debentures for general corporate
purposes, including the funding of debt maturities. Included in the tables on
page 32 and above is a $250 million forward rate agreement carried by the
Corporation to lock in the cost of a 10-year debt issuance during the first
half of 1996. As a result of this transaction, a deferred gain of $2 million
was recorded at June 30, 1995. This gain is included in other liabilities and
will be recognized as a reduction of interest expense over the term of the
debt, beginning when the debt is issued.
The Corporation did not terminate any interest rate agreements in the first
half 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 half 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 June 30, 1995, was a negative $39
million, compared with a negative $195 million at March 31, 1995. This
improvement was consistent with the decrease in long-term interest rates during
the second 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 and 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
second quarter and first half of 1995, the Corporation recorded $25 million and
$49 million of fee revenue from these activities, compared with $16
33
<PAGE> 35
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
-------------------------------------------------------------------------------
million and $36 million in the second quarter and first half of 1994, primarily
from foreign exchange contracts entered into on behalf of customers. The
notional values of these contracts were $37 billion at June 30, 1995, $40
billion at March 31, 1995 and $29 billion at June 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 $474 million at June 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 computer modeling. Because the Corporation generally matches or
offsets positions, the analyses indicate that even severe changes 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.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
-----------------------------------------------------------------------------------------------------------------------------
June 30,
(notional amounts in millions) 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate agreements (a):
Interest rate swaps $9,570 $12,501
Options, caps and floors purchased (b) 474 343
Futures and forward contracts 255 204
Foreign currency contracts 32 -
-----------------------------------------------------------------------------------------------------------------------------
<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 counter
party has defaulted. Credit risk associated with interest rate
agreements was $15 million at June 30, 1995.
(b) At June 30, 1995, there were no options, caps and floors written.
Options, caps and floors purchased and written are aggregated for June
30, 1994.
</TABLE>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR OTHER THAN INTEREST RATE RISK MANAGEMENT
PURPOSES
<TABLE>
<CAPTION>
June 30,
(notional amounts in millions) 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency contracts (a):
Commitments to purchase $12,691 $9,183
Commitments to sell 12,833 9,217
Foreign currency and other option contracts written 107 584
Foreign currency and other option contracts purchased 126 781
Futures and forward contracts 1,450 1,152
Interest rate agreements (a):
Interest rate swaps 3,758 4,345
Options, caps and floors purchased 3,118 4,132(b)
Options, caps and floors written 3,177 -(b)
Forward rate agreements - 2
----------------------------------------------------------------------------------------------------------------------
<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 counter
party has defaulted. Credit risk associated with foreign currency
contracts and interest rate agreements was $430 million and $44 million,
respectively at June 30, 1995.
(b) Options, caps and floors purchased and written are aggregated for June
30, 1994.
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(dollar amounts in millions) 1995 1995 1994 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $199 $156 $151 $156 $155
Acquired property, net of the OREO reserve 77 87 88 104 109
-----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $276 $243 $239 $260 $264
-----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage
of total loans .72% .58% .56% .60% .63%
Total nonperforming assets as a percentage
of total loans and net acquired property .99% .91% .89% .99% 1.06%
-----------------------------------------------------------------------------------------------------------------------------
<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 June 30, 1995, nonperforming assets totaled $276 million, up $33 million
compared with March 31, 1995 and $12 million compared with June 30, 1994, as a
result of a higher level of nonperforming loans. Total nonperforming loans
increased $43 million from March 31, 1995, and $44 million compared with June
30, 1994. The increase resulted primarily from the addition of a commercial
loan to an engineering/construction company. Total acquired property decreased
$10 million and $32 million, respectively, compared with March 31, 1995 and
June 30, 1994. These reductions resulted primarily from asset sales.
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 June 30, 1995, the Corporation's impaired loans totaled
$199 million, which was equal to the nonperforming loans total. Included in
these impaired loans were $87 million which has a related impairment reserve of
$15 million and $112 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 second quarter and
first half of 1995 were $170 million and $166 million, respectively. During
the quarter, the Corporation recognized $4 million of interest income 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 $77 million at June 30, 1995,
compared with $87 million at March 31, 1995, and $109 million at June 30, 1994.
The decrease from June 30, 1994, primarily resulted from sales, partially
offset by new transfers to OREO.
35
<PAGE> 37
<TABLE>
<CAPTION>
NONPERFORMING ASSETS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
NONPERFORMING AND PAST-DUE ASSETS (a) JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(dollar amounts in millions) 1995 1995 1994 1994 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 92 $ 55 $ 61 $ 62 $ 43
Commercial real estate 39 34 25 29 32
Consumer credit:
Consumer mortgage 59 58 56 51 61
Other consumer credit 2 2 - 1 2
---------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 192 149 142 143 138
International nonaccrual loans - - 1 1 6
---------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 192 149 143 144 144
---------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 4 4 5 9 8
Commercial real estate 3 3 3 3 3
---------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 7 7 8 12 11
---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 199 156 150 155 149
International - - 1 1 6
---------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 199 156 151 156 155
---------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 98 112 116 133 139
Reserve for real estate acquired (21) (26) (29) (30) (31)
----------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 77 86 87 103 108
Other assets acquired - 1 1 1 1
---------------------------------------------------------------------------------------------------------------------------
Total acquired property 77 87 88 104 109
---------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $276 $243 $239 $260 $264
---------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective
loan portfolio segments:
Domestic commercial and financial loans and leases .87% .55% .60% .67% .51%
Domestic commercial real estate loans 2.80 2.31 1.73 1.98 2.15
Domestic consumer mortgage loans .66 .67 .64 .61 .75
Total loans .72 .58 .56 .60 .63
Nonperforming assets as a percentage of
total loans and net acquired property .99 .91 .89 .99 1.06
---------------------------------------------------------------------------------------------------------------------------
Loans 90 days or more past due:
Consumer:
Mortgages $ 32 $ 32 $ 27 $ 19 $ 23
Ratio (c) .36% .37% .31% .24% .24%
Credit card 54 44 32 19 16
Ratio (c) 1.96% 1.82% 1.35% .93% .94%
Other consumer 33 31 37 42 36
Ratio (c) 1.25% 1.23% 1.50% 1.73% 1.54%
----------------------------------------------------------------------------------------------------------------------------
Total Consumer $119 $107 $ 96 $ 80 $ 75
Ratio (c) .82% .78% .71% .63% .59%
Commercial 6 9 10 45 43
---------------------------------------------------------------------------------------------------------------------------
Total past-due loans $125 $116 $106 $125 $118
---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $113 million, $69 million, $58 million, $60 million and $47
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>
36
<PAGE> 38
<TABLE>
<CAPTION>
NONPERFORMING ASSETS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE THREE MONTHS ENDED JUNE 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 $59 $37 $60 $- $156 $196
Additions 55 10 10 - 75 26
Payments (b) (9) (2) (2) - (13) (32)
Return to accrual status (7) - (2) - (9) (23)
Credit losses (2) (3) (2) - (7) (9)
Transfers to acquired property - - (3) - (3) (3)
----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at June 30 $96 $42 $61 $- $199 $155
---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE SIX MONTHS ENDED JUNE 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
Additions 84 22 24 - 130 86
Payments (b) (42) (2) (5) (1) (50) (49)
Return to accrual status (7) - (5) - (12) (52)
Credit losses (4) (6) (4) - (14) (27)
Transfers to acquired property (1) - (5) - (6) (5)
----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at June 30 $ 96 $42 $61 $ - $199 $155
---------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL NONPERFORMING LOAN DATA (a) June 30,
(dollar amounts in millions) 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $199 $155
Contractual balance of nonperforming loans 260 271
Book balance as a percentage of
contractual balance 77% 57%
Interest receipts applied to reduce principal
Second quarter $ 1 $ 2
Year-to-date 3 5
Interest receipts recognized in interest revenue
Second quarter 4 3
Year-to-date 6 5
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
NONPERFORMING ASSETS (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY Three months ended Six months ended
June 30, June 30,
(in millions) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OREO at beginning of period, net of the OREO reserve $ 86 $117 $ 87 $138
Foreclosures 4 3 10 6
Sales (15) (13) (22) (31)
Write-downs, credit losses, OREO
provision and other 2 1 2 (5)
----------------------------------------------------------------------------------------------------------------------------
OREO at end of period, net of the OREO reserve 77 108 77 108
Other acquired assets - 1 - 1
---------------------------------------------------------------------------------------------------------------------------
Total acquired property at end of period, net of the
OREO reserve (a) $ 77 $109 $ 77 $109
---------------------------------------------------------------------------------------------------------------------------
<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 which
indicate a deterioration in the fair value of the property. Activity in the
Corporation's OREO reserve is presented in the following table.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE) Three months ended Six months ended
June 30, June 30,
(in millions) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $26 $35 $29 $37
Write-downs on real estate acquired (2) (4) (2) (6)
Provision (3) - (6) -
---------------------------------------------------------------------------------------------------------------------------
Ending balance $21 $31 $21 $31
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEGREGATED ASSETS
-------------------------------------------------------------------------------
Segregated assets represent commercial real estate and other commercial loans
acquired in the December 1992 Meritor retail office acquisition that are on
nonaccrual status or are foreclosed properties. As a result of a loss sharing
arrangement with the FDIC, any of the performing commercial loans or performing
commercial real estate loans acquired in the Meritor acquisition that become
nonaccrual before December 1997 will be reclassified to segregated assets.
These delinquent assets are reported in Other assets in the balance sheet, net
of reserve. The reserve for segregated assets is not included in the reserve
for credit losses. At June 30, 1995, segregated assets totaled $61 million, or
$57 million net of a $4 million reserve, compared with $151 million, or $147
million net of a $4 million reserve, at June 30, 1994. The Corporation
recorded net recoveries, on segregated assets, of $2 million in the first half
of 1995 and $6 million of net credit losses in the first half of 1994, before
FDIC loss sharing. Additional information regarding segregated assets is
presented in note 8 in the Corporation's 1994 Annual Report on Form 10-K.
38
<PAGE> 40
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
---------------------------------------------------------------------------------------------------------------------------
June 30, Dec. 31, June 30,
(dollar amounts in millions) 1995 1994 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets Cash and due from banks $ 2,218 $ 2,285 $ 1,710
Interest-bearing deposits with banks 540 429 750
Federal funds sold and securities under resale agreements 257 383 378
Other money market investments 36 48 149
Trading account securities 267 71 365
Securities available for sale 1,953 1,881 3,120
Investment securities (approximate fair value
of $3,136, $3,033 and $3,210) 3,133 3,244 3,342
Loans, net of unearned discount of $58, $62 and $70 27,765 26,733 24,731
Reserve for credit losses (583) (607) (609)
Customers' acceptance liability 236 234 138
Premises and equipment 554 558 524
Acquired property, net of reserves of $21, $29 and $31 77 88 109
Goodwill and other intangibles 997 1,036 1,010
Mortgage servicing rights and purchased
credit card relationships 432 352 259
Other assets 2,134 1,909 1,932
------------------------------------------------------------------------------------------------------------
Total assets $40,016 $38,644 $37,908
------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 5,908 $ 5,979 $ 5,772
Interest-bearing deposits in domestic offices 17,651 18,121 18,569
Interest-bearing deposits in foreign offices 3,248 3,470 1,867
------------------------------------------------------------------------------------------------------------
Total deposits 26,807 27,570 26,208
Federal funds purchased and securities under
repurchase agreements 2,985 2,023 1,631
Term federal funds purchased 411 333 200
U.S. Treasury tax and loan demand notes 802 567 1,607
Commercial paper 128 178 119
Other funds borrowed 1,322 371 394
Acceptances outstanding 236 234 138
Other liabilities 1,379 1,678 1,382
Notes and debentures (with original maturities over one year) 1,868 1,568 1,921
------------------------------------------------------------------------------------------------------------
Total liabilities 35,938 34,522 33,600
---------------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 435 435 592
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 200,000,000 shares
Issued - 147,165,480 (a); 147,165,480 (a); and 103,508,752 shares 74 74 52
Additional paid-in capital 1,843 1,851 2,045
Retained earnings 1,950 1,780 1,821
Warrants - 37 37
Net unrealized loss on assets
available for sale (net of taxes) (21) (55) (43)
Treasury stock of 4,812,259 (a); - ; and 7,501,068 shares, at cost (203) - (196)
-------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,643 3,687 3,716
------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,078 4,122 4,308
------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $40,016 $38,644 $37,908
------------------------------------------------------------------------------------------------------------
<FN>
(a) Reflects the three-for-two common stock split distributed on
November 15, 1994.
</TABLE>
See accompanying Notes to Financial Statements.
39
<PAGE> 41
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
------------------------------------------------------------------------------------------------------------------------------
Six months ended
-----------------------------
JUNE 30, June 30,
(in millions, except per share amounts) 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue Interest and fees on loans (loan fees of $35, $47, $19, $16, $22, $18 and $17) $1,192 $ 880
Interest-bearing deposits with banks 15 18
Federal funds sold and securities under resale agreements 19 14
Other money market investments 1 3
Trading account securities 9 13
Securities 155 133
----------------------------------------------------------------------------------------------------------
Total interest revenue 1,391 1,061
-----------------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 322 192
Deposits in foreign offices 103 26
Federal funds purchased and securities under repurchase agreements 62 23
Other short-term borrowings 73 33
Notes and debentures 57 56
----------------------------------------------------------------------------------------------------------
Total interest expense 617 330
-----------------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 774 731
revenue Provision for credit losses 40 40
----------------------------------------------------------------------------------------------------------
Net interest revenue after provision for losses 734 691
-----------------------------------------------------------------------------------------------------------------------------
Noninterest Trust and investment management fees 444 497
revenue Cash management and deposit transaction charges 95 99
Mortgage servicing fees 50 33
Foreign currency and securities trading 49 33
Credit card fees 41 32
Other income 125 154
----------------------------------------------------------------------------------------------------------
Total fee revenue 804 848
Gains (losses) on sale of securities - 10
----------------------------------------------------------------------------------------------------------
Total noninterest revenue 804 858
-----------------------------------------------------------------------------------------------------------------------------
Operating Staff expense 469 482
expense Net occupancy expense 99 102
Professional, legal and other purchased services 88 97
Equipment expense 68 67
Amortization of goodwill and other intangible assets 48 50
FDIC assessment and regulatory examination fees 30 32
Amortization of mortgage servicing rights and purchased
credit card relationships 26 22
Other expense 179 197
Net revenue from acquired property (12) (11)
Securities lending charge - -
Merger expense - -
----------------------------------------------------------------------------------------------------------
Total operating expense 995 1,038
-----------------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 543 511
Provision for income taxes 201 197
----------------------------------------------------------------------------------------------------------
Net income 342 314
Dividends on preferred stock 20 30
----------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 322 $ 284
----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Per common share Primary net income $ 2.17 $ 1.93
Fully diluted net income $ 2.16 $ 1.93
----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
40
<PAGE> 42
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three months ended
---------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
1995 1995 1994 1994 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 609 $ 583 $555 $491 $444
8 7 8 8 9
8 11 9 7 7
1 - 2 1 1
3 6 5 6 6
77 78 77 80 72
---------------------------------------------------------------------------------------------------------------------------
706 685 656 593 539
---------------------------------------------------------------------------------------------------------------------------
169 153 135 120 100
51 52 41 25 17
33 29 30 23 13
39 34 22 22 17
29 28 27 27 28
---------------------------------------------------------------------------------------------------------------------------
321 296 255 217 175
---------------------------------------------------------------------------------------------------------------------------
385 389 401 376 364
20 20 15 15 20
---------------------------------------------------------------------------------------------------------------------------
365 369 386 361 344
---------------------------------------------------------------------------------------------------------------------------
225 219 224 232 242
48 47 49 49 48
25 25 24 21 17
25 24 22 21 14
22 19 21 19 18
60 65 65 57 73
---------------------------------------------------------------------------------------------------------------------------
405 399 405 399 412
1 (1) - (15) 8
---------------------------------------------------------------------------------------------------------------------------
406 398 405 384 420
---------------------------------------------------------------------------------------------------------------------------
229 240 237 237 237
48 51 54 50 52
50 38 62 51 51
34 34 35 30 30
24 24 25 23 23
15 15 16 15 16
13 13 9 9 10
95 84 85 88 92
(8) (4) (5) (12) (3)
- - 223 - -
- - - 104 -
---------------------------------------------------------------------------------------------------------------------------
500 495 741 595 508
---------------------------------------------------------------------------------------------------------------------------
271 272 50 150 256
99 102 9 72 98
----------------------------------------------------------------------------------------------------------------------------
172 170 41 78 158
10 10 30 15 15
---------------------------------------------------------------------------------------------------------------------------
$ 162 $ 160 $ 11 $ 63 $143
---------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
$1.09 $1.08 $ .07 $ .42 $ .97
$1.09 $1.07 $ .07 $ .42 $ .97
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 43
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
---------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 342 $ 314
operating activities Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Amortization of goodwill and other intangible assets 48 50
Amortization of mortgage servicing rights and
purchased credit card relationships 26 22
Depreciation and other amortization 53 47
Deferred income tax expense 79 42
Provision for credit losses 40 40
Provision for real estate acquired and other losses (4) -
Net gains on dispositions of acquired property (5) (12)
Net increase in accrued interest receivable (35) (18)
Net increase in trading account securities (196) (244)
Net increase in accrued interest payable,
net of amounts prepaid 33 16
Net (increase) decrease in residential mortgages held for sale (388) 227
Net decrease in other operating activities (425) (105)
------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (432) 379
---------------------------------------------------------------------------------------------------------------------------
Cash flows from Net (increase) decrease in term deposits and other money market
investing activities investments (99) 293
Net decrease in federal funds sold and
securities under resale agreements 126 196
Funds invested in securities available for sale (2,863) (5,972)
Proceeds from sales of securities available for sale 1,484 852
Proceeds from maturities of securities available for sale 1,356 5,093
Funds invested in investment securities (16) (1,424)
Proceeds from maturities of investment securities 124 320
Net increase in credit card loans (219) (151)
Net principal disbursed on loans to customers (523) (320)
Loan portfolio purchases (277) (136)
Proceeds from the sale of loan portfolios 251 78
Purchases of premises and equipment (39) (59)
Proceeds from sales of premises and equipment 2 1
Proceeds from sales of acquired property 28 45
Net (increase) decrease in other investing activities (67) 39
--------------------------------------------------------------------------------------------------
Net cash used in investing activities (732) (1,145)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
42
<PAGE> 44
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
---------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net decrease in transaction and savings deposits (672) (941)
financing activities Net decrease in customer term deposits (91) (415)
Net increase in federal funds purchased and
securities under repurchase agreements 962 653
Net increase in U.S. Treasury tax and loan demand notes 235 896
Net increase in short-term bank notes 761 -
Net increase in term federal funds purchased 78 192
Net decrease in commercial paper (50) (15)
Repurchase and repayments of longer-term debt (28) (70)
Net proceeds from issuance of longer-term debt 327 -
Series H preferred stock redemption (155) -
Proceeds from issuance of common stock 31 10
Dividends paid on common and preferred stock (178) (115)
Repurchase of common stock and warrants related to the
1993 TBC acquisition (213) -
Repurchase of common stock for employee benefit purposes (106) -
Net increase in other financing activities 188 102
--------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,089 297
Effect of foreign currency exchange rates 8 8
---------------------------------------------------------------------------------------------------------------------------
Change in cash and Net decrease in cash and due from banks (67) (461)
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 $2,218 $1,710
--------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $ 584 $ 314
disclosures Net income taxes paid 72 170
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
---------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(dollar amounts in millions, except per share amounts) 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $4,122 $4,138
Net income 342 314
Dividends on preferred stock:
Series I (7) (7)
Series J (4) (4)
Series K (9) (8)
Series D - (3)
Series H - (8)
Dividends on common stock at $.95 per share in 1995 and
$.7466 per share in 1994 (140) (85)
Repurchase of common stock for employee benefit purposes (106) -
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 7 6
Exercise of stock options 37 4
Unrealized gain (loss), net of tax, on assets classified as
available for sale 34 (43)
Other 15 4
--------------------------------------------------------------------------------------------------
Balance at end of period $4,078 $4,308
--------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
43
<PAGE> 45
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Basis of presentation
On August 24, 1994, the Corporation merged with The Dreyfus Corporation. The
merger was accounted for as a pooling of interests. The financial information
for all prior periods has been restated to present the combined balance sheet
and results of operations of both companies as if the merger had been in effect
for all periods presented. Further information pertaining to the merger is
presented in note 3 -- Merger with The Dreyfus Corporation.
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 June 30, 1995, all of the Corporation's nonperforming loans were considered
to be impaired loans and totaled $199 million. Included in these impaired
loans were $87 million which has a related impairment reserve of $15 million
and $112 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 second quarter and first half of 1995
were $170 million and $166 million, respectively. During the quarter, the
Corporation recognized $4 million of interest income 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
previously existing 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, $29 million of servicing rights, including $1 million
related to the adoption of FAS No. 122, were capitalized in connection with
both loan portfolio purchases and loan originations. The carrying value of
mortgage servicing rights totaled $336 million at June 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 $10 million in the second quarter.
44
<PAGE> 46
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2 -- Adoption of Financial Accounting Standards (continued)
The estimated fair value of capitalized mortgage servicing rights was $378
million at June 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 before 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.
Servicing rights acquired before April 1, 1995, are evaluated for possible
impairment using fair market values in the aggregate. No valuation allowances
existed at June 30, 1995, as the carrying values of the various stratifications
were less than or equal to fair value.
Note 3 -- Merger with The Dreyfus Corporation
On August 24, 1994, the Corporation merged with The Dreyfus Corporation, a
mutual fund company that employs approximately 2,000 people and is
headquartered in New York City. The merger was accounted for under the pooling
of interests method of accounting. As provided for in the merger agreement,
each share of Dreyfus common stock was converted into 0.88017 shares of the
Corporation's common stock, resulting in the Corporation issuing 32.2 million
shares of stock on a pre-stock split basis, or 48.3 million shares of stock on
a post-stock split basis.
In accordance with the pooling of interests method of accounting, the
Corporation's financial statements have been restated for all periods presented
to include the results of Dreyfus. Operating results for the Corporation and
Dreyfus for the three months ended June 30, 1994, and six months ended June 30,
1994, prior to restatement, are presented in the table below.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Three months ended Six months ended
(in millions) June 30, 1994 June 30, 1994
--------------------------------------------------------------------------------------------------
<S> <C> <C>
The Corporation
Total revenue $693 $1,398
Net income 134 265
Net income applicable to common stock 119 235
--------------------------------------------------------------------------------------------------
Dreyfus
Total revenue $ 91 $ 191
Net income 24 49
Net income applicable to common stock 24 49
--------------------------------------------------------------------------------------------------
Combined
Total revenue $784 $1,589
Net income 158 314
Net income applicable to common stock 143 284
--------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 47
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
Note 4 -- 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 Six months ended
June 30, June 30,
(in millions) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts $24 $15 $48 $34
Debt instruments - (2) - (3)
Interest rate contracts - - - 1
Futures contracts 1 1 1 1
---------------------------------------------------------------------------------------------------------------------------
Total foreign currency and securities trading revenue $25 $14 $49 $33
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 5 -- Securities
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
--------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995 June 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 $ 237 $- $ - $ 237 $ 824 $- $10 $ 814
U.S. agency mortgage-backed 516 1 12 505 542 1 31 512
Other U.S. agency 1,128 - 1 1,127 1,560 1 - 1,561
-------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 1,881 1 13 1,869 2,926 2 41 2,887
Obligations of states and
political subdivisions 1 - - 1 1 - - 1
Other mortgage-backed 8 - - 8 14 - - 14
Other securities 71 5 1 75 222 6 10 218
-------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $1,961 $6 $14 $1,953 $3,163 $8 $51 $3,120
-------------------------------------------------------------------------------------------------------------------------
<FN>
Note: Gross realized gains in the first half of 1995 and 1994 were $1 million
and $13 million, respectively. Gross realized losses were $1 million and $3
million in the first half of 1995 and 1994, respectively. Proceeds from the
sale of securities available for sale totaled $1.484 billion and $852 million
in the first half of 1995 and 1994, respectively.
</TABLE>
46
<PAGE> 48
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Note 5 -- Securities (continued)
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
JUNE 30, 1995 June 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 $ 29 $ 1 $ - $ 30 $ 23 $- $ 1 $ 22
U.S. agency mortgage-backed 2,920 22 22 2,920 3,065 2 134 2,933
Other U.S. agency - - - - 3 - - 3
--------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,949 23 22 2,950 3,091 2 135 2,958
Obligations of states and
political subdivisions 56 1 - 57 107 1 - 108
Other mortgage-backed 45 1 1 45 56 - 1 55
Other investment securities 83 1 - 84 88 1 - 89
--------------------------------------------------------------------------------------------------------------------------
Total investment securities $3,133 $26 $23 $3,136 $3,342 $4 $136 $3,210
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 6 -- Other assets
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
JUNE 30, Dec. 31, June 30,
(in millions) 1995 1994 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense:
Pension $ 265 $ 252 $ 244
Other 60 42 80
Interest receivable 234 199 174
Accounts receivable 206 218 201
Receivables related to
off-balance-sheet instruments 479 257 249
Other 890 941 984
-----------------------------------------------------------------------------------------------------------------------------
Total Other assets $2,134 $1,909 $1,932
-----------------------------------------------------------------------------------------------------------------------------
</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>
-----------------------------------------------------------------------------------------------------------------------------
Liquidation Balances at
-----------------------------------
(dollar amounts in millions, preference Shares Shares JUNE 30, Dec. 31, June 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
Junior convertible preferred
stock (Series D) 1.00 - - - - 2
10.40% preferred stock (Series H) 25.00 - - - - 155
---- ---- ----
Total preferred stock $435 $435 $592
==== ==== ====
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
Note 8 -- Supplemental information to the Consolidated Statement of
Cash Flows
Noncash investing and financing transactions that appropriately were not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
(in millions) 1995 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Transfers to real estate acquired $10 $6
Net transfers to segregated assets 12 -
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 9 -- Legal proceedings
A discussion of legal actions and proceedings against the Corporation and its
subsidiaries is presented in Part II, Item 1, of this Form 10-Q.
48
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Note 10 -- Computation of primary and fully diluted net income per common
share
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Three months ended Six months ended
(dollar amounts in millions, except per June 30, June 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) $ 162 $ 144 $ 322 $ 286
-----------------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 145,465 143,860 146,185 143,727
Common shares issuable upon conversion
of Series D preferred stock - 2,552 - 2,552
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 1,929 2,093 1,672 2,023
Warrants (d) 661 599 541 515
Series D preferred stock subscription rights - 1 - 1
-----------------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents (e) 148,055 149,105 148,398 148,818
-----------------------------------------------------------------------------------------------------------------------------
Primary net income per common share (c) $ 1.09 $ .97 $ 2.17 $ 1.93
-----------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a)(b) $ 162 $ 144 $ 322 $ 286
-----------------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 145,465 143,860 146,185 143,727
Common shares issuable upon conversion of
Series D preferred stock - 2,552 - 2,552
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method 2,697 2,714 2,972 2,585
7 1/4% Convertible Subordinated Capital Notes 129 134 131 134
-----------------------------------------------------------------------------------------------------------------------------
Total stock, stock equivalents
and other dilutive items 148,291 149,260 149,288 148,998
-----------------------------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (c) $ 1.09 $ .97 $ 2.16 $ 1.93
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) After adding back Series D preferred stock dividends of $1 million in the
second quarter of 1994 and $2 million in the first half 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.
(e) Common stock and stock equivalents will be reduced to approximately 143.7
million shares and 146.7 million shares in the third quarter and first
nine months of 1995 respectively, as a result of the common
stock and warrants repurchased in June 1995.
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
---------------------------------------------------------------------------------------------------------------------------------
Six months ended
--------------------------------------------------
JUNE 30, 1995 June 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 $ 491 6.30% $ 963 3.87%
Federal funds sold and securities under
resale agreements 667 5.77 811 3.31
Other money market investments 39 5.73 205 3.58
Trading account securities 268 7.20 444 5.82
Securities:
U.S. Treasury and agency securities (a) 4,535 6.54 4,534 5.47
Obligations of states and political
subdivisions (a) 67 7.62 117 7.22
Other (a) 210 5.90 421 3.87
Loans, net of unearned discount (a) 26,922 8.96 24,442 7.30
-------- --------
Total interest-earning assets 33,199 8.51% 31,937 6.75%
Cash and due from banks 2,128 2,467
Customers' acceptance liability 194 134
Premises and equipment 555 525
Net acquired property 85 123
Other assets (a) 3,622 3,238
Reserve for credit losses (606) (609)
---------------------------------------------------------------------------------------------------------------
Total assets $39,177 $37,815
--------------------------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand (b) $ 1,960 2.04% $ 2,158 (.71)%
equity Money market and other savings accounts 8,654 3.04 9,735 1.70
Retail savings certificates 6,817 4.95 6,632 3.33
Other time deposits 201 4.17 327 5.07
Deposits in foreign offices 3,534 5.88 1,427 3.78
--------- ---------
Total interest-bearing deposits 21,166 4.05 20,279 2.17
Federal funds purchased and securities under
repurchase agreements 2,103 5.96 1,350 3.44
U.S. Treasury tax and loan demand notes 504 5.70 642 3.39
Commercial paper 259 5.96 124 3.60
Other funds borrowed 1,500 6.92 548 7.21
Notes and debentures (with original maturities
over one year) 1,612 7.16 1,944 5.84
--------- ---------
Total interest-bearing liabilities 27,144 4.59% 24,887 2.68%
Total noninterest-bearing deposits 6,042 7,108
Acceptances outstanding 194 134
Other liabilities 1,602 1,451
---------------------------------------------------------------------------------------------------------------
Total liabilities 34,982 33,580
---------------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 4,195 4,235
---------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $39,177 $37,815
--------------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 8.51% 6.75%
Cost of funds supporting interest-earning assets 3.76% 2.09%
-------------------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.75% 4.66%
Without taxable equivalent increments 4.71% 4.62%
-------------------------------------------------------------------------------------------------------------
<FN>
(a) Amounts and yields exclude adjustments to fair value
required by FAS No. 115.
(b) In the second quarter and first six 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>
50
<PAGE> 52
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Three months ended
--------------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1995 March 31, 1995 Dec. 31, 1994 Sept. 30, 1994 June 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>
$ 552 6.33% $ 431 6.26% $ 416 7.63% $ 670 4.58% $ 893 4.08%
578 5.79 757 5.75 730 5.20 697 4.24 779 3.64
35 6.71 42 4.90 67 7.11 99 4.40 141 4.05
220 6.65 316 7.59 281 7.23 351 6.60 386 6.15
4,429 6.59 4,640 6.49 4,761 6.04 5,021 5.88 4,824 5.52
64 7.67 70 7.57 97 6.83 108 7.23 109 7.03
207 5.91 214 5.89 242 6.35 326 5.09 413 4.13
27,124 9.03 26,717 8.88 26,423 8.35 25,103 7.80 24,251 7.38
-------- -------- -------- -------- --------
33,209 8.58% 33,187 8.42% 33,017 7.92% 32,375 7.32% 31,796 6.85%
2,147 2,109 2,164 2,253 2,381
198 190 245 147 132
554 557 557 541 526
83 87 99 108 116
3,826 3,415 3,366 3,245 3,183
(606) (607) (618) (617) (610)
-----------------------------------------------------------------------------------------------------------------------------
$39,411 $38,938 $38,830 $38,052 $37,524
-----------------------------------------------------------------------------------------------------------------------------
$ 1,924 2.13% $ 1,997 1.96% $ 2,094 1.46% $ 2,162 .79% $ 2,157 (.66)%
8,606 3.16 8,703 2.92 8,924 2.46 9,372 2.13 9,588 1.84
6,807 5.15 6,828 4.74 6,632 4.19 6,495 3.73 6,552 3.45
194 5.92 208 2.52 167 5.16 165 10.77 307 4.13
3,452 5.94 3,616 5.82 3,072 5.18 2,265 4.33 1,685 3.97
--------- --------- --------- --------- ---------
20,983 4.19 21,352 3.90 20,889 3.33 20,459 2.81 20,289 2.31
2,208 6.06 1,996 5.85 2,354 5.13 2,039 4.45 1,406 3.83
437 5.86 571 5.57 450 4.98 528 4.35 689 3.69
249 6.02 268 5.90 190 5.06 181 4.53 138 3.88
1,716 6.82 1,281 7.06 919 6.15 776 7.36 476 7.86
1,643 7.13 1,582 7.18 1,571 6.76 1,618 6.52 1,924 5.92
--------- --------- --------- --------- ---------
27,236 4.73% 27,050 4.44% 26,373 3.83% 25,601 3.35% 24,922 2.83%
6,117 5,966 6,371 6,504 6,700
198 190 245 147 132
1,658 1,545 1,490 1,418 1,483
-----------------------------------------------------------------------------------------------------------------------------
35,209 34,751 34,479 33,670 33,237
-----------------------------------------------------------------------------------------------------------------------------
4,202 4,187 4,351 4,382 4,287
-----------------------------------------------------------------------------------------------------------------------------
$39,411 $38,938 $38,830 $38,052 $37,524
-----------------------------------------------------------------------------------------------------------------------------
8.58% 8.42% 7.92% 7.32% 6.85%
3.89% 3.62% 3.07% 2.66% 2.22%
-----------------------------------------------------------------------------------------------------------------------------
4.69% 4.80% 4.85% 4.66% 4.63%
4.66% 4.76% 4.82% 4.62% 4.59%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
approximating 35%, using dollar amounts in thousands and actual number of days
in the periods and are before the effect of reserve requirements. Loan fees,
as well as nonaccrual loans and their related income effect, have been included
in the calculation of average interest yields/rates.
51
<PAGE> 53
SELECTED STATISTICAL INFORMATION
-------------------------------------------------------------------------------
DEPOSITS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
----------------------------------------------------------------------------------------------------------------------------
JUNE 30, March 31, Dec. 31, Sept. 30, June 30,
(in millions) 1995 1995 1994 1994 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
Demand deposit accounts $ 1,922 $ 1,979 $ 2,125 $ 2,121 $ 2,175
Money market and other savings accounts 8,760 8,795 9,090 9,391 9,601
Retail savings certificates 6,730 6,832 6,707 6,566 6,513
Other time deposits 239 169 199 166 280
----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 17,651 17,775 18,121 18,244 18,569
Noninterest-bearing 5,908 5,504 5,979 5,728 5,772
----------------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 23,559 23,279 24,100 23,972 24,341
----------------------------------------------------------------------------------------------------------------------------
Deposits in foreign offices 3,248 3,726 3,470 3,160 1,867
----------------------------------------------------------------------------------------------------------------------------
Total deposits $26,807 $27,005 $27,570 $27,132 $26,208
----------------------------------------------------------------------------------------------------------------------------
</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 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the Corporation's annual meeting of shareholders held on April 18, 1995, for
which proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, the following matters were voted upon by shareholders.
1. The election of six directors for a term expiring in 1998:
<TABLE>
<CAPTION>
Name of Director Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
Ira J. Gumberg 125,367,238 415,235
Edward J. McAniff 125,359,065 423,408
David S. Shapira 125,291,971 490,502
W. Keith Smith 125,303,513 478,960
Joab L. Thomas 125,363,394 419,079
William J. Young 125,357,827 424,646
</TABLE>
52
<PAGE> 54
PART II - OTHER INFORMATION (CONTINUED)
-------------------------------------------------------------------------------
2. Ratification of KPMG Peat Marwick LLP as independent public
accountants of the Corporation for the year 1995:
For: 125,192,897
Against: 320,313
Abstain: 269,263
Abstentions are not counted for voting purposes under Pennsylvania law, the
jurisdiction of the Corporation's incorporation.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
10.1 Mellon Bank Corporation Retirement Plan for Outside Directors,
effective January 1, 1994.
10.2 Mellon Bank Corporation Phantom Stock Unit Plan (1995).
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends (Mellon Bank Corporation and its subsidiaries).
(b) Reports on Form 8-K
During the second quarter of 1995, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated April 18, 1995, which included, under Item 7, the
Corporation's press release regarding first quarter 1995
financial results.
(2) A report dated June 12, 1995, which included, under items 5 and
7, the Corporation's press release regarding the Corporation's
purchase of its common stock and warrants from a subsidiary of
American Express.
(3) A report dated June 14, 1995, which included under item 7,
certain exhibits incorporated by reference into Registration
Statement No. 33-55226 pertaining to certain debt securities of
Mellon Financial Company and the related guarantees of the
Registrant.
53
<PAGE> 55
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
(Registrant)
Date: August 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)
54
<PAGE> 56
CORPORATE INFORMATION
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
Business Mellon Bank Corporation is a multibank holding company incorporated under the laws of
of the Pennsylvania in August 1971 and registered under the Federal Bank Holding Company Act of 1956,
Corporation 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 located 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 commercial
financial services, 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 preferred and Series K preferred
listing 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 Securities
Transfer Services, 85 Challenger Road, Overpeck Center, Ridgefield Park, NJ 07660-9940.
Dividend Subject to approval of the board of directors, dividends are paid on Mellon Bank Corporation's
payments common and preferred stocks on or about the 15th day of February, May, August and November.
Dividend Under the Dividend Reinvestment and Common Stock Purchase Plan, registered holders of
Reinvestment Mellon Bank Corporation's common stock may purchase additional common shares at the
and Common market value for such shares through reinvestment of common dividends and/or optional cash
Stock Pur- payments. Purchases of shares through optional cash payments are subject to limitations.
chase Plan 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 Faxed copies of recent Mellon Bank Corporation press releases can be obtained by calling PR
Releases Newswire's Company News On-call Service at 1-800-758-5804. This electronic menu-driven system will ask for a
six-digit extension number (Mellon's number is 552187). Options for requesting the most recent press
release, a menu listing all available press releases or a particular release if you already have received the menu,
are available.
</TABLE>
55
<PAGE> 57
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------------- -----------------------------------------------------------------------------------------------
<S> <C>
10.1 Mellon Bank Corporation Retirement Plan for Outside Directors, effective January 1, 1994.
10.2 Mellon Bank Corporation Phantom Stock Unit Plan (1995).
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
</TABLE>
56
<PAGE> 1
EX-10.1
MELLON BANK CORPORATION
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
Effective January 1, 1994
<PAGE> 2
1. PURPOSE
The purpose of the Mellon Bank Corporation ("Corporation") Retirement
Plan for Outside Directors ("Plan") is to provide eligible non-
employee members of the Board of Directors of the Corporation
("Board") and the Advisory Board of the Corporation ("Advisory Board")
with retirement benefits based on their length of service on the
Board.
The Corporate Benefits Committee ("Committee") of the Corporation
shall be the "administrator" responsible for administering the Plan in
accordance with its terms but such designation of the Committee shall
not be construed, directly or indirectly, as evidencing any intent on
the part of the Corporation that the Plan be governed by or
enforceable under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"); it being the intent of the Corporation that such
Plan be governed by and enforceable under the laws of the Commonwealth
of Pennsylvania.
2. ELIGIBILITY
The "Non Employee Members" of the Board and Advisory Board described
in subparagraphs (a) and (b) below shall be eligible to become
participants in the Plan upon their satisfaction of the service
requirements described in paragraph 3:
a. BOARD MEMBERS. All individuals who are or become members of the
Board on or after January 1, 1994 and who are not also serving as
salaried employees of the Corporation or one of its subsidiaries.
b. ADVISORY BOARD MEMBERS. All individuals who are active members
of the Advisory Board on or after January 1, 1994, who were active
members of the Board prior to January 1, 1994 and who are not also
serving as salaried employees of the Corporation or one of its
subsidiaries.
3. PARTICIPATION
a. IMMEDIATE PARTICIPATION. Those Non Employee Members described
in paragraph 2 who are credited with sixty (60) or more months of
Board Service as of January 1, 1994, shall become "Participants"
entitled to receive a benefit under this Plan as of January 1, 1994.
b. FUTURE PARTICIPATION. Those Non Employee Members described in
paragraph 2 who are not credited with sixty (60) or more months of
Board Service as of January 1, 1994, shall become "Participants"
entitled to receive a benefit under this Plan upon their completion of
sixty (60) months of Board Service.
2
<PAGE> 3
c. BOARD SERVICE. For purposes of this Plan, "Board Service" shall
mean the Non Employee Member's months of service as an active member
of the Board of Directors. Months of service as a member of the
Advisory Board or as a member of the board of any wholly or partially
owned subsidiary of the Corporation, regardless of the method by which
the subsidiary was established or acquired, shall not constitute Board
Service. Without intending to limit the generality of the preceding
sentence, a Non Employee Member's months of service as a member of the
board of directors of any company merged with and into the Corporation
shall not constitute "Board Service" for any purpose under this Plan
unless and until the Nominating Committee of the Board takes action to
provide otherwise.
4. BENEFITS
a. AMOUNT. The monthly benefit payable under this Plan with
respect to any Participant shall be determined as of the effective
date of the Participant's termination of active membership on the
Board and shall be a fixed dollar amount equal to one-twelfth (1/12th)
of the annual Retainer then being paid to active Non Employee Members
of the Board.
b. DURATION. The amount determined in subparagraph (a) with
respect to any Participant shall be paid for that number of months
equal to the lesser of: the Participant's months of Board Service (as
defined in subparagraph 3(c) above); or one hundred twenty (120)
months.
c. DEFINITIONS. The following words shall have the meanings
ascribed to them:
(1) "RETAINER" means the base annual cash remuneration
established by the Nominating Committee and the Board and paid to an
active Non Employee Member of the Board as the retainer for his or her
services as an active member of the Board; determined without regard
to any additional cash remuneration paid as a retainer to any
committee chairmanship positions, any noncash remuneration or
benefits, any meeting or per diem fees paid for attendance or any
allowances or reimbursements for meals, travel, lodging, or other
expenses attributable to attendance at Board meetings.
(2) "TERMINATION OF SERVICE FROM THE BOARD" means:
(a) with respect to Participants who ARE NOT
appointed to the Advisory Board following the termination of
their active membership on the Board, the Participant's
termination of active membership from the Board; and
(b) with respect to Participants who ARE appointed
to the Advisory Board following the termination of their
active membership on the Board,
3
<PAGE> 4
the Participant's termination of active membership from the
Advisory Board,
in either event with such termination of active membership being
permitted to occur at any age as a result of retirement, resignation
or any other reason.
5. PAYMENT OF BENEFITS
Upon a Participant's Termination of Service from the Board, the
Corporation shall pay to or on behalf of the Participant a Plan
benefit as determined below:
a. UPON TERMINATION OF SERVICE FROM THE BOARD FOR REASON OTHER THAN
DEATH. Except as otherwise provided in the case of death, the monthly
benefit determined in paragraph 4 shall be paid to the Participant or
his Assignee at the same time as are made monthly installments of the
Retainer paid on behalf of active Non Employee Members of the Board.
b. ASSIGNMENTS. Any Participant may from time to time direct the
Corporation to pay all or any portion of his or her benefits hereunder
directly to any person or persons (natural or otherwise, including a
trust or an estate) as the Participant's Assignee or Assignees.
Assignments shall be completely discretionary on the part of the
Participant and may, at the Participant's election, be either
revocable by the Participant without prior notice to the Assignee(s)
or irrevocable. Unless otherwise provided in the instrument effecting
the assignment, revocable assignments shall become null and void upon
the Participant's death. Assignments shall be made in writing in the
manner prescribed by the Committee (or its delegate) and will be
effective only when filed with the Committee (or its delegate) during
the Participant's lifetime.
c. UPON DEATH
(1) PRIOR TO TERMINATION OF SERVICE FROM THE BOARD. In the
event that the Participant dies prior to his Termination of Service
from the Board, the Corporation shall pay to the Participant's
Beneficiary (or his Assignee(s), if applicable) an amount equal to
fifty percent (50%) of the Present Value of the benefit the
Participant would have received, if any, had the Participant had a
Termination of Service from the Board for a reason other than death on
the day before his or her death. Such then Present Value shall be
paid in a single sum as soon as administratively possible after the
date of death.
(2) AFTER TERMINATION OF SERVICE FROM THE BOARD. In the
event that the Participant dies after his Termination of Service from
the Board and prior to his (or his Assignee(s), if applicable)
receiving all of the benefits to which he or she is entitled under
this Plan, the Corporation shall pay to the Participant's Beneficiary
(or his Assignee(s), if applicable) an amount equal to the then
Present Value of
4
<PAGE> 5
the unpaid portion of the Participant's benefit. Such then Present
Value shall be paid in a single sum as soon as administratively
possible after the date of death.
(3) PRESENT VALUE. For purposes of this subparagraph (c),
the then Present Value shall be computed using an interest equal to
the lesser of: ten percent (.10); or one percentage point (.01) over
the rate charged by Mellon Bank, N.A., or its successor, to its best
commercial customers determined as of the date of death.
d. TAX WITHHOLDING. The amounts payable in accordance with
subparagraphs (a) or (b) shall be subject to all applicable Federal,
state and local income and employment taxes and withholding
requirements.
6. DESIGNATION OF BENEFICIARY
Subject to any irrevocable assignments made pursuant to subparagraph
5(b), each Participant may from time to time designate any person or
persons (natural or otherwise, including a trust or an estate) as the
Participant's Beneficiary or Beneficiaries to whom distribution is to
be made in the event the Participant dies before distribution of his
or her entire benefit under this Plan. Each Beneficiary designation
shall be in a manner prescribed by the Committee (or its delegate) and
will be effective only when filed with the Committee (or its delegate)
during the Participant's lifetime. Each Beneficiary designation filed
with the Committee (or its delegate) will cancel all Beneficiary
designations previously filed with the Committee (or its delegate).
If a Participant fails to designate a Beneficiary in the manner
provided above, or if no designated Beneficiary survives the
Participant, then the Corporation shall distribute the Participant's
benefits (or the balance thereof) to the estate of such Participant.
7. FORFEITURE OF BENEFITS
Notwithstanding any other provision of this Plan to the contrary,
a Participant shall forfeit his or her right to receive any
and all benefits scheduled to be paid on and after the date that the
highest court with jurisdiction over the matter finally determines
that the Participant has failed to act in accordance with the
fiduciary standard of care established by Section 1712 of the
Pennsylvania Business Corporation Law of 1988, as amended, or its
successor Section(s), with respect to a matter involving the interests
of the Corporation or one of its subsidiaries.
8. FUNDING
a. PARTICIPANT CONTRIBUTIONS. Participant contributions are
neither permitted nor required.
5
<PAGE> 6
b. CORPORATION CONTRIBUTIONS. Except as otherwise provided in (d),
the Corporation is neither permitted nor required to make
contributions to any funding vehicle associated with this Plan.
c. BENEFITS PAID FROM GENERAL ASSETS. The Corporation shall be
responsible for the payment of all benefits provided under this Plan;
which benefits are to be paid from the general assets of the
Corporation.
d. TRUST FUND; INSURANCE CONTRACTS. The Corporation may, solely for
its own convenience, purchase insurance contracts and/or establish one
or more trusts, with such trustees as the Board or the Committee may
approve; which contracts and/or trust assets may, but need not, be
used to provide for the payment of the benefits provided hereunder.
Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Corporation's creditors. To the
extent any benefits provided under the Plan are actually paid from any
such insurance contract and/or trust assets, the Corporation shall
have no further obligation with respect thereto, but to the extent not
so paid, such benefits shall remain the obligation of, and shall be
paid by, the Corporation.
9. ADMINISTRATION
Except as otherwise provided in the provisions of Article II,
ADMINISTRATION, of the Mellon Bank Corporation 1990 Elective Deferred
Compensation Plan for Directors and Members of the Advisory Board
(amended and restated as of July 21, 1992), which provisions are
incorporated herein, mutatis mutandis, by this reference, the
Committee shall be responsible for administering the Plan in
accordance with its terms and for the referenced administrative
responsibilities with respect to the Plan.
10. AMENDMENT
The Board or the Nominating Committee of the Board shall have
the right, at any time and without the consent of any Participant,
former Participant or Beneficiary, to amend or modify the Plan in any
respect or to terminate or repeal the Plan in its entirety.
Notwithstanding anything in the preceding sentence to the contrary,
the Committee shall have the power to amend the Plan to the extent
authorized by paragraph 9.
11. GENERAL PROVISIONS
a. SPENDTHRIFT PROVISIONS. The Corporation shall, except as
otherwise provided in the Plan, pay all amounts payable hereunder only
to the person or persons entitled thereto hereunder, and all such
payments shall be made directly into the hands of each such person or
persons and not into the hands of any other person whatsoever, so that
said payments may not be liable for the debts, contracts or
6
<PAGE> 7
engagements of any such designated person or persons, or taken in
execution by attachment or garnishment or by any other legal or
equitable proceedings, nor shall any such designated person or persons
have any right to alienate, arbitrate, execute, pledge, encumber, or
assign any such payments or the benefits thereof. If the person
entitled to receive payment be a minor, or a person of unsound mind,
whether or not adjudicated incompetent, the Corporation, upon the
direction of the Committee, may make such payments to such person or
persons as may be, or be acting as, parent or legal or natural
guardian of such infant or person of unsound mind. The signed receipt
of such person shall be a full and complete discharge to the
Corporation for any such payments.
b. PARTICIPANT RIGHTS. No Participant, former Participant, person
claiming under or through any Participant or any other person shall
have any right or interest, whether vested or otherwise, in the Plan
or its continuance, or in or to the payment or the continuance of any
payments under the Plan, except with respect to payments actually
received by the Participant or former Participant in accordance with
the terms, conditions and provisions of the Plan in effect at the time
any such payments were received. Any and all payments required to be
made to Participants in accordance with the terms of the Plan shall be
general and unsecured liabilities of the Corporation.
c. RIGHT OF CORPORATION TO REPLACE MEMBERS OF THE BOARD AND
ADVISORY BOARD; Obligations. Neither the action of the Corporation
in establishing this Plan, nor any provisions of this Plan, shall be
construed as giving any member of the Board or Advisory Board the
right to be retained in such capacity and the Board or the Nominating
Committee shall have the right at any time to replace or fail to
renominate any member of the Board or Advisory Board without any
liability for any claim against the Corporation for any payment
whatsoever except to the extent provided for in this Plan. The
Corporation has no obligation to create any other or subsequent
retirement, deferred compensation or similar plan for members of the
Board or Advisory Board.
d. INDEPENDENCE OF BENEFITS. The benefits payable under this Plan
shall be independent of and in addition to any other benefits or
compensation, whether by Retainer, salary, bonus or otherwise, payable
under any other agreement or pension, welfare or fringe benefit plan,
fund or program that now exists or may hereafter be established by the
Corporation on behalf of the Participant or for its other Non Employee
Members.
e. TEXT OF PLAN TO CONTROL. The headings of the paragraphs and
subparagraphs are included solely for convenience of reference, and if
there be any conflict between such headings and the text of this Plan,
the text shall control. This Plan document sets forth the complete
terms of the Plan. In the event of any discrepancies or conflicts
between this Plan document and any summary or other
7
<PAGE> 8
information regarding the Plan, the terms of this Plan document shall
apply and control.
f. CORPORATE SUCCESSORS. This Plan shall be binding upon the
Corporation, its successors and assigns and the Participant and his or
her heirs, executors, administrators and legal representatives.
g. APPLICABLE LAW; SEVERABILITY. This Plan shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania. If any provisions of this Plan shall be held invalid or
unenforceable for any reason, such invalidity or unenforceability
shall not affect the remaining provisions of this Plan, and this Plan
shall be deemed to be modified to the least extent possible to make it
valid and enforceable in its entirety.
12. EXECUTION
IN WITNESS WHEREOF, the Corporation, intending to be legally bound,
has caused this Plan to be executed and attested to by its duly
authorized officers or representatives this 25th day of May, 1995, but
effective as of January 1, 1994.
ATTEST MELLON BANK CORPORATION
By: JAMES M. GOCKLEY By: FRANK V. CAHOUET
----------------- --------------------
James M. Gockley Frank V. Cahouet
Secretary Chairman, President and
Chief Executive Officer
[Corporate Seal]
8
<PAGE> 1
EX-10.2
MELLON BANK CORPORATION
PHANTOM STOCK UNIT PLAN (1995)
I. Purpose
The purposes of this Phantom Stock Unit Plan (1995) ("Plan") are to promote the
growth and profitability of Mellon Bank Corporation ("Corporation") and its
subsidiaries by providing officers and other key executives of the Corporation
and its subsidiaries with an incentive to achieve long-term corporate
objectives and to increase the mutuality of interests between such officers and
key executives and the shareholders of the Corporation.
II. Definitions
The following terms shall have the meanings shown:
2.1 "Board" shall mean the Board of Directors of the Corporation.
2.2 "Change in Control Event" shall mean any of the following events:
(a) The occurrence with respect to the Corporation of a "control transaction,"
as such term is defined in Section 2542 of the Pennsylvania Business
Corporation Law, as of August 15, 1989; or
(b) Approval by the shareholders of the Corporation of a. any consolidation or
merger of the Corporation in which the holders of voting stock of the
Corporation immediately before the merger or consolidation will not own 50% or
more of the voting shares of the continuing or surviving corporation
immediately after the merger or consolidation, or b. any sale, lease or
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Corporation; or
(c) A change of 25% (rounded to the next whole person) in the membership of the
Board within a 12-month period, unless the election or nomination of each new
director within such period was approved by the vote of 85 % (rounded to the
next whole person) of the directors then still in office who were in office at
the beginning of the 12-month period.
2.3 "Committee" shall mean the Human Resources Committee of the Board, or any
successor committee .
2.4 "Common Stock" shall mean Common Stock of the Corporation.
2.5 "Deferral Plan" shall mean the Mellon Bank Corporation Elective Deferred
Compensation Plan for Senior Officers or any similar or successor plan of the
Corporation or a subsidiary then in effect.
<PAGE> 2
2.6 "Fair Market Value" shall mean the mean value between the bid and ask price
of the Common Stock as reported by the National Association of Securities
Dealers through their Automated Quotation System on the relevant date, or, if
no quotations shall have been made on such relevant date, on the next preceding
day on which there were quotations. Notwithstanding the foregoing, if the
Common Stock is listed on a stock exchange, "Fair Market Value" shall mean the
closing price of the Common Stock on the exchange on the relevant date, or, if
no sale shall have been made on such exchange on that date, the closing price
on the next preceding day on which there was a sale.
2.7 "Unit" shall mean a right granted by the Committee pursuant to Section 4.1
to receive the Fair Market Value of a share of Common Stock as of a specified
date or as of the date of occurrence of a specified event, which right may be
made conditional upon the occurrence or nonoccurrence of other specified events
as herein provided.
III. General
3.1 Administration.
(a) The Plan shall be administered by the Committee, each member of which shall
at the time of any action under the Plan be a "disinterested person" as then
defined under Rule 16b-3 under the Securities Exchange Act of 1934 ("Exchange
Act") or any successor rule.
(b) The Committee shall have the authority in its sole discretion from time to
time: c. to designate the employees eligible to participate in the Plan; d. to
award Units to eligible employees and to determine the amount of any such
award; e. to prescribe such terms, conditions, limitations and restrictions,
not inconsistent with the Plan, applicable to any such award as the Committee
shall deem appropriate; and f. to interpret the Plan, to adopt, amend and
rescind rules and regulations relating to the Plan, and to make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan. A majority of the Committee
shall constitute a quorum, and the action of a majority of the members of the
Committee present at any meeting at which a quorum is present, or acts
unanimously adopted in writing without the holding of a meeting, shall be the
acts of the Committee.
(c) All such actions shall be final, conclusive and binding upon the
participating employee. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan or any award
thereunder.
3.2 Eligibility. The Committee may award Units under the Plan to any full-time
corporate officer, key executive, administrative or professional employee of
the Corporation or any of its subsidiaries.
- 2 -
<PAGE> 3
3.3 Aggregate Limitation on Awards. The aggregate number of Units which may be
awarded under the Plan shall not exceed 250,000 Units, subject to adjustments
pursuant to Sections 5.5 and 5.6. If any Unit is surrendered or forfeited to
the Corporation for any reason prior to payment thereof, such Unit shall again
be available for award under the Plan.
IV. Units
4.1 Award of Units. The Committee may from time to time, subject to the
provisions of the Plan, in its discretion award Units to eligible employees in
such amounts as the Committee shall determine to award.
4.2 Award Agreements. The award of any Units shall be evidenced by a written
agreement executed by the Corporation and the awardee, stating the number of
Units awarded and such other terms and conditions of the award as the Committee
may from time to time determine.
4.3 Optional Terms and Conditions of Units. To the extent not inconsistent with
the Plan, the Committee may prescribe such terms and conditions applicable to
any award of Units as it may in its discretion determine; provided, however
that the terms and conditions of any award of Units shall be such that the
Units shall not constitute "equity securities" of the Corporation for purposes
of Section 16 of the Securities Exchange Act of 1934 ("Exchange Act").
4.4 Standard Terms and Conditions of Units. Unless otherwise determined by the
Committee pursuant to Section 4.3, each award of Units shall be made on the
following terms and conditions, in addition to such other terms, conditions,
limitations and restrictions as the Committee, in its discretion, may determine
to prescribe:
(a) Payment Date. The date on which each Unit shall mature and become
payable ("Payment Date") shall be the earlier of:
(i) the third anniversary of the date of the award; or
(ii) the date of termination of the awardee's employment with
the Corporation or a subsidiary if, and only if, such termination is
by reason of the awardee's death, disability (covered by a disability
plan of the Corporation or a subsidiary then in effect) or retirement
with the consent of the Corporation or a subsidiary; or
(iii) the date of termination of the awardee's employment with
the Corporation or a subsidiary if, and only if, such termination
results solely from a displacement, as determined in accordance with
the Mellon Employee Displacement Program or any successor practice of
the Corporation; or
(iv) the date of any Change in Control Event, as determined by
the Committee.
- 3 -
<PAGE> 4
As promptly as practicable after the Payment Date, the Corporation or a
subsidiary shall either (1) pay to the awardee or his estate in cash an
amount equal to the number of Units maturing on that date multiplied by the
Fair Market Value on the Payment Date of a share of Common Stock or (2) if
so elected by an awardee prior to the time of the award or so determined by
the Committee, cause such amount to be credited to the awardee's account
under a Deferral Plan.
(b) Forfeiture of Units. Upon the effective date of a termination of
the awardee's employment with the Corporation or a subsidiary for any
reason not specified in Section 4.4(a)(ii) or Section 4.4(a)(iii), all
Units for which the Payment Date has not occurred shall immediately be
forfeited to the Corporation without consideration or further action being
required of the Corporation. For purposes of the immediately preceding
sentence, the effective date of the awardee's termination shall be the date
on which the awardee ceases to perform services as an employee of the
Corporation or any of its subsidiaries, without regard to accrued vacation,
severance or other benefits or the characterization thereof on the payroll
records of the Corporation or any of its subsidiaries.
(c) Dividend Equivalents. If an award of Units is outstanding as of the
record date for determination of the shareholders of the Corporation
entitled to receive a cash dividend on its outstanding shares of Common
Stock, the Corporation or a subsidiary shall pay to the awardee on or as
promptly as practical following the payment date thereof, an amount in cash
equal to the per share amount of such dividend multiplied by the number of
Units held by the awardee.
4.5 Transfer Restriction. No Unit shall be assignable or transferable by an
awardee other than by will, or if the awardee dies intestate, by the laws of
descent and distribution of the state of domicile of the awardee at the time of
death. All units shall be payable during the lifetime of the awardee only to
the awardee or to the awardee's account under a Deferral Plan.
V. Miscellaneous
5.1 Withholding Taxes. Any payments made to an awardee may be net of an amount
sufficient to satisfy any federal, state, local or other withholding tax
requirements.
5.2 No Right to Employment. Nothing in the Plan or in any agreement entered
into pursuant to the Plan shall confer upon any awardee the right to continue
in the employment of the Corporation or a subsidiary or affect any right which
the Corporation or a subsidiary may have to terminate the employment of such
awardee.
- 4 -
<PAGE> 5
5.3 Non-Uniform Determinations. The Committee's determinations under the Plan
(including without limitation its determinations of the persons to receive
awards, the amount and timing of such awards and the terms and provisions of
such awards) need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the Plan, whether
or not such persons are similarly situated.
5.4 No Rights as Shareholders. Recipients of awards under the Plan shall have
no rights as shareholders of the Corporation with respect thereto.
5.5 Adjustments of Stock. In the event of any change or changes in the
outstanding Common Stock aggregating at least 5%, the Committee may in its
discretion appropriately adjust the number of Units which may be awarded under
the Plan, the number of Units subject to awards outstanding under the Plan and
any and all other matters deemed appropriate by the Committee.
5.6 Reorganization. In the event that the outstanding Common Stock shall be
changed in number, class or character by reason of any split-up, change of par
value, stock dividend, combination or reclassification of shares, merger,
consolidation or other corporate change, or shall be changed in value by reason
of any spin-off, dividend in partial liquidation or other special distribution,
the Committee shall make such changes as it may deem equitable in outstanding
Units awarded pursuant to the Plan and the number and character of Units
available for future awards.
5.7 Amendment or Termination of the Plan. The Committee or the Board may at any
time terminate the Plan and may from time to time amend the Plan as it may deem
advisable; provided, however, that without shareholder approval, the Committee
may not amend the Plan in a manner which would cause Units to be treated as
"equity securities" of the Corporation for purposes of Section 16 of the
Exchange Act. The termination or amendment of the Plan shall not, without the
consent of the awardee, affect such awardee' s rights under an award previously
granted.
- 5 -
<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 Six months ended
June 30, June 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 $ 94,441 $72,820 $186,331 $119,560
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 24,427 25,045 48,930 49,415
-----------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $118,868 $97,865 $235,261 $168,975
-----------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (b) $ 15,470 $24,972 $ 31,190 $ 50,011
-----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 4.87 3.91 4.81 3.42
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 2.98 1.96 2.94 1.70
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation") and Mellon Financial Company, a wholly
owned subsidiary of the Corporation that functions as a financing entity
for the Corporation and its subsidiaries by issuing commercial paper and
other debt guaranteed by the Corporation. Because these ratios exclude
from earnings the equity in undistributed net income (loss) of
subsidiaries, these ratios vary with the payments of dividends by such
subsidiaries.
(b) Preferred stock dividend requirements represent the pretax
amounts required to cover preferred stock dividends.
</TABLE>
57
<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 Six months ended
June 30, June 30,
(dollar amounts in thousands) 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes $271,053 $255,850 $ 542,951 $510,731
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 112,650 68,360 214,640 131,286
-----------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 383,703 324,210 757,591 642,017
Interest on deposits 219,405 116,713 424,636 218,713
-----------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $603,108 $440,923 $1,182,227 $860,730
-----------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 15,470 $ 24,972 $ 31,190 $ 50,011
-----------------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 3.41 4.74 3.53 4.89
Including interest on deposits 1.82 2.38 1.85 2.46
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 2.99 3.47 3.08 3.54
Including interest on deposits 1.74 2.10 1.76 2.15
-----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Preferred stock dividend requirements represent the pretax amounts required
to cover preferred stock dividends.
</TABLE>
58
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 2,218
<INT-BEARING-DEPOSITS> 540
<FED-FUNDS-SOLD> 257
<TRADING-ASSETS> 267
<INVESTMENTS-HELD-FOR-SALE> 1,953
<INVESTMENTS-CARRYING> 3,133
<INVESTMENTS-MARKET> 3,136
<LOANS> 27,765
<ALLOWANCE> (583)
<TOTAL-ASSETS> 40,016
<DEPOSITS> 26,807
<SHORT-TERM> 5,648
<LIABILITIES-OTHER> 1,615
<LONG-TERM> 1,868
<COMMON> 74
0
435
<OTHER-SE> 3,569
<TOTAL-LIABILITIES-AND-EQUITY> 40,016
<INTEREST-LOAN> 1,192
<INTEREST-INVEST> 155
<INTEREST-OTHER> 35
<INTEREST-TOTAL> 1,391
<INTEREST-DEPOSIT> 425
<INTEREST-EXPENSE> 617
<INTEREST-INCOME-NET> 774
<LOAN-LOSSES> 40
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 995
<INCOME-PRETAX> 543
<INCOME-PRE-EXTRAORDINARY> 543
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.16
<YIELD-ACTUAL> 4.75
<LOANS-NON> 199
<LOANS-PAST> 125
<LOANS-TROUBLED> 7
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 607
<CHARGE-OFFS> 114
<RECOVERIES> (42)
<ALLOWANCE-CLOSE> 583
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
