<PAGE> 1
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934 [No Fee Required]
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (412) 234-5000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.50 Par Value New York Stock Exchange
Rights to Purchase Common Stock New York Stock Exchange
Preferred Stock, Series I, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series J, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series K, $1.00 Par Value New York Stock Exchange
7-1/4% Convertible Subordinated Capital Notes Due 1999 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
As of February 15, 1995, there were 146,728,316 shares outstanding of the
registrant's voting common stock, $0.50 par value per share, of which
144,415,293 common shares having a market value of $5,415,573,488 were held by
nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this Annual Report.
Mellon Bank Corporation 1995 Proxy Statement-Part III
Mellon Bank Corporation 1994 Annual Report to Shareholders-Parts I, II
and IV
<PAGE> 2
The Form 10-K filed with the Securities and Exchange Commission contains the
Exhibits listed on the Index to Exhibits beginning on page 26, including the
Financial Review and Statements and Notes; Principal Locations and Operating
Entities; Directors and Senior Management Committee; and Corporate Information
Sections of the Registrant's 1994 Annual Report to Shareholders. Copies of the
Registrant's 1994 Annual Report to Shareholders and the Proxy Statement for its
1995 Annual Meeting may be obtained free of charge by writing to:
Secretary, Mellon Bank Corporation
Room 1820
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
2
<PAGE> 3
MELLON BANK CORPORATION
Form 10-K Index
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PART I Page
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Item 1. Business
Description of Business 4
Supervision and Regulation 7
Competition 10
Employees 10
Statistical Disclosure by Bank Holding Companies 10
Item 2. Properties 17
Item 3. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Executive Officers of the Registrant 20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the Registrant 23
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and Management 23
Item 13. Certain Relationships and Related Transactions 23
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 24
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
Description of Business
Mellon Bank Corporation (the "Corporation") is a multibank holding company
incorporated under the laws of Pennsylvania in August 1971 and registered under
the Federal Bank Holding Company Act of 1956, as amended. The Corporation
provides a comprehensive range of financial products and services in domestic
and selected international markets. The Corporation's banking subsidiaries are
located in Pennsylvania, Massachusetts, Delaware, Maryland, and New Jersey.
Other subsidiaries are located in key business centers throughout the United
States and abroad. At December 31, 1994, the Corporation was the twenty-fourth
largest bank holding company in the United States in terms of assets.
The Corporation's principal direct subsidiaries are Mellon Bank, N.A. ("Mellon
Bank"), The Boston Company, Inc. ("TBC"), Mellon Bank (DE) National
Association, Mellon Bank (MD), Mellon PSFS Bancorporation and a number of
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 ("Dreyfus"), one of the nation's largest mutual fund
companies, is a wholly owned subsidiary of Mellon Bank. The Corporation's
banking subsidiaries engage in retail banking, commercial banking, trust and
investment management services, residential real estate loan financing,
mortgage servicing, mutual fund and various securities-related activities.
Mellon Bank, which has its executive offices in Pittsburgh, Pennsylvania,
became a subsidiary of the Corporation in November 1972. With its
predecessors, Mellon Bank has been in business since 1869. Mellon Bank is
comprised of six operating regions:
Mellon Bank-Western Region, which includes Mellon Bank's
Pittsburgh-based executive offices, serves consumer and small to
mid-sized commercial markets in western Pennsylvania, as well as
large commercial and financial institution markets throughout the
United States and selected international markets.
Mellon Bank-Central Region, headquartered in State College,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in central Pennsylvania.
Mellon Bank-Commonwealth Region, headquartered in Harrisburg,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in south central Pennsylvania.
Mellon Bank-Northern Region, headquartered in Erie, Pennsylvania,
serves consumer and small to mid-sized commercial markets in
northwestern Pennsylvania.
Mellon Bank-Northeastern Region, headquartered in Wilkes-Barre,
Pennsylvania, serves consumer and small to mid-sized commercial
markets in northeastern Pennsylvania.
Mellon PSFS, headquartered in Philadelphia, Pennsylvania, serves
consumer and small commercial markets in eastern Pennsylvania and
mid-sized commercial customers in eastern Pennsylvania and portions
of New Jersey.
On August 24, 1994, Mellon Bank acquired Dreyfus as an operating subsidiary.
Dreyfus, headquartered in New York, New York, serves primarily as an investment
adviser and manager of mutual funds.
TBC, through Boston Safe Deposit and Trust Company and other subsidiaries,
engages in the business of institutional trust and custody, institutional asset
management, private investment management and banking services. TBC is
headquartered in Boston, Massachusetts.
4
<PAGE> 5
Description of Business (continued)
Mellon Bank (DE) National Association, headquartered in Wilmington, Delaware,
serves consumer and small to mid-sized commercial markets throughout Delaware,
and provides nationwide cardholder processing services. Mellon Bank (MD) is
headquartered in Rockville, Maryland, and serves consumer and small to
mid-sized commercial markets throughout Maryland. Mellon Bank (MD) has a
Maryland state charter and is a member of the Federal Reserve System. Mellon
Bank, F.S.B., headquartered in Paramus, New Jersey, serves consumer and small
to mid-sized commercial markets.
On September 20, 1994, the Corporation acquired Glendale Bancorporation, a bank
holding company located in Voorhees, New Jersey. Its subsidiaries, Glendale
National Bank of New Jersey ("Glendale NJ") and Glendale Bank of Pennsylvania
("Glendale PA"), are now subsidiaries of Mellon PSFS Bancorporation. Glendale
NJ, which is a national bank, and Glendale PA, which is a
Pennsylvania-chartered bank, serve consumer and small commercial markets in
southern New Jersey and eastern Pennsylvania.
The Corporation's banking subsidiaries operate 1,060 domestic retail banking
locations, including 449 retail offices. The deposits of the national banking
subsidiaries, Boston Safe Deposit and Trust, Mellon Bank (MD), Glendale PA and
Mellon Bank, F.S.B. are insured by the Federal Deposit Insurance Corporation
("FDIC") to the extent provided by law.
Other subsidiaries of the Corporation provide a broad range of bank-related
services -- including commercial financial services, equipment leasing,
residential real estate loan financing, commercial loan financing, stock
transfer services, cash management, mortgage servicing and numerous trust and
investment management services. The types of financial products and services
offered by the Corporation's subsidiaries are subject to change.
For analytical purposes, management has focused the Corporation into four core
business sectors: Consumer Investment Services, Consumer Banking Services,
Corporate/Institutional Investment Services and Corporate/Institutional Banking
Services. Further information regarding the Corporation's core business
sectors, as well as certain non-core sectors such as Real Estate Workout, is
presented in the Business Sectors section on pages 10 through 12 of the
Corporation's 1994 Annual Report to Shareholders, which pages are incorporated
herein by reference. A brief discussion of the business sectors is presented
below. There is considerable interrelationship among these sectors.
Consumer Investment Services
The Corporation provides a broad array of personal trust services, investment
services and retail mutual funds to consumers. These products and services are
offered principally through the Private Asset Management trust group of Mellon
Bank and Boston Safe Deposit and Trust Company, through Dreyfus and throughout
the Corporation's retail banking network.
Consumer Banking Services
The Consumer Banking Services sector includes consumer lending, branch banking,
small business banking, credit card, jumbo residential mortgage lending and
mortgage loan origination and servicing. The consumer lending, branch banking
and small business banking services primarily are offered through the
Corporation's retail banking network which is comprised of 406 branch offices,
42 supermarket facilities, 611 ATM's, 10 loan sales offices and a telephone
banking center. This network is primarily located in the Central Atlantic
region of the United States. This banking network provides a full range of
products to individuals including short- and long-term credit facilities,
credit cards, mortgages, safe deposit facilities and access to ATM's. Jumbo
residential mortgage lending is offered nationally through the private asset
management representative offices. This sector also includes the core
servicing function of the Corporation's mortgage banking operations located in
Houston, Denver and Cleveland, through which the Corporation originates and
services residential and commercial mortgages for institutional investors and
makes residential loans nationwide.
5
<PAGE> 6
Description of Business (continued)
Corporate/Institutional Investment Services
The Corporate/Institutional Investment Services sector serves the institutional
markets (including employee benefit plans) by providing institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending, foreign exchange, cash management and stock
transfer services. The Corporation's subsidiaries provide these trust and
investment management services while operating under the umbrella name "Mellon
Trust." The Corporation also owns a number of subsidiaries that provide a
variety of active and passive equity and fixed income investment management
services, including management of international securities. Through the Global
Cash Management department, the Corporation offers a broad range of cash
management services, including remittance processing, collections and
disbursements, check processing and electronic wire transfer services. The
Corporation's subsidiaries also provide services relating to defined
contribution employee benefit plans under the umbrella name "Dreyfus Retirement
Services."
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.
The Corporation provides lending and other institutional banking services to
domestic and selected international markets through its Corporate Banking,
Institutional Banking, Capital Markets and Leasing departments. These markets
generally include large domestic commercial and industrial customers, U.S.
operations of foreign companies, multinational corporations, state and local
governments and various financial institutions (including banks, securities
broker/dealers, insurance companies, finance companies and mutual funds). The
Corporation also offers corporate finance and rate risk management products;
syndicates, participates out and sells loans; offers a variety of capital
markets products and services, including private placement and money market
transactions; and provides equipment leasing, financing and lease advisory
services. The Corporation maintains foreign offices in London, Tokyo, Hong
Kong, Toronto, and Grand Cayman, British West Indies. Through these offices,
the Corporation conducts trade finance activities, engages in correspondent
banking and provides corporate banking and capital markets services. Included
in this sector is a nationwide asset based lending division which provides
secured lending, principally through accounts receivable and inventory
financing. As part of this sector, Middle Market Banking serves companies with
annual sales between $10 million and $250 million and the health care industry
on a national basis.
Real Estate lending consists of the Corporation's commercial real estate
lending activities, through which it originates financing for residential,
commercial, multi-family and other products.
The Corporation provides property and casualty insurance premium financing to
small, mid-size and large companies in the United States through the AFCO
Credit Corporation and in Canada through CAFO.
The 1994 Annual Report to Shareholders summarizes principal locations and
operating entities on pages 84 through 86, which pages are incorporated herein
by reference. Exhibit 21.1 to this Annual Report on Form 10-K presents a list
of the subsidiaries of the Corporation as of December 31, 1994.
6
<PAGE> 7
Supervision and Regulation
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended (the "Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Generally, the Act limits the business of bank holding companies to
banking, managing or controlling banks, performing certain servicing activities
for subsidiaries, and engaging in such other activities as the Federal Reserve
Board may determine to be closely related to banking and a proper incident
thereto. Certain of the Corporation's subsidiaries are themselves bank holding
companies under the Act. As a result of its 1994 acquisition of Dreyfus and
its subsidiary that is now Mellon Bank, F.S.B., the Corporation is also
regulated under the Home Owner's Loan Act of 1933 as a savings and loan holding
company.
The Corporation's national banking subsidiaries are subject to primary
supervision, regulation and examination by the Office of the Comptroller of the
Currency (the "OCC"); Boston Safe Deposit and Trust Company ("BSDT") is subject
to supervision, regulation and examination by the Federal Deposit Insurance
Corporation (the "FDIC") and the Massachusetts Office of the Commissioner of
Banks; Mellon Bank (MD) is subject to supervision, regulation and examination
by the Federal Reserve Board and the State of Maryland; Glendale PA is subject
to supervision, regulation and examination by the Federal Reserve Board; and
Mellon Bank, F.S.B. is subject to supervision, regulation and examination by
the Office of Thrift Supervision ("OTS"). Mellon Securities Trust Company,
Dreyfus Trust Company and Boston Safe Deposit and Trust Company of New York are
New York trust companies and are supervised by the New York State Department of
Banking. Boston Safe Deposit and Trust Company of California is a California
trust company and is supervised by the State of California Banking Department.
The Corporation's subsidiaries engaged in securities related activities are
regulated by the Securities and Exchange Commission (the "SEC"). Dreyfus
Investment Services Corporation, a subsidiary of the Corporation, conducts a
brokerage operation and Mellon Investment Products Company, a subsidiary of
Mellon Bank, engages in the sale, as agent, of certain mutual fund and unit
investment trust products. Dreyfus Service Corporation, a subsidiary of
Dreyfus, acts as a broker/dealer for the sale of shares of the Dreyfus family
of mutual funds. Dreyfus Investment Services Corporation, Mellon Investment
Products Company and Dreyfus Service Corporation are registered broker/dealers
and members of the National Association of Securities Dealers, Inc., a
securities industry self-regulatory organization.
Certain subsidiaries of the Corporation are registered investment advisers
under the Investment Advisers Act of 1940 and, as such, are supervised by the
SEC. They are also subject to various federal and state laws and regulations
and to the laws of any countries in which they do business. These laws and
regulations are primarily intended to benefit clients and fund shareholders and
generally grant supervisory agencies broad administrative powers, including the
power to limit or restrict the carrying on of business for failure to comply
with such laws and regulations. In such event, the possible sanctions which
may be imposed include the suspension of individual employees, limitations on
engaging in business for specific periods, the revocation of the registration
as an investment advisor, censures and fines. Each investment company (as
defined in the Investment Company Act of 1940) which is advised by a subsidiary
of the Corporation, including the Dreyfus family of mutual funds, is registered
with the SEC, and the shares of most are qualified for sale in all states in
the United States and the District of Columbia, except for investment companies
offered only to residents of a particular state or of a foreign country and
except for certain other investment companies which are exempt from such
registration or qualification.
Certain of the Corporation's public finance activities are regulated by the
Municipal Securities Rulemaking Board. Mellon Bank and certain of the
Corporation's other subsidiaries are registered with the Commodity Futures
Trading Commission (the "CFTC") as commodity pool operators or commodity
trading advisors and, as such, are subject to CFTC regulation.
The Corporation and its subsidiaries are subject to an extensive system of
banking laws and regulations that are intended primarily for the protection of
the customers and depositors of the Corporation's subsidiaries rather than
holders of the Corporation's securities. These laws and regulations govern
such areas as permissible activities, reserves, loans and investments, and
rates of interest that can be charged on loans. The Corporation and its
subsidiaries also are subject to general U.S. federal laws and regulations and
to the laws and regulations of the states or countries in which they conduct
their businesses. Set forth below are brief descriptions of selected laws and
7
<PAGE> 8
Supervision and Regulation (continued)
regulations applicable to the Corporation and its subsidiaries. The references
are not intended to be complete and are qualified in their entirety by
reference to the statutes and regulations themselves. Changes in applicable
law or regulation may have a material effect on the business of the
Corporation.
Pennsylvania legislation authorizes bank holding companies in any state to
acquire Pennsylvania banks or bank holding companies provided that Pennsylvania
bank holding companies enjoy reciprocal privileges in those jurisdictions.
Most states outside the Southeast currently have such reciprocal laws. As a
result, the Corporation can acquire banks in any state that has a reciprocal
law. On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was enacted into Federal law.
Under the Interstate Act, commencing on September 29, 1995, bank holding
companies will be permitted to acquire banks located in any state regardless of
the state law in effect at the time. The Interstate Act also provides for the
nationwide interstate branching of banks. Under the Interstate Act, both
national and state-chartered banks will be permitted to merge across state
lines (and thereby create interstate branches) commencing June 1, 1997. States
are permitted to "opt-out" of the interstate branching authority by taking
action prior to the commencement date. States may also "opt-in" early (i.e.,
prior to June 1, 1997) to the interstate branching provisions.
There are certain restrictions on the ability of the Corporation and certain of
its non-bank affiliates to borrow from, and engage in other transactions with,
its banking subsidiaries and on the ability of such banking subsidiaries to pay
dividends to the Corporation. These restrictions are discussed in note 17 of
the Notes to Financial Statements on page 66 of the Corporation's 1994 Annual
Report to Shareholders. This note is incorporated herein by reference.
The OCC has authority under the Financial Institutions Supervisory Act to
prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to
the Corporation, Mellon Bank (MD), Glendale PA and the Corporation's non-bank
subsidiaries, including Mellon Securities Trust Company, a member of the
Federal Reserve System. The FDIC has similar authority with respect to BSDT
and the OTS has similar authority with respect to Mellon Bank, F.S.B.
The deposits of each of the banking subsidiaries are insured up to applicable
limits by the FDIC and are subject to deposit insurance assessments to maintain
the Bank Insurance Fund ("BIF") of the FDIC. The FDIC has adopted a risk-based
assessment system to replace the previous flat-rate system. The risk-based
system imposes insurance premiums based upon a matrix that takes into account a
bank's capital level and supervisory rating. Under this risk-based system, the
assessment rate imposed on banks ranges from 23 cents for each $100 of domestic
deposits for the healthiest institutions to 31 cents for each $100 of domestic
deposits for the weakest institutions. On January 31, 1995, the FDIC staff
proposed a reduction in the assessment rates applicable to the BIF (but not in
rates applicable to the Savings Association Insurance Fund). For well
capitalized institutions, the premium would be reduced by 83% from the current
23 cents for every $100 of deposits to 4 cents per $100 of deposits. If
adopted, the proposal would not be expected to become effective before the
second half of 1995.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision that could result in any insured
depository institution owned by the Corporation being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other depository institution owned by the Corporation. Also, under
Federal Reserve Board policy, the Corporation may be expected to act as a
source of financial strength to each of its banking subsidiaries and to commit
resources to support each such bank in circumstances where such bank might not
be in a financial position to support itself.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the depository institution regulatory and funding
provisions of the Federal Deposit Insurance Act and made revisions to several
other federal banking statutes. Among other things, federal banking regulators
are required to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA identifies
the following capital tiers for financial institutions: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
8
<PAGE> 9
Supervision and Regulation (continued)
Rules adopted by the federal banking agencies under FDICIA provide that an
institution is deemed to be: "well capitalized" if the institution has a Total
risk-based capital ratio of 10.0% or greater, a Tier I risk-based ratio of 6.0%
or greater, and a leverage ratio of 5.0% or greater, and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific level for any capital measure;
"adequately capitalized" if the institution has a Total risk-based capital
ratio of 8.0% or greater, a Tier I risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater
if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines), and the
institution does not meet the definition of a well capitalized institution;
"undercapitalized" if the institution has a Total risk-based capital ratio that
is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or
a leverage ratio that is less than 4.0% (or a leverage ratio that is less than
3.0% if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines) and the
institution does not meet the definition of a significantly undercapitalized or
critically undercapitalized institution; "significantly undercapitalized" if
the institution has a Total risk-based capital ratio that is less than 6.0%, a
Tier I risk-based capital ratio that is less than 3.0%, or a leverage ratio
that is less than 3.0% and the institution does not meet the definition of a
critically undercapitalized institution; and "critically undercapitalized" if
the institution has a ratio of tangible equity to total assets that is equal to
or less than 2.0%. FDICIA imposes progressively more restrictive constraints
on operations, management and capital distributions, depending on the capital
category in which an institution is classified.
At December 31, 1994, all of the Corporation's banking subsidiaries fell into
the well capitalized category based on the ratios and guidelines noted above.
The appropriate Federal banking agency may, under certain circumstances,
reclassify a well capitalized insured depository institution as adequately
capitalized. The appropriate agency is also permitted to require an adequately
capitalized or undercapitalized institution to comply with the supervisory
provisions as if the institution were in the next lower category (but not treat
a significantly undercapitalized institution as critically undercapitalized)
based on supervisory information other than the capital levels of the
institution.
The statute provides that an institution may be reclassified if the appropriate
Federal banking agency determines (after notice and opportunity for hearing)
that the institution is in an unsafe or unsound condition or deems the
institution to be engaging in an unsafe or unsound practice.
Legislation enacted in August 1993 provides that deposits and certain claims
for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
During recent years, regulatory guidelines have been adopted, and legislation
has been proposed in Congress, to address concerns regarding retail sales by
banks of various nondeposit investment products, including mutual funds.
Legislative and regulatory attention to these matters is likely to continue,
and may intensify, in the future. Although existing statutory and regulatory
requirements in this regard have not had a significant effect on the
Corporation's business, there can be no assurance that future requirements will
not have such an effect. Various other legislation, including proposals to
restructure the banking regulatory system and the separation of banking from
certain securities and other commercial activities, are from time to time
introduced in Congress. The Corporation cannot determine the ultimate effect
that any such potential legislation, if enacted, would have upon its financial
condition or operations.
9
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Competition
The Corporation and its subsidiaries continue to be subject to intense
competition in all aspects and areas of their businesses from banks; other
domestic and foreign financial institutions, such as savings and loan
associations, savings banks, finance companies and credit unions; and other
providers of financial services, such as brokerage firms, investment companies,
credit companies and insurance companies. The Corporation also competes with
nonfinancial institutions, including retail stores and manufacturers of
consumer products that maintain their own credit programs, as well as
governmental agencies that make available loans to certain borrowers. Also, in
the Corporate/Institutional Investment Services business sector, the
Corporation competes with a wide range of technologically capable service
providers, such as data processing and outsourcing firms.
In terms of domestic deposits, Mellon Bank is the second largest commercial
banking institution in Pennsylvania where it competes with approximately 250
commercial banks, 130 thrifts and numerous credit unions and consumer finance
institutions. Mellon Bank competes with approximately 30 commercial banks and
40 thrifts in the six-county Pittsburgh area of Western Pennsylvania. Mellon
Bank competes with approximately 40 commercial banks and 50 thrifts in the
five- county Philadelphia area, one of the largest metropolitan areas in the
United States. In most of the markets in which the Corporation's banking
subsidiaries operate, they compete with large regional and other banking
organizations in making commercial, industrial and consumer loans, and in
providing products and services.
Competition has continued to increase in recent years in many areas in which
the Corporation and its subsidiaries operate, in substantial part because other
types of financial institutions and other entities are increasingly engaging in
activities traditionally engaged in by commercial banks. Commercial banks face
significant competition in acquiring quality assets due to such factors as the
increase in commercial paper and long-term debt issued by industrial companies,
increased activities by foreign banks and credit unions, and the increased
lending powers granted to and employed by many types of thrift institutions and
credit unions. Commercial banks also face competition in attracting deposits
at reasonable prices due to the activities of money market funds; increased
activities of non-bank deposit takers, including brokerage firms; alternatives
presented by foreign banks; and the increased availability of demand deposit
type accounts at thrift institutions and credit unions. Unlike the
Corporation, many of these competitors, with the particular exception of thrift
institutions, are not subject to regulation as extensive as that described
under the "Supervision and Regulation" section and, as a result, they may have
a competitive advantage over the Corporation in certain respects.
Employees
The Corporation and its subsidiaries had approximately 25,000 full-time
equivalent employees in December 1994.
Statistical Disclosure by Bank Holding Companies
All prior years' amounts have been restated to reflect the merger with Dreyfus
in August 1994, 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
in November 1994.
I. Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
Information required by this section of Securities Act Industry
Guide 3, or Exchange Act Industry Guide 3, ("Guide 3") is presented
in the Rate/Volume Variance Analysis on page 11. Required
information is also presented in the Financial Section of the
Corporation's 1994 Annual Report to Shareholders in the Consolidated
Balance Sheet -- Average Balances and Interest Yields/Rates on pages
82 and 83, and in Net Interest Revenue, on page 13, which is
incorporated herein by reference.
10
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Statistical Disclosure by Bank Holding Companies (continued)
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RATE/VOLUME VARIANCE ANALYSIS
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Year ended December 31,
1994 over (under) 1993 1993 over (under) 1992
Due to change in Net Due to change in Net
(in millions) Rate Volume change Rate Volume change
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Increase (decrease) in interest
revenue from interest-earning
assets:
Interest-bearing deposits with banks $ 12 $ (36) $ (24) $ (5) $ 28 $ 23
Federal funds sold and securities
purchased under agreements to resell 14 (38) (24) (4) 31 27
Other money market investments 2 (12) (10) (8) 7 (1)
Trading account securities 2 7 9 (3) (3) (6)
Securities:
U.S. Treasury and agency securities 9 34 43 (100) (97) (197)
Obligations of states and political
subdivisions 1 (4) (3) (1) 1 -
Other 1 (8) (7) (9) (11) (20)
Loans (includes loan fees) 83 255 338 (143) 266 123
- -----------------------------------------------------------------------------------------------------------------------
Total 124 198 322 (273) 222 (51)
Increase (decrease) in interest
expense on interest-bearing
liabilities:
Deposits in domestic offices:
Demand 2 - 2 (44) 6 (38)
Money market and other savings accounts 27 15 42 (107) 60 (47)
Retail savings certificates 32 (33) (1) (82) (1) (83)
Other time deposits - (11) (11) (3) (2) (5)
Deposits in foreign offices 7 45 52 (14) 5 (9)
Federal funds purchased and securities
sold under agreements to repurchase 17 26 43 (6) (17) (23)
Other short-term borrowings 5 26 31 1 (17) (16)
Notes and debentures (with original
maturities over one year) 2 (13) (11) (12) 39 27
- -----------------------------------------------------------------------------------------------------------------------
Total 92 55 147 (267) 73 (194)
- -----------------------------------------------------------------------------------------------------------------------
Increase in net
interest revenue $ 32 $ 143 $ 175 $ (6) $ 149 $ 143
- -----------------------------------------------------------------------------------------------------------------------
<FN>
Note: Amounts are calculated on a taxable equivalent basis where applicable, at
tax rates approximating 35% in 1994 and 1993 and 34% in 1992, and are before
the effect of reserve requirements. Changes in interest revenue or interest
expense arising from the combination of rate and volume variances are allocated
proportionally to rate and volume based on their relative absolute magnitudes.
</TABLE>
11
<PAGE> 12
Statistical Disclosure by Bank Holding Companies (continued)
II. Securities Portfolio
A. Carrying values of securities at year-end are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
INVESTMENT SECURITIES
December 31,
(in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agency securities $3,045 $1,897 $2,023
Obligations of states and political
subdivisions 70 129 155
Other securities:
Other mortgage-backed securities 48 85 126
Bonds, notes and debentures 29 85 6
Stock of Federal Reserve Bank 50 44 38
Other 2 192 277
- --------------------------------------------------------------------------------------
Total other securities 129 406 447
- --------------------------------------------------------------------------------------
Total securities $3,244 $2,432 $2,625
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
December 31,
(in millions) 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agency securities $1,739 $2,857 $3,381
Obligations of states and political
subdivisions 1 1 1
Other securities:
Other mortgage-backed securities 9 22 42
Bonds, notes and debentures 12 21 174
Other 120 15 15
- --------------------------------------------------------------------------------------
Total other securities 141 58 231
- --------------------------------------------------------------------------------------
Total securities $1,881 $2,916 $3,613
- --------------------------------------------------------------------------------------
</TABLE>
B. Maturity Distribution of Securities
Information required by this section of Guide 3 is presented in the
Corporation's 1994 Annual Report to Shareholders in note 3 of Notes to
Financial Statements on Securities on pages 52 through 54, which note is
incorporated herein by reference.
12
<PAGE> 13
Statistical Disclosure by Bank Holding Companies (continued)
III. Loan Portfolio
A. Types of Loans
Information required by this section of Guide 3 is presented in the
Credit Risk section of the Corporation's 1994 Annual Report to
Shareholders on pages 31 through 40, which portions are incorporated
herein by reference.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
Maturity distribution of loans at December 31, 1994
----------------------------------------------------------------------------------------------------
(in millions) Within 1 year (a) 1-5 years Over 5 years Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:(b)
Commercial and financial $4,387 $3,660 $1,968 $10,015
Commercial real estate 450 778 396 1,624
----------------------------------------------------------------------------------------------------
Total domestic 4,837 4,438 2,364 11,639
International 483 87 193 763
----------------------------------------------------------------------------------------------------
Total $5,320 $4,525 $2,557 $12,402
----------------------------------------------------------------------------------------------------
<FN>
Note: Maturity distributions are based on remaining contractual
maturities.
(a) Includes demand loans and loans with no stated maturity.
(b) Excludes consumer mortgages, other consumer credit and lease
finance assets.
</TABLE>
<TABLE>
<CAPTION>
Sensitivity of loans at December 31, 1994 to Changes in Interest Rates
-----------------------------------------------------------------------------------------------
Domestic International
(in millions) operations (a) operations Total
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans due in one year or less (b) $ 4,837 $483 $ 5,320
Loans due after one year:
Variable rates 5,895 173 6,068
Fixed rates 907 107 1,014
-----------------------------------------------------------------------------------------------
Total loans $11,639 $763 $12,402
-----------------------------------------------------------------------------------------------
<FN>
Note: Maturity distributions are based on remaining contractual
maturities.
(a) Excludes consumer mortgages, other consumer credit and lease
finance assets.
(b) Includes demand loans and loans with no stated maturity.
</TABLE>
C. Risk Elements
Information required by this section of Guide 3 is presented in the
Corporation's 1994 Annual Report to Shareholders in the Credit Risk
section on pages 31 through 40, which portions are incorporated
herein by reference.
13
<PAGE> 14
Statistical Disclosure by Bank Holding Companies (continued)
IV. Summary of Loan Loss Experience
The Corporation employs various estimation techniques in developing
the credit loss reserve. Management reviews the specific
circumstances of individual loans subject to more than the customary
potential for exposure to loss. In establishing the level of the
reserve, management also identifies market concentrations, changing
business trends, industry risks, and specific and general economic
factors that may adversely affect loan collectibility. Other factors
considered in determining the level of the reserve include: trends in
portfolio volume, quality, maturity and composition; historical loss
experience; lending policies; new products; the status and amount of
nonperforming and past-due loans; adequacy of collateral; and current,
as well as anticipated specific and general economic factors that may
affect certain borrowers. In addition, management assesses volatile
factors such as interest rates and real estate market conditions that
may significantly alter loss potential. Based on this evaluation,
management believes that the credit loss reserve is adequate to absorb
future losses inherent in the portfolio.
The reserve is not specifically associated with individual loans or
portfolio segments. Thus, the reserve is available to absorb credit
losses arising from any individual loan or portfolio segment. When
losses on specific loans are identified, management charges off the
portion deemed uncollectible. In view of the fungible nature of the
reserve and management's practice of charging off known losses, the
Corporation does not maintain truly specific reserves on any loan.
However, management has developed a loan loss reserve methodology
designed to provide procedural discipline in assessing the adequacy of
the reserve. The allocation of the Corporation's reserve for credit
losses presented below is based on this loan loss reserve methodology.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic reserve:
Commercial and financial $195 $182 $170 $193 $163
Real estate:
Commercial 157 189 212 277 242
Consumer 75 91 18 9 9
Consumer credit 141 102 83 77 48
Lease financing 17 15 4 6 6
----------------------------------------------------------------------------------------------------------
Total domestic reserve 585 579 487 562 468
International reserve 22 21 19 34 57
----------------------------------------------------------------------------------------------------------
Total reserve $607 $600 $506 $596 $525
----------------------------------------------------------------------------------------------------------
</TABLE>
Further information on the Corporation's credit policies, the factors
that influenced management's judgment in determining the level of the
reserve for credit losses, and the analyses of the credit loss reserve
for the years 1990-1994 are set forth in the Financial Section of the
Corporation's 1994 Annual Report to Shareholders in the Credit Risk
section on pages 31 and 32, the Reserve for Credit Losses and Review
of Net Credit Losses section on pages 39 and 40, in note 1 of Notes to
Financial Statements under Reserve for Credit Losses on page 49 and in
note 5 on page 54; which portions are incorporated herein by
reference.
14
<PAGE> 15
Statistical Disclosure by Bank Holding Companies (continued)
IV. Summary of Loan Loss Experience (continued)
For each category on the prior page, the ratio of loans to
consolidated total loans is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
December 31,
1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Commercial and financial 37.5% 37.2% 40.7% 43.3% 43.2%
Real estate:
Commercial 6.1 7.0 9.4 10.3 11.8
Consumer 32.5 33.4 21.4 17.3 15.6
Consumer credit 18.1 15.6 18.1 18.4 17.5
Lease financing 3.0 2.9 3.2 3.4 3.7
--------------------------------------------------------------------------------------------------------------
Total domestic loans 97.2 96.1 92.8 92.7 91.8
International loans 2.8 3.9 7.2 7.3 8.2
--------------------------------------------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
--------------------------------------------------------------------------------------------------------------
</TABLE>
V. Deposits
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
Maturity distribution of domestic time deposits at December 31, 1994
Within 4-6 7-12 Over
(in millions) 3 months months months 1 year Total
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit in denominations
of $100,000 or greater $ 411 $ 159 $ 201 $ 181 $ 952
Time certificates of deposit in denominations
of less than $100,000 1,570 1,441 1,335 1,587 5,933
----------------------------------------------------------------------------------------------------------------
Total time certificates of deposit 1,981 1,600 1,536 1,768 6,885
----------------------------------------------------------------------------------------------------------------
Other time deposits in denominations
of $100,000 or greater 1 3 4 12 20
Other time deposits in denominations
of less than $100,000 22 - - - 22
----------------------------------------------------------------------------------------------------------------
Total other time deposits 23 3 4 12 42
----------------------------------------------------------------------------------------------------------------
Total domestic time deposits $2,004 $1,603 $1,540 $1,780 $6,927
----------------------------------------------------------------------------------------------------------------
</TABLE>
The majority of foreign deposits of approximately $3.5 billion at
December 31, 1994, were in amounts in excess of $100,000. Additional
information required by this section of Guide 3 is set forth in the
Corporation's 1994 Annual Report to Shareholders in Consolidated
Balance Sheet -- Average Balances and Interest Yields/Rates on pages
82 and 83, which pages are incorporated herein by reference.
15
<PAGE> 16
Statistical Disclosure by Bank Holding Companies (continued)
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
(1) Return on total assets(a), based on:
Net income 1.14% 1.29% 1.72%
Net income applicable to common
stock(b) .95 1.13 1.56
(2) Return on common shareholders' equity,
based on net income applicable to common stock(b) 9.79 12.08 18.45
Return on total shareholders' equity,
based on net income 10.13 11.61 16.97
(3) Dividend payout ratio of common
stock, based on:
Primary net income per share 54.66 31.28 21.11
Fully diluted net income
per share 54.63 30.94 20.90
(4) Equity to total assets(a),
based on:
Common shareholders' equity 9.68 9.32 8.46
Total shareholders' equity 11.22 11.12 10.12
<FN>
(a) Computed on a daily average basis.
(b) Computed using net income applicable to common stock after adding
back Series D preferred stock dividends.
</TABLE>
VII. Short-Term Borrowings
Information required by this section of Guide 3 is contained in the
Corporation's 1994 Annual Report to Shareholders in the Consolidated
Balance Sheet on page 44, and in note 9 of Notes to Financial
Statements on Short-term borrowings on page 56, which portions are
incorporated herein by reference.
16
<PAGE> 17
ITEM 2. PROPERTIES
Pittsburgh properties
In 1983 Mellon Bank entered into a long-term lease of One Mellon Bank Center, a
54-story office building in Pittsburgh, Pennsylvania. At December 31, 1994,
Mellon Bank occupied approximately 64% of the building's 1,525,000 square feet
of rentable space and subleased substantially all of the remaining space to
third parties.
During 1984 Mellon Bank entered into a sale/leaseback arrangement of the Union
Trust Building in Pittsburgh, Pennsylvania, also known as Two Mellon Bank
Center, while retaining title to the land thereunder. At December 31, 1994,
Mellon Bank occupied approximately 74% of this building's approximately 595,000
square feet of rentable space and subleased substantially all of the remaining
space to third parties.
Mellon Bank owns the 41-story office building in Pittsburgh, Pennsylvania,
known as Three Mellon Bank Center. At December 31, 1994, Mellon Bank occupied
approximately 96% of the approximately 943,000 square feet of rentable space,
with the remainder leased to third parties.
Philadelphia properties
Mellon Bank owns a building known as One Mellon Bank Center located at the
corner of Broad and Chestnut Streets in the Center City area of Philadelphia,
Pennsylvania. At December 31, 1994, Mellon Bank occupied all of One Mellon
Bank Center's approximately 63,700 square feet of rentable space.
Mellon Bank also leases a large portion of a building in Philadelphia,
Pennsylvania, known as Mellon Independence Center. At December 31, 1994,
Mellon Bank leased approximately 74% of Mellon Independence Center's
approximately 881,700 square feet of rentable space. Of the space leased by
Mellon Bank, approximately 200,000 square feet was subleased to third parties
at December 31, 1994.
In 1987 Mellon Bank entered into a 25-year lease for a portion of a 53-story
office building known as Mellon Bank Center, at the corner of 18th and Market
Streets in the Center City area of Philadelphia, Pennsylvania. At December 31,
1994, Mellon Bank leased approximately 19% of the building's approximately
1,245,000 square feet of rentable space.
Boston properties
The Boston Company leases space in two downtown Boston office buildings:
41-story One Boston Place located at the corner of Court Street and Washington
Street and 41-story Exchange Place located at 53 State Street. As of December
31, 1994, The Boston Company leased approximately 30% of One Boston Place's
769,150 square feet of rentable space and approximately 26% of Exchange Place's
1,063,750 square feet of rentable space. Of The Boston Company's leased space
at Exchange Place, 238,426 square feet is subleased to third parties. The
Boston Company also leases 82,900 square feet in the Park Square Building, 31
St. James Avenue, Boston.
As of December 31, 1994, The Boston Company also occupies space in three office
buildings in the Wellington Business Center located in Medford, Massachusetts,
about two miles north of downtown Boston. The Boston Company owns a
substantial interest in and fully occupies the 117,000 square foot building
known as Client Services Center II. Across the street, The Boston Company
leases 100% of the 319,600 square foot facility known as Client Services Center
III. Approximately 40% of Client Services Center III was recently vacated by a
third-party tenant and The Boston Company intends to use this space for growth.
Finally, The Boston Company leases approximately 36,000 square feet of rentable
space in the building known as Wellington I.
New York properties
The Dreyfus Corporation leases 268,859 square feet at 200 Park Avenue in New
York City. The majority of this lease runs until March 2005. Other than a
sublease for 9,003 square feet, all of the space is currently occupied by
Dreyfus.
In Uniondale, New York, Dreyfus leases 126,260 square feet for its telephone
sales and support area in EAB Plaza. This space is 100% occupied by Dreyfus.
17
<PAGE> 18
PROPERTIES (continued)
Other properties
Mellon Bank owns and occupies 100% of an office building in State College,
Pennsylvania, which serves as the headquarters for Mellon Bank-Central Region.
Mellon Bank owns and occupies 100% of two small office buildings in Erie,
Pennsylvania, which serves as the headquarters of Mellon Bank-Northern Region.
Mellon Bank owns its five-story Mellon Bank-Commonwealth Region headquarters
building, which includes a banking office in Harrisburg, Pennsylvania. Mellon
Bank occupies approximately 80% of the approximately 75,000 square feet of
rentable space in this building.
Mellon Bank owns the Mellon Bank-Northeastern Region headquarters building in
Wilkes-Barre, Pennsylvania. Mellon Bank occupies approximately 9% of this
building's approximately 142,000 square feet, with the remainder leased to
third parties.
Mellon Bank (DE) owns a three-story office building known as the Pike Creek
Building in New Castle County, Delaware, and currently occupies the building's
entire 84,000 square feet of available floor space. Mellon Bank (DE) also
leases approximately 16%, or 34,000 square feet, of an 18-story office building
in Wilmington, Delaware, and 42,000 square feet in Pencader, Delaware, for a
credit card operations center.
Mellon Bank (MD) leases approximately 40% of an office building in Rockville,
Maryland, which is used for its headquarters.
Glendale National Bank of New Jersey owns a three-story office building located
in Camden County, New Jersey, known as the Glendale Building. The building
comprises approximately 27,000 square feet which is 100% occupied by the bank.
The banking subsidiaries' branches are located in 33 counties in western,
northwestern, central, northeastern and eastern Pennsylvania, all three of
Delaware's counties, two counties in New Jersey, four Maryland counties in the
northern suburbs of Washington, D.C. and a single retail branch in Boston,
Massachusetts. At December 31, 1994, the banking subsidiaries of the
Corporation owned 218 of the Corporation's 449 bank branch buildings and leased
the remainder with leases expiring at various times through the year 2020.
Other subsidiaries of the Corporation lease office space primarily for their
operations at many of the locations listed on pages 84 through 86 of the
Principal Locations and Operating Entities Section of the Corporation's 1994
Annual Report, which pages are incorporated herein by reference. For
additional information on the Corporation's premises and equipment, see note 6
of Notes to Financial Statements on pages 54 and 55 of the Corporation's 1994
Annual Report, which note is incorporated herein by reference.
18
<PAGE> 19
ITEM 3. LEGAL PROCEEDINGS
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, 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.
On November 29, 1994, a shareholder of the Corporation brought a derivative
action in federal court in Pittsburgh, purportedly on behalf of the
Corporation, against various directors of the Corporation. The lawsuit alleges
that those directors breached their fiduciary duty to the Corporation by
grossly mismanaging and wasting corporate assets in connection with the $130
million fourth quarter, after-tax loss to the Corporation as a result of
actions taken in its securities lending business. On March 13, 1995, the
plaintiff on his own motion and without payment from the Corporation or any
other defendent, withdrew the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth
quarter of 1994.
19
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT
The name and age of, and the positions and offices held by, each executive
officer of the Corporation as of December 31, 1994, together with the offices
held by each such person during the last five years, are listed below. Certain
of the executive officers have executed employment contracts with the
Corporation. All other executive officers serve at the pleasure of their
appointing authority. No executive officer has a family relationship to any
other listed executive officer.
<TABLE>
<CAPTION>
Age Position and Year Elected
--- -------------------------
<S> <C> <C> <C>
Frank V. Cahouet 62 Chairman, President and Chief Executive 1990 (1)
Officer of the Corporation and of Mellon
Bank
Christopher M. Condron 47 Vice Chairman, Deputy Director Mellon Trust 1994 (2)
Vice Chairman, The Boston Company
Thomas F. Donovan 61 Vice Chairman of the Corporation 1990
and of Mellon Bank
Chairman and Chief Executive Officer 1988
of Mellon PSFS
Steven G. Elliott 48 Vice Chairman and Chief Financial 1992 (3)
Officer of the Corporation and
of Mellon Bank
Treasurer of Mellon Bank Corporation 1990
David R. Lovejoy 46 Vice Chairman, Corporate Strategy and 1994 (4)
Development
Martin G. McGuinn 52 Vice Chairman, Retail Financial Services 1993 (5)
Jeffrey L. Morby 57 Vice Chairman, Wholesale Banking 1990 (6)
Keith P. Russell 49 Vice Chairman, Chief Risk and Credit 1992 (7)
Officer
Chairman, Credit Policy Committee of 1991
Mellon Bank Corporation
W. Keith Smith 60 Vice Chairman, Mellon Trust 1993 (8)
Vice Chairman and Chief Operating 1994
Officer, The Dreyfus Corporation
Chairman and Chief Executive Officer, The 1993
Boston Company
</TABLE>
(continued)
20
<PAGE> 21
Executive Officers of the Registrant (continued)
<TABLE>
<S> <C> <C> <C>
Michael K. Hughey 43 Senior Vice President and Controller of 1990 (9)
the Corporation and Senior Vice
President, Director of Taxes and
Controller of Mellon Bank
</TABLE>
(1) From June 1987 to January 1990, Mr. Cahouet was Chairman and Chief
Executive Officer of the Corporation and of Mellon Bank. In January 1990,
he assumed the additional title of President. Mr. Cahouet has executed an
employment contract with the Corporation which terminates May 31, 1997.
(2) From June 1989 to January 1994, Mr. Condron was President of Boston Safe
Deposit and Trust and Executive Vice President of The Boston Company. In
January 1994, he assumed the title of Vice Chairman of The Boston Company
and in November 1994, he assumed the title of Vice Chairman, Deputy
Director, Mellon Trust of the Corporation and of Mellon Bank.
(3) From August 1987 to January 1990, Mr. Elliott was Executive Vice President
and head of the Finance Department of Mellon Bank. From February 1988 to
January 1990, Mr. Elliott was Assistant Treasurer of Mellon Bank
Corporation. From January 1990 to June 1992, Mr. Elliott was Executive
Vice President, Chief Financial Officer and Treasurer of the Corporation
and Executive Vice President and Chief Financial Officer of Mellon Bank.
(4) From July 1970 to December 1990, Mr. Lovejoy worked for Security Pacific
Corporation, where from 1987 to 1990, he was a Vice Chairman and member of
the Office of the Chief Executive. From January 1991 to December 1991, he
was self-employed. From January 1992 to December 1992, he was Chairman
and Chief Executive Officer of Western Energy Management. From January
1993 to October 1994, he was Executive Vice President of Strategic
Planning of Mellon Bank Corporation. In November 1994, Mr. Lovejoy
assumed the title Vice Chairman Corporate Strategy and Development of
Mellon Bank Corporation.
(5) From February 1988 to January 1990, Mr. McGuinn was General Counsel and
Secretary of the Corporation and General Counsel of Mellon Bank. From
January 1990 to October 1990, he assumed the additional title of Vice
Chairman, Administration of the Corporation and of Mellon Bank. From
November 1990 to October 1992, Mr. McGuinn was Vice Chairman, Real Estate
Finance, General Counsel and Secretary of the Corporation and Vice
Chairman, Real Estate Finance and General Counsel of Mellon Bank. From
October 1992 to November 1993, Mr. McGuinn was Vice Chairman, Special
Banking Services of the Corporation and of Mellon Bank.
(6) From June 1988 to January 1990, Mr. Morby was a special consultant to the
Chairman and to the President of Mellon Bank.
(7) From 1983 to August 1991, Mr. Russell was President and Chief Operating
Officer of GLENFED/Glendale Federal Bank. From September 1991 to November
1991, Mr. Russell was Executive Vice President, Information Management and
Research, Technology Products and Mortgage Banking of Mellon Bank. From
November 1991 to June 1992, Mr. Russell was Executive Vice President,
Credit Policy of the Corporation and of Mellon Bank.
(8) From July 1987 to January 1990, Mr. Smith was Vice Chairman, Chief
Financial Officer and Treasurer of the Corporation and Vice Chairman and
Chief Financial Officer of Mellon Bank. From January 1990 to November
1993, Mr. Smith was Vice Chairman, Service Products of the Corporation
and of Mellon Bank. Mr. Smith has executed an employment contract with
the Corporation which terminates on July 31, 1996.
(9) From 1986 to 1990, Mr. Hughey was Senior Vice President and Director of
Taxes of Mellon Bank.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth in the Corporation's 1994
Annual Report to Shareholders in Liquidity and Dividends on pages 23 and 24, in
Selected Quarterly Data on page 42, in note 17 of Notes to Financial Statements
on page 66 and in Corporate Information on page 90, which portions are
incorporated herein by reference.
In August 1989, the Corporation adopted a Shareholder Protection Rights Plan
under which each shareholder receives one Right for each share of common stock
("voting stock") of the Corporation held. The Rights are currently represented
by the certificates for, and trade only with, the voting stock. The Rights
would separate from the voting stock and become exercisable only if a person or
group acquires 20 percent or more of the voting power of the voting stock or
ten days after a person or group commences a tender offer that would result in
ownership of 20 percent or more of such voting power. At that time, each Right
would entitle the holder to purchase for $200 (the "exercise price") one
one-hundredth of a share of participating preferred stock. Each share of such
preferred stock would be entitled to cumulative dividends equal to 1% per
annum, plus the amount of dividends that would be payable on 100 shares of the
Corporation's common stock, and would have a liquidation preference of the
greater of 100 times the exercise price or the amount to be distributed in
liquidation to a holder of 100 shares of the Corporation's common stock.
Should a person or group actually acquire 20% or more of the voting power of
the voting stock, each Right held by the acquiring person or group (or their
transferees) would become void and each Right held by the Corporation's other
shareholders would entitle those holders to purchase for the exercise price a
number of shares of the Corporation's common stock having a market value of
twice the exercise price. Should the Corporation be involved in a merger or
similar transaction with a 20% percent owner or sell more than 50% percent of
its assets or assets generating more than 50% of its operating income or cash
flow to any person or group, each outstanding Right would then entitle its
holder to purchase for the exercise price a number of shares of such other
company having a market value of twice the exercise price. In addition, if any
person or group acquires between 20% and 50% of the voting power of the voting
stock, the Corporation may, at its option, exchange one share of common stock
for each outstanding Right. The Rights are not exercisable until the above
events occur and will expire on August 15, 1999, unless earlier exchanged or
redeemed by the Corporation. The Corporation may redeem the Rights for $.01
per Right under certain circumstances. The distribution of the Rights was not
a taxable event.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Corporation's 1994
Annual Report to Shareholders in the Financial Summary on page 5, in the
Significant Events in 1994 on pages 6 and 7, in the Overview of 1994 results on
pages 8 and 9, in note 1 of Notes to Financial Statements on pages 48 through
51, and in the Consolidated Balance Sheet -- Average Balances and Interest
Yields/Rates on pages 82 and 83, which portions are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is set forth in the Corporation's 1994
Annual Report to Shareholders in the Financial Review on pages 5 through 42 and
in note 17 of Notes to Financial Statements on page 66, which portions are
incorporated herein by reference.
22
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14 on page 24 hereof for a detailed listing of the
items under Financial Statements, Financial Statement Schedules, and Other
Financial Data which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Corporation's proxy
statement for its 1995 Annual Meeting of Shareholders (the "1995 Proxy
Statement") in the Election of Directors-Biographical Summaries of Nominees and
Continuing Directors section on pages 3 through 6 and in the Additional
Information section on page 24, each of which sections is incorporated herein
by reference, and in Part I of this Form 10-K under the heading "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1995 Proxy Statement
in the Directors' Compensation section on pages 8 and 9 and in the Executive
Compensation section on pages 13 through 23, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1995 Proxy Statement
in the Beneficial Ownership of Stock section on pages 11 and 12, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1995 Proxy Statement
in the Business Relationships; Related Transactions and Certain Legal
Proceedings section on page 10, and is incorporated herein by reference.
23
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements and schedules required for the Annual Report of
the Corporation on Form 10-K are included, attached or incorporated by
reference as indicated in the following index. Page numbers below refer
to pages of the Financial Section of the Corporation's 1994 Annual Report
to Shareholders:
(i) Financial Statements Page No.
--------
Mellon Bank Corporation (and its subsidiaries):
Consolidated Income Statement 43
Consolidated Balance Sheet 44
Consolidated Statement of Cash Flows 45 and 46
Consolidated Statement of Changes in Shareholders' Equity 47
Notes to Financial Statements 48 through 80
Report of Independent Auditors 81
(ii) Financial Statement Schedules
Schedules I and II and all other schedules are omitted either because
they are not required or are not applicable, or because the required
information is shown in the financial statements or notes thereto.
(iii) Other Financial Data
Selected Quarterly Data 42
(b) Current Reports on Form 8-K during the fourth quarter of 1994:
A Form 8-K/A dated October 17, 1994 (amending Current Report on Form 8-K
dated August 24, 1994), which included the Corporation and Subsidiaries
and The Dreyfus Corporation and Subsidiaries Pro Forma Combined Financial
Statements (unaudited).
A report dated October 18, 1994, which included the Corporation's press
release regarding third quarter and year-to-date 1994 financial results.
A report dated November 28, 1994, which included the Corporation's press
release announcing a one-time charge to earnings to reposition clients'
securities lending investment portfolios and a second press release
announcing that the Board of Directors has authorized the Corporation's
repurchase of up to 3,000,000 shares of its common stock.
A report dated December 19, 1994, which included the Corporation's press
release announcing the upcoming redemption of the Corporation's Series H
Preferred Stock.
(c) Exhibits
The exhibits listed on the Index to Exhibits on pages 26 through 31
hereof are incorporated by reference or filed herewith in response to
this item.
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Mellon Bank Corporation
By: Frank V. Cahouet
-------------------------
Frank V. Cahouet
Chairman, President
and Chief Executive
Officer
DATED: March 14, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Capacities
- ----------------------------------------- ---------------------------------
<S> <C>
By: Frank V. Cahouet Director and Principal
------------------------------------- Executive Officer
Frank V. Cahouet
By: Steven G. Elliott Principal Financial Officer
------------------------------------- and Principal Accounting
Steven G. Elliott Officer
Burton C. Borgelt; Carol R. Brown; Directors
J. W. Connolly; Charles A. Corry;
C. Frederick Fetterolf; Ira J. Gumberg;
Rotan E. Lee; Andrew W. Mathieson;
Edward J. McAniff; Robert Mehrabian;
Seward Prosser Mellon; David S. Shapira;
W. Keith Smith; Howard Stein; Joab L. Thomas;
Wesley W. von Schack; and William J. Young
By: James M. Gockley DATED: March 14, 1995
-------------------------------------
James M. Gockley
Attorney-in-fact
</TABLE>
25
<PAGE> 26
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- -----------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Previously filed as Exhibit 3.1 to
Mellon Bank Corporation, as amended the Quarterly Report on Form 10-Q
and restated as of September 2, 1993. for quarter ended September 30, 1993,
and incorporated herein by reference.
3.2 Statement Affecting Series B Preferred Previously filed as Exhibit 3.2 to the
Stock, $1.00 Par Value. Annual Report on Form 10-K for the
year ended December 31, 1993, and
incorporated herein by reference.
3.3 Statement Affecting Series D Preferred Filed herewith.
Stock, $1.00 Par Value.
3.4 By-Laws of Mellon Bank Corporation, Previously filed as Exhibit 3.2 to
as amended, effective July 17, 1990. Annual Report on Form 10-K for the
year ended December 31, 1990, and
incorporated herein by reference.
4.1 Instruments defining the rights See Exhibits 3.1, 3.2 and 3.3 above
of securities holders. and the undertaking on page 31.
4.2 Shareholder Protection Rights Agreement Previously filed as Exhibit 1 to Form
between Mellon Bank Corporation and 8-A Registration Statement dated
Mellon Bank, N.A., as Rights Agent, August 15, 1989, and incorporated
dated as of August 15, 1989. herein by reference.
10.1 Purchase Agreement, dated as of Previously filed as Exhibit 10.1
July 25, 1988, among Mellon Bank to Quarterly Report on Form 10-Q
Corporation (as Seller) and Warburg, for the quarter ended September 30,
Pincus Capital Company, L.P. and 1988, and incorporated herein by
Warburg, Pincus Capital Partners, reference.
L.P. (as Purchasers) relating to the
sale and purchase of Mellon Series D
Junior Preferred Stock.
10.2 Purchase Agreement, dated as of Previously filed as Exhibit 10.2
July 25, 1988, between Mellon Bank to Quarterly Report on Form 10-Q for
Corporation (as Seller) and Drexel the quarter ended September 30,
Burnham Lambert Incorporated (as 1988, and incorporated herein by
Purchaser) relating to the sale reference.
and purchase of Mellon Series
D Junior Preferred Stock.
</TABLE>
26
<PAGE> 27
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------------------------------- -------------------------------
<S> <C> <C>
10.3 Exchange Agreement dated as of Previously filed as Exhibit 10.4
March 30, 1990, between Warburg, to Annual Report on Form 10-K for
Pincus Capital Company, L. P., the year ended December 31, 1990,
Warburg, Pincus Capital Partners, and incorporated herein by
L. P. and Mellon relating to the reference.
exchange of Series D Preferred Stock
for shares of Mellon's Common Stock.
10.4 Lease dated as of February 1, 1983, Previously filed as Exhibit 10.4
between 500 Grant Street Associates to Annual Report on Form 10-K for
Limited Partnership and Mellon the year ended December 31, 1992,
Bank, N.A. with respect to One Mellon and incorporated herein by
Bank Center. reference.
10.5 First Amendment to Lease Agreement Previously filed as Exhibit 10.1
dated as of November 1, 1983, to Registration Statement on Form
between 500 Grant Street S-15 (Registration No. 2-88266)
Associates Limited Partnership and incorporated herein by
and Mellon Bank, N.A. reference.
10.6* Mellon Bank Corporation Profit Previously filed as Exhibit 10.7
Bonus Plan, as amended. to Annual Report on Form 10-K for
the year ended December 31, 1990,
and incorporated herein by reference.
10.7* Mellon Bank Corporation Long-Term Filed herewith.
Profit Incentive Plan (1981),
as adjusted to reflect the Corporation's
three-for-two common stock split
declared in November 1994 (the "Common
Stock Split").
10.8* Mellon Bank Corporation Stock Filed herewith.
Option Plan for Outside Directors
(1989), as adjusted to reflect the
Common Stock Split.
10.9* Mellon Bank Corporation 1990 Previously filed as Exhibit 19.1
Elective Deferred Compensation Plan to Quarterly Report on Form 10-Q
for Directors and Members of the for the quarter ended September 30,
Advisory Board, as amended and 1992, and incorporated herein by
restated, effective July 21, 1992. reference.
10.10* Mellon Bank Corporation Elective Filed herewith.
Deferred Compensation Plan for
Senior Officers, as amended and
restated, effective June 1, 1994.
<FN>
* Management contract or compensatory plan arrangement.
</TABLE>
27
<PAGE> 28
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- -----------------------------------
<S> <C> <C>
10.11* Mellon Bank IRC Section 401(a)(17) Previously filed as Exhibit 10.11 to
Plan, as amended and restated, effective Annual Report on Form 10-K for year
January 1, 1993. ended December 31, 1992, and
incorporated herein by reference.
10.12* Mellon Bank Optional Life Previously filed as Exhibit 10.12 to
Insurance Plan, effective January 1, Annual Report on Form 10-K for year
1993. ended December 31, 1992, and
incorporated herein by reference.
10.13* Mellon Bank Executive Life Previously filed as Exhibit 10.13 to
Insurance Plan, effective January 1, Annual Report on Form 10-K for year
1993. ended December 31, 1992, and
incorporated herein by reference.
10.14* Mellon Bank Senior Executive Previously filed as Exhibit 10.14 to
Life Insurance Plan, effective Annual Report on Form 10-K for year
January 1, 1993. ended December 31, 1992, and
incorporated herein by reference.
10.15* Mellon Bank Corporation Retirement Plan Previously filed as Exhibit 10.2 to
for Outside Directors, effective Quarterly Report on Form 10-Q for
January 1, 1994. the quarter ended March 31, 1994.
10.17* Employment Agreement between Previously filed as Exhibit 10.1
Mellon Bank, N.A. and Frank V. to Quarterly Report on Form 10-Q
Cahouet, effective as of for the quarter ended September 30,
July 25, 1993. 1993, and incorporated herein by
reference.
10.18* Employment Agreement between Previously filed as Exhibits 10.1
Mellon Bank, N.A. and and 10.2 to Quarterly Reports on
W. Keith Smith, effective as of Form 10-Q for the quarters ended
July 25, 1993, and the First September 30, 1993 and
Amendment thereto, effective as of September 30, 1994, respectively, and
August 1, 1994. incorporated herein by
reference.
10.19* The Dreyfus Corporation 1989 Filed herewith.
Non-Qualified Stock Option Plan.
10.20* The Dreyfus Corporation Amended Previously filed as Exhibit 10(iii)(A)
Deferred Compensation Plan. to The Dreyfus Corporation's Annual
Report on Form 10-K for the year
ended December 31, 1992 and
incorporated herein by reference.
<FN>
* Management contract or compensatory plan arrangement.
</TABLE>
28
<PAGE> 29
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- --------------------------------
<S> <C> <C>
10.21* The Dreyfus Corporation Contingent Filed herewith.
Benefit Plan.
10.22 Revolving Credit Agreement dated Previously filed as Exhibit 10.17
as of July 23, 1993, among Mellon to the Annual Report on Form 10-K
Financial Company, Mellon Bank for the year ended December 31,
Corporation, the Banks listed 1993, and incorporated herein by
therein and The Chase Manhattan reference.
Bank (National Association) as Agent.
10.23 Amendment No. 1 dated as of July 15, Filed herewith.
1994 to the Revolving Credit Agreement
dated as of July 23, 1993, among Mellon
Finance Company, Mellon Bank Corporation,
the Banks listed therein and The Chase
Manhattan Bank (National Association).
10.24 Stock Purchase Agreement dated as Previously filed as Exhibit 2.1
of September 14, 1992, between to Current Report on Form 8-K
Shearson Lehman Brothers Inc. and dated September 14, 1992, and
the Corporation (including the form incorporated herein by reference.
of Warrant Agreement attached
thereto as Exhibit C).
10.25 Agreement and Plan of Merger dated Previously filed as Exhibit 10.19
as of December 5, 1993, by and among to the Annual Report on Form 10-K
Mellon Bank Corporation, Mellon for the year ended December 31,
Bank, N.A., XYZ Sub Corporation and 1993, and incorporated herein by
The Dreyfus Corporation reference.
11.1 Computation of Primary and Fully Filed herewith
Diluted Net Income Per Common Share.
12.1 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends--parent
Corporation.
12.2 Computation of Ratio of Earnings Filed herewith
to Fixed Charges and Ratio of
Earnings to Combined Fixed
Charges and Preferred Stock
Dividends--Mellon Bank Corporation
and its subsidiaries.
13.1 All portions of the Mellon Bank Corporation Filed herewith
1994 Annual Report to Shareholders that
are incorporated herein by reference.
</TABLE>
29
<PAGE> 30
Index to Exhibits (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------- --------------------------------
<S> <C> <C>
21.1 List of Subsidiaries of the Filed herewith
Corporation.
23.1 Consent of Independent Accountants. Filed herewith
24.1 Powers of Attorney. Filed herewith
27.1 Financial Data Schedule. Filed herewith
</TABLE>
30
<PAGE> 31
Index to Exhibits (continued)
The documents identified below, which define the rights of holders of long-term
debt of the Corporation, are not filed herewith because the total amount of
securities authorized under each of them does not exceed 10% of the total
assets of the Corporation and its subsidiaries on a consolidated basis. The
Corporation hereby agrees to furnish a copy of such documents to the Securities
and Exchange Commission upon request.
1 Indenture dated as of September 10, 1987, between the Corporation
and Bank of New York, as Trustee, relating to 7-1/4% Convertible
Subordinated Capital Notes Due 1999.
2 Indenture dated as of May 2, 1988, as supplemented by the First
Supplemental Indenture dated as of November 29, 1990, among Mellon
Financial Company, the Corporation and The Chase Manhattan Bank
(National Association), as Trustee, providing for the issuance of
debt securities in series from time to time.
3 Indenture dated as of April 15, 1991, as supplemented by the First
Supplemental Indenture dated as of November 24, 1992, among Mellon
Financial Company, the Corporation and Continental Bank, National
Association, providing for the issuance of subordinated debt
securities in series from time to time.
4 Fiscal and Paying Agency Agreement dated as of May 17, 1993,
between Mellon Bank, N.A. as Issuer, and The Chase Manhattan Bank
(National Association), as Fiscal and Paying Agent relating to
6-1/2% Subordinated Notes due August 1, 2005 and 6-3/4%
Subordinated Notes due June 1, 2003.
31
<PAGE> 1
EX - 3.3
MELLON BANK CORPORATION
STATEMENT AFFECTING SERIES D JUNIOR PREFERRED STOCK
$1.00 PAR VALUE
DECREASING THE AUTHORIZED NUMBER OF SHARES OF SUCH SERIES
PURSUANT TO THE REQUIREMENTS OF SECTION 1522 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW
The undersigned Corporation, desiring to decrease the authorized number
of shares of its Series D Junior Preferred Stock, $1.00 par value (the "Series
D Preferred Stock"), hereby certifies that:
1. The name of the Corporation is Mellon Bank Corporation.
2. The resolution of the Board of Directors of the Corporation
establishing and designating the Series D Preferred Stock as
the fifth series of Preferred Stock, $1.00 par value, of the
Corporation authorized to be issued by Article FIFTH of its Articles,
as heretofore restated and amended, was filed with the Department of
State in a Statement of Designation on July 25, 1988.
3. By resolutions dated December 20, 1994 (copy attached hereto), the
Board of Directors authorized the reduction of the authorized
shares of Series D Preferred Stock.
4. Accordingly, the number of shares of preferred stock previously
designated as Series D Preferred Stock is hereby decreased from
4,388,117 shares to -0- shares.
5. Since the filing of the Corporation's Restated Articles of
Incorporation on September 2, 1993, there have been no
statements filed under the Pennsylvania Business Corporation Law
pertaining the Series D Preferred Stock.
<PAGE> 2
6. This Statement shall be effective upon the filing thereof in the
Department of State.
IN TESTIMONY WHEREOF, the undersigned Corporation has caused this
Statement to be signed by a duly authorized officer thereof this 4th day of
January, 1995.
MELLON BANK CORPORATION
By: Steven G. Elliott
------------------------------
Steven G. Elliott
Vice Chairman, Chief Financial
Officer and Treasurer
(SEAL)
Attest:
James M. Gockley
James M. Gockley
Secretary
2
<PAGE> 3
RESOLUTIONS REGARDING
SERIES D PREFERRED STOCK
WHEREAS, As part of the Corporation's 1988 Capital Financing Plan, the Board
adopted resolutions establishing and desginating the Series D Junior Preferred
Stock (the "Series D Preferred Stock"); and
WHEREAS, In accordance with its terms, all outstanding shares of Series D
Preferred Stock were converted into shares of Common Stock on August 31, 1994,
at the rate of .7608696 shares of Common Stock for each share of Series D
Preferred Stock; NOW, THEREFORE, BE IT
RESOLVED, That all shares of Series D Preferred Stock so converted shall be
restored to the status of authorized but unissued shares of preferred stock of
the Corporation, without designation as to series, until such shares are once
more designated as part of a particular series by the Board; and it is further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, and
Vice Chairman, or the Secretary of the Corporation be, and each hereby is,
authorized and directed in the name and on behalf of the Corporation, under the
corporate seal of the Corporation attested by its Secretary, to execute and to
cause a Statement Affecting Series D Preferred Stock to be filed with the
Department of State of the Commonwealth of Pennsylvania in accordance with
Section 1522 of the Pennsylvania Business Corporation Law.
<PAGE> 1
EX - 10.7
MELLON BANK CORPORATION
LONG-TERM PROFIT INCENTIVE PLAN (1981)
I. Purpose
The purpose of this Long-Term Profit Incentive Plan (1981), as amended, is to
promote the growth and profitability of Mellon Bank Corporation
("Corporation") and its subsidiaries and to provide officers and other key
executives of the Corporation and its subsidiaries with an incentive to achieve
long-term corporate objectives, to attract and retain officers and other key
executives of outstanding competence, and to provide such officers and key
executives with an equity interest in the Corporation.
II. Definitions
The following terms shall have the meanings shown:
2.1 "Award Period" shall mean the time period established by the Committee
pursuant to Section 6.4 of the Plan for the purpose of measuring attainment of
performance targets.
2.2 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.3 "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 of 1988, as of August 15, 1989; or
(b) Approval by the stockholders of the Corporation of (i) 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 such merger or consolidation, or (ii) any sale, lease or
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Corporation; or
(c) A change of 25% (rounded to the next whole person) in the membership of the
Board of Directors within a 12-month period, unless the election or nomination
for election by stockholders 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.
2.4 "Committee" shall mean the Human Resources Committee of the Board of
Directors, or any successor committee.
2.5 "Common Stock" shall mean Common Stock of the Corporation.
2.6 "Deferred Cash Incentive Award" shall mean an award granted pursuant to
Article VII of the Plan.
2.7 "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.
2.8 "Incentive Stock Option" shall mean an option qualifying under Section
422A of the Internal Revenue Code of 1986, as amended, granted by the
Corporation or its parent or any subsidiary corporation.
2.9 "Options" shall mean rights to purchase shares of Common Stock granted
pursuant to Article IV of the Plan.
2.10 "Performance Units" shall mean units granted pursuant to Article VI of
the Plan.
2.11 "Plan" shall mean the Mellon Bank Corporation Long-Term Profit Incentive
Plan (1981), as amended.
<PAGE> 2
2.12 "Reload Option Rights" and "Reload Options" shall have the meanings
set forth in Article IV of the Plan.
2.13 "Restricted Stock" shall mean any share of Common Stock granted pursuant
to Article VIII of the Plan.
2.14 "SARs" shall mean stock appreciation rights granted pursuant to Article
V of the Plan.
2.15 "Stated Value" shall mean the value assigned to a Performance Unit by
the Committee pursuant to Section 6.4 of the Plan.
III. General
3.1 Administration.
(a) The Plan shall be administered by the Committee. No member of the Committee
shall have been an officer or employee of the Corporation or any of its
subsidiaries within the previous 12 months.
(b) The Committee shall have the authority in its sole discretion from time to
time: (i) to designate the employees eligible to participate in the Plan; (ii)
to grant awards provided in the Plan; (iii) to prescribe such limitations,
restrictions and conditions upon any such award as the Committee shall deem
appropriate; and (iv) 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 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 grant awards under the Plan to any full-time
corporate officer, key executive, administrative or professional employee of
the Corporation or any of its subsidiaries. In granting such awards and
determining their form and amount, the Committee shall give consideration to
the functions and responsibilities of the employee, his potential contributions
to profitability and to the sound growth of the Corporation and such other
factors as the Committee may deem relevant.
3.3 Awards. Awards under the Plan may be in the form of any one or more of the
following:
(a) Options;
(b) SARs;
(c) Performance Units;
(d) Deferred Cash Incentive Awards; and
(e) Restricted Stock.
3.4 Effective and Expiration Dates of Plan. The Plan shall become effective on
the date approved by the holders of a majority of the total number of shares
entitled to vote at the 1981 Annual Meeting of Shareholders of the Corporation.
No award shall be granted after December 31, 1997, except that Reload Options
may be granted pursuant to Reload Option Rights then outstanding.
3.5 Aggregate Limitation on Awards.
(a) Shares of Common Stock which may be issued pursuant to awards granted under
the Plan may be either authorized and unissued shares of Common Stock or
authorized and issued shares of Common Stock held in the Corporation's
Treasury. The number of shares of Common Stock reserved for issue under the
Plan shall not exceed 13,500,000 shares, subject to adjustments pursuant to
Sections 9.7 and 9.8.
(b) For purposes of paragraph (a) of this Section 3.5, shares of Common Stock
that are actually issued upon exercise of an Option shall be counted against
the total number of shares reserved for issuance, except that when Options are
exercised by the delivery of shares of Common Stock, the charge against the
shares reserved for issuance shall be limited to the net new shares of Common
Stock issued. In addition to shares of Common Stock actually issued pursuant
to the exercise of Options, there shall be deemed to have been issued under the
Plan a number of shares of Common Stock equal to (i) the SARs
2
<PAGE> 3
(as described in Article V) which shall have been exercised, (ii) the
Performance Units (as described in Article VI) the value of which the
Corporation shall have paid under the Plan and (iii) the Restricted Stock (as
described in Article VIII) which shall have been granted pursuant to the Plan.
For purposes of paragraph (a) of this Section 3.5, the payment of a Deferred
Cash Incentive Award shall not be deemed to result in the issuance of any
shares of Common Stock in addition to those issued pursuant to the exercise of
the related Option.
(c) Any shares of Common Stock subject to an Option which for any reason either
terminates unexercised or expires except by reason of the exercise of a related
SAR or related Performance Unit, and any shares of Restricted Stock granted
under this Plan which are surrendered or forfeited to the Corporation, shall
again be available for issuance under the Plan.
IV. Options
4.1 Grant of Options. The Committee may from time to time, subject to the
provisions of the Plan, in its discretion grant Options to eligible employees
to purchase for cash or shares of Common Stock the number of shares of Common
Stock allotted by the Committee. In the discretion of the Committee, any
Options or portions thereof granted pursuant to this Plan may be designated as
Incentive Stock Options. The aggregate Fair Market Value (determined as of the
time the Incentive Stock Option is granted) of Common Stock and any other stock
of the Corporation or its parent or any subsidiary corporation with respect to
which such Incentive Stock Options are exercisable for the first time by an
employee in any calendar year under all plans of the Corporation and its
subsidiaries shall not exceed $100,000 or such sum as may from time to time be
permitted under Section 422A of the Internal Revenue Code. The Committee shall
also have the authority, in its discretion, to award reload option rights
("Reload Option Rights") in conjunction with the grant of Options with the
effect described in Section 4.7. Reload Option Rights may be awarded either at
the time an Option is granted or, except in the case of Incentive Stock
Options, at any time thereafter during the term of the Option.
4.2 Option Agreements. The grant of any Option shall be evidenced by a written
"Stock Option Agreement" executed by the Corporation and the optionee, stating
the number of shares of Common Stock subject to the Option evidenced thereby
and such other terms and conditions of the Option as the Committee may from
time to time determine.
4.3 Option Price. The option price for the Common Stock covered by any Option
granted under the Plan shall in no case be less than 100% of the Fair Market
Value of said Common Stock on the date of grant.
4.4 Term of Options. The terms of each Option granted under the Plan shall be
for such period as the Committee shall determine, but for not more than ten
years from the date of grant thereof. Each Option shall be subject to earlier
termination as provided in Sections 4.6, 5.1(b) and 6.5 hereof.
4.5 Exercise of Options. Each Option granted under the Plan shall be
exercisable on such date or dates during the term thereof and for such number
of shares of Common Stock as may be provided in the Stock Option Agreement
evidencing its grant. Pursuant to the terms of the Stock Option Agreement or
otherwise, the Committee may change the date on which an outstanding Option
becomes exercisable; provided, however, that an exercise date designated in a
Stock Option Agreement may not be changed to a later date without the consent
of the holder of the Option. Notwithstanding any other provision of this Plan,
unless expressly provided to the contrary in the applicable Stock Option
Agreement, all Options granted under the Plan shall become fully exercisable
immediately and automatically upon the occurrence of a Change in Control Event.
4.6 Termination of Employment.
(a) If termination of employment of an optionee hereunder is due to retirement
with the consent of the Corporation, the optionee shall have the right to
exercise his Option within the period of one year after such retirement to the
extent exercisable by him at the time of retirement; provided, however, that
such post-retirement exercise period may be extended by action of the Committee
for up to the full remaining term of such Option.
(b) If an optionee hereunder shall die while in the employ of the Corporation
or a subsidiary thereof or within a period of one year after retirement
therefrom, his Option may be exercised to the extent exercisable by the
optionee at the time of his death within a period of one year from the date of
his
3
<PAGE> 4
death by the executor or administrator of the optionee's estate or by the
person or persons to whom the optionee shall have transferred such right by
will or by the laws of descent and distribution.
(c) In the event the employment of an optionee hereunder is terminated for any
reason other than retirement with the consent of the Corporation or death, his
Option shall terminate upon his termination of employment.
(d) Notwithstanding the foregoing, in no event shall an Option granted
hereunder be exercisable after the expiration of its terms.
4.7 Reload Option Rights. Reload Option Rights if awarded with respect to an
Option shall entitle the original grantee of the option (and unless otherwise
determined by the Committee, in its discretion, only such original grantee),
upon exercise of the Option or any portion thereof through delivery of shares
of Common Stock, automatically to be granted on the date of such exercise an
additional Option (a "Reload Option") (i) for that number of shares of Common
Stock not greater than the number of shares delivered by the optionee in
payment of the option price of the original Option and any withholding taxes
related thereto, (ii) having an option price not less than 100% of the Fair
Market Value of the Common Stock covered by the Reload Option on the date of
grant of such Reload Option, (iii) having an expiration date not later than the
expiration date of the original Option so exercised and (iv) otherwise having
terms permissible for the grant of an Option under the Plan. Subject to the
preceding sentence and the other provisions of the Plan, Reload Option Rights
and Reload Options shall have such terms and be subject to such restrictions
and conditions, if any, as shall be determined, in its discretion, by the
Committee. In granting Reload Option Rights, the Committee, may, in its
discretion, provide for successive Reload Option grants upon the exercise of
Reload Options granted hereunder. Unless otherwise determined by the Committee,
in its discretion, Reload Option Rights shall entitle the grantee to be granted
Reload Options only if the underlying Option to which they relate is exercised
by the grantee during employment with the Corporation or any of its
subsidiaries. Except as otherwise specifically provided herein or required by
the context, the term Option as used in this Plan shall include Reload Options
granted hereunder.
V. SARs
5.1 SARs.
(a) SARs, as hereinafter described, may be granted in conjunction with all or
any part of any Option granted under the Plan, either at the time of the grant
of such Option or at any time thereafter during the term of such Option.
(b) SARs shall entitle the holder of an Option in connection with which such
SARs are granted, upon exercise of the SARs, to surrender the Option or the
applicable portion thereof, to the extent then exercisable but unexercised, and
to receive (i) a number of shares of Common Stock, (ii) cash or (iii) cash and
shares of Common Stock as determined pursuant to subparagraph (iii) of
paragraph (c) of this Section 5.1. Such Option shall, to the extent
surrendered, thereupon cease to be exercisable.
(c) SARs shall be subject to the following terms and conditions and to such
other terms and conditions as shall from time to time be approved by the
Committee, including the designation of a maximum on the payments to be made
with respect to any SARs or a holder thereof.
(i) SARs shall be exercisable at such time or times and to such extent,
but only to such extent, that the Option to which they relate shall be
exercisable.
(ii) SARs and any related Option shall not be exercisable during the
first 6 months after the date of grant.
(iii) Upon exercise of SARs, the holder thereof shall be entitled to
receive such number of shares of Common Stock as shall be equal
in aggregate Fair Market Value to the amount by which the Fair Market
Value per share shall exceed the option price per share of the related
Option, multiplied by the number of shares in respect of which the SARs
shall have been exercised. In the sole discretion of the Committee, the
Corporation may pay all or any part of its obligation arising out of an
exercise of SARs by the payment of cash in an amount equal to the
aggregate Fair Market Value of the shares of Common Stock (including a
fraction of a share) that it would otherwise be obligated to deliver
under the preceding sentence of this subparagraph (iii) except for cash
payment.
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<PAGE> 5
(d) To the extent that SARs shall be exercised, the Option in connection with
which such SARs shall have been granted shall be deemed to have been exercised,
and the shares of Common Stock which would have been issued upon the exercise
of such Option shall be charged against the maximum number of shares of Common
Stock which may be issued under the Plan as set forth in Section 3.5 hereof.
VI. Performance Units
6.1 Award of Performance Units. The Committee may from time to time, subject to
the provisions of the Plan and such other terms and conditions as it may
prescribe, grant one or more Performance Units to eligible employees. In the
Committee's sole discretion it may relate any such Performance Units to shares
of Common Stock which are subject to an Option being granted concurrently or
granted at some other time under the Plan to the grantee of such Performance
Units.
6.2 Performance Unit Agreements. Performance Units granted under the Plan shall
be evidenced by a written "Performance Unit Agreement" in such form as the
Committee may from time to time determine.
6.3 Number of Performance Units. Upon making an award, the Committee shall
determine (and the Performance Unit Agreement shall state) the number of
Performance Units granted to the grantee, and the Option or Options, if any, to
which such Units are related. Upon the exercise of the related portion of such
Option or Options (or the related SARs, if any) there shall be cancelled that
number of related Performance Units, if any, which is equal to the sum of the
number of shares of Common Stock purchased pursuant to the related portion of
said Options plus the number of SARs which are exercised.
6.4 Stated Value of Performance Units. Upon making an award, the Committee
shall determine (and the Performance Unit Agreement shall set forth) the Stated
Value of the Performance Units awarded to the grantee. The Stated Value of a
Performance Unit shall be stated as a function of the Fair Market Value of the
Common Stock. The earning of the Performance Units by the employee shall be
calculated in a manner prescribed by the Committee with reference to a primary
performance target for such Unit for an Award Period not exceeding four (4)
years and not less than two (2) years, all as established by the Committee
prior to the award.
6.5 Payment of Performance Units. Payment in respect of Performance Units to
the grantee thereof shall commence within 90 days after the Award Period for
such Units has ended, but only to the extent that such Units have been earned
by the partial or total attainment or the exceeding of the performance targets
set for such Units by the Committee pursuant to Section 6.7 hereof, and only
with respect to Performance Units not theretofore cancelled by the exercise of
related portions of Options or SARs pursuant to Section 6.3 hereof or
determined by the Committee to be reserved for future exercise of such Options
or SARs. Such payment of Performance Units shall be made in an amount equal to
the dollar value of the Performance Units earned except to the extent that the
Committee designates a minimum and/or a maximum on such payments. These
payments shall be in one or more equal installments and subject to such terms
and conditions as the Committee shall specify. Upon commencement of payment of
any Performance Units hereunder, the Options to purchase shares of Common Stock
(and any accompanying SARs) related to such Performance Units shall
automatically be cancelled.
6.6 Form of Payment. Payments for Performance Units shall be made in cash,
shares of Common Stock or partly in cash and partly in shares of Common Stock,
as the Committee shall determine. To the extent that payment is made in shares
of Common Stock, the number of shares shall be determined by dividing the
amount of such payment by the Fair Market Value of a share of Common Stock on
the date of payment.
6.7 Performance Targets. Upon the award of any Performance Units, the Committee
shall establish (and the Performance Unit Agreement shall state) one or more
performance targets to be attained by the end of the Award Period as a
condition of such Performance Units being earned at 100%. Each performance
target shall be stated either as a specific dollar amount of growth or as a
percentage rate of improvement in such elements as the Corporation's income
before securities transactions, net income per share, return on equity or such
other measures related to growth or improvement in the rate of growth as the
Committee shall determine. To the extent that the performance target is either
5
<PAGE> 6
not achieved or is exceeded, a proportionate amount, either less or more than
100% of the Performance Unit, will be earned subject to such limitation, if
any, as the Committee may designate pursuant to Section 6.5 hereof.
6.8 Termination of Employment.
(a) In the event the employment of a grantee who has been granted Performance
Units under this Plan shall terminate during an Award Period by reason of death
or retirement with the consent of the Corporation, such grantee, the executor
or administrator of the grantee's estate, or the person or persons to whom the
grantee shall have transferred such award by will or by the laws of descent or
distribution, will be entitled to receive within 90 days after the end of the
Award Period, payment in respect of such Performance Units to the same extent
as if the grantee were an employee throughout the Award Period adjusted by
applying to such payment a percentage equivalent to the percentage of the Award
Period elapsing before such grantee's employment shall have terminated.
(b) Except as provided in paragraph (a) of this Section 6.8, or except as
otherwise determined by the Committee, all Performance Units granted hereunder
shall terminate upon termination of the grantee's employment with the
Corporation or its subsidiaries.
VII. Deferred Cash Incentive Awards
7.1 Granting of Deferred Cash Incentive Awards. Deferred Cash Incentive Awards,
as hereafter described, may be granted in conjunction with all or any part of
any Option granted under the Plan, either at the time of the grant of such
Option or at any time thereafter during the term of such Option.
7.2 Deferred Cash Incentive Agreements. Deferred Cash Incentive Awards shall
entitle the holder of an Option to receive from the Corporation an amount of
cash equal to the aggregate exercise price of all Options exercised by such
holder in accordance with the terms of a written "Deferred Cash Incentive
Agreement" executed by the Corporation and the optionee. Deferred Cash
Incentive Agreements shall specify the conditions under which Deferred Cash
Incentive Awards become payable, the conditions under which Deferred Cash
Incentive Awards are forfeited and any other terms and conditions as the
Committee may from time to time determine. Under no circumstances may a
Deferred Cash Incentive Award be applied to any purpose other than the payment
of the exercise price of a properly exercised related Option.
7.3 Preestablished Performance Goals. Except in the event of death, permanent
disability or a "Change in Control Event" (as defined in Section 2.3), any
Deferred Cash Incentive Award shall only be earned and become payable after
January 1, 1994, if the Corporation achieves performance goals which are
established for a calendar year or longer period by the Committee in compliance
with Section 162( m) of the Internal Revenue Code and regulations thereunder,
as amended from time to time. Performance goals shall be determined by the
Committee and may be based on one or more business criteria (including return
on equity, return on assets, net income and earnings per share) as defined by
the Committee that apply to the individual, a business unit or the Corporation
as a whole. The Committee may retain the discretion to reduce (but not to
increase) the portion of any Deferred Cash Incentive Award which will be earned
for any calendar year based on achieving such performance goals.
VIII. Restricted Stock
8.1 Award of Restricted Stock. The Committee may from time to time, subject to
the provisions of the Plan and such other terms and conditions as it may
prescribe, grant one or more shares of Restricted Stock to eligible employees.
In the discretion of the Committee, shares of Restricted Stock may be granted
alone, in addition to or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan.
8.2 Restricted Stock Agreements. Each award of Restricted Stock under the Plan
shall be evidenced by a written Restricted Stock Agreement executed by the
Corporation and the grantee in such form as the Committee shall prescribe from
time to time in accordance with the Plan.
8.3 Restrictions. Shares of Restricted Stock issued to a grantee may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for such period as the
Committee shall determine, beginning on the date on which the award is granted
(the "Restricted Period"). The Committee may also impose such other
restrictions
6
<PAGE> 7
and conditions on the shares or the release of the restrictions thereon as it
deems appropriate. In determining the Restricted Period of an award, the
Committee may provide that the foregoing restrictions shall lapse with respect
to specified percentages of the awarded shares on successive anniversaries of
the date of such award or all at once.
8.4 Stock Certificate. As soon as is practicable following the making of an
award, a certificate bearing an appropriate legend referring to such
restrictions shall be registered in the grantee's name. The certificate shall
be held by the Corporation on behalf of the grantee until the restrictions are
satisfied. Except for the transfer restrictions, the grantee shall have all the
rights of a holder of the shares received in an award, including the right to
receive dividends paid with respect to such shares and the right to vote such
shares. As soon as is practicable following the date on which transfer
restrictions on any shares lapse, the Corporation shall deliver to the grantee
the certificates for such shares, provided that the grantee shall have complied
with all conditions for delivery of such shares contained in the Restricted
Stock Agreement or otherwise reasonably required by the Corporation.
8.5 Termination of Employment.
(a) All restrictions placed upon Restricted Stock shall lapse immediately upon
(i) termination of the grantee's employment with the Corporation if, and only
if, such termination is by reason of the grantee's death or retirement with the
consent of the Corporation or (ii) the occurrence of a Change in Control Event,
unless expressly provided to the contrary in the applicable Restricted Stock
Agreement. In addition, the Committee may in its discretion allow restrictions
on Restricted Stock to lapse prior to the date specified in a Restricted Stock
Agreement.
(b) Upon the effective date of a termination for any reason not specified in
Section 8.5(a), all shares then subject to restrictions immediately shall be
forfeited to the Corporation without consideration or further action being
required of the Corporation. For purposes of this Section 8.5(b), the effective
date of a grantee's termination shall be the date upon which such grantee
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.
IX. Miscellaneous
9.1 General Restriction. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that any listing
or registration of the shares of Common Stock or any consent or approval of any
governmental body, or any other agreement or consent is necessary or desirable
as a condition of the granting of an award or issuance of Common Stock or cash
in satisfaction thereof, such award may not be consummated unless such
requirement is satisfied in a manner acceptable to the Committee.
9.2 Non-Assignability. No award under the Plan shall be assignable or
transferable by the recipient thereof, except by will or by the laws of descent
and distribution or by such other means as the Committee may approve from time
to time. During the life of the recipient, such award shall be exercisable only
by such person.
9.3 Withholding Taxes. Whenever the Corporation proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Corporation shall
have the right to require the participant to remit to the Corporation an amount
sufficient to satisfy any federal, state, local or other withholding tax
requirements prior to the delivery of any certificate for such shares. Whenever
under the Plan payments are to be made in cash, such payments shall be net of
an amount sufficient to satisfy any federal, state, local or other withholding
tax requirements.
9.4 No Right to Employment. Nothing in the Plan or in any agreement entered
into pursuant to it shall confer upon any participant 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
participant.
9.5 Non-Uniform Determinations. The Committee's determinations under the Plan
(including without limitation its determinations of the persons to receive
awards, the form, amount and timing of such awards, the terms and provisions of
such awards and the establishment of Stated Values and performance targets)
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.
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<PAGE> 8
9.6 No Rights as Shareholders. Recipients of awards under the Plan shall have
no rights as shareholders of the Corporation with respect thereto, except as
provided in Section 8.4, unless and until certificates for shares of Common
Stock are issued to them.
9.7 Adjustments of Stock. In the event of any change or changes in the
outstanding Common Stock of the Corporation aggregating at least 5%, the
Committee may in its discretion appropriately adjust the number of shares of
Common Stock which may be issued under the Plan, the number of shares of Common
Stock subject to Options theretofore granted under the Plan, the option price
of such Options, the number of SARs theretofore granted in conjunction with an
Option, the number of Performance Units theretofore awarded, the number of
shares of Restricted Stock theretofore granted under the Plan, the performance
targets referred to herein and any and all other matters deemed appropriate by
the Committee. The Committee may, in its discretion for purposes of determining
the extent to which performance targets have been met, with such professional
advice as it may require, restate for Plan purposes the Corporation's reported
figures to take into account any dilutive effects or any changes in accounting
practices or tax laws that may have significantly affected the Corporation's
reported results.
9.8 Reorganization. In the event that the outstanding shares of Common Stock of
the Corporation 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, recapitalization, 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 any changes
it may deem equitable (subject to the approval of the Board of Directors if
required) in outstanding Options, SARs, Performance Units and Restricted Stock
granted pursuant to the Plan.
9.9 Amendment or Termination of the Plan. The Committee, without further
approval of the shareholders, but with the approval of the Board of Directors,
may at any time terminate the Plan or any part thereof and may from time to
time amend the Plan as it may deem advisable; provided, however, that without
shareholder approval, the Committee may not (i) increase the aggregate number
of shares of Common Stock which may be issued under the Plan (other than
increases permitted under Sections 9.7 and 9.8), (ii) extend the term of the
Plan, (iii) extend the period during which an Option may be exercised (other
than as permitted under Section 4.6(a)), or (iv) increase the Stated Value of
any Outstanding Performance Units. The termination or amendment of the Plan
shall not, without the consent of the participant, affect such participant's
rights under an award previously granted.
9.10 Solely for purposes of the options granted under the Employment Agreement
dated June 19, 1987 between Frank V. Cahouet and Mellon Bank, N.A., the
Employment Agreement dated as of July 24, 1987 between Anthony P. Terracciano
and Mellon Bank, N.A. and the Employment Agreement dated as of July 8, 1987
between W. Keith Smith and Mellon Bank, N.A. (each, an "Employment
Agreement"), Sections 4.3 and 4.6 hereof are hereby amended to reflect the
provisions of the Employment Agreement governing each such option.
November 1994
8
<PAGE> 1
EX - 10.8
MELLON BANK CORPORATION
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS (1989)
I. Purpose
The purposes of this Stock Option Plan for Outside Directors (1989) are to
align the interests of the outside directors of Mellon Bank Corporation (the
"Corporation") more closely with the interests of the Corporation's
shareholders, to provide such directors with an additional inducement to remain
in the service of the Corporation with an increased incentive to work for its
long-term success, and to establish an effective element of a reasonable
directors' compensation package.
II. Definitions
The following terms shall have the meanings indicated below:
2.1 "Common Stock" shall mean the common stock, par value $.50 per share, of
the Corporation.
2.2 "Corporation" shall mean Mellon Bank Corporation.
2.3 "Business Day" shall mean any day on which the market used to determine
the Fair Market Value of the Common Stock is open for trading.
2.4 "Fair Market Value" shall mean the closing price of the Common Stock on the
New York Stock Exchange on the relevant date. If on the relevant date the
Common Stock is not listed on the New York Stock Exchange, "Fair Market Value"
shall mean the closing price of the Common Stock on the relevant date on the
principal stock exchange on which the Common Stock is listed. If the Common
Stock is not listed on any stock exchange on the relevant date, "Fair Market
Value" shall mean the mean between the bid and asked price of the Common Stock
as reported on the National Association of Securities Dealers Automated
Quotation System on the relevant date.
2.5 "Outside Director" shall mean any individual who on the relevant date is a
member of the Board of Directors of the Corporation but is not an employee of
the Corporation.
2.6 "Plan" shall mean the Mellon Bank Corporation Stock Option Plan for
Outside Directors (1989).
2.7 "Service Year" shall mean the period beginning on the third Business Day
after the Corporation's annual meeting of shareholders at which directors are
elected and ending on the date of such annual meeting in the immediately
following year.
2.8 "HR Head" shall mean the head of the Human Resources Department of Mellon
Bank, N.A.
2.9 "Option" shall mean an option granted to an Outside Director pursuant to
the Plan.
2.10 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended from
time to time, or any successor rule.
III. Administration
3.1 Self-Operative Plan. The Plan is intended to be self-operative to the
maximum extent consistent with prudent business practice. Under no
circumstances shall any individual or group of individuals exercise discretion
with respect to designating the recipient of an Option, the number of shares of
Common Stock that are subject to an Option, the date of grant for an Option or
the exercise price for an Option. Any action of the Nominating Committee of the
Board of Directors to set or recommend retainers or fees shall not be deemed to
be such an exercise of discretion, regardless of such action's effect on the
number of shares that become subject to Options pursuant to the formula in
Section 5.4 hereof.
D-1
<PAGE> 2
3.2 Certain Administrative Duties. Within the parameters set forth in Section
3.1 hereof, the HR Head shall administer the Plan. The HR Head's actions and
interpretations under the Plan shall be final, conclusive and binding, and the
HR Head shall not be liable for any action taken or decisions made in good
faith relating to the Plan or any Option thereunder.
3.3 Source of Shares. The shares of Common Stock that may be issued upon the
exercise of Options under the Plan may be either authorized but unissued shares
or authorized and issued shares held in the Corporation's treasury. The
aggregate number of shares of Common Stock which may be issued under the Plan
shall not exceed 600,000 shares, subject to adjustment pursuant to Section 8.6
hereof.
IV. Grantings of Options
4.1 Timing. Except for individuals who become Outside Directors during the
Service Year (as described in Section 4.3 hereof), Options will be granted once
per Service Year on the third Business Day following the Corporation's annual
meeting of shareholders at which directors are elected.
4.2 Recipients. Options will be awarded in equal amounts to all individuals who
are Outside Directors on the date of grant.
4.3 Mid-Service Year Elections. A director who is elected by the Board of
Directors after the start of a Service Year will be granted an Option having
terms (including term, exercise dates, and exercise price) identical to the
Options granted to Outside Directors at the start of that Service Year, except
that the number of shares of Common Stock subject to such Option shall be the
number of shares that are subject to each Option granted at the start of such
Service Year multiplied by a fraction the numerator of which is the number of
days during such Service Year that the recipient of such Option will serve as a
director and the denominator of which is the number of days in the Service Year
(with fractional shares being rounded upward to the nearest whole share).
4.4 Stock Option Agreements. The grant of any Option shall be evidenced by a
written "Stock Option Agreement" executed by the Corporation and the optionee.
The Stock Option Agreement shall contain the number of shares of Common Stock
that are subject to the Option evidenced thereby, the other essential terms of
the Option determined in accordance with Section V hereof, and other terms that
are not inconsistent with the requirements of this Plan.
V. Terms of Options
5.1 Terms of Options. All Options, other than Options granted to an Outside
Director upon his or her election during a Service Year, shall have a term of
ten years from the date of grant, subject to earlier termination pursuant to
Section 5.5 hereof.
5.2 Exercise of Options. All Options, other than Options granted to an Outside
Director upon his or her election during a Service Year, shall become
exercisable on the first anniversary of their grant date.
5.3 Exercise Price. The exercise price for all Options, other than Options
granted to an Outside Director upon his or her election during a Service Year,
shall be the Fair Market Value of the Common Stock on the date the Option is
granted.
5.4 Number of Shares. The number of shares of Common Stock that may be
purchased upon exercise of an Option granted for a given Service Year shall be
determined by the following formula:
(Number of dollars in projected annual retainer for Service Year) X 8.1% =
Number of shares.
Fractional shares resulting from the formula shall be rounded upward to the
nearest whole share. The number of shares subject to an Option shall be
subject to adjustment in accordance with Section 8.6 hereof.
D-2
<PAGE> 3
5.5 Forfeiture. Options that have not become exercisable on the date the
optionee ceases to serve as a director of the Corporation for any reason other
than the optionee's death, disability or completion of the Service Year shall
be forfeited and terminated immediately upon such termination of service.
Options that have become exercisable shall remain exercisable, and shall no
longer be subject to forfeiture, throughout their ten-year terms, regardless of
whether the optionee is a director of the Corporation at the time the Option is
exercised.
VI. Exercise of Options
6.1 Notice of Exercise. An Option shall be exercised by delivery to the H.R.
Head of a written notice of exercise in the form prescribed by the H.R. Head
for use from time to time. Such notice of exercise shall indicate the number of
shares as to which the Option is exercised and shall be accompanied by the full
exercise price for the Options exercised.
6.2 Form of Payment. The exercise price may be paid in cash or, in whole or in
part, by surrender of shares of Common Stock, which shall be credited against
the exercise price at their Fair Market Value on the date the Option is
exercised.
VII. Advisory Board Members
Members of the Corporation's Advisory Board shall be granted options under
this Plan in the same amounts and on the same terms as options granted to
Outside Directors; provided, however, no option shall be granted to an
individual upon his or her election to the Advisory Board after the start of
the Service Year.
VIII. Miscellaneous
8.1 General Restriction. Each Option under the Plan shall be subject to the
requirement that, if at any time the H.R. Head shall determine that any listing
or registration of the shares of Common Stock, any consent or approval of any
governmental body, or any other agreement, consent or action is necessary or
desirable as a condition of the granting of an Option or issuance of Common
Stock in satisfaction thereof, such grant or issuance may not be consummated
unless such requirement is satisfied in a manner acceptable to the H.R. Head.
8.2 Non-Assignability. No Option under the Plan shall be assignable or
transferable by the optionee, except by will or pursuant to applicable laws of
descent and distribution. During the life of an optionee, an Option shall be
exercisable only by such optionee.
8.3 Withholding Taxes. Whenever the Corporation issues or transfers shares of
Common Stock under the Plan, the Corporation shall have the right to require
the optionee to remit to the Corporation an amount sufficient to satisfy any
federal, state, and local withholding tax requirements prior to the delivery of
any certificate for such shares.
8.4 No Right to Continued Service. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any optionee any right to
continued service as a director of the Corporation or any subsidiary or affect
any right of the Corporation or a subsidiary, acting through their Boards of
Directors or otherwise, to terminate or otherwise affect the service of such
optionee.
8.5 No Rights as Shareholders. Holders of Options under the Plan shall have no
rights as shareholders of the Corporation resulting therefrom unless and until
certificates for shares of Common Stock are registered in their names in
satisfaction of a duly exercised Option.
8.6 Adjustments. In the event that the outstanding shares of Common Stock of
the Corporation are changed in number, class or character by reason of any
split-up, change of par value, stock dividend, combination or reclassification
of shares, recapitalization, 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 Board of Directors of the
Corporation may make any changes it may deem
D-3
<PAGE> 4
equitable and appropriate in outstanding Options and/or in the number of shares
of Common Stock reserved for issuance under the Plan. For purposes of this
Section 8.6, it is intended that, absent reasons to the contrary, adjustments
to Options be consistent with any changes or lack of changes to other options
on the Common Stock resulting from the same cause.
8.7 Amendment or Termination of Plan. The Board of Directors of the Corporation
may amend or terminate the Plan as it deems advisable; provided, however, no
such amendment or termination may (a) impair the rights of an optionee under an
Option previously granted, (b) effect a change to any part of the formula
setting the amount, price and timing of Option grants more often than permitted
under Rule 16b-3 (a change in the level of actual or projected retainer amounts
not being deemed a change to such formula for that purpose), or (c) without the
approval of the Corporation's shareholders, amend any other provision of
Sections IV or V of the Plan.
November 1994
D-4
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EX - 10.10
MELLON BANK CORPORATION
-----------------------
ELECTIVE DEFERRED COMPENSATION PLAN
-----------------------------------
FOR SENIOR OFFICERS
-------------------
(As Amended and Restated Effective June 1, 1994)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
PREAMBLE......................................................................... 1
ARTICLE I........................................................................ 1
DEFINITIONS.................................................................. 1
1.1 Account......................................................... 1
1.2 Beneficiary..................................................... 1
1.3 Board........................................................... 2
1.4 Committee....................................................... 2
1.5 Company......................................................... 2
1.6 Continuous Service.............................................. 2
1.7 Deferral Commitment or Deferral Unit............................ 2
1.8 Deferral Period................................................. 2
1.9 Disability...................................................... 2
1.10 Early Distribution.............................................. 2
1.11 Early Retirement................................................ 2
1.12 Effective Date.................................................. 2
1.13 Elective Deferred Compensation.................................. 2
1.14 Employer........................................................ 2
1.15 Financial Hardship.............................................. 2
1.16 Normal Retirement............................................... 2
1.17 Participant..................................................... 3
1.18 Participation Agreement......................................... 3
1.19 Plan............................................................ 3
1.20 Plan Year....................................................... 3
1.21 Retirement Plan................................................. 3
1.22 Retirement Savings Plan......................................... 3
1.23 Retirement Savings Plan Augmentation
Account......................................................... 3
1.24 Subsidiary...................................................... 3
1.25 Termination of Employment....................................... 3
1.26 T-Note Rate..................................................... 3
1.27 Total Deferral Amount........................................... 3
1.28 Valuation Date.................................................. 4
1.29 Window Period................................................... 4
1.30 Retirement Plan Make-up Account................................. 4
ARTICLE II....................................................................... 4
ADMINISTRATION............................................................... 4
2.1 Administrator................................................... 4
2.2 Powers and Duties............................................... 4
2.3 Procedures...................................................... 5
2.4 Establishment of Rules.......................................... 5
2.5 Limitation of Liability......................................... 5
2.6 Compensation and Insurance...................................... 6
2.7 Removal and Resignation......................................... 6
2.8 Claims Procedure................................................ 6
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE III...................................................................... 6
PARTICIPATlON AND DEFERRAL COMMITMENTS....................................... 6
3.1 Eligibility and Participation................................... 6
3.2 Basic Form of Deferral; Minimum Deferral........................ 6
3.3 Limitations on Deferrals........................................ 7
3.4 Completion of Deferral Commitments;
Limited by Termination of Employment............................ 7
3.5 Modification of Deferral Commitments............................ 7
3.6 Enrollment in Deferral Unit..................................... 8
ARTICLE IV....................................................................... 8
DEFERRED COMPENSATION ACCOUNTS............................................... 8
4.1 Accounts........................................................ 8
4.2 Elective Deferred Compensation.................................. 8
4.3 Crediting Rate.................................................. 8
4.4 Determination of Accounts....................................... 8
4.5 Vesting of Accounts............................................. 8
4.6 Statement of Accounts........................................... 9
4.7 Retirement Plan Make-Up......................................... 9
4.8 Retirement Savings Plan Make-Up................................. 10
4.9 Retirement Plan and Retirement Savings
Plan Offsets.................................................... 10
ARTICLE V........................................................................ 11
PLAN BENEFITS................................................................ 11
5.1 Plan Benefit.................................................... 11
5.2 Form of Retirement Benefit Payment.............................. 11
5.3 Form of Benefit Payment Upon Termination
of Employment................................................... 12
5.4 Survivor Benefits............................................... 12
5.5 Early Distributions............................................. 14
5.6 Hardship Distributions.......................................... 14
5.7 Disability...................................................... 14
5.8 Valuation and Settlement........................................ 15
5.9 Change in Control and Lump Sum Payments......................... 15
5.10 Continuous Service.............................................. 16
5.11 Distributions from General Assets............................... 17
5.12 Withholding and Payroll Taxes................................... 17
5.13 Payment to Guardian............................................. 17
5.14 Small Benefit................................................... 17
5.15 Protective Provisions........................................... 17
5.16 Notices and Elections........................................... 17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI....................................................................... 18
DESIGNATION OF BENEFICIARY................................................... 18
6.1 Designation of Beneficiary...................................... 18
6.2 Failure to Designate Beneficiary................................ 18
ARTICLE VII...................................................................... 18
FORFEITURES TO COMPANY....................................................... 18
7.1 Distributions of Participants' Interests
When Company is Unable to Locate
Distributees.................................................... 18
ARTICLE VIII..................................................................... 18
MAINTENANCE OF ACCOUNTS...................................................... 18
ARTICLE IX....................................................................... 19
AMENDMENT AND TERMINATION OF THE PLAN........................................ 19
9.1 Amendment....................................................... 19
9.2 Company's Right to Terminate.................................... 19
ARTICLE X........................................................................ 20
SPENDTHRIFT PROVISIONS....................................................... 20
ARTICLE XI....................................................................... 20
MISCELLANEOUS................................................................ 20
11.1 Right of Employers to Dismiss Employees;
Obligations..................................................... 20
11.2 Title to and Ownership of Assets Held
for Accounts.................................................... 20
11.3 Nature of Liability to Participants............................. 20
11.4 Text of Plan to Control......................................... 20
11.5 Law Governing and Severability.................................. 20
11.6 Name............................................................ 21
11.7 Gender.......................................................... 21
11.8 Trust Fund...................................................... 21
11.9 Ineligible Participant.......................................... 21
</TABLE>
(iii)
<PAGE> 5
MELLON BANK CORPORATION
-----------------------
ELECTIVE DEFERRED COMPENSATION PLAN
-----------------------------------
FOR SENIOR OFFICERS
-------------------
(Amended and Restated as of June 1, 1994)
PREAMBLE
--------
The purpose of this Elective Deferred Compensation Plan For Senior
Officers (the "Plan") is to provide opportunities for a select group of
management or highly compensated employees of Mellon Bank Corporation (the
"Company") and its Subsidiaries to accumulate supplemental funds for
retirement, special needs prior to retirement, or death. The Plan will be
effective as of November 1, 1989.
The Company hereby declares that its intention is to create an unfunded
Plan primarily for the purpose of providing a select group of management or
highly compensated employees of the Company and of its affiliated organizations
with deferred compensation in accordance with their individual elections. It is
also the intention of the Company that the Plan be an "employee pension benefit
plan" as defined in Section 3(2) of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA") and that the Plan be the type of plan described
in Sections 201(2), 301(3) and 401(a)(1) of Title I of ERISA. The Corporate
Benefits Committee ("Committee" or "CBC") shall be the administrator
responsible for fulfilling the duties and responsibilities imposed
upon "administrators" of plans subject to Parts 1 and 5 of Title 1 of ERISA.
ARTICLE I
DEFINITIONS
-----------
When used herein, the following words shall have the following meanings
unless the content clearly indicates otherwise:
1.1 Account. "Account" means the device used by the Company to
measure and determine the amounts to be paid to a Participant under the Plan
for each Deferral Unit. Separate Accounts will be established for amounts
deferred by a Participant under separate Deferral Units.
1.2 Beneficiary. "Beneficiary" means the person who under this
Plan becomes entitled to receive a Participant's interest in the event of his
death.
<PAGE> 6
1.3 Board. "Board" means the Board of Directors of the Company or
any committee thereof acting within the scope of its authority.
1.4 Committee. "Committee" means the Corporate Benefits Committee
appointed to administer the Plan pursuant to Article II.
1.5 Company. "Company" means Mellon Bank Corporation, a
Pennsylvania corporation, and any successor in interest.
1.6 Continuous Service. "Continuous Service" means the period of
continuous employment of a Participant by an Employer determined in accordance
with Section 5.10.
1.7 Deferral Commitment or Deferral Unit. "Deferral Commitment"
or "Deferral Unit" means a deferral commitment made by a Participant to
establish a deferral unit pursuant to Article III for which a Participation
Agreement has been submitted by the Participant to the Committee.
1.8 Deferral Period. "Deferral Period" means the period of one or
four calendar years, as selected by the Participant, over which a Participant
elects to defer base salary or bonuses, or such other period as the Committee
may permit in its discretion. A new Deferral Period shall normally start each
January 1.
1.9 Disability. "Disability" means total and permanent incapacity
of a Participant to perform the usual duties of his employment with his
Employer as determined by his Employer based upon competent medical evidence.
If a Participant makes application for disability benefits under the Employer's
group long term disability plan, as now in effect or as hereafter amended, and
qualifies for such benefits, he shall be presumed to be totally disabled,
subject to the Employer's determination that the disability is such that it may
be regarded as total and permanent in nature.
1.10 Early Distribution. "Early Distribution" means a
distribution prior to Termination of Employment pursuant to Section 5.5.
1.11 Early Retirement. "Early Retirement" means Termination of
Employment of a Participant, other than by reason of death, on or after the
date on which the Participant has attained age fifty-five (55), but has not yet
attained age sixty-five (65).
1.12 Effective Date. "Effective Date" means November 1, 1989.
1.13 Elective Deferred Compensation. "Elective Deferred
Compensation" means the amount of compensation that a Participant elects to
defer pursuant to a Deferral Commitment.
1.14 Employer. "Employer" means the Company or one of its
Subsidiaries.
1.15 Financial Hardship. "Financial Hardship" means an immediate
and substantial financial need of the Participant or Beneficiary, determined by
the Committee on the basis of written information supplied by the Participant
in accordance with such standards as are, from time to time, established by the
Committee.
1.16 Normal Retirement. "Normal Retirement" means Termination of
Employment of a Participant, other than by reason of death, on or after the
date on which the Participant has attained age sixty-five (65).
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<PAGE> 7
1.17 Participant. "Participant" means any individual who is
participating in this Plan as provided in Article III.
1.18 Participation Agreement. "Participation Agreement" means the
agreement submitted by a Participant to the Committee prior to the beginning of
the Deferral Period, with respect to one or more Deferral Commitments made for
such Deferral Period.
1.19 Plan. "Plan" means this "Elective Deferred Compensation Plan
for Senior Officers" as set forth in this document and as the same may be
amended, administered or interpreted from time to time.
1.20 Plan Year. "Plan Year" means each calendar year beginning on
January 1 and ending on December 31.
1.21 Retirement Plan. "Retirement Plan" means the Mellon Bank
Retirement Plan, as presently constituted and as amended from time to time.
1.22 Retirement Savings Plan. "Retirement Savings Plan" means the
Mellon Bank Corporation Retirement Savings Plan, as presently constituted and
as amended from time to time.
1.23 Retirement Savings Plan Augmentation Account. "Retirement
Savings Plan Augmentation Account" means an account established pursuant to
Section 4.8 to enable a Participant to receive Employer matching contributions
which are lost under the Retirement Savings Plan as a result of deferrals under
this Plan.
1.24 Subsidiary. "Subsidiary" means a corporation the majority of
the outstanding voting stock of which is owned, directly or indirectly, by the
Company.
1.25 Termination of Employment. "Termination of Employment" means
termination of a Participant's employment with all Employers and the end of any
contract and severance pay period.
1.26 T-Note Rate. "T-Note Rate" means for each Plan Year the
interest rate which is equivalent to an effective annual yield equal to the 120
month rolling average rate of ten-year United States Treasury Notes as of the
July 31 preceding the applicable Plan Year. This rate will be determined once
each year by an outside source selected by the Company.
1.27 Total Deferral Amount. "Total Deferral Amount" means the
sum of all amounts which the Participant elects to defer during the Deferral
Period with respect to a Deferral Unit, as shown in the Participation Agreement
for the Deferral Unit. Were the Participant dies before completing the Deferral
Commitment for a Deferral Unit, the Total Deferral Amount shall include the
remaining amounts which would have been deferred by the Participant to complete
the Deferral Commitment for the Deferral Unit if the Participant had lived. If
the Participant elected to defer a percentage of base salary or bonus, the
Total Deferral Amount shall be determined based on projecting the base salary
in effect or the bonus most recently paid to the Participant at the time of his
death for the remainder of the Deferral Period. Notwithstanding the foregoing,
whenever a Participant makes a withdrawal from a Deferral Unit or discontinues
future deferrals for a Deferral Unit, the Total Deferral Amount shall be
limited to the actual amounts deferred (less any amounts withdrawn) for the
Deferral Unit.
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<PAGE> 8
1.28 Valuation Date. "Valuation Date" means the last day of each
month, or such other dates as the Committee may determine in its discretion,
which may be either more or less frequent, for the valuation of Participants'
Accounts.
1.29 Window Period. "Window Period" means a period of ten business
days which begins on the third business day fullowing the date of release of
annual or quarterly earnings of the Company and ends on the twelfth business
day following such date, or such other period as the Committee may determine in
its discretion.
1.30 Retirement Plan Make-Up Account. "Retirement Plan Make-Up
Account" means an account established pursuant to Section 4.7 to enable a
Participant to receive a supplemental pension benefit in installment payments,
beginning when the Participant's retirement benefit commences under the
Retirement Plan.
ARTICLE II
ADMINISTRATION
--------------
2.1 Administrator. Except as hereinafter provided, the Committee
shall be responsible for the administrative responsibilities hereinafter
described with respect to the Plan. Whenever any action is required or
permitted to be taken in the administration of the Plan, such action shall be
taken by the Committee unless the Committee's power is expressly limited herein
or by operation of law. The Committee shall be the Plan "Administrator" (as
such term is defined in Section 3(16)(A) of ERISA). The Committee may delegate
its duties and responsibilities as it, in its sole discretion, deems necessary
or appropriate to the execution of such duties and responsibilities. The
Committee as a whole or any of its members may serve in more than one capacity
with respect to the Plan.
2.2 Powers and Duties. The Committee, or its delegates, shall
maintain and keep (or cause to be maintained and kept) such records as are
necessary for the efficient operation of the Plan or as may be required by any
applicable law, regulation, or ruling and shall provide for the preparation and
filing of such forms, reports, information, and documents as may be required to
be filed with any governmental agency or department and with the Plan's
Participants and/or other Beneficiaries.
Except to the extent expressly reserved to the Company, an Employer or
the Board, the Committee shall have all powers necessary to carry out the
administrative provisions of the Plan and to satisfy the requirements of any
applicable law or laws. These powers shall include, by way of illustration and
not limitation, the exclusive powers and discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of
eligibility; decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any benefits
hereunder;
(b) direct the Employer, and/or the trustee of any trust
established at the discretion of the Company to provide for the payment of
benefits under the Plan, concerning the amount, time, manner, method, and mode
of payment of any benefits hereunder;
(c) prescribe procedures to be followed and forms to be used
by Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required
by law or as thc Committee deems appropriate, information explaining the Plan;
provided, however, that
-4-
<PAGE> 9
no such explanation shall contravene the terms of this Plan or increase
the rights of any Participant or Beneficiary or the liabilities of the Company
or any Employer;
(e) require from the Employer and Participants such
information as shall be necessary for the proper administration of the Plan;
(f) appoint and retain individuals to assist in the
administration and construction of the Plan, including such legal, clerical,
accounting, and actuarial services as it may require or as may be required by
any applicable law or laws; and
(g) perform all functions otherwise imposed upon a plan
administrator by ERISA which are not expressly reserved to the Company, an
Employer, or the Board, including, but not limited to, those supplemental
duties and responsibilities described in the "Mellon Bank Corporation
Corporate Benefits Committee Charter and Summary of Operations" approved by
the Board on September 17, 1991 (the "CBC" Charter").
Without intending to limit the generality of the foregoing, the
Committee shall have the power to amend the Plan, in whole or in part, in order
to comply with applicable law; provided, however, that no such amendment may
increase the duties and obligations of any Employer without the consent of the
affected Employer(s). Except as provided in the preceding sentence or unless
directed by the Human Resources Committee of the Board or otherwise required by
law, the Committee shall have no power to adopt, amend, or terminate the Plan,
said powers being exclusively reserved to the Human Resources Committee of the
Board.
2.3 Procedures. The Committee shall be organized and conduct its
business with respect to the Plan in accordance with the organizational and
procedural rules set forth in the CBC Charter.
Notwithstanding the foregoing, if any member of the Committee shall be
a Participant hereunder, then in any matters affecting any member of the
Committee in his individual capacity as a Participant hereunder, separate and
apart from his status as a member of the group of Participants, such interested
member shall have no authority to vote in the determination of such matters as
a member of the Committee, but the Committee shall determine such matter as if
said interested member were not a member of the Committee; provided, however,
that this shall not be deemed to take from said interested member any of his
rights hereunder as a Participant. If the remaining members of the Committee
should be unable to agree on any matter so affecting an interested member
because of an equal division of voting, the Human Resources Committee of the
Board shall appoint a temporary member of the Committee in order to create an
odd number of voting members.
2.4 Establishment of Rules. The Committee shall have specific
authority in its sole discretion to construe and interpret the terms of the
Plan related to its powers and duties, and to the extent that the terms of the
Plan are incomplete, the Committee shall have authority to establish such rules
or regulations related to its powers and duties as it may deem necessary and
proper to carry out the intent of the Company as to the purposes of the Plan.
2.5 Limitation of Liability. The Board, the members of the
Committee, and any officer, employee, or agent of the Company or any Employer
shall not incur any liability individually or on behalf of any other
individuals or on behalf of the Company or any Employer for any act, or failure
to act, made in good faith in relation to the Plan. No bond or other security
shall be required of any such individual solely on account of any such
individual's power to direct the Employer to make the payments required
hereunder.
-5-
<PAGE> 10
2.6 Compensation and Insurance. Members of the Committee shall
serve without compensation for their services as such. Expenses incurred by
members of the Committee in the performance of their duties as herein provided,
and the compensation and expenses of persons retained or employed by the
Committee for services rendered in connection with the Plan shall, upon
approval by the Committee, be paid or reimbursed by the Company.
The Company shall indemnify and/or maintain and keep in force insurance
in such form and amount as may be necessary in order to protect the members of
the Committee, their delegates and appointees (other than persons who are
independent of the Company and are rendering services to the Committee or to
or with respect to the Plan) from any claim, loss, damage, liability, and
expense (including costs and attorneys' fees) arising from their acts or
failures to act with respect to the Plan, except where such actions or failures
to act involve willful misconduct or gross negligence.
2.7 Removal and Resignation. Any member of the Committee may
resign and the Company may remove any member of the Committee in accordance
with the procedures established by the CBC Charter. The Committee shall remain
fully operative pending the filling of any vacancies, the remaining Committee
members having full authority to administer the Plan.
2.8 Claims Procedure. The right of any Participant or Beneficiary
to receive a benefit hereunder and the amount of such benefit shall be
determined in accordance with the procedures for determination of benefit
claims established and maintained by the Committee in compliance with the
requirements of Section 503 of ERISA; which separate procedures, entitled
Procedures for Determination of Benefit Claims, are incorporated herein by this
reference.
ARTICLE III
PARTICIPATION AND DEFERRAL COMMITMENTS
--------------------------------------
3.1 Eligibility and Participation.
(a) Eligibility. Eligibility to make a Deferral
Commitment shall be limited to senior officers of the Company or its
Subsidiaries as determined by the Human Resources Committee of the Board.
(b) Participation. An eligible individual may elect to
participate in the Plan by submitting a Participation Agreement to the
Committee prior to such date preceding the Deferral Period as the Committee
may determine.
3.2 Basic Forms of Deferral; Minimum Deferral. A Participant may
elect in a Participation Agreement to establish any or all of the following
Deferral Units:
(a) Salary Deferral Unit. A Participant may elect to
defer a portion of base salary for the Deferral Period. The amount to be
deferred shall be stated as a whole number percentage or dollar amount of
base salary.
(b) Bonus Deferral Unit. A Participant may elect to
defer cash bonus amounts to be paid by the Employer in the Deferral Period.
The amount to be deferred shall be stated as a whole number percentage or
dollar amount of such cash bonus.
(c) Special Deferral Unit. A Participant may elect any
special Deferral Commitment which is authorized by the Committee in its
discretion, including a future Deferral Commitment under which deferrals will
commence at some date in the future.
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<PAGE> 11
3.3 Limitations on Deferrals. The following limitations on
deferrals shall apply.
(a) Minimum Deferrals. The minimum combined annual
deferrals of salary and bonus for all Deferral Units which commence in the same
Plan Year shall be $8,000 for a one year Deferral Period and $2,000 per year
for a four year Deferral Period.
(b) Maximum Deferrals. A Participant may not defer
during any Plan Year any amount of base salary which is below the taxable wage
base under Section 3121 (x)(1) of the Internal Revenue Code in effect on the
first day of the Plan Year.
(c) Waiver; Committee Discretion. The Committee may
further limit the minimum or maximum amount deferred by any Participant or
group of Participants, or waive the foregoing minimum and maximum limits for
any Participant or group of Participants, for any reason.
3.4 Completion of Deferral Commitments; Limited by Termination of
Employment. If a Participant's base salary or bonus is inadequate to meet his
Deferral Commitment, the balance of the Deferral Commitment will be deferred
over up to three years following the Deferral Period. A Participant's Deferral
Commitments shall terminate upon the Participant's Termination of Employment.
3.5 Modification of Deferral Commitments. Deferral Commitments
shall be irrevocable except as follows:
(a) Financial Hardship. The Committee may permit a
Participant to reduce the amount to be deferred, or waive the remainder of the
Deferral Commitment, upon a finding that the Participant has suffered a
Financial Hardship.
(b) Accelerated Deferral. At the discretion of the
Committee, prior to the beginning of any Plan Year in any Deferral Period as
to which there are two or more Plan Years remaining, a Participant may elect
in a written notice filed with the Committee to increase the amount of the
compensation deferral otherwise provided for any of the Plan Years remaining
in such Deferral Period; provided, however, that any such increase in the
compensation deferral for any remaining Plan Years in the Deferral Period
shall not increase the total deferrals for all Deferral Units above the
maximum limits set forth in Section 3.3.
(c) Election to Revoke Deferral Unit to Discontinue
Future Deferrals. At the discretion of the Committee, prior to the beginning of
any Plan Year in any Deferral Period, a Participant may elect in a written
notice filed with the Committee to revoke a Deferral Unit in order to
discontinue all future deferrals for the Deferral Unit beginning with the next
Plan Year after the election is made. Such election will not apply to any
deferrals which represent payments for services performed prior to the
beginning of the next Plan Year, but otherwise will apply to all future
deferrals for the Deferral Unit. An election to revoke a Deferral Unit will also
apply to any later Deferral Unit which is added or tacked on to the original
Deferral Unit, as determined by the Committee in its discretion.
After a Participant elects to discontinue future
deferrals for a Deferral Unit, the Deferral Unit will continue to be credited
with interest on the Account balance for the Deferral Unit at the same rates
provided under the Plan for other Deferral Units, but the Total Deferral Amount
which is used to determine pre-retirement survivor benefits will be limited to
the actual amounts deferred for the Deferral Unit. Any Participant who revokes a
Deferral Unit after the beginning of the Deferral Period for the Deferral Unit
will not be permitted to participate in the next enrollment period under the
Plan and will be precluded from electing new
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<PAGE> 12
Deferral Units under the Plan for a minimum period of one year following the
revocation election.
3.6 Enrollment in Deferral Unit. A Participant shall be deemed
to be enrolled in a Deferral Unit as of the first day of the Deferral Period
with respect to such Deferral Unit. A Participant's Beneficiary will be
entitled to receive pre-retirement survivor benefits pursuant to Section 5.4(a)
with respect to the Deferral Unit only in the event of the Participant's death
while in employment with an Employer on or after such date.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
------------------------------
4.1 Accounts. For record-keeping purposes only, Accounts shall be
maintained for each Participant. Separate Accounts shall be maintained for each
Deferral Unit of a Participant.
4.2 Elective Deferred Compensation. A Participant's Elective
Deferred Compensation shall be credited to the Participant's Account as of the
date when the corresponding non-deferred portion of the compensation is paid or
would have been paid but for the Deferral Commitment. Any withholding of taxes
or other amounts with respect to deferred compensation that is required by
federal, state or local law shall be withheld from the Participant's
non-deferred compensation to the maximum extent possible with any excess being
withheld from the Participant's Deferral Commitment or Account.
4.3 Crediting Rate. The Accounts shall be credited monthly with
interest based on the rates specified below, compounded annually. Interest
shall be credited as of each Valuation Date from the dates when deferred
amounts are credited to Accounts based on the balance of each Account.
(a) Interest Rate During Participant's Lifetime. During
a Participant's lifetime, the Participant's Accounts will be credited with
interest on a monthly basis during each Plan Year at the T-Note Rate which is
applicable for that Plan Year, subject to increase pursuant to Section 5.1.
(b) Interest Rate After Participant's Death. Following a
Participant's death, the Participant's Accounts will be credited with interest
on a monthly basis during each Plan Year at the T-Note Rate which is applicable
for that Plan Year. Notwithstanding the preceding sentence, no interest shall
be credited on a Participant's Account following the Participant's death
whenever the Participant's Beneficiary receives a pre-retirement survivor
benefit equal to forty percent (40%) of the Total Deferral Amount for the
Deferral Unit with respect to such Account pursuant to the first paragraph of
Section 5.4(a).
4.4 Determination of Accounts. A Participant's Account as of each
Valuation Date shall consist of the balance of the Participant's Account as of
the immediately preceding Valuation Date, plus the Participant's Elective
Deferred Compensation and interest credited to such Account and minus any
distributions made from such Account since the immediately preceding Valuation
Date.
4.5 Vesting of Accounts. Each Participant shall be one hundred
percent (100%) vested at all times in the amounts credited to such
Participant's Accounts.
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<PAGE> 13
4.6 Statement of Accounts. The Company shall submit to each
Participant semi-annual statements setting forth the balance to the credit of
the Accounts maintained for the Participant.
4.7 Retirement Plan Make-Up. If a Participant is entitled to
receive a benefit under the Retirement Plan, a supplemental pension benefit
shall be paid under this Plan as follows:
(a) The supplemental pension benefit shall be an amount
equal to:
(i) The maximum life annuity to which the Participant would be
entitled under the Retirement Plan if the Participant had not deferred
amounts under this Plan (without regard to the application of the
compensation limitation imposed by Section 401(a)(17) of the Internal
Revenue Code or the benefit limitation imposed by Section 415 of the
Internal Revenue Code);
LESS:
(ii) The maximum life annuity to which the Participant would
then be entitled under the Retirement Plan (without regard to the
application of the compensation limitation imposed by Section 401
(a)(17) of the Internal Revenue Code or the benefit limitation imposed
by Section 415 of the Internal Revenue Code).
Notwithstanding the above, no payment shall be made under
this Plan to the extent such benefits are paid by any other nonqualified
defined benefit retirement plan or arrangement sponsored by the Employer.
(b) The Employer shall pay the supplemental pension benefit
to the Participant in a lump sum when the Participant's benefit commences
under the Retirement Plan. Upon a Participant's Termination of Employment
before Normal or Early Retirement, at the Committee's discretion the Employer
may pay the supplemental pension benefit to the Participant in a lump sum as
soon as practicable following such Termination of Employment. The lump sum
amount shall be calculated using the actuarial equivalence factors in the
Retirement Plan applicable to benefits accruing thereunder at the date of
payment, or the factors in effect at the time of the Retirement Plan's
termination if such termination occurs prior to the date of payment.
(c) In lieu of a lump sum, a Participant may elect to
receive the supplemental pension benefit after Normal or Early Retirement in
monthly installment payments over a payment period of 60, 120 or 180 months. An
election to receive the supplemental pension benefit in monthly installment
payments shall be made in the same manner and subject to the same restrictions
and penalties as provided in Section 5.2; provided, however, that Section
5.2(b)(iii) shall not apply, and payments of the supplemental pension benefit
shall commence when the Participant's retirement benefit commences under the
Retirement Plan.
If the Participant elects to receive the supplemental
pension benefit in monthly installment payments, the Employer shall establish
a Retirement Plan Make-Up Account when the Participant's retirement benefit
commences under the Retirement Plan and shall credit to this Account the lump
sum amount of the supplemental pension benefit which would otherwise have been
paid to the Participant under Section 4.7(b) above. A participant shall be
100% vested in the amount credited to his Retirement Plan Make-Up Account.
Interest will be credited on a Retirement Plan Make-Up Account at the same
rate as other Accounts in accordance with Section 4.3 at such times and in
such manner as the Committee may determine.
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<PAGE> 14
If a Participant dies after the commencement of monthly installment
payments of the supplemental pension benefit, the Employer will pay to the
Participant's Beneficiary the remaining installments of any such benefit that
would have been paid to the Participant had the Participant survived. After
the Participant's death, interest shall be credited on the Retirement Plan
Make-Up Account for each Plan Year at one hundred percent (100%) of the T-Note
Rate which is applicable for that Plan Year.
A Participant or Beneficiary who is receiving monthly installment
payments of the supplemental pension benefit may request hardship distributions
in accordance with Section 5.6 or may elect to receive a payment in a lump sum
in accordance with and subject to a penalty as provided in Section 5.9(b).
4.8 Retirement Savings Plan Make-Up. For each Plan Year in a
Deferral Period, the Employer shall credit to the Retirement Savings Plan
Augmentation Account of any Participant an amount equal to the amount by which
the Employer matching or discretionary contribution that would otherwise have
been made by any Employer to the Retirement Savings Plan for such Participant
for the Plan Year is reduced by reason of the reduction in the Participant's
compensation for the Plan Year due to deferrals under this Plan. The Employer's
contribution shall be credited to the Retirement Savings Plan Augmentation
Account following the end of each Plan Year. A Participant's interest in any
credit to his Retirement Savings Plan Augmentation Account and earnings thereon
shall vest at the same rate and at the same time as would have been the case
had such contribution been made to the Retirement Savings Plan. Interest will
be credited on a Retirement Savings Plan Augmentation Account at the same rate
as other Accounts in accordance with Section 4.3 at such times and in such
manner as the Committee may determine.
Upon Normal or Early Retirement, Disability, death or other Termination
of Employment, the Employer shall pay to the Participant (or his Beneficiary in
the event of the Participant's death) an amount equal to the value of the
Participant's vested balance in his Retirement Savings Plan Augmentation
Account in one lump sum payment.
Participants who in any Plan Year are not entitled to receive an
Employer contribution in the Retirement Savings Plan will not be entitled to
receive an Employer contribution under this Plan to a Retirement Savings Plan
Augmentation Account for such Plan Year.
4.9 Retirement Plan and Retirement Savings Plan Offsets. If a
Participant receives benefits under this Plan, including Early Distributions
under Section 5.5 or hardship distributions under Section 5.6, and the
distribution of benefits under this Plan results in an increase in either (i)
the pension benefit which will be payable to the Participant under the
Retirement Plan or any other qualified or non-qualified defined benefit plan or
arrangement of an Employer or (ii) the Employer contributions which will be
made on behalf of the Participant under the Retirement Savings Plan or any
other qualified or non-qualified defined contribution plan or arrangement of an
Employer, an adjustment will be made to reduce the Participant's Account
balance under this Plan in order to offset the increase in his benefits under
such other plans and arrangements.
The Participant's Account balance under this Plan shall be reduced upon
his Termination of Employment by a lump sum amount which is actuarially
equivalent to the increased pension benefits which will be payable to the
Participant under the Retirement Plan and any other qualified or non-qualified
defined benefit plan or arrangement of an Employer on account of the
distribution of benefits under this Plan. The lump sum amount shall be
calculated using the actuarial equivalence factors in the Retirement Plan
applicable to benefits accruing
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<PAGE> 15
thereunder at the date of the Participant's Termination of Employment, or the
factors in effect at the time of the Retirement Plan's termination if such
termination occurs prior to the Participant's Termination of Employment.
The Participant's Account balance under this Plan shall also be reduced
as of the end of each Plan Year by a lump sum amount which is equal to the
increased Employer contributions which were made on behalf of the Participant
for such Plan Year under the Retirement Savings Plan or any other qualified or
non-qualified defined contribution plan or arrangement of an Employer on
account of the distribution of benefits under this Plan.
ARTICLE V
PLAN BENEFITS
-------------
5.1 Plan Benefit. If a Participant has a Termination of Employment
for any reason including Disability or death, the Company shall pay a Plan
benefit for each Deferral Unit equal to the Participant's Account for the
Deferral Unit, as determined below:
(a) Upon Normal Retirement or Death or After Change in
Control. Unpaid balances of Accounts of Participants who have a Termination of
Employment upon Normal Retirement, death or at any time after a Change in
Control shall be credited retroactively with one hundred thirty-five percent
(135%) of the T-Note Rate for each Plan Year.
(b) Upon Termination of Employment Before Normal
Retirement Prior to a Change in Control. Unpaid balances of Accounts of
Participants who have a Termination of Employment before Normal Retirement and
prior to a Change in Control, for reasons other than death, shall be credited
retroactively with a percentage of the T-Note Rate based on the Participant's
completed years of Continuous Service from his date of hire, including
years of Continuous Service before the Effective Date of this Plan, and his
Completed Years of Participation in this Plan as follows:
<TABLE>
<CAPTION>
Completed Years of Completed Years of
Continuous Service Plan Participation % of T-Note Rate
- ------------------ ------------------ ----------------
<S> <C> <C> <C>
Less Than 3 -- 100%
3 or More -- 125%
5 or More and 2 or More 130%
7 or More and 4 or More 135%
</TABLE>
(c) Completed years of Plan participation. Completed
years of participation in this Plan shall include all years for which the
Participant had an Account balance with the Plan for the entire calendar year.
(d) Duration. The interest rates provided under
paragraphs (a) and (b) above shall be payable until the Participant's Accounts
are distributed in full except in the event of the Participant's death. After
the Participant's death interest shall be credited pursuant to Section 4.3(b).
5.2 Form of Retirement Benefit Payment.
(a) Retirement benefits payable following Normal or
Early Retirement will be paid in accordance with the form elected by the
Participant for each Deferral Unit, at the time of the Deferral Commitment
establishing such Deferral Unit, on an election form prescribed
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<PAGE> 16
by the Committee for designation of form of payment. A Participant's election
will be irrevocable, except as follows:
(i) Subject to the approval of the Committee, a Participant
shall be permitted to file one new election which will supersede his
original election (A) at any time between 24 months and 12 months
preceding his Normal or Early Retirement without penalty and (B) at
any time during the 12 months preceding his Normal or Early Retirement
subject to a penalty, which shall be forfeited to the Company, equal
to six percent (6%) of the balance of the Account for the Deferral
Unit. A new election which is made within the aforesaid time limits
will become effective upon the Participant's Normal or Early
Retirement. A new election which is made more than 24 months before
Normal or Early Retirement, such as where a Participant postpones his
Normal or Early Retirement, shall have no force or effect. In the
event that a Participant accelerates his Normal or Early Retirement
thereby causing a previously filed election to have been made within
12 months preceding Normal or Early Retirement, the six percent (6%)
penalty of Section 5.2(a)(i)(B) above shall apply.
(ii) A Participant who has elected payments in installments may
request in writing a payment in a lump sum, at any time after Normal
or Early Retirement, of the amount of his Account for any Deferral
Unit which is reasonably necessary to meet the Participant's
requirements due to a Financial Hardship.
(iii) A Participant may elect to receive a payment in a lump
sum at any time, subject to a penalty, as provided in Section 5.9(b).
(b) The available forms of payment after Normal or Early
Retirement are as follows:
(i) Lump Sum. A lump sum payment after Normal or Early
Retirement.
(ii) Installment Payments. Monthly installment payments in
substantially equal payments of principal and interest over a payment
period of 60, 120 or 180 months, as elected by the Participant. The
amount of the monthly installments shall be redetermined effective as
of January 1 of each year based on the remaining Account balance and
the remaining number of installment payments. If no election is made,
retirement benefits will be paid in monthly installments over 180
months.
(iii) Deferred Payments. A Participant may elect, in the
election form for designation of form of payment for any Deferral
Unit, to have the lump sum or installment payments which are payable
following Normal or Early Retirement commence in January of the year
following Normal or Early Retirement or when the Participant attains
age 60, 65 or 70.
5.3 Form of Benefit Payment Upon Termination of Employment.
Termination benefits payable upon a Participant's Termination of Employment
before Normal or Early Retirement for reasons other than Disability or death
shall be paid in a lump sum or up to three equal annual installments, at the
Committee's discretion, following Termination of Employment. Interest will
continue to be credited on unpaid Account balances following Termination of
Employment at the applicable rate under Section 5.1(b).
5.4 Survivor Benefits.
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<PAGE> 17
(a) Pre-Retirement Survivor Benefits. If a Participant
dies while in employment with an Employer (or while suffering from a Disability
prior to attaining age 55) prior to complete distribution of the entire Account
balance with respect to a Deferral Unit, upon the Participant's death the
Employer will pay to the Participant's Beneficiary with respect to such
Deferral Unit an annual benefit for ten (10) years or until the Participant
would have been age 65, whichever is longer, equal to forty percent (40%) of
the Total Deferral Amount for the Deferral Unit, in lieu of payments of the
Account balance for the Deferral Unit. This pre-retirement survivor benefit
will become effective for a Deferral Unit beginning on the first day of the Plan
Year after the Participant enters into a Participation Agreement for the
Deferral Unit, but will not apply to any Deferral Unit which commences after
the Participant attains age 66. Whenever a Participant makes a withdrawal from
a Deferral Unit or discontinues future deferrals for the Deferral Unit, the
Total Deferral Amount shall be limited to the actual amounts deferred (less
any amounts withdrawn) for the Deferral Unit. The Committee, in its sole
discretion, will make an appropriate adjustment to reduce the annual amount of
the pre-retirement survivor benefit where the Participant has received a
partial distribution from his Account for the Deferral Unit, including Early
Distributions or Hardship Distributions pursuant to Sections 5.5 and 5.6, prior
to his death.
In lieu of the annual benefit specified in the preceding
paragraph, the Employer will distribute the Account balance for the Deferral
Unit in annual installments over the same period, if the Committee determines
that such benefit is greater. The Committee shall determine which benefit is
greater on a present-value basis using such discount rate as the Committee may
determine, provided that such rate will not be greater than the T-Note Rate
which is applicable for the Plan Year.
The pre-retirement survivor benefit applicable to any
Deferral Unit which commences after the Participant attains age 66 shall be
the Account balance for the Deferral Unit distributed in annual installments
over ten (10) years following the Participant's death.
If a Participant dies while in employment with an
Employer after complete distribution of the entire Account balance with respect
to a Deferral Unit, no survivor benefit will be payable to the Participant's
Beneficiary with respect to such Deferral Unit.
(b) Post-Retirement Survivor Benefits. If a Participant
dies after Early or Normal Retirement but before commencement of payment of
retirement benefits with respect to a Deferral Unit, the Employer will pay to
the Participant's Beneficiary the installments of any such benefit that such
Participant's Beneficiary would have received with respect to such Deferral
Unit had the Participant commenced to receive retirement benefits on the day
prior to such Participant's death. Payments will commence upon the
Participant's death, irrespective of when retirement benefits would have
commenced if the Participant had survived. Such payments shall be made in
accordance with the method of payment which the Participant had elected for
payment of his retirement benefits for the Deferral Unit.
If a Participant dies after the commencement of payment
of retirement benefits with respect to a Deferral Unit, the Employer will pay
to the Participant's Beneficiary the remaining installments of any such
benefit that would have been paid to the Participant had the Participant
survived.
(c) Interest. If the Participant dies during employment
with an Employer, the amount payable with respect to each of the Participant's
Accounts shall be determined by retroactively crediting interest at one
hundred thirty-five percent (135%) of the T-Note Rate for each Plan Year
through the date of the Participant's death. After the Participant's
-13-
<PAGE> 18
death interest shall be credited for each Plan Year at one hundred percent
(100%) of the T-Note Rate which is applicable for that Plan Year.
5.5 Early Distribution. A Participant may elect to receive an
early distribution from his Account for a Deferral Unit prior to Termination of
Employment ("Early Distribution") subject to the following restrictions:
(a) Timing of Election. The election to take an Early
Distribution from an Account for a Deferral Unit must be made at the same time
the Participant elects the form of payment for the Deferral Unit.
(b) Amount of Withdrawal. The amount which a
Participant can elect to receive as an Early Distribution with respect to an
Account for a Deferral Unit may be a fixed dollar amount or any percent up to
one hundred percent (100%) of the Participant's Account balance for the
Deferral Unit. If a fixed dollar amount is elected, and this amount exceeds the
Account balance when an Early Distribution is to be made, only the Account
balance will be paid.
A Participant who elects to withdraw more than seventy-
five percent (75%) of his Account balance for a Deferral Unit must withdraw
his entire Account balance for that Deferral Unit. Following a complete
distribution of thc entire Account balance for a Deferral Unit, a Participant
and his Beneficiary will be entitled to no further benefits under the Plan
with respect to that Deferral Unit.
(c) Timing and Form of Early Distribution. The Early
Distribution shall be paid in a single lump sum at the time elected by the
Participant in the election form in which the Early Distribution option is
elected. In no event shall an Early Distribution for a Deferral Unit be made
prior to seven years following the start of the Deferral Period for the
Deferral Unit. Amounts paid to a Participant pursuant to this Section 5.5
shall be treated as distributions from the Participant's Account.
5.6 Hardship Distributions. Upon finding that a Participant
or Beneficiary has suffered a Financial Hardship, the Committee may, in its sole
discretion, make distributions from an Account prior to the time specified for
payment of benefits under the Plan. The amount of such distributions shall be
limited to the amount reasonably necessary to meet the Participant's or
Beneficiary's requirements during the Financial Hardship. Applications for
hardship distributions and determinations thereon by the Committee shall be in
writing, and a Participant or Beneficiary may be required to furnish written
proof of the Financial Hardship.
The entire Account balance for a Deferral Unit will be
distributed whenever a hardship distribution would amount to more than
seventy-five percent (75%) of the Account balance for the Deferral Unit.
Following a complete distribution of the entire Account balance for a
Deferral Unit, a Participant and his Beneficiary will be entitled to no
further benefits under the Plan with respect to that Deferral Unit. Amounts
paid to a Participant pursuant to this Section 5.6 shall be treated as
distributions from the Participant's Account.
5.7 Disability. If a Participant suffers a Disability, the
Participant's Deferral Commitments will cease except for any bonuses which may
be payable thereafter. The Participant's Accounts under the Plan will continue,
and the Participant will continue to receive credit for years of Continuous
Service and years of participation in the Plan for purposes of Section 5.1(b).
The Participant's Account for each Deferral Unit will be distributed in
accordance with the method of payment which the Participant has elected for
payment of Early Retirement benefits and/or Early Distributions with respect to
the Deferral Unit. Notwithstanding the foregoing, such distribution may be
delayed if the Committee determines
-14-
<PAGE> 19
that such distribution would result in a reduction of any disability benefits
payable to the Participant under disability plans sponsored by the Employer.
The Committee shall make appropriate adjustments on account of any delayed
payments to ensure that the Participant receives payments which are
actuarially equivalent to the payments which were otherwise due to him under
this Plan.
5.8 Valuation and Settlement. The date on which a lump sum is
paid or the date on which installment payments commence shall be the
"Settlement Date." The Settlement Date for a Deferral Unit shall be no more
than sixty (60) days after the last month in which the Participant or his
Beneficiary becomes entitled to payments on account of Normal or Early
Retirement, other Termination of Employment or death, unless the Participant
elects to defer commencement of payments following Normal or Early Retirement
to a later date in the election form for designation of form of payment for the
Deferral Unit. The Settlement Date for an Early Distribution or delayed
payments following Normal or Early Retirement shall be the month which the
Participant elects for commencement of such payments in the election form for
designation of form of payment for the Deferral Unit. The amount of a lump sum
payment and the initial amount of installment payments for a Deferral Unit
shall be based on the value of the Participant's Account as of the Valuation
Date at the end of the immediately preceding month before the Settlement Date.
For example, the Valuation Date at the end of December shall be used to
determine lump sum payments and the initial amount of installment payments
which will be made in the following January.
5.9 Change in Control and Lump Sum Payments.
(a) Subject to the provisions of Section 5.9(b) hereof,
upon (i) dissolution on liquidation of the Company, (ii) a reorganization,
merger or consolidation of the Company with one or more corporations as a
result of which the Company is not the surviving corporation, (iii) the sale
of all or substantially all the assets of the Company, or (iv) any other
event which constitutes a Change in Control is defined in Section 5.9(c), the
interests of all then remaining Participants shall continue, and provisions
shall be made in connection with such transaction for the continuance of the
Plan and the assumption of the obligations of the Company under the Plan by
the Company's successor(s) in interest.
(b) Notwithstanding any other provisions of the Plan,
at any time during a Window Period before a Change in Control or at any time
after a Change in Control a Participant or a Beneficiary of a deceased
Participant may elect to receive an immediate lump sum payment of the balance
of his Account(s) for any Deferral Unit(s), reduced by a penalty, which shall
be forfeited to the Company, equal to ten percent (10%) before a Change in
Control or six percent (6%) after a Change in Control of the balance of such
Account(s), in lieu of payments in accordance with the form previously elected
by the Participant. However, the penalty shall not apply if the Committee
determines, based on advice of counsel or a final determination by the
Internal Revenue Service or any court of competent jurisdiction, that by
reason of the foregoing provision the Participant has recognized or will
recognize gross income for federal income tax purposes under this Plan in
advance of payment to him of Plan benefits.
A Participant who receives a lump sum payment for a
Deferral Unit will be credited with interest on the Account balance for the
Deferral Unit at the rates established under Section 5.1(b) of the Plan based
on the Participant's completed years of Service and years of participation in
the Plan prior to the lump sum payment. Following a complete distribution of
the entire Account balance for a Deferral Unit, a Participant and his
Beneficiary will be entitled to no further benefits under the Plan with
respect to that Deferral Unit. Whenever a Participant receives a lump sum
payment under this Section 5.9(b) or Section 9.1, the Participant will be
deemed to elect to revoke all Deferral Units and to discontinue all deferrals
under the Plan effective as of the date of the lump sum payment. The
Participant will not be permitted to
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<PAGE> 20
participate in the next enrollment period under the Plan and will be precluded
from electing new Deferral Units under the Plan for a minimum period of one
year following receipt of the lump sum payment.
(c) A "Change in Control" shall mean:
(i) The occurrence with respect to the Company of a "control
transaction," as such term is defined in Section 2542 of the
Pennsylvania Business Corporation Law of 1988, as of August 15, 1989;
or
(ii) Approval by the stockholders of the Company of (A) any
merger or consolidation of the Company in which the holders of voting
stock of the Company immediately before the merger or consolidation
will not own 50% or more of the voting shares of the continuing or
surviving corporation immediately after such 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 the assets of thc Company; or
(iii) A change of 25% (rounded to the next whole person) in the
membership of the Board of Directors of the Company within a 12-month
period, unless the election or nomination for election by stockholders
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.
(d) Notwithstanding any other provision of this Plan,
without the written consent of the Participant (or Beneficiary of a deceased
Participant) affected thereby, the Company may not amend or terminate this Plan:
(i) For a period of twenty-four (24) months following a Change
in Control; or
(ii) At any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives
payments of benefits under this Plan or has a Termination of
Employment for any reason at any time during the period of twenty-four
(24) months following the Change in Control.
5.10 Continuous Service. Continuity of service shall be
determined in accordance with the following rules:
(a) A leave of absence not in excess of one year,
granted by a Participant's Employer for any purpose, including but not limited
to, sickness, accident or other casualty, shall not be considered a break in
continuity of service.
(b) Any Participant who has entered, or enters, the
Armed Forces of the United States in a period of national emergency, declared
by the President or Congress of the United States, shall be presumed to be on
leave of absence, provided he returns to the employ of his Employer within
ninety (90) days of the date on which he shall have the right to release from
such service, or from the hospital in event of service caused disability
without intervening employment elsewhere.
(c) A Participant who transfers his employment from one
Employer to any other Employer is not deemed to have caused a break in
continuity of service. Any other
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<PAGE> 21
dismissal or voluntary Termination of Employment shall be deemed a break in
continuity of service.
(d) Absence from work or interruption of employment not
covered by the foregoing provisions of this Section shall be determined by the
employing Employer to be, or not to be, a break in continuity of service at
the time of return to work or re-employment.
5.11 Distributions from General Assets. The Employer shall make
any or all distributions pursuant to this Plan in cash out of its general
assets.
5.12 Withholding and Payroll Taxes. The Employer shall withhold
from payments made hereunder any taxes required to be withheld from such
payments under federal, state or local law.
5.13 Payment to Guardian. If a benefit is payable to a minor or
a person declared incompetent or to a person incapable of handling the
disposition of his property, the Committee may direct payment of such benefit
to the guardian, legal representative or person having the care and custody of
such minor, incompetent or incapacitated person. The Committee may require
proof of minority, incompetency, incapacity or guardianship as it may deem
appropriate prior to distribution of the benefit. Such distribution shall
completely discharge the Committee from all liability with respect to such
benefit.
5.14 Small Benefit. Notwithstanding any election made by the
Participant, the Committee, in its sole discretion, may direct payment of any
benefit in the form of a lump sum payment to the Participant or any
Beneficiary, if the lump sum amount of the Account balance which is payable to
the Participant or Beneficiary when payments to such Participant or Beneficiary
would otherwise commence is less than either (i) $5,000 for any individual
Account or (ii) $50,000 in the aggregate for all Accounts which are payable to
the Participant or any Beneficiary.
5.15 Protective Provisions. Each Participant shall cooperate
with the Company by furnishing any and all information requested by the Company
in order to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant refuses so to
cooperate or makes any material misstatement of information or nondisclosure of
medical history, then no benefits will be payable hereunder with respect to
that Deferral Unit to such Participant or his Beneficiary, provided that, in
the Company's sole discretion, benefits may be payable in an amount reduced to
compensate the Company for any loss, cost, damage or expense suffered or
incurred by the Company as a result in any way of any such action, misstatement
or nondisclosure.
5.16 Notices and Elections. Any notice or election required or
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing on a form prescribed or accepted by the Committee and
hand delivered, or sent by registered or certified mail, to the principal
office of the Company, directed to the attention of the Human Resources
Department of the Company. Such notice or election shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the date shown on
the postmark on the receipt for registration or certification.
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<PAGE> 22
ARTICLE VI
DESIGNATION OF BENEFICIARY
--------------------------
6.1 Designation of Beneficiary. Each Participant shall have the
right to designate a Beneficiary or Beneficiaries to receive his interest in
each of his Accounts upon his death. Such designation shall be made on a form
prescribed by and delivered to the Company. The Participant shall have the
right to change or revoke any such designation from time to time by filing a
new designation or notice of revocation with the Company, and no notice to any
Beneficiary nor consent by any Beneficiary shall be required to effect any such
change or revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall fail
to designate a Beneficiary before his demise, or if no designated Beneficiary
survives the Participant, the Committee shall direct the Company to pay the
balance in each of his Accounts in a lump sum to the executor or administrator
for his estate; provided, however, if no executor or administrator shall have
been appointed, and actual notice of said death was given to the Committee
within sixty (60) days after his death, and if his Account balances do not
exceed Ten Thousand Dollars ($10,000), the Committee may direct the Company to
pay his Account balances to such person or persons as the Committee determines
may be entitled thereto, and the Committee may require such proof of right
and/or identity of such person or persons as the Committee may deem appropriate
or necessary.
ARTICLE VII
FORFEITURES TO COMPANY
----------------------
7.1 Distribution of Participants' Interest When Company is Unable
to Locate Distributees. In case the Company is unable within three (3) years
after payment is due to a Participant, or within three (3) years after payment
is due to the Beneficiary or estate of a deceased Participant, to make such
payment to him or his Beneficiary, executor or administrator because it cannot
ascertain his whereabouts or the identity or whereabouts of his Beneficiary,
executor or administrator by mailing to the last known address shown on the
Employer's or the Company's records, and neither he, his Beneficiary, nor his
executor or administrator had made written claim therefor before the expiration
of the aforesaid time limit, then in such case, the amount due shall be
forfeited to the Company.
ARTICLE VIII
MAINTENANCE OF ACCOUNTS
-----------------------
The Company shall keep, or cause to be kept, all such books of account,
records and other data as may be necessary or advisable in its judgment for the
administration of this Plan, and properly to reflect the affairs thereof, and
to determine the nature and amount of the interests of the respective
Participants in each Account.
The Company is not required to physically segregate any assets with
respect to the Accounts under this Plan from any other assets of the Company
and may commingle any such assets with any other moneys, securities and
properties of any kind of the Company. Separate accounts or records for the
respective Participants' interests shall be maintained for operational and
accounting purposes, but no such account or record shall be considered as
creating a lien of
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<PAGE> 23
any nature whatsoever on or as segregating any of the assets with respect to
the Accounts under this Plan from any other funds or property of the Company.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
9.1 Amendment. The Human Resources Committee of the Board may at
any time amend the Plan in whole or in part, provided, however, that no
amendment shall be effective to decrease or restrict the amount accrued
(including earnings at the appropriate interest rate) in any Account to the
date of such amendment. Notwithstanding anything in the preceding sentence to
the contrary, the Committee shall have the power to amend the Plan to the
extent authorized by Section 2.2.
Upon a prospective amendment to reduce the formula for determining the
future interest rate, 30 days' advance written notice shall be given to each
Participant. Following such an amendment to reduce the formula for determining
the future interest rate and the giving of notice to the Participant, the
Participant may elect to (i) terminate an ongoing Deferral Commitment without
penalty and/or (ii) receive an immediate lump sum payment of the balance of his
Account(s) for any Deferral Unit(s), reduced by a penalty, which shall be
forfeited to the Employer, equal to six percent (6%) of the balance of such
Account(s), in lieu of payments in accordance with the form previously elected
by the Participant. However, the six percent (6%) penalty shall not apply if it
would not have applied under Section 5.9(b). The Participant may make such an
election by notifying the Committee in writing within sixty (60) days following
receipt of notice of the amendment to reduce the interest rate.
9.2 Company's Right to Terminate. The Human Resources Committee
of the Board may partially or completely terminate the Plan if, in its
judgment, the tax, accounting, or other effects of the continuance of the Plan
or potential payments thereunder would not be in the best interests of the
Company.
(a) Partial Termination. The Human Resources Committee
of the Board may partially terminate the Plan by instructing the Committee
not to accept any additional or ongoing Deferral Commitments. In the event of
such partial termination, the Plan shall continue to operate on the same
terms and conditions and, unless the Human Resources Committee of the Board
instructs the Committee not to accept ongoing Deferral Commitments, shall be
effective with regard to Deferral Commitments entered into prior to the
effective date of such partial termination.
(b) Complete Termination. The Human Resources Committee
of the Board may completely terminate the Plan. In the event of complete
termination, the Plan shall cease to operate, and the Employer shall pay out
to each Participant (or the Beneficiary of a deceased Participant) his
Accounts in either a lump sum payment or up to three equal annual installments,
at the Employer's discretion, as if the Participant had terminated service
as of the effective date of the complete termination. Interest shall continue
to be paid on the balance in each Participant's Account in accordance with
Section 4.3.
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<PAGE> 24
ARTICLE X
SPENDTHRIFT PROVISIONS
----------------------
The Employer shall, except as otherwise provided hereunder, 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 or
corporation whatsoever, so that said payments may not be liable for the debts,
contracts or 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 or proceeds thereof. If the person entitled to receive payment be
a minor, or a person of unsound mind, whether or not adjudicated incompetent,
the Employer, upon direction of the Committee, may make such payments to such
person or persons, corporation or corporations 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 or corporation shall be a full and complete
discharge to the Employer for any such payments.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Right of Employers to Dismiss Employees; Obligations. Neither
the action of the Company and the Employers in establishing this Plan, nor any
provisions of this Plan, shall be construed as giving any employee the right to
be retained in his Employer's employ, or any right to any payment whatsoever
except to the extent of the benefits provided for by this Plan. The Employers
expressly reserve their right at any time to dismiss any employee without any
liability for any claim against the Employers, or any of them, for any payment
whatsoever except to the extent provided for in this Plan. The Employers, or
any of them, have no obligation to create any other or subsequent deferred
compensation plan for any employees.
11.2 Title to and Ownership of Assets Held for Accounts. Title to
and ownership of all assets held for any Accounts shall be vested in the
Employer and shall constitute general assets of the Employer.
11.3 Nature of Liability Participants. Any and all payments
required to be made by the Employer to Participants in the Plan shall be
general and unsecured liabilities of the Employer.
11.4 Text of Plan to Control. The headings of the Articles and
Sections 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 information regarding the Plan, the terms of this Plan
document shall apply and control.
11.5 Law Governing and Severability. This Plan shall be construed,
regulated and administered under 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
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<PAGE> 25
Plan shall be deemed to be modified to the least extent possible to make it
valid and enforceable in its entirety.
11.6 Name. This Plan may be referred to as the "Mellon Bank
Corporation Elective Deferred Compensation Plan for Senior Officers."
11.7 Gender. The masculine gender shall include the feminine, and
the singular shall include the plural, except when the context expressly
dictates otherwise.
11.8 Trust Fund. The Employer shall be responsible for the
payment of all benefits provided under the Plan. At its discretion, the Company
may establish one or more trusts, with such trustees as the Board or the
Committee may approve, for the purpose of providing for the payment of such
benefits. Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Company's creditors. To the extent any benefits
provided under the Plan are actually paid from any such trust, the Employer
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
Employer.
11.9 Ineligible Participant. Notwithstanding any other provisions
of this Plan to the contrary, if any Participant is determined not to be a
"management or highly compensated employee" within the meaning of ERISA or
Regulations thereunder, such Participant will not be eligible to participate in
this Plan and shall receive an immediate lump sum payment equal to the vested
portion of the amounts standing credited to his Accounts. Upon such payment no
survivor benefit or other benefit shall thereafter be payable under this Plan
either to the Participant or any Beneficiary of the Participant.
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EX - 10.19
THE DREYFUS CORPORATION
1989 NON-QUALIFIED STOCK OPTION PLAN
There is hereby established the 1989 Non-Qualified Stock Option Plan (the
"Plan") of The Dreyfus Corporation. The Plan provides for the grant to key
employees and key consultants who render services to such Corporation or a
subsidiary thereof of options to purchase shares of the common stock of the
Corporation and for the issuance of such common stock upon the exercise of such
options.
1. Purpose:
The purpose of the Plan is to provide an incentive to key employees and
key consultants who render services to the Company, who are primarily
responsible for the management and growth of the Company, or otherwise
materially contribute to the conduct and direction of its business, operations
and affairs, in order to strengthen their desire to remain in the service of the
Company, stimulate their efforts on behalf of the Company and to retain and
attract persons of competence, and, by encouraging ownership of a stock
interest in the Company, to gain for the organization the advantages inherent
in key employees and key consultants who render services to the Company having
a sense of proprietorship.
2. Definitions:
The term "Board" shall mean the Board of Directors of the Corporation.
The term "Committee" shall mean the Audit/Compensation Committee of the
Board or such other committee as may be designated by the Board. The Committee
shall consist of three or more members of the Board, and its members shall not
be eligible to receive grants of Options.
The term "common stock" shall mean the common stock, par value $.10 per
share, of the Corporation. The term "Common Stock" shall mean not in excess
of 1,750,000 shares of common stock that may be subject to Options under the
Plan, subject to adjustment in accordance with Article 5(g).
The term "Company" shall mean the Corporation and any existing or future
subsidiary thereof.
The term "consultants" shall mean persons other than employees who are
retained by the Company to perform services on its behalf, acting as
independent contractors.
The term "Corporation" shall mean The Dreyfus Corporation, a New York
corporation.
The term "date of grant" shall mean the date upon which the Committee
approves the grant of an Option, regardless of the date upon which an Option
agreement is executed or other documents delivered.
The term "employees" shall mean employees of the Company, including
officers and employees who are also directors.
The term "fair market value" shall mean, at any date, the mean of the
high and low sales prices of common stock of the Corporation on the New York
Stock Exchange, or if not traded on such Exchange on such date, such mean on
the last prior date upon which such common stock traded on such Exchange, or if
not then listed on such Exchange, as reported by any other exchange or by
NASDAQ, or if such common stock is not then traded on a public market, the book
value thereof at the end of the last prior calendar quarter.
The term "Options" shall mean rights granted pursuant to the Plan to
purchase shares of Common Stock.
The term "Optionee" shall mean a person to whom an Option has been
granted, which option has not been exercised in full and remains subject to
exercise, even if not immediately exercisable.
The term "subsidiary" shall mean any corporation 50% or more of the
total combined voting power of all classes of stock of which is owned directly
or through one or more other subsidiaries by the Corporation, and any
partnership, trust or joint venture in which the Corporation owns directly or
through one or more other subsidiaries a majority of the active controlling
interest.
3. The Stock:
The aggregate number of shares of common stock which may be issued,
transferred or sold upon the exercise of Options granted under the Plan shall
not, except as such number may be adjusted in accordance with Article 5(g)
hereof, exceed 1,750,000 shares of Common Stock. Shares issued on exercise of
Options may be either authorized but unissued
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<PAGE> 2
or treasury shares. If any Option granted under the Plan shall expire,
terminate or be cancelled prior to its exercise in full, the number of shares
for which such Option had not been exercised shall again be available to be
granted pursuant to the Plan, subject to Article 5(c) hereof.
4. Administration of the Plan:
The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to it,
to determine the terms and provisions of Options and Option agreements, and
to make all other determinations necessary or advisable for the
administration of the Plan. Any controversy or claim arising out of or
relating to the Plan shall be determined solely by the Committee.
5. Grant of Options:
(a) Non-qualified Options. The Options will not be qualified options
within the meaning of Section 422A of the Internal Revenue Code.
(b) Number of Options which may be Granted to, and Number of Shares of
Common Stock which may be Acquired through Options by, an Individual. Upon
recommendation by management of the Corporation the Committee shall, in its
discretion, determine which employees and consultants are key employees and key
consultants and shall grant Options to and cause the Corporation to enter into
Option agreements with key employees and key consultants. The Committee may
grant more than one Option to an individual during the life of the Plan and
such Option may be in addition to, in tandem with, or in substitution (with the
consent of the Optionee) for Options previously granted under the Plan or of
another corporation and assumed by the Corporation. The Committee may permit
the voluntary surrender of all or a portion of any Option to be conditioned
upon the granting of a new Option for the same or a different number of shares
of Common Stock as the Option surrendered, or may require such voluntary
surrender as a condition precedent to a grant of a new Option. Such new Option
shall be exercisable at the price, during the period, and in accordance with
any other terms or conditions specified by the Committee at the time the new
Option is granted, all determined in accordance with the provisions of the Plan
without regard to the price, period of exercise, or any other terms or
conditions of the Option surrendered.
(c) Period of Grant of Options. Options may be granted at any time after
the effective date of the Plan as defined in Article 12; provided, however,
that no Option shall be granted under the Plan after ten years from the
effective date of the Plan.
(d) Option Agreement. The Committee shall grant Options under the Plan in
accordance with determinations made by the Committee by execution of
instruments in writing in a form approved by the Committee. Each Option
agreement shall contain such terms and conditions as the Committee shall deem
to be appropriate and not inconsistent with the provisions of the Plan, and
such terms and conditions shall be agreed to in writing by the Optionee. The
Committee may, in its sole discretion, and subject to such terms and conditions
as it may adopt, accelerate the date or dates on which some or all outstanding
Options may be exercised.
(e) Exercise of Options. Optionees shall exercise Options by submitting to
the Committee a signed notice of exercise in a form to be supplied by the
Committee. The exercise of an Option shall be effective on the date on which
the Corporation receives such notice at its principal corporate offices.
(f) Non-Transferability of Options. No Option shall be transferable by
the Optionee otherwise than by will or by the laws of descent and
distribution, and during the Optionee's lifetime such Option shall be
exercisable only by such Optionee.
(g) Anti-dilution Provisions. In the event of a reorganization,
recapitalization stock split, stock dividend, combination of shares, merger
or consolidation, or the sale, conveyance, lease or other transfer by the
Corporation of all or substantially all of its property, or any change in
the corporate structure or shares of common stock of the Corporation pursuant
to any of which events the then outstanding shares of the common stock are
split up or combined or changed into, become exchangeable at the holder's
election for, or entitle the holder thereof to, other shares or assets of
the Corporation or any other entity, the Committee shall change the number
and kind of shares of Common Stock available under the Plan and any
outstanding Option (including substitution of shares or assets of another
corporation) and the price at which any Option may be exercised. The
Committee shall adjust the number and kind of shares of Common Stock
available under the Plan and any outstanding Option, and the price at which
any outstanding Option may be exercised in order to put any person who held
an Option under the Plan at the time of the occurrence of any of the events
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<PAGE> 3
hereinabove provided in the same position such person would have been in
relation to such Option immediately prior to the occurrence of such event.
Option agreements shall contain such provisions as are consistent with the
foregoing with respect to adjustments to be made in the number and kind of
shares of Common Stock covered thereby and in the Option price per share in the
event of any such change.
(h) Optionees not Stockholders. An Optionee or a legal representative
thereof shall have none of the rights of a stockholder with respect to shares
of Common Stock subject to Options until such shares shall have been issued,
transferred or sold upon exercise of the Option.
6. Terms of Options:
(a) Option Price. The price or prices per share of Common Stock to be sold
pursuant to an Option shall be such as shall be fixed by the Committee, subject
to adjustment pursuant to Article 5(g) hereof. In no event, however, will the
Option price be less than 95% of the fair market value of the common stock on
the date of grant.
(b) Period of Option Vesting. Unless otherwise determined by the Committee
or by other provisions of the Plan, no Option will be exercisable within two
years nor more than ten years from the date of its grant. The Committee in its
sole discretion shall determine at the time of the grant and shall set forth in
the Option agreement whether the Option shall become exercisable in one or more
installments, specify the installment dates and determine the period, but not
more than ten years from the date of grant, during which the Option is
exercisable. To the extent not theretofore exercised, installments shall
accumulate and be exercisable by the Optionee, in whole or in part, in any
subsequent period but not later than ten years from the date of grant.
(c) Acceleration of Installments. Anything in the Plan, the Option or the
Option agreements to the contrary notwithstanding (i) if the Corporation shall
sell all or substantially all of its assets or shall merge into or consolidate
with another corporation other than a wholly owned subsidiary and the agreement
of sale or merger shall not provide for continuation of the Option in the
surviving corporation, upon terms and subject to conditions substantially
equivalent to the existing Options; or (ii) if a tender offer for shares of
common stock of the Corporation is commenced or if public announcement is made
of the acquisition of 25% or more of the outstanding shares of common stock of
the Corporation by an individual or entity or group acting in concert, without
prior approval of the Board; then all Options issued under the Plan shall
forthwith be immediately exercisable in full and, subject to Article 6(d) and
(e), shall remain fully exercisable until the earlier of their exercise or ten
years from their date of grant.
(d) Termination of Optionee's Employment. Except as may be otherwise
provided in any Option agreement:
(i) In the event of the termination of an Optionee's employment or
consultancy with the Company, and any successor corporation, other than by
reason of death or disability (as determined by the Board or the Committee) all
Options previously granted to such Optionee shall terminate, except with
respect to portions of Options that were then vested and which the Optionee was
entitled to exercise prior to the termination date.
(ii) Any Option which the Optionee was entitled to exercise prior to the
termination date but had not as yet exercised will lapse unless exercised by
the Optionee within the earlier of three months after the termination date or
the last date such Option could have been exercised in accordance with its
terms.
(iii) In the event that termination of an Optionee's services results from
(A) the Optionee having been convicted of a felony, a crime of moral turpitude
or any crime involving the Company, or (B) a determination by the Committee
that the Optionee was engaged in fraud, misappropriation, embezzlement, or
other actions detrimental to the Company or its interests, the Option shall
terminate in its entirety on the date of such Optionee's termination and the
Optionee shall have no further right to exercise any Options outstanding.
(e) Death or Disability of Optionee. If an Optionee should become disabled
(as determined by the Board or Committee) or should die, the Option therefore
granted shall be exercisable by the Optionee or his legal representative or, in
the case of death, by the estate of the Optionee or by a person who acquired
the right to exercise such Options by bequest or inheritance, but then only if
and to the extent that the Option was vested and the Optionee was entitled to
exercise it at the date of death or disability; provided, however, that such
Options shall be exercisable only within the twelve-month period next
succeeding the death or disability of the Optionee and in no event more than
ten years from the date of grant.
(f) Payment for Shares of Common Stock. Within five business days
following the date of exercise of an Option, the Optionee shall make full
payment of the Option price as provided in the Option agreement.
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<PAGE> 4
7. Withholding Taxes:
Upon exercise of an Option by an Optionee subject to withholding by the
Company, the Company shall have the right to withhold from any salary, wages, or
other compensation for services payable to the Company to such Optionee, amounts
sufficient to satisfy any withholding tax liability attributable to such
Optionee's exercise of the Option and receipt of shares of Common Stock.
8. Compliance with Securities Laws:
The Corporation shall make every reasonable effort to have the Common
Stock listed, or approved for listing on notice of issuance, on all securities
exchanges where common stock is from time to time listed; to effect
registration or other qualification of the Common Stock under applicable state
and federal securities laws, and to maintain such registration or qualification
in effect; and to obtain any other consent, approval or permit from any state
or federal government agency that the Corporation, on advice of counsel, deems
necessary or advisable. If, however, circumstances should arise under which
counsel to the Corporation opines that it is necessary under applicable
securities laws and the pertinent rules thereunder, as the same are then in
effect, the Committee may require the Optionee to represent in writing that the
Common Stock being purchased is being purchased only for investment and without
any present intent at the time of the acquisition of such Common Stock to sell
or otherwise dispose of the same, in which event the Committee may require that
certificates for all shares of Common Stock issued on such exercise shall bear
an appropriate restrictive legend indicating that their transfer is subject to
applicable securities laws.
9. Amendment and Discontinuance of the Plan:
The Board may at any time alter, suspend or terminate the Plan,
including, without limitation, make all changes required or desirable under the
Internal Revenue Code or other applicable law, but, except in accordance with
the provisions of Article 5(g) and Article 10 hereof, no change shall be made
which could have a material adverse effect upon any Option previously granted,
unless the consent of the Optionee is obtained. Furthermore, other than changes
required by the Internal Revenue Code or other applicable law, no amendment may
be made, without the approval of a majority of the outstanding shares of common
stock of the Corporation, to increase the maximum number of shares which may be
awarded under the Plan, materially increase the benefits accruing to Optionees
under the Plan, or materially modify the eligibility requirements for
participation in the Plan.
10. Other Conditions:
If at any time counsel to the Company shall be of the Opinion that any
sale or delivery of shares of Common Stock pursuant to an Option granted
under the Plan is or may in the circumstances be unlawful under the statutes,
rules or regulations of any applicable jurisdiction, the Corporation shall
have no obligation to make such sale or delivery until, in the opinion of
said counsel, such sale or delivery shall be lawful. At the time of any
grant or exercise of any Option, the Corporation may, if it shall deem it
necessary or desirable for any reason connected with any law or regulation
of any governmental authority relative to the regulation of securities,
condition the grant and/or exercise of such Option upon the Optionee making
certain representations to the Corporation and the satisfaction of the
Corporation with the correctness of such representations.
11. General Provisions:
(a) Neither the Plan, the Options nor any Option agreement shall confer
on any Optionee any right to continue as an employee or consultant of the
Company, nor shall it interfere in any respect with an Optionee's right or the
Company's right to terminate at any time such employment or consultancy.
(b) The grant of an Option at any time to any Optionee shall not imply a
right of any other key employee or key consultant to such grant, nor the right
of such Optionee to any further grants.
(c) Service on the Committee shall constitute service as a Director of the
Corporation, and members of the Committee shall be entitled to indemnification
and reimbursement as Directors of the Corporation pursuant to its Certificate
of Incorporation, By-laws, resolutions of its board or stockholders, and
statutory and common law.
12. Approval; Effective Date:
The Plan shall become effective upon the date when the Plan, having been
approved by the Board, shall be approved by vote of holders of a majority of
outstanding shares of common stock of the Corporation.
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EX-10.21
THE DREYFUS CORPORATION
AMENDED AND RESTATED CONTINGENT BENEFIT PLAN
1. Prior Plan; Adoption; Purposes
(a) The Dreyfus Corporation Contingent Benefit Plan (the
"Prior Plan") was originally adopted by the Board of
Directors (the "Board") of The Dreyfus Corporation (the
"Corporation") on May 1, 1984 to provide specified
contingent benefit payments to certain key employees of
the Corporation and its wholly owned subsidiaries who
were designated beneficiaries of the Prior Plan in the
event of their termination of employment after a Change
of Control of the Corporation (a "Prior Plan
Beneficiary"), all as provided in accordance with the
terms and conditions of the Prior Plan.
(b) Subsequent to the adoption of the Prior Plan, the Board
entered into an Amended and Restated Agreement (the
"Agreement") with Mellon Bank Corporation ("Mellon"),
Mellon Bank, N.A. and XYZ Sub Corporation dated as of
December 5, 1993, pursuant to which an indirect
subsidiary of Mellon would merge with and into the
Corporation causing the Corporation to become a wholly
owned subsidiary of Mellon (the "Merger"). The
Agreement generally provides that the Prior Plan be
amended to provide:
(i) that the proposed Merger not constitute a
"Change of Control" under the Prior Plan;
(ii) that each Prior Plan Beneficiary who consents
to the amendment of the Prior Plan and who
continues his or her employment with the new
merged corporation in accordance with and
subject to the terms and conditions
hereinafter provided will be eligible to
receive certain Retention Payments; and
(iii) for certain other changes.
(c) The Board has determined to implement the foregoing
amendments by the establishment of The Dreyfus
Corporation Amended and Restated Contingent Benefit Plan
(this "Plan"), which Plan, as to any Prior Plan
Beneficiary who countersigns an Amended and Restated
Contingent Benefit Agreement substantially in the form
attached hereto as Exhibit A (each an "Amended
Contingent Benefit Agreement"), shall constitute,
effective as of the Effective Time, an amendment and
restatement of the Prior Plan with respect to any and
all rights of such Prior Plan Beneficiary and otherwise
supersedes any and all rights of such Prior Plan
<PAGE> 2
Beneficiary under his or her Contingent Benefit
Agreement and the Prior Plan.
(d) The designation by the Corporation of the unconditional
Retention Payments to be made pursuant to this Plan are
intended to advance the interests of the Corporation by
encouraging (but not requiring) Beneficiaries to provide
future services of a quality which equals or exceeds
past performance and shall be conclusive and binding
upon the Corporation. Neither this Plan nor any Amended
Contingent Benefit Agreement shall constitute an
employment contract between any Beneficiary and the
Corporation.
2. Certain Definitions
For all purposes of this Plan, the following terms shall have
the following respective meanings:
(a) "Beneficiary" means those certain employees of the
Corporation who are Prior Plan Beneficiaries with
outstanding Contingent Benefit Agreements, as such term
is defined in the Prior Plan, who agree to an amendment
and restatement of the Prior Plan and a superseding
hereby of their rights under said Prior Plan by agreeing
to be bound by the terms and conditions of this Plan and
an Amended Contingent Benefit Agreement.
(b) "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Effective Time" shall mean the effective time of the
Merger.
(d) "Retention Payments" means those payments made to a
Beneficiary representing the value of the Beneficiary's
Units.
(e) "Termination Date" means the date when termination
notice is delivered by the Corporation or the
Beneficiary, regardless of acceptance by the other
party.
(f) "Unit" shall mean an amount of money equal to the
difference between the book value of one share of common
stock of the Corporation and the market price of one
share of common stock of the Corporation at the
Effective Time, determined as follows:
(i) book value shall mean the book value per share of
the Corporation's common stock determined in
accordance with the Corporation's usual practices,
at the end of the fiscal quarter prior to the
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<PAGE> 3
Effective Time; which determination shall be
conclusive and binding for all purposes of this
Plan; and
(ii) market price shall mean the average of the closing
price of a share of common stock of the Corporation
on the New York Stock Exchange for the ten trading
days immediately prior to the Effective Time.
In the event that the Effective Time occurs after the
end of a fiscal quarter but prior to the determination
of book value, Unit values shall be determined as soon
as practicable following the Corporation's determination
of book value as of the end of such fiscal quarter. The
Units allocated to any particular Beneficiary under his
or her Amended Contingent Benefit Agreement shall equal
the Units allocated to the Beneficiary under his or her
Contingent Benefit Agreement under the Prior Plan and as
set forth on Schedule A attached hereto.
Notwithstanding anything in this Plan or any Amended
Contingent Benefit Agreement to the contrary, materials
distributed to any Beneficiary shall not be required to
contain information specifically regarding the Units of
other Beneficiaries.
Singular terms herein shall include the plural, as the context may
require. Paragraph headings are inserted solely for the
convenience of the reader and are not intended to alter or
otherwise affect the terms and conditions of the Plan.
3. Administration
This Plan shall be administered by the Board or a committee
of the Board; none of the members of which is an employee of the
Corporation, its direct or indirect parents or subsidiaries.
4. Beneficiaries; Effective Time
Any Prior Plan Beneficiary may become a Beneficiary under
this Plan effective as of the Effective Time by executing an
Amended Contingent Benefit Agreement. In the event that the
Merger is not consummated, this Plan shall neither be or ever
become effective and any election of a Prior Plan Beneficiary to
become a Beneficiary under this Plan represented by a
countersigned Amended Contingent Benefit Agreement shall be null
and void from the inception as though never made and the rights of
the Corporation and each Prior Plan Beneficiary under the Prior
Plan, if any, shall continue without any modification attributable
to this Plan or any Amended Contingent Benefit Agreement.
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<PAGE> 4
5. Entitlement to Benefits
Notwithstanding any other provision of this Plan to the
contrary, only those Prior Plan Beneficiaries who have executed an
Amended Contingent Benefit Agreement and who continue to be
employees of the Corporation as of the Effective Time shall be
entitled to any benefits hereunder. Subject to the preceding
sentence, a Beneficiary shall be unconditionally entitled to
Retention Payments in an amount equal to one-half of the value of
the Beneficiary's Units, effective as of the Effective Time and,
as to the remaining one-half of such value, the Beneficiary shall
be unconditionally entitled to Retention Payments effective as of
the earlier of (a) the last day of the eighteen (18) month period
commencing at the Effective Time and (b) the date, if ever, of the
affected Beneficiary's voluntary or involuntary termination of
employment from the Corporation at any time for any reason
(including, without limitation, the Beneficiary's retirement,
death or disability).
6. Amended Contingent Benefit Agreements and
Waiver of Prior Contingent Benefit Agreement
The Corporation shall deliver to each Prior Plan Beneficiary
with an outstanding Contingent Benefit Agreement an Amended
Contingent Benefit Agreement. The term "Amended Contingent
Benefit Agreement," whenever used herein, shall, as of any date,
refer to the Amended Contingent Benefit Agreement then in effect.
The Amended Contingent Benefit Agreement with each Beneficiary
shall be effective at the Effective Time upon the Beneficiary's
countersignature and return to the Corporation of a counterpart
thereof. Any Amended Contingent Benefit Agreement may be executed
on behalf of the Corporation by the Chairman of the Board, the
President or any Vice President of the Corporation. Any Amended
Contingent Benefit Agreement which has been duly authorized,
executed and delivered on behalf of the Corporation as provided
herein shall be a valid and binding obligation of the Corporation,
enforceable against the Corporation in accordance with its terms,
except to the extent that enforcement may be affected by
bankruptcy laws and other laws affecting creditors' rights
generally, and except to the extent that general principles of
equity may affect the availability of equitable relief as a
remedy. As between the Corporation and the Beneficiary, every
Amended Contingent Benefit Agreement signed by an officer who was
at the time of signing authorized to sign on behalf of the
Corporation shall be conclusively presumed to have been duly
authorized.
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<PAGE> 5
7. Duration of Amended Contingent Benefit Agreements
Except with respect to the proviso contained in paragraph
(10) and the Terms of Termination set forth in paragraph (11),
each Amended Contingent Benefit Agreement shall terminate upon the
Beneficiary's receipt of Retention Payments equal to the value of
his or her Units.
8. Retention Payments
When a Beneficiary becomes entitled to a Retention Payment
pursuant to paragraph (5), the Corporation will, within ten days
thereafter, pay to the Beneficiary in cash a lump sum in an amount
equal to the value of that portion of the Beneficiary's Units set
forth in his or her Amended Contingent Benefit Agreement to which
the Beneficiary so became entitled, net of any tax withholding
required by law.
9. Limitation on Retention Payments
Notwithstanding any other provision of this Plan to the
contrary, any Retention Payment otherwise payable hereinafter
shall be reduced, but not below zero ($0), to the extent necessary
to prevent the aggregate amount of Retention Payments and any
other "parachute payments" (as defined in Section 280G of the
Code) made with respect to a Beneficiary, from exceeding an amount
equal to the product of 2.99 times the Beneficiary's "base amount"
(as defined in Section 280G of the Code), as determined in good
faith by the Corporation prior to the Effective Time.
10. Effect of Retention Payment
When a Beneficiary becomes entitled to any Retention Payments
provided for herein, such payments shall have no effect upon any
other payments or benefits payable to him or her by virtue of the
termination of his or her employment or continued employment (as
applicable), nor shall this Plan affect the Beneficiary's right to
compensation for services rendered to the Corporation up to the
date on which the Beneficiary became entitled to any such
Retention Payments, or any rights under any stock, option,
pension, retirement or other incentive or fringe benefit plan then
in effect in which he or she may be a participant; provided,
however, that all stock options held by any Beneficiary at such
time (if ever) as the Beneficiary would have been entitled to
receive "Contingent Benefits" under the terms of the Prior Plan as
a result of the Merger which would have become exercisable under
the Prior Plan shall forthwith become exercisable.
11. Terms of Termination
If a Beneficiary's employment is terminated, such termination
shall be deemed to have occurred under the following
circumstances: (i) the Corporation finds no fault with the
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<PAGE> 6
Beneficiary's loyalty, diligence, and professional judgment and
abilities and recognizes that he or she has made many valuable
contributions during his or her years of service, and (ii) the
Beneficiary does not contend that the affairs of the Corporation
have not been managed and operated in substantial compliance with
applicable principles of law and business ethics and in the best
interests of the shareholders. Any statement either the
Corporation or the Beneficiary shall make to any person concerning
the reasons for the termination of the Beneficiary's employment or
otherwise concerning the other (including, specifically, any
response to any inquiry which might be made to the Corporation or
the Beneficiary by any prospective employer of the Beneficiary's)
shall be consistent with the foregoing.
12. Disputes
Without limiting the unconditional nature of payments
provided for hereunder, in the event that the Beneficiary contends
that he or she is entitled to Retention Payments hereunder and the
Corporation disputes its obligation to pay such benefits or any
amount thereof, the following provisions shall apply:
(a) Notwithstanding such dispute, the Corporation agrees to
pay to the Beneficiary the full amount claimed by him or
her as payable hereunder. Such payment by the
Corporation shall be without prejudice to its right to
claim reimbursement of any amount so paid and to assert
such claim by action against the Beneficiary, provided
that (i) prior to or simultaneously with the making of
such payment the Corporation gives the Beneficiary
written notice of the amount it disputes, specifying in
reasonable detail the basis for such dispute and
(ii) commences an action against the Beneficiary to
recover such amount within 90 days after the payment is
made.
(b) The Corporation will, whenever requested by the
Beneficiary, pay the Beneficiary's actual and reasonable
costs and attorneys' fees of any litigation relating to
the Beneficiary's entitlement to any Retention Payments
as such expenses are incurred. The Corporation shall be
entitled in such action to judgment obligating the
Beneficiary to repay his or her litigation expenses paid
by the Corporation if (but only if) the court holds that
the Beneficiary's claim to the disputed Retention
Payments was not made in good faith. In the event of
such a holding and in addition to any repayment of
litigation expenses required by the preceding sentence,
the Beneficiary will pay the Corporation's like costs
and fees and the Corporation shall be entitled to
judgment to that effect. A contention by the
Beneficiary that the Corporation's obligations in
accordance with the terms set forth in this Plan and the
-6-
<PAGE> 7
Amended Contingent Benefit Agreement are valid and
enforceable shall be conclusively presumed to have been
made in good faith.
(c) The Beneficiary hereby agrees that any action by the
Corporation against him or her pursuant to this Section
may be brought in the State of New York, which court
shall have jurisdiction of such action for all purposes
irrespective of his or her personal residence or
location at the time. Process in such action shall be
sufficiently served by personal delivery to the
Secretary or any Assistant Secretary of the Corporation
then in office (whom Beneficiary hereby irrevocably
appoints his or her agents and attorneys-in-fact to
accept such service), with notice to him or her of such
service, accompanied by a copy of the papers served,
being also given to him or her in the manner specified
below.
13. Approval and Amendment
This Plan shall be effective as of the Effective Time. As to
any Beneficiary, this Plan may be amended by the Corporation, in
any manner not materially inconsistent with the Plan and only with
the Beneficiary's written consent, and, in that event, the
affected Amended Contingent Benefit Agreements then in effect
shall automatically be amended accordingly. Any reference herein
to this Plan shall, as of any date, refer to this Plan as
theretofore amended in accordance with the foregoing.
14. Notices
Each notice or other communication to either the Beneficiary
or the Corporation required or permitted by this Plan or incident
hereto shall be delivered personally in writing or transmitted by
certified mail, return receipt requested, addressed to the party
for whom the same is intended at his or her or its address set
forth in the Amended Contingent Benefit Agreement, or to such
other address as such party may hereafter have specified to the
other by like notice (and directed, in the case of notice to the
Corporation, to the attention of the Secretary) and shall be
effective when delivered or mailed.
15. Governing Law
The validity and interpretation of this Plan and of each
Amended Contingent Benefit Agreement shall be determined in
accordance with the laws of the State of New York.
-7-
<PAGE> 1
EX - 10.23
EXECUTION COPY
AMENDMENT NO. 1
AMENDMENT NO. 1 dated as of July 15, 1994 between MELLON FINANCIAL
COMPANY, a corporation duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania (the "COMPANY"), MELLON BANK CORPORATION, a
corporation duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania (the "GUARANTOR"), and THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), a national banking association, as agent for each of
the banks that is a signatory to the Credit Agreement defined below (the
"BANKS") (in such capacity, together with its successors in such capacity, the
"AGENT").
The Company, the Guarantor, the Banks and the Agent are parties to a
Credit Agreement dated as of July 23, 1993 (as heretofore modified,
supplemented, amended and in effect on the date hereof, the "CREDIT
AGREEMENT"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by said Banks to the Company in an aggregate
principal amount not exceeding $200,000,000. The Company, the Guarantor, the
Banks and the Agent wish to amend the Credit Agreement in certain respects, and
the Banks have consented to the execution and delivery by the Agent of this
Amendment No. 1. Accordingly, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Except as otherwise defined in this Amendment
No. 1, terms defined in the Credit Agreement are used herein as defined
therein.
Section 2. AMENDMENTS. Effective upon the execution and delivery hereof
by the Company, the Guarantor and the Agent:
(a) Section 1.01 of the Credit Agreement shall be amended by modifying the
first sentence of the definition of "APPLICABLE FACILITY FEE PERCENTAGE" to
read as follows:
"APPLICABLE FACILITY FEE PERCENTAGE" shall mean, for any day: (a)
0.1000% per annum, if Rating Level 1 is prevailing on such day, (b)
0.1250% per annum, if Rating Level 2 is prevailing on such day, (c) 0.1500%
per annum, if Rating Level 3 is prevailing on such day, (d) .2000% per
annum, if Rating Level 4 is prevailing on such day, and (e) 0.3000% per
annum, in all other cases.
(b) Section 1.01 of the Credit Agreement shall be further amended by
modifying the first sentence of the definition of "APPLICABLE MARGIN" to read
as follows:
"APPLICABLE MARGIN" shall mean, for any day: (a) with respect to Base
Rate Loans, 0; and (b) with respect to Eurodollar Loans: (i) .2750% per
annum, if Rating Level 1 is prevailing on such day, (ii) .3250% per annum,
if Rating Level 2 is prevailing on such day, (iii) .4000% per annum, if
Rating Level 3 is prevailing on such day, (iv)
<PAGE> 2
.5000% per annum if Rating Level 4 is prevailing on such day, and (v)
.65000% per annum, in all other cases.
(c) Section 1.01 of the Credit Agreement shall be further amended by
deleting the definition of "COMMITMENT TERMINATION DATE" and inserting in place
thereof the following definition:
"COMMITMENT TERMINATION DATE" shall mean July 14, 1995, or such earlier
date as may be specified by the Company as provided in Section 2.04(b)
hereof or such later date as may be agreed to pursuant to Section 2.10
hereof; provided that if such day shall not be a Business Day, the
Commitment Termination Date shall be the next preceding Business Day.
(d) Section 1.01 of the Credit Agreement shall be further amended by
deleting the definition of "DOUBLE LEVERAGE" and inserting in place thereof the
following definition:
"DOUBLE LEVERAGE" shall mean at any time the ratio of (a) the
Guarantor's Intangibles plus the aggregate investment of the Guarantor
in the capital stock of its Subsidiaries as reported on the Guarantor's
Form FRY 9LP (or any successor form of the Federal Reserve System)
(including the Guarantor's interest in undistributed earnings of the
Subsidiaries so reported) to (b) Consolidated Net Worth.
(e) Section 1.01 of the Credit Agreement shall be further amended by
deleting the definition of "RATING LEVEL 3" and substituting therefor the
following definition:
"RATING LEVEL 3" shall be deemed to be prevailing on any date of
determination on which the Guarantor Rating by Standard & Poor's
Corporation is at least BBB+ or the Guarantor Rating by Moody's Investors
Service, Inc. is at least Baa1 and in either case on which neither Rating
Level 1 nor Rating Level 2 is prevailing.
(f) Section 1.01 of the Credit Agreement shall be further amended by
inserting a definition of "RATING LEVEL 4" immediately following the definition
of "RATING LEVEL 3" and reading as follows:
"RATING LEVEL 4" shall be deemed to be prevailing on any date of
determination on which the Guarantor Rating by Standard & Poor's
Corporation is at least BBB or the Guarantor Rating by Moody's Investors
Service, Inc. is at least Baa2 and in either case on which neither Rating
Level 1, Rating Level 2, nor Rating Level 3 is prevailing.
(g) Section 2.10 of the Credit Agreement shall be interpreted to reference
the Commitment Termination Date as redefined by this Amendment No. 1, and the
"Commitment Termination Date" "(June 21, 1995)" in Exhibit G and Exhibit H
shall be deleted and the date "(June 14, 1996)" substituted therefor in both
cases.
-2-
<PAGE> 3
(h) Section 8.08A of the Credit Agreement shall be amended by deleting the
sum "$1,600,000,000" and substituting therefor the sum "$1,800,000,000".
Section 3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Banks and the Agent that the representations and warranties
set forth in Section 7 of the Credit Agreement are true and complete on the
date hereof as if made on and as of the date hereof, that no Event of Default
and no Default has occurred and is continuing, and that the corporate action
taken by the Company and the Guarantor approving the execution and delivery of
the Credit Agreement has not been modified or rescinded and remains in effect.
Section 4. MISCELLANEOUS. Except as herein provided, the Credit
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 1 may be executed in counterparts, which taken together shall constitute
one and the same amendatory instrument. This Amendment No. 1 shall be governed
by, and construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed as of the day and year first written above.
MELLON FINANCIAL COMPANY
By Steven G. Elliott
----------------------------------
Name: Steven G. Elliott
Title: President & Chief Executive Officer
MELLON BANK CORPORATION, as Guarantor
By Steven G. Elliott
----------------------------------
Name: Steven G. Elliott
Title: Vice Chairman, Chief Financial
Officer & Treasurer
THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION), as Agent
By Susan F. Herzog
----------------------------------
Name: Susan F. Herzog
Title: Vice President
-3-
<PAGE> 1
Ex- 11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $361,221,000 $401,398,000 $480,268,000
- -----------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 145,036,812 141,610,182 129,511,499
Common shares issuable upon conversion
of Series D preferred stock 1,692,263 2,460,632 2,328,620
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (b):
Series D preferred stock subscription rights 817 55,356 102,270
Common stock subscription rights - 137,706 268,386
Stock options 1,886,912 2,406,069 1,908,474
Warrants 451,978 412,244 738,131
- -----------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 149,068,782 147,082,189 134,857,380
- -----------------------------------------------------------------------------------------------------------------------
Net income per common share $2.42 $2.73 $3.56
- -----------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (a) $361,221,000 $401,398,000 $480,268,000
Series B convertible preferred stock dividends
and the after-tax benefit of interest expense
on the assumed conversion of 7-1/4% Convertible
Subordinated Capital Notes, if dilutive (c) 204,000 200,000 4,900,000
- -----------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to
common stock $361,425,000 $401,598,000 $485,168,000
- -----------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 145,036,812 141,610,182 129,511,499
Common shares issuable upon conversion of
Series D preferred stock 1,692,263 2,460,632 2,328,620
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method (d) 2,367,193 3,085,374 4,022,440
Other dilutive items (e) 133,492 136,497 1,475,706
- -----------------------------------------------------------------------------------------------------------------------
Total 149,229,760 147,292,685 137,338,265
- -----------------------------------------------------------------------------------------------------------------------
Net income per common share $2.42 $2.73 $3.53
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes on following page.
<PAGE> 2
Ex- 11.1
(continued)
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Mellon Bank Corporation (and its subsidiaries)
(a) After adding back Series D preferred stock dividends of $3 million in
1994, $4 million in 1993 and $3 million in 1992. Series D preferred stock
is considered a common stock equivalent.
(b) Shares were assumed repurchased at the average common share price of
$37.01 in 1994, $37.38 in 1993 and $28.02 in 1992.
(c) Convertible securities consisted of the 7-1/4% Convertible Subordinated
Capital Notes in 1994 and 1993 and the Series B convertible preferred
stock and the 7-1/4% Convertible Subordinated Capital Notes in 1992.
(d) Includes shares issuable upon assumed conversion of stock options,
warrants and Series D preferred stock subscription rights in 1994, 1993
and 1992. Shares issuable upon assumed conversion of common stock
subscription rights are included for 1993 and 1992. All common stock
subscription rights were exercised prior to December 31, 1993 and
therefore are not a component of the 1994 calculation. Shares were
assumed repurchased at the beginning of the period using the average
common share price of $37.01 and $37.38 in 1994 and 1993, respectively and
the ending common share price of $35.33 at December 31, 1992.
(e) Other dilutive items consisted of the average shares issuable upon the
assumed conversion of the convertible securities described in Note (c)
above.
<PAGE> 1
Ex- 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
(parent Corporation)(a)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
(dollar amounts in thousands) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
1. Income before income taxes and
equity in undistributed net
income (loss) of subsidiaries $434,035 $224,869 $137,594 $145,777 $112,669 (c)
2. Fixed charges: interest expense,
one-third of rental expense net
of income from subleases, and
amortization of debt issuance costs 95,193 110,739 79,709 103,001 149,446
-------- -------- -------- -------- --------
3. Income before income taxes
and equity in undistributed
net income (loss) of subsidiaries,
plus fixed charges (line 1 + line 2) $529,228 $335,608 $217,303 $248,778 $262,115
======== ======== ======== ======== ========
4. Preferred stock dividend
requirements (b) $124,260 $103,792 $ 61,197 $ 57,618 $ 58,951
======== ======== ======== ======== ========
5. Ratio of earnings (as defined)
to fixed charges
(line 3 divided by line 2) 5.56 3.03 2.73 2.42 1.75 (c)
6. Ratio of earnings (as defined)
to combined fixed charges and
preferred stock dividends
[line 3 divided by
(line 2 + line 4)] 2.41 1.56 1.54 1.55 1.26 (c)
</TABLE>
- ----------------------
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation") and Mellon Financial Company, a wholly
owned subsidiary of the Corporation that functions as a financing entity
for the Corporation and its subsidiaries by issuing commercial paper and
other debt guaranteed by the Corporation. For purposes of computing these
ratios, earnings represent parent Corporation income before taxes and
equity in undistributed net income (loss) of subsidiaries, plus the fixed
charges of the parent Corporation. Fixed charges represent interest
expense, one-third (the proportion deemed representative of the interest
factor) of rental expense net of income from subleases, and amortization of
debt issuance costs. Because the ratio excludes from earnings the equity
in undistributed net income (loss) of subsidiaries, the ratio varies with
the payment of dividends by such subsidiaries.
(continued)
<PAGE> 2
Ex- 12.1
(continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
(parent Corporation)(a)
(b) Preferred stock dividend requirements for all years presented represent the
pretax amount required to cover preferred stock dividends. Series K
Nonredeemable Preferred Stock was issued on January 25, 1993; Series J
Nonredeemable Preferred Stock was issued on January 21, 1992; Series I
Nonredeemable Preferred Stock was issued August 8, 1991 and Series H
Nonredeemable Preferred Stock was issued March 29, 1990. Accordingly,
preferred stock dividends were not accrued for these securities prior to
their respective issue dates. In the first quarter of 1990, common stock
was issued in exchange for approximately 83% of the outstanding shares of
Series D preferred stock in order to avoid exceeding the limitation on the
amount of preferred stock that could qualify as Tier I capital under the
Federal Reserve Board's 1992 risk-based capital regulations. The remaining
Series D preferred stock was converted to common stock in the third quarter
of 1994. The Series C-1 Stated Rate Auction Preferred Stock was redeemed
on July 18, 1990, the Series A Redeemable Preferred Stock was redeemed on
July 19, 1991, the Series G preferred stock was redeemed on November 15,
1991, the Series C-2 Stated Rate Auction Preferred Stock was redeemed on
November 16, 1992 and the Series B preferred stock was redeemed on December
1, 1993. Accordingly, preferred stock dividends were not accrued for these
securities subsequent to their respective redemption dates. In December
1994, the Corporation announced its commitment to redeem the Series H
preferred stock on March 1, 1995. Preferred stock dividends for 1994
include $16 million for the Series H redemption premium, the write-off of
unamortized issuance costs and dividends accrued through the redemption
date.
(c) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1990, exclude from earnings (as defined) the $73,562,000 gain
on the sale of a Chicago-based consumer finance subsidiary. Had these
computations included this gain, the ratio of earnings (as defined) to
fixed charges would have been 2.25 and the ratio of earnings (as defined)
to combined fixed charges and preferred stock dividends would have been
1.61.
<PAGE> 1
Ex- 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
and its subsidiaries(a)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
(dollar amounts in thousands) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1. Net income $ 433,365 $ 460,213 $ 527,955 $ 347,451 $ 162,748 (c)
2. Provision for income taxes 278,040 298,034 104,099 62,199 40,538
--------- ---------- ---------- ---------- ----------
3. Net income before provision
for income taxes (line 1 + line 2) $ 711,405 $ 758,247 $ 632,054 $ 409,650 $ 203,286
========== ========== ========== ========== ==========
4. Fixed charges:
a. Interest expense (excluding
interest on deposits) $ 263,054 $ 200,915 $ 211,998 $ 326,437 $ 467,271
b. One-third of rental expense
(net of income from
subleases) and amortization
of debt issuance costs 40,140 38,190 29,446 30,300 28,172
---------- ---------- ---------- ---------- ----------
c. Total fixed charges
(excluding interest on
deposits) (line 4a + line 4b) 303,194 239,105 241,444 356,737 495,443
d. Interest on deposits 538,715 454,458 636,719 1,006,566 1,325,631
---------- ---------- ---------- ---------- ----------
e. Total fixed charges
(line 4c + line 4d) $ 841,909 $ 693,563 $ 878,163 $1,363,303 $1,821,074
========== ========== ========== ========== ==========
5. Preferred stock dividend
requirements (b) $ 124,260 $ 103,792 $ 61,197 $ 57,618 $ 58,951
========== ========== ========== ========== ==========
6. Net income before provision
for income taxes, plus total
fixed charges:
a. Excluding interest on
deposits (line 3 + line 4c) $1,014,599 $ 997,352 $ 873,498 $ 766,387 $ 698,729
========== ========== ========== ========== ==========
b. Including interest on
deposits (line 3 + line 4e) $1,553,314 $1,451,810 $1,510,217 $1,772,953 $2,024,360
========== ========== ========== ========== ==========
</TABLE>
(continued)
<PAGE> 2
Ex- 12.2
(continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
and its subsidiaries(a)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
7. Ratio of earnings (as defined)
to fixed charges:
a. Excluding interest on deposits
(line 6a divided by line 4c) 3.35 4.17 3.62 2.15 1.41 (c)
b. Including interest on deposits
(line 6b divided by line 4e) 1.84 2.09 1.72 1.30 1.11 (c)
8. Ratio of earnings (as defined) to
combined fixed charges and
preferred stock dividends
a. Excluding interest on deposits
[line 6a divided by (line 4c +
line 5)] 2.37 2.91 2.89 1.85 1.26 (c)
b. Including interest on deposits
[line 6b divided by (line 4e +
line 5)] 1.61 1.82 1.61 1.25 1.08 (c)
</TABLE>
- ----------------------
(a) For purposes of computing these ratios, earnings represent consolidated net
income, before income taxes plus consolidated fixed charges. Fixed
charges, excluding interest on deposits, include interest expense (other
than on deposits), one-third (the proportion deemed representative of the
interest factor) of rental expense net of income from subleases, and
amortization of debt issuance costs. Fixed charges, including interest on
deposits, include all interest expense, one-third (the proportion deemed
representative of the interest factor) of rental expense net of income from
subleases, and amortization of debt issuance costs.
(b) Preferred stock dividend requirements for all years presented represent the
pretax amount required to cover preferred stock dividends. Series K
Nonredeemable Preferred Stock was issued on January 25, 1993; Series J
Nonredeemable Preferred Stock was issued on January 21, 1992; Series I
Nonredeemable Preferred Stock was issued August 8, 1991 and Series H
Nonredeemable Preferred Stock was issued March 29, 1990. Accordingly,
preferred stock dividends were not accrued for these securities prior to
their respective issue dates. In the first quarter of 1990, common stock
was issued in exchange for approximately 83% of the outstanding shares of
Series D preferred stock in order to avoid exceeding the limitation on the
amount of preferred stock that could qualify as Tier I capital under the
Federal Reserve Board's 1992 risk-based capital regulations. The remaining
Series D preferred stock was converted to common stock in the third quarter
of 1994. The Series C-1 Stated Rate Auction Preferred Stock was redeemed
on July 18, 1990, the Series A Redeemable Preferred Stock was redeemed on
July 19, 1991, the Series G preferred stock was redeemed on November 15,
1991, the Series C-2 Stated Rate Auction Preferred Stock was redeemed on
November 16, 1992, and the Series B preferred stock was redeemed on
December 1, 1993. Accordingly, preferred stock dividends were not accrued
for these securities subsequent to their respective redemption dates. In
December 1994, the Corporation announced its commitment to redeem the
Series H preferred stock on March 1, 1995. Preferred stock dividends for
1994 include $16 million for the Series H redemption premium, the write-off
of unamortized issuance costs and dividends accrued through the redemption
date.
(c) The ratio of earnings to fixed charges and the ratio of earnings to
combined fixed charges and preferred stock dividends for the year ended
December 31, 1990, exclude from earnings (as defined) the $73,562,000 gain
on the sale of a Chicago-based consumer finance subsidiary. Had these
computations included this gain, the ratio of earnings (as defined) to
fixed charges would have been 1.56 excluding interest on deposits, and 1.15
including interest on deposits. Including this gain, the ratio of earnings
to combined fixed charges and preferred stock dividends would have been
1.39 excluding interest on deposits, and 1.12 including interest on
deposits.
<PAGE> 1
Ex.-13.1
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
To Our Shareholders 2
Financial Summary 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations:
Business Sectors 10
Corporate Risk 23
Fourth Quarter Review 41
Selected Quarterly Data 42
Financial Statements and Notes:
Mellon Bank Corporation (and its subsidiaries)
Consolidated Financial Statements 43
Notes to Financial Statements 48
Report of Independent Auditors 81
Other Financial Data:
Consolidated Balance Sheet-Average
Balances and Interest Yields/Rates 82
Additional Information:
Principal Locations and Operating Entities 84
Directors 87
Senior Management Committee 89
Corporate Information 90
</TABLE>
- ------------------------------------------------------------------------------
A COST-EFFECTIVE ANNUAL REPORT
Since the costs associated with printing a traditional annual report continue
to escalate, this year the Corporation is printing the 1994 Annual Report on
non-glossy, lightweight paper without photographs. This simplified format
contains the same level of information as published in previous years'
traditional annual reports, including the highlights of our past year's
performance, as well as complete financial statements.
We also will discontinue publishing condensed quarterly reports in 1995.
Instead, for shareholders who wish to receive quarterly financial information,
we will provide a copy of the quarterly earnings release upon request.
In addition to this 1994 Annual Report, which is sent to all shareholders, we
have produced limited quantities of a full-color publication, the Mellon Bank
Corporation 1994 Annual Review. To request a copy of the 1994 Annual Review or
the Corporation's quarterly earnings releases, please write to Mellon Bank
Corporation, Attn: Secretary of the Corporation, Suite 1820 One Mellon Bank
Center, Pittsburgh, PA 15258-0001, or call the publication request line at
(412) 234-8252.
<PAGE> 2
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(dollar amounts in millions, except per share amounts)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR THE YEAR 1994 1993 (a)
Income before taxes $ 711 $ 758
Net income 433 460
Net income applicable to common stock 358 397
Dividends paid on common stock 194 121
Per common share:
Net income $ 2.42 $ 2.73
Dividends (b) 1.57 1.01
Return on average common shareholders' equity 9.79% 12.08%
Return on average assets 1.14% 1.29%
Efficiency ratio 65% 64%
Efficiency ratio excluding amortization of intangibles (c) 62% 61%
Average common shares and equivalents
outstanding (in thousands) 149,069 147,083
- -------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (d)
Income before taxes $ 1,053 $ 846
Net income 652 519
Net income applicable to common stock 593 456
Net income per common share $ 4.00 $ 3.14
Return on average common shareholders' equity 16.02% 13.71%
Return on average assets 1.71% 1.46%
- -------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31
Loans $26,733 $24,484
Total assets 38,644 37,052
Deposits 27,570 27,564
Common shareholders' equity 3,687 3,546
Market capitalization 4,507 5,070
Closing common stock price $30.625 $35.375
Book value per common share 25.06 24.28
Common shareholders' equity to assets 9.54% 9.57%
Tier I capital ratio 9.48% 9.70%
Total (Tier I plus Tier II) capital ratio 12.90% 13.22%
Leverage capital ratio 8.67% 9.00%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(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, core deposit and other
identified intangibles recorded in connection with acquisitions.
(d) Results for 1994 exclude a $130 million after tax securities
lending charge, $79 million after tax of Dreyfus merger-related
expenses, $10 million after tax of one-time losses on the disposition of
securities available for sale previously owned by Dreyfus and $16
million of preferred stock dividends recorded in connection with the
redemption of the Series H preferred stock. Results for 1993 exclude
$112 million after tax of merger expenses and $53 million after tax of
gains on the sale of securities related to the acquisition of The
Boston Company.
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS,
AND FACTORS CONTRIBUTING TO CHANGES BETWEEN PERIODS ARE NOTED IN
DESCENDING ORDER OF MATERIALITY.
</TABLE>
<PAGE> 3
TO OUR SHAREHOLDERS
Mellon celebrated its 125th year in business in 1994, the same year in which we
completed the largest and one of the most important mergers in the
Corporation's history. Our merger with The Dreyfus Corporation--the sixth
largest mutual fund firm in the United States--propelled Mellon into a position
of leadership as the largest bank manager of mutual funds and one of the
largest investment management firms in the country. The union of Mellon,
Dreyfus and The Boston Company, which Mellon acquired in 1993, reflects the
vision and strategy of balance first articulated by the Corporation nearly a
decade ago and uniquely positions Mellon for continued success in the fiercely
competitive financial services industry.
Today Mellon's annual revenues exceed $3 billion, more than half of which come
from fee revenues. Although the traditional banking business continues to be
very important to us, the balance we have achieved between interest revenue and
fee revenue provides us with the diversity to sustain a strong record of
operating performance.
Few, if any, large bank holding companies offer the product breadth and
expertise that Mellon provides its consumer, corporate and institutional
clients. In addition to traditional and nontraditional banking services,
Mellon offers cash management, institutional trust and custody, institutional
asset management, stock transfer, insurance premium financing, corporate
finance, foreign exchange, private asset management, 401(k), mutual fund
management and other services.
Throughout the year we demonstrated the prudence of our strategy, and I'd like
to share our 1994 achievements with you.
o o o
After completing our landmark merger with Dreyfus in August, one of the first
and more visible strategic moves of the combined organization was the creation
of Dreyfus Retirement Services. This new unit, which serves the fast growing
401(k) market, brings together the defined contribution plan and investment
capabilities of Mellon, The Boston Company and Dreyfus, creating a full-service
provider with more than $10 billion in retirement assets under management.
Dreyfus Retirement Services offers specially designed retirement programs
encompassing 401(k) and other defined contribution plans and provides
investment management, trust and custody, plan administration, recordkeeping
and participant education services to companies and institutions nationwide.
To strengthen further the products and services we offer to corporate
customers, we announced our plans to form a joint venture with Chemical Banking
Corporation that will focus exclusively on providing stock transfer and related
shareholder services to publicly held companies. The joint venture, to be
called Chemical Mellon Shareholder Services, will be among the largest
securities transfer companies in the United States with more than 13 million
shareholder accounts, 2,000 clients and a significant share of companies listed
on the New York and American stock exchanges.
Our Retail Financial Services business announced several strategic initiatives,
including the acquisition of Glendale Bancorporation, a bank holding company
based in southern New Jersey. This acquisition was a logical extension of our
Philadelphia franchise and enables us to conduct retail banking for the first
time in the state of New Jersey.
Another important move for our Retail business was the formation of a
partnership with Acme Markets, Inc., one of the country's leading grocery store
chains, to bring supermarket banking to Acme stores in Philadelphia, Delaware
and New Jersey. Mellon's supermarket offices have proved to be a convenient,
cost-effective and highly successful way to deliver products and services to
our customers, and the Acme partnership marks the largest supermarket banking
effort to date in the Delaware Valley.
2
<PAGE> 4
We successfully launched the CornerStone(sm) MasterCard, the first credit card
that refunds up to 100 percent of interest paid by cardholders. By the end of
1994, CornerStone generated more than 700,000 new accounts and $757 million in
total outstandings.
Also during the year we acquired the retail and wholesale residential mortgage
loan origination network and the majority of the residential mortgage servicing
portfolio of U.S. Bancorp Mortgage Company, with retail loan origination
offices principally located in the Pacific Northwest, the Rocky Mountain region
and Hawaii.
o o o
Short-term interest rates rose sharply in 1994, affecting returns on certain
client investments within Mellon Trust's securities lending business. Because
of the magnitude and frequency of these interest rate increases, and the
potential for additional increases, we determined that it would be in the best
interest of our customers and shareholders to reduce the interest rate
sensitivity of our clients' securities lending portfolios. As a result of
actions we took to change the income characteristics of the securities from
fixed rates to floating rates, we recorded a one-time, after-tax charge to
earnings of $130 million in the fourth quarter.
Mellon has an outstanding reputation as a premier provider of investment
management services, and we believe our actions affirm our commitment to the
trust and custody businesses.
Another disappointment in 1994 was a decision by the Internal Revenue Service
to discontinue its direct deposit indicator--which assisted banks in
determining whether Refund Anticipation Loans (RALs) would be repaid. Because
we could not assure that the credit quality for Refund Anticipation Loans would
be acceptable, we are not offering a RAL program in 1995.
o o o
The Corporation's operating performance remained strong in 1994, despite the
one-time securities lending charge and Dreyfus merger-related charges. Net
interest revenue and fee revenue increased measurably, and we experienced
considerable improvements in credit quality expense.
As a result of our 1994 financial performance we increased our quarterly common
stock dividend twice--representing a total increase of 78 percent--and
announced a three-for-two common stock split.
The Corporation's net income and net income per common share, excluding the
one-time charges, were $652 million and $4.00, respectively, compared with $519
million and $3.14 in 1993, excluding merger expenses and securities gains
related to the 1993 acquisition of The Boston Company. The 1994 earnings per
share figure also excludes the effect of the redemption of the Corporation's
$160 million Series H preferred stock.
Return on common shareholders' equity and return on assets, excluding the
securities lending charge, Dreyfus merger-related charges and preferred stock
redemption, were 16.02 percent and 1.71 percent, respectively, compared with
13.71 percent and 1.46 percent, respectively, in 1993, excluding merger
expenses and securities gains related to The Boston Company acquisition.
Including all charges, the Corporation reported net income of $433 million, or
$2.42 per common share, compared with 1993 net income of $460 million, or $2.73
per common share. Return on equity and return on assets were 9.79 percent and
1.14 percent, respectively, compared with 12.08 percent and 1.29 percent in
1993.
3
<PAGE> 5
Net interest revenue increased to $1.5 billion, up 13 percent from $1.3 billion
in 1993, primarily reflecting a higher yielding asset mix, the 1993
acquisitions of The Boston Company and AFCO Credit Corporation, a lower level
of nonperforming assets, lower long-term debt and higher loan fees. Fee revenue
increased to $1.7 billion, up 7 percent from $1.5 billion in 1993, principally
reflecting the full-year impact of The Boston Company acquisition.
Mellon's asset quality continued to improve, with nonperforming assets totaling
$239 million at year-end 1994, a decrease of $102 million, or 30 percent, from
year-end 1993. Net credit losses were $67 million, a $72 million decrease from
1993. The provision for credit losses was $70 million in 1994--the lowest
level in 11 years and down $55 million from 1993.
o o o
In addition to our financial performance, we continue to support the
communities in which we operate. In 1994 Mellon contributed approximately $23
million to individuals and organizations through cash grants; by underwriting
community programs and events; with in-kind and direct support; with United Way
and matching gifts; and through our associates and retirees who volunteered
their own time to help others.
We also continue to expand programs to meet the credit needs of low- and
moderate-income individuals and businesses. We maintained our "Outstanding"
ratings from the Office of the Comptroller of the Currency for our Community
Reinvestment Act (CRA) efforts in Pennsylvania and Delaware. To ensure that we
are focusing our fair lending efforts appropriately throughout the Corporation,
we have undertaken several initiatives, including the addition of a Corporate
Fair Lending Officer and a fair lending senior management committee. To
increase home ownership, we continue to offer credit repair and homebuyer
workshops, and we also offer mortgage loan products that feature flexible
underwriting and reduced down payments. Mellon and the Pittsburgh History and
Landmarks Foundation, a nonprofit historic preservation corporation, have
joined together to launch the Comprehensive Neighborhood Development
Initiative. This initiative helps renew, restore and revitalize neighborhoods
by providing an all-in-one funding and advisory resource.
In the area of Total Quality, we continue to discover better, more efficient
ways to operate our business; develop specific quality plans to achieve
measurable improvements in customer service, products and processes; and
enhance training and recognition programs for our associates.
Mellon enters its 126th year in business from a position of strength, with
solid earnings, leadership positions in each core business and the capacity to
reinvest in its franchise. We remain the highest capitalized large bank
holding company in the United States, with a common shareholders' equity to
assets ratio of 9.54 percent and a total shareholders' equity to assets ratio
of 10.67 percent.
Since 1869 the Mellon name has meant strength, innovation and integrity. By
providing our customers with unmatched products and service, and remaining
responsive to their changing needs, we will continue to be important to them
and to the financial services industry of the future. As Richard King Mellon,
former chairman of the board, said in the Corporation's 1963 Annual Report,
"The continued growth of Mellon reflects the effectiveness with which our
employees carried on their work." More than 30 years later, this philosophy
still holds true--Mellon's success and reputation as a leading financial
services institution would not be possible without the dedication and hard work
of the more than 24,000 men and women who serve our customers every day.
Frank V. Cahouet
Frank V. Cahouet
Chairman, President and Chief Executive Officer
4
<PAGE> 6
MELLON BANK CORPORATION (and its subsidiaries)
FINANCIAL SUMMARY(a)
<TABLE>
<CAPTION>
(dollar amounts in millions, except per share amounts) 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
Net interest revenue $ 1,508 $ 1,329 $ 1,182 $ 1,012 $ 912 $ 860
Provision for credit losses 70 125 185 250 315 297
Fee revenue 1,652 1,538 1,154 1,007 933 984
Gains (losses) on sale of securities (b) (5) 100 129 81 28 24
Gain on sale of consumer finance subsidiary - - - - 74 -
Gain on sale of credit card accounts - - - - - 119
Operating expense 2,374 2,084 1,648 1,440 1,355 1,263
Provision for income taxes 278 298 104 62 41 98
- -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary gains $ 433 $ 460 $ 528 $ 348 $ 236 $ 329
Extraordinary gains on early retirement of debt - - - - - 29
Net income 433 460 528 348 236 358
Net income applicable to common stock 358 397 477 299 186 305
- -------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before extraordinary gains $ 2.42 $ 2.73 $ 3.56 $ 2.39 $ 1.57 $ 2.46
Net income 2.42 2.73 3.56 2.39 1.57 2.70
Dividends 1.57 1.01 .93 .93 .93 .93
Book value at year-end 25.06 24.28 21.37 18.44 16.60 16.10
Average common shares and equivalents
outstanding (in thousands) 149,069 147,083 134,858 126,554 120,981 119,012
- -------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS(c)
Net income $ 652 $ 519 $ 398 $ 259 $ 182 $ 275
Net income per common share 4.00 3.14 2.60 1.69 1.12 2.00
Return on average common shareholders' equity 16.02% 13.71% 13.13% 8.97% 5.85% 11.44%
Return on average assets 1.71 1.46 1.29 .87 .59 .88
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Money market investments $ 1,656 $ 3,821 $ 1,905 $ 1,566 $ 2,927 $ 6,370
Securities 5,149 4,804 6,500 5,778 5,238 3,773
Loans 25,097 21,763 18,235 18,514 18,845 17,965
Interest-earning assets 32,282 30,657 26,948 26,167 27,288 28,341
Total assets 38,106 35,635 30,758 29,878 31,078 31,360
Deposits 27,248 26,541 22,684 21,438 22,084 21,312
Notes and debentures 1,768 1,991 1,365 1,448 1,722 1,762
Redeemable preferred stock - - - 51 94 94
Common shareholders' equity 3,691 3,323 2,603 2,190 2,042 1,739
Total shareholders' equity 4,277 3,964 3,112 2,614 2,437 2,067
- -------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (based on balance sheet averages)
Return on common shareholders' equity 9.79% 12.08% 18.45% 13.78% 9.30% 18.49%
Return on assets 1.14 1.29 1.72 1.16 .76 1.14
Net interest margin:
Taxable equivalent basis 4.71 4.39 4.46 3.99 3.49 3.22
Without taxable equivalent increments 4.67 4.34 4.39 3.86 3.34 3.04
Efficiency ratio 65 64 65 68 70 66
Efficiency ratio excluding amortization of intangibles (d) 62 61 63 66 69 65
- -------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Common shareholders' equity to assets 9.54% 9.57% 8.85% 7.91% 6.67% 5.98%
Total shareholders' equity to assets 10.67 11.17 10.28 9.32 7.95 7.00
Tier I capital ratio 9.48 9.70 10.20 9.05 7.42 6.91
Total (Tier I plus Tier II) capital ratio 12.90 13.22 13.83 13.16 11.28 11.04
Leverage capital ratio 8.67 9.00 9.45 8.62 6.91 6.49
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) All prior periods' amounts have been restated, except for dividends per
common share, to reflect the merger with Dreyfus. Per share amounts
have also been restated to reflect the three-for-two common stock split.
(b) After tax gains (losses) on the sale of securities were as follows:
1994--$(3) million; 1993--$61 million; 1992--$113 million; 1991--$76
million; 1990--$23 million; and 1989--$17 million.
(c) Results for 1994 exclude a $130 million after tax securities
lending charge, $79 million after tax of Dreyfus merger-related
expenses, $10 million after tax of one-time losses on the disposition of
securities available for sale previously owned by Dreyfus and $16
million of preferred stock dividends recorded in connection with the
redemption of the Series H preferred stock. Results for 1993 exclude
$112 million after tax of merger expenses and $53 million after tax of
gains on the sale of securities related to the acquisition of The
Boston Company. Results for periods prior to 1993 were calculated by
applying a normalized effective tax rate of approximately 38% to pretax
income. The unrecorded tax benefit that existed at the beginning of
the periods, prior to 1993, was included in the determination of the
return on common shareholders' equity.
(d) Excludes amortization of goodwill, core deposit and other
intangibles recorded in connection with acquisitions.
</TABLE>
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS IN 1994
Introduction of the CornerStone(sm) credit card
In January 1994, the Corporation introduced the CornerStone(sm) credit card.
The product, offered throughout most of the United States, has no annual fee.
After two years in good standing, a customer can receive 10% of the interest
they have paid, continuing at increasing intervals of 5% each year until they
are eligible to have 100% of the interest refunded after 20 years. At December
31, 1994, this product had more than 700,000 new accounts and total
outstandings of $757 million.
Sale of Third-Party Mutual Fund Administration Business
In May 1994, the Corporation sold its Boston-based third-party mutual fund
administration business. This business no longer fit into the Corporation's
strategic priorities. As a result of the merger with The Dreyfus Corporation,
the Corporation moved toward supporting its own funds and away from providing
administration services to third-party clients. While this transaction had an
impact on mutual fund assets under administration/custody, the overall
transaction was immaterial to 1994 earnings and future earnings.
Mellon Bank and Chemical Banking Corporation joint venture
In August 1994, the Corporation, together with Chemical Banking Corporation
(Chemical), announced they would form a joint venture that will focus
exclusively on providing stock transfer and related shareholder services to
publicly held companies. The new company will be called Chemical Mellon
Shareholder Services, with the Corporation contributing the assets and business
of its Mellon Securities Transfer Services subsidiary to the joint venture.
The Corporation's contribution of assets to this joint venture does not include
its R-M Trust Company stock transfer services subsidiary, which operates
throughout Canada. Chemical is contributing its Geoserve Shareholder Services
unit to the joint venture. Based on existing account relationships, Chemical
Mellon Shareholder Services will rank among the largest in the highly
competitive shareholder services industry, with more than 13 million
shareholder accounts. The joint venture is expected to become operational
during the first half of 1995.
Acquisition of Mortgage Origination Business and Servicing Portfolio of U.S.
Bancorp Mortgage Company
In August 1994, the Corporation acquired the retail and wholesale residential
mortgage loan origination network and the majority of the residential mortgage
servicing portfolio of U.S. Bancorp Mortgage Company. The Corporation acquired
more than 50 wholesale and retail loan origination offices, which are
principally located in the Pacific Northwest, the Rocky Mountain region and
Hawaii, as well as a $3.6 billion residential mortgage loan servicing
portfolio. This transaction was recorded under the purchase method of
accounting. This acquisition and other smaller acquisitions increased the
Corporation's total servicing portfolio to $37 billion.
Merger with The Dreyfus Corporation
On August 24, 1994, the Corporation merged with The Dreyfus Corporation
(Dreyfus), creating the largest combination of a banking firm and a mutual fund
company in the history of the financial services industry. As a result of the
merger, the Corporation became one of the nation's largest investment
management firms, with assets under management totaling $190 billion at
December 31, 1994, and is by far the largest bank manager of mutual funds. As
a result of the merger, the Corporation's annual revenues now exceed $3
billion, more than half of which come from fee revenues. Dreyfus is
headquartered in New York City and employs approximately 2,000.
6
<PAGE> 8
SIGNIFICANT EVENTS IN 1994 (CONTINUED)
- --------------------------------------------------------------------------------
This transaction was accounted for under the pooling of interests method of
accounting, with prior-period financial results restated to reflect the merger.
Dreyfus shareholders received 0.88017 shares of the Corporation's common stock
for each of the 36.7 million Dreyfus shares outstanding, resulting in the
Corporation issuing 32.2 million shares of common stock on a pre-stock split
basis, or 48.3 million common shares after adjusting for the Corporation's
three-for-two common stock split. In connection with the merger, the
Corporation recorded one-time merger expenses in the third quarter of 1994 of
$104 million pretax, or $79 million after tax. The Corporation also incurred
losses of $15 million, or $10 million after tax, on the disposition of
securities classified as available for sale that were held by Dreyfus. These
securities did not meet the investment objectives, interest rate or credit risk
characteristics required by the Corporation.
Acquisition of Glendale Bancorporation
In September 1994, the Corporation acquired Glendale Bancorporation (Glendale),
a bank holding company headquartered in Voorhees, New Jersey. This transaction
will enable the Corporation to conduct retail banking in the New Jersey suburbs
of Philadelphia. Glendale had total assets of approximately $260 million and
deposits of approximately $210 million. The total purchase price of $28
million was paid in cash. This transaction was recorded under the purchase
method of accounting.
Dividend increases and three-for-two common stock split
In September 1994, the board of directors of the Corporation authorized a
three-for-two common stock split. The three-for-two common stock split was
structured as a special stock dividend of one additional share of common stock
issued on every two outstanding shares of common stock. The additional shares
resulting from the split were distributed on November 15, 1994, to shareholders
of record on November 1, 1994. In addition, the Corporation approved two
increases in its quarterly common stock dividend during the year. All dividend
per share figures have been restated to reflect the stock split. In the first
quarter of 1994, the Corporation increased its common dividend to $.3733 per
share, or 47%, from $.2533 in the fourth quarter of 1993. During the fourth
quarter, the Corporation increased its common dividend to $.45 per share, or
21%, from $.3733 paid in the first three quarters of 1994. As a result of both
dividend increases, the Corporation increased its annual common dividend rate
in 1994 by 78%.
Securities Lending Charge
In the fourth quarter of 1994, the Corporation recorded a one-time after tax
charge of $130 million, or $.87 per common share, as a result of actions taken
on behalf of certain securities lending clients. It was determined that the
interest rate sensitivity of those clients' portfolios was inconsistent with
prevailing market conditions. The actions taken reduced the interest rate
sensitivity of those portfolios.
Under a securities lending program, banks, acting as agent on behalf of their
trust and custody clients, lend participating clients' securities primarily to
broker-dealers that periodically need these securities. Agents typically
receive cash collateral from the borrowing brokers--paying an overnight
interest rate for the use of cash--and then invest this cash collateral in debt
instruments. Clients benefit when returns from these instruments exceed
interest paid to the brokers for use of the cash. Sharp and rapid increases in
interest rates during 1994 significantly impacted this interest spread.
In order to reduce the interest rate sensitivity of these securities lending
portfolios, the Corporation arranged for a third party to enter into interest
rate swap contracts that convert the income generated by the securities lending
cash collateral investments to a shorter-term floating rate. The charge to
earnings reflects the cost of arranging the third party transactions.
7
<PAGE> 9
OVERVIEW OF 1994 RESULTS
- --------------------------------------------------------------------------------
The Corporation reported 1994 net income of $433 million, or $2.42 per common
share, which included the $130 million after tax securities lending charge, $89
million in after tax Dreyfus-related charges and the impact on earnings per
share of the $16 million of additional preferred stock dividends recorded in
connection with the redemption of the Corporation's Series H preferred stock.
This compares with 1993 net income of $460 million, or $2.73 per common share,
which included $112 million in after tax merger expenses and $53 million after
tax of securities gains related to The Boston Company acquisition. The return
on common shareholders' equity and return on assets in 1994 were 9.79% and
1.14%, respectively. The 1993 return on common shareholders' equity and return
on assets were 12.08% and 1.29%, respectively.
The Corporation reported net income in 1994 of $652 million, excluding the
securities lending charge and Dreyfus-related charges. Excluding these items
and the effect of the Corporation's preferred stock redemption, 1994 net income
per common share would have been $4.00. These results compare with 1993 net
income of $519 million, or $3.14 per common share, excluding the merger
expenses and securities gains related to the acquisition of The Boston Company.
Return on common shareholders' equity and return on assets in 1994 were 16.02%
and 1.71%, respectively, excluding the securities lending charge,
Dreyfus-related charges and preferred stock redemption. This compares with
1993 return on common shareholders' equity and return on assets of 13.71% and
1.46%, respectively, excluding the merger expenses and securities gains related
to The Boston Company acquisition.
All historical financial data has been restated to reflect the 1994 merger with
Dreyfus, which was accounted for as a pooling of interests. Per share amounts
have also been restated for the Corporation's three-for-two common stock split.
Results for 1994 also reflected the full- year impact of acquisitions made in
1993, most notably The Boston Company, and the partial impact of acquisitions
made during 1994 that were accounted for under the purchase method of
accounting.
The financial results of the Corporation in 1994 reflected the impact of
management's ongoing efforts to diversify and expand revenue sources. Compared
with 1993, the Corporation's 1994 results reflected an improvement in net
interest and fee revenue as well as lower credit quality expense, offset in
part by higher operating expense and losses on the sale of securities.
Net interest revenue increased to $1.508 billion, up 13%, from $1.329 billion
in 1993, primarily reflecting a higher yielding asset mix and the impact of the
Corporation's 1993 acquisitions of The Boston Company and AFCO Credit
Corporation (AFCO). The improvement also was attributable to a lower level of
nonperforming assets, a lower level of long-term debt and higher loan fees.
The net interest margin was 4.71% in 1994, up from 4.39% in 1993.
Fee revenue increased to $1.652 billion, up 7%, from $1.538 billion in 1993,
principally reflecting the full-year impact of The Boston Company acquisition
and internal growth, offset in part by the impact of divestitures and lower
mutual fund management fee revenue.
The provision for credit losses was $70 million in 1994, the lowest provision
since 1983, down $55 million from 1993. Net credit losses totaled $67 million
in 1994, down $72 million compared with 1993. Nonperforming assets totaled
$239 million at December 31, 1994, down 30% from $341 million at the prior
year-end. The Corporation's nonperforming assets ratio at December 31, 1994,
was .89%, compared with 1.39% at the prior year-end.
Operating expense before the net revenue of acquired property, the securities
lending charge and merger expenses was $2.075 billion for 1994, compared with
$1.850 billion in 1993. The $225 million increase principally was attributable
to the full-year impact of The Boston Company acquisition. Net revenue from
acquired property totaled $28 million in 1994, an $87 million improvement over
1993.
8
<PAGE> 10
OVERVIEW OF 1994 RESULTS (CONTINUED)
- --------------------------------------------------------------------------------
The Corporation is the highest capitalized large bank holding company in the
United States. The ratio of common shareholders' equity to assets was 9.54% at
December 31, 1994. The Tier I, Total and leverage capital ratios were 9.48%,
12.90% and 8.67%, respectively, at December 31, 1994.
The Corporation reported net income of $460 million, or $2.73 per common share,
in 1993. This compares with net income of $528 million, or $3.56 per common
share, in 1992. Tax benefits of $130 million were included in net income in
1992. Net interest revenue increased by $147 million in 1993, compared with
1992, primarily reflecting a higher level of interest-earning assets from the
second quarter 1993 acquisition of The Boston Company and the December 1992
Meritor retail office acquisition. The provision for credit losses was $125
million in 1993, down $60 million from the prior year. Fee revenue increased
by $384 million in 1993, reflecting fee revenue at The Boston Company as well
as internal growth. Gains on the sale of securities were $100 million and $129
million in 1993 and 1992, respectively. Operating expense in 1993 increased
$436 million compared with 1992, primarily as a result of The Boston Company
and Meritor retail office acquisitions, including $175 million of merger
expenses related to The Boston Company acquisition.
9
<PAGE> 11
<TABLE>
<CAPTION>
BUSINESS SECTORS
- --------------------------------------------------------------------------------------------------------------------------------
Consumer Corporate/Institutional
(dollar amounts in
millions, averages Investment Services Banking Services Investment Services Banking Services
in billions) 1994 1993 1994 1993 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $378 $347 $1,290 $1,201 $973 $833 $ 431 $ 363
Credit quality
expense (revenue) - - 62 62 - - - 58
Operating expense 267 222 831 741 756 606 184 125
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) before
taxes 111 125 397 398 217 227 247 180
Income taxes 47 53 155 154 95 99 88 64
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 64 $ 72 $ 242 $ 244 $122 $128 $ 159 $ 116
- --------------------------------------------------------------------------------------------------------------------------------
Average assets $0.4 $0.3 $ 20.9 $ 21.1 $0.9 $0.6 $13.2 $11.7
Average common
shareholders' equity $0.2 $0.2 $ 1.4 $ 1.3 $0.5 $0.5 $ 1.1 $ 1.0
Return on common
shareholders' equity 31% 36% 18% 18% 22% 27% 14% 11%
Return on assets NM NM 1.16% 1.15% NM NM 1.20% 1.00%
Pretax operating margin 29% 36% 31% 33% 22% 27% 57% 50%
Pretax operating margin
excluding amortization
of intangibles 30% 37% 35% 38% 25% 29% 59% 50%
Efficiency ratio
excluding amortization
of intangibles 70% 63% 60% 57% 75% 71% 41% 34%
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
NM--Not a meaningful measure of performance for this sector.
NOTE: THE TABLE 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 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>
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 services that are
offered--investment and banking. Accordingly, the business sector results for
the year ended December 31, 1993, have been realigned to reflect the change in
methodology used by the Corporation to report business sector results.
Income before taxes for the Corporation's core sectors was $972 million in
1994, up $42 million, or 5%, compared with 1993. The improvement primarily
resulted from the full-year impact in 1994 of The Boston Company and AFCO
acquisitions and reduced credit quality expense. Return on common
shareholders' equity for the core sectors was 18% in 1994, compared with 19% in
1993, and return on assets was 1.66% in both 1994 and 1993. Results in the
Real Estate Workout sector also showed significant improvement with income
before taxes improving to $27 million in 1994, as a result of lower credit
quality expense, compared with a loss of $71 million in 1993.
Consumer Investment Services
Consumer Investment Services includes private asset management services and
retail mutual funds. Income before taxes for the Consumer Investment sector
was $111 million, a decrease of $14 million compared with 1993. This decrease
primarily reflects lower fee revenue and higher operating expense in the mutual
fund businesses offset partially by the full-year impact of private asset
management of The Boston Company in 1994. This sector continues to provide
excellent returns, as return on common shareholders' equity exceeded 30% in
both 1994 and 1993.
10
<PAGE> 12
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1994 1993 1994 1993 1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3,072 $2,744 $ 13 $ 8 $ 90 $232 $3,175 $2,984
62 120 (24) 64 4 - 42 184
2,038 1,694 10 15 354 316 2,402 2,025
- ------------------------------------------------------------------------------------------------------------------
972 930 27 (71) (268) (84) 731 775
385 370 10 (26) (97) (29) 298 315
- ------------------------------------------------------------------------------------------------------------------
$ 587 $ 560 $ 17 $(45) $(171) $(55) $ 433 $ 460
- ------------------------------------------------------------------------------------------------------------------
$ 35.4 $ 33.7 $0.3 $0.6 $ 2.4 $1.3 $ 38.1 $ 35.6
$ 3.2 $ 3.0 $ - $0.1 $ 0.5 $0.2 $ 3.7 $ 3.3
18% 19% NM NM NM NM 10% 12%
1.66% 1.66% NM NM NM NM 1.14% 1.29%
32% 34% NM NM NM NM 23% 26%
35% 37% NM NM NM NM 37% 33%
63% 59% NM NM NM NM 62% 61%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking Services
Consumer Banking Services includes consumer lending, branch banking, credit
card, mortgage loan origination and servicing and jumbo residential mortgage
lending. Income before taxes for the Consumer Banking sector totaled $397
million in 1994, compared with $398 million in 1993. Revenue increased by $89
million compared with the prior year, primarily as a result of revenue
generated by the Corporation's CornerStone(sm) credit card product, increased
levels of retail loans, the full-year impact of jumbo residential mortgage
lending of The Boston Company in 1994, and increased mortgage servicing fees
related to mortgage servicing portfolio acquisitions. Operating expenses
increased $90 million reflecting increased marketing expense of $27 million in
support of the introduction of the Corporation's CornerStone(sm) credit card
product, the full-year impact in 1994 of The Boston Company jumbo residential
mortgage lending and the U.S. Bancorp Mortgage acquisition. Return on common
shareholders' equity for this sector was 18% in both 1994 and 1993.
Corporate/Institutional Investment Services
Corporate/Institutional Investment Services includes institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending (excluding the securities lending charge),
foreign exchange, cash management and stock transfer. Income before taxes for
1994 totaled $217 million, compared with $227 million in 1993. The increase in
revenue reflects the full-year impact of The Boston Company in 1994, which
more than offset lower Dreyfus institutional mutual fund management revenue.
The increase in operating expense of $150 million primarily reflects the
full-year impact of The Boston Company. Return on common shareholders' equity
for this sector was 22% in 1994, compared with 27% in 1993.
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 this sector was $247 million, an increase of $67
million compared with 1993. The improvement in revenue principally resulted
from the AFCO acquisition. No credit quality expense was recorded in
11
<PAGE> 13
BUSINESS SECTORS (CONTINUED)
- -------------------------------------------------------------------------------
1994, compared to $58 million in 1993, reflecting continued improvement in the
credit quality of the loan portfolio. Operating expense increased $59 million
primarily as a result of the AFCO acquisition. The return on common
shareholders' equity for this sector improved to 14% in 1994, compared with 11%
in the prior year.
Real Estate Workout
Real Estate Workout includes commercial real estate and mortgage banking
recovery operations. Income before taxes for Real Estate Workout was $27
million in 1994, compared with a pretax loss of $71 million in 1993. The $98
million improvement in profitability primarily was due to the $88 million
decrease in credit quality expense reflecting the lower level of real estate
acquired (OREO). Credit quality expense in 1994 included $30 million in net
gains on the sale of acquired property and no provision to the reserve for
OREO, compared with a $54 million provision to the reserve for OREO in 1993.
Other
The "Other" sector's pretax loss of $268 million in 1994 principally reflects
the $223 million pretax securities lending charge and the pretax merger
expenses and loss on disposition of securities, totaling $119 million, recorded
in conjunction with the Dreyfus merger, net of approximately $77 million of
earnings on capital above that required in the core sectors. The results for
1993 include the results of operations from certain divestitures, as well as
gains on the sale of securities of $87 million and $175 million of merger
expenses related to the Corporation's acquisition of The Boston Company.
The tables below distribute net income and return on common shareholders'
equity for the Corporation's core sectors between customers serviced and
services provided for 1994 and 1993.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Customers
--------------------------------------------------
Total Total
Consumer Corporate/Institutional
Services Services
--------------------- -----------------------
(dollar amounts in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $306 $316 $281 $244
Return on common
shareholders' equity 20% 21% 17% 16%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Services
-------------------------------------------------
Total Total
Investment Banking
Services Services
--------------------- -------------------
(dollar amounts in millions) 1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $186 $200 $401 $360
Return on common
shareholders' equity 25% 30% 16% 15%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
NET INTEREST REVENUE
- -------------------------------------------------------------------------------------------------------------------------------
(taxable equivalent basis,
dollar amounts in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue $ 1,521 $ 1,346 $ 1,203
Average interest-earning assets 32,282 30,657 26,948
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.71% 4.39% 4.46%
Without taxable equivalent increments 4.67 4.34 4.39
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The improvement in net interest revenue and the net interest margin in 1994,
compared with the prior year, primarily resulted from a higher level of
interest-earning assets, as well as a higher-yielding asset mix. Net interest
revenue on a fully taxable equivalent basis totaled $1.521 billion in 1994, up
$175 million, or 13%, compared with 1993. The net interest margin increased 32
basis points to a historical high of 4.71% in 1994.
The 1993 acquisitions of The Boston Company and AFCO both increased average
interest-earning assets and enabled the Corporation to replace lower-yielding
money market assets with higher-yielding loans. Average interest-earning
assets were $1.6 billion higher in 1994, compared with 1993, reflecting a
full-year effect of these acquisitions. Increases of $3.3 billion in average
loans and $345 million in average securities were partially offset by a $2.2
billion decrease in average money market assets. The increase in average loans
in 1994 included approximately $1.5 billion and $1.2 billion from The Boston
Company and AFCO, respectively, as well as a $500 million increase in retail
loans and a $380 million increase in credit card loans. The increase in retail
loans primarily resulted from higher levels of home equity and student loans,
while the increase in average credit card loans primarily was driven by the new
CornerStone(sm) credit card product. A further reduction in nonperforming
assets, a lower average level of long-term debt and higher loan fees also
contributed to the improved net interest revenue and the net interest margin
compared with the prior year.
Net interest revenue on a taxable equivalent basis in 1993 increased by $143
million compared with 1992, while the net interest margin decreased by 7 basis
points. The improvement in net interest revenue primarily reflected a higher
level of interest-earning assets resulting from the second quarter 1993
acquisition of The Boston Company and the December 1992 Meritor retail office
acquisition. Net interest revenue and the margin also benefited from a lower
level of nonperforming assets. Partially offsetting these positive factors was
the impact from the reduction in higher-yielding securities that were sold in
the first quarter of 1993 as part of the financing plan and balance sheet
restructuring related to the acquisition of The Boston Company and a higher
level of long-term debt issued in the financing of this acquisition.
<TABLE>
<CAPTION>
CREDIT QUALITY EXPENSE
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $ 70 $125 $185
Net expense (revenue) of acquired property (28) 59 95
- -------------------------------------------------------------------------------------------------------------------------------
Credit quality expense $ 42 $184 $280
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense (revenue) of acquired property, was $42 million in 1994, down $142
million compared with the prior year, reflecting the improved credit quality of
the loan portfolio, net gains on the sale of acquired property and a lower
level of real estate acquired (OREO). The Corporation currently anticipates
that credit quality expense will increase in 1995, primarily due to lower gains
on the sale of acquired property.
The Corporation recorded a $70 million provision for credit losses in 1994, the
lowest provision since 1983. A $125 million provision was recorded in 1993.
The net revenue from acquired property was $28 million in 1994, an $87 million
improvement over 1993. The improvement reflects $30 million of net gains on
the sale of acquired property, as well as no provision to the reserve for OREO
in 1994, compared with a $54 million provision to the reserve for OREO in 1993.
13
<PAGE> 15
<TABLE>
<CAPTION>
NONINTEREST REVENUE
- -------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 294 $ 310 $ 271
Administration/Custody 159 119 23
Institutional trust 223 184 118
Institutional asset management 143 122 81
Private asset management 134 118 91
- -------------------------------------------------------------------------------------------------------------------------------
Total trust and investment management 953 853 584
Cash management and deposit transaction charges 197 192 182
Information services 78 152 142
Mortgage servicing 78 62 41
Foreign currency and securities trading 76 46 21
Credit card 72 61 54
Other 198 172 130
- -------------------------------------------------------------------------------------------------------------------------------
Total fee revenue 1,652 1,538 1,154
Gains (losses) on sale of securities (5) 100 129
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue $1,647 $1,638 $1,283
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Reflecting the Corporation's strategy of maintaining a well-balanced revenue
base, revenues from the fee-generating businesses represented 52% of total
revenue for the year. Fee revenue grew $114 million, or 7%, in 1994, compared
with 1993. The increase primarily resulted from the full-year impact of The
Boston Company acquisition which occurred in the second quarter of 1993. Total
fee revenue was negatively impacted in 1994 from the December 1993 sale of two
information services businesses and lower revenue from the management of
Dreyfus' proprietary mutual fund assets.
Trust and investment management services are provided to both individuals and
institutions and represents the largest segment of the Corporation's fee-based
services. The Dreyfus merger substantially increased the Corporation's trust
and investment management fee revenue to 58% of the Corporation's total fee
revenue and 30% of its total revenue. Trust and investment management fee
revenue increased $100 million, or 12%, over the prior year. This increase
primarily was attributable to the full-year impact of The Boston Company, as
well as successful sales and marketing efforts of existing products. Partially
offsetting this increase was a $20 million decrease in revenue from the
management of Dreyfus' proprietary mutual fund assets, which is discussed on
page 16. On a stand-alone basis, total trust and investment management fee
revenue for Dreyfus was $303 million in 1994, $324 million in 1993 and $293
million in 1992.
The securities lending component of trust and investment management revenue was
$40 million in 1994, a decrease of $1 million compared with 1993. Although
actions were taken in the fourth quarter of 1994 to reduce the interest rate
sensitivity of certain securities lending portfolios, fluctuations in
securities lending revenue could occur depending on the frequency and magnitude
of future interest rate changes. The Corporation currently anticipates that
securities lending revenue, in 1995, will remain at approximately the same
level as the prior year.
14
<PAGE> 16
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
As shown in the table below, the market value of assets under management and
administration/custody was $847 billion at December 31, 1994, up $16 billion
compared with $831 billion at December 31, 1993. The $37 billion increase in
the market value of assets under administration/custody primarily reflected
higher levels of institutional trust business resulting from new clients and
increased funding by existing clients, partially offset by the impact of the
sale of the Boston-based third-party mutual fund administration business and a
general decline in the bond and equity markets. The $21 billion decrease in
the market value of assets under management reflected, in part, lower
institutional money market mutual fund assets managed as well as the decline in
the bond markets. At December 31, 1994, compared with December 31, 1993, the
Lehman Brothers Long Term Government Bond index had decreased 7%, while the S&P
500 index had decreased 1.5%.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY December 31,
(in billions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional trust:
Management $ 3 $ 1 $ 1
Administration/Custody 568 479 277
Mutual fund:
Management 73 82 78
Administration/Custody 76 128 4
Institutional asset management:
Management 93 104 72
Private asset management:
Management 21 24 21
Administration/Custody 13 13 6
- -------------------------------------------------------------------------------------------------------------------------------
Total:
Management $190 $211 $172
Administration/Custody $657 $620 $287
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY December 31,
(in billions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $18 $23 $27
Individuals 10 10 13
Tax-exempt money market funds 7 8 8
Tax-exempt bond funds 18 21 18
Fixed income funds 4 5 4
Equity funds 9 9 7
- -------------------------------------------------------------------------------------------------------------------------------
Total proprietary funds 66 76 77
Other managed funds 7 6 1
- -------------------------------------------------------------------------------------------------------------------------------
Total managed mutual fund assets $73 $82 $78
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND FEE REVENUE
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed mutual fund fees $348 $368 $345
Less: Fees waived 44 48 66
Less: Fund expense reimbursements 10 10 8
- -------------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees $294 $310 $271
- -------------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $ 43 $ 60 $ 64
Individuals 39 51 53
Tax-exempt money market funds 21 20 20
Tax-exempt bond funds 102 101 79
Fixed income funds 20 21 16
Equity funds 56 48 37
- -------------------------------------------------------------------------------------------------------------------------------
Total proprietary funds 281 301 269
Other managed funds 13 9 2
- -------------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees $294 $310 $271
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees are based on the average net assets of each fund.
Average proprietary funds managed at Dreyfus in 1994 were $72 billion, compared
with $82 billion in 1993. This decrease resulted from a $9 billion reduction
in average institutional money market assets managed, as well as an overall
drop in the market values of assets managed paralleling the decline in the bond
markets over the past 12 months. Management fee rates charged to money market
funds are generally lower than rates charged to other sponsored funds.
As a way of promoting the growth of mutual fund assets, as well as increasing
the rate of return to mutual fund investors, the Corporation may periodically
waive certain management fees and/or reimburse certain mutual fund expenses.
The Corporation may continue to follow this practice in the future; however, it
is not possible to predict the impact it may have on the future level of mutual
fund assets under management.
The Corporation provides a number of cash management services, including
remittance processing, collections and disbursements, check processing and
electronic wire transfer. Cash management and deposit transaction charges
totaled $197 million in 1994. At December 31, 1994, the Corporation's cash
management services ranked in the top five in market share nationally.
Information services fees totaled $78 million in 1994, a decrease of $74
million from 1993, primarily as a result of the December 1993 sale of two
information services businesses. These businesses generated revenues of $77
million in 1993. Information services fees are expected to be further reduced
in 1995 following the Corporation's intended contribution of the assets of its
Mellon Securities Transfer Services (MSTS) subsidiary to the joint venture with
Chemical Banking Corporation. MSTS recorded information services fee revenue
of $30 million in 1994. Net results of the joint venture with Chemical will be
reported on the equity method of accounting, as information services fee
revenue. It is expected that this transaction will not have a significant
impact on the Corporation's financial results.
Mortgage servicing fees increased by $16 million, or 25%, in 1994, compared
with 1993, primarily resulting from acquisitions of mortgage servicing rights
coupled with a lower rate of prepayments. The Corporation's total servicing
portfolio increased to $37 billion at December 31, 1994, compared with $20
billion at December 31, 1993. At December 31, 1994, the Corporation had the
18th largest residential mortgage servicing portfolio in the United States.
16
<PAGE> 18
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
Foreign currency and securities trading fees increased to $76 million, a 64%
increase over the $46 million earned in 1993. The increase primarily reflects
the full-year impact of foreign exchange fees earned, principally from global
custody customers at The Boston Company, compared with a partial year impact in
1993.
Credit card fee revenue, which principally consists of interchange and
cardholder fees, increased by $11 million, or 19%, in 1994. This increase
primarily resulted from fee revenue generated by the Corporation's
CornerStone(sm) credit card product. Average credit card loans increased to
$1.733 billion in 1994, from $1.351 billion in 1993, primarily as a result of
CornerStone(sm).
Other fee revenue in 1994 included $32 million from the Corporation's seasonal
tax refund anticipation loan program, a decrease of $5 million from the prior
year. In the fourth quarter of 1994, the Corporation announced that it will
not offer this loan program in 1995. The Corporation made this decision
following the U.S. Treasury Department's fourth quarter 1994 announcement that
the Internal Revenue Service (IRS) no longer will provide timely notice of
those instances where IRS liens exist against taxpayers, making them ineligible
for a refund anticipation loan. Without this notification from the IRS, the
Corporation could not reasonably assure that the credit quality of the refund
anticipation loans would be acceptable. In 1994 the refund anticipation loan
program contributed approximately $.13 to the Corporation's earnings per common
share.
The Corporation recorded $5 million in net losses on securities available for
sale in 1994, resulting from the third quarter 1994 loss of $15 million, or $10
million after tax, from the disposition of securities held by Dreyfus that did
not meet the investment objectives, interest rate or credit risk
characteristics required by the Corporation. The Corporation recorded $100
million in gains on the sale of securities during 1993. Included in the $100
million in gains were $87 million which resulted from sales undertaken as part
of the financing plan and balance sheet restructuring related to the
acquisition of The Boston Company.
Compared with 1992, fee revenue grew by $384 million, or 33%, in 1993,
primarily resulting from $252 million of fee revenue attributable to The Boston
Company, as well as continued growth in the fee-based service products
businesses. The improvement reflected increases of 46% in trust and investment
management fees, 53% in mortgage servicing fees, 14% in cash management and
deposit transaction charges excluding a one-time 1992 accrual adjustment, 13%
in credit card fee revenue and a 125% increase in foreign currency and
securities trading fee revenue.
17
<PAGE> 19
<TABLE>
<CAPTION>
OPERATING EXPENSE
- -------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $ 956 $ 854 $ 672
Professional, legal and other purchased services 210 163 131
Net occupancy expense 206 186 163
Business development 161 139 121
Equipment expense 132 121 105
Amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions 98 78 50
Communications expense 84 77 66
FDIC assessment and regulatory examination fees 63 60 53
Amortization of purchased mortgage servicing rights
and purchased credit card relationships 40 44 29
Forms and supplies 40 38 30
Other expense 85 90 97
- -------------------------------------------------------------------------------------------------------------------------------
Operating expense before the net expense (revenue) of acquired
property, securities lending charge and merger expenses 2,075 1,850 1,517
- -------------------------------------------------------------------------------------------------------------------------------
Net expense (revenue) of acquired property (28) 59 95
- -------------------------------------------------------------------------------------------------------------------------------
Securities lending charge 223 - -
- -------------------------------------------------------------------------------------------------------------------------------
Merger expenses 104 175 36
- -------------------------------------------------------------------------------------------------------------------------------
Total operating expense $ 2,374 $ 2,084 $ 1,648
- -------------------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,300 22,300 19,200
- -------------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (a) 65% 64% 65%
Efficiency ratio excluding amortization of goodwill,
core deposit and other identified intangibles
recorded in connection with acquisitions 62 61 63
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Operating expense before the net expense (revenue) of acquired
property, the securities lending charge and merger expenses as a
percentage of revenue, computed on a fully taxable equivalent basis,
excluding securities gains (losses).
</TABLE>
Operating expense before the net expense (revenue) of acquired property, the
securities lending charge and merger expenses totaled $2.075 billion in 1994,
an increase of $225 million, or 12%, compared with $1.850 billion in 1993. The
increase primarily resulted from the acquisition of The Boston Company in the
second quarter of 1993. This acquisition, as well as other acquisitions
accounted for under the purchase method of accounting, and divestitures
impacted every expense category. Expenses decreased as a result of the
December 1993 sale of two information services businesses. The decreases
caused by the sale of these businesses primarily offset increased expense
related to the December 1993 AFCO acquisition and other smaller acquisitions
that occurred in 1994. In addition, marketing expenses of $27 million were
recorded in 1994 related to the introduction of the Corporation's
CornerStone(sm) credit card product. The Dreyfus merger was accounted for as
a pooling of interests. On a stand-alone basis, Dreyfus incurred operating
expense before merger expenses of $230 million, $225 million and $199 million
in 1994, 1993 and 1992, respectively. The increase in the average full-time
equivalent staff level in 1994, compared with the prior-year period, primarily
was a result of a full-year impact of The Boston Company in 1994.
On January 31, 1995, the Federal Deposit Insurance Corporation (FDIC) staff
proposed a reduction in the premium banks pay for deposit insurance. For well
capitalized institutions, the premium would be reduced by 83% from the current
$.23 for every $100 of deposits to $.04 per $100 of deposits. At December 31,
1994, all of the Corporation's banking subsidiaries qualified as well
capitalized. If adopted, the proposal is expected to be effective at some time
in the second half of 1995. In the first half of 1995, the Corporation will
pay approximately $27 million in FDIC assessments. The proposal has a 60 day
comment period and could be revised and/or delayed.
18
<PAGE> 20
OPERATING EXPENSE (CONTINUED)
- -------------------------------------------------------------------------------
The net expense (revenue) of acquired property improved $87 million in 1994 and
included $30 million in net gains on the sale of acquired property and no
provision to the reserve for OREO, compared with 1993 which included a $54
million OREO reserve provision. The securities lending charge is discussed in
the "Significant Events in 1994" section on page 7.
Merger expenses of $104 million pretax, or $79 million after tax, were recorded
in 1994 to reflect expenses associated with the Dreyfus merger.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE DREYFUS CORPORATION) Expenditures Expected
and asset expenditures
Total adjustments at ---------------------
(in millions) expenses Dec. 31, 1994 1995 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Benefit and severance programs $ 42 $25 $ 9 $8
Professional, consulting and other 27 26 1 -
Facilities and assets 25 25 - -
Proxy solicitation 10 9 1 -
- --------------------------------------------------------------------------------------------------------------------------------
Total merger expenses $104 $85 $11 $8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Merger expenses of $175 million, or $112 million after tax, were recorded in
1993 to reflect expenses associated with the acquisition of The Boston Company.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MERGER EXPENSES ANALYSIS (THE BOSTON COMPANY) Expenditures
Estimated and asset Expected
total adjustments at expenditures
(in millions) expenses Dec. 31, 1994 in 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Systems integration $ 67 $ 35 $32
Adjustment to The Boston Company credit loss reserve 51 51 -
Professional and consulting 16 15 1
Severance, incentive retention plan, relocation and travel 12 8 4
Facilities expense 8 4 4
Other 21 18 3
- --------------------------------------------------------------------------------------------------------------------------------
Total merger expenses $175 $131 $44
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating expense before the net expense of acquired property and merger
expenses in 1993 increased by $333 million, or 22%, over 1992. The combined
effect of The Boston Company and Meritor retail office acquisitions was the
primary reason for higher expenses in nearly all expense categories. The $36
million decrease in the net expense of acquired property in 1993, compared with
1992, primarily resulted from a lower provision to the reserve for OREO.
Merger expenses for 1992 included $18 million related to the Meritor retail
office acquisition and $18 million related to the Corporation's expense
reduction program.
INCOME TAXES
- -------------------------------------------------------------------------------
The provision for income taxes totaled $278 million in 1994, compared with $298
million in 1993 and $104 million in 1992. Without the availability of
unrecognized tax benefits to offset federal income taxes, the Corporation's
provision for income taxes in 1992 would have been approximately $234 million.
Excluding the impact of the Dreyfus merger-related expenses and losses on the
disposition of Dreyfus securities in the third quarter of 1994 and the
securities lending charge in the fourth quarter of 1994, the Corporation's
effective tax rate for 1994 was 38%. Excluding the impact of The Boston
Company merger-related expenses and securities gains and a one-time tax benefit
of $5 million resulting from a 1993 change in tax legislation, the
Corporation's effective tax rate for 1993 was 39.5%. The Corporation
anticipates that its effective tax rate will remain at approximately 38% for
the foreseeable future.
19
<PAGE> 21
<TABLE>
<CAPTION>
CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, December 31,
except per share amounts) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $ 3,687 $ 3,546 $ 2,870
Common shareholders' equity to assets ratio 9.54% 9.57% 8.85%
Tangible common equity ratio (a) 7.05 6.84 7.03
Total shareholders' equity $ 4,122 $ 4,138 $ 3,337
Total shareholders' equity to assets ratio 10.67% 11.17% 10.28%
Tier I capital ratio 9.48 9.70 10.20
Total (Tier I plus Tier II) capital ratio 12.90 13.22 13.83
Leverage capital ratio 8.67 9.00 9.45
Book value per common share (b) $ 25.06 $ 24.28(c) $ 21.37(c)
Closing common stock price (b) $30.625 $35.375 $35.375
Market capitalization $ 4,507 $ 5,070 $ 4,661
- ----------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill, core deposit and other
identified intangibles recorded in connection with acquisitions divided by
total assets less goodwill, core deposit and other identified intangibles.
(b) Restated to reflect the three-for-two common stock split
distributed November 15, 1994.
(c) The book value per common share assumed full conversion of the
Series D preferred stock to common stock. Accordingly, this included the
additional paid-in capital on the Series D preferred stock because this
paid-in capital had no liquidation preference over the common stock. 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>
At December 31, 1994, the Corporation was the highest capitalized large bank
holding company in the United States, with a common shareholders' equity to
assets ratio of 9.54% and a total shareholders' equity to assets ratio of
10.67%. Common shareholders' equity was $3.687 billion, an increase of $141
million from year-end 1993. Total shareholders' equity was $4.122 billion, a
slight decrease from $4.138 billion at December 31, 1993. The increase in
common shareholders' equity resulted from earnings retention. The decrease in
total shareholders' equity resulted from the December 1994 announced redemption
of the $160 million Series H preferred stock. This redemption reduced the
December 31, 1994 total shareholders' equity to assets ratio and the regulatory
capital ratios by 40 to 45 basis points. In addition, the capital ratios at
December 31, 1994, were impacted by a higher level of assets and risk-adjusted
assets, compared with the prior year-end.
On January 1, 1994, the Corporation adopted Financial Accounting Standard No.
115 (FAS No. 115), "Accounting for Certain Investments in Debt and Equity
Securities." This standard requires that securities classified as "available
for sale" are to be reported at fair value, with unrealized gains and losses,
net of tax, reported as a separate component of shareholders' equity. At
year-end 1994, the Corporation recorded unrealized losses of $43 million on
securities available for sale and $42 million on loans with a corresponding
reduction in shareholders' equity of $55 million, net of tax. The reduction in
loans related to the valuation of $159 million (carrying value before
adjustment) of Mexican Brady bonds that the Corporation carries as loans. The
unrealized loss resulted in a reduction of book value per common share of $.38
and a reduction of 16 basis points in the common shareholders' equity to assets
ratio. Increased volatility of shareholders' equity, certain related capital
ratios and book value per common share could result from future changes in
unrealized gains and losses on assets classified as available for sale.
20
<PAGE> 22
CAPITAL (CONTINUED)
- --------------------------------------------------------------------------------
In connection with the August 1994 Dreyfus merger, which was accounted for as a
pooling of interests, the Corporation issued 48.3 million shares of common
stock, on a post-stock split basis, in exchange for the Dreyfus common stock.
The restated capital ratios of the Corporation following this acquisition were
more than 200 basis points higher than the previously reported amounts.
However, restated book value per common share was approximately 13% lower than
the previously reported amounts.
In November 1994, the board of directors of the Corporation authorized the
repurchase of up to 3 million shares of the Corporation's common stock. The
repurchased shares will be added to the Corporation's treasury shares and will
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. The repurchase of shares began in January 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS December 31,
(dollar amounts in millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a)(b) $ 3,742 $ 3,509
Qualifying preferred stock (b) 435 629
Minority interest 13 12
Goodwill and certain other intangibles (904) (927)
- ------------------------------------------------------------------------------------------------------------------------------
Total Tier I capital 3,286 3,223
Tier II capital 1,187 1,169
- ------------------------------------------------------------------------------------------------------------------------------
Total qualifying capital $ 4,473 $ 4,392
- ------------------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $26,213 $24,522
Off-balance-sheet 8,465 8,690
- ------------------------------------------------------------------------------------------------------------------------------
Total $34,678 $33,212
- ------------------------------------------------------------------------------------------------------------------------------
Average assets--leverage capital basis $37,882 $35,805
- ------------------------------------------------------------------------------------------------------------------------------
Tier I capital ratio (c) 9.48% 9.70%
Total capital ratio (c) 12.90 13.22
Leverage capital ratio (c) 8.67 9.00
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) In accordance with regulatory guidelines, the $55 million, net of
tax, of unrealized losses on assets classified as available for sale at
December 31, 1994, has been excluded.
(b) For the purpose of this computation, the additional paid-in capital
on the Series D preferred stock, totaling $37 million, was included in
"Qualifying preferred stock" rather than in "Common shareholders' equity,"
at December 31, 1993.
(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. If 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 December 31, 1994. The
Corporation intends to maintain the ratios of its banking subsidiaries at the
well capitalized levels.
21
<PAGE> 23
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
The Corporation deducts all goodwill and certain other identified intangibles
acquired subsequent to February 19, 1992, except purchased mortgage servicing
rights and purchased credit card relationships, from Tier I capital.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $824 $826 $381
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $2 million decrease in goodwill at December 31, 1994, compared with
December 31, 1993, reflects increases in goodwill of $27 million related to the
U.S. Bancorp Mortgage Company transaction and $22 million related to the
acquisition of Glendale. Offsetting these increases was $52 million of
amortization during 1994. The amortization of goodwill is expected to be
approximately $51 million in 1995 based upon the current level and amortization
schedule. The increase in goodwill during 1993 principally resulted from The
Boston Company acquisition.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased core deposit intangible $133 $155 $215
Covenants not to compete 38 57 7
Other identified intangibles 41 46 32
- -------------------------------------------------------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $212 $258 $254
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortization expense of purchased core deposit and other identified
intangibles was $46 million in 1994. The future annual amortization expense
will be approximately $43 million, based upon the current level and
amortization schedule. The decrease in purchased core deposit intangibles
during 1993 resulted from the annual amortization charge, as well as a
reclassification of $26 million to goodwill following the receipt of an
independent appraisal of the intangibles and final valuation of Meritor's
assets and liabilities. The increase in the noncompete covenant in 1993
resulted from The Boston Company acquisition.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased mortgage servicing rights $292 $160 $140
Purchased credit card relationships 60 44 49
- -------------------------------------------------------------------------------------------------------------------------------
Total purchased mortgage servicing rights
and purchased credit card relationships $352 $204 $189
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in purchased mortgage servicing rights (PMSR) in both 1994 and
1993 resulted primarily from acquisitions. A test for the impairment of value
of PMSRs is conducted quarterly. The estimated fair value of the PMSRs
exceeded the carrying value at December 31, 1994. For a further discussion of
the Corporation's accounting policy for PMSRs, see note 1 of Notes to Financial
Statements. The amortization expense of PMSRs and purchased credit card
relationships was $40 million in 1994.
22
<PAGE> 24
CORPORATE RISK
- -------------------------------------------------------------------------------
RISK OVERVIEW
- -------------------------------------------------------------------------------
Risk identification and management are essential elements for the successful
management of the Corporation. The four primary risk exposures are liquidity
risk; market risk, which includes interest rate and currency risk; credit risk;
and fiduciary risk. Liquidity risk is the possibility that the Corporation
will not be able to fund present and future financial obligations. Market risk
is the possibility of lower net interest revenue or lower market values of
assets and liabilities as interest rates or exchange rates fluctuate. Credit
risk is the possibility of loss from a counterparty's failure to perform
according to the terms of a transaction. Fiduciary risk is the possibility of
loss from actions taken on behalf of clients. In addition, the Corporation is
subject to other risks, particularly in its fee-generating businesses, that are
transaction oriented. The Corporation controls and monitors these risks with
policies, procedures and various levels of managerial oversight. Because of
the nature of its businesses, external factors beyond the Corporation's control
may, at times, result in losses to the Corporation or its customers.
The Corporation is involved with various financial instruments that potentially
create risk. These instruments are both on and off the balance sheet.
On-balance-sheet instruments include securities, loans, bonds and deposits.
Off-balance-sheet instruments include loan commitments, standby letters of
credit, interest rate swaps, foreign exchange contracts and interest rate
futures and forwards.
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 Finance
Committee of the Corporation is responsible for liquidity management. This
committee of senior managers of the Corporation has developed a Liquidity
Policy that covers all assets and liabilities, as well as off-balance-sheet
items that are potential sources or uses of liquidity.
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
$200 million revolving credit agreement and a $25 million backup line of credit
to provide support facilities for its commercial paper borrowings and for
general corporate purposes. The revolving credit facility contains tangible
net worth and double leverage ratio covenants, as discussed in note 9 of Notes
to Financial Statements.
As shown in the Consolidated Statement of Cash Flows, cash and due from banks
increased by $114 million during 1994 to $2.285 billion at December 31, 1994.
The increase primarily reflected $949 million of net cash provided by operating
activities and $476 million of net cash provided by financing activities,
offset in part by $1.331 billion of net cash used by investing activities. Net
cash provided by financing activities primarily reflected net increases in
short-term borrowed funds and term deposits offset, in part, by decreases in
transaction and savings deposits and longer-term debt. Cash generated by
operating activities of $949 million, included $433 million of net income
adjusted for noncash charges and credits. Cash used in investing activities
principally reflected an increase in loans, partially offset by a decrease in
money market assets.
Included in noncash charges and credits is the amortization expense of
goodwill, core deposit and other identified intangibles which the Corporation
has recorded as a result of accounting for business combinations under the
purchase method of accounting. 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. The
amortization expense of these intangibles was $98 million pretax, or $76
million after tax in 1994.
During 1994 the Corporation reduced its long-term debt by $422 million,
primarily reflecting the retirement of the entire $200 million of Floating Rate
Senior Notes due 1996 and contractual maturities of $213 million. Contractual
23
<PAGE> 25
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
maturities primarily were comprised of the $200 million Floating Rate Notes due
1994. Contractual maturities of existing debt will total $327 million in 1995.
The Corporation expects to fund its 1995 debt maturities with a combination of
cash presently on hand, other internal funding sources and, if necessary, with
the proceeds from the public and/or private issuance of securities. The
Corporation has a debt shelf registration statement on file with the Securities
and Exchange Commission on which up to $200 million of debt may be issued.
In December 1994 the Corporation announced its commitment to redeem the $160
million Series H preferred stock at the contractual redemption price of $26.30
per share plus accrued dividends through March 1, 1995. This redemption will
be funded with cash on hand. Preferred stock dividends for 1994 reflect an
additional $16 million for the Series H redemption premium, the write-off of
unamortized issuance costs and dividends accrued through the redemption date.
These additional items reduced 1994 earnings by $.11 per common share.
Preferred stock dividend requirements will be reduced by $17 million annually,
or $.11 per common share, as a result of this redemption. Net of an assumed
long-term funding rate, the redemption of the Series H preferred stock is
estimated to increase earnings per common share by $.06 in 1995.
During the third quarter of 1994, Moody's and Standard & Poor's, two public
credit rating agencies, upgraded their ratings on the Corporation's senior debt
securities and other obligations, primarily as a result of the Corporation's
improved capital position, lower level of nonperforming assets and continued
growth in core earnings. These upgrades should enable the Corporation to issue
debt at lower rates of interest and, overall, enhance the Corporation's access
to funding markets.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MELLON BANK CORPORATION December 31,
SENIOR DEBT RATINGS 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Moody's A2 A3 Baa1
Standard & Poor's A A- A-
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation paid $254 million of dividends on its outstanding shares of
common and preferred stock during 1994. On November 15, 1994, the Corporation
distributed a three-for-two common stock split. All dividend per share amounts
have been restated to reflect this stock split. The Corporation increased its
annual common stock dividend to $1.4933 per share in the first quarter of 1994,
an increase of 47% from $1.0133 per share in 1993. In the fourth quarter of
1994, the Corporation again increased its dividend on common stock to $1.80 per
share, an increase of 21% from the previous annual rate of $1.4933 per share.
As a result of both dividend increases in 1994, the Corporation increased its
annual common dividend by 78%. These increases resulted in a common stock
dividend payout ratio of 55% in 1994, compared with 31% in 1993. Excluding the
$130 million after tax securities lending charge, the $89 million after tax of
Dreyfus-related charges and the $16 million of additional preferred stock
dividends, the dividend payout ratio would have been 33% in 1994. Using the
current common stock dividend rate and current shares outstanding, annual
dividend requirements in 1995 for the common and preferred stock are expected
to be approximately $305 million.
The parent Corporation's principal sources of cash are interest and dividends
from its subsidiaries. The ability of national bank subsidiaries to pay
dividends to the parent Corporation is subject to certain limitations, as
discussed in note 17 of Notes to Financial Statements. Under the more
restrictive limitations, the Corporation's national bank subsidiaries can,
without prior regulatory approval, declare dividends subsequent to December 31,
1994, of approximately $404 million, less any dividends declared and plus or
minus net profits or losses, as defined, between January 1, 1995, and the date
of any such dividend declaration. The national bank subsidiaries declared
dividends to the parent Corporation of $366 million in 1994, $185 million in
1993 and $154 million in 1992. Dividends paid to the parent Corporation by
nonbank subsidiaries totaled $122 million in 1994, compared with $116 million
in 1993 and $26 million in 1992. In addition, The Boston Company returned $100
million and $300 million of capital to the parent Corporation in 1994 and 1993,
respectively.
Banking regulators have issued additional guidelines that require bank holding
companies and subsidiary banks to continuously evaluate the level of cash
dividends in relation to their respective operating income, capital needs,
asset quality and overall financial condition. As a general rule, actual
dividends from the bank subsidiaries to the parent Corporation are not expected
to exceed earnings for those subsidiaries.
24
<PAGE> 26
<TABLE>
<CAPTION>
Balance sheet analysis
- ------------------------------------------------------------------------------------------------------------------------------
(average balances in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Money market investments $ 1,656 $ 3,821 $ 1,905
Trading account securities 380 269 308
Securities 5,149 4,804 6,500
Loans 25,097 21,763 18,235
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 32,282 30,657 26,948
Noninterest-earning assets 6,437 5,543 4,399
Reserve for credit losses (613) (565) (589)
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $38,106 $35,635 $30,758
- ------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $32,101 $31,430 $25,652
Wholesale and purchased funds 6,005 4,205 5,106
- ------------------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $38,106 $35,635 $30,758
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The change in the level and mix of the Corporation's average interest-earnings
assets in 1994, compared with 1993, reflects the full-year effect of The Boston
Company and AFCO acquisitions. The higher-yielding asset mix includes a $3.3
billion increase in average loans and a $345 million increase in average
securities that enabled the Corporation to replace $2.2 billion in
lower-yielding money market assets. The increase in average loans included
approximately $1.5 billion and $1.2 billion of loans acquired in the
acquisitions of The Boston Company and AFCO, respectively, as well as a $500
million increase in average retail loans and a $380 million increase in average
credit card loans. Partially offsetting the increase in average loans were
prepayments of consumer mortgages acquired in the 1992 Meritor retail office
acquisition and paydowns on commercial real estate loans. The mix of the
Corporation's funding changed in 1994, compared with the prior year, as a
decrease in retail savings certificates and notes and debentures was replaced
with shorter-term, wholesale and purchased funds.
Core funds are considered to be stable sources of funding and principally are
defined 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 $4.2 billion in 1994 from the prior-year, primarily
reflecting increased loan levels, while average core funds increased $671
million in 1994. Core funds averaged 104% of core assets in 1994, down from
118% in 1993 and 116% in 1992.
Wholesale and purchased funds are defined as deposits in foreign offices and
other time deposits, federal funds purchased and securities sold under
agreements to repurchase, negotiable certificates of deposit, U.S. Treasury tax
and loan demand notes, commercial paper and other funds borrowed. Average
wholesale and purchased funds increased $1.8 billion compared with 1993,
primarily reflecting increases in both overnight foreign office deposits, as
the Corporation has taken advantage of marginally lower-cost short-term
Eurodeposit rates, and an increase in federal funds purchased and securities
sold under agreements to repurchase. As a percentage of average total assets,
average wholesale and purchased funds were 16% in 1994; 12% in 1993; and 17% in
1992.
25
<PAGE> 27
INTEREST RATE SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
The objective of interest rate risk management is to control the effects that
interest rate fluctuations have on net interest revenue and on the net present
value of the Corporation's assets, liabilities and off-balance-sheet
instruments. The Corporation's Finance Committee is responsible for managing
interest rate risk and employing risk management policies that monitor and
limit exposure to interest rate risk.
Interest rate risk is measured using static gap, net interest margin simulation
and asset/liability net present value sensitivity analyses. The static gap and
simulation tools serve as the primary means to gauge interest rate exposure.
The net present value sensitivity is the means by which the Corporation's
long-term interest rate exposure is evaluated. These methods provide the
analyses needed for a full understanding of the range of potential impact on
net interest revenue and portfolio equity caused by interest rate movements.
The measurement of interest rate risk is meaningful only when all related on-
and off-balance-sheet items are aggregated and the net positions are
identified.
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 the
following page shows the repricing characteristics of the Corporation's
interest-earning assets and supporting funds at December 31, 1994. 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 December 31, 1994, the Corporation had an asset sensitive interest rate risk
position. 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 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.
The cumulative gap at the one-year repricing period, before the utilization of
off-balance-sheet instruments, was asset sensitive in the amount of $5.9
billion, or 15.3% of total assets, at December 31, 1994. 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 $4.4 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 $1.5 billion, or 3.8% 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 $4.4 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 expects that interest rates will increase in 1995 in the range
of 100 to 200 basis points from December 31, 1994 levels. In order to measure
the effects of interest rate fluctuations on the Corporation's net interest
margin, management simulates the potential effects of changing interest rates
through computer modeling, incorporating both the current gap position and the
expected magnitude of the repricing of specific asset and liability categories.
The 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 table on the following
page. This analysis was done assuming earning asset levels at December 31,
1994 remained constant and assumes an unchanged level of loan fees in 1995 from
1994. The level of earning assets at December 31, 1994 was higher than the
average level in 1994. The estimated impact in 1995 of the higher average
level of earning assets, primarily loans, would be approximately $.21 per
common share. The impact of the rate movements was developed by simulating the
effect of rates changing over a six month period from the December 31, 1994
levels. The simulated impact of rate changes shown in the following table is
compared to 1994 actual results.
26
<PAGE> 28
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS
Movements in Interest Rates from December 31, 1994 rates
- -------------------------------------------------------------------------------------------------------------------------------
Increase Decrease
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Anticipated impact in the next 12 months
compared with 1994 actual results: +100 bp +200 bp -100 bp -200 bp
------- ------- ------- -------
Net interest revenue increase +2.4% +.8% +2.6% +1.2%
Earnings per share increase $.15 $.05 $.17 $.08
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The anticipated increase in net interest revenue in the next 12 months compared
with 1994 actual results is slightly less favorable under an increasing rate
scenario due to the impact of interest rate caps on $3.2 billion of adjustable
rate mortgage (ARM) loans and $1.6 billion of ARM securities carried by the
Corporation. At December 31, 1994, 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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT DECEMBER 31, 1994
Repricing period
-----------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 828 $ 20 $ 5 $ 4 $ 3 $ - $ 860
Trading account securities 71 - - - - - 71
Securities 957 755 1,076 339 639 1,359 5,125
Loans 9,857 5,776 3,160 1,981 3,588 2,371 26,733
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $11,713 $ 6,551 $4,241 $2,324 $4,230 $ 3,730 $32,789
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 4,923 $ 4,888 $2,992 $1,644 $2,836 $ 4,308 $21,591
Other borrowed funds 3,175 148 - - 10 139 3,472
Notes and debentures (with original
maturities over one year) 2 - 27 300 479 760 1,568
Noninterest-bearing liabilities 218 182 273 142 2 5,341 6,158
- -------------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,318 $ 5,218 $3,292 $2,086 $3,327 $10,548 $32,789
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal $ 3,395 $ 1,333 $ 949 $ 238 $ 903 $(6,818) $ -
- -------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(3,136) $(2,144) $ 80 $ 759 $3,711 $ 730 $ -
- -------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 259 $ (811) $1,029 $ 997 $4,614 $(6,088) $ -
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 259 $ (552) $ 477 $1,474 $6,088 $ - $ -
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets .7% (1.4)% 1.2% 3.8% 15.8%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: Repricing periods for securities, loans, interest-bearing
deposits, noninterest-bearing liabilities and off-balance-sheet
instruments are based upon contractual maturities, where applicable, as
well as the Corporation's historical experience of the impact of
interest rate fluctuations on the prepayment, repricing and withdrawal
patterns of certain assets and liabilities.
</TABLE>
27
<PAGE> 29
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
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 in order to accomplish its objectives. Generic
swaps involve the exchange of fixed and variable interest rates based on
underlying contractual notional amounts. Index amortizing swaps involve the
exchange of fixed and variable interest rates; however, their notional amount
and maturities vary based on 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 following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK AT DECEMBER 31, 1994
Total at
Dec. 31,
(notional amounts in millions) 1995 1996 1997 1998 1999 2000+ 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $ 482 $ 260 $ 160 $ 15 $2,125 $ 400 $ 3,442
Weighted average rate:
Received 6.17% 5.30% 6.36% 5.22% 5.29% 6.32% 5.58%
Paid 5.96% 5.97% 5.80% 5.94% 5.66% 5.73% 5.74%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $ 861 $2,323 $ 693 $ 53 $ 603 $ 230 $ 4,763
Weighted average rate:
Received 6.02% 5.28% 6.10% 7.19% 7.11% 7.19% 5.88%
Paid 5.85% 5.83% 5.82% 5.69% 5.69% 5.69% 5.81%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 602 $ 20 $2,128 $ 18 $ 2 $ 10 $ 2,780
Weighted average rate:
Received 5.94% 5.50% 5.66% 3.42% 6.46% 6.19% 5.71%
Paid 5.38% 9.41% 4.75% 5.25% 8.41% 6.49% 4.93%
Other products (c) $ 126 $ 30 $ 100 $ 3 $ 2 $ 88 $ 349
- -------------------------------------------------------------------------------------------------------------------------------
Total notional amount $2,071 $2,633 $3,081 $ 89 $2,732 $ 728 $11,334
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Generic swaps' notional amounts and lives are not based upon interest
rate indices.
(b) Amortizing swaps' notional amounts and lives change based upon 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>
28
<PAGE> 30
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
The gross notional amount of off-balance-sheet instruments used to manage the
Corporation's interest rate risk was $11.3 billion at December 31, 1994, an
increase of $2.0 billion from December 31, 1993. This gross notional amount,
which is presented in the table on the prior page, 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 page
26, 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 $5.9 billion, before
the utilization of these instruments, to a cumulative one-year asset sensitive
position of $1.5 billion at December 31, 1994.
The following table presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
interest rate sensitive instruments.
<TABLE>
<CAPTION>
(in millions) December 31, 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Instruments associated with deposits $ 9,436
Instruments associated with other liabilities 420
Instruments associated with loans 1,478
- -------------------------------------------------------------------------------------------------------------------------------
Total notional amount $11,334
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet instruments to neutralize
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 receipts of $117 million, $201
million and $119 million in 1994, 1993 and 1992, respectively. The lower net
interest revenue impact in 1994, compared with 1993, resulted from the effect
of rising interest rates. As expected, this impact was offset by higher net
interest revenue generated from on-balance-sheet instruments. The effect on
the Corporation's financial statements of utilizing off-balance-sheet
instruments as part of its interest rate risk management, versus using on-
balance-sheet assets and liabilities, is a smaller, 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. Assuming
interest rates continue to rise, growth in revenue on interest-earning assets
would be expected to mitigate a reduction of revenue from off-balance-sheet
instruments, which is consistent with the Corporation's simulation model
described on pages 26 and 27. 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 1995 before considering the
positive effect of on-balance-sheet instruments. Off-balance-sheet instruments
used to manage interest rate risk also reduced the volatility of the net
interest margin during the last three years. The graph on the following page
demonstrates the reduction in volatility of the net interest margin with the
use of off-balance-sheet products. The net interest margin without the use of
off-balance-sheet instruments fluctuated approximately 110 basis points from
the second quarter of 1993 to the fourth quarter of 1994, while the net
interest margin including the use of off-balance-sheet instruments fluctuated
approximately 60 basis points during the same period.
In response to tactical asset/liability management considerations, the
Corporation terminated $1.325 billion of interest rate swaps in 1994. Both pay
and receive fixed-rate interest rate swaps were terminated. All of the
terminated swaps were associated with deposits, specifically NOW accounts,
retail savings certificates and time deposits. The terminated swaps were not
replaced. These terminations resulted in the amortization of $3 million of net
deferred gains into net interest revenue in 1994. These gains were amortized
over the remaining period of the original hedge, which was less than one year.
The Corporation did not have any off-balance-sheet instruments associated with
anticipated transactions at December 31, 1994.
The estimated unrealized fair value of the Corporation's interest rate
management off-balance-sheet instruments at December 31, 1994, was a negative
$344 million, compared to a positive $75 million at December 31, 1993. This
decline was consistent with the increase in interest rates in 1994 which had
the effect of increasing 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.
29
<PAGE> 31
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
As more fully discussed below, credit risk associated with off-balance-sheet
instrument positions, including interest rate swaps, represents the aggregate
replacement cost of contracts in a gain position. As of December 31, 1994, the
amount of credit exposure associated with interest rate risk management was $10
million.
At this point in the 1994 Annual Report there appears a line graph as set out
in the following table.
<TABLE>
<CAPTION>
Trend of Net Interest Margin
With Excluding
off-balance-sheet off-balance-sheet
instruments instruments
----------------- -----------------
<S> <C> <C>
1st qtr 1992 4.22% 3.84%
2nd qtr 1992 4.37% 4.00%
3rd qtr 1992 4.59% 4.10%
4th qtr 1992 4.59% 3.93%
1st qtr 1993 4.65% 3.95%
2nd qtr 1993 4.30% 3.60%
3rd qtr 1993 4.25% 3.59%
4th qtr 1993 4.39% 3.75%
1st qtr 1994 4.70% 4.12%
2nd qtr 1994 4.63% 4.15%
3rd qtr 1994 4.66% 4.41%
4th qtr 1994 4.85% 4.70%
</TABLE>
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. 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 1994 the
Corporation recorded $72 million of fee revenue from these activities,
primarily from foreign exchange contracts entered into on behalf of customers.
The notional values of these contracts were $34 billion and $28 billion at
December 31, 1994 and December 31, 1993, respectively, and are included on the
off-balance-sheet instruments used for other than interest rate risk management
purposes table on page 69 in note 19 of Notes to Financial Statements.
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, option contracts, futures contracts and forward rate
agreements. Total credit risk of contracts used for other than interest rate
risk management purposes was $281 million at December 31, 1994. Market risk
arises from changes in the market value of contracts as a result of
fluctuations in interest and currency rates. The Corporation limits its
exposure to market
30
<PAGE> 32
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
risk by entering into generally matching or offsetting positions and by
establishing and monitoring limits on unmatched positions. Position limits are
set by the Finance Committee and approved by the board of directors and are
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. These instruments are carried at
market value with realized and unrealized gains and losses included in foreign
currency and securities trading revenue.
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. Since the Corporation generally matches or offsets
positions, the analyses indicates 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
of Notes to Financial Statements "Financial instruments with off-balance-sheet
risk and concentrations of credit risk."
CREDIT RISK
- -------------------------------------------------------------------------------
The Corporation's credit management philosophy is designed to achieve
controlled asset generation while maintaining an appropriate balance between
risk and return. The objective of the credit risk management process is to
reduce the risk of loss if a customer fails to perform according to the terms
of a transaction. Essential to this process are stringent underwriting of new
loans, active monitoring of all loan portfolios and the early identification of
potential problems and their prompt resolution. The Corporation establishes
internal ownership, responsibility and accountability for all aspects of asset
quality. Notwithstanding this process, however, asset quality is dependent in
large part upon local, national, international and industry segment economic
conditions that are beyond the Corporation's control.
Management maintains a comprehensive centralized process through which the
Corporation extends new loans, monitors credit quality, actively manages
problem credits and disposes of nonperforming assets. To help ensure adherence
to the Corporation's credit policies, senior department credit officers report
to both the Corporation's chief risk and credit officer and the head of each
respective lending department. The responsibilities of these senior credit
officers include all aspects of the credit process except credit review, credit
recovery and aggregate portfolio management, which are centralized at the
corporate level.
The Corporation manages credit risk by maintaining a well-diversified credit
portfolio and by adhering to its written credit policies, which specify general
underwriting criteria as well as underwriting standards for specific industries
and control credit exposure by borrower, degree of risk, industry and country.
These measures are adopted by the Credit Policy Committee and are regularly
updated to reflect the committee's evaluation of developments in economic,
political and operating environments that could affect lending risks. The
Corporation may adjust credit exposure to individual industries or customers
through loan sales, syndications and participations.
Except for certain well-defined loans made by the Consumer Banking Services
sector, primarily to consumers and small businesses, all credit extensions are
approved jointly by officers of the Credit Policy Department and officers of
the lending departments. The number and level of officer approvals required
are determined by the dollar amount and risk characteristics of the credit
extension. The amount of collateral, if any, obtained by the Corporation upon
the extension of credit is based on industry practice as well as the credit
assessment of the customer. The type and amount of collateral vary, but the
form generally includes accounts receivable; inventory; property, plant and
equipment; other assets; and/or income-producing commercial properties with
appraised values that exceed the contractual amount of the credit facilities by
pre-approved ratios.
The Corporation continually assesses the quality of its consumer and commercial
credit facilities, and assigns a numerical quality rating to substantially all
extensions of credit in its commercial, real estate and international
portfolios. Lending officers have the primary responsibility for monitoring
their portfolios, identifying emerging problem loans, and recommending changes
in quality ratings. In order to anticipate or detect problems that may result
from economic downturns or deteriorating conditions in certain markets, lending
units and credit management
31
<PAGE> 33
CREDIT RISK (CONTINUED)
- -------------------------------------------------------------------------------
use a process designed to identify potential credit problems, both for specific
customers and for industries that could be affected by adverse market or
economic conditions. When signs of credit deterioration are detected, credit
recovery or other specialists become involved to minimize the Corporation's
exposure to potential future credit losses. The Credit Review Department
provides an independent assessment of credit ratings, credit quality and the
credit management process.
Credit risk exists with financial instruments that are both on-and
off-balance-sheet. Cash financial instruments such as loans and leases are on
the balance sheet. Off-balance-sheet credit exposures include loan
commitments, standby letters of credit and off-balance-sheet financial
instruments.
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END
- -------------------------------------------------------------------------------
The loan portfolio increased $2.249 billion, or 9%, in 1994 primarily as a
result of new product development and a strengthening U.S. economy. Loan
growth in 1994 reflects a $940 million increase in credit card loans, a $924
million increase in commercial and financial loans and a $489 million increase
in consumer mortgages. Partially offsetting these increases were decreases in
international loans and commercial real estate loans. At December 31, 1994,
the composition of the loan portfolio was 51% consumer and 49% commercial.
<TABLE>
<CAPTION>
December 31,
(in millions) 1994(a) 1993(a) 1992(a) 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $10,015(b) $ 9,091 $ 8,115 $ 8,270 $ 8,096
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial real estate 1,624(c) 1,721 1,861 1,976 2,210
- -----------------------------------------------------------------------------------------------------------------------------------
Consumer credit:
Consumer mortgage 8,680 8,191 4,282 3,302 2,925
Credit card 2,381 1,441 1,361 1,216 790
Other consumer credit 2,455 2,372 2,258 2,292 2,499
- -----------------------------------------------------------------------------------------------------------------------------------
Total consumer credit 13,516 12,004 7,901 6,810 6,214
- -----------------------------------------------------------------------------------------------------------------------------------
Lease finance assets 815 718 650 658 688
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 25,970 23,534 18,527 17,714 17,208
- -----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL LOANS 763 950 1,434 1,395 1,534
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $26,733 $24,484 $19,961 $19,109 $18,742
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $34 million of loans subject to the FDIC loss sharing
arrangement.
(c) Includes $140 million of loans subject to the FDIC loss sharing
arrangement. Also includes $560 million of loans secured by
owner-occupied commercial real estate but not made for the purpose of
real estate construction or financing.
Note: There were no concentrations of loans to borrowers engaged in similar
activities, other than those shown in this table, that exceeded 10% of
total loans at year-end.
</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. Numerous risk factors impact this portfolio including
industry specific risks such as the economy, new technology, labor rates and
cyclicality, as well as customer specific factors, such as cash flow, financial
structure, operating controls and asset quality. The Corporation diversifies
risk within this portfolio by closely monitoring industry concentrations and
portfolios to ensure that it does not exceed established lending guidelines.
Diversification is intended to limit the risk of loss from any single
unexpected economic event or trend. Total domestic commercial and financial
loans increased by $924 million, or 10%, during 1994, primarily as a result of
increases in institutional and corporate banking and middle market lending.
Commercial and financial loans represented 37% of the total loan portfolio at
both December 31, 1994 and 1993. At year-end 1994, nonperforming domestic
commercial and financial loans and leases were .60% of total domestic
commercial and financial loans and leases, compared with .41% at December 31,
1993.
32
<PAGE> 34
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
Commercial real estate
The Corporation's $1.624 billion domestic commercial real estate loan portfolio
consists of commercial mortgages, which generally are secured by nonresidential
and multi-family residential properties and commercial construction loans
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 $140 million of loans acquired
in the December 1992 Meritor retail office acquisition that are subject to a
five year 95% loss sharing arrangement with the FDIC. Commercial real estate
loans carry many of the same customer and industry risks as the commercial and
financial portfolio, as well as contractor/subcontractor performance risk in
the case of commercial construction loans and cash flow risk based on project
economics. Domestic commercial real estate loans decreased by $97 million, or
6%, in 1994. The decrease primarily was a result of sales, transfers to OREO,
net credit losses and paydowns partially offset by new loan originations in
1994. New domestic commercial real estate loan commitments totaled $219
million in 1994. Most of these new loan commitments were funded shortly after
origination. Unused commercial real estate loan commitments were $233 million
at December 31, 1994, down from $307 million at December 31, 1993. Domestic
commercial real estate loans were 6% of total loans at December 31, 1994, down
from 7% a year earlier. Nonperforming commercial real estate loans were 1.73%
of total domestic commercial real estate loans at December 31, 1994, compared
with 5.17% at December 31, 1993, and a peak level of 19.02% at September 30,
1991.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS BY SIZE AT DECEMBER 31, 1994
(dollar amounts in millions) Percent
of total
Principal amounts Outstandings outstandings
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $10 $1,117 69%
$10 to $20 240 (a) 15
$20 to $40 208 (b) 13
$40 to $60 59 (c) 3
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,624 100%
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents loans to 18 borrowers.
(b) Represents loans to 7 borrowers.
(c) Represents a loan to one borrower.
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS AT DECEMBER 31, 1994
(in millions) Geographic Region
Central
Project type Atlantic Southeast Midwest West Southwest Northeast Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Office complexes $177 $ 42 $ 36 $32 $12 $6 $305
Retail 113 68 49 22 10 - 262
Hotels 62 47 9 6 12 - 136
Industrial 35 1 2 - 3 - 41
Undeveloped land 5 14 5 9 - - 33
Apartments 17 - 3 - 3 - 23
Other project types 110 8 - - 6 - 124
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal $519 (a) $180 (b) $104 (c) $69 (d) $46 (e) $6 $924
FDIC loss share loans 140 (f)
Owner-occupied loans 560 (g)
- -------------------------------------------------------------------------------------------------------------------------------
Total $1,624
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes $332 million of loans to borrowers located in Pennsylvania.
(b) Includes $59 million of loans to borrowers located in Florida.
(c) Includes $32 million of loans to borrowers located in Ohio.
(d) Includes $62 million of loans to borrowers located in California.
(e) Includes $23 million of loans to borrowers located in Texas.
(f) Includes commercial real estate loans acquired in the Meritor retail
office acquisition that are subject to the FDIC loss sharing arrangement.
Those commercial real estate loans that become nonperforming loans are
transferred to segregated assets.
(g) Includes loans that are secured by owner-occupied commercial real estate
but not made for the purpose of real estate construction or financing.
</TABLE>
33
<PAGE> 35
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
Consumer mortgage
The consumer mortgage portfolio primarily includes jumbo residential mortgages,
traditional one-to-four family residential mortgages and home equity loans. At
December 31, 1994, this portfolio grew to $8.680 billion, from $8.191 billion
at the prior year end. The $489 million increase in this portfolio from
year-end 1993 primarily reflects increases in home equity loans and one-to-four
family residential mortgage loans. Jumbo mortgages are residential mortgages
in the range of $250,000 to $3,000,000 and totaled $4.2 billion at year-end
1994. Some of the risks involved in holding jumbo mortgages are less liquidity
than a traditional one-to-four family residential mortgage and increased
exposure on an individual loan basis. The Corporation attempts to control
these risks by requiring more stringent loan-to-value ratios and higher
liquidity and cash flow requirements for each borrower. At December 31, 1994,
the geographic distribution of the jumbo mortgages was as follows: 30% in New
England; 29% in the Mid-Atlantic region; 26% in California; and 15% in other
areas. The remainder of this portfolio is composed of traditional one-to-four
family residential first mortgages and home equity loans. Home equity loans
increased approximately $260 million in 1994, to $1.4 billion at December 31,
1994, resulting from successful marketing efforts, as well as an improving
economy. One-to-four family residential mortgage loans increased $175 million
to $3.1 billion at December 31, 1994, partially resulting from acquisitions.
Risks on these two portfolios are limited to payment and collateral risk and
are primarily driven by regional economic factors. Nonperforming consumer
mortgages were .64% of total consumer mortgages at December 31, 1994, compared
with .75% at December 31, 1993.
Credit card
The credit card loan portfolio was the fastest growing segment of the loan
portfolio in 1994. At December 31, 1994, credit card loans totaled $2.381
billion, a $940 million, or 65%, increase from December 31, 1993. This
increase primarily was driven by the CornerStone(sm) credit card product which
was introduced in 1994. At December 31, 1994, this product had generated more
than 700,000 new accounts with total outstandings of $757 million. As a result
of growth in credit card loans, higher net credit card losses are anticipated
in 1995. The primary risk associated with credit card loans is that these
loans are unsecured and are solely dependent upon the credit-worthiness of the
borrower. The Corporation monitors this risk using both internal and external
statistical models. In addition to these models, the Corporation monitors
factors such as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors.
Other consumer credit
Other consumer credit, which principally consists of installment loans,
unsecured personal credit lines and student loans, increased by $83 million, or
4%, from year-end 1993. This increase reflected growth in the student loan
portfolio. These loans are both secured and unsecured and in the case of
student loans are government guaranteed.
Other loans
Lease finance assets increased to $815 million, up from $718 million at
year-end 1993. Loans to international borrowers decreased to $763 million at
December 31, 1994, from $950 at year-end 1993. The Corporation's international
lending strategy centers around establishing relationships with large foreign
firms that are multinational in nature but also carry a significant U.S.
presence.
34
<PAGE> 36
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1994 (a) 1993 (a) 1992 (a) 1991 1990
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $151 $202 $334 $528 $526
Acquired property, net of the OREO reserve 88 139 261 405 255
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $239 $341 $595 $933 $781
- --------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .56% .83% 1.67% 2.77% 2.81%
Nonperforming assets as a percentage of total loans
and net acquired property .89% 1.39% 2.94% 4.78% 4.11%
- --------------------------------------------------------------------------------------------------------------------------------
<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 OREO acquired
in connection with the collection effort on loans. Nonperforming loans include
both nonaccrual and "troubled debt" restructured loans. Past-due commercial
loans are those that are contractually past due 90 days or more but are not on
nonaccrual status because they are well secured and in the process of
collection. Additional information regarding the Corporation's practices for
placing assets on nonaccrual status is presented in note 1 of Notes to
Financial Statements.
Nonperforming assets do not include the segregated assets acquired in the
December 1992 Meritor retail office acquisition. Segregated assets represent
commercial real estate and other commercial loans acquired in the Meritor
acquisition that are on nonaccrual status, or are foreclosed properties, and
are subject to a loss sharing arrangement with the FDIC. These delinquent
assets, net of reserve, are reported in other assets in the balance sheet. The
reserve for segregated assets is not included in the reserve for credit losses.
Nonperforming assets continued to decrease in 1994, reflecting the
Corporation's workout and collection efforts and the overall strength of the
U.S. economy. At December 31, 1994, nonperforming assets totaled $239 million,
the lowest level in more than 12 years, down $102 million, or 30%, from the
prior year-end. Nonperforming assets have been reduced by nearly $1.5 billion
from the peak level at June 30, 1987. The ratio of nonperforming assets to
total loans and net acquired property at December 31, 1994, was .89%, compared
with 1.39% at year-end 1993. This ratio can be expected to vary over time with
changes in the economy.
Nonperforming real estate assets, which include nonperforming commercial and
consumer real estate loans and OREO net of the OREO reserve, totaled $171
million at December 31, 1994, a decrease of $117 million, or 41%, from the
previous year end. The reduction primarily resulted from returns to accrual
status, asset sales and repayments. Nonperforming real estate assets were 71%
of total nonperforming assets at December 31, 1994. Domestic commercial and
financial nonperforming loans increased $25 million during 1994. The increase
resulted from additions, offset in part by repayments and credit losses. The
decrease in international nonperforming loans resulted from sales.
35
<PAGE> 37
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING AND PAST-DUE ASSETS December 31,
(dollar amounts in millions) 1994(a) 1993(a) 1992(a) 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 61 $ 37 $109 $129 $ 96
Commercial real estate 25 75 172 353 408
Consumer credit:
Consumer mortgage 56 61 29 13 14
Other consumer credit - 4 1 1 1
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 142 177 311 496 519
International nonaccrual loans 1 7 8 32 7
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 143 184 319 528 526
- -----------------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial 5 4 - - -
Commercial real estate 3 14 15 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 8 18 15 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 150 195 326 496 519
International 1 7 8 32 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans(b) 151 202 334 528 526
- ----------------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired through foreclosures 89 100 96 245 159
In-substance foreclosures 27 75 154 140 112
Reserve for real estate acquired (29) (37) (10) (21) (18)
- ----------------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 87 138 240 364 253
Other assets acquired 1 1 21 41 2
- ----------------------------------------------------------------------------------------------------------------------------------
Total acquired property 88 139 261 405 255
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $239 $341 $595 $933 $781
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective loan
portfolio segments:
Domestic commercial and financial loans and leases .60% .41% 1.25% 1.44% 1.09%
Domestic commercial real estate loans 1.73 5.17 10.03 17.87 18.47
Domestic consumer mortgage loans .64 .75 .68 .40 .46
Total loans .56 .83 1.67 2.77 2.81
Nonperforming assets as a percentage of
total loans and net acquired property .89 1.39 2.94 4.78 4.11
- ----------------------------------------------------------------------------------------------------------------------------------
Past-due loans:
Domestic loans:
Consumer credit $ 69 $ 53 $ 50 $ 44 $ 33
Real estate, primarily consumer mortgages 27 25 46 23 15
Commercial 10 6 1 2 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 106 84 97 69 48
International loans - - - 6 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total past-due loans $106 $ 84 $ 97 $ 75 $ 48
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $58 million, $74 million, $187 million, $278 million and $293
million, respectively, of loans with both principal and interest less than
90 days past due but placed on nonaccrual status by management discretion.
</TABLE>
36
<PAGE> 38
NONPERFORMING ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS (a) Domestic
------------------------------------ Total
Commercial Commercial Consumer --------------------
(in millions) & Financial Real Estate Credit International 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of year $ 41 $ 89 $ 65 $ 7 $202 $334
Acquired from Glendale Corporation 13 - - - 13 -
Acquired from The Boston Company - - - - - 53
Additions 124 13 55 13 205 214
Payments (b) (72) (13) (24) (15) (124) (133)
Returned to accrual status (4) (46) (22) - (72) (119)
Credit losses (36) (14) (11) (3) (64) (115)
Transfers to acquired property - (1) (7) (1) (9) (32)
- ------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at end of year $ 66 $ 28 $ 56 $ 1 $151 $202
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL DOMESTIC NONACCRUAL LOAN DATA (a) December 31,
(dollars in millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $142 $177
Contractual balance of nonaccrual loans 194 252
Book balance as a percentage of contractual balance 73% 70%
Full-year interest receipts applied to reduce principal $ 5 $ 10
Full-year interest receipts recognized in interest revenue 14 11
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. OREO, net of the reserve, totaled $87 million at December
31, 1994, down $51 million compared with year-end 1993. The decrease resulted
primarily from sales and write-downs, partially offset by new transfers to
OREO.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY December 31,
(in millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of year, net of the OREO reserve $138 $240
OREO acquired from Glendale Corporation 3 -
OREO acquired from The Boston Company - 15
Foreclosures (a) 14 44
Sales (61) (81)
Return to performing - (11)
Write-downs, credit losses, OREO provision and other (7) (69)
- ------------------------------------------------------------------------------------------------------------------------------
OREO at end of year, net of the OREO reserve 87 138
Other acquired assets 1 1
- ------------------------------------------------------------------------------------------------------------------------------
Total acquired property, net of the OREO reserve (b) $ 88 $139
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes foreclosures and in-substance foreclosures from loans and the
mortgage servicing portfolio.
(b) 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 for 1994, 1993 and 1992 is presented in the table on
the following page.
37
<PAGE> 39
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE)
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $37 $ 10 $ 21
Write-downs on real estate acquired (8) (27) (116)
Provision charged to operating expense - 54 105
- ------------------------------------------------------------------------------------------------------------------------------
Ending balance $29 $ 37 $ 10
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In May 1993, the Financial Accounting Standards Board released FAS No. 114,
"Accounting by Creditors for Impairment of a Loan." FAS No. 114 establishes
standards to determine how a creditor should measure and record impairment of a
loan based on either the present (discounted) value of expected future cash
flows related to the loan, the market price of the loan or the fair value of
the underlying collateral. This standard became effective on January 1, 1995.
Adoption of FAS No. 114 is not expected to be material to the Corporation's
financial position or results of operations.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF NONPERFORMING COMMERCIAL REAL ESTATE LOANS AND REAL ESTATE ACQUIRED AT DECEMBER 31, 1994
(in millions) Geographic Region
Central
Project type Atlantic Southeast Midwest West Southwest Northeast Canada Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Undeveloped land $ 8 $19 $5 $ - $21 $8 $ - $ 61
Retail 6 9 - 8 - - 16 39
Office complexes (a) 15 - - - 2 - - 17
Other project types 22 2 - 1 1 1 - 27
- ------------------------------------------------------------------------------------------------------------------------------
Total by region $51(b) $30(c) $5 $ 9(d) $24(e) $9 $16 $144(f)
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes certain multi-use projects.
(b) Includes $14 million of nonperforming loans to borrowers and $17 million
of OREO located in Pennsylvania.
(c) Includes $19 million of OREO located in Florida.
(d) Entire amount is OREO located in California.
(e) Includes $19 million of OREO located in Texas.
(f) Excludes segregated assets, as well as the reserve for OREO of
$29 million.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
FOREGONE INTEREST ON NONPERFORMING LOANS Year ended December 31,
(in millions) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractual interest due $15 $21 $32 $58 $62
Interest revenue recognized 3 7 13 10 30
- ------------------------------------------------------------------------------------------------------------------------------
Interest revenue foregone $12 $14 $19 $48 $32
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
Note: This table includes interest revenue foregone on loans that were included as nonperforming at the end of each year. Interest
receipts that the Corporation applied, for accounting purposes, to reduce principal balances of nonaccrual loans are
included in contractual interest due, but not in interest revenue recognized.
</TABLE>
SEGREGATED ASSETS
- -------------------------------------------------------------------------------
At December 31, 1994, segregated assets totaled $89 million, or $85 million net
of the $4 million reserve, compared with $187 million, or $183 million net of a
$4 million reserve, at December 31, 1993. The Corporation incurred net credit
losses of less than $1 million on segregated assets in 1994. Additional
information regarding the Corporation's segregated assets is presented in note
8 of Notes to Financial Statements.
38
<PAGE> 40
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollar amounts in millions) 1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at year end $607 (a) $600 (a) $506 (a) $596 $525
Reserve as a percentage of:
Total loans 2.27% 2.45% 2.54% 3.12% 2.80%
Nonperforming loans 403 297 152 113 100
Net credit losses as a percentage of average loans .27 .64 1.52 1.24 2.15
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes reserve for segregated assets.
</TABLE>
The reserve for credit losses was $607 million at December 31, 1994, or 2.27%
of total loans, compared with $600 million, or 2.45% of total loans at December
31, 1993. The Corporation maintains a credit loss reserve which, in
management's judgment, is adequate to absorb future losses inherent in the loan
portfolio. Management reviews the adequacy of the reserve at least quarterly.
For analytical purposes, the reserve methodology estimates loss potential in
both the commercial and consumer loan portfolios. This methodology includes an
evaluation of loss potential on individual problem credits, as well as a
portfolio review of market concentrations, changing business trends, industry
risks, and specific and general economic factors that may adversely affect
collectibility.
Other factors considered in determining the level of the reserve include:
trends in portfolio volume, quality, maturity and composition; historical loss
experience; lending policies; new products; the status and amount of
nonperforming and past-due loans; adequacy of collateral; and current, as well
as anticipated, economic and industry-specific conditions that may affect
certain borrowers. In addition, management assesses volatile factors such as
interest rates and real estate market conditions that may significantly alter
loss potential. The loss reserve methodology also provides for a portion of
the reserve to act as an additional buffer against credit quality deterioration
or risk of estimation error. Although the determination of the adequacy of the
reserve is based upon these factors, the reserve is not specifically associated
with individual loans or portfolio segments.
The ratio of the loan loss reserve to nonperforming loans at December 31, 1994,
was 403%, compared with 297% at December 31, 1993. This ratio is not the
result of a target or objective, but rather is an outcome of two interrelated
but separate processes: the establishment of an appropriate loan loss reserve
level for the portfolio as a whole, including but not limited to the
nonperforming component in the portfolio; and the classification of certain
assets as nonperforming in accordance with established accounting, regulatory
and management policies. The ratio can vary significantly over time because
the reserve level is based on the credit quality characteristics of the entire
loan portfolio. This ratio can also vary with shifts in portfolio mix as the
consumer portfolio (excluding certain residential mortgages) typically shows
significantly lower nonperforming characteristics than the commercial
portfolio. Both of these factors have increased the ratio of the loan loss
reserve to nonperforming loans during the last several years. The decrease in
the level of nonperforming loans was the primary reason for the increase in
this ratio at December 31, 1994, compared with December 31, 1993.
The level of credit losses relative to outstanding loans can vary from period
to period as a result of the size and number of individual credits that may
require charge off, and the effects of changing economic conditions. Net
credit losses were $67 million in 1994, the lowest level in 10 years, down $72
million, or 52%, compared with 1993. The decrease primarily resulted from a
$59 million decrease in commercial real estate net credit losses, as well as a
decrease of $13 million in commercial and financial net credit losses. The $13
million increase in net credit losses on credit card loans reflects the higher
level of credit card loans in 1994. The Corporation anticipates the level of
recoveries to decline in 1995. This, in conjunction with increased credit card
balances, is expected to result in increased net credit losses during 1995.
Net credit losses totaled $139 million in 1993 and $277 million in 1992.
39
<PAGE> 41
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY
(in millions) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve at beginning of year $600 $506 $596 $525 $610
Net change in reserves from
acquisitions and divestitures 4 108 2 50 5
Credit losses:
Domestic:
Commercial and financial (42) (54) (70) (65) (51)
Commercial real estate (16) (74) (161) (85) (128)
Consumer credit:
Credit cards (61) (46) (49) (41) (24)
Consumer mortgage (11) (13) (7) (2) (2)
Other consumer credit (17) (22) (24) (26) (27)
Lease financing - (1) (1) - -
- ------------------------------------------------------------------------------------------------------------------------------
Total domestic (147) (210) (312) (219) (232)
- ------------------------------------------------------------------------------------------------------------------------------
International (4) (6) (19) (37) (221)
- ------------------------------------------------------------------------------------------------------------------------------
Total credit losses (151) (216) (331) (256) (453)
- ------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial 41 40 25 8 14
Commercial real estate 14 13 6 3 1
Consumer credit:
Credit cards 9 7 6 5 5
Consumer mortgage 4 2 1 1 -
Other consumer credit 13 10 10 7 7
- ------------------------------------------------------------------------------------------------------------------------------
Total domestic 81 72 48 24 27
- ------------------------------------------------------------------------------------------------------------------------------
International 3 5 6 3 21
- ------------------------------------------------------------------------------------------------------------------------------
Total recoveries 84 77 54 27 48
- ------------------------------------------------------------------------------------------------------------------------------
Net credit losses:
Domestic:
Commercial and financial (1) (14) (45) (57) (37)
Commercial real estate (2) (61) (155) (82) (127)
Consumer credit:
Credit cards (52) (39) (43) (36) (19)
Consumer mortgage (7) (11) (6) (1) (2)
Other consumer credit (4) (12) (14) (19) (20)
Lease financing - (1) (1) - -
- ------------------------------------------------------------------------------------------------------------------------------
Total domestic (66) (138) (264) (195) (205)
- ------------------------------------------------------------------------------------------------------------------------------
International (1) (1) (13) (34) (200)
- ------------------------------------------------------------------------------------------------------------------------------
Total net credit losses (67) (139) (277) (229) (405)
- ------------------------------------------------------------------------------------------------------------------------------
Provision for credit losses 70 125 185 250 315
- ------------------------------------------------------------------------------------------------------------------------------
Reserve at end of year $607(a) $600(a) $506(a) $596 $525
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes reserve for segregated assets.
</TABLE>
40
<PAGE> 42
FOURTH QUARTER REVIEW
- -------------------------------------------------------------------------------
The Corporation reported net income of $171 million in the fourth quarter of
1994, excluding the $130 million after tax securities lending charge. Net
income per common share for the fourth quarter of 1994 was $1.05, excluding the
securities lending charge and the impact on earnings per share of the
redemption of the Corporation's Series H preferred stock. These results
compare with net income of $138 million, or $.84 per common share, in the
fourth quarter of 1993. Including the securities lending charge and the
effects of the preferred stock redemption, fourth quarter 1994 net income was
$41 million, or $.07 per common share.
Annualized return on common shareholders' equity and return on assets,
excluding the securities lending charge and the effect of the preferred stock
redemption, were 16.49% and 1.74%, respectively, in the fourth quarter of 1994.
These results compare with an annualized return on common shareholders' equity
and return on assets of 14.03% and 1.50%, respectively, in the fourth quarter
of 1993. Annualized return on common shareholders' equity and return on
assets, including the securities lending charge and the effect of the preferred
stock redemption, were 1.10% and .42%, respectively, in the fourth quarter of
1994.
Compared with the fourth quarter of 1993, Mellon's fourth quarter 1994 results
reflected higher net interest revenue and lower credit quality expense, offset
in part by lower noninterest revenue.
Net interest revenue totaled $401 million in the fourth quarter of 1994, an
increase of $58 million or 17%, compared with the fourth quarter of 1993. The
increase resulted primarily from a higher level of interest-earning assets, as
well as a higher-yielding asset mix. A further reduction in nonperforming
assets and higher loan fees also contributed to the improved net interest
revenue and net interest margin. The net interest margin on a taxable
equivalent basis was 4.85% in 1994, an increase of 46 basis points from 4.39%
in the fourth quarter of 1993.
Credit quality expense, defined as the provision for credit losses plus the net
expense of acquired property, was $10 million in the fourth quarter of 1994,
down $22 million compared with the prior-year period, reflecting the improved
credit quality of the loan portfolio and the lower level of real estate
acquired. Net credit losses were $20 million in the fourth quarter of 1994,
compared with $22 million in the fourth quarter of 1993. The decrease resulted
from recoveries on commercial loans primarily offset by higher net credit
losses on consumer loans and commercial real estate loans.
Fee revenue was $405 million in the fourth quarter of 1994, down $24 million
compared with $429 million in the fourth quarter of 1993. The decrease
reflects the impact of divestitures, lower mutual fund management and
administration/custody revenues and lower securities lending revenues. Trust
and investment management fees decreased $37 million from the prior-year period
as mutual fund management and administration/custody fees decreased $17 million
and securities lending revenue decreased $12 million. Information services
fees decreased $15 million as the result of the December 1993 sale of two
information services businesses. Partially offsetting these decreases were
higher mortgage servicing fees, credit card revenue, foreign currency and
securities trading fee revenue and other revenue which increased a combined $28
million in the fourth quarter of 1994, compared with the prior-year period.
Operating expense for the fourth quarter of 1994 was $741 million, compared
with $534 million in the prior-year period. Excluding the pretax securities
lending charge of $223 million, operating expense declined 3% compared with the
prior-year period. The decrease, excluding the securities lending charge,
resulted from several factors primarily related to acquisitions and
divestitures which offset modest expense growth.
41
<PAGE> 43
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA*
- ------------------------------------------------------------------------------------------------------------------------------
Quarter ended,
1994 1993(a)
----------------------------------------- ----------------------------------------
(dollar amounts in millions, DEC. SEPT. JUNE MARCH Dec. Sept. June March
except per share amounts) 31 30 30(a) 31(a) 31 30 30 31
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY CONSOLIDATED
INCOME STATEMENT
- ------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 401 $ 376 $ 364 $ 367 $ 343 $ 343 $ 320 $ 323
Provision for credit losses 15 15 20 20 25 30 35 35
Fee revenue 405 399 412 436 429 419 376 314
Gains (losses) on sale of securities - (15) 8 2 10 7 (8) 91
Operating expense 741 595 508 530 534 520 445 585
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 50 150 256 255 223 219 208 108
Provision for income taxes 9 72 98 99 85 80 84 49
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME 41 78 158 156 138 139 124 59
Dividends on preferred stock 30 15 15 15 16 16 16 15
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO
COMMON STOCK $ 11 $ 63 $ 143 $ 141 $ 122 $ 123 $ 108 $ 44
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ .07 $ .42 $ .97 $ .96 $ .84 $ .83 $ .75 $ .31
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (b)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 171 $ 167 $ 158 $ 156 $ 138 $ 139 $ 124 $ 118
Net income applicable to common stock 157 152 143 141 122 123 108 103
Net income per common share $ 1.05 $ 1.02 $ .97 $ .96 $ .84 $ .83 $ .75 $ .72
Annualized return on assets 1.74% 1.74% 1.69% 1.67% 1.50% 1.47% 1.41% 1.45%
Annualized return on common
shareholders' equity 16.49 16.10 15.75 16.12 14.03 14.34 13.48 13.66
- ------------------------------------------------------------------------------------------------------------------------------
QUARTERLY AVERAGE BALANCES
- ------------------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,213 $ 1,466 $ 1,813 $ 2,147 $ 3,120 $ 4,158 $ 4,753 $ 3,253
Trading account securities 281 351 386 504 206 266 313 293
Securities 5,062 5,421 5,306 4,798 4,861 4,703 4,553 5,100
Loans 26,401 25,084 24,251 24,636 23,229 23,232 20,630 19,907
Interest-earning assets 32,957 32,322 31,756 32,085 31,416 32,359 30,249 28,553
Total assets 38,792 38,016 37,497 38,113 36,688 37,466 35,305 33,020
Deposits 27,260 26,963 26,989 27,790 27,503 27,776 25,917 24,927
Notes and debentures 1,571 1,618 1,924 1,965 2,019 2,124 2,050 1,765
Shareholders' equity 4,313 4,346 4,260 4,185 4,141 4,080 3,901 3,728
- ------------------------------------------------------------------------------------------------------------------------------
Net interest margin (FTE) 4.85% 4.66% 4.63% 4.69% 4.39% 4.25% 4.31% 4.65%
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (dollars per share) (c)
- ------------------------------------------------------------------------------------------------------------------------------
Market price range:
High $38 3/8 $39 3/4 $40 3/8 $39 1/2 $39 3/8 $40 1/8 $ 45 $41 3/8
Low 30 37 36 1/8 35 34 1/2 35 1/2 34 1/8 34 3/8
Average 34.52 38.41 38.38 36.74 36.17 37.46 37.60 38.33
Close 30 5/8 37 1/2 37 1/2 37 3/8 35 3/8 36 5/8 37 1/2 40 1/2
Dividends .45 .3733 .3733 .3733 .2533 .2533 .2533 .2533
Market capitalization $ 4,507 $ 5,510 $ 5,400 $ 5,371 $ 5,070 $ 5,275 $ 5,372 $ 5,661
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Unaudited
(a) 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) Results for the fourth quarter of 1994 exclude the $130 million
after tax securities lending charge, as well as the additional $16
million of preferred stock dividends recorded in connection with the
redemption of the Series H preferred stock. Results for the third
quarter of 1994 exclude $79 million after tax of merger expenses and $10
million after tax of losses on the disposition of securities available
for sale previously owned by Dreyfus. Results for the first quarter of
1993 exclude $112 million after tax of merger expenses and $53 million
after tax of gains on the sale of securities related to the Corporation's
acquisition of The Boston Company.
(c) At December 31, 1994, there were 23,092 shareholders registered
with the Corporation's stock transfer agent, compared with 22,222 at
year-end 1993 and 23,083 at year-end 1992. In addition, there were
approximately 20,281; 18,849; and 15,477 Mellon employees at December 31,
1994, 1993 and 1992, respectively, who participated in the Corporation's
401(k) Retirement Savings Plan and the Dreyfus retirement savings plan.
All shares of Mellon Bank Corporation common stock held by the plan for
its participants are registered in the name of Mellon Bank, N.A., as
trustee.
</TABLE>
42
<PAGE> 44
CONSOLIDATED INCOME STATEMENT
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
================================================================================
<TABLE>
<CAPTION>
Year ended December 31,
(dollar amounts in millions, except per share amounts) 1994 1993(a) 1992(a)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE Loans $1,839 $1,517 $1,396
Loan fees 87 71 65
Interest-bearing deposits with banks 34 58 35
Federal funds sold and securities purchased under
agreements to resell 30 54 27
Other money market investments 6 13 13
Trading account securities 24 15 21
Securities:
U.S. Treasury and agency securities 269 226 423
Obligations of states and political subdivisions 5 7 8
Other 16 23 43
---------------------------------------------------------------------------------------------
Total interest revenue 2,310 1,984 2,031
- -----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE Deposits in domestic offices 447 415 588
Deposits in foreign offices 92 40 49
Federal funds purchased and securities sold under
agreements to repurchase 76 33 56
U.S. Treasury tax and loan demand notes 22 6 23
Term federal funds purchased 8 2 1
Commercial paper 7 6 6
Other funds borrowed 40 32 32
Notes and debentures 110 121 94
---------------------------------------------------------------------------------------------
Total interest expense 802 655 849
- -----------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE NET INTEREST REVENUE 1,508 1,329 1,182
Provision for credit losses 70 125 185
---------------------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR
CREDIT LOSSES 1,438 1,204 997
- -----------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE Fee revenue 1,652 1,538 1,154
Gains (losses) on sales of securities (5) 100 129
---------------------------------------------------------------------------------------------
Total noninterest revenue 1,647 1,638 1,283
- -----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE Staff expense 956 854 672
Professional, legal and other purchased services 210 163 131
Net occupancy expense 206 186 163
Business development 161 139 121
Equipment expense 132 121 105
Amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions 98 78 50
Communications expense 84 77 66
FDIC assessment and regulatory examination fees 63 60 53
Amortization of purchased mortgage servicing rights and
purchased credit card relationships 40 44 29
Forms and supplies 40 38 30
Other expense 85 90 97
Net expense (revenue) of acquired property (28) 59 95
Securities lending charge 223 - -
Merger expense 104 175 36
---------------------------------------------------------------------------------------------
Total operating expense 2,374 2,084 1,648
- -----------------------------------------------------------------------------------------------------------------------
INCOME Income before income taxes 711 758 632
Provision for income taxes 278 298 104
---------------------------------------------------------------------------------------------
NET INCOME 433 460 528
Dividends on preferred stock 75 63 51
---------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 358 $ 397 $ 477
---------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE Primary net income $2.42 $ 2.73 $ 3.56
Fully diluted net income $2.42 $ 2.73 $ 3.53
---------------------------------------------------------------------------------------------
<FN>
(a) Restated to reflect the merger with Dreyfus, which was accounted
for as a pooling of interests.
</TABLE>
See accompanying Notes to Financial Statements.
43
<PAGE> 45
CONSOLIDATED BALANCE SHEET
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
(dollar amounts in millions) 1994 1993(a)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 2,285 $ 2,171
Interest-bearing deposits with banks 429 889
Federal funds sold and securities purchased under agreements to resell 383 574
Other money market investments 48 303
Trading account securities 71 116
Securities available for sale (approximate
fair value of $2,920 at Dec. 31, 1993) 1,881 2,916
Investment securities (approximate fair value of $3,033 and $2,486) 3,244 2,432
Loans, net of unearned discount of $62 and $74 26,733 24,484
Reserve for credit losses (607) (600)
--------------------------------------------------------------------------------------------------
Net loans 26,126 23,884
Customers' acceptance liability 234 146
Premises and equipment 558 524
Acquired property, net of reserves of $29 and $37 88 139
Goodwill 824 826
Core deposit and other identified intangibles recorded in
connection with acquisitions 212 258
Purchased mortgage servicing rights
and purchased credit card relationships 352 204
Other assets 1,909 1,670
--------------------------------------------------------------------------------------------------
Total assets $38,644 $37,052
--------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES Noninterest-bearing deposits in domestic offices $ 5,979 $ 6,906
Interest-bearing deposits in domestic offices 18,121 19,475
Interest-bearing deposits in foreign offices 3,470 1,183
--------------------------------------------------------------------------------------------------
Total deposits 27,570 27,564
Federal funds purchased and securities sold under
agreements to repurchase 2,023 978
U.S. Treasury tax and loan demand notes 567 711
Term federal funds purchased 333 8
Commercial paper 178 134
Other funds borrowed 371 302
Acceptances outstanding 234 146
Other liabilities 1,678 1,081
Notes and debentures (with original maturities over one year) 1,568 1,990
--------------------------------------------------------------------------------------------------
Total liabilities 34,522 32,914
- ----------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock 435 592
EQUITY Common shareholders' equity:
Common stock--$.50 par value
Authorized-- 200,000,000 shares
Issued 147,165,480 (b) and 103,427,262 shares 74 52
Additional paid-in capital 1,851 2,038
Retained earnings 1,780 1,629
Warrants 37 37
Unrealized losses on assets available for sale, net of taxes (55) -
Treasury stock of - and 7,774,346 shares at cost - (210)
--------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,687 3,546
--------------------------------------------------------------------------------------------------
Total shareholders' equity 4,122 4,138
--------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $38,644 $37,052
--------------------------------------------------------------------------------------------------
<FN>
(a) Restated to reflect the merger with Dreyfus, which was accounted
for as a pooling of interests.
(b) Reflects the three-for-two common stock split distributed on
November 15, 1994.
</TABLE>
See accompanying Notes to Financial Statements.
44
<PAGE> 46
CONSOLIDATED STATEMENT OF CASH FLOWS
MELLON BANK CORPORATION (and its subsidiaries)
================================================================================
<TABLE>
<CAPTION>
Year ended December 31,
(in millions) 1994 1993(a) 1992(a)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net income $ 433 $ 460 $ 528
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill, core deposit and other identified
intangibles recorded in connection with acquisitions 98 78 50
Amortization of purchased mortgage servicing rights
and purchased credit card relationships 40 44 29
Depreciation and other amortization 95 90 82
Provision for credit losses 70 125 185
Provision for real estate acquired and other losses 1 65 108
Securities lending charge 223 - -
Merger expenses 104 175 36
Net gains on dispositions of acquired property (30) (11) (19)
Net (increase) decrease in accrued interest receivable (42) 69 51
Deferred income tax expense (benefit) (14) 29 (28)
Net (increase) decrease in trading account securities 52 (1) (15)
Net increase (decrease) in accrued interest
payable, net of amounts prepaid 34 (18) (52)
Net (increase) decrease in residential mortgages held for sale 217 76 (301)
Net increase (decrease) in other operating activities (332) 276 (309)
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 949 1,457 345
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net (increase) decrease in term deposits 715 968 (375)
INVESTING ACTIVITIES Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell 191 (294) 162
Funds invested in securities available for sale (11,526) (11,872) (175)
Proceeds from sales of securities available for sale 3,808 9,511 1,814
Proceeds from maturities of securities available for sale 8,927 4,381 56
Funds invested in investment securities (1,458) (846) (4,198)
Proceeds from sales of investment securities - 664 1,374
Proceeds from maturities of investment securities 488 447 1,557
Net increase in credit card loans (870) (114) (188)
Net principal collected (disbursed) on loans to customers (1,544) 788 747
Loan portfolio purchases (216) (83) (223)
Proceeds from the sale of loan portfolios 286 116 191
Purchases of premises and equipment (133) (120) (92)
Proceeds from sales of premises and equipment 2 16 2
Proceeds from sales of acquired property 93 102 245
Cash paid in purchase of U.S. Bancorp Mortgage Company (154) - -
Cash paid in purchase of Glendale Bancorporation, net of cash received (13) - -
Cash paid in purchase of The Boston Company and AFCO and
CAFO, net of cash received - (1,233) -
Cash received in purchase of Meritor and Standard Federal
branches, net of cash paid - - 269
Net (increase) decrease in other investing activities 73 (284) 14
-----------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (1,331) 2,147 1,180
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-continued-
45
<PAGE> 47
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
MELLON BANK CORPORATION (and its subsidiaries)
===============================================================================
<TABLE>
<CAPTION>
Year ended December 31,
(in millions) 1994 1993(a) 1992(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net increase (decrease) in transaction and savings deposits (1,014) 1,266 2,029
FINANCING ACTIVITIES Net increase (decrease) in customer term deposits 807 (2,726) (2,311)
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase 1,045 (676) (508)
Net increase (decrease) in U.S. Treasury tax and loan demand notes (144) 435 (499)
Net increase (decrease) in term federal funds purchased 325 (614) (20)
Net increase (decrease) in commercial paper 44 (45) (8)
Repayments of AFCO borrowings - (1,058) -
Repurchase and repayments of longer-term debt (425) (1,070) (453)
Net proceeds from issuance of longer-term debt 1 950 534
Net proceeds from issuance of common and preferred stock 18 502 221
Redemption of preferred stock - (65) (55)
Dividends paid on common and preferred stock (254) (183) (149)
Repurchase of common stock - (89) (30)
Net increase (decrease) in other financing activities 73 (48) 50
----------------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities 476 (3,421) (1,199)
Effect of foreign currency exchange rates 20 13 13
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND Net increase in cash and due from banks 114 196 339
DUE FROM BANKS Cash and due from banks at beginning of year 2,171 1,975 1,636
----------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 2,285 $ 2,171 $ 1,975
----------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Interest paid $ 768 $ 673 $ 897
DISCLOSURES Net income taxes paid 284 211 136
----------------------------------------------------------------------------------------------------
<FN>
(a) Restated to reflect the merger with Dreyfus, which was accounted
for as a pooling of interests.
</TABLE>
See accompanying Notes to Financial Statements.
46
<PAGE> 48
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
MELLON BANK CORPORATION (CONSOLIDATED AND PARENT CORPORATION)
===============================================================================
<TABLE>
<CAPTION>
Unrealized Total
Additional (loss) on assets share-
Preferred Common paid-in Retained available for sale Treasury holders'
(in millions) stock stock capital earnings Warrants (net of taxes) stock equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $425 $46 $1,479 $ 984 $11 $ - $(130) $2,815
Net income 528 528
Dividends on common stock at
$.93 per share (a) (98) (98)
Dividends on preferred stock (51) (51)
Series J preferred stock issued,
net of issuance costs 97 97
Series C-2 preferred stock redemption (55) (55)
Purchase of treasury stock (32) (32)
Common stock issued under dividend
reinvestment and common stock
purchase plan 1 78 79
Exercise of stock options 17 3 20
Exercise of warrants 25 (5) 20
Exercise of subscription rights 7 7
Other 6 (3) 4 7
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1992 $467 $47 $1,612 $1,360 $ 6 $ - $(155) $3,337
Net income 460 460
Dividends on common stock at
$1.01 per share (a) (121) (121)
Dividends on preferred stock (63) (63)
Issuance of 6.81 million shares of
common stock, net of issuance costs 4 340 344
Issuance of warrants 37 37
Series K preferred stock
issued, net of issuance costs 193 193
Series B preferred stock
redemption/conversion (68) 1 2 (65)
Purchase of treasury stock (89) (89)
Common stock issued under dividend
reinvestment and common stock
purchase plan 35 6 41
Exercise of stock options 11 (11) 24 24
Exercise of warrants 1 24 (6) 19
Exercise of subscription rights 8 8
Other 7 4 2 13
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $592 $52 $2,038 $1,629 $37 $ - $(210) $4,138
NET INCOME 433 433
DIVIDENDS ON COMMON STOCK
AT $1.57 PER SHARE (A) (194) (194)
DIVIDENDS ON PREFERRED STOCK (75) (75)
COMMON STOCK ISSUED UNDER DIVIDEND
REINVESTMENT AND COMMON STOCK
PURCHASE PLAN 9 2 11
SERIES H PREFERRED STOCK REDEMPTION (155) (155)
CONVERSION OF SERIES D PREFERRED
STOCK TO COMMON STOCK (2) 1 1 -
EXERCISE OF STOCK OPTIONS 6 (6) 10 10
UNREALIZED LOSSES, NET OF TAX, ON ASSETS
CLASSIFIED AS AVAILABLE FOR SALE (55) (55)
ADDITIONAL COMMON STOCK ISSUED FOR STOCK
SPLIT 24 (24) -
RETIREMENT OF DREYFUS TREASURY STOCK (3) (187) 190 -
OTHER 8 (7) 8 9
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $435 $74 $1,851 $1,780 $37 $(55) $ - $4,122
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Dividends per share have not been restated to reflect the Dreyfus merger.
</TABLE>
See accompanying Notes to Financial Statements
47
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
Basis of presentation
The accounting and financial reporting policies of Mellon Bank Corporation (the
Corporation), a multibank holding company, conform to generally accepted
accounting principles and prevailing industry practices.
The consolidated financial statements of the Corporation include the accounts
of the Corporation and its majority-owned subsidiaries. Investments in
companies less than 20% owned are carried at cost. Intracorporate balances and
transactions are not reflected in the consolidated financial statements. The
Consolidated Income Statement includes results of acquired subsidiaries and
businesses accounted for under the purchase method of accounting from the dates
of acquisition. On August 24, 1994, the Corporation merged with The Dreyfus
Corporation. This merger was accounted for as a pooling of interests. The
financial information for all prior periods have been restated to present the
combined balance sheet and results of operations of both companies as if the
merger had been in effect for all periods presented. In addition, certain
amounts in the 1993 and 1992 Dreyfus financial statements were reclassified to
conform with the presentation used by the Corporation. Further information
pertaining to the merger is presented in note 22 -- of Notes to Financial
Statements, "Merger and Acquisition".
The parent Corporation financial statements in note 23 include the accounts of
the Corporation and those of a wholly owned financing subsidiary that functions
as a financing entity for the Corporation and its subsidiaries by issuing
commercial paper and other debt guaranteed by the Corporation. Financial data
for the Corporation and the financing subsidiary are combined for financial
reporting because of the limited function of the financing subsidiary and the
unconditional guarantee by the Corporation of the financing subsidiary's
obligations. Securities and other property held in a fiduciary or agency
capacity are not included in the Consolidated Balance Sheet since these are not
assets or liabilities of the Corporation.
Trading account securities, securities available for sale and investment
securities
When purchased, securities are classified in either the trading account
securities portfolio, the securities available for sale portfolio or the
investment securities portfolio. Securities are classified as trading account
securities when the intent is profit maximization through market appreciation
and resale. Securities are classified as available for sale when management
intends to hold the securities for an indefinite period of time or when the
securities may be used for tactical asset/liability purposes and may be sold
from time to time to effectively manage interest rate exposure, prepayment risk
and liquidity needs. Securities are classified as investment securities when
management intends to hold these securities until maturity.
Trading account securities, including interest rate agreements, are stated at
fair value. Trading revenue includes both realized and unrealized gains and
losses. The liability incurred on short-sale transactions, representing the
obligation to deliver securities, is included in other funds borrowed at fair
value.
On January 1, 1994, FAS 115, "Accounting for Certain Investments in Debt and
Equity Securities", became effective. Beginning in 1994, securities available
for sale are stated at fair value; prior years' securities available for sale
were recorded at the lower of aggregate cost or market value, adjusted for
amortization of premium and accretion of discount on a level yield basis.
Adoption of this standard resulted in unrealized losses on assets classified as
available for sale, net of tax, being recorded as a deduction from
shareholders' equity beginning in 1994. Investment securities are stated at
cost, adjusted for amortization of premium and accretion of discount on a level
yield basis. Gains (losses) on sales of securities available for sale are
reported in the Consolidated Income Statement. The cost of securities sold is
determined on a specific identification basis.
Loans
Loans are reported net of any unearned discount. Interest revenue on
nondiscounted loans is recognized based on the principal amount outstanding.
Interest revenue on discounted loans is recognized based on methods that
approximate
48
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
a level yield. Loan origination and commitment fees, as well as certain direct
loan origination and commitments costs, are deferred and amortized as a yield
adjustment over the lives of the related loans. Deferred fees and costs are
netted against outstanding loan balances.
Commercial loans generally are placed on nonaccrual status when either
principal or interest is past due 90 days or more, unless the loan is
well-secured and in the process of collection. Management also places loans on
nonaccrual status when the collection of principal or interest becomes
doubtful. When a loan is placed on nonaccrual status, previously accrued and
uncollected interest is reversed against current period interest revenue.
Interest receipts on nonaccrual loans are recognized as interest revenue or are
applied to principal when management believes the ultimate collectibility of
principal is in doubt. Nonaccrual loans generally are restored to an accrual
basis when principal and interest payments become current or when the loan
becomes well-secured and is in the process of collection.
Residential mortgage loans generally are placed on nonaccrual status when, in
management's judgment, collection is in doubt or the loans have outstanding
balances of $250,000 or greater and are 90 days or more delinquent, or have
balances of less than $250,000 and are delinquent 12 months or more. Consumer
loans, other than residential mortgages, and certain secured commercial loans
of less than $5,000 are charged off upon reaching various stages of delinquency
depending upon the loan type.
Unearned revenue on direct financing leases is accreted over the lives of the
leases in decreasing amounts to provide a constant rate of return on the net
investment in the leases. Revenue on leveraged leases is recognized on a basis
to achieve a constant yield on the outstanding investment in the lease, net of
the related deferred tax liability, in the years in which the net investment is
positive. Gains on sales of lease residuals are included in other noninterest
revenue.
Reserve for credit losses
The reserve for credit losses is maintained to absorb future losses inherent in
the credit portfolio based on management's judgment. Factors considered in
determining the level of the reserve include trends in portfolio volume,
quality, maturity and composition; industry concentrations; lending policies;
new products; adequacy of collateral; historical loss experience; the status
and amount of nonperforming and past-due loans; specific known risks; and
current, as well as anticipated, specific and general economic factors that may
affect certain borrowers. Credit losses are charged against the reserve;
recoveries are added to the reserve.
Acquired property
Property acquired in connection with loan settlements, including real estate
acquired, is stated at the lower of estimated fair value less estimated costs
to sell, or the carrying amount of the loan. A reserve for real estate
acquired is maintained on a property-by-property basis to recognize estimated
potential declines in value that might occur between appraisal dates.
Provisions for the estimated potential decrease in fair value between annual
appraisals, net gains on the sale of real estate acquired and net direct
operating expense attributable to these assets are included in net expense
(revenue) of acquired property. In-substance foreclosures are reflected in
real estate acquired when the borrower has minimal equity in the property; the
Corporation expects repayment of the loan to come only from the operation or
sale of the property; and the borrower either has abandoned control of the
property or is unlikely to rebuild equity or otherwise meet the terms of the
loan in the foreseeable future.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are calculated over the estimated
useful lives of the assets, limited in the case of leasehold improvements to
the lease term, using the straight-line method.
49
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
Goodwill and other identified intangibles
Intangible assets are amortized using straight-line and accelerated methods
over the remaining estimated benefit periods which approximated, on a
weighted-average basis at December 31, 1994, 17 years for goodwill, six for
core deposit intangibles and eight years for all other intangible assets except
purchased mortgage servicing rights. Goodwill and other intangible assets are
reviewed for possible impairment when events or changed circumstances may
affect the underlying basis of the asset.
Purchased mortgage servicing rights (PMSRs) are recorded at cost and are
amortized over 15 years or the remaining economic life of the portfolio,
whichever is shorter. PMSRs are subsequently evaluated for possible impairment
on a quarterly basis using the undiscounted disaggregate method, consensus
industry prepayment estimates and current portfolio and economic factors. On a
weighted average basis at December 31, 1994, the serviced mortgage loan
portfolio had an interest rate of approximately 7.8%.
Income Taxes
The Corporation, its domestic subsidiaries and Mellon Bank Canada file a
consolidated U.S. income tax return. The provision for U.S. income taxes of
each subsidiary is recorded as if each subsidiary filed a separate return,
except that tax benefits of current year losses, tax credits and tax benefit
carryforwards are allocated to the subsidiaries incurring such losses or
credits to the extent they reduce consolidated tax expense.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at the rate of exchange on the balance sheet date. Revenue and expense
accounts are translated monthly at month-end rates of exchange. Net foreign
currency positions are valued at rates of exchange--spot or future, as
appropriate--prevailing at the end of the period, and resulting gains or losses
are included in the consolidated income statement. Translation gains and
losses on investments in foreign entities with functional currencies that are
not the U.S. dollar are included in shareholders' equity.
Fee revenue
Trust and investment management fees are reported net of fees waived and
expense reimbursements to certain mutual funds. Fees on standby letters of
credit are recognized over the commitment term, while fees on commercial
letters of credit, because of their short-term nature, are recognized when
received. Fees on standby and commercial letters of credit are recorded in fee
revenue. Fees for banking and other services generally are recognized over the
periods the related services are provided.
Off-balance-sheet instruments used for interest rate risk management
The Corporation enters into interest rate swaps, futures and forward contracts
and interest rate caps and floors to manage its sensitivity to interest rate
risk. For interest rate risk management swaps, interest revenue or interest
expense is accrued over the terms of the agreements and transaction fees are
deferred and amortized to interest revenue or interest expense over the terms
of the agreements. Gains and losses on off-balance-sheet instruments used for
interest rate risk management are deferred and amortized over the life of the
hedged transaction as interest revenue or interest expense, and any unamortized
amounts are recognized as income or loss at the time of disposition of the
assets or liabilities being hedged. Amounts payable to or receivable from
counterparties is included in other liabilities or other assets. The fair
values of interest rate swaps, futures and forward contracts and interest rate
caps and floors used for interest rate risk management are not recognized in
the financial statements.
50
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
Off-balance-sheet instruments used for other than interest rate risk management
purposes
The Corporation enters into foreign exchange contracts, futures and forward
contracts, interest rate swaps, option contracts and interest rate agreements
to accommodate customers and for its proprietary trading account securities
portfolio. Realized and unrealized changes in fair value on these instruments
are recognized in foreign currency and trading revenue in the period in which
the changes occur. Interest revenue and expense on instruments held for other
than interest rate risk management purposes are included in the income
statement as part of net interest revenue. The fair value of contracts in gain
positions is reported on the balance sheet in other assets and the fair value
of contracts in loss positions is reported in other liabilities.
Statement of Cash Flows
For the purpose of reporting cash flows, the Corporation has defined cash and
cash equivalents as cash and due from banks. Cash flows from assets and
liabilities that have an original maturity date of three months or less
generally are reported on a net basis. Cash flows from assets and liabilities
that have an original maturity date greater than three months generally are
reported on a gross basis. Cash flows from hedging activities are classified
in the same category as the items hedged.
Common stock split
In September 1994, the board of directors of the Corporation authorized a
three-for-two common stock split. The stock split was structured as a special
stock dividend of one additional share of common stock being issued on every
two outstanding shares of common stock. The additional shares resulting from
the split were distributed on November 15, 1994, to shareholders of record on
November 1, 1994. Per share financial data has been restated for the impact of
the three-for-two common stock split.
Net income per common share
Net income per common share is computed using the "if-converted" method by
dividing net income applicable to common stock by the average number of shares
of common stock and common stock equivalents outstanding, net of shares assumed
to be repurchased using the treasury stock method. Common stock equivalents
arise from the assumed conversion of outstanding stock options, warrants and
subscription rights. The Series D preferred stock was converted to common
stock in August 1994. If the inclusion of the Series D preferred stock as
common stock equivalents was dilutive, dividends on the Series D preferred
stock were added back to net income for the purpose of calculating net income
per common share. The average number of shares of common stock and
equivalents, on a post-stock split basis, used to compute primary net income
per common share in 1994, 1993 and 1992 was 149.1 million, 147.1 million and
134.9 million, respectively.
Fully diluted net income per common share is computed by dividing net income
applicable to common stock by the average number of shares of common stock and
common stock equivalents outstanding for items that are dilutive, net of shares
assumed to be repurchased using the treasury stock method. These shares are
increased by the assumed conversion of convertible items if dilutive. The
average number of shares of common stock and equivalents, on a post-stock split
basis, used to compute fully diluted net income per common share in 1994, 1993
and 1992 was 149.2 million, 147.3 million and 137.3 million, respectively.
2. CASH AND DUE FROM BANKS
Cash and due from banks includes reserve balances that the Corporation's
subsidiary banks are required to maintain with a Federal Reserve bank. These
required reserves are based primarily on deposits outstanding and were $614
million at December 31, 1994, and $663 million at December 31, 1993. These
balances averaged $621 million in 1994 and $615 million in 1993.
51
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 December 31, 1993
----------------------------------------- -----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 425 $ - $ 1 $ 424 $ 510 $ 2 $ - $ 512
U.S. agency mortgage-backed securities 527 - 42 485 559 3 4 558
Other U.S. agency securities 830 - - 830 1,788 - - 1,788
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 1,782 - 43 1,739 2,857 5 4 2,858
Obligations of states and
political subdivisions 1 - - 1 1 - - 1
Other mortgage-backed securities 9 - - 9 22 - - 22
Other securities 132 3 3 132 36 3 - 39
- -------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $1,924 $ 3 $46 $1,881 $2,916 $ 8 $ 4 $2,920
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contractual maturities at December 31, 1994
Obligations Total
U.S. agency Total U.S. of states Other securities
(dollar amounts U.S. mortgage- Other Treasury and political mortgage- Other available
in millions) Treasury backed U.S. agency and agency subdivisions backed securities for sale
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year
Amortized cost $403 $ - $830 $1,233 $ - $ - $ 4 $1,237
Fair value 403 - 830 1,233 - - 4 1,237
Yield 5.47% - 5.74% 5.66% - - 5.76% 5.66%
1 to 5 years
Amortized cost 22 - - 22 - - 7 29
Fair value 21 - - 21 - - 7 28
Yield 6.64% - - 6.64% - - 6.00% 6.48%
5 to 10 years
Amortized cost - - - - 1 - 1 2
Fair value - - - - 1 - 1 2
Yield - - - - 9.42% - 8.99% 9.17%
Over 10 years
Amortized cost - - - - - - 120 120
Fair value - - - - - - 120 120
Yield - - - - - - 7.60% (a) 7.60%(a)
Mortgage-backed
securities
Amortized cost - 527 - 527 - 9 - 536
Fair value - 485 - 485 - 9 - 494
Yield - 5.28% - 5.28% - 6.49% - 5.30%
- -------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $425 $527 $830 $1,782 $ 1 $ 9 $132 $1,924
Total fair value 424 485 830 1,739 1 9 132 1,881
Total yield 5.54% 5.28% 5.74% 5.56% 9.42% 6.49% 6.92%(a) 5.58%(a)
Weighted average
contractual years to
maturity .32 -(b) .21 .25(c) 8.07 -(b) 1.82(a) -
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes equity securities and other investments which have no
stated yield.
(b) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 9.3 years and 2.9 years,
respectively, at December 31, 1994.
(c) Excludes maturities of "U.S. agency mortgage-backed" securities.
Note: Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Rates are calculated on a
taxable equivalent basis using a 35% federal income tax rate.
</TABLE>
52
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 December 31, 1993
----------------------------------------- -----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 24 $ - $ 1 $ 23 $ 30 $ - $ - $ 30
U.S. agency mortgage-backed securities 3,017 - 209 2,808 1,867 46 4 1,909
Other U.S. agency securities 4 - - 4 - - - -
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and agency
securities 3,045 - 210 2,835 1,897 46 4 1,939
Obligations of states and political
subdivisions 70 - 1 69 129 3 - 132
Other mortgage-backed securities 48 - 1 47 85 - - 85
Other investment securities 81 1 - 82 321 13 4 330
- -------------------------------------------------------------------------------------------------------------------------------
Total investment securities $3,244 $ 1 $212 $3,033 $2,432 $62 $ 8 $2,486
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contractual maturities at December 31, 1994
Obligations
U.S. agency Total U.S. of states Other Total
(dollar amounts U.S. mortgage- Other Treasury and political mortgage- Other investment
in millions) Treasury backed U.S. agency and agency subdivisions backed securities securities
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year
Amortized cost $ 2 $ - $ 3 $ 5 $14 $ - $ 5 $ 24
Fair value 2 - 3 5 14 - 5 24
Yield 5.75% - 4.19% 4.74% 6.37% - 5.53% 5.84%
1 to 5 years
Amortized cost 19 - 1 20 56 - 15 91
Fair value 18 - 1 19 55 - 15 89
Yield 4.83% - 7.74% 4.87% 7.89% - 11.40% 7.82%
5 to 10 years
Amortized cost - - - - - - 8 8
Fair value - - - - - - 8 8
Yield - - - - - - 5.61% 5.61%
Over 10 years
Amortized cost 3 - - 3 - - 53(a) 56
Fair value 3 - - 3 - - 54(a) 57
Yield 8.12% - - 8.12% - - 5.79% 5.91%
Mortgage-backed
securities
Amortized cost - 3,017 - 3,017 - 48 - 3,065
Fair value - 2,808 - 2,808 - 47 - 2,855
Yield - 6.72% - 6.72% - 6.58% - 6.72%
- -------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $24 $3,017 $ 4 $3,045 $70 $48 $81 $3,244
Total fair value 23 2,808 4 2,835 69 47 82 3,033
Total yield 5.32% 6.72% 4.56% 6.71% 7.61% 6.58% 6.80% 6.73%
Weighted average
contractual years to
maturity 3.86 -(b) .87 3.46(c) 2.89 -(b) 1.40 -
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes Federal Reserve Bank stock of $50 million with a yield of 6.00%
and no stated maturity.
(b) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 10.3 years and 4.2 years,
respectively, at December 31, 1994.
(c) Excludes maturities of "U.S. agency mortgage-backed" securities.
Note: Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties. Rates are calculated on a
taxable equivalent basis using a 35% federal income tax rate.
</TABLE>
53
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
Gross realized gains on the sale of securities available for sale were $16
million, $87 million and $76 million in 1994, 1993 and 1992, respectively.
Gross realized losses on the sale of securities available for sale were $21
million in 1994. There were no realized losses on the sale of securities
available for sale in 1993 or 1992. Proceeds from the sale of securities
available for sale were $3.8 billion, $9.5 billion and $1.8 billion in 1994,
1993 and 1992, respectively. At December 31, 1994, net unrealized losses of
$43 million are recorded in shareholders' equity, net of tax, in accordance
with FAS No. 115.
There were no sales of investment securities in 1994. In 1993 Dreyfus recorded
gross realized gains on the sale of investment securities of $40 million. In
1992, the Corporation recorded $70 million of gross realized gains on the sale
of investment securities, including $22 million at Dreyfus. In 1993, Dreyfus
recorded gross realized losses of $27 million on the sale of investment
securities. In 1992, the Corporation recorded $17 million of gross realized
losses on the sale of investment securities, including $14 million at Dreyfus.
Proceeds from the sale of investment securities were $664 million in 1993 and
$1.4 billion in 1992, respectively.
Securities available for sale, investment securities, trading account
securities and loans, with book values of $3.9 billion at December 31, 1994,
and $3.7 billion at December 31, 1993, were required to be pledged to secure
public and trust deposits, and repurchase agreements, as well as for other
purposes.
4. LOANS
For details of the loans outstanding at December 31, 1994 and 1993, see the
1994 and 1993 columns of the "Composition of loan portfolio at year-end" table
on page 32. The information in those columns is incorporated by reference into
these Notes to Financial Statements.
For details of the nonperforming and past-due loans at December 31, 1994 and
1993, see the amounts in the 1994 and 1993 columns of the "Nonperforming and
past-due assets" table on page 36. The information in those columns is
incorporated by reference into these Notes to Financial Statements. There was
no foregone interest on restructured loans in 1994 and 1993. Foregone interest
on restructured loans was less than $2 million in 1992.
5. RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 600 $ 506 $ 596
Net change in reserve from mergers, asset acquisitions and divestitures 4 108 2
Additions (deductions):
Credit losses (151) (216) (331)
Recoveries 84 77 54
- ------------------------------------------------------------------------------------------------------------------------------
Net credit losses (67) (139) (277)
Provision for credit losses 70 125 185
- ------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 607 $ 600 $ 506
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 30 $ 30
Buildings 259 251
Equipment 600 511
Leasehold improvements 178 165
- ------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,067 957
Accumulated depreciation and amortization (509) (433)
- ------------------------------------------------------------------------------------------------------------------------------
Total premises and equipment $ 558 $ 524
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
54
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT (CONTINUED)
The table on the preceding page includes capital leases for premises and
equipment at a net book value of less than $1 million at December 31, 1994 and
1993.
Rental expense was $117 million, $104 million and $85 million, respectively,
net of related sublease revenue of $33 million, $29 million and $24 million in
1994, 1993 and 1992, respectively. Depreciation and amortization expense
totaled $95 million, $90 million and $82 million in 1994, 1993 and 1992,
respectively. Maintenance, repairs and utilities expenses totaled $89 million,
$85 million and $75 million in 1994, 1993 and 1992, respectively.
As of December 31, 1994, the Corporation and its subsidiaries are obligated
under noncancelable leases (principally for banking premises) with expiration
dates through 2020. A summary of the future minimum rental payments under
noncancelable leases, net of related sublease revenue totaling $103 million, is
as follows: 1995--$114 million; 1996--$109 million; 1997--$104 million;
1998--$97 million; 1999--$101 million; and 2000 through 2020--$981 million.
7. RESERVE FOR REAL ESTATE ACQUIRED
An analysis of the changes in the reserve for real estate acquired in 1994,
1993 and 1992 is presented in the "Reserve for real estate acquired" table on
page 38 and is incorporated by reference into these Notes to Financial
Statements.
8. SEGREGATED ASSETS
Segregated assets represent commercial real estate and other commercial loans
acquired in the Meritor retail office acquisition that are on nonaccrual
status, or are foreclosed properties, and are subject to a loss sharing
arrangement with the FDIC. These delinquent assets, net of reserve, are
reported in other assets in the balance sheet. The reserve for segregated
assets is not included in the reserve for credit losses.
Segregated assets totaled $85 million at December 31, 1994 and included gross
segregated assets of $89 million and a $4 million reserve for credit losses.
At December 31, 1993, segregated assets totaled $183 million, including gross
segregated assets of $187 million and a $4 million reserve for credit losses.
As a result of the loss sharing arrangement with the FDIC, any of the
performing commercial loans or performing commercial real estate loans acquired
in the Meritor retail office acquisition that become nonaccrual before December
31, 1997, will be reclassified to segregated assets. The loss sharing
provisions of the arrangement stipulate that, during the first five years, the
FDIC will pay to Mellon Bank, N.A. 80% of the net credit losses on acquired
commercial real estate and other commercial loans.
During the sixth and seventh years of the arrangement, Mellon Bank, N.A. will
pay to the FDIC 80% of any recoveries of charge-offs on such acquired loans
that had occurred during the first five years of the arrangement. At the end
of the seventh year, the FDIC will pay to Mellon Bank, N.A. an additional 15%
of the sum of net charge-offs on the acquired loans that occurred during the
first five years less the recoveries during the sixth and seventh years of the
arrangement in excess of $60 million. The $60 million credit loss threshold
was reached in the first quarter of 1993.
The FDIC will also reimburse Mellon Bank, N.A. for expenses incurred to recover
amounts owed and net expenses incurred with respect to foreclosed properties
derived from the acquired commercial real estate or commercial loans. Expenses
are reimbursed by the FDIC in the same proportion as the reimbursement of net
loan losses. In addition, the FDIC will reimburse the bank for up to 90 days
of delinquent interest on the assets covered by the loss sharing arrangement.
Mellon Bank, N.A. is required to administer assets entitled to loss sharing
protection in the same manner as assets held by Mellon Bank, N.A. for which no
loss sharing exists.
55
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
9. SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreements to repurchase
represent funds acquired for securities transactions and other funding
requirements. Federal funds purchased mature on the business day after
execution.
During 1994, the Corporation signed a $200 million one-year revolving credit
agreement with several financial institutions that serves as a commercial paper
support facility. This revolving credit facility has several restrictions,
including a 1.30 maximum double leverage limitation and a minimum tangible net
worth limitation of $1.8 billion. At December 31, 1994, the Corporation's
double leverage ratio was 1.09 and tangible net worth was $2.7 billion. The
revolving credit facility is supplemented by a $25 million backup line of
credit, bringing total commercial paper support facilities to $225 million.
The Corporation expects to negotiate another revolving credit facility upon the
expiration of the current agreement, which is scheduled to expire in mid-1995.
There were no other lines of credit to subsidiaries of the Corporation at
December 31, 1994 or 1993. No borrowings were made under any facility in 1994
or 1993. Commitment fees totaled less than $1 million in each of the years
1992 through 1994.
10. NOTES AND DEBENTURES (WITH ORIGINAL MATURITIES OVER ONE YEAR)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Corporation:
7-5/8% Senior Notes due 1999 $ 200 $ 200
6-1/8% Senior Notes due 1995 200 200
6-1/2% Senior Notes due 1997 200 199
6-7/8% Subordinated Debentures due 2003 150 150
9-1/4% Subordinated Debentures due 2001 100 100
5-3/8% Senior Notes due 1995 100 100
9-3/4% Subordinated Debentures due 2001 99 99
Medium Term Notes, Series A, due 1995-2001 (9.56% to 10.50% at December 31, 1994,
and 9.10% to 10.50% at December 31, 1993) 48 60
Senior Medium Term Notes, Series B, due 1995 (8.85% to 9.00% at December 31, 1994 and 1993) 26 26
7-1/4% Convertible Subordinated Capital Notes due 1999 4 5
Floating Rate Notes due 1994 (3.58% at December 31, 1993) - 200
Floating Rate Senior Notes due 1996 (3.68% at December 31, 1993) - 200
Subsidiaries:
6-1/2% Subordinated Notes due 2005 249 249
6-3/4% Subordinated Notes due 2003 149 149
Medium Term Bank Notes due 1998-2007 (6.57% to 8.55% at December 31, 1994 and 1993) 35 35
Various notes and obligations under capital leases due 1995-1999 (3.92% to 15.29% at
December 31, 1994 and 1993) 8 18
- -------------------------------------------------------------------------------------------------------------------------------
Total unsecured notes and debentures (with original maturities over one year) $1,568 $1,990
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following notes pay interest semiannually and are not redeemable prior to
maturity: 7-5/8%, 6-1/8%, 6-1/2%, and 5-3/8% Senior Notes; 6-7/8%, 9-1/4% and
9-3/4% Subordinated Debentures; the fixed-rate Medium Term Notes, Series A and
B. During 1994, $12 million of Series A notes matured.
The Floating Rate Notes due 1994 matured as scheduled. The Floating Rate Notes
due 1996 were redeemed at the option of the Corporation in 1994 at 100% of
their principal amount plus accrued interest.
The 6-1/2% and 6-3/4% Subordinated Notes due 2005 and 2003 and the fixed-rate
Medium Term Bank Notes due 1998 through 2007 pay interest semiannually and are
not redeemable prior to maturity. The 6-1/2% and 6-3/4% Subordinated Notes due
2005 and 2003 are subordinated to obligations to depositors and other creditors
of Mellon Bank, N.A.
The aggregate amounts of notes and debentures that mature during the five years
1995 through 1999, for the Corporation, are as follows: $329 million, $22
million, $206 million, $18 million and $210 million, respectively. The
aggregate amounts of notes and debentures that mature during the five years
1995 through 1999, for Mellon Bank Corporation (parent Corporation), are as
follows: $326 million, $20 million, $205 million, $12 million and $204
million, respectively.
56
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
11. PREFERRED STOCK
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Liquidation Balances at 1994 Dividends
(dollar amounts in millions, preference Shares Shares December 31, ---------------------
except per share amounts) per share authorized issued 1994 1993 1992 Per share Aggregate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.60% preferred stock (Series I) $25.00 6,000,000 6,000,000 $145 $145 $145 $2.40 $14
8.50% preferred stock (Series J) 25.00 4,000,000 4,000,000 97 97 97 2.13 9
8.20% preferred stock (Series K) 25.00 8,000,000 8,000,000 193 193 - 2.05 16
Junior convertible preferred stock
(Series D) 1.00 - - - 2 2 1.93 3
10.40% preferred stock (Series H) 25.00 - - - 155 155 2.60 17(a)
Convertible preferred stock (Series B) 25.00 - - - - 68 - -
---- ---- ----
Total preferred stock $435 $592 $467
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) As a result of the Series H preferred stock announced redemption,
the Corporation recorded an additional $16 million of preferred stock
dividends in 1994. These additional dividends reflect the redemption
premium, write-off of unamortized issuance costs and dividends accrued
through the redemption date. Including the additional dividends, total
Series H preferred stock dividends were $33 million in 1994.
</TABLE>
The Corporation has authorized 50,000,000 shares of Series Preferred Stock, par
value $1.00 per share, at December 31, 1994. The table above summarizes the
Corporation's preferred stock outstanding at December 31, 1994, 1993 and 1992.
The Series I, Series J and Series K preferred stocks are redeemable, in whole
or in part, at the option of the Corporation at $25 per share plus accrued
dividends at any time on or after August 15, 1996, February 15, 1997 and
February 15, 1998, respectively.
The remaining Series D junior convertible preferred stock was converted to
common stock pursuant to the terms of the Series D statement of designation in
August 1994. Each share of the Series D preferred stock was converted to .7609
shares of common stock for a total of 1,702,921 shares on a pre-stock split
basis. The effective annual dividend rate was $2.576 per share for 1994, on a
pre-stock split basis.
On December 19, 1994, the Corporation announced its commitment to redeem the
Series H preferred stock, at a price of $26.30 per share plus accrued dividends
on March 1, 1995.
In the event that the equivalent of six quarterly dividends, whether or not
consecutive, payable on Series I, Series J or Series K preferred stocks, are
unpaid and not set aside for payment, the number of directors of the
Corporation will be increased by two. The holders of the series of preferred
stock for which dividends are unpaid, voting as a single class, will be
entitled to elect the two additional directors to serve until all dividends in
arrears have been paid or declared and set aside for payment.
In the event of liquidation or dissolution of the Corporation, the rights of
the Series I, Series J and Series K preferred stock are senior to the common
stock with respect to dividends and distributions.
12. EQUITY PURCHASE OPTIONS (WARRANTS)
In May 1993, in connection with the acquisition of The Boston Company, the
Corporation issued 3 million 10-year equity purchase options (warrants), on a
pre-stock split basis or 4.5 million shares on a post-stock split basis, each
exercisable for one share of common stock. The warrants are exercisable at
$33.33 per share, on a post-stock split basis, at any time until their
expiration on May 21, 2003. At December 31, 1994 and 1993, all of these
warrants were outstanding. The Corporation's warrants are registered with the
Securities and Exchange Commission and are noncallable.
In 1988, the Corporation issued 3 million warrants, each exercisable for one
share of common stock. The warrants were exercisable at $25 per share at any
time until their expiration on August 7, 1994. All warrants were exercised
prior to their maturity. At December 31, 1993, there were approximately 14,600
of these warrants outstanding.
57
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. NONINTEREST REVENUE
The components of noninterest revenue for the three years ended December 31,
1994, are presented in the "Noninterest revenue" table on page 14. This table
is incorporated by reference into these Notes to Financial Statements.
14. 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 Corporation also
enters into positions in the interest rate, foreign exchange and debt markets
based on expectations of future market conditions. The resulting risks are
limited by entering into generally matching or offsetting positions. 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 by class of financial instrument in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Foreign exchange contracts $69
Debt instruments 4
Interest rate contracts 3
---
Foreign currency and securities trading revenue $76
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15. INCOME TAXES
The Corporation adopted FAS No. 109 "Accounting for Income Taxes" as of January
1, 1993, on a prospective basis. The cumulative effect of this change in
accounting for income taxes was less than $1 million and was included in income
tax expense.
Income tax expense applicable to income before taxes consists of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $264 $224 $118
State and local 26 45 15
Foreign 2 - (1)
- ------------------------------------------------------------------------------------------------------------------------------
Total current taxes 292 269 132
- ------------------------------------------------------------------------------------------------------------------------------
Deferred taxes:
Federal (4) 35 (24)
State and local (11) (7) 2
Foreign 1 1 (6)
- ------------------------------------------------------------------------------------------------------------------------------
Total deferred taxes (14) 29 (28)
- ------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $278 $298 $104
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
15. INCOME TAXES (CONTINUED)
In addition to amounts in the table on the preceding page, the following income
tax benefits were recorded:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity for compensation expense
for tax purposes in excess of amounts recognized
for financial statement purposes $ 3 $ 9 $3
Shareholders' equity for the tax effect of
net unrealized loss on assets available for sale 30 - -
Goodwill for prior purchase business combinations
with purchased excess tax basis - 5 -
- ------------------------------------------------------------------------------------------------------------------------------
Total tax benefits $33 $14 $3
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Significant components of deferred tax expense for 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993
- --- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax benefit, excluding the effect of other components listed below $ (7) $(29)
Reduction of deferred tax valuation allowance (7) -
Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates - (4)
Investment tax credit carryforward utilized - 29
Alternative minimum tax credit carryforward utilized - 33
- ------------------------------------------------------------------------------------------------------------------------------
Total deferred tax (benefit) expense $(14) $ 29
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense was different from the amounts computed by applying the
statutory federal income tax rate to income before income taxes because of the
items listed in the following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35% 35% 34%
Tax expense computed at statutory rate $249 $265 $215
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit 10 25 11
Alternative minimum tax - - (13)
Tax-exempt income from loans and securities (6) (8) (12)
Amortization of goodwill 15 9 5
Impact of book versus tax basis of acquired assets - 14 16
Recognized tax benefits - - (130)
Other, net 10 (7) 12
- ------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $278 $298 $104
- ------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 39% 39% 16%
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
15. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities for 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Provision for credit losses and
write-downs on real estate acquired $254 $259
Accrued expense not deductible until paid 125 92
Occupancy expense 74 72
Other 77 32
- ------------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets 530 455
Valuation allowance - (7)
- ------------------------------------------------------------------------------------------------------------------------------
Gross deferred tax assets net of
valuation allowance 530 448
- ------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing revenue 250 207
Salaries and employee benefits 16 44
Other 38 13
- ------------------------------------------------------------------------------------------------------------------------------
Gross deferred tax liabilities 304 264
- ------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $226 $184
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation had determined that it was not required to establish a
valuation allowance for deferred tax assets upon adoption of FAS No. 109 since
it is management's assertion that the deferred tax asset likely will be
realized through: carryback to taxable income in prior years; future reversals
of existing taxable temporary differences; and, to a lesser extent, future
taxable income. However, the Corporation did record a valuation allowance upon
the acquisition of The Boston Company, Inc., and subsidiaries. This valuation
allowance primarily represented federal net operating loss carryforwards that
are subject to limitation on their usage. As of the end of 1994, these
carryforwards were fully utilized and the valuation allowance was reversed.
In 1992, deferred income tax benefits of $28 million resulted from temporary
differences in the recognition of income and expense for income tax and
financial reporting purposes. The principal items of income and expense that
gave rise to deferred income taxes are shown in the following table.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
(in millions) 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Tax loss carryforward $ 36
Provision for credit losses and write-downs of real estate acquired 23
Lease financing revenue 21
Investment tax credit 20
Deferred loss on sale of assets to GSNB 13
Depreciation and amortization 9
Alternative minimum tax (13)
Other, net (7)
- ------------------------------------------------------------------------------------------------------------------------------
Net deferred tax expense before recognized tax benefits 102
Recognized tax benefits (130)
- ------------------------------------------------------------------------------------------------------------------------------
Deferred tax benefit recognized $ (28)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
60
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. EMPLOYEE BENEFITS
Pension plans
The Corporation's largest subsidiaries--Mellon Bank, N.A., The Boston Company
and Dreyfus--sponsor trusteed, noncontributory, defined benefit pension plans.
Together, the plans cover substantially all salaried employees of the
Corporation. The plans provide benefits that are based on employees' years of
service and compensation. In addition, several unfunded plans exist for
certain employees or for purposes that are not addressed by the funded plans.
These plans are appropriately funded, with the Mellon Bank, N.A. plan
significantly overfunded, The Boston Company plan moderately overfunded and the
fair market value of plan assets of the Dreyfus plan approximately equal to its
accumulated benefit obligation. The Corporation amortizes all actuarial gains
and losses and prior service costs over a 10 year period. The tables below
report the combined data of these plans. Prior periods were not restated for
Dreyfus because the amounts are immaterial.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded Funded Unfunded
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assumptions used in the accounting:
Rates used for expense at January 1:
Rate on obligation 6.0% 6.0% 6.9% 6.9% 7.6% 7.6%
Rate of return on assets 10.0 - 10.0 - 10.0 -
Actuarial salary scale 3.0 3.0 2.9 2.9 3.6 3.6
- -------------------------------------------------------------------------------------------------------------------------------
Components of pension expense (credit):
Service cost $ 21 $ 2 $ 15 $ 1 $ 10 $ 1
Interest cost on projected benefit obligation 22 2 17 2 13 1
Return on plan assets (1) - (71) - (58) -
Net amortization and deferral (47) 1 27 - 20 -
- -------------------------------------------------------------------------------------------------------------------------------
Total pension expense (credit) $ (5) $ 5 $ (12) $ 3 $ (15) $ 2
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1994 1993
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used for obligation at December 31:
Rate on obligation 7.5% 7.5% 6.0% 6.0%
Actuarial salary scale 3.5 3.5 3.0 3.0
- -------------------------------------------------------------------------------------------------------------------------------
Present value of benefit obligation at December 31:
Vested $246 $ 34 $255 $ 31
Nonvested 25 1 37 2
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 271 35 292 33
- -------------------------------------------------------------------------------------------------------------------------------
Effect of projected future compensation levels 49 3 50 2
- -------------------------------------------------------------------------------------------------------------------------------
Present value of projected benefit obligation $320 $ 38 $342 $ 35
- -------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair market value at December 31:
Cash and U.S. Treasury securities $173 $ - $107 $ -
Corporate debt obligations 68 - 54 -
Mellon Bank Corporation common stock (a) 23 - 27 -
Other common stock and investments 398 - 457 -
- -------------------------------------------------------------------------------------------------------------------------------
Total plan assets at fair market value $662 $ - $645 $ -
- -------------------------------------------------------------------------------------------------------------------------------
Reconciliation of funded status with financial statements:
Funded status at December 31 $342 $(38) $303 $(35)
Unamortized net transition (asset) obligation (20) 1 (21) 2
Unrecognized prior service cost 16 3 13 -
Net deferred actuarial (gain) loss (82) 5 (52) 8
Adjustment required to recognize minimum liability - (6) - (8)
- -------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) expense at December 31 $256 $(35) $243 $(33)
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents 750,000 shares at December 31, 1994 and 1993. The
Mellon Bank retirement plan received $1.2 million and $1.1 million,
respectively, of dividends from Mellon Bank Corporation's common stock in
1994 and 1993.
</TABLE>
61
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. EMPLOYEE BENEFITS (CONTINUED)
The Corporation has a Long-Term Profit Incentive Plan which provides for the
issuance of stock options, stock appreciation rights, performance units,
deferred cash incentive awards and shares of restricted stock to officers and
key employees of the Corporation and its subsidiaries as approved by the Human
Resources Committee of the Corporation's board of directors. In addition,
Dreyfus has a 1989 Non-Qualified Stock Option Plan. Both plans are described
below.
Long-Term Profit Incentive Plan (1981)
Stock options may be granted at prices not less than the fair market value of
the common stock on the date of grant. Options may be exercised during fixed
periods of time not to exceed 10 years from the date of grant. In the event of
certain changes in control of the Corporation, these options may become
immediately exercisable.
Total outstanding grants as of December 31, 1994, were 7,240,864 shares, of
which 2,233,404 shares were exercisable. During 1994, 1993 and 1992, options
for 3,067,206; 1,554,644; and 2,109,750 shares, respectively, were granted.
During 1993, the Long-Term Profit Incentive Plan was amended with shareholder
approval to increase the shares available for grant by 4,500,000 shares. As of
December 31, 1994, options for 2,732,012 shares were available for grant.
Included in the December 31, 1994, 1993 and 1992 outstanding grants were
options for 1,044,428; 631,353; and 873,060 shares, respectively, that were
issued at exercise prices ranging from $13.17 to $37.75 per share. These
options become exercisable near the end of their 10 year terms, but exercise
dates may be accelerated by the Human Resources Committee of the board of
directors, based on the optionee's performance. If so accelerated,
compensation will be paid in the form of deferred cash incentive awards to
reimburse the exercise price of these options if exercised prior to the
original vesting date. The Corporation recognized $8 million of compensation
expense for these options in 1994, $8 million in 1993 and $7 million in 1992.
As of December 31, 1994, the exercise date had been accelerated on options for
1,048,640 shares, of which 4,972; 301,482; and 206,034 were exercised in 1994,
1993 and 1992, respectively.
Options for 612,536; 1,503,144; and 1,067,348 shares were exercised in 1994,
1993 and 1992, respectively, under the Long-Term Profit Incentive Plan,
including the 4,972; 301,482; and 206,034 shares on which the exercise date was
accelerated.
1989 Non-Qualified Stock Option Plan
A stock option plan at Dreyfus prior to the August 1994 merger provided for the
issuance of stock options to key employees and key consultants who rendered
services to Dreyfus, at a price of not less than 95% of the price of Dreyfus'
common stock on The New York Stock Exchange on the day the option was granted.
Options were not exercisable within two years nor more than 10 years from the
date of grant. Options for Dreyfus stock were automatically converted into
options for the Corporation's common stock on the merger date.
Total outstanding grants as of December 31, 1994, were 1,728,709 shares, of
which 1,566,152 shares were exercisable. No options were granted in 1994 and
1992. In 1993, options for 66,013 shares were granted. No further options
will be granted under this plan.
The shares under option included in the December 31, 1994, 1993, and 1992
outstanding grants were issued at exercise prices ranging from $18.23 to $31.53
per share. Options for 26,900; 7,096; and 23,104 shares were exercised in
1994, 1993 and 1992, respectively.
62
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. EMPLOYEE BENEFITS (CONTINUED)
The following table presents a summary of the aggregate options outstanding
under the Corporation's Long-Term Profit Incentive Plan and the Dreyfus 1989
Non-Qualified Stock Option Plan:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Price of
Number of shares (a) shares under option (a)
----------------------------- ----------------------------
Eligible Aggregate
Under option for exercise Per share (in millions)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994 8,969,573 3,799,556 $13.17-$40.08 $278
December 31, 1993 6,972,291 2,735,472 13.17-40.08 192
December 31, 1992 7,047,603 2,569,878 13.17-40.08 171
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Restated to reflect the merger with Dreyfus, which was accounted for as
a pooling of interests.
</TABLE>
Incentive Stock Option Plan and Optional Incentive Payment Plan
An incentive stock option plan for Dreyfus employees, in effect prior to the
merger, provided for the granting of options to purchase book value shares.
Options were not exercisable within one year nor more than 10 years from the
date of grant. The plan also provided for compensation to recipients of
options in amounts equal to any cash dividend declared by Dreyfus from the date
of the grant of options to the date of exercise. The plan expired in 1992 and
no new options were granted under the plan, although existing unexercised
options continued in accordance with their terms. At the date of the merger,
the options and book value shares were converted into shares of common stock of
the Corporation at a fair market value equal to the value of such options and
book value shares as agreed upon in the merger agreement. The value agreed
upon was $24.43 for each book value share and $24.43 less the exercise price of
the option for each book value option outstanding. Unvested options were
discounted at five percent per annum through the scheduled date of vesting.
The conversion resulted in the issuance of 166,224 shares of the Corporation's
common stock.
In conjunction with the Incentive Stock Option Plan, an Optional Incentive
Payment Plan existed at Dreyfus, prior to the merger. The terms of this plan
provided that individuals who previously exercised Incentive Stock Options
could sell the shares related to such options back to Dreyfus, and in turn
receive an equal number of units. Pursuant to the terms of the plan, quarterly
payments were made on each unit held in amounts equal to Dreyfus' quarterly
after-tax earnings per share and such amounts were charged to operations. At
the date of the merger, all units outstanding under the plan were forfeited.
Total compensation expense related to these plans was $4 million in 1994, $6
million in 1993 and $5 million in 1992. The Incentive Stock Option Plan and
Optional Incentive Payment Plan terminated coincident with the merger. No
further awards will be made under the plans.
Stock Option Plan for Outside Directors (1989)
The Corporation's Stock Option Plan for Outside Directors provides for the
granting of options for shares of common stock to outside directors and
advisory board members of the Corporation. The timing, amounts, recipients and
other terms of the option grants are determined by the provisions of, or
formulas in, the Directors' Option Plan. The exercise price of the options is
equal to the fair market value of the common stock on the grant date. All
options have a term of 10 years from the date of grant and become exercisable
one year from the grant date. Directors elected during the course of the year
are granted options on a pro rata basis having terms identical to those granted
to the directors at the start of the year.
During 1993, the Stock Option Plan for Outside Directors was amended with
shareholder approval to increase the shares available for grant by 300,000
shares. Total outstanding grants as of December 31, 1994, were 349,862 shares,
of which 297,905 were exercisable. Shares under option ranged from $17.00 to
$38.00 per share for an aggregate of $9 million. During 1994, 1993 and 1992,
options for 52,563; 50,648; and 98,639 shares, respectively,
63
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. EMPLOYEE BENEFITS (CONTINUED)
were granted at prices ranging from $26.58 to $38.00 per share. As of December
31, 1994, 205,212 shares were available for grant. Options for 4,298; 27,729;
and 9,900 shares were exercised in 1994, 1993 and 1992, respectively.
Retirement Savings Plan
Since April 1988, employees' payroll deductions for deposit into retirement
savings accounts have been matched by the Corporation's contribution of common
stock, at the rate of $.50 on the dollar, up to six percent of the employee's
annual base salary with an annual maximum corporate contribution of $3,000 per
employee. In 1994, 1993 and 1992, the Corporation recognized $10 million, $9
million and $6 million, respectively, of expense related to this plan and
contributed 276,535; 229,317; and 219,758 shares, respectively, into this plan.
A portion of the shares contributed in 1994, 1993 and 1992 were issued from
treasury stock. The plan held 1,672,200; 1,505,303; and 1,395,186 shares of
common stock at December 31, 1994, 1993 and 1992, respectively.
Dreyfus has a separate retirement profit-sharing plan and a related deferred
compensation plan that provides for the payment of death, disability and
retirement benefits to Dreyfus employees or their beneficiaries in amounts
equal to the value of their proportionate interests in the plan. The aggregate
contribution to the plans is based on consolidated net income (as defined in
the plans) or compensation of eligible employees. Amounts expensed under the
plans were $10 million, $9 million, and $9 million for 1994, 1993 and 1992,
respectively.
Profit Bonus Plan
Awards are made to key employees at the discretion of the Human Resources
Committee of the board of directors of the Corporation. At the committee's
election, awards may be paid in a lump sum or may be deferred and paid over a
period of up to 15 years. Payouts under this plan were $18 million, $19
million and $13 million for 1994, 1993 and 1992, respectively. Payouts in 1994
included 32,350 shares of restricted stock issued at a price of $38.88 per
share.
Employee Stock Ownership Plan
In 1989, an Employee Stock Ownership Plan was formed to hold certain shares of
Mellon Bank Corporation common stock previously held in other defined
contribution plans sponsored by the Corporation and its subsidiaries. At
December 31, 1994, 1993 and 1992, this plan held 95,709; 116,367; and 132,690
shares, respectively, of the Corporation's common stock that previously were
held in other plans. The Corporation may make contributions to this plan from
time to time. No contributions were made in 1994, 1993 or 1992.
Postretirement benefits other than pensions
The Corporation shares in the cost of providing managed care, Medicare
supplement, and/or major medical programs for employees that retired prior to
January 1, 1991. Employees who retire subsequent to January 1, 1991, who were
between the ages of 55 and 65 on January 1, 1991 and had at least 15 years of
service, are provided with a defined dollar supplement to assist them in
purchasing health insurance. Early retirees who do not meet these age and
service requirements are eligible to purchase health coverage at their own
expense under the standard plans that are offered to active employees. In
addition to the arrangements above, the Corporation provides a small subsidy
toward health care coverage for other active employees when they retire. These
benefits are provided through various insurance carriers whose premiums are
based on claims paid during the year. The cost of providing these benefits
amounted to $10 million in 1994, $8 million in 1993 and $4 million in 1992.
The Corporation adopted Financial Accounting Standard No. 106 (FAS No. 106),
"Employers' Accounting for Postretirement Benefits Other than Pensions," on
January 1, 1993. FAS No. 106 requires sponsors of plans providing certain
health care and life insurance benefits to retired employees to expense the
cost of these benefits over
64
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. EMPLOYEE BENEFITS (CONTINUED)
the estimated working lives of these employees, rather than expensing the costs
as paid. The incremental expense of adopting FAS No. 106 was approximately $7
million for 1994 and $3 million for 1993. This accounting standard was adopted
on a prospective basis by beginning to amortize the transition obligation over
a 20-year period. The Boston Company adopted FAS No. 106 in 1992 by electing
to recognize the entire transition obligation into income in 1992. Dreyfus has
no postretirement benefits.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
1994 1993
--------------------------------------------- ---------------------------------------------
Accumulated Accumulated
Accrued postretirement Unrecognized Accrued postretirement Unrecognized
postretirement benefit transition postretirement benefit transition
(in millions) benefit cost obligation obligation benefit cost obligation obligation
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 $(12) $(83) $56 $ (4) $(63) $59
- ----------------------------------------------------------------------------------------------------------------------------------
Acquisition of The Boston Company - - - (5) (5) -
- ----------------------------------------------------------------------------------------------------------------------------------
Recognition of components of
net periodic postretirement
benefit costs:
Service cost (1) (1) - - - -
Interest cost (6) (6) - (5) (5) -
Amortization of
transition obligation (3) - (3) (3) - (3)
- ----------------------------------------------------------------------------------------------------------------------------------
(10) (7) (3) (8) (5) (3)
Change in APBO actuarial
assumptions including a
change in the discount rate - 15 - - (15) -
Benefit payments 3 5 - 5 5 -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 $(19) $(70) $53 $(12) $(83) $56
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A weighted average discount rate of 7% was used to determine the net periodic
benefit cost and an 8% rate was used to value the accumulated postretirement
benefit obligation at year-end 1994. A health care cost trend rate was used to
recognize the effect of expected changes in future health care costs due to
medical inflation, utilization changes, technological changes, regulatory
requirements and Medicare cost shifting. The future annual increase assumed in
the cost of health care benefits was 12% for 1995 and was decreased gradually
to 6% to 2003 and thereafter. The health care cost trend rate assumption can
have a significant impact on the amounts reported. Increasing the assumed
health care cost trend by one percentage point in each year would increase the
accumulated postretirement benefit obligation by approximately $5 million and
the aggregate of the service and interest cost components of net periodic
postretirement health care benefit cost by less than $1 million.
Financial Accounting Standard No. 112 (FAS No. 112), "Employers' Accounting for
Postemployment Benefits," became effective on January 1, 1994. FAS No. 112
requires the Corporation to recognize the obligation to provide postemployment
benefits to former or inactive employees after employment but before retirement
if the obligation is attributable to employees' services already rendered,
employees' rights to those benefits accumulate or vest, payment of the benefits
is probable and the amount of the benefits can be reasonably estimated.
Approximately $1 million of the increase in staff expense in 1994 was
attributable to the adoption of this standard, resulting in a reduction of less
than $.01 in net income per common share.
65
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. RESTRICTIONS ON DIVIDENDS AND REGULATORY LIMITATIONS
The prior approval of the Office of the Comptroller of the Currency (OCC) is
required if the total of all dividends declared by a national bank subsidiary
in any calendar year exceeds the bank subsidiary's net profits, as defined by
the OCC, for that year, combined with its retained net profits for the
preceding two calendar years. Additionally, national bank subsidiaries may not
declare dividends in excess of net profits on hand, as defined, after deducting
the amount by which the principal amount of all loans on which interest is past
due for a period of six months or more exceeds the reserve for credit losses.
Under the first and currently more restrictive of the foregoing dividend
limitations, the Corporation's national bank subsidiaries can, without prior
regulatory approval, declare dividends subsequent to December 31, 1994, of up
to approximately $404 million of their retained earnings of $2.018 billion at
December 31, 1994, less any dividends declared and plus or minus net profits or
losses, as defined, between January 1, 1995, and the date of any such dividend
declaration. The payment of dividends is also limited by minimum capital
requirements imposed on all national bank subsidiaries by the OCC. The
Corporation's national bank subsidiaries exceed these minimum requirements.
The national bank subsidiaries declared dividends to the parent Corporation of
$366 million in 1994, $185 million in 1993 and $154 million in 1992.
The Federal Reserve Board and the OCC have issued additional guidelines that
require bank holding companies and national banks to continuously evaluate the
level of cash dividends in relation to their respective operating income,
capital needs, asset quality and overall financial condition. As a general
rule, actual dividends from the bank subsidiaries to the parent Corporation are
not expected to exceed earnings for those subsidiaries.
The Federal Reserve Act limits extensions of credit by the Corporation's bank
subsidiaries to the Corporation and to certain other affiliates of the
Corporation, requires such extensions to be collateralized, and limits the
amount of investments by the banks in these entities. At December 31, 1994,
such extensions of credit and investments were limited to $495 million as to
the Corporation and any other affiliate and to $990 million as to the
Corporation and all of its other affiliates. Outstanding extensions of credit
totaled $105 million at December 31, 1994.
18. 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.
On November 29, 1994, a shareholder of the Corporation brought a derivative
action in federal court in Pittsburgh, purportedly on behalf of the
Corporation, against various directors of the Corporation. The lawsuit alleges
that those directors breached their fiduciary duty to the Corporation by
grossly mismanaging and wasting corporate assets in connection with the $130
million fourth quarter after tax loss to the Corporation as a result of actions
taken in its securities lending business. The Corporation believes that this
complaint lacks merit.
66
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
In the normal course of business, the Corporation becomes a party to various
financial transactions that generally do not involve funding. These
transactions involve various risks, including market and credit risk. Because
these transactions generally are not funded, they are not reflected on the
balance sheet and are referred to as financial instruments with
off-balance-sheet risk. The Corporation offers these financial instruments to
enable its customers to meet their financing objectives and manage their
interest- and currency-rate risk. Supplying these instruments provides the
Corporation with an ongoing source of fee revenue. The Corporation also enters
into these transactions to manage its own risks arising from movements in
interest and currency rates, and as a part of its proprietary trading and
funding activities.
Off-balance-sheet financial instruments involve varying degrees of market and
credit risk that exceed the amounts recognized on the balance sheet. The
Corporation limits its exposure to loss from these instruments by subjecting
them to the same credit approval and monitoring procedures as for
on-balance-sheet instruments, as well as by entering into offsetting or
matching positions to hedge interest- and currency- rate risk.
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT CREDIT RISK:
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(Notional amounts in millions) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $14,778 $12,521
Standby letters of credit and foreign guarantees 2,923 2,952
Commercial letters of credit 137 140
Residential mortgage loans serviced with recourse 186 546
Custodian securities lent with indemnification
against broker default of return of securities 15,127 11,152
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit
The Corporation enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specific rates and for
specific purposes. Substantially all of the Corporation's commitments to
extend credit are contingent upon customers maintaining specific credit
standards at the time of loan funding. The majority of the Corporation's
commitments to extend credit include material adverse change clauses within the
commitment contracts. These clauses allow the Corporation to deny funding a
loan commitment if the borrower's financial condition deteriorates during the
commitment, such that the customer no longer meets the Corporation's credit
standards. The Corporation's exposure to credit loss in the event of
nonperformance by the customer is represented by the contractual amount of the
commitment to extend credit. Accordingly, the credit policies utilized in
committing to extend credit and in the extension of loans are the same. Market
risk arises on fixed rate commitments if interest rates have moved adversely
subsequent to the extension of the commitment. The Corporation believes the
market risk associated with commercial commitments is minimal. Since many of
the commitments are expected to expire without being drawn upon, the total
contractual amounts do not necessarily represent future cash requirements. The
amount and type of collateral obtained by the Corporation is based upon
industry practice, as well as its credit assessment of the customer. Of the
$15 billion of contractual commitments for which the Corporation has received a
commitment fee or which were otherwise legally binding--excluding credit card
plans--approximately 31% of the commitments are scheduled to expire within one
year, and an additional 56% are scheduled to expire within five years.
Letters of credit and foreign guarantees
There are two major types of letters of credit--standby and commercial letters
of credit. The off-balance-sheet credit risk involved in issuing standby and
commercial letters of credit is represented by their contractual amounts and is
essentially the same as the credit risk involved in commitments to extend
credit. The Corporation minimizes this risk
67
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
by adhering to its written credit policies and by requiring security and debt
covenants similar to those contained in loan agreements. The Corporation
believes the market risk associated with letters of credit and foreign
guarantees is minimal.
Standby letters of credit and foreign guarantees obligate the Corporation to
disburse funds to a third-party beneficiary if the Corporation's customer fails
to perform under the terms of an agreement with the beneficiary. Standby
letters of credit and foreign guarantees are used by the customer as a credit
enhancement and typically expire without being drawn upon.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STANDBY LETTERS OF CREDIT AND FOREIGN GUARANTEES Weighted-average
years to maturity
December 31, at December 31,
(dollar amounts in millions) 1994 1993 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper and other debt $ 333 $ 335 1.3 1.6
Tax-exempt securities 630 703 2.1 2.1
Bid- or performance-related 1,019 1,055 1.0 1.0
Other 941 859 .7 .7
------ ------
Total standby letters of credit and foreign guarantees (a) $2,923 $2,952 1.2 1.3
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Net of participations and cash collateral totaling $263 million and
$320 million at December 31, 1994 and 1993, respectively.
</TABLE>
A commercial letter of credit is normally a short-term instrument used to
finance a commercial contract for the shipments of goods from a seller to a
buyer. This type of letter of credit ensures prompt payment to the seller in
accordance with the terms of the contract. Although the commercial letter of
credit is contingent upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on the underlying
transaction. Normally, reimbursement from the buyer is coincidental with
payment to the seller under commercial letter of credit drawings. As a result,
the total contractual amounts do not necessarily represent future cash
requirements.
Residential mortgage loans serviced with recourse
Certain residential mortgages were sold with servicing retained where the
Corporation is subject to limited recourse provisions. The loans are
collateralized by real estate mortgages and in certain instances are supported
by either government sponsored or private mortgage insurance.
Securities lending
A securities lending transaction is a fully collateralized transaction in which
the owner of a security agrees to lend the security through an agent (the
Corporation) to a borrower, usually a broker/dealer or bank, on an open,
overnight or term basis, under the terms of a prearranged contract. The
borrower will collateralize the loan at all times, generally with cash or U.S.
government securities, at a minimum of 100% of the market value of the loan,
plus any accrued interest on debt obligations.
The Corporation currently enters into two types of securities lending
arrangements, lending with and without indemnification. In securities lending
transactions without indemnification, the Corporation bears no contractual risk
of loss. For transactions in which the Corporation provides an
indemnification, risk of loss occurs if the borrower defaults on returning the
securities and the value of the collateral declines. Because the Corporation
generally indemnifies the owner of the securities only for the difference
between the par value of the securities and any collateral deficiency, the
total contractual amount does not necessarily represent future cash
requirements.
68
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR OTHER THAN INTEREST RATE RISK MANAGEMENT PURPOSES
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
1994 1993
---------------------- --------
NOTIONAL CREDIT Notional
(in millions) AMOUNT RISK(a) Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency contracts:
Commitments to purchase $10,326 (b) $9,219
Commitments to sell 10,383 (b) 9,226
Foreign currency and other option contracts written 59 - 534
Foreign currency and other option contracts purchased 65 1 569
Futures and forward contracts 1,170 - 546
Interest rate agreements:
Interest rate swaps 6,127 51 5,079
Options, caps and floors purchased 3,262 16 1,792(c)
Options, caps and floors written 2,219 - -
Forward rate agreements 50 - 595
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited
to the cost of replacing a contract in a gain position, on which a
counterparty has defaulted. Credit risk associated with these
instruments is discussed by type of instrument in the following
paragraphs.
(b) The combined credit risk on foreign currency contract commitments to
purchase and sell was $213 million at December 31, 1994.
(c) Options, caps and floors purchased and written are aggregated for 1993.
</TABLE>
Foreign currency contracts
Commitments to purchase and sell foreign currency facilitate the management of
market risk by ensuring that, at some future date, the Corporation or a
customer will have a specified currency at a specified rate. The Corporation
enters into foreign currency contracts on behalf of its customers, as well as
for its own account as part of its proprietary trading activities. The
notional amount of these contracts at December 31, 1994, was $10.3 billion to
purchase and $10.4 billion to sell. This notional amount does not represent
the actual market or credit risk associated with this product. Market risk
arises from changes in the market value of contractual positions caused by
movements in currency rates. The Corporation limits its exposure to market
risk by entering into generally matching or offsetting positions and by
establishing and monitoring limits on unmatched positions. Credit risk relates
to the ability of the Corporation's counterparty to meet its settlement
obligations under the contract and generally is limited to the estimated
aggregate replacement cost of those foreign currency contracts in a gain
position. Replacement cost totaled approximately $213 million and $116 million
at December 31, 1994 and 1993, respectively. There were no settlement or
counterparty default losses on foreign currency contracts in 1994, 1993 or
1992. The Corporation manages credit risk by dealing only with approved
counterparties under specific credit limits and by monitoring the amount of
outstanding contracts by customer and in the aggregate against such limits.
The future cash requirements, if any, related to foreign currency contracts are
represented by the net contractual settlement between the Corporation and its
counterparties.
Foreign currency and other option contracts written and purchased
Foreign currency and other option contracts grant the contract "purchaser" the
right, but not the obligation, to purchase or sell a specified amount of a
foreign currency or other financial instrument during a specified period at a
predetermined price. The Corporation acts as both a "purchaser" and "seller"
of foreign currency and other option contracts. Market risk arises from
changes in the value of contractual positions caused by fluctuations in
currency rates, interest rates and security values underlying the option
contracts. Market risk is managed by entering into generally matching or
offsetting positions and by establishing and monitoring limits on unmatched
positions. Credit risk and future cash requirements are similar to those of
foreign currency contracts. The estimated aggregate replacement cost of
purchased foreign currency and other option contracts in gain positions was
approximately $1 million and $6 million at December 31, 1994 and 1993,
respectively. There were no settlement or counterparty default losses on
foreign currency and other option contracts in 1994, 1993 or 1992.
69
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
Futures and forward contracts
Futures and forward contracts on securities or money market instruments
represent future commitments to purchase or sell a specified instrument at a
specified price and date. Futures contracts are standardized and are traded on
organized exchanges, while forward contracts are traded in over-the-counter
markets and generally do not have standardized terms. The Corporation uses
futures and forward contracts in connection with its proprietary trading
activities.
For instruments that are traded on an organized exchange, the exchange assumes
the credit risk that a counterparty will not settle and generally requires a
margin deposit of cash or securities as collateral to minimize potential credit
risk. The Corporation has established policies governing which exchanges and
exchange members can be used to conduct these activities, as well as the number
of contracts permitted with each member and the total dollar amount of
outstanding contracts. Credit risk associated with futures and forward
contracts is limited to the estimated aggregate replacement cost of those
futures and forward contracts in a gain position and was less than $1 million
at December 31, 1994 and $1 million at December 31, 1993. Credit risk related
to futures contracts is substantially mitigated by daily cash settlements with
the exchanges for the net change in futures contract value. There were no
settlement or counterparty default losses on futures and forward contracts in
1994, 1993 or 1992.
Market risk is similar to the market risk associated with foreign currency and
other option contracts. The future cash requirements, if any, related to
futures and forward contracts, are represented by the net contractual
settlement between the Corporation and its counterparties.
Interest rate swaps
Interest rate swaps obligate two parties to exchange one or more payments
generally calculated with reference to fixed or periodically reset rates of
interest applied to a specified notional principal amount. Notional principal
is the amount upon which interest rates are applied to determine the payment
streams under interest rate swaps. Such notional principal amounts often are
used to express the volume of these transactions but are not actually exchanged
between the counterparties.
The credit risk associated with interest rate swaps is limited to the estimated
aggregate replacement cost of those agreements in a gain position, and was $51
million and $231 million at December 31, 1994 and 1993, respectively. Credit
risk is managed through credit approval procedures that establish specific
lines for individual counterparties and limits of credit exposure to various
portfolio segments. Counterparty and portfolio outstandings are monitored
against such limits on an ongoing basis. Credit risk is further mitigated by
contractual arrangements with the Corporation's counterparties that provide for
netting replacement cost gains and losses on multiple transactions with the
same counterparty. The Corporation has entered into collateral agreements
with certain counterparties to interest rate swaps to further secure amounts
due. The collateral is generally cash and/or U.S. government securities.
There were no counterparty default losses on interest rate swaps in 1994, 1993
or 1992. Market risk arises from changes in the market value of contractual
positions caused by movements in interest rates. The Corporation limits its
exposure to market risk by generally entering into matching or offsetting
positions and by establishing and monitoring limits on unmatched positions.
The future cash requirements of interest rate swaps are limited to the net
amounts payable under these swaps. At December 31, 1994, 95% of these interest
rate swaps are scheduled to mature in less than five years.
Options, caps, floors and forward rate agreements
An interest rate option is a contract that grants the purchaser the right to
either purchase or sell a financial instrument at a specified price within a
specified period of time. An interest rate cap is a contract that protects the
holder from a rise in interest rates or some other underlying index beyond a
certain point. An interest rate floor is a contract that
70
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
protects the holder against a decline in interest rates or some other
underlying index below a certain point. A forward rate agreement is an
agreement to exchange dollar amounts at a specified future date based on the
difference between a particular interest rate index and an agreed upon fixed
rate. The credit risk associated with options purchased and caps and floors
purchased was $16 million at year end 1994 and is recorded on the balance
sheet. Options, caps and floors written do not expose the Corporation to
credit risk. Market risk arises from changes in the market value of
contractual positions caused by movements in interest rates. The Corporation
limits its exposure to market risk by entering into generally matching or
offsetting positions and by establishing and monitoring limits on unmatched
positions.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
1994 1993
------------------------------- --------
Notional Credit Notional
(in millions) Amount Risk(a) Amount
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate swaps $10,985 $2 $8,568
Options, caps and floors purchased (b) 344 8 768
Futures and forward contracts 5 - -
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited
to the cost of replacing a contract in a gain position, on which a
counterparty has defaulted. Credit risk associated with these
instruments is discussed by type of instrument below.
(b) At December 31, 1994, there were no options, caps and floors written.
Options, caps and floors purchased and written are aggregated for 1993.
</TABLE>
Interest rate swaps
The Corporation enters into interest rate swaps as part of its interest rate
risk management strategy primarily to alter the interest rate sensitivity of
its deposit liabilities. At December 31, 1994, the Corporation used $11.0
billion of interest rate swaps for interest rate risk management purposes. The
credit and market risk associated with these instruments is explained on page
70 under "Interest rate swaps." The replacement cost of swap agreements in a
gain position was $2 million and $72 million at December 31, 1994 and 1993,
respectively. Net interest revenue in 1994 included $3 million of amortized
deferred gains from terminated interest rate swaps.
Options, caps, floors and forward rate agreements
Other interest rate products--primarily options and interest rate caps and
interest rate floors--also are used by the Corporation as part of its interest
rate risk management strategy. The Corporation had $344 million and $768
million notional amount of these instruments outstanding at December 31, 1994
and 1993, respectively. The credit and market risk associated with these
instruments is explained on pages 70 and 71 under "Options, caps, floors and
forward rate agreements." The replacement cost of those instruments in a gain
position totaled $8 million and $3 million at December 31, 1994 and 1993,
respectively.
Futures and forwards
The Corporation uses futures and forward contracts and agreements as a part of
its interest rate risk management strategy. At December 31, 1994, the
Corporation had $5 million outstanding. The estimated aggregate replacement
cost of those instruments in a gain position was less than $1 million at
December 31, 1994 and 1993. The credit and market risk associated with these
instruments is explained on page 70 under "Futures and forward contracts."
71
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
Concentrations of credit risk
In its normal course of business, the Corporation engages in activities with a
significant number of domestic and international counterparties. The maximum
risk of accounting loss from on- and off-balance-sheet financial instruments
with these counterparties is represented by their respective balance sheet
amounts and the contractual or replacement cost of the off-balance-sheet
financial instruments.
Approximately 35% of the Corporation's total on- and off-balance-sheet
financial instruments with credit risk at December 31, 1994, were with
consumers and consumer-related industries, compared with approximately 34% at
December 31, 1993. This credit exposure consisted principally of loans and the
related interest receivable on the balance sheet and off-balance-sheet loan
commitments and letters of credit. Consumers to which the Corporation has
credit exposure primarily are located within the Central Atlantic region and
are affected by economic conditions within that region.
Financial institutions--which include finance-related companies; domestic and
international banks and depository institutions; securities and commodities
brokers; and insurance companies--accounted for approximately 16% of the
Corporation's total on- and off-balance-sheet financial instruments with credit
risk at December 31, 1994, compared with approximately 17% at December 31,
1993. The Corporation's on-balance-sheet credit exposure to financial
institutions included short-term liquid assets consisting of due from banks and
money market investments, loans and the related interest receivable and
investment securities. In addition, the Corporation had off-balance-sheet
credit exposure to financial institutions consisting of commitments to extend
credit and letters of credit.
The Corporation had credit exposure to the U.S. government, including its
corporations and agencies, totaling approximately 10% of its on- and
off-balance-sheet financial instruments with credit risk at December 31, 1994
and 1993. Substantially all of this exposure consisted of investment
securities, securities available for sale and the related interest receivable
and balances due from the Federal Reserve. No other concentration of credit
risk exceeded 10% of the Corporation's total credit risk arising from on- and
off-balance-sheet financial instruments at December 31, 1994 and 1993,
respectively.
Impact of FASB Interpretation No. 39
On January 1, 1994, the Corporation adopted FASB Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts." This interpretation is
applicable to the balance sheet presentation of unrealized gains and losses
recognized for off-balance-sheet financial instruments. It generally requires
the reporting of unrealized gains as assets and unrealized losses as
liabilities.
The adoption of this interpretation for balance sheet presentation purposes did
not affect the net income or capital of the Corporation. At December 31, 1994,
the Corporation's assets and liabilities increased by approximately $286
million as a result of this interpretation. The balance sheet impact of this
interpretation at future dates will fluctuate as the unrealized gains and
losses on these contracts increase or decrease with changes in remaining
maturity and market rates, as well as the ability to net amounts under master
netting arrangements.
72
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (FAS No. 107), "Disclosures
about Fair Value of Financial Instruments," requires the disclosure of the
estimated fair value of on- and off-balance-sheet financial instruments. A
financial instrument is defined by FAS No. 107 as cash, evidence of an
ownership interest in an entity, or a contract that creates a contractual
obligation or right to deliver to or receive cash or another financial
instrument from a second entity on potentially favorable terms.
Fair value estimates are made at a point in time, based on relevant market data
and information about the financial instrument. FAS No. 107 specifies that
fair values should be calculated based on the value of one trading unit without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, estimated
transaction costs that may result from bulk sales or the relationship between
various financial instruments. Because no readily available market exists for
a significant portion of the Corporation's financial instruments, fair value
estimates for these instruments are based on judgments regarding current
economic conditions, currency and interest rate risk characteristics, loss
experience and other factors. Many of these estimates involve uncertainties
and matters of significant judgment and cannot be determined with precision.
Therefore, the calculated fair value estimates cannot always be substantiated
by comparison to independent markets and, in many cases, may not be realizable
in a current sale of the instrument. Changes in assumptions could
significantly affect the estimates.
Fair value estimates do not include anticipated future business or the value of
assets, liabilities and customer relationships that are not considered
financial instruments. For example, the Corporation's fee-generating
businesses--which contributed 52% of revenue in 1994--are not incorporated into
the fair value estimates. Other significant assets and liabilities that are
not considered financial instruments include lease finance assets, deferred tax
assets, lease contracts, premises and equipment and intangible assets.
Accordingly, the estimated fair value amounts of financial instruments do not
represent the entire value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating the fair value of its financial instruments at December 31, 1994 and
1993:
Short-term financial instruments
The carrying amounts reported on the Corporation's balance sheet generally
approximate fair value for financial instruments that reprice or mature in 90
days or less, with no significant change in credit risk. The carrying amounts
approximate fair value for cash and due from banks; money market investments;
acceptances; demand deposits; money market and other savings accounts; federal
funds purchased and securities sold under agreements to repurchase; U.S.
Treasury tax and loan demand notes; commercial paper; and certain other assets
and liabilities.
Trading account securities, securities available for sale and investment
securities
Trading account securities are recorded at market value on the Corporation's
balance sheet, including appropriate amounts for off-balance-sheet instruments
held for other than interest rate risk management purposes. Market values of
trading account securities, securities available for sale and investment
securities generally are based on quoted market prices or dealer quotes, if
available. If a quoted market price is not available, market value is
estimated using quoted market prices for securities with similar credit,
maturity and interest rate characteristics. The tables in note 3 present in
greater detail the carrying value and market value of securities available for
sale and investment securities at December 31, 1994 and 1993.
73
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans
The estimated fair value of performing commercial loans and certain consumer
loans that reprice or mature in 90 days or less approximates their respective
carrying amounts adjusted for a credit risk factor based upon the Corporation's
historical credit loss experience. The estimated fair value of performing
loans, except for consumer mortgage loans and credit card loans, that reprice
or mature in more than 90 days is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality and for similar maturities.
Fair value of consumer mortgage loans is estimated using market quotes or
discounting contractual cash flows, adjusted for prepayment estimates.
Discount rates were obtained from secondary market sources, adjusted to reflect
differences in servicing, credit and other characteristics.
The estimated fair value of credit card loans is developed using estimated cash
flows and maturities based on contractual interest rates and historical
experience. Estimated cash flows are discounted using market rates adjusted
for differences in servicing, credit and other costs. This estimate does not
include the value that relates to new loans that will be generated from
existing cardholders over the remaining life of the portfolio, a value that is
typically reflected in market prices realized in credit card portfolio sales.
The estimated fair value for nonperforming commercial real estate loans is the
"as is" appraised value of the underlying collateral. For other nonperforming
loans, the estimated fair value represents carrying value less a credit risk
adjustment based upon the Corporation's historical credit loss experience.
Deposit liabilities
FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be the amount payable on demand. Although market premiums paid
for depository institutions reflect an additional value for these low-cost
deposits, FAS No. 107 prohibits adjusting fair value for any value expected to
be derived from retaining those deposits for a future period of time or from
the benefit that results from the ability to fund interest-earning assets with
these deposit liabilities. The fair value of fixed-maturity deposits which
reprice or mature in more than 90 days is estimated using the rates currently
offered for deposits of similar remaining maturities.
Notes and debentures
The fair value of the Corporation's notes and debentures is estimated using
quoted market yields for the same or similar issues or the current yields
offered by the Corporation for debt with the same remaining maturities.
The table on the following page includes financial instruments, as defined by
FAS No. 107 whose estimated fair value is not represented by the carrying value
as reported on the Corporation's balance sheet. Contractual yields,
repricing/maturity periods and discount rates presented are for financial
instruments that reprice or mature in more than 90 days. Management has made
estimates of fair value discount rates that it believes to be reasonable
considering expected prepayment rates, rates offered in the geographic areas in
which the Corporation competes, credit risk and liquidity risk. However,
because there is no active market for many of these financial instruments,
management has no basis to verify whether the resulting fair value estimates
would be indicative of the value negotiated in an actual sale.
74
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
------------------------------------
Carrying amount AVERAGE Estimated fair value
------------------ REPRICING --------------------
December 31, CONTRACTUAL OR MATURITY DISCOUNT December 31,
(dollars in millions) 1994 1993 YIELD (YEARS) RATES USED 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Securities available for sale(a) $ 1,881 $ 2,916 - - - $ 1,881 $ 2,920
Investment securities(a) 3,244 2,432 - - - 3,033 2,486
Loans(b):
Commercial and financial 10,778 10,041 5.4-14.0% 2.0 6.6-13.0% 10,684 10,019
Commercial real estate 1,624 1,721 5.0-11.3 4.3 6.9-13.1 1,513 1,695
Consumer mortgage 8,680 8,191 5.2-10.4 13.1 6.8-13.0 8,374 8,291
Other consumer credit 4,836 3,813 7.0-12.3 1.3 6.0-12.9 5,000 3,927
------ ------
Total loans 25,918 23,766
Reserve for credit losses(b) (590) (585) - - - - -
------ ------ ------ ------ ------ ------ ------
Net loans 25,328 23,181 25,571 23,932
Other assets(c) 1,031 957 NM NM NM 1,031 1,009
Fixed-maturity deposits(d):
Retail savings certificates 6,707 6,813 3.1-6.6 1.2 2.4-8.4 6,528 6,837
Negotiable certificates of deposit 223 251 3.4-6.0 0.7 4.1-6.9 223 258
Other time deposits 1,690 644 0.3-10.9 0.4 5.0-9.9 1,690 649
Other funds borrowed(c) 580 151 NM NM NM 583 151
Notes and debentures(a) 1,568 1,990 - - - 1,488 2,086
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
NM--Not meaningful.
(a) Market or dealer quotes were used to value the reported balance of these
financial instruments.
(b) Approximately 75% and 76% of total performing loans, excluding consumer
mortgages and credit card receivables, reprice or mature within 90 days
at December 31, 1994 and 1993, respectively. Excludes lease finance
assets of $815 million and $718 million as well as the related reserve for
credit losses of $17 million and $15 million at December 31, 1994 and
1993, respectively. Lease finance assets are not considered financial
instruments as defined by FAS No. 107.
(c) Excludes non-financial instruments.
(d) FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other
savings accounts, to be equal to the amount payable on demand. Therefore,
the positive effect of the Corporation's $18.950 billion and $19.856
billion of such deposits at December 31, 1994 and 1993, respectively, are
not included in this table.
</TABLE>
Commitments to extend credit, standby letters of credit and foreign guarantees
These financial instruments generally are not sold or traded, and estimated
fair values are not readily available. However, the fair value of commitments
to extend credit and standby letters of credit and foreign guarantees is
estimated by discounting the remaining contractual fees over the term of the
commitment using the fees currently charged to enter into similar agreements
and the present credit-worthiness of the counterparties.
Other off-balance-sheet financial instruments
The estimated fair value of off-balance-sheet instruments used for other than
interest rate risk management purposes--which includes foreign exchange
contracts, interest rate swaps, option contracts, interest rate caps and floors
and futures and forward contracts--is equal to the on- balance-sheet carrying
amount of these instruments. The estimated fair value of off-balance-sheet
instruments used for interest rate risk management purposes--which includes
interest rate swaps, interest rate caps and floors and futures contracts--is
estimated by obtaining quotes from brokers. These values represent the
estimated amount the Corporation would receive or pay to terminate the
agreements, considering current interest and currency rates, as well as the
current credit-worthiness of the counterparties. Off-balance-sheet financial
instruments are further discussed in note 19, "Financial instruments with
off-balance-sheet risk and concentrations of credit risk."
75
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT AND FOREIGN GUARANTEES
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 December 31, 1993
--------------------------------------------- -----------------------------------------
ASSET Asset
----------------------------- --------------------------
CONTRACT CARRYING ESTIMATED Contract Carrying Estimated
(in millions) AMOUNT AMOUNT(a) FAIR VALUE amount amount(a) fair value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitments to extend credit $14,778 $5 $63 $12,521 $3 $53
Standby letters of credit and
foreign guarantees 2,923 2 21 2,952 2 25
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the on-balance-sheet receivables or deferred income arising
from these financial instruments.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR OTHER THAN INTEREST RATE RISK MANAGEMENT PURPOSES.
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994
----------------------------------------------------------
ASSET (LIABILITY)
NOTIONAL ------------------------------------
PRINCIPAL ESTIMATED AVERAGE
(in millions) AMOUNT(a) FAIR VALUE(b) FAIR VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency contracts:
Assets $10,504 $213 $178
Liabilities 10,205 (208) (176)
Options purchased 65 1 7
Options written 59 (1) (6)
Futures and forward contracts:
Assets 855 - -
Liabilities 315 - -
Interest rate swaps:
Assets 2,592 51 64
Liabilities 3,535 (49) (62)
Options, caps, floors and
forward rate agreements:
Assets 2,096 16 17
Liabilities 3,435 (14) (15)
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Notional amounts of these contracts, at December 31, 1993, are presented
in the off-balance-sheet instruments used for other than interest rate
risk management purposes table on page 69.
(b) Recorded at fair value on the Corporation's balance sheet.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES.
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994 December 31, 1993
---------------------------------------------- ------------------------------------------
ASSET (LIABILITY) Asset (Liability)
NOTIONAL ----------------------------- Notional --------------------------
PRINCIPAL CARRYING ESTIMATED principal Carrying Estimated
(in millions) AMOUNT AMOUNT(a) FAIR VALUE amount amount(a) fair value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps: $8,568 $40 $72
Assets $ 238 $ - $ 2
Liabilities 10,747 5 (354)
Options, caps & floors 768 2 3
Assets 238 - 8
Liabilities 106 (1) -
Futures contracts: - - -
Assets - - -
Liabilities 5 - -
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the on-balance-sheet receivables/payables or deferred income
arising from these financial instruments.
</TABLE>
76
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
21. SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Noncash investing and financing transactions that, appropriately, are not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net transfers to real estate acquired $ 14 $ 33 $ 223
In-substance foreclosure of other assets - - 3
Net transfers to segregated assets 12 134 -
Series H preferred stock redemption 155 - -
Purchase acquisitions(a):
Fair value of noncash assets acquired 390 8,582 2,702
Liabilities assumed 223 7,197 2,973
Stock issued - 115 -
Warrants issued - 37 -
---- ----- -----
Net cash received (paid) (167) (1,233) 271
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Purchase acquisitions include: U.S. Bancorp Mortgage Company and Glendale
Bancorporation in 1994; The Boston Company, Inc. and AFCO and CAFO in
1993; Meritor Savings Bank and Standard Federal Savings Bank branches
in 1992.
</TABLE>
22. MERGER AND ACQUISITION
The Dreyfus Corporation
On August 24, 1994, the Corporation merged with The Dreyfus Corporation, a
mutual fund company that employs approximately 2,000 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 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 reported results of Dreyfus. Operating results for the
Corporation and Dreyfus for the period ended June 30, 1994, and the years ended
December 31, 1993 and 1992, prior to restatement, are presented below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Six months ended June 30, Year ended December 31,
(in millions) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Corporation
Total revenue $1,398 $2,583 $2,126
Net income $ 265 $ 361 $ 437
- ------------------------------------------------------------------------------------------------------------------------------
Dreyfus
Total revenue $ 191 $ 384 $ 339
Net income $ 49 $ 99 $ 91
- ------------------------------------------------------------------------------------------------------------------------------
Combined
Total revenue $1,589 $2,967 $2,465
Net income $ 314 $ 460 $ 528
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
77
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
22. MERGER AND ACQUISITION (CONTINUED)
The Boston Company, Inc.
On May 21, 1993, the Corporation completed its acquisition of The Boston
Company, Inc. (TBC), a Shearson Lehman Brothers Inc. (Shearson) subsidiary
based in Boston. TBC, through Boston Safe Deposit and Trust Company and other
subsidiaries, engages in the businesses of institutional trust and custody,
institutional asset management and private asset management.
Under the terms of the stock purchase agreement with Shearson, the Corporation
acquired all of the stock of Boston Group Holdings, Inc., the holding company
for TBC and its subsidiaries, and paid to Shearson at the closing a combination
of $1.291 billion in cash, 2.5 million shares of the Corporation's common
stock, on a pre-stock split basis, and 10-year warrants to purchase an
additional three million shares of the Corporation's common stock at $50 per
share, on a pre-stock split basis.
This transaction was recorded under the purchase method of accounting in
accordance with Accounting Principles Board Opinion No. 16. The condensed pro
forma combined operating results provided in the table below are presented as
if the acquisition had been effective on January 1, 1993 and combines TBC's
results of operations for the period January 1, 1993 through May 20, 1993 and
the Corporation's historical results of operations for the year ended December
31, 1993, which include TBC's results of operations from May 21, 1993 to
December 31, 1993. The pro forma results include adjustments for the effect of
the amortization of goodwill and other intangibles, the elimination of certain
assets and liabilities at the closing of the transaction, as well as the
elimination of the revenues and expense attributable to nine subsidiaries of
TBC that were conveyed via dividend to Shearson prior to the closing date of
the transaction. In addition, merger expenses of $175 million, or $112 million
after tax, have been eliminated from the combined historical results of
operations as these expenses do not represent ongoing expenses of the
Corporation. The pro forma information is intended for informational purposes
only and is not necessarily indicative of the future results of operations of
the Corporation, or the results of operations that would have actually occurred
had the acquisition been in effect for the period presented.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
(Unaudited) Pro forma
combined
for the
year ended
(dollar amounts in millions, December 31,
except per share amounts) 1993(a)
- ----------------------------------------------------------------------------------------------
<S> <C>
Total revenue $3,181
Net income $ 588
Net income per common share $ 3.55
- ----------------------------------------------------------------------------------------------
<FN>
(a) Restated for the merger with Dreyfus, which was accounted for as a
pooling of interests.
</TABLE>
78
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
23. MELLON BANK CORPORATION (PARENT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENT
- -------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiaries $366 $185 $154
Dividends from nonbank subsidiaries 122 116 26
Interest revenue from bank subsidiaries 38 34 35
Interest revenue from nonbank subsidiaries 21 26 24
Other revenue 4 2 -
- -------------------------------------------------------------------------------------------------------------------------------
Total revenue 551 363 239
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense on commercial paper 7 6 6
Interest expense on notes and debentures 87 100 73
Operating expense 23 32 23
- -------------------------------------------------------------------------------------------------------------------------------
Total expense 117 138 102
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET
INCOME (LOSS) OF SUBSIDIARIES 434 225 137
Provision for income taxes (18) 11 (20)
Equity in undistributed net income (loss):
Bank subsidiaries 69 343 285
Nonbank subsidiaries (88) (97) 86
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME 433 460 528
Dividends on preferred stock 75 63 51
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $358 $397 $477
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and money market investments with bank subsidiary $ 346 $ 227
Securities available for sale - 260
Loans and other receivables due from nonbank subsidiaries 422 486
Investment in bank subsidiaries 4,307 4,038
Investment in nonbank subsidiaries 207 499
Subordinated debt and other receivables due from bank subsidiaries 343 344
Other assets 54 33
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $5,679 $5,887
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 178 $ 134
Other liabilities 252 76
Notes and debentures (with original maturities over one year) 1,127 1,539
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,557 1,749
- -------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 4,122 4,138
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,679 $5,887
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
23. MELLON BANK CORPORATION (PARENT CORPORATION) (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 433 $ 460 $ 528
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 20 20 8
Change in equity of subsidiaries from distributed (undistributed)
net income 19 (246) (371)
Net (increase) decrease in accrued interest receivable (1) 1 3
Deferred income tax expense (benefit) (4) 23 (14)
Net increase in other operating activities 6 26 32
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 473 284 186
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in term deposits - 199 (199)
Net (increase) decrease in short-term deposits with affiliated banks (125) 103 83
Funds invested in securities available for sale (200) (1,251) -
Proceeds from maturities of securities available for sale 460 849 -
Proceeds from sales of securities available for sale - 142 -
Loans made to subsidiaries (711) (1,066) (1,803)
Principal collected on loans to subsidiaries 771 1,292 1,690
Cash paid in purchase of Glendale Bancorporation (28) - -
Cash paid in purchase of The Boston Company - (1,291) -
Capital contributions to subsidiaries (115) (5) (189)
Decrease in investment in subsidiaries 100 335 50
Proceeds from the retirement of GSNB senior preferred stock - - 9
Net increase in other investing activities (20) (10) (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities 132 (703) (368)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper 44 (45) (8)
Repayments of long-term debt (413) (306) (294)
Net proceeds from issuance of long-term debt - 545 497
Net proceeds from issuance of common and preferred stock 18 502 221
Redemption of preferred stock - (65) (55)
Repurchase of common stock - (89) (30)
Dividends paid on common and preferred stock (254) (183) (149)
Net increase (decrease) in other financing activities (5) 65 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities (610) 424 182
- -----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS:
Net change in cash and due from banks (5) 5 -
Cash and due from banks at beginning of year 5 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ - $ 5 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
- -----------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 98 $ 109 $ 87
Net income taxes refunded (20) (34) (22)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Series H preferred stock redemption $ 155 $ - $ -
Purchase of The Boston Company:
Fair value of assets acquired, net of liabilities
assumed - 1,443 -
Stock and warrants issued - (152) -
- -----------------------------------------------------------------------------------------------------------------------------------
Cash paid $ - $ 1,291 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MELLON BANK CORPORATION:
We have audited the accompanying consolidated balance sheets of Mellon Bank
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1994.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mellon Bank
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation, as of January 1, 1994, adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 12, 1995
81
<PAGE> 83
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- -----------------------------------------------------------------------------------------------------------------------------------
1994
AVERAGE
AVERAGE YIELDS/
(dollar amounts in millions) BALANCE INTEREST RATES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS INTEREST EARNING ASSETS:
Interest-bearing deposits with banks $ 756 $ 34 4.52%
Federal funds sold and securities purchased under
agreements to resell 762 30 3.98
Other money market investments 138 6 4.29
Trading account securities 380 24 6.27
Securities:
U.S. Treasury and agency securities (a) 4,713 269 5.71
Obligations of states and political subdivisions (a) 110 8 7.14
Other (a) 352 17 4.80
Loans, net of unearned discount (a) 25,107 1,935 7.71
------- ------
Total interest-earning assets 32,318 $2,323 7.19%
Cash and due from banks 2,337
Customers' acceptance liability 165
Premises and equipment 537
Net acquired property 113
Other assets (a) 3,273
Reserve for credit losses (613)
----------------------------------------------------------------------------------------------------------------
Total assets $38,130
----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES, INTEREST-BEARING LIABILITIES:
REDEEMABLE Deposits in domestic offices:
PREFERRED STOCK Demand $ 2,143 $ 4 .21%
AND SHAREHOLDERS' Money market and other savings accounts 9,439 188 1.99
EQUITY Retail savings certificates 6,597 240 3.64
Other time deposits 246 15 6.05
Deposits in foreign offices 2,053 92 4.46
------- ------
Total interest-bearing deposits 20,478 539 2.63
Federal funds purchased and securities sold under
agreements to repurchase 1,777 76 4.29
U.S. Treasury tax and loan demand notes 564 22 3.93
Commercial paper 155 7 4.33
Other funds borrowed 699 48 6.90
Notes and debentures (with original maturities over one year) 1,768 110 6.20
------- ------
Total interest-bearing liabilities 25,441 $ 802 3.15%
Total noninterest-bearing deposits 6,770
Acceptances outstanding 165
Other liabilities 1,453
----------------------------------------------------------------------------------------------------------------
Total liabilities 33,829
----------------------------------------------------------------------------------------------------------------
Redeemable preferred stock -
----------------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 4,301
----------------------------------------------------------------------------------------------------------------
Total liabilities, redeemable preferred stock and
shareholders' equity $38,130
----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
RATES YIELD ON TOTAL INTEREST-EARNING ASSETS 7.19%
COST OF FUNDS SUPPORTING INTEREST-EARNING ASSETS 2.48
----------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN:
TAXABLE EQUIVALENT BASIS 4.71%
WITHOUT TAXABLE EQUIVALENT INCREMENTS 4.67
----------------------------------------------------------------------------------------------------------------
<FN>
(a) Amounts and yields in 1994 exclude adjustments to fair value
required by FAS No. 115.
Note: Interest and yields were calculated on a taxable equivalent
basis at rates approximating 35% in 1994 and 1993 and 34% in all other
years presented, using dollar amounts in thousands and actual number of
days in the
</TABLE>
82
<PAGE> 84
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
Average Average Average Average
Average yields/ Average yields/ Average yields/ Average yields/
balance Interest rates balance Interest rates balance Interest rates balance Interest rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1,592 $ 58 3.62% $ 839 $ 35 4.20% $ 738 $ 50 6.77% $ 1,395 $ 127 9.13%
1,801 54 3.03 789 27 3.47 605 35 5.76 1,076 92 8.51
428 16 3.73 277 17 6.02 223 16 7.34 456 43 9.32
269 15 5.71 308 21 6.74 309 23 7.41 278 22 8.06
4,120 226 5.49 5,595 423 7.55 4,445 392 8.82 3,990 342 8.58
166 11 6.85 147 11 7.77 442 47 10.63 564 61 10.89
518 24 4.49 758 44 5.94 891 66 7.41 684 52 7.53
21,763 1,597 7.34 18,235 1,474 8.07 18,514 1,748 9.44 18,845 2,006 10.64
------- ------ ------- ------ ------- ------ ------- ------
30,657 $2,001 6.53% 26,948 $2,052 7.61% 26,167 $2,377 9.09% 27,288 $2,745 10.06%
2,170 1,975 1,815 1,867
133 115 187 305
518 490 475 491
198 371 323 166
2,524 1,448 1,452 1,435
(565) (589) (541) (474)
- ----------------------------------------------------------------------------------------------------------------------------------
$35,635 $30,758 $29,878 $31,078
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,034 $ 2 .11% $ 1,728 $ 40 2.31% $ 1,398 $ 57 4.07% $ 1,213 $ 54 4.46%
8,768 146 1.66 6,364 193 3.03 5,528 266 4.81 5,425 322 5.96
7,556 241 3.19 7,581 324 4.27 8,202 541 6.60 7,136 583 8.17
422 26 6.00 453 31 6.87 903 61 6.68 2,201 179 8.10
1,024 40 3.89 922 49 5.36 1,100 82 7.49 2,006 188 9.35
------- ------ ------- ------ ------- ------ ------- ------
19,804 455 2.29 17,048 637 3.73 17,131 1,007 5.88 17,981 1,326 7.37
1,096 33 3.01 1,623 56 3.46 2,333 131 5.62 2,680 220 8.21
224 6 2.85 664 23 3.42 664 36 5.50 430 34 7.94
198 6 3.22 173 6 3.70 222 13 6.04 357 29 8.21
543 34 6.28 442 33 7.43 355 29 7.87 292 30 10.08
1,991 121 6.08 1,365 94 6.88 1,448 117 8.08 1,722 153 8.90
------- ------ ------- ------ ------- ------ ------- ------
23,856 $ 655 2.75% 21,315 $ 849 3.98% 22,153 $1,333 6.02% 23,462 $1,792 7.64%
6,737 5,636 4,307 4,103
134 115 187 305
944 580 566 677
- ----------------------------------------------------------------------------------------------------------------------------------
31,671 27,646 27,213 28,547
- ----------------------------------------------------------------------------------------------------------------------------------
- - 51 94
- ----------------------------------------------------------------------------------------------------------------------------------
3,964 3,112 2,614 2,437
- ----------------------------------------------------------------------------------------------------------------------------------
$35,635 $30,758 $29,878 $31,078
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
6.53% 7.61% 9.09% 10.06%
2.14 3.15 5.10 6.57
- ----------------------------------------------------------------------------------------------------------------------------------
4.39% 4.46% 3.99% 3.49%
4.34 4.39 3.86 3.34
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
years, and are before the effect of reserve requirements. Loan fees,
as well as nonaccrual loans and their related income effect, have been
included in the calculation of average yields/rates.
</TABLE>
83
<PAGE> 85
PRINCIPAL LOCATIONS AND OPERATING ENTITIES
<TABLE>
<CAPTION>
RETAIL SUBSIDIARIES OTHER DOMESTIC AND
AND REGIONS INTERNATIONAL LOCATIONS
<S> <C> <C>
Mellon Bank Corporation operates the MELLON BANK--WESTERN REGION serves ACCESS CAPITAL STRATEGIES specializes in
following retail subsidiaries in the United consumer and small to mid-sized economically targeted investments in
States: Mellon Bank, N.A., Mellon Bank commercial markets in western support of affordable housing and job
(DE) National Association, Mellon Bank (MD) Pennsylvania. creation.
and Mellon Bank, F.S.B. Headquarters: Locations: Cambridge, Massachusetts
Pittsburgh, Pennsylvania Milwaukee, Wisconsin
MELLON BANK, N.A. comprises six regions. President:
Headquarters: Matthew Giles AFCO CREDIT CORPORATION, with its
Pittsburgh, Pennsylvania Canadian affiliate, CAFO, Inc., is the
Mellon Bank, N.A. Chairman, MELLON PSFS*- In the Philadelphia area, nation's largest insurance premium
President and CEO: MELLON BANK, N.A. uses the name "MELLON financing company with 24 offices in the
Frank V. Cahouet PSFS" and serves consumer and small United States and Canada.
commercial markets in eastern Headquarters: New York, New York
MELLON BANK--CENTRAL REGION serves consumer Pennsylvania and mid-sized customers in
and small to mid-sized commercial markets eastern Pennsylvania and, through THE BOSTON COMPANY, INC. is a leading
in central Pennsylvania. Glendale National Bank of New Jersey, provider of institutional trust and
Headquarters: portions of New Jersey. custody, institutional asset management
State College, Pennsylvania Headquarters: and private asset management.
Chairman, President and CEO: Philadelphia, Pennsylvania Headquarters: Boston, Massachusetts
Ralph J. Papa Chairman and CEO: Pittsburgh, Pennsylvania
Thomas F. Donovan
MELLON BANK--COMMONWEALTH REGION serves
consumer and small to mid-sized commercial MELLON BANK (DE) NATIONAL ASSOCIATION THE BOSTON COMPANY ADVISORS, INC. is the
markets in south central Pennsylvania. serves consumer and small to mid-sized legal entity providing custody and
Headquarters: commercial markets throughout Delaware administrative services to registered
Harrisburg, Pennsylvania and provides nationwide cardholder investment companies (mutual funds).
Chairman and CEO: processing services. Headquarters: Boston, Massachusetts
Stephen R. Burke Headquarters:
Wilmington, Delaware THE BOSTON COMPANY ASSET MANAGEMENT,
MELLON BANK--NORTHEASTERN REGION serves Chairman, President and CEO: INC. provides institutional investment
consumer and small to mid-sized commercial Warner S. Waters, Jr. management services.
markets in northeastern Pennsylvania. Locations: Greenbrae, California
Headquarters: MELLON BANK (MD) serves consumer and Palo Alto, California
Wilkes-Barre, Pennsylvania small to mid-sized commercial markets Boston, Massachusetts
Chairman, President and CEO: throughout Maryland.
Bruce W. Hulbert Headquarters: BOSTON SAFE DEPOSIT AND TRUST COMPANY is
Rockville, Maryland the bank subsidiary affiliated with The
MELLON BANK--NORTHERN REGION serves Chairman, President and CEO: Boston Company, offering trust and
consumer and small to mid-sized commercial Kenneth R. Dubuque custody administration for institutional
markets in northwestern Pennsylvania. and private clients, private asset
Headquarters: MELLON BANK, F.S.B. serves consumer and management and jumbo mortgage lending.
Erie, Pennsylvania small to mid-sized commercial markets. Locations: Los Angeles, California
Chairman, President and CEO: Headquarters: Paramus, New Jersey Newport Beach, California
Robert D. Davis Chairman, President and CEO: Palo Alto, California
William V. Healey San Francisco, California
Chicago, Illinois
Medford, Massachusetts
Boston, Massachusetts
New York, New York
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
McLean, Virginia
London, England
</TABLE>
* Mellon PSFS is a service mark of Mellon Bank, N.A.
84
<PAGE> 86
PRINCIPAL LOCATIONS AND OPERATING ENTITIES (CONTINUED)
<TABLE>
<S> <C> <C>
CCF-MELLON PARTNERS, a joint venture with DREYFUS MANAGEMENT, INC. provides GLOBAL CASH MANAGEMENT REGIONAL OPERATING
Credit Commercial de France, markets investment management services for AND MARKETING SITES provide cash
investment advisory and discretionary money institutions including corporations, management operating services to
management services in North America and endowments, foundations, public retirement corporations and financial institutions.
Europe. plans, jointly trusted plans, colleges and Locations: Los Angeles, California
Location: Pittsburgh, Pennsylvania universities and labor unions. Atlanta, Georgia
Location: New York, New York Chicago, Illinois
COMMUNITY DEVELOPMENT CORPORATION, one of Boston, Massachusetts
the first 15 bank CDCs chartered DREYFUS RETIREMENT SERVICES provides a full Philadelphia, Pennsylvania
nationwide, supports development of array of investment products, participant Pittsburgh, Pennsylvania
affordable housing and of minority-owned education and administrative services to Dallas, Texas
businesses in low- and moderate-income defined contribution plans nationwide. London, England
areas of Delaware, Maryland and Locations: Los Angeles, California
Pennsylvania. San Francisco, California THE INSTITUTIONAL BANKING REPRESENTATIVE
Location: Pittsburgh, Pennsylvania Atlanta, Georgia OFFICES market credit and other banking
Chicago, Illinois services to broker-dealers.
CONSUMER REPRESENTATIVE OFFICES market Boston, Massachusetts Locations: New York, New York
credit products to consumers, including New York, New York London, England
home equity credit lines and loans. Uniondale, New York Toronto, Ontario, Canada
Locations: Chicago, Illinois Philadelphia, Pennsylvania
Indianapolis, Indiana Pittsburgh, Pennsylvania INTERNATIONAL BANKING OFFICES provide
Baltimore, Maryland Providence, Rhode Island international banking services, including
Columbus, Ohio Dallas, Texas trade banking, demand deposits, loans,
Falls Church, Virginia capital markets products and foreign
Richmond, Virginia DREYFUS SERVICE CORPORATION provides exchange to domestic and international
advertising, marketing and servicing customers.
CORPORATE BANKING REPRESENTATIVE OFFICES functions to all Dreyfus funds. Locations: London, England
market credit and related services to large Location: New York, New York Grand Cayman, British
corporate customers, exclusive of financial West Indies
institutions. DREYFUS TRUST COMPANY provides investment
Locations: Los Angeles, California management services to the institutional INTERNATIONAL REPRESENTATIVE OFFICES
Chicago, Illinois marketplace, offering a wide range of serve as a liaison between the
Boston, Massachusetts investment products for insurance Corporation's banking subsidiaries and
New York, New York companies, corporations, public funds, overseas customers.
Philadelphia, Pennsylvania endowments, foundations and Taft-Hartley Locations: Tokyo, Japan
Pittsburgh, Pennsylvania plans. Hong Kong
Houston, Texas Location: Uniondale, New York
THE LEASING GROUP markets a broad range
THE DREYFUS CORPORATION is one of the FRANKLIN PORTFOLIO ASSOCIATES TRUST of leasing and lease-related services to
nation's leading mutual fund companies. provides investment management services for corporations throughout the United States
Dreyfus manages or administers more than employee benefit funds and institutional with annual sales of more than $250
$70 billion in more than 175 mutual fund clients. million, as well as to corporations in
portfolios. Location: Boston, Massachusetts the Central Atlantic region with annual
Headquarters: New York, New York sales between $10 million and $250
million.
DREYFUS INVESTMENT SERVICES CORPORATION Locations: Chicago, Illinois
provides a full range of securities Pittsburgh, Pennsylvania
brokerage services for individuals and
institutional clients. MELLON BANK CANADA is a chartered
Location: Pittsburgh, Pennsylvania Canadian bank providing services to the
corporate market throughout Canada.
Location: Toronto, Ontario, Canada
MELLON BOND ASSOCIATES provides
structured management for bond portfolios
of large national institutional clients.
Location: Pittsburgh, Pennsylvania
</TABLE>
85
<PAGE> 87
PRINCIPAL LOCATIONS AND OPERATING ENTITIES (CONTINUED)
<TABLE>
<S> <C> <C>
MELLON BUSINESS CREDIT markets a broad MIDDLE MARKET BANKING REPRESENTATIVE PARETO PARTNERS provides investment
range of commercial finance products and OFFICES market a full range of financial management services for employee benefit
banking services to corporations with and banking services to commercial funds and institutional and high net
borrowing requirements that exceed $2 customers with annual sales between $10 worth clients.
million in the Central Atlantic region and million and $250 million. Mellon's Locations: London, England
that exceed $5 million nationwide. Middle Market group also specializes in New York, New York
Locations: Los Angeles, California providing services to all segments of the
Chicago, Illinois health care industry nationwide. PREMIER UNIT TRUST ADMINISTRATION is a
Rockville, Maryland Locations: Los Angeles, California leading servicer of unit trusts, the
Edison, New Jersey Wilmington, Delaware British equivalent of mutual funds, in
Cleveland, Ohio Rockville, Maryland the United Kingdom.
Philadelphia, Pennsylvania Boston, Massachusetts Location: Brentwood, Essex, England
Pittsburgh, Pennsylvania Cherry Hill, New Jersey
Edison, New Jersey THE R-M TRUST COMPANY, a joint venture
MELLON CAPITAL MANAGEMENT CORPORATION Buffalo, New York with Gentra, Inc. of Toronto, provides
provides portfolio and investment Altoona, Pennsylvania stock transfer and indenture trustee
management services. Erie, Pennsylvania services to Canadian clients.
Location: San Francisco, California Harrisburg, Pennsylvania Locations: Calgary, Alberta, Canada
Philadelphia, Pennsylvania Vancouver, British
MELLON EQUITY ASSOCIATES provides Pittsburgh, Pennsylvania Columbia, Canada
specialized equity management services to Plymouth Meeting, Winnipeg, Manitoba, Canada
the national pension and public fund Pennsylvania Halifax, Nova Scotia,
markets. State College, Pennsylvania Canada
Location: Pittsburgh, Pennsylvania Wilkes-Barre, Pennsylvania Toronto, Ontario, Canada
Montreal, Quebec, Canada
MELLON EUROPE LTD., a United Kingdom- MORTGAGE BANKING, operating as Mellon Regina, Saskatchewan,
chartered bank, provides trust and cash Mortgage Company and Mellon Bank, focuses Canada
management services in Europe. on the origination, purchasing and
Location: London, England servicing of both residential and
commercial mortgage loans through more
MELLON SECURITIES TRANSFER SERVICES than 80 locations nationwide.
provides securities transfer and Headquarters: Houston, Texas
shareholder services.
Locations: Encino, California THE NETWORK SERVICES DIVISION provides
Hartford, Connecticut electronic funds transfer services,
Ridgefield Park, New Jersey including automated teller machine
Pittsburgh, Pennsylvania processing and full-service merchant
payment systems, to financial
MELLON SECURITIES TRUST COMPANY provides institutions and corporations.
securities processing and custody services. Location: Pittsburgh, Pennsylvania
Location: New York, New York
MELLON TRUST* is the umbrella name under
which the Corporation provides a broad
range of trust and investment services to
individuals, institutions, corporations and
public entities.
<FN>
* Mellon Trust is a registered service mark of Mellon Bank Corporation.
Principal locations and operating entities as of December 31, 1994
</TABLE>
86
<PAGE> 88
DIRECTORS
<TABLE>
<S> <C> <C> <C>
MELLON BANK CORPORATION Ira J. Gumberg(1)(2)(5) David S. Shapira(1)(2)(5) CHAIRMEN EMERITI
Burton C. Borgelt(5)(6) President and Chairman and Chief J. David Barnes
Chairman and Chief Chief Executive Officer Executive Officer William B. Eagleson, Jr.
Executive Officer J.J. Gumberg Co. Giant Eagle, Inc. James H. Higgins
Dentsply International, Inc. Real estate management and Retail grocery store chain Nathan W. Pearson
Manufacturer of artificial development
teeth and consumable dental W. Keith Smith(1) ADVISORY BOARD
products Pemberton Hutchinson(3)(5)(6) Vice Chairman Howard O. Beaver, Jr.
Chairman Mellon Trust, Mellon Bank Alexander W. Calder
Carol R. Brown(2)(6) Westmoreland Coal Corporation and Mellon H. Bryce Jordan
President Company Bank, N.A. John C. Marous
The Pittsburgh Coal mining company Chairman and Chief Masaaki Morita
Cultural Trust Executive Officer Nathan W. Pearson
Cultural and economic Rotan E. Lee(5)(6) The Boston Company H. Robert Sharbaugh
growth assistance in Senior Executive Vice Vice Chairman Richard M. Smith
downtown Pittsburgh President and Chief The Dreyfus Corporation Leon H. Sullivan
Operating Officer
Frank V. Cahouet(1) RMS Technologies, Inc. Howard Stein(1)
Chairman, President and Information technology Chairman of the Board and
Chief Executive Officer Chief Executive Officer
Mellon Bank Corporation Andrew W. Mathieson(1)(3)(4) The Dreyfus Corporation
and Mellon Bank, N.A. Executive Vice President
Richard K. Mellon and Sons Joab L. Thomas(4)(7)
J. W. Connolly(1)(2)(4) Investments and President
Retired Senior Vice philanthropy The Pennsylvania State
President University
H.J. Heinz Company Edward J. McAniff(5) A major public research
Food manufacturer Partner university
O'Melveny & Myers
Charles A. Corry(1)(2)(3)(4) Law firm Wesley W. von Schack(1)(3)(4)(6)
Chairman and Chairman, President and
Chief Executive Officer Robert Mehrabian(2)(7) Chief Executive Officer
USX Corporation President DQE
Diversified company engaged Carnegie Mellon University Energy services holding
principally in the energy A private co-educational company
and steel businesses research institution
William J. Young(4)(5)(6)
C. Frederick Fetterolf(1)(2)(5)(6) Seward Prosser Mellon Retired President
Retired President and President Portland Cement
Chief Operating Officer Richard K. Mellon and Sons Association
Aluminum Company of Investments and Trade association for the
America philanthropy Portland Cement industry
Production and sale of
alumina and chemical
products, primary aluminum
and aluminum mill products
<FN>
(1) Executive Committee
(2) Audit Committee
(3) Nominating Committee
(4) Human Resources Committee
(5) Trust and Investment Committee
(6) Community Responsibility Committee
(7) Technology Committee
</TABLE>
Directors as of January 1, 1995
87
<PAGE> 89
DIRECTORS
REGIONAL
BOARDS
<TABLE>
<S> <C> <C> <C>
MELLON BANK- MELLON BANK- MELLON PSFS THE BOSTON COMPANY, INC.
CENTRAL REGION WESTERN REGION Paul C. Brucker AND BOSTON SAFE DEPOSIT AND
Frederick K. Beard Burton C. Borgelt Frank J. Coyne TRUST COMPANY
James E. Davis Carol R. Brown Thomas F. Donovan Dwight L. Allison, Jr.
Galen E. Dreibelbis Frank V. Cahouet Roger S. Hillas Christopher M. Condron
John Lloyd Hanson J. W. Connolly Hiliary H. Holloway James E. Conway*
Carol Herrmann Charles A. Corry Pemberton Hutchinson Charles C. Cunningham, Jr.
Daniel B. Hoover C. Frederick Fetterolf Rotan E. Lee Hans H. Estin
S. Wade Judy Ira J. Gumberg Roland Morris Avram J. Goldberg
Michael M. Kranich, Sr. Pemberton Hutchinson Francis R. Strawbridge III Lawrence S. Kash
Edwin E. Lash Rotan E. Lee James A. Sutton Robert P. Mastrovita
Robert W. Neff Andrew W. Mathieson Steven A. Van Dyck Jeffrey L. Morby
Ralph J. Papa Edward J. McAniff William J. Young George Putnam
Nicholas Pelick Robert Mehrabian Charles W. Schmidt
Alvin L. Snowiss Seward Prosser Mellon W. Keith Smith
Robert M. Welham David S. Shapira SUBSIDIARY C. Vincent Vappi
W. Keith Smith BOARDS
MELLON BANK- Howard Stein THE GLENDALE BANK OF
COMMONWEALTH REGION Joab L. Thomas MELLON BANK (DE) PENNSYLVANIA AND THE
Glenn R. Aldinger Wesley W. von Schack John S. Barry GLENDALE NATIONAL BANK OF
Burton C. Borgelt William J. Young Robert C. Cole, Jr. NEW JERSEY
Stephen R. Burke Carl DeMartino Peter B. Eglin
Jack P. Cook MELLON BANK- Arden B. Engebretsen Steven Kaplan
Thomas F. Donovan NORTHEASTERN REGION Robert F. Gurnee James V. Schermerhorn
Miles J. Gibbons, Jr. David T. Andes Garrett B. Lyons Jacob C. Sheely III
James E. Grandon, Jr. Joseph B. Conahan, Jr. Martin G. McGuinn William J. Stallkamp
Ruth Leventhal Frank J. Dracos W. Charles Paradee, Jr.
Henry E. L. Luhrs Alan J. Finlay Bruce M. Stargatt THE DREYFUS CORPORATION
Horace G. McCarty Glenn Y. Forney Warner S. Waters, Jr. Mandell L. Berman
R. Wesley Shope Bruce W. Hulbert Frank V. Cahouet
Gregory L. Sutliff Thomas M. Jacobs MELLON BANK (MD) Alvin E. Friedman
Allan M. Kluger Michael A. Besche Lawrence M. Greene
MELLON BANK- Richard F. Laux Lawrence Brown, Jr. Lawrence S. Kash
NORTHERN REGION Joseph R. Nardone Thomas F. Donovan Robert E. Riley
James D. Berry III Joseph F. Palchak, Jr. Kenneth R. Dubuque Julian M. Smerling
Conrad A. Conrad Richard L. Pearsall Albert R. Hinton W. Keith Smith
Eugene Cross Joseph L. Persico Norman Robertson Howard Stein
Robert D. Davis Arthur K. Ridley Michael A. Smilow David B. Truman
William S. DeArment Keith P. Russell
Steven G. Elliott Rhea P. Simms MELLON BANK, F.S.B.
John J. Finn Michael L. Carousis
M. Fletcher Gornall, Jr. Walter D. Chambers
Robert G. Liptak, Jr. Robert R. Detore
Gary W. Lyons William V. Healey
Charles J. Myron Larry A. Raymond
Ruthann Nerlich Donald W. Titzel
John S. Patton Philip L. Toia
Paul D. Shafer, Jr.
Cyrus R. Wellman
<FN>
* Director of The Boston Company, Inc. only
Regional Boards as of January 1, 1995
</TABLE>
88
<PAGE> 90
SENIOR MANAGEMENT COMMITTEE
<TABLE>
<S> <C> <C> <C>
OFFICE OF THE CHAIRMAN* SENIOR MANAGERS* Allan C. Kirkman Robert W. Stasik
Frank V. Cahouet Frederick K. Beard Executive Vice President Executive Vice President
Chairman, President and Executive Vice President Real Estate Finance Global Cash Management
Chief Executive Officer Institutional Banking and
Canada Jeffery L. Leininger Philip L. Toia
Christopher M. Condron Executive Vice President Vice Chairman, Operations
Vice Chairman Paul S. Beideman Middle Market Banking and Administration
Deputy Director, Mellon Executive Vice President The Dreyfus Corporation
Trust Retail Financial Services J. David Officer
Vice Chairman Executive Vice President Sherman White
The Boston Company Richard B. Berner Mellon Private Asset Executive Vice President
Senior Vice President Management Credit Recovery
Thomas F. Donovan Economics
Vice Chairman Chief Economist Donald J. O'Reilly Allan P. Woods
Chairman and Executive Vice President Executive Vice President
Chief Executive Officer John T. Chesko Corporate Chief Auditor Mellon Information Services
Mellon PSFS Executive Vice President
Chief Compliance Officer Robert M. Parkinson OTHER CORPORATE OFFICERS
Steven G. Elliott Executive Vice President Michael E. Bleier
Vice Chairman Larry F. Clyde Credit Review General Counsel
Chief Financial Officer Executive Vice President
and Treasurer Capital Markets Robert E. Riley James M. Gockley
President and Chief Secretary
David R. Lovejoy Kenneth R. Dubuque Operating Officer
Vice Chairman Executive Vice President The Dreyfus Corporation Michael K. Hughey
Corporate Strategy and Mellon Bank, N.A. Corporate Controller
Development Chairman, President and D. Michael Roark
Chief Executive Officer Executive Vice President
Martin G. McGuinn Mellon Bank (MD) Human Resources
Vice Chairman
Retail Financial Services Darryl J. Fluhme Philip R. Roberts
Executive Vice President Executive Vice President
Jeffrey L. Morby Global Securities Mellon Global Asset
Vice Chairman Operations Management
Wholesale Banking
Richard L. Holl Peter Rzasnicki
Keith P. Russell Executive Vice President Executive Vice President
Vice Chairman Real Estate Credit Recovery Mortgage Banking and
Chief Risk and Credit Insurance Premium Finance
Officer Lawrence S. Kash
Executive Vice President William J. Stallkamp
W. Keith Smith Investment Services Executive Vice President
Vice Chairman Vice Chairman Distribution Mellon Bank, N.A.
Mellon Trust The Dreyfus Corporation Director
Chairman and Chief Wholesale Banking, Trust
Executive Officer Daniel M. Kilcullen and Service Products
The Boston Company Executive Vice President Mellon PSFS
Vice Chairman Global Securities
The Dreyfus Corporation Services
Jamie B. Stewart, Jr.
Vice Chairman
Corporate Banking
<FN>
*As of February 21, 1995
</TABLE>
89
<PAGE> 91
CORPORATE INFORMATION
<TABLE>
<S> <C>
===================================================================================================================================
ANNUAL MEETING The Annual Meeting of Shareholders will be held on the 10th floor of the Union Trust Building,
501 Grant Street, Pittsburgh, PA, at 10:00 a.m. on Tuesday, April 18, 1995.
- -----------------------------------------------------------------------------------------------------------------------------------
EXCHANGE LISTING Mellon Bank Corporation's common, Series I preferred, Series J preferred and Series K preferred stock are
traded on the New York Stock Exchange. The trading symbols are MEL (common stock), and MEL Pr I, MEL Pr J
and MEL Pr K. 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.
- -----------------------------------------------------------------------------------------------------------------------------------
STOCK PRICES Current prices for Mellon Bank Corporation's common and preferred stocks can be obtained from any touch-tone
telephone by dialing (412) 236-0834 (in Pittsburgh) or 1 800 648-9496 (outside Pittsburgh). When prompted to
"enter I.D.," press MEL# (or 635#). This service is available free of charge, 24 hours a day, seven days a
week, from anywhere in the continental United States.
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND PAYMENTS Subject to approval of the board of directors, dividends are paid on Mellon Bank Corporation's
common and preferred stocks on or about the 15th day of February, May, August and November.
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND Under the Dividend Reinvestment and Common Stock Purchase Plan, registered holders of Mellon
REINVESTMENT AND Bank Corporation's common stock may purchase additional common shares at the market value
COMMON STOCK for such shares through reinvestment of common dividends and/or optional cash payments. Purchases
PURCHASE PLAN of shares through optional cash payments are subject to limitations. Plan details are in a Prospectus
dated December 15, 1993, which may be obtained from the Secretary of the Corporation.
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC DEPOSIT Registered holders may have quarterly dividends paid on Mellon Bank Corporation's common and
OF DIVIDENDS preferred stocks electronically deposited to their checking or savings account, free of charge. If you wish
to have your dividends electronically deposited, please write to Mellon Bank Corporation, P.O. Box 590,
Ridgefield Park, NJ 07660-9940. If you need more information, please call (412) 236-8000.
- -----------------------------------------------------------------------------------------------------------------------------------
FORM 10-K AND A copy of the Corporation's Annual Report on Form 10-K or the quarterly earnings news release on
QUARTERLY EARNINGS Form 8-K, as filed with the Securities and Exchange Commission, will be furnished, free of charge,
NEWS RELEASE upon written request to the Secretary of the Corporation, 1820 One Mellon Bank Center,
Pittsburgh, PA 15258-0001.
- -----------------------------------------------------------------------------------------------------------------------------------
REGULATORY A copy of the Corporation's Management Report on internal controls, as filed with the appropriate regulatory
agencies, will be furnished, free of charge, upon written request to the Secretary of the Corporation,
1820 One Mellon Bank Center, Pittsburgh, PA 15258-0001.
- -----------------------------------------------------------------------------------------------------------------------------------
PHONE CONTACTS Corporate Communications/ (412) 236-1264
Media Relations
Dividend Reinvestment Plan (412) 236-8000 Enrollment/Prospectuses for Dividend Reinvestment
Investor Relations (412) 234-5601 General questions regarding the Corporation's
financial performance and securities
Publication Request Line (412) 234-8252 Requests for the Annual Report, Annual Review or
quarterly information
Stock Transfer Agent (412) 236-8000 Questions regarding specific shareholder accounts
- -----------------------------------------------------------------------------------------------------------------------------------
ELIMINATION OF If you receive duplicate mailings at one address, or if more than one person in your household
DUPLICATE receives Mellon materials and you wish to discontinue such mailings, please write to Mellon Bank
MAILINGS Corporation, P.O. Box 590, Ridgefield Park, NJ 07660-9940, stating your full name and address the way it
appears on your account and explaining your request. By doing so, you will enable the Corporation to avoid
unnecessary duplication of effort and related costs. If you need more information, please call
(412) 236-8000.
- -----------------------------------------------------------------------------------------------------------------------------------
CHARITABLE A report on Mellon's comprehensive community involvement, including charitable contributions, is
CONTRIBUTIONS available by calling (412) 234-8252.
- -----------------------------------------------------------------------------------------------------------------------------------
MELLON ENTITIES ARE EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYERS.
Mellon is committed to providing equal employment opportunities to every employee and every applicant for
employment, regardless of, but not limited to, such factors as race, color, religion, sex, national origin,
age, familial or marital status, ancestry, citizenship, sexual orientation, veteran status or being a
qualified individual with a disability.
</TABLE>
90
<PAGE> 92
Appendix to Graphic Material
Graphic material has been omitted from Exhibit 13.1. The description of
the omitted graphic material is in the appropriate section of Exhibit 13.1 as
listed below:
Trend of Net Interest Margin graph in the Interest rate
sensitivity analysis section on page 30.
<PAGE> 1
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994*
Central Counties Corporation
State of Incorporation: Pennsylvania
Collection Services Corporation
State of Incorporation: Pennsylvania
Dreyfus Investment Services Corporation**
State of Incorporation: Delaware
Girard Corporation
State of Incorporation: Pennsylvania
Mellon Accounting Services, Inc.
State of Incorporation: Delaware
Mellon Asia Limited
Incorporation: Hong Kong
Mellon Bank Community Development Corporation
State of Incorporation: Pennsylvania
Mellon Bank, N.A.
Incorporation: United States
- AFCO Credit Corporation
State of Incorporation: New York
-- AFCO Acceptance Corporation
State of Incorporation: California
-- AFCO Service, Inc.
State of Incorporation: California
- A P Beaumeade, Inc.
State of Incorporation: Delaware
- A P Colorado, Inc.
State of Incorporation: Colorado
* Certain subsidiaries have been omitted from this list. These subsidiaries,
when considered in the aggregate as a single subsidiary, do not constitute
a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X.
** The company was named InvestNet Corporation at December 31, 1994. It was
renamed in February 1995.
<PAGE> 2
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-2-
- A P Colorado, Inc. #2
State of Incorporation: Colorado
- APD Chimney Lakes, Inc.
State of Incorporation: Florida
- APD Cross Creek, Inc.
State of Incorporation: Florida
- APD Cypress Springs, Inc.
State of Incorporation: Florida
- A P East, Inc.
State of Incorporation: Delaware
- A P Management, Inc.
State of Incorporation: Pennsylvania
- AP Properties Minnesota, Inc.
State of Incorporation: Minnesota
- AP Residential Realty, Inc.
State of Incorporation: Pennsylvania
- A P Rural Land, Inc.
State of Incorporation: Pennsylvania
- AP Wheels, Inc.
State of Incorporation: Michigan
- APME Company, Inc.
State of Incorporation: Wisconsin
- APU Chimney Lakes, Inc.
State of Incorporation: Florida
- APU Cross Creek, Inc.
State of Incorporation: Florida
<PAGE> 3
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-3-
- APU Cypress Springs, Inc.
State of Incorporation: Florida
- Citmelex Corporation
State of Incorporation: Delaware
- Commonwealth National Mortgage Company
State of Incorporation: Pennsylvania
- East Properties Inc.
State of Incorporation: Delaware
- Isleworth Properties, Inc.
State of Incorporation: Florida
- Mellon Bank Canada
Incorporation: Canada
-- CAFO, Inc.
Incorporation: Canada
-- Mellon Bank Canada Leasing Inc.
Incorporation: Canada
-- The R-M Trust Company
Incorporation: Canada (80% ownership)
- Mellon Consumer Leasing Corporation
State of Incorporation: Pennsylvania
- Mellon Europe Limited
Incorporation: England
- Mellon Financial Services Corporation #3
State of Incorporation: Pennsylvania
-- Mellon International Leasing Company
State of Incorporation: Delaware
-- Pontus, Inc.
State of Incorporation: Delaware
- Mellon Investment Products Company
State of Incorporation: Delaware
<PAGE> 4
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-4-
- Mellon Mortgage Company
State of Incorporation: Colorado
- Mellon Overseas Investment Corporation
Incorporation: United States
-- Mellon Bank Representacoes, Ltda.
Incorporation: Brazil
-- Mellon International Investment Corporation
Incorporation: British West Indies
-- Mellon Securities Limited
State of Incorporation: Pennsylvania
-- B.I.E. Corporation
Incorporation: British West Indies
- Melnamor Corporation
State of Incorporation: Pennsylvania
-- A P Colorado, Inc. #3
State of Incorporation: Colorado
-- A P Meritor, Inc.
State of Incorporation: Minnesota
-- Baldorioty de Castro Development Corporation
Incorporation: Puerto Rico
-- Bridgewater Land Company, Inc.
State of Incorporation: Massachusetts
-- Cacalaba, Inc.
State of Incorporation: New Mexico
-- Casals Development Corporation
Incorporation: Puerto Rico
-- CEBC, Inc.
Incorporation: Puerto Rico
<PAGE> 5
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-5-
-- Costamar Development Corporation
Incorporation: Puerto Rico
-- FSFC, Inc.
State of Incorporation: Pennsylvania
-- Festival, Inc.
State of Incorporation: Virginia
-- Holiday Properties, Inc.
State of Incorporation: Alabama
-- Laplace Land Company, Inc.
State of Incorporation: Louisiana
-- Promenade, Inc.
State of Incorporation: California
-- SKAP #7, Inc.
State of Incorporation: Texas
-- Texas AP, Inc.
State of Incorporation: Texas
-- Trilem, Inc.
State of Incorporation: Pennsylvania
-- Vacation Properties, Inc.
State of Incorporation: North Carolina
- MelPenn Realty Company
State of Incorporation: Pennsylvania
- Meritor Capital Resources, Inc.
State of Incorporation: Delaware
- Meritor Mortgage Corporation - East
State of Incorporation: Pennsylvania
-- Central Valley Management Co., Inc.
State of Incorporation: Pennsylvania
<PAGE> 6
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-6-
- The Dreyfus Corporation
State of Incorporation: New York
-- Dreyfus - Lincoln, Inc.
State of Incorporation: Delaware
-- Dreyfus Management Inc.
State of Incorporation: New York
-- Dreyfus Personal Management, Inc.
State of Incorporation: New York
-- Dreyfus Precious Metals, Inc.
State of Incorporation: Delaware
-- Dreyfus Service Corporation
State of Incorporation: New York
--- Lion Management, Inc.
State of Incorporation: Delaware
-- Seven Six Seven Agency, Inc.
State of Incorporation: New York
-- The Dreyfus Consumer Credit Corporation
State of Incorporation: Delaware
- UPCON, Inc.
State of Incorporation: Pennsylvania
Boston Group Holdings, Inc.
State of Incorporation: Massachusetts
- Shearson Venture Capital Inc.
State of Incorporation: Delaware
-- Shearson Summit Euromanagement Inc.
State of Incorporation: Delaware
-- Shearson Summit Europartners Inc.
State of Incorporation: Delaware
-- Shearson Summit Management Inc.
State of Incorporation: Delaware
<PAGE> 7
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-7-
-- Shearson Summit Partners Inc.
State of Incorporation: Delaware
- The Boston Company, Inc.
State of Incorporation: Massachusetts
-- Access Capital Strategies Corp.
State of Incorporation: Massachusetts
-- Boston Safe Deposit and Trust Company
State of Incorporation: Massachusetts
--- Boston Safe (Nominees) Limited
Incorporation: England
--- MY, Inc.
State of Incorporation: Massachusetts
--- Reco, Inc.
State of Incorporation: Massachusetts
---- Mitlock Limited Partnership
State of Incorporation: Massachusetts
---- Tuckahoe Limited Partnership
State of Incorporation: Massachusetts
--- TBC Securities Co., Inc.
State of Incorporation: Massachusetts
--- The Boston Company Financial Services, Inc.
State of Incorporation: Massachusetts
--- Wellington-Medford II Associates LP
State of Incorporation: Massachusetts
-- Boston Safe Deposit and Trust Company of California
State of Incorporation: California
-- Boston Safe Deposit and Trust Company of New York
State of Incorporation: New York
-- First Boylston Corporation
State of Incorporation: Massachusetts
<PAGE> 8
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-8-
-- Premier Administration Limited
Incorporation: England
-- The Boston Company Advisors, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Asset Management, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Energy Advisors, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Financial Strategies Group, Inc.
State of Incorporation: Massachusetts
--- Boston Hambro Corp.
State of Incorporation: Massachusetts (50% ownership)
-- The Boston Company Financial Strategies, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Income Securities Advisors, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Overseas Banking Corporation
State of Incorporation: New York
-- The Boston Company of Southern California
State of Incorporation: California
-- The Boston Finance Company
State of Incorporation: Delaware
-- Wellington-Medford II Properties, Inc.
State of Incorporation: Massachusetts
Mellon Bank (DE) National Association
Incorporation: United States
- Dreyfus Service Organization, Inc.
State of Incorporation: Delaware
- MBC Insurance Agency, Inc.
State of Incorporation: Delaware
<PAGE> 9
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-9-
- The Shelter Group, Inc.
State of Incorporation: Delaware
- Wilprop, Inc.
State of Incorporation: Delaware
Mellon EFT Services Corporation
State of Incorporation: Pennsylvania
Mellon Financial Company
State of Incorporation: Pennsylvania
Mellon Financial Corporation (MD)
State of Incorporation: Maryland
- Mellon Bank (MD)
State of Incorporation: Maryland
-- Baltimore Realty Corporation
State of Incorporation: Maryland
Mellon PSFS Bancorporation
State of Incorporation: New Jersey
- Glendale National Bank of New Jersey
Incorporation: United States
-- A P Properties, Inc.
State of Incorporation: New Jersey
- Glendale Bank of Pennsylvania
State of Incorporation: Pennsylvania
MBC Investments Corporation
State of Incorporation: Delaware
- Dreyfus Acquisition Corporation
State of Incorporation: New York
- Dreyfus Partnership Management, Inc.
State of Incorporation: New York
- Dreyfus Trust Company
State of Incorporation: New York
<PAGE> 10
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-10-
- Franklin Portfolio Associates Trust
State of Incorporation: Massachusetts
- Laurel Capital Advisors
State of Incorporation: Pennsylvania
- Major Trading Corporation
State of Incorporation: New York
-- Dreyfus Management GMBH
Incorporation: Germany
- Mellon Bank, F.S.B.
Incorporation: United States
- Mellon Bond Associates
State of Incorporation: Pennsylvania
- Mellon Capital Management Corporation
State of Incorporation: Delaware
- Mellon Equity Associates
State of Incorporation: Pennsylvania
- Mellon Financial Services Corporation #1
State of Incorporation: Delaware
-- Allomon Corporation
State of Incorporation: Pennsylvania
--- APT Holdings Corporation
State of Incorporation: Delaware
--- Lucien Land Company, Inc.
State of Incorporation: Florida
---- APD Crossings, Inc.
State of Incorporation: Florida
-- Mellon Escrow Company
State of Incorporation: Delaware
-- Mellon Financial Services Corporation #2
State of Incorporation: Delaware
<PAGE> 11
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-11-
-- Mellon Financial Services Corporation #4
State of Incorporation: Pennsylvania
--- Beaver Valley Leasing Corporation
State of Incorporation: Pennsylvania
--- Katrena Corporation
State of Incorporation: Delaware (80% ownership)
--- Mellon Financial Services Corporation #13
State of Incorporation: Alabama
--- MFS Leasing Corp.
State of Incorporation: Delaware
-- Mellon Financial Services Corporation #5
State of Incorporation: Louisiana
--- Mellon Financial Services Corporation #10
State of Incorporation: Louisiana
-- Mellon Properties Company
State of Incorporation: Louisiana
- Mellon-France Corporation
State of Incorporation: Pennsylvania
-- CCF-Mellon Partners
State of Incorporation: Pennsylvania (50% ownership)
- Mellon Global Investing Corp.
State of Incorporation: New York
-- Pareto Partners (Pareto Partners, New York)
State of Incorporation: New York (65% ownership)
- Mellon Insurance Agency, Inc.
State of Incorporation: Pennsylvania
- MGIC-UK Ltd.
Incorporation: England
-- Pareto Partners (Pareto Partners, U.K.)
Incorporation: England (65% ownership)
<PAGE> 12
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1994
-12-
- Mellon Life Insurance Company
State of Incorporation: Delaware
- The Truepenny Corporation
State of Incorporation: New York
-- The Trotwood Corporation
State of Incorporation: New York
--- The Trotwood Hunters Corporation
State of Incorporation: New York
--- The Trotwood Hunters Site A Corporation
State of Incorporation: New York
Mellon Financial Services Corporation #17
(Mellon Securities Transfer Services)
State of Incorporation: Delaware
Mellon Securities Trust Company
State of Incorporation: New York
NSD Holdings Corporation
State of Incorporation: Delaware
<PAGE> 1
[LOGO] Peat Marwick LLP EX-23.1
One Mellon Bank Center Telephone 412 391 9710 Telefax 412 391 8963
Pittsburgh, PA 15219 Telex 7106642199 PMM & CO PGH
The Board of Directors
of Mellon Bank Corporation:
We consent to incorporation by reference in Registration Statement Nos. 2-73272
(Form S-8), 2-98357 (Form S-8), 33-16658 (Form S-3), 33-21838 (Form S-8),
33-23635 (Form S-8), 33-29630 (Form S-3), 33-34430 (Form S-8), 33-41796 (Form
S-8), 33-48486 (Form S-3), 33-55226 (Form S-3), 33-61822 (Form S-3), 33-65824
(Form S-8), 33-65826 (Form S-8), 33-55059 (Form S-3), and 33-54671 (Form S-8),
of Mellon Bank Corporation of our report dated January 12, 1995, relating to
the consolidated balance sheets of Mellon Bank Corporation and its subsidiaries
as of December 31, 1994 and 1993, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1994, which report appears in the
December 31, 1994 annual report on Form 10-K of Mellon Bank Corporation.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
March 14, 1995
<PAGE> 1
EX - 24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Steven G. Elliott and James M. Gockley, and each of
them, such person's true and lawful attorney-in-fact and agent, with full power
of substitution and revocation, for such person and in such person's name,
place and stead, in any and all capacities, to sign one or more Annual Reports
on Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for Mellon Bank Corporation for the year ended December 31,
1994, and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and with the New York Stock Exchange, Inc.,
granting unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent and each of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
WITNESS the due execution hereof by the following persons in the capacities
indicated on this 21st day of February, 1995.
Frank V. Cahouet Charles A. Corry
- ------------------------------------ -----------------------------------
Frank V. Cahouet, Director and Charles A. Corry, Director
Principal Executive Officer
Burton C. Borgelt C. Frederick Fetterolf
- ------------------------------------ -----------------------------------
Burton C. Borgelt, Director C. Frederick Fetterolf, Director
Carol R. Brown Ira J. Gumberg
- ------------------------------------ -----------------------------------
Carol R. Brown, Director Ira J. Gumberg, Director
J. W. Connolly Rotan E. Lee
- ------------------------------------ -----------------------------------
J. W. Connolly, Director Rotan E. Lee, Director
<PAGE> 2
Andrew W. Mathieson W. Keith Smith
- ------------------------------------ -----------------------------------
Andrew W. Mathieson, Director W. Keith Smith, Director
Edward J. McAniff Howard Stein
- ------------------------------------ -----------------------------------
Edward J. McAniff, Director Howard Stein, Director
Robert Mehrabian Joab L. Thomas
- ------------------------------------ -----------------------------------
Robert Mehrabian, Director Joab L. Thomas, Director
Seward Prosser Mellon Wesley W. von Schack
- ------------------------------------ -----------------------------------
Seward Prosser Mellon, Director Wesley W. von Schack, Director
David S. Shapira William J. Young
- ------------------------------------ -----------------------------------
David S. Shapira, Director William J. Young, Director
- 2 -
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 2,285
<INT-BEARING-DEPOSITS> 429
<FED-FUNDS-SOLD> 383
<TRADING-ASSETS> 71
<INVESTMENTS-HELD-FOR-SALE> 1,881
<INVESTMENTS-CARRYING> 3,244
<INVESTMENTS-MARKET> 3,033
<LOANS> 26,733
<ALLOWANCE> (607)
<TOTAL-ASSETS> 38,644
<DEPOSITS> 27,570
<SHORT-TERM> 3,472
<LIABILITIES-OTHER> 1,912
<LONG-TERM> 1,568
<COMMON> 74
0
435
<OTHER-SE> 3,613
<TOTAL-LIABILITIES-AND-EQUITY> 38,644
<INTEREST-LOAN> 1,926
<INTEREST-INVEST> 290
<INTEREST-OTHER> 70
<INTEREST-TOTAL> 2,310
<INTEREST-DEPOSIT> 539
<INTEREST-EXPENSE> 802
<INTEREST-INCOME-NET> 1,508
<LOAN-LOSSES> 70
<SECURITIES-GAINS> (5)
<EXPENSE-OTHER> 2,374
<INCOME-PRETAX> 711
<INCOME-PRE-EXTRAORDINARY> 711
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 433
<EPS-PRIMARY> 2.42
<EPS-DILUTED> 2.42
<YIELD-ACTUAL> 4.71
<LOANS-NON> 151
<LOANS-PAST> 106
<LOANS-TROUBLED> 8
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 600
<CHARGE-OFFS> 151
<RECOVERIES> 84
<ALLOWANCE-CLOSE> 607
<ALLOWANCE-DOMESTIC> 585
<ALLOWANCE-FOREIGN> 22
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
