<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code -- (412) 234-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding as of
Class March 31, 1996
----- --------------
<S> <C>
Common Stock, $.50 par value 132,443,193
</TABLE>
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<PAGE> 2
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
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<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
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Financial Highlights 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Item 2) 3
Financial Statements (Item 1):
Consolidated Balance Sheet 35
Consolidated Income Statement 36
Consolidated Statement of Cash Flows 38
Consolidated Statement of Changes in Shareholders' Equity 39
Notes to Financial Statements 40
Selected Statistical Information:
Consolidated Balance Sheet - Average Balances and Interest
Yields/Rates 44
Deposits 46
PART II - OTHER INFORMATION
- ---------------------------
Legal Proceedings (Item 1) 46
Exhibits and Reports on Form 8-K (Item 6) 46
Signature 47
Corporate Information 48
Index to Exhibits 49
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
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FINANCIAL HIGHLIGHTS
(dollar amounts in millions, except per share amounts) 1996 1995
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<S> <C> <C>
FIRST QUARTER
Net income $ 179 $ 170
Net income applicable to common stock 169 160
Tangible net income applicable to common stock 188 178
Dividends paid on common stock 75 66
Return on common shareholders' equity (a) 19.7% 17.6%
Return on tangible common shareholders' equity (a)(b) 30.1 27.1
Return on assets (a) 1.76 1.77
Return on tangible assets (a)(b) 1.99 2.02
Efficiency ratio 65 63
Efficiency ratio excluding amortization of intangibles 62 60
Pretax operating margin 33 35
Average common shares and equivalents
outstanding (in thousands) 136,506(c) 148,766
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PER COMMON SHARE
Net income (primary) $ 1.24 $ 1.08
Net income (fully diluted) 1.24 1.07
Dividends paid .55 .45
Closing common stock price 55.25 40.75
Book value at quarter-end 25.55 25.63
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BALANCES AT MARCH 31
Loans $ 26,857 $ 26,696
Total assets 41,582 39,619
Deposits 29,898 27,005
Common shareholders' equity 3,384 3,755
Market capitalization 7,317 5,969
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CAPITAL RATIOS AT MARCH 31
Common shareholders' equity to assets 8.14% 9.48%
Total shareholders' equity to assets 9.19 10.57
Tier I capital 7.69 9.49
Total (Tier I plus Tier II) capital 12.20 12.86
Leverage capital 7.52 8.84
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</TABLE>
(a) Annualized.
(b) See page 5 for a definition of these ratios.
(c) At March 31, 1996, common stock and stock equivalents totaled 134.3 million
shares.
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS.
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
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Retirement enhancement plan
In January 1996, the Corporation offered a Retirement Enhancement Plan to
employees participating in the Mellon and The Boston Company retirement plans.
This voluntary program provided certain employees age 55 or older, who had 10
or more years of service, the opportunity to choose early retirement with
enhanced pensions and health insurance. This program concluded on March 31,
1996, with 495 employees electing early retirement. The Corporation recorded
an $18 million charge in the first quarter in connection with this program.
Repurchase of common stock
In February 1996, the board of directors of the Corporation authorized the
repurchase of up to 3.5 million additional shares of common stock to be used to
meet current and near-term requirements for its stock-based benefit plans and
dividend reinvestment plan. At March 31, 1996, the Corporation had repurchased
.9 million shares under this authorization. In addition, in February 1996 the
Corporation completed the 8 million share repurchase program authorized by the
board of directors in the fourth quarter of 1995. Since the beginning of 1995,
the Corporation has repurchased 18.3 million common shares, prior to any
reissuances, as well as warrants to purchase 4.5 million shares of common
stock.
Securitization of home equity loans
The Corporation securitized $650 million of its home equity revolving credit
line loans on March 29, 1996. These loans generally are secured by first
and/or second mortgages on one-to-four family residential properties.
Securitizations are an effective way to diversify funding sources and manage
the balance sheet. The Corporation no longer recognizes net interest revenue
on the securitized portfolio; however, the decrease in net interest revenue is
primarily offset by increased servicing fee revenue and lower net credit
losses. The Corporation continues to service the securitized loans. In
connection with this action, the Corporation recorded a $28 million gain which
is included in other fee revenue. In November 1995, the Corporation
securitized $950 million of credit card receivables.
Common dividend increase
On April 16, 1996, the Corporation announced a 9% increase in the quarterly
common dividend to $.60 per common share. The increased dividend is payable on
May 15, 1996, to shareholders of record on April 30, 1996. This is the fifth
quarterly common dividend increase that the Corporation has announced since the
beginning of 1994, resulting in a total common dividend per share increase of
137%.
3
<PAGE> 5
OVERVIEW FOR THE FIRST QUARTER OF 1996
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The Corporation recorded earnings per common share of $1.24 in the first
quarter of 1996, an increase of 15% compared with $1.08 per common share in the
first quarter of 1995. Net income applicable to common stock was $169 million
in the first quarter of 1996, compared with $160 million in the prior year
period. Annualized return on common shareholders' equity and return on assets
were 19.7% and 1.76% in the first quarter of 1996, compared with 17.6% and
1.77%, respectively, in the first quarter of 1995.
Results for the first quarter of 1996 included a $28 million gain from the
securitization of $650 million of home equity loans that occurred in late
March. The gain was offset by $22 million of staff expense resulting from the
retirement enhancement program completed in the first quarter of 1996 and
severance expense; and $6 million of expense related to the further
reconfiguration of the retail delivery system. Earnings per common share in
the first quarter of 1996 also reflect the common share repurchases over the
last year. Average common stock and common stock equivalents used in the
computation of primary earnings per share in the first quarter of 1996 totaled
136.5 million shares, compared with 148.8 million shares in the first quarter
of 1995, an 8% decrease.
Net interest revenue was $363 million in the first quarter of 1996, a decrease
of $26 million, or 6%, from $389 million in the prior-year period. This
reduction primarily resulted from the decrease in interest revenue related to
the fourth quarter 1995 credit card securitization and repurchase of common
shares over the last year. Fee revenue was $503 million, an increase of $104
million, or 26%, from $399 million in the first quarter of 1995. The increase
in fee revenue was attributable to the gain on the securitization of home
equity loans, as well as to higher mutual fund management revenue and
institutional trust fees. In addition, the increase in fee revenue reflects
higher mortgage servicing fees and increased credit card revenue. The increase
in credit card revenue resulted from the credit card securitization.
Operating expense was $560 million for the first quarter of 1996, up 13% from
$495 million in the first quarter of 1995. The increase primarily resulted from
higher staff expense including the retirement enhancement program, higher
amortization expense from purchased mortgage servicing rights and the expense
related to the retail delivery system reconfiguration, offset in part by lower
FDIC deposit insurance assessment expense.
The provision for credit losses was $25 million in the first quarter of 1996,
an increase of $5 million from the first quarter of 1995. Net credit losses
were $28 million compared with $26 million in the first quarter of 1995.
Nonperforming assets totaled $250 million at March 31, 1996, compared with $236
million at December 31, 1995, and $243 million at March 31, 1995. At March 31,
1996, the Corporation's ratio of nonperforming assets to total loans and net
acquired property was .93%, compared with .85% at December 31, 1995, and .91%
at March 31, 1995.
The Corporation's ratio of common shareholders' equity to assets was 8.14% at
March 31, 1996. The Tier I, Total and Leverage capital ratios were 7.69%,
12.20% and 7.52%, respectively, at March 31, 1996, well in excess of the
minimum required ratios.
4
<PAGE> 6
TANGIBLE OPERATING RESULTS
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Except for the merger with Dreyfus, which was accounted for under the "pooling
of interests" method, the Corporation has been required to account for business
combinations under the "purchase" method of accounting. The purchase method
results in the recording of goodwill and other identified intangibles which are
amortized as noncash charges in future years into operating expense. Had the
Corporation accounted for these business combinations under the pooling of
interests method, these intangibles and their related amortization would not
have been recorded. The tangible operating results are shown in the table
below.
<TABLE>
<CAPTION>
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Quarter ended
March 31,
(dollar amounts in millions, common shares in thousands) 1996 1995 Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock $ 169 $ 160 $ 9
After tax impact of amortization of intangibles
from purchase acquisitions 19 18 1
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Tangible net income applicable to common stock $ 188 $ 178 $ 10
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Average common equity $ 3,459 $ 3,700 $ (241)
Average goodwill and other identified intangibles 946 1,026 80
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Average tangible common equity $ 2,513 $ 2,674 $ (161)
Return on tangible common equity 30.1% 27.1% 300 bp
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Average total assets $ 40,848 $ 38,886 $ 1,962
Average goodwill and other identified intangibles 946 1,026 80
- -----------------------------------------------------------------------------------------------------
Average tangible assets $ 39,902 $ 37,860 $ 2,042
Return on tangible assets 1.99% 2.02% (3)bp
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Average common shares and equivalents outstanding (primary) 136,506 148,766 (12,260)
- -----------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 7
<TABLE>
<CAPTION>
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BUSINESS SECTORS
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FOR THE THREE MONTHS ENDED MARCH 31,
Consumer Corporate/Institutional
(dollar amounts in millions, Investment Services Banking Services Investment Services Banking Services
averages in billions) 1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $103 $ 92 $ 366 $ 333 $242 $233 $ 105 $ 96
Credit quality expense (revenue) - - 23 29 - - 1 -
Operating expense 69 63 242 207 195 184 40 39
- --------------------------------------------------------------------------------------------------------------------
Income before taxes 34 29 101 97 47 49 64 57
Income taxes 14 12 37 38 19 20 23 20
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Net income $ 20 $ 17 $ 64 $ 59 $ 28 $ 29 $ 41 $ 37
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After tax cash flow $ 21 $ 17 $ 74 $ 70 $ 34 $ 35 $ 43 $ 38
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Average assets $0.3 $0.4 $22.4 $21.3 $1.7 $1.4 $13.9 $13.3
Average common equity $0.2 $0.2 $ 1.2 $ 1.1 $0.5 $0.4 $ 1.2 $ 1.0
Return on common shareholders'
equity (a) 49% 39% 22% 22% 22% 27% 13% 14%
Return on assets (a) NM NM 1.15% 1.13% NM NM 1.19% 1.12%
Pretax operating margin 33% 31% 28% 29% 20% 21% 61% 59%
Pretax operating margin excluding
amortization of intangibles 34% 32% 31% 33% 23% 24% 63% 62%
Efficiency ratio excluding
amortization of intangibles 66% 68% 62% 58% 77% 76% 36% 38%
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</TABLE>
(a) Annualized.
NM- Not meaningful.
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 taxable equivalent
basis. Capital is allocated quarterly using the federal regulatory guidelines
as a basis, coupled with management's judgment regarding the operational risks
inherent in the businesses. The capital allocations may not be representative
of the capital levels that would be required if these sectors were
nonaffiliated business units.
Income before taxes for the Corporation's core sectors was $246 million in the
first quarter of 1996, an increase of $14 million compared with the prior-year
quarter. This increase resulted from a $62 million increase in revenue and a
$5 million improvement in credit quality expense, partially offset by a $53
million increase in operating expense. Return on common shareholders' equity
for the core sectors was 20% in the first quarter of 1996, compared with 21% in
the first quarter of 1995. Return on assets was 1.61% in the first quarter of
1996, compared with 1.58% in the first quarter of 1995.
Consumer Investment Services
Consumer Investment Services includes private asset management services and
retail mutual funds. Income before taxes for the Consumer Investment sector
was $34 million in the first quarter of 1996, an increase of $5 million from
the prior-year period. The increase was a result of higher mutual fund
management revenue generated by a higher level of assets managed, and increased
private asset management trust fees. This sector provided excellent returns,
as the annualized return on common shareholders' equity was 49% in the first
quarter of 1996, compared with 39% in the first quarter of 1995.
6
<PAGE> 8
<TABLE>
<CAPTION>
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Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1996 1995 1996 1995 1996 1995 1996 1995
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<S> <C> <C> <C> <C> <C> <C> <C>
$ 816 $ 754 $ 5 $ 4 $ 51 $ 35 $ 872 $ 793
24 29 (7) (13) - - 17 16
546 493 1 1 21 5 568 499
- -----------------------------------------------------------------------------
246 232 11 16 30 30 287 278
93 90 4 6 11 12 108 108
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$ 153 $ 142 $ 7 $ 10 $ 19 $ 18 $ 179 $ 170
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$ 172 $ 160 $ 7 $ 10 $ 19 $ 18 $ 198 $ 188
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$38.3 $36.4 $0.3 $0.2 $2.2 $2.3 $40.8 $38.9
$ 3.1 $ 2.7 $ - $ - $0.4 $1.0 $ 3.5 $ 3.7
20% 21% NM NM NM NM 20% 18%
1.61% 1.58% NM NM NM NM 1.76% 1.77%
30% 31% NM NM NM NM 33% 35%
33% 34% NM NM NM NM 36% 38%
64% 62% NM NM NM NM 62% 60%
- -----------------------------------------------------------------------------
</TABLE>
Consumer Banking Services
Consumer Banking Services includes consumer lending and deposit products,
business banking, credit card, mortgage loan origination and servicing and jumbo
residential mortgage lending. Income before taxes for this sector totaled $101
million in the first quarter of 1996, compared with $97 million in the first
quarter of 1995. Revenue increased $33 million compared with the prior-year
period, primarily as a result of higher mortgage servicing fees, primarily
relating to acquisitions, a $10 million increase in electronic tax return filing
fees and a higher level of average loans. Partially offsetting these increases
was a decrease in credit card revenue resulting from the fourth quarter 1995
credit card securitization. The decrease in credit quality expense principally
reflected the transfer of problem CornerStone(SM) credit card accounts to an
accelerated resolution portfolio in the fourth quarter of 1995. The increase in
operating expense reflected higher expenses in support of mortgage servicing
acquisitions, including an increase in the amortization of purchased mortgage
servicing rights and higher expense in support of ongoing strategic initiatives
to reconfigure the retail delivery system. Partially offsetting higher
operating expenses was the lower FDIC deposit insurance premium in the first
quarter of 1996. The annualized return on common shareholders' equity for this
sector was 22% in the first quarter of 1996, unchanged from the first quarter of
1995.
Corporate/Institutional Investment Services
Corporate/Institutional Investment Services includes institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending, foreign exchange, cash management, stock
transfer and corporate trust. Income before taxes for this sector was $47
million in the first quarter of 1996, a decrease of $2 million, compared with
the first quarter of 1995. Revenue increased $9 million due to a higher level
of mutual fund assets managed and the fourth quarter 1995 acquisition of two
corporate trust businesses, offset in part by lower foreign exchange fees.
Operating expense increased $11 million in support of higher transaction
volumes and investments, as well as the corporate trust acquisitions. The
annualized return on common shareholders' equity for this sector was 22% in the
first quarter of 1996, compared with 27% in the first quarter of 1995.
7
<PAGE> 9
BUSINESS SECTORS (CONTINUED)
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Corporate/Institutional Banking Services
Corporate/Institutional Banking Services includes large corporate and middle
market lending, asset-based lending, lease financing, commercial real estate
lending, insurance premium financing and securities underwriting and trading.
Income before taxes for the Corporate/Institutional Banking sector was $64
million for the first quarter of 1996, an increase of $7 million, compared with
the first quarter of 1995. Revenue increased $9 million primarily as a result
of higher net interest revenue on higher loan levels and increased securities
trading revenue. Operating expense increased $1 million in support of revenue
growth. The annualized return on common shareholders' equity for this sector
was 13% in the first quarter of 1996, compared with 14% in the first quarter of
1995.
Real Estate Workout
Real Estate Workout includes commercial real estate recovery and mortgage
banking recovery operations. Income before taxes for Real Estate Workout was
$11 million in the first quarter of 1996, compared with $16 million in the
first quarter of 1995. The results in both periods reflect lower levels of
required reserves given improvement in the loss experience of the portfolio;
however, the amount of improvement has slowed from the prior-year period.
Other
The Other sector's pretax income was $30 million in the first quarter of 1996
and 1995. Results for the first quarter of 1996 include the $28 million gain
on the securitization of home equity revolving credit line loans and earnings
on capital above that required for the core sectors. Operating expense for the
first quarter of 1996 included the $18 million charge resulting from the
retirement enhancement program. Results for the first quarter of 1995
principally reflected earnings on capital above that required in the core
sectors.
The following tables distribute net income and return on common shareholders'
equity for the Corporation's core sectors between customers serviced and
products offered.
<TABLE>
<CAPTION>
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Customers serviced
---------------------------
Total
Total Corporate/
FOR THE THREE MONTHS ENDED MARCH 31, Consumer Institutional
(dollar amounts in millions) 1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net income $84 $76 $69 $66
Return on common shareholders' equity (a) 25% 24% 16% 18%
- ---------------------------------------------------------------------------
</TABLE>
(a) Annualized
<TABLE>
<CAPTION>
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Products offered
-----------------------------
Total Total
FOR THE THREE MONTHS ENDED MARCH 31, Investment Banking
(dollar amounts in millions) 1996 1995 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $48 $46 $105 $96
Return on common shareholders' equity (a) 28% 31% 18% 18%
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</TABLE>
(a) Annualized.
8
<PAGE> 10
<TABLE>
<CAPTION>
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NET INTEREST REVENUE
Three months ended March 31,
1996 1995
(taxable equivalent basis, AVERAGE AVERAGE Average Average
dollar amounts in millions) BALANCE RATE balance rate
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Money market investments $ 1,290 5.34% $ 1,230 5.90%
Trading account securities 138 5.17 316 7.59
Securities (a) 5,339 6.64 4,890 6.53
Loans (a) 27,058 8.45 26,670 8.90
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Total interest-earning assets $33,825 8.03% $33,106 8.42%
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Financed by:
Interest-bearing liabilities $27,986 4.45% $27,050 4.44%
Noninterest-bearing liabilities 5,839 - 6,056 -
------- -------
Total $33,825 3.68% $33,106 3.62%
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Net interest revenue $ 366 4.35% $ 392 4.80%
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</TABLE>
(a) Balances and rates include adjustments to fair value required by FAS
No. 115.
Note: Average rates are annualized and are calculated on a taxable equivalent
basis at tax rates approximating 35%.
Loan fees, as well as nonaccrual loans and their related income effect, have
been included in the calculation of average rates.
Net interest revenue, on a taxable equivalent basis, for the first quarter of
1996 totaled $366 million, down $26 million compared with the first quarter of
1995. The net interest margin was 4.35% in the first quarter of 1996, down 45
basis points from 4.80% in the first quarter of 1995.
The decrease in net interest revenue and the net interest margin in the first
quarter of 1996, compared with the first quarter of 1995, resulted from the
effects of the November 1995 $950 million credit card securitization and
funding costs related to the repurchase of common stock. Excluding the effect
of the credit card securitization and common stock repurchases, net interest
revenue for the first quarter of 1996 would have been approximately $400
million. The foregone net interest revenue from the credit card securitization
was substantially offset by higher servicing fee revenue and lower net credit
losses. Net interest revenue in the first quarter of 1996 was favorably
impacted by loan growth, higher loan fees and a higher level of retail demand
deposits which were partially offset by the migration of retail customers from
lower cost deposit products to higher cost products.
Average loans increased $388 million in the first quarter of 1996, compared
with the prior-year period, as a result of an increase in substantially all
loan categories, which more than offset a decrease of $775 million in jumbo
residential mortgage loans and $460 million in credit card loans. The decrease
in jumbo residential mortgage loans primarily resulted from loan sales, and the
decrease in credit card loans resulted from the securitization. The average
level of retail loans will be impacted in future periods by the March 29, 1996,
securitization of $650 million of home equity loans.
9
<PAGE> 11
<TABLE>
<CAPTION>
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
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Three months ended
March 31,
(in millions) 1996 1995 Change
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<S> <C> <C> <C>
Provision for credit losses $25 $20 $5
Net expense (revenue) from acquired property (8) (4) 4
- -------------------------------------------------------------------------
Credit quality expense $17 $16 $1
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</TABLE>
Credit quality expense, defined as the provision for credit losses less the net
revenue from acquired property, increased $1 million in the first quarter of
1996, compared with the prior-year period, as a result of a $5 million increase
in the provision for credit losses, primarily offset by a $4 million increase
in net revenue from acquired property.
A summary of the Corporation's net credit losses is presented in the table on
the following page. The $2 million increase in net credit losses compared with
the first quarter of 1995 resulted from a higher level of commercial net credit
losses primarily offset by lower credit card net credit losses. The reduction
in credit card net credit losses resulted from the December 1995 transfer of
certain CornerStone(SM) credit card loans, that had a history of delinquency,
into an accelerated resolution portfolio. The net carrying value of the
accelerated resolution portfolio at March 31, 1996, was $65 million, compared
with $82 million at year-end 1995. The credit card securitization in the
fourth quarter of 1995 was also a factor in the reduction of credit card net
credit losses. Compared to the first quarter of 1996, credit card net credit
losses for the remaining three quarters of 1996 are expected to increase as
delinquencies in the remaining CornerStone(SM) portfolio return to a more normal
level.
The Corporation maintains a credit loss reserve that, in management's judgment,
is adequate to absorb future losses inherent in the loan portfolio. Management
establishes the credit loss reserve using a documented loan loss assessment
process that estimates loss potential in the portfolio as a whole. For further
information regarding the methodology used in determining the adequacy of the
reserve, see the "Reserve for credit losses and review of net credit losses"
discussion in the Corporation's 1995 Annual Report on Form 10-K. The reserve
for credit losses totaled $468 million at March 31, 1996, compared with $471
million at December 31, 1995 and $601 million at March 31, 1995. The $133
million decrease in the reserve for credit losses from March 31, 1995,
primarily resulted from credit losses taken on the CornerStone(SM) credit card
loans during 1995, including the loans that were transferred to the accelerated
resolution portfolio in the fourth quarter. The ratio of the loan loss reserve
to nonperforming loans at March 31, 1996, was 265%, compared with 282% at
year-end 1995 and 386% at March 31, 1995. This ratio is not the result of a
target or objective, but rather is an outcome of two interrelated but separate
processes: the establishment of an appropriate loan loss reserve level for the
portfolio as a whole, including but not limited to the nonperforming component
in the portfolio; and the classification of certain assets as nonperforming in
accordance with established accounting, regulatory and management policies.
The ratio can vary significantly over time as the credit quality
characteristics of the entire loan portfolio change. This ratio also can vary
with shifts in loan portfolio mix.
10
<PAGE> 12
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY (A) Three months ended
March 31,
(dollar amounts in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Reserve at beginning of period $471 $607 $(136)
Credit losses:
Domestic:
Commercial and financial 7 3 4
Commercial real estate 8 3 5
Consumer credit:
Credit cards 19 29 (10)
Consumer mortgage 3 2 1
Other consumer credit 5 4 1
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Total domestic credit losses 42 41 1
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Recoveries:
Domestic:
Commercial and financial (2) (6) (4)
Commercial real estate (5) (3) 2
Consumer credit:
Credit cards (3) (2) 1
Consumer mortgage (1) (1) -
Other consumer credit (2) (1) 1
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Total domestic (13) (13) -
International (1) (2) (1)
- --------------------------------------------------------------------------------
Total recoveries (14) (15) (1)
- --------------------------------------------------------------------------------
Net credit losses (recoveries):
Domestic:
Commercial and financial 5 (3) 8
Commercial real estate 3 - 3
Consumer credit:
Credit cards 16 27 (11)
Consumer mortgage 2 1 1
Other consumer credit 3 3 -
- --------------------------------------------------------------------------------
Total domestic 29 28 1
International (1) (2) 1
- --------------------------------------------------------------------------------
Total net credit losses 28 26 2
Provision for credit losses 25 20 5
- --------------------------------------------------------------------------------
Reserve at end of period $468 $601 $(133)
- --------------------------------------------------------------------------------
Reserve as a percentage of total loans 1.74% 2.25% (51)bp
- --------------------------------------------------------------------------------
Annualized net credit losses to average loans .41% .40% 1 bp
- --------------------------------------------------------------------------------
</TABLE>
(a) Excludes the reserve and net credit losses on segregated assets, as well as
net credit losses on assets held for accelerated resolution.
11
<PAGE> 13
<TABLE>
<CAPTION>
NONINTEREST REVENUE
- --------------------------------------------------------------------------------
Three months ended
March 31,
(in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 83 $ 71 $ 12
Administration/Custody 27 30 (3)
Institutional trust 59 51 8
Institutional asset management 34 34 -
Private asset management 38 33 5
- --------------------------------------------------------------------------------
Total trust and investment management fees 241 219 22
Cash management and deposit transaction charges 49 47 2
Mortgage servicing fees 41 25 16
Credit card fees 33 19 14
Foreign currency and securities trading 21 24 (3)
Other 118 65 53
- --------------------------------------------------------------------------------
Total fee revenue 503 399 104
Gains (losses) on sale of securities 1 (1) 2
- --------------------------------------------------------------------------------
Total noninterest revenue $504 $398 $106
- --------------------------------------------------------------------------------
</TABLE>
Fee revenue for the Corporation increased $104 million, or 26%, compared with
the first quarter of 1995 and represented 58% of the Corporation's total
revenue in the first quarter of 1996. The increase in fee revenue primarily
resulted from the $28 million gain on the securitization of home equity loans,
a $22 million increase in trust and investment management fees, a $16 million
increase in mortgage servicing fees and a $14 million increase in credit card
fees.
Total trust and investment management fees
The $22 million increase in trust and investment management fees in the first
quarter of 1996, compared with the prior-year period, primarily resulted from a
$12 million, or 17%, increase in mutual fund management revenue and an $8
million, or 14%, increase in institutional trust fees. The higher revenue from
the management of mutual funds resulted from a higher average level of mutual
fund assets managed and lower fee waivers at Dreyfus. Mutual fund management
fees are discussed further on the following pages. The increase in
institutional trust revenue resulted from new business, including the 1995
acquisition of two corporate trust businesses.
As shown in the table on the following page, the market value of trust assets
under management and administration/custody for the Corporation was $1,123
billion at March 31, 1996, up $104 billion compared with $1,019 billion at
December 31, 1995. The $100 billion increase in the market value of assets
under administration/custody reflected new business, including $68 billion of
assets from Prudential Portfolio Managers, U.K. and a general market increase.
The market value of assets under management increased $4 billion primarily as a
result of an increase in the market value of assets managed and new business.
12
<PAGE> 14
NONINTEREST REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in billions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust:
Administration/Custody $802 $708 $645 $621 $599
Mutual fund:
Management (a) 83 81 80 79 76
Administration/Custody 61 60 55 71 69
Institutional asset management:
Management 129 128 105 101 100
Private asset management:
Management 25 24 24 23 22
Administration/Custody 23 18 17 15 14
- ----------------------------------------------------------------------------------------------------
Total:
Management $237 $233 $209 $203 $198
Administration/Custody $886 $786 $717 $707 $682
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) See table below for components of managed mutual fund assets.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in billions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $25 $24 $23 $22 $19
Individuals 10 10 11 10 11
Tax-exempt money market funds 8 8 8 8 7
Tax-exempt bond funds 18 19 18 18 18
Fixed-income funds 5 5 5 5 4
Equity funds 12 11 11 10 10
- ----------------------------------------------------------------------------------------------------
Total proprietary funds 78 77 76 73 69
Other managed funds 5 4 4 6 7
- ----------------------------------------------------------------------------------------------------
Total managed mutual fund assets $83 $81 $80 $79 $76
- ----------------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees
Mutual fund management fees are based upon the average net assets of each fund.
Average proprietary funds managed at Dreyfus in the first quarter of 1996 were
$81 billion, compared with $68 billion in the first quarter of 1995. This
increase primarily resulted from higher average institutional money market
funds and equity funds.
13
<PAGE> 15
<TABLE>
<CAPTION>
NONINTEREST REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
MANAGED MUTUAL FUND FEE Three months ended
REVENUE March 31,
(in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed mutual fund fees $92 $83 $ 9
Less: Fees waived 7 9 2
Less: Fund expense reimbursements 2 3 1
- --------------------------------------------------------------------------------
Net managed mutual fund fees $83 $71 $12
- --------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $14 $10 $ 4
Individuals 10 10 -
Tax-exempt money market funds 7 5 2
Tax-exempt bond funds 26 23 3
Fixed income funds 6 5 1
Equity funds 18 15 3
- --------------------------------------------------------------------------------
Total proprietary fund fees 81 68 13
Other managed fund fees 2 3 (1)
- --------------------------------------------------------------------------------
Net managed mutual fund fees $83 $71 $12
- --------------------------------------------------------------------------------
</TABLE>
Mortgage servicing fees
The $16 million increase in mortgage servicing fees, compared with the
prior-year period, resulted from the acquisition of mortgage servicing rights
including the third quarter 1995 acquisition of Metmor Financial, Inc. At
March 31, 1996, the Corporation's total servicing portfolio was $55 billion, up
52% compared with $37 billion at March 31, 1995.
Credit card fees
The $14 million increase in credit card fee revenue in the first quarter of
1996, compared with the first quarter of 1995, primarily resulted from
servicing fee revenue from the securitized credit card receivables. Additional
information on the effect of the securitization is presented in the table on
the following page.
Foreign currency and securities trading revenue
The $3 million decrease in foreign currency and securities trading fee revenue
in the first quarter of 1996, compared to the prior-year period, was
attributable to lower foreign exchange fees earned, partially offset by higher
securities trading account fee revenue.
Other fee revenue
Other fee revenue was $118 million in the first quarter of 1996, an increase of
$53 million from the first quarter of 1995. This increase primarily resulted
from the $28 million gain on the home equity loan securitization, a $14 million
increase in gains on disposition of assets and sales of equity securities, and
a $10 million increase in fees relating to the electronic filing of income tax
returns. Electronic filing fees totaled $17 million in the first quarter of
1996.
14
<PAGE> 16
SECURITIZATION OF CREDIT CARD RECEIVABLES
- --------------------------------------------------------------------------------
The Corporation securitized $950 million of credit card receivables in the
fourth quarter of 1995. For analytical purposes, the impact of the
securitization on first quarter 1996 results is shown below.
<TABLE>
<CAPTION>
First Quarter
(in millions) 1996
- --------------------------------------------------------------------------------
<S> <C>
Lower net interest revenue $ 24
Lower net credit losses 10
Higher fee revenue 13
Lower loans 950
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSE
- --------------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in millions) 1996 1995 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $277 $240 $37
Net occupancy expense 56 51 5
Professional, legal and other purchased services 47 38 9
Equipment expense 35 34 1
Business development 33 33 -
Amortization of mortgage servicing rights
and purchased credit card relationships 28 13 15
Amortization of goodwill and other intangible
assets 25 24 1
Communications expense 23 22 1
FDIC assessment and regulatory examination fees 1 15 (14)
Other expense 43 29 14
- --------------------------------------------------------------------------------
Operating expense before net revenue
from acquired property 568 499 69
Net revenue from acquired property (8) (4) 4
- --------------------------------------------------------------------------------
Total operating expense $560 $495 $65
- --------------------------------------------------------------------------------
Average full-time equivalent staff 24,600 24,300 300
- --------------------------------------------------------------------------------
Efficiency ratio (a) 65% 63% 2
Efficiency ratio excluding amortization of
goodwill and other intangible assets 62 60 2
- --------------------------------------------------------------------------------
</TABLE>
(a) Operating expense before net revenue from acquired property as a percentage
of revenue, computed on a taxable equivalent basis, excluding gains (losses)
on the sale of securities.
Operating expense increased $65 million, or 13%, in the first quarter of 1996,
compared with the prior-year period. This increase resulted primarily from
increases in staff expense, the amortization of mortgage servicing rights and
expense resulting from the ongoing strategic initiatives to reconfigure the
retail delivery system. These increases were partially offset by lower FDIC
deposit insurance assessment expense. Excluding expense resulting from the
retirement enhancement program, severance and the reconfiguration of the retail
delivery system, operating expense increased 8%, compared with the first
quarter of 1995.
15
<PAGE> 17
OPERATING EXPENSE (CONTINUED)
- --------------------------------------------------------------------------------
The increase in staff expense resulted primarily from an $18 million charge for
the Corporation's retirement enhancement program, $4 million of severance
accruals and an $8 million increase in incentive expense. The retirement
enhancement program, which was offered during the first quarter and concluded
on March 31,1996, enhanced the pensions and health insurance of 495 eligible
associates electing early retirement, effective April 1, 1996. The increase in
the amortization of mortgage servicing rights reflects the increase in the
Corporation's mortgage servicing portfolio from March 31, 1995. The $5 million
increase in net occupancy expense resulted from expense related to the
reconfiguration of the retail delivery system. The increase in professional,
legal and other purchased services and other expense reflects business growth
as well as expenses resulting from efforts to reengineer lines of business and
improve customer service. Partially offsetting these increases was a decrease
in the FDIC deposit insurance assessment which resulted from the suspension of
this assessment in the first half of 1996 for healthy institutions.
Merger expense of $104 million pretax, or $79 million after tax, was recorded
in 1994 to reflect expense associated with the Dreyfus merger. The remaining
expenditures and asset adjustments related to this merger were recorded in the
first quarter of 1996.
INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes totaled $103 million in the first quarter of
1996, compared with $102 million in the first quarter of 1995. The
Corporation's effective tax rate for the first quarter of 1996 was 36.5%,
compared with a 37.5% effective tax rate for the first quarter of 1995. It is
currently anticipated that the effective tax rate will remain at approximately
36.5% for the remainder of 1996.
<TABLE>
<CAPTION>
ASSET/LIABILITY MANAGEMENT
- ------------------------------------------------------------------------
Three months ended
March 31,
(average balances in millions) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Money market investments $ 1,290 $ 1,230
Trading account securities 138 316
Securities 5,339 4,890
Loans 27,058 26,670
- ------------------------------------------------------------------------
Total interest-earning assets 33,825 33,106
Noninterest-earning assets 7,500 6,387
Reserve for credit losses (477) (607)
- ------------------------------------------------------------------------
Total assets $40,848 $38,886
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $32,073 $30,656
Wholesale and purchased funds 8,775 8,230
- ------------------------------------------------------------------------
Funds supporting total assets $40,848 $38,886
- ------------------------------------------------------------------------
</TABLE>
The increase in the Corporation's average interest-earning assets in the first
quarter of 1996, compared with the first quarter of 1995, reflects a higher
level of securities and loans. Average securities increased $449 million while
average loans increased $388 million. The increase in average loans resulted
from increases in substantially all loan categories, which more than offset
decreases of $775 million in jumbo residential mortgage loans and $460 million
in credit card loans. The decrease in jumbo residential mortgage loans
primarily resulted from loan sales while the decrease in credit card loans
resulted from the securitization. The average level of retail loans will be
impacted in future periods by the March 29, 1996, securitization of $650
million of home equity loans.
16
<PAGE> 18
ASSET/LIABILITY MANAGEMENT (CONTINUED)
- --------------------------------------------------------------------------------
Core funds, which are considered to be the most stable sources of funding, are
defined principally as money market and other savings deposits, demand
deposits, savings certificates, shareholders' equity and notes and debentures
with original maturities over one year. Core funds primarily support core
assets, which consist of loans, net of the reserve and noninterest-earning
assets. Average core assets increased $1.6 billion in the first quarter of
1996 from the prior-year period, primarily reflecting a higher level of
noninterest-earning assets and the increased loan levels. The increase in
noninterest-earning assets primarily resulted from higher levels of cash and
due from banks. Average core funds increased $1.4 billion in the first quarter
of 1996 from the prior-year period, primarily reflecting a higher level of
money market and savings deposits. Core funds averaged 94% of core assets in
the first quarter of 1996, up from 91% in the fourth quarter of 1995 and
unchanged from the first quarter of 1995.
Wholesale and purchased funds are defined as deposits in foreign offices,
federal funds purchased and securities under repurchase agreements, short-term
bank notes, negotiable certificates of deposit, U.S. Treasury tax and loan
demand notes, commercial paper, other time deposits and other funds borrowed.
Average wholesale and purchased funds increased $.5 billion compared with the
prior-year period, primarily reflecting an increase in short-term bank notes
and overnight foreign office deposits. As a percentage of total average
assets, average wholesale and purchased funds decreased to 21% in the first
quarter of 1996, from 24% in the fourth quarter of 1995 and was unchanged from
the first quarter of 1995.
COMPOSITION OF LOAN PORTFOLIO
- --------------------------------------------------------------------------------
The loan portfolio increased $161 million at March 31, 1996, compared with
March 31, 1995, as a result of increased loan demand in substantially all loan
categories primarily offset by: the late March 1996 securitization of $650
million of home equity revolving credit line loans; the fourth quarter 1995
$950 million credit card securitization; the sale of approximately $710 million
of jumbo residential mortgages; and the transfer of $193 million of
CornerStone(SM) credit card loans to an accelerated resolution portfolio. At
March 31, 1996, the composition of the loan portfolio was 54% commercial and
46% consumer.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $11,089(a) $10,969 $10,317 $10,163 $ 9,820
Commercial real estate 1,459(b) 1,532 1,505 1,512 1,588
Consumer credit:
Consumer mortgage 7,865 8,960 9,154 9,031 8,686
Credit card 1,984 1,924 2,799 2,766 2,423
Other consumer credit 2,551 2,612 2,625 2,641 2,534
- ----------------------------------------------------------------------------------------------------
Total consumer credit 12,400 13,496 14,578 14,438 13,643
Lease finance assets 865 830 828 807 815
- ----------------------------------------------------------------------------------------------------
Total domestic loans 25,813 26,827 27,228 26,920 25,866
INTERNATIONAL LOANS 1,044 863 845 845 830
- ----------------------------------------------------------------------------------------------------
Total loans, net of unearned discount (c) $26,857 $27,690 $28,073 $27,765 $26,696
- ----------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $19 million of loans subject to the FDIC loss sharing arrangement.
(b) Includes $89 million of loans subject to the FDIC loss sharing arrangement.
(c) Excludes segregated assets.
17
<PAGE> 19
COMPOSITION OF LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
Commercial and financial
The domestic commercial and financial loan portfolio primarily consists of
loans to corporate borrowers in the manufacturing, service, energy,
communications, wholesale and retail trade, public utilities and financial
services industries. Total domestic commercial and financial loans increased
by $1,269 million, or 13%, at March 31, 1996, compared to March 31, 1995, as a
result of increases in almost all segments of the commercial and financial loan
portfolio. Commercial and financial loans represented 41% of the total loan
portfolio at March 31, 1996 and 37% at March 31, 1995. At March 31, 1996,
nonperforming domestic commercial and financial loans and leases were .58% of
total domestic commercial and financial loans and leases, compared with .55% at
March 31, 1995. This ratio has been less than 1% for the last three years.
Commercial real estate
The Corporation's $1,459 million domestic commercial real estate loan portfolio
consists of commercial mortgages, which generally are secured by nonresidential
and multifamily residential properties and commercial construction loans
generally with maturities of 60 months or less. Also included in this
portfolio are loans that are secured by owner-occupied real estate, but made
for purposes other than the construction or purchase of real estate. The
commercial real estate loan portfolio includes $89 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. Domestic commercial real
estate loans decreased by $129 million, or 8%, at March 31, 1996, compared with
March 31, 1995. The decrease primarily resulted from paydowns and transfers to
OREO, partially offset by new loan originations. Domestic commercial real
estate loans were 5% of total loans at March 31, 1996, down from 6% a year
earlier. Nonperforming commercial real estate loans were 3.61% of total
domestic commercial real estate loans at March 31, 1996, compared with 2.31% at
March 31, 1995.
Consumer mortgage
The consumer mortgage portfolio includes jumbo residential mortgages,
traditional one-to-four family residential mortgages, fixed term home equity
loans and home equity revolving credit line loans. At March 31, 1996, this
portfolio totaled $7,865 million, down 9% from $8,686 million at March 31,
1995. The $821 million decrease in this portfolio from March 31, 1995,
primarily reflects sales of jumbo mortgages and the $650 million home equity
loan securitization.
Jumbo mortgages are variable rate residential mortgages that range from
$250,000 to $3 million. These loans decreased approximately $700 million from
March 31, 1995, to $3.6 billion at March 31, 1996, primarily as a result of
loan sales.
Loans secured by one-to-four family residential mortgages, primarily in the
residential warehouse portfolio, increased approximately $235 million to $2.1
billion and fixed-term home equity loans increased approximately $190 million
to $1.6 billion. Home equity revolving credit line loans decreased
approximately $565 million to $.6 billion as a result of the securitization
discussed below. Nonperforming consumer mortgages were .67% of total consumer
mortgages at March 31, 1996 and March 31, 1995.
Securitization of home equity loans
The Corporation securitized $650 million of its home equity revolving credit
line loans on March 29, 1996. The securitization is an effective way to
diversify funding sources and manage the balance sheet. The Corporation no
longer recognizes net interest revenue on the securitized portfolio; however,
the decrease in net interest revenue is primarily offset by increased servicing
fee revenue and lower net credit losses. The Corporation continues to service
these loans. In connection with this securitization, the Corporation recorded
a $28 million gain which is included in other fee revenue.
18
<PAGE> 20
COMPOSITION OF LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
Credit card
At March 31, 1996, credit card loans totaled $1,984 million, a $439 million, or
18%, decrease from March 31, 1995. This decrease resulted from the $950
million securitization of credit card receivables and the transfer of $193
million of CornerStone(SM) credit card loans to an accelerated resolution
portfolio, partially offset by the purchase of a credit card portfolio in 1995
and loan growth. Credit card loans are charged off after becoming 180 days
delinquent and as such are not placed on nonperforming status prior to
charge-off. The ratio of credit card loans 90 days or more past due to total
credit card loans was 1.21% at March 31, 1996, compared with .66% at December
31, 1995 and 1.82% at March 31, 1995. The creation of the accelerated
resolution portfolio caused the significant reduction in this ratio at December
31, 1995 and contributed to the reduction in this ratio at March 31, 1996,
compared with March 31, 1995.
Assets held for accelerated resolution
In the fourth quarter of 1995, the Corporation segregated $193 million of
CornerStone(SM) credit card loans, which had a history of delinquency, into an
accelerated resolution portfolio. In connection with this transfer, the
Corporation evaluated the carrying value of these loans and recorded a credit
loss of $106 million. Interest and principal receipts, fees and loan loss
recoveries on loans in this portfolio are applied to reduce the carrying value
of this portfolio, which totaled $65 million at March 31, 1996, compared with
$82 million at year-end 1995. No revenue will be recorded on this portfolio
until the net carrying value is recovered. This portfolio is in other assets
on the Corporation's balance sheet.
Other loans
Other consumer credit, which principally consists of installment loans,
unsecured personal credit lines and student loans, was $2,551 million at March
31, 1996, an increase of $17 million from March 31, 1995. Loans to
international borrowers increased to $1,044 million at March 31, 1996, from
$830 million at March 31, 1995, primarily due to increased activity with large
corporate customers. Lease finance assets were $865 million, up from $815
million at March 31, 1995.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT
CREDIT RISK
- -----------------------------------------------------------------------------
March 31,
(in millions) 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $23,046(a) $16,476
Standby letters of credit and foreign guarantees 3,600(b) 3,204
Commercial letters of credit 81 135
Residential mortgage loans serviced with recourse 147 176
Custodian securities lent with indemnification
against broker default of return of securities 17,614 14,808
- -----------------------------------------------------------------------------
</TABLE>
(a) Approximately 25% of these commitments are scheduled to expire within one
year, with an additional 61% scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $227 million.
19
<PAGE> 21
CAPITAL
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, MARCH 31, Dec. 31, March 31,
except per share amounts) 1996 1995 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $3,384 $3,590 $3,755
Common shareholders' equity to assets ratio 8.14% 8.83% 9.48%
Tangible common shareholders' equity 2,450 2,632 2,740
Tangible common equity to assets ratio (a) 6.03% 6.63% 7.10%
Total shareholders' equity $3,819 $4,025 $4,190
Total shareholders' equity to assets ratio 9.19% 9.90% 10.57%
Tier I capital ratio 7.69 8.14 9.49
Total (Tier I plus Tier II) capital ratio 12.20(b) 11.29 12.86
Leverage capital ratio 7.52 7.80 8.84
Book value per common share $25.55 $26.17 $25.63
Closing common stock price 55.25 53.75 40.75
Market capitalization 7,317 7,374 5,969
- -------------------------------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill, and other intangibles recorded in
connection with purchase acquisitions divided by total assets less goodwill
and other intangibles recorded in connection with purchase acquisitions.
(b) The increase from December 31, 1995, resulted from $550 million of
subordinated debt issued in the first quarter of 1996.
The decrease in the Corporation's common and total shareholders' equity at
March 31, 1996, compared with December 31, 1995 and March 31, 1995, resulted
from repurchases of common stock offset in part by earnings retention. In
addition, asset growth resulted in a decrease in the Corporation's capital
ratios compared with the prior-year periods.
In February 1996, the board of directors of the Corporation authorized the
repurchase of up to 3.5 million additional shares of common stock to be used to
meet current and near-term requirements for its stock-based benefit plans and
dividend reinvestment plan. At March 31, 1996, the Corporation had repurchased
.9 million shares under this authorization. In addition, in February 1996 the
Corporation completed the 8 million share repurchase program authorized by the
board of directors in the fourth quarter of 1995. Since the beginning of 1995,
the Corporation has returned $921 million to shareholders through the
repurchase of 18.3 million common shares, prior to any reissuances, as well as
warrants to purchase 4.5 million shares of common stock. Average common stock
and stock equivalents used in the computation of primary earnings per share in
the first quarter of 1996 totaled 136.5 million shares, compared with 148.8
million shares in the first quarter of 1995, an 8% decrease. At March 31, 1996
common stock and stock equivalents totaled 134.3 million shares.
<TABLE>
<CAPTION>
COMMON SHARES OUTSTANDING
- ------------------------------------------------------------------------
FIRST QUARTER Full Year
(in millions) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C>
Beginning shares outstanding 137.2 147.2
Shares issued for stock-based benefit plans and
dividend reinvestment plan .7 2.8
Shares repurchased (5.5) (12.8)
- ------------------------------------------------------------------------
Ending shares outstanding 132.4 137.2
- ------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
The Corporation's qualifying capital under the Federal Reserve Board's
risk-based capital regulations is shown in the table below.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RISK-BASED AND LEVERAGE CAPITAL RATIOS March 31,
(dollar amounts in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a) $ 3,407 $ 3,808
Qualifying preferred stock 435 435
Other items (9) 12
Goodwill and certain other intangibles (831) (888)
- -------------------------------------------------------------------------------
Total Tier I capital $ 3,002 $ 3,367
Tier II capital 1,762 1,197
- -------------------------------------------------------------------------------
Total qualifying capital $ 4,764 $ 4,564
- -------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $27,050 $25,887
Off-balance-sheet 11,989 9,595
- -------------------------------------------------------------------------------
Total risk-adjusted assets $39,039 $35,482
- -------------------------------------------------------------------------------
Average assets-leverage capital basis $39,923 $38,107
- -------------------------------------------------------------------------------
Tier I capital ratio (b) 7.69% 9.49%
Total capital ratio (b) 12.20 12.86
Leverage capital ratio (b) 7.52 8.84
- -------------------------------------------------------------------------------
</TABLE>
(a) In accordance with regulatory guidelines, $23 million and $53 million of
unrealized losses, net of tax, on assets classified as available for sale at
March 31, 1996 and 1995, respectively, have been excluded.
(b) The required minimum Tier I, Total and Leverage capital ratios are 4%, 8%
and 3%, respectively.
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, its 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 March 31, 1996. The Corporation
intends to maintain the ratios of its banking subsidiaries at least at the
well-capitalized levels.
When computing Tier I capital, the Corporation deducts all goodwill and certain
other identified intangibles acquired subsequent to February 19, 1992, except
mortgage servicing rights and purchased credit card relationships.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, Dec. 31, March 31,
(in millions) 1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $775 $788 $813
- -------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 23
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
The $38 million decrease in goodwill at March 31, 1996, compared with March 31,
1995, resulted from $53 million of amortization, offset in part by an increase
of $14 million related to corporate trust acquisitions. Based upon the current
level and amortization schedule, the amortization of goodwill over the next 12
months is expected to be approximately $53 million. The annual amortization of
goodwill for the full years 1997 through 2000 is expected to remain at
approximately $53 million and decrease to approximately $50 million in 2001.
The after-tax impact of the annual amortization of goodwill for the full years
1997 through 2000 is expected to be approximately $46 million and decrease to
approximately $43 million in 2001.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
MARCH 31, Dec. 31, March 31,
(in millions) 1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased core deposit intangible $105 $110 $127
Covenants not to compete 17 22 34
Other identified intangibles 37 38 40
- -------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $159 $170 $201
- -------------------------------------------------------------------------------
</TABLE>
The decrease in purchased core deposit and other identified intangibles from
March 31, 1995, resulted from amortization. Based upon the current level and
amortization schedule, the annual amortization of purchased core deposit and
other identified intangibles over the next 12 months will be approximately $43
million. The annual amortization of purchased core deposit and other
identified intangibles for the full years 1997 through 2001 is anticipated to
be approximately $31 million, $26 million, $26 million, $14 million and $8
million, respectively. The after-tax impact of the annual amortization of
these items for the full years 1997 through 2001 is anticipated to be
approximately $20 million, $17 million, $17 million, $9 million and $5 million,
respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
MARCH 31, Dec. 31, March 31,
(in millions) 1996 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights $614 $592 $317
Purchased credit card relationships 87 90 58
- -------------------------------------------------------------------------------
Total mortgage servicing rights and
purchased credit card relationships $701 $682 $375
- -------------------------------------------------------------------------------
</TABLE>
During the quarter, $56 million of servicing rights were capitalized in
connection with both mortgage servicing portfolio purchases and loan
originations. Mortgage servicing rights are amortized in proportion to
estimated net servicing income over the estimated life of the servicing
portfolio. Amortization expense totaled $25 million in the first quarter of
1996. The estimated fair value of capitalized mortgage servicing rights was
$717 million at March 31, 1996. The increase in purchased credit card
relationships from March 31, 1995, resulted from portfolio acquisitions
partially offset by amortization.
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." FAS No. 121 established
guidelines for recognition of impairment losses related to long-lived assets
and certain intangibles and related goodwill for both assets to be held and
used as well as assets held for disposition. This statement excludes financial
instruments, long-term customer relationships of financial institutions,
mortgage and other servicing rights and deferred tax assets. Adoption of this
statement was immaterial to the Corporation's financial position and results of
operations.
22
<PAGE> 24
LIQUIDITY AND DIVIDENDS
- -------------------------------------------------------------------------------
The Corporation's liquidity management objective is to maintain the ability to
meet commitments to fund loans and to purchase securities, as well as to repay
deposits and other liabilities in accordance with their terms, including during
periods of market or financial stress. The Corporation's overall approach to
liquidity management is to ensure that sources of liquidity are sufficient in
amount and diversity to accommodate changes in loan demand and core funding
routinely without a material adverse impact on net income. The Corporation's
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
loans and to securitize selected loan portfolios. The Corporation also has a
three-year $300 million revolving credit agreement and a $25 million backup
line of credit to provide support facilities for its commercial paper
borrowings and for general Corporate purposes.
As shown in the Consolidated Statement of Cash Flows, cash and due from banks
increased by $407 million during the first quarter of 1996 to $2,749 million at
March 31, 1996. The increase reflected $652 million of net cash provided by
financing activities, partially offset by $200 million of net cash used in
investing activities and $48 million of net cash used in operating activities.
Net cash provided by financing activities primarily reflected increases in
customer deposits and long-term borrowings partially offset by common stock
repurchases. Net cash used in investing activities principally reflected an
increase in short-term investments and loan disbursements, offset in part by
proceeds from the home equity loan securitization and a loan sale.
On March 1, 1996, the Corporation issued $250 million of debt at a fixed rate
of 6.70% maturing in the year 2008. On March 18, 1996, Mellon Bank, N.A., the
Corporation's principal banking subsidiary, issued $300 million of debt at a
fixed rate of 7% maturing in the year 2006. Prior to issuance, the Corporation
hedged the cost of both of these transactions with interest rate swaps. The
swaps were terminated upon issuance of the debt. The effective interest rates
on the $250 million of Corporate debt and $300 million of Mellon Bank, N.A.
debt, including the effect of the interest rate swaps, are 6.91% and 6.43%,
respectively. The proceeds from these issuances were used for general
Corporate purposes, including the use of $200 million of the proceeds from the
Mellon Bank, N.A. issue for a distribution of paid-in capital surplus to the
parent Corporation. Contractual maturities of the Corporation's term debt were
$20 million in the first quarter of 1996. There will be no contractual
maturities of existing debt for the remainder of 1996. At March 31, 1996, the
Corporation's senior debt and Mellon Bank, N.A.'s subordinated debt were rated
"A2" by Moody's and "A" by Standard and Poor's.
On April 16, 1996, the Corporation announced a 9% increase in the quarterly
common stock dividend, to $.60 per common share. The increased dividend is
payable on May 15, 1996, to shareholders of record on April 30, 1996. This is
the fifth quarterly common dividend increase that the Corporation has announced
since the beginning of 1994, resulting in a total common dividend per share
increase of 137%. The Corporation paid $75 million in common stock dividends
in the first quarter of 1996, compared with $66 million in the prior-year
period. In addition, the Corporation paid $10 million in dividends on its
outstanding shares of preferred stock during the first quarter of 1996,
unchanged from the prior-year period. The common stock dividend payout ratio
was 44% in the first quarter of 1996, compared with 41% in the first quarter of
1995. Using the new quarterly common dividend rate of $.60 per share and
current shares outstanding, annualized dividend requirements for the common and
preferred stock are expected to be approximately $355 million.
The parent Corporation's principal sources of cash are dividends and interest
from its subsidiaries. There are, however, certain limitations on the payment
of dividends to the parent Corporation by its national bank subsidiaries. For
a discussion of these limitations, see note 18 in the Corporation's 1995 Annual
Report on Form 10-K. Under the more restrictive limitation, the Corporation's
national bank subsidiaries can, without prior regulatory approval, declare
dividends subsequent to March 31, 1996, of approximately $204 million, less any
dividends declared and plus or minus net profits or losses, as defined, between
April 1, 1996, and the date of any such dividend declaration. The national
bank subsidiaries declared dividends to the parent Corporation of $100 million
in the first quarter of 1996, $501 million in the full-year 1995 and $366
million in 1994. Dividends paid to the parent Corporation by nonbank
23
<PAGE> 25
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
subsidiaries totaled $6 million in the first quarter of 1996, $30 million in
the full-year 1995 and $122 million in 1994. In addition, Mellon Bank, N.A.
returned $200 million and $300 million of capital to the parent Corporation in
the first quarter of 1996 and the second quarter of 1995, respectively.
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. Interest rate risk is measured using net interest margin
simulation and asset/liability net present value sensitivity analyses.
Simulation tools serve as the primary means to gauge interest rate exposure.
The net present value sensitivity analysis is the means by which the
Corporation's long-term interest rate exposure is evaluated. These methods
provide the analysis needed for a full understanding of the range of potential
impacts on net interest revenue and portfolio equity caused by interest rate
movements.
Modeling techniques that are used to estimate the impact of changes in interest
rates on the net interest margin are a more relevant method of measuring
interest rate risk than the less sophisticated interest rate sensitivity gap
table shown on page 26. Assumptions regarding the replacement of maturing
assets and liabilities are made to simulate the impact of future changes in
rates and/or changes in balance sheet composition. The effect of changes in
future interest rates on the mix of assets and liabilities may cause actual
results to differ from simulated results. In addition, certain financial
instruments provide customers a certain degree of "optionality." For instance,
customers have migrated from lower cost deposit products to higher cost
products. Also, customers will refinance mortgages as interest rates decrease.
While the Corporation's simulation analysis considers these factors, the extent
to which customers utilize the ability to exercise their financial options may
cause actual results to differ from the simulation. Guidelines used by the
Corporation for assuming interest rate risk are presented in the "Interest rate
sensitivity analysis" section on page 43 of the 1995 Annual Report on Form
10-K.
The table below illustrates the simulation analysis of the impact of a 100
basis point or 200 basis point upward or downward movement in interest rates on
net interest revenue, return on common shareholders' equity and earnings per
share. This analysis was done assuming that interest-earning asset levels at
March 31, 1996, remained constant, that the level of loan fees remains
unchanged, and excludes the impact of interest receipts on nonperforming loans.
The impact of the rate movements was developed by simulating the effect of
rates changing over a six-month period from the March 31, 1996, levels,
adjusted for the impact of the home equity revolving credit line
securitization.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
Movements in interest rates from March 31, 1996 rates
- -------------------------------------------------------------------------------
Simulated impact in the next 12 months Increase Decrease
--------------- ---------------
compared with March 31, 1996: +100bp +200bp -100bp -200bp
---------------------------------------
<S> <C> <C> <C> <C>
Net interest revenue decrease (.1)% (.2)% (.9)% (.6)%
Return on common equity decrease (4) bp (7) bp (25) bp (18) bp
Earnings per share decrease $(.01) $(.02) $(.06) $(.05)
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 26
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
Under either the increase or decrease scenarios, the estimated impact on net
interest revenue, utilizing the model assumptions, was a decrease of less than
1%. The decrease in net interest revenue under the 100 and 200 basis point
increase scenarios results from liabilities repricing more quickly than certain
adjustable rate assets within the first six months of the analysis. The decrease
in net interest revenue under the 100 and 200 basis point decrease scenarios is
consistent with the Corporation's asset sensitive gap position at the one-year
repricing period as shown in the interest rate sensitivity gap table on page 26.
The interest rate sensitivity gap table shows the repricing characteristics of
the Corporation's interest-earning assets and supporting funds at March 31,
1996. The data are based on contractual repricing or maturities and, where
applicable, management's assumptions as to the estimated repricing
characteristics of certain assets and supporting funds. Generally, an asset
sensitive gap indicates that rising interest rates could positively affect net
interest revenue, and falling rates could negatively affect net interest
revenue. Assets and liabilities with similar contractual repricing
characteristics, however, may not reprice at the same time or to the same
degree. As a result, the Corporation's static interest rate sensitivity gap
position does not necessarily predict the impact of changes in general levels
of interest rates on net interest revenue.
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. Financial instruments that the Corporation uses to manage interest
rate sensitivity include: money market assets, U.S. government and federal
agency securities, municipal securities, mortgage-backed securities, corporate
bonds, interest rate swaps, caps and floors, financial futures and financial
options. The cumulative gap at the one-year repricing period, before the
utilization of off-balance-sheet instruments, was asset-sensitive in the amount
of $4.3 billion, or 10.2% of total assets, at March 31, 1996. 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 $3.2 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 $1.1 billion, or 2.8% 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 $3.2
billion to accomplish this objective. Correspondingly, the Corporation also
would 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.
25
<PAGE> 27
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY GAP AT MARCH 31, 1996
Repricing period
-------------------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 1,498 $ 32 $ 5 $ - $ - $ - $ 1,535
Trading account securities 168 - - - - - 168
Securities 1,807 108 156 703 708 2,310 5,792
Loans 11,055 5,304 2,680 1,960 3,504 2,354 26,857
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $14,528 $ 5,444 $2,841 $2,663 $4,212 $ 4,664 $34,352
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 4,731 $ 6,703 $2,962 $1,431 $2,289 $ 3,804 $21,920
Other borrowed funds 3,028 684 - 331 - 120 4,163
Notes and debentures (with original
maturities over one year) - - - - 647 1,325 1,972
Noninterest-bearing liabilities 1,147 65 34 103 - 4,948 6,297
- ----------------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 8,906 $ 7,452 $2,996 $1,865 $2,936 $10,197 $34,352
- ----------------------------------------------------------------------------------------------------------------------------------
Subtotal $ 5,622 $(2,008) $ (155) $ 798 $1,276 $(5,533) $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(2,488) $(1,949) $ 657 $ 667 $3,151 $ (38) $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 3,134 $(3,957) $ 502 $1,465 $4,427 $(5,571) $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 3,134 $ (823) $ (321) $1,144 $5,571 $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 7.5% (2.0)% (0.8)% 2.8% 13.4%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Repricing periods for securities, loans, interest-bearing deposits,
noninterest-bearing liabilities and off-balance-sheet instruments are based
upon contractual maturities, where applicable, as well as the Corporation's
historical experience of the impact of interest rate fluctuations on the
prepayment, repricing and withdrawal patterns of certain assets and
liabilities.
Off-balance-sheet risk
The Corporation offers off-balance-sheet financial instruments to enable its
customers to meet their financing objectives and manage their interest-and
currency-rate risk. Supplying these instruments provides the Corporation with
an ongoing source of fee revenue. The Corporation also enters into these
transactions to manage its own risks arising from movements in interest and
currency rates and as part of its proprietary trading and funding activities.
These off-balance-sheet instruments are subject to credit and market risk.
Credit risk is limited to the estimated aggregate replacement cost of contracts
in a gain position, should counterparties fail to perform under the terms of
those contracts and any underlying collateral proves to be of no value. Credit
risk is managed by subjecting the counterparties to the Corporation's credit
approval and monitoring policies and procedures. Counterparty limits are
monitored on an ongoing basis. Credit risk is often 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. Market risk arises from changes in the market value of contracts
as a result of the fluctuations in interest and currency rates. The
Corporation limits its exposure to market risk by entering into generally
matching or offsetting positions and by establishing and monitoring limits on
unmatched positions. Position limits are set by the Finance Committee and
approved by the Office of the Chairman and the Executive Committee of the board
of directors. Portfolio outstandings are monitored against such limits by
senior managers and compliance staff independent of line areas.
26
<PAGE> 28
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 its overall interest rate exposure. The following off-
balance-sheet instruments have been approved by the Corporation for managing
the overall Corporate interest rate exposure: interest rate swaps; caps and
floors; financial futures; forward rate agreements; and financial options.
Their usage for speculative purposes is not permitted outside of those areas
designated as trading and controlled with specific authorizations and limits.
These instruments provide the Corporation flexibility in adjusting its interest
rate risk position without exposure to principal risk and funding requirements.
The Corporation primarily uses non-leveraged generic and index amortizing swaps
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. The Corporation's off-balance-sheet instruments used to
manage its interest rate risk are shown in the table on the following page.
Additional information regarding these contracts is presented in note 20 in the
Corporation's 1995 Annual Report on Form 10-K.
27
<PAGE> 29
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE
risk at March 31, 1996
Total at
March 31,
(notional amounts in millions) 1996 1997 1998 1999 2000 2001+ 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $ 225 $160 $ 15 $ - $ - $400 $ 800
Weighted average rate:
Receive 5.43% 6.36% 5.22% - - 6.32% 6.05%
Pay 5.49% 5.48% 5.25% - - 5.46% 5.46%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $1,004 $355 $ 972 $1,605 $163 $179 $4,278
Weighted average rate:
Receive 5.13% 6.80% 6.10% 5.79% 7.15% 7.13% 5.90%
Pay 5.45% 5.48% 5.37% 5.36% 5.50% 5.50% 5.40%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 111 $ 3 $ 17 $ 2 $ - $ 10 $ 143
Weighted average rate:
Receive 5.45% 5.55% 2.04% 6.79% - 5.67% 5.11%
Pay 5.55% 7.59% 5.27% 8.41% - 6.49% 5.68%
Other products (c) $ 250 $ - $ 4 $ 2 $ 88 $ 15 $ 359
- ----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $1,590 $518 $1,008 $1,609 $251 $604 $5,580
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Generic swaps' notional amounts and lives are not based on interest rate
indices.
(b) Amortizing swaps' notional amounts and lives change, based on certain
interest rate indices. Generally, as rates fall, the notional amounts
decline more rapidly and, as rates increase, notional amounts decline more
slowly.
(c) Average rates are not meaningful for these products.
The gross notional amount of off-balance-sheet products used to manage the
Corporation's interest rate risk was $5.6 billion at March 31, 1996, a decrease
of $3.1 billion from $8.7 billion at December 31, 1995. The reduction in these
instruments resulted from terminations and maturities. See page 29 for a
discussion of the interest rate swap terminations. This gross notional amount,
which is presented in the table above, must be viewed in the context of the
Corporation's overall interest rate risk management activities in order to
assess its impact on the net interest margin. As discussed on page 25, these
off-balance-sheet instruments modified the Corporation's asset-sensitive
position, including the modification of the cumulative asset-sensitive position
at the one-year repricing period, of $4.3 billion, before the utilization of
these instruments, to a cumulative one-year asset-sensitive position of $1.1
billion at March 31, 1996.
28
<PAGE> 30
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
The following table presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
rate-sensitive instruments.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
March 31,
(notional amounts in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Instruments associated with deposits $4,341 $ 8,796
Instruments associated with other liabilities 420 420
Instruments associated with loans 819 1,718
- -------------------------------------------------------------------------------
Total notional amount $5,580 $10,934
- -------------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet instruments to reduce the
natural interest rate risk embedded in its assets and liabilities. The
interest received and interest paid are recorded on an accrual basis in
interest revenue and interest expense associated with the underlying assets and
liabilities. The net differential resulted in interest revenue of $5 million
in the first quarter of 1996, compared with interest revenue of less than $1
million in the first quarter of 1995.
In the first quarter, the Corporation terminated interest rate agreements of
$250 million and $300 million that were used to lock in the cost of the $250
million 6.70% and $300 million 7.00% long-term debt issuances in the first
quarter of 1996. These terminations resulted in an unrealized deferred loss of
$4 million on the $250 million interest rate agreement and an unrealized
deferred gain of $12 million on the $300 million interest rate agreement.
These deferred gains and losses will be amortized to interest expense over the
terms of the corresponding debt.
In response to tactical asset/liability management considerations, the
Corporation terminated $4.4 billion of interest rate swaps in the first quarter
of 1996. Both pay and receive fixed-rate generic swaps were terminated. The
terminated swaps included $3 billion that were associated with deposits,
specifically money market accounts, CWI accounts and retail savings
certificates, and $1.4 billion that were associated with loans. These
terminations resulted in net deferred gains of $15 million. These gains will
be amortized over the remaining periods of the original hedges, which are
between one and three years.
The estimated unrealized fair value of the Corporation's interest rate
management off-balance-sheet instruments at March 31, 1996, was a negative $72
million, compared with a positive $30 million at December 31, 1995. This
decrease was consistent with the increase in long-term interest rates during
the first quarter of 1996, which had the corresponding 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.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
- -------------------------------------------------------------------------------
March 31,
(notional amounts in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Interest rate agreements:(a)
Interest rate swaps $5,221 $10,385
Options, caps and floors purchased (b) 344 543
Futures contracts 8 6
Forward rate agreements 7 -
Other products 89 50
- -------------------------------------------------------------------------------
</TABLE>
(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
may default. Credit risk associated with interest rate agreements was $8
million at March 31, 1996 and $7 million at March 31, 1995.
(b) At March 31, 1996 and 1995, there were no options, caps or floors written.
29
<PAGE> 31
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
Off-balance-sheet instruments used for trading activities
The Corporation offers off-balance-sheet financial instruments primarily
foreign exchange contracts, currency and interest rate option contracts,
interest rate swaps and interest rate caps and floors to enable customers to
meet their financing objectives and to manage their interest- and currency-rate
risk. Supplying these instruments provides the Corporation with fee revenue.
The Corporation also uses such instruments, as well as futures and forward
contracts, in connection with its proprietary trading account activities. All
of these instruments are carried at market value with realized and unrealized
gains and losses included in foreign currency and securities trading revenue.
In the first quarter of 1996, the Corporation recorded $20 million of fee
revenue from these activities, primarily from foreign exchange contracts
entered into on behalf of customers, compared with $24 million in the first
quarter of 1995. The total notional values of these contracts were $35 billion
at March 31, 1996 and $40 billion at March 31, 1995, and are included on the
off-balance-sheet instruments used for trading activities table below.
The Corporation has established trading limits and related monitoring
procedures to control trading risk. These limits are reviewed and approved by
the Office of the Chairman and the Executive Committee of the board of
directors. All limits are monitored for compliance by departmental compliance
staff and by the Corporation's Internal Audit department. Exceptions to limits
would be reported to the Office of the Chairman and, in certain instances, to
the Audit Committee of the board of directors.
The financial risk associated with trading positions is managed by assigning
position limits and stop loss guidance amounts to individual activities.
Position limits are assigned to each family of financial instruments eligible
for trading such that the aggregate value at risk in these activities at any
point in time will not exceed a specified limit given a significant market
movement. The extent of market movement deemed to be significant is based upon
an analysis of the historical volatility of individual instruments that would
cover 95% of likely daily market movements. Using the Corporation's
methodology, which considers such factors as changes in interest rates, spreads
and options volatility, the aggregate value at risk for trading activities was
less than $1 million at March 31, 1996.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR TRADING ACTIVITIES
- -------------------------------------------------------------------------------
March 31,
(notional amounts in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Foreign currency contracts:(a)
Commitments to purchase $12,072 $12,586
Commitments to sell 12,116 12,660
Foreign currency and other option contracts written 313 155
Foreign currency and other option contracts purchased 353 177
Futures and forward contracts 1,224 1,651
Interest rate agreements:(a)
Interest rate swaps 6,007 6,692
Options, caps and floors purchased 1,705 3,155
Options, caps and floors written 1,555 2,822
Forward rate agreements 110 -
- -------------------------------------------------------------------------------
</TABLE>
(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
may default. Credit risk associated with these instruments was $368 million
at March 31, 1996 and $957 million at March 31, 1995.
30
<PAGE> 32
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $177 $167 $183 $199 $156
Acquired property, net of the OREO reserve 73 69 78 77 87
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $250 $236 $261 $276 $243
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .66% .60% .65% .72% .58%
Total nonperforming assets as a percentage of
total loans and net acquired property .93% .85% .93% .99% .91%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
Nonperforming assets is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily other real
estate owned (OREO) acquired in connection with the collection effort on loans.
Nonperforming assets do not include the segregated assets acquired in the
December 1992 Meritor retail office acquisition. 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. Past-due consumer loans, excluding consumer mortgages, are
generally not classified as nonaccrual, but are charged off on a formula basis
upon reaching various stages of delinquency. Additional information regarding
the Corporation's practices for placing assets on nonaccrual status is
presented in the "Nonperforming assets" discussion and in note 1 in the
Corporation's 1995 Annual Report on Form 10-K.
At March 31, 1996, nonperforming assets totaled $250 million, an increase of
$14 million compared with December 31, 1995, primarily as a result of a $10
million increase in nonperforming loans. The increase in nonperforming loans
resulted from additions of commercial real estate loans to nonaccrual status
partially offset by credit losses, returns to accrual status and repayments.
Total nonperforming assets increased $7 million compared with March 31, 1995,
as an increase in nonperforming loans was partially offset by a decrease in
acquired property. The ratio of nonperforming assets to total loans and net
acquired property at March 31, 1996, was .93%, compared with .85% at December
31, 1995 and .91% at March 31, 1995. This ratio, which can be expected to vary
over time with changes in the economy, has been lower than 1% for seven
consecutive quarters.
A loan is considered impaired when, based upon current information and events,
it is probable that the Corporation will be unable to collect all principal and
interest amounts due according to the contractual terms of the loan agreement.
At March 31, 1996, the Corporation's impaired loans totaled $122 million and
consisted of nonaccrual and restructured commercial and financial, and
commercial real estate loans. Included in these impaired loans were $61
million, which had a related impairment reserve of $23 million, and $61 million
that did not have a related reserve as a result of interest payments applied to
reduce principal or credit losses previously taken on these loans. Average
impaired loans during the first quarter of 1996 were $113 million. During the
quarter, the Corporation recognized $3 million of interest revenue on impaired
loans, all of which was recognized using the cash basis method of income
recognition.
31
<PAGE> 33
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS (a) MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 69 $ 65 $ 87 $ 92 $ 55
Commercial real estate 52 29 31 39 34
Consumer credit:
Consumer mortgage 53 61 62 59 58
Other consumer credit 2 2 2 2 2
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 176 157 182 192 149
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial - - - 4 4
Commercial real estate 1 10 1 3 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 1 10 1 7 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (b) 177 167 183 199 156
- ----------------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 86 87 99 98 112
Reserve for real estate acquired (13) (18) (21) (21) (26)
- ----------------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 73 69 78 77 86
Other assets acquired - - - - 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total acquired property 73 69 78 77 87
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $250 $236 $261 $276 $243
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective
loan portfolio segments:
Domestic commercial and financial loans and leases .58% .55% .78% .87% .55%
Domestic commercial real estate loans 3.61 2.55 2.12 2.80 2.31
Domestic consumer mortgage loans .67 .68 .68 .66 .67
Total loans .66 .60 .65 .72 .58
Nonperforming assets as a percentage of
total loans and net acquired property .93 .85 .93 .99 .91
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) Includes $104 million, $81 million, $103 million, $113 million and $69
million, respectively, of loans with both principal and interest less than
90 days past due but placed on nonaccrual status by management discretion.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE THREE MONTHS ENDED MARCH 31 (a)
Domestic
------------------------------------------- Total
Commercial Commercial Consumer ---------------------
(in millions) & Financial Real Estate Credit 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of period $65 $39 $63 $167 $151
Additions 13 35 5 53 55
Payments (b) (2) (4) (5) (11) (37)
Return to accrual status - (9) (2) (11) (3)
Credit losses (7) (8) (3) (18) (7)
Transfers to acquired property - - (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at March 31 $69 $53 $55 $177 $156
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
32
<PAGE> 34
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ADDITIONAL NONPERFORMING LOAN DATA (a) March 31,
(dollar amounts in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Book balance $177 $156
Contractual balance of nonperforming loans 224 222
Book balance as a percentage of contractual balance 79% 70%
Year-to-date interest receipts applied to reduce principal $ 1 $ 2
Year-to-date interest receipts recognized in interest revenue 3 2
- -------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. Acquired property totaled $73 million at March 31, 1996,
compared with $69 million at December 31, 1995, and $87 million at March 31,
1995. The decrease from March 31, 1995, resulted from sales.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY FOR THE THREE MONTHS ENDED MARCH 31
(in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of period, net of the OREO reserve $69 $87
Foreclosures 4 6
Sales (4) (7)
Write-downs, credit losses, OREO provision and other 4 -
- -------------------------------------------------------------------------------
OREO at end of period, net of the OREO reserve 73 86
Other acquired assets - 1
- -------------------------------------------------------------------------------
Acquired property at end of period, net of the OREO reserve (a) $73 $87
- -------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
The Corporation recognizes any estimated potential decline in the value of OREO
between appraisal dates on a property-by-property basis through periodic
additions to the OREO reserve. Write-downs charged against this reserve are
taken when OREO is sold at a loss or upon the receipt of appraisals that
indicate a deterioration in the fair value of the property. Activity in the
Corporation's OREO reserve is presented in the following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CHANGE IN RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE) FOR THE THREE
MONTHS ENDED MARCH 31
(in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $18 $29
Write-downs on real estate acquired (1) -
Provision (4) (3)
- -------------------------------------------------------------------------------
Ending balance $13 $26
- -------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 35
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
The following table presents the amount of loans that were 90 days or more past
due as to principal or interest that are not classified as nonperforming.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PAST-DUE LOANS MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 1996 1995 1995 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer:
Mortgages $ 36 $ 34 $ 32 $ 32 $ 32
Ratio (a) .46% .38% .35% .36% .37%
Credit card 24 (b) 13 (b) 56 54 44
Ratio (a) 1.21% .66% 2.01% 1.96% 1.82%
Student - government guaranteed 37 44 39 32 30
Ratio (a) 2.53% 3.11% 2.78% 2.36% 2.22%
Other consumer 1 1 1 1 1
Ratio (a) .13% .09% .07% .08% .09%
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer $ 98 $ 92 $128 $119 $107
Ratio (a) .79% .68% .87% .82% .78%
Commercial 7 6 6 6 9
- ----------------------------------------------------------------------------------------------------------------------------------
Total past-due loans $105 $ 98 $134 $125 $116
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 90 days past due as a percentage of quarter-end loan balances.
(b) Excludes past due CornerStone(SM) credit card loans included in the
accelerated resolution portfolio.
34
<PAGE> 36
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, March 31,
(dollar amounts in millions) 1996 1995 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Cash and due from banks $ 2,749 $ 2,342 $ 2,130
Federal funds sold and securities under resale agreements 757 225 414
Interest-bearing deposits with banks 623 553 501
Other money market investments 155 82 33
Trading account securities 168 62 233
Securities available for sale 3,164 2,913 2,112
Investment securities (approximate fair value
of $2,608, $2,554 and $3,103) 2,628 2,519 3,198
Loans, net of unearned discount of $57, $44 and $63 26,857 27,690 26,696
Reserve for credit losses (468) (471) (601)
Customers' acceptance liability 232 263 215
Premises and equipment 555 556 552
Acquired property, net of reserves of $13, $18 and $26 73 69 87
Goodwill and other intangibles 934 958 1,014
Mortgage servicing rights and purchased
credit card relationships 701 682 375
Other assets 2,454 2,203 2,660
----------------------------------------------------------------------------------------------------------------
Total assets $41,582 $40,646 $39,619
----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 7,978 $ 6,458 $ 5,504
Interest-bearing deposits in domestic offices 18,594 18,412 17,775
Interest-bearing deposits in foreign offices 3,326 4,391 3,726
----------------------------------------------------------------------------------------------------------------
Total deposits 29,898 29,261 27,005
Federal funds purchased and securities under
repurchase agreements 1,865 1,591 2,461
Short-term bank notes 788 1,057 640
Term federal funds purchased 643 905 496
U.S. Treasury tax and loan demand notes 321 290 420
Commercial paper 187 284 228
Other funds borrowed 359 190 415
Acceptances outstanding 232 263 215
Other liabilities 1,498 1,337 1,957
Notes and debentures (with original maturities over one year) 1,972 1,443 1,592
----------------------------------------------------------------------------------------------------------------
Total liabilities 37,763 36,621 35,429
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock 435 435 435
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 200,000,000 shares
Issued - 147,165,480 shares 74 74 74
Additional paid-in capital 1,854 1,850 1,856
Retained earnings 2,207 2,118 1,867
Warrants - - 37
Net unrealized gain (loss) on assets
available for sale, net of tax (23) 18 (53)
Treasury stock of 14,722,287; 9,978,407 and 678,826 shares, at cost (728) (470) (26)
----------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,384 3,590 3,755
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,819 4,025 4,190
----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $41,582 $40,646 $39,619
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
35
<PAGE> 37
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
MARCH 31,
(in millions, except per share amounts) 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest revenue Interest and fees on loans (loan fees of $24, $24, $20, $19 And $16) $566
Interest-bearing deposits with banks 9
Federal funds sold and securities under resale agreements 6
Other money market investments 2
Trading account securities 2
Securities 88
----------------------------------------------------------------------------------------------
Total interest revenue 673
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 167
Deposits in foreign offices 51
Federal funds purchased and securities under repurchase agreements 27
Short-term bank notes 14
Other short-term borrowings 23
Notes and debentures 28
----------------------------------------------------------------------------------------------
Total interest expense 310
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 363
revenue Provision for credit losses 25
----------------------------------------------------------------------------------------------
Net interest revenue after provision for losses 338
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest Trust and investment management fees 241
revenue Cash management and deposit transaction charges 49
Mortgage servicing fees 41
Credit card fees 33
Foreign currency and securities trading 21
Other income 118
----------------------------------------------------------------------------------------------
Total fee revenue 503
Gains (losses) on sales of securities 1
----------------------------------------------------------------------------------------------
Total noninterest revenue 504
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Staff expense 277
expense Net occupancy expense 56
Professional, legal and other purchased services 47
Equipment expense 35
Amortization of mortgage servicing rights and purchased
credit card relationships 28
Amortization of goodwill and other intangible assets 25
FDIC assessment and regulatory examination fees 1
Other expense 99
Net revenue from acquired property (8)
----------------------------------------------------------------------------------------------
Total operating expense 560
- ----------------------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 282
Provision for income taxes 103
----------------------------------------------------------------------------------------------
Net income 179
Dividends on preferred stock 10
----------------------------------------------------------------------------------------------
Net income applicable to common stock $169
----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Per common share Primary net income $1.24
Fully diluted net income $1.24
----------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
36
<PAGE> 38
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Three months ended
- -------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31,
1995 1995 1995 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
$610 $623 $609 $583
11 10 8 7
7 8 8 11
1 - 1 -
4 6 3 6
87 80 77 78
- -------------------------------------------------------------------------------
720 727 706 685
- -------------------------------------------------------------------------------
172 169 169 153
65 58 51 52
31 32 33 29
16 14 14 6
26 30 25 28
28 32 29 28
- -------------------------------------------------------------------------------
338 335 321 296
- -------------------------------------------------------------------------------
382 392 385 389
35 30 20 20
- -------------------------------------------------------------------------------
347 362 365 369
- -------------------------------------------------------------------------------
229 233 225 219
47 49 48 47
40 32 25 25
28 21 22 19
18 24 25 24
82 63 60 65
- -------------------------------------------------------------------------------
444 422 405 399
6 - 1 (1)
- -------------------------------------------------------------------------------
450 422 406 398
- -------------------------------------------------------------------------------
248 240 229 240
52 54 48 51
51 47 50 38
40 35 34 34
25 17 13 13
24 24 24 24
- 1 15 15
91 91 95 84
(5) (3) (8) (4)
- -------------------------------------------------------------------------------
526 506 500 495
- -------------------------------------------------------------------------------
271 278 271 272
97 103 99 102
- -------------------------------------------------------------------------------
174 175 172 170
10 9 10 10
- -------------------------------------------------------------------------------
$164 $166 $162 $160
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$1.18 $1.15 $1.09 $1.08
$1.16 $1.14 $1.09 $1.07
- -------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 39
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(in millions) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM Net income $179 $170
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization of goodwill and other intangible assets 25 24
Amortization of mortgage servicing rights and
purchased credit card relationships 28 13
Depreciation and other amortization 25 26
Deferred income tax expense 10 33
Provision for credit losses 25 20
Provision for real estate acquired and other losses (4) (2)
Net gains on dispositions of acquired property (3) (2)
Net (increase) decrease in accrued interest receivable 2 (16)
Net increase in trading account securities (104) (162)
Net increase in accrued interest payable,
net of amounts prepaid 3 21
Net increase in residential mortgages held for sale (34) (28)
Net decrease in other operating activities (200) (333)
--------------------------------------------------------------------------------------------------
Net cash used in operating activities (48) (236)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net increase in term deposits and other money
INVESTING ACTIVITIES market investments (143) (57)
Net increase in federal funds sold and securities
under resale agreements (532) (31)
Funds invested in securities available for sale (626) (2,078)
Proceeds from sales of securities available for sale 241 1,135
Proceeds from maturities of securities available for sale 181 737
Funds invested in investment securities (204) (7)
Proceeds from maturities of investment securities 94 52
Net increase in credit card receivables (76) (65)
Home equity lines of credit securitized 650 -
Net principal (disbursed) collected on loans to customers (129) 34
Loan portfolio purchases (53) -
Proceeds from the sales of loan portfolios 442 65
Purchases of premises and equipment (28) (18)
Proceeds from sales of acquired property 7 10
Net increase in other investing activities (24) (53)
--------------------------------------------------------------------------------------------------
Net cash used in investing activities (200) (276)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
38
<PAGE> 40
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(in millions) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM Net increase (decrease) in transaction and savings deposits 1,512 (886)
FINANCING ACTIVITIES Net increase (decrease) in customer term deposits (875) 321
Net increase in federal funds purchased and
securities under repurchase agreements 274 438
Net increase (decrease) in short-term bank notes (269) 440
Net increase (decrease) in term federal funds purchased (262) 163
Net increase (decrease) in U.S. Treasury tax and loan demand notes 31 (147)
Net increase (decrease) in commercial paper (97) 50
Repurchase and repayments of longer-term debt (20) (1)
Net proceeds from issuance of longer-term debt 549 25
Proceeds from issuance of common stock 14 16
Dividends paid on common and preferred stock (85) (94)
Repurchase of common stock for employee benefit purposes (51) (61)
Repurchase of common stock - other (238) -
Redemption of preferred stock - (155)
Net increase in other financing activities 169 242
--------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 652 351
Effect of foreign currency exchange rates 3 6
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND Net increase (decrease) in cash and due from banks 407 (155)
DUE FROM BANKS Cash and due from banks at beginning of period 2,342 2,285
--------------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $2,749 $2,130
--------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Interest paid $ 307 $ 275
DISCLOSURES Net income taxes paid 9 -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in millions, except per share amounts) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shareholders' equity Balance at beginning of period $4,025 $4,122
Net income 179 170
Dividends on preferred stock:
Series I (4) (4)
Series J (2) (2)
Series K (4) (4)
Dividends on common stock at $.55 per share in 1996
and $.45 per share in 1995 (75) (66)
Repurchase of common stock for employee benefit purposes (51) (61)
Repurchase of common stock - other (238) -
Common stock issued under dividend reinvestment and
common stock purchase plan 4 3
Exercise of stock options 22 23
Unrealized gain (loss), net of tax, on assets classified as
available for sale (41) 2
Other 4 7
--------------------------------------------------------------------------------------------------------
Balance at end of period $3,819 $4,190
--------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
39
<PAGE> 41
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Note 1 -- Basis of presentation
The unaudited consolidated financial statements of the Corporation are prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. These financial statements should be read in conjunction with
the Corporation's 1995 Annual Report on Form 10-K. In the opinion of
management, all normal recurring adjustments necessary for a fair presentation
of the financial position and results of operations for the periods have been
included.
Note 2 -- Adoption of Financial Accounting Standards
On January 1, 1996, the Corporation adopted the Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" and FAS No. 123, "Accounting for
Stock-Based Compensation." FAS No. 121 establishes guidelines for recognition
of impairment losses related to long-lived assets and certain intangibles and
related goodwill for both assets to be held and used as well as assets held for
disposition. This statement excludes financial instruments, long-term customer
relationships of financial institutions, mortgage and other servicing rights
and deferred tax assets. The adoption of FAS No. 121 was immaterial to the
Corporation's financial position and results of operations. FAS No. 123
establishes a fair value based method of accounting for stock-based
compensation plans. Under FAS No. 123, entities are permitted to expense the
estimated fair value of employee stock options or to continue to measure
compensation cost for these plans using the intrinsic value accounting method
contained in APB Opinion No. 25. The Corporation will continue to use the
intrinsic value method of accounting for stock-based compensation plans and
will provide pro forma disclosures of the fair value based method in its 1996
annual report.
Note 3 -- Foreign currency and securities trading revenue
The Corporation's trading activities involve a variety of financial
instruments, including U.S. government securities, municipal securities and
money market securities, as well as off-balance-sheet instruments. The
majority of the Corporation's trading revenue is earned by structuring and
executing off-balance-sheet instruments for customers. The resulting risks are
limited by entering into generally matching or offsetting positions. The
Corporation also enters into positions in interest rate, foreign exchange and
debt instruments based upon expectations of future market conditions.
Unmatched positions are monitored through established limits. 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>
- -------------------------------------------------------------------------------
Quarter ended
March 31,
(in millions) 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Foreign exchange contracts $19 $24
Debt instruments 1 -
Futures contracts 1 -
- -------------------------------------------------------------------------------
Total foreign currency and securities trading revenue (a) $21 $24
- -------------------------------------------------------------------------------
</TABLE>
(a) The Corporation recognized an unrealized loss of less than $1 million at
March 31, 1996, and an unrealized gain of less than $1 million at March 31,
1995, related to securities held in the trading portfolio.
40
<PAGE> 42
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
Note 4 -- Supplemental information to the Consolidated Statement of Cash Flows
Noncash investing and financing transactions that appropriately were not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
Three months ended
March 31,
(in millions) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Transfers to real estate acquired $4 $ 6
Net transfers to segregated assets 4 1
- -----------------------------------------------------------------------
</TABLE>
Note 5 -- Securities
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
- ------------------------------------------------------------------------------------------------------------------
MARCH 31, 1996 March 31, 1995
---------------------------------------- ----------------------------------------
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 $ 197 $ - $ - $ 197 $ 400 $ - $ - $ 400
U.S. agency mortgage-backed 1,908 12 29 1,891 525 1 25 501
Other U.S. agency 937 1 - 938 1,130 - - 1,130
- ------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 3,042 13 29 3,026 2,055 1 25 2,031
Obligations of states and
political subdivisions 61 1 - 62 1 - - 1
Other mortgage-backed 6 - - 6 8 - - 8
Other securities 62 9 1 70 72 1 1 72
- ------------------------------------------------------------------------------------------------------------------
Total securities
available for sale $3,171 $23 $30 $3,164 $2,136 $ 2 $26 $2,112
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Gross realized gains in the first quarter of 1996 were $1 million. There
were no gross realized gains in the first quarter of 1995. There were no gross
realized losses in the first quarter of 1996. Gross realized losses in the
first quarter of 1995 were $1 million. Proceeds from the sale of securities
available for sale totaled $241 million and $1.135 billion in the first quarter
of 1996 and 1995, respectively.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ---------------------------------------------------------------------------------------------------------------------
MARCH 31, 1996 March 31, 1995
---------------------------------------- -----------------------------------------
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 $ 36 $1 $ - $ 37 $ 26 $ - $ - $ 26
U.S. agency mortgage-backed 2,496 4 26 2,474 2,973 4 98 2,879
Other U.S. agency - - - - 4 - - 4
- ---------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 2,532 5 26 2,511 3,003 4 98 2,909
Obligations of states and
political subdivisions - - - - 68 - - 68
Other mortgage-backed 35 1 - 36 47 - 1 46
Other securities 61 - - 61 80 1 1 80
- ---------------------------------------------------------------------------------------------------------------------
Total investment securities $2,628 $6 $26 $2,608 $3,198 $ 5 $100 $3,103
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 43
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
Note 6 -- Other assets
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, March 31,
(in millions) 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Prepaid expense:
Pension $ 281 $ 290 $ 258
Other 66 65 74
Interest receivable 242 244 215
Accounts receivable 248 196 171
Receivables related to
off-balance-sheet instruments 364 388 964
Assets held for accelerated resolution 65 82 -
Segregated assets, net of reserve (a) 25 24 70
Other 1,163 914 908
- ---------------------------------------------------------------------------------------------------------------------------
Total other assets $2,454 $2,203 $2,660
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Additional information regarding segregated assets is presented in note
8 in the Corporation's 1995 Annual Report on Form 10-K.
Note 7 -- Preferred stock
The following table summarizes the Corporation's preferred stock
outstanding. Each series of preferred stock has a par value of $1.00 per
share. A detailed description of the Corporation's outstanding preferred
stock is provided in note 12 in the Corporation's 1995 Annual Report on Form
10-K.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Balances at
Liquidation ------------------------------------
(dollar amounts in millions, preference Shares Shares MARCH 31, Dec. 31, March 31,
except per share amounts) per share authorized issued 1996 1995 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9.60% preferred stock (Series I) $25.00 6,000,000 6,000,000 $145 $145 $145
8.50% preferred stock (Series J) 25.00 4,000,000 4,000,000 97 97 97
8.20% preferred stock (Series K) 25.00 8,000,000 8,000,000 193 193 193
- ---------------------------------------------------------------------------------------------------------------------------
Total preferred stock $435 $435 $435
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 8 -- Legal proceedings
A discussion of legal actions and proceedings against the Corporation and its
subsidiaries is presented in Part II, Item 1, of this Form 10-Q.
42
<PAGE> 44
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
Note 9 -- Computation of primary and fully diluted net income per common share
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended
(dollar amounts in millions, except per March 31,
share amounts; common shares in thousands) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock $ 169 $ 160
- ---------------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 134,670 146,913
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 1,836 1,444
Warrants - 409
- ---------------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents (a) 136,506 148,766
- ---------------------------------------------------------------------------------------------------------------------------
Primary net income per common share (b) $1.24 $1.08
- ---------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock (c) $169 $160
- ---------------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 134,670 146,913
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 1,941 2,098
Warrants - 820
Common shares issuable upon conversion of
7-1/4% Convertible Subordinated Capital Notes 110 132
- ---------------------------------------------------------------------------------------------------------------------------
Total 136,721 149,963
- ---------------------------------------------------------------------------------------------------------------------------
Fully diluted net income per common share (b) $1.24 $1.07
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) At March 31, 1996, common stock and stock equivalents totaled 134.3 million
shares.
(b) Calculated based on unrounded numbers.
(c) The after-tax benefit of interest expense on assumed conversion of the
7-1/4% Convertible Subordinated Capital Notes was less than $1 million
for all periods shown.
43
<PAGE> 45
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------
MARCH 31, 1996
AVERAGE AVERAGE
(dollar amounts in millions) BALANCE YIELDS/RATES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets Interest-earning assets:
Interest-bearing deposits with banks $ 693 5.36%
Federal funds sold and securities under
resale agreements 473 5.40
Other money market investments 124 5.00
Trading account securities 138 5.17
Securities:
U.S. Treasury and agency securities (a) 5,074 6.68
Obligations of states and political
subdivisions (a) 62 8.24
Other (a) 171 6.02
Loans, net of unearned discount (a) 27,078 8.44
-------
Total interest-earning assets 33,813 8.03%
Cash and due from banks 2,755
Customers' acceptance liability 245
Premises and equipment 556
Net acquired property 68
Other assets (a) 3,880
Reserve for credit losses (477)
--------------------------------------------------------------------------------------------------------
Total assets $40,840
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities Interest-bearing liabilities:
and Deposits in domestic offices:
shareholders' Demand $ 1,608 2.33%
equity Money market and other savings accounts 9,546 2.94
Retail savings certificates 6,408 4.97
Other time deposits 553 6.03
Deposits in foreign offices 3,878 5.29
-------
Total interest-bearing deposits 21,993 3.98
Federal funds purchased and securities under
repurchase agreements 2,035 5.42
Short-term bank notes 961 5.87
Term federal funds purchased 632 5.82
U.S. Treasury tax and loan demand notes 303 5.21
Commercial paper 249 5.51
Other funds borrowed 259 10.37
Notes and debentures (with original maturities
over one year) 1,554 7.14
------
Total interest-bearing liabilities 27,986 4.45%
Total noninterest-bearing deposits 7,281
Acceptances outstanding 245
Other liabilities 1,442
--------------------------------------------------------------------------------------------------------
Total liabilities 36,954
--------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 3,886
--------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $40,840
- ---------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 8.03%
Cost of funds supporting interest-earning assets 3.68%
- ---------------------------------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 4.35%
Without taxable equivalent increments 4.32%
--------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts and yields exclude adjustments to fair value
required by FAS No. 115.
Note: Average rates are annualized and calculated on a taxable
equivalent basis, at tax rates
44
<PAGE> 46
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended
- --------------------------------------------------------------------------------------------------------------------
Dec. 31, 1995 Sept. 30, 1995 June 30, 1995 March 31, 1995
Average Average Average Average Average Average Average Average
balance yields/rates balance yields/rates balance yields/rates balance yields/rates
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 660 6.28% $ 621 6.23% $ 552 6.33% $ 431 6.26%
449 5.77 613 5.28 578 5.79 757 5.75
97 5.03 52 3.97 35 6.71 42 4.90
283 5.86 363 6.26 220 6.65 316 7.59
4,926 6.55 4,681 6.48 4,429 6.59 4,640 6.49
62 8.01 59 7.67 64 7.67 70 7.57
187 10.48 202 6.12 207 5.91 214 5.89
27,778 8.74 27,804 8.92 27,124 9.03 26,717 8.88
------- ------- ------- -------
34,442 8.33% 34,395 8.43% 33,209 8.58% 33,187 8.42%
2,533 2,554 2,147 2,109
275 253 198 190
557 553 554 557
74 78 83 87
3,842 3,727 3,826 3,415
(567) (586) (606) (607)
- --------------------------------------------------------------------------------------------------------------------
$41,156 $40,974 $39,411 $38,938
- --------------------------------------------------------------------------------------------------------------------
$ 1,866 1.79% $ 1,881 1.87% $ 1,924 2.13% $ 1,997 1.96%
8,909 3.30 8,724 3.26 8,606 3.16 8,703 2.92
6,508 5.11 6,594 5.18 6,807 5.15 6,828 4.74
414 5.13 232 4.83 194 5.92 208 2.52
4,480 5.74 4,034 5.69 3,452 5.94 3,616 5.82
------- ------- ------- -------
22,177 4.23 21,465 4.20 20,983 4.19 21,352 3.90
2,098 5.81 2,207 5.76 2,208 6.06 1,996 5.85
1,102 5.82 897 6.38 892 6.40 359 6.43
838 5.90 738 5.95 487 6.23 508 5.92
209 5.68 387 5.69 437 5.86 571 5.57
241 5.74 145 5.76 249 6.02 268 5.90
318 8.34 511 8.57 337 8.77 414 9.01
1,646 6.96 1,809 6.91 1,643 7.13 1,582 7.18
------- ------- ------- -------
28,629 4.68% 28,159 4.72% 27,236 4.73% 27,050 4.44%
6,769 6,952 6,117 5,966
275 253 198 190
1,423 1,508 1,658 1,545
- --------------------------------------------------------------------------------------------------------------------
37,096 36,872 35,209 34,751
- --------------------------------------------------------------------------------------------------------------------
4,060 4,102 4,202 4,187
- --------------------------------------------------------------------------------------------------------------------
$41,156 $40,974 $39,411 $38,938
- --------------------------------------------------------------------------------------------------------------------
8.33% 8.43% 8.58% 8.42%
3.90% 3.87% 3.89% 3.62%
- --------------------------------------------------------------------------------------------------------------------
4.43% 4.56% 4.69% 4.80%
4.40% 4.53% 4.66% 4.76%
</TABLE>
approximating 35%, using dollar amounts in thousands and actual number of days
in the periods and are before the effect of reserve requirements. Loan fees,
as well as nonaccrual loans and their related income effect, have been included
in the calculation of average interest yields/rates.
45
<PAGE> 47
SELECTED STATISTICAL INFORMATION
- --------------------------------------------------------------------------------
DEPOSITS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- -----------------------------------------------------------------------------------------------------------------
MARCH 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions) 1996 1995 1995 1995 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
Demand, money market and
other savings accounts $11,816 $11,294 $10,663 $10,682 $10,774
Retail savings certificates 6,353 6,450 6,520 6,730 6,832
Other time deposits 425 668 227 239 169
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing 18,594 18,412 17,410 17,651 17,775
Noninterest-bearing 7,978 6,458 6,524 5,908 5,504
- -----------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 26,572 24,870 23,934 23,559 23,279
Deposits in foreign offices 3,326 4,391 5,377 3,248 3,726
- -----------------------------------------------------------------------------------------------------------------
Total deposits $29,898 $29,261 $29,311 $26,807 $27,005
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings.
-----------------
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investment, mutual fund, advisory, trust
and other activities. Because of the complex nature of some of these actions
and proceedings, it may be a number of years before such matters ultimately are
resolved. After consultation with legal counsel, management believes that the
aggregate liability, if any, resulting from such pending and threatened actions
and proceedings will not have a material adverse effect on the Corporation's
financial condition.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (Mellon Bank Corporation and its subsidiaries).
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information only
and not filed.
46
<PAGE> 48
(b) Reports on Form 8-K
During the first quarter of 1996, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated January 10, 1996, which included, under Items 5 and
7, the Corporation's press release regarding fourth quarter and
full-year 1995 financial results.
(2) A report dated February 27, 1996, which included, under Item 7,
certain exhibits incorporated by reference into Registration
Statement No. 33-62151 pertaining to certain debt securities of
Mellon Financial Company and the related guarantees of the
Registrant.
(3) A report dated February 29, 1996, which included, under Items 5
and 7, the Corporation's press release regarding the Corporation's
completion of its 8 million share repurchase plan and the
authorization of a new plan to repurchase up to an additional 3.5
million shares of common stock.
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
(Registrant)
Date: May 10, 1996 By: /s/ STEVEN G. ELLIOTT
-------------------------------
Steven G. Elliott
Vice Chairman,
Chief Financial Officer
and Treasurer
(Duly Authorized Officer and
Principal Financial Officer of
the Registrant)
47
<PAGE> 49
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Business Mellon Bank Corporation is a multibank holding company
of the incorporated under the laws of Pennsylvania in August 1971 and
Corporation registered under the Federal Bank Holding Company Act of 1956, as
amended. Its principal direct subsidiaries are Mellon Bank, N.A.,
The Boston Company, Inc., Mellon Bank (DE) National Association,
Mellon Bank (MD), Mellon PSFS (NJ) National Association and a
number of companies known as Mellon Financial Services
Corporation. The Corporation also owns a federal savings bank
headquartered in New Jersey, Mellon Bank, F.S.B. The Dreyfus
Corporation, one of the nation's largest mutual fund companies, is
a wholly owned subsidiary of Mellon Bank, N.A. The Corporation's
banking subsidiaries engage in retail financial services,
commercial banking, trust and investment management services,
residential real estate loan financing, mortgage servicing, mutual
fund activities and various securities-related activities. The
Mellon Financial Services Corporations, through their subsidiaries
and joint ventures, provide a broad range of bank-related
services -- including equipment leasing, commercial loan
financing, stock transfer services, cash management and numerous
trust and investment management services. The Corporation's
principal executive office is located at One Mellon Bank Center,
500 Grant Street, Pittsburgh, PA 15258-0001 (Telephone: (412)
234-5000).
Exchange Mellon Bank Corporation's common, Series I preferred, Series J
listing preferred and Series K preferred stocks are traded on the New York
Stock Exchange. The trading symbols are MEL (common stock), MEL
Pr I, MEL Pr J and MEL Pr K. The Transfer Agent and Registrar is
Chemical Mellon Shareholder Services, 85 Challenger Road, Overpeck
Centre, Ridgefield Park, NJ 07660-9940.
Dividend Subject to approval of the board of directors, dividends are paid
payments on Mellon Bank Corporation's common and preferred stocks on or
about the 15th day of February, May, August and November.
Dividend Under the Dividend Reinvestment and Common Stock Purchase Plan,
Reinvestment registered holders of Mellon Bank Corporation's common stock may
and Common purchase additional common shares at the market value for such
Stock Pur- shares through reinvestment of common dividends and/or optional
chase Plan cash payments. Purchases of shares through optional cash payments
are subject to limitations. Plan details are in a Prospectus dated
December 15, 1993, which may be obtained from the Secretary of the
Corporation.
Phone Corporate Communications/Media Relations 1(412) 236-1264
contacts Dividend Reinvestment Plan 1(800) 205-7699
Investor Relations 1(412) 234-5601
Publication Requests 1(800) 879-4816
Stock Transfer Agent 1(800) 205-7699
Shareholder Quarterly earnings news releases are available to shareholders
Publications upon request. To receive Mellon's quarterly earnings news
releases, please write to the Secretary of the Corporation, 1820
One Mellon Bank Center, Pittsburgh, PA 15258-0001, or call
Chemical Mellon Shareholder Services at 1(800) 879-4816. Quarterly
earnings and other news releases can be faxed to you by calling
Company News on Call at 1(800) 758-5804. This electronic,
menu-driven system will request a six-digit code (552187) and will
allow you to request specific releases to be sent to your fax
machine. Additional Mellon information also can be accessed on
its Web site at http://www.mellon.com/, and Dreyfus information
can be accessed at http://www.dreyfus.com/.
</TABLE>
48
<PAGE> 50
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------------------------------------------------------
<S> <C>
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Combined Fixed Charges and Preferred Stock
Dividends (Mellon Bank Corporation and its subsidiaries).
27.1 Financial Data Schedule, which is submitted electronically
to the Securities and Exchange Commission for information
only and not filed.
</TABLE>
49
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (parent Corporation) (a)
- ----------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries $93,215 $ 91,890
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
and amortization of debt issuance costs 23,495 24,503
- ----------------------------------------------------------------------------
Total earnings (as defined) $116,710 $116,393
- ----------------------------------------------------------------------------
Preferred stock dividend requirements (b) $ 15,472 $ 15,720
- ----------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 4.97 4.75
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 3.00 2.89
- ----------------------------------------------------------------------------
</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. Because these ratios exclude from earnings
the equity in undistributed net income (loss) of subsidiaries, these ratios
vary with the payment of dividends by such subsidiaries.
(b) Preferred stock dividend requirements represent the pretax amounts required
to cover preferred stock dividends.
<PAGE> 1
EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------
Three months ended
March 31,
(dollar amounts in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Income before income taxes $281,993 $271,898
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases, and
amortization of debt issuance costs 103,296 101,990
- ----------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 385,289 373,888
Interest on deposits 217,480 205,231
- ----------------------------------------------------------------------------
Total earnings (as defined) $602,769 $579,119
- ----------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ 15,472 $ 15,720
- ----------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 3.73 3.67
Including interest on deposits 1.88 1.89
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 3.24 3.18
Including interest on deposits 1.79 1.79
- ----------------------------------------------------------------------------
</TABLE>
(a) Preferred stock dividend requirements represent the pretax amounts
required to cover preferred stock dividends.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,749
<INT-BEARING-DEPOSITS> 623
<FED-FUNDS-SOLD> 757
<TRADING-ASSETS> 168
<INVESTMENTS-HELD-FOR-SALE> 3,164
<INVESTMENTS-CARRYING> 2,628
<INVESTMENTS-MARKET> 2,608
<LOANS> 26,857
<ALLOWANCE> (468)
<TOTAL-ASSETS> 41,582
<DEPOSITS> 29,898
<SHORT-TERM> 4,163
<LIABILITIES-OTHER> 1,730
<LONG-TERM> 1,972
<COMMON> 74
0
435
<OTHER-SE> 3,310
<TOTAL-LIABILITIES-AND-EQUITY> 41,582
<INTEREST-LOAN> 566
<INTEREST-INVEST> 88
<INTEREST-OTHER> 17
<INTEREST-TOTAL> 673
<INTEREST-DEPOSIT> 218
<INTEREST-EXPENSE> 310
<INTEREST-INCOME-NET> 363
<LOAN-LOSSES> 25
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 560
<INCOME-PRETAX> 282
<INCOME-PRE-EXTRAORDINARY> 282
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179
<EPS-PRIMARY> 1.24
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 4.35
<LOANS-NON> 177
<LOANS-PAST> 105
<LOANS-TROUBLED> 1
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 471
<CHARGE-OFFS> 42
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 468
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
