<PAGE> 1
THIS REPORT HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION VIA EDGAR
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934 [Fee Required]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934 [No Fee Required]
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (412) 234-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.50 Par Value New York Stock Exchange
Preferred Stock, Series I, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series J, $1.00 Par Value New York Stock Exchange
Preferred Stock, Series K, $1.00 Par Value New York Stock Exchange
7-1/4% Convertible Subordinated Capital Notes Due 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
As of February 29, 1996, there were 133,523,754 shares outstanding of the
registrant's voting common stock, $0.50 par value per share, of which
131,016,721 common shares having a market value of $7,320,559,286 were held by
nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this Annual Report.
Mellon Bank Corporation 1996 Proxy Statement-Part III
Mellon Bank Corporation 1995 Annual Report to Shareholders-Parts I, II
and IV
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<PAGE> 2
The Form 10-K filed with the Securities and Exchange Commission contains the
Exhibits listed on the Index to Exhibits beginning on page 22, including the
Financial Review and Statements and Notes; Principal Locations and Operating
Entities; Directors and Senior Management Committee; and Corporate Information
Sections of the Registrant's 1995 Annual Report to Shareholders. Copies of the
Registrant's 1995 Annual Report to Shareholders and the Proxy Statement for its
1996 Annual Meeting may be obtained free of charge by writing to:
Secretary, Mellon Bank Corporation
Room 1820
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15258-0001
<PAGE> 3
MELLON BANK CORPORATION
Form 10-K Index
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<TABLE>
<CAPTION>
PART I Page
----
<S> <C> <C>
Item 1. Business
Description of Business 3
Supervision and Regulation 5
Competition 8
Employees 8
Statistical Disclosure by Bank Holding Companies 8
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Executive Officers of the Registrant 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 19
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 20
</TABLE>
2
<PAGE> 4
PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
Mellon Bank Corporation (the "Corporation") is a multibank holding company
incorporated under the laws of Pennsylvania in August 1971 and registered under
the Federal Bank Holding Company Act of 1956, as amended. The Corporation
provides a comprehensive range of financial products and services in domestic
and selected international markets. The Corporation's banking subsidiaries are
located in Pennsylvania, Massachusetts, Delaware, Maryland, and New Jersey.
Other subsidiaries are located in key business centers throughout the United
States and abroad. At December 31, 1995, the Corporation was the twenty-third
largest bank holding company in the United States in terms of assets.
The Corporation's principal direct subsidiaries are Mellon Bank, N.A. ("Mellon
Bank"), The Boston Company, Inc. ("TBC"), Mellon Bank (DE) National
Association, Mellon Bank (MD), Mellon PSFS (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 ("Dreyfus"), one of the nation's
largest mutual fund companies, is a wholly owned subsidiary of Mellon Bank.
The Corporation's banking subsidiaries engage in retail financial services,
commercial banking, trust and investment management services, residential real
estate loan financing, mortgage servicing, mutual fund activities and various
securities-related activities.
Mellon Bank, which has its executive offices in Pittsburgh, Pennsylvania,
became a subsidiary of the Corporation in November 1972. With its
predecessors, Mellon Bank has been in business since 1869. Mellon Bank is
comprised of six operating regions throughout Pennsylvania. Dreyfus,
headquartered in New York, New York, serves primarily as an investment adviser,
manager and administrator of mutual funds. TBC, through Boston Safe Deposit
and Trust Company ("BSDT") and other subsidiaries, engages in the business of
institutional trust and custody, institutional asset management, private
investment management and banking services. TBC is headquartered in Boston,
Massachusetts. Mellon Bank (DE) National Association, headquartered in
Wilmington, Delaware, serves consumer and small to midsize commercial markets
throughout Delaware and provides nationwide cardholder processing services.
Mellon Bank (MD) is headquartered in Rockville, Maryland, and serves consumer
and small to midsize commercial markets throughout Maryland. Mellon Bank (MD)
has a Maryland state charter and is a member of the Federal Reserve System.
Mellon Bank, F.S.B., headquartered in Paramus, New Jersey, provides corporate
trust and personal trust services and serves consumer and small to midsize
commercial markets. Mellon PSFS (NJ) National Association serves consumer and
small to midsize commercial markets in southern New Jersey.
The Corporation's banking subsidiaries operate 1,129 domestic retail banking
locations, including 459 retail offices. The deposits of the national banking
subsidiaries, BSDT, Mellon Bank (MD) and Mellon Bank, F.S.B. are insured by the
Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law.
Other subsidiaries of the Corporation provide a broad range of bank-related
services -- including equipment leasing, commercial loan financing, stock
transfer services, cash management and numerous trust and investment management
services. The types of financial products and services offered by the
Corporation's subsidiaries are subject to change.
For analytical purposes, management has focused the Corporation into four core
business sectors: Consumer Investment Services, Consumer Banking Services,
Corporate/Institutional Investment Services and Corporate/Institutional Banking
Services. Further information regarding the Corporation's core business
sectors, as well as certain non-core sectors such as Real Estate Workout, is
presented in the Business Sectors section on pages 26 through 28 of the
Corporation's 1995 Annual Report to Shareholders, which pages are incorporated
herein by reference. A brief discussion of the business sectors is presented
on the following page. There is considerable interrelationship among these
sectors.
3
<PAGE> 5
DESCRIPTION OF BUSINESS (CONTINUED)
CONSUMER INVESTMENT SERVICES
The Corporation provides a broad array of personal trust services, investment
services and retail mutual funds to consumers. These products and services are
offered principally through the private asset management trust group of Mellon
Bank and BSDT, through Dreyfus and throughout the Corporation's retail banking
network.
CONSUMER BANKING SERVICES
The Consumer Banking Services sector includes consumer lending, business
banking, branch banking, credit card, mortgage loan origination and servicing,
and jumbo residential mortgage lending. The consumer lending, branch banking
and small business banking services primarily are offered through the
Corporation's retail banking network which is comprised of 396 retail branches,
62 supermarket facilities, 670 ATM's, 9 loan sales offices and a telephone
banking center. This network is primarily located in the Central Atlantic
region of the United States. This banking network provides a full range of
products to individuals including short- and long-term credit facilities,
credit cards, mortgages, safe deposit facilities and access to ATM's. Jumbo
residential mortgage lending is offered nationally through the private asset
management representative offices. This sector also includes the core
servicing function of the Corporation's mortgage banking operations located in
Kansas City, Houston, Denver, Cleveland and Paramus, through which the
Corporation originates and services residential and commercial mortgages for
institutional investors and makes residential loans nationwide.
CORPORATE/INSTITUTIONAL INVESTMENT SERVICES
The Corporate/Institutional Investment Services sector serves the institutional
markets (including employee benefit plans) by providing institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending, foreign exchange, cash management and stock
transfer services. The Corporation's subsidiaries provide trust and investment
management services while operating under the umbrella name "Mellon Trust"; in
addition, the subsidiaries provide institutional mutual fund management through
Dreyfus. The Corporation also owns a number of subsidiaries that provide a
variety of active and passive equity and fixed income investment management
services, including management of international securities. Through the Global
Cash Management department, the Corporation offers a broad range of cash
management services, including remittance processing, collections and
disbursements, check processing and electronic services. The Corporation's
subsidiaries also provide services relating primarily to defined contribution
employee benefit plans under the umbrella name "Dreyfus Retirement Services."
Stock transfer services are provided in the United States through its joint
venture operating under the name of Chemical Mellon Shareholder Services and in
Canada through The R-M Trust Company.
CORPORATE/INSTITUTIONAL BANKING SERVICES
Corporate/Institutional Banking Services includes large corporate and middle
market lending, asset-based lending, certain capital markets and leasing
activities, commercial real estate lending and insurance premium financing.
The Corporation provides lending and other institutional banking services to
domestic and selected international markets through its Corporate Banking,
Institutional Banking, Capital Markets and Leasing departments. These markets
generally include large domestic commercial and industrial customers, U.S.
operations of foreign companies, multinational corporations, state and local
governments and various financial institutions (including banks, securities
broker/dealers, insurance companies, finance companies and mutual funds). The
Corporation also offers corporate finance and rate risk management products;
syndicates, participates out and sells loans; offers a variety of capital
markets products and services, including private placement and money market
transactions; and provides equipment leasing, financing and lease advisory
services. The Corporation maintains foreign offices in London, Tokyo, Hong
Kong, Toronto, and Grand Cayman, British West Indies. Through these offices,
the Corporation conducts trade finance activities, engages in correspondent
banking and provides corporate banking and capital markets services. Included
in this sector is a nationwide asset-based lending division which provides
secured lending, principally through accounts receivable
4
<PAGE> 6
DESCRIPTION OF BUSINESS (CONTINUED)
and inventory financing. As part of this sector, Middle Market Banking serves
companies with annual sales between $10 million and $250 million and the health
care industry on a national basis.
Real Estate lending consists of the Corporation's commercial real estate
lending activities, through which it originates financing for residential,
commercial, multi-family and other products. The Corporation provides property
and casualty insurance premium financing to small, midsize and large companies
in the United States through the AFCO Credit Corporation and in Canada through
CAFO.
The 1995 Annual Report to Shareholders summarizes principal locations and
operating entities on pages 18 and 19, which pages are incorporated herein by
reference. Exhibit 21.1 to this Annual Report on Form 10-K presents a list of
the subsidiaries of the Corporation as of December 31, 1995.
SUPERVISION AND REGULATION
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended (the "Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Generally, the Act limits the business of bank holding companies to
banking, managing or controlling banks, performing certain servicing activities
for subsidiaries, and engaging in such other activities as the Federal Reserve
Board may determine to be closely related to banking and a proper incident
thereto. Certain of the Corporation's subsidiaries are themselves bank holding
companies under the Act. As a result of its Mellon Bank, F.S.B. subsidiary,
the Corporation is also regulated under the Home Owners' Loan Act of 1933 as a
savings and loan holding company.
The Corporation's national banking subsidiaries are subject to primary
supervision, regulation and examination by the Office of the Comptroller of the
Currency (the "OCC"); BSDT is subject to supervision, regulation and
examination by the FDIC and the Massachusetts Office of the Commissioner of
Banks; Mellon Bank (MD) is subject to supervision, regulation and examination
by the Federal Reserve Board and the State of Maryland; and Mellon Bank, F.S.B.
is subject to supervision, regulation and examination by the Office of Thrift
Supervision ("OTS"). Mellon Securities Trust Company, The Dreyfus Trust
Company and Boston Safe Deposit and Trust Company of New York are New York
trust companies and are supervised by the New York State Department of Banking.
Boston Safe Deposit and Trust Company of California is a California trust
company and is supervised by the State of California Banking Department.
The Corporation's nonbank subsidiaries engaged in securities related activities
are regulated by the Securities and Exchange Commission (the "SEC"). Dreyfus
Investment Services Corporation, a subsidiary of the Corporation, conducts a
brokerage operation, and Mellon Financial Markets, Inc., a subsidiary of the
Corporation, engages in securities activities permitted to bank holding company
subsidiaries under Section 20 of the Glass-Steagall Act. Dreyfus Service
Corporation, a subsidiary of Dreyfus, acts as a broker/dealer for the sale of
shares of mutual funds, including the Dreyfus family of mutual funds. Dreyfus
Investment Services Corporation, Mellon Financial Markets, Inc. and Dreyfus
Service Corporation are registered broker/dealers and members of the National
Association of Securities Dealers, Inc., a securities industry self-regulatory
organization.
Certain subsidiaries of the Corporation are registered investment advisers
under the Investment Advisers Act of 1940 and, as such, are supervised by the
SEC. They are also subject to various federal and state laws and regulations
and to the laws of any countries in which they do business. These laws and
regulations are primarily intended to benefit clients and fund shareholders and
generally grant supervisory agencies broad administrative powers, including the
power to limit or restrict the carrying on of business for failure to comply
with such laws and regulations. In such event, the possible sanctions which
may be imposed include the suspension of individual employees, limitations on
engaging in business for specific periods, the revocation of the registration
as an investment adviser, censures and fines. Each investment company (as
defined in the Investment Company Act of 1940) which is advised by a subsidiary
of the Corporation, including the Dreyfus family of mutual funds, is registered
with the SEC, and the shares of most are qualified for sale in all states in
the
5
<PAGE> 7
SUPERVISION AND REGULATION (CONTINUED)
United States and the District of Columbia, except for investment companies
that offer products only to residents of a particular state or of a foreign
country and except for certain investment companies which are exempt from such
registration or qualification.
Certain of the Corporation's public finance activities are regulated by the
Municipal Securities Rulemaking Board. Mellon Bank and certain of the
Corporation's other subsidiaries are registered with the Commodity Futures
Trading Commission (the "CFTC") as commodity pool operators or commodity
trading advisors and, as such, are subject to CFTC regulation.
The Corporation and its subsidiaries are subject to an extensive system of
banking laws and regulations that are intended primarily for the protection of
the customers and depositors of the Corporation's subsidiaries rather than
holders of the Corporation's securities. These laws and regulations govern
such areas as permissible activities, reserves, loans and investments, and
rates of interest that can be charged on loans. The Corporation and its
subsidiaries also are subject to general U.S. federal laws and regulations and
to the laws and regulations of the states or countries in which they conduct
their businesses. Set forth below are brief descriptions of selected laws and
regulations applicable to the Corporation and its subsidiaries. The references
are not intended to be complete and are qualified in their entirety by
reference to the statutes and regulations themselves. Changes in applicable
law or regulation may have a material effect on the business of the
Corporation.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was enacted into Federal law.
Under the Interstate Act, bank holding companies are permitted to acquire banks
located in any state. The Interstate Act also provides for the nationwide
interstate branching of banks. Under the Interstate Act, both national and
state-chartered banks will be permitted to merge across state lines (and
thereby create interstate branches) commencing June 1, 1997. States are
permitted to "opt-out" of the interstate branching authority by taking action
prior to the commencement date. States may also "opt-in" early (i.e., prior to
June 1, 1997) to the interstate branching provisions. Pennsylvania has chosen
to "opt-in" early, effective July 6, 1995, thereby enabling Pennsylvania banks
to merge with out-of-state banks to create interstate branches inside or
outside Pennsylvania. In addition, Pennsylvania permitted de novo branching
into and out of Pennsylvania as long as the law of the other state involved is
reciprocal in this regard.
There are certain restrictions on the ability of the Corporation and certain of
its non-bank affiliates to borrow from, and engage in other transactions with,
its banking subsidiaries and on the ability of such banking subsidiaries to pay
dividends to the Corporation. These restrictions are discussed in note 18 of
the Notes to Financial Statements on page 84 of the Corporation's 1995 Annual
Report to Shareholders. This note is incorporated herein by reference.
The OCC has authority under the Financial Institutions Supervisory Act to
prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to
the Corporation, Mellon Bank (MD) and the Corporation's non-bank subsidiaries,
including Mellon Securities Trust Company, a member of the Federal Reserve
System. The FDIC has similar authority with respect to BSDT, and the OTS has
similar authority with respect to Mellon Bank, F.S.B.
Substantially all of the deposits of the banking subsidiaries are insured up to
applicable limits by the Bank Insurance Fund ("BIF") of the FDIC and are
subject to deposit insurance assessments to maintain the BIF. The FDIC has
adopted a risk-based assessment system to replace the previous flat rate
system. The risk based system imposes insurance premiums based upon a matrix
that takes into account a bank's capital level and supervisory rating. In
November 1995, the FDIC approved a reduction in assessment rates imposed on
banks for BIF deposit insurance. As a result of such reduction, such rates now
range from zero for each $100 of domestic deposits for the healthiest
institutions to $.27 for each $100 of domestic deposits for the weakest
institutions.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision that could result in any insured
depository institution owned by the Corporation being assessed for losses
incurred by the
6
<PAGE> 8
SUPERVISION AND REGULATION (CONTINUED)
FDIC in connection with assistance provided to, or the failure of, any other
depository institution owned by the Corporation. Also, under Federal Reserve
Board policy, the Corporation is expected to act as a source of financial
strength to each of its banking subsidiaries and to commit resources to support
each such bank in circumstances where such bank might not be in a financial
position to support itself.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the depository institution regulatory and funding
provisions of the Federal Deposit Insurance Act and made revisions to several
other federal banking statutes. Among other things, federal banking regulators
are required to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA identifies
the following capital tiers for financial institutions: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
Rules adopted by the federal banking agencies under FDICIA provide that an
institution is deemed to be: "well capitalized" if the institution has a Total
risk-based capital ratio of 10.0% or greater, a Tier I risk-based ratio of 6.0%
or greater, and a leverage ratio of 5.0% or greater, and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific level for any capital measure;
"adequately capitalized" if the institution has a Total risk-based capital
ratio of 8.0% or greater, a Tier I risk-based capital ratio of 4.0% or greater,
and a leverage ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater
if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines), and the
institution does not meet the definition of a well capitalized institution;
"undercapitalized" if the institution has a Total risk-based capital ratio that
is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or
a leverage ratio that is less than 4.0% (or a leverage ratio that is less than
3.0% if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines) and the
institution does not meet the definition of a significantly undercapitalized or
critically undercapitalized institution; "significantly undercapitalized" if
the institution has a Total risk-based capital ratio that is less than 6.0%, a
Tier I risk-based capital ratio that is less than 3.0%, or a leverage ratio
that is less than 3.0% and the institution does not meet the definition of a
critically undercapitalized institution; and "critically undercapitalized" if
the institution has a ratio of tangible equity to total assets that is equal to
or less than 2.0%. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the capital
category in which an institution is classified.
At December 31, 1995, all of the Corporation's banking subsidiaries fell into
the well capitalized category based on the ratios and guidelines noted above.
The appropriate Federal banking agency may, under certain circumstances,
reclassify a well capitalized insured depository institution as adequately
capitalized. The appropriate agency is also permitted to require an adequately
capitalized or undercapitalized institution to comply with the supervisory
provisions as if the institution were in the next lower category (but not treat
a significantly undercapitalized institution as critically undercapitalized)
based on supervisory information other than the capital levels of the
institution. The statute provides that an institution may be reclassified if
the appropriate Federal banking agency determines (after notice and opportunity
for hearing) that the institution is in an unsafe or unsound condition or deems
the institution to be engaging in an unsafe or unsound practice.
Legislation enacted in August 1993 provides that depositors and certain claims
for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
During recent years, regulatory guidelines have been adopted, and legislation
has been proposed in Congress, to address concerns regarding retail sales by
banks of various nondeposit investment products, including mutual funds.
Legislative and regulatory attention to these matters is likely to continue,
and may intensify, in the future. Although existing statutory and regulatory
requirements in this regard have not had a significant effect on the
Corporation's business, there can be no assurance that future requirements will
not have such an effect. Various other legislation, including proposals to
7
<PAGE> 9
SUPERVISION AND REGULATION (CONTINUED)
restructure the banking regulatory system and the separation of banking from
certain securities and other commercial activities, are from time to time
introduced in Congress. The Corporation cannot determine the ultimate effect
that any such potential legislation, if enacted, would have upon its financial
condition or operations.
COMPETITION
The Corporation and its subsidiaries continue to be subject to intense
competition in all aspects and areas of their businesses from banks; other
domestic and foreign depository institutions, such as savings and loan
associations, savings banks and credit unions; and other providers of financial
services, such as finance, mortgage and leasing companies, brokerage firms,
credit card companies, money market mutual funds, investment companies and
insurance companies. The Corporation also competes with nonfinancial
institutions, including retail stores and manufacturers of consumer products
that maintain their own credit programs, as well as governmental agencies that
make available loans to certain borrowers. Also, in the
Corporate/Institutional Investment Services business sector, the Corporation
competes with a wide range of technologically capable service providers, such
as data processing and outsourcing firms.
In terms of domestic deposits, Mellon Bank is the second largest commercial
banking institution in Pennsylvania where it competes with approximately 235
commercial banks, 130 thrifts and numerous credit unions and consumer finance
institutions. Mellon Bank competes with approximately 30 commercial banks and
40 thrifts in the six-county Pittsburgh area of Western Pennsylvania. Mellon
Bank competes with approximately 35 commercial banks and 50 thrifts in the
five-county Philadelphia area, one of the largest metropolitan areas in the
United States. In most of the markets in which the Corporation's banking
subsidiaries operate, they compete with large regional and other banking
organizations in making commercial, industrial and consumer loans, and in
providing products and services.
Competition has continued to increase in recent years in many areas in which
the Corporation and its subsidiaries operate, in substantial part because other
types of financial institutions and other entities are increasingly engaging in
activities traditionally engaged in by commercial banks. Commercial banks face
significant competition in acquiring quality assets due to such factors as the
increase in commercial paper and long-term debt issued by industrial companies,
increased activities by finance companies, foreign banks and credit unions, and
the increased lending powers granted to and employed by many types of thrift
institutions and credit unions. Commercial banks also face competition in
attracting deposits at reasonable prices due to the activities of money market
funds; increased activities of non-bank deposit takers, including brokerage
firms; alternatives presented by foreign banks; and the increased availability
of demand deposit type accounts at thrift institutions and credit unions.
Unlike the Corporation, many of these competitors, with the particular
exception of thrift institutions, are not subject to regulation as extensive as
that described under the "Supervision and Regulation" section and, as a result,
they may have a competitive advantage over the Corporation in certain respects.
EMPLOYEES
The Corporation and its subsidiaries had 24,300 full-time equivalent employees
in December 1995.
Statistical Disclosure by Bank Holding Companies
Exchange Act Industry Guide 3 ("Guide 3") requires that the following
statistical disclosures be made in Annual Reports on Form 10-K filed by
bank holding companies.
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
Information required by this section of Guide 3 is presented in the
Rate/Volume Variance Analysis on page 9. Required information is also
presented in the Financial Section of the Corporation's 1995 Annual Report
to Shareholders in the Consolidated Balance Sheet -- Average Balances and
Interest Yields/Rates on pages 100 and 101, and in Net Interest Revenue,
on page 30, which is incorporated herein by reference.
8
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STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
<TABLE>
<CAPTION>
RATE/VOLUME VARIANCE ANALYSIS
- --------------------------------------------------------------------------------------------------------------
Year ended December 31,
1995 over (under) 1994 1994 over (under) 1993
Due to change in Net Due to change in Net
(in millions) Rate Volume change Rate Volume change
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<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
revenue from interest-earning
assets:
Interest-bearing deposits with banks $ 11 $ (9) $ 2 $ 12 $(36) $(24)
Federal funds sold and securities
under resale agreements 11 (7) 4 14 (38) (24)
Other money market investments 1 (4) (3) 2 (12) (10)
Trading account securities 1 (6) (5) 2 7 9
Securities:
U.S. Treasury and agency securities 38 (2) 36 9 34 43
Obligations of states and political
subdivisions 1 (4) (3) 1 (4) (3)
Other 6 (9) (3) 1 (8) (7)
Loans (includes loan fees) 315 182 497 83 255 338
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Total 384 141 525 124 198 322
Increase (decrease) in interest
expense on interest-bearing
liabilities:
Deposits in domestic offices:
Demand 33 - 33 2 - 2
Money market and other savings accounts 96 (7) 89 27 15 42
Retail savings certificates 94 3 97 32 (33) (1)
Other time deposits (4) 1 (3) - (11) (11)
Deposits in foreign offices 33 101 134 7 45 52
Federal funds purchased and securities
under repurchase agreements 32 17 49 17 26 43
Other short-term borrowings 18 64 82 5 26 31
Notes and debentures (with original
maturities over one year) 14 (7) 7 2 (13) (11)
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Total 316 172 488 92 55 147
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Increase (decrease) in net
interest revenue $ 68 $(31) $ 37 $ 32 $143 $175
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</TABLE>
Note: Amounts are calculated on a taxable equivalent basis where applicable, at
tax rates approximating 35% in 1995, 1994 and 1993, and are before the effect
of reserve requirements. Changes in interest revenue or interest expense
arising from the combination of rate and volume variances are allocated
proportionally to rate and volume based on their relative absolute magnitudes.
9
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STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
II. Securities Portfolio
A. Carrying values of securities at year-end are as follows:
<TABLE>
<CAPTION>
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INVESTMENT SECURITIES December 31,
(in millions) 1995 1994 1993
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<S> <C> <C> <C>
U.S. Treasury and agency securities $2,408 $3,045 $1,897
Obligations of states and political subdivisions - 70 129
Other securities:
Other mortgage-backed 39 48 85
Bonds, notes and debentures 30 29 85
Stock of Federal Reserve Bank 41 50 44
Other 1 2 192
- -------------------------------------------------------------------------------
Total other securities 111 129 406
- -------------------------------------------------------------------------------
Total investment securities $2,519 $3,244 $2,432
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agency securities $2,769 $1,739 $2,857
Obligations of states and political subdivisions 63 1 1
Other securities:
Other mortgage-backed 7 9 22
Bonds, notes and debentures 12 12 21
Other 62 120 15
- -------------------------------------------------------------------------------
Total other securities 81 141 58
- -------------------------------------------------------------------------------
Total securities available for sale $2,913 $1,881 $2,916
- -------------------------------------------------------------------------------
</TABLE>
B. Maturity Distribution of Securities
Information required by this section of Guide 3 is presented in the
Corporation's 1995 Annual Report to Shareholders in note 3 of Notes to
Financial Statements on Securities on pages 71 through 73, which note is
incorporated herein by reference.
10
<PAGE> 12
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
III. Loan Portfolio
A. Types of Loans
Information required by this section of Guide 3 is presented in the Credit
Risk section of the Corporation's 1995 Annual Report to Shareholders on pages
49 through 58, which portions are incorporated herein by reference.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
<TABLE>
<CAPTION>
Maturity distribution of loans at December 31, 1995
- -------------------------------------------------------------------------------
(in millions) Within 1 year (a) 1-5 years Over 5 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:(b)
Commercial and financial $4,731 $4,169 $2,069 $10,969
Commercial real estate 440 722 370 1,532
- -------------------------------------------------------------------------------
Total domestic 5,171 4,891 2,439 12,501
International 628 29 206 863
- -------------------------------------------------------------------------------
Total $5,799 $4,920 $2,645 $13,364
- -------------------------------------------------------------------------------
<FN>
Note: Maturity distributions are based on remaining contractual maturities.
(a) Includes demand loans and loans with no stated maturity.
(b) Excludes consumer mortgages, credit card, other consumer credit and lease
finance assets.
</TABLE>
<TABLE>
<CAPTION>
Sensitivity of loans at December 31, 1995 to changes in interest rates
- -------------------------------------------------------------------------------
Domestic International
(in millions) operations (a) operations Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans due in one year or less (b) $ 5,171 $628 $ 5,799
Loans due after one year:
Variable rates 6,511 122 6,633
Fixed rates 819 113 932
- -------------------------------------------------------------------------------
Total loans $12,501 $863 $13,364
- -------------------------------------------------------------------------------
<FN>
Note: Maturity distributions are based on remaining contractual maturities.
(a) Excludes consumer mortgages, credit card, other consumer credit and lease
finance assets.
(b) Includes demand loans and loans with no stated maturity.
</TABLE>
C. Risk Elements
Information required by this section of Guide 3 is presented in the Credit
Risk section of the Corporation's 1995 Annual Report to Shareholders on
pages 49 through 58, which portions are incorporated herein by reference.
IV. Summary of Loan Loss Experience
The Corporation employs various estimation techniques in developing the
credit loss reserve. Management reviews the specific circumstances of
individual loans subject to more than the customary potential for exposure
to loss. In establishing the level of the reserve, management also
identifies market concentrations, changing business trends, industry
risks, and current and anticipated specific and general economic factors
that may adversely affect collectibility. Other factors considered in
determining the level of the reserve include: trends in portfolio volume,
quality, maturity and composition; historical loss experience; lending
policies; new products; the status and amount of nonperforming and
past-due loans and adequacy of collateral. In addition, management
assesses volatile factors such as interest rates and real estate market
conditions that may significantly alter loss potential. The loss reserve
methodology also provides for a portion of the reserve to act as an
additional buffer against credit quality deterioration or risk of
estimation error. Based on this evaluation, management believes that the
credit loss reserve is adequate to absorb future losses inherent in the
portfolio.
11
<PAGE> 13
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
The reserve is not specifically associated with individual loans or portfolio
segments. Thus, the reserve is available to absorb credit losses arising from
any individual loan or portfolio segment. When losses on specific loans are
identified, management charges off the portion deemed uncollectible. In view
of the fungible nature of the reserve and management's practice of charging off
known losses, the Corporation does not maintain truly specific reserves on any
loan. However, management has developed a loan loss reserve methodology
designed to provide procedural discipline in assessing the adequacy of the
reserve. The allocation of the Corporation's reserve for credit losses
presented below is based on this loan loss reserve methodology.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic reserve:
Commercial and financial $169 $195 $182 $170 $193
Real estate:
Commercial 92 157 189 212 277
Consumer 61 75 91 18 9
Consumer credit 135 141 102 83 77
Lease financing 6 17 15 4 6
- -------------------------------------------------------------------------------
Total domestic reserve 463 585 579 487 562
International reserve 8 22 21 19 34
- -------------------------------------------------------------------------------
Total reserve $471 $607 $600 $506 $596
- -------------------------------------------------------------------------------
</TABLE>
Further information on the Corporation's credit policies, the factors that
influenced management's judgment in determining the level of the reserve for
credit losses, and the analyses of the credit loss reserve for the years
1991-1995 are set forth in the Financial Section of the Corporation's 1995
Annual Report to Shareholders in the Credit Risk section on pages 49 and 50,
the Reserve for Credit Losses and Review of Net Credit Losses section on pages
57 and 58, in note 1 of Notes to Financial Statements under Reserve for Credit
Losses on page 68 and in note 5 on page 73; which portions are incorporated
herein by reference.
For each category above, the ratio of loans to consolidated total loans is as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31,
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Commercial and financial 39.6% 37.5% 37.2% 40.7% 43.3%
Real estate:
Commercial 5.5 6.1 7.0 9.4 10.3
Consumer 32.4 32.5 33.4 21.4 17.3
Consumer credit 16.4 18.1 15.6 18.1 18.4
Lease financing 3.0 3.0 2.9 3.2 3.4
- -------------------------------------------------------------------------------
Total domestic loans 96.9 97.2 96.1 92.8 92.7
International loans 3.1 2.8 3.9 7.2 7.3
- -------------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 14
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (CONTINUED)
V. Deposits
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Maturity distribution of domestic time deposits at December 31, 1995
Within 4-6 7-12 Over
(in millions) 3 months months months 1 year Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit in denominations
of $100,000 or greater $ 907 $ 126 $ 133 $ 150 $1,316
Time certificates of deposit in denominations
of less than $100,000 1,345 1,445 1,249 1,742 5,781
- ----------------------------------------------------------------------------------------------------------------
Total time certificates of deposit 2,252 1,571 1,382 1,892 7,097
- ----------------------------------------------------------------------------------------------------------------
Other time deposits in denominations
of $100,000 or greater - 3 - 8 11
Other time deposits in denominations
of less than $100,000 22 - - - 22
- ----------------------------------------------------------------------------------------------------------------
Total other time deposits 22 3 - 8 33
- ----------------------------------------------------------------------------------------------------------------
Total domestic time deposits $2,274 $1,574 $1,382 $1,900 $7,130
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The majority of foreign deposits of approximately $4.4 billion at December
31, 1995, were in amounts in excess of $100,000. Additional information
required by this section of Guide 3 is set forth in the Corporation's 1995
Annual Report to Shareholders in Consolidated Balance Sheet -- Average
Balances and Interest Yields/Rates on pages 100 and 101, which pages are
incorporated herein by reference.
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) Return on total assets(a), based on:
Net income 1.72% 1.14% 1.29%
Net income applicable to common stock 1.63 .95(b) 1.13(b)
(2) Return on common shareholders' equity,
based on net income applicable to common stock 17.77 9.79(b) 12.08(b)
Return on total shareholders' equity, based on net income 16.84 10.13 11.61
(3) Dividend payout ratio of common stock, based on:
Primary net income per share 44.18 54.66 31.28
Fully diluted net income per share 44.17 54.63 30.94
(4) Equity to total assets(a), based on:
Common shareholders' equity 9.15 9.68 9.32
Total shareholders' equity 10.24 11.22 11.12
- --------------------------------------------------------------------------------------------------
<FN>
(a) Computed on a daily average basis.
(b) Computed using net income applicable to common stock after adding back
Series D preferred stock dividends.
</TABLE>
VII. Short-Term Borrowings
Information required by this section of Guide 3 is contained in the
Corporation's 1995 Annual Report to Shareholders in the Consolidated
Balance Sheet on page 62, and in note 10 of Notes to Financial Statements
on Short-term borrowings on page 75, which portions are incorporated
herein by reference.
13
<PAGE> 15
ITEM 2. PROPERTIES
PITTSBURGH PROPERTIES
In 1983 Mellon Bank entered into a long-term lease of One Mellon Bank Center, a
54-story office building in Pittsburgh, Pennsylvania. At December 31, 1995,
Mellon Bank occupied approximately 72% of the building's approximately
1,525,000 square feet of rentable space and subleased substantially all of the
remaining space to third parties.
During 1984 Mellon Bank entered into a sale/leaseback arrangement of the Union
Trust Building in Pittsburgh, Pennsylvania, also known as Two Mellon Bank
Center, while retaining title to the land thereunder. At December 31, 1995,
Mellon Bank occupied approximately 80% of this building's approximately 595,000
square feet of rentable space and subleased substantially all of the remaining
space to third parties.
Mellon Bank owns the 41-story office building in Pittsburgh, Pennsylvania,
known as Three Mellon Bank Center. At December 31, 1995, Mellon Bank occupied
approximately 98% of the approximately 943,000 square feet of rentable space,
with the remainder leased to third parties.
PHILADELPHIA PROPERTIES
Mellon Bank owns a building known as One Mellon Bank Center located at the
corner of Broad and Chestnut Streets in the Center City area of Philadelphia,
Pennsylvania. At December 31, 1995, Mellon Bank occupied all of One Mellon
Bank Center's approximately 63,700 square feet of rentable space.
Mellon Bank also leases a large portion of a building in Philadelphia,
Pennsylvania, known as Mellon Independence Center. At December 31, 1995, Mellon
Bank leased approximately 74% of Mellon Independence Center's approximately
881,700 square feet of rentable space. Of the space leased by Mellon Bank,
approximately 200,000 square feet of rentable space was subleased to third
parties at December 31, 1995.
In 1987 Mellon Bank entered into a 25-year lease for a portion of a 53-story
office building known as Mellon Bank Center, at the corner of 18th and Market
Streets in the Center City area of Philadelphia, Pennsylvania. At December 31,
1995, Mellon Bank leased approximately 19% of the building's approximately
1,245,000 square feet of rentable space.
BOSTON PROPERTIES
The Boston Company leases space in two downtown Boston office buildings:
41-story One Boston Place located at the corner of Court Street and Washington
Street and 41-story Exchange Place located at 53 State Street. At December 31,
1995, The Boston Company leased approximately 34% of One Boston Place's
approximately 769,150 square feet of rentable space and approximately 26% of
Exchange Place's approximately 1,063,750 square feet of rentable space. Of The
Boston Company's leased space at Exchange Place, approximately 237,960 square
feet of rentable space is subleased to third parties. At December 31, 1995,
The Boston Company also leased approximately 82,900 square feet of rentable
space in the Park Square Building, 31 St. James Avenue, Boston.
At December 31, 1995, The Boston Company also occupies space in three office
buildings in the Wellington Business Center located in Medford, Massachusetts.
The Boston Company owns a substantial interest in and fully occupies the
approximately 117,000 square foot building known as Client Services Center II.
The Boston Company also leases 100% of the approximately 319,600 square foot
facility known as Client Services Center III. At December 31, 1995, The Boston
Company leased approximately 36,000 square feet of rentable space in the
building known as Wellington I.
NEW YORK PROPERTIES
At December 31, 1995, Dreyfus Service Corporation leased 270,429 square feet of
rentable space at 200 Park Avenue in New York City. Other than 9,003 square
feet of rentable space which is subleased to a third party, all of the space is
currently occupied by Dreyfus.
At December 31, 1995, Dreyfus Service Corporation leased 127,346 square feet of
rentable space in EAB Plaza in Uniondale, New York. This space is 100%
occupied by Dreyfus.
14
<PAGE> 16
PROPERTIES (CONTINUED)
OTHER PROPERTIES
Mellon Bank (DE) owns a three-story office building known as the Pike Creek
Building in New Castle County, Delaware, and currently occupies the building's
entire 81,207 square feet of available floor space. Mellon Bank (DE) also
leases approximately 34,000 square feet of rentable space of an 18-story office
building in Wilmington, Delaware, and approximately 42,000 square feet of
rentable space in Pencader, Delaware, for a credit card operations center.
Mellon Bank (MD) leases approximately 40,460 square feet of rentable space of
an office building in Rockville, Maryland, which is used for its headquarters.
The banking subsidiaries' retail offices are located in 33 counties in western,
northwestern, central, northeastern and eastern Pennsylvania, all three of
Delaware's counties, four counties in New Jersey, three Maryland counties in
the northern suburbs of Washington, D.C., and a single retail office in Boston,
Massachusetts. At December 31, 1995, the banking subsidiaries of the
Corporation owned 208 of the banking subsidiaries 459 retail offices and leased
the remainder under leases expiring at various times through the year 2020.
Other subsidiaries of the Corporation lease office space primarily for their
operations at many of the locations listed on pages 18 and 19 of the Principal
Locations and Operating Entities Section of the Corporation's 1995 Annual
Report, which pages are incorporated herein by reference. For additional
information on the Corporation's premises and equipment, see note 6 of Notes to
Financial Statements on page 74 of the Corporation's 1995 Annual Report, which
note is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investment, mutual fund, advisory, trust
and other activities. Because of the complex nature of some of these actions
and proceedings, it may be a number of years before such matters ultimately are
resolved. After consultation with legal counsel, management believes that the
aggregate liability, if any, resulting from such pending and threatened actions
and proceedings will not have a material adverse effect on the Corporation's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth
quarter of 1995.
15
<PAGE> 17
EXECUTIVE OFFICERS OF THE REGISTRANT
The name and age of, and the positions and offices held by, each executive
officer of the Corporation as of February 20, 1996, together with the offices
held by each such person during the last five years, are listed below. Certain
of the executive officers have executed employment contracts with the
Corporation. All other executive officers serve at the pleasure of their
appointing authority. No executive officer has a family relationship to any
other listed executive officer.
<TABLE>
<CAPTION>
Age Position and Year Elected
--- -------------------------
<S> <C> <C> <C>
Frank V. Cahouet 63 Chairman, President and Chief Executive 1990(1)
Officer of the Corporation and of Mellon
Bank
Christopher M. Condron 48 Vice Chairman, Deputy Director Mellon Trust 1994(2)
Vice Chairman, The Boston Company
President and Chief Operating Officer, The 1995
Dreyfus Corporation
Steven G. Elliott 49 Vice Chairman and Chief Financial 1992(3)
Officer of the Corporation and
of Mellon Bank
Treasurer of the Corporation 1990
Jeffery L. Leininger 50 Vice Chairman, Specialized Commercial 1996(4)
Banking Group
David R. Lovejoy 47 Vice Chairman, Corporate Strategy and 1994(5)
Development
Martin G. McGuinn 53 Vice Chairman, Retail Financial Services 1993(6)
Jeffrey L. Morby 58 Vice Chairman, Wholesale Banking 1990
Keith P. Russell 50 Vice Chairman, Chief Risk and Credit 1992(7)
Officer
Chairman, Credit Policy Committee of 1991
the Corporation
W. Keith Smith 61 Vice Chairman, Mellon Trust 1993(8)
Vice Chairman, The Dreyfus Corporation 1994
Chairman and Chief Executive Officer, The 1993
Boston Company
Jamie B. Stewart, Jr. 51 Vice Chairman, Corporate Banking 1995(9)
</TABLE>
16
<PAGE> 18
EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
<TABLE>
<S> <C> <C> <C>
Michael K. Hughey 44 Senior Vice President and Controller of 1990
the Corporation and Senior Vice
President, Director of Taxes and
Controller of Mellon Bank
<FN>
(1) Mr. Cahouet has executed an employment contract with the Corporation which
terminates December 31, 1998.
(2) From June 1989 to January 1994, Mr. Condron was President of Boston Safe
Deposit and Trust and Executive Vice President of The Boston Company. In
January 1994, he assumed the title of Vice Chairman of The Boston Company
and in November 1994, he assumed the title of Vice Chairman, Deputy
Director, Mellon Trust of the Corporation and of Mellon Bank.
(3) From January 1990 to June 1992, Mr. Elliott was Executive Vice President,
Chief Financial Officer and Treasurer of the Corporation and Executive Vice
President and Chief Financial Officer of Mellon Bank.
(4) From 1988 to February 1994, Mr. Leininger was Senior Vice President and
Manager of the Middle Market Banking department's western region. From
February 1994 to February 1996, Mr. Leininger was Executive Vice President
and Department Head of Middle Market Banking.
(5) From January 1991 to December 1991, Mr. Lovejoy was self-employed. From
January 1992 to December 1992, he was Chairman and Chief Executive Officer
of Western Energy Management. From January 1993 to October 1994, he was
Executive Vice President of Strategic Planning of Mellon Bank Corporation.
In November 1994, Mr. Lovejoy assumed the title of Vice Chairman Corporate
Strategy and Development of Mellon Bank Corporation.
(6) From November 1990 to October 1992, Mr. McGuinn was Vice Chairman, Real
Estate Finance, General Counsel and Secretary of the Corporation and Vice
Chairman, Real Estate Finance and General Counsel of Mellon Bank. From
October 1992 to November 1993, Mr. McGuinn was Vice Chairman, Special
Banking Services of the Corporation and of Mellon Bank.
(7) From 1983 to August 1991, Mr. Russell was President and Chief Operating
Officer of GLENFED/Glendale Federal Bank. From September 1991 to November
1991, Mr. Russell was Executive Vice President, Information Management and
Research, Technology Products and Mortgage Banking of Mellon Bank. From
November 1991 to June 1992, Mr. Russell was Executive Vice President, Credit
Policy of the Corporation and of Mellon Bank.
(8) From January 1990 to November 1993, Mr. Smith was Vice Chairman, Service
Products of the Corporation and of Mellon Bank. Mr. Smith was Chief
Operating Officer of the Dreyfus Corporation from August 1994 to January
1995. Mr. Smith has executed an employment contract with the Corporation
which terminates on July 31, 1996.
(9) From December 1990 to January 1995, Mr. Stewart was Executive Vice
President, Global Corporate Banking Department.
</TABLE>
17
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth in the Corporation's 1995
Annual Report to Shareholders in Liquidity and Dividends on pages 40 through
42, in Selected Quarterly Data on page 60, in note 18 of Notes to Financial
Statements on page 84 and in General Information on page 102, which portions
are incorporated herein by reference.
In August 1989, the Corporation adopted a Shareholder Protection Rights Plan
under which each shareholder receives one Right for each share of common stock
("voting stock") of the Corporation held. The Rights are currently represented
by the certificates for, and trade only with, the voting stock. The Rights
would separate from the voting stock and become exercisable only if a person or
group acquires 20 percent or more of the voting power of the voting stock or
ten days after a person or group commences a tender offer that would result in
ownership of 20 percent or more of such voting power. At that time, each Right
would entitle the holder to purchase for $200 (the "exercise price") one
one-hundredth of a share of participating preferred stock. Each share of such
preferred stock would be entitled to cumulative dividends equal to 1% per
annum, plus the amount of dividends that would be payable on 100 shares of the
Corporation's common stock, and would have a liquidation preference of the
greater of 100 times the exercise price or the amount to be distributed in
liquidation to a holder of 100 shares of the Corporation's common stock.
Should a person or group actually acquire 20% or more of the voting power of
the voting stock, each Right held by the acquiring person or group (or their
transferees) would become void and each Right held by the Corporation's other
shareholders would entitle those holders to purchase for the exercise price a
number of shares of the Corporation's common stock having a market value of
twice the exercise price. Should the Corporation be involved in a merger or
similar transaction with a 20% owner or sell more than 50% of its assets or
assets generating more than 50% of its operating income or cash flow to any
person or group, each outstanding Right would then entitle its holder to
purchase for the exercise price a number of shares of such other company having
a market value of twice the exercise price. In addition, if any person or
group acquires between 20% and 50% of the voting power of the voting stock, the
Corporation may, at its option, exchange one share of common stock for each
outstanding Right. The Rights are not exercisable until the above events occur
and will expire on August 15, 1999, unless earlier exchanged or redeemed by the
Corporation. The Corporation may redeem the Rights for $.01 per Right under
certain circumstances. The distribution of the Rights was not a taxable event.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Corporation's 1995
Annual Report to Shareholders in the Financial Summary on page 23, in the
Significant Events in 1995 on pages 24 and 25, in the Overview of 1995 results
on page 29, in note 1 of Notes to Financial Statements on pages 66 through 70,
and in the Consolidated Balance Sheet -- Average Balances and Interest
Yields/Rates on pages 100 and 101, which portions are incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this Item is set forth in the Corporation's 1995
Annual Report to Shareholders in the Financial Review on pages 23 through 60
and in note 18 of Notes to Financial Statements on page 84, which portions are
incorporated herein by reference.
18
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14 on page 20 hereof for a detailed listing of the
items under Financial Statements, Financial Statement Schedules, and Other
Financial Data which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Corporation's proxy
statement for its 1996 Annual Meeting of Shareholders (the "1996 Proxy
Statement") in the Election of Directors-Biographical Summaries of Nominees and
Continuing Directors section on pages 4 through 7 and in the Additional
Information section on page 31, each of which sections is incorporated herein
by reference, and in Part I of this Form 10-K under the heading "Executive
Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1996 Proxy Statement
in the Directors' Compensation section on page 9 and in the Executive
Compensation section on pages 15 through 30, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1996 Proxy Statement
in the Beneficial Ownership of Stock section on pages 13 and 14, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1996 Proxy Statement
in the Business Relationships; Related Transactions and Certain Legal
Proceedings section on page 12, and is incorporated herein by reference.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements and schedules required for the Annual Report of the
Corporation on Form 10-K are included, attached or incorporated by reference
as indicated in the following index. Page numbers below refer to pages of
the Financial Section of the Corporation's 1995 Annual Report to
Shareholders:
<TABLE>
<CAPTION>
(i) Financial Statements Page No.
-------------------- --------
<S> <C>
Mellon Bank Corporation (and its subsidiaries):
Consolidated Income Statement 61
Consolidated Balance Sheet 62
Consolidated Statement of Changes in Shareholders' Equity 63
Consolidated Statement of Cash Flows 64 and 65
Notes to Financial Statements 66 through 98
Report of Independent Auditors 99
</TABLE>
(ii) Financial Statement Schedules
-----------------------------
Schedules I and II and all other schedules are omitted either because
they are not required or are not applicable, or because the required
information is shown in the financial statements or notes thereto.
(iii) Other Financial Data
--------------------
<TABLE>
<S> <C>
Selected Quarterly Data 60
</TABLE>
(b) Current Reports on Form 8-K during the fourth quarter of 1995:
A report dated October 17, 1995, which included the Corporation's press
release regarding third quarter and year-to-date 1995 financial results; and
which included the Corporation's press release regarding a common stock
repurchase program and dividend increase.
(c) Exhibits
The exhibits listed on the Index to Exhibits on pages 22 through 27
hereof are incorporated by reference or filed herewith in response to this
item.
20
<PAGE> 22
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Corporation has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Mellon Bank Corporation
By: /s/ Frank V. Cahouet
----------------------
Frank V. Cahouet
Chairman, President
and Chief Executive
Officer
DATED: March 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacities
- -------------------------------- --------------------------
<S> <C>
By: /s/ Frank V. Cahouet Director and Principal
---------------------------- Executive Officer
Frank V. Cahouet
By: /s/ Steven G. Elliott Principal Financial Officer
---------------------------- and Principal Accounting
Steven G. Elliott Officer
Burton C. Borgelt; Carol R. Brown; Directors
J. W. Connolly; Charles A. Corry;
C. Frederick Fetterolf; Ira J. Gumberg;
Pemberton Hutchinson; Rotan E. Lee;
Andrew W. Mathieson; Edward J. McAniff;
Robert Mehrabian; Seward Prosser Mellon;
David S. Shapira; W. Keith Smith;
Howard Stein; Joab L. Thomas;
Wesley W. von Schack; and
William J. Young
By: /s/ Carl Krasik DATED: March 19, 1996
----------------------------
Carl Krasik
Attorney-in-fact
</TABLE>
21
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------------- ---------------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Previously filed as Exhibit 3.1 to
Mellon Bank Corporation, as amended the Quarterly Report on Form 10-Q
and restated as of September 2, 1993. (File No. 1-7410) for the quarter ended
September 30, 1993, and incorporated
herein by reference.
3.2 Statement Affecting Series B Preferred Previously filed as Exhibit 3.2 to the
Stock, $1.00 Par Value. Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1993, and incorporated
herein by reference.
3.3 Statement Affecting Series D Preferred Previously filed as Exhibit 3.3 to the
Stock, $1.00 Par Value. Annual Report on Form 10-K (File No.
1-7410) for the year ended
December 31, 1994, and incorporated
herein by reference.
3.4 Statement Affecting Series H Preferred Previously filed as Exhibit 3.1 to the
Stock, $1.00 Par Value. Quarterly Report on Form 10-Q
(File No. 1-7410) for the quarter
ended March 31, 1995, and incorporated
herein by reference.
3.5 By-Laws of Mellon Bank Corporation, Previously filed as Exhibit 3.2 to
as amended, effective July 17, 1990. Annual Report on Form 10-K (File No.
1-7410) for the year ended
December 31, 1990, and incorporated
herein by reference.
4.1 Instruments defining the rights See Exhibits 3.1, 3.2, 3.3 and 3.4 above
of securities holders. and the undertaking on page 27.
4.2 Shareholder Protection Rights Agreement Previously filed as Exhibit 1 to Form
between Mellon Bank Corporation and 8-A Registration Statement (File
Mellon Bank, N.A., as Rights Agent, No. 1-7410) dated August 15, 1989,
dated as of August 15, 1989. and incorporated herein by reference.
10.1 Purchase Agreement, dated as of Previously filed as Exhibit 10.1
July 25, 1988, among Mellon Bank to Quarterly Report on Form 10-Q
Corporation (as Seller) and Warburg, (File No. 1-7410) for the quarter ended
Pincus Capital Company, L.P. and September 30, 1988, and incorporated
Warburg, Pincus Capital Partners, herein by reference.
L.P. (as Purchasers) relating to the
sale and purchase of Mellon Series D
Junior Preferred Stock.
</TABLE>
22
<PAGE> 24
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- --------------------------------------- ---------------------------------------
<S> <C> <C>
10.2 Purchase Agreement, dated as of Previously filed as Exhibit 10.2
July 25, 1988, between Mellon Bank to Quarterly Report on Form 10-Q
Corporation (as Seller) and Drexel (File No. 1-7410) for the quarter ended
Burnham Lambert Incorporated (as September 30, 1988, and incorporated
Purchaser) relating to the sale herein by reference.
and purchase of Mellon Series
D Junior Preferred Stock.
10.3 Exchange Agreement dated as of Previously filed as Exhibit 10.4
March 30, 1990, between Warburg, to Annual Report on Form 10-K
Pincus Capital Company, L. P., (File No. 1-7410) for the year ended
Warburg, Pincus Capital Partners, December 31, 1990, and incorporated
L. P. and Mellon relating to the herein by reference.
exchange of Series D Preferred Stock
for shares of Mellon's Common Stock.
10.4 Lease dated as of February 1, 1983, Previously filed as Exhibit 10.4
between 500 Grant Street Associates to Annual Report on Form 10-K
Limited Partnership and Mellon (File No. 1-7410) for the year ended
Bank, N.A. with respect to One Mellon December 31, 1992, and incorporated
Bank Center. herein by reference.
10.5 First Amendment to Lease Agreement Previously filed as Exhibit 10.1
dated as of November 1, 1983, to Registration Statement on Form
between 500 Grant Street S-15 (Registration No. 2-88266)
Associates Limited Partnership and incorporated herein by
and Mellon Bank, N.A. reference.
10.6* Mellon Bank Corporation Profit Previously filed as Exhibit 10.7
Bonus Plan, as amended. to Annual Report on Form 10-K
(File No. 1-7410) for the year ended
December 31, 1990, and incorporated
herein by reference.
10.7* Mellon Bank Corporation Long-Term Previously filed as Exhibit 10.7 to
Profit Incentive Plan (1981), Annual Report on Form 10-K (File
as adjusted to reflect the Corporation's No. 1-7410) for the year ended
three-for-two common stock split December 31, 1994, and incorporated
declared in November 1994 (the "Common herein by reference.
Stock Split").
</TABLE>
* Management contract or compensatory plan arrangement.
23
<PAGE> 25
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ---------------------------------- --------------------------------------
<S> <C> <C>
10.8* Mellon Bank Corporation Stock Previously filed as Exhibit 10.8 to
Option Plan for Outside Directors Annual Report on Form 10-K (File
(1989), as adjusted to reflect the No. 1-7410) for the year ended
Common Stock Split. December 31, 1994, and incorporated
herein by reference.
10.9* Mellon Bank Corporation 1990 Previously filed as Exhibit 19.1
Elective Deferred Compensation Plan to Quarterly Report on Form 10-Q
for Directors and Members of the (File No. 1-7410) for the quarter ended
Advisory Board, as amended and September 30, 1992, and incorporated
restated, effective July 21, 1992. herein by reference.
10.10* Mellon Bank Corporation Elective Previously filed as Exhibit 10.10 to
Deferred Compensation Plan for Annual Report on Form 10-K (File
Senior Officers, as amended and No. 1-7410) for the year ended
restated, effective June 1, 1994. December 31, 1994, and incorporated
herein by reference.
10.11* Mellon Bank IRC Section 401(a)(17) Previously filed as Exhibit 10.11 to
Plan, as amended and restated, effective Annual Report on Form 10-K (File
January 1, 1993. No. 1-7410) for the year ended
December 31, 1992, and incorporated
herein by reference.
10.12* Mellon Bank Optional Life Previously filed as Exhibit 10.12 to
Insurance Plan, effective January 1, Annual Report on Form 10-K (File
1993. No. 1-7410) for the year ended
December 31, 1992, and incorporated
herein by reference.
10.13* Mellon Bank Executive Life Previously filed as Exhibit 10.13 to
Insurance Plan, effective January 1, Annual Report on Form 10-K (File
1993. No. 1-7410) for the year ended
December 31, 1992, and incorporated
herein by reference.
10.14* Mellon Bank Senior Executive Previously filed as Exhibit 10.14 to
Life Insurance Plan, effective Annual Report on Form 10-K (File
January 1, 1993. No. 1-7410) for the year ended
December 31, 1992, and incorporated
herein by reference.
</TABLE>
* Management contract or compensatory plan arrangement.
24
<PAGE> 26
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ---------------------------------------- ----------------------------------------
<S> <C> <C>
10.15* Mellon Bank Corporation Retirement Plan Previously filed as Exhibit 10.1 to
for Outside Directors, effective Quarterly Report on Form 10-Q (File
January 1, 1994. No. 1-7410) for the quarter ended
June 30, 1995, and incorporated herein
by reference.
10.16* Mellon Bank Corporation Phantom Previously filed as Exhibit 10.2 to
Stock Unit Plan (1995) Quarterly Report on Form 10-Q (File
No. 1-7410) for the quarter ended
June 30, 1995, and incorporated
herein by reference.
10.17* Employment Agreement between Filed herewith.
Mellon Bank, N.A. and Frank V.
Cahouet, effective as of
July 25, 1993, and amended and
restated as of October 17, 1995.
10.18* Employment Agreement between Previously filed as Exhibit 10.2
Mellon Bank, N.A. and to Quarterly Report on Form 10-Q
W. Keith Smith, effective as of (File No. 1-7410) for the quarter ended
July 25, 1993, and amended and September 30, 1995, and incorporated
restated as of August 1, 1995. herein by reference.
10.19* The Dreyfus Corporation 1989 Previously filed as Exhibit 10.19
Non-Qualified Stock Option Plan. to Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1994, and incorporated
herein by reference.
10.20* The Dreyfus Corporation Amended Previously filed as Exhibit 10(iii)(A)
Deferred Compensation Plan. to The Dreyfus Corporation's Annual
Report on Form 10-K (File No. 1-5240)
for the year ended December 31, 1992,
and incorporated herein by reference.
10.21* The Dreyfus Corporation Contingent Previously filed as Exhibit 10.21 to
Benefit Plan. Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1994, and incorporated
herein by reference.
</TABLE>
* Management contract or compensatory plan arrangement.
25
<PAGE> 27
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ---------------------------------- -------------------------------------
<S> <C> <C>
10.22 Stock Purchase Agreement dated as Previously filed as Exhibit 2.1
of September 14, 1992, between to Current Report on Form 8-K
Shearson Lehman Brothers Inc. and (File No. 1-7410) dated September 14,
the Corporation (including the form 1992, and incorporated herein by
of Warrant Agreement attached reference.
thereto as Exhibit C).
10.23 Agreement and Plan of Merger dated Previously filed as Exhibit 10.19
as of December 5, 1993, by and among to the Annual Report on Form 10-K
Mellon Bank Corporation, Mellon (File No. 1-7410) for the year ended
Bank, N.A., XYZ Sub Corporation and December 31, 1993, and incorporated
The Dreyfus Corporation. herein by reference.
11.1 Computation of Primary and Fully Filed herewith.
Diluted Net Income Per Common Share.
12.1 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends--parent
Corporation.
12.2 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges and Ratio of
Earnings to Combined Fixed
Charges and Preferred Stock
Dividends--Mellon Bank Corporation
and its subsidiaries.
13.1 All portions of the Mellon Bank Corporation Filed herewith.
1995 Annual Report to Shareholders that are
incorporated herein by reference.
21.1 List of Subsidiaries of the Filed herewith.
Corporation.
23.1 Consent of Independent Accountants. Filed herewith.
24.1 Powers of Attorney. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
</TABLE>
26
<PAGE> 28
INDEX TO EXHIBITS (continued)
The documents identified below, which define the rights of holders of long-term
debt of the Corporation, are not filed herewith because the total amount of
securities authorized under each of them does not exceed 10% of the total
assets of the Corporation and its subsidiaries on a consolidated basis. The
Corporation hereby agrees to furnish a copy of such documents to the Securities
and Exchange Commission upon request.
1 Indenture dated as of September 10, 1987, between the Corporation
and Bank of New York, as Trustee, relating to 7-1/4% Convertible
Subordinated Capital Notes Due 1999.
2 Indenture dated as of May 2, 1988, as supplemented by the First
Supplemental Indenture dated as of November 29, 1990, among Mellon
Financial Company, the Corporation and The Chase Manhattan Bank
(National Association), as Trustee, providing for the issuance of
debt securities in series from time to time.
3 Indenture dated as of April 15, 1991, as supplemented by the First
Supplemental Indenture dated as of November 24, 1992, among Mellon
Financial Company, the Corporation and First Trust of Illinois, N.A.
(as successor to Continental Bank, National Association), providing
for the issuance of subordinated debt securities in series from time
to time.
4 Fiscal and Paying Agency Agreement dated as of May 17, 1993, between
Mellon Bank, N.A. as Issuer, and The Chase Manhattan Bank (National
Association), as Fiscal and Paying Agent relating to 6-1/2%
Subordinated Notes due August 1, 2005 and 6-3/4% Subordinated Notes
due June 1, 2003.
5 Indenture dated as of August 25, 1995, among Mellon Financial
Company, the Corporation and First Interstate Bank of California, as
Trustee, providing for the issuance of debt securities in series
from time to time.
27
<PAGE> 1
EX-10.17
EMPLOYMENT AGREEMENT
BETWEEN
MELLON BANK, N.A.
AND
FRANK V. CAHOUET
EFFECTIVE AS OF JULY 25, 1993
(AS AMENDED AND RESTATED
EFFECTIVE OCTOBER 17, 1995)
<PAGE> 2
THIS AGREEMENT, made effective as of July 25, 1993 by and between Mellon Bank,
N.A. (the "Company"), a national banking association, and Frank V. Cahouet (the
"Executive"),
WITNESSETH THAT:
WHEREAS, the Executive, who has served as Chairman and Chief Executive Officer
of the Company and Mellon Bank Corporation (the "Holding Company"), effective
as of June 19, 1987, is willing to continue to serve in such capacity, and the
Company desires to retain the Executive in such capacity on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto hereby agree as follows:
1. EMPLOYMENT. The Company agrees to continue to employ the Executive, and
the Executive agrees to continue to be employed by the Company, for the Term
provided in Paragraph 3(a) below and upon the other terms and conditions
hereinafter provided. The Executive hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid
and binding agreement, enforceable against him according to its terms, and that
its execution and performance by him does not violate the terms of any existing
agreement or understanding to which the Executive is a party. In addition, the
Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in
accordance with its terms.
2. POSITION AND RESPONSIBILITIES. During the Term, the Executive (a) agrees
to serve as the Chairman and Chief Executive Officer of the Company and the
Holding Company, and to be responsible for the general management of the
affairs of the Company and the Holding Company, reporting directly to the
respective Boards of Directors of the Company (the "Board") and the Holding
Company, and as a member of such boards for
<PAGE> 3
the period for which he is and shall from time to time be elected, (b) shall be
given such authority as is appropriate to carry out the duties described above,
and (c) agrees to serve, if elected, as an officer and director of any other
subsidiary or affiliate of the Company or the Holding Company.
3. TERM AND DUTIES.
(a) TERM OF EMPLOYMENT. The term of the Executive's employment under
this Agreement shall be deemed to have commenced on July 25, 1993 and
shall continue thereafter through December 31, 1998 (the "Term").
(b) DUTIES. During the Term, and except for illness or incapacity and
reasonable vacation periods of no more than 4 weeks in any calendar year
(or such other period as shall be consistent with the Company's policies
for other key executives), the Executive shall devote all of his
business time, attention, skill and efforts exclusively to the business
and affairs of the Company and the Holding Company and their
subsidiaries and affiliates, shall not be engaged in any other business
activity, and shall perform and discharge well and faithfully the duties
which may be assigned to him from time to time by the board of directors
of the Company or the Holding Company; provided, however, that nothing
in this Agreement shall preclude the Executive from devoting time during
reasonable periods required for:
(i) serving, in accordance with the Company's policies and with the
prior approval of the Board, as a director or member of a committee
of any company or organization involving no actual or potential
conflict of interest with the Company or the Holding Company or any
of their subsidiaries or affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
<PAGE> 4
(iii) engaging in charitable and community activities; and
(iv) investing his personal assets in businesses in which his
participation is solely that of an investor in such form or manner
as will not violate Section 7 below or require any services on the
part of the Executive in the operation or the affairs of such
business, provided, however, that such activities do not materially
affect or interfere with the performance of the Executive's duties
and obligations to the Company or the Holding Company.
4. COMPENSATION. For all services rendered by the Executive in any capacity
required hereunder during the Term, including, without limitation, services as
an executive, officer, director, or member of any committee of the Company, the
Holding Company or any subsidiary, affiliate or division thereof, the Executive
shall be compensated as follows:
(a) BASE SALARY. The Company shall pay the Executive a fixed salary
("Base Salary") of $760,000 per annum, subject to such periodic review
(which shall occur at least annually) and such periodic increases as the
Board shall deem appropriate in accordance with the Company's customary
procedures and practices regarding the salaries of senior officers;
provided, however, in determining such increases, the Board shall take
into consideration the base salaries of the chief executive officers of
the 10 largest bank holding companies in the United States, ranked by
total assets, the performance of which is substantially similar to that
of the Holding Company. Base Salary shall be payable in accordance with
the customary payroll practices of the Company, but in no event less
frequently than monthly.
(b) BONUS. The Company shall pay the Executive such amounts, if any,
as may be due under the terms of the Mellon Bank Corporation Profit
Bonus Plan (or any successor plan), with such payments of bonus to be
made in accordance with the terms of such bonus plan. For the Profit
Bonus Plan award for 1994 (payable in
<PAGE> 5
1995) and for future years, it is understood that the Executive may
receive some portion of his Profit Bonus Plan award in the form of
restricted stock or phantom stock units, such awards are to be made on
the same terms as apply to other members of the Office of the Chairman.
(c) STOCK OPTIONS. The Holding Company shall from time to time after
the date of this Agreement consider the grant to the Executive of
options to purchase shares of the Holding Company's Common Stock (the
"Common Stock"). Such options shall be granted under and subject in all
respects to the terms of the Holding Company's Long-Term Profit
Incentive Plan (1981) (or any successor plan) and, in the event of
retirement, shall be exercisable through their stated expiration date.
(d) ADDITIONAL BENEFITS. Except as modified by this Agreement, the
Executive shall be entitled to participate in all compensation or
employee benefit plans or programs, and to receive all benefits,
perquisites and emoluments for which any salaried employees are eligible
under any plan or program, now or hereafter established and maintained
by the Company or the Holding Company for senior officers, to the extent
permissible under the general terms and provisions of such plans or
programs and in accordance with the provisions thereof, including group
hospitalization, health, dental care, senior executive life or other
life insurance, travel or accident insurance, disability plans,
tax-qualified or non-qualified pension, savings, thrift and
profit-sharing plans, deferred compensation plans, termination pay
programs, sick-leave plans, auto allowance or auto lease plans, and
executive contingent compensation plans, including, without limitation,
capital accumulation programs and stock purchase, restricted stock or
stock option plans.
Specifically, but not by way of limitation, the Company shall furnish
the Executive, without cost to him, with life insurance for the benefit
of the Executive's designated beneficiary in an amount at least equal to
twice his Base Salary (without regard to any deferrals of Base Salary
made by the Executive).
<PAGE> 6
Notwithstanding the foregoing, nothing in this Agreement shall preclude
the amendment or termination of any such plan or program, on the
condition that such amendment or termination is applicable generally to
all of the senior officers of the Company or any subsidiary or affiliate
and that no such amendment may result in a reduction of the amount of
benefits provided to the Executive under any such plan or program or the
life insurance provided for the benefit of the Executive's designated
beneficiary.
(e) PERQUISITES. The Company will also furnish the Executive, without
cost to him, with (i) a Company-owned or leased automobile and driver,
(ii) membership in one country club located within the Pittsburgh
metropolitan area and one business club located in Pittsburgh, (iii) an
annual physical examination of the Executive by a physician selected by
the Executive, (iv) participation in the Company's matching gifts
program, and (v) personal financial, investment or tax advice, not to
exceed a reasonable sum per annum, to the extent costs or expenses of
the Executive to be reimbursed are properly documented for Federal
income taxation purposes to preserve any deduction for such
reimbursements to which the Company may be entitled.
5. BUSINESS EXPENSES. The Company shall pay or reimburse the Executive for
all reasonable travel or other expenses incurred by the Executive (and his
spouse where there is a legitimate business reason for his spouse to accompany
him) in connection with the performance of his duties and obligations under
this Agreement, subject to the Executive's presentation of appropriate vouchers
in accordance with such procedures as the Company may from time to time
establish for senior officers and to preserve any deductions for Federal income
taxation purposes to which the Company may be entitled.
<PAGE> 7
6. EFFECT OF TERMINATION OF EMPLOYMENT.
(a) In the event the Executive's employment hereunder terminates due to
either Permanent Disability, a Without Cause Termination, or a
Constructive Discharge, the Company shall, as liquidated damages or
severance pay, or both, continue, subject to the provisions of Section 7
below, to pay the Executive's Base Salary as in effect at the time of
such termination from the date of termination until the end of the Term,
provided, however, that in the case of Permanent Disability, such
payments shall be offset by any amounts otherwise paid to the Executive
under the Company's disability program generally available to other
employees. In addition, earned but unpaid Base Salary as of the date of
termination of employment shall be payable in full and the target bonus
award (or, if higher, the bonus award the Executive would have received
had he been employed throughout the bonus year), including any
restricted stock or phantom stock units payable in lieu of any portion
of the Profit Bonus Plan award, shall be payable on a pro-rated basis
for the year in which such termination of employment occurs only. The
Executive shall continue to participate through the end of the Term, or
such longer period as shall be prescribed in any plan or program, in all
compensation or employee benefit plans or programs maintained by the
Company or the Holding Company in which he was participating on the date
of termination, including group hospitalization, health, dental care,
senior executive life or other life insurance, travel or accident
insurance, disability plans, tax qualified savings plans, thrift and
profit-sharing plans and deferred compensation plans, all in accordance
with the terms and conditions of the applicable employee benefit plans
in effect from time to time as applied to employees. The Executive
shall continue to receive years of service credit under all
tax-qualified or non-qualified retirement plans and related excess
benefit plans maintained by the Company for the Executive through the
end of the Term and shall be 100% vested in such plans as of the date of
the termination of his employment. The Perquisites set forth in
Paragraphs 4(e)(i), (ii) and (v) shall continue through the first
anniversary of the Executive's termination of employment (except for the
driver
<PAGE> 8
which shall continue only for the 90-day period following the
Executive's termination of employment). Any options to purchase shares
of the Holding Company's Common Stock or shares of restricted stock
which are unvested as of the date of the Executive's termination of
employment shall continue to vest and be exercisable through the end of
the Term and thereafter, as permitted by the applicable plan. The
Executive shall have no duty or obligation to seek other employment
through the end of the Term or thereafter.
(b) In the event the Executive's employment hereunder terminates due to
a Termination for Cause or the Executive terminates employment with the
Company for reasons other than a Constructive Discharge, Permanent
Disability or retirement pursuant to Section 8 below, earned but unpaid
Base Salary as of the date of termination of employment shall be payable
in full. However, no other payments shall be made, or benefits
provided, by the Company under this Agreement except for stock options
to the extent already vested and exercisable, and except for benefits,
which have already become vested, under the Supplemental Pension
provided in Section 8 of this Agreement and under the terms of employee
benefit programs maintained by the Company or its affiliates for its
employees generally.
(c) For purposes of this Agreement, the following terms have the
following meanings:
(i) The term, "Termination for Cause", means, to the maximum extent
permitted by applicable law, a termination of the Executive's
employment by the Company by a vote of a majority of the Board
members then in office, because the Executive has (a) been convicted
of a criminal offense covered by Section 19 of the Federal Deposit
Insurance Act, 12 U.S.C. #1829, or (b) has entered a plea of nolo
contendere thereto, or (c) has breached or failed to perform his
duties hereunder, and such breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness, (within the
meaning of
<PAGE> 9
Section 1713(a) of the Pennsylvania Business Corporation Law, as
amended), or a final determination has been reached that the
Executive has violated the representations made in Section 1 above,
or the provisions of Section 7, below; provided, however, that the
Board has given the Executive advance notice of such Termination for
Cause including the reasons therefor, together with a reasonable
opportunity for the Executive to appear with counsel before the
Board and to reply to such notice.
(ii) The term, "Constructive Discharge", means a termination of the
Executive's employment by the Executive due to a failure of the
Company or its successors to fulfill the obligations under this
Agreement in any material respect, including (a) any failure to
elect or reelect or to appoint or reappoint the Executive to the
offices of Chairman and Chief Executive Officer of the Company and
the Holding Company or as a member of each of their boards of
directors or (b) any other material change by the Company and the
Holding Company in the functions, duties or responsibilities of the
Executive's position with the Company and the Holding Company which
would reduce the ranking or level, dignity, responsibility,
importance or scope of such position, (c) any imposition on the
Executive of a requirement to be permanently based at a location
more than fifty miles from the principal office of the Company
without the consent of the Executive, or (d) any reduction without
the consent of the Executive in the Executive's salary below the
amount then provided for under Paragraph 4(a) hereof.
(iii) The term "Without Cause Termination" means a termination of
the Executive's employment by the Company, upon 30 days notice to
the Executive, other than due to Permanent Disability or expiration
of the Term and other than a Termination for Cause.
<PAGE> 10
(iv) The term "Permanent Disability" means the inability of the
Executive to work for a period of six full calendar months during
any eight consecutive calendar months due to illness or injury of a
physical or mental nature, supported by the completion by the
Executive's attending physician of a medical certification form
outlining the disability and treatment.
7. OTHER DUTIES OF EXECUTIVE DURING AND AFTER TERM.
(a) CONFIDENTIAL INFORMATION. The Executive recognizes and
acknowledges that certain information pertaining to the affairs,
business, clients, or customers of the Holding Company or any of its
subsidiaries or affiliates (any or all of such entities hereinafter
referred to as the "Business"), as such information may exist from time
to time, is confidential information and is a unique and valuable asset
of the Business, access to and knowledge of which are essential to the
performance of his duties under this Agreement. The Executive shall
not, through the end of the Term or thereafter, except to the extent
reasonably necessary in the performance of his duties under this
Agreement, divulge to any person, firm, association, corporation or
governmental agency, any information concerning the affairs, business
clients, or customers of the Business (except such information as is
required by law to be divulged to a government agency or pursuant to
lawful process or such information which is or shall become part of the
public realm through no fault of the Executive), or make use of any such
information for his own purposes or for the benefit of any person, firm,
association or corporation (except the Business) and shall use his
reasonable best efforts to prevent the disclosure of any such
information by others. All records, memoranda, letters, books, papers,
reports, accountings or other data, and other records and documents
relating to the Business, whether made by the Executive or otherwise
coming into his possession are, shall be, and shall remain the property
of the Business. No copies thereof shall be made which are not retained
by the Business, and the Executive agrees, on termination of his
<PAGE> 11
employment, or on demand of the Holding Company, to deliver the same to
the Holding Company.
(b) NON-COMPETE. Through the end of the Term, the Executive shall not
without express prior written approval by order of the Board, directly
or indirectly own or hold any proprietary interest in, or be employed by
or receive remuneration from, any corporation, partnership, sole
proprietorship or other entity engaged in competition with the Company,
the Holding Company or any of their affiliates (a "Competitor"), other
than for severance type benefits from entities constituting prior
employers of the Executive. The Executive also agrees that he will not
solicit for the account of any Competitor, any customer or client of the
Company, the Holding Company or their affiliates, or, in the event of
the Executive's termination of employment, any entity or individual that
was such a customer or client during the 12 month period immediately
preceding the Executive's termination of employment. The Executive also
agrees not to act on behalf of any Competitor to interfere with the
relationship between the Company, the Holding Company or their
affiliates and their employees.
For purposes of the preceding sentence, (i) the term, "Proprietary
interest", means direct or indirect legal or equitable ownership,
whether through stockholdings or otherwise, of an equity interest in a
business, firm or entity other than ownership through mutual funds or
other similar diversified vehicles; provided, however, that the
Executive shall not be required to divest any previously acquired equity
interest and (ii) an entity shall be considered to be "engaged in
competition" if such entity is a commercial bank located in Pittsburgh,
Pennsylvania or any other major money center commercial bank or major
regional commercial bank, in either case, with principal offices in any
state east of the Mississippi River. Notwithstanding the foregoing, it
is understood that the Executive is subject to all policies and
procedures of the Company and the Holding Company regarding investment
in securities of competitors.
<PAGE> 12
(c) REMEDIES. The Company's obligation to make payments or provide for
or increase any benefits under this Agreement (except to the extent
vested) shall cease upon any violation of the preceding provisions of
this Section; provided, however, that the Executive shall first have the
right to appear before the Board with counsel and that such cessation of
payments or benefits shall require a vote of a majority of the Board
members then in office, and provided, further, that in the event of a
violation of the preceding provisions of this Section following a
"change in control" (as defined for purposes of the severance
arrangements for employees of the Company adopted by the Board in a
resolution dated June 15, 1987) the Company's obligations to make
payments or provide for any benefits under this Agreement shall cease
only to the extent of the Executive's remuneration from subsequent
employers, or income from self employment which is subject to FICA
taxation, during the period liquidated damages or severance compensation
is to be paid by the Company. The Executive's agreement as set forth in
this Section 7 shall survive the Executive's termination of employment
with the Company.
8. RETIREMENT.
(a) The Executive may elect, upon not less than 12 months' advance
written notice, to retire under this Agreement, if then in effect, on
the first day of any month coincident with or after his attainment of
age 62. In the event of such retirement, the Term and the Company's
obligation to make payments under Section 4 above shall cease as of the
retirement date, except for (i) earned but unpaid Base Salary which
shall be payable in full and the target bonus award (or, if higher, the
bonus award the Executive would have received had he been employed
throughout the bonus year), including any restricted stock or phantom
stock units payable in lieu of any portion of the Profit Bonus Plan
award, which shall be payable on a pro-rated basis for the year of
retirement, (ii) vested benefits under Company plans or programs
maintained for employees generally and (iii) the delivery of shares or
cash
<PAGE> 13
upon the exercise of stock options held by the Executive pursuant to the
terms of the Holding Company's stock option plan. In addition, the
Company shall pay a monthly supplemental retirement benefit to the
Executive, commencing immediately and continuing for the remainder of
his life, which benefit shall be payable in the form of a 50% joint and
survivor annuity which shall be unreduced for the actuarial value of the
survivor's benefit. If the Executive's spouse at the time of his death
is not more than three years younger than the Executive, the survivor
benefit shall be equal to 50% of the Executive's benefit and shall be
payable for the remainder of the spouse's life. If the Executive's
spouse at the time of his death is more than three years younger than
the Executive, the benefit payable to the survivor shall be reduced to a
benefit having the same actuarial value as the benefit that would have
been payable had the spouse been three years younger than the Executive.
The Executive shall also have the right to elect a 100% joint and
survivor annuity, on an actuarially-reduced basis or a lump-sum payment,
on an actuarially-reduced basis (if the Executive makes a timely
lump-sum election which avoids constructive receipt), or any other form
of payment available or provided under the "Supplemental Plans" defined
in this Paragraph. Actuarial reductions shall be based on the actual
ages of the Executive and his spouse at the time of retirement. In the
event that the Executive elects a form of payment other than the
automatic 50% joint and survivor annuity or other than a lump sum
payment, and remarries subsequent to retirement, the benefits payable
under this Section shall be actuarially adjusted at the time of the
Executive's death to reflect the age of the subsequent spouse. If the
Executive elects a lump sum payment at retirement, no further benefits
will be payable under this Section. The amount of the monthly
retirement benefit as an unreduced 50% joint and survivor annuity shall
be equal to the product of (A) the "Compensation Percentage" multiplied
by (B) the Executive's "Final Average Compensation" multiplied by (C)
the Executive's "Vesting Percentage", with such product reduced by (D)
the total monthly amount of benefit (measured for purposes of this
offset as if the Executive elected a 50% joint and survivor annuity upon
retirement) provided to or in respect of the Executive under
<PAGE> 14
all tax-qualified retirement plans and related excess benefit and other
benefit restoration plans maintained by the Company or the Holding
Company for the Executive, including the Mellon Bank Benefit Restoration
Plan and the Mellon Bank IRC Section 401(a)(17) Plan (the "Supplemental
Plans") and benefits paid pursuant to Section 4.7 of the Mellon Bank
Corporation Elective Deferred Compensation Plan for Senior Officers, but
not including payments of any compensation previously deferred under any
deferred compensation plan of the Company or the Holding Company, or
interest thereon, or payments from the Mellon Bank Corporation
Retirement Savings Plan, a 401(k) plan.
The Executive owns interest in life insurance policies (the "Policies")
as a participant in the Mellon Bank Senior Executive Life Insurance
Plan. The supplemental retirement benefit payable to the Executive
hereunder shall be further reduced by the Executive's interest in the
cash value of the Policies. This reduction shall be calculated in the
same manner as under the Supplemental Plans.
If Executive retires after he attains age 65, Executive shall be
entitled for the period after he attains age 65 until his actual
retirement date to receive both (A) an actuarial increase in the gross
supplemental retirement benefit which would have been payable to him if
he had retired when he attained age 65 and (B) an additional incremental
gross supplemental retirement benefit, without actuarial increase, based
on his additional service and increase, if any, in his Final Average
Compensation subsequent to attaining age 65. The increases described in
the preceding sentence shall be calculated in the manner illustrated in
Appendix A hereto, using for purposes of clause (A) the actuarial
factors set forth in the Mellon Bank Retirement Plan. For purposes of
determining the benefit described in clause (A) above, Final Average
Compensation may be determined based on Base Salary for the 36
consecutive months from June 1, 1994 to May 31, 1997 and Bonus Awards
paid to the Executive for work performed in the 36-month period from
January 1, 1995 to December 31, 1997, if such Base Salary and Bonus
Awards result in a higher Final
<PAGE> 15
Average Compensation than Final Average Compensation as described in
Paragraph 8(e). This adjusted gross supplemental retirement benefit
shall then be reduced by other benefits which are payable to Executive
and Executive's interest in the cash value of Policies as of his actual
retirement date in the manner described above in this Paragraph 8(a).
The Executive shall elect the form of payment of his supplemental
retirement benefit at the same time and subject to the same provisions
(including timing requirements and all reductions and/or penalties for
late elections) as provided under the Supplemental Plans. After
retirement, the Executive (or beneficiary who is receiving payments) may
elect to receive his remaining supplemental retirement benefits which
are payable hereunder in a lump sum payment, calculated in the same
manner and subject to the same reductions as under the Supplemental
Plans. In the event that the Executive elects a form of payment of his
supplemental retirement benefits which provides for payments to continue
after his death and the Executive dies without having received all
payments of supplemental retirement benefits that may be payable
hereunder, then the unpaid balance of such benefits shall be paid in
accordance with the form of payment elected by the Executive. Any such
remaining payments shall be made to the Executive's beneficiary provided
under the Supplemental Plans, subject to any contrary written
instructions from the Executive designating a different beneficiary for
such payments.
(b) The Executive may also elect, upon not less than 12 months' advance
written notice, to retire under this Agreement on the first day of any
month coincident with or after his attainment of age 60. Benefits will
be computed on the basis of the years of service, "Final Average
Compensation", "Compensation Percentage" and "Vesting Percentage"
determined at the date of such retirement prior to age 62 and shall be
actuarially reduced from the unreduced full payment required under this
Agreement at age 62 to reflect such early retirement. In the event of
such
<PAGE> 16
retirement, the Term and the Company's obligations to make payments
under Section 4 above shall cease as of the retirement date.
(c) Notwithstanding the foregoing, in no event shall the Executive
receive any payments under this Section 8 or be deemed to be retired
from the Company while the Executive is entitled to payments under
Paragraph 6(a).
(d) As used in this Agreement, "Compensation Percentage" means 50% plus
2.5% for each full year of employment which the Executive has completed
under this Agreement as of the date his active employment with the
Company terminates, plus 2.5% for each full year the Executive receives
payments under Paragraph 6(a) hereof (with such percentage pro-rated for
the partial contract year in which such final termination of the
Executive's employment occurs or in which such final payments under
Paragraph 6(a) hereof are made, whichever shall be applicable).
(e) As used in this Agreement, "Final Average Compensation" means the
average monthly amount of the Executive's Base Salary and any bonus
award for the 36 consecutive months of the Executive's employment by the
Company, under this Agreement or prior agreements, which produces the
highest average amount. The cash value of any portion of bonus payable
as either restricted stock or phantom stock units (in lieu of any
portion of the Profit Bonus Plan award) shall be determined on the date
such restricted stock or phantom stock units are granted for purposes of
determining Final Average Compensation. Any portion of the Executive's
Base Salary and bonus award which is deferred by the Executive under
prior agreements with the Company or under any Company or Holding
Company employee benefit plan shall be included for purposes of
determining Final Average Compensation.
(f) As used in this Agreement, the term "Vesting Percentage" shall be
determined from the following vesting schedule on the basis of the
number of full months of
<PAGE> 17
employment with the Company which the Executive has completed under this
Agreement as of the date his active employment with the Company
terminates plus the number of months during which the Executive receives
payments under Paragraph 6(a).
VESTING SCHEDULE
<TABLE>
<CAPTION>
VESTING INTERVAL VESTING PERCENTAGE
<S> <C>
Less than 11 85%
11 or more 100%
</TABLE>
In the event the Executive's employment is terminated during the first
11 months of the Term, the Executive's vesting percentage shall be 85%
increased by a pro rata portion of the remaining 15% determined by
dividing the number of whole months worked during such 11-month period
by 11.
In the event the Executive's termination of employment is due to death,
prior to the commencement of the payment of pension benefits under this
Section, and he shall be survived by a spouse, such spouse shall be
entitled to receive a pre-retirement death benefit, payable in the form
of a lifetime annuity, equal in value to the benefit which would have
been payable to the Executive hereunder had he retired immediately prior
to the date of his death and elected the unreduced 50% joint and
survivor annuity provided under Paragraph (a) of this Section 8. If the
Executive's spouse at the time of his death is more than three years
younger than the Executive, the benefit payable to the survivor shall be
reduced to a benefit having the same actuarial value as the benefit that
would have been payable had the spouse been three years younger than the
Executive.
<PAGE> 18
9. LIMITATION AS TO AMOUNTS PAYABLE.
(a) SECTION 280G LIMITATION. In the event that any payment, coverage
or benefit provided under this Agreement would, in the opinion of
counsel for the Company, not be deemed to be deductible in whole or in
part in the calculation of the Federal income tax of the Company, or any
other person making such payment or providing such coverage or benefit,
by reason of Section 280G of the Code, the aggregate payments, coverages
or benefits provided hereunder shall be reduced to the "safe harbor"
level under Section 280G of the Code so that no portion of such amount
which is paid to the Executive is not deductible by reason of Section
280G of the Code. Executive may determine which payments, coverages or
benefits will be reduced in order to satisfy the "safe harbor" level
under Section 280G. Furthermore, the Company shall hold such portions
not paid to the Executive in escrow pending a final determination of
whether such amounts would be deductible if paid to the Executive, and
the Company shall use its best efforts to seek a ruling from the
Internal Revenue Service that any portion of such payments, coverages or
benefits not paid to the Executive pursuant to this Paragraph 9(a) would
continue to be deductible if paid to the Executive and the Company shall
pay to the Executive any portion of such amounts for which such a ruling
is received. In the event the IRS will not rule on such matter, the
Company shall pay to the Executive such amounts maintained in escrow
pursuant to this Paragraph 9(a) as shall be determined at some point in
time by a counsel, selected by the Company and the Executive, is likely
to be deductible if paid to the Executive or shall be forfeited by the
Executive in the event of a final determination by the IRS that such
amounts are not deductible. For purposes of this Paragraph, the value
of any non-cash benefit or coverage or any deferred or contingent
payment or benefit shall be determined by the independent auditors of
the Company in accordance with the principles of Section 280G of the
Code.
<PAGE> 19
(b) OFFSET. Within 90 days following any termination of his employment
which constitutes a Without Cause Termination or Constructive Discharge
(as such terms are defined in Paragraph 6(c)), Executive may elect, by
written notice to Employer, to have the provisions of this Paragraph
9(b) apply to reduce the aggregate payments, coverages and benefits
provided under this Agreement during the remainder of the Term of this
Agreement following his termination of employment (hereafter the
"Applicable Period"). If Executive does not make such election, this
Paragraph 9(b) shall have no application or effect under this Agreement.
If Executive elects to have this Paragraph 9(b) apply, the aggregate
payments, coverages and benefits provided to Executive under this
Agreement during the Applicable Period following his termination of
employment shall be reduced by "mitigation" (as defined below) to comply
with Regulations under Section 280G of the Code, including, in
particular, Question and Answer 42(b). "Mitigation" shall mean that
payments which are made and benefits which are provided by the Employer
during the Applicable Period after termination of Executive's employment
and which are attributable to the Applicable Period and not to any other
period will be reduced by all earned income (within the meaning of
Section 911(d)(2)(A) of the Code) received by Executive from persons or
entities other than the Employer or from self employment during the
Applicable Period.
Not less frequently than annually (by December 31 of each year) during
the Applicable Period, Executive shall account to the Employer with
respect to all payments and benefits received by Executive from other
employment or self employment during the Applicable Period which are
required by reason of his duty of "mitigation" hereunder to be offset
against payments or benefits received by Executive from the Employer
during the Applicable Period. During the Applicable Period, if the
Employer has paid amounts in excess of those to which Executive was
entitled (after giving effect to the offsets provided above), Executive
shall reimburse the Employer for such excess by December 31 of such
year.
<PAGE> 20
If Executive receives earned income from other employment or self
employment during only a portion, but not all, of the Applicable Period,
only payments which are made and benefits which are provided by the
Employer that are attributable to the portion of the Applicable Period
during which Executive receives earned income from other employment or
self employment shall be subject to reduction and offset as provided
above.
If Executive elects to have this Paragraph 9(b) apply, Executive may
elect, at any time, to be subject to a greater (but no lesser) duty of
"mitigation" than otherwise provided above in this Paragraph 9(b), if
counsel selected by Executive determines that such greater duty of
"mitigation" is advisable in order to comply with Regulations under
Section 280G.
10. LEGAL FEES, RELATED EXPENSES. The Company agrees to promptly reimburse
the Executive for his reasonable legal and consulting fees incurred in the
preparation and negotiation of this Agreement. In addition, in the event of
any litigation or other proceeding between the Company and the Executive with
respect to the subject matter of this Agreement and the enforcement of rights
hereunder, the Company shall reimburse the Executive for his reasonable costs
and expenses relating to such litigation or other proceeding, including
attorneys' fees and expenses, provided that such litigation or proceeding
results in any: (i) settlement requiring the Company to make a payment to the
Executive; or (ii) judgment, order or award in favor of the Executive, unless
such judgment, order or award is subsequently reversed on appeal or in a
collateral proceeding.
11. WITHHOLDING TAXES. The Company may directly or indirectly withhold from
any payments made under this Agreement all Federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
<PAGE> 21
12. CONSOLIDATION, MERGER, OR SALE OF ASSETS. Nothing in this Agreement shall
preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term, "Company", as used herein shall mean such other
corporation and this Agreement shall continue in full force and effect.
13. NOTICES. All notices, requests, demands and other communications required
or permitted hereunder shall be given in writing and shall be deemed to have
been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail as follows:
(a) To the Company:
Director-Human Resources Department
Mellon Bank, N.A.
1 Mellon Bank Center
Pittsburgh, Pennsylvania 15258
(b) To the Executive:
615 East Drive
Sewickley, Pennsylvania 15143
with copies to:
Peter Mullin
Management Compensation Group
644 S. Figueroa Street
Los Angeles, California 90017
Joseph D. Mandel
15478 Longbow Drive
Sherman Oaks, California 91403
or to such other address as either party shall have previously specified in
writing to the other.
<PAGE> 22
14. NO ATTACHMENT. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to
execution, attachment, levy, or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect, provided, however, that nothing in this Section
14 shall preclude the assumption of such rights by executors, administrators,
or other legal representatives of the Executive or his estate and their
assigning any rights hereunder to the person or persons entitled thereto.
15. SOURCE OF PAYMENTS. All payments provided for under this Agreement shall
be paid in cash from the general funds of the Company. The Company shall not
be required to establish a special or separate fund or other segregation of
assets to assure such payments, and, if the Company shall make any investments
to aid it in meeting its obligations hereunder, the Executive shall have no
right, title, or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument relating to
such investments. Nothing contained in this Agreement, and no action taken
pursuant to its provisions, shall create or be construed to create a trust of
any kind, or a fiduciary relationship, between the Company and the Executive or
any other person. To the extent that any person acquires a right to receive
payments from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company.
16. BINDING AGREEMENT. This Agreement shall be binding upon, and shall inure
to the benefit of, the Executive and the Company and, as permitted by this
Agreement, their respective successors, assigns, heirs, beneficiaries and
representatives.
17. GOVERNING LAW. The validity, interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
<PAGE> 23
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which, when executed, shall be deemed to be an original and both of which
together shall be deemed to one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and
its seal to be affixed hereunto by its officers thereunto duly authorized, and
the Executive has signed this Agreement, all as of the first date above
written.
ATTEST: Mellon Bank, N.A.
ELAINE BECK ORESTI By: D. MICHAEL ROARK
- ---------------------- ---------------------------
Elaine Beck Oresti D. Michael Roark
Secretary Head of the Human Resources
Department
FRANK V. CAHOUET
---------------------------
Frank V. Cahouet
<PAGE> 24
APPENDIX A
Frank Cahouet
Employment Agreement Dated as of July 25, 1993 Amended through October 17, 1995
Supplemental Retirement Benefit
Basis of Sample Calculation
<TABLE>
<S> <C>
Birth Date: May 25, 1932
Spouse Birth Date: March 2, 1931
Assumed Retirement Date: January 1, 1999
Compensation Assumption: Salary or Bonus in Any Given Year is Greater Than or Equal to Prior Year Salary or Bonus
Service at Age 65: Elapsed Time from 7/25/93 to 5/31/97 Rounded up to Complete Month = SVC65
Service at Retirement: Elapsed Time from 7/25/93 to 12/31/98 Rounded up to Complete Month = SVCRET
Actuarial Equivalence: 1979 Buck (80% Male, 20% Female) Mortality, 7% Interest
N(12)65 = N(12)65
N(12)66 7/12 = N(12)RET
Life Annuity to 50% Joint & Contingent Annuity Conversion Factor = JS65:66
(Executive Age Nearest 65, Spouse Age Nearest 66)
Life Annuity to 50% Joint & Contingent Annuity Conversion Factor = JS67:68
(Executive Age Nearest 67, Spouse Age Nearest 68)
</TABLE>
Determination of Final Average Compensation at Age 65
<TABLE>
<CAPTION>
/-----------------------------------------------------------------------------------------------------------/
Salary Bonus Total
Date Salary Date Bonus Compensation
/----------------------------------------------------------------------------------------------------------/
<S> <C> <C> <C> <C>
6/1/94 - 5/31/95 Salary 1 1/1/95 - 12/31/95 Bonus 1 Salary 1 + Bonus 1
6/1/95 - 5/31/96 Salary 2 1/1/96 - 12/31/96 Bonus 2 Salary 2 + Bonus 2
6/1/96 - 5/31/97 Salary 3 1/1/97 - 12/31/97 Bonus 3 Salary 3 + Bonus 3
Average of Total Compensation = FAC65
</TABLE>
Determination of Final Average Compensation at Retirement
<TABLE>
<CAPTION>
/-----------------------------------------------------------------------------------------------------------/
Bonus Total
Date Salary Date Bonus Compensation
/----------------------------------------------------------------------------------------------------------/
<S> <C> <C> <C> <C>
1/1/96 - 12/31/96 Salary 4 1/1/96 - 12/31/96 Bonus 2 Salary 4 + Bonus 2
1/1/97 - 12/31/97 Salary 5 1/1/97 - 12/31/97 Bonus 3 Salary 5 + Bonus 3
1/1/98 - 12/31/98 Salary 6 1/1/98 - 12/31/98 Bonus 4 Salary 6 + Bonus 4
Average of Total Compensation = FACRET
</TABLE>
Calculation of Age 65 Benefit
<TABLE>
<S> <C> <C>
FAC65 x [50% + (2.5% x SVC65)] = BEN65
</TABLE>
Calculation of Age 65 Benefit Actuarially Increased to reflect Delayed
Commencement at 1/1/99
<TABLE>
<S> <C> <C>
[BEN65 / JS65:66] x [N(12)65 / N(12)RET] x JS67:68 = BEN65A1
</TABLE>
Calculation of Annual Benefit Payable Upon Retirement at 1/1/99
<TABLE>
<S> <C> <C>
BEN65AI + [FACRET x [50% + (2.5% x SVCRET)] - BEN65] = BENRET
</TABLE>
<PAGE> 1
Ex-11.1
COMPUTATION OF PRIMARY AND FULLY DILUTED NET INCOME PER COMMON SHARE
Mellon Bank Corporation (and its subsidiaries)
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock $652,234,000 $361,221,000(a) $401,398,000(a)
- ---------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 143,428,078 145,036,812 141,610,182
Common shares issuable upon conversion
of Series D preferred stock - 1,692,263 2,460,632
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 1,377,077 1,886,912 2,406,069
Warrants 268,510 451,978 412,244
Series D preferred stock subscription rights - 817 55,356
Common stock subscription rights - - 137,706
- ---------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 145,073,665 149,068,782 147,082,189
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $4.50 $2.42 $2.73
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock $652,234,000 $361,221,000(a) $401,398,000(a)
- ---------------------------------------------------------------------------------------------------------------------
The after-tax benefit of interest expense
on the assumed conversion of 7-1/4% Convertible
Subordinated Capital Notes 206,000 204,000 200,000
- ---------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to common stock $652,440,000 $361,425,000 $401,598,000
- ---------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 143,428,078 145,036,812 141,610,182
Common shares issuable upon conversion of
Series D preferred stock - 1,692,263 2,460,632
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method:
Stock options 2,186,923 1,914,398 2,480,068
Warrants 440,834 451,978 412,244
Series D preferred stock subscription rights - 817 55,356
Common stock subscription rights - - 137,706
Common shares issuable upon conversion of
7-1/4% Subordinated Capital Notes 126,593 133,492 136,497
- ---------------------------------------------------------------------------------------------------------------------
Total 146,182,428 149,229,760 147,292,685
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $4.46 $2.42 $2.73
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(a) After adding back Series D preferred stock dividends of $3 million in
1994 and $4 million in 1993. Series D preferred stock was considered a
common stock equivalent.
</TABLE>
<PAGE> 1
Ex-12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
(parent Corporation)(a)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(dollar amounts in thousands) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Income before income taxes and
equity in undistributed net
income (loss) of subsidiaries $473,554 $434,035 $224,869 $137,594 $145,777
2. Fixed charges: interest expense,
one-third of rental expense net
of income from subleases, and
amortization of debt issuance costs 96,971 95,193 110,739 79,709 103,001
- ---------------------------------------------------------------------------------------------------------------------
3. Income before income taxes
and equity in undistributed
net income (loss) of subsidiaries,
plus fixed charges (line 1 + line 2) $570,525 $529,228 $335,608 $217,303 $248,778
- ---------------------------------------------------------------------------------------------------------------------
4. Preferred stock dividend
requirements (b) $ 62,035 $124,260 $103,792 $ 61,197 $ 57,618
- ---------------------------------------------------------------------------------------------------------------------
5. Ratio of earnings (as defined)
to fixed charges (line 3 divided
by line 2) 5.88 5.56 3.03 2.73 2.42
6. Ratio of earnings (as defined)
to combined fixed charges and
preferred stock dividends
[line 3 divided by (line 2 + line 4)] 3.59 2.41 1.56 1.54 1.55
- ---------------------------------------------------------------------------------------------------------------------
<FN>
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation") and Mellon Financial Company, a wholly
owned subsidiary of the Corporation that functions as a financing entity
for the Corporation and its subsidiaries by issuing commercial paper and
other debt guaranteed by the Corporation. For purposes of computing
these ratios, earnings represent parent Corporation income before taxes
and equity in undistributed net income (loss) of subsidiaries, plus the
fixed charges of the parent Corporation. Fixed charges represent
interest expense, one-third (the proportion deemed representative of
the interest factor) of rental expense net of income from subleases, and
amortization of debt issuance costs. Because the ratio excludes from
earnings the equity in undistributed net income (loss) of subsidiaries,
the ratio varies with the payment of dividends by such subsidiaries.
(b) Preferred stock dividend requirements for all years presented represent
the pretax amount required to cover preferred stock dividends.
</TABLE>
<PAGE> 1
Ex-12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Mellon Bank Corporation
and its subsidiaries(a)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(dollar amounts in thousands) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Income $ 691,534 $ 433,365 $ 460,213 $ 527,955 $ 347,451
2. Provision for income taxes 400,058 278,040 298,034 104,099 62,199
- --------------------------------------------------------------------------------------------------------------------
3. Income before provision
for income taxes (line 1 + line 2) $1,091,592 $ 711,405 $ 758,247 $ 632,054 $ 409,650
- --------------------------------------------------------------------------------------------------------------------
4. Fixed charges:
a. Interest expense (excluding
interest on deposits) $ 401,700 $ 263,054 $ 200,915 $ 211,998 $ 326,437
b. One-third of rental expense
(net of income from
subleases) and amortization
of debt issuance costs 44,303 40,140 38,190 29,446 30,300
- --------------------------------------------------------------------------------------------------------------------
c. Total fixed charges
(excluding interest on
deposits)
(line 4a + line 4b) 446,003 303,194 239,105 241,444 356,737
d. Interest on deposits 888,580 538,715 454,458 636,719 1,006,566
- --------------------------------------------------------------------------------------------------------------------
e. Total fixed charges
(line 4c + line 4d) $1,334,583 $ 841,909 $ 693,563 $ 878,163 $1,363,303
- --------------------------------------------------------------------------------------------------------------------
5. Preferred stock dividend
requirements (b) $ 62,035 $ 124,260 $ 103,792 $ 61,197 $ 57,618
- --------------------------------------------------------------------------------------------------------------------
6. Income before provision
for income taxes, plus total
fixed charges:
a. Excluding interest on
deposits
(line 3 + line 4c) $1,537,595 $1,014,599 $ 997,352 $ 873,498 $ 766,387
- --------------------------------------------------------------------------------------------------------------------
b. Including interest on
deposits
(line 3 + line 4e) $2,426,175 $1,553,314 $1,451,810 $1,510,217 $1,772,953
- --------------------------------------------------------------------------------------------------------------------
7. Ratio of earnings (as defined) to
fixed charges:
a. Excluding interest on deposits
(line 6a divided by line 4c) 3.45 3.35 4.17 3.62 2.15
b. Including interest on deposits
(line 6b divided by line 4e) 1.82 1.84 2.09 1.72 1.30
8. Ratio of earnings (as defined) to
combined fixed charges and
preferred stock dividends:
a. Excluding interest on deposits
[line 6a divided by
(line 4c + line 5)] 3.03 2.37 2.91 2.89 1.85
b. Including interest on deposits
[line 6b divided by
(line 4e + line 5)] 1.74 1.61 1.82 1.61 1.25
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
Ex-12.2
(continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(a) For purposes of computing these ratios, earnings represent consolidated
income, before income taxes plus consolidated fixed charges. Fixed
charges, excluding interest on deposits, include interest expense (other
than on deposits), one-third (the proportion deemed representative of
the interest factor) of rental expense net of income from subleases, and
amortization of debt issuance costs. Fixed charges, including interest
on deposits, include all interest expense, one-third (the proportion
deemed representative of the interest factor) of rental expense net of
income from subleases, and amortization of debt issuance costs.
(b) Preferred stock dividend requirements for all years presented represent
the pretax amount required to cover preferred stock dividends.
<PAGE> 1
MELLON BANK CORPORATION 1995 ANNUAL REPORT
PRINCIPAL LOCATIONS AND OPERATING ENTITIES
<TABLE>
<CAPTION>
RETAIL SUBSIDIARIES AND REGIONS OTHER DOMESTIC AND
INTERNATIONAL LOCATIONS
<S> <C> <C>
Mellon Bank Corporation operates the -MELLON BANK--WESTERN REGION serves ACCESS CAPITAL STRATEGIES specializes in
following retail subsidiaries in the United consumer and small to midsize economically targeted investments in
States: Mellon Bank, N.A., Mellon Bank commercial markets in western support of affordable housing and job
(DE) National Association, Mellon Bank (MD), Pennsylvania. creation.
Mellon PSFS (NJ) National Association Headquarters: Pittsburgh, Pennsylvania Locations: Cambridge, Massachusetts
and Mellon Bank, F.S.B. Regional President: Milwaukee, Wisconsin
Matthew Giles
MELLON BANK, N.A. comprises six regions.
Headquarters: Pittsburgh, Pennsylvania AFCO CREDIT CORPORATION, with its
Chairman, President and CEO: Canadian affiliate, CAFO, Inc., is the
Frank V. Cahouet -MELLON PSFS* In the Philadelphia area, nation's largest insurance premium
MELLON BANK, N.A. uses the name MELLON financing company, with 22 offices in
PSFS and serves consumer and small to the United States and Canada.
- - MELLON BANK--CENTRAL REGION serves consumer midsize commercial markets in eastern Headquarters: New York, New York
and small to midsize commercial markets Pennsylvania.
in central Pennsylvania. Headquarters: Philadelphia, Pennsylvania
Headquarters: State College, Pennsylvania Chairman and CEO: THE BOSTON COMPANY ASSET MANAGEMENT,
Chairman, President and CEO: William J. Stallkamp INC. provides institutional investment
Ralph J. Papa management services.
Locations: Los Angeles, California
San Francisco, California
- - MELLON BANK--COMMONWEALTH REGION serves MELLON BANK (DE) NATIONAL ASSOCIATION Boston, Massachusetts
consumer and small to midsize commercial serves consumer and small to midsize
markets in southcentral Pennsylvania. commercial markets throughout Delaware BOSTON SAFE DEPOSIT AND TRUST COMPANY
Headquarters: Harrisburg, Pennsylvania and provides nationwide cardholder provides trust and custody
Chairman and CEO: processing services. administration for institutional
Stephen R. Burke Headquarters: Wilmington, Delaware and private clients, private asset
Chairman, President management and personal and
and CEO: jumbo mortgage lending.
- - MELLON BANK--NORTHEASTERN REGION serves Warner S. Waters, Jr. Locations: Los Angeles, California
consumer and small to midsize commercial Newport Beach, California
markets in northeastern Pennsylvania. Palo Alto, California
Headquarters: Wilkes-Barre, Pennsylvania MELLON BANK (MD) serves consumer and San Francisco, California
Chairman, President and CEO: small to midsize commercial markets Chicago, Illinois
Peter B. Eglin throughout Maryland. Boston, Massachusetts
Headquarters: Rockville, Maryland Medford, Massachusetts
Chairman, President New York, New York
- - MELLON BANK--NORTHERN REGION serves and CEO: Philadelphia, Pennsylvania
consumer and small to midsize commercial Kenneth R. Dubuque Pittsburgh, Pennsylvania
markets in northwestern Pennsylvania. McLean, Virginia
Headquarters: Erie, Pennsylvania MELLON PSFS (NJ) NATIONAL Toronto, Ontario, Canada
Chairman, President and CEO: ASSOCIATION serves consumer and London, England
Thomas B. Black small to midsize commercial markets
in southern New Jersey.
Headquarters: Voorhees, New Jersey
Chairman, President
and CEO:
Robert D. Davis
MELLON BANK, F.S.B. provides corporate
trust and personal trust services and
serves consumer and small to midsize
commercial markets.
Headquarters: Paramus, New Jersey
Chairman, President
and CEO:
William V. Healey
</TABLE>
* Mellon PSFS is a registered service mark of Mellon Bank, N.A.
18
<PAGE> 2
PRINCIPAL LOCATIONS AND OPERATING ENTITIES (CONTINUED)
<TABLE>
<S> <C> <C>
CCF-MELLON PARTNERS, a joint venture with DREYFUS MANAGEMENT, INC. provides The INSTITUTIONAL BANKING REPRESENTATIVE
Credit Commercial de France, markets investment management services for OFFICE markets credit and other banking
investment advisory and discretionary money institutions including corporations, services to broker/dealers.
management services in North America and endowments, foundations, public retirement Location: New York, New York
Europe. plans, jointly trusteed plans, colleges and
Location: Pittsburgh, Pennsylvania universities, and labor unions. INTERNATIONAL BANKING OFFICES provide
Location: New York, New York international banking services, including
CERTUS ASSET ADVISORS is a stable- trade banking, demand deposits, loans,
value market specialist providing DREYFUS RETIREMENT SERVICES provides a full capital markets products and foreign
investment management services array of investment products, participant exchange to domestic and international
to defined contribution plan education and administrative services to customers.
sponsors. defined contribution plans nationwide. Locations: London, England
Location: San Francisco, California Locations: Los Angeles, California Grand Cayman,
San Francisco, California British, West Indies
CHEMICAL MELLON SHAREHOLDER SERVICES Atlanta, Georgia
provides securities transfer and Chicago, Illinois
shareholder services. Boston, Massachusetts
Locations: Encino, California New York, New York INTERNATIONAL REPRESENTATIVE OFFICES
San Francisco, California Uniondale, New York serve as a liaison between the
Hartford, Connecticut Philadelphia, Pennsylvania Corporation's banking subsidiaries
Ridgefield Park, New Jersey Pittsburgh, Pennsylvania and overseas customers.
New York, New York Providence, Rhode Island Locations: Tokyo, Japan
Pittsburgh, Pennsylvania Dallas, Texas Hong Kong
Dallas, Texas
DREYFUS SERVICE CORPORATION provides LAUREL CAPITAL ADVISORS
CORPORATE BANKING REPRESENTATIVE OFFICES advertising, marketing and servicing provides investment
market credit and related services to large functions to all Dreyfus Funds. management services for
corporate customers, exclusive of financial Location: New York, New York individuals and
institutions. corporations through
Locations: Los Angeles, California THE DREYFUS TRUST COMPANY provides invest- brokerage firms
Chicago, Illinois ment management, trust and custody services throughout the
Boston, Massachusetts to tax-qualified and non-qualified United States.
New York, New York retirement plans and investment Location: Pittsburgh, Pennsylvania
Philadelphia, Pennsylvania management services to the
Pittsburgh, Pennsylvania institutional marketplace, offering The LEASING GROUP markets a
Houston, Texas a wide range of investment broad range of leasing
products for individuals, insur- and lease-related services
The CORPORATE TRUST GROUP provides ance companies, corporations, to corporations throughout
bond trustee, registrar, paying agent, public funds, endowments, foun- the United States with
custodian, escrow agent and investment dations and Taft-Hartley plans. annual sales of more than
management for municipal and Location: Uniondale, New York $250 million, as well as
corporate clients. to corporations in the
Locations: Indianapolis, Indiana FRANKLIN PORTFOLIO ASSOCIATES Central Atlantic Region
Boston, Massachusetts provides investment management services with annual sales
Ann Arbor, Michigan for employee benefit funds and between $10 million and
Albany, New York institutional clients. $250 million.
Cleveland, Ohio Location: Boston, Massachusetts Locations: Chicago, Illinois
Columbus, Ohio Pittsburgh, Pennsylvania
Harrisburg, Pennsylvania
Philadelphia, Pennsylvania GLOBAL CASH MANAGEMENT REGIONAL OPERATING
Pittsburgh, Pennsylvania AND MARKETING SITES provide cash
Seattle, Washington management operating services to MELLON BANK CANADA is a chartered
corporations and financial institutions. Canadian bank providing services to the
THE DREYFUS CORPORATION is one of the Locations: Los Angeles, California corporate market throughout Canada.
nation's leading mutual fund companies. Atlanta, Georgia Location: Toronto, Ontario, Canada
Dreyfus manages or administers more Chicago, Illinois
than $81 billion in more than 175 Boston, Massachusetts
mutual fund portfolios. Philadelphia, Pennsylvania
Headquarters: New York, New York Pittsburgh, Pennsylvania
Dallas, Texas
DREYFUS INVESTMENT SERVICES CORPORATION London, England
provides a full range of securities
brokerage services for individuals
and institutional clients.
Location: Pittsburgh, Pennsylvania
</TABLE>
19
<PAGE> 3
PRINCIPAL LOCATIONS AND OPERATING ENTITIES (CONTINUED)
<TABLE>
<S> <C> <C>
MELLON BANK COMMUNITY MELLON VENTURES, INC. or its PARETO PARTNERS provides investment
DEVELOPMENT CORPORATION, affiliates invest in the management services for employee benefit
one of the first holding company equity of middle market funds and institutional and high net
CDCs regulated by the Federal operating companies worth clients.
Reserve Board, invests in experiencing rapid growth Locations: New York, New York
projects that are important or change in ownership. London, England
to modest-income segments of Locations: Philadelphia, Pennsylvania
Delaware, Maryland, New Jersey Pittsburgh, Pennsylvania
and Pennsylvania. PREMIER UNIT TRUST ADMINISTRATION is a
Location: Pittsburgh, Pennsylvania leading servicer of unit trusts, the
MIDDLE MARKET BANKING REPRESENTATIVE equivalent of mutual funds in
MELLON BOND ASSOCIATES provides OFFICES market a full range of financial the United Kingdom and Ireland.
structured management for bond portfolios and banking services to commercial Locations: Brentwood, Essex, England
of large national institutional clients. customers with annual sales between $10 Dublin, Ireland
Locations: Philadelphia, Pennsylvania million and $250 million. Mellon's
Pittsburgh, Pennsylvania Middle Market group also specializes in
providing services to all segments of the THE R-M TRUST COMPANY provides
health care industry nationwide. stock transfer and indenture trustee
MELLON BUSINESS CREDIT markets a broad Locations: Los Angeles, California services to Canadian clients.
range of commercial finance products and Wilmington, Delaware Locations: Calgary, Alberta, Canada
banking services nationwide to corporations Rockville, Maryland Vancouver, British
with borrowing requirements that exceed Boston, Massachusetts Columbia, Canada
$5 million. Edison, New Jersey Winnipeg, Manitoba, Canada
Locations: Los Angeles, California Voorhees, New Jersey Halifax, Nova Scotia,
Atlanta, Georgia Buffalo, New York Canada
Chicago, Illinois Cleveland, Ohio Toronto, Ontario, Canada
New York, New York Erie, Pennsylvania Montreal, Quebec, Canada
Philadelphia, Pennsylvania Harrisburg, Pennsylvania Regina, Saskatchewan,
Pittsburgh, Pennsylvania Philadelphia, Pennsylvania Canada
Pittsburgh, Pennsylvania
Plymouth Meeting, Pennsylvania
MELLON CAPITAL MANAGEMENT State College, Pennsylvania
provides portfolio and investment Wilkes-Barre, Pennsylvania
management services.
Location: San Francisco, California
MORTGAGE BANKING, operating as Mellon
MELLON EQUITY ASSOCIATES provides Mortgage Company and Mellon Bank, focuses
specialized equity management services to on the origination, purchasing and
the national pension and public fund servicing of both residential and
markets. commercial mortgage loans through more
Location: Pittsburgh, Pennsylvania than 100 locations nationwide.
Headquarters: Houston, Texas
MELLON EUROPE LTD., a United Kingdom-
chartered bank, provides trust and cash
management services in Europe. The NETWORK SERVICES DIVISION provides
Location: London, England electronic funds transfer services,
including automated teller machine
MELLON FINANCIAL MARKETS, INC. processing and full-service merchant
conducts securities business, payment systems, to financial
providing fixed-income institutions and corporations.
underwriting, trading and sales Location: Pittsburgh, Pennsylvania
services to clients and investors
throughout the United States.
Locations: Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
MELLON SECURITIES TRUST COMPANY provides
securities processing and custody services.
Location: New York, New York
Principal locations and operating entities as of December 31, 1995.
</TABLE>
20
<PAGE> 4
DIRECTORS AND SENIOR MANAGEMENT COMMITTEE
<TABLE>
<S> <C> <C> <C>
Directors
MELLON BANK CORPORATION
AND MELLON BANK, N.A. Andrew W. Mathieson(1)(3)(4) CHAIRMEN EMERITI MELLON BANK-COMMONWEALTH
Burton C. Borgelt(5)(6) Executive Vice President REGION
Chairman Richard K. Mellon and Sons J. David Barnes Glenn R. Aldinger
Dentsply International, Inc. Investments and philanthropy William B. Eagleson, Jr. Burton C. Borgelt
Manufacturer of artificial James H. Higgins Stephen R. Burke
teeth and consumable dental Edward J. McAniff(5)(6) Nathan W. Pearson Miles J. Gibbons, Jr.
products Partner James E. Grandon, Jr.
O'Melveny & Meyers ADVISORY BOARD Ruth Leventhal
Carol R. Brown(2)(6) Full-service law firm Henry E. L. Luhrs
President Howard O. Beaver, Jr. Gregory L. Sutliff
The Pittsburgh Robert Mehrabian(2)(7) Retired Chairman and
Cultural Trust President Chief Executive Officer MELLON BANK-
Cultural and economic Carnegie Mellon University Carpenter Technology NORTHERN REGION
growth organization Private co-educational Corporation James D. Berry III
research institution Thomas B. Black
Frank V. Cahouet(1) Alexander W. Calder Eugene Cross
Chairman, President Seward Prosser Mellon Retired Chairman, President William S. DeArment
and Chief President and and Chief Executive Officer Steven G. Elliott
Executive Officer Chief Executive Officer Joy Manufacturing Company Robert G. Liptak, Jr.
Mellon Bank Corporation Richard K. Mellon and Sons Gary W. Lyons
and Mellon Bank, N.A. Investments H. Bryce Jordan Charles J. Myron
Richard King Mellon Foundation President Emeritus Ruthanne Nerlich
J. W. Connolly(1)(2)(4) Philanthropy The Pennsylvania State John S. Patton
Retired Senior Vice University Paul D. Shafer, Jr.
President David S. Shapira(1)(2)(5)(7) Cyrus R. Wellman
H.J. Heinz Company Chairman and John C. Marous
Food manufacturer Chief Executive Officer Retired Chairman and MELLON BANK-
Giant Eagle, Inc. Chief Executive Officer NORTHEASTERN REGION
Charles A. Corry(1)(2)(3)(4) Retail grocery store chain Westinghouse Electric David T. Andes
Retired Chairman and Corporation Joseph B. Conahan, Jr.
Chief Executive Officer W. Keith Smith(1) Frank J. Dracos
USX Corporation Vice Chairman Masaaki Morita Peter B. Eglin
Energy and steel Mellon Bank Corporation Chairman Alan J. Finlay
and Mellon Bank, N.A. Sony USA Foundation Glenn Y. Forney
C. Frederick Fetterolf(1)(2)(5)(6) Thomas M. Jacobs
Retired President and Howard Stein(1) Nathan W. Pearson Allan M. Kluger
Chief Operating Officer Chairman and Financial Advisor Richard F. Laux
Aluminum Company of Chief Executive Officer Paul Mellon Family Joseph R. Nardone
America The Dreyfus Corporation Interests Joseph F. Palchak, Jr.
Aluminum and chemicals Richard L. Pearsall
Joab L. Thomas(4)(7) H. Robert Sharbaugh Joseph L. Persico
Ira J. Gumberg(1)(2)(5) President Emeritus Retired Chairman Arthur K. Ridley
President and The Pennsylvania State Sun Company, Inc. Keith P. Russell
Chief Executive Officer University Rhea P. Simms
J.J. Gumberg Co. Major public research Richard M. Smith
Real estate management and university Retired Vice Chairman
development Bethlehem Steel MELLON PSFS
Wesley W. von Schack(1)(3)(4) Corporation Paul C. Brucker
Pemberton Hutchinson(3)(5)(6) Chairman, President and (6)(7) Frank J. Coyne
Retired Chairman Chief Executive Officer REGIONAL BOARDS Thomas F. Donovan
Westmoreland Coal Company DQE Lon R. Greenberg
Coal mining company Energy services company Roger S. Hillas
MELLON BANK-CENTRAL Hiliary H. Holloway
Rotan E. Lee(5)(6) REGION Pemberton Hutchinson
Chief Operating Officer William J. Young(4)(5)(6) Frederick K. Beard Rotan E. Lee
RMS Technologies, Inc. Retired President Galen E. Dreibelbis Roland Morris
Information technology Portland Cement Association John Lloyd Hanson William J. Stallkamp
Trade association for the Carol Herrmann Francis R. Strawbridge III
Portland cement industry Daniel B. Hoover Steven A. Van Dyck
S. Wade Judy William J. Young
Michael M. Kranich, Sr.
Edwin E. Lash
Robert W. Neff
Ralph J. Papa
Nicholas Pelick
Graham C. Showalter
Alvin L. Snowiss
Robert M. Welham
<FN>
(1) Executive Committee
(2) Audit Committee
(3) Nominating Committee
(4) Human Resources Committee
(5) Trust and Investment Committee
(6) Community Responsibility Committee
(7) Technology Committee
Listing as of March 1, 1996.
</TABLE>
21
<PAGE> 5
MELLON BANK CORPORATION 1995 ANNUAL REPORT
<TABLE>
<S> <C> <C> <C>
SUBSIDIARY BOARDS THE DREYFUS CORPORATION SENIOR MANAGERS Philip R. Roberts
Mandell L. Berman Frederick K. Beard Executive Vice President
MELLON BANK CANADA Frank V. Cahouet Executive Vice President Mellon Global Asset Management
Frederick K. Beard Stephen E. Canter Institutional Banking
Peter A. Crossgrove Christopher M. Condron Peter Rzasnicki
Keith G. Dalglish Alvin E. Friedman Paul S. Beideman Executive Vice President
Thomas C. MacMillan Lawrence M. Greene Executive Vice President Global Trust Services
James A. Riley Lawrence S. Kash Retail Financial Services
Peter Rzasnicki Julian M. Smerling Richard L. Solheim
Owen C. Shewfelt W. Keith Smith Richard B. Berner Executive Vice President
Allan P. Woods Howard Stein Executive Vice President Mortgage Banking
Philip L. Toia Economics
MELLON BANK (DE) David B. Truman William J. Stallkamp
NATIONAL ASSOCIATION John T. Chesko Executive Vice President
John S. Barry MELLON BANK, F.S.B. Executive Vice President Mellon Bank, N.A.
Robert C. Cole, Jr. Michael L. Carousis Chief Credit Officer Chairman and
Audrey K. Doberstein Walter D. Chambers Chief Executive Officer
Arden B. Engebretson Robert R. Detore Larry F. Clyde Mellon PSFS
Norman D. Griffiths William V. Healey Executive Vice President
Garrett B. Lyons Larry A. Raymond Capital Markets Robert W. Stasik
Martin G. McGuinn Donald W. Titzel Executive Vice President
W. Charles Paradee, Jr. Daryl J. Zupan Kenneth R. Dubuque Global Cash Management
Bruce M. Stargatt Executive Vice President
Warner S. Waters, Jr. Mellon Bank, N.A. Philip L. Toia
SENIOR MANAGEMENT Chairman, President and Vice Chairman
MELLON BANK (MD) COMMITTEE Chief Executive Officer Operations and Administration
Michael A. Besche Mellon Bank (MD) The Dreyfus Corporation
Lawrence Brown, Jr. OFFICE OF THE CHAIRMAN
Kenneth R. Dubuque Frank V. Cahouet Darryl J. Fluhme Sherman White
Albert R. Hinton Chairman, President and Executive Vice President Executive Vice President
Martin G. McGuinn Chief Executive Officer Global Securities Operations Credit Recovery
Norman Robertson
Michael A. Smilow Christopher M. Condron Richard L. Holl Allan P. Woods
Vice Chairman Executive Vice President Executive Vice President
THE BOSTON COMPANY, INC. Real Estate Credit Recovery Mellon Information Services
AND BOSTON SAFE DEPOSIT Steven G. Elliott
AND TRUST COMPANY Vice Chairman Lawrence S. Kash OTHER CORPORATE OFFICERS
Dwight L. Allison, Jr. Executive Vice President Michael E. Bleier
Christopher M. Condron Jeffery L. Leininger Investment Services General Counsel
James E. Conway* Vice Chairman
Charles C. Cunningham, Jr. Daniel M. Kilcullen Michael K. Hughey
Hans H. Estin David R. Lovejoy Executive Vice President Corporate Controller
Avram J. Goldberg Vice Chairman Global Securities Services
Lawrence S. Kash Carl Krasik
Robert P. Mastrovita Martin G. McGuinn Allan C. Kirkman Secretary
George Putnam Vice Chairman Executive Vice President
Keith P. Russell Real Estate Finance Sandra J. McLaughlin
Charles W. Schmidt Jeffrey L. Morby Corporate Communications
W. Keith Smith Vice Chairman J. David Officer Officer
C. Vincent Vappi Executive Vice President
Benaree Pratt Wiley Keith P. Russell Mellon Private Asset
Vice Chairman Management
MELLON PSFS (NJ)
NATIONAL ASSOCIATION W. Keith Smith Robert M. Parkinson
Robert D. Davis Vice Chairman Executive Vice President
Peter B. Eglin Auditing and Credit Review
Steven Kaplan Jamie B. Stewart, Jr.
James Schermerhorn Vice Chairman D. Michael Roark
Jacob C. Sheely III Executive Vice President
William J. Stallkamp Human Resources
<FN>
* Director of The Boston Company, Inc. only.
</TABLE>
22
<PAGE> 6
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY
(dollar amounts in millions, except per share amounts) 1995 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
Net interest revenue $ 1,548 $ 1,508 $ 1,329 $ 1,182 $ 1,012 $ 912
Provision for credit losses 105 70 125 185 250 315
Fee revenue 1,670 1,652 1,538 1,154 1,007 933
Gains (losses) on sale of securities (a) 6 (5) 100 129 81 28
Gain on sale of consumer finance subsidiary - - - - - 74
Operating expense 2,027 2,374 2,084 1,648 1,440 1,355
Provision for income taxes 401 278 298 104 62 41
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 691 $ 433 $ 460 $ 528 $ 348 $ 236
Net income applicable to common stock 652 358 397 477 299 186
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income $ 4.50 $ 2.42 $ 2.73 $ 3.56 $ 2.39 $ 1.57
Dividends paid 2.00 1.57 1.01 .93 .93 .93
Book value at year-end 26.17 25.06 24.28 21.37 18.44 16.60
Average common shares and equivalents
outstanding (in thousands) 145,074 149,069 147,083 134,858 126,554 120,981
- ----------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS(b)
Net income applicable to common stock $ 652 $ 593 $ 456 $ 347 $ 210 $ 132
Net income per common share 4.50 4.00 3.14 2.60 1.69 1.12
Return on average common shareholders' equity 17.77% 16.02% 13.71% 13.13% 8.97% 5.85%
Return on average assets 1.72 1.71 1.46 1.29 .87 .59
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Money market investments $ 1,222 $ 1,656 $ 3,821 $ 1,905 $ 1,566 $ 2,927
Securities 4,922 5,149 4,804 6,500 5,778 5,238
Loans 27,321 25,097 21,763 18,235 18,514 18,845
Interest-earning assets 33,761 32,282 30,657 26,948 26,167 27,288
Total assets 40,097 38,106 35,635 30,758 29,878 31,078
Deposits 27,951 27,248 26,541 22,684 21,438 22,084
Notes and debentures 1,670 1,768 1,991 1,365 1,448 1,722
Redeemable preferred stock - - - - 51 94
Common shareholders' equity 3,671 3,691 3,323 2,603 2,190 2,042
Total shareholders' equity 4,106 4,277 3,964 3,112 2,614 2,437
- ----------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (based on balance sheet averages)
Return on common shareholders' equity 17.77% 9.79% 12.08% 18.45% 13.78% 9.30%
Return on assets 1.72 1.14 1.29 1.72 1.16 .76
Net interest margin:
Taxable equivalent basis 4.62 4.71 4.39 4.46 3.99 3.49
Without taxable equivalent increments 4.58 4.67 4.34 4.39 3.86 3.34
Efficiency ratio 63 65 64 65 68 70
Efficiency ratio excluding amortization of intangibles (c) 60 62 61 63 66 69
Pretax operating margin 34 23 26 26 20 14
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Common shareholders' equity to assets 8.83% 9.54% 9.57% 8.85% 7.91% 6.67%
Total shareholders' equity to assets 9.90 10.67 11.17 10.28 9.32 7.95
Tier I capital ratio 8.14 9.48 9.70 10.20 9.05 7.42
Total (Tier I plus Tier II) capital ratio 11.29 12.90 13.22 13.83 13.16 11.28
Leverage capital ratio 7.80 8.67 9.00 9.45 8.62 6.91
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) After tax gains (losses) on the sale of securities were as follows: 1995--$4
million; 1994--$(3) million; 1993--$61 million; 1992--$113 million;
1991--$76 million; and 1990--$23 million.
(b) Results for 1994 exclude a $130 million after tax securities lending charge,
$79 million after tax of Dreyfus merger-related expense, $10 million after
tax of losses on the disposition of securities available for sale previously
owned by Dreyfus and $16 million of preferred stock dividends recorded in
connection with the redemption of the Series H preferred stock. Results for
1993 exclude $112 million after tax of merger expenses and $53 million after
tax of gains on the sale of securities related to the acquisition of The
Boston Company. Results for periods prior to 1993 were calculated by
applying a normalized effective tax rate of approximately 38% to pretax
income. The unrecorded tax benefit that existed at the beginning of the
periods, prior to 1993, was included in the determination of the return on
average common shareholders' equity.
(c) Excludes amortization of goodwill and other intangible assets recorded in
connection with purchase acquisitions.
</TABLE>
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS.
23
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS IN 1995
- -------------------------------------------------------------------------------
Common dividend increases
The Corporation increased its quarterly common stock dividend twice during
1995. In the second quarter, the Corporation increased its common stock
dividend by 11%, to $.50 per share, from $.45 in the fourth quarter of 1994.
In the fourth quarter of 1995, the Corporation increased its common stock
dividend by 10%, to $.55 per share. The Corporation has increased its common
stock dividend four times over the last two years, resulting in a 117% increase
during that period.
Mellon Bank Corporation and Chemical Banking Corporation joint venture
In May 1995, the Corporation and Chemical Banking Corporation (Chemical)
entered into a joint venture and formed Chemical Mellon Shareholder Services
(CMSS), the nation's largest company that focuses exclusively on providing
stock transfer and related shareholder services to publicly held companies.
The Corporation contributed the assets and business of its Mellon Securities
Transfer Services subsidiary to the joint venture and Chemical contributed its
Geoserve Shareholder Services unit. CMSS has more than 14 million shareholder
accounts and more than 2,000 corporate clients, including the largest share of
companies listed on both the New York Stock Exchange and the American Stock
Exchange.
Repurchase of common stock and warrants
In June 1995, the Corporation repurchased, in a privately negotiated
transaction, the 3.75 million common shares and equity purchase options
(warrants) for an additional 4.5 million common shares issued in 1993 as part
of the purchase price of The Boston Company, Inc. The common stock and
warrants were repurchased from American Express Travel Related Services
Company, Inc., a subsidiary of American Express Company, for $213 million.
In October 1995, the Board of Directors authorized the repurchase of up to 8
million shares of the Corporation's common stock. The repurchases are being
made from time to time in the open market or through privately negotiated
transactions and, subject to market conditions, are expected to be completed by
March 31, 1996. At December 31, 1995, the Corporation had repurchased
approximately 3.5 million shares under this authorization. In addition, during
1995 the Corporation repurchased 5.5 million shares of its common stock to be
used to meet its current and near-term common stock requirements for its
stock-based benefit plans and its dividend reinvestment plan. As of December
31, 1995, approximately 2.8 million of these repurchased shares had been
reissued.
As a result of the aforementioned repurchases, the Corporation returned $632
million to shareholders in 1995, before any reissuances, by repurchasing 12.8
million shares, or 9% of the common shares outstanding at the beginning of the
year, as well as the warrants for 4.5 million common shares.
Acquisition of Metmor Financial, Inc.
In August 1995, Mellon Mortgage Company, the Corporation's mortgage banking
subsidiary, completed its acquisition of Metmor Financial, Inc. (Metmor), the
residential and commercial mortgage banking subsidiary of Metropolitan Life
Insurance Company. Mellon Mortgage Company acquired 24 residential mortgage
origination offices in the southwestern and midwestern United States and 8
commercial origination offices nationwide, as well as Metmor's $13 billion
residential and commercial loan servicing portfolios. This acquisition makes
Mellon Mortgage Company the 13th largest servicer of residential mortgages in
the country with a residential servicing portfolio of $46.4 billion and the
seventh largest servicer of commercial mortgages with a commercial servicing
portfolio of $6.7 billion. The purchase price of this cash transaction was
$165 million.
24
<PAGE> 8
SIGNIFICANT EVENTS IN 1995 (CONTINUED)
- --------------------------------------------------------------------------------
Securitization of credit card receivables
The Corporation securitized $950 million, or one-third, of its credit card
receivables in late November 1995. The securitization and sale of credit card
receivables is an effective way to diversify funding sources and manage the
balance sheet. The Corporation no longer recognizes interest revenue and
certain fee revenue on the securitized portfolio; however, the decreases in
these revenue categories are substantially offset by increased servicing fee
revenue and lower net credit losses. The Corporation continues to service the
securitized receivables. The effect of the credit card receivable
securitization is discussed on page 35.
CornerStone(sm) credit card losses
In December 1995, the Corporation segregated $193 million of CornerStone(sm)
credit card loans, which have a history of delinquency, into an accelerated
resolution portfolio. In connection with this action, the Corporation
evaluated the carrying value of these loans and recorded a credit loss of $106
million to reflect this portfolio's estimated net realizable value. Interest
and principal receipts, fees and loan loss recoveries are applied to reduce the
net carrying value of this portfolio, which totaled $82 million at December 31,
1995. No revenue will be recorded until the net carrying value is recovered.
25
<PAGE> 9
<TABLE>
<CAPTION>
BUSINESS SECTORS
- ----------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in Consumer Corporate/Institutional
millions, averages Investment Services Banking Services Investment Services Banking Services
in billions) 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $380 $375 $1,383 $1,261 $916 $964 $ 413 $ 428
Credit quality
expense (revenue) - - 211 62 - - (8) -
Operating expense 261 267 863 831 742 756 157 184
- ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes 119 108 309 368 174 208 264 244
Income taxes 49 45 118 143 71 91 95 87
- ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 70 $ 63 $ 191 $ 225 $103 $117 $ 169 $ 157
- ----------------------------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.4 $ 22.1 $ 20.9 $1.7 $0.9 $13.4 $13.2
Average common
shareholders' equity $0.2 $0.2 $ 1.1 $ 1.0 $0.5 $0.4 $ 1.1 $ 1.1
Return on average common
shareholders' equity 41% 37% 17% 23% 23% 26% 15% 15%
Return on average assets NM NM .86% 1.08% NM NM 1.26% 1.19%
Pretax operating margin 31% 29% 22% 29% 19% 22% 64% 57%
Pretax operating margin
excluding amortization
of intangibles 32% 29% 26% 34% 22% 25% 66% 59%
Efficiency ratio excluding
amortization of intangibles 68% 71% 58% 61% 78% 75% 36% 41%
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
NM--Not a meaningful measure of performance for this sector.
</TABLE>
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 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.
Upon completion of the merger with Dreyfus, the Corporation's core business
lines were realigned to reflect the distinct customers that are serviced--
consumers and corporations/institutions--and the products that are offered-
- -investment and banking. Accordingly, the business sector results for 1994
have been realigned to reflect the change in methodology used by the
Corporation to report business sector results.
Income before taxes for the Corporation's core sectors was $866 million in
1995, down $62 million compared with the prior year. This decrease resulted
from a $141 million increase in credit quality expense, primarily related to
the CornerStone(sm) credit card product, partially offset by a $64 million
increase in revenue and a $15 million decrease in operating expense. Return on
average common shareholders' equity for the core sectors was 19% in 1995,
compared with 21% in 1994. Return on average assets was 1.42% in 1995,
compared with 1.59% in 1994. The Real Estate Workout sector showed higher
profitability, as a result of lower credit quality expense, with income before
taxes improving to $126 million in 1995, compared with $26 million in 1994.
Consumer Investment Services
Consumer Investment Services includes private asset management services and
retail mutual funds. Income before taxes for the Consumer Investment sector
was $119 million in 1995, an increase of $11 million from 1994. This increase
resulted from lower operating expense, as well as higher private asset
management fees and higher mutual fund management revenue, generated by a
higher average level of assets managed. This sector realized a 41% increase in
income before taxes in the second half of 1995, compared with the second half
of 1994. This increase primarily resulted from an increase in private asset
management and mutual fund management revenue. This sector continued to
provide excellent returns, as return on average common shareholders' equity was
41% in 1995, up from 37% in 1994.
26
<PAGE> 10
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3,092 $3,028 $ 14 $ 12 $139 $ 135 $3,245 $3,175
203 62 (118) (24) - 4 85 42
2,023 2,038 6 10 18 354 2,047 2,402
- ----------------------------------------------------------------------------------------------------------------------------------
866 928 126 26 121 (223) 1,113 731
333 366 46 10 43 (78) 422 298
- ----------------------------------------------------------------------------------------------------------------------------------
$ 533 $ 562 $ 80 $ 16 $ 78 $(145) $ 691 $ 433
- ----------------------------------------------------------------------------------------------------------------------------------
$ 37.5 $ 35.4 $ 0.2 $0.3 $2.4 $2.4 $ 40.1 $ 38.1
$ 2.9 $ 2.7 $ - $ - $0.8 $1.0 $ 3.7 $ 3.7
19% 21% NM NM NM NM 18% 10%
1.42% 1.59% NM NM NM NM 1.72% 1.14%
28% 31% NM NM NM NM 34% 23%
31% 34% NM NM NM NM 37% 37%
62% 64% NM NM NM NM 60% 62%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer Banking Services
Consumer Banking Services includes consumer lending, business banking, branch
banking, credit card, mortgage loan origination and servicing and jumbo
residential mortgage lending. Income before taxes for this sector totaled $309
million in 1995, a $59 million decrease from 1994. The increase in revenue
primarily reflects a higher level of average loans, higher mortgage servicing
fees including $18 million related to the Metmor acquisition and higher
electronic tax return filing fees, partially offset by a decline in revenue as
the Corporation elected not to offer its seasonal tax refund anticipation loan
program in 1995. The increase in credit quality expense reflected higher
credit card losses resulting from the CornerStone(sm) credit card portfolio. The
Corporation anticipates that credit quality expense for this sector will be
lower in 1996 than in 1995 as a result of the actions taken to transfer the
problem CornerStone(sm) credit card accounts to an accelerated resolution
portfolio. The increase in operating expense primarily reflected higher
expenses in support of mortgage servicing and credit card acquisitions,
including an increase in the amortization of mortgage servicing rights and
purchased credit card relationships. Partially offsetting the higher operating
expenses was the reduction of the FDIC deposit insurance premium in the second
half of 1995. The FDIC premium has been eliminated for at least the first half
of 1996. Also impacting operating expense in 1995, compared with the prior
year, was a decrease in marketing expense related to the CornerStone(sm) credit
card product. The return on average common shareholders' equity for this
sector was 17% in 1995, compared with 23% in 1994.
Corporate/Institutional Investment Services
Corporate/Institutional Investment Services includes institutional trust and
custody, institutional asset and institutional mutual fund management and
administration, securities lending, foreign exchange, cash management and stock
transfer. Income before taxes for this sector was $174 million in 1995, a
decrease of $34 million compared with 1994. The decrease primarily resulted
from: lower mutual fund administration and custody fees including the impact
of the second quarter 1994 sale of the Boston-based third-party mutual fund
administration business; lower fee revenue resulting from the CMSS joint
venture; and lower securities lending revenue reflecting narrower margins in
1995 compared with 1994. Partially offsetting these decreases was an increase
in revenue from custody related foreign exchange fees. The $14 million
decrease in operating expense reflected the formation of the CMSS joint
venture, the sale of the third-party mutual fund business and expense
management efforts, offset partially by expense growth in support of higher
transaction volumes and investments. The return on average common
shareholders' equity for this sector was 23% in 1995, compared with 26% in
1994.
27
<PAGE> 11
BUSINESS SECTORS (CONTINUED)
- -------------------------------------------------------------------------------
Corporate/Institutional Banking Services
Corporate/Institutional Banking Services includes large corporate and middle
market lending, asset-based lending, certain capital markets and leasing
activities, commercial real estate lending and insurance premium financing.
Income before taxes for the Corporate/Institutional Banking Services sector was
$264 million in 1995, a $20 million increase from 1994. Revenue decreased
primarily as a result of a decline in securities trading revenue and lower
insurance premium finance spreads, partially offset by higher net interest
revenue on higher loan levels as well as higher loan syndication fee revenue.
The decrease in credit quality expense was primarily the result of credit
recoveries. The decrease in operating expense, which more than offset the
decrease in revenue, resulted from overall expense management efforts and lower
overhead charges, and reflects the results of infrastructure reengineering in
the insurance premium finance business. The return on average common
shareholders' equity for this sector was 15% in 1995 and 1994.
Real Estate Workout
Real Estate Workout includes commercial real estate recovery and mortgage
banking recovery operations. Income before taxes for Real Estate Workout was
$126 million in 1995, compared with $26 million in 1994. The improvement
primarily reflected a lower level of required loan loss reserves given the
decline in both the volume and loss experience of the portfolio, as well as
higher credit loss recoveries in 1995.
Other
The Other sector's pretax income of $121 million in 1995 principally reflected
earnings on capital above that required in the core sectors. The results for
1994 primarily reflected the $223 million pretax securities lending charge and
the pretax merger expenses and loss on disposition of securities totaling $119
million recorded in conjunction with the Dreyfus merger.
The following tables distribute net income and return on common shareholders'
equity for the Corporation's core sectors between customers serviced and
products offered.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Customers serviced
------------------------------------------------------------
Total Total
Consumer Corporate/Institutional
(dollar amounts in millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $261 $288 $272 $274
Return on average common
shareholders' equity 20% 25% 17% 18%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Products offered
------------------------------------------------------------
Total Total
Investment Banking
(dollar amounts in millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $173 $180 $360 $382
Return on average common
shareholders' equity 28% 29% 16% 19%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 12
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
OVERVIEW OF 1995 RESULTS
- ------------------------------------------------------------------------------
The Corporation reported 1995 earnings per common share of $4.50 and net income
applicable to common stock of $652 million. Reported 1994 earnings per common
share were $2.42 on net income applicable to common stock of $358 million.
Return on common shareholders' equity and return on assets were 17.77% and
1.72%, respectively, in 1995, compared with 9.79% and 1.14%, respectively, in
1994.
Results in 1994 included a $130 million after tax securities lending charge,
$89 million after tax of Dreyfus merger-related charges and $16 million of
additional preferred stock dividends recorded in connection with the redemption
of the Corporation's Series H preferred stock. Excluding these items, 1994
earnings per common share were $4.00 on net income applicable to common stock
of $593 million, while return on common shareholders' equity and return on
assets were 16.02% and 1.71%, respectively.
The Corporation's 1995 financial results reflect continued efforts to diversify
and expand revenue sources; manage expense growth; and effectively and
efficiently integrate the activities of The Boston Company and Dreyfus into the
Corporation's operations. Despite a very challenging operating environment,
the Corporation's 1995 results, compared with 1994, show an improvement in net
interest and fee revenue as well as lower operating expense, offset in part by
higher credit quality expense.
Net interest revenue increased to $1,548 million, up $40 million from $1,508
million in 1994, principally resulting from a higher average level of loans.
Fee revenue increased to $1,670 million, up from $1,652 million in 1994,
reflecting higher mortgage servicing fees, credit card fees and foreign
currency and securities trading fees, partially offset by lower trust and
investment management fees and the effect of divestitures.
Operating expense before the net revenue from acquired property was well
managed at $2,047 million in 1995, down $28 million from $2,075 million in
1994, excluding the securities lending charge and merger expense. This
decrease resulted from lower FDIC deposit insurance assessment expense, lower
marketing expense related to the CornerStone(sm) credit card and a decrease in
professional, legal and other purchased services expense. Partially offsetting
these decreases were increases in the amortization of purchased mortgage
servicing rights and higher equipment expense.
The provision for credit losses was $105 million in 1995, compared with $70
million in 1994. Net credit losses totaled $249 million in 1995, up from $67
million in 1994, principally reflecting higher losses on the CornerStone(sm)
credit card product, including $106 million of credit losses on certain
CornerStone(sm) accounts that were transferred to an accelerated resolution
portfolio in the fourth quarter of 1995. Nonperforming assets totaled $236
million at December 31, 1995, a decrease of $3 million from $239 million at
December 31, 1994. The Corporation's ratio of nonperforming assets to total
loans and net acquired property was .85% at December 31, 1995, compared with
.89% at December 31, 1994. This ratio has been less than one percent for six
consecutive quarters.
The Corporation's ratio of common shareholders' equity to assets was 8.83% at
December 31, 1995. The Tier I, Total and Leverage capital ratios were 8.14%,
11.29% and 7.80%, respectively, at December 31, 1995, well in excess of the
minimum required ratios.
The Corporation reported net income applicable to common stock of $358 million,
or $2.42 per common share, in 1994, compared with $397 million, or $2.73 per
common share, in 1993. Results in 1993 included $112 million after tax of
merger expenses and $53 million after tax of gains on the sale of securities,
related to The Boston Company acquisition. Net interest revenue was $1,508
million in 1994, an increase of $179 million compared with 1993, partially
reflecting a higher yielding asset mix. Fee revenue was $1,652 million in
1994, an increase of $114 million from 1993, reflecting the full-year impact of
The Boston Company and internal growth, offset in part by the impact of
divestitures and lower mutual fund management fee revenue. The provision for
credit losses was $70 million in 1994, down $55 million from the prior year.
Operating expense before the net expense (revenue) of acquired property, the
securities lending charge and merger expenses, was $2,075 million in 1994, an
increase of $225 million from 1993. The increase in operating expense was
principally attributable to the full-year impact of The Boston Company. Net
revenue from acquired property totaled $28 million in 1994, an $87 million
improvement over 1993.
29
<PAGE> 13
NET INTEREST REVENUE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
(taxable equivalent basis,
dollar amounts in millions) 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest revenue $ 1,558 $ 1,521 $ 1,346
Average loans 27,321 25,097 21,763
Average interest-earning assets 33,761 32,282 30,657
Net interest margin 4.62% 4.71% 4.39%
- -------------------------------------------------------------------------------------------
</TABLE>
Net interest revenue includes the interest spread on interest earning assets,
as well as loan fees, cash receipts and interest reversals on nonperforming
loans, dividend income, and revenue or expense on off-balance-sheet
instruments used for interest rate risk management purposes.
Net interest revenue on a taxable equivalent basis totaled $1,558 million in
1995, up $37 million compared with 1994. The improvement in net interest
revenue in 1995, compared with the prior year, primarily resulted from higher
average loan levels partially offset by the migration of retail customers from
lower cost core deposit products to higher cost deposit products.
The net interest margin was 4.62% in 1995, compared with 4.71% in 1994. The
decrease in the net interest margin primarily reflects the movement of
customers from lower yielding deposit products to higher yielding products,
reflecting the industry-wide trend of customers seeking higher yielding
investment alternatives. Also affecting the net interest margin compared with
1994 was a high level of prepayment on adjustable rate mortgages.
Average loans increased $2,224 million in 1995 compared with 1994, primarily as
a result of a $960 million increase in domestic wholesale loans, an $830
million increase in credit card loans, including $550 million related to the
CornerStone(sm) credit card product and an increase of $555 million in retail
loans. The increase in domestic wholesale loans primarily was driven by
corporate banking, business banking, middle market lending and asset based
lending, while the increase in retail loans primarily resulted from increases
in home equity loans, personal credit lines and student loans.
The late November 1995 securitization of $950 million of credit card
receivables resulted in a $10 million decrease in net interest revenue in 1995,
as well as a $107 million reduction in average loans. In accordance with
generally accepted accounting principles, the foregone net interest revenue
from the securitized credit card receivables is substantially offset by higher
servicing fee revenue and lower net credit losses. Net interest revenue and the
net interest margin will be reduced in 1996, compared with 1995, when a
full-year impact of the credit card receivables securitization is reflected.
All credit card servicing revenue related to the securitized portfolio is
included in credit card fee revenue in noninterest revenue. Additional
information on the effect of the securitization is presented in a table on page
35.
Net interest revenue on a taxable equivalent basis in 1994 increased by $175
million compared with 1993, while the net interest margin increased by 32 basis
points. The improvement in the net interest revenue and the net interest
margin reflected a higher level of interest-earning assets and a higher
yielding asset mix. Net interest revenue and the margin also benefited from a
lower level of nonperforming assets, a lower average level of long-term debt
and higher loan fees.
CREDIT QUALITY EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $105 $ 70 $125
Net expense (revenue) of acquired property (20) (28) 59
- ------------------------------------------------------------------------------------
Credit quality expense $ 85 $ 42 $184
- ------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses plus the net
expense (revenue) of acquired property, increased $43 million in 1995 compared
with 1994, as a result of a $35 million higher provision for credit losses
primarily made in response to losses from the CornerStone(sm) credit card
portfolio. The Corporation anticipates that the provision for credit losses in
1996 will be lower than in 1995 following the actions taken to transfer the
problem CornerStone(sm) credit
30
<PAGE> 14
CREDIT QUALITY EXPENSE (CONTINUED)
- ------------------------------------------------------------------------------
card accounts into an accelerated resolution portfolio. However, there can be
no assurance that the provision for credit losses will be lower in 1996 as
asset quality is dependent in large part on future economic conditions that are
beyond the Corporation's control.
The net revenue from acquired property was $20 million in 1995, an $8 million
decrease compared with 1994. The decrease reflects lower net gains on the sale
of acquired property. The Corporation expects a further reduction in net gains
on the sale of acquired property in 1996.
NONINTEREST REVENUE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 309 $ 294 $ 310
Administration/Custody 115 159 119
Institutional trust 206 223 184
Institutional asset management 135 143 122
Private asset management 141 134 118
- --------------------------------------------------------------------------------------------
Total trust and investment management fees 906 953 853
Cash management and deposit transaction charges 191 197 192
Mortgage servicing fees 122 78 62
Foreign currency and securities trading revenue 91 76 46
Credit card fees 90 72 61
Other 270 276 324
- --------------------------------------------------------------------------------------------
Total fee revenue 1,670 1,652 1,538
Gains (losses) on sale of securities 6 (5) 100
- --------------------------------------------------------------------------------------------
Total noninterest revenue $1,676 $1,647 $1,638
- --------------------------------------------------------------------------------------------
</TABLE>
The Corporation's long-standing strategy has been to balance its revenue
between lending and nonlending businesses. The Corporation once again achieved
this desired balance as revenues from fee-generating businesses represented 52%
of total revenue for the year. Fee revenue totaled $1,670 million in 1995, an
$18 million increase compared with 1994, resulting from higher mortgage
servicing fees, credit card fees and foreign currency and securities trading
revenue, partially offset by lower trust and investment management fee revenue.
Total trust and investment management fees
The Corporation's trust and investment management fee revenue represents 54% of
the Corporation's total fee revenue. The $47 million, or 5%, decrease in trust
and investment management fees in 1995 compared with 1994 resulted from several
factors. Mutual fund administration and custody fees decreased $44 million,
primarily resulting from lower levels of administered funds, as well as a $12
million decrease in revenue related to the second quarter 1994 sale of the
Boston-based third-party mutual fund administration business. Securities
lending revenue, which is included in institutional trust revenue, decreased
$17 million from 1994. The decrease in securities lending revenue primarily
resulted from narrower margins in 1995 compared with 1994, as well as a
slightly lower volume of securities lent in 1995. Institutional asset
management revenue decreased $8 million as a result of a divestiture as well as
attrition of higher margin clients, primarily at TBC Asset Management.
Partially offsetting these decreases was a $15 million increase in mutual fund
management revenue. The increase in mutual fund management revenue resulted
from lower fee waivers at Dreyfus and a higher average level of mutual fund
assets managed. Mutual fund management fees are discussed further on page 33.
The $7 million improvement in private asset management fees resulted from a
general market increase and new business.
31
<PAGE> 15
NONINTEREST REVENUE (CONTINUED)
- ------------------------------------------------------------------------------
As shown in the table below, the market value of assets under management and
administration/custody was $1,019 billion at December 31, 1995, up $172
billion, or 20%, compared with $847 billion at December 31, 1994. The market
value of assets under management increased $43 billion, primarily as a result
of: an increase in new institutional asset management business which more than
offset the lost portion of TBC Asset Management business; an overall increase
in the market values of assets managed, reflecting the improvement in the fixed
income and equity markets in 1995 and an increase in institutional money market
mutual funds. The $129 billion increase in the market value of assets under
administration/custody primarily reflected new institutional trust business and
a general market increase, partially offset by lost mutual fund
administration/custody business. At December 31, 1995, compared with the prior
year-end, the S&P 500 Index increased 34.11% while the Lehman Brothers Long
Term Government Bond Index increased 30.72%.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY December 31,
(in billions) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional trust:
Management $ 3 $ 3 $ 1
Administration/Custody 708 568 479
Mutual fund:
Management (a) 81 73 82
Administration/Custody 60 76 128
Institutional asset management:
Management 125 93 104
Private asset management:
Management 24 21 24
Administration/Custody 18 13 13
- ------------------------------------------------------------------------------------------------------
Total:
Management $233 $190 $211
Administration/Custody $786 $657 $620
- ------------------------------------------------------------------------------------------------------
<FN>
(a) See table below for components of managed mutual fund assets.
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY December 31,
(in billions) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $24 $18 $23
Individuals 10 10 10
Tax-exempt money market funds 8 7 8
Tax-exempt bond funds 19 18 21
Fixed income funds 5 4 5
Equity funds 11 9 9
- ------------------------------------------------------------------------------------------------------
Total proprietary funds 77 66 76
Other managed funds 4 7 6
- ------------------------------------------------------------------------------------------------------
Total managed mutual fund assets $81 $73 $82
- ------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 16
NONINTEREST REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
MANAGED MUTUAL FUND FEE REVENUE
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed mutual fund fees $352 $348 $368
Less: Fees waived 35 44 48
Less: Fund expense reimbursements 8 10 10
- ------------------------------------------------------------------------------------------
Net managed mutual fund fees $309 $294 $310
- ------------------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $ 48 $ 43 $ 60
Individuals 39 39 51
Tax-exempt money market funds 24 21 20
Tax-exempt bond funds 100 102 101
Fixed income funds 23 20 21
Equity funds 64 56 48
- ------------------------------------------------------------------------------------------
Total proprietary fund fees 298 281 301
Other managed fund fees 11 13 9
- ------------------------------------------------------------------------------------------
Net managed mutual fund fees $309 $294 $310
- ------------------------------------------------------------------------------------------
</TABLE>
Mutual fund management fees
Mutual fund management fees are based on the average net assets of each fund.
Average proprietary funds managed at Dreyfus grew each quarter of 1995, to $78
billion in the fourth quarter, and averaged $74 billion for the year, compared
with $72 billion in 1994. This increase resulted from higher average
institutional money market funds, as well as an overall increase in the market
values of assets managed, paralleling the improvement in the fixed income and
equity markets in 1995.
Cash management and deposit transaction charges
The Corporation provides a number of cash management services, including
remittance processing, collections and disbursements, check processing and
electronic services. At December 31, 1995, the Corporation's cash management
services ranked sixth nationally in market share. Cash management and deposit
transaction charges totaled $191 million in 1995, a decrease of $6 million from
1994. This decrease partially reflected a shift to deposit balance-based
compensation from fee-based compensation as a method of payment for cash
management services. Including the revenue generated from deposit balances,
which is in net interest revenue, cash management and deposit transaction
charges increased compared with 1994.
Mortgage servicing fees
Mortgage servicing fees were $122 million in 1995, an increase of $44 million,
or 57%, compared with 1994, resulting from acquisitions of mortgage servicing
rights. The $13 billion Metmor residential and commercial loan servicing
portfolio acquired in August 1995 generated $18 million of revenue in the last
four months of 1995. At December 31, 1995, the Corporation's total servicing
portfolio was $53 billion, up 44% compared with $37 billion at year-end 1994.
At December 31, 1995, the Corporation had the 13th largest residential mortgage
servicing portfolio in the United States.
33
<PAGE> 17
NONINTEREST REVENUE (CONTINUED)
- ------------------------------------------------------------------------------
Foreign currency and securities trading revenue
Foreign currency and securities trading fees increased to $91 million, a 20%
increase over the $76 million earned in 1994. The increase was primarily
attributable to higher foreign exchange fees earned, primarily as a result of
increased global custody and corporate customer activity.
Credit card fees
Credit card fee revenue, which principally consists of interchange and
cardholder fees, increased by $18 million, or 24%, in 1995. This increase
primarily resulted from fee revenue generated by portfolio acquisitions and the
CornerStone(sm) credit card product. As a result of the securitization of $950
million of credit card receivables, interest and fee revenue in excess of
interest paid to certificate holders and net of credit losses are now reported
in credit card fee revenue. The net effect of the securitization on credit card
fees was $5 million from late November 1995 to year-end 1995. Additional
information on the effect of the securitization is presented in a table on page
35.
Other fee revenue
Other fee revenue decreased $6 million in 1995 from $276 million in 1994 as a
result of several factors. The Corporation's decision not to offer its
seasonal tax refund anticipation loan program in 1995 reduced other fee revenue
by $31 million compared with 1994. In addition, the May 1995 formation of CMSS
resulted in a $25 million reduction in other fee revenue. The Corporation
accounts for the CMSS joint venture under the equity method of accounting by
reporting its share of the net results of the joint venture as other fee
revenue, rather than reporting the revenues and expenses of CMSS separately.
These reductions were partially offset by: a $24 million increase in gains on
the disposition of assets, including equity securities; an $8 million increase
in syndication management fees; and an $8 million increase in revenue generated
from the electronic filing of income tax returns.
Gains (losses) on sale of securities
The Corporation recorded $6 million in net gains on the sale of securities
available for sale in 1995. The Corporation recorded $5 million in net losses
on the sale of securities available for sale in 1994, resulting from the loss
of $15 million, or $10 million after tax, related to the disposition of
securities held by Dreyfus prior to its merger with the Corporation, that did
not meet the investment objectives, interest rate or credit risk
characteristics required by the Corporation.
1994 compared with 1993
Compared with 1993, fee revenue increased by $114 million, or 7%, in 1994,
primarily resulting from fee revenue attributable to the full-year impact of
The Boston Company and continued growth in the fee-based service products
businesses, offset in part by the effect of divestitures. The improvement
reflected increases of 12% in trust and investment management fees, 25% in
mortgage servicing fees, 3% in cash management and deposit transaction charges,
19% in credit card fee revenue and 64% in foreign currency and securities
trading fee revenue. These improvements were partially offset by the sale of
two information services businesses in late 1993 that resulted in a $74 million
decrease in revenues in 1994. The Corporation recorded $100 million in gains
on the sale of securities during 1993. Included in the $100 million in gains
were $87 million that resulted from sales undertaken as part of the financing
plan and balance sheet restructuring related to the acquisition of The Boston
Company.
34
<PAGE> 18
SECURITIZATION OF CREDIT CARD RECEIVABLES
- -------------------------------------------------------------------------------
The Corporation securitized and sold $950 million of credit card receivables in
late November 1995. For analytical purposes, the impact of the securitization
on 1995 results, with the net proceeds received from the securitization used to
replace short-term borrowings, is shown below.
<TABLE>
<CAPTION>
(in millions) 1995
- -------------------------------------------------------------------------------
<S> <C>
Lower net interest revenue $ 10
Lower net credit losses 5
Higher fee revenue 5
Lower loans - year-end 950
Lower loans - average 107
- -------------------------------------------------------------------------------
</TABLE>
OPERATING EXPENSE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $ 957 $ 956 $ 854
Net occupancy expense 205 206 186
Professional, legal and other purchased services 186 210 163
Equipment expense 143 132 121
Business development 136 161 139
Amortization of goodwill and other intangible assets 96 98 78
Communications expense 86 84 77
Amortization of mortgage servicing rights and
purchased credit card relationships 68 40 44
Forms and supplies 42 40 38
FDIC assessment and regulatory examination fees 31 63 60
Other expense 97 85 90
- -------------------------------------------------------------------------------------------------------------
Operating expense before the net expense (revenue) of acquired
property, the securities lending charge and merger expenses 2,047 2,075 1,850
- -------------------------------------------------------------------------------------------------------------
Net expense (revenue) of acquired property (20) (28) 59
Securities lending charge - 223 -
Merger expenses - 104 175
- -------------------------------------------------------------------------------------------------------------
Total operating expense $ 2,027 $ 2,374 $ 2,084
- -------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,300 24,300 22,300
- -------------------------------------------------------------------------------------------------------------
Efficiency ratio (a) 63% 65% 64%
Efficiency ratio excluding amortization of goodwill
and other intangible assets 60 62 61
- -------------------------------------------------------------------------------------------------------------
<FN>
(a) Operating expense before the net expense (revenue) of acquired property,
the securities lending charge and merger expenses as a percentage of
revenue, computed on a taxable equivalent basis, excluding gains (losses)
on the sale of securities.
</TABLE>
Operating expense before the net expense (revenue) of acquired property, the
securities lending charge and merger expenses totaled $2,047 million in 1995, a
decrease of $28 million, or 1%, compared with 1994. The decrease primarily
resulted from a lower FDIC assessment charge, lower marketing expense related
to the CornerStone(sm) credit card product and a reduction in professional,
legal and other purchased services. These decreases were partially offset by
increases in the amortization of purchased mortgage servicing rights and
equipment expense. The efficiency ratio improved by 2 percentage points in
1995.
35
<PAGE> 19
OPERATING EXPENSE (CONTINUED)
- ------------------------------------------------------------------------------
Staff expense totaled $957 million in 1995, an increase of $1 million compared
with 1994. The May 1995 formation of the CMSS joint venture resulted in an $11
million reduction in staff expense, while the Metmor acquisition in August 1995
resulted in a $6 million increase in staff expense.
In January 1996, the Corporation announced a retirement enhancement program
that will enhance the pensions and health insurance of eligible associates
electing early retirement effective April 1, 1996. The financial impact of
this program can not be determined until March 31, 1996, the acceptance
deadline.
FDIC assessment and regulatory examination fees decreased $32 million in 1995
as a result of the reduction in the FDIC deposit insurance premium from $.23 to
$.04 for every $100 of deposits, effective June 1, 1995. The FDIC premium has
been eliminated for at least the first half of 1996. This will result in a $27
million further reduction in expense compared with 1995 assuming that there
will be no premium for the full year 1996. Partially offsetting this benefit
will be lower fee and/or net interest revenue of approximately $4 million from
cash management customers where the FDIC premium on deposits is passed through
to these customers. The amount passed through was approximately $2 million per
quarter in 1995. Marketing expense, which is included in business development
expense in the table on the previous page, decreased $23 million in 1995 due to
lower expenditures related to the CornerStone(sm) credit card product. The $24
million reduction in professional, legal and other purchased services resulted
from lower purchased data processing services at The Boston Company and lower
consulting expenses.
The amortization of mortgage servicing rights and purchased credit card
relationships totaled $68 million in 1995, a $28 million increase from 1994 and
reflects the $16 billion, or 44%, increase in the Corporation's mortgage
servicing portfolio from December 31, 1994. Equipment expense increased $11
million in 1995 to $143 million and reflects the internalization of certain
data processing operations at The Boston Company, as well as various equipment
upgrades.
In 1994, the Corporation recorded a one-time charge of $223 million, or $130
million after tax, as a result of actions taken to reduce the interest rate
sensitivity of certain securities lending clients' portfolios.
Merger expense of $104 million pretax, or $79 million after tax, was recorded
in 1994 to reflect expense associated with the Dreyfus merger.
The table below summarizes the usage of this expense.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
MERGER EXPENSE ANALYSIS-DREYFUS MERGER Expenditures
and asset Expected
Total adjustments at expenditures
(in millions) expenses Dec. 31, 1995 in 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Benefit and severance programs $ 42 $35 $7
Professional, consulting and other 27 27 -
Facilities and assets 25 25 -
Proxy solicitation 10 10 -
- -------------------------------------------------------------------------------------------------
Total merger expense $104 $97 $7
- -------------------------------------------------------------------------------------------------
</TABLE>
Merger expense of $175 million, or $112 million after tax, was recorded in 1993
to reflect expense associated with the acquisition of The Boston Company. All
expenditures and asset adjustments related to this merger have been recorded.
Operating expense before the net expense (revenue) of acquired property, the
securities lending charge and merger expense in 1994 increased by $225 million,
or 12%, over 1993. The increase primarily resulted from the second quarter
1993 acquisition of The Boston Company and marketing expense of $27 million
recorded in 1994 related to the introduction of the CornerStone(sm) credit card
product. The $87 million improvement in the net expense (revenue) of acquired
property in 1994, compared with 1993, primarily resulted from $30 million in
net gains on the sale of acquired property and no provision to the reserve for
other real estate owned (OREO) in 1994, compared with 1993 which included a $54
million OREO reserve provision.
36
<PAGE> 20
INCOME TAXES
- -------------------------------------------------------------------------------
The provision for income taxes totaled $401 million in 1995, compared with $278
million in 1994 and $298 million in 1993. The Corporation's effective tax rate
for 1995 was 36.65% and it is currently anticipated that the effective tax rate
will decline to approximately 36.5% in 1996. Excluding the impact of the
Dreyfus merger-related expenses, the losses on the disposition of Dreyfus
securities and the securities lending charge, the Corporation's effective tax
rate for 1994, was 38%.
CAPITAL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, December 31,
except per share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $3,590 $ 3,687 $ 3,546
Common shareholders' equity to assets ratio 8.83% 9.54% 9.57%
Tangible common shareholders' equity $2,632 $ 2,651 $ 2,462
Tangible common equity to assets ratio (a) 6.63% 7.05% 6.84%
Total shareholders' equity $4,025 $ 4,122 $ 4,138
Total shareholders' equity to assets ratio 9.90% 10.67% 11.17%
Tier I capital ratio 8.14 9.48 9.70
Total (Tier I plus Tier II) capital ratio 11.29 12.90 13.22
Leverage capital ratio 7.80 8.67 9.00
Book value per common share $26.17 $ 25.06 $ 24.28 (b)
Closing common stock price $53.75 $30.625 $35.375
Market capitalization $7,374 $ 4,507 $ 5,070
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Common shareholders' equity less goodwill and other intangibles recorded
in connection with purchase acquisitions divided by total assets less
goodwill and other intangibles recorded in connection with purchase
acquisitions.
(b) The book value per common share assumed full conversion of the Series D
preferred stock to common stock. Accordingly, this included the additional
paid-in capital on the Series D preferred stock because this paid-in
capital had no liquidation preference over the common stock. The Series D
preferred stock was converted into common stock in 1994, pursuant to the
terms of the Series D statement of designation.
</TABLE>
The Corporation's capital management objectives are to maintain a strong
capital base--in excess of all regulatory guidelines--while also maximizing
shareholder value. Actions were taken in 1995 to enhance shareholder value by
returning excess capital to shareholders' through both increased dividends and
the repurchase of common stock. Common stock repurchases resulted in a
decrease in the Corporation's common and total shareholders' equity at December
31, 1995, compared with December 31, 1994, offset in part by earnings
retention. The decrease in the Corporation's equity ratios from December 31,
1994, resulted from common stock repurchases as well as asset growth.
The common stock repurchases in 1995 included the June 1995 repurchase of the
3.75 million shares of common stock and warrants for an additional 4.5 million
shares of common stock, issued in 1993 as part of the purchase price of The
Boston Company. Also, during 1995, the Corporation repurchased 5.5 million
shares of its common stock to be used to meet its current and near-term common
stock requirements for its stock-based benefit plans and its dividend
reinvestment plan.
37
<PAGE> 21
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
At December 31, 1995, 2.8 million of these shares had been reissued. In
October 1995, the Board of Directors of the Corporation authorized the
repurchase of up to 8 million additional shares of the Corporation's common
stock. As of December 31, 1995, the Corporation had repurchased approximately
3.5 million shares under this authorization and expects to repurchase the
remaining shares under this authorization by March 31, 1996.
As a result of these common stock repurchases, the Corporation returned $632
million to shareholders in 1995, prior to any reissuances, by repurchasing 12.8
million shares of common stock, or 9% of common shares outstanding at the
beginning of the year, as well as warrants to purchase 4.5 million shares of
common stock. Average common stock and stock equivalents used for the primary
earnings per share computation was 145.1 million shares in 1995. At December
31, 1995, common stock and stock equivalents totaled 139.2 million shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS December 31,
(dollar amounts in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a) $ 3,572 $ 3,742
Qualifying preferred stock 435 435
Other items (14) 13
Goodwill and certain other intangibles (849) (904)
- -------------------------------------------------------------------------------
Total Tier I capital 3,144 3,286
Tier II capital 1,216 1,187
- -------------------------------------------------------------------------------
Total qualifying capital $ 4,360 $ 4,473
- -------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $ 27,459 $26,213
Off-balance-sheet 11,152 8,465
- -------------------------------------------------------------------------------
Total risk adjusted assets $ 38,611 $34,678
- -------------------------------------------------------------------------------
Average assets--leverage capital basis $40,301 $37,882
- -------------------------------------------------------------------------------
Tier I capital ratio (b) 8.14% 9.48%
Total capital ratio (b) 11.29 12.90
Leverage capital ratio (b) 7.80 8.67
- -------------------------------------------------------------------------------
<FN>
(a) In accordance with regulatory guidelines, the $18 million of unrealized
gains and $55 million of unrealized losses, net of tax, on assets classified
as available for sale at December 31, 1995 and 1994, have been excluded.
(b) The required minimum Tier I, Total and Leverage capital ratios are 4%, 8%
and 3%, respectively.
</TABLE>
Tier I and Total capital are expressed as a percentage of risk-adjusted assets,
which include various credit risk-weighted percentages of on- balance-sheet
assets, as well as off-balance-sheet exposures. The Leverage capital ratio
evaluates capital adequacy on the basis of the ratio of Tier I capital to
quarterly average total assets as reported on the Corporation's regulatory
financial statements, net of the loan loss reserve, goodwill and certain other
intangibles.
Federal regulators have adopted a capital-based supervisory system for all
insured financial institutions. 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 December 31, 1995. The
Corporation intends to maintain the ratios of its banking subsidiaries at the
well-capitalized levels.
38
<PAGE> 22
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
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>
- -------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $788 $824 $826
- -------------------------------------------------------------------------------
</TABLE>
The $36 million decrease in goodwill at December 31, 1995, compared with
December 31, 1994, resulted from $54 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 future annual amortization of
goodwill for the years 1996-2000 is expected to be approximately $54 million.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased core deposit intangible $110 $133 $155
Covenants not to compete 22 38 57
Other identified intangibles 38 41 46
- -------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $170 $212 $258
- -------------------------------------------------------------------------------
</TABLE>
The amortization expense of purchased core deposit and other identified
intangibles was $42 million in 1995. The future annual amortization of
purchased core deposit and other identified intangibles for the full years 1996
through 2000 is anticipated to be approximately $42 million, $31 million, $26
million, $26 million and $14 million, respectively.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights $592 $292 $160
Purchased credit card relationships 90 60 44
- -------------------------------------------------------------------------------
Total mortgage servicing rights
and purchased credit card relationships $682 $352 $204
- -------------------------------------------------------------------------------
</TABLE>
During 1995, $376 million of servicing rights were capitalized in connection
with both mortgage servicing portfolio purchases and loan originations,
including $186 million related to the Metmor acquisition. Mortgage servicing
rights are amortized in proportion to estimated net servicing income over the
estimated life of the servicing portfolio. Amortization expense totaled $57
million in 1995. The estimated fair value of capitalized mortgage servicing
rights was $661 million at December 31, 1995. See note 1 of Notes to Financial
Statements for a further discussion of the Corporation's accounting policy for
mortgage servicing rights. The $30 million increase in purchased credit card
relationships in 1995 resulted from portfolio acquisitions net of $11 million
of amortization.
In March 1995, the Financial Accounting Standards Board released FAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." FAS No. 121 established guidelines for recognition of
impairment losses related to long-lived assets and certain intangibles and
related goodwill for both assets to be held and used as well as assets held for
disposition. This statement excludes financial instruments, long-term customer
relationships of financial institutions, mortgage and other servicing rights
and deferred tax assets. This standard became effective on January 1, 1996.
Adoption of FAS No. 121 is not expected to result in a material impact to the
Corporation's financial position or results of operations.
39
<PAGE> 23
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
The amortization expense of goodwill and other identified intangibles is the
result of accounting for business combinations under the purchase method of
accounting. Had the Corporation accounted for these transactions under the
pooling of interests method of accounting, these intangibles and their related
amortization would not have been reported. Net income applicable to common
stock, return on tangible common equity and return on tangible assets,
excluding the after tax impact of the amortization of these intangibles, are
shown in the table below:
<TABLE>
<CAPTION>
(dollar amounts in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income applicable to common stock (a) $ 652 $ 593
After tax impact of amortization of intangibles
from purchase acquisitions 73 76
- -------------------------------------------------------------------------------
Total $ 725 $ 669
Return on tangible common equity 27.1% 25.3%
Average tangible common equity $ 2,678 $ 2,647
Return on tangible assets 1.96% 1.97%
Average tangible assets $39,104 $37,063
- -------------------------------------------------------------------------------
<FN>
(a) Results for 1994 exclude the $130 million after tax securities lending
charge, $89 million after tax of Dreyfus merger-related charges and the
additional $16 million of preferred stock dividends recorded in connection
with the redemption of the Series H preferred stock.
</TABLE>
CORPORATE RISK
- -------------------------------------------------------------------------------
RISK OVERVIEW
- -------------------------------------------------------------------------------
Risk identification and management are essential elements for the successful
management of the Corporation. The four primary risk exposures are liquidity
risk; market risk, which includes interest rate and currency risk; credit risk;
and fiduciary risk. Liquidity risk is the possibility that the Corporation
will not be able to fund present and future financial obligations. Market risk
is the possibility of lower net interest revenue or lower market values of
assets and liabilities as interest rates or exchange rates fluctuate. Credit
risk is the possibility of loss from a counterparty's failure to perform
according to the terms of a transaction. Fiduciary risk is the possibility of
loss from actions taken on behalf of clients. In addition, the Corporation is
subject to other risks, particularly in its fee-generating businesses, that are
transaction oriented. The Corporation controls and monitors these risks with
policies, procedures and various levels of managerial oversight. Because of
the nature of its businesses, external factors beyond the Corporation's control
may, at times, result in losses to the Corporation or its customers.
The Corporation is involved with various financial instruments that potentially
create risk. These instruments are both on and off the balance sheet.
On-balance-sheet instruments include securities, loans, deposits and
borrowings. Off-balance-sheet instruments include loan commitments, standby
letters of credit, interest rate swaps, foreign exchange contracts and interest
rate futures and forwards.
LIQUIDITY AND DIVIDENDS
- -------------------------------------------------------------------------------
The Finance Committee of the Corporation is responsible for liquidity
management. This committee of senior managers has a Liquidity Policy that
covers all assets and liabilities, as well as off-balance-sheet items that are
potential sources or uses of liquidity. The Corporation's 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 uses several key
primary and secondary measures to assess the adequacy of the Corporation's
liquidity position. The balance sheet is managed to ensure that these measures
are maintained within approved limits. Each of these measures is monitored on
a periodic basis giving consideration to the Corporation's expected
requirements for funds and anticipated market conditions.
40
<PAGE> 24
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
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 commercial loans and to securitize selected loan
portfolios. The Corporation also has a three-year $300 million revolving
credit agreement and a $25 million backup line of credit to provide support
facilities for its commercial paper borrowings and for general corporate
purposes. The revolving credit facility contains tier 1 ratio, double leverage
ratio and nonperforming asset covenants, as discussed in note 10 of Notes to
Financial Statements.
As shown in the consolidated statement of cash flows, cash and due from banks
increased by $57 million during 1995 to $2,342 million at December 31, 1995.
The increase primarily reflected $1,096 million of net cash provided by
financing activities and $255 million of net cash provided by operating
activities, offset in part by $1,313 million of net cash used in investing
activities. Net cash provided by financing activities primarily reflected
increases in customer deposits, short-term bank notes and term federal funds
purchased, partially offset by common stock repurchases. Net cash used in
investing activities principally reflected an increase in loans and securities.
In March 1995, the Corporation redeemed the $160 million Series H preferred
stock at the contractual redemption price of $26.30 per share plus accrued
dividends. This transaction was funded with cash on hand. Contractual
maturities of the parent Corporation's term debt totaled $327 million in 1995
and consisted primarily of the $100 million 5-3/8% Senior Notes due August 1995
and the $200 million 6-1/8% Senior Notes due November 1995. In June 1995, the
Corporation issued $200 million of debt at a fixed rate of 6.30% maturing in
the year 2000. The proceeds from this issuance were used to fund the debt that
matured in the second half of 1995. Contractual maturities of existing debt
will total $20 million in 1996.
At December 31, 1995, the Corporation had a debt shelf registration statement
on file with the Securities and Exchange Commission on which up to $1.5 billion
of debt may be issued. The issuance of any debt securities from this debt
shelf registration will depend on future market conditions, funding needs and
other factors.
In late November 1995, Mellon Bank, N.A., the Corporation's principal banking
subsidiary, made available an offering circular to issue, from time to time, up
to $4 billion of bank notes. Mellon Bank, N.A. can issue up to $3 billion of
bank notes with maturities ranging from 30 to 270 days and $1 billion of bank
notes with maturities ranging from more than 270 days to 15 years. Proceeds
from the issuance of the bank notes will be used by Mellon Bank, N.A. for
general funding purposes. At December 31, 1995, there was $1.1 billion of
short-term bank notes outstanding under this program.
At December 31, 1995, the Corporation's senior debt and Mellon Bank, N.A.'s
subordinated debt were rated "A2" by Moody's and "A" by Standard and Poors.
The Corporation increased its annual common stock dividend to $2.00 per common
share in the second quarter of 1995, an increase of 11% from the previous
annual rate of $1.80. In the fourth quarter of 1995, the Corporation again
increased its annual common stock dividend to $2.20 per common share, an
increase of 10%. The Corporation has increased its common stock dividend four
times over the last two years, resulting in a 117% increase during that period.
The Corporation paid $288 million in dividends on its outstanding shares of
common stock during 1995. The common stock dividend payout ratio was 44% in
1995, compared with 55% in 1994. Excluding the $130 million after tax
securities lending charge, the $89 million after tax of Dreyfus merger-related
charges and the $16 million of additional preferred stock dividends, the
dividend payout ratio would have been 33% in 1994. Using the current common
stock dividend rate and shares outstanding at December 31, 1995, annual
dividend requirements in 1996 for the common and preferred stock are expected
to be approximately $340 million. The repurchase of the 4.5 million remaining
shares under the 8 million share repurchase plan will reduce the cash
requirement for the annual common stock dividend by approximately $10 million.
The parent Corporation's principal sources of cash are interest and dividends
from its subsidiaries. The ability of national bank subsidiaries to pay
dividends to the parent Corporation is subject to certain limitations, as
discussed in note 18 of Notes to Financial Statements. Under the more
restrictive limitations, the Corporation's national bank subsidiaries can,
without prior regulatory approval, declare dividends subsequent to December 31,
1995, of approximately $175 million, less any dividends declared and plus or
minus net profits or losses, as defined, between January 1, 1996, and the date
of any such dividend declaration. The national bank subsidiaries declared
dividends to the parent Corporation totaling $501 million in 1995,
41
<PAGE> 25
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
$366 million in 1994 and $185 million in 1993. Dividends paid to the parent
Corporation by nonbank subsidiaries totaled $30 million in 1995, compared with
$122 million in 1994 and $116 million in 1993. In addition, Mellon Bank, N.A.
returned $300 million of capital to the parent Corporation in 1995, and The
Boston Company returned $100 million and $300 million of capital to the parent
Corporation in 1994 and 1993, respectively.
Banking regulators have issued additional guidelines that require bank holding
companies and subsidiary banks to continuously evaluate the level of cash
dividends in relation to their respective operating income, capital needs,
asset quality and overall financial condition.
<TABLE>
<CAPTION>
Balance sheet analysis
- -------------------------------------------------------------------------------
(average balances in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Money market investments $ 1,222 $ 1,656 $ 3,821
Trading account securities 296 380 269
Securities 4,922 5,149 4,804
Loans 27,321 25,097 21,763
- -------------------------------------------------------------------------------
Total interest-earning assets 33,761 32,282 30,657
Noninterest-earning assets 6,927 6,437 5,543
Reserve for credit losses (591) (613) (565)
- -------------------------------------------------------------------------------
Total assets $40,097 $38,106 $35,635
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $30,986 $32,101 $31,430
Wholesale and purchased funds 9,111 6,005 4,205
- -------------------------------------------------------------------------------
Funds supporting total assets $40,097 $38,106 $35,635
- -------------------------------------------------------------------------------
</TABLE>
The change in the level and mix of the Corporation's average interest-earning
assets in 1995, compared with 1994, reflects a higher average level of loans.
Average loans increased $2.2 billion while money market investments and
securities decreased $434 million and $227 million, respectively. The increase
in average loans resulted from a $960 million increase in domestic wholesale
loans, an $830 million increase in credit card loans and a $555 million
increase in retail loans. The change in the mix of the Corporation's funding
in 1995, compared with 1994, reflects the use of wholesale and purchased funds
to support loan growth, as well as a decrease in core funds.
Core funds, which are considered to be the most stable sources of funding, are
defined principally as money market and other savings deposits, demand
deposits, savings certificates, shareholders' equity and notes and debentures
with original maturities over one year. Core funds primarily support core
assets, which consist of loans, net of the reserve and noninterest-earning
assets. Average core assets increased $2.7 billion in 1995 from the prior
year, primarily reflecting increased loan levels. Average core funds decreased
$1.1 billion in 1995 compared with 1994, primarily reflecting a lower average
level of money market and savings deposits and demand deposits. Core funds
averaged 92% of core assets in 1995, down from 104% in 1994 and 118% in 1993.
Wholesale and purchased funds are defined as deposits in foreign offices and
other time deposits, 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 and other funds borrowed.
Average wholesale and purchased funds increased $3.1 billion compared with
1994, primarily reflecting an increase in overnight foreign office deposits,
short-term bank notes and federal funds purchased and securities under
repurchase agreements. As a percentage of average total assets, average
wholesale and purchased funds were 23% in 1995, 16% in 1994 and 12% in 1993.
42
<PAGE> 26
INTEREST RATE SENSITIVITY ANALYSIS
- -------------------------------------------------------------------------------
The objective of interest rate risk management is to control the effects that
interest rate fluctuations have on net interest revenue and on the net present
value of the Corporation's assets, liabilities and off-balance-sheet
instruments. The Corporation's Finance Committee is responsible for managing
interest rate risk and employing risk management policies that monitor and
limit exposure to interest rate risk. Interest rate risk is measured using 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 45. 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.
The Corporation has established the following guidelines for assuming interest
rate risk:
Net interest margin simulation--Given a +/- 200 basis point parallel shift in
interest rates, estimated net interest revenue may not decrease by more than
5% for a one-year period.
Portfolio equity simulation--Portfolio equity is the net present value of the
Corporation's existing assets, liabilities and off-balance-sheet instruments.
Given a +/- 200 basis point parallel shift in interest rates, portfolio
equity may not decrease by more than 20% of total shareholders' equity.
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
December 31, 1995 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 December 31, 1995 levels. The
simulated impact of rate changes shown below is compared to 1995 actual results
adjusted for the pro forma full-year impact of the credit card securitization.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY ANALYSIS
Movements in interest rates from December 31, 1995 rates
- ----------------------------------------------------------------------------------------
Increase Decrease
Anticipated impact in the next 12 months -------------- ----------------
compared with 1995 actual results: +100bp +200bp -100bp -200bp
------------------------------------------
<S> <C> <C> <C> <C>
Net interest revenue increase/(decrease) 4.0% 5.4% .4% (1.5)%
Return on common equity increase/(decrease) 105bp 140bp 11bp (39)bp
Earnings per share increase/(decrease) $.27 $.36 $.03 $(.10)
- ----------------------------------------------------------------------------------------
</TABLE>
The anticipated impact on net interest revenue under the 100 and 200 basis
points increase scenarios and the 200 basis point decrease scenario is
consistent with the Corporation's asset sensitive gap position. Generally, an
asset sensitive gap indicates that rising interest rates could positively
affect net interest revenue, and falling rates could negatively affect net
interest revenue. The increase in net interest revenue under the 100 basis
points decrease scenario primarily results from short-term liabilities
repricing more quickly than certain adjustable rate assets.
43
<PAGE> 27
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
The interest rate sensitivity gap table on the following page shows the
repricing characteristics of the Corporation's interest-earning assets and
supporting funds at December 31, 1995. The data are based upon contractual
repricing or maturities and, where applicable, management's assumptions as to
the estimated repricing characteristics of certain assets and supporting funds.
At December 31, 1995, the Corporation had an asset-sensitive interest rate risk
position at the one-year repricing period. 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 $4.2 billion, or 10.4% of total assets, at December 31, 1995. However,
because the Corporation did not want to accept the level of interest rate risk
presented by its naturally asset sensitive balance sheet, it entered into
interest rate swaps and other off-balance-sheet instruments that resulted in a
net reduction of $822 million in this cumulative asset-sensitive position.
These instruments reduced the cumulative gap at the one-year repricing period
to an asset-sensitive amount of $3.4 billion, or 8.4% of total assets. The
Corporation uses off-balance-sheet instruments primarily to convert fixed-rate
long-term deposits to variable-rate deposits that generally reprice quarterly.
Alternatively, the Corporation could have acquired additional fixed-rate
investment securities or other fixed-rate interest-earning assets of
approximately $822 million 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.
44
<PAGE> 28
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT DECEMBER 31, 1995
Repricing period
----------------------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 Over 5
(dollar amounts in millions) days days days days years years Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments $ 830 $ 26 $ 4 $ - $ - $ - $ 860
Trading account securities 62 - - - - - 62
Securities 1,113 247 821 470 1,676 1,105 5,432
Loans 12,034 5,221 2,726 1,883 3,256 2,570 27,690
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $14,039 $ 5,494 $3,551 $2,353 $4,932 $ 3,675 $34,044
Funds supporting interest-
earning assets:
Interest-bearing deposits $ 5,412 $ 6,496 $2,792 $1,891 $2,532 $ 3,680 $22,803
Other borrowed funds 2,197 1,055 616 330 - 119 4,317
Notes and debentures (with original
maturities over one year) 27 - - - 636 780 1,443
Noninterest-bearing liabilities 47 42 225 74 - 5,093 5,481
- ------------------------------------------------------------------------------------------------------------------------------
Total funds supporting
interest-earning assets $ 7,683 $ 7,593 $3,633 $2,295 $3,168 $ 9,672 $34,044
- ------------------------------------------------------------------------------------------------------------------------------
Subtotal $ 6,356 $(2,099) $ (82) $ 58 $1,764 $(5,997) $ -
- ------------------------------------------------------------------------------------------------------------------------------
Off-balance-sheet instruments $(2,193) $ (417) $1,060 $ 728 $1,068 $ (246) $ -
- ------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 4,163 $(2,516) $ 978 $ 786 $2,832 $(6,243) $ -
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 4,163 $ 1,647 $2,625 $3,411 $6,243 $ - $ -
- ------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 10.2% 4.1% 6.5% 8.4% 15.4%
- ------------------------------------------------------------------------------------------------------------------------------
</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.
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. By policy, the
Corporation will not implement any new off-balance-sheet activity that, when
aggregated into the total Corporate interest rate exposure, would cause the
Corporation to exceed the interest rate risk limits outlined on page 43. 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 in order to accomplish its objectives. Generic swaps involve
the exchange of fixed and variable interest rates based on underlying
contractual notional amounts. Index amortizing swaps involve the exchange of
fixed and variable interest rates; however, their notional amount and
maturities vary based on certain underlying indices. The use of financial
futures and option contracts is permitted provided that: the transactions
occur in a market with a size that ensures sufficient liquidity; the contract
is traded on an approved exchange or, in the case of over-the-counter option
contracts, is transacted with a credit-approved counterparty; and that the
types of contracts have been authorized for use by the Board of Directors and
the Finance Committee. The Corporation's off-balance-sheet instruments used to
manage its interest rate risk are shown in the table on the following page.
For a further discussion of these contracts, see note 20 of Notes to Financial
Statements.
45
<PAGE> 29
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK AT DECEMBER 31, 1995
Total at
Dec. 31,
(notional amounts in millions) 1996 1997 1998 1999 2000 2001+ 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $ 267 $ 160 $ 15 $2,125 $ - $400 $2,967
Weighted average rate:
Receive 5.34% 6.36% 5.22% 5.29% - 6.32% 5.49%
Pay 5.87% 5.90% 5.88% 6.09% - 5.81% 6.02%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $1,637 $ 428 $481 $ 116 $ 60 $ 63 $2,785
Weighted average rate:
Receive 4.91% 6.89% 7.15% 7.10% 7.10% 7.10% 5.79%
Pay 5.90% 5.94% 5.94% 5.94% 5.94% 5.94% 5.92%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 20 $2,128 $ 30 $ 15 $ 12 $ 10 $2,215
Weighted average rate:
Receive 6.01% 6.09% 3.74% 6.10% 5.88% 5.80% 6.06%
Pay 9.44% 4.75% 5.62% 6.48% 6.11% 6.49% 4.83%
Other products (c) $ 526 $ 100 $ 4 $ 2 $ 88 $ 15 $ 735
- ----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $2,450 $2,816 $530 $2,258 $160 $488 $8,702
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Generic swaps' notional amounts and lives are not based upon interest rate
indices.
(b) Amortizing swaps' notional amounts and lives change based upon certain
interest rate indices. Generally, as rates fall, the notional amounts
decline more rapidly and, as rates increase, notional amounts decline more
slowly.
(c) Average rates are not meaningful for these products.
</TABLE>
46
<PAGE> 30
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
The gross notional amount of off-balance-sheet instruments used to manage the
Corporation's interest rate risk was $8.7 billion at December 31, 1995, a
decrease of $2.6 billion from December 31, 1994. The reduction in these
instruments resulted from maturities. The flat yield curve in 1995 enabled the
Corporation to reduce the usage of interest rate swaps. This gross notional
amount, which is presented in the table on the previous page, must be viewed in
the context of the Corporation's overall interest rate risk management
activities in order to assess its impact on the net interest margin. As
discussed on page 44, 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 $4.2
billion, before the utilization of these instruments, to a cumulative one-year
asset-sensitive position of $3.4 billion at December 31, 1995.
The following table presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
interest rate sensitive instruments.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Instruments associated with deposits $6,500 $ 9,436
Instruments associated with other liabilities 670 420
Instruments associated with loans 1,532 1,478
- --------------------------------------------------------------------------------
Total notional amount $8,702 $11,334
- --------------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet instruments to neutralize
the natural interest rate risk embedded in its assets and liabilities. The
interest received and interest paid are recorded on an accrual basis in
interest revenue and interest expense associated with the underlying assets and
liabilities. The net differential resulted in interest expense of $2 million
in 1995, compared with interest revenue of $117 million and $201 million in
1994 and 1993, respectively. The lower net interest revenue impact in 1995,
compared with 1994 and 1993, resulted from the effect of higher average
interest rates in 1995. The Corporation's analysis using interest rates at
December 31, 1995, indicate that off-balance-sheet instruments will have a
positive impact of more than $30 million on the net interest margin in 1996.
The graph on the following page demonstrates the reduction in volatility of the
net interest margin with the use of off-balance-sheet products. The net
interest margin without the use of off-balance-sheet instruments would have
fluctuated approximately 120 basis points from the second quarter of 1993 to
the first quarter of 1995, while the net interest margin including the use of
off-balance-sheet instruments fluctuated approximately 60 basis points during
the same period.
The Corporation did not terminate any interest rate agreements used for
interest rate risk management purposes in 1995. Terminations of interest rate
swaps in 1994 resulted in the amortization of less than $1 million of net
deferred gains into net interest revenue in 1995. These gains were amortized
over the remaining period of the original hedge, which was less than one year.
The estimated unrealized fair value of the Corporation's interest rate
management off-balance-sheet instruments at December 31, 1995, was a positive
$30 million, compared to a negative $344 million at December 31, 1994. This
improvement was consistent with lower interest rates at December 31, 1995,
compared with the prior year-end, which had the corresponding effect of
decreasing the fair value of on-balance-sheet core deposits. These values
should be viewed in the context of the overall financial structure of the
Corporation, including the aggregate net position of all on-and
off-balance-sheet instruments. As more fully discussed in note 20 of Notes to
Financial Statements, credit risk associated with off-balance-sheet instrument
positions represents the aggregate replacement cost of contracts in a gain
position. At December 31, 1995 and 1994, the amount of credit exposure
associated with interest rate risk management instruments was $55 million and
$10 million, respectively.
47
<PAGE> 31
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
At this point in the 1995 Annual Report there appears a line graph as set out
in the following table.
<TABLE>
<CAPTION>
Trend of Net Interest Margin
With Excluding
off-balance-sheet off-balance-sheet
instruments instruments
----------------- -----------------
<S> <C> <C>
1st qtr 1993 4.65% 3.95%
2nd qtr 1993 4.30% 3.60%
3rd qtr 1993 4.25% 3.59%
4th qtr 1993 4.39% 3.75%
1st qtr 1994 4.70% 4.12%
2nd qtr 1994 4.63% 4.15%
3rd qtr 1994 4.66% 4.41%
4th qtr 1994 4.85% 4.70%
1st qtr 1995 4.80% 4.79%
2nd qtr 1995 4.69% 4.73%
3rd qtr 1995 4.56% 4.56%
4th qtr 1995 4.43% 4.41%
</TABLE>
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 1995, the Corporation recorded $87 million of fee revenue from these
activities, primarily from foreign exchange contracts entered into on behalf of
customers, compared with $72 million in 1994. The total notional values of
these contracts were $33 billion at December 31, 1995 and $34 billion at
December 31, 1994, and are included on the off-balance-sheet instruments used
for trading activities table on page 87 in note 20 of Notes to Financial
Statements. Total credit risk of contracts used for trading activities was
$389 million at December 31, 1995 and $281 million at December 31, 1994.
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
are 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 December 31, 1995.
48
<PAGE> 32
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
Trading activities are limited to products and markets in which liquidity is
sufficient to allow positions to be closed quickly and without adversely
affecting market prices, which limits loss potential below that assumed for a
full-day adverse movement. Loss potential is further constrained in that it is
highly unusual for all trading areas to be exposed to maximum limits at the
same time and extremely rare for significant adverse market movements to occur
in all markets simultaneously. Stop loss guidance is used when a certain
threshold of loss is sustained. If stop loss guidance amounts are approached,
open positions are liquidated to avoid further risk to earnings. The use of
both stop loss guidance and position limits reduces the likelihood that
potential trading losses would reach imprudent levels in relation to earnings
capability.
CREDIT RISK
- --------------------------------------------------------------------------------
Credit risk exists in financial instruments that are both on and off the
balance sheet. Financial instruments such as loans and leases are on the
balance sheet. Off-balance-sheet credit exposures include loan commitments,
standby letters of credit and the credit risk associated with financial
instruments used to manage interest rate risk and used for trading activities.
The objective of the credit risk management process is to reduce the risk of
loss if a customer fails to perform according to the terms of a transaction.
Essential to this process are stringent underwriting of new loan commitments,
active monitoring of all loan portfolios and the early identification of
potential problems and their prompt resolution. The Corporation establishes
internal ownership, responsibility and accountability for all aspects of asset
quality. Notwithstanding this process, however, asset quality is dependent in
large part upon local, national, international and industry segment economic
conditions that are beyond the Corporation's control.
Management maintains a comprehensive centralized process through which the
Corporation establishes exposure limits, extends new loans, monitors credit
quality, actively manages problem credits and disposes of nonperforming assets.
To help ensure adherence to the Corporation's credit policies, senior
department credit officers report to both the Corporation's chief risk and
credit officer and the head of each respective lending department. The
responsibilities of these senior credit officers include all aspects of the
credit process except credit review, credit recovery and aggregate portfolio
management, which are centralized at the corporate level.
The Corporation manages credit risk by maintaining a well-diversified credit
portfolio and by adhering to its written credit policies, which specify general
underwriting criteria as well as underwriting standards for specific industries
and control credit exposure by borrower, degree of risk, industry and country.
These measures are adopted by the Credit Policy Committee and are regularly
updated to reflect the committee's evaluation of developments in economic,
political and operating environments that could affect lending risks. The
Corporation may adjust credit exposure to individual industries or customers
through loan sales, syndications, participations and the use of master netting
agreements when the Corporation has more than one transaction outstanding with
the same customer.
Except for certain well-defined loans made by the Consumer Banking Services
sector, primarily to consumers and small businesses, all credit extensions are
approved jointly by officers of the Credit Policy department and officers of
the lending departments. The number and level of officer approvals required
are determined by the dollar amount and risk characteristics of the credit
extension. The amount of collateral, if any, obtained by the Corporation upon
the extension of credit is based on industry practice as well as the credit
assessment of the customer. The type and amount of collateral vary, but the
form generally includes: accounts receivable; inventory; property, plant and
equipment; other assets; and/or income-producing commercial properties with
appraised values that exceed the contractual amount of the credit facilities by
pre-approved ratios.
The Corporation continually assesses the quality of its consumer and commercial
credit facilities, and assigns a numerical quality rating to substantially all
extensions of credit in its commercial, real estate and international
portfolios. Lending officers have the primary responsibility for monitoring
their portfolios, identifying emerging problem loans and recommending changes
in quality ratings. To anticipate or detect problems that may result from
economic downturns or deteriorating conditions in certain markets, lending
units and credit management use a process designed to identify potential
49
<PAGE> 33
CREDIT RISK (CONTINUED)
- -------------------------------------------------------------------------------
credit problems, both for specific customers and for industries that could be
affected by adverse market or economic conditions. When signs of credit
deterioration are detected, credit recovery or other specialists become
involved to minimize the Corporation's exposure to potential future credit
losses. The Credit Review department provides an independent assessment of
credit ratings, credit quality and the credit management process.
For a further discussion of the credit risk associated with off-balance-sheet
financial instruments, see the discussions of the various financial instruments
in note 20 of Notes to Financial Statements.
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END
- -------------------------------------------------------------------------------
The $957 million increase in the loan portfolio in 1995 resulted from increased
loan demand, partially offset by the $950 million credit card securitization
and the transfer of $193 million of CornerStone(sm) credit card loans to an
accelerated resolution portfolio. Loan growth in 1995 reflects a $954 million
increase in commercial and financial loans and a $280 million increase in
consumer mortgages, partially offset by a $457 million decrease in credit card
loans. At December 31, 1995, the composition of the loan portfolio was 51%
commercial and 49% consumer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1995(a) 1994(a) 1993(a) 1992(a) 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $10,969(b) $10,015 $ 9,091 $ 8,115 $ 8,270
Commercial real estate 1,532(c) 1,624 1,721 1,861 1,976
Consumer credit:
Consumer mortgage 8,960 8,680 8,191 4,282 3,302
Credit card 1,924 2,381 1,441 1,361 1,216
Other consumer credit 2,612 2,455 2,372 2,258 2,292
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer credit 13,496 13,516 12,004 7,901 6,810
Lease finance assets 830 815 718 650 658
- --------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 26,827 25,970 23,534 18,527 17,714
INTERNATIONAL LOANS 863 763 950 1,434 1,395
- --------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $27,690 $26,733 $24,484 $19,961 $19,109
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $21 million of loans subject to the FDIC loss sharing arrangement.
(c) Includes $109 million of loans subject to the FDIC loss sharing arrangement.
Note: There were no concentrations of loans to borrowers engaged in similar
activities, other than those shown in this table, that exceeded 10% of total
loans at year-end.
</TABLE>
Commercial and financial
The domestic commercial and financial loan portfolio primarily consists of
loans to corporate borrowers in the manufacturing, service, energy,
communications, wholesale and retail trade, public utilities and financial
services industries. Numerous risk factors impact this portfolio, including
industry specific risks such as the economy, new technology, labor rates and
cyclicality, as well as customer specific factors such as cash flow, financial
structure, operating controls and asset quality. The Corporation diversifies
risk within this portfolio by closely monitoring industry concentrations and
portfolios to ensure that it does not exceed established lending guidelines.
Diversification is intended to limit the risk of loss from any single
unexpected economic event or trend. Total domestic commercial and financial
loans increased by $954 million, or 10%, during 1995, primarily as a result of
increases of $270 million in wholesale money market loans, $235 million in
corporate banking and $195 million in middle market lending. Commercial and
financial loans represented 40% of the total loan portfolio at December 31,
1995 and 37% at December 31,1994. At year-end 1995, nonperforming domestic
commercial and financial loans and leases were .55% of total domestic
commercial and financial loans and leases, compared with .60% at December 31,
1994. This ratio has been less than 1% for the last 11 quarters.
50
<PAGE> 34
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
Commercial real estate
The Corporation's $1.532 billion domestic commercial real estate loan portfolio
consists of commercial mortgages, which generally are secured by nonresidential
and multi-family residential properties, and commercial construction loans
generally with maturities of 60 months or less. Also included in this
portfolio are loans that are secured by owner-occupied real estate, but made
for purposes other than the construction or purchase of real estate. The
commercial real estate loan portfolio includes $109 million of loans acquired
in the December 1992 Meritor retail office acquisition that are subject to a
five-year 95% loss sharing arrangement with the FDIC. Commercial real estate
loans carry many of the same customer and industry risks as the commercial and
financial portfolio, as well as contractor/subcontractor performance risk in
the case of commercial construction loans and cash flow risk based on project
economics. Domestic commercial real estate loans decreased by $92 million, or
6%, at December 31, 1995, compared with December 31, 1994. The decrease
primarily was a result of paydowns and transfers to OREO partially offset by
new loan originations in 1995. Domestic commercial real estate loans were 6%
of total loans at December 31, 1995 and 1994. Nonperforming commercial real
estate loans were 2.55% of total domestic commercial real estate loans at
December 31, 1995, compared with 1.73% at December 31, 1994.
Consumer mortgage
The consumer mortgage portfolio primarily includes jumbo residential mortgages,
traditional one-to-four family residential mortgages, home equity loans and
personal loans secured by residential properties. At December 31, 1995, this
portfolio grew to $8,960 million, from $8,680 million at the prior year end.
The $280 million increase in this portfolio from year-end 1994 primarily
reflected a $345 million increase in residential mortgage loans held in the
residential warehouse portfolio, a $155 million increase in home equity loans
and a $130 million increase in personal loans secured by residential
properties, partially offset by a $350 million decrease in jumbo residential
mortgages.
Jumbo residential mortgages, which totaled $3.9 billion at year-end 1995, are
variable rate mortgages that range from $250,000 to $3 million. The $350
million decrease from December 31, 1994, resulted from loan sales and
accelerated prepayments. Risks involved in holding jumbo mortgages include
less liquidity than a traditional one-to-four family residential mortgage
portfolio and increased exposure on an individual loan basis. The Corporation
attempts to control these risks by requiring more stringent loan-to-value
ratios and higher liquidity and cash flow requirements for each borrower. At
December 31, 1995, the geographic distribution of the jumbo mortgages was as
follows: 30% in the Mid-Atlantic region; 29% in New England; 25% in
California; and 16% in other areas.
Fueled by low interest rates in 1995, the Corporation's one-to-four family
residential mortgages increased approximately $345 million, to $2.3 billion at
December 31, 1995, from the prior year end. This increase primarily resulted
from growth in the residential warehouse portfolio. Home equity loans
increased approximately $155 million to $1.6 billion, and personal loans
secured by residential properties increased approximately $130 million to $1.2
billion at December 31, 1995. Risks on these three portfolios are limited to
payment and collateral risk and are primarily driven by regional economic
factors. Nonperforming consumer mortgages were .68% of total consumer
mortgages at December 31, 1995, compared with .64% at December 31, 1994.
Credit card
At December 31, 1995, credit card loans totaled $1,924 million, a $457 million
decrease from December 31, 1994. The decrease in credit card loans 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, both discussed below. Excluding the securitization and
the creation of the accelerated resolution portfolio, credit card loans
increased $686 million, or 29%, compared with the prior year-end. This
increase resulted from growth in the existing portfolio and portfolio
acquisitions.
51
<PAGE> 35
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
The primary risk associated with credit card loans is that these loans are
unsecured and are solely dependent upon the credit-worthiness of the borrower.
The Corporation monitors this risk using both internal and external statistical
models. In addition to these models, the Corporation monitors factors such as
portfolio growth, lending policies and economic conditions. Underwriting
standards are continually evaluated and modified based upon these factors.
Credit card loans are charged off after reaching 180 days delinquent and as
such are not placed on nonperforming status prior to charge-off. The ratio of
credit card loans 90 days or more past- due to total credit card loans was .66%
at December 31, 1995, compared with 1.35% at December 31, 1994.
Securitization of credit card receivables
The Corporation securitized nearly one-third, or $950 million, of credit card
receivables in late November 1995. The securitization and sale of credit card
receivables is an effective way to diversify funding sources and manage the
balance sheet. The Corporation continues to service the securitized
receivables. The effect of the securitization is shown in the table on page
35.
Assets held for accelerated resolution
In December 1995, the Corporation segregated $193 million of CornerStone(sm)
credit card loans, which have a history of delinquency, into an accelerated
resolution portfolio. CornerStone(sm) outstandings were $845 million at that
time, compared with $880 million at June 30, 1995 and $725 million at year-end
1994. In connection with this transfer, the Corporation evaluated the carrying
value of these loans and recorded a credit loss of $106 million to reflect an
estimated net realizable value of $87 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 $82 million at
December 31, 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 consumer credit
Other consumer credit, which principally consists of installment loans,
unsecured personal credit lines and student loans, increased by $157 million,
or 6%, from year-end 1994. This increase primarily reflected growth in the
student loan portfolio. Other consumer credit loans are both secured and
unsecured and, in the case of student loans, are government guaranteed.
Other loans
Loans to international borrowers increased to $863 million at December 31, 1995,
from $763 million at year-end 1994. The Corporation's international lending
strategy centers around establishing relationships with large foreign firms that
are multinational in nature but also carry a significant U.S. presence. Lease
finance assets increased to $830 million, up from $815 million at year-end 1994.
52
<PAGE> 36
NONPERFORMING ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1995 (a) 1994 (a) 1993 (a) 1992 (a) 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $167 $151 $202 $334 $528
Acquired property, net of the OREO reserve 69 88 139 261 405
- ------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $236 $239 $341 $595 $933
- ------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .60% .56% .83% 1.67% 2.77%
Total nonperforming assets as a percentage of total loans
and net acquired property .85% .89% 1.39% 2.94% 4.78%
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a)Excludes segregated assets.
</TABLE>
Nonperforming assets is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily OREO acquired
in connection with the collection effort on loans. Nonperforming 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 note 1 of Notes to
Financial Statements.
Nonperforming assets have decreased for four consecutive years and are at their
lowest level since 1982. At December 31, 1995, nonperforming assets totaled
$236 million, a $3 million decrease from 1994, reflecting a decrease in
acquired property that was primarily offset by an increase in nonperforming
loans. The tables on pages 54 and 55 show the factors that affected the change
in the levels of nonperforming loans and acquired property. The ratio of
nonperforming assets to total loans and net acquired property at December 31,
1995, was .85%, compared with .89% at year-end 1994. This ratio, which can be
expected to vary over time with changes in the economy, has been lower than 1%
for six consecutive quarters.
In 1995, the Corporation adopted Financial Accounting Standards Board Statement
(FAS) No. 114, "Accounting by Creditors for Impairment of a Loan," and FAS No.
118, "Accounting by Creditors for Impairment of a Loan - - Income Recognition
and Disclosure." See note 1 of Notes to Financial Statements for a further
discussion of FAS Nos. 114 and 118. A loan is considered impaired when, based
upon current information and events, it is probable that the Corporation will
be unable to collect all principal and interest amounts due according to the
contractual terms of the loan agreement. At December 31, 1995, the
Corporation's impaired loans totaled $167 million, which was equal to the
nonperforming loans total. Included in these impaired loans were $59 million,
which had a related impairment reserve of $22 million, and $108 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 1995 were $175 million. During the year, the Corporation
recognized $13 million of interest revenue on impaired loans, all of which was
recognized using the cash basis method of income recognition.
53
<PAGE> 37
NONPERFORMING ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS December 31,
(dollar amounts in millions) 1995(a) 1994(a) 1993(a) 1992(a) 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 65 $ 61 $ 37 $109 $129
Commercial real estate 29 25 75 172 353
Consumer credit:
Consumer mortgage 61 56 61 29 13
Other consumer credit 2 - 4 1 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 157 142 177 311 496
International nonaccrual loans - 1 7 8 32
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 157 143 184 319 528
- ----------------------------------------------------------------------------------------------------------------------------------
Domestic restructured loans:
Commercial and financial - 5 4 - -
Commercial real estate 10 3 14 15 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic restructured loans 10 8 18 15 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans:
Domestic 167 150 195 326 496
International - 1 7 8 32
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans(b) 167 151 202 334 528
- ----------------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 87 116 175 250 385
Reserve for real estate acquired (18) (29) (37) (10) (21)
- ----------------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 69 87 138 240 364
Other assets acquired - 1 1 21 41
- ----------------------------------------------------------------------------------------------------------------------------------
Total acquired property 69 88 139 261 405
- ----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $236 $239 $341 $595 $933
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective loan
portfolio segments:
Domestic commercial and financial loans and leases .55% .60% .41% 1.25% 1.44%
Domestic commercial real estate loans 2.55 1.73 5.17 10.03 17.87
Domestic consumer mortgage loans .68 .64 .75 .68 .40
Total loans .60 .56 .83 1.67 2.77
Nonperforming assets as a percentage of
total loans and net acquired property .85 .89 1.39 2.94 4.78
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes $81 million, $58 million, $74 million, $187 million and $278
million, respectively, of loans with both principal and interest less than 90
days past due but placed on nonaccrual status by management discretion.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS (a) Domestic
--------------------------------------- Total
Commercial Commercial Consumer ---------------
(in millions) & Financial Real Estate Credit International 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at beginning of year $ 66 $ 28 $ 56 $ 1 $151 $202
Acquired from Glendale Bancorporation - - - - - 13
Additions 92 43 51 - 186 205
Payments (b) (49) (16) (18) (1) (84) (124)
Returned to accrual status (31) (4) (11) - (46) (72)
Credit losses (12) (7) (7) - (26) (64)
Transfers to acquired property (1) (5) (8) - (14) (9)
- ----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at end of year $ 65 $ 39 $ 63 $ - $167 $151
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
</TABLE>
54
<PAGE> 38
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ADDITIONAL NONPERFORMING LOAN DATA (a) December 31,
(dollars in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Book balance $167 $151
Contractual balance of nonperforming loans 202 214
Book balance as a percentage of contractual balance 83% 70%
Full-year interest receipts applied to reduce principal $ 2 $ 6
Full-year interest receipts recognized in interest revenue 13 14
- -------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. Acquired property totaled $69 million at December 31, 1995,
down $19 million compared with year-end 1994. The decrease resulted from sales.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY December 31,
(in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of year, net of the OREO reserve $ 87 $138
OREO acquired from Glendale Bancorporation - 3
Foreclosures 22 14
Sales (36) (61)
Write-downs, credit losses, OREO provision and other (4) (7)
- -------------------------------------------------------------------------------
OREO at end of year, net of the OREO reserve 69 87
Other acquired assets - 1
- -------------------------------------------------------------------------------
Total acquired property, net of the OREO reserve (a) $ 69 $ 88
- -------------------------------------------------------------------------------
<FN>
(a) Excludes segregated assets.
</TABLE>
The Corporation recognizes any estimated potential decline in the value of OREO
between appraisal dates on a property-by-property basis through periodic
additions to the OREO reserve. Write-downs charged against this reserve are
taken when OREO is sold at a loss or upon the receipt of appraisals which
indicate a deterioration in the fair value of the property. Activity in the
Corporation's OREO reserve for 1995, 1994 and 1993 is presented in the table
below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE)
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $29 $ 37 $ 10
Write-downs on real estate acquired (3) (8) (27)
Provision (8) - 54
- -------------------------------------------------------------------------------
Ending balance $18 $ 29 $ 37
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
FOREGONE INTEREST ON NONPERFORMING LOANS Year ended December 31,
(in millions) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractual interest due $15 $15 $21 $32 $58
Interest revenue recognized 5 3 7 13 10
- -------------------------------------------------------------------------------
Interest revenue foregone $10 $12 $14 $19 $48
- -------------------------------------------------------------------------------
</TABLE>
Note: This table includes interest revenue foregone on loans that were
nonperforming at the end of each year. Interest receipts that the Corporation
applied, for accounting purposes, to reduce principal balances of nonaccrual
loans are included in contractual interest due, but not in interest revenue
recognized.
55
<PAGE> 39
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 December 31,
(dollar amounts in millions) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Consumer:
Mortgages $34 $ 27 $25 - -
Ratio (a) .38% .31% .30%
Credit card (b) 13 32 15 - -
Ratio (a) .66% 1.35% 1.04%
Student - Government guaranteed 44 36 37 - -
Ratio (a) 3.11% 2.71% 3.26%
Other consumer 1 1 1 - -
Ratio (a) .09% .07% .09%
- -------------------------------------------------------------------------------
Total Consumer $92 $ 96 $78 $96 (c) $67 (c)
Ratio (a) .68% .71% .65% 1.22% .98%
Commercial 6 10 6 1 2
- -------------------------------------------------------------------------------
Total domestic loans 98 106 84 97 69
International loans - - - - 6
- -------------------------------------------------------------------------------
Total past-due loans $98 $106 $84 $97 $75
- -------------------------------------------------------------------------------
<FN>
(a) 90 days past-due as a percentage of year-end loan balances.
(b) 1995 excludes past-due CornerStone(sm) credit cards loans included in the
accelerated resolution portfolio.
(c) Details by loan type not available for 1992 and 1991.
</TABLE>
56
<PAGE> 40
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
(Dollar amounts in millions) 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at year-end $471 (a) $607 (a) $600 (a) $506 (a) $596
Reserve as a percentage of:
Total loans 1.70% 2.27% 2.45% 2.54% 3.12%
Nonperforming loans 282 403 297 152 113
Net credit losses as a
percentage of average loans .91 (b) .27 .64 1.52 1.24
- --------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes reserve for segregated assets.
(b) The ratio of net credit losses, excluding credit losses on assets held for
accelerated resolution, to average loans was .53% in 1995.
</TABLE>
The reserve for credit losses was $471 million at December 31, 1995, or 1.70%
of total loans, compared with $607 million, or 2.27% of total loans at December
31, 1994. The decrease in the reserve for credit losses from December 31,
1994, primarily resulted from credit losses taken on $193 million of
CornerStone(sm) credit card loans that were transferred to the accelerated
resolution portfolio in December 1995. In connection with this transfer, the
Corporation evaluated the carrying value of these loans, which have a history
of delinquency, and recorded a credit loss of $106 million to reflect the
estimated net realizable value.
The Corporation maintains a credit loss reserve that, in management's judgment,
is adequate to absorb future losses inherent in the loan portfolio. Management
reviews the adequacy of the reserve at least quarterly. For analytical
purposes, the reserve methodology estimates loss potential in both the
commercial and consumer loan portfolios. This methodology includes an
evaluation of loss potential on individual problem credits, as well as a
portfolio review of market concentrations, changing business trends, industry
risks, and current and anticipated specific and general economic factors that
may adversely affect collectability. Other factors considered in determining
the level of the reserve include: trends in portfolio volume, quality,
maturity and composition; historical loss experience; lending policies; new
products; the status and amount of nonperforming and past-due loans and
adequacy of collateral. In addition, management assesses volatile factors such
as interest rates and real estate market conditions that may significantly
alter loss potential. The loss reserve methodology also provides for a portion
of the reserve to act as an additional buffer against credit quality
deterioration or risk of estimation error. Although the determination of the
adequacy of the reserve is based upon these factors, the reserve is not
specifically associated with individual loans or portfolio segments.
The ratio of the loan loss reserve to nonperforming loans at December 31, 1995,
was 282%, compared with 403% at December 31, 1994. This ratio is not the
result of a target or objective, but rather is an outcome of two interrelated
but separate processes: the establishment of an appropriate loan loss reserve
level for the portfolio as a whole, including but not limited to the
nonperforming component in the portfolio; and the classification of certain
assets as nonperforming in accordance with established accounting, regulatory
and management policies. The ratio can vary significantly over time as the
credit quality characteristics of the entire loan portfolio change. This ratio
can also vary with shifts in portfolio mix. The decrease in this ratio from
December 31, 1994, primarily resulted from credit losses recorded on the
CornerStone(sm) credit card product.
Net credit losses totaled $249 million in 1995, an increase of $182 million
from 1994. This increase resulted from the high level of net credit card
losses during the year, including $196 million related to the CornerStone(sm)
credit card, a $190 million increase from 1994. The Corporation expects a
significant reduction in net credit card losses in 1996 as a result of the
actions taken on the delinquent portion of the CornerStone(sm) portfolio as well
as the securitization of the $950 million of credit card loans. Partially
offsetting net credit card losses were lower commercial real estate net credit
losses in 1995. The level of credit losses and recoveries relative to
outstanding loans can vary from period to period as a result of the size and
number of individual credits that may require charge off, and the effects of
changing economic conditions.
57
<PAGE> 41
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY
(in millions) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve at beginning of year $ 607 $ 600 $ 506 $ 596 $ 525
Net change in reserves from
acquisitions and divestitures 8 4 108 2 50
Credit losses:
Domestic:
Commercial and financial (14) (42) (54) (70) (65)
Commercial real estate (8) (16) (74) (161) (85)
Consumer credit:
Credit cards (167)(a) (61) (46) (49) (41)
Consumer mortgage (6) (11) (13) (7) (2)
Other consumer credit (19) (17) (22) (24) (26)
Lease financing (16) - (1) (1) -
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic (230) (147) (210) (312) (219)
International - (4) (6) (19) (37)
- ----------------------------------------------------------------------------------------------------------------------------------
Total credit losses (230) (151) (216) (331) (256)
- ----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial 27 41 40 25 8
Commercial real estate 30 14 13 6 3
Consumer credit:
Credit cards 14 9 7 6 5
Consumer mortgage 3 4 2 1 1
Other consumer credit 8 13 10 10 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic 82 81 72 48 24
International 5 3 5 6 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total recoveries 87 84 77 54 27
- ----------------------------------------------------------------------------------------------------------------------------------
Net credit (losses) recoveries:
Domestic:
Commercial and financial 13 (1) (14) (45) (57)
Commercial real estate 22 (2) (61) (155) (82)
Consumer credit:
Credit cards (153)(a) (52) (39) (43) (36)
Consumer mortgage (3) (7) (11) (6) (1)
Other consumer credit (11) (4) (12) (14) (19)
Lease financing (16) - (1) (1) -
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic (148) (66) (138) (264) (195)
International 5 (1) (1) (13) (34)
- ----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses (143)(a) (67) (139) (277) (229)
Provision for credit losses 105 70 125 185 250
Credit losses on assets held for
accelerated resolution (106) - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve at end of year $ 471 (b) $ 607 (b) $ 600 (b) $ 506 (b) $ 596
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Excludes $106 million related to loans transferred to the accelerated resolution portfolio.
(b) Excludes reserve for segregated assets.
</TABLE>
58
<PAGE> 42
FOURTH QUARTER REVIEW
- -------------------------------------------------------------------------------
The Corporation reported net income applicable to common stock of $164 million
and earnings per common share of $1.18 in the fourth quarter of 1995. These
results compare with fourth quarter 1994 net income applicable to common stock
of $157 million and earnings per common share of $1.05, excluding the $130
million after tax securities lending charge and the $16 million of preferred
dividends recorded in connection with the redemption of the Series H preferred
stock. Including the securities lending charge and the effects of the
preferred stock redemption, fourth quarter 1994 net income applicable to common
stock was $11 million, or $.07 per common share.
Annualized return on common shareholders' equity and return on assets were
18.08% and 1.68%, respectively, in the fourth quarter of 1995. Annualized
return on common shareholders' equity and return on assets, excluding the
securities lending charge and the effect of the preferred stock redemption,
were 16.49% and 1.74%, respectively in the fourth quarter of 1994. Annualized
return on common shareholders' equity and return on assets, including the
securities lending charge and the effect of the preferred stock redemption,
were 1.10% and .42%, respectively, in the fourth quarter of 1994.
Compared with the fourth quarter of 1994, the Corporation's fourth quarter 1995
results reflected higher fee revenue, offset in part by higher credit quality
expense and lower net interest revenue.
Net interest revenue totaled $382 million in the fourth quarter of 1995, down
from $401 million in the fourth quarter of 1994. The decrease primarily
resulted from the migration of retail customers from lower cost deposit
products to higher cost products and the effect of the credit card
securitization, which offset loan growth. The net interest margin on a taxable
equivalent basis was 4.43% in the fourth quarter of 1995, a decrease of 42
basis points from 4.85% in the fourth quarter of 1994.
Credit quality expense was $30 million in the fourth quarter of 1995, an
increase of $20 million compared with the prior-year period. This increase
resulted from a higher provision for credit losses that was made in response to
credit losses taken on the CornerStone(sm) credit card portfolio. Net credit
losses were $138 million in the fourth quarter of 1995, compared with $20
million in the fourth quarter of 1994. The increase resulted from a $123
million increase in net CornerStone(sm) credit card losses, including $106
million of credit losses on the CornerStone(sm) credit cards that were
transferred to the accelerated resolution portfolio.
Fee revenue was $444 million in the fourth quarter of 1995, an increase of $39
million compared with the fourth quarter of 1994. The increase primarily
resulted from a $16 million increase in mortgage servicing revenues, a $7
million increase in credit card revenue, a $5 million increase in trust and
investment management fees and a $3 million increase in syndication management
fees. The increase in mortgage servicing revenue from the prior-year period,
primarily resulted from acquisitions while the increase in credit card revenue
was primarily related to the credit card securitization transaction.
Operating expense for the fourth quarter of 1995 was $526 million, compared
with $741 million in the prior-year period. Excluding net revenue from
acquired property and the securities lending charge of $223 million recorded in
the fourth quarter of 1994, operating expense increased 1% compared with the
prior-year period. This increase primarily resulted from increases in the
amortization of purchased mortgage servicing rights, staff expense and
equipment expense partially offset by lower FDIC deposit insurance assessment
expense and professional, legal and other purchased services expense.
59
<PAGE> 43
SELECTED QUARTERLY DATA*
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Quarter ended,
1995 1994
--------------------------------- ---------------------------------
(dollar amounts in millions, DEC. SEPT. JUNE MARCH Dec. Sept. June March
except per share amounts) 31 30 30 31 31 30 30 31
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY CONSOLIDATED
INCOME STATEMENT
- ------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 382 $ 392 $ 385 $ 389 $ 401 $ 376 $ 364 $ 367
Provision for credit losses 35 30 20 20 15 15 20 20
Fee revenue 444 422 405 399 405 399 412 436
Gains (losses) on sale of securities 6 - 1 (1) - (15) 8 2
Operating expense 526 506 500 495 741 595 508 530
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 271 278 271 272 50 150 256 255
Provision for income taxes 97 103 99 102 9 72 98 99
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME 174 175 172 170 41 78 158 156
Dividends on preferred stock 10 9 10 10 30 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO
COMMON STOCK $ 164 $ 166 $ 162 $ 160 $ 11 $ 63 $ 143 $ 141
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 1.18 $ 1.15 $ 1.09 $ 1.08 $ .07 $ .42 $ .97 $ .96
- ------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (a)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 174 $ 175 $ 172 $ 170 $ 171 $ 167 $ 158 $ 156
Net income applicable to common stock 164 166 162 160 157 152 143 141
Net income per common share $ 1.18 $ 1.15 $ 1.09 $ 1.08 $ 1.05 $ 1.02 $ .97 $ .96
Annualized return on common
shareholders' equity 18.08% 17.98% 17.47% 17.55% 16.49% 16.10% 15.75% 16.12%
Annualized return on assets 1.68 1.70 1.75 1.77 1.74 1.74 1.69 1.67
- ------------------------------------------------------------------------------------------------------------------------------
QUARTERLY AVERAGE BALANCES
- ------------------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,206 $ 1,286 $ 1,165 $ 1,230 $ 1,213 $ 1,466 $ 1,813 $ 2,147
Trading account securities 283 363 220 316 281 351 386 504
Securities 5,178 4,938 4,681 4,890 5,062 5,421 5,306 4,798
Loans 27,747 27,774 27,076 26,670 26,401 25,084 24,251 24,636
Interest-earning assets 34,414 34,361 33,142 33,106 32,957 32,322 31,756 32,085
Total assets 41,141 40,955 39,370 38,886 38,792 38,016 37,497 38,113
Deposits 28,946 28,417 27,100 27,318 27,260 26,963 26,989 27,790
Notes and debentures 1,646 1,809 1,643 1,582 1,571 1,618 1,924 1,965
Shareholders' equity 4,045 4,083 4,161 4,135 4,313 4,346 4,260 4,185
- ------------------------------------------------------------------------------------------------------------------------------
Net interest margin (FTE) 4.43% 4.56% 4.69% 4.80% 4.85% 4.66% 4.63% 4.69%
- ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (dollars per share) (b)
- ------------------------------------------------------------------------------------------------------------------------------
Market price range:
High $56 1/2 $47 3/4 $44 3/4 $41 3/4 $38 3/8 $39 3/4 $40 3/8 $39 1/2
Low 44 5/8 39 5/8 37 3/4 30 5/8 30 37 36 1/8 35
Average 51.82 43.18 41.66 36.66 34.52 38.41 38.38 36.74
Close 53 3/4 44 3/4 41 5/8 40 3/4 30 5/8 37 1/2 37 1/2 37 3/8
Dividends .55 .50 .50 .45 .45 .3733 .3733 .3733
Market capitalization $ 7,374 $ 6,324 $ 5,925 $ 5,969 $ 4,507 $ 5,510 $ 5,400 $ 5,371
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
*Unaudited
(a) Results for the fourth quarter of 1994 exclude the $130 million after tax
securities lending charge, as well as the additional $16 million of
preferred stock dividends recorded in connection with the redemption of the
Series H preferred stock. Results for the third quarter of 1994 exclude $79
million after tax of merger expenses and $10 million after tax of losses on
the disposition of securities available for sale previously owned by
Dreyfus.
(b) At December 31, 1995, there were 23,755 shareholders registered with the
Corporation's stock transfer agent, compared with 23,092 at year-end 1994
and 22,222 at year-end 1993. In addition, there were approximately 18,465,
20,281, and 18,849 Mellon employees at December 31, 1995, 1994 and 1993,
respectively, who participated in the Corporation's 401(k) Retirement
Savings Plan and the Dreyfus retirement savings plan. All shares of Mellon
Bank Corporation common stock held by the plans for its participants are
registered in the name of Mellon Bank, N.A., as trustee.
</TABLE>
60
<PAGE> 44
CONSOLIDATED INCOME STATEMENT
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(dollar amounts in millions, except per share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE Interest and fees on loans (loan fees of $79, $87 and $71) $2,425 $1,926 $1,588
Interest-bearing deposits with banks 36 34 58
Federal funds sold and securities under resale agreements 34 30 54
Other money market investments 2 6 13
Trading account securities 19 24 15
Securities:
U.S. Treasury and agency securities 305 269 226
Obligation of states and political subdivisions 3 5 7
Other 14 16 23
--------------------------------------------------------------------------------------------------
Total interest revenue 2,838 2,310 1,984
- --------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE Deposits in domestic offices 663 447 415
Deposits in foreign offices 226 92 40
Federal funds purchased and securities under
repurchase agreements 125 76 33
Short-term bank notes 50 2 3
Other short-term borrowings 109 75 43
Notes and debentures 117 110 121
--------------------------------------------------------------------------------------------------
Total interest expense 1,290 802 655
- --------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE NET INTEREST REVENUE 1,548 1,508 1,329
Provision for credit losses 105 70 125
--------------------------------------------------------------------------------------------------
NET INTEREST REVENUE AFTER PROVISION FOR LOSSES 1,443 1,438 1,204
- --------------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE Trust and investment management fees 906 953 853
Cash management and deposit transaction charges 191 197 192
Mortgage servicing fees 122 78 62
Foreign currency and securities trading 91 76 46
Credit card fees 90 72 61
Other income 270 276 324
--------------------------------------------------------------------------------------------------
Total fee revenue 1,670 1,652 1,538
Gains (losses) on sales of securities 6 (5) 100
--------------------------------------------------------------------------------------------------
Total noninterest revenue 1,676 1,647 1,638
- --------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE Staff expense 957 956 854
Net occupancy expense 205 206 186
Professional, legal and other purchased services 186 210 163
Equipment expense 143 132 121
Business development 136 161 139
Amortization of goodwill and other intangible assets 96 98 78
Communications expense 86 84 77
Amortization of mortgage servicing rights and
purchased credit card relationships 68 40 44
Forms and supplies 42 40 38
FDIC assessment and regulatory examination fees 31 63 60
Other expense 97 85 90
Net expense (revenue) of acquired property (20) (28) 59
Securities lending charge - 223 -
Merger expense - 104 175
--------------------------------------------------------------------------------------------------
Total operating expense 2,027 2,374 2,084
- --------------------------------------------------------------------------------------------------------------------------
INCOME Income before income taxes 1,092 711 758
Provision for income taxes 401 278 298
--------------------------------------------------------------------------------------------------
NET INCOME 691 433 460
Dividends on preferred stock 39 75 63
--------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 652 $ 358 $ 397
--------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE Primary net income $ 4.50 $ 2.42 $ 2.73
Fully diluted net income $ 4.46 $ 2.42 $ 2.73
--------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
61
<PAGE> 45
CONSOLIDATED BALANCE SHEET
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 2,342 $ 2,285
Interest-bearing deposits with banks 553 429
Federal funds sold and securities under resale agreements 225 383
Other money market investments 82 48
Trading account securities 62 71
Securities available for sale 2,913 1,881
Investment securities (approximate fair value of $2,554 and $3,033) 2,519 3,244
Loans, net of unearned discount of $44 and $62 27,690 26,733
Reserve for credit losses (471) (607)
Customers' acceptance liability 263 234
Premises and equipment 556 558
Acquired property, net of reserves of $18 and $29 69 88
Goodwill and other intangibles 958 1,036
Mortgage servicing rights
and purchased credit card relationships 682 352
Other assets 2,203 1,909
---------------------------------------------------------------------------------------------
Total assets $40,646 $38,644
---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
LIABILITIES Noninterest-bearing deposits in domestic offices $ 6,458 $ 5,979
Interest-bearing deposits in domestic offices 18,412 18,121
Interest-bearing deposits in foreign offices 4,391 3,470
---------------------------------------------------------------------------------------------
Total deposits 29,261 27,570
Federal funds purchased and securities under
repurchase agreements 1,591 2,023
Short-term bank notes 1,057 200
Term federal funds purchased 905 333
U.S. Treasury tax and loan demand notes 290 567
Commercial paper 284 178
Other funds borrowed 190 171
Acceptances outstanding 263 234
Other liabilities 1,337 1,678
Notes and debentures (with original maturities over one year) 1,443 1,568
---------------------------------------------------------------------------------------------
Total liabilities 36,621 34,522
- ------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock 435 435
EQUITY Common shareholders' equity:
Common stock--$.50 par value
Authorized--200,000,000 shares
Issued--147,165,480 shares 74 74
Additional paid-in capital 1,850 1,851
Retained earnings 2,118 1,780
Warrants - 37
Net unrealized gain (loss) on assets available for sale, net of tax 18 (55)
Treasury stock of 9,978,407 and - shares at cost (470) -
---------------------------------------------------------------------------------------------
Total common shareholders' equity 3,590 3,687
---------------------------------------------------------------------------------------------
Total shareholders' equity 4,025 4,122
---------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $40,646 $38,644
---------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
62
<PAGE> 46
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
MELLON BANK CORPORATION (CONSOLIDATED AND PARENT CORPORATION)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Net unrealized gain Total
Additional (loss) on assets share-
Preferred Common paid-in Retained available for sale Treasury holders'
(in millions) stock stock capital earnings Warrants (net of tax) stock equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 467 $47 $1,612 $1,360 $ 6 $ - $(155) $3,337
Net income 460 460
Dividends on common stock at
$1.01 per share (a) (121) (121)
Dividends on preferred stock (63) (63)
Issuance of 6.81 million shares of common
stock, net of issuance costs 4 340 344
Issuance of warrants 37 37
Series K preferred stock
issued, net of issuance costs 193 193
Series B preferred stock
redemption/conversion (68) 1 2 (65)
Purchase of treasury stock (89) (89)
Common stock issued under dividend
reinvestment and common stock
purchase plan 35 6 41
Exercise of stock options 11 (11) 24 24
Exercise of warrants 1 24 (6) 19
Exercise of subscription rights 8 8
Other 7 4 2 13
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 $ 592 $52 $2,038 $1,629 $ 37 $ - $(210) $4,138
Net income 433 433
Dividends on common stock at
$1.57 per share (a) (194) (194)
Dividends on preferred stock (75) (75)
Common stock issued under dividend
reinvestment and common stock
purchase plan 9 2 11
Series H preferred stock redemption (155) (155)
Conversion of Series D preferred
stock to common stock (2) 1 1 -
Exercise of stock options 6 (6) 10 10
Net unrealized loss on assets
available for sale, net of tax (55) (55)
Additional common stock issued for stock split 24 (24) -
Retirement of Dreyfus treasury stock (3) (187) 190 -
Other 8 (7) 8 9
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 435 $74 $1,851 $1,780 $ 37 $(55) $ - $4,122
NET INCOME 691 691
DIVIDENDS ON COMMON STOCK
AT $2.00 PER SHARE (288) (288)
DIVIDENDS ON PREFERRED STOCK (39) (39)
COMMON STOCK ISSUED UNDER DIVIDEND
REINVESTMENT AND COMMON STOCK
PURCHASE PLAN 1 13 14
REPURCHASE OF COMMON STOCK - RELATED
TO THE 1993 TBC ACQUISITION (159) (159)
REPURCHASE OF WARRANTS (17) (37) (54)
REPURCHASE OF COMMON STOCK FOR
EMPLOYEE BENEFIT PURPOSES (235) (235)
EXERCISE OF STOCK OPTIONS 12 (28) 78 62
REPURCHASE OF COMMON STOCK - OTHER (184) (184)
NET UNREALIZED GAIN ON ASSETS AVAILABLE
FOR SALE, NET OF TAX 73 73
OTHER 3 2 17 22
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $ 435 $74 $1,850 $2,118 $ - $ 18 $(470) $4,025
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Dividends per share have not been restated to reflect the Dreyfus merger.
</TABLE>
See accompanying Notes to Financial Statements.
63
<PAGE> 47
CONSOLIDATED STATEMENT OF CASH FLOWS
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net income $ 691 $ 433 $ 460
OPERATING Adjustments to reconcile net income to net cash
ACTIVITIES provided by operating activities:
Amortization of goodwill and other intangible assets 96 98 78
Amortization of mortgage servicing rights
and purchased credit card relationships 68 40 44
Depreciation and other amortization 107 95 90
Deferred income tax expense (benefit) 167 (14) 29
Provision for credit losses 105 70 125
Provision for real estate acquired and other losses (6) 1 65
Securities lending charge - 223 -
Merger expenses - 104 175
Net gains on dispositions of acquired property (12) (30) (11)
Net (increase) decrease in accrued interest receivable (45) (42) 69
Net (increase) decrease in trading account securities 12 52 (1)
Net increase (decrease) in accrued interest
payable, net of amounts prepaid 35 34 (18)
Net (increase) decrease in residential mortgages held for sale (367) 217 76
Net increase (decrease) in other operating activities (596) (332) 276
-------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 255 949 1,457
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net (increase) decrease in term deposits and other money
INVESTING market investments (158) 715 968
ACTIVITIES Net (increase) decrease in federal funds sold and securities
under resale agreements 158 191 (294)
Funds invested in securities available for sale (5,070) (11,526) (11,872)
Proceeds from sales of securities available for sale 1,845 3,808 9,511
Proceeds from maturities of securities available for sale 2,898 8,927 4,381
Funds invested in investment securities (175) (1,458) (846)
Proceeds from sales of investment securities - - 664
Proceeds from maturities of investment securities 307 488 447
Net increase in credit card receivables (600) (870) (114)
Net principal collected (disbursed) on loans to customers (1,662) (1,544) 788
Credit card receivables securitized 950 - -
Loan portfolio purchases (302) (216) (83)
Proceeds from sales of loan portfolios 815 286 116
Purchases of premises and equipment (101) (133) (120)
Proceeds from sales of acquired property 49 93 102
Cash paid in purchase of Metmor Financial, Inc., including
warehouse loans purchased of $166 million, net of
cash received and escrow deposits (130) - -
Cash paid in purchase of U.S. Bancorp Mortgage Company,
including warehouse loans purchased of $81 million,
net of escrow deposits - (98) -
Cash paid in purchase of Glendale Bancorporation, net of cash
received - (13) -
Cash paid in purchase of The Boston Company and AFCO and
CAFO, net of cash received - - (1,233)
Net (increase) decrease in other investing activities (137) 75 (268)
-------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,313) (1,275) 2,147
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
-continued-
64
<PAGE> 48
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net increase (decrease) in transaction and savings deposits 955 (1,070) 1,266
FINANCING Net increase (decrease) in customer term deposits 500 807 (2,726)
ACTIVITIES Net increase (decrease) in federal funds purchased and
securities under repurchase agreements (432) 1,045 (676)
Net increase (decrease) in U.S. Treasury tax and loan demand notes (277) (144) 435
Net increase in short-term bank notes 857 200 -
Net increase (decrease) in term federal funds purchased 572 325 (614)
Net increase (decrease) in commercial paper 106 44 (45)
Repayments of AFCO borrowings - - (1,058)
Repurchase and repayments of longer-term debt (354) (425) (1,070)
Net proceeds from issuance of longer-term debt 227 1 950
Redemption of preferred stock (155) - (65)
Net proceeds from issuance of common and preferred stock 58 18 502
Dividends paid on common and preferred stock (346) (254) (183)
Repurchase of common stock and warrants related to
the 1993 TBC acquisition (213) - -
Repurchase of common stock for employee benefit purposes (235) - (89)
Repurchase of common stock - other (184) - -
Net increase (decrease) in other financing activities 17 (127) (48)
---------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,096 420 (3,421)
Effect of foreign currency exchange rates 19 20 13
- --------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH Net increase in cash and due from banks 57 114 196
AND DUE FROM Cash and due from banks at beginning of year 2,285 2,171 1,975
BANKS ---------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $2,342 $ 2,285 $ 2,171
---------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Interest paid $1,255 $ 768 $ 673
DISCLOSURES Net income taxes paid 182 284 211
---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
65
<PAGE> 49
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
Basis of presentation
The accounting and financial reporting policies of Mellon Bank Corporation (the
Corporation), a multibank holding company, conform to generally accepted
accounting principles (GAAP) and prevailing industry practices.
The consolidated financial statements of the Corporation include the accounts
of the Corporation and its majority-owned subsidiaries. Investments in
companies 20 - 50% owned are carried on the equity basis. Investments in
companies less than 20% owned are carried at cost. Intracorporate balances and
transactions are not reflected in the consolidated financial statements. The
income statement includes results of acquired subsidiaries and businesses
accounted for under the purchase method of accounting from the dates of
acquisition. On August 24, 1994, the Corporation merged with The Dreyfus
Corporation. This merger was accounted for as a pooling of interests. The
financial information for all prior periods were restated in 1994 to present
the combined balance sheet and results of operations of both companies as if
the merger had been in effect for all periods presented.
The parent Corporation financial statements in note 24 include the accounts of
the Corporation and those of a wholly owned financing subsidiary that functions
as a financing entity for the Corporation and its subsidiaries by issuing
commercial paper and other debt guaranteed by the Corporation. Financial data
for the Corporation and the financing subsidiary are combined for financial
reporting because of the limited function of the financing subsidiary and the
unconditional guarantee by the Corporation of the financing subsidiary's
obligations. Securities and other property held in a fiduciary or agency
capacity are not included in the balance sheet since these are not assets or
liabilities of the Corporation.
Nature of operations and use of estimates in the preparation of financial
statements
Mellon Bank Corporation is a multibank holding company whose principal wholly
owned subsidiaries are Mellon Bank, N.A., The Boston Company, Inc. and Mellon
Bank (DE) National Association. 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 primarily engage in retail
financial services, commercial banking, mortgage banking, trust and investment
management services and mutual funds activities. While the Corporation's major
subsidiaries are headquartered in the Northeast and Central Atlantic regions,
most of its products and services are offered nationwide and many are offered
globally. The Corporation's customer base is diversified and primarily
domestic.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
related revenue and expense during the reporting period. Actual results could
differ from those estimates.
Trading account securities, securities available for sale and investment
securities
When purchased, securities are classified in either the trading account
securities portfolio, the securities available for sale portfolio or the
investment securities portfolio. Securities are classified as trading account
securities when the intent is profit maximization through market appreciation
and resale. Securities are classified as available for sale when management
intends to hold the securities for an indefinite period of time or when the
securities may be used for tactical asset/liability purposes and may be sold
from time to time to effectively manage interest rate exposure, prepayment risk
and liquidity needs. Securities are classified as investment securities when
management intends to hold these securities until maturity.
Trading account securities, including interest rate agreements, are stated at
fair value. Trading revenue includes both realized and unrealized gains and
losses. The liability incurred on short-sale transactions, representing the
obligation to deliver securities, is included in other funds borrowed at fair
value.
66
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
On January 1, 1994, FAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," became effective. Beginning in 1994, securities
available for sale are stated at fair value; prior years' securities available
for sale were recorded at the lower of aggregate cost or market value, adjusted
for amortization of premium and accretion of discount on a level yield basis.
Adoption of this standard resulted in unrealized gains or losses on assets
classified as available for sale, net of tax, being recorded as an addition to
or deduction from shareholders' equity. Investment securities are stated at
cost, adjusted for amortization of premium and accretion of discount on a level
yield basis. Gains (losses) on sales of securities available for sale are
reported in the income statement. The cost of securities sold is determined on
a specific identification basis.
Loans
Loans are reported net of any unearned discount. Interest revenue on
nondiscounted loans is recognized based on the principal amount outstanding.
Interest revenue on discounted loans is recognized based on methods that
approximate a level yield. Loan origination and commitment fees, as well as
certain direct loan origination and commitment costs, are deferred and
amortized as a yield adjustment over the lives of the related loans. Deferred
fees and costs are netted against outstanding loan balances.
Commercial loans generally are placed on nonaccrual status when either
principal or interest is past due 90 days or more, unless the loan is well-
secured and in the process of collection. Management also places loans on
nonaccrual status when the collection of principal or interest becomes
doubtful. When a loan is placed on nonaccrual status, previously accrued and
uncollected interest is reversed against current period interest revenue.
Interest receipts on nonaccrual loans are recognized as interest revenue or are
applied to principal when management believes the ultimate collectability of
principal is in doubt. Nonaccrual loans generally are restored to an accrual
basis when principal and interest payments become current or when the loan
becomes well-secured and is in the process of collection.
Residential mortgage loans generally are placed on nonaccrual status when, in
management's judgment, collection is in doubt or the loans have outstanding
balances of $250,000 or greater and are 90 days or more delinquent, or have
balances of less than $250,000 and are delinquent 12 months or more. Consumer
loans, other than residential mortgages, and certain secured commercial loans
of less than $5,000 are charged off upon reaching various stages of delinquency
depending upon the loan type.
Unearned revenue on direct financing leases is accreted over the lives of the
leases in decreasing amounts to provide a constant rate of return on the net
investment in the leases. Revenue on leveraged leases is recognized on a basis
to achieve a constant yield on the outstanding investment in the lease, net of
the related deferred tax liability, in the years in which the net investment is
positive. Gains on sales of lease residuals are included in other noninterest
revenue.
On January 1, 1995, the Corporation adopted FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and FAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." FAS No. 114
provides guidelines for measuring impairment losses on loans. A loan is
considered to be impaired when it is probable that the Corporation will be
unable to collect all principal and interest amounts due according to the
contractual terms of the loan agreement. All of the Corporation's
nonperforming loans, which totaled $167 million at December 31, 1995, are
considered to be impaired loans. Average impaired loans during 1995 were $175
million. Under FAS No. 114, impaired loans subject to the statement are
required to be measured based upon the present value of expected future cash
flows, discounted at the loan's initial effective interest rate, or at the
loan's market price or fair value of the collateral if the loan is collateral
dependent. If the loan valuation is less than the recorded value of the loan,
an impairment reserve must be established for the difference. The impairment
reserve is established by either an allocation of the reserve for credit losses
or by a provision for credit losses, depending on the adequacy of the reserve
for credit losses. Included in impaired loans at December 31, 1995 were $59
million that had a related impairment reserve of $22 million, and $108 million
that did not have a related reserve as a result of
67
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
interest payments applied to reduce principal or credit losses previously taken
on these loans. FAS No. 118 permits existing income recognition practices to
continue. During the year, the Corporation recognized $13 million of interest
revenue on impaired loans, all of which was recognized using the cash basis
method of income recognition.
Credit card securitization
In November 1995, the Corporation securitized $950 million of credit card
receivables. The amount of credit card interest revenue and fee revenue in
excess of interest paid to certificate holders and credit losses is recognized
monthly as servicing revenue in credit card fee revenue.
Reserve for credit losses
The reserve for credit losses is maintained to absorb future losses inherent in
the credit portfolio based on management's judgment. Factors considered in
determining the level of the reserve include: trends in portfolio volume,
quality, maturity and composition; industry concentrations; lending policies;
new products; adequacy of collateral; historical loss experience; the status
and amount of nonperforming and past-due loans; specific known risks; and
current, as well as anticipated, specific and general economic factors that may
affect certain borrowers. Credit losses are charged against the reserve;
recoveries are added to the reserve.
Acquired property
Property acquired in connection with loan settlements, including real estate
acquired, is stated at the lower of estimated fair value less estimated costs
to sell, or the carrying amount of the loan. A reserve for real estate
acquired is maintained on a property-by-property basis to recognize estimated
potential declines in value that might occur between appraisal dates.
Provisions for the estimated potential decrease in fair value between annual
appraisals, net gains on the sale of real estate acquired and net direct
operating expense attributable to these assets are included in net expense
(revenue) of acquired property.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization are calculated over the estimated
useful lives of the assets, limited in the case of leasehold improvements to
the lease term, using the straight-line method.
Goodwill, other identified intangibles, mortgage servicing rights and purchased
credit card relationships
Intangible assets are amortized using straight-line and accelerated methods
over the remaining estimated benefit periods which approximated, on a
weighted-average basis at December 31, 1995, 16 years for goodwill, five years
for core deposit intangibles, eight years for credit card relationships and
nine years for all other intangible assets except mortgage servicing rights.
Intangible assets are reviewed for possible impairment when events or changed
circumstances may affect the underlying basis of the asset.
Mortgage servicing rights (MSRs) are recorded at cost and are amortized in
proportion to the estimated servicing income over the estimated life of the
servicing portfolio. The Corporation adopted FAS No. 122, "Accounting for
Mortgage Servicing Rights," in 1995. FAS No. 122 amends FAS No. 65,
"Accounting for Certain Mortgage Banking Activities" and requires the
recognition as separate assets the rights to service mortgage loans for others,
however those servicing rights are acquired. This statement eliminates the
previously existing accounting distinction between servicing rights acquired
through purchase transactions and those acquired through loan originations. In
1995, $12 million of servicing rights were capitalized in connection with loan
originations.
68
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
The carrying amount of MSRs was $592 million at December 31, 1995, with an
estimated fair value of $661 million. The carrying amount of MSRs is measured
for impairment each quarter based on the fair value of the MSRs. Quoted market
prices are used, whenever available, as the basis for measuring the fair value
of servicing rights. When quoted market prices are not available, fair values
are based upon the present value of estimated expected future cash flows using
a discount rate commensurate with the risks involved. For impairment
measurement purposes, servicing rights acquired after April 1, 1995, are first
stratified by loan type and then by interest rates within the loan type. If
the carrying value of an individual stratum exceeds its fair value, a valuation
allowance would be established. No valuation allowances were recorded at
December 31, 1995, as the carrying values of the various stratifications were
less than their respective fair value. MSRs acquired prior to April 1, 1995,
are stratified by acquisition and evaluated for possible impairment using fair
market values. On a weighted-average basis at December 31, 1995, the serviced
mortgage loan portfolio had an interest rate of approximately 7.95%.
Assets held for accelerated resolution
During the fourth quarter of 1995, the Corporation segregated certain loans
from the CornerStone(sm) credit card portfolio into an accelerated resolution
portfolio. The excess of the carrying value of these loans, which have a
history of delinquency, over the estimated net realizable value was recorded as
a credit loss. Interest and principal receipts, fees and loan loss recoveries
on loans in this portfolio are applied to reduce the net carrying value. No
revenue will be recorded on this portfolio until the net carrying value is
recovered. This portfolio is reported in other assets in the balance sheet.
Income Taxes
The Corporation, its domestic subsidiaries and Mellon Bank Canada file a
consolidated U.S. income tax return. The provision for U.S. income taxes of
each subsidiary is recorded as if each subsidiary filed a separate return,
except that tax benefits of current year losses, tax credits and tax benefit
carryforwards are allocated to the subsidiaries incurring such losses or
credits to the extent they reduce consolidated tax expense.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated to U.S.
dollars at the rate of exchange on the balance sheet date. Revenue and expense
accounts are translated monthly at month-end rates of exchange. Net foreign
currency positions are valued at rates of exchange--spot or future, as
appropriate--prevailing at the end of the period, and resulting gains or losses
are included in the income statement. Translation gains and losses on
investments in foreign entities with functional currencies that are not the
U.S. dollar are included in shareholders' equity.
Fee revenue
Trust and investment management fees are reported net of fees waived and
expense reimbursements to certain mutual funds. Fees on standby letters of
credit are recognized over the commitment term, while fees on commercial
letters of credit, because of their short-term nature, are recognized when
received. Fees on standby and commercial letters of credit are recorded in fee
revenue. Fees for banking and other services generally are recognized over the
periods the related services are provided.
Off-balance-sheet instruments used for interest rate risk management
The Corporation enters into interest rate swaps, futures and forward contracts
and interest rate caps and floors to manage its sensitivity to interest rate
risk. These instruments are designated as a hedge on the trade date and are
highly correlated with the financial instrument being hedged. An example of a
highly correlated hedge is the hedging of three-month Eurodollar deposits with
three-month Eurodollar futures contracts. Interest revenue or interest expense
on such transactions is accrued over the term of the agreement as an adjustment
to the yield or cost of the related asset or liability. Transaction fees are
deferred and amortized to interest revenue or interest expense over the term of
the agreement. Realized gains and losses
69
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
are deferred and amortized over the life of the hedged transaction as interest
revenue or interest expense, and any unamortized amounts are recognized as
income or loss at the time of disposition of the assets or liabilities being
hedged. Amounts payable to or receivable from counterparties are included in
other liabilities or other assets. The fair values of interest rate swaps,
futures and forward contracts and interest rate caps and floors used for
interest rate risk management are not recognized in the financial statements.
Hedge correlation of interest rate risk management positions is reviewed
periodically. If correlation criteria are not met, the interest rate risk
management position is no longer accounted for as a hedge. Under these
circumstances, the accumulated change in market value of the hedge is
recognized in current income to the extent that the hedge results have not been
offset by the effects of interest rate or price changes of the hedged item.
Off-balance-sheet instruments used for trading activities
The Corporation enters into foreign exchange contracts, futures and forward
contracts, interest rate swaps, option contracts and interest rate agreements
to accommodate customers and for its proprietary trading activities. Realized
and unrealized changes in the fair value of these instruments are recognized in
the income statement in foreign currency and securities trading revenue in the
period in which the changes occur. Interest revenue and expense on instruments
held for trading activities are included in the income statement as part of net
interest revenue. The fair value of contracts in gain positions is reported on
the balance sheet in other assets and the fair value of contracts in loss
positions is reported in other liabilities.
Statement of Cash Flows
For the purpose of reporting cash flows, the Corporation has defined cash and
cash equivalents as cash and due from banks. Cash flows from assets and
liabilities that have an original maturity date of three months or less
generally are reported on a net basis. Cash flows from assets and liabilities
that have an original maturity date greater than three months generally are
reported on a gross basis. Cash flows from hedging activities are classified
in the same category as the items hedged.
Net income per common share
Net income per common share is computed using the "if-converted" method by
dividing net income applicable to common stock by the average number of shares
of common stock and common stock equivalents outstanding, net of shares assumed
to be repurchased using the treasury stock method. Common stock equivalents
arise from the assumed conversion of outstanding stock options, warrants and
subscription rights. The Series D preferred stock was converted to common
stock in August 1994. If the inclusion of the Series D preferred stock as
common stock equivalents was dilutive, dividends on the Series D preferred
stock were added back to net income for the purpose of calculating net income
per common share. The average number of shares of common stock and equivalents
used to compute primary net income per common share in 1995, 1994 and 1993 was
145.1 million, 149.1 million and 147.1 million, respectively.
Fully diluted net income per common share is computed by dividing net income
applicable to common stock by the average number of shares of common stock and
common stock equivalents outstanding for items that are dilutive, net of shares
assumed to be repurchased using the treasury stock method. These shares are
increased by the assumed conversion of convertible items, if dilutive. The
average number of shares of common stock and equivalents used to compute fully
diluted net income per common share in 1995, 1994 and 1993 was 146.2 million,
149.2 million and 147.3 million, respectively.
2. CASH AND DUE FROM BANKS
Cash and due from banks includes reserve balances that the Corporation's
subsidiary banks are required to maintain with a Federal Reserve bank. These
required reserves are based primarily on deposits outstanding and were $630
million at December 31, 1995, and $614 million at December 31, 1994. These
balances averaged $569 million in 1995 and $621 million in 1994.
70
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES
SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994
---------------------------------------- ----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 209 $ 1 $- $ 210 $ 425 $- $ 1 $ 424
U.S. agency mortgage-backed 1,572 38 4 1,606 527 - 42 485
Other U.S. agency 951 2 - 953 830 - - 830
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 2,732 41 4 2,769 1,782 - 43 1,739
Obligations of states and
political subdivisions 62 1 - 63 1 - - 1
Other mortgage-backed 7 - - 7 9 - - 9
Other securities 68 7 1 74 132 3 3 132
- -------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,869 $49 $5 $2,913 $1,924 $3 $46 $1,881
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1995
Obligations Total
U.S. agency Total of states Other securities
(dollar amounts U.S. mortgage- Other U.S. Treasury and political mortgage- Other available
in millions) Treasury backed U.S. agency and agency subdivisions backed securities for sale
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year
Amortized cost $176 $ - $330 $ 506 $ 3 $- $ - $ 509
Fair value 176 - 330 506 3 - - 509
Yield 5.03% - 5.95% 5.63% 8.21% - - 5.64%
1 to 5 years
Amortized cost 33 - 621 654 52 - 10 716
Fair value 34 - 623 657 53 - 10 720
Yield 6.05% - 5.97% 5.98% 7.95% - 6.14% 6.12%
5 to 10 years
Amortized cost - - - - 1 - 2 3
Fair value - - - - 1 - 2 3
Yield - - - - 10.12% - 7.35% 8.20%
Over 10 years
Amortized cost - - - - 6 - 56 62
Fair value - - - - 6 - 62 68
Yield - - - - 8.98% - 10.05%(c) 9.76%(c)
Mortgage-backed
securities
Amortized cost - 1,572 - 1,572 - 7 - 1,579
Fair value - 1,606 - 1,606 - 7 - 1,613
Yield - 7.14% - 7.14% - 6.72% - 7.14%
- -------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $209 $1,572 $951 $2,732 $62 $7 $68 $2,869
Total fair value 210 1,606 953 2,769 63 7 74 2,913
Total yield 5.19% 7.14% 5.96% 6.58% 8.09% 6.72% 8.32%(c) 6.63%(c)
Weighted average
contractual years to
maturity .76 - (a) 2.36 2.07 (b) 4.02 - (a) 8.47 (c) -
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 7.7 years and 2.5 years,
respectively, at December 31, 1995.
(b) Excludes maturities of "U.S. agency mortgage-backed" securities.
(c) Excludes equity securities and other investments which have no stated yield.
</TABLE>
Note: Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. Rates are calculated on a taxable
equivalent basis using a 35% federal income tax rate.
71
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994
---------------------------------------- ----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 33 $ 4 $- $ 37 $ 24 $- $ 1 $ 23
U.S. agency mortgage-backed 2,375 34 4 2,405 3,017 - 209 2,808
Other U.S. agency - - - - 4 - - 4
- -------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 2,408 38 4 2,442 3,045 - 210 2,835
Obligations of states and
political subdivisions - - - - 70 - 1 69
Other mortgage-backed 39 1 - 40 48 - 1 47
Other securities 72 - - 72 81 1 - 82
- -------------------------------------------------------------------------------------------------------------------------------
Total investment securities $2,519 $39 $4 $2,554 $3,244 $1 $212 $3,033
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1995
Obligations
U.S. agency Total of states Other Total
(dollar amounts U.S. mortgage- Other U.S. Treasury and political mortgage- Other investment
in millions) Treasury backed U.S. agency and agency subdivisions backed securities securities
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Within one year
Amortized cost $15 $ - $- $ 15 $- $ - $13 $ 28
Fair value 15 - - 15 - - 13 28
Yield 4.62% - - 4.62% - - 5.73% 5.15%
1 to 5 years
Amortized cost - - - - - - 8 8
Fair value - - - - - - 8 8
Yield - - - - - - 16.43% 16.43%
5 to 10 years
Amortized cost 4 - - 4 - - 7 11
Fair value 4 - - 4 - - 7 11
Yield 5.76% - - 5.76% - - 9.89% 8.32%
Over 10 years
Amortized cost 14 - - 14 - - 44 (a) 58
Fair value 18 - - 18 - - 44 (a) 62
Yield 7.43% - - 7.43% - - 5.95% 6.75%
Mortgage-backed
securities
Amortized cost - 2,375 - 2,375 - 39 - 2,414
Fair value - 2,405 - 2,405 - 40 - 2,445
Yield - 6.90% - 6.90% - 7.45% - 6.91%
- -------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $33 $2,375 $- $2,408 $- $39 $72 $2,519
Total fair value 37 2,405 - 2,442 - 40 72 2,554
Total yield 5.94% 6.90% - 6.88% - 7.45% 7.53% 6.91%
Weighted average
contractual years to
maturity 8.57 - (b) - 8.57 (c) - - (b) 1.39 -
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Includes Federal Reserve Bank stock of $41 million with a yield of 6.00% and
no stated maturity.
(b) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 7.4 years and 4.5 years,
respectively, at December 31, 1995.
(c) Excludes maturities of "U.S. agency mortgage-backed" securities.
</TABLE>
Note: Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. Rates are calculated on a taxable
equivalent basis using a 35% federal income tax rate.
72
<PAGE> 56
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
In late 1995, the FASB issued "A Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities, Questions and
Answers." This guide permitted a one-time reassessment of the appropriateness
of the classifications of securities as available for sale or held for
investment. The Corporation elected to redesignate $530 million of GNMA
fixed-rate pass-through securities with an unrealized gain of $22 million and
$56 million of municipal securities with an unrealized gain of less than $1
million, from the investment securities category to the securities available
for sale category.
Gross realized gains on the sale of securities available for sale were $7
million, $16 million and $87 million in 1995, 1994 and 1993, respectively.
Gross realized losses on the sale of securities available for sale were $1
million and $21 million in 1995 and 1994, respectively. There were no gross
realized losses on the sale of securities available for sale in 1993. Proceeds
from the sale of securities available for sale were $1.8 billion, $3.8 billion
and $9.5 billion in 1995, 1994 and 1993, respectively. At December 31, 1995
and 1994, net unrealized gains of $44 million and losses of $43 million,
respectively, were recorded in shareholders' equity, net of tax, in accordance
with FAS No. 115.
There were no sales of investment securities in 1995 and 1994. In 1993,
Dreyfus recorded $40 million of gross realized gains and $27 million of gross
realized losses on the sale of investment securities. Proceeds from the sale
of investment securities were $664 million in 1993.
Securities available for sale, investment securities, trading account
securities and loans, with book values of $3.1 billion at December 31, 1995,
and $3.9 billion at December 31, 1994, were required to be pledged to secure
public and trust deposits, and repurchase agreements, as well as for other
purposes.
4. LOANS
For details of the loans outstanding at December 31, 1995 and 1994, see the
1995 and 1994 columns of the "Composition of loan portfolio at year-end" table
on page 50. The information in those columns is incorporated by reference into
these Notes to Financial Statements.
For details of the nonperforming and past-due loans at December 31, 1995 and
1994, see the amounts in the 1995 and 1994 columns of the "Nonperforming
assets" and "Past-due loans" tables on pages 54 and 56. The information in
those columns is incorporated by reference into these Notes to Financial
Statements. Foregone interest on restructured loans was less than $1 million
in 1995 and approximately $1 million in 1994. There was no foregone interest
on restructured loans in 1993.
5. RESERVE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $ 607 $ 600 $ 506
Net change in reserve from mergers, asset acquisitions and divestitures 8 4 108
Additions (deductions):
Credit losses, excluding losses on assets held for accelerated resolution (230) (151) (216)
Recoveries 87 84 77
- ------------------------------------------------------------------------------------------------------------------
Net credit losses (143) (67) (139)
Credit losses on assets held for accelerated resolution (106) - -
Provision for credit losses 105 70 125
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 471 $ 607 $ 600
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 29 $ 30
Buildings 278 259
Equipment 648 600
Leasehold improvements 179 178
- --------------------------------------------------------------------------------------------------
Subtotal 1,134 1,067
Accumulated depreciation and amortization (578) (509)
- --------------------------------------------------------------------------------------------------
Total premises and equipment $ 556 $ 558
- --------------------------------------------------------------------------------------------------
</TABLE>
The table above includes capital leases for premises and equipment at a net
book value of $2 million at December 31, 1995, and less than $1 million at
December 31, 1994.
Rental expense was $121 million, $117 million and $104 million, respectively,
net of related sublease revenue of $25 million, $33 million and $29 million, in
1995, 1994 and 1993, respectively. Depreciation and amortization expense
totaled $107 million, $95 million and $90 million in 1995, 1994 and 1993,
respectively. Maintenance, repairs and utilities expenses totaled $90 million,
$89 million and $85 million in 1995, 1994 and 1993, respectively.
As of December 31, 1995, the Corporation and its subsidiaries are obligated
under noncancelable leases (principally for banking premises) with expiration
dates through 2020. A summary of the future minimum rental payments under
noncancelable leases, net of related sublease revenue totaling $86 million, is
as follows: 1996--$120 million; 1997--$114 million; 1998--$106 million;
1999--$107 million; 2000--$100 million and 2001 through 2020--$897 million.
7. RESERVE FOR REAL ESTATE ACQUIRED
An analysis of the reserve for real estate acquired for 1995, 1994 and 1993 is
presented in the "Reserve for real estate acquired" table on page 55 and is
incorporated by reference into these Notes to Financial Statements.
8. SEGREGATED ASSETS
Segregated assets represent commercial real estate and other commercial loans
acquired in the December 1992 Meritor retail office acquisition that are on
nonaccrual status, or are foreclosed properties, and are subject to a loss
sharing arrangement with the FDIC. These delinquent assets, net of reserve,
are reported in other assets in the balance sheet. The reserve for segregated
assets is not included in the reserve for credit losses.
Segregated assets totaled $24 million at December 31, 1995, including gross
segregated assets of $28 million and a $4 million reserve for credit losses.
At December 31, 1994, segregated assets totaled $85 million, including gross
segregated assets of $89 million and a $4 million reserve for credit losses.
As a result of the loss sharing arrangement with the FDIC, any of the
performing commercial loans or performing commercial real estate loans acquired
in the Meritor retail office acquisition that become nonaccrual before December
31, 1997, will be reclassified to segregated assets. The loss sharing
provisions of the arrangement stipulate that, during the first five years, the
FDIC will pay to Mellon Bank, N.A. 80% of the net credit losses on acquired
commercial real estate and other commercial loans.
During the sixth and seventh years of the arrangement, Mellon Bank, N.A. will
pay to the FDIC 80% of any recoveries of charge-offs on such acquired loans
that had occurred during the first five years of the arrangement. At the end
of the
74
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
8. SEGREGATED ASSETS (CONTINUED)
seventh year, the FDIC will pay to Mellon Bank, N.A. an additional 15% of the
sum of net charge-offs on the acquired loans that occurred during the first
five years, less the recoveries during the sixth and seventh years of the
arrangement in excess of $60 million. The $60 million credit loss threshold
was reached in the first quarter of 1993.
The FDIC will also reimburse Mellon Bank, N.A. for expenses incurred to recover
amounts owed and net expenses incurred with respect to foreclosed properties
derived from the acquired commercial real estate or commercial loans. Expenses
are reimbursed by the FDIC in the same proportion as the reimbursement of net
loan losses. In addition, the FDIC will reimburse Mellon Bank, N.A. for up to
90 days of delinquent interest on the assets covered by the loss sharing
arrangement. Mellon Bank, N.A. is required to administer assets entitled to
loss sharing protection in the same manner as assets held by Mellon Bank, N.A.
for which no loss sharing exists.
9. OTHER ASSETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid expense:
Pension $ 290 $ 256
Other 65 42
Interest receivable 244 199
Accounts receivable 196 218
Receivables related to off-balance-sheet instruments 388 281
Assets held for accelerated resolution 82 -
Other 938 913
- ----------------------------------------------------------------------------------------
Total Other assets $2,203 $1,909
- ----------------------------------------------------------------------------------------
</TABLE>
10. SHORT-TERM BORROWINGS
Federal funds purchased and securities under repurchase agreements represent
funds acquired for securities transactions and other funding requirements.
Federal funds purchased mature on the business day after execution.
During 1995, the Corporation signed a $300 million three-year revolving credit
agreement with several financial institutions that serves as a support facility
for commercial paper and for general corporate purposes. This revolving credit
facility has several restrictions, including a minimum 6% Tier 1 ratio, a 1.30
maximum double leverage limitation and a minimum nonperforming asset coverage
ratio of 3 to 1. The nonperforming asset coverage ratio is Tier I capital plus
the reserve for credit losses as a multiple of nonperforming assets. At
December 31, 1995, the Corporation's double leverage ratio was 1.13 and the
nonperforming asset coverage ratio was 15 to 1. The revolving credit facility
is supplemented by a $25 million backup line of credit, bringing total
commercial paper support facilities to $325 million. There were no other lines
of credit to subsidiaries of the Corporation at December 31, 1995 or 1994. No
borrowings were made under any facility in 1995 or 1994. Commitment fees
totaled less than $1 million in each of the years 1993 through 1995.
75
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
11. NOTES AND DEBENTURES (WITH ORIGINAL MATURITIES OVER ONE YEAR)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Corporation:
6.30% Senior Notes due 2000 $ 200 $ -
7-5/8% Senior Notes due 1999 200 200
6-1/2% Senior Notes due 1997 200 200
6-7/8% Subordinated Debentures due 2003 150 150
9-1/4% Subordinated Debentures due 2001 100 100
9-3/4% Subordinated Debentures due 2001 99 99
Medium Term Notes, Series A, due 1996-2001 (9.75% to 10.50% at
December 31, 1995, and 9.56% to 10.50% at December 31, 1994) 47 48
7-1/4% Convertible Subordinated Capital Notes due 1999 4 4
6-1/8% Senior Notes due 1995 - 200
5-3/8% Senior Notes due 1995 - 100
Senior Medium Term Notes, Series B, due 1995 (8.85% to 9.00% at December 31, 1994) - 26
Subsidiaries:
6-1/2% Subordinated Notes due 2005 249 249
6-3/4% Subordinated Notes due 2003 149 149
Medium Term Bank Notes due 1998-2007 (6.57% to 8.55% at December 31, 1995
and December 31, 1994) 38 35
Various notes and obligations under capital leases due 1996-2001 (3.92% to
10.50% at December 31, 1995 and 3.92% to 15.29% at December 31, 1994) 7 8
- -------------------------------------------------------------------------------------------------------------
Total unsecured notes and debentures (with original maturities over one year) $1,443 $1,568
- -------------------------------------------------------------------------------------------------------------
</TABLE>
In June 1995, the Corporation issued the 6.30% fixed rates notes due 2000.
Prior to issuance, the Corporation hedged the cost of this debt with an
interest rate swap. This swap was terminated upon issuance of the debt. The
effective interest rate of this debt, including the effect of the interest rate
swap, is 6.54%.
The Corporation's notes and debentures pay interest semiannually and are not
redeemable prior to maturities. During 1995, the 6-1/8% and 5-3/8% senior
notes and the Series B medium term notes matured as scheduled.
The 6-1/2% and 6-3/4% Subordinated Notes due 2005 and 2003, and the fixed-rate
Medium Term Bank Notes due 1998 through 2007, are subordinated to obligations
to depositors and other creditors of Mellon Bank, N.A.
The aggregate amounts of notes and debentures that mature during the five years
1996 through 2000, for the Corporation, are as follows: $23 million, $207
million, $18 million, $209 million and $205 million, respectively. The
aggregate amounts of notes and debentures that mature during the five years
1996 through 2000, for Mellon Bank Corporation (parent Corporation), are as
follows: $20 million, $205 million, $12 million, $204 million and $205
million, respectively.
12. PREFERRED STOCK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Liquidation Balances at 1995 Dividends
(dollar amounts in millions, preference Shares Shares December 31, --------------------
except per share amounts) per share authorized issued 1995 1994 1993 Per share Aggregate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9.60% preferred stock (Series I) $25.00 6,000,000 6,000,000 $145 $145 $145 $2.40 $14
8.50% preferred stock (Series J) 25.00 4,000,000 4,000,000 97 97 97 2.13 9
8.20% preferred stock (Series K) 25.00 8,000,000 8,000,000 193 193 193 2.05 16
Junior convertible preferred stock (Series D) 1.00 - - 2 - -
10.40% preferred stock (Series H) 25.00 - - 155 - -
---- ---- ----
Total preferred stock $435 $435 $592
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has authorized 50,000,000 shares of Series Preferred Stock, par
value $1.00 per share, at December 31, 1995. The table above summarizes the
Corporation's preferred stock outstanding at December 31, 1995, 1994 and 1993.
76
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
12. PREFERRED STOCK (CONTINUED)
The Series I, Series J and Series K preferred stocks are redeemable, in whole
or in part, at the option of the Corporation at $25 per share plus accrued
dividends at any time on or after August 15, 1996, February 15, 1997 and
February 15, 1998, respectively. In the event of liquidation or dissolution of
the Corporation, the rights of the Series I, Series J and Series K preferred
stock are senior to the common stock with respect to dividends and
distributions.
If the equivalent of six quarterly dividends, whether or not consecutive,
payable on Series I, Series J or Series K preferred stocks, are unpaid and not
set aside for payment, the number of directors of the Corporation will be
increased by two. The holders of the series of preferred stock for which
dividends are unpaid, voting as a single class, will be entitled to elect the
two additional directors to serve until all dividends in arrears have been paid
or declared and set aside for payment.
13. EQUITY PURCHASE OPTIONS (WARRANTS)
In connection with the acquisition of The Boston Company, the Corporation
issued 4.5 million 10-year equity purchase options (warrants), each exercisable
for one share of common stock. The warrants were exercisable at $33.33 per
share at any time until their expiration on May 21, 2003. In 1995, the
Corporation repurchased all of these warrants as part of a privately negotiated
transaction with American Express Travel Related Services Company, Inc., a
subsidiary of American Express Company.
14. NONINTEREST REVENUE
The components of noninterest revenue for the three years ended December 31,
1995, are presented in the "Noninterest revenue" table on page 31. This table
is incorporated by reference into these Notes to Financial Statements.
15. FOREIGN CURRENCY AND SECURITIES TRADING REVENUE
The Corporation's trading activities involve a variety of financial
instruments, including U.S. government securities, municipal securities and
money market securities, as well as off-balance-sheet instruments. The
majority of the Corporation's trading revenue is earned by structuring and
executing off-balance-sheet instruments for customers. The Corporation also
enters into positions in the interest rate, foreign exchange and debt markets
based upon expectations of future market conditions. The resulting risks are
limited by entering into generally matching or offsetting positions. Unmatched
positions are monitored through established limits. 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>
- ------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Foreign exchange contracts $88 $69
Debt instruments 4 4
Interest rate contracts - 3
Futures contracts (1) -
- ------------------------------------------------------------------------------------------------------------------------
Total foreign currency and securities trading revenue (a) $91 $76
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The Corporation recognized an unrealized loss of less than $1 million at
December 31, 1995, and an unrealized gain of less than $1 million at
December 31, 1994, related to securities held in the trading portfolio.
</TABLE>
77
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. INCOME TAXES
Income tax expense applicable to income before taxes consists of:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $213 $264 $224
State and local 17 26 45
Foreign 4 2 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total current tax expense 234 292 269
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred taxes:
Federal 138 (4) 35
State and local 28 (11) (7)
Foreign 1 1 1
- ----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) 167 (14) 29
- ----------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $401 $278 $298
- ----------------------------------------------------------------------------------------------------------------------------------
In addition to amounts applicable to income before taxes, the following income tax benefits (detriments) were recorded:
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity for compensation expense
for tax purposes in excess of amounts recognized
for financial statement purposes $ 15 $ 3 $ 9
Shareholders' equity for the tax effect of
net unrealized (gain) loss on assets available for sale (39) 30 -
Goodwill for prior purchase business combinations
with purchased excess tax basis - - 5
- ----------------------------------------------------------------------------------------------------------------------------------
Total tax benefits (detriments) $(24) $33 $14
- ----------------------------------------------------------------------------------------------------------------------------------
Significant components of deferred tax expense are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred tax expense (benefit), excluding the effect of other components listed below $160 $ (7) $(29)
Reduction of deferred tax valuation allowance - (7) -
Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates 7 - (4)
Investment tax credit carryforward utilized - - 29
Alternative minimum tax credit carryforward utilized - - 33
- ----------------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) $167 $(14) $ 29
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
78
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
16. INCOME TAXES (CONTINUED)
The provision for income taxes was different from the amounts computed by
applying the statutory federal income tax rate to income before income taxes
due to the items listed in the following table.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(dollar amounts in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35% 35% 35%
Tax expense computed at statutory rate $382 $249 $265
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit 29 10 25
Amortization of goodwill 13 15 9
Impact of book versus tax basis of acquired assets - - 14
Other, net (23) 4 (15)
- -------------------------------------------------------------------------------
Provision for income taxes $401 $278 $298
- -------------------------------------------------------------------------------
Effective income tax rate 36.7% 39.1% 39.3%
- -------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
(in millions) 1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Provision for credit losses and
write-downs on real estate acquired $230 $254 $259
Accrued expense not deductible until paid 31 125 92
Occupancy expense 73 74 72
Other 28 77 32
- ------------------------------------------------------------------------------
Gross deferred tax assets 362 530 455
Valuation allowance - - (7)
- ------------------------------------------------------------------------------
Gross deferred tax assets net of
valuation allowance 362 530 448
- ------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing revenue 282 250 207
Salaries and employee benefits 21 16 44
Other 33 38 13
- ------------------------------------------------------------------------------
Gross deferred tax liabilities 336 304 264
- ------------------------------------------------------------------------------
Net deferred tax asset $ 26 $226 $184
- ------------------------------------------------------------------------------
</TABLE>
The Corporation determined that it was not required to establish a valuation
allowance for deferred tax assets for 1995 and 1994 because it is management's
assertion that the deferred tax asset likely will be realized through:
carryback to taxable income in prior years; future reversals of existing
taxable temporary differences; and, to a lesser extent, future taxable income.
However, the Corporation did record a valuation allowance upon the acquisition
of The Boston Company, Inc. and subsidiaries in 1993. This valuation allowance
primarily represented federal net operating loss carryforwards that were
subject to limitation on their usage. As of the end of 1995, these
carryforwards were fully utilized and the valuation allowance was reversed.
79
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. EMPLOYEE BENEFITS
Pension plans
The Corporation's largest subsidiaries--Mellon Bank, N.A., The Boston Company
and Dreyfus--sponsor trusteed, noncontributory, defined benefit pension plans.
Together, the plans cover substantially all salaried employees of the
Corporation. The plans provide benefits that are based on employees' years of
service and compensation. In addition, several unfunded plans exist for
certain employees or for purposes that are not addressed by the funded plans.
The Mellon Bank, N.A. plan is significantly overfunded, The Boston Company plan
is moderately overfunded and the fair market value of plan assets of the
Dreyfus plan are approximately equal to its accumulated benefit obligation.
The Corporation amortizes all actuarial gains and losses and prior service
costs over a 10-year period. The tables below report the combined data of
these plans. Data for 1993 was not restated for Dreyfus because the amounts
were immaterial.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded Funded Unfunded
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assumptions used in the accounting:
Rates used for expense at January 1:
Rate on obligation 7.5% 7.5% 6.0% 6.0% 6.9% 6.9%
Rate of return on assets 10.0 - 10.0 - 10.0 -
Actuarial salary scale 3.5 3.5 3.0 3.0 2.9 2.9
- ---------------------------------------------------------------------------------------------------------------------------------
Components of pension expense (credit):
Service cost $ 18 $ 1 $ 21 $ 2 $ 15 $ 1
Interest cost on projected benefit obligation 24 3 22 2 17 2
Return on plan assets (201) - (1) - (71) -
Net amortization and deferral 140 1 (47) 1 27 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total pension expense (credit) $ (19) $ 5 $ (5) $ 5 $ (12) $ 3
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used for obligation at December 31:
Rate on obligation 6.0% 6.0% 7.5% 7.5%
Actuarial salary scale 3.0 3.0 3.5 3.5
- -------------------------------------------------------------------------------------------------------------------------------
Present value of benefit obligation at December 31:
Vested $363 $ 43 $246 $ 34
Nonvested 31 1 25 1
- -------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 394 44 271 35
- -------------------------------------------------------------------------------------------------------------------------------
Effect of projected future compensation levels 61 4 49 3
- -------------------------------------------------------------------------------------------------------------------------------
Present value of projected benefit obligation $455 $ 48 $320 $ 38
- -------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair market value at December 31:
Cash and U.S. Treasury securities $173 $ - $173 $ -
Corporate debt obligations 64 - 68 -
Mellon Bank Corporation common stock (a) 40 - 23 -
Other common stock and investments 588 - 398 -
- -------------------------------------------------------------------------------------------------------------------------------
Total plan assets at fair market value $865 $ - $662 $ -
- -------------------------------------------------------------------------------------------------------------------------------
Reconciliation of funded status with financial statements:
Funded status at December 31 $410 $(48) $342 $(38)
Unamortized net transition (asset) obligation (18) 1 (20) 1
Unrecognized prior service cost 14 3 16 3
Net deferred actuarial (gain) loss (116) 11 (82) 5
Adjustment required to recognize minimum liability - (11) - (6)
- --------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) expense at December 31 $290 $(44) $256 $(35)
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents 750,000 shares at December 31, 1995 and December 31, 1994. The
Mellon Bank, N.A. retirement plan received $1.5 million and $1.2 million,
respectively, of dividends from Mellon Bank Corporation's common stock in
1995 and 1994.
</TABLE>
80
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. EMPLOYEE BENEFITS (CONTINUED)
The Corporation has a Long-Term Profit Incentive Plan (1981) which provides for
the issuance of stock options, stock appreciation rights, restricted stock
units, deferred cash incentive awards and shares of restricted stock to
officers and key employees of the Corporation and its subsidiaries as approved
by the Human Resources Committee of the Board of Directors. In addition,
Dreyfus has a 1989 Non-Qualified Stock Option Plan. Both plans are described
below.
Long-Term Profit Incentive Plan (1981)
Stock options may be granted at prices not less than the fair market value of
the common stock on the date of grant. Options may be exercised during fixed
periods of time not to exceed 10 years from the date of grant. In the event of
certain changes in control of the Corporation, these options may become
immediately exercisable.
Total outstanding grants as of December 31, 1995, were 7,464,163 shares, of
which 2,314,665 shares were exercisable. During 1995, 1994 and 1993, options
for 1,777,625; 3,067,206; and 1,554,644 shares, respectively, were granted. As
of December 31, 1995, options for 1,387,267 shares were available for grant.
Included in the December 31, 1995, 1994 and 1993 outstanding grants were
options for 860,856; 1,044,428; and 631,353 shares, respectively, that were
issued at exercise prices ranging from $13.17 to $53.38 per share. These
options become exercisable near the end of their 10 year terms, but exercise
dates may be accelerated by the Human Resources Committee of the Board of
Directors, based on the optionee's performance. If so accelerated,
compensation will be paid in the form of deferred cash incentive awards to
reimburse the exercise price of these options if exercised prior to the
original vesting date. The Corporation recognized $9 million of compensation
expense for these options in 1995 and $8 million in both 1994 and 1993. As of
December 31, 1995, the exercise date had been accelerated on options for
1,276,700 shares, of which 221,744; 4,972; and 301,482 were exercised in 1995,
1994 and 1993, respectively.
Options for 1,382,327; 612,536; and 1,503,144 shares were exercised in 1995,
1994 and 1993, respectively, under the Long-Term Profit Incentive Plan,
including the 221,744; 4,972; and 301,482 shares on which the exercise date was
accelerated.
1989 Non-Qualified Stock Option Plan
A stock option plan at Dreyfus prior to the August 1994 merger provided for the
issuance of stock options to key employees and key consultants who rendered
services to Dreyfus, at a price of not less than 95% of the price of Dreyfus'
common stock on The New York Stock Exchange on the day the option was granted.
Options were not exercisable within two years nor more than 10 years from the
date of grant. Options for Dreyfus stock were automatically converted into
options for the Corporation's common stock on the merger date.
Total outstanding grants as of December 31, 1995, were 814,207 shares, of which
708,982 shares were exercisable. No options were granted in 1995 and 1994. In
1993, options for 66,013 shares were granted. No further options will be
granted under this plan.
The shares under option included in the December 31, 1995, 1994, and 1993
outstanding grants were issued at exercise prices ranging from $18.23 to $31.53
per share. Options for 906,339; 26,900; and 7,096 shares were exercised in
1995, 1994 and 1993, respectively.
81
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. EMPLOYEE BENEFITS (CONTINUED)
The following table presents a summary of the aggregate options outstanding
under the Corporation's Long-Term Profit Incentive Plan and the Dreyfus 1989
Non-Qualified Stock Option Plan:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Price of
Number of shares shares under option
------------------------------- --------------------------
Eligible Aggregate
Under option for exercise Per share (in millions)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995 8,278,370 3,023,647 $13.17-$53.38 $287
December 31, 1994 8,969,573 3,799,556 13.17-40.08 278
December 31, 1993 6,972,291 2,735,472 13.17-40.08 192
- -------------------------------------------------------------------------------
</TABLE>
Stock Option Plan for Outside Directors (1989)
The Corporation's Stock Option Plan for Outside Directors provides for the
granting of options for shares of common stock to outside directors and
advisory board members of the Corporation. The timing, amounts, recipients and
other terms of the option grants are determined by the provisions of, or
formulas in, the Directors' Option Plan. The exercise price of the options is
equal to the fair market value of the common stock on the grant date. All
options have a term of 10 years from the date of grant and become exercisable
one year from the grant date. Directors elected during the year are granted
options on a pro rata basis to those granted to the directors at the start of
the year.
Total outstanding grants as of December 31, 1995, were 376,008 shares, of which
327,408 were exercisable and 158,637 shares were available for grant. Shares
under option ranged from $17.00 to $38.75 per share for an aggregate of $11
million. During 1995, 1994 and 1993, options for 48,600; 52,563; and 50,648
shares, respectively, were granted at prices ranging from $37.33 to $38.75 per
share. Options for 20,429; 4,298; and 27,729 shares were exercised in 1995,
1994 and 1993, respectively.
Retirement Savings Plan
Since April 1988, employees' payroll deductions into retirement savings
accounts have been matched by the Corporation's contribution of common stock,
at the rate of $.50 on the dollar, up to six percent of the employee's annual
base salary with an annual maximum corporate contribution of $3,000 per
employee. In 1995, 1994 and 1993, the Corporation recognized $10 million, $10
million and $9 million, respectively, of expense related to this plan and
contributed 239,071; 276,535; and 229,317 shares, respectively. A portion of
the shares contributed in 1995, 1994 and 1993 were issued from treasury stock.
The plan held 1,752,409; 1,672,200; and 1,505,303 shares of the Corporation's
common stock at December 31, 1995, 1994 and 1993, respectively.
Dreyfus has a separate retirement profit-sharing plan and a related deferred
compensation plan that provide for the payment of death, disability and
retirement benefits to Dreyfus employees or their beneficiaries in amounts
equal to the value of their proportionate interests in the plan. Amounts
expensed under the plans were $11 million, $10 million and $9 million for 1995,
1994 and 1993, respectively.
Profit Bonus Plan
Awards are made to key employees at the discretion of the Human Resources
Committee of the Board of Directors. At the committee's election, awards may
be paid in a lump sum or may be deferred and paid over a period of up to 15
years. Payouts under this plan were $20 million, $18 million and $19 million
for 1995, 1994 and 1993, respectively, and can be in the form of cash,
restricted stock or restricted stock units.
82
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. EMPLOYEE BENEFITS (CONTINUED)
Employee Stock Ownership Plan
In 1989, an Employee Stock Ownership Plan was formed to hold certain shares of
Mellon Bank Corporation common stock previously held in other defined
contribution plans sponsored by the Corporation and its subsidiaries. At
December 31, 1995, 1994 and 1993, this plan held 96,055; 95,709; and 116,367
shares, respectively, of the Corporation's common stock. The Corporation may
make contributions to this plan from time to time. No contributions were made
in 1995, 1994 or 1993.
Postretirement benefits other than pensions
The Corporation shares in the cost of providing managed care, Medicare
supplement, and/or major medical programs for employees that retired prior to
January 1, 1991. Employees who retire subsequent to January 1, 1991, who were
between the ages of 55 and 65 on January 1, 1991, and had at least 15 years of
service, are provided with a defined dollar supplement to assist them in
purchasing health insurance. Early retirees who do not meet these age and
service requirements are eligible to purchase health coverage at their own
expense under the standard plans that are offered to active employees. In
addition, the Corporation provides a small subsidy toward health care coverage
for other active employees when they retire. These benefits are provided
through various insurance carriers whose premiums are based on claims paid
during the year. The cost of providing these benefits amounted to $10 million
in 1995, $10 million in 1994 and $8 million in 1993.
The Corporation adopted FAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," on January 1, 1993. FAS No. 106 requires
sponsors of plans providing certain health care and life insurance benefits to
retired employees to expense the cost of these benefits over the estimated
working lives of these employees, rather than expensing the costs as paid. The
incremental expense of adopting FAS No. 106 was approximately $7 million for
1995, $7 million for 1994 and $3 million for 1993. This accounting standard
was adopted on a prospective basis by beginning to amortize the transition
obligation over a 20-year period. During 1995, the transition obligation was
reduced by $18 million due to a change in the benefit program that requires
current and future retirees to enroll in a managed care program. Previously,
retirees were permitted to use any health care provider.
- -------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
<TABLE>
<CAPTION>
Accumulated
Accrued postretirement postretirement Unrecognized
benefit cost benefit obligation transition obligation
---------------------- ------------------ ---------------------
(in millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1 $(19) $(12) $ (4) $(70) $(83) $(63) $53 $56 $59
- ----------------------------------------------------------------------------------------------------------------------------------
Acquisition of The Boston Company - - (5) - - (5) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Recognition of components of
net periodic postretirement
benefit costs:
Service cost (1) (1) - (1) (1) - - - -
Interest cost (6) (6) (5) (6) (6) (5) - - -
Amortization of
transition obligation (3) (3) (3) - - - (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
(10) (10) (8) (7) (7) (5) (3) (3) (3)
Change in APBO actuarial
assumptions including a
change in the discount rate - - - (1) 15 (15) - - -
Benefit payments 3 3 5 5 5 5 - - -
Plan changes - - - 18 - - (18) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 $(26) $(19) $(12) $(55) $(70) $(83) $32 $53 $56
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
83
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
17. EMPLOYEE BENEFITS (CONTINUED)
A weighted average discount rate of 8% was used to estimate the net periodic
benefit cost, and a 7% rate was used to value the accumulated postretirement
benefit obligation at year-end 1995. A health care cost trend rate was used to
recognize the effect of expected changes in future health care costs due to
medical inflation, utilization changes, technological changes, regulatory
requirements and Medicare cost shifting. The future annual increase assumed in
the cost of health care benefits was 11% for 1996 and was decreased gradually
to 6% for 2003 and thereafter. The health care cost trend rate assumption can
have a significant impact on the amounts reported. Increasing the assumed
health care cost trend by one percentage point in each year would increase the
accumulated postretirement benefit obligation by approximately $4 million and
the aggregate of the service and interest cost components of net periodic
postretirement health care benefit cost by less than $1 million.
FAS No. 123, Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board released FAS No.
123, "Accounting for Stock-Based Compensation." FAS No. 123 establishes a fair
value based method of accounting for stock-based compensation plans. FAS No.
123 permits entities to expense an 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. Entities
that elect to continue to use the intrinsic value method must provide pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. This standard became effective on January 1,
1996. The Corporation expects to 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 1996.
18. RESTRICTIONS ON DIVIDENDS AND REGULATORY LIMITATIONS
The prior approval of the Office of the Comptroller of the Currency (OCC) is
required if the total of all dividends declared by a national bank subsidiary
in any calendar year exceeds the bank subsidiary's net profits, as defined by
the OCC, for that year, combined with its retained net profits for the
preceding two calendar years. Additionally, national bank subsidiaries may not
declare dividends in excess of net profits on hand, as defined, after deducting
the amount by which the principal amount of all loans on which interest is past
due for a period of six months or more exceeds the reserve for credit losses.
Under the first and currently more restrictive of the foregoing dividend
limitations, the Corporation's national bank subsidiaries can, without prior
regulatory approval, declare dividends subsequent to December 31, 1995, of up
to approximately $175 million of their retained earnings of $2.122 billion at
December 31, 1995, less any dividends declared and plus or minus net profits or
losses, as defined, between January 1, 1996, and the date of any such dividend
declaration. The payment of dividends is also limited by minimum capital
requirements imposed on all national bank subsidiaries by the OCC. The
Corporation's national bank subsidiaries exceed these minimum requirements.
The national bank subsidiaries declared dividends to the parent Corporation of
$501 million in 1995, $366 million in 1994 and $185 million in 1993. The
Federal Reserve Board and the OCC have issued additional guidelines that
require bank holding companies and national banks to continuously evaluate the
level of cash dividends in relation to their respective operating income,
capital needs, asset quality and overall financial condition.
The Federal Reserve Act limits extensions of credit by the Corporation's bank
subsidiaries to the Corporation and to certain other affiliates of the
Corporation, requires such extensions to be collateralized and limits the
amount of investments by the banks in these entities. At December 31, 1995,
such extensions of credit and investments were limited to $465 million to the
Corporation or any other affiliate and to $930 million in total to the
Corporation and all of its other affiliates. Outstanding extensions of credit
totaled $98 million at December 31, 1995.
84
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
19. 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.
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
Off-balance-sheet risk
In the normal course of business, the Corporation becomes a party to various
financial transactions that generally do not involve funding. Because these
transactions generally are not funded, they are not reflected on the balance
sheet and are referred to as financial instruments with off-balance-sheet risk.
The Corporation offers 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.
Financial instruments with contract amounts that represent credit risk:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
(Notional amounts in millions) 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $21,264 $14,778
Standby letters of credit and foreign guarantees 3,446 2,923
Commercial letters of credit 98 137
Residential mortgage loans serviced with recourse 156 186
Custodian securities lent with indemnification
against broker default of return of securities 18,157 15,127
- -------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit
The Corporation enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specific rates and for
specific purposes. Substantially all of the Corporation's commitments to
extend credit are contingent upon customers maintaining specific credit
standards at the time of loan funding. The majority of the Corporation's
commitments to extend credit include material adverse change clauses within the
commitment contracts. These clauses allow the Corporation to deny funding a
loan commitment if the borrower's financial condition deteriorates during the
commitment, such that the customer no longer meets the Corporation's credit
standards. The Corporation's exposure to credit loss in the event of
nonperformance by the customer is represented by the contractual amount of the
commitment to extend
85
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
credit. Accordingly, the credit policies utilized in committing to extend
credit and in the extension of loans are the same. Market risk arises on fixed
rate commitments if interest rates have moved adversely subsequent to the
extension of the commitment. The Corporation believes the market risk
associated with commitments is minimal. Since many of the commitments are
expected to expire without being drawn upon, the total contractual amounts do
not necessarily represent future cash requirements. The amount and type of
collateral obtained by the Corporation is based upon industry practice, as well
as its credit assessment of the customer. Of the $21 billion of contractual
commitments for which the Corporation has received a commitment fee or which
were otherwise legally binding--excluding credit card plans--approximately 27%
of the commitments are scheduled to expire within one year, and an additional
58% are scheduled to expire within five years.
Letters of credit and foreign guarantees
There are two major types of letters of credit--standby and commercial letters
of credit. The off-balance-sheet credit risk involved in issuing standby and
commercial letters of credit is represented by their contractual amounts and is
essentially the same as the credit risk involved in commitments to extend
credit. The Corporation minimizes this risk by adhering to its written credit
policies and by requiring security and debt covenants similar to those
contained in loan agreements. The Corporation believes the market risk
associated with letters of credit and foreign guarantees is minimal.
Standby letters of credit and foreign guarantees obligate the Corporation to
disburse funds to a third-party beneficiary if the Corporation's customer fails
to perform under the terms of an agreement with the beneficiary. Standby
letters of credit and foreign guarantees are used by the customer as a credit
enhancement and typically expire without being drawn upon.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
STANDBY LETTERS OF CREDIT AND FOREIGN GUARANTEES Weighted-average
years to maturity
December 31, at December 31,
(dollar amounts in millions) 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper and other debt $ 374 $ 333 1.5 1.3
Tax-exempt securities 759 630 1.9 2.1
Bid- or performance-related 1,061 1,019 1.0 1.0
Other 1,252 941 .6 .7
------- ------
Total standby letters of credit and foreign guarantees (a) $ 3,446 $2,923 1.1 1.2
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Net of participations and cash collateral totaling $230 million and $263
million at December 31, 1995 and 1994, respectively.
</TABLE>
A commercial letter of credit is normally a short-term instrument used to
finance a commercial contract for the shipment of goods from a seller to a
buyer. This type of letter of credit ensures prompt payment to the seller in
accordance with the terms of the contract. Although the commercial letter of
credit is contingent upon the satisfaction of specified conditions, it
represents a credit exposure if the buyer defaults on the underlying
transaction. Normally, reimbursement from the buyer is coincidental with
payment to the seller under commercial letter of credit drawings. As a result,
the total contractual amounts do not necessarily represent future cash
requirements.
Residential mortgage loans serviced with recourse
Certain residential mortgages were sold with servicing retained where the
Corporation is subject to limited recourse provisions. The loans are
collateralized by real estate mortgages and in certain instances are supported
by either government sponsored or private mortgage insurance.
86
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
Securities lending
A securities lending transaction is a fully collateralized transaction in which
the owner of a security agrees to lend the security through an agent (the
Corporation) to a borrower, usually a broker/dealer or bank, on an open,
overnight or term basis, under the terms of a prearranged contract. The
borrower will collateralize the loan at all times, generally with cash or U.S.
government securities, exceeding 100% of the market value of the loan, plus any
accrued interest on debt obligations.
The Corporation currently enters into two types of securities lending
arrangements, lending with and without indemnification. In securities lending
transactions without indemnification, the Corporation bears no contractual risk
of loss. For transactions in which the Corporation provides an
indemnification, risk of loss occurs if the borrower defaults on returning the
securities and the value of the collateral declines. Because the Corporation
generally indemnifies the owner of the securities only for the difference
between the par value of the securities and any collateral deficiency, the
total contractual amount does not necessarily represent future cash
requirements.
OFF-BALANCE-SHEET INSTRUMENTS USED FOR TRADING ACTIVITIES (a)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
1995 1994
------------------- ----------------------
NOTIONAL CREDIT Notional Credit
(in millions) AMOUNT RISK Amount Risk
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign currency contracts:
Commitments to purchase $10,771 (b) $10,326 (b)
Commitments to sell 10,868 (b) 10,383 (b)
Foreign currency and other option contracts written 461 - 59 -
Foreign currency and other option contracts purchased 417 - 65 1
Futures and forward contracts 1,266 - 1,170 -
Interest rate agreements:
Interest rate swaps 5,531 52 6,127 51
Options, caps and floors purchased 2,043 3 3,262 16
Options, caps and floors written 1,871 - 2,219 -
Forward rate agreements 155 - 50 -
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a counterparty
has defaulted. Credit risk associated with these instruments is discussed
by type of instrument in the following paragraphs.
(b) The combined credit risk on foreign currency contract commitments to
purchase and sell was $334 million at December 31, 1995 and $213 million at
December 31, 1994.
</TABLE>
Foreign currency contracts
Commitments to purchase and sell foreign currency facilitate the management of
market risk by ensuring that, at some future date, the Corporation or a
customer will have a specified currency at a specified rate. The Corporation
enters into foreign currency contracts on behalf of its customers, as well as
for its own account as part of its proprietary trading activities. The
notional amount of these contracts at December 31, 1995, was $10.8 billion to
purchase and $10.9 billion to sell. This notional amount does not represent
the actual market or credit risk associated with this product. Market risk
arises from changes in the market value of contractual positions caused by
movements in currency rates. The Corporation limits its exposure to market
risk by entering into generally matching or offsetting positions and by
establishing and monitoring limits on unmatched positions. Credit risk relates
to the ability of the Corporation's counterparty to meet its obligations under
the contract and generally is limited to the estimated aggregate replacement
cost of those foreign currency contracts in a gain position. Replacement cost
totaled approximately $334 million and $213 million at December 31, 1995 and
1994, respectively, and is recorded on the balance sheet. There were no
settlement or counterparty default losses on foreign
87
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
currency contracts in 1995, 1994 or 1993. The Corporation manages credit risk
by dealing only with approved counterparties under specific credit limits and
by monitoring the amount of outstanding contracts by customer and in the
aggregate against such limits. The future cash requirements, if any, related
to foreign currency contracts are represented by the net contractual settlement
between the Corporation and its counterparties.
Foreign currency and other option contracts written and purchased
Foreign currency and other option contracts grant the contract purchaser the
right, but not the obligation, to purchase or sell a specified amount of a
foreign currency or other financial instrument during a specified period at a
predetermined price. The Corporation acts as both a purchaser and seller of
foreign currency and other option contracts. Market risk arises from changes
in the value of contractual positions caused by fluctuations in currency rates,
interest rates and security values underlying the option contracts. Market
risk is managed by entering into generally matching or offsetting positions and
by establishing and monitoring limits on unmatched positions. Credit risk and
future cash requirements are similar to those of foreign currency contracts.
The estimated aggregate replacement cost of purchased foreign currency and
other option contracts in gain positions was less than $1 million at December
31, 1995 and $1 million at December 31, 1994, and is recorded on the balance
sheet. There were no settlement or counterparty default losses on foreign
currency and other option contracts in 1995, 1994 or 1993.
Futures and forward contracts
Futures and forward contracts on securities or money market instruments
represent future commitments to purchase or sell a specified instrument at a
specified price and date. Futures contracts are standardized and are traded on
organized exchanges, while forward contracts are traded in over-the-counter
markets and generally do not have standardized terms. The Corporation uses
futures and forward contracts in connection with its proprietary trading
activities.
For instruments that are traded on an organized exchange, the exchange assumes
the credit risk that a counterparty will not settle and generally requires a
margin deposit of cash or securities as collateral to minimize potential credit
risk. The Corporation has established policies governing which exchanges and
exchange members can be used to conduct these activities, as well as the number
of contracts permitted with each member and the total dollar amount of
outstanding contracts. Credit risk associated with futures and forward
contracts is limited to the estimated aggregate replacement cost of those
futures and forward contracts in a gain position and was less than $1 million
at December 31, 1995 and 1994. Credit risk related to futures contracts is
substantially mitigated by daily cash settlements with the exchanges for the
net change in futures contract value. There were no settlement or counterparty
default losses on futures and forward contracts in 1995, 1994 or 1993.
Market risk is similar to the market risk associated with foreign currency and
other option contracts. The future cash requirements, if any, related to
futures and forward contracts, are represented by the net contractual
settlement between the Corporation and its counterparties.
Interest rate swaps
Interest rate swaps obligate two parties to exchange one or more payments
generally calculated with reference to fixed or periodically reset rates of
interest applied to a specified notional principal amount. Notional principal
is the amount upon which interest rates are applied to determine the payment
streams under interest rate swaps. Such notional principal amounts often are
used to express the volume of these transactions but are not actually exchanged
between the counterparties.
The credit risk associated with interest rate swaps is limited to the estimated
aggregate replacement cost of those agreements in a gain position. Replacement
cost totaled $52 million and $51 million at December 31, 1995 and 1994,
respectively, and is recorded on the balance sheet. Credit risk is managed
through credit approval procedures that establish specific lines for
88
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
individual counterparties and limits of credit exposure to various portfolio
segments. Counterparty and portfolio outstandings are monitored against such
limits on an ongoing basis. Credit risk is further mitigated by contractual
arrangements with the Corporation's counterparties that provide for netting
replacement cost gains and losses on multiple transactions with the same
counterparty. The Corporation has entered into collateral agreements with
certain counterparties to interest rate swaps to further secure amounts due.
The collateral is generally cash and/or U.S. government securities. There were
no counterparty default losses on interest rate swaps in 1995, 1994 or 1993.
Market risk arises from changes in the market value of contractual positions
caused by movements in interest rates. The Corporation limits its exposure to
market risk by generally entering into matching or offsetting positions and by
establishing and monitoring limits on unmatched positions. The future cash
requirements of interest rate swaps are limited to the net amounts payable
under these swaps. At December 31, 1995, 94% of these interest rate swaps are
scheduled to mature in less than five years.
Options, caps, floors and forward rate agreements
An interest rate option is a contract that grants the purchaser the right to
either purchase or sell a financial instrument at a specified price within a
specified period of time. An interest rate cap is a contract that protects the
holder from a rise in interest rates or some other underlying index beyond a
certain point. An interest rate floor is a contract that protects the holder
against a decline in interest rates or some other underlying index below a
certain point. A forward rate agreement is an agreement to exchange dollar
amounts at a specified future date based on the difference between a particular
interest rate index and an agreed upon fixed rate. The credit risk associated
with options, caps and floors purchased was $3 million at year end 1995 and $16
million at year-end 1994 and is recorded on the balance sheet. Options, caps
and floors written do not expose the Corporation to credit risk. Market risk
arises from changes in the market value of contractual positions caused by
movements in interest rates. The Corporation limits its exposure to market
risk by entering into generally matching or offsetting positions and by
establishing and monitoring limits on unmatched positions.
Off-balance-sheet instruments used for interest rate risk management
purposes(a)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
---------------- ----------------
NOTIONAL CREDIT Notional Credit
(in millions) AMOUNT RISK Amount Risk
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate agreements:
Interest rate swaps $7,967 $51 $10,985 $2
Options, caps and floors purchased (b) 464 4 344 8
Forward rate agreements 265 - - -
Futures contracts 6 - 5 -
Other products 108 - - -
- -------------------------------------------------------------------------------
<FN>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a counterparty
has defaulted. Credit risk associated with these instruments is discussed
by type of instrument in the following paragraphs.
(b) At December 31, 1995 and 1994, there were no options, caps and floors
written.
</TABLE>
Interest rate swaps
The Corporation enters into interest rate swaps as part of its interest rate
risk management strategy primarily to alter the interest rate sensitivity of
its deposit liabilities. At December 31, 1995, the Corporation used $7,967
million of interest rate swaps for interest rate risk management purposes
compared with $10,985 million at December 31, 1994. The credit and market risk
associated with these instruments is explained on pages 88 and 89 under
"Interest rate swaps." The replacement cost of swap agreements in a gain
position was $51 million and $2 million at December 31, 1995 and 1994,
respectively. Net interest revenue in 1995 and 1994 included less than $1
million and $3 million, respectively, of amortized deferred gains from
terminated interest rate swaps.
89
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
Options, caps, floors, forward rate agreements and futures contracts
Other interest rate products--primarily options, interest rate caps, interest
rate floors, forward rate agreements and futures contracts--also are used by
the Corporation as part of its interest rate risk management strategy. The
Corporation had $735 million and $349 million notional amounts of these
instruments outstanding at December 31, 1995 and 1994, respectively. The
credit and market risk associated with these instruments is explained on pages
88 and 89 under "Futures and forward contracts" and "Options, caps, floors and
forward rate agreements." The replacement cost of those instruments in a gain
position totaled $4 million and $8 million at December 31, 1995 and 1994,
respectively.
The Corporation periodically issues notes and debentures for general corporate
purposes, including the funding of debt maturities. At December 31, 1995, a
$250 million forward rate agreement was carried by the Corporation to lock in
the cost of an anticipated 10-year debt issuance. At December 31, 1995, an
unrealized net loss of $12 million was deferred on this forward rate agreement.
This loss will be recognized as an increase in interest expense over the term
of the debt, which is expected to be issued in the first quarter of 1996.
Other products
Other products consist of forward foreign exchange contracts and total return
swaps. The Corporation had $35 million of forward foreign exchange contracts
at December 31, 1995. These contracts are used to minimize the net income and
capital impact of foreign currency translation gains or losses created by
investments in foreign branches and subsidiaries. The Corporation had $73
million of total return swaps at December 31, 1995. These swaps are used by
the Corporation to minimize the risk related to the Corporation's investment in
start-up mutual funds that are based on specific market indices.
Concentrations of credit risk
In its normal course of business, the Corporation engages in activities with a
significant number of domestic and international counterparties. The maximum
risk of accounting loss from on- and off-balance-sheet financial instruments
with these counterparties is represented by their respective balance sheet
amounts and the contractual or replacement cost of the off- balance-sheet
financial instruments.
Approximately 33% of the Corporation's total on- and off-balance-sheet
financial instruments with credit risk at December 31, 1995, were with
consumers and consumer-related industries, compared with approximately 35% at
December 31, 1994. This credit exposure consisted principally of loans and the
related interest receivable on the balance sheet and off-balance-sheet loan
commitments and letters of credit. Consumers to which the Corporation has
credit exposure primarily are located within the Central Atlantic region and
are affected by economic conditions within that region.
Financial institutions--which include finance-related companies, domestic and
international banks and depository institutions, securities and commodities
brokers, and insurance companies--accounted for approximately 17% of the
Corporation's total on- and off-balance-sheet financial instruments with credit
risk at December 31, 1995, compared with approximately 16% at December 31,
1994. The Corporation's on-balance-sheet credit exposure to financial
institutions included short-term liquid assets consisting of due from banks and
money market investments, loans and the related interest receivable and
investment securities. In addition, the Corporation had off-balance-sheet
credit exposure to financial institutions consisting of commitments to extend
credit and letters of credit.
The Corporation had credit exposure to the U.S. government, including its
corporations and agencies, totaling approximately 9% of its on- and off-
balance-sheet financial instruments with credit risk at December 31, 1995,
compared with approximately 10% at December 31, 1994. Substantially all of
this exposure consisted of investment securities,
90
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
20. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
securities available for sale and the related interest receivable and balances
due from the Federal Reserve. No other concentration of credit risk exceeded
10% of the Corporation's total credit risk arising from on- and
off-balance-sheet financial instruments at December 31, 1995 and 1994,
respectively.
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
the disclosure of the estimated fair value of on- and off-balance-sheet
financial instruments. A financial instrument is defined by FAS No. 107 as
cash, evidence of an ownership interest in an entity, or a contract that
creates a contractual obligation or right to deliver to or receive cash or
another financial instrument from a second entity on potentially favorable
terms.
Fair value estimates are made at a point in time, based on relevant market data
and information about the financial instrument. FAS No. 107 specifies that
fair values should be calculated based on the value of one trading unit without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, estimated
transaction costs that may result from bulk sales or the relationship between
various financial instruments. Because no readily available market exists for
a significant portion of the Corporation's financial instruments, fair value
estimates for these instruments are based on judgments regarding current
economic conditions, currency and interest rate risk characteristics, loss
experience and other factors. Many of these estimates involve uncertainties
and matters of significant judgment and cannot be determined with precision.
Therefore, the calculated fair value estimates cannot always be substantiated
by comparison to independent markets and, in many cases, may not be realizable
in a current sale of the instrument. Changes in assumptions could
significantly affect the estimates.
Fair value estimates do not include anticipated future business or the value of
assets, liabilities and customer relationships that are not considered
financial instruments. For example, the Corporation's fee-generating
businesses--which contributed 52% of revenue in 1995--are not incorporated into
the fair value estimates. Other significant assets and liabilities that are
not considered financial instruments include lease finance assets, deferred tax
assets, lease contracts, premises and equipment and intangible assets.
Accordingly, the estimated fair value amounts of financial instruments do not
represent the entire value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating the fair value of its financial instruments at December 31, 1995 and
1994:
Short-term financial instruments
The carrying amounts reported on the Corporation's balance sheet generally
approximate fair value for financial instruments that reprice or mature in 90
days or less, with no significant change in credit risk. The carrying amounts
approximate fair value for cash and due from banks; money market investments;
acceptances; demand deposits; money market and other savings accounts; federal
funds purchased and securities under repurchase agreements; U.S. Treasury tax
and loan demand notes; commercial paper; and certain other assets and
liabilities.
Trading account securities, securities available for sale and investment
securities
Trading account securities are recorded at market value on the Corporation's
balance sheet, including amounts for off-balance-sheet instruments held for
trading activities. Market values of trading account securities, securities
available for sale and investment securities generally are based on quoted
market prices or dealer quotes, if available. If a quoted market price is not
available, market value is estimated using quoted market prices for securities
with similar credit, maturity and interest rate characteristics. The tables in
note 3 present in greater detail the carrying value and market value of
securities available for sale and investment securities at December 31, 1995
and 1994.
91
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
21. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans
The estimated fair value of performing commercial loans and certain consumer
loans that reprice or mature in 90 days or less approximates their respective
carrying amounts adjusted for a credit risk factor based upon the Corporation's
historical credit loss experience. The estimated fair value of performing
loans, except for consumer mortgage loans and credit card loans, that reprice
or mature in more than 90 days is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality and for similar maturities.
Fair value of consumer mortgage loans is estimated using market quotes or
discounting contractual cash flows, adjusted for prepayment estimates.
Discount rates were obtained from secondary market sources, adjusted to reflect
differences in servicing, credit and other characteristics.
The estimated fair value of credit card loans is developed using estimated cash
flows and maturities based on contractual interest rates and historical
experience. Estimated cash flows are discounted using market rates adjusted
for differences in servicing, credit and other costs. This estimate does not
include the value that relates to new loans that will be generated from
existing cardholders over the remaining life of the portfolio, a value that is
typically reflected in market prices realized in credit card portfolio sales.
The estimated fair value for nonperforming commercial real estate loans is the
"as is" appraised value of the underlying collateral. For other nonperforming
loans, the estimated fair value represents carrying value less a credit risk
adjustment based upon the Corporation's historical credit loss experience.
Deposit liabilities
FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be the amount payable on demand. Although market premiums paid
for depository institutions reflect an additional value for these low- cost
deposits, FAS No. 107 prohibits adjusting fair value for any value expected to
be derived from retaining those deposits for a future period of time or from
the benefit that results from the ability to fund interest-earning assets with
these deposit liabilities. The fair value of fixed-maturity deposits which
reprice or mature in more than 90 days is estimated using the rates currently
offered for deposits of similar remaining maturities.
Notes and debentures
The fair value of the Corporation's notes and debentures is estimated using
quoted market yields for the same or similar issues or the current yields
offered by the Corporation for debt with the same remaining maturities.
The table on the following page includes financial instruments, as defined by
FAS No. 107 whose estimated fair value is not represented by the carrying value
as reported on the Corporation's balance sheet. Management has made estimates
of fair value discount rates that it believes to be reasonable considering
expected prepayment rates, rates offered in the geographic areas in which the
Corporation competes, credit risk and liquidity risk. However, because there
is no active market for many of these financial instruments, management has no
basis to verify whether the resulting fair value estimates would be indicative
of the value negotiated in an actual sale.
92
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
21. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Carrying amount Estimated fair value
--------------- --------------------
December 31, December 31,
(dollars in millions) 1995 1994 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale(a) $ 2,913 $ 1,881 $ 2,913 $ 1,881
Investment securities(a) 2,519 3,244 2,554 3,033
Loans(b):
Commercial and financial 11,832 10,778 11,782 10,684
Commercial real estate 1,532 1,624 1,469 1,513
Consumer mortgage 8,960 8,680 8,960 8,374
Other consumer credit 4,536 4,836 4,719 5,000
------- -------
Total loans 26,860 25,918
Reserve for credit losses(b) (465) (590) - -
------- ------- ------- -------
Net loans 26,395 25,328 26,930 25,571
Other assets(c) 1,281 1,031 1,306 1,031
Fixed-maturity deposits(d):
Retail savings certificates 6,450 6,707 6,473 6,528
Negotiable certificates of deposit 656 223 655 223
Other time deposits 2,014 1,690 2,016 1,690
Other funds borrowed(c) 2,033 580 2,044 583
Notes and debentures(a) 1,443 1,568 1,529 1,488
- --------------------------------------------------------------------------------
<FN>
NM--Not meaningful.
(a) Market or dealer quotes were used to value the reported balance of these
financial instruments.
(b) Approximately 77% and 75% of total performing loans, excluding consumer
mortgages and credit card receivables, reprice or mature within 90 days at
December 31, 1995 and 1994, respectively. Excludes lease finance assets of
$830 million and $815 million as well as the related reserve for credit
losses of $6 million and $17 million at December 31, 1995 and 1994,
respectively. Lease finance assets are not considered financial instruments
as defined by FAS No. 107.
(c) Excludes non-financial instruments.
(d) FAS No. 107 defines the estimated fair value of deposits with no stated
maturity, which includes demand deposits and money market and other savings
accounts, to be equal to the amount payable on demand. Therefore, the
positive effect of the Corporation's $20.141 billion and $18.950 billion of
such deposits at December 31, 1995 and 1994, respectively, are not included
in this table.
</TABLE>
Commitments to extend credit, standby letters of credit and foreign
guarantees
These financial instruments generally are not sold or traded, and estimated
fair values are not readily available. However, the fair value of commitments
to extend credit and standby letters of credit and foreign guarantees is
estimated by discounting the remaining contractual fees over the term of the
commitment using the fees currently charged to enter into similar agreements
and the present credit-worthiness of the counterparties.
Other off-balance-sheet financial instruments
The estimated fair value of off-balance-sheet instruments used for trading
activities--which includes foreign exchange contracts, interest rate swaps,
option contracts, interest rate caps and floors and futures and forward
contracts--is equal to the on-balance-sheet carrying amount of these
instruments. The estimated fair value of off-balance-sheet instruments used
for interest rate risk management purposes--which includes interest rate swaps,
interest rate caps and floors and forward rate agreements--is estimated by
obtaining quotes from brokers. These values represent the estimated amount the
Corporation would receive or pay to terminate the agreements, considering
current interest and currency rates, as well as the current credit-worthiness
of the counterparties. Off-balance-sheet financial instruments are further
discussed in note 20, "Financial instruments with off-balance-sheet risk and
concentrations of credit risk."
93
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
21. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT AND FOREIGN GUARANTEES
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994
-------------------------------------- ---------------------------------------
ASSET Asset
------------------------ --------------------------
CONTRACT CARRYING ESTIMATED Contract Carrying Estimated
(in millions) AMOUNT AMOUNT(a) FAIR VALUE amount amount(a) fair value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitments to extend credit $21,264 $5 $86 $14,778 $ 5 $63
Standby letters of credit and
foreign guarantees 3,446 2 20 2,923 2 21
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the on-balance-sheet receivables or deferred income arising
from these financial instruments.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR TRADING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994
---------------------------------------- ------------------------------------------
ASSET (LIABILITY) Asset (Liability)
NOTIONAL --------------------------- Notional ----------------------------
PRINCIPAL ESTIMATED AVERAGE Principal Estimated Average
(in millions) AMOUNT FAIR VALUE(a) FAIR VALUE Amount fair value(a) fair value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Foreign currency contracts $21,639 $ 27 $ 25 $20,709 $ 5 $ 2
Options purchased 417 (11) (7) 65 1 7
Options written 461 13 8 59 (1) (6)
Futures and forward contracts 1,266 (6) (3) 1,170 - -
Interest rate swaps 5,531 5 8 6,127 2 2
Options, caps, floors and
forward rate agreements 4,069 1 - 5,531 2 2
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Recorded at fair value on the Corporation's balance sheet.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1995 December 31, 1994
------------------------------------------ ------------------------------------------
ASSET (LIABILITY) Asset (Liability)
NOTIONAL --------------------------- Notional ----------------------------
PRINCIPAL CARRYING ESTIMATED Principal Carrying Estimated
(in millions) AMOUNT AMOUNT(a) FAIR VALUE Amount amount(a) fair value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps $7,967 $(1) $ 39 $10,985 $ 5 $(352)
Options, caps, floors and
forward rate agreements 729 (1) (8) 344 (1) 8
Futures contracts 6 - - 5 - -
Other products 108 - (1) - - -
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
(a) Represents the on-balance-sheet receivables/payables or deferred income
arising from these financial instruments.
</TABLE>
94
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
22. SUPPLEMENTAL INFORMATION TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Noncash investing and financing transactions that, appropriately, are not
reflected in the Consolidated Statement of Cash Flows are listed below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Transfer of CornerStone(sm) credit card loans to
accelerated resolution portfolio $ 193 $ - $ -
Net transfers to real estate acquired 22 14 33
Net transfers to segregated assets 10 12 134
Series H preferred stock redemption - 155 -
Purchase acquisitions(a):
Fair value of noncash assets acquired 385 390 8,582
Liabilities and escrow deposits assumed 255 279 7,197
Stock issued - - 115
Warrants issued - - 37
----- ----- -------
Net cash paid (130) (111) (1,233)
- -------------------------------------------------------------------------------
<FN>
(a) Purchase acquisitions include: Metmor Financial, Inc. in 1995; U.S.
Bancorp Mortgage Company and Glendale Bancorporation in 1994; The Boston
Company, Inc. and AFCO and CAFO in 1993.
</TABLE>
23. MERGER AND ACQUISITION
On August 24, 1994, the Corporation merged with The Dreyfus Corporation, a
mutual fund company headquartered in New York City. The Corporation issued
48.3 million shares of common stock for all of the outstanding common stock of
Dreyfus. The merger was accounted for under the pooling of interests method of
accounting. The Corporation's financial statements have been restated for all
periods prior to the merger to include the reported results of Dreyfus.
Operating results, prior to restatement, for the Corporation and Dreyfus for
the period ended June 30, 1994, and the year ended December 31, 1993, are
presented below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Six months Year ended
ended June 30, December 31,
(in millions) 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
The Corporation
Total revenue $1,398 $2,583
Net income $ 265 $ 361
- -------------------------------------------------------------------------------
Dreyfus
Total revenue $ 191 $ 384
Net income $ 49 $ 99
- -------------------------------------------------------------------------------
Combined
Total revenue $1,589 $2,967
Net income $ 314 $ 460
- -------------------------------------------------------------------------------
</TABLE>
On May 21, 1993, the Corporation acquired The Boston Company, Inc. (TBC),
headquartered in Boston. TBC, through Boston Safe Deposit and Trust Company
and other subsidiaries, engages in the businesses of institutional trust and
custody, institutional asset management and private asset management. Under
the terms of the stock purchase agreement, the Corporation acquired all of the
stock of Boston Group Holdings, Inc., the holding company for TBC and its
subsidiaries, and paid a combination of $1.291 billion in cash, 3.75 million
shares of the Corporation's common stock and 10-year warrants to purchase an
additional 4.5 million shares of the Corporation's common stock at $33.33 per
share. This acquisition was accounted for under the purchase method of
accounting. The results of TBC have been included in the Corporation's income
statement since the acquisition date.
95
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
23. MERGER AND ACQUISITION (CONTINUED)
The condensed pro forma combined operating results provided in the table below
are presented as if the acquisition had been effective on January 1, 1993 and
combines TBC's results of operations for the period January 1, 1993 through May
20, 1993 and the Corporation's historical results of operations for the year
ended December 31, 1993, which include TBC's results of operations from May 21,
1993 to December 31, 1993. The pro forma results include adjustments for the
effect of the amortization of goodwill and other intangibles, the elimination
of certain assets and liabilities at the closing of the transaction, as well as
the elimination of the revenues and expense attributable to nine subsidiaries
of TBC that were conveyed via dividend to the seller prior to the closing date
of the transaction. In addition, merger expenses of $175 million, or $112
million after tax, have been eliminated from the combined historical results of
operations as these expenses do not represent ongoing expenses of the
Corporation. The pro forma information is intended for informational purposes
only and is not necessarily indicative of the results of operations that would
have actually occurred had the acquisition been in effect for the period
presented.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(Unaudited) Pro forma
combined
for the
year ended
(dollar amounts in millions, December 31,
except per share amounts) 1993
- -------------------------------------------------------------------------------
<S> <C>
Total revenue $3,181
Net income $ 588
Net income per common share $ 3.55
- -------------------------------------------------------------------------------
</TABLE>
96
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
24. MELLON BANK CORPORATION (PARENT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENT
- -----------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiaries $501 $366 $185
Dividends from nonbank subsidiaries 30 122 116
Interest revenue from bank subsidiaries 37 38 34
Interest revenue from nonbank subsidiaries 27 21 26
Other revenue 3 4 2
- -----------------------------------------------------------------------------------
Total revenue 598 551 363
- -----------------------------------------------------------------------------------
Interest expense on commercial paper 13 7 6
Interest expense on notes and debentures 83 87 100
Operating expense 29 23 32
- -----------------------------------------------------------------------------------
Total expense 125 117 138
- -----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET
INCOME (LOSS) OF SUBSIDIARIES 473 434 225
Provision (benefit) for income taxes (17) (18) 11
Equity in undistributed net income (loss):
Bank subsidiaries 111 69 343
Nonbank subsidiaries 90 (88) (97)
- -----------------------------------------------------------------------------------
NET INCOME 691 433 460
Dividends on preferred stock 39 75 63
- -----------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $652 $358 $397
- -----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- -----------------------------------------------------------------------------------
December 31,
(in millions) 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and money market investments with bank subsidiary $ 315 $ 346
Loans and other receivables due from nonbank subsidiaries 386 422
Investment in bank subsidiaries 4,285 4,307
Investment in nonbank subsidiaries 261 207
Subordinated debt and other receivables due from bank subsidiaries 79 343
Other assets 96 54
- -----------------------------------------------------------------------------------
Total assets $5,422 $5,679
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Commercial paper $ 284 $ 178
Other liabilities 113 252
Notes and debentures (with original maturities over one year) 1,000 1,127
- -----------------------------------------------------------------------------------
Total liabilities 1,397 1,557
- -----------------------------------------------------------------------------------
Shareholders' equity 4,025 4,122
- -----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $5,422 $5,679
- -----------------------------------------------------------------------------------
</TABLE>
97
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
24. MELLON BANK CORPORATION (PARENT CORPORATION) (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 691 $ 433 $ 460
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 21 20 20
Equity in undistributed net income of subsidiaries (201) 19 (246)
Net (increase) decrease in accrued interest receivable 3 (1) 1
Deferred income tax expense (benefit) - (4) 23
Net increase in other operating activities 42 6 26
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 556 473 284
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in term deposits - - 199
Net (increase) decrease in short-term deposits with affiliated banks 32 (125) 103
Funds invested in securities available for sale - (200) (1,251)
Proceeds from maturities of securities available for sale - 460 849
Proceeds from sales of securities available for sale - - 142
Loans made to subsidiaries (284) (711) (1,066)
Principal collected on loans to subsidiaries 581 771 1,292
Loans made to joint venture (15) - -
Cash paid in purchase of Glendale Bancorporation - (28) -
Cash paid in purchase of The Boston Company - - (1,291)
Capital returned from (contributions to) subsidiaries 241 (15) 330
Net increase in other investing activities (14) (20) (10)
- --------------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities 541 132 (703)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper 106 44 (45)
Repayments of long-term debt (326) (413) (306)
Net proceeds from issuance of long-term debt 199 - 545
Net proceeds from issuance of common and preferred stock 58 18 502
Redemption of preferred stock (155) - (65)
Repurchase of common stock (578) - (89)
Repurchase of warrants (54) - -
Dividends paid on common and preferred stock (346) (254) (183)
Net increase (decrease) in other financing activities - (5) 65
- --------------------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities (1,096) (610) 424
- --------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS:
Net change in cash and due from banks 1 (5) 5
Cash and due from banks at beginning of year - 5 -
- --------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1 $ - $ 5
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
- --------------------------------------------------------------------------------------------------------
Interest paid $ 99 $ 98 $ 109
Net income taxes refunded (42) (20) (34)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING TRANSACTIONS
- --------------------------------------------------------------------------------------------------------
Series H preferred stock redemption $ - $ 155 $ -
Purchase of The Boston Company:
Fair value of assets acquired, net of liabilities assumed - - 1,443
Stock and warrants issued - - (152)
- --------------------------------------------------------------------------------------------------------
Cash paid $ - $ - $ 1,291
- --------------------------------------------------------------------------------------------------------
</TABLE>
98
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF MELLON BANK CORPORATION:
We have audited the accompanying consolidated balance sheets of Mellon Bank
Corporation and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mellon Bank
Corporation and subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Corporation, as of January 1, 1994, adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
January 10, 1996
99
<PAGE> 83
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
1995
AVERAGE
AVERAGE YIELDS/
(dollar amounts in millions) BALANCE INTEREST RATES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS INTEREST-EARNING ASSETS:
Interest-bearing deposits with banks $ 567 $ 36 6.27%
Federal funds sold and securities under resale
agreements 598 34 5.64
Other money market investments 57 3 5.02
Trading account securities 296 19 6.59
Securities:
U.S. Treasury and agency securities (a) 4,671 305 6.52
Obligations of states and political subdivisions (a) 64 5 7.73
Other (a) 203 14 7.09
Loans, net of unearned discount (a) 27,360 2,432 8.89
------- ------
Total interest-earning assets 33,816 $2,848 8.44
Cash and due from banks 2,337
Customers' acceptance liability 229
Premises and equipment 555
Net acquired property 80
Other assets (a) 3,703
Reserve for credit losses (591)
--------------------------------------------------------------------------------------------------------------
Total assets $40,129
--------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES, INTEREST-BEARING LIABILITIES:
REDEEMABLE Deposits in domestic offices:
PREFERRED STOCK Demand $ 1,916 $ 37 1.94%
AND SHAREHOLDERS' Money market and other savings accounts 8,736 277 3.16
EQUITY Retail savings certificates 6,683 337 5.05
Other time deposits 263 12 4.70
Deposits in foreign offices 3,898 226 5.79
------- ------
Total interest-bearing deposits 21,496 889 4.13
Federal funds purchased and securities under
repurchase agreements 2,128 125 5.87
Short-term bank notes 815 50 6.20
Term federal funds purchased 644 39 5.98
U.S. Treasury tax and loan demand notes 400 23 5.69
Commercial paper 226 13 5.87
Other funds borrowed 395 34 8.68
Notes and debentures (with original maturities over one year) 1,670 117 7.04
------- ------
Total interest-bearing liabilities 27,774 $1,290 4.65
Total noninterest-bearing deposits 6,455
Acceptances outstanding 229
Other liabilities 1,533
--------------------------------------------------------------------------------------------------------------
Total liabilities 35,991
--------------------------------------------------------------------------------------------------------------
Redeemable preferred stock -
--------------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 4,138
--------------------------------------------------------------------------------------------------------------
Total liabilities, redeemable preferred stock and
shareholders' equity $40,129
--------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
RATES YIELD ON TOTAL INTEREST-EARNING ASSETS 8.44%
COST OF FUNDS SUPPORTING INTEREST-EARNING ASSETS 3.82
--------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN:
TAXABLE EQUIVALENT BASIS 4.62%
WITHOUT TAXABLE EQUIVALENT INCREMENTS 4.58
--------------------------------------------------------------------------------------------------------------
<FN>
(a) Amounts and yields in 1995 and 1994 exclude adjustments
to fair value required by FAS No. 115.
Note: Interest and yields were calculated on a taxable
equivalent basis at tax rates approximating 35% in 1995,
1994 and 1993 and 34% in all other years presented, using
dollar amounts in thousands and actual number of days
</TABLE>
100
<PAGE> 84
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991
Average Average Average Average
Average yields/ Average yields/ Average yields/ Average yields/
balance Interest rates balance Interest rates balance Interest rates balance Interest rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 756 $ 34 4.52% $ 1,592 $ 58 3.62% $ 839 $ 35 4.20% $ 738 $ 50 6.77%
762 30 3.98 1,801 54 3.03 789 27 3.47 605 35 5.76
138 6 4.29 428 16 3.73 277 17 6.02 223 16 7.34
380 24 6.27 269 15 5.71 308 21 6.74 309 23 7.41
4,713 269 5.71 4,120 226 5.49 5,595 423 7.55 4,445 392 8.82
110 8 7.14 166 11 6.85 147 11 7.77 442 47 10.63
352 17 4.80 518 24 4.49 758 44 5.94 891 66 7.41
25,107 1,935 7.71 21,763 1,597 7.34 18,235 1,474 8.07 18,514 1,748 9.44
- ------- ------ ------- ------ ------- ------ ------- ------
32,318 $2,323 7.19 30,657 $2,001 6.53 26,948 $2,052 7.61 26,167 $2,377 9.09
2,337 2,170 1,975 1,815
165 133 115 187
537 518 490 475
113 198 371 323
3,273 2,524 1,448 1,452
(613) (565) (589) (541)
- ----------------------------------------------------------------------------------------------------------------------------------
$38,130 $35,635 $30,758 $29,878
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2,143 $ 4 .21% $ 2,034 $ 2 .11% $ 1,728 $ 40 2.31% $ 1,398 $ 57 4.07%
9,439 188 1.99 8,768 146 1.66 6,364 193 3.03 5,528 266 4.81
6,597 240 3.64 7,556 241 3.19 7,581 324 4.27 8,202 541 6.60
246 15 6.05 422 26 6.00 453 31 6.87 903 61 6.68
2,053 92 4.46 1,024 40 3.89 922 49 5.36 1,100 82 7.49
- ------- ------ ------- ------ ------- ------ ------- ------
20,478 539 2.63 19,804 455 2.29 17,048 637 3.73 17,131 1,007 5.88
1,777 76 4.29 1,096 33 3.01 1,623 56 3.46 2,333 131 5.62
29 2 5.68 81 3 3.98 71 3 4.33 - - -
176 8 4.58 61 2 3.79 12 1 4.61 - - -
564 22 3.93 224 6 2.85 664 23 3.42 664 36 5.50
155 7 4.33 198 6 3.22 173 6 3.70 222 13 6.04
494 38 7.80 401 29 7.13 359 29 8.20 355 29 7.87
1,768 110 6.20 1,991 121 6.08 1,365 94 6.88 1,448 117 8.08
- ------- ------ ------- ------ ------- ------ ------- ------
25,441 $ 802 3.15 23,856 $ 655 2.75 21,315 $ 849 3.98 22,153 $1,333 6.02
6,770 6,737 5,636 4,307
165 134 115 187
1,453 944 580 566
- ----------------------------------------------------------------------------------------------------------------------------------
33,829 31,671 27,646 27,213
- ----------------------------------------------------------------------------------------------------------------------------------
- - - 51
- ----------------------------------------------------------------------------------------------------------------------------------
4,301 3,964 3,112 2,614
- ----------------------------------------------------------------------------------------------------------------------------------
$38,130 $35,635 $30,758 $29,878
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
7.19% 6.53% 7.61% 9.09%
2.48 2.14 3.15 5.10
- ----------------------------------------------------------------------------------------------------------------------------------
4.71% 4.39% 4.46% 3.99%
4.67 4.34 4.39 3.86
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
in the years, and are before the effect of reserve requirements. Loan fees, as
well as nonaccrual loans and their related income effect, have been included in
the calculation of average interest yields/rates.
101
<PAGE> 85
GENERAL INFORMATION
<TABLE>
<S> <C>
ANNUAL MEETING The Annual Meeting of Shareholders will be held on the 10th floor of the Union Trust Building,
501 Grant Street, Pittsburgh, Pa. at 10 a.m. on Tuesday, April 16, 1996.
EXCHANGE LISTING Mellon Bank Corporation's common, Series I preferred, Series J preferred and Series K preferred stock are
traded on the New York Stock Exchange. The trading symbols are MEL (common stock), MEL Pr I, MEL Pr J
and MEL Pr K. The Transfer Agent and Registrar is Mellon Bank, N.A., c/o Securities Transfer Services,
85 Challenger Road, Overpeck Centre, Ridgefield Park, NJ 07660-9940.
STOCK PRICES Current prices for Mellon Bank Corporation's common and preferred stocks can be obtained from any Touch-Tone
telephone by dialing (412) 236-0834 (in Pittsburgh) or 1 800 648-9496 (outside Pittsburgh). When prompted to
"enter I.D.," press MEL# (or 635#). This service is available free of charge, 24 hours a day, seven days a
week, from anywhere in the continental United States.
DIVIDEND PAYMENTS Subject to approval of the board of directors, dividends are paid on Mellon Bank Corporation's
common and preferred stocks on or about the 15th day of February, May, August and November.
DIVIDEND Under the Dividend Reinvestment and Common Stock Purchase Plan, registered holders of Mellon
REINVESTMENT AND Bank Corporation's common stock may purchase additional common shares at the market value
COMMON STOCK for such shares through reinvestment of common dividends and/or optional cash payments. Purchases
PURCHASE PLAN of shares through optional cash payments are subject to limitations. Plan details are in a Prospectus
dated December 15, 1993, which may be obtained from the Secretary of the Corporation.
ELECTRONIC DEPOSIT Registered holders may have quarterly dividends paid on Mellon Bank Corporation's common and preferred stocks
OF DIVIDENDS electronically deposited to their checking or savings account, free of charge. If you wish
to have your dividends electronically deposited, please write to Chemical Mellon Shareholder Services,
P.O. Box 590, Ridgefield Park, NJ 07660-9940. If you need more information, please call 1 800 205-7699.
FORM 10-K AND A copy of the Corporation's Annual Report on Form 10-K or the quarterly earnings news release on
QUARTERLY EARNINGS Form 8-K, as filed with the Securities and Exchange Commission, will be furnished, free of charge,
NEWS RELEASE upon written request to the Secretary of the Corporation, 1820 One Mellon Bank Center,
Pittsburgh, PA 15258-0001.
REGULATORY A copy of the Corporation's Management Report on internal controls, as filed with the appropriate regulatory
agencies, will be furnished, free of charge, upon written request to the Secretary of the Corporation,
1820 One Mellon Bank Center, Pittsburgh, PA 15258-0001.
PHONE CONTACTS Corporate Communications/
Media Relations (412) 236-1264 Employee communications and media inquiries
Dividend Reinvestment Plan 1 800 205-7699 Enrollment/Prospectus for Dividend Reinvestment
Investor Relations (412) 234-5601 General questions regarding the Corporation's
financial performance and securities
Publication Requests 1 800 879-4816 Requests for the Annual Report or quarterly information
Stock Transfer Agent 1 800 205-7699 Questions regarding specific shareholder accounts
ELIMINATION OF If you receive duplicate mailings at one address, or if more than one person in your household
DUPLICATE receives Mellon materials and you wish to discontinue such mailings, please write to Chemical Mellon
MAILINGS Shareholder Services, P.O. Box 590, Ridgefield Park, NJ 07660-9940, stating your full name and address the way
it appears on your account and explaining your request. By doing so, you will enable the Corporation to avoid
unnecessary duplication of effort and related costs. If you need more information, please call 1 800 205-7699.
CHARITABLE A report on Mellon's comprehensive community involvement, including charitable contributions, is
CONTRIBUTIONS available by calling (412) 234-8680.
SHAREHOLDER Quarterly earnings news releases are available to shareholders upon request. To receive Mellon's quarterly
PUBLICATIONS 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/.
MELLON ENTITIES ARE EQUAL EMPLOYMENT OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYERS.
Mellon is committed to providing equal employment opportunities to every employee and every applicant for
employment, regardless of, but not limited to, such factors as race, color, religion, sex, national origin,
age, familial or marital status, ancestry, citizenship, sexual orientation, veteran status or being a
qualified individual with a disability.
</TABLE>
<PAGE> 86
Appendix to Graphic Material
Graphic material has been omitted from Exhibit 13.1. The description of the
omitted graphic material is in the appropriate section of Exhibit 13.1 as listed
below:
Trend of Net Interest Margin graph in the Interest rate sensitivity
analysis section on page 48.
<PAGE> 1
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995*
Central Counties Corporation
State of Incorporation: Pennsylvania
Certus Asset Advisors Corporation
State of Incorporation: Delaware
Collection Services Corporation
State of Incorporation: Pennsylvania
Dreyfus Investment Services Corporation
State of Incorporation: Delaware
Girard Corporation
State of Incorporation: Pennsylvania
Mellon Accounting Services, Inc.
State of Incorporation: Delaware
Mellon Asia Limited
Incorporation: Hong Kong
Mellon Bank Community Development Corporation
State of Incorporation: Pennsylvania
Mellon Bank, N.A.
Incorporation: United States
- Access Capital Strategies Corp.
State of Incorporation: Massachusetts
- AFCO Credit Corporation
State of Incorporation: New York
-- AFCO Acceptance Corporation
State of Incorporation: California
-- AFCO Service, Inc.
State of Incorporation: California
- A P Beaumeade, Inc.
State of Incorporation: Delaware
* Certain subsidiaries have been omitted from this list. These subsidiaries,
when considered in the aggregate as a single subsidiary, do not constitute
a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X.
<PAGE> 2
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-2-
- A P Colorado, Inc.
State of Incorporation: Colorado
- A P Colorado, Inc. #2
State of Incorporation: Colorado
- APD Chimney Lakes, Inc.
State of Incorporation: Florida
- APD Cross Creek, Inc.
State of Incorporation: Florida
- APD Cypress Springs, Inc.
State of Incorporation: Florida
- A P East, Inc.
State of Incorporation: Delaware
- A P Management, Inc.
State of Incorporation: Pennsylvania
- AP Properties Minnesota, Inc.
State of Incorporation: Minnesota
- AP Residential Realty, Inc.
State of Incorporation: Pennsylvania
- A P Rural Land, Inc.
State of Incorporation: Pennsylvania
- AP Wheels, Inc.
State of Incorporation: Michigan
- APME Company, Inc.
State of Incorporation: Wisconsin
- APU Chimney Lakes, Inc.
State of Incorporation: Florida
- APU Cross Creek, Inc.
State of Incorporation: Florida
<PAGE> 3
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-3-
- APU Cypress Springs, Inc.
State of Incorporation: Florida
- Citmelex Corporation
State of Incorporation: Delaware
- Commonwealth National Mortgage Company
State of Incorporation: Pennsylvania
- East Properties Inc.
State of Incorporation: Delaware
- MMIP, Inc.
State of Incorporation: Delaware
- Mellon Bank Canada
Incorporation: Canada
-- CAFO, Inc.
Incorporation: Canada
-- Mellon Bank Canada Leasing Inc.
Incorporation: Canada
-- The R-M Trust Company
Incorporation: Canada
- Mellon Bond Associates
State of Organization: Pennsylvania
- Mellon Consumer Leasing Corporation
State of Incorporation: Pennsylvania
- Mellon Equity Associates
State of Organization: Pennsylvania
- Mellon Europe Limited
Incorporation: England
<PAGE> 4
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-4-
- Mellon Financial Services Corporation #3
State of Incorporation: Pennsylvania
-- Mellon International Leasing Company
State of Incorporation: Delaware
-- Pontus, Inc.
State of Incorporation: Delaware
- Mellon Mortgage Company
State of Incorporation: Colorado
-- MetFirst Insurance Agency, Inc.
State of Incorporation: Delaware
- Mellon Overseas Investment Corporation
Incorporation: United States
-- Mellon Bank Representacoes, Ltda.
Incorporation: Brazil
-- Mellon International Investment Corporation
Incorporation: British West Indies
-- Mellon Securities Limited
State of Incorporation: Pennsylvania
-- B.I.E. Corporation
Incorporation: British West Indies
- Mellon Ventures, Inc.
State of Incorporation: Pennsylvania
- Melnamor Corporation
State of Incorporation: Pennsylvania
-- A P Colorado, Inc. #3
State of Incorporation: Colorado
-- A P Meritor, Inc.
State of Incorporation: Minnesota
<PAGE> 5
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-5-
-- Baldorioty de Castro Development Corporation
Incorporation: Puerto Rico
-- Bridgewater Land Company, Inc.
State of Incorporation: Massachusetts
-- Cacalaba, Inc.
State of Incorporation: New Mexico
-- Casals Development Corporation
Incorporation: Puerto Rico
-- CEBC, Inc.
Incorporation: Puerto Rico
-- Costamar Development Corporation
Incorporation: Puerto Rico
-- FSFC, Inc.
State of Incorporation: Pennsylvania
-- Festival, Inc.
State of Incorporation: Virginia
-- Holiday Properties, Inc.
State of Incorporation: Alabama
-- Laplace Land Company, Inc.
State of Incorporation: Louisiana
-- Promenade, Inc.
State of Incorporation: California
-- SKAP #7, Inc.
State of Incorporation: Texas
-- Texas AP, Inc.
State of Incorporation: Texas
-- Trilem, Inc.
State of Incorporation: Pennsylvania
<PAGE> 6
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-6-
-- Vacation Properties, Inc.
State of Incorporation: North Carolina
- MelPenn Realty Company
State of Incorporation: Pennsylvania
- Meritor Capital Resources, Inc.
State of Incorporation: Delaware
- Meritor Mortgage Corporation - East
State of Incorporation: Pennsylvania
-- Central Valley Management Co., Inc.
State of Incorporation: Pennsylvania
- RECR, Inc.
State of Incorporation: Pennsylvania
- The Dreyfus Corporation
State of Incorporation: New York
-- Dreyfus - Lincoln, Inc.
State of Incorporation: Delaware
-- Dreyfus Management Inc.
State of Incorporation: New York
-- Dreyfus Personal Management, Inc.
State of Incorporation: New York
-- Dreyfus Precious Metals, Inc.
State of Incorporation: Delaware
-- Dreyfus Service Corporation
State of Incorporation: New York
--- Lion Management, Inc.
State of Incorporation: Delaware
-- Seven Six Seven Agency, Inc.
State of Incorporation: New York
<PAGE> 7
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-7-
-- The Dreyfus Consumer Credit Corporation
State of Incorporation: Delaware
-- Dreyfus Transfer, Inc.
State of Incorporation: Maryland
- UPCON, Inc.
State of Incorporation: Pennsylvania
Boston Group Holdings, Inc.
State of Incorporation: Delaware
- Shearson Venture Capital Inc.
State of Incorporation: Delaware
-- Shearson Summit Euromanagement Inc.
State of Incorporation: Delaware
-- Shearson Summit Europartners Inc.
State of Incorporation: Delaware
-- Shearson Summit Management Inc.
State of Incorporation: Delaware
-- Shearson Summit Partners Inc.
State of Incorporation: Delaware
- The Boston Company, Inc.
State of Incorporation: Massachusetts
-- Boston Safe Deposit and Trust Company
State of Incorporation: Massachusetts
--- Boston Safe (Nominees) Limited
Incorporation: England
--- MY, Inc.
State of Incorporation: Massachusetts
<PAGE> 8
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-8-
--- Reco, Inc.
State of Incorporation: Massachusetts
---- Mitlock Limited Partnership
State of Incorporation:
Massachusetts
---- Tuckahoe Limited Partnership
State of Incorporation:
Massachusetts
--- TBC Securities Co., Inc.
State of Incorporation: Massachusetts
--- The Boston Company Financial Services, Inc.
State of Incorporation: Massachusetts
--- Wellington-Medford II Associates LP
State of Incorporation: Massachusetts
-- Boston Safe Deposit and Trust Company of California
State of Incorporation: California
-- Boston Safe Deposit and Trust Company of New York
State of Incorporation: New York
-- Premier Administration Limited
Incorporation: England
-- The Boston Company Advisors, Inc.
State of Incorporation: Delaware
-- The Boston Company Asset Management, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Energy Advisors, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Financial Strategies Group, Inc.
State of Incorporation: Massachusetts
-- The Boston Company Financial Strategies, Inc.
State of Incorporation: Massachusetts
<PAGE> 9
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-9-
-- The Boston Safe Advisors, Inc.
State of Incorporation: Massachusetts
-- The Boston Company of Southern California
State of Incorporation: California
-- Wellington-Medford II Properties, Inc.
State of Incorporation: Massachusetts
Mellon Bank (DE) National Association
Incorporation: United States
- Dreyfus Service Organization, Inc.
State of Incorporation: Delaware
- MBC Insurance Agency, Inc.
State of Incorporation: Delaware
- The Shelter Group, Inc.
State of Incorporation: Delaware
- Wilprop, Inc.
State of Incorporation: Delaware
Mellon EFT Services Corporation
State of Incorporation: Pennsylvania
Mellon Financial Company
State of Incorporation: Pennsylvania
Mellon Financial Corporation (MD)
State of Incorporation: Maryland
- Mellon Bank (MD)
State of Incorporation: Maryland
-- Baltimore Realty Corporation
State of Incorporation: Maryland
<PAGE> 10
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-10-
Mellon Financial Markets, Inc.
State of Incorporation: Delaware
Mellon PSFS (NJ) National Association
Incorporation: United States
- A P Properties, Inc.
State of Incorporation: New Jersey
MBC Investments Corporation
State of Incorporation: Delaware
- Dreyfus Acquisition Corporation
State of Incorporation: New York
- Dreyfus Partnership Management, Inc.
State of Incorporation: New York
- Dreyfus Trust Company
State of Incorporation: New York
- Franklin Portfolio Associates Trust
State of Incorporation: Massachusetts
- Laurel Capital Advisors
State of Incorporation: Pennsylvania
- Major Trading Corporation
State of Incorporation: New York
-- Dreyfus Management GMBH
Incorporation: Germany
- Mellon Bank, F.S.B.
Incorporation: United States
- Mellon Capital Management Corporation
State of Incorporation: Delaware
<PAGE> 11
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-11-
- Mellon Financial Services Corporation #1
State of Incorporation: Delaware
-- Allomon Corporation
State of Incorporation: Pennsylvania
--- APT Holdings Corporation
State of Incorporation: Delaware
--- Lucien Land Company, Inc.
State of Incorporation: Florida
---- APD Crossings, Inc.
State of Incorporation: Florida
-- Mellon Escrow Company
State of Incorporation: Delaware
-- Mellon Financial Services Corporation #2
State of Incorporation: Delaware
-- Mellon Financial Services Corporation #4
State of Incorporation: Pennsylvania
--- Beaver Valley Leasing Corporation
State of Incorporation: Pennsylvania
--- Katrena Corporation
State of Incorporation: Delaware
(80% ownership)
--- Mellon Financial Services
Corporation #13
State of Incorporation: Alabama
--- MFS Leasing Corp.
State of Incorporation: Delaware
-- Mellon Financial Services Corporation #5
State of Incorporation: Louisiana
--- Mellon Financial Services
Corporation #10
State of Incorporation: Louisiana
<PAGE> 12
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-12-
-- Mellon Properties Company
State of Incorporation: Louisiana
- Mellon-France Corporation
State of Incorporation: Pennsylvania
-- CCF-Mellon Partners
State of Incorporation: Pennsylvania (50% ownership)
- Mellon Global Investing Corp.
State of Incorporation: New York
-- Pareto Partners (Pareto Partners, New York)
State of Incorporation: New York (65% ownership)
- Mellon Insurance Agency, Inc.
State of Incorporation: Pennsylvania
- MGIC-UK Ltd.
Incorporation: England
-- Pareto Partners (Pareto Partners, U.K.)
Incorporation: England (65% ownership)
- Mellon Life Insurance Company
State of Incorporation: Delaware
- Premier Administration (Dublin) Limited
Incorporation: Ireland
- The Truepenny Corporation
State of Incorporation: New York
-- The Trotwood Corporation
State of Incorporation: New York
--- The Trotwood Hunters Corporation
State of Incorporation: New York
--- The Trotwood Hunters Site A Corporation
State of Incorporation: New York
<PAGE> 13
Ex-21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1995
-13-
Mellon Financial Services Corporation #17
(Mellon Securities Transfer Services)
State of Incorporation: Delaware
- Chemical Mellon Shareholder Services, L.L.C. (50% ownership)
State of Incorporation: New Jersey
Mellon Securities Trust Company
State of Incorporation: New York
NSD Holdings Corporation
State of Incorporation: Delaware
<PAGE> 1
Exhibit 23.1
The Board of Directors
of Mellon Bank Corporation:
We consent to incorporation by reference in Registration Statement Nos.
2-73272 (Form S-8), 2-98357 (Form S-8), 33-16658 (Form S-3), 33-21838 (Form
S-8), 33-23635 (Form S-8), 33-34430 (Form S-8), 33-41796 (Form S-8), 33-48486
(Form S-3), 33-65824 (Form S-8), 33-65826 (Form S-8), 33-54671 (Form S-8),
33-55059 (Form S-3), 33-59709 (Form S-3), and 33-62151 (Form S-3), of Mellon
Bank Corporation of our report dated January 10, 1996, relating to the
consolidated balance sheets of Mellon Bank Corporation and its subsidiaries as
of December 31, 1995 and 1994, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for each of the years in
the three-year period ended December 31, 1995, which report appears in the
December 31, 1995 annual report on Form 10-K of Mellon Bank Corporation.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
March 19, 1996
<PAGE> 1
Ex-24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Steven G. Elliott and Carl Krasik, and each of them,
such person's true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities, to sign one or more Annual Reports on
Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for Mellon Bank Corporation for the year ended December 31,
1995, and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and with the New York Stock Exchange, Inc.,
granting unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent and each of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
WITNESS the due execution hereof by the following persons in the capacities
indicated on this 20th day of February, 1996.
FRANK V. CAHOUET CHARLES A. CORRY
- ------------------------------ ------------------------------
Frank V. Cahouet, Director and Charles A. Corry, Director
Principal Executive Officer
BURTON C. BORGELT C. FREDERICK FETTEROLF
- ------------------------------ ------------------------------
Burton C. Borgelt, Director C. Frederick Fetterolf, Director
CAROL R. BROWN IRA J. GUMBERG
- ------------------------------ ------------------------------
Carol R. Brown, Director Ira J. Gumberg, Director
PEMBERTON HUTCHINSON
------------------------------
Pemberton Hutchinson, Director
<PAGE> 2
ROTAN E. LEE W. KEITH SMITH
- ------------------------------ ------------------------------
Rotan E. Lee, Director W. Keith Smith, Director
ANDREW W. MATHIESON JOAB L. THOMAS
- ------------------------------ ------------------------------
Andrew W. Mathieson, Director Joab L. Thomas, Director
EDWARD J. McANIFF WESLEY W. von SCHACK
- ------------------------------ ------------------------------
Edward J. McAniff, Director Wesley W. von Schack, Director
ROBERT MEHRABIAN
- ------------------------------
Robert Mehrabian, Director
SEWARD PROSSER MELLON
- ------------------------------
Seward Prosser Mellon, Director
DAVID S. SHAPIRA
- ------------------------------
David S. Shapira, Director
<PAGE> 3
EX-24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Steven G. Elliott and Carl Krasik, and each of them,
such person's true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities, to sign one or more Annual Reports on
Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for Mellon Bank Corporation for the year ended December 31,
1995, and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and with the New York Stock Exchange, Inc.,
granting unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent and each of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
WITNESS the due execution hereof by the following persons in the capacities
indicated on this 28th day of February, 1996.
J. W. CONNOLLY
______________________________
J. W. Connolly, Director
<PAGE> 4
EX-24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Steven G. Elliott and Carl Krasik, and each of them,
such person's true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities, to sign one or more Annual Reports on
Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for Mellon Bank Corporation for the year ended December 31,
1995, and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and with the New York Stock Exchange, Inc.,
granting unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent and each of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
WITNESS the due execution hereof by the following persons in the capacities
indicated on this 22nd day of February, 1996.
HOWARD STEIN
______________________________
Howard Stein, Director
<PAGE> 5
EX-24.1
POWER OF ATTORNEY
MELLON BANK CORPORATION
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Steven G. Elliott and Carl Krasik, and each of them,
such person's true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities, to sign one or more Annual Reports on
Form 10-K pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, for Mellon Bank Corporation for the year ended December 31,
1995, and any and all amendments thereto, and to file the same with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and with the New York Stock Exchange, Inc.,
granting unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent and each of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
WITNESS the due execution hereof by the following persons in the capacities
indicated on this 29nd day of February, 1996.
WILLIAM J. YOUNG
------------------------------
William J. Young, Director
<TABLE> <S> <C>
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<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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<LOANS> 27,690
<ALLOWANCE> (471)
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0
435
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<INTEREST-TOTAL> 2,838
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<INTEREST-EXPENSE> 1,290
<INTEREST-INCOME-NET> 1,548
<LOAN-LOSSES> 105
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<EXPENSE-OTHER> 2,027
<INCOME-PRETAX> 1,092
<INCOME-PRE-EXTRAORDINARY> 1,092
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 691
<EPS-PRIMARY> 4.50
<EPS-DILUTED> 4.46
<YIELD-ACTUAL> 4.62
<LOANS-NON> 167
<LOANS-PAST> 98
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</TABLE>
