<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - October 14, 1997
MELLON BANK CORPORATION
(Exact name of registrant as specified in charter)
Pennsylvania 1-7410 25-1233834
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15258
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code - (412) 234-5000
<PAGE>
ITEM 5. OTHER EVENTS
By release dated October 14, 1997, Mellon Bank Corporation (the "Corporation")
announced third quarter 1997 results of operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit
Number Description
99.1 Mellon Bank Corporation Press Release, dated October 14, 1997
announcing the matter referenced in Item 5 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
Date: October 14, 1997 By: /s/ STEVEN G. ELLIOTT
Steven G. Elliott
Vice Chairman, Chief Financial
Officer & Treasurer
<PAGE>
EXHIBIT INDEX
Number Description Method of Filing
- ------ ----------- ----------------
99.1 Press Release dated October 14, 1997 Filed herewith
<PAGE>
Exhibit 99.1
[MELLON LOGO]
Contact: MEDIA: ANALYSTS: News Release
----- --------
Stephen K. Dishart Donald J. MacLeod Corporate Affairs
(412) 234-0850 (412) 234-5601 One Mellon Bank Center
James J. Dever David T. Lamar Pittsburgh, PA 15258-0001
(412) 236-1752 (412) 234-4633
FOR IMMEDIATE RELEASE
MELLON REPORTS RECORD THIRD QUARTER 1997 RESULTS
------------------------------------------------
. Quarterly Earnings Per Share Increases to $.73 Per Share, Up 12 Percent Over
Same Period Last Year
. Return on Common Equity is 21.6 Percent and Return on Assets is 1.81 Percent
<TABLE>
<CAPTION>
Quarter ended Nine months ended
-------------------------------------- ----------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
Financial Highlights 1997 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings per common share* $ .73 $ .71 $ .66 (a) $2.13 $1.91 (a)
Net income applicable to common stock $ 191 $ 186 $ 172 $ 559 $ 510
Return on common equity (annualized) 21.6% 21.9% 20.6% 21.5% 20.2%
Return on assets (annualized) 1.81% 1.79% 1.71% 1.81% 1.72%
Fee revenue as a percentage
of total revenue (FTE) 63% 59% 56% 61% 57%
Efficiency ratio excluding
amortization of intangibles and
trust-preferred securities expense 62% 59% 60% 60% 61%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Restated to reflect the two-for-one common stock split distributed on June
2, 1997.
* Fully diluted.
PITTSBURGH, October 14, 1997--Mellon Bank Corporation (NYSE: MEL) today reported
record third quarter 1997 fully diluted earnings per common share of 73 cents,
an increase of 12 percent, compared with 66 cents in the third quarter of 1996.
Earnings per common share totaled 71 cents in the second quarter of 1997. Net
income applicable to common stock was $191 million in the third quarter of 1997,
compared with $172 million in the third quarter of 1996 and $186 million in the
second quarter of 1997.
"Our strong performance across Mellon's broad-based lines of business continues
to drive our favorable stock price and valuation in the market," said Frank V.
Cahouet, chairman, president and chief executive officer of Mellon Bank
Corporation. "Our market capitalization ranks us among the nation's largest
bank holding companies, and our ongoing performance shows our strength as an
organization that consistently produces superior returns for our shareholders."
- more -
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 2
Annualized return on common shareholders' equity and return on assets were
21.6 percent and 1.81 percent, respectively, in the third quarter of 1997,
compared with 20.6 percent and 1.71 percent, respectively, in the third quarter
of 1996 and 21.9 percent and 1.79 percent, respectively, in the second quarter
of 1997.
Net interest revenue for the third quarter of 1997 was $366 million, down
$6 million compared with $372 million in the prior-year period and down $4
million from $370 million in the second quarter of 1997.
Fee revenue was $635 million in the third quarter of 1997, up $159 million,
compared with $476 million in the third quarter of 1996 and up $95 million,
compared with $540 million in the second quarter of 1997. The increase in fee
revenue, compared with the prior periods, was primarily attributable to higher
trust and investment management fees resulting from the Buck Consultants, Inc.
(Buck) acquisition on July 1, 1997, new business and an increase in the market
value of assets under management. Excluding the Buck acquisition, fee revenue
increased $82 million, or 17 percent, compared with the prior-year period and
$18 million, or 3 percent, compared with the second quarter of 1997, resulting
from growth in most fee based businesses.
Operating expense before net revenue from acquired property and trust-
preferred securities expense for the third quarter of 1997 was $651 million, up
$114 million from $537 million in the third quarter of 1996 and up $80 million
from $571 million in the second quarter of 1997. These increases primarily
resulted from the Buck acquisition and business growth.
Credit quality expense was $24 million in the third quarter of 1997,
compared with $24 million in the third quarter of 1996 and $22 million in the
second quarter of 1997. Nonperforming assets totaled $175 million at Sept. 30,
1997, compared with $162 million at June 30, 1997, and $209 million at Sept. 30,
1996. The ratio of nonperforming assets to total loans and net acquired
property was .62 percent at September 30, 1997. This ratio has been lower than
1 percent for 13 consecutive quarters.
A broad-based financial services company with a bank at its core, Mellon
Bank Corporation ranks among the nation's largest bank holding companies in
market capitalization. With approximately $1.6 trillion of assets under
management or administration, Mellon provides a full range of banking,
investment and trust products and services to individuals and small, midsize and
large businesses and institutions. Its mutual fund company, The Dreyfus
Corporation, places Mellon as the leading bank manager of mutual funds.
Headquartered in Pittsburgh, Mellon's principal subsidiary is Mellon Bank, N.A.
Press releases and other information about Mellon Bank Corporation and its
products and services are available at http://www.mellon.com on the Internet.
For Mellon press releases by fax, call 1 800 758-5804, identification number
552187.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 3
Tangible Operating Results
- --------------------------
Except for the merger with Dreyfus, which was accounted for under the "pooling
of interests" method, the Corporation has been required to account for business
combinations under the "purchase" method of accounting. The purchase method
results in the recording of goodwill and other identified intangibles that are
amortized as noncash charges in future years into operating expense. The
pooling of interests method does not result in the recording of goodwill or
intangibles. Since goodwill and intangible amortization expense does not result
in a cash expense, the economic value to shareholders under either accounting
method is essentially the same. Results, excluding the impact of intangibles,
are shown in the table below.
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------------------- --------------------
(dollar amounts in millions, Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
ratios annualized) 1997 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income applicable
to common stock $ 191 $ 186 $ 172 $ 559 $ 510
After tax impact of
amortization of
intangibles from
purchase acquisitions 20 20 18 61 55
- ----------------------------------------------------------------------------------------
Tangible net income
applicable to
common stock $ 211 $ 206 $ 190 $ 620 $ 565
Tangible earnings per
common share - fully
diluted $ .80 $ .79 $ .72 (a) $ 2.36 $ 2.11 (a)
- ----------------------------------------------------------------------------------------
Average common equity $ 3,520 $ 3,393 $ 3,327 $ 3,468 $ 3,371
Average goodwill and
other intangibles 1,291 1,206 898 1,240 923
- ----------------------------------------------------------------------------------------
Average tangible
common equity $ 2,229 $ 2,187 $ 2,429 $ 2,228 $ 2,448
Return on tangible
common equity 37.6% 37.7% 31.2% 37.2% 30.8%
- ----------------------------------------------------------------------------------------
Average total assets $42,879 $42,413 $42,461 $42,496 $41,804
Average tangible assets $41,588 $41,207 $41,563 $41,256 $40,881
Return on tangible assets 2.05% 2.04% 1.92% 2.06% 1.94%
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Restated to reflect the two-for-one common stock split distributed on June
2, 1997.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 4
Net Interest Revenue
- --------------------
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------------------- ----------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest revenue (FTE) $369 $371 $374 $1,113 $1,114
Net interest margin (FTE) 4.24% 4.29% 4.20% 4.30% 4.28%
Average securities $ 5,469 $ 5,600 $ 6,538 $ 5,694 $ 6,180
Average loans $27,596 $27,806 $27,170 $27,603 $27,009
Average interest-earning
assets $34,467 $34,697 $35,450 $34,593 $34,769
- -----------------------------------------------------------------------------------------
</TABLE>
The $5 million decrease in fully taxable equivalent net interest revenue in the
third quarter of 1997, compared with the third quarter of 1996, resulted from
the effect of the November 1996 sale of a $770 million American Automobile
Association (AAA) credit card portfolio, the funding costs related to the
repurchase of common stock and the December 1996 $500 million insurance premium
finance securitization. Primarily offsetting these factors was $1.6 billion of
leases acquired in the Mellon US Leasing and Mellon First United Leasing
acquisitions in 1996 and the use of the proceeds from the $1 billion of trust-
preferred securities issued in December 1996. The cost of the trust-preferred
securities is reported in operating expense. Net interest revenue was virtually
unchanged compared with the second quarter of 1997. Excluding the effect of the
loan securitizations and equity repurchases, net interest revenue and the net
interest margin for the third quarter and first nine months of 1997 would have
been approximately $425 million and 4.60% and $1,276 million and 4.65%,
respectively, compared with approximately $415 million and 4.46% and $1,230
million and 4.54%, respectively, in the third quarter and first nine months of
1996.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 5
Credit Quality Expense and Net Credit Losses
- --------------------------------------------
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------------------- ---------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1997 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 25 $ 25 $ 25 $ 75 $ 75
Net revenue from acquired property (1) (3) (1) (7) (10)
- ---------------------------------------------------------------------------------------------
Credit quality expense $ 24 $ 22 $ 24 $ 68 $ 65
- ---------------------------------------------------------------------------------------------
Net credit (losses) recoveries(a):
Domestic:
Credit card $(26) $(30) $(38) $(87) $(81)
Other consumer credit (4) (5) (2) (12) (10)
Commercial real estate 1 2 - 5 (1)
Commercial and financial (2) 1 6 (6) 3
- ---------------------------------------------------------------------------------------------
Total domestic (31) (32) (34) (100) (89)
International - - - 5 1
- ---------------------------------------------------------------------------------------------
Total net credit losses $(31) $(32) $(34) $(95) $(88)
- ---------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .45% .46% .50% .46% .44%
- ---------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes net credit losses on segregated assets.
Credit quality expense in the third quarter of 1997 was unchanged compared with
the third quarter of 1996.
The $3 million decrease in net credit losses, compared with the third quarter of
1996, resulted from a $12 million decrease in credit card net credit losses
partially offset by higher commercial and financial and other consumer net
credit losses. The decrease in credit card net credit losses in the third
quarter of 1997, compared with the third quarter of 1996, resulted from the sale
of the AAA credit card portfolio and lower losses in the CornerStone(sm)
portfolio. Net credit losses decreased by $1 million compared with the second
quarter of 1997, as lower credit card net credit losses were primarily offset by
higher commercial losses. At September 30, 1997, the CornerStone(sm) credit card
portfolio had total outstandings of $501 million, compared with $539 million at
June 30, 1997, and $631 million at year-end 1996.
Net credit losses increased $7 million in the first nine months of 1997,
compared with the first nine months of 1996, reflecting higher domestic
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 6
commercial and financial and credit card net credit losses partially offset by
an increase in commercial real estate and international loan recoveries. The
lower level of credit card net credit losses in 1996 resulted from a lower level
of delinquencies in the CornerStone(sm) portfolio following the creation of the
accelerated resolution portfolio in December 1995. The net carrying value of
the accelerated resolution portfolio was zero at September 30, 1997. The
accelerated resolution portfolio had a net carrying value of $9 million at June
30, 1997, and $30 million at year-end 1996.
Noninterest Revenue
- -------------------
<TABLE>
<CAPTION>
Quarter ended Nine months ended
-------------------------------- --------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee revenue:
Trust and investment revenue:
Investment management:
Mutual fund $ 97 $ 90 $ 85 $274 $ 252
Private asset 47 42 36 131 109
Institutional asset 45 41 34 123 103
- -----------------------------------------------------------------------------------------
Total investment management
revenue 189 173 155 528 464
Administration/custody/consulting:
Mutual fund 34 33 26 97 79
Private asset 4 4 3 12 9
Institutional trust 94 73 62 233 183
Benefits consulting 54 - - 54 -
- -----------------------------------------------------------------------------------------
Total administration/
custody/consulting revenue 186 110 91 396 271
- -----------------------------------------------------------------------------------------
Total trust and investment
fee revenue 375 283 246 924 735
Cash management and deposit
transaction charges 62 59 54 177 155
Mortgage servicing fees 53 53 46 157 131
Foreign currency and securities
trading revenue 32 25 20 82 61
Credit card fees 24 25 29 73 92
Information services fees 7 13 14 33 34
Other 82 82 67 265 245
- -----------------------------------------------------------------------------------------
Total fee revenue 635 540 476 1,711 1,453
Gains on sale of securities - - - - 1
- -----------------------------------------------------------------------------------------
Total noninterest revenue $635 $540 $476 $1,711 $1,454
- -----------------------------------------------------------------------------------------
Fee revenue as a percentage of
total revenue (FTE) 63% 59% 56% 61% 57%
Trust and investment fee
revenue as a percentage of
total revenue (FTE) 37% 31% 29% 33% 29%
- -----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 7
Fee revenue increased $159 million, or 33%, in the third quarter of 1997,
compared with the third quarter of 1996. Excluding $77 million of revenue
resulting from the Buck acquisition, fee revenue increased $82 million, or 17%,
compared with the prior-year period.
The $129 million, or 52%, increase in trust and investment fees in the third
quarter of 1997, compared with the prior-year period, reflects $54 million of
benefits consulting fees and $22 million of institutional trust fees resulting
from the Buck acquisition. Excluding the fees resulting from the Buck
acquisition, trust and investment fees increased $53 million, or 21%, compared
with the third quarter of 1996.
The $34 million increase in investment management revenue resulted from a $12
million, or 15%, increase in mutual fund management revenue, an $11 million, or
28%, increase in private asset management revenue and an $11 million, or 32%,
increase in institutional asset management revenue. These increases resulted
from new business and an increase in the market value of assets under
management. Proprietary funds managed at Dreyfus in the third quarter of 1997
averaged $91 billion, up $6 billion from $85 billion in the second quarter of
1997 and up $11 billion from $80 billion in the third quarter of 1996. The
increase from the prior-year periods primarily resulted from an increase in
equity funds, which averaged $21 billion in the third quarter of 1997 and had a
period-end total of $22 billion at September 30, 1997.
Administration/custody/consulting fee revenue increased $95 million in the third
quarter of 1997 compared with the third quarter of 1996 and included $54 million
of benefits consulting fees and $22 million of institutional
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 8
trust fees resulting from the Buck acquisition. Institutional trust fees,
excluding the $22 million of fees resulting from the Buck acquisition, increased
$10 million, or 17%, while mutual fund administration/custody revenue increased
$8 million, or 26%. These increases resulted primarily from new business and
higher transaction volumes.
The 15% increase in cash management fees and deposit transaction charges in the
third quarter of 1997, compared with the prior-year period, primarily resulted
from higher volumes of business in customer receivables, payables and treasury
management products.
The 16% increase in mortgage servicing fees in the third quarter of 1997,
compared with the prior-year period, resulted from a higher level of mortgage
servicing rights acquired through portfolio acquisitions.
The 70% increase in foreign currency and securities trading revenue in the third
quarter of 1997, compared with the prior-year period, was attributable to higher
foreign exchange fees earned as a result of higher levels of market volatility
and customer activity, primarily in the Corporation's global custody business.
Credit card revenue decreased 20% in the third quarter of 1997, compared with
the third quarter of 1996, as a result of the sale of the AAA credit card
portfolio in November 1996 and lower fee revenue from the securitized credit
card portfolio, due in part to higher credit losses in this portfolio.
The $7 million decrease in information services fee revenue, compared with the
third quarter of 1996, primarily resulted from the third quarter 1997 sale of
50% of the Corporation's interest in the R-M Trust Company to the
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 9
Canadian Imperial Bank of Commerce and the subsequent formation of a joint
venture named CIBC Mellon Trust Company. The Corporation accounts for its
interest in CIBC Mellon Trust Company under the equity method of accounting,
with net results recorded as information services fee revenue.
Other fee revenue increased $15 million in the third quarter of 1997, compared
with the prior-year period. This increase resulted from a $6 million increase
in servicing fee revenue from the insurance premium finance loan securitization
and a net $5 million increase resulting from the realization of lease residuals
and the sale of equity securities and other assets. Other fee revenue in the
third quarter of 1997 also included $1 million of fees resulting from Buck.
Fee revenue increased $95 million in the third quarter of 1997, compared with
the second quarter of 1997. This increase resulted from the fees relating to
the Buck acquisition, as well as higher trust and investment fees and higher
foreign currency and securities trading revenue.
The $258 million increase in fee revenue in the first nine months of 1997,
compared with the prior-year period, primarily resulted from the same factors
responsible for the third quarter 1997 increase as compared to the prior-year
period. Partially offsetting this increase was the $28 million gain on the home
equity loan securitization that was recorded in other fee revenue during the
first quarter of 1996.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 10
Operating Expense
- -----------------
<TABLE>
<CAPTION>
Quarter ended Nine months ended
--------------------------------- ---------------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(dollar amounts in millions) 1997 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Staff expense $344 $276 $256 $ 888 $ 788
Net occupancy expense 55 54 50 161 156
Professional, legal and
other purchased services 55 46 48 147 145
Equipment expense 38 36 35 110 106
Amortization of mortgage
servicing rights and purchased
credit card relationships 29 28 27 85 82
Amortization of goodwill
and other intangible assets 25 27 24 79 73
Other expense 105 104 97 317 296
- -----------------------------------------------------------------------------------------
Operating expense before
net revenue from acquired
property and trust-preferred
securities expense 651 571 537 1,787 1,646
Trust-preferred
securities expense 20 19 - 59 -
Net revenue from
acquired property (1) (3) (1) (7) (10)
- -----------------------------------------------------------------------------------------
Total operating expense $670 $587 $536 $1,839 $1,636
- -----------------------------------------------------------------------------------------
Average full-time equivalent
staff 27,300 25,500 24,500 26,000 24,500
- -----------------------------------------------------------------------------------------
Efficiency ratio (a) 65% 62% 63% 63% 64%
Efficiency ratio excluding
amortization of goodwill and
other intangible assets 62% 59% 60% 60% 61%
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Operating expense before net revenue from acquired property and trust-
preferred securities expense, as a percentage of revenue, computed on a
taxable equivalent basis, excluding gains on the sale of securities.
Operating expense before net revenue from acquired property and trust-preferred
securities expense increased $114 million, or 21%, in the third quarter of 1997,
compared with the prior-year period, primarily resulting from the Buck and
leasing acquisitions.
Staff expense increased $88 million, compared with the third quarter of 1996,
primarily from the Buck and leasing acquisitions as well as an increase in
incentive expense.
The Buck and leasing acquisitions impacted virtually all other expense
categories, compared with the third quarter of 1996. The $20 million of
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 11
trust-preferred securities expense resulted from the issuance of $1 billion of
these securities in December 1996. The proceeds from these securities were used
to fund interest-earning assets.
Operating expense before net revenue from acquired property and trust-preferred
securities expense increased $80 million in the third quarter of 1997, compared
with the second quarter of 1997. This increase primarily resulted from higher
staff and professional, legal and other purchased services expenses. The
increase in staff expense primarily resulted from the Buck acquisition and
higher incentive expense. The increase in professional, legal and other
purchased services resulted from an increase in consulting expenses and the Buck
acquisition.
The $141 million increase in operating expense before net revenue from acquired
property and trust-preferred securities expense in the first nine months of
1997, compared with the first nine months of 1996, primarily resulted from the
same factors responsible for the third quarter 1997 increase as compared to the
prior-year period. Also impacting this comparison were charges recorded in the
first quarter of 1996 of $18 million for the Corporation's retirement
enhancement program and $6 million related to the reconfiguration of the retail
delivery system.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 12
Nonperforming Assets(a)
- ------------------------------------
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1997 1997 1996 1996
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic nonperforming loans:
Consumer mortgage $ 52 $ 54 $ 50 $ 52
Commercial real estate 14 9 16 34
Other domestic 38 27 28 45
- ---------------------------------------------------------------------------------
Total nonperforming loans 104 90 94 131
Acquired property:
Real estate acquired 76 77 86 88
Reserve for real estate acquired (9) (9) (10) (10)
- ---------------------------------------------------------------------------------
Net real estate acquired 67 68 76 78
Other assets acquired 4 4 4 -
- ---------------------------------------------------------------------------------
Total acquired property 71 72 80 78
- ---------------------------------------------------------------------------------
Total nonperforming assets $ 175 $ 162 $ 174 $ 209
- ---------------------------------------------------------------------------------
Nonperforming loans as a
percentage of total loans .37% .32% .35% .46%
Nonperforming assets as a
percentage of total loans
and net acquired property .62% .57% .63% .74%
- ---------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
Nonperforming assets increased $13 million from June 30, 1997, primarily as a
result of an increase in commercial and financial nonperforming loans. The
ratio of nonperforming assets to total loans and net acquired property was .62%
at September 30, 1997. This ratio has been lower than 1% for 13 consecutive
quarters.
The $34 million decrease in nonperforming assets from September 30, 1996,
primarily resulted from the repayment of commercial real estate loans and a $7
million decrease in acquired property. Also impacting the decrease was other
repayments, returns to accrual status and credit losses.
Reserve for Credit Losses
- -------------------------
<TABLE>
<CAPTION>
Sept. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1997 1997 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for credit losses (a) $ 505 $ 511 $ 525 $ 478
Reserve as a percentage of total loans 1.78% 1.82% 1.92% 1.69%
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes reserve for segregated assets.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 13
The $27 million increase in the reserve for credit losses from September 30,
1996, reflects the additional fourth quarter 1996 credit loss provision related
to the credit card portfolio.
Selected Capital Data
- ---------------------
<TABLE>
<CAPTION>
(in millions, except Sept. 30, June 30, Dec. 31, Sept. 30,
per share amounts) 1997 1997 1996 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $ 3,585 $ 3,377 $3,456 $3,399
Common shareholders' equity
to assets ratio 8.25% 7.72% 8.11% 7.78%
Tangible common shareholders'
equity $ 2,265 $ 2,180 $2,218 $2,221
Tangible common shareholders'
equity to assets ratio (a) 5.37% 5.13% 5.36% 5.22%
Total shareholders' equity $ 3,778 $ 3,570 $3,746 $3,834
Total shareholders' equity
to assets ratio 8.69% 8.17% 8.79% 8.78%
Tier I capital ratio 8.10 (b) 7.94 8.38 6.74
Total (Tier I and Tier II)
capital ratio 13.20 (b) 13.24 13.58 11.26
Leverage capital ratio 8.40 (b) 8.20 8.31 6.68
Book value per common share $ 14.08 $ 13.42 $ 13.43 (c) $ 13.13 (c)
Tangible book value per common share 8.90 8.66 8.62 (c) 8.58 (c)
Closing common stock price 54.75 45.125 35.50 (c) 29.63 (c)
Market capitalization 13,938 11,353 9,134 7,668
Common shares outstanding (000) 254,578 251,599 257,294 (c) 258,830 (c)
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill and other intangibles divided by
total assets less goodwill and other intangibles.
(b) Estimated.
(c) Restated to reflect the two-for-one common stock split distributed on June
2, 1997.
The increase in common shareholders' equity at September 30, 1997, compared with
June 30, 1997, and September 30, 1996, reflects earnings retention and common
shares issued in the Buck acquisition, partially offset by common stock
repurchases. The decrease in total shareholders' equity from September 30,
1996, resulted from the December 1996 redemption of the $150 million Series I
preferred stock and the February 1997 redemption of the $100 million Series J
preferred stock.
<PAGE>
Mellon Reports Earnings
October 14, 1997
Page 14
The Corporation's average level of treasury stock was approximately $245 million
higher in the third quarter of 1997, compared with the third quarter of 1996.
After giving effect to funding the higher level of treasury stock, valued at a
short-term funding rate, the lower share count increased earnings per share 1%
while ongoing business growth increased earnings per share 11%.
The increase in the Corporation's regulatory capital ratios, compared with
September 30, 1996, reflects the issuance of $1 billion of trust-preferred
securities in December 1996 following the decision by the Federal Reserve that
accorded these securities Tier I capital status. The trust-preferred securities
are not included as a component of total shareholders' equity on the
Corporation's balance sheet.
On July 15, 1997, the Corporation announced that its board of directors
authorized the repurchase of up to 6 million additional shares of common stock.
The board of directors also authorized the repurchase of an equivalent number of
common shares that will be issued in connection with the acquisition of 1st
Business Corporation. During the third quarter of 1997, the Corporation
repurchased approximately 2.3 million shares of common stock in anticipation of
this acquisition.
During the third quarter of 1997, the Corporation issued approximately 3.5
million shares of common stock in connection with the Buck acquisition. These
shares were repurchased in the second quarter of 1997. Since the beginning of
1995, the Corporation has repurchased approximately 58 million common shares,
prior to any reissuances, as well as warrants for 9 million shares of common
stock.
<PAGE>
SUMMARY DATA
Mellon Bank Corporation
<TABLE>
<CAPTION>
Three months ended Nine months ended
(dollar amounts in millions, Sept. 30, Sept. 30,
except per share amounts; ------------------ ------------------
common shares in thousands) 1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Selected key data
- -----------------
Net income per common share (a) $ .73 $ .66 (d) $ 2.13 $ 1.91 (d)
Tangible net income per
common share (a)(b) $ .80 $ .72 (d) $ 2.36 $ 2.11 (d)
Net income applicable to
common stock $ 191 $ 172 $ 559 $ 510
Tangible net income applicable
to common stock (b) $ 211 $ 190 $ 620 $ 565
Return on common shareholders'
equity (c) 21.6% 20.6% 21.5% 20.2%
Return on tangible common
shareholders' equity (b)(c) 37.6% 31.2% 37.2% 30.8%
Return on assets (c) 1.81% 1.71% 1.81% 1.72%
Return on tangible assets (b)(c) 2.05% 1.92% 2.06% 1.94%
Common equity to assets 8.25% 7.78% 8.25% 7.78%
Tangible common equity to assets 5.37% 5.22% 5.37% 5.22%
Average balances for the period
- -------------------------------
Money market investments $ 1,231 $ 1,573 $ 1,115 $ 1,417
Trading account securities 171 169 181 163
Securities 5,469 6,538 5,694 6,180
Loans 27,596 27,170 27,603 27,009
Total interest-earning assets 34,467 35,450 34,593 34,769
Total assets 42,879 42,461 42,496 41,804
Total tangible assets 41,588 41,563 41,256 40,881
Deposits 30,349 31,542 30,248 30,592
Total interest-bearing liabilities 27,266 28,806 27,526 28,379
Common shareholders' equity 3,520 3,327 3,468 3,371
Tangible common shareholders' equity 2,229 2,429 2,228 2,448
Total shareholders' equity 3,713 3,762 3,678 3,806
Computation of net income per common
share
- ------------------------------------
Net income applicable to common stock $ 191 $ 172 $ 559 $ 510
Total stock and stock equivalents:
Primary 260,210 263,196 (d) 260,942 267,538 (d)
Fully diluted 260,682 263,834 (d) 262,037 268,244 (d)
Primary net income per common share $ .73 $ .66 (d) $ 2.14 $ 1.91 (d)
Fully diluted net income per
common share $ .73 $ .66 (d) $ 2.13 $ 1.91 (d)
</TABLE>
_______________________
(a) Fully diluted.
(b) Excludes the after tax impact of the amortization of goodwill and other
identified intangibles resulting from accounting for business combinations
under the purchase method of accounting.
(c) Annualized.
(d) Restated to reflect the two-for-one common stock split distributed on June
2, 1997.
Note: All calculations are based on unrounded numbers.
<PAGE>
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, Sept. 30,
(in millions, except per -------------------- -------------------
share amounts) 1997 1996 1997 1996
------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Interest revenue
- ----------------
Interest and fees on loans (loan fees
of $22, $24, $58 and $72) $ 567 $ 558 $1,691 $1,674
Interest-bearing deposits with banks 6 9 20 28
Federal funds sold and securities
under resale agreements 9 10 20 23
Other money market investments 2 3 4 6
Trading account securities 2 2 7 6
Securities 94 108 289 303
----- ----- ------ ------
Total interest revenue 680 690 2,031 2,040
Interest expense
- ----------------
Interest on deposits 220 229 654 663
Federal funds purchased and securities
under repurchase agreements 17 21 55 74
Other short-term borrowings 28 31 76 97
Notes and debentures 49 37 140 99
----- ----- ------ ------
Total interest expense 314 318 925 933
----- ----- ------ ------
Net interest revenue 366 372 1,106 1,107
Provision for credit losses 25 25 75 75
----- ----- ------ ------
Net interest revenue after
provision for credit losses 341 347 1,031 1,032
Noninterest revenue
- -------------------
Trust and investment fee revenue 375 246 924 735
Cash management and deposit
transaction charges 62 54 177 155
Mortgage servicing fees 53 46 157 131
Foreign currency and securities
trading revenue 32 20 82 61
Credit card fees 24 29 73 92
Information services fees 7 14 33 34
Other 82 67 265 245
----- ----- ------ ------
Total fee revenue 635 476 1,711 1,453
Gains on sales of securities - - - 1
----- ----- ------ ------
Total noninterest revenue 635 476 1,711 1,454
Operating expense
- -----------------
Staff expense 344 256 888 788
Net occupancy expense 55 50 161 156
Professional, legal and other
purchased services 55 48 147 145
Equipment expense 38 35 110 106
Amortization of mortgage servicing
assets and purchased credit card
relationships 29 27 85 82
Amortization of goodwill and other
intangible assets 25 24 79 73
Other expense 105 97 317 296
Trust-preferred securities expense 20 - 59 -
Net revenue from acquired property (1) (1) (7) (10)
----- ----- ------ ------
Total operating expense 670 536 1,839 1,636
----- ----- ------ ------
Income before income taxes 306 287 903 850
Provision for income taxes 111 106 327 311
----- ----- ------ ------
Net income 195 181 576 539
Dividends on preferred stock 4 9 17 29
----- ----- ------ ------
Net income applicable to
common stock $ 191 $ 172 $ 559 $ 510
===== ===== ====== ======
Primary net income per common share $.73 $.66 $2.14 $1.91
===== ===== ====== ======
Fully diluted net income per
common share $.73 $.66 $2.13 $1.91
===== ===== ====== ======
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEET
Mellon Bank Corporation
<TABLE>
<CAPTION>
(dollar amounts in millions) Sept. 30, June 30, Dec. 31, Sept. 30,
1997 1997 1996 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Cash and due from banks $ 3,032 $ 3,447 $ 2,846 $ 3,128
Money market investments 871 1,260 992 1,136
Trading account securities 88 112 84 51
Securities available for sale 3,354 3,333 4,111 4,113
Investment securities(approximate fair
value of $2,195, $2,257, $2,365 and
$2,410) 2,168 2,249 2,375 2,439
Loans, net of unearned discount of
$50, $48, $57 and $60 28,279 28,144 27,393 28,229
Reserve for credit losses (505) (511) (525) (478)
------- ------- ------- -------
Net loans 27,774 27,633 26,868 27,751
Premises and equipment 589 581 569 560
Acquired property, net of reserves of
$9, $9, $10 and $10 71 72 80 78
Goodwill and other intangibles 1,320 1,197 1,238 1,178
Mortgage servicing assets and purchased
credit card relationships 1,026 986 774 782
Other assets 3,172 2,842 2,659 2,460
------- ------- ------- -------
Total assets $43,465 $43,712 $42,596 $43,676
======= ======= ======= =======
Liabilities
- -----------
Deposits in domestic offices $27,462 $28,914 $28,657 $29,506
Deposits in foreign offices 2,727 2,412 2,717 3,049
Short-term borrowings 3,504 2,999 2,247 3,204
Other liabilities 2,190 1,868 1,721 1,564
Notes and debentures (with original
maturities over one year) 2,814 2,959 2,518 2,519
------- ------- ------- -------
Total liabilities 38,697 39,152 37,860 39,842
Trust-preferred securities
- --------------------------
Guaranteed preferred beneficial interests
in Corporation's junior subordinated
deferrable interest debentures 990 990 990 -
Shareholders' equity
- -----------------------------------------------
Preferred stock 193 193 290 435
Common shareholders' equity:
Common stock - $.50 par value
Authorized - 400,000,000 shares
Issued - 294,330,960 (a); 294,330,960 (a);
147,165,480; and 147,165,480 shares 147 147 74 74
Additional paid-in capital 1,810 1,812 1,866 1,858
Retained earnings 2,770 2,664 2,480 2,390
Net unrealized gain (loss) on assets
available for sale, net of tax 24 2 (1) (20)
Treasury stock of 39,753,178 (a);
42,732,010 (a); 18,518,290; and 17,750,459
shares at cost (1,166) (1,248) (963) (903)
------- ------- ------- -------
Total common shareholders' equity 3,585 3,377 3,456 3,399
------- ------- ------- -------
Total shareholders' equity 3,778 3,570 3,746 3,834
------- ------- ------- -------
Total liabilities, trust-preferred
securities and shareholders' equity $43,465 $43,712 $42,596 $43,676
======= ======= ======= =======
- ---------------
</TABLE>
(a) Reflects the two-for-one common stock split distributed on June 2, 1997.
<PAGE>
SUMMARY DATA
Mellon Bank Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
Quarter ended
(dollar amounts in millions, ----------------------------------------------------------------------
except per share amounts; Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
common shares in thousands) 1997 1997 1997 1996 1996
-------------- ---------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Selected key data
- -----------------
Net income per common share (a) $ .73 $ .71 $ .69(d) $ .67(d) $ .66(d)
Tangible net income per
common share (a)(b) $ .80 $ .79 $ .77(d) $ .75(d) $ .72(d)
Net income applicable to
common stock $ 191 $ 186 $ 182 $ 179 $ 172
Tangible net income applicable
to common stock (b) $ 211 $ 206 $ 203 $ 200 $ 190
Return on common shareholders'
equity (c) 21.6% 21.9% 21.2% 20.9% 20.6%
Return on tangible common
shareholders' equity (b)(c) 37.6% 37.7% 36.3% 36.6% 31.2%
Return on assets (c) 1.81% 1.79% 1.83% 1.80% 1.71%
Return on tangible assets (b)(c) 2.05% 2.04% 2.09% 2.06% 1.92%
Common equity to assets 8.25% 7.72% 8.33% 8.11% 7.78%
Tangible common equity to assets 5.37% 5.13% 5.60% 5.36% 5.22%
Fee revenue as a percentage of
total revenue (FTE) 63% 59% 59% 58%(e) 56%
Efficiency ratio excluding
amortization of intangibles
and trust-preferred
securities expense 62% 59% 59% 60%(e) 60%
Average common shares and
equivalents outstanding (a) 260,682 259,816 263,204(d) 263,412(d) 263,834(d)
Average balances for the period
- -------------------------------
Money market investments $ 1,231 $ 1,081 $ 1,032 $ 1,272 $ 1,573
Trading account securities 171 210 161 96 169
Securities 5,469 5,600 6,018 6,198 6,538
Loans 27,596 27,806 27,404 27,900 27,170
Total interest-earning assets 34,467 34,697 34,615 35,466 35,450
Total assets 42,879 42,413 42,187 42,636 42,461
Total tangible assets 41,588 41,207 40,964 41,395 41,563
Deposits 30,349 30,113 30,280 31,569 31,542
Total interest-bearing
liabilities 27,266 27,830 27,485 29,210 28,806
Common shareholders' equity 3,520 3,393 3,490 3,410 3,327
Tangible common shareholders'
equity 2,229 2,187 2,267 2,169 2,429
Total shareholders' equity 3,713 3,586 3,735 3,820 3,762
</TABLE>
_______________________
(a) Fully diluted.
(b) Excludes the after-tax impact of the amortization of goodwill and other
identified intangibles resulting from accounting for business combinations
under the purchase method of accounting.
(c) Annualized.
(d) Restated to reflect the two-for-one common stock split distributed on
June 2, 1997.
(e) Excludes the gain on the sale of the AAA credit card portfolio.
Note: All calculations are based on unrounded numbers.
<PAGE>
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------
(in millions, except per Sept. 30, June 30, March 31, Dec. 31, Sept. 30,
share amounts) 1997 1997 1997 1996 1996
---------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Interest revenue
- ----------------
Interest and fees on loans (loan
fees of $22, $19, $17, $24 and $24) $ 567 $ 571 $ 553 $ 579 $ 558
Interest-bearing deposits with banks 6 7 7 8 9
Federal funds sold and securities
under resale agreements 9 6 5 7 10
Other money market investments 2 1 1 1 3
Trading account securities 2 3 2 1 2
Securities 94 96 99 103 108
---------- --------- -------- -------- ---------
Total interest revenue 680 684 667 699 690
Interest expense
- ----------------
Interest on deposits 220 219 215 240 229
Federal funds purchased and securities
under repurchase agreements 17 20 18 20 21
Other short-term borrowings 28 28 20 24 31
Notes and debentures 49 47 44 44 37
---------- --------- -------- -------- ---------
Total interest expense 314 314 297 328 318
---------- --------- -------- -------- ---------
Net interest revenue 366 370 370 371 372
Provision for credit losses 25 25 25 80 25
---------- --------- -------- -------- ---------
Net interest revenue after
provision for credit losses 341 345 345 291 347
Noninterest revenue
- -------------------
Trust and investment fee revenue 375 283 266 259 246
Cash management and deposit
transaction charges 62 59 56 56 54
Mortgage servicing fees 53 53 51 49 46
Foreign currency and securities
trading revenue 32 25 25 19 20
Credit card fees 24 25 24 28 29
Information services fees 7 13 13 16 14
Gain on sale of credit card portfolio - - - 57 -
Other 82 82 101 82 67
---------- --------- -------- -------- ---------
Total fee revenue 635 540 536 566 476
Gains on sales of securities - - - 3 -
---------- --------- -------- -------- ---------
Total noninterest revenue 635 540 536 569 476
Operating expense
- -----------------
Staff expense 344 276 268 267 256
Net occupancy expense 55 54 52 49 50
Professional, legal and other
purchased services 55 46 46 50 48
Equipment expense 38 36 36 39 35
Amortization of mortgage servicing
assets and purchased credit card
relationships 29 28 28 25 27
Amortization of goodwill and other
intangible assets 25 27 27 27 24
Other expense 105 104 108 102 97
Trust-preferred securities expense 20 19 20 3 -
Net revenue from acquired property (1) (3) (3) (3) (1)
---------- --------- -------- -------- ---------
Total operating expense 670 587 582 559 536
---------- --------- -------- -------- ---------
Income before income taxes 306 298 299 301 287
Provision for income taxes 111 108 108 107 106
---------- --------- -------- -------- ---------
Net income 195 190 191 194 181
Dividends on preferred stock 4 4 9 15 9
---------- --------- -------- -------- ---------
Net income applicable to
common stock $ 191 $ 186 $ 182 $ 179 $ 172
========== ========= ======== ======== =========
Primary net income per common share $ .73 $ .72 $ .69 $ .68 $ .66
========== ========= ======== ======== =========
Fully diluted net income per common
share $ .73 $ .71 $ .69 $ .67 $ .66
========== ========= ======== ======== =========
</TABLE>
