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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (412) 234-5000
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
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Common Stock, $0.50 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
Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of February 28, 1997, there were 129,397,642 shares outstanding of the
registrant's voting common stock, $0.50 par value per share, of which
128,293,484 common shares having a market value of $10,311,588,777 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 1997 Proxy Statement-Part III
Mellon Bank Corporation 1996 Annual Report to Shareholders-Parts I, II and IV
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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 1996 Annual Report to Shareholders. For a free
copy of the Corporation's 1996 Annual Report to Shareholders, the Proxy
Statement for its 1997 Annual Meeting, or a copy of the Corporation's
Management Report on internal controls, as filed with the appropriate
regulatory agencies, please send a written request to the Secretary of the
Corporation, 1820 One Mellon Bank Center, Pittsburgh, PA 15258-0001.
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MELLON BANK CORPORATION
Form 10-K Index
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PART I PAGE
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Item 1. Business
Description of Business 3
Supervision and Regulation 5
Competition 8
Employees 8
Statistical Disclosure by Bank Holding Companies 9
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation 16
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 17
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 19
</TABLE>
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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, 1996, the Corporation was the twenty-second
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) National Association and a number of companies
known as Mellon Financial Services Corporation. The Corporation also owns a
federal savings bank headquartered in Pennsylvania, 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, equipment leasing, 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 and southern New Jersey. 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) National Association is headquartered in Rockville, Maryland,
and serves consumer and small to midsize commercial markets throughout the
greater Washington, D.C. metropolitan area. Mellon Bank, F.S.B., headquartered
in Pittsburgh, Pennsylvania, provides corporate trust and personal trust
services and serves consumer and small to midsize commercial markets.
The Corporation's banking subsidiaries operate 1,104 domestic retail banking
locations, including 420 retail offices. The deposits of the national banking
subsidiaries, BSDT 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 1996 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.
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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 and deposit
products, 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
347 retail branches, 72 supermarket facilities, 684 ATM's, 8 loan sales offices
and a telephone banking center. This network is primarily located in the
Central Atlantic region of the United States. This banking network provides a
full range of products to individuals including short- and long-term credit
facilities, credit cards, mortgages, safe deposit facilities and access to
ATM's. Jumbo residential mortgage lending is offered nationally through the
private asset management representative offices. This sector also includes the
core servicing function of the Corporation's mortgage banking operations
located in Houston, Denver, Cleveland and Kansas City 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 asset and
institutional mutual fund management and administration, institutional trust
and custody, securities lending, foreign exchange, cash management, stock
transfer and corporate trust. 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 ChaseMellon 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, lease financing, commercial real estate
lending, insurance premium financing, securities underwriting and trading and
international banking. 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
4
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DESCRIPTION OF BUSINESS (continued)
accounts receivable and inventory financing. As part of this sector, Middle
Market Banking serves companies with annual sales between $10 million and $250
million and the health care industry on a national basis.
Real Estate lending consists of the Corporation's commercial real estate
lending activities, through which it originates financing for residential,
commercial, multi-family and other products. The Corporation provides property
and casualty insurance premium financing to small, midsize and large companies
in the United States through the AFCO Credit Corporation and in Canada through
CAFO.
The 1996 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, 1996.
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 currently subject to supervision, regulation and
examination by the FDIC and the Massachusetts Office of the Commissioner of
Banks with the FDIC's bank supervisory role to be assumed by the Federal
Reserve System in the second quarter of 1997; 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
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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. 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, commencing on September 29, 1995, bank holding
companies are permitted to acquire banks located in any state regardless of the
state law in effect at the time. The Interstate Act also provides for the
nationwide interstate branching of banks. Under the Interstate Act, both
national and state-chartered banks will be permitted to merge across state
lines (and thereby create interstate branches) commencing June 1, 1997. States
are permitted to "opt-out" of the interstate branching authority by taking
action prior to the commencement date. States may also "opt-in" early (i.e.,
prior to June 1, 1997) to the interstate branching provisions. Pennsylvania
chose to "opt-in" early, effective July 6, 1995, thereby enabling Pennsylvania
banks, including national banks having their main office in Pennsylvania, to
merge with out-of-state banks to create interstate branches inside or outside
Pennsylvania. In addition, Pennsylvania has 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 21 of
the Notes to Financial Statements on pages 86 and 87 of the Corporation's 1996
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 and the Corporation's non-bank subsidiaries, including Mellon
Securities Trust Company, a member of the Federal Reserve System. The FDIC has
similar authority with respect to BSDT, and the OTS has similar authority with
respect to Mellon Bank, F.S.B. The Federal Reserve System will assume such
authority with respect to BSDT upon its conversion to a state member bank in
the second quarter of 1997.
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 insurance
assessments are based upon a matrix that takes into account a bank's capital
level and supervisory rating. Effective January 1, 1996, the FDIC reduced the
insurance premiums it charged on bank deposits insured by the BIF to the
statutory minimum of $2,000.00 annually for "well capitalized" banks. Savings
association deposits acquired by banks continued to be assessed at the rate of
23 cents to 31 cents per $100.00 of deposits. On September 30, 1996, the
Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into law.
DIFA reduced the amount of FDIC insurance premiums for savings association
deposits acquired by banks to the same levels assessed for deposits insured by
BIF.
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SUPERVISION AND REGULATION (continued)
DIFA further provides for assessments to be imposed on all insured depository
institutions with respect to deposits to pay for the cost of Financing
Corporation funding. Based on December 31, 1996, deposit levels, the
Corporation estimates that assessments will amount to approximately $4 million
pre-tax in 1997.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision that could result in any insured
depository institution owned by the Corporation being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other depository institution owned by the Corporation. Also, under
Federal Reserve Board policy, the Corporation 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, 1996, all of the Corporation's banking subsidiaries fell into
the well capitalized category based on the ratios and guidelines noted above. A
bank's capital category, however, is determined solely for the purpose of
applying the prompt corrective action rules and may not constitute an accurate
representation of the bank's overall financial condition or prospects.
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.
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SUPERVISION AND REGULATION (continued)
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 legislative initiatives, including
proposals to restructure the banking regulatory system and the separation of
banking from certain securities and other commercial activities, are from time
to time introduced in Congress. The Corporation cannot determine the ultimate
effect that any such potential legislation, if enacted, would have upon its
financial condition or operations.
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 third largest commercial
banking institution in Pennsylvania where it competes with approximately 215
commercial banks, 125 thrifts and numerous credit unions and consumer finance
institutions. Mellon Bank competes with approximately 25 commercial banks and
40 thrifts in the six-county Pittsburgh area of Western Pennsylvania. Mellon
Bank competes with approximately 30 commercial banks and 45 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 an average of 24,700 full-time
equivalent employees in the fourth quarter of 1996.
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STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Exchange Act Industry 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 Securities Act Industry Guide 3,
or Exchange Act Industry Guide 3, is presented in the Rate/Volume
Variance Analysis below. Required information is also presented in the
Financial Section of the Corporation's 1996 Annual Report to
Shareholders in the Consolidated Balance Sheet -- Average Balances and
Interest Yields/Rates on pages 102 and 103, and in Net Interest Revenue,
on page 31, which is incorporated herein by reference.
RATE/VOLUME VARIANCE ANALYSIS
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Year ended December 31,
1996 over (under) 1995 1995 over (under) 1994
Due to change in Net Due to change in Net
(in millions) Rate Volume Change Rate Volume Change
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Increase (decrease) in interest
revenue from interest-earning assets:
Interest-bearing deposits with banks $ (6) $ 6 $ - $ 11 $ (9) $ 2
Federal funds sold and securities
under resale agreements (2) (2) (4) 11 (7) 4
Other money market investments - 4 4 1 (4) (3)
Trading account securities (3) (8) (11) 1 (6) (5)
Securities:
U.S. Treasury and agency securities - 87 87 38 (2) 36
Obligations of states and political
subdivisions - (2) (2) 1 (4) (3)
Other 1 (3) (2) 6 (9) (3)
LOANS (INCLUDES LOAN FEES) (162) (9) (171) 315 182 497
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Total (172) 73 (99) 384 141 525
Increase (decrease) in interest
expense on interest-bearing liabilities:
Deposits in domestic offices:
Demand (2) (20) (22) 33 - 33
Money market and other savings accounts (39) 42 3 96 (7) 89
Retail savings certificates (11) (8) (19) 94 3 97
Other time deposits 2 82 84 (4) 1 (3)
Deposits in foreign offices (25) (7) (32) 33 101 134
Federal funds purchased and securities
under repurchase agreements (11) (20) (31) 32 17 49
Other short-term borrowings (4) (34) (38) 18 64 82
Notes and debentures (with original
maturities over one year) - 26 26 14 (7) 7
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Total (90) 61 (29) 316 172 488
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Increase (decrease) in net
interest revenue $ (82) $ 12 $ (70) $ 68 $(31) $ 37
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</TABLE>
Note: Amounts are calculated on a taxable equivalent basis where applicable, at
tax rates approximating 35% 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
<PAGE> 11
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
II. Securities Portfolio
A. Carrying values of securities at year-end are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES December 31,
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury and agency securities $2,292 $2,408 $3,045
Obligations of states and political subdivisions - - 70
Other securities:
Other mortgage-backed 29 39 48
Bonds, notes and debentures 16 30 29
Stock of Federal Reserve Bank 37 41 50
Other 1 1 2
- -----------------------------------------------------------------------------------------------------------
Total other securities 83 111 129
- -----------------------------------------------------------------------------------------------------------
Total investment securities $2,375 $2,519 $3,244
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE December 31,
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
U.S. Treasury and agency securities $4,010 $2,769 $1,739
Obligations of states and political subdivisions 49 63 1
Other securities:
Other mortgage-backed 4 7 9
Bonds, notes and debentures 12 12 12
Other 36 62 120
- -----------------------------------------------------------------------------------------------------------
Total other securities 52 81 141
- -----------------------------------------------------------------------------------------------------------
Total securities available for sale $4,111 $2,913 $1,881
- -----------------------------------------------------------------------------------------------------------
</TABLE>
B. Maturity Distribution of Securities
Information required by this section of Guide 3 is presented in the
Corporation's 1996 Annual Report to Shareholders in note 3 of Notes to
Financial Statements on Securities on pages 72 through 74, 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 included in the Credit
Risk section of the Corporation's 1996 Annual Report to Shareholders on
pages 51 through 60, which portions are incorporated herein by reference.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
Maturity distribution of loans at December 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in millions) Within 1 Year (a) 1-5 Years Over 5 Years Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic:(b)
Commercial and financial $3,080 $5,195 $1,921 $10,196
Commercial real estate 445 716 373 1,534
- ----------------------------------------------------------------------------------------------------------
Total domestic 3,525 5,911 2,294 11,730
International 963 192 267 1,422
- ----------------------------------------------------------------------------------------------------------
Total $4,488 $6,103 $2,561 $13,152
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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.
Sensitivity of loans at December 31, 1996, to changes in interest rates
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Domestic International
(in millions) operations(a) operations Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans due in one year or less (b) $3 525 $ 963 $4,488
Loans due after one year:
Variable rates 7,405 377 7,782
Fixed rates 800 82 882
- ---------------------------------------------------------------------------------------------------------
Total loans $11,730 $1,422 $13,152
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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.
C. Risk Elements
Information required by this section of Guide 3 is included in the Credit
Risk section of the Corporation's 1996 Annual Report to Shareholders on
pages 51 through 60, 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. 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) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic reserve:
Commercial and financial $117 $169 $195 $182 $170
Real estate:
Commercial 98 92 157 189 212
Consumer 58 61 75 91 18
Consumer credit 198 135 141 102 83
Lease finance assets 43 6 17 15 4
- --------------------------------------------------------------------------------------------------------------
Total domestic reserve 514 463 585 579 487
International reserve 11 8 22 21 19
- --------------------------------------------------------------------------------------------------------------
Total reserve $525 $471 $607 $600 $506
- --------------------------------------------------------------------------------------------------------------
</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
1992-1996 are set forth in the Financial Section of the Corporation's 1996
Annual Report to Shareholders in the Credit Risk section on pages 51 and 52,
the Reserve for Credit Losses and Review of Net Credit Losses section on pages
59 and 60, in note 1 of Notes to Financial Statements under Reserve for Credit
Losses on page 69 and in note 5 on page 75, 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,
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Commercial and financial 37.2% 39.6% 37.5% 37.2% 40.7%
Real estate:
Commercial 5.6 5.5 6.1 7.0 9.4
Consumer 28.4 32.4 32.5 33.4 21.4
Consumer credit 14.4 16.4 18.1 15.6 18.1
Lease finance assets 9.2 3.0 3.0 2.9 3.2
- --------------------------------------------------------------------------------------------------------------
Total domestic loans 94.8 96.9 97.2 96.1 92.8
International loans 5.2 3.1 2.8 3.9 7.2
- --------------------------------------------------------------------------------------------------------------
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
Maturity distribution of domestic time deposits at December 31, 1996
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
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 $2,163 $ 828 $ 337 $ 167 $ 3,495
Time certificates of deposit in denominations
of less than $100,000 1,444 1,342 1,294 1,781 5,861
-----------------------------------------------------------------------------------------------------------------------
Total time certificates of deposit 3,607 2,170 1,631 1,948 9,356
-----------------------------------------------------------------------------------------------------------------------
Other time deposits in denominations
of $100,000 or greater 638 10 1 23 672
Other time deposits in denominations
of less than $100,000 18 - - - 18
-----------------------------------------------------------------------------------------------------------------------
Total other time deposits 656 10 1 23 690
-----------------------------------------------------------------------------------------------------------------------
Total domestic time deposits $4,263 $2,180 $1,632 $1,971 $10,046
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The majority of foreign deposits of approximately $2.7 billion at
December 31, 1996, were in amounts in excess of $100,000. Additional
information required by this section of Guide 3 is set forth in the
Corporation's 1996 Annual Report to Shareholders in Consolidated
Balance Sheet -- Average Balances and Interest Yields/Rates on pages
102 and 103, which pages are incorporated herein by reference.
VI. Return on Equity and Assets
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(1) Return on total assets(a), based on:
Net income 1.74% 1.72% 1.14%
Net income applicable to common stock 1.64 1.63 .95(b)
(2) Return on common shareholders' equity (a),
based on net income applicable to common stock 20.38 17.77 9.79(b)
Return on total shareholders' equity, based on net income 19.23 16.84 10.13
(3) Dividend payout ratio of common stock, based on:
Primary net income per share 44.96 44.18 54.66
Fully diluted net income per share 44.95 44.17 54.63
(4) Equity to total assets(a), based on:
Common shareholders' equity 8.05 9.15 9.68
Total shareholders' equity 9.07 10.24 11.22
-------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Computed on a daily average basis.
(b) Computed using net income applicable to common stock after adding
back Series D preferred stock dividends.
13
<PAGE> 15
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
VII. Short-Term Borrowings
Federal funds purchased and securities sold under agreements to
repurchase represent funds acquired for securities transactions and
other funding requirements. Federal funds purchased mature on the
business day after execution. Selected balances and rates are as
follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
(dollar amounts in millions) 1996 1995
---------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold
under agreements to repurchase:
Maximum month-end balance $2,159 $2,984
Average daily balance $1,765 $2,128
Average rate during the year 5.3% 5.9%
Balance at December 31 $ 742 $1,591
Average rate at December 31 6.1% 5.3%
---------------------------------------------------------------------------------
</TABLE>
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, 1996,
Mellon Bank occupied approximately 71% 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, 1996,
Mellon Bank occupied approximately 73% 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, 1996, Mellon Bank occupied
approximately 99% 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, 1996, Mellon Bank occupied all of One Mellon Bank
Center's approximately 63,700 square feet of rentable space.
Mellon Bank also leases a building in Philadelphia, Pennsylvania, known as
Mellon Independence Center. At December 31, 1996, Mellon Bank occupied
approximately 55% of Mellon Independence Center's approximately 881,700 square
feet of rentable space, with the remainder of the space in the building
subleased to third parties.
In 1990 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,
1996, 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 and 41-story Exchange Place. At December 31, 1996,
The Boston Company leased approximately 34% of One Boston Place's approximately
769,150 square feet of rentable space and approximately 14% of Exchange Place's
approximately 1,063,750 square feet of rentable space. The Boston Company
subleases virtually all of its leased space at Exchange Place to third parties.
14
<PAGE> 16
PROPERTIES (continued)
At December 31, 1996, The Boston Company also occupied 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 rentable square foot building known as Client Services
Center II. At December 31, 1996, The Boston Company leased 100% of the
approximately 319,600 rentable square foot building known as Client Services
Center III and leased approximately 21,800 square feet of rentable space in the
building known as Wellington I.
NEW YORK PROPERTIES
At December 31, 1996, Dreyfus Service Corporation leased approximately 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, 1996, Dreyfus Service Corporation leased approximately 161,000
square feet of rentable space in EAB Plaza in Uniondale, New York. This space
is 100% occupied by Dreyfus.
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.
Of the space leased by Mellon Bank (MD), approximately 7,100 square feet is
subleased to third parties.
The banking subsidiaries' retail offices are located in 43 counties in western,
northwestern, central, northeastern and eastern Pennsylvania, all three of
Delaware's counties, five counties in New Jersey and two Maryland counties in
the northern suburbs of Washington, D.C. The Corporation also has one retail
office in Boston, Massachusetts and one retail office in Medford,
Massachusetts. At December 31, 1996, the Corporation owned 190 of the banking
subsidiaries' 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 1996 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 75 of the Corporation's 1996 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 1996.
15
<PAGE> 17
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 1996
Annual Report to Shareholders in Liquidity and Dividends on pages 43 through
46, in Selected Quarterly Data on page 62, in note 21 of Notes to Financial
Statements on pages 86 and 87 and in Corporate Information on page 104, which
portions are incorporated herein by reference.
On October 15, 1996, the board of directors voted to redeem each outstanding
stock purchase right issued under the Shareholder Protection Rights Agreement,
dated as of August 15, 1989 (each, an "Old Right"), at a redemption price of
two-thirds of one cent per Old Right. In connection with the redemption of the
Old Rights, the board of directors declared a dividend, paid October 31, 1996,
of one right (a "Right") for each outstanding share of the Corporation's Common
Stock (the "Common Stock"), issued pursuant to a new Shareholder Protection
Rights Agreement, dated as of October 15, 1996 (the "Rights Agreement").
The Rights are currently represented by the certificates for, and trade only
with, the Common Stock. The Rights would separate from the Common Stock and
become exercisable only when a person or group acquires 15% or more of the
Common Stock or ten days after a person or group commences a tender offer that
would result in ownership of 15% or more of the Common Stock. At that time,
each Right would entitle the holder to purchase for $225 (the "exercise price")
one one-hundredth of a share of participating preferred stock, which is
designed to have economic and voting rights generally equivalent to one share
of common stock. Should a person or group actually acquire 15% or more of the
Common 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 Common Stock having a market value of twice the
exercise price. Should the Corporation, at any time after a person or group
has become a 15% beneficial owner and acquired control of the Corporation's
board of directors, be involved in a merger or similar transaction with any
person or group or sell assets 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 15% or more of the Common Stock,
the Corporation may, at its option and to the fullest extent permitted by law,
exchange one share of Common Stock for each outstanding Right. The Rights are
not exercisable until the above events occur and will expire on October 31,
2006, unless earlier exchanged or redeemed by the Corporation. The Corporation
may redeem the Rights for $.01 per Right under certain circumstances.
The foregoing description is not intended to be complete and is qualified in
its entirety by reference to the Rights Agreement, a copy of which is an
exhibit, which is incorporated by reference, to this report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Corporation's 1996
Annual Report to Shareholders in the Financial Summary on page 23, in the
Significant Financial Events in 1996 on pages 24 and 25, in the Overview of
1996 results on pages 29 and 30, in note 1 of Notes to Financial Statements on
pages 67 through 72, and in the Consolidated Balance Sheet -- Average Balances
and Interest Yields/Rates on pages 102 and 103, 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 1996
Annual Report to Shareholders in the Financial Review on pages 23 through 62
and in note 21 of Notes to Financial Statements on pages 86 and 87, which
portions are incorporated herein by reference.
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14 on pages 19 and 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 1997 Annual Meeting of Shareholders (the "1997 Proxy
Statement") in the Election of Directors-Biographical Summaries of Nominees and
Continuing Directors section on pages 4 through 7 and in Section 16(a)
Beneficial Ownership Reporting Compliance section on page 28, each of which
sections is incorporated herein by reference, and in the following section
"Executive Officers of the Registrant."
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 18, 1997, together with the offices
held by each such person during the last five years, are listed below. Mr.
Cahouet has executed an employment contract 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 64 Chairman, President and Chief Executive 1990 (1)
Officer of Mellon Bank
Corporation and Mellon Bank, N.A.
Christopher M. Condron 49 President and Chief Executive Officer, The 1996 (2)
Dreyfus Corporation
Vice Chairman, Mellon Bank Corporation 1994
and Mellon Bank, N.A., Deputy Director
Mellon Trust
Steven G. Elliott 50 Vice Chairman and Chief Financial 1992 (3)
Officer of Mellon Bank Corporation and
Mellon Bank, N.A.
Treasurer of Mellon Bank Corporation 1990
</TABLE>
17
<PAGE> 19
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Jeffery L. Leininger 51 Vice Chairman, Specialized Commercial 1996 (4)
Banking, Mellon Bank Corporation and
Mellon Bank, N.A.
David R. Lovejoy 48 Vice Chairman, Financial Markets and 1994 (5)
Corporate Development, Mellon Bank
Corporation and Mellon Bank, N.A.
Martin G. McGuinn 54 Vice Chairman, Retail Financial Services, 1993 (6)
Mellon Bank Corporation and Mellon
Bank, N.A.
Keith P. Russell 51 Vice Chairman, West Coast, Mellon Bank 1996 (7)
Corporation and Mellon Bank, N.A.
W. Keith Smith 62 Vice Chairman, Mellon Bank Corporation 1993 (8)
and Mellon Bank, N.A., Director Mellon
Trust
Chairman and Chief Executive Officer, The 1993
Boston Company
Chairman of the Board, The Dreyfus 1996
Corporation
Jamie B. Stewart, Jr. 52 Vice Chairman, Wholesale Banking and 1996 (9)
Cash Management, Mellon Bank
Corporation and Mellon Bank, N.A.
Michael K. Hughey 45 Senior Vice President and Controller of 1990
Mellon Bank Corporation and Senior
Vice President, Director of Taxes and
Controller, Mellon Bank, N.A.
</TABLE>
(1) Mr. Cahouet has executed an employment contract with the Corporation
which expires December 31, 1998.
(2) From June 1989 to January 1994, Mr. Condron was President of Boston Safe
Deposit and Trust Company and Executive Vice President of The Boston
Company. In January 1994, he assumed the title of Vice Chairman, Mellon
Bank Corporation and Mellon Bank, N.A., Deputy Director Mellon Trust.
From October 1995 to August 1996, Mr. Condron was President and Chief
Operating Officer, The Dreyfus Corporation.
(3) From January 1990 to June 1992, Mr. Elliott was Executive Vice President,
Chief Financial Officer and Treasurer of Mellon Bank Corporation and
Executive Vice President and Chief Financial Officer of Mellon Bank, N.A.
(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 of Mellon Bank,
N.A.
18
<PAGE> 20
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
(5) From January 1992 to December 1992, Mr. Lovejoy 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, N.A. From November 1994 to February 1996, Mr. Lovejoy was
Vice Chairman, Corporate Strategy and Development of Mellon Bank
Corporation and Mellon Bank, N.A.
(6) From November 1990 to October 1992, Mr. McGuinn was Vice Chairman, Real
Estate Finance, General Counsel and Secretary of Mellon Bank Corporation
and Vice Chairman, Real Estate Finance and General Counsel of Mellon
Bank, N.A. From October 1992 to November 1993, Mr. McGuinn was Vice
Chairman, Special Banking Services of Mellon Bank Corporation and Mellon
Bank, N.A.
(7) From November 1991 to June 1992, Mr. Russell was Executive Vice
President, Credit Policy of Mellon Bank Corporation and of Mellon Bank,
N.A. From June 1992 to June 1996, Mr. Russell was Vice Chairman, Chief
Risk and Credit Officer, Mellon Bank Corporation and Mellon Bank, N.A.
(8) From January 1990 to November 1993, Mr. Smith was Vice Chairman, Service
Products of Mellon Bank Corporation and Mellon Bank, N.A. Mr. Smith was
Chief Operating Officer of The Dreyfus Corporation from August 1994 to
January 1995.
(9) From December 1990 to January 1995, Mr. Stewart was Executive Vice
President, Global Corporate Banking Department. In 1995, Mr. Stewart was
Vice Chairman, Corporate Banking of Mellon Bank Corporation and Mellon
Bank, N.A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1997 Proxy Statement
in the Directors' Compensation section on pages 9 and 10 and in the Executive
Compensation section on pages 16 through 22, 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 1997 Proxy Statement
in the Beneficial Ownership of Stock section on pages 14 and 15, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1997 Proxy Statement
in the Business Relationships and Related Transactions and Certain Legal
Proceedings sections on page 13, and is incorporated herein by reference.
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 on the
following page refer to pages of the Financial Section of the
Corporation's 1996 Annual Report to Shareholders.
19
<PAGE> 21
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (continued)
<TABLE>
<CAPTION>
(i) Financial Statements Page No.
-------------------- --------
<S> <C>
Mellon Bank Corporation (and its subsidiaries):
Consolidated Income Statement 63
Consolidated Balance Sheet 64
Consolidated Statement of Changes in Shareholders' Equity 65
Consolidated Statement of Cash Flows 66 and 67
Notes to Financial Statements 67 through 100
Report of Independent Auditors 101
(ii) Financial Statement Schedules
-----------------------------
Financial Statement schedules are omitted either because they are not
required or are not applicable, or because the required information is
shown in the financial statements or notes thereto.
(iii) Other Financial Data
--------------------
Selected Quarterly Data 62
</TABLE>
(b) Current Reports on Form 8-K during the fourth quarter of 1996:
A report dated October 15, 1996, which included, under Item 7, the
Corporation's press release regarding third quarter and year-to-date
1996 financial results and also included, under Items 5 and 7, the
Corporation's press release regarding the adoption of a new Shareholder
Protection Rights Agreement and the approval of the establishment of an
employee stock benefit trust.
A report dated October 15, 1996, which included, under Items 5 and 7, a
description of the Shareholder Protection Rights Agreement and the text
of the Agreement.
A report dated October 29, 1996, which included, under Items 5 and 7, a
press release announcing the December 16, 1996, redemption of the Series
I preferred stock.
A report dated December 3, 1996, which described under Item 5 and
included under Item 7 certain exhibits pertaining to the issuance by
Mellon Capital I of 500,000 of its 7.72% Capital Securities, Series A
and related matters.
A report dated December 20, 1996, which described under Item 5 and
included under Item 7 certain exhibits pertaining to the issuance by
Mellon Capital II of 500,000 of its 7.995% Capital Securities, Series B
and related matters.
A report dated December 30, 1996, which included, under Items 5 and 7, a
press release announcing a letter of intent for the Corporation's
acquisition of Buck Consultants, Inc.
(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: FRANK V. CAHOUET
-----------------------
Frank V. Cahouet
Chairman, President
and Chief Executive
Officer
DATED: March 19, 1997
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.
SIGNATURE CAPACITIES
By: FRANK V. CAHOUET Director and Principal
----------------------- Executive Director
Frank V. Cahouet
By: STEVEN G. ELLIOTT Principal Financial Officer
----------------------- and Principal Accounting
Steven G. Elliott Officer
Dwight L. Allison, Jr.; Directors
Burton C. Borgelt; Carol R. Brown;
J. W. Connolly; Charles A. Corry;
C. Frederick Fetterolf; Ira J. Gumberg;
Pemberton Hutchinson; George W. Johnstone;
Rotan E. Lee; Andrew W. Mathieson;
Edward J. McAniff; Robert Mehrabian;
Seward Prosser Mellon; David S. Shapira;
W. Keith Smith; Joab L. Thomas;
Wesley W. von Schack; and
William J. Young
By: CARL KRASIK DATED: March 19, 1997
-----------------------
Carl Krasik
Attorney-in-fact
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 Statement Affecting Series I Preferred Stock, Filed herewith.
$1.00 Par Value.
3.6 Statement Affecting Series J Preferred Stock, Filed herewith.
$1.00 Par Value.
3.7 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, 3.4, 3.5 and
of securities holders. 3.6 above.
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 October 29, 1996,
dated as of October 15, 1996. and incorporated herein by reference.
</TABLE>
22
<PAGE> 24
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
4.3 Junior Subordinated Indenture, dated as of Previously filed as Exhibit 4.1
December 3, 1996, between Mellon Bank to Current Report on Form 8-K
Corporation and The Chase Manhattan Bank, (File No. 1-7410) dated December 3,
as Debenture Trustee. 1996, and incorporated herein by
reference.
4.4(a) Certificate representing the 7.72% Junior Previously filed as Exhibit 4.2
Subordinated Deferrable Interest Debentures, to Current Report on Form 8-K
Series A, of Mellon Bank Corporation. (File No. 1-7410) dated December 3,
1996, and incorporated herein by
reference.
4.4(b) Certificate representing the 7.995% Junior Previously filed as Exhibit 4.2
Subordinated Deferrable Interest Debentures, to Current Report on Form 8-K
Series B, of Mellon Bank Corporation. (File No. 1-7410) dated December 20,
1996, and incorporated herein by
reference.
4.5(a) Amended and Restated Trust Agreement, dated Previously filed as Exhibit 4.3
as of December 3, 1996, of Mellon Capital I, to Current Report on Form 8-K
among Mellon Bank Corporation, as Depositor, (File No. 1-7410) dated December 3,
The Chase Manhattan Bank, as Property Trustee, 1996, and incorporated herein by
Chase Manhattan Bank Delaware, as Delaware reference.
Trustee, and the Administrative Trustees named
therein.
4.5(b) Amended and Restated Trust Agreement, dated Previously filed as Exhibit 4.3
as of December 20, 1996, of Mellon Capital II, to Current Report on Form 8-K
among Mellon Bank Corporation, as Depositor, (File No. 1-7410) dated December 20,
The Chase Manhattan Bank, as Property Trustee, 1996, and incorporated herein by
Chase Manhattan Bank Delaware, as Delaware reference.
Trustee, and the Administrative Trustees named
therein.
4.6(a) Certificate representing the 7.72% Capital Previously filed as Exhibit 4.4
Securities, Series A, of Mellon Capital I. to Current Report on Form 8-K
(File No. 1-7410) dated December 3,
1996, and incorporated herein by
reference.
4.6(b) Certificate representing the 7.995% Capital Previously filed as Exhibit 4.4
Securities, Series B, of Mellon Capital II. to Current Report on Form 8-K
(File No. 1-7410) dated December 20,
1996, and incorporated herein by
reference.
</TABLE>
23
<PAGE> 25
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
4.7(a) Guarantee Agreement, dated as of December 3, Previously filed as Exhibit 4.5
1996, between Mellon Bank Corporation, as to Current Report on Form 8-K
guarantor, and The Chase Manhattan Bank, as (File No. 1-7410) dated December 3,
Guarantee Trustee. 1996, and incorporated herein by
reference.
4.7(b) Guarantee Agreement, dated as of December 20, Previously filed as Exhibit 4.5
1996, between Mellon Bank Corporation, as to Current Report on Form 8-K
Guarantor, and The Chase Manhattan Bank, as (File No. 1-7410) dated December 20,
Guarantee Trustee. 1996, 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.
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.
</TABLE>
24
<PAGE> 26
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
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. l-7410) for the year ended
December 31, 1990, and incorporated
herein by reference.
10.7* Mellon Bank Corporation Long-Term Filed herewith.
Profit Incentive Plan (1996),
as amended effective January 17, 1997.
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). No. 1-7410) for the year ended
December 31, 1994, and incorporated
herein by reference.
10.9* Mellon Bank Corporation 1990 Filed herewith.
Elective Deferred Compensation Plan
for Directors and Members of the
Advisory Board, as amended and
restated, effective January 1, 1997.
10.10* Mellon Bank Corporation Elective Filed herewith.
Deferred Compensation Plan for
Senior Officers, as amended and
restated, effective January 1, 1997.
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 Insurance Filed herewith.
Plan, effective January 1, 1993, as
amended effective November 19, 1996.
</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>
10.13* Mellon Bank Executive Life Insurance Filed herewith.
Plan, effective January 1, 1993, as
amended effective November 19, 1996.
10.14* Mellon Bank Senior Executive Life Filed herewith.
Insurance Plan, effective January 1,
1993, as amended effective November 19,
1996.
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 Stock Filed herewith.
Unit Plan (1995), as amended, effective
October 15, 1996.
10.17* Employment Agreement between Mellon Previously filed as Exhibit 10.17 to
Bank, N.A. and Frank V. Cahouet, Annual Report on Form 10-K
effective as of July 25, 1993, and amended (File No. 1-7410) for the year ended
and restated as of October 17, 1995. December 31, 1995, and incorporated
herein by reference.
10.18* Employment Agreement between Mellon Previously filed as Exhibit 10.2
Bank, N.A. and W. Keith Smith, to Quarterly Report on Form 10-Q
effective as of July 25, 1993, and amended (File No. 1-7410) for the quarter ended
and restated as of August 1, 1995. September 30, 1995, and incorporated
herein by reference.
10.19* Change in Control Severance Agreement Filed herewith.
between Mellon Bank Corporation and Frank V.
Cahouet, dated as of February 1, 1997.
10.20* Form of Change in Control Severance Agreement Filed herewith.
between Mellon Bank Corporation and members
of the Office of the Chairman.
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.
</TABLE>
* Management contract or compensatory plan arrangement.
26
<PAGE> 28
INDEX TO EXHIBITS (continued)
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
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.
1996 Annual Report to Shareholders that are
incorporated herein by reference.
21.1 List of Subsidiaries of the Corporation. Filed herewith.
23.1 Consent of Independent Accountants. Filed herewith.
24.1 Powers of Attorney. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
</TABLE>
Certain instruments, which define the rights of holders of long-term debt of
the Corporation and its subsidiaries, 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 instruments to the
Securities and Exchange Commission upon request.
27
<PAGE> 1
Exhibit 3.5
MELLON BANK CORPORATION
STATEMENT AFFECTING 9.60% SERIES I PREFERRED STOCK
$1.00 PAR VALUE
DECREASING THE AUTHORIZED NUMBER OF SHARES OF SUCH SERIES
PURSUANT TO THE REQUIREMENTS OF SECTION 1522 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW
The undersigned Corporation, desiring to decrease the authorized number of
shares of its 9.60% Series I Preferred Stock, $1.00 par value (the "Series I
Preferred Stock"), hereby certifies that:
1. The name of the Corporation is Mellon Bank Corporation.
2. The resolution of the Board of Directors of the Corporation
establishing and designating the Series I Preferred Stock as the tenth
series of Preferred Stock $1.00 par value, of the Corporation
authorized to be issued by Article FIFTH of its Articles, as
heretofore restated and amended, was filed with the Department of
State in a Statement of Designation on August 7, 1991.
3. By resolutions dated February 20, 1996, (copy attached hereto), the
Board of Directors, as part of the Corporation's Capital and Funding
Plan for 1996, approved the concept of redeeming the Series I
Preferred Stock, authorized the restoration of any shares redeemed to
the status of authorized but unissued shares of preferred stock of the
Corporation, and further appointed a special committee (the
"Redemption Committee") to have and to exercise all authority of the
Board with respect to the redemption of the Series I Preferred Stock.
4. By resolutions dated October 29, 1996, (copy attached), the Redemption
Committee authorized the Corporation to redeem all outstanding shares
of its Series I Preferred Stock and further established the terms and
conditions of such redemption.
5. Accordingly, the number of shares of preferred stock previously
designated as Series I Preferred Stock is hereby decreased from
6,000,000 shares to -0- shares.
6. Since the filing of the Corporation's Restated Articles of
Incorporation on September 2, 1993, there have been no statements
filed under the Pennsylvania Business Corporation Law pertaining to
the Series I Preferred Stock.
<PAGE> 2
7. This Statement shall be effective upon the filing thereof in the
Department of State.
IN TESTIMONY WHEREOF, THE UNDERSIGNED Corporation has caused this
Statement to be signed by a duly authorized officer thereof this 16th day of
December, 1996.
MELLON BANK CORPORATION
By: STEVEN G. ELLIOTT
Steven G. Elliott
Vice Chairman, Chief
Financial Officer and
Treasurer
(SEAL)
Attest:
CARL KRASIK
Carl Krasik
Secretary
2
<PAGE> 3
MELLON BANK CORPORATION
BOARD OF DIRECTORS
2/20/96
RESOLUTIONS AUTHORIZING
REDEMPTION OF 9.60% SERIES I
PREFERRED STOCK
WHEREAS, In connection with the Corporation's Capital and Funding Plan for 1996,
the Executive Committee has recommended that the Board of Directors create a
Redemption Committee to exercise all authority of this Board with respect to the
redemption of the Corporation's 9.60% Series I Preferred Stock; and
WHEREAS, The Corporation has issued 9.60% Series I Preferred Stock, $1.00 par
value (the "Series I Preferred Stock") which by its terms, is redeemable at the
option of the Corporation, in whole or from time to time in part, at any time
on or after August 15, 1996, at the cash redemption price of $25.00 per share,
plus accrued dividends, the election of the Corporation to so redeem the Series
I Preferred Stock to be evidenced by a resolution of this Board; NOW,
THEREFORE, BE IT
RESOLVED, That a special committee (the "Redemption Committee") of this Board
be, and it hereby is, appointed to have and to exercise all authority of this
Board with respect to the redemption of the Series I Preferred Stock,
including, without limitation, the designation of amounts, times and methods of
redemption; and it is further
RESOLVED, That the Redemption Committee shall consist of the following
Directors:
Frank V. Cahouet, W. Keith Smith and Andrew W. Mathieson, and that the Committee
shall meet at such times and places as it may deem appropriate to exercise the
authority granted to it by the foregoing resolution; and it is further
RESOLVED, That a majority of the members at any meeting of the Redemption
Committee shall constitute a quorum necessary and sufficient to transact
business; however, if a quorum is not present, those Committee members who are
present shall have the authority to appoint any member of the Board of
Directors as alternate members of the Redemption Committee, and the Committee
as then constituted shall exercise the powers granted by the foregoing
resolutions; and it is further
RESOLVED, That upon the instruction and authorization of the Redemption
Committee, the Chairman, the Chief Executive Officer, the President, any Vice
Chairman or the Secretary of the Corporation be, and each hereby is, authorized
in the name and on behalf of the Corporation, to implement the redemption of
the Series I Preferred Stock, in whole or from time to time in part, in
accordance with its terms and upon such further specific terms and conditions,
consistent with the action of the Redemption Committee, as such officer shall
approve, the approval of such officer and of this Board to be evidenced
conclusively by the action of such officer; and it is further
RESOLVED, That in accordance with the terms of the Series I Preferred Stock,
any shares of such stock so redeemed, shall be restored to the status of
authorized but unissued shares of preferred stock of the Corporation, without
designation as to series, until such shares are once more designated as part of
a particular series by this Board; and it is further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman or the Secretary of the Corporation be, and each hereby is,
authorized in the name and on behalf of the Corporation to execute and deliver
any and all agreements and other documents, make such filings and take any
other such actions as such officer may deem necessary, appropriate or desirable
to effectuate the purposes of the foregoing resolutions.
<PAGE> 4
MELLON BANK CORPORATION
REDEMPTION COMMITTEE
OCTOBER 29, 1996
WHEREAS, The Corporation has issued and outstanding a series of preferred
stock, par value $1.00 per share, designated as 9.60% Series I Preferred Stock
(the "Series I Preferred Stock"); and
WHEREAS, Under the terms pursuant to which the Series I Preferred Stock was
issued, such stock is redeemable at the option of the Corporation, in whole or
from time to time in part, at any time on or after August 15, 1996, at a price
of $25.00 per share, plus accrued dividends; and
WHEREAS, By action taken on February 20, 1996, the Board of Directors, as part
of the Corporation's Capital and Funding Plan for 1996, approved the concept of
redeeming the Series I Preferred Stock and granted to this Committee all
authority of the Board with respect to such redemption, including, without
limitation, the designation of amounts, times and methods of redemption; NOW,
THEREFORE, BE IT
RESOLVED, That the Corporation be, and it hereby is, authorized to redeem all
the outstanding shares of its Series I Preferred Stock on December 16, 1996
(the "Redemption Date"), at a redemption price of $25.00 per share, plus all
dividends accrued and unpaid on such shares to the Redemption Date, even though
not yet declared, (collectively such funds to be referred to as the "Redemption
Funds"); and it is further
RESOLVED, That in accordance with the terms of the Series I Preferred Stock as
set forth in the Statement of Designation of such series, the Secretary of the
Corporation be, and he hereby is, authorized to send via first class mail to all
holders of Series I Preferred Stock, at their respective addresses on the books
of the Corporation, a notice in the form attached hereto as Annex A (the
"Redemption Notice"), with such changes and modifications as the Chairman, the
Chief Executive Officer, the President, any Vice Chairman, or the Secretary of
the Corporation shall approve, the approval of such officer and of this
Committee to be evidenced conclusively by the action of such officer; and it is
further
RESOLVED, That on or before the Redemption Date, such amount of money as is
necessary for the redemption of all shares of the Series I Preferred Stock in
accordance with its terms, be deposited in a separate account with Mellon
Bank, N.A. to be held in trust for the account of the holders of the shares of
Series I Preferred Stock called for redemption, with irrevocable instructions
and authority to pay the Redemption Funds to the holders of such shares upon
surrender of certificates therefor at any time on or after the Redemption Date;
and it is further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman, the General Counsel, the Secretary or any other person so
designated by any such officer, be, and each hereby is, authorized in the name
and on behalf of the Corporation, to make all filings with regulatory
authorities and to take any related actions as such officer or designee may
approve as necessary, appropriate or desirable in connection with such
authorities' consideration of the redemption of the Series I Preferred Stock,
the filing or doing of any such related action by such person conclusively
establishing that person's authority therefor from this Committee and the
approval and ratification by this Committee of the actions so taken; and
WHEREAS, In accordance with the terms of the Series I Preferred Stock, any
shares of such stock so redeemed shall be restored to the status of authorized
but unissued shares of preferred stock of the Corporation, without designation
as to series, until such shares are once more designated as part of a
particular series by the Board; NOW, THEREFORE, BE IT
RESOLVED, That in connection with the redemption of the Series I Preferred
Stock as authorized hereby and upon the issuance of the Redemption Notice, the
deposit of the Redemption Funds and the occurrence of the Redemption Date, the
Chairman, the Chief Executive Officer, the President, any Vice Chairman, or the
Secretary of the Corporation be, and each hereby is, authorized in the name and
on behalf of the Corporation, under the corporate seal of the Corporation
attested by its Secretary, to execute and to cause a Statement Affecting Series
I Preferred Stock to be filed with the Department of State of the Commonwealth
of Pennsylvania in accordance with Section 1522 of the Pennsylvania Business
Corporation Law; and it is further
RESOLVED, That any action relating to the redemption of the Series I Preferred
Stock taken by any of the officers of the Corporation prior to the date of these
resolutions that is otherwise within the authority conferred by these
resolutions be, and it hereby is, ratified, confirmed and approved; and it is
further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman or the Secretary of the Corporation be, and each hereby is,
authorized in the name and on behalf of the Corporation to execute any and all
agreements and other documents, make such filings and take any other such
actions as such officer may deem necessary, appropriate or desirable to
effectuate the purposes of the foregoing resolutions.
<PAGE> 1
Exhibit 3.6
MELLON BANK CORPORATION
STATEMENT AFFECTING 8.50% SERIES J PREFERRED STOCK
$1.00 PAR VALUE
DECREASING THE AUTHORIZED NUMBER OF SHARES OF SUCH SERIES
PURSUANT TO THE REQUIREMENTS OF SECTION 1522 OF THE
PENNSYLVANIA BUSINESS CORPORATION LAW
The undersigned Corporation, desiring to decrease the authorized number of
shares of its 8.50% Series J Preferred Stock, $1.00 par value (the "Series J
Preferred Stock"), hereby certifies that:
1. The name of the Corporation is Mellon Bank Corporation.
2. The resolution of the Board of Directors of the Corporation
establishing and designating the Series J Preferred Stock as the
eleventh series of Preferred Stock $1.00 par value, of the Corporation
authorized to be issued by Article FIFTH of its Articles, as
heretofore restated and amended, was filed with the Department of
State in a Statement of Designation on January 17, 1992.
3. By resolutions dated February 20, 1996, (copy attached hereto), the
Board of Directors, as part of the Corporation's Capital and Funding
Plan for 1996, approved the concept of redeeming the Series J
Preferred Stock, authorized the restoration of any shares redeemed to
the status of authorized but unissued shares of preferred stock of the
Corporation, and further appointed a special committee (the
"Redemption Committee) to have and to exercise all authority of the
Board with respect to the redemption of the Series J Preferred Stock.
4. By resolutions dated January 8, 1997, (copy attached), the Redemption
Committee authorized the Corporation to redeem all outstanding shares
of its Series J Preferred Stock and further established the terms and
conditions of such redemption.
5. Accordingly, the number of shares of preferred stock previously
designated as Series J Preferred Stock is hereby decreased from
4,000,000 shares to -0- shares.
6. Since the filing of the Corporation's Restated Articles of
Incorporation on September 2, 1993, there have been no statements
filed under the
<PAGE> 2
Pennsylvania Business Corporation Law pertaining to the Series J
Preferred Stock.
7. This Statement shall be effective upon the filing thereof in the
Department of State.
IN TESTIMONY WHEREOF, THE UNDERSIGNED Corporation has caused this
Statement to be signed by a duly authorized officer thereof this 24th day of
February, 1997.
MELLON BANK CORPORATION
By: STEVEN G. ELLIOTT
Steven G. Elliott
Vice Chairman, Chief
Financial Officer and
Treasurer
(SEAL)
Attest:
CARL KRASIK
Carl Krasik
Secretary
2
<PAGE> 3
MELLON BANK CORPORATION
BOARD OF DIRECTORS
FEBRUARY 20, 1996
RESOLUTIONS AUTHORIZING
REDEMPTION OF 8.50% SERIES J
PREFERRED STOCK
WHEREAS, In connection with the Corporation's Capital and Funding Plan for 1996,
the Executive Committee has recommended that the Board of Directors create a
Redemption Committee to exercise all authority of this Board with respect to the
redemption of the Corporation's 8.50% Series J Preferred Stock; and
WHEREAS, The Corporation has issued 8.50% Series J Preferred Stock, $1.00 par
value (the "Series J Preferred Stock") which by its terms, is redeemable at the
option of the Corporation, in whole or from time to time in part, at any time on
or after February 15, 1997, at the cash redemption price of $25.00 per share,
plus accrued dividends, the election of the Corporation to so redeem the Series
J Preferred Stock to be evidenced by a resolution of this Board; NOW, THEREFORE,
BE IT
RESOLVED, That a special committee (the "Redemption Committee") of this Board
be, and it hereby is, appointed to have and to exercise all authority of this
Board with respect to the redemption of the Series J Preferred Stock,
including, without limitation, the designation of amounts, times and methods of
redemption; and it is further
RESOLVED, That the Redemption Committee shall consist of the following
Directors: Frank V. Cahouet, W. Keith Smith and Andrew W. Mathieson, and that
the Committee shall meet at such times and places as it may deem appropriate to
exercise the authority granted to it by the foregoing resolution; and it is
further
RESOLVED, That a majority of the members at any meeting of the Redemption
Committee shall constitute a quorum necessary and sufficient to transact
business; however, if a quorum is not present, those Committee members who are
present shall have the authority to appoint any member of the Board of
Directors as alternate members of the Redemption Committee, and the Committee
as then constituted shall exercise the powers granted by the foregoing
resolutions; and it is further
RESOLVED, That upon the instruction and authorization of the Redemption
Committee, the Chairman, the Chief Executive Officer, the President, any Vice
Chairman or the Secretary of the Corporation be, and each hereby is, authorized
in the name and on behalf of the Corporation, to implement the redemption of
the Series I Preferred Stock, in whole or from time to time in part, in
accordance with its terms and upon such further specific terms and conditions,
consistent with the action of the Redemption Committee, as such officer shall
approve, the approval of such officer and of this Board to be evidenced
conclusively by the action of such officer; and it is further
RESOLVED, That in accordance with the terms of the Series J Preferred Stock,
any shares of such stock so redeemed, shall be restored to the status of
authorized but unissued shares of preferred stock of the Corporation, without
designation as to series, until such shares are once more designated as part of
a particular series by this Board; and it is further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman or the Secretary of the Corporation be, and each hereby is,
authorized in the name and on behalf of the Corporation to execute and deliver
any and all agreements and other documents, make such filings and take any
other such actions as such officer may deem necessary, appropriate or desirable
to effectuate the purposes of the foregoing resolutions.
<PAGE> 4
MELLON BANK CORPORATION
SPECIAL REDEMPTION COMMITTEE OF THE
BOARD OF DIRECTORS
JANUARY 8, 1997
WHEREAS, The Corporation has issued and outstanding a series of preferred
stock, par value $1.00 per share, designated as 8.50% Series J Preferred Stock
(the "Series J Preferred Stock"); and
WHEREAS, Under the terms pursuant to which the Series J Preferred Stock was
issued, such stock is redeemable at the option of the Corporation, in whole or
from time to time in part, at any time on or after February 15, 1997, at a price
of $25.00 per share, plus accrued dividends; and
WHEREAS, By action taken on February 20, 1996, the Board of Directors, as part
of the Corporation's Capital and Funding Plan for 1996, approved the concept of
redeeming the Series J Preferred Stock and granted to this Committee all
authority of the Board with respect to such redemption, including, without
limitation, the designation of amounts, times and methods of redemption; NOW,
THEREFORE, BE IT
RESOLVED, That the Corporation be, and it hereby is, authorized to redeem all
the outstanding shares of its Series J Preferred Stock on February 18, 1997
(the "Redemption Date"), at a redemption price of $25.00 per share, plus all
dividends accrued and unpaid on such shares to the Redemption Date, even though
not yet declared, (collectively such funds to be referred to as the "Redemption
Funds"); and it is further
RESOLVED, That in accordance with the terms of the Series J Preferred Stock as
set forth in the Statement of Designation of such series, the Secretary of the
Corporation be, and he hereby is, authorized to send via first class mail to all
holders of Series J Preferred Stock, at their respective addresses on the books
of the Corporation, a notice in the form attached hereto as Annex A (the
"Redemption Notice"), with such changes and modifications as the Chairman, the
Chief Executive Officer, the President, any Vice Chairman, or the Secretary of
the Corporation shall approve, the approval of such officer and of this
Committee to be evidenced conclusively by the action of such officer; and it is
further
RESOLVED, That on or before the Redemption Date, such amount of money as is
necessary for the redemption of all shares of the Series J Preferred Stock in
accordance with its terms, be deposited in a separate account with Mellon
Bank, N.A. to be held in trust for the account of the holders of the shares of
Series J Preferred Stock called for redemption, with irrevocable instructions
and authority to pay the Redemption Funds to the holders of such shares upon
surrender of certificates therefor at any time on or after the Redemption Date;
and it is further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman, the General Counsel, the Secretary or any other person so
designated by any such officer, be, and each hereby is, authorized in the name
and on behalf of the Corporation, to make all filings with regulatory
authorities and to take any related actions as such officer or designee may
approve as necessary, appropriate or desirable in connection with such
authorities' consideration of the redemption of the Series J Preferred Stock,
the filing or doing of any such related action by such person conclusively
establishing that person's authority therefor from this Committee and the
approval and ratification by this Committee of the actions so taken; and
WHEREAS, In accordance with the terms of the Series J Preferred Stock, any
shares of such stock so redeemed shall be restored to the status of authorized
but unissued shares of preferred stock of the Corporation, without designation
as to series, until such shares are once more designated as part of a
particular series by the Board; NOW, THEREFORE, BE IT
RESOLVED, That in connection with the redemption of the Series J Preferred
Stock as authorized hereby and upon the issuance of the Redemption Notice, the
deposit of the Redemption Funds and the occurrence of the Redemption Date, the
Chairman, the Chief Executive Officer, the President, any Vice Chairman, or the
Secretary of the Corporation be, and each hereby is, authorized in the name and
on behalf of the Corporation, under the corporate seal of the Corporation
attested by its Secretary, to execute and to cause a Statement Affecting Series
J Preferred Stock to be filed with the Department of State of the Commonwealth
of Pennsylvania in accordance with Section 1522 of the Pennsylvania Business
Corporation Law; and it is further
RESOLVED, That any action relating to the redemption of the Series J Preferred
Stock taken by any of the officers of the Corporation prior to the date of these
resolutions that is otherwise within the authority conferred by these
resolutions be, and it hereby is, ratified, confirmed and approved; and it is
further
RESOLVED, That the Chairman, the Chief Executive Officer, the President, any
Vice Chairman or the Secretary of the Corporation be, and each hereby is,
authorized in the name and on behalf of the Corporation to execute any and all
agreements and other documents, make such filings and take any other such
actions as such officer may deem necessary, appropriate or desirable to
effectuate the purposes of the foregoing resolutions.
<PAGE> 1
Exhibit 10.7
MELLON BANK CORPORATION
LONG-TERM PROFIT INCENTIVE PLAN (1996)
I. Purposes
The purposes of this Long-Term Profit Incentive Plan (1996), as amended and
restated, are to promote the growth and profitability of Mellon Bank
Corporation ("Corporation") and its Affiliates, to provide officers and other
key executives of the Corporation and its Affiliates with the incentive to
achieve long-term corporate objectives, to attract and retain officers and
other key executives of outstanding competence, and to provide such officers
and key executives with an equity interest in the Corporation.
II. Definitions
The following terms shall have the meanings shown:
2.1 "Affiliate" shall mean any corporation, limited partnership or other
organization in which the Corporation owns, directly or indirectly, 50% or more
of the voting power.
2.2 "Award" shall mean Options, SARs, Performance Units, Restricted Stock and
Deferred Cash Incentive Awards, as defined in and granted under the Plan.
2.3 "Board of Directors" shall mean the Board of Directors of the Corporation.
2.4 "Change in Control Event" shall mean any of the following events:
(a) The occurrence with respect to the Corporation of a "control
transaction", as such term is defined in Section 2542 of the Pennsylvania
Business Corporation Law of 1988, as of August 15, 1989; or
(b) Approval by the stockholders of the Corporation of (i) any
consolidation or merger of the Corporation in which the holders of voting stock
of the Corporation immediately before the merger or consolidation will not own
50% or more of the voting shares of the continuing or surviving corporation
immediately after such merger or consolidation, or (ii) any sale, lease or
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the Corporation; or
(c) A change of 25% (rounded to the next whole person) in the membership
of the Board of Directors within a 12-month period, unless the election or
nomination for election by stockholders of each new director within such period
was approved by the vote of 85% (rounded to the next whole person) of the
directors then still in office who were in office at the beginning of the
12-month period.
<PAGE> 2
2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case
as in effect from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.
2.6 "Committee" shall mean the Human Resources Committee of the Board of
Directors, or any successor committee.
2.7 "Common Stock" shall mean Common Stock of the Corporation.
2.8 "Deferred Cash Incentive Award" shall mean an Award granted pursuant to
Article VII of the Plan.
2.9 "Fair Market Value" shall mean the closing price of a share of Common Stock
in the New York Stock Exchange Composite Transactions on the relevant date, or,
if no sale shall have been made on such exchange on that date, the closing
price in the New York Stock Exchange Composite Transactions on the last
preceding day on which there was a sale.
2.10 "Incentive Stock Option" shall mean an option qualifying under Section 422
of the Code granted by the Corporation.
2.11 "Options" shall mean rights to purchase shares of Common Stock granted
pursuant to Article IV of the Plan.
2.12 "Participant" shall mean an eligible employee who is granted an Award
under the Plan.
2.13 "Performance Goals" shall mean goals established by the Committee in
compliance with Section 162(m) of the Code covering a performance period set by
the Committee and based on maintenance of or changes in one or more of the
following objective business criteria: earnings or earnings per share; return
on equity, assets or investment; revenues; expenses; stock price; market share;
charge-offs; or non-performing assets. Performance Goals shall be established
by the Committee in connection with the grant of Performance Units and Deferred
Cash Incentive Awards and may be established in connection with the grant of
Restricted Stock. Performance Goals may be applicable to a business unit or to
the Corporation as a whole and need not be the same for each of the foregoing
types of Awards or for each individual receiving the same type of Award. The
Committee may retain the discretion to reduce (but not to increase) the portion
of any Award which will be earned based on achieving Performance Goals.
2.14 "Performance Units" shall mean units granted pursuant to Article VI of the
Plan.
2.15 "Plan" shall mean the Mellon Bank Corporation Long-Term Profit Incentive
Plan (1996), as amended and restated.
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2.16 "Reload Option Rights" and "Reload Options" shall have the meanings set
forth in Article IV of the Plan.
2.17 "Restricted Stock" shall mean any share of Common Stock granted pursuant
to Article VIII of the Plan.
2.18 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended from
time to time, or any successor rule.
2.19 "SAR" shall mean any stock appreciation right granted pursuant to Article
V of the Plan.
III General
3.1 Administration.
(a) The Plan shall be administered by the Committee, each member of which
shall at the time of any action under the Plan be (i) a "non-employee director"
as then defined under Rule 16b-3 and (ii) an "outside director" as then defined
under Section 162(m) of the Code.
(b) The Committee shall have the authority in its sole discretion from
time to time: (i) to designate the employees eligible to participate in the
Plan; (ii) to grant Awards under the Plan; (iii) to prescribe such limitations,
restrictions and conditions upon any such Award as the Committee shall deem
appropriate; and (iv) to interpret the Plan, to adopt, amend and rescind rules
and regulations relating to the Plan, and to make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan. A majority of the Committee shall constitute a
quorum, and the action of a majority of members of the Committee present at any
meeting at which a quorum is present, or acts unanimously adopted in writing
without the holding of a meeting, shall be the acts of the Committee.
(c) All actions of the Committee shall be final, conclusive and binding
upon the Participant. No member of the Committee shall be liable for any action
taken or decision made in good faith relating to the Plan or any Award
thereunder.
3.2 Eligibility. The Committee may grant Awards under the Plan to any full-time
corporate officer, key executive, administrative or professional employee of
the Corporation or any of its Affiliates. In granting such Awards and
determining their form and amount, the Committee shall give consideration to
the functions and responsibilities of the employee, his or her potential
contributions to profitability and to the sound growth of the Corporation and
such other factors as the Committee may deem relevant.
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3.3 Effective and Expiration Dates of Plan. The amended and restated Plan shall
become effective on the date (herein referred to as the "effective date")
approved by the holders of a majority of the shares present or represented and
entitled to vote at the 1996 Annual Meeting of Shareholders of the Corporation.
No Award shall be granted after December 31, 2005, except that Reload Options
may be granted pursuant to Reload Option Rights then outstanding.
3.4 Aggregate and Individual Limitations on Awards.
(a) The aggregate number of shares of Common Stock reserved for issue
under the Plan on and after its effective date shall not exceed 14,600,000
shares, subject to adjustments pursuant to Section 9.7. No more than 1,000,000
shares of Common Stock may be issued as Restricted Stock. Shares of Common
Stock which may satisfy Awards granted under the Plan may be either authorized
and unissued shares of Common Stock or authorized and issued shares of Common
Stock held in the Corporation's treasury or issued and outstanding shares of
Common Stock held by any employee stock benefit trust established by the
Corporation.
(b) For purposes of paragraph (a) of this Section 3.4, shares of Common
Stock that are actually issued upon exercise of an Option shall be counted
against the total number of shares reserved for issuance, except that when
Options are exercised by the delivery of shares of Common Stock the charge
against the shares reserved for issuance shall be limited to the net new shares
of Common Stock issued. In addition to shares of Common Stock actually issued
pursuant to the exercise of Options, there shall be deemed to have been issued
under the Plan a number of shares of Common Stock equal to (i) the number of
shares issued pursuant to SARs which shall have been exercised pursuant to the
Plan, (ii) the number of Performance Units which shall have been paid in shares
of Common Stock pursuant to the Plan and (iii) the number of shares of
Restricted Stock which shall have been granted pursuant to the Plan. For
purposes of paragraph (a) of this Section 3.4, the payment of a Deferred Cash
Incentive Award shall not be deemed to result in the issuance of any shares of
Common Stock in addition to those issued pursuant to the exercise of the
related Option.
(c) For purposes of paragraph (a) of this Section 3.4, any shares of
Common Stock subject to an Option which for any reason either terminates
unexercised, or expires except by reason of the exercise of a related SAR, and
any shares of Restricted Stock granted under this Plan which are surrendered or
forfeited to the Corporation, shall again be available for issuance under the
Plan.
(d) The maximum number of shares of Common Stock available for grants of
Options or SARs to any one Participant under the Plan during a calendar year
shall not exceed 1,000,000 shares. The limitation in the preceding sentence
shall be interpreted and applied in a manner consistent with Section 162(m) of
the Code. To the extent consistent with Section 162(m) of the Code, a Reload
Option (A) shall be deemed to have
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been granted at the same time as the original underlying Option grant and (B)
shall not be deemed to increase the number of shares covered by the original
underlying Option.
IV. Options
4.1 Grant. The Committee may from time to time, subject to the provisions of
the Plan, in its discretion grant Options to Participants to purchase for cash
or shares of Common Stock the number of shares of Common Stock allotted by the
Committee. In the discretion of the Committee, any Options or portions thereof
granted pursuant to this Plan may be designated as Incentive Stock Options. The
aggregate Fair Market Value (determined as of the time the Incentive Stock
Option is granted) of Common Stock and any other stock of the Corporation or
any parent, subsidiary or affiliate corporation with respect to which such
Incentive Stock Options are exercisable for the first time by a Participant in
any calendar year under all plans of the Corporation, its subsidiaries and
affiliates shall not exceed $100,000 or such sum as may from time to time be
permitted under Section 422 of the Code. The Committee shall also have the
authority, in its discretion, to award reload option rights ("Reload Option
Rights") in conjunction with the grant of Options with the effect described in
Section 4.7. Reload Option Rights may be awarded either at the time an Option
is granted or, except in the case of Incentive Stock Options, at any time
thereafter during the term of the Option.
4.2 Option Agreements. The grant of any Option shall be evidenced by a written
"Stock Option Agreement" executed by the Corporation and the Participant,
stating the number of shares of Common Stock subject to the Option evidenced
thereby and such other terms and conditions of the Option as the Committee may
from time to time determine.
4.3 Option Price. The option price for the Common Stock covered by any Option
granted under the Plan shall in no case be less than 100% of the Fair Market
Value of said Common Stock on the date of grant. Except as otherwise provided
in the Stock Option Agreement, the option price of an Option may be paid in
whole or in part by delivery to the Corporation of a number of shares of Common
Stock having a Fair Market Value on the date of exercise equal to the option
price or portion thereof to be paid; provided, however, that no shares may be
delivered in payment of the option price of an Option unless such shares, or an
equivalent number of shares, shall have been held by the Participant (or other
person entitled to exercise the Option) for at least six months prior to such
delivery.
4.4 Term of Options. The terms of each Option granted under the Plan shall be
for such period as the Committee shall determine, but for not more than 10
years from the date of grant thereof. Each Option shall be subject to earlier
termination as provided in Sections 4.6 and 5.4 hereof.
4.5 Exercise of Options. Each Option granted under the Plan shall be
exercisable on such date or dates during the term thereof and for such number
of shares of Common Stock as may be provided in the Stock Option Agreement
evidencing its grant. Pursuant
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to the terms of the Stock Option Agreement or otherwise, the Committee may
change the date on which an outstanding Option becomes exercisable; provided,
however, that an exercise date designated in a Stock Option Agreement may not
be changed to a later date without the consent of the holder of the Option.
Notwithstanding any other provision of this Plan, unless expressly provided to
the contrary in the applicable Stock Option Agreement, all Options granted
under the Plan shall become fully exercisable immediately and automatically
upon the occurrence of a Change in Control Event.
4.6 Termination of Employment. Except as otherwise provided in the Stock Option
Agreement:
(a) If termination of employment of a Participant is due to retirement
after age 55 with the written consent of the Corporation or an Affiliate, the
Participant shall have the right to exercise his or her Options within the
period of two years after such retirement, to the extent such Options were
exercisable at the time of retirement; provided, however, that such
post-retirement exercise period may be extended by action of the Committee for
up to the full term of such Options.
(b) If a Participant shall die while employed by the Corporation or an
Affiliate or within a period following termination of employment during which
the Option remains exercisable under paragraphs (a), (c) or (d) of this Section
4.6, his or her Options may be exercised to the extent exercisable by the
Participant at the time of his or her death within a period of two years from
the date of death by the executor or administrator of the Participant's estate
or by the person or persons to whom the Participant shall have transferred such
right by will or by the laws of descent and distribution.
(c) If termination of employment of a Participant is by reason of the
total and permanent disability of the Participant covered by a disability plan
of the Corporation or an Affiliate then in effect, the Participant shall have
the right to exercise his or her Options within the period of two years after
the date of termination of employment, to the extent such Options were
exercisable at the time of termination of employment.
(d) In the event the employment of a Participant is terminated by the
Corporation or an Affiliate without cause within two years after the occurrence
of a Change in Control Event, the Participant shall have the right to exercise
his or her Options within one year after the date such termination occurred, to
the extent such Options were exercisable at the time of such termination of
employment. For purposes of this paragraph, "without cause" shall mean any
termination of employment where it cannot be shown that the employee has (i)
willfully failed to perform his or her employment duties for the Corporation or
an Affiliate, (ii) willfully engaged in conduct that is materially injurious to
the Corporation or an Affiliate, monetarily or otherwise, or (iii) committed
acts that constitute a felony under applicable federal or state law or
constitute common law fraud. For purposes of this paragraph, no act or failure
to act on the Participant's part shall be considered "willful" unless done, or
omitted to be done, by him or her not in good faith
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and without reasonable belief that his or her action or omission was in the
best interest of the Corporation or Affiliate.
(e) In the event all employment of a Participant with the Corporation or
an Affiliate is terminated for any reason other than as stated in the preceding
paragraphs (a)-(d), his or her Options shall terminate upon such termination of
employment.
(f) Notwithstanding the foregoing, in no event shall an Option granted
hereunder be exercisable after the expiration of its term.
4.7 Reload Option Rights. Reload Option Rights if awarded with respect to an
Option shall entitle the original grantee of the Option (and unless otherwise
determined by the Committee, in its discretion, only such original grantee),
upon exercise of the Option or any portion thereof through delivery of shares
of Common Stock, automatically to be granted on the date of such exercise an
additional Option (a "Reload Option") (i) for that number of shares of Common
Stock not greater than the number of shares delivered by the Participant in
payment of the option price of the original Option and any withholding taxes
related thereto, (ii) having an option price not less than 100% of the Fair
Market Value of the Common Stock covered by the Reload Option on the date of
grant of such Reload Option, (iii) having an expiration date not later than the
expiration date of the original Option so exercised and (iv) otherwise having
terms permissible for the grant of an Option under the Plan. Subject to the
preceding sentence and the other provisions of the Plan, Reload Option Rights
and Reload Options shall have such terms and be subject to such restrictions
and conditions, if any, as shall be determined, in its discretion, by the
Committee. In granting Reload Option Rights, the Committee, may, in its
discretion, provide for successive Reload Option grants upon the exercise of
Reload Options granted hereunder. Unless otherwise determined by the Committee,
in its discretion, Reload Option Rights shall entitle the Participant to be
granted Reload Options only if the underlying Option to which they relate is
exercised by the Participant during employment with the Corporation or any of
its Affiliates. Except as otherwise specifically provided herein or required
by the context, the term Option as used in this Plan shall include Reload
Options granted hereunder.
V. SARs
5.1 Grant. SARs may be granted by the Committee as stand-alone SARs or in
tandem with all or any part of any Option granted under the Plan. SARs which
are granted in tandem with an Option may be granted either at the time of the
grant of such Option or, except in the case of an Incentive Stock Option, at
any time thereafter during the term of such Option.
5.2 SAR Agreements. The grant of any SAR shall be evidenced by the related
Stock Option Agreement or by a written "Stock Appreciation Rights Agreement"
executed by the Corporation and the Participant, stating the number of shares
of Common Stock covered by the SAR, the base price of a stand-alone SAR and
such other terms and
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conditions of the SAR as the Committee may from time to time determine. The
base price for stand-alone SARs (the "base price") shall be such price as the
Committee, in its sole discretion, shall determine but shall not be less than
100% of the Fair Market Value per share of the Common Stock covered by the
stand-alone SAR on the date of grant.
5.3 Payment. SARs shall entitle the Participant upon exercise to receive the
amount by which the Fair Market Value of a share of Common Stock on the date of
exercise exceeds the option price of any tandem Option or the base price of a
stand-alone SAR, multiplied by the number of shares in respect of which the SAR
shall have been exercised. In the sole discretion of the Committee, the
Corporation may pay all or any part of its obligation arising out of a SAR
exercise in (i) cash, (ii) shares of Common Stock or (iii) cash and shares of
Common Stock. Payment shall be made by the Corporation as soon as practicable
after the date of exercise.
5.4 Exercise of Tandem Award. If SARs are granted in tandem with an Option (i)
the SARs shall be exercisable at such time or times and to such extent, but
only to such extent, that the related Option shall be exercisable, (ii) the
exercise of the related Option shall cause a share for share reduction in the
number of SARs which were granted in tandem with the Option; and (iii) the
payment of SARs shall cause a share for share reduction in the number of shares
covered by such Option.
5.5 Termination of Employment. Except as otherwise provided in the
Stock Appreciation Rights Agreement:
(a) If termination of employment of a Participant is due to retirement
after age 55 with the written consent of the Corporation or an Affiliate, the
Participant shall have the right to exercise his or her stand-alone SARs within
the period of two years after such retirement, to the extent such SARs were
exercisable at the time of retirement; provided, however, that such
post-retirement exercise period may be extended by action of the Committee for
up to the full term of such SARs.
(b) If a Participant shall die while employed by the Corporation or an
Affiliate thereof or within a period following termination of employment during
which the SARs remain exercisable under paragraphs (a), (c) or (d) of this
Section 5.5, his or her stand-alone SARs may be exercised to the extent
exercisable by the Participant at the time of his or her death within a period
of two years from the date of death by the executor or administrator of the
Participant's estate or by the person or persons to whom the Participant shall
have transferred such right by will or by the laws of descent and distribution.
(c) If termination of employment of a Participant is by reason of the
total and permanent disability of the Participant covered by a disability plan
of the Corporation or an Affiliate then in effect, the Participant shall have
the right to exercise his or her stand-alone SARs within the period of two
years after the date of termination of employment, to the extent such SARs were
exercisable at the time of termination of employment.
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(d) In the event all employment of a Participant with the Corporation or
an Affiliate is terminated without cause within two years after the occurrence
of a Change in Control Event, the Participant shall have the right to exercise
his or her stand-alone SARs within one year after the date such termination
occurred, to the extent such stand-alone SARs were exercisable at the time of
such termination of employment. For purposes of this paragraph, "without cause"
shall have the meaning provided in Section 4.6(d).
(e) In the event all employment of a Participant with the Corporation or
an Affiliate is terminated for any reason other than as stated in the preceding
paragraphs (a)-(d), his or her stand-alone SARs shall terminate upon such
termination of employment.
(f) Notwithstanding the foregoing, in no event shall a stand-alone SAR
granted hereunder be exercisable after the expiration of its term.
VI. Performance Units
6.1 Grant. The Committee may from time to time grant one or more Performance
Units to eligible employees. Performance Units shall represent the right of a
Participant to receive shares of Common Stock or cash at a future date upon the
achievement of Performance Goals which are established by the Committee.
6.2 Performance Unit Agreements. The grant of any Performance Unit shall be
evidenced by a written "Performance Unit Agreement", executed by the
Corporation and the Participant stating the amount of cash and/or number of
shares of Common Stock covered by the Performance Unit and such other terms and
conditions of the Performance Unit as the Committee may determine, including
the performance period to be covered by the award and the Performance Goals to
be achieved.
6.3 Payment. After the completion of a performance period, performance during
such period shall be measured against the Performance Goals set by the
Committee. If the Performance Goals are met or exceeded, the Committee shall
certify that fact in writing in the Committee minutes or elsewhere and certify
the amount to be paid to the Participant under the Performance Unit. In the
sole discretion of the Committee, the Corporation may pay all or any part of
its obligation under the Performance Unit in (i) cash, (ii) shares of Common
Stock or (iii) cash and shares of Common Stock. Payment shall be made by the
Corporation as soon as practicable after the certification of achievement of
the Performance Goals.
6.4 Termination of Employment. To be entitled to receive payment under a
Performance Unit, a Participant must remain in the employment of the
Corporation or an Affiliate through the end of the applicable performance
period; except that this limitation shall not apply where a Participant's
employment is terminated by the Corporation or an Affiliate without cause (as
defined in Section 4.6(d)) following the occurrence of a Change in Control
Event.
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6.5 Maximum Cash Payment. The maximum amount that may be paid in cash or in
Fair Market Value of Common Stock (to be valued no later than three days after
the date the Committee certifies the achievement of the Performance Goals)
under all Performance Units paid to any one Participant during a calendar year
shall in no event exceed $1,000,000.
VII. Deferred Cash Incentive Awards
7.1 Granting of Deferred Cash Incentive Awards. Deferred Cash Incentive Awards,
as hereafter described, may be granted in conjunction with all or any part of
any Option (other than an Incentive Stock Option) granted under the Plan,
either at the time of the grant of such Option or at any time thereafter during
the term of such Option.
7.2 Deferred Cash Incentive Agreements. Deferred Cash Incentive Awards shall
entitle the holder of an Option to receive from the Corporation an amount of
cash equal to the aggregate exercise price of all Options exercised by such
Participant in accordance with the terms of a written "Deferred Cash Incentive
Agreement" executed by the Corporation and the Participant. Deferred Cash
Incentive Agreements shall specify the conditions under which Deferred Cash
Incentive Awards become payable, the conditions under which Deferred Cash
Incentive Awards are forfeited and any other terms and conditions as the
Committee may from time to time determine. Under no circumstances may a
Deferred Cash Incentive Award be applied to any purpose other than the payment
of the exercise price of a properly exercised related Option.
7.3 Preestablished Performance Goals.
(a) Except in the event of death, total and permanent disability covered
by a disability plan of the Corporation or an Affiliate then in effect or the
occurrence of a Change in Control Event, any Deferred Cash Incentive Award
shall only be earned and become payable if the Corporation achieves Performance
Goals which are established for a calendar year or longer period by the
Committee. After the completion of a performance period, performance during
such period shall be measured against the Performance Goals set by the
Committee. If the Performance Goals are met or exceeded, the Committee shall
certify that fact in writing in the Committee minutes or elsewhere.
(b) The amount payable to a Participant upon achieving the Performance
Goals set by the Committee for the Deferred Cash Incentive Award shall be equal
to the option price of the related Option, which shall be the Fair Market Value
of the shares of Common Stock subject to the Option on the date the Option is
granted. No individual may in any calendar year receive payment of Deferred
Cash Incentive Awards with respect to Options for more than 750,000 shares of
Common Stock.
VIII. Restricted Stock
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8.1 Award of Restricted Stock. The Committee may from time to time, subject to
the provisions of the Plan and such other terms and conditions as it may
prescribe, grant one or more shares of Restricted Stock to eligible employees.
In the discretion of the Committee, shares of Restricted Stock may be granted
alone, in addition to or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
8.2 Restricted Stock Agreements. Each award of Restricted Stock under the Plan
shall be evidenced by a written Restricted Stock Agreement executed by the
Corporation and the Participant in such form as the Committee shall prescribe
from time to time in accordance with the Plan.
8.3 Restrictions. Shares of Restricted Stock issued to a Participant may not be
sold, assigned, transferred, pledged, hypothecated or otherwise disposed of,
except by will or the laws of descent and distribution, for such period as the
Committee shall determine, beginning on the date on which the Award is granted
(the "Restricted Period"). The Committee may also impose such other
restrictions and conditions on the shares or the release of the restrictions
thereon as it deems appropriate, including the achievement of Performance Goals
established by the Committee. In determining the Restricted Period of an Award,
the Committee may provide that the foregoing restrictions shall lapse with
respect to specified percentages of the awarded shares on specified dates
following the date of such Award or all at once.
8.4 Stock Certificate. As soon as practicable following the making of an award,
the Restricted Stock shall be registered in the Participant's name in
certificate or book-entry form. If a certificate is issued, it shall bear an
appropriate legend referring to the restrictions and it shall be held by the
Corporation on behalf of the Participant until the restrictions are satisfied.
If the shares are registered in book-entry form, the restrictions shall be
placed on the book-entry registration. Except for the transfer restrictions,
the Participant shall have all other rights of a holder of shares of Common
Stock, including the right to receive dividends paid with respect to the
Restricted Stock and the right to vote such shares. As soon as is practicable
following the date on which transfer restrictions on any shares lapse, the
Corporation shall deliver to the Participant the certificates for such shares,
provided that the Participant shall have complied with all conditions for
delivery of such shares contained in the Restricted Stock Agreement or
otherwise reasonably required by the Corporation.
8.5 Termination of Employment.
(a) Unless expressly provided to the contrary in the applicable Restricted
Stock Agreement, all restrictions placed upon Restricted Stock shall lapse
immediately upon (i) termination of the Participant's employment with the
Corporation or an Affiliate if, and only if, such termination is by reason of
the Participant's death, total and permanent disability covered by a disability
plan of the Corporation or an Affiliate then in effect or (except where
Performance Goals have been set for the Award) retirement after age 55 with the
written consent of the Corporation or an Affiliate or (ii) the occurrence of a
11
<PAGE> 12
Change in Control Event. In addition, the Committee may in its discretion
(except where Performance Goals have been set for the Award) allow restrictions
on Restricted Stock to lapse prior to the date specified in a Restricted Stock
Agreement.
(b) Except as otherwise provided in the Restricted Stock Agreement, upon
the effective date of a termination for any reason not specified in paragraph
(a) of this Section 8.5, all shares then subject to restrictions immediately
shall be forfeited to the Corporation without consideration or further action
being required of the Corporation. For purposes of this paragraph (b), the
effective date of a Participant's termination shall be the date upon which such
Participant ceases to perform services as an employee of the Corporation or any
of its Affiliates, without regard to accrued vacation, severance or other
benefits or the characterization thereof on the payroll records of the
Corporation or Affiliate.
8.6 Maximum Award. The compensation payable to a Participant upon achieving any
Performance Goals set by the Committee for Restricted Stock shall be equal to
the Fair Market Value of a share of Common Stock for each share of Restricted
Stock that is granted. No individual Participant may in any one calendar year
receive payment of a Restricted Stock Award (where Performance Goals have been
set for the Award) covering more than 100,000 shares of Common Stock.
IX. Miscellaneous
9.1 General Restriction. Each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that any listing
or registration of the shares of Common Stock or any consent or approval of any
governmental body, or any other agreement or consent is necessary or desirable
as a condition of the granting of an Award or issuance of Common Stock or cash
in satisfaction thereof, such Award may not be consummated unless such
requirement is satisfied in a manner acceptable to the Committee.
9.2 Non-Assignability. No Award under the Plan shall be assignable or
transferable by a Participant, except by will or by the laws of descent and
distribution or by such other means as the Committee may approve from time to
time. During the life of the Participant, such Award shall be exercisable only
by such Participant or by such other persons as the Committee may approve from
time to time.
9.3 Withholding Taxes. Whenever the Corporation proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Corporation shall
have the right to require the Participant to remit to the Corporation an amount
sufficient to satisfy any federal, state, local or other withholding tax
requirements prior to the delivery of any certificate for such shares. Whenever
under the Plan payments are to be made in cash, such payments shall be net of
an amount sufficient to satisfy any federal, state, local or other withholding
tax requirements.
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9.4 No Right to Employment. Nothing in the Plan or in any agreement entered
into pursuant to it shall confer upon any Participant the right to continue in
the employment of the Corporation or an Affiliate or affect any right which the
Corporation or an Affiliate may have to terminate the employment of such
Participant.
9.5 Non-Uniform Determinations. The Committee's determinations under the Plan
(including without limitation its determinations of the employees to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards and the establishment of performance goals and performance periods)
need not be uniform and may be made by it selectively among employees who
receive, or are eligible to receive, Awards under the Plan, whether or not such
persons are similarly situated.
9.6 No Rights as Shareholders. Participants as such shall have no rights as
shareholders of the Corporation, except as provided in Section 8.4, unless and
until shares of Common Stock are registered in their name.
9.7 Adjustments of Stock. If there is any change in the Common Stock by reason
of any stock split, stock dividend, spin-off, split-up, spin-out,
recapitalization, merger, consolidation, reorganization, combination or
exchange of shares, or any other similar transaction, the number and kind of
shares available for grant under the Plan or subject to or granted pursuant to
an Award and the price thereof, or other numeric limitations under the Plan, as
applicable, shall be appropriately adjusted by the Committee or the Board.
9.8 Amendment or Termination of the Plan. The Committee or the Board may at any
time terminate the Plan or any part thereof and may from time to time amend the
Plan as it may deem advisable. Any such action of the Committee or the Board
may be taken without the approval of the Corporation's shareholders, but only
to the extent that such shareholder approval is not required by applicable law
or regulation, including specifically Rule 16b-3, or the rules of any stock
exchange on which the Common Stock is listed. The termination or amendment of
the Plan shall not, without the consent of the Participant, adversely affect
such Participant's rights under an Award previously granted.
9.9 Awards to Foreign Nationals and Employees Outside the United States. To the
extent the Committee deems it necessary, appropriate or desirable to comply
with foreign law or practice and to further the purpose of the Plan, the
Committee may, without amending the Plan, (i) establish special rules
applicable to Awards granted to Participants who are foreign nationals, are
employed outside the United States, or both, including rules that differ from
those set forth in this Plan, and (ii) grant Awards to such Participants in
accordance with those rules.
9.10 Previously Granted Awards. Awards outstanding on the date of shareholder
approval of this amended and restated Plan shall continue to be governed by and
construed in accordance with the Plan as in effect prior to amendment and
restatement; except that outstanding Deferred Cash Incentive Awards shall be
subject to the limitations of new Section 7.3(a) and (b) of the Plan and, to
the extent required by
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Section 162(m) of the Code, a grant of a Reload Option shall be subject to the
limitation of new Section 3.4(d) of the Plan.
January 1997
14
<PAGE> 1
Exhibit 10.9
MELLON BANK CORPORATION
1990 ELECTIVE DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND MEMBERS OF THE ADVISORY BOARD
(AMENDED AND RESTATED AS OF JANUARY 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PREAMBLE................................................................ 1
ARTICLE I............................................................... 1
DEFINITIONS......................................................... 1
1.1 Account.................................................. 1
1.2 Beneficiary.............................................. 2
1.3 Board.................................................... 2
1.4 Committee................................................ 2
1.5 Company.................................................. 2
1.6 Deferral Commitment...................................... 2
1.7 Deferral Election........................................ 2
1.8 Early Distribution Account............................... 2
1.9 Effective Date........................................... 2
1.10 Elective Deferred Compensation........................... 2
1.11 Financial Hardship....................................... 2
1.12 Normal Distribution Account.............................. 2
1.13 Participant.............................................. 2
1.14 Plan..................................................... 3
1.15 Plan Year................................................ 3
1.16 Prior Account............................................ 3
1.17 Prior Plan............................................... 3
1.18 Retirement............................................... 3
1.19 Service.................................................. 3
1.20 Special Distribution Account............................. 3
1.21 T-Note Rate.............................................. 3
1.22 Valuation Date........................................... 3
1.23 Window Period............................................ 3
ARTICLE II............................................................... 4
ADMINISTRATION........................................................ 4
2.1 Administrator............................................ 4
2.2 Powers and Duties........................................ 4
2.3 Procedures............................................... 5
2.4 Establishment of Rules................................... 5
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
2.5 Limitation of Liability................................... 5
2.6 Compensation and Insurance................................ 5
2.7 Removal and Resignation................................... 6
2.8 Claims Procedure.......................................... 6
ARTICLE III................................................................... 6
PARTICIPATION AND DEFERRAL COMMITMENTS................................ 6
3.1 Eligibility and Participation............................. 6
3.2 Duration of Deferral Commitment........................... 6
3.3 Basic Forms of Deferral................................... 7
3.4 Limitations on Deferrals.................................. 7
3.5 Modification of Deferral Commitments on
Financial Hardship........................................ 8
3.6 Commencement of Deferral Commitment....................... 8
3.7 Roll-Over of Prior Accounts............................... 8
3.8 Termination of Prior Plan Deferral Commitments............ 8
ARTICLE IV.................................................................... 8
DEFERRED COMPENSATION ACCOUNTS........................................ 8
4.1 Accounts................................................. 8
4.2 Elective Deferred Compensation........................... 8
4.3 Crediting Rate........................................... 9
4.4 Valuation of Accounts.................................... 9
4.5 Vesting of Accounts...................................... 9
4.6 Statement of Accounts.................................... 9
ARTICLE V..................................................................... 10
PLAN BENEFITS......................................................... 10
5.1 Plan Benefit............................................. 10
5.2 Normal Distribution Account.............................. 11
5.3 Survivor Benefits........................................ 12
5.4 Early Distribution Account............................... 14
5.5 Hardship Distributions................................... 15
5.6 Valuation and Settlement................................. 15
5.7 Change in Control and Unscheduled Distributions.......... 15
5.8 Distributions from General Assets........................ 17
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
5.9 Withholding and Payroll Taxes........................... 17
5.10 Payment to Guardian..................................... 17
5.11 Small Benefit........................................... 17
5.12 Protective Provisions................................... 17
5.13 Notices and Elections................................... 18
5.14 Special Distribution Accounts........................... 18
ARTICLE VI.................................................................. 18
DESIGNATION OF BENEFICIARY......................................... 18
6.1 Designation of Beneficiary.............................. 18
6.2 Failure to Designate Beneficiary........................ 18
ARTICLE VII................................................................. 19
FORFEITURES TO COMPANY............................................. 19
7.1 Distributions of Participants' Interests When Company
is Unable to Locate Distributees........................ 19
ARTICLE VIII................................................................ 19
MAINTENANCE OF ACCOUNTS............................................. 19
ARTICLE IX.................................................................. 20
AMENDMENT AND TERMINATION OF THE PLAN.............................. 20
9.1 Amendment.................................................... 20
9.2 Company's Right to Terminate................................. 20
ARTICLE X................................................................... 21
SPENDTHRIFT PROVISIONS............................................ 21
ARTICLE XI.................................................................. 21
MISCELLANEOUS.................................................... 21
11.1 Right of Company to Replace Members of Board of
Directors and Advisory Board; Obligations................... 21
</TABLE>
(iii)
<PAGE> 5
<TABLE>
<S> <C>
11.2 Title to and Ownership of Assets
Held for Accounts.................................... 21
11.3 Nature of Liability to Participants.................. 21
11.4 Text of Plan to Control.............................. 22
11.5 Law Governing and Severability....................... 22
11.6 Name................................................. 22
11.7 Gender............................................... 22
11.8 Trust Fund........................................... 22
</TABLE>
(iv)
<PAGE> 6
MELLON BANK CORPORATION
1990 ELECTIVE DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND MEMBERS OF THE ADVISORY BOARD
(Amended and Restated as of January 1, 1997)
PREAMBLE
The purpose of this 1990 Elective Deferred Compensation Plan for Directors and
Members of the Advisory Board (the "Plan") is to offer each non-employee member
of the Board of Directors and each member of the Advisory Board of Mellon Bank
Corporation (the "Company") the opportunity to defer receipt of compensation to
be earned for service in such capacity and to accumulate supplemental funds for
retirement, special needs prior to retirement, or death. The Plan was
originally effective as of January 1, 1990. This amended and restated Plan
shall only apply to Participants who serve as non-employee members of the Board
of Directors or the Advisory Board of the Company after January 1, 1997. The
Plan as previously in effect shall apply to all Participants who terminated
their service with the Board of Directors and the Advisory Board of the Company
prior to January 1, 1997.
The Mellon Bank Corporation Deferred Compensation Plan for Directors and
Members of the Advisory Board which was originally adopted on July 14, 1980
(the "Prior Plan") will continue in effect, but a Participant in this Plan will
not be eligible to make any new deferrals under the Prior Plan. A Participant
may elect to transfer account balances under the Prior Plan to this Plan
whenever the Committee which administers this Plan may permit. No Accounts held
under this Plan may be transferred to the Prior Plan.
The Corporate Benefits Committee ("Committee" or "CBC") of the Company shall be
the "administrator" responsible for administering the Plan in accordance with
its terms but such designation of the Committee shall not be construed,
directly or indirectly, as evidencing any intent on the part of the Company
that the Plan be governed by or enforceable under the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); it being the intent of the
Company that such Plan be governed by and enforceable under the laws of the
Commonwealth of Pennsylvania.
ARTICLE I
DEFINITIONS
When used herein, the following words shall have the following meanings unless
the content clearly indicates otherwise:
1.1 Account. "Account" means the record-keeping device used by the Company to
measure and determine the amounts to be paid to a Participant under the Plan.
Separate Accounts will be established for each Participant and as may otherwise
be required.
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1.2 Beneficiary. "Beneficiary" means the person who under this Plan becomes
entitled to receive a Participant's interest in the event of his death.
1.3 Board. "Board" means the Board of Directors of the Company or any committee
thereof acting within the scope of its authority.
1.4 Committee. "Committee" means the Corporate Benefits Committee appointed to
administer the Plan pursuant to Article II.
1.5 Company. "Company" means Mellon Bank Corporation, a Pennsylvania
corporation, and any successor in interest.
1.6 Deferral Commitment. "Deferral Commitment" means a commitment made by a
Participant pursuant to Article III for which a Deferral Election has been
submitted by the Participant to the Committee.
1.7 Deferral Election. "Deferral Election" means the written agreement to defer
receipt of compensation submitted by a Participant to the Committee or its
delegates prior to the commencement of the period in which the deferred
compensation is to be earned.
1.8 Early Distribution Account. "Early Distribution Account" means an account
established pursuant to Section 5.4 which provides for distribution of a
benefit prior to a Participant's Retirement.
1.9 Effective Date. "Effective Date" of this amended and restated Plan means
January 1, 1997. The Plan originally became effective on January 1, 1990.
1.10 Elective Deferred Compensation. "Elective Deferred Compensation" means the
amount of compensation that a Participant elects to defer pursuant to a
Deferral Commitment.
1.11 Financial Hardship. "Financial Hardship" means an immediate and
substantial financial need of the Participant or Beneficiary, determined by the
Committee on the basis of written information supplied by the Participant in
accordance with such standards as are, from time to time, established by the
Committee.
1.12 Normal Distribution Account. "Normal Distribution Account" means an
Account established pursuant to Section 5.2 which provides for distribution of
a benefit following Retirement.
1.13 Participant. "Participant" means any individual who is participating in
this Plan as provided in Article III.
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<PAGE> 8
1.14 Plan. "Plan" means this "1990 Elective Deferred Compensation Plan for
Directors and Members of the Advisory Board" as set forth in this document and
as the same may be amended, administered or interpreted from time to time.
1.15 Plan Year. "Plan Year" means each calendar year beginning on January 1 and
ending on December 31.
1.16 Prior Account. "Prior Account" means an account originally established for
a Participant under the Prior Plan which is transferred to this Plan.
1.17 Prior Plan. "Prior Plan" means the Mellon Bank Corporation Deferred
Compensation Plan for Directors and Members of the Advisory Board which was
originally adopted on July 14, 1980, as amended from time to time.
1.18 Retirement. "Retirement" means that a Participant no longer serves on
either the Board of Directors or the Advisory Board of the Company, for any
reason other than death.
1.19 Service. "Service" means service on the Board of Directors or Advisory
Board of the Company.
1.20 Special Distribution Account. "Special Distribution Account" means an
Account established for any Elective Deferred Compensation (plus earnings
thereon) earned prior to January 1, 1997, which the Participant elected to have
distributed while serving as a non-employee member of the Board of Directors or
the Advisory Board; provided, however, such term shall not include amounts held
for a Participant in a Prior Account.
1.21 T-Note Rate. "T-Note Rate" means for each Plan Year the interest rate
which is equivalent to an effective annual yield equal to the 120 month rolling
average rate of ten-year United States Treasury Notes as of the July 31
preceding the applicable Plan Year. This rate will be determined once each year
by an outside source selected by the Company.
1.22 Valuation Date. "Valuation Date" means the last day of each month, or
such other dates as the Committee may determine in its discretion, which may be
either more or less frequent, for the valuation of Participants' Accounts.
1.23 Window Period. "Window Period" means a period of thirty calendar days
which begins on the third business day following the date of release of annual
or quarterly earnings of the Company, or such other period as the Committee may
determine in its discretion.
3
<PAGE> 9
ARTICLE II
ADMINISTRATION
2.1 Administrator. Except as hereinafter provided, the Committee shall be the
administrator of the Plan and shall be responsible for administering the Plan
in accordance with its terms and for the administrative responsibilities
hereinafter described with respect to the Plan. Whenever any action is required
or permitted to be taken in the administration of the Plan, such action shall
be taken by the Committee unless the Committee's power is expressly limited
herein or by operation of law. The Committee may delegate its duties and
responsibilities as it, in its sole discretion, deems necessary or appropriate
to the execution of such duties and responsibilities. The Committee as a whole
or any of its members may serve in more than one capacity with respect to the
Plan.
2.2 Powers and Duties. The Committee, or its delegates, shall maintain and keep
(or cause to be maintained and kept) such records as are necessary for the
efficient operation of the Plan or as may be required by any applicable law,
regulation, or ruling and shall provide for the preparation and filing of such
forms, reports, information, and documents as may be required to be filed with
any governmental agency or department and with the Plan's Participants and/or
other Beneficiaries.
Except to the extent expressly reserved to the Company or the Board, the
Committee shall have all powers necessary to carry out the administrative
provisions of the Plan and to satisfy the requirements of any applicable law or
laws. These powers shall include, by way of illustration and not limitation,
the exclusive powers and discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of eligibility;
decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any
benefits hereunder;
(b) direct the Company, and/or the trustee of any trust established at the
discretion of the Company to provide for the payment of benefits under the
Plan, concerning the amount, time, manner, method, and mode of payment of
any benefits hereunder;
(c) prescribe procedures to be followed and forms to be used by
Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required by law or as
the Committee deems appropriate, information explaining the Plan;
provided, however, that no such explanation shall contravene the terms of
this Plan or increase the rights of any Participant or Beneficiary or the
liabilities of the Company;
(e) require from the Company and Participants such information as shall be
necessary for the proper administration of the Plan;
4
<PAGE> 10
(f) appoint and retain individuals to assist in the administration and
construction of the Plan, including such legal, clerical, accounting, and
actuarial services as it may require or as may be required by any
applicable law or laws; and
(g) perform all other administrative functions which are not expressly
reserved to the Company or the Board, including, but not limited to, those
supplemental duties and responsibilities described in the "Mellon Bank
Corporation Corporate Benefits Committee Charter and Summary of
Operations" approved by the Board on September 17, 1991 (the "CBC
Charter") which are not inconsistent with the Board's intent that the Plan
not be construed as governed by or subject to ERISA.
Without intending to limit the generality of the foregoing, the Committee shall
have the power to amend the Plan, in whole or in part, in order to comply with
applicable law; provided, however, that no such amendment may increase the
duties and obligations of the Company without the consent of the Company.
Except as provided in the preceding sentence or unless directed by the Board or
the Human Resources Committee of the Board or otherwise required by law, the
Committee shall have no power to adopt, amend, or terminate the Plan, said
powers being exclusively reserved to the Board or the Human Resources Committee
of the Board.
2.3 Procedures. The Committee shall be organized and conduct its business with
respect to the Plan in accordance with the organizational and procedural rules
set forth in the CBC Charter.
2.4 Establishment of Rules. The Committee shall have specific authority in its
sole discretion to construe and interpret the terms of the Plan related to its
powers and duties, and to the extent that the terms of the Plan are incomplete,
the Committee shall have authority to establish such rules or regulations
related to its powers and duties as it may deem necessary and proper to carry
out the intent of the Company as to the purposes of the Plan.
2.5 Limitation of Liability. The Board, the members of the Committee, and any
officer, employee, or agent of the Company shall not incur any liability
individually or on behalf of any other individuals or on behalf of the Company
for any act, or failure to act, made in good faith in relation to the Plan.
2.6 Compensation and Insurance. Members of the Committee shall serve without
compensation for their services as such. Expenses incurred by members of the
Committee in the performance of their duties as herein provided, and the
compensation and expenses of persons retained or employed by the Committee for
services rendered in connection with the Plan shall, upon approval by the
Committee, be paid or reimbursed by the Company.
5
<PAGE> 11
The Company shall indemnify and/or maintain and keep in force insurance in such
form and amount as may be necessary in order to protect the members of the
Committee, their delegates and appointees (other than persons who are
independent of the Company and are rendering services to the Committee or to or
with respect to the Plan) from any claim, loss, damage, liability, and expense
(including costs and attorneys' fees) arising from their acts or failures to
act with respect to the Plan, except where such actions or failures to act
involve willful misconduct or gross negligence.
2.7 Removal and Resignation. Any member of the Committee may resign and the
Company may remove any member of the Committee in accordance with the
procedures established by the CBC Charter. The Committee shall remain fully
operative pending the filling of any vacancies, the remaining Committee members
shaving full authority to administer the Plan.
2.8 Claims Procedure. The right of any Participant or Beneficiary to receive a
benefit hereunder and the amount of such benefit shall be determined in
accordance with the procedures for determination of benefit claims established
and maintained by the Committee; which separate procedures, entitled Procedures
for Determination of Benefit Claims, are incorporated herein by this reference.
ARTICLE III
PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation.
(a) Eligibility. Eligibility to make a Deferral Commitment shall be
limited to non-employee members of the Board of Directors and members of
the Advisory Board of the Company.
(b) Participation. An eligible individual may elect to participate in the
Plan by submitting a Deferral Election to the Committee or its delegates
prior to such date, as the Committee may determine, preceding the period
in which the deferred compensation is to be earned. The Deferral Election
shall specify whether the deferred compensation shall be credited to a
Normal Distribution Account or an Early Distribution Account for the
Participant.
3.2 Duration of Deferral Commitment.
(a) A Deferral Commitment for a Normal Distribution Account or Early
Distribution Account shall continue in effect until the Participant files
a subsequent Deferral Election changing the amount of or stopping such
Deferral Commitment.
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<PAGE> 12
(b) A Deferral Commitment for an Early Distribution Account shall
terminate at the end of the Plan Year preceding the Plan Year which the
Participant has selected for distribution of such Account.
(c) Except as provided in Sections 5.5 and 5.7 below, a subsequent
Deferral Election shall become effective beginning with the next Plan Year
following the date it is filed. A Subsequent Deferral Election shall not
apply to any deferrals which represent payments for services performed
prior to the beginning of the first Plan Year to which it applies, but
otherwise shall apply to all future deferrals covered by the Deferral
Commitment.
(d) A Participant's Deferral Commitments shall terminate upon the
Participant's Retirement or death.
3.3 Basic Forms of Deferral. A Participant may file a Deferral Election to
defer any or all of the following forms of compensation:
(a) Annual Retainer. A Participant may elect to defer a portion of the
annual retainer paid for meetings of the Board of Directors or Advisory
Board of the Company. The amount to be deferred shall be stated as a whole
number percentage of annual retainer.
(b) Board Meeting Fees. A Participant may elect to defer a portion of the
meeting fees paid for meetings of the Board of Directors or Advisory Board
of the Company. The amount to be deferred shall be stated as a whole
number percentage of the fees paid for such meetings.
(c) Committee Meeting Fees. A Participant may elect to defer a portion of
the meeting fees paid for meetings of committees of the Board of Directors
or Advisory Board of the Company. The amount to be deferred shall be
stated as a whole number percentage of the fees paid for such committee
meetings.
(d) Special Deferrals. A Participant may elect any special Deferral
Commitment which is authorized by the Committee in its discretion.
3.4 Limitations on Deferral. The following limitations on deferrals shall
apply:
(a) Minimum Deferrals. The minimum deferral amount for each of the basic
forms of deferral in Section 3.3(a), (b) or (c) above is $2,000 for any
Plan Year.
(b) Maximum Deferrals. A Participant shall not defer for any Plan Year
more than one hundred percent (100%) of the Participant's annual retainer
and meeting fees for meetings of the Board of Directors or Advisory Board
of the Company and their committees.
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(c) Prior Plan. A Participant may not defer under this Plan any
compensation which he elects to defer under the Prior Plan. In the event
of any conflict between deferral elections under this Plan and the Prior
Plan, the deferral election under this Plan shall take precedence and
shall revoke any conflicting election under the Prior Plan.
(d) Waiver; Committee Discretion. The Committee may further limit the
minimum or maximum amount deferred by any Participant or group of
Participants, or waive the foregoing minimum and maximum limits for any
Participant or group of Participants, for any reason.
3.5 Modification of Deferral Commitments on Financial Hardship. The Committee
may permit a Participant to reduce the amount to be deferred, or waive the
remainder of the Deferral Commitment, upon a finding that the Participant has
suffered a Financial Hardship.
3.6 Commencement of Deferral Commitment. A Deferral Commitment shall be deemed
to commence as of the first day of the Plan Year covered by the Deferral
Election for such Deferral Commitment. A Participant's Beneficiary will be
entitled to receive pre-retirement survivor benefits pursuant to Section 5.3(a)
with respect to the Deferral Commitment only in the event of the Participant's
death on or after such date while in Service on the Board of Directors or
Advisory Board of the Company.
3.7 Roll-Over of Prior Accounts. A Participant may elect to transfer Prior
Accounts held under the Prior Plan to this Plan whenever the Committee may
permit in its discretion. Prior Accounts which are transferred to this Plan
shall be valued and credited with interest under this Plan commencing on the
date which the Committee shall determine. Prior Accounts shall be distributed
as provided in Section 5.14.
3.8 Termination of Plan Deferral Commitments. All Deferral Commitments
established under the terms of the Plan prior to its amendment and restatement
as of January 1, 1997, shall terminate on December 31, 1996.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
4.1 Accounts. For record-keeping purposes only, Normal Distribution, Early
Distribution, Special Distribution and Prior Accounts shall be maintained as
applicable for each Participant's Elective Deferred Compensation.
4.2 Elective Deferred Compensation. A Participant's Elective Deferred
Compensation shall be credited to the Participant's Account as of the date when
the corresponding non-deferred portion of the compensation is paid or would
have been paid but for the Deferral Commitment. Prior Accounts which are
transferred to this Plan shall be valued and credited with interest under this
Plan commencing on the date determined by the
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Committee. Any withholding of taxes or other amounts with respect to deferred
compensation that is required by federal, state or local law shall be withheld
from the Participant's non-deferred compensation to the maximum extent possible
with any excess being withheld from the Participant's Deferral Commitment or
Account(s).
4.3 Crediting Rate. Accounts shall be credited monthly with interest based on
the rates specified below, compounded annually. Interest shall be credited as
of each Valuation Date from the dates when deferred amounts are credited to
accounts based on the balance of each Account.
(a) Interest Rate During Participant's Lifetime. During a Participant's
lifetime, the Participant's Accounts will be credited with interest on a
monthly basis during each Plan Year at the T-Note Rate which is applicable
for that Plan Year, subject to increase pursuant to Section 5.1.
(b) Interest Rate After Participant's Death. Following a Participant's
death, the Participant's Account will be credited with interest on a
monthly basis during each Plan Year at one hundred percent (100%) of the
T-Note Rate which is applicable for that Plan Year.
4.4 Valuation of Accounts. A Participant's Account(s) as of each Valuation Date
shall consist of the balance of the Participant's Account(s) as of the
immediately preceding Valuation Date, plus the Participant's Elective Deferred
Compensation and interest credited to such Account(s) and minus any
distributions made from such Account(s) since the immediately preceding
Valuation Date.
4.5 Vesting of Accounts. Each Participant shall be one hundred percent (100%)
vested at all times in the amounts credited to such Participant's Accounts.
4.6 Statement of Accounts. The Company shall submit to each Participant
periodic statements setting forth the balance to the credit of the Accounts
maintained for the Participant.
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ARTICLE V
PLAN BENEFITS
5.1 Plan Benefit. The Company shall pay a Plan benefit for the Participant's
Normal Distribution, Early Distribution, Special Distribution and Prior Plan
Accounts, as determined below:
(a) Fully Enhanced Rate. Unpaid Account balances of Participants who
terminate Service upon Retirement on or after age 68, death, or at any
time after a Change in Control, shall be credited retroactively on the
Valuation Date immediately preceding commencement of payment of benefits
with respect to such Account balances with one hundred thirty-five percent
(135%) of the T-Note Rate for each Plan Year.
(b) Enhanced Rate. Unpaid Account balances of Participants who terminate
service upon Retirement before age 68 and prior to a Change in Control,
for reasons other than death, shall be credited retroactively on the
Valuation Date immediately preceding commencement of payment of benefits
with respect to such Account balances with a percentage of the T-Note Rate
based on the Participant's completed years of Service, including years of
Service before the Effective Date of this Plan, and completed years of
participation in this Plan as follows:
Completed Years of Completed Years of
Continuous Service Plan Participation % of T-Note Rate
------------------ ------------------ ----------------
Less Than 3 -- 100%
3 or More -- 125%
5 or More and 2 or More 130%
7 or More and 4 or More 135%
(c) Early Distribution, Special Distribution and Prior Plan Accounts. The
enhanced rates set forth under Sections 5.1(a) and (b) above shall also be
credited retroactively to Early Distribution, Special Distribution and
Prior Plan Accounts on the basis of the Participant's Service and
completed years of participation in the Plan on the Valuation Date
preceding each payment of benefits with respect to such Accounts before
Retirement.
(d) Completed Years of Plan Participation. Completed years of
participation in this Plan shall include all years for which the
Participant had an Account balance with the Plan for the entire calendar
year.
(e) Duration. The interest rates provided under Sections 5.1(a) and (b)
above shall be payable until the Participant's Accounts are distributed in
full except in the event of the Participant's death. After the
Participant's death, interest shall be credited pursuant to Section
4.3(b).
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5.2 Normal Distribution Account.
(a) Election of Retirement Benefit. A Participant may file a Deferral
Election to defer compensation into a Normal Distribution Account and
receive benefits from such Account following Retirement. A Participant may
elect up to three (3) benefit payment options, each covering a ten percent
(10%) multiple of his Normal Distribution Account balance at Retirement
and specifying a date of commencement and duration of payments. A
Participant's election of payment options shall be irrevocable, except as
follows:
(i) Subject to the approval of the Committee, a Participant shall be
permitted to file one new payment election per year which will
supersede his original election (A) at any time more than 12 months
prior to his Retirement without penalty and (B) at any time during the
12 months preceding his Retirement subject to a penalty, which shall
be forfeited to the Company, equal to six percent (6%) of the portion
of his Account balance affected by the change. A new payment election
which is made within the aforesaid time limits will become effective
upon the Participant's Retirement. In the event that a Participant
accelerates his or her Retirement thereby causing a previously filed
payment election to have been made within 12 months preceding
Retirement, the next preceding timely payment election filed by the
Participant shall be followed unless the Participant elects to have
the six percent (6%) penalty of Section 5.2(a)(i)(B) above apply. No
penalty shall apply to the first such payment election made by a
Participant who was participating in the Plan prior to its amendment
and restatement as of January 1, 1997, and such initial election shall
be given effect unless the Participant subsequently files a new
election.
(ii) A Participant who has elected payments in installments may
request in writing a payment in a lump sum, at any time after
Retirement, of the amount of his Account balance which is reasonably
necessary to meet the Participant's requirements due to a Financial
Hardship.
(iii) A Participant may elect to receive a payment in a lump sum at
any time, subject to penalty, as provided in Section 5.7(b).
(b) Forms of Benefit Payment. The available forms of payment from a
Participant's Normal Distribution Account after Retirement are as follows:
(i) One lump sum payment.
(ii) Monthly installment payments in substantially equal payments of
principal and interest over a payment period of 60, 120 or 180 months,
as elected by the Participant. The amount of the monthly installments
shall be redetermined effective as of January 1 of each year based on
the remaining Account balance and the remaining number of installment
payments.
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(c) Commencement of Retirement Benefit Payment. The available commencement
dates for payment of benefits from a Participant's Normal Distribution
Account are as follows:
(i) Upon Retirement.
(ii) Any January following Retirement; provided, however, that no
payment may commence later than January of the year in which the
Participant attains age 70 if Retirement is prior to age 70, and no
later than the January following Retirement if Retirement is on or
after age 70,
(iii) The later of Retirement and the date the Participant attains age
60, 65 or 70.
If a Participant does not elect a benefit payment option for his Normal
Distribution Account, Plan benefits from such Account will be paid in
monthly installments over 180 months, commencing in January of the year
following Retirement.
5.3 Survivor Benefits.
(a) Pre-Retirement Survivor Benefits.
(i) Normal Distribution Accounts. If a Participant dies while in
Service as a member of the Board of Directors or Advisory Board of the
Company prior to receiving a complete distribution of his or her
entire Normal Distribution Account balance, the amount payable as a
survivor benefit for such Account shall be equal to its remaining
unpaid balance, if any, plus an additional credit equal to the annual
amount of the Deferral Commitment in effect at death for the
Participant's Normal Distribution Account multiplied by the number of
Plan Years until the year in which the Participant would have attained
age 72; provided, however, that such multiplier shall be limited by a
maximum of four (4) years.
(ii) Early Distribution Accounts. If a Participant dies while in
Service as a member of the Board of Directors or Advisory Board of the
Company prior to receiving a complete distribution of his or her
entire Early Distribution Account balance, the amount payable as a
survivor benefit for such Account shall be equal to its remaining
unpaid balance, if any, plus an additional credit equal to the annual
amount of the Deferral Commitment in effect at death for the
Participant's Early Distribution Account multiplied by the number of
Plan Years remaining before commencement of payment of such Account;
provided however, that such multiplier shall be limited by a maximum
of four (4) years or the number of years until the year in which the
Participant would have attained age 72.
(iii) Covered Deferral Commitment. For purposes of Sections 5.3(a)(i)
and (ii), a Participant's Deferral Commitment shall be determined
based on projecting the
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annual retainer and meeting fees for the Board of Directors and
Advisory Board of the Company and their committees in effect at the
time of the Participant's death and taking into account any reduction
in such annual retainer and meeting fees which would normally occur
for members of the Advisory Board. A Deferral Commitment shall be
deemed to be in effect beginning on the first day of the Plan Year
after the Participant files a Deferral Election for such Deferral
Commitment.
(iv) Special Distribution Accounts and Prior Accounts. If a
Participant dies while in Service as a member of the Board of
Directors or Advisory Board of the Company prior to receiving a
complete distribution of his entire Special Distribution Account or
Prior Account balance, if any, the amount payable as a survivor
benefit for such Accounts shall be equal to its remaining unpaid
balance, if any.
(v) Commencement of Survivor Benefit. The pre-retirement survivor
benefits for Normal and Early Distribution Accounts shall become
effective beginning on the first day of the Plan Year after the
Participant files a Deferral Election for a Normal or Early
Distribution Account. A Participant's Beneficiary will be entitled to
receive such pre-retirement survivor benefits only in the event of the
Participant's death while in Service on or after such dates. The
pre-retirement survivor benefits for all Special Distribution Accounts
and Prior Accounts shall become effective as of January 1, 1997.
(vi) Withdrawals. Whenever a Participant makes a withdrawal from any
Account, the Account balance shall be reduced by the amounts
withdrawn, including any penalty thereon. If a Participant dies while
in Service after complete distribution of his entire Account balances,
no survivor benefit will be payable to the Participant's Beneficiary.
(vii) Commencement of Payments. The pre-retirement survivor benefits
described above will be paid to the Participant's Beneficiary in ten
(10) annual installments, commencing as soon as practicable after the
Participant's death.
(b) Post-Retirement Survivor Benefits. If a Participant dies after
Retirement but before commencement of payment of retirement benefits with
respect to his Normal Distribution Account balance, the Company will pay
to the Participant's Beneficiary the installments of any such benefit that
such Participant's Beneficiary would have received with respect to such
Normal Distribution Account balance had the Participant commenced to
receive retirement benefits on the day prior to such Participant's death.
Payments will commence upon the Participant's death, irrespective of when
retirement benefits would have commenced if the Participant had survived.
Such payments shall be made in accordance with the method of payment which
the Participant had elected for payment of his retirement benefits for his
Normal Distribution Account.
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If a Participant dies after the commencement of payment of retirement
benefits with respect to his Account balance(s), the Company will pay to
the Participant's Beneficiary the remaining installments of any such
benefit that would have been paid to the Participant had the Participant
survived.
If a Participant dies after Retirement but before receiving full payment
of benefits from his Early Distribution, Special Distribution or Prior
Account, his Beneficiary shall receive the balance of such Accounts in one
lump sum payment, as soon as practicable following his death.
(c) Interest. If the Participant dies prior to Retirement, the amount
payable with respect to each of the Participant's Accounts shall be
determined by retroactively crediting interest at one hundred thirty-five
percent (135%) of the T-Note Rate for each Plan Year through the date of
the Participant's death. After the Participant's death, interest shall be
credited for each Plan Year at one hundred percent (100%) of the T-Note
Rate which is applicable for that Plan Year.
5.4 Early Distribution Account. A participant may file a Deferral Election to
defer compensation into an Early Distribution Account and receive benefits from
such Account prior to Retirement subject to the following restrictions:
(a) Election of Early Distribution Benefit. A Deferral Election
establishing an Early Distribution Account and specifying an early payment
date and the form of payment must be filed prior to the commencement of
the period in which the Elective Deferred Compensation is to be earned. No
deferrals may be made into a Participant's Early Distribution Account
during any Plan Year in which the Participant is receiving a distribution
from such Account.
(b) Amount of Early Distribution Benefit. The entire Early Distribution
Account must be paid out at the time and in the form provided for in the
related Deferral Election
(c) Commencement and Form of Early Distribution Benefit. An Early
Distribution Account shall not be paid out prior to the completion of two
Plan Years following the start of deferrals into such Account. An Early
Distribution Account shall be paid out in a lump sum or in four equal
annual installments, as provided in the Participant's Deferral Election
establishing such Account. In the year following the complete distribution
of an Early Distribution Account, a Participant may make new deferrals
into such Account. Amounts paid to a Participant pursuant to this Section
5.4 shall be treated as distributions from the Participant's Early
Distribution Account. If the Participant terminates service upon
Retirement before the date scheduled for payment of an Early Distribution
Account, the Participant shall receive the balance of his Early
Distribution Account in one lump sum payment or up to three (3) equal
annual installments, at the Committee's discretion, as soon as practicable
following such event.
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5.5 Hardship Distributions. Upon a finding that a Participant or Beneficiary
has suffered a Financial Hardship, the Committee may, in its sole discretion,
make distributions from an Account prior to the time specified for payment of
benefits under the Plan. The amount of such distribution shall be limited to
the amount reasonably necessary to meet the Participant's or Beneficiary's
requirements during the Financial Hardship. Applications for hardship
distributions and determinations thereon by the Committee shall be in writing,
and a Participant or Beneficiary may be required to furnish written proof of
the Financial Hardship.
A Participant's entire Account balance will be distributed whenever a hardship
distribution would amount to more than seventy-five percent (75%) of any such
Account balance. Following a complete distribution of an entire Account
balance, a Participant and his Beneficiary will be entitled to no further
benefits under the Plan with respect to that Account. Amounts paid to a
Participant pursuant to this Section 5.5 shall be treated as distributions from
the Participant's Account. Any Participant who receives a hardship distribution
of any part of an Account balance shall not be allowed to make any deferrals
under the Plan during the remainder of the Plan Year in which he receives such
distribution or during the next Plan Year.
5.6 Valuation and Settlement. The date on which a lump sum is paid or the date
on which installment payments commence shall be the "Settlement Date". The
Settlement Date for an Account shall be no more than sixty (60) days after the
end of the month in which the Participant or his Beneficiary becomes entitled
to payments on account of Retirement or death, unless the Participant elects to
defer commencement of payments following Retirement to a later date in the
election form for designation of form of payment for the Account. The
Settlement Date for an Early Distribution Account or delayed payments following
Retirement shall be the date which the Participant elects for commencement of
such payments in the election form for designation of form of payment for the
Account. The Settlement Date for a Special Distribution or Prior Account shall
be the date which the Participant elected for commencement of payments from
such Account under the terms of the Prior Plan. The amount of a lump sum
payment and the initial amount of installment payments shall be based on the
value of the Participant's Account as of the Valuation Date at the end of the
immediately preceding month before the Settlement Date. For example, the
Valuation Date at the end of December shall be used to determine lump sum
payments and the initial amount of installment payments which will be made in
the following January.
5.7 Change in Control and Unscheduled Distributions.
(a) Subject to the provisions of Section 5.7(b) hereof, upon (i)
dissolution or liquidation of the Company, (ii) a reorganization, merger
or consolidation of the Company with one or more other entities as a
result of which the Company is not the survivor, (iii) the sale of all or
substantially all the assets of the Company, or (iv) any other event which
constitutes a Change in Control as defined in Section 5.7(c), the
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<PAGE> 21
interests of all then remaining Participants shall continue, and
provisions shall be made in connection with such transaction for the
continuance of the Plan and the assumption of the obligations of the
Company under the Plan by the Company's successor(s) in interest.
(b) Notwithstanding any other provisions of the Plan, at any time during a
Window Period before a Change in Control or at any time after a Change in
Control, a Participant or a Beneficiary of a deceased Participant may
elect to receive an immediate lump sum payment of up to the balance of his
Account(s), reduced by a penalty, which shall be forfeited to the Company,
equal to ten percent (10%) before a Change in Control or six percent (6%)
after a Change in Control, applied against the portion of the Account
balance withdrawn, in lieu of payments in accordance with the form
previously elected by the Participant. However, the penalty shall not
apply if the Committee determines, based on advice of counsel or a final
determination by the Internal Revenue Service or any court of competent
jurisdiction, that by reason of the foregoing provision, the Participant
has recognized or will recognize gross income for federal income tax
purposes under this Plan in advance of payment to him or his Beneficiary
of Plan benefits. The minimum lump sum payment shall be $50,000 or the
entire balance of any Account, whichever is less.
A Participant who receives a lump sum payment under this Section 5.7(b)
will be credited with interest on the Account balance at the rates
established under Section 5.1(b) of the Plan based on the Participant's
completed years of Service and years of participation in the Plan prior to
the lump sum payment. Following a complete distribution of the entire
balance for an Account, a Participant and his Beneficiary will be entitled
to no further benefits under the Plan with respect to that Account.
Whenever a Participant receives a lump sum payment under this Section
5.7(b) or Section 9.1, the Participant will be deemed to elect to revoke
all Deferral Commitments and to discontinue all deferrals under the Plan
effective as of the date of the lump sum payment. The Participant will be
precluded from making any deferrals under the Plan for the remainder of
the Plan Year in which he receives such distribution and for the next Plan
Year.
(c) A "Change in Control" shall mean:
(i) The occurrence with respect to the Company of a "control
transaction", as such term is defined in Section 2542 of the
Pennsylvania Business Corporation Law of 1988, as of August 15, 1989;
or
(ii) Approval by the stockholders of the Company of (A) any merger or
consolidation of the Company in which the holders of voting stock of
the Company immediately before the merger or consolidation will not
own 50% or more of the voting shares of the continuing or surviving
corporation immediately after such merger or consolidation, or (B) any
sale, lease, or exchange or other
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transfer (in one transaction or a series of related transactions) of
all or substantially all the assets of the Company; or
(iii) A change of twenty-five percent (25%) (rounded to the next whole
person) in the membership of the Board of Directors of the Company
within a 12-month period, unless the election or nomination for
election by stockholders of each new director within such period was
approved by the vote of 85% (rounded to the next whole person) of the
directors then still in office who were in office at the beginning of
the 12-month period.
(d) Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant)
affected thereby, the Company may not amend or terminate this Plan:
(i) For a period of twenty-four (24) months following a Change in
Control; or
(ii) At any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives
payments of benefits under this Plan or who terminates Service with
the Company for any reason at any time during the period of
twenty-four (24) months following the Change in Control.
5.8 Distributions from General Assets. The Company shall make any or all
distributions pursuant to this Plan in cash out of its general assets.
5.9 Withholding and Payroll Taxes. The Company shall withhold from payments
made hereunder any taxes required to be withheld from such payments under
Federal, State or local law.
5.10 Payment to Guardian. If a benefit is payable to a minor or a person
declared incompetent or to a person incapable of handling the disposition of
his property, the Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of such minor,
incompetent or incapacitated person. The Committee may require proof of
minority, incompetence, incapacity or guardianship as it may deem appropriate
prior to distribution of the benefit. Such distribution shall completely
discharge the Committee from all liability with respect to such benefit.
5.11 Small Benefit. Notwithstanding any election made by the Participant, the
Committee, in its sole discretion, may direct payment of any benefit in the
form of one lump sum payment to the Participant or any Beneficiary, if the lump
sum amount of the Account balance which is payable to the Participant or
Beneficiary when payments to such Participant or Beneficiary would otherwise
commence is less than $50,000.
5.12 Protective Provisions. Each Participant shall cooperate with the Company
by furnishing any and all information requested by the Company in order to
facilitate the payment of benefits hereunder, taking such physical examinations
as the Company may
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deem necessary and taking such other relevant action as may be requested by the
Company. If a Participant refuses so to cooperate or makes any material
misstatement of information or non-disclosure of medical history, then no
benefits will be payable hereunder to such Participant or his Beneficiary;
provided that, in the Company's sole discretion, benefits may be payable in an
amount reduced to compensate the Company for any loss, cost, damage or expense
suffered or incurred by the Company as a result in any way of any such action,
misstatement or non-disclosure.
5.13 Notices and Elections. Any notice or election required or permitted to be
given to the Company or the Committee under the Plan shall be sufficient if in
writing on a form prescribed or accepted by the Committee and hand delivered,
or sent by registered or certified mail, to the principal office of the
Company, directed to the attention of the Human Resources Department of the
Company. Such notice or election shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
5.14 Prior and Special Distribution Accounts. Prior Accounts and Special
Distribution Accounts shall be distributed in accordance with a Participant's
previously filed elections. Elections providing for payment prior to Retirement
may not be amended by the Participant.
ARTICLE VI
DESIGNATION OF BENEFICIARY
6.1 Designation of Beneficiary. Each Participant shall have the right to
designate a Beneficiary or Beneficiaries to receive his interest in each of his
Accounts upon his death. Such designation shall be made on a form prescribed by
and delivered to the Company. The Participant shall have the right to change or
revoke any such designation from time to time by filing a new designation or
notice of revocation with the Company, and no notice to any Beneficiary nor
consent by any Beneficiary shall be required to effect any such change or
revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall fail to designate
a Beneficiary before his demise, or if no designated Beneficiary survives the
Participant, the Committee shall direct the Company to pay the balance in each
of his Accounts in one lump sum to the executor or administrator for his
estate; provided, however, if no executor or administrator shall have been
appointed, and actual notice of said death was given to the Committee within
sixty (60) days after his death, and if his Account balances do not exceed Ten
Thousand Dollars ($10,000), the Committee may direct the Company to pay his
Account balances to such person or persons as the Committee determines, and the
Committee may require such proof of right and/or identity of such person or
persons as the Committee may deem appropriate or necessary.
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ARTICLE VII
FORFEITURES TO COMPANY
7.1 Distribution of Participants' Interest When Company is Unable to Locate
Distributees. In case the Company is unable within three (3) years after
payment is due to a Participant, or within three (3) years after payment is due
to the Beneficiary or the estate of a deceased Participant, to make such
payment to him or his Beneficiary, executor or administrator because it cannot
ascertain his whereabouts or the identity or whereabouts of his Beneficiary,
executor or administrator by mailing to the last known address shown on the
Company's records, and neither he, his Beneficiary, nor his executor or
administrator has made written claim therefor before the expiration of the
aforesaid time limit, then, in such case, the amount due shall be forfeited to
the Company.
ARTICLE VIII
MAINTENANCE OF ACCOUNTS
8.1 The Company shall keep, or cause to be kept, all such books of account,
records and other data as may be necessary or advisable in its judgment for the
administration of this Plan, and properly to reflect the affairs thereof, and
to determine the nature and amount of the interests of the respective
Participants in each Account.
The Company is not required to physically segregate any assets with respect to
the Accounts under this Plan from any other assets of the Company and may
commingle any such assets with any other moneys, securities and properties of
any kind of the Company. Separate accounts or records for the respective
Participants' interests shall be maintained for operational and accounting
purposes, but no such account or record shall be considered as creating a lien
of any nature whatsoever on or as segregating any of the assets with respect to
the Accounts under this Plan from any other funds or property of the Company.
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ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment. The Board or Human Resources Committee of the Board may at any
time amend the Plan in whole or in part, provided, however, that no amendment
shall be effective to decrease or restrict the amount accrued (including
earnings at the appropriate interest rate) in any Account to the date of such
amendment. Notwithstanding anything in the preceding sentence to the contrary,
the Committee shall have the power to amend the Plan to the extent authorized
by Section 2.2.
Upon a prospective amendment to reduce the formula for determining the future
interest rate, 30 days' advance written notice shall be given to each
Participant. Following such an amendment to reduce the formula for determining
the future interest rate and the giving of notice to the Participant, the
Participant may elect to (i) terminate an ongoing Deferral Commitment without
penalty and/or (ii) receive an immediate lump sum payment of the balance of his
Account(s), reduced by a penalty, which shall be forfeited to the Company,
equal to six percent (6%) of the balance of such Account(s), in lieu of
payments in accordance with the form previously elected by the Participant.
However, the six percent (6%) penalty shall not apply if it would not have
applied under Section 5.7(b). The Participant may make such an election by
notifying the Committee in writing within sixty (60) days following receipt of
notice of the amendment to reduce the interest rate.
9.2 Company's Right to Terminate. The Human Resources Committee of the Board
may at any time partially or completely terminate the Plan if, in its judgment,
the tax, accounting, or other effects of the continuance of the Plan or
potential payments thereunder would not be in the best interests of the
Company.
(a) Partial Termination. The Board or Human Resources Committee of the
Board may partially terminate the Plan by instructing the Committee not to
accept any additional or ongoing Deferral Commitments. In the event of
such a partial termination, the Plan shall continue to operate on the same
terms and conditions and, unless the Board or Human Resources Committee of
the Board instructs the Committee not to accept ongoing Deferral
Commitments, shall be effective with regard to Deferral Commitments
entered into prior to the effective date of such partial termination.
(b) Complete Termination. The Board or Human Resources Committee of the
Board may completely terminate the Plan. In the event of complete
termination, the Plan shall cease to operate, and the Company shall pay
out to each Participant (or the Beneficiary of a deceased Participant) his
Accounts in either one lump sum payment or up to three (3) equal annual
installments, at the Company's discretion, as if the Participant had
terminated service as of the effective date of the complete termination.
Interest shall continue to be paid on the balance in each Participant's
Account(s) in accordance with Section 4.3.
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ARTICLE X
SPENDTHRIFT PROVISIONS
10.1 The Company shall, except as otherwise provided hereunder, pay all amounts
payable hereunder only to the person or persons entitled thereto hereunder, and
all such payments shall be made directly into the hands of each such person or
persons and not into the hands of any other person or corporation whatsoever,
so that said payments may not be liable for the debts, contracts or engagements
of any such designated person or persons, or taken in execution by attachment
or garnishment or by any other legal or equitable proceedings, nor shall any
such designated person or persons have any right to alienate, arbitrate,
execute, pledge, encumber, or assign any such payments or the benefits or
proceeds thereof. If the person entitled to receive payment be a minor, or a
person of unsound mind, whether or not adjudicated incompetent, the Company,
upon direction of the Committee, may make such payments to such person or
persons, corporation or corporations as may be, or be acting as, parent or
legal or natural guardian of such infant or person of unsound mind. The signed
receipt of such person or corporation shall be a full and complete discharge to
the Company for any such payments.
ARTICLE XI
MISCELLANEOUS
11.1 Right of Company to Replace Members of Board of Directors and Advisory
Board; Obligations. Neither the action of the Company in establishing this
Plan, nor any provisions of this Plan, shall be construed as giving any member
of the Board of Directors or Advisory Board of the Company the right to be
retained in such capacity, or any right to payment whatsoever except to the
extent of the benefits provided for by this Plan. The Company expressly
reserves the right at any time to replace or fail to renominate any member of
the Board of Directors or Advisory Board without any liability for any claim
against the Company for any payment whatsoever except to the extent provided
for in this Plan. The Company has no obligation to create any other or
subsequent deferred compensation plan for members of the Board of Directors or
Advisory Board.
11.2 Title to and Ownership of Assets Held for Accounts. Title to and ownership
of all assets held for any Accounts shall be vested in the Company and shall
constitute general assets of the Company.
11.3 Nature of Liability to Participants. Any and all payments required to be
made by the Company to Participants in the Plan shall be general and unsecured
liabilities of the Company.
21
<PAGE> 27
11.4 Text of Plan to Control. The headings of the Articles and Sections are
included solely for convenience of reference, and if there be any conflict
between such headings and the text of this Plan, the text shall control.
This Plan document sets forth the complete terms of the Plan. In the event of
any discrepancies or conflicts between this Plan document and any summary or
other information regarding the Plan, the terms of this Plan document shall
apply and control.
11.5 Law Governing and Severability. This Plan shall be construed, regulated
and administered under the laws of the Commonwealth of Pennsylvania.
If any provisions of this Plan shall be held invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the remaining
provisions of this Plan, and this Plan shall be deemed to be modified to the
least extent possible to make it valid and enforceable in its entirety.
11.6 Name. This Plan may be referred to as the "Mellon Bank Corporation 1990
Elective Deferred Compensation Plan for Directors and Members of the Advisory
Board".
11.7 Gender. The masculine gender shall include the feminine, and the singular
shall include the plural, except when the context expressly dictates otherwise.
11.8 Trust Fund. The Company shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, the Company may establish
one or more trusts, with such trustees as the Board or the Committee may
approve, for the purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Company's creditors. To the extent any benefits provided
under the Plan are actually paid from any such trust, the Company shall have no
further obligation with respect thereto, but to the extent not so paid, such
benefits shall remain the obligation of, and shall be paid by the Company.
IN WITNESS WHEREOF, the Company has caused this amended and restated Plan to be
executed this 15 day of October, 1996, effective as of January 1, 1997.
ATTEST: MELLON BANK CORPORATION
Carl Krasik D. Michael Roark
- -------------------- ------------------------------
Carl Krasik D. Michael Roark
Secretary Head of the
Human Resources Department of
Mellon Bank, N.A.
22
<PAGE> 1
Exhibit 10.10
MELLON BANK CORPORATION
ELECTIVE DEFERRED COMPENSATION PLAN
FOR SENIOR OFFICERS
(As Amended and Restated Effective January 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
PREAMBLE ............................................................... 1
ARTICLE I .............................................................. 1
DEFINITIONS .......................................................... 1
1.1 Account ....................................................... 1
1.2 Beneficiary ................................................... 1
1.3 Board ......................................................... 2
1.4 Committee ..................................................... 2
1.5 Company ....................................................... 2
1.6 Continuous Service ............................................ 2
1.7 Deferral Commitment ........................................... 2
1.8 Deferral Election ............................................. 2
1.9 Disability .................................................... 2
1.10 Early Distribution Account ..................................... 2
1.11 Early Retirement ............................................... 2
1.12 Effective Date ................................................. 2
1.13 Elective Deferred Compensation ................................. 2
1.14 Employer ....................................................... 2
1.15 Financial Hardship ............................................. 2
1.16 Normal Distribution Account .................................... 2
1.17 Normal Retirement .............................................. 3
1.18 Participant .................................................... 3
1.19 Plan ........................................................... 3
1.20 Plan Year ...................................................... 3
1.21 Prior Plan ..................................................... 3
1.22 Retirement Plan ................................................ 3
1.23 Retirement Plan Make-up Account ................................ 3
1.24 Retirement Savings Plan ........................................ 3
1.25 Retirement Savings Plan Augmentation Account ................... 3
1.26 Special Distribution Account ................................... 3
1.27 Subsidiary ..................................................... 3
1.28 Termination of Employment ...................................... 3
1.29 T-Note Rate .................................................... 3
1.30 Valuation Date ................................................. 3
1.31 Window Period .................................................. 4
ARTICLE II .............................................................. 4
ADMINISTRATION ........................................................ 4
2.1 Administrator ................................................... 4
2.2 Powers and Duties ............................................... 4
2.3 Procedures ...................................................... 5
2.4 Establishment of Rules .......................................... 5
(i)
<PAGE> 3
2.5 Limitation of Liability .......................................... 5
2.6 Compensation and Insurance ....................................... 5
2.7 Removal and Resignation .......................................... 6
2.8 Claims Procedure ................................................. 6
ARTICLE III .............................................................. 6
PARTICIPATION AND DEFERRAL COMMITMENTS ................................. 6
3.1 Eligibility and Participation .................................... 6
3.2 Duration of Deferral Commitment .................................. 6
3.3 Basic Forms of Deferral .......................................... 6
3.4 Limitations on Deferrals ......................................... 7
3.5 Modification of Deferral Commitments on Financial Hardship ....... 7
3.6 Commencement of Deferral Commitment .............................. 7
3.7 Termination of Prior Plan Deferral Commitments ................... 7
ARTICLE IV ............................................................... 8
DEFERRED COMPENSATION ACCOUNTS ......................................... 8
4.1 Accounts ......................................................... 8
4.2 Elective Deferred Compensation ................................... 8
4.3 Crediting Rate ................................................... 8
4.4 Valuation of Accounts ............................................ 8
4.5 Vesting of Accounts .............................................. 8
4.6 Statement of Accounts ............................................ 8
4.7 Retirement Plan Make-Up .......................................... 8
4.8 Retirement Savings Plan Make-Up .................................. 9
4.9 Retirement Plan and Retirement Savings Plan Offsets .............. 10
ARTICLE V ................................................................ 10
PLAN BENEFITS .......................................................... 10
5.1 Plan Benefit ..................................................... 10
5.2 Normal Distribution Account ...................................... 11
5.3 Form of Benefit Payment Upon Termination of Employment ........... 12
5.4 Survivor Benefits ................................................ 12
5.5 Early Distribution Account ....................................... 15
5.6 Hardship Distributions ........................................... 15
5.7 Disability ....................................................... 16
5.8 Valuation and Settlement ......................................... 16
5.9 Change in Control and Unscheduled Distributions .................. 16
5.10 Continuous Service ............................................... 17
5.11 Distributions from General Assets ................................ 18
5.12 Withholding and Payroll Taxes .................................... 18
(ii)
<PAGE> 4
5.13 Payment to Guardian ............................................... 18
5.14 Small Benefit ..................................................... 18
5.15 Protective Provisions ............................................. 18
5.16 Notices and Elections ............................................. 18
5.17 Special Distribution Accounts ..................................... 19
ARTICLE VI ................................................................. 19
DESIGNATION OF BENEFICIARY ............................................... 19
6.1 Designation of Beneficiary ......................................... 19
6.2 Failure to Designate Beneficiary ................................... 19
ARTICLE VII ................................................................ 19
FORFEITURES TO COMPANY ................................................... 19
7.1 Distributions of Participants' Interests
When Company is Unable to Locate Distributees ...................... 19
ARTICLE VIII ...............................................................
MAINTENANCE OF ACCOUNTS .................................................. 19
ARTICLE IX ................................................................. 20
AMENDMENT AND TERMINATION OF THE PLAN .................................... 20
9.1 Amendment .......................................................... 20
9.2 Company's Right to Terminate ....................................... 20
ARTICLE X .................................................................. 20
SPENDTHRIFT PROVISIONS ................................................... 20
ARTICLE XI ................................................................. 21
MISCELLANEOUS ............................................................ 21
11.1 Right of Employers to Dismiss Employees; Obligations .............. 21
11.2 Title to and Ownership of Assets Held for Accounts ................ 21
11.3 Nature of Liability to Participants ............................... 21
11.4 Text of Plan to Control ........................................... 21
11.5 Law Governing and Severability .................................... 21
11.6 Name .............................................................. 21
11.7 Gender ............................................................ 21
11.8 Trust Fund ........................................................ 22
11.9 Ineligible Participant ............................................ 22
(iii)
<PAGE> 5
MELLON BANK CORPORATION
ELECTIVE DEFERRED COMPENSATION PLAN
FOR SENIOR OFFICERS
(Amended and Restated as of January 1, 1997)
PREAMBLE
The purpose of this Elective Deferred Compensation Plan For Senior Officers
(the "Plan") is to provide opportunities for a select group of management or
highly compensated employees of Mellon Bank Corporation (the "Company") and its
Subsidiaries to accumulate supplemental funds for retirement, special needs
prior to retirement, or death. The Plan was originally effective as of November
1, 1989. This amended and restated Plan shall only apply to Participants who
are employed by the Company or its Subsidiaries after January 1, 1997. The Plan
as previously in effect shall apply to all Participants who terminated
employment with the Company or its Subsidiaries for any reason prior to such
date.
The Company hereby declares that its intention is to create an unfunded Plan
primarily for the purpose of providing a select group of management or highly
compensated employees of the Company and of its affiliated organizations with
deferred compensation in accordance with their individual elections. It is also
the intention of the Company that the Plan be an "employee pension benefit
plan" as defined in Section 3(2) of Title I of the Employee Retirement Income
Security Act of 1974 ("ERISA") and that the Plan be the type of plan described
in Sections 201(2), 301(3) and 401(a)(1) of Title I of ERISA. The Corporate
Benefits Committee ("Committee" or "CBC") shall be the administrator
responsible for fulfilling the duties and responsibilities imposed upon
"administrators" of plans subject to Parts 1 and 5 of Title 1 of ERISA.
ARTICLE I
DEFINITIONS
When used herein, the following words shall have the following meanings unless
the content clearly indicates otherwise:
1.1 Account. "Account" means the record-keeping device used by the Company to
measure and determine the amounts to be paid to a Participant under the Plan.
Separate Accounts will be established for each Participant and as may otherwise
be required.
1.2 Beneficiary. "Beneficiary" means the person who under this Plan becomes
entitled to receive a Participant's interest in the event of his death.
<PAGE> 6
1.3 Board. "Board" means the Board of Directors of the Company or any committee
thereof acting within the scope of its authority.
1.4 Committee. "Committee" means the Corporate Benefits Committee appointed to
administer the Plan pursuant to Article II.
1.5 Company. "Company" means Mellon Bank Corporation, a Pennsylvania
corporation, and any successor in interest.
1.6 Continuous Service. "Continuous Service" means the period of continuous
employment of a Participant by an Employer determined in accordance with
Section 5.10 and may, in the discretion of the Committee, include prior service
with an entity acquired by the Company.
1.7 Deferral Commitment. "Deferral Commitment" means a commitment made by a
Participant pursuant to Article III for which a Deferral Election has been
submitted by the Participant to the Committee.
1.8 Deferral Election. "Deferral Election" means the written agreement to defer
receipt of compensation submitted by a Participant to the Committee or its
delegates prior to the commencement of the period in which the deferred
compensation is to be earned.
1.9 Disability. "Disability" means total and permanent incapacity of a
Participant to perform the usual duties of his employment with his Employer as
determined by his Employer based upon competent medical evidence. If a
Participant makes application for disability benefits under the Employer's
group long term disability plan, as now in effect or as hereafter amended, and
qualifies for such benefits, he shall be presumed to be totally disabled,
subject to the Employer's determination that the disability is such that it may
be regarded as total and permanent in nature.
1.10 Early Distribution Account. "Early Distribution Account" means an account
established pursuant to Section 5.5 which provides for distribution of a
benefit prior to a Participant's Termination of Employment.
1.11 Early Retirement. "Early Retirement" means Termination of Employment of a
Participant, other than by reason of death, on or after the date on which the
Participant has attained age fifty-five (55), but has not yet attained age
sixty-five (65).
1.12 Effective Date. "Effective Date" of this amended and restated Plan means
January 1, 1997. The Plan originally became effective on November 1, 1989.
1.13 Elective Deferred Compensation. "Elective Deferred Compensation" means the
amount of compensation that a Participant elects to defer pursuant to a
Deferral Commitment.
1.14 Employer. "Employer" means the Company or one of its Subsidiaries.
1.15 Financial Hardship. "Financial Hardship" means an immediate and
substantial financial need of the Participant or Beneficiary, determined by the
Committee on the basis of written information supplied by the Participant in
accordance with such standards as are, from time to time, established by the
Committee.
1.16 Normal Distribution Account. "Normal Distribution Account" means an
Account established pursuant to Section 5.2 which provides for distribution of
a benefit following Early Retirement or Normal Retirement.
-2-
<PAGE> 7
1.17 Normal Retirement. "Normal Retirement" means Termination of Employment of
a Participant, other than by reason of death, on or after the date on which the
Participant has attained age sixty-five (65).
1.18 Participant. "Participant" means any eligible individual who is
participating in this Plan as provided in Article III.
1.19 Plan. "Plan" means this "Elective Deferred Compensation Plan for Senior
Officers" as set forth in this document and as the same may be amended,
administered or interpreted from time to time.
1.20 Plan Year. "Plan Year" means each calendar year beginning on January 1 and
ending on December 31.
1.21 Prior Plan. "Prior Plan" means this Plan as it existed prior to the
amendment and restatement which became effective as of January 1, 1997.
1.22 Retirement Plan. "Retirement Plan" means the Mellon Bank Retirement Plan,
the Dreyfus Corporation Pension Plan and the Boston Company Retirement Income
Plan, as presently constituted and as amended from time to time.
1.23 Retirement Plan Make-Up Account. "Retirement Plan Make-Up Account" means
an account established pursuant to Section 4.7 to enable a Participant to
receive benefits which are lost under the Retirement Plan as the result of
deferrals under this Plan.
1.24 Retirement Savings Plan. "Retirement Savings Plan" means the Mellon 401(k)
Retirement Savings Plan, as presently constituted and as amended from time to
time.
1.25 Retirement Savings Plan Augmentation Account. "Retirement Savings Plan
Augmentation Account" means an account established pursuant to Section 4.8 to
enable a Participant to receive Employer matching contributions which are lost
under the Retirement Savings Plan as a result of deferrals under this Plan.
1.26 Special Distribution Account. "Special Distribution Account" means an
Account established for any Elective Deferred Compensation (plus earnings
thereon) earned prior to January 1, 1997, which the Participant elected to have
distributed while employed.
1.27 Subsidiary. "Subsidiary" means an entity controlled, directly or
indirectly, by the Company.
1.28 Termination of Employment. "Termination of Employment" means termination
of a Participant's employment with all Employers and the end of any contract
and severance pay period.
1.29 T-Note Rate. "T-Note Rate" means for each Plan Year the interest rate
which is equivalent to an effective annual yield equal to the 120 month rolling
average of ten-year United States Treasury Notes rate as of the July 31
preceding the applicable Plan Year. This rate will be determined once each year
by an outside source selected by the Company.
1.30 Valuation Date. "Valuation Date" means the last day of each month, or such
other dates as the Committee may determine in its discretion, which may be
either more or less frequent, for the valuation of Participants' Accounts.
-3-
<PAGE> 8
1.31 Window Period. "Window Period" means a period of thirty calendar days
which begins on the third business day following the date of release of annual
or quarterly earnings of the Company, or such other period as the Committee may
determine in its discretion.
ARTICLE II
ADMINISTRATION
2.1 Administrator. Except as hereinafter provided, the Committee shall be
responsible for the administrative responsibilities hereinafter described with
respect to the Plan. Whenever any action is required or permitted to be taken
in the administration of the Plan, such action shall be taken by the Committee
unless the Committee's power is expressly limited herein or by operation of
law. The Committee shall be the Plan "Administrator" (as such term is defined
in Section 3(16)(A) of ERISA). The Committee may delegate its duties and
responsibilities as it, in its sole discretion, deems necessary or appropriate
to the execution of such duties and responsibilities. The Committee as a whole
or any of its members may serve in more than one capacity with respect to the
Plan.
2.2 Powers and Duties. The Committee, or its delegates, shall maintain and keep
(or cause to be maintained and kept) such records as are necessary for the
efficient operation of the Plan or as may be required by any applicable law,
regulation, or ruling and shall provide for the preparation and filing of such
forms, reports, information, and documents as may be required to be filed with
any governmental agency or department and with the Plan's Participants and/or
other Beneficiaries.
Except to the extent expressly reserved to the Company, an Employer or the
Board, the Committee shall have all powers necessary to carry out the
administrative provisions of the Plan and to satisfy the requirements of any
applicable law or laws. These powers shall include, by way of illustration and
not limitation, the exclusive powers and discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of eligibility;
decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any
benefits hereunder;
(b) direct the Employer, and/or the trustee of any trust established at
the discretion of the Company to provide for the payment of benefits under
the Plan, concerning the amount, time, manner, method, and mode of payment
of any benefits hereunder;
(c) prescribe procedures to be followed and forms to be used by
Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required by law or as
the Committee deems appropriate, information explaining the Plan;
provided, however, that no such explanation shall contravene the terms of
this Plan or increase the rights of any Participant or Beneficiary or the
liabilities of the Company or any Employer;
(e) require from the Employer and Participants such information as shall
be necessary for the proper administration of the Plan;
(f) appoint and retain individuals to assist in the administration and
construction of the Plan, including such legal, clerical, accounting, and
actuarial services as it may require or as may be required by any
applicable law or laws; and
-4-
<PAGE> 9
(g) perform all functions otherwise imposed upon a plan administrator by
ERISA which are not expressly reserved to the Company, an Employer, or the
Board, including, but not limited to, those supplemental duties and
responsibilities described in the "Mellon Bank Corporation Corporate
Benefits Committee Charter and Summary of Operations" approved by the
Board on September 17, 1991 (the "CBC" Charter").
Without intending to limit the generality of the foregoing, the Committee shall
have the power to amend the Plan, in whole or in part, in order to comply with
applicable law; provided, however, that no such amendment may increase the
duties and obligations of any Employer without the consent of the affected
Employer(s). Except as provided in the preceding sentence or unless directed by
the Human Resources Committee of the Board or otherwise required by law, the
Committee shall have no power to adopt, amend, or terminate the Plan, said
powers being exclusively reserved to the Human Resources Committee of the
Board.
2.3 Procedures. The Committee shall be organized and conduct its business with
respect to the Plan in accordance with the organizational and procedural rules
set forth in the CBC Charter.
Notwithstanding the foregoing, if any member of the Committee shall be a
Participant hereunder, then in any matters affecting any member of the
Committee in his individual capacity as a Participant hereunder, separate and
apart from his status as a member of the group of Participants, such interested
member shall have no authority to vote in the determination of such matters as
a member of the Committee, but the Committee shall determine such matter as if
said interested member were not a member of the Committee; provided, however,
that this shall not be deemed to take from said interested member any of his
rights hereunder as a Participant. If the remaining members of the Committee
should be unable to agree on any matter so affecting an interested member
because of an equal division of voting, the Human Resources Committee of the
Board shall appoint a temporary member of the Committee in order to create an
odd number of voting members.
2.4 Establishment of Rules. The Committee shall have specific authority in its
sole discretion to construe and interpret the terms of the Plan related to its
powers and duties, and to the extent that the terms of the Plan are incomplete,
the Committee shall have authority to establish such rules or regulations
related to its powers and duties as it may deem necessary and proper to carry
out the intent of the Company as to the purposes of the Plan.
2.5 Limitation of Liability. The Board, the members of the Committee, and any
officer, employee, or agent of the Company or any Employer shall not incur any
liability individually or on behalf of any other individuals or on behalf of
the Company or any Employer for any act, or failure to act, made in good faith
in relation to the Plan. No bond or other security shall be required of any
such individual solely on account of any such individual's power to direct the
Employer to make the payments required hereunder.
2.6 Compensation and Insurance. Members of the Committee shall serve without
compensation for their services as such. Expenses incurred by members of the
Committee in the performance of their duties as herein provided, and the
compensation and expenses of persons retained or employed by the Committee for
services rendered in connection with the Plan shall, upon approval by the
Committee, be paid or reimbursed by the Company.
The Company shall indemnify and/or maintain and keep in force insurance in such
form and amount as may be necessary in order to protect the members of the
Committee, their delegates and appointees (other than persons who are
independent of the Company and are rendering services to the Committee or to or
with respect to the Plan) from any claim, loss, damage, liability, and expense
(including costs and attorneys' fees) arising from their acts or failures to
act
-5-
<PAGE> 10
with respect to the Plan, except where such actions or failures to act involve
willful misconduct or gross negligence.
2.7 Removal and Resignation. Any member of the Committee may resign and the
Company may remove any member of the Committee in accordance with the
procedures established by the CBC Charter. The Committee shall remain fully
operative pending the filling of any vacancies, the remaining Committee members
having full authority to administer the Plan.
2.8 Claims Procedure. The right of any Participant or Beneficiary to receive a
benefit hereunder and the amount of such benefit shall be determined in
accordance with the procedures for determination of benefit claims established
and maintained by the Committee in compliance with the requirements of Section
503 of ERISA; which separate procedures, entitled Procedures for Determination
of Benefit Claims, are incorporated herein by this reference.
ARTICLE III
PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility and Participation.
(a) Eligibility. Eligibility to make a Deferral Commitment shall be
limited to senior officers of the Company or its Subsidiaries as
determined by the Human Resources Committee of the Board.
(b) Participation. An eligible individual may elect to participate in the
Plan by submitting a Deferral Election to the Committee or its delegates
prior to such date, as the Committee may determine, preceding the
commencement of the period in which the deferred compensation is to be
earned. The Deferral Election shall specify whether the deferred
compensation shall be credited to a Normal Distribution Account or an
Early Distribution Account for the Participant.
3.2 Duration of Deferral Commitment.
(a) A Deferral Commitment for a Normal Distribution Account or an Early
Distribution Account shall continue in effect until the Participant files
a subsequent Deferral Election changing the amount of or stopping such
Deferral Commitment.
(b) A Deferral Commitment for an Early Distribution Account shall
terminate at the end of the Plan Year preceding the Plan Year which the
Participant has selected for distribution of such Account.
(c) Except as provided in Sections 5.6 and 5.9 below, a subsequent
Deferral Election shall become effective beginning with the next Plan Year
following the date it is filed. A subsequent Deferral Election shall not
apply to any deferrals which represent payments for services performed
prior to the beginning of the first Plan Year to which it applies, but
otherwise shall apply to all future deferrals covered by the Deferral
Commitment.
(d) A Participant's Deferral Commitments shall terminate upon the
Participant's Termination of Employment.
3.3 Basic Forms of Deferral. A Participant may file a Deferral Election to
defer any or all of the following forms of compensation:
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<PAGE> 11
(a) Salary Deferrals. A Participant may elect to defer a portion of base
salary. The amount to be deferred shall be stated as a whole number
percentage or dollar amount of base salary.
(b) Bonus Deferrals. A Participant may elect to defer annual cash
bonus/incentive amounts to be paid by the Employer. The amount to be
deferred shall be stated as a whole number percentage or dollar amount of
such cash bonus.
(c) Special Deferrals. A Participant may elect any special Deferral
Commitment which is authorized by the Committee in its discretion.
3.4 Limitations on Deferrals. The following limitations on deferrals shall
apply:
(a) Minimum Deferrals. The minimum deferral amount for each of the basic
forms of deferral in Section 3.3 (a), (b) or (c) above is $2,000 for any
Plan Year.
(b) Maximum Deferrals. A Participant may not defer during any Plan Year
any amount of base salary which is below the contribution and benefit base
under Section 230 of the Social Security Act, in effect on the first day
of the Plan Year.
(c) Waiver; Committee Discretion. The Committee may further limit the
minimum or maximum amount deferred by any Participant or group of
Participants, or waive the foregoing minimum and maximum limits for any
Participant or group of Participants, for any reason.
3.5 Modification of Deferral Commitments on Financial Hardship. The Committee
may permit a Participant to reduce the amount to be deferred, or waive the
remainder of the Deferral Commitment, upon a finding that the Participant has
suffered a Financial Hardship.
3.6 Commencement of Deferral Commitment. A Deferral Commitment shall be deemed
to commence as of the first day of the Plan Year covered by the Deferral
Election for such Deferral Commitment. A Participant's Beneficiary will be
entitled to receive pre-retirement survivor benefits pursuant to Section 5.4(a)
with respect to the Deferral Commitment only in the event of the Participant's
death while in employment with an Employer on or after such date.
3.7 Termination of Prior Plan Deferral Commitments. All Deferral Commitments
established under the Prior Plan shall terminate on December 31, 1996.
-7-
<PAGE> 12
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
4.1 Accounts. For record-keeping purposes only, Normal Distribution, Early
Distribution and Special Distribution Accounts shall be maintained as
applicable for each Participant's Elective Deferred Compensation.
4.2 Elective Deferred Compensation. A Participant's Elective Deferred
Compensation shall be credited to the Participant's Account(s) as of the date
when the corresponding non-deferred portion of the compensation is paid or
would have been paid but for the Deferral Commitment. Any withholding of taxes
or other amounts with respect to deferred compensation that is required by
federal, state or local law shall be withheld from the Participant's
non-deferred compensation to the maximum extent possible with any excess being
withheld from the Participant's Deferral Commitment or Account(s).
4.3 Crediting Rate. Accounts shall be credited monthly with interest based on
the rates specified below, compounded annually. Interest shall be credited as
of each Valuation Date from the dates when deferred amounts are credited to
Accounts based on the balance of each Account.
(a) Interest Rate During Participant's Lifetime. During a Participant's
lifetime, the Participant's Accounts will be credited with interest on a
monthly basis during each Plan Year at the T-Note Rate which is applicable
for that Plan Year, subject to increase pursuant to Section 5.1.
(b) Interest Rate After Participant's Death. Following a Participant's
death, the Participant's Account will be credited with interest on a
monthly basis during each Plan Year at one hundred percent (100%) of the
T-Note Rate which is applicable for that Plan Year. Notwithstanding the
preceding sentence, no interest shall be credited on a Participant's
Account following the Participant's death whenever the Participant's
Beneficiary receives pursuant to Section 5.4(a) a pre-retirement survivor
benefit greater than the Participant's Account balance annuitized over the
Payout Period.
4.4 Valuation of Accounts. A Participant's Account as of each Valuation Date
shall consist of the balance of the Participant's Account as of the immediately
preceding Valuation Date, plus the Participant's Elective Deferred Compensation
and interest credited to such Account and minus any distributions made from
such Account since the immediately preceding Valuation Date.
4.5 Vesting of Accounts. Each Participant shall be one hundred percent (100%)
vested at all times in the amounts credited to such Participant's Accounts.
4.6 Statement of Accounts. The Company shall submit to each Participant
periodic statements setting forth the balance to the credit of the Accounts
maintained for the Participant.
4.7 Retirement Plan Make-Up. If a Participant is entitled to receive a benefit
under the Retirement Plan, a supplemental pension benefit shall be paid under
this Plan as follows:
(a) The supplemental pension benefit shall be an amount equal to:
(i) The maximum life annuity to which the Participant would be
entitled under the Retirement Plan if the Participant had not deferred
amounts under this Plan (without regard to the application of the
compensation limitation imposed by Section 401(a)(17) of the Internal
Revenue Code or the benefit limitation imposed by Section 415 of the
Internal Revenue Code);
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<PAGE> 13
LESS:
(ii) The maximum life annuity to which the Participant would then be
entitled under the Retirement Plan (without regard to the application
of the compensation limitation imposed by Section 401(a)(17) of the
Internal Revenue Code or the benefit limitation imposed by Section 415
of the Internal Revenue Code).
Notwithstanding the above, no payment shall be made under this Plan to
the extent such benefits are payable by any other nonqualified defined
benefit retirement plan or arrangement sponsored by the Employer.
(b) The Employer shall pay the supplemental pension benefit to the
Participant in a lump sum when the Participant's benefit commences under
the Retirement Plan. Upon a Participant's Termination of Employment before
Normal or Early Retirement, at the Committee's discretion the Employer may
pay the supplemental pension benefit to the Participant in a lump sum as
soon as practicable following such Termination of Employment. The lump sum
amount shall be calculated using the actuarial equivalence factors in the
Retirement Plan applicable to benefits accruing thereunder at the date of
payment, or the factors in effect at the time of the Retirement Plan's
termination if such termination occurs prior to the date of payment.
(c) Notwithstanding Section 4.7(b) above, in lieu of a lump sum a
Participant may elect to receive the supplemental pension benefit after
Normal or Early Retirement in monthly installment payments over a payment
period of 60, 120 or 180 months. An election to receive the supplemental
pension benefit in monthly installment payments shall be made in the same
manner and subject to the same restrictions and penalties as provided in
Section 5.2; provided, however, that Section 5.2(b)(iii) shall not apply,
and payments of the supplemental pension benefit shall commence when the
Participant's retirement benefit commences under the Retirement Plan.
If the Participant elects to receive the supplemental pension benefit in
monthly installment payments, the Employer shall establish a Retirement
Plan Make-Up Account when the Participant's retirement benefit commences
under the Retirement Plan and shall credit to this Account the lump sum
amount of the supplemental pension benefit which would otherwise have been
paid to the Participant under Section 4.7(b) above. A participant shall be
100% vested in the amount credited to his Retirement Plan Make-Up Account.
Interest will be credited on a Retirement Plan Make-Up Account at the same
rate as other Accounts in accordance with Section 4.3 at such times and in
such manner as the Committee may determine.
If a Participant dies after the commencement of monthly installment
payments of the supplemental pension benefit, the Employer will pay to the
Participant's Beneficiary the remaining installments of any such benefit
that would have been paid to the Participant had the Participant survived.
After the Participant's death, interest shall be credited on the
Retirement Plan Make-Up Account for each Plan Year at one hundred percent
(100%) of the T-Note Rate which is applicable for that Plan Year.
A Participant or Beneficiary who is receiving monthly installment payments
of the supplemental pension benefit may request hardship distributions in
accordance with Section 5.6 or may elect to receive a payment in a lump
sum in accordance with and subject to a penalty as provided in Section
5.9(b).
4.8 Retirement Savings Plan Make-Up. For each Plan Year, the Employer shall
credit to the Retirement Savings Plan Augmentation Account of any Participant
an amount equal to the
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<PAGE> 14
amount by which the Employer matching or discretionary contribution that would
otherwise have been made by any Employer to the Retirement Savings Plan for
such Participant for the Plan Year is reduced by reason of the reduction in the
Participant's compensation for the Plan Year due to deferrals under this Plan.
The Employer's contribution shall be credited to the Retirement Savings Plan
Augmentation Account following the end of each Plan Year. A Participant's
interest in any credit to his Retirement Savings Plan Augmentation Account and
earnings thereon shall vest at the same rate and at the same time as would have
been the case had such contribution been made to the Retirement Savings Plan.
Interest will be credited on a Retirement Savings Plan Augmentation Account at
the same rate as other Accounts in accordance with Section 4.3 at such times
and in such manner as the Committee may determine.
Upon Normal or Early Retirement, Disability, death or other Termination of
Employment, the Employer shall pay to the Participant (or his Beneficiary in
the event of the Participant's death) an amount equal to the value of the
Participant's vested balance in his Retirement Savings Plan Augmentation
Account in one lump sum payment.
Participants who in any Plan Year are not entitled to receive an Employer
contribution in the Retirement Savings Plan will not be entitled to receive an
Employer contribution under this Plan to a Retirement Savings Plan Augmentation
Account for such Plan Year.
4.9 Retirement Plan and Retirement Savings Plan Offsets. If a Participant
receives a distribution of benefits under this Plan which results in an
increase in either (i) the pension benefit which will be payable to the
Participant under the Retirement Plan or any other qualified or non-qualified
defined benefit plan or arrangement of an Employer or (ii) the Employer
contributions which will be made on behalf of the Participant under the
Retirement Savings Plan or any other qualified or non-qualified defined
contribution plan or arrangement of an Employer, an adjustment will be made to
reduce the Participant's Account balance(s) under this Plan in order to offset
the increase in his benefits under such other plans and arrangements.
The Participant's Account balance(s) under this Plan shall be reduced upon his
Termination of Employment by a lump sum amount which is actuarially equivalent
to the increased pension benefits which will be payable to the Participant
under the Retirement Plan and any other qualified or non-qualified defined
benefit plan or arrangement of an Employer on account of the distribution of
benefits under this Plan. The lump sum amount shall be calculated using the
actuarial equivalence factors in the Retirement Plan applicable to benefits
accruing thereunder at the date of the Participant's Termination of Employment,
or the factors in effect at the time of the Retirement Plan's termination if
such termination occurs prior to the Participant's Termination of Employment.
The Participant's Account balance(s) under this Plan shall also be reduced as
of the end of each Plan Year by a lump sum amount which is equal to the
increased Employer contributions which were made on behalf of the Participant
for such Plan Year under the Retirement Savings Plan or any other qualified or
non-qualified defined contribution plan or arrangement of an Employer on
account of the distribution of benefits under this Plan.
ARTICLE V
PLAN BENEFITS
5.1 Plan Benefit. The Company shall pay a Plan benefit for the Participant's
Normal, Early and Special Distribution Accounts, as determined below:
(a) Fully Enhanced Rate. Unpaid Account balances of Participants who have
a Termination of Employment upon Normal Retirement, death or at any time
after a Change in Control shall
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<PAGE> 15
be credited retroactively on the Valuation Date immediately preceding
commencement of payment of benefits with respect to such Account balances
with one hundred thirty-five percent (135%) of the T-Note Rate for each
Plan Year.
(b) Enhanced Rate. Unpaid Account balances of Participants who have a
Termination of Employment before Normal Retirement and prior to a Change
in Control, for reasons other than death, shall be credited retroactively
on the Valuation Date immediately preceding commencement of payment of
benefits with respect to such Account balances with a percentage of the
T-Note Rate based on the Participant's completed years of Continuous
Service from his date of hire, including years of Continuous Service
before the Effective Date of this Plan, and completed years of
participation in this Plan as follows:
<TABLE>
<CAPTION>
Completed Years of Completed Years of
Continuous Service Plan Participation % of T-Note Rate
------------------ -------------------
<S> <C> <C> <C>
Less Than 3 -- 100%
3 or More -- 125%
5 or More and 2 or More 130%
7 or More and 4 or More 135%
</TABLE>
(c) Early and Special Distribution Accounts. The enhanced rates set forth
under Sections 5.1(a) and (b) above shall also be credited retroactively
to Early and Special Distribution Accounts on the basis of the
Participant's Continuous Service and completed years of participation in
the Plan on the Valuation Date preceding each payment of benefits with
respect to such Accounts before Termination of Employment.
(d) Completed Years of Plan Participation. Completed years of
participation in this Plan shall include all years for which the
Participant had an Account balance with the Plan for the entire calendar
year.
(e) Duration. The interest rates provided under Sections 5.1 (a) and (b)
above shall be payable until the Participant's Accounts are distributed in
full except in the event of the Participant's death. After the
Participant's death interest shall be credited pursuant to Section 4.3(b).
5.2 Normal Distribution Account.
(a) Election of Retirement Benefit. A Participant may file a Deferral
Election to defer compensation into a Normal Distribution Account and
receive benefits from such Account following Termination of Employment
upon Normal or Early Retirement. A Participant may elect up to three (3)
benefit payment options, each covering a ten percent (10%) multiple of his
Normal Distribution Account balance at retirement and specifying a date of
commencement and duration of payments. A Participant's election of payment
options shall be irrevocable, except as follows:
(i) Subject to the approval of the Committee, a Participant shall be
permitted to file one new payment election per year which will
supersede his original election (A) at any time more than 12 months
prior to his Normal or Early Retirement without penalty and (B) at any
time during the 12 months preceding his Normal or Early Retirement
subject to a penalty, which shall be forfeited to the Company, equal
to six percent (6%) of the portion of the Account balance affected by
the change. A new election which is made within the aforesaid time
limits will become effective upon the Participant's Normal or Early
Retirement. In the event that a Participant accelerates his Normal or
Early Retirement
11
<PAGE> 16
thereby causing a previously filed payment election
to have been made within 12 months preceding Normal or Early
Retirement, the next preceding timely payment election filed by the
Participant shall be followed unless the Participant elects to have
the six percent (6%) penalty of Section 5.2(a)(i)(B) above apply. No
penalty shall apply to the first such payment election filed by a
Participant who was participating in the Prior Plan and such initial
election shall be given effect unless the Participant subsequently
files a new payment election.
(ii) A Participant who has elected payments in installments may
request in writing a payment in a lump sum, at any time after Normal
or Early Retirement, of the amount of his Account balance which is
reasonably necessary to meet the Participant's requirements due to a
Financial Hardship.
(iii) A Participant may elect to receive a payment in a lump sum at
any time, subject to a penalty, as provided in Section 5.9(b).
(b) Forms of Retirement Benefit Payment. The available forms of payment
from a Normal Distribution Account after Normal or Early Retirement are
as follows:
(i) One lump sum payment.
(ii) Monthly installment payments in substantially equal payments of
principal and interest over a payment period of 60, 120 or 180 months,
as elected by the Participant. The amount of the monthly installments
shall be redetermined effective as of January 1 of each year based on
the remaining Account balance and the remaining number of installment
payments.
(c) Commencement of Retirement Benefit Payment. The available commencement
dates for payment of benefits from a Participant's Normal Distribution
Account are as follows:
(i) Upon Normal or Early Retirement.
(ii) Any January following Normal or Early Retirement; provided,
however, that no payment may commence later than the January of the
year in which the Participant attains age 70.
(iii) The later of Normal or Early Retirement and the date the
Participant attains age 60, 65 or 70.
If a Participant does not elect a benefit payment option for his Normal
Distribution Account, Plan benefits from such Account will be paid in monthly
installments over 180 months, commencing in January of the year following Early
Retirement.
5.3 Form of Benefit Payment Upon Termination of Employment. Benefits payable
upon a Participant's Termination of Employment, for reasons other than
Disability or death, before eligibility for Normal or Early Retirement shall be
paid in a lump sum or up to three equal annual installments, at the Committee's
discretion, following Termination of Employment. Interest will continue to be
credited on unpaid Account balances following Termination of Employment at the
applicable rate under Section 5.1(b).
5.4 Survivor Benefits.
(a) Pre-Retirement Survivor Benefits.
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<PAGE> 17
(i) Normal and Early Distribution Accounts. If a Participant dies
while in employment with an Employer (or while suffering from a
Disability prior to attaining age 55) prior to receiving a complete
distribution of his entire Normal or Early Distribution Account
balances, then commencing as soon as practicable following the
Participant's death the Employer will pay to the Participant's
Beneficiary a benefit equal to the sum of A plus B plus C where:
A = Greater of:
o 40% of the Participant's cumulative amount deferred
(excluding interest credited thereon) on the date of death or
at age 65 (if death occurs after age 65), paid annually until
the Participant would have attained age 65 or for ten (10)
years, whichever is longer (the "Payout Period"), or
o Participant's Account balance annuitized over the Payout
Period.
B = Respectively:
o Normal Distribution Account: If death occurs before age 65,
160% of the Participant's annual Deferral Commitment for such
Account in effect at date of death, paid annually for the
Payout Period.
o Early Distribution Account: 40% times the number of deferral
years remaining before commencement of payment of such
Account (limited to the lesser of 4 years or the number of
years until the Participant would have attained age 65) of
the Participant's annual Deferral Commitment for such Account
in effect at date of death, paid annually over the Payout
Period.
C = Participant's Account balance resulting from deferrals
credited to his Account after age 65 paid over the Payout Period.
(ii) Special Distribution Account. If a Participant dies while in
employment with an Employer (or while suffering from a Disability
prior to attaining age 55) prior to receiving a complete distribution
of his entire Special Distribution Account, commencing as soon as
practicable following the Participant's death the Employer will pay to
the Participant's Beneficiary a benefit equal to the greater of (X)
40% of the cumulative amounts deferred into the Participant's Special
Distribution Account on the date of death or at age 65 (if death
occurs after age 65), paid annually for the Payout Period, or (Y)
Participant's Special Distribution Account balance paid over the
Payout Period.
(iii) Greater Benefit. For purposes of Section 5.4(a)(i)(A), the
Committee shall determine which benefit is greater on a present value
basis using such discount rate as the Committee may determine,
provided that such rate will not be greater than the T Note-Rate which
is applicable for the Plan Year.
(iv) Covered Deferral Commitment. For purposes of Section
5.4(a)(i)(B), the following provisions shall apply:
A) If the Participant had elected to defer a percentage of Base
Salary or Bonus, his Deferral Commitment shall be determined
based on the Base Salary in effect or the Bonus most recently
paid to the Participant at the time of his death.
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<PAGE> 18
B) If the Participant had elected to defer a dollar amount of Base
Salary or Bonus, his Deferral Commitment shall not exceed the
Base Salary in effect or the Bonus most recently paid to the
Participant at the time of his death.
C) A Deferral Commitment shall be deemed to be in effect beginning
on the first day of the Plan Year after the Participant files a
Deferral Election for such Deferral Commitment.
(v) Commencement of Survivor Benefit. The pre-retirement survivor
benefit for a Participant's Accounts shall become effective beginning
on the first day of the Plan Year after the Participant files a
Deferral Election for a Normal or Early Distribution Account and shall
be effective as of January 1, 1997 for all Special Distribution
Accounts. A Participant's Beneficiary will be entitled to receive the
pre-retirement survivor benefits described above with respect to the
Participant's Account(s) only in the event of the Participant's death
while in employment with an Employer on or after such dates.
(vi) Withdrawals. Whenever a Participant makes a withdrawal from any
Account, the cumulative amount deferred for purposes of Section
5.4(a)(i)(A) above shall be limited to the actual amounts deferred
(less any amounts withdrawn, including any penalty thereon). The
Committee, in its sole discretion, will make appropriate adjustments
to reduce the annual amount of the pre-retirement survivor benefit
where the Participant has received a partial distribution from any of
his Account(s) prior to his death, including but not limited to
installment payments from an Early Distribution Account pursuant to
Section 5.5, distributions on account of Financial Hardship pursuant
to Section 5.6 and distributions during a Window Period pursuant to
Section 5.9. If a Participant dies while in employment with an
Employer after complete distribution of his entire Account balances,
no survivor benefit will be payable to the Participant's Beneficiary.
(vii) Prior Plan Pre-Retirement Survivor Benefit. Beneficiaries of
Participants who are age 62 or older on January 1, 1997 and who
subsequently die while in employment with an Employer prior to
receiving a complete distribution of their entire Normal, Early or
Special Distribution Account(s), if any, shall be entitled to receive
the greater of the pre-retirement survivor benefit calculated above
and the pre-retirement survivor benefit calculated under the terms of
the Prior Plan.
(b) Post-Retirement Survivor Benefits. If a Participant dies after Normal
or Early Retirement but before commencement of payment of retirement
benefits with respect to his Normal Distribution Account balance, the
Employer will pay to the Participant's Beneficiary the installments of any
such benefit that such Participant's Beneficiary would have received with
respect to such Normal Distribution Account balance had the Participant
commenced to receive retirement benefits on the day prior to such
Participant's death. Payments will commence upon the Participant's death,
irrespective of when retirement benefits would have commenced if the
Participant had survived. Such payments shall be made in accordance with
the method of payment which the Participant had elected for payment of
retirement benefits for his Normal Distribution Account.
If a Participant dies after the commencement of payment of retirement
benefits with respect to his Normal Distribution Account, the Employer
will pay to the Participant's Beneficiary the remaining installments of
any such benefit that would have been paid to the Participant had the
Participant survived.
If a Participant dies after Termination of Employment, but before
receiving full payment of benefits from his Early or Special Distribution
Account, his Beneficiary shall receive the
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<PAGE> 19
balance of his Early or Special Distribution Account in one lump sum
payment, at the discretion of the Committee, as soon as practicable
following his death.
(c) Interest. If the Participant dies during employment with an Employer,
the amount payable with respect to each of the Participant's Accounts
shall be determined by retroactively crediting interest at one hundred
thirty-five percent (135%) of the T-Note Rate for each Plan Year through
the date of the Participant's death. After the Participant's death
interest shall be credited for each Plan Year at one hundred percent
(100%) of the T-Note Rate which is applicable for that Plan Year.
5.5 Early Distribution Account. A Participant may file a Deferral Election to
defer compensation into an Early Distribution Account and receive benefits from
such Account prior to Termination of Employment subject to the following
restrictions:
(a) Election of Early Distribution Benefit. A Deferral Election
establishing an Early Distribution Account and specifying an early payment
date and the form of payment must be filed prior to the commencement of
the period in which the Elective Deferred Compensation is to be earned. No
deferrals may be made into a Participant's Early Distribution Account
during any Plan Year in which the Participant is receiving a distribution
from such Account.
(b) Amount of Early Distribution Benefit. The entire Early Distribution
Account must be paid out at the time and in the form provided for in the
related Deferral Election.
(c) Commencement and Form of Early Distribution Benefit. An Early
Distribution Account shall not be paid out prior to the completion of two
Plan Years following the start of deferrals into such Account. An Early
Distribution Account shall be paid out in a lump sum or in four equal
annual installments, as provided in the Participant's Deferral Election
establishing such Account. Following the complete distribution of an Early
Distribution Account, a Participant may make new deferrals into such
Account. Amounts paid to a Participant pursuant to this Section 5.5 shall
be treated as distributions from the Participant's Early Distribution
Account. If Termination of Employment occurs due to any reason, other than
death, before the date scheduled for payment of an Early Distribution
Account, the Participant shall receive the balance of his Early
Distribution Account in one lump sum payment or up to three (3) equal
annual installments, at the Committee's discretion, as soon as practicable
following such event.
5.6 Hardship Distributions. Upon finding that a Participant or Beneficiary has
suffered a Financial Hardship, the Committee may, in its sole discretion, make
distributions from an Account prior to the time specified for payment of
benefits under the Plan. The amount of such distributions shall be limited to
the amount reasonably necessary to meet the Participant's or Beneficiary's
requirements during the Financial Hardship. Applications for hardship
distributions and determinations thereon by the Committee shall be in writing,
and a Participant or Beneficiary may be required to furnish written proof of
the Financial Hardship.
A Participant's entire Account balance will be distributed whenever a hardship
distribution would amount to more than seventy-five percent (75%) of any such
Account balance. Following a complete distribution of an entire Account
balance, a Participant and his Beneficiary will be entitled to no further
benefits under the Plan with respect to that Account. Amounts paid to a
Participant pursuant to this Section 5.6 shall be treated as distributions from
the Participant's Account. Any Participant who receives a hardship distribution
of any part of an Account balance shall not be allowed to make any deferrals
under the Plan during the remainder of the Plan Year in which he receives such
distribution or during the next Plan Year.
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<PAGE> 20
5.7 Disability. If a Participant suffers a Disability, the Participant's
Deferral Commitments will cease except for any bonuses which may be payable
thereafter. The Participant's Accounts under the Plan will continue, and the
Participant will continue to receive credit for years of Continuous Service and
years of participation in the Plan for purposes of Section 5.1(b). The
Participant's Accounts will be distributed in accordance with the method of
payment which the Participant has elected for payment of benefits with respect
to such Account, assuming Termination of Employment on Early Retirement for
purposes of his Normal Distribution Account. Notwithstanding the foregoing,
such distribution may be delayed if the Committee determines that such
distribution would result in a reduction of any disability benefits payable to
the Participant under disability plans sponsored by the Employer. The Committee
shall make appropriate adjustments on account of any delayed payments to ensure
that the Participant receives payments which are actuarially equivalent to the
payments which were otherwise due to him under this Plan.
5.8 Valuation and Settlement. The date on which a lump sum is paid or the date
on which installment payments commence shall be the "Settlement Date." The
Settlement Date for an Account shall be no more than sixty (60) days after the
end of the month in which the Participant or his Beneficiary becomes entitled
to payments on account of Normal or Early Retirement, other Termination of
Employment or death, unless the Participant elects to defer commencement of
payments following Normal or Early Retirement to a later date in the election
form for designation of form of payment for the Account. The Settlement Date
for an Early Distribution Account or delayed payments following Normal or Early
Retirement shall be the date which the Participant elects for commencement of
such payments in the Deferral Election designating the form of payment for the
Account. The Settlement Date for a Special Distribution Account shall be the
date which the Participant elected for commencement of payments from such
Account under the terms of the Prior Plan. The amount of a lump sum payment and
the initial amount of installment payments shall be based on the value of the
Participant's Account as of the Valuation Date at the end of the immediately
preceding month before the Settlement Date. For example, the Valuation Date at
the end of December shall be used to determine lump sum payments and the
initial amount of installment payments which will be made in the following
January.
5.9 Change in Control and Unscheduled Distributions.
(a) Subject to the provisions of Section 5.9(b) hereof, upon (i)
dissolution or liquidation of the Company, (ii) a reorganization, merger
or consolidation of the Company with one or more other entities as a
result of which the Company is not the survivor, (iii) the sale of all or
substantially all the assets of the Company, or (iv) any other event which
constitutes a Change in Control as defined in Section 5.9(c), the
interests of all then remaining Participants shall continue, and
provisions shall be made in connection with such transaction for the
continuance of the Plan and the assumption of the obligations of the
Company under the Plan by the Company's successor(s) in interest.
(b) Notwithstanding any other provisions of the Plan, at any time during a
Window Period before a Change in Control or at any time after a Change in
Control a Participant or a Beneficiary of a deceased Participant may elect
to receive an immediate lump sum payment of up to the balance of his
Account(s), reduced by a penalty, which shall be forfeited to the Company,
equal to ten percent (10%) before a Change in Control or six percent (6%)
after a Change in Control, applied against the portion of the Account
balance withdrawn, in lieu of payments in accordance with the form
previously elected by the Participant. However, the penalty shall not
apply if the Committee determines, based on advice of counsel or a final
determination by the Internal Revenue Service or any court of competent
jurisdiction, that by reason of the foregoing provision the Participant
has recognized or will recognize gross income for federal income tax
purposes under this Plan in advance of payment to him or his
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<PAGE> 21
Beneficiary of Plan benefits. The minimum lump sum payment shall be
$50,000 or the entire balance of any Account, whichever is less.
A Participant who receives a lump sum payment under this Section 5.9(b)
will be credited with interest on the Account balance at the rates
established under Section 5.1(b) of the Plan based on the Participant's
completed years of Service and years of participation in the Plan prior to
the lump sum payment. Following a complete distribution of the entire
balance for an Account, a Participant and his Beneficiary will be entitled
to no further benefits under the Plan with respect to that Account.
Whenever a Participant receives a lump sum payment under this Section
5.9(b) or Section 9.1, the Participant will be deemed to elect to revoke
all Deferral Commitments and to discontinue all deferrals under the Plan
effective as of the date of the lump sum payment. The Participant will be
precluded from making any new deferrals under the Plan for the remainder
of the Plan Year in which he receives such distribution and for the next
Plan Year.
(c) A "Change in Control" shall mean:
(i) The occurrence with respect to the Company of a "control
transaction," as such term is defined in Section 2542 of the
Pennsylvania Business Corporation Law of 1988, as of August 15, 1989;
or
(ii) Approval by the stockholders of the Company of (A) any merger or
consolidation of the Company in which the holders of voting stock of
the Company immediately before the merger or consolidation will not
own 50% or more of the voting shares of the continuing or surviving
corporation immediately after such merger or consolidation, or (B) any
sale, lease, or exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all the assets
of the Company; or
(iii) A change of 25% (rounded to the next whole person) in the
membership of the Board of Directors of the Company within a 12-month
period, unless the election or nomination for election by stockholders
of each new director within such period was approved by the vote of
85% (rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the 12-month period.
(d) Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant)
affected thereby, the Company may not amend or terminate this Plan:
(i) For a period of twenty-four (24) months following a Change in
Control; or
(ii) At any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives
payments of benefits under this Plan or has a Termination of
Employment for any reason at any time during the period of twenty-four
(24) months following the Change in Control.
5.10 Continuous Service. Continuity of service shall be determined in
accordance with the following rules:
(a) A leave of absence not in excess of one year, granted by a
Participant's Employer for any purpose, including but not limited to,
sickness, accident or other casualty, shall not be considered a break in
continuity of service.
(b) Any Participant who has entered, or enters, the Armed Forces of the
United States in a period of national emergency, declared by the President
or Congress of the United States,
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<PAGE> 22
shall be presumed to be on leave of absence, provided he returns to the
employ of his Employer within ninety (90) days of the date on which he
shall have the right to release from such service, or from the hospital in
event of service caused disability without intervening employment
elsewhere.
(c) A Participant who transfers his employment from one Employer to any
other Employer is not deemed to have caused a break in continuity of
service. Any other dismissal or voluntary Termination of Employment shall
be deemed a break in continuity of service.
(d) Absence from work or interruption of employment not covered by the
foregoing provisions of this Section shall be determined by the employing
Employer to be, or not to be, a break in continuity of service at the time
of return to work or re-employment.
5.11 Distributions from General Assets. The Employer shall make any or all
distributions pursuant to this Plan in cash out of its general assets.
5.12 Withholding and Payroll Taxes. The Employer shall withhold from payments
made hereunder any taxes required to be withheld from such payments under
federal, state or local law.
5.13 Payment to Guardian. If a benefit is payable to a minor or a person
declared incompetent or to a person incapable of handling the disposition of
his property, the Committee may direct payment of such benefit to the guardian,
legal representative or person having the care and custody of such minor,
incompetent or incapacitated person. The Committee may require proof of
minority, incompetency, incapacity or guardianship as it may deem appropriate
prior to distribution of the benefit. Such distribution shall completely
discharge the Committee from all liability with respect to such benefit.
5.14 Small Benefit. Notwithstanding any election made by the Participant, the
Committee, in its sole discretion, may direct payment of any benefit in the
form of a lump sum payment to the Participant or any Beneficiary, if the lump
sum amount of the Account balance which is payable to the Participant or
Beneficiary when payments to such Participant or Beneficiary would otherwise
commence is less than $50,000.
5.15 Protective Provisions. Each Participant shall cooperate with the Company
by furnishing any and all information requested by the Company in order to
facilitate the payment of benefits hereunder, taking such physical examinations
as the Company may deem necessary and taking such other relevant action as may
be requested by the Company. If a Participant refuses so to cooperate or makes
any material misstatement of information or nondisclosure of medical history,
then no benefits will be payable hereunder with respect to such Participant or
his Beneficiary, provided that, in the Company's sole discretion, benefits may
be payable in an amount reduced to compensate the Company for any loss, cost,
damage or expense suffered or incurred by the Company as a result in any way of
any such action, misstatement or nondisclosure.
5.16 Notices and Elections. Any notice or election required or permitted to be
given to the Company or the Committee under the Plan shall be sufficient only
if it is in writing on a form prescribed or accepted by the Committee and hand
delivered, or sent by registered or certified mail, to the principal office of
the Company, directed to the attention of the Human Resources Department of the
Company. Such notice or election shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
-18-
<PAGE> 23
5.17 Special Distribution Accounts. Special Distribution Accounts shall be
distributed in accordance with a Participant's elections filed under the Prior
Plan. Such elections may not be amended by the Participant.
ARTICLE VI
DESIGNATION OF BENEFICIARY
6.1 Designation of Beneficiary. Each Participant shall have the right to
designate a Beneficiary or Beneficiaries to receive his interest in each of his
Accounts upon his death. Such designation shall be made on a form prescribed by
and delivered to the Company. The Participant shall have the right to change or
revoke any such designation from time to time by filing a new designation or
notice of revocation with the Company, and no notice to any Beneficiary nor
consent by any Beneficiary shall be required to effect any such change or
revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall fail to designate
a Beneficiary before his demise, or if no designated Beneficiary survives the
Participant, the Committee shall direct the Company to pay the balance in each
of his Accounts in a lump sum to the executor or administrator for his estate;
provided, however, if no executor or administrator shall have been appointed,
and actual notice of said death was given to the Committee within sixty (60)
days after his death, and if his Account balances do not exceed Ten Thousand
Dollars ($10,000), the Committee may direct the Company to pay his Account
balances to such person or persons as the Committee determines, and the
Committee may require such proof of right and/or identity of such person or
persons as the Committee may deem appropriate or necessary.
ARTICLE VII
FORFEITURES TO COMPANY
7.1 Distribution of Participants' Interest When Company is Unable to Locate
Distributees. In case the Company is unable within three (3) years after
payment is due to a Participant, or within three (3) years after payment is due
to the Beneficiary or estate of a deceased Participant, to make such payment to
him or his Beneficiary, executor or administrator because it cannot ascertain
his whereabouts or the identity or whereabouts of his Beneficiary, executor or
administrator by mailing to the last known address shown on the Employer's or
the Company's records, and neither he, his Beneficiary, nor his executor or
administrator had made written claim therefor before the expiration of the
aforesaid time limit, then in such case, the amount due shall be forfeited to
the Company.
ARTICLE VIII
MAINTENANCE OF ACCOUNTS
The Company shall keep, or cause to be kept, all such books of account, records
and other data as may be necessary or advisable in its judgment for the
administration of this Plan, and properly to reflect the affairs thereof, and
to determine the nature and amount of the interests of the respective
Participants in each Account.
The Company is not required to physically segregate any assets with respect to
the Accounts under this Plan from any other assets of the Company and may
commingle any such assets with any other moneys, securities and properties of
any kind of the Company. Separate accounts or records for the respective
Participants' interests shall be maintained for operational and accounting
purposes, but no such account or record shall be considered as creating a lien
of any
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<PAGE> 24
nature whatsoever on or as segregating any of the assets with respect to the
Accounts under this Plan from any other funds or property of the Company.
ARTICLE IX
AMENDMENT AND TERMINATION OF THE PLAN
9.1 Amendment. The Human Resources Committee of the Board may at any time amend
the Plan in whole or in part, provided, however, that no amendment shall be
effective to decrease or restrict the amount accrued (including earnings at the
appropriate interest rate) in any Account to the date of such amendment.
Notwithstanding anything in the preceding sentence to the contrary, the
Committee shall have the power to amend the Plan to the extent authorized by
Section 2.2.
Upon a prospective amendment to reduce the formula for determining the future
interest rate, 30 days' advance written notice shall be given to each
Participant. Following such an amendment to reduce the formula for determining
the future interest rate and the giving of notice to the Participant, the
Participant may elect to (i) terminate an ongoing Deferral Commitment without
penalty and/or (ii) receive an immediate lump sum payment of the balance of his
Account(s), reduced by a penalty, which shall be forfeited to the Employer,
equal to six percent (6%) of the balance of such Account(s), in lieu of
payments in accordance with the form previously elected by the Participant.
However, the six percent (6%) penalty shall not apply if it would not have
applied under Section 5.9(b). The Participant may make such an election by
notifying the Committee in writing within sixty (60) days following receipt of
notice of the amendment to reduce the interest rate.
9.2 Company's Right to Terminate. The Human Resources Committee of the Board
may partially or completely terminate the Plan if, in its judgment, the tax,
accounting, or other effects of the continuance of the Plan or potential
payments thereunder would not be in the best interests of the Company.
(a) Partial Termination. The Human Resources Committee of the Board may
partially terminate the Plan by instructing the Committee not to accept
any additional or ongoing Deferral Commitments. In the event of such
partial termination, the Plan shall continue to operate on the same terms
and conditions and, unless the Human Resources Committee of the Board
instructs the Committee not to accept ongoing Deferral Commitments, shall
be effective with regard to Deferral Commitments entered into prior to the
effective date of such partial termination.
(b) Complete Termination. The Human Resources Committee of the Board may
completely terminate the Plan. In the event of complete termination, the
Plan shall cease to operate, and the Employer shall pay out to each
Participant (or the Beneficiary of a deceased Participant) his Accounts in
either a lump sum payment or up to three equal annual installments, at the
Employer's discretion, as if the Participant had terminated service as of
the effective date of the complete termination. Interest shall continue to
be paid on the balance in each Participant's Account(s) in accordance with
Section 4.3.
ARTICLE X
SPENDTHRIFT PROVISIONS
The Employer shall, except as otherwise provided hereunder, pay all amounts
payable hereunder only to the person or persons entitled thereto hereunder, and
all such payments shall be made directly into the hands of each such person or
persons and not into the hands of any other person
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<PAGE> 25
or corporation whatsoever, so that said payments may not be liable for the
debts, contracts or engagements of any such designated person or persons, or
taken in execution by attachment or garnishment or by any other legal or
equitable proceedings, nor shall any such designated person or persons have any
right to alienate, arbitrate, execute, pledge, encumber, or assign any such
payments or the benefits or proceeds thereof. If the person entitled to receive
payment be a minor, or a person of unsound mind, whether or not adjudicated
incompetent, the Employer, upon direction of the Committee, may make such
payments to such person or persons, corporation or corporations as may be, or
be acting as, parent or legal or natural guardian of such infant or person of
unsound mind. The signed receipt of such person or corporation shall be a full
and complete discharge to the Employer for any such payments.
ARTICLE XI
MISCELLANEOUS
11.1 Right of Employers to Dismiss Employees; Obligations. Neither the action
of the Company and the Employers in establishing this Plan, nor any provisions
of this Plan, shall be construed as giving any employee the right to be
retained in his Employer's employ, or any right to any payment whatsoever
except to the extent of the benefits provided for by this Plan. The Employers
expressly reserve their right at any time to dismiss any employee without any
liability for any claim against the Employers, or any of them, for any payment
whatsoever except to the extent provided for in this Plan. The Employers, or
any of them, have no obligation to create any other or subsequent deferred
compensation plan for any employees.
11.2 Title to and Ownership of Assets Held for Accounts. Title to and ownership
of all assets held for any Accounts shall be vested in the Employer and shall
constitute general assets of the Employer.
11.3 Nature of Liability to Participants. Any and all payments required to be
made by the Employer to Participants in the Plan shall be general and unsecured
liabilities of the Employer.
11.4 Text of Plan to Control. The headings of the Articles and Sections are
included solely for convenience of reference, and if there be any conflict
between such headings and the text of this Plan, the text shall control.
This Plan document sets forth the complete terms of the Plan. In the event of
any discrepancies or conflicts between this Plan document and any summary or
other information regarding the Plan, the terms of this Plan document shall
apply and control.
11.5 Law Governing and Severability. This Plan shall be construed, regulated
and administered under the laws of the Commonwealth of Pennsylvania.
If any provisions of this Plan shall be held invalid or unenforceable for any
reason, such invalidity or unenforceability shall not affect the remaining
provisions of this Plan, and this Plan shall be deemed to be modified to the
least extent possible to make it valid and enforceable in its entirety.
11.6 Name. This Plan may be referred to as the "Mellon Bank Corporation
Elective Deferred Compensation Plan for Senior Officers."
11.7 Gender. The masculine gender shall include the feminine, and the singular
shall include the plural, except when the context expressly dictates otherwise.
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<PAGE> 26
11.8 Trust Fund. The Employer shall be responsible for the payment of all
benefits provided under the Plan. At its discretion, the Company may establish
one or more trusts, with such trustees as the Board or the Committee may
approve, for the purpose of providing for the payment of such benefits. Such
trust or trusts may be irrevocable, but the assets thereof shall be subject to
the claims of the Company's creditors. To the extent any benefits provided
under the Plan are actually paid from any such trust, the Employer shall have
no further obligation with respect thereto, but to the extent not so paid, such
benefits shall remain the obligation of, and shall be paid by, the Employer.
11.9 Ineligible Participant. Notwithstanding any other provisions of this Plan
to the contrary, if any Participant is determined not to be a "management or
highly compensated employee" within the meaning of ERISA or Regulations
thereunder, such Participant will not be eligible to participate in this Plan
and shall receive an immediate lump sum payment equal to the vested portion of
the amounts standing credited to his Accounts. Upon such payment no survivor
benefit or other benefit shall thereafter be payable under this Plan either to
the Participant or any Beneficiary of the Participant.
IN WITNESS WHEREOF, the Company has caused this amended and restated Plan to be
executed this day of October, 1996, effective as of January 1, 1997.
ATTEST: MELLON BANK CORPORATION
CARL KRASIK By: D. MICHAEL ROARK
Carl Krasik D. Michael Roark
Secretary Head of the
Human Resources Department of
Mellon Bank, N.A.
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<PAGE> 1
Exhibit 10.12
MELLON BANK
OPTIONAL LIFE INSURANCE PLAN
Effective January 1, 1993
<PAGE> 2
TABLE OF CONTENTS
PAGE
PREAMBLE 1
ARTICLE I 1
DEFINITIONS 1
1.1 Affiliates 1
1.2 Base Salary 1
1.3 Beneficiary 1
1.4 Board 1
1.5 Change in Control 2
1.6 Code 2
1.7 Committee 2
1.8 Company 2
1.9 Coverage Adjustment Date 2
1.10 Credited Interest 2
1.11 Disability 2
1.12 Economic Benefit 2
1.13 Effective Date 3
1.14 Eligible Employee 3
1.15 Employee 3
1.16 Human Resources Committee 3
1.17 Insurance Company 3
1.18 Net Cumulative Premiums 3
1.19 Participant 3
1.20 Participation Agreement 3
1.21 Plan 4
1.22 Plan Year 4
1.23 Policy 4
1.24 Retirement 4
1.25 Subsidiary 4
1.26 Years of Service 4
ARTICLE II 4
PARTICIPATION 4
2.1 Participation 4
2.2 Insurability 5
2.3 Commencement of Coverage 5
2.4 Increases in Coverage 5
2.5 Declining Coverage 6
2.6 Ceasing Participation 6
ARTICLE III 6
LIFE INSURANCE COVERAGE 6
3.1 Amount of Insurance 6
3.2 Disability 7
3.3 Insurance Contract 8
3.4 Interests in Cash Value 8
(i)
<PAGE> 3
3.5 Policy Withdrawals and Loans 10
3.6 Surrender or Cancellation of Policy 11
3.7 Continuation of Split Dollar Policy
or Release of Collateral Assignment after
Retirement 11
3.8 Assignment 11
3.9 Payment of Premiums and Contributions 12
3.10 Form of Death Benefit 12
ARTICLE IV 13
OPTION TO RETAIN INSURANCE POLICY ON TERMINATION OF
EMPLOYMENT 13
ARTICLE V 14
OPTION TO RETAIN INSURANCE POLICY IN CERTAIN
EVENTS 14
5.1 Option to Retain Policy 14
5.2 Elimination of Coverage 14
5.3 Change in Control 14
ARTICLE VI 16
BENEFICIARY DESIGNATION 16
6.1 Designation of Beneficiary 16
6.2 Failure to Designate Beneficiary 16
ARTICLE VII 17
ADMINISTRATION 17
7.1 Administration 17
7.2 Powers and Duties 17
7.3 Procedures 19
7.4 Establishment of Rules 20
7.5 Limitation of Liability 20
7.6 Compensation and Insurance 20
7.7 Removal and Resignation 21
7.8 Claims Procedure 21
ARTICLE VIII 22
AMENDMENT AND TERMINATION OF PLAN 22
ARTICLE IX 22
MISCELLANEOUS 22
9.1 Restriction on Assignment 22
9.2 Tax Liability and Withholding 22
9.3 ERISA Plan 23
9.4 Employment Not Guaranteed 23
9.5 Protective Provisions 23
(ii)
<PAGE> 4
<TABLE>
<S> <C> <C>
9.6 Gender, Singular & Plural 24
9.7 Captions 24
9.8 Validity 24
9.9 Notices and Elections 24
9.10 Applicable Law 24
9.11 Waiver of Breach 25
9.12 Benefit 25
</TABLE>
(iii)
<PAGE> 5
MELLON BANK
OPTIONAL LIFE INSURANCE PLAN
PREAMBLE
The purpose of this Mellon Bank Optional Life Insurance Plan (the "Plan")
is to provide optional life insurance coverage for eligible key executive
employees of Mellon Bank, N.A. (the Company) and its Affiliates. The Plan will
be effective as of January 1, 1993.
ARTICLE I
DEFINITIONS
When used herein, the following words shall have the following meanings
unless the content clearly indicates otherwise:
1.1 Affiliates. "Affiliates" means Mellon Bank Corporation and its
Subsidiaries.
1.2 Base Salary. "Base Salary" means an active Employee's annual base
salary as of the last Coverage Adjustment Date preceding his death. Annual base
salary excludes all bonuses, incentive and supplemental compensation and other
payments and benefits, except fixed base salary.
1.3 Beneficiary. "Beneficiary" means the person or persons designated as
such in accordance with Article VI.
1.4 Board. "Board" means the Board of Directors of Mellon Bank Corporation
or any committee thereof acting within the scope of its authority.
<PAGE> 6
1.5 Change in Control. "Change in Control" shall have the meaning set
forth in Section 5.3.
1.6 Code. "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.7 Committee. "Committee" means the Corporate Benefits Committee of
Mellon Bank Corporation appointed to administer the Plan pursuant to Article
VII.
1.8 Company. "Company" means Mellon Bank, N.A. and, whenever applicable,
its Affiliates.
1.9 Coverage Adjustment Date. "Coverage Adjustment Date" means the date
during each year, selected by the Committee from time to time in its
discretion, on which changes or increases in coverage will take effect.
1.10 Credited Interest. "Credited Interest" means interest on the Net
Cumulative Premiums paid by the Company on a Policy at the annual rate credited
from time to time on the Policy by the insurance company less one hundred (100)
basis points, which shall be credited to the Company following the
Participant's Retirement or termination of employment with the Company.
1.11 Disability. "Disability" means a condition that qualifies as a
disability under the Mellon Bank Group Long-Term Disability Plan.
1.12 Economic Benefit. "Economic Benefit" means the value of the economic
benefit of life insurance coverage under this Plan for income tax purposes,
determined based on revenue rulings issued by the Internal Revenue Service and
other applicable authorities.
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<PAGE> 7
1.13 Effective Date. "Effective Date" means January 1, 1993.
1.14 Eligible Employee. "Eligible Employee" means an Employee who is a
Senior Vice President or above and is designated by the Human Resources
Committee to participate in the Plan.
1.15 Employee. "Employee" means any person employed by the Company or its
Affiliates on a regular full-time salaried basis, including officers of the
Company.
1.16 Human Resources Committee. "Human Resources Committee" means the
Human Resources Committee of the Board.
1.17 Insurance Company. "Insurance Company" means an insurance company
selected by the Company to provide coverage for Participants pursuant to the
terms of the Plan.
1.18 Net Cumulative Premiums. "Net Cumulative Premiums" means premiums
paid by the Company on a Policy net of (i) reimbursements or contributions to
premiums on the Policy made by a Participant and (ii) any withdrawals or loans
from cash value of the Policy made to the Company.
1.19 Participant. "Participant" means an Eligible Employee who has
completed the underwriting requirements of the Insurance Company and who is
notified by the Company that he is participating in the Plan in accordance with
the provisions of Article II.
1.20 Participation Agreement. "Participation Agreement" means a written
agreement between the Company and the Participant under which the Participant
agrees to participate in the Plan pursuant to Section 2.1.
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<PAGE> 8
1.21 Plan. "Plan" means this Optional Life Insurance Plan as set forth in
this document and as the same may be amended, administered or interpreted from
time to time.
1.12 Plan Year. "Plan Year" means the calendar year.
1.23 Policy. "Policy" means a life insurance policy providing coverage
under the Plan.
1.24 Retirement. "Retirement" means termination of a Participant's
employment with the Company or its affiliates for reasons other than death or
Disability after the Participant has either (i) attained age fifty-five (55)
and completed at least five (5) Years of Service or (ii) attained age
sixty-five (65) and completed at least one (1) Year of Service.
1.25 Subsidiary. "Subsidiary" means a corporation the majority of the
outstanding stock of which is owned directly or indirectly by Mellon Bank
Corporation.
1.26 Years of Service. "Years of Service" means a Participant's actual
years of service, unless otherwise determined by the Human Resources Committee.
ARTICLE II
PARTICIPATION
2.1 Participation. Any Eligible Employee may enroll in the Plan by
completing a Participation Agreement, the underwriting requirements of the
Insurance Company and any other enrollment steps required by the Company for
coverage to begin.
An Eligible Employee shall become a Participant in the Plan when he has been
notified in writing that his participation is
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<PAGE> 9
approved by the Company. During a leave of absence, coverage will remain in
effect for a maximum of ninety (90) days.
2.2 Insurability. Eligible Employees are not automatically entitled to all
insurance coverage offered under the Plan. Each Eligible Employee will be
covered up to the amount of guarantee issue determined by the Insurance
Company, but must satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for additional amounts under the
Plan.
2.3 Commencement of Coverage. Subject to the limitations of Sections 2.1
and 2.2, (i) an Employee who is an Eligible Employee on January 1, 1993 will be
covered under the Plan as of January 1, 1993, and (ii) any other Eligible
Employee will be covered under the Plan when coverage is approved by the
Insurance Company.
2.4 Increases in Coverage. When a Participant's Base Salary is increased,
the amount of his life insurance coverage under this Plan will increase on the
next Coverage Adjustment Date, except as provided in this Section 2.4. Any such
increase in coverage or any increase in the level of optional coverage (one,
two or three times Base Salary) will not take effect until such additional
coverage is approved by the Insurance Company, and a Participant may be
required to satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for an additional amount of life
insurance coverage under the Plan. A Participant's coverage under the Plan will
be limited to the coverage issued by the Insurance Company.
-5-
<PAGE> 10
2.5 Declining Coverage. An Eligible Employee may decline coverage under
the Plan. However, any such Eligible Employee will be required to satisfy the
insurance company's requirements for obtaining insurance before he may become
covered under the Plan at a later date.
2.6 Ceasing Participation. A Participant who ceases participation in the
Plan shall transfer ownership of his Policy to the Company, and the Company
will pay to such Participant an amount equal to the Participant's interest in
the cash value in the Policy (as determined under Section 3.4).
ARTICLE III
LIFE INSURANCE COVERAGE
3.1 Amount of Insurance. The amount of life insurance coverage which will
be payable to the Beneficiary designated by the Participant will be determined
based on the employment status of the Participant with the Company at the time
of his death. The amounts of life insurance coverage under this Plan are as
follows:
(a) During Employment. While employed with the Company, a Participant
may elect to maintain optional life insurance coverage equal to one (1), two
(2) or three (3) times his Base Salary. The Participant must file an election
for optional life insurance coverage in accordance with procedures and timing
requirements established by the Committee. Any changes in the level of optional
coverage will occur once a year on the Coverage Adjustment Date and will not
take effect until
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<PAGE> 11
coverage is approved by the insurance company. The Company will be entitled to
the balance of the death benefit.
(b) After Retirement. After Retirement from the Company, a Participant
will have life insurance coverage equal to the death benefit payable under the
Policy less an amount payable to the Company equal to (i) the Net Cumulative
Premiums paid by the Company on the Policy plus (ii) Credited Interest thereon
after the Participant's Retirement.
(c) Limitation on Amount of Coverage. The amount of life insurance
coverage under the Plan will be limited to the amount of coverage issued by the
Insurance Company on the Participant under this Plan.
3.2 Disability. If a Participant suffers a Disability, the Participant's
life insurance coverage may be continued by the Participant during the period
of Disability until the Participant reaches age sixty-five (65) or begins to
receive benefits under the Mellon Bank Retirement Plan, whichever is sooner.
The Participant must continue to make contributions for this coverage in the
same manner as an active employee. When a disabled Participant who continues
coverage under the Plan reaches age sixty-five (65) or begins to receive
benefits under the Mellon Bank Retirement Plan, whichever is sooner, the
Participant will continue to have life insurance coverage as if he had retired
from employment with the Company. A Participant who suffers a Disability before
he is eligible for Retirement and elects not to continue his life insurance
coverage will be subject to the provisions of this Plan which apply upon
termination of employment.
-7-
<PAGE> 12
3.3 Insurance Contract. To provide the insurance coverage under the Plan,
the Company shall acquire one or more insurance policies ("Policies") on the
life of each Participant. Except as otherwise specifically provided, the
Participant will be the owner and hold all the incidents of ownership in each
Policy for which he is designated the owner pursuant to a split dollar life
insurance agreement entered into by the Participant and the Company under this
Plan.
In consideration of the Company's payment of premiums on the Policy
pursuant to Section 3.9 of this Plan, the Participant will assign rights in
cash value and death benefits under the Policy to the Company as collateral
under a form of collateral assignment consistent with the terms of the Plan.
The Participant may specify in writing to the Company the Beneficiary or
Beneficiaries for his life insurance coverage under this Plan. Upon receipt of
a written request from the Participant, the Company will immediately take such
action as shall be necessary to implement such Beneficiary designation. Any
death benefits under Policies on the life of the Participant owned by the
Company that exceed the amount payable to the Participant's Beneficiary under
this Plan shall be payable to the Company.
3.4 Interests In Cash Value. The respective interests of the Company and
the Participant in the cash value of Policies which are owned by the
Participant shall be as follows:
(a) During Employment.
(i) Company's Interest In Cash Value During Employment. While
the Participant is employed with the Company,
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<PAGE> 13
the Company's interest in the cash value of any Policy shall be limited to the
lesser of the cash value of the Policy or the Net Cumulative Premiums paid by
the Company on the Policy. The Company shall also be entitled to increases in
cash value in an amount equal to any mortality or other expenses incurred for
the benefit of the Company which are charged against cash value of the Policy,
and any such charges shall, in turn, be deducted from the Company's interest in
cash value of the Policy.
(ii) Participant's Interest In Cash Value During Employment. While the
Participant is employed with the Company, the Participant's interest in the
cash value of any Policy shall be the balance of the cash value of the Policy
in excess of the Company's interest in cash value pursuant to Section 3.4(a)
(i) above. The Participant shall at all times be 100% vested in the
Participant's interest in cash value under a Policy.
(b) After Retirement.
(i) Company's Interest In Cash Value After Retirement. The Company's
interest in the cash value of any Policy after a Participant's Retirement will
be equal to the Net Cumulative Premiums paid by the Company on the Policy plus
Credited Interest thereon after the Participant's Retirement. Any withdrawals
of cash value from the Policy by the company will reduce the Company's
interest in the cash value of the Policy. The Company shall also be entitled
to increases in cash value in an amount equal to any mortality or other
expenses incurred for the benefit of the Company which are charged against cash
value of the Policy, and any such charges shall, in turn, be deducted from the
Company's interest in cash value of the Policy.
-9-
<PAGE> 14
(ii) Participant's Interest In Cash Value after Retirement. After a
Participant's Retirement, the Participant's interest in the cash value of any
Policy shall be the balance of the cash value of the Policy in excess of the
Company's interest in cash value pursuant to Section 3.4(b)(i) above.
3.5 Policy Withdrawals and Loans.
(a) Policy Withdrawals and Loans by Company. The Company shall have
the right to make withdrawals of cash value or prepaid premiums or obtain loans
from any Policy which is owned by a Participant at any time up to the Net
Cumulative Premiums paid by the Company on the Policy plus Credited Interest
thereon after the Participant's Retirement, without the prior written consent
of the Participant. The Company's death benefit under any Policy shall
be reduced by withdrawals (and the unpaid principal and interest of any loans)
under the Policy taken by the Company.
(b) Policy Withdrawals and Loans by Participant. A Participant shall
have no right to make withdrawals or obtain loans from any Policy before his
Retirement. After his Retirement, if the Company releases its collateral
assignment on the Policy, a Participant shall have the right to make
withdrawals of his interest in the cash value of any Policy (or obtain loans
from the Participant's interest in the cash value of any Policy, provided
interest is paid on such loans on an annual basis). The Participant's death
benefit under any Policy shall be reduced by withdrawals (and the unpaid
principal and interest on any loans) under the Policy taken by the Participant.
-10-
<PAGE> 15
3.6 Surrender or Cancellation of Policy. In the event of the surrender
or cancellation of a Policy which is owned by a Participant, the Participant
shall be entitled to receive a portion of the cash surrender value equal to his
interest in the cash value of the Policy, unless the Company substitutes
another Policy which is satisfactory to the Participant. The balance of the
cash surrender value, if any, shall belong to the Company.
3.7 Continuation of Split Dollar Policy or Release of Collateral
Assignment after Retirement. At its option, the Company may (a) continue the
life insurance coverage for the Participant after his Retirement in the same
form and subject to the same terms and provisions of this Plan as if he
remained employed with the Company, except that the total amount of coverage
for the Participant will be the amount specified in Section 3.1(b), or (b)
withdraw its Net Cumulative Premiums paid on the Policy (plus Credited Interest
thereon after Retirement) at any time following the Participant's Retirement.
In the event the Company elects the latter, the Company shall release its
collateral assignment on the Policy.
3.8 Assignment. A Participant may assign, revocably or irrevocably, to
one or more individuals or trustees all or any part of his right, title, claim,
interest, benefit and all other incidents of ownership which he may have in any
Policies providing his life insurance coverage under this Plan, provided that
any such assignment shall be subject to Section 9.1 and the other terms of the
Plan. Such assignee shall then have all rights and obligations which have been
assigned and otherwise are the Participant's under this Plan. In the event that
there has
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<PAGE> 16
been such an assignment, the term Employee or Participant shall mean the
Employee's or Participant's assignee (or any subsequent assignee) as the
context requires, in connection with ownership, actions, elections, or other
events concerning life insurance coverage on the Participant.
3.9 Payment of Premiums and Contributions.
(a) During Employment. While a Participant is employed with the
Company, the Participant will be required each year to pay for optional life
insurance coverage at such rates as the Committee may establish from time to
time. The cost for this coverage will depend on the Participant's age and
amount of coverage and may depend on insurance rating. The Company will pay the
balance of the premiums.
(b) After Retirement. Any premiums for life insurance coverage under
this Plan following a Participant's Retirement will be paid by the Participant.
The Company will not be required to pay any premiums following a Participant's
Retirement.
3.10 Form of Death Benefit. All death benefits payable on behalf of a
Participant under this Plan will be in the form of a lump sum death benefit
paid directly from the life insurance company to the Participant's Beneficiary
under a collateral assignment split dollar life insurance program.
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<PAGE> 17
ARTICLE IV
OPTION TO RETAIN INSURANCE POLICY ON TERMINATION OF EMPLOYMENT
If a Participant terminates employment with the Company before
Retirement, the Participant may elect, in writing received by the Company not
later than sixty (60) days after his termination of employment, to retain the
Policy providing his life insurance coverage then in effect under this Plan and
obtain release of the collateral assignment in favor of the Company by paying
the Company an amount equal to the Net Cumulative Premiums paid by the Company
on the Policy plus Credited Interest thereon after the Participant's
termination of employment with the Company. Payment must be made in cash as a
lump sum or by borrowing or withdrawing cash value from the Policy. A
Participant's life insurance coverage under this Plan will remain in effect
during this sixty (60) day period. A Participant who retains a Policy will
cease to be covered under this Plan and will thereafter be required to pay all
future premiums on the Policy.
If the Participant does not elect to purchase the Company's interest
in the Policy, all incidents of ownership of the Policy held by the Participant
shall be transferred to the Company. In such event the Company will pay the
Participant an amount equal to the Participant's interest in the cash value in
the Policy. At the time the Participant purchases the Company's interests in
the Policy, or the Participant's incidents of ownership are transferred to the
Company, the Company shall have
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<PAGE> 18
no further legal or equitable obligations of any kind to the Participant under
this Plan.
ARTICLE V
OPTION TO RETAIN INSURANCE POLICY IN CERTAIN EVENTS
5.1 Option to Retain Policy. The Participant may elect, in writing
received by the Company not later than sixty (60) days after the Participant
receives written notice from the Company of an event described in Section 5.2,
to retain the Policy providing his life insurance coverage then in effect under
this Plan for an amount equal to the Net Cumulative Premiums paid by the
Company on the Policy plus Credited Interest thereon after the Participant's
Retirement. A Participant who purchases a Policy will cease to be covered
under this Plan and will thereafter be required to pay all future premiums on
the Policy.
5.2 Elimination of Coverage. Any Participant whose coverage is
eliminated pursuant to Article VIII of this Plan (without being replaced with
an equivalent amount of coverage under another plan of the Company) shall have
the option pursuant to Section 5.1 to purchase the Policy providing his life
insurance coverage in effect under this Plan immediately prior to the
elimination of such coverage.
5.3 Change in Control. For purposes of this Plan the term
"Change in Control" shall mean:
(a) the occurrence with respect to Mellon Bank Corporation
("MBC") of a "control transaction," as such term is
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<PAGE> 19
defined in Section 2542 of the Pennsylvania Business Corporation Law of 1988 as
of August 15, 1989; or
(b) approval by the stockholders of MBC of (i) any merger or
consolidation of MBC in which the holders of voting stock of MBC immediately
before the merger or consolidation will not own fifty percent (50%) or more of
the voting shares of the continuing or surviving corporation immediately
after such merger or consolidation, or (ii) any sale, lease or exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all the assets of MBC; or
(c) a change of twenty-five percent (25%) (rounded to the next whole
person) in the membership of the Board of Directors of MBC within a twelve (12)
month period, unless the election or nomination for election by stockholders of
each new director within such period was approved by the vote of eighty-five
percent (85%) (rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the twelve (12) month period.
Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant) affected
thereby, the Company may not amend or terminate this Plan, except to comply
with legal requirements:
(a) for a period of twenty-four (24) months following a Change in
Control; or
(b) at any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives payments of
benefits under this Plan or
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<PAGE> 20
has a termination of employment for any reason at any time during the period of
twenty-four (24) months following the Change in Control.
ARTICLE VI
BENEFICIARY DESIGNATION
6.1 Designation of Beneficiary. Each Participant (or his assignee in
the case of an assignment of the Participant's life insurance coverage pursuant
to Section 3.5 of this Plan) shall have the right to designate a Beneficiary or
Beneficiaries to whom payment of the Participant's death benefit under this
Plan shall be made in the event of the Participant's death. Such designation
shall be made on a form prescribed by and delivered to the Company. Except
where such designation is irrevocable, the Participant shall have the right to
change or revoke any such designation from time to time by filing a new
designation or notice of revocation with the Company, and no notice to any
Beneficiary nor consent by any Beneficiary shall be required to effect any such
change or revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall fail to
designate a Beneficiary before his demise, or if no designated Beneficiary
survives the Participant, the Committee shall direct the Company to make
payment under this Plan to the executor or administrator for the Participant's
estate.
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<PAGE> 21
ARTICLE VII
ADMINISTRATION
7.1 Administrator. Except as hereinafter provided, the Committee shall
be responsible for the administrative responsibilities hereinafter described
with respect to the Plan. Whenever any action is required or permitted to be
taken in the administration of the Plan, such action shall be taken by the
Committee unless the Committee's power is expressly limited herein or by
operation of law. The Committee shall be the Plan "Administrator" (as such term
is defined in Section 3(16)(A) of ERISA). The Committee may delegate its
duties and responsibilities as it, in its sole discretion, deems necessary or
appropriate to the execution of such duties and responsibilities. The Committee
as a whole or any of its members may serve in more than one capacity with
respect to the Plan.
7.2 Powers and Duties. The Committee, or its delegates, shall maintain
and keep (or cause to be maintained and kept) such records as are necessary for
the efficient operation of the Plan or as may be required by any applicable
law, regulation, or ruling and shall provide for the preparation and filing of
such forms, reports, information, and documents as may be required to be filed
with any governmental agency or department and with the Plan's Participants
and/or other Beneficiaries.
Except to the extent expressly reserved to the Company or the Board,
the Committee shall have all powers necessary to carry out the administrative
provisions of the Plan and to
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<PAGE> 22
satisfy the requirements of any applicable law or laws. These powers shall
include, by way of illustration and not limitation, the exclusive powers and
discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of
eligibility; decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any benefits
hereunder;
(b) direct the Company and/or the trustee of any trust established at
the discretion of the Company to provide for the payment of benefits under the
Plan, concerning the amount, time, manner, method, and mode of payment of any
benefits hereunder;
(c) prescribe procedures to be followed and forms to be used by
Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required by law
or as the Committee deems appropriate, information explaining the Plan;
provided, however, that no such explanation shall contravene the terms of this
Plan or increase the rights of any Participant or Beneficiary or the
liabilities of the Company;
(e) require from the Company and Participants such information as
shall be necessary for the proper administration of the Plan;
(f) appoint and retain individuals to assist in the administration and
construction of the Plan, including such legal, clerical, accounting, and
actuarial services as it may require or as may be required by any applicable
law or laws; and
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<PAGE> 23
(g) perform all functions otherwise imposed upon a plan administrator
by ERISA which are not expressly reserved to the Company or the Board,
including, but not limited to, those supplemental duties and responsibilities
described in the "Mellon Bank Corporation Corporate Benefits Committee
Charter and Summary of Operations" approved by the Board on September 17, 1991
(the "CBC" Charter").
Without intending to limit the generality of the foregoing, the
Committee shall have the power to amend the Plan, in whole or in part, in order
to comply with applicable law; provided, however, that no such amendment may
increase the duties and obligations of the Company without its consent. Except
as provided in the preceding sentence or unless directed by the Human Resources
Committee of the Board or otherwise required by law, the Committee shall have
no power to adopt, amend, or terminate the Plan, said powers being exclusively
reserved to the Human Resources Committee of the Board.
7.3 Procedures. The Committee shall be organized and conduct its
business with respect to the Plan in accordance with the organizational and
procedural rules set forth in the CBC Charter.
Notwithstanding the foregoing, if any member of the Committee shall be
a Participant hereunder, then in any matters affecting any member of the
Committee in his individual capacity as a Participant hereunder, separate and
apart from his status as a member of the group of Participants, such interested
member shall have no authority to vote in the determination of such matters as
a member of the Committee, but the Committee shall
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<PAGE> 24
determine such matter as if said interested member were not a member of the
Committee; provided, however, that this shall not be deemed to take from said
interested member any of his rights hereunder as a Participant. If the
remaining members of the Committee should be unable to agree on any matter so
affecting an interested member because of an equal division of voting, the
Human Resources Committee of the Board shall appoint a temporary member of the
Committee in order to create an odd number of voting members.
7.4 Establishment of Rules. The Committee shall have specific
authority in its sole discretion to construe and interpret the terms of the
Plan related to its powers and duties, and to the extent that the terms of the
Plan are incomplete, the Committee shall have authority to establish such rules
or regulations related to its powers and duties as it may deem necessary and
proper to carry out the intent of the Company as to the purposes of the Plan.
7.5 Limitation of Liability. The Board, the members of the Committee,
and any officer, employee, or agent of the Company shall not incur any
liability individually or on behalf of any other individuals or on behalf of
the Company for any act, or failure to act, made in good faith in relation to
the Plan. No bond or other security shall be required of any such individual
solely on account of any individual's power to direct the Company to make the
payments required hereunder.
7.6 Compensation and Insurance. Members of the Committee shall serve
without compensation for their services as such. Expenses incurred by members
of the Committee in the
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<PAGE> 25
performance of their duties as herein provided, and the compensation and
expenses of persons retained or employed by the Committee for services rendered
in connection with the Plan shall, upon approval by the Committee, be paid or
reimbursed by the Company.
The Company shall indemnify and/or maintain and keep in force
insurance in such form and amount as may be necessary in order to protect the
members of the Committee, their delegates and appointees (other than persons
who are independent of the Company and are rendering services to the Committee
or to or with respect to the Plan) from any claim, loss, damage, liability, and
expense (including costs and attorneys' fees) arising from their acts or
failures to act with respect to the Plan, except where such actions or failures
to act involve willful misconduct or gross negligence.
7.7 Removal and Resignation. Any member of the Committee may resign
and the Company may remove any member of the Committee in accordance with the
procedures established by the CBC Charter. The Committee shall remain fully
operative pending the filling of any vacancies, the remaining Committee members
having full authority to administer the Plan.
7.8 Claims Procedure. The right of any, Participant or Beneficiary to
receive a benefit hereunder and the amount of such benefit shall be determined
in accordance with the procedures for determination of benefit claims
established and maintained by the Committee in compliance with the requirements
of Section 503 of ERISA; which separate procedures, entitled
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<PAGE> 26
Procedures for Determination of Benefit Claims, are incorporated herein by this
reference.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
Subject to the limitations of Article V, the Human Resources
Committee of the Board may at any time amend or terminate the Plan in whole or
in part. Except as provided below or in Article V, the Company is not
obligated to continue any benefit, any insurance or any insurance policy after
such action. Written notice of any amendment or termination of the Plan shall
be given to each affected Participant in the Plan.
ARTICLE IX
MISCELLANEOUS
9.1 Restriction on Assignment. The Participant may assign all or any
part of his right, title, claim, interest, benefit and all other incidents of
ownership which he may have in any life insurance coverage under this Plan,
provided that any such assignment shall be subject to the terms of the Plan.
9.2 Tax Liability and Withholding. A Participant may have income for
federal, state or local income tax purposes by reason of the Economic Benefit
of his insurance coverage provided by the Company under this Plan, both while
he is employed with the Company and after his Retirement or termination of
employment. The Participant and any Beneficiary shall make
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<PAGE> 27
appropriate arrangements with the Company for the satisfaction of any federal,
state or local income tax withholding requirements and Social Security or other
employee tax requirements applicable to the provision of benefits under this
Plan. If no other arrangements are made, the Company may provide, at its
discretion, for such withholding and tax payments as may be required.
9.3 ERISA Plan. This Plan is covered by Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA") as a welfare benefit plan. The
Company is the "named fiduciary" of the Plan for purposes of Section 402 (a)
(2) of ERISA.
9.4 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Employee any right to be retained in employment with the Company.
9.5 Protective Provisions. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant refuses so to
cooperate, the Company shall have no further obligation to the Participant or
his Beneficiary under the Plan. If a Participant makes any material
misstatement of information or nondisclosure of medical history, then no
benefits will be payable hereunder to such Participant's Beneficiary, provided,
that in the Company's sole discretion, benefits may be payable in an amount
reduced to compensate the Company for any loss, cost, damage or expense
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<PAGE> 28
suffered or incurred by the Company as a result in any way of any such action,
misstatement or nondisclosure.
9.6 Gender, Singular & Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the
identity or the person or persons may require. As the context may require, the
singular may be read as the plural and the plural as the singular.
9.7 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
9.8 Validity. In the event any provision of this Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provisions of this Plan, and this Plan shall be
deemed to be modified to the least extent possible to make it valid and
enforceable in its entirety.
9.9 Notices and Elections. Any notice or election required or
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Company, directed to the attention of the
Human Resources Department of the Company. Such notice or election shall be
deemed given as of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark on the receipt for registration or
certification.
9.10 Applicable Law. This Plan shall be construed, regulated and
administered in accordance with the laws of the
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<PAGE> 29
Commonwealth of Pennsylvania, except insofar as state law is preempted by
ERISA.
9.11 Waiver of Breach. The waiver by the Company of any provision of
this Plan shall not operate or be construed as a waiver of any subsequent
breach by the Participant.
9.12 Benefit. The rights and obligations of the Company under this
Plan shall inure to the benefit of, and shall be binding upon, the successors
and assigns of the Company.
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<PAGE> 1
Exhibit 10.13
MELLON BANK
EXECUTIVE LIFE INSURANCE PLAN
Effective January 1, 1993
<PAGE> 2
TABLE OF CONTENTS
PAGE
PREAMBLE 1
ARTICLE I 1
DEFINITIONS 1
1.1 Affiliates 1
1.2 Base Salary 1
1.3 Beneficiary 1
1.4 Board 2
1.5 Change in Control 2
1.6 Code 2
1.7 Committee 2
1.8 Company 2
1.9 Coverage Adjustment Date 2
1.10 Disability 2
1.11 Economic Benefit 2
1.12 Effective Date 2
1.13 Eligible Employee 2
1.14 Employee 3
1.15 Human Resources Committee 3
1.16 Insurance Company 3
1.17 Lump Sum Payment Option 3
1.18 Net Cumulative Premiums 3
1.19 Participant 3
1.20 Participation Agreement 3
1.21 Plan 4
1.22 Plan Year 4
1.23 Policy 4
1.24 Retirement 4
1.25 Subsidiary 4
1.26 Survivor Income Option 4
1.27 Years of Service 4
ARTICLE II 4
PARTICIPATION 4
2.1 Participation 4
2.2 Insurability 5
2.3 Commencement of Coverage 5
2.4 Increases in Coverage 5
2.5 Declining Coverage 6
2.6 Relation to Other Plans 6
ARTICLE III 6
LIFE INSURANCE COVERAGE 6
3.1 Amount of Insurance 6
3.2 Disability 7
3.3 Insurance Contract 7
(i)
<PAGE> 3
3.4 Continuation or Split of Policy after
Retirement 8
3.5 Assignment 8
3.6 Payment of Premiums and Contributions 9
3.7 Forms of Death Benefit 10
3.8 Lump Sum Payment Option 11
3.9 Survivor Income Option 11
ARTICLE IV 13
OPTION TO PURCHASE INSURANCE POLICY ON TERMINATION OF
EMPLOYMENT 13
ARTICLE V 14
OPTION TO PURCHASE INSURANCE POLICY IN CERTAIN
EVENTS 14
5.1 Option to Purchase Policy 14
5.2 Elimination of Coverage 14
5.3 Change in Control 15
ARTICLE VI 16
BENEFICIARY DESIGNATION 16
6.1 Designation of Beneficiary 16
6.2 Failure to Designate Beneficiary 16
ARTICLE VII 17
ADMINISTRATION 17
7.1 Administrator 17
7.2 Powers and Duties 17
7.3 Procedures 19
7.4 Establishment of Rules 20
7.5 Limitation of Liability 20
7.6 Compensation and Insurance 21
7.7 Removal and Resignation 21
7.8 Claims Procedure 22
ARTICLE VIII 22
AMENDMENT AND TERMINATION OF PLAN 22
ARTICLE IX 23
MISCELLANEOUS 23
9.1 Restriction on Assignment 23
9.2 Unsecured General Creditor 23
9.3 Tax Liability and Withholding 24
9.4 ERISA Plan 24
9.5 Employment Not Guaranteed 25
9.6 Protective Provisions 25
(ii)
<PAGE> 4
9.7 Gender, Singular & Plural 25
9.8 Captions 25
9.9 Validity 26
9.10 Notices and Elections 26
9.11 Notice to Insurance Company 26
9.12 Applicable Law 26
9.13 Waiver of Breach 27
9.14 Benefit 27
(iii)
<PAGE> 5
MELLON BANK
EXECUTIVE LIFE INSURANCE PLAN
PREAMBLE
The purpose of this Mellon Bank Executive Life Insurance Plan (the
"Plan") is to provide life insurance coverage for eligible key executive
employees of Mellon Bank, N.A. (the Company) and its Affiliates. The Plan will
be effective as of January 1, 1993.
ARTICLE I
DEFINITIONS
When used herein, the following words shall have the following
meanings unless the content clearly indicates otherwise:
1.1 Affiliates. "Affiliates" means Mellon Bank Corporation and its
Subsidiaries.
1.2 Base Salary. "Base Salary" means (i) an active Employee's annual
base salary as of the last Coverage Adjustment Date preceding his death and
(ii) a retired Employee's annual base salary immediately preceding his
termination of employment with the Company or its Affiliates. Annual base
salary excludes all bonuses, incentive and supplemental compensation and other
payments and benefits, except fixed base salary.
1.3 Beneficiary. "Beneficiary" means the person or persons designated
as such in accordance with Article VI.
<PAGE> 6
1.4 Board. "Board" means the Board of Directors of Mellon Bank
Corporation or any committee thereof acting within the scope of its authority.
1.5 Change in Control. "Change in Control" shall have the meaning set
forth in Section 5.3.
1.6 Code. "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.7 Committee. "Committee" means the Corporate Benefits Committee of
Mellon Bank Corporation appointed to administer the Plan pursuant to Article
VII.
1.8 Company. "Company" means Mellon Bank, N.A. and, whenever
applicable, its Affiliates.
1.9 Coverage Adjustment Date. "Coverage Adjustment Date" means the
date during each year, selected by the Committee from time to time in its
discretion, on which changes or increases in coverage will take effect.
1.10 Disability. "Disability" means a condition that qualifies as a
disability under the Mellon Bank Group Long-Term Disability Plan.
1.11 Economic Benefit. "Economic Benefit" means the value of the
economic benefit of life insurance coverage under this Plan for income tax
purposes, determined based on revenue rulings issued by the Internal Revenue
Service and other applicable authorities.
1.12 Effective Date. "Effective Date" means January 1, 1993.
1.13 Eligible Employee. "Eligible Employee" means an Employee who is a
Senior Vice President or above and is
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<PAGE> 7
designated by the Human Resources Committee to participate in the
Plan.
1.14 Employee. "Employee" means any person employed by the Company or
its Affiliates on a regular full-time salaried basis, including officers of the
Company.
1.15 Human Resources Committee. "Human Resources Committee" means the
Human Resources Committee of the Board.
1.16 Insurance Company. "Insurance Company" means an insurance company
selected by the Company to provide coverage for Participants pursuant to the
terms of the Plan.
1.17 Lump Sum Payment Option. "Lump Sum Payment Option" means the lump
sum payment option for death benefits under this Plan which is described in
Section 3.8.
1.18 Net Cumulative Premiums. "Net Cumulative Premiums" means premiums
paid by the Company on a Policy net of (i) reimbursements or contributions to
premiums on the Policy made by a Participant and (ii) any withdrawals or loans
from cash value of the Policy made to the Company.
1.19 Participant. "Participant" means an Eligible Employee who has
completed the underwriting requirements of the Insurance Company and who is
notified by the Company that he is participating in the Plan in accordance with
the provisions of Article II.
1.20 Participation Agreement. "Participation Agreement" means a
written agreement between the Company and the Participant under which the
Participant agrees to participate in the Plan pursuant to Section 2.1.
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<PAGE> 8
1.21 Plan. "Plan" means this Executive Life Insurance Plan as set
forth in this document and as the same may be amended, administered or
interpreted from time to time.
1.22 Plan Year. "Plan Year" means the calendar year.
1.23 Policy. "Policy" means a life insurance policy providing coverage
under this Plan.
1.24 Retirement "Retirement" means termination of a Participant's
employment with the Company or its Affiliates for reasons other than death or
Disability after the Participant has either (i) attained age fifty-five (55)
and completed at least five (5) Years of Service or (ii) attained age
sixty-five (65) and completed at least one (1) Year of Service.
1.25 Subsidiary. "Subsidiary" means a corporation the majority of the
outstanding stock of which is owned directly or indirectly by Mellon Bank
Corporation.
1.26 Survivor Income Option. "Survivor Income Option" means the
survivor income option for death benefits under this Plan which is described in
Section 3.9.
1.27 Years of Service. "Years of Service" means a Participant's actual
years of service, unless otherwise determined by the Human Resources Committee.
ARTICLE II
PARTICIPATION
2.1 Participation. Any Eligible Employee may enroll in the Plan by
completing a Participation Agreement, the underwriting requirements of the
Insurance Company and any other enrollment steps required by the Company for
coverage to begin.
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<PAGE> 9
An Eligible Employee shall become a Participant in the Plan when he is notified
in writing that his participation has been approved by the Company. During a
leave of absence, coverage will remain in effect for a maximum of ninety (90)
days.
2.2 Insurability. Eligible Employees are not automatically entitled to
all insurance coverage offered under the Plan. Each Eligible Employee will be
covered up to the amount of guarantee issue determined by the Insurance
Company, but must satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for additional amounts under the
Plan.
2.3 Commencement of Coverage. Subject to the limitations of Sections
2.1 and 2.2, (i) an Employee who is an Eligible Employee on January 1, 1993
will be covered under the Plan as of January 1, 1993, and (ii) any other
Eligible Employee will be covered under the Plan when coverage is approved by
the Insurance Company.
2.4 Increases in Coverage. When a Participant's Base Salary is
increased, the amount of his life insurance coverage under this Plan will
increase on the next Coverage Adjustment Date, except as provided in this
Section 2.4. Any increase in coverage will not take effect until such
additional coverage is approved by the Insurance Company, and a Participant may
be required to satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for an additional amount of life
insurance coverage under the Plan. A Participant's coverage under the Plan will
be limited to the coverage issued by the Insurance Company.
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<PAGE> 10
2.5 Declining Coverage. An Eligible Employee may decline coverage
under the Plan. However, any such Eligible Employee will be required to satisfy
the insurance company's requirements for obtaining insurance before he may
become covered under the Plan at a later date.
2.6 Relation to Other Plans. Eligible Employees shall be limited to
non-contributory life insurance coverage of $50,000 under the Company's group
term life insurance plan.
ARTICLE III
LIFE INSURANCE COVERAGE
3.1 Amount of Insurance. The amount of life insurance coverage which
will be payable to the Beneficiary designated by the Participant will be
determined based on the employment status of the Participant with the Company
at the time of his death. In each case, there will be subtracted fifty
thousand dollars ($50,000) which is payable under the group term life insurance
plan covering the Participant maintained by the Company. Subject to the
foregoing adjustment, the amounts of life insurance coverage under this Plan
are as follows:
(a) During Employment. While employed with the Company, a Participant
will have life insurance coverage equal to two (2) times his Base Salary.
(b) After Retirement. After Retirement from the Company, a Participant
will have life insurance coverage equal to one (1) times his final Base Salary.
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<PAGE> 11
(c) Limitation on Amount of Coverage. The amount of life insurance
coverage under the Plan will be limited to the amount of coverage issued by the
Insurance Company on the Participant under this Plan.
3.2 Disability. If a Participant suffers a Disability, the
Participant's life insurance coverage will be continued by the Company during
the period of Disability until the Participant reaches age sixty-five (65) or
begins to receive benefits under the Mellon Bank Retirement Plan, whichever is
sooner. All premiums for this coverage will be paid by the Company. When a
disabled Participant reaches age sixty-five (65) or begins to receive benefits
under the Mellon Bank Retirement Plan, whichever is sooner, the Participant
will continue to have life insurance coverage equal to one (1) times his final
Base Salary on the date of his Disability, as if he had retired from employment
with the Company.
3.3 Insurance Contract. To provide the insurance coverage under the
Plan, the Company shall acquire one or more insurance policies ("Policies") on
the life of each Participant. Except as otherwise specifically provided, the
Company will be the owner and hold all the incidents of ownership in these
Policies, including the rights to borrow and make withdrawals from any
Policies, and the entire interest in the cash value with respect to these
Policies shall belong to the Company. The Company may withdraw cash value from
a Policy up to the Net Cumulative Premiums paid by the Company on the Policy at
or after a Participant's Retirement and may withdraw all cash value from a
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<PAGE> 12
Policy if a Participant terminates employment with the Company before
Retirement.
The Participant may specify in writing to the Company the Beneficiary
or Beneficiaries for his life insurance coverage under this Plan. Upon receipt
of a written request from the Participant, the Company will immediately take
such action as shall be necessary to implement such Beneficiary designation.
Any death benefits under Policies on the life of the Participant owned by the
Company that exceed the amount payable to the Participant's Beneficiary under
this Plan shall be payable to the Company.
3.4 Continuation or Split of Policy after Retirement. At its option,
the Company may (a) continue the life insurance coverage for the Participant
after his Retirement in the same form and subject to the same terms and
provisions of this Plan as if he remained employed with the Company, except
that the total amount of coverage for the Participant shall not exceed the
amount specified in Section 3.1(b), or (b) arrange to split the Policies
insuring the Participant upon Retirement so that the Company and Participant
receive one or more separate life insurance policies following the
Participant's Retirement. In the event the Company elects the latter, the
Participant shall receive a life insurance policy on his life with a death
benefit equal to the amount specified in Section 3.1(b).
3.5 Assignment. A Participant may assign, revocably or irrevocably, to
one or more individuals or trustees all or any part of his right, title, claim,
interest, benefit and all other incidents of ownership which he may have in any
Policies
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<PAGE> 13
providing his life insurance coverage under this Plan, provided that any such
assignment shall be subject to Section 9.1 and the other terms of the Plan and
shall not apply to any rights to survivor income payments. Such assignee shall
then have all rights and obligations which have been assigned and otherwise are
the Participant's under this Plan. In the event that there has been such an
assignment, the term Employee or Participant shall mean the Employee's or
Participant's assignee (or any subsequent assignee) as the context requires, in
connection with ownership, actions, elections, or other events concerning life
insurance coverage on the Participant.
3.6 Payment of Premiums and Contributions.
(a) During Employment. All premiums for life insurance coverage under
this Plan while a Participant is employed with the Company will be paid by the
Company. The Participant will be required each year to reimburse to the Company
an amount equivalent to the Economic Benefit of this coverage if he elects the
Lump Sum Payment Option for his death benefit.
(b) After Retirement. All premiums for life insurance coverage under
this Plan for eligible retired Participants will be paid by the Company. The
Participant will be required each year to include in income for income tax
purposes or to reimburse to the Company an amount equivalent to the Economic
Benefit of this coverage if he elects the Lump Sum Payment Option for his death
benefit, or otherwise will realize taxable income if the Company distributes a
life insurance policy to him pursuant to Section 3.4(b).
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<PAGE> 14
3.7 Forms of Death Benefit. During employment and at Retirement, a
Participant may elect either a Lump Sum Payment Option (as described in Section
3.8) or Survivor Income Option (as described in Section 3.9) for payment of his
life insurance coverage under this Plan.
The Participant shall elect the Lump Sum Payment Option or Survivor
Income Option for his pre-retirement coverage when he enrolls in the Plan,
provided no election of the Survivor Income Option shall be effective to the
extent the Participant has previously made an irrevocable, absolute assignment
of all incidents of ownership in his pre-retirement life insurance coverage
under the Plan. The Participant's initial election (or any subsequent election
made pursuant to this Section) shall continue to be effective for all
subsequent calendar years, unless the Participant files a further election
prior to the beginning of any subsequent calendar year. Any new election shall
become effective for the calendar year next following the calendar year in
which the new election is filed with the Company. All elections of a Lump Sum
Payment Option or Survivor Income Option for pre-retirement coverage shall
terminate upon the Participant's Retirement.
Unless the Company, at its option, determines to provide a
Participant's life insurance coverage after Retirement by splitting the
Policies on the Participant's life and distributing a life insurance policy to
the Participant, as described in Section 3.4(b), the Participant shall elect
the Lump Sum Payment Option or Survivor Income Option for his post-retirement
coverage at any time prior to the date of his
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<PAGE> 15
Retirement, provided no election of the Survivor Income Option shall be
effective to the extent the Participant has previously made an irrevocable,
absolute assignment of all incidents of ownership in his post-retirement life
insurance coverage under the Plan. The Participant's election shall become
irrevocable upon his Retirement and shall continue to be effective for all
subsequent years.
3.8 Lump Sum Payment Option. If a Participant elects the Lump Sum
Payment Option and dies while such election is in effect, the Company will
provide all death benefit payable under Section 3.1 through a lump sum death
benefit paid directly from the life insurance company to the Participant's
Beneficiary under an endorsement split dollar life insurance program.
The Company shall execute an endorsement to the Policy endorsing to
the Participant that portion of the death benefit to which the Participant is
entitled under Section 3.1. The Participant's interest in the Policy shall be
subject to the terms and conditions of the Plan and the endorsement.
3.9 Survivor Income Option. If a Participant elects the Survivor
Income Option and dies while such election is in effect, the Company will make
taxable annual payments to the Participant's Beneficiary in accordance with
this Section 3.9. In such event, no amount shall be payable to the
Participant's Beneficiary from the proceeds of the Policies under the Lump Sum
Payment Option. In lieu thereof, the Company shall make annual taxable payments
to the Participant's Beneficiary designated in accordance with Article VI for
ten (10) years. Such payments shall have a net present value, using a discount
rate established
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<PAGE> 16
by the Committee from time to time, equal to the applicable amount
described in Section 3.1 as of the date of the Participant's death and shall be
increased by the value of the Company's federal and state income tax benefit.
The value of the Company's tax benefit shall be determined in such manner as
the Committee may select, from time to time, in its complete and sole
discretion. At its option, the Company may, upon the Participant's death or at
any time thereafter, pay any remaining payments under the Survivor Income
Option in a single taxable lump sum payment.
At any time after a Change in Control which occurs after a Beneficiary
has begun to receive payments, the Beneficiary may elect to receive an
immediate taxable lump sum payment of the present value (as determined by the
Committee) of his remaining payments under the Survivor Income Option, reduced
by a penalty, which shall be forfeited to the Company, equal to six percent
(6%) of such remaining payments, provided this penalty may be adjusted from
time to time by the Committee in its discretion.
An election of a Survivor Income Option will terminate all the
Participant's and the Company's rights and obligations under the Lump Sum
Payment Option, while such election remains in effect.
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<PAGE> 17
ARTICLE IV
OPTION TO PURCHASE INSURANCE POLICY ON TERMINATION OF EMPLOYMENT
If a Participant terminates employment with the Company before
Retirement, but after five (5) Years of Service, the Participant may elect, in
writing received by the Company not later than sixty (60) days after his
termination of employment, to purchase the Policy on his life (or portion
thereof with an aggregate death benefit equal to all or part of the insurance
coverage in effect for him under this Plan immediately prior to his termination
of employment) for an amount equal to the greater of (i) the cash value of the
insurance policy transferred to the Participant or (ii) the Net Cumulative
Premiums incurred as a result of providing the Participant's coverage under the
Plan. A Participant who purchases an insurance policy will thereafter be
required to pay all future premiums on the insurance policy. A Participant's
life insurance coverage under this Plan will remain in effect during this sixty
(60) day period.
If the Participant does not elect to purchase the Company's interest
in the Policy, all incidents of ownership of the Policy (if any) held by the
Participant shall be transferred to the Company. At the time the Participant
purchases the Company's interests in the Policy, or the Participant's incidents
of ownership are transferred to the Company, the Company shall have no further
legal or equitable obligations of any kind to the Participant under this Plan.
If a Participant's employment with the Company terminates before
Retirement, and with less than five (5) Years
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<PAGE> 18
of Service, the Participant's coverage under this Plan shall cease, and the
Company shall have no further legal or equitable obligations of any kind to the
Participant under this Plan.
ARTICLE V
OPTION TO PURCHASE INSURANCE POLICY IN CERTAIN EVENTS
5.1 Option to Purchase Policy. The Participant may elect, in writing
received by the Company not later than sixty (60) days after the Participant
receives written notice from the Company of an event described in Section 5.2,
to purchase from the Company the Policy (or portion thereof) providing the
amount of his life insurance coverage then in effect under this Plan for an
amount equal to the greater of (i) the cash value of the insurance policy
transferred to the Participant or (ii) the Company's Net Cumulative Premiums
incurred as a result of providing the Participant's coverage under the Plan. A
Participant who purchases an insurance policy will cease to be covered under
this Plan and will thereafter be required to pay all future premiums on the
insurance policy.
5.2 Elimination of Coverage. Any Participant whose coverage is
eliminated pursuant to Article VIII of this Plan (without being replaced with
an equivalent amount of coverage under another plan of the Company) shall have
the option pursuant to Section 5.1 to purchase the Policy (or portion thereof)
providing the amount of his life insurance coverage in effect under this Plan
immediately prior to the elimination of such coverage.
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<PAGE> 19
5.3 Change in Control. For purposes of this Plan the term
"Change in Control" shall mean:
(a) the occurrence with respect to Mellon Bank Corporation ("MBC")
of a "control transaction," as such term is defined in Section 2542 of the
Pennsylvania Business Corporation Law of 1988 as of August 15, 1989; or
(b) approval by the stockholders of MBC of (i) any merger or
consolidation of MBC in which the holders of voting stock of MBC immediately
before the merger or consolidation will not own fifty percent (50%) or more of
the voting shares of the continuing or surviving corporation immediately after
such merger or consolidation, or (ii) any sale, lease or exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of MBC; or
(c) a change of twenty-five percent (25%) (rounded to the next
whole person) in the membership of the Board of Directors of MBC within a twelve
(12) month period, unless the election or nomination for election by
stockholders of each new director within such period was approved by the vote of
eighty-five percent (85%) (rounded to the next whole person) of the directors
then still in office who were in office at the beginning of the twelve (12)
month period.
Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant) affected
thereby, the Company may not amend or terminate this Plan, except to comply
with legal requirements:
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<PAGE> 20
(a) for a period of twenty-four (24) months following a Change in
Control; or
(b) at any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives payments of
benefits under this Plan or has a termination of employment for any reason at
any time during the period of twenty-four (24) months following the Change in
Control.
ARTICLE VI
BENEFICIARY DESIGNATION
6.1 Designation of Beneficiary. Each Participant (or his assignee in
the case of an assignment of the Participant's life insurance coverage pursuant
to Section 3.5 of this Plan) shall have the right to designate a Beneficiary or
Beneficiaries to whom payment of the Participant's death benefit under this
Plan shall be made in the event of the Participant's death. Such designation
shall be made on a form prescribed by and delivered to the Company. Except
where such designation is irrevocable, the Participant shall have the right to
change or revoke any such designation from time to time by filing a new
designation or notice of revocation with the Company, and no notice to any
Beneficiary nor consent by any Beneficiary shall be required to effect any
such change or revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall
fail to designate a Beneficiary before his demise, or if no designated
Beneficiary survives the Participant,
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<PAGE> 21
the Committee shall direct the Company to make payment under this Plan to the
executor or administrator for the Participant's estate.
ARTICLE VII
ADMINISTRATION
7.1 Administrator. Except as hereinafter provided, the Committee shall
be responsible for the administrative responsibilities hereinafter described
with respect to the Plan. Whenever any action is required or permitted to be
taken in the administration of the Plan, such action shall be taken by the
Committee unless the Committee's power is expressly limited herein or by
operation of law. The Committee shall be the Plan "Administrator" (as such term
is defined in Section 3(16)(A) of ERISA). The Committee may delegate its
duties and responsibilities as it, in its sole discretion, deems necessary or
appropriate to the execution of such duties and responsibilities. The Committee
as a whole or any of its members may serve in more than one capacity with
respect to the Plan.
7.2 Powers and Duties. The Committee, or its delegates, shall maintain
and keep (or cause to be maintained and kept) such records as are necessary for
the efficient operation of the Plan or as may be required by any applicable
law, regulation, or ruling and shall provide for the preparation and filing of
such forms, reports, information, and documents as may be required to be filed
with any governmental agency or
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<PAGE> 22
department and with the Plan's Participants and/or other Beneficiaries.
Except to the extent expressly reserved to the Company or the Board,
the Committee shall have all powers necessary to carry out the administrative
provisions of the Plan and to satisfy the requirements of any applicable law or
laws. These powers shall include, by way of illustration and not limitation,
the exclusive powers and discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of
eligibility; decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any benefits
hereunder;
(b) direct the Company and/or the trustee of any trust established
at the discretion of the Company to provide for the payment of benefits under
the Plan, concerning the amount, time, manner, method, and mode of payment of
any benefits hereunder;
(c) prescribe procedures to be followed and forms to be used by
Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required by
law or as the Committee deems appropriate, information explaining the Plan;
provided, however, that no such explanation shall contravene the terms of this
Plan or increase the rights of any Participant or Beneficiary or the liabilities
of the Company;
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<PAGE> 23
(e) require from the Company and Participants such information as
shall be necessary for the proper administration of the Plan;
(f) appoint and retain individuals to assist in the administration
and construction of the Plan, including such legal, clerical, accounting, and
actuarial services as it may require or as may be required by any applicable
law or laws; and
(g) perform all functions otherwise imposed upon a plan
administrator by ERISA which are not expressly reserved to the Company or the
Board, including, but not limited to, those supplemental duties and
responsibilities described in the "Mellon Bank Corporation Corporate Benefits
Committee Charter and Summary of Operations" approved by the Board on September
17, 1991 (the "CBC" Charter").
Without intending to limit the generality of the foregoing, the
Committee shall have the power to amend the Plan, in whole or in part, in order
to comply with applicable law; provided, however, that no such amendment may
increase the duties and obligations of the Company without its consent. Except
as provided in the preceding sentence or unless directed by the Human Resources
Committee of the Board or otherwise required by law, the Committee shall have
no power to adopt, amend, or terminate the Plan, said powers being exclusively
reserved to the Human Resources Committee of the Board.
7.3 Procedures. The Committee shall be organized and conduct its
business with respect to the Plan in accordance with the organizational and
procedural rules set forth in the CBC Charter.
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<PAGE> 24
Notwithstanding the foregoing, if any member of the Committee shall be
a Participant hereunder, then in any matters affecting any member of the
Committee in his individual capacity as a Participant hereunder, separate and
apart from his status as a member of the group of Participants, such interested
member shall have no authority to vote in the determination of such matters as
a member of the Committee, but the Committee shall determine such matter as if
said interested member were not a member of the Committee; provided, however,
that this shall not be deemed to take from said interested member any of his
rights hereunder as a Participant. If the remaining members of the Committee
should be unable to agree on any matter so affecting an interested member
because of an equal division of voting, the Human Resources Committee of the
Board shall appoint a temporary member of the Committee in order to create an
odd number of voting members.
7.4 Establishment of Rules. The Committee shall have specific
authority in its sole discretion to construe and interpret the terms of the
Plan related to its powers and duties, and to the extent that the terms of the
Plan are incomplete, the Committee shall have authority to establish such rules
or regulations related to its powers and duties as it may deem necessary and
proper to carry out the intent of the Company as to the purposes of the Plan.
7.5 Limitation of Liability. The Board, the members of the Committee,
and any officer, employee, or agent of the Company shall not incur any
liability individually or on behalf of any other individuals or on behalf of
the Company for any act,
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<PAGE> 25
or failure to act, made in good faith in relation to the Plan. No bond or other
security shall be required of any such individual solely on account of any
individual's power to direct the Company to make the payments required
hereunder.
7.6 Compensation and Insurance. Members of the Committee shall serve
without compensation for their services as such. Expenses incurred by members
of the Committee in the performance of their duties as herein provided, and the
compensation and expenses of persons retained or employed by the Committee for
services rendered in connection with the Plan shall, upon approval by the
Committee, be paid or reimbursed by the Company.
The Company shall indemnify and/or maintain and keep in force
insurance in such form and amount as may be necessary in order to protect the
members of the Committee, their delegates and appointees (other than persons
who are independent of the Company and are rendering services to the Committee
or to or with respect to the Plan) from any claim, loss, damage, liability, and
expense (including costs and attorneys' fees) arising from their acts or
failures to act with respect to the Plan, except where such actions or failures
to act involve willful misconduct or gross negligence.
7.7 Removal and Resignation. Any member of the Committee may resign
and the Company may remove any member of the Committee in accordance with the
procedures established by the CBC Charter. The Committee shall remain fully
operative pending the filling of any vacancies, the remaining Committee members
having full authority to administer the Plan.
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<PAGE> 26
7.8 Claims Procedure. The right of any Participant or Beneficiary to
receive a benefit hereunder and the amount of such benefit shall be determined
in accordance with the procedures for determination of benefit claims
established and maintained by the Committee in compliance with the requirements
of Section 503 of ERISA; which separate procedures, entitled Procedures for
Determination of Benefit Claims, are incorporated herein by this reference.
ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
Subject to the limitations of Article V, the Human Resources Committee
of the Board may at any time amend or terminate the Plan in whole or in part.
Except as provided below or in Article V, the Company is not obligated to
continue any benefit, any insurance or any insurance policy after such action.
Written notice of any amendment or termination of the Plan shall be given to
each affected Participant in the Plan. If this Plan is terminated by the
Company after the commencement of any benefit payments to the Beneficiary of a
deceased Participant, the Company shall be obligated to continue payments to
such Beneficiary in accordance with the terms of this Plan as in existence
immediately prior to termination of this Plan.
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<PAGE> 27
ARTICLE IX
MISCELLANEOUS
9.1 Restriction on Assignment. The Participant may assign all or any
part of his right, title, claim, interest, benefit and all other incidents of
ownership which he may have in any life insurance coverage under this Plan,
provided that any such assignment shall be subject to the terms of the Plan.
Neither the Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the amounts, if
any, payable pursuant to any election of a Survivor Income Option under Section
3.9 of this Plan, which are, and all rights to which are, expressly declared to
be unassignable and non-transferable. No part of the amounts payable pursuant
to an election of a Survivor Income Option shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by the Participant or any other person,
nor be transferable by operation of law in the event of the Participant's or
any other person's bankruptcy or insolvency.
9.2 Unsecured General Creditor. The provisions of this Section 9.2
shall apply to all benefits which are payable under the Survivor Income Option
pursuant to Section 3.9 of this Plan. With respect to all benefits payable
under the Survivor Income Option, the Participant and his Beneficiaries, heirs,
successors, and assigns shall have no legal or equitable rights, interests, or
claims in any property or assets of the Company,
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<PAGE> 28
nor shall they be beneficiaries of, or have any rights, interests or claims in
any life insurance policies, annuity contract, or the proceeds therefrom owned
or which may be acquired by the Company ("Policies"). Such Policies or other
assets of the Company shall not be held under any trust for the benefit of
Participants, their Beneficiaries, heirs, successors, or assigns, or held in
any way as collateral security for the fulfilling of the obligations of the
Company under this Plan. Any and all of the Company's assets and Policies shall
be, and remain, the general, unpledged, unrestricted assets of the Company. The
Company's obligation under the Survivor Income Option of this Plan shall be
merely that of an unfunded and unsecured promise of the Company to pay money in
the future.
9.3 Tax Liability and Withholding. A Participant may have income for
federal, state or local income tax purposes by reason of the Economic Benefit
of his insurance coverage provided by the Company under this Plan, both while
he is employed with the Company and after his Retirement or termination of
employment. The Participant and any Beneficiary shall make appropriate
arrangements with the Company for the satisfaction of any federal, state or
local income tax withholding requirements and Social Security or other employee
tax requirements applicable to the provision of benefits under this Plan. If no
other arrangements are made, the Company may provide, at its discretion, for
such withholding and tax payments as may be required.
9.4 ERISA Plan. This Plan is covered by Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA") as
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<PAGE> 29
a welfare benefit plan. The Company is the "named fiduciary" of the Plan for
purposes of Section 402(a)(2) of ERISA.
9.5 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Employee any right to be retained in employment with the Company.
9.6 Protective Provisions. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action as may be requested by the Company. If a Participant refuses so to
cooperate, the Company shall have no further obligation to the Participant or
his Beneficiary under the Plan. If a Participant makes any material
misstatement of information or nondisclosure of medical history, then no
benefits will be payable hereunder to such Participant's Beneficiary, provided,
that in the Company's sole discretion, benefits may be payable in an amount
reduced to compensate the Company for any loss, cost, damage or expense
suffered or incurred by the Company as a result in any way of any such action,
misstatement or nondisclosure.
9.7 Gender, Singular & Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
or the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
9.8 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall
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<PAGE> 30
not control or affect the meaning or construction of any of its
provisions.
9.9 Validity. In the event any provision of this Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provisions of this Plan, and this Plan shall be
deemed to be modified to the least extent possible to make it valid and
enforceable in its entirety.
9.10 Notices and Elections. Any notice or election required or
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing and hand delivered, or sent by registered or certified
mail, to the principal office of the Company, directed to the attention of the
Human Resources Department of the Company. Such notice or election shall be
deemed given as of the date of delivery or, if delivery is made by mail, as of
the date shown on the postmark on the receipt for registration or
certification.
9.11 Notice to Insurance Company. The Company shall be responsible for
notifying the life insurance company which issues any Policy or Policies under
this Plan of any changes in the ownership rights and interests of the
Participant and the Company and of any changes in the Beneficiaries to receive
death benefits under the Plan, and the life insurance company shall be entitled
to rely upon such notification received from the Company.
9.12 Applicable Law. This Plan shall be construed, regulated and
administered in accordance with the laws of the
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Commonwealth of Pennsylvania, except insofar as state law is preempted by
ERISA.
9.13 Waiver of Breach. The waiver by the Company of any provision of
this Plan shall not operate or be construed as a waiver of any subsequent
breach by the Participant.
9.14 Benefit. The rights and obligations of the Company under this
plan shall inure to the benefit of, and shall be binding upon, the successors
and assigns of the Company.
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<PAGE> 1
Exhibit 10.14
MELLON BANK
SENIOR EXECUTIVE LIFE INSURANCE PLAN
Effective January 1, 1993
<PAGE> 2
TABLE OF CONTENTS
PAGE
PREAMBLE 1
ARTICLE I 1
DEFINITIONS 1
1.1 Affiliates 1
1.2 Base Salary 1
1.3 Beneficiary 1
1.4 Benefit Commencement Date 2
1.5 Board 2
1.6 Change in Control 2
1.7 Code 2
1.8 Committee 2
1.9 Company 2
1.10 Coverage Adjustment Date 2
1.11 Disability 2
1.12 Economic Benefit 3
1.13 Effective Date 3
1.14 Eligible Employee 3
1.15 Employee 3
1.16 Human Resources Committee 3
1.17 Insurance Company 3
1.18 Net Cumulative Premiums 3
1.19 Participant 3
1.20 Participation Agreement 4
1.21 Plan 4
1.22 Plan Year 4
1.23 Policy 4
1.24 Retirement 4
1.25 Subsidiary 4
1.26 Years of Service 4
ARTICLE II 5
PARTICIPATION 5
2.1 Participation 5
2.2 Insurability 5
2.3 Commencement of Coverage 5
2.4 Increases in Coverage 6
2.5 Declining Coverage 6
2.6 Relation to Other Plans 6
ARTICLE III 6
LIFE INSURANCE COVERAGE 6
3.1 Amount of Insurance 6
3.2 Disability 7
3.3 Insurance Contract 8
3.4 Interests in Cash Value 9
(i)
<PAGE> 3
3.5 Policy Withdrawals and Loans 12
3.6 Surrender or Cancellation of Policy 12
3.7 Continuation of Policy after
Retirement or Termination of Employment 13
3.8 No Assignment 13
3.9 Payment of Premiums and Contributions 14
3.10 Form of Death Benefit 14
ARTICLE IV 14
OPTION TO RETAIN INSURANCE POLICY ON TERMINATION OF
EMPLOYMENT 14
ARTICLE V 15
OPTION TO RETAIN INSURANCE POLICY IN CERTAIN
EVENTS 15
5.1 Option to Retain Policy 15
5.2 Elimination of Coverage 16
5.3 Change in Control 16
ARTICLE VI 17
BENEFICIARY DESIGNATION 17
6.1 Designation of Beneficiary 17
6.2 Failure to Designate Beneficiary 17
ARTICLE VII 18
ADMINISTRATION 18
7.1 Administrator 18
7.2 Powers and Duties 19
7.3 Procedures 21
7.4 Establishment of Rules 22
7.5 Limitation of Liability 22
7.6 Compensation and Insurance 22
7.7 Removal and Resignation 23
7.8 Claims Procedure 23
ARTICLE VIII 24
AMENDMENT AND TERMINATION OF PLAN 24
ARTICLE IX 24
MISCELLANEOUS 24
9.1 Restriction on Assignment 24
9.2 Tax Liability and Withholding 25
9.3 ERISA Plan 25
9.4 Employment Not Guaranteed 25
9.5 Protective Provisions 25
(ii)
<PAGE> 4
9.6 Gender, Singular & Plural 26
9.7 Captions 26
9.8 Validity 26
9.9 Notices and Elections 26
9.10 Applicable Law 27
9.11 Waiver of Breach 27
9.12 Benefit 27
(iii)
<PAGE> 5
MELLON BANK
SENIOR EXECUTIVE LIFE INSURANCE PLAN
PREAMBLE
The purpose of this Mellon Bank Senior Executive Life Insurance Plan
(the "Plan") is to provide life insurance coverage for eligible senior
executive employees of Mellon Bank, N.A. (the Company) and its Affiliates. The
Plan will be effective as of January 1, 1993.
ARTICLE I
DEFINITIONS
When used herein, the following words shall have the following
meanings unless the content clearly indicates otherwise :
1.1 Affiliates. "Affiliates" means Mellon Bank Corporation and its
Subsidiaries.
1.2 Base Salary. "Base Salary" means (i) an active Employee's annual
base salary as of the last Coverage Adjustment Date preceding his death and
(ii) a retired Employee's annual base salary immediately preceding his
termination of employment with the Company or its Affiliates. Annual base
salary excludes all bonuses, incentive and supplemental compensation and other
payments and benefits, except fixed base salary.
1.3 Beneficiary. "Beneficiary" means the person or persons designated
as such in accordance with Article VI.
<PAGE> 6
1.4 Benefit Commencement Date. "Benefit Commencement Date" means the
date on which payment of a Participant's retirement benefits have commenced
under all of the following plans or agreements of the Company which apply to
the Participant: (i) Mellon Bank Retirement Plan, (ii) Mellon Bank IRC Section
401(a)(17) Plan, (iii) Mellon Bank Benefit Restoration Plan (which provides
benefits in excess of the limits under Section 415 of the Code), (iv)
employment agreement, and (v) any other non-qualified retirement benefit plans.
1.5 Board. "Board" means the Board of Directors of Mellon Bank
Corporation or any committee thereof acting within the scope of its authority.
1.6 Change in Control. "Change in Control" shall have the meaning set
forth in Section 5.3.
1.7 Code. "Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
1.8 Committee. "Committee" means the Corporate Benefits Committee of
Mellon Bank Corporation appointed to administer the Plan pursuant to Article
VII.
1.9 Company. "Company" means Mellon Bank, N.A. and, whenever
applicable, its Affiliates.
1.10 Coverage Adjustment Date. "Coverage Adjustment Date" means the
date during each year, selected by the Committee from time to time in its
discretion, on which changes or increases in coverage will take effect.
1.11 Disability. "Disability" means a condition that qualifies as a
disability under the Mellon Bank Group Long-Term Disability Plan.
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1.12 Economic Benefit. "Economic Benefit" means the value of the
economic benefit of life insurance coverage under this Plan for income tax
purposes, determined based on revenue rulings issued by the Internal Revenue
Service and other applicable authorities.
1.13 Effective Date. "Effective Date" means January 1, 1993.
1.14 Eligible Employee. "Eligible Employee" means an Employee who is
designated by the Human Resources Committee to participate in the Plan.
1.15 Employee. "Employee" means any person employed by the Company or
its Affiliates on a regular full-time salaried basis, including officers of the
Company.
1.16 Human Resources Committee. "Human Resources Committee" means the
Human Resources Committee of the Board.
1.17 Insurance Company. "Insurance Company" means an insurance company
selected by the Company to provide coverage for Participants pursuant to the
terms of the Plan.
1.18 Net Cumulative Premiums. "Net Cumulative Premiums" means premiums
paid by the Company on a Policy net of (i) reimbursements or contributions to
premiums on the Policy made by a Participant and (ii) any withdrawals or loans
from cash value of the Policy made to the Company with the written consent of
the Participant.
1.19 Participant. "Participant" means an Eligible Employee who has
completed the underwriting requirements of the Insurance Company and who is
notified by the Company that he is
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participating in the Plan in accordance with the provisions of Article II.
1.20 Participation Agreement. "Participation Agreement" means a
written agreement between the Company and the Participant under which the
Participant agrees to participate in the Plan pursuant to section 2.1.
1.21 Plan. "Plan" means this Senior Executive Life Insurance Plan as
set forth in this document and as the same may be amended, administered or
interpreted from time to time.
1.22 Plan Year. "Plan Year" means the calendar year.
1.23 Policy. "Policy" means a life insurance policy providing coverage
under this Plan.
1.24 Retirement. "Retirement" means termination of a Participant's
employment with the Company or its Affiliates for reasons other than death or
Disability after the Participant has either (i) attained age fifty-five (55)
and completed at least five (5) Years of Service or (ii) attained age
sixty-five (65) and completed at least one (1) Year of Service.
1.25 Subsidiary. "Subsidiary" means a corporation the majority of the
outstanding stock of which is owned directly or indirectly by Mellon Bank
Corporation.
1.26 Years of Service. "Years of Service" means a Participant's actual
years of service, unless otherwise determined by the Human Resources
Committee.
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ARTICLE II
PARTICIPATION
2.1 Participation. Any Eligible Employee may enroll in the Plan by
completing a Participation Agreement, the underwriting requirements of the
Insurance Company and any other enrollment steps required by the Company for
coverage to begin. An Eligible Employee shall become a Participant in the Plan
when he has been notified in writing that his participation is approved by the
Company and after he files an election under Section 83(b) of the Code with the
Internal Revenue Service and a similar election with any appropriate state tax
agency. Coverage under this Plan shall not commence, and no transfer of any
Policy to the Participant shall be effective, until the Participant files such
election. During a leave of absence, coverage will remain in effect for a
maximum of ninety (90) days.
2.2 Insurability. Eligible Employees are not automatically entitled to
all insurance coverage offered under the Plan. Each Eligible Employee will be
covered up to the amount of guarantee issue determined by the Insurance
Company, but must satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for additional amounts under the
Plan.
2.3 Commencement of Coverage. Subject to the limitations of Sections
2.1 and 2.2, (i) an Employee who is an Eligible Employee on January 1, 1993
will be covered under the Plan as of January 1, 1993, and (ii) any other
Eligible Employee
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will be covered under the Plan when coverage is approved by the
Insurance Company.
2.4 Increases in Coverage. When a Participant's Base Salary is
increased, the amount of his life insurance coverage under this Plan will
increase on the next Coverage Adjustment Date, except as provided in this
Section 2.4. Any increase in coverage will not take effect until such
additional coverage is approved by the Insurance Company, and a Participant may
be required to satisfy the Insurance Company's requirements for obtaining
additional insurance before he becomes covered for an additional amount of life
insurance coverage under the Plan. A Participant's coverage under the Plan will
be limited to the coverage issued by the Insurance Company.
2.5 Declining Coverage. An Eligible Employee may decline coverage
under the Plan. However, any such Eligible Employee will be required to satisfy
the insurance company's requirements for obtaining insurance before he may
become covered under the Plan at a later date.
2.6 Relation to Other Plans. Eligible Employees shall be limited to
non-contributory life insurance coverage of $50,000 under the Company's group
term life insurance plan.
ARTICLE III
LIFE INSURANCE COVERAGE
3.1 Amount of Insurance. The amount of life insurance coverage which
will be payable to the Beneficiary designated by the Participant will be
determined based on the
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employment status of the Participant with the Company at the time of his death.
In each case, there will be subtracted fifty thousand dollars ($50,000) which
is payable under the group term life insurance plan covering the Participant
maintained by the Company. Subject to the foregoing adjustment, the amounts
of life insurance coverage under this Plan are as follows:
(a) During Employment. While employed with the Company, a Participant
will have life insurance coverage equal to two (2) times his Base Salary. No
additional death benefit will be payable on account of any interest of the
Participant in the cash value of any Policy in the event of the Participant's
death during employment with the Company.
(b) After Retirement or Termination of Employment After Completing 5
Years of Service. After Retirement from the Company (or following termination
of employment after completing five (5) Year of Service), a Participant will
have life insurance coverage equal to (i) one (1) times his final Base Salary
plus (ii) the Participant's remaining interest in cash value at the time of his
death in Policies under this Plan (as determined under Section 3.4(b)(i)
hereof.)
(c) Limitation on Amount of Coverage. The amount of life insurance
coverage under the Plan will be limited to the amount of coverage issued by the
Insurance Company on the Participant under this Plan.
3.2 Disability. If a Participant suffers a Disability, the
Participant's life insurance coverage will be continued by the Company during
the period of Disability until the Participant reaches age sixty-five (65) or
begins to receive
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benefits under the Mellon Bank Retirement Plan, whichever is sooner. All
premiums for this coverage will be paid by the Company. When a disabled
Participant reaches age sixty-five (65) or begins to receive benefits under the
Mellon Bank Retirement Plan, whichever, is sooner, the Participant will
continue to have life insurance coverage equal to one (1) times his final Base
Salary on the date of his Disability, as if he had retired from employment with
the Company.
3.3 Insurance Contract. To provide the insurance coverage under the
Plan, the Company shall acquire one or more insurance policies ("Policies") on
the life of each Participant and transfer ownership of such Policy or Policies
to the Participant. Within thirty (30) days after the transfer of any such
Policy, the Participant will file an election under Section 83(b) of the Code
with the Internal Revenue Service and a similar election with any appropriate
state tax agency.
Except as otherwise specifically provided, the Participant will be the
owner and hold all the incidents of ownership in each Policy for which he is
designated the owner pursuant to a split dollar life insurance agreement
entered into by the Participant and the Company under this Plan.
In consideration of the Company's payment of premiums on the Policy
pursuant to Section 3.9 of this Plan, the Participant will assign rights in
cash value and death benefits under the Policy to the Company as collateral
under a form of collateral assignment consistent with the terms of the Plan.
The Participant may specify in writing to the Company the Beneficiary
or Beneficiaries for his life insurance coverage
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under this Plan. Upon receipt of a written request from the Participant, the
Company will immediately take such action as shall be necessary to implement
such Beneficiary designation. Any death benefits under Policies on the life of
the Participant owned by the Company that exceed the amount payable to the
Participant's Beneficiary under this Plan shall be payable to the Company.
3.4 Interests In Cash Value. The respective interests of the Company
and the Participant in the cash value of Policies which are owned by the
Participant shall be as follows:
(a) During Employment.
(i) Company's Interest In Cash Value During Employment. While the
Participant is employed with the Company, the Company's interest in the cash
value of any Policy shall be limited to the lesser of the cash value of the
Policy or the Net Cumulative Premiums paid by the Company on the Policy. The
Company shall further be entitled to increases in cash value in an amount equal
to any mortality or other expenses incurred for the benefit of the Company
which are charged against cash value of the Policy, and any such charges shall,
in turn, be deducted from the Company's interest in cash value of the Policy.
The Company shall also be entitled to any interest in cash value of the Policy
which is forfeited by the Participant, as provided below.
(ii) Participant's Interest In Cash Value During Employment. While the
Participant is employed with the Company, the Participant's interest in the
cash value of any Policy shall be the balance of the cash value of the Policy
in excess of the
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Company's interest in cash value pursuant to Section 3.4(a)(i) above.
The Participant shall at all times be 100% vested in cash value under
a Policy in an amount equal to his cumulative reimbursements to the Company for
the Economic Benefit of his coverage. The Participant will become vested in the
Participant's additional interest in cash value after completing five (5) Years
of Service.
(b) After Retirement or Termination of Employment After Completing 5
Years of Service.
(i) Participant's Interest In Cash Value After Retirement or
Termination of Employment After Completing 5 Years of Service. The
Participant's interest in the cash value of any Policy will increase on a
pro-rata basis following Retirement or termination of employment after
completing five (5) Years of Service. After either of these events, all future
net increases in cash value of the Policy during any year will be allocated
between the Participant and the Company on a pro-rata basis in proportion to
their respective interests in the cash value of the Policy during such year.
Any withdrawals of cash value from the Policy by the Participant will reduce
the Participant's interest in the cash value of the Policy. Net increases in
cash value shall be determined after deducting mortality and other expenses
which are charged against cash value of the Policy.
(ii) Company's Interest In Cash Value after Retirement or Termination
of Employment After Completing 5 Years of Service. After a Participant's
Retirement or termination of employment after completing five (5) Years of
Service, the
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Company's interest in the cash value of any Policy shall be the balance of the
cash value of the Policy in excess of the Participant's interest in cash value
pursuant to Section 3.4(b)(i) above, including the Company's portion of
increases in cash value after the Participant's Retirement or termination of
employment. The Company shall also be entitled to increases in cash value in an
amount equal to any mortality or other expenses incurred for the benefit of the
Company which are charged against cash value of the Policy, and any such
charges shall, in turn, be deducted from the Company's interest in cash value
of the Policy.
(c) After Other Termination of Employment.
(i) Participant's Interest in Cash Value after Other Termination of
Employment. If the Participant terminates employment with the Company before
Retirement and prior to completing five (5) Years of Service, the Participant
shall forfeit his interest in the cash value of each Policy which is owned by
the Participant except for an amount equal to his cumulative reimbursements to
the Company for the Economic Benefit of his coverage.
(ii) Company's Interest in Cash Value after Other Termination of
Employment. If the Participant terminates employment with the Company before
Retirement and prior to completing five (5) Years of Service, the Company's
interest in the cash value of any Policy shall be the balance of the cash value
of the Policy in excess of the Participant's interest in cash value pursuant to
Section 3.4(c)(1) above, including the portion of the cash value of the Policy
which is forfeited by the Participant.
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(d) Minimum Company Interest in Cash Value. Notwithstanding any other
provision of this Plan to the contrary, at no time shall the Company's interest
in the cash value of any Policy ever be less than the cash value of the Policy
on the date when the Policy is transferred by the Company to the Participant.
This is a restriction which by its terms will never lapse.
3.5 Policy Withdrawals and Loans.
(a) Policy Withdrawals and Loans by Company. The Company shall have no
right to make withdrawals of cash value or prepaid premiums or obtain loans
from any Policy which is owned by a Participant at any time during the
Participant's lifetime, without the prior written consent of the Participant.
(b) Policy Withdrawals and Loans by Participant. A Participant shall
have no right to make withdrawals or obtain loans from any Policy before his
Benefit Commencement Date. After his Benefit Commencement Date a Participant
shall have the right to make withdrawals of his interest in the cash value of
any Policy (or obtain loans from the Participant's interest in the cash value
of any Policy, provided interest is paid on such loans on an annual basis). The
Participant's death benefit under any Policy shall be reduced by withdrawals
(and the unpaid principal and interest on any loans) under the Policy taken by
the Participant.
3.6 Surrender or Cancellation of Policy. In the event of the surrender
or cancellation of a Policy which is owned by a Participant, the Participant
shall be entitled to receive a portion of the cash surrender value equal to his
vested interest in the cash value of the Policy based on his employment status
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with the Company at the time (as determined under Section 3.4 hereof), unless
the Company substitutes another Policy which is satisfactory to the
Participant. The balance of the cash surrender value, if any, shall belong to
the Company.
3.7 Continuation or Split of Policy after Retirement or Termination of
Employment. The Company shall continue the life insurance coverage for the
Participant after his Retirement (or following termination of employment after
completing five (5) Years of Service) in the same form and subject to the same
terms and provisions of this Plan as if he remained employed with the Company,
except that the total amount of coverage for the Participant shall not exceed
the amount specified in Section 3.1(b).
If a Participant's employment with the Company terminates before
Retirement, and with less than five (5) Years of Service, the Participant's
coverage under this Plan shall cease, and the Company shall have no further
legal or equitable obligations of any kind to the Participant under this Plan.
The Participant shall transfer all incidents of ownership in each Policy
providing his coverage under this Plan to the Company, and the Company shall
pay to the Participant an amount equal to the Participant's vested interest in
the cash value of the Policy (as determined under Section 3.4(c)(i) hereof).
3.8 No Assignment. A Participant may not assign any part of his right,
title, claim, interest, benefit or any other incidents of ownership which he
may have in any Policies providing his life insurance coverage under this Plan.
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3.9 Payment of Premiums and Contributions.
(a) During Employment. All premiums for life insurance coverage under
this Plan while a Participant is employed with the Company will be paid by the
Company. The Participant will be required each year to reimburse to the Company
an amount equivalent to the Economic Benefit of this coverage .
(b) After Retirement or Termination of Employment after Completing 5
Years of Service. The Company will not be required to pay any premiums for life
insurance coverage under this Plan for Participants following Retirement or
termination of employment after completing five (5) Years of Service. The
Participant will be required each year to include in income for income tax
purposes or to reimburse to the Company an amount equivalent to the Economic
Benefit of this coverage, or otherwise may realizer taxable income if the
Company distributes a policy to him pursuant to Section 3.7(b).
3.10 Form of Death Benefit. All death benefits payable under this Plan
will be in the form of a lump sum death benefit paid directly from the life
insurance company to the Participant's Beneficiary under a collateral
assignment split dollar life insurance program.
ARTICLE IV
OPTION TO RETAIN INSURANCE POLICY ON TERMINATION OF EMPLOYMENT
If a Participant terminates employment with the Company before
Retirement and after completing five (5) Years of Service,
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the Participant may elect, in writing received by the Company not later than
sixty (60) days after his termination of employment, to retain the Policy
providing his life insurance coverage then in effect under this Plan and obtain
a release of the collateral assignment in favor of the Company by paying the
Company an amount equal to the Net Cumulative Premiums paid by the Company on
the Policy. Payment must be made in cash as a lump sum or by borrowing or
withdrawing cash value from the Policy. A Participant's life insurance coverage
under this Plan will remain in effect during this sixty (60) day period. A
Participant who retains a Policy will cease to be covered under this Plan and
will thereafter be required to pay all future premiums on the Policy.
The option to retain the Policy which is provided under this Article
IV shall not apply to any Participant who terminates employment with the
Company before completing five (5) Years of Service or after Retirement.
ARTICLE V
OPTION TO RETAIN INSURANCE POLICY IN CERTAIN EVENTS
5.1 Option to Retain Policy. The Participant may elect, in writing
received by the Company not later than sixty (60) days after the Participant
receives written notice from the Company of an event described in Section 5.2,
to retain the Policy providing his life insurance coverage then in effect under
this Plan and obtain release of the collateral assignment in favor of the
Company by paying the Company an amount equal to the greater of (i) the excess
of the cash value of the Policy
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transferred to the Participant over the Participant's vested interest in cash
value of the Policy (as provided under Section 3.4) or (ii) the Net Cumulative
Premiums paid by the Company on the Policy. A Participant who retains a Policy
will cease to be covered under this Plan and will thereafter be required to pay
all future premiums on the Policy, except that the Company will be obligated to
continue to make up to seven scheduled premium payments for Participants while
they remain active Employees.
5.2 Elimination of Coverage. Any Participant whose coverage is
eliminated pursuant to Article VIII of this Plan (without being replaced with
equivalent coverage under another plan of the Company) shall have the option
pursuant to Section 5.1 to purchase the Policy providing his life insurance
coverage in effect under this Plan immediately prior to the elimination of such
coverage.
5.3 Change in Control. For purposes of this Plan the term "Change in
Control" shall mean:
(a) the occurrence with respect to Mellon Bank Corporation ("MBC") of
a "control transaction," as such term is defined in Section 2542 of the
Pennsylvania Business Corporation Law of 1988 as of August 15, 1989; or
(b) approval by the stockholders of MBC of (i) any merger or
consolidation of MBC in which the holders of voting stock of MBC immediately
before the merger or consolidation will not own fifty percent (50%) or more of
the voting shares of the continuing or surviving corporation immediately after
such merger or consolidation, or (ii) any sale, lease or exchange or other
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transfer (in one transaction or a series of related transactions) of all or
substantially all the assets of MBC; or
(c) a change of twenty-five percent (25%) (rounded to the next whole
person) in the membership of the Board of Directors of MBC within a twelve (12)
month period, unless the election or nomination for election by stockholders of
each new director within such period was approved by the vote of eighty-five
percent (85%) (rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the twelve (12) month period.
Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant) affected
thereby, the Company may not amend or terminate this Plan, except to comply
with legal requirements:
(a) for a period of twenty-four (24) months following a Change in
Control; or
(b) at any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives payments of
benefits under this Plan or has a termination of employment for any reason at
any time during the period of twenty-four (24) months following the Change in
Control.
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ARTICLE VI
BENEFICIARY DESIGNATION
6.1 Designation of Beneficiary. Each Participant shall have the right
to designate a Beneficiary or Beneficiaries to whom payment of the
Participant's death benefit under this Plan shall be made in the event of the
Participant's death. Such designation shall be made on a form prescribed by
and delivered to the Company. The Participant shall have the right to change
or revoke any such designation from time to time by filing a new designation or
notice of revocation with the Company, and no notice to any Beneficiary nor
consent by any Beneficiary shall be required to effect any such change or
revocation.
6.2 Failure to Designate Beneficiary. If a Participant shall fail to
designate a Beneficiary before his demise, or if no designated Beneficiary
survives the Participant, the Committee shall direct the Company to make
payment under this Plan to the executor or administrator for the Participant's
estate.
ARTICLE VII
ADMINISTRATION
7.1 Administrator. Except as hereinafter provided, the Committee shall
be responsible for the administrative responsibilities hereinafter described
with respect to the Plan. Whenever any action is required or permitted to be
taken in the administration of the Plan, such action shall be taken by the
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Committee unless the Committee's power is expressly limited herein or by
operation of law. The Committee shall be the Plan "Administrator" (as such
term is defined in Section 3(16)(A) of ERISA) . The Committee may delegate its
duties and responsibilities as it, in its sole discretion, deems necessary or
appropriate to the execution of such duties and responsibilities. The Committee
as a whole or any of its members may serve in more than one capacity with
respect to the Plan.
7.2 Powers and Duties. The Committee, or its delegates, shall maintain
and keep (or cause to be maintained and kept) such records as are necessary for
the efficient operation of the Plan or as may be required by any applicable
law, regulation, or ruling and shall provide for the preparation and filing of
such forms, reports, information, and documents as may be required to be filed
with any governmental agency or department and with the Plan's Participants
and/or other Beneficiaries.
Except to the extent expressly reserved to the Company or the Board,
the Committee shall have all powers necessary to carry out the administrative
provisions of the Plan and to satisfy the requirements of any applicable law or
laws. These powers shall include, by way of illustration and not limitation,
the exclusive powers and discretionary authority necessary to:
(a) construe and interpret the Plan; decide all questions of
eligibility; decide all questions of fact relating to claims for benefits; and
determine the amount, time, manner, method, and mode of payment of any benefits
hereunder;
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(b) direct the Company and/or the trustee of any trust established at
the discretion of the Company to provide for the payment of benefits under the
Plan, concerning the amount, time, manner, method, and mode of payment of any
benefits hereunder;
(c) prescribe procedures to be followed and forms to be used by
Participants and/or other persons in filing applications or elections;
(d) prepare and distribute, in such manner as may be required by law
or as the Committee deems appropriate, information explaining the Plan;
provided, however, that no such explanation shall contravene the terms of this
Plan or increase the rights of any Participant or Beneficiary or the
liabilities of the Company;
(e) require from the Company and Participants such information as
shall be necessary for the proper administration of the Plan;
(f) appoint and retain individuals to assist in the administration and
construction of the Plan, including such legal, clerical, accounting, and
actuarial services as it may require or as may be required by any applicable
law or laws; and
(g) perform all functions otherwise imposed upon a plan administrator
by ERISA which are not expressly reserved to the Company or the Board,
including, but not limited to, those supplemental duties and responsibilities
described in the "Mellon Bank Corporation Corporate Benefits Committee Charter
and Summary of Operations" approved by the Board on September 17, 1991 (the
"CBC" Charter").
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Without intending to limit the generality of the foregoing, the
Committee shall have the power to amend the Plan, in whole or in part, in order
to comply with applicable law; provided, however, that no such amendment may
increase the duties and obligations of the Company without its consent. Except
as provided in the preceding sentence or unless directed by the Human Resources
Committee of the Board or otherwise required by law, the Committee shall have
no power to adopt, amend, or terminate the Plan, said powers being exclusively
reserved to the Human Resources Committee of the Board.
7.3 Procedures. The Committee shall be organized and conduct its
business with respect to the Plan in accordance with the organizational and
procedural rules set forth in the CBC Charter.
Notwithstanding the foregoing, if any member of the Committee shall be
a Participant hereunder, then in any matters affecting any member of the
Committee in his individual capacity as a Participant hereunder, separate and
apart from his status as a member of the group of Participants, such interested
member shall have no authority to vote in the determination of such matters as
a member of the Committee, but the Committee shall determine such matter as if
said interested member were not a member of the Committee; provided, however,
that this shall not be deemed to take from said interested member any of his
rights hereunder as a Participant. If the remaining members of the Committee
should be unable to agree on any matter so affecting an interested member
because of an equal division of voting, the Human Resources Committee of the
Board shall appoint a temporary
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member of the Committee in order to create an odd number of voting members.
7.4 Establishment of Rules. The Committee shall have specific
authority in its sole discretion to construe and interpret the terms of the
Plan related to its powers and duties, and to the extent that the terms of the
Plan are incomplete, the Committee shall have authority to establish such rules
or regulations related to its powers and duties as it may deem necessary and
proper to carry out the intent of the Company as to the purposes of the Plan.
7.5 Limitation of Liability. The Board, the members of the Committee,
and any officer, employee, or agent of the Company shall not incur any
liability individually or on behalf of any other individuals or on behalf of
the Company for any act, or failure to act, made in good faith in relation to
the Plan. No bond or other security shall be required of any such individual
solely on account of any individual's power to direct the Company to make the
payments required hereunder.
7.6 Compensation and Insurance. Members of the Committee shall serve
without compensation for their services as such. Expenses incurred by members
of the Committee in the performance of their duties as herein provided, and the
compensation and expenses of persons retained or employed by the Committee for
services rendered in connection with the Plan shall, upon approval by the
Committee, be paid or reimbursed by the Company.
The Company shall indemnify and/or maintain and keep in force
insurance in such form and amount as may be necessary in
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order to protect the members of the Committee, their delegates and appointees
(other than persons who are independent of the Company and are rendering
services to the Committee or to or with respect to the Plan) from any claim,
loss, damage, liability, and expense (including costs and attorneys' fees)
arising from their acts or failures to act with respect to the Plan, except
where such actions or failures to act involve willful misconduct or gross
negligence.
7.7 Removal and Resignation. Any member of the Committee may resign
and the Company may remove any member of the Committee in accordance with the
procedures established by the CBC Charter. The Committee shall remain fully
operative pending the filling of any vacancies, the remaining Committee members
having full authority to administer the Plan.
7.8 Claims Procedure. The right of any Participant or Beneficiary to
receive a benefit hereunder and the amount of such benefit shall be determined
in accordance with the procedures for determination of benefit claims
established and maintained by the Committee in compliance with the requirements
of Section 503 of ERISA; which separate procedures, entitled Procedures for
Determination of Benefit Claims, are incorporated herein by this reference.
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ARTICLE VIII
AMENDMENT AND TERMINATION OF PLAN
Subject to the limitations of Article V, the Human Resources Committee
of the Board may at any time amend or terminate the Plan in whole or in part.
Except as provided below or in Article V, the Company is not obligated to
continue any benefit, any insurance or any insurance policy after such action.
Written notice of any amendment or termination of the Plan shall be given to
each affected Participant in the Plan.
ARTICLE IX
MISCELLANEOUS
9.1 Restriction on Assignment. A Participant may not assign any part
of his right, title, claim, interest, benefit or any other incidents of
ownership which he may have in any life insurance coverage under this Plan.
Neither the Participant nor any other person shall have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the amounts, if
any, payable pursuant to this Plan, which are, and all rights to which are,
expressly declared to be unassignable and non-transferable. No part of the
amounts payable pursuant to this Plan shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts, judgments,
alimony or separate maintenance owed by the Participant or any other
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<PAGE> 29
person, nor be transferable by operation of law in the event of the
Participant's or any other person's bankruptcy or insolvency.
9.2 Tax Liability and Withholding. A Participant may have income for
federal, state or local income tax purposes by reason of the Economic Benefit
of his insurance coverage provided by the Company under this Plan, both while
he is employed with the Company and after his Retirement or termination of
employment. The Participant and any Beneficiary shall make appropriate
arrangements with the Company for the satisfaction of any federal, state or
local income tax withholding requirements and Social Security or other employee
tax requirements applicable to the provision of benefits under this Plan. If no
other arrangements are made, the Company may provide, at its discretion, for
such withholding and tax payments as may be required.
9.3 ERISA Plan. This Plan is covered by Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA") as a welfare benefit plan. The
Company is the "named fiduciary" of the Plan for purposes of Section 402(a)(2)
of ERISA.
9.4 Employment Not Guaranteed. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Employee any right to be retained in employment with the Company.
9.5 Protective Provisions. Each Participant shall cooperate with the
Company by furnishing any and all information requested by the Company in order
to facilitate the payment of benefits hereunder, taking such physical
examinations as the Company may deem necessary and taking such other relevant
action
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<PAGE> 30
as may be requested by the Company. If a Participant refuses so to cooperate,
the Company shall have no further obligation to the Participant or his
Beneficiary under the Plan. If a Participant makes any material misstatement of
information or nondisclosure of medical history, then no benefits will be
payable hereunder to such Participant's Beneficiary, provided, that in the
Company's sole discretion, benefits may be payable in an amount reduced to
compensate the Company for any loss, cost, damage or expense suffered or
incurred by the Company as a result in any way of any such action, misstatement
or nondisclosure.
9.6 Gender, Singular & Plural. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
or the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
9.7 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
9.8 Validity. In the event any provision of this Plan is held invalid,
void or unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provisions of this Plan, and this Plan shall be
deemed to be modified to the least extent possible to make it valid and
enforceable in its entirety.
9.9 Notices and Elections. Any notice or election required or
permitted to be given to the Company or the Committee under the Plan shall be
sufficient if in writing and hand
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<PAGE> 31
delivered, or sent by registered or certified mail, to the principal office of
the Company, directed to the attention of the Human Resources Department of the
Company. Such notice or election shall be deemed given as of the date of
delivery or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
9.10 Applicable Law. This Plan shall be construed, regulated and
administered in accordance with the laws of the Commonwealth of Pennsylvania,
except insofar as state law is preempted by ERISA.
9.11 Waiver of Breach. The waiver by the Company of any provision of
this Plan shall not operate or be construed as a waiver of any subsequent
breach by the Participant.
9.12 Benefit. The rights and obligations of the Company under this
Plan shall inure to the benefit of, and shall be binding upon, the successors
and assigns of the Company.
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<PAGE> 1
Exhibit 10.16
MELLON BANK CORPORATION
PHANTOM STOCK UNIT PLAN (1995)
I. Purpose
The purposes of this Phantom Stock Unit Plan (1995) ("Plan") are to promote the
growth and profitability of Mellon Bank Corporation ("Corporation") and its
subsidiaries by providing officers and other key executives of the Corporation
and its subsidiaries with an incentive to achieve long-term corporate
objectives and to increase the mutuality of interests between such officers and
key executives and the shareholders of the Corporation.
II. Definitions
The following terms shall have the meanings shown:
2.1 "Board" shall mean the Board of Directors of the Corporation.
2.2 "Change in Control Event" shall mean any of the following events:
(a) The occurrence with respect to the Corporation of a "control
transaction", as such term is defined in Section 2542 of the Pennsylvania
Business Corporation Law, as of August 15, 1989; or
(b) Approval by the shareholders of the Corporation of (i) any
consolidation or merger of the Corporation in which the holders of voting
stock of the Corporation immediately before the merger or consolidation
will not own 50% or more of the voting shares of the continuing or
surviving corporation immediately after the merger or consolidation, or
(ii) any sale, lease or exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the
assets of the Corporation; or
(c) A change of 25% (rounded to the next whole person) in the membership
of the Board within a 12-month period, unless the election or nomination
of each new director within such period was approved by the vote of 85%
(rounded to the next whole person) of the directors then still in office
who were in office at the beginning of the 12-month period.
2.3 "Committee" shall mean the Human Resources Committee of the Board, or any
successor committee.
2.4 "Common Stock" shall mean Common Stock of the Corporation.
<PAGE> 2
2.5 "Deferral Plan" shall mean the Mellon Bank Corporation Elective Deferred
Compensation Plan for Senior Officers or any similar or successor plan of the
Corporation or a subsidiary then in effect.
2.6 "Fair Market Value" shall mean the mean value between the bid and ask price
of the Common Stock as reported by the National Association of Securities
Dealers through their Automated Quotation System on the relevant date, or, if
no quotations shall have been made on such relevant date, on the next preceding
day on which there were quotations. Notwithstanding the foregoing, if the
Common Stock is listed on a stock exchange, "Fair Market Value" shall mean the
closing price of the Common Stock on the exchange on the relevant date, or, if
no sale shall have been made on such exchange on that date, the closing price
on the next preceding day on which there was a sale.
2.7 "Unit" shall mean a right granted by the Committee pursuant to Section 4.1
to receive the Fair Market Value of a share of Common Stock as of a specified
date or as of the date of occurrence of a specified event, which right may be
made conditional upon the occurrence or nonoccurrence of other specified events
as herein provided; provided, however, that the amount to be paid under any
Unit may be increased or decreased from Fair Market Value on the basis of terms
and conditions specified by the Committee at the time of grant.
III. General
3.1 Administration
(a) The Plan shall be administered by the Committee, each member of which
shall at the time of any action under the Plan be a "non-employee
director" as then defined under Rule 16b-3 under the Securities Exchange
Act of 1934 ("Exchange Act") or any successor rule.
(b) The Committee shall have the authority in its sole discretion from
time to time: (i) to designate the employees eligible to participate in
the Plan; (ii) to award Units to eligible employees and to determine the
amount of any such award; (iii) to prescribe such terms, conditions,
limitations and restrictions, not inconsistent with the Plan, applicable
to any such award as the Committee shall deem appropriate; and (iv) to
interpret the Plan, to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and take all
other action necessary or advisable for the implementation and
administration of the Plan. A majority of the Committee shall constitute a
quorum, and the action of a majority of the members of the Committee
present at any meeting at which a quorum is present, or acts unanimously
adopted in writing without the holding of a meeting, shall be the acts of
the Committee.
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<PAGE> 3
(c) All such actions shall be final, conclusive and binding upon the
participating employee. No member of the Committee shall be liable for any
action taken or decision made in good faith relating to the Plan or any
award thereunder.
3.2 Eligibility. The Committee may award Units under the Plan to any full-time
corporate officer, key executive, administrative or professional employee of
the Corporation or any of its subsidiaries.
3.3 Aggregate Limitation on Awards. The aggregate number of Units which may be
awarded under the Plan shall not exceed 250,000 Units, subject to adjustments
pursuant to Sections 5.5 and 5.6. If any Unit is surrendered or forfeited to
the Corporation for any reason prior to payment thereof, such Unit shall again
be available for award under the Plan.
IV. Units
4.1 Award of Units. The Committee may from time to time, subject to the
provisions of the Plan, in its discretion award Units to eligible employees in
such amounts as the Committee shall determine to award.
4.2 Award Agreements. The award of any Units shall be evidenced by a written
agreement executed by the Corporation and the awardee, stating the number of
Units awarded and such other terms and conditions of the award as the Committee
may from time to time determine.
4.3 Optional Terms and Conditions of Units. To the extent not inconsistent with
the Plan, the Committee may prescribe such terms and conditions applicable to
any award of Units as it may in its discretion determine.
4.4 Standard Terms and Conditions of Units. Unless otherwise determined by the
Committee pursuant to Section 4.3, each award of Units shall be made on the
following terms and conditions, in addition to such other terms, conditions,
limitations and restrictions as the Committee, in its discretion, may determine
to prescribe:
(a) Payment Date. The date on which each Unit shall mature and become
payable ("Payment Date") shall be the earlier of:
(i) the third anniversary of the date of the award; or
(ii) the date of termination of the awardee's employment with the
Corporation or a subsidiary if, and only if, such termination is by
reason of the awardee's death, disability (covered by a disability
plan of the Corporation or a subsidiary then in effect) or retirement
with the consent of the Corporation or a subsidiary; or
3
<PAGE> 4
(iii) the date of termination of the awardee's employment with the
Corporation or a subsidiary if, and only if, such termination results
solely from a displacement, as determined in accordance with the
Mellon Employee Displacement Program or any successor practice of the
Corporation; or
(iv) the date of any Change in Control Event, as determined by the
Committee.
As promptly as practicable after the Payment Date, the Corporation or a
subsidiary shall either (A) pay to the awardee or his estate in cash an
amount equal to the number of Units maturing on that date multiplied by
the Fair Market Value on the Payment Date of a share of Common Stock or
(B) if so elected by an awardee prior to the time of the award or so
determined by the Committee, cause such amount to be credited to the
awardee's account under a Deferral Plan.
(b) Forfeiture of Units. Upon the effective date of a termination of the
awardee's employment with the Corporation or a subsidiary for any reason
not specified in Section 4.4(a)(ii) or Section 4.4(a)(iii), all Units for
which the Payment Date has not occurred shall immediately be forfeited to
the Corporation without consideration or further action being required of
the Corporation. For purposes of the immediately preceding sentence, the
effective date of the awardee's termination shall be the date on which the
awardee ceases to perform services as an employee of the Corporation or
any of its subsidiaries, without regard to accrued vacation, severance or
other benefits or the characterization thereof on the payroll records of
the Corporation or any of its subsidiaries.
(c) Dividend Equivalents. If an award of Units is outstanding as of the
record date for determination of the shareholders of the Corporation
entitled to receive a cash dividend on its outstanding shares of Common
Stock, the Corporation or a subsidiary shall pay to the awardee on or as
promptly as practical following the payment date thereof, an amount in
cash equal to the per share amount of such dividend multiplied by the
number of Units held by the awardee.
4.5 Transfer Restriction. No Unit shall be assignable or transferable by an
awardee other than by will, or if the awardee dies intestate, by the laws of
descent and distribution of the state of domicile of the awardee at the time of
death. All Units shall be payable during the lifetime of the awardee only to
the awardee or to the awardee's account under a Deferral Plan.
V. Miscellaneous
5.1 Withholding Taxes. Any payments made to an awardee may be net
of an amount sufficient to satisfy any federal, state, local or other
withholding tax requirements.
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<PAGE> 5
5.2 No Right to Employment. Nothing in the Plan or in any agreement entered
into pursuant to the Plan shall confer upon any awardee the right to continue
in the employment of the Corporation or a subsidiary or affect any right which
the Corporation or a subsidiary may have to terminate the employment of such
awardee.
5.3 Non-Uniform Determinations. The Committee's determinations under the Plan
(including without limitation its determinations of the persons to receive
awards, the amount and timing of such awards and the terms and provisions of
such awards) need not be uniform and may be made by it selectively among
persons who receive, or are eligible to receive, awards under the Plan, whether
or not such persons are similarly situated.
5.4 No Rights as Shareholders. Recipients of awards under the Plan
shall have no rights as shareholders of the Corporation with respect
thereto.
5.5 Adjustments of Stock. In the event of any change or changes in the
outstanding Common Stock aggregating at least 5%, the Committee may in its
discretion appropriately adjust the number of Units which may be awarded under
the Plan, the number of Units subject to awards outstanding under the Plan and
any and all other matters deemed appropriate by the Committee.
5.6 Reorganization. In the event that the outstanding Common Stock shall be
changed in number, class or character by reason of any split-up, change of par
value, stock dividend, combination or reclassification of shares, merger,
consolidation or other corporate change, or shall be changed in value by reason
of any spin-off, dividend in partial liquidation or other special distribution,
the Committee shall make such changes as it may deem equitable in outstanding
Units awarded pursuant to the Plan and the number and character of Units
available for future awards.
5.7 Amendment or Termination of the Plan. The Committee or the Board may at any
time terminate the Plan and may from time to time amend the Plan as it may deem
advisable. The termination or amendment of the Plan shall not, without the
consent of the awardee, affect such awardee's rights under an award previously
granted.
October 1996
5
<PAGE> 1
Exhibit 10.19
THIS AGREEMENT is entered into as of the 1st day of February, 1997 by and
between Mellon Bank Corporation (the "Company"), a Pennsylvania corporation,
and Frank V. Cahouet ("Executive").
W I T N E S S E T H
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders; and
WHEREAS, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a change in control may arise and that
such possibility may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Human Resources Committee (the "Committee") of the Board of
Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to secure Executive's continued
services and to ensure Executive's continued and undivided dedication to his
duties in the event of any threat or occurrence of a Change in Control (as
defined in Section 1) of the Company; and
WHEREAS, the Committee has authorized the Company to enter into this
Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below:
(a) "Bonus Amount" means the highest annual incentive bonus earned by
Executive from the Company (or its affiliates) during the last three (3)
completed fiscal years of the Company immediately preceding Executive's Date of
Termination (annualized in the event Executive was not employed by the Company
(or its affiliates) for the whole of any such fiscal year).
(b) "Cause" means (i) the willful and continued failure of Executive
to perform substantially his duties with the Company (other than any such
failure resulting from Executive's incapacity due to physical or mental illness
or any such failure subsequent to Executive being delivered a Notice of
Termination without Cause by the Company or delivering a Notice of Termination
for Good Reason to the Company) after a written demand for substantial
<PAGE> 2
performance is delivered to Executive by the Board which specifically
identifies the manner in which the Board believes that Executive has not
substantially performed Executive's duties, (ii) the willful engaging by
Executive in illegal conduct or gross misconduct which is demonstrably and
materially injurious to the Company or its affiliates, or (iii) the conviction
of Executive of, or a plea by Executive of nolo contendere to, a felony. For
purpose of this paragraph (b), no act or failure to act by Executive shall be
considered "willful" unless done or omitted to be done by Executive in bad
faith and without reasonable belief that Executive's action or omission was in
the best interests of the Company or its affiliates. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board, based upon the advice of counsel for the Company or upon the
instructions of the Company's chief executive officer or another senior officer
of the Company shall be conclusively presumed to be done, or omitted to be
done, by Executive in good faith and in the best interests of the Company.
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-fourths (3/4) of the entire Board
(excluding Executive if Executive is a Board member) at a meeting of the Board
called and held for such purpose (after reasonable notice to Executive and an
opportunity for Executive, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board an event set forth
in clauses (i) or (ii) has occurred and specifying the particulars thereof in
detail. The Company must notify Executive of any event constituting Cause
within ninety (90) days following the Company's knowledge of its existence or
such event shall not constitute Cause under this Agreement.
(c) "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 17, 1997, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to January 17, 1997, whose election or nomination for election
was approved by a vote of at least two-thirds of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without written objection by such Incumbent Directors to such
nomination) shall be deemed to be an Incumbent Director; provided,
however, that no individual elected or nominated as a director of the
Company initially as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened solicitation
of proxies by or on behalf of any person other than the Board shall be
deemed to be an Incumbent Director;
(ii) any "person" (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
15% or more of the
2
<PAGE> 3
combined voting power of the Company's then outstanding securities
eligible to vote for the election of the Board (the "Company Voting
Securities"); provided, however, that the event described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue of
any of the following acquisitions: (A) by the Company or any Subsidiary,
(B) by any employee benefit plan sponsored or maintained by the Company or
any Subsidiary, or by any employee stock benefit trust created by the
Company or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii)), (E) pursuant
to any acquisition by Executive or any group of persons including
Executive (or any entity controlled by Executive or any group of persons
including Executive); or (F) a transaction (other than one described in
(iii) below) in which Company Voting Securities are acquired from the
Company, if a majority of the Incumbent Directors approves a resolution
providing expressly that the acquisition pursuant to this clause (F) does
not constitute a Change in Control under this paragraph (ii);
(iii) the consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving the Company or any of
its Subsidiaries that requires the approval of the Company's shareholders,
whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following such
Business Combination: (A) more than 50% of the total voting power of (x)
the corporation resulting from the consummation of such Business
Combination (the "Surviving Corporation"), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of
the Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, represented by shares into which
such Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit plan
sponsored or maintained by the Surviving Corporation or the Parent
Corporation or any employee stock benefit trust created by the Surviving
Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of 15% or more of the total voting power of
the outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) were Incumbent Directors at the
time of the Board's approval of the execution of the initial agreement
providing for such Business Combination (any Business
3
<PAGE> 4
Combination which satisfies all of the criteria specified in (A), (B) and
(C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company shall
not be deemed to occur solely because any person acquires beneficial ownership
of more than 15% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
(d) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior
written notice by the Company or Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if Executive's employment by the
Company terminates by reason of death, the date of death of Executive.
(e) "Disability" means termination of Executive's employment by the
Company due to Executive's absence from Executive's duties with the Company on
a full-time basis for at least one hundred eighty (180) consecutive days as a
result of Executive's incapacity due to physical or mental illness.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in any
material and adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control (including any material and adverse diminution of such
duties or responsibilities) or (B) a material and adverse change in
Executive's titles or offices (including, if applicable, membership on the
Board) with the Company as in effect immediately prior to such Change in
Control;
(ii) (A) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same may be increased from time to time thereafter, or (B) the failure
by the Company to pay Executive an annual bonus in respect of the year in
which such Change in
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<PAGE> 5
Control occurs or any subsequent year in an amount less than the annual
bonus earned for the year prior to the year in which such Change in
Control occurs;
(iii) any requirement of the Company that Executive (A) be based
anywhere more than fifty (50) miles from the office where Executive is
located at the time of the Change in Control or (B) travel on Company
business to an extent substantially greater than the travel obligations of
Executive immediately prior to such Change in Control;
(iv) the failure of the Company to (A) continue in effect any
employee benefit plan, compensation plan, welfare benefit plan or material
fringe benefit plan in which Executive is participating immediately prior
to such Change in Control or the taking of any action by the Company which
would adversely affect Executive's participation in or reduce Executive's
benefits under any such plan, unless Executive is permitted to participate
in other plans providing Executive with substantially equivalent benefits
in the aggregate (at substantially equivalent cost with respect to welfare
benefit plans), or (B) provide Executive with paid vacation in accordance
with the most favorable vacation policies of the Company and its
affiliated companies as in effect for Executive immediately prior to such
Change in Control, including the crediting of all service for which
Executive had been credited under such vacation policies prior to the
Change in Control; or
(v) the failure of the Company to obtain the assumption (and, if
applicable, guarantee) agreement from any successor (and Parent
Corporation) as contemplated in Section 9(b).
Notwithstanding anything herein to the contrary, termination of employment
by Executive for any reason during the 30-day period commencing one (1) year
after the date of a Change in Control shall constitute Good Reason.
An isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company within ten (10) days after receipt of notice
thereof given by Executive shall not constitute Good Reason. Executive's right
to terminate employment for Good Reason shall not be affected by Executive's
incapacities due to mental or physical illness and Executive's continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any event or condition constituting Good Reason; provided, however, that
Executive must provide notice of termination of employment within one-hundred
eighty (180) days following Executive's knowledge of an event constituting Good
Reason or such event shall not constitute Good Reason under this Agreement.
(g) "Qualifying Termination" means a termination of Executive's
employment (i) by the Company other than for Cause or (ii) by Executive for
Good Reason. Termination of
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<PAGE> 6
Executive's employment on account of death, Disability or Retirement shall not
be treated as a Qualifying Termination.
(h) "Retirement" means the termination of Executive's employment on or
after the first of the month coincident with or following Executive's
attainment of age 65, or such later date as may be provided in a written
agreement between the Company and the Executive.
(i) "Subsidiary" means any corporation or other entity in which the
Company has a direct or indirect ownership interest of 50% or more of the total
combined voting power of the then outstanding securities or interests of such
corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% of the assets upon liquidation or dissolution.
(j) "Termination Period" means the period of time beginning with a
Change in Control and ending three (3) years following such Change in Control.
Notwithstanding anything in this Agreement to the contrary, if (i) Executive's
employment is terminated prior to a Change in Control for reasons that would
have constituted a Qualifying Termination if they had occurred following a
Change in Control; (ii) Executive reasonably demonstrates that such termination
(or Good Reason event) was at the request of a third party who had indicated an
intention or taken steps reasonably calculated to effect a Change in Control;
and (iii) a Change in Control involving such third party (or a party competing
with such third party to effectuate a Change in Control) does occur, then for
purposes of this Agreement, the date immediately prior to the date of such
termination of employment or event constituting Good Reason shall be treated as
a Change in Control. For purposes of determining the timing of payments and
benefits to Executive under Section 4, the date of the actual Change in Control
shall be treated as Executive's Date of Termination under Section 1(d).
2. Obligation of Executive. In the event of a tender or exchange offer,
proxy contest, or the execution of any agreement which, if consummated, would
constitute a Change in Control, Executive agrees not to voluntarily leave the
employ of the Company, other than as a result of Disability, Retirement or an
event which would constitute Good Reason if a Change in Control had occurred,
until the Change in Control occurs or, if earlier, such tender or exchange
offer, proxy contest, or agreement is terminated or abandoned.
3. Term of Agreement. This Agreement shall be effective on the date hereof
and shall continue in effect until the Company shall have given three (3)
years' written notice of cancellation; provided, that, notwithstanding the
delivery of any such notice, this Agreement shall continue in effect for a
period of three (3) years after a Change in Control, if such Change in Control
shall have occurred during the term of this Agreement. Notwithstanding anything
in this Section to the contrary, this Agreement shall terminate if Executive or
the Company terminates Executive's employment prior to a Change in Control
except as provided in Section 1(j).
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<PAGE> 7
4. Payments Upon Termination of Employment.
(a) Qualifying Termination -- Cash Payment. If during the Termination
Period the employment of Executive shall terminate pursuant to a Qualifying
Termination, then the Company shall provide to Executive, subject to the
provisions of Section 11 hereunder:
(i) within twenty (20) days following the Date of Termination a
lump-sum cash amount equal to the sum of (A) Executive's base salary
through the Date of Termination and any bonus amounts which have become
payable, to the extent not theretofore paid or deferred, (B) a pro rata
portion of Executive's annual bonus for the fiscal year in which
Executive's Date of Termination occurs in an amount at least equal to (1)
Executive's Bonus Amount, multiplied by (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of
Termination occurs through the Date of Termination and the denominator of
which is three hundred sixty-five (365), and reduced by (3) any amounts
paid from the Company's annual incentive plan for the fiscal year in which
Executive's Date of Termination occurs and (C) any accrued vacation pay,
to the extent not theretofore paid; plus
(ii) within twenty (20) days following the Date of Termination, a
lump-sum cash amount equal to the sum of (i) three (3) times Executive's
highest annual rate of base salary during the 12-month period immediately
prior to Executive's Date of Termination, plus (ii) three (3) times
Executive's Bonus Amount; provided, however, that if Executive's Date of
Termination is within three (3) years of the earliest date on which
termination by the Executive could otherwise be considered a Retirement
("Retirement Date"), such sum shall be multiplied by a fraction
("Adjustment Fraction"), the numerator of which is equal to the number of
full months from the Date of Termination to the Retirement Date, and the
denominator of which is equal to 36.
(b) Qualifying Termination -- Continued Coverage. If during the
Termination Period the employment of Executive shall terminate pursuant to a
Qualifying Termination, the Company shall continue to provide, for a period of
three (3) years following Executive's Date of Termination, Executive (and
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by Executive for such
benefits) as existed immediately prior to Executive's Date of Termination (or,
if more favorable to Executive, as such benefits and terms and conditions
existed immediately prior to the Change in Control); provided, however, that if
Executive's Date of Termination is within three (3) years of Executive's
Retirement Date, the number of years of continued benefits coverage (as
described in this Section 4(b)) shall be equal to the product of (x) three, and
(y) the Adjustment Fraction; provided, further, if Executive cannot continue to
participate in the Company plans providing such benefits, the Company shall
otherwise provide such benefits on the same after-tax basis as if
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<PAGE> 8
continued participation had been permitted. Notwithstanding the foregoing, in
the event Executive becomes reemployed with another employer and becomes
eligible to receive welfare benefits from such employer, the welfare benefits
described herein shall be secondary to such benefits during the period of
Executive's eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder. The Executive's accrued
benefits as of the Date of Termination under the Company's employee benefit
plans shall be paid to Executive in accordance with the terms of such plans.
(c) Qualifying Termination -- SERP Accrual. If during the Termination
Period the employment of Executive shall terminate pursuant to a Qualifying
Termination, the Company shall provide Executive with three (3) additional
years of service credit under all non-qualified retirement plans and excess
benefit plans in which the Executive participated as of his Date of
Termination; provided, however, that if Executive's Date of Termination is
within three (3) years of Executive's Retirement Date, the number of years of
additional service credit (as described in this Section 4(c)) shall be equal to
the product of (x) three, and (y) the Adjustment Fraction.
(d) Other than Qualifying Termination. If during the Termination
Period the employment of Executive shall terminate other than by reason of a
Qualifying Termination, then the Company shall pay to Executive within thirty
(30) days following the Date of Termination, a lump-sum cash amount equal to
the sum of (1) Executive's base salary through the Date of Termination and any
bonus amounts which have become payable, to the extent not theretofore paid or
deferred, and (2) any accrued vacation pay, to the extent not theretofore paid.
The Company may make such additional payments, and provide such additional
benefits, to Executive as the Company and Executive may agree in writing. The
Executive's accrued benefits as of the Date of Termination under the Company's
employee benefit plans shall be paid to Executive in accordance with the terms
of such plans.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment, award, benefit or distribution
(or any acceleration of any payment, award, benefit or distribution) by the
Company (or any of its affiliated entities) or any entity which effectuates a
Change in Control (or any of its affiliated entities) to or for the benefit of
Executive (whether pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 5) (the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Company
shall pay to Executive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Executive of all taxes (including any Excise
Tax) imposed upon the Gross-Up Payment, Executive retains
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<PAGE> 9
an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions disallowed
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income and the highest applicable marginal rate of federal income taxation for
the calendar year in which the Gross-up Payment is to be made. For purposes of
determining the amount of the Gross-up Payment, the Executive shall be deemed
to (i) pay federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be made,
(ii) pay applicable state and local income taxes at the highest marginal rate
of taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise allowable
deductions for federal income tax purposes at least equal to the Gross-up
Payment. Notwithstanding the foregoing provisions of this Section 5(a), if it
shall be determined that Executive is entitled to a Gross-Up Payment, but that
the Payments would not be subject to the Excise Tax if the Payments were
reduced by an amount that is less than 5% of the portion of the Payments that
would be treated as "parachute payments" under Section 280G of the Code, then
the amounts payable to Executive under this Agreement shall be reduced (but not
below zero) to the maximum amount that could be paid to Executive without
giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment
shall be made to Executive. The reduction of the amounts payable hereunder, if
applicable, shall be made by reducing first the payments under Section
4(a)(ii), unless an alternative method of reduction is elected by Executive.
For purposes of reducing the Payments to the Safe Harbor Cap, only amounts
payable under this Agreement (and no other Payments) shall be reduced. If the
reduction of the amounts payable hereunder would not result in a reduction of
the Payments to the Safe Harbor Cap, no amounts payable under this Agreement
shall be reduced pursuant to this provision.
(b) Subject to the provisions of Section 5(a), all determinations
required to be made under this Section 5, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment, the reduction of the
Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving
at such determinations, shall be made by the public accounting firm that is
retained by the Company as of the date immediately prior to the Change in
Control (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business
days of the receipt of notice from the Company or the Executive that there has
been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, Executive may appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company and the Company shall enter into any agreement requested by the
Accounting Firm in connection with the performance of the services hereunder.
The Gross-up Payment under this Section 5 with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion to such effect, and to the effect that
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<PAGE> 10
failure to report the Excise Tax, if any, on Executive's applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. In the event the Accounting Firm determines that the Payments shall be
reduced to the Safe Harbor Cap, it shall furnish Executive with a written
opinion to such effect. The Determination by the Accounting Firm shall be
binding upon the Company and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the Determination, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment") or Gross-up Payments are made by the
Company which should not have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
thereafter is required to make payment of any Excise Tax or additional Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the
Company to or for the benefit of Executive. In the event the amount of the
Gross-up Payment exceeds the amount necessary to reimburse the Executive for
his Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with interest
at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid
by Executive (to the extent he has received a refund if the applicable Excise
Tax has been paid to the Internal Revenue Service) to or for the benefit of the
Company. Executive shall cooperate, to the extent his expenses are reimbursed
by the Company, with any reasonable requests by the Company in connection with
any contests or disputes with the Internal Revenue Service in connection with
the Excise Tax.
6. Withholding Taxes. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
7. Reimbursement of Expenses. If any contest or dispute shall arise under
this Agreement involving termination of Executive's employment with the Company
or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all reasonable legal fees and expenses, if any, incurred by
Executive in connection with such contest or dispute (regardless of the result
thereof), together with interest in an amount equal to the prime rate of Mellon
Bank, N.A. (or, if such prime rate is not available from Mellon Bank, N.A., the
prime rate of Citibank, N.A.) from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives Executive's statement for
such fees and expenses through the date of payment thereof, regardless of
whether or not Executive's claim is upheld by an arbitration panel.
8. Scope of Agreement. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its Subsidiaries,
and if Executive's employment with the Company shall terminate prior to a
Change in Control, Executive shall have no further rights under this Agreement
(except as otherwise provided hereunder); provided,
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<PAGE> 11
however, that any termination of Executive's employment during the Termination
Period shall be subject to all of the provisions of this Agreement.
9. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any Business
Combination. In the event of any Business Combination, the provisions of this
Agreement shall be binding upon the Surviving Corporation, and such Surviving
Corporation shall be treated as the Company hereunder.
(b) The Company agrees that in connection with any Business
Combination, it will cause any successor entity to the Company unconditionally
to assume (and for any Parent Corporation in such Business Combination to
guarantee), by written instrument delivered to Executive (or his beneficiary or
estate), all of the obligations of the Company hereunder. Failure of the
Company to obtain such assumption and guarantee prior to the effectiveness of
any such Business Combination that constitutes a Change in Control shall be a
breach of this Agreement and shall constitute Good Reason hereunder and shall
entitle Executive to compensation and other benefits from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive's employment were terminated following a Change in Control by reason
of a Qualifying Termination. For purposes of implementing the foregoing, the
date on which any such Business Combination becomes effective shall be deemed
the date Good Reason occurs, and shall be the Date of Termination if requested
by Executive.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is
so appointed, to Executive's estate.
10. Notice.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
At the address set forth below the signatory.
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If to the Company:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the Company
or Executive, as the case may be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the
provision so indicated and (iii) specify the Date of Termination (which date
shall be not less than fifteen (15) (thirty (30), if termination is by the
Company for Disability) nor more than sixty (60) days after the giving of such
notice). The failure by Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of Executive or the Company hereunder or preclude
Executive or the Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
11. Full Settlement; Resolution of Disputes. The Company's obligation to
make any payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall be in lieu and in full settlement of all other
severance payments to Executive under any other severance or employment
agreement between Executive and the Company, and any severance plan of the
Company; provided, however, that obligations to Executive under the Employment
Agreement between Mellon Bank, N.A. and Executive, effective July 25, 1993, as
amended and restated October 17, 1995 (the "Prior Agreement") shall remain in
full force and effect; provided, further, that the amount of payments required
to be made under Section 4(a) of this Agreement shall be reduced (but not below
zero) by the amount of severance payments made pursuant to the Prior Agreement.
The Company's obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defense or other claim, right or action which the
Company may have against Executive or others. In no event shall Executive be
obligated to seek other employment or take other action by way of mitigation of
the amounts payable to Executive under any of the provisions of this Agreement
and, except as provided in Section 4(b), such amounts shall not be reduced
whether or not Executive obtains other employment. Any dispute or controversy
arising under or in connection with this Agreement shall be settled exclusively
by arbitration in Pittsburgh, Pennsylvania, by three arbitrators in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrators' award in any court having jurisdiction. The
Company shall bear all costs and expenses arising in connection with any
arbitration proceeding pursuant to this Section.
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12. Employment with Subsidiaries. Employment with the Company for purposes
of this Agreement shall include employment with any Subsidiary.
13. Survival. The respective obligations and benefits afforded to the
Company and Executive as provided in Sections 4 (to the extent that payments or
benefits are owed as a result of a termination of employment that occurs during
the term of this Agreement), 5 (to the extent that Payments are made to
Executive as a result of a Change in Control that occurs during the term of
this Agreement), 6, 7, 9(c) and 11 shall survive the termination of this
Agreement.
14. GOVERNING LAW; VALIDITY. THE INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
WITHOUT REGARD TO THE PRINCIPLE OF CONFLICTS OF LAWS. THE INVALIDITY OR
UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE
VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH
OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
16. Miscellaneous. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. Except
as set forth in Sections 1(b) and 1(f), the failure by Executive or the Company
to insist upon strict compliance with any provision of this Agreement or to
assert any right Executive or the Company may have hereunder shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement. Except as otherwise specifically provided herein, the
rights of, and benefits payable to, Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits
payable to, Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
MELLON BANK CORPORATION
A.W. MATHIESON
------------------------
By: Andrew W. Mathieson
Title: Chairman, Human
Resources Committee
EXECUTIVE
FRANK V. CAHOUET
------------------------
Frank V. Cahouet
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<PAGE> 1
Exhibit 10.20
THIS AGREEMENT is entered into as of the ___ day of __________, 1997 by
and between Mellon Bank Corporation (the "Company"), a Pennsylvania
corporation, and ______________ ("Executive").
W I T N E S S E T H
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders; and
WHEREAS, the Company recognizes that, as is the case with many publicly
held corporations, the possibility of a change in control may arise and that
such possibility may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Human Resources Committee (the "Committee") of the Board of
Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to secure Executive's continued
services and to ensure Executive's continued and undivided dedication to his
duties in the event of any threat or occurrence of a Change in Control (as
defined in Section 1) of the Company; and
WHEREAS, the Committee has authorized the Company to enter into this
Agreement.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Executive hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the respective meanings set forth below:
(a) "Bonus Amount" means the highest annual incentive bonus earned by
Executive from the Company (or its affiliates) during the last three (3)
completed fiscal years of the Company immediately preceding Executive's Date of
Termination (annualized in the event Executive was not employed by the Company
(or its affiliates) for the whole of any such fiscal year).
(b) "Cause" means (i) the willful and continued failure of Executive
to perform substantially his duties with the Company (other than any such
failure resulting from Executive's incapacity due to physical or mental illness
or any such failure subsequent to Executive being delivered a Notice of
Termination without Cause by the Company or delivering a Notice of Termination
for Good Reason to the Company) after a written demand for substantial
<PAGE> 2
performance is delivered to Executive by the Board which specifically
identifies the manner in which the Board believes that Executive has not
substantially performed Executive's duties, (ii) the willful engaging by
Executive in illegal conduct or gross misconduct which is demonstrably and
materially injurious to the Company or its affiliates, or (iii) the conviction
of Executive of, or a plea by Executive of nolo contendere to, a felony. For
purpose of this paragraph (b), no act or failure to act by Executive shall be
considered "willful" unless done or omitted to be done by Executive in bad
faith and without reasonable belief that Executive's action or omission was in
the best interests of the Company or its affiliates. Any act, or failure to
act, based upon authority given pursuant to a resolution duly adopted by the
Board, based upon the advice of counsel for the Company or upon the
instructions of the Company's chief executive officer or another senior officer
of the Company shall be conclusively presumed to be done, or omitted to be
done, by Executive in good faith and in the best interests of the Company.
Cause shall not exist unless and until the Company has delivered to Executive a
copy of a resolution duly adopted by three-fourths (3/4) of the entire Board
(excluding Executive if Executive is a Board member) at a meeting of the Board
called and held for such purpose (after reasonable notice to Executive and an
opportunity for Executive, together with counsel, to be heard before the
Board), finding that in the good faith opinion of the Board an event set forth
in clauses (i) or (ii) has occurred and specifying the particulars thereof in
detail. The Company must notify Executive of any event constituting Cause
within ninety (90) days following the Company's knowledge of its existence or
such event shall not constitute Cause under this Agreement.
(c) "Change in Control" means the occurrence of any one of the
following events:
(i) individuals who, on January 17, 1997, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director
subsequent to January 17, 1997, whose election or nomination for election
was approved by a vote of at least two-thirds of the Incumbent Directors
then on the Board (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for
director, without written objection by such Incumbent Directors to such
nomination) shall be deemed to be an Incumbent Director; provided,
however, that no individual elected or nominated as a director of the
Company initially as a result of an actual or threatened election contest
with respect to directors or any other actual or threatened solicitation
of proxies by or on behalf of any person other than the Board shall be
deemed to be an Incumbent Director;
(ii) any "person" (as such term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or
becomes a "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
15% or more of the
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<PAGE> 3
combined voting power of the Company's then outstanding securities
eligible to vote for the election of the Board (the "Company Voting
Securities"); provided, however, that the event described in this
paragraph (ii) shall not be deemed to be a Change in Control by virtue of
any of the following acquisitions: (A) by the Company or any Subsidiary,
(B) by any employee benefit plan sponsored or maintained by the Company or
any Subsidiary, or by any employee stock benefit trust created by the
Company or any Subsidiary, (C) by any underwriter temporarily holding
securities pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii)), (E) pursuant
to any acquisition by Executive or any group of persons including
Executive (or any entity controlled by Executive or any group of persons
including Executive); or (F) a transaction (other than one described in
(iii) below) in which Company Voting Securities are acquired from the
Company, if a majority of the Incumbent Directors approves a resolution
providing expressly that the acquisition pursuant to this clause (F) does
not constitute a Change in Control under this paragraph (ii);
(iii) the consummation of a merger, consolidation, share exchange
or similar form of corporate transaction involving the Company or any of
its Subsidiaries that requires the approval of the Company's shareholders,
whether for such transaction or the issuance of securities in the
transaction (a "Business Combination"), unless immediately following such
Business Combination: (A) more than 50% of the total voting power of (x)
the corporation resulting from the consummation of such Business
Combination (the "Surviving Corporation"), or (y) if applicable, the
ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of
the Surviving Corporation (the "Parent Corporation"), is represented by
Company Voting Securities that were outstanding immediately prior to such
Business Combination (or, if applicable, represented by shares into which
such Company Voting Securities were converted pursuant to such Business
Combination), and such voting power among the holders thereof is in
substantially the same proportion as the voting power of such Company
Voting Securities among the holders thereof immediately prior to the
Business Combination, (B) no person (other than any employee benefit plan
sponsored or maintained by the Surviving Corporation or the Parent
Corporation or any employee stock benefit trust created by the Surviving
Corporation or the Parent Corporation), is or becomes the beneficial
owner, directly or indirectly, of 15% or more of the total voting power of
the outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) were Incumbent Directors at the
time of the Board's approval of the execution of the initial agreement
providing for such Business Combination (any Business
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<PAGE> 4
Combination which satisfies all of the criteria specified in (A), (B) and
(C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) the shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or a sale of all or
substantially all of the Company's assets.
Notwithstanding the foregoing, a Change in Control of the Company shall
not be deemed to occur solely because any person acquires beneficial ownership
of more than 15% of the Company Voting Securities as a result of the
acquisition of Company Voting Securities by the Company which reduces the
number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of
additional Company Voting Securities that increases the percentage of
outstanding Company Voting Securities beneficially owned by such person, a
Change in Control of the Company shall then occur.
(d) "Date of Termination" means (1) the effective date on which
Executive's employment by the Company terminates as specified in a prior
written notice by the Company or Executive, as the case may be, to the other,
delivered pursuant to Section 10 or (2) if Executive's employment by the
Company terminates by reason of death, the date of death of Executive.
(e) "Disability" means termination of Executive's employment by the
Company due to Executive's absence from Executive's duties with the Company on
a full-time basis for at least one hundred eighty (180) consecutive days as a
result of Executive's incapacity due to physical or mental illness.
(f) "Good Reason" means, without Executive's express written consent,
the occurrence of any of the following events after a Change in Control:
(i) (A) any change in the duties or responsibilities (including
reporting responsibilities) of Executive that is inconsistent in any
material and adverse respect with Executive's position(s), duties,
responsibilities or status with the Company immediately prior to such
Change in Control (including any material and adverse diminution of such
duties or responsibilities) or (B) a material and adverse change in
Executive's titles or offices (including, if applicable, membership on the
Board) with the Company as in effect immediately prior to such Change in
Control;
(ii) (A) a reduction by the Company in Executive's rate of annual
base salary as in effect immediately prior to such Change in Control or as
the same may be increased from time to time thereafter, or (B) the failure
by the Company to pay Executive an annual bonus in respect of the year in
which such Change in
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<PAGE> 5
Control occurs or any subsequent year in an amount less than the annual
bonus earned for the year prior to the year in which such Change in
Control occurs;
(iii) any requirement of the Company that Executive (A) be based
anywhere more than fifty (50) miles from the office where Executive is
located at the time of the Change in Control or (B) travel on Company
business to an extent substantially greater than the travel obligations of
Executive immediately prior to such Change in Control;
(iv) the failure of the Company to (A) continue in effect any
employee benefit plan, compensation plan, welfare benefit plan or material
fringe benefit plan in which Executive is participating immediately prior
to such Change in Control or the taking of any action by the Company which
would adversely affect Executive's participation in or reduce Executive's
benefits under any such plan, unless Executive is permitted to participate
in other plans providing Executive with substantially equivalent benefits
in the aggregate (at substantially equivalent cost with respect to welfare
benefit plans), or (B) provide Executive with paid vacation in accordance
with the most favorable vacation policies of the Company and its
affiliated companies as in effect for Executive immediately prior to such
Change in Control, including the crediting of all service for which
Executive had been credited under such vacation policies prior to the
Change in Control; or
(v) the failure of the Company to obtain the assumption (and, if
applicable, guarantee) agreement from any successor (and Parent
Corporation) as contemplated in Section 9(b).
Notwithstanding anything herein to the contrary, termination of employment
by Executive for any reason during the 30-day period commencing one (1) year
after the date of a Change in Control shall constitute Good Reason.
An isolated, insubstantial and inadvertent action taken in good faith and
which is remedied by the Company within ten (10) days after receipt of notice
thereof given by Executive shall not constitute Good Reason. Executive's right
to terminate employment for Good Reason shall not be affected by Executive's
incapacities due to mental or physical illness and Executive's continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any event or condition constituting Good Reason; provided, however, that
Executive must provide notice of termination of employment within one-hundred
eighty (180) days following Executive's knowledge of an event constituting Good
Reason or such event shall not constitute Good Reason under this Agreement.
(g) "Qualifying Termination" means a termination of Executive's
employment (i) by the Company other than for Cause or (ii) by Executive for
Good Reason. Termination of
5
<PAGE> 6
Executive's employment on account of death, Disability or Retirement shall not
be treated as a Qualifying Termination.
(h) "Retirement" means the termination of Executive's employment on or
after the first of the month coincident with or following Executive's
attainment of age 65, or such later date as may be provided in a written
agreement between the Company and the Executive.
(i) "Subsidiary" means any corporation or other entity in which the
Company has a direct or indirect ownership interest of 50% or more of the total
combined voting power of the then outstanding securities or interests of such
corporation or other entity entitled to vote generally in the election of
directors or in which the Company has the right to receive 50% or more of the
distribution of profits or 50% of the assets upon liquidation or dissolution.
(j) "Termination Period" means the period of time beginning with a
Change in Control and ending three (3) years following such Change in Control.
Notwithstanding anything in this Agreement to the contrary, if (i) Executive's
employment is terminated prior to a Change in Control for reasons that would
have constituted a Qualifying Termination if they had occurred following a
Change in Control; (ii) Executive reasonably demonstrates that such termination
(or Good Reason event) was at the request of a third party who had indicated an
intention or taken steps reasonably calculated to effect a Change in Control;
and (iii) a Change in Control involving such third party (or a party competing
with such third party to effectuate a Change in Control) does occur, then for
purposes of this Agreement, the date immediately prior to the date of such
termination of employment or event constituting Good Reason shall be treated as
a Change in Control. For purposes of determining the timing of payments and
benefits to Executive under Section 4, the date of the actual Change in Control
shall be treated as Executive's Date of Termination under Section 1(d).
2. Obligation of Executive. In the event of a tender or exchange offer,
proxy contest, or the execution of any agreement which, if consummated, would
constitute a Change in Control, Executive agrees not to voluntarily leave the
employ of the Company, other than as a result of Disability, Retirement or an
event which would constitute Good Reason if a Change in Control had occurred,
until the Change in Control occurs or, if earlier, such tender or exchange
offer, proxy contest, or agreement is terminated or abandoned.
3. Term of Agreement. This Agreement shall be effective on the date hereof
and shall continue in effect until the Company shall have given three (3)
years' written notice of cancellation; provided, that, notwithstanding the
delivery of any such notice, this Agreement shall continue in effect for a
period of three (3) years after a Change in Control, if such Change in Control
shall have occurred during the term of this Agreement. Notwithstanding anything
in this Section to the contrary, this Agreement shall terminate if Executive or
the Company terminates Executive's employment prior to a Change in Control
except as provided in Section 1(j).
6
<PAGE> 7
4. Payments Upon Termination of Employment.
(a) Qualifying Termination -- Cash Payment. If during the Termination
Period the employment of Executive shall terminate pursuant to a Qualifying
Termination, then the Company shall provide to Executive, subject to the
provisions of Section 11 hereunder:
(i) within twenty (20) days following the Date of Termination a
lump-sum cash amount equal to the sum of (A) Executive's base salary
through the Date of Termination and any bonus amounts which have become
payable, to the extent not theretofore paid or deferred, (B) a pro rata
portion of Executive's annual bonus for the fiscal year in which
Executive's Date of Termination occurs in an amount at least equal to (1)
Executive's Bonus Amount, multiplied by (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of
Termination occurs through the Date of Termination and the denominator of
which is three hundred sixty-five (365), and reduced by (3) any amounts
paid from the Company's annual incentive plan for the fiscal year in which
Executive's Date of Termination occurs and (C) any accrued vacation pay,
to the extent not theretofore paid; plus
(ii) within twenty (20) days following the Date of Termination, a
lump-sum cash amount equal to the sum of (i) three (3) times Executive's
highest annual rate of base salary during the 12-month period immediately
prior to Executive's Date of Termination, plus (ii) three (3) times
Executive's Bonus Amount; provided, however, that if Executive's Date of
Termination is within three (3) years of the earliest date on which
termination by the Executive could otherwise be considered a Retirement
("Retirement Date"), such sum shall be multiplied by a fraction
("Adjustment Fraction"), the numerator of which is equal to the number of
full months from the Date of Termination to the Retirement Date, and the
denominator of which is equal to 36.
(b) Qualifying Termination -- Continued Coverage. If during the
Termination Period the employment of Executive shall terminate pursuant to a
Qualifying Termination, the Company shall continue to provide, for a period of
three (3) years following Executive's Date of Termination, Executive (and
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by Executive for such
benefits) as existed immediately prior to Executive's Date of Termination (or,
if more favorable to Executive, as such benefits and terms and conditions
existed immediately prior to the Change in Control); provided, however, that if
Executive's Date of Termination is within three (3) years of Executive's
Retirement Date, the number of years of continued benefits coverage (as
described in this Section 4(b)) shall be equal to the product of (x) three, and
(y) the Adjustment Fraction; provided, further, if Executive cannot continue to
participate in the Company plans providing such benefits, the Company shall
otherwise provide such benefits on the same after-tax basis as if
7
<PAGE> 8
continued participation had been permitted. Notwithstanding the foregoing, in
the event Executive becomes reemployed with another employer and becomes
eligible to receive welfare benefits from such employer, the welfare benefits
described herein shall be secondary to such benefits during the period of
Executive's eligibility, but only to the extent that the Company reimburses
Executive for any increased cost and provides any additional benefits necessary
to give Executive the benefits provided hereunder. The Executive's accrued
benefits as of the Date of Termination under the Company's employee benefit
plans shall be paid to Executive in accordance with the terms of such plans.
(c) Qualifying Termination -- SERP Accrual. If during the Termination
Period the employment of Executive shall terminate pursuant to a Qualifying
Termination, the Company shall provide Executive with three (3) additional
years of service credit under all non-qualified retirement plans and excess
benefit plans in which the Executive participated as of his Date of
Termination; provided, however, that if Executive's Date of Termination is
within three (3) years of Executive's Retirement Date, the number of years of
additional service credit (as described in this Section 4(c)) shall be equal to
the product of (x) three, and (y) the Adjustment Fraction.
(d) Other than Qualifying Termination. If during the Termination
Period the employment of Executive shall terminate other than by reason of a
Qualifying Termination, then the Company shall pay to Executive within thirty
(30) days following the Date of Termination, a lump-sum cash amount equal to
the sum of (1) Executive's base salary through the Date of Termination and any
bonus amounts which have become payable, to the extent not theretofore paid or
deferred, and (2) any accrued vacation pay, to the extent not theretofore paid.
The Company may make such additional payments, and provide such additional
benefits, to Executive as the Company and Executive may agree in writing. The
Executive's accrued benefits as of the Date of Termination under the Company's
employee benefit plans shall be paid to Executive in accordance with the terms
of such plans.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment, award, benefit or distribution
(or any acceleration of any payment, award, benefit or distribution) by the
Company (or any of its affiliated entities) or any entity which effectuates a
Change in Control (or any of its affiliated entities) to or for the benefit of
Executive (whether pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 5) (the "Payments") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
any interest or penalties are incurred by Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Company
shall pay to Executive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by Executive of all taxes (including any Excise
Tax) imposed upon the Gross-Up Payment, Executive retains
8
<PAGE> 9
an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of any deductions disallowed
because of the inclusion of the Gross-up Payment in Executive's adjusted gross
income and the highest applicable marginal rate of federal income taxation for
the calendar year in which the Gross-up Payment is to be made. For purposes of
determining the amount of the Gross-up Payment, the Executive shall be deemed
to (i) pay federal income taxes at the highest marginal rates of federal income
taxation for the calendar year in which the Gross-up Payment is to be made,
(ii) pay applicable state and local income taxes at the highest marginal rate
of taxation for the calendar year in which the Gross-up Payment is to be made,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes and (iii) have otherwise allowable
deductions for federal income tax purposes at least equal to the Gross-up
Payment. Notwithstanding the foregoing provisions of this Section 5(a), if it
shall be determined that Executive is entitled to a Gross-Up Payment, but that
the Payments would not be subject to the Excise Tax if the Payments were
reduced by an amount that is less than 5% of the portion of the Payments that
would be treated as "parachute payments" under Section 280G of the Code, then
the amounts payable to Executive under this Agreement shall be reduced (but not
below zero) to the maximum amount that could be paid to Executive without
giving rise to the Excise Tax (the "Safe Harbor Cap"), and no Gross-Up Payment
shall be made to Executive. The reduction of the amounts payable hereunder, if
applicable, shall be made by reducing first the payments under Section
4(a)(ii), unless an alternative method of reduction is elected by Executive.
For purposes of reducing the Payments to the Safe Harbor Cap, only amounts
payable under this Agreement (and no other Payments) shall be reduced. If the
reduction of the amounts payable hereunder would not result in a reduction of
the Payments to the Safe Harbor Cap, no amounts payable under this Agreement
shall be reduced pursuant to this provision.
(b) Subject to the provisions of Section 5(a), all determinations
required to be made under this Section 5, including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment, the reduction of the
Payments to the Safe Harbor Cap and the assumptions to be utilized in arriving
at such determinations, shall be made by the public accounting firm that is
retained by the Company as of the date immediately prior to the Change in
Control (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within fifteen (15) business
days of the receipt of notice from the Company or the Executive that there has
been a Payment, or such earlier time as is requested by the Company
(collectively, the "Determination"). In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, Executive may appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company and the Company shall enter into any agreement requested by the
Accounting Firm in connection with the performance of the services hereunder.
The Gross-up Payment under this Section 5 with respect to any Payments shall be
made no later than thirty (30) days following such Payment. If the Accounting
Firm determines that no Excise Tax is payable by Executive, it shall furnish
Executive with a written opinion to such effect, and to the effect that
9
<PAGE> 10
failure to report the Excise Tax, if any, on Executive's applicable federal
income tax return will not result in the imposition of a negligence or similar
penalty. In the event the Accounting Firm determines that the Payments shall be
reduced to the Safe Harbor Cap, it shall furnish Executive with a written
opinion to such effect. The Determination by the Accounting Firm shall be
binding upon the Company and Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the Determination, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment") or Gross-up Payments are made by the
Company which should not have been made ("Overpayment"), consistent with the
calculations required to be made hereunder. In the event that the Executive
thereafter is required to make payment of any Excise Tax or additional Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by the
Company to or for the benefit of Executive. In the event the amount of the
Gross-up Payment exceeds the amount necessary to reimburse the Executive for
his Excise Tax, the Accounting Firm shall determine the amount of the
Overpayment that has been made and any such Overpayment (together with interest
at the rate provided in Section 1274(b)(2) of the Code) shall be promptly paid
by Executive (to the extent he has received a refund if the applicable Excise
Tax has been paid to the Internal Revenue Service) to or for the benefit of the
Company. Executive shall cooperate, to the extent his expenses are reimbursed
by the Company, with any reasonable requests by the Company in connection with
any contests or disputes with the Internal Revenue Service in connection with
the Excise Tax.
6. Withholding Taxes. The Company may withhold from all payments due to
Executive (or his beneficiary or estate) hereunder all taxes which, by
applicable federal, state, local or other law, the Company is required to
withhold therefrom.
7. Reimbursement of Expenses. If any contest or dispute shall arise under
this Agreement involving termination of Executive's employment with the Company
or involving the failure or refusal of the Company to perform fully in
accordance with the terms hereof, the Company shall reimburse Executive, on a
current basis, for all reasonable legal fees and expenses, if any, incurred by
Executive in connection with such contest or dispute (regardless of the result
thereof), together with interest in an amount equal to the prime rate of Mellon
Bank, N.A. (or, if such prime rate is not available from Mellon Bank, N.A., the
prime rate of Citibank, N.A.) from time to time in effect, but in no event
higher than the maximum legal rate permissible under applicable law, such
interest to accrue from the date the Company receives Executive's statement for
such fees and expenses through the date of payment thereof, regardless of
whether or not Executive's claim is upheld by an arbitration panel.
8. Scope of Agreement. Nothing in this Agreement shall be deemed to
entitle Executive to continued employment with the Company or its Subsidiaries,
and if Executive's employment with the Company shall terminate prior to a
Change in Control, Executive shall have no further rights under this Agreement
(except as otherwise provided hereunder); provided,
10
<PAGE> 11
however, that any termination of Executive's employment during the Termination
Period shall be subject to all of the provisions of this Agreement.
9. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any Business
Combination. In the event of any Business Combination, the provisions of this
Agreement shall be binding upon the Surviving Corporation, and such Surviving
Corporation shall be treated as the Company hereunder.
(b) The Company agrees that in connection with any Business
Combination, it will cause any successor entity to the Company unconditionally
to assume (and for any Parent Corporation in such Business Combination to
guarantee), by written instrument delivered to Executive (or his beneficiary or
estate), all of the obligations of the Company hereunder. Failure of the
Company to obtain such assumption and guarantee prior to the effectiveness of
any such Business Combination that constitutes a Change in Control shall be a
breach of this Agreement and shall constitute Good Reason hereunder and shall
entitle Executive to compensation and other benefits from the Company in the
same amount and on the same terms as Executive would be entitled hereunder if
Executive's employment were terminated following a Change in Control by reason
of a Qualifying Termination. For purposes of implementing the foregoing, the
date on which any such Business Combination becomes effective shall be deemed
the date Good Reason occurs, and shall be the Date of Termination if requested
by Executive.
(c) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive shall die
while any amounts would be payable to Executive hereunder had Executive
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is
so appointed, to Executive's estate.
10. Notice.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five (5) days after deposit in
the United States mail, certified and return receipt requested, postage
prepaid, addressed as follows:
If to the Executive:
At the address set forth below the signatory.
11
<PAGE> 12
If to the Company:
Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Attn: Corporate Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) A written notice of Executive's Date of Termination by the Company
or Executive, as the case may be, to the other, shall (i) indicate the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, set forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of Executive's employment under the
provision so indicated and (iii) specify the Date of Termination (which date
shall be not less than fifteen (15) (thirty (30), if termination is by the
Company for Disability) nor more than sixty (60) days after the giving of such
notice). The failure by Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of Executive or the Company hereunder or preclude
Executive or the Company from asserting such fact or circumstance in enforcing
Executive's or the Company's rights hereunder.
11. Full Settlement; Resolution of Disputes. The Company's obligation to
make any payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall be in lieu and in full settlement of all other
severance payments to Executive under any other severance or employment
agreement between Executive and the Company, and any severance plan of the
Company. The Company's obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against Executive or others. In no event shall
Executive be obligated to seek other employment or take other action by way of
mitigation of the amounts payable to Executive under any of the provisions of
this Agreement and, except as provided in Section 4(b), such amounts shall not
be reduced whether or not Executive obtains other employment. Any dispute or
controversy arising under or in connection with this Agreement shall be settled
exclusively by arbitration in Pittsburgh, Pennsylvania, by three arbitrators in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. The Company shall bear all costs and expenses arising in
connection with any arbitration proceeding pursuant to this Section.
12. Employment with Subsidiaries. Employment with the Company for purposes
of this Agreement shall include employment with any Subsidiary.
13. Survival. The respective obligations and benefits afforded to the
Company and Executive as provided in Sections 4 (to the extent that payments or
benefits are owed as a result
12
<PAGE> 13
of a termination of employment that occurs during the term of this Agreement),
5 (to the extent that Payments are made to Executive as a result of a Change in
Control that occurs during the term of this Agreement), 6, 7, 9(c) and 11 shall
survive the termination of this Agreement.
14. GOVERNING LAW; VALIDITY. THE INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
WITHOUT REGARD TO THE PRINCIPLE OF CONFLICTS OF LAWS. THE INVALIDITY OR
UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE
VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH
OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.
15. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original and all of which together shall
constitute one and the same instrument.
16. Miscellaneous. No provision of this Agreement may be modified or
waived unless such modification or waiver is agreed to in writing and signed by
Executive and by a duly authorized officer of the Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. Except
as set forth in Sections 1(b) and 1(f), the failure by Executive or the Company
to insist upon strict compliance with any provision of this Agreement or to
assert any right Executive or the Company may have hereunder shall not be
deemed to be a waiver of such provision or right or any other provision or
right of this Agreement. Except as otherwise specifically provided herein, the
rights of, and benefits payable to, Executive, his estate or his beneficiaries
pursuant to this Agreement are in addition to any rights of, or benefits
payable to, Executive, his estate or his beneficiaries under any other employee
benefit plan or compensation program of the Company.
13
<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by a duly authorized officer of the Company and Executive has executed this
Agreement as of the day and year first above written.
MELLON BANK CORPORATION
------------------------------------
By:
Title:
EXECUTIVE
------------------------------------
14
<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,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY NET INCOME PER COMMON SHARE
Net income applicable to common stock $688,974,000 $652,234,000 $361,221,000 (a)
- ------------------------------------------------------------------------------------------------------------------------------
Stock and stock equivalents (average shares):
Common shares outstanding 131,205,611 143,428,078 145,036,812
Common shares issuable upon conversion
of Series D preferred stock - - 1,692,263
Other common stock equivalents, net of shares assumed
to be repurchased under the treasury stock method:
Stock options 1,988,974 1,377,077 1,886,912
Warrants - 268,510 451,978
Series D preferred stock subscription rights - - 817
- ------------------------------------------------------------------------------------------------------------------------------
Total stock and stock equivalents 133,194,585 145,073,665 149,068,782
- ------------------------------------------------------------------------------------------------------------------------------
Net income per common share $5.17 $4.50 $2.42
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER COMMON SHARE
Net income applicable to common stock $688,974,000 $652,234,000 $361,221,000 (a)
- ------------------------------------------------------------------------------------------------------------------------------
The after-tax benefit of interest expense
on the assumed conversion of 7-1/4% Convertible
Subordinated Capital Notes 151,000 206,000 204,000
- ------------------------------------------------------------------------------------------------------------------------------
Adjusted net income applicable to common stock $689,125,000 $652,440,000 $361,425,000
- ------------------------------------------------------------------------------------------------------------------------------
Stock, stock equivalents and potentially
dilutive items (average shares):
Common shares outstanding 131,205,611 143,428,078 145,036,812
Common shares issuable upon conversion of
Series D preferred stock - - 1,692,263
Other common stock equivalents, net of shares
assumed to be repurchased under the treasury
stock method:
Stock options 2,605,859 2,186,923 1,914,398
Warrants - 440,834 451,978
Series D preferred stock subscription rights - - 817
Common shares issuable upon conversion of
7-1/4% Subordinated Capital Notes 101,011 126,593 133,492
- ------------------------------------------------------------------------------------------------------------------------------
Total 133,912,481 146,182,428 149,229,760
- ------------------------------------------------------------------------------------------------------------------------------
Net income per common share $5.15 $4.46 $2.42
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $3 million of Series D preferred stock dividends. Series D
preferred stock was considered a common stock equivalent.
<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) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Income before income taxes and
equity in undistributed net
income (loss) of subsidiaries $349,900 $473,554 $434,035 $224,869 $137,594
2. Fixed charges: interest expense,
one-third of rental expense net
of income from subleases, and
amortization of debt issuance costs 101,010 96,971 95,193 110,739 79,709
- -----------------------------------------------------------------------------------------------------------------------------
3. Income before income taxes
and equity in undistributed
net income (loss) of subsidiaries,
plus fixed charges (line 1 + line 2) $450,910 $570,525 $529,228 $335,608 $217,303
- -----------------------------------------------------------------------------------------------------------------------------
4. Preferred stock dividend
requirements(b) $ 68,503 $ 62,035 $124,260 $103,792 $ 61,197
- -----------------------------------------------------------------------------------------------------------------------------
5. Ratio of earnings (as defined)
to fixed charges (line 3 divided by line 2) 4.46 5.88 5.56 3.03 2.73
6. Ratio of earnings (as defined)
to combined fixed charges and
preferred stock dividends
[line 3 divided by (line 2 + line 4)] 2.66 3.59 2.41 1.56 1.54
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation"), 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, and Mellon Capital I and
Mellon Capital II, special purpose business trusts formed by the
Corporation, that exist solely to issue Capital Securities. 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.
<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) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1. Income $ 732,580 $ 691,534 $ 433,365 $ 460,213 $ 527,955
2. Provision for income taxes 418,264 400,058 278,040 298,034 104,099
- ---------------------------------------------------------------------------------------------------------------------------------
3. Income before provision
for income taxes (line 1 + line 2) $1,150,844 $1,091,592 $ 711,405 $ 758,247 $ 632,054
- ---------------------------------------------------------------------------------------------------------------------------------
4. Fixed charges:
a. Interest expense (excluding
interest on deposits) $ 358,367 $ 401,700 $ 263,054 $ 200,915 $ 211,998
b. One-third of rental expense
(net of income from
subleases) and amortization
of debt issuance costs 44,553 44,303 40,140 38,190 29,446
- ---------------------------------------------------------------------------------------------------------------------------------
c. Total fixed charges
(excluding interest on
deposits) (line 4a + line 4b) 402,920 446,003 303,194 239,105 241,444
d. Interest on deposits 902,726 888,580 538,715 454,458 636,719
- ---------------------------------------------------------------------------------------------------------------------------------
e. Total fixed charges
(line 4c + line 4d) $1,305,646 $1,334,583 $ 841,909 $ 693,563 $ 878,163
- ---------------------------------------------------------------------------------------------------------------------------------
5. Preferred stock dividend
requirements (b) $ 68,503 $ 62,035 $ 124,260 $ 103,792 $ 61,197
- ---------------------------------------------------------------------------------------------------------------------------------
6. Income before provision
for income taxes, plus total
fixed charges:
a. Excluding interest on
deposits (line 3 + line 4c) $1,553,764 $1,537,595 $1,014,599 $ 997,352 $ 873,498
- ---------------------------------------------------------------------------------------------------------------------------------
b. Including interest on
deposits (line 3 + line 4e) $2,456,490 $2,426,175 $1,553,314 $1,451,810 $1,510,217
- ---------------------------------------------------------------------------------------------------------------------------------
7. Ratio of earnings (as defined) to fixed charges:
a. Excluding interest on deposits
(line 6a divided by line 4c) 3.86 3.45 3.35 4.17 3.62
b. Including interest on deposits
(line 6b divided by line 4e) 1.88 1.82 1.84 2.09 1.72
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)] 3.30 3.03 2.37 2.91 2.89
b. Including interest on deposits
[line 6b divided by (line 4e + line 5)] 1.79 1.74 1.61 1.82 1.61
- ---------------------------------------------------------------------------------------------------------------------------------
</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
Exhibit 13.1
PRINCIPAL LOCATIONS AND OPERATING ENTITIES
<TABLE>
<S> <C> <C>
RETAIL SUBSIDIARIES AND REGIONS - MELLON BANK-WESTERN REGION serves OTHER DOMESTIC AND
consumer and small to midsize commercial INTERNATIONAL ENTITIES
Mellon Bank Corporation operates the markets in western Pennsylvania.
following retail subsidiaries in the Headquarters: Pittsburgh, Pennsylvania AFCO CREDIT CORPORATION, with its
United States: Mellon Bank, N.A., Mellon (412) 234-5000 Canadian affiliate, CAFO, Inc., is the
Bank (DE) National Association and nation's largest insurance premium
Mellon Bank (MD) National Association. - MELLON PSFS*, the brand name Mellon financing company, with offices in the
Bank, N.A. uses in the Philadelphia United States and Canada. (212) 612-3500
MELLON BANK, N.A. comprises six regions. area, serves consumer and small to
Headquarters: Pittsburgh, Pennsylvania midsize commercial markets in THE BOSTON COMPANY ASSET MANAGEMENT,
(412) 234-5000 southeastern Pennsylvania and southern Inc. provides institutional investment
New Jersey. management services. (617) 722-7029
- - MELLON BANK-CENTRAL REGION serves Headquarters: Philadelphia, Pennsylvania
consumer and small to midsize commercial (215) 553-3000 BOSTON SAFE ADVISORS provides investment
markets in central Pennsylvania. management services for individuals and
Headquarters: State College, MELLON BANK (DE) NATIONAL ASSOCIATION corporations through brokerage firms
Pennsylvania (814) 234-6392 serves consumer and small to midsize throughout the United States.
commercial markets throughout Delaware (617) 722-7809
- - MELLON BANK-COMMONWEALTH REGION serves and provides nationwide cardholder
consumer and small to midsize commercial processing services. BOSTON SAFE DEPOSIT AND TRUST COMPANY
markets in southcentral Pennsylvania. Headquarters: Wilmington, Delaware provides trust and custody
Headquarters: Harrisburg, Pennsylvania 1 800 323-7105 administration for institutional and
1 800 222-9034 private clients, private asset
MELLON BANK (MD) NATIONAL ASSOCIATION management and personal and jumbo
- - MELLON BANK-NORTHEASTERN REGION serves serves consumer and commercial markets mortgage lending. (617) 722-7000
consumer and small to midsize commercial throughout the greater Washington, D.C.,
markets in northeastern Pennsylvania. metropolitan area. CCF-MELLON PARTNERS, a joint venture
Headquarters: Wilkes-Barre, Pennsylvania Headquarters: Rockville, Maryland with Credit Commercial de France,
1 800 222-1992 (301) 217-0600 markets investment management services
in Europe and North America.
- - MELLON BANK-NORTHERN REGION serves MELLON BANK, F.S.B. provides corporate (412) 234-3678
consumer and small to midsize commercial trust and personal trust services.
markets in northwestern Pennsylvania. Headquarters: Pittsburgh, Pennsylvania CERTUS ASSET ADVISORS is a stable-value
Headquarters: Erie, Pennsylvania (412) 234-0661 market specialist providing investment
(814) 453-7400 management services to
defined-contribution plan sponsors.
(415) 399-4450
CHASEMELLON SHAREHOLDER SERVICES, a
joint venture with The Chase Manhattan
Corporation, provides securities
transfer and shareholder services
throughout the United States.
1 800 313-9450
CORPORATE BANKING markets credit and
related services to large corporate
customers, exclusive of financial
institutions. (412) 234-8808
THE CORPORATE TRUST GROUP provides bond
trustee, registrar, paying agent,
custodian, escrow agent and investment
management for municipal and corporate
clients. (412) 234-2472
</TABLE>
* Mellon PSFS is a service mark of Mellon Bank, N.A.
18
<PAGE> 2
<TABLE>
<S> <C> <C>
THE DREYFUS CORPORATION is one of the MELLON BANK COMMUNITY DEVELOPMENT MELLON SECURITIES TRUST COMPANY provides
nation's leading mutual fund companies. CORPORATION, one of the first holding securities processing and custody
Dreyfus manages or administers more than company CDCs regulated by the Federal services. (212) 374-1970
$80 billion in assets in more than 150 Reserve Board, invests in projects that
mutual fund portfolios. (212) 922-6000 are important to modest-income segments MELLON TRUST COMPANY OF ILLINOIS
of Delaware, Maryland, New Jersey and provides custody services, primarily for
DREYFUS INVESTMENT SERVICES CORPORATION Pennsylvania. (412) 234-4580 Illinois insurance companies.
provides a full range of securities (312) 357-3425
brokerage services for individuals and MELLON BOND ASSOCIATES provides
institutional clients. 1 800 243-7549 structured management of bond portfolios MELLON VENTURES, INC. or its affiliates
for institutional clients. invest in the equity of middle market
DREYFUS RETIREMENT SERVICES provides a (412) 234-3839 operating companies experiencing rapid
full array of investment products, growth or change in ownership.
participant education and administrative MELLON BUSINESS CREDIT markets a broad (412) 236-3594
services to defined-contribution plans range of commercial finance products and
nationwide. 1 800 401-4636 banking services nationwide to MIDDLE MARKET BANKING markets a full
corporations. (215) 553-2161 range of financial and banking services
FRANKLIN PORTFOLIO ASSOCIATES provides to commercial customers with annual
investment management services for MELLON CAPITAL MANAGEMENT CORPORATION sales between $10 million and $250
employee benefit funds and institutional provides portfolio and investment million. Mellon's Middle Market group
clients. (617) 790-6400 management services. (415) 546-6056 also specializes in providing services
to all segments of the health care
GLOBAL CASH MANAGEMENT provides cash MELLON EQUITY ASSOCIATES provides industry nationwide. (412) 236-1197
management services to corporations and specialized equity and balanced
financial institutions as well as investment management services to THE NETWORK SERVICES DIVISION provides
nonprofit organizations and government pension, nonprofit and public fund electronic funds transfer services,
agencies. 1 800 424-3004 markets. (412) 234-6268 including automated teller machine
processing and full-service merchant
INSTITUTIONAL BANKING markets credit and MELLON EUROPE-LONDON provides credit, payment systems, to financial
other banking services to cash management, foreign exchange and institutions and corporations.
broker/dealers, insurance companies, treasury services to domestic and 1 800 343-7064
domestic commercial banks, mutual funds international customers.
and investment managers. (412) 234-4494 011-44-171-626-9828 PARETO PARTNERS, a partnership in which
Mellon holds a 30 percent interest,
INTERNATIONAL BANKING provides MELLON FINANCIAL MARKETS, INC., the provides investment management services
international trade and correspondent Corporation's Section 20 underwriting for employee benefit funds and
banking services. (412) 234-6787 subsidiary, conducts securities institutional and high net worth
business, providing fixed-income clients. (212) 527-1800
LAUREL CAPITAL ADVISORS provides underwriting, trading and sales services
investment management services for to clients and investors throughout the PREMIER ADMINISTRATION is a leading
individuals and corporations through United States. (412) 234-0424 servicer of unit trusts, the equivalent
brokerage firms throughout the United of mutual funds in the United Kingdom
States. 1 800 626-6721 MELLON LEASING CORPORATION markets a and Ireland.
broad range of leasing and lease-related 011-44-1277-277-3000 (Shenfield)
MELLON BANK CANADA is a chartered services to corporations throughout the 011-35-31-790-5000 (Dublin)
Canadian bank providing credit, cash United States through its three
management, treasury, custody, asset divisions: Large Corporate Leasing; The R-M TRUST COMPANY provides stock
management, insurance premium financing Middle Market-Mellon US Leasing; and transfer, trustee and related services
and shareholder services to the Retail/Vendor-Mellon First United to Canadian and international companies.
corporate market throughout Canada. Leasing. (412) 234-5061 (416) 813-4500
(416) 860-0777
MELLON MORTGAGE COMPANY focuses on the REAL ESTATE FINANCE provides short- and
origination and servicing of both intermediate-term financing to real
residential and commercial mortgage estate developers and investors located
loans through more than 100 locations in the East, Southeast, Midwest and
nationwide. 1 800 366-1230 Texas. (412) 234-7560
</TABLE>
19
<PAGE> 3
DIRECTORS AND SENIOR MANAGEMENT COMMITTEE
<TABLE>
<S> <C> <C>
DIRECTORS George W. Johnstone CHAIRMEN EMERITI
President and Chief Executive Officer
MELLON BANK CORPORATION American Water Works Company, Inc. J. David Barnes
AND MELLON BANK, N.A. Water services William B. Eagleson Jr.
James H. Higgins
Dwight L. Allison Jr. Rotan E. Lee(5)(6) Nathan W. Pearson
Retired Chairman, President Partner
and Chief Executive Officer Sherr, Joffe & Zuckerman, P.C. ADVISORY BOARD
The Boston Company Full-service law firm
Howard O. Beaver Jr.
Burton C. Borgelt(5)(6) Andrew W. Mathieson(1)(3)(4) Retired Chairman and Chief Executive
Retired Chairman and Chief Executive Executive Vice President Officer
Officer Richard K. Mellon and Sons Carpenter Technology Corporation
Dentsply International, Inc. Investments
Manufacturer of artificial teeth and Vice Chairman H. Bryce Jordan
consumable dental products Richard King Mellon Foundation President Emeritus
Philanthropy The Pennsylvania State University
Carol R. Brown(2)(6)
President Edward J. McAniff(5)(6) John C. Marous
The Pittsburgh Cultural Trust Partner Retired Chairman and Chief Executive
Cultural and economic growth O'Melveny & Myers Officer
organization Full-service law firm Westinghouse Electric Corporation
Frank V. Cahouet(1) Robert Mehrabian(1)(2)(7) Masaaki Morita
Chairman, President and President Chairman
Chief Executive Officer Carnegie Mellon University Sony USA Foundation
Mellon Bank Corporation and Mellon Private co-educational research
Bank, N.A. institution Nathan W. Pearson
Financial Advisor
J. W. Connolly(1)(2)(4) Seward Prosser Mellon Paul Mellon Family Interests
Retired Senior Vice President President and Chief Executive
H. J. Heinz Company Officer H. Robert Sharbaugh
Food manufacturer Richard K. Mellon and Sons Retired Chairman
Investments Sun Company, Inc.
Charles A. Corry(1)(2)(3)(4) Richard King Mellon Foundation
Retired Chairman and Chief Executive Philanthropy Richard M. Smith
Officer Retired Vice Chairman
USX Corporation David S. Shapira(1)(2)(5)(7) Bethlehem Steel Corporation
Energy and steel Chairman and Chief Executive
Officer REGIONAL BOARDS
C. Frederick Fetterolf(1)(2)(5)(6) Giant Eagle, Inc.
Retired President and Chief Operating Retail grocery chain MELLON BANK-CENTRAL REGION
Officer Galen E. Dreibelbis
Aluminum Company of America W. Keith Smith(1) John Lloyd Hanson
Aluminum and chemicals Vice Chairman Bruce K. Heim
Mellon Bank Corporation and Carol Herrmann
Ira J. Gumberg(1)(2)(5) Mellon Bank, N.A. Daniel B. Hoover
President and Chief Executive Michael M. Kranich Sr.
Officer Joab L. Thomas(4)(7) Edwin E. Lash
J. J. Gumberg Co. President Emeritus Robert W. Neff
Real estate management and development The Pennsylvania State University Ralph J. Papa
Major public research university Nicholas Pelick
Pemberton Hutchinson(3)(5)(6) Graham C. Showalter
Retired Chief Executive Officer Wesley W. von Schack(1)(3)(4)(6)(7) Alvin L. Snowiss
Westmoreland Coal Company Chairman, President and Jamie B. Stewart Jr.
Coal mining Chief Executive Officer Robert M. Welham
New York State Electric & Gas
Corporation MELLON BANK-COMMONWEALTH REGION
(1) Executive Committee Energy services Glenn R. Aldinger
(2) Audit Committee Paul S. Beideman
(3) Nominating Committee William J. Young(4)(5)(6) Burton C. Borgelt
(4) Human Resources Committee Retired President Stephen R. Burke
(5) Trust and Investment Committee Portland Cement Association James E. Grandon Jr.
(6) Community Responsibility Committee Trade association for the Portland Ruth Leventhal
(7) Technology Committee cement industry Henry E. L. Luhrs
Gregory L. Sutliff
Listing as of January 31, 1997
</TABLE>
20
<PAGE> 4
<TABLE>
<S> <C> <C>
MELLON BANK-NORTHERN REGION MELLON BANK (DE) NATIONAL ASSOCIATION SENIOR MANAGEMENT COMMITTEE
James D. Berry III John S. Barry
Thomas B. Black Robert C. Cole Jr. OFFICE OF THE CHAIRMAN
John T. Chesko Donna M. Coughey Frank V. Cahouet
Robert H. Cox Audrey K. Doberstein Chairman, President
Eugene Cross Arden B. Engebretson and Chief Executive Officer
William S. DeArment Norman D. Griffiths
Robert G. Liptak Jr. Garrett B. Lyons Vice Chairmen:
Gary W. Lyons Martin G. McGuinn Christopher M. Condron
Charles J. Myron W. Charles Paradee Jr. Steven G. Elliott
Ruthanne Nerlich Bruce M. Stargatt Jeffery L. Leininger
John S. Patton David R. Lovejoy
Paul D. Shafer Jr. MELLON BANK (MD) NATIONAL ASSOCIATION Martin G. McGuinn
Cyrus R. Wellman Frederick K. Beard Keith P. Russell
Michael A. Besche W. Keith Smith
MELLON BANK-NORTHEASTERN REGION Lawrence Brown Jr. Jamie B. Stewart Jr.
David T. Andes Albert R. Hinton
Frank J. Dracos David R. Lovejoy EXECUTIVE MANAGERS
Peter B. Eglin Martin G. McGuinn Paul S. Beideman
Alan J. Finlay Michael A. Smilow John T. Chesko
Thomas M. Jacobs J. David Officer
Joseph E. Kluger D. Michael Roark
Jeffery L. Leininger THE BOSTON COMPANY, INC. Peter Rzasnicki
Joseph R. Nardone AND BOSTON SAFE DEPOSIT William J. Stallkamp
Joseph F. Palchak Jr. AND TRUST COMPANY Allan P. Woods
Joseph L. Persico Dwight L. Allison Jr.
Arthur K. Ridley Christopher M. Condron SENIOR MANAGERS
Rhea P. Simms James E. Conway* Frederick K. Beard
Charles C. Cunningham Jr. Richard B. Berner
MELLON PSFS Hans H. Estin Michael E. Bleier
Paul C. Brucker Avram J. Goldberg Paul A. Briggs
Frank J. Coyne Lawrence S. Kash Michael A. Bryson
Thomas F. Donovan Daniel M. Kilcullen Lawrence F. Clyde
Lon R. Greenberg Robert P. Mastrovita Paul H. Dimmick
Pemberton Hutchinson J. David Officer Kenneth R. Dubuque
George W. Johnstone George Putnam Richard L. Holl
Rotan E. Lee Charles W. Schmidt Paul Holmes
Roland Morris W. Keith Smith Lawrence S. Kash
William J. Stallkamp Jamie B. Stewart Jr. Daniel M. Kilcullen
Francis R. Strawbridge III C. Vincent Vappi Allan C. Kirkman
Stephen A. Van Dyck Benaree Pratt Wiley David F. Lamere
William J. Young Dirk B. Landis
THE DREYFUS CORPORATION Martin J. Lippert
SUBSIDIARY BOARDS Mandell L. Berman Peter A. Lofquist
Burton C. Borgelt Robert G. Loughrey
MELLON BANK CANADA Frank V. Cahouet Sandra J. McLaughlin
Frederick K. Beard Stephen E. Canter John P. O'Driscoll
Peter A. Crossgrove Christopher M. Condron Robert M. Parkinson
Keith G. Dalglish Lawrence S. Kash Robert W. Stasik
Fraser M. Fell W. Keith Smith Sherman White
Thomas C. MacMillan
James A. Riley MELLON BANK, F.S.B. CORPORATE CONTROLLER
Peter Rzasnicki Bruno A. Bonacchi Michael K. Hughey
Allan P. Woods Christopher Flanagan
Frank L. Reis Jr. CORPORATE SECRETARY
Donald W. Titzel Carl Krasik
Daryl J. Zupan
</TABLE>
*Director of The Boston Company, Inc. only
21
<PAGE> 5
MELLON BANK CORPORATION (and its subsidiaries)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SUMMARY
(dollar amounts in millions, except per share amounts) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
<S> <C> <C> <C> <C> <C> <C>
Net interest revenue $ 1,478 $ 1,548 $ 1,508 $ 1,329 $ 1,182 $ 1,012
Provision for credit losses 155 105 70 125 185 250
Fee revenue 2,019 1,670 1,652 1,538 1,154 1,007
Gains (losses) on sale of securities 4 6 (5) 100 129 81
Operating expense 2,195 2,027 2,374 2,084 1,648 1,440
Provision for income taxes 418 401 278 298 104 62
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 733 $ 691 $ 433 $ 460 $ 528 $ 348
Net income applicable to common stock 689 652 358 397 477 299
- ----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Primary net income $ 5.17 $ 4.50 $ 2.42 $ 2.73 $ 3.56 $ 2.39
Fully diluted net income 5.15 4.46 2.42 2.73 3.53 2.37
Dividends paid 2.35 2.00 1.57 1.01 .93 .93
Book value at year-end 26.86 26.17 25.06 24.28 21.37 18.44
Average common shares and equivalents
outstanding-fully diluted (in thousands) 133,912 146,182 149,230 147,293 137,338 127,658
- ----------------------------------------------------------------------------------------------------------------------------------
KEY RATIOS (based on balance sheet averages)
Return on common shareholders' equity 20.4% 17.8% 9.8% 12.1% 18.5% 13.8%
Return on assets 1.74 1.72 1.14 1.29 1.72 1.16
Net interest margin on a taxable equivalent basis 4.26 4.62 4.71 4.39 4.46 3.99
Efficiency ratio 64 63 65 64 65 68
Efficiency ratio excluding amortization of intangibles (a) 61 60 62 61 63 66
- ----------------------------------------------------------------------------------------------------------------------------------
TANGIBLE OPERATING RESULTS (b)
Fully diluted tangible earnings per common share $5.71 $4.96 $2.93 $3.14 $3.80 $2.62
Tangible net income applicable to common stock 765 725 434 458 513 331
Return on tangible common shareholders' equity 32.2% 27.1% 16.5% 18.9% 23.9% 19.1%
Return on tangible assets 1.97 1.96 1.37 1.50 1.86 1.29
- ----------------------------------------------------------------------------------------------------------------------------------
RESULTS EXCLUDING CERTAIN ITEMS (c)
Net income applicable to common stock $ 689 $ 652 $ 593 $ 456 $ 347 $ 210
Fully diluted net income per common share 5.15 4.46 4.00 3.13 2.59 1.67
Return on common shareholders' equity 20.4% 17.8% 16.0% 13.7% 13.1% 9.0%
Return on tangible common shareholders' equity 32.2 27.1 25.3 21.3 17.3 12.7
Return on assets 1.74 1.72 1.71 1.46 1.29 .87
Return on tangible assets 1.97 1.96 1.97 1.67 1.43 .99
- ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Money market investments $ 1,381 $ 1,222 $ 1,656 $ 3,821 $ 1,905 $ 1,566
Securities 6,184 4,922 5,149 4,804 6,500 5,778
Loans 27,233 27,321 25,097 21,763 18,235 18,514
Interest-earning assets 34,944 33,761 32,282 30,657 26,948 26,167
Total assets 42,013 40,097 38,106 35,635 30,758 29,878
Deposits 30,838 27,951 27,248 26,541 22,684 21,438
Notes and debentures 2,038 1,670 1,768 1,991 1,365 1,448
Trust-preferred securities 32 - - - - -
Redeemable preferred stock - - - - - 51
Common shareholders' equity 3,381 3,671 3,691 3,323 2,603 2,190
Total shareholders' equity 3,810 4,106 4,277 3,964 3,112 2,614
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS
Common shareholders' equity to assets 8.11% 8.83% 9.54% 9.57% 8.85% 7.91%
Tier I capital ratio 8.38 8.14 9.48 9.70 10.20 9.05
Total (Tier I plus Tier II) capital ratio 13.58 11.29 12.90 13.22 13.83 13.16
Leverage capital ratio 8.31 7.80 8.67 9.00 9.45 8.62
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes amortization of goodwill and other intangible assets recorded
in connection with purchase acquisitions.
(b) See page 30 for the definition of these results.
(c) 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 expense 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.
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS.
23
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIGNIFICANT FINANCIAL EVENTS IN 1996
- ------------------------------------------------------------------------------
Retirement enhancement plan
In January 1996, the Corporation offered a Retirement Enhancement Plan to
employees participating in the Mellon and The Boston Company retirement plans.
This voluntary program provided certain employees age 55 or older, who had 10
or more years of service, the opportunity to choose early retirement with
enhanced pensions and health insurance. This program concluded on March 31,
1996, with 495 employees electing early retirement. The Corporation recorded an
$18 million charge in the first quarter in connection with this program.
Repurchase of common stock
In February 1996, the board of directors of the Corporation authorized the
repurchase of up to 3.5 million shares of common stock to be used to meet
current and near-term requirements for its stock-based benefit plans and
dividend reinvestment plan. This program was completed during the second
quarter of 1996.
In May 1996, the board of directors authorized the repurchase of up to an
additional 5 million shares of common stock. At December 31, 1996, the
Corporation had repurchased 2.7 million shares under the 5 million share
repurchase program. Since the beginning of 1995, the Corporation has
repurchased 23.6 million common shares, prior to any reissuances, as well as
warrants for 4.5 million shares of common stock.
Securitization of home equity loans and insurance premium finance loans
On March 29, 1996, the Corporation securitized $650 million of its home equity
revolving credit line loans. These loans generally are secured by first and/or
second mortgages on one-to-four family residential properties. A $28 million
gain was recorded on the home equity securitization, and is included in other
fee revenue. On December 19, 1996, the Corporation securitized $500 million of
insurance premium finance loans. These loans are typically installment loans
made to commercial insurance buyers, the proceeds of which pay premiums that
are due to an insurance company. No gain was recorded on the insurance premium
finance securitization.
Common dividend increase
In the second quarter of 1996, the Corporation increased its quarterly common
stock dividend by 9% to $.60 per common share. This was the fifth quarterly
common dividend increase that the Corporation has announced since the beginning
of 1994, resulting in a total common dividend per share increase of 137%.
Acquisitions of Business Equipment Financing Unit of USL Capital Corporation
and First United Leasing Corporation
On September 30, 1996, the Corporation completed its acquisition of the
Business Equipment Financing unit of USL Capital Corporation (USL), a
subsidiary of Ford Motor Company. This unit, which operates under the name
Mellon-US Leasing, is headquartered in San Francisco and is a leading middle
market leasing and financing provider of business and commercial equipment to
more than 2,500 middle market companies. This acquisition allows the
Corporation's leasing operations, which prior to the acquisition specialized in
large transactions, to also focus on the middle market sector. The transaction
increased the Corporation's total loan portfolio by more than $1.4 billion and
had a purchase price of approximately $1.7 billion. On October 1, 1996, the
Corporation acquired First United Leasing Corporation (FUL). FUL, based in
Chicago, was a privately held vendor leasing company with approximately $150
million in assets that provides short- to medium-term leases on office, medical
and light industrial equipment to users of small-ticket equipment throughout
the United States. This unit operates under the name Mellon-First United
Leasing. These acquisitions made the Corporation's Leasing Group the sixth
largest bank-owned leasing company in the United States with a total lease
portfolio of approximately $2.5 billion.
24
<PAGE> 7
SIGNIFICANT FINANCIAL EVENTS IN 1996 (CONTINUED)
- ------------------------------------------------------------------------------
Sale of American Automobile Association Credit Card Portfolio
In early November 1996, the Corporation sold more than 1.3 million American
Automobile Association (AAA) credit card accounts with outstanding balances of
approximately $770 million. The Corporation recognized a net gain of $57
million on the sale.
Letter of intent to acquire Buck Consultants, Inc.
In December 1996, the Corporation signed a letter of intent to acquire Buck
Consultants, Inc. (Buck), a leading global benefits consulting firm. Buck,
which is headquartered in New York, provides a broad array of pension and
health and welfare actuarial services, employee benefits, compensation and
human resources consulting and administrative services to approximately 5,000
clients, ranging from large multinational corporations to small businesses.
Buck is a privately owned firm with 65 offices in 16 countries. Buck reported
total revenues of approximately $200 million for the fiscal year ended March
31, 1996. Including revenues from a recent acquisition, Buck's annual revenues
would have totaled approximately $250 million.
25
<PAGE> 8
<TABLE>
<CAPTION>
BUSINESS SECTORS
- ----------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in Consumer Corporate/Institutional
millions, averages Investment Services Banking Services Investment Services Banking Services
in billions) 1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $424 $380 $1,508 $1,383 $1,015 $916 $ 447 $ 413
Credit quality
expense (revenue) - - 154 211 - - 1 (8)
Operating expense 281 261 930 863 798 742 164 157
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 143 119 424 309 217 174 282 264
Income taxes 58 49 155 118 88 71 100 95
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 85 $ 70 $ 269 $ 191 $ 129 $103 $ 182 $ 169
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible net income $ 88 $ 73 $ 310 $ 233 $ 153 $126 $ 190 $ 174
- ----------------------------------------------------------------------------------------------------------------------------------
Average assets $0.3 $0.3 $ 22.8 $ 22.1 $ 1.5 $1.7 $14.9 $13.4
Average common
shareholders' equity 0.2 0.2 1.2 1.1 0.5 0.5 1.3 1.1
Return on average common
shareholders' equity 49% 41% 23% 17% 24% 23% 14% 15%
Return on average assets NM NM 1.18 .86 NM NM 1.22 1.26
Pretax operating margin 34 31 28 22 21 19 63 64
Pretax operating margin
excluding amortization
of intangibles 34 32 32 26 24 22 66 66
Efficiency ratio excluding
amortization of intangibles 66 68 58 58 76 78 34 36
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NM--Not meaningful.
NOTE: THE TABLE ABOVE AND DISCUSSION THAT FOLLOWS PRESENT THE OPERATING RESULTS
OF THE CORPORATION'S MAJOR BUSINESS SECTORS, ANALYZED ON AN INTERNAL MANAGEMENT
REPORTING BASIS. AMOUNTS ARE PRESENTED ON A TAXABLE EQUIVALENT BASIS. CAPITAL
IS ALLOCATED USING THE FEDERAL REGULATORY GUIDELINES AS A BASIS, COUPLED WITH
MANAGEMENT'S JUDGMENT REGARDING THE OPERATIONAL RISKS INHERENT IN THE
BUSINESSES. THE CAPITAL ALLOCATIONS MAY NOT BE REPRESENTATIVE OF THE CAPITAL
LEVELS THAT WOULD BE REQUIRED IF THESE SECTORS WERE NONAFFILIATED BUSINESS
UNITS.
Income before taxes for the Corporation's core sectors was $1,066 million in
1996, an increase of $200 million, or 24%, compared with $866 million in 1995.
This increase resulted from a 10% increase in revenue and a 24% decrease in
credit quality expense, partially offset by a 7% increase in operating expense.
Return on average common shareholders' equity for the core sectors was 21% in
1996, compared with 19% in 1995. Return on average assets was 1.69% in 1996,
compared with 1.42% in 1995.
Consumer Investment Services
Consumer Investment Services includes private asset management services and
retail mutual funds. Income before taxes for the Consumer Investment sector was
$143 million in 1996, an increase of $24 million, or 20%, from 1995. This
increase resulted from higher mutual fund management revenue, generated by a
higher level of assets managed and increased private asset management trust
fees. This sector provided excellent returns, as return on average common
shareholders' equity was 49% in 1996, up from 41% in 1995.
Consumer Banking Services
Consumer Banking Services includes consumer lending and deposit products,
business banking, branch banking, credit card, mortgage loan origination and
servicing and jumbo residential mortgage lending. Income before taxes for this
sector totaled $424 million in 1996, a $115 million, or 38%, increase compared
with $309 million in 1995. Revenue increased $125 million compared with the
prior year, primarily as a result of: higher mortgage servicing fees, primarily
relating to acquisitions; a $57 million gain on the sale of the AAA credit card
portfolio; gains on the disposition of selected branches related to the
continued reconfiguration of the retail delivery system; higher electronic tax
return filing fees; and higher net interest revenue. Partially offsetting these
increases were decreases in credit card revenue and revenue from home equity
loans as a result of the fourth quarter 1995 credit card securitization and the
first quarter 1996 home equity loan
26
<PAGE> 9
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$3,394 $3,092 $ 20 $ 14 $109 $139 $3,523 $3,245
155 203 (13) (118) - - 142 85
2,173 2,023 7 6 28 18 2,208 2,047
- ----------------------------------------------------------------------------------------------------------------------------------
1,066 866 26 126 81 121 1,173 1,113
401 333 9 46 30 43 440 422
- ----------------------------------------------------------------------------------------------------------------------------------
$ 665 $ 533 $ 17 $ 80 $ 51 $ 78 $ 733 $ 691
- ----------------------------------------------------------------------------------------------------------------------------------
$ 741 $ 606 $ 17 $ 80 $ 51 $ 78 $ 809 $ 764
- ----------------------------------------------------------------------------------------------------------------------------------
$ 39.5 $ 37.5 $ 0.3 $0.2 $2.2 $2.4 $42.0 $ 40.1
3.2 2.9 - - 0.2 0.8 3.4 3.7
21% 19% NM NM NM NM 20% 18%
1.69 1.42 NM NM NM NM 1.74 1.72
31 28 NM NM NM NM 33 34
34 31 NM NM NM NM 35 37
61 62 NM NM NM NM 61 60
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
securitization. Credit quality expense totaled $154 million in 1996,
approximately half of which was recorded in the fourth quarter of 1996,
reflecting continued concern about the credit quality of the credit card
portfolio. More than 90% of the Corporation's net credit losses in 1996 were
from the credit card portfolio. Credit quality expense totaled $211 million in
1995 reflecting a high level of credit card losses, including the losses
recorded in connection with the accelerated resolution portfolio. The $67
million increase in operating expense reflected higher expenses in support of
mortgage servicing acquisitions, including a $39 million increase in the
amortization of mortgage servicing rights and expenses related to the
reconfiguration of the retail delivery system. Partially offsetting the higher
operating expense was a reduction in FDIC insurance premiums in 1996. The
return on average common shareholders' equity for this sector was 23% in 1996,
compared with 17% in 1995.
Corporate/Institutional Investment Services
Corporate/Institutional Investment Services includes institutional asset and
institutional mutual fund management and administration, institutional trust
and custody, securities lending, foreign exchange, cash management, stock
transfer, corporate trust and services for defined contribution plans. Income
before taxes for this sector was $217 million in 1996, an increase of $43
million, or 26%, compared with 1995. Revenue increased $99 million due to a
higher level of institutional mutual fund assets managed, higher cash
management revenue, an increase in securities lending revenue, the full year
impact of the fourth quarter 1995 acquisition of two corporate trust businesses
and increased fees from services provided for corporate defined contribution
plans, partially offset by lower foreign exchange fees. Operating expense
increased $56 million in support of higher transaction volumes and investments,
as well as the corporate trust acquisitions. The return on average common
shareholders' equity for this sector was 24% in 1996, up from 23% in 1995.
Corporate/Institutional Banking Services
Corporate/Institutional Banking Services includes large corporate and middle
market lending, asset-based lending, lease financing, commercial real estate
lending, insurance premium financing, securities underwriting and trading and
international banking. Income before taxes for the Corporate/Institutional
Banking Services sector was $282 million in 1996, an increase of $18 million,
or 7%, from $264 million in 1995. Revenue increased $34 million primarily as a
result of higher net interest revenue on higher loan levels, including the
impact of the USL and FUL acquisitions, and increased
27
<PAGE> 10
BUSINESS SECTORS (CONTINUED)
- ------------------------------------------------------------------------------
securities trading revenue. The $9 million increase in credit quality expense
was primarily due to lower credit recoveries in 1996. The $7 million increase
in operating expense primarily resulted from the USL and FUL acquisitions. The
return on average common shareholders' equity for this sector was 14% in 1996,
compared with 15% in 1995.
Real Estate Workout
Real Estate Workout includes commercial real estate recovery and mortgage
banking recovery operations. Income before taxes for Real Estate Workout was
$26 million in 1996, compared with $126 million in 1995. The results in both
periods reflect lower levels of required loan loss and OREO reserves given the
improvement in the loss experience of the portfolio. The Corporation also
experienced a lower level of credit loss recoveries in 1996 compared with 1995.
Other
The Other sector's pretax income of $81 million in 1996 principally reflected
earnings on capital above that required in the core sectors. The results for
1996 also reflect the $28 million gain on the securitization of home equity
loans and a $13 million gain on the partial sale of an equity interest in an
institutional investment management firm. Operating expense in 1996 includes
the $18 million charge resulting from the retirement enhancement plan. Results
for 1995 principally reflected earnings on capital above that required in the
core sectors.
The following tables distribute net income and return on average common
shareholders' equity for the Corporation's core sectors between customers
serviced and products offered.
<TABLE>
<CAPTION>
Customers serviced
----------------------------------------------------------
Total
Total Corporate/
Consumer Institutional
(dollar amounts in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $354 $261 $311 $272
Return on average common
shareholders' equity 26% 20% 17% 17%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Products offered
---------------------------------------------------------
Total Total
Investment Banking
(dollar amounts in millions) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $214 $173 $451 $360
Return on average common
shareholders' equity 30% 28% 18% 16%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE> 11
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------
OVERVIEW OF 1996 RESULTS
- ------------------------------------------------------------------------------
The Corporation reported record 1996 fully diluted earnings per common share of
$5.15, an increase of 15%, compared with earnings per common share of $4.46 in
1995. Net income applicable to common stock was $689 million in 1996, compared
with $652 million in 1995. Return on common shareholders' equity and return on
assets were 20.4% and 1.74%, respectively, in 1996, compared with 17.8% and
1.72%, respectively, in 1995.
Fully diluted tangible earnings per common share in 1996 were $5.71, an
increase of 15%, compared with $4.96 in 1995. Return on tangible common
shareholders' equity and return on tangible assets were 32.2% and 1.97%,
respectively, in 1996, compared with 27.1% and 1.96%, respectively, in 1995.
Earnings per common share in 1996 reflects the 1995 and 1996 repurchases of
23.6 million common shares, prior to any reissuances, as well as the repurchase
of warrants for 4.5 million common shares. The Corporation's average level of
treasury stock was approximately $640 million higher in 1996, compared with
1995. After giving effect to funding the higher level of treasury stock, valued
at the short-term funding rate, the lower share count increased earnings per
share 6%, while ongoing business growth increased earnings per share 9%.
The Corporation's results in 1996 reflect its successful efforts to broaden and
strengthen products and services, maintain fee and interest revenue balance,
and generate high returns. Compared with 1995, the Corporation's 1996 results
reflected an increase in fee revenue, partially offset by higher operating
expense, higher credit quality expense and lower net interest revenue.
Net interest revenue totaled $1,478 million, down $70 million from $1,548
million in 1995. This reduction primarily resulted from the decrease in
interest revenue related to the credit card and home equity loan
securitizations and the funding costs related to the repurchase of common
shares, partially offset by a higher level of noninterest-bearing deposits and
loan growth. Fee revenue increased to $2,019 million, up from $1,670 million in
1995. The increase in fee revenue was attributable to higher institutional
trust fees and mutual fund management revenue, the gain on the sale of the AAA
credit card portfolio, higher mortgage servicing fees and increased credit card
fee revenue. The increase in credit card fee revenue was due to the November
1995 credit card securitization.
Operating expense before the net revenue from acquired property was $2,208
million in 1996, up $161 million from $2,047 million in 1995. The increase
primarily resulted from higher staff expense, due in part to higher incentive
expense and the early retirement enhancement program, as well as higher
amortization expense of purchased mortgage servicing rights. These increases
were offset, in part, by lower FDIC deposit insurance assessment expense in
1996.
The provision for credit losses was $155 million in 1996, compared with $105
million in 1995. The increase primarily resulted from an increase in the
provision for credit losses related to the credit card portfolio. Net credit
losses totaled $124 million in 1996, a decrease of $125 million from $249
million in 1995. The higher level of credit losses in 1995 primarily resulted
from $106 million of credit losses recorded on $193 million of CornerStone(sm)
credit card loans that were transferred to an accelerated resolution portfolio
in the fourth quarter of 1995. Nonperforming assets totaled $174 million at
December 31, 1996, a decrease of $62 million from $236 million at December 31,
1995. The Corporation's ratio of nonperforming assets to total loans and net
acquired property was .63% at December 31, 1996, the lowest level in the
Corporation's recent history, compared with .85% at December 31, 1995. This
ratio has been less than 1% for 10 consecutive quarters.
The Corporation's ratio of common shareholders' equity to assets was 8.11% at
December 31, 1996. The Tier I, Total and Leverage capital ratios were 8.38%,
13.58% and 8.31%, respectively, at December 31, 1996, well in excess of the
required risk-based capital ratios.
29
<PAGE> 12
OVERVIEW OF 1996 RESULTS (CONTINUED)
- ------------------------------------------------------------------------------
1995 compared with 1994
The Corporation reported net income applicable to common stock of $652 million,
or $4.46 per common share on a fully diluted basis, in 1995, compared with $358
million, or $2.42 per common share, 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. Net interest revenue was $1,548 million in 1995, an increase
of $40 million compared with 1994, principally resulting from a higher level of
average loans. Fee revenue was $1,670 million in 1995, an increase of $18
million from 1994, reflecting higher mortgage servicing fees, credit card fees
and foreign currency and securities trading revenue, partially offset by lower
trust and investment management fees and the effect of divestitures. Operating
expense before the net revenue of acquired property was $2,047 million in 1995,
a decrease of $28 million from 1994, excluding the securities lending charge
and merger expense. The decrease in operating expense 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 the 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 the $106 million of credit losses
on the CornerStone(sm) accounts transferred to the accelerated resolution
portfolio in the fourth quarter of 1995.
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>
- ----------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income applicable to common stock (a) $ 689 $ 652 $ 593
After tax impact of amortization
of intangibles from purchase acquisitions 76 73 76
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible net income applicable to common stock $ 765 $ 725 $ 669
Tangible earnings per common share-fully diluted $ 5.71 $ 4.96 $ 4.51
- ----------------------------------------------------------------------------------------------------------------------------------
Average common equity $ 3,381 $ 3,671 $ 3,691
Average goodwill and other intangibles 1,003 993 1,044
- ----------------------------------------------------------------------------------------------------------------------------------
Average tangible common equity $ 2,378 $ 2,678 $ 2,647
Return on tangible common equity 32.2% 27.1% 25.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Average total assets $42,013 $40,097 $38,106
Average tangible assets $41,010 $39,104 $37,062
Return on tangible assets 1.97% 1.96% 1.97%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
30
<PAGE> 13
NET INTEREST REVENUE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
(taxable equivalent basis, average balances in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money market investments $ 1,381 $ 1,222 $ 1,656
Trading account securities 146 296 380
Securities 6,184 4,922 5,149
Loans 27,233 27,321 25,097
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $34,944 $33,761 $32,282
- -----------------------------------------------------------------------------------------------------------------------------------
Financed by:
Interest-bearing liabilities $28,588 $27,774 $25,441
Noninterest-bearing liabilities 6,356 5,987 6,841
- -----------------------------------------------------------------------------------------------------------------------------------
Total $34,944 $33,761 $32,282
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest revenue $ 1,488 $ 1,558 $ 1,521
Net interest margin 4.26% 4.62% 4.71%
- -----------------------------------------------------------------------------------------------------------------------------------
</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 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 $1,488 million in 1996, down $70 million, or 5%, compared with
the prior year. The net interest margin was 4.26% in 1996, down 36 basis points
compared with 4.62% in 1995.
The decrease in net interest revenue and the net interest margin in 1996,
compared with the prior year, resulted from the effect of the November 1995
$950 million credit card securitization, the March 1996 $650 million home
equity loan securitization and funding costs related to the repurchase of
common stock, partially offset by a higher level of noninterest-bearing
deposits, loan growth and higher loan fees. Excluding the effects of the loan
securitizations and equity repurchases, the net interest revenue and net
interest margin for 1996 would have been approximately $1,649 million and
4.53%, compared with approximately $1,582 million and 4.67% in 1995. The
foregone net interest revenue from the loan securitizations is substantially
offset by higher servicing fee revenue and lower net credit losses.
Average loans decreased $88 million in 1996, compared with 1995, primarily as a
result of the loan securitizations and sales, partially offset by loan growth
and the lease financing acquisitions. Excluding the loan securitizations and
sales and the leasing acquisitions, loans increased approximately $1.0 billion,
compared with the prior year, primarily as a result of increases in wholesale
loans.
1995 compared with 1994
Net interest revenue on a taxable equivalent basis in 1995 increased by $37
million compared with 1994, while the net interest margin decreased by 9 basis
points. The improvement in net interest revenue 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 decrease
in the net interest margin primarily reflected the movement of customers from
lower cost deposit products to higher cost products. Also affecting the net
interest margin compared with 1994 was a high level of prepayments on
adjustable rate mortgages.
CREDIT QUALITY EXPENSE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $155 $105 $ 70
Net revenue from acquired property (13) (20) (28)
- ----------------------------------------------------------------------------------------------------------------------------------
Credit quality expense $142 $ 85 $ 42
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense, defined as the provision for credit losses less the net
revenue from acquired property, increased $57 million in 1996 compared with
1995, primarily as a result of a $50 million increase in the provision for
credit losses. This increase was primarily a result of a higher provision for
credit losses relating to the credit card portfolio. The net revenue from
acquired property was $13 million in 1996, a $7 million decrease compared with
1995. The decrease was due, in part, to a lower amount of reserve reversals and
lower net gains on the sale of acquired property in 1996.
31
<PAGE> 14
NONINTEREST REVENUE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fee revenue:
Trust and investment management:
Mutual fund:
Management $ 340 $ 309 $ 294
Administration/Custody 108 115 159
Institutional trust 247 206 223
Institutional asset management 137 135 143
Private asset management 162 141 134
- ---------------------------------------------------------------------------------------------------------------------------------
Total trust and investment management fees 994 906 953
Cash management and deposit transaction charges 211 191 197
Mortgage servicing fees 180 122 78
Credit card fees 120 90 72
Foreign currency and securities trading revenue 80 91 76
Information services fees 50 48 78
Gain on sale of credit card portfolio 57 - -
Other 327 222 198
- ---------------------------------------------------------------------------------------------------------------------------------
Total fee revenue 2,019 1,670 1,652
Gains (losses) on sale of securities 4 6 (5)
- ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest revenue $2,023 $1,676 $1,647
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fee revenue represented 58% of the Corporation's total revenue in 1996, up from
52% in 1995. This increase resulted from growth in virtually every fee
category, as well as higher fee revenue from the credit card and home equity
loan securitizations. Excluding the gain on the sale of the AAA credit card
portfolio, fee revenue represented 57% of the Corporation's total revenue in
1996.
Fee revenue totaled $2,019 million in 1996, a $349 million, or 21%, increase
compared with 1995, primarily resulting from higher trust and investment
management fee revenue, mortgage servicing fees, the gain on the sale of the
AAA credit card portfolio and higher credit card fees. Excluding the gain on
the sale of the AAA credit card portfolio, fee revenue increased 17%.
Total trust and investment management fees
The Corporation's trust and investment management fee revenue represented 49%
of the Corporation's total fee revenue in 1996. The $88 million, or 10%,
increase in trust and investment management fees in 1996 compared with 1995
resulted from a $41 million, or 20%, increase in institutional trust fees, a
$31 million, or 10%, increase in mutual fund management revenue and a $21
million, or 15%, increase in private asset management revenue. The increase in
institutional trust revenue resulted from new business, including the 1995
acquisition of two corporate trust businesses and a $17 million increase in
securities lending revenue. The increase in securities lending revenue resulted
primarily from improved margins, as well as a higher volume of securities lent
in 1996. The higher revenue from the management of mutual funds resulted from a
higher average level of mutual fund assets managed and lower fee waivers at
Dreyfus. Mutual fund management fees are discussed further on page 34. The
increase in private asset management revenue resulted primarily from new
business and an increase in the market value of assets under management.
The equity markets enjoyed another strong year in 1996. The Dow Jones
Industrial Average increased 26.01% and the S&P 500 Index increased 20.26%. As
shown in the table on the following page, the market value of assets under
management was $236 billion at December 31, 1996, an increase of $3 billion
from December 31, 1995. New business and a general market increase, more than
offset a $15 billion decrease resulting from the partial sale of an equity
interest in an institutional investment management firm. The market value of
assets under administration/custody was $1,046 billion at December 31, 1996, an
increase of $260 billion compared with $786 billion at December 31, 1995. This
increase also resulted from new business, as well as the general market
increase. In the first quarter of 1996, the Corporation was awarded the global
custody services contract for $68 billion of assets for Prudential Portfolio
Managers, U.K.
32
<PAGE> 15
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT AND ADMINISTRATION/CUSTODY December 31,
(in billions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Institutional trust:
Administration/Custody $ 962 $708 $568
Mutual fund:
Management (a) 87 81 73
Administration/Custody 57 60 76
Institutional asset management:
Management 121 128 96
Private asset management:
Management 28 24 21
Administration/Custody 27 18 13
- -----------------------------------------------------------------------------------------------------------------------------------
Total:
Management $ 236 $233 $190
Administration/Custody $1,046 $786 $657
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) See table below for components of managed mutual fund assets.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF MANAGED MUTUAL FUND ASSETS BY FUND CATEGORY December 31,
(in billions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proprietary funds:
Taxable money market funds:
Institutions $27 $24 $18
Individuals 9 10 10
Tax-exempt bond funds 17 19 18
Equity funds 15 11 9
Tax-exempt money market funds 7 8 7
Fixed income funds 5 5 4
- -----------------------------------------------------------------------------------------------------------------------------------
Total proprietary funds 80 77 66
Nonproprietary funds managed 7 4 7
- -----------------------------------------------------------------------------------------------------------------------------------
Total managed mutual fund assets $87 $81 $73
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 16
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MUTUAL FUND MANAGEMENT FEE REVENUE
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed mutual fund fees $377 $352 $348
Less: Fees waived 30 35 44
Less: Fund expense reimbursements 7 8 10
- -----------------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees $340 $309 $294
- -----------------------------------------------------------------------------------------------------------------------------------
Net managed mutual fund fees by fund category:
Proprietary funds:
Taxable money market funds:
Institutions $ 60 $ 48 $ 43
Individuals 37 39 39
Tax-exempt bond funds 100 100 102
Equity funds 83 64 56
Tax-exempt money market funds 27 24 21
Fixed income funds 23 23 20
- -----------------------------------------------------------------------------------------------------------------------------------
Total proprietary fund fees 330 298 281
Nonproprietary fund management fees 10 11 13
- -----------------------------------------------------------------------------------------------------------------------------------
Net mutual fund management fees $340 $309 $294
- -----------------------------------------------------------------------------------------------------------------------------------
</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 were $82 billion in the fourth
quarter of 1996, and averaged $80 billion for the year, compared with $74
billion in 1995. This increase resulted primarily from a $3 billion average
increase in equity funds and a $5 billion increase in taxable institutional
money market funds. The Corporation will periodically waive certain mutual fund
management fees and/or reimburse certain mutual fund expenses, to increase the
rate of return to investors. Lower fee waivers and fund expense reimbursements
contributed $6 million to the increase in mutual fund management revenue in
1996, compared with 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 to assist corporate customers in the management of their
accounts receivable, accounts payable and treasury management functions. At
December 31, 1996, the Corporation's cash management services ranked 6th
nationally in market share. Cash management and deposit transaction charges
totaled $211 million in 1996, an increase of $20 million, or 10%, from 1995.
This increase resulted primarily from higher volumes of business in customer
receivable, payable and treasury management products.
Mortgage servicing fees
Mortgage servicing fees were $180 million in 1996, an increase of $58 million,
or 48%, compared with 1995, resulting primarily from mortgage servicing rights
acquired through acquisitions, including the full year impact of the August
1995 Metmor acquisition, compared with a partial year impact in 1995. In
addition, portfolio growth from loan originations contributed to the increase
in fees. At December 31, 1996, the Corporation's total servicing portfolio was
$69 billion, comprised of $58 billion of residential and $11 billion of
commercial servicing. At December 31, 1995, the total servicing portfolio was
$53 billion, comprised of $46 billion of residential and $7 billion of
commercial servicing. At December 31, 1996, the Corporation had the 9th largest
residential mortgage servicing portfolio and the 6th largest commercial
mortgage servicing portfolio in the United States.
34
<PAGE> 17
NONINTEREST REVENUE (CONTINUED)
- -------------------------------------------------------------------------------
Credit card fees
Credit card fee revenue, which principally consists of interchange, cardholder
fees and servicing revenue from the securitized credit card receivables,
increased by $30 million, or 34%, in 1996. This increase primarily resulted
from servicing fee revenue from securitized credit card receivables. Credit
card fee revenue, as well as certain related expenses, will decrease in 1997 as
a result of the sale of the AAA credit card portfolio in November 1996.
Foreign currency and securities trading revenue
Foreign currency and securities trading fees were $80 million in 1996, a 12%
decrease from $91 million earned in 1995. The decrease was primarily
attributable to lower foreign exchange fees earned, primarily as a result of
lower levels of market volatility and customer activity, partially offset by
higher securities trading fee revenue.
Information services fees
Information services fees were $50 million in 1996, a 6% increase from 1995.
The increase resulted from higher ATM fees.
Gain on sale of credit card portfolio
The sale of the credit card portfolio of 50 AAA clubs, with outstanding
balances of $770 million, netted a gain of $57 million in 1996.
Other fee revenue
Other fee revenue increased $105 million in 1996 from $222 million in 1995.
This increase primarily resulted from the $28 million gain on the home equity
loan securitization, a $16 million increase in gains on disposition of assets
and sales of equity securities, a $13 million gain on the partial sale of an
equity interest in an institutional investment management firm, $11 million of
servicing fee revenue from the securitized home equity revolving credit line
loans and an $8 million increase in fees relating to the electronic filing of
income tax returns.
Buck Consultants, Inc.
Fee revenue will be impacted in 1997 upon completion of the acquisition of Buck
Consultants Inc. (Buck). Buck provides a broad array of pension and health and
welfare actuarial services, employee benefits, compensation and human resources
consulting and administrative services to approximately 5,000 clients, ranging
from large multinational corporations to small businesses. Buck generated total
revenues of approximately $200 million for its fiscal year ended March 31,
1996. Including revenues from a recent acquisition, Buck's annual revenues
would have totaled approximately $250 million.
Gains on sale of securities
The Corporation recorded $4 million in net gains on the sale of securities
available for sale in 1996, compared with $6 million in net gains in 1995.
1995 compared with 1994
Compared with 1994, fee revenue increased by $18 million, or 1%, in 1995,
primarily 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 and lower information services
fees. 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.
35
<PAGE> 18
LOAN SECURITIZATIONS
- -------------------------------------------------------------------------------
The Corporation securitized $950 million of credit card receivables in November
1995, $650 million of home equity loans in March 1996, and $500 million of
insurance premium finance loans in December 1996. Securitizations are an
effective way to diversify funding sources and manage the size of the balance
sheet. The Corporation no longer recognizes net interest revenue on the
securitized portfolios, however, the decrease in net interest revenue is
substantially offset by increased servicing fee revenue and lower net credit
losses. The Corporation continues to service the securitized loans. For
analytical purposes, the impact of the securitizations on 1996 and 1995 results
are shown below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIZED CREDIT CARD RECEIVABLES
(in millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lower net interest revenue $ 89 $ 10
Lower net credit losses 47 5
Higher fee revenue 41 5
Lower loans - year-end 950 950
Lower loans - average 950 107
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIZED HOME EQUITY LOANS
(in millions) 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lower net interest revenue $ 18
Net credit losses -
Higher fee revenue 11
Lower loans - year-end 650
Lower loans - average 494
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIZED INSURANCE PREMIUM FINANCE LOANS
(in millions) 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lower net interest revenue $ 1
Net credit losses -
Higher fee revenue 1
Lower loans - year-end 500
Lower loans - average 18
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 19
OPERATING EXPENSE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $1,055 $ 957 $ 956
Net occupancy expense 205 205 206
Professional, legal and other purchased services 195 186 210
Equipment expense 145 143 132
Business development 137 136 161
Amortization of mortgage servicing rights and
purchased credit card relationships 107 68 40
Amortization of goodwill and other intangible assets 100 96 98
Communications expense 96 86 84
Forms and supplies 42 42 40
FDIC assessment and regulatory examination fees 6 31 63
Other expense 120 97 85
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expense before net revenue from acquired
property, securities lending charge and merger expense 2,208 2,047 2,075
Net revenue from acquired property (13) (20) (28)
Securities lending charge - - 223
Merger expense - - 104
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expense $2,195 $2,027 $2,374
- ---------------------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 24,600 24,300 24,300
- ---------------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (a) 64% 63% 65%
Efficiency ratio excluding amortization of
goodwill and other intangible assets 61 60 62
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating expense before net revenue from acquired property, securities
lending charge and merger expense, excluding trust-preferred securities
expense, as a percentage of revenue, computed on a taxable equivalent basis,
excluding gains (losses) on the sale of securities and the gain on the sale
of the AAA credit card portfolio.
Operating expense before net revenue from acquired property, securities lending
charge and merger expense totaled $2,208 million in 1996, an increase of $161
million, or 8%, compared with 1995. The increase primarily resulted from
increases in staff expense and the amortization of mortgage servicing rights.
These increases were partially offset by lower FDIC deposit insurance
assessment expense.
Staff expense totaled $1,055 million in 1996, an increase of $98 million
compared with 1995. The increase in staff expense resulted from increases in
incentive and commission expense and base salaries, as well as an $18 million
charge for the Corporation's retirement enhancement plan and severance
accruals. The retirement enhancement plan, which was offered during the first
quarter and concluded on March 31, 1996, enhanced the pensions and health
insurance of 495 eligible associates electing early retirement, effective April
1, 1996.
The amortization of mortgage servicing rights and purchased credit card
relationships totaled $107 million in 1996, a $39 million increase from 1995
and reflects the $16 billion, or 29% increase in the mortgage servicing
portfolio from December 31, 1995. The increases in communications expense,
professional, legal and other purchased services and other expense reflect
business growth, efforts to reengineer lines of business and improve customer
service, and to a lesser degree the impact of acquisitions.
FDIC assessment and regulatory examination fees decreased $25 million in 1996
as a result of the suspension of the FDIC deposit insurance premium in 1996 for
healthy institutions. In the third quarter of 1996, the Deposit Insurance Funds
Act of 1996 (DIFA) was enacted. DIFA imposed a special one-time assessment on
Savings Association Insurance Fund (SAIF) deposits held by banks, in order to
recapitalize the SAIF. The Corporation's one-time assessment was minimal. Also
included as part of this legislation was an increase in FDIC insurance premiums
for 1997 to ensure the repayment of the FICO bonds issued during the S&L
crisis. Prior to this legislation, banks' FDIC insurance premiums in 1996 were
37
<PAGE> 20
OPERATING EXPENSE (CONTINUED)
- -------------------------------------------------------------------------------
$2 thousand annually for well-capitalized institutions. Based on current
deposit levels, the Corporation expects its FDIC assessment to be approximately
$4 million in 1997, for the redemption of the FICO bonds. The FDIC semiannually
reviews the adequacy of the bank insurance fund. There will be no assessment in
the first half of 1997 for well-capitalized banks, aside from the FICO bond
assessment.
In December 1996, trusts created by the Corporation issued $1 billion of
trust-preferred securities. The securities are not recorded in interest-bearing
liabilities on the Corporation's balance sheet and, as such, the expense of
these securities is recorded in other operating expense. This expense totaled
$3 million in 1996 and is expected to total $79 million in 1997. See note 13 of
Notes to the Financial Statements for a further discussion of these securities.
Operating expense will be impacted in 1997 upon completion of the acquisition
of Buck Consultants, Inc.
1995 compared with 1994
Operating expense before net revenue from acquired property, securities lending
charge and merger expense was $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 mortgage servicing rights and equipment expense. 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. All expenditures and asset
adjustments related to this merger have been recorded.
INCOME TAXES
- -------------------------------------------------------------------------------
The provision for income taxes totaled $418 million in 1996, compared with $401
million in 1995 and $278 million in 1994. The Corporation's effective tax rate
for 1996 and 1995 was 36.3% and 36.7%, respectively. Excluding the impact of
the Dreyfus merger-related expense, the losses on the disposition of Dreyfus
securities and the securities lending charge, the Corporation's effective tax
rate for 1994 was 38%. It is currently anticipated that the effective tax rate
in 1997 will be approximately the same as the 1996 rate.
38
<PAGE> 21
CAPITAL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, December 31,
except per share amounts) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shareholders' equity $3,456 $3,590 $ 3,687
Common shareholders' equity to assets ratio 8.11% 8.83% 9.54%
Tangible common shareholders' equity $2,218 $2,632 $ 2,651
Tangible common equity to assets ratio (a) 5.36% 6.63% 7.05%
Total shareholders' equity $3,746 $4,025 $ 4,122
Total shareholders' equity to assets ratio 8.79% 9.90% 10.67%
Tier I capital ratio 8.38 8.14 9.48
Total (Tier I plus Tier II) capital ratio 13.58 11.29 12.90
Leverage capital ratio 8.31 7.80 8.67
Book value per common share $26.86 $26.17 $ 25.06
Tangible book value per common share $17.24 $19.19 $ 18.01
Closing common stock price $71.00 $53.75 $30.625
Market capitalization $9,134 $7,374 $ 4,507
Common shares outstanding (000) 128,647 137,187 147,165
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill and other intangibles recorded in
connection with purchase acquisitions divided by total assets less goodwill
and other intangibles recorded in connection with purchase acquisitions.
The Corporation's capital management objectives are to maintain a strong
capital base--in excess of all regulatory guidelines--while also maximizing
shareholder value. During 1996, the Corporation continued to enhance
shareholder value by returning excess capital to shareholders through the
repurchase of common stock and increased dividends. The decrease in the
Corporation's common and total shareholders' equity at December 31, 1996,
compared with December 31, 1995, resulted from common stock repurchases, offset
in part by earnings retention. Also impacting total shareholders' equity was
the December 1996 redemption of the Series I preferred stock.
The Corporation returned $596 million to shareholders in 1996, prior to any
reissuances, by repurchasing 10.8 million shares of common stock, or 8% of
common shares outstanding at the beginning of the year. Since the beginning of
1995, the Corporation has repurchased 23.6 million common shares, or 16% of the
common shares outstanding at the beginning of 1995, prior to any reissuances,
as well as warrants for 4.5 million shares of common stock. At December 31,
1996, approximately 2.3 million shares remain available for repurchase under a
5 million share repurchase program authorized by the board of directors in May
1996. The Corporation expects to complete this authorization in 1997. Average
common stock and stock equivalents used in the computation of fully diluted
earnings per share totaled 133.9 million shares in 1996, compared with 146.2
million shares in 1995, an 8% decrease. At December 31, 1996, common stock and
stock equivalents totaled 131.2 million shares.
<TABLE>
<CAPTION>
COMMON SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning shares outstanding 137.2 147.2
Shares issued for stock-based benefit plans and dividend reinvestment plan 2.2 2.8
Shares repurchased (10.8) (12.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Ending shares outstanding 128.6 137.2
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE> 22
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
On October 15, 1996, the Corporation's board of directors adopted a new
Shareholder Protection Rights Agreement. Under the new Agreement, rights would
become exercisable if a person or a group acquired 15% or more of the
Corporation's voting stock. The exercise price for the rights is $225. In
connection with the new Agreement, the Corporation approved the redemption of
rights issued under the 1989 Rights Agreement. The board also approved the
establishment of an employee stock benefit trust which is authorized to
purchase 9 million shares of common stock from the Corporation to prefund
obligations under the Corporation's stock-related benefit plans, including its
stock option and 401(k) plans. Holders of stock options would vote the shares
held in the trust with each active plan participant having an equal vote.
Regulatory capital
The Corporation and its banking subsidiaries are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on the Corporation's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Corporation and its banking subsidiaries must meet specific capital
guidelines that involve quantitative measures of the Corporation's and its
banking subsidiaries' assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
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. To be well-capitalized, the Corporation's banking subsidiaries
must maintain minimum Tier I, Total and Leverage capital ratios of 6%, 10% and
5%, respectively. All of the banking subsidiaries qualified as well-capitalized
at December 31, 1996 and 1995. The Corporation intends to maintain the ratios
of its banking subsidiaries at the well-capitalized levels. By maintaining
ratios above the regulatory well-capitalized guidelines, the Corporation's
banking subsidiaries receive the benefit of lower FDIC deposit insurance
assessments.
40
<PAGE> 23
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS December 31,
(dollar amounts in millions) 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier I capital:
Common shareholders' equity (a) $ 3,457 $ 3,572
Trust-preferred securities (b) 863 -
Qualifying preferred stock 290 435
Other items (12) (14)
Goodwill and certain other intangibles (1,150) (849)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Tier I capital 3,448 3,144
Tier II capital 2,140 1,216
- ---------------------------------------------------------------------------------------------------------------------------------
Total qualifying capital $ 5,588 $ 4,360
- ---------------------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets:
On-balance-sheet $27,717 $27,459
Off-balance-sheet 13,436 11,152
- ---------------------------------------------------------------------------------------------------------------------------------
Total risk-adjusted assets $41,153 $38,611
- ---------------------------------------------------------------------------------------------------------------------------------
Average assets--leverage capital basis $41,498 $40,301
- ---------------------------------------------------------------------------------------------------------------------------------
Tier I capital ratio (c) 8.38% 8.14%
Total capital ratio (c) 13.58 11.29
Leverage capital ratio (c) 8.31 7.80
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In accordance with regulatory guidelines, the $1 million of unrealized loss
and $18 million of unrealized gains, net of tax, on assets classified as
available for sale at December 31, 1996 and 1995, respectively, have been
excluded.
(b) The amount of trust-preferred securities that qualifies as Tier I capital is
subject to the same regulatory limit of 25% of total Tier I capital that is
applied to cumulative perpetual preferred stocks.
(c) The required minimum Tier I, Total and Leverage capital ratios are 4%, 8%
and 3%, respectively.
The increase in the Corporation's regulatory capital ratios resulted from 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 ability to apply Tier I capital treatment, as well as to
deduct the expense for income tax purposes, provided the Corporation with a
cost-effective way to raise capital for regulatory purposes. The
trust-preferred securities are not included as a component of total
shareholders' equity on the Corporation's balance sheet.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RISK-BASED AND LEVERAGE CAPITAL RATIOS FOR SIGNIFICANT BANKING SUBSIDIARIES
Mellon Boston Safe
Capital Well- Bank, N.A. Deposit and Trust
adequacy capitalized December 31, December 31,
(dollar amounts in millions) guidelines guidelines 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount:
Tier I capital $ 2,419 $ 2,714 $ 426 $ 528
Total qualifying capital 3,712 3,425 460 571
Risk-adjusted assets 36,614 33,258 2,743 3,441
Average assets-leverage
capital basis 36,811 35,318 4,157 4,441
Ratios:
Tier I capital ratio 4% 6% 6.61% 8.16% 15.52% 15.34%
Total capital ratio 8 10 10.14 10.30 16.78 16.59
Leverage capital ratio 3 5 6.57 7.68 10.24 11.89
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the third quarter of 1996, the regulatory agencies adopted a proposal to
incorporate market risk into the risk-based capital guidelines. This amendment
requires any bank or bank holding company whose trading activity is the lesser
of 10% or more of its total assets, or $1 billion or greater, to measure its
exposure to market risk using its own internal value-at-risk
41
<PAGE> 24
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
model and to hold capital in support of that exposure. This amendment was
effective January 1, 1997, with mandatory compliance by January 1, 1998. The
Corporation anticipates that this requirement will have a minimal impact on its
risk-based capital ratios.
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.
Goodwill and other intangibles
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $1,110 $788 $824
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $322 million increase in goodwill at December 31, 1996, compared with
December 31, 1995, resulted from a $296 million increase related to the USL
acquisition and an $84 million increase related to the FUL acquisition,
partially offset by $58 million of amortization. Based upon the current level
and amortization schedule, the annual amortization of goodwill for the years
1997 through 2000 is expected to be approximately $68 million and decrease to
approximately $65 million in 2001. The after-tax impact of the annual
amortization of goodwill for the years 1997 through 2000 is expected to be
approximately $57 million and decrease to approximately $54 million in 2001.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased core deposit intangibles $ 88 $110 $133
Covenants not to compete 6 22 38
Other identified intangibles 34 38 41
- -----------------------------------------------------------------------------------------------------------------------------------
Total purchased core deposit
and other identified intangibles $128 $170 $212
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortization expense of purchased core deposit and other identified
intangibles was $42 million in 1996. Based upon the current level and
amortization schedule, the annual amortization of purchased core deposit and
other identified intangibles for the full years 1997 through 2001 is anticipated
to be approximately $31 million, $26 million, $26 million, $14 million and $8
million, respectively. The after-tax impact of the amortization of these items
for the years 1997 through 2001 is anticipated to be approximately $20 million,
$17 million, $17 million, $9 million and $5 million, respectively.
Mortgage servicing rights and purchased credit card relationships
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage servicing rights $745 $592 $292
Purchased credit card relationships 29 90 60
- -----------------------------------------------------------------------------------------------------------------------------------
Total mortgage servicing rights
and purchased credit card relationships $774 $682 $352
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In 1996 and 1995, the Corporation capitalized $285 million and $376 million,
respectively, of servicing rights in connection with both mortgage servicing
portfolio purchases and loan originations. Mortgage servicing rights are
amortized in proportion to estimated net servicing income over the estimated
life of the servicing portfolio. Amortization expense totaled $96 million, $57
million and $33 million in 1996, 1995 and 1994, respectively. The estimated
fair value of capitalized mortgage servicing rights was $869 million at
December 31, 1996. See note 1 of Notes to Financial Statements for a further
discussion of the Corporation's accounting policy for mortgage servicing
rights. The $61 million decrease in purchased credit card relationships in 1996
primarily resulted from the AAA credit card sale in the fourth quarter of 1996
and amortization.
42
<PAGE> 25
CAPITAL (CONTINUED)
- -------------------------------------------------------------------------------
Recently issued accounting standards
In June 1996, the Financial Accounting Standards Board issued FAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." FAS No. 125 establishes the criteria for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. FAS No. 125 supersedes several accounting standards including FAS
No. 122, "Accounting for Mortgage Servicing Rights." This standard is effective
for transactions that occur after December 31, 1996. Earlier implementation is
not permitted. The Corporation is currently evaluating the impact that this
statement will have on its financial position and results of operations, but it
is not expected to be material.
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." FAS No. 121 established
guidelines for recognition of impairment losses related to long-lived assets
and certain intangibles and related goodwill for both assets to be held and
used as well as assets held for disposition. This statement excludes financial
instruments, long-term customer relationships of financial institutions,
mortgage and other servicing rights, and deferred tax assets. Adoption of this
statement was immaterial to the Corporation's financial position and results of
operations.
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.
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 four-year $300 million
43
<PAGE> 26
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
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 I ratio, double
leverage ratio and nonperforming asset covenants, as discussed in note 11 of
Notes to Financial Statements.
As shown in the consolidated statement of cash flows, cash and due from banks
increased by $504 million during 1996 to $2,846 million at December 31, 1996.
The increase primarily reflected $1,164 million of net cash provided by
operating activities and $1,066 million of net cash provided by financing
activities, offset in part by $1,741 million of net cash used in investing
activities. Net cash provided by financing activities primarily reflected
increases in customer deposits, long-term borrowings and the issuance of the
trust-preferred securities, partially offset by a decrease in short-term
borrowings and common stock repurchases. Net cash used in investing activities
principally reflected the USL and FUL acquisitions, and an increase in
securities available for sale, partially offset by the home equity and
insurance premium finance securitizations.
In March 1996, the Corporation issued $250 million of debt at a fixed rate of
6.70% maturing in the year 2008 and Mellon Bank, N.A., the Corporation's
principal banking subsidiary, issued $300 million of debt at a fixed rate of 7%
maturing in 2006. In September 1996, Mellon Bank, N.A. issued an additional
$250 million of debt at a fixed rate of $7.625% maturing in 2007. Prior to
issuance, the Corporation hedged the cost of all of these transactions with
interest rate agreements that were terminated upon issuance of the debt. The
effective interest rates on the $250 million of Corporate debt and $300 million
and $250 million of the Mellon Bank, N.A. debt, including the effect of the
interest rate agreements are 6.91%, 6.43% and 7.34%, respectively. The proceeds
from these issuances were used for general corporate purposes, including the
use of $200 million of the proceeds from the March 1996 Mellon Bank, N.A. issue
for a distribution of paid-in capital surplus to the parent Corporation.
Contractual maturities of the Corporation's term debt were $20 million in 1996.
Contractual maturities of parent term debt will total $205 million in 1997,
primarily resulting from $200 million due in December 1997.
At December 31, 1996, the Corporation had a debt shelf registration statement
on file with the Securities and Exchange Commission on which up to $1.25
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.
Mellon Bank, N.A. has an existing offering circular, under which it can issue
up to $4 billion of bank notes. Up to $3 billion of these notes, outstanding at
any one time, can have maturities of 30 to 270 days and up to $1 billion, in
the aggregate, can have maturities of more than 270 days to 15 years. At
December 31, 1996, the bank had $338 million of notes with original maturities
greater than 1 year and $135 million of short-term notes outstanding under this
program. Proceeds from these notes are used for general funding purposes.
At December 31, 1996, the Corporation's senior debt and Mellon Bank, N.A.'s
subordinated debt were rated "A2" by Moody's and "A" by Standard and Poors.
These ratings have not changed since the third quarter of 1994.
During the fourth quarter of 1996, the Federal Reserve accorded Tier I capital
status to trust-preferred securities. Following this decision, trusts created
by the Corporation issued $500 million of these securities, on December 10,
1996, at a fixed rate of 7.72% and on December 30, 1996, issued an additional
$500 million at a fixed rate of 7.995%. The payments on these securities can be
deducted for income tax purposes, therefore, these securities will have an
after-tax cost to the Corporation of approximately 5.0% and 5.2%, respectively.
The proceeds from these securities are being used for general corporate
purposes, including the December 16, 1996, redemption of the $150 million
Series I Preferred Stock and will be used to redeem the $100 million Series J
Preferred Stock on February 18, 1997. The Series I and Series J preferred
stocks had dividend rates of 9.60% and 8.50%, respectively. The redemption of
the Series I and Series J preferred stocks will reduce annual preferred
dividend requirements by $23 million.
44
<PAGE> 27
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
The Corporation increased its annual common stock dividend to $2.40 per common
share in the second quarter of 1996, an increase of 9% from the previous annual
rate of $2.20. The Corporation has increased its common stock dividend five
times over the last three years, resulting in a 137% increase during that
period. Common dividends of $310 million were paid on the outstanding shares of
common stock during 1996. The Corporation is currently targeting a dividend
payout ratio of 40%-45%. The dividend payout ratio was 45% in 1996 and 44% in
1995. On a tangible earnings per common share basis, the dividend payout ratio
was 40% in 1996 and 1995. In addition, the Corporation paid $39 million in
preferred stock dividends in 1996 and recorded $5 million of issue costs as
preferred stock dividends in connection with the redemption of the Series I
preferred stock. The Series J preferred stock redemption will result in $3
million of issue costs being recorded as preferred stock dividends in the first
quarter of 1997. Using the current common stock dividend rate and shares
outstanding at December 31, 1996, and excluding the Series I and J preferred
stocks, the annual dividend requirements in 1997 for the common and preferred
stock is expected to be approximately $325 million. The Corporation has reduced
its annual common stock dividend requirement, by approximately $45 million,
through the repurchase of common shares in 1995 and 1996, net of reissuances.
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 21 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,
1996, of approximately $310 million, less any dividends declared and plus or
minus net profits or losses, as defined, between January 1, 1997, and the date
of any such dividend declaration. The national bank subsidiaries declared
dividends to the parent Corporation totaling $400 million in 1996, $501 million
in 1995 and $366 million in 1994. Dividends paid to the parent Corporation by
nonbank subsidiaries totaled $21 million in 1996, $30 million in 1995 and $122
million in 1994. In addition, Mellon Bank, N.A. returned $200 million and $300
million of capital to the parent Corporation in 1996 and 1995, respectively,
and The Boston Company returned $150 million and $100 million of capital to the
parent Corporation in 1996 and 1994, respectively. To comply with regulatory
guidelines, the Corporation and its subsidiary banks continually 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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Money market investments $ 1,381 $ 1,222 $ 1,656
Trading account securities 146 296 380
Securities 6,184 4,922 5,149
Loans 27,233 27,321 25,097
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 34,944 33,761 32,282
Noninterest-earning assets 7,541 6,927 6,437
Reserve for credit losses (472) (591) (613)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $42,013 $40,097 $38,106
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $32,068 $30,986 $32,101
Wholesale and purchased funds 9,945 9,111 6,005
- ---------------------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $42,013 $40,097 $38,106
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the Corporation's average interest-earning assets in 1996,
compared with 1995, reflects a $1,262 million increase in average securities.
This increase resulted from the utilization of a higher level of deposits with
pledging requirements in 1996, compared with the prior year. Average loans
decreased $88 million as a result of the loan securitizations and sales,
primarily offset by loan growth and the lease financing acquisitions. Excluding
the loan securitizations and sales and the leasing acquisitions, average loans
increased approximately $1.0 billion, compared with the prior year, primarily
as a result of increases in wholesale loans.
45
<PAGE> 28
LIQUIDITY AND DIVIDENDS (CONTINUED)
- -------------------------------------------------------------------------------
Core funds, which are considered to be the most stable sources of funding, are
defined principally as money market and other savings deposits, demand
deposits, savings certificates, shareholders' equity, notes and debentures with
original maturities over one year and trust-preferred securities. Core funds
primarily support core assets, which consist of loans, net of the reserve and
noninterest-earning assets. Average core assets increased $645 million in 1996
from the prior year, reflecting a higher level of noninterest-earning assets.
The increase in noninterest-earning assets resulted primarily from higher
levels of cash and due from banks. Average core funds increased $1,082 million
in 1996 compared with 1995, primarily reflecting a higher average level of
demand, money market and savings deposits and notes and debentures, partially
offset by a decrease in shareholders' equity. Core funds averaged 93% of core
assets in 1996, up from 92% in 1995 and down from 104% in 1994.
Wholesale and purchased funds are defined as deposits in foreign offices,
negotiable certificates of deposit, federal funds purchased and securities
under repurchase agreements, short-term bank notes, other time deposits, U.S.
Treasury tax and loan demand notes, commercial paper and other funds borrowed.
Average wholesale and purchased funds increased $834 million compared with
1995, primarily reflecting an increase in negotiable certificates of deposit
and other time deposits, partially offset by a decrease in federal funds
purchased and securities under repurchase agreements and short-term bank notes.
As a percentage of average total assets, average wholesale and purchased funds
increased to 24% in 1996, from 23% in 1995 and 16% in 1994.
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 analyses
provide 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 48. 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 may choose to refinance fixed rate loans when
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, the estimated net interest margin may not change 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 change in interest rates,
portfolio equity may not change by more than 20% of total shareholders'
equity.
The table on the following page 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, 1996, remained constant, that the level of loan
fees remains unchanged, and excludes the impact of interest receipts on
nonperforming loans. The impact of the rate movements was developed by
simulating the effect of rates changing over a six-month period from the
December 31, 1996, levels and includes the interest sensitive impact of the
securitizations included in other fee revenue.
46
<PAGE> 29
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
Movements in interest rates from December 31, 1996, rates
- ------------------------------------------------------------------------------------------------------------------------------
Simulated impact in the next 12 months Increase Decrease
compared with December 31, 1996: ------------------------- ------------------------
+100 bp +200 bp -100 bp -200 bp
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest revenue increase/(decrease) .2% .2% (.4)% (1.6)%
Return on common equity increase/(decrease) 6 bp 6 bp (13)bp (46)bp
Earnings per share increase/(decrease) $.02 $.02 $(.03) $(.12)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The anticipated impact on net interest revenue under the 100 and 200 basis
points increase scenarios and the decrease in net interest revenue under the
100 and 200 basis point decrease scenarios are consistent with the
Corporation's asset sensitive gap position at the one-year repricing period as
shown in the interest rate sensitivity gap table on the following page.
The interest rate sensitivity gap table shows the repricing characteristics of
the Corporation's interest-earning assets and supporting funds at December 31,
1996. 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, 1996,
the Corporation had an asset-sensitive interest rate risk position at the
one-year repricing period. Generally, an asset sensitive gap indicates that
rising interest rates could positively affect net interest revenue, and falling
rates could negatively affect net interest revenue. Assets and liabilities with
similar contractual repricing characteristics, however, may not reprice 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: U.S. government and federal agency securities,
municipal securities, mortgage-backed securities, fixed rate wholesale term
funding, 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 $4.0 billion, or 9.4% of total assets, at December 31, 1996. However,
because the Corporation did not want to accept the level of interest rate risk
presented by its naturally asset sensitive balance sheet, it entered into
interest rate swaps and other off-balance-sheet instruments that resulted in a
net reduction of $2.6 billion in this cumulative asset-sensitive position.
These instruments reduced the cumulative gap at the one-year repricing period
to an asset-sensitive amount of $1.4 billion, or 3.4% of total assets.
Alternatively, the Corporation could have acquired additional fixed-rate
investment securities or other fixed-rate interest-earning assets of
approximately $2.6 billion to accomplish this objective. Correspondingly, the
Corporation also would have had to acquire a comparable amount of wholesale
funds 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.
47
<PAGE> 30
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP AT DECEMBER 31, 1996
Repricing period
-----------------------------------------------------------
0-30 31-90 91-180 181-365 Over 1
(dollar amounts in millions) days days days days year Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $10,461 $ 8,834 $ 3,746 $ 1,667 $10,247 $34,955
Funds supporting interest-
earning assets $ 5,866 $ 9,406 $ 2,734 $ 2,710 $14,239 $34,955
- -----------------------------------------------------------------------------------------------------------------------------------
Subtotal $ 4,595 $ (572) $ 1,012 $(1,043) $(3,992) $ -
Off-balance-sheet instruments $(1,492) $ (1,249) $ 106 $ 88 $ 2,547 $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 3,103 $ (1,821) $ 1,118 $ (955) $(1,445) $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap $ 3,103 $ 1,282 $ 2,400 $ 1,445 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a percentage
of total assets 7.3% 3.0% 5.6% 3.4% -
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Repricing periods 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 46. 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; and financial options. Their usage for
speculative purposes is not permitted outside of those areas designated as
trading and controlled with specific authorizations and limits. These
instruments provide the Corporation flexibility in adjusting its interest rate
risk position without exposure to principal risk and funding requirements. The
Corporation primarily uses non-leveraged generic and index amortizing swaps to
accomplish its objectives. Generic swaps involve the exchange of fixed and
variable interest rates based on underlying contractual notional amounts. Index
amortizing swaps involve the exchange of fixed and variable interest rates;
however, their notional amount and maturities vary based on certain underlying
indices. The 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 23 of Notes to Financial Statements.
48
<PAGE> 31
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK
Total at
Dec. 31,
(notional amounts in millions) 1997 1998 1999 2000 2001 2002+ 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $225 $ 15 $ - $ - $ - $400 $ 640
Weighted average rate:
Receive 6.18% 5.22% - - - 6.32% 6.24%
Pay 5.40% 5.50% - - - 5.76% 5.63%
Receive fixed/pay floating
indexed amortizing swaps: (b)
Notional value $244 $ 594 $1,788 $114 $101 $372 $3,213
Weighted average rate:
Receive 6.78% 6.06% 5.72% 7.14% 7.14% 7.14% 6.12%
Pay 5.53% 5.55% 5.53% 5.53% 5.53% 5.53% 5.53%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $103 $416 $ 402 $ - $ - $ 15 $ 936
Weighted average rate:
Receive 5.66% 5.38% 5.56% - - 5.60% 5.49%
Pay 6.29% 6.05% 6.25% - - 6.63% 6.17%
Other products (c) $ 33 $ - $ - $ 48 $ 15 $ - $ 96
- -----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $605 $1,025 $2,190 $162 $116 $787 $4,885
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
The gross notional amount of off-balance-sheet instruments used to manage the
Corporation's interest rate risk was $4.9 billion at December 31, 1996, a
decrease of $3.8 billion from December 31, 1995. The reduction in these
instruments resulted from terminations and maturities, partially offset by an
increase in interest rate swaps entered into in connection with the acquisition
of capital leases. The interest rate swap terminations are discussed on the
following page. This gross notional amount, which is presented in the table
above, must be viewed in the context of the Corporation's overall interest rate
risk management activities in order to assess its impact on the net interest
margin. As discussed on page 47, 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 $4.0
billion, before the utilization of these instruments, to a cumulative one-year
asset-sensitive position of $1.4 billion at December 31, 1996.
The table on the following page presents the gross notional amounts of
off-balance-sheet instruments used to manage interest rate risk, identified by
the underlying interest rate sensitive instruments.
49
<PAGE> 32
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Instruments associated with deposits $3,888 $6,500
Instruments associated with other liabilities 415 670
Instruments associated with loans 582 1,532
- -----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $4,885 $8,702
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet instruments to reduce the
natural interest rate risk embedded in its assets and liabilities. The interest
received and interest paid are recorded on an accrual basis in interest revenue
and interest expense associated with the underlying assets and liabilities. The
net differential resulted in interest revenue of $24 million in 1996, compared
with interest expense of $2 million in 1995 and interest revenue of $117
million in 1994. The higher net interest revenue impact in 1996, compared with
1995, resulted from the effect of lower average interest rates in 1996. The
Corporation's analysis using interest rates at December 31, 1996, indicates
that off-balance-sheet instruments will have a positive impact of approximately
$12 million on the net interest margin in 1997.
During 1996, the Corporation terminated $800 million of interest rate
agreements that were used to lock in the cost of debt issuances in 1996. These
terminations resulted in net unrealized deferred gains of $13 million. These
net deferred gains are being amortized to interest expense over the terms of
the corresponding debt instruments. The Corporation amortized $1 million of
these net gains into net interest revenue in 1996.
In response to tactical asset/liability management considerations, the
Corporation terminated $4.6 billion of interest rate swaps in 1996. Both pay
and receive fixed-rate generic swaps were terminated. The terminated swaps
included $3.2 billion that were associated with deposits, specifically money
market accounts and CWI accounts, and $1.4 billion that were associated with
loans. These terminations resulted in net deferred gains of $12 million. These
net gains are being amortized over the remaining periods of the original
hedges, which are between one and three years. The Corporation amortized $7
million of these net gains into net interest revenue in 1996. The Corporation
did not terminate any interest rate agreements used for interest rate risk
management purposes in 1995.
The estimated unrealized fair value of the Corporation's interest rate
management off-balance-sheet instruments at December 31, 1996, was a negative
$64 million, compared to a positive $30 million at December 31, 1995. This
decrease was consistent with higher interest rates at December 31, 1996,
compared with the prior year-end, which had the corresponding effect of
increasing the fair value of on-balance-sheet core deposits. These values
should be viewed in the context of the overall financial structure of the
Corporation, including the aggregate net position of all on- and
off-balance-sheet instruments. As more fully discussed in note 23 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, 1996 and 1995, the amount of credit exposure
associated with interest rate risk management instruments was $7 million and
$55 million, respectively.
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 1996, the Corporation recorded $76 million of fee revenue from these
activities, primarily from foreign exchange contracts entered into on behalf of
customers, compared with $87 million in 1995. The total notional values of
these contracts were $36 billion at December 31, 1996 and $33 billion at
December 31, 1995, and are included in the off-balance-sheet instruments used
for trading activities table on page 90 in note 23 of Notes to Financial
Statements. Total credit risk of contracts used for trading activities was $345
million at December 31, 1996 and $389 million at December 31, 1995.
50
<PAGE> 33
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- -------------------------------------------------------------------------------
The Corporation has established trading limits and related monitoring
procedures to control trading risk. These limits are approved by the Office of
The Chairman and reviewed by 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, 1996.
Trading activities are generally 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, 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 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.
51
<PAGE> 34
CREDIT RISK (CONTINUED)
- -------------------------------------------------------------------------------
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 processes designed to identify potential credit
problems, both for specific customers and for industries that could be affected
by adverse market or economic conditions. When signs of credit deterioration
are detected, credit recovery or other specialists become involved to minimize
the Corporation's exposure to potential future credit losses. The Credit Review
Division 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 23 of Notes to Financial Statements.
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END
- -------------------------------------------------------------------------------
The loan portfolio decreased $297 million in 1996, reflecting a number of
significant actions over the last 12 months. In September and October 1996, the
Corporation acquired approximately $1.6 billion of leases in the USL and FUL
acquisitions. These increases were offset by the following transactions: the
March 1996 securitization of $650 million of home equity revolving credit line
loans; the November 1996 sale of $770 million AAA credit card loans; and the
December 1996 $500 million insurance premium finance securitization. Excluding
the lease acquisitions and the securitizations and sales, loans were
essentially unchanged compared with December 31, 1995. At December 31, 1996,
the composition of the loan portfolio was 57% commercial and 43% consumer.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $10,196 (a) $10,969 $10,015 $ 9,091 $ 8,115
Commercial real estate 1,534 (b) 1,532 1,624 1,721 1,861
Consumer credit:
Consumer mortgage 7,772 8,960 8,680 8,191 4,282
Credit card 1,296 1,924 2,381 1,441 1,361
Other consumer credit 2,640 2,612 2,455 2,372 2,258
- -----------------------------------------------------------------------------------------------------------------------------------
Total consumer credit 11,708 13,496 13,516 12,004 7,901
Lease finance assets 2,533 830 815 718 650
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 25,971 26,827 25,970 23,534 18,527
INTERNATIONAL LOANS 1,422 863 763 950 1,434
- -----------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount (c) $27,393 $27,690 $26,733 $24,484 $19,961
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $15 million of loans subject to the FDIC loss sharing arrangement.
(b) Includes $75 million of loans subject to the FDIC loss sharing arrangement.
(c) Excludes segregated assets.
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.
52
<PAGE> 35
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
Commercial and financial
The domestic commercial and financial loan portfolio primarily consists of
loans to corporate borrowers in the manufacturing, service, energy,
communications, wholesale and retail trade, public utilities and financial
services industries. 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 decreased by $773 million, or 7%, during 1996, primarily as a result of a
decrease in money market loans and the $500 million insurance premium financing
securitization. These decreases were partially offset by increases in corporate
banking, middle market and business banking. Commercial and financial loans
represented 37% of the total loan portfolio at December 31, 1996 and 40% at
December 31,1995. At year-end 1996, nonperforming domestic commercial and
financial loans were .21% of total domestic commercial and financial loans,
compared with .59% at December 31, 1995. This ratio has been less than 1% for
15 consecutive quarters.
Securitization of insurance premium finance loans
On December 19, 1996, the Corporation securitized $500 million of insurance
premium finance loans. These loans are typically installment loans made to
commercial insurance buyers, the proceeds of which pay premiums that are due to
an insurance company. The Corporation continues to service these loans. The
effect of the securitization is shown in the table on page 36.
Commercial real estate
The Corporation's $1,534 million 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 $352 million of 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 $75 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 were essentially unchanged
compared with December 31, 1995, as new loan originations were offset by
paydowns and transfers to OREO. Domestic commercial real estate loans were 6%
of total loans at December 31, 1996 and 1995. Nonperforming commercial real
estate loans were 1.03% of total domestic commercial real estate loans at
December 31, 1996, compared with 2.55% at December 31, 1995. This ratio has
reached its lowest level in more than 10 years.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS Balance at Percent of
December 31, total loans
(in millions) 1996 outstanding
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial mortgage and construction loans $1,107 4%
Owner-occupied loans 352 2
FDIC loss share loans 75 -
- -----------------------------------------------------------------------------------------------------------------------------------
Total $1,534 6%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Consumer mortgage
The consumer mortgage portfolio primarily includes jumbo residential mortgages,
traditional one-to-four family residential mortgages, fixed-term home equity
loans and home equity revolving credit line loans. At December 31, 1996, this
portfolio
53
<PAGE> 36
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
totaled $7,772 million, down 13%, from $8,960 million at the prior year-end.
The $1,188 million decrease in this portfolio from year-end 1995 primarily
resulted from the $650 million home equity loan securitization and the sale of
one-to-four family and jumbo residential mortgages, partially offset by an
increase in jumbo residential mortgage originations.
Jumbo mortgages, which totaled $3.6 billion at year-end 1996, are variable rate
residential mortgages that range from $250,000 to $3 million. These loans
decreased approximately $250 million from December 31, 1995, as a result of
loan sales, partially offset by new loan originations. 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, 1996, the geographic distribution of the
jumbo mortgages was as follows: 29% in the mid-Atlantic region; 28% in New
England; 24% in California; and 19% in other areas.
The Corporation's one-to-four family residential mortgages decreased
approximately $500 million, to $1.8 billion at December 31, 1996, from the
prior year-end. This decrease primarily resulted from a decrease in the loans
held in the residential warehouse portfolio. Fixed-term home equity loans
increased approximately $175 million to $1.8 billion. Home equity revolving
credit line loans decreased approximately $650 million to $.6 billion at
December 31, 1996, as a result of the securitization of home equity revolving
credit line loans. Risks on these three portfolios are limited to payment and
collateral risk, and are primarily driven by regional economic factors.
Nonperforming consumer mortgages were .65% of total consumer mortgages at
December 31, 1996, compared with .68% at December 31, 1995.
Securitization of home equity loans
The Corporation securitized $650 million of its home equity revolving credit
line loans on March 29, 1996. These loans generally are secured by first and/or
second mortgages on one-to-four family residential properties. The Corporation
continues to service these loans. The effect of the securitization is shown in
the table on page 36.
Credit card
At December 31, 1996, credit card loans totaled $1,296 million, a $628 million,
or 33%, decrease from December 31, 1995. The decrease resulted from the AAA
credit card sale and credit losses, partially offset by growth. 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 2.24%
at December 31, 1996, compared with .66% at December 31, 1995. The creation of
the accelerated resolution portfolio in December 1995, caused a significant
reduction in this ratio at year-end 1995. In addition, the past-due ratio at
December 31, 1996, reflects the change in the mix of the portfolio following
the AAA sale. The CornerStone(sm) credit card portfolio was 49% of total credit
cards at year-end 1996, compared with 36% at year-end 1995. The CornerStone(sm)
credit card product has historically experienced a higher past-due ratio and a
higher level of credit losses than the Corporation's other credit card loans.
At December 31, 1996, the CornerStone(sm) portfolio totaled $631 million,
compared with $690 million at December 31, 1995.
Other consumer credit
Other consumer credit, which principally consists of student loans, installment
loans and unsecured personal credit lines, was $2,640 million at December 31,
1996, an increase of $28 million from year-end 1995. 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. Approximately 60% of this portfolio at December 31, 1996, consisted
of student loans.
54
<PAGE> 37
COMPOSITION OF LOAN PORTFOLIO AT YEAR-END (CONTINUED)
- -------------------------------------------------------------------------------
Lease finance assets
Lease finance assets totaled $2,533 million at December 31, 1996, an increase
of $1,703 million compared with year-end 1995, resulting from the USL and FUL
acquisitions. These acquisitions enabled the Corporation to establish market
presence with middle market companies through the USL transaction and to the
users of small-ticket equipment throughout the United States through FUL. Lease
finance assets represented 9% of the total loan portfolio at December 31, 1996,
up from 3% at December 31, 1995. Nonperforming leases were .23% of total
leases at December 31, 1996.
International loans
Loans to international borrowers totaled $1,422 million at December 31, 1996,
up 65% from $863 at year-end 1995, primarily due to increased activity with
large corporate customers and foreign banks. 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.
Assets held for accelerated resolution
In December 1995, the Corporation segregated $193 million of CornerStone(sm)
credit card loans, which had a history of delinquency, into an accelerated
resolution portfolio. In connection with this transfer, the Corporation
evaluated the carrying value of these loans and recorded a credit loss of $106
million 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 the portfolio, which
totaled $30 million at December 31, 1996, compared with $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.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $ 94 $167 $151 $202 $334
Acquired property, net of the OREO reserve 80 69 88 139 261
- -----------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets (a) $174 $236 $239 $341 $595
- -----------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .35% .60% .56% .83% 1.67%
Total nonperforming assets as a percentage of total loans
and net acquired property .63% .85% .89% 1.39% 2.94%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
Nonperforming assets is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets
include both nonperforming loans and acquired property, primarily 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 five consecutive years and have reached
their lowest level in more than 15 years. This trend is the result of a strong
economy and the effectiveness of the Corporation's loan administration and
workout procedures. As shown on the table on the following page, at December
31, 1996, nonperforming assets totaled $174
55
<PAGE> 38
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
million, a $62 million decrease from 1995, primarily reflecting decreases in
commercial and financial and commercial real estate loans. The decrease in
commercial real estate loans primarily resulted from repayments, returns to
accrual status and credit losses. The decrease in commercial and financial
loans primarily resulted from the sale, repayment and resolution of loans to an
engineering/construction company, as well as other repayments and sales, and
credit losses. The increase in nonperforming leases resulted from the USL
acquisition. The ratio of nonperforming assets to total loans and net acquired
property was .63% at December 31, 1996, the lowest level in the Corporation's
recent history, compared with .85% at year-end 1995. This ratio, which can be
expected to vary over time with changes in the economy, has been lower than 1%
for 10 consecutive quarters.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS (A) December 31,
(dollar amounts in millions) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 21 $ 65 $ 60 $ 35 $103
Commercial real estate 16 29 25 75 172
Consumer credit:
Consumer mortgage 50 61 56 61 29
Other consumer credit 1 2 - 4 1
Lease finance assets 6 - 1 2 6
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic nonaccrual loans 94 157 142 177 311
International nonaccrual loans - - 1 7 8
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 94 157 143 184 319
- ---------------------------------------------------------------------------------------------------------------------------------
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 94 167 150 195 326
International - - 1 7 8
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans(b) 94 167 151 202 334
- ---------------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 86 87 116 175 250
Reserve for real estate acquired (10) (18) (29) (37) (10)
- ---------------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 76 69 87 138 240
Other assets acquired 4 - 1 1 21
- ---------------------------------------------------------------------------------------------------------------------------------
Total acquired property 80 69 88 139 261
- ---------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $174 $236 $239 $341 $595
- ---------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective loan
portfolio segments:
Domestic commercial and financial loans .21% .59% .65% .43% 1.27%
Domestic commercial real estate loans 1.03 2.55 1.73 5.17 10.03
Domestic consumer mortgage loans .65 .68 .64 .75 .68
Domestic lease finance assets .23 - .11 .21 .98
Total loans .35 .60 .56 .83 1.67
Nonperforming assets as a percentage of
total loans and net acquired property .63 .85 .89 1.39 2.94
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) Includes $13 million, $81 million, $58 million, $74 million and $187
million, respectively, of loans with both principal and interest less than
90 days past due but placed on nonaccrual status by management discretion.
56
<PAGE> 39
NONPERFORMING ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS (A) Domestic
---------------------------------------------------------- Total
Commercial Commercial Consumer Lease --------------------
(in millions) & Financial Real Estate Credit Finance Assets 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at
beginning of year $65 $39 $63 $ - $ 167 $151
Acquired from USL/FUL - - - 5 5 -
Additions 34 64 34 5 137 186
Payments (b) (49) (53) (23) - (125) (84)
Returned to accrual status (10) (15) (8) - (33) (46)
Credit losses (19) (12) (6) - (37) (26)
Transfers to acquired property - (7) (9) (4) (20) (14)
- ---------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at end of year $21 $16 $51 $ 6 $ 94 $167
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
(b) Includes interest applied to principal and sales.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL NONPERFORMING LOAN DATA (a) December 31,
(dollars in millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Book balance $ 94 $167
Contractual balance of nonperforming loans 115 202
Book balance as a percentage of contractual balance 82% 83%
Full-year interest receipts applied to reduce principal $ 1 $ 2
Full-year interest receipts recognized in interest revenue 11 13
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
A loan is considered impaired, as defined by FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," 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. Additional information regarding impairment determination is
presented in note 1 of Notes to Financial Statements.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
IMPAIRED LOANS
(dollar amounts in millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans at year-end (a) $ 37 $104
Average impaired loans for the year 77 114
Interest revenue recognized on impaired loans (b) 11 13
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $13 million and $59 million of impaired loans with a related
impairment reserve of $3 million and $22 million at December 31, 1996 and
December 31, 1995, respectively.
(b) All income was recognized using the cash basis method of income
recognition.
Acquired property consists of OREO and other assets acquired in connection with
loan settlements. Acquired property totaled $80 million at December 31, 1996,
an increase of $11 million compared with year-end 1995.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY December 31,
(in millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of year, net of the OREO reserve $ 69 $ 87
Foreclosures 23 22
Sales (20) (36)
Write-downs, losses, OREO provision and other 4 (4)
- ---------------------------------------------------------------------------------------------------------------------------------
OREO at end of year, net of the OREO reserve 76 69
Other acquired assets 4 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total acquired property, net of the OREO reserve (a) $ 80 $ 69
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes segregated assets.
57
<PAGE> 40
NONPERFORMING ASSETS (CONTINUED)
- -------------------------------------------------------------------------------
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 1996, 1995 and 1994 is presented in the table
below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE)
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning balance $18 $29 $37
Write-downs on real estate acquired (4) (3) (8)
Provision (4) (8) -
- ---------------------------------------------------------------------------------------------------------------------------------
Ending balance $10 $18 $29
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FOREGONE INTEREST ON NONPERFORMING LOANS Year ended December 31,
(in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contractual interest due $9 $15 $15 $21 $32
Interest revenue recognized 3 5 3 7 13
- -----------------------------------------------------------------------------------------------------------------------------------
Interest revenue foregone $6 $10 $12 $14 $19
- -----------------------------------------------------------------------------------------------------------------------------------
</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.
The following table presents the amount of loans that were 90 days or more past
due as to principal or interest, but are not classified as nonperforming. All
loans in this table are well secured and in the process of collection or are
consumer loans that are not classified as nonaccrual because they are
automatically charged-off upon reaching 180 days past due.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
PAST-DUE LOANS December 31,
(dollar amounts in millions) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer:
Mortgages $ 35 $ 34 $ 27 $ 25
Ratio (a) .45% .38% .31% .30%
Credit card 29 (b) 13 (b) 32 15
Ratio (a) 2.24% .66% 1.35% 1.04%
Student - government guaranteed 47 44 36 37
Ratio (a) 3.01% 3.11% 2.71% 3.26%
Other consumer 2 1 1 1
Ratio (a) .18% .09% .07% .09%
- --------------------------------------------------------------------------------------------------------------------------------
Total Consumer $113 $ 92 $ 96 $ 78
Ratio (a) .97% .68% .71% .65%
Commercial (c) 10 6 10 6
- --------------------------------------------------------------------------------------------------------------------------------
Total past-due loans 123 98 106 84
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: At December 31, 1992, total past-due loans were $97 million, which
included $96 million of consumer loans and $1 million of commercial
loans. Further category breakdowns for 1992 are not available.
(a) 90 days past-due as a percentage of year-end loan balances.
(b) 1996 and 1995 exclude past-due CornerStone(sm) credit cards loans included
in the accelerated resolution portfolio.
(c) Includes lease finance assets.
58
<PAGE> 41
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollar amounts in millions) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve for credit losses at year-end (a) $525 $471 $607 $600 $506
Reserve as a percentage of:
Total loans 1.92% 1.70% 2.27% 2.45% 2.54%
Nonperforming loans 556 282 403 297 152
Net credit losses as a
percentage of average loans .46 .91 (b) .27 .64 1.52
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
The reserve for credit losses was $525 million at December 31, 1996, or 1.92%
of total loans, compared with $471 million, or 1.70% of total loans at December
31, 1995. The $54 million increase in the reserve for credit losses from
December 31, 1995, reflects the continued concern about the credit quality of
the credit card portfolio and $23 million of reserves acquired in the lease
financing acquisitions.
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, 1996,
was 556%, compared with 282% at December 31, 1995. This ratio is not the result
of a target or objective, but rather is an outcome of two interrelated but
separate processes: the establishment of an appropriate loan loss reserve level
for the portfolio as a whole, including but not limited to the nonperforming
component in the portfolio; and the classification of certain assets as
nonperforming in accordance with established accounting, regulatory and
management policies. The ratio can vary significantly over time as the credit
quality characteristics of the entire loan portfolio change. This ratio also
can vary with shifts in portfolio mix. The increase in this ratio from December
31, 1995, primarily resulted from a decrease in the level of nonperforming
loans.
Net credit losses totaled $124 million in 1996, a decrease of $125 million from
1995. The decrease was primarily due to the $106 million of credit losses
recorded in December 1995, relating to the transfer of $193 million of
CornerStone(sm) credit card loans, which had a history of delinquency, into an
accelerated resolution portfolio. The fourth quarter 1995 credit card
securitization and the AAA credit card sale in late 1996 also contributed to a
lower level of credit card net credit losses in 1996. Partially offsetting the
decrease in net credit card losses were lower commercial real estate recoveries
in 1996.
Of the $124 million of net credit losses in 1996, $114 million, or 92%, were
from the credit card portfolio. The unprecedented levels of personal
bankruptcies and an apparent change in consumer attitudes toward debt and
responsibility remain an industry-wide concern. Despite the lower level of
credit card outstandings, the Corporation does not anticipate a significant
decrease in credit card net credit losses in 1997. In addition, commercial
lending has experienced net credit recoveries over the last 2 years. This
trend, while desirable, cannot always be anticipated or expected to continue.
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.
59
<PAGE> 42
RESERVE FOR CREDIT LOSSES AND REVIEW OF NET CREDIT LOSSES (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY
(in millions) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve at beginning of year $471 $607 $600 $506 $596
Net change in reserves from
acquisitions and divestitures 23 8 4 108 2
Credit losses:
Domestic:
Commercial and financial (19) (14) (42) (54) (70)
Commercial real estate (12) (8) (16) (74) (161)
Consumer credit:
Credit cards (127) (167) (a) (61) (46) (49)
Consumer mortgage (6) (6) (11) (13) (7)
Other consumer credit (21) (19) (17) (22) (24)
Lease finance assets (5) (16) - (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic (190) (230) (147) (210) (312)
International - - (4) (6) (19)
- ---------------------------------------------------------------------------------------------------------------------------------
Total credit losses (190) (230) (a) (151) (216) (331)
- ---------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial 25 27 41 40 25
Commercial real estate 14 30 14 13 6
Consumer credit:
Credit cards 13 14 9 7 6
Consumer mortgage 4 3 4 2 1
Other consumer credit 8 8 13 10 10
Lease finance assets 1 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic 65 82 81 72 48
International 1 5 3 5 6
- ---------------------------------------------------------------------------------------------------------------------------------
Total recoveries 66 87 84 77 54
- ---------------------------------------------------------------------------------------------------------------------------------
Net credit (losses) recoveries:
Domestic:
Commercial and financial 6 13 (1) (14) (45)
Commercial real estate 2 22 (2) (61) (155)
Consumer credit:
Credit cards (114) (153) (a) (52) (39) (43)
Consumer mortgage (2) (3) (7) (11) (6)
Other consumer credit (13) (11) (4) (12) (14)
Lease finance assets (4) (16) - (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Total domestic (125) (148) (66) (138) (264)
International 1 5 (1) (1) (13)
- ---------------------------------------------------------------------------------------------------------------------------------
Total net credit losses (124) (143) (a) (67) (139) (277)
Provision for credit losses 155 105 70 125 185
Credit losses on assets held for
accelerated resolution - (106) - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Reserve at end of year (b) $525 $471 $607 $600 $506
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes $106 million related to loans transferred to the accelerated
resolution portfolio.
(b) Excludes the reserve for segregated assets.
60
<PAGE> 43
FOURTH QUARTER REVIEW
- ------------------------------------------------------------------------------
The Corporation reported net income applicable to common stock of $179 million
and fully diluted earnings per common share of $1.34 in the fourth quarter of
1996. These results compare with fourth quarter 1995 net income applicable to
common stock of $164 million and fully diluted earnings per common share of
$1.16.
Annualized return on common shareholders' equity and return on assets were
20.9% and 1.80%, respectively, in the fourth quarter of 1996. Annualized return
on common shareholders' equity and return on assets were 18.1% and 1.68%,
respectively, in the fourth quarter of 1995. Annualized return on tangible
common shareholders' equity and return on tangible assets were 36.6% and 2.06%,
respectively, in the fourth quarter of 1996, compared with 27.3% and 1.90%,
respectively, in the fourth quarter of 1995. Fully diluted tangible earnings
per common share in the fourth quarter of 1996 were $1.49, a 16% increase,
compared with $1.29 in 1995.
Compared with the fourth quarter of 1995, the Corporation's fourth quarter 1996
results reflected higher fee revenue, offset in part by higher credit quality
expense, higher operating expense and lower net interest revenue. The quarter's
earnings per share also included an additional $5 million charge, or $.04 per
share, for issue costs recorded as preferred stock dividends in connection with
the redemption of the Series I preferred stock.
Net interest revenue totaled $371 million in the fourth quarter of 1996, down
from $382 million in the fourth quarter of 1995. The net interest margin on a
taxable equivalent basis was 4.20% in the fourth quarter of 1996, a decrease of
23 basis points from 4.43% in the fourth quarter of 1995. The decreases
primarily resulted from the loan securitizations, the funding costs related to
the repurchase of common shares and the sale of the AAA credit card portfolio,
partially offset by increased revenue from lease financing acquisitions, a
higher level of noninterest-bearing deposits and loan growth. Excluding the
effect of the loan securitizations and the common equity repurchases, the net
interest revenue and net interest margin for the fourth quarter of 1996 would
have been approximately $419 million and 4.49%, compared with approximately
$401 million and 4.57% in the fourth quarter of 1995.
Credit quality expense was $77 million in the fourth quarter of 1996, an
increase of $47 million compared with the prior-year period. This increase
resulted from a $45 million increase in the provision for credit losses
relating to the credit card portfolio. Net credit losses were $36 million in
the fourth quarter of 1996, compared with $138 million in the fourth quarter of
1995. The decrease resulted from the $106 million of credit losses recorded in
December 1995 on the accelerated resolution credit card portfolio.
Fee revenue was $566 million in the fourth quarter of 1996, an increase of $122
million compared with the fourth quarter of 1995. The increase primarily
resulted from the $57 million gain on the sale of the AAA credit card
portfolio, higher institutional trust and private asset management fees, higher
mutual fund management revenue, and higher mortgage servicing and cash
management fee revenue. The increase in institutional trust revenue resulted
from a $7 million increase in securities lending revenue and new business,
including the fourth quarter 1995 acquisition of two corporate trust
businesses. The increase in private asset management revenue resulted from new
business and an increase in the market value of assets under management. The
higher revenue from the management of mutual funds resulted from a higher
average level of equity funds managed at Dreyfus. The increase in mortgage
servicing revenue primarily resulted from acquisitions while the increase in
cash management fees and deposit transaction charges primarily resulted from
higher volumes of business in customer receivable, payable and treasury
management products.
Operating expense before net revenue from acquired property for the fourth
quarter of 1996 was $562 million, compared with $531 million in the prior-year
period. This increase primarily resulted from a $19 million increase in staff
expense due to incentive and commission expense, as well as higher base
salaries, due in part to the leasing acquisitions. Other expense increased $13
million primarily in support of revenue growth.
61
<PAGE> 44
<TABLE>
<CAPTION>
SELECTED QUARTERLY DATA (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------------
Quarter ended,
1996 1995
-------------------------------------- ------------------------------------
(dollar amounts in millions, DEC. SEPT. JUNE MARCH Dec. Sept. June March
except per share amounts) 31 30 30 31 31 30 30 31
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTERLY CONSOLIDATED
INCOME STATEMENT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest revenue $ 371 $ 372 $ 372 $ 363 $ 382 $ 392 $ 385 $ 389
Provision for credit losses 80 25 25 25 35 30 20 20
Fee revenue 566 476 474 503 444 422 405 399
Gains (losses) on sale of securities 3 - - 1 6 - 1 (1)
Operating expense 559 536 540 560 526 506 500 495
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 301 287 281 282 271 278 271 272
Provision for income taxes 107 106 102 103 97 103 99 102
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME 194 181 179 179 174 175 172 170
Dividends on preferred stock 15 9 10 10 10 9 10 10
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO
COMMON STOCK $ 179 $ 172 $ 169 $ 169 $ 164 $ 166 $ 162 $ 160
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE:
PRIMARY $ 1.36 $ 1.31 $ 1.26 $ 1.24 $ 1.18 $ 1.15 $ 1.09 $ 1.08
FULLY DILUTED $ 1.34 $ 1.31 $ 1.26 $ 1.24 $ 1.16 $ 1.14 $ 1.09 $ 1.07
Annualized return on common
shareholders' equity 20.9% 20.6% 20.4% 19.7% 18.1% 18.0% 17.5% 17.6%
Annualized return on assets 1.80 1.71 1.70 1.76 1.68 1.70 1.75 1.77
- ---------------------------------------------------------------------------------------------------------------------------------
QUARTERLY AVERAGE BALANCES
- ---------------------------------------------------------------------------------------------------------------------------------
Money market investments $ 1,272 $ 1,573 $ 1,387 $ 1,290 $ 1,206 $ 1,286 $ 1,165 $ 1,230
Trading account securities 96 169 181 138 283 363 220 316
Securities 6,198 6,538 6,658 5,339 5,178 4,938 4,681 4,890
Loans 27,900 27,170 26,798 27,058 27,747 27,774 27,076 26,670
Total interest-earning assets 35,466 35,450 35,024 33,825 34,414 34,361 33,142 33,106
Total assets 42,636 42,461 42,096 40,848 41,141 40,955 39,370 38,886
Deposits 31,569 31,542 30,949 29,274 28,946 28,417 27,100 27,318
Notes and debentures 2,519 2,102 1,971 1,554 1,646 1,809 1,643 1,582
Trust-preferred securities 129 - - - - - - -
Common shareholders' equity 3,410 3,327 3,327 3,459 3,610 3,648 3,726 3,700
Total shareholders' equity 3,820 3,762 3,762 3,894 4,045 4,083 4,161 4,135
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest margin (FTE) 4.20% 4.20% 4.30% 4.35% 4.43% 4.56% 4.69% 4.80%
- ---------------------------------------------------------------------------------------------------------------------------------
TANGIBLE OPERATING RESULTS (a)
- ---------------------------------------------------------------------------------------------------------------------------------
Fully diluted tangible earnings
per common share $ 1.49 $ 1.45 $ 1.40 $ 1.37 $ 1.29 $ 1.26 $ 1.22 $ 1.19
Tangible net income applicable to
common stock 200 190 187 188 182 184 181 178
Annualized return on tangible common
shareholders' equity 36.6% 31.2% 31.3% 30.1% 27.3% 27.4% 26.6% 27.1%
Annualized return on tangible assets 2.06 1.92 1.92 1.99 1.90 1.92 1.99 2.02
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (dollars per share) (b)
- ---------------------------------------------------------------------------------------------------------------------------------
Market price range:
High $ 74 3/4 $ 60 3/4 $ 60 1/8 $ 58 1/2 $ 56 1/2 $ 47 3/4 $ 44 3/4 $ 41 3/4
Low 59 7/8 50 1/2 51 5/8 48 1/4 44 5/8 39 5/8 37 3/4 30 5/8
Average 67.13 55.77 55.53 53.53 51.82 43.18 41.66 36.66
Close 71 59 1/4 57 55 1/4 53 3/4 44 3/4 41 5/8 40 3/4
Dividends .60 .60 .60 .55 .55 .50 .50 .45
Market capitalization $ 9,134 $ 7,668 $ 7,414 $ 7,317 $ 7,374 $ 6,324 $ 5,925 $ 5,969
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) See page 30 for the definition of these results.
(b) At December 31, 1996, there were 23,856 shareholders registered with the
Corporation's stock transfer agent, compared with 23,755 at year-end 1995
and 23,092 at year-end 1994. In addition, there were approximately 16,977,
15,651, and approximately 15,000 Mellon employees at December 31, 1996,
1995 and 1994, 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.
62
<PAGE> 45
<TABLE>
<CAPTION>
CONSOLIDATED INCOME STATEMENT
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(dollar amounts in millions, except per share amounts) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE Interest and fees on loans (loan fees of $96, $79 and $87) $2,253 $2,425 $1,926
Interest-bearing deposits with banks 36 36 34
Federal funds sold and securities under resale agreements 30 34 30
Other money market investments 7 2 6
Trading account securities 7 19 24
Securities:
U.S. Treasury and agency securities 392 305 269
Obligation of states and political subdivisions 2 3 5
Other 12 14 16
------------------------------------------------------------------------------------------------------
Total interest revenue 2,739 2,838 2,310
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE Deposits in domestic offices 709 663 447
Deposits in foreign offices 194 226 92
Federal funds purchased and securities under
repurchase agreements 94 125 76
Short-term bank notes 29 50 2
Other short-term borrowings 92 109 75
Notes and debentures 143 117 110
------------------------------------------------------------------------------------------------------
Total interest expense 1,261 1,290 802
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST REVENUE Net interest revenue 1,478 1,548 1,508
Provision for credit losses 155 105 70
------------------------------------------------------------------------------------------------------
Net interest revenue after provision for losses 1,323 1,443 1,438
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST REVENUE Trust and investment management fees 994 906 953
Cash management and deposit transaction charges 211 191 197
Mortgage servicing fees 180 122 78
Credit card fees 120 90 72
Foreign currency and securities trading 80 91 76
Information services fees 50 48 78
Gain on sale of credit card portfolio 57 - -
Other income 327 222 198
------------------------------------------------------------------------------------------------------
Total fee revenue 2,019 1,670 1,652
Gains (losses) on sales of securities 4 6 (5)
------------------------------------------------------------------------------------------------------
Total noninterest revenue 2,023 1,676 1,647
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE Staff expense 1,055 957 956
Net occupancy expense 205 205 206
Professional, legal and other purchased services 195 186 210
Equipment expense 145 143 132
Business development 137 136 161
Amortization of mortgage servicing rights and
purchased credit card relationships 107 68 40
Amortization of goodwill and other intangible assets 100 96 98
Communications expense 96 86 84
Forms and supplies 42 42 40
FDIC assessment and regulatory examination fees 6 31 63
Other expense 120 97 85
Net revenue from acquired property (13) (20) (28)
Securities lending charge - - 223
Merger expense - - 104
------------------------------------------------------------------------------------------------------
Total operating expense 2,195 2,027 2,374
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME Income before income taxes 1,151 1,092 711
Provision for income taxes 418 401 278
------------------------------------------------------------------------------------------------------
NET INCOME 733 691 433
Dividends on preferred stock 44 39 75
------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 689 $ 652 $ 358
- ---------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE Primary net income $ 5.17 $ 4.50 $ 2.42
Fully diluted net income $ 5.15 $ 4.46 $ 2.42
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
63
<PAGE> 46
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
MELLON BANK CORPORATION (AND ITS SUBSIDIARIES)
- ---------------------------------------------------------------------------------------------------------------------------------
December 31,
(dollar amounts in millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Cash and due from banks $ 2,846 $ 2,342
Federal funds sold and securities under resale agreements 460 225
Interest-bearing deposits with banks 419 553
Other money market investments 113 82
Trading account securities 84 62
Securities available for sale 4,111 2,913
Investment securities (approximate fair value of $2,365 and $2,554) 2,375 2,519
Loans, net of unearned discount of $57 and $44 27,393 27,690
Reserve for credit losses (525) (471)
------- -------
Net loans 26,868 27,219
Customers' acceptance liability 238 263
Premises and equipment 569 556
Goodwill and other intangibles 1,238 958
Mortgage servicing rights
and purchased credit card relationships 774 682
Acquired property, net of reserves of $10 and $18 80 69
Other assets 2,421 2,203
------------------------------------------------------------------------------------------------------
Total assets $42,596 $40,646
------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Noninterest-bearing deposits in domestic offices $ 8,692 $ 6,458
Interest-bearing deposits in domestic offices 19,965 18,412
Interest-bearing deposits in foreign offices 2,717 4,391
------------------------------------------------------------------------------------------------------
Total deposits 31,374 29,261
Federal funds purchased and securities under
repurchase agreements 742 1,591
Term federal funds purchased 481 905
U.S. Treasury tax and loan demand notes 474 290
Short-term bank notes 135 1,057
Commercial paper 122 284
Other funds borrowed 293 190
Acceptances outstanding 238 263
Other liabilities 1,483 1,337
Notes and debentures (with original maturities over one year) 2,518 1,443
------------------------------------------------------------------------------------------------------
Total liabilities 37,860 36,621
- ---------------------------------------------------------------------------------------------------------------------------------
TRUST-PREFERRED Guaranteed preferred beneficial interests in Corporation's
SECURITIES junior subordinated deferrable interest debentures 990 -
- ---------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' Preferred stock 290 435
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 1,866 1,850
Retained earnings 2,480 2,118
Net unrealized gain (loss) on assets available for sale, net of tax (1) 18
Treasury stock of 18,518,290 and 9,978,407 shares at cost (963) (470)
-------------------------------------------------------------------------------------------------------
Total common shareholders' equity 3,456 3,590
------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,746 4,025
------------------------------------------------------------------------------------------------------
Total liabilities, trust-preferred securities and shareholders' equity $42,596 $40,646
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
64
<PAGE> 47
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
MELLON BANK CORPORATION (CONSOLIDATED AND PARENT CORPORATION)
- -----------------------------------------------------------------------------------------------------------------------------------
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, 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
NET INCOME 733 733
DIVIDENDS ON COMMON STOCK
AT $2.35 PER SHARE (310) (310)
DIVIDENDS ON PREFERRED STOCK (44) (44)
COMMON STOCK ISSUED UNDER DIVIDEND
REINVESTMENT AND COMMON STOCK
PURCHASE PLAN 4 14 18
SERIES I PREFERRED STOCK REDEMPTION (145) (145)
REPURCHASE OF COMMON STOCK FOR
EMPLOYEE BENEFIT PURPOSES (192) (192)
EXERCISE OF STOCK OPTIONS 10 (17) 70 63
REPURCHASE OF COMMON STOCK - OTHER (404) (404)
NET UNREALIZED LOSS ON ASSETS AVAILABLE
FOR SALE, NET OF TAX (19) (19)
OTHER 2 19 21
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $290 $74 $1,866 $2,480 $ - $(1) $(963) $3,746
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Dividends per share have not been restated to reflect the Dreyfus merger.
See accompanying Notes to Financial Statements.
65
<PAGE> 48
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
MELLON BANK CORPORATION (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net income $ 733 $ 691 $ 433
OPERATING ACTIVITIES Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill and other intangible assets 100 96 98
Amortization of mortgage servicing rights
and purchased credit card relationships 107 68 40
Depreciation and other amortization 105 107 95
Deferred income tax expense (benefit) 95 167 (14)
Provision for credit losses 155 105 70
Net gains on dispositions of acquired property (11) (12) (30)
Net (increase) decrease in accrued interest receivable 9 (45) (42)
Net (increase) decrease in trading account securities (15) 12 52
Net increase in accrued interest payable 15 35 34
Net (increase) decrease in residential mortgages held for sale 340 (367) 217
Securities lending charge - - 223
Merger expense - - 104
Net decrease in other operating activities (469) (602) (331)
-------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,164 255 949
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM Net (increase) decrease in term deposits and other money
INVESTING ACTIVITIES market investments 103 (158) 715
Net (increase) decrease in federal funds sold and securities
under resale agreements (235) 158 191
Funds invested in securities available for sale (14,768) (5,070) (11,526)
Proceeds from sales of securities available for sale 1,453 1,845 3,808
Proceeds from maturities of securities available for sale 12,176 2,898 8,927
Funds invested in investment securities (219) (175) (1,458)
Proceeds from maturities of investment securities 360 307 488
Net increase in credit card receivables (387) (600) (870)
Sale of credit card portfolio 886 - -
Net principal disbursed on loans to customers (884) (1,662) (1,544)
Home equity credit line loans securitized 650 - -
Insurance premium finance loans securitized 500 - -
Loan portfolio purchases (254) (302) (216)
Proceeds from sales of loan portfolios 907 815 286
Purchases of premises and equipment (125) (101) (133)
Proceeds from sales of acquired property 31 49 93
Cash paid in purchase of USL (1,688) - -
Cash paid in purchase of FUL (136) - -
Cash paid in purchase of Metmor Financial, Inc.,
including warehouse loans purchased of $166
million, net of
cash received and escrow deposits - (130) -
Credit card receivables securitized - 950 -
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)
Net (increase) decrease in other investing activities (111) (137) 75
------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,741) (1,313) (1,275)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-continued-
66
<PAGE> 49
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM Net increase (decrease) in transaction and savings deposits (695) 955 (1,070)
FINANCING ACTIVITIES Net increase in customer term deposits 2,808 500 807
Net increase (decrease) in federal funds purchased and
securities under repurchase agreements (849) (432) 1,045
Net increase (decrease) in U.S. Treasury tax and loan demand notes 184 (277) (144)
Net increase (decrease) in short-term bank notes (922) 857 200
Net increase (decrease) in term federal funds purchased (424) 572 325
Net increase (decrease) in commercial paper (162) 106 44
Net proceeds from issuance of Guaranteed preferred
beneficial interests in Corporation's junior subordinated
deferrable interest debentures 990 - -
Repurchase and repayments of longer-term debt (24) (354) (425)
Net proceeds from issuance of longer-term debt 1,099 227 1
Redemption of preferred stock (145) (155) -
Net proceeds from issuance of common stock 55 58 18
Dividends paid on common and preferred stock (354) (346) (254)
Repurchase of common stock for employee benefit purposes (192) (235) -
Repurchase of common stock - other (404) (184) -
Repurchase of common stock and warrants related to
the 1993 acquisition of The Boston Company - (213) -
Net increase (decrease) in other financing activities 101 17 (127)
------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,066 1,096 420
Effect of foreign currency exchange rates 15 19 20
- ---------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND Net increase in cash and due from banks 504 57 114
DUE FROM BANKS Cash and due from banks at beginning of year 2,342 2,285 2,171
------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 2,846 $ 2,342 $ 2,285
------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL Interest paid $ 1,246 $ 1,255 $ 768
DISCLOSURES Net income taxes paid 283 182 284
------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
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. 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.
The parent Corporation financial statements in note 27 include the accounts of
the Corporation, those of a wholly owned financing subsidiary that functions as
a financing entity for the Corporation and its subsidiaries by issuing
commercial
67
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
paper and other debt guaranteed by the Corporation and those of the business
trusts discussed in note 13 on page 78. Financial data for the Corporation, the
financing subsidiary, and the business trusts are combined for financial
reporting because of the limited function of the financing subsidiary and the
business trusts, and the unconditional guarantee by the Corporation of their
obligations.
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, lease financing 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.
Securities available for sale are stated at fair value. Unrealized gains or
losses on assets classified as available for sale, net of tax, are 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.
68
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
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.
Commercial loans, including commercial leases, 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 commercial loans on nonaccrual status when the
collection of principal or interest becomes doubtful. 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. 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.
A loan is considered to be impaired, as defined by FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," 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. The Corporation tests loans
covered under FAS No. 114 for impairment if they are on nonaccrual status or
have been restructured. Consumer credit nonaccrual loans are not tested for
impairment because they are included in large groups of smaller-balance
homogeneous loans that, by definition along with leases, are excluded from the
scope of FAS No. 114. Impaired loans 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. Impairment
reserves are not needed when interest payments have been applied to reduce
principal, or when credit losses have been recorded so that the recorded
investment in an impaired loan is less than the loan valuation.
Loan securitizations
The Corporation securitized $650 million of home equity credit line loan
outstandings in March 1996, $500 million of insurance premium finance
receivables in December 1996 and $950 million of credit card receivables in
November 1995. The amount of interest and fee revenue in excess of both
interest paid to certificate holders and credit losses is recognized monthly as
servicing revenue. The servicing revenue from the home equity lines of credit
and insurance premium finance receivables is reported as "other fee revenue".
The servicing revenue from the credit card securitization is reported 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.
69
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
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 revenue from 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, 1996, 18 years for goodwill, four years
for core deposit intangibles, 6 years for credit card relationships and 11
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.
Originated mortgage servicing rights (MSRs) are recorded by allocating total
costs incurred between the loan and servicing rights based on their relative
fair values. Purchased MSRs are recorded at cost. MSRs are amortized in
proportion to the estimated servicing income over the estimated life of the
servicing portfolio. In 1996 and 1995, $285 million and $376 million,
respectively, of MSR's were capitalized in connection with both mortgage
servicing portfolio purchases and loan originations. The carrying amount of
MSRs was $745 million at December 31, 1996, with an estimated fair value of
$869 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 were to exceed its fair value, a valuation allowance
would be established. No valuation allowances were recorded at December 31,
1996 and 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, 1996, the serviced
mortgage loan portfolio had an interest rate of approximately 7.95%.
On January 1, 1996, the Corporation adopted Statement of Financial Accounting
Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." FAS No. 121 established
guidelines for recognition of impairment losses related to long-lived assets
and certain intangibles and related goodwill for both assets to be held and
used as well as assets held for disposition. This statement excludes financial
instruments, long-term customer relationships of financial institutions,
mortgage and other servicing rights and deferred tax assets. Adoption of this
statement was immaterial to the Corporation's financial position and results of
operations.
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 had a history
of delinquency,
70
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
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 files a consolidated U.S. income tax return. Deferred taxes are
recognized for the expected future tax consequences of existing differences
between the financial reporting and tax reporting bases of assets and
liabilities using enacted tax laws and rates.
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 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
71
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
1. ACCOUNTING POLICIES (CONTINUED)
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 1996, 1995 and 1994 was 133.2
million, 145.1 million and 149.1 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 1996, 1995 and 1994 was 133.9 million,
146.2 million and 149.2 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 $347
million at December 31, 1996, and $630 million at December 31, 1995. These
balances averaged $485 million in 1996 and $569 million in 1995.
3. SECURITIES
Gross realized gains on the sale of securities available for sale were $4
million, $7 million and $16 million in 1996, 1995 and 1994, respectively. Gross
realized losses on the sale of securities available for sale were less than $1
million, $1 million and $21 million in 1996, 1995 and 1994, respectively. After
tax net gains on the sale of securities were $3 million and $4 million in 1996
and 1995, respectively. After tax net losses on the sale of securities were $3
million in 1994. Proceeds from the sale of securities available for sale were
$1.5 billion, $1.8 billion and $3.8 billion in 1996, 1995 and 1994,
respectively. There were no sales of investment securities in 1996, 1995 and
1994.
Securities available for sale, investment securities, trading account
securities and loans, with book values of $4.5 billion at December 31, 1996,
and $3.1 billion at December 31, 1995, were required to be pledged to secure
public and trust deposits, repurchase agreements and for other purposes.
72
<PAGE> 55
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
SECURITIES AVAILABLE FOR SALE
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995
--------------------------------------------- ------------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 395 $ - $ - $ 395 $ 209 $ 1 $ - $ 210
U.S. agency mortgage-backed 1,945 16 24 1,937 1,572 38 4 1,606
Other U.S. agency 1,676 2 - 1,678 951 2 - 953
- -----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 4,016 18 24 4,010 2,732 41 4 2,769
Obligations of states and
political subdivisions 49 - - 49 62 1 - 63
Other mortgage-backed 4 - - 4 7 - - 7
Other securities 42 6 - 48 68 7 1 74
- -----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $4,111 $24 $24 $4,111 $2,869 $49 $ 5 $2,913
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF SECURITIES AVAILABLE FOR SALE
- -------------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1996
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 $358 $ - $881 $1,239 $25 $ - $ 7 $1,271
Fair value 358 - 881 1,239 25 - 7 1,271
Yield 5.00% - 5.32% 5.23% 7.10% - 6.47% 5.27%
1 to 5 years
Amortized cost 37 - 795 832 18 - 5 855
Fair value 37 - 797 834 18 - 5 857
Yield 6.13% - 5.81% 5.83% 7.01% - 6.72% 5.86%
5 to 10 years
Amortized cost - - - - 1 - - 1
Fair value - - - - 1 - - 1
Yield - - - - 9.83% - - 9.83%
Over 10 years
Amortized cost - - - - 5 - 30 35
Fair value - - - - 5 - 36 41
Yield - - - - 9.10% - 7.36%(c) 7.98%(c)
Mortgage-backed
securities
Amortized cost - 1,945 - 1,945 - 4 - 1,949
Fair value - 1,937 - 1,937 - 4 - 1,941
Yield - 7.30% - 7.30% - 6.28% - 7.30%
- -------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $395 $1,945 $1,676 $4,016 $49 $ 4 $42 $4,111
Total fair value 395 1,937 1,678 4,010 49 4 48 4,111
Total yield 5.10% 7.30% 5.55% 6.35% 7.31% 6.28% 6.92%(c) 6.37%(c)
Weighted average
contractual years to
maturity .65 - (a) 1.00 .93 (b) 3.19 - (a) 1.63 (c)
</TABLE>
(a) The average expected lives of "U.S. agency mortgage-backed" and "Other
mortgage-backed" securities were approximately 8.2 years and 3.0 years,
respectively, at December 31, 1996.
(b) Excludes maturities of "U.S. agency mortgage-backed" securities.
(c) Yield excludes equity securities and other investments which have no
stated yield.
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.
73
<PAGE> 56
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------------------
3. SECURITIES (CONTINUED)
INVESTMENT SECURITIES
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995
------------------------------------------- -----------------------------------------
AMORTIZED GROSS UNREALIZED FAIR Amortized Gross unrealized Fair
(in millions) COST GAINS LOSSES VALUE cost Gains Losses value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury $ 30 $ 2 $ 1 $ 31 $ 33 $ 4 $ - $ 37
U.S. agency mortgage-backed 2,262 5 17 2,250 2,375 34 4 2,405
- -----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury and
agency securities 2,292 7 18 2,281 2,408 38 4 2,442
Other mortgage-backed 29 1 - 30 39 1 - 40
Other securities 54 - - 54 72 - - 72
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities $2,375 $ 8 $18 $2,365 $2,519 $39 $ 4 $2,554
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY DISTRIBUTION OF INVESTMENT SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------------
Contractual maturities at December 31, 1996
U.S. agency Total Other Total
(dollar amounts U.S. mortgage- U.S. Treasury mortgage- Other investment
in millions) Treasury backed and agency backed securities securities
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Within one year
Amortized cost $ - $ - $ - $ - $ 5 $ 5
Fair value - - - - 5 5
Yield - - - - 5.69% 5.69%
1 to 5 years
Amortized cost 4 - 4 - - 4
Fair value 4 - 4 - - 4
Yield 5.76% - 5.76% - - 5.76%
5 to 10 years
Amortized cost - - - - 10 10
Fair value - - - - 10 10
Yield - - - - 9.26% 9.26%
Over 10 years
Amortized cost 26 - 26 - 39 (a) 65
Fair value 27 - 27 - 39 (a) 66
Yield 7.27% - 7.27% - 5.82% 6.39%
Mortgage-backed
securities
Amortized cost - 2,262 2,262 29 - 2,291
Fair value - 2,250 2,250 30 - 2,280
Yield - 7.09% 7.09% 7.26% - 7.09%
- ----------------------------------------------------------------------------------------------------------------------------------
Total amortized cost $30 $2,262 $2,292 29 $54 $2,375
Total fair value 31 2,250 2,281 30 54 2,365
Total yield 7.08% 7.09% 7.09% 7.26% 6.44% 7.07%
Weighted average
contractual years to
maturity 15.45 - (b) 15.45 (c) - (b) 1.96 -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes Federal Reserve Bank stock of $37 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 4.9 years,
respectively, at December 31, 1996.
(c) Excludes maturities of "U.S. agency mortgage-backed" securities.
Note: Expected maturities may differ from the contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Rates are calculated on a taxable equivalent basis
using a 35% federal income tax rate.
74
<PAGE> 57
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
4. LOANS
For details of the loans outstanding at December 31, 1996 and 1995, see the
1996 and 1995 columns of the "Composition of loan portfolio at year-end" table
on page 52. 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, 1996 and
1995, see the amounts in the 1996 and 1995 columns of the "Nonperforming
assets" and "Past-due loans" tables on pages 56 and 58. The information in
those columns is incorporated by reference into these Notes to Financial
Statements. For details on impaired loans at December 31, 1996 and 1995, see
the "Impaired loans" table on page 57. The information in this table is
incorporated by reference into these Notes to Financial Statements. Foregone
interest on restructured loans was less than $1 million in 1996 and 1995 and
approximately $1 million in 1994.
5. RESERVE FOR CREDIT LOSSES
For details of the reserve for credit losses for 1996, 1995 and 1994, see the
1996, 1995 and 1994 columns of the "Credit loss reserve activity" table on page
60. The information in those columns is incorporated by reference into these
Notes to Financial Statements.
6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 29 $ 29
Buildings 281 278
Equipment 744 648
Leasehold improvements 174 179
- ---------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,228 1,134
Accumulated depreciation and amortization (659) (578)
- ---------------------------------------------------------------------------------------------------------------------------------
Total premises and equipment $ 569 $ 556
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The table above includes capital leases for premises and equipment at a net
book value of $2 million at both December 31, 1996 and 1995.
Rental expense was $124 million, $121 million and $117 million, respectively,
net of related sublease revenue of $25 million, $25 million and $33 million, in
1996, 1995 and 1994, respectively. Depreciation and amortization expense
totaled $105 million, $107 million and $95 million in 1996, 1995 and 1994,
respectively. Maintenance, repairs and utilities expenses totaled $93 million,
$90 million and $89 million in 1996, 1995 and 1994, respectively.
As of December 31, 1996, 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 $75 million, is
as follows: 1997--$115 million; 1998--$113 million; 1999--$116 million;
2000--$108 million; 2001--$103 million and 2002 through 2020--$871 million.
7. RESERVE FOR REAL ESTATE ACQUIRED
An analysis of the reserve for real estate acquired for 1996, 1995 and 1994 is
presented in the "Change in reserve for real estate acquired" table on page 58
and is incorporated by reference into these Notes to Financial Statements.
75
<PAGE> 58
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
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 $10 million at December 31, 1996, including gross
segregated assets of $14 million and a $4 million reserve for credit losses. At
December 31, 1995, segregated assets totaled $24 million, including gross
segregated assets of $28 million and a $4 million reserve for credit losses.
As a result of the loss sharing arrangement with the FDIC, any of the
performing commercial loans or performing commercial real estate loans acquired
in the Meritor retail office acquisition that become nonaccrual before December
31, 1997, will be reclassified to segregated assets. The loss sharing
provisions of the arrangement stipulate that, during the first five years, the
FDIC will pay to Mellon Bank, N.A. 80% of the net credit losses on acquired
commercial real estate and other commercial loans.
During the sixth and seventh years of the arrangement, Mellon Bank, N.A. will
pay to the FDIC 80% of any recoveries of charge-offs on such acquired loans
that had occurred during the first five years of the arrangement. At the end of
the seventh year, the FDIC will pay to Mellon Bank, N.A. an additional 15% of
the sum of net charge-offs on the acquired loans that occurred during the first
five years, less the recoveries during the sixth and seventh years of the
arrangement in excess of $60 million. The $60 million credit loss threshold was
reached in the first quarter of 1993.
The FDIC will also reimburse Mellon Bank, N.A. for expenses incurred to recover
amounts owed and net expenses incurred with respect to foreclosed properties
derived from the acquired commercial real estate or commercial loans. Expenses
are reimbursed by the FDIC in the same proportion as the reimbursement of net
loan losses. In addition, the FDIC will reimburse 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) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid expense:
Pension $ 307 $ 290
Other 67 65
Interest receivable 235 244
Accounts receivable 283 196
Receivables related to off-balance-sheet instruments 329 388
Assets held for accelerated resolution 30 82
Other 1,170 938
- -----------------------------------------------------------------------------------------------------------------------------------
Total other assets $2,421 $2,203
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or greater
was approximately $6.0 billion and $3.3 billion at December 31, 1996 and 1995,
respectively.
At December 31, 1996, the scheduled maturity of time deposits for the years
1997 through 2001 and thereafter are as follows: $9,956 million, $1,152
million, $336 million, $182 million and $301 million, respectively.
76
<PAGE> 59
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
11. REVOLVING CREDIT AGREEMENT
During 1996, the Corporation signed a four-year $300 million 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, 1996, the Corporation's double leverage ratio was 1.21 and the
nonperforming asset coverage ratio was 18 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, 1996 or 1995. No
borrowings were made under any facility in 1996 or 1995. Commitment fees
totaled less than $1 million in each of the years 1994 through 1996.
12. NOTES AND DEBENTURES (WITH ORIGINAL MATURITIES OVER ONE YEAR)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Corporation:
6.70% Subordinated Debentures due 2008 $ 249 $ -
6.30% Senior Notes due 2000 200 200
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 100 99
Medium Term Notes, Series A, due 1997-2001 (10.00% to 10.50% at December 31, 1996,
and 9.75% to 10.50% at December 31, 1995) 27 47
7-1/4% Convertible Subordinated Capital Notes due 1999 3 4
Subsidiaries:
7% Subordinated Notes due 2006 300 -
7-5/8% Subordinated Notes due 2007 249 -
6-1/2% Subordinated Notes due 2005 249 249
6-3/4% Subordinated Notes due 2003 149 149
Medium Term Bank Notes due 1997-2007 (6.10% to 8.55% at December 31, 1996, and
6.57% to 8.55% at December 31, 1995) 338 38
Various notes and obligations under capital leases due 1997-2001 (3.92% to 10.50% at
December 31, 1996 and December 31, 1995) 4 7
- -------------------------------------------------------------------------------------------------------------------------------
Total unsecured notes and debentures (with original maturities over one year) $2,518 $1,443
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In March 1996, Mellon Bank, N.A., the Corporation's principal banking
subsidiary, issued the 7% fixed rate notes due 2006 and in September 1996,
issued the 7 5/8% fixed rate notes due 2007. In March 1996, the Corporation
issued the 6.70% fixed rate notes due 2008. Prior to issuance, Mellon Bank,
N.A. and the Corporation hedged the cost of these debt issues with interest
rate agreements. The interest rate agreements were terminated upon issuance of
the debt. The effective interest rates of these debt issues, including the
effect of the interest rate agreements, are 6.43% and 7.34%, respectively, for
the instruments issued by Mellon Bank, N.A. and 6.91% for the debt issued by
the Corporation.
The 7%, 7-5/8%, 6-1/2% and 6-3/4% Subordinated Notes due 2006, 2007, 2005 and
2003, and the fixed-rate Medium Term Bank Notes due 1997 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
1997 through 2001, for the Corporation, are as follows: $407 million, $119
million, $208 million, $205 million and $205 million, respectively. The
aggregate amounts of notes and debentures that mature during the five years
1997 through 2001, for Mellon Bank Corporation (Parent Corporation), are as
follows: $205 million, $12 million, $203 million, $205 million and $205
million, respectively.
77
<PAGE> 60
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
13. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN CORPORATION'S JUNIOR
SUBORDINATED DEFERRABLE INTEREST DEBENTURES (TRUST-PREFERRED SECURITIES)
In the fourth quarter of 1996, the Corporation formed two statutory business
trusts, Mellon Capital I and Mellon Capital II. All of the common securities of
these special purpose trusts are owned by the Corporation; the trusts exist
solely to issue Capital Securities. For financial reporting purposes, the
trusts are treated as subsidiaries and are consolidated into the financial
statements of the Corporation. The Capital Securities are presented as a
separate line item on the consolidated balance sheet as Guaranteed preferred
beneficial interests in the Corporation's junior subordinated deferrable
interest debentures (Trust-preferred securities). The trusts have issued the
Trust-preferred securities and invested the net proceeds in junior subordinated
deferrable interest debentures (Subordinated Debentures) issued to the trusts
by the Corporation. The Subordinated Debentures are the sole assets of the
trusts. The Corporation has the right to defer payment of interest on the
Subordinated Debentures at any time, or from time to time, for periods not
exceeding five years. If interest payments on the Subordinated Debentures are
deferred, the distributions on the Trust-preferred securities also are
deferred. Interest on the Subordinated Debentures is cumulative. The
Corporation, through guarantees and agreements, has fully and unconditionally
guaranteed all of the trusts' obligations under the Trust-preferred securities.
The Federal Reserve Bank has accorded the Trust-preferred securities Tier I
capital status. The ability to apply Tier I capital treatment, as well as to
deduct the expense of the Subordinated Debentures for income tax purposes,
provided the Corporation with a cost-effective way to raise regulatory capital.
The Trust-preferred securities are not included as a component of total
shareholders' equity on the consolidated balance sheet.
The table below summarizes the Corporation's Trust-preferred securities
outstanding at December 31, 1996. For purposes of the table and discussion that
follows, the terms and conditions of the Trust-preferred securities are treated
as identical to the underlying Subordinated Debentures.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Liquidation Balances at
(dollar amounts in millions, preference December 31,
except per security amounts) per security 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
7.72% Series A $1,000.00 $494 $ -
7.995% Series B $1,000.00 496 -
----- ------
Total $990 $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Series A and Series B Trust-preferred securities pay cash distributions
semiannually at the rate of 7.72% and 7.995% of the liquidation preference,
respectively, per annum. Any unpaid distribution is cumulative. The Corporation
recorded $3 million of expense on these securities in 1996. The securities were
each issued for a face value of $500 million and reported net of issuance costs
in the table above. The securities are unsecured and subordinate to all senior
debt (as defined) of the Corporation. The Series A and Series B securities
mature on December 1, 2026, and January 15, 2027, respectively.
The Series A and Series B securities are redeemable, in whole or in part, at
the option of the Corporation on or after December 1, 2006, and January 15,
2007, respectively, or prior to those dates, in whole, within 90 days following
receipt of a legal opinion that, due to a change in the tax laws or an
administrative or judicial decision, there is a substantial risk that the tax
deductibility of the interest could be disallowed (tax event) or the
Corporation's reasonable determination that, due to a change in law or
administrative or judicial decision, there is a substantial risk that Tier I
capital treatment could be disallowed (capital treatment event). The Series A
and Series B securities are redeemable at 103.86% and 103.9975%, respectively,
of the liquidation amounts, plus accrued distributions, during the 12-month
periods beginning December 1, 2006, and January 15, 2007, respectively (the
call dates). The redemption prices decline for the Series A and Series B
securities by approximately 39 basis points and approximately 40 basis points,
respectively, during each of the following 12-month periods, until a final
redemption price of 100% of the liquidation amount is set for December 1, 2016,
and January 15, 2017, respectively, and thereafter. If the securities are
redeemed following a "tax event" or "capital treatment event," the greater of
100% of the principal amount or the sum of the present value of the first
redemption price plus the present value of interest payments from the
redemption date to the call dates will be paid.
78
<PAGE> 61
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
14. PREFERRED STOCK
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Liquidation Balances at 1996 Dividends
(dollar amounts in millions, preference Shares Shares December 31, ---------------------
except per share amounts) per share authorized issued 1996 1995 1994 Per share Aggregate
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
9.60% preferred stock (Series I) 25.00 - - - 145 145 2.30 14 (a)
----- ---- ----
Total preferred stock $290 $435 $435
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) As a result of the redemption of the Series I preferred stock, the
Corporation recorded an additional $5 million of preferred stock
dividends in 1996. These additional dividends reflect the write-off of
issue costs. Including the additional dividends, total Series I
preferred stock dividends were $19 million in 1996.
The Corporation has authorized 50,000,000 shares of Series preferred stock, par
value $1.00 per share, at December 31, 1996. The table above summarizes the
Corporation's preferred stock outstanding at December 31, 1996, 1995 and 1994.
The Corporation redeemed the Series I preferred stock on December 16, 1996, and
announced on January 8, 1997, that it will redeem the Series J preferred stock
on February 18, 1997. The Series I preferred stock was redeemed and the Series
J preferred stock will be redeemed at a price of $25 per share plus accrued
dividends.
The Series K preferred stock is 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 February 15, 1998. In the event of liquidation or dissolution of the
Corporation, the rights of the 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 the Series K preferred stock, 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 K preferred stock will be entitled to elect two
additional directors to serve until all dividends in arrears have been paid or
declared and set aside for payment.
15. EQUITY PURCHASE OPTIONS (WARRANTS)
In connection with the 1993 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.
16. REGULATORY CAPITAL REQUIREMENTS
A discussion about the Corporation's regulatory capital requirements for 1996
and 1995 is presented in the "Regulatory capital" section on pages 40 to 42 and
is incorporated by reference into these Notes to Financial Statements.
17. NONINTEREST REVENUE
The components of noninterest revenue for the three years ended December 31,
1996, are presented in the "Noninterest revenue" table on page 32. This table
is incorporated by reference into these Notes to Financial Statements.
79
<PAGE> 62
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
18. FOREIGN CURRENCY AND SECURITIES TRADING REVENUE
The Corporation's trading activities involve a variety of financial
instruments, including U.S. government securities, municipal securities and
money market securities, as well as off-balance-sheet instruments. The majority
of the Corporation's trading revenue is earned by structuring and executing
off-balance-sheet instruments for customers. The resulting risks are limited by
entering into generally matching or offsetting positions. The Corporation also
enters into positions in interest rate, foreign exchange and debt instruments
based upon expectations of future market conditions. Unmatched positions are
monitored through established limits. To maximize net trading revenues, the
market-making and proprietary positions are managed together by product.
The results of the Corporation's foreign currency and securities trading
activities are presented, by class of financial instrument, in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign exchange contracts $72 $88 $69
Debt instruments 4 4 4
Interest rate contracts 2 - 3
Futures contracts 2 (1) -
- --------------------------------------------------------------------------------------------------------------------------------
Total foreign currency and securities trading revenue (a) $80 $91 $76
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Corporation recognized an unrealized loss of less than $1 million at
December 31, 1996 and 1995 and an unrealized gain of less than $1 million
at December 31, 1994, related to securities held in the trading portfolio.
19. INCOME TAXES
Income tax expense applicable to income before taxes consists of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $289 $213 $264
State and local 25 17 26
Foreign 9 4 2
- --------------------------------------------------------------------------------------------------------------------------------
Total current tax expense 323 234 292
- --------------------------------------------------------------------------------------------------------------------------------
Deferred taxes:
Federal 89 138 (4)
State and local 6 28 (11)
Foreign - 1 1
- --------------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) 95 167 (14)
- --------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $418 $401 $278
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to amounts applicable to income before taxes, the following income
tax expense (benefit) amounts were recorded in shareholders' equity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensation expense for tax purposes in excess
of amounts recognized for financial statement purposes $(17) $(15) $ (3)
Change in net unrealized gain (loss) on assets available for sale (10) 39 (30)
- ---------------------------------------------------------------------------------------------------------------------------------
Total tax expense (benefit) $(27) $ 24 $(33)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
80
<PAGE> 63
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
19. INCOME TAXES (CONTINUED)
Components of deferred tax expense are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(in millions) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit), excluding the effect of other components listed below $95 $160 $ (7)
Reduction of deferred tax valuation allowance - - (7)
Adjustment to deferred tax assets and liabilities for enacted changes in tax laws and rates - 7 -
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred tax expense (benefit) $95 $167 $(14)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35% 35% 35%
Tax expense computed at statutory rate $403 $382 $249
Increase (decrease) resulting from:
State and local income taxes, net of federal tax benefit 20 29 10
Amortization of goodwill 12 13 15
Other, net (17) (23) 4
- ---------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes $418 $401 $278
- ---------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 36.3% 36.7% 39.1%
- ---------------------------------------------------------------------------------------------------------------------------------
</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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Provision for credit losses and
write-downs on real estate acquired $205 $230 $254
Accrued expense not deductible until paid 44 31 125
Occupancy expense 72 73 74
Other 21 28 77
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 342 362 530
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Lease financing revenue 359 282 250
Salaries and employee benefits 27 21 16
Other 22 33 38
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 408 336 304
- ---------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $(66) $ 26 $226
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation determined that it was not required to establish a valuation
allowance for deferred tax assets because it is management's assertion that the
deferred tax assets are likely to 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.
81
<PAGE> 64
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
20. 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
(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 7.0% 7.0% 7.5% 7.5% 6.0% 6.0%
Rate of return on assets 10.0 - 10.0 - 10.0 -
Actuarial salary scale 3.0 3.0 3.5 3.5 3.0 3.0
- ------------------------------------------------------------------------------------------------------------------------------------
Components of pension expense (credit):
Service cost $ 20 $ 2 $ 18 $ 1 $ 21 $ 2
Interest cost on projected benefit obligation 27 3 24 3 22 2
Return on plan assets (143) - (201) - (1) -
Net amortization and deferral 74 2 140 1 (47) 1
Special termination benefits 15 - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total pension expense (credit) $ (7) $ 7 $(19) $ 5 $ (5) $ 5
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 1995
(dollar amounts in millions) FUNDED UNFUNDED Funded Unfunded
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assumptions used for obligation at December 31:
Rate on obligation 7.0% 7.0% 6.0% 6.0%
Actuarial salary scale 3.0 3.0 3.0 3.0
- ----------------------------------------------------------------------------------------------------------------------------------
Present value of benefit obligation at December 31:
Vested $ 372 $ 54 $363 $ 43
Nonvested 30 1 31 1
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 402 55 394 44
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of projected future compensation levels 50 2 61 4
- ----------------------------------------------------------------------------------------------------------------------------------
Present value of projected benefit obligation $ 452 $ 57 $455 $ 48
- ----------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair market value at December 31:
Cash and U.S. Treasury securities $ 228 $ - $173 $ -
Corporate debt obligations 64 - 64 -
Mellon Bank Corporation common stock (a) 53 - 40 -
Other common stock and investments 661 - 588 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total plan assets at fair market value $1,006 $ - $865 $ -
- ----------------------------------------------------------------------------------------------------------------------------------
Reconciliation of funded status with financial statements:
Funded status at December 31 $ 554 $ (57) $410 $(48)
Unamortized net transition (asset) obligation (14) 1 (18) 1
Unrecognized prior service cost 10 11 14 3
Net deferred actuarial (gain) loss (243) 8 (116) 11
Adjustment required to recognize minimum liability - (18) - (11)
- ----------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) expense at December 31 $ 307 $(55) $290 $(44)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents 750,000 shares at December 31, 1996 and December 31, 1995. The
Mellon Bank, N.A. retirement plan received approximately $2 million of
dividends from Mellon Bank Corporation's common stock in both 1996 and
1995.
82
<PAGE> 65
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
20. EMPLOYEE BENEFITS (CONTINUED)
Long-Term Profit Incentive Plan
The Corporation has a Long-Term Profit Incentive Plan (1996) which provides for
the issuance of stock options, stock appreciation rights, performance units,
deferred cash incentive awards and shares of restricted stock to officers and
other key employees of the Corporation and its subsidiaries as approved by the
Human Resources Committee of the board of directors. 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 from 1
year to 10 years from the date of grant. In the event of a change in control of
the Corporation, as defined in the plan, these options will become immediately
exercisable, unless otherwise provided in the option agreement. Total
outstanding grants as of December 31, 1996, 1995 and 1994 were 7,941,314;
7,464,163; and 7,240,864 shares, respectively. During 1996, 1995 and 1994
options for 2,063,023; 1,777,625; and 3,067,206 shares were granted and options
for 1,353,408; 1,382,327; and 612,536 shares, respectively, were exercised.
During 1996, the Corporation added 6,200,000 shares to the number of shares of
common stock reserved for future issuance. At December 31, 1996, 5,725,601
shares were available for grant.
Included in the December 31, 1996, 1995 and 1994 outstanding grants were
options for 850,166; 860,856; and 1,044,428 shares, respectively, that become
exercisable in full near the end of their 10 year terms, but the exercise dates
may be accelerated to an earlier date by the Human Resources Committee of the
board of directors, based on the optionee's and the Corporation's performance.
If so accelerated, compensation will be paid in the form of deferred cash
incentive awards to reimburse the exercise price of these options if exercised
prior to the original vesting date. The Corporation recognized $8 million of
compensation expense for the acceleration of these options in 1996, $9 million
in 1995 and $8 million in 1994.
Stock Option Plan for Outside Directors
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 service year are
granted options on a pro rata basis to those granted to the directors at the
start of the service year. Total outstanding grants as of December 31, 1996,
1995 and 1994, were 414,922; 376,008; and 349,862 shares, respectively. During
1996, 1995 and 1994, options for 48,964; 48,600; and 52,563 shares,
respectively, were granted and options for 10,050; 20,429; and 4,298 shares,
respectively, were exercised. At December 31, 1996, options for 109,673 shares
were available for grant.
Dreyfus 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 at 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, 1996, 1995 and 1994, were 489,312;
814,207; and 1,728,709 shares, respectively. No options were granted in 1996,
1995 and 1994. No further options will be granted under this plan. Options for
315,486; 906,339; and 26,900 shares were exercised in 1996, 1995 and 1994,
respectively.
The table on the following page summarizes stock option activity for the
Long-Term Profit Incentive Plan, the Stock Option Plan for Outside Directors,
and the Dreyfus Plan. Requirements for stock option shares can be met from
either unissued or treasury shares or shares held by the employee stock benefit
trust whose establishment has been authorized. All shares issued in 1996 were
from treasury shares.
83
<PAGE> 66
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
20. EMPLOYEE BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Shares subject Average exercise
STOCK OPTION ACTIVITY to option price
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1993 7,273,888 $27.44
Granted 3,119,769 37.53
Exercised (643,734) 23.73
Forfeited (430,488) 31.49
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 9,319,435 30.89
Granted 1,826,225 41.56
Exercised (2,309,095) 25.99
Forfeited (182,187) 34.24
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 8,654,378 34.38
Granted 2,111,987 (a) 56.48
Exercised (1,678,944) 30.75
Forfeited (241,873) 35.89
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 8,845,548 $40.30
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Using a Black-Scholes option pricing model, the weighted-average fair
value of options granted in 1996 was estimated at $10.80 per share.
The Corporation has adopted the disclosure-only option under FAS No. 123,
"Accounting for Stock-Based Compensation." If the fair-value accounting
provisions of FAS No. 123 had been adopted as of January 1, 1996, the pro forma
effect on 1996 results would have been immaterial. Based on current and
anticipated use of stock options, it is expected that the pro forma impact on
earnings per share in future periods would be immaterial.
The following table summarizes the characteristics of stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
STOCK OPTIONS OUTSTANDING AT DECEMBER 31, 1996
Outstanding Exercisable (b)
----------------------------------------- ----------------------
Average Average
Average exercise exercise
Exercise price range Shares life (a) price Shares price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$13.17 - $29.67 1,624,311 4.5 $24.23 1,489,893 $23.75
$31.53 - $39.00 3,665,606 7.2 37.32 2,444,209 37.26
$40.12 - $49.87 1,310,645 8.6 41.20 422,631 40.92
$50.13 - $67.50 2,244,986 9.6 56.27 10,490 52.95
- -----------------------------------------------------------------------------------------------------------------------------
8,845,548 7.5 40.30 4,367,223 33.04
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average contractual life remaining in years.
(b) At December 31, 1995, 3,351,055 options were exercisable at an average
exercise price of $28.55. At December 31, 1994, 4,097,461 options were
exercisable at an average exercise price of $25.18.
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 6% of the employee's annual base
salary, with an annual maximum Corporate contribution of $3,000 per employee.
In 1996, 1995, and 1994, the Corporation recognized $11 million, $10 million
and $10 million, respectively, of expense related to this plan and contributed
189,012; 239,071; and 276,535 shares, respectively. All shares contributed in
1996 and a portion of the shares contributed in 1995 and 1994 were issued from
treasury stock. The plan held 3,848,336; 1,752,409; and 1,672,200 shares of the
Corporation's common stock at December 31, 1996, 1995 and 1994, respectively.
On September 1, 1996, The Dreyfus Corporation's profit
84
<PAGE> 67
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
20. EMPLOYEE BENEFITS (CONTINUED)
sharing plan was merged into the Corporation's retirement savings plan. The
Dreyfus plan held 2,017,395 shares of the Corporation's common stock when the
plans were merged. Amounts expensed under the Dreyfus plan were $8 million, $11
million and $10 million for 1996, 1995 and 1994, respectively.
Profit Bonus Plan
Performance-based awards are made to key employees at the discretion of the
Human Resources Committee of the board of directors. The granting of these
awards is based upon the performance of the key employees and on the
Corporation's overall performance in achieving its objectives. 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 $24 million,
$20 million and $18 million for 1996, 1995 and 1994, respectively, and can be
in the form of cash, common stock, restricted stock or phantom stock units
equivalent to restricted stock. The employee is generally prevented from
selling or transferring restricted stock or phantom stock units for a
three-year period and the shares are forfeited if employment is terminated
during that period. Restricted stock totaling 39,900 shares, with a
weighted-average fair value on the date of grant of $74.70 per share, was
awarded for 1996 performance resulting in 113,250 shares of restricted stock
and phantom stock units outstanding. The restricted stock and phantom stock
units were granted at the market value of the shares on the grant date.
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, 1996, 1995 and 1994, this plan held 77,787; 96,055; and 95,709
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 1996, 1995 or 1994.
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 $9 million in
1996, including $3 million of early retirement charges, $10 million in 1995 and
$10 million in 1994.
The following table sets forth the components of the costs and liability of the
Corporation's postretirement health care and life insurance benefits programs
for current and future retirees.
85
<PAGE> 68
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
20. EMPLOYEE BENEFITS (CONTINUED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION
Accumulated
Accrued postretirement postretirement Unrecognized
benefit cost benefit obligation transition obligation
-------------------------- -------------------------- -----------------------
(in millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1 $(26) $(19) $(12) $(55) $(70) $(83) $32 $53 $56
- ---------------------------------------------------------------------------------------------------------------------------------
Recognition of components of
net periodic postretirement
benefit costs:
Service cost (1) (1) (1) (1) (1) (1) - - -
Interest cost (3) (6) (6) (3) (6) (6) - - -
Retirement enhancement
program (3) - - (6) - - - - -
Amortization of
transition obligation (2) (3) (3) - - - (2) (3) (3)
- ---------------------------------------------------------------------------------------------------------------------------------
(9) (10) (10) (10) (7) (7) (2) (3) (3)
Change in APBO actuarial
assumptions including a
change in the discount rate - - - 15 (1) 15 - - -
Benefit payments 2 3 3 4 5 5 - - -
Plan changes - - - - 18 - - (18) -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31 $(33) $(26) $(19) $(46) $(55) $(70) $30 $32 $53
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A weighted average discount rate of 7% 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 1996. 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 7% for 1997 and was decreased gradually to
4.5% for 2002 and thereafter. The health care cost trend rate assumption may
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 $3 million and
the aggregate of the service and interest cost components of net periodic
postretirement health care benefit cost by less than $1 million.
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.
21. 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, 1996, of up
to approximately $310 million of their retained earnings of $2.312 billion at
December 31, 1996, less any dividends declared and plus or minus net profits or
losses, as defined, between January 1, 1997, 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
86
<PAGE> 69
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
21. RESTRICTIONS ON DIVIDENDS AND REGULATORY LIMITATIONS (CONTINUED)
OCC. The Corporation's national bank subsidiaries exceed these minimum
requirements. The national bank subsidiaries declared dividends to the parent
Corporation of $400 million in 1996, $501 million in 1995 and $366 million in
1994. The Federal Reserve Board and the OCC have issued additional guidelines
that require bank holding companies and national banks to continually 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, and requires such extensions to be collateralized and limits the
amount of investments by the banks in these entities. At December 31, 1996,
such extensions of credit and investments were limited to $478 million to the
Corporation or any other affiliate and to $957 million in total to the
Corporation and all of its other affiliates. Outstanding extensions of credit
totaled $181 million at December 31, 1996.
22. 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.
23. 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. 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. 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.
87
<PAGE> 70
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT CREDIT RISK
- --------------------------------------------------------------------------------------------------------------------------------
December 31,
(notional amounts in millions) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $26,777 $21,264
Standby letters of credit and foreign guarantees 3,705 3,446
Commercial letters of credit 92 98
Residential mortgage loans serviced with recourse 120 156
Custodian securities lent with indemnification
against broker default of return of securities 21,626 18,157
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit
The Corporation enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specific rates and for
specific purposes. Substantially all of the Corporation's commitments to extend
credit are contingent upon customers maintaining specific credit standards at
the time of loan funding. The majority of the Corporation's commitments to
extend credit include material adverse change clauses within the commitment
contracts. These clauses allow the Corporation to deny funding a loan
commitment if the borrower's financial condition deteriorates during the
commitment, such that the customer no longer meets the Corporation's credit
standards. The Corporation's exposure to credit loss in the event of
nonperformance by the customer is represented by the contractual amount of the
commitment to extend credit. Accordingly, the credit policies utilized in
committing to extend credit and in the extension of loans are the same. Market
risk arises on fixed rate commitments if interest rates have moved adversely
subsequent to the extension of the commitment. The Corporation believes the
market risk associated with 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 $27
billion of contractual commitments for which the Corporation has received a
commitment fee or which were otherwise legally binding--excluding credit card
plans--approximately 25% of the commitments are scheduled to expire within one
year, and an additional 62% 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.
88
<PAGE> 71
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
STANDBY LETTERS OF CREDIT AND FOREIGN GUARANTEES Weighted-average
years to maturity
December 31, at December 31,
(dollar amounts in millions) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial paper and other debt $ 447 $ 374 2.0 1.5
Tax-exempt securities 765 759 1.8 1.9
Bid- or performance-related 1,186 1,061 .8 1.0
Other 1,307 1,252 .5 .6
----- -----
Total standby letters of credit and foreign guarantees (a) $3,705 $3,446 1.0 1.1
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of participations and cash collateral totaling $391 million and $230
million at December 31, 1996 and 1995, respectively.
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.
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. Additional
market risk associated with securities lending transactions arises from
interest rate movements that affect the spread between the rate paid to the
securities borrower on the borrower's collateral and the rate the Corporation
earns on that collateral. This risk is controlled through policies that limit
the level of such risk that can be undertaken.
89
<PAGE> 72
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR TRADING ACTIVITIES (A)
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
1996 1995
-------------------- ---------------------
NOTIONAL CREDIT Notional Credit
(in millions) AMOUNT RISK Amount Risk
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign currency contracts:
Commitments to purchase $11,473 (b) $10,771 (b)
Commitments to sell 11,562 (b) 10,868 (b)
Foreign currency and other option contracts written 450 - 461 -
Foreign currency and other option contracts purchased 438 14 417 -
Interest rate agreements:
Interest rate swaps 6,665 25 5,531 52
Options, caps and floors purchased 2,047 1 2,043 3
Options, caps and floors written 2,107 - 1,871 -
Futures and forward contracts 1,421 2 1,421 -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a
counterparty has defaulted.
(b) The combined credit risk on foreign currency contract commitments to
purchase and sell was $303 million at December 31, 1996, and $334 million
at December 31, 1995.
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 to assist customers in managing their
currency risk and as part of its proprietary trading activities. The notional
amount of these contracts at December 31, 1996, was $11.5 billion of contracts
to purchase and $11.6 billion of contracts 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 includes the estimated aggregate replacement cost of those
foreign currency contracts in a gain position. Replacement cost totaled
approximately $303 million and $334 million at December 31, 1996 and 1995,
respectively, and is recorded on the balance sheet. There were no settlement or
counterparty default losses on foreign currency contracts in 1996, 1995 or
1994. 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 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 $14 million at December 31, 1996
and less than $1 million at December 31, 1995, and is recorded on the balance
sheet. There were no settlement or counterparty default losses on foreign
currency and other option contracts in 1996, 1995 or 1994.
90
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
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 $25 million and $52 million at December 31, 1996 and 1995,
respectively, and is recorded on the balance sheet. Credit risk is managed
through credit approval procedures that establish specific lines for individual
counterparties and limits of credit exposure to various portfolio segments.
Counterparty and portfolio outstandings are monitored against such limits on an
ongoing basis. Credit risk is further mitigated by contractual arrangements
with the Corporation's counterparties that provide for netting replacement cost
gains and losses on multiple transactions with the same counterparty. The
Corporation has entered into collateral agreements with certain counterparties
to interest rate swaps to further secure amounts due. The collateral is
generally cash, U.S. government securities and mortgage pass-through
securities guaranteed by the Government National Mortgage Association. There
were no counterparty default losses on interest rate swaps in 1996, 1995 or
1994. 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, 1996, 94% of the notional principal
amount of these interest rate swaps are scheduled to mature in less than five
years.
Options, caps and floors
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 beyond a certain point. An interest rate
floor is a contract that protects the holder against a decline in interest
rates below a certain point. The credit risk associated with options, caps and
floors purchased was $1 million at year-end 1996 and $3 million at year-end
1995 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.
Futures and forward contracts
Futures and forward contracts on loans, 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 $2 million at December
31, 1996 and less than $1 million at December 31, 1995. Credit risk related to
futures contracts is substantially mitigated by daily cash settlements with the
91
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
exchanges for the net change in futures contract value. There were no
settlement or counterparty default losses on futures and forward contracts in
1996, 1995 or 1994.
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.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES (a)
- -----------------------------------------------------------------------------------------------------------------------------
December 31,
1996 1995
------------------------ ---------------------
NOTIONAL CREDIT Notional Credit
(in millions) AMOUNT RISK Amount Risk
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate agreements:
Interest rate swaps $4,789 $3 $7,967 $51
Options, caps and floors purchased (b) 63 - 464 4
Futures contracts 33 - 6 -
Forward rate agreements - - 265 -
Other products 118 4 108 -
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a
counterparty has defaulted.
(b) At December 31, 1996 and 1995, there were no options, caps and floors
written.
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, 1996, the Corporation used $4,789
million of interest rate swaps for interest rate risk management purposes
compared with $7,967 million at December 31, 1995. The credit and market risk
associated with these instruments is explained on page 91 under "Interest rate
swaps." The replacement cost of swap agreements in a gain position was $3
million and $51 million at December 31, 1996 and 1995, respectively. Net
interest revenue in 1996 and 1995 included $8 million and less than $1 million,
respectively, of amortized deferred gains from terminated interest rate swaps.
Options, caps, floors, futures contracts and forward rate agreements
Other interest rate products--primarily options, interest rate caps, interest
rate floors, futures contracts and forward rate agreements--also are used by
the Corporation as part of its interest rate risk management strategy. The
Corporation had $96 million and $735 million notional amounts of these
instruments outstanding at December 31, 1996 and 1995, respectively. The credit
and market risk associated with these instruments is explained on page 91 under
"Options, caps, floors" and "Futures and forward contracts." The replacement
cost of those instruments in a gain position was less than $1 million and $4
million at December 31, 1996 and 1995, respectively.
The Corporation periodically issues notes and debentures for general corporate
purposes, including the funding of debt maturities. At December 31, 1996, there
were no open hedges of anticipated transactions. At December 31, 1995, a $250
million forward rate agreement was carried by the Corporation to lock in the
cost of an anticipated debt issuance. This contract was terminated in the first
quarter of 1996, upon the issuance of the 6.70% fixed rate notes.
92
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
23. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK (CONTINUED)
Other products
Other products consist of forward foreign exchange contracts and total return
swaps. The Corporation had $118 million and $73 million of total return swaps
at December 31, 1996 and 1995, respectively. 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. Credit risk
associated with these products was $4 million at year-end 1996. 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.
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 27% of the Corporation's total on- and off-balance-sheet
financial instruments with credit risk at December 31, 1996, were with
consumers and consumer-related industries, compared with approximately 33% at
December 31, 1995. 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 20% of the
Corporation's total on- and off-balance-sheet financial instruments with credit
risk at December 31, 1996, compared with approximately 17% at December 31,
1995. The Corporation's on-balance-sheet credit exposure to financial
institutions included short-term liquid assets consisting of due from banks and
money market investments, loans and the related interest receivable and
investment securities. In addition, the Corporation had off-balance-sheet
credit exposure to financial institutions consisting of commitments to extend
credit and letters of credit.
The Corporation had credit exposure to the U.S. government, including its
corporations and agencies, totaling approximately 10% of its on- and
off-balance-sheet financial instruments with credit risk at December 31, 1996
and 9% at December 31, 1995. Substantially all of this exposure consisted of
investment securities, securities available for sale and the related interest
receivable and balances due from the Federal Reserve. No other concentration of
credit risk exceeded 10% of the Corporation's total credit risk arising from
on- and off-balance-sheet financial instruments at December 31, 1996 and 1995,
respectively.
24. 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
93
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
24. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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 58% of revenue in 1996--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, 1996 and
1995:
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, 1996
and 1995.
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.
94
<PAGE> 77
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
24. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
95
<PAGE> 78
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
24. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Carrying amount Estimated fair value
--------------- --------------------
December 31, December 31,
(dollars in millions) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale(a) $ 4,111 $ 2,913 $ 4,111 $ 2,913
Investment securities(a) 2,375 2,519 2,365 2,554
Loans(b):
Commercial and financial 11,618 11,832 11,553 11,782
Commercial real estate 1,534 1,532 1,486 1,469
Consumer mortgage 7,772 8,960 7,661 8,960
Other consumer credit 3,936 4,536 3,924 4,719
------- -------
Total loans 24,860 26,860
Reserve for credit losses(b) (482) (465) - -
------- ------- ------- -------
Net loans 24,378 26,395 24,624 26,930
Other assets(c) 1,500 1,281 1,503 1,306
Fixed-maturity deposits(d):
Retail savings certificates 6,660 6,450 6,639 6,473
Negotiable certificates of deposit 2,710 656 2,708 655
Other time deposits 2,557 2,014 2,554 2,016
Other funds borrowed(c) 784 2,033 783 2,044
Notes and debentures(a) 2,518 1,443 2,555 1,529
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Market or dealer quotes were used to value the reported balance of these
financial instruments.
(b) Approximately 81% and 77% of total performing loans, excluding consumer
mortgages and credit card receivables, reprice or mature within 90 days at
December 31, 1996 and 1995, respectively. Excludes lease finance assets of
$2,533 million and $830 million as well as the related reserve for credit
losses of $43 million and $6 million at December 31, 1996 and 1995,
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 $19,447 million and $20,141
million of such deposits at December 31, 1996 and 1995, respectively, are
not included in this 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 primarily includes interest rate
swaps, interest rate caps and floors and futures contracts--is estimated by
obtaining quotes from brokers. These values represent the estimated amount the
Corporation would receive or pay to terminate the agreements, considering
current interest and currency rates, as well as the current credit-worthiness
of the counterparties. Off-balance-sheet financial instruments are further
discussed in note 23, "Financial instruments with off-balance-sheet risk and
concentrations of credit risk."
96
<PAGE> 79
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
24. 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, 1996 December 31, 1995
---------------------------------------------- -------------------------------------
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 $26,777 $5 $91 $21,264 $ 5 $86
Standby letters of credit and
foreign guarantees 3,705 2 18 3,446 2 20
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the on-balance-sheet receivables or deferred income arising
from these financial instruments.
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR TRADING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995
------------------------------------------- ------------------------------------------
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 $23,035 $ 5 $ 5 $21,639 $ 27 $ 25
Options purchased 438 14 7 417 (11) (7)
Options written 450 12 7 461 13 8
Interest rate swaps 6,665 6 4 5,531 5 8
Options, caps and floors 4,154 - - 3,914 1 -
Futures and forward contracts 1,421 2 2 1,421 (6) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Recorded at fair value on the Corporation's balance sheet.
<TABLE>
<CAPTION>
ESTIMATED FAIR VALUE OF OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS USED FOR INTEREST RATE RISK MANAGEMENT PURPOSES
- --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1996 December 31, 1995
---------------------------------------- --------------------------------------
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 $4,789 $5 $(67) $7,967 $(1) $39
Options, caps, floors and
forward rate agreements 63 - 1 729 (1) (8)
Futures contracts 33 - - 6 - -
Other products 118 - 2 108 - (1)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the on-balance-sheet receivables/payables or deferred income
arising from these financial instruments.
97
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
25. 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) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net transfers to real estate acquired $ 23 $ 22 $ 14
Net transfers to segregated assets 12 10 12
Purchase acquisitions(a):
Fair value of noncash assets acquired 1,954 385 390
Liabilities and escrow deposits assumed 120 255 279
Stock issued and notes payable 10 - -
------- ------ ------
Net cash paid (1,824) (130) (111)
Transfer of CornerStone(sm) credit card loans to
accelerated resolution portfolio - 193 -
Series H preferred stock redemption - - 155
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Purchase acquisitions include: The business equipment finance unit of USL
and FUL, in 1996; Metmor Financial, Inc. in 1995; U.S. Bancorp Mortgage
Company and Glendale Bancorporation in 1994.
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. In 1995, 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.
26. MERGER WITH THE DREYFUS CORPORATION
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 were restated for all
periods prior to the merger to include the reported results of Dreyfus.
For the period ended June 30, 1994, prior to restatement, the combined total
revenue and net income of the Corporation and Dreyfus was $1,589 million and
$314 million, respectively, including $191 million of total revenue and $49
million of net income at Dreyfus.
98
<PAGE> 81
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- ------------------------------------------------------------------------------
27. MELLON BANK CORPORATION (PARENT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED INCOME STATEMENT
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividends from bank subsidiaries $400 $501 $366
Dividends from nonbank subsidiaries 21 30 122
Interest revenue from bank subsidiaries 25 37 38
Interest revenue from nonbank subsidiaries 25 27 21
Other revenue 12 3 4
- ------------------------------------------------------------------------------------------------------------------------------
Total revenue 483 598 551
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense on commercial paper 12 13 7
Interest expense on notes and debentures 88 83 87
Operating expense 32 29 23
- ------------------------------------------------------------------------------------------------------------------------------
Total expense 132 125 117
- ------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED NET
INCOME (LOSS) OF SUBSIDIARIES 351 473 434
Provision (benefit) for income taxes (21) (17) (18)
Equity in undistributed net income (loss):
Bank subsidiaries 228 111 69
Nonbank subsidiaries 133 90 (88)
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME 733 691 433
Dividends on preferred stock 44 39 75
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $689 $652 $358
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEET
- ------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and money market investments with bank subsidiary $ 917 $ 315
Securities available for sale 200 -
Loans and other receivables due from nonbank subsidiaries 347 386
Investment in bank subsidiaries 4,185 4,285
Investment in nonbank subsidiaries 362 261
Subordinated debt and other receivables due from bank subsidiaries 108 79
Other assets 108 96
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $6,227 $5,422
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Commercial paper $ 122 $ 284
Other liabilities 140 113
Notes and debentures (with original maturities over one year) 1,229 1,000
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,491 1,397
- -------------------------------------------------------------------------------------------------------------------------------
TRUST-PREFERRED SECURITIES:
Guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures 990 -
- -------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Preferred stock 290 435
Common shareholders' equity 3,456 3,590
- -------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,746 4,025
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities, trust-preferred securities and shareholders' equity $6,227 $5,422
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
99
<PAGE> 82
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------------------------------------------
27. MELLON BANK CORPORATION (PARENT CORPORATION) (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
(in millions) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 733 $ 691 $ 433
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 21 21 20
Equity in undistributed net income of subsidiaries (361) (201) 19
Net (increase) decrease in accrued interest receivable 1 3 (1)
Deferred income tax benefit (3) - (4)
Net increase in other operating activities 10 42 6
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 401 556 473
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in short-term deposits with affiliated banks (602) 32 (125)
Funds invested in securities available for sale (200) - (200)
Proceeds from maturities of securities available for sale - - 460
Loans made to subsidiaries (298) (284) (711)
Principal collected on loans to subsidiaries 342 581 771
Loans collected (made) to joint venture 1 (15) -
Capital returned from (contributions to) subsidiaries 350 241 (15)
Cash paid in purchase of Glendale Bancorporation - - (28)
Net increase in other investing activities (20) (14) (20)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) in investing activities (427) 541 132
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper (162) 106 44
Repayments of long-term debt (20) (326) (413)
Net proceeds from issuance of long-term debt 247 199 -
Net proceeds from issuance of common stock 55 58 18
Redemption of preferred stock (145) (155) -
Net proceeds from issuance of Guaranteed preferred beneficial interests
in Corporation's junior subordinated deferrable interest debentures 990 - -
Repurchase of common stock (596) (578) -
Repurchase of warrants - (54) -
Dividends paid on common and preferred stock (354) (346) (254)
Net increase (decrease) in other financing activities 11 - (5)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) in financing activities 26 (1,096) (610)
- -------------------------------------------------------------------------------------------------------------------------------
CHANGE IN CASH AND DUE FROM BANKS:
Net change in cash and due from banks - 1 (5)
Cash and due from banks at beginning of year 1 - 5
- ------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at end of year $ 1 $ 1 $ -
- ------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
- ------------------------------------------------------------------------------------------------------------------------------
Interest paid $ 95 $ 99 $ 98
Net income taxes refunded (3) (42) (20)
- ------------------------------------------------------------------------------------------------------------------------------
NONCASH INVESTING AND FINANCING TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------------------------
Series H preferred stock redemption $ - $ - $ 155
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
100
<PAGE> 83
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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 16, 1997
101
<PAGE> 84
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ------------------------------------------------------------------------------------------------------------------------------
1996
AVERAGE
AVERAGE YIELDS/
(dollar amounts in millions) BALANCE INTEREST RATES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS Interest-bearing deposits with banks $ 678 $ 36 5.31%
Federal funds sold and securities under resale
agreements 561 30 5.41
Other money market investments 142 7 5.00
Trading account securities 146 8 5.46
Securities:
U.S. Treasury and agency securities (a) 5,999 392 6.54
Obligations of states and political subdivisions (a) 39 3 8.53
Other (a) 153 12 7.67
Loans, net of unearned discount (a) 27,250 2,261 8.30
------ -----
Total interest-earning assets 34,968 $2,749 7.86
Cash and due from banks 2,782
Customers' acceptance liability 252
Premises and equipment 560
Net acquired property 73
Other assets (a) 3,865
Reserve for credit losses (472)
-------------------------------------------------------------------------------------------------------
Total assets $42,028
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES, Deposits in domestic offices:
TRUST-PREFERRED Demand $ 830 $ 15 1.80%
SECURITIES AND Money market and other savings accounts 9,935 280 2.82
SHAREHOLDERS' Retail savings certificates 6,529 318 4.88
EQUITY Other time deposits 1,766 96 5.42
Deposits in foreign offices 3,766 194 5.14
------- -----
Total interest-bearing deposits 22,826 903 3.95
Federal funds purchased and securities under
repurchase agreements 1,765 94 5.32
Short-term bank notes 502 29 5.84
Term federal funds purchased 675 38 5.58
U.S. Treasury tax and loan demand notes 286 15 5.17
Commercial paper 217 12 5.42
Other funds borrowed 279 27 9.89
Notes and debentures (with original maturities over one year) 2,038 143 7.04
------- ------
Total interest-bearing liabilities 28,588 $1,261 4.41
Total noninterest-bearing deposits 8,012
Acceptances outstanding 252
Other liabilities 1,319
-------------------------------------------------------------------------------------------------------
Total liabilities 38,171
-------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures 32
-------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 3,825
-------------------------------------------------------------------------------------------------------
Total liabilities, trust-preferred securities and
shareholders' equity $42,028
- ------------------------------------------------------------------------------------------------------------------------------
RATES YIELD ON TOTAL INTEREST-EARNING ASSETS 7.86%
COST OF FUNDS SUPPORTING INTEREST-EARNING ASSETS 3.60
-------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN:
TAXABLE EQUIVALENT BASIS 4.26%
WITHOUT TAXABLE EQUIVALENT INCREMENTS 4.23
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts and yields in 1996, 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 1996,
1995, 1994 and 1993 and 34% in 1992, using dollar amounts in thousands and
actual number of days 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.
102
<PAGE> 85
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992
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>
$ 567 $ 36 6.27% $ 756 $ 34 4.52% $ 1,592 $ 58 3.62% $ 839 $ 35 4.20%
598 34 5.64 762 30 3.98 1,801 54 3.03 789 27 3.47
57 3 5.02 138 6 4.29 428 16 3.73 277 17 6.02
296 19 6.59 380 24 6.27 269 15 5.71 308 21 6.74
4,671 305 6.52 4,713 269 5.71 4,120 226 5.49 5,595 423 7.55
64 5 7.73 110 8 7.14 166 11 6.85 147 11 7.77
203 14 7.09 352 17 4.80 518 24 4.49 758 44 5.94
27,360 2,432 8.89 25,107 1,935 7.71 21,763 1,597 7.34 18,235 1,474 8.07
------- ------ ------- ------ ------- ------ ------- ------
33,816 $2,848 8.44 32,318 $2,323 7.19 30,657 $2,001 6.53 26,948 $2,052 7.61
2,337 2,337 2,170 1,975
229 165 133 115
555 537 518 490
80 113 198 371
3,703 3,273 2,524 1,448
(591) (613) (565) (589)
- ----------------------------------------------------------------------------------------------------------------------------------
$40,129 $38,130 $35,635 $30,758
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,916 $ 37 1.94% $ 2,143 $ 4 .21% $ 2,034 $ 2 .11% $ 1,728 $ 40 2.31%
8,736 277 3.16 9,439 188 1.99 8,768 146 1.66 6,364 193 3.03
6,683 337 5.05 6,597 240 3.64 7,556 241 3.19 7,581 324 4.27
263 12 4.70 246 15 6.05 422 26 6.00 453 31 6.87
3,898 226 5.79 2,053 92 4.46 1,024 40 3.89 922 49 5.36
------- ----- ------- ----- -------- ------- ------- -------
21,496 889 4.13 20,478 539 2.63 19,804 455 2.29 17,048 637 3.73
2,128 125 5.87 1,777 76 4.29 1,096 33 3.01 1,623 56 3.46
815 50 6.20 29 2 5.68 81 3 3.98 71 3 4.33
644 39 5.98 176 8 4.58 61 2 3.79 12 1 4.61
400 23 5.69 564 22 3.93 224 6 2.85 664 23 3.42
226 13 5.87 155 7 4.33 198 6 3.22 173 6 3.70
395 34 8.68 494 38 7.80 401 29 7.13 359 29 8.20
1,670 117 7.04 1,768 110 6.20 1,991 121 6.08 1,365 94 6.88
------- ------ ------- ------ ------- ------- ------- -------
27,774 $1,290 4.65 25,441 $ 802 3.15 23,856 $ 655 2.75 21,315 $ 849 3.98
6,455 6,770 6,737 5,636
229 165 134 115
1,533 1,453 944 580
- ----------------------------------------------------------------------------------------------------------------------------------
35,991 33,829 31,671 27,646
- ----------------------------------------------------------------------------------------------------------------------------------
- - - -
- ----------------------------------------------------------------------------------------------------------------------------------
4,138 4,301 3,964 3,112
- ----------------------------------------------------------------------------------------------------------------------------------
$40,129 $38,130 $35,635 $30,758
- ----------------------------------------------------------------------------------------------------------------------------------
8.44% 7.19% 6.53% 7.61%
3.82 2.48 2.14 3.15
- -----------------------------------------------------------------------------------------------------------------------------------
4.62% 4.71% 4.39% 4.46%
4.58 4.67 4.34 4.39
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
103
<PAGE> 86
CORPORATE INFORMATION
Annual Meeting The Annual Meeting of Shareholders will be held on the
10th floor of the Union Trust Building, 501 Grant St.,
Pittsburgh, PA, at 10 a.m. on Tuesday, April 15, 1997.
Form 10-K and For a free copy of the Corporation's Annual Report on
Shareholder Form 10-K or the quarterly earnings news release on
Publications Form 8-K, as filed with the Securities and Exchange
Commission, please send a written request to the
Secretary of the Corporation, 1820 One Mellon Bank
Center, Pittsburgh, PA 15258-0001.
Quarterly earnings and other news releases also can be
obtained by fax by calling Company News on Call at 1
800 758-5804 and entering a six-digit code (552187).
Exchange Listing Mellon Bank Corporation's common and Series K
preferred stocks are traded on the New York Stock
Exchange. The trading symbols are MEL (common stock)
and MEL Pr K. The Transfer Agent and Registrar is
ChaseMellon Shareholder Services, L.L.C., P.O. Box
590, Ridgefield Park, NJ 07660-9940. For more
information, please call 1 800 205-7699.
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# (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 Reinvestment Under the Dividend Reinvestment and Common Stock
and Common Stock Purchase Plan, registered holders of Mellon Bank
Purchase Plan Corporation's common stock may purchase additional
common shares at the market value for such shares
through reinvestment of common dividends and/or
optional cash payments. Purchases of shares through
optional cash payments are subject to limitations.
Plan details are in a Prospectus, which may be
obtained from ChaseMellon Shareholder Services.
Electronic Deposit Registered shareholders may have quarterly dividends
of Dividends paid on Mellon Bank Corporation's common and preferred
stocks electronically deposited to their checking or
savings account, free of charge. If you wish to have
your dividends electronically deposited, please write
to ChaseMellon Shareholder Services, L.L.C., P.O. Box
590, Ridgefield Park, NJ 07660-9940. For more
information, please call 1 800 205-7699.
<TABLE>
<S> <C> <C> <C>
Phone Contacts Corporate Communications/
Media Relations (412) 236-1264 Media inquiries
Securities Transfer Agent 1 800 205-7699 Questions regarding stock holdings, certificate
replacement/transfer, dividends and address changes
Dividend Reinvestment Plan 1 800 205-7699 Enrollment/Prospectus for Dividend Reinvestment
Publication Requests 1 800 205-7699 Requests for the Annual Report or quarterly information
Investor Relations (412) 234-5601 Questions regarding the Corporation's financial
performance
</TABLE>
Internet Mellon: http://www.mellon.com
Dreyfus: http://www.dreyfus.com
Elimination of To eliminate duplicate mailings, please submit a
Duplicate Mailings written request, with your full name and address the
way it appears on your account, to ChaseMellon
Shareholder Services, L.L.C., P.O. Box 590, Ridgefield
Park, NJ 07660-9940. For more information, please call
1 800 205-7699.
Charitable A report on Mellon's comprehensive community
Contributions involvement, including charitable contributions, is
available by calling (412) 234-8680.
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.
<PAGE> 1
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996*
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
o Access Capital Strategies Corp.
State of Incorporation: Massachusetts
o AFCO Credit Corporation
State of Incorporation: New York
oo AFCO Acceptance Corporation
State of Incorporation: California
oo AFCO Service, Inc.
State of Incorporation: California
o 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(w) of
Regulation S-X.
<PAGE> 2
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-2-
o A P Colorado, Inc.
State of Incorporation: Colorado
o A P Colorado, Inc. #2
State of Incorporation: Colorado
o APD Chimney Lakes, Inc.
State of Incorporation: Florida
o APD Cross Creek, Inc.
State of Incorporation: Florida
o APD Cypress Springs, Inc.
State of Incorporation: Florida
o A P East, Inc.
State of Incorporation: Delaware
o A P Management, Inc.
State of Incorporation: Pennsylvania
o A P Properties, Inc.
State of Incorporation: New Jersey
o AP Properties Minnesota, Inc.
State of Incorporation: Minnesota
o AP Residential Realty, Inc.
State of Incorporation: Pennsylvania
o A P Rural Land, Inc.
State of Incorporation: Pennsylvania
o AP Wheels, Inc.
State of Incorporation: Michigan
o APME Company, Inc.
State of Incorporation: Wisconsin
o APU Chimney Lakes, Inc.
State of Incorporation: Florida
<PAGE> 3
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-3-
o APU Cross Creek, Inc.
State of Incorporation: Florida
o APU Cypress Springs, Inc.
State of Incorporation: Florida
o Citmelex Corporation
State of Incorporation: Delaware
o Commonwealth National Mortgage Company
State of Incorporation: Pennsylvania
o Dreyfus Financial Services Corporation
State of Incorporation: Delaware
o East Properties Inc.
State of Incorporation: Delaware
o Mellon Bank Canada
Incorporation: Canada
oo CAFO, Inc.
Incorporation: Canada
oo CIBC Mellon Global Securities
Services Company (50% ownership)
Incorporation: Canada
oo Mellon Asset Management, Limited
Incorporation: Ontario
oo Mellon Bank Canada Leasing Inc.
Incorporation: Canada
oo The R-M Trust Company
Incorporation: Canada
o Mellon Bond Associates
State of Organization: Pennsylvania
<PAGE> 4
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-4-
o Mellon Consumer Leasing Corporation
State of Incorporation: Pennsylvania
o Mellon Equity Associates
State of Organization: Pennsylvania
o Mellon Insurance Agency, Inc.
State of Incorporation: Pennsylvania
o Mellon Leasing Corporation
State of Incorporation: Pennsylvania
oo Mellon International Leasing Company
State of Incorporation: Delaware
oo Pontus, Inc.
State of Incorporation: Delaware
o Mellon Mortgage Company
State of Incorporation: Colorado
oo MetFirst Insurance Agency, Inc.
State of Incorporation: Delaware
o Mellon Overseas Investment Corporation
Incorporation: United States
oo B.I.E. Corporation
Incorporation: British West Indies
oo Dreyfus International (Ireland) Limited
Incorporation: Ireland
oo Mellon Bank Representacoes, Ltda.
Incorporation: Brazil
oo Mellon International Investment Corporation
Incorporation: British West Indies
<PAGE> 5
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-5-
oo Mellon Securities Limited
State of Incorporation: Pennsylvania
o Mellon Trust Company of Illinois
State of Incorporation: Illinois
o Mellon Ventures, Inc.
State of Incorporation: Pennsylvania
o Mellon Ventures, L.P.
State of Organization: Delaware
oo Five Star Acquisition Company (48.5% ownership)
State of Incorporation: Georgia
o Melnamor Corporation
State of Incorporation: Pennsylvania
oo A P Colorado, Inc. #3
State of Incorporation: Colorado
oo A P Meritor, Inc.
State of Incorporation: Minnesota
oo Baldorioty de Castro Development Corporation
Incorporation: Puerto Rico
oo Cacalaba, Inc.
State of Incorporation: New Mexico
oo Casals Development Corporation
Incorporation: Puerto Rico
oo CEBC, Inc.
Incorporation: Puerto Rico
oo Costamar Development Corporation
Incorporation: Puerto Rico
oo Festival, Inc.
State of Incorporation: Virginia
<PAGE> 6
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-6-
oo FSFC, Inc.
State of Incorporation: Pennsylvania
oo Holiday Properties, Inc.
State of Incorporation: Alabama
oo Laplace Land Company, Inc.
State of Incorporation: Louisiana
oo Promenade, Inc.
State of Incorporation: California
oo SKAP #7, Inc.
State of Incorporation: Texas
oo Texas AP, Inc.
State of Incorporation: Texas
oo Trilem, Inc.
State of Incorporation: Pennsylvania
oo Vacation Properties, Inc.
State of Incorporation: North Carolina
o Meritor Mortgage Corporation - East
State of Incorporation: Pennsylvania
oo Central Valley Management Co., Inc.
State of Incorporation: Pennsylvania
o MMIP, Inc.
State of Incorporation: Delaware
o RECR, Inc.
State of Incorporation: Pennsylvania
o The Dreyfus Corporation
State of Incorporation: New York
oo Dreyfus Investment Advisors, Inc.
State of Incorporation: New York
<PAGE> 7
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-7-
oo Dreyfus - Lincoln, Inc.
State of Incorporation: Delaware
oo Dreyfus Personal Management, Inc.
State of Incorporation: New York
oo Dreyfus Precious Metals, Inc.
State of Incorporation: Delaware
oo Dreyfus Service Corporation
State of Incorporation: New York
oo Dreyfus Transfer, Inc.
State of Incorporation: Maryland
oo Seven Six Seven Agency, Inc.
State of Incorporation: New York
oo The Dreyfus Consumer Credit Corporation
State of Incorporation: Delaware
o UPCON, Inc.
State of Incorporation: Pennsylvania
Boston Group Holdings, Inc.
State of Incorporation: Delaware
o Shearson Venture Capital, Inc.
State of Incorporation: Delaware
oo Shearson Summit Euromanagement, Inc.
State of Incorporation: Delaware
oo Shearson Summit Europartners, Inc.
State of Incorporation: Delaware
oo Shearson Summit Management, Inc.
State of Incorporation: Delaware
oo Shearson Summit Partners, Inc.
State of Incorporation: Delaware
<PAGE> 8
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-8-
o The Boston Company, Inc.
State of Incorporation: Massachusetts
oo Boston Safe Deposit and Trust Company
State of Incorporation: Massachusetts
ooo Boston Safe (Nominees) Limited
Incorporation: England
ooo Bridgewater Land Company, Inc.
State of Incorporation: Massachusetts
oooo Mellon Preferred Capital Corporation
State of Incorporation: Massachusetts
ooo Reco, Inc.
State of Incorporation: Massachusetts
oooo Mitlock Limited Partnership
State of Incorporation: Massachusetts
oooo Tuckahoe Limited Partnership
State of Incorporation: Massachusetts
ooo TBC Securities Co., Inc.
State of Incorporation: Massachusetts
ooo The Boston Company Financial Services, Inc.
State of Incorporation: Massachusetts
ooo Wellington-Medford II Associates LP
State of Incorporation: Massachusetts
oo Boston Safe Advisors, Inc.
State of Incorporation: Massachusetts
oo Boston Safe Deposit and Trust Company of California
State of Incorporation: California
oo Boston Safe Deposit and Trust Company of New York
State of Incorporation: New York
<PAGE> 9
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-9-
oo Premier Administration Limited
Incorporation: England
oo The Boston Company Advisors, Inc.
State of Incorporation: Delaware
oo The Boston Company Asset Management, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Energy Advisors, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Financial Strategies Group, Inc.
State of Incorporation: Massachusetts
oo The Boston Company Financial Strategies, Inc.
State of Incorporation: Massachusetts
oo Wellington-Medford II Properties, Inc.
State of Incorporation: Massachusetts
Mellon Bank (DE) National Association
Incorporation: United States
o Dreyfus Service Organization, Inc.
State of Incorporation: Delaware
o MBC Insurance Agency, Inc.
State of Incorporation: Delaware
o The Shelter Group, Inc.
State of Incorporation: Delaware
o Wilprop, Inc.
State of Incorporation: Delaware
Mellon Capital I*
State of Organization: Delaware
- -----------------
* Trust created for the sole purpose of issuing trust-preferred securities.
<PAGE> 10
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-10-
Mellon Capital II*
State of Organization: Delaware
Mellon EFT Services Corporation
State of Incorporation: Pennsylvania
Mellon Financial Company
State of Incorporation: Pennsylvania
Mellon Financial Corporation (MD)
State of Incorporation: Maryland
o Mellon Bank (MD) National Association
State of Incorporation: Maryland
oo Baltimore Realty Corporation
State of Incorporation: Maryland
Mellon Financial Markets, Inc.
State of Incorporation: Delaware
MBC Investments Corporation
State of Incorporation: Delaware
o Dreyfus Management GMBH
Incorporation: Germany
o Dreyfus Partnership Management, Inc.
State of Incorporation: New York
o Dreyfus Trust Company
State of Incorporation: New York
o Franklin Portfolio Associates Trust
State of Organization: Massachusetts
o Laurel Capital Advisors
State of Incorporation: Pennsylvania
- -----------------
* Trust created for the sole purpose of issuing trust-preferred securities.
<PAGE> 11
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-11-
o Mellon Bank, F.S.B.
Incorporation: United States
o Mellon Capital Management Corporation
State of Incorporation: Delaware
o Mellon Financial Services Corporation #1
State of Incorporation: Delaware
oo Allomon Corporation
State of Incorporation: Pennsylvania
ooo APT Holdings Corporation
State of Incorporation: Delaware
ooo Lucien Land Company, Inc.
State of Incorporation: Florida
oooo APD Crossings, Inc.
State of Incorporation: Florida
oo Mellon Escrow Company
State of Incorporation: Delaware
oo Mellon Financial Services Corporation #2
State of Incorporation: Delaware
oo Mellon Financial Services Corporation #4
State of Incorporation: Pennsylvania
ooo Beaver Valley Leasing Corporation
State of Incorporation: Pennsylvania
ooo Katrena Corporation (80% ownership)
State of Incorporation: Delaware
ooo Mellon Financial Services Corporation #13
State of Incorporation: Alabama
ooo MFS Leasing Corp.
State of Incorporation: Delaware
<PAGE> 12
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-12-
oo Mellon Financial Services Corporation #5
State of Incorporation: Louisiana
ooo Mellon Financial Services Corporation #10
State of Incorporation: Louisiana
oo Mellon Properties Company
State of Incorporation: Louisiana
o Mellon-France Corporation
State of Incorporation: Pennsylvania
oo CCF-Mellon Partners (50% ownership)
State of Incorporation: Pennsylvania
o Mellon Global Investing Corp.
State of Incorporation: New York
oo Pareto Partners - New York (30% ownership)
State of Incorporation: New York
o Mellon Life Insurance Company
State of Incorporation: Delaware
o MGIC-UK Ltd.
Incorporation: England
oo Pareto Partners - U.K. (30% ownership)
Incorporation: England
o Premier Administration (Dublin) Limited
Incorporation: Ireland
o The Truepenny Corporation
State of Incorporation: New York
oo The Trotwood Corporation
State of Incorporation: New York
ooo The Trotwood Hunters Corporation
State of Incorporation: New York
<PAGE> 13
Ex- 21.1
MELLON BANK CORPORATION
LIST OF SUBSIDIARIES OF THE CORPORATION
DECEMBER 31, 1996
-13-
ooo The Trotwood Hunters Site A Corporation
State of Incorporation: New York
Mellon Financial Services Corporation #17
(Mellon Securities Transfer Services)
State of Incorporation: Delaware
o ChaseMellon Shareholder Services, L.L.C. (50% ownership)
State of Organization: New Jersey
Mellon Securities Trust Company
State of Incorporation: New York
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
of Mellon Bank Corporation:
We consent to incorporation by reference in Registration Statement Nos. 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), 33-59709 (Form S-3), 33-62151
(Form S-3), 333-16743 (Form S-8) and 333-16745 (Form S-8) of Mellon Bank
Corporation of our report dated January 16, 1997, relating to the consolidated
balance sheets of Mellon Bank Corporation and its subsidiaries as of December
31, 1996 and 1995, 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, 1996, which report is incorporated by reference in
the December 31, 1996 annual report on Form 10-K of Mellon Bank Corporation.
KPMG PEAT MARWICK LLP
- -----------------------
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
March 19, 1997
<PAGE> 1
EXHIBIT 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,
1996, and any and all amendments thereto, and to file 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 attorneys-in-fact and agents, 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 attorneys-in-fact and agents and each of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney shall be effective as of February 18, 1997 and shall
continue in full force and effect until revoked by the undersigned in a writing
filed with the Secretary of the Corporation.
FRANK V. CAHOUET ROTAN E. LEE
- ------------------------------ --------------------------
Frank V. Cahouet, Director and Rotan E. Lee, Director
Principal Executive Officer
DWIGHT L. ALLISON, JR. ANDREW W. MATHIESON
- ------------------------------ --------------------------
Dwight L. Allison, Jr., Andrew W. Mathieson,
Director Director
BURTON C. BORGELT EDWARD J. McANIFF
- ------------------------------ --------------------------
Burton C. Borgelt, Edward J. McAniff,
Director Director
CAROL R. BROWN ROBERT MEHRABIAN
- ------------------------------ --------------------------
Carol R. Brown, Robert Mehrabian,
Director Director
<PAGE> 2
SEWARD PROSSER MELLON
- ------------------------------ --------------------------
J. W. Connolly, Director Seward Prosser Mellon,
Director
CHARLES A. CORRY DAVID S. SHAPIRA
- ------------------------------ --------------------------
Charles A. Corry, Director David S. Shapira, Director
W. KEITH SMITH
- ------------------------------ --------------------------
C. Frederick Fetterolf, W. Keith Smith, Director
Director
IRA J. GUMBERG JOAB L. THOMAS
- ------------------------------ --------------------------
Ira J. Gumberg, Director Joab L. Thomas, Director
WESLEY V. von SCHACK
- ------------------------------ --------------------------
Pemberton Hutchinson, Director Wesley V. von Schack,
Director
GEORGE W. JOHNSTONE WILLIAM J. YOUNG
- ------------------------------ --------------------------
George W. Johnstone, Director William J. Young, Director
-2-
<PAGE> 3
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,
1996, and any and all amendments thereto, and to file 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 attorneys-in-fact and agents, 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 attorneys-in-fact and agents and each of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney shall be effective as of February 21, 1997 and shall
continue in full force and effect until revoked by the undersigned in a writing
filed with the Secretary of the Corporation.
C. FREDRICK FETTEROLF
- ------------------------------
C. Fredrick Fetterolf,
Director
<PAGE> 4
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,
1996, and any and all amendments thereto, and to file 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 attorneys-in-fact and agents, 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 attorneys-in-fact and agents and each of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney shall be effective as of February 25, 1997 and shall
continue in full force and effect until revoked by the undersigned in a writing
filed with the Secretary of the Corporation.
PEMBERTON HUTCHINSON
- ------------------------------
Pemberton Hutchinson, Director
<PAGE> 5
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,
1996, and any and all amendments thereto, and to file 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 attorneys-in-fact and agents, 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 attorneys-in-fact and agents and each of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
This power of attorney shall be effective as of March 10, 1997 and shall
continue in full force and effect until revoked by the undersigned in a writing
filed with the Secretary of the Corporation.
J. W. CONNOLLY
- ------------------------------
J. W. Connolly, Director
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,846
<INT-BEARING-DEPOSITS> 419
<FED-FUNDS-SOLD> 460
<TRADING-ASSETS> 84
<INVESTMENTS-HELD-FOR-SALE> 4,111
<INVESTMENTS-CARRYING> 2,375
<INVESTMENTS-MARKET> 2,365
<LOANS> 27,393
<ALLOWANCE> (525)
<TOTAL-ASSETS> 42,596
<DEPOSITS> 31,374
<SHORT-TERM> 2,247
<LIABILITIES-OTHER> 1,721
<LONG-TERM> 2,518
990<F1>
290
<COMMON> 74
<OTHER-SE> 3,382
<TOTAL-LIABILITIES-AND-EQUITY> 42,596<F1>
<INTEREST-LOAN> 2,253
<INTEREST-INVEST> 406
<INTEREST-OTHER> 73
<INTEREST-TOTAL> 2,739
<INTEREST-DEPOSIT> 903
<INTEREST-EXPENSE> 1,261
<INTEREST-INCOME-NET> 1,478
<LOAN-LOSSES> 155
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 2,195
<INCOME-PRETAX> 1,151
<INCOME-PRE-EXTRAORDINARY> 1,151
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 733
<EPS-PRIMARY> 5.17
<EPS-DILUTED> 5.15
<YIELD-ACTUAL> 4.26
<LOANS-NON> 94
<LOANS-PAST> 123
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 471
<CHARGE-OFFS> 190
<RECOVERIES> 66
<ALLOWANCE-CLOSE> 525
<ALLOWANCE-DOMESTIC> 514
<ALLOWANCE-FOREIGN> 11
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>This tag includes $990 million of preferred beneficial interests in
Corporation's junior subordinated deferrable interest debentures.
</FN>
</TABLE>
