<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code -- (412) 234-5000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding as of
Class September 30, 1998
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Common Stock, $.50 par value 261,139,572
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<PAGE> 2
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
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Page No.
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Part I - Financial Information
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Financial Highlights 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Items 2 and 3) 3
Financial Statements (Item 1):
Consolidated Balance Sheet 42
Consolidated Income Statement 43
Consolidated Income Statement - Five Quarter Trend 44
Consolidated Statement of Cash Flows 45
Consolidated Statement of Changes in Shareholders' Equity 47
Notes to Financial Statements 49
Part II - Other Information
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Legal Proceedings (Item 1) 54
Other Information (Item 5) 55
Exhibits and Reports on Form 8-K (Item 6) 55
Signature 57
Corporate Information 58
Index to Exhibits 59
Cautionary Statement
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This Quarterly Report on Form 10-Q contains statements relating to future
results of the Corporation that are considered "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
These statements relate to, among other things, the year 2000 project, the euro
project, credit loss reserve adequacy, simulation of changes in interest rates
and litigation results. Actual results may differ materially from those
expressed or implied as a result of certain risks and uncertainties, including,
but not limited to, changes in political and economic conditions; interest rate
fluctuations; competitive product and pricing pressures within the Corporation's
markets; equity and fixed income market fluctuations; personal and corporate
customers' bankruptcies; inflation; acquisitions and integrations of acquired
businesses; technological change; changes in law; changes in fiscal, monetary,
regulatory and tax policies; monetary fluctuations; success in gaining
regulatory approvals when required; as well as other risks and uncertainties
detailed elsewhere in this quarterly report or from time to time in the filings
of the Corporation with the Securities and Exchange Commission. Such
forward-looking statements speak only as of the date on which such statements
are made, and the Corporation undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
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<TABLE>
<CAPTION>
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Quarter ended Nine months ended
FINANCIAL HIGHLIGHTS ---------------------------------------- ------------------------
(dollar amounts in millions, SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
except per share amounts) 1998 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C>
REPORTED AND TANGIBLE OPERATING RESULTS (a)
Diluted earnings per common share:
Reported $ .82 $ .81 $ .73 $ 2.41 $ 2.13
Tangible .93 .91 .80 2.72 2.36
Net income applicable to common stock:
Reported $ 218 $ 215 $ 191 $ 639 $ 559
Tangible 246 243 211 720 620
Return on common shareholders' equity (b):
Reported 20.3% 20.8% 21.6% 20.9% 21.5%
Tangible 45.9 49.7 37.6 46.2 37.2
Return on assets (b):
Reported 1.81% 1.79% 1.81% 1.83% 1.81%
Tangible 2.13 2.13 2.05 2.15 2.06
Book value per common share at period end:
Reported $ 16.69 $ 16.24 $ 14.08 $ 16.69 $ 14.08
Tangible 8.59 7.97 8.90 8.59 8.90
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SELECTED KEY DATA
Fee revenue as a percentage of total
revenue (FTE) 66% 66% 63% 66% 61%
Efficiency ratio excluding amortization
of intangibles (c) 62 63 62 63 60
Dividends paid per common share $ .36 $ .36 $ .33 $ 1.05 $ .96
Dividends paid on common stock 94 93 85 271 247
Closing common stock price per share 55.00 69.688 54.75 55.00 54.75
Market capitalization 14,363 18,168 13,938 14,363 13,938
Average common shares and equivalents
outstanding - diluted (in thousands) 265,774 265,848 260,306 264,942 261,063
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BALANCES
Total assets at period end $ 48,243 $ 47,448 $ 43,465 $ 48,243 $ 43,465
Total assets - average 47,937 47,965 42,879 47,384 42,496
Tangible assets - average (a) 45,797 45,804 41,588 45,378 41,256
Common shareholders' equity at period end 4,358 4,234 3,585 4,358 3,585
Common shareholders' equity - average 4,265 4,126 3,520 4,089 3,468
Tangible common shareholders' equity -
average (a) 2,125 1,965 2,229 2,083 2,228
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CAPITAL RATIOS AT PERIOD END
Common shareholders' equity to assets:
Reported 9.03% 8.92% 8.25%
Tangible (d) 4.86 4.59 5.37
Tier I capital 6.78 6.51 8.08
Total (Tier I plus Tier II) capital 11.22 10.83 13.24
Leverage capital 7.06 6.65 8.37
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</TABLE>
(a) Tangible results exclude amounts related to goodwill and other intangibles
recorded in connection with purchase acquisitions.
(b) Annualized.
(c) See page 20 for the definition of this ratio.
(d) See page 28 for the definition of this ratio.
NOTE: THROUGHOUT THIS REPORT, RATIOS ARE BASED ON UNROUNDED NUMBERS.
2
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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The Corporation reported record third quarter 1998 diluted earnings per common
share of $.82, an increase of 12%, compared with $.73 in the third quarter of
1997. Net income applicable to common stock in the third quarter of 1998 was
$218 million, an increase of 14%, compared with $191 million in the third
quarter of 1997. Diluted tangible earnings per common share totaled $.93 in the
third quarter of 1998, an increase of 16%, compared with $.80 in the third
quarter of 1997. Tangible net income applicable to common stock was $246 million
in the third quarter of 1998, an increase of 16%, compared with $211 million in
the third quarter of 1997.
Fee revenue for the third quarter of 1998 was $712 million, up $77 million from
$635 million in the prior-year period. Excluding the fee revenue resulting from
the acquisitions of Founders Asset Management, LLC (Founders) in April 1998 and
Dreyfus Brokerage Services, Inc. in November 1997, total fee revenue increased
9% in the third quarter of 1998 compared with the third quarter of 1997. This
increase was primarily attributable to higher trust and investment fees, foreign
exchange fees and other fee revenue. Fee revenue was unchanged compared with the
second quarter of 1998, as higher trust and investment fees and other fees were
offset by lower mortgage servicing fees.
Net interest revenue, on a fully taxable equivalent basis, was $376 million in
the third quarter of 1998, up $7 million compared with $369 million in the
prior-year period and up $2 million from $374 million in the second quarter of
1998.
Operating expense before trust-preferred securities expense and net revenue from
acquired property for the third quarter of 1998 was $717 million, up $66 million
from $651 million in the third quarter of 1997 and down $4 million from $721
million in the second quarter of 1998. The increase primarily resulted from the
impact of acquisitions, business growth and higher amortization of mortgage
servicing assets. Excluding the effect of acquisitions and the increase in the
amortization of mortgage servicing assets and purchased credit card
relationships, operating expense before trust-preferred securities expense and
net revenue from acquired property increased approximately 2% in the third
quarter of 1998 compared with the third quarter of 1997. The $4 million decrease
compared with the second quarter of 1998 resulted primarily from lower
advertising, sales promotions and travel expense.
Credit quality expense, consisting of a $15 million provision for credit losses
and $3 million of net revenue from acquired property, was $12 million in the
third quarter of 1998, compared with $24 million in the third quarter of 1997
and $13 million in the second quarter of 1998. Net credit losses were $15
million in the third quarter of 1998, down $16 million compared with the
prior-year period, but up $2 million from the second quarter of 1998. The
decrease from the prior-year period resulted from a $16 million decrease in
credit card net credit losses.
Nonperforming assets totaled $140 million at September 30, 1998, compared with
$170 million at June 30, 1998, and $175 million at September 30, 1997. The
Corporation's ratio of nonperforming assets to total loans and net acquired
property was .45% at September 30, 1998, the lowest quarter-end ratio in the
Corporation's history. This ratio was .55% at June 30, 1998, and .62% at
September 30, 1997.
3
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OVERVIEW (CONTINUED)
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Year-to-date 1998 compared with year-to-date 1997
For the first nine months of 1998, the Corporation reported diluted earnings per
common share of $2.41, an increase of 13%, and net income applicable to common
stock of $639 million, an increase of 14%, compared with $2.13 per common share
and $559 million for the first nine months of 1997. For the first nine months of
1998, diluted tangible earnings per common share totaled $2.72, an increase of
15%, and diluted tangible net income applicable to common stock totaled $720
million, an increase of 16%, compared with $2.36 per common share and $620
million for the first nine months of 1997. Excluding the fee revenue resulting
from the acquisitions of Buck Consultants, Inc. (Buck) in July 1997, Founders
and Dreyfus Brokerage Services, fee revenue increased 12% in the first nine
months of 1998, compared with the first nine months of 1997. Excluding the
effect of acquisitions and the increase in amortization of mortgage servicing
assets and purchased credit card relationships, operating expense before
trust-preferred securities expense and net revenue from acquired property
increased approximately 3% in the first nine months of 1998 compared with the
first nine months of 1997.
4
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SIGNIFICANT FINANCIAL EVENTS
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Purchase of majority interest in Newton Management Limited
On October 16, 1998, the Corporation acquired 75% of Newton Management Limited
(Newton), with Newton management and staff retaining the remaining 25% interest
in the company, either directly or through options. Newton is a leading,
independent U.K.-based investment manager with assets under management of
approximately $20 billion. Newton provides investment management services to
institutional, private and retail clients. With the inclusion of the Newton
assets, the Corporation's assets under management, using September 30, 1998,
levels, would have totaled approximately $355 billion. The Corporation purchased
its majority interest in Newton with cash and loan notes.
Frank Russell Company joint venture
In July 1998, the Corporation announced an agreement with Frank Russell Company,
headquartered in Tacoma, Wash., to form the Russell/Mellon Analytical Services
Inc. joint venture. This joint venture will provide performance measurement and
portfolio analysis on a global basis. The new company is expected to begin
operations in the first quarter of 1999.
Strategic alliance with UOB Asset Management Ltd.
In August 1998, the Corporation announced a strategic alliance with UOB Asset
Management Ltd., a subsidiary of United Overseas Bank Group, a leading financial
institution in southeast Asia. The alliance will provide investment products and
services to Singapore's asset management marketplace and is based on a preferred
relationship, with each party acting as the other's preferred partner in the
development, marketing, management and distribution of asset management products
in Singapore and southeast Asia, as well as in the United States. Operations are
expected to begin in the first quarter of 1999.
Pending sale of merchant processing portfolio
On October 29, 1998, the Corporation announced that it has agreed to sell its
merchant processing business to Paymentech, Inc. The Corporation and Paymentech
have also agreed to an exclusive marketing and referral agreement under which
the parties will market Paymentech's processing services to the Corporation's
merchant customers through the Corporation's network of nearly 450 retail
offices and cash management and corporate banking groups. The sale, expected to
be completed during the fourth quarter of 1998, is subject to certain closing
conditions and regulatory approvals. Terms of the deal were not disclosed. This
sale does not affect the Corporation's electronic funds transfer transaction
processing business, which includes ATM terminal driving, debit card processing,
off-line debit processing businesses and smart card stored value programs.
5
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<TABLE>
<CAPTION>
BUSINESS SECTORS
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FOR THE THREE MONTHS ENDED SEPTEMBER 30,
Consumer (a) Business (a)
(dollar amounts in millions, Fee Services Banking Fee Services Banking
averages in billions) 1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $211 $181 $ 289 $ 272 $445 $404 $ 128 $ 132
Credit quality expense (revenue) - - 13 26 - - 2 (1)
Operating expense:
Mortgage servicing amortization 38 25 - - 3 2 - -
Intangible amortization 4 1 19 13 7 6 5 5
Trust-preferred securities - - 2 2 - - 8 8
Other operating 122 106 161 152 312 289 43 48
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Total operating expense 164 132 182 167 322 297 56 61
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Income before taxes 47 49 94 79 123 107 70 72
Income taxes 18 19 34 28 46 41 26 26
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Net income $ 29 $ 30 $ 60 $ 51 $ 77 $ 66 $ 44 $ 46
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Tangible net income $ 32 $ 31 $ 75 $ 60 $ 83 $ 72 $ 48 $ 50
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Average assets $3.9 $2.4 $22.7 $19.8 $2.6 $2.0 $17.5 $16.9
Average common equity $0.4 $0.3 $ 1.2 $ 1.0 $0.8 $0.7 $ 1.5 $ 1.3
Average Tier I preferred equity $ - $ - $ 0.1 $ 0.1 $ - $ - $ 0.4 $ 0.4
Return on common
shareholders' equity (b) 29% 37% 20% 20% 38% 39% 12% 14%
Return on assets (b) NM NM 1.05% 1.02% NM NM 0.99% 1.07%
Pretax operating margin 22% 27% 33% 29% 28% 26% 54% 55%
Pretax operating margin
excluding amortization of
intangibles and trust-preferred
securities expense 24% 28% 40% 34% 29% 28% 64% 64%
Efficiency ratio excluding
amortization of intangibles and
trust-preferred securities expense 76% 72% 56% 56% 71% 72% 34% 37%
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</TABLE>
<TABLE>
<CAPTION>
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FOR THE NINE MONTHS ENDED SEPTEMBER 30,
Consumer Business
(dollar amounts in millions, Fee Services Banking Fee Services Banking
averages in billions) 1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $624 $518 $ 868 $ 842 $1,304 $1,021 $ 388 $ 383
Credit quality expense (revenue) 1 1 35 84 - - 10 (2)
Operating expense:
Mortgage servicing amortization 119 75 - - 9 5 - -
Intangible amortization 11 3 54 39 19 21 16 16
Trust-preferred securities 1 - 5 6 - - 23 22
Other operating 350 307 477 451 930 720 136 141
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Total operating expense 481 385 536 496 958 746 175 179
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Income before taxes 142 132 297 262 346 275 203 206
Income taxes 54 52 108 93 127 107 74 76
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Net income $ 88 $ 80 $ 189 $ 169 $ 219 $ 168 $ 129 $ 130
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Tangible net income $ 97 $ 83 $ 232 $ 197 $ 237 $ 186 $ 140 $ 142
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Average assets $3.7 $2.2 $22.2 $20.0 $ 2.5 $ 1.8 $17.5 $16.7
Average common equity $0.4 $0.3 $ 1.2 $ 1.0 $ 0.8 $ 0.6 $ 1.4 $ 1.3
Average Tier I preferred equity $ - $ - $ 0.1 $ 0.1 $ - $ - $ 0.4 $ 0.4
Return on common
shareholders' equity (b) 31% 36% 22% 22% 37% 35% 12% 14%
Return on assets (b) NM NM 1.14% 1.13% NM NM 0.98% 1.04%
Pretax operating margin 23% 26% 34% 31% 27% 27% 52% 54%
Pretax operating margin
excluding amortization of
intangibles and trust-preferred
securities expense 25% 26% 41% 36% 28% 29% 62% 64%
Efficiency ratio excluding
amortization of intangibles and
trust-preferred securities expense 75% 73% 55% 54% 72% 71% 35% 37%
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</TABLE>
(a) The annualized return on common shareholders' equity for the Total Consumer
and Total Business sectors was 22% and 21%, respectively, for the three
months ended September 30, 1998.
(b) Annualized.
NM - Not meaningful.
6
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<TABLE>
<CAPTION>
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Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,073 $ 989 $ 6 $ 2 $ 15 $ 15 $1,094 $1,006
15 25 (3) (1) - - 12 24
41 27 - - - - 41 27
35 25 - - - - 35 25
10 10 - - 10 10 20 20
638 595 - 1 3 3 641 599
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724 657 - 1 13 13 737 671
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334 307 9 2 2 2 345 311
124 114 2 1 1 1 127 116
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$ 210 $ 193 $ 7 $ 1 $ 1 $ 1 $ 218 $ 195
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$ 238 $ 213 $ 7 $ 1 $ 1 $ 1 $ 246 $ 215
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$ 46.7 $ 41.1 $ - $0.2 $1.2 $1.6 $ 47.9 $ 42.9
$ 3.9 $ 3.3 $ - $ - $0.4 $0.2 $ 4.3 $ 3.5
$ 0.5 $ 0.5 $ - $ - $0.5 $0.7 $ 1.0 $ 1.2
21% 23% NM NM NM NM 20% 22%
1.79% 1.85% NM NM NM NM 1.81% 1.81%
31% 31% NM NM NM NM 32% 31%
35% 35% NM NM NM NM 37% 35%
63% 63% NM NM NM NM 62% 62%
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</TABLE>
<TABLE>
<CAPTION>
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Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
1998 1997 1998 1997 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,184 $2,764 $ 8 $ 15 $ 64 $ 55 $3,256 $2,834
46 83 (7) (10) - (5) 39 68
128 80 - - - - 128 80
100 79 - - - - 100 79
29 28 - - 30 31 59 59
1,893 1,619 2 3 12 6 1,907 1,628
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2,150 1,806 2 3 42 37 2,194 1,846
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988 875 13 22 22 23 1,023 920
363 328 4 7 8 9 375 344
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$ 625 $ 547 $ 9 $ 15 $ 14 $ 14 $ 648 $ 576
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$ 706 $ 608 $ 9 $ 15 $ 14 $ 14 $ 729 $ 637
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$ 45.9 $ 40.7 $0.1 $0.2 $1.4 $1.6 $ 47.4 $ 42.5
$ 3.8 $ 3.2 $ - $ - $0.3 $0.3 $ 4.1 $ 3.5
$ 0.5 $ 0.5 $ - $ - $0.5 $0.7 $ 1.0 $ 1.2
22% 23% NM NM NM NM 21% 22%
1.82% 1.80% NM NM NM NM 1.83% 1.81%
31% 32% NM NM NM NM 31% 32%
35% 36% NM NM NM NM 36% 37%
64% 61% NM NM NM NM 63% 60%
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</TABLE>
7
<PAGE> 9
BUSINESS SECTORS (CONTINUED)
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Note: The tables on the previous pages and the discussion that follows present
the operating results of the Corporation's major business sectors, analyzed on
an internal management reporting basis. Amounts are presented on a taxable
equivalent basis. Capital is allocated quarterly using the federal regulatory
guidelines as a basis, coupled with management's judgment regarding the risks
inherent in the individual lines of business. 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 $334 million in the
third quarter of 1998, an increase of $27 million, or 9%, compared with the
prior-year period. This increase resulted from an $84 million increase in
revenue, partially offset by a $67 million increase in operating expense, both
due primarily to acquisitions and internal growth, and a $10 million decrease in
credit quality expense. Income before taxes for the core sectors in the first
nine months of 1998 totaled $988 million, an increase of $113 million, or 13%,
compared with the prior-year period. This improvement resulted from the same
factors responsible for the third quarter increase. Return on common
shareholders' equity for the core sectors was 21% and 22% in the third quarter
and first nine months of 1998, respectively, compared with 23% in both the third
quarter and first nine months of 1997. Return on assets was 1.79% and 1.82% in
the third quarter and first nine months of 1998, respectively, compared with
1.85% and 1.80% in the third quarter and first nine months of 1997.
Consumer Fee Services
Consumer Fee Services includes private asset management services, retail mutual
funds, residential mortgage loan origination and servicing and brokerage
services. Income before taxes for the Consumer Fee Services sector was $47
million in the third quarter of 1998, down $2 million, or 5%, from the
prior-year period. This decrease was due to a $16 million decrease in pretax
profits from mortgage banking resulting from a $13 million increase in the
amortization of mortgage servicing assets, due primarily to a higher level of
mortgage prepayments. Partially offsetting this decline was higher profits in
private asset management and at Dreyfus, due in part to the Dreyfus Brokerage
Services and Founders acquisitions. Income before taxes for the first nine
months of 1998 was $142 million, an increase of $10 million, or 7%, compared
with $132 million in the first nine months of 1997. This increase resulted from
higher profits in private asset management and at Dreyfus, due in part to the
Dreyfus Brokerage Services and Founders acquisitions, partially offset by a $28
million decrease in pretax profits from mortgage banking. The lower contribution
from mortgage banking resulted from a $44 million increase in the amortization
of mortgage servicing assets, due primarily to a higher level of mortgage
prepayments. This sector provided strong returns, as the annualized return on
common shareholders' equity was 29% and 31% in the third quarter and first nine
months of 1998, respectively, compared with 37% and 36% in the third quarter and
first nine months of 1997.
Consumer Banking
Consumer Banking includes consumer lending and deposit products, business
banking, credit card and jumbo residential mortgage lending. Income before taxes
for this sector totaled $94 million in the third quarter of 1998, compared with
$79 million in the third quarter of 1997, an increase of $15 million, or 19%.
Revenue increased $17 million, compared with the prior-year period, primarily as
a result of the favorable impact of the Mellon United National Bank and Mellon
1st Business Bank acquisitions in February 1998, partially offset by lower
revenue due to the December 1997 transfer of $231 million of CornerStone(sm)
credit card loans into an accelerated resolution portfolio. Credit quality
expense decreased $13 million primarily resulting from the transfer of the
CornerStone(sm) credit card loans to an accelerated resolution portfolio.
Operating expense increased $15 million, compared with the prior-year period,
primarily due to the impact of the acquisitions. Income before taxes for the
first nine months of 1998 was $297 million, an increase of $35 million or 13%,
compared with the first nine months of 1997. This increase resulted from the
same factors responsible for the third quarter increase. The annualized return
on common shareholders' equity for this sector was 20% and 22% in the third
quarter and first nine months of 1998, respectively, unchanged from prior-year
periods.
8
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BUSINESS SECTORS (CONTINUED)
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Business Fee Services
Business Fee Services includes institutional asset and institutional mutual fund
management and administration, institutional trust and custody, securities
lending, foreign exchange, cash management, stock transfer, commercial mortgage
loan origination and servicing, corporate trust, network services, benefits
consulting and administrative services, and services for defined contribution
plans. Income before taxes for this sector was $123 million in the third quarter
of 1998, an increase of $16 million, or 15%, compared with the third quarter of
1997. Revenue increased $41 million primarily due to higher mutual fund
management revenue, due in part to the Founders acquisition, higher
institutional asset management fees, increased foreign exchange fees, higher
benefits consulting fees, increased institutional trust fees and increased cash
management revenue. Partially offsetting this increase were decreases in fee
revenue due to the sale of the corporate trust business in November 1997 and the
formation of CIBC Mellon Trust Company, accounted for on an equity basis.
Operating expense increased $25 million due to the Founders acquisition, higher
transaction volumes and technology investments, partially offset by lower
expenses resulting from the sale of the corporate trust business and the
formation of CIBC Mellon Trust Company. Income before taxes for the first nine
months of 1998 was $346 million, an increase of $71 million, or 26%, compared
with the first nine months of 1997. This increase resulted from the same factors
responsible for the third quarter increase as well as the nine-month impact of
the Buck acquisition in 1998. This sector provided excellent returns as
annualized return on common shareholders' equity for this sector was 38% and 37%
in the third quarter and first nine months of 1998, respectively, compared with
39% and 35% in the third quarter and first nine months of 1997.
Business Banking
Business Banking 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 Business Banking sector was $70 million for the
third quarter of 1998, a decrease of $2 million, or 3%, from the third quarter
of 1997. Revenue decreased $4 million, primarily due to higher gains on asset
dispositions in 1997. Credit quality expense increased $3 million. Operating
expense decreased $5 million. Income before taxes in the first nine months of
1998 was $203 million, down $3 million compared with the first nine months of
1997, as higher revenue and lower expenses were offset with higher credit
quality expense. The annualized return on common shareholders' equity for this
sector was 12% in both the third quarter and first nine months of 1998, compared
with 14% in both the third quarter and first nine months of 1997.
Real Estate Workout
Real Estate Workout includes commercial real estate recovery and mortgage
banking recovery operations. Income before taxes for Real Estate Workout was $9
million and $13 million in the third quarter and first nine months of 1998,
respectively, compared with $2 million and $22 million in the third quarter and
first nine months of 1997.
Other
The Other sector's pretax income for the third quarter and first nine months of
1998 was $2 million and $22 million, respectively, compared with $2 million and
$23 million in the third quarter and first nine months of 1997. Revenue for the
third quarter and first nine months of 1998 primarily reflects earnings on the
use of proceeds from the trust-preferred securities and earnings on capital
above that required for the core sectors and gains from the sale of assets.
Revenue for 1997 primarily reflects earnings on the use of proceeds from the
trust-preferred securities and earnings on capital above that required for the
core sectors. Credit quality revenue for the first nine months of 1997
represents loan loss recoveries from loans to lesser developed countries.
9
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BUSINESS SECTORS (CONTINUED)
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
Consumer Business
Fee Services Banking Fee Services Banking
(dollar amounts in millions, SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30,
averages in billions) 1998 1998 1998 1998 1998 1998 1998 1998
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 211 $ 213 $ 289 $ 282 $445 $443 $ 128 $ 130
Credit quality expense (revenue) - 1 13 11 - - 2 4
Operating expense:
Mortgage servicing amortization 38 39 - - 3 3 - -
Intangible amortization 4 4 19 19 7 7 5 5
Trust-preferred securities - 1 2 1 - - 8 8
Other operating 122 118 161 158 312 316 43 44
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Total operating expense 164 162 182 178 322 326 56 57
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Income before taxes 47 50 94 93 123 117 70 69
Income taxes 18 19 34 34 46 42 26 25
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Net income $ 29 $ 31 $ 60 $ 59 $ 77 $ 75 $ 44 $ 44
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible net income $ 32 $ 34 $ 75 $ 74 $ 83 $ 82 $ 48 $ 47
- ----------------------------------------------------------------------------------------------------------------------------------
Average assets $ 3.9 $ 4.1 $22.7 $22.0 $2.6 $2.5 $ 17.5 $ 17.6
Average common equity $ 0.4 $ 0.4 $ 1.2 $ 1.2 $0.8 $0.8 $ 1.5 $ 1.4
Average Tier I preferred equity $ - $ - $ 0.1 $ 0.1 $ - $ - $ 0.4 $ 0.4
Return on common
shareholders' equity (a) 29% 32% 20% 20% 38% 38% 12% 12%
Return on assets (a) NM NM 1.05% 1.08% NM NM 0.99% 1.00%
Pretax operating margin 22% 23% 33% 33% 28% 26% 54% 53%
Pretax operating margin
excluding amortization of
intangibles and trust-preferred
securities expense 24% 25% 40% 40% 29% 28% 64% 63%
Efficiency ratio excluding
amortization of intangibles and
trust-preferred securities expense 76% 74% 56% 56% 71% 72% 34% 34%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Other Total All
Core Sectors Workout Corporate Activity Sectors
SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30, SEPT. 30, June 30,
1998 1998 1998 1998 1998 1998 1998 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $1,073 $1,068 $ 6 $ 1 $ 15 $ 23 $1,094 $1,092
Credit quality expense (revenue) 15 16 (3) (3) - - 12 13
Operating expense:
Mortgage servicing amortization 41 42 - - - - 41 42
Intangible amortization 35 35 - - - - 35 35
Trust-preferred securities 10 10 - - 10 9 20 19
Other operating 638 636 - 1 3 7 641 644
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expense 724 723 - 1 13 16 737 740
- ----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 334 329 9 3 2 7 345 339
Income taxes 124 120 2 2 1 2 127 124
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 210 $ 209 $ 7 $ 1 $ 1 $ 5 $ 218 $ 215
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible net income $ 238 $ 237 $ 7 $ 1 $ 1 $ 5 $ 246 $ 243
- ----------------------------------------------------------------------------------------------------------------------------------
Average assets $ 46.7 $ 46.2 $ - $ 0.1 $1.2 $1.7 $ 47.9 $ 48.0
Average common equity $ 3.9 $ 3.8 $ - $ - $0.4 $0.3 $ 4.3 $ 4.1
Average Tier I preferred equity $ 0.5 $ 0.5 $ - $ - $0.5 $0.5 $ 1.0 $ 1.0
Return on common
shareholders' equity (a) 21% 22% NM NM NM NM 20% 21%
Return on assets (a) 1.79% 1.81% NM NM NM NM 1.81% 1.79%
Pretax operating margin 31% 31% NM NM NM NM 32% 31%
Pretax operating margin
excluding amortization of
intangibles and trust-preferred
securities expense 35% 35% NM NM NM NM 37% 36%
Efficiency ratio excluding
amortization of intangibles and
trust-preferred securities expense 63% 64% NM NM NM NM 62% 63%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized.
NM - Not meaningful.
10
<PAGE> 12
BUSINESS SECTORS (CONTINUED)
- --------------------------------------------------------------------------------
Income before taxes for the total core sectors was $334 million in the third
quarter of 1998, an increase of $5 million compared with $329 million in the
second quarter of 1998. This increase resulted primarily from higher trust and
investment management revenue, due to new business and higher volumes and higher
net interest revenue, partially offset by lower mortgage servicing fees.
Income before taxes in the Consumer Fee Services sector decreased $3 million in
the third quarter of 1998 compared with the second quarter of 1998, primarily
from a lower contribution from mortgage banking, offset by higher private client
profitability.
Consumer Banking Services income before taxes increased $1 million in the third
quarter of 1998 compared with the second quarter of 1998, primarily due to
higher revenue partially offset by higher credit quality expense and higher
operating expenses.
Business Fee Services income before taxes in the third quarter of 1998 compared
with the second quarter of 1998 increased $6 million primarily due to higher
benefits consulting revenue and lower operating expenses.
Business Banking Services income before taxes increased $1 million in the third
quarter of 1998 compared with the second quarter of 1998, primarily due to lower
operating expenses.
11
<PAGE> 13
FEE REVENUE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------------------- ---------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment management fee revenue $229 $227 $189 $ 658 $ 528
Administration and custody fee
revenue 134 137 132 403 342
Benefits consulting 58 54 54 164 54
Brokerage fees (a) 11 11 3 32 8
- ----------------------------------------------------------------------------------------------------------------------------------
Total trust and investment
fee revenue 432 429 378 1,257 932
Cash management and deposit
transaction charges 66 65 62 192 177
Mortgage servicing fees 44 53 53 152 157
Foreign currency and securities
trading revenue 39 38 32 118 82
Credit card fees 23 23 24 70 73
Other (a) 108 104 86 333 290
- ----------------------------------------------------------------------------------------------------------------------------------
Total fee revenue $712 $712 $635 $2,122 $1,711
- ----------------------------------------------------------------------------------------------------------------------------------
Fee revenue as a percentage of
total revenue (FTE) 66% 66% 63% 66% 61%
Trust and investment fee revenue
as a percentage of total revenue
(FTE) (a) 40% 39% 38% 39% 33%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Brokerage fees were previously reported in other fee revenue.
Prior periods have been reclassified.
Fee revenue increased $77 million, or 12%, in the third quarter of 1998,
compared with the third quarter of 1997. Excluding the revenue resulting from
the Founders and Dreyfus Brokerage Services acquisitions, fee revenue increased
9% compared with the prior-year period.
Total trust and investment fee revenue
The $54 million, or 14%, increase in trust and investment fee revenue in the
third quarter of 1998, compared with the prior-year period, reflects a $40
million increase in investment management revenue, a $2 million increase in
administration and custody revenue and a $12 million increase in benefits
consulting and brokerage fees. These increases resulted from new business,
higher transaction volumes and an increase in the market value of assets under
management, as well as revenue resulting from the Founders and Dreyfus Brokerage
Services acquisitions. Excluding the Founders and Dreyfus Brokerage Services
revenue, trust and investment fees increased 9% compared with the third quarter
of 1997.
12
<PAGE> 14
FEE REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
Investment management fee revenue
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------------------- ---------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(in millions) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Managed mutual fund fees: (a)
Equity funds $ 45 $ 48 $ 30 $126 $ 80
Taxable money market funds:
Institutions 21 21 18 60 49
Individuals 8 8 9 24 27
Tax-exempt bond funds 24 23 24 71 72
Fixed-income funds 11 9 6 27 17
Tax-exempt money market funds 7 7 7 21 21
Nonproprietary 6 4 3 13 8
- ----------------------------------------------------------------------------------------------------------------------------------
Total managed mutual fund fees 122 120 97 342 274
Private asset 56 54 47 162 131
Institutional asset 51 53 45 154 123
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment management
revenue $229 $227 $189 $658 $528
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Net of quarterly mutual fund fees waived and fund expense reimbursements of
$10 million, $10 million and $9 million at September 30, 1998, June 30,
1998, and September 30, 1997, respectively. Net of year-to-date fees waived
and fund expense reimbursements of $31 million and $29 million at September
30, 1998 and 1997, respectively.
The $40 million increase in investment management revenue primarily resulted
from a $25 million, or 26%, increase in mutual fund management revenue. Mutual
fund management fees are based upon the average net assets of each fund.
Including the Founders funds of approximately $7 billion, the average net assets
of proprietary mutual funds managed at Dreyfus/Founders in the third quarter of
1998 were $108 billion, up $17 billion from $91 billion in the third quarter of
1997 and down $1 billion from $109 billion in the second quarter of 1998. The
increase from the third quarter of 1997 primarily resulted from increases in
average net assets of equity mutual funds and taxable money market funds.
Proprietary equity mutual funds, including the $7 billion of funds related to
Founders, averaged $32 billion in the third quarter of 1998, compared with $21
billion in the third quarter of 1997 and $33 billion in the second quarter of
1998. In addition, private asset management revenue increased $9 million, or
20%, and institutional asset management revenue increased $6 million, or 13%.
These increases resulted from new business and an increase in the market value
of assets under management.
As shown in the table on the following page, the market value of trust assets
under management was $334 billion at September 30, 1998, a $16 billion decrease
from $350 billion at June 30, 1998. This decrease resulted from a general market
decrease, offset in part by net new business. At September 30, 1998, compared to
June 30, 1998, the S&P 500 Index decreased 10.3% while the Lehman Brothers
Long-Term Government Bond Index increased 8.0%. With the inclusion of the Newton
assets, the Corporation's assets under management, using September 30, 1998,
levels, would have totaled approximately $355 billion.
13
<PAGE> 15
FEE REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER MANAGEMENT - DREYFUS (a)
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mutual fund assets managed:
Equity funds $ 30 $ 34 $ 26 $ 22 $ 22
Taxable money market funds:
Institutions 38 35 34 33 32
Individuals 9 8 9 9 9
Tax-exempt bond funds 17 16 16 17 17
Fixed-income funds 7 7 5 5 5
Tax-exempt money market funds 8 8 8 7 7
Nonproprietary 16 17 15 11 10
- ----------------------------------------------------------------------------------------------------------------------------------
Total mutual fund assets managed 125 125 113 104 102
Private asset 37 41 40 36 34
Institutional asset (b) 172 184 175 165 163
- ----------------------------------------------------------------------------------------------------------------------------------
Total market value of assets
under management $334 $350 $328 $305 $299
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) "Dreyfus," as defined for purposes of this table, consists of five business
units: Dreyfus Funds, the retail mutual funds area of the Corporation which
includes The Dreyfus Corporation and Founders Asset Management, LLC;
Dreyfus Brokerage, which includes Dreyfus Investment Services Corporation
and Dreyfus Brokerage Services; Dreyfus Retirement Services, the defined
contribution business of the Corporation; Dreyfus Institutional Investors,
the investment management business of the Corporation which includes The
Boston Company Asset Management, Mellon Capital Management, Mellon Equity
Associates, Mellon Bond Associates, Certus Asset Advisors, Franklin
Portfolio Associates, Pareto Partners and Prime Advisors, Inc.; and Mellon
Private Asset Management, the high net worth personal trust and custody
business of the Corporation.
(b) Includes assets managed at Pareto Partners of $24 billion at September 30,
1998; $25 billion at June 30, 1998; $24 billion at March 31, 1998; $21
billion at December 31, 1997; and $21 billion at September 30, 1997. The
Corporation has a 30% equity interest in Pareto Partners.
At September 30, 1998, the combined market values of $16 billion of
nonproprietary mutual funds and $172 billion of institutional assets managed, by
asset type, were as follows: equities, $70 billion; balanced, $35 billion; fixed
income, $33 billion; money market, $26 billion; and $24 billion at Pareto
Partners, primarily in currency overlay and global fixed-income products, for a
total of $188 billion.
Administration and custody fee revenue
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------------------- ---------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(in millions) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Administration and custody:
Institutional trust $ 95 $ 98 $ 94 $288 $233
Mutual fund 34 34 34 101 97
Private asset 5 5 4 14 12
- ----------------------------------------------------------------------------------------------------------------------------------
Total administration and custody
revenue $134 $137 $132 $403 $342
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 16
FEE REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
Administration and custody fee revenue increased $2 million in the third quarter
of 1998, compared with the third quarter of 1997. Excluding the fees from the
corporate trust business which was sold in November 1997, from the third quarter
of 1997, institutional trust fees increased 6% compared with the prior-year
period. Administration and custody fee revenue decreased $3 million compared
with the second quarter of 1998, primarily resulting from a decrease in
securities lending revenue, which is included in institutional trust fees.
The market value of assets under administration/custody, shown in the table
below, was $1,642 billion at September 30, 1998, a decrease of $149 billion
compared with $1,791 billion at June 30, 1998. This decrease resulted from a
general market decrease, offset in part by new business.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF ASSETS UNDER ADMINISTRATION/CUSTODY
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in billions) 1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Institutional trust (a) $1,556 $1,701 $1,564 $1,440 $1,396
Mutual fund 52 54 67 60 60
Private asset 34 36 35 32 32
- ----------------------------------------------------------------------------------------------------------------------------------
Total market value of assets under
administration/custody $1,642 $1,791 $1,666 $1,532 $1,488
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $265 billion of assets at September 30, 1998; $316 billion of
assets at June 30, 1998; $317 billion of assets at March 31, 1998; $246
billion at December 31, 1997; and $246 billion at September 30, 1997,
administered by CIBC Mellon Global Securities Services, a 50% owned joint
venture.
Benefits consulting and brokerage fees
Benefits consulting fees increased $4 million in the third quarter of 1998,
compared with the prior-year period, primarily resulting from new business and
increased project activity with existing clients. The $8 million increase in
brokerage fees primarily resulted from the acquisition of Dreyfus Brokerage
Services.
Cash management and deposit transaction charges
The $4 million, or 6%, increase in cash management and deposit transaction
charges in the third quarter of 1998, compared with the prior-year period,
primarily resulted from higher volumes of business in customer receivables,
payables and treasury management products.
Mortgage servicing fees
Mortgage servicing fees decreased $9 million, or 17%, in the third quarter of
1998, compared with the third quarter of 1997. This decrease primarily resulted
from a higher level of mortgage prepayments as well as from the sale of certain
mortgage servicing rights.
Foreign currency and securities trading revenue
The $7 million, or 20%, increase in foreign currency and securities trading
revenue in the third quarter of 1998, compared with the prior-year period, was
attributable to higher foreign exchange fees earned as a result of higher levels
of customer activity, primarily in the Corporation's global custody business,
and market volatility.
15
<PAGE> 17
FEE REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
Credit card fees
Credit card fees were $23 million and $70 million in the third quarter and first
nine months of 1998, respectively, compared with $24 million and $73 million in
the third quarter and first nine months of 1997. The Corporation's announced
agreement to sell its merchant card processing business to Paymentech, Inc. is
expected to be completed during the fourth quarter of 1998, subject to certain
closing conditions and regulatory approvals. This business generated
approximately $25 million of fee and net interest revenue in the first nine
months of 1998.
Other fee revenue
Other fee revenue was $108 million in the third quarter of 1998, an increase of
$22 million compared with the third quarter of 1997. This increase primarily
resulted from higher fees from various fee-based services and higher gains from
the sale of equity securities and other assets.
Third quarter 1998 compared with second quarter 1998
Fee revenue was unchanged compared with the second quarter of 1998 as higher
trust and investment fees and other fees were offset by lower mortgage servicing
fees.
Year-to-date 1998 compared with year-to-date 1997
Fee revenue totaled $2,122 million in the first nine months of 1998, a $411
million increase compared with the prior-year period, primarily resulting from
the full-period impact of the July 1997 Buck acquisition as well as the same
factors responsible for the third quarter of 1998 increase as compared to the
prior-year period. Excluding the revenue resulting from the Buck, Founders and
Dreyfus Brokerage Services acquisitions, fee revenue increased 12% compared with
the prior-year period.
16
<PAGE> 18
NET INTEREST REVENUE
- --------------------------------------------------------------------------------
Net interest revenue, on a fully taxable equivalent basis, for the third quarter
of 1998 totaled $376 million, compared with $369 million in the third quarter of
1997 and $374 million in the second quarter of 1998. The net interest margin was
3.95% in the third quarter of 1998, compared with 4.24% in the third quarter of
1997 and 3.97% in the second quarter of 1998. The $7 million increase in net
interest revenue on a fully taxable equivalent basis in the third quarter of
1998 compared with the third quarter of 1997 was due to the favorable impacts of
the acquisitions of Mellon United National Bank and Mellon 1st Business Bank in
February 1998 and Dreyfus Brokerage Services in November 1997, net of funding
costs, partially offset by the December 1997 transfer of $231 million of
CornerStone(sm) credit card loans into an accelerated resolution portfolio and
the February 1998 Series K preferred stock redemption.
Year-to-date 1998 compared with year-to-date 1997
Net interest revenue and the net interest margin, on a fully taxable equivalent
basis, were $1,117 million and 3.99%, respectively, in the first nine months of
1998, compared with $1,113 million and 4.30% in the first nine months of 1997.
The $4 million increase in net interest revenue primarily resulted from the same
factors responsible for the third quarter of 1998 increase as compared to the
prior-year period. The 31 basis point decrease in the net interest margin in the
first nine months of 1998, compared with the first nine months of 1997,
primarily resulted from funding costs related to the acquisitions, the transfer
of $231 million of CornerStone(sm) credit card loans into an accelerated
resolution portfolio and the Series K preferred stock redemption.
17
<PAGE> 19
NET INTEREST REVENUE (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET -- AVERAGE BALANCES AND INTEREST YIELDS/RATES
- -----------------------------------------------------------------------------------------------------------------------------------
Nine months ended
---------------------------------------------------
SEPT. 30, 1998 Sept. 30, 1997
AVERAGE AVERAGE Average Average
(dollar amounts in millions) BALANCE YIELDS/RATES balance yields/rates
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets Interest-earning assets:
Federal funds sold and securities under resale agreements $ 828 5.96% $ 483 5.43%
Interest-bearing deposits with banks 599 5.15 534 5.04
Other money market investments 125 5.45 98 5.24
Trading account securities 249 6.22 181 5.58
Securities:
U.S. Treasury and agency securities (a) 5,336 6.76 5,545 6.77
Obligations of states and political subdivisions (a) 43 7.59 42 7.77
Other (a) 127 6.94 110 6.57
Loans, net of unearned discount (a) 30,027 8.03 27,599 8.22
------- -------
Total interest-earning assets 37,334 7.73 34,592 7.87
Cash and due from banks 3,205 2,783
Premises and equipment 562 585
Customers' acceptance liability 107 277
Net acquired property 59 73
Other assets (a) 6,548 4,700
Reserve for credit losses (498) (518)
-----------------------------------------------------------------------------------------------------------------
Total assets $47,317 $42,492
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities, Interest-bearing liabilities:
trust-preferred Deposits in domestic offices:
securities and Demand $ 337 2.24% $ 230 1.81%
shareholders' Money market and other savings accounts 10,982 2.93 10,018 2.83
equity Retail savings certificates 7,658 5.01 7,049 4.98
Other time deposits 1,957 5.59 1,898 5.61
Deposits in foreign offices 2,714 5.01 2,657 4.87
------- -------
Total interest-bearing deposits 23,648 4.05 21,852 4.00
Federal funds purchased and securities under
repurchase agreements 2,134 5.61 1,345 5.45
U.S. Treasury tax and loan demand notes 578 5.35 490 5.32
Term federal funds purchased 401 5.73 589 5.67
Short-term bank notes 294 5.71 115 6.18
Commercial paper 200 5.57 69 5.36
Other funds borrowed 349 9.06 377 8.25
Notes and debentures (with original maturities over one year) 2,935 6.90 2,689 6.97
------- -------
Total interest-bearing liabilities 30,539 4.57 27,526 4.49
Total noninterest-bearing deposits 9,579 8,396
Acceptances outstanding 107 277
Other liabilities (a) 2,022 1,628
-----------------------------------------------------------------------------------------------------------------
Total liabilities 42,247 37,827
-----------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures 991 990
-----------------------------------------------------------------------------------------------------------------
Shareholders' equity (a) 4,079 3,675
-----------------------------------------------------------------------------------------------------------------
Total liabilities, trust-preferred securities and
shareholders' equity $47,317 $42,492
- -----------------------------------------------------------------------------------------------------------------------------------
Rates Yield on total interest-earning assets 7.73% 7.87%
Cost of funds supporting interest-earning assets 3.74 3.57
-----------------------------------------------------------------------------------------------------------------
Net interest margin:
Taxable equivalent basis 3.99% 4.30%
Without taxable equivalent increments 3.97 4.27
-----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts and yields exclude adjustments to fair value
required by FAS No. 115.
Note: Average rates are annualized and calculated on a taxable
equivalent basis, at tax rates approximating 35%, using
18
<PAGE> 20
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, 1998 June 30, 1998 March 31, 1998 Dec. 31, 1997 Sept. 30, 1997
AVERAGE AVERAGE Average Average Average Average Average Average Average Average
BALANCE YIELDS/RATES balance yields/rates balance yields/rates balance yields/rates balance yields/rates
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 665 7.06% $ 853 5.52% $ 967 5.58% $ 792 5.05% $ 601 5.59%
575 5.27 569 4.93 655 5.24 468 5.16 496 5.14
111 5.17 175 5.12 90 6.46 137 5.77 134 5.73
266 6.64 239 5.60 242 6.35 159 5.41 171 5.44
5,543 6.61 5,385 6.72 5,071 6.98 5,129 6.71 5,315 6.74
53 7.26 45 6.67 35 8.71 26 7.78 29 7.63
106 6.99 126 6.93 148 6.92 105 7.80 109 5.92
30,421 8.05 30,281 8.05 29,367 7.99 28,461 8.07 27,583 8.18
------- ------- ------- ------- -------
37,740 7.76 37,673 7.72 36,575 7.72 35,277 7.75 34,438 7.84
3,115 3,281 3,220 3,026 2,875
562 562 562 592 601
106 92 123 253 315
60 68 49 53 71
6,794 6,721 6,120 5,510 5,057
(501) (499) (492) (495) (512)
- ----------------------------------------------------------------------------------------------------------------------------------
$47,876 $47,898 $46,157 $44,216 $42,845
- ----------------------------------------------------------------------------------------------------------------------------------
$ 354 2.18% $ 347 2.14% $ 309 2.43% $ 239 2.15% $ 231 2.50%
11,073 2.96 11,069 2.91 10,801 2.91 10,128 2.89 9,840 2.84
7,699 4.99 7,680 5.01 7,596 5.04 7,514 5.08 7,336 5.06
2,071 5.64 2,092 5.55 1,702 5.59 1,456 5.78 1,710 5.77
2,847 5.18 2,740 4.86 2,550 4.98 2,594 4.92 2,425 4.88
------- ------- ------- ------- -------
24,044 4.09 23,928 4.03 22,958 4.04 21,931 4.07 21,542 4.05
2,373 5.94 2,257 5.38 1,765 5.44 1,522 5.66 1,163 5.58
630 5.37 684 5.32 418 5.35 401 5.36 467 5.40
271 5.74 388 5.63 546 5.80 631 5.83 570 5.86
275 5.69 296 5.68 313 5.76 231 5.30 199 6.52
164 5.57 237 5.55 200 5.60 70 5.54 58 5.45
344 9.18 352 9.16 351 8.83 556 7.75 435 8.19
3,003 6.81 3,003 6.88 2,797 7.01 2,781 6.94 2,832 6.83
------- ------- ------- ------- -------
31,104 4.62 31,145 4.53 29,348 4.54 28,123 4.58 27,266 4.56
9,355 9,620 9,767 9,154 8,807
106 92 123 253 315
2,095 1,968 2,001 1,961 1,776
- ----------------------------------------------------------------------------------------------------------------------------------
42,660 42,825 41,239 39,491 38,164
- ----------------------------------------------------------------------------------------------------------------------------------
991 991 991 990 990
- ----------------------------------------------------------------------------------------------------------------------------------
4,225 4,082 3,927 3,735 3,691
- ----------------------------------------------------------------------------------------------------------------------------------
$47,876 $47,898 $46,157 $44,216 $42,845
- ----------------------------------------------------------------------------------------------------------------------------------
7.76% 7.72% 7.72% 7.75% 7.84%
3.81 3.75 3.66 3.68 3.60
- ----------------------------------------------------------------------------------------------------------------------------------
3.95% 3.97% 4.06% 4.07% 4.24%
3.93 3.95 4.04 4.05 4.22
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
dollar amounts in thousands and actual number of days in the periods, and are
before the effect of reserve requirements. Loan fees, as well as nonaccrual
loans and their related income effect, have been included in the calculation of
average interest yields/rates.
19
<PAGE> 21
OPERATING EXPENSE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------------------- ---------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Staff expense $358 $355 $344 $1,070 $ 888
Professional, legal and other
purchased services 72 67 55 200 147
Net occupancy expense 59 59 55 174 161
Amortization of mortgage servicing assets
and purchased credit card relationships 43 44 29 132 85
Equipment expense 42 41 38 122 110
Business development 33 42 36 111 111
Amortization of goodwill and
other intangible assets 35 35 25 100 79
Communications expense 27 26 25 79 76
Other expense 48 52 44 147 130
- --------------------------------------------------------------------------------------------------------------------------------
Operating expense before trust-
preferred securities expense and
net revenue from acquired property 717 721 651 2,135 1,787
Trust-preferred securities expense 20 19 20 59 59
Net revenue from acquired property (3) (2) (1) (6) (7)
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expense $734 $738 $670 $2,188 $1,839
- --------------------------------------------------------------------------------------------------------------------------------
Average full-time equivalent staff 28,400 28,600 27,300 28,300 26,000
- --------------------------------------------------------------------------------------------------------------------------------
Efficiency ratio (a) 66% 66% 65% 66% 63%
Efficiency ratio excluding amortization
of goodwill and other intangible assets 62% 63% 62% 63% 60%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating expense before trust-preferred securities expense and net revenue
from acquired property, as a percentage of revenue, computed on a taxable
equivalent basis, excluding gains on the sale of securities.
Operating expense before trust-preferred securities expense and net revenue from
acquired property increased $66 million, or 10%, in the third quarter of 1998
compared with the prior-year period, primarily resulting from acquisitions,
business growth and higher amortization of mortgage servicing assets. Excluding
the effect of acquisitions and the increase in the amortization of mortgage
servicing assets and purchased credit card relationships, operating expense
before trust-preferred securities expense and net revenue from acquired property
increased approximately 2%.
The amortization of mortgage servicing assets and purchased credit card
relationships increased $14 million compared with the third quarter of 1997,
primarily resulting from an acceleration of amortization due to a higher level
of mortgage prepayments. Future declines in interest rates can potentially
result in prepayments of the mortgage loans underlying mortgage servicing rights
(MSRs), which can potentially decrease future net servicing revenue. Decreases
in expected future net servicing revenue can potentially result in accelerated
amortization and potential impairment of MSRs. The Corporation has entered into
various off-balance-sheet instruments to hedge the prepayment risk associated
with its mortgage servicing portfolio. See pages 34 and 35 for a further
discussion of the instruments.
Third quarter 1998 compared with second quarter 1998
Operating expense before trust-preferred securities expense and net revenue from
acquired property decreased $4 million in the third quarter of 1998, compared
with the second quarter of 1998. This decrease resulted primarily from lower
advertising, sales promotions and travel expense.
20
<PAGE> 22
OPERATING EXPENSE (CONTINUED)
- --------------------------------------------------------------------------------
Year-to-date 1998 compared with year-to-date 1997
The $348 million, or 19%, increase in operating expense before trust-preferred
securities expense and net revenue from acquired property in the first nine
months of 1998, compared with the first nine months of 1997, primarily resulted
from the same factors responsible for the third quarter 1998 increase as
compared to the prior-year period. Excluding the effect of acquisitions and the
increase in the amortization of mortgage servicing assets and purchased credit
card relationships, operating expense before trust-preferred securities expense
and net revenue from acquired property increased approximately 3%.
Year 2000 Project
In early 1996, the Corporation formed a year 2000 project team to identify
information technology and non-information technology systems that require
modification for the year 2000. A project plan has been developed with goals and
target dates. The Corporation's business areas are in various stages of this
project plan. The Corporation currently expects to have substantially completed
programming changes and internal testing of internal mission critical
information technology systems by December 31, 1998, and to have begun
significant enterprise testing of mission critical information technology
systems in late 1998, which testing is expected to be substantially completed by
June 30, 1999. The Corporation currently expects to have substantially completed
remediation and testing of mission critical non-information technology systems
by June 30, 1999. The Corporation also currently expects to have substantially
completed remediation and testing of both information technology and
non-information technology systems that the Corporation has determined are of
high business value and priority (although not mission critical) by June 30,
1999.
The Corporation incurred expenses throughout 1996 and 1997 and in the first
three quarters of 1998 related to this project and will continue to incur
expenses over the next 15 months. The Corporation currently estimates that the
costs related to systems remediation and testing will be approximately $70
million to $95 million. Approximately 15% of these costs were incurred in 1996
and 1997 with approximately 50% expected to be incurred in 1998 and 35% in 1999.
A significant portion of total year 2000 project expenses is represented by
existing staff that has been redeployed to this project. The Corporation does
not believe that the redeployment of existing staff will have a material adverse
effect on its business, results of operations or financial position. Incremental
expenses related to the year 2000 project are not expected to materially impact
operating results in any one period.
The impact of year 2000 issues on the Corporation will depend not only on
corrective actions that the Corporation takes, but also on the way in which year
2000 issues are addressed by governmental agencies, businesses and other third
parties that provide services or data to, or receive services or data from, the
Corporation, or whose financial condition or operational capability is important
to the Corporation. To reduce this exposure, the Corporation has an ongoing
process of identifying and contacting mission critical third party vendors and
other significant third parties to determine their year 2000 plans and target
dates. Risks associated with any such third parties located outside the United
States may be higher insofar as it is generally believed that non-U.S.
businesses may not be addressing their year 2000 issues on as timely a basis as
U.S. businesses. Notwithstanding the Corporation's efforts, there can be no
assurance that mission critical third party vendors or other significant third
parties will adequately address their year 2000 issues.
The Corporation is developing contingency plans for implementation in the event
that mission critical third party vendors or other significant third parties
fail to adequately address year 2000 issues. Such plans principally involve
internal remediation or identifying alternate vendors. The Corporation also is
enhancing its existing
21
<PAGE> 23
OPERATING EXPENSE (CONTINUED)
- --------------------------------------------------------------------------------
business resumption plans to reflect year 2000 issues and is developing plans
designed to coordinate the efforts of its personnel and resources in addressing
any mission critical year 2000 problems that become evident after December 31,
1999. There can be no assurance that any such plans will fully mitigate any such
failures or problems. Furthermore, there may be certain mission critical third
parties, such as utilities or telecommunication companies, where alternative
arrangements or sources are unavailable or severely limited.
The Corporation's credit risk associated with borrowers may increase to the
extent borrowers fail to adequately address year 2000 issues. As a result, there
may be increases in the Corporation's problem loans and credit losses in future
years. It is not, however, possible to quantify the potential impact of any such
losses at this time.
Until the year 2000 event actually occurs and for a period of time thereafter,
there can be no assurance that there will be no problems related to year 2000.
The year 2000 technology challenge is an unprecedented event. If year 2000
issues are not adequately addressed by the Corporation and third parties, the
Corporation could face, among other things, business disruptions, operational
problems, financial losses, legal liability and similar risks, and the
Corporation's business, results of operations and financial position could be
materially adversely affected.
The foregoing year 2000 discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
the Corporation expects to substantially complete programming changes,
remediation and testing of systems and the impact of the redeployment of
existing staff, are based on management's best current estimates, which were
derived utilizing numerous assumptions about future events, including the
continued availability of certain resources, representations received from third
party service providers and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to: the availability and cost
of personnel trained in this area; the ability to identify and convert all
relevant systems; results of year 2000 testing; adequate resolution of year 2000
issues by governmental agencies, businesses or other third parties that are
service providers, suppliers, borrowers or customers of the Corporation;
unanticipated system costs; the need to replace hardware; the adequacy of and
ability to implement contingency plans; and similar uncertainties. The
forward-looking statements made in the foregoing year 2000 discussion speak only
as of the date on which such statements are made, and the Corporation undertakes
no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
Euro Project
On January 1, 1999, eleven member states of the European Union are scheduled to
adopt a common currency, the "euro", with each state's national currency to have
a fixed conversion rate with the euro. The adoption of the euro will require the
Corporation to modify certain information technology and other systems,
including currency conversions and redenomination of securities, to accommodate
euro-denominated transactions. Such modifications will be of particular
importance to the Corporation's global custody, foreign exchange, asset
management, cash management, funds administration and global securities lending
business.
In August 1997, the Corporation formed a taskforce with representation from the
affected business lines to plan and implement necessary modifications attendant
to the adoption of the euro. Each affected business area has developed a project
plan that is being monitored centrally, and these business areas are in various
stages of these plans. The Corporation currently expects to have substantially
completed modifications and reasonable testing by the time of adoption of the
euro. The Corporation has incurred and will continue to incur expenses related
to the euro project. A significant portion of the euro project expenses is
represented by existing staff that has been
22
<PAGE> 24
OPERATING EXPENSE (CONTINUED)
- --------------------------------------------------------------------------------
redeployed to this project. Incremental expenses related to the euro project are
not expected to be material. The Corporation currently expects a potential
reduction in the number of foreign exchange transactions as a result of the
euro's replacement of a variety of sovereign currencies.
The impact of euro issues on the Corporation will depend not only on corrective
actions that the Corporation takes, but also on the way in which euro issues are
addressed by governmental agencies, depositaries, clearing agencies, businesses
and other third parties that provide services or data to, or receive services or
data from, the Corporation, or whose financial condition or operational
capability is important to the Corporation. To reduce this exposure, the
Corporation has an ongoing process of identifying and contacting significant
third party vendors and other significant third parties to determine their euro
plans and target dates. Notwithstanding the Corporation's efforts, there can be
no assurance that third party vendors or other third parties will adequately
address their euro issues.
The Corporation has developed contingency plans for implementation in the event
that significant third party vendors or other significant third parties fail to
adequately address euro issues or other problems are experienced. The
Corporation has also developed plans designed to coordinate the efforts of its
personnel and resources in addressing any euro problems that become evident
after December 31, 1998. There can be no assurance that any such plans will
fully mitigate any such failures or problems. Furthermore, there may be certain
significant third parties, such as European depositaries, where alternative
arrangements or sources are unavailable or severely limited.
The foregoing euro discussion contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, the amount of incremental expenses and
the time by which the Corporation expects to substantially complete
modifications and reasonable testing, are based on management's best current
estimates, which were derived utilizing numerous assumptions about future
events, including the continued availability of certain resources,
representations received from third party vendors and service providers,
behavior of currency market participants and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to: the availability and cost
of personnel trained in this area; the ability to identify and convert all
relevant systems; results of euro testing; effective transitioning to
euro-denominated transactions by third parties with whom the Corporation does
business; adequate resolution of euro issues by governmental agencies,
depositaries, clearing agencies, businesses or other third parties that are
service providers, suppliers or customers of the Corporation; unanticipated
system costs; the need to replace hardware; the adequacy of and ability to
implement contingency plans; and similar uncertainties. The forward-looking
statements made in the foregoing euro discussion speak only as of the date on
which such statements are made, and the Corporation undertakes no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events.
INCOME TAXES
- --------------------------------------------------------------------------------
The provision for income taxes totaled $353 million in the first nine months of
1998, compared with $327 million in the first nine months of 1997. The
Corporation's effective tax rate for the first nine months of 1998 was 35.3%,
compared with 36.3% for the same period of 1997. It is expected that the
effective tax rate will remain at approximately 35.3% for the remainder of 1998.
It is currently anticipated that the effective tax rate for 1999 will fall
within the range of 36.5% to 37.5%.
23
<PAGE> 25
ASSET/LIABILITY MANAGEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Quarter ended
---------------------------------------------
SEPT. 30, June 30, Sept. 30,
(average balances in millions) 1998 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Money market investments $ 1,351 $ 1,597 $ 1,231
Trading account securities 266 239 171
Securities 5,754 5,596 5,469
Loans 30,426 30,302 27,596
- --------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 37,797 37,734 34,467
Noninterest-earning assets 10,641 10,730 8,924
Reserve for credit losses (501) (499) (512)
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $47,937 $47,965 $42,879
- --------------------------------------------------------------------------------------------------------------------------------
FUNDS SUPPORTING TOTAL ASSETS:
Core funds $38,477 $38,328 $34,993
Wholesale and purchased funds 9,460 9,637 7,886
- --------------------------------------------------------------------------------------------------------------------------------
Funds supporting total assets $47,937 $47,965 $42,879
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in the Corporation's average interest-earning assets in the third
quarter of 1998, compared with the third quarter of 1997, reflects a $2,830
million increase in average loans and a $285 million increase in average
securities. Excluding the effect of acquisitions, average loans in the third
quarter of 1998 grew by approximately $1.4 billion, compared with the prior-year
period, primarily in wholesale lending and the jumbo residential mortgage
portfolio.
Core funds, which are considered to be the most stable sources of funding, are
defined principally as individual money market and other savings deposits,
savings certificates, demand deposits, 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 $4,558 million in the third quarter of 1998 from the prior-year
period, reflecting higher loan levels and a higher level of noninterest-earning
assets. The increase in noninterest-earning assets includes a higher level of
goodwill resulting from the Mellon United National Bank, Founders, Mellon 1st
Business Bank and Dreyfus Brokerage Services acquisitions and a higher level of
cash and due from banks. Average core funds increased $3,484 million in the
third quarter of 1998 from the prior-year period, primarily reflecting higher
levels of deposits, due in part to the acquisitions. Core funds averaged 95% of
core assets in the third quarter of 1998, compared with 95% in the second
quarter of 1998 and 97% in the third quarter of 1997.
Wholesale and purchased funds are defined as deposits in foreign offices,
negotiable certificates of deposit, federal funds purchased and securities under
repurchase agreements, U.S. Treasury tax and loan demand notes, short-term bank
notes, commercial paper, other time deposits and other funds borrowed. Average
wholesale and purchased funds increased $1,574 million compared with the
prior-year period, primarily reflecting an increase in federal funds purchased
and securities under repurchase agreements, and deposits in foreign offices. As
a percentage of total average assets, average wholesale and purchased funds were
20% in the third quarter of 1998, compared with 20% in the second quarter of
1998 and 18% in the third quarter of 1997.
24
<PAGE> 26
COMPOSITION OF LOAN PORTFOLIO
- --------------------------------------------------------------------------------
The loan portfolio increased $2,773 million at September 30, 1998, compared with
September 30, 1997, reflecting the Mellon 1st Business Bank and Mellon United
National Bank acquisitions as well as increases in other consumer credit, small
business lending and consumer mortgages. Partially offsetting these increases
was a lower level of credit card loans due, in part, to the transfer of $231
million of CornerStone(sm) credit card loans to an accelerated resolution
portfolio in the fourth quarter of 1997. At September 30, 1998, the composition
of the loan portfolio was 57% commercial and 43% consumer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DOMESTIC LOANS
Commercial and financial $11,330 $11,283 $11,158 $10,826 $10,259
Commercial real estate 2,257 2,134 1,999 1,509 1,599
Consumer credit:
Consumer mortgage 8,701 8,506 8,689 8,505 8,318
Credit card 788 830 862 931 1,104
Other consumer credit 3,745 3,582 3,396 3,166 2,785
- --------------------------------------------------------------------------------------------------------------------------------
Total consumer credit 13,234 12,918 12,947 12,602 12,207
Lease finance assets 2,590 2,570 2,578 2,639 2,502
- --------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 29,411 28,905 28,682 27,576 26,567
INTERNATIONAL LOANS 1,641 1,749 1,661 1,566 1,712
- --------------------------------------------------------------------------------------------------------------------------------
Total loans, net of unearned discount $31,052 $30,654 $30,343 $29,142 $28,279
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commercial and financial
Total domestic commercial and financial loans increased by $1,071 million, or
10%, at September 30, 1998, compared to September 30, 1997, primarily as a
result of an increase in small business lending as well as the Mellon 1st
Business Bank and Mellon United National Bank acquisitions. Commercial and
financial loans represented 37% of the total loan portfolio at September 30,
1998, and 36% at September 30, 1997. At September 30, 1998, the Corporation had
no hedge fund exposure.
Commercial real estate
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC COMMERCIAL REAL ESTATE LOANS
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial mortgage and construction loans $1,509 $1,367 $1,278 $ 942 $1,062
Owner-occupied and other loans (a) 748 767 721 541 507
FDIC loss share loans - - - 26 30
- --------------------------------------------------------------------------------------------------------------------------------
Total $2,257 $2,134 $1,999 $1,509 $1,599
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Owner-occupied and other loans are loans that are secured by real estate;
however, the commercial property is not being relied upon as the primary
source of repayment.
Domestic commercial real estate loans increased by $658 million, or 41%, at
September 30, 1998, compared with September 30, 1997. This increase primarily
resulted from the Mellon United National Bank and Mellon 1st Business Bank
acquisitions as well as loan growth. Domestic commercial real estate loans were
7% of total loans at September 30, 1998, up from 6% a year earlier.
25
<PAGE> 27
COMPOSITION OF LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
Consumer mortgage
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF DOMESTIC CONSUMER MORTGAGE LOANS
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jumbo residential mortgages $3,835 $3,673 $3,634 $3,613 $3,353
One- to four-family residential mortgages 2,312 2,353 2,668 2,514 2,459
Fixed-term home equity loans 1,781 1,777 1,750 1,742 1,862
Home equity revolving credit line loans 773 703 637 636 644
- ----------------------------------------------------------------------------------------------------------------------------------
Total $8,701 $8,506 $8,689 $8,505 $8,318
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998, the domestic consumer mortgage portfolio totaled $8,701
million, a $383 million, or 5%, increase from September 30, 1997. This increase
primarily resulted from an increase in jumbo residential mortgages.
Credit card
At September 30, 1998, credit card loans totaled $788 million, a $316 million,
or 29%, decrease from September 30, 1997. Credit card loans represented 3% of
total loans at September 30, 1998, compared with 4% a year earlier. This
decrease primarily resulted from the transfer of $231 million of CornerStone(sm)
credit card loans to an accelerated resolution portfolio in the fourth quarter
of 1997 and from credit losses. The CornerStone(sm) credit card portfolio was
$251 million, or 32% of total credit cards at September 30, 1998, compared with
$501 million, or 45% at September 30, 1997.
Other consumer credit
Other consumer credit, which principally consists of student loans, installment
loans, unsecured personal credit lines and margin loans, was $3,745 million at
September 30, 1998, an increase of $960 million, or 35%, from September 30,
1997. The increase was primarily due to a higher level of margin loans following
the November 1997 acquisition of Dreyfus Brokerage Services and a higher level
of automobile loans related to the February 1998 acquisition of Mellon 1st
Business Bank as well as loan growth. Other consumer credit loans are both
secured and unsecured and, in the case of student loans, are government
guaranteed. Student loans totaled $1,732 million, or 46% of this portfolio, at
September 30, 1998.
Lease finance assets
Lease finance assets totaled $2,590 million at September 30, 1998, an increase
of $88 million, compared with September 30, 1997. Lease finance assets
represented 8% of the total loan portfolio at September 30, 1998, compared with
9% at September 30, 1997.
International loans
Loans to international borrowers totaled $1,641 million at September 30, 1998,
down 4% from $1,712 million at September 30, 1997, primarily due to decreased
activity with large corporate customers and foreign banks. There were no
nonperforming international loans at September 30, 1998. At September 30, 1998,
the Corporation had no direct southeast Asian or Russian exposure.
26
<PAGE> 28
COMPOSITION OF LOAN PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
Assets held for accelerated resolution
In December 1997, the Corporation transferred $231 million of CornerStone(sm)
credit card loans 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 $65 million to reflect an estimated net realizable
value of $166 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. The net carrying value of the accelerated resolution portfolio
was $86 million at September 30, 1998, compared with $106 million at June 30,
1998, and $157 million at December 31, 1997. This portfolio is in other assets
on the Corporation's balance sheet.
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS WITH CONTRACT AMOUNTS THAT REPRESENT CREDIT RISK
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Sept. 30,
(in millions) 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commitments to extend credit $34,330 (a) $33,578 $31,088
Standby letters of credit and foreign guarantees 4,004 (b) 3,696 3,800
Commercial letters of credit 85 181 85
Residential mortgage loans serviced with recourse 85 90 117
Custodian securities lent with indemnification
against broker default of return of securities 30,279 31,108 26,987
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Approximately 32% of these commitments are scheduled to expire within one
year, and approximately 85% are scheduled to expire within five years.
(b) Net of participations and cash collateral totaling $327 million.
27
<PAGE> 29
<TABLE>
<CAPTION>
CAPITAL
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED CAPITAL DATA
(dollar amounts in millions, SEPT. 30, June 30, Dec. 31, Sept. 30,
except per share amounts) 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $ 4,358 $ 4,234 $ 3,652 $ 3,585
Common shareholders' equity to assets ratio 9.03% 8.92% 8.13% 8.25%
Tangible common shareholders' equity $ 2,243 $ 2,078 $ 2,227 $ 2,265
Tangible common shareholders' equity
to assets ratio (a) 4.86% 4.59% 5.12% 5.37%
Total shareholders' equity $ 4,358 $ 4,234 $ 3,845 $ 3,778
Total shareholders' equity to assets ratio 9.03% 8.92% 8.56% 8.69%
Tier I capital ratio (b) 6.78% 6.51% 7.77% 8.08%
Total (Tier I plus Tier II) capital ratio (b) 11.22% 10.83% 12.73% 13.24%
Leverage capital ratio (b) 7.06% 6.65% 8.02% 8.37%
Total Tier I capital $ 3,245 $ 3,055 $ 3,441 $ 3,476
Total (Tier I plus Tier II) capital $ 5,367 $ 5,081 $ 5,638 $ 5,699
Total risk-adjusted assets $ 47,852 $ 46,934 $ 44,287 $ 43,027
Average assets - leverage capital basis $ 45,979 $ 45,919 $ 42,926 $ 41,513
Book value per common share $ 16.69 $ 16.24 $ 14.39 $ 14.08
Tangible book value per common share $ 8.59 $ 7.97 $ 8.77 $ 8.90
Closing common stock price $ 55.00 $ 69.688 $ 60.63 $ 54.75
Market capitalization $ 14,363 $ 18,168 $ 15,386 $ 13,938
Common shares outstanding (000) 261,140 260,708 253,786 254,578
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill and other intangibles recorded in
connection with purchase acquisitions divided by total assets less goodwill
and other intangibles recorded in connection with purchase acquisitions.
(b) The required minimum Tier I, Total and Leverage capital ratios are 4%, 8%
and 3%, respectively.
The increase in shareholders' equity at September 30, 1998, compared with
September 30, 1997, primarily reflects earnings retention and common shares
issued in the Mellon United National Bank acquisition in February 1998. Also
impacting total shareholders' equity, compared with September 30, 1997, was the
February 1998 redemption of the $200 million Series K preferred stock. The
Corporation repurchased approximately 500 thousand shares of its common stock in
the third quarter of 1998. At September 30, 1998, approximately 4.3 million
common shares remain available for repurchase under a 6 million share repurchase
program authorized by the board of directors in July 1997.
<TABLE>
<CAPTION>
COMMON SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------------
THIRD QUARTER YEAR TO DATE Full Year
(in millions) 1998 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Beginning shares outstanding 260.7 253.8 257.3
Shares issued for stock-based benefit plans and dividend reinvestment plan 0.9 2.7 5.1
Shares issued for Mellon United National Bank acquisition - 5.1 -
Shares issued for Buck acquisition - - 3.5
Shares repurchased (0.5) (a) (0.5) (a) (12.1) (b)
- --------------------------------------------------------------------------------------------------------------------------------
Ending shares outstanding 261.1 261.1 253.8
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Purchase price of $27 million for an average share price of $53.53 per
share.
(b) Purchase price of $534 million for an average share price of $44.01 per
share.
28
<PAGE> 30
CAPITAL (CONTINUED)
- --------------------------------------------------------------------------------
Regulatory capital
For an institution to qualify as well capitalized, its Tier I, Total and
Leverage capital ratios must be at least 6%, 10% and 5%, respectively. All of
the Corporation's banking subsidiaries qualified as well capitalized at
September 30, 1998. The Corporation intends to maintain the ratios of its
banking subsidiaries above 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.
Effective January 1, 1998, the regulatory agencies began to incorporate market
risk into the risk-based capital guidelines. Any bank or bank holding company
whose trading activity exceeds either: (1) 10% or more of its total assets, or
(2) $1 billion or greater, must measure its exposure to market risk using its
own internal value-at-risk model and hold capital in support of that exposure.
This requirement had minimal impact on the Corporation's risk-based capital
ratios.
The decrease in the Corporation's regulatory capital ratios, compared with
September 30, 1997, reflects an increase in goodwill and other intangibles and a
higher level of risk-adjusted assets, resulting from acquisitions as well as the
Series K preferred stock redemption.
When computing Tier I capital, the Corporation deducts all goodwill and certain
other identified intangibles acquired subsequent to February 19, 1992, except
mortgage servicing assets and purchased credit card relationships.
Acquisition-related intangibles
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ACQUISITION-RELATED INTANGIBLES SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $2,016 $2,050 $1,341 $1,229
Purchased core deposit intangibles 81 88 65 71
Other identified intangibles 18 18 19 20
- ----------------------------------------------------------------------------------------------------------------------------------
Total acquisition-related intangibles $2,115 $2,156 $1,425 $1,320
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The $787 million increase in goodwill from September 30, 1997, resulted from an
approximately $910 million increase related to acquisitions, partially offset by
amortization expense. Based upon the current level of acquisition-related
intangibles and the amortization schedule and including the Newton acquisition,
the annual amortization for the years 1999 through 2003 is expected to be
approximately $147 million, $135 million, $126 million, $123 million and $119
million, respectively. For the full-year 1999, using average common shares and
equivalents outstanding at September 30, 1998, the after-tax impact of the
annual amortization is expected to be $119 million, or approximately $.45 per
share. The after-tax impact of the annual amortization for the years 2000
through 2003 is expected to be approximately $112 million, $105 million, $102
million and $99 million, respectively. The level of goodwill will increase by
approximately $230 million due to the Newton acquisition in October 1998.
29
<PAGE> 31
CAPITAL (CONTINUED)
- --------------------------------------------------------------------------------
Mortgage servicing assets and purchased credit card relationships
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage servicing assets:
Residential $ 942 $ 917 $ 978 $ 928
Commercial 71 73 74 74
- ----------------------------------------------------------------------------------------------------------------------------------
Total mortgage servicing assets 1,013 990 1,052 1,002
Purchased credit card relationships 18 20 23 24
- ----------------------------------------------------------------------------------------------------------------------------------
Total mortgage servicing assets and
purchased credit card relationships $1,031 $1,010 $1,075 $1,026
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation capitalized $126 million and $71 million in the third quarters
of 1998 and 1997, respectively, of servicing assets in connection with both
mortgage servicing portfolio purchases and loan originations. These capitalized
mortgage servicing assets were partially offset by deferred hedge results and
amortization. Mortgage servicing assets are amortized in proportion to estimated
net servicing income over the estimated life of the servicing portfolio. Net
amortization expense totaled $41 million and $27 million in the third quarters
of 1998 and 1997, respectively. The estimated fair value of capitalized mortgage
servicing assets was $1,126 million at September 30, 1998.
At September 30, 1998, the Corporation's total servicing portfolio was $74
billion, composed of $59 billion of residential and $15 billion of commercial
servicing. At September 30, 1997, the total servicing portfolio was $82 billion,
composed of $64 billion of residential and $18 billion of commercial servicing.
LIQUIDITY AND DIVIDENDS
- --------------------------------------------------------------------------------
The Corporation's liquidity management objective is to maintain the ability to
meet commitments to fund loans and to purchase securities, as well as to repay
deposits and other liabilities in accordance with their terms, including during
periods of market or financial stress. The Corporation's overall approach to
liquidity management is to ensure that sources of liquidity are sufficient in
amount and diversity to accommodate changes in loan demand and core funding
routinely without a material adverse impact on net income. The Corporation's
liquidity position is managed by maintaining adequate levels of liquid assets,
such as money market assets and securities available for sale. Additional
liquidity is available through the Corporation's ability to participate or sell
commercial loans and to securitize selected loan portfolios. The parent
Corporation also has a $300 million revolving credit agreement, with
approximately two years remaining until maturity, and a $25 million backup line
of credit to provide support facilities for its commercial paper borrowings and
for general corporate purposes.
As shown in the consolidated statement of cash flows, cash and due from banks
decreased by $811 million during the first nine months of 1998 to $2,839 million
at September 30, 1998. The decrease reflected $1,638 million of net cash used in
investing activities, primarily offset by $423 million of net cash provided by
financing activities and $362 million of net cash provided by operating
activities. Net cash used in investing activities primarily reflected loan
growth, an increase in securities available for sale, and acquisitions,
partially offset by proceeds from the sale of loan portfolios and a loan
securitization. Net cash provided by financing activities primarily reflected an
increase in long-term and short-term borrowings, partially offset by dividends
paid on common and preferred stock and the redemption of the Series K preferred
stock.
30
<PAGE> 32
LIQUIDITY AND DIVIDENDS (CONTINUED)
- --------------------------------------------------------------------------------
There were no contractual maturities of the Corporation's long-term debt during
the third quarter of 1998. Contractual maturities of long-term debt will total
approximately $367 million in 1999, including $202 million related to parent
term debt. The Corporation's and Mellon Bank, N.A.'s senior and subordinated
debt ratings are presented in the following table.
- ------------------------------------------------------------------------------
SENIOR AND SUBORDINATED DEBT RATINGS
AT SEPTEMBER 30, 1998 Standard & Poor's Moody's
- ------------------------------------------------------------------------------
Mellon Bank Corporation:
senior debt A+ A2
subordinated debt A A3
Mellon Bank, N.A.:
senior debt AA- A1
subordinated debt A+ A2
- ------------------------------------------------------------------------------
The common dividend payout ratio was 43% in the third quarter of 1998, compared
with 44% in the third quarter of 1997. On a tangible earnings per common share
basis, the common dividend payout ratio was 38% in the third quarter of 1998 and
40% in the third quarter of 1997. Based upon shares outstanding at September 30,
1998, and the current quarterly common dividend rate of $.36 per share, the
annualized common stock dividend requirement is expected to be approximately
$375 million.
The parent Corporation's principal sources of cash are interest and dividends
from its subsidiaries. There are, however, certain limitations on the payment of
dividends to the parent Corporation by its national and state member bank
subsidiaries. For a discussion of these limitations, see note 22 in the
Corporation's 1997 Annual Report to Shareholders. Under the more restrictive
limitation, the Corporation's national and state member bank subsidiaries can,
without prior regulatory approval, declare dividends subsequent to September 30,
1998, of approximately $845 million, less any dividends declared and plus or
minus net profits or losses, as defined, between October 1, 1998, and the date
of any such dividend declaration.
INTEREST RATE SENSITIVITY ANALYSIS
- --------------------------------------------------------------------------------
The objective of interest rate risk management is to control the effects that
interest rate fluctuations have on net interest revenue and on the net present
value of the Corporation's assets, liabilities and off-balance-sheet
instruments. Interest rate risk is measured using net interest margin simulation
and asset/liability net present value sensitivity analyses. Simulation tools
serve as the primary means to gauge interest rate exposure. The net present
value sensitivity analysis is the means by which the Corporation's long-term
interest rate exposure is evaluated. These analyses provide an understanding of
the range of potential impacts on net interest revenue and portfolio equity
caused by interest rate movements.
Modeling techniques are used to estimate the impact of changes in interest rates
on the net interest margin. 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 may migrate from lower-interest deposit products to higher-interest
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
31
<PAGE> 33
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
to which customers utilize the ability to exercise their financial options may
cause actual results to differ significantly from the simulation. Guidelines
used by the Corporation for assuming interest rate risk are presented in the
"Interest rate sensitivity analysis" section on page 52 of the 1997 Annual
Report to Shareholders.
The measurement of interest rate risk is meaningful only when all related on-
and off-balance-sheet items are aggregated and the net positions are identified.
Financial instruments that the Corporation uses to manage interest rate
sensitivity include: money market assets, U.S. government and federal agency
securities, municipal securities, mortgage-backed securities, corporate bonds,
asset-backed securities, fixed-rate wholesale term funding, interest rate swaps,
caps and floors, financial futures and financial options. The table below
illustrates the simulation analysis of the impact of a 50, 100 or 200 basis
point parallel shift upward or downward in interest rates on net interest
revenue, earnings per share and return on common shareholders' equity. This
analysis was prepared using the levels of all interest-earning assets and
off-balance-sheet instruments used for interest rate risk management at
September 30, 1998, assuming 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 in a
parallel fashion over a six-month period from the September 30, 1998, levels and
remaining at those levels thereafter. In addition, the simulation presumes risk
positions are replenished with like products. This analysis excludes the effect
that rate movements can have on the value of mortgage servicing rights,
discussed on pages 34 and 35.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST RATE SIMULATION SENSITIVITY ANALYSIS
Movements in interest rates from September 30, 1998 rates
- ------------------------------------------------------------------------------------------------------------------------------
Increase Decrease
Simulated impact in the next 12 months ------------------------------- ------------------------------
compared with September 30, 1998: +50bp +100bp +200bp -50bp -100bp -200bp
------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest revenue increase (decrease) .2% .3% (.3)% (.2)% (.6)% (1.3)%
Earnings per share increase (decrease) $.01 $.01 $(.01) $(.01) $(.02) $(.05)
Return on common equity increase (decrease) 3 bp 6 bp (6) bp (5) bp (13) bp (28) bp
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Managing interest rate risk with off-balance-sheet instruments
The Corporation uses interest rate swaps, including index amortizing swaps and
callable 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 its established interest rate risk limits. Interest rate
swaps, caps and floors, financial futures and financial options have been
approved by the board of directors for managing the overall corporate interest
rate exposure. 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. By using off-balance-sheet instruments to manage interest rate
risk, the effect is a smaller, more efficient balance sheet, with a lower
wholesale funding requirement and a higher return on assets and net interest
margin with a comparable level of net interest revenue and return on common
shareholders' equity. The off-balance-sheet instruments used to manage the
Corporation's interest rate risk are shown in the table on the following page.
Additional information regarding these contracts is presented in note 24 in the
Corporation's 1997 Annual Report to Shareholders.
32
<PAGE> 34
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO MANAGE INTEREST RATE RISK
Total at
Sept. 30,
(notional amounts in millions) 1998 1999 2000 2001 2002 2003+ 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay floating
generic swaps: (a)
Notional amount $ - $ - $ - $ - $ - $700 $ 700
Weighted average rate:
Receive - - - - - 6.62% 6.62%
Pay - - - - - 5.72% 5.72%
Receive fixed/pay floating
indexed amortizing swaps:
Notional value $1,054 $1,579 $37 $16 $16 $ - $2,702
Weighted average rate:
Receive 6.19% 5.77% 6.83% 7.10% 7.10% - 5.96%
Pay 5.67% 5.69% 5.69% 5.69% 5.69% - 5.68%
Receive fixed/pay floating
callable swaps: (b)
Notional value $ - $ 500 $ - $ - $ - $ - $ 500
Weighted average rate:
Receive - 6.80% - - - - 6.80%
Pay - 5.70% - - - - 5.70%
Pay fixed/receive floating
generic swaps: (a)
Notional amount $ 7 $ 220 $ - $ - $ 5 $ 10 $ 242
Weighted average rate:
Receive 5.77% 5.53% - - 5.72% 5.50% 5.54%
Pay 6.18% 6.18% - - 6.59% 6.64% 6.21%
Other products (c) $ 7 $ - $ - $ - $ - $ - $ 7
- ----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $1,068 $2,299 $37 $16 $21 $710 $4,151
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Generic swaps' notional amounts and lives are not based upon interest rate
indices.
(b) Expected maturity dates, based upon interest rates at September 30, 1998,
are shown in this table.
(c) Average rates are not meaningful for these products.
33
<PAGE> 35
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
The table below presents the gross notional amounts of off-balance-sheet
instruments used to manage interest rate risk, identified by the underlying
interest rate-sensitive instruments.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Sept. 30,
(in millions) 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Instruments associated with deposits $2,557 $2,850 $3,300
Instruments associated with other liabilities 705 765 720
Instruments associated with loans 889 1,547 1,584
- ----------------------------------------------------------------------------------------------------------------------------------
Total notional amount $4,151 $5,162 $5,604
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation entered into these off-balance-sheet products to alter the
natural interest rate risk embedded in its assets and liabilities. The interest
received and interest paid are recorded on an accrual basis in interest revenue
and interest expense associated with the underlying assets and liabilities. The
net differential resulted in interest revenue of $5 million and $16 million in
the third quarter and first nine months of 1998, respectively, compared with $5
million and $18 million in the third quarter and first nine months of 1997.
In July 1998, the Corporation terminated a $60 million pay fixed interest rate
swap, resulting in a deferred gain of less than $1 million. This deferred gain,
combined with net unaccreted deferred gains from prior terminations, resulted in
a net unaccreted deferred gain of approximately $4 million, carried as other
liabilities, at September 30, 1998. The Corporation accreted less than $1
million and approximately $2 million of these net deferred gains into net
interest revenue in the third quarter and first nine months of 1998,
respectively.
The Corporation also has entered into off-balance-sheet contracts to manage the
prepayment risk associated with its residential mortgage servicing portfolio.
Mortgage servicing rights (MSRs) are interest rate sensitive due to the mortgage
borrower's option to prepay the mortgage loan. If mortgage interest rates
decrease, borrowers may prepay mortgage loans. Since mortgage loans underlie
MSRs, a decrease in interest rates and an actual (or probable) increase in
mortgage prepayments can shorten the expected life of the MSR and reduces its
value. Conversely, an increase in interest rates and an actual (or probable)
decrease in mortgage prepayments typically can lengthen the expected life of the
MSR and increases its value.
To mitigate the potential prepayment risk of decreasing long-term interest
rates, higher-than-expected mortgage prepayments and a potential impairment to
MSRs, the Corporation uses interest rate floor and interest rate swap contracts.
At September 30, 1998, the Corporation had approximately $8.6 billion of
interest rate floor agreements outstanding and $1.2 billion of interest rate
swap agreements outstanding. In addition, the Corporation had $67 million of
principal-only swaps outstanding at September 30, 1998. These instruments are
collectively structured to gain value as interest rates decrease or spreads
between mortgage-backed securities and treasuries decrease, therefore reducing
the potential impairment of MSRs. Conversely, the value of these instruments
will decrease if interest rates or spreads increase.
Gains/losses and cash settlements on these instruments are recorded as
adjustments to the carrying value of the MSRs. As of September 30, 1998, the
Corporation had approximately $120 million of cash received from gains on
terminations of hedges on MSRs and payments on existing hedges. This balance is
amortized over the estimated lives of the underlying mortgage servicing assets.
These instruments do not entirely eliminate risk. Mortgage prepayment rates may
not occur as expected. The table on the following page presents the gross
notional amounts of off-balance-sheet instruments used to manage prepayment risk
associated with MSRs.
34
<PAGE> 36
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
MATURITIES OF OFF-BALANCE-SHEET INSTRUMENTS USED TO
MANAGE PREPAYMENT RISK OF MSRS Total at
Sept. 30,
(dollar amounts in millions) 1998 1999 2000 2001 2002 2003+ 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate floors (notional) $ - $ - $ - $ - $1,850 $6,791 $8,641
Weighted average strike rates - - - - 5.67% 5.66% 5.66%
Fair value $ 217
Receive fixed/pay floating interest
rate swaps (notional) $ - $ - $ - $ - $ - $1,200 $1,200
Weighted average rates:
Receive - - - - - 6.04% 6.04%
Pay - - - - - 5.59% 5.59%
Fair value $ 74
Principal-only swaps (notional) (a) $67 $ - $ - $ - $ - $ - $ 67
Fair value $ 10
- ---------------------------------------------------------------------------------------------------------------------------------
Total notional amount $67 $ - $ - $ - $1,850 $7,991 $9,908
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Shown as maturing in 1998 because the swaps can be canceled at the
Corporation's discretion. Contractual maturity is in 2003.
In addition to the risk management instruments previously discussed, the
Corporation has entered into contracts to hedge anticipated transactions. The
Corporation has entered into $300 million of interest rate swap contracts to
lock in the cost of a debt issuance anticipated in the fourth quarter of 1998.
In addition, the Corporation entered into $480 million of foreign currency
contracts in anticipation of the purchase of a majority interest in Newton,
which was completed in October 1998. The Corporation also has entered into $239
million of interest rate futures to lock in the value of certain loans that are
anticipated to be sold and/or securitized. There was a decrease in fair value of
approximately $3 million related to these anticipated transactions at September
30, 1998.
The estimated unrealized fair value of the Corporation's risk management
off-balance-sheet products at September 30, 1998, was a positive $390 million,
compared to a positive $201 million at June 30, 1998. This increase primarily
resulted from an increase in the fair value of interest rate floors and swaps
used to hedge MSRs, which resulted from a decrease in interest rates during the
third quarter of 1998. 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.
35
<PAGE> 37
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR RISK MANAGEMENT PURPOSES (a)
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Sept. 30,
(notional amounts in millions) 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest rate risk management instruments: (b)
Interest rate swaps $4,144 $5,162 $5,553
Options, caps and floors purchased (c) - - 40
Forward rate agreements 7 - 11
Mortgage servicing rights risk management instruments:
Interest rate floors 8,641 7,591 950
Interest rate swaps 1,200 1,200 300
Principal only swaps 67 298 -
Other products:
Total return swaps 179 170 175
Interest rate swaps, futures contracts and foreign
currency contracts hedging anticipated transactions 1,019 228 261
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a
counterparty may default. Credit risk associated with these instruments was
$401 million at September 30, 1998, $202 million at June 30, 1998, and $27
million at September 30, 1997.
(b) The credit risk associated with interest rate agreements is calculated
after considering master netting agreements.
(c) There were no options, caps or floors written.
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, interest rate caps and floors, and interest rate forward
contracts, 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 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.
The financial risk associated with trading positions is managed by assigning
position limits and stop loss guidance amounts to individual activities. The
Corporation uses a value-at-risk methodology to estimate the potential daily
amount that could be lost. Value at risk measures the volatility of the value of
equity, which is the present value of future expected cash flows of assets,
liabilities and off-balance-sheet instruments. 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. The loss analysis includes the off-balance-sheet instruments used for
trading activities as well as the financial assets and liabilities that are
classified as trading positions on the balance sheet. 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,
primarily related to foreign currency contracts, was approximately $2 million at
September 30, 1998, unchanged from June 30, 1998.
36
<PAGE> 38
INTEREST RATE SENSITIVITY ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OFF-BALANCE-SHEET INSTRUMENTS USED FOR TRADING ACTIVITIES (a)
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Sept. 30,
(notional amounts in millions) 1998 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency contracts:
Commitments to purchase $18,569 $16,406 $14,284
Commitments to sell 18,552 16,630 14,435
Foreign currency and other option contracts purchased 772 683 937
Foreign currency and other option contracts written 731 697 885
Interest rate agreements: (b)
Interest rate swaps 11,465 9,937 5,142
Options, caps and floors written 945 1,202 1,824
Options, caps and floors purchased 965 1,024 1,690
Futures and forward contracts 7,640 8,676 6,230
Other products 2 - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The amount of credit risk associated with these instruments is limited to
the cost of replacing a contract in a gain position, on which a
counterparty may default. Credit risk associated with these instruments was
$759 million at September 30, 1998, $451 million at June 30, 1998, and $411
million at September 30, 1997.
(b) The credit risk associated with interest rate agreements is calculated
after considering master netting agreements.
Recently issued accounting standard
In June 1998, the Financial Accounting Standard Board issued FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." FAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities on the balance sheet and measure those instruments at fair value.
This statement is effective January 1, 2000, and need not be applied
retroactively to financial statements of prior periods. The statement may be
adopted early, as of the beginning of any quarter, beginning with the third
quarter of 1998. The Corporation intends to adopt this statement January 1,
2000. The Corporation is currently evaluating the impact that this statement
will have on its financial position and results of operation, but it is not
expected to be material.
<TABLE>
<CAPTION>
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES
- --------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
-------------------------------------------- ---------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(in millions) 1998 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for credit losses $15 $15 $25 $45 $75
Net revenue from acquired property (3) (2) (1) (6) (7)
- ---------------------------------------------------------------------------------------------------------------------------------
Credit quality expense $12 $13 $24 $39 $68
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision for credit losses decreased $10 million in the third quarter of
1998 compared to the third quarter of 1997 and decreased $30 million in the
first nine months of 1998 compared to the first nine months of 1997. These
decreases resulted from lower credit card net credit losses following the
December 1997 transfer of $231 million of CornerStone(sm) credit card loans into
an accelerated resolution portfolio. The net carrying value of the
CornerStone(sm) accelerated resolution portfolio was $86 million at September
30, 1998, compared with $106 million at June 30, 1998, and $157 million at
December 31, 1997.
37
<PAGE> 39
CREDIT QUALITY EXPENSE AND RESERVE FOR CREDIT LOSSES (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CREDIT LOSS RESERVE ACTIVITY Quarter ended Nine months ended
--------------------------------------------- -----------------------------
SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Reserve at beginning of period $498 $496 $511 $475 $525
Net change in reserve primarily
from acquisitions - - - 24 -
Credit losses:
Domestic:
Commercial and financial (2) (1) (3) (6) (13)
Commercial real estate - - (1) (5) (2)
Consumer credit:
Credit cards (11) (12) (29) (33) (95)
Other consumer credit (6) (5) (7) (16) (20)
Lease finance assets (2) (4) (1) (8) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic credit losses (21) (22) (41) (68) (133)
- -----------------------------------------------------------------------------------------------------------------------------------
Recoveries:
Domestic:
Commercial and financial 1 2 2 6 8
Commercial real estate 2 - 2 3 7
Consumer credit:
Credit cards 1 2 3 4 8
Other consumer credit 2 4 3 8 8
Lease finance assets - 1 - 1 2
- ----------------------------------------------------------------------------------------------------------------------------------
Total domestic 6 9 10 22 33
International - - - - 5
- ----------------------------------------------------------------------------------------------------------------------------------
Total recoveries 6 9 10 22 38
- ----------------------------------------------------------------------------------------------------------------------------------
Net credit (losses) recoveries:
Domestic:
Commercial and financial (1) 1 (1) - (5)
Commercial real estate 2 - 1 (2) 5
Consumer credit:
Credit cards (10) (10) (26) (29) (87)
Other consumer credit (4) (1) (4) (8) (12)
Lease finance assets (2) (3) (1) (7) (1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total domestic (15) (13) (31) (46) (100)
International - - - - 5
- ----------------------------------------------------------------------------------------------------------------------------------
Total net credit losses (15) (13) (31) (46) (95)
Provision for credit losses 15 15 25 45 75
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve at end of period $498 $498 $505 $498 $505
- ----------------------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of total loans 1.60% 1.62% 1.78% 1.60% 1.78%
Reserve as a percentage of
nonperforming loans 487% 463% 485% 487% 485%
Annualized net credit losses
to average loans .19% .17% .45% .20% .46%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 40
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonperforming loans $103 $107 $142 $133 $104
Acquired property, net of the OREO reserve 37 63 49 48 71
- --------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $140 $170 $191 $181 $175
- --------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .33% .35% .47% .46% .37%
Total nonperforming assets as a percentage of
total loans and net acquired property .45% .55% .63% .62% .62%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets is a term used to describe assets on which revenue
recognition has been discontinued or is restricted. Nonperforming assets include
both nonperforming loans and acquired property, primarily other real estate
owned (OREO) acquired in connection with the collection effort on loans.
Additional information regarding the Corporation's practices for placing assets
on nonaccrual status is presented in the "Nonperforming assets" discussion and
in note 1 in the Corporation's 1997 Annual Report to Shareholders.
At September 30, 1998, nonperforming assets totaled $140 million, a decrease of
$30 million from June 30, 1998. This decrease was primarily due to the sale of a
foreclosed property in the third quarter of 1998. The ratio of nonperforming
assets to total loans and net acquired property was .45% at September 30, 1998,
the lowest quarter-end ratio in the Corporation's history. This ratio has been
lower than 1% for 17 consecutive quarters. At September 30, 1998, the
Corporation had no direct southeast Asian, Russian or hedge fund exposure.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NONPERFORMING ASSETS SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1998 1998 1998 1997 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonaccrual loans:
Commercial and financial $ 34 $ 18 $ 19 $ 17 $ 20
Commercial real estate 8 18 53 49 14
Consumer credit:
Consumer mortgage 53 55 56 52 52
Other consumer credit 1 4 3 5 5
Lease finance assets 7 12 11 10 11
- ------------------------------------------------------------------------------------------------------------------------------
Total nonaccrual loans 103 107 142 133 102
Restructured loans - - - - 2
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans (a) 103 107 142 133 104
- ------------------------------------------------------------------------------------------------------------------------------
Acquired property:
Real estate acquired 40 69 53 52 76
Reserve for real estate acquired (5) (9) (9) (9) (9)
- ------------------------------------------------------------------------------------------------------------------------------
Net real estate acquired 35 60 44 43 67
Other assets acquired 2 3 5 5 4
- ------------------------------------------------------------------------------------------------------------------------------
Total acquired property 37 63 49 48 71
- ------------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $140 $170 $191 $181 $175
- ------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of respective
loan portfolio segments:
Domestic commercial and financial loans .30% .16% .17% .16% .22%
Domestic commercial real estate loans .35 .85 2.67 3.25 .90
Domestic consumer mortgage loans .61 .65 .65 .62 .62
Domestic lease finance assets .26 .48 .40 .38 .43
Total loans .33 .35 .47 .46 .37
Nonperforming assets as a percentage of
total loans and net acquired property .45 .55 .63 .62 .62
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $21 million, $2 million, $42 million, $44 million and $23 million,
respectively, of loans with both principal and interest less than 90 days
past due but placed on nonaccrual status by management discretion.
39
<PAGE> 41
NONPERFORMING ASSETS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
CHANGE IN NONPERFORMING LOANS FOR THE THREE MONTHS ENDED SEPTEMBER 30
Domestic
---------------------------------------------------------------
Lease Total
Commercial Commercial Consumer Finance -----------------
(in millions) & Financial Real Estate Credit Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonperforming loans at
beginning of period $18 $ 18 $59 $12 $107 $ 90
Additions 23 2 11 2 38 35
Payments (a) (5) (11) (7) (5) (28) (9)
Return to accrual status - - (7) - (7) (4)
Credit losses (2) - (1) (2) (5) (6)
Transfers to acquired property - (1) (1) - (2) (2)
- -------------------------------------------------------------------------------------------------------------------------------
Nonperforming loans at September 30 $34 $ 8 $54 $ 7 $103 $104
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes interest applied to principal and sales.
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 is presented in note
1 in the Corporation's 1997 Annual Report to Shareholders.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IMPAIRED LOANS Quarter ended
September 30,
(dollar amounts in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans - period end (a) $49 $55
Average impaired loans 50 50
Interest revenue recognized on impaired loans (b) 1 1
- -------------------------------------------------------------------------------
</TABLE>
(a) Includes $24 million and $22 million of impaired loans with a related
impairment reserve of $6 million and $4 million at September 30, 1998, and
September 30, 1997, respectively.
(b) All income was recognized using the cash basis method of income
recognition.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CHANGE IN ACQUIRED PROPERTY Quarter ended
September 30,
(in millions) 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
OREO at beginning of period, net of the OREO reserve $ 60 $68
Foreclosures 5 2
Sales (35) (5)
Write-downs, losses, OREO provision and other 5 2
- -------------------------------------------------------------------------------
OREO at end of period, net of the OREO reserve 35 67
Other acquired assets 2 4
- -------------------------------------------------------------------------------
Total acquired property, net of the OREO reserve $ 37 $71
- -------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
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 is presented in the table below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
CHANGE IN RESERVE FOR REAL ESTATE ACQUIRED (OREO RESERVE) Quarter ended Nine months ended
September 30, September 30,
(in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance $ 9 $9 $ 9 $10
Write-downs on real estate acquired (1) - (1) -
Provision (3) - (3) (1)
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $ 5 $9 $ 5 $ 9
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table presents the amount of loans that were 90 days or more past
due as to principal or interest that are not classified as nonperforming. 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 SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(dollar amounts in millions) 1998 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer:
Mortgages $ 37 $ 34 $ 45 $ 38 $ 32
Ratio .43% .40% .52% .44% .38%
Credit card (a) 8 9 8 8 24
Ratio 1.06% 1.08% .88% .84% 2.19%
Student - government guaranteed 48 47 43 44 42
Ratio 2.77% 2.86% 2.50% 2.69% 2.55%
Other consumer 2 1 1 1 1
Ratio .08% .07% .07% .09% .13%
- ----------------------------------------------------------------------------------------------------------------------------------
Total consumer 95 91 97 91 99
Ratio .72% .71% .75% .72% .81%
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial (b) 9 10 11 13 17
- ----------------------------------------------------------------------------------------------------------------------------------
Total past-due loans $104 $101 $108 $104 $116
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes past-due CornerStone(sm) credit card loans included in the
accelerated resolution portfolio.
(b) Includes lease finance assets.
Note: Ratios are loans 90 days or more past due as a percentage of quarter-end
loan balances.
41
<PAGE> 43
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(dollar amounts in millions) 1998 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets Cash and due from banks $ 2,839 $ 2,993 $ 3,650 $ 3,032
Interest-bearing deposits with banks 796 537 553 512
Federal funds sold and securities under resale agreements 106 240 383 219
Other money market investments 86 105 72 140
Trading account securities 178 126 75 88
Securities available for sale 4,190 3,957 2,767 3,354
Investment securities (approximate fair value
of $1,787, $1,899, $2,118 and $2,195) 1,743 1,861 2,082 2,168
Loans, net of unearned discount of $65, $68, $48 and $50 31,052 30,654 29,142 28,279
Reserve for credit losses (498) (498) (475) (505)
------- ------- ------- -------
Net loans 30,554 30,156 28,667 27,774
Customers' acceptance liability 122 78 182 307
Premises and equipment 562 559 573 589
Goodwill and other intangibles 2,115 2,156 1,425 1,320
Mortgage servicing assets and purchased
credit card relationships 1,031 1,010 1,075 1,026
Acquired property, net of reserves of $5, $9, $9 and $9 37 63 48 71
Other assets 3,884 3,607 3,340 2,865
----------------------------------------------------------------------------------------------------------------
Total assets $48,243 $47,448 $44,892 $43,465
----------------------------------------------------------------------------------------------------------------
Liabilities Noninterest-bearing deposits in domestic offices $ 8,334 $ 8,880 $ 7,975 $ 8,562
Interest-bearing deposits in domestic offices 21,325 21,350 19,954 18,900
Interest-bearing deposits in foreign offices 3,294 2,967 3,376 2,727
----------------------------------------------------------------------------------------------------------------
Total deposits 32,953 33,197 31,305 30,189
Federal funds purchased and securities under
repurchase agreements 2,846 1,849 1,997 1,870
U.S. Treasury tax and loan demand notes 654 1,006 447 632
Short-term bank notes 275 275 330 185
Term federal funds purchased 243 352 625 433
Commercial paper 156 161 67 56
Other funds borrowed 309 258 278 328
Acceptances outstanding 122 78 182 307
Other liabilities 2,332 2,044 2,252 1,883
Notes and debentures (with original maturities over one year) 3,004 3,003 2,573 2,814
----------------------------------------------------------------------------------------------------------------
Total liabilities 42,894 42,223 40,056 38,697
- --------------------------------------------------------------------------------------------------------------------------------
Trust- Guaranteed preferred beneficial interests
preferred in Corporation's junior subordinated
securities deferrable interest debentures 991 991 991 990
- --------------------------------------------------------------------------------------------------------------------------------
Shareholders' Preferred stock - - 193 193
equity Common shareholders' equity:
Common stock - $.50 par value
Authorized - 800,000,000 shares
Issued - 294,330,960 shares 147 147 147 147
Additional paid-in capital 1,867 1,879 1,818 1,810
Retained earnings 3,244 3,124 2,884 2,778
Accumulated unrealized gains, net of tax 29 19 21 16
Treasury stock of 33,191,388; 33,623,356; 40,545,114; and
39,753,178 shares, at cost (929) (935) (1,218) (1,166)
-----------------------------------------------------------------------------------------------------------------
Total common shareholders' equity 4,358 4,234 3,652 3,585
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,358 4,234 3,845 3,778
----------------------------------------------------------------------------------------------------------------
Total liabilities, trust-preferred securities
and shareholders' equity $48,243 $47,448 $44,892 $43,465
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
42
<PAGE> 44
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Nine months ended
---------------------------
SEPT. 30, Sept. 30,
(in millions, except per share amounts) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest revenue Interest and fees on loans (loan fees of $55 and $58) $1,799 $1,691
Federal funds sold and securities under resale agreements 37 20
Interest-bearing deposits with banks 23 20
Other money market investments 5 4
Trading account securities 11 7
Securities 278 289
--------------------------------------------------------------------------------------------------------------
Total interest revenue 2,153 2,031
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 615 557
Deposits in foreign offices 102 97
Federal funds purchased and securities under repurchase agreements 89 55
Other short-term borrowings 85 76
Notes and debentures 151 140
--------------------------------------------------------------------------------------------------------------
Total interest expense 1,042 925
- --------------------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 1,111 1,106
revenue Provision for credit losses 45 75
--------------------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 1,066 1,031
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest Trust and investment fee revenue 1,257 932
revenue Cash management and deposit transaction charges 192 177
Mortgage servicing fees 152 157
Foreign currency and securities trading revenue 118 82
Credit card fees 70 73
Other 333 290
--------------------------------------------------------------------------------------------------------------
Total fee revenue 2,122 1,711
Gains on sales of securities 1 -
--------------------------------------------------------------------------------------------------------------
Total noninterest revenue 2,123 1,711
- --------------------------------------------------------------------------------------------------------------------------------
Operating Staff expense 1,070 888
expense Professional, legal and other purchased services 200 147
Net occupancy expense 174 161
Amortization of mortgage servicing assets and purchased credit card relationships 132 85
Equipment expense 122 110
Business development 111 111
Amortization of goodwill and other intangible assets 100 79
Communications expense 79 76
Other expense 147 130
Trust-preferred securities expense 59 59
Net revenue from acquired property (6) (7)
--------------------------------------------------------------------------------------------------------------
Total operating expense 2,188 1,839
- --------------------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 1,001 903
Provision for income taxes 353 327
--------------------------------------------------------------------------------------------------------------
Net income 648 576
Dividends on preferred stock 9 17
--------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $ 639 $ 559
- --------------------------------------------------------------------------------------------------------------------------------
Per common Basic net income $ 2.46 $ 2.18
share Diluted net income $ 2.41 $ 2.13
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
43
<PAGE> 45
CONSOLIDATED INCOME STATEMENT - FIVE QUARTER TREND
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions, except per share amounts) 1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest revenue Interest and fees on loans (loan fees
of $21, $17, $17, $23, and $22) $616 $606 $577 $577 $567
Federal funds sold and securities under
resale agreements 12 12 13 10 9
Interest-bearing deposits with banks 8 6 9 6 6
Other money market investments 1 3 1 2 2
Trading account securities 4 3 4 2 2
Securities 95 93 90 88 94
--------------------------------------------------------------------------------------------------------------
Total interest revenue 736 723 694 685 680
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense Deposits in domestic offices 211 207 197 192 190
Deposits in foreign offices 37 33 32 32 30
Federal funds purchased and securities
under repurchase agreements 35 30 24 22 17
Other short-term borrowings 27 30 28 29 28
Notes and debentures 51 52 48 49 49
--------------------------------------------------------------------------------------------------------------
Total interest expense 361 352 329 324 314
- --------------------------------------------------------------------------------------------------------------------------------
Net interest Net interest revenue 375 371 365 361 366
revenue Provision for credit losses 15 15 15 73 25
--------------------------------------------------------------------------------------------------------------
Net interest revenue after provision for credit losses 360 356 350 288 341
- --------------------------------------------------------------------------------------------------------------------------------
Noninterest Trust and investment fee revenue 432 429 396 391 378
revenue Cash management and deposit transaction charges 66 65 61 65 62
Mortgage servicing fees 44 53 55 56 53
Foreign currency and securities trading revenue 39 38 41 36 32
Credit card fees 23 23 24 24 24
Gain on sale of corporate trust business - - - 43 -
Other 108 104 121 92 86
--------------------------------------------------------------------------------------------------------------
Total fee revenue 712 712 698 707 635
Gains on sales of securities - 1 - - -
--------------------------------------------------------------------------------------------------------------
Total noninterest revenue 712 713 698 707 635
- --------------------------------------------------------------------------------------------------------------------------------
Operating Staff expense 358 355 357 354 344
expense Professional, legal and other purchased services 72 67 61 72 55
Net occupancy expense 59 59 56 64 55
Amortization of mortgage servicing assets
and purchased credit card relationships 43 44 45 33 29
Equipment expense 42 41 39 65 38
Business development 33 42 36 37 36
Amortization of goodwill and other intangible assets 35 35 30 26 25
Communications expense 27 26 26 26 25
Other expense 48 52 47 45 44
Trust-preferred securities expense 20 19 20 19 20
Net revenue from acquired property (3) (2) (1) (12) (1)
---------------------------------------------------------------------------------------------------------------
Total operating expense 734 738 716 729 670
- --------------------------------------------------------------------------------------------------------------------------------
Income Income before income taxes 338 331 332 266 306
Provision for income taxes 120 116 117 71 111
--------------------------------------------------------------------------------------------------------------
Net income 218 215 215 195 195
Dividends on preferred stock - - 9 4 4
--------------------------------------------------------------------------------------------------------------
Net income applicable to common stock $218 $215 $206 $191 $191
- --------------------------------------------------------------------------------------------------------------------------------
Per common Basic net income $.84 $.82 $.80 $.76 $.75
share Diluted net income $.82 $.81 $.78 $.75 $.73
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
44
<PAGE> 46
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Nine months ended
September 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net income $ 648 $ 576
operating activities Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill and other intangible assets 100 79
Amortization of mortgage servicing assets and
purchased credit card relationships 132 85
Depreciation and other amortization 77 81
Deferred income tax expense 31 56
Provision for credit losses 45 75
Provision for real estate acquired and other losses 1 4
Net gains on dispositions of acquired property (5) (8)
Net decrease in accrued interest receivable 8 -
Net (increase) decrease in trading account securities (95) 4
Net increase (decrease) in accrued interest payable,
net of amounts prepaid 20 (16)
Net increase in residential mortgages held for sale (246) (580)
Net (increase) decrease in other operating activities (354) 51
-----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 362 407
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from Net increase in term deposits and other money
investing activities market investments (257) (120)
Net decrease in federal funds sold and securities
under resale agreements 489 241
Purchases of securities available for sale (2,820) (4,428)
Proceeds from sales of securities available for sale 950 1,305
Proceeds from maturities of securities available for sale 1,166 3,916
Purchases of investment securities (13) (23)
Proceeds from maturities of investment securities 351 228
Net decrease in credit card receivables 115 105
Net principal disbursed on loans to customers (2,539) (1,292)
Loan securitization 533 -
Loan portfolio purchases (220) (55)
Proceeds from the sales of loan portfolios 1,372 854
Purchases of premises and equipment (100) (85)
Proceeds from sales of acquired property 68 27
Net cash disbursed in purchase of Buck Consultants, Inc. - (42)
Net cash disbursed in purchase of Mellon United National Bank (94) -
Net cash disbursed in purchase of Mellon 1st Business Bank (72) -
Net cash disbursed in purchase of Founders (267) -
Increase in mortgage servicing assets and purchased credit
card relationships (88) (337)
Net increase in other investing activities (212) (125)
-----------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (1,638) 169
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
45
<PAGE> 47
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Nine months ended
September 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from Net (decrease) increase in transaction and savings deposits (703) 864
financing activities Net increase (decrease) in customer term deposits 648 (2,049)
Net increase in federal funds purchased and
securities under repurchase agreements 632 1,128
Net (decrease) increase in short-term bank notes (55) 50
Net decrease in term federal funds purchased (382) (48)
Net increase in U.S. Treasury tax and loan demand notes 207 158
Net increase (decrease) in commercial paper 89 (66)
Repayments of longer-term debt (123) (9)
Net proceeds from issuance of longer-term debt 573 305
Proceeds from issuance of common stock 36 65
Dividends paid on common and preferred stock (282) (264)
Repurchase of common stock (27) (470)
Redemption of preferred stock (193) (97)
Net increase in other financing activities 3 27
-----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 423 (406)
Effect of foreign currency exchange rates 42 16
- --------------------------------------------------------------------------------------------------------------------------------
Change in cash and Net (decrease) increase in cash and due from banks (811) 186
due from banks Cash and due from banks at beginning of period 3,650 2,846
-----------------------------------------------------------------------------------------------------
Cash and due from banks at end of period $2,839 $ 3,032
-----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Supplemental Interest paid $1,022 $ 941
disclosures Net income taxes paid 277 247
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements.
46
<PAGE> 48
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated
THREE MONTHS ENDED Additional unrealized Total
SEPTEMBER 30, 1998 Preferred Common paid-in Retained gains (losses), Treasury shareholders'
(in millions) stock stock capital earnings net of tax stock equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 $ - $147 $1,879 $3,124 $19 $ (935) $4,234
Comprehensive results:
Net income 218 218
Other comprehensive results,
net of tax 10 10
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive results 218 10 228
Dividends on common stock
at $.36 per share (94) (94)
Common stock issued under
dividend reinvestment and
common stock purchase plan 2 3 5
Exercise of stock options (20) (4) 26 2
Repurchase of common stock (27) (27)
Other 6 4 10
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $ - $147 $1,867 $3,244 $29 $ (929) $4,358
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulated
Three months ended Additional unrealized Total
September 30, 1997 Preferred Common paid-in Retained gains (losses), Treasury shareholders'
(in millions) stock stock capital earnings net of tax stock equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 $193 $147 $1,812 $2,671 $(5) $(1,248) $3,570
Comprehensive results:
Net income 195 195
Other comprehensive results,
net of tax 21 21
- --------------------------------------------------------------------------------------------------------------------------------
Total comprehensive results 195 21 216
Dividends on common stock
at $.33 per share (85) (85)
Dividends on preferred stock (4) (4)
Common stock issued under
dividend reinvestment and
common stock purchase plan 3 2 5
Common stock issued in
connection with the Buck
Consultants, Inc. acquisition 143 143
Exercise of stock options 5 32 37
Repurchase of common stock (112) (112)
Other (10) 1 17 8
- --------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $193 $147 $1,810 $2,778 $16 $(1,166) $3,778
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements
47
<PAGE> 49
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
NINE MONTHS ENDED Additional unrealized Total
SEPTEMBER 30, 1998 Preferred Common paid-in Retained gains (losses), Treasury shareholders'
(in millions) stock stock capital earnings net of tax stock equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 193 $147 $1,818 $2,884 $21 $(1,218) $3,845
Comprehensive results:
Net income 648 648
Other comprehensive results,
net of tax 8 8
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive results 648 8 656
Dividends on common stock
at $1.05 per share (271) (271)
Dividends on preferred stock (9) (9)
Common stock issued under
dividend reinvestment and
common stock purchase plan 8 7 15
Common stock issued in
connection with the Mellon
United National Bank
acquisition 22 233 255
Series K preferred stock
redemption (193) (193)
Exercise of stock options (12) (8) 65 45
Repurchase of common stock (27) (27)
Other 31 11 42
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1998 $ - $147 $1,867 $3,244 $29 $ (929) $4,358
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MELLON BANK CORPORATION (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Nine months ended Additional unrealized Total
September 30, 1997 Preferred Common paid-in Retained gains (losses), Treasury shareholders'
(in millions) stock stock capital earnings net of tax stock equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 290 $ 74 $1,866 $2,486 $(7) $ (963) $3,746
Comprehensive results:
Net income 576 576
Other comprehensive results,
net of tax 23 23
- ----------------------------------------------------------------------------------------------------------------------------------
Total comprehensive results 576 23 599
Dividends on common stock
at $.96 per share (247) (247)
Dividends on preferred stock (17) (17)
Common stock issued under
dividend reinvestment and
common stock purchase plan 6 10 16
Common stock issued in
connection with the Buck
Consultants, Inc. acquisition 143 143
Series J preferred stock
redemption (97) (97)
Exercise of stock options 17 (20) 89 86
Repurchase of common stock (470) (470)
Additional common stock
issued for stock split 73 (73) -
Other (6) 25 19
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1997 $ 193 $147 $1,810 $2,778 $16 $(1,166) $3,778
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to Financial Statements
48
<PAGE> 50
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1 -- Basis of presentation
The unaudited consolidated financial statements of the Corporation are prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. These financial statements should be read in conjunction with
the Corporation's 1997 Annual Report on Form 10-K. In the opinion of management,
all normal recurring adjustments necessary for a fair presentation of the
financial position and results of operations for the periods have been included.
Note 2 -- Adoption of Financial Accounting Standards and Impact of Accounting
Principle Change
Adoption of Financial Accounting Standards
In June 1997, FAS No. 130, "Reporting Comprehensive Income," was issued. FAS No.
130 establishes the standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. In
complying with the reporting requirements of this statement, the Corporation
retitled the line item in the Consolidated Balance Sheet and the Statement of
Changes in Shareholders' Equity from "Net unrealized gain (loss) on assets
available for sale, net of tax" to "Accumulated unrealized gains (losses), net
of tax." In addition, it was necessary to reclassify the "foreign currency
translation adjustment" from "retained earnings" to "accumulated unrealized
gains (losses), net of tax." Amounts reclassified from retained earnings at
December 31, 1997, and September 30, 1997, were $(12) million and $(8) million,
respectively. This statement is effective for financial statements for both
interim and annual periods beginning after December 15, 1997.
On January 1, 1998, FAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," became effective and supersedes FAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." This statement establishes
standards for reporting information about segments of a business in the
footnotes to annual financial statements and also requires selected segment
information in interim reports. The statement requires disclosure on a business
segment basis, as defined by the Corporation, to include a description of
products and services, interest income and expense, profit or loss as measured
by the Corporation's management in assessing segment performance and geographic
information on assets and revenue, if material. The Corporation will adopt this
statement at year-end 1998.
Impact of accounting principle change
Due to a change of an accounting principle, the Corporation will recognize a
one-time after-tax charge of approximately $27 million in the first quarter of
1999. The charge is related to underwriting fees associated with the successful
introduction, earlier this year, of a $920 million Dreyfus closed-end mutual
fund, on which management fees are being earned. The action is the result of a
Financial Accounting Standards Board staff announcement at a meeting of the
Emerging Issues Task Force related to the reporting requirements for fees paid
by advisors of closed-end funds.
The unamortized pre-tax cost as of January 1, 1999, will be approximately $43
million and will be recognized in its entirety, net of tax, instead of being
amortized over future years, as a cumulative effect of a change in accounting
principle upon adoption of the American Institute of Certified Public
Accountants Statement of Position No. 98-5 on Start-Up Activities. This
accounting change will have no impact on a cash-flow basis in 1999 or future
periods since the underwriting fees were paid in the first half of 1998.
49
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 3 -- Foreign currency and securities trading revenue
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>
- --------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(in millions) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange contracts $ 38 $29 $111 $74
Debt instruments (5) 2 (5) 5
Interest rate contracts 20 3 31 5
Futures contracts (14) (2) (19) (2)
- --------------------------------------------------------------------------------------------------------------------------------
Total foreign currency and securities trading revenue (a) $ 39 $32 $118 $82
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Corporation recorded an unrealized loss of $3 million at September 30,
1998, and an unrealized loss of less than $1 million at September 30, 1997,
related to securities held in the trading portfolio.
Note 4 -- 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>
- -----------------------------------------------------------------------------------------------------------
Nine months ended
September 30,
(in millions) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reclassification of segregated assets to loans
and real estate acquired $ 12 $ -
Net transfers to segregated assets - 12
Net transfers to real estate acquired 44 7
Purchase of Buck Consultants, Inc.:
Fair value of noncash assets acquired - 357
Liabilities assumed - (172)
Mellon common stock issued, from treasury - (143)
------ -----
Net cash disbursed - 42
Purchase of Mellon United National Bank:
Fair value of noncash assets acquired 1,074 -
Liabilities assumed (725) -
Mellon common stock issued, from treasury (255) -
------ -----
Net cash disbursed 94 -
Purchase of Mellon 1st Business Bank:
Fair value of noncash assets acquired 1,279 -
Liabilities assumed (1,207) -
------ -----
Net cash disbursed 72 -
Purchase of Founders:
Fair value of noncash assets acquired 271 -
Liabilities assumed (4) -
------ -----
Net cash disbursed 267 -
- -----------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 5 -- Legal proceedings
A discussion of legal actions and proceedings against the Corporation and its
subsidiaries is presented in Part II, Item 1, of this Form 10-Q.
Note 6 -- Preferred stock
The Corporation has authorized 50 million shares of preferred stock. In February
1998, the 8 million authorized and issued shares of the 8.20% Series K preferred
stock was redeemed at a redemption price of $25 per share, or $200 million, plus
accrued dividends. In connection with this redemption, the Corporation recorded
approximately $7 million of issue costs as preferred stock dividends.
Note 7 -- Securities
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
- ----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 September 30, 1997
------------------------------------------ ------------------------------------------
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 $ 212 $ 1 $ - $ 213 $ 184 $ - $ - $ 184
U.S. agency mortgage-backed 3,414 90 - 3,504 2,156 30 2 2,184
Other U.S. agency 384 - - 384 942 1 - 943
- ----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 4,010 91 - 4,101 3,282 31 2 3,311
Obligations of states and
political subdivisions 70 1 - 71 26 - - 26
Other mortgage-backed 2 - - 2 3 - - 3
Other securities 17 - 1 16 14 - - 14
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities available
for sale $4,099 $92 $ 1 $4,190 $3,325 $31 $ 2 $3,354
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Gross realized gains were $1 million in the first nine months of 1998.
Gross realized gains were less than $1 million in the first nine months of 1997.
There were no gross realized losses in the first nine months of 1998. Gross
realized losses were less than $1 million in the first nine months of 1997.
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
- ----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998 September 30, 1997
----------------------------------------- ------------------------------------------
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 $ 49 $13 $ - $ 62 $ 37 $ 4 $ - $ 41
U.S. agency mortgage-backed 1,608 34 3 1,639 2,041 25 2 2,064
- ----------------------------------------------------------------------------------------------------------------------------------
Total U.S. Treasury
and agency securities 1,657 47 3 1,701 2,078 29 2 2,105
Other mortgage-backed 17 - - 17 25 - - 25
Other securities 69 - - 69 65 - - 65
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities $1,743 $47 $ 3 $1,787 $2,168 $29 $ 2 $2,195
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 8 -- Other assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, Dec. 31, Sept. 30,
(in millions) 1998 1998 1997 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid expense:
Pension $ 449 $ 430 $ 391 $ 375
Other 130 142 80 72
Accounts and fees receivable 531 598 508 477
Interest receivable 233 241 241 235
Mortgage servicing advances 202 197 223 193
Receivables related to off-balance-sheet instruments 764 462 553 405
Assets held for accelerated resolution 86 106 157 -
Other 1,489 1,431 1,187 1,108
- ----------------------------------------------------------------------------------------------------------------------------------
Total other assets $3,884 $3,607 $3,340 $2,865
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 9 -- Computation of earnings per common share (a)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter ended Nine months ended
------------------------------------- ------------------------
(dollar amounts in millions, except per SEPT. 30, June 30, Sept. 30, SEPT. 30, Sept. 30,
share amounts; common shares in thousands) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE
Net income applicable to common stock $218 $215 $191 $ 639 $ 559
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 261,078 260,495 255,081 259,775 255,852
Basic earnings per common share $.84 $.82 $.75 $2.46 $2.18
- ----------------------------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER COMMON SHARE
Net income applicable to common stock (b) $218 $215 $191 $ 639 $ 559
- ----------------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 261,078 260,495 255,081 259,775 255,852
Common stock equivalents:
Stock options 4,630 5,281 5,129 5,094 5,090
Common shares issuable upon conversion of
7-1/4% Convertible Subordinated Capital Notes 66 72 96 73 121
- ----------------------------------------------------------------------------------------------------------------------------------
Total 265,774 265,848 260,306 264,942 261,063
- ----------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share $.82 $.81 $.73 $2.41 $2.13
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated based on unrounded numbers.
(b) The after-tax benefit of interest expense on the assumed conversion of the
7-1/4% Convertible Subordinated Capital Notes was less than $1 million for
all periods presented.
52
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 10 -- Accumulated unrealized gains (losses), net of tax
THESE TABLES INCLUDE THE QUARTERLY CHANGES IN THE BALANCES OF BOTH THE
ACCUMULATED UNREALIZED GAINS (LOSSES), NET OF TAX AND ITS INDIVIDUAL COMPONENTS.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $(15) $(7)
Quarterly change (6) (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending balance $(21) $(8)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unrealized gains (losses) on
assets available for sale, net of tax
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $34 $ 2
Quarterly change 16 22
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $50 $24
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated unrealized gain (losses), net of tax
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $19 $(5)
Quarterly change 10 21
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $29 $16
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THESE TABLES INCLUDE THE YEAR-TO-DATE CHANGES IN THE BALANCES OF BOTH THE
ACCUMULATED UNREALIZED GAINS (LOSSES), NET OF TAX AND ITS INDIVIDUAL COMPONENTS.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $(12) $(6)
Year-to-date change (9) (2)
- ---------------------------------------------------------------------------------------------------------------------------------
Ending balance $(21) $(8)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Unrealized gains (losses) on
assets available for sale, net of tax
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $33 $(1)
Year-to-date change 17 25
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $50 $24
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Accumulated unrealized gains (losses), net of tax
- --------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, Sept. 30,
(in millions) 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance $21 $(7)
Year-to-date change 8 23
- --------------------------------------------------------------------------------------------------------------------------------
Ending balance $29 $16
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 55
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Note 11 -- Deposits
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ---------------------------------------------------------------------------------------------------------------------------------
SEPT. 30, June 30, March 31, Dec. 31, Sept. 30,
(in millions) 1998 1998 1998 1997 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits in domestic offices:
Interest-bearing:
Demand, money market and
other savings accounts $11,540 $11,611 $11,401 $11,160 $10,082
Retail savings certificates 7,603 7,704 7,668 7,421 7,476
Other time deposits 2,182 2,035 1,887 1,373 1,342
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing 21,325 21,350 20,956 19,954 18,900
Noninterest-bearing 8,334 8,880 9,505 7,975 8,562
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits in domestic offices 29,659 30,230 30,461 27,929 27,462
Deposits in foreign offices 3,294 2,967 2,635 3,376 2,727
- ---------------------------------------------------------------------------------------------------------------------------------
Total deposits $32,953 $33,197 $33,096 $31,305 $30,189
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings.
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investment, mutual fund, advisory, trust
and other activities. Because of the complex nature of some of these actions and
proceedings, it may be a number of years before such matters ultimately are
resolved. After consultation with legal counsel, management believes that the
aggregate liability, if any, resulting from such pending and threatened actions
and proceedings will not have a material adverse effect on the Corporation's
financial condition.
On or about April 23, 1998, two individuals who are purported shareholders of
the Corporation filed a complaint commencing a derivative action in the United
States District Court for the Eastern District of Pennsylvania purportedly on
behalf of and for the benefit of the Corporation naming as defendants certain
members of the Corporation's board of directors and a senior officer. On April
23, 1998, these same two individuals and on May 14, 1998, a third individual
filed virtually identical complaints in the United States District Court for the
Western District of Pennsylvania. In these actions, the plaintiffs allege that
the defendants breached their fiduciary duties to the Corporation and failed to
act in good faith and in the best interest of the Corporation in connection with
the April 22, 1998 merger proposal submitted by The Bank of New York Company,
Inc. to the Corporation. In their complaints, the plaintiffs were seeking
monetary damages, a declaration that the defendants breached their fiduciary
duties and an injunction prohibiting the defendants from rejecting the merger
offer. The actions filed in the United States District Court for the Western
District of Pennsylvania were dismissed in August 1998. The action filed in the
United States District Court for the Eastern District of Pennsylvania was
dismissed in September 1998.
54
<PAGE> 56
PART II - OTHER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
Item 5. Other Information.
At a meeting on November 5, 1998, the Board of Directors of the Corporation
approved the addition of a new Section 6 to Article One of the By-Laws of the
Corporation. The new by-law requires that any shareholder of the Corporation
intending to present a proposal for action by the shareholders at an annual
meeting must give written notice of the proposal, containing specified
information, to the Secretary of the Corporation not later than the notice
deadline established under the new by-law.
For the 1999 annual meeting, this notice deadline will be December 15, 1998.
Thereafter, the notice deadline will generally be 90 days prior to the
anniversary date of the Corporation's proxy statement for the previous year's
annual meeting. Except as described in the next paragraph, compliance with the
notice requirements of the new by-law will be required in order for a
shareholder proposal to be presented for a shareholder vote at an annual
meeting.
The new by-law will not affect any rights of a shareholder to request inclusion
of a proposal in the Corporation's proxy statement pursuant to Securities and
Exchange Commission Rule 14a-8 or to present for action at an annual meeting any
proposal so included. Rule 14a-8 requires that notice of shareholder proposals
requested to be included in the Corporation's proxy materials pursuant to that
Rule must generally be furnished to the Corporation not later than 120 days
prior to the anniversary date of the Corporation's proxy statement for the
previous year's annual meeting. For the 1999 annual meeting, the Rule 14a-8
notice deadline was November 10, 1998.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Restated Articles of Incorporation of Mellon Bank Corporation,
as amended and restated as of September 17, 1998.
3.2 By-Laws of Mellon Bank Corporation, as amended, effective
November 5, 1998.
10.1 Mellon Bank Corporation Elective Deferred Compensation Plan
for Senior Officers, amended and restated effective January 1,
1997, as amended effective September 15, 1998.
10.2 Mellon Bank IRC Section 401(a)(17) Plan, amended and restated
effective January 1, 1993, as amended effective September 15,
1998.
10.3 Employment Agreement between Mellon Bank Corporation and
Martin G. McGuinn, effective as of February 1, 1998.
10.4 Employment Agreement between Mellon Bank Corporation and
Christopher M. Condron, effective as of February 1, 1998.
10.5 Employment Agreement between Mellon Bank Corporation and
Steven G. Elliott, effective as of February 1, 1998.
55
<PAGE> 57
PART II - OTHER INFORMATION (CONTINUED)
- --------------------------------------------------------------------------------
(a) Exhibits (continued)
12.1 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends (parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock
Dividends (Mellon Bank Corporation and its subsidiaries).
27.1 Financial Data Schedules, which are submitted electronically
to the Securities and Exchange Commission for information only
and not filed.
(b) Reports on Form 8-K
During the third quarter of 1998, the Corporation filed the following
Current Reports on Form 8-K:
(1) A report dated July 21, 1998, which included, under Items 5 and
7, the Corporation's press release regarding second quarter and
first six months of 1998 results of operations.
(2) A report dated July 24, 1998, which included, under Items 5 and
7, the Corporation's press release announcing an agreement
between Mellon Bank Corporation, The Dreyfus Corporation and
Newton Management Limited whereby Mellon will acquire a majority
interest in Newton.
56
<PAGE> 58
- --------------------------------------------------------------------------------
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
(Registrant)
Date: November 12, 1998 By: /s/ Steven G. Elliott
----------------------
Steven G. Elliott
Vice Chairman and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer of
the Registrant)
57
<PAGE> 59
CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Business Mellon Bank Corporation's principal direct subsidiaries are
of the Mellon Bank, N.A., The Boston Company, Inc., Buck Consultants,
Corporation Inc., Newton Management Limited and a number of companies
known as Mellon Financial Services Corporation. The Dreyfus
Corporation, one of the nation's largest mutual fund
companies, and Founders Asset Management, LLC, are wholly
owned subsidiaries of Mellon Bank, N.A. Mellon's seven 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, insurance products and
various securities-related activities. Buck, a global
actuarial and human resources consulting firm, provides a
broad array of services in the areas of defined benefit and
defined contribution plans, health and welfare plans,
communications and compensation consulting, and outsourcing
and administration of employee benefit programs. The Mellon
Financial Services Corporations, through their subsidiaries
and joint ventures, provide a broad range of bank-related
services including equipment leasing, commercial loan
financing, stock transfer services, cash management and
numerous trust and investment management services. Mellon's
principal executive office is located at One Mellon Bank
Center, 500 Grant Street, Pittsburgh, PA 15258-0001
(Telephone: (412) 234-5000).
Exchange Mellon's common stock is traded on the New York Stock
listing Exchange. The trading symbol is MEL. Our Transfer Agent and
Registrar is ChaseMellon Shareholder Services, P.O. Box 590,
Ridgefield Park, NJ 07660-9940. For more information, please
call 1 800 205-7699.
Dividend Subject to approval of the board of directors, dividends are
payments paid on Mellon's common stock on or about the 15th day of
February, May, August and November.
Direct Stock The Direct Stock Purchase and Dividend Reinvestment Plan
Purchase and provides a way to purchase shares of common stock directly
Dividend from the Corporation at the market value for such shares.
Reinvestment Nonshareholders may purchase their first shares of the
Plan Corporation's common stock through the plan, and shareholders
may increase their shareholdings by reinvesting cash dividends
and through optional cash investments. Plan details are in a
Prospectus, which may be obtained from ChaseMellon Shareholder
Services by calling 1 800 842-7629.
<TABLE>
<S> <C> <C> <C>
Phone Corporate Communications/
contacts Media Relations (412) 236-1264 Media inquiries
Direct Stock Purchase and
Dividend Reinvestment Plan 1 800 842-7629 Plan prospectus and enrollment
materials
Investor Relations (412) 234-5601 Questions regarding the Corporation's
financial performance
Publication Requests 1 800 205-7699 Requests for the Annual Report or quarterly
information
Securities Transfer Agent 1 800 205-7699 Questions regarding stock holdings, certificate
replacement/transfer, dividends and address
changes
</TABLE>
Shareholder Quarterly earnings and other news releases can be obtained by
Publications fax by calling Company News on Call at 1 800 758-5804 and
entering a six-digit code (552187). Copies of Mellon's filings
with the Securities and Exchange Commission on Form 10-K, 10-Q
and 8-K may be obtained by sending a written request to
Mellon's Secretary at 4826 One Mellon Bank Center, Pittsburgh,
PA 15258-0001.
Internet Mellon: www.mellon.com
Buck: www.buckconsultants.com
ChaseMellon Shareholder Services: www.chasemellon.com
Dreyfus: www.dreyfus.com
Dreyfus Brokerage Services: www.edreyfus.com
Founders: www.founders.com
Newton: www.newton.co.uk
58
<PAGE> 60
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Mellon Filed herewith.
Bank Corporation, as amended and restated
as of September 17, 1998.
3.2 By-Laws of Mellon Bank Corporation, as Filed herewith.
amended, effective November 5, 1998.
10.1 Mellon Bank Corporation Elective Deferred Filed herewith.
Compensation Plan for Senior Officers,
amended and restated effective January 1, 1997, as
amended effective September 15, 1998.
10.2 Mellon Bank IRC Section 401(a)(17) Plan, Filed herewith.
amended and restated effective January 1, 1993,
as amended effective September 15, 1998.
10.3 Employment Agreement between Mellon Bank Filed herewith.
Corporation and Martin G. McGuinn, effective
as of February 1, 1998.
10.4 Employment Agreement between Mellon Bank Filed herewith.
Corporation and Christopher M. Condron,
effective as of February 1, 1998.
10.5 Employment Agreement between Mellon Bank Filed herewith.
Corporation and Steven G. Elliott, effective
as of February 1, 1998.
12.1 Computation of Ratio of Earnings to Fixed Filed herewith.
Charges and Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends
(parent Corporation).
12.2 Computation of Ratio of Earnings to Fixed Filed herewith.
Charges and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
(Mellon Bank Corporation and its subsidiaries).
27.1 Financial Data Schedules, which are submitted Submitted herewith.
electronically to the Securities and Exchange
Commission for information only and not filed.
</TABLE>
59
<PAGE> 1
EXHIBIT 3.1
MELLON BANK CORPORATION
RESTATED ARTICLES OF INCORPORATION
FIRST: The name of the Corporation is Mellon Bank Corporation.
SECOND: The location and post office address of its registered office in
this Commonwealth is One Mellon Bank Center, 500 Grant Street, City of
Pittsburgh, County of Allegheny, Pennsylvania 15258.
THIRD: The Corporation is organized under the provisions of the
Pennsylvania Business Corporation Law (the "Business Corporation Law"), and
shall have unlimited power to engage in and to do any lawful act concerning any
or all lawful business for which corporations may be incorporated under the
Business Corporation Law.
FOURTH: The term of its existence is perpetual.
FIFTH: The aggregate number of shares which the Corporation shall have
authority to issue is 850,000,000 of which 50,000,000 shares shall be Preferred
Stock, par value $1.00 per share, issuable in one or more series, and
800,000,000 shares shall be Common Stock, par value $0.50 per share.
A description of each such class of shares and a statement of the authority
hereby vested in the Board of Directors of the Corporation to fix and determine
the designations, preferences, qualifications, limitations, restrictions and
special or relative rights and preferences granted to or imposed upon the shares
of each class and series are as follows:
Section I. PREFERRED STOCK. The Preferred Stock may be divided into
and issued in series. The Board of Directors is hereby expressly
authorized, at any time or from time to time, to divide any or all of the
shares of the Preferred Stock into series, and in the resolution or
resolutions establishing a particular series, before issuance of any of the
shares thereof, to fix and determine the designation and the relative
rights and preferences of the series so established, to the fullest extent
now or hereafter permitted by the laws of the Commonwealth of Pennsylvania,
including, but not limited to, variations between different series in the
following respects:
(a) the distinctive serial designation of such series;
(b) the annual dividend rate for such series, and the date or dates from
which dividends shall commence to accrue;
(c) the redemption price or prices, if any, for shares for such series and
the terms and conditions on which such shares may be redeemed;
(d) the sinking fund provisions, if any, for the redemption or purchase of
shares of such series;
(e) the preferential amount or amounts payable upon shares of such series
in the event of the voluntary liquidation of the Corporation;
(f ) the voting rights of shares of such series;
(g) the terms and conditions, if any, upon which shares of such series may
be converted and the class or classes or series of shares of the
Corporation into which such shares may be converted;
(h) the relative seniority, parity or junior rank of such series with
respect to other series of Preferred Stock then or thereafter to be issued;
and
(i) such other terms, qualifications, privileges, limitations, options,
restrictions, and special or relative rights and preferences, if any, of
shares of such series as the Board of Directors may, at the time of such
resolutions, lawfully fix and determine under the laws of the Commonwealth
of Pennsylvania.
The designations, numbers of shares and the voting rights, preferences,
limitations and special rights, if any, as determined by the Board of Directors,
of the shares of each series of the Preferred Stock outstanding
<PAGE> 2
from time to time are as stated in Appendix A attached hereto and incorporated
herein by reference and in any amendment to Appendix A or to these Restated
Articles of Incorporation (hereinafter, the "Articles") authorized by Section
1522(b) of the Business Corporation Law and hereafter filed with the
Pennsylvania Department of State pursuant to Section 1522(c) or 1914(c)(5) of
the Business Corporation Law or any successor statutory provisions.
Section II. COMMON STOCK. Except for and subject to those rights
expressly granted to holders of the Preferred Stock by resolution or
resolutions adopted by the Board of Directors pursuant to Section I of this
Article Fifth and except as may be provided by the laws of the Commonwealth
of Pennsylvania, holders of the Common Stock shall have exclusively all
other rights of shareholders. All or part of the shares of Common Stock of
the Corporation may be uncertificated shares to the extent determined by
the Board of Directors of the Corporation (or by any officer or other
person as the Board of Directors may designate) from time to time; however,
in no event shall shares of Common Stock represented by a certificate be
deemed uncertificated until the certificate is surrendered to the
Corporation.
Section III. PREEMPTIVE RIGHTS; CUMULATIVE VOTING.
(a) The Corporation may issue shares, option rights, securities having
conversion or option rights and any other securities of any class without
first offering them to shareholders of any class or classes.
(b) The shareholders shall not have any right of cumulative voting.
SIXTH: The following are provisions for the regulation of the internal
affairs and business of the Corporation:
(a) By-Laws. The Board of Directors of the Corporation shall have the power
to make, alter, amend and repeal such By-Laws as it may deem necessary and
convenient for the regulation and management of the Corporation not inconsistent
with law or the Articles.
(b) Indemnification of Directors, Officers and Others.
Section I. RIGHT TO INDEMNIFICATION. Except as prohibited by law,
every Director and officer of the Corporation shall be entitled as of right
to be indemnified by the Corporation against expenses and any liability
paid or incurred by such person in connection with any actual or threatened
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the
Corporation or otherwise, in which he or she may be involved, as a party or
otherwise, by reason of such person being or having been a Director or
officer of the Corporation or by reason of the fact that such person is or
was serving at the request of the Corporation as a director, officer,
employee, fiduciary or other representative of another corporation,
partnership, joint venture, trust, employee benefit plan or other entity
(such claim, action, suit or proceeding hereinafter being referred to as
"Action"); provided, that no such right of indemnification shall exist with
respect to an Action brought by an indemnitee (as hereinafter defined)
against the Corporation except as provided in the last sentence of this
Section I. Persons who are not directors or officers of the Corporation may
be similarly indemnified in respect of service to the Corporation or to
another such entity at the request of the Corporation to the extent the
Board of Directors at any time denominates any of such persons as entitled
to the benefits of this Article Sixth(b). As used in this Article Sixth(b),
"indemnitee" shall include each Director and officer of the Corporation and
each other person denominated by the Board of Directors as entitled to the
benefits of this Article Sixth(b), "expenses" shall include fees and
expenses of counsel selected by any such indemnitee and "liability" shall
include amounts of judgments, excise taxes, fines, penalties and amounts
paid in settlement. An indemnitee shall be entitled to be indemnified
pursuant to this Section I for expenses incurred in connection with any
Action brought by an indemnitee against the Corporation only if (i) the
Action is a claim for indemnity or expenses under Section III of this
Article Sixth(b) or otherwise, (ii) the indemnitee is successful in whole
or in part in the Action for which expenses are claimed or (iii) the
indemnification for expenses is included in a settlement of the Action or
is awarded by a court.
Section II. RIGHT TO ADVANCEMENT OF EXPENSES. Every indemnitee shall
be entitled as of right to have his or her expenses in any Action (other
than an Action brought by such indemnitee against the
<PAGE> 3
Corporation) paid in advance by the Corporation prior to final disposition
of such Action, subject to any obligation which may be imposed by law or by
provision in the Articles, By-Laws, agreement or otherwise to reimburse the
Corporation in certain events.
Section III. RIGHT OF INDEMNITEE TO INITIATE ACTION. If a written
claim under Section I or Section II of this Article Sixth(b) is not paid in
full by the Corporation within thirty days after such claim has been
received by the Corporation, the indemnitee may at any time thereafter
initiate an Action against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the indemnitee shall also
be entitled to be paid the expense of prosecuting such Action. It shall be
a defense to any Action to recover a claim under Section I that the
indemnitee's conduct was such that under Pennsylvania law the Corporation
is prohibited from indemnifying the indemnitee for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel and its shareholders) to have made a determination prior to
the commencement of such action that indemnification of the indemnitee is
proper in the circumstances, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel or its
shareholders) that the indemnitee's conduct was such that indemnification
is prohibited by law, shall be a defense to such Action or create a
presumption that the indemnitee's conduct was such that indemnification is
prohibited by law. The only defense to any such Action to receive payment
of expenses in advance under Section II of this Section shall be failure to
make an undertaking to reimburse if such an undertaking is required by law
or by provision in the Articles, By-Laws, agreement or otherwise.
Section IV. INSURANCE AND FUNDING. The Corporation may purchase and
maintain insurance to protect itself and any person eligible to be
indemnified hereunder against any liability or expense asserted or incurred
by such person in connection with any Action, whether or not the
Corporation would have the power to indemnify such person against such
liability or expense by law or under the provisions of this Article
Sixth(b). The Corporation may create a trust fund, grant a security
interest, cause a letter of credit to be issued or use other means (whether
or not similar to the foregoing) to ensure the payment of such sums, as may
become necessary to effect indemnification as provided herein.
Section V. NON-EXCLUSIVITY; NATURE AND EXTENT OF RIGHTS. The rights of
indemnification and advancement of expenses provided for in this Article
Sixth(b) (i) shall not be deemed exclusive of any other rights, whether now
existing or hereafter created, to which any indemnitee may be entitled
under any agreement or by-law, charter provision, vote of shareholders or
directors or otherwise, (ii) shall be deemed to create contractual rights
in favor of each indemnitee, (iii) shall continue as to each person who has
ceased to have the status pursuant to which he or she was entitled or was
denominated as entitled to indemnification hereunder and shall inure to the
benefit of the heirs and legal representatives of each indemnitee and (iv)
shall be applicable to Actions commenced after the adoption hereof, whether
arising from acts or omissions occurring before or after the adoption
hereof. The rights of indemnification provided for in this Article Sixth(b)
may not be amended or repealed so as to limit in any way the
indemnification or the right to advancement of expenses provided for herein
with respect to any acts or omissions occurring prior to the adoption of
any such amendment or repeal.
Section VI. EFFECTIVE DATE. This Article Sixth(b) shall apply to every
Action other than an Action filed prior to January 27, 1987, except that it
shall not apply to the extent that Pennsylvania law prohibits its
application to any breach of performance of duty or any failure of
performance of duty by an indemnitee occurring prior to January 27, 1987.
(c) Reserved Power. The Corporation shall be deemed for all purposes to
have reserved the right to alter, change or repeal any provision contained in
its Articles or By-Laws to the extent now or hereafter permitted or prescribed
by law, and all rights herein conferred upon shareholders and others are granted
subject to such reservation.
SEVENTH: To the fullest extent that the laws of the Commonwealth of
Pennsylvania, as in effect on January 27, 1987 or as thereafter amended, permit
elimination or limitation of the liability of directors, no Director of the
Corporation shall be personally liable for monetary damages as such for any
action taken, or any failure to take any action, as a Director.
<PAGE> 4
This Article Seventh shall not apply to any actions filed prior to January
27, 1987, nor to any breach of performance of duty or any failure of performance
of duty by any Director of the Corporation occurring prior to January 27, 1987.
The provisions of this Article shall be deemed to be a contract with each
Director of the Corporation who serves as such at any time while this Section is
in effect and each such Director shall be deemed to be doing so in reliance on
the provisions of this Article. Any amendment or repeal of this Article or
adoption of any other provision of the Articles or By-Laws of the Corporation
which has the effect of increasing Director liability shall operate
prospectively only and shall not affect any action taken, or any failure to act,
prior to the adoption of such amendment, repeal or other provision.
Effective, September 17, 1998.
<PAGE> 5
APPENDIX A
PERTINENT PORTIONS OF SERIES DESIGNATIONS
FOR
MELLON BANK CORPORATION
PREFERRED STOCK
SERIES A PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series A Preferred Stock remain outstanding. The Series
Designation and subsequent Statements Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES B PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series B Preferred
Stock were redeemed on December 1, 1993. The Series Designation and subsequent
Statements Affecting Series Designation for such shares have been intentionally
omitted from this Appendix.]
SERIES C-1 PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series C-1 Preferred Stock remain outstanding. The Series
Designation and subsequent Statement Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES C-2 PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series C-2 Preferred Stock remain outstanding. The Series
Designation and subsequent Statement Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES D PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series D Preferred
Stock were converted into shares of Common Stock on August 31, 1994. The Series
Designation and subsequent Statements Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES E PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series E Preferred Stock remain outstanding. The Series
Designation and subsequent Statement Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES F PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series F Preferred Stock remain outstanding. The Series
Designation and subsequent Statement Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
<PAGE> 6
SERIES G PREFERRED STOCK
[As of the date of these Restated Articles of Incorporation, no shares of
the Corporation's Series G Preferred Stock remain outstanding. The Series
Designation and subsequent Statement Affecting Series Designation for such
shares have been intentionally omitted from this Appendix.]
SERIES H PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series H Preferred
Stock were redeemed on March 1, 1995. The Series Designation and subsequent
Statement Affecting Series Designation for such shares have been intentionally
omitted from this Appendix.]
SERIES I PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series I Preferred
Stock were redeemed on December 16, 1996. The Series Designation and subsequent
Statement Affecting Series Designation for such shares have been intentionally
omitted from this Appendix.]
SERIES J PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series J Preferred
Stock were redeemed on February 18, 1997. The Series Designation and subsequent
Statement Affecting Series Designation for such shares have been intentionally
omitted from this Appendix.]
SERIES K PREFERRED STOCK
[In accordance with its terms, all outstanding shares of Series K Preferred
Stock were redeemed on February 17, 1998. The Series Designation and subsequent
Statement Affecting Series Designation for such shares have been intentionally
omitted from this Appendix.]
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<PAGE> 1
Exhibit 3.2
MELLON BANK CORPORATION
BY-LAWS
ARTICLE ONE
Meetings of Shareholders
Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the Corporation for the election of Directors and the transaction of all other
business that may properly come before the meeting shall be held on the third
Tuesday of April in each year, or if that day is a legal holiday, then on the
next business day following. The annual meeting shall be held at such time and
place, and upon such notice as the Board of Directors shall determine.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called for any purpose by the Board of Directors, the Chief Executive
Officer, the Chairman or the President, and any such special meeting shall be
held at the place, day and time upon such notice as the Board of Directors or
such person shall determine.
Section 3. ORGANIZATION. The Chief Executive Officer or, in the event
of his absence or disability, the Chairman, the President or any other officer
of the Corporation designated by the Board of Directors shall preside at all
meetings of the shareholders. All meetings shall be conducted in accordance with
such regulations as the Board of Directors may from time to time prescribe or as
the presiding officer may establish.
<PAGE> 2
Section 4. VOTING. Shareholders may vote at any meeting in person or
by proxies duly authorized in writing. The Board of Directors may fix a record
date for determining those shareholders entitled to vote at any such meeting.
Section 5. QUORUM; SHAREHOLDER ACTION. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of the votes that
all shareholders are entitled to cast shall constitute a quorum for the
transaction of business at any meeting of shareholders. Unless otherwise
provided by law, any action of the shareholders may be taken by a majority of
the votes cast at any duly convened shareholders' meeting.
Section 6. NOTICE OF BUSINESS TO BE PRESENTED AT SHAREHOLDER MEETINGS.
(a) Annual Meetings of Shareholders. The proposal of business to be
considered by the shareholders at an annual meeting of shareholders may be made
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (iii) by any shareholder of the Corporation who was
a shareholder of record at the time of giving of notice provided for in this
Section, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Section. For business to be properly brought
before an annual meeting by a shareholder pursuant to clause (iii) of the
preceding sentence, such business must be a proper matter for shareholder
action, the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation and such notice must comply with the following
requirements:
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<PAGE> 3
(1) To be timely, a shareholder's notice given pursuant to
this Section must be received at the principal executive offices
of the Corporation, addressed to the Secretary, not less than 90
calendar days before the anniversary date of the Corporation's
proxy statement released to shareholders in connection with the
previous year's annual meeting or, if none, its most recent
previous annual meeting. Notwithstanding the preceding sentence,
(A) for business to be presented at the 1999 annual meeting of
shareholders, a shareholder's notice shall be considered timely
if so received by the Corporation on or before December 15, 1998
and (B) after 1999, if the date of the annual meeting at which
such business is to be presented has been changed by more than 30
days from the date of the most recent previous annual meeting, a
shareholder's notice shall be considered timely if so received by
the Corporation (i) on or before the later of (x) 120 calendar
days before the date of the annual meeting at which such business
is to be presented or (y) 30 days following the first public
announcement by the Corporation of the date of such annual
meeting and (ii) not later than 15 calendar days prior to the
scheduled mailing date of the Corporation's proxy materials for
such annual meeting. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period
for the giving of a shareholder's notice as described above.
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<PAGE> 4
(2) A shareholder's notice given pursuant to this Section
shall set forth (A) the name and address of the shareholder who
intends to make the proposal and the classes and numbers of
shares of the Corporation's stock beneficially owned by such
shareholder; (B) a representation that the shareholder is and
will at the time of the annual meeting be a holder of record of
stock of the Corporation entitled to vote at such meeting on the
proposal(s) specified in the notice and intends to appear in
person or by proxy at the meeting to present such proposal(s),
(C) a description of the business the shareholder intends to
bring before the meeting, including the text of any proposal or
proposals to be presented for action by the shareholders, (D) the
name and address of any beneficial owner(s) of the Corporation's
stock on whose behalf such business is to be presented and the
class and number of shares beneficially owned by each such
beneficial owner and (E) the reasons for conducting such business
at the meeting and any material interest in such business of such
shareholder or any such beneficial owner.
(b) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting.
(c) General. (i) Only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section. The Chairman of the meeting shall have
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<PAGE> 5
the power and the duty to determine whether any business proposed to be brought
before a meeting was proposed in accordance with the procedures set forth in
this Section and, if any business is not in compliance with this Section, to
declare that such defective proposal shall be disregarded.
(ii) For purposes of this Section, (A) "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") and (B) "beneficial ownership" shall be determined in accordance with Rule
13d-3 under the Exchange Act or any successor rule.
(iii) Notwithstanding the foregoing provisions of this Section, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section. Nothing in this Section shall be deemed to affect any
rights of a shareholder to request inclusion of a proposal in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act, or any successor
rule, or to present for action at an annual meeting any proposal so included.
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<PAGE> 6
ARTICLE TWO
Directors
Section 1. BOARD OF DIRECTORS. The Board of Directors shall manage and
administer the business and affairs of the Corporation. Except as expressly
limited by law, all corporate powers of the Corporation shall be vested in and
may be exercised by the Board of Directors.
Section 2. NUMBER. The Board of Directors shall consist of such number
of Directors as shall be fixed from time to time by a majority vote of the full
Board of Directors.
Section 3. ELECTION; TERM OF OFFICE. Commencing with the Board of
Directors to be elected at the Annual Meeting of Shareholders held in 1988, the
Directors shall be classified with respect to the time for which they severally
hold office, into three classes as nearly equal in number as possible. At such
meeting one class of directors shall be elected to hold office for an initial
term expiring at the 1989 Annual Meeting of Shareholders, another class of
directors shall be elected to hold office for an initial term expiring at the
1990 Annual Meeting of Shareholders and the third class of directors shall be
elected to hold office for an initial term expiring at the 1991 Annual Meeting
of Shareholders, with the members of each class of directors to hold office
until their successors have been duly elected and qualified. Thereafter at each
Annual Meeting of Shareholders, the successors to the class of
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<PAGE> 7
directors whose term expires at that meeting shall be elected to hold office for
a term expiring at the Annual Meeting of Shareholders held in the third year
following the year of their election and until their successors have been duly
elected and qualified.
Section 4. NOMINATION. Nominations for the election of directors may
be made by the Board of Directors, a committee thereof or any officer of the
Corporation to whom the Board of Directors or such committee shall have
delegated such authority. Upon proper notice given to the Corporation,
nominations may also be made by any shareholder entitled to vote in the election
of directors. Written notice of a shareholders's intent to make a nomination or
nominations for director must be given to the Corporation either by United
States mail or personal delivery to the Secretary of the Corporation not later
than 90 days prior to the anniversary date of the previous year's Annual Meeting
of Shareholders. The notice must include: (i) name and address of the
shareholder who intends to make the nomination and a representation that the
shareholder is a holder of record of common stock entitled to vote at the
upcoming Annual Meeting and that the shareholder intends to appear at the Annual
Meeting to make the nomination or nominations set forth in the notice; (ii) the
name and address of the person or persons to be nominated for election as
director and such other information regarding the proposed nominee or nominees
as would be required to be included in a proxy statement filed pursuant to the
rules and regulations of the Securities and Exchange Commission; (iii) a
description of all arrangements or undertakings between the
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<PAGE> 8
shareholder and each proposed nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations are to
be made by the shareholder; and (iv) a consent signed by each of the proposed
nominees agreeing to serve as a director if so elected. The Board of Directors
will be under no obligation to recommend a proposed nominee, even though the
notice as set forth above has been given.
Section 5. VACANCIES. Any vacancy on the Board of Directors resulting
from death, retirement, resignation, disqualification or removal from office or
other cause, as well as any vacancy resulting from an increase in the number of
directors which occurs between Annual Meetings of the Shareholders at which
directors are elected, shall be filled only by a majority of the vote of the
remaining Directors then in office, though less than a quorum, except that those
vacancies resulting from removal from office by a vote of the shareholders may
be filled by a vote of the shareholders at the same meeting at which such
removal occurs. The Directors chosen to fill vacancies shall hold office for a
term expiring at the end of the next Annual Meeting of Shareholders at which the
term of the class to which they have been elected expires. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent Director.
Section 6. REMOVAL. Any Director, any class of directors, or the
entire Board of Directors may be removed from office by a vote of the
shareholders at any time without assigning any cause, but only if shareholders
entitled to cast at least 75 percent of the votes which all shareholders of the
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<PAGE> 9
then outstanding shares of capital stock of the Corporation would be entitled to
cast in an annual election of directors, or of such class of directors, voting
together as a single class, shall vote in favor of such removal.
Section 7. EXCEPTIONS FOR PREFERENCE DIRECTORS. The provisions of
Section 2 through 6 of this Article Two shall not apply to any Director of the
Corporation who may be elected under specified circumstances by holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation.
Section 8. ORGANIZATION MEETING. A meeting of the Board of Directors
for the purpose of organizing the new Board, appointing the officers of the
Corporation for the ensuing year and transacting other business shall be held
without notice immediately following the annual election of directors or as soon
thereafter as is practicable at such time and place as the Secretary may
designate.
Section 9. REGULAR MEETINGS. Unless the Board otherwise directs,
regular meetings of the Board of Directors shall be held without notice at such
times and places as the Board of Directors shall determine in its Board Policies
adopted at its Organization Meeting each year.
Section 10. SPECIAL MEETINGS. The Chief Executive Officer, the
Chairman or the President may call a special meeting of the Board of Directors
at any time. Any such officer or the Secretary shall call a special meeting of
the Board upon the written request of any three members of the Board. A special
meeting shall be held at such time and place as may be
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<PAGE> 10
designated by the person or persons calling the meeting. The person or persons
calling the meeting shall cause such notice of the meeting and of its purpose to
be given as he may deem appropriate, and such notice may be given orally or in
writing, in person or by telephone, mail or telegram.
Section 11. QUORUM; BOARD ACTION. A majority of the Directors then in
office shall constitute a quorum for the transaction of business at any meeting.
Unless otherwise provided by law, any action of the Board may be taken upon the
affirmative vote of a majority of the Directors present at a duly convened
meeting or upon the unanimous written consent of all Directors.
Section 12. PARTICIPATION OTHER THAN BY ATTENDANCE. To the full extent
permitted by law, any Director may participate in any regular or special meeting
of the Board of Directors or of any committee of the Board of Directors by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting are able to hear each other.
Section 13. COMPENSATION. Each Director who does not receive a salary
from the Corporation or any affiliate thereof shall be entitled to such
compensation as the Board shall determine for his service upon the Board of
Directors and any of its committees, for his attendance at meetings of the Board
and any of its committees and for his expenses incident thereto. Directors shall
also be entitled to such compensation as the Board shall determine for services
rendered to the Corporation in any capacity other than as Directors.
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<PAGE> 11
Section 14. RESIGNATION. Any Director may resign by submitting his
resignation to the Chief Executive Officer, the Chairman, the President or the
Secretary of the Corporation. Such resignation shall become effective upon its
submission or at any later time specified.
Section 15. PERSONAL LIABILITY FOR MONETARY DAMAGES. (a) To the
fullest extent that the laws of the Commonwealth of Pennsylvania, as in effect
on January 27, 1987 or as thereafter amended, permit elimination or limitation
of the liability of directors, no Director of the Corporation shall be
personally liable for monetary damages as such for any action taken, or any
failure to take any action, as a Director. (b) This Section 15 shall not apply
to any actions filed prior to January 27, 1987, nor to any breach of performance
of duty or any failure of performance of duty by any Director of the Corporation
occurring prior to January 27, 1987. The provisions of this Section shall be
deemed to be a contract with each Director of the Corporation who serves as such
at any time while this Section is in effect and each such Director shall be
deemed to be doing so in reliance on the provisions of this Section. In addition
to any requirement of law and any other provision contained in these By-Laws,
the affirmative vote of the holders of a majority of the shares of the
Corporation's Common Stock then outstanding shall be required to amend or repeal
any provision of this Section. Any amendment or repeal of this Section or
adoption of any other provision of the By-Laws or the Articles of the
Corporation which has the effect of increasing Director liability shall operate
prospectively only and shall not affect any action taken, or any failure to act,
prior to the adoption of such amendment, repeal or other provision.
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<PAGE> 12
Section 16. AMENDMENT, REPEAL, ETC. Notwithstanding any provision of
the Articles of the Corporation, any other provision of these By-Laws, including
Section 1 of Article Eight hereto, and notwithstanding the fact that a lesser
percentage may be specified by Pennsylvania law, unless such action has been
approved by a majority vote of the full Board of Directors, the affirmative vote
of the shareholders of at least 75 percent of the votes which all shareholders
of the then outstanding shares of capital stock of the Corporation would be
entitled to cast thereon, voting together as a single class, shall be required
to amend or repeal or adopt any provision inconsistent with Sections 2, 3, 4, 5,
6, 7 or 16 of this Article Two. In the event such action has been previously
approved by a majority vote of the full Board of Directors, a majority of the
votes which all shareholders present and voting are entitled to cast thereon
shall be sufficient to amend, repeal or adopt any provisions inconsistent with
the provisions of any of such Sections.
ARTICLE THREE
Committees of the Board
Section 1. APPOINTMENT; POWERS. The Board may appoint one or more
standing or temporary committees consisting of two or more Directors. The Board
may invest such committees with such powers and authority, subject to such
conditions, as it may see fit.
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<PAGE> 13
Section 2. EXECUTIVE COMMITTEE. The Board shall appoint from among its
members an Executive Committee which, so far as may be permitted by law and
except as specifically limited by the Board pursuant to Section 1 hereof, shall
have all the powers and may exercise all the authority of the Board during the
intervals between the meetings thereof. All acts done and powers conferred by
the Executive Committee shall be deemed to be, and may be certified as being,
done or conferred under authority of the Board.
Section 3. TERM; VACANCIES; ALTERNATES. All committee members
appointed by the Board shall serve at the pleasure of the Board. The Board may
fill any committee vacancy and may designate one or more eligible Directors as
alternate members of any committee to take the place of any absent or
disqualified member at any meeting. The Chief Executive Officer may appoint a
Director who is eligible to serve on any such committee as a member pro tempore
to take the place of any absent or disqualified member or alternate member.
Section 4. ORGANIZATION. All committees shall deter- mine their own
organization, procedures and times and places of meeting, unless otherwise
directed by the Board and except as otherwise provided in these By-Laws.
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ARTICLE FOUR
Officers
Section 1. CHIEF EXECUTIVE OFFICER. The Board of Directors shall
appoint one of its members to be Chief Executive Officer. The Chief Executive
Officer shall preside at all meetings of the shareholders and of the Board of
Directors. He shall be the chief executive officer of the Corporation and shall
have general executive powers concerning all the operations and business of the
Corporation. The Chief Executive Officer shall have and exercise such further
powers and duties as may be conferred upon, or assigned to, him by the Board of
Directors, and he may delegate to any other officer such executive and other
powers and duties as he deems advisable. In the event of the absence or
disability of the Chief Executive Officer, any other officer of the Corporation
designated by the Board of Directors shall preside at all meetings of the
shareholders and of the Board of Directors and shall exercise all other powers
and authority of the Chief Executive Officer.
Section 2. CHAIRMAN. The Board of Directors shall appoint one of its
members to be Chairman. The Chairman shall have general executive powers, and he
shall have and exercise such further powers and duties as may be conferred upon,
or assigned to, him by the Board of Directors or the Chief Executive Officer.
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<PAGE> 15
Section 3. PRESIDENT. The Board of Directors shall appoint one of its
members to be President. The President shall have general executive powers, and
he shall have and exercise such further powers and duties as may be conferred
upon, or assigned to, him by the Board of Directors or the Chief Executive
Officer.
Section 4. SENIOR OFFICERS. The Board of Directors may appoint, or the
Chief Executive Officer may appoint, subject to confirmation by the Board of
Directors, one or more senior officers of the Corporation, any of whom may be
designated as Vice Chairmen or as executive, senior, group or administrative
vice presidents or given any other descriptive titles. Each senior officer shall
have and exercise such powers and duties as may be conferred upon, or assigned
to, him by the Board of Directors or the Chief Executive Officer.
Section 5. SECRETARY; ASSISTANT SECRETARIES. The Board of Directors
shall appoint a Secretary. The Secretary shall act as secretary of all meetings
of the shareholders, of the Board and of the Executive Committee, and he shall
keep minutes of all such meetings. He shall give such notice of the meetings as
is required by law or these By-Laws. He shall be the custodian of the minute
book, stock record and transfer books and all other general corporate records.
He shall be the custodian of the corporate seal and shall have the power to
affix and attest the same, and he may delegate such power to one or more
officers, employees or agents of the Corporation. He shall have and exercise
such further powers and duties as may be conferred upon, or assigned to, him by
the Board of Directors or
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<PAGE> 16
the Chief Executive Officer. The Board or the Chief Executive Officer may
appoint one or more Assistant Secretaries who shall assist the Secretary in the
performance of his duties. At the direction of the Secretary or in the event of
his absence or disability, an Assistant Secretary shall perform the duties of
the Secretary. Each Assistant Secretary shall have and exercise such further
powers and duties as may be conferred upon, or assigned to, him by the Board,
the Chief Executive Officer or the Secretary.
Section 6. TREASURER; ASSISTANT TREASURERS. The Board of Directors
shall appoint a Treasurer. The Treasurer shall have and exercise such powers and
duties as may be conferred upon, or assigned to, him by the Board of Directors
or the Chief Executive Officer. The Board or the Chief Executive Officer may
appoint one or more Assistant Treasurers who shall assist the Treasurer in the
performance of his duties. At the direction of the Treasurer or in the event of
his absence or disability, an Assistant Treasurer shall perform the duties of
the Treasurer. Each Assistant Treasurer shall have and exercise such further
powers and duties as may be conferred upon, or assigned to, him by the Board,
the Chief Executive Officer or the Treasurer.
Section 7. CHIEF AUDITOR. The Board of Directors shall appoint a Chief
Auditor who shall be the chief auditing officer of the Corporation. He shall
continuously examine the affairs of the Corporation under the general
supervision and direction of the Board, and he shall report to the Board. He
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shall have and exercise such further powers and duties as may be conferred upon,
or assigned to, him by the Board of Directors. The Board of Directors may also
appoint other officers who shall perform such auditing duties as may be assigned
to them by the Board or the Chief Auditor of the Corporation.
Section 8. OTHER OFFICERS. The Board of Directors, the Chief Executive
Officer or the delegate of either of them may appoint or hire such additional
officers of the Corporation, who may be designated as vice presidents, assistant
vice presidents, officers, assistant officers, or given any other descriptive
titles, and may hire such additional employees, as it or he may deem necessary
or desirable to transact the business of the Corporation, and the Board, the
Chief Executive Officer or such delegate may establish the conditions of
employment of any of the persons mentioned above and may fix their compensation
and dismiss them. Such persons may have such descriptive titles as may be
appropriate, and they shall, respectively, have and exercise such powers and
duties as pertain to their several offices or as may be conferred upon, or
assigned to, them by the appropriate appointing authority.
Section 9. TENURE OF OFFICE. The Chief Executive Officer, the Chairman
and the President shall each hold office for the year for which the Board was
elected and until the appointment and qualification of his successor or until
his earlier death, resignation, disqualification or removal. All other officers
and employees shall hold office at the pleasure of the appropriate appointing
authority.
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Section 10. COMPENSATION. The Board of Directors shall fix the
compensation of those officers appointed pursuant to Section 1, 2, 3 and 4 of
this Article Four and of any officers of any subsidiary of the Corporation that
the Board shall deem appropriate, and it may award additional compensation to
any officer or employee of the Corporation or of any subsidiary for any year or
years based upon the performance of that person during any such period, the
success of the operations of the Corporation or any subsidiary thereof during
any such period or any other reason deemed appropriate. Unless the Board of
Directors shall otherwise direct, the Chief Executive Officer or his delegate
shall fix the compensation of all other officers or employees of the Corporation
or any subsidiary thereof.
ARTICLE FIVE
Stock, Stock Certificates and Holders of Record
Section 1. STOCK CERTIFICATES. Shares of stock of the Corporation
shall be represented by certificates or, to the extent provided in Article Five,
Sections 5 and 6 of these By-laws or as otherwise permitted or required by law,
shall be uncertificated. Stock certificates shall be in such form as the Board
of Directors may from time to time prescribe in accordance with law and the
requirements of any exchange upon which such shares are listed. Such
certificates shall be signed by the Chief Executive Officer, countersigned by
the Secretary or any
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other officer so authorized by the Board of Directors and sealed with the seal
of the Corporation, and such signatures and seal may be facsimile or otherwise
as permitted by law.
Section 2. TRANSFER OF STOCK. Except as otherwise provided by law,
transfers of shares of stock of the Corporation shall be made only upon the
books of the Corporation. Transfers of shares shall be made on the books of the
Corporation in accordance with the provisions of the Pennsylvania Uniform
Commercial Code, as the same may be amended or supplemented from time to time,
applicable commercial practices, and the other provisions of these By-Laws.
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, theft or destruction of such certificates.
New certificates for shares of stock may be issued to replace such certificates
upon satisfactory proof of the loss, theft or destruction and upon such other
terms and conditions as the Board of Directors, the Chief Executive Officer or
any person designated by either of them may from time to time determine.
Section 4. HOLDERS OF RECORD. The Corporation shall be entitled to
treat any person in whose name shares of stock of the Corporation stand on its
books as the holder and owner in fact thereof for all purposes, and it shall not
be bound to recognize any equitable or other claims to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
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<PAGE> 20
Section 5. UNCERTIFICATED SECURITIES. All or part of the shares of
Common Stock of the Corporation may be uncertificated shares to the extent
determined by the Board of Directors of the Corporation (or by any officer or
other person as the Board of Directors may designate) from time to time;
however, in no event shall shares of Common Stock represented by a certificate
be deemed uncertificated until the certificate is surrendered to the
Corporation.
Section 6. DETERMINATIONS AS TO ISSUANCE, TRANSFER AND REGISTRATION.
The Board of Directors of the Corporation (or any officer or other person as the
Board of Directors may designate) from time to time may make such rules,
policies and procedures as it, he or she may deem appropriate concerning the
issue, transfer and registration of shares of stock of the Corporation, whether
certificated or uncertificated.
ARTICLE SIX
Signing Authority and Corporate Transactions
Section 1. SIGNING AUTHORITY. The Chief Executive Officer, the
Chairman, the President, any senior officer or any Vice President of the
Corporation shall have full power and authority, in the name and on behalf of
the Corporation, under seal of the Corporation or otherwise, to execute,
acknowledge and deliver any and all agreements, instruments or other documents
relating to property or rights of all kinds held or
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<PAGE> 21
owned by the Corporation or to the operation of the Corporation, all as may be
incidental to the operation of the Corporation and subject to such limitations
as the Board of Directors or the Chief Executive Officer may impose. Any such
agreement, instrument or document may also be executed, acknowledged and
delivered in the name and on behalf of the Corporation, under seal of the
Corporation or otherwise, by such other officers, employees or agents of the
Corporation as the Board of Directors, the Chief Executive Officer or the
delegate of either of them may from time to time authorize. In each such case,
the authority so conferred shall be subject to such limitations as the Board of
Directors, the Chief Executive Officer or the delegate may impose. Any officer,
employee or agent authorized hereunder to execute, acknowledge and deliver any
such agreement, instrument or document is also authorized to cause the
Secretary, any Assistant Secretary or any other authorized person to affix the
seal of the Corporation thereto and to attest it.
Section 2. VOTING AND ACTING WITH RESPECT TO STOCK AND OTHER
SECURITIES OWNED BY THE CORPORATION. The Chief Executive Officer, the Chairman,
the President, any senior officer or any Vice President shall have the power and
authority to vote and act with respect to all stock and other securities in any
other corporation owned by this Corporation, subject to such limitations as the
Board of Directors or the Chief Executive Officer may impose. Such power and
authority may be conferred upon any other officer, employee or agent by the
Board, the
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<PAGE> 22
Chief Executive Officer or the delegate of either of them, and such authority
may be general or may be limited to specific instances. Any person so authorized
shall have the power to appoint an attorney or attorneys, with general power of
substitution, as proxies for the Corporation with full power to vote and act on
behalf of the Corporation with respect to such stock and other securities.
ARTICLE SEVEN
General Provisions
Section 1. FISCAL YEAR. The Fiscal year of the Corporation shall be
the calendar year.
Section 2. RECORDS. The Articles of Incorporation, By-Laws and the
proceedings of all meetings of the shareholders, the Board of Directors, the
Executive Committee, and any other committee of the Board shall be recorded in
appropriate minute books provided for this purpose. The minutes of each meeting
shall be signed by the Secretary or other person acting as secretary of the
meeting.
Section 3. SEAL. The Board of Directors shall from time to time
prescribe the form of a suitable corporate seal.
Section 4. GENDER AND NUMBER. Any reference in these By-Laws to one
gender, whether masculine, feminine or neuter, includes the other two, and the
singular includes the plural and vice versa unless the context indicates
otherwise.
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<PAGE> 23
ARTICLE EIGHT
By-Laws
Section 1. AMENDMENTS. These By-Laws may be amended, altered and
repealed, and new By-Laws may be adopted, either by action of the shareholders
or (except as otherwise provided by law) by action of the Board of Directors.
Section 2. INSPECTION. A copy of the By-Laws, with all amendments
thereto, shall at all times be kept in a convenient place at the principal
office of the Corporation and shall be open for inspection to all shareholders
during normal business hours.
ARTICLE NINE
Applicability of Pennsylvania's Anti-Takeover Act
(Act 1990-36, Senate Bill 1310)
Section 1. OPTING OUT OF CONTROL-SHARE ACQUISITION PROVISION.
Subchapter G. -- Control-share Acquisitions of Chapter 25 of the Business
Corporation Law of 1988 shall not be applicable to the Corporation.
Section 2. OPTING OUT OF PROFIT DISGORGEMENT PROVISION. Subchapter H.
- -- Disgorgement by Certain Controlling Shareholders Following Attempts to
Acquire Control of Chapter 25 of the Business Corporation Law of 1988 shall not
be applicable to the Corporation.
As amended, effective November 5, 1998.
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<PAGE> 1
EXHIBIT 10.1
MELLON BANK CORPORATION
ELECTIVE DEFERRED COMPENSATION PLAN
FOR SENIOR OFFICERS
(As Amended and Restated Effective January 1, 1997)
<PAGE> 2
TABLE OF CONTENTS
-----------------
PAGE
----
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
2.5 Limitation of Liability.................................... 5
2.6 Compensation and Insurance................................. 5
i
<PAGE> 3
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............................ 10
4.9 Retirement Plan and Retirement Savings
Plan Offsets............................................... 10
ARTICLE V.................................................................... 11
PLAN BENEFITS........................................................... 11
5.1 Plan Benefit............................................... 11
5.2 Normal Distribution Account................................ 12
5.3 Form of Benefit Payment Upon Termination
of Employment.............................................. 13
5.4 Survivor Benefits.......................................... 13
5.5 Early Distribution Account................................. 15
5.6 Hardship Distributions..................................... 16
5.7 Disability................................................. 16
5.8 Valuation and Settlement................................... 16
5.9 Change in Control and Unscheduled Distributions............ 17
5.10 Continuous Service......................................... 18
5.11 Distributions from General Assets.......................... 18
5.12 Withholding and Payroll Taxes.............................. 18
5.13 Payment to Guardian........................................ 18
5.14 Small Benefit.............................................. 18
5.15 Protective Provisions...................................... 19
5.16 Notices and Elections...................................... 19
5.17 Special Distribution Accounts.............................. 19
ii
<PAGE> 4
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................................................................. 20
MAINTENANCE OF ACCOUNTS................................................. 20
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 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.................................... 22
11.5 Law Governing and Severability............................. 22
11.6 Name....................................................... 22
11.7 Gender..................................................... 22
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.
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<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.
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<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
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<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
with respect to the Plan, except where such actions or failures to act involve
willful misconduct or gross negligence.
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<PAGE> 10
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.
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<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.
Some of the Participants under this Plan own interests in life
insurance policies (the "Policies") under the Mellon Bank Senior
Executive Life Insurance Plan. The Retirement Plan Make-Up benefit
payable under this Plan shall be reduced by the Participant's interest
in the cash value of the Policies, except to the extent otherwise
applied to reduce other benefits payable to the Participant. The
Participant's interest in the cash value of the Policies shall be
applied first to offset supplemental retirement benefits payable to a
Participant under an employment agreement, if any; next to offset any
Retirement Plan Make-Up benefit payable to the Participant under
Section 4.7 of this Plan; next to offset any benefits payable to the
Participant under the Mellon Bank IRC Section 401(a)(17) Plan; and then
to offset any benefits payable to the Participant under the Mellon Bank
Benefit Restoration Plan.
The Retirement Plan Make-Up benefit payable under this Plan shall be
reduced by the Participant's interest in the cash value of the Policies
(to the extent not applied to reduce other benefits) as follows: The
lump sum Retirement Plan Make-Up benefit which is payable under Section
4.7 of this Plan shall be reduced by subtracting the Participant's
interest in the cash value of the Policies (to the extent not applied
to reduce other benefits) as of the date when the Employer will either
pay the lump sum Retirement Plan Make-Up benefit pursuant to Section
4.7(b) below or credit such lump sum amount to a Retirement Plan
Make-Up Account pursuant to Section 4.7(c) below.
(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
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<PAGE> 14
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 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
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<PAGE> 15
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 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.
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<PAGE> 16
(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 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.
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<PAGE> 17
(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.
(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.
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<PAGE> 18
(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.
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
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<PAGE> 19
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 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.
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<PAGE> 20
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.
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.
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<PAGE> 21
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 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.
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<PAGE> 22
(d) Notwithstanding any other provision of this Plan, without the written
consent of the Participant (or Beneficiary of a deceased Participant)
affected thereby, the Company may not amend or terminate this Plan:
(i) For a period of twenty-four (24) months following a Change in
Control; or
(ii) At any time thereafter, in any manner which affects any
Participant (or Beneficiary of a deceased Participant) who receives
payments of benefits under this Plan or has a Termination of Employment
for any reason at any time during the period of twenty-four (24) months
following the Change in Control.
5.10 Continuous Service. Continuity of service shall be determined in accordance
with the following rules:
(a) A leave of absence not in excess of one year, granted by a
Participant's Employer for any purpose, including but not limited to,
sickness, accident or other casualty, shall not be considered a break in
continuity of service.
(b) Any Participant who has entered, or enters, the Armed Forces of the
United States in a period of national emergency, declared by the President
or Congress of the United States, shall be presumed to be on leave of
absence, provided he returns to the employ of his Employer within ninety
(90) days of the date on which he shall have the right to release from such
service, or from the hospital in event of service caused disability without
intervening employment elsewhere.
(c) A Participant who transfers his employment from one Employer to any
other Employer is not deemed to have caused a break in continuity of
service. Any other 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.
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<PAGE> 23
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.
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
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<PAGE> 24
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 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
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<PAGE> 25
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 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.
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<PAGE> 26
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.
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 9th day of November, 1998, effective as of September 15, 1998.
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 10.2
MELLON BANK
IRC SECTION 401(a)(17)
PLAN
Effective January 1, 1989
Amended and Restated Effective January 1, 1993
Amended Effective September 15, 1998
<PAGE> 2
PURPOSE
The purpose of the Mellon Bank IRC Section 401(a)(17) Plan is to provide
deferred compensation on an unfunded basis for a select group of management or
highly compensated employees. The deferred compensation provided hereunder is
intended to supplement the benefits provided under the Mellon Bank Retirement
Plan to such employees who are participants in the Retirement Plan, in order to
provide them with a retirement income equal to that which they would have
received under the Retirement Plan but for the limitation imposed on "qualified"
plans by Section 401(a)(17) of the Internal Revenue Code of 1986, as amended. It
is intended that the Plan be an "employee pension benefit plan" as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and that the Plan be the type of plan described in ERISA Sections
201(2), 301(a)(3) and 401(a)(1). The Corporate Benefits Committee shall be the
administrator responsible for fulfilling the duties and responsibilities imposed
on "administrators" of plans subject to Parts 1 and 5 of Title I of ERISA.
1.00 DEFINITIONS
1.01 "Benefit Restoration Plan" means the Mellon Bank Benefit Restoration Plan,
a plan established to restore benefits subject to the limitation imposed by Code
Section 415.
1.02 "Code" means the Internal Revenue Code of 1986, as the same shall be
amended from time to time.
1.03 "Committee" means the Corporate Benefits Committee established by the Human
Resources Committee of the Board of Directors of Mellon Bank Corporation.
1.04 "Mellon Bank" means Mellon Bank, N.A.
1.05 "Participant" means any management or highly compensated employee who is a
participant in the Retirement Plan and whose benefit under the Retirement Plan
is reduced because of the application of the limitation imposed by Code Section
401(a)(17) on the amount of annual compensation which may be taken into account
under the Retirement Plan.
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<PAGE> 3
1.06 "Plan" means the Mellon Bank IRC Section 401(a)(17) Plan.
1.07 "Retirement Plan" shall include the Mellon Bank Retirement
Plan, The Boston Company Retirement Income Plan and The Dreyfus Corporation
Pension Plan.
2.00 EFFECTIVE DATE
The Effective Date of this Plan is January 1, 1989. The Effective Date of the
Plan as amended and restated is January 1, 1993.
3.00 ADMINISTRATION
3.01 Administration by the Committee
The Committee shall be responsible for the general operation and administration
of the Plan and for carrying out the provisions thereof.
3.02 General Powers of Administration
All provisions set forth in the Retirement Plan with respect to the
administrative powers and duties of the Committee, expenses of administration,
and procedures for filing claims shall also be applicable with respect to the
Plan. The Committee shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller or other person employed or engaged by Mellon Bank or the
Committee with respect to the Plan.
3.03 Actuarial Equivalent
A supplemental retirement benefit which is payable in any form other than a life
annuity over the lifetime of the Participant, or which commences at any time
prior to the Participant's normal retirement date under the Retirement Plan,
shall be the actuarial equivalent of the supplemental retirement benefit set
forth in Section 4.01 below as determined by the same actuarial adjustments as
those specified in the Retirement Plan with respect to determination of the
amount of retirement benefit payable thereunder on the date for commencement of
payment hereunder, provided that lump sum payments shall be valued using an
interest rate equal to the Pension Benefit Guaranty Corporation interest rate
used to value immediate annuities in effect at the time of making the
calculation.
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<PAGE> 4
4.00 RESTORATION OF RETIREMENT PLAN BENEFIT
4.01 Restored Benefit
In respect of each Participant, Mellon Bank agrees to pay to the Participant a
supplemental retirement benefit equal to:
(a) The maximum life annuity to which the Participant would then be
entitled under the Retirement Plan but for the application of the compensation
limitation imposed by Section 401(a)(17) of the Code and the benefit limitation
imposed by Section 415 of the Code;
LESS THE SUM OF:
(b) The maximum life annuity to which the Participant is then
entitled under the Retirement Plan; and
(c) The retirement benefits provided under the Benefit Restoration
Plan, if any.
No retirement benefit will be payable to a Participant under this Plan if the
Participant is not entitled to receive a benefit under the Retirement Plan.
4.02 Payment of Restored Benefits
The restored benefits provided for under Section 4.01 of the Plan shall commence
on the commencement date elected by the Participant pursuant to, and subject to
any penalties provided in, subparagraph (b) below, but in no event prior to the
date when payment of the Participant's benefit under the Retirement Plan
commences, and shall be payable as follows:
(a) The Participant may, by written notice received by the
Committee pursuant to, and subject to any penalties provided in, subparagraph
(b) or (c) below, elect to receive the restored pension benefits, if any, by
means of any one of the following forms of payment: 50% joint and survivor; 100%
joint and survivor; single life annuity; lump sum or any other form of payment
then available under the Retirement Plan. If the Participant does not file a
written notice, then any pension benefits payable under this
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<PAGE> 5
Plan shall be payable in equal monthly installments for life if the Participant
is not married, or as a joint and 50% survivor annuity for the Participant and
his spouse if the Participant is married, commencing with the month when pension
benefits are first payable under the Retirement Plan. A Participant shall elect
the commencement date for his benefits under this Plan, which in no event may be
prior to the date when payment of the Participant's benefit under the Retirement
Plan commences.
(b) A Participant may make a timely election without reduction of
his benefit in the 12 months prior to one year before retirement. A Participant
may change his election within one year before retirement, subject to a 6%
reduction of his benefit which will be forfeited to Mellon Bank, or after
retirement before commencement of benefits, subject to a 10% reduction of his
benefit which will be forfeited to Mellon Bank. The Committee, in its
discretion, may waive reductions in benefits for changes in elections which are
due to financial hardships of Participants. A Participant will also be subject
to a 10% reduction of his benefit which will be forfeited to Mellon Bank if the
commencement date for his benefits under this Plan is delayed beyond the
commencement date which he elected pursuant to subparagraph (a) above due to a
later commencement date for his benefits under the Retirement Plan.
(c) After restored pension benefits commence, a Participant (or
beneficiary who is receiving payments) may elect to receive his remaining
benefits under this Plan in a lump sum payment, subject to a 10% reduction of
the lump sum payment which will be forfeited to Mellon Bank. The Committee, in
its discretion, may waive the foregoing reduction if the election to receive a
lump sum payment is due to a financial hardship of the Participant (or
beneficiary). After restored pension benefits commence, the lump sum payment
(prior to the 10% reduction) to a Participant shall be equal to the difference
between (A) and (B) below, determined as of the commencement date of restored
pension benefit payments, accumulated to the date of the lump sum payment using
the interest rate specified in Section 3.03:
(A) The lump sum value of the restored pension benefits payable
to the Participant under this Plan determined as of the
commencement date of restored pension benefit payments.
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<PAGE> 6
(B) The lump sum value of the restored pension benefits
previously paid to the Participant under this Plan discounted
to the commencement date of restored pension benefit payments.
When a beneficiary of a deceased Participant elects to receive
a lump sum payment, the amount of the lump sum payment shall be
calculated in a similar manner.
(d) Any written notice or request made by the Participant with
respect to the benefits payable under the Retirement Plan shall not be deemed to
be for any purpose a notice or request pursuant to this Plan with respect to
restored benefits.
(e) In the event that the Participant elects a form of payment
which provides for payments to continue after his death and dies after the
commencement of benefits but before having received all payments of restored
benefits that may be payable under this Plan, then the unpaid balance of such
restored benefits shall be paid in accordance with the form of payment elected
by the Participant. Any such remaining payments shall be made as provided below,
subject to any contrary written instructions from the Participant designating a
different beneficiary for such payments. Subject to the terms of the Plan and
the form of payment elected by the Participant, any remaining payments shall be
made to the surviving spouse of the Participant, if any, and if such surviving
spouse should die while receiving payments, then the payment shall be made to
the personal representative of his or her estate or to whomever shall be
lawfully entitled thereto upon the distribution of such estate, and if the
Participant is not survived by a spouse, to the Participant's issue, per
stirpes, and, if none, the payment shall be made to the personal representative
of the Participant's estate or to whomever shall be lawfully entitled thereto
upon distribution of such estate.
4.03 Offset for Certain Benefits Payable under Senior
Executive Life Insurance Plan.
Some of the Participants under this Plan
own interests in life insurance policies (the "Policies") under the Mellon Bank
Senior Executive Life Insurance Plan. The restored pension benefits payable
under this Plan shall be reduced by the Participant's interest in the cash value
of the Policies, except to the extent otherwise applied to reduce other benefits
payable to the Participant. The Participant's interest in the cash value of the
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<PAGE> 7
Policies shall be applied first to offset supplemental retirement benefits
payable to a Participant under an employment agreement, if any; next to offset
any Retirement Plan Make-Up benefit payable to the Participant under Section 4.7
of the Mellon Bank Corporation Elective Deferred Compensation Plan for Senior
Officers; next to offset any benefits payable to the Participant under the
Mellon Bank IRC Section 401(a)(17) Plan; and then to offset any benefits payable
to the Participant under the Mellon Bank Benefit Restoration Plan. The restored
pension benefits payable under this Plan shall be reduced by the Participant's
interest in the cash value of the Policies (to the extent not applied to reduce
other benefits) as follows: The annual restored pension benefit payable under
Section 4.01 of this Plan shall be reduced by (i) converting the unreduced
annual restored pension benefit payable under Section 4.01 to a lump sum
equivalent amount, (ii) subtracting the Participant's interest in the cash value
of the Policies (to the extent not applied to reduce other benefits) as of the
commencement date for the restored pension benefits payable under this Plan, and
(iii) converting such reduced lump sum equivalent amount back to an annual
restored pension benefit payable under Section 4.01 during the lifetime of the
Participant. The conversions to and from lump sum equivalent amounts shall be
made in accordance with Section 3.03, using the interest rate specified therein.
5.00 RESTORATION OF SURVIVING SPOUSE BENEFIT
5.01 Restored Benefit
If a Participant dies prior to commencement of payment of the Retirement Plan
benefit under circumstances in which a Retirement Plan surviving spouse benefit
is payable to the Participant's surviving spouse, Mellon Bank agrees to pay to
such surviving spouse a supplemental surviving spouse benefit, payable monthly,
equal to:
(a) The monthly amount of the Retirement Plan surviving spouse
benefit to which the surviving spouse would then be entitled under the
Retirement Plan but for the application of the compensation limitation imposed
by Section 401(a)(17) of the Code and the benefit limitation imposed by Section
415 of the Code;
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<PAGE> 8
LESS THE SUM OF:
(b) The monthly amount of the Retirement Plan surviving spouse
benefit to which the surviving spouse would then be entitled under the
Retirement Plan; and
(c) The surviving spouse benefit provided under the Benefit
Restoration Plan, if any.
5.02 Payment of Restored Benefit
A supplemental surviving spouse benefit shall be payable over the lifetime of
the surviving spouse only in monthly installments commencing on the date for
commencement of payment of the Retirement Plan surviving spouse benefit to the
surviving spouse and terminating on the date of the last payment of the
Retirement Plan surviving spouse benefit made before the surviving spouse's
death.
6.00 AMENDMENT AND TERMINATION
Mellon Bank shall have the right to amend or terminate this Plan at any time. No
amendment or termination of the Plan shall directly or indirectly deprive any
Participant or surviving spouse of any Participant of all or any portion of any
supplemental retirement benefit or supplemental surviving spouse benefit, the
payment of which has commenced prior to the effective date of such amendment or
termination, or which would be payable if the Participant terminated employment
for any reason, including death, on such effective date.
7.00 ASSIGNMENT
No interest of any person or entity in, or right to receive a benefit under, the
Plan shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor may
such interest or right to receive a benefit be taken, either voluntarily or
involuntarily for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
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<PAGE> 9
8.00 BENEFITS UNFUNDED
The benefits provided under this Plan shall be unfunded. All payment of benefits
hereunder shall be made by Mellon Bank from general assets and Mellon Bank will
not establish any special or separate fund or make other segregation of assets
to assure the payment of any benefits hereunder. The rights of any party to
receive payment of any benefits hereunder shall be no greater than the rights of
an unsecured creditor of Mellon Bank.
9.00 MISCELLANEOUS
9.01 Applicable Law
This Plan shall be governed by, and construed in accordance with, the laws of
the Commonwealth of Pennsylvania, except to the extent that the laws of the
Commonwealth of Pennsylvania shall have been specifically preempted by federal
law.
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<PAGE> 10
9.02 Incapacity of Recipient of Benefits
If any person entitled to receive benefits hereunder shall be physically or
mentally incapable of receiving or acknowledging receipt of any payment of
benefits, Mellon Bank, upon the receipt of satisfactory evidence that such
incapacitated person is so incapacitated and that another individual or
institution is maintaining such incapacitated person and that no guardian or
committee has been appointed for such person, may provide for such payment of
benefits hereunder to the other individual or institution maintaining such
incapacitated person, and such payments so made shall be deemed for every
purpose to have been made to such incapacitated person.
9.03 Liability of Employees, Officers and Directors of Mellon Bank
No past, present or future employees, officers or directors of Mellon Bank shall
be personally liable to any Participant, beneficiary or other person under any
provision of this Plan.
9.04 General Condition
Nothing contained herein shall be deemed to give any Participant or the
Participant's surviving spouse or beneficiary any interest in this Plan or in
any other specific property of Mellon Bank or any right except to receive such
distributions as are expressly provided for in this Plan. Establishment of the
Plan shall not be construed to give any Participant the right to be retained in
the service of Mellon Bank or any of its affiliates.
9.05 Small Benefits
If the actuarial value of any supplemental retirement benefit or supplemental
surviving spouse benefit is less than $3,500, Mellon Bank may pay the actuarial
value of such benefit to the Participant or surviving spouse in a single lump
sum in lieu of any further benefit payments hereunder.
9.06 Corporate Successors
The Plan shall not be automatically terminated by a transfer or sale of assets
of Mellon Bank or by the merger or consolidation of Mellon Bank into or with any
other corporation or other entity, but the Plan shall be continued after such
sale, merger or consolidation only if and to the extent that the transferee,
purchaser or successor entity, agrees to continue the Plan. In the event that
the Plan is not continued by the transferee, purchaser or successor entity, then
the Plan shall terminate subject to the provisions of Section 6.00.
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IN WITNESS WHEREOF, the Bank has caused this amended Plan to be executed this
9th day of November 1998, effective as of September 15, 1998.
ATTEST: MELLON BANK, N.A.
Carl Krasik By: D. MICHAEL ROARK
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Carl Krasik D. Michael Roark
Assistant Secretary Executive Vice President and
Head of the Human Resources Department
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of February 1, 1998 by and between
MELLON BANK CORPORATION, a Pennsylvania corporation (the "Company"), and MARTIN
G. McGUINN (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as a Vice Chairman of the
Company and Mellon Bank, N.A. (the "Bank" and, together with the Company, the
"Companies"), and the Company desires to retain the Executive to serve as
Chairman and Chief Executive Officer of the Bank effective as of March 1, 1998
and as Chairman and Chief Executive Officer of the Company effective as of
January 1, 1999, and the Executive is willing to serve in such capacities, on
the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto, each intending to be legally bound hereby, agree
as follows:
1. Employment. The Company agrees to continue to employ the Executive,
and the Executive agrees to continue to be employed by the Companies, for the
Term provided in Paragraph 3(a) below and upon the other terms and conditions
hereinafter provided. The Executive hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid and
binding agreement, enforceable against him according to its terms, and that its
execution and performance by him do not violate the terms of any existing
agreement or understanding to which the Executive is a party. In addition, the
Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in
accordance with its terms.
2. Position and Responsibilities. During the Term, the Executive agrees
to serve (a) as Vice Chairman of the Bank through February 28, 1998 and as Vice
Chairman of the Company through December 31, 1998, (b) as the Chairman and Chief
Executive Officer of the Bank effective as of March 1, 1998, and (c) as the
Chairman and Chief Executive Officer of the Company effective as of January 1,
1999. In his capacity as the Chairman and Chief Executive Officer, he shall be
responsible for the general management of the affairs of the Bank and the
Company, respectively, reporting directly to their respective boards of
directors. The Executive (a) shall serve as a member of such boards for the
period for which he is and shall from time to time be elected, (b) shall be
given such authority as is appropriate to carry out the duties described above,
and (c) agrees to serve, if elected, as an officer and director of any other
subsidiary or affiliate of the Companies.
3. Term and Duties.
(a) Term of Agreement. The term of the Executive's employment under
this Agreement shall be deemed to have commenced on February 1, 1998 and shall
continue thereafter through January 31, 2001 (the "Term").
(b) Duties. During the Term, and except for illness or incapacity and
reasonable vacation periods of no more than 4 weeks in any calendar year (or
such other periods as shall be consistent with the Company's policies for other
key executives), the Executive shall devote all of his business time, attention,
skill and efforts exclusively to the business and affairs of the Companies and
their subsidiaries and affiliates, shall not be engaged in any other business
activity, and shall perform and discharge well and faithfully the duties which
may be assigned to him from time to time by the board of directors of the
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Company (the "Board") or the Bank and that are consistent with his position and
status; provided, however, that nothing in this Agreement shall preclude the
Executive from devoting time during reasonable periods required for:
(i) serving, in accordance with the Company's policies and
with the prior approval of the Board, which prior approval will not be
unreasonably withheld, as a director of any company or organization
involving no actual or potential conflict of interest with the
Companies or any of their subsidiaries or affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
(iv) investing his personal assets in businesses in which his
participation is solely that of an investor in such form or manner as
will not violate Section 7 below or require any services on the part of
the Executive in the operation or the affairs of such business,
provided, however, that such activities do not materially affect or interfere
with the performance of the Executive's duties and obligations to the Companies.
4. Compensation. For all services rendered by the Executive in any
capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, the Bank or any subsidiary, affiliate or division thereof, the
Executive shall be compensated as set forth below. It is the intention of the
Company and the Executive that the Executive's total compensation be competitive
with that paid by similar financial institutions. To assure this, the Company
will conduct an annual survey of compensation practices of a group of peer
financial institutions designated by the Human Resources Committee of the Board
("HRC").
(a) Base Salary. The Executive shall be paid a fixed salary
("Base Salary") of $700,000 per annum as of the effective date of this
Agreement. The Base Salary amount is subject to periodic review by the
Board or the HRC (which shall occur at least annually, with the first
such review to take place in May 1999). Base Salary shall be payable in
accordance with the customary payroll practices of the Companies, but
in no event less frequently than monthly.
(b) Bonus. The Executive shall be paid such amounts, if any,
as may be due under the terms of the Mellon Bank Corporation Profit
Bonus Plan (or any successor plan) (the "Bonus Plan"), with such
payments of bonus to be made in accordance with the terms of the Bonus
Plan. It is understood that the Executive may receive some portion of
his Bonus Plan award in the form of restricted stock, and such awards
are to be made on the same terms as apply to other members of the
Office of the Chairman.
(c) Equity-Based Compensation. The Company shall grant to the
Executive during calendar year 1998 and in subsequent years as the HRC
shall decide, awards (the "Awards") permitted to be granted under the
Company's Long-Term Profit Incentive Plan (1996) or any successor plan
(the "Long-Term Plan"), which Awards may include Type I and Type II
stock options, SARs, performance units, restricted stock and deferred
cash incentive awards.
Notwithstanding the foregoing, the Chairman and Chief
Executive Officer of the Company shall recommend to the HRC that the
Company grant to the Executive not later than November 1, 1998, 45,000
Type I stock options and 45,000 Type II stock options with deferred
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cash incentive awards to purchase shares of the Company's common stock.
These Type II options shall vest and become exercisable 60 days prior
to the tenth anniversary of the date of grant, unless earlier
accelerated by the HRC. Such Awards shall be granted under and subject
to the terms of the Long-Term Plan.
(d) Additional Benefits. Except as modified by this Agreement,
the Executive shall be entitled to participate in all compensation or
employee benefit plans or programs, and to receive all benefits,
perquisites and emoluments, for which any member of senior management
at the Company is eligible under any plan or program now or hereafter
established and maintained by the Company or the Bank for senior
officers, to the extent permissible under the general terms and
provisions of such plans or programs and in accordance with the
provisions thereof, including group hospitalization, health, dental
care, senior executive life or other life insurance, travel or accident
insurance, disability plans, tax-qualified or non-qualified pension,
savings, thrift and profit-sharing plans, deferred compensation plans,
sick-leave plans, auto allowance or auto lease plans, and executive
contingent compensation plans, including, without limitation, capital
accumulation programs and stock purchase plans.
(e) Perquisites. The Company will also furnish the Executive,
without cost to him, with such perquisites as are commensurate with the
Executive's position and status, including (i) membership in such
country and business clubs as are reasonably necessary to the conduct
of the Companies' business, subject to the approval of the HRC, (ii) an
annual physical examination of the Executive by a physician selected by
the Executive, (iii) participation in the Company's matching gifts
program, (iv) use of a car and driver, and (v) personal financial,
investment and tax advice, with any firm selected by the Executive, not
to exceed a reasonable sum per annum, to the extent costs or expenses
of the Executive to be reimbursed are properly documented. To the
extent the furnishing of the perquisites listed in this section results
in taxable income being imputed to the Executive, the Company will
reimburse the Executive for all tax costs incurred to restore him to
the same after-tax position in which he would have been had income not
been imputed.
5. Business Expenses. The Companies shall pay or reimburse the
Executive for all reasonable travel and other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, subject to the Executive's presentation of appropriate
vouchers in accordance with such procedures as the Companies from time to time
establish for senior officers.
6. Effect of Termination of Employment.
(a) Without Cause Termination or Constructive Discharge. Subject to the
provisions of Section 7 below, in the event the Executive's employment hereunder
terminates due to either a Without Cause Termination or a Constructive
Discharge:
(i) Earned but unpaid Base Salary as of the Date of
Termination and any earned but unpaid bonuses for prior years
(collectively, the "Accrued Obligations"), shall be payable in full,
and the Company shall, as liquidated damages or severance pay, or both:
(A) continue to pay the Executive's Base Salary, as
in effect at the Date of Termination (as defined in Section
14(b)), from the Date of Termination until the end of the
Term. Moreover, if said termination occurs within 12 months
from the end of the Term of this Agreement, the Company shall
continue to pay the Executive's Base Salary
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for a period of no less than the shorter period of (1) 12
months from the Date of Termination, or (2) the Date of
Termination until the time when the Executive commences
full-time employment with another employer, and
(B) pay to the Executive for the year of termination
and for each subsequent calendar year or portion thereof
during the remainder of the Term, an amount equal to the Cash
Bonus Amount of the highest bonus received by the Executive
under the Bonus Plan for any year in the three years preceding
the Date of Termination, such payments to be made at the
normal times for payment of bonuses under the Bonus Plan.
With respect to the payments provided for in this Section 6(a)(i), the
Executive shall be entitled to participate in any compensation deferral
plans or arrangements then provided by the Company to senior executives
on the same basis as if he had remained an employee through the end of
the Term.
(ii) The Company shall continue to provide the Executive
through the remainder of the Term with (A) service credit under all
qualified and nonqualified retirement plans and excess benefit plans
and the Supplemental Retirement Benefit provided under this Agreement
in which the Executive participated as of his Date of Termination and
(B) employer contributions to the Retirement Savings Plan at the
maximum rate which would have been available to the Executive had his
employment continued.
(iii) The Company shall continue to provide Executive (and
Executive's dependents, if applicable) for the period of salary
continuation set forth in Section 6(a)(i)(A) above with medical,
dental, accident, disability and life insurance benefits upon
substantially the same terms and conditions (including contributions
required by the Executive for such benefits) as those of the applicable
employee benefit plans in effect from time to time as applied to
employees; provided, however, that if the Executive cannot continue to
participate under the terms of the Company plans providing such
benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event the Executive becomes
re-employed 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 the
Executive's eligibility, but only to the extent that the Company
reimburses the Executive for any increased cost and provides any
additional benefits necessary to give the Executive the benefits
provided hereunder.
(iv) All stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment) shall become immediately and fully
vested. The Executive shall have up to three (3) years to exercise all
such outstanding stock options following termination of employment, but
in no event beyond their specified term. All Type II stock options and
related deferred cash incentive awards granted after the date of this
Agreement pursuant to this Agreement or under the Long-Term Plan shall
not terminate or be forfeited, as the case may be, but shall remain
outstanding and exercisable or payable, as the case may be, as if
Executive remained employed by the Company. The Chairman and Chief
Executive Officer of the Company shall recommend to the HRC, with
respect to any period for which Performance Goals (as defined in the
Long-Term Plan) relating to such Type II stock options and deferred
cash incentive awards are achieved, that the right to exercise the
maximum possible number of Type II
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stock options be accelerated and that the maximum possible deferred
cash incentive award be earned and payable to the Executive upon such
exercise.
(v) The perquisites set forth in Paragraphs 4(e)(i), (iv) and
(v) shall continue through the first anniversary of the Executive's
termination of employment. In addition, the Company shall furnish the
Executive with office space and secretarial support during the
remainder of the Term or, if shorter, until the time the Executive
commences full-time employment with another employer.
(b) Permanent Disability. In the event the Executive's employment
hereunder terminates due to Permanent Disability, the Company shall provide the
Executive for the remainder of the Term with the same payments and benefits as
those provided in Section 6(a), except that:
(i) in lieu of the bonus payments provided in Section
6(a)(i)(B), the Executive shall receive, at the same time as bonus
payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus
Amount of the target bonus award (or, if higher, of the bonus award the
Executive would have received had he been employed throughout the bonus
year), prorated on a daily basis as of the Date of Termination;
(ii) except for Accrued Obligations, Base Salary payments
shall be offset by any amounts otherwise payable to the Executive under
the Company's disability program generally available to other
employees; and
(iii) all stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment but including Type II stock options and
related deferred cash incentive awards) shall become immediately and
fully vested. The Executive shall have up to three (3) years to
exercise all such outstanding stock options following termination of
employment, but in no event beyond their specified term.
(c) Death. In the event the Executive's employment hereunder terminates
due to death, Accrued Obligations as of the date of death shall be payable in
full, and the Company shall pay to the Executive's estate, at the same time as
bonus payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus Amount
of the target bonus award (or, if higher, of the bonus award the Executive would
have received had he been employed throughout the bonus year), prorated on a
daily basis as of the date of death.
All stock options and restricted stock awards granted after the
effective date of this Agreement pursuant to this Agreement or under the
Long-Term Plan (other than those under which vesting is performance-based or is
dependent upon the satisfaction of conditions other than continued employment
but including Type II stock options and related deferred cash incentive awards)
shall become immediately and fully vested. The Executive's personal
representative, beneficiary or person who may exercise stock options under the
rules of descent and distribution or under the Executive's will shall have up to
three (3) years to exercise all such outstanding stock options following
termination of employment, but in no event beyond their specified term.
(d) Other Termination of Employment. In the event the Executive's
employment hereunder terminates due to a Termination for Cause or the Executive
terminates employment with the Company
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for reasons other than due to a Without Cause Termination, a Constructive
Discharge, Permanent Disability, retirement on or after age 55 with the written
consent of the Company or death, vested benefits and Accrued Obligations as of
the Date of Termination shall be payable in full, and vested Awards may be
exercised according to the terms of the Long-Term Plan. No other payments shall
be made, or benefits provided, by the Company except for benefits which have
already become vested under the terms of employee benefit programs maintained by
the Company or its affiliates for its employees generally as provided in Section
10.
(e) Definitions. For purposes of this Agreement, the following terms
have the following meanings:
(i) "Termination for Cause" means, to the maximum extent
permitted by applicable law, a termination of the Executive's
employment by the Company by a vote of the majority of the Board
members then in office, because the Executive has (a) been convicted of
a criminal offense covered by Section 19 of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1829, or any successor provision, or
(b) has entered a plea of nolo contendere thereto, or (c) has breached
or failed to perform his duties hereunder, and such breach or failure
to perform constitutes self-dealing, willful misconduct or recklessness
(within the meaning of Section 1713(a) of the Pennsylvania Business
Corporation Law, as amended, or any successor provision), or (d) a
final determination has been reached that the Executive has violated
the representations made in Section 1 above, or the provisions of
Section 7 below; provided, however, that the Board has given the
Executive advance notice of such Termination for Cause including the
reasons therefor, together with a reasonable opportunity for the
Executive to appear with counsel before the Board and to reply to such
notice.
(ii) "Constructive Discharge" means a termination of the
Executive's employment by the Executive due to a failure of the
Companies or their successors to fulfill their obligations under this
Agreement in any material respect, including (a) any failure to elect
or reelect or to appoint or reappoint the Executive to the offices of
Chairman and Chief Executive Officer of the Company and the Bank on and
after the dates set forth in Section 2 above or as a member of each of
their boards of directors or (b) any other material change by the
Companies in the functions, duties or responsibilities of the
Executive's position with the Companies which would reduce the ranking
or level, dignity, responsibility, importance or scope of such
position, (c) any imposition on the Executive of a requirement to be
permanently based at a location more than fifty miles from the
principal office of the Company as of the date of this Agreement
without the consent of the Executive, or (d) any reduction without the
consent of the Executive in the Executive's salary below the amount
then provided for under Paragraph 4(a) hereof.
(iii) "Without Cause Termination" means a termination of the
Executive's employment by the Company other than due to Permanent
Disability or expiration of the Term and other than a Termination for
Cause.
(iv) "Permanent Disability" means the total and permanent
disability of the Executive covered by a disability plan of the
Companies then in effect.
(v) The "Cash Bonus Amount" of a Bonus Plan award for any
period means the sum of (1) the amount of such award paid or payable in
cash (whether or not deferred) plus (2) with respect to any portion of
the award paid or payable in restricted stock, phantom stock or other
interests in Company securities, the amount of cash which would
otherwise have been paid, excluding any premium in value given to
compensate for risk of forfeiture or otherwise.
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(f) Change in Control. Notwithstanding anything else contained herein,
if any termination of the Executive's employment hereunder constitutes a
"Qualifying Termination" during the "Termination Period," each as defined in the
Agreement between the Executive and the Company dated as of February 1, 1997
(the "Prior Agreement"), then the provisions of the Prior Agreement shall apply
to such termination in lieu of the provisions of this Section 6. Section 5 of
the Prior Agreement shall apply to any Payment (as therein defined) under this
Agreement to the extent provided therein.
7. Other Duties of Executive During and After Term.
(a) Confidential Information. The Executive recognizes and acknowledges
that certain information pertaining to the affairs, business, clients, or
customers of the Companies or any of their subsidiaries or affiliates (any or
all of such entities hereinafter referred to as the "Business"), as such
information may exist from time to time, is confidential information and is a
unique and valuable asset of the Business, access to and knowledge of which are
essential to the performance of his duties under this Agreement. The Executive
shall not, through the end of the Term or at any time thereafter, except to the
extent reasonably necessary in the performance of his duties under this
Agreement, divulge to any person, firm, association, corporation or governmental
agency, any information concerning the affairs, business, clients, or customers
of the Business (except such information as is required by law to be divulged to
a government agency or pursuant to lawful process or such information which is
or shall become part of the public realm through no fault of the Executive), or
make use of any such information for his own purposes or for the benefit of any
person, firm, association or corporation (except the Business) and shall use his
reasonable best efforts to prevent the disclosure of any such information by
others. All records and documents relating to the Business, whether made by the
Executive or otherwise coming into his possession are, shall be, and shall
remain the property of the Business. No copies thereof shall be made which are
not retained by the Business, and the Executive agrees, on any termination of
his employment, or on demand of the Company, to deliver the same to the Company.
(b) Non-Competition. Through the end of the Term, whether during the
Executive's employment or following the termination of his employment for any
reason except for a Without Cause Termination or Constructive Discharge, the
Executive shall not without express prior written approval by order of the HRC,
directly or indirectly:
(i) solicit for the account of any Financial Services Company
(other than the Company or its affiliates) the sale of any products or
services of a type then provided by the Company or its affiliates (A)
during the Executive's employment, to any entity or individual or (B)
following termination of the Executive's employment (1) to any entity
or individual that was a customer or client of the Company or its
affiliates at any time during the 12-month period immediately preceding
the Executive's Date of Termination, (2) to any individual who is a
resident of a Restricted State or (3) to any entity where the customary
office of the individual solicited or of the individual responsible for
the entity's purchasing decision is located in a Restricted State.
(ii) solicit any employee of the Company or its affiliates to
terminate such employment relationship.
For purposes of this Section 7(b), the following definitions shall
apply:
(1) "Financial Services Company" shall mean any corporation,
partnership, sole proprietorship or other entity engaged in the
provision to unaffiliated customers of financial services, including,
without limitation, retail or commercial banking, lending, lease
financing, trade financing or other extension of credit, rate risk
management products, loan servicing, credit
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card processing, investment banking, brokerage services, investment
management or advisory services, sponsorship, administration or
management of mutual funds or other collective investment vehicles,
cash management, foreign exchange, fiduciary or custodial services,
employee benefit plan administration, benefits consulting services,
stock transfer services or underwriting or sale of insurance.
(2) "Restricted State" shall mean any State of the United
States all or part of which is located east of the Mississippi River
and the District of Columbia.
In addition to the foregoing, it is understood that during his
employment the Executive is subject to all policies and procedures of the
Companies regarding investment in securities of competitors.
(c) Remedies. The Company's obligation to make payments or provide for
or increase any benefits under this Agreement (except to the extent previously
vested) shall cease upon any violation of the provisions of this Section 7;
provided, however, that the Executive shall first have the right to appear
before the Board with counsel and that such cessation of payments or benefits
shall require a vote of a majority of the Board members then in office. In
addition, in the event of a violation by the Executive of the provisions of this
Section 7, the Company shall be entitled, if it shall so elect, to institute
legal proceedings to obtain damages for any such breach, or to enforce the
specific performance by the Executive of this Section 7 and to enjoin the
Executive from any further violation, and may exercise such remedies
cumulatively or in conjunction with such other remedies as may be available to
the Company at law or in equity. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of this Section 7 would
be inadequate and agrees that the Company shall be entitled to injunctive relief
against him in the event of any such breach.
(d) Survival; Authorization to Modify Restrictions. The covenants of
the Executive contained in this Section 7 shall survive any termination of the
Executive's employment for the periods stated herein, except that the covenants
contained in Section 7(b) shall not survive any termination of employment (i)
for which a Notice of Termination is given during the Termination Period
following a Change in Control, each as defined in the Prior Agreement or (ii)
which is a termination of employment described in the second sentence of Section
1(j) of the Prior Agreement. The Executive represents that his experience and
capabilities are such that the enforcement of the provisions of this Section 7
will not prevent him from earning his livelihood, and acknowledges that it would
cause the Company serious and irreparable injury and cost if Executive were to
use his ability and knowledge in competition with the Company or to otherwise
breach the obligations contained in this Section 7. Accordingly, it is the
intention of the parties that the provisions of this Section 7 shall be
enforceable to the fullest extent permissible under applicable law, but that the
unenforceability (or modification to conform to such law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
thereof. If any provision or provisions hereof shall be deemed invalid or
unenforceable, either in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision or provisions
and to alter the bounds thereof to the extent required in order to render it
valid and enforceable.
8. Supplemental Retirement Benefit. The Executive will be entitled to
receive a monthly Supplemental Retirement Benefit (the "Supplemental Retirement
Benefit") commencing on the first day of the month coincident with or following
the later of the Executive's termination of employment or attainment of age 60
and continuing for the remainder of his life. Unless otherwise elected by the
Executive, the Supplemental Retirement Benefit shall be payable in the form of a
50% joint and survivor annuity which shall be unreduced for the actuarial value
of the survivor's benefit. If the Executive's spouse at the time of his death is
not more than four years younger than the Executive, the survivor benefit shall
be equal to 50% of the Executive's benefit and shall be payable to his spouse
for the
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remainder of the spouse's life. If the Executive's spouse at the time of his
death is more than four years younger than the Executive, the benefit payable to
the spouse shall be reduced to a benefit having the same actuarial value as the
benefit that would have been payable had the spouse been four years younger than
the Executive. The Executive shall also have the right to elect a 100% joint and
survivor annuity, on an actuarially-reduced basis or a lump-sum payment, on an
actuarially-reduced basis (if the Executive makes a timely lump-sum election
which avoids constructive receipt), or any other form of payment available or
provided under the "Supplemental Plans" defined in this Section 8. Actuarial
reductions shall be based on the actual ages of the Executive and his spouse at
the time of retirement. If the Executive is not married at the time of his
retirement, actuarial adjustments shall be made as if the Executive had a spouse
with the same date of birth as the Executive. In the event that the Executive
elects a form of payment other than the automatic 50% joint and survivor annuity
or other than a lump sum payment, and remarries subsequent to retirement, the
benefits payable under this Section shall be actuarially adjusted at the time of
the Executive's death to reflect the age of the subsequent spouse. If the
Executive elects a lump sum payment at retirement, no further benefits will be
payable under this Section.
The amount of the monthly retirement benefit as an unreduced 50% joint
and survivor annuity shall be equal to the product of (A) the "Service
Percentage" multiplied by (B) the Executive's "Final Average Compensation", with
such product reduced by (C) the total monthly amount of benefits (measured for
purposes of this offset as if the Executive elected a 50% joint and survivor
annuity payable as of the date benefits commence under this Agreement.) provided
to or in respect of the Executive under all tax-qualified retirement plans and
related excess benefit and other benefit restoration plans maintained by the
Company or the Bank for the Executive, including the Mellon Bank Benefit
Restoration Plan and the Mellon Bank IRC Section 401(a)(17) Plan (the
"Supplemental Plans") and benefits paid pursuant to Section 4.7 of the Mellon
Bank Corporation Elective Deferred Compensation Plan for Senior Officers, but
not including payments of any compensation previously deferred under any
deferred compensation plan of the Company or the Bank, or interest thereon, or
payments from the Mellon Bank Corporation Retirement Savings Plan, a 401(k)
plan.
The Executive owns interests in life insurance policies (the
"Policies") as a participant in the Mellon Bank Senior Executive Life Insurance
Plan. The Supplemental Retirement Benefit payable to the Executive hereunder
shall be further reduced by the Executive's interest in the cash value of the
Policies. This reduction shall be calculated in the same manner as under the
Supplemental Plans. In the event the United States federal income tax laws
change or are interpreted so as to cause Executive's ownership interests in
Policies to be subject to taxation, the Executive and the Company will negotiate
in good faith to mitigate the effects of such change.
The Executive shall be vested in the Supplemental Retirement Benefit
provided under this Paragraph as of the effective date of this Agreement.
The Executive shall elect the form of payment of his Supplemental
Retirement Benefit at the same time and subject to the same provisions
(including timing requirements and all reductions and/or penalties for late
elections) as provided under the Supplemental Plans. After retirement, the
Executive (or beneficiary who is receiving payments) may elect to receive his
remaining Supplemental Retirement Benefits which are payable hereunder in a lump
sum payment, calculated in the same manner and subject to the same reductions as
under the Supplemental Plans. In the event that the Executive elects a form of
payment of his Supplemental Retirement Benefits which provides for payments to
continue after his death and the Executive dies without having received all
payments of Supplemental Retirement Benefits that may be payable hereunder, then
the unpaid balance of such benefits shall be paid in accordance with the form of
payment elected by the Executive. Any such remaining payments shall be made to
the
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Executive's beneficiary provided under the Supplemental Plans, subject to any
contrary written instructions from the Executive designating a different
beneficiary for such payments.
The Executive may also elect, upon not less than 12 months' advance
written notice, to have the payment of the Supplemental Retirement Benefit
commence on the first day of any month coincident with or after the later of his
termination of employment or attainment of age 55. In this event, the
Supplemental Retirement Benefit will be subject to an early payment reduction
amount equal to 0.5% per month (6% per annum) for each month that payments
commence before attainment of age 60. In the event of such retirement, the Term
and the Company's obligations to make payments under Section 4 above shall cease
as of the retirement date.
Notwithstanding the foregoing, in no event shall the Executive receive
any payments under this Section 8 or be deemed to be retired from the Company
while the Executive is entitled to payments under Paragraph 6(a) or Paragraph
6(b) or during any period for which the Executive receives additional service
credit in respect a "Qualifying Termination" as provided in clause (B) of the
definition of "Service Percentage" below.
As used in this Section 8:
(i) "Service Percentage" means 2% for each full or partial
year of the Executive's employment with the Company (plus service with
a prior employer if treated as credited service with the Company) as of
the date his active employment with the Company terminates, plus 2% for
(A) each full year, if any, that the Executive receives payments under
Paragraph 6(a) or 6(b) hereof (with such percentage pro-rated for the
partial contract year in which such final termination of the
Executive's employment occurs or in which such final payments under
Paragraph 6(a) or 6(b) hereof are made, whichever shall be applicable)
or (B) for each of the three years, or if less, the period of time
remaining until the Executive reaches age 65, following any "Qualifying
Termination" of the Executive's Employment during the "Termination
Period," each as defined in the Prior Agreement (with such percentage
to be pro-rated for any partial year following any such "Qualifying
Termination" and prior to attainment of age 65).
(ii) "Final Average Compensation" means one-twelfth (1/12th)
of the sum of the Executive's Base Salary paid and the Cash Bonus
Amount of any bonus award earned for the calendar year within the final
three (3) full calendar years of the Executive's employment by the
Company which produces the highest amount. For purposes of determining
Final Average Compensation (A) Bonus Plan awards shall be attributed to
the calendar year in which earned, whether paid in that calendar year
or the year following or deferred and (B) any portion of the
Executive's Base Salary and bonus award which is deferred by the
Executive under agreements with the Company or under any Company
employee benefit plan shall be included for purposes of determining
Final Average Compensation.
Notwithstanding the foregoing, in the event of a "Qualifying
Termination" of the Executive's employment during the "Termination Period," each
as defined in the Prior Agreement, "Final Average Compensation" for purposes of
computing the Supplemental Retirement Benefit shall mean one-twelfth (1/12th) of
the sum of (i) the Executive's highest annual rate of base salary during the
12-month period immediately prior to the Executive's Date of Termination and
(ii) the Executive's Bonus Amount, as defined in the Prior Agreement. In
addition, the Supplemental Retirement Benefit shall be payable without any
reduction for early payment in the event the Executive is less than age 60 at
the time that payment is made. In the event of such a "Qualifying Termination,"
the present value of the Supplemental Retirement Benefit shall be payable to the
Executive in a lump sum at the same time payments are due to
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the Executive under Section 4(a) of the Prior Agreement (i.e., within 20 days
following the Executive's Date of Termination). The present value shall be
calculated in the same manner and using the actuarial factors set forth in the
Supplemental Plans as of the effective date of this Agreement.
In the event the Executive's termination of employment is due to death
prior to the commencement of the payment of Supplemental Retirement Benefits
under this Section 8, and he shall be survived by a spouse, entitlement to
Supplemental Retirement Benefits will become fully vested and such spouse shall
be entitled to receive a pre-retirement death benefit, payable in the form of a
lifetime annuity, equal to the benefit that would have been payable had he
retired immediately prior to death and elected a 50% joint and survivor annuity,
but without any early payment reductions applicable for payments prior to age
60. If the Executive's spouse at the time of his death is more than four years
younger than the Executive, the benefit payable to the survivor shall be reduced
to a benefit having the same actuarial value as the benefit that would have been
payable had the spouse been four years younger than the Executive.
The Executive's entitlement to Supplemental Retirement Benefits under
this Section 8 shall survive the expiration of the Term and any other
termination of this Agreement.
9. Resolution of Disputes. Except as otherwise provided in Section 7(c)
hereof, 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. In the event of any
arbitration, litigation or other proceeding between the Company and the
Executive with respect to the subject matter of this Agreement and the
enforcement of rights hereunder, the Company shall reimburse the Executive for
his reasonable costs and expenses relating to such arbitration, litigation or
other proceeding, including attorneys' fees and expenses, provided that such
arbitration, litigation or other proceeding results in any: (i) settlement
requiring the Company to make a payment, continue to make payments or provide
any other benefit to the Executive; or (ii) judgment, order or award against the
Company in favor of the Executive or his spouse, legal representative or heirs,
unless such judgment, order or award is subsequently reversed on appeal or in a
collateral proceeding. At the request of the Executive, costs and expenses
(including attorneys' fees) incurred in connection with any arbitration,
litigation or other proceeding referred to in this Section shall be paid by the
Company in advance of the final disposition of the arbitration, litigation or
other proceeding upon receipt of an undertaking by or on behalf of the Executive
to repay the amounts advanced if it is ultimately determined that he is not
entitled to reimbursement of such costs and expenses by the Company as set forth
in this Section.
10. Full Settlement; No Mitigation; Non-Exclusivity of Benefits. Except
as provided in Section 6(f), the Company's obligation to make any payment
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 the Executive under any other severance plan, arrangement or
agreement of the Company and its affiliates and in full settlement of any and
all claims or rights of the Executive for severance, separation and/or salary
continuation payments resulting from the termination of his employment. In no
event shall the Executive be obligated to seek other employment or to take other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and except as specifically provided herein,
such amounts shall not be reduced whether or not the Executive obtains other
employment. Except as provided above in this Section 10, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliates for which the Executive may qualify, nor, except as
otherwise specifically provided in this Agreement, shall anything herein limit
or otherwise affect such
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rights as the Executive may have under any contract or agreement with the
Company or any of its affiliates, including without limitation any stock option
or restricted stock agreement. Amounts or benefits which are vested benefits or
which the Executive is otherwise entitled to receive under any such plan,
program, policy, practice, contract or agreement prior to, at or subsequent to
any Date of Termination shall be paid or provided in accordance with the terms
of such plan, program, policy, practice, contract or agreement except as
explicitly modified by this Agreement.
11. Employment and Payments by Subsidiaries. Except as herein otherwise
specifically provided, references in this Agreement to employment by the Company
shall include employment by subsidiaries of the Company, and the obligation of
the Company to make any payment or provide any benefit to the Executive
hereunder shall be deemed satisfied to the extent that such payment is made or
such benefit is provided by any subsidiary of the Company.
12. Withholding Taxes. The Company may directly or indirectly withhold
from any payments made under this Agreement all Federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
13. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term, "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
14. Notices.
(a) General. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given when delivered or 5 days after being deposited in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
(i) To the Company:
Manager-Human Resources Department
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
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(ii) To the Executive:
Martin G. McGuinn
714 Amberson Avenue
Pittsburgh, PA 15232-1446
with a copy to:
Mark Bookman, Esq.
Reed Smith Shaw & McClay
435 Sixth Ave.
Pittsburgh, PA 15219
or to such other address as the addressee party shall have previously specified
in writing to the other.
(b) Notice of Termination. Except in the case of death of the
Executive, any termination of the Executive's employment hereunder, whether by
the Executive or the Company, shall be effected only by a written notice given
to the other party in accordance with this Section 14 (a "Notice of
Termination"). Any Notice of Termination shall (i) indicate the specific
termination provision in Section 6 relied upon, (ii) in the case of a
termination for Cause, a Constructive Discharge or a termination due to
Permanent Disability, set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination and (iii) specify the effective
date of such termination of employment (the "Date of Termination"), which shall
not be less than 15 days (30 days in the case of a termination by the Company
due to Permanent Disability) nor more than 60 days after such notice is given.
The failure of the Executive or the Company to set forth in any Notice of
Termination any fact or circumstance which contributes to a showing of Cause,
Constructive Discharge or Permanent Disability shall not waive any right of the
Executive or the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
15. No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
15 shall preclude the assumption of such rights by executors, administrators, or
other legal representatives of the Executive or his estate or their assigning
any rights hereunder to the person or persons entitled thereto.
16. Source of Payments. Subject to Section 11 hereof, all payments
provided for under this Agreement shall be paid in cash from the general funds
of the Company. The Company shall not be required to establish a special or
separate fund or other segregation of assets to assure such payments, and, if
the Company shall make any investments to aid it in meeting its obligations
hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship, between
the Company and the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor.
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<PAGE> 14
17. Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and, as permitted by this
Agreement, their respective successors, assigns, heirs, beneficiaries and
representatives.
18. Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed exclusively by the laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of laws
thereof.
19. Counterparts; Headings. This Agreement may be executed in
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument. The
underlined Section headings contained in this Agreement are for convenience of
reference only and shall not affect the interpretation or construction of any
provision hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed this Agreement, all as of the first
date above written.
ATTEST: MELLON BANK CORPORATION
/s/ CARL KRASIK By: /s/ FRANK V. CAHOUET
- ----------------------------- -------------------------------------
Carl Krasik Frank V. Cahouet
Secretary Chairman and Chief Executive Officer
/s/ MARTIN G. MCGUINN
-------------------------------------
MARTIN G. MCGUINN
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<PAGE> 1
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of February 1, 1998 by and between
MELLON BANK CORPORATION, a Pennsylvania corporation (the "Company"), and
CHRISTOPHER M. CONDRON (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as a Vice Chairman of the
Company and Mellon Bank, N.A. (the "Bank" and, together with the Company, the
"Companies"), and the Company desires to retain the Executive to serve as
President and Chief Operating Officer of the Bank effective as of March 1, 1998
and as President and Chief Operating Officer of the Company effective as of
January 1, 1999, and the Executive is willing to serve in such capacities, on
the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto, each intending to be legally bound hereby, agree
as follows:
1. Employment. The Company agrees to continue to employ the Executive,
and the Executive agrees to continue to be employed by the Companies, for the
Term provided in Paragraph 3(a) below and upon the other terms and conditions
hereinafter provided. The Executive hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid and
binding agreement, enforceable against him according to its terms, and that its
execution and performance by him do not violate the terms of any existing
agreement or understanding to which the Executive is a party. In addition, the
Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in
accordance with its terms.
2. Position and Responsibilities. During the Term, the Executive agrees
to serve (a) as Vice Chairman of the Bank through February 28, 1998 and as Vice
Chairman of the Company through December 31, 1998, (b) as the President and
Chief Operating Officer of the Bank effective as of March 1, 1998, and (c) as
the President and Chief Operating Officer of the Company effective as of January
1, 1999. In his capacity as the President and Chief Operating Officer, he shall
be responsible for the management of the operations of the Company and the Bank,
respectively, reporting directly to the Chairman and Chief Executive Officer of
the Company (the "Chairman") and the Bank. The Executive (a) shall serve as a
member of the boards of directors of the Company (the "Board") and the Bank for
the period for which he is and shall from time to time be elected, (b) shall be
given such authority as is appropriate to carry out the duties described above,
and (c) agrees to serve, if elected, as an officer and director of any other
subsidiary or affiliate of the Companies.
3. Term and Duties.
(a) Term of Agreement. The term of the Executive's employment under
this Agreement shall be deemed to have commenced on February 1, 1998 and shall
continue thereafter through January 31, 2001 (the "Term").
(b) Duties. During the Term, and except for illness or incapacity and
reasonable vacation periods of no more than 4 weeks in any calendar year (or
such other periods as shall be consistent with the Company's policies for other
key executives), the Executive shall devote all of his business time, attention,
skill and efforts exclusively to the business and affairs of the Companies and
their subsidiaries and affiliates, shall not be engaged in any other business
activity, and shall perform and discharge well
<PAGE> 2
and faithfully the duties which may be assigned to him from time to time by the
Chairman; provided, however, that nothing in this Agreement shall preclude the
Executive from devoting time during reasonable periods required for:
(i) serving, in accordance with the Company's policies and
with the prior approval of the Chairman, which prior approval will not
be unreasonably withheld, as a director of any company or organization
involving no actual or potential conflict of interest with the
Companies or any of their subsidiaries or affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
(iv) investing his personal assets in businesses in which his
participation is solely that of an investor in such form or manner as
will not violate Section 7 below or require any services on the part of
the Executive in the operation or the affairs of such business,
provided, however, that such activities do not materially affect or interfere
with the performance of the Executive's duties and obligations to the Companies.
4. Compensation. For all services rendered by the Executive in any
capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, the Bank or any subsidiary, affiliate or division thereof, the
Executive shall be compensated as set forth below. It is the intention of the
Company and the Executive that the Executive's total compensation be competitive
with that paid by similar financial institutions. To assure this, the Company
will conduct an annual survey of compensation practices of a group of peer
financial institutions designated by the Human Resources Committee of the Board
("HRC").
(a) Base Salary. The Executive shall be paid a fixed salary
("Base Salary") of $650,000 per annum as of the effective date of this
Agreement. The Base Salary amount is subject to periodic review by the
Board or the HRC (which shall occur at least annually, with the first
such review to take place in May 1999). Base Salary shall be payable in
accordance with the customary payroll practices of the Companies, but
in no event less frequently than monthly.
(b) Bonus. The Executive shall be paid such amounts, if any,
as may be due under the terms of the Mellon Bank Corporation Profit
Bonus Plan (or any successor plan) (the "Bonus Plan"), with such
payments of bonus to be made in accordance with the terms of the Bonus
Plan. It is understood that the Executive may receive some portion of
his Bonus Plan award in the form of restricted stock, and such awards
are to be made on the same terms as apply to the Chairman and to other
members of the Office of the Chairman.
(c) Equity-Based Compensation. The Company shall grant to the
Executive during calendar year 1998 and in subsequent years as the HRC
shall decide, awards (the "Awards") permitted to be granted under the
Company's Long-Term Profit Incentive Plan (1996) or any successor plan
(the "Long-Term Plan"), which Awards may include Type I and Type II
stock options, SARs, performance units, restricted stock and deferred
cash incentive awards.
Notwithstanding the foregoing, the Chairman and Chief
Executive Officer of the Company shall recommend to the HRC that the
Company grant to the Executive not later than November 1, 1998, 39,000
Type I stock options and 39,000 Type II stock options with deferred
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<PAGE> 3
cash incentive awards to purchase shares of the Company's common stock.
These Type II options shall vest and become exercisable 60 days prior
to the tenth anniversary of the date of grant, unless earlier
accelerated by the HRC. Such Awards shall be granted under and subject
to the terms of the Long-Term Plan.
(d) Additional Benefits. Except as modified by this Agreement,
the Executive shall be entitled to participate in all compensation or
employee benefit plans or programs, and to receive all benefits,
perquisites and emoluments, for which the Chairman and any member of
senior management at the Company is eligible under any plan or program
now or hereafter established and maintained by the Company or the Bank
for the Chairman or any senior officers, to the extent permissible
under the general terms and provisions of such plans or programs and in
accordance with the provisions thereof, including group
hospitalization, health, dental care, senior executive life or other
life insurance, travel or accident insurance, disability plans,
tax-qualified or non-qualified pension, savings, thrift and
profit-sharing plans, deferred compensation plans, sick-leave plans,
auto allowance or auto lease plans, and executive contingent
compensation plans, including, without limitation, capital accumulation
programs and stock purchase plans.
(e) Perquisites. The Company will also furnish the Executive,
without cost to him, with such perquisites as are commensurate with the
Executive's position and status, including (i) membership in such
country and business clubs as are reasonably necessary to the conduct
of the Companies' business, subject to the approval of the HRC, (ii) an
annual physical examination of the Executive by a physician selected by
the Executive, (iii) participation in the Company's matching gifts
program, (iv) use of a car and driver, and (v) personal financial,
investment and tax advice, with any firm selected by the Executive, not
to exceed a reasonable sum per annum, to the extent costs or expenses
of the Executive to be reimbursed are properly documented. To the
extent the furnishing of the perquisites listed in this section results
in taxable income being imputed to the Executive, the Company will
reimburse the Executive for all tax costs incurred to restore him to
the same after-tax position in which he would have been had income not
been imputed.
5. Business Expenses. The Companies shall pay or reimburse the
Executive for all reasonable travel and other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, subject to the Executive's presentation of appropriate
vouchers in accordance with such procedures as the Companies from time to time
establish for senior officers.
6. Effect of Termination of Employment.
(a) Without Cause Termination or Constructive Discharge. Subject to the
provisions of Section 7 below, in the event the Executive's employment hereunder
terminates due to either a Without Cause Termination or a Constructive
Discharge:
(i) Earned but unpaid Base Salary as of the Date of
Termination and any earned but unpaid bonuses for prior years
(collectively, the "Accrued Obligations"), shall be payable in full,
and the Company shall, as liquidated damages or severance pay, or both:
(A) continue to pay the Executive's Base Salary, as
in effect at the Date of Termination (as defined in Section
14(b)), from the Date of Termination until the end of the
Term. Moreover, if said termination occurs within 12 months
from the end of the
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<PAGE> 4
Term of this Agreement, the Company shall continue to pay the
Executive's Base Salary for a period of no less than the
shorter period of (1) 12 months from the Date of Termination,
or (2) the Date of Termination until the time when the
Executive commences full-time employment with another
employer, and
(B) pay to the Executive for the year of termination
and for each subsequent calendar year or portion thereof
during the remainder of the Term, an amount equal to the Cash
Bonus Amount of the highest bonus received by the Executive
under the Bonus Plan for any year in the three years preceding
the Date of Termination, such payments to be made at the
normal times for payment of bonuses under the Bonus Plan.
With respect to the payments provided for in this Section 6(a)(i), the
Executive shall be entitled to participate in any compensation deferral
plans or arrangements then provided by the Company to senior executives
on the same basis as if he had remained an employee through the end of
the Term.
(ii) The Company shall continue to provide the Executive
through the remainder of the Term with (A) service credit under all
qualified and nonqualified retirement plans and excess benefit plans
and the Supplemental Retirement Benefit provided under this Agreement
in which the Executive participated as of his Date of Termination and
(B) employer contributions to the Retirement Savings Plan at the
maximum rate which would have been available to the Executive had his
employment continued.
(iii) The Company shall continue to provide Executive (and
Executive's dependents, if applicable) for the period of salary
continuation set forth in Section 6(a)(i)(A) above with medical,
dental, accident, disability and life insurance benefits upon
substantially the same terms and conditions (including contributions
required by the Executive for such benefits) as those of the applicable
employee benefit plans in effect from time to time as applied to
employees; provided, however, that if the Executive cannot continue to
participate under the terms of the Company plans providing such
benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event the Executive becomes
re-employed 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 the
Executive's eligibility, but only to the extent that the Company
reimburses the Executive for any increased cost and provides any
additional benefits necessary to give the Executive the benefits
provided hereunder.
(iv) All stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment) shall become immediately and fully
vested. The Executive shall have up to three (3) years to exercise all
such outstanding stock options following termination of employment, but
in no event beyond their specified term. All Type II stock options and
related deferred cash incentive awards granted after the date of this
Agreement pursuant to this Agreement or under the Long-Term Plan shall
not terminate or be forfeited, as the case may be, but shall remain
outstanding and exercisable or payable, as the case may be, as if
Executive remained employed by the Company. The Chairman and Chief
Executive Officer of the Company shall recommend to the HRC, with
respect to any period for which Performance Goals (as defined in the
Long-Term Plan) relating to such Type II stock options and deferred
cash incentive awards are achieved, that the right to exercise the
maximum possible number of Type II
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<PAGE> 5
stock options be accelerated and that the maximum possible deferred
cash incentive award be earned and payable to the Executive upon such
exercise.
(v) The perquisites set forth in Paragraphs 4(e)(i), (iv) and
(v) shall continue through the first anniversary of the Executive's
termination of employment. In addition, the Company shall furnish the
Executive with office space and secretarial support during the
remainder of the Term or, if shorter, until the time the Executive
commences full-time employment with another employer.
(b) Permanent Disability. In the event the Executive's employment
hereunder terminates due to Permanent Disability, the Company shall provide the
Executive for the remainder of the Term with the same payments and benefits as
those provided in Section 6(a), except that:
(i) in lieu of the bonus payments provided in Section
6(a)(i)(B), the Executive shall receive, at the same time as bonus
payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus
Amount of the target bonus award (or, if higher, of the bonus award the
Executive would have received had he been employed throughout the bonus
year), prorated on a daily basis as of the Date of Termination;
(ii) except for Accrued Obligations, Base Salary payments
shall be offset by any amounts otherwise payable to the Executive under
the Company's disability program generally available to other
employees; and
(iii) all stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment but including Type II stock options and
related deferred cash incentive awards) shall become immediately and
fully vested. The Executive shall have up to three (3) years to
exercise all such outstanding stock options following termination of
employment, but in no event beyond their specified term.
(c) Death. In the event the Executive's employment hereunder terminates
due to death, Accrued Obligations as of the date of death shall be payable in
full, and the Company shall pay to the Executive's estate, at the same time as
bonus payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus Amount
of the target bonus award (or, if higher, of the bonus award the Executive would
have received had he been employed throughout the bonus year), prorated on a
daily basis as of the date of death.
All stock options and restricted stock awards granted after the
effective date of this Agreement pursuant to this Agreement or under the
Long-Term Plan (other than those under which vesting is performance-based or is
dependent upon the satisfaction of conditions other than continued employment
but including Type II stock options and related deferred cash incentive awards)
shall become immediately and fully vested. The Executive's personal
representative, beneficiary or person who may exercise stock options under the
rules of descent and distribution or under the Executive's will shall have up to
three (3) years to exercise all such outstanding stock options following
termination of employment, but in no event beyond their specified term.
(d) Other Termination of Employment. In the event the Executive's
employment hereunder terminates due to a Termination for Cause or the Executive
terminates employment with the Company
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<PAGE> 6
for reasons other than due to a Without Cause Termination, a Constructive
Discharge, Permanent Disability, retirement on or after age 55 with the written
consent of the Company or death, vested benefits and Accrued Obligations as of
the Date of Termination shall be payable in full, and vested Awards may be
exercised according to the terms of the Long-Term Plan. No other payments shall
be made, or benefits provided, by the Company except for benefits which have
already become vested under the terms of employee benefit programs maintained by
the Company or its affiliates for its employees generally as provided in Section
10.
(e) Definitions. For purposes of this Agreement, the following terms
have the following meanings:
(i) "Termination for Cause" means, to the maximum extent
permitted by applicable law, a termination of the Executive's
employment by the Company by a vote of the majority of the Board
members then in office, because the Executive has (a) been convicted of
a criminal offense covered by Section 19 of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1829, or any successor provision, or
(b) has entered a plea of nolo contendere thereto, or (c) has breached
or failed to perform his duties hereunder, and such breach or failure
to perform constitutes self-dealing, willful misconduct or recklessness
(within the meaning of Section 1713(a) of the Pennsylvania Business
Corporation Law, as amended, or any successor provision), or (d) a
final determination has been reached that the Executive has violated
the representations made in Section 1 above, or the provisions of
Section 7 below; provided, however, that the Board has given the
Executive advance notice of such Termination for Cause including the
reasons therefor, together with a reasonable opportunity for the
Executive to appear with counsel before the Board and to reply to such
notice.
(ii) "Constructive Discharge" means a termination of the
Executive's employment by the Executive due to a failure of the
Companies or their successors to fulfill their obligations under this
Agreement in any material respect, including (a) any failure to elect
or reelect or to appoint or reappoint the Executive to the offices of
President and Chief Operating Officer of the Company and the Bank on
and after the dates set forth in Section 2 above or as a member of each
of their boards of directors or (b) any other material change by the
Companies in the functions, duties or responsibilities of the
Executive's position with the Companies which would reduce the ranking
or level, dignity, responsibility, importance or scope of such
position, (c) any imposition on the Executive of a requirement to be
permanently based at a location more than fifty miles from the Borough
of Manhattan without the consent of the Executive, (d) any reduction
without the consent of the Executive in the Executive's salary below
the amount then provided for under Paragraph 4(a) hereof or (e) if
Martin G. McGuinn shall no longer be Chairman and Chief Executive
Officer of the Company and the Bank during the Term for any reason
other than due to his death, Permanent Disability or retirement.
(iii) "Without Cause Termination" means a termination of the
Executive's employment by the Company other than due to Permanent
Disability or expiration of the Term and other than a Termination for
Cause.
(iv) "Permanent Disability" means the total and permanent
disability of the Executive covered by a disability plan of the
Companies then in effect.
(v) The "Cash Bonus Amount" of a Bonus Plan award for any
period means the sum of (1) the amount of such award paid or payable in
cash (whether or not deferred) plus (2) with respect to any portion of
the award paid or payable in restricted stock, phantom stock or other
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interests in Company securities, the amount of cash which would
otherwise have been paid, excluding any premium in value given to
compensate for risk of forfeiture or otherwise.
(f) Change in Control. Notwithstanding anything else contained herein,
if any termination of the Executive's employment hereunder constitutes a
"Qualifying Termination" during the "Termination Period," each as defined in the
Agreement between the Executive and the Company dated as of February 1, 1997
(the "Prior Agreement"), then the provisions of the Prior Agreement shall apply
to such termination in lieu of the provisions of this Section 6. Section 5 of
the Prior Agreement shall apply to any Payment (as therein defined) under this
Agreement to the extent provided therein.
7. Other Duties of Executive During and After Term.
(a) Confidential Information. The Executive recognizes and acknowledges
that certain information pertaining to the affairs, business, clients, or
customers of the Companies or any of their subsidiaries or affiliates (any or
all of such entities hereinafter referred to as the "Business"), as such
information may exist from time to time, is confidential information and is a
unique and valuable asset of the Business, access to and knowledge of which are
essential to the performance of his duties under this Agreement. The Executive
shall not, through the end of the Term or at any time thereafter, except to the
extent reasonably necessary in the performance of his duties under this
Agreement, divulge to any person, firm, association, corporation or governmental
agency, any information concerning the affairs, business, clients, or customers
of the Business (except such information as is required by law to be divulged to
a government agency or pursuant to lawful process or such information which is
or shall become part of the public realm through no fault of the Executive), or
make use of any such information for his own purposes or for the benefit of any
person, firm, association or corporation (except the Business) and shall use his
reasonable best efforts to prevent the disclosure of any such information by
others. All records and documents relating to the Business, whether made by the
Executive or otherwise coming into his possession are, shall be, and shall
remain the property of the Business. No copies thereof shall be made which are
not retained by the Business, and the Executive agrees, on any termination of
his employment, or on demand of the Company, to deliver the same to the Company.
(b) Non-Competition. Through the end of the Term, whether during the
Executive's employment or following the termination of his employment for any
reason except for a Without Cause Termination or Constructive Discharge, the
Executive shall not without express prior written approval by order of the HRC,
directly or indirectly:
(i) solicit for the account of any Financial Services Company
(other than the Company or its affiliates) the sale of any products or
services of a type then provided by the Company or its affiliates (A)
during the Executive's employment, to any entity or individual or (B)
following termination of the Executive's employment (1) to any entity
or individual that was a customer or client of the Company or its
affiliates at any time during the 12-month period immediately preceding
the Executive's Date of Termination, (2) to any individual who is a
resident of a Restricted State or (3) to any entity where the customary
office of the individual solicited or of the individual responsible for
the entity's purchasing decision is located in a Restricted State.
(ii) solicit any employee of the Company or its affiliates to
terminate such employment relationship.
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<PAGE> 8
For purposes of this Section 7(b), the following definitions shall
apply:
(1) "Financial Services Company" shall mean any corporation,
partnership, sole proprietorship or other entity engaged in the
provision to unaffiliated customers of financial services, including,
without limitation, retail or commercial banking, lending, lease
financing, trade financing or other extension of credit, rate risk
management products, loan servicing, credit card processing, investment
banking, brokerage services, investment management or advisory
services, sponsorship, administration or management of mutual funds or
other collective investment vehicles, cash management, foreign
exchange, fiduciary or custodial services, employee benefit plan
administration, benefits consulting services, stock transfer services
or underwriting or sale of insurance.
(2) "Restricted State" shall mean any State of the United
States all or part of which is located east of the Mississippi River
and the District of Columbia.
In addition to the foregoing, it is understood that during his
employment the Executive is subject to all policies and procedures of the
Companies regarding investment in securities of competitors.
(c) Remedies. The Company's obligation to make payments or provide for
or increase any benefits under this Agreement (except to the extent previously
vested) shall cease upon any violation of the provisions of this Section 7;
provided, however, that the Executive shall first have the right to appear
before the Board with counsel and that such cessation of payments or benefits
shall require a vote of a majority of the Board members then in office. In
addition, in the event of a violation by the Executive of the provisions of this
Section 7, the Company shall be entitled, if it shall so elect, to institute
legal proceedings to obtain damages for any such breach, or to enforce the
specific performance by the Executive of this Section 7 and to enjoin the
Executive from any further violation, and may exercise such remedies
cumulatively or in conjunction with such other remedies as may be available to
the Company at law or in equity. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of this Section 7 would
be inadequate and agrees that the Company shall be entitled to injunctive relief
against him in the event of any such breach.
(d) Survival; Authorization to Modify Restrictions. The covenants of
the Executive contained in this Section 7 shall survive any termination of the
Executive's employment for the periods stated herein, except that the covenants
contained in Section 7(b) shall not survive any termination of employment (i)
for which a Notice of Termination is given during the Termination Period
following a Change in Control, each as defined in the Prior Agreement or (ii)
which is a termination of employment described in the second sentence of Section
1(j) of the Prior Agreement. The Executive represents that his experience and
capabilities are such that the enforcement of the provisions of this Section 7
will not prevent him from earning his livelihood, and acknowledges that it would
cause the Company serious and irreparable injury and cost if Executive were to
use his ability and knowledge in competition with the Company or to otherwise
breach the obligations contained in this Section 7. Accordingly, it is the
intention of the parties that the provisions of this Section 7 shall be
enforceable to the fullest extent permissible under applicable law, but that the
unenforceability (or modification to conform to such law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
thereof. If any provision or provisions hereof shall be deemed invalid or
unenforceable, either in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision or provisions
and to alter the bounds thereof to the extent required in order to render it
valid and enforceable.
8. Supplemental Retirement Benefit. The Executive will be entitled to
receive a monthly Supplemental Retirement Benefit (the "Supplemental Retirement
Benefit") commencing on the first day
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<PAGE> 9
of the month coincident with or following the later of the Executive's
termination of employment or attainment of age 60 and continuing for the
remainder of his life. Unless otherwise elected by the Executive, the
Supplemental Retirement Benefit shall be payable in the form of a 50% joint and
survivor annuity which shall be unreduced for the actuarial value of the
survivor's benefit. If the Executive's spouse at the time of his death is not
more than four years younger than the Executive, the survivor benefit shall be
equal to 50% of the Executive's benefit and shall be payable to his spouse for
the remainder of the spouse's life. If the Executive's spouse at the time of his
death is more than four years younger than the Executive, the benefit payable to
the spouse shall be reduced to a benefit having the same actuarial value as the
benefit that would have been payable had the spouse been four years younger than
the Executive. The Executive shall also have the right to elect a 100% joint and
survivor annuity, on an actuarially-reduced basis or a lump-sum payment, on an
actuarially-reduced basis (if the Executive makes a timely lump-sum election
which avoids constructive receipt), or any other form of payment available or
provided under the "Supplemental Plans" defined in this Section 8. Actuarial
reductions shall be based on the actual ages of the Executive and his spouse at
the time of retirement. If the Executive is not married at the time of his
retirement, actuarial adjustments shall be made as if the Executive had a spouse
with the same date of birth as the Executive. In the event that the Executive
elects a form of payment other than the automatic 50% joint and survivor annuity
or other than a lump sum payment, and remarries subsequent to retirement, the
benefits payable under this Section shall be actuarially adjusted at the time of
the Executive's death to reflect the age of the subsequent spouse. If the
Executive elects a lump sum payment at retirement, no further benefits will be
payable under this Section.
The amount of the monthly retirement benefit as an unreduced 50% joint
and survivor annuity shall be equal to the product of (A) the "Service
Percentage" multiplied by (B) the Executive's "Final Average Compensation", with
such product reduced by (C) the total monthly amount of benefits (measured for
purposes of this offset as if the Executive elected a 50% joint and survivor
annuity payable as of the date benefits commence under this Agreement.) provided
to or in respect of the Executive under all tax-qualified retirement plans and
related excess benefit and other benefit restoration plans maintained by the
Company or the Bank for the Executive, including the Mellon Bank Benefit
Restoration Plan and the Mellon Bank IRC Section 401(a)(17) Plan (the
"Supplemental Plans") and benefits paid pursuant to Section 4.7 of the Mellon
Bank Corporation Elective Deferred Compensation Plan for Senior Officers, but
not including payments of any compensation previously deferred under any
deferred compensation plan of the Company or the Bank, or interest thereon, or
payments from the Mellon Bank Corporation Retirement Savings Plan, a 401(k)
plan.
The Executive owns interests in life insurance policies (the
"Policies") as a participant in the Mellon Bank Senior Executive Life Insurance
Plan. The Supplemental Retirement Benefit payable to the Executive hereunder
shall be further reduced by the Executive's interest in the cash value of the
Policies. This reduction shall be calculated in the same manner as under the
Supplemental Plans. In the event the United States federal income tax laws
change or are interpreted so as to cause Executive's ownership interests in
Policies to be subject to taxation, the Executive and the Company will negotiate
in good faith to mitigate the effects of such change.
The Executive shall be vested in the Supplemental Retirement Benefit
provided under this Paragraph as of the effective date of this Agreement.
The Executive shall elect the form of payment of his Supplemental
Retirement Benefit at the same time and subject to the same provisions
(including timing requirements and all reductions and/or penalties for late
elections) as provided under the Supplemental Plans. After retirement, the
Executive (or beneficiary who is receiving payments) may elect to receive his
remaining Supplemental Retirement
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<PAGE> 10
Benefits which are payable hereunder in a lump sum payment, calculated in the
same manner and subject to the same reductions as under the Supplemental Plans.
In the event that the Executive elects a form of payment of his Supplemental
Retirement Benefits which provides for payments to continue after his death and
the Executive dies without having received all payments of Supplemental
Retirement Benefits that may be payable hereunder, then the unpaid balance of
such benefits shall be paid in accordance with the form of payment elected by
the Executive. Any such remaining payments shall be made to the Executive's
beneficiary provided under the Supplemental Plans, subject to any contrary
written instructions from the Executive designating a different beneficiary for
such payments.
The Executive may also elect, upon not less than 12 months' advance
written notice, to have the payment of the Supplemental Retirement Benefit
commence on the first day of any month coincident with or after the later of his
termination of employment or attainment of age 55. In this event, the
Supplemental Retirement Benefit will be subject to an early payment reduction
amount equal to 0.5% per month (6% per annum) for each month that payments
commence before attainment of age 60. In the event of such retirement, the Term
and the Company's obligations to make payments under Section 4 above shall cease
as of the retirement date.
Notwithstanding the foregoing, in no event shall the Executive receive
any payments under this Section 8 or be deemed to be retired from the Company
while the Executive is entitled to payments under Paragraph 6(a) or Paragraph
6(b) or during any period for which the Executive receives additional service
credit in respect a "Qualifying Termination" as provided in clause (B) of the
definition of "Service Percentage" below.
As used in this Section 8:
(i) "Service Percentage" means 2% for each full or partial
year of the Executive's employment with the Company (plus service with
a prior employer if treated as credited service with the Company) as of
the date his active employment with the Company terminates, plus 2% for
(A) each full year, if any, that the Executive receives payments under
Paragraph 6(a) or 6(b) hereof (with such percentage pro-rated for the
partial contract year in which such final termination of the
Executive's employment occurs or in which such final payments under
Paragraph 6(a) or 6(b) hereof are made, whichever shall be applicable)
or (B) for each of the three years, or if less, the period of time
remaining until the Executive reaches age 65, following any "Qualifying
Termination" of the Executive's Employment during the "Termination
Period," each as defined in the Prior Agreement (with such percentage
to be pro-rated for any partial year following any such "Qualifying
Termination" and prior to attainment of age 65).
(ii) "Final Average Compensation" means one-twelfth (1/12th)
of the sum of the Executive's Base Salary paid and the Cash Bonus
Amount of any bonus award earned for the calendar year within the final
three (3) full calendar years of the Executive's employment by the
Company which produces the highest amount. For purposes of determining
Final Average Compensation (A) Bonus Plan awards shall be attributed to
the calendar year in which earned, whether paid in that calendar year
or the year following or deferred and (B) any portion of the
Executive's Base Salary and bonus award which is deferred by the
Executive under agreements with the Company or under any Company
employee benefit plan shall be included for purposes of determining
Final Average Compensation.
Notwithstanding the foregoing, in the event of a "Qualifying
Termination" of the Executive's employment during the "Termination Period," each
as defined in the Prior Agreement, "Final Average Compensation" for purposes of
computing the Supplemental Retirement Benefit shall mean one-twelfth
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<PAGE> 11
(1/12th) of the sum of (i) the Executive's highest annual rate of base salary
during the 12-month period immediately prior to the Executive's Date of
Termination and (ii) the Executive's Bonus Amount, as defined in the Prior
Agreement. In addition, the Supplemental Retirement Benefit shall be payable
without any reduction for early payment in the event the Executive is less than
age 60 at the time that payment is made. In the event of such a "Qualifying
Termination," the present value of the Supplemental Retirement Benefit shall be
payable to the Executive in a lump sum at the same time payments are due to the
Executive under Section 4(a) of the Prior Agreement (i.e., within 20 days
following the Executive's Date of Termination). The present value shall be
calculated in the same manner and using the actuarial factors set forth in the
Supplemental Plans as of the effective date of this Agreement.
In the event the Executive's termination of employment is due to death
prior to the commencement of the payment of Supplemental Retirement Benefits
under this Section 8, and he shall be survived by a spouse, entitlement to
Supplemental Retirement Benefits will become fully vested and such spouse shall
be entitled to receive a pre-retirement death benefit, payable in the form of a
lifetime annuity, equal to the benefit that would have been payable had he
retired immediately prior to death and elected a 50% joint and survivor annuity,
but without any early payment reductions applicable for payments prior to age
60. If the Executive's spouse at the time of his death is more than four years
younger than the Executive, the benefit payable to the survivor shall be reduced
to a benefit having the same actuarial value as the benefit that would have been
payable had the spouse been four years younger than the Executive.
The Executive's entitlement to Supplemental Retirement Benefits under
this Section 8 shall survive the expiration of the Term and any other
termination of this Agreement.
9. Resolution of Disputes. Except as otherwise provided in Section 7(c)
hereof, 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. In the event of any
arbitration, litigation or other proceeding between the Company and the
Executive with respect to the subject matter of this Agreement and the
enforcement of rights hereunder, the Company shall reimburse the Executive for
his reasonable costs and expenses relating to such arbitration, litigation or
other proceeding, including attorneys' fees and expenses, provided that such
arbitration, litigation or other proceeding results in any: (i) settlement
requiring the Company to make a payment, continue to make payments or provide
any other benefit to the Executive; or (ii) judgment, order or award against the
Company in favor of the Executive or his spouse, legal representative or heirs,
unless such judgment, order or award is subsequently reversed on appeal or in a
collateral proceeding. At the request of the Executive, costs and expenses
(including attorneys' fees) incurred in connection with any arbitration,
litigation or other proceeding referred to in this Section shall be paid by the
Company in advance of the final disposition of the arbitration, litigation or
other proceeding upon receipt of an undertaking by or on behalf of the Executive
to repay the amounts advanced if it is ultimately determined that he is not
entitled to reimbursement of such costs and expenses by the Company as set forth
in this Section.
10. Full Settlement; No Mitigation; Non-Exclusivity of Benefits. Except
as provided in Section 6(f), the Company's obligation to make any payment
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 the Executive under any other severance plan, arrangement or
agreement of the Company and its affiliates and in full settlement of any and
all claims or rights of the Executive for severance, separation and/or salary
continuation payments resulting from the termination of his employment. In no
event shall the Executive be obligated to seek other employment or to take other
action by way of mitigation of the
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<PAGE> 12
amounts payable to the Executive under any of the provisions of this Agreement,
and except as specifically provided herein, such amounts shall not be reduced
whether or not the Executive obtains other employment. Except as provided above
in this Section 10, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliates for which the
Executive may qualify, nor, except as otherwise specifically provided in this
Agreement, shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliates, including without limitation any stock option or restricted
stock agreement. Amounts or benefits which are vested benefits or which the
Executive is otherwise entitled to receive under any such plan, program, policy,
practice, contract or agreement prior to, at or subsequent to any Date of
Termination shall be paid or provided in accordance with the terms of such plan,
program, policy, practice, contract or agreement except as explicitly modified
by this Agreement.
11. Employment and Payments by Subsidiaries. Except as herein otherwise
specifically provided, references in this Agreement to employment by the Company
shall include employment by subsidiaries of the Company, and the obligation of
the Company to make any payment or provide any benefit to the Executive
hereunder shall be deemed satisfied to the extent that such payment is made or
such benefit is provided by any subsidiary of the Company.
12. Withholding Taxes. The Company may directly or indirectly withhold
from any payments made under this Agreement all Federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
13. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term, "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
14. Notices.
(a) General. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given when delivered or 5 days after being deposited in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
(i) To the Company:
Manager-Human Resources Department
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
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(ii) To the Executive:
Christopher M. Condron
15 East 82nd Street
New York, NY 10028
or to such other address as the addressee party shall have previously specified
in writing to the other.
(b) Notice of Termination. Except in the case of death of the
Executive, any termination of the Executive's employment hereunder, whether by
the Executive or the Company, shall be effected only by a written notice given
to the other party in accordance with this Section 14 (a "Notice of
Termination"). Any Notice of Termination shall (i) indicate the specific
termination provision in Section 6 relied upon, (ii) in the case of a
termination for Cause, a Constructive Discharge or a termination due to
Permanent Disability, set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination and (iii) specify the effective
date of such termination of employment (the "Date of Termination"), which shall
not be less than 15 days (30 days in the case of a termination by the Company
due to Permanent Disability) nor more than 60 days after such notice is given.
The failure of the Executive or the Company to set forth in any Notice of
Termination any fact or circumstance which contributes to a showing of Cause,
Constructive Discharge or Permanent Disability shall not waive any right of the
Executive or the Company hereunder or preclude the Executive or the Company from
asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
15. No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
15 shall preclude the assumption of such rights by executors, administrators, or
other legal representatives of the Executive or his estate or their assigning
any rights hereunder to the person or persons entitled thereto.
16. Source of Payments. Subject to Section 11 hereof, all payments
provided for under this Agreement shall be paid in cash from the general funds
of the Company. The Company shall not be required to establish a special or
separate fund or other segregation of assets to assure such payments, and, if
the Company shall make any investments to aid it in meeting its obligations
hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship, between
the Company and the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor.
17. Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and, as permitted by this
Agreement, their respective successors, assigns, heirs, beneficiaries and
representatives.
18. Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed exclusively by the laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of laws
thereof.
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19. Counterparts; Headings. This Agreement may be executed in
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument. The
underlined Section headings contained in this Agreement are for convenience of
reference only and shall not affect the interpretation or construction of any
provision hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed this Agreement, all as of the first
date above written.
ATTEST: MELLON BANK CORPORATION
/s/ CARL KRASIK By: /s/ FRANK V. CAHOUET
- ------------------------------ -------------------------------------
Carl Krasik Frank V. Cahouet
Secretary Chairman and Chief Executive Officer
/s/ CHRISTOPHER M. CONDRON
-------------------------------------
Christopher M. Condron
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Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of February 1, 1998 by and between
MELLON BANK CORPORATION, a Pennsylvania corporation (the "Company"), and STEVEN
G. ELLIOTT (the "Executive"),
WITNESSETH THAT:
WHEREAS, the Executive is currently serving as a Vice Chairman of the
Company and Mellon Bank, N.A. (the "Bank" and, together with the Company, the
"Companies"), and the Company desires to retain the Executive to serve as Senior
Vice Chairman of the Bank effective as of March 1, 1998 and as Senior Vice
Chairman of the Company effective as of January 1, 1999, and the Executive is
willing to serve in such capacities, on the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto, each intending to be legally bound hereby, agree
as follows:
1. Employment. The Company agrees to continue to employ the Executive,
and the Executive agrees to continue to be employed by the Companies, for the
Term provided in Paragraph 3(a) below and upon the other terms and conditions
hereinafter provided. The Executive hereby represents and warrants that he has
the legal capacity to execute and perform this Agreement, that it is a valid and
binding agreement, enforceable against him according to its terms, and that its
execution and performance by him do not violate the terms of any existing
agreement or understanding to which the Executive is a party. In addition, the
Executive represents and warrants that he knows of no reason why he is not
physically capable of performing his obligations under this Agreement in
accordance with its terms.
2. Position and Responsibilities. During the Term, the Executive agrees
to serve (a) as Vice Chairman of the Bank through February 28, 1998 and as Vice
Chairman of the Company through December 31, 1998, (b) as Senior Vice Chairman
of the Bank effective as of March 1, 1998, and (c) as Senior Vice Chairman of
the Company effective as of January 1, 1999. In his capacity as Senior Vice
Chairman, he shall report directly to the Chairman and Chief Executive Officer
of the Company (the "Chairman") and the Bank. The Executive (a) shall be given
such authority as is appropriate to carry out the duties of his position and (b)
agrees to serve, if elected, as an officer and director of any other subsidiary
or affiliate of the Companies.
3. Term and Duties.
(a) Term of Agreement. The term of the Executive's employment under
this Agreement shall be deemed to have commenced on February 1, 1998 and shall
continue thereafter through January 31, 2001 (the "Term").
(b) Duties. During the Term, and except for illness or incapacity and
reasonable vacation periods of no more than 4 weeks in any calendar year (or
such other periods as shall be consistent with the Company's policies for other
key executives), the Executive shall devote all of his business time, attention,
skill and efforts exclusively to the business and affairs of the Companies and
their subsidiaries and affiliates, shall not be engaged in any other business
activity, and shall perform and discharge well and faithfully the duties which
may be assigned to him from time to time by the Chairman; provided, however,
that nothing in this Agreement shall preclude the Executive from devoting time
during reasonable periods required for:
<PAGE> 2
(i) serving, in accordance with the Company's policies and
with the prior approval of the Chairman, which prior approval will not
be unreasonably withheld, as a director of any company or organization
involving no actual or potential conflict of interest with the
Companies or any of their subsidiaries or affiliates;
(ii) delivering lectures and fulfilling speaking engagements;
(iii) engaging in charitable and community activities; and
(iv) investing his personal assets in businesses in which his
participation is solely that of an investor in such form or manner as
will not violate Section 7 below or require any services on the part of
the Executive in the operation or the affairs of such business,
provided, however, that such activities do not materially affect or interfere
with the performance of the Executive's duties and obligations to the Companies.
4. Compensation. For all services rendered by the Executive in any
capacity required hereunder during the Term, including, without limitation,
services as an executive, officer, director, or member of any committee of the
Company, the Bank or any subsidiary, affiliate or division thereof, the
Executive shall be compensated as set forth below. It is the intention of the
Company and the Executive that the Executive's total compensation be competitive
with that paid by similar financial institutions. To assure this, the Company
will conduct an annual survey of compensation practices of a group of peer
financial institutions designated by the Human Resources Committee of the Board
("HRC").
(a) Base Salary. The Executive shall be paid a fixed salary
("Base Salary") of $450,000 per annum as of the effective date of this
Agreement. The Base Salary amount is subject to periodic review by the
Board or the HRC (which shall occur at least annually, with the first
such review to take place in May 1999). Base Salary shall be payable in
accordance with the customary payroll practices of the Companies, but
in no event less frequently than monthly.
(b) Bonus. The Executive shall be paid such amounts, if any,
as may be due under the terms of the Mellon Bank Corporation Profit
Bonus Plan (or any successor plan) (the "Bonus Plan"), with such
payments of bonus to be made in accordance with the terms of the Bonus
Plan. It is understood that the Executive may receive some portion of
his Bonus Plan award in the form of restricted stock, and such awards
are to be made on the same terms as apply to the Chairman and to other
members of the Office of the Chairman.
(c) Equity-Based Compensation. The Company shall grant to the
Executive during calendar year 1998 and in subsequent years as the HRC
shall decide, awards (the "Awards") permitted to be granted under the
Company's Long-Term Profit Incentive Plan (1996) or any successor plan
(the "Long-Term Plan"), which Awards may include Type I and Type II
stock options, SARs, performance units, restricted stock and deferred
cash incentive awards.
Notwithstanding the foregoing, the Chairman and Chief
Executive Officer of the Company shall recommend to the HRC that the
Company grant to the Executive not later than November 1, 1998, 31,500
Type I stock options and 31,500 Type II stock options with deferred
cash incentive awards to purchase shares of the Company's common stock.
These Type II options shall vest and become exercisable 60 days prior
to the tenth anniversary of the date of grant, unless earlier
accelerated by the HRC. Such Awards shall be granted under and subject
to the terms of the Long-Term Plan.
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(d) Additional Benefits. Except as modified by this Agreement,
the Executive shall be entitled to participate in all compensation or
employee benefit plans or programs, and to receive all benefits,
perquisites and emoluments, for which the Chairman and any member of
senior management at the Company is eligible under any plan or program
now or hereafter established and maintained by the Company or the Bank
for the Chairman or any senior officers, to the extent permissible
under the general terms and provisions of such plans or programs and in
accordance with the provisions thereof, including group
hospitalization, health, dental care, senior executive life or other
life insurance, travel or accident insurance, disability plans,
tax-qualified or non-qualified pension, savings, thrift and
profit-sharing plans, deferred compensation plans, sick-leave plans,
auto allowance or auto lease plans, and executive contingent
compensation plans, including, without limitation, capital accumulation
programs and stock purchase plans.
(e) Perquisites. The Company will also furnish the Executive,
without cost to him, with such perquisites as are commensurate with the
Executive's position and status, including (i) membership in such
country and business clubs as are reasonably necessary to the conduct
of the Companies' business, subject to the approval of the HRC, (ii) an
annual physical examination of the Executive by a physician selected by
the Executive, (iii) participation in the Company's matching gifts
program, and (iv) personal financial, investment and tax advice, with
any firm selected by the Executive, not to exceed a reasonable sum per
annum, to the extent costs or expenses of the Executive to be
reimbursed are properly documented. To the extent the furnishing of the
perquisites listed in this section results in taxable income being
imputed to the Executive, the Company will reimburse the Executive for
all tax costs incurred to restore him to the same after-tax position in
which he would have been had income not been imputed.
5. Business Expenses. The Companies shall pay or reimburse the
Executive for all reasonable travel and other expenses incurred by the Executive
(and his spouse where there is a legitimate business reason for his spouse to
accompany him) in connection with the performance of his duties and obligations
under this Agreement, subject to the Executive's presentation of appropriate
vouchers in accordance with such procedures as the Companies from time to time
establish for senior officers.
6. Effect of Termination of Employment.
(a) Without Cause Termination or Constructive Discharge. Subject to the
provisions of Section 7 below, in the event the Executive's employment hereunder
terminates due to either a Without Cause Termination or a Constructive
Discharge:
(i) Earned but unpaid Base Salary as of the Date of
Termination and any earned but unpaid bonuses for prior years
(collectively, the "Accrued Obligations"), shall be payable in full,
and the Company shall, as liquidated damages or severance pay, or both:
(A) continue to pay the Executive's Base Salary, as
in effect at the Date of Termination (as defined in Section
14(b)), from the Date of Termination until the end of the
Term. Moreover, if said termination occurs within 12 months
from the end of the Term of this Agreement, the Company shall
continue to pay the Executive's Base Salary for a period of no
less than the shorter period of (1) 12 months from the Date of
Termination, or (2) the Date of Termination until the time
when the Executive commences full-time employment with another
employer, and
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(B) pay to the Executive for the year of termination
and for each subsequent calendar year or portion thereof
during the remainder of the Term, an amount equal to the Cash
Bonus Amount of the highest bonus received by the Executive
under the Bonus Plan for any year in the three years preceding
the Date of Termination, such payments to be made at the
normal times for payment of bonuses under the Bonus Plan.
With respect to the payments provided for in this Section 6(a)(i), the
Executive shall be entitled to participate in any compensation deferral
plans or arrangements then provided by the Company to senior executives
on the same basis as if he had remained an employee through the end of
the Term.
(ii) The Company shall continue to provide the Executive
through the remainder of the Term with (A) service credit under all
qualified and nonqualified retirement plans and excess benefit plans
and the Supplemental Retirement Benefit provided under this Agreement
in which the Executive participated as of his Date of Termination and
(B) employer contributions to the Retirement Savings Plan at the
maximum rate which would have been available to the Executive had his
employment continued.
(iii) The Company shall continue to provide Executive (and
Executive's dependents, if applicable) for the period of salary
continuation set forth in Section 6(a)(i)(A) above with medical,
dental, accident, disability and life insurance benefits upon
substantially the same terms and conditions (including contributions
required by the Executive for such benefits) as those of the applicable
employee benefit plans in effect from time to time as applied to
employees; provided, however, that if the Executive cannot continue to
participate under the terms of the Company plans providing such
benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event the Executive becomes
re-employed 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 the
Executive's eligibility, but only to the extent that the Company
reimburses the Executive for any increased cost and provides any
additional benefits necessary to give the Executive the benefits
provided hereunder.
(iv) All stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment) shall become immediately and fully
vested. The Executive shall have up to three (3) years to exercise all
such outstanding stock options following termination of employment, but
in no event beyond their specified term. All Type II stock options and
related deferred cash incentive awards granted after the date of this
Agreement pursuant to this Agreement or under the Long-Term Plan shall
not terminate or be forfeited, as the case may be, but shall remain
outstanding and exercisable or payable, as the case may be, as if
Executive remained employed by the Company. The Chairman and Chief
Executive Officer of the Company shall recommend to the HRC, with
respect to any period for which Performance Goals (as defined in the
Long-Term Plan) relating to such Type II stock options and deferred
cash incentive awards are achieved, that the right to exercise the
maximum possible number of Type II stock options be accelerated and
that the maximum possible deferred cash incentive award be earned and
payable to the Executive upon such exercise.
(v) The perquisites set forth in Paragraphs 4(e)(i), (iv) and
(v) shall continue through the first anniversary of the Executive's
termination of employment. In addition, the Company shall
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furnish the Executive with office space and secretarial support during
the remainder of the Term or, if shorter, until the time the Executive
commences full-time employment with another employer.
(b) Permanent Disability. In the event the Executive's employment
hereunder terminates due to Permanent Disability, the Company shall provide the
Executive for the remainder of the Term with the same payments and benefits as
those provided in Section 6(a), except that:
(i) in lieu of the bonus payments provided in Section
6(a)(i)(B), the Executive shall receive, at the same time as bonus
payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus
Amount of the target bonus award (or, if higher, of the bonus award the
Executive would have received had he been employed throughout the bonus
year), prorated on a daily basis as of the Date of Termination;
(ii) except for Accrued Obligations, Base Salary payments
shall be offset by any amounts otherwise payable to the Executive under
the Company's disability program generally available to other
employees; and
(iii) all stock options and restricted stock awards granted
after the effective date of this Agreement pursuant to this Agreement
or under the Long-Term Plan (other than those under which vesting is
performance-based or is dependent upon the satisfaction of conditions
other than continued employment but including Type II stock options and
related deferred cash incentive awards) shall become immediately and
fully vested. The Executive shall have up to three (3) years to
exercise all such outstanding stock options following termination of
employment, but in no event beyond their specified term.
(c) Death. In the event the Executive's employment hereunder terminates
due to death, Accrued Obligations as of the date of death shall be payable in
full, and the Company shall pay to the Executive's estate, at the same time as
bonus payments for the year of termination are made under the Bonus Plan, a
prorated bonus for the year of termination only equal to the Cash Bonus Amount
of the target bonus award (or, if higher, of the bonus award the Executive would
have received had he been employed throughout the bonus year), prorated on a
daily basis as of the date of death.
All stock options and restricted stock awards granted after the
effective date of this Agreement pursuant to this Agreement or under the
Long-Term Plan (other than those under which vesting is performance-based or is
dependent upon the satisfaction of conditions other than continued employment
but including Type II stock options and related deferred cash incentive awards)
shall become immediately and fully vested. The Executive's personal
representative, beneficiary or person who may exercise stock options under the
rules of descent and distribution or under the Executive's will shall have up to
three (3) years to exercise all such outstanding stock options following
termination of employment, but in no event beyond their specified term.
(d) Other Termination of Employment. In the event the Executive's
employment hereunder terminates due to a Termination for Cause or the Executive
terminates employment with the Company for reasons other than due to a Without
Cause Termination, a Constructive Discharge, Permanent Disability, retirement on
or after age 55 with the written consent of the Company or death, vested
benefits and Accrued Obligations as of the Date of Termination shall be payable
in full, and vested Awards may be exercised according to the terms of the
Long-Term Plan. No other payments shall be made, or benefits provided, by the
Company except for benefits which have already become vested under
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the terms of employee benefit programs maintained by the Company or its
affiliates for its employees generally as provided in Section 10.
(e) Definitions. For purposes of this Agreement, the following terms
have the following meanings:
(i) "Termination for Cause" means, to the maximum extent
permitted by applicable law, a termination of the Executive's
employment by the Company by a vote of the majority of the Board
members then in office, because the Executive has (a) been convicted of
a criminal offense covered by Section 19 of the Federal Deposit
Insurance Act, 12 U.S.C. Section 1829, or any successor provision, or
(b) has entered a plea of nolo contendere thereto, or (c) has breached
or failed to perform his duties hereunder, and such breach or failure
to perform constitutes self-dealing, willful misconduct or recklessness
(within the meaning of Section 1713(a) of the Pennsylvania Business
Corporation Law, as amended, or any successor provision), or (d) a
final determination has been reached that the Executive has violated
the representations made in Section 1 above, or the provisions of
Section 7 below; provided, however, that the Board has given the
Executive advance notice of such Termination for Cause including the
reasons therefor, together with a reasonable opportunity for the
Executive to appear with counsel before the Board and to reply to such
notice.
(ii) "Constructive Discharge" means a termination of the
Executive's employment by the Executive due to a failure of the
Companies or their successors to fulfill their obligations under this
Agreement in any material respect, including (a) any failure to elect
or reelect or to appoint or reappoint the Executive to the offices of
Senior Vice Chairman of the Company and the Bank on and after the dates
set forth in Section 2 above or (b) any other material change by the
Companies in the functions, duties or responsibilities of the
Executive's position with the Companies which would reduce the ranking
or level, dignity, responsibility, importance or scope of such
position, (c) any imposition on the Executive of a requirement to be
permanently based at a location more than fifty miles from the
principal office of the Company as of the date of this Agreement
without the consent of the Executive, (d) any reduction without the
consent of the Executive in the Executive's salary below the amount
then provided for under Paragraph 4(a) hereof or (e) if Martin G.
McGuinn shall no longer be Chairman and Chief Executive Officer of the
Company and the Bank during the Term for any reason other than due to
his death, Permanent Disability or retirement.
(iii) "Without Cause Termination" means a termination of the
Executive's employment by the Company other than due to Permanent
Disability or expiration of the Term and other than a Termination for
Cause.
(iv) "Permanent Disability" means the total and permanent
disability of the Executive covered by a disability plan of the
Companies then in effect.
(v) The "Cash Bonus Amount" of a Bonus Plan award for any
period means the sum of (1) the amount of such award paid or payable in
cash (whether or not deferred) plus (2) with respect to any portion of
the award paid or payable in restricted stock, phantom stock or other
interests in Company securities, the amount of cash which would
otherwise have been paid, excluding any premium in value given to
compensate for risk of forfeiture or otherwise.
(f) Change in Control. Notwithstanding anything else contained herein,
if any termination of the Executive's employment hereunder constitutes a
"Qualifying Termination" during the "Termination
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Period," each as defined in the Agreement between the Executive and the Company
dated as of February 1, 1997 (the "Prior Agreement"), then the provisions of the
Prior Agreement shall apply to such termination in lieu of the provisions of
this Section 6. Section 5 of the Prior Agreement shall apply to any Payment (as
therein defined) under this Agreement to the extent provided therein.
7. Other Duties of Executive During and After Term.
(a) Confidential Information. The Executive recognizes and acknowledges
that certain information pertaining to the affairs, business, clients, or
customers of the Companies or any of their subsidiaries or affiliates (any or
all of such entities hereinafter referred to as the "Business"), as such
information may exist from time to time, is confidential information and is a
unique and valuable asset of the Business, access to and knowledge of which are
essential to the performance of his duties under this Agreement. The Executive
shall not, through the end of the Term or at any time thereafter, except to the
extent reasonably necessary in the performance of his duties under this
Agreement, divulge to any person, firm, association, corporation or governmental
agency, any information concerning the affairs, business, clients, or customers
of the Business (except such information as is required by law to be divulged to
a government agency or pursuant to lawful process or such information which is
or shall become part of the public realm through no fault of the Executive), or
make use of any such information for his own purposes or for the benefit of any
person, firm, association or corporation (except the Business) and shall use his
reasonable best efforts to prevent the disclosure of any such information by
others. All records and documents relating to the Business, whether made by the
Executive or otherwise coming into his possession are, shall be, and shall
remain the property of the Business. No copies thereof shall be made which are
not retained by the Business, and the Executive agrees, on any termination of
his employment, or on demand of the Company, to deliver the same to the Company.
(b) Non-Competition. Through the end of the Term, whether during the
Executive's employment or following the termination of his employment for any
reason except for a Without Cause Termination or Constructive Discharge, the
Executive shall not without express prior written approval by order of the HRC,
directly or indirectly:
(i) solicit for the account of any Financial Services Company
(other than the Company or its affiliates) the sale of any products or
services of a type then provided by the Company or its affiliates (A)
during the Executive's employment, to any entity or individual or (B)
following termination of the Executive's employment (1) to any entity
or individual that was a customer or client of the Company or its
affiliates at any time during the 12-month period immediately preceding
the Executive's Date of Termination, (2) to any individual who is a
resident of a Restricted State or (3) to any entity where the customary
office of the individual solicited or of the individual responsible for
the entity's purchasing decision is located in a Restricted State.
(ii) solicit any employee of the Company or its affiliates to
terminate such employment relationship.
For purposes of this Section 7(b), the following definitions shall
apply:
(1) "Financial Services Company" shall mean any corporation,
partnership, sole proprietorship or other entity engaged in the
provision to unaffiliated customers of financial services, including,
without limitation, retail or commercial banking, lending, lease
financing, trade financing or other extension of credit, rate risk
management products, loan servicing, credit card processing, investment
banking, brokerage services, investment management or advisory
services, sponsorship, administration or management of mutual funds or
other collective
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investment vehicles, cash management, foreign exchange, fiduciary or
custodial services, employee benefit plan administration, benefits
consulting services, stock transfer services or underwriting or sale of
insurance.
(2) "Restricted State" shall mean any State of the United
States all or part of which is located east of the Mississippi River
and the District of Columbia.
In addition to the foregoing, it is understood that during his
employment the Executive is subject to all policies and procedures of the
Companies regarding investment in securities of competitors.
(c) Remedies. The Company's obligation to make payments or provide for
or increase any benefits under this Agreement (except to the extent previously
vested) shall cease upon any violation of the provisions of this Section 7;
provided, however, that the Executive shall first have the right to appear
before the Board with counsel and that such cessation of payments or benefits
shall require a vote of a majority of the Board members then in office. In
addition, in the event of a violation by the Executive of the provisions of this
Section 7, the Company shall be entitled, if it shall so elect, to institute
legal proceedings to obtain damages for any such breach, or to enforce the
specific performance by the Executive of this Section 7 and to enjoin the
Executive from any further violation, and may exercise such remedies
cumulatively or in conjunction with such other remedies as may be available to
the Company at law or in equity. The Executive acknowledges, however, that the
remedies at law for any breach by him of the provisions of this Section 7 would
be inadequate and agrees that the Company shall be entitled to injunctive relief
against him in the event of any such breach.
(d) Survival; Authorization to Modify Restrictions. The covenants of
the Executive contained in this Section 7 shall survive any termination of the
Executive's employment for the periods stated herein, except that the covenants
contained in Section 7(b) shall not survive any termination of employment (i)
for which a Notice of Termination is given during the Termination Period
following a Change in Control, each as defined in the Prior Agreement or (ii)
which is a termination of employment described in the second sentence of Section
1(j) of the Prior Agreement. The Executive represents that his experience and
capabilities are such that the enforcement of the provisions of this Section 7
will not prevent him from earning his livelihood, and acknowledges that it would
cause the Company serious and irreparable injury and cost if Executive were to
use his ability and knowledge in competition with the Company or to otherwise
breach the obligations contained in this Section 7. Accordingly, it is the
intention of the parties that the provisions of this Section 7 shall be
enforceable to the fullest extent permissible under applicable law, but that the
unenforceability (or modification to conform to such law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
thereof. If any provision or provisions hereof shall be deemed invalid or
unenforceable, either in whole or in part, this Agreement shall be deemed
amended to delete or modify, as necessary, the offending provision or provisions
and to alter the bounds thereof to the extent required in order to render it
valid and enforceable.
8. Supplemental Retirement Benefit. The Executive will be entitled to
receive a monthly Supplemental Retirement Benefit (the "Supplemental Retirement
Benefit") commencing on the first day of the month coincident with or following
the later of the Executive's termination of employment or attainment of age 60
and continuing for the remainder of his life. Unless otherwise elected by the
Executive, the Supplemental Retirement Benefit shall be payable in the form of a
50% joint and survivor annuity which shall be unreduced for the actuarial value
of the survivor's benefit. If the Executive's spouse at the time of his death is
not more than four years younger than the Executive, the survivor benefit shall
be equal to 50% of the Executive's benefit and shall be payable to his spouse
for the remainder of the spouse's life. If the Executive's spouse at the time of
his death is more than four years younger than the Executive, the benefit
payable to the spouse shall be reduced to a benefit having the
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same actuarial value as the benefit that would have been payable had the spouse
been four years younger than the Executive. The Executive shall also have the
right to elect a 100% joint and survivor annuity, on an actuarially-reduced
basis or a lump-sum payment, on an actuarially-reduced basis (if the Executive
makes a timely lump-sum election which avoids constructive receipt), or any
other form of payment available or provided under the "Supplemental Plans"
defined in this Section 8. Actuarial reductions shall be based on the actual
ages of the Executive and his spouse at the time of retirement. If the Executive
is not married at the time of his retirement, actuarial adjustments shall be
made as if the Executive had a spouse with the same date of birth as the
Executive. In the event that the Executive elects a form of payment other than
the automatic 50% joint and survivor annuity or other than a lump sum payment,
and remarries subsequent to retirement, the benefits payable under this Section
shall be actuarially adjusted at the time of the Executive's death to reflect
the age of the subsequent spouse. If the Executive elects a lump sum payment at
retirement, no further benefits will be payable under this Section.
The amount of the monthly retirement benefit as an unreduced 50% joint
and survivor annuity shall be equal to the product of (A) the "Service
Percentage" multiplied by (B) the Executive's "Final Average Compensation", with
such product reduced by (C) the total monthly amount of benefits (measured for
purposes of this offset as if the Executive elected a 50% joint and survivor
annuity payable as of the date benefits commence under this Agreement.) provided
to or in respect of the Executive under all tax-qualified retirement plans and
related excess benefit and other benefit restoration plans maintained by the
Company or the Bank for the Executive, including the Mellon Bank Benefit
Restoration Plan and the Mellon Bank IRC Section 401(a)(17) Plan (the
"Supplemental Plans") and benefits paid pursuant to Section 4.7 of the Mellon
Bank Corporation Elective Deferred Compensation Plan for Senior Officers, but
not including payments of any compensation previously deferred under any
deferred compensation plan of the Company or the Bank, or interest thereon, or
payments from the Mellon Bank Corporation Retirement Savings Plan, a 401(k)
plan.
The Executive owns interests in life insurance policies (the
"Policies") as a participant in the Mellon Bank Senior Executive Life Insurance
Plan. The Supplemental Retirement Benefit payable to the Executive hereunder
shall be further reduced by the Executive's interest in the cash value of the
Policies. This reduction shall be calculated in the same manner as under the
Supplemental Plans. In the event the United States federal income tax laws
change or are interpreted so as to cause Executive's ownership interests in
Policies to be subject to taxation, the Executive and the Company will negotiate
in good faith to mitigate the effects of such change.
The Executive shall be vested in the Supplemental Retirement Benefit
provided under this Paragraph as of the effective date of this Agreement.
The Executive shall elect the form of payment of his Supplemental
Retirement Benefit at the same time and subject to the same provisions
(including timing requirements and all reductions and/or penalties for late
elections) as provided under the Supplemental Plans. After retirement, the
Executive (or beneficiary who is receiving payments) may elect to receive his
remaining Supplemental Retirement Benefits which are payable hereunder in a lump
sum payment, calculated in the same manner and subject to the same reductions as
under the Supplemental Plans. In the event that the Executive elects a form of
payment of his Supplemental Retirement Benefits which provides for payments to
continue after his death and the Executive dies without having received all
payments of Supplemental Retirement Benefits that may be payable hereunder, then
the unpaid balance of such benefits shall be paid in accordance with the form of
payment elected by the Executive. Any such remaining payments shall be made to
the Executive's beneficiary provided under the Supplemental Plans, subject to
any contrary written instructions from the Executive designating a different
beneficiary for such payments.
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The Executive may also elect, upon not less than 12 months' advance
written notice, to have the payment of the Supplemental Retirement Benefit
commence on the first day of any month coincident with or after the later of his
termination of employment or attainment of age 55. In this event, the
Supplemental Retirement Benefit will be subject to an early payment reduction
amount equal to 0.5% per month (6% per annum) for each month that payments
commence before attainment of age 60. In the event of such retirement, the Term
and the Company's obligations to make payments under Section 4 above shall cease
as of the retirement date.
Notwithstanding the foregoing, in no event shall the Executive receive
any payments under this Section 8 or be deemed to be retired from the Company
while the Executive is entitled to payments under Paragraph 6(a) or Paragraph
6(b) or during any period for which the Executive receives additional service
credit in respect a "Qualifying Termination" as provided in clause (B) of the
definition of "Service Percentage" below.
As used in this Section 8:
(i) "Service Percentage" means 2% for each full or partial
year of the Executive's employment with the Company (plus service with
a prior employer if treated as credited service with the Company) as of
the date his active employment with the Company terminates, plus 2% for
(A) each full year, if any, that the Executive receives payments under
Paragraph 6(a) or 6(b) hereof (with such percentage pro-rated for the
partial contract year in which such final termination of the
Executive's employment occurs or in which such final payments under
Paragraph 6(a) or 6(b) hereof are made, whichever shall be applicable)
or (B) for each of the three years, or if less, the period of time
remaining until the Executive reaches age 65, following any "Qualifying
Termination" of the Executive's Employment during the "Termination
Period," each as defined in the Prior Agreement (with such percentage
to be pro-rated for any partial year following any such "Qualifying
Termination" and prior to attainment of age 65).
(ii) "Final Average Compensation" means one-twelfth (1/12th)
of the sum of the Executive's Base Salary paid and the Cash Bonus
Amount of any bonus award earned for the calendar year within the final
three (3) full calendar years of the Executive's employment by the
Company which produces the highest amount. For purposes of determining
Final Average Compensation (A) Bonus Plan awards shall be attributed to
the calendar year in which earned, whether paid in that calendar year
or the year following or deferred and (B) any portion of the
Executive's Base Salary and bonus award which is deferred by the
Executive under agreements with the Company or under any Company
employee benefit plan shall be included for purposes of determining
Final Average Compensation.
Notwithstanding the foregoing, in the event of a "Qualifying
Termination" of the Executive's employment during the "Termination Period," each
as defined in the Prior Agreement, "Final Average Compensation" for purposes of
computing the Supplemental Retirement Benefit shall mean one-twelfth (1/12th) of
the sum of (i) the Executive's highest annual rate of base salary during the
12-month period immediately prior to the Executive's Date of Termination and
(ii) the Executive's Bonus Amount, as defined in the Prior Agreement. In
addition, the Supplemental Retirement Benefit shall be payable without any
reduction for early payment in the event the Executive is less than age 60 at
the time that payment is made. In the event of such a "Qualifying Termination,"
the present value of the Supplemental Retirement Benefit shall be payable to the
Executive in a lump sum at the same time payments are due to the Executive under
Section 4(a) of the Prior Agreement (i.e., within 20 days following the
Executive's Date of Termination). The present value shall be calculated in the
same manner and using the actuarial factors set forth in the Supplemental Plans
as of the effective date of this Agreement.
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In the event the Executive's termination of employment is due to death
prior to the commencement of the payment of Supplemental Retirement Benefits
under this Section 8, and he shall be survived by a spouse, entitlement to
Supplemental Retirement Benefits will become fully vested and such spouse shall
be entitled to receive a pre-retirement death benefit, payable in the form of a
lifetime annuity, equal to the benefit that would have been payable had he
retired immediately prior to death and elected a 50% joint and survivor annuity,
but without any early payment reductions applicable for payments prior to age
60. If the Executive's spouse at the time of his death is more than four years
younger than the Executive, the benefit payable to the survivor shall be reduced
to a benefit having the same actuarial value as the benefit that would have been
payable had the spouse been four years younger than the Executive.
The Executive's entitlement to Supplemental Retirement Benefits under
this Section 8 shall survive the expiration of the Term and any other
termination of this Agreement.
9. Resolution of Disputes. Except as otherwise provided in Section 7(c)
hereof, 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. In the event of any
arbitration, litigation or other proceeding between the Company and the
Executive with respect to the subject matter of this Agreement and the
enforcement of rights hereunder, the Company shall reimburse the Executive for
his reasonable costs and expenses relating to such arbitration, litigation or
other proceeding, including attorneys' fees and expenses, provided that such
arbitration, litigation or other proceeding results in any: (i) settlement
requiring the Company to make a payment, continue to make payments or provide
any other benefit to the Executive; or (ii) judgment, order or award against the
Company in favor of the Executive or his spouse, legal representative or heirs,
unless such judgment, order or award is subsequently reversed on appeal or in a
collateral proceeding. At the request of the Executive, costs and expenses
(including attorneys' fees) incurred in connection with any arbitration,
litigation or other proceeding referred to in this Section shall be paid by the
Company in advance of the final disposition of the arbitration, litigation or
other proceeding upon receipt of an undertaking by or on behalf of the Executive
to repay the amounts advanced if it is ultimately determined that he is not
entitled to reimbursement of such costs and expenses by the Company as set forth
in this Section.
10. Full Settlement; No Mitigation; Non-Exclusivity of Benefits. Except
as provided in Section 6(f), the Company's obligation to make any payment
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 the Executive under any other severance plan, arrangement or
agreement of the Company and its affiliates and in full settlement of any and
all claims or rights of the Executive for severance, separation and/or salary
continuation payments resulting from the termination of his employment. In no
event shall the Executive be obligated to seek other employment or to take other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and except as specifically provided herein,
such amounts shall not be reduced whether or not the Executive obtains other
employment. Except as provided above in this Section 10, nothing in this
Agreement shall prevent or limit the Executive's continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliates for which the Executive may qualify, nor, except as
otherwise specifically provided in this Agreement, shall anything herein limit
or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliates, including without
limitation any stock option or restricted stock agreement. Amounts or benefits
which are vested benefits or which the Executive is otherwise entitled to
receive under any such plan, program, policy, practice, contract or agreement
prior to, at or subsequent to any Date of
-11-
<PAGE> 12
Termination shall be paid or provided in accordance with the terms of such plan,
program, policy, practice, contract or agreement except as explicitly modified
by this Agreement.
11. Employment and Payments by Subsidiaries. Except as herein otherwise
specifically provided, references in this Agreement to employment by the Company
shall include employment by subsidiaries of the Company, and the obligation of
the Company to make any payment or provide any benefit to the Executive
hereunder shall be deemed satisfied to the extent that such payment is made or
such benefit is provided by any subsidiary of the Company.
12. Withholding Taxes. The Company may directly or indirectly withhold
from any payments made under this Agreement all Federal, state, city or other
taxes as shall be required pursuant to any law or governmental regulation or
ruling.
13. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term, "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
14. Notices.
(a) General. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given when delivered or 5 days after being deposited in the
United States mail, certified and return receipt requested, postage prepaid,
addressed as follows:
(i) To the Company:
Manager-Human Resources Department
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
(ii) To the Executive:
Steven G. Elliott
74 Fair Oaks Drive
Pittsburgh, PA 15238-1936
or to such other address as the addressee party shall have previously specified
in writing to the other.
(b) Notice of Termination. Except in the case of death of the
Executive, any termination of the Executive's employment hereunder, whether by
the Executive or the Company, shall be effected only by a written notice given
to the other party in accordance with this Section 14 (a "Notice of
Termination"). Any Notice of Termination shall (i) indicate the specific
termination provision in Section 6 relied upon, (ii) in the case of a
termination for Cause, a Constructive Discharge or a termination due to
Permanent Disability, set forth in reasonable detail the facts and circumstances
claimed to provide a basis for such termination and (iii) specify the effective
date of such termination of employment (the "Date of
-12-
<PAGE> 13
Termination"), which shall not be less than 15 days (30 days in the case of a
termination by the Company due to Permanent Disability) nor more than 60 days
after such notice is given. The failure of the Executive or the Company to set
forth in any Notice of Termination any fact or circumstance which contributes to
a showing of Cause, Constructive Discharge or Permanent Disability shall not
waive any right of the Executive or the Company hereunder or preclude the
Executive or the Company from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
15. No Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in this Section
15 shall preclude the assumption of such rights by executors, administrators, or
other legal representatives of the Executive or his estate or their assigning
any rights hereunder to the person or persons entitled thereto.
16. Source of Payments. Subject to Section 11 hereof, all payments
provided for under this Agreement shall be paid in cash from the general funds
of the Company. The Company shall not be required to establish a special or
separate fund or other segregation of assets to assure such payments, and, if
the Company shall make any investments to aid it in meeting its obligations
hereunder, the Executive shall have no right, title or interest whatever in or
to any such investments except as may otherwise be expressly provided in a
separate written instrument relating to such investments. Nothing contained in
this Agreement, and no action taken pursuant to its provisions, shall create or
be construed to create a trust of any kind, or a fiduciary relationship, between
the Company and the Executive or any other person. To the extent that any person
acquires a right to receive payments from the Company hereunder, such right
shall be no greater than the right of an unsecured creditor.
17. Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and, as permitted by this
Agreement, their respective successors, assigns, heirs, beneficiaries and
representatives.
18. Governing Law. The validity, interpretation, performance and
enforcement of this Agreement shall be governed exclusively by the laws of the
Commonwealth of Pennsylvania, without regard to principles of conflicts of laws
thereof.
-13-
<PAGE> 14
19. Counterparts; Headings. This Agreement may be executed in
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall be deemed to be one and the same instrument. The
underlined Section headings contained in this Agreement are for convenience of
reference only and shall not affect the interpretation or construction of any
provision hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed this Agreement, all as of the first
date above written.
ATTEST: MELLON BANK CORPORATION
/s/ CARL KRASIK By: /s/ FRANK V. CAHOUET
- ---------------------------------- -----------------------------------------
Carl Krasik Frank V. Cahouet
Secretary Chairman and Chief Executive Officer
/s/ STEVEN G. ELLIOTT
-----------------------------------------
STEVEN G. ELLIOTT
-14-
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (parent Corporation) (a)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in millions) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries $ 68 $173 $250 $225
Fixed charges: interest expense, one-third of
rental expense net of income from subleases,
trust-preferred securities expense and
amortization of debt issuance costs 50 44 149 131
- ----------------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $118 $217 $399 $356
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (b) $ - $ 6 $ 13 $ 26
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges 2.33 4.92 2.67 2.71
Ratio of earnings (as defined) to combined fixed
charges and preferred stock dividends 2.33 4.29 2.45 2.26
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The parent Corporation ratios include the accounts of Mellon Bank
Corporation (the "Corporation") and Mellon Financial Company, a wholly
owned subsidiary of the Corporation that functions as a financing entity
for the Corporation and its subsidiaries by issuing commercial paper and
other debt guaranteed by the Corporation, and Mellon Capital I and Mellon
Capital II, special purpose business trusts formed by the Corporation, that
exist solely to issue Capital Securities. Because these ratios exclude from
earnings the equity in undistributed net income (loss) of subsidiaries,
these ratios vary with the payment of dividends by such subsidiaries.
(b) Preferred stock dividend requirements represent the pretax amounts required
to cover preferred stock dividends.
60
<PAGE> 1
EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Mellon Bank Corporation (and its subsidiaries)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(dollar amounts in millions) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before income taxes $338 $306 $1,001 $ 903
Fixed charges: interest expense (excluding
interest on deposits), one-third of rental
expense net of income from subleases,
trust-preferred securities expense and
amortization of debt issuance costs 146 126 424 365
- ----------------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined), excluding
interest on deposits 484 432 1,425 1,268
Interest on deposits 248 220 717 654
- ----------------------------------------------------------------------------------------------------------------------------------
Total earnings (as defined) $732 $652 $2,142 $1,922
- ----------------------------------------------------------------------------------------------------------------------------------
Preferred stock dividend requirements (a) $ - $ 6 $ 13 $ 26
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings (as defined) to fixed charges:
Excluding interest on deposits 3.29 3.44 3.35 3.47
Including interest on deposits 1.85 1.89 1.88 1.89
Ratio of earnings (as defined) to combined
fixed charges and preferred stock dividends:
Excluding interest on deposits 3.29 3.27 3.25 3.24
Including interest on deposits 1.85 1.85 1.85 1.84
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Preferred stock dividend requirements represent the pretax amounts required
to cover preferred stock dividends.
61
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,839
<INT-BEARING-DEPOSITS> 796
<FED-FUNDS-SOLD> 106
<TRADING-ASSETS> 178
<INVESTMENTS-HELD-FOR-SALE> 4,190
<INVESTMENTS-CARRYING> 1,743
<INVESTMENTS-MARKET> 1,787
<LOANS> 31,052
<ALLOWANCE> 498
<TOTAL-ASSETS> 48,243
<DEPOSITS> 32,953
<SHORT-TERM> 4,483
<LIABILITIES-OTHER> 2,454
<LONG-TERM> 3,004
991<F1>
0
<COMMON> 147
<OTHER-SE> 4,211
<TOTAL-LIABILITIES-AND-EQUITY> 48,243<F1>
<INTEREST-LOAN> 1,799
<INTEREST-INVEST> 278
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 2,153
<INTEREST-DEPOSIT> 717
<INTEREST-EXPENSE> 1,042
<INTEREST-INCOME-NET> 1,111
<LOAN-LOSSES> 45
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 2,188
<INCOME-PRETAX> 1,001
<INCOME-PRE-EXTRAORDINARY> 1,001
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 648
<EPS-PRIMARY> 2.46<F2>
<EPS-DILUTED> 2.41<F2>
<YIELD-ACTUAL> 3.99
<LOANS-NON> 103
<LOANS-PAST> 104
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 475
<CHARGE-OFFS> 68
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 498
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Includes $991 million of guaranteed preferred beneficial interests in the
Corporation's junior subordinated deferrable interest debentures.
<F2>Reflects the adoption of FAS 128, "Earnings per Share," by the Corporation
at year-end 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<CIK> 0000064782
<NAME> MELLON BANK CORP.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,032
<INT-BEARING-DEPOSITS> 512
<FED-FUNDS-SOLD> 219
<TRADING-ASSETS> 88
<INVESTMENTS-HELD-FOR-SALE> 3,354
<INVESTMENTS-CARRYING> 2,168
<INVESTMENTS-MARKET> 2,195
<LOANS> 28,279
<ALLOWANCE> 505
<TOTAL-ASSETS> 43,465
<DEPOSITS> 30,189
<SHORT-TERM> 3,504
<LIABILITIES-OTHER> 2,190
<LONG-TERM> 2,814
990<F1>
193
<COMMON> 147
<OTHER-SE> 3,438
<TOTAL-LIABILITIES-AND-EQUITY> 43,465<F1>
<INTEREST-LOAN> 1,691
<INTEREST-INVEST> 289
<INTEREST-OTHER> 44
<INTEREST-TOTAL> 2,031
<INTEREST-DEPOSIT> 654
<INTEREST-EXPENSE> 925
<INTEREST-INCOME-NET> 1,106
<LOAN-LOSSES> 75
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,839
<INCOME-PRETAX> 903
<INCOME-PRE-EXTRAORDINARY> 903
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 576
<EPS-PRIMARY> 2.18<F2>
<EPS-DILUTED> 2.13<F2>
<YIELD-ACTUAL> 4.30
<LOANS-NON> 102
<LOANS-PAST> 116
<LOANS-TROUBLED> 2
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 525
<CHARGE-OFFS> 133
<RECOVERIES> 38
<ALLOWANCE-CLOSE> 505
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Includes $990 million of guaranteed preferred beneficial interests in the
Corporation's junior subordinated deferrable interest debentures.
<F2>Restated primary and diluted earnings per share to reflect the adoption
of FAS 128, "Earnings per Share," by the Corporation at year-end 1997.
</FN>
</TABLE>
