<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) - July 21, 1998
MELLON BANK CORPORATION
(Exact name of registrant as specified in charter)
Pennsylvania 1-7410 25-1233834
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
One Mellon Bank Center
500 Grant Street
Pittsburgh, Pennsylvania 15258
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code - (412) 234-5000
<PAGE>
ITEM 5. OTHER EVENTS
By press release dated July 21, 1998, Mellon Bank Corporation announced
second quarter 1998 results of operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit Description
Number
99.1 Mellon Bank Corporation Press Release, dated July 21, 1998, announcing
the matter referenced in Item 5 above.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MELLON BANK CORPORATION
Date: July 22, 1998 By: /s/ STEVEN G. ELLIOTT
Steven G. Elliott
Vice Chairman and Chief Financial
Officer
<PAGE>
EXHIBIT INDEX
Number Description Method of Filing
99.1 Press Release dated Filed herewith
July 21, 1998
<PAGE>
Exhibit 99.1
MEDIA: ANALYSTS:
Stephen K. Dishart Donald J. MacLeod
(412) 234-0850 (412) 234-5601
Gregg Stein David T. Lamar
(412) 236-0082 (412) 234-4633
FOR IMMEDIATE RELEASE
MELLON REPORTS RECORD SECOND QUARTER 1998 RESULTS
. Quarterly Earnings Per Share Increases to 81 Cents Per Share, Up 14 Percent
Over Same Period Last Year
. Return on Common Equity is 20.8 Percent and Return on Assets is 1.79 Percent
. Quarterly Tangible Earnings Per Share Increases to 91 Cents, Up 15 Percent
Over Same Period Last Year
. Return on Tangible Common Equity is 49.7 Percent and Return on Tangible Assets
is 2.13 Percent
. Announces Regular Quarterly Common Stock Dividend
<TABLE>
<CAPTION>
Financial Highlights Quarter ended Six months ended
(dollar amounts in millions, June 30, March 31, June 30, June 30, June 30,
except per share amounts) 1998 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C>
Diluted earnings per common share $ .81 $ .78 $ .71 $1.59 $1.40
Diluted tangible earnings
per common share $ .91 $ .88 $ .79 $1.79 $1.56
Net income applicable to common stock $ 215 $ 206 $ 186 $ 421 $ 368
Tangible net income applicable to
common stock $ 243 $ 231 $ 206 $ 474 $ 409
Return on common equity (annualized) 20.8% 21.6% 21.9% 21.2% 21.5%
Return on tangible
common equity (annualized) 49.7% 43.3% 37.7% 46.4% 37.0%
Return on assets (annualized) 1.79% 1.89% 1.79% 1.84% 1.81%
Return on tangible assets (annualized) 2.13% 2.18% 2.04% 2.16% 2.07%
Fee revenue as a percentage
of total revenue (FTE) 66% 66% 59% 66% 59%
Efficiency ratio excluding
amortization of intangibles 63% 62% 59% 63% 59%
</TABLE>
PITTSBURGH, July 21, 1998--Mellon Bank Corporation (NYSE: MEL) today reported
record second quarter 1998 diluted earnings per common share of 81 cents, an
increase of 14 percent compared with 71 cents per common
--more--
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 2
share in the second quarter of 1997. Net income applicable to common stock in
the second quarter of 1998 was $215 million, an increase of 16 percent compared
with $186 million in the second quarter of 1997. Diluted tangible earnings per
common share totaled 91 cents in the second quarter of 1998, an increase of 15
percent compared with 79 cents in the second quarter of 1997. Diluted earnings
per common share totaled 78 cents, and net income applicable to common stock was
$206 million in the first quarter of 1998.
"Our shareholders and other constituents continue to benefit from the
momentum we have built over the past decade," said Frank V. Cahouet, Mellon
chairman, president and chief executive officer. "The performance in the second
quarter builds upon that momentum and shows that our strategy is working."
The Corporation also declared its regular quarterly common stock dividend
of 36 cents per share. Dividends on the Corporation's common stock are payable
on Aug. 17, 1998, to shareholders of record at the close of business on July 31,
1998.
Annualized return on common shareholders' equity and return on assets were
20.8 percent and 1.79 percent, respectively, in the second quarter of 1998,
compared with 21.9 percent and 1.79 percent, respectively, in the second quarter
of 1997 and 21.6 percent and 1.89 percent, respectively, in the first quarter of
1998. Annualized return on tangible common shareholders' equity and return on
tangible assets were 49.7 percent and 2.13 percent, respectively, in the second
quarter of 1998, compared with 37.7 percent and 2.04 percent, respectively, in
the second quarter of 1997 and 43.3 percent and 2.18 percent, respectively, in
the first quarter of 1998.
Net interest revenue, on a fully taxable equivalent basis, for the second
quarter of 1998 was $374 million, up $3 million compared with $371 million in
the prior-year period and up $7 million from $367 million in the first quarter
of 1998. The increase from the prior periods primarily resulted from the
favorable impact of acquisitions and loan growth, partially offset by the
December 1997 transfer of $231 million of CornerStone(sm) credit card loans into
an accelerated resolution portfolio, funding costs related to the repurchase of
common stock and the Series K preferred stock redemption.
Fee revenue for the second quarter of 1998 was $712 million, up $172
million from $540 million in the prior-year period and up $14 million from $698
million in the first quarter of 1998. Excluding the fee revenue resulting from
the acquisitions of Buck Consultants, Inc., Founders Asset Management, LLC and
Dreyfus Brokerage Services, Inc., fee revenue increased 13 percent in the second
quarter of 1998 compared with the second quarter of 1997. This increase was
primarily attributable to higher trust and investment fees and higher foreign
exchange fees. Fee revenue increased $14 million in the second quarter of 1998
compared with the first quarter of 1998 resulting primarily from higher trust
and investment fees, due to new business and higher transaction volumes, and the
Founders acquisition. The increase in trust and investment fee revenue compared
with the first quarter of 1998 was partially offset by the seasonal decrease in
the second quarter of 1998 of fees from electronic filing of income tax returns.
Excluding the fees resulting from Founders from the second quarter of 1998 and
excluding the tax return filing fees from both the first and second quarters of
1998, fee revenue increased 3 percent in the second quarter of 1998 over the
first quarter of 1998.
--more--
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 3
Operating expense before trust-preferred securities expense and net revenue
from acquired property for the second quarter of 1998 was $721 million, up $150
million from $571 million in the second quarter of 1997 and up $24 million from
$697 million in the first quarter of 1998. These increases primarily resulted
from the impact of acquisitions and business growth.
Credit quality expense was $13 million in the second quarter of 1998,
compared with $22 million in the second quarter of 1997, and $14 million in the
first quarter of 1998. Nonperforming assets totaled $170 million at June 30,
1998, compared with $191 million at March 31, 1998, and $162 million at June 30,
1997. The ratio of nonperforming assets to total loans and net acquired
property was .55 percent at June 30, 1998, compared with .63 percent at March
31, 1998, and .57 percent at June 30, 1997.
A broad-based financial services company with a bank at its core, Mellon
Bank Corporation ranks among the nation's largest bank holding companies in
market capitalization. With about $350 billion of assets under management and
nearly $1.7 trillion of assets under administration, Mellon provides a full
range of banking, investment and trust products and services to individuals and
small, midsize and large businesses and institutions. Its mutual fund
companies, The Dreyfus Corporation and Founders Asset Management, place Mellon
as the leading bank manager of mutual funds. Headquartered in Pittsburgh,
Mellon's principal subsidiary is Mellon Bank, N.A.
Press releases and other information about Mellon Bank Corporation and its
products and services are available at www.mellon.com on the Internet. For
Mellon press releases by fax, call 1 800 758-5804, identification number 552187.
# # #
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 4
Tangible Operating Results
- --------------------------
Except for the merger with Dreyfus, which was accounted for under the "pooling
of interests" method, the Corporation has been required to account for business
combinations under the "purchase" method of accounting. The purchase method
results in the recording of goodwill and other identified intangibles that are
amortized as noncash charges in future years into operating expense. The
pooling of interests method does not result in the recording of goodwill or
intangibles. Since goodwill and intangible amortization expense does not result
in a cash expense, the economic value to shareholders under either accounting
method is essentially the same.
Tangible results for the second quarter of 1998, compared with the second
quarter of 1997, reflect the effect of the acquisitions of Buck Consultants,
Inc. (Buck) in July 1997, Dreyfus Brokerage Services, Inc. in November 1997,
Mellon United National Bank and Mellon 1st Business Bank in February 1998 and
Founders Asset Management, LLC (Founders) in April 1998. Results, excluding the
impact of intangibles, are shown in the table below.
<TABLE>
<CAPTION>
(dollar amounts in Quarter ended Six months ended
millions, except -------------------------------- --------------------
per share amounts; June 30, March 31, June 30, June 30, June 30,
ratios annualized) 1998 1998 1997 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income applicable
to common stock $ 215 $ 206 $ 186 $ 421 $ 368
After-tax impact of
amortization of
intangibles from
purchase acquisitions 28 25 20 53 41
- ----------------------------------------------------------------------------------
Tangible net income
applicable to
common stock $ 243 $ 231 $ 206 $ 474 $ 409
Tangible earnings
per common
share - diluted $ .91 $ .88 $ .79 $ 1.79 $ 1.56
Average common equity $ 4,126 $ 3,873 $ 3,393 $ 4,000 $ 3,441
Average goodwill and
other identified
intangibles 2,161 1,711 1,206 1,938 1,215
- ----------------------------------------------------------------------------------
Average tangible
common equity $ 1,965 $ 2,162 $ 2,187 $ 2,062 $ 2,226
Return on tangible
common equity 49.7% 43.3% 37.7% 46.4% 37.0%
Average total assets $47,965 $46,229 $42,413 $47,102 $42,301
Average tangible assets $45,804 $44,518 $41,207 $45,164 $41,086
Return on tangible assets 2.13% 2.18% 2.04% 2.16% 2.07%
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 5
Net Interest Revenue
- -------------------------------
<TABLE>
<CAPTION>
Quarter ended Six months ended
------------------------------------ --------------------
June 30, March 31, June 30, June 30, June 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest revenue (FTE) $ 374 $ 367 $ 371 $ 741 $ 744
Net interest margin (FTE) 3.97% 4.06% 4.29% 4.02% 4.33%
Average securities $ 5,596 $ 5,301 $ 5,600 $ 5,450 $ 5,808
Average loans $30,302 $29,389 $27,806 $29,848 $27,606
Average interest-earning assets $37,734 $36,644 $34,697 $37,192 $34,656
- -------------------------------------------------------------------------------------------
</TABLE>
The $3 million increase in fully taxable equivalent net interest revenue in the
second quarter of 1998, compared with the second quarter of 1997, primarily
resulted from the favorable impacts of the Mellon United National Bank, Mellon
1st Business Bank and Dreyfus Brokerage Services acquisitions, net of funding
costs, and loan growth. Primarily offsetting these factors was the effect of
the December 1997 transfer of $231 million of CornerStone(sm) credit card loans
into an accelerated resolution portfolio, the funding costs related to the
repurchase of common stock and the Series K preferred stock redemption.
Net interest revenue increased $7 million, compared with the first quarter of
1998, primarily resulting from the full-quarter favorable impact of the February
1998 Mellon United National Bank and Mellon 1st Business Bank acquisitions, net
of funding costs, and loan growth.
Net interest revenue decreased $3 million in the first half of 1998, compared
with the prior-year period, primarily due to funding costs related to the
repurchase of common stock, the transfer of the CornerStone(sm) credit card
loans into an accelerated resolution portfolio and the Series K preferred stock
redemption, partially offset by the favorable impacts of the Mellon United
National Bank, Mellon 1st Business Bank and Dreyfus Brokerage Services
acquisitions, net of funding costs, and loan growth.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 6
Credit Quality Expense and Net Credit Losses
- --------------------------------------------
<TABLE>
<CAPTION>
Quarter ended Six months ended
-------------------------------- --------------------
June 30, March 31, June 30, June 30, June 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Provision for credit losses $ 15 $ 15 $ 25 $ 30 $ 50
Net revenue from acquired property (2) (1) (3) (3) (6)
- -------------------------------------------------------------------------------------------------
Credit quality expense $ 13 $ 14 $ 22 $ 27 $ 44
- -------------------------------------------------------------------------------------------------
Net credit (losses) recoveries:
Domestic:
Credit card $(10) $ (9) $(30) $(19) $(61)
Other consumer credit (1) (3) (5) (4) (8)
Commercial real estate - (4) 2 (4) 4
Commercial and financial (2) (2) 1 (4) (4)
- -------------------------------------------------------------------------------------------------
Total domestic (13) (18) (32) (31) (69)
International - - - - 5
- -------------------------------------------------------------------------------------------------
Total net credit losses $(13) $(18) $(32) $(31) $(64)
- -------------------------------------------------------------------------------------------------
Annualized net credit losses
to average loans .17% .24% .46% .21% .47%
- -------------------------------------------------------------------------------------------------
</TABLE>
Credit quality expense in the second quarter of 1998 decreased $9 million
compared with the second quarter of 1997, primarily as a result of a $10 million
decrease in the provision for credit losses. The decrease in the provision for
credit losses primarily 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.
Net credit losses decreased $19 million, compared with the second quarter of
1997, primarily as a result of a $20 million decrease in credit card net credit
losses. Net credit losses decreased by $5 million, compared with the first
quarter of 1998, primarily due to lower commercial real estate net credit
losses.
The decrease in both credit quality expense and net credit losses in the first
half of 1998, compared with the first half of 1997, primarily resulted from
lower credit card net credit losses. The net carrying value of the
CornerStone(sm) accelerated resolution portfolio was $106 million at June 30,
1998, compared with $130 million at March 31, 1998, and $157 million at December
31, 1997. The Corporation expects a significant reduction in credit card net
credit losses throughout 1998 compared with 1997.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 7
Noninterest Revenue
- -------------------
<TABLE>
<CAPTION>
Quarter ended Six months ended
-------------------------------- --------------------
(dollar amounts June 30, March 31, June 30, June 30, June 30,
in millions) 1998 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fee revenue:
Trust and investment revenue:
Investment management:
Mutual fund $120 $100 $ 90 $ 220 $ 177
Private asset 54 52 42 106 84
Institutional asset 53 50 41 103 78
- ---------------------------------------------------------------------------------------------
Total investment
management revenue 227 202 173 429 339
Administration/custody/
consulting:
Mutual fund 34 33 33 67 63
Private asset 5 4 4 9 8
Institutional trust 98 95 73 193 139
Benefits consulting 54 52 - 106 -
- ---------------------------------------------------------------------------------------------
Total administration/
custody/consulting
revenue 191 184 110 375 210
- ---------------------------------------------------------------------------------------------
Total trust and investment
fee revenue 418 386 283 804 549
Cash management and deposit
transaction charges 65 61 59 126 115
Mortgage servicing fees 53 55 53 108 104
Foreign currency and
securities trading
revenue 38 41 25 79 50
Credit card fees 23 24 25 47 49
Other 115 131 95 246 209
- ---------------------------------------------------------------------------------------------
Total fee revenue 712 698 540 1,410 1,076
Gains on sale of securities 1 - - 1 -
- ---------------------------------------------------------------------------------------------
Total noninterest
revenue $713 $698 $540 $1,411 $1,076
- ---------------------------------------------------------------------------------------------
Fee revenue as a percentage
of total revenue (FTE) 66% 66% 59% 66% 59%
Trust and investment fee
revenue as a percentage
of total revenue (FTE) 38% 36% 31% 37% 30%
- ---------------------------------------------------------------------------------------------
</TABLE>
Fee revenue increased $172 million, or 32%, in the second quarter of 1998,
compared with the second quarter of 1997. Excluding the revenue resulting from
the Buck, Founders and Dreyfus Brokerage Services acquisitions, fee revenue
increased 13% compared with the prior-year period.
Trust and investment fees increased $135 million, or 48%, compared with the
prior-year period. This increase reflects revenue resulting from the Buck and
Founders acquisitions, as well as an increase in the market value of assets
under management, new business and higher transaction volumes. Excluding the
Buck and Founders revenue, trust and investment fees increased 15% compared with
the second quarter of 1997.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 8
The $54 million increase in investment management revenue resulted from a $30
million, or 33%, increase in mutual fund management revenue, a
$12 million, or 30%, increase in private asset management revenue and a $12
million, or 27%, increase in institutional asset management revenue. These
increases resulted from an increase in the market value of assets under
management, new business and the Founders acquisition.
Including the Founders funds of approximately $7 billion, the average net assets
of proprietary mutual funds managed at Dreyfus/Founders in the second quarter of
1998 were $109 billion, up $24 billion from $85 billion in the second quarter of
1997 and up $12 billion from $97 billion in the first quarter of 1998. The
increase from the prior periods 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 $33 billion in the second quarter of 1998, compared with $17 billion in
the second quarter of 1997, and $23 billion in the first quarter of 1998.
Administration/custody/consulting fee revenue increased $81 million in the
second quarter of 1998 compared with the second quarter of 1997. This increase
reflected benefits consulting and institutional trust fees resulting from the
Buck acquisition, new business and higher transaction volumes. Excluding the
Buck fees from the second quarter of 1998 and excluding the fees from the
corporate trust business which was sold in November 1997, from the second
quarter of 1997, institutional trust fees increased 6% compared with the prior-
year period.
The 11% increase in cash management fees and deposit transaction charges in the
second quarter of 1998, compared with the prior-year period, primarily resulted
from higher volumes of business in customer receivables, payables and treasury
management products.
The 52% increase in foreign currency and securities trading revenue in the
second 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.
Other fee revenue increased $20 million in the second quarter of 1998, compared
with the prior-year period. This increase resulted from fees generated by
Dreyfus Brokerage Services, higher gains from the sale of equity securities and
other assets, and higher fees from many fee-based services.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 9
Fee revenue increased $14 million in the second quarter of 1998, compared with
the first quarter of 1998, resulting primarily from a $32 million increase in
trust and investment fees, due to new business and higher transaction volumes,
and fees resulting from the Founders acquisition. The increase in trust and
investment fees compared with the first quarter of 1998 was partially offset by
a $16 million decrease in other fee revenue. This decrease primarily resulted
from the seasonal decrease in the second quarter of 1998 of fees from electronic
filing of income tax returns. Substantially all of this revenue is recognized
in the first quarter of each year. Fees from the electronic filing of income
tax returns are expected to be materially lower in 1999, as a contract with a
major income tax return preparer expires at the end of 1998. Excluding the fees
resulting from Founders in the second quarter of 1998 and excluding the tax
return filing fees from both the first and second quarters of 1998, fee revenue
increased 3% in the second quarter of 1998 over the first quarter of 1998.
The $334 million increase in fee revenue in the first six months of 1998,
compared with the prior-year period, primarily resulted from the same factors
responsible for the second 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 14% compared with
the first six months of 1997.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 10
Operating Expense
- -----------------
<TABLE>
<CAPTION>
Quarter ended Six months ended
-------------------------------- --------------------
June 30, March 31, June 30, June 30, June 30,
(dollar amounts in millions) 1998 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Staff expense $355 $357 $276 $ 712 $ 544
Professional, legal and
other purchased services 67 61 46 128 92
Net occupancy expense 59 56 54 115 106
Equipment expense 41 39 36 80 72
Amortization of mortgage
servicing assets and
purchased credit card
relationships 44 45 28 89 56
Amortization of goodwill
and other intangible assets 35 30 27 65 54
Other expense 120 109 104 229 212
- ------------------------------------------------------------------------------------------------
Operating expense before
trust-preferred securities
expense and net revenue
from acquired property 721 697 571 1,418 1,136
Trust-preferred securities
expense 19 20 19 39 39
Net revenue from
acquired property (2) (1) (3) (3) (6)
- ------------------------------------------------------------------------------------------------
Total operating expense $738 $716 $587 $1,454 $1,169
- ------------------------------------------------------------------------------------------------
Average full-time
equivalent staff 28,600 27,900 25,500 28,200 25,400
- ------------------------------------------------------------------------------------------------
Efficiency ratio (a) 66% 65% 62% 66% 62%
Efficiency ratio excluding
amortization of goodwill
and other intangible assets 63% 62% 59% 63% 59%
- ------------------------------------------------------------------------------------------------
</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 $150 million, or 26%, in the second quarter of 1998,
compared with the prior-year period, resulting from the Buck, Founders, Mellon
United National Bank, Mellon 1st Business Bank and Dreyfus Brokerage Services
acquisitions and higher amortization of mortgage servicing assets, as well as
from business growth. Excluding the effect of these 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 4%.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 11
Staff expense increased $79 million in the second quarter of 1998, compared with
the prior-year period, primarily from the acquisitions as well as an increase in
performance-based incentive expense.
Professional, legal and other purchased services increased $21 million in the
second quarter of 1998, compared with the prior-year period, primarily from an
increase in consulting expenses related to business growth and reengineering
initiatives, and from the acquisitions. Net occupancy expense and equipment
expense each increased $5 million in the second quarter of 1998, compared with
the prior-year period, primarily from the impact of acquisitions.
The amortization of mortgage servicing assets and purchased credit card
relationships increased $16 million in the second quarter of 1998, compared with
the prior-year period, primarily resulting from an acceleration of amortization
due to a higher level of mortgage prepayments. The $16 million increase in
other expense in the second quarter of 1998, compared with the prior-year
period, primarily resulted from the acquisitions and higher business development
expenses.
Operating expense before trust-preferred securities expense and net revenue from
acquired property increased $24 million in the second quarter of 1998, compared
with the first quarter of 1998. This increase resulted primarily from the
Founders acquisition and the full-quarter impact of the February 1998
acquisitions of Mellon United National Bank and Mellon 1st Business Bank, as
well as from business growth offset, in part, by lower severance expense.
The $282 million increase in operating expense before trust-preferred securities
expense and net revenue from acquired property in the first six months of 1998,
compared to the first six months of 1997, primarily resulted from the same
factors responsible for the second quarter 1998 increase as compared to the
prior-year period.
Income Taxes
- ------------
The Corporation's effective tax rate for the second quarter of 1998 was 35.3%,
compared with 36.3% for the second quarter of 1997. It is currently anticipated
that the effective tax rate will remain at approximately 35.3% for the remainder
of 1998.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 12
Nonperforming Assets
- --------------------
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, June 30,
(dollar amounts in millions) 1998 1998 1997 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Domestic nonperforming loans:
Consumer mortgage $ 55 $ 56 $ 52 $ 54
Commercial real estate 18 53 49 9
Other domestic 34 33 32 27
- -------------------------------------------------------------------------------------
Total nonperforming loans 107 142 133 90
Acquired property:
Real estate acquired 69 53 52 77
Reserve for real estate acquired (9) (9) (9) (9)
- -------------------------------------------------------------------------------------
Net real estate acquired 60 44 43 68
Other assets acquired 3 5 5 4
- -------------------------------------------------------------------------------------
Total acquired property 63 49 48 72
- -------------------------------------------------------------------------------------
Total nonperforming assets $ 170 $ 191 $ 181 $ 162
- -------------------------------------------------------------------------------------
Nonperforming loans as a
percentage of total loans .35% .47% .46% .32%
Nonperforming assets as a percentage of
total loans and net acquired property .55% .63% .62% .57%
- -------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets decreased $21 million from March 31, 1998. The $35 million
decrease in nonperforming commercial real estate loans at June 30, 1998,
compared with March 31, 1998, primarily resulted from the foreclosure on a
commercial property and its transfer to real estate acquired (OREO). This
increase in OREO was partially offset by sales of other properties, which
resulted in an overall decrease of nonperforming assets at June 30, 1998,
compared with March 31, 1998. The ratio of nonperforming assets to total loans
and net acquired property was .55% at June 30, 1998. This ratio has been lower
than 1% for 16 consecutive quarters.
The $8 million increase in nonperforming assets from June 30, 1997, primarily
resulted from the addition of the above mentioned commercial real estate loan to
nonperforming status in the fourth quarter of 1997, the reclassification from
segregated assets of $10 million of commercial real estate loans to
nonperforming loans and $2 million to OREO following the expiration of the FDIC
loss-sharing arrangement on January 1, 1998, and the addition of $6 million of
nonperforming loans from the Mellon United National Bank and Mellon 1st Business
Bank acquisitions in February 1998. These increases were partially offset by
the sale of OREO properties.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 13
Reserve for Credit Losses
- -------------------------
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, June 30,
(dollar amounts in millions) 1998 1998 1997 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reserve for credit losses $ 498 $ 496 $ 475 $ 511
Reserve as a percentage of total loans 1.62% 1.63% 1.63% 1.82%
- -------------------------------------------------------------------------------------
</TABLE>
The $13 million decrease in the reserve for credit losses from June 30, 1997,
resulted primarily from credit losses on the CornerStone(sm) credit card loans,
partially offset by the addition of $24 million of reserves acquired in the
Mellon United National Bank and Mellon 1st Business Bank acquisitions.
Selected Capital Data
- ---------------------
<TABLE>
<CAPTION>
(dollar amounts in millions, June 30, March 31, Dec. 31, June 30,
except per share amounts) 1998 1998 1997 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common shareholders' equity $ 4,234 $ 4,086 $ 3,652 $ 3,377
Common shareholders' equity
to assets ratio 8.92% 8.62% 8.13% 7.72%
Tangible common shareholders' equity $ 2,078 $ 2,168 $ 2,227 $ 2,180
Tangible common shareholders'
equity to assets ratio (a) 4.59% 4.76% 5.12% 5.13%
Total shareholders' equity $ 4,234 $ 4,086 $ 3,845 $ 3,570
Total shareholders' equity
to assets ratio 8.92% 8.62% 8.56% 8.17%
Tier I capital ratio 6.5(b) 6.80 7.77 7.94
Total (Tier I plus Tier II)
capital ratio 10.8(b) 11.28 12.73 13.24
Leverage capital ratio 6.7(b) 7.04 8.02 8.20
Book value per common share $ 16.24 $ 15.70 $ 14.39 $ 13.42
Tangible book value per common share $ 7.97 $ 8.33 $ 8.77 $ 8.66
Closing common stock price $ 69.688 $ 63.50 $ 60.63 $ 45.125
Market capitalization $ 18,168 $ 16,523 $ 15,386 $ 11,353
Common shares outstanding (000) 260,708 260,210 253,786 251,599
- ----------------------------------------------------------------------------------
</TABLE>
(a) Common shareholders' equity less goodwill and other intangibles divided by
total assets less goodwill and other intangibles.
(b) Estimated.
The increase in shareholders' equity at June 30, 1998, compared with June 30,
1997, primarily reflects earnings retention and common shares issued in the Buck
acquisition in July 1997. Also impacting total shareholders' equity, compared
with June 30, 1997, was the February 1998 redemption of the $200 million Series
K preferred stock. The increase in shareholders' equity at June 30, 1998,
compared with March 31, 1998, primarily reflects earnings retention. There were
no common stock repurchases in the first half of 1998.
<PAGE>
Mellon Reports Earnings
July 21, 1998
Page 14
The decrease in the Corporation's regulatory capital ratios, compared with March
31, 1998, and June 30, 1997, reflects an increase in goodwill and other
intangibles and a higher level of risk-adjusted assets, resulting from
acquisitions. The Series K preferred stock redemption also was a factor in the
decrease compared with June 30, 1997.
<PAGE>
SUMMARY DATA
Mellon Bank Corporation
<TABLE>
<CAPTION>
Three months ended Six months ended
(dollar amounts in millions, June 30, June 30,
except per share amounts; --------------------- -------------------
common shares in thousands) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Selected key data
- -----------------
Net income per common share (a) $ .81 $ .71 $ 1.59 $ 1.40
Tangible net income per
common share (a)(b) $ .91 $ .79 $ 1.79 $ 1.56
Net income applicable to
common stock $ 215 $ 186 $ 421 $ 368
Tangible net income applicable
to common stock (b) $ 243 $ 206 $ 474 $ 409
Return on common shareholders'
equity (c) 20.8% 21.9% 21.2% 21.5%
Return on tangible common
shareholders' equity (b)(c) 49.7% 37.7% 46.4% 37.0%
Return on assets (c) 1.79% 1.79% 1.84% 1.81%
Return on tangible assets (b)(c) 2.13% 2.04% 2.16% 2.07%
Common equity to assets 8.92% 7.72% 8.92% 7.72%
Tangible common equity to assets 4.59% 5.13% 4.59% 5.13%
Fee revenue as a percentage of
total revenue (FTE) 66% 59% 66% 59%
Efficiency ratio excluding
amortization of intangibles 63% 59% 63% 59%
Average common shares and
equivalents outstanding:
Basic 260,495 254,508 259,113 256,243
Diluted 265,848 259,475 264,518 261,352
Average balances for the period
- -------------------------------
Money market investments $ 1,597 $ 1,081 $ 1,654 $ 1,056
Trading account securities 239 210 240 186
Securities 5,596 5,600 5,450 5,808
Loans 30,302 27,806 29,848 27,606
Total interest-earning assets 37,734 34,697 37,192 34,656
Total assets 47,965 42,413 47,102 42,301
Total tangible assets 45,804 41,207 45,164 41,086
Deposits 33,548 30,113 33,139 30,196
Total interest-bearing
liabilities 31,145 27,830 30,251 27,659
Common shareholders' equity 4,126 3,393 4,000 3,441
Tangible common shareholders'
equity 1,965 2,187 2,062 2,226
Total shareholders' equity 4,126 3,586 4,050 3,660
</TABLE>
_______________________
(a) Diluted.
(b) Excludes the after-tax impact of the amortization of goodwill and other
identified intangibles resulting from accounting for business combinations
under the purchase method of accounting.
(c) Annualized.
Note: All calculations are based on unrounded numbers.
<PAGE>
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
(in millions, except -------------------- -------------------
per share amounts) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest revenue
- ----------------
Interest and fees on loans (loan
fees of $17, $19, $34 and $36) $ 606 $ 571 $1,183 $1,124
Interest-bearing deposits with banks 6 7 15 14
Federal funds sold and securities
under resale agreements 12 6 25 11
Other money market investments 3 1 4 2
Trading account securities 3 3 7 5
Securities 93 96 183 195
----- ----- ------ ------
Total interest revenue 723 684 1,417 1,351
Interest expense
- ----------------
Interest on deposits 240 219 469 434
Federal funds purchased and securities
under repurchase agreements 30 20 54 38
Other short-term borrowings 30 28 58 48
Notes and debentures 52 47 100 91
----- ----- ------ ------
Total interest expense 352 314 681 611
----- ----- ------ ------
Net interest revenue 371 370 736 740
Provision for credit losses 15 25 30 50
----- ----- ------ ------
Net interest revenue after
provision for credit losses 356 345 706 690
Noninterest revenue
- -------------------
Trust and investment fee revenue 418 283 804 549
Cash management and deposit
transaction charges 65 59 126 115
Mortgage servicing fees 53 53 108 104
Foreign currency and
securities trading revenue 38 25 79 50
Credit card fees 23 25 47 49
Other 115 95 246 209
----- ----- ------ ------
Total fee revenue 712 540 1,410 1,076
Gains on sales of securities 1 - 1 -
----- ----- ------ ------
Total noninterest revenue 713 540 1,411 1,076
Operating expense
- -----------------
Staff expense 355 276 712 544
Professional, legal and other
purchased services 67 46 128 92
Net occupancy expense 59 54 115 106
Equipment expense 41 36 80 72
Amortization of mortgage servicing
assets and purchased credit card
relationships 44 28 89 56
Amortization of goodwill and other
intangible assets 35 27 65 54
Other expense 120 104 229 212
Trust-preferred securities expense 19 19 39 39
Net revenue from acquired property (2) (3) (3) (6)
----- ----- ------ ------
Total operating expense 738 587 1,454 1,169
----- ----- ------ ------
Income before income taxes 331 298 663 597
Provision for income taxes 116 108 233 216
----- ----- ------ ------
Net income 215 190 430 381
Dividends on preferred stock - 4 9 13
----- ----- ------ ------
Net income applicable to
common stock $ 215 $ 186 $ 421 $ 368
===== ===== ====== ======
Basic net income per common share $.82 $.73 $1.62 $1.43
===== ===== ====== ======
Diluted net income per common share $.81 $.71 $1.59 $1.40
===== ===== ====== ======
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEET
Mellon Bank Corporation
<TABLE>
<CAPTION>
(dollar amounts in millions) June 30, March 31, Dec. 31, June 30,
1998 1998 1997 1997
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Cash and due from banks $ 2,993 $ 3,312 $ 3,650 $ 3,447
Money market investments 882 1,263 1,008 1,260
Trading account securities 126 140 75 112
Securities available for sale 3,957 3,547 2,767 3,333
Investment securities (approximate
fair value of $1,899, $2,022,
$2,118 and $2,257) 1,861 1,987 2,082 2,249
Loans, net of unearned discount of
$68, $64, $48 and $48 30,654 30,343 29,142 28,144
Reserve for credit losses (498) (496) (475) (511)
------- ------- ------- -------
Net loans 30,156 29,847 28,667 27,633
Premises and equipment 559 557 573 581
Acquired property, net of reserves
of $9, $9, $9 and $9 63 49 48 72
Goodwill and other intangibles 2,156 1,918 1,425 1,197
Mortgage servicing assets and
purchased credit card relationships 1,010 1,130 1,075 986
Other assets 3,685 3,664 3,522 2,842
------- ------- ------- -------
Total assets $47,448 $47,414 $44,892 $43,712
======= ======= ======= =======
Liabilities
- -----------
Deposits in domestic offices $30,230 $30,461 $27,929 $28,914
Deposits in foreign offices 2,967 2,635 3,376 2,412
Short-term borrowings 3,901 4,054 3,744 2,999
Other liabilities 2,122 2,184 2,434 1,868
Notes and debentures (with original
maturities over one year) 3,003 3,003 2,573 2,959
------- ------- ------- -------
Total liabilities 42,223 42,337 40,056 39,152
Trust-preferred securities
- --------------------------
Guaranteed preferred beneficial interests
in Corporation's junior subordinated
deferrable interest debentures 991 991 991 990
Shareholders' equity
- --------------------
Preferred stock - - 193 193
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 1,879 1,855 1,818 1,812
Retained earnings (a) 3,124 3,003 2,884 2,671
Accumulated unrealized gains
(losses), net of tax (a) 19 30 21 (5)
Treasury stock of 33,623,356;
34,120,588; 40,545,114; and
42,732,010 shares at cost (935) (949) (1,218) (1,248)
------- ------- ------- -------
Total common shareholders'
equity 4,234 4,086 3,652 3,377
------- ------- ------- -------
Total shareholders' equity 4,234 4,086 3,845 3,570
------- ------- ------- -------
Total liabilities, trust-
preferred securities and
shareholders' equity $47,448 $47,414 $44,892 $43,712
======= ======= ======= =======
</TABLE>
(a) Presented in accordance with the requirements of Financial Accounting
Standard No. 130, "Reporting Comprehensive Income," which was adopted by the
Corporation in the first quarter of 1998. Prior-period amounts have been
restated.
<PAGE>
SUMMARY DATA
Mellon Bank Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
Quarter ended
(dollar amounts in millions, ----------------------------------------------------
except per share amounts; June 30, March 31, Dec. 31, Sept. 30, June 30,
common shares in thousands) 1998 1998 1997 1997 1997
-------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Selected key data
- -----------------
Net income per common share (a) $ .81 $ .78 $ .75 $ .73 $ .71
Tangible net income per
common share (a)(b) $ .91 $ .88 $ .83 $ .80 $ .79
Net income applicable to
common stock $ 215 $ 206 $ 191 $ 191 $ 186
Tangible net income applicable
to common stock (b) $ 243 $ 231 $ 212 $ 211 $ 206
Return on common shareholders'
equity (c) 20.8% 21.6% 21.2% 21.6% 21.9%
Return on tangible common
shareholders' equity (b)(c) 49.7% 43.3% 38.3% 37.6% 37.7%
Return on assets (c) 1.79% 1.89% 1.75% 1.81% 1.79%
Return on tangible assets (b)(c) 2.13% 2.18% 2.00% 2.05% 2.04%
Common equity to assets 8.92% 8.62% 8.13% 8.25% 7.72%
Tangible common equity to assets 4.59% 4.76% 5.12% 5.37% 5.13%
Fee revenue as a percentage of
total revenue (FTE) 66% 66% 66% 63% 59%
Efficiency ratio excluding
amortization of intangibles 63% 62% 65% 62% 59%
Average common shares and
equivalents outstanding:
Basic 260,495 257,714 253,886 255,081 254,508
Diluted 265,848 263,136 259,430 260,306 259,475
Average balances for the period
- -------------------------------
Money market investments $ 1,597 $ 1,712 $ 1,397 $ 1,231 $ 1,081
Trading account securities 239 242 159 171 210
Securities 5,596 5,301 5,293 5,469 5,600
Loans 30,302 29,389 28,476 27,596 27,806
Total interest-earning assets 37,734 36,644 35,325 34,467 34,697
Total assets 47,965 46,229 44,266 42,879 42,413
Total tangible assets 45,804 44,518 42,888 41,588 41,207
Deposits 33,548 32,725 31,085 30,349 30,113
Total interest-bearing
liabilities 31,145 29,348 28,123 27,266 27,830
Common shareholders' equity 4,126 3,873 3,573 3,520 3,393
Tangible common shareholders'
equity 1,965 2,162 2,195 2,229 2,187
Total shareholders' equity 4,126 3,974 3,766 3,713 3,586
</TABLE>
_______________________
(a) Diluted.
(b) Excludes the after-tax impact of the amortization of goodwill and other
identified intangibles resulting from accounting for business combinations
under the purchase method of accounting.
(c) Annualized.
Note: All calculations are based on unrounded numbers.
<PAGE>
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Bank Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
Quarter ended
--------------------------------------------------
(in millions, except per June 30, March 31, Dec. 31, Sept. 30, June 30,
share amounts) 1998 1998 1997 1997 1997
-------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Interest revenue
- ----------------
Interest and fees on loans (loan
fees of $17, $17, $23, $22 and $19) $ 606 $ 577 $ 577 $ 567 $ 571
Interest-bearing deposits with banks 6 9 6 6 7
Federal funds sold and securities
under resale agreements 12 13 10 9 6
Other money market investments 3 1 2 2 1
Trading account securities 3 4 2 2 3
Securities 93 90 88 94 96
----- ----- ----- ----- ----
Total interest revenue 723 694 685 680 684
Interest expense
- ----------------
Interest on deposits 240 229 224 220 219
Federal funds purchased and securities
under repurchase agreements 30 24 22 17 20
Other short-term borrowings 30 28 29 28 28
Notes and debentures 52 48 49 49 47
----- ----- ----- ----- ----
Total interest expense 352 329 324 314 314
----- ----- ----- ----- ----
Net interest revenue 371 365 361 366 370
Provision for credit losses 15 15 73 25 25
----- ----- ----- ----- ----
Net interest revenue after
provision for credit losses 356 350 288 341 345
Noninterest revenue
- -------------------
Trust and investment fee revenue 418 386 387 375 283
Cash management and deposit
transaction charges 65 61 65 62 59
Mortgage servicing fees 53 55 56 53 53
Foreign currency and securities
trading revenue 38 41 36 32 25
Credit card fees 23 24 24 24 25
Gain on sale of corporate trust business - - 43 - -
Other 115 131 96 89 95
----- ----- ----- ----- ----
Total fee revenue 712 698 707 635 540
Gains on sales of securities 1 - - - -
----- ----- ----- ----- ----
Total noninterest revenue 713 698 707 635 540
Operating expense
- -----------------
Staff expense 355 357 354 344 276
Professional, legal and other
purchased services 67 61 72 55 46
Net occupancy expense 59 56 64 55 54
Equipment expense 41 39 65 38 36
Amortization of mortgage servicing
assets and purchased credit card
relationships 44 45 33 29 28
Amortization of goodwill and other
intangible assets 35 30 26 25 27
Other expense 120 109 108 105 104
Trust-preferred securities expense 19 20 19 20 19
Net revenue from acquired property (2) (1) (12) (1) (3)
----- ----- ----- ----- ----
Total operating expense 738 716 729 670 587
----- ----- ----- ----- ----
Income before income taxes 331 332 266 306 298
Provision for income taxes 116 117 71 111 108
----- ----- ----- ----- ----
Net income 215 215 195 195 190
Dividends on preferred stock - 9 4 4 4
----- ----- ----- ----- ----
Net income applicable to
common stock $ 215 $ 206 $ 191 $ 191 $ 186
===== ===== ===== ===== =====
Basic net income per common share $ .82 $ .80 $ .76 $ .75 $ .73
===== ===== ===== ===== =====
Diluted net income per common share $ .81 $ .78 $ .75 $ .73 $ .71
===== ===== ===== ===== =====
</TABLE>
