<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)-April 18, 2000
MELLON FINANCIAL 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 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 April 18, 2000, Mellon Financial Corporation
(the "Corporation") announced first quarter 2000 results of operations.
In the same release, the Corporation announced an increase in the
quarterly cash dividend. The Corporation increased its quarterly Common
Stock dividend by 10 percent to 22 cents per share payable on May 15,
2000, to shareholders of record at the close of business on April 28,
2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit Description
Number
99.1 Mellon Financial Corporation Press Release, dated April 18, 2000,
announcing the matters 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 FINANCIAL CORPORATION
Date: April 18, 2000 By: /s/ Steven G. Elliott
______________________________
Steven G. Elliott
Senior Vice Chairman and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Number Description Method of Filing
99.1 Press Release dated Filed herewith
April 18, 2000
<PAGE>
EXHIBIT 99.1
[LOGO]
News Release
MEDIA: ANALYSTS: Corporate Affairs
----- --------
Ken Herz Donald J. MacLeod One Mellon Center
(412) 234-0850 (412) 234-5601 Pittsburgh, 15258-0001
Ron Gruendl Andrew J. Clark
(412) 234-7157 (412) 234-4633
- --------------------------------------------------------------------------------
FOR IMMEDIATE RELEASE
MELLON REPORTS RECORD FIRST QUARTER 2000 RESULTS;
------------------------------------------------
INCREASES COMMON STOCK DIVIDEND
-------------------------------
. Earnings Per Share Increases to 50 Cents, Up 16 Percent Over Same Period
Last Year on an Operating Basis
. Trust and Investment Fee Revenue Up 17 Percent Over Same Period Last Year
. Return on Common Equity is 26.0 Percent, Return on Assets is 2.15 Percent
. Quarterly Common Stock Dividend Increases 10 Percent to 22 Cents Per Share
<TABLE>
<CAPTION>
Financial Highlights Quarter ended
-------------------------------------------------
(dollar amounts in millions, except per share March 31, Dec. 31, March 31,
amounts; quarterly returns are annualized) 2000 1999 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating results (a):
Diluted earnings per common share $ .50 $ .48 $ .43
Net income $ 253 $ 245 $ 231
Return on common equity 26.0% 23.5% 20.9%
Return on assets 2.15% 2.05% 1.84%
Cash operating results (a):
Diluted earnings per common share $ .56 $ .53 $ .49
Net income $ 282 $ 274 $ 260
Return on common equity 51.8% 45.6% 40.4%
Return on assets 2.50% 2.38% 2.16%
Reported results:
Diluted earnings per common share $ .50 $ .47 $ .48
Net income $ 253 $ 240 $ 254
Return on common equity 26.0% 23.1% 23.1%
Return on assets 2.15% 2.01% 2.03%
Fee revenue as a percentage of net interest and fee revenue (FTE) 70% 69% 68%
Trust and investment fee revenue as a percentage of net interest
and fee revenue (FTE) 50% 49% 42%
Efficiency ratio excluding amortization of intangibles 59% 59% 62%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Operating results equaled reported results in the first quarter of 2000.
Operating and cash operating results for the fourth quarter of 1999 exclude
a $5 million after-tax net loss from divestitures. The first quarter of
1999 excludes a $49 million after-tax net gain from divestitures and a $26
million after-tax charge for the cumulative effect of a change in
accounting principle. Cash operating results exclude the after-tax impact
of the amortization of goodwill and other intangibles from purchase
acquisitions.
-more-
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 2
PITTSBURGH, April 18, 2000--Mellon Financial Corporation (NYSE: MEL) today
announced record first quarter 2000 diluted earnings per common share of 50
cents, an increase of 16 percent compared with 43 cents per common share, on an
operating basis, in the first quarter of 1999. These results were driven in
large part by a 17 percent increase in trust and investment fee revenue.
"Our record earnings per share, ROE and ROA collectively demonstrate the value
created through our increased focus on high-growth, high-return businesses. This
strategy has resulted in a 13 percent growth in fee revenue, including a 17
percent growth in trust and investment fee revenue. We are pleased to share this
continued success with our shareholders through a 10 percent increase to 22
cents per share in our quarterly stock dividend," said Martin G. McGuinn, Mellon
chairman and chief executive officer. "We are also pleased to announce that for
the first time, our assets under management have exceeded $500 billion. As we
continue to deliver top-tier performance, we believe that our stock price should
be rewarded over time with the kind of valuation that other providers of trust
and fiduciary services have received."
Net income totaled $253 million in the first quarter of 2000, an increase of 10
percent compared with $231 million, on an operating basis, in the first quarter
of 1999. Return on common equity and return on assets were 26.0 percent and 2.15
percent, respectively, for the first quarter of 2000, compared with 20.9 percent
and 1.84 percent, respectively, on an operating basis for the first quarter of
1999.
The Corporation increased its quarterly common stock dividend by 10 percent to
22 cents per share. This cash dividend is payable on May 15, 2000, to
shareholders of record at the close of business on April 28, 2000. This is the
10th quarterly common dividend increase that the Corporation has announced since
the beginning of 1993, resulting in a total common dividend per share increase
of approximately 275 percent.
Fee revenue of $798 million in the first quarter of 2000 was impacted by the
1999 credit card, network services and mortgage banking divestitures. Excluding
the effect of these divestitures, fee revenue increased 13 percent in the first
quarter of 2000, compared with the first quarter of 1999, primarily due to a 17
percent increase in trust and investment fee revenue. Fee revenue increased 21
percent, on an annualized basis, in the first quarter of 2000 compared with the
fourth quarter of 1999, primarily resulting from a 23 percent increase, on an
annualized basis, in trust and investment fee revenue.
Net interest revenue, on a fully taxable equivalent basis, was $351 million in
the first quarter of 2000 compared with $371 million in the first quarter of
1999. Excluding the effect of the divestitures of the credit card and mortgage
businesses, net interest revenue increased 1 percent compared with the first
quarter of 1999, reflecting the positive impact of interest-free funds in a
rising rate environment, offset in part by higher funding costs related to the
repurchase of common stock.
Operating expense before trust-preferred securities expense and net revenue from
acquired property totaled $719 million in the first quarter of 2000 compared
with $760 million in the first quarter of 1999. Excluding the effect of
divestitures, operating expense before trust-preferred securities expense and
net revenue from acquired property increased 9 percent compared with the first
quarter of 1999, reflecting higher incentive expense and other expenses in
support of business growth.
-more-
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 3
Credit quality expense was $9 million in the first quarter of 2000 compared with
$15 million in the first quarter of 1999. The lower expense in 2000 primarily
resulted from a lower provision for credit losses following the divestiture of
the credit card business. Nonperforming assets totaled $210 million at March 31,
2000, compared with $159 million at Dec. 31, 1999, and $161 million at March 31,
1999. The higher level of nonperforming assets, compared with Dec. 31, 1999,
primarily resulted from the addition to nonperforming status of commercial loans
to a health care provider and its affiliate companies, offset in part by credit
losses. The ratio of nonperforming assets to total loans and net acquired
property was .74 percent at March 31, 2000, compared with .53 percent at both
Dec. 31, 1999 and March 31, 1999.
Mellon Financial Corporation is a global financial services company with more
than $2.7 trillion in assets under management, administration or custody,
including more than $500 billion under management. One of the world's leading
providers of wealth management and global investment management for individual
and institutional investors, as well as global investment services for
businesses and institutions, Mellon also offers a comprehensive array of banking
services for individuals and small, midsize and large businesses and
institutions in selected geographies. Its world-class asset management
companies, which include The Dreyfus Corporation in the United States and Newton
Management Limited in the United Kingdom, provide investment products in
virtually every asset class and investment style. In addition, Mellon is a top
global provider of custody, retirement and benefits consulting services through
its Mellon Trust and Buck Consultants affiliates. Headquartered in Pittsburgh,
Pennsylvania, Mellon has operations or joint ventures around the world.
Taped comments from Steven G. Elliott, Mellon senior vice chairman and chief
financial officer, regarding the Corporation's first quarter 2000 earnings are
available by calling (412) 236-5385 from 9 a.m. EDT Tuesday, April 18, 2000,
through 5 p.m. EDT on Friday, April 28, 2000. Press releases and other
information about Mellon Financial 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
April 18, 2000
Page 4
<TABLE>
<CAPTION>
Business Sectors
- ----------------
- -------------------------------------------------------------------------------------------------------
First Quarter 2000 First Quarter 1999
------------------------------- --------------------------------
Income Return on Income Return on
Total Before Common Total Before Common
Sector Revenue Taxes Equity Revenue Taxes Equity
- -------------------------------- ------- ------ --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Managed for Growth:
- ------------------
Wealth Management $ 110 $ 43 36% $103 $ 40 41%
Global Investment Management 301 115 51 233 76 36
Global Investment Services 268 70 33 236 58 25
------ ---- ---- ----
Total Growth Sectors 679 228 41 572 174 32
Managed for Return:
- ------------------
Regional Consumer Banking 155 50 18 162 46 16
Specialized Commercial Banking 143 73 23 131 63 23
Large Corporate Banking 135 44 13 126 43 11
------ ---- ---- ----
Total Return Sectors 433 167 18 419 152 16
------ ---- ---- ----
Total Core Sectors $1,112 $395 26% $991 $326 22%
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Corporation manages its business sectors utilizing growth and return
strategies. The sectors managed for growth include businesses which are
predominantly fee-based in nature. The Corporation invests in these businesses
for future growth. The sectors managed for return include the more slowly
growing, traditional banking businesses. These businesses are managed to drive
profitability higher, primarily focusing on improving productivity through
continuous re-engineering.
Sectors Managed for Growth:
Total revenue for the growth sectors comprised 61% of total core sector revenue
in the first quarter of 2000, compared with 58% in the first quarter of 1999.
Income before taxes represented 58% of core sector pretax income, up from 53% in
the first quarter of 1999.
- --------------------------------------------------------------------------------
1Q 2000 vs. 1Q 1999 Total Revenue Operating Expense Income Before
Growth Growth Taxes Growth
- --------------------------------------------------------------------------------
Wealth Management 8% 5% 7%
Global Investment Management 29% 18% 52%
Global Investment Services 13% 11% 21%
Total Growth Sectors 19% 13% 31%
- --------------------------------------------------------------------------------
The growth sectors continued to perform strongly in the first quarter of 2000 as
total revenue for these sectors increased by 19%, and income before taxes
increased by 31%, compared with the prior-year quarter.
Wealth Management - Income before taxes was $43 million in the first quarter of
2000. The Corporation's private asset management businesses' income before
taxes grew by 25% from the prior-year period, offset in part by lower revenue
from jumbo residential mortgage lending.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 5
Global Investment Management - Income before taxes was $115 million in the first
quarter of 2000, up 52% from the prior-year period. Revenue increased 29% in
the first quarter of 2000 primarily due to higher mutual fund and institutional
asset management fees, as well as strong growth in brokerage fees.
Global Investment Services - Income before taxes was $70 million in the first
quarter of 2000, up 21% from the prior-year period. Revenue increased 13% in
the first quarter of 2000 due to higher institutional trust and custody fees,
higher foreign exchange fees and improved securities lending fees.
Sectors Managed for Return:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Pretax Operating Return on Average
Margin Common Equity Allocated Equity
---------------- ------------- --------------------
(dollar amounts in millions) 1Q00 1Q99 1Q00 1Q99 1Q00 1Q99
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Regional Consumer Banking 32% 28% 18% 16% $ 760 $ 759
Specialized Commercial Banking 51% 49% 23% 23% $ 959 $ 852
Large Corporate Banking 32% 34% 13% 11% $1,110 $1,265
------ ------
Total Return Sectors 39% 36% 18% 16% $2,829 $2,876
- --------------------------------------------------------------------------------------------
</TABLE>
The results in the first quarter of 2000 for the return sectors demonstrates the
Corporation's strategy of driving profitability and returns through productivity
improvements and continuous re-engineering. The pretax operating margin in the
first quarter of 2000 was 39%, up from 36% in the first quarter of 1999. The
Corporation also continues to aggressively manage capital levels in the return
sectors. Average allocated equity decreased $47 million in the first quarter of
2000, and the return on common equity increased to 18%, up 200 basis points from
the first quarter of 1999.
Regional Consumer Banking - Income before taxes was $50 million in the first
quarter of 2000, up 9% from the prior-year period primarily due to lower net
operating expense, reflecting productivity improvements.
Specialized Commercial Banking - Income before taxes was $73 million in the
first quarter of 2000, up 15% from the prior-year period reflecting higher
equity investment revenue as well as improved net interest revenue.
Large Corporate Banking - Income before taxes was $44 million in the first
quarter of 2000, up 2% from the prior-year period primarily driven by higher
cash management revenue and lower operating expense offset in part by higher
credit quality expense.
Total Core Sectors:
Income before taxes was $395 million in the first quarter of 2000, an increase
of 21% compared with the first quarter of 1999. This increase resulted from
positive operating leverage as revenues increased 12% while operating expense
increased only 7%.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 6
Noninterest Revenue
- -------------------
Quarter ended
-------------------------------
March 31, Dec. 31, March 31,
(dollar amounts in millions) 2000 1999 1999
- -------------------------------------------------------------------------------
Trust and investment fee revenue:
Investment management:
Mutual fund $ 166 $ 157 $ 144
Institutional asset 82 81 63
Private asset 76 75 71
- -------------------------------------------------------------------------------
Total investment management revenue 324 313 278
Administration and custody:
Institutional trust 121 96 100
Mutual fund 48 48 42
Private asset 4 4 5
- -------------------------------------------------------------------------------
Total administration and custody revenue 173 148 147
Benefits consulting 56 67 56
Brokerage fees 25 18 15
- -------------------------------------------------------------------------------
Total trust and investment fee revenue 578 546 496
Cash management and deposit transaction charges 74 76 72
Foreign currency and securities trading revenue 51 43 43
Financing-related revenue 39 56 49
Equity investment revenue 36 16 23
Mortgage servicing fees 2 2 52
Other 18 20 54
- -------------------------------------------------------------------------------
Total fee and other revenue $ 798 $ 759 $ 789
Net gain (loss) from divestitures - (7) 83
Gains on sales of securities - - -
- -------------------------------------------------------------------------------
Total noninterest revenue $ 798 $ 752 $ 872
- -------------------------------------------------------------------------------
Fee revenue as a percentage of net interest and
fee revenue (FTE) 70% 69% 68%
Trust and investment fee revenue as a percentage
of net interest and fee revenue (FTE) 50% 49% 42%
- -------------------------------------------------------------------------------
Note: Various items, previously reported in other fee revenue, have been
reclassified to mutual fund administration and custody revenue in trust and
investment fee revenue, cash management and deposit transaction charges,
financing related revenue and equity investment revenue. Prior periods have been
restated and the percentages of trust and investment fee revenue to net interest
and fee revenue have been recalculated. For analytical purposes, the term "fee
revenue", as utilized throughout this earnings release, is defined as total
noninterest revenue less gains on the sales of securities and the net gain
(loss) from divestitures.
Memo:
Gross joint venture fee revenue (a) $ 134 $ 129 $ 91
- --------------------------------------------------------------------------------
(a) The Corporation accounts for its interest in joint ventures under the equity
method of accounting with the net results primarily recorded as either other
fee revenue or trust and investment fee revenue. The gross joint venture
fee revenue is not included in total noninterest revenue above.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 7
Fee revenue
Fee revenue of $798 million in the first quarter of 2000 was impacted by the
1999 credit card, network services and mortgage banking divestitures. Excluding
these divestitures, fee revenue increased 13% in the first quarter of 2000
compared with the first quarter of 1999, primarily due to a 17% increase in
trust and investment fee revenue.
Fee revenue increased 21%, on an annualized basis, in the first quarter of 2000
compared with the fourth quarter of 1999, primarily resulting from a 23%
increase, on an annualized basis, in trust and investment fee revenue.
1st Qtr. 2000 1st Qtr. 2000
over over
Fee revenue growth 1st Qtr. 1999 4th Qtr. 1999
- ---------------------------------------------------------------------------
Trust and investment fee revenue growth 17% 23% (b)
Total fee revenue growth 13% (a) 21% (b)
- ---------------------------------------------------------------------------
(a) Excluding the effect of divestitures.
(b) Presented on an annualized basis.
Investment management revenue increased $46 million, or 17%, compared with the
first quarter of 1999. This increase resulted from a $22 million, or 16%,
increase in mutual fund management revenue, a $19 million, or 31%, increase in
institutional asset management revenue and a $5 million, or 7%, increase in
private asset management revenue. These increases resulted from net new business
and an increase in the market value of assets under management. In addition,
the increase in institutional asset management revenue primarily reflects a
higher level of performance fees earned by investment managers as the investment
performance of their products exceeded various benchmarks. The measurement
period is generally annually with revenue recorded in the fourth and first
quarters each year.
The average net assets of proprietary funds managed in the first quarter of 2000
were $137 billion, up $12 billion from $125 billion in the first quarter of 1999
and up $8 billion from $129 billion in the fourth quarter of 1999. The
increases primarily resulted from increases in average net assets of equity
funds. Proprietary equity funds averaged $55 billion in the first quarter of
2000, compared with $42 billion in the first quarter of 1999 and $49 billion in
the fourth quarter of 1999.
Administration and custody fee revenue increased $26 million, or 17%, in the
first quarter of 2000 compared with the first quarter of 1999. The $21 million,
or 20%, increase in institutional trust and custody revenue resulted from net
new business and a $6 million increase in securities lending revenue. Growth of
institutional trust and custody revenue was tempered primarily by the formation
of joint ventures and by the contribution of pre-existing business to joint
ventures. The results of joint ventures are accounted for under the equity
method of accounting, which reports the Corporation's share of the results of
the joint ventures on a net basis, rather than reporting the revenues and
expenses separately. Including the institutional trust and custody gross
revenue generated by joint ventures, institutional trust and custody revenue
increased $55 million, or 33%, compared with the first quarter of 1999.
Mutual fund administration and custody fees will be impacted beginning in the
second quarter of 2000 as a long-term contract with a third party expires near
the end of May 2000. Fees from this contract totaled
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 8
approximately $24 million pre-tax, or $.03 per common share, in the first
quarter of 2000 and are expected to total approximately $12 million pre-tax, or
approximately $.015 per common share, in the second quarter through May 2000,
when the contract expires.
Benefits consulting fees generated by Buck Consultants were unchanged in the
first quarter of 2000, compared with the first quarter of 1999, and decreased
$11 million compared with the fourth quarter of 1999. Benefits consulting fees
in the first quarter of 2000 compared with the first quarter of 1999 were
impacted by the contribution of pre-existing business to joint ventures. The
decrease compared with the fourth quarter of 1999 primarily reflects the
seasonal nature of many consulting services. The fourth quarter 1999 results
reflected the impact of services provided to clients in preparation for year-end
benefit plan needs.
The $10 million, or 67%, increase in brokerage fees in the first quarter of 2000
compared to the prior-year period primarily resulted from higher trading volumes
in the active equities markets. Dreyfus Brokerage Services, Inc. averaged
approximately 16,500 trades per day in the first quarter of 2000, compared with
approximately 12,000 trades per day in the fourth quarter of 1999 and
approximately 9,600 trades per day in the first quarter of 1999.
The $2 million, or 2%, increase in cash management fees and deposit transaction
charges in the first quarter of 2000, compared with the prior-year period,
primarily resulted from higher volumes of business in cash management,
especially in electronic payment services. Cash management fees in the first
quarter of 2000 were impacted by a higher level of compensating balances on
deposits held in lieu of customers paying fees.
Foreign currency and securities trading revenue increased by 20% to a record $51
million in the first quarter of 2000, compared with the prior-year period. This
increase was primarily related to an increase in foreign exchange customers and
favorable market conditions.
Financing-related and equity investment revenue totaled $75 million in the first
quarter of 2000 compared with $72 million in both the fourth and first quarters
of 1999. Financing-related revenue primarily includes loan commitment fees;
letters of credit and acceptance fees; loan securitization revenue; gains or
losses on loan securitizations and sales; and gains or losses on lease
residuals. Financing-related revenue decreased $10 million in the first quarter
of 2000 compared with the first quarter of 1999 in part due to lower gains on
loan securitizations, loan sales and lease residuals. Equity investment
revenue, which includes gains and losses on venture capital investments,
increased $13 million in the first quarter of 2000 compared with the first
quarter of 1999.
The $2 million of mortgage servicing fees in the first quarter of 2000 relates
to the servicing of jumbo mortgages, which were retained by the Corporation
following the 1999 divestiture of the mortgage businesses.
Other revenue decreased $36 million in the first quarter of 2000 compared with
the prior-year period. The decrease primarily related to the March 1999
divestiture of the credit card business and the June 1999 divestiture of the
network services transaction processing unit. The credit card and network
services businesses generated $18 million and $13 million, respectively, of fee
revenue in the first quarter of 1999. Excluding the effect of the divested
businesses, other revenue decreased $5 million compared with the prior-year
period.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 9
Net gain (loss) from divestitures
In the first quarter of 1999, the Corporation recorded an $83 million pre-tax
net gain from divestitures. The after-tax impact totaled $49 million or $.19
per common share. The net gain resulted from a gain on the divestiture of the
credit card business, partially offset by a loss on the commercial mortgage
servicing business and a write-down to reflect the estimated sale proceeds to be
received for the residential mortgage business.
In the fourth quarter of 1999, the Corporation recorded a $7 million pre-tax net
loss from divestitures. The after-tax net loss totaled $5 million, or
approximately $.01 per common share. The net loss primarily resulted from an
adjustment to the previous write-downs recorded for the residential mortgage
servicing business, partially offset by an additional gain from the network
services sale as more customers converted to the purchaser.
Net Interest Revenue
- --------------------
Quarter ended
---------------------------------
March 31, Dec. 31, March 31,
(dollar amounts in millions) 2000 1999 1999
- --------------------------------------------------------------------------------
Net interest revenue (FTE) $ 351 $ 353 $ 371
Net interest margin (FTE) 3.75% 3.66% 3.78%
Average securities $ 6,155 $ 6,275 $ 6,767
Average loans $29,283 $29,159 $31,467
Average interest-earning assets $37,399 $38,073 $39,811
- --------------------------------------------------------------------------------
Net interest revenue on a fully taxable equivalent basis in the first quarter of
2000 decreased $20 million compared with the first quarter of 1999. This
decrease primarily resulted from the divestitures of the credit card and
mortgage businesses. Excluding the net interest revenue generated by these
businesses, net interest revenue increased 1% compared with the first quarter of
1999, reflecting the positive impact of interest-free funds in a rising rate
environment, offset in part by higher funding costs related to the repurchase of
common stock. Net interest revenue decreased $2 million in the first quarter of
2000 compared with the fourth quarter of 1999, primarily reflecting a lower
level of lower-yielding interest-earning assets, as well as funding costs
related to the repurchase of common stock.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 10
<TABLE>
<CAPTION>
Operating Expense
- -----------------
Quarter ended
- -----------------------------------------------------------------------------------------
March 31, Dec. 31, March 31,
(dollar amounts in millions) 2000 1999 1999
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Staff expense $ 397 $ 384 $ 391
Professional, legal and other purchased services 67 73 71
Net occupancy expense 64 57 61
Equipment expense 37 42 41
Amortization of goodwill and other intangible assets 37 37 37
Amortization of mortgage servicing assets and
purchased credit card relationships 1 1 42
Other expense 116 105 117
- -----------------------------------------------------------------------------------------
Operating expense before trust-preferred securities
expense and net revenue from acquired property 719 699 760
Trust-preferred securities expense 20 20 20
Net revenue from acquired property (1) (4) -
- -----------------------------------------------------------------------------------------
Total operating expense $ 738 $ 715 $ 780
- -----------------------------------------------------------------------------------------
Average full-time equivalent staff 26,000 25,800 29,100
- -----------------------------------------------------------------------------------------
Efficiency ratio (a) 62% 62% 65%
Efficiency ratio excluding amortization of goodwill
and other intangible assets 59% 59% 62%
- -----------------------------------------------------------------------------------------
</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 the net gain (loss) on divestitures and gains on
the sales of securities.
Operating expense before trust-preferred securities expense and net revenue from
acquired property totaled $719 million, a decrease of $41 million compared with
the first quarter of 1999, resulting from the 1999 credit card, network services
and mortgage banking divestitures. Excluding the effect of these divestitures,
operating expense before trust-preferred securities expense and net revenue from
acquired property increased 9% compared with the first quarter of 1999,
reflecting higher incentive expense and other expenses in support of business
growth.
1st Qtr. 2000 1st Qtr. 2000
over over
Operating expense growth 1st Qtr. 1999 4th Qtr. 1999
- -------------------------------------------------------------------
Operating expense growth 9% (a) 12% (b)
- -------------------------------------------------------------------
(a) Excludes the effect of divestitures.
(b) Presented on an annualized basis.
Operating expense before trust-preferred securities expense and net revenue from
acquired property increased $20 million compared with the fourth quarter of
1999. This increase was primarily due to higher base salary expense, and
incentive expense in business lines with strong revenue growth.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 11
Income Taxes
- ------------
The Corporation's effective tax rate for the first quarter of 2000 was 36.5%,
compared with 36.5% for the first quarter of 1999 excluding the effect of a
change in accounting principle and the effect of the net gain from divestitures.
It is currently anticipated that the effective tax rate will be approximately
the same for the remainder of 2000.
Credit Quality Expense, Net Credit Losses and Reserve for Credit Losses
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter ended
----------------------------------
March 31, Dec. 31, March 31,
(dollar amounts in millions) 2000 1999 1999
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for credit losses $ 10 $ 10 $ 15
Net revenue from acquired property (1) (4) -
- ---------------------------------------------------------------------------------
Credit quality expense $ 9 $ 6 $ 15
- ---------------------------------------------------------------------------------
Net credit (losses) recoveries:
Credit card $ - $ - $ (10)
Other consumer credit (3) (2) (4)
Commercial real estate 5 2 -
Commercial and financial (13) (12) (3)
- ---------------------------------------------------------------------------------
Total net credit losses $ (11) $ (12) $ (17)
- ---------------------------------------------------------------------------------
Annualized net credit losses to average loans .15% .16% .22%
- ---------------------------------------------------------------------------------
Reserve for credit losses at end of period $ 402 $ 403 $ 410
Reserve as a percentage of total loans 1.42% 1.33% 1.34%
- ---------------------------------------------------------------------------------
</TABLE>
The decrease in credit quality expense in the first quarter of 2000, compared
with the first quarter of 1999, primarily resulted from a lower provision for
credit losses following the divestiture of the credit card business.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 12
<TABLE>
<CAPTION>
Nonperforming Assets
- --------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Domestic nonperforming loans:
Consumer mortgage $ 38 $ 40 $ 47 $ 43 $ 44
Commercial real estate 6 6 6 6 6
Other domestic 144 96 101 72 77
- --------------------------------------------------------------------------------------------------------------
Total nonperforming loans 188 142 154 121 127
Acquired property:
Real estate acquired 14 15 15 24 37
Reserve for real estate acquired (1) (1) (3) (4) (5)
- --------------------------------------------------------------------------------------------------------------
Net real estate acquired 13 14 12 20 32
Other assets acquired 9 3 3 1 2
- --------------------------------------------------------------------------------------------------------------
Total acquired property 22 17 15 21 34
- --------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 210 $ 159 $ 169 $ 142 $ 161
- --------------------------------------------------------------------------------------------------------------
Nonperforming loans as a percentage of total loans .67% .47% .53% .40% .41%
Nonperforming assets as a percentage of total loans
and net acquired property .74% .53% .58% .46% .53%
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Nonperforming assets increased $51 million compared with Dec. 31, 1999, and
increased $49 million compared with March 31, 1999. The increase compared with
Dec. 31, 1999 primarily resulted from the addition to nonperforming status of
commercial loans to a health care provider and its affiliate companies, offset
in part by credit losses. The higher level of nonperforming assets, compared
with March 31, 1999, primarily resulted from the addition of the previously
mentioned commercial loans as well as the addition of another commercial loan in
the third quarter of 1999, partially offset by sales of acquired property and
credit losses.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 13
<TABLE>
<CAPTION>
Selected Capital Data
- ---------------------
March 31, Dec. 31, Sept. 30, March 31,
(dollar amounts in millions, except per share amounts) 2000 1999 1999 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total shareholders' equity $ 3,851 $ 4,016 $ 4,219 $ 4,502
Total shareholders' equity to assets ratio 8.13% 8.38% 9.00% 9.12%
Tangible shareholders' equity (a) $ 2,190 $ 2,288 $ 2,454 $ 2,659
Tangible shareholders' equity to assets ratio (b) 4.80% 4.96% 5.45% 5.60%
Tier I capital ratio 6.5% (c) 6.60% 7.12% 6.89%
Total (Tier I plus Tier II) capital ratio 10.6 (c) 10.76 11.58 11.22
Leverage capital ratio 6.6 (c) 6.72 6.82 6.60
Book value per common share $ 7.84 $ 8.02 $ 8.29 $ 8.64
Tangible book value per common share $ 4.46 $ 4.57 $ 4.83 $ 5.11
Closing common stock price $ 29.50 $ 34.06 $ 33.63 $ 35.19
Market capitalization $ 14,491 $ 17,052 $ 17,103 $ 18,335
Common shares outstanding (000) 491,210 500,623 508,650 521,064
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $74 million, $67 million, $64 million and $62 million,
respectively, of minority interest, primarily related to Newton. In
addition, includes $323 million, $345 million, $353 million and $371
million, respectively, of tax benefits related to tax deductible goodwill
and other intangibles.
(b) Shareholders' equity plus minority interest less goodwill and other
intangibles recorded in connection with purchase acquisitions divided by
total assets less goodwill and other intangibles. The amount of goodwill
and other intangibles subtracted from shareholders' equity and total assets
is net of any tax benefit.
(c) Estimated.
The decrease in shareholders' equity at March 31, 2000, compared with the prior
periods, primarily reflects common stock repurchases partially offset by
earnings retention. During the first quarter of 2000, 10.8 million shares of
common stock were repurchased, with an additional 4 million shares available for
repurchase under a 25 million share repurchase program authorized by the board
of directors in September 1999. The repurchased shares had a total purchase
price of $336 million for an average share price of $31.07 per share. Certain
capital ratios were lower at March 31, 2000, compared with the prior periods,
reflecting the impact of the stock repurchases offset in part by earnings
retention. Common shares outstanding at March 31, 2000 were 6.2% lower than at
Dec. 31, 1998, reflecting a 32.6 million reduction over the last 5 quarters, net
of shares reissued for employee benefit plan purposes.
Average common stock and stock equivalents used in the computation of diluted
earnings per share totaled 502.1 million shares in the first quarter of 2000,
compared with 531.3 million shares in the first quarter of 1999. The
Corporation's average level of treasury stock was approximately $934 million
higher in the first quarter of 2000 compared with the first quarter of 1999.
After giving effect to funding the higher level of treasury stock, valued at a
short-term funding rate, the lower share count increased diluted earnings per
share by approximately 2%, while ongoing business growth increased diluted
earnings per share by approximately 14%, compared to first quarter 1999
operating results.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 14
SUMMARY DATA
Mellon Financial Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
(dollar amounts in millions, Quarter ended
--------------------------------------------------------------
except per share amounts; March 31, Dec. 31, Sept. 30, June 30, March 31,
common shares in thousands) 2000 1999 1999 1999 1999
- --------------------------------------------------------------------------------------------------------------------------
Selected key data
- -----------------
<S> <C> <C> <C> <C> <C>
Diluted earnings per common share:
Operating (a) $ .50 $ .48 $ .46 $ .45 $ .43
Cash operating (a)(b) .56 .53 .52 .50 .49
Reported .50 .47 .45 .45 .48
Net income:
Operating (a) $ 253 $ 245 $ 236 $ 236 $ 231
Cash operating (a)(b) 282 274 266 266 260
Reported 253 240 231 238 254
Return on common equity (annualized):
Operating (a) 26.0% 23.5% 22.3% 21.4% 20.9%
Cash operating (a)(b) 51.8 45.6 43.7 41.1 40.4
Reported 26.0 23.1 21.8 21.6 23.1
Return on assets (annualized):
Operating (a) 2.15% 2.05% 1.92% 1.90% 1.84%
Cash operating (a)(b) 2.50 2.38 2.25 2.23 2.16
Reported 2.15 2.01 1.87 1.92 2.03
Shareholders' equity to assets:
Reported 8.13% 8.38% 9.00% 8.77% 9.12%
Tangible (b) 4.80 4.96 5.45 5.29 5.60
- --------------------------------------------------------------------------------------------------------------------------
Fee revenue as a percentage of net interest and
fee revenue (FTE) 70% 69% 69% 69% 68%
Trust and investment fee revenue as a percentage
of net interest and fee revenue (FTE) 50% 49% 46% 45% 42%
Efficiency ratio excluding amortization of intangibles 59% 59% 61% 62% (c) 62%
- --------------------------------------------------------------------------------------------------------------------------
Average common shares and equivalents outstanding:
Basic 496,740 505,891 511,777 518,273 523,448
Diluted 502,082 512,496 518,605 525,712 531,288
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
- continued -
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 15
SUMMARY DATA
Mellon Financial Corporation
Five Quarter Trend
(continued)
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
(dollar amounts in millions) 2000 1999 1999 1999 1999
- -----------------------------------------------------------------------------------------
Average balances for the quarter
- --------------------------------
<S> <C> <C> <C> <C> <C>
Money market investments $ 1,713 $ 2,267 $ 1,463 $ 1,445 $ 1,286
Trading account securities 248 372 403 414 291
Securities 6,155 6,275 6,364 6,652 6,767
Loans 29,283 29,159 30,177 30,504 31,467
Total interest-earning assets 37,399 38,073 38,407 39,015 39,811
Total assets 47,205 47,451 48,871 49,766 50,677
Total tangible assets (b) 45,419 45,640 47,012 47,878 48,755
Deposits 32,220 32,540 33,462 33,358 34,087
Total interest-bearing liabilities 31,045 31,221 31,349 31,634 32,825
Total shareholders' equity 3,905 4,133 4,212 4,417 4,469
Tangible shareholders' equity (b) 2,190 2,388 2,417 2,591 2,608
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Operating results equaled reported results in the first quarter of 2000.
The fourth and third quarters of 1999 operating and cash operating results
each exclude a $5 million after-tax net loss from divestitures. The second
quarter of 1999 excludes a $38 million after-tax net gain from divestitures
and $36 million of nonrecurring expenses after taxes. The first quarter of
1999 excludes a $49 million after-tax net gain from divestitures and a $26
million after-tax charge for the cumulative effect of a change in accounting
principle.
(b) Excludes the after-tax impact of the amortization of goodwill and other
intangibles from purchase acquisitions. In addition, the amount of goodwill
and other identified intangibles subtracted from common equity and total
assets is net of any tax benefit.
(c) Also excludes $56 million of nonrecurring expenses.
Note: All calculations are based on unrounded numbers.
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 16
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Financial Corporation
Five Quarter Trend
<TABLE>
<CAPTION>
Quarter ended
---------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions, except per share amounts) 2000 1999 1999 1999 1999
- --------------------------------------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Interest revenue
- ----------------
Interest and fees on loans (loan fees of
$14, $14, $14, $15 and $16) $ 565 $ 550 $ 553 $ 555 $ 580
Federal funds sold and securities under resale
agreements 13 18 9 5 9
Interest-bearing deposits with banks 10 12 9 9 9
Other money market investments 1 1 1 - 1
Trading account securities 4 5 5 5 4
Securities 103 103 102 106 108
----- ----- ----- ----- -----
Total interest revenue 696 689 679 680 711
Interest expense
- ----------------
Interest on deposits 233 225 218 207 221
Federal funds purchased and securities under
repurchase agreements 23 20 22 23 37
Other short-term borrowings 34 34 34 34 29
Notes and debentures 58 59 56 55 55
----- ----- ----- ----- -----
Total interest expense 348 338 330 319 342
----- ----- ----- ----- -----
Net interest revenue 348 351 349 361 369
Provision for credit losses 10 10 10 10 15
----- ----- ----- ----- -----
Net interest revenue after provision for
credit losses 338 341 339 351 354
Noninterest revenue
- -------------------
Trust and investment fee revenue 578 546 517 515 496
Cash management and deposit transaction charges 74 76 78 78 72
Foreign currency and securities trading revenue 51 43 42 45 43
Financing-related revenue 39 56 39 47 49
Equity investment revenue 36 16 17 7 23
Mortgage servicing fees 2 2 48 51 52
Other 18 20 24 44 54
----- ----- ----- ----- -----
Total fee and other revenue 798 759 765 787 789
Net gain (loss) from divestitures - (7) (8) 59 83
Gains on sales of securities - - - - -
----- ----- ----- ----- -----
Total noninterest revenue 798 752 757 846 872
Operating expense
- -----------------
Staff expense 397 384 387 397 391
Professional, legal and other purchased services 67 73 63 73 71
Net occupancy expense 64 57 61 64 61
Equipment expense 37 42 40 63 41
Amortization of goodwill and other intangible assets 37 37 37 37 37
Amortization of mortgage servicing assets
and purchased credit card relationships 1 1 33 37 42
Other expense 116 105 95 138 117
Trust-preferred securities expense 20 20 20 19 20
Net revenue from acquired property (1) (4) (5) (5) -
----- ----- ----- ----- -----
Total operating expense 738 715 731 823 780
----- ----- ----- ----- -----
</TABLE>
- continued -
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 17
CONDENSED CONSOLIDATED INCOME STATEMENT
Mellon Financial Corporation
Five Quarter Trend
(continued)
<TABLE>
<CAPTION>
Quarter ended
-------------------------------------------------------------
March 31, Dec. 31, Sept. 30, June 30, March 31,
(in millions, except per share amounts) 2000 1999 1999 1999 1999
- --------------------------------------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Income before income taxes and
cumulative effect of accounting change 398 378 365 374 446
Provision for income taxes 145 138 134 136 166
----- ----- ----- ----- -----
Income before cumulative effect of
accounting change 253 240 231 238 280
Cumulative effect of accounting change - - - - (26)
----- ----- ----- ----- -----
Net income $ 253 $ 240 $ 231 $ 238 $ 254
===== ===== ===== ===== =====
Earnings per share
- -----------------------------------------------
Basic net income per common share:
Income before cumulative effect
of accounting change $ .51 $ .47 $ .46 $ .45 $ .54
Cumulative effect of accounting change - - - - (.05)
----- ----- ----- ----- -----
Net income $ .51 $ .47 $ .46 $ .45 $ .49
===== ===== ===== ===== =====
Diluted net income per common share:
Income before cumulative effect
of accounting change $ .50 $ .47 $ .45 $ .45 $ .53
Cumulative effect of accounting change - - - - (.05)
----- ----- ----- ----- -----
Net income $ .50 $ .47 $ .45 $ .45 $ .48
===== ===== ===== ===== =====
</TABLE>
<PAGE>
Mellon Reports Earnings
April 18, 2000
Page 18
CONDENSED CONSOLIDATED BALANCE SHEET
Mellon Financial Corporation
<TABLE>
<CAPTION>
March 31, Dec. 31, Sept. 30, March 31,
(dollar amounts in millions) 2000 1999 1999 1999
- ---------------------------- --------- -------- --------- ---------
<S> <C> <C> <C> <C>
Assets
- ------
Cash and due from banks $ 2,958 $ 3,410 $ 3,340 $ 3,011
Money market investments 2,870 1,358 1,252 939
Trading account securities 139 144 288 242
Securities available for sale 5,055 5,159 5,209 5,451
Investment securities (approximate fair value of $1,140,
$1,183, $1,246 and $1,443) 1,153 1,197 1,251 1,421
Loans, net of unearned discount of $71, $79, $77 and $57 28,285 30,248 29,156 30,554
Reserve for credit losses (402) (403) (405) (410)
------- ------- ------- -------
Net loans 27,883 29,845 28,751 30,144
Premises and equipment 572 562 537 561
Goodwill and other intangibles 2,058 2,140 2,182 2,276
Mortgage servicing assets 17 16 17 1,098
Other assets 4,676 4,115 4,034 4,241
------- ------- ------- -------
Total assets $47,381 $47,946 $46,861 $49,384
======= ======= ======= =======
Liabilities
- -----------
Deposits in domestic offices $30,735 $30,128 $28,928 $30,419
Deposits in foreign offices 2,611 3,293 3,101 2,929
Short-term borrowings 2,936 3,650 3,570 4,023
Other liabilities 2,817 2,430 2,354 3,117
Notes and debentures (with original maturities over one year) 3,440 3,438 3,698 3,403
------- ------- ------- -------
Total liabilities 42,539 42,939 41,651 43,891
Trust-preferred securities
- --------------------------
Guaranteed preferred beneficial interests in Corporation's
junior subordinated deferrable interest debentures 991 991 991 991
Shareholders' equity
- --------------------
Common stock - $.50 par value
Authorized - 800,000,000 shares
Issued - 588,661,920; 588,661,920; 588,661,920 (a);
and 294,330,960 shares 294 294 294 147
Additional paid-in capital 1,793 1,788 1,773 1,907
Retained earnings 3,938 3,808 3,698 3,468
Accumulated unrealized (loss), net of tax (151) (135) (105) (15)
Treasury stock of 97,452,373; 88,038,848; 80,011,896 (a);
and 33,798,582 shares at cost (2,023) (1,739) (1,441) (1,005)
------- ------- ------- -------
Total shareholders' equity 3,851 4,016 4,219 4,502
------- ------- ------- -------
Total liabilities, trust-preferred securities and
shareholders' equity $47,381 $47,946 $46,861 $49,384
======= ======= ======= =======
</TABLE>
_______________________
(a) Reflects the two-for-one common stock split distributed on May 17, 1999.
