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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7410
MELLON BANK CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1233834
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (412) 234-5000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, $0.50 Par Value New York Stock Exchange
7-1/4% Convertible Subordinated Capital Notes Due 1999 New York Stock Exchange
Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1998, there were 259,743,150 shares outstanding of the
registrant's voting common stock, $0.50 par value per share, of which
257,148,040 common shares having a market value of $16,023,537,243 were held by
nonaffiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this Annual Report.
Mellon Bank Corporation 1998 Proxy Statement-Part III
Mellon Bank Corporation 1997 Annual Report to Shareholders-Parts I, II and IV
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The Form 10-K filed with the Securities and Exchange Commission contains the
Exhibits listed on the Index to Exhibits beginning on page 23, including the
Financial Review and Statements and Notes; Principal Locations and Operating
Entities; Directors and Senior Management Committee; and Corporate Information
Sections of the Registrant's 1997 Annual Report to Shareholders. For a free copy
of the Corporation's 1997 Annual Report to Shareholders, the Proxy Statement for
its 1998 Annual Meeting, or a copy of the Corporation's Management Report on
Internal Controls, as filed with the appropriate regulatory agencies, please
send a written request to the Secretary of the Corporation, 4826 One Mellon Bank
Center, Pittsburgh, PA 15258-0001.
Cautionary Statement
This Annual Report on Form 10-K contains and incorporates by reference
statements relating to future results of the Corporation that are considered
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements relate to, among other things,
the Year 2000 project, loan loss reserve adequacy, simulation of changes in
interest rates and litigation results. Actual results may differ materially from
those expressed or implied as a result of certain risks and uncertainties,
including, but not limited to, changes in political and economic conditions,
interest rate fluctuations, competitive product and pricing pressures within the
Corporation's markets, equity and fixed income market fluctuations, personal and
corporate customers' bankruptcies, inflation, acquisitions and integrations of
acquired businesses, technological change, changes in law, changes in fiscal,
monetary, regulatory and tax policies, monetary fluctuations, success in gaining
regulatory approvals when required as well as other risks and uncertainties
detailed from time to time in the filings of the Corporation with the Securities
and Exchange Commission.
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MELLON BANK CORPORATION
Form 10-K Index
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PART I
PAGE
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Item 1. Business
Description of Business 3
Supervision and Regulation 5
Competition 8
Employees 8
Statistical Disclosure by Bank Holding Companies 9
Item 2. Properties 14
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
PART III
Item 10. Directors and Executive Officers of the Registrant 17
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
Mellon Bank Corporation (the "Corporation") is a multibank holding company
incorporated under the laws of Pennsylvania in August 1971 and registered under
the Federal Bank Holding Company Act of 1956, as amended. The Corporation
provides a comprehensive range of financial products and services in domestic
and selected international markets. The Corporation's six banking subsidiaries
are located in Pennsylvania, Massachusetts, Delaware, Maryland, New Jersey,
California and Florida. Other subsidiaries are located in key business centers
throughout the United States and abroad. At December 31, 1997, the Corporation
was the twenty-third largest bank holding company in the United States in terms
of assets.
The Corporation's principal direct subsidiaries are Mellon Bank, N.A. ("Mellon
Bank"), The Boston Company, Inc. ("TBC"), Mellon Bank (DE) National Association,
Buck Consultants, Inc. ("Buck") and a number of companies known as Mellon
Financial Services Corporation. The Dreyfus Corporation ("Dreyfus"), one of the
nation's largest mutual fund companies, is a wholly owned subsidiary of Mellon
Bank. Buck is a leading global actuarial and human resources consulting firm.
The Corporation's banking subsidiaries engage in retail financial services,
commercial banking, trust and investment management services, residential real
estate loan financing, mortgage servicing, equipment leasing, mutual fund
activities and various securities-related activities.
Mellon Bank, which has its executive offices in Pittsburgh, Pennsylvania, became
a subsidiary of the Corporation in November 1972. With its predecessors, Mellon
Bank has been in business since 1869. Mellon Bank is comprised of six operating
regions throughout Pennsylvania and southern New Jersey. Dreyfus, headquartered
in New York, New York, serves primarily as an investment adviser, manager and
administrator of mutual funds. TBC, through Boston Safe Deposit and Trust
Company ("BSDT") and other subsidiaries, engages in the business of
institutional trust and custody, institutional asset management, private
investment management, jumbo mortgage lending and other banking services. TBC is
headquartered in Boston, Massachusetts. Buck, headquartered in New York, New
York, is a global actuarial and human resources consulting firm. It provides a
broad array of services in the areas of defined benefit and defined contribution
plans, health and welfare plans, communications and compensation consulting, and
outsourcing and administration of employee benefit programs. Mellon Bank (DE)
National Association, headquartered in Wilmington, Delaware, serves consumer and
small to midsize commercial markets throughout Delaware and provides nationwide
cardholder processing services.
The Corporation's banking subsidiaries operate 1,183 domestic banking locations.
The deposits of the banking subsidiaries are insured by the Federal Deposit
Insurance Corporation ("FDIC") to the extent provided by law.
Other subsidiaries of the Corporation provide a broad range of bank-related
services -- including equipment leasing, commercial loan financing, stock
transfer services, cash management and numerous trust and investment management
services. The types of financial products and services offered by the
Corporation's subsidiaries are subject to change.
For analytical purposes, management has focused the Corporation into four core
business sectors: Consumer Fee Services, Consumer Banking, Business Fee Services
and Business Banking. Further information regarding the Corporation's core
business sectors, as well as certain non-core sectors such as Real Estate
Workout, is presented in the Business Sectors section on pages 32 through 35 of
the Corporation's 1997 Annual Report to Shareholders, which pages are
incorporated herein by reference. A brief discussion of the business sectors is
presented on the following pages. There is considerable interrelationship among
these sectors.
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DESCRIPTION OF BUSINESS (continued)
CONSUMER FEE SERVICES
Consumer Fee Services includes private asset management services, retail mutual
funds, discount brokerage services and residential mortgage loan origination and
servicing. These products and services are offered principally through the
private asset management group of Mellon Bank and BSDT, as well as through
Dreyfus, the discount brokerage operation of Dreyfus Brokerage Services, Inc.
and throughout the Corporation's retail banking network. This sector also
includes the mortgage banking operations through which the Corporation
originates and services residential mortgages for institutional investors and
makes residential loans nationwide.
CONSUMER BANKING
The Consumer Banking sector includes consumer lending and deposit products,
business banking, credit card and jumbo residential mortgage lending. The
consumer lending, branch banking and small business banking services primarily
are offered through the Corporation's retail banking network which is comprised
of 447 retail outlets which includes 290 traditional retail branches, 102
supermarket facilities, 28 downscale/drive-ups, 16 financial centers and 11
specialty stores. The retail banking network also includes 729 ATM's, 6 loan
sales offices and a telephone banking center. This network is primarily located
in the mid-Atlantic region of the United States, southern Florida and
California. This banking network provides a full range of products to
individuals including short- and long-term credit facilities, credit cards,
mortgages, safe deposit facilities and access to ATM's. Jumbo residential
mortgage lending is offered nationally through the private asset management
representative offices.
BUSINESS FEE SERVICES
The Business Fee Services sector serves the institutional markets by providing
institutional asset and institutional mutual fund management and administration,
institutional trust and custody, securities lending, foreign exchange, cash
management, stock transfer, commercial mortgage loan origination and servicing,
network services, benefits consulting and administrative services and services
for defined contribution plans. The Corporation's subsidiaries provide trust and
investment management services while operating under the umbrella name "Mellon
Trust"; in addition, the subsidiaries provide institutional mutual fund
management through Dreyfus. The Corporation also owns a number of subsidiaries
that provide a variety of active and passive equity and fixed income investment
management services, including management of international securities. Through
Buck, the Corporation offers benefits consulting and administrative services and
services for defined contribution plans. Through the Global Cash Management
department, the Corporation offers a broad range of cash management services,
including remittance processing, collections and disbursements, check processing
and electronic services. This sector includes the commercial mortgage
origination and servicing operations of the mortgage banking group. The
Corporation's subsidiaries also provide services relating primarily to defined
contribution employee benefit plans under the umbrella name "Dreyfus Retirement
Services." Stock transfer services are provided in the United States through its
joint venture operating under the name of ChaseMellon Shareholder Services and
in Canada through the CIBC Mellon Trust Company.
BUSINESS BANKING
Business Banking includes large corporate and middle market lending, asset-based
lending, lease financing, commercial real estate lending, insurance premium
financing, securities underwriting and trading and international banking. The
Corporation provides lending and other institutional banking services to
domestic and selected international markets through its Corporate Banking,
Institutional Banking, Capital Markets and Leasing departments. These markets
generally include large domestic commercial and industrial customers, U.S.
operations of foreign companies, multinational corporations, state and local
governments and various financial institutions (including banks, securities
broker/dealers, insurance companies, finance companies and mutual funds). The
Corporation also offers corporate finance and rate risk management products;
syndicates, participates out and sells loans; offers a variety of capital
markets products and services, including private placement and money market
transactions; and provides equipment leasing, financing and lease
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DESCRIPTION OF BUSINESS (continued)
advisory services. The Corporation maintains foreign offices in London, Tokyo,
Hong Kong, Toronto, and Grand Cayman, British West Indies. Through these
offices, the Corporation conducts trade finance activities, engages in
correspondent banking and provides corporate banking and capital markets
services. Included in this sector is a nationwide asset-based lending division
which provides secured lending, principally through accounts receivable and
inventory financing. As part of this sector, Middle Market Banking serves
companies with annual sales between $20 million and $500 million. This group
also specializes in providing services to segments of coal and government
services industries. Real Estate lending consists of the Corporation's
commercial real estate lending activities, through which it originates financing
for commercial, multi-family and other products. The Corporation provides
property and casualty insurance premium financing to small, midsize and large
companies in the United States through the AFCO Credit Corporation and in Canada
through CAFO.
The 1997 Annual Report to Shareholders summarizes principal locations and
operating entities on pages 22 and 23, which pages are incorporated herein by
reference. Exhibit 21.1 to this Annual Report on Form 10-K presents a list of
the subsidiaries of the Corporation as of December 31, 1997.
Year 2000 Project
For a discussion regarding the Corporation's Year 2000 Project, see page 44 of
the Corporation's 1997 Annual Report to Shareholders, which discussion is
incorporated herein by reference.
SUPERVISION AND REGULATION
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended (the "Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Generally, the Act limits the business of bank holding companies to
banking, managing or controlling banks, performing certain servicing activities
for subsidiaries, and engaging in such other activities as the Federal Reserve
Board may determine to be closely related to banking and a proper incident
thereto. Certain of the Corporation's subsidiaries are themselves bank holding
companies under the Act. As a result of its Mellon Bank, F.S.B. subsidiary, the
Corporation is also regulated under the Home Owners' Loan Act of 1933 as a
savings and loan holding company.
The Corporation's national banking subsidiaries are subject to primary
supervision, regulation and examination by the Office of the Comptroller of the
Currency (the "OCC"); BSDT is currently subject to supervision, regulation and
examination by the Federal Reserve; and Mellon Bank, F.S.B. is subject to
supervision, regulation and examination by the Office of Thrift Supervision
("OTS"). Mellon Securities Trust Company, The Dreyfus Trust Company and Mellon
Trust of New York are New York trust companies and are supervised by the New
York State Department of Banking. Mellon Trust of California is a California
trust company and is supervised by the State of California Department of
Financial Institutions. Mellon 1st Business Bank is a state non-member bank and
is subject to supervision, regulation and examination by the FDIC and the State
of California Department of Financial Institutions.
The Corporation's nonbank subsidiaries engaged in securities related activities
are regulated by the Securities and Exchange Commission (the "SEC"). Dreyfus
Investment Services Corporation and Dreyfus Brokerage Services, Inc. conduct
brokerage operations, and Mellon Financial Markets, Inc. engages in securities
activities permitted to bank holding company subsidiaries under Section 20 of
the Glass-Steagall Act. Dreyfus Service Corporation, a subsidiary of Dreyfus,
acts as a broker/dealer for the sale of shares of mutual funds, including the
Dreyfus family of mutual funds. Dreyfus Brokerage Services, Inc., a subsidiary
of Mellon Bank, is a self-clearing deep discount broker providing services to
individual investors nationwide. Dreyfus Investment Services Corporation, Mellon
Financial Markets, Inc., Dreyfus Service Corporation and Dreyfus Brokerage
Services, Inc. are registered broker/dealers and members of the National
Association of Securities Dealers, Inc., a securities industry self-regulatory
organization.
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SUPERVISION AND REGULATION (continued)
Certain subsidiaries of the Corporation are registered investment advisers under
the Investment Advisers Act of 1940 and, as such, are supervised by the SEC.
They are also subject to various federal and state laws and regulations and to
the laws of any countries in which they do business. These laws and regulations
are primarily intended to benefit clients and fund shareholders and generally
grant supervisory agencies broad administrative powers, including the power to
limit or restrict the carrying on of business for failure to comply with such
laws and regulations. In such event, the possible sanctions which may be imposed
include the suspension of individual employees, limitations on engaging in
business for specific periods, the revocation of the registration as an
investment adviser, censures and fines. Each investment company (as defined in
the Investment Company Act of 1940) which is advised by a subsidiary of the
Corporation, including the Dreyfus family of mutual funds, is registered with
the SEC, and the shares of most are qualified for sale in all states in the
United States and the District of Columbia, except for investment companies that
offer products only to residents of a particular state or of a foreign country
and except for certain investment companies which are exempt from such
registration or qualification.
Certain of the Corporation's public finance activities are regulated by the
Municipal Securities Rulemaking Board. Mellon Bank and certain of the
Corporation's other subsidiaries are registered with the Commodity Futures
Trading Commission (the "CFTC") as commodity pool operators or commodity trading
advisors and, as such, are subject to CFTC regulation.
The Corporation and its subsidiaries are subject to an extensive system of
banking laws and regulations that are intended primarily for the protection of
the customers and depositors of the Corporation's subsidiaries rather than
holders of the Corporation's securities. These laws and regulations govern such
areas as permissible activities, reserves, loans and investments, and rates of
interest that can be charged on loans. The Corporation and its subsidiaries also
are subject to general U.S. federal laws and regulations and to the laws and
regulations of the states or countries in which they conduct their businesses.
Set forth below are brief descriptions of selected laws and regulations
applicable to the Corporation and its subsidiaries. The references are not
intended to be complete and are qualified in their entirety by reference to the
statutes and regulations. Changes in applicable law or regulation may have a
material effect on the business of the Corporation.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was enacted into Federal law.
Under the Interstate Act, commencing on September 29, 1995, bank holding
companies are permitted to acquire banks located in any state regardless of the
state law in effect at the time. The Interstate Act also provides for the
nationwide interstate branching of banks. Under the Interstate Act, both
national and state-chartered banks are permitted to merge across state lines
(and thereby create interstate branches) commencing June 1, 1997. States were
permitted to "opt-out" of the interstate branching authority by taking action
prior to the commencement date. States could also "opt-in" early (i.e., prior to
June 1, 1997) to the interstate branching provisions. Pennsylvania chose to
"opt-in" early, effective July 6, 1995, thereby enabling Pennsylvania banks,
including national banks having their main office in Pennsylvania, to merge with
out-of-state banks to create interstate branches inside or outside Pennsylvania.
In addition, Pennsylvania has permitted de novo branching into and out of
Pennsylvania as long as the law of the other state involved is reciprocal in
this regard.
There are certain restrictions on the ability of the Corporation and certain of
its non-bank affiliates to borrow from, and engage in other transactions with,
its banking subsidiaries and on the ability of such banking subsidiaries to pay
dividends to the Corporation. These restrictions are discussed in note 22 of the
Notes to Financial Statements on pages 94 and 95 of the Corporation's 1997
Annual Report to Shareholders. This note is incorporated herein by reference.
The OCC has authority under the Financial Institutions Supervisory Act to
prohibit national banks from engaging in any activity which, in the OCC's
opinion, constitutes an unsafe or unsound practice in conducting their
businesses. The Federal Reserve Board has similar authority with respect to the
Corporation and the Corporation's non-bank subsidiaries, including Mellon
Securities Trust Company, a member of the Federal Reserve System. The OTS has
similar authority with respect to Mellon Bank, F.S.B.
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SUPERVISION AND REGULATION (continued)
Substantially all of the deposits of the banking subsidiaries of the Corporation
are insured up to applicable limits by the Bank Insurance Fund ("BIF") of the
FDIC and are subject to deposit insurance assessments to maintain the BIF. The
FDIC utilizes a risk-based assessment system which imposes insurance premiums
based upon a matrix that takes into account a bank's capital level and
supervisory rating. Such premiums now range from 0 cents for each of $100 of
domestic deposits for the healthiest institutions to 27 cents for each $100 of
domestic deposits for the weakest institutions. In addition, the Deposit
Insurance Fund Act of 1996 authorizes the Financing Corporation ("FICO") to
impose assessments on BIF assessable deposits in order to service the interest
on FICO's bond obligations. The FICO assessment on these deposits is
approximately 1.3 cents for each $100 of domestic deposits.
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
contains a "cross-guarantee" provision that could result in any insured
depository institution owned by the Corporation being assessed for losses
incurred by the FDIC in connection with assistance provided to, or the failure
of, any other depository institution owned by the Corporation. Also, under
Federal Reserve Board policy, the Corporation is expected to act as a source of
financial strength to each of its banking subsidiaries and to commit resources
to support each such bank in circumstances where such bank might not be in a
financial position to support itself.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revised the depository institution regulatory and funding
provisions of the Federal Deposit Insurance Act and made revisions to several
other federal banking statutes. Among other things, federal banking regulators
are required to take prompt corrective action in respect of depository
institutions that do not meet minimum capital requirements. FDICIA identifies
the following capital tiers for financial institutions: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
Rules adopted by the federal banking agencies under FDICIA provide that an
institution is deemed to be: "well capitalized" if the institution has a Total
risk-based capital ratio of 10.0% or greater, a Tier I risk-based ratio of 6.0%
or greater, and a leverage ratio of 5.0% or greater, and the institution is not
subject to an order, written agreement, capital directive, or prompt corrective
action directive to meet and maintain a specific level for any capital measure;
"adequately capitalized" if the institution has a Total risk-based capital ratio
of 8.0% or greater, a Tier I risk-based capital ratio of 4.0% or greater, and a
leverage ratio of 4.0% or greater (or a leverage ratio of 3.0% or greater if the
institution is rated composite 1 in its most recent report of examination,
subject to appropriate Federal banking agency guidelines), and the institution
does not meet the definition of a well capitalized institution;
"undercapitalized" if the institution has a Total risk-based capital ratio that
is less than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a
leverage ratio that is less than 4.0% (or a leverage ratio that is less than
3.0% if the institution is rated composite 1 in its most recent report of
examination, subject to appropriate Federal banking agency guidelines) and the
institution does not meet the definition of a significantly undercapitalized or
critically undercapitalized institution; "significantly undercapitalized" if the
institution has a Total risk-based capital ratio that is less than 6.0%, a Tier
I risk-based capital ratio that is less than 3.0%, or a leverage ratio that is
less than 3.0% and the institution does not meet the definition of a critically
undercapitalized institution; and "critically undercapitalized" if the
institution has a ratio of tangible equity to total assets that is equal to or
less than 2.0%. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions, depending on the capital
category in which an institution is classified.
At December 31, 1997, all of the Corporation's banking subsidiaries were well
capitalized based on the ratios and guidelines noted above. A bank's capital
category, however, is determined solely for the purpose of applying the prompt
corrective action rules and may not constitute an accurate representation of the
bank's overall financial condition or prospects.
The appropriate Federal banking agency may, under certain circumstances,
reclassify a well capitalized insured depository institution as adequately
capitalized. The appropriate agency is also permitted to require an adequately
capitalized or undercapitalized institution to comply with the supervisory
provisions as if the institution were in the next lower category (but not treat
a significantly undercapitalized institution as critically undercapitalized)
based on supervisory information other than the capital levels of the
institution. The statute provides that an institution may be reclassified if the
appropriate
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SUPERVISION AND REGULATION (continued)
Federal banking agency determines (after notice and opportunity for hearing)
that the institution is in an unsafe or unsound condition or deems the
institution to be engaging in an unsafe or unsound practice.
Legislation enacted in August 1993 provides that depositors and certain claims
for administrative expenses and employee compensation against an insured
depository institution would be afforded a priority over other general unsecured
claims against such an institution in the "liquidation or other resolution" of
such an institution by any receiver.
During recent years, regulatory guidelines have been adopted, and legislation
has been proposed in Congress, to address concerns regarding retail sales by
banks of various nondeposit investment products, including mutual funds.
Legislative and regulatory attention to these matters is likely to continue, and
may intensify, in the future. Although existing statutory and regulatory
requirements in this regard have not had a significant effect on the
Corporation's business, there can be no assurance that future requirements will
not have such an effect. Various other legislative initiatives, including
proposals to restructure the banking regulatory system and the separation of
banking from certain securities and other commercial activities, are from time
to time introduced in Congress. The Corporation cannot determine the ultimate
effect that any such potential legislation, if enacted, would have upon its
financial condition or operations.
COMPETITION
The Corporation and its subsidiaries continue to be subject to intense
competition in all aspects and areas of their businesses from bank holding
companies and banks; other domestic and foreign depository institutions, such as
savings and loan associations, savings banks and credit unions; and other
service providers, such as finance, mortgage and leasing companies, brokerage
firms, credit card companies, benefits consultants, mutual funds, investment
banking companies, investment management firms and insurance companies. The
Corporation also competes with nonfinancial institutions, including retail
stores and manufacturers of consumer products that maintain their own credit
programs, as well as governmental agencies that make available loans to certain
borrowers. Also, in the Business Fee Services sector, the Corporation competes
with a wide range of technologically capable service providers, such as data
processing and outsourcing firms. Many of the Corporation's competitors, with
the particular exception of thrift institutions, are not subject to regulation
as extensive as that described under the "Supervision and Regulation" section
and, as a result, they may have a competitive advantage over the Corporation in
certain respects.
EMPLOYEES
The Corporation and its subsidiaries had an average of approximately 27,500
full-time equivalent employees in the fourth quarter of 1997.
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STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
Securities Act Industry Guide 3 and the Exchange Act Industry Guide 3 ("Guide
3"), requires that the following statistical disclosures be made in Annual
Reports on Form 10-K filed by bank holding companies.
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Information required by this section of Guide 3 is presented in the
Rate/Volume Variance Analysis below. Required information is also
presented in the Financial Section of the Corporation's 1997 Annual
Report to Shareholders in the Consolidated Balance Sheet -- Average
Balances and Interest Yields/Rates on pages 36 and 37, and in Net
Interest Revenue, on page 35, which is incorporated herein by reference.
RATE/VOLUME VARIANCE ANALYSIS
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Year ended December 31,
1997 over (under) 1996 1996 over (under) 1995
Due to change in Net Due to change in Net
(in millions) Rate Volume Change Rate Volume Change
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Increase (decrease) in interest
revenue from interest-earning assets:
Interest-bearing deposits with banks $ (2) $ (8) $(10) $ (6) $ 6 $ -
Federal funds sold and securities
under resale agreements - - - (2) (2) (4)
Other money market investments 1 (2) (1) - 4 4
Trading account securities - 1 1 (3) (8) (11)
Securities:
U.S. Treasury and agency securities 13 (38) (25) - 87 87
Obligations of states and political
subdivisions - - - - (2) (2)
Other (1) (3) (4) 1 (3) (2)
Loans (includes loan fees) (32) 46 14 (162) (9) (171)
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Total (21) (4) (25) (172) 73 (99)
Increase (decrease) in interest
expense on interest-bearing liabilities:
Deposits in domestic offices:
Demand 1 (12) (11) (2) (20) (22)
Money market and other savings accounts (3) 9 6 (39) 42 3
Retail savings certificates 8 32 40 (11) (8) (19)
Other time deposits 4 1 5 2 82 84
Deposits in foreign offices (9) (56) (65) (25) (7) (32)
Federal funds purchased and securities
under repurchase agreements 3 (20) (17) (11) (20) (31)
Other short-term borrowings (5) (11) (16) (4) (34) (38)
Notes and debentures (with original
maturities over one year) (1) 47 46 - 26 26
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Total (2) (10) (12) (90) 61 (29)
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Increase (decrease) in net
interest revenue $ (19) $ 6 $(13) $ (82) $ 12 $ (70)
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Note: Amounts are calculated on a taxable equivalent basis where applicable, at
a tax rate approximating 35% and are before the effect of reserve requirements.
Changes in interest revenue or interest expense arising from the combination of
rate and volume variances are allocated proportionally to rate and volume based
on their relative absolute magnitudes.
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STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
II. Securities Portfolio
A. Carrying values of securities at year-end are as follows:
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INVESTMENT SECURITIES December 31,
(in millions) 1997 1996 1995
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U.S. Treasury and agency securities $1,994 $2,292 $2,408
Other securities:
Other mortgage-backed 23 29 39
Bonds, notes and debentures 14 16 30
Stock of Federal Reserve Bank 50 37 41
Other 1 1 1
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Total other securities 88 83 111
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Total investment securities $2,082 $2,375 $2,519
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SECURITIES AVAILABLE FOR SALE December 31,
(in millions) 1997 1996 1995
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U.S. Treasury and agency securities $2,727 $4,010 $2,769
Obligations of states and political subdivisions 26 49 63
Other securities:
Other mortgage-backed 3 4 7
Bonds, notes and debentures 11 12 12
Other - 36 62
- ----------------------------------------------------------------------------------------------------------------------------------
Total other securities 14 52 81
- ----------------------------------------------------------------------------------------------------------------------------------
Total securities available for sale $2,767 $4,111 $2,913
- ----------------------------------------------------------------------------------------------------------------------------------
B. Maturity Distribution of Securities
Information required by this section of Guide 3 is presented in the
Corporation's 1997 Annual Report to Shareholders in note 3 of Notes to
Financial Statements on Securities on pages 78 through 80, which note is
incorporated herein by reference.
10
12
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
III. Loan Portfolio
A. Types of Loans
Information required by this section of Guide 3 is included in the Corporate
Risk section of the Corporation's 1997 Annual Report to Shareholders on
pages 57 through 66, which portions are incorporated herein by reference.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
Maturity distribution of loans at December 31, 1997
- ----------------------------------------------------------------------------------------------------------------
(in millions) Within 1 year (a) 1-5 years Over 5 years Total
- ----------------------------------------------------------------------------------------------------------------
Domestic:(b)
Commercial and financial $3,258 $5,771 $1,797 $10,826
Commercial real estate 371 750 388 1,509
- ----------------------------------------------------------------------------------------------------------------
Total domestic 3,629 6,521 2,185 12,335
International 964 178 424 1,566
- ----------------------------------------------------------------------------------------------------------------
Total $4,593 $6,699 $2,609 $13,901
- ----------------------------------------------------------------------------------------------------------------
Note: Maturity distributions are based on remaining contractual maturities.
(a) Includes demand loans and loans with no stated maturity.
(b) Excludes consumer mortgages, credit card, other consumer credit and lease
finance assets.
Sensitivity of loans at December 31, 1997, to changes in interest rates
- ----------------------------------------------------------------------------------------------------------------------------
Domestic International
(in millions) operations (a) operations Total
- ----------------------------------------------------------------------------------------------------------------------------
Loans due in one year or less (b) $ 3,629 $ 964 $ 4,593
Loans due after one year:
Variable rates 7,775 494 8,269
Fixed rates 931 108 1,039
- ----------------------------------------------------------------------------------------------------------------------------
Total loans $12,335 $1,566 $13,901
- ----------------------------------------------------------------------------------------------------------------------------
Note: Maturity distributions are based on remaining contractual maturities.
(a) Excludes consumer mortgages, credit card, other consumer credit and lease
finance assets.
(b) Includes demand loans and loans with no stated maturity.
C. Risk Elements
Information required by this section of Guide 3 is included in the Corporate
Risk section of the Corporation's 1997 Annual Report to Shareholders on
pages 57 through 66, which portions are incorporated herein by reference.
IV. Summary of Loan Loss Experience
The Corporation employs various estimation techniques in developing the
credit loss reserve. Management reviews the specific circumstances of
individual loans subject to more than the customary potential for exposure
to loss. In establishing the level of the reserve, management also
identifies market concentrations, changing business trends, industry risks,
and current and anticipated specific and general economic factors that may
adversely affect collectibility. Other factors considered in determining the
level of the reserve include: trends in portfolio volume, quality, maturity
and composition; historical loss experience; lending policies; new products;
year 2000 issues; the status and amount of nonperforming and past-due loans
and adequacy of collateral. In addition, management assesses volatile
factors such as interest rates and global economic conditions that may
significantly alter loss potential. The loss reserve methodology also
provides for a portion of the reserve to act as an additional buffer against
credit quality deterioration or risk of estimation error. Based on this
evaluation, management believes that the credit loss reserve is adequate to
absorb future losses inherent in the portfolio.
11
13
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
The reserve is not specifically associated with individual loans or portfolio
segments. Thus, the reserve is available to absorb credit losses arising from
any individual loan or portfolio segment. When losses on specific loans are
identified, management charges off the portion deemed uncollectible. In view of
the fungible nature of the reserve and management's practice of charging off
known losses, the Corporation does not maintain truly specific reserves on any
loan. However, management has developed a loan loss reserve methodology designed
to provide procedural discipline in assessing the adequacy of the reserve. The
allocation of the Corporation's reserve for credit losses presented below is
based on this loan loss reserve methodology.
- ------------------------------------------------------------------------------------------------------------------------------------
December 31,
(in millions) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic reserve:
Commercial and financial $162 $117 $169 $195 $182
Real estate:
Commercial 88 98 92 157 189
Consumer 51 58 61 75 91
Consumer credit 132 198 135 141 102
Lease finance assets 30 43 6 17 15
- ------------------------------------------------------------------------------------------------------------------------------------
Total domestic reserve 463 514 463 585 579
International reserve 12 11 8 22 21
- ------------------------------------------------------------------------------------------------------------------------------------
Total reserve $475 $525 $471 $607 $600
- ------------------------------------------------------------------------------------------------------------------------------------
Further information on the Corporation's credit policies, the factors that
influenced management's judgment in determining the level of the reserve for
credit losses, and the analyses of the credit loss reserve for the years
1993-1997 are set forth in the Financial Section of the Corporation's 1997
Annual Report to Shareholders in the Credit Risk section on pages 57 and 58, the
Reserve for Credit Losses and Review of Net Credit Losses section on pages 65
and 66, in note 1 of Notes to Financial Statements under Reserve for Credit
Losses on page 75 and in note 5 on page 81, which portions are incorporated
herein by reference.
For each category above, the ratio of loans to consolidated total loans is as
follows:
- -------------------------------------------------------------------------------------------------------------------------------
December 31,
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Domestic loans:
Commercial and financial 37.1% 37.2% 39.6% 37.5% 37.2%
Real estate:
Commercial 5.2 5.6 5.5 6.1 7.0
Consumer 29.1 28.4 32.4 32.5 33.4
Consumer credit 14.1 14.4 16.4 18.1 15.6
Lease finance assets 9.1 9.2 3.0 3.0 2.9
- -------------------------------------------------------------------------------------------------------------------------------
Total domestic loans 94.6 94.8 96.9 97.2 96.1
International loans 5.4 5.2 3.1 2.8 3.9
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------------------
12
14
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
V. Deposits
------------------------------------------------------------------------------------------------------------------
Maturity distribution of domestic time deposits at December 31, 1997
Within 4-6 7-12 Over
(in millions) 3 months months months 1 year Total
------------------------------------------------------------------------------------------------------------------
Time certificates of deposit in denominations
of $100,000 or greater $1,229 $ 677 $ 296 $ 276 $2,478
Time certificates of deposit in denominations
of less than $100,000 1,345 1,322 1,847 1,688 6,202
------------------------------------------------------------------------------------------------------------------
Total time certificates of deposit 2,574 1,999 2,143 1,964 8,680
------------------------------------------------------------------------------------------------------------------
Other time deposits in denominations
of $100,000 or greater 69 1 17 57 144
Other time deposits in denominations
of less than $100,000 17 - - - 17
------------------------------------------------------------------------------------------------------------------
Total other time deposits 86 1 17 57 161
------------------------------------------------------------------------------------------------------------------
Total domestic time deposits $2,660 $2,000 $2,160 $2,021 $8,841
------------------------------------------------------------------------------------------------------------------
The majority of foreign deposits of approximately $3.4 billion at
December 31, 1997, were in amounts in excess of $100,000. Additional
information required by this section of Guide 3 is set forth in the
Corporation's 1997 Annual Report to Shareholders in Consolidated
Balance Sheet -- Average Balances and Interest Yields/Rates on pages 36
and 37, which pages are incorporated herein by reference.
VI. Return on Equity and Assets
Year ended December 31,
1997 1996 1995
-----------------------------------------------------------------------------------------------------------------------
(1) Return on total assets (a), based on:
Net income 1.80% 1.74% 1.72%
Net income applicable to common stock 1.75 1.64 1.63
(2) Return on common shareholders' equity (a),
based on net income applicable to common stock 21.47 20.38 17.77
Return on total shareholders' equity (a), based on net income 20.83 19.23 16.84
(3) Dividend payout ratio of common stock, based on:
Diluted net income per share (b) 44.00 44.95 44.17
(4) Equity to total assets (a), based on:
Common shareholders' equity 8.14 8.05 9.15
Total shareholders' equity 8.62 9.07 10.24
-----------------------------------------------------------------------------------------------------------------------
(a) Computed on a daily average basis.
(b) Presented in accordance with the requirements of Financial
Accounting Standard No. 128, "Earnings per share," which was adopted by
the Corporation at year-end 1997.
13
15
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES (continued)
VII. Short-Term Borrowings
Federal funds purchased and securities sold under agreements to
repurchase represent funds acquired for securities transactions and
other funding requirements. Federal funds purchased mature on the
business day after execution. Selected balances and rates are as
follows:
----------------------------------------------------------------------------------------------------
(dollar amounts in millions) 1997 1996
----------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase:
Maximum month-end balance $2,063 $2,159
Average daily balance $1,390 $1,765
Average rate during the year 5.5% 5.3%
Balance at December 31 $1,997 $ 742
Average rate at December 31 5.8% 6.1%
----------------------------------------------------------------------------------------------------
ITEM 2. PROPERTIES
Pittsburgh properties
In 1983 Mellon Bank entered into a long-term lease of One Mellon Bank Center, a
54-story office building in Pittsburgh, Pennsylvania. At December 31, 1997,
Mellon Bank occupied approximately 76% of the building's approximately 1,525,000
square feet of rentable space and subleased substantially all of the remaining
space to third parties.
During 1984 Mellon Bank entered into a sale/leaseback arrangement of the Union
Trust Building in Pittsburgh, Pennsylvania, also known as Two Mellon Bank
Center, while retaining title to the land thereunder. At December 31, 1997,
Mellon Bank occupied approximately 77% of this building's approximately 595,000
square feet of rentable space and subleased substantially all of the remaining
space to third parties.
Mellon Bank owns the 41-story office building in Pittsburgh, Pennsylvania, known
as Three Mellon Bank Center. At December 31, 1997, Mellon Bank occupied
approximately 99% of the approximately 943,000 square feet of rentable space,
with the remainder leased to third parties.
Philadelphia properties
Mellon Bank leases a building in Philadelphia, Pennsylvania, known as Mellon
Independence Center. At December 31, 1997, Mellon Bank occupied approximately
60% of Mellon Independence Center's approximately 882,000 square feet of
rentable space, with the remainder of the space in the building subleased to
third parties.
In 1990 Mellon Bank entered into a 25-year lease for a portion of a 53-story
office building known as Mellon Bank Center, at the corner of 18th and Market
Streets in the Center City area of Philadelphia, Pennsylvania. At December 31,
1997, Mellon Bank leased approximately 19% of the building's approximately
1,245,000 square feet of rentable space.
Boston properties
The Boston Company leases space in a 41-story downtown Boston, Massachusetts
office building known as One Boston Place. At December 31, 1997, The Boston
Company leased approximately 34% of One Boston Place's approximately 770,000
square feet of rentable space.
14
16
PROPERTIES (continued)
At December 31, 1997, The Boston Company also occupied space in three office
buildings in the Wellington Business Center located in Medford, Massachusetts.
At December 31, 1997, The Boston Company owned a substantial interest in and
fully occupied the approximately 117,000 rentable square foot building known as
Client Services Center II. At December 31, 1997, The Boston Company leased 100%
of the approximately 320,000 rentable square foot building known as Client
Services Center III and leased approximately 22,000 square feet of rentable
space in the building known as Client Services Center I.
New York properties
At December 31, 1997, The Dreyfus Corporation leased approximately 277,000
square feet of rentable space at 200 Park Avenue in New York City. Other than
14,000 square feet of rentable space which is subleased to a third party, all of
the space is currently occupied by Dreyfus. At December 31, 1997, Dreyfus
Service Corporation leased approximately 165,000 square feet of rentable space
in EAB Plaza in Uniondale, New York. This space is 100% occupied by Dreyfus.
At December 31, 1997, Buck leased approximately 55,000 square feet of rentable
space in Two Penn Plaza in New York City. In addition, Buck leased approximately
124,000 square feet of rentable space in Secaucus, New Jersey, for an operations
center.
Other properties
Mellon Bank (DE) owns an 81,000 square foot, three-story office building known
as the Pike Creek Building in New Castle County, Delaware, and currently
occupies the entire building. Mellon Bank (DE) also leases approximately 34,000
square feet of rentable space of an 18-story office building in Wilmington,
Delaware, and approximately 42,000 square feet of rentable space in Pencader,
Delaware, for a credit card operations center.
The banking subsidiaries' retail offices are both owned and leased under leases
expiring at various times through the year 2020.
Other subsidiaries of the Corporation lease office space primarily for their
operations at many of the locations listed on pages 22 and 23 of the Principal
Locations and Operating Entities Section of the Corporation's 1997 Annual
Report, which pages are incorporated herein by reference. For additional
information on the Corporation's premises and equipment, see note 6 of Notes to
Financial Statements on page 81 of the Corporation's 1997 Annual Report, which
note is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
Various legal actions and proceedings are pending or are threatened against the
Corporation and its subsidiaries, some of which seek relief or damages in
amounts that are substantial. These actions and proceedings arise in the
ordinary course of the Corporation's businesses and include suits relating to
its lending, collections, servicing, investment, mutual fund, advisory, trust
and other activities. Because of the complex nature of some of these actions and
proceedings, it may be a number of years before such matters ultimately are
resolved. After consultation with legal counsel, management believes that the
aggregate liability, if any, resulting from such pending and threatened actions
and proceedings will not have a material adverse effect on the Corporation's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to security holders for vote during the fourth quarter
of 1997.
15
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is set forth in the Corporation's 1997
Annual Report to Shareholders in Liquidity and Dividends on pages 49 through 52,
in Selected Quarterly Data on page 68, in note 22 of Notes to Financial
Statements on pages 94 and 95 and in Corporate Information on page 110, which
portions are incorporated herein by reference.
In October 1996, the board of directors declared a dividend, paid October 31,
1996, of one right (a "Right") issued pursuant to the Shareholder Protection
Rights Agreement, dated as of October 15, 1996 (the "Rights Agreement"), for
each outstanding share of the Corporation's Common Stock (the "Common Stock").
The Rights are not currently exercisable and trade only with the Common Stock
(and are currently evidenced only in connection with the Common Stock). The
Rights would separate from the Common Stock and become exercisable only when a
person or group acquires 15% or more of the Common Stock or ten days after a
person or group commences a tender offer that would result in ownership of 15%
or more of the Common Stock. At that time, each Right would entitle the holder
to purchase for $112.50 (the "exercise price") one one-hundredth of a share of
participating preferred stock, which is designed to have economic and voting
rights generally equivalent to one share of common stock. Should a person or
group actually acquire 15% or more of the Common Stock, each Right held by the
acquiring person or group (or their transferees) would become void and each
Right held by the Corporation's other shareholders would entitle those holders
to purchase for the exercise price a number of shares of the Common Stock having
a market value of twice the exercise price. Should the Corporation, at any time
after a person or group has become a 15% beneficial owner and acquired control
of the Corporation's board of directors, be involved in a merger or similar
transaction with any person or group or sell assets to any person or group, each
outstanding Right would then entitle its holder to purchase for the exercise
price a number of shares of such other company having a market value of twice
the exercise price. In addition, if any person or group acquires 15% or more of
the Common Stock, the Corporation may, at its option and to the fullest extent
permitted by law, exchange one share of Common Stock for each outstanding Right.
The Rights are not exercisable until the above events occur and will expire on
October 31, 2006, unless earlier exchanged or redeemed by the Corporation. The
Corporation may redeem the Rights for one-half cent per Right under certain
circumstances.
The foregoing description is not intended to be complete and is qualified in its
entirety by reference to the Rights Agreement, which is an exhibit to this
Report.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth in the Corporation's 1997
Annual Report to Shareholders in the Financial Summary on page 27, in the
Significant Financial Events in 1997 on pages 28 and 29, in the Overview of 1997
results on pages 30 and 31, in the Consolidated Balance Sheet -- Average
Balances and Interest Yield/Rates on pages 36 and 37, and in note 1 of Notes to
Financial Statements on pages 73 through 78, which portions are incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is set forth in the Corporation's 1997
Annual Report to Shareholders in the Financial Review on pages 28 through 68 and
in note 22 of Notes to Financial Statements on pages 94 and 95, which portions
are incorporated herein by reference.
16
18
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is set forth in the Corporation's 1997
Annual Report to Shareholders in the Interest Rate Sensitivity Analysis on pages
52 through 57 and in note 1 of Notes to Financial Statements under
Off-balance-sheet instruments used for risk management purposes and
Off-balance-sheet instruments used for trading activities on pages 77 and 78,
which portions are incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14 on page 20 hereof for a detailed listing of the
items under Financial Statements, Financial Statement Schedules, and Other
Financial Data which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Corporation's proxy
statement for its 1998 Annual Meeting of Shareholders (the "1998 Proxy
Statement") in the Election of Directors-Biographical Summaries of Nominees and
Continuing Directors section on pages 2 through 7 and in Section 16(a)
Beneficial Ownership Reporting Compliance section on page 26, each of which
sections is incorporated herein by reference, and in the following section
"Executive Officers of the Registrant."
EXECUTIVE OFFICERS OF THE REGISTRANT
The name and age of, and the positions and offices held by, each executive
officer of the Corporation as of March 1, 1998, together with the offices held
by each such person during the last five years, are listed below. Mr. Cahouet
has executed an employment contract with the Corporation, and the Corporation
intends to execute employment contracts with Messrs. McGuinn, Condron and
Elliott. All other executive officers serve at the pleasure of their appointing
authority. No executive officer has a family relationship to any other listed
executive officer.
Age Position and Year Elected
--- -------------------------
Frank V. Cahouet 65 Chairman, President and Chief Executive 1990(1)
Officer of Mellon Bank Corporation
John T. Chesko 48 Vice Chairman, Chief Risk and Chief 1997(2)
Credit Officer, Mellon Bank Corporation
and Mellon Bank, N.A.
17
19
EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
Christopher M. Condron 50 President and Chief Operating Officer, 1998 (3)
Mellon Bank, N.A.
President and Chief Executive Officer, The 1996
Dreyfus Corporation
Vice Chairman, Mellon Bank Corporation 1994
Vice Chairman, The Boston Company 1994
Steven G. Elliott 51 Senior Vice Chairman and Chief Financial 1998 (4)
Officer, Mellon Bank, N.A.
Vice Chairman and Chief Financial 1992
Officer of Mellon Bank Corporation
Treasurer of Mellon Bank Corporation 1990
Jeffery L. Leininger 52 Vice Chairman, Specialized Commercial 1996 (5)
Banking, Mellon Bank Corporation and
Mellon Bank, N.A.
David R. Lovejoy 49 Vice Chairman, Financial Markets and 1994 (6)
Corporate Development, Mellon Bank
Corporation and Mellon Bank, N.A.
Martin G. McGuinn 55 Chairman and Chief Executive Officer, 1998 (7)
Mellon Bank, N.A.
Vice Chairman, Retail Financial Services, 1993
Mellon Bank Corporation
Keith P. Russell 52 Vice Chairman, West Coast, Mellon Bank 1996 (8)
Corporation and Mellon Bank, N.A.
W. Keith Smith 63 Senior Vice Chairman, Mellon Bank, N.A. 1998 (9)
Chairman, Buck Consultants, Inc. 1997
Vice Chairman, Mellon Bank Corporation 1993
Chairman and Chief Executive Officer, The 1993
Boston Company
Chairman of the Board, The Dreyfus 1996
Corporation
Jamie B. Stewart, Jr. 53 Vice Chairman, Wholesale Banking and 1996 (10)
Cash Management, Mellon Bank
Corporation and Mellon Bank, N.A.
18
20
Executive Officers of the Registrant (continued)
Michael K. Hughey 46 Senior Vice President and Controller of 1990
Mellon Bank Corporation and Senior
Vice President, Director of Taxes and
Controller, Mellon Bank, N.A.
(1) Mr. Cahouet has executed an employment contract with the Corporation which
expires December 31, 1998. Through February 28, 1998, Mr. Cahouet also
served as Chairman, President and Chief Executive Officer of Mellon Bank,
N.A.
(2) From December 1991 to December 1994, Mr. Chesko was Senior Vice President
and Senior Credit Approval Officer of the Credit Policy Department of
Mellon Bank, N.A. From December 1994 to June 1997, Mr. Chesko was Executive
Vice President, Risk Management, of Mellon Bank, N.A. and Chief Compliance
Officer of Mellon Bank Corporation and Mellon Bank, N.A. In April 1996, Mr.
Chesko was named Chief Credit Officer of Mellon Bank Corporation and Mellon
Bank, N.A.
(3) From June 1989 to January 1994, Mr. Condron was President of Boston Safe
Deposit and Trust Company and Executive Vice President of The Boston
Company. In November 1994, he assumed the title of Vice Chairman, Mellon
Bank Corporation and Mellon Bank, N.A., Deputy Director Mellon Trust. From
October 1995 to August 1996, Mr. Condron was President and Chief Operating
Officer, The Dreyfus Corporation. Through February 28, 1998, Mr. Condron
served as Vice Chairman, Mellon Bank, N.A. and Deputy Director Mellon
Trust.
(4) Through February 28, 1998, Mr. Elliott served as Vice Chairman of Mellon
Bank, N.A.
(5) From 1988 to February 1994, Mr. Leininger was Senior Vice President and
Manager of the Middle Market Banking Department's western region. From
February 1994 to February 1996, Mr. Leininger was Executive Vice President
and Department Head of Middle Market Banking of Mellon Bank, N.A.
(6) From January 1993 to October 1994, Mr. Lovejoy was Executive Vice President
of Strategic Planning of Mellon Bank, N.A. From November 1994 to February
1996, Mr. Lovejoy was Vice Chairman, Corporate Strategy and Development of
Mellon Bank Corporation and Mellon Bank, N.A.
(7) From October 1992 to November 1993, Mr. McGuinn was Vice Chairman, Special
Banking Services of Mellon Bank Corporation and Mellon Bank, N.A. Through
February 28, 1998, Mr. McGuinn served as Vice Chairman, Retail Financial
Services, Mellon Bank, N.A.
(8) From June 1992 to June 1996, Mr. Russell was Vice Chairman, Chief Risk and
Credit Officer, Mellon Bank Corporation and Mellon Bank, N.A.
(9) From January 1990 to November 1993, Mr. Smith was Vice Chairman, Service
Products of Mellon Bank Corporation and Mellon Bank, N.A. Mr. Smith was
Chief Operating Officer of The Dreyfus Corporation from August 1994 to
January 1995 and Vice Chairman of The Dreyfus Corporation from January 1995
to August 1996. Through February 28, 1998, Mr. Smith served as Vice
Chairman, Mellon Bank, N.A. From November 1994 through February 28, 1998,
Mr. Smith also served as Director Mellon Trust.
(10) From December 1990 to January 1995, Mr. Stewart was Executive Vice
President, Global Corporate Banking Department. In 1995, Mr. Stewart was
Vice Chairman, Corporate Banking of Mellon Bank Corporation and Mellon
Bank, N.A.
19
21
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the 1998 Proxy Statement in
the Directors' Compensation section on page 9 and in the Executive Compensation
section on pages 14 through 20, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the 1998 Proxy Statement in
the Beneficial Ownership of Stock section on pages 12 and 13, and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the 1998 Proxy Statement in
the Business Relationships and Related Transactions and Certain Legal
Proceedings sections on page 11, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The financial statements and schedules required for the Annual Report of
the Corporation on Form 10-K are included, attached or incorporated by
reference as indicated in the following index. Page numbers refer to
pages of the Financial Section of the Corporation's 1997 Annual Report to
Shareholders.
(i) Financial Statements Page No.
-------------------- --------
Mellon Bank Corporation (and its subsidiaries):
Consolidated Income Statement 69
Consolidated Balance Sheet 70
Consolidated Statement of Changes in Shareholders' Equity 71
Consolidated Statement of Cash Flows 72 and 73
Notes to Financial Statements 73 through 108
Report of Independent Auditors 109
(ii) Financial Statement Schedules
Financial Statement schedules are omitted either because they are not
required or are not applicable, or because the required information is
shown in the financial statements or notes thereto.
(iii) Other Financial Data
Selected Quarterly Data 68
(b) Current Reports on Form 8-K during the fourth quarter of 1997:
A report dated October 14, 1997, which included, under Items 5 and 7, the
Corporation's press release regarding third quarter 1997 and first nine
months 1997 results of operations.
A report dated November 14, 1997, which included, under Items 5 and 7,
the Corporation's press release announcing the completion of its
acquisition of Pacific Brokerage Services, Inc., a self-clearing deep
discount broker and member of the New York Stock Exchange.
20
22
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(continued)
A report dated November 24, 1997, which included, under Items 5 and 7,
the Corporation's press release announcing a definitive agreement to
acquire United Bankshares, Inc. and its principal subsidiary, United
National Bank, a full-service commercial bank.
A report dated November 24, 1997, which described, under Item 5, the
completion of the Corporation's sale of its corporate trustee and agency
business to The Chase Manhattan Bank.
A report dated December 11, 1997, which included, under Items 5 and 7,
the Corporation's press release announcing a definitive agreement to
acquire Founders Asset Management, Inc., which manages growth-oriented
no-load equity mutual funds and other investment portfolios.
(c) Exhibits
The exhibits listed on the Index to Exhibits on pages 23 through 29
hereof are incorporated by reference or filed herewith in response to
this Item. In addition, Exhibit 11.1, Computation of Basic and Diluted
Net Income Per Common Share, is set forth in the Corporation's 1997
Annual Report to Shareholders in note 20 of Notes to Financial Statements
on pages 87 and 88, which portions are incorporated herein by reference.
21
23
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Mellon Bank Corporation
By: /s/ Frank V. Cahouet
-------------------------
Frank V. Cahouet
Chairman, President
and Chief Executive
Officer
DATED: March 20, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the date indicated.
Signature Capacities
--------- ----------
By: /s/ Frank V. Cahouet Director and Principal
-------------------------------------- Executive Officer
Frank V. Cahouet
By: /s/ Steven G. Elliott Principal Financial Officer
-------------------------------------- and Principal Accounting
Steven G. Elliott Officer
Dwight L. Allison, Jr.; Directors
Burton C. Borgelt; Carol R. Brown;
Christopher M. Condron; J. W. Connolly;
Charles A. Corry; C. Frederick Fetterolf;
Ira J. Gumberg; Pemberton Hutchinson;
George W. Johnstone; Rotan E. Lee;
Andrew W. Mathieson; Edward J. McAniff;
Martin G. McGuinn; Robert Mehrabian;
Seward Prosser Mellon; David S. Shapira;
W. Keith Smith; Joab L. Thomas;
Wesley W. von Schack; and
William J. Young
By: /s/ Carl Krasik DATED: March 20, 1998
--------------------------------------
Carl Krasik
Attorney-in-fact
22
24
Index to Exhibits
Exhibit
No. Description Method of Filing
--- ----------- ----------------
3.1 Restated Articles of Incorporation of Previously filed as Exhibit 3.1 to
Mellon Bank Corporation, as amended the Quarterly Report on Form 10-Q
and restated as of September 2, 1993. (File No. 1-7410) for the quarter ended
September 30, 1993, and incorporated herein
by reference.
3.2 Amendment of April 16, 1997 to Previously filed as Exhibit 3.7 to the
Mellon Bank Corporation's Restated Quarterly Report on Form 10-Q (File
Articles of Incorporation. No. 1-7410) for the quarter ended
June 30, 1997, and incorporated herein by
reference.
3.3 Amendment of September 26, 1997 to Previously filed as Exhibit 4.3 to
Mellon Bank Corporation's Restated Registration Statement on Form S-3
Articles of Incorporation. (Registration No. 333-38213) and
incorporated herein by reference.
3.4 Statement Affecting Series B Preferred Previously filed as Exhibit 3.2 to the
Stock, $1.00 Par Value. Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1993, and incorporated
herein by reference.
3.5 Statement Affecting Series D Preferred Previously filed as Exhibit 3.3 to the
Stock, $1.00 Par Value. Annual Report on Form 10-K (File No.
1-7410) for the year ended December 31,
1994, and incorporated herein by reference.
3.6 Statement Affecting Series H Preferred Previously filed as Exhibit 3.1 to the
Stock, $1.00 Par Value. Quarterly Report on Form 10-Q
(File No. 1-7410) for the quarter
ended March 31, 1995, and incorporated
herein by reference.
3.7 Statement Affecting Series I Preferred Stock, Previously filed as Exhibit 3.5 to
$1.00 Par Value. Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1996, and incorporated
herein by reference.
3.8 Statement Affecting Series J Preferred Stock, Previously filed as Exhibit 3.6 to
$1.00 Par Value. Annual Report on Form 10-K (File
No. 1-7410) for the year ended
December 31, 1996 and incorporated
herein by reference.
23
25
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
3.9 Statement Affecting Series K Preferred Stock, Filed herewith.
1.00 Par Value.
3.10 By-Laws of Mellon Bank Corporation, as Previously filed as Exhibit 4.4 to
amended, effective September 16, 1997. Registration Statement on Form S-3
(Registration No. 333-38213) and
incorporated herein by reference.
4.1 Instruments defining the rights See Exhibits 3.1, 3.2, 3.3, 3.4, 3.5, 3.6,
of securities holders. 3.7, 3.8, 3.9 and 3.10 above.
4.2 Shareholder Protection Rights Agreement Previously filed as Exhibit 1 to Form
between Mellon Bank Corporation and 8-A Registration Statement (File
Mellon Bank, N.A., as Rights Agent, No. 1-7410) dated October 29, 1996,
dated as of October 15, 1996. and incorporated herein by reference.
4.3 Amendment No. 1, dated as of June 2, Previously filed as Exhibit 4.1 to the
1997, to Shareholder Protection Rights Quarterly Report on Form 10-Q (File
Agreement between Mellon Bank No. 1-7410) for the quarter ended
Corporation and Mellon Bank, N.A., as June 30, 1997, and incorporated herein
Rights Agent, dated as of October 15, 1996. by reference.
4.4 Junior Subordinated Indenture, dated as of Previously filed as Exhibit 4.1
December 3, 1996, between Mellon Bank to Current Report on Form 8-K
Corporation and The Chase Manhattan Bank, (File No. 1-7410) dated December 3,
as Debenture Trustee. 1996, and incorporated herein by
reference.
4.5(a) Certificate representing the 7.72% Junior Previously filed as Exhibit 4.2
Subordinated Deferrable Interest Debentures, to Current Report on Form 8-K
Series A, of Mellon Bank Corporation. (File No. 1-7410) dated December 3,
1996, and incorporated herein by
reference.
4.5(b) Certificate representing the 7.995% Junior Previously filed as Exhibit 4.2
Subordinated Deferrable Interest Debentures, to Current Report on Form 8-K
Series B, of Mellon Bank Corporation. (File No. 1-7410) dated December 20,
1996, and incorporated herein by
reference.
4.6(a) Amended and Restated Trust Agreement, dated Previously filed as Exhibit 4.3
as of December 3, 1996, of Mellon Capital I, to Current Report on Form 8-K
among Mellon Bank Corporation, as Depositor, (File No. 1-7410) dated December 3,
The Chase Manhattan Bank, as Property Trustee, 1996, and incorporated herein by
Chase Manhattan Bank Delaware, as Delaware reference.
Trustee, and the Administrative Trustees named
therein.
24
26
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
4.6(b) Amended and Restated Trust Agreement, dated Previously filed as Exhibit 4.3
as of December 20, 1996, of Mellon Capital II, to Current Report on Form 8-K
among Mellon Bank Corporation, as Depositor, (File No. 1-7410) dated December 20,
The Chase Manhattan Bank, as Property Trustee, 1996, and incorporated herein by
Chase Manhattan Bank Delaware, as Delaware reference.
Trustee, and the Administrative Trustees named
therein.
4.7(a) Certificate representing the 7.72% Capital Previously filed as Exhibit 4.4
Securities, Series A, of Mellon Capital I. to Current Report on Form 8-K
(File No. 1-7410) dated December 3,
1996, and incorporated herein by
reference.
4.7(b) Certificate representing the 7.995% Capital Previously filed as Exhibit 4.4
Securities, Series B, of Mellon Capital II. to Current Report on Form 8-K
(File No. 1-7410) dated December 20,
1996, and incorporated herein by
reference.
4.8(a) Guarantee Agreement, dated as of December 3, Previously filed as Exhibit 4.5
1996, between Mellon Bank Corporation, as to Current Report on Form 8-K
guarantor, and The Chase Manhattan Bank, as (File No. 1-7410) dated December 3,
Guarantee Trustee. 1996, and incorporated herein by
reference.
4.8(b) Guarantee Agreement, dated as of December 20, Previously filed as Exhibit 4.5
1996, between Mellon Bank Corporation, as to Current Report on Form 8-K
Guarantor, and The Chase Manhattan Bank, as (File No. 1-7410) dated December 20,
Guarantee Trustee. 1996, and incorporated herein by
reference.
10.1 Purchase Agreement, dated as of Previously filed as Exhibit 10.1
July 25, 1988, among Mellon Bank to Quarterly Report on Form 10-Q
Corporation (as Seller) and Warburg, (File No. 1-7410) for the quarter ended
Pincus Capital Company, L.P. and September 30, 1988, and incorporated
Warburg, Pincus Capital Partners, herein by reference.
L.P. (as Purchasers) relating to the
sale and purchase of Mellon Series D
Junior Preferred Stock.
25
27
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
10.2 Exchange Agreement dated as of Previously filed as Exhibit 10.4
March 30, 1990, between Warburg, to Annual Report on Form 10-K
Pincus Capital Company, L. P., (File No. 1-7410) for the year ended
Warburg, Pincus Capital Partners, December 31, 1990, and incorporated
L. P. and Mellon relating to the herein by reference.
exchange of Series D Preferred Stock
for shares of Mellon's Common Stock.
10.3 Lease dated as of February 1, 1983, Previously filed as Exhibit 10.4
between 500 Grant Street Associates to Annual Report on Form 10-K
Limited Partnership and Mellon (File No. 1-7410) for the year ended
Bank, N.A. with respect to One Mellon December 31, 1992, and incorporated
Bank Center. herein by reference.
10.4 First Amendment to Lease Agreement Previously filed as Exhibit 10.1
dated as of November 1, 1983, to Registration Statement on Form
between 500 Grant Street S-15 (Registration No. 2-88266)
Associates Limited Partnership and incorporated herein by
and Mellon Bank, N.A. reference.
10.5* Mellon Bank Corporation Profit Previously filed as Exhibit 10.7
Bonus Plan, as amended. to Annual Report on Form 10-K
(File No. l-7410) for the year ended
December 31, 1990, and incorporated
herein by reference.
10.6* Mellon Bank Corporation Long-Term Previously filed as Exhibit 10.1 to the
Profit Incentive Plan (1996), as Quarterly Report on Form 10-Q (File
amended effective July 15, 1997. No. 1-7410) for the quarter ended
June 30, 1997, and incorporated herein by
reference.
10.7* Mellon Bank Corporation Stock Previously filed as Exhibit 10.2 to the
Option Plan for Outside Directors Quarterly Report on Form 10-Q (File
(1989), as amended effective May 1, 1997. No. 1-7410) for the quarter ended
June 30, 1997, and incorporated herein by
reference.
10.8* Mellon Bank Corporation 1990 Previously filed as Exhibit 10.9 to
Elective Deferred Compensation Plan Annual Report on Form 10-K (File
for Directors and Members of the No. 1-7410) for the year ended
Advisory Board, as amended and December 31, 1996, and incorporated
restated, effective January 1, 1997. herein by reference.
* Management contract or compensatory plan arrangement.
26
28
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
10.9* Mellon Bank Corporation Elective Previously filed as Exhibit 10.10 to
Deferred Compensation Plan for Annual Report on Form 10-K (File
Senior Officers, as amended and No. 1-7410) for the year ended
restated, effective January 1, 1997. December 31, 1996, and incorporated
herein by reference.
10.10* Mellon Bank IRC Section 401(a)(17) Previously filed as Exhibit 10.11 to
Plan, as amended and restated, effective Annual Report on Form 10-K (File
January 1, 1993. No. 1-7410) for the year ended
December 31, 1992, and incorporated herein
by reference.
10.11* Mellon Bank Optional Life Insurance Previously filed as Exhibit 10.1 to the
Plan, effective January 1, 1993, as amended Quarterly Report on Form 10-Q (File
effective September 16, 1997. No. 1-7410) for the quarter ended
September 30, 1997, and incorporated herein
by reference.
10.12* Mellon Bank Executive Life Insurance Previously filed as Exhibit 10.13 to
Plan, effective January 1, 1993, as amended Annual Report on Form 10-K (File
effective November 19, 1996. No. 1-7410) for the year ended
December 31, 1996, and incorporated herein
by reference.
10.13* Mellon Bank Senior Executive Life Previously filed as Exhibit 10.14 to
Insurance Plan, effective January 1, 1993, Annual Report on Form 10-K (File
as amended effective November 19, 1996. No. 1-7410) for the year ended
December 31, 1996, and incorporated herein
by reference.
10.14* Mellon Bank Corporation Retirement Plan Previously filed as Exhibit 10.1 to
for Outside Directors, effective Quarterly Report on Form 10-Q (File
January 1, 1994. No. 1-7410) for the quarter ended
June 30, 1995, and incorporated herein by
reference.
10.15* Mellon Bank Corporation Phantom Stock Previously filed as Exhibit 10.3 to the
Unit Plan (1995), as amended, effective Quarterly Report on Form 10-Q (File
May 1, 1997. No. 1-7410) for the quarter ended
June 30, 1997, and incorporated herein by
reference.
* Management contract or compensatory plan arrangement.
27
29
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
10.16* Employment Agreement between Mellon Previously filed as Exhibit 10.17 to
Bank, N.A. and Frank V. Cahouet, Annual Report on Form 10-K
effective as of July 25, 1993, and amended (File No. 1-7410) for the year ended
and restated as of October 17, 1995. December 31, 1995, and incorporated
herein by reference.
10.17* Letter Agreement, dated February 20, 1998, Filed herewith.
between Mellon Bank Corporation and
Frank V. Cahouet.
10.18* Employment Agreement between Mellon Previously filed as Exhibit 10.2
Bank, N.A. and W. Keith Smith, to Quarterly Report on Form 10-Q
effective as of July 25, 1993, and amended (File No. 1-7410) for the quarter ended
and restated as of August 1, 1995. September 30, 1995, and incorporated
herein by reference.
10.19* Letter Agreement, dated February 20, 1998, Filed herewith.
between Mellon Bank Corporation and
W. Keith Smith.
10.20* Change in Control Severance Agreement Previously filed as Exhibit 10.4 to the
between Mellon Bank Corporation and Frank V. Quarterly Report on Form 10-Q (File
Cahouet, dated as of February 1, 1997, and No. 1-7410) for the quarter ended
amended effective July 7, 1997. June 30, 1997, and incorporated herein
by reference.
10.21* Form of Change in Control Severance Agreement Previously filed as Exhibit 10.5 to the
between Mellon Bank Corporation and members Quarterly Report on Form 10-Q (File
of the Office of the Chairman. No. 1-7410) for the quarter ended
June 30, 1997, and incorporated herein by
reference.
12.1 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges
and Preferred Stock Dividends--parent
Corporation.
* Management contract or compensatory plan arrangement.
28
30
Index to Exhibits (continued)
Exhibit
No. Description Method of Filing
--- ----------- ----------------
12.2 Computation of Ratio of Earnings Filed herewith.
to Fixed Charges and Ratio of
Earnings to Combined Fixed
Charges and Preferred Stock
Dividends--Mellon Bank Corporation
and its subsidiaries.
13.1 All portions of the Mellon Bank Corporation Filed herewith.
1997 Annual Report to Shareholders that are
incorporated herein by reference.
21.1 List of Subsidiaries of the Corporation. Filed herewith.
23.1 Consent of Independent Accountants. Filed herewith.
24.1 Power of Attorney. Filed herewith.
27.1 Financial Data Schedule. Submitted herewith.
Certain instruments, which define the rights of holders of long-term debt of the
Corporation and its subsidiaries, are not filed herewith because the total
amount of securities authorized under each of them does not exceed 10% of the
total assets of the Corporation and its subsidiaries on a consolidated basis.
The Corporation hereby agrees to furnish a copy of such instruments to the
Securities and Exchange Commission upon request.
29