-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CmM+dZXLUywDpcJggaMkwEKD+40EPz+vNis5I1NgEuONujEfheCThgH9ISNlPPnH /2Mxl7KeQay2LEs4lM8K1w== 0000950109-01-502170.txt : 20010718 0000950109-01-502170.hdr.sgml : 20010718 ACCESSION NUMBER: 0000950109-01-502170 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010717 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20010717 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MELLON FINANCIAL CORP CENTRAL INDEX KEY: 0000064782 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 251233834 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-07410 FILM NUMBER: 1682646 BUSINESS ADDRESS: STREET 1: ONE MELLON BANK CTR STREET 2: 500 GRANT ST CITY: PITTSBURGH STATE: PA ZIP: 15258-0001 BUSINESS PHONE: 4122345000 FORMER COMPANY: FORMER CONFORMED NAME: MELLON BANK CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MELLON NATIONAL CORP DATE OF NAME CHANGE: 19841014 8-K 1 d8k.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) - July 17, 2001 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 ITEM 5. OTHER EVENTS On July 17, 2001, the registrant issued the press release filed herewith as Exhibit 99.1, which press release is incorporated in this Item 5 by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Exhibit Description Number 99.1 Mellon Financial Corporation Press Release, dated July 17, 2001. 99.2 Information disclosed pursuant to Regulation FD (17 CFR 243.100- 243.103) ITEM9. REGULATION FD DISCLOSURE The Registrant elects to disclose under this Item 9 pursuant to Regulation FD (17 CFR 243.100 - 243.103) the information contained in Exhibit 99.2 furnished herewith, which information is incorporated in this Item 9 by reference. Such information shall not be deemed to be filed hereunder for purposes of liability under the Securities Exchange Act of 1934 or for purposes of incorporation by reference in any registration statement filed by the Registrant under the Securities Act of 1933. 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: July 17, 2001 By: /s/ STEVEN G. ELLIOTT Steven G. Elliott Senior Vice Chairman and Chief Financial Officer EXHIBIT INDEX
Number Description Method of Filing 99.1 Press Release dated July 17, 2001 Filed herewith 99.2 Information furnished pursuant to Regulation FD Filed herewith
EX-99.1 2 dex991.txt PRESS RELEASE Exhibit 99.1 [LOGO] Mellon News Release
Media Analysts Corporate Affairs - ----- -------- Ken Herz Ron Gruendl Andy Clark Don Macleod One Mellon Center (412) 234-0850 (412) 234-7157 (412) 234-4633 (412) 234-5601 Pittsburgh, PA 15258-0001
- -------------------------------------------------------------------------------- FOR IMMEDIATE RELEASE MELLON FINANCIAL TO SELL MID-ATLANTIC RETAIL AND BUSINESS BANKING BUSINESSES TO CITIZENS FINANCIAL, WILL RETAIN PRIVATE BANKING PRESENCE Citizens to Keep All Branches Open, Offer Jobs to Virtually All Affected Mellon Employees PITTSBURGH, July 17, 2001--Mellon Financial Corporation today announced that it has reached an agreement to sell its Mid-Atlantic region consumer, small business and certain middle market banking operations to Citizens Financial Group, Inc, the U.S. unit of The Royal Bank of Scotland Group. The acquirer will keep all Mellon branches open and offer employment to virtually all of Mellon's approximately 4,100 consumer banking, small business and middle market employees. Mellon will retain its private banking business through a network of specialized offices dedicated to serving its affluent clients. "This transaction is of significant benefit to our customers, employees, local communities and shareholders," said Martin G. McGuinn, Mellon chairman and chief executive officer. "Citizens, a high-quality organization with no current presence in our region, is committed to keeping the branches open, and intends to offer employment to virtually all of the employees who serve these customers. "This agreement facilitates Citizens' strategy of serving a wider base of retail banking customers, as well as Mellon's strategy of sharpening its focus and investing even more in its fee businesses," McGuinn said. "Mellon has been managing these retail banking businesses for return, not growth, while Citizens will invest in and expand the attractive, highly profitable franchise they're acquiring. Citizens' strategy should appeal to the customers, employees and communities associated with Mellon's retail banking operations." The cash purchase price premium is expected to be approximately $2 billion, a 16% premium on deposits. Mellon expects to record a one-time gain of approximately $900 million in the fourth quarter of this year, when the transaction is expected to close, subject to regulatory approval. "This transaction represents a major step in the strategic transformation of Mellon's franchise and accelerates our evolution to a faster-growing, fee- based global financial services business," McGuinn said. "This divestiture gives us the opportunity for a materially higher long-term earnings Exhibit 99.1 per share growth rate and a lower overall risk profile." Following the sale, fee income will comprise 85% of Mellon's revenue base, he noted, and 67% of revenues will come from trust fees, strengthening Mellon's number one position in trust fees among U.S. trust banks. The additional capital resulting from the sale will be used to invest in Mellon's fee businesses, including acquisitions that enhance those business lines, and to repurchase Mellon shares. Mellon will continue to serve 18,000 Mellon private banking customers in 19 private banking facilities in its traditional banking footprint of Pennsylvania, Delaware and Maryland. Mellon will also retain its specialized banks in Boston, southern California and southeast Florida. The operations and infrastructure associated with the regional franchise are included in the sale. Citizens will purchase or assume leases on all facilities included in the transaction, including the consumer branches (which include 72 supermarket locations), 20 business banking centers, five middle market offices, 635 ATMs, call centers and operations centers. The Corporation also announced that it has declared its regular quarterly common stock dividend of 24 cents per share. This cash dividend is payable on August 15, 2001, to shareholders of record at the close of business on July 31, 2001. The Corporation will subsequently realign its dividend to be consistent with other growth companies in the financial services industry, enabling it to re-deploy the additional capital to continue to invest in its fee businesses, including acquisitions, and to repurchase shares. It is currently anticipated that the quarterly dividend will be 12 cents per share in the fourth quarter of 2001, resulting in additional annual capital of approximately $225 million for reinvestment. Mellon serves as primary bank for 700,000 households in its regional franchise, with a total of two million accounts, and holds leading market positions in Pittsburgh and Philadelphia. The purchase includes $11 billion in consumer deposits and $2.4 billion in commercial deposits. The transaction also includes a $6.1 billion diversified, high quality loan portfolio. Business loans comprise $3.8 billion of the total. "Citizens is excited to be entering this new market," said Citizens Chairman and Chief Executive Officer Lawrence K. Fish. "Our new bank will be run regionally, and we will be bringing our proven approach to retail and commercial banking. We are committed to not only investing in, but also expanding this fine franchise, and I am certain employees, customers and the community will find Citizens a great place to work and bank." Over the last several years, Mellon has transformed its traditional branch network through a successful strategy of relationship-oriented selling focused on investments, small business and Exhibit 99.1 insurance. The sale also includes Mellon Clair Odell, an insurance agency that sells property and casualty policies to commercial and high net worth individual customers. McGuinn stressed that Mellon "has every intention of continuing our longstanding high level of regional community support. Over the years, we have grown from a regional bank into a global financial services company. While our business strategy has evolved, our commitment to our communities remains as much a part of Mellon's culture as ever," he said. Mellon Financial Corporation is a global financial services company. Headquartered in Pittsburgh, Mellon is one of the world's leading providers of asset management, trust, custody, benefits consulting and administration, and shareholder services, and offers a comprehensive array of financial services for affluent individuals and corporations. Mellon has more than $2.8 trillion in assets under management, administration or custody, including $546 billion under management. Its asset management companies include The Dreyfus Corporation and Newton Investment Management Limited (U.K.). This announcement contains statements relating to future results of the Corporation and other statements that are considered "forward-looking statements". These statements relate to, among other things, the expected gain resulting from the transaction, growth rates in earnings per share, risk profile, fee income including trust fees, use of additional capital and dividends. These forward-looking statements are based on assumptions that involve risks and uncertainties and that are subject to change based on various important factors (some of which are beyond the Corporation's control). These include, but are not limited to, levels of deposits and loans transferred to Citizens; changes in economic conditions; competitive pricing pressures; equity and fixed-income market fluctuations; levels of third-parties' funds under management; as well as other risks and uncertainties detailed in the Corporation's periodic reports filed with the Securities and Exchange Commission. The announcement also contains statements as to Citizens' future business plans, which are based solely upon Citizens' statements to and agreements with the Corporation. The Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after July 17, 2001. Steven G. Elliott, senior vice chairman and chief financial officer, will hold a conference call and simultaneous web cast regarding Mellon's divestiture of the Mid-Atlantic region consumer, small business and certain middle market banking operations and second quarter 2001 earnings. This conference call and web cast will take place at approximately 10 a.m. EDT on Tuesday, July 17, 2001. This call and web cast may include forward-looking or other material information. Persons wishing to access the conference call or web cast may do so by dialing 800-711-5301 (U.S.) or 785-832-0326 (international) or by logging on to www.mellon.com. A series of graphics related to the topics Mr. Elliott will discuss in the conference call and web cast will be available at our web site (www.mellon.com) at approximately 8:30 a.m. EDT. Replays of the conference call and web cast will be available beginning July 17, 2001 at noon EDT until July 24, 2001 at 5 p.m. EDT by dialing 800-695-1624 (U.S.) or 402-530-9026 (international). The archived version of the web cast will be available at www.mellon.com # # # EX-99.2 3 dex992.txt INFORMATION FURNISHED PURSUANT TO REG. FD Exhibit 99.2 Taking High Growth Financial Services to the Next Level July 17, 2001 Agenda . Transaction Summary . Transaction Economics . Compelling Investment . Appendix Cautionary Statement A number of statements (i) in our presentation, (ii) in our responses to your questions and (iii) in the accompanying slides are "forward-looking statements". These statements relate to, among other things, statements of the Corporation's future financial results, including future revenue and earnings growth, future capital ratios, risk profile, the expected gain resulting from the transaction, use of additional capital and dividends, as well as the Corporation's overall plans, strategies, goals, objectives, expectations, estimates and intentions, are based on assumptions that involve risks and uncertainties and that are subject to change based on various important factors (some of which are beyond the Corporation's control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, levels of deposits and loans transferred to Citizens Financial Group; changes in political and economic conditions; competitive product and pricing pressures within the Corporation's markets; equity and fixed-income market fluctuations; the effects of the adoption of new accounting standards; personal and corporate customers' bankruptcies; inflation; acquisitions and integration of acquired businesses; technological change; changes in law; changes in fiscal, monetary, regulatory, trade and tax policies and laws; monetary fluctuations; success in gaining regulatory approvals when required; success in the timely development of new products and services; interest rate fluctuations; consumer spending and saving habits; levels of third parties' funds under management; as well as other risks and uncertainties detailed from time to time in the filings of the Corporation with the Securities and Exchange Commission. Such forward-looking statements speak only as of July 17, 2001, and the Corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events. Transaction Summary Transaction Summary . Sale of mid-Atlantic region consumer, small business and certain middle market operations to Citizens Financial Group - Branch network in PA, NJ and DE . Includes administration and operational infrastructure . Private Banking business to be retained - Complements existing wealth management business Transaction Summary . 16% deposit premium - After-tax gain of approximately $900 million . $13.4 billion in deposits - $6.1 billion in loans . $2.3 billion of consumer loans . $2.2 billion of small business loans . $1.6 billion of middle market loans . Expected 4th Qtr 2001 close Strategic Rationale . Transaction consistent with Mellon's emphasis on high growth, fee-based businesses . Sharpens focus on core growth businesses . Major step in strategic transformation of Mellon's business mix - Accelerate core revenue growth and improve EPS growth rate to 14% + goal - Enhance quality of earnings / reduce risk profile . 85% fee revenue to total revenue . 67% trust fee to total revenue Focus on Fee-Based Businesses Fee Revenue / Total Revenue [GRAPH] 1995 52% 1996 58% 1997 64% 1998 67% 1999 70% 2000 70% 1st Qtr 2001 73% 2nd Qtr 2001 85% Focus on Fee-Based Businesses Trust Fees / Total Revenue [GRAPH] 1995 28% 1996 29% 1997 35% 1998 40% 1999 46% 2000 51% 1st Qtr 2001 52% 2nd Qtr 2001 67%* * Pending acquisition of Standish Mellon expected to increase ratio by 1% New Business Sectors ---------------- ------------------------------- Asset Management Processing & Corporate Services ---------------- ------------------------------- . Wealth Management . Global Investment Services ----------------- ---------------------------- - Private Asset Management - Global Securities Services - Private Banking - Benefits Consulting / Admin. - Shareholder Services . Global Investment Management . Global Cash Management -------------------------- -------------------------- - Mutual Funds - Institutional Asset Management . Relationship Lending - Brokerage Services -------------------- Broad, High-Performing Product Range Top 10 Market Positions - ----------------------- . Investment management . Private asset management . Mutual funds . Global custody . Shareholder services / proxy solicitor . Benefits consulting / administration . Cash management Focus on Growth Businesses Pro Forma 2000 Revenues Net Income [GRAPH] [GRAPH] Processing & Processing & Corporate Services 53% Corporate Services 47% Asset Management 47% Asset Management 53% Improved Revenue Growth Dynamics Historical Revenue Growth of 14%, Excluding Divested Business Lines Full Year 2000 1998 - 2000 -------------------- -------------------- Revenue Contribution Revenue CAGR -------------------- -------------------- Core Sectors Actual Pro Forma Actual Pro Forma - -------------------------------------------------------------------------------- Asset Management 37% 47% 20% 20% Processing & Corporate Services 43 53 10 10 Divested Businesses* 20 - 2 - - -------------------------------------------------------------------------------- Total Core Sectors 100% 100% 11% 14% - -------------------------------------------------------------------------------- * Divested businesses: mid-Atlantic region consumer, small business, middle market banking, Mellon Leasing / Business Credit and jumbo mortgages Improved Earnings Growth Rate Historical Net Income Growth of 19%, Excluding Divested Business Lines Full Year 2000 1998 - 2000 ----------------------- -------------------- Net Income Contribution Net Income CAGR ----------------------- -------------------- Core Sectors Actual Pro Forma Actual Pro Forma - -------------------------------------------------------------------------------- Asset Management 40% 53% 23% 23% Processing & Corporate Services 37 47 15 15 Divested Businesses* 23 - 4 - - -------------------------------------------------------------------------------- Total Core Sectors 100% 100% 14% 19% - -------------------------------------------------------------------------------- * Divested businesses: mid-Atlantic region consumer, small business, middle market banking, Mellon Leasing/Business Credit and jumbo mortgages Stated Financial Goals Setting the Standard for Growth in Financial Services 14% + EPS Growth Goal 22% + ROE Goal . Disciplined Capital Management . Significant Excess Capital Generation . High Quality / Low Risk Revenues and Profits . Focus on High Growth, Fee-Based Businesses Transaction Economics Mellon Financial Corporation Discontinued Businesses . Mellon's emphasis on high growth, fee-based businesses has resulted in - Divesting non-core, capital intensive businesses - Discontinuing low growth, low return businesses . Mellon's current discontinued businesses are: - Mellon Leasing - Middle Market Lending - Mellon Business Credit - Jumbo Mortgages - Retail Consumer Banking - Consumer Lending Mellon Financial Corporation Continuing Business Operations . Net income shown using continuing operations accounting as follows: Income / (loss) from continuing operations Income / (loss) from discontinued operations ============================================ Net income Pro Forma Continuing Operations June 2001 Pro Forma ($ millions) June 2001 YTD Continuing YTD Annualized EPS* --------- ---------- ---------- Operating Net Income (Old GAAP) $ 511 $ 1,022 $ 2.13 Add: Goodwill Amortization 52 104 .22 ------- ------- ------- Operating Net Income (New GAAP) 563 1,126 2.35 Mid-Atlantic Consumer/Small Business/ Middle Market/Jumbo Mortgages (113) (226) (.47) Mellon Leasing/Business Credit 7 7 .01 Consumer Loan Securitizations (29) (29) (.06) ------- ------- ------- Income from Continuing Operations 428 878 1.83 Invest $900 MM Gain @ 4% After-tax -- 36 .07 ------- ------- ------- Pro forma - New GAAP $ 428 $ 914 $ 1.90 * Reflects full year effect of shares repurchased in 1st 6 months of 2001 Pro Forma Balance Sheet
Regional ($ billions) Consumer / Other As of* As of* Small Bus. / Discont. 3/31/01 6/30/01 Middle Mkt. Operations Pro Forma -------------------------------------------------------------------- Money Market / Securities $ 13.4 $ 13.7 ($5.8) $ 3.7 $ 11.6 Loans (Net) 25.0 19.4 (6.1) (3.5) 9.8 Goodwill / Intangibles 2.0 1.7 (0.2) - 1.5 Deposits 31.7 31.0 (13.4) - 17.6 Shareholders' Equity 3.9 3.4 0.9 [Gain] - 4.3 Shareholders' Equity / Assets 8.4% 14.0% Tangible Equity / Assets 5.1 10.5
* Before continuing operations accounting Strong Liquidity Improved Pro Forma December December Post 1997 2000 Divestiture -------- -------- ----------- Liquid Assets / Purchased Funds 92% 270% 324% Purchased Funds / Total Assets 15 9 11 Loans / Core Deposits 104 80 68 Improved Asset Quality Total Continuing Corporation Operations ------------------- ------------------ 3/31/01 6/30/01 3/31/01 6/30/01 Pro Pro Actual Actual Forma Forma ------ -------- -------- -------- Total Loans ($B) $ 25.4 $ 19.7 $ 10.9 $ 10.0 Loan Loss Reserve ($MM) 391 327 257 237 % of Total Loans 1.54% 1.65% 2.35% 2.38% Non Performing Assets ($MM) $310 $194 $192 $128 % Total Loans and Acquired Assets 1.22% .98% 1.76% 1.28% 4th Qtr 2001 Planned Dividend Realignment . Mellon's strategy has resulted in a high-growth, fee-based business mix . Growth businesses continue to require increasing levels of strategic investment spending . Mellon to realign dividend to match growth profile - Current annual dividend - $.96 / share - Post divestiture annual dividend - $.48 / share . Mellon to generate approximately $750 million of excess capital annually post divestiture Planned Dividend Realignment . Common dividend payout ratio and yield expected to be comparable to growth financial services companies 2001 Estimates Mellon Northern State Bank of New GAAP Pro Forma(1) Trust(2) Street(2) New York(2) - -------- -------------------------------------------------------- Dividend Payout Ratio 25% 26% 20% 32% Dividend Yield 1.0 1.0 0.8 1.5 (1) Mellon Pro Forma assumes annual dividend of $.48/share and pro forma EPS of $1.90. Dividend yield calculated using closing share price as of 7/13/01 ($44.58). (2) Competitor estimates calculated from 1st Qtr 2001 company reports. Capital Redeployment Continue Disciplined Reinvestment of Excess Capital Organic Growth . Invest for continued strong organic fee growth Strategic Acquisitions . Disciplined fee-based acquisitions - Successful track record in fee based acquisitions - Continuing focus on: . Asset managers . Processing businesses Share Repurchases . Since 1/1/99 repurchased 71.4 million shares - $2.7 billion in equity @ $38.08 average share price - 10% net reduction in shares outstanding . 20% net share reduction since 1994 Interim Uses of Excess Capital Accretion* ------------------------------------------ Investment Securities Share Repurchases 4% After-Tax @$45 @$40 @$35 ------------ ---- ---- ---- $900 million gain 3.8% 4.4% 4.9% 5.5% Additional accretion from repurchase of $775 million of capital in excess of 5% Tangible Common Equity Ratio - - 0.5% 1.6% * Illustrates accretion in excess of $1.83 per share derived on Page 19 Acquisition Strategy . Acquisitions consistent with revenue growth strategy . Acquisition criteria - 18% after-tax IRR hurdle - Neutral to cash EPS in Year 1 . Estimated tangible capital in excess of 5% tangible equity goal currently $1.7 billion including $900 million gain - Base case assumes 4% after-tax return - Each additional 1% after-tax return on $1.7 billion equals 2% EPS accretion Compelling Investment Focused Fee-Based Financial Services Provider Revenue By Business Segment - Full Year 2000 Mellon Pro Forma Northern Trust [GRAPH] [GRAPH] Processing & Corporate Personal Financial Services 53% Services 51% Asset Management 47% Corporate & Institutional Services 48% Other 1% State Street Bank of New York [GRAPH] [GRAPH] Investment Services 79% Servicing & Fiduciary Businesses 63% Investment Management 21% Corporate Banking 17% Retail Banking 12% Financial Markets 8% Focused Fee-Based Financial Services Provider Pre-Tax Income By Business Segment - Full Year 2000 Mellon Pro Forma Northern Trust [GRAPH] [GRAPH] Processing & Corporate Personal Financial Services 47% Services 52% Asset Management 53% Corporate & Institutional Services 48% State Street Bank of New York [GRAPH] [GRAPH] Investment Services 81% Servicing & Fiduciary Businesses 57% Investment Management 19% Corporate Banking 19% Retail Banking 12% Financial Markets 12% Compelling Investment 1st Qtr 2001 Mellon -------------------------------- Continuing Northern State Bank of Operations Trust Street New York ---------- ---------- ------ -------- Historical Revenue Growth(1) 14% 17% 14% 8% Long Term EPS Growth(2) 14+ 13 15 13 Fee Revenue/Total Revenue(3) 85 73 68 64 Trust Fees/Total Revenue(3) 67 55 54 40 ROA - New GAAP(3) 2.68 1.46 0.91 2.08 ROE - New GAAP(3) 22.4 21.9 18.4 26.5 (1) 1998 - 2000 CAGR . Mellon data excludes Mellon Leasing/Business Credit, regional consumer banking, middle market and jumbo mortgage businesses divested. (2) Mellon EPS growth goal. Competitor data obtained from First Call. (3) Second Quarter 2001 results. Excludes the loss on Mellon Leasing/Business Credit divestitures and the fair value adjustment of venture capital investments. Pro Forma Price/Earnings Multiple [GRAPH] Mellon Pro Forma 18X [Current] 23x Northern Trust 26x State Street 24x Bank of New York 21x Note: P/E ratios calculated using share prices as of 7/13/01 (Mellon @ $44.58). Mellon Pro Forma assumes new GAAP EPS of $1.90. Competitor 2001 new GAAP EPS estimates based on First Call estimates and company reports. Pro Forma P/E to Growth (PEG) [GRAPH] Mellon Pro Forma 1.5 [Current] 1.7x(1) Northern Trust 2.0x State Street 1.7x Bank of New York 1.6x Note: New GAAP P/E ratios same as previous slide. (1) Based on Mellon's stated long-term growth rate goal of 14%+. Summary . High growth financial services franchise . Focus on high growth, fee-based businesses . High quality/low risk fee-based revenue strategy . Commitment to growth . A compelling investment opportunity Appendix Impact of Discontinued Operations
Regional Mellon ($ millions, except EPS) Consumer/ Leasing/ Pro Forma Small Bus./ Business Continuing New GAAP Mellon* Middle Mkt.* Credit** Other*** Operations - -------------------- ------------------------------------------------------------------- Net Interest Revenue $1,150 $(542) $ (4) $ - $ 604 Fee Revenue 3,499 (274) (5) (44) 3,176 ------------------------------------------------------------------- Total Revenue 4,649 (816) (9) (44) 3,780 Expenses 2,879 465 20 - 2,394 Pretax Income 1,770 (351) 11 (44) 1,386 ------------------------------------------------------------------- Taxes 644 125 4 15 508 ------------------------------------------------------------------- Net Income $1,126 $(226) $ 7 $ (29) $ 878 Fully Diluted Operating EPS $ 2.35 $(.47) $.01 $(.06) $ 1.83
* 6/30/01 YTD annualized ** June 2001 YTD ** June 2001 YTD consumer loan securitization gains Pro Forma Balance Sheet
Regional ($ billions) Consumer / Other As of* As of* Small Bus. / Discontinued 3/31/01 6/30/01 Middle Market Operations Pro Forma - ------------------------------------------------------------------------------------------------------------ Money Market / Securities $ 10.5 $ 13.7 $ (5.8) $ 3.7 $ 11.6 Loans (Net) 25.0 19.4 (6.1) (3.5) 9.8 Goodwill / Intangibles 2.0 1.7 (0.2) - 1.5 Other 8.8 8.6 (0.6) (0.2) 7.9 - ------------------------------------------------------------------------------------------------------------ Total Assets $ 46.3 $ 43.4 $(12.6) $ - $ 30.8 Deposits 31.7 31.0 (13.4) - 17.6 Notes and Debentures 3.6 3.8 - - 3.8 Purchased Funds / Other Liab. 6.1 4.2 (0.1) - 4.1 Trust-preferred securities 1.0 1.0 - - 1.0 Shareholders' equity 3.9 3.4 0.9 - 4.3 - ------------------------------------------------------------------------------------------------------------ Total $ 46.3 $ 43.4 $ (12.6) $ - $ 30.8 Shareholders' Equity / Assets 8.4% 14.0% Tangible Equity / Assets 5.1% 10.5%
* Before continuing operations accounting Mellon's Transformation Strategic Focus on Growth . Emphasis on high growth, fee-based businesses . Focus acquisitions on growth strategy . Sharpen strategic focus - Divest non-core, scale driven, capital intensive-businesses Focus Acquisitions on Growth Strategy . Strategic acquisitions - The Boston Company - Dreyfus - Newton . Complementary acquisitions - Buck Consultants - Founders - Mellon Investor Services - Trust Co. of Washington - Standish, Ayer & Wood - Van Deventer & Hoch Sharpen Focus with Divestitures / Exits 1999 / 2000 / 2001 ------------------ . Mid-Atlantic Region . Jumbo mortgages - Consumer Banking . Large ticket leasing - Small Business . 3rd party mutual fund - Middle Market administration contract . Mortgage Banking . Indirect Auto . Credit Card . Leverage Finance Transactions . ATM Processing 2nd Qtr 2001 Financial Results Mellon Financial Corporation Discontinued Businesses . Mellon's emphasis on high growth, fee-based businesses has resulted in - Divesting non-core, capital intensive businesses - Discontinuing low growth, low return businesses . Mellon's current discontinued businesses are: - Mellon Leasing - Middle Market Lending - Mellon Business Credit - Jumbo Mortgages - Retail Consumer Banking - Consumer Lending Mellon Financial Corporation Continuing Business Operations . Net income shown using continuing operations accounting as follows: Income / (loss) from continuing operations Income / (loss) from discontinued operations -------------------------------------------- Net income Mellon Financial Corporation 2nd Qtr 2001 Financial Results Net Fully Diluted ($ millions, except EPS) Income EPS ------ ------------- Continuing Operations - Operating $ 191 $ .40 Fair value adjustment Venture capital portfolio (91) (.19) Discontinued Operations: Income from operations 73 .15 Losses on retained assets* (17) (.03) Loss on disposal (101) (.21) ------ ------ Total Discontinued Operations (45) (.09) ------ ------ Reported results $ 55 $ .12 * Represents Losses on assets retained by Mellon related to the Mellon Leasing / Business Credit Divestitures Mellon Financial Corporation 2nd Qtr 2001 Financial Results 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Fully Diluted Operating EPS* $.40 $.38** Operating ROE* 20.5% 19.9% Operating ROA* 2.45 2.42 * 2nd Qtr 2001 excludes a $91 million after-tax charge for the fair value adjustment of investments in the venture capital portfolio ** Includes $0.15 from expired 3rd party mutual fund administration contract Mellon Financial Corporation 2nd Qtr 2001 Financial Results New GAAP 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Fully Diluted Operating EPS* $.43 $.41** Operating ROE* 22.4% 21.7% Operating ROA* 2.68 2.65 * Exclude the after-tax impact of goodwill amortization from purchase acquisitions. EPS currently $.03 / share higher than reported EPS . 2nd Qtr 2001 excludes a $91 million after-tax charge for the fair value adjustment of investments in the venture capital portfolio. ** Includes $.015 from expired 3rd party mutual fund administration contract Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Total fee revenue Reported $ 634 $ 715 Adjusted* 709 693 Trust and investment fees Reported $ 620 $ 558 Adjusted* 557 534 End of period S&P 500 1224 1455 * Excludes the impact of acquisitions, the fair value adjustment of investments in the venture capital portfolio and the impact of the expired mutual fund administration contract. Mellon Financial Corporation 2nd Qtr 2001 Financial Results 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Fee revenue / total revenue* 85% 84% Trust fees / total revenue* 67 64 * Excludes the impact of the fair value adjustment to investments in the venture capital portfolio. Mellon Financial Corporation 2nd Qtr 2001 Financial Results 2nd Qtr 1st Qtr 2nd Qtr Continuing Business Operations 2001 2001 2000 - ------------------------------ ------- ------- ------- Investment Management Revenue $332MM $324MM $307MM Assets Under Management $546B $520B $521B Memo: End of period S&P 500 1224 1160 1455 Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Fee Revenue - ----------- Administration and Custody Reported $209 $173 Adjusted* 148 150 Assets Under Admin / Custody 2.3T 2.3T * Excludes the impact of acquisitions and the impact of the expired mutual fund administration contract Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Benefits Consulting $69 $63 Cash Management 61 52 Foreign Currency / Securities Trading 47 42 Financing Related / Equity Investment* 32 51 * Excludes the impact of the $140 fair value adjustment to the venture capital portfolio Mellon Financial Corporation 2nd Qtr 2001 Financial Results Venture Capital - --------------- . Mellon recorded a charge for fair value adjustments to the venture capital portfolio - $140 million pre-tax . $67 million - Old Economy related . $73 million - New Economy related - Primarily related to fair values of private equity investments Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) Carrying Value @ 6/30/01 --------- Private Companies @ cost $413 Private Companies @ estimated fair value 112 Public Companies 8 ---- Total Direct Portfolio $533 Fund Investments 185 ---- Total Carrying Value $718 Mellon Financial Corporation 2nd Qtr 2001 Financial Results 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Net Interest Revenue ($ millions) - --------------------------------- Net interest revenue $141 $142 Net interest margin 2.60% 2.87% Average Balances ($ billions) - ----------------------------- Securities / Liquid Assets $11.2 $8.6 Loans 10.5 11.4 Loans as % of Interest Earning Assets 48% 57% Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Operating expense Reported $613 $553 Adjusted* 561 551 Efficiency ratio - Reported 64% 62% * Excludes the impact of acquisitions and net expense (revenue) from acquired property Mellon Financial Corporation 2nd Qtr 2001 Financial Results ($ millions) 2nd Qtr 2nd Qtr Continuing Business Operations 2001 2000 - ------------------------------ ------- ------- Net credit losses $20 $8 Annualized net credit losses 75bp 29bp Provision for credit losses $1 $9 6/30/01 3/31/01 ------- ------- Nonperforming assets $128 $192 Memo: Discontinued Business Operations - NPA's 66 118 Mellon Financial Corporation 2nd Qtr 2001 Financial Results Capital Management - ------------------ . Repurchased 8.6 million shares in 2nd Qtr . Repurchased 20.0 million shares June YTD . 10% net share reduction (53.8 million) over last 10 quarters --- . 23.6 million shares available for repurchase under a 25 million share repurchase program authorized May 2001 Sector Results Mellon Financial Corporation Sector Results . Asset Management - Wealth Management - Global Asset Management . Processing & Corporate Services - Global Investment Services - Global Cash Management - Relationship Lending Mellon Financial Corporation Sector Results 6/30/01 6/30/00 YTD YTD % of Core Sector Revenue ------- ------- - ------------------------ Asset Management 42% 47% Processing & Corporate Services 58 53 % of Core Sector Pretax - ----------------------- Asset Management 47% 52% Processing & Corporate Services 53 48 Mellon Financial Corporation Sector Results ($ millions) 6/30/01 6/30/00 [Asset Management] YTD YTD ------- ------- Revenue - ------- Wealth Management $240 $215 Global Investment Management 518 550 ---- ---- Total 758 765 Pretax Income - ------------- Wealth Management $109 $92 Global Investment Management 171 193 ---- ---- 280 285 Mellon Financial Corporation Sector Results ($ millions) [Processing & Corporate Services] 6/30/01 6/30/00 YTD YTD ------- ------- Revenue - ------- Global Investment Services $697 $534 Global Cash Management 205 181 Relationship Lending 162 156 ----- ----- Total 1,064 871 Pretax Income - ------------- Global Investment Services $173 $135 Global Cash Management 59 53 Relationship Lending 84 74 ----- ----- 316 262 Mellon Financial Corporation Sector Results Growth Core Sectors ------------------------------ 2nd Qtr June YTD Pretax Income 2001 / 2000 2001 / 2000 - ------------- ----------- ----------- Asset Management 8% (2)% Processing and Corporate Services 14% 21% Core Sectors 11% 9% Core Sectors, EPS 15% 13% [LOGO OF MELLON FINANCIAL CORPORATION] -----END PRIVACY-ENHANCED MESSAGE-----