UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended March 31, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-7410
MELLON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
| Pennsylvania | 25-1233834 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Mellon Center
Pittsburgh, Pennsylvania 15258-0001
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code — (412) 234-5000
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes þ No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding as of March 31, 2004 | |
| Common Stock, $.50 par value | 424,490,833 |
MELLON FINANCIAL CORPORATION
FIRST QUARTER 2004 FORM 10-Q
TABLE OF CONTENTS AND 10-Q CROSS-REFERENCE INDEX
| Page No. | ||
| Part I - Financial Information |
||
| 2 | ||
| Financial Statements (Item 1): |
||
| 3 | ||
| 5 | ||
| 6 | ||
| 8 | ||
| 9 | ||
| 20 | ||
| 63 | ||
| 63 | ||
| Part II - Other Information |
||
| 64 | ||
| Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities (Item 2) |
64 | |
| 65 | ||
| 67 | ||
| 68 | ||
| 69 | ||
PART I - FINANCIAL INFORMATION
Mellon Financial Corporation (and its subsidiaries)
| (a) | First quarter 2004 results include the gain from the sale of approximately 35% of the Corporation’s indirect investment in Shinsei Bank and the charge associated with a writedown of small non-strategic businesses that the Corporation intends to exit. The combination of these items, which totaled $74 million pre-tax, added $.12 per share to the first quarter 2004 results. Excluding these items, return on equity and return on assets on a continuing operations basis would have been 20.7% and 2.35%, respectively, and the pre-tax operating margin would have been 27%. The Corporation believes that this supplemental information is useful in analyzing the financial results and trends of ongoing operations, facilitates the comparisons with other financial institutions and is the basis on which the Corporation’s management internally evaluates performance. |
| (b) | See page 10 for a discussion of the cumulative effect of a change in accounting principle. |
| (c) | Returns presented in the table for the first three months of 2003 are before the cumulative effect of a change in accounting principle. Return on equity on a net income basis was 26.1%, 20.3% and 19.2% for the first quarter 2004, fourth quarter 2003, and first quarter 2003, respectively. Return on assets on a net income basis was 2.96%, 2.24% and 1.85% for the first quarter 2004, fourth quarter 2003, and first quarter 2003, respectively. For the first quarter of 2003, the return on assets, on a continuing operations basis, was calculated excluding both the results and assets of the fixed income trading business even though the prior period balance sheet was not restated for discontinued operations. |
| (d) | See page 21 for the definition of fee revenue. |
2
Item 1. - Financial Statements
Mellon Financial Corporation (and its subsidiaries)
| Quarter ended |
||||||||||||
| (dollar amounts in millions, except per share amounts) |
March 31, 2004 |
Dec. 31, 2003 |
March 31, 2003 |
|||||||||
| Noninterest revenue |
||||||||||||
| Trust and investment fee revenue: |
||||||||||||
| Investment management |
$ | 405 | $ | 413 | $ | 318 | ||||||
| Human resources & investor solutions |
233 | 230 | 240 | |||||||||
| Institutional trust and custody |
133 | 132 | 109 | |||||||||
| Securities lending revenue |
18 | 16 | 15 | |||||||||
| Total trust and investment fee revenue |
789 | 791 | 682 | |||||||||
| Cash management revenue |
78 | 83 | 72 | |||||||||
| Foreign exchange revenue |
57 | 39 | 38 | |||||||||
| Other trading revenue |
7 | 2 | 2 | |||||||||
| Financing-related revenue |
35 | 41 | 32 | |||||||||
| Equity investment revenue |
98 | 6 | 3 | |||||||||
| Other revenue |
7 | 19 | 9 | |||||||||
| Total fee and other revenue |
1,071 | 981 | 838 | |||||||||
| Gains on sales of securities |
— | 12 | 11 | |||||||||
| Total noninterest revenue |
1,071 | 993 | 849 | |||||||||
| Net interest revenue |
||||||||||||
| Interest revenue |
194 | 200 | 247 | |||||||||
| Interest expense |
80 | 80 | 93 | |||||||||
| Net interest revenue |
114 | 120 | 154 | |||||||||
| Provision for credit losses |
(7 | ) | — | 4 | ||||||||
| Net interest revenue after provision for credit losses |
121 | 120 | 150 | |||||||||
| Operating expense |
||||||||||||
| Staff expense |
495 | 502 | 449 | |||||||||
| Professional, legal and other purchased services |
104 | 117 | 92 | |||||||||
| Net occupancy expense |
68 | 68 | 64 | |||||||||
| Equipment expense |
54 | 58 | 54 | |||||||||
| Business development |
25 | 30 | 25 | |||||||||
| Communications expense |
28 | 26 | 27 | |||||||||
| Amortization of intangible assets |
5 | 5 | 5 | |||||||||
| Other expense |
52 | 37 | 38 | |||||||||
| Total operating expense |
831 | 843 | 754 | |||||||||
| Income |
||||||||||||
| Income from continuing operations before income taxes and cumulative effect of accounting change |
361 | 270 | 245 | |||||||||
| Provision for income taxes |
117 | 85 | 79 | |||||||||
| Income from continuing operations before cumulative effect of accounting change |
244 | 185 | 166 | |||||||||
| Cumulative effect of accounting change, net of tax |
— | — | (7 | ) | ||||||||
| Income from continuing operations |
244 | 185 | 159 | |||||||||
| Discontinued operations: |
||||||||||||
| Income (loss) from operations after-tax |
— | (2 | ) | 1 | ||||||||
| Net gain on disposals after-tax |
1 | 1 | 1 | |||||||||
| Income (loss) from discontinued operations (net of tax expense of $1, $-and $1) |
1 | (1 | ) | 2 | ||||||||
| Net income |
$ | 245 | $ | 184 | $ | 161 | ||||||
(continued)
3
CONSOLIDATED INCOME STATEMENT (continued)
Mellon Financial Corporation (and its subsidiaries)
| Quarter ended |
||||||||||
| (share amounts in thousands) |
March 31, 2004 |
Dec. 31, 2003 |
March 31, 2003 |
|||||||
| Earnings per share (a) |
||||||||||
| Basic: |
||||||||||
| Income from continuing operations before cumulative effect of accounting change |
$ | |||||||||