PRNewswire-FirstCall
NEW YORK
(NYSE:BK)
Oct 18, 2007
Strong Revenue Momentum combined with Positive Operating Leverage Integration on track
NEW YORK, October 18, 2007 — The Bank of New York Mellon Corporation (NYSE: BK) reported third quarter income from continuing operations of $642 million and diluted earnings per share of 56 cents which compares to 41 cents a year ago and 62 cents sequentially. The merger of The Bank of New York Company, Inc. with Mellon Financial Corporation was completed July 1, 2007.
-- Adjusting for the impact of merger and integration expense ($218
million pre-tax), diluted earnings per share for the third quarter of
2007 was 67 cents, which compares to 50 cents a year ago and 66 cents
sequentially.
-- Adjusting for the impact of merger and integration expenses ($218
million pre-tax) and intangible amortization expense ($131 million pre-
tax), diluted earnings per share for the third quarter of 2007 was 74
cents, which compares to 51 cents a year ago and 69 cents sequentially.
Income from continuing operations was $448 million in the second quarter of 2007, and $298 million in the third quarter of 2006.
"We are off to a tremendous start as a new company," said Robert P. Kelly, chief executive officer of The Bank of New York Mellon. "During a volatile market environment, we delivered strong double-digit increases in revenue and profit reflecting a combination of impressive organic growth and the positive impact of market volatility on our securities servicing businesses. While the asset management environment during the quarter was challenging, we capitalized on our strength in money market funds and won a landmark mandate in China. Our pipelines are in great shape, credit quality remains strong, we launched our new brand and the integration is proceeding well."
The results for the third quarter of 2007 include the net pre-tax benefit of $27 million from a settlement received for early termination of a contract that occurred in 2005 associated with the clearing business, as well as the pre-tax write-offs of the value of the remaining interest in a hedge fund manager that was sold in 2006 ($32 million) and internally developed software ($6 million). In addition, the impact of the merger in the third quarter on the state marginal tax rate required a recalculation of the yield on the leverage lease portfolio. The effect was a $22 million reduction in net interest revenue, together with a $45 million tax benefit recorded as a reduction to taxes. The net impact of these items increased earnings per share by approximately 1 cent.
Third Quarter Highlights of The Bank of New York Mellon (Unless otherwise noted, all comments begin with the results of the third quarter of 2007. This is followed by commentary that compares the current period to pro forma combined results of the third quarter of 2006 unless otherwise noted. The appendix to this release provides the pro forma combined results, without purchase accounting adjustments and assumes that the merger had occurred at the beginning of the third quarter of 2006. Please refer to the Quarterly Earnings Summary Report for detailed business sector information.)
-- Total revenue (FTE) reached a record level of $3.614 billion,
consisting of 81% fee and other revenue and 19% net interest revenue.
On a pro forma combined basis, the growth was 24%, driven by higher fee
revenue of 21% and net interest revenue of 40%.
-- Assets under management, excluding securities lending assets, amounted
to $1.106 trillion. On a pro forma combined basis, this represents an
increase of 19% compared to the prior year and 2% (unannualized)
sequentially. Net asset flows totaled $29 billion for the third
quarter of 2007. Assets under custody and administration amounted to
$20.8 trillion. On a pro forma combined basis, this represents an
increase of 22% compared to the prior year and 2% (unannualized)
sequentially.
-- Asset and wealth management fees totaled $854 million. On a pro forma
combined basis, this represents an increase of 25%, reflecting net new
business and higher equity market levels. Sequential revenue increased
1% (unannualized), in line with market levels. The impact of market
volatility on certain alternative, quantitative and fixed income
strategies was offset by strong net inflows into money market funds.
-- Performance fees were a negative $3 million. On a pro forma combined
basis, performance fees were $59 million in the third quarter of 2006
and $63 million in the second quarter of 2007. The significant decline
from both periods principally reflects the impact of market volatility
during the third quarter on certain alternative and quantitative
strategies as well as weaker relative performance compared to the third
quarter of 2006.
-- Asset servicing fees totaled $720 million. On a pro forma combined
basis, the increase was 25% reflecting a record level of securities
lending revenue and increased client activity related to market
volatility and net new business. Securities lending fee revenue was
$108 million compared to $66 million in the prior year and $97 million
sequentially. Wider spreads driven by market volatility and a decrease
in interest rates offset the typical seasonal sequential decline in
securities lending fee revenue.
-- Issuer services fees were $436 million. On a pro forma combined basis,
the increase was 79% and if adjusted for the Acquired Corporate Trust
Business the increase was approximately 15%. The sequential increase
was 5% (unannualized), reflecting a strong quarter in both depositary
receipts and global products within Corporate Trust.
-- Clearing and execution services fees totaled $304 million. On a pro
forma combined basis, these fees increased 3% compared with the third
quarter of 2006 and increased 7% (unannualized) compared with the
second quarter of 2007. Excluding the impact of the contribution of
certain businesses to ConvergEx in October of 2006, clearing and
execution services fees rose approximately 25% vs. 3Q06, driven by
strong growth in trading activity in a normally slow quarter along with
continued growth in money market and mutual fund positions.
-- Foreign exchange and other trading fees totaled $238 million. This
compares to $137 million in the prior year and $176 million
sequentially, on a pro forma combined basis. The increases compared to
both prior periods reflect higher client volumes, as well as a
significant increase in currency volatility and a higher valuation of
the credit derivatives portfolio.
-- Investment income was $22 million. On a pro forma combined basis, this
compares to $54 million in the prior year and $77 million sequentially.
The decline compared to prior periods principally reflects the lower
market value of seed capital investments due to the market environment.
-- Net interest revenue (FTE) totaled $674 million with a net interest
margin of 2.02%. This compares to a pro forma combined net interest
revenue of $481 million in the third quarter of 2006 and $592 million
in the second quarter of 2007.
The increase from both prior periods reflects a higher level of average
interest-earning assets driven principally by the growth in client
deposits. The net margin increased 22 basis points compared to the
prior year and 7 basis points sequentially, principally reflecting the
benefit of wider spreads on investment securities. Sequentially, the
margin benefited from the impact of market volatility on short-term
spreads as well as higher deposit levels, lower bond premium
amortization due to slowing prepayments, partially offset by the
negative impact of the required recalculation of the yield on the
leverage lease portfolio under FAS 13 ($22 million).
-- Total noninterest expense was $2.706 billion. This compares to a pro
forma combined noninterest expense of $2.146 billion in the third
quarter of 2006 and $2.642 billion in the second quarter of 2007.
Excluding merger and integration expense ($218 million) and intangible
amortization ($131 million), noninterest expense on a pro forma
combined basis increased 16% compared to the third quarter of 2006 and
declined 3% (unannualized) sequentially. The results reflect $79
million in expense synergies ($62 million net of open positions
eliminated) associated with the merger (detailed in the Quarterly
Earnings Summary Report).
On a pro forma combined basis, excluding merger and integration
expense, intangible amortization expense and the non-operating items in
the third quarter of 2007 detailed on page 1 and the second quarter of
2007 detailed on page 11, we generated 1,100 bps of positive operating
leverage compared to the prior year and 400 bps sequentially.
-- There was no provision for credit losses in the third quarter of 2007,
compared to a credit of $4 million in the third quarter of 2006 and a
credit of $15 million in the second quarter of 2007.
-- Pre-tax margin (FTE) was 25% in the third quarter of 2007. Excluding
merger and integration expenses, intangible amortization expense and
the non-operating items detailed on page 1, the pre-tax margin (FTE)
was 36%. This compares to 30% in the third quarter of 2006 and 34%
sequentially, on a pro forma combined basis excluding merger and
integration expense, intangible amortization and the non-operating
items in the second quarter of 2007 detailed on page 11.
The following comparisons are to legacy The Bank of New York only.
-- The effective tax rate was 28.2% compared with 29.4% in the third
quarter of 2006 and 31.9% in the second quarter of 2007. The lower
effective tax rate vs. the prior year reflects the impact of the
recalculation of the yield on the leverage lease portfolio under FAS
13. Excluding this adjustment, the effective tax rate was 32.4%.
-- Total assets at Sept. 30, 2007 were $184 billion, an increase of $58
billion from June 30, 2007, reflecting the merger with Mellon.
-- Return on tangible common equity was 46% for the third quarter of 2007,
or 53% excluding merger and integration expense, intangible
amortization expense and the non-operating items detailed on page 1.
-- The adjusted tangible shareholders' equity ratio was 5.31% at Sept. 30,
2007 compared to 4.53% at June 30, 2007.
-- Average diluted shares of 1.141 billion increased by approximately 418
million shares from the second quarter of 2007, reflecting the merger.
On Oct. 9, 2007, The Bank of New York Mellon declared a quarterly common stock dividend of 24 cents per share. This cash dividend is payable on Nov. 2, 2007, to shareholders of record as of the close of business on Oct. 24, 2007.
The Bank of New York Mellon Corporation is a global financial services company focused on helping clients manage and service their financial assets, operating in 37 countries and serving more than 100 markets. The company is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has more than $20 trillion in assets under custody and administration, more than $1.1 trillion in assets under management and services $11 trillion in outstanding debt. Additional information is available at http://www.bnymellon.com/.
Earnings Release Format
The third quarter 2007 results in this release reflect The Bank of New York and Mellon on a consolidated basis. The results for the nine months ended Sept. 30, 2007 in this release include nine months of The Bank of New York and three months for Mellon which reflect all related purchase accounting adjustments. All prior period financial results are for The Bank of New York only, unless labeled pro forma.
Throughout this earnings release, all information is reported on a continuing operations basis unless otherwise noted. Quarterly returns are annualized. Certain amounts are presented on a fully taxable equivalent (FTE) basis. We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income. Where financial measures are presented excluding certain specified amounts, we believe the presentation enhances investor understanding of period to period results.
Supplemental Financial Information
Please refer to the Quarterly Earnings Summary for supplemental financial information of The Bank of New York Mellon Corporation, including 5-quarter trends of fee and other revenue, net interest revenue, noninterest expense as well as business sector trends. The Quarterly Earnings Summary is available at http://www.bnymellon.com/ (Investor Relations - financial releases).
Conference Call Data
Robert P. Kelly, chief executive officer; Gerald L. Hassell, president; and Bruce W. Van Saun, chief financial officer, along with other members of executive management from The Bank of New York Mellon, will host a conference call and simultaneous live audio webcast at 8 a.m. EDT on Thursday, Oct. 18, 2007. This conference call and audio webcast will include forward-looking statements and may include other material information. Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677- 2456 (U.S.) and (517) 623-4161 (International) Pass code: Earnings, or by logging on to http://www.bnymellon.com/. The earnings release together with the quarterly earnings summary will be available at http://www.bnymellon.com/ beginning at approximately 6:30 a.m. EDT on Oct. 18. Replays of the conference call and audio webcast will be available beginning Oct. 18 at approximately 2 p.m. EDT through Thursday, Nov. 1, 2007 by dialing (800) 810-4036 (U.S.) or (402) 280- 1623 (International). The archived version of the conference call and audio webcast will also be available at http://www.bnymellon.com/ for the same time period.
THE BANK OF NEW YORK MELLON CORPORATION
Financial Highlights
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Legacy The Bank of
New York only
(dollar amounts in millions, -------------------
except per share amounts and Quarter ended
unless otherwise noted; common Sept. 30, June 30, Sept. 30,
shares in thousands) 2007 2007 2006
--------------------------------------------------------------------------
Continuing Operations:
Fee and other revenue $ 2,931 $ 1,580 $ 1,263
Net interest revenue 669 452 351
-------- -------- --------
Total revenue $ 3,600 $ 2,032 $ 1,614
EPS from continuing operations
(diluted)-As reported (GAAP) (a) $ .56 $ .62 $ .41
Non-GAAP adjusted:
Excluding merger and integration
expense and non-operating items
detailed on page 1 (a) .66 .66 .50
Excluding merger and integration
expense, non-operating items
detailed on page 1 and intangible
amortization (a) .73 .69 .51
Return on tangible common equity
GAAP 46.0% 37.3% 22.2%
Non-GAAP adjusted (b) 53.1% 39.8% 26.5%
Return on equity:
GAAP 8.9% 15.5% 11.6%
Non-GAAP adjusted (b) 11.6% 16.7% 14.4%
Fee and other revenue as a
percentage of total revenue (FTE) 81% 78% 78%
Annualized fee and other revenue
per employee (based on average
headcount) (in thousands) $ 290 $ 274 $ 248
Non-U.S.:
Percent of revenue (FTE) 31% 32% 29%
Pre-tax operating margin (FTE):
GAAP 25% 32% 26%
Non-GAAP adjusted (b) 36% 36% 33%
Net interest margin (FTE) (c) 2.02% 2.01% 1.89%
Selected average balances (c):
Interest-earning assets $133,534 $ 90,557 $ 76,088
Total assets $183,828 $114,323 $ 95,579
Interest-bearing deposits $ 80,870 $ 53,610 $ 43,905
Noninterest-bearing deposits $ 26,466 $ 15,334 $ 10,687
Shareholders' equity $ 28,669 $ 11,566 $ 10,262
Average common shares and
equivalents outstanding
(in thousands)
Basic 1,125,165 709,783(a) 713,946(a)
Diluted 1,140,797 722,661(a) 723,272(a)
Period-end data
Assets under management
(in billions) $ 1,106 $ 153 $ 131
Assets under custody and
administration (in trillions) $ 20.8 $ 14.9 $ 12.2
Cross-border assets
(in trillions) $ 8.3 $ 6.2 $ 4.2
Securities lending cash collateral
assets (in billions) $ 575 $ 365 $ 368
Employees 40,600 23,200 20,500
Tier I capital ratio (d) 9.1%(e) 8.09% 8.17%
Total (Tier I plus Tier II)
capital ratio (d) 13.0%(e) 12.07% 12.32%
Adjusted tangible shareholders'
equity to assets ratio (d)(f) 5.31% 4.53% 5.58%
Book value per common share $ 25.43 $ 16.50(a) $ 14.52(a)
Tangible book value per common
share $ 5.83 $ 7.35(a) $ 8.04(a)
Dividends per share $ 0.24 $ 0.23(a) $ 0.23(a)
Dividend yield 2.17% 2.12% 2.46%
Closing common stock price per
share $ 44.14 $ 43.93(a) $ 37.38(a)
Market capitalization $ 50,266 $ 31,495 $ 26,938
--------------------------------------------------------------------------
(a) Historical earnings per share and all other share-related data are
presented in post-merger share count terms. See page 8 for
additional information.
(b) Calculated excluding merger and integration expense, intangible
amortization and non-operating items detailed on page 1.
(c) Prior periods calculated on a continuing operations basis.
(d) Includes discontinued operations.
(e) Preliminary.
(f) Shareholders' equity less goodwill and intangible assets plus the
benefit of the deferred tax liability associated with tax deductible
intangibles divided by total assets less goodwill and intangible
assets.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement (a)
Quarter ended Nine months ended
(in millions, ------------------------------ --------------------
except per share Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
amounts) 2007 2007 2006 2007 2006
-------------------------------------------------------------------------
Fee and other
revenue
Securities
servicing fees:
Asset servicing $ 720 $ 427 $ 346 $1,540 $1,046
Issuer services 436 367 194 1,122 555
Clearing and
execution services 304 291 302 877 981
------ ------ ------ ------ ------
Total securities
servicing fees 1,460 1,085 842 3,539 2,582
Asset and wealth
management fees 854 168 133 1,173 393
Performance fees (3) 21 3 32 17
Foreign exchange and
other trading
activities 238 117 83 482 322
Treasury services 122 55 55 227 158
Distribution and
servicing 95 2 2 99 4
Financing-related
fees 51 61 62 164 189
Investment income 22 39 34 97 108
Securities gains
(losses) (9) (2) 1 (9) -
Other 101 34 48 182 125
------ ------ ------ ------ ------
Total fee and
other revenue 2,931 1,580 1,263 5,986 3,898
Net interest
revenue
Interest revenue 1,778 1,162 960 3,961 2,683
Interest expense 1,109 710 609 2,413 1,635
------ ------ ------ ------ ------
Net interest
revenue 669 452 351 1,548 1,048
Provision for
credit losses - (15) (4) (30) (5)
------ ------ ------ ------ ------
Net interest revenue
after provision for
credit losses 669 467 355 1,578 1,053
Noninterest expense
Staff 1,280 752 644 2,752 1,904
Professional, legal
and other purchased
services 241 132 89 503 256
Net occupancy 144 81 70 304 206
Distribution and
servicing 127 4 4 135 12
Software 91 57 53 202 161
Furniture and equipment 80 54 46 184 145
Sub-custodian 58 42 31 134 101
Business development 56 37 27 123 78
Clearing and execution 52 44 52 133 161
Communications 33 23 26 75 74
Other 195 87 51 354 174
------ ------ ------ ------ ------
Subtotal 2,357 1,313 1,093 4,899 3,272
Amortization of
intangible assets 131 29 14 188 42
Merger and integration
expense:
The Bank of New
York Mellon 205 35 - 244 -
Acquired Corporate
Trust Business 13 12 89 36 89
------ ------ ------ ------ ------
Total noninterest
expense 2,706 1,389 1,196 5,367 3,403
------ ------ ------ ------ ------
Income
Income from continuing
operations before
income taxes 894 658 422 2,197 1,548
Provision for income
taxes 252 210 124 670 499
------ ------ ------ ------ ------
Income from continuing
operations 642 448 298 1,527 1,049
Discontinued operations:
Income (loss) from
discontinued
operations (4) (4) 96 (13) 297
Provision (benefit)
for income taxes (2) (1) 42 (5) 124
------ ------ ------ ------ ------
Discontinued
operations income
(loss), net (2) (3) 54 (8) 173
------ ------ ------ ------ ------
Net income $ 640 $ 445 $ 352 $1,519 $1,222
====== ====== ====== ====== ======
Earnings per
share (b)
Basic:
Income from
continuing operations $ .57 $ .63 $ .42 $ 1.80 $ 1.47
Income (loss) from
discontinued
operations, net - - .08 (.01) .24
------ ------ ------ ------ ------
Net income $ .57 $ .63 $ .49(c) $ 1.79 $ 1.71
Diluted:
Income from
continuing operations $ .56 $ .62 $ .41 $ 1.77 $ 1.45
Income (loss) from
discontinued
operations, net - - .07 (.01) .24
------ ------ ------ ------ ------
Net income $ .56 $ .62 $ .49(c) $ 1.76 $ 1.69
(a) Third quarter and year-to-date 2007 include three months of the
combined company's results, while second quarter 2007 and the results
for all periods in 2006 include legacy The Bank of New York only.
(b) All earnings per share data is presented in post-merger share count
terms. See page 8 for additional information.
(c) Amounts do not foot due to rounding.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Balance Sheet
Legacy The Bank of
New York only
------------------
(dollar amounts in millions, Sept. 30, Dec. 31, Sept. 30,
except per share amounts) 2007 2006(a) 2006
-------------------------------------------------------------------------
Assets
Cash and due from banks $ 6,010 $ 2,840 $ 2,072
Interest-bearing deposits
with banks 28,158 13,172 16,753
Federal funds sold and securities
purchased under resale agreements 4,194 5,114 5,139
Securities:
Held-to-maturity (fair value of
$2,208; $1,710 and $1,716) 2,221 1,729 1,737
Available-for-sale 44,861 19,377 20,278
------- ------- -------
Total securities 47,082 21,106 22,015
Trading assets 6,890 5,544 3,266
Loans 50,856 37,793 33,958
Reserve for loan losses (332) (287) (339)
------- ------- -------
Net loans 50,524 37,506 33,619
Premises and equipment 1,701 1,050 1,009
Accrued interest receivable 655 422 406
Goodwill 15,764 5,008 3,801
Intangible assets 6,554 1,453 872
Other assets 16,437 9,973 8,856
Assets of discontinued operations 3 18 8,828
------- ------- -------
Total assets $183,972 $103,206 $106,636
======= ======= =======
Liabilities
Deposits
Noninterest-bearing (principally
domestic offices) $ 27,289 $ 19,554 $ 11,451
Interest-bearing deposits in
domestic offices 21,263 10,041 9,785
Interest-bearing deposits in
foreign offices 59,653 32,551 33,717
------- ------- -------
Total deposits 108,205 62,146 54,953
Federal funds purchased and
securities sold under repurchase
agreements 2,929 790 1,040
Trading liabilities 4,978 2,507 2,102
Payables to customers and
broker-dealers 7,917 7,266 6,673
Other borrowed funds 2,112 1,625 1,121
Accrued taxes and other expenses 7,842 5,129 4,140
Other liabilities (including
allowance for lending related
commitments of $178, $150 and $137) 6,679 3,477 4,671
Long-term debt 14,312 8,773 8,434
Liabilities of discontinued
operations 41 64 13,035
------- ------- -------
Total liabilities 155,015 91,777 96,169
Shareholders' equity (b)
Common stock-par value $0.01 per
share, authorized 3,500,000,000
shares, issued 1,139,968,850;
994,110,501 and 990,464,938 11 10 10
Additional paid-in capital 19,713 10,035 9,879
Retained earnings 9,773 9,280 7,820
Accumulated other comprehensive
loss, net of tax (488) (317) (66)
Less: Treasury stock of 1,191,302;
280,935,236 and 269,522,099 shares,
at cost (49) (7,576) (7,169)
Loan to ESOP (95,994, 95,994 and
191,989 shares) (3) (3) (7)
------- ------- -------
Total shareholders' equity 28,957 11,429 10,467
------- ------- -------
Total liabilities and
shareholders' equity $183,972 $103,206 $106,636
======= ======= =======
(a) Certain prior period balances have been revised, see discussion on
pages 9 and 10.
(b) Par value, authorized, issued, treasury stock and loan to ESOP shares
at Dec. 31, 2006 and Sept. 30, 2006 are presented in post-merger
share count terms. See page 8 for additional information.
Note: The balance sheet at Dec. 31, 2006 has been derived from the
audited financial statements as of that date, as revised.
Nonperforming Assets
Nonperforming assets were $37 million at Sept. 30, 2007, down from $38 million at Sept. 30, 2006 and up from $27 million at June 30, 2007. Nonperforming asset balances remain at historically low levels.
Consolidated Net Income Including Discontinued Operations
Net income, including discontinued operations, totaled $640 million, or 56 cents per share, in the third quarter of 2007, compared with $352 million, or 49 cents per share, in the third quarter of 2006, and $445 million, or 62 cents per share, in the second quarter of 2007.
Supplemental information - Earnings Per Share Presented on a GAAP and Non- GAAP basis
In the merger transaction between The Bank of New York and Mellon, The Bank of New York shareholders received .9434 shares of The Bank of New York Mellon common stock for each share of The Bank of New York common stock outstanding on the closing date of the merger. Mellon Financial Corp. shareholders received one share of The Bank of New York Mellon common stock for each share of Mellon Financial Corp. common stock outstanding on the closing date of the merger. Historical earnings per share for The Bank of New York are presented in post-merger share count terms in this Earnings Release and the Quarterly Earnings Summary. The table below converts earnings per share for The Bank of New York into post-merger share count terms for periods prior to July 1, 2007.
Reported amounts are presented in accordance with GAAP. We believe that this supplemental non-GAAP information is useful to the investment community in analyzing the financial results and trends of our business. We believe they facilitate comparisons with prior periods and reflect the principal basis on which our management internally monitors financial performance. These non- GAAP items also are excluded from our segment measures used internally to evaluate segment performance because management does not consider them particularly relevant or useful in evaluating the operating performance of our business segments.
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Legacy The Bank of
Continuing New York Only (a)
operations - ---------------------------
fully diluted Nine
earnings per share Quarter ended months ended
---------------------------------- -------------
Sept. Dec. March June Sept. Sept. Sept.
30, 31, 31, 30, 30, 30, 30,
2006 2006 2007 2007 2007 2007 2006(a)
-----------------------------------------------------------------------
As reported $.39 $.56 $.57 $.59 $.56 $1.77 $1.36
As reported
adjusted for
exchange ratio
(GAAP) .41 .60 .61 .62 .56 1.77 1.45
Non-GAAP adjusted -
excluding merger
and integration
expense and
non-operating
items: (b)
As reported .47 .58 .59 .63 .66(c) 1.95(c) 1.44
Adjusted for
exchange ratio .50 .61 .62 .66 .66(c) 1.95(c) 1.53
Non-GAAP adjusted -
excluding merger
and integration
expense,
non-operating
items and
intangible
amortization: (b)
As reported .48 .61 .61 .65 .73(d) 2.09(d) 1.48
Adjusted for
exchange ratio .51 .65 .65 .69 .73(d) 2.09(d) 1.57
-----------------------------------------------------------------------
(a) Amounts prior to July 1, 2007, represent legacy The Bank of New York
only.
(b) Non-operating items are detailed on page 1.
(c) Including the non-operating items detailed on page 1, non-GAAP
adjusted earnings per share - excluding merger and integration
expense would have been 67 cents and $1.96 in the third quarter and
first nine months of 2007, respectively.
(d) Including the non-operating items detailed on page 1, non-GAAP
adjusted earnings per share - excluding merger and integration
expense and intangible amortization would have been 74 cents and
$2.10 in the third quarter and first nine months of 2007,
respectively.
Revision of Prior Period Financial Statements
Our Company's fourth quarter 2006 acquisition of the Acquired Corporate Trust Business and sale of our Retail Business to JPMorgan Chase included a "Like Kind Exchange" (the "LKE") of finite lived intangible assets, principally core deposit intangibles, under Internal Revenue Code section ("Section") 1031. The LKE deferred taxes of $164 million were treated as a liability acquired in the business combination with an offsetting increase to goodwill.
We reviewed the transaction and now believe that $164 million of deferred tax expense should have been recognized on the gain related to the Retail Business intangibles included in the LKE with JPMorgan Chase. Accordingly, we have corrected the fourth quarter 2006 financial statements with a non-cash charge to discontinued operations - income taxes and a reduction in goodwill of $164 million. This revision does not impact income from continuing operations or our tangible common equity.
As shown in the financial information included in this release, we have revised our prior years' financial statements to reflect these taxes in discontinued operations. Because the revision was not material to any prior year financial statements, the revisions to prior periods will be presented in future filings, pursuant to SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." Financial statements for the year ended Dec. 31, 2006 will be revised in the Dec. 31, 2007 Annual Report on Form 10-K.
The table below presents the effect of the correction on our previously reported consolidated statements of income for the fiscal year ended Dec. 31, 2006 and for the three-month period ended Dec. 31, 2006.
-------------------------------------------------------------------------
(in millions, except per share amounts)
As previously
reported As revised
--------------- ----------------
For the period ended Fourth Fourth
Dec. 31, 2006 Quarter Year Adjustment Quarter Year
-------------------------------------------------------------------------
Income from continuing
operations $ 427 $1,476 $ - $ 427 $1,476
Discontinued
operations:
Income from
discontinued
operations 2,130 2,426 - 2,130 2,426
Income taxes (768) (891) (164) (932) (1,055)
------ ------ ------ ------ ------
Discontinued
operations, net 1,362 1,535 (164) 1,198 1,371
Net income $1,789 $3,011 $(164) $1,625 $2,847
Diluted earnings
per share
Income from
continuing
operations $ .56 $ 1.93 $ .56 $ 1.93
Income from
discontinued
operations, net 1.80 2.00 1.58 1.79
Net income 2.36 3.93 2.14 3.72
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The effect of the correction on the Dec. 31, 2006 consolidated balance sheet is as follows:
-------------------------------------------------------------------------
As previously
(in millions) reported Adjustment As revised
-------------------------------------------------------------------------
Balances as of Dec. 31, 2006
Goodwill $ 5,172 $(164) $ 5,008
Total assets 103,370 (164) 103,206
Retained earnings 9,444 (164) 9,280
Total shareholders' equity 11,593 (164) 11,429
Memo: Tangible common equity $ 4,968 $ - $ 4,968
-------------------------------------------------------------------------
The effect of the correction on the 2006 consolidated statement of cash flows is as follows:
-------------------------------------------------------------------------
As previously
(in millions) reported Adjustment As revised
-------------------------------------------------------------------------
Balances as of Dec. 31, 2006
Net income $ 3,011 $(164) $ 2,847
Gain on retail business sale,
net of taxes (1,381) 164 (1,217)
Net cash provided (used) by
operating activities $ 3,283 $ - $ 3,283
-------------------------------------------------------------------------
APPENDIX
THE BANK OF NEW YORK MELLON CORPORATION
Pro Forma Condensed Consolidated Income Statement
Excluding Purchase Accounting Adjustments
Three months ended June 30, 2007
---------------------------------------------------
The Bank of Mellon Total
(in millions) New York Financial(a) Adjustments Pro forma
-------------------------------------------------------------------------
Fee and other revenue
Securities servicing
fees:
Asset servicing $ 427 $ 281 $ (4)(b) $ 704
Issuer services 367 48 - 415
Clearing and
execution services 291 4 (10)(b) 285
------ ------ ------ ------
Total securities
servicing fees 1,085 333 (14) 1,404
Asset and wealth
management fees 168 678 - 846
Performance fees 21 42 - 63
Foreign exchange and
other trading
activities 117 59 - 176
Treasury services 55 66 - 121
Distribution and
servicing 2 81 - 83
Financing-related fees 61 8 - 69
Investment income 39 38 - 77
Securities gains
(losses) (2) 3 - 1
Other 34 55 - 89
------ ------ ------ ------
Total fee and other
revenue 1,580 1,363 (14) 2,929
Net interest revenue
Interest revenue 1,162 416 - 1,578
Interest expense 710 282 - 992
------ ------ ------ ------
Net interest revenue 452 134 - 586
Provision for credit
losses (15) (3) - (18)
------ ------ ------ ------
Net interest revenue
after provision for
credit losses 467 137 - 604
Noninterest expense
Staff 752 551 - 1,303
Professional, legal
and other purchased
services 132 121 - 253
Net occupancy 81 91 - 172
Distribution and
servicing 4 151 (14)(b) 141
Furniture and equipment 54 26 - 80
Software 57 20 - 77
Business development 37 35 - 72
Sub-custodian 42 18 - 60
Clearing and execution 44 - - 44
Communications 23 10 - 33
Other 87 117 - 204
------ ------ ------ ------
Subtotal 1,313 1,140 (14) 2,439
Amortization of
intangible assets 29 11 - 40
Merger and integration
expense:
The Bank of New York
Mellon 35 116 - 151
Acquired Corporate
Trust Business 12 - - 12
------ ------ ------ ------
Total noninterest
expense 1,389 1,267 (14) 2,642
------ ------ ------ ------
Income
Income from continuing
operations before
income taxes 658 233 - 891
Provision for income
taxes 210 (48) - 162
------ ------ ------ ------
Income from
continuing
operations 448 281 - 729
Discontinued operations:
Income (loss) from
discontinued
operations (4) 1 - (3)
Provision (benefit)
for income taxes (1) 7 - 6
------ ------ ------ ------
Discontinued
operations income
(loss), net (3) (6) - (9)
Net income $ 445 $ 275 $ - $ 720
====== ====== ====== ======
(a) Mellon's results for the second quarter of 2007 include the impact of
pre-tax charges associated with merger and integration expenses ($116
million), early redemption of junior subordinated debentures ($46
million), exit costs associated with excess office space ($30
million), and a litigation reserve charge ($5 million), as well as
the net benefit of a tax settlement and other discrete tax items
($122 million).
(b) Adjustment to eliminate intercompany revenue and expenses for
Clearing and execution services and Asset servicing paid by Mellon
Financial to The Bank of New York.
APPENDIX
THE BANK OF NEW YORK MELLON CORPORATION
Pro Forma Condensed Consolidated Income Statement
Excluding Purchase Accounting Adjustments
Three months ended Sept. 30, 2006
---------------------------------------------------
The Bank of Mellon Total
(in millions) New York Financial Adjustments Pro forma
-------------------------------------------------------------------------
Fee and other revenue
Securities servicing
fees:
Asset servicing $ 346 $ 233 $ (5)(a) $ 574
Issuer services 194 49 - 243
Clearing and
execution services 302 2 (8)(a) 296
------ ------ ------ ------
Total securities
servicing fees 842 284 (13) 1,113
Asset and wealth
management fees 133 552 - 685
Performance fees 3 56 - 59
Foreign exchange and
other trading
activities 83 54 - 137
Treasury services 55 66 - 121
Distribution and
servicing 2 71 - 73
Financing-related fees 62 9 - 71
Investment income 34 20 - 54
Securities gains 1 3 - 4
Other 48 49 - 97
------ ------ ------ ------
Total fee and other
revenue 1,263 1,164 (13) 2,414
Net interest revenue
Interest revenue 960 393 - 1,353
Interest expense 609 274 - 883
------ ------ ------ ------
Net interest revenue 351 119 - 470
Provision for credit
losses (4) (1) - (5)
------ ------ ------ ------
Net interest revenue
after provision for
credit losses 355 120 - 475
Noninterest expense
Staff 644 512 - 1,156
Professional, legal
and other purchased
services 89 121 (1)(a) 209
Net occupancy 70 51 - 121
Distribution and
servicing 4 122 (12)(a) 114
Furniture and equipment 46 26 - 72
Software 53 16 - 69
Business development 27 25 - 52
Clearing and execution 52 - - 52
Sub-custodian 31 14 - 45
Communications 26 8 - 34
Other 51 61 - 112
------ ------ ------ ------
Subtotal 1,093 956 (13) 2,036
Amortization of
intangible assets 14 7 - 21
Merger and integration
expense:
The Bank of New York
Mellon - - - -
Acquired Corporate
Trust Business 89 - - 89
------ ------ ------ ------
Total noninterest
expense 1,196 963 (13) 2,146
------ ------ ------ ------
Income
Income from continuing
operations before
income taxes 422 321 - 743
Provision for income
taxes 124 103 - 227
------ ------ ------ ------
Income from
continuing operations 298 218 - 516
Discontinued operations:
Income (loss) from
discontinued
operations 96 7 - 103
Provision (benefit)
for income taxes 42 3 - 45
------ ------ ------ ------
Discontinued
operations income
(loss), net 54 4 - 58
------ ------ ------ ------
Net income $ 352 $ 222 $ - $ 574
====== ====== ====== ======
(a) Adjustment to eliminate intercompany revenue and expenses for
Clearing and execution services and Asset servicing paid by Mellon
Financial to The Bank of New York.
Cautionary Statement
The information presented in this Earnings Release, may contain forward- looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to, among other things, statements with respect to future financial goals, the merger of The Bank of New York and Mellon, including expectations with respect to the merged companies, integration and operations after the merger, achievement of milestones, future growth and prospects. These statements and other forward- looking statements contained in other public disclosures of The Bank of New York Mellon (the Company) which make reference to the cautionary factors described in this Earnings Release, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond the Company's control). The following risks, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: the businesses of The Bank of New York and Mellon may not be integrated successfully or the integration may be more difficult, time-consuming or costly than expected; the combined company may not realize, to the extent or at the time it expects, revenue synergies and cost savings from the transaction; revenue following the transaction may be lower than expected as a result of losses of customers or other reasons; deposit attrition, operating costs, customer loss and business disruption following the transaction, including, without limitation, difficulties in maintaining relationships with employees, may be greater than expected; market volatility; operational risk; changes in political and economic conditions; equity, fixed-income and foreign exchange market fluctuations; geographic sources of income; the price of oil; and levels of tax-free income. Additional factors that could cause the Company's results to differ materially from those described in the forward- looking statements can be found in the Company's filings with the Securities and Exchange Commission and The Bank of New York Company, Inc.'s and Mellon Financial Corporation's historical reports (such as Annual Reports on Form 10- K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Oct. 18, 2007, and the Company 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.