PRNewswire
NEW YORK
(NYSE:BK)
Oct 20, 2009
CONTINUING EPS OF $0.54 (excluding investment securities portfolio restructuring and M&I expenses)
BALANCE SHEET RISK SIGNIFICANTLY REDUCED
CAPITAL REMAINS STRONG; 90% OF RESTRUCTURING CHARGE PREVIOUSLY REFLECTED IN TANGIBLE CAPITAL
REVENUE INCREASE AND EXPENSE DISCIPLINE RESULTED IN POSITIVE OPERATING LEVERAGE (excluding investment securities portfolio restructuring)
NEW YORK, October 20, 2009 — The Bank of New York Mellon Corporation (NYSE: BK) today reported a third quarter loss from continuing operations applicable to common shareholders of $2.439 billion, or $2.04 per common share, compared with income of $303 million, or $0.26 per common share, in the third quarter of 2008 and $267 million, or $0.23 per common share, in the second quarter of 2009.
"Consistent with our ongoing strategy to reduce balance sheet risk, we took advantage of the recent strength in the fixed income markets by selling or recognizing losses on a significant portion of our investment securities portfolio. This restructuring does not materially impact capital, is expected to benefit net interest revenue by $125-$175 million in 2010, and significantly reduces the risk of future securities losses," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.
"During the quarter, we remained focused on organic growth, continuing to provide exceptional client service and reducing expenses which resulted in positive operating leverage," added Kelly.
Net loss applicable to common shareholders, including discontinued operations, totaled $2.458 billion, or $2.05 per common share, in the third quarter of 2009, compared with net income of $303 million, or $0.26 per common share, in the third quarter of 2008 and $176 million, or $0.15 per common share, in the second quarter of 2009.
Third Quarter Results - Unless otherwise noted, all comments begin with the results of the third quarter of 2009 and are compared to the third quarter of 2008, all information is reported on a continuing operations basis and sequential growth rates are unannualized (unless otherwise stated). Please refer to the Quarterly Earnings Review for detailed business segment information.
Total revenue
-----------------------------------------------------------------------
Reconciliation of total revenue 3Q09 vs.
(dollar amounts ---------------
in millions) 3Q09 2Q09 3Q08 3Q08 2Q09
-----------------------------------------------------------------------
Fee and other
revenue - GAAP $(2,216) $2,257 $2,926 N/M N/M
Investment securities
losses 4,833 256 162 N/M N/M
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Total fee
revenue - GAAP 2,617 2,513 3,088 (15)% 4%
Net interest
revenue - GAAP 716 700 681 5 2
SILO/LILO charges - - 112 N/M N/M
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Total revenue
excluding investment
securities losses
and SILO/LILO
charges - Non-GAAP $3,333 $3,213 $3,881 (14)% 4%
-----------------------------------------------------------------------
N/M - Not meaningful.
The provision for credit losses was $147 million in the third quarter of 2009 compared with $61 million in the second quarter of 2009. The increase primarily relates to downgrades in the insurance and media portfolios. The provision is expected to decline in the fourth quarter of 2009. During the third quarter of 2009, the total allowance for credit losses increased $70 million and net charge-offs totaled $77 million.
Total noninterest expense
------------------------------------------------------------------------
Reconciliation of noninterest expense 3Q09 vs.
(dollar amounts ----------------
in millions) 3Q09 2Q09 3Q08 3Q08 2Q09
------------------------------------------------------------------------
Noninterest expense
- GAAP $2,318 $2,383 $3,319 (30)% (3)%
Support agreement
charges 13 (15) 726 N/M N/M
FDIC special
assessment - 61 - N/M N/M
M&I expenses 54 59 111 (51) (8)
Intangible amortization 104 108 118 (12) (4)
------------------------------------------------------------------------
Total noninterest
expense, excluding
support agreement
charges, FDIC special
assessment, M&I
expenses and
intangible
amortization -
Non-GAAP $2,147 $2,170 $2,364 (9)% (1)%
------------------------------------------------------------------------
N/M - Not meaningful.
Results for the third quarter of 2009 include an income tax benefit of $1.527 billion. Excluding the impact of the investment securities losses and M&I expenses, the effective tax rate was 31.8% (Non-GAAP) in the third quarter of 2009.
The unrealized net of tax loss on our securities portfolio was $1.0 billion at Sept. 30, 2009 compared with a net of tax unrealized loss of $4.8 billion at June 30, 2009. The improvement reflects $3.0 billion related to the restructuring of the securities portfolio and $0.8 billion resulting from the improvement in the fixed income markets. Subsequent to Sept. 30, 2009, approximately $2.1 billion (pre-restructuring amortized cost of $3.6 billion) of the lowest quality securities were sold at fair value. See page 9 for further information on the investment securities portfolio.
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Capital ratios - preliminary (a) Sept. 30, June 30, Sept. 30,
2009 2009 2008
-------------------------------------------------------------------------
Tier 1 capital ratio 11.3% 12.5% 9.3%
Tier 1 common equity to risk-weighted
assets ratio (b) 9.8 11.1 8.0
Total (Tier 1 plus Tier 2) capital
ratio 15.2 16.0 12.8
Leverage capital ratio 6.5 7.6 6.5
Common shareholders' equity to assets
ratio (b) 13.3 13.4 10.3
Tangible common shareholders' equity
to tangible assets ratio - Non-GAAP (b) 5.2 4.8 3.9
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(a) Includes discontinued operations.
(b) See the Supplemental information section beginning on page 11 for
a calculation of these ratios.
Nonperforming assets totaled $560 million, an increase of $182 million compared with June 30, 2009, primarily reflecting downgrades in the insurance portfolio.
Declaration of quarterly dividend - On Oct. 20, 2009, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of 9 cents per common share. This cash dividend is payable on Nov. 10, 2009 to shareholders of record as of the close of business on Oct. 30, 2009.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. BNY Mellon 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 $22.1 trillion in assets under custody and administration and $966 billion in assets under management, services $11.9 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day. Additional information is available at www.bnymellon.com.
Supplemental Financial Information
The Quarterly Earnings Review and supplemental financial trends for The Bank of New York Mellon Corporation have been updated through Sept. 30, 2009 and are available at www.bnymellon.com (Investor Relations - Financial Reports).
Conference Call Data
Robert P. Kelly, chairman and chief executive officer; Gerald L. Hassell, president; and Thomas P. Gibbons, chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 20, 2009. 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) 677-5383 (U.S.) and (210) 838-9221 (International) Passcode: Earnings, or by logging on to www.bnymellon.com. The Earnings Release, together with the Quarterly Earnings Review and supplemental financial trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on Oct. 20, 2009. Replays of the conference call and audio webcast will be available beginning Oct. 20, 2009 at approximately 2:00 p.m. EDT through Nov. 3, 2009 by dialing (866) 442-1776 (U.S.) or (203) 369-1076 (International). The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.
THE BANK OF NEW YORK MELLON CORPORATION
Financial Highlights
-------------------------------------------------------------------------
(dollar amounts
in millions, except
per common share
amounts and unless Quarter ended Nine months ended
otherwise noted; ------------------------------ --------------------
common shares in Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
thousands) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Continuing operations
Return on common
equity (annualized) N/M 4.0% 4.3% N/M 6.3%
Non-GAAP
adjusted (a) 10.1% 6.4% 14.2% 9.0% 13.4%
Return on tangible
common equity
(annualized) -
Non-GAAP (a) N/M 18.4% 18.9% N/M 24.8%
Non-GAAP
adjusted (a) 32.0% 23.3% 50.2% 32.3% 45.5%
Fee and other
revenue as a
percent of total
revenue N/M 76% 81% 50% 83%
Non-GAAP
adjusted (a) 79% 78% 80% 78% 80%
Annualized fee
revenue per
employee (based on
average headcount)
(in thousands) $248 $241 $287 $241 $292
Percent of non-U.S.
fee and net interest
revenue 31% 31% 33%(b) 30% 34%(b)
Pre-tax operating
margin N/M 17% 7% N/M 19%
Non-GAAP
adjusted (a) 32% 31% 39% 32% 38%
Net interest
margin (FTE) (c) 1.85% 1.80% 1.92%(b) 1.84% 1.71%(b)
Selected average
balances
Interest-earning
assets (d) $155,159 $157,265 $142,062 $159,916 $142,318
Total assets $205,786 $208,533 $198,827 $211,427 $198,539
Interest-bearing
deposits (d) $93,632 $98,896 $86,016 $98,140 $90,634
Noninterest-
bearing
deposits (d) $34,920 $32,852 $32,953 $36,915 $27,679
Total
shareholders'
equity $28,144 $28,934 $27,996 $28,352 $28,682
Average common
shares and
equivalents
outstanding:
Basic 1,197,414 1,171,081 1,143,445 1,171,675 1,141,424
Diluted (e) 1,197,414 1,174,466 1,147,586 1,171,675 1,148,402
Period-end data
Assets under
custody and
administration
(in trillions) $22.1 $20.7 $22.4 $22.1 $22.4
Cross-border
assets (in
trillions) $8.6 $7.8 $8.9 $8.6 $8.9
Market value of
securities on
loan (in
billions) (f) $299 $290 $470 $299 $470
Assets under
management (in
billions) $966 $926 $1,067 $966 $1,067
Employees 42,000 41,800 42,900 42,000 42,900
Book value per
common share -
GAAP $23.50 $22.68 $23.97 $23.50 $23.97
Tangible book
value per common
share -
Non-GAAP (a) $7.54 $6.60 $6.65 $7.54 $6.65
Dividends per
common share $0.09 $0.09 $0.24 $0.42 $0.72
Closing common
stock price per
common share $28.99 $29.31 $32.58 $28.99 $32.58
Market
capitalization $34,911 $35,255 $37,388 $34,911 $37,388
-------------------------------------------------------------------------
(a) See Supplemental information beginning on page 11 for a calculation
of these ratios.
(b) Excluding the SILO/LILO charges, the percentage of non-U.S. fee and
net interest revenue was 32% and 33% for the third quarter and nine
months ended Sept. 30, 2008, respectively, and the net interest
margin was 2.24% and 2.17% for the third quarter and nine months
of 2008, respectively.
(c) Prior periods calculated on a continuing operations basis, even
though the balance sheet, in accordance with GAAP, is not restated
for discontinued operations.
(d) Excludes the impact of discontinued operations.
(e) Diluted earnings per share for the three and nine months ended
Sept. 30, 2009 was calculated using average basic shares. Adding
back the dilutive shares would result in anti-dilution.
(f) Represents the securities on loan, both cash and non-cash, managed
by the Asset Servicing segment.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
-------------------------------------------------------------------------
(in millions, Quarter ended Nine months ended
except per ------------------------------ --------------------
common share Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
amounts) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Fee and other revenue
Securities servicing
fees:
Asset servicing $643 $671 $808(a) $1,923 $2,584(a)
Issuer services 359 372 477 1,095 1,297
Clearing services 236 250 259 739 786
-------------------------------------------------------------------------
Total securities
servicing fees 1,238 1,293 1,544 3,757 4,667
Asset and wealth
management fees 650 637 795 1,903 2,517
Foreign exchange and
other trading
activities 246 237 385 790 952
Treasury services 128 132 129 385 382
Distribution and
servicing 94 107 107 312 315
Financing-related
fees 56 54 44 158 142
Investment income 121 44 47 148 162
Other 84 9 37 108 147
-------------------------------------------------------------------------
Total fee revenue 2,617 2,513 3,088 7,561 9,284
Net securities losses (4,833) (256) (162) (5,384) (387)
-------------------------------------------------------------------------
Total fee and
other revenue (2,216) 2,257 2,926 2,177 8,897
Net interest revenue
Interest revenue 829 845 1,312 2,653 3,999
Interest expense 113 145 631 462 2,187
-------------------------------------------------------------------------
Net interest
revenue 716 700 681 2,191 1,812
Provision for credit
losses 147 61 23 267 50
-------------------------------------------------------------------------
Net interest
revenue after
provision for
credit losses 569 639 658 1,924 1,762
Noninterest expense
Staff 1,157 1,153 1,248(b) 3,479 4,009(b)
Professional, legal
and other purchased
services 265 237 251(b) 739 748(b)
Net occupancy 142 142 163 423 429
Distribution and
servicing 104 106 133 317 394
Software 95 93 78 269 245
Sub-custodian and
clearing 80 91 84(a) 237 251(a)
Furniture and equipment 76 76 80 229 237
Business development 45 49 62 138 202
Other 201 263 991(c) 639 1,403(c)
-------------------------------------------------------------------------
Subtotal 2,165 2,210 3,090 6,470 7,918
Amortization of
intangible assets 104 108 118 319 360
Restructuring charges (5) 6 - 11 -
Merger and integration
expenses:
The Bank of New York
Mellon Corporation 54 59 107 181 374
Acquired Corporate
Trust Business - - 4 - 12
-------------------------------------------------------------------------
Total noninterest
expense 2,318 2,383 3,319 6,981 8,664
-------------------------------------------------------------------------
Income
Income (loss) from
continuing operations
before income taxes (3,965) 513 265 (2,880) 1,995
Provision (benefit)
for income taxes (1,527) 12 (42) (1,354) 628
-------------------------------------------------------------------------
Income (loss) from
continuing
operations (2,438) 501 307 (1,526) 1,367
Discontinued
operations:
Income (loss) from
discontinued
operations (29) (144) 1 (238) 21
Provision (benefit)
for income taxes (10) (53) 1 (87) 11
-------------------------------------------------------------------------
Income (loss)
from discontinued
operations, net
of tax (19) (91) - (151) 10
-------------------------------------------------------------------------
Net income (loss) (2,457) 410 307 (1,677) 1,377
Net (income) loss
attributable to
noncontrolling
interests, net
of tax (1) 2 (4) - (19)
Redemption charge
and preferred
dividends - (236) - (283) -
-------------------------------------------------------------------------
Net income (loss)
applicable to
common
shareholders of
The Bank of New
York Mellon
Corporation $(2,458) $176 $303 $(1,960) $1,358
-------------------------------------------------------------------------
(a) In the second quarter of 2009, global sub-custodian out-of-pocket
expense related to client reimbursements was reclassified from
sub-custodian expense to asset servicing revenue. This
reclassification totaled $4 million in the third quarter of 2008
and $18 million in the first nine months of 2008.
(b) In the second quarter of 2009, certain temporary/consulting expenses
were reclassified from professional, legal and other purchased
services to staff expense. This reclassification totaled $35
million in the third quarter of 2008 and $67 million in the first
nine months of 2008.
(c) Includes support agreement charges of $726 million in the third
quarter of 2008 and $731 million in the first nine months of 2008.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued
-------------------------------------------------------------------------
(in millions, Quarter ended Nine months ended
except per ------------------------------ --------------------
common share Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
amounts) 2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Earnings per share
applicable to the
common shareholders
of The Bank of New
York Mellon
Corporation:
Basic:
Income (loss) from
continuing
operations $(2.04) $0.23 $0.26 $(1.54) $1.17
Income (loss) from
discontinued
operations, net of
tax (0.02) (0.08) - (0.13) 0.01
-------------------------------------------------------------------------
Net income (loss)
applicable to
common stock $(2.05)(a) $0.15 $0.26 $(1.67) $1.18
-------------------------------------------------------------------------
Diluted:(b)
Income (loss) from
continuing
operations $(2.04) $0.23 $0.26 $(1.54) $1.16
Income (loss) from
discontinued
operations, net of
tax (0.02) (0.08) - (0.13) 0.01
-------------------------------------------------------------------------
Net income (loss)
applicable to
common stock $(2.05)(a) $0.15 $0.26 $(1.67) $1.17
-------------------------------------------------------------------------
(a) Does not foot due to rounding.
(b) Diluted earnings per share for the three and nine months ended
Sept. 30, 2009, was calculated using average basic shares. Adding
back the dilutive shares would result in anti-dilution.
--------------------------------------------------------------------------
Reconciliation of net
income (loss) from
continuing operations
applicable to the
common shareholders
of The Bank of New Quarter ended Nine months ended
York Mellon ------------------------------ --------------------
Corporation: Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
(in millions) 2009 2009 2008 2009 2008
--------------------------------------------------------------------------
Income (loss) from
continuing
operations $(2,438) $501 $307 $(1,526) $1,367
Net (income) loss
attributable to
noncontrolling
interests, net of tax (1) 2 (4) - (19)
Redemption charge and
preferred dividends - (236) - (283) -
--------------------------------------------------------------------------
Income (loss) from
continuing
operations
applicable to
common
shareholders of
The Bank of New
York Mellon
Corporation,
net of tax (2,439) 267 303 (1,809) 1,348
Income (loss) from
discontinued
operations, net of
tax (19) (91) - (151) 10
--------------------------------------------------------------------------
Net income (loss)
applicable to the
common
shareholders of
The Bank of New
York Mellon
Corporation $(2,458) $176 $303 $(1,960) $1,358
--------------------------------------------------------------------------
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
-----------------------------------------------------------------------
(dollar amounts in millions, Sept. 30, Dec. 31,
except per share amounts) 2009 2008
-----------------------------------------------------------------------
Assets
Cash and due from:
Banks $3,333 $4,881
Federal Reserve and other central
banks (includes $14,981 and $53,270
of interest-bearing deposits) 15,031 53,278
Other short-term investments - U.S.
government-backed commercial paper,
at fair value - 5,629
Interest-bearing deposits with banks 49,349 39,126
Federal funds sold and securities
purchased under resale agreements 3,908 2,000
Securities:
Held-to-maturity (fair value of
$6,071 and $6,333) 6,318 7,371
Available-for-sale 48,032 32,064
-----------------------------------------------------------------------
Total securities 54,350 39,435
Trading assets 7,952 11,102
Loans 36,269 43,394
Allowance for loan losses (456) (415)
-----------------------------------------------------------------------
Net loans 35,813 42,979
Premises and equipment 1,682 1,686
Accrued interest receivable 699 619
Goodwill 16,022 15,898
Intangible assets 5,574 5,856
Other assets 16,294 15,023
Assets of discontinued operations 2,000 -
-----------------------------------------------------------------------
Total assets $212,007 $237,512
-----------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing (principally
domestic offices) $30,767 $55,816
Interest-bearing deposits in
domestic offices 29,036 32,386
Interest-bearing deposits in
foreign offices 74,133 71,471
-----------------------------------------------------------------------
Total deposits 133,936 159,673
Borrowing from Federal Reserve related
to asset-backed commercial paper, at
fair value - 5,591
Federal funds purchased and securities
sold under repurchase agreements 2,553 1,372
Trading liabilities 7,824 8,085
Payables to customers and broker-dealers 10,458 9,274
Commercial paper 163 138
Other borrowed funds 1,280 755
Accrued taxes and other expenses 3,855 4,052
Other liabilities (including allowance
for lending related commitments of
$140 and $114) 4,572 4,618
Long-term debt 17,486 15,865
Liabilities of discontinued operations 1,564 -
-----------------------------------------------------------------------
Total liabilities 183,691 209,423
-----------------------------------------------------------------------
Equity
Preferred stock - par value $0.01 per
share; authorized 100,000,000 shares;
issued - shares and 3,000,000 shares - 2,786
Common stock-par value $0.01 per common
share; authorized 3,500,000,000
common shares; issued 1,205,154,635
and 1,148,507,561 common shares 12 11
Additional paid-in capital 21,794 20,432
Retained earnings 8,462 10,250
Accumulated other comprehensive
loss, net of tax (1,947) (5,426)
Less: Treasury stock of 910,677 and
40,262 common shares, at cost (26) (3)
-----------------------------------------------------------------------
Total The Bank of New York Mellon
Corporation shareholders' equity 28,295 28,050
Noncontrolling interest 21 39
-----------------------------------------------------------------------
Total equity 28,316 28,089
-----------------------------------------------------------------------
Total liabilities and equity $212,007 $237,512
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Investment Securities Portfolio
The following table provides a trend of the aggregate unrealized pre-tax gain (loss) of the investment securities portfolio.
------------------------------------------------------------------
Portfolio aggregate unrealized gain/(loss) - pre-tax
3Q09
(dollar amounts Dec. 31, March 31, June 30, market
in millions) 2008 2009 2009 improvement
------------------------------------------------------------------
Watch list:
Alt-A RMBS $(2,764) $(3,538) $(3,064) $58
European floating rate
notes (1,171) (1,299) (1,523) 364
Prime/Other RMBS (1,781) (1,455) (1,581) 339
Commercial MBS (709) (513) (561) 333
Subprime RMBS (591) (566) (621) (61)
Credit cards (223) (238) (54) 37
Home equity lines of
credit (224) (306) (284) 32
Other (227) (326) (213) 49
------------------------------------------------------------------
Total watch list(a) (7,690) (8,241) (7,901) 1,151
------------------------------------------------------------------
Agency RMBS 60 242 159 179
Other 16 31 20 128
------------------------------------------------------------------
Total with FAS 157-4
adjustment (7,614) (7,968) (7,722) 1,458
Less: FAS 157-4
adjustment - 1,173 377 (377)
------------------------------------------------------------------
Total without FAS
157-4 Adjustment -
Non-GAAP $(7,614) $(9,141) $(8,099) $1,835
------------------------------------------------------------------
Investment
Sept. 30, securities Unrealized
2009 portfolio gain (loss)
(dollar amounts before restructuring at Sept. 30,
in millions) restructuring charge 2009
------------------------------------------------------------------
Watch list:
Alt-A RMBS $(3,006) $(2,857) $(149)
European floating
rate notes (1,159) (234) (925)
Prime/Other RMBS (1,242) (999) (243)
Commercial MBS (228) (77) (151)
Subprime RMBS (682) (321) (361)
Credit cards (17) - (17)
Home equity lines
of credit (252) (242) (10)
Other (164) (103) (61)
------------------------------------------------------------------
Total watch list (a) (6,750) (4,833) (1,917)
------------------------------------------------------------------
Agency RMBS 338 - 338
Other 148 - 148
------------------------------------------------------------------
Total with FAS 157-4
adjustment (6,264) (4,833) (1,431)
Less: FAS 157-4
adjustment - - -
------------------------------------------------------------------
Total without FAS
157-4 Adjustment -
Non-GAAP $(6,264) $(4,833) $(1,431)
------------------------------------------------------------------
The following table provides the pro forma impact of restructuring the investment securities portfolio at Sept. 30, 2009.
------------------------------------------------------------------------
Pro forma securities portfolio reflecting the investment portfolio
restructuring at Sept. 30, 2009
Investment
securities
Amortized cost portfolio Amortized
(dollar amounts prior to restructuring cost post Fair
in millions) restructuring charge restructuring value
------------------------------------------------------------------------
Watch list:
Alt-A RMBS $7,476 $(2,857) $4,619 $4,470
European floating
rate notes 7,326 (234) 7,092 6,167
Prime/Other RMBS 5,323 (999) 4,324 4,081
Commercial MBS 2,762 (77) 2,685 2,534
Subprime RMBS 1,479 (321) 1,158 797
Credit cards 649 - 649 632
Home equity lines
of credit 468 (242) 226 216
Other 629 (103) 526 465
------------------------------------------------------------------------
Total watch
list (a) $26,112 $(4,833) $21,279 $19,362
------------------------------------------------------------------------
Agency RMBS 16,560 - 16,560 16,898
Other 17,695 - 17,695 17,843
------------------------------------------------------------------------
Total $60,367 $(4,833) $55,534 $54,103(d)
------------------------------------------------------------------------
Fair value Securities Pro Forma 9/30/09
as a % of sales -----------------
(dollar amounts amortized subsequent Amortized Fair
in millions) cost(b) to 9/30/09(c) cost value
------------------------------------------------------------------------
Watch list:
Alt-A RMBS 55% $(949) $3,670 $3,521
European floating
rate notes 83 (594) 6,498 5,573
Prime/Other RMBS 76 (64) 4,260 4,017
Commercial MBS 91 (272) 2,413 2,262
Subprime RMBS 52 (222) 936 575
Credit cards 89 - 649 632
Home equity lines
of credit 34 - 226 216
Other 49 - 526 465
------------------------------------------------------------------------
Total watch
list (a) $71% $(2,101) $19,178 $17,261
------------------------------------------------------------------------
Agency RMBS 102 - 16,560 16,898
Other 101 - 17,695 17,843
------------------------------------------------------------------------
Total 88% $(2,101) $53,433 $52,002
------------------------------------------------------------------------
(a) The "Watch list" includes those securities we view as having a
higher risk of impairment charges.
(b) Amortized cost before life-to-date charges.
(c) As of Oct. 14, 2009. Reflects securities with a pre-restructuring
amortized cost of $3.6 billion.
(d) Includes the fair value of available for sale securities of
$48.032 billion and held to maturity securities of $6.071 billion.
Investment securities portfolio restructuring
Consistent with our ongoing strategy to reduce risk from the balance sheet, and reflecting the recent improvement in the fixed income markets, we have sold or are in the process of restructuring the watch list portion of our investment securities portfolio.
The restructuring impacts approximately $12.1 billion (pre-restructuring amortized cost) of investment securities. As a result of investment securities sales and restructuring in the third quarter of 2009, we recognized a charge of $4.8 billion (pre-tax). Subsequent to Sept. 30, 2009, approximately $2.1 billion (pre-restructuring amortized cost of $3.6 billion) of the lowest quality securities were sold at fair value. The majority of the remaining restructured securities are expected to be retained on the balance sheet. Approximately 50% of the charge relates to securities that we plan to retain an interest in and for which we expect to recover a portion of the loss over time. In the fourth quarter of 2009, any declines in the fair value of these securities will be reflected in our net income until the restructuring is complete.
The restructuring charge had a minimal impact on the tangible capital ratio, as 90% of the charge had previously been reflected in tangible capital.
As a result of the restructuring, we expect net interest revenue to be positively impacted by approximately $125-$175 million in 2010.
The fair value of the investment securities portfolio at Sept. 30, 2009 was $54.1 billion. On a pro forma basis, reflecting the subsequent sale of securities, the fair value at Sept. 30, 2009 was $52.0 billion. The unrealized loss on the portfolio was $1.4 billion at Sept. 30, 2009 compared with $7.7 billion at June 30, 2009. The improvement reflects $4.8 billion related to the restructuring and $1.5 billion ($1.8 billion without the FAS 157-4 adjustment) resulting from the improvement in the fixed income markets.
Discontinued operations
In the second quarter of 2009, we adopted discontinued operations accounting for Mellon United National Bank located in Florida. It was determined that this business no longer fits our strategic focus on our asset management and securities servicing businesses. In July 2009, we signed a definitive agreement to sell Mellon United National Bank. Subject to regulatory approval, the transaction is expected to close in the first quarter of 2010. This business was formerly included in the Other segment. In the third quarter of 2009, we recorded an after-tax loss on discontinued operations of $19 million primarily related to additional provision for credit losses resulting from the further deterioration of the South Florida real estate market. The after-tax loss of $151 million in the first nine months of 2009 primarily reflects the impairment and write-down of goodwill and an increase in the provision for credit losses.
Supplemental information - Explanation of Non-GAAP financial measures
BNY Mellon has included in this release certain Non-GAAP financial measures based upon tangible common shareholders' equity. BNY Mellon believes that the ratio of tangible common shareholders' equity to tangible assets is a measure of capital strength that adds additional useful information to investors supplementing the Tier 1 capital ratio which is utilized by regulatory authorities. Unlike the Tier 1 ratio, the tangible common shareholders' equity ratio fully incorporates those changes in investment securities valuations which are reflected in shareholders' equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes. This ratio is also informative to investors in BNY Mellon's common stock because, unlike the Tier 1 capital ratio, it excludes preferred stock and trust preferred securities issued by BNY Mellon. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon's performance in reference to those assets which are productive in generating income.
BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding. BNY Mellon has presented revenue and earnings measures which exclude the effect of investment securities losses and SILO/LILO charge; expense measures which exclude an FDIC special assessment, support agreement charges, asset-based taxes, M&I expenses and intangible amortization expenses; and measures which utilize net income excluding tax items such as the benefit of tax settlements. Return on equity measures and operating margin measures which exclude some or all of these items are also presented. We also present the aggregate unrealized securities losses excluding the impact of FAS 157-4 to provide investors with the impact disorderly markets had on the investment securities portfolio and the subsequent conversion to an orderly market. BNY Mellon believes that these measures are useful to investors because they permit a focus on period to period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control. The excluded items in general relate to situations where accounting rules require certain ongoing charges as a result of prior transactions, or where valuation or other accounting/regulatory requirements require charges unrelated to operational initiatives. M&I expense relates to our Corporate Trust acquisition in 2006 and to the merger with Mellon Financial Corporation in 2007. M&I expenses generally continue for approximately three years after the transaction, and can vary on a year-to-year basis depending on the stage of the transaction. BNY Mellon believes that the exclusion of M&I expense provides investors with a focus on BNY Mellon's business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased, typically after approximately three years. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. With regards to the exclusion of investment securities losses, BNY Mellon's primary businesses are Asset and Wealth Management and Institutional Services. The management of these sectors is evaluated on the basis of the ability of these businesses to generate fee and net interest revenue and to control expenses, and not on the results of BNY Mellon's investment securities portfolio. Management of the investment securities portfolio is a shared service contained in the Other segment. The primary objective of the investment securities portfolio is to generate net interest revenue from the liquidity generated by BNY Mellon's processing businesses. BNY Mellon does not generally originate or trade the securities in the investment securities portfolio. As a result, BNY Mellon believes that presenting measures that exclude investment securities losses from its results, as a supplement to GAAP information, gives investors a clearer picture of the results of its primary businesses. The SILO/LILO charges relate to a one-time settlement with the IRS of tax structured lease transactions in 2008. In this Earnings Release, certain amounts are presented on an 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. We also present earnings information excluding the TARP redemption premium and dividend, so as to provide investors with a better understanding of operational results.
Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business segment basis.
--------------------------------------------------------------------------
Reconciliation of net income
(loss) and EPS - GAAP to 3Q09 2Q09 3Q08
Non-GAAP ------------- ------------- ------------
Net
(in millions, except income Net Net
per common share amounts) (loss) EPS income EPS income EPS
--------------------------------------------------------------------------
Net income (loss) applicable
to common shareholders
of The Bank of New York
Mellon Corporation - GAAP $(2,458) $(2.05) $176 $0.15 $303 $0.26
Discontinued operations
income (loss) (19) (0.02) (91) (0.08) - -
--------------------------------------------------------------------------
Continuing
operations - GAAP (2,439) (2.04)(a) 267 0.23 303 0.26
Investment securities
losses 3,047 2.54 161 0.14 97 0.08
TARP redemption
premium/dividend - - 236 0.20 - -
FDIC special assessment - - 36 0.03 - -
SILO/LILO/tax settlements - - - - 30 0.03
Support agreement charges - - - - 433 0.38
M&I expenses 34 0.03 36 0.03 66 0.06
Benefit of tax settlements - - (134) (0.11) - -
--------------------------------------------------------------------------
Net income (loss) from
continuing operations
applicable to common
shareholders excluding
the investment securities
losses, TARP redemption
premium/dividend, FDIC
special assessment,
SILO/LILO/tax settlements,
support agreement charges,
M&I expenses and benefit
of tax settlements -
Non-GAAP 642 0.54(a) 602 0.51(a) 929 0.81
Intangible amortization 65 0.05 67 0.06 73 0.06
--------------------------------------------------------------------------
Net income (loss) from
continuing operations
applicable to common
shareholders excluding
the investment securities
losses, TARP redemption
premium/dividend, FDIC
special assessment,
SILO/LILO/tax settlements,
support agreement charges,
M&I expenses, benefit of
tax settlements and
intangible amortization -
Non-GAAP $707 $0.59 $669 $0.57 $1,002 $0.87
--------------------------------------------------------------------------
(a) Does not foot due to rounding.
------------------------------------------------------------------------
Asset and wealth management fee revenue
(in millions) 3Q09 2Q09 3Q08
------------------------------------------------------------------------
Asset and wealth management fee revenue $650 $637 $795
Less: Performance fees 1 26 3
------------------------------------------------------------------------
Asset and wealth management fee revenue
excluding performance fees $649 $611 $792
------------------------------------------------------------------------
----------------------------------------------------------------------
Reconciliation of fee and other revenue as a percent of total revenue
(dollars in millions) 3Q09 2Q09 3Q08 YTD09 YTD08
----------------------------------------------------------------------
Fee and other
revenue - GAAP $(2,216) $2,257 $2,926 $2,177 $8,897
Add: Investment
securities
losses 4,833 256 162 5,384 387
----------------------------------------------------------------------
Fee and other
revenue excluding
investment securities
losses- Non-GAAP 2,617 2,513 3,088 7,561 9,284
Net interest
revenue - GAAP 716 700 681 2,191 1,812
Add: SILO/LILO
charges - - 112 - 489
----------------------------------------------------------------------
Net interest revenue
excluding SILO/LILO
charges - Non-GAAP 716 700 793 2,191 2,301
----------------------------------------------------------------------
Total revenue - GAAP $(1,500) $2,957 $3,607 $4,368 $10,709
Total revenue
excluding investment
securities losses
and SILO/LILO
charges - Non-GAAP $3,333 $3,213 $3,881 $9,752 $11,585
Fee and other
revenue as a
percentage of total
revenue N/M 76% 81% 50% 83%
Fee and other
revenue as a
percentage of total
revenue excluding
investment securities
losses and SILO/LILO
charges - Non-GAAP 79% 78% 80% 78% 80%
----------------------------------------------------------------------
------------------------------------------------------------------------
Reconciliation of income (loss) from continuing operations before
income taxes - pre-tax operating margin
(dollars in millions) 3Q09 2Q09 3Q08 YTD09 YTD08
------------------------------------------------------------------------
Income (loss) from
continuing operations
before income
taxes - GAAP $(3,965) $513 $265 $(2,880) $1,995
Investment securities
losses 4,833 256 162 5,384 387
SILO/LILO charges - - 112 - 489
Support agreement charges 13 (15) 726 (10) 731
Asset-based taxes 20 - - 20 -
FDIC special assessment - 61 - 61 -
M&I expenses 54 59 111 181 386
Intangible amortization 104 108 118 319 360
------------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes
excluding investment
securities losses,
SILO/LILO charges,
support agreement
charges, asset-based
taxes, FDIC special
assessment, M&I
expenses and intangible
amortization -
Non-GAAP $1,059 $982 $1,494 $3,075 $4,348
Fee and other
revenue - GAAP $(2,216) $2,257 $2,926 $2,177 $8,897
Net interest
revenue - GAAP 716 700 681 2,191 1,812
------------------------------------------------------------------------
Total revenue -GAAP (1,500) 2,957 3,607 4,368 10,709
Add: Investment
securities
losses 4,833 256 162 5,384 387
SILO/LILO
charges - - 112 - 489
------------------------------------------------------------------------
Total revenue
excluding investment
securities losses
and SILO/LILO
charges -
Non-GAAP $3,333 $3,213 $3,881 $9,752 $11,585
Pre-tax operating
margin (a) N/M 17% 7% N/M 19%
Pre-tax operating
margin excluding
investment securities
losses, SILO/LILO
charges, support
agreement charges,
asset-based taxes,
FDIC special
assessment, M&I
expenses and
intangible
amortization
- Non-GAAP (a) 32% 31% 39% 32% 38%
------------------------------------------------------------------------
(a) Income (loss) before taxes divided by total revenue.
----------------------------------------------------------------------
Return on common equity and tangible common equity -
continuing operations
(dollars in millions) 3Q09 2Q09 3Q08 YTD09 YTD08
----------------------------------------------------------------------
Net income (loss)
applicable to
common shareholders
of The Bank of New
York Mellon
Corporation - GAAP $(2,458) $176 $303 $(1,960) $1,358
Discontinued
operations income
(loss), net of tax (19) (91) - (151) 10
----------------------------------------------------------------------
Net income (loss)
from continuing
operations
applicable to
common
shareholders of
The Bank of New
York Mellon
Corporation (2,439) 267 303 (1,809) 1,348
Intangible
amortization 65 67 73 198 222
----------------------------------------------------------------------
Net income (loss)
from continuing
operations
applicable to
common
shareholders of
The Bank of New
York Mellon
Corporation
excluding
intangible
amortization -
Non-GAAP (2,374) 334 376 (1,611) 1,570
Investment securities
losses 3,047 161 97 3,392 232
SILO/LILO/tax
settlements - - 30 - 410
Support agreement
charges 8 (9) 433 (6) 436
FDIC special assessment - 36 - 36 -
M&I expenses 34 36 66 111 230
Benefit of tax
settlements - (134) - (134) -
----------------------------------------------------------------------
Net income (loss) from
continuing operations
excluding investment
securities losses,
SILO/LILO/tax
settlements, support
agreement charges,
FDIC special
assessment, M&I
expenses, benefit of
tax settlements and
intangible
amortization -
Non-GAAP $715 $424 $1,002 $1,788 $2,878
Average common
shareholders'
equity $28,144 $26,566 $27,996 $26,644 $28,682
Less: Average
goodwill 16,048 15,989 16,644 15,959 16,661
Average
intangible
assets 5,608 5,673 5,915 5,677 6,061
Add: Deferred tax
liability -
tax deductible
goodwill 666 643 577 666 577
Deferred tax
liability -
non-tax
deductible
intangible
assets 1,717 1,743 1,915 1,717 1,915
----------------------------------------------------------------------
Average tangible
common shareholders'
equity - Non-GAAP $8,871 $7,290 $7,929 $7,391 $8,452
Return on common
equity- GAAP (a) N/M 4.0% 4.3% N/M 6.3%
Return on common
equity excluding
investment
securities losses,
SILO/LILO/tax
settlements, support
agreement charges,
FDIC special
assessment, M&I
expenses, benefit of
tax settlements and
intangible
amortization -
Non-GAAP (a) 10.1% 6.4% 14.2% 9.0% 13.4%
Return on tangible
common equity -
Non-GAAP (a) N/M 18.4% 18.9% N/M 24.8%
Return on tangible
common equity
excluding investment
securities losses,
SILO/LILO/tax
settlements, support
agreement charges,
FDIC special
assessment, M&I
expenses and benefit
of tax settlements -
Non-GAAP (a) 32.0% 23.3% 50.2% 32.3% 45.5%
----------------------------------------------------------------------
(a) Annualized.
-------------------------------------------------------------------------
Equity to assets and book value
per common share
(dollars in millions, Sept. 30, June 30, Sept. 30,
unless otherwise noted) 2009 2009 2008
-------------------------------------------------------------------------
Common shareholders' equity at
period end - GAAP $28,295 $27,276 $27,513
Less: Goodwill 16,022 16,040 16,335
Intangible assets 5,574 5,677 6,043
Add: Deferred tax liability -
tax deductible goodwill 666 643 577
Deferred tax liability -
non-tax deductible intangible
assets 1,717 1,743 1,915
-------------------------------------------------------------------------
Tangible common shareholders' equity
at period end - Non-GAAP $9,082 $7,945 $7,627
Total assets at period end - GAAP $212,007 $203,012 $267,510
Less: Goodwill 16,022 16,040 16,335
Intangible assets 5,574 5,677 6,043
Cash on deposit with the
Federal Reserve and other
central banks (a) 15,003 16,458 37,910
U.S. government-backed
commercial paper - - 10,865
-------------------------------------------------------------------------
Tangible total assets at period
end - Non-GAAP $175,408 $164,837 $196,357
Common shareholders' equity to
assets - GAAP 13.3% 13.4% 10.3%
Tangible common shareholders' equity
to tangible assets - Non-GAAP 5.2% 4.8% 3.9%
Period end common shares outstanding
(in thousands) 1,204,244 1,202,828 1,147,567
Book value per common share $23.50 $22.68 $23.97
Tangible book value per common
share - Non-GAAP $7.54 $6.60 $6.65
-------------------------------------------------------------------------
(a) Assigned a zero percent risk weighting by the regulators.
-------------------------------------------------------------------------
Calculation of the Tier 1 common
equity to risk-weighted assets
ratio (a) Sept. 30, June 30, Sept. 30,
(dollars in millions) 2009 2009 2008
-------------------------------------------------------------------------
Total Tier 1 capital $12,546 $15,044 $11,688
Less: Trust preferred securities 1,682 1,691 1,719
-------------------------------------------------------------------------
Total Tier 1 common equity $10,864 $13,353 $9,969
Total risk-weighted assets $110,670 $120,566 $125,125
Tier 1 common equity to
risk-weighted assets ratio 9.8% 11.1% 8.0%
-------------------------------------------------------------------------
(a) On a regulatory basis.
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, expectations with respect to the restructuring of BNY Mellon's investment securities portfolio, including statements with respect to the impact of the restructuring on future pricing, net interest revenue and risk of future securities losses, retention of the remaining restructured securities; the reflection of declines in the fair value of securities in BNY Mellon's net income; expectations with respect to declines in the provision for credit losses; and expectations with respect to the closing of the sale of Mellon United National Bank. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation 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 BNY Mellon's control). Factors that could cause BNY Mellon's results to differ materially from those described in the forward-looking statements can be found in the risk factors set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2008, the Form 10-Q for the quarter ended March 31, 2009 and BNY Mellon's other filings with the Securities and Exchange Commission. All forward-looking statements in this earnings release speak only as of Oct. 20, 2009 and BNY Mellon 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.