Apr 20, 2010
- Net impact of $0.10 mainly due to increased litigation reserves
NEW YORK, April 20, 2010 —The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported first quarter income from continuing operations applicable to common shareholders of $601 million, or $0.49 per common share, compared with $363 million, or $0.31 per common share, in the first quarter of 2009 and $712 million, or $0.59 per common share, in the fourth quarter of 2009.
"The economic outlook is clearly improving as demonstrated by the performance of the equity and credit markets. Persistent low interest rates globally continue to be a challenge, but our focus on winning new business together with well-controlled expenses resulted in positive operating leverage," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.
"We continue to reinvest in our businesses, and during the quarter announced two important asset servicing acquisitions. Both are expected to be immediately accretive to earnings and close in the third quarter," added Mr. Kelly.
First Quarter Results - Unless otherwise noted, all comments begin with the results of the first quarter of 2010 and are compared to the first quarter of 2009, all information is reported on a continuing operations basis and sequential growth rates are unannualized. Please refer to the Quarterly Earnings Review for detailed business segment information.
Total revenue
-------------------------------------------------------------------------
Reconciliation of total revenue 1Q10 vs.
(dollar amounts -------------
in millions) 1Q10 4Q09 1Q09 1Q09 4Q09
-------------------------------------------------------------------------
Fee and other revenue – GAAP $2,568 $2,595 $2,136
Less: Net securities gains
(losses) 7 15 (295)
-------------------------------------------------------------------------
Total fee revenue –
GAAP 2,561 2,580 2,431 5% (1)%
Income from consolidated
asset management funds,
net of noncontrolling
interests 22(a) - -
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Total fee revenue –
Non-GAAP 2,583 2,580 2,431 6% -%
Net interest revenue – GAAP 765 724 775
-------------------------------------------------------------------------
Total revenue excluding
net securities gains
(losses) – Non-GAAP $3,348(b) $3,304 $3,206 4% 1%
-------------------------------------------------------------------------
(a) Includes $6 million previously reported as asset and wealth
management fee revenue and $16 million previously reported as
investment income.
(b) Total revenue on a GAAP basis was $3,385 million in the first
quarter of 2010.
The provision for credit losses decreased to $35 million in the first quarter of 2010 compared with $65 million in the fourth quarter of 2009. The decrease in the provision reflects improvements in our highest-risk asset classes. During the first quarter of 2010, the total allowance for credit losses increased $10 million and net charge-offs totaled $25 million. Nonperforming assets totaled $459 million, a decrease of $91 million, or 17%, compared with Dec. 31, 2009 primarily due to repayments and charge-offs.
Total noninterest expense
------------------------------------------------------------------------
Reconciliation of noninterest
expense 1Q10 vs.
(dollar amounts ------------
in millions) 1Q10 4Q09 1Q09 1Q09 4Q09
------------------------------------------------------------------------
Noninterest expense – GAAP $2,461 $2,582 $2,280 8% (5)%
Litigation reserves 164 - -
Restructuring charges 7 139 10
M&I expenses 26 52 68
Amortization of intangible
assets 97 107 107
------------------------------------------------------------------------
Total noninterest expense
excluding litigation
reserves, restructuring
charges, M&I expenses and
intangible amortization –
Non-GAAP $2,167 $2,284 $2,095 3% (5)%
------------------------------------------------------------------------
The effective tax rate was 29.0% in the first quarter of 2010. Excluding the impact of the litigation reserves, restructuring charges and M&I expenses, the effective tax rate was approximately 30.8% (Non-GAAP) in the first quarter of 2010.
The unrealized net of tax losses on our investment securities portfolio improved to $189 million at March 31, 2010 from $705 million at Dec. 31, 2009, primarily due to improved credit spreads.
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Capital ratios (a) March 31, Dec. 31, March 31,
2010 2009 2009
------------------------------------------------------------------------
Tier 1 capital ratio 13.2% 12.1% 13.8%(b)
Total (Tier 1 plus Tier 2) capital ratio 17.1 16.0 17.5(b)
Leverage capital ratio 6.6 6.5 7.8(b)
Common shareholders' equity to total
assets ratio (c) 14.1 13.7 12.5
Tangible common shareholders' equity to
tangible assets of operations
ratio – Non-GAAP (c) 6.1 5.2 4.2
Tier 1 common equity to risk-weighted
assets ratio (c) 11.6 10.5 10.0
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(a) Includes discontinued operations. Preliminary.
(b) The Tier 1, Total and Leverage capital ratios, excluding the Series
B preferred stock and the common stock warrant associated with TARP,
were 11.2%, 15.0% and 6.4% at March 31, 2009.
(c) See the Supplemental information section beginning on page 10 for
a calculation of these ratios.
Declaration of quarterly dividend – On April 20, 2010, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.09 per common share. This cash dividend is payable on May 11, 2010 to shareholders of record as of the close of business on April 30, 2010.
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 $22.4 trillion in assets under custody and administration, $1.1 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.5 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 March 31, 2010 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 April 20, 2010. 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 April 20, 2010. Replays of the conference call and audio webcast will be available beginning April 20, 2010 at approximately 2 p.m. EDT through Tuesday, May 4, 2010 by dialing (800) 214-3608 (U.S.) or (402) 220-3754 (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
------------------------------------------------------------------------
Quarter ended
(dollar amounts in millions, ---------------------------------
except per common share amounts March 31, Dec. 31, March 31,
and unless otherwise noted) 2010 2009 2009
------------------------------------------------------------------------
Continuing operations
Return on common equity
(annualized) (a) 8.2% 9.8% 5.8%
Non-GAAP adjusted (a) 10.6% 10.1% 10.6%
Return on tangible common equity
(annualized) – Non-GAAP (a) 25.8% 33.0% 28.8%
Non-GAAP adjusted (a) 30.2% 31.1% 44.4%
Fee and other revenue as a percent
of total revenue 76% 78% 73%
Annualized fee revenue per
employee (based on average
headcount) (in thousands) $246 $243 $234
Percent of non-U.S. fee and net
interest revenue including
noncontrolling interests related
to consolidated asset
management funds 34% 36% 29%
Pre-tax operating margin (a) 26% 20% 20%
Non-GAAP adjusted (a) 34% 29% 33%
Net interest margin (FTE) (b) 1.89% 1.77% 1.87%
Selected average balances
Interest-earning assets $163,434 $164,075 $167,427(c)
Assets of operations $212,694 $214,205 $220,119
Total assets $215,159 $214,205 $220,119
Interest-bearing deposits $101,034 $98,404 $101,983(c)
Noninterest-bearing deposits $33,330 $34,991 $43,051(c)
Total shareholders' equity $29,720 $28,843 $27,978
Average common shares and
equivalents outstanding
(in thousands):
Basic 1,202,533 1,200,359 1,146,070
Diluted 1,206,286 1,203,469 1,146,943
Period-end data
Assets under management
(in billions) $1,105 $1,115 $881
Assets under custody and
administration (in trillions) $22.4 $22.3 $19.5
Cross-border assets (in trillions) $8.8 $8.8 $7.3
Market value of securities on
loan (in billions) (d) $253 $247 $293
Employees 42,300 42,200 41,700(c)
Book value per common share –
GAAP (a) $24.48 $23.99 $22.03
Tangible book value per common
share – Non-GAAP (a) $8.69 $7.90 $5.48
Cash dividends per common share $0.09 $0.09 $0.24
Closing common stock price per
common share $30.88 $27.97 $28.25
Market capitalization $37,456 $33,783 $32,585
------------------------------------------------------------------------
(a) See Supplemental information beginning on page 10 for a calculation
of these ratios.
(b) Prior periods calculated on a continuing operations basis, even
though the balance sheet, in accordance with GAAP, is not restated
for discontinued operations.
(c) Excludes the impact of discontinued operations.
(d) 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
-------------------------------------------------------------------------
Quarter ended
----------------------------------
March 31, Dec. 31, March 31,
(in millions) 2010 2009 2009
-------------------------------------------------------------------------
Fee and other revenue
Securities servicing fees:
Asset servicing $637 $650 $609
Issuer services 333 368 364
Clearing services 230 223 253
-------------------------------------------------------------------------
Total securities servicing fees 1,200 1,241 1,226
Asset and wealth management fees 696 736 616
Foreign exchange and other trading
activities 263 246 307
Treasury services 131 134 125
Distribution and servicing 76 85 111
Financing-related fees 50 57 48
Investment income 108 78 (17)
Other 37 3 15
-------------------------------------------------------------------------
Total fee revenue 2,561 2,580 2,431
Net securities gains (losses) 7 15 (295)
-------------------------------------------------------------------------
Total fee and other revenue 2,568 2,595 2,136
Operations of consolidated asset
management funds
Investment income 61 - -
Operating expenses 9 - -
-------------------------------------------------------------------------
Income of consolidated asset
management funds 52 - -
Net interest revenue
Interest revenue 883 854 979
Interest expense 118 130 204
-------------------------------------------------------------------------
Net interest revenue 765 724 775
Provision for credit losses 35 65 59
-------------------------------------------------------------------------
Net interest revenue after provision
for credit losses 730 659 716
Noninterest expense
Staff 1,220 1,221 1,169
Professional, legal and other
purchased services 242 278 237
Net occupancy 137 141 139
Distribution and servicing 109 109 107
Software 94 98 81
Sub-custodian and clearing 85 83 66
Furniture and equipment 75 80 77
Business development 52 76 44
Other 317 198 175
-------------------------------------------------------------------------
Subtotal 2,331 2,284 2,095
-------------------------------------------------------------------------
Amortization of intangible assets 97 107 107
Restructuring charges 7 139 10
Merger and integration expenses 26 52 68
-------------------------------------------------------------------------
Total noninterest expense 2,461 2,582 2,280
-------------------------------------------------------------------------
Income
Income (loss) from continuing
operations before income taxes 889 672 572
Provision (benefit) for income taxes 257 (41) 161
-------------------------------------------------------------------------
Income (loss) from continuing
operations 632 713 411
Discontinued operations:
Income (loss) from discontinued
operations (70) (183) (65)
Provision (benefit) for income taxes (28) (64) (24)
-------------------------------------------------------------------------
Income (loss) from discontinued
operations, net of tax (42) (119) (41)
-------------------------------------------------------------------------
Net income (loss) 590 594 370
Net (income) loss attributable to
noncontrolling interests (31)(a) (1) (1)
Preferred dividends - - (47)
-------------------------------------------------------------------------
Net income (loss) applicable to
common shareholders of The Bank of
New York Mellon Corporation $559 $593 $322
-------------------------------------------------------------------------
(a) Quarter ended March 31, 2010 includes $30 million related to
consolidated asset management funds.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued
--------------------------------------------------------------------------
Earnings per common share applicable Quarter ended
to the common shareholders of The Bank ----------------------------------
of New York Mellon Corporation March 31, Dec. 31, March 31,
(in dollars) 2010 2009 2009
--------------------------------------------------------------------------
Basic:
Net income from continuing
operations $0.50 $0.59 $0.31
Net income (loss) from discontinued
operations (0.04) (0.10) (0.04)
--------------------------------------------------------------------------
Net income applicable to common
stock $0.46 $0.49 $0.28(a)
--------------------------------------------------------------------------
Diluted: (a)
Net income from continuing operations $0.49 $0.59 $0.31
Net income (loss) from discontinued
operations (0.03) (0.10) (0.04)
--------------------------------------------------------------------------
Net income applicable to common
stock $0.46 $0.49 $0.28(a)
--------------------------------------------------------------------------
(a) Does not foot due to rounding.
--------------------------------------------------------------------------
Reconciliation of net income from
continuing operations applicable Quarter ended
to the common shareholders of The Bank ---------------------------------
of New York Mellon Corporation March 31, Dec. 31, March 31,
(in millions) 2010 2009 2009
--------------------------------------------------------------------------
Net income from continuing operations $632 $713 $411
Net (income) attributable to
noncontrolling interests (31) (1) (1)
Preferred dividends - - (47)
--------------------------------------------------------------------------
Net income from continuing
operations applicable to common
shareholders of The Bank of New
York Mellon Corporation 601 712 363
Net income (loss) from discontinued
operations (42) (119) (41)
--------------------------------------------------------------------------
Net income applicable to the common
shareholders of The Bank of
New York Mellon Corporation $559 $593 $322
--------------------------------------------------------------------------
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
----------------------------------------------------------------------
(dollar amounts in millions, March 31, Dec. 31,
except per share amounts) 2010 2009
----------------------------------------------------------------------
Assets
Cash and due from:
Banks $3,307 $3,732
Interest-bearing deposits with
the Federal Reserve and other
central banks 14,720 7,362
Interest-bearing deposits with banks 50,170 56,302
Federal funds sold and securities
purchased under resale agreements 4,449 3,535
Securities:
Held-to-maturity (fair value of
$4,059 and $4,240) 4,115 4,417
Available-for-sale (includes $883
previously securitized) 51,467 51,632
----------------------------------------------------------------------
Total securities 55,582 56,049
Trading assets 5,844 6,001
Loans 33,887 36,689
Allowance for loan losses (520) (503)
----------------------------------------------------------------------
Net loans 33,367 36,186
Premises and equipment 1,583 1,602
Accrued interest receivable 748 639
Goodwill 16,077 16,249
Intangible assets 5,449 5,588
Other assets 16,362 16,737
Assets of discontinued operations 334 2,242
Subtotal assets of operations 207,992 212,224
Assets of consolidated asset
management funds (at fair value):
Trading assets 167 -
Loans 1,847 -
Other assets 245 -
----------------------------------------------------------------------
Subtotal assets of consolidated asset
management funds 2,259 -
----------------------------------------------------------------------
Total assets $210,251 $212,224
----------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing (principally
domestic offices) $30,330 $33,477
Interest-bearing deposits in
domestic offices 31,528 32,944
Interest-bearing deposits in foreign
offices 69,769 68,629
----------------------------------------------------------------------
Total deposits 131,627 135,050
Federal funds purchased and securities
sold under repurchase agreements 3,882 3,348
Trading liabilities 6,277 6,396
Payables to customers and broker-dealers 10,328 10,721
Commercial paper 7 12
Other borrowed funds 1,463 477
Accrued taxes and other expenses 4,268 4,484
Other liabilities (including allowance
for lending related commitments of
$118 and $125) 4,416 3,891
Long-term debt 16,335 17,234
Liabilities of discontinued operations - 1,608
----------------------------------------------------------------------
Subtotal liabilities of operations 178,603 183,221
Liabilities and obligations of
consolidated asset management funds
(at fair value) 1,188 -
----------------------------------------------------------------------
Total liabilities 179,791 183,221
----------------------------------------------------------------------
Equity
Common stock-par value $0.01 per common
share; authorized 3,500,000,000 common
shares; issued 1,214,641,965 and
1,208,861,641 common shares 12 12
Additional paid-in capital 21,994 21,917
Retained earnings 9,343 8,912
Accumulated other comprehensive loss,
net of tax (1,612) (1,835)
Less: Treasury stock of 1,701,394 and
1,026,927 common shares, at cost (49) (29)
----------------------------------------------------------------------
Total The Bank of New York Mellon
Corporation shareholders' equity 29,688 28,977
Noncontrolling interests 21 26
Noncontrolling interests of
consolidated asset management funds 751 -
----------------------------------------------------------------------
Total equity 30,460 29,003
----------------------------------------------------------------------
Total liabilities and equity $210,251 $212,224
----------------------------------------------------------------------
Adoption of new accounting standard
On Jan. 1, 2010, we adopted SFAS No. 167, "Amendments to FASB Interpretation No. 46 R" (Topic 810, Consolidations). At March 31, 2010, our balance sheet included $3.1 billion for the consolidation of certain asset management funds, seed capital investments and securitizations, including $394 million of Class A Notes of the Grantor Trust. The new statement increased our balance sheet by $2.7 billion, or approximately 1%, from year-end.
The consolidated asset management funds are disclosed separately on the balance sheet and the securitizations are included in available for sale securities. The income statement separately discloses the operations of consolidated asset management funds ($52 million) and the net income attributable to noncontrolling interests of consolidated asset management funds ($30 million). The net of these income statement line items ($22 million) was previously disclosed in the income statement as asset and wealth management revenue of $6 million and investment income of $16 million.
Investment securities portfolio
At March 31, 2010, the fair value of our investment securities portfolio totaled $55.5 billion. The unrealized pre-tax loss on our securities portfolio was $242 million at March 31, 2010 compared with $1.0 billion at Dec. 31, 2009 and $8.0 billion at March 31, 2009.
The following table presents the March 31, 2010 investment securities portfolio.
-------------------------------------------------------------------------
Investment securities portfolio – March 31, 2010
Fair value
as a % of
(dollar amounts Amortized Fair amortized Unrealized
in millions) cost value cost(a) gain/(loss)
-------------------------------------------------------------------------
Watch list:
European floating rate
notes (b) $5,485 $5,032 91% $(453)
Commercial MBS 2,364 2,360 100 (4)
Prime RMBS 1,799 1,613 88 (186)
Alt-A RMBS 842 756 70 (86)
Subprime RMBS 773 486 63 (287)
Credit cards 589 588 97 (1)
Other 362 381 53 19
-------------------------------------------------------------------------
Total Watch list (c) 12,214 11,216 87 (998)
Agency RMBS 18,028 18,349 102 321
Sovereign debt/sovereign
guaranteed 7,625 7,710 101 85
U.S. Treasury securities 7,036 7,083 101 47
Grantor Trust (d):
Alt-A RMBS 2,462 2,605 61 143
Prime RMBS 1,928 2,024 72 96
Subprime RMBS 127 146 63 19
FDIC-insured debt 2,531 2,586 102 55
U.S. Government agency debt 1,138 1,157 102 19
Other 2,679 2,650 99 (29)
-------------------------------------------------------------------------
Total investment securities $55,768 $55,526 94% $(242)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Ratings
-----------------------------------------------
(dollar amounts AAA/ A+/ BBB+/ BB+ and Not
in millions) AA- A- BBB- lower rated
-------------------------------------------------------------------------
Watch list:
European floating rate
notes (b) 95% 5% -% -% -%
Commercial MBS 93 4 3 - -
Prime RMBS 59 23 6 12 -
Alt-A RMBS 28 8 1 63 -
Subprime RMBS 72 16 5 7 -
Credit cards 2 97 1 - -
Other 1 - 20 68 11
-------------------------------------------------------------------------
Total Watch list (c) 76 13 2 9 -
Agency RMBS 100 - - - -
Sovereign debt/sovereign
guaranteed 100 - - - -
U.S. Treasury securities 100 - - - -
Grantor Trust (d):
Alt-A RMBS 3 4 5 88 -
Prime RMBS 5 7 7 81 -
Subprime RMBS 13 5 6 76 -
FDIC-insured debt 100 - - - -
U.S. Government agency
debt 100 - - - -
Other 72 10 6 1 11
-------------------------------------------------------------------------
Total investment
Securities 85% 4% 1% 9% 1%
-------------------------------------------------------------------------
(a) Amortized cost before impairments.
(b) Includes commercial MBS, RMBS and other securities.
(c) The "Watch list" includes those securities we view as having a
higher risk of impairment charges.
(d) The Grantor Trust RMBS were marked to market in the fourth quarter
of 2009. We believe these RMBS would receive a higher credit
rating if the rating was based on the written-down amortized cost
instead of the current face amount.
Nonperforming assets
--------------------------------------------------------------------------
Nonperforming assets March 31, Dec. 31, March 31,
(dollar amounts in millions) 2010 2009 2009
--------------------------------------------------------------------------
Loans:
Other residential mortgages $204 $190 $143
Financial institutions 102 172 30
Commercial 40 65 34
Commercial real estate 50 61 197
Wealth management 58 58 6
Foreign - - 2
--------------------------------------------------------------------------
Total nonperforming loans 454 546 412
Other assets owned 5 4 9
Total nonperforming assets $459 $550(a) $421(a)
--------------------------------------------------------------------------
Nonperforming loans ratio 1.3% 1.5% 1.0%
Allowance for loan losses/nonperforming
loans 114.5 92.1 114.1
Total allowance for credit losses/
nonperforming loans 140.5 115.0 135.7
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(a) Nonperforming assets at Dec. 31, 2009 exclude discontinued
operations. Nonperforming assets at March 31, 2009 includes
discontinued operations of $130 million.
Nonperforming assets decreased $91 million compared with Dec. 31, 2009. The decrease primarily resulted from repayments and charge-offs.
Discontinued operations
In the second quarter of 2009, we adopted discontinued operations accounting for Mellon United National Bank ("MUNB") located in Florida. It was determined that this business no longer fit our strategic focus on our asset management and securities servicing businesses. On Jan. 15, 2010, we completed the sale of MUNB. This business was formerly included in the Other segment. In the first quarter of 2010, we recorded an after-tax loss on discontinued operations of $42 million primarily reflecting lower of cost or market write-downs on the retained loans.
Consolidated net income applicable to common shareholders, including discontinued operations
Net income applicable to common shareholders, including discontinued operations, totaled $559 million, or $0.46 per common share, in the first quarter of 2010 compared with $322 million, or $0.28 per common share, in the first quarter of 2009 and $593 million, or $0.49 per common share, in the fourth quarter of 2009.
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 total assets of operations 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 measures which exclude the effect of net securities gains (losses) and noncontrolling interests related to consolidated asset management funds and expense measures which exclude litigation reserves, restructuring charges, M&I expenses and intangible amortization expenses; and measures which utilize net income excluding tax items such as discrete tax benefits related to a tax loss on mortgages. Return on equity measures and operating margin measures which exclude some or all of these items are also presented. 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 expenses primarily relate 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 integration. BNY Mellon believes that the exclusion of M&I expenses 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 net securities gains (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. With regards to higher yields related to the restructured investment securities portfolio, client deposits serve as the primary funds source for our investment securities portfolio and we typically allocate all interest revenue to the businesses generating the deposits. Accordingly, the higher yield related to the restructured investment securities portfolio has been included in the segment results. Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions. Excluding the discrete tax benefits related to a tax loss on mortgages permits investors to calculate the tax impact of BNY Mellon's primary businesses. The presentation of financial measures excluding litigation reserves in the first quarter of 2010 provides investors with the ability to view performance metrics on the basis that management views results. The presentation of income of consolidated asset management funds, net of noncontrolling interests related to the consolidation of certain asset management funds, permits investors to view revenue on a basis consistent with prior periods. BNY Mellon believes that these presentations, as a supplement to GAAP information, gives investors a clearer picture of the results of its primary businesses.
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.
Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and business segment basis.
----------------------------------------------------------------------
Reconciliation of net income and EPS
– GAAP to Non-GAAP 1Q10
------------------------
(in millions, except earnings per Net
share amounts) income EPS(a)
----------------------------------------------------------------------
Net income applicable to common
shareholders of The Bank of
New York Mellon Corporation – GAAP –
Diluted EPS basis (a) $559 $0.46
Discontinued operations income
(loss), net of tax (42) (0.03)
----------------------------------------------------------------------
Income from continuing operations
applicable to common shareholders of
The Bank of New York Mellon Corporation 601 0.49
Litigation reserves 98 0.08
M&I expenses 16 0.01
Restructuring charges 5 -
Net securities (gains) losses (5) -
----------------------------------------------------------------------
Income from continuing operations
applicable to common shareholders
excluding litigation reserves, M&I
expenses, restructuring charges and net
securities (gains) losses – Non-GAAP 715 0.59(b)
Intangible amortization 62 0.05
----------------------------------------------------------------------
Income from continuing operations
applicable to common shareholders
excluding litigation reserves, M&I
expenses, restructuring charges, net
securities (gains) losses and intangible
amortization – Non-GAAP $777 $0.64
----------------------------------------------------------------------
(a) Diluted earnings per share under the two-class method was
calculated after deducting $5 million of earnings allocated to
participating securities.
(b) Does not foot due to rounding.
-------------------------------------------------------------------------
Reconciliation of income (loss) from
continuing operations before income
taxes – pre-tax operating margin
(dollars in millions) 1Q10 4Q09 1Q09
-------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes – GAAP $889 $672 $572
Less: Net securities gains (losses) 7 15 (295)
Noncontrolling interests of
consolidated asset management
funds 30 - -
Add: Litigation reserves 164 - -
M&I expenses 26 52 68
Restructuring charges 7 139 10
Intangible amortization 97 107 107
-------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes
excluding net securities gains
(losses), noncontrolling interests
of consolidated asset management
funds, litigation reserves, M&I
expenses, restructuring charges and
intangible amortization – Non-GAAP $1,146 $955 $1,052
Fee and other revenue – GAAP $2,568 $2,595 $2,136
Income of consolidated asset management
funds – GAAP 52 - -
Net interest revenue – GAAP 765 724 775
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Total revenue – GAAP 3,385 3,319 2,911
Less: Net securities gains (losses) 7 15 (295)
Noncontrolling interests of
consolidated asset management
funds 30 - -
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Total revenue excluding net
securities gains (losses)
and noncontrolling interests
of consolidated asset
management funds – Non-GAAP $3,348 $3,304 $3,206
Pre-tax operating margin (a) 26% 20% 20%
Pre-tax operating margin excluding net
securities gains (losses),
noncontrolling interests of
consolidated asset management funds,
litigation reserves, M&I expenses,
restructuring charges and intangible
amortization – Non-GAAP (a) 34% 29% 33%
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(a) Income (loss) before taxes divided by total revenue.
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Return on common equity and tangible common
equity – continuing operations
(dollars in millions) 1Q10 4Q09 1Q09
-------------------------------------------------------------------------
Net income (loss) applicable to common
shareholders of The Bank of New York
Mellon Corporation - GAAP $559 $593 $322
Less: Income (loss) from discontinued
operations, net of tax (42) (119) (41)
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Net income (loss) from continuing
operations applicable to common
shareholders of The Bank of New York
Mellon Corporation 601 712 363
Intangible amortization 62 66 66
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Net income (loss) from continuing
operations applicable to common
shareholders of The Bank of New York
Mellon Corporation excluding intangible
amortization – Non-GAAP 663 778 429
Less: Net securities gains (losses) 5 31 (183)
Add: Litigation reserves 98 - -
M&I expenses 16 33 41
Restructuring charges 5 86 7
Discrete tax benefits - (133) -
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Net income (loss) from continuing
operations excluding net securities gains
(losses), litigation reserves, M&I
expenses, restructuring charges, discrete
tax benefits and intangible
amortization – Non-GAAP $777 $733 $660
Average common shareholders' equity $29,720 $28,843 $25,189
Less: Average goodwill 16,143 16,291 15,837
Average intangible assets 5,513 5,587 5,752
Add: Deferred tax liability – tax
deductible goodwill 720 720 624
Deferred tax liability –
non-tax deductible intangible
assets 1,660 1,680 1,808
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Average tangible common shareholders'
equity – Non-GAAP $10,444 $9,365 $6,032
Return on common equity – GAAP (a) 8.2% 9.8% 5.8%
Return on common equity excluding
net securities gains (losses),
litigation reserves, M&I expenses,
restructuring charges, discrete tax
benefits, and intangible
amortization – Non-GAAP (a) 10.6% 10.1% 10.6%
Return on tangible common
equity – Non-GAAP (a) 25.8% 33.0% 28.8%
Return on tangible common equity
excluding net securities gains
(losses), litigation reserves, M&I
expenses, restructuring charges and
discrete tax benefits – Non-GAAP (a) 30.2% 31.1% 44.4%
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(a) Annualized.
------------------------------------------------------------------------
Securities servicing fees
(in millions) 1Q10 4Q09 1Q09
------------------------------------------------------------------------
Securities servicing fees $1,200 $1,241 $1,226
Less: Securities lending fee revenue 29 29 90
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Securities servicing fees excluding
securities lending fee revenue $1,171 $1,212 $1,136
------------------------------------------------------------------------
------------------------------------------------------------------------
Asset and wealth management 1Q10 vs.
fee revenue --------------
(dollars in millions) 1Q10 4Q09 1Q09 4Q09 1Q09
------------------------------------------------------------------------
Asset and wealth management
fee revenue $696 $736 $616 (5)% 13%
Less: Performance fees 13 59 7
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Asset and wealth management
fee revenue excluding
performance fees $683 $677 $609 1% 12%
------------------------------------------------------------------------
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Equity to assets and book value
per common share
(dollars in millions, unless March 31, Dec. 31, March 31,
otherwise noted) 2010 2009 2009
-------------------------------------------------------------------------
Common shareholders' equity at
period end - GAAP $29,688 $28,977 $25,415
Less: Goodwill 16,077 16,249 15,805
Intangible assets 5,449 5,588 5,717
Add: Deferred tax liability – tax
deductible goodwill 720 720 624
Deferred tax liability –
non-tax deductible intangible
assets 1,660 1,680 1,808
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Tangible common shareholders' equity at
period end – Non-GAAP $10,542 $9,540 $6,325
Total assets at period end - GAAP $210,251 $212,224 $203,478
Less: Assets of consolidated asset
management funds 2,259 - -
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Total assets of operations –
Non-GAAP 207,992 212,224 203,478
Less: Goodwill 16,077 16,249 15,805
Intangible assets 5,449 5,588 5,717
Cash on deposit with the
Federal Reserve and other
central banks (a) 14,709 7,375 29,679
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Tangible total assets of operations
at period end – Non-GAAP $171,757 $183,012 $152,277
Common shareholders' equity to total
assets – GAAP 14.1% 13.7% 12.5%
Tangible common shareholders' equity
to tangible total assets of
operations – Non-GAAP 6.1% 5.2% 4.2%
Period end common shares
outstanding (in thousands) 1,212,941 1,207,835 1,153,450
Book value per common share $24.48 $23.99 $22.03
Tangible book value per common
share – Non-GAAP $ 8.69 $7.90 $5.48
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(a) Assigned a zero percent risk weighting by the regulators.
-------------------------------------------------------------------------
Calculation of Tier 1 common equity
to risk-weighted assets ratio (a) March 31, Dec. 31, March 31,
(dollars in millions) 2010 2009 2009
-------------------------------------------------------------------------
Total Tier 1 capital $13,430 $12,883 $16,242
Less: Trust preferred securities 1,667 1,686 1,648
Series B preferred stock - - 2,795
-------------------------------------------------------------------------
Total Tier 1 common equity $11,763 $11,197 $11,799
Total risk-weighted assets $101,705 $106,328 $117,412
Tier 1 common equity to risk-weighted
assets ratio 11.6% 10.5% 10.0%
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(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 economic outlook, reinvestment in our businesses, intended acquisitions, including the expected impact on earnings and the timing of anticipated closing, and credit ratings of the RMBS in the Grantor Trust. 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, 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 April 20, 2010 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.