Jul 20, 2010
Securities Servicing Fees Up 6% Sequentially
$12 Billion of Net Long-Term Asset Inflows in 2Q10
Credit Quality Improvement Continues; Provision Down 43%; NPAs Down 12% Sequentially
Strong Capital Generation
NEW YORK, July 20, 2010 — The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter income from continuing operations applicable to common shareholders of $668 million, or $0.55 per common share, compared with $267 million, or $0.23 per common share, in the second quarter of 2009 and $601 million, or $0.49 per common share, in the first quarter of 2010.
"Our focus on winning new business and providing exceptional client service resulted in solid growth in securities servicing fees and continued long-term asset inflows for our asset and wealth management businesses. Our conservative risk profile is reflected in our excellent credit quality and strong capital generation," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.
"We continue to invest in our businesses. We just completed our Global Investment Servicing acquisition and expect to close on the acquisition of BHF's German asset servicing operation in August. In addition, we received regulatory approval for the opening of our asset management joint venture in Shanghai, expanded our asset management licensing in Korea, and announced our agreement to acquire a wealth management firm in Toronto," added Mr. Kelly.
Second Quarter Results - Unless otherwise noted, all comments begin with the results of the second quarter of 2010 and are compared to the second 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
-------------------------------------------------------------------------
2Q10 vs.
Reconciliation of total revenue -----------
(dollar amounts in millions) 2Q10 1Q10 2Q09 2Q09 1Q10
-------------------------------------------------------------------------
Fee and other revenue – GAAP $2,571 $2,549 $2,257
Less: Net securities
gains (losses) 13 7 (256)
-------------------------------------------------------------------------
Total fee revenue – GAAP 2,558 2,542 2,513 2% 1%
Income from consolidated asset
management funds, net of
noncontrolling interests 32(a) 41(a) -
-------------------------------------------------------------------------
Total fee revenue – Non-GAAP 2,590 2,583 2,513 3% -%
Net interest revenue – GAAP 722 765 700
-------------------------------------------------------------------------
Total revenue excluding net
securities gains (losses)
– Non-GAAP $3,312(b) $3,348(b) $3,213 3% (1)%
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(a) Includes $29 million and $25 million previously reported as asset
and wealth management fee revenue and $3 million and $16 million
previously reported as investment income in the second and first
quarters of 2010, respectively.
(b) Total revenue on a GAAP basis was $3,358 million and $3,379 million
in the second and first quarters of 2010 respectively.
The provision for credit losses decreased to $20 million in the second quarter of 2010 compared with $35 million in the first quarter of 2010. During the second quarter of 2010, the total allowance for credit losses increased $7 million and net charge-offs totaled $13 million. Nonperforming assets at June 30, 2010 totaled $406 million, a decrease of $53 million, or 12%, compared with March 31, 2010 primarily due to repayments.
Total noninterest expense
----------------------------------------------------------------------
Reconciliation of noninterest 2Q10 vs.
expense ------------
(dollar amounts in millions) 2Q10 1Q10 2Q09 2Q09 1Q10
----------------------------------------------------------------------
Noninterest expense – GAAP $2,332 $2,460 $2,383 (2)% (5)%
Less: Special litigation
reserves N/A 164 N/A
FDIC special assessment - - 61
Restructuring charges (15) 7 6
M&I expenses 14 26 59
Amortization of
intangible assets 98 97 108
----------------------------------------------------------------------
Total noninterest expense
excluding special litigation
reserves, FDIC special
assessment, restructuring
charges, M&I expenses and
intangible amortization –
Non-GAAP $2,235 $2,166 $2,149 4% 3%
----------------------------------------------------------------------
N/A – Not applicable.
The effective tax rate was 30.2% in the second quarter of 2010.
The unrealized net of tax gain on our investment securities portfolio was $114 million at June 30, 2010 compared with an unrealized net of tax loss of $191 million at March 31, 2010. The improvement in the valuation of the investment securities portfolio was due to tightening credit spreads and a decline in interest rates.
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Capital ratios (a) June 30, March 31, June 30,
2010 2010 2009
-------------------------------------------------------------------------
Tier 1 capital ratio 13.5% 13.3% 12.5%
Total (Tier 1 plus Tier 2) capital ratio 17.2 17.2 16.0
Leverage capital ratio 6.6 6.5 7.6
Common shareholders' equity to total
assets ratio (b) 12.9 13.5 13.4
Tangible common shareholders' equity
to tangible assets of operations
ratio – Non-GAAP (b) 6.3 6.1 4.8
Tier 1 common equity to risk-weighted
assets ratio (b) 11.8 11.6 11.1
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(a) Includes discontinued operations. Preliminary.
(b) See the Supplemental information section beginning on page 10 for
a calculation of these ratios.
Declaration of quarterly dividend – On July 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 Aug. 10, 2010 to shareholders of record as of the close of business on July 30, 2010.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 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 $21.8 trillion in assets under custody and administration and $1.0 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. 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 June 30, 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 July 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 July 20, 2010. Replays of the conference call and audio webcast will be available beginning July 20, 2010 at approximately 2 p.m. EDT through Tuesday, Aug. 3, 2010 by dialing (866) 360-7726 (U.S.) or (203) 369-0178 (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 Quarter ended Year to date
per common share ------------------------------ -------------------
amounts and unless June 30, March 31, June 30, June 30, June 30,
otherwise noted) 2010 2010 2009 2010 2009
--------------------------------------------------------------------------
Continuing
operations
Return on common
equity
(annualized) (a) 8.8% 8.2% 4.0% 8.5% 4.9%
Non-GAAP
adjusted (a) 9.5% 10.6% 6.6% 10.0% 8.6%
Return on tangible
common equity
(annualized) –
Non-GAAP (a) 25.8% 25.8% 18.4% 25.7% 23.2%
Non-GAAP
adjusted (a) 25.5% 30.2% 24.0% 27.7% 33.3%
Fee and other
revenue as a
percent of total
revenue 77% 75% 76% 76% 75%
Annualized fee
revenue per
employee (based
on average
headcount)
(in thousands) $241 $244 $241 $243 $238
Percent of
non-U.S. fee
and net interest
revenue including
non-controlling
interests related
to consolidated
asset management
funds 35% 34% 31% 35% 30%
Pre-tax operating
margin (a) 30% 26% 17% 28% 18%
Non-GAAP
adjusted (a) 32% 34% 31% 33% 32%
Net interest
margin (FTE) 1.74% 1.89% 1.80% 1.82% 1.84%(b)
Selected average
balances
Interest-earning
assets $167,119 $163,429 $157,265 $165,285 $162,318(c)
Assets of
operations $216,801 $212,685 $208,533 $214,755 $214,294
Total assets $228,841 $225,415 $208,533 $227,138 $214,294
Interest-bearing
deposits $99,963 $101,034 $98,896 $100,496 $100,430(c)
Noninterest-
bearing
deposits $34,628 $33,330 $32,852 $33,983 $37,924(c)
Total The Bank of
New York Mellon
Corporation
shareholders'
equity $30,434 $29,715 $28,934 $30,076 $28,458
Average common
shares and
equivalents
outstanding
(in thousands):
Basic 1,204,557 1,202,533 1,171,081 1,203,554 1,158,649
Diluted 1,208,830 1,206,286 1,174,466 1,207,578 1,160,620
Period-end data
Assets under
management
(in billions) $1,047 $1,105 $926 $1,047 $926
Assets under
custody and
administration
(in trillions) $21.8 $22.4 $20.7 $21.8 $20.7
Cross-border
assets
(in trillions) $8.3 $8.8 $7.8 $8.3 $7.8
Market value of
securities on
loan (in
billions) (d) $248 $253 $290 $248 $290
Employees 42,700 42,300 41,800 42,700 41,800
Book value per
common share
– GAAP (a) $25.04 $24.47 $22.68 $25.04 $22.68
Tangible book
value per
common share
– Non-GAAP (a) $9.33 $8.69 $6.60 $9.33 $6.60
Cash dividends
per common
share $0.09 $0.09 $0.09 $0.18 $0.33
Closing common
stock price
per common
share $24.69 $30.88 $29.31 $24.69 $29.31
Market
capitalization $29,975 $37,456 $35,255 $29,975 $35,255
--------------------------------------------------------------------------
(a) See Supplemental information beginning on page 10 for a calculation
of these ratios.
(b) 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 Year to date
----------------------------- ------------------
June 30, March 31, June 30, June 30, June 30,
(in millions) 2010 2010 2009 2010 2009
-------------------------------------------------------------------------
Fee and other revenue
Securities servicing
fees:
Asset servicing $668 $637 $671 $1,305 $1,280
Issuer services 354 333 372 687 736
Clearing services 245 230 250 475 503
-------------------------------------------------------------------------
Total securities
servicing fees 1,267 1,200 1,293 2,467 2,519
Asset and wealth
management fees 676 678 637 1,354 1,253
Foreign exchange and
other trading
activities 220 262 237 482 544
Treasury services 125 131 132 256 257
Distribution and
servicing 77 76 107 153 218
Financing-related fees 48 50 54 98 102
Investment income 72 108 44 180 27
Other 73 37 9 110 24
-------------------------------------------------------------------------
Total fee revenue 2,558 2,542 2,513 5,100 4,944
Net securities
gains (losses) 13 7 (256) 20 (551)
-------------------------------------------------------------------------
Total fee and
other revenue 2,571 2,549 2,257 5,120 4,393
Operations of
consolidated asset
management funds
Investment income 188 155 - 343 -
Interest of asset
management fund
note holders 123 90 - 213 -
Income of
consolidated
asset management
funds 65 65 - 130 -
Net interest revenue
Interest revenue 862 883 845 1,745 1,824
Interest expense 140 118 145 258 349
-------------------------------------------------------------------------
Net interest revenue 722 765 700 1,487 1,475
Provision for credit
losses 20 35 61 55 120
-------------------------------------------------------------------------
Net interest revenue
after provision for
credit losses 702 730 639 1,432 1,355
Noninterest expense
Staff 1,234 1,220 1,153 2,454 2,322
Professional, legal and
other purchased
services 256 241 237 497 474
Net occupancy 143 137 142 280 281
Distribution and
servicing 106 109 106 215 213
Software 91 94 93 185 174
Furniture and equipment 71 75 76 146 153
Business development 68 52 49 120 93
Sub-custodian 65 52 60 117 99
Other 201 350 294 551 496
-------------------------------------------------------------------------
Subtotal 2,235 2,330 2,210 4,565 4,305
Amortization of
intangible assets 98 97 108 195 215
Restructuring charges (15) 7 6 (8) 16
Merger and integration
expenses 14 26 59 40 127
-------------------------------------------------------------------------
Total noninterest
expense $2,332 $2,460 $2,383 $4,792 $4,663
-------------------------------------------------------------------------
Income
Income from continuing
operations before
income taxes 1,006 884 513 1,890 1,085
Provision for income
taxes 304 258 12 562 173
-------------------------------------------------------------------------
Income from
continuing
operations 702 626 501 1,328 912
Discontinued operations:
Loss from discontinued
operations (16) (70) (144) (86) (209)
Benefit for income
taxes (6) (28) (53) (34) (77)
-------------------------------------------------------------------------
Loss from
discontinued
operations, net of
tax (10) (42) (91) (52) (132)
-------------------------------------------------------------------------
Net income 692 584 410 1,276 780
Net (income) loss
attributable to
noncontrolling interests (34)(a) (25)(a) 2 (59)(a) 1
Redemption charge and
preferred dividends - - (236) - (283)
-------------------------------------------------------------------------
Net income applicable
to common
shareholders of The
Bank of New York
Mellon Corporation $658 $559 $176 $1,217 $498
-------------------------------------------------------------------------
(a) Includes $33 million for the second quarter of 2010, $24 million
for the first quarter of 2010 and $57 million for the first six
months of 2010, related to consolidated asset management funds.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued
--------------------------------------------------------------------------
Earnings per common share
applicable to the common
shareholders of The Bank Quarter ended Year to date
of New York Mellon ----------------------------- ------------------
Corporation (a) June 30, March 31, June 30, June 30, June 30,
(in dollars) 2010 2010 2009 2010 2009
--------------------------------------------------------------------------
Basic:
Net income from
continuing operations $0.55 $0.50 $0.23 $1.04 $0.54
Net loss from
discontinued
operations (0.01) (0.04) (0.08) (0.04) (0.11)
--------------------------------------------------------------------------
Net income
applicable to
common stock $0.54 $0.46 $0.15 $1.00 $0.43
--------------------------------------------------------------------------
Diluted:
Net income from
continuing operations $0.55 $0.49 $0.23 $1.04 $0.54
Net loss from
discontinued
operations (0.01) (0.03) (0.08) (0.04) (0.11)
--------------------------------------------------------------------------
Net income
applicable to
common stock $0.54 $0.46 $0.15 $1.00 $0.43
--------------------------------------------------------------------------
(a) Basic and diluted earnings per share under the two-class method
were calculated after deducting earnings allocated to
participating securities of $2 million in the second quarter of
2009, $5 million in the first quarter of 2010, $7 million in the
second quarter of 2010, $12 million in the first six months of
2010 and $5 million in the first six months of 2009.
--------------------------------------------------------------------------
Reconciliation of net
income from continuing
operations applicable to
the common shareholders Quarter ended Year to date
of The Bank of New York ----------------------------- ------------------
Mellon Corporation June 30, March 31, June 30, June 30, June 30,
(in millions) 2010 2010 2009 2010 2009
--------------------------------------------------------------------------
Net income from
continuing operations $702 $626 $501 $1,328 $912
Net (income) loss
attributable to
noncontrolling interests (34) (25) 2 (59) 1
Redemption charge and
preferred dividends - - (236) - (283)
--------------------------------------------------------------------------
Net income from
continuing operations
applicable to common
shareholders of The
Bank of New York
Mellon Corporation 668 601 267 1,269 630
Net loss from
discontinued operations (10) (42) (91) (52) (132)
--------------------------------------------------------------------------
Net income applicable
to the common
shareholders of The
Bank of New York
Mellon Corporation $658 $559 $176 $1,217 $498
--------------------------------------------------------------------------
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
-----------------------------------------------------------------------
(dollar amounts in millions, June 30, Dec. 31,
except per share amounts) 2010 2009
-----------------------------------------------------------------------
Assets
Cash and due from:
Banks $3,569 $3,732
Interest-bearing deposits with the
Federal Reserve and other central banks 21,579 7,362
Interest-bearing deposits with banks 53,396 56,302
Federal funds sold and securities
purchased under resale agreements 4,453 3,535
Securities:
Held-to-maturity (fair value of
$3,698 and $4,240) 3,742 4,417
Available-for-sale (June 30, 2010
includes $580 previously securitized) 49,834 51,632
-----------------------------------------------------------------------
Total securities 53,576 56,049
Trading assets 7,393 6,001
Loans 37,147 36,689
Allowance for loan losses (542) (503)
-----------------------------------------------------------------------
Net loans 36,605 36,186
Premises and equipment 1,548 1,602
Accrued interest receivable 524 639
Goodwill 16,106 16,249
Intangible assets 5,354 5,588
Other assets 17,988 16,737
Assets of discontinued operations 342 2,242
-----------------------------------------------------------------------
Subtotal assets of operations 222,433 212,224
Assets of consolidated asset
management funds, at fair value:
Securities available-for-sale 5 -
Trading assets 543 -
Loans 12,070 -
Other assets 642 -
-----------------------------------------------------------------------
Subtotal assets of consolidated
asset management funds, at fair value 13,260 -
-----------------------------------------------------------------------
Total assets $235,693 $212,224
-----------------------------------------------------------------------
Liabilities
Deposits:
Noninterest-bearing (principally
domestic offices) $42,185 $33,477
Interest-bearing deposits in
domestic offices 32,994 32,944
Interest-bearing deposits in
foreign offices 68,488 68,629
-----------------------------------------------------------------------
Total deposits 143,667 135,050
Federal funds purchased and securities
sold under repurchase agreements 2,712 3,348
Trading liabilities 8,323 6,396
Payables to customers and broker-dealers 10,200 10,721
Commercial paper 7 12
Other borrowed funds 2,013 477
Accrued taxes and other expenses 4,645 4,484
Other liabilities (including allowance
for lending related commitments of
$103 and $125) 3,995 3,891
Long-term debt 16,754 17,234
Liabilities of discontinued operations - 1,608
-----------------------------------------------------------------------
Subtotal liabilities of operations 192,316 183,221
Liabilities and obligations of
consolidated asset management funds,
at fair value 12,272 -
-----------------------------------------------------------------------
Total liabilities 204,588 183,221
-----------------------------------------------------------------------
Equity
Common stock-par value $0.01 per common
share; authorized 3,500,000,000 common
shares; issued 1,215,948,532 and
1,208,861,641 common shares 12 12
Additional paid-in capital 22,073 21,917
Retained earnings 9,875 8,912
Accumulated other comprehensive loss,
net of tax (1,509) (1,835)
Less: Treasury stock of 1,906,851
and 1,026,927 common shares,
at cost (55) (29)
-----------------------------------------------------------------------
Total The Bank of New York Mellon
Corporation shareholders' equity 30,396 28,977
Noncontrolling interests 43 26
Noncontrolling interests of consolidated
asset management funds 666 -
-----------------------------------------------------------------------
Total equity 31,105 29,003
-----------------------------------------------------------------------
Total liabilities and equity $235,693 $212,224
-----------------------------------------------------------------------
Nonperforming assets
------------------------------------------------------------------------
Nonperforming assets June 30, March 31, June 30,
(dollar amounts in millions) 2010 2010 2009
------------------------------------------------------------------------
Loans:
Other residential mortgages $229 $204 $163
Wealth management 62 58 63
Commercial real estate 49 50 63
Commercial 40 40 43
Financial institutions 20 102 39
Foreign - - 1
------------------------------------------------------------------------
Total nonperforming loans 400 454 372
Other assets owned 6 5 6
------------------------------------------------------------------------
Total nonperforming assets $406(a) $459(a) $378
------------------------------------------------------------------------
Nonperforming loans ratio 1.1% 1.4% 1.0%
Allowance for loan losses/
nonperforming loans 135.5 114.5 116.7
Total allowance for credit losses/
nonperforming loans 161.3 140.5 141.4
------------------------------------------------------------------------
(a) The adoption of SFAS No. 167 (ASC 810) resulted in BNY Mellon
consolidating loans of consolidated asset management funds of
$12.1 billion at June 30, 2010 and $11.3 billion at March 31,
2010. Included in these loans are $131 million and $150 million
of nonperforming loans, respectively. These loans are not part
of BNY Mellon's loan portfolio. As a result, the nonperforming
loans of consolidated asset management funds are excluded from
the nonperforming assets of BNY Mellon. These loans are recorded
at fair value and therefore do not impact the provision for credit
losses and allowance for loan losses.
Nonperforming assets decreased $53 million compared with March 31, 2010. The decrease primarily resulted from repayments by financial institutions, partially offset by the addition of other residential mortgages.
Discontinued operations
On Jan. 15, 2010, BNY Mellon sold Mellon United National Bank ("MUNB"), its national bank subsidiary located in Florida. We have applied discontinued operations accounting to this business. The income statements for all periods in this Earnings Release are presented on a continuing operations basis. This business, which was previously reported in the Other segment, no longer fit our strategic focus on our asset management and securities servicing businesses. In the second quarter of 2010, we recorded an after-tax loss on discontinued operations of $10 million primarily reflecting lower of cost or market write-downs on the retained loans held for sale.
Consolidated net income applicable to common shareholders, including discontinued operations
Net income applicable to common shareholders, including discontinued operations, totaled $658 million, or $0.54 per common share, in the second quarter of 2010 compared with $176 million, or $0.15 per common share, in the second quarter of 2009 and $559 million, or $0.46 per common share, in the first quarter of 2010.
Regulatory Reform
In July 2010, Congress enacted regulatory reform legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the President is expected to sign into law on July 21, 2010. This new law broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector. Many aspects of the law are subject to further rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact to BNY Mellon or across the industry.
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 provides additional useful information to investors supplementing the Tier 1 capital ratio which is utilized by regulatory authorities. Unlike the Tier 1 capital ratio, the tangible common shareholders' equity ratio fully incorporates those changes in investment securities valuations which are reflected in total 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 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 special litigation reserves taken in the first quarter of 2010, restructuring charges, M&I expenses, the FDIC special assessment and intangible amortization expenses; and measures which utilize net income excluding tax items such as benefit of tax settlement. 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. The presentation of financial measures excluding special litigation reserves taken 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. Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions. Excluding the benefit of tax settlements permits investors to calculate the tax impact of BNY Mellon's 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.
----------------------------------------------------------------------
Asset and wealth 2Q10 vs.
management fee revenue --------------
(dollars in millions) 2Q10 1Q10 2Q09 1Q10 2Q09
----------------------------------------------------------------------
Asset and wealth
management fee revenue $676 $678 $637 -% 6%
Less: Performance fees 19 13 26
Add: Revenue from
consolidated
asset management
funds, net of
noncontrolling
interests 29 25 -
----------------------------------------------------------------------
Asset and wealth
management fee
revenue excluding
performance fees $686 $690 $611 (1)% 12%
----------------------------------------------------------------------
---------------------------------------------------------------------
Income from consolidated asset management funds, net of
noncontrolling interests
(in millions) 2Q10 1Q10
---------------------------------------------------------------------
Operations of consolidated asset management
funds $65 $65
Noncontrolling interests of consolidated
asset management funds 33 24
---------------------------------------------------------------------
Income from consolidated asset management
funds, net of noncontrolling interests $32 $41
---------------------------------------------------------------------
------------------------------------------------------------------------
Asset servicing revenue
(in millions) 2Q10 1Q10 2Q09
------------------------------------------------------------------------
Asset servicing revenue $668 $637 $671
Less: Securities lending fee revenue 46 29 97
------------------------------------------------------------------------
Asset servicing revenue excluding
securities lending fee revenue $622 $608 $574
------------------------------------------------------------------------
-------------------------------------------------------------------------
Reconciliation of income (loss) from continuing operations before
income taxes – pre-tax operating margin
(dollars in millions) 2Q10 1Q10 2Q09 YTD10 YTD09
-------------------------------------------------------------------------
Income (loss) from
continuing operations
before income
taxes – GAAP $1,006 $884 $513 $1,890 $1,085
Less: Net securities
gains (losses) 13 7 (256) 20 (551)
Noncontrolling
interests of
consolidated
asset
management funds 33 24 - 57 -
Add: Special litigation
reserves N/A 164 N/A 164 N/A
FDIC special
assessment - - 61 - 61
Restructuring
charges (15) 7 6 (8) 16
M&I expenses 14 26 59 40 127
Intangible
amortization 98 97 108 195 215
-------------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes
excluding net securities
gains (losses),
noncontrolling interests
of consolidated asset
management funds, special
litigation reserves, FDIC
special assessment,
restructuring charges,
M&I expenses and
intangible amortization
– Non-GAAP $1,057 $1,147 $1,003 $2,204 $2,055
Fee and other revenue
– GAAP $2,571 $2,549 $2,257 $5,120 $4,393
Income of consolidated
asset management
funds – GAAP 65 65 - 130 -
Net interest revenue
– GAAP 722 765 700 1,487 1,475
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Total revenue – GAAP 3,358 3,379 2,957 6,737 5,868
Less: Net securities
gains (losses) 13 7 (256) 20 (551)
Noncontrolling
interests of
consolidated
asset
management
funds 33 24 - 57 -
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Total revenue excluding
net securities gains
(losses) and
noncontrolling
interests of
consolidated asset
management
funds – Non-GAAP $3,312 $3,348 $3,213 $6,660 $6,419
Pre-tax operating
margin (a) 30% 26% 17% 28% 18%
Pre-tax operating
margin excluding net
securities gains
(losses),
noncontrolling
interests of
consolidated asset
management funds,
special litigation
reserves, FDIC
special assessment,
restructuring charges,
M&I expenses and
intangible
amortization –
Non-GAAP (a) 32% 34% 31% 33% 32%
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(a) Income (loss) before taxes divided by total revenue.
N/A – Not applicable.
--------------------------------------------------------------------------
Return on common equity and tangible common equity – continuing operations
(dollars in millions) 2Q10 1Q10 2Q09 YTD10 YTD09
--------------------------------------------------------------------------
Net income applicable to
common shareholders of
The Bank of New York
Mellon Corporation
- GAAP $658 $559 $176 $1,217 $498
Less: Discontinued
operations
income (loss),
net of tax (10) (42) (91) (52) (132)
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Net income from
continuing operations
applicable to common
shareholders of The
Bank of New York
Mellon Corporation 668 601 267 1,269 630
Add: Intangible
amortization 60 62 67 122 133
--------------------------------------------------------------------------
Net income from
continuing operations
applicable to common
shareholders of The
Bank of New York
Mellon Corporation
excluding intangible
amortization –
Non-GAAP 728 663 334 1,391 763
Less: Net securities
gains (losses) 8 5 (161) 13 (344)
Add: Special litigation
reserves N/A 98 N/A 98 N/A
FDIC special
assessment - - 36 - 36
Restructuring
charges (9) 5 4 (4) 11
M&I expenses 9 16 36 25 77
Benefit of tax
settlements - - (134) - (134)
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Net income from
continuing operations
excluding intangible
amortization, net
securities gains
(losses), special
litigation reserves,
FDIC special assessment,
restructuring charges,
M&I expenses and benefit
of tax settlements –
Non-GAAP $720 $777 $437 $1,497 $1,097
Average common
shareholders' equity $30,434 $29,715 $26,566 $30,076 $25,881
Less: Average
goodwill 16,073 16,143 15,989 16,108 15,913
Average
intangible
assets 5,421 5,513 5,673 5,466 5,713
Add: Deferred tax
liability – tax
deductible
goodwill 746 720 643 746 643
Deferred tax
liability –
non-tax
deductible
intangible
assets 1,649 1,660 1,743 1,649 1,743
--------------------------------------------------------------------------
Average tangible common
shareholders' equity
– Non-GAAP $11,335 $10,439 $7,290 $10,897 $6,641
Return on common
equity– GAAP (a) 8.8% 8.2% 4.0% 8.5% 4.9%
Return on common equity
excluding intangible
amortization, net
securities gains
(losses), special
litigation reserves,
FDIC special
assessment,
restructuring charges,
M&I expenses and
benefit of tax
settlements –
Non-GAAP (a) 9.5% 10.6% 6.6% 10.0% 8.6%
Return on tangible
common equity –
Non-GAAP (a) 25.8% 25.8% 18.4% 25.7% 23.2%
Return on tangible
common equity excluding
net securities gains
(losses), special
litigation reserves,
FDIC special assessment,
restructuring charges,
M&I expenses and benefit
of tax settlements
– Non-GAAP (a) 25.5% 30.2% 24.0% 27.7% 33.3%
--------------------------------------------------------------------------
(a) Annualized.
N/A – Not applicable.
--------------------------------------------------------------------------
Equity to assets and book
value per common share
(dollars in millions, June 30, March 31, June 30,
unless otherwise noted) 2010 2010 2009
--------------------------------------------------------------------------
Common shareholders' equity at
period end - GAAP $30,396 $29,683 $27,276
Less: Goodwill 16,106 16,077 16,040
Intangible assets 5,354 5,449 5,677
Add: Deferred tax liability – tax
deductible goodwill 746 720 643
Deferred tax liability –
non-tax deductible intangible
assets 1,649 1,660 1,743
--------------------------------------------------------------------------
Tangible common shareholders' equity
at period end – Non-GAAP $11,331 $10,537 $7,945
Total assets at period end - GAAP $235,693 $220,551 $203,012
Less: Assets of consolidated asset
management funds 13,260 12,568 -
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Total assets of operations –
Non-GAAP 222,433 207,983 203,012
Less: Goodwill 16,106 16,077 16,040
Intangible assets 5,354 5,449 5,677
Cash on deposit with the Federal
Reserve and other central
banks (a) 21,548 14,709 16,458
--------------------------------------------------------------------------
Tangible total assets of operations at
period end – Non-GAAP $179,425 $171,748 $164,837
Common shareholders' equity to total
assets – GAAP 12.9% 13.5% 13.4%
Tangible common shareholders' equity to
tangible total assets of operations –
Non-GAAP 6.3% 6.1% 4.8%
Period end common shares outstanding
(in thousands) 1,214,042 1,212,941 1,202,828
Book value per common share $25.04 $24.47 $22.68
Tangible book value per common
share – Non-GAAP $9.33 $8.69 $6.60
--------------------------------------------------------------------------
(a) Assigned a zero percent risk weighting by the regulators.
-------------------------------------------------------------------------
Calculation of Tier 1 common equity
to risk-weighted assets ratio (a) June 30, March 31, June 30,
(dollars in millions) 2010 2010 2009
-------------------------------------------------------------------------
Total Tier 1 capital $13,857 $13,426 $15,044
Less: Trust preferred securities 1,663 1,667 1,691
-------------------------------------------------------------------------
Total Tier 1 common equity $12,194 $11,759 $13,353
Total risk-weighted assets $102,969 $101,197 $120,566
Tier 1 common equity to risk-weighted
assets ratio 11.8% 11.6% 11.1%
-------------------------------------------------------------------------
(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 and joint ventures, including the expected impact on earnings and the timing of anticipated closing, and our preliminary assessment of the impact of regulatory reform legislation. 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 July 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.