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BNY Mellon Reports Third Quarter Continuing EPS of $0.51 Including $0.04 of M&I and Restructuring Expenses

Oct 19, 2010

Record Level of Assets Under Management of $1.14 Trillion, Up 18% vs. Prior Year

Continued Strong Flows in Asset and Wealth Management

  • $11 Billion of Net Long-Term Inflows
  • $18 Billion of Net Short-Term Inflows

Record Level of Assets Under Custody/Administration of $24.4 Trillion, Up 10% vs. Prior Year

Securities Servicing Fees Benefited From Acquisitions and New Business Growth

Post Acquisitions - Tier 1 12.2%, Tier 1 Common 10.7%

NEW YORK, October 19, 2010 — The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter income from continuing operations applicable to common shareholders of $625 million, or $0.51 per common share, compared with a loss of $2,439 million, or $2.04 per common share, in the third quarter of 2009 and income of $668 million, or $0.55 per common share, in the second quarter of 2010.

"During the quarter, we successfully completed the GIS and BHF Asset Servicing acquisitions.  The acquisitions, combined with the underlying resilience of our business model, helped to offset weakness in the capital markets.  The strength of our balance sheet and meaningful capital generation position us well to meet the proposed new capital standards," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.

Third Quarter Results - Unless otherwise noted, all comments begin with the results of the third quarter of 2010 and are compared to the third 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 a detailed review of our businesses.

Total revenue


 		  

Reconciliation of total revenue
 
 
 
 
 

3Q10 vs.

  

(dollar amounts in millions)

3Q10
 

2Q10
 

3Q09

3Q09

2Q10

  

Fee and other revenue (loss) – GAAP

$2,668
 

$2,555
 

$(2,223)
 
 		  

Less: Net securities gains (losses)

6
 

13
 

(4,833)
 
 		  

   Total fee revenue – GAAP

2,662
 

2,542
 

2,610

2%

5%

  

Income from consolidated asset management funds, net of noncontrolling interests

49

(a)

32

(a)

-
 
 		  

   Total fee revenue – Non-GAAP

2,711
 

2,574
 

2,610

4%

5%

  

Net interest revenue – GAAP

718
 

722
 

716
 
 		  

Total revenue excluding net securities gains (losses) – Non-GAAP

$3,429

(b)

$3,296

(b)

$3,326

3%

4%

  

(a)  Includes $36 million and $29 million previously reported as asset and wealth management fee revenue and $13 million and $3 million previously reported as investment and other income in the third and second quarters of 2010, respectively.

  

(b) Total revenue on a GAAP basis was $3,423 million and $3,342 million in the third and second quarters of 2010 respectively.  Total revenue from the Acquisitions was $235 million in the third quarter of 2010.

  
                 


 
  • Assets under custody and administration amounted to $24.4 trillion at Sept. 30, 2010, an increase of 10% compared with the prior year and 12% sequentially.  Both increases primarily reflect the acquisitions of Global Investment Servicing ("GIS") on July 1, 2010 and BHF Asset Servicing GmbH ("BAS") on Aug. 2, 2010 (collectively, "the Acquisitions"), as well as higher market values and new business.  Assets under management, excluding securities lending assets, amounted to $1.14 trillion at Sept. 30, 2010.  This represents an increase of 18% compared with the prior year and 9% sequentially.  The year-over-year increase was primarily due to the acquisition of Insight Investment Management ("Insight"), higher market values and new business.  The sequential increase primarily reflects higher market values and new business.
  • Securities servicing fees totaled $1.5 billion, an increase of 20% year-over-year and 17% sequentially.  Both increases reflect the impact of the Acquisitions.  Year-over-year results also reflect higher asset servicing revenue as a result of higher market values and new business and higher issuer services revenue from increased depositary receipts, while clearing services revenue was negatively impacted by lower transaction volumes and lower money market related distribution fees.  The sequential comparison also reflects higher asset servicing and issuer services revenue, primarily depositary receipts, offset by lower clearing services revenue.  Securities lending fee revenue totaled $38 million in the third quarter of 2010 compared with $43 million in the prior year period and $46 million sequentially.
  • Asset and wealth management fees were $696 million in the third quarter of 2010.  Adjusted for performance fees and income from consolidated asset management funds, net of noncontrolling interests, these fees totaled $716 million, an increase of 8% compared with the prior year period and 3% sequentially (see page 10).  The year-over-year increase reflects the impact of the Insight acquisition, improved market values, and net new business.  The sequential increase reflects the impact of net new business and higher market values.
  • Foreign exchange and other trading revenue totaled $146 million compared with $246 million in the prior year period and $220 million in the second quarter of 2010.  In the third quarter of 2010, foreign exchange revenue totaled $160 million, a decrease of 35% sequentially, driven by seasonality and lower volatility.  Other trading revenue was a negative $14 million in the third quarter of 2010, largely due to a decline in long-term interest rates.
  • Investment and Other income totaled $97 million, a decrease of $108 million year-over-year and $48 million sequentially.  The year-over-year decrease reflects lower lease residual gains and a gain on the sale of VISA shares in the third quarter of 2009.  The sequential decrease was primarily driven by lower foreign currency translation revenue.
  • Net interest revenue and the net interest margin (FTE) were $718 million and 1.67% compared with $722 million and 1.74% sequentially.  The sequential decline in net interest revenue reflects lower spreads, partially offset by the impact of higher average interest-earning assets.
  • Investment securities pre-tax net gain totaled $6 million compared with a pre-tax loss of $4.8 billion in the third quarter of 2009 and a $13 million pre-tax net gain in the second quarter of 2010.  The loss in the third quarter of 2009 primarily reflects the charge for restructuring the investment securities portfolio.


 

The provision for credit losses was a credit of $22 million in the third quarter of 2010 compared with a charge of $20 million in the second quarter of 2010 and a charge of $147 million in the third quarter of 2009.  The decrease in the provision year-over-year and sequentially reflects a decline of 26% in criticized assets in the third quarter of 2010.

Total noninterest expense

  

 
 
 
 
 
 
 		  

Reconciliation of noninterest expense
 

3Q10 vs.

  

(dollar amounts in millions)

3Q10
 

2Q10

3Q09

3Q09

2Q10

  

Noninterest expense – GAAP

$2,611
 

$2,316

$2,311

13%

13%

  

Less:  Restructuring charges

15
 

(15)

(5)
 
 		  

          M&I expenses

56
 

14

54
 
 		  

          Amortization of intangible assets

111
 

98

104
 
 		  

Total noninterest expense – Non-GAAP

$2,429

(a)

$2,219

$2,158

13%

9%

  

(a) Noninterest expense from the Acquisitions was $185 million in the third quarter of 2010.

  
             


 
  • Total noninterest expense (excluding restructuring charges, M&I expenses and amortization of intangible assets) (Non-GAAP) increased 13% compared with the prior year period and 9% sequentially.  Both increases primarily reflect the impact of the Acquisitions.  The increase compared with the prior year period also reflects the Insight acquisition, higher compensation expense, business development, software and litigation expenses.  The sequential increase also reflects higher litigation and software expenses.


 

The effective tax rate was 26.4% on a GAAP basis and 27.3% on an operating basis (Non-GAAP) in the third quarter of 2010 reflecting a discrete benefit of approximately $0.02 per common share, largely driven by a change in state and local tax laws.

The unrealized net of tax gain on our total investment securities portfolio was $319 million at Sept. 30, 2010 compared with $114 million at June 30, 2010.  The improvement in the valuation of the investment securities portfolio was due to the decline in interest rates and the tightening of credit spreads.

Capital ratios (a)

Sept. 30,

June 30,

Sept. 30,

  

 

2010

2010

2009

  

Tier 1 capital ratio

12.2%

13.5%

11.4%

  

Total (Tier 1 plus Tier 2) capital ratio

15.7

17.2

15.3

  

Leverage capital ratio

5.9

6.6

6.5

  

Common shareholders' equity to total assets ratio (b)

12.7

12.9

13.3

  

Tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP (b)

5.3

6.3

5.2

  

Tier 1 common equity to risk-weighted assets ratio (b)

10.7

11.9

9.9

  

(a) Includes discontinued operations.  Preliminary.

  

(b) See the Supplemental information section beginning on page 9 for a calculation of these ratios.

  
       


 

The sequential decrease in the capital ratios primarily reflects the Acquisitions, partially offset by the issuance of $677 million (25.9 million shares) of common equity via a forward sale agreement that settled in mid-September 2010 and earnings retention.  The Acquisitions, net of the equity raise, reduced the Tier 1 and Tier 1 common ratios by approximately 185 basis points and the tangible common shareholders' equity ratio by approximately 100 basis points.

Declaration of quarterly dividend – On Oct. 19, 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 Nov. 9, 2010 to shareholders of record as of the close of business on Oct. 29, 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 $24.4 trillion in assets under custody and administration and $1.14 trillion in assets under management, services $12.0 trillion in outstanding debt and processes global payments averaging $1.6 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 Sept. 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 Oct. 19, 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 Oct. 19, 2010.  Replays of the conference call and audio webcast will be available beginning Oct. 19, 2010 at approximately 2 p.m. EDT through Tuesday, Nov. 2, 2010 by dialing (866) 479-2460 (U.S.) or (203) 369-1535 (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
 

Year-to-date
 		  

(dollar amounts in millions, except per common

Sept. 30,

2010

June 30,

2010

Sept. 30,

2009
 

Sept. 30,

2010

Sept. 30,

2009
 		  

share amounts and unless otherwise noted)

  

Continuing operations
 
 
 
 
 
 
 		  

Return on common equity (annualized) (a)

7.8%

8.8%

N/M
 

8.3%

N/M
 		  

 Non-GAAP adjusted (a)

9.2%

9.5%

9.9%
 

9.7%

9.0%
 		  

 
 
 
 
 
 
 
 		  

Return on tangible common equity (annualized) – Non-GAAP (a)

26.3%

25.8%

N/M
 

25.9%

N/M
 		  

 Non-GAAP adjusted (a)

27.9%

25.5%

31.5%
 

27.8%

32.6%
 		  

 
 
 
 
 
 
 
 		  

Fee and other revenue as a percent of total revenue excluding securities gains (losses)

78%

76%

78%
 

77%

78%
 		  

 
 
 
 
 
 
 
 		  

Annualized fee revenue per employee (based on average headcount)
 
 
 
 
 
 
 		  

(in thousands)

$234

$240

$247
 

$238

$241
 		  

 
 
 
 
 
 
 
 		  

Percent of non-U.S. fee and net interest revenue including non-controlling interests related to consolidated asset management funds

36%

35%

31%
 

35%

30%
 		  

 
 
 
 
 
 
 
 		  

Pre-tax operating margin (a)

24%

30%

N/M
 

27%

N/M
 		  

Non-GAAP adjusted (a)

30%

32%

31%
 

32%

32%
 		  

 
 
 
 
 
 
 
 		  

Net interest margin (FTE)

1.67%

1.74%

1.85%
 

1.77%

1.84%
 		  

 
 
 
 
 
 
 
 		  

Selected average balances
 
 
 
 
 
 
 		  

Interest-earning assets

$172,759

$167,119

$155,159
 

$167,804

$159,916

(b)

  

Assets of operations

$226,378

$216,801

$205,786
 

$218,672

$211,427
 		  

Total assets

$240,325

$228,841

$205,786
 

$231,582

$211,427
 		  

Interest-bearing deposits

$104,033

$99,963

$93,632
 

$101,687

$98,140

(b)

  

Noninterest-bearing deposits

$33,198

$34,628

$34,920
 

$33,718

$36,915

(b)

  

Total The Bank of New York Mellon Corporation shareholders' equity

$31,834

$30,434

$28,144
 

$30,669

$28,352
 		  

 
 
 
 
 
 
 
 		  

Average common shares and equivalents outstanding (in thousands):
 
 
 
 
 
 
 		  

 Basic

1,210,534

1,204,557

1,197,414
 

1,205,911

1,171,675
 		  

 Diluted

1,212,684

1,208,830

1,197,414

(c)

1,209,688

1,171,675

(c)

  

 
 
 
 
 
 
 
 		  

Period-end data
 
 
 
 
 
 
 		  

Assets under management (in billions)

$1,141

$1,047

$966
 

$1,141

$966
 		  

Assets under custody and administration (in trillions)

$24.4

$21.8

$22.1
 

$24.4

$22.1
 		  

 Cross-border assets (in trillions)

$8.8

$8.3

$8.6
 

$8.8

$8.6
 		  

Market value of securities on loan (in billions) (d)

$279

$248

$299
 

$279

$299
 		  

 
 
 
 
 
 
 
 		  

Employees

47,700

42,700

42,000
 

47,700

42,000
 		  

 
 
 
 
 
 
 
 		  

Book value per common share – GAAP (a)

$25.92

$25.04

$23.50
 

$25.92

$23.50
 		  

Tangible book value per common share – Non-GAAP (a)

$8.59

$9.33

$7.54
 

$8.59

$7.54
 		  

Cash dividends per common share

$0.09

$0.09

$0.09
 

$0.27

$0.42
 		  

Closing common stock price per common share

$26.13

$24.69

$28.99
 

$26.13

$28.99
 		  

Market capitalization

$32,413

$29,975

$34,911
 

$32,413

$34,911
 		  

(a) See Supplemental information beginning on page 9 for a calculation of these ratios.

  

(b) Excludes the impact of discontinued operations.

  

(c) 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 have resulted in anti-dilution.

  

(d) Represents the securities on loan, both cash and non-cash, managed by the Asset Servicing business.

  

N/M – Not meaningful.

  
               


 

THE BANK OF NEW YORK MELLON CORPORATION

  

Condensed Consolidated Income Statement

  

 		  

 

Quarter ended
 

Year-to-date

  

 

Sept. 30,
 

June 30,
 

Sept. 30,
 

Sept. 30,
 

Sept. 30,

  

(in millions)

2010
 

2010
 

2009
 

2010
 

2009

  

Fee and other revenue
 
 
 
 
 
 
 
 
 		  

Securities servicing fees:
 
 
 
 
 
 
 
 
 		  

 Asset servicing

$870
 

$668
 

$643
 

$2,175
 

$1,923

  

 Issuer services

364
 

354
 

359
 

1,051
 

1,095

  

 Clearing services

252
 

245
 

236
 

727
 

739

  

   Total securities servicing fees

1,486
 

1,267
 

1,238
 

3,953
 

3,757

  

Asset and wealth management fees

696
 

686
 

664
 

2,068
 

1,931

  

Foreign exchange and other trading revenue

146
 

220
 

246
 

628
 

790

  

Treasury services

132
 

125
 

128
 

388
 

385

  

Distribution and servicing

56
 

51
 

73
 

155
 

269

  

Financing-related fees

49
 

48
 

56
 

147
 

158

  

Investment and other income

97
 

145
 

205
 

387
 

256

  

   Total fee revenue

2,662
 

2,542
 

2,610
 

7,726
 

7,546

  

Net securities gains (losses)

6
 

13
 

(4,833)
 

26
 

(5,384)

  

   Total fee and other revenue (loss)

2,668
 

2,555
 

(2,223)
 

7,752
 

2,162

  

Operations of consolidated asset management funds
 
 
 
 
 
 
 
 
 		  

Investment income

144
 

188
 

-
 

487
 

-

  

Interest of asset management fund note holders

107
 

123
 

-
 

320
 

-

  

   Income of consolidated asset management funds

37
 

65
 

-
 

167
 

-

  

Net interest revenue
 
 
 
 
 
 
 
 
 		  

Interest revenue

875
 

862
 

829
 

2,620
 

2,653

  

Interest expense

157
 

140
 

113
 

415
 

462

  

   Net interest revenue

718
 

722
 

716
 

2,205
 

2,191

  

Provision for credit losses

(22)
 

20
 

147
 

33
 

267

  

   Net interest revenue after provision for credit losses

740
 

702
 

569
 

2,172
 

1,924

  

Noninterest expense
 
 
 
 
 
 
 
 
 		  

Staff

1,344
 

1,234
 

1,157
 

3,798
 

3,479

  

Professional, legal and other purchased services

282
 

256
 

265
 

779
 

739

  

Software and equipment

187
 

162
 

171
 

518
 

498

  

Net occupancy

150
 

143
 

142
 

430
 

423

  

Distribution and servicing

94
 

90
 

97
 

273
 

302

  

Business development

63
 

68
 

45
 

183
 

138

  

Sub-custodian

60
 

65
 

49
 

177
 

148

  

Other

249
 

201
 

232
 

800
 

728

  

   Subtotal

2,429
 

2,219
 

2,158
 

6,958
 

6,455

  

Amortization of intangible assets

111
 

98
 

104
 

306
 

319

  

Restructuring charges

15
 

(15)
 

(5)
 

7
 

11

  

Merger and integration expenses

56
 

14
 

54
 

96
 

181

  

   Total noninterest expense

2,611
 

2,316
 

2,311
 

7,367
 

6,966

  

Income
 
 
 
 
 
 
 
 
 		  

Income (loss) from continuing operations before income taxes

834
 

1,006
 

(3,965)
 

2,724
 

(2,880)

  

Provision (benefit) for income taxes

220
 

304
 

(1,527)
 

782
 

(1,354)

  

   Income (loss) from continuing operations

614
 

702
 

(2,438)
 

1,942
 

(1,526)

  

Discontinued operations:
 
 
 
 
 
 
 
 
 		  

 Loss from discontinued operations

(6)
 

(16)
 

(29)
 

(92)
 

(238)

  

 Benefit for income taxes

(3)
 

(6)
 

(10)
 

(37)
 

(87)

  

   Loss from discontinued operations, net of tax

(3)
 

(10)
 

(19)
 

(55)
 

(151)

  

   Net income (loss)

611
 

692
 

(2,457)
 

1,887
 

(1,677)

  

Net (income) loss attributable to noncontrolling interests

11

(a)

(34)

(a)

(1)
 

(48)

(a)

-

  

Redemption charge and preferred dividends

-
 

-
 

-
 

-
 

(283)

  

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation

$622
 

$658
 

$(2,458)
 

$1,839
 

$(1,960)

  

(a) Includes a loss of $12 million for the third quarter of 2010, and income of $(33) million for the second quarter of 2010 and $(45) million for the first nine 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

Quarter ended
 

Year-to-date

  

shareholders of The Bank of New York Mellon Corporation (a)

Sept. 30,

June 30,

Sept. 30,
 

Sept. 30,
 

Sept. 30,

  

(in dollars)

2010

2010

2009
 

2010
 

2009

  

Basic:
 
 
 
 
 
 
 		  

 Net income (loss) from continuing operations

$0.51

$0.55

$(2.04)
 

$1.56
 

$(1.54)

  

 Net loss from discontinued operations

-

(0.01)

(0.02)
 

(0.05)
 

(0.13)

  

   Net income (loss) applicable to common stock

$0.51

$0.54

$(2.05)

(b)

$1.51
 

$(1.67)

  

Diluted (c):
 
 
 
 
 
 
 		  

 Net income (loss) from continuing operations

$0.51

$0.55

$(2.04)
 

$1.55
 

$(1.54)

  

 Net loss from discontinued operations

-

(0.01)

(0.02)
 

(0.05)
 

(0.13)

  

   Net income (loss) applicable to common stock

$0.51

$0.54

$(2.05)

(b)

$1.51

(b)

$(1.67)

  

(a) Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating securities of $5 million in the third quarter of 2010, $7 million in the second quarter of 2010, $- million in the third quarter of 2009, $17 million in the first nine months of 2010 and $- million in the first nine months of 2009.

  

(b) Does not foot due to rounding.

  

(c) 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

Quarter ended
 

Year-to-date

  

  Bank of New York Mellon Corporation

Sept. 30,

June 30,

Sept. 30,
 

Sept. 30,

Sept. 30,

  

(in millions)

2010

2010

2009
 

2010

2009

  

Net income (loss) from continuing operations

$614

$702

$(2,438)
 

$1,942

$(1,526)

  

Net (income) loss attributable to noncontrolling interests

11

(34)

(1)
 

(48)

-

  

Redemption charge and preferred dividends

-

-

-
 

-

(283)

  

 Net income (loss) from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation

625

668

(2,439)
 

1,894

(1,809)

  

Net loss from discontinued operations

(3)

(10)

(19)
 

(55)

(151)

  

 Net income (loss) applicable to the common shareholders of The Bank of New York Mellon Corporation

$622

$658

$(2,458)
 

$1,839

$(1,960)

  

 
 
 
 
 
 
 		  

Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.

  
             


 

THE BANK OF NEW YORK MELLON CORPORATION

  

Consolidated Balance Sheet

  

 
 
 
 		  

 

Sept. 30,

June 30,

Dec. 31,

  

(dollar amounts in millions, except per share amounts)

2010

2010

2009

  

Assets
 
 
 		  

Cash and due from:
 
 
 		  

 Banks

$3,693

$3,569

$3,732

  

 Interest-bearing deposits with the Federal Reserve and other central banks

15,765

21,579

7,362

  

Interest-bearing deposits with banks

60,293

53,396

56,302

  

Federal funds sold and securities purchased under resale agreements

4,735

4,453

3,535

  

Securities:
 
 
 		  

 Held-to-maturity (fair value of $3,867, $3,698 and $4,240)

3,862

3,742

4,417

  

 Available-for-sale (includes $481, $580 and $- previously securitized)

58,238

49,834

51,632

  

   Total securities

62,100

53,576

56,049

  

Trading assets

9,860

7,393

6,001

  

Loans

37,867

37,147

36,689

  

Allowance for loan losses

(534)

(542)

(503)

  

   Net loans

37,333

36,605

36,186

  

Premises and equipment

1,677

1,548

1,602

  

Accrued interest receivable

580

524

639

  

Goodwill

18,073

16,106

16,249

  

Intangible assets

5,818

5,354

5,588

  

Other assets

19,315

17,988

16,737

  

Assets of discontinued operations

310

342

2,242

  

   Subtotal assets of operations

239,552

222,433

212,224

  

Assets of consolidated asset management funds, at fair value:
 
 
 		  

 Trading assets

14,149

12,619

-

  

 Other assets

456

641

-

  

   Subtotal assets of consolidated asset management funds, at fair value

14,605

13,260

-

  

   Total assets

$254,157

$235,693

$212,224

  

Liabilities
 
 
 		  

Deposits:
 
 
 		  

 Noninterest-bearing (principally domestic offices)

$37,247

$42,185

$33,477

  

 Interest-bearing deposits in domestic offices

35,141

32,994

32,944

  

 Interest-bearing deposits in foreign offices

76,593

68,488

68,629

  

   Total deposits

148,981

143,667

135,050

  

Federal funds purchased and securities sold under repurchase agreements

3,301

2,712

3,348

  

Trading liabilities

10,102

8,323

6,396

  

Payables to customers and broker-dealers

10,895

10,200

10,721

  

Commercial paper

9

7

12

  

Other borrowed funds

2,220

2,013

477

  

Accrued taxes and other expenses

5,540

4,645

4,484

  

Other liabilities (including allowance for lending related commitments of $74, $103 and $125)

10,100

3,995

3,891

  

Long-term debt

16,720

16,754

17,234

  

Liabilities of discontinued operations

-

-

1,608

  

   Subtotal liabilities of operations

207,868

192,316

183,221

  

Liabilities of consolidated asset management funds, at fair value:
 
 
 		  

 Trading liabilities

13,397

12,269

-

  

 Other liabilities

1

3

-

  

   Subtotal liabilities of consolidated asset management funds, at fair value

13,398

12,272

-

  

     Total liabilities

221,266

204,588

183,221

  

Temporary equity
 
 
 		  

Redeemable noncontrolling interests

41

25

-

  

Permanent equity
 
 
 		  

Common stock-par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,243,448,825, 1,215,948,532 and 1,208,861,641 common shares

12

12

12

  

Additional paid-in capital

22,808

22,073

21,917

  

Retained earnings

10,386

9,875

8,912

  

Accumulated other comprehensive loss, net of tax

(969)

(1,509)

(1,835)

  

Less:  Treasury stock of 2,994,416, 1,906,851 and 1,026,927 common shares, at cost

(84)

(55)

(29)

  

 Total The Bank of New York Mellon Corporation shareholders' equity

32,153

30,396

28,977

  

Nonredeemable noncontrolling interests

20

18

26

  

Nonredeemable noncontrolling interests of consolidated asset management funds

677

666

-

  

 Total permanent equity

32,850

31,080

29,003

  

 Total liabilities, temporary equity and permanent equity

$254,157

$235,693

$212,224

  
       


 

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.  In the third quarter of 2010, we recorded an after-tax loss on discontinued operations of $3 million primarily reflecting lower of cost or market write-downs on the retained loans held for sale.

Consolidated net income (loss) applicable to common shareholders, including discontinued operations

Net income applicable to common shareholders, including discontinued operations, totaled $622 million, or $0.51 per common share, in the third quarter of 2010 compared with a net loss of $2,458 million, or $2.05 per common share, in the third quarter of 2009 and net income of $658 million, or $0.54 per common share, in the second quarter of 2010.

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 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, the FDIC special assessment, restructuring charges, M&I expenses and intangible amortization expenses; and measures which utilize net income excluding tax items such as benefit of tax settlements.  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 Acquisitions in the third quarter of 2010 and 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 businesses 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.  The investment securities portfolio is managed within the Other group of businesses.  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 funding 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 results of our 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.  The presentation of financial measures excluding special 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-level basis.

Income from consolidated asset management funds,

  

 net of noncontrolling interests

 

(in millions)

3Q10

2Q10

3Q09

YTD10

YTD09

  

Operations of consolidated asset management funds

$37

$65

$-

$167

$-

  

Less:  Noncontrolling interests of consolidated asset management funds

(12)

33

-

45

-

  

 Income from consolidated asset management funds,  net of noncontrolling interests

$49

$32

$-

$122

$-

  

 
 
 
 
 
 		  

Income from consolidated asset management funds, net of noncontrolling interests – previously disclosed as
 
 
 
 
 		  

(in millions)

3Q10

2Q10

3Q09

YTD10

YTD09

  

Asset and wealth management revenue

$36

$29

$-

$90

$-

  

Investment and other income

13

3

-

32

-

  

 Total

$49

$32

$-

$122

$-

  

 
 
 
 
 
 		  

Asset servicing revenue
 
 
 
 
 		  

(in millions)
 
 

3Q10

2Q10

3Q09

  

Asset servicing revenue
 
 

$870

$668

$643

  

Less:  Securities lending fee revenue
 
 

38

46

43

  

 Asset servicing revenue excluding securities lending fee revenue
 
 

$832

$622

$600

  

 
 
 
 
 
 		  

Asset and wealth management fee revenue
 
 
 

3Q10 vs.

  

(dollars in millions)

3Q10

2Q10

3Q09

3Q09

2Q10

  

Asset and wealth management fee revenue

$696

$686

$664

5%

1%

  

Less: Performance fees

16

19

1
 
 		  

Add: Revenue from consolidated asset management funds, net of noncontrolling interests

36

29

-
 
 		  

 Asset and wealth management fee revenue excluding performance fees

$716

$696

$663

8%

3%

  
           


 

Reconciliation of income (loss) from continuing operations before income taxes – pre-tax operating margin

  

(dollars in millions)

3Q10

2Q10

3Q09

YTD10

YTD09

  

Income (loss) from continuing operations before income taxes

– GAAP

$834

$1,006

$(3,965)

$2,724

$(2,880)

  

Less:  Net securities gains (losses)

6

13

(4,833)

26

(5,384)

  

          Noncontrolling interests of consolidated asset management funds

(12)

33

-

45

-

  

Add: Special litigation reserves

N/A

N/A

N/A

164

N/A

  

        FDIC special assessment

-

-

-

-

61

  

        Asset-based taxes

-

-

20

-

20

  

        Restructuring charges

15

(15)

(5)

7

11

  

        M&I expenses

56

14

54

96

181

  

        Intangible amortization

111

98

104

306

319

  

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, asset-based taxes, restructuring charges, M&I expenses and intangible amortization – Non-GAAP

$1,022

$1,057

$1,041

$3,226

$3,096

  

 
 
 
 
 
 		  

Fee and other revenue (loss) – GAAP

$2,668

$2,555

$(2,223)

$7,752

$2,162

  

Income of consolidated asset management funds – GAAP

37

65

-

167

-

  

Net interest revenue – GAAP

718

722

716

2,205

2,191

  

Total revenue (loss) – GAAP

3,423

3,342

(1,507)

10,124

4,353

  

Less: Net securities gains (losses)

6

13

(4,833)

26

(5,384)

  

         Noncontrolling interests of consolidated asset management funds

(12)

33

-

45

-

  

Total revenue excluding net securities gains (losses) and noncontrolling interests of consolidated asset management funds – Non-GAAP

$3,429

$3,296

$3,326

$10,053

$9,737

  

 
 
 
 
 
 		  

Pre-tax operating margin (a)

24%

30%

N/M

27%

N/M

  

Pre-tax operating margin excluding net securities gains (losses), noncontrolling interests of consolidated asset management funds, special litigation reserves, FDIC special assessment, asset-based taxes, restructuring charges, M&I expenses and intangible amortization – Non-GAAP (a)

30%

32%

31%

32%

32%

  

(a) Income (loss) before taxes divided by total revenue.

  

N/A – Not applicable.

  

N/M – Not meaningful.

  
           


 

Return on common equity and tangible common equity – continuing operations

  

(dollars in millions)

3Q10

2Q10

3Q09

YTD10

YTD09

  

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP

$622

$ 658

$(2,458)

$1,839

$(1,960)

  

Less: Loss from discontinued operations, net of tax

(3)

(10)

(19)

(55)

(151)

  

Net income (loss) from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation

625

668

(2,439)

1,894

(1,809)

  

Add: Intangible amortization

70

60

65

192

198

  

Net income (loss) from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation excluding intangible amortization – Non-GAAP

695

728

(2,374)

2,086

(1,611)

  

Less: Net securities gains (losses)

4

8

(3,047)

17

(3,392)

  

Add: Special litigation reserves

N/A

N/A

N/A

98

N/A

  

FDIC special assessment

-

-

-

-

36

  

Restructuring charges

8

(9)

(3)

4

8

  

M&I expenses

37

9

34

62

111

  

Benefit of tax settlements

-

-

-

-

(134)

  

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

$ 736

$ 720

$704

$2,233

$1,802

  

 
 
 
 
 
 		  

Average common shareholders' equity

$31,834

$30,434

$28,144

$30,669

$26,644

  

Less: Average goodwill

17,798

16,073

16,048

16,677

15,959

  

Average intangible assets

5,956

5,421

5,608

5,632

5,677

  

Add: Deferred tax liability – tax deductible goodwill

763

746

666

763

666

  

Deferred tax liability – non-tax deductible intangible assets

1,634

1,649

1,717

1,634

1,717

  

Average tangible common shareholders' equity – Non-GAAP

$10,477

$11,335

$8,871

$10,757

$7,391

  

 
 
 
 
 
 		  

Return on common equity– GAAP (a)

7.8%

8.8%

N/M

8.3%

N/M

  

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)

9.2%

9.5%

9.9%

9.7%

9.0%

  

 
 
 
 
 
 		  

Return on tangible common equity – Non-GAAP (a)

26.3%

25.8%

N/M

25.9%

N/M

  

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)

27.9%

25.5%

31.5%

27.8%

32.6%

  

(a) Annualized.

  

N/A – Not applicable.

  

N/M – Not meaningful.

  
           


 

Equity to assets and book value per common share

Sept. 30,

June 30,

Sept. 30,

  

(dollars in millions, unless otherwise noted)

2010

2010

2009

  

Common shareholders' equity at period end - GAAP

$32,153

$30,396

$28,295

  

Less: Goodwill

18,073

16,106

16,022

  

Intangible assets

5,818

5,354

5,574

  

Add: Deferred tax liability – tax deductible goodwill

763

746

666

  

Deferred tax liability – non-tax deductible intangible assets

1,634

1,649

1,717

  

Tangible common shareholders' equity at period end – Non-GAAP

$10,659

$11,331

$9,082

  

 
 
 
 		  

Total assets at period end - GAAP

$254,157

$235,693

$212,007

  

Less: Assets of consolidated asset management funds

14,605

13,260

-

  

Subtotal assets of operations – Non-GAAP

239,552

222,433

$212,007

  

Less: Goodwill

18,073

16,106

16,022

  

Intangible assets

5,818

5,354

5,574

  

Cash on deposit with the Federal Reserve and other central banks (a)

15,750

21,548

15,003

  

Tangible assets of operations at period end – Non-GAAP

$199,911

$179,425

$175,408

  

 
 
 
 		  

Common shareholders' equity to total assets – GAAP

12.7%

12.9%

13.3%

  

Tangible common shareholders' equity to tangible assets of operations – Non-GAAP

5.3%

6.3%

5.2%

  

 
 
 
 		  

Period end common shares outstanding (in thousands)

1,240,454

1,214,042

1,204,244

  

 
 
 
 		  

Book value per common share

$25.92

$25.04

$23.50

  

Tangible book value per common share – Non-GAAP

$8.59

$9.33

$7.54

  

(a) Assigned a zero percent risk weighting by the regulators.

  
       


 

Calculation of Tier 1 common equity to risk-weighted assets ratio (a)

Sept. 30,

June 30,

Sept. 30,

  

(dollars in millions)

2010

2010

2009

  

Total Tier 1 capital

$13,026

$13,857

$12,543

  

Less: Trust preferred securities

1,680

1,663

1,682

  

Total Tier 1 common equity

$11,346

$12,194

$10,861

  

 
 
 
 		  

Total risk-weighted assets

$106,460

$102,807

$110,135

  

 
 
 
 		  

Tier 1 common equity to risk-weighted assets ratio

10.7%

11.9%

9.9%

  

(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, our ability to meet the proposed new capital standards.  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, BNY Mellon's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of Oct. 19, 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.