July 19, 2011

BNY Mellon Reports Second Quarter Earnings of $735 Million or $0.59 Per Share


Versus Second Quarter 2010:

Total Revenue +15%, Fee Revenue +18%

  • Investment Management Fees +14%
  • Investment Services Fees +27%

Assets Under Management +22%

  • $32 Billion of Net Long Term Flows in 2Q11

Assets Under Custody/Administration +21%

Generated $803 Million of Tier 1 Common Equity in 2Q11

  • Tier 1 Common Ratio 12.6% and Return on Tier 1 Common 23%
  • Repurchased 9.8 Million Shares

NEW YORK, July 19, 2011 —The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE:BK) today reported second quarter net income applicable to common shareholders of $735 million, or $0.59 per common share, compared with net income applicable to common shareholders of $658 million, or $0.54 per common share, in the second quarter of 2010 and net income applicable to common shareholders of $625 million, or $0.50 per common share, in the first quarter of 2011.

"Fees and net interest revenue grew nicely over both the prior year and quarter, leading to EPS growth of 9% and 18%, respectively. Expense growth remained high due in part to legal and regulatory costs. We are taking additional actions to reduce expenses," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.

"Our balance sheet remains very strong, deposits grew substantially and our capital ratios rose after our dividend increase and stock repurchases," added Mr. Kelly.

Note:  See Supplemental information on pages 9 through 12 for the Tier 1 common ratio, return on Tier 1 common and the Tier 1 common equity generated in 2Q11.

Second Quarter Results - Unless otherwise noted, all comments begin with the results of the second quarter of 2011 and are compared to the second quarter of 2010, 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


 

 

 

2Q11 vs.

 

(dollar amounts in millions)

2Q11

1Q11

2Q10

2Q10

1Q11

 

Fee and other revenue – GAAP

$3,056 

$2,838 

$2,555


 

 
 

Less:  Net securities gains

48 

13


 

 
 

   Total fee revenue – GAAP

3,008 

2,833 

2,542

18%

6%

 

Income of consolidated investment management funds, net of noncontrolling interests (a)

42 

66 

32


 

 
 

Net interest revenue – GAAP

731 

698 

722


 

 
 

   Total revenue excluding net securities gains – Non-GAAP

$3,781(b)

$3,597(b)

$3,296

15%

5%

 

 

 

 

 

 

 
 

   Total revenue – GAAP

$3,850(b)

$3,646(b)

$3,342

15%

6%

 

 

 

 

 

 

 
 

(a) See the Supplemental Information section beginning on page 9.

 

(b) Total revenue from the Acquisitions (described below) was $274 million and $270 million in the second and first quarters of 2011.

 
           


 
  • Assets under custody and administration amounted to a record $26.3 trillion at June 30, 2011, an increase of 21% compared with the prior year and 3% sequentially.  The increase compared with June 30, 2010 reflects the acquisitions of Global Investment Servicing ("GIS") on July 1, 2010 and BHF Asset Servicing GmbH ("BAS") on Aug. 2, 2010 (collectively, "the Acquisitions"), net new business and the change in market values.  The sequential increase was driven by net new business.  Assets under management, excluding securities lending assets, amounted to a record $1.3 trillion at June 30, 2011.  This represents an increase of 22% compared with the prior year and 4% sequentially.  The year-over-year increase was driven by net new business and the change in market values.  The sequential increase was driven by net new business.
  • Investment services fees totaled $1.8 billion, an increase of 27% year-over-year and 4% sequentially.  The year-over-year increase reflects the impact of the Acquisitions.  Both the year-over-year and sequential increases reflect net new business, higher Depositary Receipts revenue and higher securities lending revenue, partially offset by higher money market fee waivers.
  • Investment management and performance fees were $779 million, an increase of 14% year-over-year and 2% sequentially.  The year-over-year increase reflects higher market values and net new business.  The sequential increase primarily reflects net new business.  Results in both periods were partially offset by higher money market fee waivers.
  • Foreign exchange and other trading revenue totaled $222 million compared with $220 million in the second quarter of 2010 and $198 million in the first quarter of 2011.  In the second quarter of 2011, foreign exchange revenue totaled $184 million, a decrease of 25% year-over-year and an increase of 6% sequentially.  The year-over-year decrease reflects lower volatility partially offset by higher volumes.  The increase sequentially primarily reflects higher volatility.  Other trading revenue was $38 million in the second quarter of 2011, an increase of $64 million compared with the second quarter of 2010 and $13 million compared with the first quarter of 2011.  Both increases were driven by higher fixed income trading revenue.  Additionally, the second quarter of 2010 included negative credit valuation adjustments ("CVA") related to derivatives.
  • Investment and other income totaled $145 million compared with $145 million in the prior year period and $81 million in the first quarter of 2011.  The $64 million increase sequentially primarily reflects gains related to loans held-for-sale retained from a previously divested banking subsidiary.  Year-over-year, the loan gains and higher seed capital and private equity investment revenue were offset by lower foreign currency translation and leasing gains.
  • Net securities gains of $48 million primarily resulted from the sale of longer dated U.S. Treasury and agency securities.
  • Net interest revenue and the net interest margin (FTE) were $731 million and 1.41% compared with $698 million and 1.49% sequentially.  The sequential increase in net interest revenue of 5% was primarily driven by growth in client deposits and the purchase of high quality securities, partially offset by lower spreads resulting from the continued impact of the low rate environment.


 

There was no provision for credit losses in the second quarter of 2011 compared with a charge of $20 million in the second quarter of 2010 and no provision in the first quarter of 2011.

Total noninterest expense

 

 

 

 

 

 

 
 

Reconciliation of noninterest expense


 

 

 

2Q11 vs.

 

(dollar amounts in millions)

2Q11

1Q11

2Q10

2Q10

1Q11

 

Noninterest expense – GAAP

$2,816 

$2,697 

$2,316

22%

4%

 

Less:  Amortization of intangible assets

108 

108 

98


 

 
 

   Restructuring charges

(7) 

(6) 

(15)


 

 
 

   M&I expenses

25 

17 

14


 

 
 

Total noninterest expense – Non-GAAP

$2,690(a)

$2,578(a)

$2,219

21%

4%

 

 

 

 

 

 

 
 

(a) Noninterest expense from the Acquisitions was $210 million and $203 million in the second and first quarters of 2011.

 
           


 
  • Total noninterest expense (excluding amortization of intangible assets, restructuring charges and merger and integration ("M&I") expenses) (Non-GAAP) increased 21% compared with the prior year period, primarily driven by the impact of the Acquisitions and higher litigation/legal expenses.  The year-over-year increase excluding the impact of the Acquisitions was 12%.  Both the year-over-year and sequential increases reflect the impact of the annual employee merit increase in the second quarter of 2011, as well as higher volume-related and business development expenses.


 

The effective tax rate was 26.9% in the second quarter of 2011, compared with 30.2% on a continuing operations basis in the second quarter of 2010, and 29.3% in the first quarter of 2011.  The lower tax rate in the second quarter of 2011 was due primarily to the impact of the consolidated investment management funds.  Adjusted for the impact of the consolidated investment management funds, the effective tax rate on an operating basis (non-GAAP) was 30.0% in the second quarter of 2011, compared with 30.8% in the second quarter of 2010 and 30.2% in the first quarter of 2011. See the Supplemental information section beginning on page 9.

The unrealized net of tax gain on our total investment securities portfolio was $408 million at June 30, 2011 compared with $279 million at March 31, 2011.  The increase in the valuation of the investment securities portfolio was driven by a decline in interest rates.

Capital ratios

June 30,

March 31,

June 30,

 

 

2011(a)

2011

2010

 

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (b)

6.6%

6.1%

   N/A

 

Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (c)(d)

12.6

12.4

11.9

 

Tier 1 capital ratio (c)

14.1

14.0

13.5

 

Total (Tier 1 plus Tier 2) capital ratio (c)

16.7

16.8

17.2

 

Leverage capital ratio (c)

5.8

6.1

6.6

 

Common shareholders' equity to total assets ratio (d)

11.1

12.5

12.9

 

Tangible common shareholders' equity to tangible assets of

 operations ratio – Non-GAAP (d)

6.0

5.9

6.3

 

 

 

 

 
 

(a) Preliminary.

 

(b) Our estimated Basel III Tier 1 common equity ratio (Non-GAAP) reflects our current interpretation of the Basel III rules.  Our estimated Basel III Tier 1 common equity  ratio could change in the future as the U.S. regulatory agencies implement Basel III or if our businesses change.

 

(c) On a regulatory basis as determined under Basel 1 guidelines.

 

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

 

N/A – Not applicable.

 
       


 

We generated $803 million of Basel I Tier 1 common equity in the second quarter of 2011, primarily driven by earnings retention.

In the second quarter of 2011, we increased our estimated Basel III Tier 1 common equity ratio by approximately 45 basis points, reflecting our strong capital generation and improving risk-weighted assets mix.  Given the strength of our balance sheet and ability to rapidly grow capital, we do not anticipate accelerating our timeline to meet the proposed Basel III capital guidelines.

Quarterly dividend – On July 19, 2011, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.13 per common share.  This cash dividend is payable on Aug. 9, 2011 to shareholders of record as of the close of business on July 29, 2011.

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, offering superior investment management and investment services through a worldwide client-focused team.  It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 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, 2011 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, vice chairman and 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 19, 2011.  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 (773) 799-3611 (international), and using the 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 19, 2011.  Replays of the conference call and audio webcast will be available beginning July 19, 2011 at approximately 2 p.m. EDT through Tuesday, Aug. 2, 2011 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

June 30,

March 31,

June 30,

June 30,

June 30,


 
 

share amounts and unless otherwise noted)

2011

2011

2010(a)

2011

2010(a)


 
 

 

 

 

 

 

 

 
 

Return on common equity (annualized)(b)

8.8%

7.7%

8.8%

8.3%

8.5%


 
 

 

 

 

 

 

 

 
 

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

26.3%

24.3%

25.7%

25.3%

25.7%


 
 

 

 

 

 

 

 

 
 

Fee revenue as a percentage of total revenue excluding net securities gains

79%

78%

76%

78%

76%


 
 

 

 

 

 

 

 

 
 

Annualized fee revenue per employee (based on average headcount) (in thousands)

$248

$238

$240

$243

$241


 
 

 

 

 

 

 

 

 
 

Percentage of non-U.S. total revenue

37%

37%

35%

37%

35%


 
 

 

 

 

 

 

 

 
 

Pre-tax operating margin(b)

27%

26%

30%

26%

28%


 
 

 Non-GAAP adjusted(b)

29%

28%

32%

29%

33%


 
 

 

 

 

 

 

 

 
 

Net interest margin (FTE)

1.41%

1.49%

1.74%

1.43%

1.82%


 
 

 

 

 

 

 

 

 
 

Selected average balances


 

 

 

 

 

 
 

Interest-earning assets

$209,933

$190,185

$167,119

$200,114

$165,285


 
 

Assets of operations

$264,254

$243,356

$216,801

$253,863

$214,755


 
 

Total assets

$278,480

$257,698

$228,841

$268,147

$227,138


 
 

Interest-bearing deposits

$125,958

$116,515

$99,963

$121,263

$100,496


 
 

Noninterest-bearing deposits

$43,038

$38,616

$34,628

$40,839

$33,983


 
 

Total The Bank of New York Mellon Corporation shareholders' equity

$33,464

$32,827

$30,462

$33,147

$30,104


 
 

 

 

 

 

 

 

 
 

Average common shares and equivalents outstanding (in thousands):


 

 

 

 

 

 
 

 Basic

1,230,406

1,234,076

1,204,557

1,232,232

1,203,554


 
 

 Diluted

1,233,710

1,238,284

1,208,830

1,236,016

1,207,578


 
 

 

 

 

 

 

 

 
 

Period-end data


 

 

 

 

 

 
 

Assets under management (in billions)

$1,274

$1,229

$1,047

$1,274

$1,047


 
 

Assets under custody and administration (in trillions)

$26.3

$25.5

$21.8

$26.3

$21.8


 
 

 Cross-border assets (in trillions)

$10.1

$9.9

$8.3

$10.1

$8.3


 
 

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

$273

$278

$248

$273

$248


 
 

 

 

 

 

 

 

 
 

Employees

48,900

48,400

42,700

48,900

42,700


 
 

 

 

 

 

 

 

 
 

Book value per common share – GAAP(b)

$27.46

$26.78

$25.04

$27.46

$25.04


 
 

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

$10.28

$9.67

$9.33

$10.28

$9.33


 
 

Cash dividends per common share

$0.13

$0.09

$0.09

$0.22

$0.18


 
 

Dividend payout ratio

22%

18%

17%

20%

18%


 
 

Closing common stock price per common share

$25.62

$29.87

$24.69

$25.62

$24.69


 
 

Market capitalization

$31,582

$37,090

$29,975

$31,582

$29,975


 
 

 

 

 

 

 

 

 
 

(a) Presented on a continuing operations basis.

 

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

 

(c) Represents the securities on loan managed by the Investment Services business.

 
             


 

THE BANK OF NEW YORK MELLON CORPORATION

 

Condensed Consolidated Income Statement

 

 

 

 

 

 

 
 

 

Quarter ended

Six months ended

 

 

June 30,

March 31,

June 30,

June 30,

June 30,

 

(in millions)

2011

2011

2010(a)

2011

2010(a)

 

Fee and other revenue


 

 

 

 

 
 

Investment services fees:


 

 

 

 

 
 

 Asset servicing

$980

$923

$668

$1,903

$1,305

 

 Issuer services

365

351

354

716

687

 

 Clearing services

292

292

245

584

475

 

 Treasury services

127

128

125

255

256

 

     Total investment services fees

1,764

1,694

1,392

3,458

2,723

 

Investment management and performance fees

779

764

686

1,543

1,372

 

Foreign exchange and other trading revenue

222

198

220

420

482

 

Distribution and servicing

49

53

51

102

99

 

Financing-related fees

49

43

48

92

98

 

Investment and other income

145

81

145

226

290

 

     Total fee revenue

3,008

2,833

2,542

5,841

5,064

 

Net securities gains

48

5

13

53

20

 

     Total fee and other revenue

3,056

2,838

2,555

5,894

5,084

 

Operations of consolidated investment management funds


 

 

 

 

 
 

Investment income

171

222

188

393

343

 

Interest of investment management fund note holders

108

112

123

220

213

 

     Income of consolidated investment management funds

63

110

65

173

130

 

Net interest revenue


 

 

 

 

 
 

Interest revenue

926

867

862

1,793

1,745

 

Interest expense

195

169

140

364

258

 

     Net interest revenue

731

698

722

1,429

1,487

 

Provision for credit losses

-

-

20

-

55

 

     Net interest revenue after provision for credit losses

731

698

702

1,429

1,432

 

Noninterest expense


 

 

 

 

 
 

Staff

1,463

1,424

1,234

2,887

2,454

 

Professional, legal and other purchased services

301

283

256

584

497

 

Software and equipment

203

206

162

409

331

 

Net occupancy

161

153

143

314

280

 

Distribution and servicing

109

111

90

220

179

 

Sub-custodian

88

68

65

156

117

 

Business development

73

56

68

129

120

 

Other

292

277

201

569

551

 

     Subtotal

2,690

2,578

2,219

5,268

4,529

 

Amortization of intangible assets

108

108

98

216

195

 

Restructuring charges

(7)

(6)

(15)

(13)

(8)

 

Merger and integration expenses

25

17

14

42

40

 

     Total noninterest expense

2,816

2,697

2,316

5,513

4,756

 

Income


 

 

 

 

 
 

Income from continuing operations before income taxes

1,034

949

1,006

1,983

1,890

 

Provision for income taxes

277

279

304

556

562

 

     Net income from continuing operations

757

670

702

1,427

1,328

 

Discontinued operations:


 

 

 

 

 
 

 Loss from discontinued operations

-

-

(16)

-

(86)

 

 Benefit for income taxes

-

-

(6)

-

(34)

 

     Net loss from discontinued operations

-

-

(10)

-

(52)

 

     Net income

757

670

692

1,427

1,276

 

Net (income) loss attributable to noncontrolling interests

 (includes $(21), $(44), $(33), $(65) and $(57) related

 to consolidated investment management funds)

(22)

(45)

(34)

(67)

(59)

 

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

$735

$625

$658

$1,360

$1,217

 

 

 

 

 

 

 
 

(a) In the first quarter of 2011, BNY Mellon realigned its internal reporting structure.  See our Form 10-Q for the quarter ended March 31, 2011.

 
           


 

THE BANK OF NEW YORK MELLON CORPORATION

 

Condensed Consolidated Income Statement - continued

 

 

 

 

 

 

 
 

Reconciliation of net income from continuing operations


 

 

 

 

 
 

 applicable to the common shareholders of The Bank

Quarter ended

Six months ended

 

 of New York Mellon Corporation

June 30,

March 31,

June 30,

June 30,

June 30,

 

(in millions)

2011

2011

2010

2011

2010

 

Net income from continuing operations

$757

$670

$702

$1,427

$1,328

 

Net (income) loss attributable to noncontrolling interests

(22)

(45)

(34)

(67)

(59)

 

   Net income from continuing operations applicable to

    common shareholders of The Bank of New York Mellon

    Corporation

735

625

668

1,360

1,269

 

Net loss from discontinued operations

-

-

(10)

-

(52)

 

   Net income applicable to common shareholders of The

    Bank of New York Mellon Corporation

735

625

658

1,360

1,217

 

Less: Earnings allocated to participating securities

8

6

7

14

12

 

         Excess of redeemable value over the fair value of

           noncontrolling interests

-

6

-

6

-

 

   Net income applicable to the common shareholders of The

    Bank of New York Mellon Corporation after required

    adjustments for the calculation of basic and diluted

    earnings per share

$727

$613

$651

$1,340

$1,205

 
           


 

Earnings per common share applicable to


 

 

 

 

 
 

 common shareholders of The Bank of

Quarter ended

Six months ended

 

 New York Mellon Corporation(a)

June 30,

March 31,

June 30,

June 30,

June 30,

 

(in dollars)

2011

2011

2010

2011

2010

 

Basic:


 

 

 

 

 
 

   Net income from continuing operations

$0.59

$0.50

$0.55

$1.09

$1.04

 

   Net loss from discontinued operations

-

-

(0.01)

-

(0.04)

 

      Net income applicable to common stock

$0.59

$0.50

$0.54

$1.09

$1.00

 

Diluted:


 

 

 

 

 
 

   Net income from continuing operations

$0.59

$0.50

$0.55

$1.08

$1.04

 

   Net loss from discontinued operations

-

-

(0.01)

-

(0.04)

 

      Net income applicable to common stock

$0.59

$0.50

$0.54

$1.08

$1.00

 

 

 

 

 

 

 
 

(a) Basic and diluted earnings per share under the two-class method are determined on the net income reported on the income

statement less earnings allocated to participating securities, and the excess of redeemable value over the fair value of noncontrolling interests.

 
           


 

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

 

 

 

 

 
 

 

June 30,

March 31,

Dec. 31,

 

(dollar amounts in millions, except per share amounts)

2011

2011

2010

 

Assets


 

 

 
 

Cash and due from:


 

 

 
 

 Banks

$5,560

$4,058

$3,675

 

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

56,478

24,607

18,549

 

Interest-bearing deposits with banks

60,232

58,788

50,200

 

Federal funds sold and securities purchased under resale agreements

5,049

4,756

5,169

 

Securities:


 

 

 
 

 Held-to-maturity (fair value of $4,090, $3,558 and $3,657)

4,082

3,557

3,655

 

 Available-for-sale

64,475

62,751

62,652

 

     Total securities

68,557

66,308

66,307

 

Trading assets

6,728

8,085

6,276

 

Loans

42,147

40,012

37,808

 

Allowance for loan losses

(441)

(467)

(498)

 

     Net loans

41,706

39,545

37,310

 

Premises and equipment

1,729

1,662

1,693

 

Accrued interest receivable

628

546

508

 

Goodwill

18,191

18,156

18,042

 

Intangible assets

5,514

5,617

5,696

 

Other assets

20,801

19,617

18,790

 

Assets of discontinued operations

-

-

278

 

     Subtotal assets of operations

291,173

251,745

232,493

 

Assets of consolidated investment management funds, at fair value:


 

 

 
 

 Trading assets

12,704

13,760

14,121

 

 Other assets

829

939

645

 

     Subtotal assets of consolidated investment management funds, at fair value

13,533

14,699

14,766

 

       Total assets

$304,706

$266,444

$247,259

 

Liabilities


 

 

 
 

Deposits:


 

 

 
 

 Noninterest-bearing (principally domestic offices)

$68,642

$40,105

$38,703

 

 Interest-bearing deposits in domestic offices

44,306

38,705

37,937

 

 Interest-bearing deposits in foreign offices

85,005

83,686

68,699

 

     Total deposits

197,953

162,496

145,339

 

Federal funds purchased and securities sold under repurchase agreements

7,572

5,435

5,602

 

Trading liabilities

6,879

7,936

6,911

 

Payables to customers and broker-dealers

11,512

10,550

9,962

 

Commercial paper

36

13

10

 

Other borrowed funds

2,337

1,161

2,858

 

Accrued taxes and other expenses

6,053

5,690

6,164

 

Other liabilities (includes allowance for lending related commitments of $94, $87 and $73)

8,550

8,491

7,176

 

Long-term debt

17,004

17,215

16,517

 

     Subtotal liabilities of operations

257,896

218,987

200,539

 

Liabilities of consolidated investment management funds, at fair value:


 

 

 
 

 Trading liabilities

12,084

13,313

13,561

 

 Other liabilities

3

4

2

 

     Subtotal liabilities of consolidated investment management funds, at fair value

12,087

13,317

13,563

 

 Total liabilities

269,983

232,304

214,102

 

Temporary equity


 

 

 
 

Redeemable noncontrolling interest

117

105

92

 

Permanent equity


 

 

 
 

Common stock – par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,247,744,471, 1,246,960,225 and 1,244,608,989 common shares

12

12

12

 

Additional paid-in capital

23,038

22,996

22,885

 

Retained earnings

11,977

11,405

10,898

 

Accumulated other comprehensive loss, net of tax

(751)

(1,003)

(1,355)

 

Less:  Treasury stock of 15,053,065, 5,236,340 and 3,078,794 common shares, at cost

(425)

(152)

(86)

 

     Total The Bank of New York Mellon Corporation shareholders' equity

33,851

33,258

32,354

 

Non-redeemable noncontrolling interests

-

-

12

 

Non-redeemable noncontrolling interests of consolidated investment management funds

755

777

699

 

     Total permanent equity

34,606

34,035

33,065

 

     Total liabilities, temporary equity and permanent equity

$304,706

$266,444

$247,259

 
       


 

Consolidated net income applicable to common shareholders

Net income applicable to common shareholders totaled $735 million, or $0.59 per diluted common share, in the second quarter of 2011 compared with $625 million, or $0.50 per diluted common share, in the first quarter of 2011 and net income applicable to common shareholders, including discontinued operations, of $658 million, or $0.54 per diluted 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 and Total capital ratios which are utilized by regulatory authorities.  Unlike the Tier 1 and Total capital ratios, 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 presented its estimated Basel III Tier 1 common equity ratio on a basis that is representative of how it currently understands the Basel III rules.  Management views the Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon's capital position.  Additionally, the presentation of the Basel III Tier 1 common equity ratio permits investors the ability to compare BNY Mellon's Basel III Tier 1 common equity ratio with estimates presented by other companies.

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; and expense measures which exclude special litigation reserves taken in the first quarter of 2010, restructuring charges, M&I expenses and amortization of intangible assets expenses.  Operating margin measures, which exclude some or all of these items, are also presented.  Operating margin measures also exclude noncontrolling interests related to consolidated investment management funds.  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 we have incurred charges unrelated to operational initiatives.  M&I expenses primarily relate to the Acquisitions in 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, BNY Mellon's primary businesses are Investment Management and Investment 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 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 the ability to view performance metrics on the basis that management views results.  The presentation of income of consolidated investment management funds, net of noncontrolling interest related to the consolidation of certain investment management funds, permits investors to view revenue on a basis consistent with how management views the business.  Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions.  Excluding these charges permits investors to view expenses on a basis consistent with how management views the business.  BNY Mellon believes that these presentations, as a supplement to GAAP information, give 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.

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

 

(dollars in millions)

2Q11

1Q11

2Q10

YTD11

YTD10

 

Income from continuing operations before income taxes – GAAP

$1,034

$949

$1,006

$1,983

$1,890

 

Less: Net securities gains

48

5

13

53

20

 

        Noncontrolling interests of consolidated investment management funds

21

44

33

65

57

 

Add: Special litigation reserves

N/A

N/A

N/A

N/A

164

 

       Restructuring charges

(7)

(6)

(15)

(13)

(8)

 

       M&I expenses

25

17

14

42

40

 

       Amortization of intangible assets

108

108

98

216

195

 

Income from continuing operations before income taxes

excluding net securities gains, noncontrolling interests of  

consolidated investment management funds, special litigation

reserves, restructuring charges, M&I expenses and

amortization of intangible assets – Non-GAAP

$1,091

$1,019

$1,057

$2,110

$2,204

 

 

 

 

 

 

 
 

Fee and other revenue – GAAP

$3,056

$2,838

$2,555

$5,894

$5,084

 

Income of consolidated investment management funds – GAAP

63

110

65

173

130

 

Net interest revenue – GAAP

731

698

722

1,429

1,487

 

 Total revenue – GAAP

3,850

3,646

3,342

7,496

6,701

 

 Less: Net securities gains

48

5

13

53

20

 

           Noncontrolling interests of consolidated investment management funds

21

44

33

65

57

 

 Total revenue excluding net securities gains and noncontrolling interests of consolidated investment management funds – Non-GAAP

$3,781

$3,597

$3,296

$7,378

$6,624

 

 

 

 

 

 

 
 

Pre-tax operating margin(a)

27%

26%

30%

26%

28%

 

Pre-tax operating margin excluding net securities gains, noncontrolling

interests of consolidated investment management funds, special

litigation reserves,  restructuring charges, M&I expenses and

amortization of intangible assets – Non-GAAP(a)

29%

28%

32%

29%

33%

 

 

 

 

 

 

 
 

(a) Income before taxes divided by total revenue.

N/A – Not applicable.


 
 
           


 

Reconciliation of effective tax rate

2Q11

1Q11

2Q10(a)

 

Effective tax rate – GAAP

26.9%

29.3%

30.2%

 

Consolidated investment management funds

2.6

1.3

1.0

 

Other

0.5

(0.4)

(0.4)

 

Effective tax rate – operating basis – Non-GAAP                                      

30.0%

30.2%

30.8%

 

 

 

 

 
 

(a) Presented on a continuing operations basis.


 

 

 
 
       


 

Return on common equity and tangible common equity

 

(dollars in millions)

2Q11

1Q11

2Q10(a)

YTD11

YTD10(a)

 

Net income applicable to common shareholders of


 

 

 

 

 
 

The Bank of New York Mellon Corporation – GAAP

$735

$625

$658

$1,360

$1,217

 

Less: Loss from discontinued operations, net of tax

-

-

(10)

-

(52)

 

 Net income from continuing operations applicable to


 

 

 

 

 
 

  common shareholders of The Bank of New York


 

 

 

 

 
 

  Mellon Corporation

735

625

668

1,360

1,269

 

Add: Amortization of intangible assets

68

68

60

136

122

 

 Net income from continuing operations applicable to common


 

 

 

 

 
 

  shareholders of The Bank of New York Mellon Corporation


 

 

 

 

 
 

  excluding amortization of intangible assets – Non-GAAP

$803

$693

$728

$1,496

$1,391

 

 

 

 

 

 

 
 

Average common shareholders' equity

$33,464

$32,827

$30,462

$33,147

$30,104

 

Less: Average goodwill

18,193

18,121

16,073

18,157

16,108

 

        Average intangible assets

5,547

5,664

5,421

5,605

5,466

 

Add: Deferred tax liability – tax deductible goodwill

895

862

746

895

746

 

       Deferred tax liability – non-tax deductible intangible assets

1,630

1,658

1,649

1,630

1,649

 

Average tangible common shareholders' equity – Non-GAAP

$12,249

$11,562

$11,363

$11,910

$10,925

 

 

 

 

 

 

 
 

Return on common equity– GAAP(b)

8.8%

7.7%

8.8%

8.3%

8.5%

 

 

 

 

 

 

 
 

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

26.3%

24.3%

25.7%

25.3%

25.7%

 

 

 

 

 

 

 
 

(a) Presented on a continuing operations basis.

 

(b) Annualized.

 
           


 

Equity to assets and book value per common share

June 30,

March 31,

June 30,

 

(dollars in millions, unless otherwise noted)

2011

2011

2010

 

Common shareholders' equity at period end –  GAAP

$33,851

$33,258

$30,396

 

Less: Goodwill

18,191

18,156

16,106

 

         Intangible assets

5,514

5,617

5,354

 

Add: Deferred tax liability – tax deductible goodwill

895

862

746

 

       Deferred tax liability – non-tax deductible intangible assets

1,630

1,658

1,649

 

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

$12,671

$12,005

$11,331

 

 

 

 

 
 

Total assets at period end - GAAP

$304,706

$266,444

$235,693

 

Less: Assets of consolidated investment management funds

13,533

14,699

13,260

 

        Subtotal assets of operations – Non-GAAP

291,173

251,745

222,433

 

Less: Goodwill

18,191

18,156

16,106

 

        Intangible assets

5,514

5,617

5,354

 

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

56,478

24,613

21,548

 

Tangible assets of operations at period end – Non-GAAP

$210,990

$203,359

$179,425

 

 

 

 

 
 

Common shareholders' equity to total assets – GAAP

11.1%

12.5%

12.9%

 

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

6.0%

5.9%

6.3%

 

 

 

 

 
 

Period end common shares outstanding (in thousands)

1,232,691

1,241,724

1,214,042

 

 

 

 

 
 

Book value per common share

$27.46

$26.78

$25.04

 

Tangible book value per common share – Non-GAAP

$10.28

$9.67

$9.33

 

 

 

 

 
 

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

 
       


 

Tier 1 common capital generation

 

(dollars in millions)

2Q10

3Q10

4Q10

1Q11

2Q11

 

Net income applicable to common shareholders of The Bank of


 

 

 

 

 
 

 New York Mellon Corporation – GAAP

$658

$622

$679

$625

$735

 

Add: Intangible amortization

60

70

72

68

68

 

 Gross Tier 1 common equity generated

718

692

751

693

803

 

Less: Dividends

110

110

112

111

162

 

        Common stock repurchases

-

-

-

32

272

 

        Goodwill & intangible assets related to the Acquisitions

-

2,283

-

-

-

 

 Capital deployed

110

2,393

112

143

434

 

Add: Other

(173)

853(a)

(64)

246

141

 

 Net Tier 1 common equity generated

$435

$(848)

$575

$796

$510

 

 

 

 

 

 

 
 

(a) Includes common stock issued during the third quarter of 2010.

 
           


 

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

June 30,

March 31,

June 30,

 

(dollars in millions)

2011(b)

2011

2010

 

Total Tier 1 capital

$14,896

$14,403

$13,857

 

Less: Trust preferred securities

1,669

1,686

1,663

 

Total Tier 1 common equity

$13,227

$12,717

$12,194

 

 

 

 

 
 

Total risk-weighted assets

$105,407

$102,887

$102,807

 

 

 

 

 
 

Tier 1 common equity to risk-weighted assets ratio

12.6%

12.4%

11.9%

 

 

 

 

 
 

(a) On a regulatory basis using Tier 1 capital as determined under Basel I guidelines.

 

(b) Preliminary.

 
       


 

Return on Tier 1 common equity

 

(dollars in millions)

1Q11

2Q11

 

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

$625

$735

 

 

 

 
 

Average Tier 1 common equity

$12,319

$12,972

 

 

 

 
 

Return on Tier 1 common equity(a)

21%

23%

 

 

 

 
 

(a) Annualized.

 
     


 

The following table presents investment management fee revenue excluding performance fees.

Investment management and performance fee revenue


 

 

 

2Q11 vs.

 

(dollars in millions)

2Q11

1Q11

2Q10

2Q10

1Q11

 

Investment management and performance fee revenue

$779

$764

$686

14%

2%

 

Less: Performance fees

18

17

19


 

 
 

        Investment management fee revenue excluding

         performance fees

$761

$747

$667

14%

2%

 
           


 

The following table presents income from consolidated investment management funds, net of noncontrolling interests.

Income from consolidated investment management funds, net of noncontrolling interests

 

(in millions)

2Q11

1Q11

2Q10

YTD11

YTD10

 

Operations of consolidated investment management funds

$63

$110

$65

$173

$130

 

Less:  Noncontrolling interests of consolidated


 

 

 

 

 
 

  investment management funds

21

44

33

65

57

 

         Income from consolidated investment management

         funds, net of noncontrolling interests

$42

$66

$32

$108

$73

 
           


 

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 including statements made regarding the reduction of expenses and our estimate of our Basel III Tier 1 common equity ratio, as well as our plans to meet proposed Basel III capital guidelines.  These statements, which may be expressed in a variety of ways, include the use of future or present tense language.  These statements and other forward-looking statements contained in other public disclosures of BNY Mellon 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, 2010 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 19, 2011 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.