October 19, 2011

BNY Mellon Reports Third Quarter Earnings of $651 Million or $0.53 per Share


Versus Third Quarter 2010:

  • Total Revenue +8%,
    • Fee Revenue +9%
    • Net Interest Revenue +8%
  • Positive Operating Leverage of 200 Basis Points

Net Long-Term Inflows of $4 Billion in Assets Under Management in 3Q11

Generated $718 Million of Tier 1 Common Equity in 3Q11

  • Tier 1 Common Equity Ratio 12.5%
  • Return on Tangible Common Equity 22%
  • Repurchased 20.4 Million Common Shares in 3Q11, 31.3 Million Year-To-Date

NEW YORK, October 19, 2011 — The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter net income applicable to common shareholders of $651 million, or $0.53 per common share, compared with $622 million, or $0.51 per common share, in the third quarter of 2010 and $735 million, or $0.59 per common share, in the second quarter of 2011.

"Year-over-year, we achieved revenue and earnings growth as we benefited from new business wins, net long-term asset flows and increased deposits," said Gerald L. Hassell, chairman, president and chief executive officer of BNY Mellon.  "We also delivered positive operating leverage despite higher legal and severance costs, and generated a 22 percent return on tangible common equity for the quarter."

"In a challenging environment, our employees are doing an outstanding job providing our clients with the highest levels of service, winning new business, maximizing efficiency, and mitigating risk.  We will continue to invest in our businesses to support our clients and the communities we serve while keeping a sharp focus on near-term earnings performance," added Mr. Hassell.

Note:  See Supplemental information on pages 9 through 13 for the Tier 1 common capital generated in 3Q11, the Tier 1 common equity ratio and return on tangible common equity.

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




3Q11 vs.

(dollar amounts in millions)

3Q11

2Q11

3Q10

3Q10

2Q11

Fee and other revenue – GAAP

$ 2,887

$ 3,056

$ 2,668



Less:  Net securities gains (losses)

(2)

48

6



Total fee revenue – GAAP

2,889

3,008

2,662

9%

(4)%

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

19

42

49



Net interest revenue – GAAP

775

731

718

8%

6%

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

$ 3,683

$ 3,781

$ 3,429

7%

(3)%








Total revenue – GAAP

$ 3,694

$ 3,850

$ 3,423

8%

(4)%


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



  • Assets under custody and administration amounted to $25.9 trillion at Sept. 30, 2011, an increase of 6% compared with the prior year and a decrease of 2% sequentially.  The increase compared with Sept. 30, 2010 was driven by net new business.  The sequential decrease primarily reflects lower equity market values, partially offset by net new business.  Assets under management, excluding securities lending assets, amounted to $1.2 trillion at Sept. 30, 2011.  This represents an increase of 5% compared with the prior year and a decrease of 6% sequentially.  The year-over-year increase reflects net new business.  On a sequential basis, long-term inflows were more than offset by lower equity markets and short-term outflows.
  • Investment services fees totaled $1.8 billion, an increase of 11% year-over-year and 2% sequentially.  The increases primarily resulted from seasonally higher Depositary Receipts revenue, which had traditionally been generated in the fourth quarter.  Both increases also reflect net new business, partially offset by higher money market fee waivers.  Additionally, the sequential increase was partially offset by seasonally lower securities lending revenue and the impact of lower equity market values.
  • Investment management and performance fees were $729 million, an increase of 5% year-over-year and a decrease of 6% sequentially.  The year-over-year increase was driven by net new business and higher average equity markets, partially offset by higher money market fee waivers.  The sequential decrease primarily reflects lower period-end and average equity market values and higher money market fee waivers, partially offset by net new business.
  • Foreign exchange and other trading revenue totaled $194 million compared with $146 million in the third quarter of 2010 and $222 million in the second quarter of 2011.  In the third quarter of 2011, foreign exchange revenue totaled $221 million, an increase of 38% year-over-year and 20% sequentially.  Both increases resulted from increased volatility.  The year-over-year increase also reflects higher volumes, while sequentially, volumes were steady.  Other trading revenue was a loss of $27 million in the third quarter of 2011 compared with a loss of $14 million in the third quarter of 2010 and revenue of $38 million in the second quarter of 2011.  Both decreases were primarily driven by the $40 million net impact of wider credit spreads on the credit valuation adjustment ("CVA"), recorded in the third quarter of 2011.
  • Investment and other income totaled $89 million compared with $97 million in the prior year period and $145 million in the second quarter of 2011.  The $56 million sequential decrease primarily resulted from lower gains related to loans held-for-sale retained from a previously divested bank subsidiary.  The year-over-year and sequential decreases also reflect a mark-to-market loss on seed capital.  
  • Net interest revenue and the net interest margin (FTE) were $775 million and 1.30% compared with $731 million and 1.41% sequentially.  The 6% sequential increase in net interest revenue was primarily driven by growth in client deposits which were invested in short-term, low-yielding assets, and the increase in the securities portfolio.  The decline in the net interest margin (FTE) primarily reflects the increase in client deposits, which were invested in short-term, low-yielding assets, partially offset by the increase in the securities portfolio.  Average noninterest-bearing client deposits increased $30 billion, or 71%, compared with the second quarter of 2011.

 
The provision for credit losses was a credit of $22 million in the third quarter of 2011 compared with a credit of $22 million in the third quarter of 2010 and no provision in the second quarter of 2011.  The credit in the provision in the third quarter of 2011 primarily resulted from an improvement in the loan portfolio and a decline in criticized assets both year-over-year and sequentially.


Total noninterest expense







Reconciliation of noninterest expense




3Q11 vs.

(dollar amounts in millions)

3Q11

2Q11

3Q10

3Q10

2Q11

Noninterest expense – GAAP

$ 2,771

$ 2,816

$ 2,611

6%

(2)%

Less:  Amortization of intangible assets

106

108

111



Restructuring charges

(5)

(7)

15



M&I expenses

17

25

56



Total noninterest expense – Non-GAAP

$ 2,653

$ 2,690

$ 2,429

9%

(1)%



  • Total noninterest expense (excluding amortization of intangible assets, restructuring charges and merger and integration ("M&I") expenses) (Non-GAAP) increased 9% compared with the prior year period and decreased 1% sequentially.  The third quarter of 2011 included $80 million of litigation expense and a $22 million charge as a result of a change in executive management.  The year-over-year increase also reflects higher variable expenses in support of revenue growth and higher legal costs.  Additionally, the sequential decrease primarily resulted from lower benefits and business development expenses, and state investment tax credits.  


The effective tax rate was 29.7% in the third quarter of 2011, compared with 26.4% on a continuing operations basis in the third quarter of 2010, and 26.9% in the second quarter of 2011.  Adjusted for the impact of the consolidated investment management funds, the effective tax rate on an operating basis (Non-GAAP) was 29.0% in the third quarter of 2011, compared with 28.2% in the third quarter of 2010 and 30.0% in the second 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 $461 million at Sept. 30, 2011 compared with $408 million at June 30, 2011.  The increase in the valuation of the investment securities portfolio was driven by a decline in interest rates.





Capital ratios

Sept. 30,

June 30,

Sept. 30,


2011(a)

2011

2010

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

6.6%

6.6%

N/A  

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

12.5

12.6

10.7%

Tier 1 capital ratio (c)

14.0

14.1

12.2

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

16.1

16.7

15.8

Leverage capital ratio (c)

5.1

5.8

5.9

Common shareholders' equity to total assets ratio (d)

10.5

11.1

12.7

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

5.9

6.0

5.3

(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 I guidelines.

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

N/A – Not applicable.



We generated $718 million of Basel I Tier 1 common equity in the third quarter of 2011, primarily driven by earnings retention.

Our estimated Basel III Tier 1 common equity ratio was 6.6% at Sept. 30, 2011, unchanged from June 30, 2011.  The ratio was impacted by increased share repurchases due in part to market conditions during the third quarter of 2011 and higher risk-weighted assets primarily driven by balance sheet growth.

Quarterly dividend – On Oct. 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 Nov. 9, 2011 to shareholders of record as of the close of business on Oct. 31, 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 $25.9 trillion in assets under custody and administration and $1.2 trillion in assets under management, services $11.9 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 and through Twitter @bnymellon.

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, 2011 and are available at www.bnymellon.com (Investor Relations - Financial Reports).

Conference Call Data

Gerald L. Hassell, chairman, president and chief executive officer 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 Oct. 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 Oct. 19, 2011.  Replays of the conference call and audio webcast will be available beginning Oct. 19, 2011 at approximately 2 p.m. EDT through Wednesday, Nov. 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

Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,

share amounts and unless otherwise noted)

2011

2011

2010 (a)

2011

2010(a)







Return on common equity (annualized) (b)

7.6%

8.8%

7.8%

8.0%

8.3%







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

22.1%

26.3%

26.3%

24.2%

25.9%







Fee revenue as a percentage of total revenue excluding net securities gains (losses)

78%

79%

78%

78%

77%







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

$ 233

$ 248

$ 234

$ 240

$ 238













Percentage of non-U.S. total revenue (c)

39%

37%

36%

38%

35%







Pre-tax operating margin (b)

26%

27%

24%

26%

27%

Non-GAAP adjusted (b)

29%

29%

30%

29%

32%







Net interest margin (FTE)

1.30%

1.41%

1.67%

1.39%

1.77%







Selected average balances






Interest-earning assets

$240,253

$209,933

$172,759

$213,641

$167,804

Assets of operations

$298,325

$264,254

$226,378

$268,847

$218,672

Total assets

$311,463

$278,480

$240,325

$282,745

$231,582

Interest-bearing deposits

$125,795

$125,958

$104,033

$122,790

$101,687

Noninterest-bearing deposits

$  73,389

$  43,038

$  33,198

$  51,808

$  33,718

Total The Bank of New York Mellon Corporation shareholders' equity

$  34,008

$  33,464

$ 31,868

$  33,437

$  30,691


Average common shares and equivalents outstanding (in thousands):












Basic

1,214,126

1,230,406

1,210,534

1,226,132

1,205,911

Diluted

1,215,527

1,233,710

1,212,684

1,229,042

1,209,688


Period-end data






Assets under management (in billions)

$   1,198

$   1,274

$   1,141

$   1,198

$   1,141

Assets under custody and administration (in trillions)

$     25.9

$     26.3

$     24.4

$     25.9

$     24.4

Cross-border assets (in trillions)

$       9.6

$     10.1

$       8.8

$       9.6

$       8.8

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

$      250

$      273

$      279

$      250

$      279

Employees

49,600

48,900

47,700

49,600

47,700

Book value per common share – GAAP (b)

$   27.79

$   27.46

$   25.92

$   27.79

$   25.92

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

$   10.55

$   10.28

$     8.59

$   10.55

$     8.59

Cash dividends per common share

$     0.13

$     0.13

$     0.09

$     0.35

$     0.27

Dividend payout ratio

25%

22%

18%

22%

18%

Closing common stock price per common share

$   18.59

$   25.62%

$   26.13

$   18.59%

$   26.13%

Market capitalization

$ 22,543

$ 31,582

$ 32,413

$ 22,543

$ 32,413

(a) Presented on a continuing operations basis.

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

(c) Includes fee revenue, net interest revenue and income of consolidated investment management funds, net of noncontrolling interests.

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










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)

2011

2011

2010 (a)

2011

2010 (a)

Fee and other revenue






Investment services fees:






Asset servicing

$  928

$  980

$ 870

$ 2,831

$ 2,175

Issuer services

442

365

364

1,158

1,051

Clearing services

297

292

252

881

727

Treasury services

127

127

132

382

388

 Total investment services fees

1,794

1,764

1,618

5,252

4,341

Investment management and performance fees

729

779

696

2,272

2,068

Foreign exchange and other trading revenue

194

222

146

614

628

Distribution and servicing

43

49

56

145

155

Financing-related fees

40

49

49

132

147

Investment and other income

89

145

97

315

387

 Total fee revenue

2,889

3,008

2,662

8,730

7,726

Net securities gains (losses)

(2)

48

6

51

26

 Total fee and other revenue

2,887

3,056

2,668

8,781

7,752

Operations of consolidated investment management funds






Investment income

169

171

144

562

487

Interest of investment management fund note holders

137

108

107

357

320

 Income of consolidated investment management funds

32

63

37

205

167

Net interest revenue






Interest revenue

928

887

859

2,663

2,578

Interest expense

153

156

141

459

373

 Net interest revenue

775

731

718

2,204

2,205

Provision for credit losses

(22)

-

(22)

(22)

33

 Net interest revenue after provision for credit losses

797

731

740

2,226

2,172

Noninterest expense






Staff

1,457

1,463

1,344

4,344

3,798

Professional, legal and other purchased services

311

301

282

895

779

Software and equipment

193

203

187

602

518

Net occupancy

151

161

150

465

430

Distribution and servicing

100

109

94

320

273

Sub-custodian

80

88

60

236

177

Business development

57

73

63

186

183

Other

304

292

249

873

800

 Subtotal

2,653

2,690

2,429

7,921

6,958

Amortization of intangible assets

106

108

111

322

306

Restructuring charges

(5)

(7)

15

(18)

7

Merger and integration expenses

17

25

56

59

96

 Total noninterest expense

2,771

2,816

2,611

8,284

7,367

Income






Income from continuing operations before income taxes

945

1,034

834

2,928

2,724

Provision for income taxes

281

277

220

837

782

 Net income from continuing operations

664

757

614

2,091

1,942

Discontinued operations:






Loss from discontinued operations

-

-

(6)

-

(92)

Benefit for income taxes

-

-

(3)

-

(37)

 Net loss from discontinued operations

-

-

(3)

-

(55)

 Net income

664

757

611

2,091

1,887

Net (income) loss attributable to noncontrolling interests (includes $(13), $(21), $12, $(78) and $(45) related to consolidated investment management funds)

(13)

(22)

11

(80)

(48)

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

$  651

$  735

$ 622

$ 2,011

$ 1,839

(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  of New York Mellon Corporation

Quarter ended

Year-to-date



Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,


(in millions)

2011

2011

2010

2011

2010


Net income from continuing operations

$ 664

$ 757

$ 614

$ 2,091

$ 1,942


Net (income) loss attributable to noncontrolling interests

(13)

(22)

11

(80)

(48)


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

651

735

625

2,011

1,894


Net loss from discontinued operations

-

-

(3)

-

(55)


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

651

735

622

2,011

1,839


Less:  Earnings allocated to participating securities

7

8

5

21

17


 Excess of redeemable value over the fair value of noncontrolling interests

4

-

-

10

-


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

$ 640

$ 727

$ 617

$ 1,980

$ 1,822









Earnings per common share applicable to common shareholders of The Bank of New York Mellon Corporation (a)

Quarter ended

Year-to-date



Sept. 30,

June 30,

Sept. 30,

Sept. 30,

Sept. 30,


(in dollars)

2011

2011

2010

2011

2010


Basic:







Net income from continuing operations

$ 0.53

$ 0.59

$ 0.51

$ 1.61

$ 1.56


Net loss from discontinued operations

-

-

-

-

(0.05)


Net income applicable to common stock

$ 0.53

$ 0.59

$ 0.51

$ 1.61

$ 1.51


Diluted:







Net income from continuing operations

$ 0.53

$ 0.59

$ 0.51

$ 1.61

$ 1.55


Net loss from discontinued operations

-

-

-

-

(0.05)


Net income applicable to common stock

$ 0.53

$ 0.59

$ 0.51

$ 1.61

$1.51

(b)

(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.


(b)  Does not foot due to rounding.
















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)

2011

2011

2010

Assets




Cash and due from:




Banks

$    6,691

$    5,560

$    3,675

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

68,290

56,478

18,549

Interest-bearing deposits with banks

52,465

60,232

50,200

Federal funds sold and securities purchased under resale agreements

4,642

5,049

5,169

Securities:




Held-to-maturity (fair value of $4,037, $4,090 and $3,657)

4,013

4,082

3,655

Available-for-sale

72,572

64,475

62,652

Total securities

76,585

68,557

66,307

Trading assets

9,625

6,728

6,276

Loans

45,312

42,147

37,808

Allowance for loan losses

(392)

(441)

(498)

Net loans

44,920

41,706

37,310

Premises and equipment

1,705

1,729

1,693

Accrued interest receivable

645

628

508

Goodwill

18,045

18,191

18,042

Intangible assets

5,380

5,514

5,696

Other assets

21,131

20,801

18,790

Assets of discontinued operations

-

-

278

Subtotal assets of operations

310,124

291,173

232,493

Assets of consolidated investment management funds, at fair value:




Trading assets

11,419

12,704

14,121

Other assets

644

829

645

Subtotal assets of consolidated investment management funds, at fair value

12,063

13,533

14,766

Total assets

$322,187

$304,706

$247,259

Liabilities




Deposits:




Noninterest-bearing (principally domestic offices)

$  81,821

$  68,642

$  38,703

Interest-bearing deposits in domestic offices

41,882

44,306

37,937

Interest-bearing deposits in foreign offices

87,187

85,005

68,699

Total deposits

210,890

197,953

145,339

Federal funds purchased and securities sold under repurchase agreements

6,768

7,572

5,602

Trading liabilities

7,960

6,879

6,911

Payables to customers and broker-dealers

13,097

11,512

9,962

Commercial paper

44

36

10

Other borrowed funds

4,561

2,337

2,858

Accrued taxes and other expenses

6,324

6,053

6,164

Other liabilities (includes allowance for lending related commitments of $106, $94 and $73)

7,964

8,550

7,176

Long-term debt

19,399

17,004

16,517

Subtotal liabilities of operations

277,007

257,896

200,539

Liabilities of consolidated investment management funds, at fair value:




Trading liabilities

10,626

12,084

13,561

Other liabilities

25

3

2

Subtotal liabilities of consolidated investment management funds, at fair value

10,651

12,087

13,563

Total liabilities

287,658

269,983

214,102

Temporary equity




Redeemable noncontrolling interest

124

117

92

Permanent equity




Common stock – par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,248,378,937, 1,247,744,471 and 1,244,608,989 common shares

12

12

12

Additional paid-in capital

23,117

23,038

22,885

Retained earnings

12,464

11,977

10,898

Accumulated other comprehensive loss, net of tax

(1,004)

(751)

(1,355)

Less:  Treasury stock of 35,746,824, 15,053,065 and 3,078,794 common shares, at cost

(894)

(425)

(86)

Total The Bank of New York Mellon Corporation shareholders' equity

33,695

33,851

32,354

Non-redeemable noncontrolling interests

-

-

12

Non-redeemable noncontrolling interests of consolidated investment management funds

710

755

699

Total permanent equity

34,405

34,606

33,065

Total liabilities, temporary equity and permanent equity

$322,187

$304,706

$247,259







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 Tier 1 common equity to risk-weighted assets and the ratio of tangible common shareholders' equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are utilized by regulatory authorities.  The ratio of Tier 1 common equity to risk-weighted assets excludes trust preferred securities, which will be eliminated as Tier 1 regulatory capital beginning in 2013.  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, which will be eliminated as Tier 1 regulatory capital beginning in 2013.  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 (losses); 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 of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 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 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, net interest margin is 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.

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)

3Q11

2Q11

3Q10

YTD11

YTD10


Income from continuing operations before income taxes – GAAP

$  945

$ 1,034

$  834

$  2,928

$  2,724


Less:  Net securities gains (losses)

(2)

48

6

51

26


Noncontrolling interests of consolidated investment management funds

13

21

(12)

78

45


Add: Special litigation reserves

N/A

N/A

N/A

N/A

164


Restructuring charges

(5)

(7)

15

(18)

7


M&I expenses

17

25

56

59

96


Amortization of intangible assets

106

108

111

322

306


Income from continuing operations before income taxes excluding net securities gains (losses), noncontrolling interests of consolidated investment management funds, special litigation reserves, restructuring charges, M&I expenses and amortization of intangible assets – Non-GAAP

$ 1,052

$ 1,091

$ 1,022

$  3,162

$  3,226









Fee and other revenue – GAAP

$ 2,887

$ 3,056

$ 2,668

$  8,781

$  7,752


Income of consolidated investment management funds – GAAP

32

63

37

205

167


Net interest revenue – GAAP

775

731

718

2,204

2,205


Total revenue – GAAP

3,694

3,850

3,423

11,190

10,124


Less:  Net securities gains (losses)

(2)

48

6

51

26


Noncontrolling interests of consolidated investment management funds

13

21

(12)

78

45


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

$ 3,683

$ 3,781

$ 3,429

$11,061

$10,053









Pre-tax operating margin (a)

26%

27%

24%

26%

27%


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

29%

29%

30%

29%

32%


(a)  Income before taxes divided by total revenue.







N/A – Not applicable.














Reconciliation of effective tax rate



3Q11

2Q11

3Q10

(a)

Effective tax rate – GAAP



29.7%

26.9%

26.4%


Consolidated investment management funds



(1.6)

2.6

(0.5)


Other



0.9

0.5

2.3


Effective tax rate – operating basis – Non-GAAP



29.0%

30.0%

28.2%


(a) Presented on a continuing operations basis.




Return on common equity and tangible common equity

(dollars in millions)

3Q11

2Q11

3Q10 (a)

YTD11

YTD10 (a)

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

$ 651

$ 735

$ 622

$ 2,011

$1,839

Less: Loss from discontinued operations, net of tax

-

-

(3)

-

(55)

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

651

735

625

2,011

1,894

Add: Amortization of intangible assets, net of tax

67

68

70

203

192

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

$ 718

$ 803

$ 695

$ 2,214

$ 2,086







Average common shareholders' equity

$ 34,008

$ 33,464

$ 31,868

$ 33,437

$ 30,691

Less: Average goodwill

18,156

18,193

17,798

18,157

16,677

Average intangible assets

5,453

5,547

5,956

5,554

5,632

Add: Deferred tax liability – tax deductible goodwill

915

895

763

915

763

Deferred tax liability – non-tax deductible intangible assets

1,604

1,630

1,634

1,604

1,634

Average tangible common shareholders' equity – Non-GAAP

$ 12,918

$ 12,249

$ 10,511

$ 12,245

$ 10,779







Return on common equity – GAAP (b)

7.6%

8.8%

7.8%

8.0%

8.3%







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

22.1%

26.3%

26.3%

24.2%

25.9%

(a)  Presented on a continuing operations basis.

(b)  Annualized.








Equity to assets and book value per common share

Sept. 30,

June 30,

Sept. 30,

(dollars in millions, unless otherwise noted)

2011

2011

2010

Common shareholders' equity at period end – GAAP

$  33,695

$  33,851

$  32,153

Less: Goodwill

18,045

18,191

18,073

Intangible assets

5,380

5,514

5,818

Add:  Deferred tax liability – tax deductible goodwill

915

895

763

Deferred tax liability – non-tax deductible intangible assets

1,604

1,630

1,634

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

$  12,789

$  12,671

$ 10,659





Total assets at period end – GAAP

$322,187

$304,706

$254,157

Less:  Assets of consolidated investment management funds

12,063

13,533

14,605

Subtotal assets of operations – Non-GAAP

310,124

291,173

239,552

Less: Goodwill

18,045

18,191

18,073

Intangible assets

5,380

5,514

5,818

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

68,293

56,478

15,750

Tangible assets of operations at period end – Non-GAAP

$218,406

$210,990

$199,911





Common shareholders' equity to total assets – GAAP

10.5%

11.1%

12.7%

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

5.9%

6.0%

5.3%





Period end common shares outstanding (in thousands)

1,212,632

1,232,691

1,240,454





Book value per common share

$   27.79

$   27.46

$  25.92

Tangible book value per common share – Non-GAAP

$   10.55

$   10.28

$    8.59

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














Tier 1 common capital generation


(dollars in millions)

3Q11

2Q11

1Q11

4Q10

3Q10


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

$ 651

$ 735

$ 625

$ 679

$ 622


Add:  Amortization of intangible assets, net of tax

67

68

68

72

70


Gross Tier 1 common capital generated

718

803

693

751

692


Less capital deployed:







Dividends

160

162

111

112

110


Common stock repurchases

462

272

32

-

-


Goodwill and intangible assets related to the GIS and BAS acquisitions

-

-

-

-

2,283


Total capital deployed

622

434

143

112

2,393


Add:  Other

(60)

138

245

(64)

853

(a)

Net Tier 1 common capital generated

$   36

$ 507

$ 795

$ 575

$ (848)


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















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

Sept. 30,

June 30,

Sept. 30,

(dollars in millions)

2011(b)

2011

2010

Total Tier 1 capital

$  14,919

$  14,892

$  13,026

Less:  Trust preferred securities

1,660

1,669

1,680

Total Tier 1 common equity

$  13,259

$  13,223

$  11,346





Total risk-weighted assets

$106,381

$105,316

$106,362





Tier 1 common equity to risk-weighted assets ratio

12.5%

12.6%

10.7%

(a) Determined under Basel I regulatory guidelines.  The period ended Sept. 30, 2010 includes discontinued operations.

(b) Preliminary.



The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio.




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

Sept. 30,

June 30,

(dollars in millions)

2011

2011

Estimated Basel III Tier 1 common equity

$   11,988

$   11,789

Estimated Basel III risk-weighted assets

$ 181,989

$ 178,182




Estimated Basel III Tier 1 common equity ratio

6.6%

6.6%

(a)  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 business changes.










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







Investment management and performance fee revenue

3Q11 vs.

(dollars in millions)

3Q11

2Q11

3Q10

3Q10

2Q11

Investment management and performance fee revenue

$ 729

$ 779

$ 696

5%

(6) %

Less:  Performance fees

11

18

16



Investment management fee revenue excluding performance fees

$ 718

$ 761

$ 680

6%

(6)%







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)

3Q11

2Q11

3Q10

YTD11

YTD10

Operations of consolidated investment management funds

$ 32

$ 63

$ 37

$ 205

$ 167

Less:  Noncontrolling interests of consolidated investment management funds

13

21

(12)

78

45

Income from consolidated investment management funds, net of noncontrolling interests

$ 19

$ 42

$ 49

$ 127

$ 122




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 our intention to invest in our businesses to support our clients and the communities we serve while keeping a sharp focus on near-term earnings performance.  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 Oct. 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.