BNY Mellon Reports Fourth Quarter Earnings of $505 Million or $0.42 Per Share Including:

NEW YORK, Jan. 18, 2012 /PRNewswire/ --

  • RESTRUCTURING CHARGES RELATED TO EFFICIENCY INITIATIVES OF $0.06 PER SHARE
  • NONINTEREST EXPENSES INCREASED 2% COMPARED WITH THIRD QUARTER 2011
    • DECREASED 3% EXCLUDING RESTRUCTURING CHARGES AND M&I EXPENSES
  • GENERATED $571 MILLION OF BASEL I TIER 1 COMMON EQUITY IN FOURTH QUARTER 2011
    • BASEL I TIER 1 COMMON EQUITY RATIO 13.4%, UP 90 BASIS POINTS SEQUENTIALLY
    • RETURN ON TANGIBLE COMMON EQUITY 20% EXCLUDING RESTRUCTURING CHARGES AND M&I EXPENSES
  • ESTIMATED BASEL III TIER 1 COMMON EQUITY RATIO 7.1%, UP 60 BASIS POINTS SEQUENTIALLY

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported fourth quarter net income applicable to common shareholders of $505 million, or $0.42 per common share, compared with $679 million, or $0.54 per common share, in the fourth quarter of 2010 and $651 million, or $0.53 per common share, in the third quarter of 2011.

"I am pleased with the meaningful progress we made in improving our capital position and reducing operating expenses.  Our Basel III Tier 1 common equity ratio was 7.1% at the end of the quarter, and we continued to generate strong returns on tangible common equity.  It was a challenging revenue quarter, as general uncertainty in the financial markets resulted in lower-than-normal levels of client activity.  Our results were also impacted by seasonality in our Depositary Receipts business.  We remained focused on driving our operational excellence initiatives and managing our expense base lower to offset weak market conditions," said Gerald L. Hassell, chairman, president and chief executive officer of BNY Mellon.

"I want to thank our 49,000 professionals across the company for their continued commitment to improve our results and help our clients succeed in a difficult global economy," said Mr. Hassell.

Net income applicable to common shareholders totaled $2.516 billion, or $2.03 per common share, for the full-year 2011 compared with $2.518 billion, or $2.05 per common share, for the full-year 2010.

Note:  See Supplemental information regarding Non-GAAP measures on pages 9 through 13 for the Tier 1 common equity generated in 4Q11, the Basel I Tier 1 common equity ratio, the estimated Basel III Tier 1 common equity ratio and return on tangible common equity excluding restructuring charges and M&I expenses.

Fourth Quarter Results - Unless otherwise noted, all comments begin with the results of the fourth quarter of 2011 and are compared to the fourth quarter of 2010.  The fourth quarter 2010 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




4Q11 vs.

(dollars in millions)

4Q11

3Q11

4Q10

4Q10

3Q11

Fee and other revenue GAAP

$2,765

$2,887

$2,972



Less: Net securities gains (losses)

(3)

(2)

1



  Total fee revenue – GAAP

2,768

2,889

2,971

(7)%

(4)%

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

23

19

45



Net interest revenue – GAAP

780

775

720

8%

1%

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

$3,571

$3,683

$3,736

(4)%

(3)%







  Total revenueGAAP

$3,540

$3,694

$3,751

(6)%

(4)%

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



  • Assets under custody and administration amounted to $25.8 trillion at Dec. 31, 2011, an increase of 3% compared with the prior year and flat sequentially.  The increase compared with Dec. 31, 2010 was driven by net new business.  Assets under management, excluding securities lending assets, amounted to $1.26 trillion at Dec. 31, 2011.  This represents an increase of 8% compared with the prior year and 5% sequentially.  The year-over-year increase primarily reflects net new business.  On a sequential basis, the increase resulted from higher equity markets and net new business.  Long-term inflows totaled $16 billion and short-term inflows totaled $7 billion.  Long-term inflows benefited from fixed income and equity indexed products.

  • Investment services fees totaled $1.6 billion, a decrease of 8% year-over-year and 12% sequentially.  Both decreases were primarily driven by seasonally lower Depositary Receipts revenue, lower volumes and higher money market fee waivers. Adjusted for the seasonal impact of Depositary receipts revenue, investment services fees decreased 3% both year-over-year and sequentially.

  • Investment management and performance fees were $730 million, a decrease of 9% year-over-year and flat sequentially.  The year-over-year decrease was driven by higher money market fee waivers, lower performance fees and weaker international equity markets, partially offset by net new business.  Sequentially, higher performance fees and net new business were offset by lower revenue on equity investments and higher money market fee waivers.

  • Foreign exchange and other trading revenue totaled $228 million compared with $258 million in the fourth quarter of 2010 and $200 million in the third quarter of 2011.  In the fourth quarter of 2011, foreign exchange revenue totaled $183 million, a decrease of 11% year-over-year and 17% sequentially.  Both decreases resulted from lower volumes.  The year-over-year decrease was partially offset by higher volatility, while sequentially, volatility decreased.  Other trading revenue was $45 million in the fourth quarter of 2011 compared with revenue of $52 million in the fourth quarter of 2010 and a loss of $21 million in the third quarter of 2011.  The sequential increase was primarily driven by a lower credit valuation adjustment.

  • Investment and other income totaled $146 million compared with $80 million in the prior year period and $83 million in the third quarter of 2011.  The increases compared with both prior periods primarily resulted from a pre-tax gain of $98 million (after-tax gain of $4 million) on the sale of the Shareowner Services business, partially offset by a $30 million write-down of an equity investment.  

  • Net interest revenue and the net interest margin (FTE) were $780 million and 1.27% compared with $775 million and 1.30% sequentially.  The changes in net interest revenue and the net interest margin (FTE) were primarily driven by growth in client deposits which were placed with central banks.  Average noninterest-bearing client deposits increased $3 billion, or 4%, compared with the third quarter of 2011.

The provision for credit losses was $23 million in the fourth quarter of 2011 compared with a credit of $22 million in both the fourth quarter of 2010 and the third quarter of 2011.  The provision in the fourth quarter of 2011 primarily resulted from a broker-dealer customer that filed for bankruptcy in the fourth quarter of 2011.

Total noninterest expense

Reconciliation of noninterest expense




4Q11 vs.

(dollar amounts in millions)

4Q11

3Q11

4Q10

4Q10

3Q11

Noninterest expense – GAAP

$2,828

$2,771

$2,803

1%

2%

Less: Restructuring charges

107

(5)

21



         M&I expenses

32

17

43



  Total noninterest expense excluding restructuring charges and M&I expenses – Non-GAAP

2,689

2,759

2,739

(2)

(3)

Less: Amortization of intangible assets

106

106

115



  Total noninterest expense excluding restructuring charges, M&I expenses and amortization of intangible assets Non-GAAP

$2,583

$2,653

$2,624

(2)%

(3)%



  • Total noninterest expense (excluding restructuring charges, merger and integration ("M&I") expenses and amortization of intangible assets) (Non-GAAP) decreased 2% compared with the prior year period and 3% sequentially.  The year-over-year decrease reflects lower staff expense partially offset by higher litigation expense.  The sequential decrease primarily resulted from lower staff expense reflecting lower incentive expense and a decline in headcount, as well as lower litigation expense and lower volume-driven expenses, partially offset by higher software and equipment, business development and professional, legal and other purchased services expenses.
    • The fourth quarter of 2011 results include a restructuring charge of $107 million, or $0.06 per diluted common share related to efficiency initiatives to transform operations, technology and corporate services.

The effective tax rate was 30.6% in the fourth quarter of 2011, compared with 27.3% on a continuing operations basis in the fourth quarter of 2010, and 29.7% in the third quarter of 2011.  The effective tax rate in the fourth quarter of 2011 was negatively impacted by non-tax deductible goodwill associated with the disposition of Shareowner Services which was largely offset by a more favorable mix of foreign and domestic income.

The unrealized net of tax gain on our total investment securities portfolio was $420 million at Dec. 31, 2011 compared with $461 million at Sept. 30, 2011.  The decrease in the valuation of the investment securities portfolio was driven by a lower valuation of non-agency residential mortgage-backed securities.

Capital ratios

Dec. 31,

Sept. 30,

Dec. 31,


2011 (a)

2011

2010

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

7.1%

6.5%

N/A

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

13.4

12.5

11.8%

Basel I Tier 1 capital ratio

15.0

14.0

13.4

Basel I total (Tier 1 plus Tier 2) capital ratio

17.0

16.1

16.3

Basel I leverage capital ratio

5.2

5.1

5.8

Common shareholders' equity to total assets ratio (c)

10.3

10.5

13.1

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

6.4

5.9

5.8

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

N/A – Not applicable.



We generated $571 million of Basel I Tier 1 common equity in the fourth quarter of 2011, primarily driven by earnings retention.  

Our estimated Basel III Tier 1 common equity ratio (Non-GAAP) was 7.1% at Dec. 31, 2011 compared with 6.5% at Sept. 30, 2011.  The improvement in the ratio was driven by lower risk-weighted assets and a reduction in goodwill and intangible assets.

Quarterly dividend – On Jan. 18, 2012, 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 Feb. 7, 2012 to shareholders of record as of the close of business on Jan. 30, 2012.

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 $25.8 trillion in assets under custody and administration and $1.26 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.  Additional information is available at www.bnymellon.com 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 Dec. 31, 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. EST on Jan. 18, 2012.  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. EST on Jan. 18, 2012.  Replays of the conference call and audio webcast will be available beginning Jan. 18, 2012 at approximately 2 p.m. EST through Wednesday, Feb. 1, 2012 by dialing (866) 490-2547 (U.S.) or (203) 369-1702 (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 ended

(dollars in millions, except per common share amounts and unless otherwise noted)

Dec. 31,

2011

Sept. 30,

2011

Dec. 31,

2010(a)

Dec. 31,

2011

Dec. 31,

2010(a)

Return on common equity (annualized) (b)

5.9%

7.6%

8.5%

7.5%

8.3%

  Non-GAAP adjusted (b)

7.7

8.5

9.9

8.6

9.8







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

17.7%

22.1%

27.5%

22.6%

26.3%

   Non-GAAP adjusted (b)

20.4

22.3

29.1

23.5

28.0







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

78%

78%

79%

78%

78%







Annualized fee revenue per employee






(based on average headcount) (in thousands)

$223

$233

$246

$237

$241







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

34%

39%

38%

37%

36%







Pre-tax operating margin (b)

19%

26%

26%

25%

27%

  Non-GAAP adjusted (b)

27%

29%

30%

28%

32%







Net interest margin (FTE)

1.27%

1.30%

1.54%

1.36%

1.70%







Selected average balances






Interest-earning assets

$247,732

$240,253

$187,597

$222,233

$172,792

Assets of operations

$304,235

$298,325

$241,734

$277,766

$224,484

Total assets

$316,074

$311,463

$256,409

$291,145

$237,839

Interest-bearing deposits

$130,343

$125,795

$111,776

$124,695

$104,229

Noninterest-bearing deposits

$76,309

$73,389

$39,625

$57,984

$35,208

Total The Bank of New York Mellon Corporation shareholders' equity

$33,761

$34,008

$32,379

$33,519

$31,100







Average common shares and equivalents outstanding (in thousands):






  Basic

1,204,994

1,214,126

1,232,568

1,220,804

1,212,630

  Diluted

1,205,586

1,215,527

1,235,670

1,223,026

1,216,214







Period-end data






Assets under management (in billions)

$1,260

$1,198

$1,172

$1,260

$1,172

Assets under custody and administration (in trillions)

$ 25.8

$ 25.9

$ 25.0

$ 25.8

$25.0

  Cross-border assets (in trillions)

$ 9.7

$ 9.6

$ 9.2

$ 9.7

$9.2

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

$269

$250

$278

$269

$ 278







Employees

48,700

49,600

48,000

48,700

48,000







Book value per common share – GAAP (b)

$27.62

$27.79

$26.06

$27.62

$26.06

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

$10.57

$10.55

$ 8.91

$10.57

$ 8.91

Cash dividends per common share

$ 0.13

$ 0.13

$ 0.09

$ 0.48

$ 0.36

Dividend payout ratio

31%

25%

17%

24%

18%

Closing common stock price per common share

$19.91

$18.59

$30.20

$19.91

$30.20

Market capitalization

$24,085

$22,543

$37,494

$24,085

$37,494

(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 ended


Dec. 31,

Sept. 30,

Dec. 31,

Dec. 31,

Dec. 31

(in millions)

2011

2011

2010(a)

2011

2010(a)

Fee and other revenue






Investment services fees:






  Asset servicing

$885

$922

$908

$3,697

$3,076

  Issuer services

287

442

409

1,445

1,460

  Clearing services

278

297

278

1,159

1,005

  Treasury services

134

133

135

535

530

     Total investment services fees

1,584

1,794

1,730

6,836

6,071

Investment management and performance fees

730

729

800

3,002

2,868

Foreign exchange and other trading revenue

228

200

258

848

886

Distribution and servicing

42

43

55

187

210

Financing-related fees

38

40

48

170

195

Investment and other income

146

83

80

455

467

Total fee revenue

2,768

2,889

2,971

11,498

10,697

Net securities gains (losses)

(3)

(2)

1

48

27

     Total fee and other revenue

2,765

2,887

2,972

11,546

10,724

Operations of consolidated investment management funds






Investment income

108

169

176

670

663

Interest of investment management fund note holders

113

137

117

470

437

     Income (loss) from consolidated investment management funds

(5)

32

59

200

226

Net interest revenue






Interest revenue

925

928

892

3,588

3,470

Interest expense

145

153

172

604

545

     Net interest revenue

780

775

720

2,984

2,925

Provision for credit losses

23

(22)

(22)

1

11

     Net interest revenue after provision for credit losses

757

797

742

2,983

2,914

Noninterest expense






Staff

1,382

1,457

1,417

5,726

5,215

Professional, legal and other purchased services

322

311

320

1,217

1,099

Software and equipment

213

193

207

815

725

Net occupancy

159

151

158

624

588

Distribution and servicing

96

100

104

416

377

Sub-custodian

62

80

70

298

247

Business development

75

57

88

261

271

Other

274

304

260

1,147

1,060

     Subtotal

2,583

2,653

2,624

10,504

9,582

Amortization of intangible assets

106

106

115

428

421

Restructuring charges

107

(5)

21

89

28

Merger and integration expenses

32

17

43

91

139

     Total noninterest expense

2,828

2,771

2,803

11,112

10,170

Income






Income from continuing operations before income taxes

689

945

970

3,617

3,694

Provision for income taxes

211

281

265

1,048

1,047

     Net income from continuing operations

478

664

705

2,569

2,647

Discontinued operations:






  Loss from discontinued operations

-

-

(18)

-

(110)

  Benefit for income taxes

-

-

(7)

-

(44)

     Net loss from discontinued operations

-

-

(11)

-

(66)

Net income

478

664

694

2,569

2,581

Net (income) loss attributable to noncontrolling interests






  (includes $28, $(13), $(14), $(50) and $(59) related to consolidated investment management funds)

27

(13)

(15)

(53)

(63)

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

$505

$651

$679

$2,516

$2,518

(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 to the net income applicable to the common shareholders of The Bank of New York Mellon Corporation

Quarter ended

Year ended


Dec. 31,

Sept. 30,

Dec. 31,

Dec. 31,

Dec. 31,

(in millions)

2011

2011

2010

2011

2010

Net income from continuing operations

$478

$664

$705

$2,569

$2,647

Net (income) loss attributable to noncontrolling interests

27

(13)

(15)

(53)

(63)

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

505

651

690

2,516

2,584

Net loss from discontinued operations

-

-

(11)

-

(66)

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

505

651

679

2,516

2,518

Less: Earnings allocated to participating securities

6

7

6

27

23

Excess of redeemable value over the fair value of noncontrolling interests

(1)

4

-

9

-

  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

$500

$640

$673

$2,480

$2,495



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

Quarter ended

Year ended


Dec. 31,

Sept. 30,

Dec. 31,

Dec. 31,

Dec. 31,

(in dollars)

2011

2011

2010

2011

2010

Basic:






  Net income from continuing operations

$0.42

$0.53

$0.55

$2.03

$2.11

  Net loss from discontinued operations

-

-

(0.01)

-

(0.05)

     Net income applicable to common stock

$0.42

$0.53

$0.55 (b)

$2.03

$2.06

Diluted:






  Net income from continuing operations

$0.42

$0.53

$0.55

$2.03

$2.11

  Net loss from discontinued operations

-

-

(0.01)

-

(0.05)

     Net income applicable to common stock

$0.42

$0.53

$0.54

$2.03

$2.05 (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






Dec. 31,

Sept. 30,

Dec. 31,

(dollars in millions, except per share amounts)

2011

2011

2010

Assets




Cash and due from:




  Banks

$4,175

$6,691

$3,675

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

90,243

68,290

18,549

Interest-bearing deposits with banks

36,321

52,465

50,200

Federal funds sold and securities purchased under resale agreements

4,510

4,642

5,169

Securities:




  Held-to-maturity (fair value of $3,540, $4,037 and $3,657)

3,521

4,013

3,655

  Available-for-sale

78,467

72,572

62,652

     Total securities

81,988

76,585

66,307

Trading assets

7,861

9,625

6,276

Loans

43,979

45,312

37,808

Allowance for loan losses

(394)

(392)

(498)

     Net loans

43,585

44,920

37,310

Premises and equipment

1,681

1,705

1,693

Accrued interest receivable

660

645

508

Goodwill

17,904

18,045

18,042

Intangible assets

5,152

5,380

5,696

Other assets

19,839

21,131

18,790

Assets of discontinued operations

-

-

278

     Subtotal assets of operations

313,919

310,124

232,493

Assets of consolidated investment management funds, at fair value:




Trading assets

10,751

11,419

14,121

Other assets

596

644

645

     Subtotal assets of consolidated investment management funds, at fair value

11,347

12,063

14,766

        Total assets

$325,266

$322,187

$247,259

Liabilities




Deposits:




  Noninterest-bearing (principally U.S. offices)

$95,335

$81,821

$38,703

  Interest-bearing deposits in U.S. offices

41,231

41,882

37,937

  Interest-bearing deposits in Non-U.S. offices

82,528

87,187

68,699

     Total deposits

219,094

210,890

145,339

Federal funds purchased and securities sold under repurchase agreements

6,267

6,768

5,602

Trading liabilities

8,071

7,960

6,911

Payables to customers and broker-dealers

12,671

13,097

9,962

Commercial paper

10

44

10

Other borrowed funds

2,174

4,561

2,858

Accrued taxes and other expenses

6,235

6,324

6,164

Other liabilities (includes allowance for lending related commitments of $103, $106 and $73)

6,525

7,964

7,176

Long-term debt

19,933

19,399

16,517

     Subtotal liabilities of operations

280,980

277,007

200,539

Liabilities of consolidated investment management funds, at fair value:




  Trading liabilities

10,053

10,626

13,561

  Other liabilities

32

25

2

     Subtotal liabilities of consolidated investment management funds, at fair value

10,085

10,651

13,563

        Total liabilities

291,065

287,658

214,102

Temporary equity




Redeemable noncontrolling interest

114

124

92

Permanent equity




Common stock – par value $0.01 per common share; authorized 3,500,000,000 common shares;




Issued 1,249,061,305, 1,248,378,937 and 1,244,608,989 common shares

12

12

12

Additional paid-in capital

23,185

23,117

22,885

Retained earnings

12,812

12,464

10,898

Accumulated other comprehensive loss, net of tax

(1,627)

(1,004)

(1,355)

Less:  Treasury stock of 39,386,698, 35,746,824 and 3,078,794 common shares, at cost

(965)

(894)

(86)

     Total The Bank of New York Mellon Corporation shareholders' equity

33,417

33,695

32,354

Non-redeemable noncontrolling interests

-

-

12

Non-redeemable noncontrolling interests of consolidated investment management funds

670

710

699

     Total permanent equity

34,087

34,405

33,065

     Total liabilities, temporary equity and permanent equity

$325,266

$322,187

$247,259



Supplemental information – Explanation of Non-GAAP financial measures

BNY Mellon has included in this press 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 phased out 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.  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 allows investors 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 our operational efficiency initiatives and migrating positions to global growth centers.  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, the 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)

4Q11

3Q11

4Q10

2011

2010

Income from continuing operations before income taxes – GAAP

$689

$945

$970

$3,617

$3,694

Less: Net securities gains (losses)

(3)

(2)

1

48

27

         Noncontrolling interests of consolidated investment management funds

(28)

13

14

50

59

Add: Amortization of intangible assets

106

106

115

428

421

        Restructuring charges

107

(5)

21

89

28

        M&I expenses

32

17

43

91

139

        Special litigation reserves

N/A

N/A

N/A

N/A

164

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

$965

$1,052

$1,134

$4,127

$4,360







Fee and other revenue – GAAP

$2,765

$2,887

$2,972

$11,546

$10,724

Income of consolidated investment management funds – GAAP

(5)

32

59

200

226

Net interest revenue – GAAP

780

775

720

2,984

2,925

  Total revenue – GAAP

3,540

3,694

3,751

14,730

13,875

  Less: Net securities gains (losses)

(3)

(2)

1

48

27

            Noncontrolling interests of consolidated investment management funds

(28)

13

14

50

59

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

$3,571

$3,683

$3,736

$14,632

$13,789







Pre-tax operating margin (a)

19%

26%

26%

25%

27%

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

27%

29%

30%

28%

32%

(a) Income before taxes divided by total revenue.

N/A – Not applicable.



Return on common equity and tangible common equity

(dollars in millions)

4Q11

3Q11

4Q10(a)

2011

2010(a)

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

$505

$651

$679

$2,516

$2,518

Less: Net loss from discontinued operations

-

-

(11)

-

(66)

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

505

651

690

2,516

2,584

Add: Amortization of intangible assets, net of tax

66

67

72

269

264

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

571

718

762

2,785

2,848

Less: Net securities gains (losses)

N/A

N/A

N/A

3

17

        Add: Special litigation reserves

N/A

N/A

N/A

N/A

98

        Restructuring charges

67

(3)

15

54

19

        M&I expenses

21

11

29

59

91

Net income from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets, net securities gains (losses), special litigation reserves, restructuring charges and M&I expenses – Non-GAAP

$659

$726

$806

$2,895

$3,039







Average common shareholders' equity

$33,761

$34,008

$32,379

$33,519

$31,100

Less: Average goodwill

18,044

18,156

18,073

18,129

17,029

        Average intangible assets

5,333

5,453

5,761

5,498

5,664

Add:  Deferred tax liability – tax deductible goodwill

967

915

816

967

816

         Deferred tax liability – non-tax deductible intangible assets

1,459

1,604

1,625

1,459

1,625

Average tangible common shareholders' equity – Non-GAAP

$12,810

$12,918

$10,986

$12,318

$10,848







Return on common equity – GAAP (b)

5.9%

7.6%

8.5%

7.5%

8.3%

Return on common equity excluding amortization of intangible assets, net securities gains (losses), special litigation reserves, restructuring charges and M&I expenses – Non-GAAP (b)

7.7%

8.5%

9.9%

8.6%

9.8%







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

17.7%

22.1%

27.5%

22.6%

26.3%

Return on tangible common equity excluding net securities gains (losses), special litigation reserves, restructuring charges and M&I expenses – Non-GAAP (b)

20.4%

22.3%

29.1%

23.5%

28.0%

(a) Presented on a continuing operations basis.

(b) Annualized.



Equity to assets and book value per common share

Dec. 31,

Sept. 30,

Dec. 31,

(dollars in millions, unless otherwise noted)

2011

2011

2010

Common shareholders' equity at period end – GAAP

$33,417

$33,695

$32,354

Less: Goodwill

17,904

18,045

18,042

         Intangible assets

5,152

5,380

5,696

Add: Deferred tax liability – tax deductible goodwill

967

915

816

        Deferred tax liability – non-tax deductible intangible assets

1,459

1,604

1,625

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

$12,787

$12,789

$11,057





Total assets at period endGAAP

$325,266

$322,187

$247,259

Less: Assets of consolidated investment management funds

11,347

12,063

14,766

  Subtotal assets of operations – Non-GAAP

313,919

310,124

232,493

Less: Goodwill

17,904

18,045

18,042

         Intangible assets

5,152

5,380

5,696

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

90,230

68,293

18,566

Tangible assets of operations at period end – Non-GAAP

$200,633

$218,406

$190,189





Common shareholders' equity to total assets – GAAP

10.3%

10.5%

13.1%

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

6.4%

5.9%

5.8%





Period end common shares outstanding (in thousands)

1,209,675

1,212,632

1,241,530





Book value per common share

$27.62

$27.79

$26.06

Tangible book value per common share – Non-GAAP

$10.57

$10.55

$ 8.91

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



Basel I Tier 1 common equity generation

(dollars in millions)

4Q11

3Q11

2Q11

1Q11

4Q10

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

$505

$651

$735

$625

$679

Add: Amortization of intangible assets, net of tax

66

67

68

68

72

       Gross Basel I Tier 1 common equity generated

571

718

803

693

751

Less capital deployed:






  Dividends

159

160

162

111

112

  Common stock repurchases

69

462

272

32

-

       Total capital deployed

228

622

434

143

112

Add: Other

129

(59)

138

245

(64)

        Net Basel I Tier 1 common equity generated

$472

$37

$507

$795

$575



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

Dec. 31,

Sept. 30,

Dec. 31,

(dollars in millions)

2011(b)

2011

2010

Total Tier 1 capital Basel I

$15,389

$14,920

$13,597

Less: Trust preferred securities

1,657

1,660

1,676

  Total Tier 1 common equity

$13,732

$13,260

$11,921





Total risk-weighted assets Basel I

$102,363

$106,256

$101,407





Basel I Tier 1 common equity to risk-weighted assets ratio

13.4%

12.5%

11.8%

(a) The period ended Dec. 31, 2010 includes discontinued operations.

(b) Preliminary.



The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio on a fully phased-in basis.

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

Dec. 31,

Sept. 30,

(dollars in millions)

2011(b)

2011

Total Tier 1 capital – Basel I

$15,389

$14,920

Less: Trust preferred securities

1,657

1,660

        Adjustments related to AFS securities and pension liabilities included in AOCI (c)

944

470

        Adjustments related to equity method investments (c)

555

590

        Net pensions fund assets (c)

90

493

        Other

(1)

26

           Total estimated Basel III Tier 1 common equity

$12,144

$11,681

Total risk-weighted assets – Basel I

$102,363

$106,256

Add: Adjustments (d)

69,707

74,224

           Total estimated Basel III risk-weighted assets

$172,070

$180,480




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

7.1%

6.5%

(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 near future as the U.S. regulatory agencies implement Basel III or if our businesses change.

(b) Preliminary.

(c) Basel III does not add back to capital the adjustment to other comprehensive income that Basel I and Basel II make for pension liabilities and available-for-sale securities.  Also, under Basel III, pension assets recorded on the balance sheet and adjustments related to equity method investments are a deduction from capital.

(d) Primary differences between Basel I and Basel III include:  the determination of credit risk under Basel I uses predetermined risk weights and asset classes, while under Basel III includes borrower credit ratings and internal risk models;  the treatment of securitizations that fall below investment grade receive a significantly higher risk weighting under Basel III than Basel I; also, Basel III includes additional adjustments for operational risk, market risk, counter party credit risk and equity exposures.



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)

4Q11

3Q11

4Q10

2011

2010

Income (loss) from consolidated investment management funds

$(5)

$32

$59

$200

$226

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

(28)

13

14

50

59

Income from consolidated investment management funds, net of noncontrolling interests

$23

$19

$45

$150

$167



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, 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, our Form 10-Q for the quarter ended Sept. 30, 2011 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of Jan. 18, 2012 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.

SOURCE BNY Mellon



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