BNY Mellon Reports Second Quarter Continuing EPS of $0.55 or $668 Million Vs. $0.23 or $267 Million in the Second Quarter of 2009
- Securities Servicing Fees Up 6% Sequentially
- $12 Billion of Net Long-Term Asset Inflows in 2Q10
- Credit Quality Improvement Continues; Provision Down 43%; NPAs Down 12% Sequentially
- Strong Capital Generation
NEW YORK, July 20 /PRNewswire-FirstCall/ -- The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter income from continuing operations applicable to common shareholders of $668 million, or $0.55 per common share, compared with $267 million, or $0.23 per common share, in the second quarter of 2009 and $601 million, or $0.49 per common share, in the first quarter of 2010.
"Our focus on winning new business and providing exceptional client service resulted in solid growth in securities servicing fees and continued long-term asset inflows for our asset and wealth management businesses. Our conservative risk profile is reflected in our excellent credit quality and strong capital generation," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.
"We continue to invest in our businesses. We just completed our Global Investment Servicing acquisition and expect to close on the acquisition of BHF's German asset servicing operation in August. In addition, we received regulatory approval for the opening of our asset management joint venture in Shanghai, expanded our asset management licensing in Korea, and announced our agreement to acquire a wealth management firm in Toronto," added Mr. Kelly.
Second Quarter Results - Unless otherwise noted, all comments begin with the results of the second quarter of 2010 and are compared to the second quarter of 2009, all information is reported on a continuing operations basis and sequential growth rates are unannualized. Please refer to the Quarterly Earnings Review for detailed business segment information.
Total revenue ------------------------------------------------------------------------- 2Q10 vs. Reconciliation of total revenue ----------- (dollar amounts in millions) 2Q10 1Q10 2Q09 2Q09 1Q10 ------------------------------------------------------------------------- Fee and other revenue – GAAP $2,571 $2,549 $2,257 Less: Net securities gains (losses) 13 7 (256) ------------------------------------------------------------------------- Total fee revenue – GAAP 2,558 2,542 2,513 2% 1% Income from consolidated asset management funds, net of noncontrolling interests 32(a) 41(a) - ------------------------------------------------------------------------- Total fee revenue – Non-GAAP 2,590 2,583 2,513 3% -% Net interest revenue – GAAP 722 765 700 ------------------------------------------------------------------------- Total revenue excluding net securities gains (losses) – Non-GAAP $3,312(b) $3,348(b) $3,213 3% (1)% ------------------------------------------------------------------------- (a) Includes $29 million and $25 million previously reported as asset and wealth management fee revenue and $3 million and $16 million previously reported as investment income in the second and first quarters of 2010, respectively. (b) Total revenue on a GAAP basis was $3,358 million and $3,379 million in the second and first quarters of 2010 respectively.
- Assets under custody and administration amounted to $21.8 trillion at June 30, 2010, an increase of 6% compared with the prior year and a decrease of 2% sequentially. The year-over-year increase reflects higher market values and net new business. The sequential decrease primarily reflects lower market values. Assets under management, excluding securities lending assets, amounted to $1.0 trillion at June 30, 2010. This represents an increase of 13% compared with the prior year and a 5% sequential decrease. The year-over-year increase was primarily due to the acquisition of Insight Investment Management ("Insight") in the fourth quarter of 2009. The sequential decrease primarily reflects lower market values.
- Securities servicing fees totaled $1.267 billion, a decrease of 2% year-over-year and an increase of 6% sequentially. An increase in asset servicing revenue, excluding securities lending fee revenue, compared with the second quarter of 2009, was partially offset by lower issuer and clearing services revenue which were negatively impacted by lower money market distribution fees. Sequentially, issuer services, asset servicing and clearing services revenue improved reflecting new business, higher transaction volumes and seasonality. Securities lending fee revenue totaled $46 million in the second quarter of 2010 compared with $97 million in the prior year period and $29 million sequentially. The year-over-year decrease reflects narrower spreads and lower loan balances while the sequential increase primarily reflects seasonality.
- Asset and wealth management fees were $676 million in the second quarter of 2010. Adjusted for performance fees and income from consolidated asset management funds, net of noncontrolling interests, these fees totaled $686 million, an increase of 12% compared with the prior year period and a decrease of 1% sequentially (see page 11). The year-over-year increase reflects improved market values, the Insight acquisition and the impact of new business, partially offset by higher fee waivers and a reduction in fees due to money market outflows. Sequentially, the impact of new business was more than offset by lower market values.
- Foreign exchange and other trading activities totaled $220 million compared with $237 million in the prior year period and $262 million in the first quarter of 2010. In the second quarter of 2010, foreign exchange revenue totaled $244 million, an increase of 39% sequentially, driven by increased volatility. The negative other trading revenue of $24 million in the second quarter of 2010 primarily relates to credit valuation adjustments ("CVA") on derivatives due to widening spreads and lower fixed income trading revenue.
- Investment income and Other income totaled $145 million, increasing $92 million year-over-year, and was unchanged sequentially. The year-over-year increase reflects positive foreign currency translations and lease residual gains, partially offset by lower seed capital revenue.
- Net interest revenue (FTE) and the net interest margin were $727 million and 1.74% compared with $770 million and 1.89% sequentially. These declines primarily reflect our credit strategy to reduce targeted loan exposure, as well as reducing the duration of placements.
- Investment securities pre-tax net gains totaled $13 million compared to a pre-tax net loss of $256 million in the second quarter of 2009 and a $7 million pre-tax net gain in the first quarter of 2010.
The provision for credit losses decreased to $20 million in the second quarter of 2010 compared with $35 million in the first quarter of 2010. During the second quarter of 2010, the total allowance for credit losses increased $7 million and net charge-offs totaled $13 million. Nonperforming assets at June 30, 2010 totaled $406 million, a decrease of $53 million, or 12%, compared with March 31, 2010 primarily due to repayments.
Total noninterest expense ---------------------------------------------------------------------- Reconciliation of noninterest 2Q10 vs. expense ------------ (dollar amounts in millions) 2Q10 1Q10 2Q09 2Q09 1Q10 ---------------------------------------------------------------------- Noninterest expense – GAAP $2,332 $2,460 $2,383 (2)% (5)% Less: Special litigation reserves N/A 164 N/A FDIC special assessment - - 61 Restructuring charges (15) 7 6 M&I expenses 14 26 59 Amortization of intangible assets 98 97 108 ---------------------------------------------------------------------- Total noninterest expense excluding special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and intangible amortization – Non-GAAP $2,235 $2,166 $2,149 4% 3% ---------------------------------------------------------------------- N/A – Not applicable.
- Total noninterest expense (excluding special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and intangible amortization) (Non-GAAP) increased 4% compared with the prior year period and 3% sequentially. The increase compared with the prior year period was primarily driven by the impact of the Insight acquisition and higher incentive expenses. The sequential increase reflects higher support agreement charges resulting from a quarterly change in the market value of Lehman securities, the impact of the annual merit increase which was effective in the second quarter of 2010 and the U.K. bonus tax. Comparisons to both periods were also impacted by higher business development activity.
The effective tax rate was 30.2% in the second quarter of 2010.
The unrealized net of tax gain on our investment securities portfolio was $114 million at June 30, 2010 compared with an unrealized net of tax loss of $191 million at March 31, 2010. The improvement in the valuation of the investment securities portfolio was due to tightening credit spreads and a decline in interest rates.
------------------------------------------------------------------------- Capital ratios (a) June 30, March 31, June 30, 2010 2010 2009 ------------------------------------------------------------------------- Tier 1 capital ratio 13.5% 13.3% 12.5% Total (Tier 1 plus Tier 2) capital ratio 17.2 17.2 16.0 Leverage capital ratio 6.6 6.5 7.6 Common shareholders' equity to total assets ratio (b) 12.9 13.5 13.4 Tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP (b) 6.3 6.1 4.8 Tier 1 common equity to risk-weighted assets ratio (b) 11.8 11.6 11.1 ------------------------------------------------------------------------- (a) Includes discontinued operations. Preliminary. (b) See the Supplemental information section beginning on page 10 for a calculation of these ratios.
Declaration of quarterly dividend – On July 20, 2010, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.09 per common share. This cash dividend is payable on Aug. 10, 2010 to shareholders of record as of the close of business on July 30, 2010.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $21.8 trillion in assets under custody and administration and $1.0 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available at www.bnymellon.com.
Supplemental Financial Information
The Quarterly Earnings Review and supplemental financial trends for The Bank of New York Mellon Corporation have been updated through June 30, 2010 and are available at www.bnymellon.com (Investor Relations - Financial Reports).
Conference Call Data
Robert P. Kelly, chairman and chief executive officer; Gerald L. Hassell, president; and Thomas P. Gibbons, chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on July 20, 2010. This conference call and audio webcast will include forward-looking statements and may include other material information. Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (210) 838-9221 (International) Passcode: Earnings, or by logging on to www.bnymellon.com. The Earnings Release, together with the Quarterly Earnings Review and supplemental Financial Trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on July 20, 2010. Replays of the conference call and audio webcast will be available beginning July 20, 2010 at approximately 2 p.m. EDT through Tuesday, Aug. 3, 2010 by dialing (866) 360-7726 (U.S.) or (203) 369-0178 (International). The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.
THE BANK OF NEW YORK MELLON CORPORATION Financial Highlights -------------------------------------------------------------------------- (dollar amounts in millions, except Quarter ended Year to date per common share ------------------------------ ------------------- amounts and unless June 30, March 31, June 30, June 30, June 30, otherwise noted) 2010 2010 2009 2010 2009 -------------------------------------------------------------------------- Continuing operations Return on common equity (annualized) (a) 8.8% 8.2% 4.0% 8.5% 4.9% Non-GAAP adjusted (a) 9.5% 10.6% 6.6% 10.0% 8.6% Return on tangible common equity (annualized) – Non-GAAP (a) 25.8% 25.8% 18.4% 25.7% 23.2% Non-GAAP adjusted (a) 25.5% 30.2% 24.0% 27.7% 33.3% Fee and other revenue as a percent of total revenue 77% 75% 76% 76% 75% Annualized fee revenue per employee (based on average headcount) (in thousands) $241 $244 $241 $243 $238 Percent of non-U.S. fee and net interest revenue including non-controlling interests related to consolidated asset management funds 35% 34% 31% 35% 30% Pre-tax operating margin (a) 30% 26% 17% 28% 18% Non-GAAP adjusted (a) 32% 34% 31% 33% 32% Net interest margin (FTE) 1.74% 1.89% 1.80% 1.82% 1.84%(b) Selected average balances Interest-earning assets $167,119 $163,429 $157,265 $165,285 $162,318(c) Assets of operations $216,801 $212,685 $208,533 $214,755 $214,294 Total assets $228,841 $225,415 $208,533 $227,138 $214,294 Interest-bearing deposits $99,963 $101,034 $98,896 $100,496 $100,430(c) Noninterest- bearing deposits $34,628 $33,330 $32,852 $33,983 $37,924(c) Total The Bank of New York Mellon Corporation shareholders' equity $30,434 $29,715 $28,934 $30,076 $28,458 Average common shares and equivalents outstanding (in thousands): Basic 1,204,557 1,202,533 1,171,081 1,203,554 1,158,649 Diluted 1,208,830 1,206,286 1,174,466 1,207,578 1,160,620 Period-end data Assets under management (in billions) $1,047 $1,105 $926 $1,047 $926 Assets under custody and administration (in trillions) $21.8 $22.4 $20.7 $21.8 $20.7 Cross-border assets (in trillions) $8.3 $8.8 $7.8 $8.3 $7.8 Market value of securities on loan (in billions) (d) $248 $253 $290 $248 $290 Employees 42,700 42,300 41,800 42,700 41,800 Book value per common share – GAAP (a) $25.04 $24.47 $22.68 $25.04 $22.68 Tangible book value per common share – Non-GAAP (a) $9.33 $8.69 $6.60 $9.33 $6.60 Cash dividends per common share $0.09 $0.09 $0.09 $0.18 $0.33 Closing common stock price per common share $24.69 $30.88 $29.31 $24.69 $29.31 Market capitalization $29,975 $37,456 $35,255 $29,975 $35,255 -------------------------------------------------------------------------- (a) See Supplemental information beginning on page 10 for a calculation of these ratios. (b) Calculated on a continuing operations basis, even though the balance sheet, in accordance with GAAP, is not restated for discontinued operations. (c) Excludes the impact of discontinued operations. (d) Represents the securities on loan, both cash and non-cash, managed by the Asset Servicing segment. THE BANK OF NEW YORK MELLON CORPORATION Condensed Consolidated Income Statement ------------------------------------------------------------------------- Quarter ended Year to date ----------------------------- ------------------ June 30, March 31, June 30, June 30, June 30, (in millions) 2010 2010 2009 2010 2009 ------------------------------------------------------------------------- Fee and other revenue Securities servicing fees: Asset servicing $668 $637 $671 $1,305 $1,280 Issuer services 354 333 372 687 736 Clearing services 245 230 250 475 503 ------------------------------------------------------------------------- Total securities servicing fees 1,267 1,200 1,293 2,467 2,519 Asset and wealth management fees 676 678 637 1,354 1,253 Foreign exchange and other trading activities 220 262 237 482 544 Treasury services 125 131 132 256 257 Distribution and servicing 77 76 107 153 218 Financing-related fees 48 50 54 98 102 Investment income 72 108 44 180 27 Other 73 37 9 110 24 ------------------------------------------------------------------------- Total fee revenue 2,558 2,542 2,513 5,100 4,944 Net securities gains (losses) 13 7 (256) 20 (551) ------------------------------------------------------------------------- Total fee and other revenue 2,571 2,549 2,257 5,120 4,393 Operations of consolidated asset management funds Investment income 188 155 - 343 - Interest of asset management fund note holders 123 90 - 213 - Income of consolidated asset management funds 65 65 - 130 - Net interest revenue Interest revenue 862 883 845 1,745 1,824 Interest expense 140 118 145 258 349 ------------------------------------------------------------------------- Net interest revenue 722 765 700 1,487 1,475 Provision for credit losses 20 35 61 55 120 ------------------------------------------------------------------------- Net interest revenue after provision for credit losses 702 730 639 1,432 1,355 Noninterest expense Staff 1,234 1,220 1,153 2,454 2,322 Professional, legal and other purchased services 256 241 237 497 474 Net occupancy 143 137 142 280 281 Distribution and servicing 106 109 106 215 213 Software 91 94 93 185 174 Furniture and equipment 71 75 76 146 153 Business development 68 52 49 120 93 Sub-custodian 65 52 60 117 99 Other 201 350 294 551 496 ------------------------------------------------------------------------- Subtotal 2,235 2,330 2,210 4,565 4,305 Amortization of intangible assets 98 97 108 195 215 Restructuring charges (15) 7 6 (8) 16 Merger and integration expenses 14 26 59 40 127 ------------------------------------------------------------------------- Total noninterest expense $2,332 $2,460 $2,383 $4,792 $4,663 ------------------------------------------------------------------------- Income Income from continuing operations before income taxes 1,006 884 513 1,890 1,085 Provision for income taxes 304 258 12 562 173 ------------------------------------------------------------------------- Income from continuing operations 702 626 501 1,328 912 Discontinued operations: Loss from discontinued operations (16) (70) (144) (86) (209) Benefit for income taxes (6) (28) (53) (34) (77) ------------------------------------------------------------------------- Loss from discontinued operations, net of tax (10) (42) (91) (52) (132) ------------------------------------------------------------------------- Net income 692 584 410 1,276 780 Net (income) loss attributable to noncontrolling interests (34)(a) (25)(a) 2 (59)(a) 1 Redemption charge and preferred dividends - - (236) - (283) ------------------------------------------------------------------------- Net income applicable to common shareholders of The Bank of New York Mellon Corporation $658 $559 $176 $1,217 $498 ------------------------------------------------------------------------- (a) Includes $33 million for the second quarter of 2010, $24 million for the first quarter of 2010 and $57 million for the first six months of 2010, related to consolidated asset management funds. THE BANK OF NEW YORK MELLON CORPORATION Condensed Consolidated Income Statement - continued -------------------------------------------------------------------------- Earnings per common share applicable to the common shareholders of The Bank Quarter ended Year to date of New York Mellon ----------------------------- ------------------ Corporation (a) June 30, March 31, June 30, June 30, June 30, (in dollars) 2010 2010 2009 2010 2009 -------------------------------------------------------------------------- Basic: Net income from continuing operations $0.55 $0.50 $0.23 $1.04 $0.54 Net loss from discontinued operations (0.01) (0.04) (0.08) (0.04) (0.11) -------------------------------------------------------------------------- Net income applicable to common stock $0.54 $0.46 $0.15 $1.00 $0.43 -------------------------------------------------------------------------- Diluted: Net income from continuing operations $0.55 $0.49 $0.23 $1.04 $0.54 Net loss from discontinued operations (0.01) (0.03) (0.08) (0.04) (0.11) -------------------------------------------------------------------------- Net income applicable to common stock $0.54 $0.46 $0.15 $1.00 $0.43 -------------------------------------------------------------------------- (a) Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating securities of $2 million in the second quarter of 2009, $5 million in the first quarter of 2010, $7 million in the second quarter of 2010, $12 million in the first six months of 2010 and $5 million in the first six months of 2009. -------------------------------------------------------------------------- Reconciliation of net income from continuing operations applicable to the common shareholders Quarter ended Year to date of The Bank of New York ----------------------------- ------------------ Mellon Corporation June 30, March 31, June 30, June 30, June 30, (in millions) 2010 2010 2009 2010 2009 -------------------------------------------------------------------------- Net income from continuing operations $702 $626 $501 $1,328 $912 Net (income) loss attributable to noncontrolling interests (34) (25) 2 (59) 1 Redemption charge and preferred dividends - - (236) - (283) -------------------------------------------------------------------------- Net income from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation 668 601 267 1,269 630 Net loss from discontinued operations (10) (42) (91) (52) (132) -------------------------------------------------------------------------- Net income applicable to the common shareholders of The Bank of New York Mellon Corporation $658 $559 $176 $1,217 $498 -------------------------------------------------------------------------- THE BANK OF NEW YORK MELLON CORPORATION Consolidated Balance Sheet ----------------------------------------------------------------------- (dollar amounts in millions, June 30, Dec. 31, except per share amounts) 2010 2009 ----------------------------------------------------------------------- Assets Cash and due from: Banks $3,569 $3,732 Interest-bearing deposits with the Federal Reserve and other central banks 21,579 7,362 Interest-bearing deposits with banks 53,396 56,302 Federal funds sold and securities purchased under resale agreements 4,453 3,535 Securities: Held-to-maturity (fair value of $3,698 and $4,240) 3,742 4,417 Available-for-sale (June 30, 2010 includes $580 previously securitized) 49,834 51,632 ----------------------------------------------------------------------- Total securities 53,576 56,049 Trading assets 7,393 6,001 Loans 37,147 36,689 Allowance for loan losses (542) (503) ----------------------------------------------------------------------- Net loans 36,605 36,186 Premises and equipment 1,548 1,602 Accrued interest receivable 524 639 Goodwill 16,106 16,249 Intangible assets 5,354 5,588 Other assets 17,988 16,737 Assets of discontinued operations 342 2,242 ----------------------------------------------------------------------- Subtotal assets of operations 222,433 212,224 Assets of consolidated asset management funds, at fair value: Securities available-for-sale 5 - Trading assets 543 - Loans 12,070 - Other assets 642 - ----------------------------------------------------------------------- Subtotal assets of consolidated asset management funds, at fair value 13,260 - ----------------------------------------------------------------------- Total assets $235,693 $212,224 ----------------------------------------------------------------------- Liabilities Deposits: Noninterest-bearing (principally domestic offices) $42,185 $33,477 Interest-bearing deposits in domestic offices 32,994 32,944 Interest-bearing deposits in foreign offices 68,488 68,629 ----------------------------------------------------------------------- Total deposits 143,667 135,050 Federal funds purchased and securities sold under repurchase agreements 2,712 3,348 Trading liabilities 8,323 6,396 Payables to customers and broker-dealers 10,200 10,721 Commercial paper 7 12 Other borrowed funds 2,013 477 Accrued taxes and other expenses 4,645 4,484 Other liabilities (including allowance for lending related commitments of $103 and $125) 3,995 3,891 Long-term debt 16,754 17,234 Liabilities of discontinued operations - 1,608 ----------------------------------------------------------------------- Subtotal liabilities of operations 192,316 183,221 Liabilities and obligations of consolidated asset management funds, at fair value 12,272 - ----------------------------------------------------------------------- Total liabilities 204,588 183,221 ----------------------------------------------------------------------- Equity Common stock-par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,215,948,532 and 1,208,861,641 common shares 12 12 Additional paid-in capital 22,073 21,917 Retained earnings 9,875 8,912 Accumulated other comprehensive loss, net of tax (1,509) (1,835) Less: Treasury stock of 1,906,851 and 1,026,927 common shares, at cost (55) (29) ----------------------------------------------------------------------- Total The Bank of New York Mellon Corporation shareholders' equity 30,396 28,977 Noncontrolling interests 43 26 Noncontrolling interests of consolidated asset management funds 666 - ----------------------------------------------------------------------- Total equity 31,105 29,003 ----------------------------------------------------------------------- Total liabilities and equity $235,693 $212,224 ----------------------------------------------------------------------- Nonperforming assets ------------------------------------------------------------------------ Nonperforming assets June 30, March 31, June 30, (dollar amounts in millions) 2010 2010 2009 ------------------------------------------------------------------------ Loans: Other residential mortgages $229 $204 $163 Wealth management 62 58 63 Commercial real estate 49 50 63 Commercial 40 40 43 Financial institutions 20 102 39 Foreign - - 1 ------------------------------------------------------------------------ Total nonperforming loans 400 454 372 Other assets owned 6 5 6 ------------------------------------------------------------------------ Total nonperforming assets $406(a) $459(a) $378 ------------------------------------------------------------------------ Nonperforming loans ratio 1.1% 1.4% 1.0% Allowance for loan losses/ nonperforming loans 135.5 114.5 116.7 Total allowance for credit losses/ nonperforming loans 161.3 140.5 141.4 ------------------------------------------------------------------------ (a) The adoption of SFAS No. 167 (ASC 810) resulted in BNY Mellon consolidating loans of consolidated asset management funds of $12.1 billion at June 30, 2010 and $11.3 billion at March 31, 2010. Included in these loans are $131 million and $150 million of nonperforming loans, respectively. These loans are not part of BNY Mellon's loan portfolio. As a result, the nonperforming loans of consolidated asset management funds are excluded from the nonperforming assets of BNY Mellon. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses.
Nonperforming assets decreased $53 million compared with March 31, 2010. The decrease primarily resulted from repayments by financial institutions, partially offset by the addition of other residential mortgages.
Discontinued operations
On Jan. 15, 2010, BNY Mellon sold Mellon United National Bank ("MUNB"), its national bank subsidiary located in Florida. We have applied discontinued operations accounting to this business. The income statements for all periods in this Earnings Release are presented on a continuing operations basis. This business, which was previously reported in the Other segment, no longer fit our strategic focus on our asset management and securities servicing businesses. In the second quarter of 2010, we recorded an after-tax loss on discontinued operations of $10 million primarily reflecting lower of cost or market write-downs on the retained loans held for sale.
Consolidated net income applicable to common shareholders, including discontinued operations
Net income applicable to common shareholders, including discontinued operations, totaled $658 million, or $0.54 per common share, in the second quarter of 2010 compared with $176 million, or $0.15 per common share, in the second quarter of 2009 and $559 million, or $0.46 per common share, in the first quarter of 2010.
Regulatory Reform
In July 2010, Congress enacted regulatory reform legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act, which the President is expected to sign into law on July 21, 2010. This new law broadly affects the financial services industry by establishing a framework for systemic risk oversight, creating a resolution authority, mandating higher capital and liquidity requirements, requiring banks to pay increased fees to regulatory agencies and containing numerous other provisions aimed at strengthening the sound operation of the financial services sector. Many aspects of the law are subject to further rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact to BNY Mellon or across the industry.
Supplemental information – Explanation of Non-GAAP financial measures
BNY Mellon has included in this release certain Non-GAAP financial measures based upon tangible common shareholders' equity. BNY Mellon believes that the ratio of tangible common shareholders' equity to tangible total assets of operations is a measure of capital strength that provides additional useful information to investors supplementing the Tier 1 capital ratio which is utilized by regulatory authorities. Unlike the Tier 1 capital ratio, the tangible common shareholders' equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders' equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes. This ratio is also informative to investors in BNY Mellon's common stock because, unlike the Tier 1 capital ratio, it excludes trust preferred securities issued by BNY Mellon. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon's performance in reference to those assets which are productive in generating income.
BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding. BNY Mellon has presented revenue measures which exclude the effect of net securities gains (losses) and noncontrolling interests related to consolidated asset management funds and expense measures which exclude special litigation reserves taken in the first quarter of 2010, restructuring charges, M&I expenses, the FDIC special assessment and intangible amortization expenses; and measures which utilize net income excluding tax items such as benefit of tax settlement. Return on equity measures and operating margin measures which exclude some or all of these items are also presented. BNY Mellon believes that these measures are useful to investors because they permit a focus on period to period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control. The excluded items in general relate to situations where accounting rules require certain ongoing charges as a result of prior transactions, or where valuation or other accounting/regulatory requirements require charges unrelated to operational initiatives. M&I expenses primarily relate to the merger with Mellon Financial Corporation in 2007. M&I expenses generally continue for approximately three years after the transaction, and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon's business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased, typically after approximately three years. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. With regards to the exclusion of net securities gains (losses), BNY Mellon's primary businesses are Asset and Wealth Management and Institutional Services. The management of these sectors is evaluated on the basis of the ability of these businesses to generate fee and net interest revenue and to control expenses, and not on the results of BNY Mellon's investment securities portfolio. Management of the investment securities portfolio is a shared service contained in the Other segment. The primary objective of the investment securities portfolio is to generate net interest revenue from the liquidity generated by BNY Mellon's processing businesses. BNY Mellon does not generally originate or trade the securities in the investment securities portfolio. The presentation of financial measures excluding special litigation reserves taken in the first quarter of 2010 provides investors with the ability to view performance metrics on the basis that management views results. The presentation of income of consolidated asset management funds, net of noncontrolling interests related to the consolidation of certain asset management funds, permits investors to view revenue on a basis consistent with prior periods. BNY Mellon believes that these presentations, as a supplement to GAAP information, gives investors a clearer picture of the results of its primary businesses. Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions. Excluding the benefit of tax settlements permits investors to calculate the tax impact of BNY Mellon's primary businesses.
In this Earnings Release, certain amounts are presented on an FTE basis. We believe that this presentation provides comparability of amounts arising from both taxable and tax exempt sources, and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income.
Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and business segment basis.
---------------------------------------------------------------------- Asset and wealth 2Q10 vs. management fee revenue -------------- (dollars in millions) 2Q10 1Q10 2Q09 1Q10 2Q09 ---------------------------------------------------------------------- Asset and wealth management fee revenue $676 $678 $637 -% 6% Less: Performance fees 19 13 26 Add: Revenue from consolidated asset management funds, net of noncontrolling interests 29 25 - ---------------------------------------------------------------------- Asset and wealth management fee revenue excluding performance fees $686 $690 $611 (1)% 12% ---------------------------------------------------------------------- --------------------------------------------------------------------- Income from consolidated asset management funds, net of noncontrolling interests (in millions) 2Q10 1Q10 --------------------------------------------------------------------- Operations of consolidated asset management funds $65 $65 Noncontrolling interests of consolidated asset management funds 33 24 --------------------------------------------------------------------- Income from consolidated asset management funds, net of noncontrolling interests $32 $41 --------------------------------------------------------------------- ------------------------------------------------------------------------ Asset servicing revenue (in millions) 2Q10 1Q10 2Q09 ------------------------------------------------------------------------ Asset servicing revenue $668 $637 $671 Less: Securities lending fee revenue 46 29 97 ------------------------------------------------------------------------ Asset servicing revenue excluding securities lending fee revenue $622 $608 $574 ------------------------------------------------------------------------ ------------------------------------------------------------------------- Reconciliation of income (loss) from continuing operations before income taxes – pre-tax operating margin (dollars in millions) 2Q10 1Q10 2Q09 YTD10 YTD09 ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes – GAAP $1,006 $884 $513 $1,890 $1,085 Less: Net securities gains (losses) 13 7 (256) 20 (551) Noncontrolling interests of consolidated asset management funds 33 24 - 57 - Add: Special litigation reserves N/A 164 N/A 164 N/A FDIC special assessment - - 61 - 61 Restructuring charges (15) 7 6 (8) 16 M&I expenses 14 26 59 40 127 Intangible amortization 98 97 108 195 215 ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes excluding net securities gains (losses), noncontrolling interests of consolidated asset management funds, special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and intangible amortization – Non-GAAP $1,057 $1,147 $1,003 $2,204 $2,055 Fee and other revenue – GAAP $2,571 $2,549 $2,257 $5,120 $4,393 Income of consolidated asset management funds – GAAP 65 65 - 130 - Net interest revenue – GAAP 722 765 700 1,487 1,475 ------------------------------------------------------------------------- Total revenue – GAAP 3,358 3,379 2,957 6,737 5,868 Less: Net securities gains (losses) 13 7 (256) 20 (551) Noncontrolling interests of consolidated asset management funds 33 24 - 57 - ------------------------------------------------------------------------- Total revenue excluding net securities gains (losses) and noncontrolling interests of consolidated asset management funds – Non-GAAP $3,312 $3,348 $3,213 $6,660 $6,419 Pre-tax operating margin (a) 30% 26% 17% 28% 18% Pre-tax operating margin excluding net securities gains (losses), noncontrolling interests of consolidated asset management funds, special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and intangible amortization – Non-GAAP (a) 32% 34% 31% 33% 32% ------------------------------------------------------------------------- (a) Income (loss) before taxes divided by total revenue. N/A – Not applicable. -------------------------------------------------------------------------- Return on common equity and tangible common equity – continuing operations (dollars in millions) 2Q10 1Q10 2Q09 YTD10 YTD09 -------------------------------------------------------------------------- Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $658 $559 $176 $1,217 $498 Less: Discontinued operations income (loss), net of tax (10) (42) (91) (52) (132) -------------------------------------------------------------------------- Net income from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation 668 601 267 1,269 630 Add: Intangible amortization 60 62 67 122 133 -------------------------------------------------------------------------- Net income from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation excluding intangible amortization – Non-GAAP 728 663 334 1,391 763 Less: Net securities gains (losses) 8 5 (161) 13 (344) Add: Special litigation reserves N/A 98 N/A 98 N/A FDIC special assessment - - 36 - 36 Restructuring charges (9) 5 4 (4) 11 M&I expenses 9 16 36 25 77 Benefit of tax settlements - - (134) - (134) -------------------------------------------------------------------------- Net income from continuing operations excluding intangible amortization, net securities gains (losses), special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and benefit of tax settlements – Non-GAAP $720 $777 $437 $1,497 $1,097 Average common shareholders' equity $30,434 $29,715 $26,566 $30,076 $25,881 Less: Average goodwill 16,073 16,143 15,989 16,108 15,913 Average intangible assets 5,421 5,513 5,673 5,466 5,713 Add: Deferred tax liability – tax deductible goodwill 746 720 643 746 643 Deferred tax liability – non-tax deductible intangible assets 1,649 1,660 1,743 1,649 1,743 -------------------------------------------------------------------------- Average tangible common shareholders' equity – Non-GAAP $11,335 $10,439 $7,290 $10,897 $6,641 Return on common equity– GAAP (a) 8.8% 8.2% 4.0% 8.5% 4.9% Return on common equity excluding intangible amortization, net securities gains (losses), special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and benefit of tax settlements – Non-GAAP (a) 9.5% 10.6% 6.6% 10.0% 8.6% Return on tangible common equity – Non-GAAP (a) 25.8% 25.8% 18.4% 25.7% 23.2% Return on tangible common equity excluding net securities gains (losses), special litigation reserves, FDIC special assessment, restructuring charges, M&I expenses and benefit of tax settlements – Non-GAAP (a) 25.5% 30.2% 24.0% 27.7% 33.3% -------------------------------------------------------------------------- (a) Annualized. N/A – Not applicable. -------------------------------------------------------------------------- Equity to assets and book value per common share (dollars in millions, June 30, March 31, June 30, unless otherwise noted) 2010 2010 2009 -------------------------------------------------------------------------- Common shareholders' equity at period end - GAAP $30,396 $29,683 $27,276 Less: Goodwill 16,106 16,077 16,040 Intangible assets 5,354 5,449 5,677 Add: Deferred tax liability – tax deductible goodwill 746 720 643 Deferred tax liability – non-tax deductible intangible assets 1,649 1,660 1,743 -------------------------------------------------------------------------- Tangible common shareholders' equity at period end – Non-GAAP $11,331 $10,537 $7,945 Total assets at period end - GAAP $235,693 $220,551 $203,012 Less: Assets of consolidated asset management funds 13,260 12,568 - -------------------------------------------------------------------------- Total assets of operations – Non-GAAP 222,433 207,983 203,012 Less: Goodwill 16,106 16,077 16,040 Intangible assets 5,354 5,449 5,677 Cash on deposit with the Federal Reserve and other central banks (a) 21,548 14,709 16,458 -------------------------------------------------------------------------- Tangible total assets of operations at period end – Non-GAAP $179,425 $171,748 $164,837 Common shareholders' equity to total assets – GAAP 12.9% 13.5% 13.4% Tangible common shareholders' equity to tangible total assets of operations – Non-GAAP 6.3% 6.1% 4.8% Period end common shares outstanding (in thousands) 1,214,042 1,212,941 1,202,828 Book value per common share $25.04 $24.47 $22.68 Tangible book value per common share – Non-GAAP $9.33 $8.69 $6.60 -------------------------------------------------------------------------- (a) Assigned a zero percent risk weighting by the regulators. ------------------------------------------------------------------------- Calculation of Tier 1 common equity to risk-weighted assets ratio (a) June 30, March 31, June 30, (dollars in millions) 2010 2010 2009 ------------------------------------------------------------------------- Total Tier 1 capital $13,857 $13,426 $15,044 Less: Trust preferred securities 1,663 1,667 1,691 ------------------------------------------------------------------------- Total Tier 1 common equity $12,194 $11,759 $13,353 Total risk-weighted assets $102,969 $101,197 $120,566 Tier 1 common equity to risk-weighted assets ratio 11.8% 11.6% 11.1% ------------------------------------------------------------------------- (a) On a regulatory basis.
Cautionary Statement
The information presented in this Earnings Release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to, among other things, expectations with respect to the economic outlook, reinvestment in our businesses, intended acquisitions and joint ventures, including the expected impact on earnings and the timing of anticipated closing, and our preliminary assessment of the impact of regulatory reform legislation. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this earnings release, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control). Factors that could cause BNY Mellon's results to differ materially from those described in the forward-looking statements can be found in the risk factors set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2009 and BNY Mellon's other filings with the Securities and Exchange Commission. All forward-looking statements in this earnings release speak only as of July 20, 2010 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
SOURCE BNY Mellon
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