2014

BNY Mellon Reports Second Quarter Earnings of $466 Million or $0.39 Per Common Share

NEW YORK, July 18, 2012 /PRNewswire/ --

  • INCLUDING THE PREVIOUSLY ANNOUNCED LITIGATION CHARGE OF $0.18
  • INVESTMENT MANAGEMENT AND PERFORMANCE FEES +7% AND INVESTMENT SERVICES FEES +2%, SEQUENTIALLY
  • NET LONG-TERM INFLOWS IN ASSETS UNDER MANAGEMENT OF $26 BILLION IN 2Q12
  • RECORD LEVEL OF ASSETS UNDER CUSTODY/ADMINISTRATION OF $27.1 TRILLION, +2% SEQUENTIALLY
  • RETURN ON TANGIBLE COMMON EQUITY 15.7%
  • REPURCHASED 12.2 MILLION COMMON SHARES FOR $286 MILLION IN 2Q12
  • ESTIMATED BASEL III TIER 1 COMMON EQUITY RATIO 8.7%

 

 

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $466 million, or $0.39 per common share including the previously announced litigation charge of $212 million (after-tax) or $0.18 per common share, compared with $735 million, or $0.59 per common share, in the second quarter of 2011 and $619 million, or $0.52 per common share, in the first quarter of 2012.

"We continue to grow investment management and investment services fees reflecting the strength of our business model.  We are delivering on our operational excellence initiatives, investing for future growth and positioning our businesses to deliver the full breadth of our global capabilities.  Our strengthened capital positions us as a preferred counterparty, and provides us greater flexibility for ongoing investment while continuing to return capital to shareholders," said Gerald L. Hassell, chairman, president and chief executive officer of BNY Mellon.

"Also in the second quarter, we were able to put significant litigation behind us with no material impact on our capital," added Mr. Hassell.

Note: See "Supplemental information – Explanation of Non-GAAP financial measures" on pages 11 through 13 for the calculation of the Non-GAAP measure of the return on tangible common equity. The estimated Basel III Tier 1 common equity ratio at June 30, 2012 is based on the Notices of Proposed Rulemaking and final market risk rule released on June 7, 2012.

Second Quarter Results - Unless otherwise noted, all comments begin with the results of the second quarter of 2012 and are compared to the second quarter of 2011.  Sequential growth rates are unannualized.  Please refer to the Quarterly Earnings Review for a detailed review of our businesses.  Unless otherwise noted, the results for all periods in 2011 include the impact of Shareowner Services.

Total revenue


 

 

 

 

 

 

 

 

 

 

 

Reconciliation of total revenue


 

 

 

2Q12 vs.


 

(dollars in millions)                

2Q12

1Q12  

2Q11

2Q11

1Q12

Fee and other revenue         

$ 2,826

$ 2,838

$3,056

(8) %

- %

Income (loss) from consolidated investment management funds

57

43

63


 

 

Net interest revenue     

734

765

731


 

 

    Total revenue – GAAP

$ 3,617

$ 3,646

3,850

(6) %

(1) %

Less: Net income (loss) attributable to noncontrolling interests


 

 

 

 

 

             related to consolidated investment management funds

29

11

21


 

 

          Fee and other revenue related to Shareowner Services (a)

(3)

-

54


 

 

    Total revenue excluding fee and other revenue related


 

 

 

 

 

          to Shareowner Services – Non-GAAP

$ 3,591

$ 3,635

$3,775

(5) %

(1) %

(a) The Shareowner Services business was sold on Dec. 31, 2011.


 

 

 

 

 
  • Assets under custody and administration amounted to a record $27.1 trillion at June 30, 2012, an increase of 3% compared with the prior year and 2% sequentially.  The increases were driven by net new business, partially offset by lower equity market values.  Assets under management amounted to $1.3 trillion at June 30, 2012, an increase of 2% compared with the prior year and a decrease of 1% sequentially.  Year-over-year, net inflows were partially offset by lower equity market values.  On a sequential basis, the decrease resulted from lower equity market values, partially offset by net inflows.  Long-term inflows totaled $26 billion and short-term outflows totaled $14 billion.  Long-term inflows benefited from fixed income and equity indexed products.
  • Investment services fees totaled $1.7 billion, a decrease of 5% year-over-year and an increase of 2% sequentially.  The year-over-year decrease was primarily driven by the impact of the sale of the Shareowner Services business in the fourth quarter of 2011, lower Depositary Receipts revenue and higher money market fee waivers, partially offset by higher Clearing Services fees and net new business.  Sequentially, the increase resulted from higher Depositary Receipts revenue, net new business, seasonally higher securities lending revenue and higher Clearing Services fees, partially offset by lower equity market values and transaction volumes.
  • Investment management and performance fees were $797 million, an increase of 2% year-over-year and 7% sequentially.  Both increases were driven by higher performance fees.  Excluding performance fees, investment management fees decreased 2% year-over-year and increased 2% sequentially.  The decrease year-over-year was primarily due to lower equity market values, partially offset by net new business.  Sequentially, the increase was primarily due to net new business and higher money market fees, partially offset by lower equity market values.
  • Foreign exchange and other trading revenue totaled $180 million compared with $222 million in the second quarter of 2011 and $191 million in the first quarter of 2012.  In the second quarter of 2012, foreign exchange revenue totaled $157 million, a decrease of 15% year-over-year and an increase of 15% sequentially.  The year-over-year decrease reflects lower volatility and volumes, while the sequential increase primarily resulted from higher volumes.  Other trading revenue was $23 million in the second quarter of 2012 compared with $38 million in the second quarter of 2011 and $55 million in the first quarter of 2012.  Both decreases were primarily driven by lower fixed income trading.
  • Investment and other income totaled $48 million compared with $145 million in the second quarter of 2011 and $139 million in the first quarter of 2012.  The year-over-year decrease primarily resulted from lower asset-related gains and equity investment revenue.  Sequentially, the decline primarily resulted from lower leasing gains, seed capital gains and equity investment revenue.
  • Net interest revenue and thenet interest margin (FTE) were$734 million and 1.25% compared with $731 million and 1.41% in the second quarter of 2011 and $765 million and 1.32% in the first quarter of 2012.  The year-over-year increase in net interest revenue was primarily driven by higher average client deposits, increased investment in high quality investment securities and higher loan levels, partially offset by narrower spreads and lower accretion.  Compared with the first quarter of 2012, net interest revenue was adversely impacted by narrower spreads and lower accretion.  Average noninterest-bearing client deposits increased $20 billion, or 46%, compared with 2Q11 and decreased $4 billion, or 6%, compared with 1Q12. 

The year-over-year decrease in the net interest margin (FTE) was primarily driven by increased client deposits which were invested in lower-yielding assets reflecting the current market environment.  The sequential decrease in the net interest margin (FTE) reflects the impact of narrower spreads and lower accretion.

The provision for credit losses was a credit of $19 million in the second quarter of 2012 primarily resulting from a decline in the expected loss related to a broker-dealer customer that previously filed for bankruptcy, as well as improvements in the mortgage portfolio.  There was no provision in the second quarter of 2011 and a provision of $5 million in the first quarter of 2012.

 

 

Total noninterest expense


 

 

 

 

 

 

 

 

 

 

 

Reconciliation of noninterest expense


 

 

 2Q12 vs.

(dollars  in millions)   

2Q12

1Q12

2Q11

2Q11

1Q12

Noninterest expense – GAAP

$ 3,047

$ 2,756

$ 2,816

8 %

11 %

Less:  Amortization of intangible assets

97

96

108


 

 

           M&I, litigation and restructuring charges

378

109

63


 

 

           Noninterest expense related to Shareowner Services (a)

-

-

47


 

 

 

Total noninterest expense excluding amortization of intangible


 

 

 

 

 

    assets, M&I, litigation and restructuring charges and direct


 

 

 

 

 

 

    expense related to Shareowner Services – Non-GAAP

$ 2,572

$ 2,551

$ 2,598

(1)%

1 %

(a) Reflects direct expenses related to the Shareowner Services business sold on Dec. 31, 2011.

  • Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expenses related to Shareowner Services – Non-GAAP decreased 1% compared with the prior year period, reflecting the impact of our operational excellence initiatives, and increased 1% sequentially.  Sequentially, noninterest expenses increased slightly primarily due to the costs of certain tax credits, higher business development expenses and a deposit levy imposed on Belgium banks, including our Belgium bank subsidiary, largely offset by lower staff expense. 

The effective tax rate was 15.8% in the second quarter of 2012 and includes a reduction in the tax rate of approximately 9% related to the litigation charge.  The operating tax rate – Non-GAAP in the second quarter of 2012 was 26.1% and includes an increased benefit of certain tax credits.  The effective tax rate was 26.9% in the second quarter of 2011 and 28.7% in the first quarter of 2012.  See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 11 for additional information.

The unrealized pre-tax gain on our total investment securities portfolio was $1.4 billion at June 30, 2012 compared with $1.2 billion at March 31, 2012.  The increase in the valuation of the investment securities portfolio primarily reflects a decline in market interest rates.

                                                                                                                                         

Capital ratios

June 30,

March 31,

June 30,


 

2012 (a)

2012

2011

Estimated Basel III Tier 1 common equity ratio (b) (c)                                                           

8.7 %

            N/A 

                N/A

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

13.2

13.9 %

12.6 %

Basel I Tier 1 capital ratio                                    

14.7

15.6

14.1

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

16.4

17.5

16.7

Basel I leverage capital ratio   

5.5

5.6

5.8

BNY Mellon shareholders' equity to total assets ratio (d)              

10.5

11.3

11.1

BNY Mellon common shareholders' equity to total assets ratio (d)     

10.3

11.3

11.1

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

6.1

6.5

6.0

(a) Preliminary.

(b) The estimated Basel III Tier 1 common equity ratio at June 30, 2012 is based on the Notices of Proposed Rulemaking ("NPRs") and final market risk rule released on June 7, 2012. The estimated Basel III Tier 1 common equity ratios of 7.6% at March 31, 2012 and 6.5% at June 30, 2011 were based on prior Basel III guidance and the proposed market risk rule.

(c) See "Capital" on page 10 for a calculation of these ratios.

(d) See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 11 for a calculation of these ratios.


 

 

 

 

We generated $527 million of gross Basel I Tier 1 common equity in the second quarter of 2012. 

Our estimated Basel III Tier 1 common equity ratio was 8.7% at June 30, 2012 based on the NPRs and final market risk rule.  The increase in the ratio from 7.6% at March 31, 2012, which was calculated under prior Basel III guidance and the proposed market risk rule, was primarily due to the reduction in risk-weighted assets related to the treatment of sub-investment grade securities.  This benefit was partially offset by the treatment of investment grade securitizations and financial institution exposure, as well as balance sheet growth in the second quarter.

Dividends – On July 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 Aug. 7, 2012 to shareholders of record as of the close of business on July 30, 2012.  On July 18, 2012, The Bank of New York Mellon Corporation also declared a dividend for the period from June 20, 2012 through Sept. 19, 2012 of $1,000 per share on the Series A Noncumulative Perpetual Preferred Stock (liquidation preference of $100,000 per share) ("the Series A Preferred Stock"), payable on Sept. 20, 2012.  All of the outstanding shares of the Series A Preferred Stock are owned by Mellon Capital IV, which will pass through the Sept. 20, 2012 dividend on the Series A Preferred Stock to the holders of record as of the close of business on Sept. 5, 2012 of its Normal Preferred Capital Securities.

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 $27.1 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.5 trillion in outstanding debt and processes global payments averaging $1.4 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.  Additional information is available on www.bnymellon.com or follow us on 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 June 30, 2012 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 July 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. EDT on July 18, 2012.  Replays of the conference call and audio webcast will be available beginning July 18, 2012 at approximately 2 p.m. EDT through Wednesday, Aug. 1, 2012 by dialing (866) 376-2451 (U.S.) or (203) 369- 0301 (International).  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

THE BANK OF NEW YORK MELLON CORPORATION

Financial Highlights


 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended

Year-to-date

(dollar amounts in millions, except per common      

June 30,

March 31,

June 30,

June 30,

June 30,

share amounts and unless otherwise noted)  

2012

2012

2011

2012

2011


 

 

 

 

 

 

Return on common equity (annualized) (a)

5.5 %

7.4 %

8.8 %

6.4 %

8.3 %

    Non-GAAP adjusted (a)

8.9 %

8.9 %

10.1 %

8.9 %

9.6 %


 

 

 

 

 

 

Return on tangible common equity (annualized)


 

 

 

 

 

    Non-GAAP (a)

15.7 %

21.0 %

26.3 %

18.3 %

25.3 %

    Non-GAAP adjusted(a)

22.4 %

23.0 %

27.6 %

22.7 %

26.6 %


 

 

 

 

 

 

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)

$ 233

$ 233

$ 248

$ 233

$ 243


 

 

 

 

 

 

Percentage of non-U.S. revenue (b)

37 %

37 %

37 %

37 %

37 %


 

 

 

 

 

 

Pre-tax operating margin (a)

16 %

24 %

27 %

20 %

26 %

     Non-GAAP adjusted (a)

29 %

30 %

31 %

29 %

30 %


 

 

 

 

 

 

Net interest margin (FTE)

1.25 %

1.32 %

1.41 %

1.28 %

1.43 %


 

 

 

 

 

 

Selected average balances


 

 

 

 

 

Interest-earning assets

$239,755

$236,331

$209,923

$238,042

$200,105

Assets of operations

$293,718

$289,900

$264,254

$291,808

$253,863

Total assets

$305,002

$301,344

$278,480

$303,172

$268,147

Interest-bearing deposits

$130,482

$125,438

$125,958

$127,959

$121,263

Noninterest-bearing deposits

$ 62,860

$ 66,613

$ 43,038

$ 64,737

$ 40,839

Preferred stock

$ 60

$ -

$ -

$ 30

$ -

Total The Bank of New York Mellon


 

 

 

 

 

     Corporation common shareholders' equity

$ 34,123

$ 33,718

$ 33,464

$ 33,920

$ 33,147


 

 

 

 

 

 

Average common shares and equivalents


 

 

 

 

 

  outstanding (in thousands):


 

 

 

 

 

     Basic

1,181,350

1,193,931

1,230,406

1,187,649

1,232,232

     Diluted

1,182,985

1,195,558

1,233,710

1,189,264

1,236,016


 

 

 

 

 

 

Period-end data


 

 

 

 

 

Market value of assets under management (in billions)

$ 1,299

$ 1,308

$ 1,274

$ 1,299

$ 1,274

Market value of assets under custody and

    administration (in trillions)

$ 27.1

$ 26.6

$ 26.3

$ 27.1

$ 26.3

    Market value of cross-border assets (in trillions)

$ 9.9

$ 10.4

$ 10.1

$ 9.9

$ 10.1

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

$ 275

$ 265

$ 273

$ 275

$ 273


 

 

 

 

 

 

Full-time employees

48,200

47,800

48,900

48,200

48,900


 

 

 

 

 

 

Book value per common share – GAAP (a)

$ 28.81

$ 28.51

$ 27.46

$ 28.81

$ 27.46

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

$ 11.47

$ 11.17

$ 10.28

$ 11.47

$ 10.28

Cash dividends per common share

$ 0.13

$ 0.13

$ 0.13

$ 0.26

$ 0.22

Common dividend payout ratio

33 %

25 %

22 %

29 %

20 %

Closing common stock price per common share

$ 21.95

$ 24.13

$ 25.62

$ 21.95

$ 25.62

Market capitalization

$ 25,929

$ 28,780

$ 31,582

$ 25,929

$ 31,582

(a) See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 11 for a calculation of these ratios.

(b) Includes fee revenue, net interest revenue and income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interests.

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

 

 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement


 

 

 

 

 

 

 

 

 

Quarter ended


 

Year-to-date


 

June 30,

March 31,

June 30,


 

June 30,

June 30,

(dollars in millions)

2012

2012

2011


 

2012

2011

Fee and other revenue


 

 

 

 

 

 

Investment services fees


 

 

 

 

 

 

Asset servicing

$ 950

$ 943

$ 973


 

$ 1,893

$ 1,890

Issuer services

275

251

365


 

526

716

Clearing services

309

303

292


 

612

584

Treasury services

134

136

134


 

270

268

Total investment services fees

1,668

1,633

1,764


 

3,301

3,458

Investment management and performance fees

797

745

779


 

1,542

1,543

Foreign exchange and other trading revenue

180

191

222


 

371

420

Distribution and servicing

46

46

49


 

92

102

Financing-related fees

37

44

49


 

81

92

Investment and other income

48

139

145


 

187

226

Total fee revenue

2,776

2,798

3,008


 

5,574

5,841

Net securities gains (losses)

50

40

48


 

90

53

Total fee and other revenue

2,826

2,838

3,056


 

5,664

5,894

Operations of consolidated investment management funds


 

 

 

 

 

 

Investment income

152

153

171


 

305

393

Interest of investment management fund note holders

95

110

108


 

205

220

Income (loss) from consolidated investment management funds

57

43

63


 

100

173

Net interest revenue


 

 

 

 

 

 

Interest revenue

875

912

887


 

1,787

1,735

Interest expense

141

147

156


 

288

306

Net interest revenue

734

765

731


 

1,499

1,429

Provision for credit losses

(19)

5

-


 

(14)

-

Net interest revenue after provision for credit losses

753

760

731


 

1,513

1,429

Noninterest expense


 

 

 

 

 

 

Staff

1,415

1,453

1,463


 

2,868

2,887

Professional, legal and other purchased services

309

299

301


 

608

584

Software and equipment

209

205

203


 

414

409

Net occupancy

141

147

161


 

288

314

Distribution and servicing

103

101

109


 

204

220

Sub-custodian

70

70

88


 

140

156

Business development

71

56

73


 

127

129

Other

254

220

247


 

474

476

Amortization of intangible assets

97

96

108


 

193

216

Merger and integration, litigation and restructuring charges

378

109

63


 

487

122

Total noninterest expense

3,047

2,756

2,816


 

5,803

5,513

Income


 

 

 

 

 

 

Income before income taxes

589

885

1,034


 

1,474

1,983

Provision for income taxes

93

254

277


 

347

556

Net income

496

631

757


 

1,127

1,427

Net (income) loss attributable to noncontrolling interests (includes $(29), $(11), $(21), $(40) and $(65) related to consolidated investment management funds, respectively)

(30)

(12)

(22)


 

(42)

(67)

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

$ 466

$ 619

$ 735


 

$ 1,085

$ 1,360


 

 

 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement - continued


 

 

 

 

 

 

 

 

 

 

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

Quarter ended


 

Year-to-date


 

June 30,

March 31,

June 30,


 

June 30,

June 30,

(dollars in millions)

2012

2012

2011


 

2012

2011

Net income

$ 496

$ 631

$ 757


 

$ 1,127

$ 1,427

Net (income) loss attributable to noncontrolling interests

(30)

(12)

(22)


 

(42)

(67)

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

466

619

735


 

1,085

1,360

Less:  Earnings allocated to participating securities

7

8

8


 

15

14

Change in the excess of redeemable value over the fair value of noncontrolling interests

1

(6)

-


 

(5)

6

Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and diluted earnings per common share

$ 458

$ 617

$ 727


 

$ 1,075

$ 1,340


 

 

 

 

 

 

 

 

Earnings per common share applicable to the common shareholders of The Bank of New York Mellon Corporation

Quarter ended


 

Year-to-date


 

June 30,

March 31,

June 30,


 

June 30,

June 30,

(dollars in millions)

2012

2012

2011


 

2012

2011

Basic

$0.39

$ 0.52

$ 0.59


 

$0.91

$ 1.09

Diluted

$0.39

$ 0.52

$ 0.59


 

$0.90

$ 1.08

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

 

 

 

THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet


 

 

 

 

 

June 30,

March 31,

Dec. 31,

(dollars in millions, except per share amounts)

2012

2012

2011

Assets


 

 

 

Cash and due from:


 

 

 

Banks

$    4,522

$    4,333

$     4,175

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

76,243

62,030

90,243

Interest-bearing deposits with banks

39,743

34,854

36,321

Federal funds sold and securities purchased under resale agreements

8,543

5,437

4,510

Securities:


 

 

 

Held-to-maturity (fair value of $8,869, $4,849, and $3,540)

8,794

4,819

3,521

Available-for-sale

84,540

83,374

78,467

Total securities

93,334

88,193

81,988

Trading assets

6,909

6,250

7,861

Loans

45,431

43,028

43,979

Allowance for loan losses

(362)

(386)

(394)

Net loans

45,069

42,642

43,585

Premises and equipment

1,711

1,715

1,681

Accrued interest receivable

628

599

660

Goodwill

17,909

18,002

17,904

Intangible assets

4,962

5,072

5,152

Other assets

19,755

19,433

19,839

Subtotal assets of operations

319,328

288,560

313,919

Assets of consolidated investment management funds, at fair value:


 

 

 

Trading assets

10,399

11,079

10,751

Other assets

556

530

596

Subtotal assets of consolidated investment management funds, at fair value

10,955

11,609

11,347

Total assets

$ 330,283

$ 300,169

$ 325,266

Liabilities


 

 

 

Deposits:


 

 

 

Noninterest-bearing (principally U.S. offices)

$   76,933

$   65,027

$  95,335

Interest-bearing deposits in U.S. offices

49,956

38,608

41,231

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

94,255

88,827

82,528

Total deposits

221,144

192,462

219,094

Federal funds purchased and securities sold under repurchase agreements

9,162

8,285

6,267

Trading liabilities

6,940

6,636

8,071

Payables to customers and broker-dealers

13,305

12,959

12,671

Commercial paper

1,564

1,070

10

Other borrowed funds

1,374

2,062

2,174

Accrued taxes and other expenses

5,969

5,819

6,235

Other liabilities (includes allowance for lending-related commitments of $105,

   $108 and $103)

6,114

5,383

6,525

Long-term debt

19,536

20,336

19,933

Subtotal liabilities of operations

285,108

255,012

280,980

Liabilities of consolidated investment management funds, at fair value:


 

 

 

Trading liabilities

9,752

10,290

10,053

Other liabilities

38

38

32

Subtotal liabilities of consolidated investment management funds, at fair value

9,790

10,328

10,085

Total liabilities

294,898

265,340

291,065

Temporary equity


 

 

 

Redeemable noncontrolling interests

130

120

114

Permanent equity


 

 

 

Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 5,001, - and - shares

500

-

-

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,251,527,230, 1,250,564,475 and 1,249,061,305 shares

12

12

12

Additional paid-in capital

23,366

23,304

23,185

Retained earnings

13,588

13,277

12,812

Accumulated other comprehensive loss, net of tax

(1,280)

(1,229)

(1,627)

Less:  Treasury stock of 70,229,278, 57,848,021 and 39,386,698 common shares, at cost

(1,653)

(1,364)

(965)

Total The Bank of New York Mellon Corporation shareholders' equity

34,533

34,000

33,417

Non-redeemable noncontrolling interests of consolidated investment management funds

722

709

670

Total permanent equity

35,255

34,709

34,087

Total liabilities, temporary equity and permanent equity

$ 330,283

$ 300,169

$ 325,266


 

 

Capital


 

 

 

 

The following table presents our Basel I Tier 1 common equity generated.


 

 

 

 

Basel I Tier 1 common equity generation


 

 

 

(dollars in millions)

2Q12

1Q12

2Q11

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

  Mellon Corporation – GAAP

$ 466

$ 619

$ 735

Add:  Amortization of intangible assets, net of tax

61

61

68

Gross Basel I Tier 1 common equity generated

527

680

803

Less capital deployed:


 

 

 

Common stock dividends

156

158

163

Common stock repurchased

286

371

272

Total capital deployed

442

529

435

Add:  Other

(53)

146

139

Net Basel I Tier 1 common equity generated

$   32

$ 297

$ 507

 

 

 

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


 

 

 

 

Calculation of Basel I Tier 1 common equity to risk-weighted

    assets ratio – Non-GAAP

June 30,

March 31,

June 30,

(dollars in millions)

2012(a)

2012

2011

Total Tier 1 capital – Basel I

$   15,722

$   15,695

$   14,892

Less:  Trust preferred securities

1,164

1,669

1,669

Preferred stock

500

-

-

Total Tier 1 common equity

$   14,058

$   14,026

$   13,223


 

 

 

 

Total risk-weighted assets – Basel I

$ 106,790

$ 100,763

$ 105,316


 

 

 

 

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

13.2%

13.9%

12.6%

(a)   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 (a)

June 30,

March 31,

June 30,

(dollars in millions)

2012(b)

2012

2011

Total Tier 1 capital – Basel I

$   15,722

$   15,695

$   14,892

Less:  Trust preferred securities

1,164

1,669

1,669

Preferred stock

500

-

-

Adjustments related to available-for-sale securities and pension

  liabilities included in accumulated other comprehensive income (c)

513

700

551

Adjustments related to equity method investments (c)

558

571

578

Deferred tax assets

46

-

-

Net pension fund assets (c)

43

100

542

Other

2

(2)

(4)

Total estimated Basel III Tier 1 common equity

$   12,896

$   12,657

$   11,556


 

 

 

 

Total risk-weighted assets – Basel I

$ 106,790

$ 100,763

$ 105,316

Add:  Adjustments (d)

41,467

65,997

71,965

Total estimated Basel III risk-weighted assets

$ 148,257

$ 166,760

$ 177,281

Estimated Basel III Tier 1 common equity ratio

8.7%

7.6%

6.5%

(a)   The estimated Basel III Tier 1 common equity ratio at June 30, 2012 is based on the NPRs and final market risk rule released on June 7, 2012.  The estimated Basel III Tier 1 common equity ratios at March 31, 2012 and June 30, 2011 were based on our interpretation of prior Basel III guidance and the proposed market risk rule.

(b)   Preliminary.

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

(d)   Primary differences between risk-weighted assets determined under Basel I compared with the NPRs and prior Basel III guidance include:  the determination of credit risk under Basel I uses predetermined risk weights and asset classes, while the NPRs use an investment grade standard and internal risk models.  Securitization exposure receives a higher risk-weighting under the NPRs and prior Basel III guidance than Basel I; also, the NPRs and prior Basel III guidance includes additional adjustments for operational risk, market risk, counterparty credit risk and equity exposures.


Supplemental information – Explanation of Non-GAAP financial measures

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based upon tangible common shareholders' equity.  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.  The tangible common shareholders' equity 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.  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 and noncontrolling interests related to consolidated investment management funds and other revenue related to the Shareowner Services business, which was sold on Dec. 31, 2011; and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and direct expenses related to the Shareowner Services business.  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 certain ongoing charges as a result of prior transactions or where we have incurred charges.  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.  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.  Future periods will not reflect such M&I expenses, and thus may be more easily compared with our current results if M&I expenses are excluded.  Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees.  Restructuring charges relate to our operational excellence initiatives and migrating positions to global delivery centers.  Excluding these charges permits investors to view expense on a basis consistent with how management views the business.  BNY Mellon also presents revenue and noninterest expense results relating to the Shareowner Services business so that an investor may compare those results with other periods, which do not include the Shareowner Services business.

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.  The adjustment to an FTE basis has no impact on net income. 

Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and business-level basis.

The following table presents a reconciliation of the tax rate from an effective rate to an operating rate for the second quarter of 2012.

 

Reconciliation of effective tax rate

2Q12

Effective tax rate – GAAP

15.8%

Tax reduction related to litigation charge

8.7

Other

1.6

Effective tax rate – Operating basis – Non-GAAP

26.1%


 

The following table presents investment management fees net of performance fees.

Investment management and performance fees


 

 

 

2Q12 vs.

(dollars in millions)

2Q12

1Q12

2Q11

2Q11

1Q12

Investment management and performance fees

$ 797

$ 745

$ 779

2%

7%

Less:  Performance fees

54

16

18

N/M

N/M

     Investment management fees

$ 743

$ 729

$ 761

(2)%

2%

 

The following table presents the calculation of the return on common equity and the return on tangible common equity.

Return on common equity and tangible common equity


 

 

 

 

 

(dollars in millions)

2Q12

1Q12

2Q11

YTD12

YTD11

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

$     466

$      619

$      735

$   1,085

$   1,360

Add: Amortization of intangible assets, net of tax

61

61

68

122

136

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

527

680

803

1,207

1,496

Add:   M&I, litigation and restructuring charges

225

65

41

290

75

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP

$      752

$      745

$      844

$   1,497

$   1,571


 

 

 

 

 

 

Average common shareholders' equity

$ 34,123

$ 33,718

$ 33,464

$ 33,920

$ 33,147

Less:  Average goodwill

17,941

17,962

18,193

17,951

18,157

           Average intangible assets

5,024

5,121

5,547

5,073

5,605

Add:   Deferred tax liability – tax deductible goodwill

982

972

895

982

895

           Deferred tax liability – non-tax deductible intangible assets

1,400

1,428

1,630

1,400

1,630

Average tangible common shareholders' equity – Non-GAAP

$ 13,540

$ 13,035

$ 12,249

$ 13,278

$ 11,910


 

 

 

 

 

 

Return on common equity – GAAP (a)

5.5%

7.4%

8.8%

6.4%

8.3%

Return on common equity excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP (a)

8.9%

8.9%

10.1%

8.9%

9.6%

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

15.7%

21.0%

26.3%

18.3%

25.3%

Return on tangible common equity excluding M&I, litigation and restructuring charges – Non-GAAP (a)

22.4%

23.0%

27.6%

22.7%

26.6%

(a)   Annualized.

 

The following table presents the calculation of the equity to assets ratio and book value per common share.

Equity to assets and book value per common share

June 30,

March 31,

June 30,

(dollars in millions, unless otherwise noted)

2012

2012

2011

BNY Mellon shareholders' equity at period end – GAAP

$   34,533

$   34,000

$   33,851

Less:  Preferred stock

500

-

-

BNY Mellon common shareholders' equity at period end – GAAP

34,033

34,000

33,851

Less:  Goodwill

17,909

18,002

18,191

Intangible assets

4,962

5,072

5,514

Add:  Deferred tax liability – tax deductible goodwill

982

972

895

Deferred tax liability – non-tax deductible intangible assets

1,400

1,428

1,630

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

$   13,544

$   13,326

$   12,671


 

 

 

 

Total assets at period end – GAAP

$ 330,283

$ 300,169

$ 304,706

Less:  Assets of consolidated investment management funds

10,955

11,609

13,533

Subtotal assets of operations – Non-GAAP

319,328

288,560

291,173

Less:  Goodwill

17,909

18,002

18,191

Intangible assets

4,962

5,072

5,514

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

72,838

61,992

56,478

Tangible total assets of operations at period end – Non-GAAP

$ 223,619

$ 203,494

$ 210,990


 

 

 

 

BNY Mellon shareholders' equity to total assets – GAAP

10.5%

11.3%

11.1%

BNY Mellon common shareholders' equity to total assets – GAAP

10.3%

11.3%

11.1%

Tangible BNY Mellon common shareholders' equity to tangible assets of

operations – Non-GAAP

6.1%

6.5%

6.0%


 

 

 

 

Period-end common shares outstanding (in thousands)

1,181,298

1,192,716

1,232,691


 

 

 

 

Book value per common share

$     28.81

$     28.51

$     27.46

Tangible book value per common share – Non-GAAP

$     11.47

$     11.17

$     10.28

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


 

 

 

 

 

The following table presents the calculation of the pre-tax operating margin ratio.

Pre-tax operating margin

(dollars in millions)

2Q12

1Q12

2Q11

YTD12

YTD11

Income before income taxes – GAAP

$ 589

$ 885

$ 1,034

$ 1,474

$ 1,983

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

29

11

21

40

65

Add:  Amortization of intangible assets

97

96

108

193

216

M&I, litigation and restructuring charges

378

109

63

487

122

Income before income taxes excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP

$ 1,035

$ 1,079

$ 1,184

$ 2,114

$ 2,256


 

 

 

 

 

 

Fee and other revenue – GAAP

$ 2,826

$ 2,838

$ 3,056

$ 5,664

$ 5,894

Income from consolidated investment management funds – GAAP

57

43

63

100

173

Net interest revenue – GAAP

734

765

731

1,499

1,429

Total revenue – GAAP

3,617

3,646

3,850

7,263

7,496

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

29

11

21

40

65

Total revenue excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds – Non-GAAP

$ 3,588

$ 3,635

$ 3,829

$ 7,223

$ 7,431


 

 

 

 

 

 

Pre-tax operating margin (a)

16%

24%

27%

20%

26%

Pre-tax operating margin excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP (a)

29%

30%

31%

29%

30%

(a)   Income before taxes divided by total revenue.

 

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 estimated capital ratios and our ability to continue to grow investment management and investment services fees, grow in the future, deliver the full breadth of our global capabilities, provide flexibility for ongoing investment and return capital to shareholders.  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, 2011 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 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 The Bank of New York Mellon Corporation



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