EX-99.1 2 dex991.htm QUARTERLY EARNINGS REVIEW FOR FIRST QUARTER 2011 Quarterly Earnings Review for first quarter 2011

Exhibit 99.1

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Quarterly Earnings Review

April 19, 2011

Table of Contents

 

Organization of Our Businesses

      2   

First Quarter 2011 Financial Highlights

      3   

Financial Summary/Key Metrics

      4   

Business Metrics

      5   

Fee and Other Revenue

      7   

Foreign Exchange and Other Trading Revenue

      8   

Net Interest Revenue

      8   

Noninterest Expense

      9   

Investment Securities Portfolio

      10   

Capital

      10   

Nonperforming Assets

      11   

Allowance for Credit Losses, Provision and Net Charge-offs

      11   

Review of Businesses

   

•      Investment Management

      12   

•      Investment Services

      14   

•      Other segment

      16   

Supplemental Information – Explanation of Non-GAAP Financial Measures

      17   

Cautionary Statement

      20   

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

ORGANIZATION OF OUR BUSINESSES

In the first quarter of 2011, BNY Mellon realigned its internal reporting structure and business presentation to focus on its two principal businesses, Investment Management and Investment Services. The realignment reflects management’s current approach to assessing performance and decisions regarding resource allocations. Investment Management includes the former Asset Management and Wealth Management businesses. Investment Services includes the former Asset Servicing, Issuer Services and Clearing Services businesses as well as the Cash Management business previously included in the Treasury Services business. The credit-related activities previously included in the Treasury Services business, are now included in the Other segment. Accordingly, the income statement has been changed to reflect this realignment. The following are the changes to the income statement:

 

  •  

Investment management and performance fees consist of the former asset and wealth management fee revenue; and

 

  •  

Investment services fees consist of the former securities servicing fees, including asset servicing, issuer services, clearing services, as well as treasury services fee revenue.

All prior periods have been reclassified. The reclassifications did not affect the results of operations.

Also, in the first quarter of 2011, we revised the net interest revenue for our businesses to reflect a new approach to transfer pricing domestic deposits. All prior period business results have been restated to reflect this revision. This revision did not impact the consolidated results.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

FIRST QUARTER 2011 FINANCIAL HIGHLIGHTS

 

     Net income from
continuing operations (a)		      EPS from
continuing operations (a) (b)		  
     (in millions)      1Q10      4Q10      1Q11      1Q11 vs.  
     1Q10      4Q10      1Q11               1Q10     4Q10  

Earnings:

                       

Continuing operations – GAAP

    $ 601       $ 690       $ 625       $ 0.49       $ 0.55       $ 0.50         2 %      (9 )% 

Non-GAAP adjustments (a)

      119         44         6         0.10         0.04         —          
                                                          

Subtotal Non-GAAP operating basis

      720         734         631         0.59         0.59         0.50         (15 )%      (15 )% 

Intangible amortization

      62         72         68         0.05         0.06         0.05        
                                                          

Continuing operations – Non-GAAP

    $ 782       $ 806       $ 699       $ 0.64       $ 0.65       $ 0.55         (14 )%      (15 )% 
                                                          

Net income applicable to common shareholders – GAAP

    $ 559       $ 679       $ 625       $ 0.46       $ 0.54       $ 0.50         9 %      (7 )% 
                                                          

KEY POINTS (comparisons are unannualized 1Q11 vs. 1Q10 unless otherwise stated)

 

•  

Earnings

  - Total revenue of $3.6 billion +9%.
  - Investment management fees +11% - benefiting from higher market values and net new business.
  - Investment services fees +27% - benefiting from impact of the Acquisitions, new business and higher market values.
  - Foreign exchange and other trading revenue decreased 24% primarily due to lower fixed income trading revenue.
  - Net interest revenue decreased 9% due to the continued impact of the low interest rate environment.
  - Non-U.S. revenue 37% +200 bps.
  - Total revenue decreased 3% sequentially driven by seasonality in performance fees and Depositary Receipts and lower foreign exchange volatility.
  - Noninterest expense +11% reflecting the impact of the Acquisitions, our revenue mix and higher employee benefits expense. (c)
  - Effective tax rate of 29.3% flat compared with 1Q10.
•  

AUC/A and AUM

  - Record levels of AUC/A and AUM in 1Q11 reflecting higher market values and net new business.
  - AUC/A of $25.5 trillion, + 14%.
  - AUM of $1.2 trillion, + 11%.
  - Long-term inflows of $31 billion in 1Q11.
  - Short-term outflows of $5 billion in 1Q11.
•  

Capital

  - We continued our strong capital generation in 1Q11. Our Tier 1 common equity increased $798 million, or 7%, (28% annualized) compared with Dec. 31, 2010.
  - Tier 1 common ratio 12.4% and return on Tier 1 common 21%. (a)
  - Increased quarterly dividend 44% to $0.13 per common share.
  - Repurchased 1.1 million common shares.

 

(a) See Supplemental information beginning on page 17 for GAAP to Non-GAAP reconciliations.
(b) Diluted earnings per share is determined based on the net income reported on the income statement less earnings allocated to participating securities of $5 million in the first quarter of 2010, $6 million in the fourth quarter of 2010 and $6 million in the first quarter of 2011, and the excess of redeemable value over the fair value of noncontrolling interests of $6 million in the first quarter of 2011.
(c) Total noninterest expense on a GAAP basis is presented on page 4.

 

 

Page - 3

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

FINANCIAL SUMMARY

 

(dollar amounts in millions, non-FTE basis unless otherwise noted; common
shares in thousands)		                                       1Q11 vs.  
   1Q10     2Q10     3Q10     4Q10     1Q11     1Q10     4Q10  

Revenue:

                                                         

Fee and other revenue – GAAP

    $ 2,529      $ 2,555      $ 2,668      $ 2,972      $ 2,838       

Less: Net securities gains

      7        13        6        1        5       
                                            

Total fee revenue – GAAP

    $ 2,522      $ 2,542      $ 2,662      $ 2,971      $ 2,833        12 %      (5 )% 

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

      41        32        49        45        66       

Net interest revenue – GAAP

      765        722        718        720        698        (9 )      (3 ) 

Total revenue excluding net securities gains – Non-GAAP

      3,328        3,296        3,429 (b)      3,736 (b)      3,597 (b)      8        (4 ) 

Total revenue – GAAP

      3,359        3,342        3,423        3,751        3,646        9        (3 ) 

Provision for credit losses

    $ 35      $ 20      $ (22 )    $ (22 )    $ —                     

Expense:

               

Noninterest expense – GAAP

    $ 2,440      $ 2,316      $ 2,611      $ 2,803      $ 2,697        11        (4 ) 

Less: Amortization of intangible assets

      97        98        111        115        108       

Restructuring charges

      7        (15 )      15        21        (6 )     

M&I expenses

      26        14        56        43        17       

Special litigation reserves

      164        N/A        N/A        N/A        N/A                   

Total noninterest expense – Non-GAAP

      2,146        2,219        2,429 (b)      2,624 (b)      2,578 (b)      20        (2 ) 

Income:

               

Income from continuing operations before income taxes

      884        1,006        834        970        949       

Provision for income taxes

      258        304        220        265        279                   

Income from continuing operations

    $ 626      $ 702      $ 614      $ 705      $ 670        7 %      (5 )% 

Net (income) loss attributable to noncontrolling interests (a)

      (25 )      (34 )      11        (15 )      (45 )     
                                            

Net income from continuing operations

      601        668        625        690        625       

Net loss from discontinued operations

      (42 )      (10 )      (3 )      (11 )      —         
                                            

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

    $ 559      $ 658      $ 622      $ 679      $ 625                   

Key Metrics (c):

               

Pre-tax operating margin – GAAP (d)

      26 %      30 %      24 %      26 %      26 %     

Non-GAAP adjusted (d)

      34 %      32 %      30 %      30 %      28 %     

Return on common equity (annualized) – GAAP (d)

      8.2 %      8.8 %      7.8 %      8.5 %      7.7 %     

Return on tangible common equity (annualized) Non-GAAP (d)

      25.8 %      25.7 %      26.3 %      27.5 %      24.3 %     

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

      75 %      76 %      78 %      79 %      78 %     

Percentage of non-U.S. fee, net interest revenue and income of consolidated investment management funds, net of noncontrolling interests

      35 %      35 %      36 %      38 %      37 %     

Period end:

               

Employees

      42,300        42,700        47,700        48,000        48,400       

Market capitalization

    $ 37,456      $ 29,975      $ 32,413      $ 37,494      $ 37,090       

Common shares outstanding

      1,212,941        1,214,042        1,240,454        1,241,530        1,241,724                   
(a) Includes income of $(24) million, income of $(33) million, loss of $12 million, income of $(14) million and income of $(44) million, of noncontrolling interests related to consolidated investment management funds, respectively.
(b) Includes total revenue of $237 million in the third quarter of 2010, $253 million in the fourth quarter of 2010 and $270 million in the first quarter of 2011 and noninterest expense of $185 million in the third quarter of 2010, $196 million in the fourth quarter of 2010 and $203 million in the first quarter of 2011 from the GIS and BAS acquisitions (collectively, the “Acquisitions”).
(c) Key metrics for all periods in 2010 are presented on a continuing operations basis.
(d) See Supplemental information beginning on page 17 for GAAP to Non-GAAP reconciliations.
N/A – Not applicable.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

BUSINESS METRICS

 

Investment Management metrics                                       1Q11 vs.  
     1Q10     2Q10     3Q10     4Q10     1Q11     1Q10     4Q10  

Changes in market value of assets under management (in billions):

                                                         

Beginning balance

    $ 1,115      $ 1,105      $ 1,047      $ 1,141      $ 1,172       

Net inflows:

               

Long-term

      16        12        11        9        31       

Money market

      (25 )      (17 )      18        6        (5 )                 

Total net inflows

      (9 )      (5 )      29        15        26       

Net market/currency impact

      (1 )      (53 )      65        16        31                   

Ending balance

    $ 1,105      $ 1,047      $ 1,141      $ 1,172      $ 1,229  (a)      11 %      5 % 

Composition of assets under management at period end (b):

               

Equity

      31 %      30 %      31 %      32 %      34 %     

Money market

      30        30        29        29        27       

Fixed income

      28        30        30        29        30       

Alternative investments and overlay

      11        10        10        10        9                   

Total

      100 %      100 %      100 %      100 %      100 %     

Wealth management:

               

Average loans (in millions)

    $ 6,302      $ 6,350      $ 6,520      $ 6,668      $ 6,825        8 %      2 % 

Average deposits (in millions)

    $ 7,325      $ 8,018      $ 8,455      $ 9,140      $ 9,272        27 %      1 % 
(a) Preliminary.
(b) Excludes securities lending cash management assets.

 

Investment Services metrics                                            1Q11 vs.  
     1Q10      2Q10      3Q10      4Q10      1Q11      1Q10     4Q10  

Market value of assets under custody and administration at period-end (in trillions)

    $ 22.4       $ 21.8       $ 24.4       $ 25.0       $ 25.5         14 %      2 % 

Market value of securities on loan at period-end (in billions) (a)

    $ 253       $ 248       $ 279       $ 278       $ 278         10 %      —   % 

Average loans (in millions)

    $ 14,273       $ 17,053       $ 17,941       $ 19,053       $ 20,554         44 %      8 % 

Average deposits (in millions)

    $ 122,350       $ 121,468       $ 123,212       $ 136,060       $ 141,115         15 %      4 % 

Asset servicing:

                    

New business wins (in billions)

    $ 205       $ 419       $ 480       $ 350       $ 496        

Corporate Trust:

                    

Total debt serviced (in trillions)

    $ 11.8       $ 11.6       $ 12.0       $ 12.0       $ 11.9         1 %      (1 )% 

Number of deals administered

      141,904         140,551         135,613         138,067         133,416         (6 )%      (3 )% 

Depositary Receipts:

                    

Number of sponsored programs

      1,336         1,345         1,353         1,363         1,368         2 %      —   % 

Total depositary receipts outstanding (in billions)

      28.3         29.9         30.0         30.4         31.0         10 %      2 % 

Clearing services:

                    

DARTS volume (in millions)

      188.0         198.4         161.4         185.5         207.2         10 %      12 % 

Average active clearing accounts (in thousands)

      4,811         4,896         4,929         4,967         5,443         13 %      10 % 

Total mutual fund assets (U.S. platform) (in millions)

    $ 224,219       $ 229,714       $ 243,573       $ 264,076       $ 287,682         28 %      9 % 

Average margin loans (in millions)

    $ 5,229       $ 5,775       $ 6,261       $ 6,281       $ 6,978         33 %      11 % 

Broker-Dealer:

                    

Average tri-party repo collateral (in billions)

    $ 1,540       $ 1,565       $ 1,631       $ 1,793       $ 1,805         17 %      1 % 

Treasury services:

                    

Global payments volume (in thousands)

      10,166         10,678         10,847         11,042         10,587         4 %      (4 )% 
(a) Represents the total amount of securities on loan, both cash and non-cash, managed by the Investment Services business.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

Market indices                                            1Q11 vs.  
     1Q10      2Q10      3Q10      4Q10      1Q11      1Q10     4Q10  

S&P 500 Index (a)

      1169         1031         1141         1258         1326         13 %      5 % 

S&P 500 Index – daily average

      1123         1135         1095         1204         1302         16        8   

FTSE 100 Index (a)

      5680         4917         5549         5900         5909         4        —     

FTSE 100 Index-daily average

      5431         5361         5312         5760         5945         9        3   

Barclays Capital Aggregate BondSM Index (a)

      300         299         329         323         328         9        2   

MSCI EAFE® Index (a)

      1584         1348         1561         1658         1703         8        3   

NYSE and NASDAQ Share Volume (in billions)

      246         299         233         219         225         (9 )      3   
(a) Period end.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

FEE AND OTHER REVENUE

 

Fee and other revenue    1Q10     2Q10     3Q10     4Q10     1Q11     1Q11 vs.  
(dollar amounts in millions)              1Q10     4Q10  

Investment services fees:

               

Asset servicing

    $ 637      $ 668      $ 870      $ 914      $ 923        45 %      1 % 

Issuer services

      333        354        364        409        351        5        (14 ) 

Clearing services

      230        245        252        278        292        27        5   

Treasury services

      131        125        132        129        128        (2 )      (1 ) 

Total investment services fees

      1,331        1,392        1,618        1,730        1,694        27        (2 ) 

Investment management and performance fees

      686        686        696        800        764        11        (5 ) 

Foreign exchange and other trading revenue

      262        220        146        258        198        (24 )      (23 ) 

Distribution and servicing

      48        51        56        55        53        10        (4 ) 

Financing-related fees

      50        48        49        48        43        (14 )      (10 ) 

Investment and other income

      145        145        97        80        81        (44 )      1   

Total fee revenue

      2,522        2,542        2,662        2,971        2,833        12        (5 ) 

Net securities gains

      7        13        6        1        5        N/M        N/M   

Total fee and other revenue

    $ 2,529      $ 2,555      $ 2,668 (a)    $ 2,972 (a)    $ 2,838 (a)      12 %      (5 )% 

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

      75 %      76 %      78 %      79 %      78 %                 
(a) Total fee revenue from the Acquisitions was $234 million in the third quarter of 2010, $246 million in the fourth quarter of 2010 and $261 million in the first quarter of 2011.

N/M - Not meaningful.

KEY POINTS

 

•  

Asset servicing fees – Year-over-year and sequential results were positively impacted by higher market values, new business and asset inflows from existing clients. The year-over-year increase was primarily driven by the impact of the Acquisitions.

•  

Issuer services fees – The increase year-over-year reflects higher depositary receipts revenue, reflecting higher corporate action and issuance and cancellation fees. The decrease sequentially was driven by seasonally lower depositary receipts revenue.

•  

Clearing services fees – The year-over-year and sequential increases reflect strong growth in mutual fund assets and positions, increased daily average revenue trades (“DARTs”), higher market values and new business. The year-over-year increase was also driven by the impact of the GIS acquisition.

•  

Investment management and performance fees totaled $764 million in the first quarter of 2011, an increase of 11% year-over-year and a decrease of 5% (unannualized) sequentially. Excluding performance fees, these fees totaled $747 million, an increase of 11% compared with the prior year period and 3% (unannualized) sequentially. Both increases were primarily due to higher market values and net new business.

•  

Foreign exchange and other trading revenue totaled $198 million compared with $262 million in the prior year period and $258 million in the fourth quarter of 2010. In the first quarter of 2011, foreign exchange revenue totaled $173 million, a decrease of 1% year-over-year and 16% (unannualized) sequentially as increased volumes were more than offset by declines in volatility. Other trading revenue was $25 million in the first quarter of 2011, a decrease of $62 million compared with the first quarter of 2010 and $27 million compared with the fourth quarter of 2010. Both decreases were driven by lower fixed income and derivatives trading revenue.

•  

Investment and other income totaled $81 million compared with $145 million in the prior year period and $80 million in the fourth quarter of 2010. The decrease year-over-year primarily reflects a reduction in foreign currency translation revenue and lower lease residual gains.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

FOREIGN EXCHANGE AND OTHER TRADING REVENUE

 

Foreign exchange and other trading revenue

(in millions)

    1Q10     2Q10     3Q10     4Q10     1Q11  

Foreign exchange

    $ 175      $ 246      $ 160      $ 206      $ 173   

Fixed income

      80        (32 )      (7 )      39        17   

Credit derivatives (a)

      (2 )      4        (6 )      (3 )      (1 ) 

Other

      9        2        (1 )      16        9   

Total

    $ 262      $ 220      $ 146      $ 258      $ 198   
(a) Used as economic hedges of loans.

NET INTEREST REVENUE

 

Net interest revenue                  1Q11 vs.  
(dollar amounts in millions)    1Q10     2Q10     3Q10     4Q10     1Q11     1Q10     4Q10  

Net interest revenue (non-FTE)

    $ 765      $ 722      $ 718      $ 720      $ 698        (9 )%      (3 )% 

Net interest revenue (FTE)

      770        727        723        724        702        (9 )      (3 ) 

Net interest margin (FTE)

      1.89 %      1.74 %      1.67 %      1.54 %      1.49 %      (40 ) bps      (5 ) bps 

Selected average balances:

               

Cash/interbank investments

    $ 71,788      $ 73,673      $ 74,803      $ 82,000      $ 82,524        15 %      1 % 

Trading account securities

      2,075        2,752        3,194        2,698        3,698        78        37   

Securities

      55,352        54,030        57,993        65,370        65,397        18        —     

Loans

      34,214        36,664        36,769        37,529        38,566        13        3   
                                            

Interest-earning assets

      163,429        167,119        172,759        187,597        190,185        16        1   

Interest-bearing deposits

      101,034        99,963        104,033        111,776        116,515        15        4   

Noninterest-bearing deposits

      33,330        34,628        33,198        39,625        38,616        16        (3 ) 

Selected average yields/rates:

               

Cash/interbank investments

      0.89 %      0.82 %      0.83 %      0.98 %      0.83 %     

Trading account securities

      2.49        2.62        2.57        3.02        2.44       

Securities

      3.67        3.62        3.41        3.02        2.96       

Loans

      2.46        2.30        2.23        2.12        2.08       

Interest-earning assets

      2.18        2.08        2.03        1.95        1.85       

Interest-bearing deposits

      0.16        0.17        0.19        0.22        0.23       

Average cash/interbank investments as a percentage of average interest-earning assets

      44 %      44 %      43 %      44 %      43 %     

Average noninterest-bearing deposits as a percentage of average interest-earning assets

      20 %      21 %      19 %      21 %      20 %                 

bps – basis points.

FTE – fully taxable equivalent.

KEY POINTS

 

•  

Net interest revenue totaled $698 million in 1Q11, a decrease of $67 million compared with 1Q10 and $22 million sequentially. Both the year-over-year and sequential declines reflect lower spreads resulting from the continued impact of the low interest rate environment and lower discount accretion, partially offset by higher average assets. The sequential decline also reflects a lower day count. Net interest revenue in the first quarter of 2011 includes $10 million related to both timing differences on hedges and an interest payment on a deposit for a bankruptcy matter.

•  

The net interest margin (FTE) was 1.49% in 1Q11, compared with 1.89% in 1Q10 and 1.54% in 4Q10. The declines primarily reflect the factors mentioned above.

 

 

Page - 8

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

NONINTEREST EXPENSE

 

Noninterest expense    1Q10     2Q10     3Q10     4Q10     1Q11     1Q11 vs.  
(dollar amounts in millions)              1Q10     4Q10  

Staff:

               

Compensation

    $ 753      $ 763      $ 850      $ 871      $ 876        16 %      1 % 

Incentives

      284        272        289        348        325        14        (7 ) 

Employee benefits

      183        199        205        198        223        22        13   

Total staff

      1,220        1,234        1,344        1,417        1,424        17        —     

Professional, legal and other purchased services

      241        256        282        320        283        17        (12 ) 

Software and equipment

      169        162        187        207        206        22        —     

Net occupancy

      137        143        150        158        153        12        (3 ) 

Distribution and servicing

      89        90        94        104        111        25        7   

Business development

      52        68        63        88        56        8        (36 ) 

Sub-custodian

      52        65        60        70        68        31        (3 ) 

Other

      186        201        249        260        277        49        7   

Subtotal

      2,146        2,219        2,429 (a)      2,624 (a)      2,578 (a)      20        (2 ) 

Amortization of intangible assets

      97        98        111        115        108        11        (6 ) 

Restructuring charges

      7        (15 )      15        21        (6 )      N/M        N/M   

M&I expenses

      26        14        56        43        17        (35 )      (60 ) 

Special litigation reserves

      164        N/A        N/A        N/A        N/A        N/M        N/M   

Total noninterest expense

    $ 2,440      $ 2,316      $ 2,611      $ 2,803      $ 2,697        11 %      (4 )% 

Total staff expense as a percentage of total revenue

      36 %      37 %      39 %      38 %      39 %                 
(a) Noninterest expense from the Acquisitions was $185 million in the third quarter of 2010, $196 million in the fourth quarter of 2010 and $203 million in the first quarter of 2011.

N/A - Not applicable.

N/M - Not meaningful.

KEY POINTS

 

•  

Total noninterest expense (excluding amortization of intangible assets, restructuring charges, M&I expenses and special litigation reserves) (Non-GAAP) increased 20% compared with the prior year period, 11% excluding the Acquisitions, and decreased 2% (unannualized) sequentially.

 

  - The year-over-year increase, excluding the impact of the Acquisitions, reflects higher expenses associated with our revenue mix, $47 million of litigation expense in 1Q11, higher pension and healthcare expenses, and continued investment in our franchise.

 

  - The sequential decrease reflects seasonality, as well as higher expenses in the fourth quarter of 2010 primarily related to the full-year impact of adjusting compensation to market levels and the write-off of equipment, partially offset by higher litigation and pension and healthcare expenses.

 

 

Page - 9

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

INVESTMENT SECURITIES PORTFOLIO

At March 31, 2011, the fair value of our investment securities portfolio totaled $66.4 billion. The unrealized pre-tax net gain on our total securities portfolio was $569 million at March 31, 2011 compared with a pre-tax net gain of $353 million at Dec. 31, 2010 and an unrealized pre-tax net loss of $247 million at March 31, 2010. The investment securities previously included in the former Grantor Trust were marked down to approximately 60% of face value in 2009. At March 31, 2011, these securities were trading above adjusted amortized cost with a total unrealized pre-tax gain of $823 million.

The following table shows the distribution of our investment securities portfolio.

 

Investment securities portfolio                                                                         
     Dec.
31,
2010		     1Q11
change in
unrealized
gain/
(loss)		     March 31, 2011     Fair
value as a
% of
amortized
cost (a)		     Unrealized
gain/(loss)		     Ratings  
(dollar amounts in millions)   

Fair

value

       Amortized
cost		     

Fair

value

         AAA/
AA-		     A+/ A-     BBB+/
BBB-		     BB+ and
lower		     Not
rated		  

Watch list: (b)

                        

European floating rate notes (c)

    $ 4,636      $ 39      $ 5,020       $ 4,628        91 %    $ (392 )      86 %      11 %      3 %      —   %      —   % 

Commercial MBS

      2,281        2        2,073         2,131        103        58        92        5        3        —          —     

Non-agency RMBS

      2,577        67        2,652         2,428        84        (224 )      30        7        12        51        —     

Credit cards

      517        —          437         442        99        5        2        96        2        —          —     

Other

      331        13        305         341        50        36        6        1        24        16        53   

Total Watch list (b)

      10,342        121        10,487         9,970        89        (517 )      67        12        6        13        2   

Agency RMBS

      20,157        (44 )      18,894         19,227        102        333        100        —          —          —          —     

Sovereign debt/ sovereign guaranteed

      8,585        (27 )      9,661         9,683        100        22        100        —          —          —          —     

U.S. Treasury securities

      12,635        (50 )      13,683         13,618        100        (65 )      100        —          —          —          —     

Non-agency RMBS (d)

      4,496        245        3,560         4,383        75        823        2        1        3        94        —     

Foreign covered bonds

      2,868        (19 )      3,122         3,087        99        (35 )      97        3        —          —          —     

FDIC-insured debt

      2,474        (9 )      2,460         2,497        101        37        100        —          —          —          —     

U.S. Government agency debt

      1,005        (4 )      1,023         1,017        99        (6 )      100        —          —          —          —     

Other

      3,807        3        2,942         2,919        99        (23 )      32        11        4        1        52   

Total investment securities

    $ 66,369  (e)    $ 216      $ 65,832       $ 66,401  (e)      97 %    $ 569        85 %      3 %      1 %      8 %      3 % 
(a) Amortized cost before impairments.
(b) The “Watch list” includes those securities we view as having a higher risk of impairment charges.
(c) Includes RMBS, commercial MBS, and other securities.
(d) These RMBS were previously included in the former Grantor Trust and were marked to market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancement, the difference between the written-down amortized cost and the current face amount of each of these securities.
(e) Includes net unrealized gains on derivatives hedging securities available-for-sale of $60 million at Dec. 31, 2010 and $92 million at March 31, 2011.

CAPITAL

 

Capital ratios    March 31,
2010		     Dec. 31,
2010		     March 31,
2011 (a)		  

Tier 1 capital ratio (b)

      13.3 %      13.4 %      14.0 % 

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

      17.2        16.3        16.8   

Leverage capital ratio (b)

      6.5        5.8        6.1   

Common shareholders’ equity to total assets ratio (c)

      13.5        13.1        12.5   

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

      6.1        5.8        5.9   

Tier 1 common equity to risk-weighted assets ratio (b)(c)

      11.6        11.8        12.4   
(a) Preliminary.
(b) On a regulatory basis as determined under Basel 1 guidelines.
(c) See the Supplemental information section beginning on page 17 for a calculation of these ratios.

We continued our strong capital generation in 1Q11. Our Tier 1 common equity increased $798 million, or 7%, compared with Dec. 31, 2010, primarily driven by earnings retention.

 

 

Page - 10

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

NONPERFORMING ASSETS

 

Nonperforming assets

(dollar amounts in millions)

    March 31,
2010		     Dec. 31,
2010		     March 31,
2011		  

Loans:

       

Other residential mortgages

    $ 204      $ 244      $ 245   

Wealth management

      58        59        56   

Commercial real estate

      50        44        36   

Commercial

      40        34        32   

Foreign

      7        7        7   

Financial institutions

      95        5        4   

Total nonperforming loans

      454        393        380   

Other assets owned

      5        6        6   

Total nonperforming assets

    $ 459      $ 399  (a)    $ 386  (a) 

Nonperforming assets ratio

      1.4 %      1.1 %      1.0 % 

Allowance for loan losses/nonperforming loans

      114.5        126.7        122.9   

Total allowance for credit losses/nonperforming loans

      140.5        145.3        145.8   
(a) Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in these loans are nonperforming loans of $150 million at March 31, 2010, $218 million at Dec. 31, 2010 and $239 million at March 31, 2011. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

 

Allowance for credit losses, provision and net charge-offs    Quarter ended  
(in millions)    March 31
2010		     Dec. 31,
2010		     March 31,
2011		  

Allowance for credit losses – beginning of period

    $ 628      $ 608      $ 571   

Provision for credit losses

      35        (22 )      —     

Net (charge-offs) recoveries:

       

Other residential mortgages

      (12 )      (14 )      (17 ) 

Financial institutions

      (20 )      (1 )      1   

Commercial

      12        2        1   

Commercial real estate

      (5 )      (2 )      (2 ) 

Total net (charge-offs) recoveries

      (25 )      (15 )      (17 ) 

Allowance for credit losses – end of period

    $ 638      $ 571      $ 554   

Allowance for loan losses

    $ 520      $ 498      $ 467   

Allowance for unfunded commitments

      118        73        87   

There was no provision for credit losses recorded in the first quarter of 2011, compared with a charge of $35 million in the first quarter of 2010 and a credit of $22 million in the fourth quarter of 2010. During the first quarter of 2011, the total allowance for credit losses decreased $17 million and net charge-offs totaled $17 million.

 

 

Page - 11

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

REVIEW OF BUSINESSES

INVESTMENT MANAGEMENT (provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments)

 

(dollar amounts in millions,

unless otherwise noted)

    1Q10     2Q10     3Q10     4Q10     1Q11     1Q11 vs.  
             1Q10     4Q10  

Revenue:

               

Investment management and performance fees:

               

Mutual funds

    $ 249      $ 254      $ 270      $ 293      $ 283        14 %      (3 )% 

Institutional clients

      265        262        264        283        302        14        7   

Wealth management

      174        170        172        174        181        4        4   

Performance fees

      13        19        16        75        17        31        N/M   

Total investment management and performance fees

      701        705        722        825        783        12        (5 ) 

Distribution and servicing

      47        49        53        52        51        9        (2 ) 

Other (a)

      27        13        18        22        36        33        64   

Total fee and other revenue (a)

      775        767        793        899        870        12        (3 ) 

Net interest revenue

      52        53        50        50        53        2        6   

Total revenue

      827        820        843        949        923        12        (3 ) 

Provision for credit losses

      —          1        —          2        —          N/M        N/M   

Noninterest expense (ex. amortization of intangible assets)

      569        596        624        667        630        11        (6 ) 

Income before taxes (ex. amortization of intangible assets)

      258        223        219        280        293        14        5   

Amortization of intangible assets

      58        59        59        61        55        (5 )      (10 ) 

Income before taxes

    $ 200      $ 164      $ 160      $ 219      $ 238        19 %      9 % 

Pre-tax operating margin

      24 %      20 %      19 %      23 %      26 %     

Pre-tax operating margin (ex. amortization of intangible assets)

      31 %      27 %      26 %      29 %      32 %     

Metrics:

               

Changes in market value of assets under management (in billions):

               

Beginning balance

    $ 1,115      $ 1,105      $ 1,047      $ 1,141      $ 1,172       

Net inflows:

               

Long-term

      16        12        11        9        31       

Money market

      (25 )      (17 )      18        6        (5 )                 

Total net inflows

      (9 )      (5 )      29        15        26       

Net market/currency impact

      (1 )      (53 )      65        16        31                   

Ending balance

    $ 1,105      $ 1,047      $ 1,141      $ 1,172      $ 1,229  (b)      11 %      5 % 

Composition of assets under management at period end (c):

               

Equity

      31 %      30 %      31 %      32 %      34 %     

Money market

      30        30        29        29        27       

Fixed income

      28        30        30        29        30       

Alternative investments and overlay

      11        10        10        10        9                   

Total

      100 %      100 %      100 %      100 %      100 %     

Wealth management:

               

Average loans (in millions)

    $ 6,302      $ 6,350      $ 6,520      $ 6,668      $ 6,825        8 %      2 % 

Average deposits (in millions)

    $ 7,325      $ 8,018      $ 8,455      $ 9,140      $ 9,272        27 %      1 % 
(a) Total fee and other revenue includes the impact of the consolidated investment management funds. See Supplemental information beginning on page 17. Additionally, other revenue includes asset servicing, clearing services and treasury services revenue.
(b) Preliminary.
(c) Excludes securities lending cash management assets.

N/M – Not meaningful.

 

 

Page - 12

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

INVESTMENT MANAGEMENT KEY POINTS

 

•  

Investment Management results reflect the benefit of new business in the investment management boutiques and wealth management platform, higher equity values, improved investment performance, seasonality (sequentially), and the adverse impact of the low interest rate environment.

 

•  

Assets under management were a record $1.2 trillion at March 31, 2011, up 11% year-over-year and 5% (unannualized) sequentially, reflecting the impact of higher market values and net new business.

 

  - Net long-term inflows were $31 billion and short-term outflows were $5 billion in 1Q11. Long-term inflows benefited from strength in fixed income and equity indexed products.

 

•  

Investment management and performance fees were up 12% year-over-year and decreased 5% (unannualized) sequentially. The year-over-year increase reflects net new business, higher market values and improved investment performance. The sequential decrease reflects seasonally lower performance fees, partially offset by higher market values and net new business. Excluding performance fees, these fees increased 11% year-over-year and 2% (unannualized) sequentially.

 

•  

Net interest revenue increased 2% year-over-year and 6% (unannualized) sequentially as wealth management loans and deposits reached record levels in 1Q11 due to organic growth.

 

  - Average loans increased 8% year-over-year and 2% (unannualized) sequentially; Average deposits increased 27% year-over-year and 1% (unannualized) sequentially.

 

•  

Noninterest expense (ex. amortization of intangible assets) increased 11% year-over-year and decreased 6% (unannualized) sequentially. The year-over-year increase primarily resulted from higher incentive expense driven by new business, and higher distribution and servicing expense. The sequential decrease reflects lower incentive expense driven primarily by a seasonal decrease in performance fees.

 

•  

Generated 300 basis points and 100 basis points of positive operating leverage sequentially and year-over-year, excluding amortization of intangible assets.

 

•  

41% non-U.S. revenue in 1Q11 vs. 39% in 1Q10.

 

 

Page - 13

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

INVESTMENT SERVICES (provides global custody and related services, broker-dealer services, alternative investment services, corporate trust, depositary receipt and shareowner services, as well as clearing services and global payment/working capital solutions to global financial institutions)

 

(dollar amounts in millions,

unless otherwise noted)

                                       1Q11 vs.  
   1Q10     2Q10     3Q10     4Q10     1Q11     1Q10     4Q10  

Revenue:

                                                         

Investment services fees:

               

Asset servicing

    $ 607      $ 627      $ 845      $ 888      $ 897        48 %      1 % 

Issuer services

      333        354        364        409        351        5        (14 ) 

Clearing services

      227        240        250        276        290        28        5   

Treasury services

      130        124        131        128        127        (2 )      (1 ) 

Total investment services fees

      1,297        1,345        1,590        1,701        1,665        28        (2 ) 

Foreign exchange and other trading revenue

      221        249        185        227        208        (6 )      (8 ) 

Other (a)

      72        120        90        82        77        7        (6 ) 

Total fee and other revenue (a)

      1,590        1,714        1,865        2,010        1,950        23        (3 ) 

Net interest revenue

      653        608        589        598        639        (2 )      7   

Total revenue (b)

      2,243        2,322        2,454        2,608        2,589        15        (1 ) 

Noninterest expense (ex. amortization of intangible assets) (c)

      1,419        1,521        1,630        1,759        1,763        24        —     

Income before taxes (ex. amortization of intangible assets)

      824        801        824        849        826        —          (3 ) 

Amortization of intangible assets

      38        39        52        53        53        39        —     

Income before taxes

    $ 786      $ 762      $ 772      $ 796      $ 773        (2 )%      (3 )% 

Pre-tax operating margin

      35 %      33 %      31 %      31 %      30 %     

Pre-tax operating margin (ex. amortization of intangible assets)

      37 %      34 %      34 %      33 %      32 %     

Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)

      91 %      88 %      98 %      97 %      94 %     

Metrics:

               

Market value of assets under custody and administration at period-end (in trillions)

    $ 22.4      $ 21.8      $ 24.4      $ 25.0      $ 25.5        14 %      2 % 

Market value of securities on loan at period-end (in billions) (d)

    $ 253      $ 248      $ 279      $ 278      $ 278        10 %      —   % 

Securities lending revenue

    $ 24      $ 30      $ 26      $ 27      $ 27        13 %      —   % 

Average loans (in millions)

    $ 14,273      $ 17,053      $ 17,941      $ 19,053      $ 20,554        44 %      8 % 

Average deposits (in millions)

    $ 122,350      $ 121,468      $ 123,212      $ 136,060      $ 141,115        15 %      4 % 

Asset servicing:

               

New business wins (in billions)

    $ 205      $ 419      $ 480      $ 350      $ 496       

Corporate Trust:

               

Total debt serviced (in trillions)

    $ 11.8      $ 11.6      $ 12.0      $ 12.0      $ 11.9        1 %      (1 )% 

Number of deals administered

      141,904        140,551        135,613        138,067        133,416        (6 )%      (3 )% 

Depositary Receipts:

               

Number of sponsored programs

      1,336        1,345        1,353        1,363        1,368        2 %      —   % 

Total depositary receipts outstanding (in billions)

      28.3        29.9        30.0        30.4        31.0        10 %      2 % 

Clearing services:

               

DARTS volume (in millions)

      188.0        198.4        161.4        185.5        207.2        10 %      12 % 

Average active clearing accounts (in thousands)

      4,811        4,896        4,929        4,967        5,443        13 %      10 % 

Total mutual fund assets (U.S. platform) (in millions)

    $ 224,219      $ 229,714      $ 243,573      $ 264,076      $ 287,682        28 %      9 % 

Average margin loans (in millions)

    $ 5,229      $ 5,775      $ 6,261      $ 6,281      $ 6,978        33 %      11 % 

Broker-Dealer:

               

Average tri-party repo collateral (in billions)

    $ 1,540      $ 1,565      $ 1,631      $ 1,793      $ 1,805        17 %      1 % 

Treasury services:

               

Global payments transaction volume (in thousands)

      10,166        10,678        10,847        11,042        10,587        4 %      (4 )% 
(a) Total fee and other revenue includes investment management fees and distribution and servicing revenue.
(b) Total revenue from the Acquisitions was $237 million in the third quarter of 2010, $253 million in the fourth quarter of 2010 and $270 million in the first quarter of 2011.
(c) Noninterest expense from the Acquisitions was $185 million in the third quarter of 2010, $196 million in the fourth quarter of 2010 and $203 million in the first quarter of 2011.
(d) Represents the total amount of securities on loan, both cash and non-cash, managed by the Investment Services business.

 

 

Page - 14

BNY Mellon 1Q11 Quarterly Earnings Review

 

 

INVESTMENT SERVICES KEY POINTS

 

•  

Investment Services results reflect the impact of the Acquisitions (year-over-year), new business, improved market values and seasonality (sequentially).

 

•  

Investment services fees totaled $1.7 billion, an increase of 28% year-over-year and a decrease of 2% (unannualized) sequentially.

 

  - Asset servicing revenue (global custody, broker-dealer services and alternative investment services) was $897 million in 1Q11 compared with $888 million in 4Q10 and $607 million in 1Q10. Year-over-year and sequential results were positively impacted by higher market values, new business and asset inflows from existing clients. The year-over-year increase was primarily driven by the impact of the Acquisitions.

 

  - Issuer services revenue (corporate trust, depositary receipts and shareowner services) was $351 million in 1Q11 compared with $409 million in 4Q10 and $333 million in 1Q10. The year-over-year increase was primarily driven by higher depositary receipts revenue, reflecting higher corporate action and issuance and cancellation fees. The decrease sequentially resulted from seasonally lower depositary receipts revenue.

 

  - Clearing services revenue (Pershing) was $290 million in 1Q11 compared with $276 million in 4Q10 and $227 million in 1Q10. The year-over-year and sequential increases reflect strong growth in mutual fund assets and positions, increased revenue from DARTs, higher market values and new business. The year-over-year increase also includes the impact of the GIS acquisition.

 

•  

Foreign exchange and other trading revenue decreased 6% year-over-year and 8% (unannualized) sequentially, as increased foreign exchange volumes were more than offset by declines in volatility.

 

•  

Net interest revenue was $639 million in 1Q11 compared with $598 million in 4Q10 and $653 million in 1Q10. The sequential increase reflects higher deposit balances partially offset by narrower spreads.

 

•  

Noninterest expense (excluding amortization of intangible assets) increased 24% year-over-year and was flat sequentially. The year-over-year increase reflects the impact of the Acquisitions, higher litigation expenses and expenses in support of business growth. Sequentially, lower incentive expense was offset by higher litigation expense.

 

•  

36% non-U.S. revenue in both 1Q11 and 1Q10.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

OTHER SEGMENT (primarily includes credit-related services, the leasing portfolio, corporate treasury activities, business exits, M&I expenses and other corporate revenue and expense items)

 

(dollar amounts in millions)    1Q10     2Q10     3Q10     4Q10     1Q11  

Revenue:

           

Fee and other revenue

    $ 205      $ 106      $ 59      $ 108      $ 84   

Net interest revenue

      60        61        79        72        6   

Total revenue

      265        167        138        180        90   

Provision for credit losses

      35        19        (22 )      (24 )      —     

Noninterest expense (ex. amortization of intangible assets, restructuring charges, M&I expenses and special litigation reserves)

      158        102        175        198        185   

Income (loss) before taxes (ex. amortization of intangible assets, restructuring charges, M&I expenses and special litigation reserves)

      72        46        (15 )      6        (95 ) 

Amortization of intangible assets

      1        —          —          1        —     

Restructuring charges

      7        (15 )      15        21        (6 ) 

M&I expenses

      26        14        56        43        17   

Special litigation reserves

      164        N/A        N/A        N/A        N/A   

Income (loss) before taxes

    $ (126 )    $ 47      $ (86 )    $ (59 )    $ (106 ) 

Average loans and leases

    $ 13,639      $ 13,261      $ 12,308      $ 11,808      $ 11,187   

Average deposits

    $ 4,689      $ 5,105      $ 5,564      $ 6,201      $ 4,744   

N/A – Not applicable.

KEY POINTS

 

•  

Total fee and other revenue decreased $121 million compared to 1Q10 and $24 million compared to 4Q10. Both decreases reflect lower fixed income and derivative trading revenue. The year-over-year decrease also reflects a reduction in foreign currency translation revenue and lower lease residual gains.

 

•  

The year-over-year and sequential declines in net interest revenue reflect a reduction in the net interest margin resulting from the continued impact of the low interest rate environment. The year-over-year decline also reflects lower average loan and lease balances resulting from our credit strategy to reduce targeted risk exposure.

 

•  

Noninterest expense (excluding amortization of intangible assets, restructuring charges, M&I expenses and special litigation reserves) increased $27 million compared to 1Q10 and decreased $13 million sequentially. The year-over-year increase reflects higher pension and healthcare expenses. The decrease sequentially primarily reflects the write-off of equipment in the fourth quarter of 2010 and a seasonal decrease in marketing and donations.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

SUPPLEMENTAL INFORMATION – EXPLANATION OF NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Review certain Non-GAAP measures based upon tangible common shareholders’ equity. BNY Mellon believes that the ratio of tangible common shareholders’ equity to tangible assets of operations is a measure of capital strength that adds additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are 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 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 the measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding. BNY Mellon has presented revenue measures which exclude the effect of net securities gains and expense measures excluding items, such as merger and integration (“M&I”) expenses, amortization of intangible assets expenses and special litigation reserves taken in the first quarter of 2010. Return on equity measures and operating margin measures which exclude some or all of these items are also presented. 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 asset management funds permits investors to view revenue on a basis consistent with prior periods. 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 which were consummated in the third quarter of 2010 and the merger with Mellon Financial Corporation in 2007. M&I expenses generally continue for approximately three years after the transaction, and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon’s business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased, typically after approximately three years. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. With regards to the exclusion of net securities gains, BNY Mellon’s primary businesses are Investment Management and Investment Services. The management of these businesses is evaluated on the basis of the ability of these businesses to generate fee and net interest revenue and to control expenses, and not on the results of BNY Mellon’s investment securities portfolio. The investment securities portfolio is managed within the Other group of businesses. 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. With regards to higher yields related to the restructured investment securities portfolio, client deposits serve as the primary funding source for our investment securities portfolio and we typically allocate all interest revenue to the businesses generating the deposits. Accordingly, the higher yield related to the restructured investment securities portfolio has been included in the results of our businesses. 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 assets management funds permits investors to view revenue on a basis consistent with prior periods. Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions. Excluding these charges permits investors to view expenses on a basis consistent with prior

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

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.

In this Earnings Review, 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 on a business-level basis.

 

Reconciliation of net income and EPS – GAAP to Non-GAAP    1Q10     4Q10     1Q11  
(in millions, except per common share amounts)    Net income     EPS (a)     Net income     EPS (a)     Net income     EPS (a)  

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP – Diluted EPS basis (a)

    $ 559      $ 0.46      $ 679      $ 0.54      $ 625      $ 0.50   

Loss from discontinued operations

      (42 )      (0.03 )      (11 )      (0.01 )      —          —     

Continuing operations – GAAP

      601        0.49        690        0.55        625        0.50   

Add:    Restructuring charges

      5        N/A        15        0.01        (5 )      N/A   

            M&I expenses

      16        0.01        29        0.02        11        N/A   

            Special litigation reserves

      98        0.08        N/A        N/A        N/A        N/A   

Net income from continuing operations applicable to common shareholders excluding restructuring charges, M&I expenses and special litigation reserves – Non-GAAP

      720        0.59  (b)      734        0.59  (b)      631        0.50   

Add:    Amortization of intangible assets

      62        0.05        72        0.06        68        0.05   

Net income from continuing operations applicable to common shareholders excluding restructuring charges, M&I expenses, special litigation reserves and amortization of intangible assets – Non-GAAP

    $ 782      $ 0.64      $ 806      $ 0.65      $ 699      $ 0.55   
(a) Diluted earnings per share are determined based on the net income reported on the income statement less earnings allocated to participating securities of $5 million in the first quarter of 2010, $6 million in the fourth quarter of 2010 and $6 million in the first quarter of 2011, and the excess of redeemable value over the fair value of noncontrolling interests of $6 million in the first quarter of 2011.
(b) Does not foot due to rounding.
N/A – Not applicable.

 

Investment management and performance fee revenue                           1Q11 vs.  
(dollars in millions)    1Q10      4Q10      1Q11     1Q10     4Q10  

Investment management and performances fee revenue

    $ 686       $ 800       $ 764        11 %      (5 )% 

Less:    Performance fees

      13         73         17                   

Investment management and performance fee revenue excluding performance fees

    $ 673       $ 727       $ 747        11 %      3 % 
            
Income from consolidated investment management funds, net of noncontrolling interests                               
(in millions)    1Q10      2Q10      3Q10     4Q10     1Q11  

Operations of consolidated investment management funds

    $ 65       $ 65       $ 37      $ 59      $ 110   

Less:    Noncontrolling interest of consolidated investment management funds

      24         33         (12 )      14        44   

Income from consolidated investment management funds, net of noncontrolling interests

    $ 41       $ 32       $ 49      $ 45      $ 66   
            
Income from consolidated investment management funds, net of noncontrolling interests                               
(in millions)    1Q10      2Q10      3Q10     4Q10     1Q11  

Investment management and performance fees

    $ 25       $ 29       $ 36      $ 35      $ 31   

Investment and other income

      16         3         13        10        35   

Income from consolidated investment management funds, net of noncontrolling interests

    $ 41       $ 32       $ 49      $ 45      $ 66   

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

Reconciliation of income from continuing operations before income taxes – pre-tax operating margin  
(dollars in millions)    1Q10     2Q10     3Q10     4Q10     1Q11  

Income from continuing operations before income taxes – GAAP

    $ 884      $ 1,006      $ 834      $ 970      $ 949   

Less:  Net securities gains

      7        13        6        1        5   

          Noncontrolling interests of consolidated investment management funds

      24        33        (12 )      14        44   

Add:  Special litigation reserves

      164        N/A        N/A        N/A        N/A   

          Restructuring charges

      7        (15 )      15        21        (6 ) 

          M&I expenses

      26        14        56        43        17   

          Amortization of intangible assets

      97        98        111        115        108   

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

    $ 1,147      $ 1,057      $ 1,022      $ 1,134      $ 1,019   

Fee and other revenue – GAAP

    $ 2,529      $ 2,555      $ 2,668      $ 2,972      $ 2,838   

Income of consolidated investment management funds – GAAP

      65        65        37        59        110   

Net interest revenue – GAAP

      765        722        718        720        698   

Total revenue – GAAP

      3,359        3,342        3,423        3,751        3,646   

Less:  Net securities gains

      7        13        6        1        5   
                  Noncontrolling interests of consolidated asset management funds      24        33        (12 )      14        44   

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

    $ 3,328      $ 3,296      $ 3,429      $ 3,736      $ 3,597   

Pre-tax operating margin (a)

      26 %      30 %      24 %      26 %      26 % 

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

      34 %      32 %      30 %      30 %      28 % 
(a) Income before taxes divided by total revenue.
N/A – Not applicable.

 

Return on common equity and tangible common equity

(dollars in millions)

    1Q10 (a)     2Q10 (a)     3Q10 (a)     4Q10 (a)     1Q11  

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

    $ 559      $ 658      $ 622      $ 679      $ 625   

Less:  Loss from discontinued operations, net of tax

      (42 )      (10 )      (3 )      (11 )      —     

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

      601        668        625        690        625   

Add:  Amortization of intangible assets

      62        60        70        72        68   

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

    $ 663      $ 728      $ 695      $ 762      $ 693   

Average common shareholders’ equity

    $ 29,715      $ 30,462      $ 31,868      $ 32,379      $ 32,827   

Less:  Average goodwill

      16,143        16,073        17,798        18,073        18,121   

           Average intangible assets

      5,513        5,421        5,956        5,761        5,664   

Add:  Deferred tax liability – tax deductible goodwill

      720        746        763        816        862   

           Deferred tax liability – non-tax deductible intangible assets

      1,660        1,649        1,634        1,625        1,658   

Average tangible common shareholders’ equity – Non-GAAP

    $ 10,439      $ 11,363      $ 10,511      $ 10,986      $ 11,562   

Return on common equity – GAAP (b)

      8.2 %      8.8 %      7.8 %      8.5 %      7.7 % 

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

      25.8 %      25.7 %      26.3 %      27.5 %      24.3 % 
(a) Presented on a continuing operations basis.
(b) Annualized.

 

 

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BNY Mellon 1Q11 Quarterly Earnings Review

 

 

 

 

Equity to assets and book value per common share

(dollars in millions, unless otherwise noted)

    March 31,
2010		     Dec. 31,
2010		     March 31,
2011		  

Common shareholders’ equity at period end – GAAP

    $ 29,683      $ 32,354      $ 33,258   

Less:  Goodwill

      16,077        18,042        18,156   

           Intangible assets

      5,449        5,696        5,617   

Add:  Deferred tax liability – tax deductible goodwill

      720        816        862   

           Deferred tax liability – non-tax deductible intangible assets

      1,660        1,625        1,658   

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

    $ 10,537      $ 11,057      $ 12,005   

Total assets at period end – GAAP

    $ 220,551      $ 247,259      $ 266,444   

Less:  Assets of consolidated investment management funds

      12,568        14,766        14,699   

Subtotal assets of operations – Non-GAAP

      207,983        232,493        251,745   

Less:  Goodwill

      16,077        18,042        18,156   

           Intangible assets

      5,449        5,696        5,617   

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

      14,709        18,566        24,613   

Tangible assets of operations at period end – Non-GAAP

    $ 171,748      $ 190,189      $ 203,359   

Common shareholders’ equity to total assets – GAAP

      13.5 %      13.1 %      12.5 % 

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

      6.1 %      5.8 %      5.9 % 

Period end common shares outstanding (in thousands)

      1,212,941        1,241,530        1,241,724   

Book value per common share

    $ 24.47      $ 26.06      $ 26.78   

Tangible book value per common share – Non-GAAP

    $ 8.69      $ 8.91      $ 9.67   

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

 

       

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

(dollars in millions)

    March 31,
2010		     Dec. 31,
2010		     March 31,
2011 (b)		  

Total Tier 1 capital

    $ 13,426      $ 13,597      $ 14,405   

Less:  Trust preferred securities

      1,667        1,676        1,686   

Total Tier 1 common equity

    $ 11,759      $ 11,921      $ 12,719   

Total risk-weighted assets

    $ 101,197      $ 101,407      $ 102,963   

Tier 1 common equity to risk-weighted assets ratio

      11.6 %      11.8 %      12.4 % 
(a) On a regulatory basis using Tier 1 capital as determined under Basel I guidelines.
(b) Preliminary.

 

Return on Tier 1 common equity

(dollars in millions)

    1Q11  

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

    $ 625   

Average Tier 1 common equity

    $ 12,320   

Return on Tier 1 common equity (a)

      21 % 
(a) Annualized.

Cautionary Statement

A number of statements (i) in this Quarterly Earnings Review, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be expressed in a variety of ways, including the use of future or present tense language. 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 Review, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2010 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Review speak only as of April 19, 2011 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

 

 

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