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8-K - FORM 8-K - Bank of New York Mellon Corpd466077d8k.htm

Exhibit 99.1

 

LOGO

Press Release

 

Contacts:    MEDIA:    ANALYST:
   Kevin Heine    Andy Clark
   (212) 635-1590    (212) 635-1803

BNY MELLON REPORTS FOURTH QUARTER EARNINGS OF $622 MILLION OR $0.53 PER COMMON SHARE

INVESTMENT MANAGEMENT AND PERFORMANCE FEES UP 17% YEAR-OVER-YEAR

ASSETS UNDER MANAGEMENT UP 10% YEAR-OVER-YEAR

 

   

Net long-term inflows of $56 billion over last 12 months, $14 billion in 4Q12

ASSETS UNDER CUSTODY/ADMINISTRATION UP 9% YEAR-OVER-YEAR

 

   

New wins of $1.5 trillion over last 12 months, $190 billion in 4Q12

ESTIMATED BASEL III TIER 1 COMMON EQUITY RATIO 9.8% (a)

RETURN ON TANGIBLE COMMON EQUITY 19% (a)

REPURCHASED 49.8 MILLION COMMON SHARES FOR $1.1 BILLION IN 2012

NEW YORK, Jan. 16, 2013 – The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE:BK) today reported fourth quarter net income applicable to common shareholders of $622 million, or $0.53 per diluted common share, compared with $505 million, or $0.42 per diluted common share, in the fourth quarter of 2011 and $720 million, or $0.61 per diluted common share, in the third quarter of 2012.

“We are pleased to report strong year-over-year growth in fees in our Investment Management, Asset Servicing, Clearing and Treasury Services businesses. We benefited from the improvement in market values and, more importantly, from our relentless focus on generating organic growth with our broad client base. We are also driving our operational excellence initiatives to improve our efficiency and help mitigate the impact on our high margin revenues due to the low interest rate environment and tepid capital markets activity. Our balance sheet and capital ratios strengthened in 2012 even after giving effect to the repurchase of approximately $1.1 billion of our common shares in 2012,” said Gerald L. Hassell, chairman and chief executive officer of BNY Mellon.

“I wish to thank all of my colleagues across the company for their tremendous dedication and ongoing focus on improving our performance, delivering excellence to our clients and creating shareholder value,” added Mr. Hassell.

Net income applicable to common shareholders totaled $2.427 billion, or $2.03 per diluted common share, for the full-year 2012 compared with $2.516 billion, or $2.03 per diluted common share, for the full-year 2011.

 

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 10 for the calculation  of the Non-GAAP measures of the estimated Basel III Tier 1 common equity ratio and the return on tangible common equity.

 

1


Fourth Quarter Results – 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          4Q12 vs.  
(dollars in millions)    4Q12      3Q12      4Q11     4Q11     3Q12  

Fee and other revenue

   $ 2,850       $ 2,879       $ 2,765        3     (1 )% 

Income (loss) from consolidated investment management funds

     42         47         (5    

Net interest revenue

     725         749         780                   

Total revenue – GAAP

     3,617         3,675         3,540        2        (2

Less:

 

Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds

     11         25         (28    
   

Fee and other revenue related to Shareowner Services (a)

     —           —           142                   

Total revenue excluding fee and other revenue related to Shareowner Services – Non-GAAP

   $ 3,606       $ 3,650       $ 3,426        5     (1 )% 

 

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

 

 

Assets under custody/administration amounted to $26.7 trillion at Dec. 31, 2012, an increase of 9% compared with the prior year and $100 billion sequentially. The year-over-year increase was driven by higher market values and net new business. The sequential increase reflects net new business. Assets under management amounted to a record $1.4 trillion at Dec. 31, 2012, an increase of 10% compared with the prior year and 2% sequentially. Both increases primarily resulted from higher market values and net new business. Long-term inflows totaled $14 billion and short-term outflows totaled $6 billion for the fourth quarter of 2012. Long-term inflows benefited from fixed income and liability-driven investments.

 

 

Investment services fees totaled $1.6 billion, an increase of 1% year-over-year and a decrease of 5% sequentially. The year-over-year increase was primarily driven by higher asset servicing revenue as a result of net new business, improved market values and higher collateral management revenue, as well as higher volumes in clearing and treasury services. This increase was partially offset by the impact of the sale of the Shareowner Services business in the fourth quarter of 2011 as well as lower Depositary Receipts and Corporate Trust revenue. Sequentially, the decrease primarily resulted from a $107 million decrease in Depositary Receipts revenue largely reflecting seasonality, and lower securities lending revenue, partially offset by higher asset servicing revenue driven by higher collateral management revenue and higher clearing and treasury services revenue.

 

 

Investment management and performance fees were $853 million, an increase of 17% year-over-year and 9% sequentially. Both increases were impacted by the acquisition of the remaining 50% interest in the West LB Mellon Asset Management joint venture, subsequently renamed Meriten Investment Management (“Meriten”). Excluding the Meriten acquisition, investment management and performance fees increased 15% year-over-year and 8% sequentially driven by higher market values, net new business and higher performance fees. The year-over-year increase also reflects lower money market fee waivers.

 

 

Foreign exchange and other trading revenue totaled $139 million compared with $228 million in the fourth quarter of 2011 and $182 million in the third quarter of 2012. In the fourth quarter of 2012, foreign exchange revenue totaled $106 million, a decrease of 42% year-over-year and 12% sequentially. Both decreases reflect a sharp decline in volatility and a modest decrease in volumes. Other trading revenue was $33 million in the fourth quarter of 2012 compared with $45 million in fourth quarter of 2011 and $61 million in the third quarter of 2012. The decreases compared with both prior periods reflect lower fixed income trading revenue primarily driven by lower interest rate derivative trading revenue.

 

2


 

Investment and other income totaled $116 million compared with $146 million in the fourth quarter of 2011 and $124 million in the third quarter of 2012. The year-over-year decrease primarily reflects the pre-tax gain on the sale of the Shareowner Services business recorded in the fourth quarter of 2011 which was partially offset by the write-down on an equity investment also recorded in the fourth quarter of 2011. Additionally, the fourth quarter of 2012 includes higher net gains on loans held-for-sale retained from a previously divested bank subsidiary. Sequentially, the decrease primarily reflects lower seed capital gains and equity investment revenue, partially offset by higher leasing gains.

 

 

Net interest revenue and the net interest margin (FTE) were $725 million and 1.09% compared with $780 million and 1.27% in the fourth quarter of 2011 and $749 million and 1.20% in the third quarter of 2012. The year-over-year decrease in net interest revenue was primarily driven by the elimination of interest on European Central Bank deposits, lower accretion and lower yields on the reinvestment of securities, partially offset by higher interest-earning assets driven by higher deposit levels. The decrease in net interest revenue compared with the third quarter of 2012 primarily reflects lower LIBOR rates, lower yields on the reinvestment of securities and lower accretion, partially offset by higher interest-earning assets driven by higher deposit levels.

The decreases in net interest margin (FTE) compared with both prior periods primarily reflect higher interest-earning assets driven by higher deposits levels, lower reinvestment yields, the elimination of interest on European Central Bank deposits and lower accretion.

 

 

The unrealized pre-tax gain on our total investment securities portfolio was $2.4 billion at Dec. 31, 2012 compared with $2.5 billion at Sept. 30, 2012. The decrease in the unrealized pre-tax gain was primarily driven by $50 million of net realized securities gains in the fourth quarter of 2012. The low rate environment creates the opportunity for us to realize gains as we rebalance and manage the duration risk of the investment securities portfolio. Gains realized on these sales should be considered along with net interest revenue when evaluating our overall results. In the fourth quarter of 2012, combined net interest revenue and net securities gains totaled $775 million, compared with $777 million in the year-ago quarter and $771 million in the linked quarter.

The provision for credit losses was a credit of $61 million in the fourth quarter of 2012. The credit was largely driven by a reduction in the allowance for credit losses related to the residential mortgage loan portfolio. Our residential mortgage loan portfolio has experienced better performance compared to aggregate industry historical losses. In the fourth quarter of 2012, we began using our actual loan loss experience rather than industry data to estimate the allowance for credit losses. The provision for credit losses was $23 million in the fourth quarter of 2011 and a credit of $5 million in the third quarter of 2012.

Total noninterest expense

 

 

Reconciliation of noninterest expense           4Q12 vs.  
(dollars in millions)    4Q12      3Q12      4Q11      4Q11     3Q12  

Noninterest expense – GAAP

   $ 2,825       $ 2,705       $ 2,828         —       4

Less:

 

Amortization of intangible assets

     96         95         106        
 

M&I, litigation and restructuring charges

     46         26         176        
   

Noninterest expense related to Shareowner Services (a)

     —           —           46                    

Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expense related to Shareowner Services – Non-GAAP

   $ 2,683       $ 2,584       $ 2,500         7     4

 

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

 

 

Total noninterest expense increased 7% year-over-year and 4% sequentially excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expenses related to Shareowner Services (Non-GAAP). Both increases were primarily driven by revenue mix as the lower interest rate environment and tepid capital markets have driven a decline in our low variable cost businesses, such as Depositary Receipts, foreign exchange and other trading and net interest revenue. These revenue declines were offset by increases in investment management, asset servicing, clearing and treasury services fees, all of which come with higher variable costs. Additionally, higher software amortization expense, business development expense and the Meriten acquisition increased noninterest expense both year-over-year and sequentially.

 

3


The effective tax rate was 24.3% in the fourth quarter of 2012, which primarily reflects a benefit associated with the reorganization of certain foreign operations.

 

     Dec. 31,     Sept. 30,     Dec. 31,  
Capital ratios   2012(a)     2012     2011  

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

    9.8     9.3     N/A   

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

    13.6        13.3        13.4

Basel I Tier 1 capital ratio

    15.1        15.3        15.0   

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

    16.4        16.9        17.0   

Basel I leverage capital ratio

    5.3        5.6        5.2   

BNY Mellon shareholders’ equity to total assets ratio (c)

    10.1        10.7        10.3   

BNY Mellon common shareholders’ equity to total assets ratio (c)

    9.9        10.3        10.3   

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

    6.4        6.3        6.4   

 

(a) Preliminary.
(b) The estimated Basel III Tier 1 common equity ratio at Dec. 31, 2012 and Sept. 30, 2012 is based on the Notices of Proposed Rulemaking (“NPRs”) and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio of 7.1% at Dec. 31, 2011 is based on prior Basel III guidance and the proposed market risk rule.
(c) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 10 for a calculation of these ratios.

N/A – Not applicable.

We generated $687 million of gross Basel I Tier 1 common equity in the fourth quarter of 2012.

Our estimated Basel III Tier 1 common equity ratio was 9.8% at Dec. 31, 2012 compared with 9.3% at Sept. 30, 2012. The increase was primarily due to lower risk-weighted assets.

Dividends (common) – On Jan. 16, 2013, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.13 per common share. This cash dividend is payable on Feb. 5, 2013 to shareholders of record as of the close of business on Jan. 28, 2013.

Dividends (preferred) – On Jan. 16, 2013, The Bank of New York Mellon Corporation also declared dividends for the dividend period ending in March 2013 of $1,000.00 per share on the Series A Noncumulative Perpetual Preferred Stock, liquidation preference $100,000 per share (the “Series A Preferred Stock”) (equivalent to approximately $10.00 per Normal Preferred Capital Security of Mellon Capital IV, referred to below, each representing 1/100th interest in a share of Series A Preferred Stock), and $1,300.00 per share on the Series C Noncumulative Perpetual Preferred Stock, liquidation preference $100,000 per share (the “Series C Preferred Stock”) (equivalent to approximately $0.33 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock (the “Depositary Shares”)), payable on March 20, 2013 to holders of record as of the close of business on March 5, 2013. All of the outstanding shares of the Series A Preferred Stock are owned by Mellon Capital IV, which will pass through the March dividend on the Series A Preferred Stock on a proportionate basis to the holders of record, as of the close of business on March 5, 2013, of its Normal Preferred Capital Securities. All of the outstanding shares of the Series C Preferred Stock are held by the depositary of the Depositary Shares, which will pass through the March dividend on the Series C Preferred Stock on a proportionate basis to the holders of record, as of the close of business on March 5, 2013, of the Depositary Shares.

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 $26.7 trillion in assets under custody/administration and $1.4 trillion in assets under management, services $11.4 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available on www.bnymellon.com or follow us on Twitter@BNYMellon.

 

4


Supplemental Financial Information

The Quarterly Earnings Review and Supplemental Financial Trends for The Bank of New York Mellon Corporation have been updated through Dec. 31, 2012 and are available at www.bnymellon.com (Investor Relations – Financial Reports).

Conference Call Data

Gerald L. Hassell, chairman and chief executive officer and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EST on Jan. 16, 2013. This conference call and audio webcast will include forward-looking statements and may include other material information.

Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (773) 799-3611 (International), and using the passcode: Earnings, or by logging on to www.bnymellon.com. The Earnings Release, together with the Quarterly Earnings Review and Supplemental Financial Trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EST on Jan. 16, 2013. Replays of the conference call and audio webcast will be available beginning Jan. 16, 2013 at approximately 2 p.m. EST through Jan. 30, 2013 by dialing (866) 465-2120 (U.S.) or (203) 369-1437 (International). The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

 

5


THE BANK OF NEW YORK MELLON CORPORATION

Financial Highlights

 

(dollar amounts in millions, except per common amounts and unless otherwise
noted; quarterly returns are annualized)
   Quarter ended     Year ended  
  

Dec. 31,

2012

    Sept. 30,
2012
   

Dec. 31,

2011

   

Dec. 31,

2012

   

Dec. 31,

2011

 

Return on common equity (a)

     7.1     8.3     5.9     7.1     7.5

Non-GAAP (a)

     8.2     9.2     8.0     8.8     9.0

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

     18.8     22.1     17.7     19.3     22.6

Non-GAAP adjusted (a)

     19.7     22.5     21.1     21.8     24.6

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

     78     78     78     78     78

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

   $ 227      $ 235      $ 223      $ 232      $ 237   

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

     36     37     34     37     37

Pre-tax operating margin (a)

     24     27     19     23     25

Non-GAAP (a)

     27     29     28     29     30

Net interest margin (FTE)

     1.09     1.20     1.27     1.21     1.36

Selected average balances:

          

Interest-earning assets

   $ 270,215      $ 255,228      $ 247,724      $ 250,450      $ 222,226   

Assets of operations

   $ 324,601      $ 307,919      $ 304,235      $ 304,102      $ 277,766   

Total assets

   $ 335,995      $ 318,914      $ 316,074      $ 315,381      $ 291,145   

Interest-bearing deposits

   $ 142,719      $ 138,260      $ 130,343      $ 134,259      $ 124,695   

Noninterest-bearing deposits

   $ 79,987      $ 70,230      $ 76,309      $ 69,951      $ 57,984   

Preferred stock

   $ 1,066      $ 611      $ —        $ 437      $ —     

Total The Bank of New York Mellon Corporation common shareholders’ equity

   $ 34,962      $ 34,522      $ 33,761      $ 34,333      $ 33,519   

Average common shares and equivalents outstanding (in thousands):

          

Basic

     1,161,212        1,169,674        1,204,994        1,176,485        1,220,804   

Diluted

     1,163,753        1,171,534        1,205,586        1,178,430        1,223,026   

Period-end data:

          

Market value of assets under management (in billions)

   $ 1,386      $ 1,359      $ 1,260      $ 1,386      $ 1,260   

Market value of assets under custody/administration (in trillions) (c)

   $ 26.7      $ 26.6      $ 24.6      $ 26.7      $ 24.6   

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

   $ 246      $ 259      $ 269      $ 246      $ 269   

Full-time employees

     49,500        48,700        48,700        49,500        48,700   

Book value per common share – GAAP (a)

   $ 30.39      $ 30.11      $ 27.62      $ 30.39      $ 27.62   

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

   $ 12.82      $ 12.59      $ 10.57      $ 12.82      $ 10.57   

Cash dividends per common share

   $ 0.13      $ 0.13      $ 0.13      $ 0.52      $ 0.48   

Common dividend payout ratio

     25     21     31     26     24

Closing stock price per common share

   $ 25.70      $ 22.62      $ 19.91      $ 25.70      $ 19.91   

Market capitalization

   $ 29,902      $ 26,434      $ 24,085      $ 29,902      $ 24,085   

 

(a) See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 10 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) Preliminary. Prior periods have been restated to reflect a correction of a double-count of a portion of legacy Mellon’s assets under custody/administration.
(d) Represents the securities on loan managed by the Investment Services business.

 

6


THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement

 

      Quarter ended     Year-to-date  
(in millions)    Dec. 31,
2012
    Sept. 30,
2012
    Dec. 31,
2011
    Dec. 31,
2012
    Dec. 31,
2011
 

Fee and other revenue

          

Investment services fees:

          

Asset servicing

   $ 945      $ 942      $ 885      $ 3,780      $ 3,697   

Issuer services

     215        311        287        1,052        1,445   

Clearing services

     294        287        278        1,193        1,159   

Treasury services

     141        138        134        549        535   

Total investment services fees

     1,595        1,678        1,584        6,574        6,836   

Investment management and performance fees

     853        779        730        3,174        3,002   

Foreign exchange and other trading revenue

     139        182        228        692        848   

Distribution and servicing

     52        48        42        192        187   

Financing-related fees

     45        46        38        172        170   

Investment and other income

     116        124        146        427        455   

Total fee revenue

     2,800        2,857        2,768        11,231        11,498   

Net securities gains (losses)

     50        22        (3     162        48   

Total fee and other revenue

     2,850        2,879        2,765        11,393        11,546   

Operations of consolidated investment management funds

          

Investment income

     137        151        108        593        670   

Interest of investment management fund note holders

     95        104        113        404        470   

Income (loss) from consolidated investment management funds

     42        47        (5     189        200   

Net interest revenue

          

Interest revenue

     843        877        925        3,507        3,588   

Interest expense

     118        128        145        534        604   

Net interest revenue

     725        749        780        2,973        2,984   

Provision for credit losses

     (61     (5     23        (80     1   

Net interest revenue after provision for credit losses

     786        754        757        3,053        2,983   

Noninterest expense

          

Staff

     1,457        1,436        1,382        5,761        5,726   

Professional, legal and other purchased services

     322        292        322        1,222        1,217   

Software and equipment

     233        208        213        855        815   

Net occupancy

     156        149        159        593        624   

Distribution and servicing

     108        109        96        421        416   

Business development

     88        60        75        275        261   

Sub-custodian

     64        65        62        269        298   

Other

     255        265        237        994        937   

Amortization of intangible assets

     96        95        106        384        428   

Merger and integration, litigation and restructuring charges

     46        26        176        559        390   

Total noninterest expense

     2,825        2,705        2,828        11,333        11,112   

Income

          

Income before income taxes

     853        975        689        3,302        3,617   

Provision for income taxes

     207        225        211        779        1,048   

Net income

     646        750        478        2,523        2,569   

Net (income) loss attributable to noncontrolling interests (includes $(11), $(25), $28, $(76) and $(50) related to consolidated investment management funds, respectively)

     (11     (25     27        (78     (53

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

     635        725        505        2,445        2,516   

Preferred stock dividends

     (13     (5     —          (18     —     

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

   $ 622      $ 720      $ 505      $ 2,427      $ 2,516   

 

7


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  
(in millions)    Dec. 31,
2012
    Sept. 30,
2012
    Dec. 31,
2011
    Dec. 31,
2012
    Dec. 31,
2011
 

Net income

   $ 646      $ 750      $ 478      $ 2,523      $ 2,569   

Net (income) loss attributable to noncontrolling interests

     (11     (25     27        (78     (53

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

     635        725        505        2,445        2,516   

Preferred stock dividends

     (13     (5     —          (18     —     

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

     622        720        505        2,427        2,516   

Less:

 

Earnings allocated to participating securities

     9        11        6        35        27   
   

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

     —          —          (1     (5     9   

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

   $ 613      $ 709      $ 500      $ 2,397      $ 2,480   

 

Earnings per share applicable to the common shareholders of The Bank of New York Mellon
Corporation
   Quarter ended      Year-to-date  
(in dollars)    Dec. 31,
2012
     Sept. 30,
2012
     Dec. 31,
2011
     Dec. 31,
2012
     Dec. 31,
2011
 

Basic

   $ 0.53       $ 0.61       $ 0.42       $ 2.04       $ 2.03   

Diluted

   $ 0.53       $ 0.61       $ 0.42       $ 2.03       $ 2.03   

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

 

8


THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet

 

(dollars in millions, except per share amounts)    Dec. 31,
2012
    Sept. 30,
2012
    Dec. 31,
2011
 

Assets

      

Cash and due from:

      

Banks

   $ 4,727      $ 4,991      $ 4,175   

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

     90,110        73,118        90,243   

Interest-bearing deposits with banks

     43,910        40,578        36,321   

Federal funds sold and securities purchased under resale agreements

     6,593        5,753        4,510   

Securities:

      

Held-to-maturity (fair value of $8,389, $8,893 and $3,540)

     8,205        8,702        3,521   

Available-for-sale

     92,619        95,148        78,467   

Total securities

     100,824        103,850        81,988   

Trading assets

     9,378        9,190        7,861   

Loans

     46,629        45,889        43,979   

Allowance for loan losses

     (266     (339     (394

Net loans

     46,363        45,550        43,585   

Premises and equipment

     1,659        1,690        1,681   

Accrued interest receivable

     593        545        660   

Goodwill

     18,075        17,984        17,904   

Intangible assets

     4,809        4,882        5,152   

Other assets

     20,468        20,444        19,839   

Subtotal assets of operations

     347,509        328,575        313,919   

Assets of consolidated investment management funds, at fair value:

      

Trading assets

     10,961        10,821        10,751   

Other assets

     520        548        596   

Subtotal assets of consolidated investment management funds, at fair value

     11,481        11,369        11,347   

Total assets

   $ 358,990      $ 339,944      $ 325,266   

Liabilities

      

Deposits:

      

Noninterest-bearing (principally U.S. offices)

   $ 93,019      $ 78,790      $ 95,335   

Interest-bearing deposits in U.S. offices

     53,826        44,843        41,231   

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

     99,250        99,316        82,528   

Total deposits

     246,095        222,949        219,094   

Federal funds purchased and securities sold under repurchase agreements

     7,427        12,450        6,267   

Trading liabilities

     8,176        7,754        8,071   

Payables to customers and broker-dealers

     16,095        13,675        12,671   

Commercial paper

     338        1,278        10   

Other borrowed funds

     1,380        1,139        2,174   

Accrued taxes and other expenses

     7,316        6,590        6,235   

Other liabilities (includes allowance for lending-related commitments of $121, $117 and $103)

     6,010        7,408        6,525   

Long-term debt

     18,530        19,516        19,933   

Subtotal liabilities of operations

     311,367        292,759        280,980   

Liabilities of consolidated investment management funds, at fair value:

      

Trading liabilities

     10,152        10,018        10,053   

Other liabilities

     29        28        32   

Subtotal liabilities of consolidated investment management funds, at fair value

     10,181        10,046        10,085   

Total liabilities

     321,548        302,805        291,065   

Temporary equity

      

Redeemable noncontrolling interests

     178        140        114   

Permanent equity

      

Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 10,826, 10,501 and – shares

     1,068        1,036        —     

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,254,182,209, 1,252,278,284 and 1,249,061,305 shares

     13        13        12   

Additional paid-in capital

     23,485        23,429        23,185   

Retained earnings

     14,622        14,153        12,812   

Accumulated other comprehensive loss, net of tax

     (643     (471     (1,627

Less: Treasury stock of 90,691,868, 83,671,325 and 39,386,698 common shares, at cost

     (2,114     (1,942     (965

Total The Bank of New York Mellon Corporation shareholders’ equity

     36,431        36,218        33,417   

Non-redeemable noncontrolling interests of consolidated investment management funds

     833        781        670   

Total permanent equity

     37,264        36,999        34,087   

Total liabilities, temporary equity and permanent equity

   $ 358,990      $ 339,944      $ 325,266   

 

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Capital

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

 

Basel I Tier 1 common equity generation                        
(in millions)    4Q12      3Q12      4Q11  

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

   $ 622       $ 720       $ 505   

Add: Amortization of intangible assets, net of tax

     65         60         66   

Gross Basel I Tier 1 common equity generated

     687         780         571   

Less capital deployed:

        

Common stock dividends

     154         155         159   

Common stock repurchased

     170         288         69   

Goodwill and intangible assets related to acquisitions/dispositions

     93         —           (241

Total capital deployed

     417         443         (13

Add: Other

     143         193         (114

Net Basel I Tier 1 common equity generated

   $ 413       $ 530       $ 470   

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 ratio of Tier 1 common equity to risk-weighted assets and the ratio of tangible common shareholders’ equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are utilized by regulatory authorities. The ratio of Basel I Tier 1 common equity to risk-weighted assets excludes preferred stock, as well as the trust preferred securities which will be phased out of Basel I Tier 1 regulatory capital beginning in 2013. Unlike the Basel I Tier 1 and Total capital ratios, the tangible common shareholders’ equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders’ equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon’s performance in reference to those assets which are productive in generating income. BNY Mellon has presented its estimated Basel III Tier 1 common equity ratio on a basis that is representative of how it currently understands the Basel III rules. Management views the Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon’s capital position. The presentation of the Basel III Tier 1 common equity ratio allows investors to compare BNY Mellon’s Basel III Tier 1 common equity ratio with estimates presented by other companies. Additionally, 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 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

 

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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 expenses on a basis consistent with how management views the business. BNY Mellon also presents revenue and noninterest expense excluding 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 investment management fees net of performance fees.

 

Investment management and performance fees                            4Q12 vs.  
(dollars in millions)    4Q12      3Q12      4Q11      4Q11     3Q12  

Investment management and performance fees

   $ 853       $ 779       $ 730         17     9

Less: Meriten acquisition

     13         N/A         N/A         N/M        N/M   

Investment management and performance fees excluding the Meriten acquisition

   $ 840       $ 779       $ 730         15     8

N/A – Not applicable.

N/M – Not meaningful.

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)    4Q12     3Q12     4Q11     YTD12     YTD11  

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

   $ 622      $ 720      $ 505      $ 2,427      $ 2,516   

Add: Amortization of intangible assets, net of tax

     65        60        66        247        269   

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

     687        780        571        2,674        2,785   

Add: M&I, litigation and restructuring charges

     31        18        110        339        240   

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

   $ 718      $ 798      $ 681      $ 3,013      $ 3,025   

Average common shareholders’ equity

   $ 34,962      $ 34,522      $ 33,761      $ 34,333      $ 33,519   

Less:

 

Average goodwill

     18,046        17,918        18,044        17,967        18,129   
 

Average intangible assets

     4,860        4,926        5,333        4,982        5,498   

Add:

 

Deferred tax liability – tax deductible goodwill

     1,130        1,057        967        1,130        967   
   

Deferred tax liability – non-tax deductible intangible assets

     1,310        1,339        1,459        1,310        1,459   

Average tangible common shareholders’ equity – Non-GAAP

   $ 14,496      $ 14,074      $ 12,810      $ 13,824      $ 12,318   

Return on common equity – GAAP (a)

     7.1     8.3     5.9     7.1     7.5

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

     8.2     9.2     8.0     8.8     9.0

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

     18.8     22.1     17.7     19.3     22.6

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

     19.7     22.5     21.1     21.8     24.6

 

(a) Annualized.

 

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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    Dec. 31,     Sept. 30,     Dec. 31,  
(dollars in millions, unless otherwise noted)    2012     2012     2011  

BNY Mellon shareholders’ equity at period end – GAAP

   $ 36,431      $ 36,218      $ 33,417   

Less:

 

Preferred stock

     1,068        1,036        —     

BNY Mellon common shareholders’ equity at period end – GAAP

     35,363        35,182        33,417   

Less:

 

Goodwill

     18,075        17,984        17,904   
 

Intangible assets

     4,809        4,882        5,152   

Add:

 

Deferred tax liability – tax deductible goodwill

     1,130        1,057        967   
   

Deferred tax liability – non-tax deductible intangible assets

     1,310        1,339        1,459   

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

   $ 14,919      $ 14,712      $ 12,787   

Total assets at period end – GAAP

   $ 358,990      $ 339,944      $ 325,266   

Less:

 

Assets of consolidated investment management funds

     11,481        11,369        11,347   

Subtotal assets of operations – Non-GAAP

     347,509        328,575        313,919   

Less:

 

Goodwill

     18,075        17,984        17,904   
 

Intangible assets

     4,809        4,882        5,152   
   

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

     90,040        73,037        90,230   

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

   $ 234,585      $ 232,672      $ 200,633   

BNY Mellon shareholders’ equity to total assets – GAAP

     10.1     10.7     10.3

BNY Mellon common shareholders’ equity to total assets – GAAP

     9.9     10.3     10.3

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

     6.4     6.3     6.4

Period-end common shares outstanding (in thousands)

     1,163,490        1,168,607        1,209,675   

Book value per common share

   $ 30.39      $ 30.11      $ 27.62   

Tangible book value per common share – Non-GAAP

   $ 12.82      $ 12.59      $ 10.57   

 

(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)

   4Q12     3Q12     4Q11     YTD12     YTD11  

Income before income taxes – GAAP

   $ 853      $ 975      $ 689      $ 3,302      $ 3,617   

Less:

 

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

     11        25        (28     76        50   

Add:

 

Amortization of intangible assets

     96        95        106        384        428   
   

M&I, litigation and restructuring charges

     46        26        176        559        390   

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

   $ 984      $ 1,071      $ 999      $ 4,169      $ 4,385   

Fee and other revenue – GAAP

   $ 2,850      $ 2,879      $ 2,765      $ 11,393      $ 11,546   

Income from consolidated investment management funds – GAAP

     42        47        (5     189        200   

Net interest revenue – GAAP

     725        749        780        2,973        2,984   

Total revenue – GAAP

     3,617        3,675        3,540        14,555        14,730   

Less:

 

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

     11        25        (28     76        50   

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

   $ 3,606      $ 3,650      $ 3,568      $ 14,479      $ 14,680   

Pre-tax operating margin (a)

     24     27     19     23     25

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)

     27     29     28     29     30

 

(a) Income before taxes divided by total revenue.

 

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The following table presents the calculation of our Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP.

 

Calculation of Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP

(dollars in millions)

   Dec. 31,
2012
(a)
    Sept. 30,
2012
    Dec. 31,
2011
 

Total Tier 1 capital – Basel I

   $ 16,692      $ 16,797      $ 15,389   

Less:

 

Trust preferred securities

     623        1,173        1,659   
   

Preferred stock

     1,068        1,036        —     

Total Tier 1 common equity

   $ 15,001      $ 14,588      $ 13,730   

Total risk-weighted assets – Basel I

   $ 110,643      $ 109,867      $ 102,255   

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

     13.6     13.3     13.4

 

(a) Preliminary.

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

 

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

(dollars in millions)

   Dec. 31,
2012
(b)
    Sept. 30,
2012
    Dec. 31,
2011
 

Total Tier 1 capital – Basel I

   $ 16,692      $ 16,797      $ 15,389   

Add:

 

Deferred tax liability – tax deductible intangible assets

     78        N/A        N/A   

Less:

 

Trust preferred securities

     623        1,173        1,659   
 

Preferred stock

     1,068        1,036        —     
 

Adjustments related to available-for-sale securities and pension liabilities included in accumulated other comprehensive income (c)

     83        (124     944   
 

Adjustments related to equity method investments (c)

     501        571        555   
 

Deferred tax assets

     47        46        —     
 

Net pension fund assets (c)

     249        43        90   
   

Other

     —          3        (3

Total estimated Basel III Tier 1 common equity

   $ 14,199      $ 14,049      $ 12,144   

Total risk-weighted assets – Basel I

   $ 110,643      $ 109,867      $ 102,255   

Add: Adjustments (d)

     33,641        41,816        67,813   

Total estimated Basel III risk-weighted assets (e)

   $ 144,284      $ 151,683      $ 170,068   

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

     9.8     9.3     7.1

 

(a) The estimated Basel III Tier 1 common equity ratios at Dec. 31, 2012 and Sept. 30, 2012 were based on the NPRs and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio at Dec. 31, 2011 was 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 and relies in part on the use of external credit ratings, while the NPRs use, in addition to the broader range of predetermined risk weights and asset classes, certain alternatives to external credit ratings. 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.
(e) Calculated on an Advanced Approaches basis, as amended by Basel III.

N/A–Not applicable

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 our estimated capital ratios and preliminary operating measures and statements made regarding driving our operational excellence initiatives to improve our efficiency and help mitigate impacts on our revenues and the opportunity for us to realize gains in our investment securities portfolio. 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

 

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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 Quarterly Reports on Form 10-Q for the quarters ended June 30, 2012 and Sept. 30, 2012, 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 Jan. 16, 2013 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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