- Record Level of Assets Under Management of $1.14 Trillion, Up 18% vs. Prior Year

NEW YORK, Oct. 19 /PRNewswire-FirstCall/ -- The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter income from continuing operations applicable to common shareholders of $625 million, or $0.51 per common share, compared with a loss of $2,439 million, or $2.04 per common share, in the third quarter of 2009 and income of $668 million, or $0.55 per common share, in the second quarter of 2010.

"During the quarter, we successfully completed the GIS and BHF Asset Servicing acquisitions.  The acquisitions, combined with the underlying resilience of our business model, helped to offset weakness in the capital markets.  The strength of our balance sheet and meaningful capital generation position us well to meet the proposed new capital standards," said Robert P. Kelly, chairman and chief executive officer of BNY Mellon.

Third Quarter Results - Unless otherwise noted, all comments begin with the results of the third quarter of 2010 and are compared to the third quarter of 2009, all information is reported on a continuing operations basis and sequential growth rates are unannualized.  Please refer to the Quarterly Earnings Review for a detailed review of our businesses.

• Assets under custody and administration amounted to $24.4 trillion at Sept. 30, 2010, an increase of 10% compared with the prior year and 12% sequentially.  Both increases primarily reflect the acquisitions of Global Investment Servicing ("GIS") on July 1, 2010 and BHF Asset Servicing GmbH ("BAS") on Aug. 2, 2010 (collectively, "the Acquisitions"), as well as higher market values and new business.  Assets under management, excluding securities lending assets, amounted to $1.14 trillion at Sept. 30, 2010.  This represents an increase of 18% compared with the prior year and 9% sequentially.  The year-over-year increase was primarily due to the acquisition of Insight Investment Management ("Insight"), higher market values and new business.  The sequential increase primarily reflects higher market values and new business.
• Securities servicing fees totaled $1.5 billion, an increase of 20% year-over-year and 17% sequentially.  Both increases reflect the impact of the Acquisitions.  Year-over-year results also reflect higher asset servicing revenue as a result of higher market values and new business and higher issuer services revenue from increased depositary receipts, while clearing services revenue was negatively impacted by lower transaction volumes and lower money market related distribution fees.  The sequential comparison also reflects higher asset servicing and issuer services revenue, primarily depositary receipts, offset by lower clearing services revenue.  Securities lending fee revenue totaled $38 million in the third quarter of 2010 compared with $43 million in the prior year period and $46 million sequentially.
• Asset and wealth management fees were $696 million in the third quarter of 2010.  Adjusted for performance fees and income from consolidated asset management funds, net of noncontrolling interests, these fees totaled $716 million, an increase of 8% compared with the prior year period and 3% sequentially (see page 10).  The year-over-year increase reflects the impact of the Insight acquisition, improved market values, and net new business.  The sequential increase reflects the impact of net new business and higher market values.
• Foreign exchange and other trading revenue totaled $146 million compared with $246 million in the prior year period and $220 million in the second quarter of 2010.  In the third quarter of 2010, foreign exchange revenue totaled $160 million, a decrease of 35% sequentially, driven by seasonality and lower volatility.  Other trading revenue was a negative $14 million in the third quarter of 2010, largely due to a decline in long-term interest rates.
• Investment and Other income totaled $97 million, a decrease of $108 million year-over-year and $48 million sequentially.  The year-over-year decrease reflects lower lease residual gains and a gain on the sale of VISA shares in the third quarter of 2009.  The sequential decrease was primarily driven by lower foreign currency translation revenue.
• Net interest revenue and the net interest margin (FTE) were $718 million and 1.67% compared with $722 million and 1.74% sequentially.  The sequential decline in net interest revenue reflects lower spreads, partially offset by the impact of higher average interest-earning assets.
• Investment securities pre-tax net gain totaled $6 million compared with a pre-tax loss of $4.8 billion in the third quarter of 2009 and a $13 million pre-tax net gain in the second quarter of 2010.  The loss in the third quarter of 2009 primarily reflects the charge for restructuring the investment securities portfolio.

The provision for credit losses was a credit of $22 million in the third quarter of 2010 compared with a charge of $20 million in the second quarter of 2010 and a charge of $147 million in the third quarter of 2009.  The decrease in the provision year-over-year and sequentially reflects a decline of 26% in criticized assets in the third quarter of 2010.

• Total noninterest expense (excluding restructuring charges, M&I expenses and amortization of intangible assets) (Non-GAAP) increased 13% compared with the prior year period and 9% sequentially.  Both increases primarily reflect the impact of the Acquisitions.  The increase compared with the prior year period also reflects the Insight acquisition, higher compensation expense, business development, software and litigation expenses.  The sequential increase also reflects higher litigation and software expenses.

The effective tax rate was 26.4% on a GAAP basis and 27.3% on an operating basis (Non-GAAP) in the third quarter of 2010 reflecting a discrete benefit of approximately $0.02 per common share, largely driven by a change in state and local tax laws.

The unrealized net of tax gain on our total investment securities portfolio was $319 million at Sept. 30, 2010 compared with $114 million at June 30, 2010.  The improvement in the valuation of the investment securities portfolio was due to the decline in interest rates and the tightening of credit spreads.

The sequential decrease in the capital ratios primarily reflects the Acquisitions, partially offset by the issuance of $677 million (25.9 million shares) of common equity via a forward sale agreement that settled in mid-September 2010 and earnings retention.  The Acquisitions, net of the equity raise, reduced the Tier 1 and Tier 1 common ratios by approximately 185 basis points and the tangible common shareholders' equity ratio by approximately 100 basis points.

Declaration of quarterly dividend – On Oct. 19, 2010, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.09 per common share.  This cash dividend is payable on Nov. 9, 2010 to shareholders of record as of the close of business on Oct. 29, 2010.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets.  BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team.  It has $24.4 trillion in assets under custody and administration and $1.14 trillion in assets under management, services $12.0 trillion in outstanding debt and processes global payments averaging $1.6 trillion per day.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.  Additional information is available at www.bnymellon.com.

Supplemental Financial Information

The Quarterly Earnings Review and supplemental financial trends for The Bank of New York Mellon Corporation have been updated through Sept. 30, 2010 and are available at www.bnymellon.com (Investor Relations - Financial Reports).

Conference Call Data

Robert P. Kelly, chairman and chief executive officer; Gerald L. Hassell, president; and Thomas P. Gibbons, chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 19, 2010.  This conference call and audio webcast will include forward-looking statements and may include other material information.  Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (210) 838-9221 (International) Passcode: Earnings, or by logging on to www.bnymellon.com.  The Earnings Release, together with the Quarterly Earnings Review and supplemental Financial Trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on Oct. 19, 2010.  Replays of the conference call and audio webcast will be available beginning Oct. 19, 2010 at approximately 2 p.m. EDT through Tuesday, Nov. 2, 2010 by dialing (866) 479-2460 (U.S.) or (203) 369-1535 (International).  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

Discontinued operations

On Jan. 15, 2010, BNY Mellon sold Mellon United National Bank ("MUNB"), its national bank subsidiary located in Florida.  We have applied discontinued operations accounting to this business.  The income statements for all periods in this Earnings Release are presented on a continuing operations basis.  In the third quarter of 2010, we recorded an after-tax loss on discontinued operations of $3 million primarily reflecting lower of cost or market write-downs on the retained loans held for sale.

Consolidated net income (loss) applicable to common shareholders, including discontinued operations

Net income applicable to common shareholders, including discontinued operations, totaled $622 million, or $0.51 per common share, in the third quarter of 2010 compared with a net loss of $2,458 million, or $2.05 per common share, in the third quarter of 2009 and net income of $658 million, or $0.54 per common share, in the second quarter of 2010.

Supplemental information – Explanation of Non-GAAP financial measures

BNY Mellon has included in this release certain Non-GAAP financial measures based upon tangible common shareholders' equity.  BNY Mellon believes that the ratio of tangible common shareholders' equity to tangible assets of operations is a measure of capital strength that provides additional useful information to investors, supplementing the Tier 1 capital ratio which is utilized by regulatory authorities.  Unlike the Tier 1 capital ratio, the tangible common shareholders' equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders' equity.  In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes.  This ratio is also informative to investors in BNY Mellon's common stock because, unlike the Tier 1 capital ratio, it excludes trust preferred securities issued by BNY Mellon.  Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon's performance in reference to those assets which are productive in generating income.  

BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding.  BNY Mellon has presented revenue measures which exclude the effect of net securities gains (losses) and noncontrolling interests related to consolidated asset management funds; and expense measures which exclude special litigation reserves taken in the first quarter of 2010, the FDIC special assessment, restructuring charges, M&I expenses and intangible amortization expenses; and measures which utilize net income excluding tax items such as benefit of tax settlements.  Return on equity measures and operating margin measures which exclude some or all of these items are also presented.  BNY Mellon believes that these measures are useful to investors because they permit a focus on period to period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control.  The excluded items in general relate to situations where accounting rules require certain ongoing charges as a result of prior transactions, or where valuation or other accounting/regulatory requirements require charges unrelated to operational initiatives.  M&I expenses primarily relate to the Acquisitions 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 (losses), BNY Mellon's primary businesses are Asset and Wealth Management and Institutional 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.  Restructuring charges relate to migrating positions to global growth centers and the elimination of certain positions.

Excluding the benefit of tax settlements permits investors to calculate the tax impact of BNY Mellon's primary businesses.  The presentation of financial measures excluding special litigation reserves in the first quarter of 2010 provides investors with the ability to view performance metrics on the basis that management views results.  The presentation of income of consolidated asset management funds, net of noncontrolling interests related to the consolidation of certain asset management funds, permits investors to view revenue on a basis consistent with prior periods.  BNY Mellon believes that these presentations, as a supplement to GAAP information, gives investors a clearer picture of the results of its primary businesses.  

In this Earnings Release, certain amounts are presented on an FTE basis.  We believe that this presentation provides comparability of amounts arising from both taxable and tax exempt sources, and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.  

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

Cautionary Statement

The information presented in this Earnings Release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements, which may be expressed in a variety of ways, including the use of future or present tense language, relate to, among other things, our ability to meet the proposed new capital standards.  These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this earnings release, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control).  Factors that could cause BNY Mellon's results to differ materially from those described in the forward-looking statements can be found in the risk factors set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2009, BNY Mellon's Quarterly Report on Form 10-Q for the quarter ended June 30, 2010 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of Oct. 19, 2010 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

SOURCE BNY Mellon