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Form 10-Q
(6-30-2009)
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v1.0.0.5
Statement Of Income Interest Based Revenue (USD $)
In Millions, except Share data in Thousands
 3 Months Ended 6 Months Ended
Jun. 30, 2009
Mar. 31, 2009
Jun. 30, 2008
Jun. 30, 2009
Jun. 30, 2008
Securities servicing fees:
Asset servicing $ 671 [4] $ 609 [4] $ 873 [4] $ 1,280 [4] $ 1,776 [4]
Issuer services 372 364 444 736 820
Clearing services 250 253 264 503 527
Total securities servicing fees 1,293 1,226 1,581 2,519 3,123
Asset and wealth management fees 637 616 860 1,253 1,722
Foreign exchange and other trading activities 237 307 308 544 567
Treasury services 132 125 129 257 253
Distribution and servicing 107 111 110 218 208
Financing-related fees 54 48 51 102 98
Investment income 44 (17) 74 27 115
Other 9 15 28 24 110
Total fee revenue 2,513 2,431 3,141 4,944 6,196
Securities gains (losses) - other-than-temporary-impairment (680) (1,585) (152) (2,265) (225)
Noncredit-related losses on securities not expected to be sold (recognized in OCI) 424 1,290 0 1,714 0
Net securities gains (losses) (256) (295) (152) (551) (225)
Total fee and other revenue 2,257 2,136 2,989 4,393 5,971
Net interest revenue
Interest revenue 845 979 1,065 1,824 2,687
Interest expense 145 204 677 349 1,556
Net interest revenue 700 775 388 1,475 1,131
Provision for credit losses 61 59 13 120 27
Net interest revenue after provision for credit losses 639 716 375 1,355 1,104
Noninterest expense
Staff 1,153 [3] 1,169 [3] 1,403 [3] 2,322 [3] 2,761 [3]
Professional, legal and other purchased services 237 [3] 237 [3] 259 [3] 474 [3] 497 [3]
Net occupancy 142 139 138 281 266
Distribution and servicing 106 107 131 213 261
Software 93 81 88 174 167
Sub-custodian and clearing 91 [4] 66 [4] 93 [4] 157 [4] 167 [4]
Furniture and equipment 76 77 78 153 157
Business development 49 44 75 93 140
Other 263 [5] 175 206 438 [5] 412
Subtotal 2,210 2,095 2,471 4,305 4,828
Amortization of intangible assets 108 107 123 215 242
Restructuring charges 6 10 0 16 0
Merger and integration expenses:
The Bank of New York Mellon Corporation - Merger and integration expenses 59 68 146 127 267
Acquired Corporate Trust Business - Merger and integration expenses 0 0 3 0 8
Total noninterest expense 2,383 2,280 2,743 4,663 5,345
Income
Income from continuing operations before income taxes 513 572 621 1,085 1,730
Provision for income taxes 12 161 312 173 670
Income from continuing operations 501 411 309 912 1,060
Discontinued operations:
Income (loss) from discontinued operations (144) (65) 14 (209) 20
Provision (benefit) for income taxes (53) (24) 8 (77) 10
Income (loss) from discontinued operations, net of tax (91) (41) 6 (132) 10
Net income 410 370 315 780 1,070
Net (income) loss attributable to noncontrolling interest, net of tax 2 (1) (6) 1 (15)
Redemption charge and preferred dividends (236) (47) 0 (283) 0
Net income applicable to common shareholders of The Bank of New York Mellon Corporation 176 322 309 498 1,055
Basic:
Income from continuing operations $ 0.23 $ 0.31 $ 0.26 $ 0.54 $ 0.91
Income (loss) from discontinued operations, net of tax $ (0.08) $ (0.04) $ 0 $ (0.11) $ 0.01
Net income applicable to common stock $ 0.15 [1] $ 0.28 [1],[2] $ 0.27 [1],[2] $ 0.43 [1] $ 0.92 [1]
Diluted:
Income from continuing operations $ 0.23 $ 0.31 $ 0.26 $ 0.54 $ 0.91
Income (loss) from discontinued operations, net of tax $ (0.08) $ (0.04) $ 0 $ (0.11) $ 0.01
Net income applicable to common stock $ 0.15 [1] $ 0.28 [1],[2] $ 0.27 [1],[2] $ 0.43 [1] $ 0.92 [1]
Average common shares and equivalents outstandings
Basic 1,171,081 1,146,070 1,135,153 1,158,649 1,134,710
Common stock equivalents 9,636 6,417 11,733 7,718 12,675
Participating securities (6,251) (5,544) (3,950) (5,747) (4,073)
Diluted 1,174,466 1,146,943 1,142,936 1,160,620 1,143,312
Anti-dilutive securities 102,593 [6] 102,792 [6] 80,416 [6] 102,808 [6] 79,386 [6]
Reconciliation of net income from continuing operations applicable to the common shareholders of The Bank of New York Mellon Corporation
Income from continuing operations 501 411 309 912 1,060
Net (income) loss attributable to noncontrolling interest, net of tax 2 (1) (6) 1 (15)
Redemption charge and preferred dividends (236) (47) 0 (283) 0
Income from continuing operations applicable to common shareholders of The Bank of New York Mellon Corporation, net of tax 267 363 303 630 1,045
Income (loss) from discontinued operations, net of tax (91) (41) 6 (132) 10
Net income applicable to common shareholders of The Bank of New York Mellon Corporation $ 176 $ 322 $ 309 $ 498 $ 1,055
[1] Basic and diluted earnings per share under the two-class method were calculated after deducting earnings allocated to participating securities of $1.7 million in the second quarter of 2009, $2.6 million in the first quarter of 2009, $2.2 million in the second quarter of 2008, $4.3 million in the first six months of 2009 and $7.9 million in the first six months of 2008.
[2] Does not foot due to rounding.
[3] In the second quarter of 2009, certain temporary/consulting expenses were reclassified from professional, legal and other purchased services to staff expense. The reclassification totaled $24 million in the first quarter of 2009, $19 million in the second quarter of 2008 and $32 million in the first six months of 2008.
[4] In the second quarter of 2009, global sub-custodian out-of-pocket expense related to client reimbursements was reclassified from sub-custodian expense to asset servicing revenue. This reclassification totaled $- million in the first quarter of 2009, $10 million in the second quarter of 2008 and $14 million in the first six months of 2008.
[5] Includes the FDIC special assessment of $61 million recorded in the second quarter of 2009.
[6] Represents stock options, restricted stock, restricted stock units and warrants outstanding but not included in the computation of diluted average common shares because their effect would be anti-dilutive.

v1.0.0.5
Statement Of Financial Position Unclassified - Deposit Based Operations (USD $)
In Millions
Jun. 30, 2009
Dec. 31, 2008
Cash and due from:
Banks $ 3,783 $ 4,881
Federal Reserve and other central banks (includes $16,438 and $53,270 of interest-bearing deposits) 16,494 53,278
Other short-term investments - U.S. government-backed commercial paper, at fair value 0 5,629
Interest-bearing deposits with banks 43,369 39,126
Federal funds sold and securities purchased under resale agreements 3,688 2,000
Securities:
Held-to-maturity (fair value of $6,105 and $6,333) 6,812 7,371
Available-for-sale 42,126 32,064
Total securities 48,938 39,435
Trading assets 7,611 11,102
Loans 38,234 43,394
Allowance for loan losses (434) (415)
Net loans 37,800 42,979
Premises and equipment 1,685 1,686
Accrued interest receivable 529 619
Goodwill 16,040 15,898
Intangible assets 5,677 5,856
Other assets (includes $679 and $1,870 at fair value) 15,261 15,023
Assets of discontinued operations 2,137 0
Total assets 203,012 237,512
Deposits:
Noninterest-bearing (principally domestic offices) 36,055 55,816
Interest-bearing deposits in domestic offices 24,633 32,386
Interest-bearing deposits in foreign offices 69,901 71,471
Total deposits 130,589 159,673
Borrowing from Federal Reserve related to asset-backed commercial paper, at fair value 0 5,591
Federal funds purchased and securities sold under repurchase agreements 2,058 1,372
Trading liabilities 6,889 8,085
Payables to customers and broker-dealers 8,492 9,274
Commercial paper 272 138
Other borrowed funds 1,345 755
Accrued taxes and other expenses 2,790 4,052
Other liabilities (including allowance for lending related commitments of $92 and $114, also includes $625 and $721 at fair value) 4,303 4,618
Long-term debt 17,363 15,865
Liabilities of discontinued operations 1,607 0
Total liabilities 175,708 209,423
Equity
Preferred stock - par value $0.01 per share; authorized 100,000,000 shares; issued - shares and 3,000,000 shares 0 2,786
Common stock-par value $0.01 per common share; authorized 3,500,000,000 common shares; issued 1,203,651,558 and 1,148,507,561 common shares 12 11
Additional paid-in capital 21,867 20,432
Retained earnings 11,028 10,250
Accumulated other comprehensive loss, net of tax (5,608) (5,426)
Less: Treasury stock of 823,823 and 40,262 common shares, at cost (23) (3)
Total The Bank of New York Mellon Corporation shareholders' equity 27,276 28,050
Noncontrolling interest 28 39
Total equity 27,304 28,089
Total liabilities and equity $ 203,012 $ 237,512

v1.0.0.5
Statement Of Financial Position Unclassified - Deposit Based Operations (Parenthetical) (USD $)
In Millions, except Share data
Jun. 30, 2009
Dec. 31, 2008
Federal Reserve and other central banks, interest-bearing deposits $ 16,438 $ 53,270
Held-to-maturity, fair value 6,105 6,333
Other assets, fair value 679 1,870
Other liabilities, allowance for lending related commitments 92 114
Other liabilities, fair value $ 625 $ 721
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, authorized 100,000,000 100,000,000
Preferred stock, issued 0 3,000,000
Common stock, par value $ 0.01 $ 0.01
Common stock, authorized 3,500,000,000 3,500,000,000
Common stock, issued 1,203,651,558 1,148,507,561
Treasury stock, common shares 823,823 40,262

v1.0.0.5
Statement Of Cash Flows Indirect Deposit Based Operations (USD $)
In Millions
 3 Months Ended 6 Months Ended
Jun. 30, 2009
Mar. 31, 2009
Jun. 30, 2008
Jun. 30, 2009
Jun. 30, 2008
Operating activities
Net income $ 410 $ 370 $ 315 $ 780 $ 1,070
Net (income) loss attributable to noncontrolling interest, net of tax 2 (1) (6) 1 (15)
Income (loss) from discontinued operations, net of tax (91) (41) 6 (132) 10
Income from continuing operations attributable to The Bank of New York Mellon Corporation 913 1,045
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses 61 59 13 120 27
Depreciation and amortization 327 470
Deferred tax benefit (452) (129)
Securities losses and venture capital income 580 215
Change in trading activities (594) 20
Change in accruals and other, net (485) 208
Net effect of discontinued operations (96) (5)
Net cash provided by operating activities 313 1,851
Investing activities
Change in interest-bearing deposits with banks 2,586 (2,885)
Change in interest-bearing deposits with Federal Reserve and other central banks 36,817 0
Change in margin loans 54 (279)
Purchases of securities held-to-maturity (108) 0
Paydowns of securities held-to-maturity 346 117
Maturities of securities held-to-maturity 196 108
Purchases of securities available-for-sale (15,428) (4,526)
Sales of securities available-for-sale 184 299
Paydowns of securities available-for-sale 3,284 2,754
Maturities of securities available-for-sale 931 2,828
Net principal received from (disbursed to) loans to customers 3,130 (388)
Sales of loans and other real estate 485 0
Change in federal funds sold and securities purchased under resale agreements (1,697) (8,005)
Change in seed capital investments 6 (93)
Purchases of premises and equipment/capitalized software (187) (135)
Dispositions, net cash 0 310
Acquisitions, net cash (11) (478)
Proceeds from the sale of premises and equipment 2 25
Other, net 116 (329)
Net effect of discontinued operations 183 403
Net cash provided by (used for) investing activities 30,889 (10,274)
Financing activities
Change in deposits (28,529) 10,545
Change in federal funds purchased and securities sold under repurchase agreements 958 330
Change in payables to customers and broker-dealers (782) 2,018
Change in other funds borrowed (3,306) 485
Change in commercial paper 134 (4,054)
Net proceeds from the issuance of long-term debt 2,100 1,826
Repayments of long-term debt (540) (2,701)
Proceeds from the exercise of stock options 4 155
Issuance of common stock 1,360 344
Tax benefit realized on share-based payment awards 0 12
Treasury stock acquired (23) (315)
Common cash dividends paid (378) (553)
Preferred dividends paid (74) 0
Repurchase of Series B preferred stock (3,000) 0
Net effect of discontinued operations (119) (398)
Net cash (used for) provided by financing activities (32,195) 7,694
Effect of exchange rate changes on cash (60) 84
Change in cash and due from banks
Change in cash and due from banks (1,053) (645)
Cash and due from banks at beginning of period 4,889 4,889 6,635
Cash and due from banks at end of period 3,836 [1] 5,990 3,836 [1] 5,990
Supplemental disclosures
Interest paid 407 1,595
Income taxes paid 2,136 1,102
Income taxes refunded $ 43 $ 29
[1] Includes $53 million of cash at the Federal Reserve Bank.

v1.0.0.5
Statement Of Shareholders Equity And Other Comprehensive Income (USD $)
In Millions
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss), net of tax
Treasury stock
Non-controlling interest
Total
Beginning Balance at Dec. 31, 2008 $ 2,786 $ 11 $ 20,432 $ 10,250 $ (5,426) $ (3) $ 39 $ 28,089
Employee benefit plans:
Beginning Balance at Dec. 31, 2008 2,786 11 20,432 10,250 (5,426) (3) 39 28,089
Adjustment for the cumulative effect of applying SFAS 115-2, (ASC 320-10) net of tax 676 (676) 0
Adjusted beginning balance 2,786 11 20,432 10,926 (6,102) (3) 39 28,089
Purchase of subsidiary shares from noncontrolling interest (75) (10) (85)
Distributions paid to noncontrolling interest (2) (2)
Comprehensive income:
Net income 781 (1) 780
Other comprehensive income:
Unrealized gain (loss) on assets available for sale 29 4 33
Employee benefit plans:
Pensions 1 1
Other post-retirement benefits (20) (20)
Foreign currency translation adjustments 188 (1) 187
Net unrealized gain (loss) on cash flow hedges (14) (14)
Reclassification adjustment/other 310 310 [2]
Total comprehensive income 781 494 2 1,277 [1]
Dividends on common stock at $0.33 per share (378) (378)
Dividends on preferred stock at $24.58 per share (69) (69)
Repurchase of common stock (23) (23)
Repurchase of Series B preferred stock (3,000) (3,000)
Common stock issued in public offering 1 1,346 1,347
Common stock issued under employee benefit plans 32 1 33
Common stock issued under direct stock purchase and dividend reinvestment plan 12 12
Amortization of preferred stock discount and redemption charge 214 (214) 0
Stock awards and options exercised 120 2 122
Other (18) (1) (19)
Ending Balance at Jun. 30, 2009 $ 0 $ 12 $ 21,867 $ 11,028 $ (5,608) $ (23) $ 28 $ 27,304
[1] Comprehensive income attributable to The Bank of New York Mellon Corporation shareholders for the six months ended June 30, 2009 and 2008 was $1,277 million and $(290) million.
[2] Includes $345 million (after-tax) related to OTTI.

v1.0.0.5
Statement Of Shareholders Equity And Other Comprehensive Income (Parenthetical) (USD $)
Retained earnings
Total
Dividends on common stock, per share $ 0.33 $ 0.33
Dividends on preferred stock, per share $ 24.58 $ 24.58

v1.0.0.5
Notes to Financial Statements
 6 Months Ended
Jun. 30, 2009
USD / shares
Notes to Financial Statements [Abstract]
Note 1 - Basis of presentation

 

Note 1 - Basis of presentation

 

The accounting and financial reporting policies of The Bank of New York Mellon Corporation, a global financial services company, conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions that affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that in the remainder of 2009, actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending-related commitments, goodwill and intangible assets, pension and post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending related commitments as well as increased pension and post-retirement expense.

The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods have been made. Certain other immaterial reclassifications have been made to prior periods to place them on a basis comparable with current period presentation. We have evaluated events occurring subsequent to June 30, 2009 for potential recognition or disclosure in the consolidated financial statements through August 7, 2009.
Note 2 - Accounting changes and new accounting pronouncements

Note 2 - Accounting changes and new accounting pronouncements

SFAS No. 160 (ASC 810-10) – Noncontrolling Interests and EITF 08-10 – Selected SFAS No. 160 Implementation Questions

In December 2007, the FASB issued SFAS No. 160 (ASC 810-10) (“SFAS 160”), “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160 (ASC 810-10) amends

ARB No. 51 (ASC 810-10) to establish accounting and reporting standards for the noncontrolling interest in a subsidiary (i.e., minority interest) and for the deconsolidation of a subsidiary. This statement applies to all entities that prepare consolidated financial statements. This statement clarifies that a noncontrolling interest in a subsidiary is to be part of the equity of the controlling group and is to be reported on the balance sheet within the equity section separately from the Company’s equity as a distinct item. The equity section of the balance sheet is required to present equity attributable to both controlling and noncontrolling interests. The carrying amount of the noncontrolling interest is adjusted to reflect the change in ownership interest, and any difference between the amount by which the noncontrolling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity attributable to the noncontrolling interest (i.e., as additional paid in capital). Any transaction that results in the loss of control of a subsidiary is considered a remeasurement event with any retained interest remeasured at fair value. The gain or loss recognized in income includes both the realized gain or loss related to the portion of the ownership interest sold and the gain or loss on the remeasurement to fair value of the retained interest.

We adopted SFAS 160 (ASC 810-10) on Jan. 1, 2009. As a result, effective Jan. 1, 2009, we reclassified $39 million of minority interest liabilities from liabilities to equity on our balance sheet. Noncontrolling interests’ share of the net loss was $2 million in the second quarter of 2009 and $1 million for the six months ended June 30, 2009. Non-controlling interests’ share of net income was $1 million in the first quarter of 2009, $6 million in the second quarter of 2008 and $15 million for the six months ended June 30, 2008.

SFAS No. 141 (revised) (ASC 805-10) – Business Combinations

In December 2007, the FASB issued SFAS No. 141 (ASC 805-10) (revised 2007) (“SFAS 141 (R)”), “Business Combinations.” SFAS 141 (R) (ASC 805-10) requires all acquisitions of businesses to be measured at the fair value of the net assets acquired rather than the cost allocation process specified in SFAS No. 141 (ASC 805-10). The adoption of SFAS 141(R) (ASC 805-10) did not have a


  

significant impact on our financial position or results of operations. However, any business combination entered into beginning in 2009 may significantly impact our financial position and results of operations compared with how it would have been recorded under prior GAAP. Earnings volatility could result, depending on the terms of the acquisition. This statement requires deal costs, such as legal, investment banking, and due diligence costs, to be expensed as incurred and requires contingencies to be measured at fair value. The accounting requirements of SFAS 141(R) (ASC 805-10) are applied on a prospective basis for all transactions completed after the effective date.

FASB Staff Position (“FSP”) EITF 03-6-1 (ASC 260-10) – Participating Securities

In June 2008, the FASB issued FSP EITF 03-6-1 (ASC 260-10), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. This FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS under the two-class method described in SFAS No. 128 (ASC 260-10). The guidance in this FSP applies to the calculation of EPS under SFAS 128 (ASC 260-10) for share-based payment awards with rights to dividends or dividend equivalents. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. This FSP was effective Jan. 1, 2009. The adoption of this FSP reduced basic EPS by approximately one cent for the year ended Dec. 31, 2008. All prior period EPS data was adjusted to conform with the provisions of this FSP.

FSP SFAS No. 141 (R)-1(ASC 805-20) – Accounting for Assets Acquired and Liabilities Assumed in a Business Combinations that Arise from Contingencies

On April 1, 2009, the FASB issued FSP SFAS No. 141 (R)-1 (ASC 805-20) (“SFAS 141(R)-1”), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”. SFAS 141(R)-1 (ASC 805-20) amends SFAS 141(R) (ASC 805-10) to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as

determined in accordance with SFAS 157 (ASC 820-10), if the acquisition-date fair value can be reasonably determined. If the acquisition-date fair value of such an asset or liability cannot be reasonably determined, the asset or liability would be measured at the amount that would be recognized for liabilities in accordance with SFAS 5 (ASC 450-10) and FIN 14 (ASC 450-20). The disclosure requirements of SFAS 141 (R)-1 (ASC 805-20) apply to business combination transactions completed subsequent to Dec. 31, 2008.

SFAS No. 161 (ASC 815-10) – Disclosures about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161 (ASC 815-10), “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”). SFAS No. 161 (ASC 815-10) requires entities to disclose the fair value of derivative instruments and their gains or losses in tabular format and information about credit-risk-related contingent features in derivative agreements, counterparty credit risk, and strategies and objectives for using derivative instruments. Entities are required to provide enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under Statement 133 (ASC 815-10) and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Note 18 reflects the disclosure requirements of SFAS 161 (ASC 815-10).

FSP No. SFAS 142-3 (ASC 350-30) – Useful Life of Intangible Assets

Effective Jan. 1, 2009, FSP No. SFAS 142-3 (ASC 350-30) (“FSP 142-3”), “Determination of the Useful Life of Intangible Assets”, amended the factors that should be considered in renewal or extension assumptions used to determine the useful life and initial fair value of recognized intangible assets.

The Company estimates the fair value of intangible assets at acquisition generally on the basis of an income approach using discounted estimated cash flows. For customer relationship and customer contract intangibles, the expected renewals by customers are included in estimating the period over which cash flows will be generated to the Company.


  

Estimates of customer renewals are generally based upon the historical information of the acquired intangible assets, and also consider the Company’s own historical experience with similar types of customer relationships and contracts. In the absence of historical information or our own experience, we use assumptions market participants would expect to use consistent with the highest and best use of the assets.

Intangibles are amortized over the periods of and in a pattern that is consistent with the identifiable cash flows, or on a straight-line method over the benefit period if the pattern of cash flows is not estimable.

The initial application of this FSP did not impact the Company as it already considers expected customer renewals or extensions in cash flow estimates used to estimate fair values and useful lives. The Company does not capitalize any costs incurred that may contribute to the renewal or extension of any customer relationship and contract intangibles.

FSP SFAS 115-2 and SFAS 124-2 (ASC 320-10) – Other-Than-Temporary Impairment

In April 2009, the FASB issued FSP SFAS No. 115-2 and SFAS 124-2 (ASC 320-10), “Recognition and Presentation of Other-Than-Temporary Impairments” (“SFAS 115-2”). This FSP replaced the “intent and ability” indication in current guidance by specifying that (a) if a company does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held-to-maturity debt securities, the amount of OTTI recorded in OCI for the non-credit portion of a previous OTTI should be amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

SFAS 115-2 (ASC 320-10) requires entities to initially apply the provisions of the standard to previously other-than-temporarily impaired debt securities (i.e. debt securities that

the entity does not intend to sell and that the entity is not more likely than not required to sell before recovery) existing as of the date of initial adoption by making a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The cumulative-effect adjustment reclassifies the noncredit portion of a previously other-than-temporarily impaired debt security held as of the date of initial adoption to accumulated OCI from retained earnings.

This FSP also amends the disclosure provisions of Statement 115 (ASC 320-10) for both debt and equity securities. The FSP requires disclosures in interim and annual periods for major security types identified on the basis of how an entity manages, monitors and measures its securities and the nature and risks of the security. We adopted SFAS 115-2 (ASC 320-10) effective Jan 1, 2009. As a result of adopting this guidance, the Company recorded a cumulative-effect adjustment as of the beginning of the first quarter of 2009 of $676 million (after-tax) to reclassify the non-credit component of the previously recognized OTTI from retained earnings to accumulated OCI (for those securities where management does not intend to sell the security and it is not more likely than not that the Company will be required to sell the securities before recovery).

FSP SFAS 157-4 (ASC 820-10) – Nonactive Markets

In April 2009, the FASB issued FSP SFAS No. 157-4 (ASC 820-10), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That are not Orderly” (“SFAS 157”). This FSP states that the fair value of an asset, when the market is not active, is the price that would be received to sell the asset in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions (that is, the inactive market). Entities will need to conclude whether a transaction was orderly based on the weight of evidence. When estimating fair value, entities should place more weight on transactions that the company concludes are orderly and less weight on transactions for which the entity does not have sufficient information to conclude whether the transaction is orderly. This FSP also amends the disclosure provisions of SFAS 157 (ASC 820-10) to require entities to disclose on interim and annual periods the inputs and valuation techniques used to


  

measure fair value. We adopted this FSP as of Jan. 1, 2009. As a result of adopting this guidance, the fair value of the Company’s debt securities portfolio, recorded in accumulated other comprehensive income at June 30, 2009, was measured at $98 (after-tax) higher than if it had not adopted this guidance and relied solely on pricing sources.

FSP SFAS No. 107-1 and APB No. 28-1 (ASC 825-10) – Interim Disclosures About Fair Value of Financial Instruments

In April 2009, the FASB issued FSP SFAS No. 107-1 and APB No. 28-1 (ASC 825-10), “Interim Disclosures about Fair Value of Financial Instruments” (“SFAS 107”). This FSP amends SFAS 107 (ASC 825-10) and APB Opinion No. 28 (ASC 270-10) to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. These disclosures were effective June 30, 2009. Note 15 reflects these disclosures requirements.

SFAS No. 165 (ASC 855-10) – Subsequent Events

In May 2009, the FASB issued SFAS No. 165 (ASC 855-10), “Subsequent Events” (“SFAS 165”). This statement establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 (ASC 855-10) renames type one and type two subsequent events as “recognized” subsequent events and “non-recognized” subsequent events. For recognized subsequent events, an entity shall recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. For unrecognized subsequent events, an entity shall not recognize subsequent events about conditions that did not exist at the date of the balance sheet but that arose after the balance sheet date. Adoption of SFAS 165 (ASC 855-10) had no impact on our results of operations at June 30, 2009.
Note 3 - Acquisitions and dispositions

Note 3 - Acquisitions and dispositions

There were no material acquisitions or dispositions in the second quarter of 2009.

In July 2009, we reached an agreement to sell MUNB, our national bank subsidiary located in Florida, to Banco Sabadell of Spain. The transaction is subject to regulatory approvals and is expected to close by the first quarter of 2010.

We frequently structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. We record the fair value of contingent payments as an additional cost of the entity acquired in the period that the payment becomes probable. Contingent payments totaled $16 million in the second quarter of 2009 and $25 million in the first six months of 2009.

At June 30, 2009, we were potentially obligated to pay additional consideration which, using reasonable assumptions for the performance of the acquired companies and joint ventures based on contractual agreements, could range from approximately $110 million to $150 million over the next four years. None of the potential contingent additional consideration was recorded as goodwill at June 30, 2009.

Acquisitions in 2008

In January 2008, we acquired ARX Capital Management (“ARX”). ARX is a leading independent asset management business, headquartered in Rio de Janeiro, Brazil, specializing in Brazilian multi-strategy, long/short and long only investment strategies. The impact of this acquisition was not material to earnings per share.

On Dec. 31, 2008, we acquired the Australian (Ankura Capital) and U.K. (Blackfriars Asset Management) businesses from our Asset Management joint venture with WestLB. The impact of this acquisition is not expected to be material to earnings per share.

Dispositions in 2008

In February 2008, we sold our B-Trade and G-Trade execution businesses to BNY ConvergEx Group. These businesses were sold at book value.


 

 

On March 31, 2008, we sold a portion of the Estabrook Capital Management business which reduced our AUM by $2.4 billion. We retained approximately 30% of the AUM which are primarily managed by the Wealth Management segment.

In June 2008, we sold Mellon 1st Business Bank, based in Los Angeles, California. The sale reduced loan and deposit levels by $1.1 billion and $2.8 billion, respectively. There was no gain or loss recorded on this transaction.

On Oct. 1, 2008, we sold the assets of Gannett Welsh & Kotler, an investment management subsidiary with approximately $8 billion in AUM.
Note 4 - Discontinued operations

Note 4 - Discontinued operations

In July 2009, the Company reached an agreement to sell Mellon United National Bank, our national bank subsidiary located in Florida. As a result, we applied discontinued operations accounting to this business and the income statements for all periods in this Form 10-Q have been restated. This business, which was previously reported in the Other segment, no longer fits our strategic focus on our asset management and securities servicing businesses. The results for discontinued operations

in the second quarter of 2009 include a pre-tax loss on sale of $85 million, primarily attributable to the elimination of $82 million of goodwill.

Summarized financial information for discontinued operations is as follows:

Discontinued operations assets and liabilities (a)    June 30,
2009		  

 

(in millions)

   

Cash and due from banks

    $ 47   

Federal funds sold and securities repurchased under resale agreements

      11   

Securities

      555   

Loans

      1,585   

Allowance for loan losses

      (89 ) 

Net loans

      1,496   

Premises and equipment

      13   

Other assets

      15   

Assets of discontinued operations

    $ 2,137   

Deposits:

   

Noninterest-bearing

      531   

Interest-bearing

      883   

Total deposits

      1,414   

Other liabilities

      193   

Liabilities of discontinued operations

    $ 1,607   

 

(a)

Prior period balance sheets, in accordance with GAAP, were not restated for discontinued operations.

 

Discontinued operations    Quarter ended    Six months ended
(in millions)    June 30,
2009		     March 31,
2009		     June 30,
2008		    June 30,
2009		     June 30,
2008

Fee and other revenue

    $ 1      $ 2      $ 21    $ 3      $ 21

Net interest revenue

      16        17        22      33        47

Provision for loan losses

      62        21        13      83        15

Net interest revenue after provision for loan losses

      (46 )      (4 )      9      (50 )      32

Noninterest expense:

            

Staff

      6        6        6      12        13

Professional, legal and other purchased services

      1        1        3      2        6

Net occupancy

      2        1        1      3        3

Other

      5        5        6      10        11

Goodwill impairment

      —          50        —        50        —  

Total noninterest expense

      14        63        16      77        33

Income (loss) from operations of discontinued operations

      (59 )      (65 )      14      (124 )      20

Loss on sale

      (85 )      —          —        (85 )      —  

Provision (benefit) for income taxes

      (53 )      (24 )      8      (77 )      10

Income (loss) from discontinued operations, net of tax

    $ (91 )    $ (41 )    $ 6    $ (132 )    $ 10

 

All information in these Financial Statements and Notes reflects continuing operations, unless otherwise noted.
Note 5 - Securities

Note 5 – Securities

The following tables set forth the amortized cost and the fair values of securities at June 30, 2009 and Dec. 31, 2008.

 

Securities at June 30, 2009   

Amortized

cost

     Gross unrealized   

Fair

value

  
(in millions)      Gains    Losses   

Available-for-sale:

                               

U.S. Government obligations

    $ 3,352      $ 19    $ 4    $ 3,367   

U.S. Government agencies

      1,247        36      -      1,283   

Obligations of states and political subdivisions

      625        3      22      606   

Agency residential mortgage-backed securities

      15,082        272      140      15,214   

Alt-A residential mortgage-backed securities

      5,539        3      2,696      2,846   

Prime residential mortgage-backed securities

      5,537        -      1,544      3,993   

Subprime residential mortgage-backed securities

      1,455        -      597      858   

Other residential mortgage-backed securities

      2,770        -      802      1,968   

Commercial mortgage-backed securities

      3,294        4      747      2,551   

Asset-backed collateralized debt obligations

      418        -      101      317   

Other asset-backed securities

      1,556        7      490      1,073   

Other debt securities

      7,044        37      111      6,970  (b) 

Equity securities

      1,077        6      3      1,080   

Total securities available-for-sale

      48,996        387      7,257      42,126   

Held-to-maturity:

           

Obligations of states and political subdivisions

      171        2      1      172   

Agency residential mortgage-backed securities

      601        27      -      628   

Alt-A residential mortgage-backed securities

      2,242        30      401      1,871   

Prime residential mortgage-backed securities

      222        -      37      185   

Subprime residential mortgage-backed securities

      62        -      24      38   

Other residential mortgage-backed securities

      3,640        -      441      3,199   

Commercial mortgage-backed securities

      12        -      7      5   

Other securities

      7        -      -      7   

Total securities held-to-maturity

      6,957  (a)      59      911      6,105   

Total securities

    $ 55,953      $ 446    $ 8,168    $ 48,231   

 

(a)

Held-to-maturity securities on the balance sheet are reported at amortized cost less the non-credit portion of an other-than-temporary impairment recorded in OCI as a result of adopting SFAS 115-2 (ASC 320-10). As of June 30, 2009, there was $145 million in accumulated OCI.
(b)

Includes $6,360 million, at fair value, of government-sponsored and guaranteed entities.

 

 

 

 

Securities at Dec. 31, 2008   

Amortized

cost

    Gross unrealized   

Fair

value
(in millions)       Gains    Losses   

Available-for-sale:

                            

U.S. Government obligations

    $ 746    $ 36    $ 1    $ 781

U.S. Government agencies

      1,259      40      -      1,299

Obligations of states and political subdivisions