Filed by The Bank of New York Company, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a-12
of the Securities Exchange Act of 1934
Subject Companies: The Bank of New York Company, Inc.
(Commission File No. 1-06152)
Mellon Financial Corporation
(Commission File No. 1-07410)
Forward-Looking Statements
The information presented here may contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
including (i) statements about the expected benefits of the transaction
between The Bank of New York Company, Inc. and Mellon Financial Corporation,
including future financial and operating results, cost savings, enhanced
revenues, expected market position of the combined company, and the accretion
or dilution to reported earnings and to cash earnings that may be realized
from the transaction; (ii) statements about The Bank of New York Company,
Inc.'s and Mellon Financial Corporation's plans, objectives, expectations and
intentions and other statements that are not historical facts; and (iii) other
statements identified by words such as "will," "highly attractive," "expect,"
"extraordinarily strong and rapidly growing competitor," "synergies,"
"opportunities," "superior returns," "well-positioned," "pro forma," and
similar phrases. These statements are based upon the current beliefs and
expectations of The Bank of New York Company, Inc.'s and Mellon Financial
Corporation's management and are subject to significant risks and
uncertainties. Actual results may differ from those indicated in the forward-
looking statements. The Company will not update these statements as a result
of changes in circumstance or new facts, or for any other reason.
The following risks, among others, could cause actual results to differ
materially from the anticipated results or other expectations expressed in
the forward-looking statements: (1) the businesses of The Bank of New York
Company, Inc. and Mellon Financial Corporation may not be integrated
successfully or the integration may be more difficult, time-consuming or
costly than expected; (2) the combined company may not realize, to the extent
or at the time the Comapny expects, revenue synergies and cost savings from
the transaction; (3) revenues following the transaction may be lower than
expected as a result of losses of customers or other reasons; (4) deposit
attrition, operating costs, customer loss and business disruption following
the transaction, including difficulties in maintaining relationships with
employees, may be greater than expected; (5) governmental approvals of the
transaction may not be obtained on the proposed terms or expected timeframe;
(6) The Bank of New York Company, Inc.'s or Mellon Financial Corporation's
shareholders may fail to approve the transaction; (7) a weakening of the
economies in which the combined company will conduct operations may adversely
affect the company's operating results; (8) the U.S. and foreign legal and
regulatory framework could adversely affect the operating results of the
combined company; and (9) fluctuations in interest rates, currency exchange
rates and securities prices may adversely affect the operating results of the
combined company. Additional factors that could cause The Bank of New York
Company, Inc.'s and Mellon Financial Corporation's results to differ
materially from those described in the forward-looking statements can be
found in The Bank of New York Company, Inc.'s and Mellon Financial
Corporation's reports (such as Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K) filed with the Securities and
Exchange Commission and available at the SEC's Internet
site ( http://www.sec.gov ).
Additional Information About the Mellon Transaction
In connection with the proposed transaction, The Bank of New York Mellon
Corporation, an entity formed by The Bank of New York Company, Inc. and Mellon
Financial Corporation for purposes of facilitating the proposed transaction,
filed a registration statement on Form S-4 (Registration No. 333-140863)
containing a joint proxy statement/prospectus with the Securities and Exchange
Commission on February 23, 2007. Shareholders are urged to read the joint
proxy statement/prospectus (including all amendments and supplements to it)
regarding the proposed transaction because it contains important information.
Shareholders may obtain a free copy of the joint proxy statement/prospectus,
as well as other filings containing information about The Bank of New York
Company, Inc. and Mellon Financial Corporation, without charge, at the SEC's
Internet site (http://www.sec.gov). Copies of the joint proxy
statement/prospectus and other SEC filings that are incorporated by reference
in the joint proxy statement/prospectus are also available, without charge,
from The Bank of New York Company, Inc., Investor Relations, One Wall Street,
31st Floor, New York, New York 10286 (212-635-1578), or from Mellon Financial
Corporation, Secretary of Mellon Financial Corporation, One Mellon Center,
Pittsburgh, Pennsylvania 15258-0001 (800-205-7699).
Directors and executive officers of The Bank of New York Company, Inc.
and Mellon Financial Corporation and other persons may be deemed to be
participants in the solicitation of proxies from the shareholders of The Bank
of New York Company, Inc. and/or Mellon Financial Corporation in respect of
the proposed transaction. Information about the directors and executive
officers of The Bank of New York Company, Inc. is set forth in the proxy
statement for The Bank of New York Company, Inc.'s 2007 annual meeting of
shareholders, as filed with the SEC on March 14, 2007. Information about
the directors and executive officers of Mellon Financial Corporation is set
forth in the proxy statement for Mellon Financial Corporation's 2007 annual
meeting of shareholders, as filed with the SEC on March 19, 2007. Additional
information regarding the participants in the proxy solicitation and a
description of their direct and indirect interests, by security holdings
or otherwise, will be contained in the joint proxy statement/prospectus when
it becomes available.
The following is the press release containing unaudited interim financal
information and accompanying discussion for the first quarter of 2007 filed
on April 18, 2007.
1
Exhibit 99.1
News Release
For Immediate Release
THE BANK OF NEW YORK COMPANY, INC. REPORTS
FIRST QUARTER NET INCOME OF $0.57 PER SHARE;
$0.59 PER SHARE EXCLUDING MERGER AND INTEGRATION COSTS;
CONTINUED MOMENTUM ACROSS ALL BUSINESSES
NEW YORK, N.Y., April 18, 2007 -- The Bank of New York Company, Inc. (NYSE:
BK) reported today first quarter net income of $434 million and diluted
earnings per share of 57 cents. On an adjusted basis, excluding merger and
integration costs, first quarter net income was $449 million and diluted
earnings per share was 59 cents. This compares to net income of $422
million, or 55 cents of diluted earnings per share, and income from
continuing operations of $360 million, or 47 cents of diluted earnings per
share, in the first quarter of 2006.
FIRST QUARTER PERFORMANCE HIGHLIGHTS
* Asset servicing revenue grew 17% over the first quarter of 2006, driven
by custody, fund services, and broker-dealer services;
* Asset and wealth management fees were up 20% over the first quarter of
2006 reflecting organic growth;
* Issuer services results were strong following the seasonally robust
fourth quarter;
* Asset quality remained excellent;
* Good expense discipline drove positive operating leverage.
"In the first quarter, we continued our strong momentum and achieved
broad-based growth. Our performance reflects the strength of our business
model, which has been built to profit from global capital flows and investor
activity," said Thomas A. Renyi, Chairman and Chief Executive Officer. "New
business trends remain very good and we achieved positive operating leverage.
"At the same time, our integration planning with Mellon Financial is
progressing very well. We are on track with identifying all the steps
necessary to reach our business development goals and expense synergies, and
establish The Bank of New York Mellon as the standard bearer for service
quality. The new company will hit the ground running."
2
NONINTEREST INCOME
Percent Inc/(Dec)
Quarter -----------------
------------------ 1Q07 vs. 1Q07 vs.
(In millions) 1Q07 4Q06 1Q06 4Q06 1Q06
------ ------ ------ -------- -------
Securities Servicing Fees
Asset servicing $ 393 $ 355 $ 335 11% 17%
Issuer services 319 340 154 (6) 107
Clearing services 278 263 342 6 (19)
------ ------ ------
Securities servicing fees 990 958 831 3 19
Global payment services 50 51 51 (2) (2)
Asset and wealth management fees 153 154 127 (1) 20
Performance fees 14 18 7 (22) 100
Financing-related fees 52 61 63 (15) (17)
Foreign exchange and
other trading activities 128 98 113 31 13
Securities gains/ (losses) 2 2 (4) - 150
Asset/investment income 35 47 34 (26) 3
Other (1) 51 52 43 (2) 19
------ ------ ------
Total noninterest income $1,475 $1,441 $1,265 2 17
====== ====== ======
(1) Includes net economic value payments of $25 million and $23 million for the first quarter of 2007 and the
fourth quarter of 2006.
Key Points
* The increase in noninterest income versus the year-ago quarter primarily
reflects growth in securities servicing, asset and wealth management and
foreign exchange and other trading activities.
* The first quarter of 2007 and the fourth quarter of 2006 reflect the new
business mix including higher revenue from the corporate trust business
the Company acquired from JPMorgan Chase in October 2006 ("Acquired
Corporate Trust Business") partially offset by the BNY ConvergEx
transaction.
* Asset servicing increased from the first quarter of 2006 and the fourth
quarter of 2006 due to increased transaction volumes and organic growth
across all business products, especially global custody, both domestic and
international mutual funds, exchange-traded funds, hedge fund servicing
and collateral management. In addition, the Company benefited from the
conversion of AIB/BNY Securities Services (Ireland) Ltd. ("AIB/BNY") to a
wholly-owned subsidiary. Securities lending revenue was flat on a
sequential quarter basis and down from the first quarter of 2006
reflecting tighter financing spreads. Asset servicing includes global
custody, global fund services, securities lending, global liquidity
services, outsourcing, government securities clearance, collateral
management, credit-related services, and other linked revenues,
principally foreign exchange.
* Issuer services fees continued to exhibit strong growth in the first
quarter compared with last year's first quarter. Corporate trust fees
increased sequentially over the seasonally strong fourth quarter
reflecting continued strong performance in global products and structured
finance, notably asset-backed and mortgage-backed securities and CDOs.
Depositary receipts had another strong quarter, with fees up nearly 17%
from the year-ago period. Fees declined sequentially, consistent with
normal seasonal patterns for corporate actions. Issuer services
3
includes corporate trust, depositary receipts, employee investment
plan services, and stock transfer.
* The decline in clearing services fees versus the first quarter 2006
reflects the disposition of certain execution businesses in the BNY
ConvergEx transaction. These businesses had revenues of $90 million in the
first quarter of 2006. At Pershing, fees were up compared with both the
first and fourth quarters of 2006, reflecting strong growth in customer
volumes and increased market activity as well as the benefits of new
business acquired. The clearing services business include electronic
trading and, through Pershing, correspondent clearing services such as
clearing, execution, financing, and custody for introducing broker-
dealers.
* Global payment services fees were down slightly from the first and fourth
quarters of 2006. Compared with the first quarter of 2006, the level of
fees has been impacted by customers paying with a higher value of
compensatory balances in lieu of fees. Global payment services includes
fees related to funds transfer, cash management, and liquidity management.
* Asset and wealth management fees increased over the first quarter of 2006
due to growth in assets under management, notably in alternative
investments, as well as the acquisition of Urdang, a real estate
investment management company, in March of last year. Total assets under
management for asset and wealth management were $130 billion at March 31,
2007, up from $113 billion at March 31, 2006 and essentially unchanged
from December 31, 2006.
* Performance fees were up from a year-ago quarter reflecting strong results
at two of the Company's alternative asset management subsidiaries, Ivy
Asset Management and Alcentra.
* Financing-related fees decreased from a year-ago quarter reflecting a
lower level of credit-related activities. Finance-related fees include
capital markets and investment banking fees, loan commitment fees and
credit-related trade fees.
* Foreign exchange and other trading revenues rose from both the first
quarter of 2006 and the fourth quarter of 2006 reflecting an increase in
other trading activities driven by interest rate derivatives and hedging
transactions. Foreign exchange revenue increased on a sequential quarter
basis consistent with higher market volatility and volumes in late
February and early March. Foreign exchange results were down from the
first quarter of 2006 reflecting lower market volatility.
* Asset/investment income in the quarter reflected continued strong returns
on investments in the sponsor fund portfolio. Venture capital income was
$17 million in the first quarter of 2007, down from $29 million in the
fourth quarter of 2006 and $23 million in the first quarter of 2006. In
the fourth quarter of 2006, the Company sold one of its sponsor fund
investments to a third party for a realized gain of $11 million.
Asset/investment income includes the gains and losses on private equity
investments, income from insurance contracts, and lease residual gains and
losses.
* Other noninterest income decreased versus the fourth quarter of 2006
reflecting lower asset-related gains. The first quarter 2007 results
include net economic value payments of $25 million compared with $23
million in the fourth quarter of 2006 on corporate trust deposits that
have not yet transitioned to the Company's balance sheet. The first
quarter of 2006 included pre-tax gain of $31 million related to the
conversion of the Company's New York Stock Exchange seats into cash and
shares of NYSE Group, Inc. common stock, some of which were sold. The
fourth quarter 2006 results include a $6 million loss related to low-
income housing investments.
4
NET INTEREST INCOME
(Dollars in millions) Percent Inc/(Dec)
-----------------
1Q07 vs. 1Q07 vs.
1Q07 4Q06 1Q06 4Q06 1Q06
---- ---- ---- ------- ---------
Net interest income $427 $451 $339 (5)% 26%
Tax equivalent
adjustment* 2 1 7
---- ---- ----
Net interest income
on a tax equivalent
basis $429 $452 $346 (5) 24
==== ==== ====
Net interest margin 2.18% 2.27% 1.95%
* Selected items included in net interest income have been adjusted to a tax equivalent basis as shown above. The
Company believes that this presentation provides comparability of net interest income arising from both taxable and
tax-exempt sources and is consistent with industry standards.
* The increase from the first quarter of 2006 reflects higher deposit
balances associated with the Acquired Corporate Trust Business, as well as
higher amounts of interest-earning assets and interest-free balances and
the higher value of interest-free balances in a rising rate environment.
* The sequential decrease in net interest income was driven by a lower
volume of low cost deposits associated with the securities servicing
business and fewer days in the quarter.
* Net interest income does not reflect the impact of certain deposits of the
Acquired Corporate Trust Business which are expected to transition to the
Company's balance sheet in the second quarter of 2007. Pro forma for the
inclusion of these deposits and the associated economic value on these
deposits, the net interest margin would have been approximately 2%.
5
NONINTEREST EXPENSE AND INCOME TAXES
Percent Inc/(Dec)
Quarter -----------------
-------------------- 1Q07 vs. 1Q07 vs.
(In million) 1Q07 4Q06 1Q06 4Q06 1Q06
------ ------ ------ -------- --------
Staff $ 720 $ 736 $ 604 (2)% 19%
Net occupancy 79 73 68 8 16
Furniture and equipment 50 45 51 11 (2)
Clearing 37 38 50 (3) (26)
Sub-custodian expenses 34 33 34 3 -
Software 54 59 55 (8) (2)
Business development 30 30 23 - 30
Communications 19 23 26 (17) (27)
Professional, legal, and
other purchased services 130 125 82 4 59
Distribution and servicing 4 5 4 (20) -
Amortization of intangibles 28 34 13 (18) 115
Merger and integration costs 15 17 - (12) NM
Other 72 67 59 7 22
------ ------ ------
Total noninterest expense 1,272 1,285 1,069 (1) 19
Merger and integration costs (15) (17) - (12) NM
------ ------ ------
Total noninterest
expense excluding
merger and integration
costs $1,257 $1,268 $1,069 (1) 18
====== ====== ======
NM - Not meaningful
* The decline in sequential quarter expenses reflects strong expense
discipline across many of the Company's businesses.
o The decrease in staff expense reflects lower incentive compensation
and pension expenses.
o The increase in net occupancy primarily reflects the conversion of
AIB/BNY to a wholly-owned subsidiary.
o The fourth quarter of 2006's amortization of intangibles included a
$6 million impairment charge related to the write-off of customer
intangibles.
o Other expense included transition services expense and other costs
related to the Acquired Corporate Trust Business of $21 million in
the current quarter and $22 million in the fourth quarter of 2006.
* The purchase of the Acquired Corporate Trust Business and the remaining
50% of AIB/BNY joint venture, along with the disposition of certain
execution businesses in the BNY ConvergEx transaction, significantly
impacts comparisons of the first quarter of 2007 to the first quarter of
2006. The net impact of these transactions was to increase staff expense,
net occupancy, business development, professional, legal, and other
purchased services, amortization of intangibles, and other expense. The
BNY ConvergEx transaction also resulted in lower clearing expenses.
* The effective tax rate for the first quarter of 2007 was 32.2%, compared
to 32.7% in the first quarter of 2006 and 31.4% in the fourth quarter of
2006. The decrease from the first quarter of 2006 primarily reflects
foreign sales corporation benefits for certain leverage leases. The
sequential quarter increase reflects lower Section 29 tax credits related
to synthetic fuel.
6
CAPITAL
* The Company's estimated Tier 1 and Total Capital ratios were 8.42% and
12.78% at March 31, 2007, compared with 8.28% and 12.44% at March 31, 2006
and 8.19% and 12.49% at December 31, 2006. The estimated leverage ratio
was 6.82% at March 31, 2007, compared with 6.51% at March 31, 2006 and
6.67% at December 31, 2006. The Company's estimated adjusted tangible
common equity ratio including deferred tax liability associated with
intangibles was 5.47% at March 31, 2007, compared with 5.54% at March 31,
2006 and 5.30% at December 31, 2006.
* In the first quarter of 2007, the Company recorded charges to equity of
$389 million due to the adoption of a new accounting pronouncement related
to leasing (FSP FAS 13-2) and $27 million due to the adoption of a new
accounting pronouncement related to tax uncertainties (FIN 48).
* Average diluted shares outstanding increased by 5 million shares from the
fourth quarter of 2006 as a result of the exercise of stock options and
the increased stock price.
ASSET QUALITY
* Nonperforming assets were $29 million at March 31, 2007, up from $25
million at March 31, 2006 and down from $38 million at December 31, 2006.
The sequential-quarter decline reflects a paydown of a loan to an auto
parts supplier.
* The Company recorded a net recovery of $3 million in the first quarter of
2007, compared with a net recovery of $4 million in the first quarter of
2006 and a net charge-off of $24 million in the fourth quarter of 2006.
The first quarter of 2007 reflects a $7 million recovery related to leased
aircraft that were sold. During the fourth quarter of 2006, the Company
sold $38 million of leasing exposure to a domestic airline resulting in a
charge-off of $23 million.
* The provision for credit losses for the first quarter of 2007 was a credit
of $15 million, compared with zero in the first quarter of 2006 and a
credit of $15 million in the fourth quarter of 2006 reflecting continuing
high credit quality.
MERGER AGREEMENT WITH MELLON FINANCIAL CORPORATION ("MELLON")
On December 3, 2006, the Company and Mellon entered into an Agreement and
Plan of Merger (the "Merger Agreement"), pursuant to which the Company and
Mellon will each merge with and into a newly formed corporation to be called
The Bank of New York Mellon Corporation. The boards of directors of both
companies have unanimously approved the Merger Agreement. The parties
amended and restated the Merger Agreement on February 23, 2007 and again on
March 30, 2007. The board of directors of each company has adopted a
resolution recommending the adoption of the Merger Agreement by its
respective shareholders, and each party has agreed to put these matters
before their respective shareholders for consideration. Subject to the
customary closing conditions, the merger is expected to close early in the
third quarter of 2007. The Company and Mellon filed a joint proxy
statement/prospectus with the Securities and Exchange Commission ("SEC")
regarding the proposed merger in late February and filed amendments to the
joint proxy statement/prospectus with the SEC in April. The joint proxy
statement/prospectus became effective on April 17, 2007. The Company and
Mellon will each hold separate special shareholder meetings on May 24, 2007
to approve the merger for shareholders of record as of April 12, 2007.
7
CONFERENCE CALL INFORMATION
Thomas A. Renyi, chairman and chief executive officer; Gerald L.
Hassell, president; Bruce W. Van Saun, vice chairman; and Todd Gibbons,
senior executive vice president and chief financial officer, will review the
quarterly results in a live conference call and audio webcast today at 8:00
a.m. EDT.
The presentation will be accessible:
* From the Company's website at www.bankofny.com/earnings and
* By telephone at (888) 677-2456 within the United States or (517) 623-
4161 internationally; the passcode is "The Bank of New York."
* A replay of the call will be available through the Company's website
and also by telephone at (800) 925-0867 within the United States or
(203) 369-3867 internationally.
The Bank of New York Company, Inc. (NYSE: BK) is a global leader in
providing a comprehensive array of services that enable institutions and
individuals to move and manage their financial assets in more than 100
markets worldwide. The Company has a long tradition of collaborating with
clients to deliver innovative solutions through its core competencies:
securities servicing, treasury management, asset management, and wealth
management. The Company's extensive global client base includes a broad
range of leading financial institutions, corporations, government entities,
endowments and foundations. Its principal subsidiary, The Bank of New York,
founded in 1784, is the oldest bank in the United States and has consistently
played a prominent role in the evolution of financial markets worldwide.
Additional information is available at www.bankofny.com.
***************************
Contact Information
Media: Investors:
--------- -------------
R. Jeep Bryant, EVP Kenneth A. Brause, MD
(212) 635-1569 (212) 635-1578
8
FORWARD-LOOKING STATEMENTS
All statements in this press release other than statements of historical
fact are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based upon
the Company's current beliefs and expectations including, among other things,
statements with respect to the proposed merger with Mellon, expectations with
respect to operations after the merger, projections with respect to revenue
and earnings and the Company's plans and objectives and as such are subject
to risks and uncertainties that could cause actual results to differ
materially from those expressed in the forward-looking statements. These
include lower than expected performance or higher than expected costs in
connection with acquisitions and integration of acquired businesses and the
BNY ConvergEx transaction, the completion and timing of potential
transactions, the level of capital market and trading activity, changes in
customer credit quality, market performance, the effects of capital
reallocation, portfolio performance, changes in regulatory expectations and
standards, ultimate differences from management projections or market
forecasts and the actions that management could take in response to these
changes.
In addition, with respect to the Mellon transaction, actual results may
differ materially from the anticipated results or other expectations
expressed in the forward-looking statements as a result of risks and
uncertainties, including but not limited to, the businesses of the Company
and Mellon may not be integrated successfully or the integration may be more
difficult, time-consuming or costly than expected; the combined company may
not realize, to the extent or at the time the Company expects, revenue
synergies and cost savings from the transaction; revenues following the
transaction may be lower than expected as a result of losses of customers or
other reasons; deposit attrition, operating costs, customer loss and business
disruption following the transaction, including, without limitation,
difficulties in maintaining relationships with employees, may be greater than
expected; governmental approvals of the transaction may not be obtained on
the proposed terms or expected timeframe; changes in political and economic
conditions; equity, fixed income and foreign exchange market fluctuations; the
Company's and Mellon's shareholders may fail to approve the transaction; the
U.S. and foreign legal and regulatory framework could adversely affect the
operating results of the combined company; and fluctuations in interests
rates, currency exchange rates and securities prices may adversely affect the
operating results of the combined company.
Additional factors that could cause the Company's and Mellon's results
to differ materially from those described in the forward-looking statements
can be found in The Bank of New York Company, Inc.'s and Mellon Financial
Corporation's Annual Report on Form 10-K for the year ended December 31, 2006
and any subsequent reports (such as Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC
pursuant to the Securities Exchange Act of 1934, as amended.
Forward-looking statements speak only as of the date they are made. The
Company will not update forward-looking statements to reflect factual
assumptions, circumstances or events that have changed after a forward-
looking statement was made.
(Financial highlights and detailed financial statements are attached.)
ADDITIONAL INFORMATION
The proposed transaction between The Bank of New York Company, Inc. and
Mellon Financial Corporation will be submitted to The Bank of New York
Company, Inc.'s and Mellon Financial Corporation's shareholders for their
consideration. In connection with the proposed transaction, The Bank of New
York Mellon Corporation has filed with the SEC a registration statement on
Form S-4 containing a joint proxy statement/prospectus for the shareholders
of the Company and Mellon, and each of the Company and Mellon will be filing
other documents regarding the proposed transaction with the SEC as well.
Before making any voting or investment decision, investors are urged to read
the definitive joint proxy statement/prospectus regarding the proposed
transaction, as well as the other documents referred to in the joint proxy
statement/prospectus carefully in their entirety when they become available
because they will contain important information about the proposed
transaction. The definitive joint proxy statement/prospectus will be mailed
to shareholders of the Company and of Mellon. Shareholders will be able to
obtain a free copy of the joint proxy statement/prospectus, as well as other
filings containing information about the Company and Mellon, without charge,
at the SEC's Internet site (http://www.sec.gov). Copies of the joint proxy
statement/prospectus and the filings with the SEC that will be incorporated
by reference in the joint proxy statement/prospectus can also be obtained,
without charge, by directing a request to The Bank of New York Company, Inc.,
Investor Relations, One Wall Street, 31st Floor, New York, New York 10286
(212-635-1578) or from Mellon Financial Corporation, Secretary of Mellon
Financial Corporation, One Mellon Center, Pittsburgh, Pennsylvania 15258-0001
(800-205-7699).
The respective directors and executive officers of The Bank of New York
Company, Inc. and Mellon Financial Corporation and other persons may be
deemed to be participants in the solicitation of proxies from the
shareholders of The Bank of New York Company, Inc. and/or Mellon Financial
Corporation in respect of the proposed transaction. Information about the
directors and executive officers of The Bank of New York Company, Inc. is set
forth in the proxy statement for The Bank of New York Company Inc.'s 2007
annual meeting of shareholders, as filed with the SEC on March 14, 2007.
Information about the directors and executive officers of Mellon Financial
Corporation is set forth in the proxy statement for Mellon Financial
Corporation's 2007 annual meeting of shareholders, as filed with the SEC on
March 19, 2007. Additional information regarding the participants in the
proxy solicitation and a description of their direct and indirect interests,
by security holdings or otherwise, is contained in the joint proxy
statement/prospectus filed with the SEC.
9
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Financial Highlights
(Unaudited)
------------------------------------------------------------------------------------
Quarter ended
--------------------------------------
(dollar amounts in millions, except per March 31, Dec. 31, March 31,
share amounts and unless otherwise noted) 2007 2006 2006
------------------------------------------------------------------------------------
Reported Results:
-----------------
Net income $ 434 $ 1,789 $ 422
Basic EPS 0.58 2.39 0.55
Diluted EPS 0.57 2.36 0.55
Continuing Operations:
----------------------
Key metrics
-----------
Noninterest income $ 1,475 $ 1,441 $ 1,265
Net interest income 427 451 339
-------- -------- --------
Total revenue $ 1,902 $ 1,892 $ 1,604
Total expense 1,272 1,285 1,069
Pre-tax operating margin 34% 33% 33%
Net interest margin 2.18 2.27 1.95
Net interest income on tax
equivalent basis $ 429 $ 452 $ 346
Net income 437 427 360
Basic EPS 0.58 0.57 0.47
Diluted EPS 0.57 0.56 0.47
Performance ratios
------------------
Return on average common equity 15.70% 14.95% 14.75%
Return on average common equity excluding
merger & integration costs 16.06 15.36 14.75
Return on average assets 1.73 1.66 1.50
Return on average assets excluding
merger & integration costs 1.78 1.70 1.50
Return on average tangible common equity 39.20 36.45 27.97
Return on average tangible common equity
excluding merger & integration costs 40.09 37.39 27.97
Return on average tangible assets 1.93 1.87 1.61
Return on average tangible assets
excluding merger & integration costs 1.98 1.92 1.61
Selected average balances
-------------------------
Interest-earning assets $ 79,075 $ 79,841 $ 71,035
Total assets 101,975 102,138 91,831
Interest-bearing deposits 43,862 44,344 41,263
Noninterest-bearing deposits 14,903 14,721 10,119
Shareholders' equity 11,277 11,340 9,888
Employees 23,134 22,961 19,989
Credit loss provision and net charge-offs
-----------------------------------------
Total provision $ (15) $ (15) $ -
Total net (charge-offs)/recoveries 3 (24) 4
Loans
-----
Allowance for loan losses
As a percent of total loans 0.76% 0.76% 1.04%
As a percent of non-margin loans 0.87 0.88 1.24
Total allowance for credit losses
As a percent of total loans 1.11 1.16 1.47
As a percent of non-margin loans 1.28 1.34 1.76
Nonperforming assets
--------------------
Total nonperforming assets $ 29 $ 38 $ 25
Nonperformance assets ratio 0.1% 0.1% 0.1%
10
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Financial Highlights
(Unaudited)
------------------------------------------------------------------------------------
Quarter ended
--------------------------------------
(dollar amounts in millions, except per March 31, Dec. 31, March 31,
share amounts and unless otherwise noted) 2007 2006 2006
------------------------------------------------------------------------------------
Assets under Custody (in trillions) (1)
---------------------------------------
Assets under Custody $ 13.8 $ 13.0 $ 11.3
Equity securities 32% 33% 33%
Fixed income securities 68 67 67
Cross-border assets $ 5.0 $ 4.7 $ 3.7
Assets under management (in billions) (2)
-----------------------------------------
Asset and wealth management
Equity securities $ 41 $ 39 $ 37
Fixed income securities 22 21 21
Alternative investments 33 33 26
Liquid assets 34 38 29
-------- -------- --------
Asset and wealth management $ 130 $ 131 $ 113
Foreign exchange overlay 12 11 11
Securities lending short-term
investment funds 54 48 49
-------- -------- --------
Total assets under management $ 196 $ 190 $ 173
======== ======== ========
Capital ratios
--------------
Tier 1 capital ratio 8.42%(2) 8.19% 8.28%
Total capital ratio 12.78 (2) 2.49 12.44
Leverage ratio 6.82 (2) 6.67 6.51
Adjusted tangible common equity ratio 5.47 (2) 5.30 5.54
Average shares outstanding (in thousands)
-----------------------------------------
Basic 750,737 746,688 763,851
Diluted 763,083 757,981 773,630
Other
-----
Book value per common share $ 15.20 $ 15.34 $ 13.09
Tangible book value per common share 6.53 6.57 7.08
Period-end shares outstanding
(in thousands) 758,324 755,861 771,561
Dividends per share $ 0.22 $ 0.22 $ 0.21
Dividend yield 2.17% 2.24% 2.33%
Closing common stock price per share $ 40.55 $ 39.37 $ 36.04
Market capitalization (in billions) 30.8 29.8 27.8
Note:
(1) Estimated Assets under Custody include assets under administration and safekeeping.
(2) Estimated
11
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(In millions, except per share amounts)
(Unaudited)
Quarter Ended
--------------------------------------------
March 31, Dec 31, Sept 30, June 30, March 31,
2007 2006 2006 2006 2006
-------- ------- -------- -------- ---------
Noninterest income
Securities servicing fees
Asset servicing $ 393 $ 355 $ 346 $ 365 $ 335
Issuer services 319 340 194 207 154
Clearing services 278 263 302 337 342
------ ------ ------ ------ ------
Total securities servicing fees 990 958 842 909 831
Global payment services 50 51 55 52 51
Asset and wealth management fees 153 154 135 135 127
Performance fees 14 18 3 7 7
Financing-related fees 52 61 62 64 63
Foreign exchange and other trading activities 128 98 84 130 113
Securities gains/(losses) 2 2 1 3 (4)
Asset/investment income 35 47 33 36 34
Other 51 52 48 34 43
------ ------ ------ ------ ------
Total noninterest income 1,475 1,441 1,263 1,370 1,265
------ ------ ------ ------ ------
Net interest income
Interest income 1,021 1,057 961 910 813
Interest expense 594 606 610 552 474
------ ------ ------ ------ ------
Net interest income 427 451 351 358 339
Provision for credit losses (15) (15) (4) (1) -
------ ------ ------ ------ ------
Net interest income after provision
for credit losses 442 466 355 359 339
------ ------ ------ ------ ------
Noninterest expense
Staff 720 736 644 656 604
Net occupancy 79 73 70 68 68
Furniture and equipment 50 45 46 48 51
Clearing 37 38 52 59 50
Sub-custodian expenses 34 33 31 36 34
Software 54 59 53 53 55
Business development 30 30 27 28 23
Communications 19 23 26 22 26
Professional, legal, and other purchased services 130 125 89 85 82
Distribution and servicing 4 5 4 4 4
Amortization of intangible assets 28 34 14 15 13
Merger and integration costs 15 17 89 - -
Other 72 67 51 64 59
------ ------ ------ ------ ------
Total noninterest expense 1,272 1,285 1,196 1,138 1,069
------ ------ ------ ------ ------
Income
Income from continuing operations before income taxes 645 622 422 591 535
Provision for income taxes 208 195 124 200 175
------ ------ ------ ------ ------
Income from continuing operations 437 427 298 391 360
------ ------ ------ ------ ------
Discontinued Operations
Income from discontinued operations (5) 2,130 96 99 102
Provision for income taxes (2) 768 42 42 40
------ ------ ------ ------ ------
Discontinued operations, net (3) 1,362 54 57 62
------ ------ ------ ------ ------
Net income $ 434 $1,789 $ 352 $ 448 $ 422
====== ====== ====== ====== ======
Earnings per share
Basic
Income from continuing operations $ 0.58 $ 0.57 $ 0.40 $ 0.52 $ 0.47
Income from discontinued operations, net - 1.82 0.07 0.07 0.08
Net income 0.58 2.39 0.47 0.59 0.55
Diluted
Income from continuing operations $ 0.57 $ 0.56 $ 0.39 $ 0.52 $ 0.47
Income from discontinued operations, net - 1.80 0.07 0.07 0.08
Net income 0.57 2.36 0.46 0.59 0.55
Average shares outstanding (in thousands)
Basic 750,737 746,688 756,780 756,255 763,851
Diluted 763,083 757,981 766,665 764,713 773,630
Note: Certain prior periods amounts have been reclassified to conform to current period presentation.
12
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
(Unaudited)
March 31, December 31, September 30, June 30, March 31,
2007 2006 2006 2006 2006
----------- ----------- ----------- ----------- -----------
Assets
------
Cash and due from banks $ 2,159 $ 2,840 $ 2,072 $ 3,010 $ 2,864
Interest-bearing deposits in banks 13,474 13,172 16,753 11,978 7,635
Federal funds sold and securities purchased
under resale agreements 1,712 5,114 5,139 2,235 4,781
Securities
Held-to-maturity (fair value of
$1,557 at 03/31/07, $1,710 at 12/31/06,
$1,716 at 9/30/06, $2,108 at 6/30/06
and $2,028 at 03/31/06) 1,572 1,729 1,737 2,167 2,069
Available-for-sale 22,124 19,377 20,278 25,188 25,121
----------- ----------- ----------- ----------- -----------
Total securities 23,696 21,106 22,015 27,355 27,190
Trading assets at fair value 3,675 5,544 3,266 6,065 7,129
Loans 38,289 37,793 33,958 35,650 32,191
Reserve for loan losses (290) (287) (339) (337) (334)
----------- ----------- ----------- ----------- -----------
Net loans 37,999 37,506 33,619 35,313 31,857
Premises and equipment 1,064 1,050 1,009 963 955
Accrued interest receivable 409 422 406 394 349
Goodwill 5,131 5,172 3,801 3,784 3,739
Intangible assets 1,447 1,453 872 885 896
Other assets 9,061 9,973 8,856 7,953 7,456
Assets of discontinued operations held for sale 21 18 8,828 8,946 8,760
----------- ----------- ----------- ----------- -----------
Total assets $ 99,848 $ 103,370 $ 106,636 $ 108,881 $ 103,611
=========== =========== =========== =========== ===========
13
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Balance Sheets
(Dollars in millions, except per share amounts)
(Unaudited)
March 31, December 31, September 30, June 30, March 31,
2007 2006 2006 2006 2006
----------- ----------- ----------- ----------- -----------
Liabilities
-----------
Deposits
Noninterest-bearing (principally domestic offices) $ 17,269 $ 19,554 $ 11,451 $ 15,930 $ 11,447
Interest-bearing deposits in domestic offices 9,312 10,041 9,785 9,958 9,881
Interest-bearing deposits in foreign offices 32,435 32,551 33,717 30,853 29,472
----------- ----------- ----------- ----------- -----------
Total deposits 59,016 62,146 54,953 56,741 50,800
Federal funds purchased and securities
sold under repurchase agreements 773 790 1,040 1,177 903
Trading liabilities 2,270 2,507 2,102 2,938 2,358
Payables to customers and broker-dealers 6,739 7,266 6,673 6,638 7,556
Other borrowed funds 1,714 1,625 1,121 1,026 1,158
Accrued taxes and other expenses 4,153 5,129 4,140 3,864 3,674
Other liabilities (including allowance for
lending-related commitments of
$135 at 03/31/07, $150 at 12/31/06,
$137 at 09/30/06, $143 at 06/30/06
and $140 at 03/31/06) 4,007 3,477 4,671 4,503 4,283
Long-term debt 9,585 8,773 8,434 8,207 8,309
Liabilities of discontinued operations held for sale 64 64 13,035 13,731 14,469
----------- ----------- ----------- ----------- -----------
Total liabilities 88,321 91,777 96,169 98,825 93,510
----------- ----------- ----------- ----------- -----------
Shareholders' equity
--------------------
Common stock-par value $7.50 per share,
authorized 2,400,000,000 shares, issued
1,054,488,125 shares at 03/31/07,
1,053,752,916 shares at 12/31/06,
1,049,888,635 shares at 09/30/06,
1,048,879,688 shares at 06/30/06 and
1,047,597,230 shares at 03/31/06 7,909 7,903 7,874 7,867 7,857
Additional capital 2,203 2,142 2,015 1,965 1,904
Retained earnings 9,710 9,444 7,820 7,636 7,347
Accumulated other comprehensive income (753) (317) (66) (231) (189)
---------- ----------- ----------- ----------- -----------
19,069 19,172 17,643 17,237 16,919
Less: Treasury stock (296,062,120 shares at 03/31/07,
297,790,159 shares at 12/31/06,
285,692,282 shares at 09/30/06,
285,896,449 shares at 06/30/06 and
275,833,078 shares at 03/31/06), at cost 7,539 7,576 7,169 7,174 6,811
Loan to ESOP (101,753 shares at 03/31/07 and
12/31/06, and 203,507 shares at 09/30/06,
06/30/06 and 03/31/06), at cost 3 3 7 7 7
----------- ----------- ----------- ----------- -----------
Total shareholders' equity 11,527 11,593 10,467 10,056 10,101
----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $ 99,848 $ 103,370 $ 106,636 $ 108,881 $ 103,611
=========== =========== =========== =========== ===========
Note: The balance sheet at December 31, 2006 has been derived from the audited financial statements at that date.
14
THE BANK OF NEW YORK COMPANY, INC.
Average Balances and Rates on a Taxable Equivalent Basis
(Preliminary)
(Dollars in millions)
For the three months For the three months
ended March 31, 2007 ended March 31, 2006(1)
---------------------------- ---------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
--------- -------- ------- -------- -------- -------
ASSETS
------
Interest-bearing
Deposits in banks
(primarily foreign) $ 13,546 $ 146 4.36% $ 9,624 $ 86 3.61%
Federal funds sold and securities
purchased under resale agreements 4,435 57 5.23 1,691 15 3.64
Margin loans 5,401 84 6.33 5,655 77 5.54
Non-margin loans
Domestic offices 19,231 244 5.11 16,321 184 4.54
Foreign offices 11,321 163 5.85 9,815 126 5.21
--------- -------- --------- --------
Total non-margin loans 30,552 407 5.38 26,136 310 4.79
--------- -------- --------- --------
Securities
U.S. government obligations 86 1 4.95 225 2 4.22
U.S. government agency obligations 2,905 37 5.07 3,953 44 4.45
Obligations of states and
political subdivisions 86 2 8.22 118 3 8.04
Other securities 19,311 255 5.30 18,919 232 4.89
Trading securities 2,753 34 4.99 4,714 51 4.42
--------- -------- --------- --------
Total securities 25,141 329 5.25 27,929 332 4.76
--------- -------- --------- --------
Total interest-earning assets 79,075 1,023 5.22 71,035 820 4.65
-------- --------
Allowance for credit losses (286) (333)
Cash and due from banks 2,424 4,269
Other assets 20,762 16,860
Assets of discontinued operations
held for sale 66 - 14,302 185 5.24
--------- -------- --------- --------
TOTAL ASSETS $ 102,041 $ 1,023 $ 106,133 $ 1,005
========= ======== ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Interest-bearing deposits
Money market rate accounts $ 6,169 $ 45 2.98% $ 5,426 $ 31 2.29%
Savings 416 2 1.85 468 1 1.13
Certificates of deposit of
$100,000 & over 3,133 42 5.43 4,246 48 4.59
Other time deposits 584 7 5.18 903 10 4.41
Foreign offices 33,560 304 3.67 30,220 208 2.80
--------- -------- --------- --------
Total interest-bearing deposits 43,862 400 3.70 41,263 298 2.93
Federal funds purchased and
securities sold under repurchase
agreements 1,527 19 4.97 1,966 20 4.19
Other borrowed funds 1,870 13 2.88 1,980 20 4.02
Payables to customers and broker-dealers 4,747 42 3.59 5,231 40 3.10
Long-term debt 8,888 120 5.42 8,011 96 4.81
--------- -------- --------- --------
Total interest-bearing liabilities 60,894 594 3.95 58,451 474 3.28
-------- --------
Noninterest-bearing deposits 14,903 10,119
Other liabilities 14,901 13,373
Common shareholders' equity 11,277 9,888
Liabilities of discontinued operations
held for sale 66 - 14,302 36 1.02
--------- -------- --------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 102,041 $ 594 $ 106,133 $ 510
========= ======== ========= =======
Interest earnings,
continuing operations $ 429 $ 346
======== =======
Net interest margin 2.18% 1.95%
======= =======
Note:
(1) Average balances and rates have been impacted by allocations made to match assets of
discontinued operations held for sale with liabilities of discontinued operations held for sale.
15
SUPPLEMENTAL INFORMATION
------------------------
On October 1, 2006, the Company acquired JPMorgan Chase's corporate trust
business and sold to JPMorgan Chase the Company's Retail Business. The
transaction further increased the Company's focus on the securities services
and asset management businesses that are at the core of its long-term business
strategy.
For the quarters ended March 31, 2007 and March 31, 2006, the Company has
prepared supplemental financial information as follows:
* Full income statement for the Retail Business, which is reflected as
discontinued operations
* Adjusted results, which combine continuing and discontinued operations
to provide continuity with historical results
* Continuing operations and adjusted results including and excluding
merger and integration costs
The Company believes that providing supplemental adjusted non-GAAP
financial information is useful to investors in understanding the underlying
operating performance of the Company and its businesses and performance
trends, particularly in view of the materiality and strategic significance of
the JPMorgan Chase transaction. By combining the results of continuing and
discontinued operations and excluding merger and integration costs, the
Company believes investors can gain greater insight into the operating
performance of the Company in relation to historic results. Although the
Company believes that the non-GAAP financial measures presented in this report
enhance investors' understanding of the Company's business and performance,
these non-GAAP measures should not be considered an alternative to GAAP.
16
SUPPLEMENTAL INFORMATION
------------------------
THE BANK OF NEW YORK COMPANY, INC.
Consolidated Statements of Income
(Dollars in millions, except per share amounts)
(Unaudited)
Quarter Ended March 31, 2007 Quarter Ended March 31, 2006
---------------------------------------- ------------------------------------------
Continuing Discontinued Adjusted Continuing Discontinued Adjusted
Operations Operations Results (1) Operations Operations Results (1)
---------- -------------- ----------- ----------- ------------- -----------
Noninterest income
------------------
Securities servicing fees
Asset servicing $ 393 $ - $ 393 $ 335 $ - $ 335
Issuer services 319 - 319 154 - 154
Clearing services 278 - 278 342 - 342
------- ------ ------ ------ ------ ------
Total securities
servicing fees 990 - 990 831 - 831
Global payment services 50 - 50 51 8 59
Asset and wealth
management fees 153 - 153 127 11 138
Performance fees 14 - 14 7 - 7
Financing-related fees 52 - 52 63 37 100
Foreign exchange and other
trading activities 128 - 128 113 2 115
Securities gains/(losses) 2 - 2 (4) - (4)
Asset/investment income 35 - 35 34 - 34
Other 51 14 65 43 13 56
------- ------ ------ ------ ------ ------
Total noninterest income 1,475 14 1,489 1,265 71 1,336
------- ------ ------ ------ ------ ------
Net interest income
------------------- 427 - 427 339 149 488
Provision for credit losses (15) - (15) - 5 5
------- ------ ------ ------ ------ ------
Net interest income after
provision for
credit losses 442 - 442 339 144 483
------- ------ ------ ------ ------ ------
Noninterest expense
-------------------
Staff 720 9 729 604 64 668
Net occupancy 79 - 79 68 20 88
Furniture and equipment 50 - 50 51 2 53
Clearing 37 - 37 50 - 50
Sub-custodian expenses 34 - 34 34 - 34
Software 54 - 54 55 1 56
Business development 30 - 30 23 9 32
Communications 19 - 19 26 1 27
Professional, legal, and other
purchased services 130 2 132 82 8 90
Distribution and servicing 4 - 4 4 - 4
Amortization of intangibles 28 - 28 13 - 13
Merger and integration costs 15 8 23 - - -
Other 72 - 72 59 8 67
------- ------ ------ ------ ------ ------
Total noninterest expense 1,272 19 1,291 1,069 113 1,182
------- ------ ------ ------ ------ ------
Income before income taxes 645 (5) 640 535 102 637
Income taxes 208 (2) 206 175 40 215
------- ------ ------ ------ ------ ------
Net income 437 (3) 434 360 62 422
Merger and integration cost,
net of taxes 10 5 15 - - -
------- ------ ------ ------ ------ ------
Net income excluding merger
and integration costs $ 447 $ 2 $ 449 $ 360 $ 62 $ 422
======= ====== ====== ====== ====== ======
Diluted earnings per share $ 0.57 $ - $ 0.57 $ 0.47 $ 0.08 $ 0.55
Diluted earnings per share
excluding merger and
integration costs 0.59 - 0.59 0.47 0.08 0.55
Note:
(1) Adjusted results combine continuing and discontinued operations to provide continuity
with historical results.