Bank of New York Mellon Corp - FORM 8-K - EX-99.1 - PRESS RELEASE

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8-K - FORM 8-K - Bank of New York Mellon Corp	d423142d8k.htm

Exhibit 99.1


Press Release


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

BNY MELLON REPORTS THIRD QUARTER EARNINGS OF $720 MILLION OR $0.61 PER COMMON SHARE

•

Including a $0.04 per common share benefit from a lower than expected effective tax rate

INVESTMENT MANAGEMENT FEES UP 7% YEAR-OVER-YEAR

RECORD LEVEL OF ASSETS UNDER MANAGEMENT OF $1.4 TRILLION, UP 13% YEAR-OVER-YEAR, UP 5% SEQUENTIALLY

NET LONG-TERM INFLOWS OF $58 BILLION OVER LAST 12 MONTHS, $9 BILLION IN 3Q12

RECORD LEVEL OF ASSETS UNDER CUSTODY/ADMINISTRATION OF $27.9 TRILLION, UP 8% YEAR-OVER-YEAR, UP 3% SEQUENTIALLY

NONINTEREST EXPENSE DECLINED 2% YEAR-OVER-YEAR

ESTIMATED BASEL III TIER 1 COMMON EQUITY RATIO 9.3% (a)

RETURN ON TANGIBLE COMMON EQUITY 22% (a)

REPURCHASED OVER 13 MILLION COMMON SHARES FOR $288 MILLION IN 3Q12

NEW YORK, October 17, 2012 — The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE:BK) today reported third quarter net income applicable to common shareholders of $720 million, or $0.61 per common share, compared with $651 million, or $0.53 per common share, in the third quarter of 2011 and $466 million, or $0.39 per common share, in the second quarter of 2012.


(a)		See “Supplemental information – Explanation of Non-GAAP financial measures” on pages 10 through 13 for the calculation of the Non-GAAP measures of the estimated Basel III Tier 1 common equity ratio and the return on tangible common equity.

Third Quarter Results – Sequential growth rates are unannualized. Please refer to the Quarterly Earnings Review for a detailed review of our businesses. Unless otherwise noted, the results for all periods in 2011 include the impact of Shareowner Services.

Total revenue


Reconciliation of total revenue									3Q12 vs.
(dollars in millions)		3Q12		2Q12			3Q11		3Q11			2Q12
Fee and other revenue		$	2,879	$	2,826		$	2,887		—	%		2	%
Income from consolidated investment management funds			47		57			32
Net interest revenue			749		734			775
	Total revenue – GAAP		3,675		3,617			3,694		(1	)		2
Less:	Net income attributable to noncontrolling interests related to consolidated investment management funds		25		29			13
	Fee and other revenue related to Shareowner Services (a)		—		(3	)		44
	Total revenue excluding fee and other revenue related to Shareowner Services – Non-GAAP	$	3,650	$	3,591		$	3,637		—	%		2	%

(a)

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

•

Assets under custody and administration amounted to a record $27.9 trillion at Sept. 30, 2012, an increase of 8% compared with the prior year and 3% sequentially. The increases were driven by higher market values and net new business. Assets under management amounted to a record $1.4 trillion at Sept. 30, 2012, an increase of 13% compared with the prior year and 5% sequentially. Both increases resulted from higher market values and net inflows. Long-term inflows totaled $9 billion and short-term inflows totaled $9 billion for the third quarter of 2012. Long-term inflows benefited from fixed income and active equities.

•

Investment services fees totaled $1.7 billion, a decrease of 6% year-over-year and an increase of 1% sequentially. The year-over-year decrease was primarily driven by lower Depositary Receipts revenue, the impact of the sale of the Shareowner Services business in the fourth quarter of 2011 and lower Corporate Trust fees, partially offset by higher asset servicing and securities lending revenue. Sequentially, the increase resulted from seasonally higher Depositary Receipts revenue, which was partially offset by lower Clearing Services revenue, a seasonal decrease in securities lending revenue and lower Corporate Trust fees.

•

Investment management and performance fees were $779 million, an increase of 7% year-over-year and a decrease of 2% sequentially. Excluding performance fees, investment management fees increased 7% year-over-year and 3% sequentially. Both increases were driven by higher market values and net new business.

•

Foreign exchange and other trading revenue totaled $182 million compared with $200 million in the third quarter of 2011 and $180 million in the second quarter of 2012. In the third quarter of 2012, foreign exchange revenue totaled $121 million, a decrease of 45% year-over-year and 23% sequentially. Both decreases reflect lower volatility and volumes. Other trading revenue was $61 million in the third quarter of 2012 compared with a loss of $21 million in the third quarter of 2011 and revenue of $23 million in the second quarter of 2012. The increases compared with both prior periods reflect improved fixed income trading.

•

Investment and other income totaled $124 million compared with $83 million in the third quarter of 2011 and $48 million in the second quarter of 2012. The year-over-year increase primarily resulted from higher seed capital gains. Sequentially, the increase primarily resulted from seed capital gains and higher equity investment revenue.

•

Net interest revenue and the net interest margin (FTE) were $749 million and 1.20% compared with $775 million and 1.30% in the third quarter of 2011 and $734 million and 1.25% in the second quarter of 2012. The year-over-year decrease in net interest revenue was primarily driven by lower accretion and the elimination of interest on European Central Bank deposits, partially offset by increased investment in high-quality investment securities. The increase in net interest revenue compared with the second quarter of 2012 primarily reflects higher average interest-earning assets driven by higher deposit levels, partially offset by the elimination of interest on European Central Bank deposits.

The decreases in net interest margin (FTE) compared with both prior periods primarily reflect lower reinvestment yields, the elimination of interest on European Central Bank deposits, lower accretion and growth in customer deposits.

The provision for credit losses was a credit of $5 million in the third quarter of 2012 primarily resulting from loan sales and repayments. The provision for credit losses was a credit of $22 million in the third quarter of 2011 and a credit of $19 million in the second quarter of 2012.

Total noninterest expense


Reconciliation of noninterest expense							3Q12 vs.
(dollars in millions)	3Q12		2Q12		3Q11		3Q11			2Q12
Noninterest expense – GAAP	$	2,705	$	3,047	$	2,771		(2	)%		(11	)%
Less: Amortization of intangible assets		95		97		106
M&I, litigation and restructuring charges		26		378		92
Noninterest expense related to Shareowner Services (a)		—		—		37
Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expense related to Shareowner Services – Non-GAAP	$	2,584	$	2,572	$	2,536		2	%		—	%

(a)

Reflects direct expenses related to the Shareowner Services business sold on Dec. 31, 2011.

•

Total noninterest expense increased 2% excluding amortization of intangible assets, M&I, litigation and restructuring charges and direct expenses related to Shareowner Services (Non-GAAP) compared with the prior year period and was flat sequentially. The year-over-year increase primarily reflects the cost of generating certain tax credits in 3Q12 and the benefit of state investment tax credits recorded in 3Q11.

The effective tax rate was 23.1% in the third quarter of 2012, which primarily reflects the benefit from completing various tax audits. Earnings per common share in the third quarter of 2012 benefited $0.04 as a result of the lower than expected effective tax rate.

The unrealized pre-tax gain on our total investment securities portfolio was $2.5 billion at Sept. 30, 2012 compared with $1.4 billion at June 30, 2012. The increase in the valuation of the investment securities portfolio primarily reflects a decline in interest rates and improved credit spreads.


Capital ratios	Sept. 30, 2012 (a)			June 30, 2012			Sept. 30, 2011
Estimated Basel III Tier 1 common equity ratio-Non-GAAP (b)(c)		9.3	%		8.7	%		N/A
Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (c)		13.2			13.2			12.5	%
Basel I Tier 1 capital ratio		15.3			14.7			14.0
Basel I Total (Tier 1 plus Tier 2) capital ratio		16.8			16.4			16.1
Basel I leverage capital ratio		5.6			5.5			5.1
BNY Mellon shareholders’ equity to total assets ratio (c)		10.7			10.5			10.5
BNY Mellon common shareholders’ equity to total assets ratio (c)		10.3			10.3			10.5
Tangible BNY Mellon common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)		6.3			6.1			5.9

(a)

Preliminary.

(b)

The estimated Basel III Tier 1 common equity ratio at Sept. 30, 2012 and June 30, 2012 is based on the Notices of Proposed Rulemaking (“NPRs”) and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio of 6.5% at Sept. 30, 2011 is based on prior Basel III guidance and the proposed market risk rule.

(c)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 10 for a calculation of these ratios.

We generated $780 million of gross Basel I Tier 1 common equity in the third quarter of 2012.

Our estimated Basel III Tier 1 common equity ratio was 9.3% at Sept. 30, 2012 compared with 8.7% at June 30, 2012. The increase was primarily due to earnings retention and an increase in the value of the investment portfolio, partially offset by higher risk-weighted assets.

Dividends (common) – On Oct. 17, 2012, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.13 per common share. This cash dividend is payable on Nov. 6, 2012 to shareholders of record as of the close of business on Oct. 29, 2012.

Dividends (preferred) – On Oct. 17, 2012, The Bank of New York Mellon Corporation also declared dividends for the dividend period ending in December 2012 of $1,011.11 per share on the Series A Noncumulative Perpetual Preferred Stock, liquidation preference of $100,000 per share (the “Series A Preferred Stock”) (equivalent to $10.11 per Normal Preferred Capital Security of Mellon Capital IV, referred to below, each representing 1/100^th interest in a share of Series A Preferred Stock), and $1,314.44 per share on the Series C Noncumulative Perpetual Preferred Stock, liquidation preference of $100,000 per share (the “Series C Preferred Stock”) (equivalent to $0.33 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock (the “Depositary Shares”)), payable on Dec. 20, 2012 to holders of record as of the close of business on Dec. 5, 2012. All of the outstanding shares of the Series A Preferred Stock are owned by Mellon Capital IV, which will pass through the December dividend on the Series A Preferred Stock to the holders of record, as of the close of business on Dec. 5, 2012, of its Normal Preferred Capital Securities. All of the outstanding shares of the Series C Preferred Stock are held by the depositary of the Depositary Shares, which will pass through the applicable portion of the December dividend on the Series C Preferred Stock to the holders of record, as of the close of business on Dec. 5, 2012, of the Depositary Shares.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $27.9 trillion in assets under custody and administration and $1.4 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.4 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available on www.bnymellon.com or follow us on Twitter@BNYMellon.

THE BANK OF NEW YORK MELLON CORPORATION

Financial Highlights


	Quarter ended									Year-to-date
(dollar amounts in millions, except per common share amounts and unless otherwise noted)	Sept. 30, 2012			June 30, 2012			Sept. 30, 2011			Sept. 30, 2012			Sept. 30, 2011

Return on common equity (annualized) (a)		8.3	%		5.5	%		7.6	%		7.1	%		8.0	%
Non-GAAP adjusted (a)		9.2	%		8.9	%		9.0	%		9.0	%		9.4	%

Return on tangible common equity (annualized)
Non-GAAP (a)		22.1	%		15.7	%		22.1	%		19.6	%		24.2	%
Non-GAAP adjusted (a)		22.5	%		22.4	%		23.8	%		22.6	%		25.6	%

Fee revenue as a percentage of total revenue excluding net securities gains (losses)		78	%		78	%		78	%		78	%		78	%

Annualized fee revenue per employee (based on average headcount) (in thousands)	$	235		$	233		$	233		$	233		$	240

Percentage of non-U.S. total revenue (b)		37	%		37	%		39	%		37	%		38	%

Pre-tax operating margin (a)		27	%		16	%		26	%		22	%		26	%
Non-GAAP adjusted (a)		29	%		29	%		31	%		29	%		30	%

Net interest margin (FTE)		1.20	%		1.25	%		1.30	%		1.25	%		1.39	%

Selected average balances:
Interest-earning assets	$	255,228		$	239,755		$	240,253		$	243,814		$	213,636
Assets of operations	$	307,919		$	293,718		$	298,325		$	297,219		$	268,847
Total assets	$	318,914		$	305,002		$	311,463		$	308,459		$	282,745
Interest-bearing deposits	$	138,260		$	130,482		$	125,795		$	131,418		$	122,790
Noninterest-bearing deposits	$	70,230		$	62,860		$	73,389		$	66,581		$	51,808
Preferred stock	$	611		$	60		$	—		$	225		$	—
Total The Bank of New York Mellon Corporation common shareholders’ equity	$	34,522		$	34,123		$	34,008		$	34,123		$	33,437

Average common shares and equivalents outstanding (in thousands):
Basic		1,169,674			1,181,350			1,214,126			1,181,614			1,226,132
Diluted		1,171,534			1,182,985			1,215,527			1,183,309			1,229,042

Period-end data:
Market value of assets under management (in billions)	$	1,359		$	1,299		$	1,198		$	1,359		$	1,198
Market value of assets under custody and administration (in trillions)	$	27.9		$	27.1		$	25.9		$	27.9		$	25.9
Market value of cross-border assets (in trillions)	$	10.1		$	9.9		$	9.6		$	10.1		$	9.6
Market value of securities on loan (in billions) (c)	$	259		$	275		$	250		$	259		$	250

Full-time employees		48,700			48,200			49,600			48,700			49,600

Book value per common share – GAAP (a)	$	30.11		$	28.81		$	27.79		$	30.11		$	27.79
Tangible book value per common share – Non-GAAP (a)	$	12.59		$	11.47		$	10.55		$	12.59		$	10.55
Cash dividends per common share	$	0.13		$	0.13		$	0.13		$	0.39		$	0.35
Common dividend payout ratio		21	%		33	%		25	%		26	%		22	%
Closing common stock price per common share	$	22.62		$	21.95		$	18.59		$	22.62		$	18.59
Market capitalization	$	26,434		$	25,929		$	22,543		$	26,434		$	22,543

(a)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 10 for a calculation of these ratios.

(b)

Includes fee revenue, net interest revenue and income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interests.

(c)

Represents the securities on loan managed by the Investment Services business.

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement


	Quarter ended									Year-to-date
(in millions)	Sept. 30, 2012			June 30, 2012			Sept. 30, 2011			Sept. 30, 2012			Sept. 30, 2011
Fee and other revenue
Investment services fees:
Asset servicing	$	942		$	950		$	922		$	2,835		$	2,812
Issuer services		311			275			442			837			1,158
Clearing services		287			309			297			899			881
Treasury services		138			134			133			408			401
Total investment services fees		1,678			1,668			1,794			4,979			5,252
Investment management and performance fees		779			797			729			2,321			2,272
Foreign exchange and other trading revenue		182			180			200			553			620
Distribution and servicing		48			46			43			140			145
Financing-related fees		46			37			40			127			132
Investment and other income		124			48			83			311			309
Total fee revenue		2,857			2,776			2,889			8,431			8,730
Net securities gains (losses)		22			50			(2	)		112			51
Total fee and other revenue		2,879			2,826			2,887			8,543			8,781
Operations of consolidated investment management funds
Investment income		151			152			169			456			562
Interest of investment management fund note holders		104			95			137			309			357
Income (loss) from consolidated investment management funds		47			57			32			147			205
Net interest revenue
Interest revenue		877			875			928			2,664			2,663
Interest expense		128			141			153			416			459
Net interest revenue		749			734			775			2,248			2,204
Provision for credit losses		(5	)		(19	)		(22	)		(19	)		(22	)
Net interest revenue after provision for credit losses		754			753			797			2,267			2,226
Noninterest expense
Staff		1,436			1,415			1,457			4,304			4,344
Professional, legal and other purchased services		292			309			311			900			895
Software and equipment		208			209			193			622			602
Net occupancy		149			141			151			437			465
Distribution and servicing		109			103			100			313			320
Sub-custodian		65			70			80			205			236
Business development		60			71			57			187			186
Other		265			254			224			739			700
Amortization of intangible assets		95			97			106			288			322
Merger and integration, litigation and restructuring charges		26			378			92			513			214
Total noninterest expense		2,705			3,047			2,771			8,508			8,284
Income
Income before income taxes		975			589			945			2,449			2,928
Provision for income taxes		225			93			281			572			837
Net income		750			496			664			1,877			2,091
Net (income) loss attributable to noncontrolling interests (includes $(25), $(29), $(13), $(65) and $(78) related to consolidated investment management funds, respectively)		(25	)		(30	)		(13	)		(67	)		(80	)
Net income applicable to shareholders of The Bank of New York Mellon Corporation		725			466			651			1,810			2,011
Preferred dividends		(5	)		—			—			(5	)		—
Net income applicable to common shareholders of The Bank of New York Mellon Corporation	$	720		$	466		$	651		$	1,805		$	2,011

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement - continued


Reconciliation of net income to the net income applicable to the common shareholders of The Bank of New York Mellon Corporation	Quarter ended									Year-to-date
(in millions)	Sept. 30, 2012			June 30, 2012			Sept. 30, 2011			Sept. 30, 2012			Sept. 30, 2011
Net income	$	750		$	496		$	664		$	1,877		$	2,091
Net (income) loss attributable to noncontrolling interests		(25	)		(30	)		(13	)		(67	)		(80	)
Net income applicable to shareholders of The Bank of New York Mellon Corporation		725			466			651			1,810			2,011
Preferred dividends		(5	)		—			—			(5	)		—
Net income applicable to common shareholders of The Bank of New York Mellon Corporation		720			466			651			1,805			2,011
Less: Earnings allocated to participating securities		11			7			7			26			21
Change in the excess of redeemable value over the fair value of noncontrolling interests		—			1			4			(5	)		10
Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and diluted earnings per common share	$	709		$	458		$	640		$	1,784		$	1,980


Earnings per common share applicable to the common shareholders of The Bank of New York Mellon Corporation	Quarter ended						Year-to-date
(in dollars)	Sept. 30, 2012		June 30, 2012		Sept. 30, 2011		Sept. 30, 2012		Sept. 30, 2011
Basic	$	0.61	$	0.39	$	0.53	$	1.51	$	1.61
Diluted	$	0.61	$	0.39	$	0.53	$	1.51	$	1.61

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

THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet


(dollars in millions, except per share amounts)	Sept. 30, 2012			June 30, 2012			Dec. 31, 2011
Assets
Cash and due from:
Banks	$	4,991		$	4,522		$	4,175
Interest-bearing deposits with the Federal Reserve and other central banks		73,118			76,243			90,243
Interest-bearing deposits with banks		40,578			39,743			36,321
Federal funds sold and securities purchased under resale agreements		5,753			8,543			4,510
Securities:
Held-to-maturity (fair value of $8,893, $8,869 and $3,540)		8,702			8,794			3,521
Available-for-sale		95,148			84,540			78,467
Total securities		103,850			93,334			81,988
Trading assets		9,190			6,909			7,861
Loans		45,889			45,431			43,979
Allowance for loan losses		(339	)		(362	)		(394	)
Net loans		45,550			45,069			43,585
Premises and equipment		1,690			1,711			1,681
Accrued interest receivable		545			628			660
Goodwill		17,984			17,909			17,904
Intangible assets		4,882			4,962			5,152
Other assets		20,444			19,755			19,839
Subtotal assets of operations		328,575			319,328			313,919
Assets of consolidated investment management funds, at fair value:
Trading assets		10,821			10,399			10,751
Other assets		548			556			596
Subtotal assets of consolidated investment management funds, at fair value		11,369			10,955			11,347
Total assets	$	339,944		$	330,283		$	325,266
Liabilities
Deposits:
Noninterest-bearing (principally U.S. offices)	$	78,790		$	76,933		$	95,335
Interest-bearing deposits in U.S. offices		44,843			49,956			41,231
Interest-bearing deposits in Non-U.S. offices		99,316			94,255			82,528
Total deposits		222,949			221,144			219,094
Federal funds purchased and securities sold under repurchase agreements		12,450			9,162			6,267
Trading liabilities		7,754			6,940			8,071
Payables to customers and broker-dealers		13,675			13,305			12,671
Commercial paper		1,278			1,564			10
Other borrowed funds		1,139			1,374			2,174
Accrued taxes and other expenses		6,590			5,969			6,235
Other liabilities (includes allowance for lending-related commitments of $117, $105 and $103)		7,408			6,114			6,525
Long-term debt		19,516			19,536			19,933
Subtotal liabilities of operations		292,759			285,108			280,980
Liabilities of consolidated investment management funds, at fair value:
Trading liabilities		10,018			9,752			10,053
Other liabilities		28			38			32
Subtotal liabilities of consolidated investment management funds, at fair value		10,046			9,790			10,085
Total liabilities		302,805			294,898			291,065
Temporary equity
Redeemable noncontrolling interests		140			130			114
Permanent equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 10,501, 5,001 and – shares		1,036			500			—
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,252,278,284, 1,251,527,230 and 1,249,061,305 shares		13			12			12
Additional paid-in capital		23,429			23,366			23,185
Retained earnings		14,153			13,588			12,812
Accumulated other comprehensive loss, net of tax		(471	)		(1,280	)		(1,627	)
Less: Treasury stock of 83,671,325, 70,229,278 and 39,386,698 common shares, at cost		(1,942	)		(1,653	)		(965	)
Total The Bank of New York Mellon Corporation shareholders’ equity		36,218			34,533			33,417
Non-redeemable noncontrolling interests of consolidated investment management funds		781			722			670
Total permanent equity		36,999			35,255			34,087
Total liabilities, temporary equity and permanent equity	$	339,944		$	330,283		$	325,266

Capital

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


Basel I Tier 1 common equity generation (in millions)	3Q12		2Q12			3Q11
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	720	$	466		$	651
Add: Amortization of intangible assets, net of tax		60		61			67
Gross Basel I Tier 1 common equity generated		780		527			718
Less capital deployed:
Common stock dividends		155		156			160
Common stock repurchased		288		286			462
Goodwill and intangible assets related to acquisitions/dispositions		—		—			16
Total capital deployed		443		442			638
Add: Other		181		(53	)		(43	)
Net Basel I Tier 1 common equity generated	$	518	$	32		$	37

Supplemental information – Explanation of Non-GAAP financial measures

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

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds and other revenue related to the Shareowner Services business, which was sold on Dec. 31, 2011, and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and direct expenses related to the Shareowner Services business. Return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. The excluded items in general relate to certain ongoing charges as a result of prior transactions or where we have incurred charges. M&I expenses primarily relate to the acquisitions of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 2010. M&I expenses generally continue for approximately three years after the transaction and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon’s business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased. Future periods will not reflect such

M&I expenses, and thus may be more easily compared with our current results if M&I expenses are excluded. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our operational excellence initiatives and migrating positions to global delivery centers. Excluding these charges permits investors to view expenses on a basis consistent with how management views the business. BNY Mellon also presents revenue and noninterest expense results relating to the Shareowner Services business so that an investor may compare those results with other periods, which do not include the Shareowner Services business.

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

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

The following table presents investment management fees net of performance fees.


Investment management and performance fees							3Q12 vs.
(dollars in millions)	3Q12		2Q12		3Q11		3Q11			2Q12
Investment management and performance fees	$	779	$	797	$	729		7	%		(2	)%
Less: Performance fees		10		54		11		N/M			N/M
Investment management fees	$	769	$	743	$	718		7	%		3	%

N/M – Not meaningful.

The following table presents the calculation of the return on common equity and the return on tangible common equity.


Return on common equity and tangible common equity
(dollars in millions)	3Q12			2Q12			3Q11			YTD12			YTD11
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	720		$	466		$	651		$	1,805		$	2,011
Add: Amortization of intangible assets, net of tax		60			61			67			182			203
Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP		780			527			718			1,987			2,214
Add: M&I, litigation and restructuring charges		18			225			55			308			130
Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	798		$	752		$	773		$	2,295		$	2,344

Average common shareholders’ equity	$	34,522		$	34,123		$	34,008		$	34,123		$	33,437
Less: Average goodwill		17,918			17,941			18,156			17,941			18,157
Average intangible assets		4,926			5,024			5,453			5,023			5,554
Add: Deferred tax liability – tax deductible goodwill		1,057			982			915			1,057			915
Deferred tax liability – non-tax deductible intangible assets		1,339			1,400			1,604			1,339			1,604
Average tangible common shareholders’ equity – Non-GAAP	$	14,074		$	13,540		$	12,918		$	13,555		$	12,245

Return on common equity – GAAP (a)		8.3	%		5.5	%		7.6	%		7.1	%		8.0	%
Return on common equity excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP (a)		9.2	%		8.9	%		9.0	%		9.0	%		9.4	%
Return on tangible common equity – Non-GAAP (a)		22.1	%		15.7	%		22.1	%		19.6	%		24.2	%
Return on tangible common equity excluding M&I, litigation and restructuring charges – Non-GAAP (a)		22.5	%		22.4	%		23.8	%		22.6	%		25.6	%

(a)

Annualized.

The following table presents the calculation of the equity to assets ratio and book value per common share.


Equity to assets and book value per common share (dollars in millions, unless otherwise noted)	Sept. 30, 2012			June 30, 2012			Sept. 30, 2011
BNY Mellon shareholders’ equity at period end – GAAP	$	36,218		$	34,533		$	33,695
Less: Preferred stock		1,036			500			—
BNY Mellon common shareholders’ equity at period end – GAAP		35,182			34,033			33,695
Less: Goodwill		17,984			17,909			18,045
Intangible assets		4,882			4,962			5,380
Add: Deferred tax liability – tax deductible goodwill		1,057			982			915
Deferred tax liability – non-tax deductible intangible assets		1,339			1,400			1,604
Tangible BNY Mellon common shareholders’ equity at period end – Non-GAAP	$	14,712		$	13,544		$	12,789

Total assets at period end – GAAP	$	339,944		$	330,283			322,187
Less: Assets of consolidated investment management funds		11,369			10,955			12,063
Subtotal assets of operations – Non-GAAP		328,575			319,328			310,124
Less: Goodwill		17,984			17,909			18,045
Intangible assets		4,882			4,962			5,380
Cash on deposit with the Federal Reserve and other central banks (a)		73,037			72,838			68,293
Tangible total assets of operations at period end – Non-GAAP	$	232,672		$	223,619		$	218,406

BNY Mellon shareholders’ equity to total assets – GAAP		10.7	%		10.5	%		10.5	%
BNY Mellon common shareholders’ equity to total assets – GAAP		10.3	%		10.3	%		10.5	%
Tangible BNY Mellon common shareholders’ equity to tangible assets of operations – Non-GAAP		6.3	%		6.1	%		5.9	%

Period-end common shares outstanding (in thousands)		1,168,607			1,181,298			1,212,632

Book value per common share	$	30.11		$	28.81		$	27.79
Tangible book value per common share – Non-GAAP	$	12.59		$	11.47		$	10.55

(a)

Assigned a zero percent risk weighting by the regulators.

The following table presents the calculation of the pre-tax operating margin ratio.


Pre-tax operating margin (dollars in millions)	3Q12			2Q12			3Q11			YTD12			YTD11
Income before income taxes – GAAP	$	975		$	589		$	945		$	2,449		$	2,928
Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds		25			29			13			65			78
Add: Amortization of intangible assets		95			97			106			288			322
M&I, litigation and restructuring charges		26			378			92			513			214
Income before income taxes excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	1,071		$	1,035		$	1,130		$	3,185		$	3,386

Fee and other revenue – GAAP	$	2,879		$	2,826		$	2,887		$	8,543		$	8,781
Income from consolidated investment management funds – GAAP		47			57			32			147			205
Net interest revenue – GAAP		749			734			775			2,248			2,204
Total revenue – GAAP		3,675			3,617			3,694			10,938			11,190
Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds		25			29			13			65			78
Total revenue excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds – Non-GAAP	$	3,650		$	3,588		$	3,681		$	10,873		$	11,112

Pre-tax operating margin (a)		27	%		16	%		26	%		22	%		26	%
Pre-tax operating margin excluding net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP (a)		29	%		29	%		31	%		29	%		30	%

(a)

Income before taxes divided by total revenue.

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


Calculation of Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (dollars in millions)	Sept. 30, 2012(a)			June 30, 2012			Sept. 30, 2011
Total Tier 1 capital – Basel I	$	16,785		$	15,722		$	14,920
Less: Trust preferred securities		1,173			1,164			1,660
Preferred stock		1,036			500			—
Total Tier 1 common equity	$	14,576		$	14,058			13,260

Total risk-weighted assets – Basel I	$	110,005		$	106,764			106,256

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP		13.2	%		13.2	%		12.5	%

(a)

Preliminary.

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


Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a) (dollars in millions)	Sept. 30, 2012(b)			June 30, 2012			Sept. 30, 2011
Total Tier 1 capital – Basel I	$	16,785		$	15,722		$	14,920
Less: Trust preferred securities		1,173			1,164			1,660
Preferred stock		1,036			500			—
Adjustments related to available-for-sale securities and pension liabilities included in accumulated other comprehensive income (c)		(136	)		513			470
Adjustments related to equity method investments (c)		571			558			590
Deferred tax assets		46			46			—
Net pension fund assets (c)		43			43			493
Other		3			2			26
Total estimated Basel III Tier 1 common equity	$	14,049		$	12,896		$	11,681

Total risk-weighted assets – Basel I	$	110,005		$	106,764		$	106,256
Add: Adjustments (d)		41,678			41,493			74,224
Total estimated Basel III risk-weighted assets (e)	$	151,683		$	148,257		$	180,480
Estimated Basel III Tier 1 common equity ratio – Non-GAAP		9.3	%		8.7	%		6.5	%

(a)

The estimated Basel III Tier 1 common equity ratios at Sept. 30, 2012 and June 30, 2012 were based on the NPRs and final market risk rule initially released on June 7, 2012 and published in the Federal Register on Aug. 30, 2012. The estimated Basel III Tier 1 common equity ratio at Sept. 30, 2011 was based on our interpretation of prior Basel III guidance and the proposed market risk rule.

(b)

Preliminary.

(c)

The NPRs and prior Basel III guidance do not add back to capital the adjustment to other comprehensive income that Basel I makes for pension liabilities and available-for-sale securities. Also, under the NPRs and prior Basel III guidance, pension assets recorded on the balance sheet and adjustments related to equity method investments are a deduction from capital.

(d)

Primary differences between risk-weighted assets determined under Basel I compared with the NPRs and prior Basel III guidance include: the determination of credit risk under Basel I uses predetermined risk weights and asset classes, while the NPRs use, in addition to the broader range of predetermined risk weights and asset classes, an investment grade standard. Securitization exposure receives a higher risk-weighting under the NPRs and prior Basel III guidance than Basel I; also, the NPRs and prior Basel III guidance includes additional adjustments for operational risk, market risk, counterparty credit risk and equity exposures.

(e)

Calculated on an Advanced Approaches basis, as amended by Basel III.

Cautionary Statement

The information presented in this Earnings Release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements made regarding our estimated capital ratios and our ability to reduce expense growth through our operational excellence initiatives. These statements, which may be expressed in a variety of ways, include the use of future or present tense language. These statements and other forward-looking statements contained in other public disclosures of BNY Mellon which make reference to the cautionary factors described in this Earnings Release, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Factors that could cause BNY Mellon’s results to differ materially from those described in the forward-

looking statements can be found in the risk factors set forth in BNY Mellon’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2011 and its other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Oct. 17, 2012 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

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