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

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8-K - FORM 8-K - Bank of New York Mellon Corp	d610934d8k.htm
EX-99.2 - EX-99.2 - Bank of New York Mellon Corp	d610934dex992.htm

Exhibit 99.1

LOGO

Quarterly Earnings Review

October 16, 2013

Table of Contents


Third Quarter 2013 Financial Highlights			2

Financial Summary/Key Metrics			3

Consolidated Business Metrics			4

Fee and Other Revenue			6

Net Interest Revenue			8

Noninterest Expense			9

Operational Excellence Initiatives Update			10

Capital			11

Investment Securities Portfolio			12

Nonperforming Assets			13

Allowance for Credit Losses, Provision and Net Charge-offs			13

Review of Businesses			13
• Investment Management			14
• Investment Services			16
• Other			18

Supplemental Information – Explanation of Non-GAAP Financial Measures			19

Cautionary Statement			24

BNY Mellon 3Q13 Quarterly Earnings Review

THIRD QUARTER 2013 FINANCIAL HIGHLIGHTS

(comparisons are 3Q13 vs. 3Q12 unless otherwise stated)

•

Earnings

•

Net income applicable to common shareholders was $967 million, or $0.82 per diluted common share, in 3Q13 compared with $720 million, or $0.61 per diluted common share, in 3Q12. Excluding the benefit related to the U.S. Tax Court’s partial reconsideration of a tax decision, diluted earnings per share was $0.60 in 3Q13. (a)

•

Total revenue was $3.8 billion, up 3%.

•

Investment services fees increased 4%.

•

Asset servicing revenue increased 2% as a result of higher market values, organic growth and net new business, partially offset by lower securities lending revenue which resulted from narrower spreads.

•

Issuer services revenue increased 4% driven by higher Depositary Receipts revenue, partially offset by lower money market mutual fund balances and higher money market fee waivers in Corporate Trust.

•

Clearing services revenue increased 10% driven by higher mutual fund and asset-based fees and volumes, partially offset by higher money market fee waivers.

•

Investment management and performance fees increased 5%, driven by higher equity market values and net new business, partially offset by higher money market fee waivers and the average impact of the stronger U.S. dollar.

•

Foreign exchange revenue increased 27% as a result of higher volumes and volatility.

•

Other trading revenue decreased $55 million primarily related to lower fixed income trading.

•

Investment and other income increased primarily reflecting higher equity investment revenue, partially offset by lower seed capital gains.

•

Net interest revenue increased 3% primarily driven by lower premium amortization on investment securities, higher average interest-earning assets, a change in the mix of earning assets and lower funding costs.

•

The provision for credit losses was $2 million in 3Q13.

•

Noninterest expense increased 3% on a GAAP basis, and 4% on a Non-GAAP basis. The increase primarily reflects higher staff expense driven by higher incentive and employee benefit expenses and the impact of the annual employee merit increase.

•

Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)

•

AUC/A of $27.4 trillion, an increase of 4% primarily reflecting higher market values and net new business.

•

Estimated new AUC/A wins of $110 billion in 3Q13.

•

AUM of a record $1.53 trillion, an increase of 13% driven by net new business and higher market values.

•

Long-term inflows totaled $32 billion in 3Q13.

•

Short-term inflows totaled $13 billion in 3Q13.

•

Capital

•

Generated $1.1 billion of estimated net Basel III Tier 1 common equity.

•

Return on tangible common equity 21.5%. (a)

(a)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.

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

Page - 2

BNY Mellon 3Q13 Quarterly Earnings Review

FINANCIAL SUMMARY


																3Q13 vs.
(dollars in millions, common shares in thousands)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Revenue:
Fee and other revenue	$	2,879		$	2,850		$	2,844		$	3,187		$	2,963			3	%		(7	)%
Income from consolidated investment management funds		47			42			50			65			32
Net interest revenue		749			725			719			757			772

Total revenue – GAAP		3,675			3,617			3,613			4,009			3,767			3			(6	)
Less: Net income attributable to noncontrolling interests related to consolidated investment management funds		25			11			16			39			8
Gain related to an equity investment (pre-tax)		—			—			—			184			—

Total revenue – Non-GAAP		3,650			3,606			3,597			3,786			3,759			3			(1	)
Provision for credit losses		(5	)		(61	)		(24	)		(19	)		2

Expense:
Noninterest expense – GAAP		2,705			2,825			2,828			2,822			2,779			3			(2	)
Less: Amortization of intangible assets		95			96			86			93			81
M&I, litigation and restructuring charges		26			46			39			13			16

Total noninterest expense – Non-GAAP		2,584			2,683			2,703			2,716			2,682			4	%		(1	)%

Income:
Income before income taxes		975			853			809			1,206			986
Provision (benefit) for income taxes		225			207			1,046			321			(2	)

Net income (loss)	$	750		$	646		$	(237	)	$	885		$	988
Net (income) attributable to noncontrolling interests (a)		(25	)		(11	)		(16	)		(40	)		(8	)

Net income (loss) applicable to shareholders of The Bank of New York Mellon Corporation		725			635			(253	)		845			980
Preferred stock dividends		(5	)		(13	)		(13	)		(12	)		(13	)

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation	$	720		$	622		$	(266	)	$	833		$	967

Key Metrics:
Pre-tax operating margin (b)		27	%		24	%		22	%		30	%		26	%
Non-GAAP (b)		29	%		27	%		26	%		32	%		29	%

Return on common equity (annualized) (b)		8.3	%		7.1	%		N/M			9.7	%		11.2	%
Non-GAAP (b)		9.2	%		8.2	%		7.8	%		10.5	%		8.9	%

Return on tangible common equity (annualized)
Non-GAAP (b)		22.1	%		18.8	%		N/M			25.0	%		28.4	%
Non-GAAP adjusted (b)		22.5	%		19.7	%		18.5	%		25.2	%		21.5	%

Fee revenue as a percentage of total revenue excluding net securities gains		78	%		78	%		78	%		79	%		79	%

Percentage of non-U.S. total revenue (c)		37	%		36	%		35	%		36	%		39	%
Period end:
Full-time employees		48,700			49,500			49,700			49,800			50,800
Market capitalization	$	26,434		$	29,902		$	32,487		$	32,271		$	34,674
Common shares outstanding		1,168,607			1,163,490			1,160,647			1,150,477			1,148,522

(a)

Includes net income of $25 million in 3Q12, $11 million in 4Q12, $16 million in 1Q13, $39 million in 2Q13 and $8 million in 3Q13 attributable to noncontrolling interests related to consolidated investment management funds.

(b)

Non-GAAP excludes M&I, litigation and restructuring charges and the impact of the U.S. Tax Court’s disallowance of certain foreign tax credits, if applicable. See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.

(c)

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

N/M – Not meaningful.

Page - 3

BNY Mellon 3Q13 Quarterly Earnings Review

CONSOLIDATED BUSINESS METRICS


Consolidated business metrics																3Q13 vs.
	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Changes in AUM (in billions) (a):
Beginning balance of AUM	$	1,299		$	1,359		$	1,386		$	1,429		$	1,432
Net inflows (outflows):
Long-term		9			14			40			21			32
Money market		9			(6	)		(13	)		(1	)		13

Total net inflows (outflows)		18			8			27			20			45
Net market/currency impact/other		42			19			16			(17	)		55

Ending balance of AUM	$	1,359		$	1,386		$	1,429		$	1,432		$	1,532	(b)		13	%		7	%


AUM at period end, by product type (a):
Equity securities		33	%		33	%		34	%		35	%		35	%
Fixed income securities		37			38			39			39			39
Money market		23			22			20			19			19
Alternative investments and overlay		7			7			7			7			7

Total AUM		100	%		100	%		100	%		100	%		100%	(b)


Wealth management:
Average loans (in millions)	$	8,122		$	8,478		$	8,972		$	9,253		$	9,453			16	%		2	%
Average deposits (in millions)	$	10,882		$	12,322		$	13,646		$	13,306		$	13,898			28	%		4	%

Investment Services:
Average loans (in millions)	$	24,917		$	24,868		$	26,697		$	27,814		$	27,865			12	%		—	%
Average deposits (in millions)	$	188,743		$	204,164		$	200,221		$	204,499		$	206,068			9	%		1	%

AUC/A at period-end (in trillions) (c)	$	26.4		$	26.3		$	26.3		$	26.2		$	27.4	(b)		4	%		5	%

Market value of securities on loan at period end (in billions) (d)	$	251		$	237		$	244		$	255		$	255			2	%		—	%

Asset Servicing:
Estimated new business wins (AUC/A) (in billions)	$	522		$	190		$	205		$	201		$	110	(b)

Depositary Receipts:
Number of sponsored programs		1,393			1,379			1,359			1,349			1,350			(3	)%		—	%

Clearing Services:
Global DARTS volume (in thousands)		175.5			187.9			221.4			227.5			221.3	(b)		26	%		(3	)%
Average active clearing accounts (U.S. platform) (in thousands)		5,447			5,489			5,552			5,591			5,622			3	%		1	%
Average long-term mutual fund assets (U.S. platform) (in millions)	$	323,289		$	334,883		$	357,647		$	371,196		$	377,131			17	%		2	%
Average investor margin loans (U.S. platform) (in millions)	$	7,922		$	7,987		$	8,212		$	8,235		$	8,845			12	%		7	%

Broker-Dealer:
Average tri-party repo balances (in billions)	$	2,005		$	2,113		$	2,070		$	2,037		$	1,952			(3	)%		(4	)%

(a)

Excludes securities lending cash management assets and assets managed in the Investment Services business.

(b)

Preliminary.

(c)

Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Sept. 30, 2012, $1.1 trillion at Dec. 31, 2012, $1.2 trillion at March 31, 2013, $1.1 trillion at June 30, 2013 and $1.2 trillion at Sept. 30, 2013.

(d)

Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities on loan at CIBC Mellon.

Page - 4

BNY Mellon 3Q13 Quarterly Earnings Review

The following table presents the value of certain market indices at period end and on an average basis.


Market indices											3Q13 vs.
	3Q12		4Q12		1Q13		2Q13		3Q13		3Q12			2Q13
S&P 500 Index (a)		1441		1426		1569		1606		1682		17	%		5	%
S&P 500 Index – daily average		1400		1419		1513		1609		1674		20			4
FTSE 100 Index (a)		5742		5898		6412		6215		6462		13			4
FTSE 100 Index – daily average		5742		5842		6294		6438		6525		14			1
MSCI World Index (a)		1312		1339		1435		1434		1544		18			8
MSCI World Index – daily average		1273		1312		1404		1463		1510		19			3
Barclays Capital Aggregate Bond^SM Index (a)		368		366		356		343		356		(3	)		4
NYSE and NASDAQ share volume (in billions)		173		174		174		186		166		(4	)		(11	)
JPMorgan G7 Volatility Index – daily average (b)		8.70		7.56		9.02		9.84		9.72		12			(1	)

(a)

Period end.

(b)

The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.

Page - 5

BNY Mellon 3Q13 Quarterly Earnings Review

FEE AND OTHER REVENUE


Fee and other revenue																3Q13 vs.
(dollars in millions)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Investment services fees:
Asset servicing (a)	$	942		$	945		$	969		$	988		$	964			2	%		(2	)%
Issuer services		311			215			237			294			322			4			10
Clearing services		287			294			304			321			315			10			(2	)
Treasury services		138			141			141			139			137			(1	)		(1	)

Total investment services fees		1,678			1,595			1,651			1,742			1,738			4			—
Investment management and performance fees		779			853			822			848			821			5			(3	)
Foreign exchange and other trading revenue		182			139			161			207			160			(12	)		(23	)
Distribution and servicing		48			52			49			45			43			(10	)		(4	)
Financing-related fees		46			45			41			44			44			(4	)		—
Investment and other income		124			116			72			269			135			9			N/M

Total fee revenue		2,857			2,800			2,796			3,155			2,941			3			(7	)
Net securities gains		22			50			48			32			22			N/M			N/M

Total fee and other revenue – GAAP	$	2,879		$	2,850		$	2,844		$	3,187		$	2,963			3	%		(7	)%

Fee revenue as a percentage of total revenue excluding net securities gains		78	%		78	%		78	%		79	%		79	%

(a)

Asset servicing fees include securities lending revenue of $49 million in 3Q12, $41 million in 4Q12, $39 million in 1Q13, $50 million in 2Q13 and $35 million in 3Q13.

N/M – Not meaningful.

KEY POINTS

•

Asset servicing fees were $964 million, an increase of 2% year-over-year and a decrease of 2% sequentially. The year-over-year increase primarily reflects higher market values, organic growth and net new business, partially offset by lower securities lending revenue which resulted from narrower spreads. The sequential decrease primarily resulted from a seasonal decrease in securities lending revenue, lower activity and lower expense reimbursements.

•

Issuer services fees were $322 million, an increase of 4% year-over-year and 10% sequentially. The year-over-year increase primarily reflects higher Depositary Receipts revenue, partially offset by lower money market mutual fund balances and higher money market fee waivers in Corporate Trust. The sequential increase primarily resulted from seasonally higher Depositary Receipts revenue, partially offset by lower expense reimbursements in Corporate Trust.

•

Clearing services fees were $315 million, a 10% increase year-over-year and 2% decrease sequentially. The year-over-year increase was driven by higher mutual fund and asset-based fees and volumes, partially offset by higher money market fee waivers. The sequential decrease was primarily driven by seasonally lower clearance revenue reflecting a decrease in DARTs, and higher money market fee waivers.

•

Investment management and performance fees were $821 million, an increase of 5% year-over-year and a decrease of 3% sequentially. The year-over-year increase was primarily driven by higher equity market values and net new business, partially offset by the average impact of the stronger U.S. dollar. The sequential decrease primarily reflects seasonally lower performance fees, partially offset by net new business and higher market values. Comparisons to both prior periods were negatively impacted by higher money market fee waivers.

Page - 6

BNY Mellon 3Q13 Quarterly Earnings Review

•	Foreign exchange and other trading revenue


(in millions)	3Q12		4Q12		1Q13		2Q13		3Q13
Foreign exchange	$	121	$	106	$	149	$	179	$	154
Other trading revenue:
Fixed income		54		25		8		12		(2	)
Equity/other		7		8		4		16		8

Total other trading revenue		61		33		12		28		6

Total	$	182	$	139	$	161	$	207	$	160

Foreign exchange and other trading revenue totaled $160 million in 3Q13 compared with $182 million in 3Q12 and $207 million in 2Q13. In 3Q13, foreign exchange revenue totaled $154 million, an increase of 27% year-over-year and a decrease of 14% sequentially. The year-over-year increase primarily reflects higher volumes and volatility. The sequential decrease was primarily driven by lower volatility while volumes increased slightly. Other trading revenue was $6 million in 3Q13 compared with $61 million in 3Q12 and $28 million in 2Q13. The decrease compared with both prior periods primarily reflects lower fixed income trading revenue due to lower derivatives trading revenue. The year-over-year decrease also reflects a loss on inventory driven by higher interest rates.

•	Investment and other income


(in millions)	3Q12			4Q12			1Q13			2Q13		3Q13
Corporate/bank-owned life insurance	$	41		$	41		$	34		$	32	$	38
Lease residual gains		—			14			1			10		7
Seed capital gains		28			7			6			1		7
Expense reimbursements from joint ventures		10			9			11			8		12
Equity investment revenue (loss)		16			(1	)		13			200		48
Private equity gains (losses)		(1	)		4			(2	)		5		(2	)
Asset-related gains (losses)		17			22			7			7		35
Transitional service agreements		6			5			5			4		—
Other income (loss)		7			15			(3	)		2		(10	)

Total	$	124		$	116		$	72		$	269	$	135

Investment and other income totaled $135 million in 3Q13 compared with $124 million in 3Q12 and $269 million in 2Q13. The year-over-year increase primarily reflects higher equity investment revenue, partially offset by lower seed capital gains. The sequential decrease primarily reflects a gain related to an equity investment which was recorded in 2Q13.

Page - 7

BNY Mellon 3Q13 Quarterly Earnings Review

NET INTEREST REVENUE


Net interest revenue																3Q13 vs.
(dollars in millions)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Net interest revenue (non-FTE)	$	749		$	725		$	719		$	757		$	772			3	%		2	%
Net interest revenue (FTE)		765			740			733			771			787			3			2
Net interest margin (FTE)		1.20	%		1.09	%		1.11	%		1.15	%		1.16	%		(4	) bps		1 bps

Selected average balances:
Cash/interbank investments	$	108,365		$	118,796		$	111,685		$	106,561		$	116,165			7	%		9	%
Trading account securities		4,431			5,294			5,878			6,869			5,523			25			(20	)
Securities		100,004			102,512			101,912			107,138			101,206			1			(6	)
Loans		42,428			43,613			46,279			47,913			48,256			14			1

Interest-earning assets		255,228			270,215			265,754			268,481			271,150			6			1
Interest-bearing deposits		138,260			142,719			147,728			151,219			153,547			11			2
Noninterest-bearing deposits		70,230			79,987			70,337			70,648			72,075			3			2

Selected average yields/rates:
Cash/interbank investments		0.51	%		0.43	%		0.41	%		0.41	%		0.41	%
Trading account securities		2.40			2.54			2.40			2.33			2.83
Securities		2.06			1.94			1.88			1.84			1.98
Loans		1.96			1.89			1.78			1.76			1.73
Interest-earning assets		1.40			1.27			1.26			1.27			1.28
Interest-bearing deposits		0.10			0.09			0.08			0.07			0.06

Average cash/interbank investments as a percentage of average interest-earning assets		42	%		44	%		42	%		40	%		43	%
Average noninterest-bearing deposits as a percentage of average interest-earning assets		28	%		30	%		26	%		26	%		27	%

bps – basis points.

FTE – fully taxable equivalent.

KEY POINTS

•

Net interest revenue totaled $772 million in 3Q13, an increase of $23 million compared with 3Q12 and $15 million sequentially. Both increases in net interest revenue were primarily driven by lower premium amortization on investment securities and higher average interest-earning assets. The year-over-year increase also reflects a change in the mix of earning assets and lower funding costs. Additionally, the sequential increase was partially offset by a change in the mix of earning assets, including a decrease in the investment securities portfolio.

•

In 3Q13, we recorded gains on the sales of investment securities of $22 million as we reduced the size of the portfolio. In addition, Agency MBS securities with an amortized cost of $7.3 billion and fair value of $7.0 billion were transferred from available-for-sale securities to held-to-maturity securities. These combined actions are expected to mute the impact to our accumulated other comprehensive income in the event of a rise in long-term interest rates.

Page - 8

BNY Mellon 3Q13 Quarterly Earnings Review

NONINTEREST EXPENSE


Noninterest expense																3Q13 vs.
(dollars in millions)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Staff:
Compensation	$	893		$	911		$	885		$	891		$	915			2	%		3	%
Incentives		306			311			338			364			339			11			(7	)
Employee benefits		237			235			249			254			262			11			3

Total staff		1,436			1,457			1,472			1,509			1,516			6			—
Professional, legal and other purchased services		292			322			295			317			296			1			(7	)
Software and equipment		208			233			228			238			226			9			(5	)
Net occupancy		149			156			163			159			153			3			(4	)
Distribution and servicing		109			108			106			111			108			(1	)		(3	)
Business development		60			88			68			90			63			5			(30	)
Sub-custodian		65			64			64			77			71			9			(8	)
Other		265			255			307			215			249			(6	)		16
Amortization of intangible assets		95			96			86			93			81			(15	)		(13	)
M&I, litigation and restructuring charges		26			46			39			13			16			N/M			N/M

Total noninterest expense – GAAP	$	2,705		$	2,825		$	2,828		$	2,822		$	2,779			3	%		(2	)%
Total staff expense as a percentage of total revenue		39	%		40	%		41	%		38	%		40	%

Memo:
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	2,584		$	2,683		$	2,703		$	2,716		$	2,682			4	%		(1	)%

N/M – Not meaningful.

KEY POINTS

•	Total noninterest expense increased 4% year-over-year and decreased 1% sequentially excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP).

•

The year-over-year increase primarily resulted from higher staff expense driven by higher incentive and employee benefit expenses, and the impact of the annual employee merit increase.

•

The sequential decrease primarily resulted from lower business development and professional, legal and other purchased services expenses, partially offset by a reduction in the reserve for administrative errors in certain offshore tax-exempt funds recorded in 2Q13 and the impact of the annual employee merit increase.

Page - 9

BNY Mellon 3Q13 Quarterly Earnings Review

OPERATIONAL EXCELLENCE INITIATIVES UPDATE


Expense initiatives (pre-tax)									Original annualized
	Program savings								targeted savings by
(dollar amounts in millions)	FY12		1Q13		2Q13		3Q13		the end of 2013 (a)
Business operations	$	238	$	84	$	93	$	103	$310 - $320

Technology		82		27		30		36	$105 - $110

Corporate services		77		26		27		31	$85 - $90

Gross savings (b)	$	397	$	137	$	150	$	170	$500 - $520
Incremental program expenses to achieve goals (c)	$	88	$	16	$	11	$	11	$70 - $90

(a)

Original target established at the inception of the program in 2011.

(b)

Represents the estimated annual pre-tax run rate expense savings since program inception in 2011. Total Company actual operating expense may increase or decrease due to other factors.

(c)

Program costs include incremental costs to plan and execute the programs including dedicated program managers, consultants, severance and other costs. These costs will fluctuate by quarter. Program costs may include restructuring expenses, where applicable.

Accomplishments

During the first nine months of 2013, we accomplished the following operational excellence initiatives:

•	Continued global footprint position migrations. Lowered operating costs as we continued job migrations to the new Eastern European Global Delivery Center and our existing Global Delivery Centers.

•	Enhanced procurement process to reduce operating expenses.

•	Realized savings from business restructuring, management rationalization and vendor management in Investment Services.

•	Realized savings from reengineering activities relating to Investment Boutique restructurings and Dreyfus back office operations consolidation.

•	Realized savings from continued insourcing of third party contract developers to our Global Delivery Centers as well as other staffing efficiencies in the Technology organization.

•	Consolidated offices and reduced real estate by an additional 180,000 square feet, primarily in the NY Metro region.

Page - 10

BNY Mellon 3Q13 Quarterly Earnings Review

CAPITAL

The following table presents our capital ratios.


	Sept. 30,			June 30,			Sept. 30,
Capital ratios	2012			2013			2013 (a)
Estimated Basel III Tier 1 common equity ratio – Non-GAAP (b)(c):
Standardized Approach		N/A			9.3	%		10.1	%
Advanced Approach		9.3	%		9.8			11.1
Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (c)		13.3			13.2			14.2
Basel I Tier 1 capital ratio		15.3			14.8			15.8
Basel I Total (Tier 1 plus Tier 2) capital ratio		16.9			15.8			16.8
Basel I leverage capital ratio		5.6			5.3			5.6
BNY Mellon shareholders’ equity to total assets ratio (c)		10.7			10.0			9.9
BNY Mellon common shareholders’ equity to total assets ratio (c)		10.3			9.5			9.5
Tangible BNY Mellon shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)		6.3			5.8			6.4

(a)

Preliminary.

(b)

At Sept. 30, 2013 and June 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of and expectations regarding the final rules released by the Board of Governors of the Federal Reserve (the “Federal Reserve”) on July 2, 2013, on a fully phased-in basis. For periods prior to June 30, 2013, these ratios were estimated using our interpretation of the Federal Reserve’s Notices of Proposed Rulemaking (“NPRs”) dated June 7, 2012, on a fully phased-in basis.

(c)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for a calculation of these ratios.

N/A – Not available.

Quarterly impact to the estimated Basel III Tier 1 common equity ratio – Non-GAAP


	Standardized			Advanced
	Approach			Approach
Estimated Basel III Tier 1 common equity ratio – Non-GAAP at June 30, 2013		9.3	%		9.8	%
Impacted by:
Net capital generation		50 bps			52 bps
Change in accumulated other comprehensive income (loss)		(3	) bps		(3	) bps
Change in risk-weighted assets		2 bps			54 bps
Other (a)		26 bps			28 bps

Estimated Basel III Tier 1 common equity ratio – Non-GAAP at Sept. 30, 2013		10.1	%		11.1	%

(a)

Includes foreign currency translation.

bps – basis points.

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

Estimated Basel III Tier 1 common equity generation


(in millions)	3Q13
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	967
Add: Amortization of intangible assets, net of tax		52

Estimated gross Basel I Tier 1 common equity generated		1,019
Capital deployed:
Dividends		(175	)
Common stock repurchased		(122	)

Total capital deployed		(297	)
Other (a)		344

Estimated net Basel III Tier 1 common equity generated	$	1,066

(a)

Includes foreign currency translation.

Page - 11

BNY Mellon 3Q13 Quarterly Earnings Review

INVESTMENT SECURITIES PORTFOLIO

At Sept. 30, 2013, the fair value of our investment securities portfolio totaled $97.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $723 million at Sept. 30, 2013 compared with $656 million at June 30, 2013. The increase in the net unrealized pre-tax gain was primarily driven by lower credit spreads on foreign securities. During 3Q13, we received $217 million of paydowns of sub-investment grade securities.

The following table shows the distribution of our investment securities portfolio.


Investment securities portfolio	June 30, 2013 Fair value			3Q13 change in unrealized gain/(loss)			Sept. 30, 2013					Fair value as a % of amortized cost(a)			Unrealized gain/(loss)			Ratings
Investment securities portfolio							Sept. 30, 2013											Ratings
(dollars in millions)							Amortized cost		Fair value									AAA/ AA-			A+/ A-			BBB+/ BBB-			BB+ and lower			Not rated
Agency RMBS	$	45,464		$	(14	)	$	41,828	$	41,663			100	%	$	(165	)		100	%		—	%		—	%		—	%		—	%
U.S. Treasury securities		18,411			(30	)		14,054		14,267			102			213			100			—			—			—			—
Sovereign debt/ sovereign guaranteed (b)		11,032			—			11,149		11,210			101			61			100			—			—			—			—
Non-agency RMBS (c)		2,880			(5	)		2,214		2,769			77			555			—			1			2			93			4
Non-agency RMBS		1,469			8			1,400		1,395			91			(5	)		1			12			23			64			—
European floating rate notes (d)		3,231			22			3,185		3,120			97			(65	)		62			31			1			6			—
Commercial MBS		3,677			(9	)		3,665		3,687			101			22			91			8			1			—			—
State and political subdivisions		6,482			24			6,791		6,775			100			(16	)		80			17			1			1			1
Foreign covered bonds (e)		3,211			60			2,779		2,855			103			76			100			—			—			—			—
Corporate bonds		1,527			5			1,484		1,504			101			20			20			70			10			—			—
CLO		1,373			(2	)		1,442		1,450			101			8			100			—			—			—			—
U.S. Government agency debt		1,548			1			1,486		1,490			100			4			100			—			—			—			—
Consumer ABS		2,012			5			2,494		2,490			100			(4	)		93			7			—			—			—
Other (f)		3,167			2			3,174		3,193			101			19			27			66			—			—			7

Total investment securities	$	105,484	(g)	$	67		$	97,145	$	97,868	(g)		101	%	$	723			89	%		5	%		1	%		4	%		1	%

(a)

Amortized cost before impairments.

(b)

Primarily comprised of exposure to UK, Germany, Netherlands and France.

(c)

These RMBS were included in the former Grantor Trust and were marked-to-market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.

(d)

Includes RMBS, commercial MBS and other securities. Primarily comprised of exposure to UK and Netherlands.

(e)

Primarily comprised of exposure to Canada, UK and Netherlands.

(f)

Includes commercial paper of $2.1 billion and $2.1 billion, fair value, and money market funds of $918 million and $941 million, fair value, at June 30, 2013 and Sept. 30, 2013, respectively.

(g)

Includes net unrealized gains on derivatives hedging securities available-for-sale of $318 million at June 30, 2013 and $469 million at Sept. 30, 2013.

Page - 12

BNY Mellon 3Q13 Quarterly Earnings Review

NONPERFORMING ASSETS


Nonperforming assets	Sept. 30,			June 30,			Sept. 30,
(dollars in millions)	2012			2013			2013
Nonperforming loans:
Other residential mortgages	$	166		$	135		$	128
Commercial		29			24			15
Wealth management loans and mortgages		33			13			12
Foreign loans		9			9			9
Commercial real estate		29			18			4
Financial institutions		3			2			1

Total nonperforming loans		269			201			169
Other assets owned		5			3			3

Total nonperforming assets (a)	$	274		$	204		$	172

Nonperforming assets ratio		0.60	%		0.41	%		0.34	%
Allowance for loan losses/nonperforming loans		126.0			105.5			121.9
Total allowance for credit losses/nonperforming loans		169.5			167.7			200.6

(a)

Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in the loans of consolidated investment management funds are nonperforming loans of $153 million at Sept. 30, 2012, $44 million at June 30, 2013 and $31 million at Sept. 30, 2013. These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above.

Nonperforming assets were $172 million at Sept. 30, 2013, a decrease of $32 million from $204 million at June 30, 2013. The decrease primarily resulted from sales of loans in the commercial and other residential mortgage portfolios, a payoff in the commercial real estate portfolio and returns to accrual status in the commercial real estate and other residential mortgage portfolios.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS


Allowance for credit losses, provision and net charge-offs
(in millions)	3Q12			2Q13			3Q13
Allowance for credit losses – beginning of period	$	467		$	358		$	337
Provision for credit losses		(5	)		(19	)		2
Net (charge-offs) recoveries:
Other residential mortgages		(1	)		(2	)		—
Financial institutions		(4	)		—			—
Commercial		(1	)		—			—

Net (charge-offs) recoveries		(6	)		(2	)		—

Allowance for credit losses – end of period	$	456		$	337		$	339

Allowance for loan losses	$	339		$	212		$	206
Allowance for lending-related commitments		117			125			133

The provision for credit losses was $2 million in 3Q13, a credit of $5 million in 3Q12 and a credit of $19 million in 2Q13.

REVIEW OF BUSINESSES

Segment results are subject to reclassification whenever improvements are made in the measurement principles or when organizational changes are made. Internal crediting rates for deposits are regularly updated to reflect the value of deposit balances and distribution of overall interest revenue. In 3Q13, lower internal crediting rates were applied to deposits in the Investment Management and Investment Services businesses. There was no impact to consolidated results.

Page - 13

BNY Mellon 3Q13 Quarterly Earnings Review

INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.


																3Q13 vs.
(dollars in millions, unless otherwise noted)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Revenue:
Investment management fees:
Mutual funds	$	283		$	293		$	295		$	295		$	289			2	%		(2	)%
Institutional clients		334			349			355			360			362			8			1
Wealth management		154			157			161			165			164			6			(1	)

Investment management fees		771			799			811			820			815			6			(1	)
Performance fees		10			57			15			33			10			—			N/M
Distribution and servicing		47			50			46			44			41			(13	)		(7	)
Other (a)		41			25			19			25			54			N/M			N/M

Total fee and other revenue (a)		869			931			891			922			920			6			—
Net interest revenue		51			56			62			63			67			31			6

Total revenue		920			987			953			985			987			7			—
Noninterest expense (ex. amortization of intangible assets)		644			713			704			674			697			8			3

Income before taxes (ex. amortization of intangible assets)		276			274			249			311			290			5			(7	)
Amortization of intangible assets		48			48			39			39			35			(27	)		(10	)

Income before taxes	$	228		$	226		$	210		$	272		$	255			12	%		(6	)%

Pre-tax operating margin		25	%		23	%		22	%		28	%		26	%
Pre-tax operating margin (ex. amortization of intangible assets and net of distribution and servicing expense) (b)		34	%		31	%		29	%		36	%		33	%

Metrics:
Changes in AUM (in billions) (c):
Beginning balance of AUM	$	1,299		$	1,359		$	1,386		$	1,429		$	1,432
Net inflows (outflows):
Long-term		9			14			40			21			32
Money market		9			(6	)		(13	)		(1	)		13

Total net inflows (outflows)		18			8			27			20			45
Net market/currency impact/other		42			19			16			(17	)		55

Ending balance of AUM (d)	$	1,359		$	1,386		$	1,429		$	1,432		$	1,532	(e)		13	%		7	%

AUM at period end, by product type (c):
Equity securities		33	%		33	%		34	%		35	%		35	%
Fixed income securities		37			38			39			39			39
Money market		23			22			20			19			19
Alternative investments and overlay		7			7			7			7			7

Total AUM (d)		100	%		100	%		100	%		100	%		100	%(e)

Wealth management:
Average loans	$	8,122		$	8,478		$	8,972		$	9,253		$	9,453			16	%		2	%
Average deposits	$	10,882		$	12,332		$	13,646		$	13,306		$	13,898			28	%		4	%

(a)

Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19. Additionally, other revenue includes asset servicing and treasury services revenue.

(b)

Distribution and servicing expense is netted with distribution and servicing revenue for the purpose of this calculation of pre-tax operating margin. Distribution and servicing expense totaled $107 million, $106 million, $104 million, $110 million and $107 million, respectively.

(c)

Excludes securities lending cash management assets.

(d)

Excludes assets managed in the Investment Services business.

(e)

Preliminary.

N/M – Not meaningful.

Page - 14

BNY Mellon 3Q13 Quarterly Earnings Review

INVESTMENT MANAGEMENT KEY POINTS

•

Assets under management were a record $1.53 trillion at Sept. 30, 2013, an increase of 13% year-over-year and 7% sequentially. Both increases primarily resulted from net new business and higher market values.

•

16^th consecutive quarter of positive long-term inflows.

•

Net long-term inflows were $32 billion and short-term inflows were $13 billion in 3Q13. Long-term inflows benefited from liability-driven investments, alternative investments and active equity and index funds.

•

Total revenue was $987 million, an increase of 7% year-over-year and unchanged sequentially. The year-over-year increase primarily reflects higher equity market values, net new business and the impact of the acquisition of the remaining 50% interest in Meriten Investment Management (“Meriten”), partially offset by higher money market fee waivers.

•

Investment management fees were $815 million, an increase of 6% year-over-year and a decrease of 1% sequentially. The year-over-year increase was primarily driven by higher equity market values, net new business and the impact of the Meriten acquisition, partially offset by higher money market fee waivers and the average impact of the stronger U.S. dollar. The sequential decrease was primarily driven by higher money market fee waivers, partially offset by higher equity market values and net new business.

•

Performance fees were $10 million in 3Q13 compared with $10 million in 3Q12 and $33 million in 2Q13. The sequential decrease was due to seasonality.

•

Net interest revenue increased 31% year-over-year and 6% sequentially. Both the year-over-year and sequential increases resulted from higher average loans and deposits.

•

Average loans increased 16% year-over-year and 2% sequentially; average deposits increased 28% year-over-year and 4% sequentially.

•

Total noninterest expense (ex. amortization of intangible assets) increased 8% year-over-year and 3% sequentially. Both increases reflect the annual employee merit increase. The year-over-year increase also reflects higher incentive expense driven by improved results, and the impact of the Meriten acquisition. The sequential increase reflects a reduction in the reserve for administrative errors in certain offshore tax-exempt funds recorded in 2Q13, partially offset by lower incentive and distribution and servicing expenses.

•

46% non-U.S. revenue in 3Q13 vs. 44% in 3Q12.

•

Insight Investment was named LDI Manager of the Year for the fourth consecutive year and its management CEO of the Year at Financial News Awards for Excellence in Institutional Asset Management (10/9/13).

Page - 15

BNY Mellon 3Q13 Quarterly Earnings Review

INVESTMENT SERVICES provides global custody and related services, broker-dealer services, global collateral services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions.


																3Q13 vs.
(dollars in millions, unless otherwise noted)	3Q12			4Q12			1Q13			2Q13			3Q13			3Q12			2Q13
Revenue:
Investment service fees:
Asset servicing	$	913		$	916		$	943		$	961		$	939			3	%		(2	)%
Issuer services		310			213			236			294			321			4			9
Clearing services		287			294			304			321			315			10			(2	)
Treasury services		131			136			137			135			135			3			—

Total investment services fees		1,641			1,559			1,620			1,711			1,710			4			—
Foreign exchange and other trading revenue		158			128			172			194			173			9			(11	)
Other (a)		77			75			70			66			64			(17	)		(3	)

Total fee and other revenue (a)		1,876			1,762			1,862			1,971			1,947			4			(1	)
Net interest revenue		608			583			653			633			619			2			(2	)

Total revenue		2,484			2,345			2,515			2,604			2,566			3			(1	)
Provision for credit losses		(4	)		—			1			—			—			N/M			N/M
Noninterest expense (ex. amortization of intangible assets)		1,732			1,769			1,796			1,826			1,766			2			(3	)

Income before taxes (ex. mortization of intangible assets)		756			576			718			778			800			6			3
Amortization of intangible assets		47			48			47			54			46			(2	)		(15	)

Income before taxes	$	709		$	528		$	671		$	724		$	754			6	%		4	%

Pre-tax operating margin		29	%		23	%		27	%		28	%		29	%
Pre-tax operating margin (ex. amortization of intangible assets)		30	%		25	%		29	%		30	%		31	%

Investment services fees as a percentage of noninterest expense (b)		96	%		90	%		92	%		94	%		97	%

Securities lending revenue	$	37		$	31		$	31		$	39		$	26			(30	)%		(33	)%

Metrics:
Average loans	$	24,917		$	24,868		$	26,697		$	27,814		$	27,865			12	%		—	%
Average deposits	$	188,743		$	204,164		$	200,221		$	204,499		$	206,068			9	%		1	%

AUC/A at period-end (in trillions) (c)	$	26.4		$	26.3		$	26.3		$	26.2		$	27.4	(d)		4	%		5	%
Market value of securities on loan at period end (in billions) (e)	$	251		$	237		$	244		$	255		$	255			2	%		—	%

Asset servicing:
Estimated new business wins (AUC/A) (in billions)	$	522		$	190		$	205		$	201		$	110

Depositary Receipts:
Number of sponsored programs		1,393			1,379			1,359			1,349			1,350			(3	)%		—	%

Clearing services:
Global DARTS volume (in thousands)		175.5			187.9			221.4			227.5			221.3			26	%		(3	)%
Average active clearing accounts (U.S. platform) (in thousands)		5,447			5,489			5,552			5,591			5,622			3	%		1	%
Average long-term mutual fund assets (U.S. platform)	$	323,289		$	334,883		$	357,647		$	371,196		$	377,131			17	%		2	%
Average investor margin loans (U.S. platform)	$	7,922		$	7,987		$	8,212		$	8,235		$	8,845			12	%		7	%
Broker-Dealer:
Average tri-party repo balances (in billions)	$	2,005		$	2,113		$	2,070		$	2,037		$	1,952			(3	)%		(4	)%

(a)

Total fee and other revenue includes investment management fees and distribution and servicing revenue.

(b)

Noninterest expense excludes amortization of intangible assets, support agreement charges and litigation expense.

(c)

(d)

Preliminary.

(e)

Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities on loan at CIBC Mellon.

Page - 16

BNY Mellon 3Q13 Quarterly Earnings Review

INVESTMENT SERVICES KEY POINTS

•	Investment services fees totaled $1.7 billion, an increase of 4% year-over-year and unchanged sequentially.

•

Asset servicing fees (global custody, broker-dealer services and global collateral services) were $939 million in 3Q13 compared with $913 million in 3Q12 and $961 million in 2Q13. The year-over-year increase primarily reflects higher core asset servicing fees driven by higher market values, organic growth and net new business, partially offset by lower securities lending revenue which resulted from narrower spreads. The sequential decrease primarily resulted from a seasonal decrease in securities lending revenue, lower activity and lower expense reimbursements.

•

Estimated new business wins (AUC/A) of $110 billion in 3Q13.

•

Issuer services fees (Corporate Trust and Depositary Receipts) were $321 million in 3Q13 compared with $310 million in 3Q12 and $294 million in 2Q13. The year-over-year increase primarily resulted from higher Depositary Receipts revenue, partially offset by lower money market mutual fund balances and higher money market fee waivers in Corporate Trust. The sequential increase primarily resulted from seasonally higher Depositary Receipts revenue, partially offset by expense reimbursements in Corporate Trust.

•

Clearing services fees were $315 million in 3Q13 compared with $287 million in 3Q12 and $321 million in 2Q13. The year-over-year increase was driven by higher mutual fund and asset-based fees and volumes, partially offset by higher money market fee waivers. The sequential decrease was primarily driven by lower clearance revenue reflecting a seasonal decrease in DARTs, and higher money market fee waivers.

•

Treasury services fees were $135 million in 3Q13 compared with $131 million in 3Q12 and $135 million in 2Q13. The year-over-year increase primarily reflects higher cash management fees.

•

Foreign exchange and other trading revenue was $173 million in 3Q13 compared with $158 million in 3Q12 and $194 million in 2Q13. The year-over-year increase was primarily driven by higher volumes and volatility. The sequential decrease primarily reflects lower volatility while volumes increased slightly.

•	Net interest revenue was $619 million in 3Q13 compared with $608 million in 3Q12 and $633 million in 2Q13. The year-over-year increase primarily reflects higher average loans and deposits. The sequential decrease primarily reflects lower internal crediting rates on deposits in 3Q13.

•

Noninterest expense (excluding amortization of intangible assets) was $1.8 billion in 3Q13 compared with $1.7 billion in 3Q12 and $1.8 billion in 2Q13. The year-over-year increase primarily resulted from higher software, sub-custodian and litigation expenses and impact of the annual employee merit increase. The sequential decrease was primarily driven by lower incentive, legal and sub-custodian expenses and lower expense reimbursements, partially offset by the annual employee merit increase.

•	36% non-U.S. revenue in 3Q13 vs. 37% in 3Q12.

Page - 17

BNY Mellon 3Q13 Quarterly Earnings Review

OTHER SEGMENT primarily includes credit-related activities, leasing operations, corporate treasury activities, global markets and institutional banking services, business exits, M&I expenses and other corporate revenue and expense items.


(in millions)	3Q12			4Q12			1Q13			2Q13			3Q13
Revenue:
Fee and other revenue	$	156		$	188		$	125		$	320		$	120
Net interest revenue		90			86			4			61			86

Total revenue		246			274			129			381			206
Provision for credit losses		(1	)		(61	)		(25	)		(19	)		2
Noninterest expense (ex. M&I and restructuring charges)		221			220			237			226			221

Income (loss) before taxes (ex. M&I and restructuring charges)		26			115			(83	)		174			(17	)
M&I and restructuring charges		13			27			5			3			14

Income (loss) before taxes	$	13		$	88		$	(88	)	$	171		$	(31	)

Average loans and leases	$	9,389		$	10,267		$	10,610		$	10,846		$	10,938

KEY POINTS

•

Total fee and other revenue decreased $36 million compared with 3Q12 and $200 million compared with 2Q13. The year-over-year decrease primarily reflects lower fixed income trading revenue. The sequential decrease primarily resulted from a gain related to an equity investment which was recorded in 2Q13 and lower fixed income trading revenue.

•

Net interest revenue decreased $4 million compared with 3Q12 and increased $25 million compared with 2Q13. The sequential increase reflects lower internal crediting rates to the businesses for deposits in 3Q13.

•

The provision for credit losses was $2 million in 3Q13.

•

Noninterest expense (excluding M&I and restructuring charges) was unchanged compared with 3Q12 and decreased $5 million compared with 2Q13. On a sequential basis, lower business development and professional, legal and other purchased services expenses were primarily offset by higher staff expenses.

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BNY Mellon 3Q13 Quarterly Earnings Review

SUPPLEMENTAL INFORMATION – EXPLANATION OF NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Review certain Non-GAAP financial measures based upon Tier 1 common equity and 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 and trust preferred securities from the numerator of the ratio. 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 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 its estimated Basel III Tier 1 common equity ratio based on its interpretation, expectations and understanding of the final Basel III rules released by the Federal Reserve on July 2, 2013, on a fully phased-in basis and on the application of such rules to BNY Mellon’s businesses as currently conducted. The estimated Basel III Tier 1 common equity ratio is necessarily subject to, among other things, BNY Mellon’s further review and implementation of the final Basel III rules, anticipated compliance with all necessary enhancements to model calibration, and other refinements, further implementation guidance from regulators and any changes BNY Mellon may make to its businesses. Consequently, BNY Mellon’s estimated Basel III Tier 1 common equity ratio may change based on these factors. Management views the estimated Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon’s capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated Basel III Tier 1 common equity ratio is intended to allow investors to compare BNY Mellon’s estimated Basel III Tier 1 common equity ratio with estimates presented by other companies.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds and gains related to an equity investment; and expense measures which exclude M&I expenses, litigation charges, restructuring charges and amortization of intangible assets. Return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. Return on equity measures also exclude the net charge (benefit) related to the disallowance of certain foreign tax credits. 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 to 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.

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BNY Mellon 3Q13 Quarterly Earnings Review

The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interest related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with prior periods. BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.

In this Earnings Review, 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 on a business-level basis.

The following table presents the reconciliation of net income and diluted earnings per common share.


Reconciliation of net income and EPS – GAAP to Non-GAAP	3Q13
(in millions, except per common share amounts)	Net income		Diluted EPS
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	967	$	0.82
Benefit related to the U.S. Tax Court’s partial reconsideration of a tax decision disallowing certain foreign tax credits		261		(0.22	)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP	$	706	$	0.60

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


Pre-tax operating margin
(dollars in millions)	3Q12			4Q12			1Q13			2Q13			3Q13
Income before income taxes – GAAP	$	975		$	853		$	809		$	1,206		$	986
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		25			11			16			39			8
Add: Amortization of intangible assets		95			96			86			93			81
M&I, litigation and restructuring charges		26			46			39			13			16

Income before income taxes excluding net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	1,071		$	984		$	918		$	1,273		$	1,075

Fee and other revenue – GAAP	$	2,879		$	2,850		$	2,844		$	3,187		$	2,963
Income from consolidated investment management funds – GAAP		47			42			50			65			32
Net interest revenue – GAAP		749			725			719			757			772

Total revenue – GAAP		3,675			3,617			3,613			4,009			3,767
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		25			11			16			39			8

Total revenue excluding net income attributable to noncontrolling interests of consolidated investment management funds – Non-GAAP	$	3,650		$	3,606		$	3,597		$	3,970		$	3,759

Pre-tax operating margin (a)		27	%		24	%		22	%		30	%		26	%
Pre-tax operating margin excluding net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and, M&I, litigation and restructuring charges – Non-GAAP (a)		29	%		27	%		26	%		32	%		29	%

(a)

Income before taxes divided by total revenue.

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BNY Mellon 3Q13 Quarterly Earnings Review

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


Return on common equity and tangible common equity
(dollars in millions)	3Q12			4Q12			1Q13			2Q13			3Q13
Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	720		$	622		$	(266	)	$	833		$	967
Add: Amortization of intangible assets, net of tax		60			65			56			59			52

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP		780			687			(210	)		892			1,019
Add: M&I, litigation and restructuring charges		18			31			24			8			12
Net charge (benefit) related to the disallowance of certain foreign tax credits		—			—			854			—			(261	)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets, M&I, litigation and restructuring charges and the net charge (benefit) related to the disallowance of certain foreign tax credits – Non-GAAP	$	798		$	718		$	668		$	900		$	770

Average common shareholders’ equity	$	34,522		$	34,962		$	34,898		$	34,467		$	34,264
Less: Average goodwill		17,918			18,046			17,993			17,957			17,975
Average intangible assets		4,926			4,860			4,758			4,661			4,569
Add: Deferred tax liability – tax deductible goodwill		1,057			1,130			1,170			1,200			1,262
Deferred tax liability – non-tax deductible intangible assets		1,339			1,310			1,293			1,269			1,242

Average tangible common shareholders’ equity – Non-GAAP	$	14,074		$	14,496		$	14,610		$	14,318		$	14,224

Return on common equity– GAAP (a)		8.3	%		7.1	%		N/M			9.7	%		11.2	%
Return on common equity excluding amortization of intangible assets, M&I, litigation and restructuring charges and the net charge (benefit) related to the disallowance of certain foreign tax credits – Non-GAAP (a)		9.2	%		8.2	%		7.8	%		10.5	%		8.9	%

Return on tangible common equity – Non-GAAP (a)		22.1	%		18.8	%		N/M			25.0	%		28.4	%
Return on tangible common equity excluding M&I, litigation and restructuring charges and the net charge (benefit) related to the disallowance of certain foreign tax credits – Non-GAAP (a)		22.5	%		19.7	%		18.5	%		25.2	%		21.5	%

(a)

Annualized.

N/M – Not meaningful.

The following table presents income from consolidated investment management funds, net of noncontrolling interests.


Income from consolidated investment management funds, net of noncontrolling interests
(in millions)	3Q12		4Q12		1Q13		2Q13		3Q13
Income from consolidated investment management funds	$	47	$	42	$	50	$	65	$	32
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		25		11		16		39		8

Income from consolidated investment management funds, net of noncontrolling interests	$	22	$	31	$	34	$	26	$	24

The following table presents the line items in the Investment Management business impacted by the consolidated investment management funds.


Income from consolidated investment management funds, net of noncontrolling interests
(in millions)	3Q12		4Q12		1Q13		2Q13		3Q13
Investment management fees	$	20	$	19	$	20	$	20	$	20
Other (Investment income)		2		12		14		6		4

Income from consolidated investment management funds, net of noncontrolling interests	$	22	$	31	$	34	$	26	$	24

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BNY Mellon 3Q13 Quarterly Earnings Review

The following table presents the calculation of the equity to assets ratio.


Equity to assets ratio	Sept. 30,			June 30,			Sept. 30,
(dollars in millions, unless otherwise noted)	2012			2013			2013
BNY Mellon shareholders’ equity at period end – GAAP	$	36,218		$	35,882		$	36,959
Less: Preferred stock		1,036			1,562			1,562

BNY Mellon common shareholders’ equity at period end – GAAP		35,182			34,320			35,397
Less: Goodwill		17,984			17,919			18,025
Intangible assets		4,882			4,588			4,527
Add: Deferred tax liability – tax deductible goodwill		1,057			1,200			1,262
Deferred tax liability – non-tax deductible intangible assets		1,339			1,269			1,242

Tangible BNY Mellon common shareholders’ equity at period end – Non-GAAP	$	14,712		$	14,282		$	15,349

Total assets at period end – GAAP	$	339,944		$	360,505		$	371,952
Less: Assets of consolidated investment management funds		11,369			11,471			11,691

Subtotal assets of operations – Non-GAAP		328,575			349,034			360,261
Less: Goodwill		17,984			17,919			18,025
Intangible assets		4,882			4,588			4,527
Cash on deposit with the Federal Reserve and other central banks (a)		73,037			78,671			96,316

Tangible total assets of operations at period end – Non-GAAP	$	232,672		$	247,856		$	241,393

BNY Mellon shareholders’ equity to total assets – GAAP		10.7	%		10.0	%		9.9	%
BNY Mellon common shareholders’ equity to total assets – GAAP		10.3	%		9.5	%		9.5	%
Tangible BNY Mellon common shareholders’ equity to tangible assets of operations – Non-GAAP		6.3	%		5.8	%		6.4	%

(a)

Assigned a zero percent risk-weighting by the regulators.

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	Sept. 30,			June 30,			Sept. 30,
(dollars in millions)	2012			2013			2013(a)
Total Tier 1 capital – Basel I	$	16,797		$	16,951		$	18,070
Less: Trust preferred securities		1,173			303			324
Preferred stock		1,036			1,562			1,562

Total Tier 1 common equity	$	14,588		$	15,086		$	16,184

Total risk-weighted assets – Basel I	$	109,867		$	114,511		$	114,334

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP		13.3	%		13.2	%		14.2	%

(a)

Preliminary.

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BNY Mellon 3Q13 Quarterly Earnings Review

The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio under the Standardized Approach and Advanced Approach.


Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a)	Sept. 30,			June 30,			Sept. 30,
(dollars in millions)	2012			2013			2013(b)
Total Tier 1 capital – Basel I	$	16,797		$	16,951		$	18,070
Adjustment to determine Basel III Tier 1 common equity:
Deferred tax liability – tax deductible intangible assets		N/A			81			82
Preferred stock		(1,036	)		(1,562	)		(1,562	)
Trust preferred securities		(1,173	)		(303	)		(324	)
Other comprehensive income (loss):
Securities available-for-sale		1,448			560			487
Pension liabilities		(1,346	)		(1,379	)		(1,348	)

Total other comprehensive income (loss)		102			(819	)		(861	)
Equity method investments		(571	)		(500	)		(479	)
Net pensions fund assets		(43	)		(268	)		(279	)
Deferred tax assets		(46	)		(26	)		(26	)
Other		19			23			22

Total estimated Basel III Tier 1 common equity	$	14,049		$	13,577		$	14,643

Under the Standardized Approach:
Total risk-weighted assets – Basel I		N/A		$	114,511		$	114,334
Add: Adjustments (c)		N/A			31,330			31,255

Total estimated Basel III risk-weighted assets		N/A		$	145,841		$	145,589

Estimated Basel III Tier 1 common equity ratio – Non-GAAP calculated under the Standardized Approach		N/A			9.3	%		10.1	%


Under the Advanced Approach:
Total risk-weighted assets – Basel I	$	109,867		$	114,511		$	114,334
Add: Adjustments (c)		41,816			23,793			17,249

Total estimated Basel III risk-weighted assets	$	151,683		$	138,304		$	131,583

Estimated Basel III Tier 1 common equity ratio – Non-GAAP calculated under the Advanced Approach		9.3	%		9.8	%		11.1	%

(a)

At June 30, 2013 and Sept. 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our preliminary interpretation of and expectations regarding the final rules released by the Federal Reserve on July 2, 2013, on a fully phased-in basis. For periods prior to June 30, 2013, these ratios were estimated using our interpretation of the NPRs dated June 7, 2012, on a fully phased-in basis.

(b)

Preliminary.

(c)

Following are the primary differences between risk-weighted assets determined under Basel I and Basel III. Credit risk is determined under Basel I using predetermined risk-weights and asset classes and relies in part on the use of external credit ratings. Under Basel III both the Standardized and Advanced Approaches use a broader range of predetermined risk-weights and asset classes and certain alternatives to external credit ratings. Securitization exposure receives a higher risk-weighting under Basel III than Basel I, and Basel III includes additional adjustments for market risk, counterparty credit risk and equity exposures. Additionally, the Standardized Approach eliminates the use of the VaR approach for determining risk-weighted assets on certain repo-style transactions. Risk-weighted assets calculated under the Advanced Approach also include the use of internal credit models and parameters as well as an adjustment for operational risk.

N/A – Not available.

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BNY Mellon 3Q13 Quarterly Earnings Review

Cautionary Statement

A number of statements (i) in this Quarterly Earnings Review, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations regarding these ratios, preliminary business metrics, expectations regarding the impact to our accumulated other comprehensive income in the event of a rise in interest rates and statements made regarding our Operational Excellence Initiatives. These statements may be expressed in a variety of ways, including the use of future or present tense language. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Review, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2012 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Review speak only as of Oct. 16, 2013, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

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