Bank of New York Mellon Corp - FORM 8-K - EX-99.1 - EARNINGS RELEASE - October 17, 2014

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8-K - 8-K - Bank of New York Mellon Corpa3q2014earnings8-kxxoct9.htm
EX-99.4 - 3Q14 FINANCIAL HIGHLIGHTS - Bank of New York Mellon Corpex994quarterlyhighlights.htm
EX-99.3 - KEY FACTS - Bank of New York Mellon Corpex993_keyfacts3q14.htm
EX-99.2 - QUARTERLY TRENDS - Bank of New York Mellon Corpex992_quarterlytrends3q14.htm


Press Release


Contacts: MEDIA:
ANALYSTS:
Kevin Heine
Izzy Dawood
(212) 635-1590
(212) 635-1850
kevin.heine@bnymellon.com
izzy.dawood@bnymellon.com


BNY MELLON REPORTS THIRD QUARTER EARNINGS OF $1.07 BILLION OR $0.93 PER COMMON SHARE, INCLUDING:
•
$0.29 PER COMMON SHARE FOR PREVIOUSLY DISCLOSED GAINS NET OF LITIGATION AND RESTRUCTURING CHARGES

INVESTMENT MANAGEMENT AND PERFORMANCE FEES UP 7% YEAR-OVER-YEAR
•
Assets under management up 7% year-over-year to a record $1.65 trillion

INVESTMENT SERVICES REVENUE UP 5% YEAR-OVER-YEAR
•
Assets under custody and/or administration up 3% year-over-year

CONTINUED PROGRESS ON EXPENSE CONTROL
•
Staff expense decreased 3% year-over-year

REPURCHASED 11.0 MILLION COMMON SHARES FOR $431 MILLION IN THIRD QUARTER

RETURN ON TANGIBLE COMMON EQUITY OF 26%, OR 18% ON AN ADJUSTED BASIS (a)

NEW YORK, October 17, 2014 – The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE: BK) today reported third quarter net income applicable to common shareholders of $1.07 billion, or $0.93 per diluted common share, or $734 million, or $0.64 per diluted common share, adjusted for the previously disclosed gains net of litigation and restructuring charges. In the third quarter of 2013, net income applicable to common shareholders was $962 million, or $0.82 per diluted common share, or $713 million, or $0.61 per diluted common share, adjusted for the benefit related to certain tax matters net of litigation and restructuring charges. In the second quarter of 2014, net income applicable to common shareholders was $554 million, or $0.48 per diluted common share, or $715 million, or $0.62 per diluted common share, adjusted for the charge related to investment management funds and severance. (a)

“We had a strong quarter. We grew Investment Management and Investment Services fees, controlled expenses and executed on our capital plan. During the quarter, we also repositioned the Markets Group, which will improve our operating margin and return on capital. We achieved this despite a challenging environment, demonstrating the resilience of our business model and the exceptional efforts of our employees,” said Gerald L. Hassell, chairman and chief executive officer of BNY Mellon.


_________________________________________________________________________________
(a)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures.

BNY Mellon 3Q14 Earnings Release


CONFERENCE CALL INFORMATION

Gerald L. Hassell, chairman and chief executive officer and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 17, 2014. This conference call and audio webcast will include forward-looking statements and may include other material information.

Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (773) 799-3611 (International), and using the passcode: Earnings, or by logging on to www.bnymellon.com. Earnings materials will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on Oct. 17, 2014. Replays of the conference call and audio webcast will be available beginning Oct. 17, 2014 at approximately 2 p.m. EDT through Nov. 17, 2014 by dialing (800) 860-4696 (U.S.) or (203) 369-3836 (International). The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.


  Page - 2

BNY Mellon 3Q14 Earnings Release


THIRD QUARTER 2014 FINANCIAL HIGHLIGHTS (a)
(comparisons are 3Q14 vs. 3Q13 unless otherwise stated)

•Earnings

 
Earnings per share
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
(in millions, except per share amounts)
3Q13

3Q14

Inc(Dec)

 
3Q13

3Q14

Inc(Dec)

GAAP results
$
0.82

$
0.93

 
 
$
962

$
1,070

 
Less: Gain on the sale of our investment in Wing Hang Bank Limited
—

0.27

 
 
—

315

 
Gain on the sale of the One Wall Street building
—

0.18

 
 
—

204

 
Add: Litigation and restructuring charges
0.01

0.16

 
 
12

183

 
Benefit related to the disallowance of certain foreign tax credits
(0.22
)
—

 
 
(261
)
—

 
Non-GAAP results
$
0.61

$
0.64

5
%
 
$
713

$
734

3
%


•
Total revenue was $4.6 billion, an increase of 22%, or a decline of 1% as adjusted (Non-GAAP).
-    Investment services fees increased 5% reflecting organic growth, higher market values and net new business.
-    Investment management and performance fees increased 7% reflecting higher equity markets, the impact of a weaker U.S. dollar and higher performance fees.
-    Foreign exchange revenue was flat as higher volumes were offset by lower volatility.
--    Sharp volume gains helped mitigate the 36% year-over-year decline in the G7 Volatility Index.
-    Investment and other income, excluding the previously disclosed gains, decreased $97 million driven by lower equity revenue and seed capital gains.
-    Net interest revenue decreased 7% reflecting lower asset yields and lower accretion, partially offset by higher average interest-earning assets driven by higher deposits.
•
The provision for credit losses was a credit of $19 million in 3Q14.
•
Noninterest expense increased 7%. Noninterest expense as adjusted (Non-GAAP) remained flat resulting from lower staff expense offset by higher professional, legal and other purchased services, the impact of a weaker U.S. dollar and the annual employee merit increase.
•
Effective tax rate of 33.5%. The previously disclosed gains, litigation and restructuring charges increased the effective rate 7.1% in 3Q14.

•
Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
-
AUC/A of $28.3 trillion, increased 3% primarily reflecting higher market values.
--    Estimated new AUC/A wins in Asset Servicing of $115 billion in 3Q14.
-    AUM of a record $1.65 trillion, increased 7% driven by higher equity market values and net new business.
--    Long-term inflows totaled $13 billion in 3Q14 driven by liability-driven investments.
--    Short-term inflows totaled $19 billion in 3Q14.

•Capital
-    Repurchased 11.0 million common shares for $431 million in 3Q14.
-    Return on tangible common equity of 26%, or 18% as adjusted (Non-GAAP).
 
 
 
 
 
(a)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures. Non-GAAP excludes M&I, litigation and restructuring charges, the gain on the sale of our investment in Wing Hang, the gain on the sale of the One Wall Street building, a charge (recovery) related to investment management funds, net of incentives and the benefit related to the disallowance of certain foreign tax credits, if applicable.


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 - 3

BNY Mellon 3Q14 Earnings Release


FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in thousands)
 
 
 
 
 
3Q14 vs.
3Q13

4Q13

1Q14

2Q14

3Q14

3Q13
2Q14
Revenue:
 
 
 
 
 
 
 
Fee and other revenue
$
2,979

$
2,814

$
2,883

$
2,980

$
3,851

29
 %
29
%
Income from consolidated investment management funds
32

36

36

46

39

 
 
Net interest revenue
772

761

728

719

721

 
 
Total revenue – GAAP
3,783

3,611

3,647

3,745

4,611

22

23

Less: Net income attributable to noncontrolling interests related to consolidated investment management funds
8

17

20

17

23

 
 
Gain on the sale of our investment in Wing Hang
—

—

—

—

490

 
 
Gain on the sale of the One Wall Street building
—

—

—

—

346

 
 
Loss related to an equity investment (pre-tax)
—

(175
)
—

—

—

 
 
Total revenue – Non-GAAP
3,775

3,769

3,627

3,728

3,752

(1
)
1

Provision for credit losses
2

6

(18
)
(12
)
(19
)
 
 
Expense:
 
 
 
 
 
 
 
Noninterest expense – GAAP
2,779

2,877

2,739

2,946

2,968

7

1

Less: Amortization of intangible assets
81

82

75

75

75

 
 
M&I, litigation and restructuring charges
16

2

(12
)
122

220

 
 
Charge (recovery) related to investment management funds, net of incentives
—

—

(5
)
109

—

 
 
Total noninterest expense – Non-GAAP
2,682

2,793

2,681

2,640

2,673

—

1

Income:
 
 
 
 
 
 
 
Income before income taxes
1,002

728

926

811

1,662

N/M

N/M

Provision for income taxes
19

172

232

217

556

 
 
Net income
$
983

$
556

$
694

$
594

$
1,106

 
 
Net (income) attributable to noncontrolling interests (a)
(8
)
(17
)
(20
)
(17
)
(23
)
 
 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
975

539

674

577

1,083

 
 
Preferred stock dividends
(13
)
(26
)
(13
)
(23
)
(13
)
 
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
962

$
513

$
661

$
554

$
1,070

 
 
 
 
 
 
 
 
 
 
Key Metrics:
 
 
 
 
 
 
 
Pre-tax operating margin (b)
26
%
20
%
25
%
22
%
36
%
 
 
Non-GAAP (b)
29
%
22
%
27
%
30
%
29
%
 
 
 
 
 
 
 
 
 
 
Return on common equity (annualized) (b)
11.1
%
5.7
%
7.4
%
6.1
%
11.6
%
 
 
Non-GAAP (b)
8.9
%
6.3
%
7.8
%
8.4
%
8.5
%
 
 
 
 
 
 
 
 
 
 
Return on tangible common equity (annualized) - Non-GAAP (b)
28.3
%
14.3
%
17.6
%
14.5
%
26.2
%
 
 
Non-GAAP adjusted (b)
21.3
%
14.3
%
17.3
%
18.4
%
18.4
%
 
 
 
 
 
 
 
 
 
 
Fee revenue as a percentage of total revenue excluding net securities gains
79
%
78
%
79
%
79
%
83
%
 
 
 
 
 
 
 
 
 
 
Percentage of non-U.S. total revenue (c)
38
%
39
%
37
%
38
%
43
%
 
 
 
 
 
 
 
 
 
 
Average common shares and equivalents outstanding
 
 
 
 
 
 
 
Basic
1,148,724

1,142,861

1,138,645

1,133,556

1,126,946

 
 
Diluted
1,152,679

1,147,961

1,144,510

1,139,800

1,134,871

 
 
 
 
 
 
 
 
 
 
Period end:
 
 
 
 
 
 
 
Full-time employees
50,800

51,100

51,400

51,100

50,900

 
 
Book value per common share - GAAP (b)
$
30.80

$
31.46

$
31.94

$
32.49

$
32.77

 
 
Tangible book value per common share - Non-GAAP (b)
$
13.34

$
13.95

$
14.48

$
14.88

$
15.30

 
 
Cash dividends per common share
$
0.15

$
0.15

$
0.15

$
0.17

$
0.17

 
 
Common dividend payout ratio
18
%
34
%
26
%
35
%
18
%
 
 
Closing stock price per common share
$
30.19

$
34.94

$
35.29

$
37.48

$
38.73

 
 
Market capitalization
$
34,674

$
39,910

$
40,244

$
42,412

$
43,599

 
 
Common shares outstanding
1,148,522

1,142,250

1,140,373

1,131,596

1,125,710

 
 
(a)    Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b)
Non-GAAP excludes M&I, litigation and restructuring charges, the gain on the sale of our investment in Wing Hang, the gain on the sale of the One Wall Street building, a charge (recovery) related to investment management funds, net of incentives and the benefit related to the disallowance of certain foreign tax credits, if applicable. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures.
(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 - 4

BNY Mellon 3Q14 Earnings Release


CONSOLIDATED BUSINESS METRICS

Consolidated business metrics
 
 
 
 
 
 
3Q14 vs.
3Q13

4Q13

1Q14

2Q14

3Q14

 
3Q13
2Q14
Changes in AUM (in billions): (a)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,427

$
1,532

$
1,583

$
1,620

$
1,636

 
 
 
Net inflows (outflows):
 
 
 
 
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
Equity
3

(5
)
(1
)
(4
)
(2
)
 
 
 
Fixed income
(1
)
5

—

(1
)
—

 
 
 
Index
2

(3
)
—

7

(3
)
 
 
 
Liability-driven investments (b)
27

4

20

(17
)
18

 
 
 
Alternative investments
1

1

2

2

—

 
 
 
Total long-term inflows (outflows)
32

2

21

(13
)
13

 
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
13

6

(7
)
(18
)
19

 
 
 
Total net inflows (outflows)
45

8

14

(31
)
32

 
 
 
Net market/currency impact
60

43

23

47

(22
)
 
 
 
Ending balance of AUM
$
1,532

$
1,583

$
1,620

$
1,636

$
1,646

(c)
7
 %
1
 %
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (a)
 
 
 
 
 
 
 
 
Equity
17
%
17
%
17
%
17
%
16
%
 
 
 
Fixed income
14

14

14

14

13

 
 
 
Index
20

20

20

21

21

 
 
 
Liability-driven investments (b)
26

26

27

27

28

 
 
 
Alternative investments
4

4

4

4

4

 
 
 
Cash
19

19

18

17

18

 
 
 
Total AUM
100
%
100
%
100
%
100
%
100
%
(c)
 
 
 
 
 
 
 
 
 
 
 
Wealth management:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
9,453

$
9,755

$
10,075

$
10,372

$
10,772

 
14
 %
4
 %
Average deposits (in millions)
$
13,898

$
14,161

$
14,805

$
13,458

$
13,764

 
(1
)%
2
 %
 
 
 
 
 
 
 
 
 
Investment Services:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
27,865

$
31,211

$
31,468

$
33,115

$
33,785

 
21
 %
2
 %
Average deposits (in millions)
$
206,068

$
216,216

$
214,947

$
220,701

$
221,734

 
8
 %
—
 %
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (d)
$
27.4

$
27.6

$
27.9

$
28.5

$
28.3

(c)
3
 %
(1
)%
 
 
 
 
 
 
 
 
 
Market value of securities on loan at period end (in billions) (e)
$
255

$
235

$
264

$
280

$
282

 
11
 %
1
 %
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
110

$
123

$
161

$
130

$
115

(c)
 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,350

1,335

1,332

1,316

1,302

 
(4
)%
(1
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Global DARTS volume (in thousands)
212

213

230

207

209

 
(1
)%
1
 %
Average active clearing accounts (U.S. platform) (in thousands)
5,622

5,643

5,695

5,752

5,805

 
3
 %
1
 %
Average long-term mutual fund assets (U.S. platform) (in millions)
$
377,131

$
401,434

$
413,658

$
433,047

$
442,827

 
17
 %
2
 %
Average investor margin loans (U.S. platform) (in millions)
$
8,845

$
8,848

$
8,919

$
9,236

$
9,861

 
11
 %
7
 %
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
1,952

$
2,005

$
1,983

$
2,022

$
2,063

 
6
 %
2
 %
(a)
Excludes securities lending cash management assets and assets managed in the Investment Services business.
(b)
Includes currency and overlay assets under management.
(c)
Preliminary.
(d)
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, 2013, Dec. 31, 2013, March 31, 2014, June 30, 2014 and Sept. 30, 2014.
(e)
Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent, beginning in the fourth quarter of 2013, on behalf of CIBC Mellon clients, which totaled $62 billion at Dec. 31, 2013, $66 billion at March 31, 2014, $64 billion at June 30, 2014 and $65 billion at Sept. 30, 2014.

  Page - 5

BNY Mellon 3Q14 Earnings Release


The following table presents key market metrics at period end and on an average basis.

Key market metrics
 
 
 
 
 
 
 
 
 
 
 
 
3Q14 vs.
3Q13

4Q13

1Q14

2Q14

3Q14

3Q13

2Q14

S&P 500 Index (a)
1682

1848

1872

1960

1972

17
 %
1
 %
S&P 500 Index – daily average
1675

1769

1835

1900

1976

18

4

FTSE 100 Index (a)
6462

6749

6598

6744

6623

2

(2
)
FTSE 100 Index – daily average
6530

6612

6680

6764

6756

3

—

MSCI World Index (a)
1544

1661

1674

1743

1698

10

(3
)
MSCI World Index – daily average
1511

1602

1647

1698

1733

15

2

Barclays Capital Global Aggregate BondSM Index (a)(b)
356

354

365

376

361

1

(4
)
NYSE and NASDAQ share volume (in billions)
166

179

196

187

173

4

(7
)
JPMorgan G7 Volatility Index – daily average (c)
9.72

8.20

7.80

6.22

6.21

(36
)
—

Average Fed Funds effective rate
0.09
%
0.09
%
0.07
%
0.09
%
0.09
%
—

—

(a)
Period end.
(b)
Unhedged in U.S. dollar terms.
(c)
The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.
bps – basis points.


  Page - 6

BNY Mellon 3Q14 Earnings Release


FEE AND OTHER REVENUE

Fee and other revenue
 
 
 
 
 
3Q14 vs.
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

3Q13

2Q14

Investment services fees:
 
 
 
 
 
 
 
Asset servicing (a)
$
964

$
984

$
1,009

$
1,022

$
1,025

6
 %
—
 %
Clearing services
315

324

325

326

337

7

3

Issuer services
322

237

229

231

315

(2
)
36

Treasury services
137

137

136

141

142

4

1

Total investment services fees
1,738

1,682

1,699

1,720

1,819

5

6

Investment management and performance fees
821

904

843

883

881

7

—

Foreign exchange and other trading revenue
160

146

136

130

153

(4
)
18

Distribution and servicing
43

43

43

43

44

2

2

Financing-related fees
44

43

38

44

44

—

—

Investment and other income
151

(43
)
102

142

890

N/M
N/M
Total fee revenue
2,957

2,775

2,861

2,962

3,831

30

29

Net securities gains
22

39

22

18

20

N/M
N/M
Total fee and other revenue – GAAP
$
2,979

$
2,814

$
2,883

$
2,980

$
3,851

29
 %
29
 %
(a)
Asset servicing fees include securities lending revenue of $35 million in 3Q13, $31 million in 4Q13, $38 million in 1Q14, $46 million in 2Q14 and $37 million in 3Q14.
N/M - Not meaningful.


KEY POINTS

•
Asset servicing fees were $1.0 billion, an increase of 6% year-over-year and a slight increase sequentially. The year-over-year increase primarily reflects organic growth, higher market values, net new business and higher collateral management fees in Global Collateral Services. The sequential increase primarily reflects organic growth, partially offset by seasonally lower securities lending revenue.

•
Clearing services fees were $337 million, an increase of 7% year-over-year and 3% sequentially. Both increases were driven by growth in clearing accounts and mutual fund positions, and higher asset levels. The sequential increase also reflects higher DARTS volume.

•
Issuer services fees were $315 million, a decrease of 2% year-over-year and an increase of 36% sequentially. The year-over-year decrease reflects lower Corporate Trust fees, partially offset by new business in Depositary Receipts. The sequential increase is primarily due to seasonally higher dividend fees and new business in Depositary Receipts, partially offset by lower Corporate Trust fees.

•
Treasury services fees were $142 million in 3Q14 compared with $137 million in 3Q13 and $141 million in 2Q14. The year-over-year increase primarily reflect higher payment volumes.

•
Investment management and performance fees were $881 million, an increase of 7% year-over-year and a slight decrease sequentially. The year-over-year increase primarily resulted from higher equity markets, the impact of a weaker U.S. dollar and higher performance fees. The sequential decrease was primarily driven by seasonally lower performance fees and the impact of a stronger U.S. dollar.



  Page - 7

BNY Mellon 3Q14 Earnings Release


•
Foreign exchange and other trading revenue
 
 
 
 
 
 
(in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

 
Foreign exchange
$
154

$
126

$
130

$
129

$
154

 
Other trading revenue (loss):
 
 
 
 
 
 
Fixed income
(2
)
20

1

(1
)
2

 
Equity/other
8

—

5

2

(3
)
 
Total other trading revenue (loss)
6

20

6

1

(1
)
 
Total foreign exchange and other trading revenue
$
160

$
146

$
136

$
130

$
153



Foreign exchange and other trading revenue totaled $153 million in 3Q14 compared with $160 million in 3Q13 and $130 million in 2Q14. In 3Q14, foreign exchange revenue totaled $154 million, unchanged year-over-year and up 19% sequentially. Year-over-year, higher volumes offset lower volatility. The sequential increase reflects higher volumes.

Other trading loss was $1 million in 3Q14, compared with other trading revenue of $6 million in 3Q13 and other trading revenue of $1 million in 2Q14. Both decreases primarily reflect lower derivatives trading revenue.

•
Investment and other income (loss)
 
 
 
 
 
 
(in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

 
Asset-related gains (losses)
$
35

$
22

$
(1
)
$
17

$
836

 
Corporate/bank-owned life insurance
38

40

30

30

34

 
Expense reimbursements from joint venture
12

11

12

15

13

 
Lease residual gains
7

—

35

4

5

 
Private equity gains (losses)
(2
)
5

5

(2
)
2

 
Transitional service agreements
—

2

—

—

—

 
Seed capital gains (losses)
7

20

6

15

(1
)
 
Equity investment revenue (loss)
48

(163
)
(2
)
17

(9
)
 
Other income
6

20

17

46

10

 
Total investment and other income (loss)
$
151

$
(43
)
$
102

$
142

$
890



Investment and other income was $890 million in 3Q14 compared with $151 million in 3Q13 and $142 million in 2Q14. Both increases primarily reflect the gains on the sales of our equity investment in Wing Hang and our One Wall Street office building, partially offset by lower equity investment revenue and seed capital gains.

•
In July 2014, we sold our equity investment in Wing Hang resulting in an after-tax gain of $315 million, or $490 million pre-tax. Equity investment revenue related to our investment in Wing Hang totaled $20 million through July of 2014 and $95 million in full-year 2013, including $37 million from the sale of a property recorded in 3Q13.

•
In September 2014, we sold the corporate headquarters at One Wall Street resulting in an after-tax gain of $204 million, or $346 million pre-tax.


  Page - 8

BNY Mellon 3Q14 Earnings Release


NET INTEREST REVENUE

Net interest revenue
 
 
 
 
 
3Q14 vs.
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

3Q13

2Q14

Net interest revenue (non-FTE)
$
772

$
761

$
728

$
719

$
721

(7)%

—
 %
Net interest revenue (FTE) – Non-GAAP
787

781

744

736

736

(6
)
—

Net interest margin (FTE)
1.16
%
1.09
%
1.05
%
0.98
%
0.94
%
(22
) bps
(4
) bps
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
Cash/interbank investments
$
116,165

$
132,198

$
127,134

$
140,357

$
139,278

20%

(1)%

Trading account securities
5,523

6,173

5,217

5,532

5,435

(2
)
(2
)
Securities
101,206

96,640

100,534

101,420

112,055

11

10

Loans
48,256

50,768

51,647

53,449

54,835

14

3

Interest-earning assets
271,150

285,779

284,532

300,758

311,603

15

4

Interest-bearing deposits
153,547

157,020

152,986

162,674

164,233

7

1

Noninterest-bearing deposits
72,075

79,999

81,430

77,820

82,334

14

6

 
 
 
 
 
 
 
 
Selected average yields/rates:
 
 
 
 
 
 
 
Cash/interbank investments
0.41
%
0.40
%
0.43
%
0.43
%
0.38
%
 
 
Trading account securities
2.83

2.82

2.60

2.19

2.36

 
 
Securities
1.98

2.02

1.79

1.68

1.56

 
 
Loans
1.73

1.64

1.65

1.66

1.61

 
 
Interest-earning assets
1.28

1.21

1.17

1.10

1.05

 
 
Interest-bearing deposits
0.06

0.06

0.06

0.06

0.06

 
 
 
 
 
 
 
 
 
 
Average cash/interbank investments as a percentage of average interest-earning assets
43
%
46
%
45
%
47
%
45
%
 
 
Average noninterest-bearing deposits as a percentage of average interest-earning assets
27
%
28
%
29
%
26
%
26
%
 
 
bps – basis points.
FTE – fully taxable equivalent.


KEY POINTS

•
Net interest revenue totaled $721 million in 3Q14, a decrease of $51 million compared with 3Q13 and an increase of $2 million sequentially. The year-over-year decrease primarily resulted from lower asset yields and lower accretion, partially offset by higher average interest-earning assets driven by higher deposits. 

•
Euro-denominated deposit liabilities comprised 15% of average deposits in 3Q14 and 16% of average deposits in 2Q14.

•
In the fourth quarter of 2014, we are continuing to reduce our interbank placement assets and increasing our high quality liquid assets in the securities portfolio. The anticipated revenue as a result of these tactical actions should mitigate the impact on our net interest revenue as a result of:
-
the European Central Bank’s reduction in their deposit rate to negative, and the resulting impact on lower reinvestment rates across the euro yield curve; as well as,
-    prolonged low reinvestment rates in the U.S.



  Page - 9

BNY Mellon 3Q14 Earnings Release


NONINTEREST EXPENSE

Noninterest expense
 
 
 
 
 
3Q14 vs.
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

3Q13

2Q14

Staff:
 
 
 
 
 
 
 
Compensation
$
915

$
929

$
925

$
903

$
909

(1
)%
1
 %
Incentives
339

343

359

313

340

—

9

Employee benefits
262

250

227

223

228

(13
)
2

Total staff
1,516

1,522

1,511

1,439

1,477

(3
)
3

Professional, legal and other purchased services
296

344

312

314

323

9

3

Software and equipment
226

241

237

236

234

4

(1
)
Net occupancy
153

154

154

152

154

1

1

Distribution and servicing
108

110

107

112

107

(1
)
(4
)
Sub-custodian
71

68

68

81

67

(6
)
(17
)
Business development
63

96

64

68

61

(3
)
(10
)
Other
249

258

223

347

250

—

(28
)
Amortization of intangible assets
81

82

75

75

75

(7
)
—

M&I, litigation and restructuring charges
16

2

(12
)
122

220

N/M

N/M

      Total noninterest expense – GAAP
$
2,779

$
2,877

$
2,739

$
2,946

$
2,968

7
 %
1
 %
 
 
 
 
 
 
 
 
Total staff expense as a percentage of total revenue
40
%
42
%
41
%
38
%
32
%
 
 
 
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
 
Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge (recovery) related to investment management funds, net of incentives – Non-GAAP
$
2,682

$
2,793

$
2,681

$
2,640

$
2,673

—
 %
1
 %
N/M – Not meaningful.


KEY POINTS

•
Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges, and the charge (recovery) related to investment management funds (Non-GAAP) decreased slightly year-over-year and increased 1% sequentially.

•
Year-over-year, staff expense decreased driven by lower pension expense, the benefit of replacing technology contractors with permanent staff and the impact of streamlining actions. The decrease was offset by higher professional, legal and other purchased services, the impact of a weaker U.S. dollar and the annual employee merit increase.

•
The sequential increase primarily reflects the incentive adjustment recorded in 2Q14 related to investment management funds, the impact of the annual employee merit increase and higher professional, legal and other purchased services expenses, partially offset by streamlining actions and lower sub-custodian expense.


  Page - 10

BNY Mellon 3Q14 Earnings Release


INVESTMENT SECURITIES PORTFOLIO

At Sept. 30, 2014, the fair value of our investment securities portfolio totaled $115.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $1.1 billion at Sept. 30, 2014 compared with $1.2 billion at June 30, 2014. The decrease in the net unrealized pre-tax gain was primarily driven by the increase in market interest rates. During 3Q14, we received $134 million of paydowns of sub-investment grade securities and sold $24 million of sub-investment grade securities.

In 3Q14, we increased our level of Agency RMBS, U.S. Treasury and sovereign debt/sovereign guaranteed investment securities as we continued to reduce our interbank placement assets and increase our high quality liquid assets.

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

Investment securities
portfolio


(dollars in millions)
June 30, 2014

 
3Q14
change in
unrealized
gain (loss)

Sept. 30, 2014
Fair value
as a % of amortized
cost (a)

Unrealized
gain (loss)

 
Ratings
 
 
 
 
BB+
and
lower
 
 Fair
value

 
Amortized
cost

Fair
value

 
 
AAA/
AA-
A+/
A-
BBB+/
BBB-
Not
rated
Agency RMBS
$
41,552

 
$
(100
)
$
44,413

$
44,372

 
100
%
$
(41
)
 
100
%
—
%
—
%
—
%
—
%
U.S. Treasury
18,791

 
(18
)
25,244

25,449

 
101

205

 
100

—

—

—

—

Sovereign debt/sovereign guaranteed
14,812

 
41

16,510

16,627

 
101

117

 
87

—

13

—

—

Non-agency RMBS (b)
2,574

 
(31
)
1,916

2,449

 
81

533

 
—

1

1

90

8

Non-agency RMBS
1,227

 
3

1,147

1,170

 
94

23

 
1

9

23

66

1

European floating rate notes
2,525

 
9

2,297

2,296

 
100

(1
)
 
72

22

—

6

—

Commercial MBS
4,397

 
(28
)
4,798

4,829

 
101

31

 
93

6

1

—

—

State and political subdivisions
6,253

 
13

5,350

5,434

 
102

84

 
79

20

—

—

1

Foreign covered bonds
2,788

 
(3
)
2,863

2,949

 
103

86

 
100

—

—

—

—

Corporate bonds
1,693

 
(5
)
1,636

1,670

 
102

34

 
21

65

14

—

—

CLO
1,455

 
(1
)
1,959

1,971

 
101

12

 
100

—

—

—

—

U.S. Government agencies
787

 
(3
)
704

699

 
99

(5
)
 
100

—

—

—

—

Consumer ABS
3,278

 
(3
)
3,024

3,025

 
100

1

 
99

1

—

—

—

Other (c)
2,980

 
(3
)
2,917

2,923

 
100

6

 
40

53

—

—

7

Total investment securities
$
105,112

(d)
$
(129
)
$
114,778

$
115,863

(d)
100
%
$
1,085

(e)
90
%
4
%
2
%
3
%
1
%
(a)    Amortized cost before impairments.
(b)
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.
(c)
Includes commercial paper of $1.7 billion and $1.6 billion, fair value, and money market funds of $810 million and $789 million, fair value, at June 30, 2014 and Sept. 30, 2014, respectively.
(d)
Includes net unrealized gains on derivatives hedging securities available-for-sale of $213 million at June 30, 2014 and $137 million at Sept. 30, 2014.
(e)
Unrealized gains of $1,055 million at Sept. 30, 2014 related to available-for-sale securities.


  Page - 11

BNY Mellon 3Q14 Earnings Release


NONPERFORMING ASSETS

Nonperforming assets
(dollars in millions)
Sept. 30, 2013

June 30, 2014

Sept. 30, 2014

Loans:
 
 
 
Other residential mortgages
$
128

$
105

$
113

Commercial
15

13

13

Wealth management loans and mortgages
12

12

13

Foreign
9

4

—

Commercial real estate
4

4

4

Financial institutions
1

—

—

Total nonperforming loans
169

138

143

Other assets owned
3

4

4

Total nonperforming assets (a)
$
172

$
142

$
147

Nonperforming assets ratio
0.34
%
0.24
%
0.26
%
Allowance for loan losses/nonperforming loans
121.9

135.5

133.6

Total allowance for credit losses/nonperforming loans
200.6

225.4

201.4

(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 $31 million at Sept. 30, 2013, $68 million at June 30, 2014 and $79 million at Sept. 30, 2014. 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 $147 million at Sept. 30, 2014, an increase of $5 million from $142 million at June 30, 2014. The increase primarily resulted from additions in the other residential mortgage loan portfolio which were partially offset by sales in the foreign and other residential mortgage loan portfolios.


ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs
(in millions)
Sept. 30, 2013

June 30, 2014

Sept. 30, 2014

Allowance for credit losses - beginning of period
$
337

$
326

$
311

Provision for credit losses
2

(12
)
(19
)
Net (charge-offs) recoveries:
 
 
 
Foreign
1

(2
)
(1
)
Wealth management loans and mortgages
—

(1
)
—

Other residential mortgages
—

(1
)
1

Commercial
(1
)
1

(4
)
Net (charge-offs)
—

(3
)
(4
)
Allowance for credit losses - end of period
$
339

$
311

$
288

Allowance for loan losses
$
206

$
187

$
191

Allowance for lending-related commitments
133

124

97



The provision for credit losses was a credit of $19 million in 3Q14 driven by the continued improvement in the
credit quality of the loan portfolio. The provision for credit losses was $2 million in 3Q13 and a credit of $12 million in 2Q14.


  Page - 12

BNY Mellon 3Q14 Earnings Release


CAPITAL

Our consolidated capital ratios are shown in the following table. At June 30, 2014 and Sept. 30, 2014, the common equity Tier 1 (“CET1”), Tier 1 and Total risk-based regulatory capital ratios are based on Basel III components of capital, as phased-in, with asset risk-weightings using the Advanced Approach framework. The leverage capital ratios are based on Basel III components of capital and quarterly average total assets, as phased-in. The capital ratios for Sept. 30, 2013 are based on Basel I rules (including Basel I Tier 1 common in the case of the CET1 ratio).

Capital ratios
Sept. 30, 2013

 
June 30, 2014

 
Sept. 30, 2014

 
Regulatory capital ratios: (a)(b)(c)
 
 
 
 
 
 
CET1 ratio
14.2
%
(d)
11.4
%
 
11.4
%
 
Tier 1 capital ratio
15.8

 
12.4

 
12.4

 
Total (Tier 1 plus Tier 2) capital ratio
16.8

 
12.8

 
12.7

 
Leverage capital ratio
5.6

 
5.9

 
5.8

 
BNY Mellon shareholders’ equity to total assets ratio (d)
9.9

 
9.6

 
10.0

 
BNY Mellon common shareholders’ equity to total assets ratio (d)
9.5

 
9.2

 
9.5

 
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (d)(e)
6.3

 
6.4

 
6.5

 
 
 
 
 
 
 
 
Selected regulatory capital ratios - fully phased-in – Non-GAAP: (a)(b)(d)
 
 
 
 
 
 
Estimated CET1: 
 
 
 
 
 
 
Standardized Approach
10.1

 
10.3

 
10.8

 
Advanced Approach
11.1

 
10.0

 
10.0

 
 
 
 
 
 
 
 
Estimated Supplementary leverage ratio (“SLR”) (f)
N/A

 
4.7

 
4.6

 
(a)
Sept. 30, 2014 regulatory capital ratios are preliminary. See “Capital Ratios” beginning on page 28 for more detail.
(b)
Beginning with June 30, 2014, risk-based capital ratios include the net impact of including the total consolidated assets of certain consolidated investment management funds in risk-weighted assets. These assets were not included in prior periods.  The leverage ratio was not affected. 
(c)
The Collins Floor comparison of the CET1, Tier 1 and Total risk-based regulatory capital ratios which is calculated based on Basel III components of capital, as phased-in, and asset risk-weightings using the general risk-based guidelines included in the final rules released by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) on July 2, 2013 (the “Final Capital Rules”) (which for 2014 look to Basel I-based requirements) were 14.3%, 15.5% and 16.2%, respectively, at June 30, 2014 and 15.1%, 16.3% and 17.0%, respectively, at Sept. 30, 2014.
(d)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for a reconciliation of these ratios.
(e)
Information for the period ended Sept. 30, 2013 was restated to reflect the retrospective application of adopting new accounting guidance in the first quarter of 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See page 23 for additional information.
(f)
The estimated fully phased-in SLR as of June 30, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Notice of Proposed Rulemaking released in April 2014 concerning the SLR, except that off-balance sheet exposures included in total leverage exposure reflect the end of period measures, rather than a daily average. The estimated fully phased-in SLR as of Sept. 30, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve’s final rules on the SLR. On a fully phased-in basis, we expect to satisfy a minimum SLR of over 5%, 3% attributable to a regulatory minimum SLR, and greater than 2% attributable to a buffer applicable to U.S. G-SIBs.
N/A – Not available.


Basel III CET1 generation presented on a fully phased-in basis - preliminary - Non-GAAP
 
(in millions)
3Q14

Estimated Basel III CET1 - Beginning of period balance
$
16,277

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
1,070

Goodwill and intangible assets, net of related deferred tax liabilities
265

Gross Basel III CET1 generated
1,335

Capital deployed:
 
Dividends
(196
)
Common stock repurchased
(431
)
Total capital deployed
(627
)
Other comprehensive (loss)
(514
)
Additional paid-in capital (a)
196

Other (primarily embedded goodwill)
53

Total other (deductions)
(265
)
Net Basel III CET1 generated
443

Basel III CET1 - End of period balance - Non-GAAP
$
16,720

(a)    Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.

  Page - 13

BNY Mellon 3Q14 Earnings Release


The table presented below compares the fully phased-in Basel III capital components and ratios to those amounts determined under the currently effective rules using the transitional phase-in requirements.

Basel III capital components and ratios at Sept. 30, 2014 - preliminary
Fully phased-in Basel III

 
 
Transitional Approach

 
Adjustments (a)
(dollars in millions)
CET1:
 
 
 
 
Common equity
$
36,889

$
97

(b)
$
36,986

Goodwill and intangible assets
(19,660
)
2,388

(c)
(17,272
)
Net pension fund assets
(106
)
85

(d)
(21
)
Equity method investments
(383
)
92

(c)
(291
)
Deferred tax assets
(17
)
14

(d)
(3
)
Other
(3
)
4

(e)
1

Total CET1
16,720

2,680

 
19,400

Other Tier 1 capital:
 
 
 
 
Preferred stock
1,562

—

 
1,562

Trust preferred securities
—

162

(f)
162

Disallowed deferred tax assets
—

(14
)
(d)
(14
)
Net pension fund assets
—

(85
)
(d)
(85
)
Other
(2
)
(4
)
 
(6
)
Total Tier 1 capital
18,280

2,739

 
21,019

 
 
 
 
 
Tier 2 capital:
 
 
 
 
Trust preferred securities
—

162

(f)
162

Subordinated debt
397

—

 
397

Allowance for credit losses
288

—

 
288

Other
(1
)
—

 
(1
)
Total Tier 2 capital - Standardized Approach
684

162

 
846

Excess of expected credit losses
38

—

 
38

Less: Allowance for credit losses
288

—

 
288

Total Tier 2 capital - Advanced Approach
$
434

$
162

 
$
596

Total capital - Standardized Approach
$
18,964

$
2,901

 
$
21,865

Total capital - Advanced Approach
$
18,714

$
2,901

 
$
21,615

 
 
 
 
 
Risk-weighted assets - Standardized Approach
$
154,298

$
(25,516
)
 
$
128,782

Risk-weighted assets - Advanced Approach
$
167,933

$
2,192

 
$
170,125

 
 
 
 
 
Standardized Approach:
 
 
 
 
Estimated Basel III CET1 ratio
10.8
%
 
 
15.1
%
Tier 1 capital ratio
11.8

 
 
16.3

Total (Tier 1 plus Tier 2) capital ratio
12.3

 
 
17.0

 
 
 
 
 
Advanced Approach:
 
 
 
 
Estimated Basel III CET1 ratio
10.0
%
 
 
11.4
%
Tier 1 capital ratio
10.9

 
 
12.4

Total (Tier 1 plus Tier 2) capital ratio
11.1

 
 
12.7

(a)    Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2014 under the Final Capital Rules.
(b)    Represents the portion of accumulated other comprehensive (income) loss excluded from common equity.
(c)    Represents intangible assets, other than goodwill, net of the corresponding deferred tax liabilities.
(d)    Represents the deduction for net pension fund assets and disallowed deferred tax assets in CET1 and Tier 1 capital.
(e)    Represents transitional adjustments related to cash flow hedges.
(f)
During 2014, 50% of outstanding trust preferred securities are included in Tier 1 capital and 50% in Tier 2 capital.



REVIEW OF BUSINESSES

Business results are subject to reclassification when organizational changes are made or whenever improvements are made in the measurement principles. The reclassifications did not impact the consolidated results. All prior periods have been restated.


  Page - 14

BNY Mellon 3Q14 Earnings Release


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.

(dollars in millions, unless otherwise noted)
 
 
 
 
 
 
3Q14 vs.
3Q13

4Q13

1Q14

2Q14

3Q14

 
3Q13
2Q14
Revenue:
 
 
 
 
 
 
 
 
Investment management fees:
 
 
 
 
 
 
 
 
Mutual funds
$
293

$
303

$
299

$
311

$
315

 
8
 %
1
 %
Institutional clients
367

385

372

385

382

 
4

(1
)
Wealth management
145

149

153

156

158

 
9

1

Investment management fees
805

837

824

852

855

 
6

—

Performance fees
10

72

20

29

22

 
N/M

N/M

Investment management and performance fees
815

909

844

881

877

 
8

—

Distribution and servicing
41

41

40

41

41

 
—

—

Other (a)
26

43

16

48

16

 
N/M

N/M

Total fee and other revenue (a)
882

993

900

970

934

 
6

(4
)
Net interest revenue
67

68

70

66

69

 
3

5

Total revenue
949

1,061

970

1,036

1,003

 
6

(3
)
Noninterest expense (ex. amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives)
689

760

698

725

727

 
6

—

Income before taxes (ex. amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives)
260

301

272

311

276

 
6

(11
)
Amortization of intangible assets
35

35

31

31

31

 
(11
)
—

Charge (recovery) related to investment management funds, net of incentives
—

—

(5
)
109

—

 
N/M

N/M

Income before taxes
$
225

$
266

$
246

$
171

$
245

 
9
 %
43
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
24
%
25
%
25
%
16
%
24
%
 
 
 
Adjusted pre-tax operating margin (b)
33
%
34
%
34
%
36
%
33
%
 
 
 
 
 
 
 
 
 
 
 
 
Changes in AUM (in billions): (c)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,427

$
1,532

$
1,583

$
1,620

$
1,636

 
 
 
Net inflows (outflows):
 
 
 
 
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
Equity
3

(5
)
(1
)
(4
)
(2
)
 
 
 
Fixed income
(1
)
5

—

(1
)
—

 
 
 
Index
2

(3
)
—

7

(3
)
 
 
 
Liability-driven investments (d)
27

4

20

(17
)
18

 
 
 
Alternative investments
1

1

2

2

—

 
 
 
Total long-term inflows (outflows)
32

2

21

(13
)
13

 
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
13

6

(7
)
(18
)
19

 
 
 
Total net inflows (outflows)
45

8

14

(31
)
32

 
 
 
Net market/currency impact
60

43

23

47

(22
)
 
 
 
Ending balance of AUM
$
1,532

$
1,583

$
1,620

$
1,636

$
1,646

(e)
7
 %
1
 %
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (c)
 
 
 
 
 
 
 
 
Equity
17
%
17
%
17
%
17
%
16
%
 

 
Fixed income
14

14

14

14

13

 

 
Index
20

20

20

21

21

 

 
Liability-driven investments (d)
26

26

27

27

28

 

 
Alternative investments
4

4

4

4

4

 

 
Cash
19

19

18

17

18

 

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

 
 
 
 
 
 
 
 
 
 
Wealth management:
 
 
 
 
 
 
 
 
Average loans
$
9,453

$
9,755

$
10,075

$
10,372

$
10,772

 
14
 %
4
 %
Average deposits
$
13,898

$
14,161

$
14,805

$
13,458

$
13,764

 
(1
)%
2
 %
(a)
Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures. Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.
(b)
Excludes the net negative impact of money market fee waivers, amortization of intangible assets and the charge (recovery) related to investment management funds net of incentives, and is net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d)
Includes currency and overlay assets under management.
(e)
Preliminary.
N/M – Not meaningful.

  Page - 15

BNY Mellon 3Q14 Earnings Release


INVESTMENT MANAGEMENT KEY POINTS

•
Assets under management were a record $1.65 trillion at Sept. 30, 2014, an increase of 7% year-over-year and 1% sequentially. The year-over-year increase primarily resulted from higher equity market values and net new business. The sequential increase primarily reflects net new business.

•
Net long-term inflows were $13 billion in 3Q14 driven by liability-driven investments. Short-term inflows were $19 billion in 3Q14.

•
Income before taxes excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives increased 6% year-over-year and decreased 11% sequentially.

•
Total revenue was $1.0 billion, an increase of 6% year-over-year and a decrease of 3% sequentially. Both comparisons were impacted by higher equity markets and lower seed capital gains. The year-over-year increase also reflects the impact of a weaker U.S. dollar and higher performance fees. The sequential decrease also reflects lower performance fees and the impact of a stronger U.S. dollar.

•
Investment management fees were $855 million, an increase of 6% year-over-year and a slight increase sequentially. Both increases primarily resulted from higher equity markets. The year-over-year increase also reflects the impact of a weaker U.S. dollar. The sequential increase was partially offset by the impact of a stronger U.S. dollar.

•
Performance fees were $22 million in 3Q14 compared with $10 million in 3Q13 and $29 million in 2Q14. The year-over-year increase primarily reflects strong performance of liability-driven investments. The sequential decrease was due to seasonality.

•
Net interest revenue increased 3% year-over-year and 5% sequentially. Both increases primarily reflect higher average loans. The year-over-year increase was partially offset by lower average deposits. The sequential increase also reflects higher average deposits.

•
Average loans increased 14% year-over-year and 4% sequentially; average deposits decreased 1% year-over-year and increased 2% sequentially.

•
Total noninterest expense (ex. amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives) increased 6% year-over-year and increased slightly sequentially. The year-over-year increase primarily reflects the impact of a weaker U.S. dollar and higher staff and business development expenses resulting from investments in strategic initiatives.

•
44% non-U.S. revenue in 3Q14 vs. 44% in 3Q13.

•
Insight Investment was named LDI Manager of the Year for the fifth consecutive year at Financial News Awards for Excellence in Institutional Asset Management and was named the Overall Defined Benefit Manager of the Year 2014 by Mallowstreet.



 

  Page - 16

BNY Mellon 3Q14 Earnings Release


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.

(dollar amounts in millions, unless otherwise noted)
 
 
 
 
 
 
3Q14 vs.
3Q13

4Q13

1Q14

2Q14

3Q14

 
3Q13

2Q14

Revenue:
 
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
 
Asset servicing
$
939

$
957

$
985

$
993

$
998

 
6
 %
1
 %
Clearing services
314

322

323

324

336

 
7

4

Issuer services
321

236

228

231

314

 
(2
)
36

Treasury services
135

137

134

140

139

 
3

(1
)
Total investment services fees
1,709

1,652

1,670

1,688

1,787

 
5

6

Foreign exchange and other trading revenue
177

150

158

145

159

 
(10
)
10

Other (a)
63

58

59

87

59

 
(6
)
(32
)
Total fee and other revenue (a)
1,949

1,860

1,887

1,920

2,005

 
3

4

Net interest revenue
619

610

590

593

583

 
(6
)
(2
)
Total revenue
2,568

2,470

2,477

2,513

2,588

 
1

3

Noninterest expense (ex. amortization of intangible assets)
1,765

1,822

1,778

1,824

1,835

 
4

1

Income before taxes (ex. amortization of intangible assets)
803

648

699

689

753

 
(6
)
9

Amortization of intangible assets
46

47

44

44

44

 
(4
)
—

Income before taxes
$
757

$
601

$
655

$
645

$
709

 
(6
)%
10
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
29
%
24
%
26
%
26
%
27
%
 
 
 
Pre-tax operating margin (ex. amortization of intangible assets)
31
%
26
%
28
%
27
%
29
%
 
 
 
 
 
 
 
 
 
 
 
 
Investment services fees as a percentage of noninterest expense (b)
97
%
90
%
93
%
93
%
100
%
 
 
 
 
 
 
 
 
 
 
 
 
Securities lending revenue
$
26

$
21

$
30

$
35

$
27

 
4
 %
(23
)%
 
 
 
 
 
 
 
 
 
Metrics:
 
 
 
 
 
 
 
 
Average loans
$
27,865

$
31,211

$
31,468

$
33,115

$
33,785

 
21
 %
2
 %
Average deposits
$
206,068

$
216,216

$
214,947

$
220,701

$
221,734

 
8
 %
—
 %
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (c)
$
27.4

$
27.6

$
27.9

$
28.5

$
28.3

(d)
3
 %
(1
)%
Market value of securities on loan at period
end (in billions) (e)
$
255

$
235

$
264

$
280

$
282

 
11
 %
1
 %
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
110

$
123

$
161

$
130

$
115

(d)
 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,350

1,335

1,332

1,316

1,302

 
(4
)%
(1
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Global DARTS volume (in thousands)
212

213

230

207

209

 
(1
)%
1
 %
Average active clearing accounts
(U.S. platform) (in thousands)
5,622

5,643

5,695

5,752

5,805

 
3
 %
1
 %
Average long-term mutual fund assets (U.S. platform)
$
377,131

$
401,434

$
413,658

$
433,047

$
442,827

 
17
 %
2
 %
Average investor margin loans (U.S. platform)
$
8,845

$
8,848

$
8,919

$
9,236

$
9,861

 
11
 %
7
 %
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
1,952

$
2,005

$
1,983

$
2,022

$
2,063

 
6
 %
2
 %
(a)
Total fee and other revenue includes investment management fees and distribution and servicing revenue.
(b)
Noninterest expense excludes amortization of intangible assets and litigation expense.
(c)
Includes the AUC/A of CIBC Mellon of $1.2 trillion at Sept. 30, 2013, Dec. 31, 2013, March 31, 2014, June 30, 2014 and Sept. 30, 2014.
(d)
Preliminary.
(e)
Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent, beginning in the fourth quarter of 2013, on behalf of CIBC Mellon clients, which totaled $62 billion at Dec. 31, 2013, $66 billion at March 31, 2014, $64 billion at June 30, 2014 and $65 billion at Sept. 30, 2014.
N/M – Not meaningful.

  Page - 17

BNY Mellon 3Q14 Earnings Release


INVESTMENT SERVICES KEY POINTS

•
Investment services fees totaled $1.8 billion, an increase of 5% year-over-year and 6% sequentially.

•
Asset servicing fees (global custody, broker-dealer services and global collateral services) were $998 million in 3Q14 compared with $939 million in 3Q13 and $993 million in 2Q14. The year-over-year increase primarily reflects organic growth, higher market values, net new business and higher collateral management fees in Global Collateral Services. The sequential increase primarily reflects organic growth, partially offset by seasonally lower securities lending revenue.

--    Estimated new business wins (AUC/A) in Asset Servicing of $115 billion in 3Q14.

•
Clearing services fees were $336 million in 3Q14 compared with $314 million in 3Q13 and $324 million in 2Q14. Both increases were driven by growth in clearing accounts and mutual fund positions, and higher asset levels. The sequential increase also reflects higher DARTS volume.

•
Issuer services fees (Corporate Trust and Depositary Receipts) were $314 million in 3Q14 compared with $321 million in 3Q13 and $231 million in 2Q14. The year-over-year decrease reflects lower Corporate Trust fees, partially offset by new business in Depositary Receipts. The sequential increase is primarily due to seasonally higher dividend fees and new business in Depositary Receipts, partially offset by lower Corporate Trust fees.

•
Treasury services fees were $139 million in 3Q14 compared with $135 million in 3Q13 and $140 million in 2Q14. The year-over-year increase primarily reflect higher payment volumes.

•
Foreign exchange and other trading revenue was $159 million in 3Q14 compared with $177 million in 3Q13 and $145 million in 2Q14. The year-over-year decrease primarily reflect lower volatility, partially offset by higher volumes. Sequentially, the increase reflects higher volumes.

•
Net interest revenue was $583 million in 3Q14 compared with $619 million in 3Q13 and $593 million in 2Q14. Both decreases primarily reflects lower yields, partially offset by higher average loans. The year-over-year decrease was partially offset by higher average deposits.

•
Noninterest expense (excluding amortization of intangible assets) was $1.835 billion in 3Q14 compared with $1.765 billion in 3Q13 and $1.824 billion in 2Q14. Both increases reflect higher litigation expense. The year-over-year increase also reflects higher professional and legal expenses, partially offset by lower staff expense. The sequential increase was partially offset by lower sub-custodian and staff expenses.

•
Investment services fees as a percentage of noninterest expense increased year-over-year reflecting an increase in investment services fees and limited expense growth.

•
39% non-U.S. revenue in 3Q14 vs. 36% in 3Q13.


  Page - 18

BNY Mellon 3Q14 Earnings Release


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.

 
 
 
 
 
 
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

Revenue:
 
 
 
 
 
Fee and other revenue
$
172

$
(20
)
$
112

$
119

$
928

Net interest revenue
86

83

68

60

69

Total revenue
258

63

180

179

997

Provision for credit losses
2

6

(18
)
(12
)
(19
)
Noninterest expense (ex. M&I and restructuring charges)
230

200

193

93

274

Income (loss) before taxes (ex. M&I and restructuring charges)
26

(143
)
5

98

742

M&I and restructuring charges
14

13

—

120

57

Income (loss) before taxes
$
12

$
(156
)
$
5

$
(22
)
$
685

 
 
 
 
 
 
Average loans and leases
$
10,938

$
9,802

$
10,104

$
9,962

$
10,278



KEY POINTS

•
Total fee and other revenue increased $756 million compared with 3Q13 and increased $809 million compared with 2Q14. Both increases primarily reflect the gain on the sale of our investment in Wing Hang and the gain on the sale of the One Wall Street building, partially offset by lower equity investment and other income.

•
The provision for credit losses was a credit of $19 million in 3Q14 driven by the continued improvement in the
credit quality of the loan portfolio.

•
Noninterest expense (excluding M&I and restructuring charges) increased $44 million compared with 3Q13 and $181 million compared with 2Q14. Both increases primarily reflect higher litigation expense. The year-over-year increase was partially offset by lower staff expense. The sequential increase also reflects higher staff expenses.

•
M&I and restructuring charges recorded in 3Q14 primarily reflects severance expense.


  Page - 19

BNY Mellon 3Q14 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement


(in millions)
Quarter ended
 
Year-to-date
Sept. 30, 2014

June 30, 2014

Sept. 30, 2013

 
Sept. 30, 2014

Sept. 30, 2013

 
Fee and other revenue
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
Asset servicing
$
1,025

$
1,022

$
964

 
$
3,056

$
2,921

Clearing services
337

326

315

 
988

940

Issuer services
315

231

322

 
775

853

Treasury services
142

141

137

 
419

417

Total investment services fees
1,819

1,720

1,738

 
5,238

5,131

Investment management and performance fees
881

883

821

 
2,607

2,491

Foreign exchange and other trading revenue
153

130

160

 
419

528

Distribution and servicing
44

43

43

 
130

137

Financing-related fees
44

44

44

 
126

129

Investment and other income (a)
890

142

151

 
1,134

524

Total fee revenue (a)
3,831

2,962

2,957

 
9,654

8,940

Net securities gains
20

18

22

 
60

102

Total fee and other revenue (a)
3,851

2,980

2,979

 
9,714

9,042

Operations of consolidated investment management funds
 
 
 
 
 
 
Investment income
123

141

134

 
402

439

Interest of investment management fund note holders
84

95

102

 
281

292

Income from consolidated investment management funds
39

46

32

 
121

147

Net interest revenue
 
 
 
 
 
 
Interest revenue
809

811

855

 
2,432

2,506

Interest expense
88

92

83

 
264

258

Net interest revenue
721

719

772

 
2,168

2,248

Provision for credit losses
(19
)
(12
)
2

 
(49
)
(41
)
Net interest revenue after provision for credit losses
740

731

770

 
2,217

2,289

Noninterest expense
 
 
 
 
 
 
Staff
1,477

1,439

1,516

 
4,427

4,497

Professional, legal and other purchased services
323

314

296

 
949

908

Software and equipment
234

236

226

 
707

692

Net occupancy
154

152

153

 
460

475

Distribution and servicing
107

112

108

 
326

325

Sub-custodian
67

81

71

 
216

212

Business development
61

68

63

 
193

221

Other
250

347

249

 
820

771

Amortization of intangible assets
75

75

81

 
225

260

Merger and integration, litigation and restructuring charges
220

122

16

 
330

68

Total noninterest expense
2,968

2,946

2,779

 
8,653

8,429

Income
 
 
 
 
 
 
Income before income taxes (a)
1,662

811

1,002

 
3,399

3,049

Provision for income taxes (a)
556

217

19

 
1,005

1,420

Net income (a)
1,106

594

983

 
2,394

1,629

Net (income) attributable to noncontrolling interests (includes $(23), $(17), $(8), $(60) and $(63) related to consolidated investment management funds, respectively)
(23
)
(17
)
(8
)
 
(60
)
(64
)
Net income applicable to shareholders of The Bank of New York Mellon Corporation (a)
1,083

577

975

 
2,334

1,565

Preferred stock dividends
(13
)
(23
)
(13
)
 
(49
)
(38
)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation (a)
$
1,070

$
554

$
962

 
$
2,285

$
1,527

(a) Results for the first nine months of 2013 were restated to reflect the retrospective application of adopting new accounting guidance in the first quarter of 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See page 23 for additional information.




  Page - 20

BNY Mellon 3Q14 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued

Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation 
(in millions)
Quarter ended
 
Year-to-date
Sept. 30, 2014

June 30, 2014

Sept. 30, 2013

 
Sept. 30, 2014

Sept. 30, 2013

Net income applicable to common shareholders of The Bank of New York Mellon Corporation (a)
$
1,070

$
554

$
962

 
$
2,285

$
1,527

Less: Earnings allocated to participating securities (a)
20

10

18

 
43

27

      Change in the excess of redeemable value over the fair value of noncontrolling interests
N/A

N/A

—

 
N/A

1

   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 (a)
$
1,050

$
544

$
944

 
$
2,242

$
1,499

(a) Results for the first nine months of 2013 were restated to reflect the retrospective application of adopting new accounting guidance in the first quarter of 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See page 23 for additional information.
N/A – Not applicable.


Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation
(in thousands)
Quarter ended
 
Year-to-date
Sept. 30, 2014

June 30, 2014

Sept. 30, 2013

 
Sept. 30, 2014

Sept. 30, 2013

Basic
1,126,946

1,133,556

1,148,724

 
1,133,006

1,153,327

Diluted
1,134,871

1,139,800

1,152,679

 
1,139,718

1,156,951



Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation (a)
(in dollars)
Quarter ended
 
Year-to-date
Sept. 30, 2014

June 30, 2014

Sept. 30, 2013

 
Sept. 30, 2014

Sept. 30, 2013

Basic
$
0.93

$
0.48

$
0.82

 
$
1.98

$
1.30

Diluted
$
0.93

$
0.48

$
0.82

 
$
1.97

$
1.30

(a) Results for the first nine months of 2013 were restated to reflect the retrospective application of adopting new accounting guidance in the first quarter of 2014 related to our investments in qualified affordable housing projects (ASU 2014-01). See page 23 for additional information.
 


  Page - 21

BNY Mellon 3Q14 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet

 
Sept. 30,

June 30,

Dec. 31,

(dollars in millions, except per share amounts)
2014

2014

2013

Assets
 
 
 
Cash and due from:
 
 
 
Banks
$
6,410

$
6,173

$
6,460

Interest-bearing deposits with the Federal Reserve and other central banks
92,317

105,657

104,359

Interest-bearing deposits with banks
30,341

41,459

35,300

Federal funds sold and securities purchased under resale agreements
17,375

15,062

9,161

Securities:
 
 
 
Held-to-maturity (fair value of $20,167, $19,211 and $19,443)
20,137

19,102

19,743

Available-for-sale
95,559

85,688

79,309

Total securities
115,696

104,790

99,052

Trading assets
11,613

10,856

12,098

Loans
57,527

59,248

51,657

Allowance for loan losses
(191
)
(187
)
(210
)
Net loans
57,336

59,061

51,447

Premises and equipment
1,351

1,590

1,655

Accrued interest receivable
565

624

621

Goodwill
17,992

18,196

18,073

Intangible assets
4,215

4,314

4,452

Other assets
21,523

22,530

20,566

Subtotal assets of operations
376,734

390,312

363,244

Assets of consolidated investment management funds, at fair value:
 
 
 
Trading assets
8,823

9,402

10,397

Other assets
739

1,026

875

Subtotal assets of consolidated investment management funds, at fair value
9,562

10,428

11,272

Total assets
$
386,296

$
400,740

$
374,516

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing (principally U.S. offices)
$
101,105

$
109,570

$
95,475

Interest-bearing deposits in U.S. offices
56,740

52,954

56,640

Interest-bearing deposits in Non-U.S. offices
107,051

119,915

109,014

Total deposits
264,896

282,439

261,129

Federal funds purchased and securities sold under repurchase agreements
9,687

10,301

9,648

Trading liabilities
7,734

6,844

6,945

Payables to customers and broker-dealers
20,155

17,242

15,707

Commercial paper
—

27

96

Other borrowed funds
852

1,458

663

Accrued taxes and other expenses
6,482

6,433

6,996

Other liabilities (includes allowance for lending-related commitments of $97, $124 and $134)
7,169

7,066

4,827

Long-term debt
21,583

20,327

19,864

Subtotal liabilities of operations
338,558

352,137

325,875

Liabilities of consolidated investment management funds, at fair value:
 
 
 
Trading liabilities
8,130

9,123

10,085

Other liabilities
10

6

46

Subtotal liabilities of consolidated investment management funds, at fair value
8,140

9,129

10,131

Total liabilities
346,698

361,266

336,006

Temporary equity
 
 
 
Redeemable noncontrolling interests
246

239

230

Permanent equity
 
 
 
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 15,826, 15,826 and 15,826 shares
1,562

1,562

1,562

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,286,670,537, 1,281,585,137 and 1,268,036,220 shares
13

13

13

Additional paid-in capital
24,499

24,303

24,002

Retained earnings
17,670

16,796

15,952

Accumulated other comprehensive loss, net of tax
(916
)
(402
)
(892
)
Less: Treasury stock of 160,960,855, 149,988,907 and 125,786,430 common shares, at cost
(4,377
)
(3,946
)
(3,140
)
Total The Bank of New York Mellon Corporation shareholders’ equity
38,451

38,326

37,497

Nonredeemable noncontrolling interests of consolidated investment management funds
901

909

783

Total permanent equity
39,352

39,235

38,280

Total liabilities, temporary equity and permanent equity
$
386,296

$
400,740

$
374,516



  Page - 22

BNY Mellon 3Q14 Earnings Release


Impact of Adopting New Accounting Guidance

In the first quarter of 2014, BNY Mellon elected to early adopt the new accounting guidance included in Accounting Standards Update (“ASU”) 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects - a Consensus of the FASB Emerging Issues Task Force.” This ASU allows companies that invest in qualified affordable housing projects to elect the proportional amortization method of accounting for these investments, if certain conditions are met. In the first quarter of 2014, we restated the prior period financial statements to reflect the impact of the retrospective application of the new accounting guidance.

The table below presents the impact of the new accounting guidance on our previously reported earnings per share applicable to the common shareholders.

Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation
As previously reported
 
As revised
(in dollars)
3Q13

 
YTD13

 
3Q13

 
YTD13

Basic
$
0.83

 
$
1.31

 
$
0.82

 
$
1.30

Diluted
$
0.82

 
$
1.30

 
$
0.82

 
$
1.30



The table below presents the impact of this new accounting guidance on our previously reported income statements.

Income statement
As previously reported
 
Adjustments
 
As revised
(in millions)
3Q13

 
YTD13

 
3Q13

 
YTD13

 
3Q13

 
YTD13

Investment and other income
$
135

 
$
476

 
$
16

 
$
48

 
$
151

 
$
524

Total fee revenue
2,941

 
8,892

 
16

 
48

 
2,957

 
8,940

Total fee and other revenue
2,963

 
8,994

 
16

 
48

 
2,979

 
9,042

Income before income taxes
986

 
3,001

 
16

 
48

 
1,002

 
3,049

Provision (benefit) for income taxes
(2
)
 
1,365

 
21

 
55

 
19

 
1,420

Net income (loss)
988

 
1,636

 
(5
)
 
(7
)
 
983

 
1,629

Net income (loss) applicable to shareholders of The Bank of New York Mellon Corporation
980

 
1,572

 
(5
)
 
(7
)
 
975

 
1,565

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation
967

 
1,534

 
(5
)
 
(7
)
 
962

 
1,527



The table below presents the impact of this new accounting guidance on our previously reported consolidated ratios and other measures.

Consolidated ratios and other measures
As previously reported
 
As revised
(in dollars unless otherwise noted)
 
3Q13

 
 
3Q13

Return on common equity
 
11.2
%
 
 
11.1
%
Return on tangible common equity – Non-GAAP
 
28.4
%
 
 
28.3
%
Return on tangible common equity – Non-GAAP adjusted
 
21.5
%
 
 
21.3
%
BNY Mellon tangible common shareholders’ equity to tangible assets of operations – Non-GAAP
 
6.4
%
 
 
6.3
%
Book value per common share – GAAP
 
$
30.82

 
 
$
30.80

Tangible book value per common share – Non-GAAP
 
$
13.36

 
 
$
13.34




  Page - 23

BNY Mellon 3Q14 Earnings Release


SUPPLEMENTAL INFORMATION – EXPLANATION OF GAAP AND NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based upon fully phased-in Basel III CET1, SLR, Basel I CET1 and tangible common shareholders’ equity. BNY Mellon believes that the Basel III CET1 ratio on a fully phased-in basis, the SLR on a fully phased-in basis, the ratio of Basel I CET1 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 capital ratios which are, or were, utilized by regulatory authorities. The tangible common shareholders’ equity ratio includes 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 reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure. 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 that can generate income. BNY Mellon has provided a measure of tangible book value per share, which it believes 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, a gain on the sale of our investment in Wing Hang, a gain on the sale of the One Wall Street building, and a loss related to an equity investment; and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives. Earnings per share, return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. Earnings per share and return on equity measures also exclude the benefit related to the disallowance of certain foreign tax credits. Operating margin measures may also exclude amortization of intangible assets and the net negative impact of money market fee waivers, net of distribution and servicing expense. 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 streamlining actions, 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.

The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with how management views the business. 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 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

  Page - 24

BNY Mellon 3Q14 Earnings Release


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 diluted EPS – GAAP to Non-GAAP
3Q13
 
2Q14
 
3Q14
 
Net

Diluted

 
Net

Diluted

 
Net

Diluted

(in millions, except per common share amounts)
income

EPS

 
income

EPS

 
income

EPS

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
962

$
0.82

 
$
554

$
0.48

 
$
1,070

$
0.93

Less:  Gain on the sale of our investment in Wing Hang
—

—

 
—

—

 
315

0.27

Gain on the sale of the One Wall Street building
—

—

 
—

—

 
204

0.18

Add: Litigation and restructuring charges
12

0.01

 
76

0.06

 
183

0.16

Charge related to investment management funds, net of incentives
—

—

 
85

0.07

 
—

—

Benefit related to the disallowance of certain foreign tax credits
(261
)
(0.22
)
 
—

—

 
—

—

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP
$
713

$
0.61

 
$
715

$
0.62

(a)
$
734

$
0.64

(a)
Does not foot due to rounding.


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

Reconciliation of income before income taxes - pre-tax operating margin
 
 
 
 
 
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

Income before income taxes – GAAP
$
1,002

$
728

$
926

$
811

$
1,662

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
8

17

20

17

23

Gain on the sale of our investment in Wing Hang
—

—

—

—

490

Gain on the sale of the One Wall Street building
—

—

—

—

346

Add: Amortization of intangible assets
81

82

75

75

75

M&I, litigation and restructuring charges
16

2

(12
)
122

220

Charge (recovery) related to investment management funds, net of incentives
—

—

(5
)
109

—

Income before income taxes, as adjusted – Non-GAAP (b)
$
1,091

$
795

$
964

$
1,100

$
1,098

 
 
 
 
 
 
Fee and other revenue – GAAP
$
2,979

$
2,814

$
2,883

$
2,980

$
3,851

Income from consolidated investment management funds – GAAP
32

36

36

46

39

Net interest revenue – GAAP
772

761

728

719

721

Total revenue – GAAP
3,783

3,611

3,647

3,745

4,611

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
8

17

20

17

23

Gain on the sale of our investment in Wing Hang
—

—

—

—

490

Gain on the sale of the One Wall Street building
—

—

—

—

346

Total revenue, as adjusted – Non-GAAP (b)
$
3,775

$
3,594

$
3,627

$
3,728

$
3,752

 
 
 
 
 
 
Pre-tax operating margin (a)
26
%
20
%
25
%
22
%
36
%
Pre-tax operating margin – Non-GAAP (a)(b)
29
%
22
%
27
%
30
%
29
%
(a)
Income before taxes divided by total revenue.
(b)
Non-GAAP excludes M&I, litigation and restructuring charges, the gain on the sale of our investment in Wing Hang, the gain on the sale of the One Wall Street building, a charge (recovery) related to investment management funds, net of incentives and net income attributable to noncontrolling interests of consolidated investment management funds, if applicable.



  Page - 25

BNY Mellon 3Q14 Earnings Release


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

Return on common equity and tangible common equity
 
 
 
 
 
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
962

$
513

$
661

$
554

$
1,070

Add:  Amortization of intangible assets, net of tax
52

53

49

49

49

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP
1,014

566

710

603

1,119

Less: Gain on the sale of our investment in Wing Hang
—

—

—

—

315

Gain on the sale of the One Wall Street building
—

—

—

—

204

Add: M&I, litigation and restructuring charges
12

1

(7
)
76

183

Charge (recovery) related to investment management funds, net of incentives
—

—

(4
)
85

—

Benefit related to the disallowance of certain foreign tax credits
(261
)
—

—

—

—

Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (b)
$
765

$
567

$
699

$
764

$
783

 
 
 
 
 
 
Average common shareholders’ equity
$
34,264

$
35,698

$
36,289

$
36,565

$
36,751

Less: Average goodwill
17,975

18,026

18,072

18,149

18,109

Average intangible assets
4,569

4,491

4,422

4,354

4,274

Add: Deferred tax liability – tax deductible goodwill (a)
1,262

1,302

1,306

1,338

1,317

Deferred tax liability – intangible assets (a)
1,242

1,222

1,259

1,247

1,230

Average tangible common shareholders’ equity – Non-GAAP
$
14,224

$
15,705

$
16,360

$
16,647

$
16,915

 
 
 
 
 
 
Return on common equity – GAAP (b)(c)
11.1
%
5.7
%
7.4
%
6.1
%
11.6
%
Return on common equity – Non-GAAP (b)(c)
8.9
%
6.3
%
7.8
%
8.4
%
8.5
%
 
 
 
 
 
 
Return on tangible common equity – Non-GAAP (b)(c)
28.3
%
14.3
%
17.6
%
14.5
%
26.2
%
Return on tangible common equity – Non-GAAP adjusted (b)(c)
21.3
%
14.3
%
17.3
%
18.4
%
18.4
%
(a)
Deferred tax liabilities are based on fully phased-in Basel III rules. The quarters of 2014 include deferred tax liabilities on tax deductible intangible assets permitted under Basel III rules.
(b)
Non-GAAP excludes M&I, litigation and restructuring charges, the gain on the sale of our investment in Wing Hang, the gain on the sale of the One Wall Street building, a charge (recovery) related to investment management funds, net of incentives and the benefit related to the disallowance of certain foreign tax credits, if applicable.
(c)
Annualized.



  Page - 26

BNY Mellon 3Q14 Earnings Release


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

Equity to assets and book value per common share
Sept. 30, 2013

June 30, 2014

Sept. 30, 2014

(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
$
36,935

$
38,326

$
38,451

Less: Preferred stock
1,562

1,562

1,562

BNY Mellon common shareholders’ equity at period end – GAAP
35,373

36,764

36,889

Less: Goodwill
18,025

18,196

17,992

Intangible assets
4,527

4,314

4,215

Add: Deferred tax liability – tax deductible goodwill (a)
1,262

1,338

1,317

Deferred tax liability – intangible assets (a)
1,242

1,247

1,230

BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP
$
15,325

$
16,839

$
17,229

 
 
 
 
Total assets at period end – GAAP
$
372,124

$
400,740

$
386,296

Less: Assets of consolidated investment management funds
11,691

10,428

9,562

Subtotal assets of operations – Non-GAAP
360,433

390,312

376,734

Less: Goodwill
18,025

18,196

17,992

Intangible assets
4,527

4,314

4,215

Cash on deposit with the Federal Reserve and other central banks (b)
96,316

104,916

90,978

Tangible total assets of operations at period end – Non-GAAP
$
241,565

$
262,886

$
263,549

 
 
 
 
BNY Mellon shareholders’ equity to total assets – GAAP
9.9
%
9.6
%
10.0
%
BNY Mellon common shareholders’ equity to total assets – GAAP
9.5
%
9.2
%
9.5
%
BNY Mellon tangible common shareholders’ equity to tangible assets of operations – Non-GAAP
6.3
%
6.4
%
6.5
%
 
 
 
 
Period-end common shares outstanding (in thousands)
1,148,522

1,131,596

1,125,710

 
 
 
 
Book value per common share – GAAP
$
30.80

$
32.49

$
32.77

Tangible book value per common share – Non-GAAP
$
13.34

$
14.88

$
15.30

(a)
Deferred tax liabilities are based on fully phased-in Basel III rules. The quarters of 2014 include deferred tax liabilities on tax deductible intangible assets permitted under Basel III rules.
(b)    Assigned a zero percent risk-weighting by the regulators.


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)
3Q13

4Q13

1Q14

2Q14

3Q14

Income from consolidated investment management funds
$
32

$
36

$
36

$
46

$
39

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
8

17

20

17

23

Income from consolidated investment management funds, net of noncontrolling interests
$
24

$
19

$
16

$
29

$
16



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)
3Q13

4Q13

1Q14

2Q14

3Q14

Investment management fees
$
20

$
20

$
18

$
18

$
15

Other (Investment income)
4

(1
)
(2
)
11

1

Income from consolidated investment management funds, net of controlling interests
$
24

$
19

$
16

$
29

$
16




  Page - 27

BNY Mellon 3Q14 Earnings Release


The following table presents the reconciliation of the pre-tax operating margin for the Investment Management business.

Pre-tax operating margin - Investment Management business
 
 
 
 
 
(dollars in millions)
3Q13

4Q13

1Q14

2Q14

3Q14

Income before income taxes – GAAP
$
225

$
266

$
246

$
171

$
245

Add: Amortization of intangible assets
35

35

31

31

31

Money market fee waivers
30

33

35

28

29

Charge (recovery) related to investment management funds, net of incentives
—

—

(5
)
109

—

Income before income taxes excluding amortization of intangible assets, money market fee waivers and the charge (recovery) related to investment management funds, net of incentives – Non-GAAP
$
290

$
334

$
307

$
339

$
305

 
 
 
 
 
 
Total revenue – GAAP
$
949

$
1,061

$
970

$
1,036

$
1,003

Less: Distribution and servicing expense
107

108

106

111

105

Money market fee waivers benefiting distribution and servicing expense
38

38

38

37

38

Add: Money market fee waivers impacting total revenue
68

71

73

65

67

Total revenue net of distribution and servicing expense
and excluding money market fee waivers – Non-GAAP
$
872

$
986

$
899

$
953

$
927

 
 
 
 
 
 
Pre-tax operating margin (a)
24
%
25
%
25
%
16
%
24
%
Pre-tax operating margin excluding amortization of intangible assets, money market fee waivers, the charge (recovery) related to investment management funds, net of incentives and net of distribution and servicing expense – Non-GAAP (a)
33
%
34
%
34
%
36
%
33
%
(a)    Income before taxes divided by total revenue.


Capital Ratios

BNY Mellon has presented its estimated fully phased-in Basel III CET1 ratios and SLR based on its interpretation of the Final Capital Rules, which are being gradually phased-in over a multi-year period, as supplemented by the Federal Reserve’s final rules concerning the SLR published on Sept. 3, 2014, and on the application of such rules to BNY Mellon’s businesses as currently conducted. Management views the estimated fully phased-in Basel III CET1 ratio and SLR as key measures in monitoring BNY Mellon’s capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated fully phased-in Basel III CET1 ratios and SLR are intended to allow investors to compare these ratios with estimates presented by other companies. The estimated fully phased-in Basel III CET1 ratios assume all relevant regulatory approvals. The Final Capital Rules require approval by banking regulators of certain models used as part of risk-weighted asset calculations. If these models are not approved, the estimated fully phased-in Basel III CET1 ratios would likely be adversely impacted.

Risk-weighted assets at Sept. 30, 2014 and June 30, 2014 under the transitional Advanced Approach do not reflect the use of a simple value-at-risk methodology for repo-style transactions (including agented indemnified securities lending transactions), eligible margin loans, and similar transactions. BNY Mellon has requested written approval to use this methodology.

Our capital ratios are necessarily subject to, among other things, BNY Mellon’s further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of risk-weighted asset calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. Consequently, our capital ratios remain subject to ongoing review and revision and may change based on these factors.

The following are the primary differences between risk-weighted assets determined under fully phased-in Basel III-Standardized Approach and Basel I. 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 fully phased-in Basel III, the

  Page - 28

BNY Mellon 3Q14 Earnings Release


Standardized Approach uses 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 fully phased-in Basel III than Basel I, and fully phased-in 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, whereas the Advanced Approach permits the VaR approach but requires certain model qualifications and approvals, for determining risk-weighted assets on certain repo-style transactions. In 2014, Standardized Approach and Advanced Approach risk-weighted assets include transition adjustments for intangible assets, other than goodwill, and equity exposure.

The following table presents the reconciliation of our estimated fully phased-in Basel III CET1 ratio under the Standardized Approach and Advanced Approach.

Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (a)
Sept. 30, 2013

June 30,
2014

Sept. 30, 2014

(dollars in millions)
Total Tier 1 capital
$
18,074

$
20,669

$
21,019

Adjustments to determine estimated fully phased-in Basel III CET1:
 
 
 
Deferred tax liability – tax deductible intangible assets
82

—

—

Intangible deduction
—

(2,453
)
(2,388
)
Preferred stock
(1,562
)
(1,562
)
(1,562
)
Trust preferred securities
(324
)
(171
)
(162
)
Other comprehensive income (loss) and net pension fund assets:
 
 
 
Securities available-for-sale
487

586

578

Pension liabilities
(1,348
)
(691
)
(675
)
Net pension fund assets
(279
)
—

—

Total other comprehensive income (loss) and net pension fund assets
(1,140
)
(105
)
(97
)
Equity method investments
(479
)
(99
)
(92
)
Deferred tax assets
(26
)
—

—

Other
18

(2
)
2

Total estimated fully phased-in Basel III CET1
$
14,643

$
16,277

$
16,720

 
 
 
 
Under the Standardized Approach:
 
 
 
Estimated fully phased-in Basel III risk-weighted assets
$
145,589

$
158,168

$
154,298

 
 
 
 
Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (b)
10.1
%
10.3
%
10.8
%
 
 
 
 
Under the Advanced Approach:
 
 
 
Estimated fully phased-in Basel III risk-weighted assets
$
131,583

$
162,072

$
167,933

 
 
 
 
Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (b)
11.1
%
10.0
%
10.0
%
(a)
Sept. 30, 2014 information is preliminary.
(b)
Beginning with June 30, 2014, risk-based capital ratios include the net impact of including the total consolidated assets of certain consolidated investment management funds in risk-weighted assets. These assets were not included in prior periods. 


The following table presents the reconciliation of our Basel I CET1 ratio.

Basel I CET1 ratio
(dollars in millions)
Sept. 30, 2013

Total Tier 1 capital – Basel I
$
18,074

Less: Trust preferred securities
324

Preferred stock
1,562

Total CET1 – Basel I
$
16,188

 
 
Total risk-weighted assets – Basel I
$
114,404

 
 
Basel I CET1 ratio – Non-GAAP
14.2
%



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BNY Mellon 3Q14 Earnings Release


The following table presents the components of our fully phased-in estimated SLR.

Estimated SLR – Non-GAAP (a)
(dollars in millions)
June 30,
2014

Sept. 30, 2014

Total CET1 - fully phased-in
$
16,277

$
16,720

Additional Tier 1 capital
1,562

1,560

Total Tier 1 capital
$
17,839

$
18,280

 
 
 
Total leverage exposure:
 
 
Quarterly average total assets
$
369,212

$
380,409

Less: Amounts deducted from Tier 1 capital
20,480

20,166

Total on-balance sheet assets, as adjusted
348,732

360,243

Off-balance sheet exposures:
 
 
Potential future exposure for derivatives contracts (plus certain other items)
11,115

11,694

Repo-style transaction exposures included in SLR
—

—

Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)
22,658

21,924

Total off-balance sheet exposures
33,773

33,618

Total leverage exposure
$
382,505

$
393,861

 
 
 
Estimated SLR
4.7
%
4.6
%
(a)
The estimated fully phased-in SLR as of June 30, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Notice of Proposed Rulemaking released in April 2014 concerning the SLR, except that off-balance sheet exposures included in total leverage exposure reflect the end of period measures, rather than a daily average. The estimated fully phased-in SLR as of Sept. 30, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve’s final rules on the SLR. On a fully phased-in basis, we expect to satisfy a minimum SLR of over 5%, 3% attributable to a regulatory minimum SLR, and greater than 2% attributable to a buffer applicable to U.S. G-SIBs.

DIVIDENDS

Common – On Oct. 17, 2014, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.17 per common share. This cash dividend is payable on Nov. 7, 2014 to shareholders of record as of the close of business on Oct. 28, 2014.

Preferred – On Oct. 17, 2014, The Bank of New York Mellon Corporation also declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in December 2014, in each case, payable on Dec. 22, 2014 to holders of record as of the close of business on Dec. 5, 2014:
•
$1,011.11 per share on the Series A Preferred Stock (equivalent to $10.1111 per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A Preferred Stock);
•
$1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock); and
•
$2,250.00 per share on the Series D Preferred Stock (equivalent to approximately $22.50 per depositary share, each representing a 1/100th interest in a share of the Series D Preferred Stock).


BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2014, BNY Mellon had $28.3 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.



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BNY Mellon 3Q14 Earnings Release


SUPPLEMENTAL FINANCIAL INFORMATION

The Quarterly Financial Trends for The Bank of New York Mellon Corporation has been updated through Sept. 30, 2014 and are available at www.bnymellon.com (Investor Relations - Financial Reports).


CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (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 relating to those ratios, preliminary business metrics and statements made regarding our margins and return on capital and our plans relating to the securities portfolio and impact on net interest revenue. 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 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). 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, 2013 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Oct. 17, 2014, 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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