BNY Mellon Reports Second Quarter Earnings of $554 Million or $0.48 Per Common Share, Including: $0.14 Per Common Share for Previously Disclosed Charges

NEW YORK, July 18, 2014 /PRNewswire/ --

INVESTMENT MANAGEMENT AND PERFORMANCE FEES UP 4% YEAR-OVER-YEAR 
- Assets under management up 15% year-over-year to a record $1.64 trillion

ASSET SERVICING REVENUE UP 3% YEAR-OVER-YEAR 
- Assets under custody and/or administration up 9% year-over-year

STRONG PROGRESS ON EXPENSE CONTROL

REPURCHASED 12.6 MILLION COMMON SHARES FOR $431 MILLION IN SECOND QUARTER

RETURN ON TANGIBLE COMMON EQUITY OF 15%, OR 18% ON AN ADJUSTED BASIS (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $554 million, or $0.48 per diluted common share.  Excluding the after-tax impact of the previously disclosed charges related to investment management funds and severance of $161 million, or $0.14 per diluted common share, net income applicable to common shareholders totaled $715 million, or $0.62 per diluted common share, in the second quarter of 2014.  In the second quarter of 2013, net income applicable to common shareholders was $831 million, or $0.71 per diluted common share.  Excluding the after-tax gain of $109 million, or $0.09 per diluted common share, related to an equity investment and the after-tax recovery related to investment management funds of $21 million, or $0.02 per diluted common share, net income applicable to common shareholders totaled $701 million, or $0.60 per diluted common share, in the second quarter of 2013.  In the first quarter of 2014, net income applicable to common shareholders was $661 million, or $0.57 per diluted common share.  (a)

"Our commitment to aggressive expense control is paying off as operating expenses declined both sequentially and year over year.  Consistent with our culture of continuous productivity improvement, we recently announced further streamlining actions that are expected to benefit our expense run rate beginning in the second half of the year," said Gerald L. Hassell, chairman and chief executive officer of BNY Mellon.

"Our Asset Servicing, Clearing and Investment Management fees grew nicely as we remained sharply focused on our clients' investment needs.  Our clients continue to rate us highly in terms of new service offerings and the quality of our capabilities," added Mr. Hassell.

"Finally, we remain dedicated to maintaining strong capital levels, returning more capital to shareholders and driving shareholder value.  Since the financial crisis, our strong capital generation has enabled us to more than double our tangible capital, while also reducing our shares outstanding to below pre-crisis levels," Mr. Hassell concluded.

___________________________
(a) See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 11 for the reconciliation of the Non-GAAP measures.

Second Quarter Results – Sequential growth rates are unannualized.  Please refer to the Quarterly Earnings Review for a detailed review of our businesses. 

Total revenue

 

Reconciliation of total revenue



2Q14 vs.

(dollars in millions)

2Q14

1Q14

2Q13


2Q13

1Q14

Fee and other revenue

$ 2,980

$ 2,883

$ 3,203


(7)%

3%

Income from consolidated investment management funds

46

36

65




Net interest revenue

719

728

757




Total revenue – GAAP

3,745

3,647

4,025


(7)

3

Less: Net income attributable to noncontrolling interests related to

              consolidated investment management funds

17

20

39




        Gain related to an equity investment (pre-tax)

-

-

184




Total revenue – Non-GAAP

$ 3,728

$ 3,627

$ 3,802


(2)%

3%

 

  • Assets under custody and/or administration ("AUC/A") amounted to $28.5 trillion at June 30, 2014, an increase of 9% compared with the prior year and 2% sequentially.  Both increases were primarily driven by higher market values.  Assets under management ("AUM") amounted to a record $1.64 trillion at June 30, 2014, an increase of 15% compared with the prior year and 1% sequentially.  Both increases resulted from higher market values.  The year-over-year increase also reflects the impact of a weaker U.S. dollar and net new business.  In the second quarter of 2014, long-term outflows totaled $13 billion driven primarily by liability-driven investments, while short-term outflows totaled $18 billion
  • Investment services fees totaled $1.7 billion, a decrease of 1% year-over-year and an increase of 1% sequentially.  The year-over-year decrease primarily reflects lower Depositary Receipts revenue driven by lower corporate actions, lower Corporate Trust revenue and higher money market fee waivers, partially offset by higher asset servicing and clearing services fees.  The sequential increase primarily reflects seasonally higher securities lending revenue, higher cash management fees, and asset servicing fees due to increased market values. 
  • Investment management and performance fees were $883 million, an increase of 4% year-over-year and 5% sequentially.  Both increases primarily reflect higher equity market values and the average impact of a weaker U.S. dollar.  The year-over-year increase also reflects net new business, partially offset by higher money market fee waivers and lower performance fees.  The sequential increase also reflects lower money market fee waivers and higher performance fees.  Excluding money market fee waivers, investment management and performance fees increased 5% year-over-year and 3% sequentially (Non-GAAP). 
  • Foreign exchange and other trading revenue totaled $130 million compared with $207 million in the second quarter of 2013 and $136 million in the first quarter of 2014.  In the second quarter of 2014, foreign exchange revenue totaled $129 million, a decrease of 28% year-over-year and 1% sequentially.  Both decreases primarily reflect lower volatility, partially offset by higher volumes.  Other trading revenue was $1 million in the second quarter of 2014 compared with $28 million in the second quarter of 2013 and $6 million in the first quarter of 2014.  The year-over-year decrease primarily reflects lower derivatives trading revenue.  Sequentially, the decrease primarily reflects lower fixed income trading revenue.
  • Investment and other income was $142 million in the second quarter of 2014 compared with $285 million in the second quarter of 2013 and $102 million in the first quarter of 2014.  The year-over-year decrease primarily reflects the gain related to an equity investment recorded in the second quarter of 2013, partially offset by higher other income and seed capital gains.  The sequential increase primarily reflects higher other income, equity investment revenue and asset-related gains, partially offset by lower lease residual gains.
  • Net interest revenue and the net interest margin (FTE) were $719 million and 0.98% in the second quarter of 2014 compared with $757 million and 1.15% in the second quarter of 2013 and $728 million and 1.05% in the first quarter of 2014.  The year-over-year decrease in net interest revenue primarily resulted from lower yields on investment securities, partially offset by higher average interest-earnings assets driven by higher deposits.  The sequential decrease primarily reflects higher premium amortization on agency mortgage-backed securities.
  • The net unrealized pre-tax gain on our total investment securities portfolio was $1.2 billion at June 30, 2014 compared with $676 million at March 31, 2014.  The increase was primarily driven by the reduction in market interest rates. 

The provision for credit losses was a credit of $12 million in the second quarter of 2014 driven by the continued improvement in the credit quality of the loan portfolio.  The provision for credit losses was a credit of $19 million in the second quarter of 2013 and a credit of $18 million in the first quarter of 2014.

Total noninterest expense

 

Reconciliation of noninterest expense



2Q14 vs.

(dollars in millions)

2Q14

1Q14

2Q13


2Q13

1Q14

Noninterest expense – GAAP

$ 2,946

$ 2,739

$ 2,822


4%

8%

Less:  Amortization of intangible assets

75

75

93




          M&I, litigation and restructuring charges

122

(12)

13




          Charge (recovery) related to investment management funds

109

(5)

(27)




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

$ 2,640

$ 2,681

$ 2,743


(4)%

(2)%

  • Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges, and the previously disclosed charge (recovery) related to investment management funds (Non-GAAP) decreased 4% year-over-year and 2% sequentially, primarily reflecting lower staff expense.  The year-over-year decrease also reflects lower business development expense.

The effective tax rate was 26.7% in the second quarter of 2014. 




Capital ratios

June 30,

March 31,

June 30,


2014

2014

2013

Regulatory capital ratios – fully phased-in – Non-GAAP: (a)(b)




Estimated common equity Tier 1 ratio ("CET1"): (c)




Standardized Approach

10.4%

11.1%

9.3%

Advanced Approach

10.0

10.7

9.8





Regulatory capital ratios: (a)(b)(d)




CET1 ratio

11.7

15.7

13.2 (c)(f)

Tier 1 capital ratio

12.7

17.0

14.8

Total (Tier 1 plus Tier 2) capital ratio

13.1

17.8

15.8

Leverage capital ratio

5.9

6.1

5.3

BNY Mellon shareholders' equity to total assets ratio (c)(e)

9.6

10.3

9.9

BNY Mellon common shareholders' equity to total assets ratio (c)

9.2

9.9

9.5

BNY Mellon tangible common shareholders' equity to tangible

assets of operations ratio – Non-GAAP (c)

6.4

6.6

5.8

(a)   June 30, 2014 regulatory capital ratios are preliminary.  The estimated fully phased-in Basel III CET1 ratios are based on our interpretation of the final rules released by the Board of Governors of the Federal Reserve (the "Federal Reserve") on July 2, 2013 (the "Final Capital Rules"), which are being gradually phased-in over a multi-year period. 

(b)   Beginning with June 30, 2014, risk-based capital ratios include the estimated 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 net impact of such consolidated assets for the June 30, 2014 estimated CET1 ratio on a fully-phased-in basis was a decrease of 109 basis points under the Advanced Approach and 57 basis points under the Standardized Approach.  The net impact of such consolidated assets for June 30, 2014 regulatory capital ratios, as calculated under the Advanced Approach, was a decrease of 126 basis points to the CET1 ratio, 136 basis points to the Tier 1 capital ratio, and 140 basis points to the Total capital ratio.  The leverage ratio was not affected. 

(c)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 11 for a reconciliation of these ratios.

(d)   At June 30, 2014, the CET1, Tier 1 and Total risk-based regulatory capital ratios are based on Basel III components of capital, as phased-in, and asset risk-weightings using the Advanced Approach framework under the Final Capital Rules.  The Collins Floor comparison of the CET1, Tier 1 and Total risk-based regulatory capital ratios 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 Capital Rules (which for 2014 look to Basel I-based requirements) were 14.3%, 15.5% and 16.2%, respectively.  At March 31, 2014, the risk-based regulatory capital ratios were based on Basel III components of capital, as phased-in, and asset risk-weightings using the general risk-based guidelines included in the Final Capital Rules (which for 2014 look to Basel I-based requirements). The leverage capital ratios for June 30, 2014 and March 31, 2014 are based on Basel III components of capital and quarterly average total assets, as phased-in. The risk-based and leverage capital ratios for June 30, 2013 are based on Basel I rules (including Basel I Tier 1 common in the case of the CET1 ratio). Reporting of the Basel III Advanced Approach became effective June 30, 2014.

(e)    The ratio at June 30, 2013 reflects 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 10 for additional information.

(f)    The numerator for this ratio for June 30, 2013 is Basel I Tier 1 common.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 11.

 

Dividends 
Common
– On July 18, 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 Aug. 8, 2014 to shareholders of record as of the close of business on July 29, 2014. 

Preferred – On July 18, 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 September 2014, in each case, payable on Sept. 22, 2014 to holders of record as of the close of business on Sept. 5, 2014:

  • $1,044.44 per share on the Series A Preferred Stock (equivalent to $10.4444 per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A Preferred Stock); and
  • $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).

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 June 30, 2014, BNY Mellon had $28.5 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.

Supplemental Financial Information 
The Quarterly Earnings Review and Quarterly Financial Trends for The Bank of New York Mellon Corporation have been updated through June 30, 2014 and are available at www.bnymellon.com (Investor Relations - Financial Reports).

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 July 18, 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.  The Earnings Release, together with the Quarterly Earnings Review and Quarterly Financial Trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on July 18, 2014.  Replays of the conference call and audio webcast will be available beginning July 18, 2014 at approximately 2 p.m. EDT through Aug. 18, 2014 by dialing (800) 934-9697 (U.S.) or (203) 369-3395 (International).  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

 



 

THE BANK OF NEW YORK MELLON CORPORATION

Financial Highlights

 

(dollar amounts in millions, except per common share

amounts and unless otherwise noted; quarterly returns are

annualized)

Quarter ended


Year-to-date


June 30,

2014

March 31,

2014

June 30,

2013


June 30,

2014

June 30,

2013












Return on common equity (a)

6.1%

7.4%

9.7%


6.7%

3.3%


     Non-GAAP (a)

8.4%

7.8%

10.2%


8.1%

9.2%










Return on tangible common equity – Non-GAAP (a)

14.5%

17.6%

25.0%


16.0%

9.5%


     Non-GAAP adjusted (a)

18.4%

17.3%

24.6%

(b)

17.9%

22.0%

(b)









Fee revenue as a percentage of total revenue excluding net

   securities gains

79%

79%

79%


79%

79%










Percentage of non-U.S. total revenue (c)

38%

37%

36%


37%

36%










Pre-tax operating margin (a)

22%

25%

30%

(b)

24%

27%

(b)

     Non-GAAP (a)

30%

27%

32%


28%

29%










Net interest margin (FTE)

0.98%

1.05%

1.15%


1.02%

1.13%










Selected average balances:








Interest-earning assets

$300,758

$284,532

$268,481


$292,691

$267,124


Assets of operations

$357,807

$343,638

$325,931


$350,760

$324,055


Total assets

$369,212

$354,992

$337,455


$362,140

$335,569


Interest-bearing deposits

$162,674

$152,986

$151,219


$157,856

$149,484


Noninterest-bearing deposits

$  77,820

$  81,430

$  70,648


$  79,615

$  70,493


Preferred stock

$    1,562

$    1,562

$    1,350


$    1,562

$    1,210


Total The Bank of New York Mellon Corporation common

   shareholders' equity

$  36,565

$  36,289

$  34,467


$  36,428

$  34,681










Average common shares and equivalents outstanding (in

   thousands):








Basic

1,133,556

1,138,645

1,152,545


1,136,086

1,155,667


Diluted

1,139,800

1,144,510

1,155,981


1,141,948

1,159,169










Period-end data:








Assets under management (in billions) (d)

$   1,636 (e)

$   1,620

$    1,427


$   1,636 (e)

$    1,427


Assets under custody and/or administration (in trillions) (f)

$     28.5 (e)

$     27.9

$      26.2


$     28.5 (e)

$      26.2


Market value of securities on loan (in billions) (g)

$        280

$      264

$       255


$        280

$       255










Full-time employees

51,100

51,400

49,800


51,100

49,800


Book value per common share – GAAP (a)

$    32.49

$    31.94

$    29.81

(b)

$    32.49

$    29.81

(b)

Tangible book value per common share – Non-GAAP (a)

$    14.88

$    14.48

$    12.40

(b)

$    14.88

$    12.40

(b)

Cash dividends per common share

$      0.17

$      0.15

$      0.15


$      0.32

$      0.28


Common dividend payout ratio

35%

26%

21%


31%

58%


Closing stock price per common share

$    37.48

$    35.29

$    28.05


$    37.48

$    28.05


Market capitalization

$  42,412

$  40,244

$  32,271


$  42,412

$  32,271


(a)   Non-GAAP excludes amortization of intangible assets, M&I, litigation and restructuring charges, a previously disclosed charge (recovery) related to investment management funds and the impact of the disallowance of certain foreign tax credits, if applicable.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 11 for a reconciliation of the Non-GAAP measures.

(b)   Prior periods 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 10 for additional information.

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

(d)   Excludes securities lending cash management assets and assets managed in the Investment Services business.  Also excludes assets under management related to Newton's private client business that was sold in September 2013.

(e)   Preliminary.  

(f)    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 June 30, 2014 and March 31, 2014, and $1.1 trillion at June 30, 2013.

(g)   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 $64 billion at June 30, 2014 and $66 billion at March 31, 2014.

 


 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement

 

(in millions)

Quarter ended


Year-to-date


June 30,

2014

March 31,

2014

June 30,

2013


June 30,

2014

June 30,

2013




Fee and other revenue








Investment services fees:








Asset servicing

$  1,022

$  1,009

$  988


$  2,031

$  1,957


Clearing services

326

325

321


651

625


Issuer services

231

229

294


460

531


Treasury services

141

136

139


277

280


   Total investment services fees

1,720

1,699

1,742


3,419

3,393


Investment management and performance fees

883

843

848


1,726

1,670


Foreign exchange and other trading revenue

130

136

207


266

368


Distribution and servicing

43

43

45


86

94


Financing-related fees

44

38

44


82

85


Investment and other income

142

102

285

(a)

244

373

(a)

   Total fee revenue

2,962

2,861

3,171

(a)

5,823

5,983

(a)

Net securities gains

18

22

32


40

80


   Total fee and other revenue

2,980

2,883

3,203

(a)

5,863

6,063

(a)

Operations of consolidated investment management funds








Investment income

141

138

159


279

305


Interest of investment management fund note holders

95

102

94


197

190


   Income from consolidated investment management funds

46

36

65


82

115


Net interest revenue








Interest revenue

811

812

836


1,623

1,651


Interest expense

92

84

79


176

175


   Net interest revenue

719

728

757


1,447

1,476


Provision for credit losses

(12)

(18)

(19)


(30)

(43)


   Net interest revenue after provision for credit losses

731

746

776


1,477

1,519


Noninterest expense








Staff

1,439

1,511

1,509


2,950

2,981


Professional, legal and other purchased services

314

312

317


626

612


Software and equipment

236

237

238


473

466


Net occupancy

152

154

159


306

322


Distribution and servicing

112

107

111


219

217


Sub-custodian

81

68

77


149

141


Business development

68

64

90


132

158


Other

347

223

215


570

522


Amortization of intangible assets

75

75

93


150

179


Merger and integration, litigation and restructuring charges

122

(12)

13


110

52


   Total noninterest expense

2,946

2,739

2,822


5,685

5,650


Income








Income before income taxes

811

926

1,222

(a)

1,737

2,047

(a)

Provision for income taxes

217

232

339

(a)

449

1,401

(a)

   Net income

594

694

883

(a)

1,288

646

(a)

Net (income) attributable to noncontrolling interests (includes

   $(17), $(20), $(39), $(37) and $(55) related to consolidated

   investment management funds, respectively)

(17)

(20)

(40)


(37)

(56)


   Net income applicable to shareholders of The Bank of
    
New York Mellon Corporation

577

674

843

(a)

1,251

590

(a)

Preferred stock dividends

(23)

(13)

(12)


(36)

(25)


   Net income applicable to common shareholders of The
    
Bank of New York Mellon Corporation

$  554

$  661

$  831

(a)

$  1,215

$  565

(a)

(a)   Reflects 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 10 for additional information.

 


 

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

June 30,

2014

March 31,

2014

June 30,

2013


June 30,

2014

June 30,

2013

Net income applicable to common shareholders of The Bank

   of New York Mellon Corporation

$ 554

$ 661

$ 831

(a)

$ 1,215

$ 565

(a)

Less:   Earnings allocated to participating securities

10

13

15

(a)

23

10

(a)

            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

$ 544

$ 648

$ 816

(a)

$ 1,192

$ 554

(a)

(a)   Reflects 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 10 for additional information.

N/A – Not applicable.

 



Earnings per share applicable to the common shareholders

   of The Bank of New York Mellon Corporation

(in dollars)

Quarter ended


Year-to-date


June 30,

2014

March 31,

2014

June 30,

2013


June 30,

2014

June 30,

2013


Basic

$ 0.48

$ 0.57

$ 0.71

(a)

$ 1.05

$ 0.48

(a)

Diluted

$ 0.48

$ 0.57

$ 0.71

(a)

$ 1.04

$ 0.48

(a)

(a)   Reflects 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 10 for additional information.



 


 

THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet

 


June 30,

March 31,

Dec. 31,

(dollars in millions, except per share amounts)

2014

2014

2013

Assets




Cash and due from:




Banks

$    6,173

$    6,092

$    6,460

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

105,657

82,602

104,359

Interest-bearing deposits with banks

41,459

42,795

35,300

Federal funds sold and securities purchased under resale agreements

15,062

12,223

9,161

Securities:




Held-to-maturity (fair value of $19,211, $19,092 and $19,443)

19,102

19,226

19,743

Available-for-sale

85,688

80,216

79,309

Total securities

104,790

99,442

99,052

Trading assets

10,856

10,832

12,098

Loans

59,248

54,036

51,657

Allowance for loan losses

(187)

(198)

(210)

Net loans

59,061

53,838

51,447

Premises and equipment

1,590

1,613

1,655

Accrued interest receivable

624

533

621

Goodwill

18,196

18,100

18,073

Intangible assets

4,314

4,380

4,452

Other assets

22,530

24,340

20,566

Subtotal assets of operations

390,312

356,790

363,244

Assets of consolidated investment management funds, at fair value:




Trading assets

9,402

10,260

10,397

Other assets

1,026

1,191

875

Subtotal assets of consolidated investment management funds, at fair value

10,428

11,451

11,272

Total assets

$ 400,740

$ 368,241

$ 374,516

Liabilities




Deposits:




Noninterest-bearing (principally U.S. offices)

$   109,570

$   89,051

$   95,475

Interest-bearing deposits in U.S. offices

52,954

52,825

56,640

Interest-bearing deposits in Non-U.S. offices

119,915

110,351

109,014

   Total deposits

282,439

252,227

261,129

Federal funds purchased and securities sold under repurchase agreements

10,301

9,935

9,648

Trading liabilities

6,844

6,540

6,945

Payables to customers and broker-dealers

17,242

16,822

15,707

Commercial paper

27

27

96

Other borrowed funds

1,458

1,305

663

Accrued taxes and other expenses

6,433

6,271

6,996

Other liabilities (includes allowance for lending-related commitments of $124, $128 and $134)

7,066

5,371

4,827

Long-term debt

20,327

20,616

19,864

Subtotal liabilities of operations

352,137

319,114

325,875

Liabilities of consolidated investment management funds, at fair value:




Trading liabilities

9,123

10,002

10,085

Other liabilities

6

156

46

Subtotal liabilities of consolidated investment management funds, at fair value

9,129

10,158

10,131

Total liabilities

361,266

329,272

336,006

Temporary equity




Redeemable noncontrolling interests

239

212

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

   1,281,585,137, 1,277,739,777 and 1,268,036,220 shares

13

13

13

Additional paid-in capital

24,303

24,176

24,002

Retained earnings

16,796

16,439

15,952

Accumulated other comprehensive loss, net of tax

(402)

(689)

(892)

Less:  Treasury stock of 149,988,907, 137,366,861 and 125,786,430 common shares, at cost

(3,946)

(3,515)

(3,140)

   Total The Bank of New York Mellon Corporation shareholders' equity

38,326

37,986

37,497

Nonredeemable noncontrolling interests of consolidated investment management funds

909

771

783

   Total permanent equity

39,235

38,757

38,280

   Total liabilities, temporary equity and permanent equity

$ 400,740

$ 368,241

$ 374,516

 

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)

2Q13

YTD13


2Q13

YTD13

Basic

$ 0.71

$ 0.48


$ 0.71

$ 0.48

Diluted

$ 0.71

$ 0.48


$ 0.71

$ 0.48

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

Income statement

As previously

reported


Adjustment


As revised

(in millions)

2Q13

YTD13


2Q13

YTD13


2Q13

YTD13

Investment and other income

$   269

$   341


$ 16

$ 32


$   285

$   373

Total fee revenue

3,155

5,951


16

32


3,171

5,983

Total fee and other revenue

3,187

6,031


16

32


3,203

6,063

Income before income taxes

1,206

2,015


16

32


1,222

2,047

Provision for income taxes

321

1,367


18

34


339

1,401

Net income (loss)

885

648


(2)

(2)


883

646

Net income (loss) applicable to shareholders of The Bank

   of New York Mellon Corporation

845

592


(2)

(2)


843

590

Net income (loss) applicable to common shareholders of

   The Bank of New York Mellon Corporation

833

567


(2)

(2)


831

565

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)

2Q13

YTD13


2Q13

YTD13

Return on tangible common equity – Non-GAAP adjusted

25.2%

21.9%


24.6%

22.0%

Pre-tax operating margin – GAAP

30%

26%


30%

27%

BNY Mellon shareholders' equity to total assets ratio

10.0%

10.0%


9.9%

9.9%

Book value per common share – GAAP

$ 29.83

$ 29.83


$ 29.81

$ 29.81

Tangible book value per common share – Non-GAAP

$ 12.41

$ 12.41


$ 12.40

$ 12.40

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, Basel I CET1 and tangible common shareholders' equity.  BNY Mellon believes that the Basel III CET1 ratio 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 are productive in generating income.  BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding.  BNY Mellon has presented its estimated fully phased-in Basel III CET1 ratios based on its interpretation of the Final Capital Rules released by the Federal Reserve on July 2, 2013, and on the application of such rules to BNY Mellon's businesses as currently conducted.  The estimated fully phased-in Basel III CET1 ratio is necessarily subject to, among other things, BNY Mellon's further review of the Final Capital Rules, anticipated compliance with all necessary enhancements to model calibration, and other refinements, further implementation guidance from regulators and any changes BNY Mellon may make to its businesses.  Consequently, BNY Mellon's estimated fully phased-in Basel III CET1 ratio may change based on these factors.  Management views the estimated fully phased-in Basel III CET1 ratio as a key measure in monitoring BNY Mellon's capital position and progress against future regulatory capital standards.  Additionally, the presentation of the estimated fully phased-in Basel III CET1 ratio is intended to allow investors to compare BNY Mellon's estimated fully phased-in Basel III CET1 ratio with estimates presented by other companies.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds and a gain 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.  Earnings per share, return on equity measures and operating margin measures, which exclude some or all of these items, are also presented.  Return on equity also excludes the charge related to the disallowance of certain foreign tax credits.  BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control.  The excluded items, in general, relate to certain ongoing charges as a result of prior transactions or where we have incurred charges.  M&I expenses primarily relate to the acquisitions of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 2010.  M&I expenses generally continue for approximately three years after the transaction and can vary on a year-to-year basis depending on the stage of the integration.  BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon's business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased.  Future periods will not reflect such M&I expenses, and thus may be more easily compared with our current results if M&I expenses are excluded.  Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees.  Restructuring charges relate to our continuing efficiency improvements, 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.

In this Earnings Release, the net interest margin is presented on an FTE basis.  We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.  Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and business-level basis. 

The following tables present the reconciliation of net income and diluted earnings per common share.

Reconciliation of net income and diluted EPS – GAAP to Non-GAAP

2Q14

2Q13


Net

Diluted

Net

Diluted

(in millions, except per common share amounts)

income

EPS

income

EPS

Net income applicable to common shareholders of The Bank of New York Mellon

   Corporation – GAAP

$ 554

$ 0.48

$ 831

$ 0.71

Less:  Gain related to an equity investment (after-tax)

N/A

N/A

109

0.09

Add:  Charge (recovery) related to investment management funds and severance expense

161

0.14

(21)

(0.02)

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

$ 715

$ 0.62

$ 701

$ 0.60

N/A – Not applicable.

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)

2Q14

1Q14

2Q13

YTD14

YTD13

Income before income taxes – GAAP

$    811

$    926

$ 1,222

$    1,737

$ 2,047

Less:  Net income attributable to noncontrolling interests of consolidated

              investment management funds

17

20

39

37

55

Add:   Amortization of intangible assets

75

75

93

150

179

 M&I, litigation and restructuring charges

122

(12)

13

110

52

 Charge (recovery) related to investment management funds

109

(5)

(27)

104

12

Income before income taxes excluding net income attributable to
 
noncontrolling interests of consolidated investment management funds,
 
amortization of intangible assets, M&I, litigation and restructuring 
 
charges and the charge (recovery) related to investment management
 
funds – Non-GAAP

$ 1,100

$    964

$ 1,262

$ 2,064

$ 2,235







Fee and other revenue – GAAP

$ 2,980

$ 2,883

$ 3,203

$ 5,863

$ 6,063

Income from consolidated investment management funds – GAAP

46

36

65

82

115

Net interest revenue – GAAP

719

728

757

1,447

1,476

Total revenue – GAAP

3,745

3,647

4,025

7,392

7,654

Less:  Net income attributable to noncontrolling interests

  of consolidated investment management funds

17

20

39

37

55

Total revenue excluding net income attributable to noncontrolling interests

  of consolidated investment management funds – Non-GAAP

$ 3,728

$ 3,627

$ 3,986

$ 7,355

$ 7,599







Pre-tax operating margin (a)

22%

25%

30%

24%

27%

Pre-tax operating margin excluding net income attributable to 
  noncontrolling interests of consolidated investment management funds,
 
amortization of intangible assets, M&I, litigation and restructuring
  charges and the charge (recovery) related to investment management 
 
funds – Non-GAAP (a)

30%

27%

32%

28%

29%

(a)   Income before taxes divided by total revenue.

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)

2Q14

1Q14

2Q13

YTD14

YTD13

Net income applicable to common shareholders of The Bank of New York Mellon

   Corporation – GAAP

$ 554

$ 661

$ 831

$ 1,215

$ 565

Add: Amortization of intangible assets, net of tax

49

49

59

98

115

Net income applicable to common shareholders of The Bank of New York Mellon

   Corporation excluding amortization of intangible assets – Non-GAAP

603

710

890

1,313

680

Add:  M&I, litigation and restructuring charges, net of tax

76

(7)

8

69

32

 Charge related to the disallowance of certain foreign tax credits, net of tax

-

-

-

-

854

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

85

(4)

(21)

81

9

Net income applicable to common shareholders of The Bank of New York Mellon
     
Corporation excluding amortization of intangible assets, M&I, litigation and 
      
restructuring charges, the charge related to the disallowance of certain foreign
     
tax credits and the charge (recovery) related to investment management
     
funds – Non-GAAP

$ 764

$ 699

$ 877

$ 1,463

$ 1,575







Average common shareholders' equity

$ 36,565

$ 36,289

$ 34,467

$ 36,428

$ 34,681

Less:   Average goodwill

18,149

18,072

17,957

18,110

17,975

            Average intangible assets

4,354

4,422

4,661

4,388

4,709

Add:    Deferred tax liability – tax deductible goodwill (a)

1,338

1,306

1,200

1,338

1,200

  Deferred tax liability – intangible assets (a)

1,247

1,259

1,269

1,247

1,269

Average tangible common shareholders' equity – Non-GAAP

$ 16,647

$ 16,360

$ 14,318

$ 16,515

$ 14,466







Return on common equity – GAAP (b)

6.1%

7.4%

9.7%

6.7%

3.3%

Return on common equity excluding amortization of intangible assets, M&I,
    
litigation and restructuring charges, the charge related to the disallowance of
     certain foreign tax credits and the charge (recovery) related to investment
    
management funds – Non-GAAP (b)

8.4%

7.8%

10.2%

8.1%

9.2%







Return on tangible common equity – Non-GAAP (b)

14.5%

17.6%

25.0%

16.0%

9.5%

Return on tangible common equity excluding M&I, litigation and restructuring 
     
charges, the charge related to the disallowance of certain foreign tax 
     
credits and the charge (recovery) related to investment management
    
funds – Non-GAAP (b)

18.4%

17.3%

24.6%

17.9%

22.0%

(a)   Deferred tax liabilities are based on fully phased-in Basel III rules.  The first and second quarters of 2014 include deferred tax liabilities on tax deductible intangible assets permitted under Basel III rules.

(b)   Annualized.

The following table presents the reconciliation of consolidated investment management and performance fee revenue excluding money market fee waivers.

Investment management and performance fees




2Q14 vs.

(dollars in millions)

2Q14

1Q14

2Q13

2Q13

1Q14

Investment management and performance fees – GAAP

$ 883

$ 843

$ 848

4%

5%

Add:  Money market fee waivers

72

81

64

13

(11)

Investment management and performance fees excluding money market fee

      waivers

$ 955

$ 924

$ 912

5%

3%

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

June 30,

March 31,

June 30,

(dollars in millions, unless otherwise noted)

2014

2014

2013

BNY Mellon shareholders' equity at period end – GAAP

$  38,326

$  37,986

$  35,863

Less:  Preferred stock

1,562

1,562

1,562

BNY Mellon common shareholders' equity at period end – GAAP

36,764

36,424

34,301

Less:  Goodwill

18,196

18,100

17,919

 Intangible assets

4,314

4,380

4,588

Add:   Deferred tax liability – tax deductible goodwill (a)

1,338

1,306

1,200

 Deferred tax liability – intangible assets (a)

1,247

1,259

1,269

BNY Mellon tangible common shareholders' equity at period end – Non-GAAP

$  16,839

$  16,509

$  14,263





Total assets at period end – GAAP

$400,740

$368,241

$360,688

Less:  Assets of consolidated investment management funds

10,428

11,451

11,471

Subtotal assets of operations – Non-GAAP

390,312

356,790

349,217

Less:  Goodwill

18,196

18,100

17,919

Intangible assets

4,314

4,380

4,588

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

104,916

83,736

78,671

Tangible total assets of operations at period end – Non-GAAP

$262,886

$250,574

$248,039





BNY Mellon shareholders' equity to total assets – GAAP

9.6%

10.3%

9.9%

BNY Mellon common shareholders' equity to total assets – GAAP

9.2%

9.9%

9.5%

BNY Mellon tangible common shareholders' equity to tangible assets of
   
operations – Non-GAAP

6.4%

6.6%

5.8%





Period-end common shares outstanding (in thousands)

1,131,596

1,140,373

1,150,477





Book value per common share – GAAP

$ 32.49

$ 31.94

$ 29.81

Tangible book value per common share – Non-GAAP

$ 14.88

$ 14.48

$ 12.40

(a)   Deferred tax liabilities are based on fully phased-in Basel III rules.  The first and second 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 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)

June 30,

March 31,

June 30,

(dollars in millions)

2014

2014

2013

Total Tier 1 capital

$   20,669

$   20,553

$   16,951

Adjustments to determine estimated fully phased-in Basel III CET1:




Deferred tax liability – tax deductible intangible assets

-

-

81

Intangible deduction

(2,453)

(2,496)

-

Preferred stock

(1,562)

(1,562)

(1,562)

Trust preferred securities

(171)

(167)

(303)

Other comprehensive income (loss) and net pension fund assets:




Securities available-for-sale

586

430

560

Pension liabilities

(691)

(705)

(1,379)

Net pension fund assets

-

-

(268)

Total other comprehensive income (loss) and net pension fund assets

(105)

(275)

(1,087)

Equity method investments

(99)

(102)

(500)

Deferred tax assets

-

-

(26)

Other

(2)

-

23

Total estimated fully phased-in Basel III CET1

$   16,277

$   15,951

$   13,577





Under the Standardized Approach:




    Estimated fully phased-in Basel III risk-weighted assets

$ 155,812

$ 143,882

$ 145,841





    Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (b)

10.4%

11.1%

9.3%









Under the Advanced Approach:




    Estimated fully phased-in Basel III risk-weighted assets

$ 162,072

$ 148,736

$ 138,304





    Estimated fully phased-in Basel III CET1 ratio – Non-GAAP (b)

10.0%

10.7%

9.8%





(a)   June 30, 2014 information is preliminary.  The estimated fully phased-in Basel III CET1 ratios are based on our interpretation of the Final Capital Rules, which are being gradually phased-in over a multi-year period.

(b)   Beginning with June 30, 2014, risk-based capital ratios include the estimated net impact of the total consolidated assets of certain consolidated investment management funds in risk-weighted assets.  These assets were not included in prior periods.  The net impact of such consolidated assets for the June 30, 2014 estimated CET1 ratio on a fully phased-in basis was a decrease of 109 basis points under the Advanced Approach and 57 basis points under the Standardized Approach. 


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



Basel I CET1 ratio

June 30,

(dollars in millions)

2013

Total Tier 1 capital – Basel I

$   16,951

Less:  Trust preferred securities

303

Preferred stock

1,562

Total Tier 1 common equity

$   15,086



Total risk-weighted assets – Basel I

$ 114,511



Basel I CET1 ratio – Non-GAAP

13.2%

Cautionary Statement

The information presented in this Earnings Release may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements made regarding the expected benefit to our expense run rate from streamlining actions, our dedication to maintaining strong capital levels, returning more capital to shareholders and driving shareholder value.  These statements, which may be expressed in a variety of ways, include the use of future or present tense language.  These statements and other forward-looking statements contained in other public disclosures of BNY Mellon which make reference to the cautionary factors described in this Earnings Release, are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control).  Factors that could cause BNY Mellon's results to differ materially from those described in the forward-looking statements can be found in the risk factors set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2013 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 18, 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.

Contacts: 

MEDIA:

ANALYSTS:


Kevin Heine

Izzy Dawood


(212) 635-1590

(212) 635-1850


kevin.heine@bnymellon.com

izzy.dawood@bnymellon.com

 

SOURCE BNY Mellon



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