2014

BNY Mellon Reports Second Quarter Earnings Of $833 Million Or $0.71 Per Common Share

NEW YORK, July 17, 2013 /PRNewswire/ -- 

  • INCLUDING AN AFTER-TAX GAIN OF $109 MILLION, OR $0.09 PER COMMON SHARE, RELATED TO AN EQUITY INVESTMENT

INVESTMENT MANAGEMENT AND PERFORMANCE FEES UP 6% YEAR-OVER-YEAR, 3% SEQUENTIALLY

  • Assets under management up 10% year-over-year
  • Net long-term inflows of $21 billion in second quarter of 2013

INVESTMENT SERVICES FEES UP 4% YEAR-OVER-YEAR, 6% SEQUENTIALLY

REPURCHASED 11.9 MILLION COMMON SHARES FOR $330 MILLION IN THE SECOND QUARTER OF 2013

RETURN ON TANGIBLE COMMON EQUITY 25.0% (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $833 million, or $0.71 per diluted common share, compared with income of $466 million, or $0.39 per diluted common share, in the second quarter of 2012 and a loss of $266 million, or $0.23 per diluted common share, in the first quarter of 2013.

"We are pleased to report strong earnings and record revenues for the quarter, as all of our businesses delivered year-over-year increases. Our solid revenue growth is a reflection of better market conditions in the quarter, as well as our success in collaborating across the Company to deliver solutions our clients need. In addition, Investment Management recorded its fifteenth consecutive quarter of net positive long-term flows. In the second quarter we generated nearly $900 million of capital, approximately $500 million of which we used to step up share buybacks by more than 50 percent and increase our quarterly dividend by 15 percent," said Gerald L. Hassell, chairman and chief executive officer of BNY Mellon.

"We are continuing to make targeted investments to strengthen our businesses and brand and enhance the capabilities that support our critical role in the global capital markets. We are confident that all of our strategic actions are making us a stronger, more nimble company, improving the client experience and driving long-term profitability," added Mr. Hassell.

________________

(a)   See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 10 for the calculation of the Non-GAAP measure of return on tangible common equity.

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



2Q13 vs.

(dollars in millions)

2Q13

1Q13

2Q12


2Q12

1Q13

Fee and other revenue

$ 3,187

$ 2,844

$ 2,826


13%

12%

Income from consolidated investment management funds

65

50

57




Net interest revenue

757

719

734




Total revenue – GAAP

4,009

3,613

3,617


11

11

Less:  Net income attributable to noncontrolling interests related to

consolidated investment management funds

39

16

29




Gain related to an equity investment (pre-tax)

184

-

-




Total revenue – Non-GAAP

$ 3,786

$ 3,597

$ 3,588


6%

5%

  • Assets under custody and/or administration ("AUC/A") amounted to $26.2 trillion at June 30, 2013, an increase of 4% compared with the prior year and a slight decrease sequentially.  The year-over-year increase was driven by higher equity market values and net new business.  The slight sequential decrease primarily reflects lower fixed income market values.  Assets under management ("AUM") amounted to $1.43 trillion at June 30, 2013, an increase of 10% compared with the prior year and a slight increase sequentially.  The year-over-year increase primarily resulted from net new business and higher market values.  Sequentially, net new business was primarily offset by lower fixed income market values.  Long-term inflows totaled $21 billion and short-term outflows totaled $1 billion for the second quarter of 2013.  Long-term inflows benefited from liability-driven investments, equity and fixed income funds.
  • Investment services fees totaled $1.7 billion, an increase of 4% year-over-year and 6% sequentially.  Both increases primarily reflect: higher asset servicing revenue, driven by organic growth and higher market values; higher issuer services revenue driven by higher corporate actions and expense reimbursements related to customer technology expenditures; and higher clearing services revenue driven by higher mutual fund fees and volumes.  Additionally, the year-over-year increase was partially offset by lower securities lending revenue while the sequential increase reflects seasonally higher securities lending revenue. 
  • Investment management and performance fees were $848 million, an increase of 6% year-over-year and 3% sequentially.  The year-over-year increase was primarily driven by higher market values and net new business, partially offset by the stronger U.S. dollar and higher money market fee waivers.  The sequential increase was primarily driven by net new business and higher equity market values, partially offset by higher money market fee waivers and the stronger U.S. dollar.
  • Foreign exchange and other trading revenue totaled $207 million compared with $180 million in the second quarter of 2012 and $161 million in the first quarter of 2013.  In the second quarter of 2013, foreign exchange revenue totaled $179 million, an increase of 14% year-over-year and 20% sequentially.  Both increases primarily reflect higher volatility and increased volumes.  Other trading revenue was $28 million in the second quarter of 2013 compared with $23 million in second quarter of 2012 and $12 million in the first quarter of 2013. 
  • Investment and other income totaled $269 million compared with $48 million in the second quarter of 2012 and $72 million in the first quarter of 2013.  The increases compared with both prior periods primarily reflect a gain related to an equity investment.
  • Net interest revenue and the net interest margin (FTE) were $757 million and 1.15% compared with $734 million and 1.25% in the second quarter of 2012 and $719 million and 1.11% in the first quarter of 2013.  Both increases in net interest revenue were primarily driven by a change in the mix of earning assets, lower funding costs, higher rates and higher average interest-earning assets driven by higher deposit levels. 

    The decrease in net interest margin (FTE) compared with the second quarter of 2012 was primarily driven by higher average interest-earning assets and lower yields, partially offset by a change in the mix of earnings assets.
  • The net unrealized pre-tax gain on our total investment securities portfolio was $656 million at June 30, 2013 compared with $2.2 billion at March 31, 2013.  The decrease in the net unrealized pre-tax gain was primarily driven by an increase in long-term interest rates. 

The provision for credit losses was a credit of $19 million in the second quarter of 2013 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 2012 and a credit of $24 million in the first quarter of 2013.

Total noninterest expense








Reconciliation of noninterest expense



2Q13 vs.

(dollars in millions)

2Q13

1Q13

2Q12


2Q12

1Q13

Noninterest expense – GAAP

$ 2,822

$ 2,828

$ 3,047


(7)%

-%

Less:  Amortization of intangible assets

93

86

97




          M&I, litigation and restructuring charges

13

39

378




Total noninterest expense excluding amortization of intangible assets,

M&I, litigation and restructuring charges – Non-GAAP

$ 2,716

$ 2,703

$ 2,572


6%

-%


  • Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges (Non-GAAP) increased 6% year-over-year and was unchanged sequentially.  In noninterest expense, the increases both year-over-year and sequentially resulted from: higher staff expense primarily driven by improved performance; higher business development expenses primarily due to our corporate branding investments; and higher software and equipment expense primarily related to reimbursable customer technology expenditures.  These increases were partially offset by lower other expense primarily resulting from a decrease in the reserve for administrative errors in certain offshore tax-exempt funds. 

The effective tax rate was 27% in the second quarter of 2013 primarily reflecting a gain related to an equity investment and the termination of investments in certain tax credits. 

Capital ratios (a)

June 30,

March 31,

June 30,


2013 (b)

2013

2012

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (c)(d)

9.3%

9.4%

8.7%

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (d)

13.2

12.2 (e)

13.2

Basel I Tier 1 capital ratio

14.8

13.6 (e)

14.7

Basel I Total (Tier 1 plus Tier 2) capital ratio

15.8

14.7 (e)

16.4

Basel I leverage capital ratio

5.3

5.2

5.5

BNY Mellon shareholders' equity to total assets ratio (d)

10.0

10.0

10.5

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

9.5

9.7

10.3

Tangible BNY Mellon shareholders' equity to tangible

assets of operations ratio – Non-GAAP (d)

5.8

5.9

6.1

(a)   Includes full capital credit for certain capital instruments outstanding as of June 30, 2013.  A phase-out of non-qualifying instruments will begin on Jan. 1, 2014.

(b)   Preliminary.

(c)    At June 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our preliminary interpretation of and expectations regarding the final rules released by the Board of Governors of the Federal Reserve (the "Federal Reserve") on July 2, 2013 and presented under the Standardized Approach.  This ratio was 9.8% under the Advanced Approach.  For periods prior to June 30, 2013, these ratios were estimated using our interpretations of the Federal Reserve's Notices of Proposed Rulemaking ("NPRs") dated June 7, 2012, except as otherwise noted.  Both the final rules and the NPRs require the Tier 1 common equity ratio to be the lower of the Standardized Approach or Advanced Approach.  At March 31, 2013, this ratio was 9.4% under the Standardized Approach compared with 9.7% under the Advanced Approach.  For all periods prepared under the NPRs prior to March 31, 2013, this ratio was higher under the Standardized Approach, and therefore was presented under the Advanced Approach.  For all periods prior to June 30, 2013, Basel III risk-weightings for certain repo-style transactions were calculated under the Standardized Approach using the simple value-at-risk ("VaR") method.  At June 30, 2013, Basel III risk-weightings for these transactions were calculated under the Standardized Approach using the collateral haircut approach.

(d)   See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 10 for a calculation of these ratios.

(e)   In the first quarter of 2013, BNY Mellon was required to implement the Basel 2.5 – final market risk rule.  Implementation of these rules resulted in an approximately 35-40 basis points decrease to the Basel I Tier 1 common equity to risk-weighted assets ratio, the Basel I Tier 1 capital ratio and the Basel I Total capital ratio.


Dividends (common) – On July 17, 2013, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.15 per common share.  This cash dividend is payable on Aug. 6, 2013 to shareholders of record as of the close of business on July 29, 2013. 

Dividends (preferred) – On July 17, 2013, The Bank of New York Mellon Corporation also declared dividends for the dividend period ending in September 2013 of $1,022.22 per share on the Series A Noncumulative Perpetual Preferred Stock, liquidation preference $100,000 per share (the "Series A Preferred Stock") (equivalent to approximately $10.22 per Normal Preferred Capital Security of Mellon Capital IV, referred to below, each representing 1/100th interest in a share of Series A Preferred Stock), and $1,300.00 per share on the Series C Noncumulative Perpetual Preferred Stock, liquidation preference $100,000 per share (the "Series C Preferred Stock") (equivalent to approximately $0.33 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock), payable on Sept. 20, 2013 to holders of record as of the close of business on Sept. 5, 2013.  All of the outstanding shares of the Series A Preferred Stock are owned by Mellon Capital IV, which will pass through the September dividend on the Series A Preferred Stock on a proportionate basis to the holders of record, as of the close of business on Sept. 5, 2013, of its Normal Preferred Capital Securities.  All of the outstanding shares of the Series C Preferred Stock are held by the depositary of the depositary shares, which will pass through the September dividend on the Series C Preferred Stock on a proportionate basis to the holders of record, as of the close of business on Sept. 5, 2013, of the depositary shares.

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, 2013, BNY Mellon had $26.2 trillion in assets under custody and/or administration, and $1.4 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 Supplemental Financial Trends for The Bank of New York Mellon Corporation have been updated through June 30, 2013 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 17, 2013.  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 Supplemental Financial Trends, will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on July 17, 2013.  Replays of the conference call and audio webcast will be available beginning July 17, 2013 at approximately 2 p.m. EDT through July 31, 2013 by dialing (800) 294-3086 (U.S.) or (402) 220-9766 (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

amounts and unless otherwise noted; quarterly

returns are annualized)

Quarter ended


Year-to-date

June 30,

2013

March 31,

2013

June 30,

2012


June 30,

2013

June 30,

2012









Return on common equity (a)

9.7%

N/M

5.5%


3.3%

6.4%


Non-GAAP (a)

10.5%

7.8%

8.9%


9.1%

8.9%









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

25.0%

N/M

15.7%


9.5%

18.3%


Non-GAAP adjusted (a)

25.2%

18.5%

22.4%


21.9%

22.7%









Fee revenue as a percentage of total revenue excluding net

securities gains

79%

78%

78%


79%

78%









Annualized fee revenue per employee (based on average

headcount) (in thousands)

$      254

$       229

$       233


$     242

$       233









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

36%

35%

37%


36%

37%









Pre-tax operating margin (a)

30%

22%

16%


26%

20%


Non-GAAP (a)

32%

26%

29%


29%

29%









Net interest margin (FTE)

1.15%

1.11%

1.25%


1.13%

1.28%









Selected average balances:







Interest-earning assets

$268,481

$265,754

$239,755


$267,124

$238,042

Assets of operations

$325,924

$322,161

$293,718


$324,052

$291,808

Total assets

$337,448

$333,664

$305,002


$335,566

$303,172

Interest-bearing deposits

$151,219

$147,728

$130,482


$149,484

$127,959

Noninterest-bearing deposits

$  70,648

$  70,337

$  62,860


$  70,493

$  64,737

Preferred stock

$    1,350

$    1,068

$         60


$    1,210

$         30

Total The Bank of New York Mellon Corporation

common shareholders' equity

$  34,467

$  34,898

$  34,123


$  34,681

$  33,920









Average common shares and equivalents

  outstanding (in thousands):








Basic

1,152,545

1,158,819

1,181,350


1,155,667

1,187,649


Diluted (c)

1,155,981

1,158,819

1,182,985


1,159,169

1,189,264









Period-end data:







Assets under management (in billions) (d)

$  1,432 (e)

$   1,429

$   1,299


$  1,432 (e)

$   1,299

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

$    26.2 (e)

$     26.3

$     25.2


$    26.2 (e)

$     25.2

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

$      255

$      244

$      267


$      255

$      267









Full-time employees

49,800

49,700

48,300


49,800

48,300

Book value per common share – GAAP (a)

$   29.83

$   29.83

$   28.81


$   29.83

$   28.81

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

$   12.41

$   12.47

$   11.47


$   12.41

$   11.47

Cash dividends per common share

$     0.15

$     0.13

$     0.13


$     0.28

$     0.26

Common dividend payout ratio

21%

N/M

33%


58%

29%

Closing stock price per common share

$   28.05

$   27.99

$   21.95


$   28.05

$   21.95

Market capitalization

$ 32,271

$ 32,487

$ 25,929


$ 32,271

$ 25,929

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

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

(c)   Diluted earnings per share for the three months ended March 31, 2013 was calculated using average basic shares.  Adding back the dilutive shares would result in anti-dilution.

(d)   Excludes assets managed in the Investment Services business. 

(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 $1.1 trillion at June 30, 2013 and $1.2 trillion at March 31, 2013 and June 30, 2012.

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

N/M – Not meaningful.

 

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement









(in millions)

Quarter ended


Year-to-date

June 30,

2013

March 31,

2013

June 30,

2012


June 30,

2013

June 30,

2012


Fee and other revenue







Investment services fees:







Asset servicing

$  988

$  969

$  950


$ 1,957

$ 1,893

Issuer services

294

237

275


531

526

Clearing services

321

304

309


625

612

Treasury services

139

141

134


280

270

Total investment services fees

1,742

1,651

1,668


3,393

3,301

Investment management and performance fees

848

822

797


1,670

1,542

Foreign exchange and other trading revenue

207

161

180


368

371

Distribution and servicing

45

49

46


94

92

Financing-related fees

44

41

37


85

81

Investment and other income

269

72

48


341

187

Total fee revenue

3,155

2,796

2,776


5,951

5,574

Net securities gains

32

48

50


80

90

Total fee and other revenue

3,187

2,844

2,826


6,031

5,664

Operations of consolidated investment management

funds







Investment income

159

146

152


305

305

Interest of investment management fund note holders

94

96

95


190

205

Income from consolidated investment management

funds

65

50

57


115

100

Net interest revenue







Interest revenue

836

815

875


1,651

1,787

Interest expense

79

96

141


175

288

Net interest revenue

757

719

734


1,476

1,499

Provision for credit losses

(19)

(24)

(19)


(43)

(14)

Net interest revenue after provision for credit losses

776

743

753


1,519

1,513

Noninterest expense







Staff

1,509

1,472

1,415


2,981

2,868

Professional, legal and other purchased services

317

295

309


612

608

Software and equipment

238

228

209


466

414

Net occupancy

159

163

141


322

288

Distribution and servicing

111

106

103


217

204

Business development

90

68

71


158

127

Sub-custodian

77

64

70


141

140

Other

215

307

254


522

474

Amortization of intangible assets

93

86

97


179

193

Merger and integration, litigation and restructuring charges

13

39

378


52

487

Total noninterest expense

2,822

2,828

3,047


5,650

5,803

Income (loss)







Income before income taxes

1,206

809

589


2,015

1,474

Provision for income taxes

321

1,046

93


1,367

347

Net income (loss)

885

(237)

496


648

1,127

Net (income) attributable to noncontrolling interests

(includes $(39), $(16), $(29) $(55) and $(40) related to

consolidated investment management funds,

respectively)

(40)

(16)

(30)


(56)

(42)

Net income (loss) applicable to shareholders of The

Bank of New York Mellon Corporation

845

(253)

466


592

1,085

Preferred stock dividends

(12)

(13)

-


(25)

-

Net income (loss) applicable to common shareholders

of The Bank of New York Mellon Corporation

$  833

$  (266)

$  466


$  567

$ 1,085

 

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


Net income (loss) 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,

2013

March 31,

2013

June 30,

2012

June 30,

2013

June 30,

2012


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

$ 833

$ (266)

$ 466


$ 567

$ 1,085


Less:    Earnings allocated to participating securities (a)

15

2

7


10

15


            Change in the excess of redeemable value over the

fair value of noncontrolling interests

-

1

1


1

(5)


      Net income (loss) 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

$ 818

$ (269)

$ 458


$ 556

$ 1,075


(a)   In a period with net income, both earnings and dividends are allocated to participating securities.  In a period with a net loss, only dividends are allocated to participating securities.  As a result, the earnings allocated to participating securities for the six months ended June 30, 2013 do not equal the earnings allocated to participating securities for the three months ended June 30, 2013 and March 31, 2013 in aggregate.











 

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,

2013


March 31,

2013


June 30,

2012


June 30,

2013


June 30,

2012

Basic

$ 0.71


$ (0.23)


$ 0.39


$ 0.48


$ 0.91

Diluted (a)

$ 0.71


$ (0.23)


$ 0.39


$ 0.48


$ 0.90

(a)   Diluted earnings per share for the three months ended March 31, 2013 was calculated using average basic shares.  Adding back the

dilutive shares would result in anti-dilution.

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


THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet



June 30,

March 31,

Dec. 31,

(dollars in millions, except per share amounts)

2013

2013

2012

Assets




Cash and due from:




Banks

$     6,940

$     4,440

$     4,727

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

77,150

78,125

90,110

Interest-bearing deposits with banks

42,145

40,888

43,910

Federal funds sold and securities purchased under resale agreements

9,978

7,004

6,593

Securities:




Held-to-maturity (fair value of $13,596, $11,845 and $8,389)

13,785

11,678

8,205

Available-for-sale

91,570

94,878

92,619

Total securities

105,355

106,556

100,824

Trading assets

10,236

12,225

9,378

Loans

50,307

49,224

46,629

Allowance for loan losses

(212)

(237)

(266)

Net loans

50,095

48,987

46,363

Premises and equipment

1,595

1,624

1,659

Accrued interest receivable

614

537

593

Goodwill

17,919

17,920

18,075

Intangible assets

4,588

4,696

4,809

Other assets

21,736

21,704

20,468

Subtotal assets of operations

348,351

344,706

347,509

Assets of consolidated investment management funds, at fair value:




Trading assets

10,766

10,400

10,961

Other assets

705

836

520

Subtotal assets of consolidated investment management funds, at fair value

11,471

11,236

11,481

     Total assets

$ 359,822

$ 355,942

$ 358,990

Liabilities




Deposits:




Noninterest-bearing (principally U.S. offices)

$   82,948

$   80,915

$   93,019

Interest-bearing deposits in U.S. offices

54,428

54,972

53,826

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

107,506

103,785

99,250

       Total deposits

244,882

239,672

246,095

Federal funds purchased and securities sold under repurchase agreements

12,600

8,602

7,427

Trading liabilities

7,331

8,767

8,176

Payables to customers and broker-dealers

15,267

14,986

16,095

Commercial paper

111

78

338

Other borrowed funds

1,060

789

1,380

Accrued taxes and other expenses

7,340

7,576

7,316

Other liabilities (includes allowance for lending-related commitments of $125, $121 and $121)

5,677

9,002

6,010

Long-term debt

18,481

19,854

18,530

     Subtotal liabilities of operations

312,749

309,326

311,367

Liabilities of consolidated investment management funds, at fair value:




Trading liabilities

10,110

9,908

10,152

Other liabilities

32

34

29

     Subtotal liabilities of consolidated investment management funds, at fair value

10,142

9,942

10,181

     Total liabilities

322,891

319,268

321,548

Temporary equity




Redeemable noncontrolling interests

189

178

178

Permanent equity




Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 15,826,

10,826 and 10,826 shares

1,562

1,068

1,068

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued

1,262,295,165, 1,260,549,075 and 1,254,182,209 shares

13

13

13

Additional paid-in capital

23,796

23,688

23,485

Retained earnings

14,859

14,202

14,622

Accumulated other comprehensive loss, net of tax

(1,651)

(915)

(643)

Less:  Treasury stock of 111,818,475, 99,902,366 and 90,691,868 common shares, at cost

(2,697)

(2,366)

(2,114)

Total The Bank of New York Mellon Corporation shareholders' equity

35,882

35,690

36,431

Nonredeemable noncontrolling interests of consolidated investment management funds

860

806

833

Total permanent equity

36,742

36,496

37,264

Total liabilities, temporary equity and permanent equity

$ 359,822

$ 355,942

$ 358,990

Capital

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


Basel I Tier 1 common equity generation




(in millions)

2Q13

1Q13

2Q12

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

  Mellon Corporation – GAAP

$  833

$ (266)

$  466

Add:  Amortization of intangible assets, net of tax

59

56

61

Gross Basel I Tier 1 common equity generated

892

(210)

527

Less capital deployed:




Dividends

177

153

156

Common stock repurchased

330

211

286

Total capital deployed

507

364

442

Add:  Other

159

119

(53)

Net Basel I Tier 1 common equity generated (deployed)

$ 544

$ (455)

$ 32

Supplemental information – Explanation of Non-GAAP financial measures

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based upon Tier 1 common equity and tangible common shareholders' equity.  BNY Mellon believes that the ratio of Tier 1 common equity to risk-weighted assets and the ratio of tangible common shareholders' equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are utilized by regulatory authorities.  The ratio of Basel I Tier 1 common equity to risk-weighted assets excludes preferred stock and trust preferred securities from the numerator of the ratio.  Unlike the Basel I Tier 1 and Total capital ratios, the tangible common shareholders' equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders' equity.  In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes.  Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon's performance in reference to those assets which are productive in generating income.  BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding.  BNY Mellon has presented its estimated Basel III Tier 1 common equity ratio based on its current interpretation, expectations and understanding of the final Basel III rules released by the Board of Governors of the Federal Reserve on July 2, 2013 and on the application of such rules to BNY Mellon's businesses as currently conducted.  The estimated Basel III Tier 1 common equity ratio is necessarily subject to, among other things, BNY Mellon's further review and implementation of the final Basel III rules, anticipated compliance with all necessary enhancements to model calibration and other refinements, further implementation guidance from regulators and any changes BNY Mellon may make to its businesses.  Consequently, BNY Mellon's Basel III Tier 1 common equity ratio estimate may change based on these factors.  Management views the Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon's capital position and progress against future regulatory capital standards. Additionally, the presentation of the Basel III Tier 1 common equity ratio is intended to allow investors to compare BNY Mellon's Basel III Tier 1 common equity ratio with estimates presented by other companies.

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

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

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

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


Pre-tax operating margin







(dollars in millions)

2Q13

1Q13

2Q12


YTD13

YTD12


Income before income taxes – GAAP

$ 1,206

$  809

$    589


$ 2,015

$ 1,474


Less:  Net income attributable to noncontrolling interests

of consolidated investment management funds

39

16

29


55

40


Add:  Amortization of intangible assets

93

86

97


179

193


M&I, litigation and restructuring charges

13

39

378


52

487


Income before income taxes excluding net income

attributable to noncontrolling interests of consolidated

investment management funds, amortization of

intangible assets and M&I, litigation and restructuring

charges – Non-GAAP

$ 1,273

$  918

$ 1,035


$ 2,191

$ 2,114










Fee and other revenue – GAAP

$ 3,187

$ 2,844

$ 2,826


$ 6,031

$ 5,664


Income from consolidated investment management funds – GAAP

65

50

57


115

100


Net interest revenue – GAAP

757

719

734


1,476

1,499


Total revenue – GAAP

4,009

3,613

3,617


7,622

7,263


Less:  Net income attributable to noncontrolling interests

of consolidated investment management funds

39

16

29


55

40


Total revenue excluding net income attributable to

noncontrolling interests of consolidated investment

management funds – Non-GAAP

$ 3,970

$ 3,597

$ 3,588


$ 7,567

$ 7,223










Pre-tax operating margin (a)

30%

22%

16%


26%

20%


Pre-tax operating margin excluding net income attributable

to noncontrolling interests of consolidated investment

management funds, amortization of intangible assets

and M&I, litigation and restructuring charges – Non-

GAAP (a)

32%

26%

29%


29%

29%


(a)   Income before taxes divided by total revenue.



















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

Return on common equity and tangible common equity







(dollars in millions)

2Q13

1Q13

2Q12


YTD13

YTD12

Net income (loss) applicable to common shareholders of

The Bank of New York Mellon Corporation – GAAP

$ 833

$ (266)

$ 466


$ 567

$ 1,085

Add: Amortization of intangible assets, net of tax

59

56

61


115

122

Net income (loss) applicable to common shareholders of

The Bank of New York Mellon Corporation excluding

amortization of intangible assets – Non-GAAP

892

(210)

527


682

1,207

Add:   M&I, litigation and restructuring charges

8

24

225


32

290

 Charge related to the disallowance of certain foreign

tax credits

-

854

-


854

-

Net income applicable to common shareholders of The

Bank of New York Mellon Corporation excluding

amortization of intangible assets, M&I, litigation and

restructuring charges and the charge related to the

disallowance of certain foreign tax credits – Non-

GAAP

$ 900

$ 668

$ 752


$ 1,568

$ 1,497








Average common shareholders' equity

$ 34,467

$ 34,898

$ 34,123


$ 34,681

$ 33,920

Less:  Average goodwill

17,957

17,993

17,941


17,975

17,951

           Average intangible assets

4,661

4,758

5,024


4,709

5,073

Add:   Deferred tax liability – tax deductible goodwill

1,200

1,170

982


1,200

982

Deferred tax liability – non-tax deductible intangible assets

1,269

1,293

1,400


1,269

1,400

Average tangible common shareholders' equity – Non-GAAP

$ 14,318

$ 14,610

$ 13,540


$ 14,466

$ 13,278








Return on common equity – GAAP (a)

9.7%

N/M

5.5%


3.3%

6.4%

Return on common equity excluding amortization of

intangible assets, M&I, litigation and restructuring

charges and the charge related to the disallowance of

certain foreign tax credits – Non-GAAP (a)

10.5%

7.8%

8.9%


9.1%

8.9%

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

25.0%

N/M

15.7%


9.5%

18.3%

Return on tangible common equity excluding M&I,

litigation and restructuring charges and the charge

related to the disallowance of certain foreign tax credits

Non-GAAP (a)

25.2%

18.5%

22.4%


21.9%

22.7%

(a)   Annualized.







N/M – Not meaningful.







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

Equity to assets and book value per common share

June 30,

March 31,

June 30,

(dollars in millions, unless otherwise noted)

2013

2013

2012

BNY Mellon shareholders' equity at period end – GAAP

$  35,882

$  35,690

$  34,533

Less:  Preferred stock

1,562

1,068

500

BNY Mellon common shareholders' equity at period end – GAAP

34,320

34,622

34,033

Less:  Goodwill

17,919

17,920

17,909

Intangible assets

4,588

4,696

4,962

Add:  Deferred tax liability – tax deductible goodwill

1,200

1,170

982

Deferred tax liability – non-tax deductible intangible assets

1,269

1,293

1,400

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

$ 14,282

$ 14,469

$  13,544





Total assets at period end – GAAP

$359,822

$355,942

$330,283

Less:  Assets of consolidated investment management funds

11,471

11,236

10,955

Subtotal assets of operations – Non-GAAP

348,351

344,706

319,328

Less:  Goodwill

17,919

17,920

17,909

Intangible assets

4,588

4,696

4,962

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

78,671

78,059

72,838

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

$247,173

$244,031

$223,619





BNY Mellon shareholders' equity to total assets – GAAP

10.0%

10.0%

10.5%

BNY Mellon common shareholders' equity to total assets – GAAP

9.5%

9.7%

10.3%

Tangible BNY Mellon common shareholders' equity to tangible assets of

operations – Non-GAAP

5.8%

5.9%

6.1%





Period-end common shares outstanding (in thousands)

1,150,477

1,160,647

1,181,298





Book value per common share

$ 29.83

$ 29.83

$ 28.81

Tangible book value per common share – Non-GAAP

$ 12.41

$ 12.47

$ 11.47

(a)   Assigned a zero percent risk-weighting by the regulators.




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


Calculation of Basel I Tier 1 common equity to risk-weighted

    assets ratio – Non-GAAP

June 30,

March 31,

June 30,

(dollars in millions)

2013 (a)

2013

2012

Total Tier 1 capital – Basel I

$   16,957

$   16,219

$   15,722

Less:  Trust preferred securities

303

603

1,164

Preferred stock

1,562

1,068

500

Total Tier 1 common equity

$   15,092

$   14,548

$   14,058





Total risk-weighted assets – Basel I

$ 114,607

$ 119,382

$ 106,764





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

13.2%

12.2%

13.2%

(a)   Preliminary.




The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio.

Estimated Basel III Tier 1 common equity ratio – Non-GAAP (a)

June 30,

March 31,

June 30,

(dollars in millions)

2013 (b)

2013

2012

Total Tier 1 capital – Basel I

$   16,957

$   16,219

$   15,722

Add:  Deferred tax liability – tax deductible intangible assets

81

78

N/A   

Less: Preferred stock

1,562

1,068

500

          Trust preferred securities

303

603

1,164

          Adjustments related to available-for-sale securities and pension

            liabilities included in accumulated other comprehensive income (c)

802

78

513

          Adjustments related to equity method investments (c)

500

488

558

          Net pension fund assets (c)

268

258

43

          Deferred tax assets

26

52

46

          Other

-

1

2

                  Total estimated Basel III Tier 1 common equity

$   13,577

$   13,749

$   12,896





Total risk-weighted assets – Basel I

$ 114,607

$ 119,382

$ 106,764

Add:  Adjustments (d)

31,329

26,898

41,493

                  Total estimated Basel III risk-weighted assets

$ 145,936

$ 146,280

$ 148,257

                  Estimated Basel III Tier 1 common equity ratio – Non-GAAP

9.3%

9.4%

8.7%

(a)   At June 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our preliminary interpretation of and expectations regarding the final rules released by the Federal Reserve on July 2, 2013 and presented under the Standardized Approach.  This ratio was 9.8% under the Advanced Approach.  For periods prior to June 30, 2013, these ratios were estimated using our interpretations of the NPRs dated June 7, 2012, except as otherwise noted.  Both the final rules and the NPRs require the Tier 1 common equity ratio to be the lower of the Standardized Approach or Advanced Approach.  At March 31, 2013, this ratio was 9.4% under the Standardized Approach compared with 9.7% under the Advanced Approach.  For all periods prepared under the NPRs prior to March 31, 2013, this ratio was higher under the Standardized Approach, and therefore was presented under the Advanced Approach.  For all periods prior to June 30, 2013, Basel III risk-weightings for certain repo-style transactions were calculated under the Standardized Approach using the simple VaR method.  At June 30, 2013, Basel III risk-weightings for these transactions were calculated under the Standardized Approach using the collateral haircut approach.

(b)   Preliminary.

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

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

N/A – Not applicable.

 

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






Standardized

Approach


Advanced

Approach


Estimated Basel III Tier 1 common equity ratio – Non-GAAP at March 31, 2013

9.4%


9.7%


Impacted by:





Capital generation

40

bps

40

bps

Change in accumulated other comprehensive income

(50)

bps

(50)

bps

Change in risk-weighted assets

25

bps

10

bps

Impact of final rules

(25)

bps

10

bps

Estimated Basel III Tier 1 common equity ratio – Non-GAAP at June 30, 2013

9.3%


9.8%


bps - basis points





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 regarding those ratios, preliminary business metrics and statements made regarding improved market conditions, our targeted investments and our strategic efforts.  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, 2012 and its other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 17, 2013 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

SOURCE BNY Mellon



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