2014

BNY Mellon Reports Third Quarter Earnings Of $967 Million Or $0.82 Per Common Share; Earnings Per Share Of $0.60 Excluding The Benefit Related To A Recent U.S. Tax Court Decision (a)

NEW YORK, Oct. 16, 2013 /PRNewswire/ --

INVESTMENT MANAGEMENT FEES UP 5% YEAR-OVER-YEAR

  • Assets under management up 13% year-over-year
  • Net long-term inflows of $32 billion in third quarter of 2013

INVESTMENT SERVICES FEES UP 4% YEAR-OVER-YEAR

GENERATED $1.1 BILLION OF ESTIMATED NET BASEL III TIER 1 COMMON EQUITY (a)

RETURN ON TANGIBLE COMMON EQUITY 21% (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter net income applicable to common shareholders of $967 million, or $0.82 per diluted common share.  Excluding the benefit related to the U.S. Tax Court's partial reconsideration of a tax decision, net income applicable to common shareholders totaled $706 million, or $0.60 per diluted common share, compared with $720 million, or $0.61 per diluted common share, in the third quarter of 2012 and $833 million, or $0.71 per diluted common share, in the second quarter of 2013.  The second quarter of 2013 results include an after-tax gain of $109 million, or $0.09 per common share, related to an equity investment.

"We are pleased to report strong year-over-year revenue and earnings growth in our Investment Management and Investment Services businesses.  These results reflect our focus on driving organic growth and delivering enhanced solution sets from across our Company that help our clients succeed.  Market conditions also improved for most of our businesses and, notably, we recorded the sixteenth consecutive quarter of positive net long-term inflows in Investment Management," said Gerald L. Hassell, chairman and chief executive officer.

"We continue to remain ahead of our Operational Excellence initiatives goals, the savings from which have provided us the flexibility to make targeted investments in our platforms and service applications to deliver the full breadth of our global capabilities," added Mr. Hassell.

"Finally, we continue to strengthen our balance sheet and capital position, as we generated more than $1 billion of estimated Basel III Tier 1 common equity and once again delivered a very healthy return on tangible common equity for our shareholders," concluded Mr. Hassell.


___________________

(a) 

See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 9 for the calculation of the Non-GAAP measures.



Third 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



3Q13 vs.

(dollars in millions)

3Q13

2Q13

3Q12


3Q12

2Q13

Fee and other revenue

$ 2,963

$ 3,187

$ 2,879


3%

(7)%

Income from consolidated investment management funds

32

65

47




Net interest revenue

772

757

749




Total revenue – GAAP

3,767

4,009

3,675




Less:  Net income attributable to noncontrolling interests related to

             consolidated investment management funds

8

39

25




Gain related to an equity investment (pre-tax)

-

184

-




Total revenue – Non-GAAP

$ 3,759

$ 3,786

$ 3,650


3%

(1)%

 

  • Assets under custody and/or administration ("AUC/A") amounted to $27.4 trillion at Sept. 30, 2013, an increase of 4% compared with the prior year and 5% sequentially.  The year-over-year increase was primarily driven by higher market values and net new business.  The sequential increase primarily reflects higher market values and the positive impact of foreign currency rates.  Assets under management ("AUM") amounted to a record $1.53 trillion at Sept. 30, 2013, an increase of 13% compared with the prior year and 7% sequentially.  Both the year-over-year and sequential increases primarily resulted from net new business and higher market values.  Long-term inflows totaled $32 billion and short-term inflows totaled $13 billion for the third quarter of 2013.  Long-term inflows benefited from liability-driven investments, alternative investments and active equity and index funds.

  • Investment services fees totaled $1.7 billion, an increase of 4% year-over-year and unchanged sequentially.  The year-over-year increase primarily reflects higher clearing services fees driven by higher mutual fund and asset-based fees and volumes, higher asset servicing revenue resulting from higher market values and higher issuer services revenue driven by higher Depositary Receipts revenue.  Sequentially, higher issuer services revenue driven by seasonally higher Depositary Receipts revenue was offset by a seasonal decrease in securities lending revenue, lower activity and lower expense reimbursements.  Additionally, higher money market fee waivers decreased investment services revenue both year-over-year and sequentially.

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

  • Foreign exchange and other trading revenue totaled $160 million compared with $182 million in the third quarter of 2012 and $207 million in the second quarter of 2013.  In the third quarter of 2013, foreign exchange revenue totaled $154 million, an increase of 27% year-over-year and a decrease of 14% sequentially.  The year-over-year increase primarily reflects higher volumes and volatility.  The sequential decrease was primarily driven by lower volatility while volumes increased slightly.  Other trading revenue was $6 million in the third quarter of 2013 compared with $61 million in third quarter of 2012 and $28 million in the second quarter of 2013.  The decrease compared with both prior periods primarily reflects lower fixed income trading revenue.

  • Investment and other income totaled $135 million in the third quarter of 2013 compared with $124 million in the third quarter of 2012 and $269 million in the second quarter of 2013.  The year-over-year increase primarily reflects higher equity investment revenue, partially offset by lower seed capital gains.  The sequential decrease primarily reflects a gain related to an equity investment recorded in the second quarter of 2013.

  • Net interest revenue and the net interest margin (FTE) were $772 million and 1.16% in the third quarter of 2013 compared with $749 million and 1.20% in the third quarter of 2012 and $757 million and 1.15% in the second quarter of 2013.  Both increases in net interest revenue were primarily driven by lower premium amortization on investment securities and higher average interest-earning assets.  The year-over-year increase also reflects a change in the mix of earning assets and lower funding costs.  Additionally, the sequential increase was partially offset by a change in the mix of earning assets, including a decrease in the investment securities portfolio. 

  • The net unrealized pre-tax gain on our total investment securities portfolio was $723 million at Sept. 30, 2013 compared with $656 million at June 30, 2013.  The increase in the net unrealized pre-tax gain was primarily driven by lower credit spreads on foreign securities. 

The provision for credit losses was $2 million in the third quarter of 2013, a credit of $5 million in the third quarter of 2012 and a credit of $19 million in the second quarter of 2013.

Total noninterest expense

Reconciliation of noninterest expense



3Q13 vs.

(dollars in millions)

3Q13

2Q13

3Q12


3Q12

2Q13

Noninterest expense – GAAP

$ 2,779

$ 2,822

$ 2,705


3%

(2)%

Less:  Amortization of intangible assets

81

93

95




           M&I, litigation and restructuring charges

16

13

26




Total noninterest expense excluding amortization of intangible assets,

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

$ 2,682

$ 2,716

$ 2,584


4%

(1)%

 

  • Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges (Non-GAAP) increased 4% year-over-year and decreased 1% sequentially.  The year-over-year increase primarily resulted from higher staff expense driven by higher incentive and employee benefit expenses, and the impact of the annual employee merit increase.  The sequential decrease primarily resulted from lower business development and professional, legal and other purchased services expenses, partially offset by a reduction in the reserve for administrative errors in certain offshore tax-exempt funds recorded in the second quarter of 2013 and the impact of the annual employee merit increase. 

The benefit for income taxes totaled $2 million in the third quarter of 2013 and included a benefit of $261 million related to the U.S. Tax Court's partial reconsideration of its original tax decision on Feb. 11, 2013 disallowing certain foreign tax credits.  Excluding the impact of the U.S. Tax Court's partial reconsideration, the effective tax rate on an operating basis – Non-GAAP was 26% in the third quarter of 2013. 


Capital ratios

Sept. 30,

June 30,

Sept. 30,


2013 (a)

2013

2012

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




Standardized Approach

10.1%

9.3%

N/A

Advanced Approach

11.1

9.8

9.3%

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

14.2

13.2

13.3

Basel I Tier 1 capital ratio

15.8

14.8

15.3

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

16.8

15.8

16.9

Basel I leverage capital ratio

5.6

5.3

5.6

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

9.9

10.0

10.7

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

9.5

9.5

10.3

Tangible BNY Mellon shareholders' equity to tangible

assets of operations ratio – Non-GAAP (c)

6.4

5.8

6.3

(a)   Preliminary.

(b)   At Sept. 30, 2013 and June 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of and

        expectations regarding the final rules released by the Board of Governors of the Federal Reserve (the "Federal Reserve") on July 2,

       2013, on a fully phased-in basis.  For periods prior to June 30, 2013, these ratios were estimated using our interpretation of the

       Federal Reserve's Notices of Proposed Rulemaking ("NPRs") dated June 7, 2012, on a fully phased-in basis. 

(c)  See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 9 for a calculation of these

       ratios.

N/A – Not available.

Dividends
Common – On Oct. 16, 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 Nov. 5, 2013 to shareholders of record as of the close of business on Oct. 28, 2013. 

Preferred – On Oct. 16, 2013, The Bank of New York Mellon Corporation also declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in December 2013, in each case, payable on Dec. 20, 2013 to holders of record as of the close of business on Dec. 5, 2013:

  • $1,011.11 per share on the Series A Preferred Stock (equivalent to approximately $10.11 per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A Preferred Stock);
  • $1,300.00 per share on the Series C Preferred Stock (equivalent to approximately $0.33 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock); and
  • $2,662.50 per share on the Series D Preferred Stock (equivalent to approximately $26.63 per depositary share, each representing a 1/100th interest in a share of the Series D Preferred Stock).

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle.  Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets.  As of Sept. 30, 2013, BNY Mellon had $27.4 trillion in assets under custody and/or administration, and $1.5 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 Sept. 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 Oct. 16, 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 Oct. 16, 2013.  Replays of the conference call and audio webcast will be available beginning Oct. 16, 2013 at approximately 2 p.m. EDT through Oct. 30, 2013 by dialing (866) 484-4215 (U.S.) or (203) 369-1593 (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

Sept. 30,

2013

June 30,

2013

Sept. 30,

2012


Sept. 30,

2013

Sept. 30,

2012








Return on common equity (a)

11.2%

9.7%

8.3%


5.9%

7.1%


Non-GAAP (a)

8.9%

10.5%

9.2%


9.0%

9.0%









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

28.4%

25.0%

22.1%


15.8%

19.6%


Non-GAAP adjusted (a)

21.5%

25.2%

22.5%


21.7%

22.6%









Fee revenue as a percentage of total revenue excluding net

   securities gains

79%

79%

78%


79%

78%









Annualized fee revenue per employee (based on average

   headcount) (in thousands)

$      232

$      254

$       235


$      238

$       233









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

39%

36%

37%


37%

37%









Pre-tax operating margin (a)

26%

30%

27%


26%

22%


Non-GAAP (a)

29%

32%

29%


29%

29%









Net interest margin (FTE)

1.16%

1.15%

1.20%


1.14%

1.25%









Selected average balances:







Interest-earning assets

$271,150

$268,481

$255,228


$268,480

$243,814

Assets of operations

$329,887

$325,931

$307,919


$326,020

$297,219

Total assets

$341,750

$337,455

$318,914


$337,651

$308,459

Interest-bearing deposits

$153,547

$151,219

$138,260


$150,853

$131,418

Noninterest-bearing deposits

$  72,075

$  70,648

$  70,230


$  71,026

$  66,581

Preferred stock

$    1,562

$    1,350

$       611


$    1,328

$       225

Total The Bank of New York Mellon Corporation common

   shareholders' equity

$  34,264

$  34,467

$  34,522


$  34,541

$  34,123









Average common shares and equivalents

   outstanding (in thousands):







Basic

1,148,724

1,152,545

1,169,674


1,153,327

1,181,614

Diluted

1,152,679

1,155,981

1,171,534


1,156,951

1,183,309









Period-end data:







Assets under management (in billions) (c)

$  1,532 (d)

$  1,432

$   1,359


$  1,532 (d)

$   1,359

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

$    27.4 (d)

$    26.2

$     26.4


$    27.4 (d)

$     26.4

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

$      255

$      255

$      251


$      255

$      251









Full-time employees

50,800

49,800

48,700


50,800

48,700

Book value per common share – GAAP (a)

$   30.82

$   29.83

$   30.11


$   30.82

$   30.11

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

$   13.36

$   12.41

$   12.59


$   13.36

$   12.59

Cash dividends per common share

$     0.15

$     0.15

$     0.13


$     0.43

$     0.39

Common dividend payout ratio

18%

21%

21%


33%

26%

Closing stock price per common share

$   30.19

$   28.05

$   22.62


$   30.19

$   22.62

Market capitalization

$ 34,674

$ 32,271

$ 26,434


$ 34,674

$ 26,434

(a)   Non-GAAP excludes M&I, litigation and restructuring charges and the impact of the U.S. Tax Court's disallowance of certain

        foreign tax credits, if applicable.  See "Supplemental information – Explanation of Non-GAAP financial measures" beginning on page 9 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)   Excludes assets managed in the Investment Services business. 

(d)   Preliminary.   

(e)   Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian

       Imperial Bank of Commerce, of $1.2 trillion at Sept. 30, 2013, $1.1 trillion at June 30, 2013 and $1.2 trillion at Sept. 30, 2012.

(f)    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

Sept. 30,

2013

June 30,

2013

Sept. 30,

2012


Sept. 30,

2013

Sept. 30,

2012

Fee and other revenue







Investment services fees:







Asset servicing

$  964

$  988

$  942


$  2,921

$ 2,835

Issuer services

322

294

311


853

837

Clearing services

315

321

287


940

899

Treasury services

137

139

138


417

408

Total investment services fees

1,738

1,742

1,678


5,131

4,979

Investment management and performance fees

821

848

779


2,491

2,321

Foreign exchange and other trading revenue

160

207

182


528

553

Distribution and servicing

43

45

48


137

140

Financing-related fees

44

44

46


129

127

Investment and other income

135

269

124


476

311

Total fee revenue

2,941

3,155

2,857


8,892

8,431

Net securities gains

22

32

22


102

112

Total fee and other revenue

2,963

3,187

2,879


8,994

8,543

Operations of consolidated investment management

   funds







Investment income

134

159

151


439

456

Interest of investment management fund note holders

102

94

104


292

309

Income from consolidated investment management

   funds

32

65

47


147

147

Net interest revenue







Interest revenue

855

836

877


2,506

2,664

Interest expense

83

79

128


258

416

Net interest revenue

772

757

749


2,248

2,248

Provision for credit losses

2

(19)

(5)


(41)

(19)

Net interest revenue after provision for credit losses

770

776

754


2,289

2,267

Noninterest expense







Staff

1,516

1,509

1,436


4,497

4,304

Professional, legal and other purchased services

296

317

292


908

900

Software and equipment

226

238

208


692

622

Net occupancy

153

159

149


475

437

Distribution and servicing

108

111

109


325

313

Business development

63

90

60


221

187

Sub-custodian

71

77

65


212

205

Other

249

215

265


771

739

Amortization of intangible assets

81

93

95


260

288

Merger and integration, litigation and restructuring charges

16

13

26


68

513

Total noninterest expense

2,779

2,822

2,705


8,429

8,508

Income







Income before income taxes

986

1,206

975


3,001

2,449

(Benefit) provision for income taxes

(2)

321

225


1,365

572

Net income

988

885

750


1,636

1,877

Net (income) attributable to noncontrolling interests

   (includes $(8), $(39), $(25), $(63) and $(65) related to

   consolidated investment management funds,

   respectively)

(8)

(40)

(25)


(64)

(67)

Net income applicable to shareholders of The Bank of

   New York Mellon Corporation

980

845

725


1,572

1,810

Preferred stock dividends

(13)

(12)

(5)


(38)

(5)

Net income applicable to common shareholders of The

   Bank of New York Mellon Corporation

$  967

$  833

$  720


$  1,534

$ 1,805

 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement - continued


Net income applicable to common shareholders of The

   Bank of New York Mellon Corporation used for the

   earnings per share calculation

(in millions)




Quarter ended


Year-to-date

Sept. 30,

2013

June 30,

2013

Sept. 30,

2012

Sept. 30,

2013

Sept. 30,

2012

Net income applicable to common shareholders of The

   Bank of New York Mellon Corporation

$ 967

$ 833

$ 720


$ 1,534

$ 1,805

Less:    Earnings allocated to participating securities

18

15

11


27

26

             Change in the excess of redeemable value over

                the fair value of noncontrolling interests

-

-

-


1

(5)

      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

$ 949

$ 818

$ 709


$ 1,506

$ 1,784





Earnings per share applicable to the common

   shareholders of The Bank of New York Mellon

   Corporation (a)

(in dollars)




Quarter ended


Year-to-date

Sept. 30,

2013

June 30,

2013

Sept. 30,

2012


Sept. 30,

2013

Sept. 30,

2012

Basic

$ 0.83

$ 0.71

$ 0.61


$ 1.31

$ 1.51

Diluted

$ 0.82

$ 0.71

$ 0.61


$ 1.30

$ 1.51

(a)   Basic and diluted earnings per share under the two-class method are determined on the net income applicable to common

       shareholders of The Bank of New York Mellon Corporation reported on the income statement less earnings allocated to

       participating securities, and the change in the excess of redeemable value over the fair value of noncontrolling interests.

 

THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet



Sept. 30,

June 30,

Dec. 31,

(dollars in millions, except per share amounts)

2013

2013

2012

Assets




Cash and due from:




Banks

$     7,304

$     6,940

$     4,727

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

95,519

77,150

90,110

Interest-bearing deposits with banks

41,390

42,145

43,910

Federal funds sold and securities purchased under resale agreements

9,191

9,978

6,593

Securities:




Held-to-maturity (fair value of $20,300, $13,596 and $8,389)

20,358

13,785

8,205

Available-for-sale

77,099

91,570

92,619

Total securities

97,457

105,355

100,824

Trading assets

12,101

10,908

9,378

Loans

50,138

50,307

46,629

Allowance for loan losses

(206)

(212)

(266)

Net loans

49,932

50,095

46,363

Premises and equipment

1,569

1,595

1,659

Accrued interest receivable

545

614

593

Goodwill

18,025

17,919

18,075

Intangible assets

4,527

4,588

4,809

Other assets

22,701

21,747

20,468

Subtotal assets of operations

360,261

349,034

347,509

Assets of consolidated investment management funds, at fair value:




Trading assets

10,725

10,766

10,961

Other assets

966

705

520

Subtotal assets of consolidated investment management funds, at fair value

11,691

11,471

11,481

Total assets

$ 371,952

$ 360,505

$ 358,990

Liabilities




Deposits:




Noninterest-bearing (principally U.S. offices)

$   87,303

$   82,948

$   93,019

Interest-bearing deposits in U.S. offices

58,505

54,428

53,826

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

109,752

107,506

99,250

Total deposits

255,560

244,882

246,095

Federal funds purchased and securities sold under repurchase agreements

9,737

12,600

7,427

Trading liabilities

9,022

8,014

8,176

Payables to customers and broker-dealers

15,293

15,267

16,095

Commercial paper

1,851

111

338

Other borrowed funds

844

1,060

1,380

Accrued taxes and other expenses

6,467

7,340

7,316

Other liabilities (includes allowance for lending-related commitments of $133, $125 and $121)

5,848

5,677

6,010

Long-term debt

18,889

18,481

18,530

Subtotal liabilities of operations

323,511

313,432

311,367

Liabilities of consolidated investment management funds, at fair value:




Trading liabilities

10,380

10,110

10,152

Other liabilities

78

32

29

Subtotal liabilities of consolidated investment management funds, at fair value

10,458

10,142

10,181

Total liabilities

333,969

323,574

321,548

Temporary equity




Redeemable noncontrolling interests

203

189

178

Permanent equity




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

   15,826 and 10,826 shares

1,562

1,562

1,068

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

   1,264,234,315, 1,262,295,165 and 1,254,182,209 shares

13

13

13

Additional paid-in capital

23,903

23,796

23,485

Retained earnings

15,639

14,859

14,622

Accumulated other comprehensive loss, net of tax

(1,339)

(1,651)

(643)

Less:  Treasury stock of 115,712,764, 111,818,475 and 90,691,868 common shares, at cost

(2,819)

(2,697)

(2,114)

Total The Bank of New York Mellon Corporation shareholders' equity

36,959

35,882

36,431

Nonredeemable noncontrolling interests of consolidated investment management funds

821

860

833

Total permanent equity

37,780

36,742

37,264

Total liabilities, temporary equity and permanent equity

$ 371,952

$ 360,505

$ 358,990


 

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

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

3Q13

2Q13

3Q12


YTD13

YTD12

Income before income taxes – GAAP

$ 986

$ 1,206

$    975


$ 3,001

$ 2,449

Less:  Net income attributable to noncontrolling interests of

           consolidated investment management funds

8

39

25


63

65

Add:  Amortization of intangible assets

81

93

95


260

288

M&I, litigation and restructuring charges

16

13

26


68

513

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

$ 1,075

$ 1,273

$ 1,071


$ 3,266

$ 3,185








Fee and other revenue – GAAP

$ 2,963

$ 3,187

$ 2,879


$ 8,994

$ 8,543

Income from consolidated investment management

funds – GAAP

32

65

47


147

147

Net interest revenue – GAAP

772

757

749


2,248

2,248

Total revenue – GAAP

3,767

4,009

3,675


11,389

10,938

Less:  Net income attributable to noncontrolling interests of

           consolidated investment management funds

8

39

25


63

65

Total revenue excluding net income attributable to

   noncontrolling interests of consolidated investment

   management funds – Non-GAAP

$ 3,759

$ 3,970

$ 3,650


$ 11,326

$ 10,873








Pre-tax operating margin (a)

26%

30%

27%


26%

22%

Pre-tax operating margin excluding net income attributable

   to noncontrolling interests of consolidated investment

   management funds, amortization of intangible assets

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

   GAAP (a)

29%

32%

29%


29%

29%

(a)   Income before taxes divided by total revenue.







 

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

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

3Q13


Net

Diluted

(in millions, except per common share amounts)

income

EPS

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

$ 967

$ 0.82

Benefit related to the U.S. Tax Court's partial reconsideration of a tax decision disallowing certain



foreign tax credits

261

(0.22)

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

$ 706

$ 0.60

 

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

Return on common equity and tangible common equity







(dollars in millions)

3Q13

2Q13

3Q12


YTD13

YTD12

Net income applicable to common shareholders of The

   Bank of New York Mellon Corporation – GAAP

$ 967

$ 833

$ 720


$ 1,534

$ 1,805

Add: Amortization of intangible assets, net of tax

52

59

60


167

182

Net income applicable to common shareholders of The

   Bank of New York Mellon Corporation excluding

   amortization of intangible assets – Non-GAAP

1,019

892

780


1,701

1,987

Add:   M&I, litigation and restructuring charges

12

8

18


44

308

 (Benefit) net charge related to the disallowance of

    certain foreign tax credits

(261)

-

-


593

-

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 (benefit) net charge

   related to the disallowance of certain foreign tax

   credits – Non-GAAP

$ 770

$ 900

$ 798


$ 2,338

$ 2,295








Average common shareholders' equity

$ 34,264

$ 34,467

$ 34,522


$ 34,541

$ 34,123

Less:  Average goodwill

17,975

17,957

17,918


17,975

17,941

           Average intangible assets

4,569

4,661

4,926


4,662

5,023

Add:   Deferred tax liability – tax deductible goodwill

1,262

1,200

1,057


1,262

1,057

 Deferred tax liability – non-tax deductible intangible

    assets

1,242

1,269

1,339


1,242

1,339

Average tangible common shareholders' equity – Non-

   GAAP

$ 14,224

$ 14,318

$ 14,074


$ 14,408

$ 13,555








Return on common equity – GAAP (a)

11.2%

9.7%

8.3%


5.9%

7.1%

Return on common equity excluding amortization of

   intangible assets, M&I, litigation and restructuring

   charges and the (benefit) net charge related to the

   disallowance of certain foreign tax credits – Non-

   GAAP (a)

8.9%

10.5%

9.2%


9.0%

9.0%








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

28.4%

25.0%

22.1%


15.8%

19.6%

Return on tangible common equity excluding M&I,

   litigation and restructuring charges and the (benefit) net

   charge related to the disallowance of certain foreign tax

   credits – Non-GAAP (a)

21.5%

25.2%

22.5%


21.7%

22.6%

(a)   Annualized.







N/M – Not meaningful.







 

The following table presents the calculation of the effective tax rate.

Effective tax rate


(dollars in millions)

3Q13

Benefit for income taxes – GAAP

$    (2)

Less:  Benefit of the partial reconsideration of the U.S. Tax Court's decision disallowing certain foreign tax credits

261

Provision for income taxes – Non-GAAP

$  259



Income before taxes – GAAP

$   986



Effective tax rate – GAAP

-%

Effective tax rate – Operating basis – Non-GAAP

26%

 

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

Sept. 30,

June 30,

Sept. 30,

(dollars in millions, unless otherwise noted)

2013

2013

2012

BNY Mellon shareholders' equity at period end – GAAP

$  36,959

$  35,882

$  36,218

Less:  Preferred stock

1,562

1,562

1,036

BNY Mellon common shareholders' equity at period end – GAAP

35,397

34,320

35,182

Less:  Goodwill

18,025

17,919

17,984

Intangible assets

4,527

4,588

4,882

Add:  Deferred tax liability – tax deductible goodwill

1,262

1,200

1,057

Deferred tax liability – non-tax deductible intangible assets

1,242

1,269

1,339

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

$ 15,349

$ 14,282

$  14,712





Total assets at period end – GAAP

$371,952

$360,505

$339,944

Less:  Assets of consolidated investment management funds

11,691

11,471

11,369

Subtotal assets of operations – Non-GAAP

360,261

349,034

328,575

Less:  Goodwill

18,025

17,919

17,984

Intangible assets

4,527

4,588

4,882

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

96,316

78,671

73,037

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

$241,393

$247,856

$232,672





BNY Mellon shareholders' equity to total assets – GAAP

9.9%

10.0%

10.7%

BNY Mellon common shareholders' equity to total assets – GAAP

9.5%

9.5%

10.3%

Tangible BNY Mellon common shareholders' equity to tangible assets of

operations – Non-GAAP

6.4%

5.8%

6.3%





Period-end common shares outstanding (in thousands)

1,148,522

1,150,477

1,168,607





Book value per common share

$ 30.82

$ 29.83

$ 30.11

Tangible book value per common share – Non-GAAP

$ 13.36

$ 12.41

$ 12.59

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




 

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

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

    assets ratio – Non-GAAP

Sept. 30,

June 30,

Sept. 30,

(dollars in millions)

2013 (a)

2013

2012

Total Tier 1 capital – Basel I

$  18,070

$   16,951

$   16,797

Less:  Trust preferred securities

324

303

1,173

Preferred stock

1,562

1,562

1,036

Total Tier 1 common equity

$   16,184

$   15,086

$   14,588





Total risk-weighted assets – Basel I

$ 114,334

$ 114,511

$ 109,867





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

14.2%

13.2%

13.3%

(a)   Preliminary.




 

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

Estimated Basel III Tier 1 common equity generation




(in millions)



3Q13

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



$    967

Add:  Amortization of intangible assets, net of tax



52

Estimated gross Basel III Tier 1 common equity generated



1,019

Capital deployed:




Dividends



(175)

Common stock repurchased



(122)

Total capital deployed



(297)

Other (a)



344

Estimated net Basel III Tier 1 common equity generated



$ 1,066

(a)   Includes foreign currency translation.





 

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

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

Sept. 30,

June 30,

Sept. 30,

(dollars in millions)

2013 (b)

2013

2012

Total Tier 1 capital – Basel I

$   18,070

$   16,951

$   16,797

Adjustment to determine estimated Basel III Tier 1 common equity:




Deferred tax liability – tax deductible intangible assets

82

81

N/A

Preferred stock

(1,562)

(1,562)

(1,036)

Trust preferred securities

(324)

(303)

(1,173)

Other comprehensive income (loss):




Securities available-for-sale

487

560

1,448

Pension liabilities

(1,348)

(1,379)

(1,346)

Total other comprehensive income (loss)

(861)

(819)

102

Equity method investments

(479)

(500)

(571)

Net pension fund assets

(279)

(268)

(43)

Deferred tax assets

(26)

(26)

(46)

Other

22

23

19

Total estimated Basel III Tier 1 common equity

$   14,643

$   13,577

$   14,049





Under the Standardized Approach:




Total risk-weighted assets – Basel I

$ 114,334

$ 114,511

N/A

Add:  Adjustments (c)

31,255

31,330

N/A

Total estimated Basel III risk-weighted assets

$ 145,589

$ 145,841

N/A





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

   calculated under the Standardized Approach

10.1%

9.3%

 

N/A









Under the Advanced Approach:




Total risk-weighted assets – Basel I

$ 114,334

$ 114,511

$ 109,867

Add:  Adjustments (c)

17,249

23,793

41,816

Total estimated Basel III risk-weighted assets

$ 131,583

$ 138,304

$ 151,683





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

   calculated under the Advanced Approach

11.1%

9.8%

9.3%

(a)   At Sept. 30, 2013 and June 30, 2013, the estimated Basel III Tier 1 common equity ratio is based on our interpretation of and

       expectations regarding the final rules released by the Federal Reserve on July 2, 2013, on a fully phased-in basis.  For periods prior

       to June 30, 2013, these ratios were estimated using our interpretation of the NPRs dated June 7, 2012, on a fully phased-in basis. 

(b)   Preliminary.

(c)    Following are the primary differences between risk-weighted assets determined under Basel I and Basel III.  Credit risk is determined

        under Basel I using predetermined risk-weights and asset classes and relies in part on the use of external credit ratings.  Under Basel

        III both the Standardized and Advanced Approaches use a broader range of predetermined risk-weights and asset classes and certain

        alternatives to external credit ratings.  Securitization exposure receives a higher risk-weighting under Basel III than Basel I, and

        Basel III includes additional adjustments for market risk, counterparty credit risk and equity exposures.  Additionally, the

        Standardized Approach eliminates the use of the VaR approach for determining risk-weighted assets on certain repo-style

        transactions.  Risk-weighted assets calculated under the Advanced Approach also include the use of internal credit models and

        parameters as well as an adjustment for operational risk.

N/A – Not available.

 

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 June 30, 2013

9.3%

9.8%

Impacted by:



Net capital generation

50 bps

52 bps

Change in accumulated other comprehensive income (loss)

(3) bps

(3) bps

Change in risk-weighted assets

2 bps

54 bps

Other (a)

26 bps

28 bps

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

10.1%

11.1%

(a)   Includes foreign currency translation.



bps – basis points.



 


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 our focus on driving organic growth and delivering enhanced solution sets from across our Company, our Operational Excellence Initiatives and strengthening our balance sheet and capital position.  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 Oct. 16, 2013 and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

 

Contacts:

MEDIA:

ANALYSTS:


Kevin Heine

Andy Clark


(212) 635-1590

(212) 635-1803

SOURCE The Bank of New York Mellon Corporation



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