BNY Mellon Reports Second Quarter Earnings Of $830 Million Or $0.73 Per Common Share, Including:

-- $0.03 per common share related to previously announced litigation expense and restructuring charges

-- Earnings per common share up 24% year-over-year on an adjusted basis (a)

Jul 21, 2015, 06:30 ET from The Bank of New York Mellon Corporation

NEW YORK, July 21, 2015 /PRNewswire/ --

TOTAL REVENUE INCREASED 4% YEAR-OVER-YEAR

  • Increased 3% on an adjusted basis (a)

TOTAL EXPENSE DECREASED 7% YEAR-OVER-YEAR

  • Decreased 1% on an adjusted basis (a)

GENERATED 460 BASIS POINTS OF POSITIVE OPERATING LEVERAGE YEAR-OVER-YEAR ON AN ADJUSTED BASIS (a)

EXECUTING ON CAPITAL PLAN AND RETURN OF VALUE TO COMMON SHAREHOLDERS

  • Repurchased 19.4 million common shares for $834 million in the second quarter of 2015
  • Return on tangible common equity of 22% in the second quarter of 2015 (b)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $830 million, or $0.73 per diluted common share, or $868 million, or $0.77 per diluted common share, adjusted for litigation and restructuring charges.  In the second quarter of 2014, net income applicable to common shareholders was $554 million, or $0.48 per diluted common share, or $715 million, or $0.62 per diluted common share, adjusted for the charges related to investment management funds and severance.  In the first quarter of 2015, net income applicable to common shareholders was $766 million, or $0.67 per diluted common share. (b)

"Our strong second quarter results demonstrated our execution of our key priorities.  We are growing our earnings, investing in next-generation operating platforms and risk management controls, attracting new clients and driving the long-term value of our firm for the benefit of our clients and shareholders," Gerald L. Hassell, chairman and chief executive officer of BNY Mellon, said.

"The investments we are making in strategic technology platforms and applications are helping our solutions resonate with clients, contributing to our ability to capture new business including a significant middle-office contract to service more than $770 billion in assets for a prominent investment manager.  Our costs will increase in the short run as we onboard the new business; however, our platforms are designed to be leveraged by a broader client base, creating shared economies of scale that benefit our clients and drive profitable growth for our shareholders," Mr. Hassell added.

"Finally, we returned more than $1 billion to our shareholders in the form of dividends and share repurchases during the quarter while achieving a 22 percent return on tangible common equity - further evidence of the strength of our business model," Mr. Hassell concluded.

_________________________________________________________________________________ (a)   See pages 3-4 for the Non-GAAP adjustments.     

(b)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for the reconciliation of these Non-GAAP measures.

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 21, 2015.  This conference call and audio webcast will include forward-looking statements and may include other material information. 

Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (773) 799-3611 (International), and using the passcode: Earnings, or by logging on to www.bnymellon.com.  Earnings materials will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on July 21, 2015.  Replays of the conference call and audio webcast will be available beginning July 21, 2015 at approximately 2 p.m. EDT through August 21, 2015 by dialing (800) 391-9847 (U.S.) or (402) 220-3093 (International).  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

SECOND QUARTER 2015 FINANCIAL HIGHLIGHTS (a)    (comparisons are 2Q15 vs. 2Q14 unless otherwise stated)

  • Earnings

Earnings per share

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

(in millions, except per share amounts)

 

2Q14

2Q15

Inc

2Q14

2Q15

Inc

GAAP results

$

0.48

$

0.73

$

554

$

830

Add: Litigation and restructuring charges

0.06

0.03

76

38

Charge related to investment management funds, net of incentives

0.07

N/A

85

N/A

Non-GAAP results

$

0.62

(a)

$

0.77

(a)

24%

$

715

$

868

21%

(a) Does not foot due to rounding.

N/A - Not applicable.

  • Total revenue was $3.9 billion, an increase of 4%.
    • Investment services fees increased 4% reflecting organic growth, primarily in Global Collateral Services and Asset Servicing, higher clearing services revenue, net new business and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • Investment management and performance fees decreased 1%, or increased 5% on a constant currency basis (Non-GAAP), driven by higher equity market values, the impact of the 1Q15 acquisition of Cutwater Asset Management ("Cutwater") and strategic initiatives, partially offset by lower performance fees. (a)
    • Foreign exchange revenue increased 40% driven by higher volumes and volatility, as well as higher Depositary Receipts-related activity.
    • Financing-related fees increased $14 million driven by higher fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.
    • Investment and other income decreased $38 million driven by lower other revenue, equity investment revenue and asset-related gains, partially offset by higher leasing gains.
    • Net interest revenue increased $60 million driven by higher securities and loans due to higher deposits and the shift out of cash, lower interest expense incurred on deposits and the impact of interest rate hedging activities.
  • The provision for credit losses was a credit of $6 million.
  • Noninterest expense was $2.7 billion, a decrease of 7% reflecting lower expenses in all categories, except incentives and business development expense.  The decrease primarily reflects the favorable impact of a stronger U.S. dollar and the benefit of the business improvement process which focuses on reducing structural costs.
  • Effective tax rate of 23.7%; rate is 1.4% lower due to the income statement presentation of consolidated investment management funds and a benefit related to the separately disclosed litigation expense.
  • Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
    • AUC/A of $28.6 trillion, increased slightly reflecting higher market values and organic growth, partially offset by the unfavorable impact of a stronger U.S. dollar.
      • Estimated new AUC/A wins in Asset Servicing of $1.02 trillion in 2Q15.
    • AUM of $1.72 trillion, increased 5% driven by higher market values, net new business and the Cutwater acquisition, partially offset by the unfavorable impact of a stronger U.S. dollar.
      • Net long-term outflows totaled $15 billion in 2Q15 driven by equity, index and fixed income investments, partially offset by liability-driven and alternative investments.
      • Net short-term outflows totaled $11 billion in 2Q15.
  •          Capital
    • Repurchased 19.4 million common shares for $834 million in 2Q15.
    • Return on tangible common equity of 22% in 2Q15 (a).

_________________________________________________________________________________ (a)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for the reconciliation of Non-GAAP measures.  Non-GAAP excludes the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges, a charge related to investment management funds, net of incentives, and the benefit primarily related to a tax carryback claim, if applicable.        

Note: In the table above and throughout this document, sequential growth rates are unannualized.

 

FINANCIAL SUMMARY

(dollars in millions, except per share amounts; common shares in thousands)

2Q15 vs.

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Revenue:

Fee and other revenue (a)

$

2,980

$

3,851

$

2,935

$

3,012

$

3,067

3

%

2

%

Income from consolidated investment management funds (a)

46

39

42

52

40

Net interest revenue

719

721

712

728

779

8

7

Total revenue – GAAP (a)

3,745

4,611

3,689

3,792

3,886

4

2

Less:  Net income attributable to noncontrolling interests related to consolidated investment management funds (a)

17

23

24

31

37

Gain on the sale of our investment in Wing Hang

490

Gain on the sale of the One Wall Street building

346

Total revenue – Non-GAAP (a)

3,728

3,752

3,665

3,761

3,849

3

2

Provision for credit losses

(12)

(19)

1

2

(6)

Expense:

Noninterest expense – GAAP

2,946

2,968

3,524

2,700

2,727

(7)

1

Less:  Amortization of intangible assets

75

75

73

66

65

M&I, litigation and restructuring charges

122

220

800

(3)

59

Charge related to investment management funds, net of incentives

109

Total noninterest expense – Non-GAAP

2,640

2,673

2,651

2,637

2,603

(1)

(1)

Income:

Income before income taxes (a)

811

1,662

164

1,090

1,165

44

%

7

%

Provision (benefit) for income taxes

217

556

(93)

280

276

Net income (a)

$

594

$

1,106

$

257

$

810

$

889

Net (income) attributable to noncontrolling interests (a)(b)

(17)

(23)

(24)

(31)

(36)

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

577

1,083

233

779

853

Preferred stock dividends

(23)

(13)

(24)

(13)

(23)

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

$

554

$

1,070

$

209

$

766

$

830

Key Metrics:

Pre-tax operating margin (a)(c)

22

%

36

%

4

%

29

%

30

%

Non-GAAP (c)

30

%

29

%

28

%

30

%

33

%

Return on common equity (annualized) (c)

6.1

%

11.6

%

2.2

%

8.8

%

9.4

%

Non-GAAP (c)

8.4

%

8.5

%

7.7

%

9.2

%

10.3

%

Return on tangible common equity (annualized) – Non-GAAP (c)

14.5

%

26.2

%

5.9

%

20.3

%

21.5

%

Non-GAAP adjusted (c)

18.4

%

18.4

%

16.3

%

20.2

%

22.5

%

Fee revenue as a percentage of total revenue excluding net securities gains (a)

79

%

83

%

79

%

79

%

79

%

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

38

%

43

%

35

%

36

%

36

%

Average common shares and equivalents outstanding:

Basic

1,133,556

1,126,946

1,120,672

1,118,602

1,113,790

Diluted

1,139,800

1,134,871

1,129,040

1,126,306

1,122,135

Period end:

Full-time employees

51,100

50,900

50,300

50,500

50,700

Book value per common share – GAAP (c)

$

32.49

$

32.77

$

32.09

$

31.89

$

32.28

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

$

14.88

$

15.30

$

14.70

$

14.82

$

14.86

Cash dividends per common share

$

0.17

$

0.17

$

0.17

$

0.17

$

0.17

Common dividend payout ratio

35

%

18

%

94

%

25

%

23

%

Closing stock price per common share

$

37.48

$

38.73

$

40.57

$

40.24

$

41.97

Market capitalization

$

42,412

$

43,599

$

45,366

$

45,130

$

46,441

Common shares outstanding

1,131,596

1,125,710

1,118,228

1,121,512

1,106,518

(a)   The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).  See page 24 for additional information.

(b)   Primarily attributable to noncontrolling interests related to consolidated investment management funds.

(c)    Non-GAAP excludes the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges, and a charge related to investment management funds, net of incentives.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for the reconciliation of Non-GAAP measures.

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

CONSOLIDATED BUSINESS METRICS

Consolidated business metrics

2Q15 vs.

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Changes in AUM (in billions): (a)

Beginning balance of AUM

$

1,620

$

1,636

$

1,646

$

1,710

$

1,741

Net inflows (outflows):

Long-term:

Equity

(4)

(2)

(4)

(6)

(12)

Fixed income

(1)

4

4

(2)

Index

7

(3)

1

8

(9)

Liability-driven investments (b)

(17)

18

24

8

5

Alternative investments

2

2

2

3

Total long-term inflows (outflows)

(13)

13

27

16

(15)

Short term:

Cash

(18)

19

5

1

(11)

Total net inflows (outflows)

(31)

32

32

17

(26)

Net market/currency impact/acquisition

47

(22)

32

14

9

Ending balance of AUM

$

1,636

$

1,646

$

1,710

$

1,741

$

1,724

(c)

5

%

(1)

%

AUM at period end, by product type: (a)

Equity

17

%

16

%

16

%

15

%

15

%

Fixed income

14

13

13

13

13

Index

21

21

21

22

21

Liability-driven investments (b)

27

28

29

29

30

Alternative investments

4

4

4

4

4

Cash

17

18

17

17

17

Total AUM

100

%

100

%

100

%

100

%

100

%

(c)

Investment Management:

Average loans (in millions)

$

10,372

$

10,772

$

11,124

$

11,634

$

12,298

19

%

6

%

Average deposits (in millions)

$

13,458

$

13,764

$

14,604

$

15,218

$

14,640

9

%

(4)

%

Investment Services:

Average loans (in millions)

$

33,115

$

33,785

$

35,448

$

37,699

$

38,264

16

%

1

%

Average deposits (in millions)

$

220,701

$

221,734

$

228,282

$

234,183

$

237,193

7

%

1

%

AUC/A at period end (in trillions) (d)

$

28.5

$

28.3

$

28.5

$

28.5

$

28.6

(c)

%

%

Market value of securities on loan at period end (in billions) (e)

$

280

$

282

$

289

$

291

$

283

1

%

(3)

%

Asset servicing:

Estimated new business wins (AUC/A) (in billions)

$

130

$

115

$

130

$

131

$

1,024

(c)

Depositary Receipts:

Number of sponsored programs

1,316

1,302

1,279

1,258

1,206

(8)%

(4)

%

Clearing services:

Global DARTS volume (in thousands)

207

209

242

261

242

17

%

(7)

%

Average active clearing accounts (U.S. platform) (in thousands)

5,752

5,805

5,900

5,979

6,046

5

%

1

%

Average long-term mutual fund assets (U.S. platform) (in millions)

$

433,047

$

442,827

$

450,305

$

456,954

$

466,195

8

%

2

%

Average investor margin loans (U.S. platform) (in millions)

$

9,236

$

9,861

$

10,711

$

11,232

$

11,890

29

%

6

%

Broker-Dealer:

Average tri-party repo balances (in billions)

$

2,022

$

2,063

$

2,101

$

2,153

$

2,174

8

%

1

%

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

(b)   Includes currency overlay assets under management.

(c)    Preliminary.

(d)   Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at June 30, 2014 and Sept. 30, 2014 and $1.1 trillion at Dec. 31, 2014, March 31, 2015 and June 30, 2015.

(e)    Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at June 30, 2014, $65 billion at Sept. 30, 2014 and Dec. 31, 2014, $69 billion at March 31, 2015 and $68 billion at June 30, 2015.

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

Key market metrics

2Q15 vs.

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

S&P 500 Index (a)

1960

1972

2059

2068

2063

5

%

%

S&P 500 Index – daily average

1900

1976

2009

2064

2102

11

2

FTSE 100 Index (a)

6744

6623

6566

6773

6521

(3)

(4)

FTSE 100 Index – daily average

6764

6756

6526

6793

6920

2

2

MSCI World Index (a)

1743

1698

1710

1741

1736

MSCI World Index – daily average

1698

1733

1695

1726

1780

5

3

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

376

361

357

348

342

(9)

(2)

NYSE and NASDAQ share volume (in billions)

187

173

198

187

185

(1)

(1)

JPMorgan G7 Volatility Index – daily average (c)

6.22

6.21

8.54

10.40

10.06

62

(3)

Average Fed Funds effective rate

0.09

%

0.09

%

0.10

%

0.11

%

0.13

%

4

bps

2

bps

Foreign exchange rates vs. U.S. dollar:

British pound - average rate

$

1.68

$

1.67

$

1.58

$

1.51

$

1.53

(9)%

1

%

Euro - average rate

1.37

1.33

1.25

1.13

1.11

(19)

(2)

(a)     Period end.

(b)     Unhedged in U.S. dollar terms.

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

bps basis points.

FEE AND OTHER REVENUE

Fee and other revenue

2Q15 vs.

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Investment services fees:

Asset servicing (a)

$

1,022

$

1,025

$

1,019

$

1,038

$

1,060

4

%

2

%

Clearing services

326

337

347

344

347

6

1

Issuer services

231

315

193

232

234

1

1

Treasury services

141

142

145

137

144

2

5

Total investment services fees

1,720

1,819

1,704

1,751

1,785

4

2

Investment management and performance fees (b)

883

881

885

867

878

(1)

1

Foreign exchange and other trading revenue

130

153

151

229

187

44

(18)

Financing-related fees

44

44

43

40

58

32

45

Distribution and servicing

43

44

43

41

39

(9)

(5)

Investment and other income (b)

142

890

78

60

104

N/M

N/M

Total fee revenue (b)

2,962

3,831

2,904

2,988

3,051

3

2

Net securities gains

18

20

31

24

16

N/M

N/M

Total fee and other revenue (b)

$

2,980

$

3,851

$

2,935

$

3,012

$

3,067

3

%

2

%

(a)   Asset servicing fees include securities lending revenue of $46 million in 2Q14, $37 million in 3Q14 and 4Q14, $43 million in 1Q15 and $49 million in 2Q15.

(b)   The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).  See page 24 for additional information.

N/M - Not meaningful.

KEY POINTS

  • Asset servicing fees were $1.1 billion, an increase of 4% year-over-year and 2% sequentially.  The year-over-year increase primarily reflects organic growth, due in part to Global Collateral Services, net new business and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar.  The sequential increase primarily reflects organic growth and seasonally higher securities lending revenue.
  • Clearing services fees were $347 million, an increase of 6% year-over-year and 1% sequentially.  The year-over-year increase was primarily driven by higher mutual fund and asset-based fees, clearance revenue and custody fees.  The sequential increase was primarily driven by two additional trading days in 2Q15.
  • Issuer services fees were $234 million, an increase of 1% year-over-year and sequentially.  Both increases primarily reflect higher Depositary Receipts revenue, partially offset by lower Corporate Trust fees.  The year-over-year decrease in Corporate Trust fees primarily reflects the unfavorable impact of a stronger U.S. dollar.
  • Treasury services fees were $144 million, an increase of 2% year-over-year and 5% sequentially.  The year-over-year increase primarily reflects higher payment volumes.  The sequential increase primarily reflects three additional business days in 2Q15.
  • Investment management and performance fees were $878 million, a decrease of 1% year-over-year, or an increase of 5% on a constant currency basis (Non-GAAP).  The increase was driven by higher equity market values, the impact of the 1Q15 acquisition of Cutwater and strategic initiatives, partially offset by lower performance fees.  Sequentially, investment management and performance fees increased 1% primarily reflecting higher equity market values and higher performance fees.

Foreign exchange and other trading revenue

(in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Foreign exchange

$

129

$

154

$

165

$

217

$

181

Other trading revenue (loss):

Fixed income

(1)

2

(18)

11

Equity/other

2

(3)

4

1

6

Total other trading revenue (loss)

1

(1)

(14)

12

6

Total foreign exchange and other trading revenue

$

130

$

153

$

151

$

229

$

187

Foreign exchange and other trading revenue totaled $187 million in 2Q15 compared with $130 million in 2Q14 and $229 million in 1Q15.  In 2Q15, foreign exchange revenue totaled $181 million, an increase of 40% year-over-year and a decrease of 17% sequentially.  The year-over-year increase primarily reflects higher volatility and volumes, as well as higher Depositary Receipts-related activity.  The sequential decrease primarily reflects the benefit of unusually high volatility in 1Q15.

  • Financing-related fees were $58 million in 2Q15 compared with $44 million in 2Q14 and $40 million in 1Q15.  Both increases primarily reflect higher fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.

Investment and other income (loss)

(in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Lease residual gains (losses)

$

4

$

5

$

5

$

(1)

$

54

Corporate/bank-owned life insurance

30

34

37

33

31

Expense reimbursements from joint venture

15

13

15

14

17

Private equity gains (losses)

(2)

2

1

(3)

3

Seed capital gains (losses) (a)

15

(1)

16

2

Asset-related gains

17

836

20

3

1

Equity investment revenue (loss)

17

(9)

(5)

(4)

(7)

Other income (a)

46

10

5

2

3

Total investment and other income

$

142

$

890

$

78

$

60

$

104

(a)   The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).  See page 24 for additional information.

Investment and other income was $104 million in 2Q15 compared with $142 million in 2Q14 and $60 million in 1Q15.  The year-over-year decrease primarily reflects lower other revenue, equity investment revenue and asset-related gains, partially offset by higher lease residual gains.  The sequential increase primarily reflects higher lease residual gains, partially offset by lower seed capital gains.

NET INTEREST REVENUE

Net interest revenue

2Q15 vs.

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Net interest revenue (non-FTE)

$

719

$

721

$

712

$

728

$

779

8

%

7

%

Net interest revenue (FTE) – Non-GAAP

736

736

726

743

794

8

7

Net interest margin (FTE)

0.98

%

0.94

%

0.91

%

0.97

%

1.00

%

2

bps

3

bps

Selected average balances:

Cash/interbank investments

$

140,357

$

139,278

$

140,599

$

123,647

$

125,640

(10)%

2

%

Trading account securities

5,532

5,435

3,922

3,046

3,253

(41)

7

Securities

101,420

112,055

117,243

123,476

128,641

27

4

Loans

53,449

54,835

56,844

57,935

61,076

14

5

Interest-earning assets

300,758

311,603

318,608

308,104

318,610

6

3

Interest-bearing deposits

162,674

164,233

163,149

159,520

170,730

5

7

Noninterest-bearing deposits

77,820

82,334

85,330

89,592

84,890

9

(5)

Selected average yields/rates:

Cash/interbank investments

0.43

%

0.38

%

0.31

%

0.35

%

0.34

%

Trading account securities

2.19

2.36

2.64

2.46

2.63

Securities

1.68

1.56

1.54

1.55

1.57

Loans

1.66

1.61

1.58

1.55

1.51

Interest-earning assets

1.10

1.05

1.02

1.07

1.08

Interest-bearing deposits

0.06

0.06

0.03

0.04

0.02

Average cash/interbank investments as a percentage of average interest-earning assets

47

%

45

%

44

%

40

%

39

%

Average noninterest-bearing deposits as a percentage of average interest-earning assets

26

%

26

%

27

%

29

%

27

%

FTE – fully taxable equivalent.

bps – basis points.

KEY POINTS

  • Net interest revenue totaled $779 million in 2Q15, an increase of $60 million compared with 2Q14 and an increase of $51 million sequentially.  Both increases primarily reflect higher securities and loans due to higher deposits, lower interest expense incurred on deposits, and the impact of interest rate hedging activities.  The year-over-year increase also reflects the shift out of cash and into investments in securities and loans, which was partially offset by lower yields on interest-earning assets.

NONINTEREST EXPENSE

Noninterest expense

2Q15 vs.

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Staff:

Compensation

$

903

$

909

$

893

$

871

$

877

(3)

%

1

%

Incentives

313

340

319

425

349

12

(18)

Employee benefits

223

228

206

189

208

(7)

10

Total staff

1,439

1,477

1,418

1,485

1,434

(3)

Professional, legal and other purchased services

314

323

390

302

299

(5)

(1)

Software and equipment

236

234

235

228

228

(3)

Net occupancy

152

154

150

151

149

(2)

(1)

Distribution and servicing

112

107

102

98

96

(14)

(2)

Sub-custodian

81

67

70

70

75

(7)

7

Business development

68

61

75

61

72

6

18

Other

347

250

211

242

250

(28)

3

Amortization of intangible assets

75

75

73

66

65

(13)

(2)

M&I, litigation and restructuring charges

122

220

800

(3)

59

N/M

N/M

Total noninterest expense – GAAP

$

2,946

$

2,968

$

3,524

$

2,700

$

2,727

(7)

%

1

%

Total staff expense as a percentage of total revenue

38

%

32

%

38

%

39

%

37

%

Memo:

Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge related to investment management funds, net of incentives – Non-GAAP

$

2,640

$

2,673

$

2,651

$

2,637

$

2,603

(1)%

(1)%

N/M - Not meaningful.

KEY POINTS

  • Total noninterest expense excluding amortization of intangible assets, M&I, litigation and restructuring charges, and the charge related to investment management funds, net of incentives (Non-GAAP) decreased 1% year-over-year and sequentially. 
  • The year-over-year decrease reflects lower expenses in all categories, except incentives and business development expense.  The lower expenses primarily reflect the favorable impact of a stronger U.S. dollar and the benefit of the business improvement process which focuses on reducing structural costs. 
  • Total staff expense decreased slightly year-over-year primarily reflecting the favorable impact of a stronger U.S. dollar, lower headcount and the impact of curtailing the U.S. pension plan, partially offset by higher incentive expense reflecting better performance.
  • The sequential decrease primarily reflects lower incentive expense driven by the impact of vesting of long-term stock awards for retirement eligible employees recorded in 1Q15.  The decrease was partially offset by higher employee benefits expense reflecting the curtailment gain recorded in 1Q15 and higher business development expenses.

INVESTMENT SECURITIES PORTFOLIO

At June 30, 2015, the fair value of our investment securities portfolio totaled $123.0 billion.  The net unrealized pre-tax gain on our total securities portfolio was $752 million at June 30, 2015 compared with $1.7 billion at March 31, 2015.  The decrease in the net unrealized pre-tax gain was primarily driven by higher market interest rates.  At June 30, 2015, the fair value of the held-to-maturity securities totaled $43.4 billion and represented 35% of the fair value of the total investment securities portfolio.

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

Investment securities portfolio

March 31, 2015

2Q15

change in

unrealized

gain (loss)

June 30, 2015

Fair value

as a % of amortized

cost (a)

Unrealized

gain (loss)

Ratings

BB+

and

lower

(dollars in millions)

 Fair

value

Amortized

cost

Fair

value

AAA/

AA-

A+/

A-

BBB+/

BBB-

Not

rated

Agency RMBS

$

51,101

$

(431)

$

49,983

$

50,018

100

%

$

35

100

%

%

%

%

%

U.S. Treasury

28,680

(183)

24,139

24,222

100

83

100

Sovereign debt/sovereign guaranteed

18,469

(142)

18,466

18,516

100

50

77

1

22

Non-agency RMBS (b)

2,138

(25)

1,626

2,040

81

414

1

2

90

7

Non-agency RMBS

1,070

(1)

1,007

1,024

94

17

2

9

19

69

1

European floating rate notes

1,723

(6)

1,748

1,737

99

(11)

71

22

7

Commercial MBS

5,901

(49)

5,866

5,888

100

22

94

5

1

State and political subdivisions

5,159

(29)

4,492

4,548

101

56

77

22

1

Foreign covered bonds

2,804

(15)

2,666

2,723

102

57

100

Corporate bonds

1,745

(32)

1,784

1,802

101

18

19

69

12

CLO

2,258

(4)

2,241

2,245

100

4

100

U.S. Government agencies

1,554

(5)

1,858

1,856

100

(2)

100

Consumer ABS

3,400

(1)

3,347

3,348

100

1

100

Other (c)

2,890

(3)

3,000

3,008

100

8

41

55

4

Total investment securities

$

128,892

(d)

$

(926)

$

122,223

$

122,975

(d)

100

%

$

752

(d)(e)

90

%

3

%

5

%

2

%

%

(a)   Amortized cost before impairments.

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

(c)    Includes commercial paper with a fair value of $1.6 billion and $1.7 billion and money market funds with a fair value of $814 million and $779 million at March 31, 2015 and June 30, 2015, respectively.

(d)   Includes net unrealized losses on derivatives hedging securities available-for-sale of $501 million at March 31, 2015 and $71 million at June 30, 2015.

(e)    Unrealized gains of $740 million at June 30, 2015 related to available-for-sale securities.

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

June 30, 2014

March 31, 2015

June 30, 2015

Loans:

Other residential mortgages

$

105

$

111

$

110

Wealth management loans and mortgages

12

12

11

Commercial real estate

4

1

1

Commercial

13

Foreign

4

Total nonperforming loans

138

124

122

Other assets owned

4

4

5

Total nonperforming assets (a)

$

142

$

128

$

127

Nonperforming assets ratio

0.24

%

0.21

%

0.20

%

Allowance for loan losses/nonperforming loans

135.5

153.2

150.0

Total allowance for credit losses/nonperforming loans

225.4

228.2

227.9

(a)   Loans of consolidated investment management funds are not part of BNY Mellon's loan portfolio.  Included in the loans of consolidated investment management funds are nonperforming loans of $68 million at June 30, 2014.  These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above.  In 2Q15, BNY Mellon adopted the new accounting guidance included in ASU 2015-02, Consolidations.  As a result, we deconsolidated substantially all of the loans of consolidated investment management funds retroactively to Jan. 1, 2015.  See page 24 for additional information on the new accounting guidance.

Nonperforming assets were $127 million at June 30, 2015, a decrease of $1 million compared with $128 million at March 31, 2015.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs

(in millions)

June 30,  2014

March 31, 2015

June 30,  2015

Allowance for credit losses - beginning of period

$

326

$

280

$

283

Provision for credit losses

(12)

2

(6)

Net (charge-offs) recoveries:

Financial institutions

1

Other residential mortgages

(1)

1

Commercial

1

Wealth management loans and mortgages

(1)

Foreign

(2)

Net (charge-offs) recoveries

(3)

1

1

Allowance for credit losses - end of period

$

311

$

283

$

278

Allowance for loan losses

$

187

$

190

$

183

Allowance for lending-related commitments

124

93

95

The allowance for credit losses was $278 million at June 30, 2015, a decrease of $5 million compared with $283 million at March 31, 2015.

CAPITAL AND LIQUIDITY

The common equity Tier 1 ("CET1"), Tier 1 and Total risk-based regulatory capital ratios in the first section of the table below are based on Basel III components of capital, as phased-in, and credit risk asset risk-weightings using the U.S. capital rules' advanced approaches framework (the "Advanced Approach") as the related risk-weighted assets ("RWA") were higher when calculated under the Advanced Approach at Dec. 31, 2014, March 31, 2015 and June 30, 2015.  Our risk-based capital adequacy is determined using the higher of RWA determined using the Advanced Approach and the U.S. capital rules' standardized approach (the "Standardized Approach").  The leverage capital ratios are based on Basel III components of capital, as phased-in and quarterly average total assets.  Our consolidated capital ratios are shown in the following table. 

Capital ratios

Dec. 31, 2014

March 31, 2015

June 30,  2015

Consolidated regulatory capital ratios: (a)(b)(c)

CET1 ratio

11.2

%

10.8

%

10.9

%

Tier 1 capital ratio

12.2

11.7

12.4

Total (Tier 1 plus Tier 2) capital ratio

12.5

12.0

12.7

Leverage capital ratio

5.6

5.7

5.8

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

9.7

9.5

9.7

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

9.3

9.1

9.0

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

6.5

6.0

6.2

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

Estimated CET1 ratio:

Standardized Approach

10.6

10.0

10.0

Advanced Approach

9.8

9.9

9.9

Estimated supplementary leverage ratio ("SLR")

4.4

4.6

4.6

(a)   Regulatory capital ratios for June 30, 2015 are preliminary.

(b)   Capital ratios for the first quarter of 2015 were revised to reflect the retrospective application of adopting new accounting guidance in 2Q15 related to Consolidations (ASU 2015-02).  As a result of the new accounting guidance, the RWA as of March 31, 2015 decreased $13.3 billion under the Advanced Approach and $7.0 billion under the Standardized Approach.  See page 24 for additional information on the new accounting guidance.

(c)    At Dec. 31, 2014, the CET1, Tier 1 and Total risk-based consolidated regulatory capital ratios determined under the transitional Standardized Approach were 15.0%, 16.3% and 16.9%, and were calculated based on Basel III components of capital, as phased-in, and asset risk-weightings using Basel I-based requirements.  At March 31, 2015 and June 30, 2015, the CET1, Tier 1 and Total risk-based consolidated regulatory capital ratios determined under the transitional Basel III Standardized Approach were 11.2%, 12.2%, and 12.7%, and 11.3%, 12.9% and 13.4%, respectively.  Additionally, the capital ratios determined under the transitional Basel III Standardized Approach for March 31, 2015 were revised to reflect the new accounting guidance related to Consolidations.

(d)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for a reconciliation of these ratios.

Estimated Basel III CET1 generation presented on a fully phased-in basis – Non-GAAP – preliminary

(in millions)

2Q15

Estimated fully phased-in Basel III CET1 – Non-GAAP – Beginning of period

$

16,123

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

830

Goodwill and intangible assets, net of related deferred tax liabilities

(129)

Gross Basel III CET1 generated

701

Capital deployed:

Dividends

(192)

Common stock repurchased

(834)

Total capital deployed

(1,026)

Other comprehensive (loss)

(43)

Additional paid-in capital (a)

191

Other (primarily cash flow hedges)

(15)

Total other additions

133

Net Basel III CET1 generated

(192)

Estimated fully phased-in Basel III CET1 – Non-GAAP – End of period

$

15,931

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

The table presented below compares the fully phased-in Basel III capital components and ratios to those capital components and ratios determined on a phased-in basis (referred to as the "Transitional Approach").

Basel III capital components and ratios at June 30, 2015 preliminary

Fully phased-in Basel III - Non-GAAP

Transitional Approach (a)

(dollars in millions)

CET1:

Common shareholders' equity

$

35,718

$

36,253

Goodwill and intangible assets

(19,277)

(17,584)

Net pension fund assets

(109)

(44)

Equity method investments

(374)

(315)

Deferred tax assets

(18)

(7)

Other

(9)

(5)

Total CET1

15,931

18,298

Other Tier 1 capital:

Preferred stock

2,552

2,552

Trust preferred securities

79

Disallowed deferred tax assets

(11)

Net pension fund assets

(65)

Other

(7)

(11)

Total Tier 1 capital

18,476

20,842

Tier 2 capital:

Trust preferred securities

236

Subordinated debt

248

248

Allowance for credit losses

278

278

Other

(6)

(7)

Total Tier 2 capital - Standardized Approach

520

755

Excess of expected credit losses

12

12

Less: Allowance for credit losses

278

278

Total Tier 2 capital - Advanced Approach

$

254

$

489

Total capital:

Standardized Approach

$

18,996

$

21,597

Advanced Approach

$

18,730

$

21,331

Risk-weighted assets:

Standardized Approach

$

160,031

$

161,825

Advanced Approach

$

160,505

$

167,562

Standardized Approach:

Estimated Basel III CET1 ratio

10.0

%

11.3

%

Tier 1 capital ratio

11.6

12.9

Total (Tier 1 plus Tier 2) capital ratio

11.9

13.4

Advanced Approach:

Estimated Basel III CET1 ratio

9.9

%

10.9

%

Tier 1 capital ratio

11.5

12.4

Total (Tier 1 plus Tier 2) capital ratio

11.7

12.7

(a)   Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2015 under the U.S. capital rules.

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

RWA at Dec. 31, 2014, March 31, 2015 and June 30, 2015 for credit risk under the transitional Advanced Approach do not reflect the use of a simple value-at-risk methodology for repo-style transactions (including agented indemnified securities lending transactions), eligible margin loans, and similar transactions.  BNY Mellon has requested written approval to use this methodology.

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

Supplementary Leverage Ratio ("SLR")

The following table presents the components of our estimated SLR using fully phased-in Basel III components of capital.

Estimated fully phased-in SLR – Non-GAAP (a)

(dollars in millions)

Dec. 31,  2014

March 31,  2015

June 30,  2015

(b)

Total estimated fully phased-in Basel III CET1 – Non-GAAP

$

15,931

$

16,123

$

15,931

Additional Tier 1 capital

1,550

1,560

2,545

Total Tier 1 capital

$

17,481

$

17,683

$

18,476

Total leverage exposure:

Quarterly average total assets (c)

$

385,232

$

368,411

$

378,293

Less: Amounts deducted from Tier 1 capital

19,947

19,644

19,779

Total on-balance sheet assets, as adjusted (c)

365,285

348,767

358,514

Off-balance sheet exposures:

Potential future exposure for derivatives contracts (plus certain other items)

11,376

9,295

9,222

Repo-style transaction exposures included in SLR

302

6,474

6,589

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

21,850

22,046

27,251

Total off-balance sheet exposures

33,528

37,815

43,062

Total leverage exposure (c)

$

398,813

$

386,582

$

401,576

Estimated fully phased-in SLR – Non-GAAP (c)

4.4

%

4.6

%

4.6

%

(a)   The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules.  When the SLR is fully phased-in, we expect to maintain an SLR of over 5%.  The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs. 

(b)   June 30, 2015 information is preliminary.

(c)    The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).

  • The SLR increased slightly on a sequential basis, as both total Tier 1 capital and total leverage exposure increased.
  • The increase in total Tier 1 capital was driven by the issuance of preferred stock.
  • The increase in leverage exposure was driven by:
    • an increase in average total assets, primarily interest-earning assets, as a result of higher average deposits and securities sold under repurchase agreements.
    • an increase in the credit equivalent amount of other off-balance sheet exposures primarily from the secured intraday credit provided to dealers in connection with their tri-party repo activity.

Liquidity Coverage Ratio ("LCR")

The U.S. LCR rules became effective Jan. 1, 2015 and require BNY Mellon to meet an LCR of 80%, increasing annually by 10% increments until fully phased-in on Jan. 1, 2017, at which time we will be required to meet an LCR of 100%.  Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of June 30, 2015 based on our current understanding of the U.S. LCR rules.

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

(dollars in millions, unless otherwise noted)

2Q15 vs.

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Revenue:

Investment management fees:

Mutual funds

$

311

$

315

$

306

$

301

$

307

(1)%

2

%

Institutional clients

385

382

375

376

376

(2)

Wealth management

156

158

157

158

161

3

2

Investment management fees

852

855

838

835

844

(1)

1

Performance fees

29

22

44

15

20

(31)

N/M

Investment management and performance fees

881

877

882

850

864

(2)

2

Distribution and servicing

41

41

40

39

37

(10)

(5)

Other (a)

48

16

7

47

25

N/M

N/M

Total fee and other revenue (a)

970

934

929

936

926

(5)

(1)

Net interest revenue

66

69

69

74

78

18

5

Total revenue

1,036

1,003

998

1,010

1,004

(3)

(1)

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

725

727

729

721

714

(2)

(1)

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

311

276

269

289

290

(7)

Amortization of intangible assets

31

31

30

25

25

(19)

Charge related to investment management funds, net of incentives

109

N/M

N/M

Income before taxes

$

171

$

245

$

239

$

264

$

265

55

%

%

Pre-tax operating margin

16

%

24

%

24

%

26

%

26

%

Adjusted pre-tax operating margin (b)

36

%

33

%

32

%

34

%

34

%

Changes in AUM (in billions): (c)

Beginning balance of AUM

$

1,620

$

1,636

$

1,646

$

1,710

$

1,741

Net inflows (outflows):

Long-term:

Equity

(4)

(2)

(4)

(6)

(12)

Fixed income

(1)

4

4

(2)

Index

7

(3)

1

8

(9)

Liability-driven investments (d)

(17)

18

24

8

5

Alternative investments

2

2

2

3

Total long-term inflows (outflows)

(13)

13

27

16

(15)

Short term:

Cash

(18)

19

5

1

(11)

Total net inflows (outflows)

(31)

32

32

17

(26)

Net market/currency impact/acquisition

47

(22)

32

14

9

Ending balance of AUM

$

1,636

$

1,646

$

1,710

$

1,741

$

1,724

(e)

5

%

(1)%

AUM at period end, by product type: (c)

Equity

17

%

16

%

16

%

15

%

15

%

Fixed income

14

13

13

13

13

Index

21

21

21

22

21

Liability-driven investments (d)

27

28

29

29

30

Alternative investments

4

4

4

4

4

Cash

17

18

17

17

17

Total AUM

100

%

100

%

100

%

100

%

100

%

(e)

Average balances:

Average loans

$

10,372

$

10,772

$

11,124

$

11,634

$

12,298

19

%

6

%

Average deposits

$

13,458

$

13,764

$

14,604

$

15,218

$

14,640

9

%

(4)%

(a)   Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for the reconciliation of Non-GAAP measures.  Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.

(b)   Excludes the net negative impact of money market fee waivers, amortization of intangible assets and the charge related to investment management funds, net of incentives, and is net of distribution and servicing expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 25 for the reconciliation of this Non-GAAP measure.

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

(d)   Includes currency overlay assets under management.

(e)    Preliminary.

N/M – Not meaningful.

INVESTMENT MANAGEMENT KEY POINTS

  • Assets under management were $1.72 trillion at June 30, 2015, an increase of 5% year-over-year and a decrease of 1% sequentially.  The year-over-year increase primarily resulted from higher market values, net new business and the Cutwater acquisition, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • Net long-term outflows were $15 billion in 2Q15 driven by equity, index and fixed income investments, partially offset by liability-driven and alternative investments.
    • Net short-term outflows were $11 billion in 2Q15.
  • Income before taxes excluding amortization of intangible assets and the charge related to investment management funds, net of incentives decreased 7% year-over-year and increased slightly on a sequential basis.
  • Total revenue was $1.0 billion, a decrease of 3% year-over-year and 1% sequentially.  The year-over-year decrease primarily reflects the unfavorable impact of a stronger U.S. dollar and lower performance fees, partially offset by the impact of the 1Q15 acquisition of Cutwater and strategic initiatives.  Both decreases also reflect lower seed capital gains, partially offset by higher equity market values.
    • 43% non-U.S. revenue in 2Q15 vs. 45% in 2Q14.
  • Investment management fees were $844 million, a decrease of 1% year-over-year, or an increase of 5% on a constant currency basis (Non-GAAP).  The increase was primarily driven by higher equity market values, the impact of the 1Q15 acquisition of Cutwater and strategic initiatives.  Sequentially, investment management fees increased 1% reflecting higher equity market values. 
  • Performance fees were $20 million in 2Q15 compared with $29 million in 2Q14 and $15 million in 1Q15.
  • Other revenue was $25 million in 2Q15 compared with $48 million in 2Q14 and $47 million in 1Q15.  Both decreases primarily reflect lower seed capital gains, partially offset by gains on hedging activities within a boutique.
  • Net interest revenue increased 18% year-over-year and 5% sequentially.  Both increases primarily reflect higher loan levels.  The year-over-year increase also reflects higher average deposits.
    • Average loans increased 19% year-over-year and 6% sequentially; average deposits increased 9% year-over-year and decreased 4% sequentially.
  • Total noninterest expense (excluding amortization of intangible assets and the charge related to investment management funds, net of incentives) decreased 2% year-over-year and 1% sequentially.  The year-over-year decrease primarily reflects the favorable impact of a stronger U.S. dollar and lower distribution and servicing expense, partially offset by the impact of the Cutwater acquisition and investments in strategic initiatives.  The sequential decrease primarily reflects lower incentive expense.

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

(dollars in millions, unless otherwise noted)

2Q15 vs.

2Q14

3Q14

4Q14

1Q15

2Q15

2Q14

1Q15

Revenue:

Investment services fees:

Asset servicing

$

993

$

998

$

992

$

1,013

$

1,035

4

%

2

%

Clearing services

324

336

346

342

346

7

1

Issuer services

231

314

193

231

234

1

1

Treasury services

140

139

142

135

141

1

4

Total investment services fees

1,688

1,787

1,673

1,721

1,756

4

2

Foreign exchange and other trading revenue

145

159

165

209

179

23

(14)

Other (a)

87

59

69

63

85

(2)

35

Total fee and other revenue

1,920

2,005

1,907

1,993

2,020

5

1

Net interest revenue

593

583

574

600

635

7

6

Total revenue

2,513

2,588

2,481

2,593

2,655

6

2

Noninterest expense (ex. amortization of intangible assets)

1,824

1,835

2,512

1,797

1,841

1

2

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

689

753

(31)

796

814

18

2

Amortization of intangible assets

44

44

43

41

40

(9)

(2)

Income (loss) before taxes

$

645

$

709

$

(74)

$

755

$

774

20

%

3

%

Pre-tax operating margin

26

%

27

%

(3)

%

29

%

29

%

Pre-tax operating margin (ex. amortization of intangible assets)

27

%

29

%

(1)

%

31

%

31

%

Investment services fees as a percentage of noninterest expense (b)

93

%

100

%

92

%

96

%

98

%

Securities lending revenue

$

35

$

27

$

28

$

34

$

40

14

%

18

%

Metrics:

Average loans

$

33,115

$

33,785

$

35,448

$

37,699

$

38,264

16

%

1

%

Average deposits

$

220,701

$

221,734

$

228,282

$

234,183

$

237,193

7

%

1

%

AUC/A at period end (in trillions) (c)

$

28.5

$

28.3

$

28.5

$

28.5

$

28.6

(d)

%

%

Market value of securities on loan at period end

(in billions) (e)

$

280

$

282

$

289

$

291

$

283

1

%

(3)

%

Asset servicing:

Estimated new business wins (AUC/A) (in billions)

$

130

$

115

$

130

$

131

$

1,024

(d)

Depositary Receipts:

Number of sponsored programs

1,316

1,302

1,279

1,258

1,206

(8)

%

(4)

%

Clearing services:

Global DARTS volume (in thousands)

207

209

242

261

242

17

%

(7)

%

Average active clearing accounts (U.S. platform)

(in thousands)

5,752

5,805

5,900

5,979

6,046

5

%

1

%

Average long-term mutual fund assets (U.S. platform)

$

433,047

$

442,827

$

450,305

$

456,954

$

466,195

8

%

2

%

Average investor margin loans (U.S. platform)

$

9,236

$

9,861

$

10,711

$

11,232

$

11,890

29

%

6

%

Broker-Dealer:

Average tri-party repo balances (in billions)

$

2,022

$

2,063

$

2,101

$

2,153

$

2,174

8

%

1

%

(a)   Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue, and investment and other income.

(b)   Noninterest expense excludes amortization of intangible assets and litigation expense.

(c)    Includes the AUC/A of CIBC Mellon of $1.2 trillion at June 30, 2014 and Sept. 30, 2014 and $1.1 trillion at Dec. 31, 2014, March 31, 2015 and June 30, 2015.

(d)   Preliminary.

(e)    Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at June 30, 2014, $65 billion at Sept. 30, 2014 and Dec. 31, 2014, $69 billion at March 31, 2015 and $68 billion at June 30, 2015.

INVESTMENT SERVICES KEY POINTS

  • Income before taxes excluding amortization of intangible assets totaled $814 million, an increase of 18% year-over-year. 
    • The pre-tax operating margin excluding amortization of intangible assets was 31% in 2Q15 and the investment services fees as a percentage of noninterest expense was 98% in 2Q15, reflecting the continued focus on driving operating leverage.
  • Investment services fees totaled $1.8 billion, an increase of 4% year-over-year and 2% sequentially.
    • Asset servicing fees (global custody, broker-dealer services and global collateral services) were $1.04 billion in 2Q15 compared with $993 million in 2Q14 and $1.01 billion in 1Q15.  The year-over-year increase primarily reflects organic growth, due in part to Global Collateral Services, net new business and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar.  The sequential increase primarily reflects organic growth and seasonally higher securities lending revenue.
      • Estimated new business wins (AUC/A) in Asset Servicing of $1.02 trillion in 2Q15.
    • Clearing services fees were $346 million in 2Q15 compared with $324 million in 2Q14 and $342 million in 1Q15.  The year-over-year increase was primarily driven by higher mutual fund and asset-based fees, clearance revenue and custody fees.  The sequential increase was primarily driven by two additional trading days in 2Q15.
    • Issuer services fees (Corporate Trust and Depositary Receipts) were $234 million in 2Q15 compared with $231 million in both 2Q14 and 1Q15.  Both increases primarily reflect higher Depositary Receipts revenue, partially offset by lower Corporate Trust fees.  The year-over-year decrease in Corporate Trust fees primarily reflects the unfavorable impact of a stronger U.S. dollar.
    • Treasury services fees were $141 million in 2Q15 compared with $140 million in 2Q14 and $135 million in 1Q15.  The year-over-year increase primarily reflects higher payment volumes.  The sequential increase primarily reflects three additional business days in 2Q15.
  • Foreign exchange and other trading revenue was $179 million in 2Q15 compared with $145 million in 2Q14 and $209 million in 1Q15.  The year-over-year increase primarily reflects higher volatility and volumes, as well as higher Depositary Receipts-related activity.  The sequential decrease primarily reflects the benefit of unusually high volatility in 1Q15.
  • Net interest revenue was $635 million in 2Q15 compared with $593 million in 2Q14 and $600 million in 1Q15.  Both increases primarily reflect higher average deposits and higher internal crediting rates for deposits.
  • Noninterest expense (excluding amortization of intangible assets) was $1.84 billion in 2Q15 compared with $1.82 billion in 2Q14 and $1.80 billion in 1Q15.  The year-over-year increase reflects higher litigation expense, partially offset by lower consulting expense and the favorable impact of a stronger U.S. dollar.  The sequential increase primarily reflects higher litigation expense.

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

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Revenue:

Fee and other revenue

$

119

$

928

$

117

$

104

$

124

Net interest revenue

60

69

69

54

66

Total revenue

179

997

186

158

190

Provision for credit losses

(12)

(19)

1

2

(6)

Noninterest expense (ex. M&I and restructuring charges)

93

274

210

120

98

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

98

742

(25)

36

98

M&I and restructuring charges (recoveries)

120

57

(4)

8

Income (loss) before taxes

$

(22)

$

685

$

(25)

$

40

$

90

Average loans and leases

$

9,962

$

10,278

$

10,272

$

8,602

$

10,515

KEY POINTS

  • Total fee and other revenue increased $5 million compared with 2Q14 and $20 million compared with 1Q15.  Both increases primarily reflect higher leasing gains.  The year-over-year increase also reflected higher other trading revenue, which was more than offset by lower other revenue.  The sequential increase was partially offset by lower other trading revenue and net securities gains.
  • Net interest revenue increased $6 million compared with 2Q14 and $12 million compared with 1Q15.  Both increases primarily reflect higher interest-earning assets, partially offset by higher internal crediting rates to the business for deposits.
  • Noninterest expense (excluding M&I and restructuring charges) increased $5 million compared with 2Q14 and decreased $22 million compared with 1Q15.  The year-over-year increase primarily reflects higher corporate donations.  The sequential decrease was driven by lower incentive expense driven by the impact of vesting of long-term stock awards for retirement eligible employees recorded in 1Q15, partially offset by higher employee benefits expense reflecting the curtailment gain also recorded in 1Q15.

THE BANK OF NEW YORK MELLON CORPORATION      Condensed Consolidated Income Statement

(in millions)

Quarter ended

Year-to-date

June 30, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Fee and other revenue

Investment services fees:

Asset servicing

$

1,060

$

1,038

$

1,022

$

2,098

$

2,031

Clearing services

347

344

326

691

651

Issuer services

234

232

231

466

460

Treasury services

144

137

141

281

277

Total investment services fees

1,785

1,751

1,720

3,536

3,419

Investment management and performance fees (a)

878

867

883

1,745

1,726

Foreign exchange and other trading revenue

187

229

130

416

266

Financing-related fees

58

40

44

98

82

Distribution and servicing

39

41

43

80

86

Investment and other income (a)

104

60

142

164

244

Total fee revenue (a)

3,051

2,988

2,962

6,039

5,823

Net securities gains

16

24

18

40

40

Total fee and other revenue (a)

3,067

3,012

2,980

6,079

5,863

Operations of consolidated investment management funds

Investment income (a)

46

56

141

102

279

Interest of investment management fund note holders (a)

6

4

95

10

197

Income from consolidated investment management funds (a)

40

52

46

92

82

Net interest revenue

Interest revenue

847

807

811

1,654

1,623

Interest expense

68

79

92

147

176

Net interest revenue

779

728

719

1,507

1,447

Provision for credit losses

(6)

2

(12)

(4)

(30)

Net interest revenue after provision for credit losses

785

726

731

1,511

1,477

Noninterest expense

Staff

1,434

1,485

1,439

2,919

2,950

Professional, legal and other purchased services

299

302

314

601

626

Software and equipment

228

228

236

456

473

Net occupancy

149

151

152

300

306

Distribution and servicing

96

98

112

194

219

Sub-custodian

75

70

81

145

149

Business development

72

61

68

133

132

Other

250

242

347

492

570

Amortization of intangible assets

65

66

75

131

150

Merger and integration, litigation and restructuring charges

59

(3)

122

56

110

Total noninterest expense

2,727

2,700

2,946

5,427

5,685

Income

Income before income taxes (a)

1,165

1,090

811

2,255

1,737

Provision for income taxes

276

280

217

556

449

Net income (a)

889

810

594

1,699

1,288

Net (income) attributable to noncontrolling interests (includes $(37), $(31), $(17), $(68) and $(37) related to consolidated investment management funds, respectively) (a)

(36)

(31)

(17)

(67)

(37)

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

853

779

577

1,632

1,251

Preferred stock dividends

(23)

(13)

(23)

(36)

(36)

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

$

830

$

766

$

554

$

1,596

$

1,215

(a)   The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).  See page 24 for additional information.

 

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

Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation

(in millions)

Quarter ended

Year-to-date

June 30, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

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

$

830

$

766

$

554

$

1,596

$

1,215

Less:  Earnings allocated to participating securities

9

12

10

24

23

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

$

821

$

754

$

544

$

1,572

$

1,192

 

Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation

(in thousands)

Quarter ended

Year-to-date

June 30, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Basic

1,113,790

1,118,602

1,133,556

1,116,183

1,136,086

Diluted

1,122,135

1,126,306

1,139,800

1,124,154

1,141,948

 

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, 2015

March 31, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Basic

$

0.74

$

0.67

$

0.48

$

1.41

$

1.05

Diluted

$

0.73

$

0.67

$

0.48

$

1.40

$

1.04

 

THE BANK OF NEW YORK MELLON CORPORATION      Consolidated Balance Sheet

(dollars in millions, except per share amounts)

June 30, 2015

March 31, 2015

December 31, 2014

Assets

Cash and due from:

Banks

$

8,354

$

7,167

$

6,970

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

104,407

89,704

96,682

Interest-bearing deposits with banks

19,179

18,937

19,495

Federal funds sold and securities purchased under resale agreements

23,930

28,268

20,302

Securities:

Held-to-maturity (fair value of $43,438, $41,676 and $21,127)

43,426

41,237

20,933

Available-for-sale

79,608

87,717

98,330

Total securities

123,034

128,954

119,263

Trading assets

7,568

9,505

9,881

Loans

63,138

62,326

59,132

Allowance for loan losses

(183)

(190)

(191)

Net loans

62,955

62,136

58,941

Premises and equipment

1,412

1,410

1,394

Accrued interest receivable

574

557

607

Goodwill

17,807

17,663

17,869

Intangible assets

4,000

4,047

4,127

Other assets (a)

21,074

22,308

20,490

Subtotal assets of operations (a)

394,294

390,656

376,021

Assets of consolidated investment management funds, at fair value:

Trading assets (a)

2,012

1,496

8,678

Other assets (a)

219

185

604

Subtotal assets of consolidated investment management funds, at fair value (a)

2,231

1,681

9,282

Total assets (a)

$

396,525

$

392,337

$

385,303

Liabilities

Deposits:

Noninterest-bearing (principally U.S. offices)

$

114,810

$

111,622

$

104,240

Interest-bearing deposits in U.S. offices

58,312

60,624

53,236

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

112,579

109,013

108,393

Total deposits

285,701

281,259

265,869

Federal funds purchased and securities sold under repurchase agreements

10,020

7,919

11,469

Trading liabilities

5,418

7,342

7,434

Payables to customers and broker-dealers

22,050

21,959

21,181

Commercial paper

Other borrowed funds

706

869

786

Accrued taxes and other expenses

6,522

6,258

6,903

Other liabilities (includes allowance for lending-related commitments of $95, $93 and $89)

5,427

7,581

5,025

Long-term debt

20,375

20,401

20,264

Subtotal liabilities of operations

356,219

353,588

338,931

Liabilities of consolidated investment management funds, at fair value:

Trading liabilities (a)

770

264

7,660

Other liabilities (a)

112

106

9

Subtotal liabilities of consolidated investment management funds, at fair value (a)

882

370

7,669

Total liabilities (a)

357,101

353,958

346,600

Temporary equity

Redeemable noncontrolling interests

244

215

229

Permanent equity

Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 25,826, 15,826 and 15,826 shares

2,552

1,562

1,562

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,308,181,033, 1,303,799,499 and 1,290,222,821 shares

13

13

13

Additional paid-in capital

25,078

24,887

24,626

Retained earnings

18,895

18,257

17,683

Accumulated other comprehensive loss, net of tax

(2,225)

(2,182)

(1,634)

Less:  Treasury stock of 201,663,375, 182,287,827 and 171,995,262 common shares, at cost

(6,043)

(5,209)

(4,809)

Total The Bank of New York Mellon Corporation shareholders' equity

38,270

37,328

37,441

Nonredeemable noncontrolling interests of consolidated investment management funds (a)

910

836

1,033

Total permanent equity (a)

39,180

38,164

38,474

Total liabilities, temporary equity and permanent equity (a)

$

396,525

$

392,337

$

385,303

(a)   The first quarter of 2015 was restated to reflect the retrospective application of adopting new accounting guidance related to Consolidations (ASU 2015-02).  See page 24 for additional information.

IMPACT OF ADOPTING NEW ACCOUNTING GUIDANCE

In 2Q15, BNY Mellon elected to early adopt the new accounting guidance included in Accounting Standards Update ("ASU") 2015-02, "Amendments to the Consolidation Analysis," an amendment to ASC 810, Consolidation, retroactively to Jan. 1, 2015.  As a result, we restated the first quarter 2015 financial statements.

This ASU eliminated the indefinite deferral of ASU 2010-10 "Amendments for Certain Investment Funds" for asset management funds with characteristics of an investment company and also eliminated the presumption that a general partner should consolidate a general partnership.  Entities that comply with or operate in accordance with the requirements that are similar to those of Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds are excluded from the scope of the ASU.  This ASU also changed the consolidation analysis, particularly when a reporting entity has fee arrangements that meet certain requirements and related party relationships.

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

Income statement for quarter ended March 31, 2015 (unaudited)

As previously reported

Adjustments

As revised

(in millions, except per share amounts)

Fee and other revenue

Investment management and performance fees

$

854

$

13

$

867

Investment and other income

63

(3)

60

Total fee revenue

2,978

10

2,988

Total fee and other revenue

3,002

10

3,012

Operations of consolidated investment management funds

Investment income

189

(133)

56

Interest of investment management fund note holders

68

(64)

4

Income from consolidated investment management funds

121

(69)

52

Income

Income before income taxes

1,149

(59)

1,090

Net income

869

(59)

810

Net (income) attributable to noncontrolling interests

(90)

59

(31)

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

766

766

Diluted earnings per share

0.67

0.67

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

Balance sheet at March 31, 2015 (unaudited)

As previously reported

Adjustments

As revised

(in millions)

Assets

Other assets

$

22,315

$

(7)

$

22,308

Subtotal assets of operations

390,663

(7)

390,656

Assets of consolidated investment management funds, at fair value:

Trading assets

7,852

(6,356)

1,496

Other assets

573

(388)

185

Subtotal assets of consolidated investment management funds, at fair value

8,425

(6,744)

1,681

Total assets

399,088

(6,751)

392,337

Liabilities and Equity

Liabilities of consolidated investment management funds, at fair value:

Trading liabilities

6,584

(6,320)

264

Other liabilities

36

70

106

Subtotal liabilities of consolidated investment management funds, at fair value

6,620

(6,250)

370

Total liabilities

360,208

(6,250)

353,958

Nonredeemable noncontrolling interests of consolidated investment management funds

1,337

(501)

836

Total permanent equity

38,665

(501)

38,164

Total liabilities, temporary equity and permanent equity

399,088

(6,751)

392,337

 

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

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based on fully phased-in Basel III CET1 and other risk-based capital ratios, SLR and tangible common shareholders' equity.  BNY Mellon believes that the Basel III CET1 and other risk-based capital ratios on a fully phased-in basis, the SLR on a fully phased-in basis and the ratio of tangible common shareholders' equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the capital ratios which are, or were, required by regulatory authorities.  The tangible common shareholders' equity ratio includes changes in investment securities valuations which are reflected in total shareholders' equity.  In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure.  Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of those assets that can generate 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 tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds, a gain on the sale of our investment in Wing Hang Bank and a gain on the sale of the One Wall Street building; and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and the charge related to investment management funds, net of incentives.  Earnings per share, return on equity measures and operating margin measures, which exclude some or all of these items, are also presented.  Return on equity measures also exclude the benefit primarily related to a tax carryback claim.  Operating margin measures may also exclude amortization of intangible assets and the net negative impact of money market fee waivers, net of distribution and servicing expense.  BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control.  The excluded items, in general, relate to certain charges as a result of prior transactions.  M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction.  Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees.  Restructuring charges relate to our streamlining actions, Operational Excellence Initiatives and migrating positions to Global Delivery Centers.  Excluding these charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

The presentation of revenue growth on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates.  Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue.  BNY Mellon believes that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

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

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

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

Reconciliation of income before income taxes – pre-tax operating margin

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Income before income taxes – GAAP

$

811

$

1,662

$

164

$

1,090

$

1,165

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

17

23

24

31

37

Gain on the sale of our investment in Wing Hang Bank

490

Gain on the sale of the One Wall Street building

346

Add:  Amortization of intangible assets

75

75

73

66

65

M&I, litigation and restructuring charges

122

220

800

(3)

59

Charge related to investment management funds, net of incentives

109

Income before income taxes, as adjusted – Non-GAAP (a)

$

1,100

$

1,098

$

1,013

$

1,122

$

1,252

Fee and other revenue – GAAP

$

2,980

$

3,851

$

2,935

$

3,012

$

3,067

Income from consolidated investment management funds – GAAP

46

39

42

52

40

Net interest revenue – GAAP

719

721

712

728

779

Total revenue – GAAP

3,745

4,611

3,689

3,792

3,886

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

17

23

24

31

37

Gain on the sale of our investment in Wing Hang Bank

490

Gain on the sale of the One Wall Street building

346

Total revenue, as adjusted – Non-GAAP (a)

$

3,728

$

3,752

$

3,665

$

3,761

$

3,849

Pre-tax operating margin (b)

22

%

36

%

4

%

29

%

(c)

30

%

(c)

Pre-tax operating margin – Non-GAAP (a)(b)

30

%

29

%

28

%

30

%

(c)

33

%

(c)

 

(a)   Non-GAAP excludes net income attributable to noncontrolling interests of consolidated investment management funds, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, amortization of intangible assets, M&I, litigation and restructuring charges, and a charge related to investment management funds, net of incentives, if applicable.

(b)   Income before taxes divided by total revenue.

(c)    Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities.  The benefits of these investments are primarily reflected in tax expense.  If reported on a tax-equivalent basis these investments would increase revenue and income before taxes by $64 million and $52 million for 1Q15 and 2Q15 and would increase our pre-tax operating margin by approximately 1.2% and 0.9%, respectively.

 

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

Return on common equity and tangible common equity

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

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

$

554

$

1,070

$

209

$

766

$

830

Add:  Amortization of intangible assets, net of tax

49

49

47

43

44

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

603

1,119

256

809

874

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

315

Gain on the sale of the One Wall Street building

204

Benefit primarily related to a tax carryback claim

150

Add:  M&I, litigation and restructuring charges

76

183

608

(2)

38

Charge related to investment management funds, net of incentives

85

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

$

764

$

783

$

714

$

807

$

912

Average common shareholders' equity

$

36,565

$

36,751

$

36,859

$

35,486

$

35,516

Less:  Average goodwill

18,149

18,109

17,924

17,756

17,752

Average intangible assets

4,354

4,274

4,174

4,088

4,031

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

1,338

1,317

1,340

1,362

1,351

Deferred tax liability – intangible assets (b)

1,247

1,230

1,216

1,200

1,179

Average tangible common shareholders' equity – Non-GAAP

$

16,647

$

16,915

$

17,317

$

16,204

$

16,263

Return on common equity – GAAP (c)

6.1

%

11.6

%

2.2

%

8.8

%

9.4

%

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

8.4

%

8.5

%

7.7

%

9.2

%

10.3

%

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

14.5

%

26.2

%

5.9

%

20.3

%

21.5

%

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

18.4

%

18.4

%

16.3

%

20.2

%

22.5

%

(a)   Non-GAAP excludes amortization of intangible assets, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, the benefit primarily related to a tax carryback claim, M&I, litigation and restructuring charges, and a charge related to investment management funds, net of incentives, if applicable.

(b)   Deferred tax liabilities are based on fully phased-in Basel III rules.

(c)    Annualized.

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

Equity to assets and book value per common share

June 30, 2014

Sept. 30, 2014

Dec. 31, 2014

March 31, 2015

June 30, 2015

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

38,326

$

38,451

$

37,441

$

37,328

$

38,270

Less:  Preferred stock

1,562

1,562

1,562

1,562

2,552

BNY Mellon common shareholders' equity at period end – GAAP

36,764

36,889

35,879

35,766

35,718

Less:  Goodwill

18,196

17,992

17,869

17,663

17,807

Intangible assets

4,314

4,215

4,127

4,047

4,000

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

1,338

1,317

1,340

1,362

1,351

Deferred tax liability – intangible assets (a)

1,247

1,230

1,216

1,200

1,179

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

$

16,839

$

17,229

$

16,439

$

16,618

$

16,441

Total assets at period end – GAAP

$

400,740

$

386,296

$

385,303

$

392,337

$

396,525

Less:  Assets of consolidated investment management funds

10,428

9,562

9,282

1,681

2,231

Subtotal assets of operations – Non-GAAP

390,312

376,734

376,021

390,656

394,294

Less:  Goodwill

18,196

17,992

17,869

17,663

17,807

Intangible assets

4,314

4,215

4,127

4,047

4,000

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

104,916

90,978

99,901

93,044

107,899

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

$

262,886

$

263,549

$

254,124

$

275,902

$

264,588

BNY Mellon shareholders' equity to total assets ratio – GAAP

9.6

%

10.0

%

9.7

%

9.5

%

9.7

%

BNY Mellon common shareholders' equity to total assets ratio – GAAP

9.2

%

9.5

%

9.3

%

9.1

%

9.0

%

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

6.4

%

6.5

%

6.5

%

6.0

%

6.2

%

Period-end common shares outstanding (in thousands)

1,131,596

1,125,710

1,118,228

1,121,512

1,106,518

Book value per common share – GAAP

$

32.49

$

32.77

$

32.09

$

31.89

$

32.28

Tangible book value per common share – Non-GAAP

$

14.88

$

15.30

$

14.70

$

14.82

$

14.86

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

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

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

Income from consolidated investment management funds, net of noncontrolling interests

(in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Income from consolidated investment management funds

$

46

$

39

$

42

$

52

$

40

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

17

23

24

31

37

Income from consolidated investment management funds, net of noncontrolling interests

$

29

$

16

$

18

$

21

$

3

The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.

Investment management and performance fees - Consolidated

2Q15 vs.

(dollars in millions)

2Q14

2Q15

2Q14

Investment management and performance fees - GAAP

$

883

$

878

(1)

%

Impact of changes in foreign currency exchange rates

(45)

Investment management and performance fees, as adjusted - Non-GAAP

$

838

$

878

5

%

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

Income from consolidated investment management funds, net of noncontrolling interests - Investment Management business

(in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Investment management fees

$

18

$

15

$

15

$

1

$

4

Other (Investment income)

11

1

3

20

(1)

Income from consolidated investment management funds, net of noncontrolling interests

$

29

$

16

$

18

$

21

$

3

The following table presents the impact of changes in foreign currency exchange rates on investment management fees reported in the Investment Management segment.

Investment management fees - Investment Management business

2Q15 vs.

(dollars in millions)

2Q14

2Q15

2Q14

Investment management fees – GAAP

$

852

$

844

(1)

%

Impact of changes in foreign currency exchange rates

(45)

Investment management fees, as adjusted – Non-GAAP

$

807

$

844

5

%

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

Pre-tax operating margin - Investment Management business

(dollars in millions)

2Q14

3Q14

4Q14

1Q15

2Q15

Income before income taxes – GAAP

$

171

$

245

$

239

$

264

$

265

Add:  Amortization of intangible assets

31

31

30

25

25

Money market fee waivers

28

29

34

34

29

Charge related to investment management funds, net of incentives

109

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

$

339

$

305

$

303

$

323

$

319

Total revenue – GAAP

$

1,036

$

1,003

$

998

$

1,010

$

1,004

Less:  Distribution and servicing expense

111

105

102

97

95

Money market fee waivers benefiting distribution and servicing expense

37

38

36

38

37

Add:  Money market fee waivers impacting total revenue

65

67

70

72

66

Total revenue net of distribution and servicing expense

and excluding money market fee waivers – Non-GAAP

$

953

$

927

$

930

$

947

$

938

Pre-tax operating margin (a)

16

%

24

%

24

%

26

%

26

%

Pre-tax operating margin excluding amortization of intangible assets, money market fee waivers, the charge related to investment management funds, net of incentives and net of distribution and servicing expense – Non-GAAP (a)

36

%

33

%

32

%

34

%

34

%

(a)   Income before taxes divided by total revenue.

DIVIDENDS

Common – On July 21, 2015, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.17 per common share.  This cash dividend is payable on Aug. 13, 2015 to shareholders of record as of the close of business on Aug. 3, 2015. 

Preferred – On July 21, 2015, 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 Sept. 2015, in each case payable on Sept. 21, 2015 to holders of record as of the close of business on Sept. 5, 2015:

  • $1,011.11 per share on the Series A Preferred Stock (equivalent to $10.1111 per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A Preferred Stock); and
  • $1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock).

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle.  Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets.  As of June 30, 2015, BNY Mellon had $28.6 trillion in assets under custody and/or administration, and $1.7 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.  Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding our capital plans; strategic priorities; initiatives in Investment Services and Investment Management; and our business improvement process.  These statements may be expressed in a variety of ways, including the use of future or present tense language.  Words such as "estimate", "forecast", "project", "anticipate", "target", "expect", "intend", "continue", "seek", "believe", "plan", "goal", "could", "should", "may", "will", "strategy", "opportunities", "trends" and words of similar meaning signify forward-looking statements.  These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control).  Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2014 and BNY Mellon's other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 21, 2015, 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:
    
Kevin Heine   
(212) 635-1590   
kevin.heine@bnymellon.com

ANALYSTS:   
Valerie Haertel   

(212) 635-8529   

valerie.haertel@bnymellon.com   

SOURCE The Bank of New York Mellon Corporation



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