BANK OF NEW YORK MELLON CORPORATION (THE) NEW YORK, Oct. 17, 2014 /PRNewswire/ --
INVESTMENT MANAGEMENT AND PERFORMANCE FEES UP 7% YEAR-OVER-YEAR
-- Assets under management up 7% year-over-year to a record $1.65 trillion
INVESTMENT SERVICES REVENUE UP 5% YEAR-OVER-YEAR
-- Assets under custody and/or administration up 3% year-over-year
CONTINUED PROGRESS ON EXPENSE CONTROL
-- Staff expense decreased 3% year-over-year
REPURCHASED 11.0 MILLION COMMON SHARES FOR $431 MILLION IN THIRD QUARTER
RETURN ON TANGIBLE COMMON EQUITY OF 26%, OR 18% ON AN ADJUSTED BASIS (a)
The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter net income applicable to common shareholders of $1.07 billion, or $0.93 per diluted common share, or $734 million, or $0.64 per diluted common share, adjusted for the previously disclosed gains net of litigation and restructuring charges. In the third quarter of 2013, net income applicable to common shareholders was $962 million, or $0.82 per diluted common share, or $713 million, or $0.61 per diluted common share, adjusted for the benefit related to certain tax matters net of litigation and restructuring charges. In the second quarter of 2014, net income applicable to common shareholders was $554 million, or $0.48 per diluted common share, or $715 million, or $0.62 per diluted common share, adjusted for the charge related to investment management funds and severance. (a)
"We had a strong quarter. We grew Investment Management and Investment Services fees, controlled expenses and executed on our capital plan. During the quarter, we also repositioned the Markets Group, which will improve our operating margin and return on capital. We achieved this despite a challenging environment, demonstrating the resilience of our business model and the exceptional efforts of our employees," said Gerald L. Hassell, chairman and chief executive officer of BNY Mellon.
___________________________
(a) See "Supplemental information - Explanation of GAAP and Non-
GAAP financial measures" beginning on page 24 for the
reconciliation of Non-GAAP measures.
CONFERENCE CALL INFORMATION
Gerald L. Hassell, chairman and chief executive officer and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 17, 2014. This conference call and audio webcast will include forward-looking statements and may include other material information.
Persons wishing to access the conference call and audio webcast may do so by dialing (888) 677-5383 (U.S.) and (773) 799-3611 (International), and using the passcode: Earnings, or by logging on to www.bnymellon.com. Earnings materials will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on Oct. 17, 2014. Replays of the conference call and audio webcast will be available beginning Oct. 17, 2014 at approximately 2 p.m. EDT through Nov. 17, 2014 by dialing (800) 860-4696 (U.S.) or (203) 369-3836 (International). The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.
THIRD QUARTER 2014 FINANCIAL HIGHLIGHTS (a)
(comparisons are 3Q14 vs. 3Q13 unless otherwise stated)
-- Earnings
Earnings per share Net income applicable to common
shareholders of The Bank of New York
Mellon Corporation
------------------ -------------------------------------
(in millions, except per share
amounts) 3Q13 3Q14 Inc(Dec) 3Q13 3Q14 Inc(Dec)
------------------------------ ---- ---- ------- ---- ---- -------
GAAP results $0.82 $0.93 $962 $1,070
Less: Gain on the sale of our
investment in Wing Hang Bank
Limited - 0.27 - 315
Gain on the sale of the One
Wall Street building - 0.18 - 204
Add: Litigation and
restructuring charges 0.01 0.16 12 183
Benefit related to the
disallowance of certain
foreign tax credits (0.22) - (261) -
------------------------ ----- --- ---- ---
Non-GAAP results $0.61 $0.64 5% $713 $734 3%
---------------- ----- ----- --- ---- ---- ---
-- Total revenue was $4.6 billion, an increase of 22%, or a decline of 1%
as adjusted (Non-GAAP).
-- Investment services fees increased 5% reflecting organic growth,
higher market values and net new business.
-- Investment management and performance fees increased 7% reflecting
higher equity markets, the impact of a weaker U.S. dollar and higher
performance fees.
-- Foreign exchange revenue was flat as higher volumes were offset by
lower volatility.
-- Sharp volume gains helped mitigate the 36% year-over-year
decline in the G7 Volatility Index.
-- Investment and other income, excluding the previously disclosed
gains, decreased $97 million driven by lower equity revenue and seed
capital gains.
-- Net interest revenue decreased 7% reflecting lower asset yields and
lower accretion, partially offset by higher average interest-earning
assets driven by higher deposits.
-- The provision for credit losses was a credit of $19 million in 3Q14.
-- Noninterest expense increased 7%. Noninterest expense as adjusted
(Non-GAAP) remained flat resulting from lower staff expense offset by
higher professional, legal and other purchased services, the impact of a
weaker U.S. dollar and the annual employee merit increase.
-- Effective tax rate of 33.5%. The previously disclosed gains, litigation
and restructuring charges increased the effective rate 7.1% in 3Q14.
-- Assets under custody and/or administration ("AUC/A") and Assets under
management ("AUM")
-- AUC/A of $28.3 trillion, increased 3% primarily reflecting higher
market values.
-- Estimated new AUC/A wins in Asset Servicing of $115 billion in
3Q14.
-- AUM of a record $1.65 trillion, increased 7% driven by higher equity
market values and net new business.
-- Long-term inflows totaled $13 billion in 3Q14 driven by
liability-driven investments.
-- Short-term inflows totaled $19 billion in 3Q14.
-- Capital
-- Repurchased 11.0 million common shares for $431 million in 3Q14.
-- Return on tangible common equity of 26%, or 18% as adjusted
(Non-GAAP).
(a) See "Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on
page 24 for the reconciliation of
Non-GAAP measures. Non-GAAP
excludes M&I, litigation and
restructuring charges, the gain on
the sale of our investment in Wing
Hang, the gain on the sale of the
One Wall Street building, a charge
(recovery) related to investment
management funds, net of incentives
and the benefit related to the
disallowance of certain foreign tax
credits, if applicable.
Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Sequential growth rates are unannualized.
FINANCIAL SUMMARY
(dollars in millions, except
per share amounts; common
shares in thousands) 3Q14 vs.
---------------------------- --------
3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
---- ---- ---- ---- ---- ---- ----
Revenue:
Fee and other revenue $2,979 $2,814 $2,883 $2,980 $3,851 29% 29%
Income from consolidated
investment management funds 32 36 36 46 39
Net interest revenue 772 761 728 719 721
-------------------- --- --- --- --- ---
Total revenue - GAAP 3,783 3,611 3,647 3,745 4,611 22 23
Less: Net income attributable
to noncontrolling interests
related to consolidated
investment management funds 8 17 20 17 23
Gain on the sale of our
investment in Wing Hang - - - - 490
Gain on the sale of the One
Wall Street building - - - - 346
Loss related to an equity
investment (pre-tax) - (175) - - -
------------------------- --- ---- --- --- ---
Total revenue - Non-GAAP 3,775 3,769 3,627 3,728 3,752 (1) 1
------------------------ ----- ----- ----- ----- ----- --- ---
Provision for credit losses 2 6 (18) (12) (19)
Expense:
Noninterest expense - GAAP 2,779 2,877 2,739 2,946 2,968 7 1
Less: Amortization of
intangible assets 81 82 75 75 75
M&I, litigation and
restructuring charges 16 2 (12) 122 220
Charge (recovery) related to
investment management funds,
net of incentives - - (5) 109 -
Total noninterest expense -
Non-GAAP 2,682 2,793 2,681 2,640 2,673 - 1
--------------------------- ----- ----- ----- ----- ----- --- ---
Income:
Income before income taxes 1,002 728 926 811 1,662 N/M N/M
Provision for income taxes 19 172 232 217 556
-------------------------- --- --- --- --- ---
Net income $983 $556 $694 $594 $1,106
Net (income) attributable to
noncontrolling interests (a) (8) (17) (20) (17) (23)
----------------------------- --- --- --- --- ---
Net income applicable to
shareholders of The Bank of
New York Mellon Corporation 975 539 674 577 1,083
Preferred stock dividends (13) (26) (13) (23) (13)
------------------------- --- --- --- --- ---
Net income applicable to
common shareholders of The
Bank of New York Mellon
Corporation $962 $513 $661 $554 $1,070
--------------------------- ---- ---- ---- ---- ------
Key Metrics:
------------
Pre-tax operating margin (b) 26% 20% 25% 22% 36%
Non-GAAP (b) 29% 22% 27% 30% 29%
Return on common equity
(annualized) (b) 11.1% 5.7% 7.4% 6.1% 11.6%
Non-GAAP (b) 8.9% 6.3% 7.8% 8.4% 8.5%
Return on tangible common
equity (annualized) - Non-
GAAP (b) 28.3% 14.3% 17.6% 14.5% 26.2%
Non-GAAP adjusted (b) 21.3% 14.3% 17.3% 18.4% 18.4%
Fee revenue as a percentage of
total revenue excluding net
securities gains 79% 78% 79% 79% 83%
Percentage of non-U.S. total
revenue (c) 38% 39% 37% 38% 43%
Average common shares and
equivalents outstanding
Basic 1,148,724 1,142,861 1,138,645 1,133,556 1,126,946
Diluted 1,152,679 1,147,961 1,144,510 1,139,800 1,134,871
Period end:
-----------
Full-time employees 50,800 51,100 51,400 51,100 50,900
Book value per common share -
GAAP (b) $30.80 $31.46 $31.94 $32.49 $32.77
Tangible book value per common
share - Non-GAAP (b) $13.34 $13.95 $14.48 $14.88 $15.30
Cash dividends per common
share $0.15 $0.15 $0.15 $0.17 $0.17
Common dividend payout ratio 18% 34% 26% 35% 18%
Closing stock price per common
share $30.19 $34.94 $35.29 $37.48 $38.73
Market capitalization $34,674 $39,910 $40,244 $42,412 $43,599
Common shares outstanding 1,148,522 1,142,250 1,140,373 1,131,596 1,125,710
------------------------- --------- --------- --------- --------- ---------
(a) Primarily attributable to
noncontrolling interests related to
consolidated investment management
funds.
(b) Non-GAAP excludes M&I, litigation
and restructuring charges, the gain
on the sale of our investment in
Wing Hang, the gain on the sale of
the One Wall Street building, a
charge (recovery) related to
investment management funds, net of
incentives and the benefit related
to the disallowance of certain
foreign tax credits, if applicable.
See "Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on
page 24 for the reconciliation of
Non-GAAP measures.
(c) Includes fee revenue, net interest
revenue and income from consolidated
investment management funds, net of
net income attributable to
noncontrolling interests.
N/M - Not meaningful.
CONSOLIDATED BUSINESS METRICS
Consolidated business metrics 3Q14 vs.
----------------------------- --------
3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
---- ---- ---- ---- ---- ---- ----
Changes in AUM (in billions): (a)
Beginning balance of AUM $1,427 $1,532 $1,583 $1,620 $1,636
Net inflows (outflows):
Long-term:
Equity 3 (5) (1) (4) (2)
Fixed income (1) 5 - (1) -
Index 2 (3) - 7 (3)
Liability-driven investments (b) 27 4 20 (17) 18
Alternative investments 1 1 2 2 -
--- --- --- --- ---
Total long-term inflows (outflows) 32 2 21 (13) 13
Short term:
Cash 13 6 (7) (18) 19
---- --- --- --- --- ---
Total net inflows (outflows) 45 8 14 (31) 32
Net market/currency impact 60 43 23 47 (22)
--- --- --- --- ---
Ending balance of AUM $1,532 $1,583 $1,620 $1,636 $1,646 (c) 7% 1%
AUM at period end, by product type:
(a)
Equity 17% 17% 17% 17% 16%
Fixed income 14 14 14 14 13
Index 20 20 20 21 21
Liability-driven investments (b) 26 26 27 27 28
Alternative investments 4 4 4 4 4
Cash 19 19 18 17 18
--- --- --- --- ---
Total AUM 100% 100% 100% 100% 100% (c)
Wealth management:
------------------
Average loans (in millions) $9,453 $9,755 $10,075 $10,372 $10,772 14% 4%
Average deposits (in millions) $13,898 $14,161 $14,805 $13,458 $13,764 (1)% 2%
Investment Services:
--------------------
Average loans (in millions) $27,865 $31,211 $31,468 $33,115 $33,785 21% 2%
Average deposits (in millions) $206,068 $216,216 $214,947 $220,701 $221,734 8% - %
AUC/A at period end (in trillions)
(d) $27.4 $27.6 $27.9 $28.5 $28.3 (c) 3% (1)%
Market value of securities on loan at
period end (in billions) (e) $255 $235 $264 $280 $282 11% 1%
Asset servicing:
----------------
Estimated new business wins (AUC/A)
(in billions) $110 $123 $161 $130 $115 (c)
Depositary Receipts:
--------------------
Number of sponsored programs 1,350 1,335 1,332 1,316 1,302 (4)% (1)%
Clearing services:
------------------
Global DARTS volume (in thousands) 212 213 230 207 209 (1)% 1%
Average active clearing accounts
(U.S. platform) (in thousands) 5,622 5,643 5,695 5,752 5,805 3% 1%
Average long-term mutual fund assets
(U.S. platform) (in millions) $377,131 $401,434 $413,658 $433,047 $442,827 17% 2%
Average investor margin loans (U.S.
platform) (in millions) $8,845 $8,848 $8,919 $9,236 $9,861 11% 7%
Broker-Dealer:
--------------
Average tri-party repo balances (in
billions) $1,952 $2,005 $1,983 $2,022 $2,063 6% 2%
----------------------------------- ------ ------ ------ ------ ------ --- ---
(a) Excludes securities lending cash
management assets and assets
managed in the Investment Services
business.
(b) Includes currency and overlay
assets under management.
(c) Preliminary.
(d) Includes the AUC/A of CIBC Mellon
Global Securities Services Company
("CIBC Mellon"), a joint venture
with the Canadian Imperial Bank of
Commerce, of $1.2 trillion at
Sept. 30, 2013, Dec. 31, 2013,
March 31, 2014, June 30, 2014 and
Sept. 30, 2014.
(e) Represents the total amount of
securities on loan managed by the
Investment Services business.
Excludes securities for which BNY
Mellon acts as agent, beginning in
the fourth quarter of 2013, on
behalf of CIBC Mellon clients,
which totaled $62 billion at Dec.
31, 2013, $66 billion at March 31,
2014, $64 billion at June 30, 2014
and $65 billion at Sept. 30, 2014.
The following table presents key market metrics at period end and on an average basis.
Key market
metrics
----------
3Q14 vs.
--------
3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
---- ---- ---- ---- ---- ---- ----
S&P 500 Index
(a) 1682 1848 1872 1960 1972 17% 1%
S&P 500 Index
- daily
average 1675 1769 1835 1900 1976 18 4
FTSE 100 Index
(a) 6462 6749 6598 6744 6623 2 (2)
FTSE 100 Index
- daily
average 6530 6612 6680 6764 6756 3 -
MSCI World
Index (a) 1544 1661 1674 1743 1698 10 (3)
MSCI World
Index - daily
average 1511 1602 1647 1698 1733 15 2
Barclays
Capital
Global
Aggregate
BondSM Index
(a)(b) 356 354 365 376 361 1 (4)
NYSE and
NASDAQ share
volume (in
billions) 166 179 196 187 173 4 (7)
JPMorgan G7
Volatility
Index - daily
average (c) 9.72 8.20 7.80 6.22 6.21 (36) -
Average Fed
Funds
effective
rate 0.09% 0.09% 0.07% 0.09% 0.09% - bps - bps
----------- ---- ---- ---- ---- ---- --- --- --- ---
(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 3Q14 vs.
--------
(dollars in
millions) 3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
----------- ---- ---- ---- ---- ---- ---- ----
Investment
services fees:
Asset servicing
(a) $964 $984 $1,009 $1,022 $1,025 6% - %
Clearing services 315 324 325 326 337 7 3
Issuer services 322 237 229 231 315 (2) 36
Treasury services 137 137 136 141 142 4 1
----------------- --- --- --- --- --- --- ---
Total investment
services fees 1,738 1,682 1,699 1,720 1,819 5 6
Investment
management and
performance fees 821 904 843 883 881 7 -
Foreign exchange
and other trading
revenue 160 146 136 130 153 (4) 18
Distribution and
servicing 43 43 43 43 44 2 2
Financing-related
fees 44 43 38 44 44 - -
Investment and
other income 151 (43) 102 142 890 N/M N/M
-------------- --- ---
Total fee revenue 2,957 2,775 2,861 2,962 3,831 30 29
Net securities
gains 22 39 22 18 20 N/M N/M
-------------- --- --- --- --- ---
Total fee and
other revenue -
GAAP $2,979 $2,814 $2,883 $2,980 $3,851 29% 29%
---------------- ------ ------ ------ ------ ------ --- ---
(a) Asset servicing fees include
securities lending revenue
of $35 million in 3Q13, $31
million in 4Q13, $38
million in 1Q14, $46
million in 2Q14 and $37
million in 3Q14.
N/M - Not meaningful.
KEY POINTS
-- Asset servicing fees were $1.0 billion, an increase of 6% year-over-year
and a slight increase sequentially. The year-over-year increase
primarily reflects organic growth, higher market values, net new
business and higher collateral management fees in Global Collateral
Services. The sequential increase primarily reflects organic growth,
partially offset by seasonally lower securities lending revenue.
-- Clearing services fees were $337 million, an increase of 7%
year-over-year and 3% sequentially. Both increases were driven by
growth in clearing accounts and mutual fund positions, and higher asset
levels. The sequential increase also reflects higher DARTS volume.
-- Issuer services fees were $315 million, a decrease of 2% year-over-year
and an increase of 36% sequentially. The year-over-year decrease
reflects lower Corporate Trust fees, partially offset by new business in
Depositary Receipts. The sequential increase is primarily due to
seasonally higher dividend fees and new business in Depositary Receipts,
partially offset by lower Corporate Trust fees.
-- Treasury services fees were $142 million in 3Q14 compared with $137
million in 3Q13 and $141 million in 2Q14. The year-over-year increase
primarily reflects higher payment volumes.
-- Investment management and performance fees were $881 million, an
increase of 7% year-over-year and a slight decrease sequentially. The
year-over-year increase primarily resulted from higher equity markets,
the impact of a weaker U.S. dollar and higher performance fees. The
sequential decrease was primarily driven by seasonally lower performance
fees and the impact of a stronger U.S. dollar.
Foreign exchange and other trading
revenue
(in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
------------ ---- ---- ---- ---- ----
Foreign exchange $154 $126 $130 $129 $154
Other trading revenue (loss):
Fixed income (2) 20 1 (1) 2
Equity/other 8 - 5 2 (3)
------------ --- --- --- --- ---
Total other trading revenue (loss) 6 20 6 1 (1)
--------------------------------- --- --- --- --- ---
Total foreign exchange and other
trading revenue $160 $146 $136 $130 $153
--------------------------------- ---- ---- ---- ---- ----
Foreign exchange and other trading revenue totaled $153 million in 3Q14 compared with $160 million in 3Q13 and $130 million in 2Q14. In 3Q14, foreign exchange revenue totaled $154 million, unchanged year-over-year and up 19% sequentially. Year-over-year, higher volumes offset lower volatility. The sequential increase reflects higher volumes.
Other trading loss was $1 million in 3Q14, compared with other trading revenue of $6 million in 3Q13 and other trading revenue of $1 million in 2Q14. Both decreases primarily reflect lower derivatives trading revenue.
Investment and other income (loss)
(in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
------------ ---- ---- ---- ---- ----
Asset-related gains (losses) $35 $22 $(1) $17 $836
Corporate/bank-owned life insurance 38 40 30 30 34
Expense reimbursements from joint
venture 12 11 12 15 13
Lease residual gains 7 - 35 4 5
Private equity gains (losses) (2) 5 5 (2) 2
Transitional service agreements - 2 - - -
Seed capital gains (losses) 7 20 6 15 (1)
Equity investment revenue (loss) 48 (163) (2) 17 (9)
Other income 6 20 17 46 10
--- --- --- --- ---
Total investment and other income
(loss) $151 $(43) $102 $142 $890
---------------------------------- ---- ---- ---- ---- ----
Investment and other income was $890 million in 3Q14 compared with $151 million in 3Q13 and $142 million in 2Q14. Both increases primarily reflect the gains on the sales of our equity investment in Wing Hang and our One Wall Street office building, partially offset by lower equity investment revenue and seed capital gains.
-- In July 2014, we sold our equity investment in Wing Hang resulting in an
after-tax gain of $315 million, or $490 million pre-tax. Equity
investment revenue related to our investment in Wing Hang totaled $20
million through July of 2014 and $95 million in full-year 2013,
including $37 million from the sale of a property recorded in 3Q13.
-- In September 2014, we sold the corporate headquarters at One Wall Street
resulting in an after-tax gain of $204 million, or $346 million pre-tax.
NET INTEREST REVENUE
Net interest revenue 3Q14 vs.
--------
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
-------------------- ---- ---- ----
Net interest revenue (non-
FTE) $772 $761 $728 $719 $721 (7)% - %
Net interest revenue (FTE)
- Non-GAAP 787 781 744 736 736 (6) -
Net interest margin (FTE) 1.16% 1.09% 1.05% 0.98% 0.94% (22) bps (4) bps
Selected average balances:
Cash/interbank investments $116,165 $132,198 $127,134 $140,357 $139,278 20% (1)%
Trading account securities 5,523 6,173 5,217 5,532 5,435 (2) (2)
Securities 101,206 96,640 100,534 101,420 112,055 11 10
Loans 48,256 50,768 51,647 53,449 54,835 14 3
------ ------ ------ ------ ------
Interest-earning assets 271,150 285,779 284,532 300,758 311,603 15 4
Interest-bearing deposits 153,547 157,020 152,986 162,674 164,233 7 1
Noninterest-bearing
deposits 72,075 79,999 81,430 77,820 82,334 14 6
Selected average yields/
rates:
Cash/interbank investments 0.41% 0.40% 0.43% 0.43% 0.38%
Trading account securities 2.83 2.82 2.60 2.19 2.36
Securities 1.98 2.02 1.79 1.68 1.56
Loans 1.73 1.64 1.65 1.66 1.61
Interest-earning assets 1.28 1.21 1.17 1.10 1.05
Interest-bearing deposits 0.06 0.06 0.06 0.06 0.06
Average cash/interbank
investments as a
percentage of average
interest-earning assets 43% 46% 45% 47% 45%
Average noninterest-
bearing deposits as a
percentage of average
interest-earning assets 27% 28% 29% 26% 26%
------------------------ --- --- --- --- ---
bps - basis points.
FTE - fully taxable
equivalent.
KEY POINTS
-- Net interest revenue totaled $721 million in 3Q14, a decrease of $51
million compared with 3Q13 and an increase of $2 million sequentially.
The year-over-year decrease primarily resulted from lower asset yields
and lower accretion, partially offset by higher average interest-earning
assets driven by higher deposits.
-- Euro-denominated deposit liabilities comprised 15% of average deposits
in 3Q14 and 16% of average deposits in 2Q14.
-- In the fourth quarter of 2014, we are continuing to reduce our interbank
placement assets and increasing our high quality liquid assets in the
securities portfolio. The anticipated revenue as a result of these
tactical actions should mitigate the impact on our net interest revenue
as a result of:
-- the European Central Bank's reduction in their deposit rate to
negative, and the resulting impact on lower reinvestment rates
across the euro yield curve; as well as,
-- prolonged low reinvestment rates in the U.S.
NONINTEREST EXPENSE
Noninterest expense 3Q14 vs.
--------
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
-------------------- ---- ---- ---- ---- ---- ---- ----
Staff:
Compensation $915 $929 $925 $903 $909 (1)% 1%
Incentives 339 343 359 313 340 - 9
Employee benefits 262 250 227 223 228 (13) 2
----------------- --- --- --- --- --- --- ---
Total staff 1,516 1,522 1,511 1,439 1,477 (3) 3
Professional, legal
and other purchased
services 296 344 312 314 323 9 3
Software and
equipment 226 241 237 236 234 4 (1)
Net occupancy 153 154 154 152 154 1 1
Distribution and
servicing 108 110 107 112 107 (1) (4)
Sub-custodian 71 68 68 81 67 (6) (17)
Business development 63 96 64 68 61 (3) (10)
Other 249 258 223 347 250 - (28)
Amortization of
intangible assets 81 82 75 75 75 (7) -
M&I, litigation and
restructuring
charges 16 2 (12) 122 220 N/M N/M
------------------- --- --- --- --- --- --- ---
Total noninterest
expense - GAAP $2,779 $2,877 $2,739 $2,946 $2,968 7% 1%
Total staff expense
as a percentage of
total revenue 40% 42% 41% 38% 32%
Memo:
-----
Total noninterest
expense excluding net of incentives -
amortization of Non-GAAP
intangible assets,
M&I, litigation and
restructuring
charges and the
charge (recovery)
related to
investment
management funds, $2,682 $2,793 $2,681 $2,640 $2,673 - % 1%
------------------- ------ ------ ------ ------ ------ --- --- ---
N/M - Not meaningful.
KEY POINTS
-- Total noninterest expense excluding amortization of intangible assets,
M&I, litigation and restructuring charges, and the charge (recovery)
related to investment management funds (Non-GAAP) decreased slightly
year-over-year and increased 1% sequentially.
-- Year-over-year, staff expense decreased driven by lower pension
expense, the benefit of replacing technology contractors with
permanent staff and the impact of streamlining actions. The decrease
was offset by higher professional, legal and other purchased
services, the impact of a weaker U.S. dollar and the annual employee
merit increase.
-- The sequential increase primarily reflects the incentive adjustment
recorded in 2Q14 related to investment management funds, the impact
of the annual employee merit increase and higher professional, legal
and other purchased services expenses, partially offset by
streamlining actions and lower sub-custodian expense.
INVESTMENT SECURITIES PORTFOLIO
At Sept. 30, 2014, the fair value of our investment securities portfolio totaled $115.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $1.1 billion at Sept. 30, 2014 compared with $1.2 billion at June 30, 2014. The decrease in the net unrealized pre-tax gain was primarily driven by the increase in market interest rates. During 3Q14, we received $134 million of paydowns of sub-investment grade securities and sold $24 million of sub-investment grade securities.
In 3Q14, we increased our level of Agency RMBS, U.S. Treasury and sovereign debt/sovereign guaranteed investment securities as we continued to reduce our interbank placement assets and increase our high quality liquid assets.
The following table shows the distribution of our investment securities portfolio.
Investment June 30, 2014 3Q14 Sept. 30, 2014 Fair value Unrealized Ratings
securities portfolio change in as a % of
amortized gain (loss)
unrealized cost (a)
gain (loss)
(dollars in millions)
--------------------
BB+
and
lower
-----
Fair Amortized Fair AAA/ A+/ BBB+/ Not
value cost value AA- A- BBB- rated
----- ---- ----- --- --- ---- -----
Agency RMBS $41,552 $(100) $44,413 $44,372 100% $(41) 100% - % - % - % - %
U.S. Treasury 18,791 (18) 25,244 25,449 101 205 100 - - - -
Sovereign debt/sovereign guaranteed 14,812 41 16,510 16,627 101 117 87 - 13 - -
Non-agency RMBS (b) 2,574 (31) 1,916 2,449 81 533 - 1 1 90 8
Non-agency RMBS 1,227 3 1,147 1,170 94 23 1 9 23 66 1
European floating rate notes 2,525 9 2,297 2,296 100 (1) 72 22 - 6 -
Commercial MBS 4,397 (28) 4,798 4,829 101 31 93 6 1 - -
State and political subdivisions 6,253 13 5,350 5,434 102 84 79 20 - - 1
Foreign covered bonds 2,788 (3) 2,863 2,949 103 86 100 - - - -
Corporate bonds 1,693 (5) 1,636 1,670 102 34 21 65 14 - -
CLO 1,455 (1) 1,959 1,971 101 12 100 - - - -
U.S. Government agencies 787 (3) 704 699 99 (5) 100 - - - -
Consumer ABS 3,278 (3) 3,024 3,025 100 1 99 1 - - -
Other (c) 2,980 (3) 2,917 2,923 100 6 40 53 - - 7
Total investment securities $105,112 (d) $(129) $114,778 $115,863 (d) 100% $1,085 (e) 90% 4% 2% 3% 1%
--------------------------- -------- --- ----- -------- -------- --- --- ------ --- --- --- --- --- ---
(a) Amortized cost before impairments.
(b) These RMBS were included in the former
Grantor Trust and were marked-to-
market in 2009. We believe these
RMBS would receive higher credit
ratings if these ratings
incorporated, as additional credit
enhancements, the difference between
the written-down amortized cost and
the current face amount of each of
these securities.
(c) Includes commercial paper of $1.7
billion and $1.6 billion, fair value,
and money market funds of $810 million
and $789 million, fair value, at June
30, 2014 and Sept. 30, 2014,
respectively.
(d) Includes net unrealized gains on
derivatives hedging securities
available-for-sale of $213 million
at June 30, 2014 and $137 million at
Sept. 30, 2014.
(e) Unrealized gains of $1,055 million at
Sept. 30, 2014 related to available-
for-sale securities.
NONPERFORMING ASSETS
Nonperforming assets Sept. 30,
2013 June 30, 2014 Sept. 30, 2014
(dollars in
millions)
-----------
Loans:
Other residential
mortgages $128 $105 $113
Commercial 15 13 13
Wealth management
loans and mortgages 12 12 13
Foreign 9 4 -
Commercial real
estate 4 4 4
Financial
institutions 1 - -
--- --- ---
Total nonperforming
loans 169 138 143
Other assets owned 3 4 4
--- --- ---
Total nonperforming
assets (a) $172 $142 $147
------------------- ---- ---- ----
Nonperforming assets
ratio 0.34% 0.24% 0.26%
Allowance for loan
losses/
nonperforming loans 121.9 135.5 133.6
Total allowance for
credit losses/
nonperforming loans 200.6 225.4 201.4
-------------------- ----- ----- -----
(a) Loans of consolidated investment
management funds are not part of BNY
Mellon's loan portfolio. Included
in the loans of consolidated
investment management funds are
nonperforming loans of $31 million
at Sept. 30, 2013, $68 million at
June 30, 2014 and $79 million at
Sept. 30, 2014. These loans are
recorded at fair value and therefore
do not impact the provision for
credit losses and allowance for loan
losses, and accordingly are excluded
from the nonperforming assets table
above.
Nonperforming assets were $147 million at Sept. 30, 2014, an increase of $5 million from $142 million at June 30, 2014. The increase primarily resulted from additions in the other residential mortgage loan portfolio which were partially offset by sales in the foreign and other residential mortgage loan portfolios.
ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS
Allowance for
credit
losses,
provision and
net charge-
offs Sept. 30, 2013 June 30, 2014 Sept. 30, 2014
(in millions)
------------
Allowance for
credit losses
-beginning
of period $337 $326 $311
Provision for
credit losses 2 (12) (19)
Net (charge-
offs)
recoveries:
Foreign 1 (2) (1)
Wealth
management
loans and
mortgages - (1) -
Other
residential
mortgages - (1) 1
Commercial (1) 1 (4)
Net (charge-
offs) - (3) (4)
------------ --- --- ---
Allowance for
credit losses
-end of
period $339 $311 $288
-------------- ---- ---- ----
Allowance for
loan losses $206 $187 $191
Allowance for
lending-
related
commitments 133 124 97
------------- --- --- ---
The provision for credit losses was a credit of $19 million in 3Q14 driven by the continued improvement in the credit quality of the loan portfolio. The provision for credit losses was $2 million in 3Q13 and a credit of $12 million in 2Q14.
CAPITAL
Our consolidated capital ratios are shown in the following table. At June 30, 2014 and Sept. 30, 2014, the common equity Tier 1 ("CET1"), Tier 1 and Total risk-based regulatory capital ratios are based on Basel III components of capital, as phased-in, with asset risk-weightings using the Advanced Approach framework. The leverage capital ratios are based on Basel III components of capital and quarterly average total assets, as phased-in. The capital ratios for Sept. 30, 2013 are based on Basel I rules (including Basel I Tier 1 common in the case of the CET1 ratio).
Capital Sept. 30, June 30, Sept. 30,
ratios 2013 2014 2014
------- ---------- --------- ----------
Regulatory
capital
ratios:
(a)(b)(c)
CET1 ratio 14.2% (d) 11.4% 11.4%
Tier 1
capital
ratio 15.8 12.4 12.4
Total (Tier
1 plus
Tier 2)
capital
ratio 16.8 12.8 12.7
Leverage
capital
ratio 5.6 5.9 5.8
-------- --- --- ---
BNY Mellon
shareholders'
equity to
total
assets
ratio (d) 9.9 9.6 10.0
BNY Mellon
common
shareholders'
equity to
total
assets
ratio (d) 9.5 9.2 9.5
BNY Mellon
tangible
common
shareholders'
equity to
tangible
assets of
operations
ratio -
Non-GAAP
(d)(e) 6.3 6.4 6.5
Selected
regulatory
capital
ratios -
fully
phased-in
- Non-
GAAP:
(a)(b)(d)
Estimated
CET1:
Standardized
Approach 10.1 10.3 10.8
Advanced
Approach 11.1 10.0 10.0
Estimated
Supplementary
leverage
ratio
("SLR")
(f) N/A 4.7 4.6
-------------- --- --- ---
(a) Sept. 30, 2014 regulatory capital
ratios are preliminary. See
"Capital Ratios" beginning on page
28 for more detail.
(b) Beginning with June 30, 2014, risk-
based capital ratios include the net
impact of including the total
consolidated assets of certain
consolidated investment management
funds in risk-weighted assets.
These assets were not included in
prior periods. The leverage ratio
was not affected.
(c) The Collins Floor comparison of the
CET1, Tier 1 and Total risk-based
regulatory capital ratios which is
calculated based on Basel III
components of capital, as phased-
in, and asset risk-weightings using
the general risk-based guidelines
included in the final rules released
by the Board of Governors of the
Federal Reserve System (the "Federal
Reserve") on July 2, 2013 (the
"Final Capital Rules") (which for
2014 look to Basel I-based
requirements) were 14.3%, 15.5% and
16.2%, respectively, at June 30,
2014 and 15.1%, 16.3% and 17.0%,
respectively, at Sept. 30, 2014.
(d) See "Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on
page 24 for a reconciliation of
these ratios.
(e) Information for the period ended
Sept. 30, 2013 was restated to
reflect the retrospective
application of adopting new
accounting guidance in the first
quarter of 2014 related to our
investments in qualified affordable
housing projects (ASU 2014-01). See
page 23 for additional information.
(f) The estimated fully phased-in SLR as
of June 30, 2014 is based on our
interpretation of the Final Capital
Rules, as supplemented by the Notice
of Proposed Rulemaking released in
April 2014 concerning the SLR,
except that off-balance sheet
exposures included in total leverage
exposure reflect the end of period
measures, rather than a daily
average. The estimated fully
phased-in SLR as of Sept. 30, 2014
is based on our interpretation of
the Final Capital Rules, as
supplemented by the Federal
Reserve's final rules on the SLR.
On a fully phased-in basis, we
expect to satisfy a minimum SLR of
over 5%, 3% attributable to a
regulatory minimum SLR, and greater
than 2% attributable to a buffer
applicable to U.S. G-SIBs.
N/A - Not available
Basel III CET1 generation presented
on a fully phased-in basis -
preliminary - Non-GAAP
(in millions) 3Q14
----
Estimated Basel III CET1 -Beginning
of period balance $16,277
Net income applicable to common
shareholders of The Bank of New York
Mellon Corporation - GAAP 1,070
Goodwill and intangible assets, net
of related deferred tax liabilities 265
------------------------------------
Gross Basel III CET1 generated 1,335
Capital deployed:
Dividends (196)
Common stock repurchased (431)
------------------------ ----
Total capital deployed (627)
Other comprehensive (loss) (514)
Additional paid-in capital (a) 196
Other (primarily embedded goodwill) 53
Total other (deductions) (265)
----------------------- ----
Net Basel III CET1 generated 443
---
Basel III CET1 - End of period
balance - Non-GAAP $16,720
------------------------------ -------
(a) Primarily related to
stock awards, the
exercise of stock
options and stock issued
for employee benefit
plans.
The table presented below compares the fully phased-in Basel III capital components and ratios to those amounts determined under the currently effective rules using the transitional phase-in requirements.
Basel III capital components and ratios at Sept. 30, 2014 - preliminary Fully phased-in Transitional
Basel III Approach
--------------- ------------
Adjustments (a)
--------------
(dollars in millions)
--------------------
CET1:
Common equity $36,889 $97 (b) $36,986
Goodwill and intangible assets (19,660) 2,388 (c) (17,272)
Net pension fund assets (106) 85 (d) (21)
Equity method investments (383) 92 (c) (291)
Deferred tax assets (17) 14 (d) (3)
Other (3) 4 (e) 1
----- --- --- --- ---
Total CET1 16,720 2,680 19,400
Other Tier 1 capital:
Preferred stock 1,562 - 1,562
Trust preferred securities - 162 (f) 162
Disallowed deferred tax assets - (14) (d) (14)
Net pension fund assets - (85) (d) (85)
Other (2) (4) (6)
----- --- --- ---
Total Tier 1 capital 18,280 2,739 21,019
Tier 2 capital:
Trust preferred securities - 162 (f) 162
Subordinated debt 397 - 397
Allowance for credit losses 288 - 288
Other (1) - (1)
----- --- --- ---
Total Tier 2 capital - Standardized Approach 684 162 846
Excess of expected credit losses 38 - 38
Less: Allowance for credit losses 288 - 288
--------------------------------- --- --- ---
Total Tier 2 capital - Advanced Approach $434 $162 $596
---------------------------------------- ---- ---- ----
Total capital - Standardized Approach $18,964 $2,901 $21,865
Total capital - Advanced Approach $18,714 $2,901 $21,615
Risk-weighted assets - Standardized Approach $154,298 $(25,516) $128,782
Risk-weighted assets - Advanced Approach $167,933 $2,192 $170,125
Standardized Approach:
Estimated Basel III CET1 ratio 10.8% 15.1%
Tier 1 capital ratio 11.8 16.3
Total (Tier 1 plus Tier 2) capital ratio 12.3 17.0
---------------------------------------- ---- ----
Advanced Approach:
Estimated Basel III CET1 ratio 10.0% 11.4%
Tier 1 capital ratio 10.9 12.4
Total (Tier 1 plus Tier 2) capital ratio 11.1 12.7
---------------------------------------- ---- ----
(a) Reflects transitional adjustments to
CET1, Tier 1 capital and Tier 2
capital required in 2014 under the
Final Capital Rules.
(b) Represents the portion of accumulated
other comprehensive (income) loss
excluded from common equity.
(c) Represents intangible assets, other
than goodwill, net of the
corresponding deferred tax
liabilities.
(d) Represents the deduction for net
pension fund assets and disallowed
deferred tax assets in CET1 and Tier 1
capital.
(e) Represents transitional adjustments
related to cash flow hedges.
(f) During 2014, 50% of outstanding trust
preferred securities are included in
Tier 1 capital and 50% in Tier 2
capital.
REVIEW OF BUSINESSES
Business results are subject to reclassification when organizational changes are made or whenever improvements are made in the measurement principles. The reclassifications did not impact the consolidated results. All prior periods have been restated.
INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.
(dollars in millions, unless
otherwise noted) 3Q14 vs.
---------------------------- --------
3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
---- ---- ---- ---- ---- ---- ----
Revenue:
Investment management fees:
Mutual funds $293 $303 $299 $311 $315 8% 1%
Institutional clients 367 385 372 385 382 4 (1)
Wealth management 145 149 153 156 158 9 1
----------------- --- --- --- --- --- --- ---
Investment management fees 805 837 824 852 855 6 -
Performance fees 10 72 20 29 22 N/M N/M
--- --- --- --- --- --- ---
Investment management and performance
fees 815 909 844 881 877 8 -
Distribution and servicing 41 41 40 41 41 - -
Other (a) 26 43 16 48 16 N/M N/M
-------- --- --- --- --- --- --- ---
Total fee and other revenue (a) 882 993 900 970 934 6 (4)
Net interest revenue 67 68 70 66 69 3 5
-------------------- --- --- --- --- --- --- ---
Total revenue 949 1,061 970 1,036 1,003 6 (3)
Noninterest expense (ex. amortization
of intangible assets and the charge
(recovery) related to investment
management funds, net of incentives) 689 760 698 725 727 6 -
------------------------------------- --- --- --- --- --- --- ---
Income before taxes (ex. amortization
of intangible assets and the charge
(recovery) related to investment
management funds, net of incentives) 260 301 272 311 276 6 (11)
Amortization of intangible assets 35 35 31 31 31 (11) -
Charge (recovery) related to
investment management funds, net of
incentives - - (5) 109 - N/M N/M
------------------------------------ --- --- --- --- --- --- ---
Income before taxes $225 $266 $246 $171 $245 9% 43%
------------------- ---- ---- ---- ---- ---- --- ---
Pre-tax operating margin 24% 25% 25% 16% 24%
Adjusted pre-tax operating margin (b) 33% 34% 34% 36% 33%
Changes in AUM (in billions): (c)
Beginning balance of AUM $1,427 $1,532 $1,583 $1,620 $1,636
Net inflows (outflows):
Long-term:
Equity 3 (5) (1) (4) (2)
Fixed income (1) 5 - (1) -
Index 2 (3) - 7 (3)
Liability-driven investments (d) 27 4 20 (17) 18
Alternative investments 1 1 2 2 -
--- --- --- --- ---
Total long-term inflows (outflows) 32 2 21 (13) 13
Short term:
Cash 13 6 (7) (18) 19
---- --- --- --- --- ---
Total net inflows (outflows) 45 8 14 (31) 32
Net market/currency impact 60 43 23 47 (22)
--- --- --- --- ---
Ending balance of AUM $1,532 $1,583 $1,620 $1,636 $1,646 (e) 7% 1%
AUM at period end, by product type:
(c)
Equity 17% 17% 17% 17% 16%
Fixed income 14 14 14 14 13
Index 20 20 20 21 21
Liability-driven investments (d) 26 26 27 27 28
Alternative investments 4 4 4 4 4
Cash 19 19 18 17 18
--- --- --- --- ---
Total AUM 100% 100% 100% 100% 100% (e)
Wealth management:
Average loans $9,453 $9,755 $10,075 $10,372 $10,772 14% 4%
Average deposits $13,898 $14,161 $14,805 $13,458 $13,764 (1)% 2%
---------------- ------- ------- ------- ------- ------- --- ---
(a) Total fee and other revenue includes the
impact of the consolidated investment
management funds. See "Supplemental
information - Explanation of GAAP and Non-
GAAP financial measures" beginning on page
24 for the reconciliation of Non-GAAP
measures. Additionally, other revenue
includes asset servicing, treasury services,
foreign exchange and other trading revenue
and investment and other income.
(b) Excludes the net negative impact of money
market fee waivers, amortization of
intangible assets and the charge (recovery)
related to investment management funds net of
incentives, and is net of distribution and
servicing expense. See "Supplemental
information - Explanation of GAAP and Non-
GAAP financial measures" beginning on page 24
for the reconciliation of Non-GAAP measures.
(c) Excludes securities lending cash management
assets and assets managed in the Investment
Services business.
(d) Includes currency and overlay assets under
management.
(e) Preliminary.
N/M - Not meaningful
INVESTMENT MANAGEMENT KEY POINTS
-- Assets under management were a record $1.65 trillion at Sept. 30, 2014,
an increase of 7% year-over-year and 1% sequentially. The
year-over-year increase primarily resulted from higher equity market
values and net new business. The sequential increase primarily reflects
net new business.
-- Net long-term inflows were $13 billion in 3Q14 driven by
liability-driven investments. Short-term inflows were $19 billion
in 3Q14.
-- Income before taxes excluding amortization of intangible assets and the
charge (recovery) related to investment management funds, net of
incentives increased 6% year-over-year and decreased 11% sequentially.
-- Total revenue was $1.0 billion, an increase of 6% year-over-year and a
decrease of 3% sequentially. Both comparisons were impacted by higher
equity markets and lower seed capital gains. The year-over-year
increase also reflects the impact of a weaker U.S. dollar and higher
performance fees. The sequential decrease also reflects lower
performance fees and the impact of a stronger U.S. dollar.
-- Investment management fees were $855 million, an increase of 6%
year-over-year and a slight increase sequentially. Both increases
primarily resulted from higher equity markets. The year-over-year
increase also reflects the impact of a weaker U.S. dollar. The
sequential increase was partially offset by the impact of a stronger
U.S. dollar.
-- Performance fees were $22 million in 3Q14 compared with $10 million in
3Q13 and $29 million in 2Q14. The year-over-year increase primarily
reflects strong performance of liability-driven investments. The
sequential decrease was due to seasonality.
-- Net interest revenue increased 3% year-over-year and 5% sequentially.
Both increases primarily reflect higher average loans. The
year-over-year increase was partially offset by lower average deposits.
The sequential increase also reflects higher average deposits.
-- Average loans increased 14% year-over-year and 4% sequentially;
average deposits decreased 1% year-over-year and increased 2%
sequentially.
-- Total noninterest expense (ex. amortization of intangible assets and the
charge (recovery) related to investment management funds, net of
incentives) increased 6% year-over-year and increased slightly
sequentially. The year-over-year increase primarily reflects the impact
of a weaker U.S. dollar and higher staff and business development
expenses resulting from investments in strategic initiatives.
-- 44% non-U.S. revenue in 3Q14 vs. 44% in 3Q13.
-- Insight Investment was named LDI Manager of the Year for the fifth
consecutive year at Financial News Awards for Excellence in
Institutional Asset Management and was named the Overall Defined Benefit
Manager of the Year 2014 by Mallowstreet.
INVESTMENT SERVICES provides global custody and related services, broker-dealer services, global collateral services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions.
(dollar amounts in
millions, unless
otherwise noted) 3Q14 vs.
------------------ --------
3Q13 4Q13 1Q14 2Q14 3Q14 3Q13 2Q14
---- ---- ---- ---- ---- ---- ----
Revenue:
Investment services
fees:
Asset servicing $939 $957 $985 $993 $998 6% 1%
Clearing services 314 322 323 324 336 7 4
Issuer services 321 236 228 231 314 (2) 36
Treasury services 135 137 134 140 139 3 (1)
--- --- --- --- --- --- ---
Total investment
services fees 1,709 1,652 1,670 1,688 1,787 5 6
Foreign exchange and
other trading
revenue 177 150 158 145 159 (10) 10
Other (a) 63 58 59 87 59 (6) (32)
--- --- --- --- --- --- ---
Total fee and other
revenue (a) 1,949 1,860 1,887 1,920 2,005 3 4
Net interest revenue 619 610 590 593 583 (6) (2)
--- --- --- --- --- --- ---
Total revenue 2,568 2,470 2,477 2,513 2,588 1 3
Noninterest expense
(ex. amortization
of intangible
assets) 1,765 1,822 1,778 1,824 1,835 4 1
----- ----- ----- ----- ----- --- ---
Income before taxes
(ex. amortization
of intangible
assets) 803 648 699 689 753 (6) 9
Amortization of
intangible assets 46 47 44 44 44 (4) -
--- --- --- --- --- --- ---
Income before taxes $757 $601 $655 $645 $709 (6)% 10%
---- ---- ---- ---- ---- --- ---
Pre-tax operating
margin 29% 24% 26% 26% 27%
Pre-tax operating
margin (ex.
amortization of
intangible assets) 31% 26% 28% 27% 29%
Investment services
fees as a
percentage of
noninterest expense
(b) 97% 90% 93% 93% 100%
Securities lending
revenue $26 $21 $30 $35 $27 4% (23)%
Metrics:
--------
Average loans $27,865 $31,211 $31,468 $33,115 $33,785 21% 2%
Average deposits $206,068 $216,216 $214,947 $220,701 $221,734 8% - %
AUC/A at period end
(in trillions) (c) $27.4 $27.6 $27.9 $28.5 $28.3 (d) 3% (1)%
Market value of
securities on loan at
period $255 $235 $264 $280 $282 11% 1%
end (in billions) (e)
Asset servicing:
----------------
Estimated new
business wins (AUC/
A) (in billions) $110 $123 $161 $130 $115 (d)
Depositary Receipts:
--------------------
Number of sponsored
programs 1,350 1,335 1,332 1,316 1,302 (4)% (1)%
Clearing services:
------------------
Global DARTS volume
(in thousands) 212 213 230 207 209 (1)% 1%
Average active
clearing accounts 5,622 5,643 5,695 5,752 5,805 3% 1%
(U.S. platform) (in
thousands)
Average long-term
mutual fund assets
(U.S. platform) $377,131 $401,434 $413,658 $433,047 $442,827 17% 2%
Average investor
margin loans (U.S.
platform) $8,845 $8,848 $8,919 $9,236 $9,861 11% 7%
Broker-Dealer:
--------------
Average tri-party
repo balances (in
billions) $1,952 $2,005 $1,983 $2,022 $2,063 6% 2%
------------------ ------ ------ ------ ------ ------ --- ---
(a) Total fee and other revenue
includes investment management
fees and distribution and
servicing revenue.
(b) Noninterest expense excludes
amortization of intangible
assets and litigation expense.
(c) Includes the AUC/A of CIBC
Mellon of $1.2 trillion at Sept.
30, 2013, Dec. 31, 2013, March
31, 2014, June 30, 2014 and
Sept. 30, 2014.
(d) Preliminary.
(e) Represents the total amount of
securities on loan managed by the
Investment Services business.
Excludes securities for which BNY
Mellon acts as agent, beginning
in the fourth quarter of 2013, on
behalf of CIBC Mellon clients,
which totaled $62 billion at Dec.
31, 2013, $66 billion at March
31, 2014, $64 billion at June 30,
2014 and $65 billion at Sept. 30,
2014.
N/M - Not meaningful.
INVESTMENT SERVICES KEY POINTS
-- Investment services fees totaled $1.8 billion, an increase of 5%
year-over-year and 6% sequentially.
-- Asset servicing fees (global custody, broker-dealer services and
global collateral services) were $998 million in 3Q14 compared with
$939 million in 3Q13 and $993 million in 2Q14. The year-over-year
increase primarily reflects organic growth, higher market values,
net new business and higher collateral management fees in Global
Collateral Services. The sequential increase primarily reflects
organic growth, partially offset by seasonally lower securities
lending revenue.
-- Estimated new business wins (AUC/A) in Asset Servicing of $115
billion in 3Q14.
-- Clearing services fees were $336 million in 3Q14 compared with $314
million in 3Q13 and $324 million in 2Q14. Both increases were
driven by growth in clearing accounts and mutual fund positions, and
higher asset levels. The sequential increase also reflects higher
DARTS volume.
-- Issuer services fees (Corporate Trust and Depositary Receipts) were
$314 million in 3Q14 compared with $321 million in 3Q13 and $231
million in 2Q14. The year-over-year decrease reflects lower
Corporate Trust fees, partially offset by new business in Depositary
Receipts. The sequential increase is primarily due to seasonally
higher dividend fees and new business in Depositary Receipts,
partially offset by lower Corporate Trust fees.
-- Treasury services fees were $139 million in 3Q14 compared with $135
million in 3Q13 and $140 million in 2Q14. The year-over-year
increase primarily reflect higher payment volumes.
-- Foreign exchange and other trading revenue was $159 million in 3Q14
compared with $177 million in 3Q13 and $145 million in 2Q14. The
year-over-year decrease primarily reflect lower volatility, partially
offset by higher volumes. Sequentially, the increase reflects higher
volumes.
-- Net interest revenue was $583 million in 3Q14 compared with $619 million
in 3Q13 and $593 million in 2Q14. Both decreases primarily reflects
lower yields, partially offset by higher average loans. The
year-over-year decrease was partially offset by higher average deposits.
-- Noninterest expense (excluding amortization of intangible assets) was
$1.835 billion in 3Q14 compared with $1.765 billion in 3Q13 and $1.824
billion in 2Q14. Both increases reflect higher litigation expense. The
year-over-year increase also reflects higher professional and legal
expenses, partially offset by lower staff expense. The sequential
increase was partially offset by lower sub-custodian and staff expenses.
-- Investment services fees as a percentage of noninterest expense
increased year-over-year reflecting an increase in investment
services fees and limited expense growth.
-- 39% non-U.S. revenue in 3Q14 vs. 36% in 3Q13.
OTHER SEGMENT primarily includes credit-related activities, leasing operations, corporate treasury activities, global markets and institutional banking services, business exits, M&I expenses and other corporate revenue and expense items.
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
-------------------- ---- ---- ---- ---- ----
Revenue:
Fee and other revenue $172 $(20) $112 $119 $928
Net interest revenue 86 83 68 60 69
-------------------- --- --- --- --- ---
Total revenue 258 63 180 179 997
Provision for credit
losses 2 6 (18) (12) (19)
Noninterest expense (ex.
M&I and restructuring
charges) 230 200 193 93 274
------------------------ --- --- --- --- ---
Income (loss) before
taxes (ex. M&I and
restructuring charges) 26 (143) 5 98 742
M&I and restructuring
charges 14 13 - 120 57
--------------------- --- --- --- --- ---
Income (loss) before
taxes $12 $(156) $5 $(22) $685
Average loans and leases $10,938 $9,802 $10,104 $9,962 $10,278
------------------------ ------- ------ ------- ------ -------
KEY POINTS
-- Total fee and other revenue increased $756 million compared with 3Q13
and increased $809 million compared with 2Q14. Both increases primarily
reflect the gain on the sale of our investment in Wing Hang and the gain
on the sale of the One Wall Street building, partially offset by lower
equity investment and other income.
-- The provision for credit losses was a credit of $19 million in 3Q14
driven by the continued improvement in the credit quality of the loan
portfolio.
-- Noninterest expense (excluding M&I and restructuring charges) increased
$44 million compared with 3Q13 and $181 million compared with 2Q14.
Both increases primarily reflect higher litigation expense. The
year-over-year increase was partially offset by lower staff expense.
The sequential increase also reflects higher staff expenses.
-- M&I and restructuring charges recorded in 3Q14 primarily reflects
severance expense.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
(in millions) Quarter ended Year-to-date
------------ ------------- ------------
Sept. 30, June 30, Sept. 30, Sept. 30, Sept. 30,
2014 2014 2013 2014 2013
---- ---- ---- ---- ----
Fee and other revenue
Investment services fees:
Asset servicing $1,025 $1,022 $964 $3,056 $2,921
Clearing services 337 326 315 988 940
Issuer services 315 231 322 775 853
Treasury services 142 141 137 419 417
----------------- --- --- --- --- ---
Total investment services
fees 1,819 1,720 1,738 5,238 5,131
Investment management and
performance fees 881 883 821 2,607 2,491
Foreign exchange and other
trading revenue 153 130 160 419 528
Distribution and servicing 44 43 43 130 137
Financing-related fees 44 44 44 126 129
Investment and other income
(a) 890 142 151 1,134 524
--------------------------- --- --- --- ----- ---
Total fee revenue (a) 3,831 2,962 2,957 9,654 8,940
Net securities gains 20 18 22 60 102
-------------------- --- --- --- --- ---
Total fee and other revenue
(a) 3,851 2,980 2,979 9,714 9,042
Operations of consolidated
investment management
funds
Investment income 123 141 134 402 439
Interest of investment
management fund note
holders 84 95 102 281 292
---------------------- --- --- --- --- ---
Income from consolidated
investment management
funds 39 46 32 121 147
Net interest revenue
Interest revenue 809 811 855 2,432 2,506
Interest expense 88 92 83 264 258
---------------- --- --- --- --- ---
Net interest revenue 721 719 772 2,168 2,248
Provision for credit losses (19) (12) 2 (49) (41)
--------------------------- --- --- --- --- ---
Net interest revenue after
provision for credit
losses 740 731 770 2,217 2,289
Noninterest expense
Staff 1,477 1,439 1,516 4,427 4,497
Professional, legal and
other purchased services 323 314 296 949 908
Software and equipment 234 236 226 707 692
Net occupancy 154 152 153 460 475
Distribution and servicing 107 112 108 326 325
Sub-custodian 67 81 71 216 212
Business development 61 68 63 193 221
Other 250 347 249 820 771
Amortization of intangible
assets 75 75 81 225 260
Merger and integration,
litigation and
restructuring charges 220 122 16 330 68
--- ---
Total noninterest expense 2,968 2,946 2,779 8,653 8,429
------------------------- ----- ----- ----- ----- -----
Income
Income before income taxes
(a) 1,662 811 1,002 3,399 3,049
Provision for income taxes
(a) 556 217 19 1,005 1,420
-------------------------- --- --- --- ----- -----
Net income (a) 1,106 594 983 2,394 1,629
Net (income) attributable
to noncontrolling
interests (includes $(23),
$(17), $(8), $(60) and
$(63) related to
consolidated investment
management funds,
respectively) (23) (17) (8) (60) (64)
--------------------------- --- --- --- --- ---
Net income applicable to
shareholders of The Bank
of New York Mellon
Corporation (a) 1,083 577 975 2,334 1,565
Preferred stock dividends (13) (23) (13) (49) (38)
------------------------- --- --- --- --- ---
Net income applicable to
common shareholders of The
Bank of New York Mellon
Corporation (a) $1,070 $554 $962 $2,285 $1,527
--------------------------- ------ ---- ---- ------ ------
(a) Results for the first nine months
of 2013 were restated to reflect
the retrospective application of
adopting new accounting guidance
in the first quarter of 2014
related to our investments in
qualified affordable housing
projects (ASU 2014-01). See
page 23 for additional
information.
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 Quarter ended Year-to-date
(in millions)
Sept. 30, 2014 June 30, Sept. 30,
2014 2013 Sept. 30, 2014 Sept. 30, 2013
--------------
Net income applicable to
common shareholders of
The Bank of New York
Mellon Corporation (a) $1,070 $554 $962 $2,285 $1,527
Less: Earnings
allocated to
participating
securities (a) 20 10 18 43 27
Change in the excess of
redeemable value over
the fair value of
noncontrolling
interests N/A N/A - N/A 1
----------------------- --- --- --- --- ---
Net income applicable to
the common shareholders
of The Bank of New York
Mellon Corporation
after required
adjustments for the
calculation of basic
and diluted earnings
per common share (a) $1,050 $544 $944 $2,242 $1,499
------------------------ ------ ---- ---- ------ ------
(a) Results for the first nine months
of 2013 were restated to reflect
the retrospective application of
adopting new accounting guidance
in the first quarter of 2014
related to our investments in
qualified affordable housing
projects (ASU 2014-01). See
page 23 for additional
information.
N/A - Not applicable.
Average common
shares and
equivalents
outstanding of The
Bank of New York
Mellon Corporation Quarter ended Year-to-date
(in thousands)
Sept. 30, 2014 June 30, 2014 Sept. 30, 2013 Sept. 30, 2014 Sept. 30, 2013
-------------- --------------
Basic 1,126,946 1,133,556 1,148,724 1,133,006 1,153,327
Diluted 1,134,871 1,139,800 1,152,679 1,139,718 1,156,951
------- --------- --------- --------- --------- ---------
Earnings per share
applicable to the
common shareholders of
The Bank of New York
Mellon Corporation (a) Quarter ended Year-to-date
(in dollars)
Sept. 30, 2014 June 30, 2014 Sept. 30, Sept. 30, Sept. 30,
2013 2014 2013
---------- ----------
Basic $0.93 $0.48 $0.82 $1.98 $1.30
Diluted $0.93 $0.48 $0.82 $1.97 $1.30
------- ----- ----- ----- ----- -----
(a) Results for the first nine months
of 2013 were restated to reflect
the retrospective application of
adopting new accounting guidance
in the first quarter of 2014
related to our investments in
qualified affordable housing
projects (ASU 2014-01). See
page 23 for additional
information.
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
Sept. 30, June 30, Dec. 31,
(dollars in
millions,
except per
share amounts) 2014 2014 2013
--------------- ---- ---- ----
Assets
Cash and due
from:
Banks $6,410 $6,173 $6,460
Interest-
bearing
deposits with
the Federal
Reserve and
other central
banks 92,317 105,657 104,359
Interest-
bearing
deposits with
banks 30,341 41,459 35,300
Federal funds
sold and
securities
purchased under
resale
agreements 17,375 15,062 9,161
Securities:
Held-to-
maturity (fair
value of
$20,167,
$19,211 and
$19,443) 20,137 19,102 19,743
Available-for-
sale 95,559 85,688 79,309
-------------- ------ ------ ------
Total securities 115,696 104,790 99,052
Trading assets 11,613 10,856 12,098
Loans 57,527 59,248 51,657
Allowance for
loan losses (191) (187) (210)
------------- ---- ---- ----
Net loans 57,336 59,061 51,447
Premises and
equipment 1,351 1,590 1,655
Accrued interest
receivable 565 624 621
Goodwill 17,992 18,196 18,073
Intangible
assets 4,215 4,314 4,452
Other assets 21,523 22,530 20,566
------------ ------ ------ ------
Subtotal assets
of operations 376,734 390,312 363,244
Assets of
consolidated
investment
management
funds, at fair
value:
Trading assets 8,823 9,402 10,397
Other assets 739 1,026 875
------------ --- ----- ---
Subtotal assets
of consolidated
investment
management
funds, at fair
value 9,562 10,428 11,272
---------------- ----- ------ ------
Total assets $386,296 $400,740 $374,516
------------ -------- -------- --------
Liabilities
Deposits:
Noninterest-
bearing
(principally
U.S. offices) $101,105 $109,570 $95,475
Interest-
bearing
deposits in
U.S. offices 56,740 52,954 56,640
Interest-
bearing
deposits in
Non-U.S.
offices 107,051 119,915 109,014
------------ ------- ------- -------
Total deposits 264,896 282,439 261,129
Federal funds
purchased and
securities sold
under
repurchase
agreements 9,687 10,301 9,648
Trading
liabilities 7,734 6,844 6,945
Payables to
customers and
broker-dealers 20,155 17,242 15,707
Commercial paper - 27 96
Other borrowed
funds 852 1,458 663
Accrued taxes
and other
expenses 6,482 6,433 6,996
Other
liabilities
(includes
allowance for
lending-
related
commitments of
$97, $124 and
$134) 7,169 7,066 4,827
Long-term debt 21,583 20,327 19,864
-------------- ------ ------ ------
Subtotal
liabilities of
operations 338,558 352,137 325,875
Liabilities of
consolidated
investment
management
funds, at fair
value:
Trading
liabilities 8,130 9,123 10,085
Other
liabilities 10 6 46
------------ --- --- ---
Subtotal
liabilities of
consolidated
investment
management
funds, at fair
value 8,140 9,129 10,131
--------------- ----- ----- ------
Total
liabilities 346,698 361,266 336,006
Temporary equity
Redeemable
noncontrolling
interests 246 239 230
Permanent equity
Preferred stock
- par value
$0.01 per
share;
authorized
100,000,000
shares; issued
15,826, 15,826
and 15,826
shares 1,562 1,562 1,562
Common stock -
par value $0.01
per share;
authorized
3,500,000,000
shares; issued
1,286,670,537,
1,281,585,137
and
1,268,036,220
shares 13 13 13
Additional paid-
in capital 24,499 24,303 24,002
Retained
earnings 17,670 16,796 15,952
Accumulated
other
comprehensive
loss, net of
tax (916) (402) (892)
Less: Treasury
stock of
160,960,855,
149,988,907 and
125,786,430
common shares,
at cost (4,377) (3,946) (3,140)
---------------- ------ ------ ------
Total The Bank
of New York
Mellon
Corporation
shareholders'
equity 38,451 38,326 37,497
Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds 901 909 783
--------------- --- --- ---
Total permanent
equity 39,352 39,235 38,280
--------------- ------ ------ ------
Total
liabilities,
temporary
equity and
permanent
equity $386,296 $400,740 $374,516
------------- -------- -------- --------
Impact of Adopting New Accounting Guidance
In the first quarter of 2014, BNY Mellon elected to early adopt the new accounting guidance included in Accounting Standards Update ("ASU") 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects - a Consensus of the FASB Emerging Issues Task Force." This ASU allows companies that invest in qualified affordable housing projects to elect the proportional amortization method of accounting for these investments, if certain conditions are met. In the first quarter of 2014, we restated the prior period financial statements to reflect the impact of the retrospective application of the new accounting guidance.
The table below presents the impact of the new accounting guidance on our previously reported earnings per share applicable to the common shareholders.
Earnings
per share
applicable
to the
common
shareholders
of The
Bank of
New York
Mellon
Corporation As previously reported As revised
---------------------- ----------
(in
dollars) 3Q13 YTD13 3Q13 YTD13
--------- ---- ----- ---- -----
Basic $0.83 $1.31 $0.82 $1.30
Diluted $0.82 $1.30 $0.82 $1.30
------- ----- ----- ----- -----
The table below presents the impact of this new accounting guidance on our previously reported income statements.
Income statement As previously reported Adjustments As revised
---------------------- ----------- ----------
(in millions) 3Q13 YTD13 3Q13 YTD13 3Q13 YTD13
------------ ---- ----- ---- ----- ---- -----
Investment and
other income $135 $476 $16 $48 $151 $524
Total fee revenue 2,941 8,892 16 48 2,957 8,940
Total fee and
other revenue 2,963 8,994 16 48 2,979 9,042
Income before
income taxes 986 3,001 16 48 1,002 3,049
Provision
(benefit) for
income taxes (2) 1,365 21 55 19 1,420
Net income (loss) 988 1,636 (5) (7) 983 1,629
Net income (loss)
applicable to
shareholders of
The Bank of New
York Mellon
Corporation 980 1,572 (5) (7) 975 1,565
Net income (loss)
applicable to
common
shareholders of
The Bank of New
York Mellon
Corporation 967 1,534 (5) (7) 962 1,527
----------------- --- ----- --- --- --- -----
The table below presents the impact of this new accounting guidance on our previously reported consolidated ratios and other measures.
Consolidated As previously
ratios and other reported
measures As revised
-------------- ----------
(in dollars
unless otherwise
noted) 3Q13 3Q13
----------------- ---- ----
Return on common
equity 11.2% 11.1%
Return on
tangible common
equity - Non-
GAAP 28.4% 28.3%
Return on
tangible common
equity - Non-
GAAP adjusted 21.5% 21.3%
BNY Mellon
tangible common
shareholders'
equity to
tangible assets
of operations -
Non-GAAP 6.4% 6.3%
Book value per
common share -
GAAP $30.82 $30.80
Tangible book
value per common
share - Non-
GAAP $13.36 $13.34
----------------- ------ ------
SUPPLEMENTAL INFORMATION - EXPLANATION OF GAAP AND NON-GAAP FINANCIAL MEASURES
BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based upon fully phased-in Basel III CET1, SLR, Basel I CET1 and tangible common shareholders' equity. BNY Mellon believes that the Basel III CET1 ratio on a fully phased-in basis, the SLR on a fully phased-in basis, the ratio of Basel I CET1 to risk-weighted assets and the ratio of tangible common shareholders' equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the capital ratios which are, or were, utilized by regulatory authorities. The tangible common shareholders' equity ratio includes changes in investment securities valuations which are reflected in total shareholders' equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon's performance in reference to those assets that can generate income. BNY Mellon has provided a measure of tangible book value per share, which it believes additional useful information as to the level of such assets in relation to shares of common stock outstanding.
BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds, a gain on the sale of our investment in Wing Hang, a gain on the sale of the One Wall Street building, and a loss related to an equity investment; and expense measures which exclude M&I expenses, litigation charges, restructuring charges, amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives. Earnings per share, return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. Earnings per share and return on equity measures also exclude the benefit related to the disallowance of certain foreign tax credits. Operating margin measures may also exclude amortization of intangible assets and the net negative impact of money market fee waivers, net of distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control. The excluded items, in general, relate to certain ongoing charges as a result of prior transactions or where we have incurred charges. M&I expenses primarily relate to the acquisitions of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 2010. M&I expenses generally continue for approximately three years after the transaction and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon's business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions, Operational Excellence Initiatives and migrating positions to Global Delivery Centers. Excluding these charges permits investors to view expenses on a basis consistent with how management views the business.
The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with how management views the business. BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.
In this Earnings Release, the net interest margin is presented on an FTE basis. We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income. Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.
The following table presents the reconciliation of net income and diluted earnings per common share.
Reconciliation of net income and diluted EPS - GAAP to Non-GAAP 3Q13 2Q14 3Q14
---- ---- ----
Net Diluted Net Diluted Net Diluted
(in millions, except per common share amounts) income EPS income EPS income EPS
--------------------------------------------- ------ --- ------ --- ------ ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation -
GAAP $962 $0.82 $554 $0.48 $1,070 $0.93
Less: Gain on the sale of our investment in Wing Hang - - - - 315 0.27
Gain on the sale of the One Wall Street building - - - - 204 0.18
Add: Litigation and restructuring charges 12 0.01 76 0.06 183 0.16
Charge related to investment management funds, net of incentives - - 85 0.07 - -
Benefit related to the disallowance of certain foreign tax credits (261) (0.22) - - - -
------------------------------------------------------------------ ---- ----- --- --- --- ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation -
Non-GAAP $713 $0.61 $715 $0.62 (a) $734 $0.64
----------------------------------------------------------------------------------------- ---- ----- ---- ----- --- ---- -----
(a) Does not foot due to
rounding.
The following table presents the reconciliation of the pre-tax operating margin ratio.
Reconciliation of income
before income taxes - pre-
tax operating margin
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
-------------------- ---- ---- ---- ---- ----
Income before income taxes -
GAAP $1,002 $728 $926 $811 $1,662
Less: Net income attributable
to noncontrolling interests
of consolidated investment
management funds 8 17 20 17 23
Gain on the sale of our
investment in Wing Hang - - - - 490
Gain on the sale of the One
Wall Street building - - - - 346
Add: Amortization of
intangible assets 81 82 75 75 75
M&I, litigation and
restructuring charges 16 2 (12) 122 220
Charge (recovery) related to
investment management funds,
net of incentives - - (5) 109 -
Income before income taxes, as
adjusted - Non-GAAP (b) $1,091 $795 $964 $1,100 $1,098
Fee and other revenue - GAAP $2,979 $2,814 $2,883 $2,980 $3,851
Income from consolidated
investment management funds -
GAAP 32 36 36 46 39
Net interest revenue - GAAP 772 761 728 719 721
--------------------------- --- --- --- --- ---
Total revenue - GAAP 3,783 3,611 3,647 3,745 4,611
Less: Net income attributable
to noncontrolling interests
of consolidated investment
management funds 8 17 20 17 23
Gain on the sale of our
investment in Wing Hang - - - - 490
Gain on the sale of the One
Wall Street building - - - - 346
--------------------------- --- --- --- --- ---
Total revenue, as adjusted -
Non-GAAP (b) $3,775 $3,594 $3,627 $3,728 $3,752
Pre-tax operating margin (a) 26% 20% 25% 22% 36%
Pre-tax operating margin -
Non-GAAP (a)(b) 29% 22% 27% 30% 29%
-------------------------- --- --- --- --- ---
(a) Income before taxes divided by total
revenue.
(b) Non-GAAP excludes M&I, litigation
and restructuring charges, the gain
on the sale of our investment in
Wing Hang, the gain on the sale of
the One Wall Street building, a
charge (recovery) related to
investment management funds, net of
incentives and net income
attributable to noncontrolling
interests of consolidated investment
management funds, if applicable.
The following table presents the reconciliation of the returns on common equity and tangible common equity.
Return on common equity and
tangible common equity
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
-------------------- ---- ---- ---- ---- ----
Net income applicable to
common shareholders of The
Bank of New York Mellon
Corporation - GAAP $962 $513 $661 $554 $1,070
Add: Amortization of
intangible assets, net of tax 52 53 49 49 49
------------------------------ --- --- --- --- ---
Net income applicable to
common shareholders of The
Bank of New York Mellon
Corporation excluding
amortization of intangible
assets - Non-GAAP 1,014 566 710 603 1,119
Less: Gain on the sale of our
investment in Wing Hang - - - - 315
Gain on the sale of the One
Wall Street building - - - - 204
Add: M&I, litigation and
restructuring charges 12 1 (7) 76 183
Charge (recovery) related to
investment management funds,
net of incentives - - (4) 85 -
Benefit related to the
disallowance of certain
foreign tax credits (261) - - - -
------------------------ ---- --- --- --- ---
Net income applicable to
common shareholders of The
Bank of New York Mellon
Corporation, as adjusted -
Non-GAAP (b) $765 $567 $699 $764 $783
Average common shareholders'
equity $34,264 $35,698 $36,289 $36,565 $36,751
Less: Average goodwill 17,975 18,026 18,072 18,149 18,109
Average intangible assets 4,569 4,491 4,422 4,354 4,274
Add: Deferred tax liability -
tax deductible goodwill (a) 1,262 1,302 1,306 1,338 1,317
Deferred tax liability -
intangible assets (a) 1,242 1,222 1,259 1,247 1,230
------------------------ ----- ----- ----- ----- -----
Average tangible common
shareholders' equity - Non-
GAAP $14,224 $15,705 $16,360 $16,647 $16,915
Return on common equity - GAAP
(b)(c) 11.1% 5.7% 7.4% 6.1% 11.6%
Return on common equity - Non-
GAAP (b)(c) 8.9% 6.3% 7.8% 8.4% 8.5%
Return on tangible common
equity - Non-GAAP (b)(c) 28.3% 14.3% 17.6% 14.5% 26.2%
Return on tangible common
equity - Non-GAAP adjusted
(b)(c) 21.3% 14.3% 17.3% 18.4% 18.4%
--------------------------- ---- ---- ---- ---- ----
(a) Deferred tax liabilities are based
on fully phased-in Basel III
rules. The quarters of 2014
include deferred tax liabilities
on tax deductible intangible
assets permitted under Basel III
rules.
(b) Non-GAAP excludes M&I, litigation
and restructuring charges, the
gain on the sale of our
investment in Wing Hang, the gain
on the sale of the One Wall
Street building, a charge
(recovery) related to investment
management funds, net of
incentives and the benefit
related to the disallowance of
certain foreign tax credits, if
applicable.
(c) Annualized.
The following table presents the reconciliation of the equity to assets ratio and book value per common share.
Equity to assets and book
value per common share Sept. 30, 2013 June 30, 2014 Sept. 30, 2014
-------------- ------------- --------------
(dollars in millions,
unless otherwise noted)
------------------------
BNY Mellon shareholders'
equity at period end -
GAAP $36,935 $38,326 $38,451
Less: Preferred stock 1,562 1,562 1,562
---------------------- ----- ----- -----
BNY Mellon common
shareholders' equity at
period end - GAAP 35,373 36,764 36,889
Less: Goodwill 18,025 18,196 17,992
Intangible assets 4,527 4,314 4,215
Add: Deferred tax
liability - tax
deductible goodwill (a) 1,262 1,338 1,317
Deferred tax liability -
intangible assets (a) 1,242 1,247 1,230
------------------------ ----- ----- -----
BNY Mellon tangible common
shareholders' equity at
period end - Non-GAAP $15,325 $16,839 $17,229
Total assets at period end
- GAAP $372,124 $400,740 $386,296
Less: Assets of
consolidated investment
management funds 11,691 10,428 9,562
------------------------ ------ ------ -----
Subtotal assets of
operations - Non-GAAP 360,433 390,312 376,734
Less: Goodwill 18,025 18,196 17,992
Intangible assets 4,527 4,314 4,215
Cash on deposit with the
Federal Reserve and other
central banks (b) 96,316 104,916 90,978
-------------------------- ------ ------- ------
Tangible total assets of
operations at period end
- Non-GAAP $241,565 $262,886 $263,549
BNY Mellon shareholders'
equity to total assets -
GAAP 9.9% 9.6% 10.0%
BNY Mellon common
shareholders' equity to
total assets - GAAP 9.5% 9.2% 9.5%
BNY Mellon tangible common
shareholders' equity to
tangible assets of
operations - Non-GAAP 6.3% 6.4% 6.5%
Period-end common shares
outstanding (in
thousands) 1,148,522 1,131,596 1,125,710
Book value per common
share - GAAP $30.80 $32.49 $32.77
Tangible book value per
common share - Non-GAAP $13.34 $14.88 $15.30
------------------------ ------ ------ ------
(a) Deferred tax liabilities are
based on fully phased-in
Basel III rules. The
quarters of 2014 include
deferred tax liabilities on
tax deductible intangible
assets permitted under Basel
III rules.
(b) Assigned a zero percent risk-
weighting by the regulators.
The following table presents income from consolidated investment management funds, net of noncontrolling interests.
Income from
consolidated
investment
management funds,
net of
noncontrolling
interests 3Q13 4Q13 1Q14 2Q14 3Q14
(in millions)
------------
Income from
consolidated
investment
management funds $32 $36 $36 $46 $39
Less: Net income
attributable to
noncontrolling
interests of
consolidated
investment
management funds 8 17 20 17 23
--- --- --- --- ---
Income from
consolidated
investment
management funds,
net of
noncontrolling
interests $24 $19 $16 $29 $16
------------------ --- --- --- --- ---
The following table presents the line items in the Investment Management business impacted by the consolidated investment management funds.
Income from consolidated investment management funds, net of noncontrolling interests
(in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
------------ ---- ---- ---- ---- ----
Investment management fees $20 $20 $18 $18 $15
Other (Investment income) 4 (1) (2) 11 1
------------------------ --- --- --- --- ---
Income from consolidated
investment management funds,
net of controlling interests $24 $19 $16 $29 $16
----------------------------- --- --- --- --- ---
The following table presents the reconciliation of the pre-tax operating margin for the Investment Management business.
Pre-tax operating margin -
Investment Management
business
(dollars in millions) 3Q13 4Q13 1Q14 2Q14 3Q14
-------------------- ---- ---- ---- ---- ----
Income before income taxes -
GAAP $225 $266 $246 $171 $245
Add: Amortization of
intangible assets 35 35 31 31 31
Money market fee waivers 30 33 35 28 29
Charge (recovery) related to
investment management funds,
net of incentives - - (5) 109 -
----------------------------- --- --- --- --- ---
Income before income taxes
excluding amortization of
intangible assets, money
market fee waivers and the
charge (recovery) related to
investment management funds,
net of incentives - Non-
GAAP $290 $334 $307 $339 $305
Total revenue - GAAP $949 $1,061 $970 $1,036 $1,003
Less: Distribution and
servicing expense 107 108 106 111 105
Money market fee waivers
benefiting distribution and
servicing expense 38 38 38 37 38
Add: Money market fee
waivers impacting total
revenue 68 71 73 65 67
------------------------ --- --- --- --- ---
Total revenue net of
distribution and servicing
expense $872 $986 $899 $953 $927
and excluding money market
fee waivers - Non-GAAP
Pre-tax operating margin (a) 24% 25% 25% 16% 24%
Pre-tax operating margin
excluding amortization of
intangible assets, money
market fee waivers, the
charge (recovery) related to
investment management funds,
net of incentives and net of
distribution and servicing
expense - Non-GAAP (a) 33% 34% 34% 36% 33%
----------------------------- --- --- --- --- ---
(a) Income before taxes
divided by total
revenue.
Capital Ratios
BNY Mellon has presented its estimated fully phased-in Basel III CET1 ratios and SLR based on its interpretation of the Final Capital Rules, which are being gradually phased-in over a multi-year period, as supplemented by the Federal Reserve's final rules concerning the SLR published on Sept. 3, 2014, and on the application of such rules to BNY Mellon's businesses as currently conducted. Management views the estimated fully phased-in Basel III CET1 ratio and SLR as key measures in monitoring BNY Mellon's capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated fully phased-in Basel III CET1 ratios and SLR are intended to allow investors to compare these ratios with estimates presented by other companies. The estimated fully phased-in Basel III CET1 ratios assume all relevant regulatory approvals. The Final Capital Rules require approval by banking regulators of certain models used as part of risk-weighted asset calculations. If these models are not approved, the estimated fully phased-in Basel III CET1 ratios would likely be adversely impacted.
Risk-weighted assets at Sept. 30, 2014 and June 30, 2014 under the transitional Advanced Approach do not reflect the use of a simple value-at-risk methodology for repo-style transactions (including agented indemnified securities lending transactions), eligible margin loans, and similar transactions. BNY Mellon has requested written approval to use this methodology.
Our capital ratios are necessarily subject to, among other things, BNY Mellon's further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of risk-weighted asset calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. Consequently, our capital ratios remain subject to ongoing review and revision and may change based on these factors.
The following are the primary differences between risk-weighted assets determined under fully phased-in Basel III-Standardized Approach and Basel I. Credit risk is determined under Basel I using predetermined risk-weights and asset classes and relies in part on the use of external credit ratings. Under fully phased-in Basel III, the Standardized Approach uses a broader range of predetermined risk-weights and asset classes and certain alternatives to external credit ratings. Securitization exposure receives a higher risk-weighting under fully phased-in Basel III than Basel I, and fully phased-in Basel III includes additional adjustments for market risk, counterparty credit risk and equity exposures. Additionally, the Standardized Approach eliminates the use of the VaR approach, whereas the Advanced Approach permits the VaR approach but requires certain model qualifications and approvals, for determining risk-weighted assets on certain repo-style transactions. In 2014, Standardized Approach and Advanced Approach risk-weighted assets include transition adjustments for intangible assets, other than goodwill, and equity exposure.
The following table presents the reconciliation of our estimated fully phased-in Basel III CET1 ratio under the Standardized Approach and Advanced Approach.
Estimated fully phased-in Basel III CET1 ratio
- Non-GAAP (a) Sept. 30, 2013 June 30, Sept. 30, 2014
2014
----
(dollars in millions)
--------------------
Total Tier 1 capital $18,074 $20,669 $21,019
Adjustments to determine estimated fully
phased-in Basel III CET1:
Deferred tax liability - tax deductible
intangible assets 82 - -
Intangible deduction - (2,453) (2,388)
Preferred stock (1,562) (1,562) (1,562)
Trust preferred securities (324) (171) (162)
Other comprehensive income (loss) and net
pension fund assets:
Securities available-for-sale 487 586 578
Pension liabilities (1,348) (691) (675)
Net pension fund assets (279) - -
----------------------- ---- --- ---
Total other comprehensive income (loss) and net
pension fund assets (1,140) (105) (97)
Equity method investments (479) (99) (92)
Deferred tax assets (26) - -
Other 18 (2) 2
----- --- --- ---
Total estimated fully phased-in Basel III CET1 $14,643 $16,277 $16,720
Under the Standardized Approach:
--------------------------------
Estimated fully phased-in Basel III risk-
weighted assets $145,589 $158,168 $154,298
Estimated fully phased-in Basel III CET1 ratio
- Non-GAAP (b) 10.1% 10.3% 10.8%
Under the Advanced Approach:
----------------------------
Estimated fully phased-in Basel III risk-
weighted assets $131,583 $162,072 $167,933
Estimated fully phased-in Basel III CET1 ratio
- Non-GAAP (b) 11.1% 10.0% 10.0%
---------------------------------------------- ---- ---- ----
(a) Sept. 30, 2014 information is
preliminary.
(b) Beginning with June 30, 2014, risk-
based capital ratios include the net
impact of including the total
consolidated assets of certain
consolidated investment management
funds in risk-weighted assets.
These assets were not included in
prior periods.
The following table presents the reconciliation of our Basel I CET1 ratio.
Basel I CET1 ratio Sept. 30, 2013
(dollars in millions)
--------------------
Total Tier 1 capital - Basel I $18,074
Less: Trust preferred securities 324
Preferred stock 1,562
--------------- -----
Total CET1 - Basel I $16,188
Total risk-weighted assets - Basel I $114,404
Basel I CET1 ratio - Non-GAAP 14.2%
----------------------------- ----
The following table presents the components of our fully phased-in estimated SLR.
Estimated SLR - Non-GAAP (a) June 30, Sept. 30, 2014
(dollars in millions) 2014
-------------------- ----
Total CET1 - fully phased-
in $16,277 $16,720
Additional Tier 1 capital 1,562 1,560
------------------------- -----
Total Tier 1 capital $17,839 $18,280
Total leverage exposure:
Quarterly average total
assets $369,212 $380,409
Less: Amounts deducted from
Tier 1 capital 20,480 20,166
--------------------------- ------ ------
Total on-balance sheet
assets, as adjusted 348,732 360,243
Off-balance sheet
exposures:
Potential future exposure
for derivatives contracts
(plus certain other items) 11,115 11,694
Repo-style transaction
exposures included in SLR - -
Credit-equivalent amount
of other off-balance
sheet exposures (less SLR
exclusions) 22,658 21,924
-------------------------- ------ ------
Total off-balance sheet
exposures 33,773 33,618
----------------------- ------ ------
Total leverage exposure $382,505 $393,861
Estimated SLR 4.7% 4.6%
------------- --- ---
(a) The estimated fully phased-in SLR
as of June 30, 2014 is based on
our interpretation of the Final
Capital Rules, as supplemented by
the Notice of Proposed Rulemaking
released in April 2014 concerning
the SLR, except that off-balance
sheet exposures included in total
leverage exposure reflect the end
of period measures, rather than a
daily average. The estimated
fully phased-in SLR as of Sept.
30, 2014 is based on our
interpretation of the Final
Capital Rules, as supplemented by
the Federal Reserve's final rules
on the SLR. On a fully phased-
in basis, we expect to satisfy a
minimum SLR of over 5%, 3%
attributable to a regulatory
minimum SLR, and greater than 2%
attributable to a buffer
applicable to U.S. G-SIBs.
DIVIDENDS
Common - On Oct. 17, 2014, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.17 per common share. This cash dividend is payable on Nov. 7, 2014 to shareholders of record as of the close of business on Oct. 28, 2014.
Preferred - On Oct. 17, 2014, The Bank of New York Mellon Corporation also declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in December 2014, in each case, payable on Dec. 22, 2014 to holders of record as of the close of business on Dec. 5, 2014:
-- $1,011.11 per share on the Series A Preferred Stock (equivalent to
$10.1111 per Normal Preferred Capital Security of Mellon Capital IV,
each representing 1/100th interest in a share of Series A Preferred
Stock);
-- $1,300.00 per share on the Series C Preferred Stock (equivalent to
$0.3250 per depositary share, each representing a 1/4,000th interest in
a share of the Series C Preferred Stock); and
-- $2,250.00 per share on the Series D Preferred Stock (equivalent to
approximately $22.50 per depositary share, each representing a 1/100th
interest in a share of the Series D Preferred Stock).
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2014, BNY Mellon had $28.3 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.
SUPPLEMENTAL FINANCIAL INFORMATION
The Quarterly Financial Trends for The Bank of New York Mellon Corporation has been updated through Sept. 30, 2014 and are available at www.bnymellon.com (Investor Relations - Financial Reports).
CAUTIONARY STATEMENT
A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements made regarding our margins and return on capital and our plans relating to the securities portfolio and impact on net interest revenue. These statements may be expressed in a variety of ways, including the use of future or present tense language. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2013 and BNY Mellon's other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Oct. 17, 2014, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
Contacts: MEDIA: ANALYSTS:
----------------- ---------
Kevin Heine Izzy Dawood
(212) 635-1590 (212) 635-1850
kevin.heine@bnymellon.com izzy.dawood@bnymellon.com
SOURCE BNY Mellon
