February 17, 2015

BNY Mellon Announces Adjustment to Fourth Quarter 2014 Financial Results


NEW YORK, Feb. 17, 2015 /PRNewswire/ -- The Bank of New York Mellon Corporation (NYSE: BK) today announced that it is adjusting its financial results for the fourth quarter ended Dec. 31, 2014 to include an additional after-tax litigation expense of $598 million in anticipation of the resolution of several previously disclosed matters, including substantially all of the foreign exchange-related actions. As a result, BNY Mellon expects that there will be a significant decline in the aggregate range of reasonably possible losses for legal proceedings for the quarter ended Dec. 31, 2014.

BNY Mellon is adjusting its fourth quarter financial results to net income of $209 million or $0.18 per share in recognition of the after-tax litigation expense. The Company's amended and restated earnings release for the quarter ended Dec. 31, 2014 reflecting these adjustments is below.

BNY MELLON REPORTS FOURTH QUARTER EARNINGS OF $209 MILLION OR $0.18 PER COMMON SHARE, INCLUDING:

  • $0.40 per common share charge primarily from the subsequent litigation provision offset by the previously disclosed tax benefit, net of litigation and restructuring charges
  • Earnings per common share up 7% year-over-year on an adjusted basis (a)

FULL-YEAR 2014 EARNINGS OF $2.5 BILLION OR $2.15 PER COMMON SHARE, OR $2.39 PER COMMON SHARE EXCLUDING NON-OPERATING ITEMS (a)

  • Earnings per common share up 5% in 2014 on an adjusted basis (a)

SIGNIFICANT PROGRESS ON EXPENSE CONTROL

  • Staff expense decreased 7% year-over-year

STRONG CAPITAL GENERATION AND RETURN OF VALUE TO COMMON SHAREHOLDERS

  • Repurchased 11.0 million common shares for $432 million in the fourth quarter and 46.2 million common shares for $1.7 billion in full-year 2014
  • Declared common stock dividend of $0.17 per share in the fourth quarter
  • Return on tangible common equity of 6%, or 16% on an adjusted basis, in the fourth quarter and 16%, or 18% on an adjusted basis, in full-year 2014 (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) reported fourth quarter net income applicable to common shareholders of $209 million, or $0.18 per diluted common share, or $667 million, or $0.58 per diluted common share, adjusted for the subsequent litigation provision offset by the previously disclosed benefit of a tax carryback claim, net of litigation and restructuring charges.  In the fourth quarter of 2013, net income applicable to common shareholders was $513 million, or $0.44 per diluted per common share, or $629 million, or $0.54 per diluted common share, adjusted for a loss on an equity investment.  In the third quarter of 2014, net income applicable to common shareholders was $1.07 billion, or $0.93 per diluted common share, or $734 million, or $0.64 per diluted common share, adjusted for the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, net of litigation and restructuring charges. (a)

In 2014, net income applicable to common shareholders totaled $2.5 billion, or $2.15 per diluted common share, or $2.8 billion, or $2.39 per diluted common share, adjusted for the subsequent litigation provision, the charge related to investment management funds, net of incentives, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, the benefit primarily related to a tax carryback claim, litigation and restructuring charges.  In 2013, net income applicable to common shareholders totaled $2.0 billion, or $1.73 per diluted common share, or $2.7 billion, or $2.28 per diluted common share, adjusted for litigation and restructuring charges, the charge related to investment management funds, net of incentives, and the U.S. Tax Court's decisions related to the disallowance of certain foreign tax credits. (a)

(a)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.


FOURTH QUARTER 2014 FINANCIAL HIGHLIGHTS (a)

(comparisons are 4Q14 vs. 4Q13 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)

4Q13

4Q14

Inc(Dec)


4Q13

4Q14

Inc(Dec)

GAAP results

$

0.44


$

0.18





$

513


$

209




Add: Litigation and restructuring charges


0.53





1


608




 Loss related to an equity investment

0.10






115





Less: Benefit primarily related to a tax carryback claim


0.13






150




Non-GAAP results

$

0.54


$

0.58


7

%


$

629


$

667


6

%

 

  • Total revenue was $3.7 billion, an increase of 2%, or a decline of 3% as adjusted (Non-GAAP).
    • Investment services fees increased 1% reflecting organic growth, net new business offset by lower Depositary Receipts revenue and the unfavorable impact of a stronger U.S. dollar.
    • Investment management and performance fees decreased 2% reflecting the unfavorable impact of a stronger U.S. dollar and lower performance fees, partially offset by higher equity market values.
    • Foreign exchange revenue increased 31% driven by higher volumes and volatility, partially offset by lower Depositary Receipts-related activity.
    • Investment and other income increased $121 million driven by a loss related to an equity investment recorded in 4Q13, partially offset by lower seed capital gains.
    • Net interest revenue decreased 6% reflecting lower asset yields, higher premium amortization on agency mortgage backed securities, lower accretion and the impact of interest rate hedging.
  • The provision for credit losses was $1 million in 4Q14.
  • Noninterest expense increased 22%, or decreased 5% as adjusted (Non-GAAP).  The decrease reflects lower staff expense, the favorable impact of a stronger U.S. dollar, lower asset-based taxes and business development expense, partially offset by higher professional, legal and other purchased services.
  • The benefit for income taxes was $93 million in 4Q14.  This includes tax benefits of approximately $330 million related to the subsequent litigation provision and the previously disclosed approval of a tax carryback claim.

 

  • Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
    • AUC/A of $28.5 trillion, increased 3% primarily reflecting higher market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.
      • Estimated new AUC/A wins in Asset Servicing of $130 billion in 4Q14.
    • AUM of a record $1.71 trillion, increased 8% driven by higher equity market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.
      • Long-term inflows totaled $27 billion in 4Q14 driven by liability-driven, fixed income and alternative investments.
      • Short-term inflows totaled $5 billion in 4Q14.

 

  • Capital
    • Repurchased 11.0 million common shares for $432 million in 4Q14 and 46.2 million common shares for $1.7 billion in full-year 2014.
    • Return on tangible common equity of 6%, or 16% as adjusted (Non-GAAP), in 4Q14 and 16%, or 18% as adjusted (Non-GAAP), in full-year 2014 (a).

(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 the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, a loss related to an equity investment, M&I, litigation and restructuring charges, a charge (recovery) related to investment management funds, net of incentives, and the benefit primarily related to a tax carryback claim, if applicable.

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

FINANCIAL SUMMARY

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

thousands)











4Q14 vs.

4Q13

1Q14

2Q14

3Q14

4Q14

4Q13

3Q14

Revenue:















Fee and other revenue

$

2,814


$

2,883


$

2,980


$

3,851


$

2,935


4

%

(24)%


Income from consolidated investment management funds

36


36


46


39


42






Net interest revenue

761


728


719


721


712






Total revenue – GAAP

3,611


3,647


3,745


4,611


3,689


2


(20)


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

17


20


17


23


24






  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

(175)










Total revenue – Non-GAAP

3,769


3,627


3,728


3,752


3,665


(3)


(2)


Provision for credit losses

6


(18)


(12)


(19)


1






Expense:















Noninterest expense – GAAP

2,877


2,739


2,946


2,968


3,524


22


19


Less:  Amortization of intangible assets

82


75


75


75


73






 M&I, litigation and restructuring charges

2


(12)


122


220


800






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


(5)


109








Total noninterest expense – Non-GAAP

2,793


2,681


2,640


2,673


2,651


(5)


(1)


Income:















Income before income taxes

728


926


811


1,662


164


(77)%


N/M

Provision (benefit) for income taxes

172


232


217


556


(93)






Net income

$

556


$

694


$

594


$

1,106


$

257






Net (income) attributable to noncontrolling interests (a)

(17)


(20)


(17)


(23)


(24)






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

539


674


577


1,083


233






Preferred stock dividends

(26)


(13)


(23)


(13)


(24)






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

$

513


$

661


$

554


$

1,070


$

209





















Key Metrics:















Pre-tax operating margin (b)

20

%

25

%

22

%

36

%

4

%





Non-GAAP (b)

26

%

27

%

30

%

29

%

28

%




















Return on common equity (annualized) (b)

5.7

%

7.4

%

6.1

%

11.6

%

2.2

%





Non-GAAP (b)

7.6

%

7.8

%

8.4

%

8.5

%

7.7

%




















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

14.3

%

17.6

%

14.5

%

26.2

%

5.9

%





Non-GAAP adjusted (b)

17.2

%

17.3

%

18.4

%

18.4

%

16.3

%




















Fee revenue as a percentage of total revenue excluding net

    securities gains

78

%

79

%

79

%

83

%

79

%




















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

39

%

37

%

38

%

43

%

35

%




















Average common shares and equivalents outstanding















Basic

1,142,861


1,138,645


1,133,556


1,126,946


1,120,672






Diluted

1,147,961


1,144,510


1,139,800


1,134,871


1,129,040





















Period end:















Full-time employees

51,100


51,400


51,100


50,900


50,300






Book value per common share - GAAP (b)

$

31.46


$

31.94


$

32.49


$

32.77


$

32.09






Tangible book value per common share - Non-GAAP (b)

$

13.95


$

14.48


$

14.88


$

15.30


$

14.70






Cash dividends per common share

$

0.15


$

0.15


$

0.17


$

0.17


$

0.17






Common dividend payout ratio

34

%

26

%

35

%

18

%

94

%





Closing stock price per common share

$

34.94


$

35.29


$

37.48


$

38.73


$

40.57






Market capitalization

$

39,910


$

40,244


$

42,412


$

43,599


$

45,366






Common shares outstanding

1,142,250


1,140,373


1,131,596


1,125,710


1,118,228






(a)   Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b)   Non-GAAP excludes the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, a loss related to an equity investment, M&I, litigation and restructuring charges, a charge (recovery) related to investment management funds, net of incentives, and the benefit primarily related to a tax carryback claim, 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












4Q14 vs.

4Q13

1Q14

2Q14

3Q14

4Q14


4Q13

3Q14

Changes in AUM (in billions): (a)
















Beginning balance of AUM

$

1,532


$

1,583


$

1,620


$

1,636


$

1,646







Net inflows (outflows):
















Long-term:
















Equity

(5)


(1)


(4)


(2)


(4)







Fixed income

5



(1)



4







Index

(3)



7


(3)


1







Liability-driven investments (b)

4


20


(17)


18


24







Alternative investments

1


2


2



2







Total long-term inflows (outflows)

2


21


(13)


13


27







Short term:
















Cash

6


(7)


(18)


19


5







Total net inflows (outflows)

8


14


(31)


32


32







Net market/currency impact

43


23


47


(22)


32







Ending balance of AUM

$

1,583


$

1,620


$

1,636


$

1,646


$

1,710


(c)

8

%

4

%

















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
















Equity

17

%

17

%

17

%

16

%

16

%






Fixed income

14


14


14


13


13







Index

20


20


21


21


21







Liability-driven investments (b)

26


27


27


28


29







Alternative investments

4


4


4


4


4







Cash

19


18


17


18


17







Total AUM

100

%

100

%

100

%

100

%

100

%

(c)





















Wealth management:
















Average loans (in millions)

$

9,755


$

10,075


$

10,372


$

10,772


$

11,124



14

%

3

%

Average deposits (in millions)

$

14,161


$

14,805


$

13,458


$

13,764


$

14,604



3

%

6

%

















Investment Services:
















Average loans (in millions)

$

31,211


$

31,468


$

33,115


$

33,785


$

35,448



14

%

5

%

Average deposits (in millions)

$

216,216


$

214,947


$

220,701


$

221,734


$

228,282



6

%

3

%

















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

$

27.6


$

27.9


$

28.5


$

28.3


$

28.5


(c)

3

%

1

%

















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

$

235


$

264


$

280


$

282


$

289



23

%

2

%

















Asset servicing:
















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

$

123


$

161


$

130


$

115


$

130


(c)





















Depositary Receipts:
















Number of sponsored programs

1,335


1,332


1,316


1,302


1,279



(4)%


(2)%


















Clearing services:
















Global DARTS volume (in thousands)

213


230


207


209


242



14

%

16

%

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

5,643


5,695


5,752


5,805


5,900



5

%

2

%

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

  millions)

$

401,434


$

413,658


$

433,047


$

442,827


$

450,305



12

%

2

%

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

$

8,848


$

8,919


$

9,236


$

9,861


$

10,711



21

%

9

%

















Broker-Dealer:
















Average tri-party repo balances (in billions)

$

2,005


$

1,983


$

2,022


$

2,063


$

2,101



5

%

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 Dec. 31, 2013, March 31, 2014, June 30, 2014 and Sept. 30, 2014, and $1.1 trillion at Dec. 31, 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 and Dec. 31, 2014.

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

Key market metrics

























4Q14 vs.

4Q13

1Q14

2Q14

3Q14

4Q14

4Q13

3Q14

S&P 500 Index (a)

1848


1872


1960


1972


2059


11

%

4

%

S&P 500 Index – daily average

1769


1835


1900


1976


2009


14


2


FTSE 100 Index (a)

6749


6598


6744


6623


6566


(3)


(1)


FTSE 100 Index – daily average

6612


6680


6764


6756


6526


(1)


(3)


MSCI World Index (a)

1661


1674


1743


1698


1710


3


1


MSCI World Index – daily average

1602


1647


1698


1733


1695


6


(2)


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

354


365


376


361


357


1


(1)


NYSE and NASDAQ share volume (in billions)

179


196


187


173


198


11


14


JPMorgan G7 Volatility Index – daily average (c)

8.20


7.80


6.22


6.21


8.54


4


38


Average Fed Funds effective rate

0.09

%

0.07

%

0.09

%

0.09

%

0.10

%

1

bps

1

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











4Q14 vs.

(dollars in millions)

4Q13

1Q14

2Q14

3Q14

4Q14

4Q13

3Q14

Investment services fees:















Asset servicing (a)

$

984


$

1,009


$

1,022


$

1,025


$

1,019


4

%

(1)

%

Clearing services

324


325


326


337


347


7


3


Issuer services

237


229


231


315


193


(19)


(39)


Treasury services

137


136


141


142


145


6


2


Total investment services fees

1,682


1,699


1,720


1,819


1,704


1


(6)


Investment management and performance fees

904


843


883


881


885


(2)



Foreign exchange and other trading revenue

146


136


130


153


151


3


(1)


Distribution and servicing

43


43


43


44


43



(2)


Financing-related fees

43


38


44


44


43



(2)


Investment and other income

(43)


102


142


890


78


N/M

N/M

Total fee revenue

2,775


2,861


2,962


3,831


2,904


5


(24)


Net securities gains

39


22


18


20


31


N/M

N/M

Total fee and other revenue

$

2,814


$

2,883


$

2,980


$

3,851


$

2,935


4

%

(24)

%

(a)   Asset servicing fees include securities lending revenue of $31 million in 4Q13, $38 million in 1Q14, $46 million in 2Q14, $37 million in 3Q14 and $37 million in 4Q14.
N/M - Not meaningful.

KEY POINTS

  • Asset servicing fees were $1.0 billion, an increase of 4% year-over-year and a decrease of 1% sequentially.  The year-over-year increase primarily reflects organic growth and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.  The sequential decrease primarily reflects the unfavorable impact of a stronger U.S. dollar, partially offset by net new business.
  • Clearing services fees were $347 million, an increase of 7% year-over-year and 3% sequentially.  Both increases were driven by higher clearance revenue reflecting higher DARTS volume.  The year-over-year increase also reflects higher mutual fund and asset-based fees.
  • Issuer services fees were $193 million, a decrease of 19% year-over-year and 39% sequentially.  The year-over-year decrease reflects lower corporate actions and dividend fees in Depositary Receipts.  The sequential decrease is primarily due to seasonality in Depositary Receipts, partially offset by higher Corporate Trust fees.
  • Treasury services fees were $145 million in 4Q14 compared with $137 million in 4Q13 and $142 million in 3Q14.  Both increases primarily reflect higher payment volumes.
  • Investment management and performance fees were $885 million, a decrease of 2% year-over-year and up slightly sequentially.  Both comparisons reflect the unfavorable impact of a stronger U.S. dollar and higher equity market values.  The year-over-year decrease also resulted from lower performance fees.  The sequential increase also reflects seasonally higher performance fees and net new business.

 


  • Foreign exchange and other trading revenue
    (in millions)

4Q13

1Q14

2Q14

3Q14

4Q14


Foreign exchange

$

126


$

130


$

129


$

154


$

165



Other trading revenue (loss):












Fixed income

20


1


(1)


2


(18)



Equity/other


5


2


(3)


4



Total other trading revenue (loss)

20


6


1


(1)


(14)



Total foreign exchange and other trading revenue

$

146


$

136


$

130


$

153


$

151


Foreign exchange and other trading revenue totaled $151 million in 4Q14 compared with $146 million in 4Q13 and $153 million in 3Q14.  In 4Q14, foreign exchange revenue totaled $165 million, an increase of 31% year-over-year and 7% sequentially.  Both increases reflect higher volumes and volatility, partially offset by lower Depositary Receipts-related activity. 

Other trading loss was $14 million in 4Q14, compared with other trading revenue of $20 million in 4Q13 and other trading loss of $1 million in 3Q14.  Both decreases primarily reflect lower fixed income derivatives trading revenue due to exiting the derivatives sales and trading business and losses on hedging activities within one of the Investment Management boutiques, partially offset by the positive impact of interest rate hedging (which is offset in net interest revenue).


  • Investment and other income (loss)
    (in millions)











4Q13

1Q14

2Q14

3Q14

4Q14


Corporate/bank-owned life insurance

$

40


$

30


$

30


$

34


$

37



Asset-related gains (losses)

22


(1)


17


836


20



Expense reimbursements from joint venture

11


12


15


13


15



Lease residual gains


35


4


5


5



Private equity gains (losses)

5


5


(2)


2


1



Transitional service agreements

2







Seed capital gains (losses)

20


6


15


(1)




Equity investment revenue (loss)

(163)


(2)


17


(9)


(5)



Other income

20


17


46


10


5



Total investment and other income (loss)

$

(43)


$

102


$

142


$

890


$

78


Investment and other income was $78 million in 4Q14 compared with a loss of $43 million in 4Q13 and income of $890 million in 3Q14.  The year-over-year increase primarily reflects a loss related to an equity investment recorded in 4Q13 and lower seed capital gains.  The sequential decrease primarily reflects the gains on the sales of our equity investment in Wing Hang Bank and our One Wall Street building, both recorded in 3Q14.

NET INTEREST REVENUE


Net interest revenue











4Q14 vs.

(dollars in millions)

4Q13

1Q14

2Q14

3Q14

4Q14

4Q13

3Q14

Net interest revenue (non-FTE)

$

761


$

728


$

719


$

721


$

712


(6)%


(1)%


Net interest revenue (FTE) – Non-GAAP

781


744


736


736


726


(7)


(1)


Net interest margin (FTE)

1.09

%

1.05

%

0.98

%

0.94

%

0.91

%

(18)

bps

(3)

 bps
















Selected average balances:















Cash/interbank investments

$

132,198


$

127,134


$

140,357


$

139,278


$

140,599


6

%

1

%

Trading account securities

6,173


5,217


5,532


5,435


3,922


(36)


(28)


Securities

96,640


100,534


101,420


112,055


117,243


21


5


Loans

50,768


51,647


53,449


54,835


56,844


12


4


Interest-earning assets

285,779


284,532


300,758


311,603


318,608


11


2


Interest-bearing deposits

157,020


152,986


162,674


164,233


163,149


4


(1)


Noninterest-bearing deposits

79,999


81,430


77,820


82,334


85,330


7


4

















Selected average yields/rates:















Cash/interbank investments

0.40

%

0.43

%

0.43

%

0.38

%

0.31

%





Trading account securities

2.82


2.60


2.19


2.36


2.64






Securities

2.02


1.79


1.68


1.56


1.54






Loans

1.64


1.65


1.66


1.61


1.58






Interest-earning assets

1.21


1.17


1.10


1.05


1.02






Interest-bearing deposits

0.06


0.06


0.06


0.06


0.03





















Average cash/interbank investments as a

  percentage of average interest-earning assets

46

%

45

%

47

%

45

%

44

%





Average noninterest-bearing deposits as a

  percentage of average interest-earning assets

28

%

29

%

26

%

26

%

27

%





bps – basis points.
FTE – fully taxable equivalent.

KEY POINTS

  • Net interest revenue totaled $712 million in 4Q14, a decrease of $49 million compared with 4Q13 and $9 million sequentially. 
    • The year-over-year decrease primarily resulted from lower asset yields, higher premium amortization on agency mortgage backed securities, lower accretion and the impact of interest rate hedging (which is primarily offset in foreign exchange and other trading revenue).  The decrease was partially offset by a change in the mix of assets and higher average interest-earning assets driven by higher deposits.
    • The sequential decrease was primarily driven by the impact of interest rate hedging of approximately $13 million (which is primarily offset in foreign exchange and other trading revenue) and lower accretion.
  • In the fourth quarter of 2014, we completed our plan to reduce interbank placement assets and increase our high quality liquid assets in the securities portfolio. 

NONINTEREST EXPENSE

Noninterest expense











4Q14 vs.

(dollars in millions)

4Q13

1Q14

2Q14

3Q14

4Q14

4Q13

3Q14

Staff:















Compensation

$

929


$

925


$

903


$

909


$

893


(4)%


(2)%


Incentives

343


359


313


340


319


(7)


(6)


Employee benefits

250


227


223


228


206


(18)


(10)


Total staff

1,522


1,511


1,439


1,477


1,418


(7)


(4)


Professional, legal and other purchased services

344


312


314


323


390


13


21


Software and equipment

241


237


236


234


235


(2)



Net occupancy

154


154


152


154


150


(3)


(3)


Distribution and servicing

110


107


112


107


102


(7)


(5)


Business development

96


64


68


61


75


(22)


23


Sub-custodian

68


68


81


67


70


3


4


Other

258


223


347


250


211


(18)


(16)


Amortization of intangible assets

82


75


75


75


73


(11)


(3)


M&I, litigation and restructuring charges

2


(12)


122


220


800


N/M

N/M

Total noninterest expense – GAAP

$

2,877


$

2,739


$

2,946


$

2,968


$

3,524


22%


19%

















Total staff expense as a percentage of total revenue

42%


41%


38%


32%


38%





















Memo:















Total noninterest expense excluding amortization of

  intangible assets, M&I, litigation and restructuring

  charges and the charge (recovery) related to investment

  management funds, net of incentives – Non-GAAP

$

2,793


$

2,681


$

2,640


$

2,673


$

2,651


(5)%


(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, net of incentives (Non-GAAP) decreased 5% year-over-year and 1% sequentially. 
    • Both comparisons primarily reflect lower staff expense, the favorable impact of a stronger U.S. dollar and lower asset-based taxes, partially offset by higher professional, legal and other purchased services.
      • The decrease in staff expense primarily reflects lower headcount as a result of streamlining actions, the benefit of replacing technology contractors with permanent staff and lower healthcare costs.
      • The increase in professional, legal and other purchased services was driven by higher expenses related to the implementation of strategic platforms.
    • The year-over-year decrease also reflects lower business development expense as a result of discretionary expense control.
    • The sequential decrease was partially offset by higher business development expense due to seasonality and higher legal fees.

INVESTMENT SECURITIES PORTFOLIO

At Dec. 31, 2014, the fair value of our investment securities portfolio totaled $119.1 billion.  The net unrealized pre-tax gain on our total securities portfolio was $1.3 billion at Dec. 31, 2014 compared with $1.1 billion at Sept. 30, 2014.  The increase in the net unrealized pre-tax gain was primarily driven by a decline in market interest rates.  During 4Q14, we received $115 million of paydowns of sub-investment grade securities and sold $116 million of sub-investment grade available-for-sale securities. 

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


Investment securities
portfolio

 

Sept. 30, 2014


4Q14

change in

unrealized

gain (loss)

Dec. 31, 2014

Fair value

as a % of amortized

cost (a)

Unrealized

gain (loss)


Ratings








BB+

and

lower



(dollars in millions)

 Fair

value


Amortized

cost

Fair

value



AAA/

AA-

A+/

A-

BBB+/

BBB-

Not

rated

Agency RMBS

$

44,372



$

229


$

46,574


$

46,762



100

%

$

188



100

%

%

%

%

%

U.S. Treasury

25,449



13


24,639


24,857



101


218



100






Sovereign debt/sovereign guaranteed

16,627



43


18,093


18,253



101


160



77



23




Non-agency RMBS (b)

2,449



(66)


1,747


2,214



82


467




1


1


91


7


Non-agency RMBS

1,170



(5)


1,095


1,113



94


18



1


8


22


68


1


European floating rate notes

2,296



(7)


1,967


1,959



99


(8)



70


23



7



Commercial MBS

4,829



8


4,958


4,997



101


39



93


6


1




State and political subdivisions

5,434



(13)


5,200


5,271



101


71



79


20




1


Foreign covered bonds

2,949



(8)


2,788


2,866



103


78



100






Corporate bonds

1,670



4


1,747


1,785



102


38



20


66


14




CLO

1,971



(10)


2,109


2,111



100


2



100






U.S. Government agencies

699



3


686


684



100


(2)



100






Consumer ABS

3,025



(2)


3,241


3,240



100


(1)



99


1





Other (c)

2,923



2


3,024


3,032



100


8



42


52




6


Total investment securities

$

115,863


(d)

$

191


$

117,868


$

119,144


(d)

100

%

$

1,276


(e)

90

%

4

%

4

%

2

%

%

(a)   Amortized cost before impairments.
(b)   These RMBS were included in the former Grantor Trust and were marked-to-market in 2009.  We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.
(c)    Includes commercial paper with a fair value of $1.6 billion and $1.6 billion and money market funds with a fair value of $789 million and $763 million at Sept. 30, 2014 and Dec. 31, 2014, respectively.
(d)   Includes net unrealized gains on derivatives hedging securities available-for-sale of $137 million at Sept. 30, 2014 and net unrealized losses on derivatives hedging securities available-for-sale of $313 million at Dec. 31, 2014.
(e)    Unrealized gains of $1,082 million at Dec. 31, 2014 related to available-for-sale securities.

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

Dec. 31,

2013

Sept. 30,

2014

Dec. 31,

2014

Loans:







Other residential mortgages

$

117


$

113


$

112


Commercial

15


13



Wealth management loans and mortgages

11


13


12


Foreign

6




Commercial real estate

4


4


1


Financial institutions




Total nonperforming loans

153


143


125


Other assets owned

3


4


3


Total nonperforming assets (a)

$

156


$

147


$

128


Nonperforming assets ratio

0.30

%

0.26

%

0.22

%

Allowance for loan losses/nonperforming loans

137.3


133.6


152.8


Total allowance for credit losses/nonperforming loans

224.8


201.4


224.0


(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 $16 million at Dec. 31, 2013, $79 million at Sept. 30, 2014 and $53 million at Dec. 31, 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 $128 million at Dec. 31, 2014, a decrease of $19 million from $147 million at Sept. 30, 2014.  The decrease primarily resulted from repayments in the commercial and other residential mortgage portfolios and charges-offs in the commercial real estate portfolio.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs

(in millions)

Dec. 31,
 2013

Sept. 30,

2014

Dec. 31,
 2014

Allowance for credit losses - beginning of period

$

339


$

311


$

288


Provision for credit losses

6


(19)


1


Net (charge-offs) recoveries:







Commercial

(1)


(4)


(8)


Commercial real estate



(2)


Foreign

(3)


(1)



Wealth management loans and mortgages




Other residential mortgages


1



Financial institutions

3



1


Net (charge-offs)

(1)


(4)


(9)


Allowance for credit losses - end of period

$

344


$

288


$

280


Allowance for loan losses

$

210


$

191


$

191


Allowance for lending-related commitments

134


97


89


The allowance for credit losses was $280 million at Dec. 31, 2014, a decrease of $8 million compared with $288 million at Sept. 30, 2014.  The decrease primarily reflects charge-offs in the commercial loan portfolio.

CAPITAL

Our consolidated capital ratios are shown in the following table.  At Sept. 30, 2014 and Dec. 31, 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, and asset risk-weightings using the Advanced Approach framework under 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").  The leverage capital ratios for Sept. 30, 2014 and Dec. 31, 2014 are based on Basel III components of capital and quarterly average total assets, as phased-in.  The risk-based and leverage capital ratios for Dec. 31, 2013 are based on Basel I rules (including Basel I Tier 1 common in the case of the CET1 ratio).

Capital ratios

Dec. 31,
 2013


Sept. 30,

2014


Dec. 31,
 2014

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









CET1 ratio

14.5

%

(d)

11.4

%


11.2

%

Tier 1 capital ratio

16.2



12.3



12.2


Total (Tier 1 plus Tier 2) capital ratio

17.0



12.7



12.5


Leverage capital ratio

5.4



5.8



5.6


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

10.0



10.0



9.7


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

9.6



9.5



9.3


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

6.8



6.5



6.5











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









Estimated CET1 ratio:









Standardized Approach

10.6



10.8



10.6


Advanced Approach

11.3



10.2



9.8


Estimated supplementary leverage ratio ("SLR") (e)

N/A


4.6



4.4


(a)   Dec. 31, 2014 consolidated regulatory capital ratios are preliminary.  See "Capital Ratios" beginning on page 29 for more detail.
(b)   Risk-based capital ratios at Sept. 30, 2014 and Dec. 31, 2014 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 the Dec. 31, 2013 risk-based ratios.  The leverage capital ratio was not impacted. 
(c)    The transitional Standardized Approach risk-based capital ratios (which represent the Collins Floor comparison) of the CET1, Tier 1 and Total risk-based consolidated regulatory capital ratios were 15.1%, 16.3% and 17.0%, respectively, at Sept. 30, 2014 and 15.0%, 16.3% and 16.9%, respectively, at Dec. 31, 2014, and are calculated based on Basel III components of capital, as phased-in, and asset risk-weightings using the general risk-based guidelines included in the Final Capital Rules (which for 2014 look to Basel I-based requirements). 
(d)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for a reconciliation of these ratios.
(e)    The estimated fully phased-in SLR as of Sept. 30, 2014 and Dec. 31, 2014 is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve's final rules on the SLR.  When fully phased-in, we expect to maintain an SLR of over 5%, 3% attributable to the minimum required SLR, and greater than 2% attributable to a buffer applicable to U.S. G-SIBs.
N/A – Not available.



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





(in millions)

4Q14

YTD14

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

$

16,720


$

14,810


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

209


2,494


Goodwill and intangible assets, net of related deferred tax liabilities

220


491


Gross Basel III CET1 generated

429


2,985


Capital deployed:





Dividends

(195)


(762)


Common stock repurchased

(432)


(1,669)


Total capital deployed

(627)


(2,431)


Other comprehensive (loss)

(718)


(742)


Additional paid-in capital (a)

127


624


Other


56


Total other additions (deductions)

(591)


(62)


Net Basel III CET1 generated

(789)


492


Other (primarily net pension fund assets)


629


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

$

15,931


$

15,931


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

The table presented below compares the fully phased-in Basel III capital components and ratios to those amounts determined under the currently effective rules using the transitional phase-in requirements.


Basel III capital components and ratios at Dec. 31, 2014 preliminary

Fully

phased-in

Basel III




Transitional Approach



Adjustments (a)


(dollars in millions)


CET1:









Common shareholders' equity

$

35,879


$

447


(b)

$

36,326



Goodwill and intangible assets

(19,440)


2,329


(c)

(17,111)



Net pension fund assets

(87)


70


(d)

(17)



Equity method investments

(401)


87


(c)

(314)



Deferred tax assets

(18)


14


(d)

(4)



Other

(2)


6


(e)

4



Total CET1

15,931


2,953



18,884



Other Tier 1 capital:









Preferred stock

1,562




1,562



Trust preferred securities


156


(f)

156



Disallowed deferred tax assets


(14)


(d)

(14)



Net pension fund assets


(69)


(d)

(69)



Other

(12)


(5)



(17)



Total Tier 1 capital

17,481


3,021



20,502












Tier 2 capital:









Trust preferred securities


156


(f)

156



Subordinated debt

298




298



Allowance for credit losses

280




280



Other

(11)




(11)



Total Tier 2 capital - Standardized Approach

567


156



723



Excess of expected credit losses

24


(11)



13



Less: Allowance for credit losses

280




280



Total Tier 2 capital - Advanced Approach

$

311


$

145



$

456












Total capital:









Standardized Approach

$

18,048


$

3,177



$

21,225



Advanced Approach

$

17,792


$

3,166



$

20,958












Risk-weighted assets:









Standardized Approach

$

150,881


$

(25,319)



$

125,562



Advanced Approach

$

162,263


$

6,017



$

168,280












Standardized Approach:









Estimated Basel III CET1 ratio

10.6

%




15.0

%


Tier 1 capital ratio

11.6





16.3



Total (Tier 1 plus Tier 2) capital ratio

12.0





16.9












Advanced Approach:









Estimated Basel III CET1 ratio

9.8

%




11.2

%


Tier 1 capital ratio

10.8





12.2



Total (Tier 1 plus Tier 2) capital ratio

11.0





12.5



(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 shareholders' 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 the transitional adjustments related to cash flow hedges and debit valuation adjustment.
(f)    During 2014, 50% of outstanding trust preferred securities are included in Tier 1 capital and 50% in Tier 2 capital.

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)












4Q14 vs.

4Q13

1Q14

2Q14

3Q14

4Q14


4Q13

3Q14

Revenue:
















Investment management fees:
















Mutual funds

$

303


$

299


$

311


$

315


$

306



1

%

(3)

%

Institutional clients

385


372


385


382


375



(3)


(2)


Wealth management

149


153


156


158


157



5


(1)


Investment management fees

837


824


852


855


838




(2)


Performance fees

72


20


29


22


44



N/M

N/M

Investment management and performance fees

909


844


881


877


882



(3)


1


Distribution and servicing

41


40


41


41


40



(2)


(2)


Other (a)

43


16


48


16


7



N/M

N/M

Total fee and other revenue (a)

993


900


970


934


929



(6)


(1)


Net interest revenue

68


70


66


69


69



1



Total revenue

1,061


970


1,036


1,003


998



(6)



Noninterest expense (ex. amortization of intangible assets and

the charge (recovery) related to investment management funds, net of incentives)

760


698


725


727


729



(4)



Income before taxes (ex. amortization of intangible assets and the charge (recovery) related to investment management

funds, net of incentives)

301


272


311


276


269



(11)


(3)


Amortization of intangible assets

35


31


31


31


30



(14)


(3)


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


(5)


109





N/M

N/M

Income before taxes

$

266


$

246


$

171


$

245


$

239



(10)

%

(2)

%

















Pre-tax operating margin

25

%

25

%

16

%

24

%

24

%






Adjusted pre-tax operating margin (b)

34

%

34

%

36

%

33

%

32

%






















Changes in AUM (in billions): (c)
















Beginning balance of AUM

$

1,532


$

1,583


$

1,620


$

1,636


$

1,646







Net inflows (outflows):
















Long-term:
















Equity

(5)


(1)


(4)


(2)


(4)







Fixed income

5



(1)



4







Index

(3)



7


(3)


1







Liability-driven investments (d)

4


20


(17)


18


24







Alternative investments

1


2


2



2







Total long-term inflows (outflows)

2


21


(13)


13


27







Short term:
















Cash

6


(7)


(18)


19


5







Total net inflows (outflows)

8


14


(31)


32


32







Net market/currency impact

43


23


47


(22)


32







Ending balance of AUM

$

1,583


$

1,620


$

1,636


$

1,646


$

1,710


(e)

8

%

4

%

















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
















Equity

17

%

17

%

17

%

16

%

16

%






Fixed income

14


14


14


13


13







Index

20


20


21


21


21







Liability-driven investments (d)

26


27


27


28


29







Alternative investments

4


4


4


4


4







Cash

19


18


17


18


17







Total AUM

100

%

100

%

100

%

100

%

100

%

(e)





















Wealth management:
















Average loans

$

9,755


$

10,075


$

10,372


$

10,772


$

11,124



14

%

3

%

Average deposits

$

14,161


$

14,805


$

13,458


$

13,764


$

14,604



3

%

6

%

(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 $1.71 trillion at Dec. 31, 2014, an increase of 8% year-over-year and 4% sequentially. Both increases primarily resulted from higher equity market values and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • Net long-term inflows were $27 billion in 4Q14 driven by liability-driven, fixed income and alternative investments. Short-term inflows were $5 billion in 4Q14.
  • Income before taxes excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives decreased 11% year-over-year and 3% sequentially. Both comparisons reflect the unfavorable impact of a stronger U.S. dollar.
  • Total revenue was $998 million, a decrease of 6% year-over-year and down slightly sequentially. Both decreases reflect the unfavorable impact of a stronger U.S. dollar and lower other revenue. The year-over-year decrease also reflects lower performance fees, partially offset by higher equity market values. The sequential decrease was partially offset by seasonally higher performance fees.
  • Investment management fees were $838 million, essentially unchanged year-over-year and a decrease of 2% sequentially. Both comparisons reflect the unfavorable impact of a stronger U.S. dollar. The year-over-year comparison also reflects higher equity market values. The sequential decrease was partially offset by net new business and higher equity market values.
  • Performance fees were $44 million in 4Q14 compared with $72 million in 4Q13 and $22 million in 3Q14. The sequential increase was driven by seasonality.
  • Other revenue was $7 million in 4Q14 compared with $43 million in 4Q13 and $16 million in 3Q14. Both decreases primarily reflects lower other trading revenue related to losses on hedging activities within a boutique. The year-over-year decrease also reflects lower seed capital gains.
  • Net interest revenue increased 1% year-over-year and was unchanged sequentially. The year-over-year increase primarily reflects higher loan and deposit levels. Sequentially, higher loan and deposit levels were partially offset by lower deposit spreads.
    • Average loans increased 14% year-over-year and 3% sequentially; average deposits increased 3% year-over-year and 6% sequentially.
  • Total noninterest expense (excluding amortization of intangible assets and the charge (recovery) related to investment management funds, net of incentives) decreased 4% year-over-year and increased slightly sequentially. Comparisons with both prior periods were impacted by higher litigation expense. The year-over-year decrease primarily reflects the favorable impact of a stronger U.S. dollar, and lower incentive and distribution and servicing expenses. The sequential increase primarily reflects higher incentive expense driven by seasonally higher performance fees, partially offset by the favorable impact of a stronger U.S. dollar.
  • 44% non-U.S. revenue in 4Q14 vs. 47% in 4Q13.
  • Insight Investment was named European Fixed Income Manager of the Year at the 2014 Professional Pensions Investment Awards and winner of Strategy & Tactics: Liability-Driven Investing at the 2014 aiCIO Awards. The Boston Company's U.S. Small Cap Opportunistic Equity Strategy was winner of the "Best of the Best" 10 Year Performance Award by Asia Asset Management.

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)












4Q14 vs.

4Q13

1Q14

2Q14

3Q14

4Q14


4Q13

3Q14

Revenue:
















Investment services fees:
















Asset servicing

$

957


$

985


$

993


$

998


$

992



4

%

(1)

 

%

Clearing services

322


323


324


336


346



7


3


Issuer services

236


228


231


314


193



(18)


(39)


Treasury services

137


134


140


139


142



4


2


Total investment services fees

1,652


1,670


1,688


1,787


1,673



1


(6)


Foreign exchange and other trading revenue

150


158


145


159


165



10


4


Other (a)

58


59


87


59


69



19


17


Total fee and other revenue (a)

1,860


1,887


1,920


2,005


1,907



3


(5)


Net interest revenue

610


590


593


583


574



(6)


(2)


Total revenue

2,470


2,477


2,513


2,588


2,481




(4)


Noninterest expense (ex. amortization of intangible assets)

1,822


1,778


1,824


1,835


2,512



38


37


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

648


699


689


753


(31)



(105)


(104)


Amortization of intangible assets

47


44


44


44


43



(9)


(2)


Income (loss) before taxes

$

601


$

655


$

645


$

709


$

(74)



(112)

%

(110)

%

















Pre-tax operating margin

24

%

26

%

26

%

27

%

(3)

 

%






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

26

%

28

%

27

%

29

%

(1)

 

%






















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

90

%

93

%

93

%

100

%

92

%






















Securities lending revenue

$

21


$

30


$

35


$

27


$

28



33

%

4

%

















Metrics:
















Average loans

$

31,211


$

31,468


$

33,115


$

33,785


$

35,448



14

%

5

%

Average deposits

$

216,216


$

214,947


$

220,701


$

221,734


$

228,282



6

%

3

%

















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

$

27.6


$

27.9


$

28.5


$

28.3


$

28.5


(d)

3

%

1

%

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

$

235


$

264


$

280


$

282


$

289



23

%

2

%

















Asset servicing:
















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

$

123


$

161


$

130


$

115


$

130


(d)





















Depositary Receipts:
















Number of sponsored programs

1,335


1,332


1,316


1,302


1,279



(4)

%

(2)

%

















Clearing services:
















Global DARTS volume (in thousands)

213


230


207


209


242



14

%

16

%

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

5,643


5,695


5,752


5,805


5,900



5

%

2

%

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

$

401,434


$

413,658


$

433,047


$

442,827


$

450,305



12

%

2

%

Average investor margin loans (U.S. platform)

$

8,848


$

8,919


$

9,236


$

9,861


$

10,711



21

%

9

%

















Broker-Dealer:
















Average tri-party repo balances (in billions)

$

2,005


$

1,983


$

2,022


$

2,063


$

2,101



5

%

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 Dec. 31, 2013, March 31, 2014, June 30, 2014 and Sept. 30, 2014, and $1.1 trillion at Dec. 31, 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 and Dec. 31, 2014.

INVESTMENT SERVICES KEY POINTS

  • Investment services fees totaled $1.7 billion, an increase of 1% year-over-year and a decrease of 6% sequentially.
    • Asset servicing fees (global custody, broker-dealer services and global collateral services) were $992 million in 4Q14 compared with $957 million in 4Q13 and $998 million in 3Q14.  The year-over-year increase primarily reflects organic growth and net new business, partially offset by the unfavorable impact of a stronger U.S. dollar.  The sequential decrease primarily reflects the unfavorable impact of a stronger U.S. dollar, partially offset by net new business.
      • Estimated new business wins (AUC/A) in Asset Servicing of $130 billion in 4Q14.
    • Clearing services fees were $346 million in 4Q14 compared with $322 million in 4Q13 and $336 million in 3Q14.  Both increases were driven by higher clearance revenue reflecting higher DARTS volume.  The year-over-year increase also reflects higher mutual fund and asset-based fees.
    • Issuer services fees (Corporate Trust and Depositary Receipts) were $193 million in 4Q14 compared with $236 million in 4Q13 and $314 million in 3Q14.  The year-over-year decrease reflects lower corporate actions and dividend fees in Depositary Receipts.  The sequential decrease is primarily due to seasonality in Depositary Receipts, partially offset by higher Corporate Trust fees.
    • Treasury services fees were $142 million in 4Q14 compared with $137 million in 4Q13 and $139 million in 3Q14.  Both increases primarily reflect higher payment volumes.
  • Foreign exchange and other trading revenue was $165 million in 4Q14 compared with $150 million in 4Q13 and $159 million in 3Q14.  Both increases primarily reflect higher volume and volatility, partially offset by lower Depositary Receipts-related activity. 
  • Net interest revenue was $574 million in 4Q14 compared with $610 million in 4Q13 and $583 million in 3Q14.  Both decreases primarily reflect lower yields, partially offset by higher average loans and deposits.
  • Noninterest expense (excluding amortization of intangible assets) was $2.51 billion in 4Q14 compared with $1.82 billion in 4Q13 and $1.84 billion in 3Q14.  Both increases primarily reflect higher litigation and professional, legal and other purchased services expenses, primarily driven by increased expenses related to the implementation of strategic platforms, partially offset by lower staff expense and the favorable impact of a stronger U.S. dollar.  The year-over-year increase was partially offset by efficiency initiatives.

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)

4Q13

1Q14

2Q14

3Q14

4Q14

Revenue:











Fee and other revenue

$

(20)


$

112


$

119


$

928


$

117


Net interest revenue

83


68


60


69


69


Total revenue

63


180


179


997


186


Provision for credit losses

6


(18)


(12)


(19)


1


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

200


193


93


274


210


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

(143)


5


98


742


(25)


M&I and restructuring charges

13



120


57



Income (loss) before taxes

$

(156)


$

5


$

(22)


$

685


$

(25)













Average loans and leases

$

9,802


$

10,104


$

9,962


$

10,278


$

10,272


KEY POINTS


  • Total fee and other revenue increased $137 million compared with 4Q13 and decreased $811 million compared with 3Q14.  The year-over-year increase primarily reflects the loss related to an equity investment recorded in 4Q13.  The sequential decrease primarily reflects the gain on the sale of our investment in Wing Hang Bank and the gain on the sale of the One Wall Street building both recorded in 3Q14.
  • Noninterest expense (excluding M&I and restructuring charges) increased $10 million compared with 4Q13 and decreased $64 million compared with 3Q14.  The year-over-year increase primarily reflects higher litigation expense, partially offset by lower staff expenses.  The sequential decrease primarily reflects lower staff and litigation expense, partially offset by higher professional, legal and other purchased services.

 

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement



(in millions)

Quarter ended


Year-to-date


Dec. 31,

2014

Sept. 30,

2014

Dec. 31, 2013


Dec. 31,

2014

Dec. 31,

2013




Fee and other revenue













Investment services fees:













Asset servicing

$

1,019


$

1,025


$

984



$

4,075


$

3,905



Clearing services

347


337


324



1,335


1,264



Issuer services

193


315


237



968


1,090



Treasury services

145


142


137



564


554



Total investment services fees

1,704


1,819


1,682



6,942


6,813



Investment management and performance fees

885


881


904



3,492


3,395



Foreign exchange and other trading revenue

151


153


146



570


674



Distribution and servicing

43


44


43



173


180



Financing-related fees

43


44


43



169


172



Investment and other income (a)

78


890


(43)



1,212


481



Total fee revenue (a)

2,904


3,831


2,775



12,558


11,715



Net securities gains

31


20


39



91


141



Total fee and other revenue (a)

2,935


3,851


2,814



12,649


11,856



Operations of consolidated investment management funds













Investment income

101


123


109



503


548



Interest of investment management fund note holders

59


84


73



340


365



Income from consolidated investment management funds

42


39


36



163


183



Net interest revenue













Interest revenue

802


809


846



3,234


3,352



Interest expense

90


88


85



354


343



Net interest revenue

712


721


761



2,880


3,009



Provision for credit losses

1


(19)


6



(48)


(35)



Net interest revenue after provision for credit losses

711


740


755



2,928


3,044



Noninterest expense













Staff

1,418


1,477


1,522



5,845


6,019



Professional, legal and other purchased services

390


323


344



1,339


1,252



Software and equipment

235


234


241



942


933



Net occupancy

150


154


154



610


629



Distribution and servicing

102


107


110



428


435



Sub-custodian

70


67


68



286


280



Business development

75


61


96



268


317



Other

211


250


258



1,031


1,029



Amortization of intangible assets

73


75


82



298


342



Merger and integration, litigation and restructuring charges

800


220


2



1,130


70



Total noninterest expense

3,524


2,968


2,877



12,177


11,306



Income













Income before income taxes (a)

164


1,662


728



3,563


3,777



(Benefit) provision for income taxes (a)

(93)


556


172



912


1,592



Net income (a)

257


1,106


556



2,651


2,185



Net (income) attributable to noncontrolling interests (includes $(24), $(23), $(17), $(84) and $(80) related to consolidated investment management funds, respectively)

(24)


(23)


(17)



(84)


(81)



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

233


1,083


539



2,567


2,104



Preferred stock dividends

(24)


(13)


(26)



(73)


(64)



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

$

209


$

1,070


$

513



$

2,494


$

2,040



(a)   Results for the full-year 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

(in millions)

Quarter ended


Year-to-date

Dec. 31,

2014

Sept. 30,

2014

Dec. 31,

2013


Dec. 31,

2014

Dec. 31,

2013

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

$

209


$

1,070


$

513



$

2,494


$

2,040


Less:  Earnings allocated to participating securities (a)

4


20


10



43


37


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)

$

205


$

1,050


$

503



$

2,451


$

2,002


(a)   Results for the full-year 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

(in thousands)

Quarter ended


Year-to-date

Dec. 31, 2014

Sept. 30, 2014

Dec. 31, 2013


Dec. 31, 2014

Dec. 31, 2013

Basic

1,120,672


1,126,946


1,142,861



1,129,897


1,150,689


Diluted

1,129,040


1,134,871


1,147,961



1,137,480


1,154,441


 

Earnings per share applicable to the common shareholders of The

Bank of New York Mellon Corporation (a)

(in dollars)

Quarter ended


Year-to-date

Dec. 31, 2014

Sept. 30, 2014

Dec. 31, 2013


Dec. 31, 2014

Dec. 31, 2013

Basic

$

0.18


$

0.93


$

0.44



$

2.17


$

1.74


Diluted

$

0.18


$

0.93


$

0.44



$

2.15


$

1.73


(a)   Results for the full-year 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




(dollars in millions, except per share amounts)

Dec. 31,

 2014

Sept. 30,

2014

Dec. 31,

2013



Assets








Cash and due from:








Banks

$

6,970


$

6,410


$

6,460



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

96,682


92,317


104,359



Interest-bearing deposits with banks

19,495


30,341


35,300



Federal funds sold and securities purchased under resale agreements

20,302


17,375


9,161



Securities:








Held-to-maturity (fair value of $21,127, $20,167 and $19,443)

20,933


20,137


19,743



Available-for-sale

98,330


95,559


79,309



Total securities

119,263


115,696


99,052



Trading assets

9,881


11,613


12,098



Loans

59,132


57,527


51,657



Allowance for loan losses

(191)


(191)


(210)



Net loans

58,941


57,336


51,447



Premises and equipment

1,394


1,351


1,655



Accrued interest receivable

607


565


621



Goodwill

17,869


17,992


18,073



Intangible assets

4,127


4,215


4,452



Other assets

20,490


21,523


20,566



Subtotal assets of operations

376,021


376,734


363,244



Assets of consolidated investment management funds, at fair value:








Trading assets

8,678


8,823


10,397



Other assets

604


739


875



Subtotal assets of consolidated investment management funds, at fair value

9,282


9,562


11,272



Total assets

$

385,303


$

386,296


$

374,516



Liabilities








Deposits:








Noninterest-bearing (principally U.S. offices)

$

104,240


$

101,105


$

95,475



Interest-bearing deposits in U.S. offices

53,236


56,740


56,640



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

108,393


107,051


109,014



Total deposits

265,869


264,896


261,129



Federal funds purchased and securities sold under repurchase agreements

11,469


9,687


9,648



Trading liabilities

7,434


7,734


6,945



Payables to customers and broker-dealers

21,181


20,155


15,707



Commercial paper



96



Other borrowed funds

786


852


663



Accrued taxes and other expenses

6,903


6,482


6,996



Other liabilities (includes allowance for lending-related commitments of $89, $97 and $134)

5,025


7,169


4,827



Long-term debt

20,264


21,583


19,864



Subtotal liabilities of operations

338,931


338,558


325,875



Liabilities of consolidated investment management funds, at fair value:








Trading liabilities

7,660


8,130


10,085



Other liabilities

9


10


46



Subtotal liabilities of consolidated investment management funds, at fair value

7,669


8,140


10,131



Total liabilities

346,600


346,698


336,006



Temporary equity








Redeemable noncontrolling interests

229


246


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 1,290,222,821, 1,286,670,537 and 1,268,036,220 shares

13


13


13



Additional paid-in capital

24,626


24,499


24,002



Retained earnings

17,683


17,670


15,952



Accumulated other comprehensive loss, net of tax

(1,634)


(916)


(892)



Less:  Treasury stock of 171,995,262, 160,960,855 and 125,786,430 common shares, at cost

(4,809)


(4,377)


(3,140)



Total The Bank of New York Mellon Corporation shareholders' equity

37,441


38,451


37,497



Nonredeemable noncontrolling interests of consolidated investment management funds

1,033


901


783



Total permanent equity

38,474


39,352


38,280



Total liabilities, temporary equity and permanent equity

$

385,303


$

386,296


$

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)

4Q13

YTD13

4Q13

YTD13

Basic

$

0.44


$

1.75


$

0.44


$

1.74


Diluted

$

0.44


$

1.74


$

0.44


$

1.73


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)

4Q13

YTD13

4Q13

YTD13

4Q13

YTD13

Investment and other income (loss)

$

(60)


$

416


$

17


$

65


$

(43)


$

481


Total fee revenue

2,758


11,650


17


65


2,775


11,715


Total fee and other revenue

2,797


11,791


17


65


2,814


11,856


Income before income taxes

711


3,712


17


65


728


3,777


Provision for income taxes

155


1,520


17


72


172


1,592


Net income (loss)

556


2,192



(7)


556


2,185


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

539


2,111



(7)


539


2,104


Net income (loss) applicable to common shareholders

  of The Bank of New York Mellon Corporation

513


2,047



(7)


513


2,040


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

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based on fully phased-in Basel III CET1 and other risk-based capital ratios, SLR, Basel I CET1 and tangible common shareholders' equity.  BNY Mellon believes that the Basel III CET1 and other risk-based capital ratios on a fully phased-in basis, the SLR on a fully phased-in basis, 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 those assets that can generate income.  BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of 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 Bank, 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 tax benefit primarily related to a tax carryback claim and the net charge 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 acquisitions and generally continue for approximately three years after the transaction.  M&I expenses 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 tables present the reconciliation of net income and diluted earnings per common share.

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

4Q13


3Q14


4Q14


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

$

513


$

0.44



$

1,070


$

0.93



$

209


$

0.18


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




315


0.27





Gain on the sale of the One Wall Street building




204


0.18





Benefit primarily related to a tax carryback claim







150


0.13


Add:   Litigation and restructuring charges

1




183


0.16



608


0.53


Loss related to an equity investment

115


0.10








Net income applicable to common shareholders of The Bank of

New York Mellon Corporation – Non-GAAP

$

629


$

0.54



$

734


$

0.64



$

667


$

0.58


 

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

YTD13


YTD14


Net

Diluted


Net

Diluted

(in millions, except per common share amounts)

income

EPS


income

EPS

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

$

2,040


$

1.73



$

2,494


$

2.15


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




315


0.27


Gain on the sale of the One Wall Street building




204


0.18


Benefit primarily related to a tax carryback claim




150


0.13


Add:   Litigation and restructuring charges

45


0.04



860


0.74


Charge related to investment management funds, net of incentives

9


0.01



81


0.07


Net charge related to the disallowance of certain foreign tax credits

593


0.50





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

$

2,687


$

2.28



$

2,766


$

2.39 (a)


 

(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)

4Q13

1Q14

2Q14

3Q14

4Q14

Income before income taxes – GAAP

$

728


$

926


$

811


$

1,662


$

164


Less:  Net income attributable to noncontrolling interests of consolidated

              investment management funds

17


20


17


23


24


Gain on the sale of our investment in Wing Hang Bank




490



Gain on the sale of the One Wall Street building




346



Add:  Amortization of intangible assets

82


75


75


75


73


M&I, litigation and restructuring charges

2


(12)


122


220


800


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


(5)


109




Loss related to an equity investment

175






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

$

970


$

964


$

1,100


$

1,098


$

1,013













Fee and other revenue – GAAP

$

2,814


$

2,883


$

2,980


$

3,851


$

2,935


Income from consolidated investment management funds – GAAP

36


36


46


39


42


Net interest revenue – GAAP

761


728


719


721


712


Total revenue – GAAP

3,611


3,647


3,745


4,611


3,689


Less:  Net income attributable to noncontrolling interests of consolidated

             investment management funds

17


20


17


23


24


Gain on the sale of our investment in Wing Hang Bank




490



Gain on the sale of the One Wall Street building




346



Add:  Loss related to an equity investment

175






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

$

3,769


$

3,627


$

3,728


$

3,752


$

3,665













Pre-tax operating margin (a)

20

%

25

%

22

%

36

%

4

%

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

26

%

27

%

30

%

29

%

28

%

(a)   Income before taxes divided by total revenue.
(b)   Non-GAAP excludes net income attributable to noncontrolling interests of consolidated investment management funds, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, M&I, litigation and restructuring charges, a charge (recovery) related to investment management funds, net of incentives, and a loss on an equity investment, 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)

4Q13

1Q14

2Q14

3Q14

4Q14

YTD14

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

$

513


$

661


$

554


$

1,070


$

209


$

2,494


Add:  Amortization of intangible assets, net of tax

53


49


49


49


47


194


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

566


710


603


1,119


256


2,688


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




315



315


  Gain on the sale of the One Wall Street building




204



204


  Benefit primarily related to a tax carryback claim





150


150


Add:  M&I, litigation and restructuring charges

1


(7)


76


183


608


860


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


(4)


85




81


Loss on an equity investment

115







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

$

682


$

699


$

764


$

783


$

714


$

2,960















Average common shareholders' equity

$

35,698


$

36,289


$

36,565


$

36,751


$

36,859


$

36,618


Less:  Average goodwill

18,026


18,072


18,149


18,109


17,924


18,063


Average intangible assets

4,491


4,422


4,354


4,274


4,174


4,305


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

1,302


1,306


1,338


1,317


1,340


1,340


Deferred tax liability – intangible assets (a)

1,222


1,259


1,247


1,230


1,216


1,216


Average tangible common shareholders' equity – Non-GAAP

$

15,705


$

16,360


$

16,647


$

16,915


$

17,317


$

16,806















Return on common equity – GAAP (c)

5.7

%

7.4

%

6.1

%

11.6

%

2.2

%

6.8

%

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

7.6

%

7.8

%

8.4

%

8.5

%

7.7

%

8.1

%














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

14.3

%

17.6

%

14.5

%

26.2

%

5.9

%

16.0

%

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

17.2

%

17.3

%

18.4

%

18.4

%

16.3

%

17.6

%

(a)   Deferred tax liabilities are based on fully phased-in Basel III rules.  The quarters and full-year of 2014 include deferred tax liabilities on tax deductible intangible assets permitted under Basel III rules.
(b)   Non-GAAP excludes amortization of intangible assets, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, the benefit primarily related to a tax carryback claim, M&I, litigation and restructuring charges, a charge (recovery) related to investment management funds, net of incentives, and a loss on an equity investment, 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

Dec. 31,

2013

Sept. 30,

2014

Dec. 31,

2014

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

37,497


$

38,451


$

37,441


Less:  Preferred stock

1,562


1,562


1,562


BNY Mellon common shareholders' equity at period end – GAAP

35,935


36,889


35,879


Less:  Goodwill

18,073


17,992


17,869


  Intangible assets

4,452


4,215


4,127


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

1,302


1,317


1,340


 Deferred tax liability – intangible assets (a)

1,222


1,230


1,216


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

$

15,934


$

17,229


$

16,439









Total assets at period end – GAAP

$

374,516


$

386,296


$

385,303


Less:  Assets of consolidated investment management funds

11,272


9,562


9,282


Subtotal assets of operations – Non-GAAP

363,244


376,734


376,021


Less:  Goodwill

18,073


17,992


17,869


  Intangible assets

4,452


4,215


4,127


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

105,384


90,978


99,901


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

$

235,335


$

263,549


$

254,124









BNY Mellon shareholders' equity to total assets – GAAP

10.0

%

10.0

%

9.7

%

BNY Mellon common shareholders' equity to total assets – GAAP

9.6

%

9.5

%

9.3

%

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

  GAAP

6.8

%

6.5

%

6.5

%








Period-end common shares outstanding (in thousands)

1,142,250


1,125,710


1,118,228









Book value per common share – GAAP

$

31.46


$

32.77


$

32.09


Tangible book value per common share – Non-GAAP

$

13.95


$

15.30


$

14.70


(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

 





(in millions)

4Q13

1Q14

2Q14

3Q14

4Q14

Income from consolidated investment management funds

$

36


$

36


$

46


$

39


$

42


Less:  Net income attributable to noncontrolling interests of consolidated

              investment management funds

17


20


17


23


24


Income from consolidated investment management funds, net of noncontrolling

   interests

$

19


$

16


$

29


$

16


$

18


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

Income from consolidated investment management funds, net of noncontrolling interests



(in millions)

4Q13

1Q14

2Q14

3Q14

4Q14

Investment management fees

$

20


$

18


$

18


$

15


$

15


Other (Investment income)

(1)


(2)


11


1


3


Income from consolidated investment management funds, net of controlling

  interests

$

19


$

16


$

29


$

16


$

18


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)

4Q13

1Q14

2Q14

3Q14

4Q14

Income before income taxes – GAAP

$

266


$

246


$

171


$

245


$

239


Add:   Amortization of intangible assets


35



31



31



31



30


Money market fee waivers

33


35


28


29


34


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

$

334


$

307


$

339


$

305


$

303













Total revenue – GAAP

$

1,061


$

970


$

1,036


$

1,003


$

998


Less:  Distribution and servicing expense

108


106


111


105


102


Money market fee waivers benefiting distribution and servicing expense

38


38


37


38


36


Add:  Money market fee waivers impacting total revenue

71


73


65


67


70


Total revenue net of distribution and servicing expense
    
and excluding money market fee waivers – Non-GAAP

$

986


$

899


$

953


$

927


$

930













Pre-tax operating margin (a)

25

%

25

%

16

%

24

%

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)

34

%

34

%

36

%

33

%

32

%

(a)   Income before taxes divided by total revenue.

Capital Ratios

BNY Mellon has presented its estimated fully phased-in Basel III CET1 and other risk-based capital ratios and SLR based on its interpretation of the 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 and other risk-based capital ratios and SLR as key measures in monitoring BNY Mellon's capital position and progress against future regulatory capital standards.  Additionally, the presentation of the estimated fully phased-in Basel III CET1 and other risk-based capital ratios and SLR are intended to allow investors to compare these ratios with estimates presented by other companies.  The estimated fully phased-in Basel III CET1 and other risk-based capital ratios assume all relevant regulatory approvals.  The 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 and other risk-based capital ratios would likely be adversely impacted.

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

Our capital 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 transitional 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)

Dec. 31,
 2013

Sept. 30,

2014

Dec. 31,
 2014

(dollars in millions)

Total Tier 1 capital (b)

$

18,335


$

21,015


$

20,502


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







Deferred tax liability – tax deductible intangible assets

70




Intangible deduction


(2,388)


(2,329)


Preferred stock

(1,562)


(1,562)


(1,562)


Trust preferred securities

(330)


(162)


(156)


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







Securities available-for-sale

387


578


594


Pension liabilities

(900)


(675)


(1,041)


Net pension fund assets

(713)




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

(1,226)


(97)


(447)


Equity method investments

(445)


(92)


(87)


Deferred tax assets

(49)




Other

17


6


10


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

$

14,810


$

16,720


$

15,931









Under the Standardized Approach:







Estimated fully phased-in Basel III risk-weighted assets – Non-GAAP

$

139,865


$

154,272


$

150,881









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

10.6

%

10.8

%

10.6

%








Under the Advanced Approach:







Estimated fully phased-in Basel III risk-weighted assets – Non-GAAP

$

130,849


$

164,088


$

162,263









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

11.3

%

10.2

%

9.8

%

(a)   Dec. 31, 2014 information is preliminary.
(b)   Tier 1 capital at Dec. 31, 2013 is based on Basel I rules.  Tier 1 capital at Sept. 30, 2014 and Dec. 31, 2014 are based on Basel III rules, as phased-in.
(c)    Risk-based capital ratios at Sept. 30, 2014 and Dec. 31, 2014 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 the Dec. 31, 2013 risk-based ratios.

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

Basel I CET1 ratio

(dollars in millions)

Dec. 31,
 2013

Total Tier 1 capital – Basel I

$

18,335


Less:    Trust preferred securities

330


  Preferred stock

1,562


Total CET1 – Basel I

$

16,443





Total risk-weighted assets – Basel I

$

113,322





Basel I CET1 ratio – Non-GAAP

14.5

%

The following table presents the components of our fully phased-in estimated SLR.

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

(dollars in millions)

Sept. 30,

2014

Dec. 31,
 2014

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

$

16,720


$

15,931


Additional Tier 1 capital

1,556


1,550


Total Tier 1 capital

$

18,276


$

17,481







Total leverage exposure:





Quarterly average total assets

$

380,409


$

385,232


Less: Amounts deducted from Tier 1 capital

20,166


19,947


Total on-balance sheet assets, as adjusted

360,243


365,285


Off-balance sheet exposures:





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

11,694


11,678


Repo-style transaction exposures included in SLR



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

21,924


21,850


Total off-balance sheet exposures

33,618


33,528


Total leverage exposure

$

393,861


$

398,813







Estimated fully phased-in SLR – Non-GAAP

4.6

%

4.4

%

(a)   The estimated fully phased-in SLR is based on our interpretation of the Final Capital Rules, as supplemented by the Federal Reserve's final rules on the SLR.  When fully phased-in, we expect to maintain an SLR of over 5%, 3% attributable to the minimum required SLR, and greater than 2% attributable to a buffer applicable to U.S. G-SIBs.

DIVIDENDS

Common – On Jan. 23, 2015, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.17 per common share.  This cash dividend is payable on Feb. 13, 2015 to shareholders of record as of the close of business on Feb. 3, 2015. 

Preferred – On Jan. 23, 2015, The Bank of New York Mellon Corporation also declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in March 2015, in each case, payable on March 20, 2015 to holders of record as of the close of business on March 5, 2015:

  • $977.78 per share on the Series A Preferred Stock (equivalent to $9.7778 per Normal Preferred Capital Security of Mellon Capital IV, each representing 1/100th interest in a share of Series A Preferred Stock); and
  • $1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock).

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle.  Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets.  As of Dec. 31, 2014, BNY Mellon had $28.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management.  BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available on www.bnymellon.com, or follow us on Twitter @BNYMellon.

CAUTIONARY STATEMENT

A number of statements in this Earnings Release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimate of reasonably possible losses for legal proceedings, our estimated capital ratios and expectations relating to those ratios and preliminary business metrics.  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 Feb. 17, 2015, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

Contacts:

MEDIA:

ANALYSTS:


Kevin Heine

Valerie Haertel


(212) 635-1590

(212) 635-8529


kevin.heine@bnymellon.com

valerie.haertel@bnymellon.com

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bny-mellon-announces-adjustment-to-fourth-quarter-2014-financial-results-300037210.html

SOURCE The Bank of New York Mellon Corporation