10-Q 1 bkq1201410-q.htm 10-Q BK Q1 2014 10-Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

FORM 10-Q

[ X ] Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Quarterly Period Ended March 31, 2014

or

[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

Commission File No. 001-35651


THE BANK OF NEW YORK MELLON CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
13-2614959
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
 

One Wall Street
New York, New York 10286
(Address of principal executive offices)(Zip Code)

Registrant’s telephone number, including area code -- (212) 495-1784

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X     No ___

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X     No ___

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ X ]
Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ___    No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 
Class
Outstanding as of

 
 
 
March 31, 2014

 
 
Common Stock, $0.01 par value
1,140,372,916

 




THE BANK OF NEW YORK MELLON CORPORATION

First Quarter 2014 Form 10-Q
Table of Contents 
 
 
Page
 
 
Part I - Financial Information
 
Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures About Market Risk:
 
 
 
Item 1. Financial Statements:
 
 
 
Page
Notes to Consolidated Financial Statements:
 
 
 
 
 
Part II - Other Information
 
 
 






The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Financial Highlights (unaudited)
 
Quarter ended
 
(dollar amounts in millions, except per share amounts and unless otherwise noted)
March 31,
2014

 
Dec. 31, 2013

 
March 31,
2013

 
Results applicable to common shareholders of The Bank of New York Mellon Corporation: (a)
 
 
 
 
 
 
Net income (loss)
$
661

 
$
513

 
$
(266
)
 
Basic EPS
0.57

 
0.44

 
(0.23
)
 
Diluted EPS
0.57

 
0.44

 
(0.23
)
(b)
 
 
 
 
 
 
 
Fee and other revenue (a)
$
2,883

 
$
2,814

 
$
2,860

 
Income from consolidated investment management funds
36

 
36

 
50

 
Net interest revenue
728

 
761

 
719

 
Total revenue (a)
$
3,647

 
$
3,611

 
$
3,629

 
 
 
 
 
 
 
 
Return on common equity (annualized) (a)(c)
7.4
%
 
5.7
%
 
N/M

 
Non-GAAP (a)(c)(d)
7.9
%
 
6.3
%
 
7.8
%
 
 
 
 
 
 
 
 
Return on tangible common equity (annualized) – Non-GAAP (a)(c)
17.6
%
 
14.3
%
 
N/M

 
Non-GAAP adjusted (a)(c)(d)
17.4
%
 
14.3
%
 
18.5
%
 
 
 
 
 
 
 
 
Return on average assets (annualized) (a)
0.75
%
 
0.57
%
 
N/M

 
 
 
 
 
 
 
 
Fee revenue as a percentage of total revenue excluding net
securities gains (a)
79
%
 
78
%
 
79
%
 
 
 
 
 
 
 
 
Annualized fee revenue per employee (based on average
headcount) (in thousands) (a)
$
226

 
$
216

 
$
230

 
 
 
 
 
 
 
 
Percentage of non-U.S. total revenue (a)(e)
37
%
 
39
%
 
35
%
 
 
 
 
 
 
 
 
Pre-tax operating margin (a)(c)
25
%
 
20
%
 
23
%
 
Non-GAAP (c)(d)
27
%
 
22
%
 
26
%
 
 
 
 
 
 
 
 
Net interest margin (FTE)
1.05
%
 
1.09
%
 
1.11
%
 
 
 
 
 
 
 
 
Assets under management at period end (in billions) (f)
$
1,620

 
$
1,583

 
$
1,423

 
Assets under custody and/or administration at
period end (in trillions) (g)
$
27.9

 
$
27.6

 
$
26.3

 
Market value of securities on loan at period end (in billions) (h)
$
264

 
$
235

 
$
244

 
 
 
 
 
 
 
 
Average common shares and equivalents outstanding (in thousands):
 
 
 
 
 
 
Basic
1,138,645

 
1,142,861

 
1,158,819

 
Diluted
1,144,510

 
1,147,961

 
1,158,819

(b)
 
 
 
 
 
 
 
Capital ratios
 
 
 
 
 
 
Estimated common equity Tier 1 ratio (“CET1”), fully
phased-in – Non-GAAP: (c)(i)(j)
 
 
 
 
 
 
Standardized Approach
11.1
%
 
10.6
%
 
9.4
%
 
Advanced Approach
10.7
%
 
11.3
%
 
9.7
%
 
CET1 ratio (c)(k)
15.7
%
 
14.5
%
 
12.2
%
 
Tier 1 capital ratio (k)
17.0
%
(c)
16.2
%
 
13.6
%
 
Total (Tier 1 plus Tier 2) capital ratio (k)
17.8
%
(c)
17.0
%
 
14.7
%
 
Leverage capital ratio (k)
6.1
%
 
5.4
%
 
5.2
%
 
BNY Mellon shareholders’ equity to total assets ratio (c)
10.3
%
 
10.0
%
 
10.0
%
 
BNY Mellon common shareholders’ equity to total
assets ratio (c)
9.9
%
 
9.6
%
 
9.7
%
 
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)
6.6
%
 
6.8
%
 
5.9
%
 


2 BNY Mellon



Consolidated Financial Highlights (unaudited) (continued)

 
Quarter ended
(dollar amounts in millions, except per share amounts and unless otherwise noted)
March 31,
2014

 
Dec. 31, 2013

 
March 31,
2013

Selected average balances
 
 
 
 
 
Interest-earning assets
$
284,532

 
$
285,779

 
$
265,754

Assets of operations
$
343,638

 
$
344,629

 
$
322,161

Total assets
$
354,992

 
$
356,135

 
$
333,664

Interest-bearing deposits
$
152,986

 
$
157,020

 
$
147,728

Noninterest-bearing deposits
$
81,430

 
$
79,999

 
$
70,337

Preferred stock
$
1,562

 
$
1,562

 
$
1,068

Total The Bank of New York Mellon Corporation common shareholders’ equity
$
36,289

 
$
35,698

 
$
34,898

 
 
 
 
 
 
Other information at period end
 
 
 
 
 
Cash dividends per common share
$
0.15

 
$
0.15

 
$
0.13

Common dividend payout ratio
26
%
 
34
%
 
N/M

Common dividend yield (annualized)
1.7
%
 
1.7
%
 
1.9
%
Closing common stock price per share
$
35.29

 
$
34.94

 
$
27.99

Market capitalization
$
40,244

 
$
39,910

 
$
32,487

Book value per common share – GAAP (a) (c)
$
31.94

 
$
31.46

 
$
29.81

Tangible book value per common share – Non-GAAP (a) (c)
$
14.48

 
$
13.95

 
$
12.45

 
 
 
 
 
 
Full-time employees
51,400

 
51,100

 
49,700

 
 
 
 
 
 
Common share outstanding (in thousands)
1,140,373

 
1,142,250

 
1,160,647

(a)
Prior periods were restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.
(b)
Diluted earnings per share for the three months ended March 31, 2013 was calculated using average basic shares. Adding back the dilutive shares would result in anti-dilution.
(c)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for a reconciliation of these ratios.
(d)
Non-GAAP excludes merger and integration (“M&I”), litigation, restructuring charges and the charge related to the U.S. Tax Court’s decision to disallow certain foreign tax credits, if applicable.
(e)
Includes fee revenue, net interest revenue and income of consolidated investment management funds, net of net income attributable to noncontrolling interests.
(f)
Excludes securities lending cash management assets and assets managed in the Investment Services business. Also excludes assets under management related to Newton’s private client business that was sold in September 2013.
(g)
Includes the assets under custody and/or administration (“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 March 31, 2014, Dec. 31, 2013 and March 31, 2013.
(h)
Represents the securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as an agent, beginning in the fourth quarter of 2013, on behalf of CIBC Mellon clients, which totaled $66 billion at March 31, 2014 and $62 billion at Dec. 31, 2013.
(i)
At March 31, 2014 and Dec. 31, 2013, the estimated fully phased-in Basel III CET1 ratios are based on our interpretation of the final rules released by the Board of Governors of the Federal Reserve (the “Federal Reserve”) on July 2, 2013 (the “Final Capital Rules”), which will be gradually phased-in over a multi-year period. At March 31, 2013, these ratios were estimated using our interpretation of the Federal Reserve’s Notices of Proposed Rulemaking (“NPRs”) dated June 7, 2012.
(j)
Consistent with historic practice, the risk-based capital ratios do not include the impact of the total consolidated assets of certain consolidated investment management funds. If the Company is required to include the net impact of such total consolidated assets, it would decrease the fully phased-in CET1 ratio under the Standardized Approach by approximately 60 basis points and the Advanced Approach by approximately 90 basis points at March 31, 2014.
(k)
At March 31, 2014, the capital ratios are 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). March 31, 2014 risk-weightings are not based on the Advanced Approach rules. The leverage capital ratio is based on Basel III components of capital and quarterly average total assets, as phased-in. Periods prior to March 31, 2014 are based on Basel I rules, while the CET1 ratio is a Basel I Tier 1 common ratio.
N/M – Not meaningful.



BNY Mellon 3

Part I - Financial Information

Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk

General

In this Quarterly Report on Form 10-Q, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.

Certain business terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended Dec. 31, 2013 (“2013 Annual Report”).

The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the section titled “Forward-looking Statements.”

How we reported results

Throughout this Form 10-Q, certain measures, which are noted as “Non-GAAP financial measures,” exclude certain items. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons using measures that relate to our ability to enhance revenues and limit expenses in circumstances where such matters are within our control. We also present the net interest margin on a fully taxable equivalent (“FTE”) basis. We believe that this presentation allows for comparison of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for a reconciliation of financial measures presented in accordance with U.S. generally accepted accounting principles (“GAAP”) to adjusted Non-GAAP financial measures.

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.” As a result, we restated the prior period financial statements to reflect the impact of the retrospective application of the new accounting guidance. See Note 2 of the Notes to Consolidated Financial Statements for additional information.

Overview

BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE symbol: BK). 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 March 31, 2014, BNY Mellon had $27.9 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments.

Key first quarter 2014 and subsequent events

Acquisition of HedgeMark International, LLC

On May 1, 2014, BNY Mellon acquired the remaining 65% interest of HedgeMark International, LLC, a provider of hedge fund managed account and risk analytic services. Since 2011, BNY Mellon held a 35% ownership stake in HedgeMark.

Agreement to sell our equity investment in Wing Hang Bank Limited (“Wing Hang”)

On March 31, 2014, BNY International Financing Corp., a subsidiary of BNY Mellon, agreed to sell our equity investment in Wing Hang, which is located in Hong Kong, to Oversea-Chinese Banking Corporation Limited. Our equity investment in Wing Hang had a fair value of $1 billion (book value of $544 million) based on its share price at March 31, 2014. Equity income related to our investment in Wing Hang totaled $95 million in 2013, including



4 BNY Mellon


$37 million from the sale of a property. The sale is expected to close in the third quarter of 2014.

Capital plan and share repurchase program and dividend increase

In March 2014, BNY Mellon received confirmation that the Board of Governors of the Federal Reserve System (the “Federal Reserve”) did not object to our 2014 capital plan submitted in connection with the Federal Reserve’s Comprehensive Capital Analysis and Review (“CCAR”). The board of directors subsequently approved the repurchase of up to $1.74 billion worth of common stock beginning in the second quarter of 2014 and continuing through the first quarter of 2015. The board of directors also approved a 13% increase in BNY Mellon’s quarterly common stock dividend from $0.15 per common share to $0.17 per common share on April 7, 2014. This increased quarterly common stock dividend was paid on May 7, 2014, to shareholders of record as of the close of business on April 25, 2014.

From April 1, 2014 through May 8, 2014, we repurchased 9.0 million common shares, at an average price of $34.02 per common share for a total of $308 million.

Exit from parallel run period for calculating risk-weighted assets under the Advanced Approaches rule

On Feb. 21, 2014, the Federal Reserve announced that BNY Mellon had been approved to exit parallel run reporting for U.S. regulatory capital purposes, and will transition from the general risk-based capital rules to the Final Capital Rules’ Advanced Approaches, effective starting in the second quarter of 2014, subject to ongoing qualification. We will be required to comply with Advanced Approaches reporting and public disclosures commencing on June 30, 2014. This means, among other things, for purposes of determining whether we meet minimum risk-based capital requirements, starting with the second quarter of 2014 our common equity Tier 1 capital ratio, Tier 1 capital ratio, and total capital ratio will be determined using the higher of the risk-weighted assets as calculated under the general risk-based capital rules (which use Basel I-based risk weighting for 2014 and the Final Capital Rules’ new Standardized Approach commencing on Jan. 1, 2015) and under the Advanced Approaches.

 
Highlights of first quarter 2014 results

In the first quarter of 2014, BNY Mellon reported net income applicable to common shareholders of $661 million, or $0.57 per diluted common share. In the first quarter of 2013 the Company reported a net loss applicable to common shareholders of $266 million, or $0.23 per diluted common share. Excluding the charge related to the U.S. Tax Court’s disallowance of certain foreign tax credits of $854 million, or $0.73 per diluted common share, net income applicable to common shareholders totaled $588 million, or $0.50 per diluted common share in the first quarter of 2013. Net income applicable to common shareholders was $513 million, or $0.44 per diluted common share, in the fourth quarter of 2013. Excluding an after tax-loss of $115 million, or $0.10 per diluted common share, related to an equity investment, net income applicable to common shareholders totaled $628 million, or $0.54 per diluted common share, in the fourth quarter of 2013. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for the reconciliation of the Non-GAAP measures.

Highlights of the first quarter 2014 include:

AUC/A totaled $27.9 trillion at March 31, 2014 compared with $26.3 trillion at March 31, 2013. The year-over-year increase of 6% primarily reflects higher market values. (See the “Investment Services business” beginning on page 19).
Assets under management (“AUM”), excluding securities lending cash management assets and assets managed in the Investment Services business, totaled a record $1.62 trillion at March 31, 2014 compared with $1.42 trillion at March 31, 2013. The year-over-year increase of 14% resulted from higher market values and net new business. (See the “Investment Management business” beginning on page 16).
Investment services fees totaled $1.7 billion, an increase of 3% compared with the first quarter of 2013. The increase primarily reflects higher asset servicing fees driven by higher market values, net new business and organic growth, as well as higher clearing services and Depositary Receipts revenue. (See the “Investment Services business” beginning on page 19).




BNY Mellon 5


Investment management and performance fees totaled $843 million in the first quarter of 2014, an increase of 3% compared with the first quarter of 2013. The increase primarily reflects higher equity market values, net new business and higher performance fees, partially offset by higher money market fee waivers. (See the “Investment Management business” beginning on page 16).
Foreign exchange and other trading revenue totaled $136 million in the first quarter of 2014 compared with $161 million in the first quarter of 2013. Foreign exchange revenue decreased 13% year-over-year primarily driven by lower volatility, partially offset by higher volumes resulting from enhancements to our electronic foreign exchange platform. Other trading revenue decreased year-over-year reflecting lower fixed income trading revenue. (See “Fee and other revenue” beginning on page 7).
Investment and other income totaled $102 million in the first quarter of 2014 compared with $88 million in the first quarter of 2013. The increase primarily reflects higher lease residual gains, partially offset by lower equity investment revenue. (See “Fee and other revenue” beginning on page 7).
Net interest revenue totaled $728 million in the first quarter of 2014 compared with $719 million in the first quarter of 2013. The increase resulted from a change in asset mix and higher average deposits, partially offset by lower yields on investment securities. (See “Net interest revenue” beginning on page 10).
The net unrealized pre-tax gain on our total investment securities portfolio was $676 million at March 31, 2014 compared with $309 million at Dec. 31, 2013. The increase was primarily driven
 
by the reduction in market interest rates. (See “Investment securities” beginning on page 27).
The provision for credit losses was a credit of $18 million in the first quarter of 2014 driven by the continued improvement in the credit quality of the loan portfolio. (See “Asset quality and allowance for credit losses” beginning on page 32).
Noninterest expense totaled $2.7 billion in the first quarter of 2014 compared with $2.8 billion in the first quarter of 2013. The decrease primarily resulted from a provision for administrative errors in certain offshore tax-exempt funds and the cost of generating certain tax credits both of which were recorded in the first quarter of 2013. (See “Noninterest expense” beginning on page 12).
The provision for income taxes of $232 million (25.1% effective tax rate) in the first quarter of 2014 was positively impacted by the change in New York State tax rates enacted on March 31, 2014. (See “Income taxes” on page 13).
At March 31, 2014, our estimated CET1 ratio (Non-GAAP) calculated under the Standardized Approach, and based on our interpretation of the Final Capital Rules, on a fully phased-in basis, was 11.1% compared with 10.6% at Dec. 31, 2013. Our estimated Basel III CET1 ratio (Non-GAAP) calculated under the Advanced Approach, and based on our interpretation of the Final Capital Rules, on a fully phased-in basis, was 10.7% at March 31, 2014, compared with 11.3% at Dec. 31, 2013. (See “Capital” beginning on page 41).
In the first quarter of 2014, we repurchased 11.6 million common shares for a total of $375 million.




6 BNY Mellon


Fee and other revenue

Fee and other revenue






1Q14 vs.
(dollars in millions, unless otherwise noted)
1Q14

4Q13

1Q13

1Q13

4Q13

Investment services fees:
 
 
 
 
 
Asset servicing (a)
$
1,009

$
984

$
969

4
 %
3
 %
Clearing services
325

324

304

7


Issuer services
229

237

237

(3
)
(3
)
Treasury services
136

137

141

(4
)
(1
)
Total investment services fees
1,699

1,682

1,651

3

1

Investment management and performance fees
843

904

822

3

(7
)
Foreign exchange and other trading revenue
136

146

161

(16
)
(7
)
Distribution and servicing
43

43

49

(12
)

Financing-related fees
38

43

41

(7
)
(12
)
Investment and other income (b)
102

(43
)
88

N/M

N/M

Total fee revenue (b)
2,861

2,775

2,812

2

3

Net securities gains
22

39

48

N/M

N/M

Total fee and other revenue (b)
$
2,883

$
2,814

$
2,860

1
 %
2
 %
 
 
 
 




AUM at period end (in billions) (c)
$
1,620

$
1,583

$
1,423

14
 %
2
 %
AUC/A at period end (in trillions) (d)
$
27.9

$
27.6

$
26.3

6
 %
1
 %
(a)
Asset servicing fees include securities lending revenue of $38 million in the first quarter of 2014, $31 million in the fourth quarter of 2013 and $39 million in the first quarter of 2013.
(b)
Prior periods were restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business. Also excludes assets under management related to Newton’s private client business that was sold in September 2013.
(d)
Includes the AUC/A of CIBC Mellon of $1.2 trillion at March 31, 2014, Dec. 31, 2013 and March 31, 2013.
N/M - Not meaningful.


Fee and other revenue

Fee and other revenue totaled $2.9 billion in the first quarter of 2014, an increase of 1% year-over-year and 2% (unannualized) sequentially. The year-over-year increase primarily reflects higher asset servicing revenue, clearing services revenue and investment management and performance fees, partially offset by lower net securities gains and foreign exchange and other trading revenue. The sequential increase primarily reflects the loss related to an equity investment recorded in the fourth quarter of 2013 and higher asset servicing revenue, partially offset by seasonally lower performance fees, lower net securities gains and foreign exchange and other trading revenue. Additionally, both increases were partially offset by the impact of the continued net run-off of high margin structured debt securitizations in Corporate Trust.

Investment services fees

Investment services fees were impacted by the following compared with the first quarter of 2013 and the fourth quarter of 2013:
 
Asset servicing fees increased 4% year-over-year and 3% (unannualized) sequentially. The year-over-year increase primarily reflects higher market values, net new business and organic growth. The sequential increase primarily reflects organic growth, higher securities lending revenue and net new business.
Clearing services fees increased 7% year-over-year and were unchanged sequentially. The year-over-year increase was driven by higher mutual fund fees, higher asset-based fees and an increase in daily average revenue trades (“DARTS”), partially offset by higher money market fee waivers. Sequentially, higher clearance revenue was primarily offset by fewer trading days in the first quarter of 2014.
Issuer services fees decreased 3% both year-over-year and (unannualized) sequentially. Both decreases reflect the impact of the continued net run-off of high margin structured debt securitizations in Corporate Trust. The year-over-year decrease was partially offset by higher Depositary Receipts revenue driven by corporate actions. We continue to estimate that the net run-off of high margin structured debt securitizations



BNY Mellon 7


could reduce the Company’s total annual revenue by up to one-half of 1% if the structured debt markets do not recover.
Treasury services fees decreased 4% year-over-year and 1% (unannualized) sequentially. Both decreases reflect lower cash management fees.

See the “Investment Services business” in “Review of businesses” for additional details.

Investment management and performance fees

Investment management and performance fees totaled $843 million in the first quarter of 2014, an increase of 3% year-over-year and a decrease of 7% (unannualized) sequentially. Excluding money-market fee waivers, investment management and performance fees increased 5% year-over-year and decreased 6% (unannualized) sequentially (Non-GAAP). The year-over-year increase primarily reflects higher equity market values and net new business. The sequential decrease primarily reflects seasonally lower performance fees and fewer days in the first quarter of 2014. Performance fees were $20 million in the first quarter of 2014 compared with $15 million in the first quarter of 2013 and $72 million in the fourth quarter of 2013.

Total AUM for the Investment Management business was a record $1.6 trillion at March 31, 2014, an increase of 14% year-over-year and 2% (unannualized) sequentially. Both increases resulted from higher market values and net new business. Net long-term inflows totaled $21 billion in the first quarter of 2014 driven by continued strong flows of liability-driven investments and growth in alternative investments, partially offset by slight outflows in equities. Short-term outflows were $7 billion in the first quarter of 2014.

See the “Investment Management business” in “Review of businesses” for additional details.

 
Foreign exchange and other trading revenue

Foreign exchange and other trading revenue
(in millions)
1Q14

4Q13

1Q13

Foreign exchange
$
130

$
126

$
149

Other trading revenue:
 
 
 
Fixed income
1

20

8

Equity/other
5


4

Total other trading revenue
6

20

12

Total foreign exchange and other trading revenue
$
136

$
146

$
161



Foreign exchange and other trading revenue totaled $136 million in the first quarter of 2014, $161 million in the first quarter of 2013 and $146 million in the fourth quarter of 2013. In the first quarter of 2014, foreign exchange revenue totaled $130 million, a decrease of 13% year-over-year and an increase of 3% (unannualized) sequentially. Comparisons with both prior periods were impacted by lower volatility, and higher volumes driven by enhancements to our electronic foreign exchange platform. Other trading revenue totaled $6 million in the first quarter of 2014 compared with $12 million in the first quarter of 2013 and $20 million in the fourth quarter of 2013. The decrease from both prior periods reflects lower fixed income trading revenue. Foreign exchange revenue and fixed income trading revenue is reported in the Investment Services business and the Other segment. Other trading revenue is primarily reported in the Other segment.

The foreign exchange trading engaged in by the Company generates revenues, which are influenced by the volume of client transactions and the spread realized on these transactions. Revenues are impacted by market pressures which continue to be increasingly competitive. The level of volume and spreads is affected by market volatility, the level of cross-border assets held in custody for clients, the level and nature of underlying cross-border investments and other transactions undertaken by corporate and institutional clients. These revenues also depend on our ability to manage the risk associated with the currency transactions we execute. A substantial majority of our foreign exchange trades are undertaken for our custody clients in transactions where BNY Mellon acts as principal, and not as an agent or broker. As a principal, we earn a profit, if any, based on our ability to risk manage the aggregate foreign currency positions that we buy and sell on a daily basis. Generally speaking, custody clients enter



8 BNY Mellon


into foreign exchange transactions in one of three ways: negotiated trading with BNY Mellon, BNY Mellon’s standing instruction program, or transactions with third-party foreign exchange providers. Negotiated trading generally refers to orders entered by the client or the client’s investment manager, with all decisions related to the transaction, usually on a transaction-specific basis, made by the client or its investment manager. Such transactions may be initiated by (i) contacting one of our sales desks to negotiate the rate for specific transactions, (ii) using electronic trading platforms, or (iii) electing other methods such as those pursuant to a benchmarking arrangement, in which pricing is determined by an objective market rate adjusted by a pre-negotiated spread. Our custody clients choose to use third-party foreign exchange providers other than BNY Mellon for a substantial majority of their U.S. dollar-equivalent volume foreign exchange transactions. The preponderance of the notional value of our trading volume with clients is in negotiated trading. Our standing instruction program, including a standing instruction program option called the Defined Spread Offering, which the Company introduced to clients in the first quarter of 2012, provides custody clients and their investment managers with an end-to-end solution that allows them to shift to BNY Mellon the cost, management and execution risk, often in small transactions or transactions in restricted and difficult to trade currencies. We incur substantial costs in supporting the global operational infrastructure required to administer the standing instruction program; on a per-transaction basis, the costs associated with the standing instruction program exceed the costs associated with negotiated trading. In response to competitive market pressures and client requests, we are continuing to develop standing instruction program products and services and making these new products and services available to our clients. In our historical standing instruction program, known as Session Range, we typically assigned a price derived from the daily pricing range for marketable-size foreign exchange transactions (generally more than $1 million) executed between global financial institutions, known as the “interbank range.” Using the interbank range for the given day, we typically priced client purchases of currencies at or near the high end of this range and client sales of currencies at or near the low end of this range. In the first quarter of 2014, we upgraded our Session Range program. The upgrades include pricing pursuant to pre-defined rules and enhanced post-trade reporting, with
 
transactions priced once per day within the interbank range of the day, and subject to application of a price collar, which is specific to session, pricing location and currency pair. A description of the pricing rules used in the upgraded Session Range program is set forth in the program’s disclosure documentation, which is available to clients and their investment managers. Separately, the standing instruction program Defined Spread Offering sets prices for transactions in each pricing cycle (several times a day in the case of developed market currencies) by adding a predetermined spread either to an objective market source for developed and certain emerging market currencies, or to a reference rate computed by BNY Mellon for other emerging market currencies. A description of the pricing rules is set forth in the Defined Spread Offering’s disclosure documentation, which is available to clients and their investment managers.

A shift by custody clients from the standing instruction program to other trading options combined with competitive market pressures on the foreign exchange business may negatively impact our foreign exchange revenue.  We continue to invest in our foreign exchange trading and execution capabilities, which is leading towards enhanced customer service and higher volumes. For the quarter ended March 31, 2014, our total revenue for all types of foreign exchange trading transactions was $130 million, or approximately 4% of our total revenue and approximately 40% of our foreign exchange revenue resulted from foreign exchange transactions undertaken through our standing instruction program.

Distribution and servicing fees

Distribution and servicing fee revenue was $43 million in the first quarter of 2014, $49 million in the first quarter of 2013 and $43 million in the fourth quarter of 2013. The year-over-year decrease primarily reflects higher money market fee waivers and short-term outflows of AUM.

Financing-related fees

Financing-related fees, which are primarily reported in the Other segment, include capital markets fees, loan commitment fees and credit-related fees. Financing-related fees totaled $38 million in the first quarter of 2014, $41 million in the first quarter of 2013 and $43 million in the fourth quarter of 2013. The year-over-year decrease primarily reflects lower



BNY Mellon 9


credit-related fees. The sequential decrease was primarily driven by lower capital markets revenue.

Investment and other income

Investment and other income (loss)
(in millions)
1Q14

4Q13

1Q13

Lease residual gains
$
35

$

$
1

Corporate/bank-owned life insurance
30

40

34

Expense reimbursements from joint venture
12

11

11

Seed capital gains
6

20

6

Private equity gains (losses)
5

5

(2
)
Transitional services agreements

2

5

Asset-related gains (losses)
(1
)
22

7

Equity investment revenue (loss)
(2
)
(163
)
13

Other income (a)
17

20

13

Total investment and other income (loss) (a)
$
102

$
(43
)
$
88

(a) Prior periods were restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.


 
Investment and other income, which is primarily reported in the Other segment and Investment Management business, includes revenue from lease residual gains, insurance contracts, expense reimbursements from our CIBC Mellon joint venture, seed capital gains, gains and losses on private equity investments, transitional services agreements, asset-related gains, equity investments, and other income and loss. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Transitional services agreements primarily relate to the Shareowner Services business, which was sold on Dec. 31, 2011. Asset-related gains (losses) include loan, real estate and other asset dispositions. Other income primarily includes foreign currency remeasurement gain (loss), other investments and various miscellaneous revenues. Investment and other income increased $14 million compared with the first quarter of 2013 and $145 million compared to the fourth quarter of 2013. The year-over-year increase primarily reflects higher lease residual gains, partially offset by lower equity investment revenue. The sequential increase primarily reflects a loss related to an equity investment recorded in the fourth quarter of 2013, partially offset by lower asset-related gains.



Net interest revenue 

Net interest revenue
1Q14

 
4Q13

 
1Q13

 
1Q14 vs.
(dollars in millions)
 
 
 
1Q13

4Q13

Net interest revenue (non-FTE)
$
728

 
$
761

 
$
719

 
1
%
(4
)%
Tax equivalent adjustment
16

 
20

 
14

 
14

(20
)
Net interest revenue (FTE) – Non-GAAP
744

 
781

 
733

 
2
%
(5
)%
Average interest-earning assets
$
284,532

 
$
285,779

 
$
265,754

 
7
%
 %
Net interest margin (FTE)
1.05
%
 
1.09
%
 
1.11
%
 
(6) bps
(4) bps
bps - basis points.


Net interest revenue totaled $728 million in the first quarter of 2014, an increase of $9 million compared with the first quarter of 2013 and a decrease of $33 million sequentially. The year-over-year increase primarily resulted from a change in the mix of assets and higher average deposits, partially offset by lower yields on investment securities. The decrease compared with the fourth quarter of 2013 primarily reflects lower yields on investment securities and fewer days in the first quarter of 2014, partially offset by the change in the mix of assets as we reduced our interest-bearing deposits held at the Federal Reserve
 
and other central banks and increased our investment securities portfolio.

The net interest margin (FTE) was 1.05% in the first quarter of 2014 compared with 1.11% in the first quarter of 2013 and 1.09% in the fourth quarter of 2013. Both decreases in the net interest margin (FTE) primarily reflect lower yields on investment securities. The year-over-year decrease also reflects higher average interest-earning assets driven by higher deposit levels.



10 BNY Mellon


Average balances and interest rates
Quarter ended
 
March 31, 2014
 
Dec. 31, 2013
 
March 31, 2013
(dollar amounts in millions, presented on an FTE basis)
Average balance
 
Average rates
 
Average balance
 
Average rates
 
Average balance
 
Average rates
Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks (primarily foreign banks)
$
41,617

 
0.71
 %
 
$
39,563

 
0.71
 %
 
$
40,967

 
0.70
 %
Interest-bearing deposits held at the Federal Reserve and other central banks
74,399

 
0.25

 
83,232

 
0.23

 
63,240

 
0.20

Federal funds sold and securities purchased under resale agreements
11,118

 
0.61

 
9,403

 
0.61

 
7,478

 
0.54

Margin loans
15,840

 
1.07

 
15,224

 
1.08

 
13,346

 
1.17

Non-margin loans:
 
 
 
 
 
 
 
 
 
 
 
Domestic offices
22,002

 
2.31

 
22,538

 
2.28

 
21,358

 
2.38

Foreign offices
13,805

 
1.26

 
13,006

 
1.22

 
11,575

 
1.36

Total non-margin loans
35,807

 
1.90

 
35,544

 
1.89

 
32,933

 
2.02

Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Government obligations
17,213

 
1.61

 
13,418

 
1.96

 
18,814

 
1.54

U.S. Government agency obligations
42,710

 
1.87

 
43,465

 
2.00

 
42,397

 
1.85

State and political subdivisions – tax-exempt
6,691

 
2.50

 
6,757

 
2.76

 
6,194

 
2.38

Other securities
33,920

 
1.64

 
33,000

 
1.78

 
34,507

 
2.03

Trading securities
5,217

 
2.60

 
6,173

 
2.82

 
5,878

 
2.40

Total securities
105,751

 
1.83

 
102,813

 
2.02

 
107,790

 
1.91

Total interest-earning assets
$
284,532

 
1.17
 %
 
$
285,779

 
1.21
 %
 
$
265,754

 
1.26
 %
Allowance for loan losses
(210
)
 
 
 
(207
)
 
 
 
(264
)
 
 
Cash and due from banks
5,886

 
 
 
6,623

 
 
 
4,534

 
 
Other assets
53,430

 
 
 
52,434

 
 
 
52,137

 
 
Assets of consolidated investment management funds
11,354

 
 
 
11,506

 
 
 
11,503

 
 
Total assets
$
354,992

 
 
 
$
356,135

 
 
 
$
333,664

 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Money market rate accounts
$
5,660

 
0.13
 %
 
$
6,587

 
0.16
 %
 
$
5,716

 
0.25
 %
Savings
1,034

 
0.25

 
993

 
0.25

 
819

 
0.29

Demand deposits
3,673

 
0.08

 
4,455

 
0.07

 
3,062

 
0.07

Time deposits
41,544

 
0.04

 
41,523

 
0.04

 
39,091

 
0.05

Foreign offices
101,075

 
0.06

 
103,462

 
0.06

 
99,040

 
0.08

Total interest-bearing deposits
152,986

 
0.06

 
157,020

 
0.06

 
147,728

 
0.08

Federal funds purchased and securities sold under repurchase agreements
14,505

 
(0.13
)
 
13,155

 
(0.10
)
 
9,187

 
(0.12
)
Trading liabilities
1,978

 
1.59

 
2,534

 
1.42

 
2,552

 
1.35

Other borrowed funds
1,035

 
0.51

 
1,124

 
0.83

 
1,152

 
0.90

Commercial paper
102

 
0.05

 
1,254

 
0.05

 
245

 
0.09

Payables to customers and broker-dealers
8,883

 
0.09

 
9,400

 
0.09

 
9,019

 
0.09

Long-term debt
20,420

 
1.09

 
19,501

 
1.05

 
18,878

 
1.18

Total interest-bearing liabilities
$
199,909

 
0.17
 %
 
$
203,988

 
0.17
 %
 
$
188,761

 
0.20
 %
Total noninterest-bearing deposits
81,430

 
 
 
79,999

 
 
 
70,337

 
 
Other liabilities
24,608

 
 
 
23,546

 
 
 
27,416

 
 
Liabilities and obligations of consolidated investment management funds
10,128

 
 
 
10,283

 
 
 
10,186

 
 
Total liabilities
316,075

 
 
 
317,816

 
 
 
296,700

 
 
Temporary equity
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
246

 
 
 
224

 
 
 
175

 
 
Permanent equity
 
 
 
 
 
 
 
 
 
 
 
Total BNY Mellon shareholders’ equity
37,851

 
 
 
37,260

 
 
 
35,966

 
 
Noncontrolling interests
820

 
 
 
835

 
 
 
823

 
 
Total permanent equity
38,671

 
 
 
38,095

 
 
 
36,789

 
 
Total liabilities, temporary equity and
  permanent equity
$
354,992

 
 
 
$
356,135

 
 
 
$
333,664

 
 
Net interest margin (FTE)
 
 
1.05
 %
 
 
 
1.09
 %
 
 
 
1.11
 %
Note:
Interest and average rates were calculated on a taxable equivalent basis, at tax rates approximating 35%, using dollar amounts in thousands and actual number of days in the year.




BNY Mellon 11


Noninterest expense

Noninterest expense
 
 
 
 
1Q14 vs.
(dollars in millions)
1Q14

4Q13

1Q13

 
1Q13

4Q13

Staff:
 
 
 
 
 
 
Compensation
$
925

$
929

$
885

 
5
 %
 %
Incentives
359

343

338

 
6

5

Employee benefits
227

250

249

 
(9
)
(9
)
Total staff
1,511

1,522

1,472

 
3

(1
)
Professional, legal and other purchased services
312

344

295

 
6

(9
)
Net occupancy
154

154

163

 
(6
)

Software
152

152

140

 
9


Distribution and servicing
107

110

106

 
1

(3
)
Furniture and equipment
85

89

88

 
(3
)
(4
)
Sub-custodian
68

68

64

 
6


Business development
64

96

68

 
(6
)
(33
)
Other
223

258

307

 
(27
)
(14
)
Amortization of intangible assets
75

82

86

 
(13
)
(9
)
M&I, litigation and restructuring charges
(12
)
2

39

 
N/M

N/M

Total noninterest expense - GAAP
$
2,739

$
2,877

$
2,828

 
(3
)%
(5
)%
 
 
 
 
 
 
 
Total staff expense as a percentage of total revenue (a)
41
%
42
%
41
%
 
 
 
Full-time employees at period end
51,400

51,100

49,700

 
3
 %
1
 %
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges - Non-GAAP
$
2,676

$
2,793

$
2,703

 
(1
)%
(4
)%
(a)
Prior periods were restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.
N/M - Not meaningful.


Total noninterest expense decreased $89 million, or 3% compared with the first quarter of 2013 and decreased $138 million, or 5% (unannualized), compared with the fourth quarter of 2013. Excluding amortization of intangible assets, M&I, litigation and restructuring charges, noninterest expense decreased 1% year-over-year and 4% (unannualized) sequentially. Both decreases reflect lower non-staff expenses. The year-over-year decrease was partially offset by higher staff expense.

We continue to invest in our compliance, risk and other control functions in light of increasing regulatory requirements. While our expenses remain high in those areas as a result of the need to hire additional staff and advisors and to enhance our technology platforms, we expect the rate of related expense growth to begin to slow as the new rules are implemented.

Staff expense

Given our mix of fee-based businesses, which are staffed with high-quality professionals, staff expense
 
comprised 56% of total noninterest expense in the first quarter of 2014 and 54% in both the first quarter of 2013 and the fourth quarter of 2013, excluding amortization of intangible assets, M&I, litigation and restructuring charges.

Staff expense was $1.5 billion in the first quarter of 2014, an increase of 3% compared with the first quarter of 2013 and a decrease of 1% (unannualized) compared with the fourth quarter of 2013. Comparisons to both prior periods were impacted by lower pension expense and higher incentive expense due to acceleration of the vesting of long-term stock awards for retirement-eligible employees.

Non-staff expense

Non-staff expense, excluding amortization of intangible assets, M&I, litigation and restructuring charges, totaled $1.2 billion in the first quarter of 2014, a decrease of 5% compared with the first quarter of 2013 and 8% (unannualized) compared with the fourth quarter of 2013. The year-over-year decrease primarily resulted from a provision for



12 BNY Mellon


administrative errors in certain offshore tax-exempt funds and the cost of generating certain tax credits both of which were recorded in the first quarter of 2013, partially offset by an increase in professional, legal and other purchased services expense. The sequential decline reflects a seasonal decrease in business development expense, as well as lower professional, legal and other purchased services and risk-related expenses.

The financial services industry has seen a continuing increase in the level of litigation and enforcement activity. As a result, we anticipate our legal and litigation costs to continue at elevated levels. For additional information on our legal proceedings, see Note 18 of the Notes to Consolidated Financial Statements.

For additional information on restructuring charges, see Note 10 of the Notes to Consolidated Financial Statements.

Income taxes

The provision for income taxes was $232 million and the effective tax rate was 25.1% in the first quarter of 2014. The effective tax rate was positively impacted by the change in New York State tax rates enacted on March 31, 2014. The provision for income taxes was $1.1 billion in the first quarter of 2013, including an $854 million charge related to the disallowance of certain foreign tax credits. Excluding the charge related to the disallowance of certain foreign tax credits, the effective tax rate on an operating basis - Non-GAAP was 25.2% in the first quarter of 2013. The provision for income taxes was $172 million and the effective tax rate was 23.6% in the fourth quarter of 2013. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for additional information.

In the first quarter of 2014, BNY Mellon adopted ASU 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects - a Consensus of the FASB Emerging Issues Task Force”. See Note 2 of the Notes to Consolidated Financial Statements for the impact of the retrospective application of this new accounting guidance.

We expect the effective tax rate to be approximately 27% in the second quarter of 2014.
 

Review of businesses


We have an internal information system that produces performance data along product and service lines for our two principal businesses and the Other segment.

Business accounting principles

Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.

For information on the accounting principles of our businesses, the primary types of revenue by business and how our businesses are presented and analyzed, see Note 19 of the Notes to Consolidated Financial Statements.

Business results are subject to reclassification whenever organizational changes are made or when improvements are made in the measurement principles. On Sept. 27, 2013, Newton Management Limited, together with Newton Investment Management Limited, an investment boutique of BNY Mellon, sold Newton’s private client business. In the first quarter of 2014, we reclassified the results of Newton’s private client business from the Investment Management business to the Other segment. The reclassifications did not impact the consolidated results. All prior periods have been restated. In addition, prior period consolidated results and the Other segment results have been restated to reflect the impact of the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.

The results of our businesses may be influenced by client activities that vary by quarter. In the second quarter, we typically experience an increase in securities lending fees due to an increase in demand to borrow securities outside of the United States. In the third quarter, Depositary Receipts revenue is typically higher due to an increased level of client dividend payments paid in the quarter. Also in the third quarter, volume-related fees may decline due to



BNY Mellon 13


reduced client activity. In the fourth quarter, we typically incur higher business development and marketing expenses. In our Investment Management business, performance fees are typically higher in the
 
fourth quarter, as the fourth quarter represents the end of the measurement period for many of the performance fee-eligible relationships.


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

Key market metrics
 
 
 
 
 
 
1Q14 vs.
  
1Q13

2Q13

3Q13

4Q13

1Q14

 
1Q13

4Q13

S&P 500 Index (a)
1569

1606

1682

1848

1872

 
19
 %
1
 %
S&P 500 Index – daily average
1514

1609

1675

1769

1835

 
21

4

FTSE 100 Index (a)
6412

6215

6462

6749

6598

 
3

(2
)
FTSE 100 Index – daily average
6300

6438

6530

6612

6680

 
6

1

MSCI World Index (a)
1435

1434

1544

1661

1674

 
17

1

MSCI World Index – daily average
1405

1463

1511

1602

1647

 
17

3

Barclays Capital Global Aggregate BondSM Index (a) (b)
356

343

356

354

365

 
3

3

NYSE and NASDAQ share volume (in billions)
174

186

166

179

196

 
13

9

JPMorgan G7 Volatility Index – daily average (c)
9.02

9.84

9.72

8.20

7.80

 
(14
)
(5
)
Average Fed Funds effective rate
0.14
%
0.12
%
0.09
%
0.09
%
0.07
%
 
(7) bps

(2) 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 revenue in Investment Management, and to a lesser extent in Investment Services, is impacted by the value of market indices. At March 31, 2014, using the Standard & Poor’s (“S&P”) 500 Index as a proxy for the global equity markets, we estimate that a 100-point change in the value of the S&P 500 Index
 
spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.02 to $0.04. If however, global equity markets do not perform in line with the S&P 500 Index, the impact to fee revenue and earnings per share could be different.



The following consolidating schedules show the contribution of our businesses to our overall profitability.

For the quarter ended March 31, 2014
(dollar amounts in millions)
Investment
Management

 
Investment
Services

 
Other

 
Consolidated

 
Fee and other revenue
$
900

(a) 
$
1,887

 
$
112

 
$
2,899

(a) 
Net interest revenue
70

 
590

 
68

 
728

 
Total revenue
970

(a) 
2,477

 
180

 
3,627

(a) 
Provision for credit losses

 

 
(18
)
 
(18
)
 
Noninterest expense
724

 
1,821

 
194

 
2,739

 
Income before taxes
$
246

(a) 
$
656

 
$
4

 
$
906

(a) 
Pre-tax operating margin (b)
25
%
 
26
%
 
N/M

 
25
%
 
Average assets
$
39,463

 
$
258,470

 
$
57,059

 
$
354,992

 
Excluding amortization of intangible assets:
 
 
 
 
 
 
 
 
Noninterest expense
$
693

 
$
1,777

 
$
194

 
$
2,664

 
Income before taxes
277

(a)
700

 
4

 
981

(a) 
Pre-tax operating margin (b)
29
%
 
28
%
 
N/M

 
27
%
 
(a)
Both total fee and other revenue and total revenue include income from consolidated investment management funds of $36 million, net of noncontrolling interests of $20 million, for a net impact of $16 million. Income before taxes includes noncontrolling interests of $20 million.
(b)
Income before taxes divided by total revenue.
N/M - Not meaningful.




14 BNY Mellon


For the quarter ended Dec. 31, 2013
(dollar amounts in millions)
Investment
Management

 
Investment
Services

 
Other

 
Consolidated

 
Fee and other revenue (a)
$
993

(b) 
$
1,860

 
$
(20
)
 
$
2,833

(b) 
Net interest revenue
68

 
610

 
83

 
761

 
Total revenue (a)
1,061

(b)
2,470

 
63

 
3,594

(b)
Provision for credit losses

 

 
6

 
6

 
Noninterest expense
795

 
1,867

 
215

 
2,877

 
Income (loss) before taxes (a)
$
266

(b) 
$
603

 
$
(158
)
 
$
711

(b) 
Pre-tax operating margin (a) (c)
25
%
 
24
%
 
N/M

 
20
%
 
Average assets
$
38,796

 
$
258,294

 
$
59,045

 
$
356,135

 
Excluding amortization of intangible assets:
 
 
 
 
 
 
 
 
Noninterest expense
$
760

 
$
1,820

 
$
215

 
$
2,795

 
Income (loss) before taxes (a)
301

(b)
650

 
(158
)
 
793

(b) 
Pre-tax operating margin (a) (c)
28
%
 
26
%
 
N/M

 
22
%
 
(a)
Consolidated results and Other segment results have been restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.
(b)
Both total fee and other revenue and total revenue include income from consolidated investment management funds of $36 million, net of noncontrolling interests of $17 million, for a net impact of $19 million. Income before taxes includes noncontrolling interests of $17 million.
(c)
Income before taxes divided by total revenue.
N/M - Not meaningful.


For the quarter ended March 31, 2013
(dollar amounts in millions)
Investment
Management

 
Investment
Services

 
Other

 
Consolidated

 
Fee and other revenue (a)
$
881

(b) 
$
1,861

 
$
152

 
$
2,894

(b) 
Net interest revenue
62

 
653

 
4

 
719

 
Total revenue (a)
943

(b)
2,514

 
156

 
3,613

(b)
Provision for credit losses

 
1

 
(25
)
 
(24
)
 
Noninterest expense
737

 
1,840

 
251

 
2,828

 
Income (loss) before taxes (a)
$
206

(b) 
$
673

 
$
(70
)
 
$
809

(b) 
Pre-tax operating margin (a) (c)
22
%
 
27
%
 
N/M

 
22
%
 
Average assets
$
38,743

 
$
240,187

 
$
54,734

 
$
333,664

 
Excluding amortization of intangible assets:
 
 
 
 
 
 
 
 
Noninterest expense
$
698

 
$
1,793

 
$
251

 
$
2,742

 
Income (loss) before taxes
245

(b)
720

 
(70
)
 
895

(b) 
Pre-tax operating margin (a) (c)
26
%
 
29
%
 
N/M

 
25
%
 
(a)
Consolidated results and Other segment results have been restated to reflect the retrospective application of adopting new accounting guidance related to our investments in qualified affordable housing projects (ASU 2014-01). See Note 2 of the Notes to Consolidated Financial Statements for additional information.
(b)
Both total fee and other revenue and total revenue include income from consolidated investment management funds of $50 million, net of noncontrolling interests of $16 million, for a net impact of $34 million. Income before taxes includes noncontrolling interests of $16 million.
(c)
Income before taxes divided by total revenue.
N/M - Not meaningful.





BNY Mellon 15


Investment Management business

(dollar amounts in millions)
 
 
 
 
 
 
1Q14 vs.
1Q13

2Q13

3Q13

4Q13

1Q14

 
1Q13
4Q13
Revenue:
 
 
 
 
 
 
 
 
Investment management fees:
 
 
 
 
 
 
 
 
Mutual funds
$
299

$
299

$
293

$
303

$
299

 
 %
(1
)%
Institutional clients
360

366

367

385

372

 
3

(3
)
Wealth management
143

146

145

149

153

 
7

3

Investment management fees
802

811

805

837

824

 
3

(2
)
Performance fees
15

33

10

72

20

 
33

N/M

Investment management and performance fees
817

844

815

909

844

 
3

(7
)
Distribution and servicing
46

44

41

41

40

 
(13
)
(2
)
Other (a)
18

24

26

43

16

 
N/M

N/M

Total fee and other revenue (a)
881

912

882

993

900

 
2

(9
)
Net interest revenue
62

63

67

68

70

 
13

3

Total revenue
943

975

949

1,061

970

 
3

(9
)
Noninterest expense (ex. amortization of intangible assets)
698

665

689

760

693

 
(1
)
(9
)
Income before taxes (ex. amortization of intangible assets)
245

310

260

301

277

 
13

(8
)
Amortization of intangible assets
39

39

35

35

31

 
(21
)
(11
)
Income before taxes
$
206

$
271

$
225

$
266

$
246

 
19
 %
(8
)%
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
22
%
28
%
24
%
25
%
25
%
 


Adjusted pre-tax operating margin (a)
31
%
37
%
33
%
34
%
35
%
 


 
 
 
 
 
 
 
 
 
Wealth management:
 
 
 
 
 
 


Average loans
$
8,972

$
9,253

$
9,453

$
9,755

$
10,075

 
12
 %
3
 %
Average deposits
$
13,646

$
13,306

$
13,898

$
14,161

$
14,805

 
8
 %
5
 %
(a)
Total fee and other revenue includes the impact of the consolidated investment management funds. Adjusted pre-tax operating margin includes the pro forma impact of money market fee waivers, is net of distribution and servicing expense and excludes amortization of intangible assets. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for the reconciliation of Non-GAAP measures.
N/M - Not meaningful.



16 BNY Mellon


AUM trends (a)
 
 
 
 
 
 
 
 
 
1Q14 vs.
(dollar amounts in billions)
1Q13

 
2Q13

 
3Q13

 
4Q13

 
1Q14

1Q13

4Q13

AUM at period end, by product type:
 
 
 
 
 
 
 
 
 
 
 
Equity
$
246

 
$
242

 
$
266

 
$
276

 
$
277

13
%
 %
Fixed income
216

 
218

 
215

 
220

 
224

4

2

Index
272

 
280

 
303

 
323

 
328

21

2

Liability-driven investments (b)
348

 
347

 
394

 
403

 
436

25

8

Alternative investments
63

 
63

 
62

 
62

 
63


2

Cash
278

 
277

 
292

 
299

 
292

5

(2
)
Total AUM
$
1,423


$
1,427


$
1,532


$
1,583


$
1,620

14
%
2
 %
 
 
 
 
 
 
 
 
 
 


AUM at period end, by client type:
 
 
 
 
 
 
 
 
 


Institutional
$
939

 
$
968

 
$
1,041

 
$
1,072

 
$
1,118

19
%
4
 %
Mutual funds
405

 
378

 
407

 
425

 
415

2

(2
)
Private client
79

 
81

 
84

 
86

 
87

10

1

Total AUM
$
1,423

 
$
1,427

 
$
1,532

 
$
1,583

 
$
1,620

14
%
2
 %