Bank of New York Mellon Corp - FORM 8-K - EX-99.1

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8-K - FORM 8-K - Bank of New York Mellon Corp	d518357d8k.htm
EX-99.2 - EX-99.2 - Bank of New York Mellon Corp	d518357dex992.htm

Exhibit 99.1

LOGO

Quarterly Earnings Review

April 17, 2013

Table of Contents


First Quarter 2013 Financial Highlights			2

Financial Summary/Key Metrics			3

Consolidated Business Metrics			4

Fee and Other Revenue			6

Net Interest Revenue			8

Noninterest Expense			9

Operational Excellence Initiatives Update			10

Capital			11

Investment Securities Portfolio			12

Nonperforming Assets			13

Allowance for Credit Losses, Provision and Net Charge-offs			13

Review of Businesses			13
• Investment Management			14
• Investment Services			16
• Other			18

Supplemental Information – Explanation of Non-GAAP Financial Measures			19

Cautionary Statement			23

BNY Mellon 1Q13 Quarterly Earnings Review

FIRST QUARTER 2013 FINANCIAL HIGHLIGHTS

(comparisons are unannualized 1Q13 vs. 1Q12 unless otherwise stated)

•

Earnings


	Earnings per share					Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation
(in millions, except per share amounts)	1Q13			1Q12		1Q13			1Q12
GAAP results	$	(0.23	)(a)	$	0.52	$	(266	)	$	619
Add: Previously disclosed charge related to the U.S. Tax Court’s disallowance of certain foreign tax credits		0.73			N/A		854			N/A

Non-GAAP results	$	0.50		$	0.52	$	588		$	619

N/A – Not applicable.

•

Total revenue of $3.6 billion, down 1%.

•

Investment services fees increased 1% primarily due to higher asset servicing revenue, as a result of increased activity with existing clients and improved market values.

•

Investment management and performance fees increased 10%, or 9% excluding the Meriten acquisition (see page 6), driven by higher market values, net new business and lower money market fee waivers.

•

Foreign exchange revenue increased 10% as a result of higher volumes, partially offset by a decrease in volatility.

•

Investment and other income decreased 48% primarily reflecting lower leasing and seed capital gains.

•

Net interest revenue decreased 6% (5% including net securities gains) primarily driven by lower accretion and lower yields on the reinvestment of securities.

•

The provision for credit losses was a credit of $24 million in 1Q13. Approximately half of the credit was driven by a broad improvement in the credit quality of the loan portfolio and half related to a reduction in our qualitative allowance.

•

Noninterest expense increased 3% on a GAAP basis, and 6% on a Non-GAAP basis, primarily reflecting a provision for administrative errors in certain offshore tax-exempt funds, higher pension expense and the cost of generating certain tax credits.

•

Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)

•

AUC/A of $26.3 trillion, an increase of 2% reflecting net new business and improved market values.

•

Estimated new AUC/A wins of $205 billion in 1Q13.

•

AUM of a record $1.4 trillion, an increase of 9% driven by net new business and improved market values.

•

Record long-term inflows totaled $40 billion in 1Q13.

•

Short-term outflows totaled $13 billion in 1Q13.

•

Capital

•

Estimated Basel III Tier 1 common equity ratio – Non-GAAP 9.4%. (b)

(a)

Calculated using average basic shares. Adding back the dilutive shares would result in anti-dilution.

(b)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.

Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. Sequential growth rates are unannualized.

Page - 2

BNY Mellon 1Q13 Quarterly Earnings Review

FINANCIAL SUMMARY


																	1Q13 vs.
(dollars in millions, common shares in thousands)		1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Revenue:
Fee and other revenue		$	2,838		$	2,826		$	2,879		$	2,850		$	2,844			—	%		—	%
Income from consolidated investment management funds			43			57			47			42			50
Net interest revenue			765			734			749			725			719

Total revenue – GAAP			3,646			3,617			3,675			3,617			3,613			(1	)		—
Less:	Net income attributable to noncontrolling interests related to consolidated investment management funds		11			29			25			11			16

Total revenue – Non-GAAP			3,635			3,588			3,650			3,606			3,597			(1	)		—
Provision for credit losses			5			(19	)		(5	)		(61	)		(24	)

Expense:
Noninterest expense – GAAP			2,756			3,047			2,705			2,825			2,828			3			—
Less:	Amortization of intangible assets		96			97			95			96			86
	M&I, litigation and restructuring charges		109			378			26			46			39

Total noninterest expense – Non-GAAP			2,551			2,572			2,584			2,683			2,703			6	%		1	%

Income:
Income before income taxes			885			589			975			853			809
Provision for income taxes			254			93			225			207			1,046

Net income (loss)		$	631		$	496		$	750		$	646		$	(237	)
Net (income) attributable to noncontrolling interests (a)			(12	)		(30	)		(25	)		(11	)		(16	)

Net income (loss) applicable to shareholders of The Bank of New York Mellon Corporation			619			466			725			635			(253	)
Preferred stock dividends			—			—			(5	)		(13	)		(13	)

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation		$	619		$	466		$	720		$	622		$	(266	)

Key Metrics:
Pre-tax operating margin (b)			24	%		16	%		27	%		24	%		22	%
Non-GAAP (b)			30	%		29	%		29	%		27	%		26	%

Return on common equity (annualized) (b)			7.4	%		5.5	%		8.3	%		7.1	%		N/M
Non-GAAP (b)			8.9	%		8.9	%		9.2	%		8.2	%		7.8	%

Return on tangible common equity (annualized)
Non-GAAP (b)			21.0	%		15.7	%		22.1	%		18.8	%		N/M
Non-GAAP adjusted (b)			23.0	%		22.4	%		22.5	%		19.7	%		18.5	%

Fee revenue as a percentage of total revenue excluding net securities gains			78	%		78	%		78	%		78	%		78	%

Percentage of non-U.S. total revenue (c)			37	%		37	%		37	%		36	%		35	%

Period end:
Full-time employees			47,800			48,300			48,700			49,500			49,700
Market capitalization		$	28,780		$	25,929		$	26,434		$	29,902		$	32,487
Common shares outstanding			1,192,716			1,181,298			1,168,607			1,163,490			1,160,647

(a)

Includes net income of $11 million in 1Q12, $29 million in 2Q12, $25 million in 3Q12, $11 million in 4Q12 and $16 million in 1Q13, attributable to noncontrolling interests related to consolidated investment management funds.

(b)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for GAAP to Non-GAAP reconciliations.

(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.

Page - 3

BNY Mellon 1Q13 Quarterly Earnings Review

CONSOLIDATED BUSINESS METRICS


Consolidated business metrics																1Q13 vs.
	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Changes in AUM (in billions) (a):
Beginning balance of AUM	$	1,260		$	1,308		$	1,299		$	1,359		$	1,386
Net inflows (outflows):
Long-term		7			26			9			14			40
Money market		(9	)		(14	)		9			(6	)		(13	)

Total net inflows (outflows)		(2	)		12			18			8			27
Net market/currency impact		50			(21	)		42			19			16

Ending balance of AUM (b)	$	1,308		$	1,299		$	1,359		$	1,386		$	1,429	(c)		9	%		3	%


AUM at period end, by product type (a):
Equity securities		33	%		32	%		33	%		33	%		34	%
Fixed income securities		35			37			37			38			39
Money market		24			23			23			22			20
Alternative investments and overlay		8			8			7			7			7

Total AUM (b)		100	%		100	%		100	%		100	%		100%	(c)


Wealth management:
Average loans (in millions)	$	7,431		$	7,763		$	8,122		$	8,478		$	8,972			21	%		6	%
Average deposits (in millions)	$	11,491		$	11,259		$	11,372		$	12,609		$	13,646			19	%		8	%

Investment Services:
Average loans (in millions)	$	22,639		$	24,742		$	24,054		$	24,034		$	26,024			15	%		8	%
Average deposits (in millions)	$	174,041		$	171,309		$	188,023		$	203,043		$	198,701			14	%		(2	)%

AUC/A at period-end (in trillions) (d)(e)	$	25.7		$	25.2		$	26.4		$	26.3		$	26.3	(c)		2	%		—	%

Market value of securities on loan at period end (in billions) (e)(f)	$	256		$	267		$	251		$	237		$	244			(5	)%		3	%

Asset servicing:
Estimated new business wins (AUC/A) (in billions)	$	453		$	314		$	522		$	190		$	205

Depositary Receipts:
Number of sponsored programs		1,391			1,393			1,393			1,379			1,359			(2	)%		(1	)%

Clearing services:
Global DARTS volume (in thousands) (e)		199.6			191.9			175.5			187.9			221.4			11	%		18	%
Average active clearing accounts (U.S. platform) (in thousands) (e)		5,408			5,421			5,447			5,489			5,552			3	%		1	%
Average long-term mutual fund assets (U.S. platform) (in millions)	$	306,212		$	306,973		$	323,289		$	334,883		$	357,647			17	%		7	%
Average investor margin loans (U.S. platform) (in millions)	$	7,900		$	8,231		$	7,922		$	7,987		$	8,212			4	%		3	%

Broker-Dealer:
Average tri-party repo balances (in billions) (e)	$	1,937		$	2,001		$	2,005		$	2,113		$	2,070			7	%		(2	)%

(a)

Excludes securities lending cash management assets.

(b)

Excludes assets managed in the Investment Services business.

(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 March 31, 2012, June 30, 2012 and Sept. 30, 2012, $1.1 trillion at Dec. 31, 2012 and $1.2 trillion at March 31, 2013.

(e)

Reflects revisions, which were not material, for prior periods presented as a result of our previously disclosed reviews of our AUC/A and our process for reporting information. See pages 4-5 of the 2012 Annual Report.

(f)

Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities on loan at CIBC Mellon.

Page - 4

BNY Mellon 1Q13 Quarterly Earnings Review

The following table presents the value of certain market indices at period end and on an average basis.


Market indices											1Q13 vs.
	1Q12		2Q12		3Q12		4Q12		1Q13		1Q12			4Q12
S&P 500 Index (a)		1408		1362		1441		1426		1569		11	%		10	%
S&P 500 Index – daily average		1347		1351		1400		1419		1513		12			7
FTSE 100 Index (a)		5768		5571		5742		5898		6412		11			9
FTSE 100 Index – daily average		5818		5555		5742		5842		6294		8			8
MSCI World Index (a)		1312		1236		1312		1339		1435		9			7
MSCI World Index – daily average		1268		1235		1273		1312		1404		11			7
Barclays Capital Aggregate Bond^SM Index (a)		351		353		368		366		356		1			(3	)
NYSE and NASDAQ share volume (in billions)		186		192		173		174		174		(6	)		—
JPMorgan G7 Volatility Index – daily average (b)		10.39		10.30		8.70		7.56		9.02		(13	)		19

(a)

Period end.

(b)

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

Page - 5

BNY Mellon 1Q13 Quarterly Earnings Review

FEE AND OTHER REVENUE


Fee and other revenue																1Q13 vs.
(dollars in millions)	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Investment services fees:
Asset servicing (a)	$	943		$	950		$	942		$	945		$	969			3	%		3	%
Issuer services		251			275			311			215			237			(6	)		10
Clearing services		303			309			287			294			304			—			3
Treasury services		136			134			138			141			141			4			—

Total investment services fees		1,633			1,668			1,678			1,595			1,651			1			4
Investment management and performance fees		745			797			779			853			822			10			(4	)
Foreign exchange and other trading revenue		191			180			182			139			161			(16	)		16
Distribution and servicing		46			46			48			52			49			7			(6	)
Financing-related fees		44			37			46			45			41			(7	)		(9	)
Investment and other income		139			48			124			116			72			(48	)		(38	)

Total fee revenue		2,798			2,776			2,857			2,800			2,796			—			—
Net securities gains		40			50			22			50			48			N/M			N/M

Total fee and other revenue – GAAP	$	2,838		$	2,826		$	2,879		$	2,850		$	2,844			—	%		—	%

Fee revenue as a percentage of total revenue excluding net securities gains		78	%		78	%		78	%		78	%		78	%

(a)

Asset servicing fees include securities lending revenue of $49 million in 1Q12, $59 million in 2Q12, $49 million in 3Q12, $41 million in 4Q12 and $39 million in 1Q13.

N/M – Not meaningful.

KEY POINTS

•	Asset servicing fees were $969 million, an increase of 3% both year-over-year and sequentially. Both increases primarily reflect increased activity with existing clients and improved market values, partially offset by lower securities lending revenue.

•

Issuer services fees were $237 million, a decrease of 6% year-over-year and an increase of 10% sequentially. The year-over-year decrease primarily resulted from lower Depositary Receipts revenue, driven by lower issuance volumes and lower servicing fees. The sequential increase primarily resulted from higher Depositary Receipts revenue driven by a seasonal dividend improvement and higher core volumes, partially offset by lower Corporate Trust revenue.

•

Clearing services fees were $304 million, a slight increase year-over-year and an increase of 3% sequentially. Both increases were driven by higher mutual fund fees, increases in positions and assets, higher cash management fees and an increase in DARTS, partially offset by higher money market fee waivers and fewer trading days.

•	Treasury services fees were $141 million, an increase of 4% year-over-year and unchanged sequentially. The year-over-year increase primarily reflects higher cash management fees.

•

Investment management and performance fees were $822 million, an increase of 10% year-over-year and a decrease of 4% sequentially. The year-over-year increase was impacted by the acquisition of the remaining 50% interest in Meriten Investment Management (“Meriten”). Excluding the Meriten acquisition, investment management and performance fees increased 9% year-over-year driven by higher market values, net new business and lower money market fee waivers. The sequential decrease reflects seasonally lower performance fees and higher money market fee waivers, partially offset by higher market values. Comparisons to both prior periods were negatively impacted by the stronger U.S. dollar.

Page - 6

BNY Mellon 1Q13 Quarterly Earnings Review

•	Foreign exchange and other trading revenue


(in millions)	1Q12		2Q12		3Q12		4Q12		1Q13
Foreign exchange	$	136	$	157	$	121	$	106	$	149
Other trading revenue:
Fixed income		47		16		54		25		8
Equity/other		8		7		7		8		4

Total other trading revenue		55		23		61		33		12

Total	$	191	$	180	$	182	$	139	$	161

Foreign exchange and other trading revenue totaled $161 million in 1Q13 compared with $191 million in 1Q12 and $139 million in 4Q12. In 1Q13, foreign exchange revenue totaled $149 million, an increase of 10% year-over-year and 41% sequentially. The year-over year increase primarily reflects higher volumes, partially offset by a decrease in volatility, while the sequential increase primarily reflects increased volatility and higher volumes. Other trading revenue was $12 million in 1Q13 compared with $55 million in 1Q12 and $33 million in 4Q12. Other trading revenue was lower principally due to losses on interest rate hedges and lower fixed income and equity trading.

•	Investment and other income


(in millions)	1Q12			2Q12			3Q12			4Q12			1Q13
Corporate/bank-owned life insurance	$	34		$	32		$	41		$	41		$	34
Lease residual gains		34			3			—			14			1
Seed capital gains		24			—			28			7			6
Expense reimbursements from joint ventures		10			9			10			9			11
Equity investment revenue (loss)		6			(5	)		16			(1	)		13
Private equity gains (losses)		4			1			(1	)		4			(2	)
Asset-related gains (losses)		(2	)		(3	)		17			22			7
Transitional service agreements		7			6			6			5			5
Other income (loss)		22			5			7			15			(3	)

Total	$	139		$	48		$	124		$	116		$	72

Investment and other income totaled $72 million in 1Q13 compared with $139 million in 1Q12 and $116 million in 4Q12. Both decreases reflect lower leasing gains and lower foreign currency remeasurement. Additionally, the year-over-year decrease includes lower seed capital gains and the sequential decrease includes lower net gains on loans held for sale retained from a previously divested bank subsidiary.

•	Net securities gains were $48 million in 1Q13.

Page - 7

BNY Mellon 1Q13 Quarterly Earnings Review

NET INTEREST REVENUE


Net interest revenue																1Q13 vs.
(dollars in millions)	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Net interest revenue (non-FTE)	$	765		$	734		$	749		$	725		$	719			(6	)%		(1	)%
Net interest revenue (FTE)		776			747			765			740			733			(6	)		(1	)
Net interest margin (FTE)		1.32	%		1.25	%		1.20	%		1.09	%		1.11	%		(21	) bps		2 bps

Selected average balances:
Cash/interbank investments	$	103,795		$	101,871		$	108,365		$	118,796		$	111,685			8	%		(6	)%
Trading account securities		2,519			3,033			4,431			5,294			5,878			133			11
Securities		86,808			91,859			100,004			102,512			101,912			17			(1	)
Loans		43,209			42,992			42,428			43,613			46,279			7			6

Interest-earning assets		236,331			239,755			255,228			270,215			265,754			12			(2	)
Interest-bearing deposits		125,438			130,482			138,260			142,719			147,728			18			4
Noninterest-bearing deposits		66,613			62,860			70,230			79,987			70,337			6			(12	)

Selected average yields/rates:
Cash/interbank investments		0.64	%		0.56	%		0.51	%		0.43	%		0.41	%
Trading account securities		2.78			2.57			2.40			2.54			2.40
Securities		2.44			2.25			2.06			1.94			1.88
Loans		1.95			1.98			1.96			1.89			1.78
Interest-earning assets		1.56			1.48			1.40			1.27			1.26
Interest-bearing deposits		0.14			0.13			0.10			0.09			0.08

Average cash/interbank investments as a percentage of average interest-earning assets		44	%		42	%		42	%		44	%		42	%
Average noninterest-bearing deposits as a percentage of average interest-earning assets		28	%		26	%		28	%		30	%		26	%

bps – basis points.

FTE – fully taxable equivalent.

KEY POINTS

•

Net interest revenue totaled $719 million in 1Q13, a decrease of $46 million compared with 1Q12 and $6 million sequentially. The year-over-year decrease was primarily driven by lower accretion, lower yields on the reinvestment of securities and the elimination of interest on European Central Bank deposits, partially offset by a change in the mix of earning assets and higher average interest-earning assets driven by higher deposit levels. The decrease compared with 4Q12 primarily reflects a lower number of days in the first quarter of 2013.

•

The net interest margin (FTE) was 1.11% in 1Q13 compared with 1.32% in 1Q12 and 1.09% in 4Q12. The year-over-year decrease in the net interest margin (FTE) reflects higher average interest-earning assets driven by higher deposits levels, lower reinvestment yields, lower accretion and the elimination of interest on European Central Bank deposits.

•

The current low interest rate environment continues to negatively impact net interest revenue. It has driven significant improvement in the value of the investment securities portfolio while creating the opportunity for us to realize gains as we rebalance and manage the duration risk of the portfolio. Gains realized on these sales should be considered along with net interest revenue when evaluating our overall results. In 1Q13, combined net interest revenue and net securities gains totaled $767 million, compared with $805 million in 1Q12 and $775 million in 4Q12.

Page - 8

BNY Mellon 1Q13 Quarterly Earnings Review

NONINTEREST EXPENSE


Noninterest expense																1Q13 vs.
(dollars in millions)	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Staff:
Compensation	$	861		$	866		$	893		$	911		$	885			3	%		(3	)%
Incentives		352			311			306			311			338			(4	)		9
Employee benefits		240			238			237			235			249			4			6

Total staff		1,453			1,415			1,436			1,457			1,472			1			1
Professional, legal and other purchased services		299			309			292			322			295			(1	)		(8	)
Software and equipment		205			209			208			233			228			11			(2	)
Net occupancy		147			141			149			156			163			11			4
Distribution and servicing		101			103			109			108			106			5			(2	)
Business development		56			71			60			88			68			21			(23	)
Sub-custodian		70			70			65			64			64			(9	)		—
Other		220			254			265			255			307			40			20
Amortization of intangible assets		96			97			95			96			86			(10	)		(10	)
M&I, litigation and restructuring charges		109			378			26			46			39			N/M			N/M

Total noninterest expense – GAAP	$	2,756		$	3,047		$	2,705		$	2,825		$	2,828			3	%		—	%
Total staff expense as a percentage of total revenue		40	%		39	%		39	%		40	%		41	%

Memo:
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	2,551		$	2,572		$	2,584		$	2,683		$	2,703			6	%		1	%

N/M – Not meaningful.

KEY POINTS

•

Total noninterest expense increased 6% year-over-year and 1% sequentially excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP). Both increases were primarily driven by a provision for administrative errors in certain offshore tax-exempt funds and higher pension expense.

•

The year-over-year increase also resulted from the cost of generating certain tax credits, higher software and net occupancy expense and the impact of the Meriten acquisition. The increase in software expense primarily reflects application development costs and higher amortization related to new technology projects. The increase in net occupancy expense primarily reflects timing of costs associated with our global footprint and New York City real estate initiatives.

•

The sequential increase also reflects higher incentive expense due to the acceleration of the vesting of long-term stock awards for retirement eligible employees and higher net occupancy expense, partially offset by lower compensation expense, as well as lower professional, legal and other purchased services and business development expenses.

Page - 9

BNY Mellon 1Q13 Quarterly Earnings Review

OPERATIONAL EXCELLENCE INITIATIVES UPDATE


Expense initiatives (pre-tax)							Annualized
	Program savings						targeted savings
(dollar amounts in millions)	4Q12		FY12		1Q13		by the end of 2013
Business operations	$	75	$	238	$	84	$310 - $320

Technology		24		82		27	$105 - $110

Corporate services		24		77		26	$85 - $90

Gross savings (a)	$	123	$	397	$	137	$500 - $520
Incremental program expenses to achieve goals (b)	$	37	$	88	$	16	$70 - $90

(a)

Represents the estimated annual pre-tax run rate expense savings since program inception in 2011. Total Company actual operating expense may increase or decrease due to other factors.

(b)

Program costs include incremental costs to plan and execute the programs including dedicated program managers, consultants, severance and other costs. These costs will fluctuate by quarter. Program costs may include restructuring expenses, where applicable.

Accomplishments

During 1Q13, we accomplished the following operational excellence initiatives:

•	Continued global footprint position migrations. Lowered operating costs as we ramped up the Eastern European Global Delivery Center.

•	Realized savings from reengineering activities relating to Investment Boutique restructurings and Dreyfus back office operations consolidation.

•	Achieved further operational synergies related to the BHF Asset Servicing GmbH acquisition.

•	Realized compensation savings from efficiencies and additional staff moves to Global Delivery Centers in the Technology organizations.

•	Consolidated offices and reduced real estate by an additional 35,000 square feet, primarily in the NY Metro and EMEA regions.

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BNY Mellon 1Q13 Quarterly Earnings Review

CAPITAL

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


Basel I Tier 1 common equity generation
(in millions)	1Q12		2Q12			3Q12		4Q12		1Q13
Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	619	$	466		$	720	$	622	$	(266	)
Add: Amortization of intangible assets, net of tax		61		61			60		65		56

Gross Basel I Tier 1 common equity generated		680		527			780		687		(210	)
Less capital deployed:
Dividends		158		156			155		154		153
Common stock repurchased		371		286			288		170		211
Goodwill and intangible assets related to acquisitions		—		—			—		93		—

Total capital deployed		529		442			443		417		364
Add: Other		146		(53	)		193		145		117

Net Basel I Tier 1 common equity generated (deployed)	$	297	$	32		$	530	$	415	$	(457	)

The following table presents our capital ratios.


	March 31,			Dec. 31,			March 31,
Capital ratios (a)	2012			2012			2013 (b)
Estimated Basel III Tier 1 common equity ratio – Non-GAAP (c)(d)		N/A			9.8	%		9.4	%
Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP (d)		13.9	%		13.5			12.2	(e)
Basel I Tier 1 capital ratio		15.6			15.0			13.6	(e)
Basel I Total (Tier 1 plus Tier 2) capital ratio		17.5			16.3			14.7	(e)
Basel I leverage capital ratio		5.6			5.3			5.2
BNY Mellon shareholders’ equity to total assets ratio (d)		11.3			10.1			10.0
BNY Mellon common shareholders’ equity to total assets ratio (d)		11.3			9.9			9.7
Tangible BNY Mellon shareholders’ equity to tangible assets of operations ratio – Non-GAAP (d)		6.5			6.4			5.9

(a)

Includes full capital credit for certain capital instruments outstanding as of March 31, 2013 because implementing regulations with respect to the Collins amendment have not been adopted.

(b)

Preliminary.

(c)

The Federal Reserve’s Notices of Proposed Rulemaking (“NPRs”) require the Tier 1 common equity ratio to be the lower of the Standardized Approach or Advanced Approach. At March 31, 2013, this ratio was 9.4% under the Standardized Approach compared with 9.7% under the Advanced Approach. For all periods prepared under the NPRs prior to March 31, 2013, this ratio was higher under the Standardized Approach, and therefore was presented under the Advanced Approach. The estimated Basel III Tier 1 common equity ratio of 7.6% at March 31, 2012 was based on prior Basel III guidance and the proposed market risk rule.

(d)

See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19 for a calculation of these ratios.

(e)

In the first quarter of 2013, BNY Mellon was required to implement the Basel 2.5 – final market risk rule. Implementation of these rules resulted in an approximately 35-40 basis points decrease to the Basel I Tier 1 common equity to risk-weighted assets ratio, the Basel I Tier 1 capital ratio and the Basel I Total capital ratio.

N/A – Not applicable.

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BNY Mellon 1Q13 Quarterly Earnings Review

INVESTMENT SECURITIES PORTFOLIO

At March 31, 2013, the fair value of our investment securities portfolio totaled $106.6 billion. The net unrealized pre-tax gain on our total securities portfolio was $2.2 billion at March 31, 2013 compared with $2.4 billion at Dec. 31, 2012. The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates and $48 million of net realized securities gains in 1Q13. During 1Q13, we received $183 million of paydowns and sold $141 million of sub-investment grade securities.

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



Investment securities portfolio	Dec. 31, 2012 Fair value			1Q13 change in unrealized gain/(loss)			March 31, 2013					Fair value as a % of amortized cost (a)			Unrealized gain/(loss)			Ratings
(dollars in millions)	Dec. 31, 2012 Fair value			1Q13 change in unrealized gain/(loss)			Amortized cost		Fair value			Fair value as a % of amortized cost (a)			Unrealized gain/(loss)			AAA/ AA-			A+/ A-			BBB+/ BBB-			BB+ and lower			Not rated
Agency RMBS	$	40,210		$	(181	)	$	44,009	$	44,804			102	%	$	795			100	%		—	%		—	%		—	%		—	%
U.S. Treasury securities		18,890			47			19,686		20,073			102			387			100			—			—			—			—
Sovereign debt/sovereign guaranteed (b)		9,304			10			9,975		10,103			101			128			100			—			—			—			—
Non-agency RMBS (c)		3,110			74			2,419		3,083			78			664			—			1			2			96			1
Non-agency RMBS		1,697			38			1,555		1,563			92			8			3			17			15			65			—
European floating rate notes (d)		4,137			22			3,780		3,681			97			(99	)		75			20			—			5			—
Commercial MBS		2,838			(28	)		2,633		2,748			104			115			88			10			2			—			—
State and political subdivisions		6,191			5			6,215		6,305			101			90			82			16			1			—			1
Foreign covered bonds (e)		3,718			(81	)		3,349		3,390			101			41			100			—			—			—			—
Corporate bonds		1,585			(5	)		1,517		1,572			104			55			21			71			8			—			—
CLO		1,206			9			1,371		1,382			101			11			100			—			—			—			—
U.S. Government agency debt		1,074			(4	)		1,034		1,060			103			26			100			—			—			—			—
Consumer ABS		2,124			(2	)		2,012		2,020			100			8			91			9			—			—			—
Other (f)		4,619			(28	)		4,810		4,828			100			18			49			46			—			1			4

Total investment securities	$	100,703	(g)	$	(124	)	$	104,365	$	106,612	(g)		102	%	$	2,247			89	%		5	%		1	%		4	%		1	%

(a)

Amortized cost before impairments.

(b)

Primarily comprised of exposure to UK, Germany, Netherlands and France.

(c)

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 enhancement, the difference between the written-down amortized cost and the current face amount of each of these securities.

(d)

Includes RMBS, commercial MBS and other securities. Primarily comprised of exposure to UK and Netherlands.

(e)

Primarily comprised of exposure to Canada, UK and Germany.

(f)

Includes commercial paper of $2.2 billion and $2.2 billion, fair value, and money market funds of $2.2 billion and $2.5 billion, fair value, at Dec. 31, 2012 and March 31, 2013, respectively.

(g)

Includes net unrealized losses on derivatives hedging securities available-for-sale of $305 million at Dec. 31, 2012 and $111 million at March 31, 2013.

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BNY Mellon 1Q13 Quarterly Earnings Review

NONPERFORMING ASSETS


Nonperforming assets	March 31,			Dec. 31,			March 31,
(dollars in millions)	2012			2012			2013
Nonperforming loans:
Other residential mortgages	$	188		$	158		$	148
Wealth management		35			30			30
Commercial		32			27			24
Commercial real estate		39			18			17
Foreign		10			9			9
Financial institutions		14			3			3

Total nonperforming loans		318			245			231
Other assets owned		13			4			3

Total nonperforming assets (a)	$	331		$	249		$	234

Nonperforming assets ratio		0.77	%		0.53	%		0.48	%
Allowance for loan losses/nonperforming loans		121.4			108.6			102.6
Total allowance for credit losses/nonperforming loans		155.3			158.0			155.0

(a)

Loans of consolidated investment management funds are not part of BNY Mellon’s loan portfolio. Included in these loans are nonperforming loans of $180 million at March 31, 2012, $174 million at Dec. 31, 2012 and $161 million at March 31, 2013. 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 $234 million at March 31, 2013, a decrease of $15 million from $249 million at Dec. 31, 2012. The decrease primarily resulted from paydowns, sales, return to accrual status and charge-offs in the other residential mortgage loan portfolio.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS


Allowance for credit losses, provision and net charge-offs
(in millions)	1Q12			4Q12			1Q13
Allowance for credit losses – beginning of period	$	497		$	456		$	387
Provision for credit losses		5			(61	)		(24	)
Net (charge-offs) recoveries:
Other residential mortgages		(8	)		(3	)		(3	)
Financial institutions		—			(5	)		—
Commercial		—			—			(2	)

Net (charge-offs) recoveries		(8	)		(8	)		(5	)

Allowance for credit losses – end of period	$	494		$	387		$	358

Allowance for loan losses	$	386		$	266		$	237
Allowance for lending-related commitments		108			121			121

REVIEW OF BUSINESSES

Segment results are subject to reclassification whenever improvements are made in the measurement principles or when organizational changes are made. In 1Q13, incentive expense related to restricted stock and certain corporate overhead charges were allocated to Investment Management and Investment Services businesses which were previous included in the Other segment. All prior periods were restated to reflect these changes. Additionally, 1Q13 reflects higher internal crediting rates for domestic deposits, which are regularly updated to reflect the value of deposit balances and distribution of overall interest revenue. There was no impact to consolidated results.

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BNY Mellon 1Q13 Quarterly Earnings Review

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.


																1Q13 vs.
(dollars in millions, unless otherwise noted)	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Revenue:
Investment management fees:
Mutual funds	$	260		$	270		$	283		$	293		$	295			13	%		1	%
Institutional clients		322			321			334			349			355			10			2
Wealth management		157			158			158			159			162			3			2

Investment management fees		739			749			775			801			812			10			1
Performance fees		16			54			10			57			15			(6	)		N/M
Distribution and servicing		45			45			47			50			46			2			(8	)
Other (a)		52			13			40			25			21			N/M			N/M

Total fee and other revenue (a)		852			861			872			933			894			5			(4	)
Net interest revenue		55			52			52			55			62			13			13

Total revenue		907			913			924			988			956			5			(3	)
Noninterest expense (ex. amortization of intangible assets)		622			644			646			714			706			14			(1	)

Income before taxes (ex. amortization of intangible assets)		285			269			278			274			250			(12	)		(9	)
Amortization of intangible assets		48			48			48			48			39			(19	)		(19	)

Income before taxes	$	237		$	221		$	230		$	226		$	211			(11	)%		(7	)%

Pre-tax operating margin		26	%		24	%		25	%		23	%		22	%
Pre-tax operating margin (ex. amortization of intangible assets and net of distribution and servicing expense) (b)		35	%		33	%		34	%		31	%		29	%

Metrics:
Changes in AUM (in billions) (c):
Beginning balance of AUM	$	1,260		$	1,308		$	1,299		$	1,359		$	1,386
Net inflows (outflows):
Long-term		7			26			9			14			40
Money market		(9	)		(14	)		9			(6	)		(13	)

Total net inflows (outflows)		(2	)		12			18			8			27
Net market/currency impact		50			(21	)		42			19			16

Ending balance of AUM (d)	$	1,308		$	1,299		$	1,359		$	1,386		$	1,429	(e)		9	%		3	%

AUM at period end, by product type (c):
Equity securities		33	%		32	%		33	%		33	%		34	%
Fixed income securities		35			37			37			38			39
Money market		24			23			23			22			20
Alternative investments and overlay		8			8			7			7			7

Total AUM (d)		100	%		100	%		100	%		100	%		100	%(e)

Wealth management:
Average loans	$	7,431		$	7,763		$	8,122		$	8,478		$	8,972			21	%		6	%
Average deposits	$	11,491		$	11,259		$	11,372		$	12,609		$	13,646			19	%		8	%

(a)

Total fee and other revenue includes the impact of the consolidated investment management funds. See “Supplemental information – Explanation of Non-GAAP financial measures” beginning on page 19. Additionally, other revenue includes asset servicing and treasury services revenue.

(b)

Distribution and servicing expense is netted with distribution and servicing revenue for the purpose of this calculation of pre-tax operating margin. Distribution and servicing expense totaled $100 million, $102 million, $107 million, $106 million and $104 million, respectively.

(c)

Excludes securities lending cash management assets.

(d)

Excludes assets managed in the Investment Services business.

(e)

Preliminary.

N/M – Not meaningful.

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BNY Mellon 1Q13 Quarterly Earnings Review

INVESTMENT MANAGEMENT KEY POINTS

•

Assets under management were a record $1.4 trillion at March 31, 2013, an increase of 9% year-over-year and 3% sequentially. Both increases resulted from net new business and higher market values.

•

14^th consecutive quarter of positive long-term flows.

•

Net long-term inflows were a record $40 billion and short-term outflows were $13 billion in 1Q13. Long-term inflows benefited from liability-driven investments as well as equity and fixed income funds.

•

Total revenue was $956 million, an increase of 5% year-over-year and a decrease of 3% sequentially. The year-over-year increase was driven by higher market values, net new business and the Meriten acquisition. The sequential decrease primarily reflects seasonally lower performance fees, which more than offset higher investment management fees.

•

Investment management fees were $812 million, an increase of 10% year-over-year and 1% sequentially. The year-over-year increase was impacted by the Meriten acquisition. Excluding the Meriten acquisition, investment management fees increased 8% year-over-year driven by higher market values, net new business and lower money market fee waivers. The sequential increase primarily reflects higher market values, partially offset by higher money market fee waivers. Comparisons to both prior periods were negatively impacted by the stronger U.S. dollar.

•

Performance fees were $15 million in 1Q13 compared with $57 million in 4Q12 and $16 million in 1Q12. The sequential decrease was due to seasonality.

•

Other revenue was $21 million in 1Q13 compared with $25 million in 4Q12 and $52 million in 1Q12. The decrease compared with 1Q12 primarily reflects lower seed capital gains.

•

Net interest revenue increased 13% both year-over-year and sequentially. Both increases resulted from higher average loan and deposit levels. The sequential increase also resulted from higher internal crediting rates for domestic deposits in 1Q13.

•

Average loans increased 21% year-over-year and 6% sequentially; average deposits increased 19% year-over-year and 8% sequentially.

•

Total noninterest expense (ex. amortization of intangible assets) increased 14% year-over-year and decreased 1% sequentially. Noninterest expense in 1Q13 includes a provision for administrative errors in certain offshore tax-exempt funds. The year-over-year increase also reflects the impact of the Meriten acquisition. The sequential decrease also reflects lower incentive expense due to seasonally lower performance fees, as well as lower professional, legal and other purchased services and seasonally lower business development expenses. Comparisons to both prior periods were favorably impacted by the stronger U.S. dollar.

•

44% non-U.S. revenue in 1Q13 vs. 45% in 1Q12.

•

2013 Winner of 4 Lipper Funds Awards for Dreyfus Global Equity Income Fund (Class I), Dreyfus International Bond Fund (Class I), Newton Asian Equity Income (GBP Inc), Newton Global Higher Income (GBP Inc). (February 2013)

•

2013 Winner of Mondo Alternative Awards for Absolute Insight Emerging Market Debt Fund. (February 2013)

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BNY Mellon 1Q13 Quarterly Earnings Review

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.


																1Q13 vs.
(dollars in millions, unless otherwise noted)	1Q12			2Q12			3Q12			4Q12			1Q13			1Q12			4Q12
Revenue:
Investment service fees:
Asset servicing	$	906		$	928		$	912		$	917		$	938			4	%		2	%
Issuer services		251			275			310			213			236			(6	)		11
Clearing services		303			309			287			294			304			—			3
Treasury services		136			132			135			140			140			3			—

Total investment services fees		1,596			1,644			1,644			1,564			1,618			1			3
Foreign exchange and other trading revenue		176			179			158			128			172			(2	)		34
Other (a)		71			66			75			73			70			(1	)		(4	)

Total fee and other revenue (a)		1,843			1,889			1,877			1,765			1,860			1			5
Net interest revenue		648			614			617			591			653			1			10

Total revenue		2,491			2,503			2,494			2,356			2,513			1			7
Provision for credit losses		16			(14	)		(4	)		—			—			N/M			N/M
Noninterest expense (ex. amortization of intangible assets)		1,798			2,103			1,744			1,782			1,781			(1	)		—

Income before taxes (ex. amortization of intangible assets)		677			414			754			574			732			8			28
Amortization of intangible assets		48			49			47			48			47			(2	)		(2	)

Income before taxes	$	629		$	365		$	707		$	526		$	685			9	%		30	%

Pre-tax operating margin		25	%		15	%		28	%		22	%		27	%
Pre-tax operating margin (ex. amortization of intangible assets)		27	%		17	%		30	%		24	%		29	%

Investment services fees as a percentage of noninterest expense (b)		93	%		94	%		95	%		89	%		93	%

Securities lending revenue	$	39		$	48		$	37		$	31		$	31			(21	)%		—	%

Metrics:
Average loans	$	22,639		$	24,742		$	24,054		$	24,034		$	26,024			15	%		8	%
Average deposits	$	174,041		$	171,309		$	188,023		$	203,043		$	198,701			14	%		(2	)%

AUC/A at period-end (in trillions) (c)(d)	$	25.7		$	25.2		$	26.4		$	26.3		$	26.3	(e)		2	%		—	%
Market value of securities on loan at period end (in billions) (d)(f)	$	256		$	267		$	251		$	237		$	244			(5	)%		3	%

Asset servicing:
Estimated new business wins (AUC/A) (in billions)	$	453		$	314		$	522		$	190		$	205

Depositary Receipts:
Number of sponsored programs		1,391			1,393			1,393			1,379			1,359			(2	)%		(1	)%

Clearing services:
Global DARTS volume (in thousands) (d)		199.6			191.9			175.5			187.9			221.4			11	%		18	%
Average active clearing accounts (U.S. platform) (in thousands) (d)		5,408			5,421			5,447			5,489			5,552			3	%		1	%
Average long-term mutual fund assets (U.S. platform)	$	306,212		$	306,973		$	323,289		$	334,883		$	357,647			17	%		7	%
Average investor margin loans (U.S. platform)	$	7,900		$	8,231		$	7,922		$	7,987		$	8,212			4	%		3	%
Broker-Dealer:
Average tri-party repo balances (in billions) (d)	$	1,937		$	2,001		$	2,005		$	2,113		$	2,070			7	%		(2	)%

(a)

Total fee and other revenue includes investment management fees and distribution and servicing revenue.

(b)

Noninterest expense excludes amortization of intangible assets, support agreement charges and litigation expense.

(c)

(d)

(e)

Preliminary.

(f)

Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities on loan at CIBC Mellon.

Page - 16

BNY Mellon 1Q13 Quarterly Earnings Review

INVESTMENT SERVICES KEY POINTS

•

Investment services fees totaled $1.6 billion, an increase of 1% year-over-year and 3% sequentially.

•

Asset servicing fees (global custody, broker-dealer services and global collateral services) were $938 million in 1Q13 compared with $906 million in 1Q12 and $917 million in 4Q12. Both increases primarily reflect increased activity with existing clients and improved market values. The year-over-year increase was partially offset by lower securities lending revenue due to lower spreads and the loss of a client.

•

Estimated new business wins (AUC/A) of $205 billion in 1Q13.

•

Issuer services fees (Corporate Trust and Depositary Receipts) were $236 million in 1Q13 compared with $251 million in 1Q12 and $213 million in 4Q12. The year-over-year decrease primarily resulted from lower Depositary Receipts revenue, driven by lower issuance volumes and lower servicing fees. The sequential increase primarily resulted from higher Depositary Receipts revenue driven by a seasonal dividend improvement and higher core volumes, partially offset by lower Corporate Trust revenue.

•

Clearing services fees (Pershing) were $304 million in 1Q13 compared with $303 million in 1Q12 and $294 million in 4Q12. Both increases were driven by higher mutual fund fees, increases in positions and assets, higher cash management fees and an increase in DARTS, partially offset by higher money market fee waivers and fewer trading days.

•

Treasury services fees were $140 million in 1Q13 compared with $136 million in 1Q12 and $140 million in 4Q12. The year-over-year increase primarily reflects higher cash management fees.

•

Foreign exchange and other trading revenue was $172 million in 1Q13 compared with $176 million in 1Q12 and $128 million in 4Q12. The year-over year decrease resulted from lower fixed income trading revenue which was primarily offset by higher foreign exchange revenue driven by higher volumes, partially offset by a decrease in volatility. The sequential increase was due to higher foreign exchange revenue resulting from increased volatility and higher volumes.

•

Net interest revenue was $653 million in 1Q13 compared with $648 million in 1Q12 and $591 million in 4Q12. Both increases primarily reflect higher internal crediting rates for domestic deposits in 1Q13 and higher average loan levels.

•

Noninterest expense (excluding amortization of intangible assets) was $1.8 billion in 1Q13, 4Q12 and 1Q12. Year-over-year, noninterest expense decreased slightly reflecting lower litigation expense. Sequentially, noninterest expense was essentially unchanged as higher incentive expenses due to the acceleration of the vesting of long-term stock awards for retirement eligible employees was offset by lower professional, legal and other purchased services and business development expenses.

•

32% non-U.S. revenue in 1Q13 vs. 36% in 1Q12.

Page - 17

BNY Mellon 1Q13 Quarterly Earnings Review

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.


(in millions)	1Q12			2Q12			3Q12			4Q12			1Q13
Revenue:
Fee and other revenue	$	175		$	104		$	152		$	183		$	124
Net interest revenue		62			68			80			79			4

Total revenue		237			172			232			262			128
Provision for credit losses		(11	)		(5	)		(1	)		(61	)		(24	)
Noninterest expense (ex. M&I and restructuring charges)		231			181			207			206			250

Income (loss) before taxes (ex. M&I and restructuring charges)		17			(4	)		26			117			(98	)
M&I and restructuring charges		9			22			13			27			5

Income (loss) before taxes	$	8		$	(26	)	$	13		$	90		$	(103	)

Average loans and leases	$	10,139		$	10,487		$	10,252		$	11,100		$	11,283

KEY POINTS

•

Total fee and other revenue decreased $51 million compared with 1Q12 and $59 million compared with 4Q12. Both decreases reflect lower leasing gains and lower foreign currency remeasurement. The sequential decrease was also due to lower net gains on loans held-for-sale retained from a previously divested bank subsidiary as well as lower fixed income and equity trading revenue.

•

Net interest revenue decreased $58 million compared with 1Q12 and $75 million compared with 4Q12. Both decreases reflect higher internal crediting rates to the businesses for domestic deposits in 1Q13.

•

The provision for credit losses was a credit $24 million in 1Q13. Approximately half of the credit was driven by a broad improvement in the credit quality of the loan portfolio and half related to a reduction in our qualitative allowance.

•

Noninterest expense (excluding M&I and restructuring charges) increased $19 million compared with 1Q12 and $44 million compared with 4Q12. The increase compared with 1Q12 resulted from the cost of generating certain tax credits as well as higher software and net occupancy expenses, partially offset by lower incentive expense. The increase compared with 4Q12 primarily reflects higher incentive expense due to the acceleration of the vesting of long-term stock awards for retirement eligible employees as well as higher pension and net occupancy expenses.

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BNY Mellon 1Q13 Quarterly Earnings Review

SUPPLEMENTAL INFORMATION – EXPLANATION OF NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Review certain Non-GAAP financial measures based upon Tier 1 common equity and tangible common shareholders’ equity. BNY Mellon believes that the ratio of Tier 1 common equity to risk-weighted assets and the ratio of tangible common shareholders’ equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the Tier 1 and Total capital ratios which are utilized by regulatory authorities. The ratio of Basel I Tier 1 common equity to risk-weighted assets excludes preferred stock and trust preferred securities from the numerator of the ratio. Unlike the Basel I Tier 1 and Total capital ratios, the tangible common shareholders’ equity ratio fully incorporates those changes in investment securities valuations which are reflected in total shareholders’ equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its calculation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of BNY Mellon’s performance in reference to those assets which are productive in generating income. BNY Mellon has provided a measure of tangible book value per share, which it believes provides additional useful information as to the level of such assets in relation to shares of common stock outstanding. BNY Mellon has presented its estimated Basel III Tier 1 common equity ratio on a basis that is representative of how it currently understands the Basel III rules. Management views the Basel III Tier 1 common equity ratio as a key measure in monitoring BNY Mellon’s capital position. Additionally, the presentation of the Basel III Tier 1 common equity ratio allows investors to compare BNY Mellon’s Basel III Tier 1 common equity ratio with estimates presented by other companies.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds; expense measures which exclude M&I expenses, litigation charges, restructuring charges and amortization of intangible assets; as well as earnings per share and the provision for income taxes which exclude the charge related to the disallowance of certain foreign tax credits; and investment management fees excluding the impact of the acquisition of Meriten. Return on equity measures and operating margin measures, which exclude some or all of these items, are also presented. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. The excluded items in general relate to certain ongoing charges as a result of prior transactions or where we have incurred charges. M&I expenses primarily relate to the acquisitions of Global Investment Servicing on July 1, 2010 and BHF Asset Servicing GmbH on Aug. 2, 2010. M&I expenses generally continue for approximately three years after the transaction and can vary on a year-to-year basis depending on the stage of the integration. BNY Mellon believes that the exclusion of M&I expenses provides investors with a focus on BNY Mellon’s business as it would appear on a consolidated going-forward basis, after such M&I expenses have ceased. Future periods will not reflect such M&I expenses, and thus may be more easily compared to our current results if M&I expenses are excluded. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our 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 interest related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with prior periods. 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 Review, 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.

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BNY Mellon 1Q13 Quarterly Earnings Review

Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.

The following table presents investment management and performance fees excluding the impact of the Meriten acquisition.


Investment management and performance fees											1Q13 vs.
(dollars in millions)	1Q12		2Q12		3Q12		4Q12		1Q13		1Q12			4Q12
Investment management and performance fees	$	745	$	797	$	779	$	853	$	822		10	%		(4	)%
Less: Meriten acquisition		N/A		N/A		N/A		13		13		N/A			—

Investment management and performance fees excluding the Meriten acquisition	$	745	$	797	$	779	$	840	$	809		9	%		(4	)%

N/A – Not applicable.

The following table presents investment management fees generated in the Investment Management segment excluding the impact of the Meriten acquisition.


Investment management fees											1Q13 vs.
(dollars in millions)	1Q12		2Q12		3Q12		4Q12		1Q13		1Q12			4Q12
Investment management fees	$	739	$	749	$	775	$	801	$	812		10	%		1	%
Less: Meriten acquisition		N/A		N/A		N/A		12		13		N/A			8

Investment management fees excluding the Meriten acquisition	$	739	$	749	$	775	$	789	$	799		8	%		1	%

N/A – Not applicable.

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


Pre-tax operating margin
(dollars in millions)	1Q12			2Q12			3Q12			4Q12			1Q13
Income before income taxes – GAAP	$	885		$	589		$	975		$	853		$	809
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		11			29			25			11			16
Add: Amortization of intangible assets		96			97			95			96			86
M&I, litigation and restructuring charges		109			378			26			46			39

Income before income taxes excluding net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP	$	1,079		$	1,035		$	1,071		$	984		$	918

Fee and other revenue – GAAP	$	2,838		$	2,826		$	2,879		$	2,850		$	2,844
Income from consolidated investment management funds – GAAP		43			57			47			42			50
Net interest revenue – GAAP		765			734			749			725			719

Total revenue – GAAP		3,646			3,617			3,675			3,617			3,613
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		11			29			25			11			16

Total revenue excluding net income attributable to noncontrolling interests of consolidated investment management funds – Non-GAAP	$	3,635		$	3,588		$	3,650		$	3,606		$	3,597

Pre-tax operating margin (a)		24	%		16	%		27	%		24	%		22	%
Pre-tax operating margin excluding net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and, M&I, litigation and restructuring charges – Non-GAAP (a)		30	%		29	%		29	%		27	%		26	%

(a)

Income before taxes divided by total revenue.

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BNY Mellon 1Q13 Quarterly Earnings Review

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


Return on common equity and tangible common equity
(dollars in millions)	1Q12			2Q12			3Q12			4Q12			1Q13
Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP	$	619		$	466		$	720		$	622		$	(266	)
Add: Amortization of intangible assets, net of tax		61			61			60			65			56

Net income (loss) applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP		680			527			780			687			(210	)
Add: M&I, litigation and restructuring charges		65			225			18			31			24
Charge related to the disallowance of certain foreign tax credits		—			—			—			—			854

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge related to the disallowance of certain foreign tax credits – Non-GAAP	$	745		$	752		$	798		$	718		$	668

Average common shareholders’ equity	$	33,718		$	34,123		$	34,522		$	34,962		$	34,898
Less: Average goodwill		17,962			17,941			17,918			18,046			17,993
Average intangible assets		5,121			5,024			4,926			4,860			4,758
Add: Deferred tax liability – tax deductible goodwill		972			982			1,057			1,130			1,170
Deferred tax liability – non-tax deductible intangible assets		1,428			1,400			1,339			1,310			1,293

Average tangible common shareholders’ equity – Non-GAAP	$	13,035		$	13,540		$	14,074		$	14,496		$	14,610

Return on common equity– GAAP (a)		7.4	%		5.5	%		8.3	%		7.1	%		N/M
Return on common equity excluding amortization of intangible assets, M&I, litigation and restructuring charges and the charge related to the disallowance of certain foreign tax credits – Non-GAAP (a)		8.9	%		8.9	%		9.2	%		8.2	%		7.8	%

Return on tangible common equity – Non-GAAP (a)		21.0	%		15.7	%		22.1	%		18.8	%		N/M
Return on tangible common equity excluding M&I, litigation and restructuring charges and the charge related to the disallowance of certain foreign tax credits – Non-GAAP (a)		23.0	%		22.4	%		22.5	%		19.7	%		18.5	%

(a)

Annualized.

N/M – Not meaningful.

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)	1Q12		2Q12		3Q12		4Q12		1Q13
Income from consolidated investment management funds	$	43	$	57	$	47	$	42	$	50
Less: Net income attributable to noncontrolling interests of consolidated investment management funds		11		29		25		11		16

Income from consolidated investment management funds, net of noncontrolling interests	$	32	$	28	$	22	$	31	$	34

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


Income from consolidated investment management funds, net of noncontrolling interests
(in millions)	1Q12		2Q12		3Q12		4Q12		1Q13
Investment management fees	$	22	$	20	$	20	$	19	$	20
Other (Investment income)		10		8		2		12		14

Income from consolidated investment management funds, net of noncontrolling interests	$	32	$	28	$	22	$	31	$	34

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BNY Mellon 1Q13 Quarterly Earnings Review


Equity to assets and book value per common share	March 31,			Dec. 31,			March 31,
(dollars in millions, unless otherwise noted)	2012			2012			2013
BNY Mellon shareholders’ equity at period end – GAAP	$	34,000		$	36,431		$	35,690
Less: Preferred stock		—			1,068			1,068

BNY Mellon common shareholders’ equity at period-end – GAAP		34,000			35,363			34,622
Less: Goodwill		18,002			18,075			17,920
Intangible assets		5,072			4,809			4,696
Add: Deferred tax liability – tax deductible goodwill		972			1,130			1,170
Deferred tax liability – non-tax deductible intangible assets		1,428			1,310			1,293

Tangible BNY Mellon common shareholders’ equity at period end – Non-GAAP	$	13,326		$	14,919		$	14,469

Total assets at period end – GAAP	$	300,169		$	358,990		$	355,942
Less: Assets of consolidated investment management funds		11,609			11,481			11,236

Subtotal assets of operations – Non-GAAP		288,560			347,509			344,706
Less: Goodwill		18,002			18,075			17,920
Intangible assets		5,072			4,809			4,696
Cash on deposit with the Federal Reserve and other central banks (a)		61,992			90,040			78,059

Tangible total assets of operations at period end – Non-GAAP	$	203,494		$	234,585		$	244,031

BNY Mellon shareholders’ equity to total assets – GAAP		11.3	%		10.1	%		10.0	%
BNY Mellon common shareholders’ equity to total assets – GAAP		11.3	%		9.9	%		9.7	%
Tangible BNY Mellon common shareholders’ equity to tangible assets of operations – Non-GAAP		6.5	%		6.4	%		5.9	%

(a)

Assigned a zero percent risk-weighting by the regulators.

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


Calculation of Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP	March 31,			Dec. 31,			March 31,
(dollars in millions)	2012			2012			2013 *(a)*
Total Tier 1 capital – Basel I	$	15,695		$	16,694		$	16,217
Less: Trust preferred securities		1,669			623			603
Preferred stock		—			1,068			1,068

Total Tier 1 common equity	$	14,026		$	15,003		$	14,546

Total risk-weighted assets – Basel I	$	100,763		$	111,180		$	119,427

Basel I Tier 1 common equity to risk-weighted assets ratio – Non-GAAP		13.9	%		13.5	%		12.2	%

(a)

Preliminary.

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BNY Mellon 1Q13 Quarterly Earnings Review

The following table presents the calculation of our estimated Basel III Tier 1 common equity ratio.


Estimated Basel III Tier 1 common equity ratio – Non-GAAP *(a)*	March 31,			Dec. 31,			March 31,
(dollars in millions)	2012			2012			2013 (b)
Total Tier 1 capital – Basel I	$	15,695		$	16,694		$	16,217
Add: Deferred tax liability – tax deductible intangible assets		N/A			78			78
Less: Trust preferred securities		1,669			623			603
Preferred stock		—			1,068			1,068
Adjustments related to available-for-sale securities and pension liabilities included in accumulated other comprehensive income (c)		700			85			78
Adjustments related to equity method investments (c)		571			501			488
Deferred tax assets		—			47			52
Net pensions fund assets (c)		100			249			258
Other		(2	)		—			1

Total estimated Basel III Tier 1 common equity	$	12,657		$	14,199		$	13,747
Total risk-weighted assets – Basel I	$	100,763		$	111,180		$	119,427
Add: Adjustments (d)		65,997			33,104			26,853

Total estimated Basel III risk-weighted assets	$	166,760		$	144,284		$	146,280
Estimated Basel III Tier 1 common equity ratio – Non-GAAP		7.6	%		9.8	%		9.4	%

(a)

The Federal Reserve’s Notices of Proposed Rulemaking (“NPRs”) require the Tier 1 common equity ratio to be the lower of the Standardized Approach or Advanced Approach. At March 31, 2013, this ratio was 9.4% under the Standardized Approach compared with 9.7% under the Advanced Approach. For all periods prepared under the NPRs prior to March 31, 2013, this ratio was higher under the Standardized Approach, and therefore was presented under the Advanced Approach. The estimated Basel III Tier 1 common equity ratio at March 31, 2012 was based on prior Basel III guidance and the proposed market risk rule.

(b)

Preliminary.

(c)

The NPRs and prior Basel III guidance do not add back to capital the adjustment to other comprehensive income that Basel I makes for pension liabilities and available-for-sale securities. Also, under the NPRs and prior Basel III guidance, pension assets recorded on the balance sheet and adjustments related to equity method investments are a deduction from capital.

(d)

Primary differences between risk-weighted assets determined under Basel I compared with the NPRs and prior Basel III guidance include: the determination of credit risk under Basel I uses predetermined risk weights and asset classes and relies in part on the use of external credit ratings, while the NPRs use, in addition to the broader range of predetermined risk weights and asset classes, certain alternatives to external credit ratings. Securitization exposure receives a higher risk-weighting under the NPRs and prior Basel III guidance than Basel I; also, the NPRs and prior Basel III guidance include additional adjustments for operational risk, market risk, counterparty credit risk and equity exposures.

N/A – Not applicable.

Cautionary Statement

A number of statements (i) in this Quarterly Earnings Review, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and preliminary business metrics and statements made regarding our operational excellence initiatives, and the opportunity for us to realize gains as we rebalance and manage duration risk in our investment securities portfolio. 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 Review, 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, 2012 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Review speak only as of April 17, 2013, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

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