Edgar Filing: Bank of New York Mellon Corp

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

[ ] 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
Consolidated Financial Highlights (unaudited)	2

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	4
Overview	4
Key first quarter 2014 and subsequent events	4
Highlights of first quarter 2014 results	5
Fee and other revenue	7
Net interest revenue	10
Average balances and interest rates	11
Noninterest expense	12
Income taxes	13
Review of businesses	13
Critical accounting estimates	23
Consolidated balance sheet review	24
Liquidity and dividends	36
Capital	41
Trading activities and risk management	45
Foreign exchange and other trading	46
Asset/liability management	47
Off-balance sheet arrangements	48
Supplemental information - Explanation of GAAP and Non-GAAP financial measures	49
Recent accounting and regulatory developments	56
Website information	60

Item 1. Financial Statements:
Consolidated Income Statement (unaudited)	61
Consolidated Comprehensive Income Statement (unaudited)	63
Consolidated Balance Sheet (unaudited)	64
Consolidated Statement of Cash Flows (unaudited)	65
Consolidated Statement of Changes in Equity (unaudited)	66



	Page
Notes to Consolidated Financial Statements:
Note 1—Basis of presentation	67
Note 2—Accounting changes and new accounting guidance	67
Note 3—Acquisitions and dispositions	69
Note 4—Securities	69
Note 5—Loans and asset quality	73
Note 6—Goodwill and intangible assets	80
Note 7—Other assets	81
Note 8—Net interest revenue	82
Note 9—Employee benefit plans	83
Note 10—Restructuring charges	84
Note 11—Income taxes	84
Note 12—Securitizations and variable interest entities	85
Note 13—Preferred stock	86
Note 14—Other comprehensive income (loss)	88
Note 15—Fair value measurement	88
Note 16—Fair value option	103
Note 17—Derivative instruments	103
Note 18—Commitments and contingent liabilities	108
Note 19—Lines of businesses	113
Note 20—Supplemental information to the Consolidated Statement of Cash Flows	116

Item 4. Controls and Procedures	117
Forward-looking Statements	118

Part II - Other Information
Item 1. Legal Proceedings	120
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	120
Item 6. Exhibits	120

Signature	121
Index to Exhibits	122

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)	1Q14			4Q13			1Q13			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 Bond^SM 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