Bank of New York Mellon : Form 10-Q 1Q2019

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, 2019

or

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

Commission File No. 001-35651

THE BANK OF NEW YORK MELLON CORPORATION

(Exact name of registrant as specified in its charter)

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

240 Greenwich Street

New York, New York 10286

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code - [phone]

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 No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes

No

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

Large accelerated filer	Accelerated filer
Non-accelerated filer	Smaller reporting company
	Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).	Yes	No
Securities registered pursuant to Section 12(b) of the Act:	Trading	Name of each exchange
Title of each class	symbol(s)	on which registered
Common Stock, $0.01 par value	BK	New York Stock Exchange
Depositary Shares, each representing 1/4,000th of a share of Series C Noncumulative Perpetual	BK PrC	New York Stock Exchange
Preferred Stock
6.244% Fixed-to-Floating Rate Normal Preferred Capital Securities of Mellon Capital IV (fully	BK/P	New York Stock Exchange
and unconditionally guaranteed by The Bank of New York Mellon Corporation)

As of March 31, 2019, 957,517,268 shares of the registrant's common stock, $0.01 par value per share, were outstanding.

THE BANK OF NEW YORK MELLON CORPORATION

First Quarter 2019 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
Highlights of first quarter 2019 results	4
Fee and other revenue	6
Net interest revenue	8
Average balances and interest rates	9
Noninterest expense	10
Income taxes	10
Review of businesses	11
Critical accounting estimates	17
Consolidated balance sheet review	18
Liquidity and dividends	27
Capital	31
Trading activities and risk management	34
Asset/liability management	36
Off-balance sheet arrangements	37
Supplemental information - Explanation of GAAP	38
and Non-GAAP financial measures
Recent accounting and regulatory developments	40
Website information	41

Item 1. Financial Statements:

	Page
Notes to Consolidated Financial Statements:
Note 1-Basis of presentation	49
Note 2-Accounting changes and new accounting	49
guidance
Note 3-Acquisitions and dispositions	50
Note 4-Securities	50
Note 5-Loans and asset quality	55
Note 6-Leasing	60
Note 7-Goodwill and intangible assets	61
Note 8-Other assets	63
Note 9-Contract revenue	64
Note 10-Net interest revenue	66
Note 11-Employee benefit plans	67
Note 12-Income taxes	67
Note 13-Variable interest entities and	67
securitization
Note 14-Preferred stock	68
Note 15-Other comprehensive income (loss)	69
Note 16-Fair value measurement	70
Note 17-Fair value option	76
Note 18-Derivative instruments	76
Note 19-Commitments and contingent liabilities	83
Note 20-Lines of business	88
Note 21-Supplemental information to the	90
Consolidated Statement of Cash Flows
Item 4. Controls and Procedures	91
Forward-looking Statements	92

Consolidated Income Statement (unaudited)	42	Part II - Other Information
Consolidated Comprehensive Income Statement	44	Item 1.	Legal Proceedings.	94
(unaudited)	Item 2.	Unregistered Sales of Equity Securities and Use	94
Consolidated Balance Sheet (unaudited)	45	of Proceeds.
Consolidated Statement of Cash Flows	46	Item 6.	Exhibits.	94
(unaudited)
Consolidated Statement of Changes in Equity	47	Index to Exhibits	95
(unaudited)
Signature	97

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

Consolidated Financial Highlights (unaudited)

		Quarter ended
(dollars in millions, except per share amounts and unless otherwise noted)		March 31,		Dec. 31,		March 31,
	2019		2018		2018
Results applicable to common shareholders of The Bank of New York Mellon Corporation:	$	910
Net income	$	832	$	1,135
Basic earnings per share	$	0.94	$	0.84	$	1.11
Diluted earnings per share	$	0.94	$	0.84	$	1.10
Fee and other revenue	$	3,032	$	3,146	$	3,270
Income (loss) from consolidated investment management funds		26		(24)		(11)
Net interest revenue		841		885		919
Total revenue	$	3,899	$	4,007	$	4,178
Return on common equity (annualized)		10.0%		8.7%		12.2%
Return on tangible common equity (annualized) - Non-GAAP(a)		20.7%		17.9%		25.9%
Return on average assets (annualized)		1.10%		0.97%		1.29%
Fee revenue as a percentage of total revenue		78%		79%		79%
Percentage of non-U.S. total revenue		36%		36%		37%
Pre-tax operating margin		31%		25%		35%
Net interest margin		1.20%		1.24%		1.22%
Net interest margin on a fully taxable equivalent ("FTE") basis - Non-GAAP(b)		1.20%		1.24%		1.23%
Assets under custody and/or administration ("AUC/A") at period end (in trillions) (c)	$	34.5	$	33.1	$	33.5
Assets under management ("AUM") at period end (in billions) (d)	$	1,841	$	1,722	$	1,868
Market value of securities on loan at period end (in billions) (e)	$	377	$	373	$	436
Average common shares and equivalents outstanding (in thousands):		962,397
Basic			984,343	1,016,797
Diluted		965,960		988,650	1,021,731
Selected average balances:	$	282,185
Interest-earning assets	$	285,706	$	302,069
Total assets	$	336,165	$	338,591	$	358,175
Interest-bearing deposits	$	159,879	$	161,663	$	155,704
Noninterest-bearing deposits	$	54,583	$	58,972	$	71,005
Long-term debt	$	28,254	$	28,201	$	28,407
Preferred stock	$	3,542	$	3,542	$	3,542
Total The Bank of New York Mellon Corporation common shareholders'equity	$	37,086	$	37,886	$	37,593
Other information at period end:	$	0.28
Cash dividends per common share	$	0.28	$	0.24
Common dividend payout ratio		30%		33%		22%
Common dividend yield (annualized)		2.3%		2.4%		1.9%
Closing stock price per common share	$	50.43	$	47.07	$	51.53
Market capitalization	$	48,288	$	45,207	$	52,080
Book value per common share	$	39.36	$	38.63	$	37.78
Tangible book value per common share - Non-GAAP(a)	$	19.74	$	19.04	$	18.78
Full-time employees		49,800		51,300		52,100
Common shares outstanding (in thousands)		957,517		960,426	1,010,676

2 BNY Mellon

Consolidated Financial Highlights (unaudited) (continued)

Regulatory capital and other ratios	March 31,	Dec. 31,
	2019	2018
Average liquidity coverage ratio ("LCR")	118%	118%
Regulatory capital ratios: (f)
Advanced:	11.1%
Common Equity Tier 1 ("CET1") ratio	10.7%
Tier 1 capital ratio	13.2	12.8
Total (Tier 1 plus Tier 2) capital ratio	14.0	13.6
Standardized:	12.0%
CET1 ratio	11.7%
Tier 1 capital ratio	14.3	14.1
Total (Tier 1 plus Tier 2) capital ratio	15.3	15.1
Tier 1 leverage ratio	6.8%	6.6%
Supplementary leverage ratio ("SLR")	6.3	6.0
BNY Mellon shareholders' equity to total assets ratio	11.9%	11.2%
BNY Mellon common shareholders' equity to total assets ratio	10.9	10.2

(a)Return on tangible common equity and tangible book value per common share, Non-GAAP measures, exclude goodwill and intangible assets, net of deferred tax liabilities. See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 38 for the reconciliation of Non-GAAP measures.

(b)See "Average balances and interest rates" on page 9 for a reconciliation of this Non-GAAP measure.

(c)Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.3 trillion at March 31, 2019, $1.2 trillion at Dec. 31, 2018 and $1.3 trillion at March 31, 2018.

(d)Excludes securities lending cash management assets and assets managed in the Investment Services business.

(e)Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $62 billion at March 31, 2019, $58 billion at Dec. 31, 2018 and $73 billion at March 31, 2018.

(f)For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. For additional information on our capital ratios, see "Capital" beginning on page 31.

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, 2018 ("2018 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."

Overview

Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a more than 230-year history, BNY Mellon is a global company that manages and services assets for financial institutions, corporations and individual investors in 35 countries.

BNY Mellon has two business segments, Investment Services and Investment Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell- side market participants, as well as leading institutional and wealth management clients globally.

The diagram below presents our two business segments and lines of business, with the remaining operations in the Other segment.

Highlights of first quarter 2019 results

Net income applicable to common shareholders was $910 million, or $0.94 per diluted common share, in the first quarter of 2019. Net income applicable to common shareholders was $1.14 billion, or $1.10 per diluted common share, in the first quarter of 2018. The highlights below are based on the first quarter of 2019 compared with the first quarter of 2018, unless otherwise noted.

•Total revenue of $3.9 billion decreased 7% primarily reflecting:

•Fee revenue decreased 9%. Approximately one-third of the decrease resulted from the negative impact of foreign currency translation, the 2018 divestitures in Asset Management and asset-related gains recorded in the first quarter of 2018. The rest of the decrease reflects the impact of the cumulative AUM outflows since the first quarter of 2018 and lower foreign exchange revenue, client activity and performance fees, partially offset by growth in collateral management and clearance volumes. (See "Fee and other revenue" beginning on page 6.)

4 BNY Mellon