Bank of New York Mellon : Form 10-Q 3Q2019

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, 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]

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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	BK/P	New York Stock Exchange
(fully and unconditionally guaranteed by The Bank of New York Mellon Corporation)

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

As of Sept. 30, 2019, 922,198,877 shares of the registrant's common stock, $0.01 par value per share, were outstanding.

THE BANK OF NEW YORK MELLON CORPORATION

Third 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
Key third quarter 2019 events	4
Highlights of third quarter 2019 results	5
Fee and other revenue	6
Net interest revenue	9
Noninterest expense	12
Income taxes	12
Review of businesses	13
Critical accounting estimates	20
Consolidated balance sheet review	20
Liquidity and dividends	29
Capital	33
Trading activities and risk management	36
Asset/liability management	39
Off-balance sheet arrangements	39
Supplemental information - Explanation of GAAP	40
and Non-GAAP financial measures
Recent accounting and regulatory developments	42
Website information	43

Item 1. Financial Statements:

	Page
Notes to Consolidated Financial Statements:
Note 1-Basis of presentation	52
Note 2-Accounting changes and new accounting	52
guidance
Note 3-Acquisitions and dispositions	53
Note 4-Securities	53
Note 5-Loans and asset quality	58
Note 6-Leasing	63
Note 7-Goodwill and intangible assets	65
Note 8-Other assets	66
Note 9-Contract revenue	68
Note 10-Net interest revenue	70
Note 11-Employee benefit plans	71
Note 12-Income taxes	71
Note 13-Variable interest entities and	71
securitization
Note 14-Preferred stock	73
Note 15-Other comprehensive income (loss)	74
Note 16-Fair value measurement	76
Note 17-Fair value option	82
Note 18-Derivative instruments	82
Note 19-Commitments and contingent liabilities	89
Note 20-Lines of business	94
Note 21-Supplemental information to the	96
Consolidated Statement of Cash Flows
Item 4. Controls and Procedures	97
Forward-looking Statements	98

Consolidated Income Statement (unaudited)	44	Part II - Other Information
Consolidated Comprehensive Income Statement	46	Item 1.	Legal Proceedings.	100
(unaudited)	Item 2.	Unregistered Sales of Equity Securities and Use	100
Consolidated Balance Sheet (unaudited)	47	of Proceeds.
Consolidated Statement of Cash Flows	48	Item 6.	Exhibits.	100
(unaudited)
Consolidated Statement of Changes in Equity	49	Index to Exhibits	101
(unaudited)
Signature	103

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

Consolidated Financial Highlights (unaudited)

		Quarter ended					Year-to-date
(dollars in millions, except per share amounts and unless		Sept. 30,		June 30,		Sept. 30,			Sept. 30,		Sept. 30,
otherwise noted)		2019		2019		2018			2019		2018
Results applicable to common shareholders of The Bank of New
York Mellon Corporation:	$	1,002					$	2,881
Net income	$	969	$	1,075	$	3,265
Basic earnings per share	$	1.07	$	1.01	$	1.07	$	3.02	$	3.21
Diluted earnings per share	$	1.07	$	1.01	$	1.06	$	3.01	$	3.20
Fee and other revenue	$	3,128	$	3,112	$	3,168	$	9,272	$	9,648
Income from consolidated investment management funds		3		10		10			39		11
Net interest revenue		730		802		891			2,373		2,726
Total revenue	$	3,861	$	3,924	$	4,069	$	11,684	$	12,385
Return on common equity (annualized)		10.6%		10.4%		11.2%			10.3%		11.6%
Return on tangible common equity (annualized) - Non-GAAP(a)		21.4%		21.2%		23.1%			21.1%		24.1%
Return on average assets (annualized)		1.13%		1.13%		1.28%			1.12%		1.26%
Fee revenue as a percentage of total revenue		81%		79%		78%			79%		78%
Non-U.S. revenue as a percentage of total revenue		37%		36%		37%			36%		37%
Pre-tax operating margin		33%		33%		33%			32%		34%
Net interest margin		0.99%		1.12%		1.27%			1.10%		1.25%
Net interest margin on a fully taxable equivalent ("FTE") basis -		1.00%		1.12%		1.28%			1.11%		1.26%
Non-GAAP(b)
Assets under custody and/or administration ("AUC/A") at period end	$	35.8	$	35.5	$	34.5	$	35.8	$	34.5
(in trillions) (c)
Assets under management ("AUM") at period end (in billions) (d)	$	1,881	$	1,843	$	1,828	$	1,881	$	1,828
Market value of securities on loan at period end (in billions) (e)	$	362	$	369	$	415	$	362	$	415
Average common shares and equivalents outstanding (in
thousands):		933,264							949,035
Basic			951,281		999,808			1,008,967
Diluted		935,677		953,928	1,003,665			951,876	1,013,242
Selected average balances:	$	294,154					$	287,964
Interest-earning assets	$	287,417	$	279,218	$	291,040
Total assets	$	350,679	$	342,384	$	332,341	$	343,129	$	345,520
Interest-bearing deposits	$	177,401	$	167,545	$	148,636	$	168,339	$	152,354
Noninterest-bearing deposits	$	49,027	$	52,956	$	60,677	$	52,168	$	65,446
Long-term debt	$	28,386	$	27,681	$	28,074	$	28,108	$	28,275
Preferred stock	$	3,542	$	3,542	$	3,542	$	3,542	$	3,542
Total The Bank of New York Mellon Corporation common	$	37,597	$	37,487	$	38,036	$	37,392	$	37,795
shareholders' equity
Other information at period end:	$	0.31					$	0.87
Cash dividends per common share	$	0.28	$	0.28	$	0.76
Common dividend payout ratio		29%		28%		26%			29%		24%
Common dividend yield (annualized)		2.7%		2.5%		2.2%			2.6%		2.0%
Closing stock price per common share	$	45.21	$	44.15	$	50.99	$	45.21	$	50.99
Market capitalization	$	41,693	$	41,619	$	50,418	$	41,693	$	50,418
Book value per common share	$	40.75	$	40.30	$	38.45	$	40.75	$	38.45
Tangible book value per common share - Non-GAAP(a)	$	20.59	$	20.45	$	19.35	$	20.59	$	19.35
Full-time employees		48,700		49,100		52,000			48,700		52,000
Common shares outstanding (in thousands)		922,199		942,662		988,777			922,199		988,777

2 BNY Mellon

Consolidated Financial Highlights (unaudited) (continued)

Regulatory capital and other ratios	Sept. 30,	June 30,	Dec. 31,
	2019	2019	2018
Average liquidity coverage ratio ("LCR")	117%	117%	118%
Regulatory capital ratios: (f)
Advanced:	11.1%
Common Equity Tier 1 ("CET1") ratio	11.1%	10.7%
Tier 1 capital ratio	13.2	13.2	12.8
Total capital ratio	14.0	14.0	13.6
Standardized:	12.3%
CET1 ratio	12.4%	11.7%
Tier 1 capital ratio	14.6	14.8	14.1
Total capital ratio	15.6	15.7	15.1
Tier 1 leverage ratio	6.5%	6.8%	6.6%
Supplementary leverage ratio ("SLR")	6.0	6.3	6.0
BNY Mellon shareholders' equity to total assets ratio	11.0%	10.9%	11.2%
BNY Mellon common shareholders' equity to total assets ratio	10.1	10.0	10.2

1. 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 40 for the reconciliation of Non-GAAP measures.
2. See "Average balances and interest rates" beginning on page 10 for a reconciliation of this Non-GAAP measure.
3. Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.4 trillion at Sept. 30, 2019, June 30, 2019 and Sept. 30, 2018.
4. Excludes securities lending cash management assets and assets managed in the Investment Services business.
5. 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 $66 billion at Sept. 30, 2019, $64 billion at June 30, 2019 and $69 billion at Sept. 30, 2018.
6. 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 33.

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.

Key third quarter 2019 events

Todd Gibbons named interim Chief Executive Officer; Joseph Echevarria named Non-Executive Chairman

In September 2019, Todd Gibbons was appointed interim Chief Executive Officer and member of the Board of Directors of the Company. During Todd's career at BNY Mellon, he has held leadership roles across risk, finance, client management and many of our businesses. Most recently, Todd served as Vice Chairman and CEO of Clearing, Markets and Client Management. Todd also served for nine years as BNY Mellon's Chief Financial Officer. Joseph Echevarria, a member of BNY Mellon's Board of Directors since February 2015 and Lead Independent Director, was appointed Non-Executive Chairman of the Board.

Definitive agreement to sell interest in Promontory Interfinancial Network, LLC

In September 2019, MCDI (Holdings) LLC, a wholly-owned subsidiary of BNY Mellon, along with the other holders of Promontory Interfinancial Network, LLC ("PIN"), entered into a definitive agreement to sell their interests in PIN. The

4 BNY Mellon