In 2015, we executed against our strategic priorities, and the results were evident in our financial performance.
We are proud of what we accomplished this year as our financial performance improved against many of the measures that matter most. We are meeting our three-year Investor Day goals and positioning the company to be even more effective and successful. Yet, we realize that we have more to do.
We are energized and up for the challenges our industry is facing, with a strategic plan designed to tackle them and drive success. We remain dedicated to managing our company to create long-term shareholder value regardless of the environment.
Our company, like many other financial services firms, has been grappling with the pace of global change and post-crisis economic, geopolitical and regulatory complexities. These challenges have required us to evolve in order to thrive in the years ahead.
With a largely new leadership team in place, we have been transforming culturally, structurally and operationally. We have re-examined our competitive strengths and strategic priorities, while adapting to changing regulation. We have realigned our organization to focus our energies on what we do best. Importantly, we have also been letting go of what is not working for us through the sale or closing of under-performing businesses. And we have been investing in next-generation technology platforms to simplify our operating environment, lower structural costs and deliver innovative and strategic solutions for our clients.
We are also committed to improving and transforming the client experience. We are convinced that innovating and collaborating with our clients will deliver better, more efficient solutions for them and will accelerate our revenue growth in the years ahead. The world expects us to have the highest levels of service, resiliency and reliability. We are determined to deliver.
We are playing in a competitive space, but we have a distinctive strategy we believe in. And we remain confident that we can deliver on our Investor Day goals.
INCREASED EARNINGS PER SHARE:
On a GAAP basis, we earned $2.71 per share in 2015, up 26 percent compared to 2014. On an adjusted basis, we earned $2.85 per share, up 19 percent from last year’s adjusted EPS.1 Nearly all business lines were positive contributors to this improvement.
On an adjusted basis, we reduced our expenses 2 percent compared to 2014.1 Our business improvement process and cost discipline more than offset continued strategic investments to enhance client service delivery, improve our technology platforms, and strengthen our risk management, compliance and control functions.
INCREASED PRE-TAX OPERATING MARGIN:
Our adjusted pre-tax operating margin was 31 percent, up 270 basis points versus 2014, and we generated 420 basis points of positive operating leverage.1
INCREASED RETURN ON TANGIBLE COMMON EQUITY (TCE):
We achieved an adjusted return on TCE of 21 percent, up from 18 percent in 2014.1 Return on TCE reflects the value we are creating from the investments we are making.
It was a challenging revenue environment in 2015. Yet, we remained on track to meet our three-year performance goals set in late 2014 – goals which called for healthy earnings growth not reliant on improved market conditions. Our success during 2015 notwithstanding, we are far from satisfied. Our journey is just beginning.
|Return on tangible
|1 For a reconciliation and explanation of these non-GAAP measures, see pages 125-131 of our 2015 Annual Report.
2 Three-year performance goal assuming flat interest-rate scenario.
We have a clear set of strategic priorities designed to capitalize on our expertise, scale and trust while strengthening the client experience. Our goal: driving economic value for our company and our clients.
Our improved performance reflects our heightened focus on profitable and disciplined revenue growth. We are not focused on driving gross revenue and expanding our market share at any cost.
We leverage our insight and expertise to continually create new sources of value for clients and shareholders. At the same time, we are also examining each business and solution we offer to ensure they are working well for us and our clients.
Leveraging Expertise and Scale
Delivering Innovative Strategic Solutions to Clients
Increasing Our Technological Edge to Revolutionize the Client Experience
Technology is one vital component of our quest to deliver excellence to our clients.
Our technology innovations will make it easier for clients to do business with us. They will also reduce costs for them and us. Our innovations will also enable us to create new solutions for our clients, providing additional revenue streams and enhanced future profitability.
We are boldly advancing our use of new technologies to create a more digital enterprise, ensuring delivery of the next generation of innovations for our clients. We have made significant investments and advances already, but we recognize that we have more work to do.
We are making further investments in the resiliency and reliability of our proprietary systems to help ensure the seamless delivery of critical services to our clients.
The world depends on us to have a highly reliable network. We hold ourselves to that standard.
NEXEN, our next-generation technology platform, enables client and developer innovation and consolidates solutions from BNY Mellon, select third parties and clients onto one secure, intuitive and powerful platform. The open architecture platform will allow us to integrate with complementary third-party providers and fintech solutions emerging in the industry. It will provide a consistent client experience across businesses and regions while offering clients increased flexibility and new opportunities to leverage services and data.
NEXEN embodies innovation, both in its use of leading-edge technology and its establishment of a digital ecosystem for financial services. We believe NEXEN is a real game-changer for us and our clients.
Our business improvement process is leveraging our scale and expertise to deliver efficiency benefits to clients and improved results for our company. It is strengthening service quality and client and employee productivity, while reducing risk and structural costs.
Our success on this front is reflected in 1) a better client experience; 2) lower expenses in nearly all categories; and 3) improved margins in our businesses.
Here are some examples of our business improvement process at work:
Redeploying our capital
Improving service quality, while reducing risk and cost
We recognize the importance of our organization to the financial marketplace. We have maintained the strong capital and liquidity positions and high credit ratings that our clients expect of us. We have also continued to invest in and focus on compliance, risk management and control functions to help ensure our continued safety and soundness.
Actions to Increase our Safety and Soundness:
We are using our capital wisely and maintaining a strong balance sheet. Over the last four years, we generated more than $12 billion of tangible capital. In 2015, we returned $3.1 billion of that capital to shareholders in the form of share repurchases and dividends even as we have increased our capital to meet new higher regulatory requirements. Our payout ratio in 2015 was 97 percent on an adjusted basis,<sup>1</sup> near the top end of our targeted range of approximately 80-100 percent. Over the last four years we have reduced our shares outstanding by 13 percent, which is among the best in the industry.
Our people are our ultimate competitive advantage and we are continuing to invest in them globally. We are focused on attracting, developing and retaining top talent. Our philosophy is simple: if we are committed to attracting and developing highly talented people and helping them reach their full potential, it will manifest itself in positive ways for our clients and all our stakeholders. It is a reliable formula. We do this by providing an inclusive and collaborative culture with unique opportunities to learn, grow and take career ownership.
Corporate and personal accountability is at the core of our business strategy. Our Corporate Social Responsibility (CSR) practices help us to earn the trust of our clients and other stakeholders. They also promote transparency and encourage innovation for a better world.
We focus on three CSR strategy pillars:
Our total employee and company contributions to charities in communities around the world increased in 2015 to nearly $40 million, including donations to support flood relief efforts in Chennai, India. As part of our Powering Potential philanthropic focus, we continued to work with our non-profit partners to provide workforce development opportunities for underrepresented groups. Over the past six years, we estimate that this support has helped more than 100,000 people around the world.
Reflecting our continued progress in these areas, our company was named for the second consecutive year to the Dow Jones Sustainability World Index (DJSI World), one of the most highly regarded global sustainability indices.
We remain confident in our ability to achieve our three-year performance targets.
Given the challenging market conditions as we begin 2016, it is critical for us to drive efficiencies and stay focused on executing well on our priorities. We continue to identify opportunities to reduce corporate overhead and to leverage scale in operations, technology and distribution – while investing in revenue, technology and regulatory initiatives and delivering a high level of service to our clients.
I want to thank all of our team members and my Executive Committee partners for rising to the occasion to meet the heightened expectations we’ve set for ourselves, beyond those of our clients and shareholders.
I would also like to thank our Board of Directors for their strategic counsel and for continuing to challenge us to ask more of ourselves and our company. My special thanks to William C. Richardson and Richard J. Kogan, who will not stand for re-election to our board. Both have served our company for nearly 20 years. They have made significant contributions during an extended period of growth, change and strategic realignment, and I am personally grateful for their guidance and support.
Thank you to my fellow shareholders for recognizing our tremendous potential and having faith that we will continue to realize it.
Gerald L. Hassell
Chairman and Chief Executive Officer