October 20, 2016

BNY Mellon Reports Third Quarter Earnings Of $974 Million Or $0.90 Per Common Share


NEW YORK, Oct. 20, 2016 /PRNewswire/ -- 

  • Earnings of $979 million or $0.90 per common share on an adjusted basis (a)
  • Earnings per common share up 22% on both a GAAP and adjusted basis year-over-year (a)

TOTAL REVENUE OF $3.94 BILLION

  • Fee and other revenue increased 3% year-over-year
  • Net interest revenue increased 2% year-over-year

CONTINUED FOCUS ON EXPENSE CONTROL

  • Total noninterest expense decreased 1% year-over-year

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS

  • Repurchased 11.6 million common shares for $464 million
  • Return on common equity of 11%; Adjusted return on tangible common equity of 24% (a)
  • SLR - transitional of 6.0%; SLR - fully phased-in of 5.7% (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter net income applicable to common shareholders of $974 million, or $0.90 per diluted common share, or $979 million, or $0.90 per diluted common share, as adjusted (Non-GAAP).  In the third quarter of 2015, net income applicable to common shareholders was $820 million, or $0.74 per diluted common share, or $828 million, or $0.74 per diluted common share, as adjusted (Non-GAAP).  In the second quarter of 2016, net income applicable to common shareholders was $825 million, or $0.75 per diluted common share, or $830 million, or $0.76 per diluted common share, as adjusted (Non-GAAP) (a).

"We delivered strong results for the quarter, once again meeting or exceeding our three-year Investor Day goals. Each of our businesses performed well, as total revenue was up 4 percent and our business improvement process continued to pay off, generating more than 500 basis points of positive operating leverage. Our strategy is benefiting our clients and shareholders through all market environments," Gerald L. Hassell, chairman and chief executive officer, said.

"We also strengthened our capital ratios while returning significant capital to shareholders through repurchases and dividends, and made progress in our resolution planning to ensure that BNY Mellon can be resolved without posing systemic risk to the financial system," Mr. Hassell added.

"We continue to invest in best-in-class technology and data analytics to enhance our clients' experience with us and provide actionable insights for them to drive better financial results and investment performance.  We are confident in our ability to deliver world-class solutions to our clients while we achieve solid growth rates and returns for our shareholders," Mr. Hassell concluded.

(a)

These measures are considered to be Non-GAAP.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the adjusted earnings and earnings per common share reconciliation and tangible common equity ratio reconciliation.  See "Capital and Liquidity" beginning on page 13 for the reconciliation of the SLR.

CONFERENCE CALL INFORMATION

Gerald L. Hassell, chairman and chief executive officer, and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 20, 2016.  This conference call and audio webcast will include forward-looking statements and may include other material information. 

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (888) 898-7224 (U.S.) or (913) 312-9027 (International), and using the passcode: 619690, or by logging on to www.bnymellon.com/investorrelations.  Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EDT on Oct. 20, 2016.  Replays of the conference call and audio webcast will be available beginning Oct. 20, 2016 at approximately 2 p.m. EDT through Nov. 20, 2016 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 2620345.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

THIRD QUARTER 2016 FINANCIAL HIGHLIGHTS (a)
(comparisons are 3Q16 vs. 3Q15, unless otherwise stated)

  • Earnings

Earnings per share


Net income applicable to common shareholders of The Bank of New York Mellon Corporation

(in millions, except per share amounts)

3Q16


3Q15


Inc/(Dec)


3Q16


3Q15


Inc/(Dec)

GAAP results

$

0.90



$

0.74



22

%


$

974



$

820



19

%

Add:  M&I, litigation and restructuring charges

0.01



0.01





13



8




Less: Recovery related to Sentinel

0.01



N/A




8



N/A



Non-GAAP results

$

0.90



$

0.74


(b)

22

%


$

979



$

828



18

%

  • Total revenue of $3.9 billion, increased 4% on both a GAAP and adjusted basis (Non-GAAP) (a).
    • Investment services fees increased 2% reflecting higher money market fees, higher fees in Depositary Receipts and higher securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • Investment management and performance fees increased 4% due to higher market values and money market fees, offset by the unfavorable impact of a stronger U.S. dollar and net outflows.
    • Foreign exchange revenue decreased 3% reflecting lower volumes and volatility, partially offset by the positive net impact of foreign currency hedging activity.
    • Investment and other income increased $33 million driven by higher asset-related and seed capital gains.
    • Net interest revenue increased $15 million driven by the actions we have taken to reduce the levels of our lower yielding interest-earning assets and higher yielding interest-bearing deposits, as well as the impact of higher market interest rates.
  • The provision for credit losses was a credit of $19 million, driven by net recoveries of $13 million.
  • Noninterest expense of $2.6 billion, decreased 1% on both a GAAP and adjusted basis (Non-GAAP) (a). The decrease reflects lower expenses in most categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower other, software and equipment, legal, net occupancy and business development expenses, partially offset by higher staff and distribution and servicing expenses.
  • Effective tax rate of 24.6%.
                     
  • Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
    • AUC/A of $30.5 trillion increased 7% reflecting higher market values, offset by the unfavorable impact of a stronger U.S. dollar.
      • Estimated new AUC/A wins in Asset Servicing of $150 billion in 3Q16.
    • AUM of $1.72 trillion increased 6% reflecting higher market values offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
      • Net long-term inflows of $1 billion in 3Q16 were a combination of $3 billion of inflows into actively managed strategies and $2 billion of outflows from index strategies.
      • Net short-term outflows totaled $1 billion in 3Q16.
                             
  • Capital
    • Repurchased 11.6 million common shares for $464 million in 3Q16.
    • Return on common equity of 11%; Adjusted return on tangible common equity of 24% in 3Q16 (a).
    • SLR - transitional of 6.0%; SLR - fully phased-in of 5.7% (a).

(a)

See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.  In all periods presented, Non-GAAP information excludes the net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel Management Group, Inc. ("Sentinel") loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.  See "Capital and Liquidity" beginning on page 13 for the reconciliation of the SLR.

(b)

Does not foot due to rounding.

N/A - Not applicable.

Note: Throughout this document, sequential growth rates are unannualized.

 

FINANCIAL SUMMARY

(dollars in millions, except per share amounts; common shares in thousands)






3Q16 vs.

3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Revenue:








Fee and other revenue

$

3,150


$

2,999


$

2,970


$

2,950


$

3,053


5

%

3

%

Income (loss) from consolidated investment management funds

17


10


(6)


16


(22)




Net interest revenue

774


767


766


760


759


1


2


Total revenue – GAAP

3,941


3,776


3,730


3,726


3,790


4


4


Less:  Net income (loss) attributable to noncontrolling interests 
               related to consolidated investment management funds

9


4


(7)


5


(5)




Total revenue – Non-GAAP

3,932


3,772


3,737


3,721


3,795


4


4


Provision for credit losses

(19)


(9)


10


163


1




Expense:








Noninterest expense – GAAP

2,643


2,620


2,629


2,692


2,680


1


(1)


Less:  Amortization of intangible assets

61


59


57


64


66




M&I, litigation and restructuring charges

18


7


17


18


11




Total noninterest expense – Non-GAAP

2,564


2,554


2,555


2,610


2,603



(1)


Income:








Income before income taxes

1,317


1,165


1,091


871


1,109


13

%

19

%

Provision for income taxes

324


290


283


175


282




Net income

$

993


$

875


$

808


$

696


$

827




Net (income) loss attributable to noncontrolling interests (a)

(6)


(2)


9


(3)


6




Net income applicable to shareholders of The Bank of New York Mellon Corporation

987


873


817


693


833




Preferred stock dividends

(13)


(48)


(13)


(56)


(13)




Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

974


$

825


$

804


$

637


$

820












Operating leverage (b)






349

bps

536

bps

Adjusted operating leverage – Non-GAAP (b)






385

bps

511

bps









Key Metrics:








Pre-tax operating margin (c)

33

%

31

%

29

%

23

%

29

%



Adjusted pre-tax operating margin – Non-GAAP (c)

35

%

33

%

31

%

30

%

31

%











Return on common equity (annualized) (c)

10.8

%

9.3

%

9.2

%

7.1

%

9.1

%



Adjusted return on common equity (annualized) – Non-GAAP (c)

11.3

%

9.7

%

9.7

%

8.9

%

9.7

%











Return on tangible common equity (annualized) – Non-GAAP (d)

23.5

%

20.4

%

20.6

%

16.2

%

20.8

%



Adjusted return on tangible common equity (annualized) – Non-GAAP (c)(d)

23.6

%

20.5

%

20.8

%

19.0

%

21.0

%











Fee revenue as a percentage of total revenue

79

%

79

%

80

%

79

%

81

%











Percentage of non-U.S. total revenue

36

%

34

%

33

%

34

%

37

%











Average common shares and equivalents outstanding:








Basic

1,062,248


1,072,583


1,079,641


1,088,880


1,098,003




Diluted

1,067,682


1,078,271


1,085,284


1,096,385


1,105,645












Period end:








Full-time employees

52,300


52,200


52,100


51,200


51,300




Book value per common share – GAAP (d)

$

34.19


$

33.72


$

33.34


$

32.69


$

32.59




Tangible book value per common share – Non-GAAP (d)

$

16.67


$

16.25


$

15.87


$

15.27


$

15.16




Cash dividends per common share

$

0.19


$

0.17


$

0.17


$

0.17


$

0.17




Common dividend payout ratio

21

%

23

%

23

%

30

%

23

%



Closing stock price per common share

$

39.88


$

38.85


$

36.83


$

41.22


$

39.15




Market capitalization

$

42,167


$

41,479


$

39,669


$

44,738


$

42,789




Common shares outstanding

1,057,337


1,067,674


1,077,083


1,085,343


1,092,953




(a)

Primarily attributable to noncontrolling interests related to consolidated investment management funds.

(b)

Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the components of this measure.

(c)

Non-GAAP information for all periods presented excludes the net income (loss) attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.

(d)

Tangible book value per common share - Non-GAAP and tangible common equity exclude goodwill and intangible assets, net of deferred tax liabilities.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.

bps – basis points.

 

CONSOLIDATED BUSINESS METRICS

Consolidated business metrics







3Q16 vs.

3Q16


2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Changes in AUM (in billions): (a)









Beginning balance of AUM

$

1,664



$

1,639


$

1,625


$

1,625


$

1,700




Net inflows (outflows):









Long-term:









Equity

(3)



(2)


(3)


(9)


(4)




Fixed income



(2)



1


(3)




Liability-driven investments (b)

4



15


14


11


11




Alternative investments

2



1


1


2


1




Total long-term active inflows

3



12


12


5


5




Index

(2)



(17)


(11)


(16)


(10)




Total long-term inflows (outflows)

1



(5)


1


(11)


(5)




Short term:









Cash

(1)



4


(9)


2


(10)




Total net (outflows)



(1)


(8)


(9)


(15)




Net market impact/other

80



71


41


24


(35)




Net currency impact

(29)



(47)


(19)


(15)


(25)




Acquisition



2







Ending balance of AUM

$

1,715


(c)

$

1,664


$

1,639


$

1,625


$

1,625


3

%

6

%










AUM at period end, by product type: (a)









Equity

13

%


14

%

14

%

14

%

14

%



Fixed income

14



13


13


13


13




Index

18



18


19


20


20




Liability-driven investments (b)

35



34


33


32


32




Alternative investments

4



4


4


4


4




Cash

16



17


17


17


17




Total AUM

100

%

(c)

100

%

100

%

100

%

100

%












Investment Management:









Average loans (in millions)

$

15,308



$

14,795


$

14,275


$

13,447


$

12,779


3

%

20

%

Average deposits (in millions)

$

15,600



$

15,518


$

15,971


$

15,497


$

15,282


1

%

2

%










Investment Services:









Average loans (in millions)

$

44,329



$

43,786


$

45,004


$

45,844


$

46,222


1

%

(4)

%

Average deposits (in millions)

$

220,316



$

221,998


$

215,707


$

229,241


$

232,250


(1)

%

(5)

%










AUC/A at period end (in trillions) (d)

$

30.5


(c)

$

29.5


$

29.1


$

28.9


$

28.5


3

%

7

%










Market value of securities on loan at period end (in billions) (e)

$

288



$

278


$

300


$

277


$

288


4

%

%










Asset servicing:









Estimated new business wins (AUC/A) (in billions)

$

150


(c)

$

167


$

40


$

49


$

84













Depositary Receipts:









Number of sponsored programs

1,094



1,112


1,131


1,145


1,176


(2)

%

(7)

%










Clearing services:









Average active clearing accounts (U.S. platform) (in thousands)

5,942



5,946


5,947


5,959


6,107


%

(3)

%

Average long-term mutual fund assets (U.S. platform)
     
(in millions)

$

443,112



$

431,150


$

415,025


$

437,260


$

447,287


3

%

(1)

%

Average investor margin loans (U.S. platform) (in millions)

$

10,834



$

10,633


$

11,063


$

11,575


$

11,806


2

%

(8)

%










Broker-Dealer:









Average tri-party repo balances (in billions)

$

2,212



$

2,108


$

2,104


$

2,153


$

2,142


5

%

3

%

(a)

Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.

(b)

Includes currency overlay assets under management.

(c)

Preliminary.

(d)

Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015.

(e)

Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015 and $61 billion at Sept. 30, 2015.

 

The following table presents key market metrics at period end and on an average basis.

Key market metrics






3Q16 vs.


3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

S&P 500 Index (a)

2168


2099


2060


2044


1920


3

%

13

%

S&P 500 Index – daily average

2162


2075


1951


2052


2027


4


7


FTSE 100 Index (a)

6899


6504


6175


6242


6062


6


14


FTSE 100 Index – daily average

6765


6204


5988


6271


6399


9


6


MSCI EAFE (a)

1702


1608


1652


1716


1644


6


4


MSCI EAFE – daily average

1677


1648


1593


1732


1785


2


(6)


Barclays Capital Global Aggregate BondSM Index (a)(b)

386


382


368


342


346


1


12


NYSE and NASDAQ share volume (in billions)

186


203


218


198


206


(8)


(10)


JPMorgan G7 Volatility Index – daily average (c)

10.19


11.12


10.60


9.49


9.93


(8)


3


Average Fed Funds effective rate

0.39

%

0.37

%

0.36

%

0.16

%

0.13

%

2

bps

26

bps

Foreign exchange rates vs. U.S. dollar:








British pound (a)

$

1.30


$

1.34


$

1.44


$

1.48


$

1.52


(3)

%

(14)

%

British pound – average rate

1.31


1.43


1.43


1.52


1.55


(8)


(15)


Euro (a)

1.12


1.11


1.14


1.09


1.12


1



Euro – average rate

1.12


1.13


1.10


1.10


1.11


(1)


1






















(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 AND OTHER REVENUE

Fee and other revenue






3Q16 vs.

(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Investment services fees:








Asset servicing (a)

$

1,067


$

1,069


$

1,040


$

1,032


$

1,057


%

1

%

Clearing services

349


350


350


339


345



1


Issuer services

337


234


244


199


313


44


8


Treasury services

137


139


131


137


137


(1)



Total investment services fees

1,890


1,792


1,765


1,707


1,852


5


2


Investment management and performance fees

860


830


812


864


829


4


4


Foreign exchange and other trading revenue

183


182


175


173


179


1


2


Financing-related fees

58


57


54


51


71


2


(18)


Distribution and servicing

43


43


39


41


41



5


Investment and other income

92


74


105


93


59


24


56


Total fee revenue

3,126


2,978


2,950


2,929


3,031


5


3


Net securities gains

24


21


20


21


22


N/M

N/M

Total fee and other revenue

$

3,150


$

2,999


$

2,970


$

2,950


$

3,053


5

%

3

%

(a)

Asset servicing fees include securities lending revenue of $51 million in 3Q16, $52 million in 2Q16, $50 million in 1Q16, $46 million in 4Q15 and $38 million in 3Q15. 

N/M – Not meaningful.

 

KEY POINTS

  • Asset servicing fees were $1.1 billion, an increase of 1% year-over-year and a slight decrease sequentially. The year-over-year increase primarily reflects higher money market fees and securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar and downsizing of the UK transfer agency business.
  • Clearing services fees were $349 million, an increase of 1% year-over-year and a slight decrease sequentially. The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of the previously disclosed lost business.
  • Issuer services fees were $337 million, an increase of 8% year-over-year and 44% sequentially. The year-over-year increase primarily reflects higher corporate actions in Depositary Receipts and higher money market fees in Corporate Trust. The sequential increase primarily reflects seasonally higher fees in Depositary Receipts.
  • Treasury services fees were $137 million, unchanged year-over-year and a decrease of 1% sequentially.
  • Investment management and performance fees were $860 million, an increase of 4% both year-over-year and sequentially. The year-over-year increase primarily reflects higher market values and money market fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and net outflows of assets under management in prior periods. The sequential increase primarily reflects higher market values.

Foreign exchange and other trading revenue







(in millions)

3Q16

2Q16

1Q16

4Q15

3Q15


Foreign exchange

$

175


$

166


$

171


$

165


$

180



Other trading revenue (loss)

8


16


4


8


(1)



Total foreign exchange and other trading revenue

$

183


$

182


$

175


$

173


$

179


Foreign exchange and other trading revenue totaled $183 million in 3Q16 compared with $179 million in 3Q15 and $182 million in 2Q16.  In 3Q16, foreign exchange revenue totaled $175 million, a decrease of 3% year-over-year and an increase of 5% sequentially.  The year-over-year decrease primarily reflects lower volumes and volatility, partially offset by the positive net impact of foreign currency hedging activity.  The year-over-year decrease also reflects the continued trend of clients migrating to lower margin products.  The sequential increase primarily reflects higher Depositary Receipt-related foreign exchange activity, partially offset by lower volatility.

Other trading revenue was $8 million in 3Q16, compared with a $1 million loss in 3Q15 and $16 million in 2Q16.  The year-over-year increase primarily reflects higher fixed income trading, partially offset by lower equity and other trading.  The sequential decrease primarily reflects lower results from derivative trading and hedging activity. 

  • Financing-related fees were $58 million in 3Q16 compared with $71 million in 3Q15 and $57 million in 2Q16. The year-over-year decrease primarily reflects lower underwriting fees and lower fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.
  • Distribution and servicing fees were $43 million in 3Q16 compared with $41 million in 3Q15 and $43 million in 2Q16. The year-over-year increase primarily reflects higher money market fees, partially offset by fees paid to introducing brokers.

Investment and other income







(in millions)

3Q16

2Q16

1Q16

4Q15

3Q15


Corporate/bank-owned life insurance

$

34


$

31


$

31


$

43


$

32



Expense reimbursements from joint venture

18


17


17


16


16



Seed capital gains (a)

16


11


11


10


7



Asset-related gains (losses)

8


1



5


(9)



Lease-related gains (losses)



44


(8)




Equity investment (losses)

(1)


(4)


(3)


(2)


(6)



Other income

17


18


5


29


19



Total investment and other income

$

92


$

74


$

105


$

93


$

59



(a)

Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in operations of consolidated investment management funds, net of noncontrolling interests.  The gain (loss) on seed capital investments in consolidated investment management funds was $8 million in 3Q16, $6 million in 2Q16, $1 million in 1Q16, $11 million in 4Q15 and $(17) million in 3Q15.

Investment and other income was $92 million in 3Q16 compared with $59 million in 3Q15 and $74 million in 2Q16.  Both increases primarily reflect higher asset-related and seed capital gains. 

NET INTEREST REVENUE

Net interest revenue






3Q16 vs.

(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Net interest revenue (non-FTE)

$

774


$

767


$

766


$

760


$

759


1

%

2

%

Net interest revenue (FTE)

786


780


780


774


773


1


2


Net interest margin (FTE)

1.06

%

0.98

%

1.01

%

0.99

%

0.98

%

8

bps

8

bps









Selected average balances:








Cash/interbank investments

$

114,544


$

137,995


$

127,624


$

128,328


$

130,090


(17)

%

(12)

%

Trading account securities

2,176


2,152


3,320


2,786


2,737


1


(20)


Securities

118,405


118,002


118,538


119,532


121,188



(2)


Loans

61,578


60,284


61,196


61,964


61,657


2



Interest-earning assets

296,703


318,433


310,678


312,610


315,672


(7)


(6)


Interest-bearing deposits

155,109


165,122


162,017


160,334


169,753


(6)


(9)


Noninterest-bearing deposits

81,619


84,033


82,944


85,878


85,046


(3)


(4)










Selected average yields/rates:








Cash/interbank investments

0.43

%

0.44

%

0.43

%

0.32

%

0.32

%



Trading account securities

2.62


2.45


2.16


2.79


2.74




Securities

1.56


1.56


1.61


1.62


1.60




Loans

1.84


1.85


1.76


1.54


1.56




Interest-earning assets

1.19


1.14


1.16


1.08


1.08




Interest-bearing deposits

(0.02)


0.03


0.04


0.01


0.02












Average cash/interbank investments as a percentage of average interest-earning assets

39

%

43

%

41

%

41

%

41

%



Average noninterest-bearing deposits as a percentage of average interest-earning assets

28

%

26

%

27

%

27

%

27

%



FTE – fully taxable equivalent.

bps – basis points.

 

KEY POINTS

  • Net interest revenue totaled $774 million in 3Q16, an increase of $15 million year-over-year and $7 million sequentially. Both increases primarily reflect the actions we have taken to reduce the levels of our lower yielding interest-earning assets and higher yielding interest-bearing deposits, as well as the impact of higher market interest rates. The sequential increase also reflects higher average loans.
  • As we previously indicated, we have been evaluating the impact of our resolution plan strategy on net interest revenue. We currently believe that it requires us to issue approximately $2-4 billion of incremental unsecured long-term debt above our typical funding requirements by July 2017 to satisfy resource needs in a time of distress. This estimate is subject to change as we further refine our strategy and related assumptions. This is currently expected to have a modest negative impact to net interest revenue.

NONINTEREST EXPENSE

Noninterest expense






3Q16 vs.

(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Staff

$

1,467


$

1,412


$

1,459


$

1,481


$

1,437


4

%

2

%

Professional, legal and other purchased services

292


290


278


328


301


1


(3)


Software and equipment

215


223


219


225


226


(4)


(5)


Net occupancy

143


152


142


148


152


(6)


(6)


Distribution and servicing

105


102


100


92


95


3


11


Sub-custodian

59


70


59


60


65


(16)


(9)


Business development

52


65


57


75


59


(20)


(12)


Other

231


240


241


201


268


(4)


(14)


Amortization of intangible assets

61


59


57


64


66


3


(8)


M&I, litigation and restructuring charges

18


7


17


18


11


N/M

N/M

Total noninterest expense – GAAP

$

2,643


$

2,620


$

2,629


$

2,692


$

2,680


1

%

(1)

%









Total staff expense as a percentage of total revenue

37

%

37

%

39

%

40

%

38

%











Memo:








Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP

$

2,564


$

2,554


$

2,555


$

2,610


$

2,603


%

(1)

%

N/M Not meaningful.

 

KEY POINTS

  • Total noninterest expense decreased 1% year-over-year and increased 1% sequentially. Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP) decreased 1% year-over-year and increased slightly sequentially.
  • The year-over-year decrease reflects lower expenses in most categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower other, software and equipment, legal, net occupancy and business development expenses, partially offset by higher staff and distribution and servicing expenses. The increase in staff expense was primarily due to higher incentive and severance expenses and the annual employee merit increase, partially offset by lower temporary services expense. We continue to benefit from the savings generated by the business improvement process, including the continued impact from vendor renegotiations, and the execution of additional real estate actions that will allows us to optimize our physical footprint and improve how our employees work.
  • The sequential increase primarily reflects higher staff expense and M&I, litigation and restructuring charges, partially offset by lower expenses in nearly all other expense categories including business development, sub-custodian, net occupancy, other and software and equipment expenses.

INVESTMENT SECURITIES PORTFOLIO

At Sept. 30, 2016, the fair value of our investment securities portfolio totaled $118.7 billion.  The net unrealized pre-tax gain on our total securities portfolio was $1.4 billion at Sept. 30, 2016 compared with $1.6 billion at June 30, 2016.  The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates.  At Sept. 30, 2016, the fair value of the held-to-maturity securities totaled $41.4 billion and represented 35% of the fair value of the total investment securities portfolio.

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

Investment securities
     
portfolio

(dollars in millions)

June 30,
2016



3Q16 change in unrealized gain (loss)


Sept. 30, 2016

Fair value as a % of amortized cost (a)

Unrealized
gain (loss)


Ratings





BB+ and lower


 Fair
value



Amortized
cost


Fair
value




AAA/ AA-

A+/
A-

BBB+/ BBB-

Not rated

Agency RMBS

$

49,506



$

(70)


$

48,498


$

48,987



101

%

$

489



100

%

%

%

%

%

U.S. Treasury

23,893



(154)


25,112


25,135



100


23



100






Sovereign debt/sovereign guaranteed

15,605



12


15,690


15,998



102


308



74


5


21




Non-agency RMBS (b)

1,529



5


1,166


1,463



80


297




1


1


90


8


Non-agency RMBS

797



8


741


757



94


16



8


4


16


71


1


European floating rate notes

1,104



15


869


851



98


(18)



71


22


7




Commercial MBS

6,316



8


7,236


7,310



101


74



98


2





State and political subdivisions

3,765



(24)


3,494


3,578



102


84



80


17




3


Foreign covered bonds

2,376



(4)


2,395


2,433



102


38



100






Corporate bonds

1,610



(3)


1,585


1,638



103


53



16


68


16




CLO

2,482



16


2,530


2,534



100


4



100






U.S. Government agencies

1,889



3


1,820


1,808



99


(12)



100






Consumer ABS

2,454



7


2,202


2,203



100


1



98



2




Other (c)

4,002



(23)


3,931


3,961



101


30



60



38



2


Total investment securities

$

117,328

(d)


$

(204)


$

117,269


$

118,656

(d)


101

%

$

1,387


(d)(e)

91

%

2

%

5

%

2

%

%

(a)

Amortized cost before impairments.

(b)

These RMBS were included in the former Grantor Trust and were marked-to-market in 2009.  We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.

(c)

Includes commercial paper with a fair value of $1.7 billion and $1.5 billion and money market funds with a fair value of $865 million and $931 million at June 30, 2016 and Sept. 30, 2016, respectively.

(d)

Includes net unrealized losses on derivatives hedging securities available-for-sale of $1,023 million at June 30, 2016 and $1,001 million at Sept. 30, 2016.

(e)

Unrealized gains of $728 million at Sept. 30, 2016 related to available-for-sale securities.

 

NONPERFORMING ASSETS

Nonperforming assets
(dollars in millions)

Sept. 30,
2016

June 30,
2016

Sept. 30,
2015

Loans:




Other residential mortgages

$

93


$

97


$

103


Wealth management loans and mortgages

7


10


12


Lease financing

4


4



Commercial real estate

1


2


1


Financial institutions


171



Total nonperforming loans

105


284


116


Other assets owned

4


5


7


Total nonperforming assets

$

109


$

289


$

123


Nonperforming assets ratio

0.17

%

0.45

%

0.20

%

Allowance for loan losses/nonperforming loans

141.0


55.6


156.0


Total allowance for credit losses/nonperforming loans

261.0


98.6


241.4


Nonperforming assets were $109 million at Sept. 30, 2016, a decrease of $180 million compared with June 30, 2016.  The decrease in nonperforming loans reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs
(in millions)

Sept. 30,
2016

June 30,
2016

Sept. 30,
2015

Allowance for credit losses - beginning of period

$

280


$

287


$

278


Provision for credit losses

(19)


(9)


1


Net recoveries:




Financial institutions

13




Other residential mortgages


1


1


Foreign


1



Net recoveries

13


2


1


Allowance for credit losses - end of period

$

274


$

280


$

280


Allowance for loan losses

$

148


$

158


$

181


Allowance for lending-related commitments

126


122


99


The allowance for credit losses was $274 million at Sept. 30, 2016, a decrease of $6 million compared with $280 million at June 30, 2016.  Net recoveries of $13 million in 3Q16 were recorded in the financial institutions portfolio. The recovery reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel in excess of the carrying value of $171 million.

CAPITAL AND LIQUIDITY

Capital ratios

Sept. 30,
2016

June 30,
2016

Dec. 31,
2015

Consolidated regulatory capital ratios: (a)




Standardized:




CET1 ratio

12.1

%

11.8

%

11.5

%

Tier 1 capital ratio

14.3


13.4


13.1


Total (Tier 1 plus Tier 2) capital ratio

14.7


13.8


13.5


Advanced:




CET1 ratio

10.5


10.2


10.8


Tier 1 capital ratio

12.4


11.5


12.3


Total (Tier 1 plus Tier 2) capital ratio

12.6


11.7


12.5


Leverage capital ratio (b)

6.6


5.8


6.0


Supplementary leverage ratio ("SLR")

6.0


5.3


5.4


BNY Mellon shareholders' equity to total assets ratio – GAAP (c)

10.6


10.4


9.7


BNY Mellon common shareholders' equity to total assets ratio – GAAP (c)

9.7


9.7


9.0


BNY Mellon tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP (c)

6.5


6.6


6.5






Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(d)




CET1 ratio:




Standardized Approach

11.3


11.0


10.2


Advanced Approach

9.8


9.5


9.5


SLR

5.7


5.0


4.9


(a)

Regulatory capital ratios for Sept. 30, 2016 are preliminary.  For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches.

(b)

The leverage capital ratio is based on Tier 1 capital, as phased-in and quarterly average total assets.

(c)

See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for a reconciliation of these ratios.

(d)

Estimated.







CET1 generation in 3Q16 – preliminary

Transitional
basis (b)


Fully
phased-in -
Non-GAAP (c)





(in millions)


CET1 – Beginning of period

$

18,275


$

16,873



Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

974


974



Goodwill and intangible assets, net of related deferred tax liabilities

109


131



Gross CET1 generated

1,083


1,105



Capital deployed:




Dividends

(205)


(205)



Common stock repurchased

(464)


(464)



Total capital deployed

(669)


(669)



Other comprehensive income

(211)


(233)



Additional paid-in capital (a)

74


74



Other

7


9



Total other deductions

(130)


(150)



Net CET1 generated

284


286



CET1 – End of period

$

18,559


$

17,159



(a)

Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.

(b)

Reflects transitional adjustments to CET1 required under the U.S. capital rules.

(c)

Estimated.

 

The table presented below compares the fully phased-in Basel III capital components and risk-based ratios to those capital components and ratios determined on a transitional basis.

Basel III capital components and ratios

Sept. 30, 2016 (a)


June 30, 2016


Dec. 31, 2015

(dollars in millions)

Transitional
basis (b)


Fully
phased-in - 
Non-GAAP (c)



Transitional
basis (b)


Fully
phased-in -
Non-GAAP (c)



Transitional
basis (b)


Fully
phased-in -
Non-GAAP (c)


CET1:









Common shareholders' equity

$

36,450


$

36,153



$

36,282


$

36,007



$

36,067


$

35,485


Goodwill and intangible assets

(17,505)


(18,527)



(17,614)


(18,658)



(17,295)


(18,911)


Net pension fund assets

(56)


(94)



(56)


(94)



(46)


(116)


Equity method investments

(314)


(347)



(322)


(356)



(296)


(347)


Deferred tax assets

(15)


(25)



(14)


(23)



(8)


(20)


Other

(1)


(1)



(1)


(3)



(5)


(9)


Total CET1

18,559


17,159



18,275


16,873



18,417


16,082


Other Tier 1 capital:









Preferred stock

3,542


3,542



2,552


2,552



2,552


2,552


Trust preferred securities







74



Deferred tax assets

(10)




(9)




(12)



Net pension fund assets

(38)




(38)




(70)



Other

(110)


(109)



(112)


(110)



(25)


(22)


Total Tier 1 capital

21,943


20,592



20,668


19,315



20,936


18,612











Tier 2 capital:









Trust preferred securities

156




161




222



Subordinated debt

149


149



149


149



149


149


Allowance for credit losses

274


274



280


280



275


275


Other

(6)


(7)



(6)


(7)



(12)


(12)


Total Tier 2 capital - Standardized Approach

573


416



584


422



634


412


Excess of expected credit losses

27


27



36


36



37


37


Less: Allowance for credit losses

274


274



280


280



275


275


Total Tier 2 capital - Advanced Approach

$

326


$

169



$

340


$

178



$

396


$

174











Total capital:









Standardized Approach

$

22,516


$

21,008



$

21,252


$

19,737



$

21,570


$

19,024


Advanced Approach

$

22,269


$

20,761



$

21,008


$

19,493



$

21,332


$

18,786











Risk-weighted assets:









Standardized Approach

$

153,042


$

151,797



$

154,464


$

153,198



$

159,893


$

158,015


Advanced Approach

$

177,104


$

175,784



$

179,172


$

177,829



$

170,384


$

168,509











Standardized Approach:









CET1 ratio

12.1

%

11.3

%


11.8

%

11.0

%


11.5

%

10.2

%

Tier 1 capital ratio

14.3


13.6



13.4


12.6



13.1


11.8


Total (Tier 1 plus Tier 2) capital ratio

14.7


13.8



13.8


12.9



13.5


12.0


Advanced Approach:









CET1 ratio

10.5

%

9.8

%


10.2

%

9.5

%


10.8

%

9.5

%

Tier 1 capital ratio

12.4


11.7



11.5


10.9



12.3


11.0


Total (Tier 1 plus Tier 2) capital ratio

12.6


11.8



11.7


11.0



12.5


11.1


(a)

Preliminary.

(b)

Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required under the U.S. capital rules.

(c)

Estimated.

 

BNY Mellon has presented its estimated fully phased-in CET1 and other risk-based capital ratios and the fully phased-in SLR based on its interpretation of the U.S. capital rules, which are being gradually phased-in over a multi-year period, and on the application of such rules to BNY Mellon's businesses as currently conducted.  Management views the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR as key measures in monitoring BNY Mellon's capital position and progress against future regulatory capital standards.  Additionally, the presentation of the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR are intended to allow investors to compare these ratios with estimates presented by other companies.

Our capital and liquidity ratios are necessarily subject to, among other things, BNY Mellon's further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses.  Consequently, our capital and liquidity ratios remain subject to ongoing review and revision and may change based on these factors.

Supplementary Leverage Ratio ("SLR")

The following table presents the SLR on both the transitional and fully phased-in Basel III basis for BNY Mellon and our largest bank subsidiary, The Bank of New York Mellon.

SLR

Sept. 30, 2016 (a)


June 30, 2016


December 31, 2015

(dollars in millions)

Transitional
basis


Fully 
phased-in -
Non-GAAP (b)



Transitional
basis


Fully 
phased-in -
Non-GAAP (b)



Transitional
basis


Fully
phased-in -
Non-GAAP (b)


Consolidated:









Tier 1 capital

$

21,943


$

20,592



$

20,668


$

19,315



$

20,936


$

18,612











Total leverage exposure:









Quarterly average total assets

$

351,230


$

351,230



$

374,220


$

374,220



$

368,590


$

368,590


Less: Amounts deducted from Tier 1 capital

17,760


19,095



17,876


19,234



17,650


19,403


Total on-balance sheet assets

333,470


332,135



356,344


354,986



350,940


349,187


Off-balance sheet exposures:









Potential future exposure for derivatives contracts (plus certain other items)

6,149


6,149



6,125


6,125



7,158


7,158


Repo-style transaction exposures

447


447



402


402



440


440


Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)

23,571


23,571



24,157


24,157



26,025


26,025


Total off-balance sheet exposures

30,167


30,167



30,684


30,684



33,623


33,623


Total leverage exposure

$

363,637


$

362,302



$

387,028


$

385,670



$

384,563


$

382,810











SLR - Consolidated (c)

6.0

%

5.7

%


5.3

%

5.0

%


5.4

%

4.9

%










The Bank of New York Mellon, our largest bank subsidiary:









Tier 1 capital

$

18,701


$

17,592



$

18,049


$

16,948



$

16,814


$

15,142


Total leverage exposure

$

299,615


$

299,236



$

322,978


$

322,588



$

316,812


$

316,270











SLR - The Bank of New York Mellon (c)

6.2

%

5.9

%


5.6

%

5.3

%


5.3

%

4.8

%

(a)

Sept. 30, 2016 information is preliminary.

(b)

Estimated.

(c)

The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules.  When the SLR is fully phased-in in 2018 as a required minimum ratio, we expect to maintain an SLR of over 5%.  The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs.  The insured depository institution subsidiaries of the U.S. G-SIBs, including those of BNY Mellon, must maintain a 6% SLR to be considered "well capitalized."

 

Liquidity Coverage Ratio ("LCR")

The U.S. LCR rules became effective Jan. 1, 2015 and currently require BNY Mellon to meet an LCR of 90%, increasing to 100% when fully phased-in on Jan. 1, 2017.  Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of Sept. 30, 2016 based on our understanding of the U.S. LCR rules.  Our consolidated HQLA before haircuts, totaled $195 billion at Sept. 30, 2016, compared with $191 billion at June 30, 2016 and $218 billion at Dec. 31, 2015.

INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.

(dollars in millions, unless otherwise noted)







3Q16 vs.

3Q16


2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Revenue:









Investment management fees:









Mutual funds

$

309



$

304


$

300


$

294


$

301


2

%

3

%

Institutional clients

362



344


334


350


347


5


4


Wealth management

166



160


152


155


156


4


6


Investment management fees (a)

837



808


786


799


804


4


4


Performance fees

8



9


11


55


7


N/M

14


Investment management and performance fees

845



817


797


854


811


3


4


Distribution and servicing

49



49


46


39


37



32


Other (a)

(18)



(10)


(31)


22


(5)


N/M

N/M

Total fee and other revenue (a)

876



856


812


915


843


2


4


Net interest revenue

82



82


83


84


83



(1)


Total revenue

958



938


895


999


926


2


3


Provision for credit losses



1


(1)


(4)


1


N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

680



684


660


689


665


(1)


2


Income before taxes (ex. amortization of intangible assets)

278



253


236


314


260


10


7


Amortization of intangible assets

22



19


19


24


24


16


(8)


Income before taxes

$

256



$

234


$

217


$

290


$

236


9

%

8

%










Pre-tax operating margin

27

%


25

%

24

%

29

%

25

%



Adjusted pre-tax operating margin - Non-GAAP (b)

33

%


31

%

30

%

36

%

34

%












Changes in AUM (in billions): (c)









Beginning balance of AUM

$

1,664



$

1,639


$

1,625


$

1,625


$

1,700




Net inflows (outflows):









Long-term:









Equity

(3)



(2)


(3)


(9)


(4)




Fixed income



(2)



1


(3)




Liability-driven investments (d)

4



15


14


11


11




Alternative investments

2



1


1


2


1




Total long-term active inflows

3



12


12


5


5




Index

(2)



(17)


(11)


(16)


(10)




Total long-term inflows (outflows)

1



(5)


1


(11)


(5)




Short term:









Cash

(1)



4


(9)


2


(10)




Total net inflows (outflows)



(1)


(8)


(9)


(15)




Net market impact/other

80



71


41


24


(35)




Net currency impact

(29)



(47)


(19)


(15)


(25)




Acquisition



2







Ending balance of AUM

$

1,715


(e)

$

1,664


$

1,639


$

1,625


$

1,625


3

%

6

%










AUM at period end, by product type: (c)









Equity

13

%


14

%

14

%

14

%

14

%



Fixed income

14



13


13


13


13




Index

18



18


19


20


20




Liability-driven investments (d)

35



34


33


32


32




Alternative investments

4



4


4


4


4




Cash

16



17


17


17


17




Total AUM

100

%

(e)

100

%

100

%

100

%

100

%












Average balances:









Average loans

$

15,308



$

14,795


$

14,275


$

13,447


$

12,779


3

%

20

%

Average deposits

$

15,600



$

15,518


$

15,971


$

15,497


$

15,282


1

%

2

%

(a)

Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See page 28 for a breakdown of the revenue line items in the Investment Management business impacted by the consolidated investment management funds.  Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.

(b)

Excludes the net negative impact of money market fee waivers, amortization of intangible assets and provision for credit losses and is net of distribution and servicing expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of this Non-GAAP measure.

(c)

Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.

(d)

Includes currency overlay assets under management.

(e)

Preliminary.

N/M – Not meaningful.

 

INVESTMENT MANAGEMENT KEY POINTS

  • Income before taxes, excluding amortization of intangible assets, totaled $278 million in 3Q16, an increase of 7% year-over-year and 10% sequentially.
    • Pre-tax operating margin of 27% in 3Q16 increased 126 basis points year-over-year and 184 basis points sequentially.
    • Adjusted pre-tax operating margin (Non-GAAP) of 33% in 3Q16 decreased 17 basis points year-over-year and increased 220 basis points sequentially.
  • Total revenue was $958 million, an increase of 3% year-over-year and 2% sequentially.
    • 40% non-U.S. revenue in 3Q16 vs. 42% in 3Q15.
  • Investment management fees were $837 million, an increase of 4% both year-over-year and sequentially. The year-over-year increase primarily reflects higher market values and money market fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and net outflows of assets under management in prior periods. The sequential increase primarily reflects higher market values.
  • Net long-term inflows of $1 billion in 3Q16 were a combination of $3 billion of inflows into actively managed strategies and $2 billion of outflows from index strategies.
    • 3Q16 is our 5th consecutive quarter with active inflows reflecting our strategy to focus on high-value active solutions.
    • Net short-term outflows were $1 billion in 3Q16.
  • Performance fees were $8 million in 3Q16 compared with $7 million in 3Q15 and $9 million in 2Q16.
  • Distribution and servicing fees were $49 million in 3Q16 compared with $37 million in 3Q15 and $49 million in 2Q16. The year-over-year increase primarily reflects higher money market fees.
  • Other revenue was a loss of $18 million in 3Q16 compared with a loss of $5 million in 3Q15 and a loss of $10 million in 2Q16. Both decreases primarily reflect losses on hedging activity and investments, partially offset by higher seed capital gains. The year-over-year decrease also reflects payments to Investment Services related to higher money market fees.
  • Net interest revenue decreased 1% year-over-year and was unchanged sequentially. The year-over-year decrease primarily reflects the impact of the 1Q16 changes in the internal crediting rates, partially offset by record average loans and higher average deposits.
    • Average loans increased 20% year-over-year and 3% sequentially; average deposits increased 2% year-over-year and 1% sequentially. The increases in average loans were driven by our program to extend banking solutions to high net worth clients.
  • Total noninterest expense (excluding amortization of intangible assets) increased 2% year-over-year and decreased 1% sequentially. The year-over-year increase was primarily driven by higher distribution and servicing expense as a result of lower money market fee waivers and higher incentive and severance expenses, partially offset by the impact of a stronger U.S. dollar. The sequential decrease primarily reflects lower other expenses, partially offset by higher incentive and severance expenses.

INVESTMENT SERVICES provides global custody and related services, broker-dealer services, global collateral services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions and credit-related activities.

(dollars in millions, unless otherwise noted)







3Q16 vs.

3Q16


2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Revenue:









Investment services fees:









Asset servicing

$

1,039



$

1,043


$

1,016


$

1,009


$

1,034


%

%

Clearing services

347



350


348


337


345


(1)


1


Issuer services

336



233


244


199


312


44


8


Treasury services

136



137


129


135


135


(1)


1


Total investment services fees

1,858



1,763


1,737


1,680


1,826


5


2


Foreign exchange and other trading revenue

177



161


168


150


179


10


(1)


Other (a)

148



130


125


127


129


14


15


Total fee and other revenue

2,183



2,054


2,030


1,957


2,134


6


2


Net interest revenue

715



690


679


664


662


4


8


Total revenue

2,898



2,744


2,709


2,621


2,796


6


4


Provision for credit losses

1



(7)


14


8


7


N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

1,812



1,819


1,770


1,791


1,853



(2)


Income before taxes (ex. amortization of intangible assets)

1,085



932


925


822


936


16


16


Amortization of intangible assets

39



40


38


40


41


(3)


(5)


Income before taxes

$

1,046



$

892


$

887


$

782


$

895


17

%

17

%










Pre-tax operating margin

36

%


33

%

33

%

30

%

32

%



Pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets)

37

%


34

%

35

%

32

%

34

%












Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)

103

%


97

%

98

%

94

%

99

%












Securities lending revenue

$

42



$

42


$

42


$

39


$

33


%

27

%










Metrics:









Average loans

$

44,329



$

43,786


$

45,004


$

45,844


$

46,222


1

%

(4)

%

Average deposits

$

220,316



$

221,998


$

215,707


$

229,241


$

232,250


(1)

%

(5)

%










AUC/A at period end (in trillions) (b)

$

30.5


(c)

$

29.5


$

29.1


$

28.9


$

28.5


3

%

7

%

Market value of securities on loan at period end
     
(in billions) (d)

$

288



$

278


$

300


$

277


$

288


4

%

%










Asset servicing:









Estimated new business wins (AUC/A) (in billions)

$

150


(c)

$

167


$

40


$

49


$

84













Depositary Receipts:









Number of sponsored programs

1,094



1,112


1,131


1,145


1,176


(2)

%

(7)

%










Clearing services:









Average active clearing accounts (U.S. platform)
     
(in thousands)

5,942



5,946


5,947


5,959


6,107


%

(3)

%

Average long-term mutual fund assets (U.S. platform)

$

443,112



$

431,150


$

415,025


$

437,260


$

447,287


3

%

(1)

%

Average investor margin loans (U.S. platform)

$

10,834



$

10,633


$

11,063


$

11,575


$

11,806


2

%

(8)

%










Broker-Dealer:









Average tri-party repo balances (in billions)

$

2,212



$

2,108


$

2,104


$

2,153


$

2,142


5

%

3

%

(a)

Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income.

(b)

Includes the AUC/A of CIBC Mellon of $1.2 trillion at Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015.

(c)

Preliminary.

(d)

Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015 and $61 billion at Sept. 30, 2015.

N/M - Not meaningful.

 

INVESTMENT SERVICES KEY POINTS

  • Income before taxes, excluding amortization of intangible assets, totaled $1.1 billion in 3Q16.
    • The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets, was 37% in 3Q16 and the investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) was 103% in 3Q16, reflecting the continued focus on the business improvement process to drive operating leverage.
  • Investment services fees were $1.9 billion, an increase of 2% year-over-year and 5% sequentially.
    • Asset servicing fees (global custody, broker-dealer services and global collateral services) were $1.039 billion in 3Q16 compared with $1.034 billion in 3Q15 and $1.043 billion in 2Q16. The year-over-year increase primarily reflects higher money market fees and securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar and downsizing of the UK transfer agency business.
      • Estimated new business wins (AUC/A) in Asset Servicing of $150 billion in 3Q16.
    • Clearing services fees were $347 million in 3Q16 compared with $345 million in 3Q15 and $350 million in 2Q16. The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of the previously disclosed lost business.
    • Issuer services fees (Corporate Trust and Depositary Receipts) were $336 million in 3Q16 compared with $312 million in 3Q15 and $233 million in 2Q16. The year-over-year increase primarily reflects higher corporate actions in Depositary Receipts and higher money market fees in Corporate Trust. The sequential increase primarily reflects seasonally higher fees in Depositary Receipts.
    • Treasury services fees were $136 million in 3Q16 compared with $135 million in 3Q15 and $137 million in 2Q16.
  • Foreign exchange and other trading revenue was $177 million in 3Q16 compared with $179 million in 3Q15 and $161 million in 2Q16. The year-over-year decrease primarily reflects lower volumes and volatility. The year-over-year decrease also reflects the continued trend of clients migrating to lower margin products. The sequential increase primarily reflects higher Depositary Receipt-related foreign exchange activity, partially offset by lower volatility.
  • Other revenue was $148 million in 3Q16 compared with $129 million in 3Q15 and $130 million in 2Q16. Both comparisons reflect increased payments from Investment Management related to higher money market fees, and termination fees related to lost business in our clearing services business. The year-over-year increase is partially offset by certain fees paid to introducing brokers and lower financing-related fees. The sequential increase also reflects higher financing-related fees.
  • Net interest revenue was $715 million in 3Q16 compared with $662 million in 3Q15 and $690 million in 2Q16. The year-over-year increase primarily reflects the impact of the 1Q16 changes in the internal crediting rates for deposits. The sequential increase primarily reflects higher asset yields and lower interest on deposits.
  • Noninterest expense (excluding amortization of intangible assets) was $1.812 billion in 3Q16 compared with $1.853 billion in 3Q15 and $1.819 billion in 2Q16. The year-over-year decrease primarily reflects lower other, temporary services and legal expenses. Both decreases also reflect lower sub-custodian and business development expenses, partially offset by higher incentive and severance expenses and the annual employee merit increase.

OTHER SEGMENT primarily includes leasing operations, corporate treasury activities, derivatives, global markets, business exits and other corporate revenue and expense items.







(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Revenue:






Fee and other revenue

$

100


$

95


$

129


$

89


$

59


Net interest (expense) revenue

(23)


(5)


4


12


14


Total revenue

77


90


133


101


73


Provision for credit losses

(20)


(3)


(3)


159


(7)


Noninterest expense (ex. amortization of intangible assets and restructuring charges (recoveries))

88


53


141


150


97


Income (loss) before taxes (ex. amortization of intangible assets and restructuring charges (recoveries))

9


40


(5)


(208)


(17)


Amortization of intangible assets





1


M&I and restructuring charges (recoveries)


3


(1)


(4)


(2)


Income (loss) before taxes

$

9


$

37


$

(4)


$

(204)


$

(16)








Average loans and leases

$

1,941


$

1,703


$

1,917


$

2,673


$

2,656


 

KEY POINTS

  • Total fee and other revenue increased $41 million compared with 3Q15 and $5 million compared with 2Q16. Both increases primarily reflect higher asset-related gains. The year-over-year increase also reflects the positive net impact of foreign currency hedging activity and higher fixed income trading.
  • Net interest revenue decreased $37 million compared with 3Q15 and $18 million compared with 2Q16. Both decreases were driven by the results of the leasing portfolio inclusive of changes to internal transfer pricing in 1Q16.
  • The provision for credit losses was a credit of $20 million in 3Q16 primarily reflecting a net recovery of $13 million recorded in the financial institutions portfolio. The recovery reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel in excess of the carrying value.
  • Noninterest expense, excluding amortization of intangible assets and restructuring charges (recoveries), decreased $9 million compared with 3Q15 and increased $35 million compared with 2Q16. The year-over-year decrease primarily reflects lower equipment and occupancy expenses, partially offset by higher other expense. The sequential increase was primarily driven by the annual employee merit increase and higher professional, legal, and other purchased services.

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement

(in millions)

Quarter ended


Year-to-date


Sept. 30,
2016

June 30,
2016

Sept. 30,
2015


Sept. 30,
2016

Sept. 30,
2015




Fee and other revenue








Investment services fees:








Asset servicing

$

1,067


$

1,069


$

1,057



$

3,176


$

3,155



Clearing services

349


350


345



1,049


1,036



Issuer services

337


234


313



815


779



Treasury services

137


139


137



407


418



Total investment services fees

1,890


1,792


1,852



5,447


5,388



Investment management and performance fees

860


830


829



2,502


2,574



Foreign exchange and other trading revenue

183


182


179



540


595



Financing-related fees

58


57


71



169


169



Distribution and servicing

43


43


41



125


121



Investment and other income

92


74


59



271


223



Total fee revenue

3,126


2,978


3,031



9,054


9,070



Net securities gains

24


21


22



65


62



Total fee and other revenue

3,150


2,999


3,053



9,119


9,132



Operations of consolidated investment management funds








Investment income (loss)

20


10


(6)



27


96



Interest of investment management fund note holders

3



16



6


26



Income (loss) from consolidated investment management funds

17


10


(22)



21


70



Net interest revenue








Interest revenue

874


890


838



2,647


2,492



Interest expense

100


123


79



340


226



Net interest revenue

774


767


759



2,307


2,266



Total revenue

3,941


3,776


3,790



11,447


11,468



Provision for credit losses

(19)


(9)


1



(18)


(3)



Noninterest expense








Staff

1,467


1,412


1,437



4,338


4,356



Professional, legal and other purchased services

292


290


301



860


902



Software and equipment

215


223


226



657


682



Net occupancy

143


152


152



437


452



Distribution and servicing

105


102


95



307


289



Sub-custodian

59


70


65



188


210



Business development

52


65


59



174


192



Other

231


240


268



712


760



Amortization of intangible assets

61


59


66



177


197



M&I, litigation and restructuring charges

18


7


11



42


67



Total noninterest expense

2,643


2,620


2,680



7,892


8,107



Income








Income before income taxes

1,317


1,165


1,109



3,573


3,364



Provision for income taxes

324


290


282



897


838



Net income

993


875


827



2,676


2,526



Net (income) loss attributable to noncontrolling interests (includes $(9), $(4), $5, $(6) and $(63) related to consolidated investment management funds, respectively)

(6)


(2)


6



1


(61)



Net income applicable to shareholders of The Bank of New York Mellon Corporation

987


873


833



2,677


2,465



Preferred stock dividends

(13)


(48)


(13)



(74)


(49)



Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

974


$

825


$

820



$

2,603


$

2,416



 

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued

Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation

Quarter ended


Year-to-date


Sept. 30,
2016

June 30,
2016

Sept. 30,
2015


Sept. 30,
2016

Sept. 30,
2015


(in millions)



Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

974


$

825


$

820



$

2,603


$

2,416



Less:  Earnings allocated to participating securities

15


13


6



39


34



Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and diluted earnings per common share

$

959


$

812


$

814



$

2,564


$

2,382





















Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation

Quarter ended


Year-to-date


Sept. 30,
2016

June 30,
2016

Sept. 30,
2015


Sept. 30,
2016

Sept. 30,
2015


(in thousands)



Basic


1,062,248



1,072,583



1,098,003




1,071,457



1,110,056



Diluted


1,067,682



1,078,271



1,105,645




1,077,150



1,117,975





















Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation

Quarter ended


Year-to-date


Sept. 30,
2016

June 30,
2016

Sept. 30,
2015


Sept. 30,
2016

Sept. 30,
2015


(in dollars)



Basic

$

0.90


$

0.76


$

0.74



$

2.39


$

2.15



Diluted

$

0.90


$

0.75


$

0.74



$

2.38


$

2.13



 

THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet

(dollars in millions, except per share amounts)

Sept. 30,
2016

June 30,
2016

Dec. 31,
2015



Assets





Cash and due from:





Banks

$

4,957


$

5,809


$

6,537



Interest-bearing deposits with the Federal Reserve and other central banks

80,359


88,080


113,203



Interest-bearing deposits with banks

14,416


13,303


15,146



Federal funds sold and securities purchased under resale agreements

34,851


28,060


24,373



Securities:





Held-to-maturity (fair value of $41,387, $41,804 and $43,204)

40,728


41,053


43,312



Available-for-sale

78,270


76,547


75,867



Total securities

118,998


117,600


119,179



Trading assets

5,340


7,148


7,368



Loans

65,997


64,513


63,703



Allowance for loan losses

(148)


(158)


(157)



Net loans

65,849


64,355


63,546



Premises and equipment

1,338


1,399


1,379



Accrued interest receivable

522


540


562



Goodwill

17,449


17,501


17,618



Intangible assets

3,671


3,738


3,842



Other assets

25,355


23,735


19,626



Subtotal assets of operations

373,105


371,268


392,379



Assets of consolidated investment management funds, at fair value:





Trading assets

873


959


1,228



Other assets

136


124


173



Subtotal assets of consolidated investment management funds, at fair value

1,009


1,083


1,401



Total assets

$

374,114


$

372,351


$

393,780



Liabilities





Deposits:





Noninterest-bearing (principally U.S. offices)

$

105,632


$

99,035


$

96,277



Interest-bearing deposits in U.S. offices

56,713


58,519


51,704



Interest-bearing deposits in Non-U.S. offices

99,033


102,124


131,629



Total deposits

261,378


259,678


279,610



Federal funds purchased and securities sold under repurchase agreements

8,052


7,611


15,002



Trading liabilities

4,154


6,195


4,501



Payables to customers and broker-dealers

21,162


21,172


21,900



Other borrowed funds

993


1,098


523



Accrued taxes and other expenses

5,687


5,385


5,986



Other liabilities (includes allowance for lending-related commitments of $126, $122 and $118)

7,709


8,105


5,490



Long-term debt

24,374


23,573


21,547



Subtotal liabilities of operations

333,509


332,817


354,559



Liabilities of consolidated investment management funds, at fair value:





Trading liabilities

219


214


229



Other liabilities

13


23


17



Subtotal liabilities of consolidated investment management funds, at fair value

232


237


246



Total liabilities

333,741


333,054


354,805



Temporary equity





Redeemable noncontrolling interests

178


172


200



Permanent equity





Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 25,826 and 25,826 shares

3,542


2,552


2,552



Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,325,167,583, 1,323,941,399 and 1,312,941,113 shares

13


13


13



Additional paid-in capital

25,637


25,563


25,262



Retained earnings

22,002


21,233


19,974



Accumulated other comprehensive loss, net of tax

(2,785)


(2,552)


(2,600)



Less:  Treasury stock of 267,830,962, 256,266,980 and 227,598,128 common shares, at cost

(8,714)


(8,250)


(7,164)



Total The Bank of New York Mellon Corporation shareholders' equity

39,695


38,559


38,037



Nonredeemable noncontrolling interests of consolidated investment management funds

500


566


738



Total permanent equity

40,195


39,125


38,775



Total liabilities, temporary equity and permanent equity

$

374,114


$

372,351


$

393,780



 

SUPPLEMENTAL INFORMATION – EXPLANATION OF GAAP AND NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based on fully phased-in CET1 and other risk-based capital ratios, the fully phased-in SLR and tangible common shareholders' equity.  BNY Mellon believes that the Basel III CET1 and other risk-based capital ratios on a fully phased-in basis, the SLR on a fully phased-in basis and the ratio of tangible common shareholders' equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the capital ratios which are, or were, required by regulatory authorities.  The tangible common shareholders' equity ratio, which excludes goodwill and intangible assets net of deferred tax liabilities, includes changes in investment securities valuations which are reflected in total shareholders' equity.  In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure.  Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of those assets that can generate income.  BNY Mellon has provided a measure of tangible book value per common share, which it believes provides additional useful information as to the level of tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds, and expense measures which exclude M&I, litigation and restructuring charges and amortization of intangible assets.  Earnings per share, return on equity, operating leverage and operating margin measures, which exclude some or all of these items, as well as the (recovery) impairment charge related to Sentinel, are also presented.  Operating margin measures may also exclude the provision for credit losses and the net negative impact of money market fee waivers, net of distribution and servicing expense.  BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control.  M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction.  Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees.  Restructuring charges relate to our streamlining actions, Operational Excellence Initiatives and migrating positions to Global Delivery Centers.  Excluding these charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

The presentation of income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interests related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with how management views the business.  BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.

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

The following table presents the reconciliation of diluted earnings per common share and the net income applicable to common shareholders of The Bank of New York Mellon Corporation.

Reconciliation of net income and diluted EPS – GAAP
 
to Non-GAAP

(in millions, except per common share amounts)

3Q16


2Q16


3Q15


Net
income


Diluted
EPS



Net
income


Diluted
EPS



Net
income


Diluted
EPS



Net income applicable to common shareholders of The Bank of New York Mellon CorporationGAAP

$

974


$

0.90



$

825


$

0.75



$

820


$

0.74



Add:  M&I, litigation and restructuring charges

18




7




11




  Tax impact of the recovery related to Sentinel

5




N/A




N/A




Less:  Recovery related to Sentinel

13




N/A




N/A




  Tax impact of M&I, litigation and restructuring charges

5




2




3




Non-GAAP adjustments after-tax

5




5




8


0.01



Non-GAAP results

$

979


$

0.90



$

830


$

0.76


(a)

$

828


$

0.74


(a)

(a)   Does not foot due to rounding.

N/A - Not applicable.

 

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

Reconciliation of income before income taxes – pre-tax operating margin






(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Income before income taxes – GAAP

$

1,317


$

1,165


$

1,091


$

871


$

1,109


Less:  Net income (loss) attributable to noncontrolling interests of 
               consolidated investment management funds

9


4


(7)


5


(5)


Add:  Amortization of intangible assets

61


59


57


64


66


M&I, litigation and restructuring charges

18


7


17


18


11


(Recovery) impairment charge related to Sentinel

(13)




170



Income before income taxes, as adjusted – Non-GAAP (a)

$

1,374


$

1,227


$

1,172


$

1,118


$

1,191








Fee and other revenue – GAAP

$

3,150


$

2,999


$

2,970


$

2,950


$

3,053


Income (loss) from consolidated investment management funds – GAAP

17


10


(6)


16


(22)


Net interest revenue – GAAP

774


767


766


760


759


Total revenue – GAAP

3,941


3,776


3,730


3,726


3,790


Less:  Net income (loss) attributable to noncontrolling interests of 
               consolidated investment management funds

9


4


(7)


5


(5)


Total revenue, as adjusted – Non-GAAP (a)

$

3,932


$

3,772


$

3,737


$

3,721


$

3,795








Pre-tax operating margin – GAAP (b)(c)

33

%

31

%

29

%

23

%

29

%

Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c)

35

%

33

%

31

%

30

%

31

%

(a)

Non-GAAP information for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information  for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.

(b)

Income before taxes divided by total revenue.

(c)

Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities.  The benefits of these investments are primarily reflected in tax expense.  If reported on a tax-equivalent basis, these investments would increase revenue and income before taxes by $74 million for 3Q16, $74 million for 2Q16, $77 million for 1Q16, $73 million for 4Q15 and $53 million for 3Q15 and would increase our pre-tax operating margin by approximately 1.2% for 3Q16, 1.3% for 2Q16, 1.4% for 1Q16, 1.5% for 4Q15 and 1.0% for 3Q15.

 

The following table presents the reconciliation of the operating leverage.

Operating leverage




3Q16 vs.

(dollars in millions)

3Q16

2Q16

3Q15

2Q16

3Q15

Total revenueGAAP

$

3,941


$

3,776


$

3,790


4.37

%

3.98

%

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

9


4


(5)




Total revenue, as adjustedNon-GAAP

$

3,932


$

3,772


$

3,795


4.24

%

3.61

%







Total noninterest expenseGAAP

$

2,643


$

2,620


$

2,680


0.88

%

(1.38)

%

Less:  Amortization of intangible assets

61


59


66




M&I, litigation and restructuring charges

18


7


11




Total noninterest expense, as adjustedNon-GAAP

$

2,564


$

2,554


$

2,603


0.39

%

(1.50)

%







Operating leverageGAAP (a)




349

bps

536

bps

Adjusted operating leverageNon-GAAP (a)(b)




385

bps

511

bps

(a)

Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.

(b)

Non-GAAP operating leverage for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.

bps - basis points.

 

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

Return on common equity and tangible common equity






(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

$

974


$

825


$

804


$

637


$

820


Add:  Amortization of intangible assets

61


59


57


64


66


Less:  Tax impact of amortization of intangible assets

21


21


20


22


23


Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP

1,014


863


841


679


863


Add:  M&I, litigation and restructuring charges

18


7


17


18


11


 (Recovery) impairment charge related to Sentinel

(13)




170



Less:  Tax impact of M&I, litigation and restructuring charges

5


2


6


6


3


 Tax impact of (recovery) impairment charge related to Sentinel

(5)




64



Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)

$

1,019


$

868


$

852


$

797


$

871








Average common shareholders' equity

$

35,767


$

35,827


$

35,252


$

35,664


$

35,588


Less:  Average goodwill

17,463


17,622


17,562


17,673


17,742


Average intangible assets

3,711


3,789


3,812


3,887


3,962


Add:  Deferred tax liability – tax deductible goodwill (b)

1,477


1,452


1,428


1,401


1,379


Deferred tax liability – intangible assets (b)

1,116


1,129


1,140


1,148


1,164


Average tangible common shareholders' equity – Non-GAAP

$

17,186


$

16,997


$

16,446


$

16,653


$

16,427








Return on common equity – GAAP (c)

10.8

%

9.3

%

9.2

%

7.1

%

9.1

%

Adjusted return on common equity – Non-GAAP (a)(c)

11.3

%

9.7

%

9.7

%

8.9

%

9.7

%







Return on tangible common equity – Non-GAAP (c)

23.5

%

20.4

%

20.6

%

16.2

%

20.8

%

Adjusted return on tangible common equity – Non-GAAP (a)(c)

23.6

%

20.5

%

20.8

%

19.0

%

21.0

%

(a)

Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.

(b)

Deferred tax liabilities are based on fully phased-in Basel III rules.

(c)

Annualized.

 

The following table presents the reconciliation of the equity to assets ratio and book value per common share.

Equity to assets and book value per common share

Sept. 30,
2016

June 30,
2016

March 31,
2016

Dec. 31,
2015

Sept. 30,
2015

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

39,695


$

38,559


$

38,459


$

38,037


$

38,170


Less:  Preferred stock

3,542


2,552


2,552


2,552


2,552


BNY Mellon common shareholders' equity at period end – GAAP

36,153


36,007


35,907


35,485


35,618


Less:  Goodwill

17,449


17,501


17,604


17,618


17,679


Intangible assets

3,671


3,738


3,781


3,842


3,914


Add:  Deferred tax liability – tax deductible goodwill (a)

1,477


1,452


1,428


1,401


1,379


Deferred tax liability – intangible assets (a)

1,116


1,129


1,140


1,148


1,164


BNY Mellon tangible common shareholders' equity at period end – Non-GAAP

$

17,626


$

17,349


$

17,090


$

16,574


$

16,568








Total assets at period end – GAAP

$

374,114


$

372,351


$

372,870


$

393,780


$

377,371


Less:  Assets of consolidated investment management funds

1,009


1,083


1,300


1,401


2,297


Subtotal assets of operations – Non-GAAP

373,105


371,268


371,570


392,379


375,074


Less:  Goodwill

17,449


17,501


17,604


17,618


17,679


Intangible assets

3,671


3,738


3,781


3,842


3,914


Cash on deposit with the Federal Reserve and other central banks (b)

80,362


88,080


96,421


116,211


86,426


Tangible total assets of operations at period end – Non-GAAP

$

271,623


$

261,949


$

253,764


$

254,708


$

267,055








BNY Mellon shareholders' equity to total assets ratio – GAAP

10.6

%

10.4

%

10.3

%

9.7

%

10.1

%

BNY Mellon common shareholders' equity to total assets ratio – GAAP

9.7

%

9.7

%

9.6

%

9.0

%

9.4

%

BNY Mellon tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP

6.5

%

6.6

%

6.7

%

6.5

%

6.2

%







Period-end common shares outstanding (in thousands)

1,057,337


1,067,674


1,077,083


1,085,343


1,092,953








Book value per common share – GAAP

$

34.19


$

33.72


$

33.34


$

32.69


$

32.59


Tangible book value per common share – Non-GAAP

$

16.67


$

16.25


$

15.87


$

15.27


$

15.16


(a)

Deferred tax liabilities are based on fully phased-in Basel III rules.

(b)

Assigned a zero percent risk-weighting by the regulators.

 

The following table presents income from consolidated investment management funds, net of noncontrolling interests.

Income (loss) from consolidated investment management funds, net of noncontrolling interests

(in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Income (loss) from consolidated investment management funds

$

17


$

10


$

(6)


$

16


$

(22)


Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

9


4


(7)


5


(5)


Income (loss) from consolidated investment management funds, net of noncontrolling interests

$

8


$

6


$

1


$

11


$

(17)


 

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

Income (loss) from consolidated investment management funds, net of noncontrolling interests - Investment Management business






(in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Investment management fees

$

3


$

3


$

2


$

7


$

3


Other (Investment income (loss))

6


3


(1)


4


(20)


Income (loss) from consolidated investment management funds, net of noncontrolling interests

$

9


$

6


$

1


$

11


$

(17)


 

The following table presents the reconciliation of the pre-tax operating margin for the Investment Management business.

Pre-tax operating margin - Investment Management business






(dollars in millions)

3Q16

2Q16

1Q16

4Q15

3Q15

Income before income taxes – GAAP

$

256


$

234


$

217


$

290


$

236


Add:  Amortization of intangible assets

22


19


19


24


24


Provision for credit losses


1


(1)


(4)


1


Money market fee waivers

11


11


9


23


28


Income before income taxes excluding amortization of intangible assets, provision for credit losses and money market fee waivers – Non-GAAP

$

289


$

265


$

244


$

333


$

289








Total revenue – GAAP

$

958


$

938


$

895


$

999


$

926


Less:  Distribution and servicing expense

104


102


100


92


94


Money market fee waivers benefiting distribution and servicing expense

15


15


23


27


35


Add:  Money market fee waivers impacting total revenue

26


26


32


50


63


Total revenue net of distribution and servicing expense and excluding money market fee waivers – Non-GAAP

$

865


$

847


$

804


$

930


$

860








Pre-tax operating margin (a)

27

%

25

%

24

%

29

%

25

%

Pre-tax operating margin excluding amortization of intangible assets, provision for credit losses, money market fee waivers and net of distribution and servicing expense – Non-GAAP (a)

33

%

31

%

30

%

36

%

34

%

(a)   Income before taxes divided by total revenue.

 

DIVIDENDS

Common – On Oct. 20, 2016, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.19 per common share.  This cash dividend is payable on Nov. 10, 2016 to shareholders of record as of the close of business on Nov. 1, 2016.

Preferred – On Oct. 20, 2016, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in December 2016, in each case payable on Dec. 20, 2016 to holders of record as of the close of business on Dec. 5, 2016:

  • $1,011.11 per share on the Series A Preferred Stock (equivalent to $10.1111 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock);
  • $1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock);
  • $2,250.00 per share on the Series D Preferred Stock (equivalent to $22.5000 per depositary share, each representing a 1/100th interest in a share of the Series D Preferred Stock); and
  • $2,475.00 per share on the Series E Preferred Stock (equivalent to $24.7500 per depositary share, each representing a 1/100th interest in a share of the Series E Preferred Stock).

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 Sept. 30, 2016, BNY Mellon had $30.5 trillion in assets under custody and/or administration, and $1.7 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.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available on www.bnymellon.com.  Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding our strategy, goals, revenue growth, shareholder returns, business improvement process, technology, client enhancements, capital plans and the resolution plan and expected effects of adopting a single point of entry strategy.  These statements may be expressed in a variety of ways, including the use of future or present tense language.  Words such as "estimate," "forecast," "project," "anticipate," "likely," "target," "expect," "intend," "continue," "seek," "believe," "plan," "goal," "could," "should," "may," "will," "strategy," "opportunities," "trends" and words of similar meaning signify forward-looking statements.  These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control).  Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2015, the Quarterly Report on Form 10-Q for the period ended June 30, 2016 and BNY Mellon's other filings with the Securities and Exchange Commission.  In addition, the actual effects of our adopting a single point of entry resolution strategy may differ from those expressed or implied in forward-looking statements as a result of changes to our strategy and related assumptions.  All forward-looking statements in this Earnings Release speak only as of October 20, 2016, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

Contacts:

MEDIA:
Colleen Krieger
(212) 635-6491
ColleenAnne.Krieger@bnymellon.com

ANALYSTS:
Valerie Haertel
(212) 635-8529
Valerie.Haertel@bnymellon.com

SOURCE BNY Mellon