NEW YORK, Jan. 18, 2018 /PRNewswire/ --

TOTAL REVENUE OF $3.7 BILLION, DECREASED 2%

  • Includes $320 million negative impact related to U.S. tax legislation and other charges (a); which decreased total revenue growth by 8%
  • Investment management and performance fees increased 13%
  • Investment services fees increased 5%; Asset servicing fees increased 6%

TOTAL EXPENSE OF $3.0 BILLION, INCREASED 14%

  • Includes $282 million (pre-tax) for severance, litigation and other charges (a); which increased total expense growth by 11%

FULL-YEAR 2017 EARNINGS OF $3.9 BILLION, OR $3.72 PER COMMON SHARE, AN INCREASE OF 18%

  • Total revenue up 2% and total expense up 4%
  • Includes impact of U.S. tax legislation, severance, litigation and other charges (a); which decreased revenue growth by 2% and increased expense growth by 3%
  • These items increased earnings per share growth by 5%

EXECUTING ON CAPITAL PLAN

  • Returned nearly $900 million through share repurchases and dividends and $3.6 billion in full-year 2017

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported fourth quarter net income applicable to common shareholders of $1.13 billion, or $1.08 per diluted common share.  Results for the fourth quarter 2017 include an estimated net benefit related to the Tax Cuts and Jobs Act ("U.S. tax legislation") of $427 million, or $0.41 per common share, and severance, litigation and other charges of $246 million, or $0.24 per common share (a).  Net income applicable to common shareholders was $822 million, or $0.77 per diluted common share, in the fourth quarter of 2016, and $983 million, or $0.94 per diluted common share, in the third quarter of 2017.

"Our fourth quarter results were impacted by new tax legislation and actions that we took to strengthen our firm for the longer term.  Aside from these items, our results were favorably impacted by strong equity markets and the underlying businesses continued to show modest growth in revenues and profits," Charles W. Scharf, chairman and chief executive officer, said.

"We saw strength in asset servicing along with growth in collateral management and clearing services – areas where we see continued client demand.  Additionally, our investment management business performed well due to an uplift from global equity markets, net inflows and improved investment performance fees, resulting from good investment performance, especially in fixed income," Mr. Scharf continued.

"The actions that resulted in the severance and other charges during the quarter are part of an ongoing review of our performance.  We expect this review to be completed by our March 8th Investor Day where we intend to provide a comprehensive update of the review and have a broader discussion about our firm."

"In addition, we have thought how best to use the ongoing benefit from lower taxes and we believe that we have a responsibility to our employees to share the benefit, as well as to invest as much as we intelligently can to build the company for the future so we can serve our clients, communities, and shareholders for the long term. At this point, we are anticipating that the impact of the lower tax rate would be almost entirely offset by actions that we will take to reinvest this benefit in our employees and our business," Mr. Scharf concluded.

(a)   Other charges include an asset impairment and investment securities losses related to the sale of certain securities.


FOURTH QUARTER 2017 FINANCIAL HIGHLIGHTS 
(comparisons are 4Q17 vs. 4Q16, unless otherwise stated)

Earnings

  • Reported 4Q earnings of $1.13 billion, or $1.08 per common share, including the estimated impact of U.S. tax legislation and other charges (a).

Amounts included in 4Q17 results







(dollars in millions, except earnings per share)

Results - GAAP


U.S. tax legislation


Other charges

(a)

Fee and other revenue

$

2,860



$

(279)



$

(37)



Income from consolidated investment management funds

17







Net interest revenue

851



(4)





Total revenue

3,728



(283)



(37)



Provision for credit losses

(6)







Total noninterest expense

3,006





282



Income before taxes

728



(283)



(319)



(Benefit) provision for income taxes

(453)



(710)



(73)



Net income

$

1,181



$

427



$

(246)










Diluted earnings per common share

$

1.08



$

0.41



$

(0.24)




(a)   Other charges include severance, litigation, an asset impairment and investment securities losses related to the sale of certain securities.

 

  • Total revenue of $3.7 billion, decreased 2%.
    • Investment services fees increased 5% reflecting higher money market fees, higher equity market values and termination fees due to lost business recorded in 4Q17.
    • Investment management and performance fees increased 13% due to higher equity market values, money market fees, performance fees and the favorable impact of a weaker U.S. dollar.  Investment management and performance fees increased 11% on a constant currency basis (Non-GAAP) (b).
    • Foreign exchange revenue was unchanged reflecting higher volumes offset by lower volatility.
    • Investment and other income decreased reflecting the impact of U.S. tax legislation on our renewable energy investments.
    • Net interest revenue increased 2% driven by higher interest rates, offset by lower average deposits and loans as well as the impact of interest rate hedging activities and leasing.
  • The provision for credit losses was a credit of $6 million.
  • Noninterest expense of $3.0 billion, increased 14% reflecting higher severance, litigation and an asset impairment, as well as higher incentive expense driven by stronger performance and the unfavorable impact of the weaker U.S. dollar.
  • Preferred stock dividends of $49 million.

U.S. tax legislation

  • U.S. tax legislation increased net income by an estimated $427 million as follows:

(estimated in millions)

Total revenue

Income taxes

Net income

Remeasurement of net deferred tax liabilities (c)

$


$

1,191


$

1,191


Repatriation tax


(723)


(723)


Other items

(4)


(39)


(43)


Renewable energy investments

(279)


281


2



$

(283)


$

710


$

427



(c)   Excluding deferred tax liabilities related to renewable energy investments.

 

  • Regulatory capital decreased by $551 million driven by the repatriation tax, offset by the tax benefit related to the remeasurement of certain deferred tax liabilities.
  • Effective tax rate for 2018 is expected to be approximately 21%.

Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")

  • Record AUC/A of $33.3 trillion increased 11% reflecting higher market values, the favorable impact of a weaker U.S. dollar and net new business.
    • Estimated new AUC/A wins in Asset Servicing of $575 billion in 4Q17.
  • Record AUM of $1.9 trillion increased 15% reflecting higher market values, the favorable impact of a weaker U.S. dollar and net inflows.
    • Net long-term inflows of $16 billion in 4Q17 reflect inflows of liability-driven investments, partially offset by outflows of active equity and fixed income investments and index funds.
    • Net short-term outflows of $4 billion in 4Q17.

Capital and liquidity

  • Repurchased 12 million common shares for $651 million and paid $248 million in dividends to common shareholders and repurchased 55 million common shares for $2.7 billion and paid $901 million in dividends in full-year 2017.
  • Return on common equity of 12% and 11% in full-year 2017.
  • Adjusted return on tangible common equity of 27% and 24% in full-year 2017 (b).
  • SLR – transitional of 6.1%; SLR – fully phased-in of 5.9% (b).
  • Average LCR of 118%.

(b)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of Non-GAAP measures.  In all periods presented, Non-GAAP information excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  See "Capital and Liquidity" beginning on page 12 for the reconciliation of the SLR.

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

 

FINANCIAL SUMMARY

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






4Q17 vs.

4Q17

3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Revenue:








Fee and other revenue

$

2,860


$

3,167


$

3,120


$

3,018


$

2,954


(10)

%

(3)

%

Income from consolidated investment management funds

17


10


10


33


5




Net interest revenue

851


839


826


792


831


1


2


Total revenue – GAAP

3,728


4,016


3,956


3,843


3,790


(7)


(2)


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

9


3


3


18


4




Total revenue, as adjusted – Non-GAAP

3,719


4,013


3,953


3,825


3,786


(7)


(2)


Provision for credit losses

(6)


(6)


(7)


(5)


7




Expense:








Noninterest expense – GAAP

3,006


2,654


2,655


2,642


2,631


13


14


Less:  Amortization of intangible assets

52


52


53


52


60




M&I, litigation and restructuring charges

80


6


12


8


7




Total noninterest expense, as adjusted – Non-GAAP

2,874


2,596


2,590


2,582


2,564


11


12


Income:








Income before income taxes

728


1,368


1,308


1,206


1,152


(47)

%

(37)

%

(Benefit) provision for income taxes

(453)


348


332


269


280




Net income

$

1,181


$

1,020


$

976


$

937


$

872




Net (income) attributable to noncontrolling interests (a)

(6)


(2)


(1)


(15)


(2)




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

1,175


1,018


975


922


870




Preferred stock dividends

(49)


(35)


(49)


(42)


(48)




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

$

1,126


$

983


$

926


$

880


$

822












Operating leverage (b)






(2,043)

bps

(1,589)

bps

Adjusted operating leverage – Non-GAAP (b)(c)






(1,804)

bps

(1,386)

bps









Key Metrics:








Pre-tax operating margin (c)

20

%

34

%

33

%

31

%

30

%



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

23

%

35

%

35

%

33

%

32

%











Return on common equity (annualized) (c)

12.1

%

10.6

%

10.4

%

10.2

%

9.3

%



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

13.2

%

11.0

%

10.8

%

10.7

%

9.8

%











Return on tangible common equity (annualized)

Non-GAAP (c)(d)

25.9

%

21.9

%

21.9

%

22.2

%

20.4

%



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

27.4

%

22.0

%

22.1

%

22.4

%

20.5

%











Fee revenue as a percentage of total revenue

77

%

78

%

79

%

78

%

78

%











Percentage of non-U.S. total revenue

39

%

36

%

35

%

34

%

34

%











Average common shares and equivalents outstanding:








Basic

1,024,828


1,035,337


1,035,829


1,041,158


1,050,888




Diluted

1,030,404


1,041,138


1,041,879


1,047,746


1,056,818












Period end:








Full-time employees

52,500


52,900


52,800


52,600


52,000




Book value per common share – GAAP (d)

$

37.21


$

36.11


$

35.26


$

34.23


$

33.67




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

$

18.24


$

18.19


$

17.53


$

16.65


$

16.19




Cash dividends per common share

$

0.24


$

0.24


$

0.19


$

0.19


$

0.19




Common dividend payout ratio

22

%

26

%

22

%

23

%

25

%



Closing stock price per common share

$

53.86


$

53.02


$

51.02


$

47.23


$

47.38




Market capitalization

$

54,584


$

54,294


$

52,712


$

49,113


$

49,630




Common shares outstanding

1,013,442


1,024,022


1,033,156


1,039,877


1,047,488





(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 23 for the components of this measure.

(c)    Non-GAAP information for all periods presented excludes the net income attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of Non-GAAP measures.

(d)   Tangible book value per common shareNon-GAAP and tangible common equity exclude goodwill and intangible assets, net of deferred tax liabilities, which, at Dec. 31, 2017, have been remeasured at the lower statutory corporate tax rate.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of Non-GAAP measures.

bps – basis points.

 

KEY MARKET METRICS

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


Key market metrics






4Q17 vs.


4Q17

3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Standard & Poor's ("S&P") 500 Index (a)

2674


2519


2423


2363


2239


6

%

19

%

S&P 500 Index – daily average

2603


2467


2398


2326


2185


6


19


FTSE 100 Index (a)

7688


7373


7313


7323


7143


4


8


FTSE 100 Index – daily average

7477


7380


7391


7274


6923


1


8


MSCI EAFE (a)

2051


1974


1883


1793


1684


4


22


MSCI EAFE – daily average

2005


1934


1856


1749


1660


4


21


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

485


480


471


459


451


1


8


NYSE and NASDAQ share volume (in billions)

188


179


199


186


189


5


(1)


JPMorgan G7 Volatility Index – daily average (c)

7.41


8.17


7.98


10.10


10.24


(9)


(28)


Average interest on excess reserves paid by the Federal Reserve

1.30

%

1.25

%

1.04

%

0.79

%

0.55

%

5

bps

75

bps

Foreign exchange rates vs. U.S. dollar:








British pound (a)

$

1.35


$

1.34


$

1.30


$

1.25


$

1.23


1

%

10

%

British pound – average rate

1.33


1.31


1.28


1.24


1.24


2


7


Euro (a)

1.20


1.18


1.14


1.07


1.05


2


14


Euro – average rate

1.18


1.17


1.10


1.07


1.08


1


9



(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






4Q17 vs.

(dollars in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Investment services fees:








Asset servicing (a)

$

1,130


$

1,105


$

1,085


$

1,063


$

1,068


2

%

6

%

Clearing services

400


383


394


376


355


4


13


Issuer services

197


288


241


251


211


(32)


(7)


Treasury services

137


141


140


139


140


(3)


(2)


Total investment services fees

1,864


1,917


1,860


1,829


1,774


(3)


5


Investment management and performance fees

962


901


879


842


848


7


13


Foreign exchange and other trading revenue

166


173


165


164


161


(4)


3


Financing-related fees

54


54


53


55


50



8


Distribution and servicing

38


40


41


41


41


(5)


(7)


Investment and other (loss) income

(198)


63


122


77


70


N/M

N/M

Total fee revenue

2,886


3,148


3,120


3,008


2,944


(8)


(2)


Net securities (losses) gains

(26)


19



10


10


N/M

N/M

Total fee and other revenue

$

2,860


$

3,167


$

3,120


$

3,018


$

2,954


(10)

%

(3)

%


(a)   Asset servicing fees include securities lending revenue of $51 million in 4Q17, $47 million in 3Q17, $48 million in 2Q17, $49 million in 1Q17 and $54 million in 4Q16. 

N/M Not meaningful.

 

KEY POINTS

  • Asset servicing fees increased 6% year-over-year and 2% sequentially.  The year-over-year increase primarily reflects higher equity market values, net new business, including growth in collateral management, and the favorable impact of the weaker U.S. dollar.  The sequential increase was primarily driven by net new business, securities lending, equity market values and money market fees.
  • Clearing services fees increased 13% year-over-year and 4% sequentially.  The year-over-year increase primarily reflects higher money market fees and growth in long-term mutual fund assets.  Both increases also reflect termination fees due to lost business recorded in 4Q17.
  • Issuer services fees decreased 7% year-over-year primarily reflecting lower volumes, fewer corporate actions and lower fees due to a reduction in shares outstanding in certain Depositary Receipts programs, partially offset by higher Corporate Trust revenue.  The 32% sequential decrease primarily reflects seasonality in Depositary Receipts revenue. 
  • Treasury services fees decreased 2% year-over-year and 3% sequentially, primarily reflecting higher compensating balance credits provided to clients, which reduced fee revenue and increased net interest revenue, partially offset by higher payment volumes.
  • Investment management and performance fees increased 13% year-over-year and 7% sequentially, primarily reflecting higher equity market values, money market fees and performance fees.  The year-over-year increase also reflects the favorable impact of a weaker U.S. dollar (principally versus the British pound).  On a constant currency basis (Non-GAAP), investment management and performance fees increased 11% compared with 4Q16.

Foreign exchange and other trading revenue







(in millions)

4Q17

3Q17

2Q17

1Q17

4Q16


Foreign exchange

$

175


$

158


$

151


$

154


$

175



Other trading (loss) revenue

(9)


15


14


10


(14)



Total foreign exchange and other trading revenue

$

166


$

173


$

165


$

164


$

161


Foreign exchange revenue was unchanged compared with 4Q16 and increased 11% sequentially.  Year-over-year, higher volumes were offset by lower volatility.  The sequential increase reflects higher volumes.  The sequential decrease in other trading revenue primarily reflects the impact of hedging activities.

  • Financing-related fees increased 8% year-over-year primarily reflecting higher underwriting fees.

Investment and other (loss) income







(in millions)

4Q17

3Q17

2Q17

1Q17

4Q16


Corporate/bank-owned life insurance

$

43


$

37


$

43


$

30


$

53



Expense reimbursements from joint venture

15


18


17


14


15



Seed capital gains (a)

7


6


10


9


6



Lease-related gains (losses)

4



51


1


(6)



Equity investment income (loss)

4



7


26


(2)



Asset-related gains (losses)


1


(5)


3


1



Other (loss) income

(271)


1


(1)


(6)


3



Total investment and other (loss) income

$

(198)


$

63


$

122


$

77


$

70



(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 on seed capital investments in consolidated investment management funds was $8 million in 4Q17, $7 million in 3Q17, $7 million in 2Q17, $15 million in 1Q17 and $1 million in 4Q16.

 

Both decreases in investment and other income primarily reflect lower other income driven by the impact of U.S. tax legislation on our investments in renewable energy.  The net impact of U.S. tax legislation on renewable energy investments was de minimis to net income, as the pre-tax accounting resulted in a reduction of $279 million to investment and other income, which was offset by the tax benefit from remeasurement of the related deferred tax liability.

  • Net securities losses were $26 million in 4Q17, driven by losses of $37 million on the sale of certain investment securities.

NET INTEREST REVENUE


Net interest revenue






4Q17 vs.

(dollars in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Net interest revenue

$

851


$

839


$

826


$

792


$

831


1

%

2

%

Tax equivalent adjustment

11


12


12


12


12


N/M

N/M

Net interest revenue (FTE) – Non-GAAP (a)

$

862


$

851


$

838


$

804


$

843


1

%

2

%









Net interest margin

1.14

%

1.15

%

1.14

%

1.13

%

1.16

%

(1)

bps

(2)

bps

Net interest margin (FTE) – Non-GAAP (a)

1.16

%

1.16

%

1.16

%

1.14

%

1.17

%

bps

(1)

bps









Selected average balances:








Cash/interbank investments

$

117,446


$

114,449


$

111,021


$

106,069


$

104,352


3

%

13

%

Trading account securities

2,723


2,359


2,455


2,254


2,288


15


19


Securities

120,225


119,089


117,227


114,786


117,660


1


2


Loans

56,772


55,944


58,793


60,312


63,647


1


(11)


Interest-earning assets

297,166


291,841


289,496


283,421


287,947


2


3


Interest-bearing deposits

147,763


142,490


142,336


139,820


145,681


4


1


Noninterest-bearing deposits

69,111


70,168


73,886


73,555


82,267


(2)


(16)


Long-term debt

28,245


28,138


27,398


25,882


24,986



13










Selected average yields/rates: (b)








Cash/interbank investments

0.98

%

0.84

%

0.67

%

0.56

%

0.47

%



Trading account securities

2.02


2.26


2.85


3.12


3.17




Securities

1.85


1.80


1.72


1.71


1.67




Loans

2.60


2.63


2.44


2.15


1.92




Interest-earning assets

1.65


1.59


1.47


1.38


1.30




Interest-bearing deposits

0.17


0.16


0.09


0.03


(0.01)




Long-term debt

2.29


2.07


1.87


1.85


1.36












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

40

%

39

%

38

%

37

%

36

%



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

23

%

24

%

26

%

26

%

29

%




(a)   Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.

(b)   Yields/rates include the impact of interest rate hedging activities.

FTE – fully taxable equivalent.

N/M – Not meaningful.

bps – basis points.


KEY POINTS

  • Net interest revenue increased 2% year-over-year and 1% sequentially.  The year-over-year increase primarily reflects higher interest rates, partially offset by lower average deposits and loans as well as the impact of interest rate hedging activities and leasing.  The sequential increase primarily reflects higher interest rates and higher average deposits, partially offset by leasing-related adjustments.  Net interest revenue in 4Q17 was negatively impacted by $15 million for leasing-related adjustments (including $4 million related to the impact of U.S. tax legislation).  Net interest revenue in 4Q16 was positively impacted by $25 million of interest rate hedging activities and a $15 million premium amortization adjustment.

NONINTEREST EXPENSE

Noninterest expense






4Q17 vs.

(dollars in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Staff

$

1,614


$

1,469


$

1,417


$

1,472


$

1,395


10

%

16

%

Professional, legal and other purchased services

338


305


319


312


325


11


4


Software and equipment

297


233


232


223


237


27


25


Net occupancy

153


141


139


136


153


9



Distribution and servicing

106


109


104


100


98


(3)


8


Sub-custodian

59


62


65


64


57


(5)


4


Business development

66


49


63


51


71


35


(7)


Bank assessment charges

53


51


59


57


53


4



Other

188


177


192


167


175


6


7


Amortization of intangible assets

52


52


53


52


60



(13)


M&I, litigation and restructuring charges

80


6


12


8


7


N/M

N/M

Total noninterest expense – GAAP

$

3,006


$

2,654


$

2,655


$

2,642


$

2,631


13

%

14

%









Staff expense as a percentage of total revenue

43

%

37

%

36

%

38

%

37

%











Memo:








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

$

2,874


$

2,596


$

2,590


$

2,582


$

2,564


11

%

12

%


N/M Not meaningful.

KEY POINTS

  • Total noninterest expense increased 14% year-over-year and 13% sequentially.  Total noninterest expense in 4Q17 includes $282 million for severance, litigation and an asset impairment, which increased the year-over-year and sequential noninterest expense growth by 11%.
  • Both the year-over-year and sequential increases primarily reflect higher staff, litigation, software and equipment and professional, legal and other purchased services expenses.  The year-over-year increase also reflects the unfavorable impact of the weaker U.S. dollar.
    • Staff expense reflects higher severance expense.  Year-over-year, staff expense also reflects higher incentives, driven by stronger performance.
    • Software and equipment and professional, legal and other purchased services expenses primarily reflect an asset impairment recorded in 4Q17.
  • The sequential increase also reflects seasonally higher business development expense and higher net occupancy expense, driven by the cost to exit leased space.

INVESTMENT SECURITIES PORTFOLIO

At Dec. 31, 2017, the fair value of our investment securities portfolio totaled $119.9 billion.  The net unrealized pre-tax loss on our total securities portfolio was $85 million at Dec. 31, 2017 compared with a pre-tax gain of $257 million at Sept. 30, 2017.  The net unrealized pre-tax loss was primarily driven by an increase in long-term interest rates.  At Dec. 31, 2017, the fair value of the held-to-maturity securities totaled $40.5 billion and represented 34% 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)

Sept. 30,
2017


4Q17

change in

unrealized

gain (loss)

Dec. 31, 2017

Fair value

as a % of amortized

cost (a)

Unrealized

gain (loss)


Ratings (b)





BB+

and

lower


 Fair

value


Amortized

cost

Fair

value



AAA/

AA-

A+/

A-

BBB+/

BBB-

Not

rated

Agency RMBS

$

49,917



$

(260)


$

50,210


$

49,746



99

%

$

(464)



100

%

%

%

%

%

U.S. Treasury

25,159



(6)


24,951


24,848



100


(103)



100






Sovereign debt/sovereign guaranteed

14,102



(21)


13,998


14,128



101


130



72


6


21


1



Non-agency RMBS (c)

1,185



(20)


811


1,091



85


280




1


3


85


11


Non-agency RMBS

594



(1)


511


549



98


38



7


4


21


67


1


European floating rate notes

387



2


275


271



97


(4)



49


51





Commercial MBS

11,033



(13)


11,425


11,394



100


(31)



99


1





State and political subdivisions

3,141



(25)


2,966


2,973



100


7



80


17




3


Foreign covered bonds

2,626



(3)


2,604


2,615



100


11



100






Corporate bonds

1,275



(7)


1,249


1,255



101


6



17


69


14




CLOs

2,550



3


2,898


2,909



100


11



98




1


1


U.S. Government agencies

2,496



17


2,570


2,603



101


33



100






Consumer ABS

1,157



(2)


1,040


1,043



100


3



93



5


2



Other (d)

4,122



(6)


4,485


4,483



100


(2)



82


16




2


Total investment securities

$

119,744


(e)

$

(342)


$

119,993


$

119,908


(e)

99

%

$

(85)


(e)(f)

93

%

3

%

3

%

1

%

%


(a)  Amortized cost before impairments.

(b)   Represents ratings by S&P, or the equivalent.

(c)    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.

(d)  Includes commercial paper with a fair value of $700 million and $700 million and money market funds with a fair value of $939 million and $963 million at Sept. 30, 2017 and Dec. 31, 2017, respectively.

(e)   Includes net unrealized losses on derivatives hedging securities available-for-sale of $238 million at Sept. 30, 2017 and $147 million at Dec. 31, 2017.

(f)   Unrealized gains of $230 million at Dec. 31, 2017 related to available-for-sale securities, net of hedges.


 

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016

Nonperforming loans:




Other residential mortgages

$

78


$

80


$

91


Wealth management loans and mortgages

7


8


8


Commercial real estate

1




Financial institutions


2



Lease financing



4


Total nonperforming loans

86


90


103


Other assets owned

4


4


4


Total nonperforming assets

$

90


$

94


$

107


Nonperforming assets ratio

0.15

%

0.16

%

0.17

%

Allowance for loan losses/nonperforming loans

184.9


178.9


164.1


Total allowance for credit losses/nonperforming loans

303.5


294.4


272.8


Nonperforming assets decreased $4 million compared with Sept. 30, 2017 and $17 million compared with Dec. 31, 2016.  The decrease in nonperforming assets compared with Sept. 30, 2017 primarily reflects lower other residential mortgages and financial institutions.


ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS


Allowance for credit losses, provision and net recoveries

(in millions)

Dec. 31,
 2017

Sept. 30,
2017

Dec. 31,
 2016

Allowance for credit losses - beginning of period

$

265


$

270


$

274


Provision for credit losses

(6)


(6)


7


Net recoveries:




Other residential mortgages

2


1



Financial institutions




Net recoveries

2


1



Allowance for credit losses - end of period

$

261


$

265


$

281


Allowance for loan losses

$

159


$

161


$

169


Allowance for lending-related commitments

102


104


112



CAPITAL AND LIQUIDITY

Our consolidated capital ratios are shown in the following table.  The common equity Tier 1 ("CET1"), Tier 1 and Total risk-based regulatory capital ratios in the first section of the table below are based on Basel III components of capital, as phased-in (referred to as "Transitional ratios").

Capital ratios

Dec. 31,
 2017

Sept. 30,
2017

Dec. 31,
2016

Consolidated regulatory capital ratios: (a)




Standardized Approach:




CET1 ratio

12.0

%

12.3

%

12.3

%

Tier 1 capital ratio

14.2


14.6


14.5


Total (Tier 1 plus Tier 2) capital ratio

15.1


15.6


15.2


Advanced Approach:




CET1 ratio

10.7


11.1


10.6


Tier 1 capital ratio

12.7


13.2


12.6


Total (Tier 1 plus Tier 2) capital ratio

13.4


14.0


13.0


Leverage capital ratio (b)

6.6


6.8


6.6


Supplementary leverage ratio ("SLR")

6.1


6.3


6.0


BNY Mellon shareholders' equity to total assets ratio

11.1


11.4


11.6


BNY Mellon common shareholders' equity to total assets ratio

10.1


10.4


10.6






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




CET1 ratio:




Standardized Approach

11.5

%

11.9

%

11.3

%

Advanced Approach

10.3


10.7


9.7


SLR

5.9


6.1


5.6



(a)  Regulatory capital ratios for Dec. 31, 2017 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)   Estimated.


 

CET1 generation in 4Q17 – preliminary

Transitional

basis (b)

Fully

phased-in

Non-GAAP (c)




(in millions)


CET1 – Beginning of period

$

18,870


$

18,141



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

1,126


1,126



Goodwill and intangible assets, net of related deferred tax liabilities

(808)


(872)



Gross CET1 generated

318


254



Capital deployed:




Dividends

(248)


(248)



Common stock repurchased

(651)


(651)



Total capital deployed

(899)


(899)



Other comprehensive income

360


424



Additional paid-in capital (a)

77


77



Other

(133)


(159)



Total other additions

304


342



Net CET1 deployed

(277)


(303)



CET1 – End of period

$

18,593


$

17,838




(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

Dec. 31, 2017 (a)


Sept. 30, 2017


Dec. 31, 2016

(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

$

37,859


$

37,709



$

37,195


$

36,981



$

35,794


$

35,269


Goodwill and intangible assets

(18,684)


(19,223)



(17,876)


(18,351)



(17,314)


(18,312)


Net pension fund assets

(169)


(211)



(72)


(90)



(55)


(90)


Equity method investments

(372)


(387)



(334)


(348)



(313)


(344)


Deferred tax assets

(33)


(41)



(31)


(39)



(19)


(32)


Other

(8)


(9)



(12)


(12)




(1)


Total CET1

18,593


17,838



18,870


18,141



18,093


16,490


Other Tier 1 capital:









Preferred stock

3,542


3,542



3,542


3,542



3,542


3,542


Deferred tax assets

(8)




(8)




(13)



Net pension fund assets

(42)




(19)




(36)



Other

(41)


(41)



(34)


(34)



(121)


(121)


Total Tier 1 capital

22,044


21,339



22,351


21,649



21,465


19,911











Tier 2 capital:









Subordinated debt

1,250


1,250



1,300


1,250



550


550


Allowance for credit losses

261


261



265


265



281


281


Trust preferred securities







148



Other

(12)


(12)



(7)


(7)



(12)


(11)


Total Tier 2 capital - Standardized Approach

1,499


1,499



1,558


1,508



967


820


Excess of expected credit losses

33


33



49


49



50


50


Less: Allowance for credit losses

261


261



265


265



281


281


Total Tier 2 capital - Advanced Approach

$

1,271


$

1,271



$

1,342


$

1,292



$

736


$

589











Total capital:









Standardized Approach

$

23,543


$

22,838



$

23,909


$

23,157



$

22,432


$

20,731


Advanced Approach

$

23,315


$

22,610



$

23,693


$

22,941



$

22,201


$

20,500











Risk-weighted assets:









Standardized Approach

$

155,498


$

155,309



$

153,494


$

152,995



$

147,671


$

146,475


Advanced Approach

$

174,117


$

173,916



$

169,822


$

169,293



$

170,495


$

169,227











Standardized Approach:









CET1 ratio

12.0

%

11.5

%


12.3

%

11.9

%


12.3

%

11.3

%

Tier 1 capital ratio

14.2


13.7



14.6


14.2



14.5


13.6


Total (Tier 1 plus Tier 2) capital ratio

15.1


14.7



15.6


15.1



15.2


14.2


Advanced Approach:









CET1 ratio

10.7

%

10.3

%


11.1

%

10.7

%


10.6

%

9.7

%

Tier 1 capital ratio

12.7


12.3



13.2


12.8



12.6


11.8


Total (Tier 1 plus Tier 2) capital ratio

13.4


13.0



14.0


13.6



13.0


12.1



(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

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

Dec. 31, 2017 (a)


Sept. 30, 2017


Dec. 31, 2016

(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

$

22,044


$

21,339



$

22,351


$

21,649



$

21,465


$

19,911











Total leverage exposure:









Quarterly average total assets

$

350,786


$

350,786



$

345,709


$

345,709



$

344,142


$

344,142


Less: Amounts deducted from Tier 1 capital

19,186


19,892



18,154


18,856



17,333


18,887


Total on-balance sheet assets, as adjusted

331,600


330,894



327,555


326,853



326,809


325,255


Off-balance sheet exposures:









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

6,613


6,613



6,213


6,213



6,021


6,021


Repo-style transaction exposures

1,086


1,086



1,034


1,034



533


533


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

21,959


21,959



21,860


21,860



23,274


23,274


Total off-balance sheet exposures

29,658


29,658



29,107


29,107



29,828


29,828


Total leverage exposure

$

361,258


$

360,552



$

356,662


$

355,960



$

356,637


$

355,083











SLR - Consolidated (c)

6.1

%

5.9

%


6.3

%

6.1

%


6.0

%

5.6

%










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









Tier 1 capital

$

20,478


$

19,768



$

20,718


$

19,955



$

19,011


$

17,708


Total leverage exposure

$

296,517


$

296,231



$

292,759


$

292,421



$

291,022


$

290,230











SLR - The Bank of New York Mellon (c)

6.9

%

6.7

%


7.1

%

6.8

%


6.5

%

6.1

%


(a)    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 fully phased-in on Jan. 1, 2017 and require BNY Mellon to meet an LCR of 100%.  On a consolidated basis, our average LCR was 118% for 4Q17.  High-quality liquid assets ("HQLA"), before haircuts and trapped liquidity, totaled $193 billion at Dec. 31, 2017 and averaged $170 billion for 4Q17.


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)







4Q17 vs.

4Q17


3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Revenue:









Investment management fees:









Mutual funds

$

341



$

332


$

314


$

299


$

297


3

%

15

%

Institutional clients

378



367


362


348


340


3


11


Wealth management

179



172


169


167


164


4


9


Investment management fees (a)

898



871


845


814


801


3


12


Performance fees

50



15


17


12


32


N/M

56


Investment management and performance fees

948



886


862


826


833


7


14


Distribution and servicing

51



51


53


52


48



6


Other (a)

(25)



(19)


(16)


(1)


(1)


N/M

N/M

Total fee and other revenue (a)

974



918


899


877


880


6


11


Net interest revenue

74



82


87


86


80


(10)


(8)


Total revenue

1,048



1,000


986


963


960


5


9


Provision for credit losses

1



(2)



3


6


N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

756



687


683


668


672


10


13


Amortization of intangible assets

15



15


15


15


22



(32)


Total noninterest expense

771



702


698


683


694


10


11


Income before taxes

$

276



$

300


$

288


$

277


$

260


(8)%


6

%

Income before taxes (ex. amortization of intangible assets) – Non-GAAP

$

291



$

315


$

303


$

292


$

282


(8)%


3

%










Pre-tax operating margin

26

%


30

%

29

%

29

%

27

%



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

31

%


35

%

34

%

34

%

33

%












Changes in AUM (in billions): (c)









Beginning balance of AUM

$

1,824



$

1,771


$

1,727


$

1,648


$

1,715




Net inflows (outflows):









Long-term strategies:









Equity

(6)



(2)


(2)


(4)


(5)




Fixed income

(2)



4


2


2


(1)




Liability-driven investments (d)

23



(2)


15


14


(7)




Multi-asset and alternative investments

2



3


1


2


3




Total long-term active strategies inflows (outflows)

17



3


16


14


(10)




Index

(1)



(3)


(13)



(1)




Total long-term strategies inflows (outflows)

16




3


14


(11)




Short term strategies:









Cash

(4)



10


11


13


(3)




Total net inflows (outflows)

12



10


14


27


(14)




Net market impact/other

47



17


1


41


(11)




Net currency impact

10



26


29


11


(42)




Ending balance of AUM

$

1,893


(e)

$

1,824


$

1,771


$

1,727


$

1,648


4

%

15

%










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









Equity

9

%


9

%

9

%

9

%

9

%



Fixed income

11



11


11


11


11




Index

18



18


18


19


19




Liability-driven investments (d)

35



35


35


34


34




Multi-asset and alternative investments

11



11


11


11


11




Cash

16



16


16


16


16




Total AUM

100

%

(e)

100

%

100

%

100

%

100

%












Average balances:









Average loans

$

16,813



$

16,724


$

16,560


$

16,153


$

15,673


1

%

7

%

Average deposits

$

11,633



$

12,374


$

14,866


$

15,781


$

15,511


(6)%


(25)%



(a)    Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See page 27 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 amortization of intangible assets, provision for credit losses and distribution and servicing expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of this Non-GAAP measure.

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

(d)    Includes currency overlay assets under management.

(e)    Preliminary

N/M - Not meaningful


 

INVESTMENT MANAGEMENT KEY POINTS

  • Income before taxes totaled $276 million in 4Q17, an increase of 6% year-over-year and a decrease of 8% sequentially.  Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $291 million in 4Q17, an increase of 3% year-over-year and a decrease of 8% sequentially.
    • Pre-tax operating margin of 26% in 4Q17 decreased 78 bps year-over-year and 366 bps sequentially.
    • Adjusted pre-tax operating margin (Non-GAAP) of 31% in 4Q17 decreased 240 bps year-over-year and 422 bps sequentially.
  • Total revenue was $1.0 billion, an increase of 9% year-over-year and 5% sequentially, primarily reflecting higher investment management fees and performance fees, partially offset by lower other revenue.
    • 42% of non-U.S. revenue in 4Q17 and 4Q16.
  • Investment management fees increased 12% year-over-year and 3% sequentially, primarily reflecting higher equity market values and higher money market fees.  The year-over-year increase also reflects the favorable impact of a weaker U.S. dollar (principally versus the British pound).  On a constant currency basis, investment management fees increased 9% (Non-GAAP) compared with 4Q16. 
    • Net long-term inflows of $16 billion in 4Q17 reflect inflows of liability-driven investments, partially offset by outflows of active equity and fixed income investments and index funds.
    • Net short-term outflows of $4 billion in 4Q17.
  • Other revenue declined year-over-year primarily reflecting losses on hedging activity and higher payments to Investment Services related to higher money market fees, partially offset by seed capital gains.
  • Net interest revenue decreased 8% year-over-year and 10% sequentially.  Both decreases primarily reflect lower average deposits. 
    • Average loans increased 7% year-over-year and 1% sequentially.
    • Average deposits decreased 25% year-over-year and 6% sequentially.
  • Total noninterest expense (excluding amortization of intangible assets) increased 13% year-over-year and 10% sequentially.  Both increases primarily reflect higher severance, incentive and software expenses.  The year-over-year increase also reflects the unfavorable impact of the weaker U.S. dollar.  The sequential increase also reflects seasonally higher business development expenses.  Noninterest expense for 4Q17 includes $30 million related to severance and litigation.

INVESTMENT SERVICES provides business and technology solutions to financial institutions, corporations, public funds and government agencies, including: asset servicing (custody, foreign exchange, fund services, broker-dealer services, securities finance, collateral and liquidity services), clearing services (primarily Pershing LLC), issuer services (depositary receipts and corporate trust) and treasury services (global payments, trade finance and cash management).


(dollars in millions, unless otherwise noted)







4Q17 vs.

4Q17


3Q17

2Q17

1Q17

4Q16

3Q17

4Q16

Revenue:









Investment services fees:









Asset servicing

$

1,106



$

1,081


$

1,061


$

1,038


$

1,043


2

%

6

%

Clearing services

400



381


393


375


354


5


13


Issuer services

196



288


241


250


211


(32)


(7)


Treasury services

136



141


139


139


139


(4)


(2)


Total investment services fees

1,838



1,891


1,834


1,802


1,747


(3)


5


Foreign exchange and other trading revenue

168



154


145


153


157


9


7


Other (a)

135



142


136


129


128


(5)


5


Total fee and other revenue

2,141



2,187


2,115


2,084


2,032


(2)


5


Net interest revenue

813



777


761


707


713


5


14


Total revenue

2,954



2,964


2,876


2,791


2,745



8


Provision for credit losses

(2)



(2)


(3)




N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

2,060



1,837


1,889


1,812


1,786


12


15


Amortization of intangible assets

37



37


38


37


38



(3)


Total noninterest expense

2,097



1,874


1,927


1,849


1,824


12


15


Income before taxes

$

859



$

1,092


$

952


$

942


$

921


(21)

%

(7)

%

Income before taxes (ex. amortization of intangible
assets) – Non-GAAP

$

896



$

1,129


$

990


$

979


$

959


(21)

%

(7)

%










Pre-tax operating margin

29

%


37

%

33

%

34

%

34

%



Adjusted pre-tax operating margin (ex. provision for credit
losses and amortization of intangible assets) – Non-GAAP

30

%


38

%

34

%

35

%

35

%












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

89

%


103

%

97

%

99

%

98

%












Securities lending revenue

$

45



$

41


$

42


$

40


$

44


10

%

2

%










Metrics:









Average loans

$

38,845



$

38,038


$

40,931


$

42,818


$

45,832


2

%

(15)

%

Average deposits

$

204,680



$

198,299


$

200,417


$

197,690


$

213,531


3

%

(4)

%










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

$

33.3


(c)

$

32.2


$

31.1


$

30.6


$

29.9


3

%

11

%

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

$

408



$

382


$

336


$

314


$

296


7

%

38

%










Asset servicing:









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

$

575


(c)

$

166


$

152


$

109


$

141













Clearing services:









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

6,126



6,203


6,159


6,058


5,960


(1)

%

3

%

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

$

508,873



$

500,998


$

480,532


$

460,977


$

438,460


2

%

16

%

Average investor margin loans (U.S. platform)

$

9,822



$

8,886


$

9,812


$

10,740


$

10,562


11

%

(7)

%










Depositary Receipts:









Number of sponsored programs

886



938


1,025


1,050


1,062


(6)

%

(17)

%










Broker-Dealer:









Average tri-party repo balances (in billions)

$

2,606



$

2,534


$

2,498


$

2,373


$

2,307


3

%

13

%


(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 Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.3 trillion at Dec. 31, 2017 and Sept. 30, 2017 and $1.2 trillion at June 30, 2017, March 31, 2017 and Dec. 31, 2016.

(c)    Preliminary

(d)    Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $71 billion at Dec. 31, 2017, $68 billion at Sept. 30, 2017, $66 billion at June 30, 2017, $65 billion at March 31, 2017 and $63 billion at Dec. 31, 2016.

N/M - Not meaningful


 

INVESTMENT SERVICES KEY POINTS

  • Income before taxes totaled $859 million in 4Q17.  Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $896 million in 4Q17.
    • The pre-tax operating margin was 29% in 4Q17.  The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 30% in 4Q17.
    • Investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 89% in 4Q17.

 

  • Investment services fees increased 5% year-over-year and decreased 3% sequentially.
    • Asset servicing fees increased 6% year-over-year and 2% sequentially.  The year-over-year increase primarily reflects higher equity market values, net new business, including growth in collateral management, and the favorable impact of the weaker U.S. dollar.  The sequential increase was primarily driven by net new business, securities lending, equity market values and money market fees.
    • Clearing services fees increased 13% year-over-year and 5% sequentially.  The year-over-year increase primarily reflects higher money market fees and growth in long-term mutual fund assets.  Both increases also reflect termination fees due to lost business recorded in 4Q17.
    • Issuer services fees decreased 7% year-over-year and 32% sequentially.  The year-over-year decrease primarily reflects lower volumes, fewer corporate actions and lower fees due to a reduction in shares outstanding in certain Depositary Receipts programs, partially offset by higher Corporate Trust revenue.  The sequential decrease primarily reflects seasonality in Depositary Receipts revenue. 
    • Treasury services fees decreased 2% year-over-year and 4% sequentially, primarily reflecting higher compensating balance credits provided to clients, which reduced fee revenue and increased net interest revenue, partially offset by higher payment volumes.
  • Foreign exchange and other trading revenue increased 7% year-over-year and 9% sequentially.  Year-over year, higher volumes were offset by lower volatility.  The sequential increase reflects higher volumes. 
  • Other revenue increased 5% year-over-year primarily reflecting higher payments from Investment Management related to higher money market fees.  The 5% sequential decrease primarily reflects lower financing-related fees.
  • Net interest revenue increased 14% year-over-year and 5% sequentially.  Both increases primarily reflect higher interest rates.  The year-over-year increase was partially offset by lower loan and deposit volumes.  The sequential increase also reflects higher loan and deposit volumes.
  • Noninterest expense (excluding amortization of intangible assets) increased 15% year-over-year and 12% sequentially.  Both increases primarily reflect higher severance, litigation, an asset impairment and additional technology related costs.  The year-over-year increase also reflects higher incentives expense and the unfavorable impact of the weaker U.S. dollar.  Noninterest expense for 4Q17 includes $233 million related to severance, litigation and an asset impairment.

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








(in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

Revenue:






Fee and other revenue

$

(247)


$

69


$

113


$

72


$

42


Net interest (expense) revenue

(36)


(20)


(22)


(1)


38


Total revenue

(283)


49


91


71


80


Provision for credit losses

(5)


(2)


(4)


(8)


1


Noninterest expense (ex. M&I and restructuring charges)

134


77


28


106


108


M&I and restructuring charges

1




1


2


Total noninterest expense

135


77


28


107


110


(Loss) income before taxes

$

(413)


$

(26)


$

67


$

(28)


$

(31)


(Loss) income before taxes (ex. M&I and restructuring charges) – Non-GAAP

$

(412)


$

(26)


$

67


$

(27)


$

(29)








Average loans and leases

$

1,114


$

1,182


$

1,302


$

1,341


$

2,142



 

KEY POINTS

  • Total fee and other revenue decreased $289 million compared with 4Q16 and $316 million compared with 3Q17, primarily reflecting the impact of U.S. tax legislation on our investments in renewable energy and net securities losses.  The net impact of U.S. tax legislation on renewable energy investments was de minimis to net income, as the pre-tax accounting resulted in a reduction of $279 million to investment and other income, which was offset by the tax benefit from remeasurement of the related deferred tax liability.
  • Net interest revenue decreased $74 million compared with 4Q16 and $16 million compared with 3Q17.  Both decreases primarily reflect leasing-related adjustments, partially offset by higher interest rates.  The year-over-year decrease also reflects the positive impact of interest rate hedging activities and a premium amortization adjustment, both recorded in 4Q16.
  • Noninterest expense (excluding M&I and restructuring charges) increased $26 million compared with 4Q16 and increased $57 million compared with 3Q17.  Both increases were primarily driven by severance expense of $19 million recorded in 4Q17.  The sequential increase also reflects higher professional, legal and other purchased services and occupancy expenses. 

 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement


(in millions)

Quarter ended


Year ended


Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016


Dec. 31,
2017

Dec. 31,
2016



Fee and other revenue








Investment services fees:








Asset servicing

$

1,130


$

1,105


$

1,068



$

4,383


$

4,244



Clearing services

400


383


355



1,553


1,404



Issuer services

197


288


211



977


1,026



Treasury services

137


141


140



557


547



Total investment services fees

1,864


1,917


1,774



7,470


7,221



Investment management and performance fees

962


901


848



3,584


3,350



Foreign exchange and other trading revenue

166


173


161



668


701



Financing-related fees

54


54


50



216


219



Distribution and servicing

38


40


41



160


166



Investment and other income (loss)

(198)


63


70



64


341



Total fee revenue

2,886


3,148


2,944



12,162


11,998



Net securities (losses) gains

(26)


19


10



3


75



Total fee and other revenue

2,860


3,167


2,954



12,165


12,073



Operations of consolidated investment management funds








Investment income

17


10


8



74


35



Interest of investment management fund note holders



3



4


9



Income from consolidated investment management funds

17


10


5



70


26



Net interest revenue








Interest revenue

1,219


1,151


928



4,382


3,575



Interest expense

368


312


97



1,074


437



Net interest revenue

851


839


831



3,308


3,138



Total revenue

3,728


4,016


3,790



15,543


15,237



Provision for credit losses

(6)


(6)


7



(24)


(11)



Noninterest expense








Staff

1,614


1,469


1,395



5,972


5,733



Professional, legal and other purchased services

338


305


325



1,274


1,185



Software and equipment

297


233


237



985


894



Net occupancy

153


141


153



569


590



Distribution and servicing

106


109


98



419


405



Sub-custodian

59


62


57



250


245



Business development

66


49


71



229


245



Bank assessment charges

53


51


53



220


219



Other

188


177


175



724


721



Amortization of intangible assets

52


52


60



209


237



M&I, litigation and restructuring charges

80


6


7



106


49



Total noninterest expense

3,006


2,654


2,631



10,957


10,523



Income








Income before income taxes

728


1,368


1,152



4,610


4,725



(Benefit) provision for income taxes

(453)


348


280



496


1,177



Net income

1,181


1,020


872



4,114


3,548



Net (income) attributable to noncontrolling interests (includes $(9), $(3),
$(4), $(33) and $(10) related to consolidated investment management
funds, respectively)

(6)


(2)


(2)



(24)


(1)



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

1,175


1,018


870



4,090


3,547



Preferred stock dividends

(49)


(35)


(48)



(175)


(122)



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

$

1,126


$

983


$

822



$

3,915


$

3,425



 

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 ended


Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016


Dec. 31,
2017

Dec. 31,
2016


(in millions)


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

$

1,126


$

983


$

822



$

3,915


$

3,425



Less:  Earnings allocated to participating securities (a)

8


8


13



43


52



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

$

1,118


$

975


$

809



$

3,872


$

3,373




(a)    Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes.  This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for 3Q17, which resulted in a de minimis impact to both basic and diluted earnings per share.

 

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

Quarter ended


Year ended


Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016


Dec. 31,
2017

Dec. 31,
2016


(in thousands)


Basic

1,024,828


1,035,337


1,050,888



1,034,281


1,066,286



Diluted

1,030,404


1,041,138


1,056,818



1,040,290


1,072,013




(a)    Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes.  This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for 3Q17, which resulted in a de minimis impact to both basic and diluted earnings per share.

 

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

Quarter ended


Year ended


Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016


Dec. 31,
2017

Dec. 31,
2016


(in dollars)


Basic

$

1.09


$

0.94


$

0.77



$

3.74


$

3.16



Diluted

$

1.08


$

0.94


$

0.77



$

3.72


$

3.15




 

THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet


(dollars in millions, except per share amounts)

Dec. 31,
2017

Sept. 30,
2017

Dec. 31,
2016



Assets





Cash and due from:





Banks

$

5,382


$

5,557


$

4,822



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

91,510


75,808


58,041



Interest-bearing deposits with banks

11,979


15,256


15,086



Federal funds sold and securities purchased under resale agreements

28,135


27,883


25,801



Securities:





Held-to-maturity (fair value of $40,512, $39,928 and $40,669)

40,827


39,995


40,905



Available-for-sale

79,543


80,054


73,822



Total securities

120,370


120,049


114,727



Trading assets

6,022


4,666


5,733



Loans

61,540


59,068


64,458



Allowance for loan losses

(159)


(161)


(169)



Net loans

61,381


58,907


64,289



Premises and equipment

1,634


1,631


1,303



Accrued interest receivable

610


547


568



Goodwill

17,564


17,543


17,316



Intangible assets

3,411


3,461


3,598



Other assets

23,029


22,287


20,954



Subtotal assets of operations

371,027


353,595


332,238



Assets of consolidated investment management funds, at fair value

731


802


1,231



Total assets

$

371,758


$

354,397


$

333,469



Liabilities





Deposits:





Noninterest-bearing (principally U.S. offices)

$

82,716


$

80,380


$

78,342



Interest-bearing deposits in U.S. offices

52,294


46,023


52,049



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

109,312


104,593


91,099



Total deposits

244,322


230,996


221,490



Federal funds purchased and securities sold under repurchase agreements

15,163


10,314


9,989



Trading liabilities

3,984


3,253


4,389



Payables to customers and broker-dealers

20,184


21,176


20,987



Commercial paper

3,075


2,501




Other borrowed funds

3,028


3,353


754



Accrued taxes and other expenses

6,225


6,070


5,867



Other liabilities (includes allowance for lending-related commitments of $102, $104 and $112)

6,050


7,195


5,635



Long-term debt

27,979


28,408


24,463



Subtotal liabilities of operations

330,010


313,266


293,574



Liabilities of consolidated investment management funds, at fair value

2


27


315



Total liabilities

330,012


313,293


293,889



Temporary equity





Redeemable noncontrolling interests

179


197


151



Permanent equity





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

3,542


3,542


3,542



Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,354,163,581, 1,352,363,932 and 1,333,706,427 shares

14


14


13



Additional paid-in capital

26,665


26,588


25,962



Retained earnings

25,635


24,757


22,621



Accumulated other comprehensive loss, net of tax

(2,357)


(2,781)


(3,765)



Less:  Treasury stock of 340,721,136, 328,341,579 and 286,218,126 common shares, at cost

(12,248)


(11,597)


(9,562)



Total The Bank of New York Mellon Corporation shareholders' equity

41,251


40,523


38,811



Nonredeemable noncontrolling interests of consolidated investment management funds

316


384


618



Total permanent equity

41,567


40,907


39,429



Total liabilities, temporary equity and permanent equity

$

371,758


$

354,397


$

333,469




SUPPLEMENTAL INFORMATION – IMPACT OF U.S. TAX LEGISLATION AND OTHER CHARGES

Amounts included in 4Q17 results -

  by business segment

 

(dollars in millions)

U.S. tax legislation


Other charges (a)

Investment

Management

Investment

Services

Other


Investment

Management

Investment

Services

Other

Total

Fee and other revenue

$


$


$

(279)



$


$


$

(37)


$

(37)


Net interest revenue



(4)







Total revenue



(283)





(37)


(37)


Total noninterest expense





30


233


19


282


Income before taxes

$


$


$

(283)



$

(30)


$

(233)


$

(56)


$

(319)



(a)   Other charges include severance, litigation, an asset impairment and investment securities losses related to the sale of certain securities.

Our estimate of the impact of U.S. tax legislation is based on certain assumptions and our current interpretation of the Tax Cuts and Jobs Act, and may change, possibly materially, as we refine our analysis and as further information becomes available.

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 estimated fully phased-in CET1 and other risk-based capital ratios, the estimated fully phased-in SLR and tangible common shareholders' equity.  BNY Mellon believes that the CET1 and other risk-based capital ratios, on a fully phased-in basis, and the SLR, on a fully phased-in basis, 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.  BNY Mellon believes that the return on tangible common equity measure is an additional useful 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 amortization of intangible assets and M&I, litigation and restructuring charges.

Operating margin, operating leverage and return on equity measures, which exclude some or all of these items, are also presented.  Operating margin measures may also exclude the provision for credit losses and 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 and Operational Excellence Initiatives.  Excluding the charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

The presentation of revenue growth on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates.  Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue.  BNY Mellon believes that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

The presentation of income from consolidated investment management funds, net of net income 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 the pre-tax operating margin ratio.

Pre-tax operating margin






(dollars in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

Income before income taxes – GAAP

$

728


$

1,368


$

1,308


$

1,206


$

1,152


Less:  Net income attributable to noncontrolling interests of consolidated

investment management funds

9


3


3


18


4


Add:  Amortization of intangible assets

52


52


53


52


60


M&I, litigation and restructuring charges

80


6


12


8


7


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

$

851


$

1,423


$

1,370


$

1,248


$

1,215








Fee and other revenue – GAAP

$

2,860


$

3,167


$

3,120


$

3,018


$

2,954


Income from consolidated investment management funds – GAAP

17


10


10


33


5


Net interest revenue – GAAP

851


839


826


792


831


Total revenue – GAAP

3,728


4,016


3,956


3,843


3,790


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

9


3


3


18


4


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

$

3,719


$

4,013


$

3,953


$

3,825


$

3,786








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

20

%

34

%

33

%

31

%

30

%

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

23

%

35

%

35

%

33

%

32

%


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

(b)   Income before taxes divided by total revenue.

(c)    Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, corporate/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 $66 million for 4Q17, $102 million for 3Q17, $106 million for 2Q17, $101 million for 1Q17 and $92 million for 4Q16 and would increase our pre-tax operating margin by approximately 1.4% for 4Q17, 1.6% for 3Q17, 1.8% for 2Q17 and 1Q17 and 1.7% for 4Q16.

 

The following table presents the reconciliation of the operating leverage.

Operating leverage




4Q17 vs.

(dollars in millions)

4Q17

3Q17

4Q16

3Q17

4Q16

Total revenueGAAP

$

3,728


$

4,016


$

3,790


(7.17)

%

(1.64)%

%

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

9


3


4




Total revenue, as adjustedNon-GAAP

$

3,719


$

4,013


$

3,786


(7.33)

%

(1.77)

%







Total noninterest expenseGAAP

$

3,006


$

2,654


$

2,631


13.26

%

14.25

%

Less:  Amortization of intangible assets

52


52


60




M&I, litigation and restructuring charges

80


6


7




Total noninterest expense, as adjustedNon-GAAP

$

2,874


$

2,596


$

2,564


10.71

%

12.09

%







Operating leverageGAAP (a)




(2,043)

bps

(1,589)

bps

Adjusted operating leverageNon-GAAP (a)(b)




(1,804)

bps

(1,386)

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 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)

4Q17

3Q17

2Q17

1Q17

4Q16

FY17

Net income applicable to common shareholders of The Bank of

New York Mellon Corporation – GAAP

$

1,126


$

983


$

926


$

880


$

822


$

3,915


Add:  Amortization of intangible assets

52


52


53


52


60


209


Less:  Tax impact of amortization of intangible assets

18


17


19


18


19


72


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

1,160


1,018


960


914


863


4,052


Add:  M&I, litigation and restructuring charges

80


6


12


8


7


106


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

15



3


2


3


20


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

$

1,225


$

1,024


$

969


$

920


$

867


$

4,138









Average common shareholders' equity

$

36,952


$

36,780


$

35,862


$

34,965


$

35,171


$

36,145


Less:  Average goodwill

17,518


17,497


17,408


17,338


17,344


17,441


Average intangible assets

3,437


3,487


3,532


3,578


3,638


3,508


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

1,034


1,561


1,542


1,518


1,497


1,034


Deferred tax liability – intangible assets (b)

718


1,092


1,095


1,100


1,105


718


Average tangible common shareholders' equity – Non-GAAP

$

17,749


$

18,449


$

17,559


$

16,667


$

16,791


$

16,948









Return on common equity – GAAP (c)

12.1

%

10.6

%

10.4

%

10.2

%

9.3

%

10.8

%

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

13.2

%

11.0

%

10.8

%

10.7

%

9.8

%

11.4

%








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

25.9

%

21.9

%

21.9

%

22.2

%

20.4

%

23.9

%

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

27.4

%

22.0

%

22.1

%

22.4

%

20.5

%

24.4

%


(a)   Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges.

(b)   Deferred tax liabilities are based on fully phased-in Basel III capital rules.  Deferred tax liabilities at Dec. 31, 2017 have been remeasured at the lower statutory corporate tax rate.

(c)    Quarterly returns are annualized.

The following table presents the reconciliation of the book value per common share.

Book value per common share

Dec. 31,
2017

Sept. 30,

2017

June 30,

2017

March 31, 2017

Dec. 31,
2016

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

41,251


$

40,523


$

39,974


$

39,138


$

38,811


Less:  Preferred stock

3,542


3,542


3,542


3,542


3,542


BNY Mellon common shareholders' equity at period end – GAAP

37,709


36,981


36,432


35,596


35,269


Less:  Goodwill

17,564


17,543


17,457


17,355


17,316


Intangible assets

3,411


3,461


3,506


3,549


3,598


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

1,034


1,561


1,542


1,518


1,497


Deferred tax liability – intangible assets (a)

718


1,092


1,095


1,100


1,105


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

$

18,486


$

18,630


$

18,106


$

17,310


$

16,957








Period-end common shares outstanding (in thousands)

1,013,442


1,024,022


1,033,156


1,039,877


1,047,488








Book value per common share – GAAP

$

37.21


$

36.11


$

35.26


$

34.23


$

33.67


Tangible book value per common share – Non-GAAP

$

18.24


$

18.19


$

17.53


$

16.65


$

16.19



(a)   Deferred tax liabilities are based on fully phased-in Basel III capital rules.  Deferred tax liabilities at Dec. 31, 2017 have been remeasured at the lower statutory corporate tax rate.

The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.

Investment management and performance fees – Consolidated



4Q17 vs.

(dollars in millions)

4Q17

4Q16

4Q16

Investment management and performance fees – GAAP

$

962


$

848


13

%

Impact of changes in foreign currency exchange rates


21



Investment management and performance fees, as adjusted – Non-GAAP

$

962


$

869


11

%











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


Income from consolidated investment management funds, net of noncontrolling interests

(in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

Income from consolidated investment management funds

$

17


$

10


$

10


$

33


$

5


Less:  Net income attributable to noncontrolling interests of consolidated investment

management funds

9


3


3


18


4


Income from consolidated investment management funds, net of noncontrolling interests

$

8


$

7


$

7


$

15


$

1


The following table presents the impact of changes in foreign currency exchange rates on investment management fees reported in the Investment Management business.

Investment management fees - Investment Management business



4Q17 vs.

(dollars in millions)

4Q17

4Q16

4Q16

Investment management fees – GAAP

$

898


$

801


12

%

Impact of changes in foreign currency exchange rates


20



Investment management fees, as adjusted – Non-GAAP

$

898


$

821


9

%


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

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

(in millions)

4Q17

3Q17

2Q17

1Q17

4Q16

Investment management fees

$


$

1


$

2


$

2


$

4


Other (Investment income (loss))

8


6


5


13


(3)


Income from consolidated investment management funds, net of noncontrolling interests

$

8


$

7


$

7


$

15


$

1


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)

4Q17

3Q17

2Q17

1Q17

4Q16

Income before income taxes – GAAP

$

276


$

300


$

288


$

277


$

260


Add:  Amortization of intangible assets

15


15


15


15


22


Provision for credit losses

1


(2)



3


6


Adjusted income before income taxes, excluding amortization of intangible assets and provision for credit losses – Non-GAAP

$

292


$

313


$

303


$

295


$

288








Total revenue – GAAP

$

1,048


$

1,000


$

986


$

963


$

960


Less:  Distribution and servicing expense

107


110


104


101


98


Adjusted total revenue, net of distribution and servicing expense – Non-GAAP

$

941


$

890


$

882


$

862


$

862








Pre-tax operating margin – GAAP (a)

26

%

30

%

29

%

29

%

27

%

Adjusted pre-tax operating margin, excluding amortization of intangible assets,
provision for credit losses and distribution and servicing expense – Non-GAAP (a)

31

%

35

%

34

%

34

%

33

%




(a)   Income before taxes divided by total revenue.



 

DIVIDENDS

Common – On Jan. 18, 2018, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.24 per share.  This cash dividend is payable on Feb. 9, 2018 to shareholders of record as of the close of business on Jan. 30, 2018.

Preferred – On Jan. 18, 2018, 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 March 2018, in each case payable on March 20, 2018 to holders of record as of the close of business on March 5, 2018:

  • $1,000.00 per share on the Series A Preferred Stock (equivalent to $10.0000 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); and
  • $2,312.50 per share on the Series F Preferred Stock (equivalent to $23.1250 per depositary share, each representing a 1/100th interest in a share of the Series F Preferred Stock).

 

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 the estimated impact of the U.S. tax legislation, including the effective tax rate.  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, 2016, the Quarterly Report on Form 10-Q for the period ended Sept. 30, 2017 and BNY Mellon's other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of Jan. 18, 2018, 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.

ABOUT BNY MELLON

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 Dec. 31, 2017, BNY Mellon had $33.3 trillion in assets under custody and/or administration, and $1.9 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.

CONFERENCE CALL INFORMATION

Charles W. Scharf, chairman and chief executive officer, and Michael P. Santomassimo, 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. EST on Jan. 18, 2018.  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 (800) 390-5696 (U.S.) or (720) 452-9082 (International), and using the passcode: 678511, 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. EST on Jan. 18, 2018.  Replays of the conference call and audio webcast will be available beginning Jan. 18, 2018 at approximately 2 p.m. EST through Feb. 17, 2018 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 4968536.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

Media Relations: 
Jennifer Hendricks Sullivan  
(212) 635-1374

Investor Relations: 
Valerie Haertel  
(212) 635-8529

 

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SOURCE BNY Mellon