BANK OF NEW YORK MELLON CORPORATION (THE) 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 9 4 (7) 5 (5)
related to consolidated investment management funds
---------------------------------------------------
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) $443,112 $431,150 $415,025 $437,260 $447,287 3% (1)%
(in millions)
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.
3Q16 change Fair value
in as a % of
unrealized amortized
gain cost (a)
Investment securities June 30, (loss) Sept. 30, 2016 Unrealized Ratings
portfolio 2016 gain (loss)
(dollars in millions)
--------------------
BB+ and
lower
--------
Fair Amortized Fair AAA/ AA- A+/ BBB+/
BBB- Not rated
value cost value A-
----- ---- ----- ---
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 Sept. 30, June 30, Sept. 30,
(dollars in millions) 2016 2016 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 Sept. 30, June 30, Sept. 30,
(in millions) 2016 2016 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, June 30, Dec. 31,
2016 2016 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 Fully
basis (b) 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 Fully Transitional Fully Transitional Fully
basis (b) phased-in - basis (b) phased-in - basis (b) phased-in -
Non-GAAP (c) Non-GAAP (c) 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 Fully Transitional Fully Transitional Fully
basis phased-in - basis phased-in - basis phased-in -
Non-GAAP (b) Non-GAAP (b) 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 5(th) 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 $288 $278 $300 $277 $288 4% - %
(in billions) (d)
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) 5,942 5,946 5,947 5,959 6,107 - % (3)%
(in thousands)
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, June 30, Sept. 30, Sept. 30, Sept. 30,
2016 2016 2015 2016 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, June 30, Sept. 30, Sept. 30, Sept. 30,
2016 2016 2015 2016 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, June 30, Sept. 30, Sept. 30, Sept. 30,
2016 2016 2015 2016 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, June 30, Sept. 30, Sept. 30, Sept. 30,
2016 2016 2015 2016 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, June 30, Dec. 31,
2016 2016 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 3Q16 2Q16 3Q15
to Non-GAAP
(in millions, except per common share amounts)
---------------------------------------------
Net Diluted Net Diluted Net Diluted
income EPS income EPS income EPS
------ --- ------ --- ------ ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $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 9 4 (7) 5 (5)
consolidated investment management funds
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 9 4 (7) 5 (5)
consolidated investment management funds
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 revenue - GAAP $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 adjusted - Non-GAAP $3,932 $3,772 $3,795 4.24% 3.61%
Total noninterest expense - GAAP $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 adjusted - Non-GAAP $2,564 $2,554 $2,603 0.39% (1.50)%
Operating leverage - GAAP (a) 349 bps 536 bps
Adjusted operating leverage - Non-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, June 30, March 31, Dec. 31, Sept. 30,
2016 2016 2016 2015 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
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bny-mellon-reports-third-quarter-earnings-of-974-million-or-090-per-common-share-300348334.html
SOURCE BNY Mellon
