NEW YORK, Jan. 19, 2017 /PRNewswire/ --

  • Earnings per common share up 35%, or 13% on an adjusted basis year-over-year (a)

TOTAL REVENUE OF $3.79 BILLION, INCREASED 2% YEAR-OVER-YEAR

  • Fee and other revenue up slightly; Investment Services fees increased 4%
  • Net interest revenue increased 9%

CONTINUED FOCUS ON EXPENSE CONTROL

  • Total noninterest expense decreased 2% year-over-year

FULL-YEAR 2016 EARNINGS OF $3.43 BILLION OR $3.15 PER COMMON SHARE

  • Earnings of $3.45 billion or $3.17 per common share on an adjusted basis (a)
  • Earnings per common share up 16%, or 11% on an adjusted basis (a)
  • Total revenue up slightly and total noninterest expense decreased 3%

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS

  • Repurchased 18.4 million common shares for $848 million in the fourth quarter of 2016 and 58.6 million common shares for $2.4 billion in full-year 2016
  • Return on common equity of 9% in the fourth quarter of 2016 and 10% in full-year 2016
  • Adjusted return on tangible common equity of 21% in both the fourth quarter and full-year of 2016 (a)
  • SLR – transitional of 6.0%; SLR – fully phased-in of 5.6% (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported fourth quarter net income applicable to common shareholders of $822 million, or $0.77 per diluted common share, or $826 million, or $0.77 per diluted common share, as adjusted (Non-GAAP).  In the fourth quarter of 2015, net income applicable to common shareholders was $637 million, or $0.57 per diluted common share, or $755 million, or $0.68 per diluted common share, as adjusted (Non-GAAP).  In the third quarter of 2016, net income applicable to common shareholders was $974 million, or $0.90 per diluted common share, or $979 million, or $0.90 per diluted common share, as adjusted (Non-GAAP) (a).

In 2016, net income applicable to common shareholders totaled $3.43 billion, or $3.15 per diluted common share, or $3.45 billion, or $3.17 per diluted common share, as adjusted (Non-GAAP).  In 2015, net income applicable to common shareholders totaled $3.05 billion, or $2.71 per diluted common share, or $3.22 billion, or $2.85 per diluted common share, as adjusted (Non-GAAP) (a).

"We delivered strong fourth-quarter results, capping another year of solid execution against our three-year strategic plan. For full-year 2016, our earnings per share increased significantly as we delivered a strong return on capital. In the fourth quarter, we also generated substantial positive operating leverage, as the Investment Services business performed well and our business improvement process helped reduce structural costs," Gerald L. Hassell, chairman and chief executive officer, said.

"As we enter 2017, we continue to prioritize enhancing our clients' experience with us in every way ... from ease of access of information, to providing data-driven insights and solutions, to improving responsiveness to inquiries. Our digital transformation is enhancing the user experience, raising our levels of automation and resiliency and allowing clients to connect to BNY Mellon anywhere, anytime" Mr. Hassell added.

"We also remain committed to providing value to our shareholders and, during the fourth quarter, we returned more than $1 billion through share repurchases and dividends," Mr. Hassell continued.

"I want to thank our clients for entrusting us with their business, my fellow shareholders for recognizing our value proposition and our 50,000-plus BNY Mellon professionals for executing on our strategy and challenging themselves to be the very best every day," Mr. Hassell concluded.

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, 2016, BNY Mellon had $29.9 trillion in assets under custody and/or administration, and $1.6 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.

(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 the adjusted 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. EST on Jan. 19, 2017.  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 (719) 325-2110 (International), and using the passcode: 445371, 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. 19, 2017.  Replays of the conference call and audio webcast will be available beginning Jan. 19, 2017 at approximately 2 p.m. EST through Feb. 19, 2017 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 6203153.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

 

FOURTH QUARTER 2016 FINANCIAL HIGHLIGHTS (a)
 (comparisons are 4Q16 vs. 4Q15, 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)

4Q16

4Q15

Inc/(Dec)

4Q16

4Q15

Inc/(Dec)

GAAP results

$

0.77

$

0.57

35

%

$

822

$

637

29

%

Add:  M&I, litigation and restructuring charges

—

0.01



4

12


  Impairment charge related to Sentinel

N/A

0.10



N/A

106


Non-GAAP results

$

0.77

$

0.68

13

%

$

826

$

755

9

%

 

  • Total revenue of $3.8 billion, increased 2% on both a GAAP and adjusted basis (Non-GAAP) (a).
    • Investment services fees increased 4% reflecting higher money market fees.
    • Investment management and performance fees decreased 2% due to the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and lower performance fees, partially offset by higher market values and money market fees.
    • Foreign exchange revenue increased 6% reflecting higher volatility.
    • Investment and other income decreased $23 million driven by lower other income related to termination fees in our clearing business recorded in 4Q15.
    • Net interest revenue increased $71 million driven by the increase in interest rates, impact of interest rate hedging activities and premium amortization adjustments, partially offset by lower interest-earning assets.
  • The provision for credit losses was $7 million.
  • Noninterest expense of $2.6 billion, decreased 2% on both a GAAP and adjusted basis (Non-GAAP) (a). The decrease reflects lower staff expense driven by the favorable impact of a stronger U.S. dollar, lower employee benefits and severance expense.
  • Effective tax rate of 24.3%.

  • Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
    • AUC/A of $29.9 trillion increased 3% reflecting higher market values, offset by the unfavorable impact of a stronger U.S. dollar.
      • Estimated new AUC/A wins in Asset Servicing of $141 billion in 4Q16.
    • AUM of $1.65 trillion increased 1% reflecting higher market values offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
      • Net long-term outflows of $11 billion in 4Q16 were a combination of $10 billion of outflows from actively managed strategies and $1 billion of outflows from index strategies.
      • Net short-term outflows totaled $3 billion in 4Q16.

  • Capital
    • Repurchased 18.4 million common shares for $848 million in 4Q16 and 58.6 million common shares for $2.4 billion in full-year 2016.
    • Return on common equity of 9% in 4Q16 and 10% in full-year 2016.
    • Adjusted return on tangible common equity of 21% in both 4Q16 and full-year 2016 (a).
    • SLR – transitional of 6.0%; SLR – fully phased-in of 5.6% (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 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel Management Group, Inc. ("Sentinel").  See "Capital and Liquidity" beginning on page 13 for the reconciliation of the SLR.

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)




4Q16 vs.

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Revenue:






Fee and other revenue

$

2,954

$

3,150

$

2,999

$

2,970

$

2,950

(6)

%

—

%

Income (loss) from consolidated investment management funds

5

17

10

(6)

16


Net interest revenue

831

774

767

766

760

7

9

Total revenue – GAAP

3,790

3,941

3,776

3,730

3,726

(4)

2

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

4

9

4

(7)

5


Total revenue – Non-GAAP

3,786

3,932

3,772

3,737

3,721

(4)

2

Provision for credit losses

7

(19)

(9)

10

163


Expense:






Noninterest expense – GAAP

2,631

2,643

2,620

2,629

2,692

—

(2)

Less:  Amortization of intangible assets

60

61

59

57

64


M&I, litigation and restructuring charges

7

18

7

17

18


Total noninterest expense – Non-GAAP

2,564

2,564

2,554

2,555

2,610

—

(2)

Income:






Income before income taxes

1,152

1,317

1,165

1,091

871

(13)

%

32

%

Provision for income taxes

280

324

290

283

175


Net income

$

872

$

993

$

875

$

808

$

696


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

(2)

(6)

(2)

9

(3)


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

870

987

873

817

693


Preferred stock dividends

(48)

(13)

(48)

(13)

(56)


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

$

822

$

974

$

825

$

804

$

637










Operating leverage (b)




(338)

bps

399

bps

Adjusted operating leverage – Non-GAAP (b)




(371)

bps

351

bps








Key Metrics:






Pre-tax operating margin (c)

30

%

33

%

31

%

29

%

23

%

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

32

%

35

%

33

%

31

%

30

%









Return on common equity (annualized) (c)

9.3

%

10.8

%

9.3

%

9.2

%

7.1

%

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

9.8

%

11.3

%

9.7

%

9.7

%

8.9

%









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

20.4

%

23.5

%

20.4

%

20.6

%

16.2

%

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

20.5

%

23.6

%

20.5

%

20.8

%

19.0

%









Fee revenue as a percentage of total revenue

78

%

79

%

79

%

80

%

79

%









Percentage of non-U.S. total revenue

34

%

36

%

34

%

33

%

34

%









Average common shares and equivalents outstanding:






Basic

1,050,888

1,062,248

1,072,583

1,079,641

1,088,880


Diluted

1,056,818

1,067,682

1,078,271

1,085,284

1,096,385










Period end:






Full-time employees

52,000

52,300

52,200

52,100

51,200


Book value per common share – GAAP (d)

$

33.67

$

34.19

$

33.72

$

33.34

$

32.69


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

$

16.19

$

16.67

$

16.25

$

15.87

$

15.27


Cash dividends per common share

$

0.19

$

0.19

$

0.17

$

0.17

$

0.17


Common dividend payout ratio

25

%

21

%

23

%

23

%

30

%

Closing stock price per common share

$

47.38

$

39.88

$

38.85

$

36.83

$

41.22


Market capitalization

$

49,630

$

42,167

$

41,479

$

39,669

$

44,738


Common shares outstanding

1,047,488

1,057,337

1,067,674

1,077,083

1,085,343


(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





4Q16 vs.

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Changes in AUM (in billions): (a)







Beginning balance of AUM

$

1,715

$

1,664

$

1,639

$

1,625

$

1,625


Net inflows (outflows):







Long-term strategies:







     Equity

(4)

(3)

(2)

(3)

(9)


     Fixed income

(1)

—

(2)

—

1


     Liability-driven investments (b)

(7)

4

15

14

11


     Alternative investments

2

2

1

1

2


     Total long-term active strategies (outflows) inflows

(10)

3

12

12

5


     Index

(1)

(2)

(17)

(11)

(16)


     Total long-term strategies (outflows) inflows

(11)

1

(5)

1

(11)


Short term strategies:







     Cash

(3)

(1)

4

(9)

2


     Total net (outflows)

(14)

—

(1)

(8)

(9)


Net market impact/other

(11)

80

71

41

24


Net currency impact

(42)

(29)

(47)

(19)

(15)


Acquisition

—

—

2

—

—


     Ending balance of AUM

$

1,648

(c)

$

1,715

$

1,664

$

1,639

$

1,625

(4)

%

1

%









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







Equity

14

%

13

%

14

%

14

%

14

%

Fixed income

13

14

13

13

13


Index

19

18

18

19

20


Liability-driven investments (b)

34

35

34

33

32


Alternative investments

4

4

4

4

4


Cash

16

16

17

17

17


Total AUM

100

%     (c)

100

%

100

%

100

%

100

%










Investment Management:







Average loans (in millions)

$

15,673

$

15,308

$

14,795

$

14,275

$

13,447

2

%

17

%

Average deposits (in millions)

$

15,511

$

15,600

$

15,518

$

15,971

$

15,497

(1)

%

—

%









Investment Services:







Average loans (in millions)

$

45,832

$

44,329

$

43,786

$

45,004

$

45,844

3

%

—

%

Average deposits (in millions)

$

213,531

$

220,316

$

221,998

$

215,707

$

229,241

(3)

%

(7)

%









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

$

29.9

(c)

$

30.5

$

29.5

$

29.1

$

28.9

(2)

%

3

%









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

$

296

$

288

$

278

$

300

$

277

3

%

7

%









Asset servicing:







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

$

141

(c)

$

150

$

167

$

40

$

49











Depositary Receipts:







Number of sponsored programs

1,062

1,094

1,112

1,131

1,145

(3)

%

(7)

%









Clearing services:







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

5,960

5,942

5,946

5,947

5,959

—

%

—

%

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

$

438,460

$

443,112

$

431,150

$

415,025

$

437,260

(1)

%

—

%

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

$

10,562

$

10,834

$

10,633

$

11,063

$

11,575

(3)

%

(9)

%









Broker-Dealer:







Average tri-party repo balances (in billions)

$

2,307

$

2,212

$

2,108

$

2,104

$

2,153

4

%

7

%

(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 Dec. 31, 2016 and Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 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 $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016 and $55 billion at Dec. 31, 2015.

 

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


Key market metrics




4Q16 vs.

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

S&P 500 Index (a)

2239

2168

2099

2060

2044

3

%

10

%

S&P 500 Index – daily average

2185

2162

2075

1951

2052

1

6

FTSE 100 Index (a)

7143

6899

6504

6175

6242

4

14

FTSE 100 Index – daily average

6923

6765

6204

5988

6271

2

10

MSCI EAFE (a)

1684

1702

1608

1652

1716

(1)

(2)

MSCI EAFE – daily average

1660

1677

1648

1593

1732

(1)

(4)

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

451

486

482

468

442

(7)

2

NYSE and NASDAQ share volume (in billions)

189

186

203

218

198

2

(5)

JPMorgan G7 Volatility Index – daily average (c)

10.24

10.19

11.12

10.60

9.49

—

8

Average Fed Funds effective rate

0.45

%

0.39

%

0.37

%

0.36

%

0.16

%

6

bps

29

bps

Foreign exchange rates vs. U.S. dollar:






British pound (a)

$

1.23

$

1.30

$

1.34

$

1.44

$

1.48

(5)

%

(17)

%

British pound – average rate

1.24

1.31

1.43

1.43

1.52

(5)

(18)

Euro (a)

1.05

1.12

1.11

1.14

1.09

(6)

(4)

Euro – average rate

1.08

1.12

1.13

1.10

1.10

(4)

(2)

(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




4Q16 vs.

(dollars in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Investment services fees:






Asset servicing (a)

$

1,068

$

1,067

$

1,069

$

1,040

$

1,032

—

%

3

%

Clearing services

355

349

350

350

339

2

5

Issuer services

211

337

234

244

199

(37)

6

Treasury services

140

137

139

131

137

2

2

     Total investment services fees

1,774

1,890

1,792

1,765

1,707

(6)

4

Investment management and performance fees

848

860

830

812

864

(1)

(2)

Foreign exchange and other trading revenue

161

183

182

175

173

(12)

(7)

Financing-related fees

50

58

57

54

51

(14)

(2)

Distribution and servicing

41

43

43

39

41

(5)

—

Investment and other income

70

92

74

105

93

(24)

(25)

     Total fee revenue

2,944

3,126

2,978

2,950

2,929

(6)

1

Net securities gains

10

24

21

20

21

N/M

N/M

     Total fee and other revenue

$

2,954

$

3,150

$

2,999

$

2,970

$

2,950

(6)

%

—

%

(a) 

Asset servicing fees include securities lending revenue of $54 million in 4Q16, $51 million in 3Q16, $52 million in 2Q16, $50 million in 1Q16 and $46 million in 4Q15. 

N/M – Not meaningful.

 

KEY POINTS

  • Asset servicing fees were $1.1 billion, an increase of 3% year-over-year.  The year-over-year increase primarily reflects higher money market fees, net new business and higher equity market values, partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing of the UK retail transfer agency business.
  • Clearing services fees were $355 million, an increase of 5% year-over-year and 2% sequentially.  Both increases were primarily driven by higher money market fees.  The year-over-year increase was partially offset by the impact of previously disclosed lost business.
  • Issuer services fees were $211 million, an increase of 6% year-over-year and a decrease of 37% sequentially.  The year-over-year increase primarily reflects higher fees in Depositary Receipts and higher money market fees in Corporate Trust.  The sequential decrease primarily reflects seasonality in Depositary Receipts. 
  • Treasury services fees were $140 million, an increase of 2% both year-over-year and sequentially.  Both increases primarily resulted from higher payment volumes.  The year-over-year increase was partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.
  • Investment management and performance fees were $848 million, a decrease of 2% year-over-year and 1% sequentially.  The year-over-year decrease primarily reflects the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and lower performance fees, partially offset by higher market values and money market fees.  The sequential decrease primarily reflects outflows of assets under management, lower fixed income market values and money market fees, partially offset by higher performance fees. 

 

•

Foreign exchange and other trading revenue

(in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

Foreign exchange

$

175

$

175

$

166

$

171

$

165

Other trading revenue (loss)

(14)

8

16

4

8

     Total foreign exchange and other trading revenue

$

161

$

183

$

182

$

175

$

173

 

Foreign exchange and other trading revenue totaled $161 million in 4Q16 compared with $173 million in 4Q15 and $183 million in 3Q16.  In 4Q16, foreign exchange revenue totaled $175 million, an increase of 6% year-over-year, primarily reflecting higher volatility.  

Other trading losses were $14 million in 4Q16, compared with other trading revenue of $8 million in both 4Q15 and 3Q16.  Both decreases primarily reflect the impact of interest rate hedging activities, which are offset in net interest revenue.

  • Financing-related fees were $50 million in 4Q16, compared with $51 million in 4Q15 and $58 million in 3Q16.  The sequential decrease primarily reflects lower underwriting fees.

  • Distribution and servicing fees were $41 million in 4Q16, compared with $41 million in 4Q15 and $43 million in 3Q16.  Year-over-year, higher money market fees were offset by fees paid to introducing brokers.

 

•

Investment and other income





(in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

Corporate/bank-owned life insurance

$

53

$

34

$

31

$

31

$

43

Expense reimbursements from joint venture

15

18

17

17

16

Seed capital gains (a)

6

16

11

11

10

Asset-related gains

1

8

1

—

5

Equity investment (losses)

(2)

(1)

(4)

(3)

(2)

Lease-related gains (losses)

(6)

—

—

44

(8)

Other income

3

17

18

5

29

Total investment and other income

$

70

$

92

$

74

$

105

$

93

(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 $1 million in 4Q16, $8 million in 3Q16, $6 million in 2Q16, $1 million in 1Q16 and $11 million in 4Q15.

 

Investment and other income was $70 million in 4Q16, compared with $93 million in 4Q15 and $92 million in 3Q16.  The year-over-year decrease primarily reflects lower other income related to termination fees in our clearing business recorded in 4Q15, partially offset by higher income from corporate/bank-owned life insurance.  The year-over-year and sequential decreases in other income also reflect the impact of increased investments in renewable energy, which generate losses in other revenue that are more than offset by tax benefits recorded to the provision for income taxes.

 

NET INTEREST REVENUE

Net interest revenue




4Q16 vs.

(dollars in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Net interest revenue (non-FTE)

$

831

$

774

$

767

$

766

$

760

7

%

9

%

Net interest revenue (FTE)

843

786

780

780

774

7

9

Net interest margin (FTE)

1.17

%

1.06

%

0.98

%

1.01

%

0.99

%

11

bps

18

bps








Selected average balances:






Cash/interbank investments

$

104,352

$

114,544

$

137,995

$

127,624

$

128,328

(9)

%

(19)

%

Trading account securities

2,288

2,176

2,152

3,320

2,786

5

(18)

Securities

117,660

118,405

118,002

118,538

119,532

(1)

(2)

Loans

63,647

61,578

60,284

61,196

61,964

3

3

Interest-earning assets

287,947

296,703

318,433

310,678

312,610

(3)

(8)

Interest-bearing deposits

145,681

155,109

165,122

162,017

160,334

(6)

(9)

Noninterest-bearing deposits

82,267

81,619

84,033

82,944

85,878

1

(4)








Selected average yields/rates:






Cash/interbank investments

0.47

%

0.43

%

0.44

%

0.43

%

0.32

%

Trading account securities

3.17

2.62

2.45

2.16

2.79


Securities

1.67

1.56

1.56

1.61

1.62


Loans

1.92

1.84

1.85

1.76

1.54


Interest-earning assets

1.30

1.19

1.14

1.16

1.08


Interest-bearing deposits

(0.01)

(0.02)

0.03

0.04

0.01










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

36

%

39

%

43

%

41

%

41

%

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

29

%

28

%

26

%

27

%

27

%

FTE – fully taxable equivalent.

bps – basis points.

 

KEY POINTS

  • Net interest revenue totaled $831 million in 4Q16, an increase of $71 million year-over-year and $57 million sequentially.  The year-over-year increase was primarily driven by the increase in interest rates, partially offset by lower interest-earning assets.  Both increases reflect the impact of interest rate hedging activities, which positively impacted 4Q16 by approximately $25 million.  Substantially all of this impact was offset in foreign exchange and other trading revenue.
  • Effective Oct. 1, 2016, we changed our accounting method for the amortization of premiums and accretion of discounts on certain mortgage-backed securities from the prepayment method (also referred to as the retrospective method) to the contractual method.  Net interest revenue for 4Q16 was positively adjusted approximately $15 million as a result of this change.  Prior periods were not adjusted as the impacts were not material.  Net interest revenue for 4Q16 would have been higher had we continued to use the prepayment method.
  • The $25 million impact of interest rate hedging activities and the $15 million premium amortization adjustment positively impacted the 4Q16 net interest margin by 5 basis points.

 

NONINTEREST EXPENSE

Noninterest expense




4Q16 vs.

(dollars in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Staff

$

1,395

$

1,467

$

1,412

$

1,459

$

1,481

(5)

%

(6)

%

Professional, legal and other purchased services

325

292

290

278

328

11

(1)

Software and equipment

237

215

223

219

225

10

5

Net occupancy

153

143

152

142

148

7

3

Distribution and servicing

98

105

102

100

92

(7)

7

Business development

71

52

65

57

75

37

(5)

Sub-custodian

57

59

70

59

60

(3)

(5)

Other

228

231

240

241

201

(1)

13

Amortization of intangible assets

60

61

59

57

64

(2)

(6)

M&I, litigation and restructuring charges

7

18

7

17

18

N/M

N/M

Total noninterest expense – GAAP

$

2,631

$

2,643

$

2,620

$

2,629

$

2,692

—

%

(2)

%








Total staff expense as a percentage of total revenue

37

%

37

%

37

%

39

%

40

%









Memo:






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

$

2,564

$

2,564

$

2,554

$

2,555

$

2,610

—

%

(2)

%

N/M – Not meaningful.

 

KEY POINTS

  • Total noninterest expense decreased 2% year-over-year and decreased slightly sequentially.  Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP) decreased 2% year-over-year and was flat sequentially. 
  • The year-over-year decrease primarily reflects lower staff expense and M&I, litigation and restructuring charges, partially offset by higher other and software and equipment expenses.  The decrease in staff expense year-over-year was primarily driven by the favorable impact of a stronger U.S. dollar, lower employee benefits and severance expense.  The increase in other expense primarily reflects a downward adjustment in bank assessment charges recorded in 4Q15.
  • The sequential decrease primarily reflects lower staff expense and M&I, litigation and restructuring charges, partially offset by higher professional, legal and other purchased services, software and equipment and business development expenses.  The decrease in staff expense was primarily due to lower incentives and severance expenses.  The increase in professional, legal and other purchased services primarily reflects higher regulatory compliance costs.

 


INVESTMENT SECURITIES PORTFOLIO

At Dec. 31, 2016, the fair value of our investment securities portfolio totaled $114.3 billion.  The net unrealized pre-tax loss on our total securities portfolio was $221 million at Dec. 31, 2016 compared with a net unrealized pre-tax gain of $1.4 billion at Sept. 30, 2016.  The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates.  At Dec. 31, 2016, the fair value of the held-to-maturity securities totaled $40.7 billion and represented 36% 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, 2016

4Q16

change in

unrealized

gain (loss)

Dec. 31, 2016

Fair value

as a % of amortized

cost (a)

Unrealized

gain (loss)

Ratings




BB+

and

lower

 Fair

value

Amortized

cost

Fair

value

AAA/

AA-

A+/

A-

BBB+/

BBB-

Not

rated

Agency RMBS

$

48,987

$

(924)

$

48,150

$

47,715

99

%

$

(435)

100

%

—

%

—

%

—

%

—

%

U.S. Treasury

25,135

(269)

25,490

25,244

99

(246)

100

—

—

—

—

Sovereign debt/sovereign guaranteed

15,998

(94)

14,159

14,373

102

214

75

5

20

—

—

Non-agency RMBS (b)

1,463

(20)

1,080

1,357

80

277

—

1

2

87

10

Non-agency RMBS

757

4

698

718

94

20

8

4

15

72

1

European floating rate notes

851

7

717

706

98

(11)

68

24

8

—

—

Commercial MBS

7,310

(143)

8,106

8,037

99

(69)

98

2

—

—

—

State and political subdivisions

3,578

(99)

3,411

3,396

100

(15)

80

17

—

—

3

Foreign covered bonds

2,433

(22)

2,200

2,216

101

16

100

—

—

—

—

Corporate bonds

1,638

(48)

1,391

1,396

100

5

18

67

15

—

—

CLOs

2,534

1

2,593

2,598

100

5

100

—

—

—

—

U.S. Government agencies

1,808

21

1,955

1,964

101

9

100

—

—

—

—

Consumer ABS

2,203

(3)

1,729

1,727

100

(2)

90

4

5

1

—

Other (c)

3,961

(19)

2,822

2,833

100

11

83

—

14

—

3

Total investment securities

$

118,656

(d)

$

(1,608)

$

114,501

$

114,280

(d)

99

%

$

(221)

(d)(e)

93

%

2

%

3

%

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 $1,503 million and $401 million and money market funds with a fair value of $931 million and $842 million at Sept. 30, 2016 and Dec. 31, 2016, respectively.

(d) 

Includes net unrealized losses on derivatives hedging securities available-for-sale of $1,001 million at Sept. 30, 2016 and $211 million at Dec. 31, 2016.

(e)  

Unrealized gains of $15 million at Dec. 31, 2016 related to available-for-sale securities.

 

 

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

Dec. 31,

2016

Sept. 30,
2016

Dec. 31,
2015

Loans:


Financial institutions

$

—

$

—

$

171

Other residential mortgages

91

93

102

Wealth management loans and mortgages

8

7

11

Lease financing

4

4

—

Commercial real estate

—

1

2

Total nonperforming loans

103

105

286

Other assets owned

4

4

6

Total nonperforming assets

$

107

$

109

$

292

Nonperforming assets ratio

0.17

%

0.17

%

0.46

%

Allowance for loan losses/nonperforming loans

164.1

141.0

54.9

Total allowance for credit losses/nonperforming loans

272.8

261.0

96.2

 

Nonperforming assets were $107 million at Dec. 31, 2016, a decrease of $2 million compared with Sept. 30, 2016, and a decrease of $185 million compared with Dec. 31, 2015.  The decrease compared with Dec. 31, 2015 primarily reflects the receipt of trust assets from the bankruptcy proceeding of Sentinel.

 


ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs

(in millions)

Dec. 31,

2016

Sept. 30,
2016

Dec. 31,
 2015

Allowance for credit losses - beginning of period

$

274

$

280

$

280

Provision for credit losses

7

(19)

163

Net recoveries (charge-offs):


Financial institutions

—

13

(170)

Other residential mortgages

—

—

2

Net recoveries (charge-offs)

—

13

(168)

Allowance for credit losses - end of period

$

281

$

274

$

275

Allowance for loan losses

$

169

$

148

$

157

Allowance for lending-related commitments

112

126

118

 

The allowance for credit losses was $281 million at Dec. 31, 2016, an increase of $7 million compared with $274 million at Sept. 30, 2016.

 

CAPITAL AND LIQUIDITY

Capital ratios

Dec. 31,
 2016

Sept. 30, 2016

Dec. 31, 2015

Consolidated regulatory capital ratios: (a)


Standardized:


     Common equity Tier 1 ("CET1") ratio

12.3

%

12.2

%

11.5

%

     Tier 1 capital ratio

14.5

14.4

13.1

     Total (Tier 1 plus Tier 2) capital ratio

15.2

14.8

13.5

Advanced:


     CET1 ratio

10.6

10.5

10.8

     Tier 1 capital ratio

12.6

12.5

12.3

     Total (Tier 1 plus Tier 2) capital ratio

13.0

12.6

12.5

Leverage capital ratio (b)

6.6

6.6

6.0

Supplementary leverage ratio ("SLR")

6.0

6.0

5.4

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

11.6

10.6

9.7

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

10.6

9.7

9.0

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

6.7

6.5

6.5




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


CET1 ratio:


Standardized Approach

11.3

%

11.4

%

10.2

%

Advanced Approach

9.7

9.8

9.5

SLR

5.6

5.7

4.9

(a)  

Regulatory capital ratios for Dec. 31, 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 4Q16 – preliminary

Transitional

basis (b)

Fully

phased-in -

Non-GAAP (c)


(in millions)

CET1 – Beginning of period

$

18,559

$

17,159

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

822

822

Goodwill and intangible assets, net of related deferred tax liabilities

191

215

Gross CET1 generated

1,013

1,037

Capital deployed:


Dividends

(203)

(203)

Common stock repurchased

(848)

(848)

Total capital deployed

(1,051)

(1,051)

Other comprehensive income

(752)

(980)

Additional paid-in capital (a)

325

325

Other

(1)

—

Total other deductions

(428)

(655)

Net CET1 generated

(466)

(669)

CET1 – End of period

$

18,093

$

16,490

(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, 2016 (a)

Sept. 30, 2016

Dec. 31, 2015

(dollars in millions)

Transitional
basis (b)

Fully
phased-in - 
Non-GAAP (c)

Transitional

basis (b)

Fully

phased-in -

Non-GAAP (c)

Transitional

basis (b)

Fully

phased-in -

Non-GAAP (c)

CET1:







Common shareholders' equity

$

35,794

$

35,269

$

36,450

$

36,153

$

36,067

$

35,485

Goodwill and intangible assets

(17,314)

(18,312)

(17,505)

(18,527)

(17,295)

(18,911)

Net pension fund assets

(54)

(90)

(56)

(94)

(46)

(116)

Equity method investments

(313)

(344)

(314)

(347)

(296)

(347)

Deferred tax assets

(19)

(32)

(15)

(25)

(8)

(20)

Other

(1)

(1)

(1)

(1)

(5)

(9)

Total CET1

18,093

16,490

18,559

17,159

18,417

16,082

Other Tier 1 capital:







Preferred stock

3,542

3,542

3,542

3,542

2,552

2,552

Trust preferred securities

—

—

—

—

74

—

Deferred tax assets

(13)

—

(10)

—

(12)

—

Net pension fund assets

(36)

—

(38)

—

(70)

—

Other

(121)

(121)

(110)

(109)

(25)

(22)

Total Tier 1 capital

21,465

19,911

21,943

20,592

20,936

18,612









Tier 2 capital:







Trust preferred securities

148

—

156

—

222

—

Subordinated debt

550

550

149

149

149

149

Allowance for credit losses

281

281

274

274

275

275

Other

(12)

(11)

(6)

(6)

(12)

(12)

     Total Tier 2 capital - Standardized      

          Approach

967

820

573

417

634

412

Excess of expected credit losses

61

61

33

33

37

37

Less: Allowance for credit losses

281

281

274

274

275

275

     Total Tier 2 capital - Advanced 
          Approach

$

747

$

600

$

332

$

176

$

396

$

174









Total capital:







Standardized Approach

$

22,432

$

20,731

$

22,516

$

21,009

$

21,570

$

19,024

Advanced Approach

$

22,212

$

20,511

$

22,275

$

20,768

$

21,332

$

18,786









Risk-weighted assets:







Standardized Approach

$

147,581

$

146,392

$

152,410

$

151,173

$

159,893

$

158,015

Advanced Approach

$

170,519

$

169,259

$

176,232

$

174,912

$

170,384

$

168,509









Standardized Approach:







CET1 ratio

12.3

%

11.3

%

12.2

%

11.4

%

11.5

%

10.2

%

Tier 1 capital ratio

14.5

13.6

14.4

13.6

13.1

11.8

Total (Tier 1 plus Tier 2) capital ratio

15.2

14.2

14.8

13.9

13.5

12.0

Advanced Approach:







CET1 ratio

10.6

%

9.7

%

10.5

%

9.8

%

10.8

%

9.5

%

Tier 1 capital ratio

12.6

11.8

12.5

11.8

12.3

11.0

Total (Tier 1 plus Tier 2) capital ratio

13.0

12.1

12.6

11.9

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

Dec. 31, 2016 (a)

Sept. 30, 2016

Dec. 31, 2015

(dollars in millions)

Transitional
basis

Fully 
phased-in -
Non-GAAP (b)

Transitional basis

Fully 
phased-in -
Non-GAAP (b)

Transitional basis

Fully

phased-in -

Non-GAAP (b)

Consolidated:







Tier 1 capital

$

21,465

$

19,911

$

21,943

$

20,592

$

20,936

$

18,612









Total leverage exposure:







Quarterly average total assets

$

344,142

$

344,142

$

351,230

$

351,230

$

368,590

$

368,590

Less: Amounts deducted from Tier 1 capital

17,562

18,886

17,743

19,095

17,650

19,403

Total on-balance sheet assets

326,580

325,256

333,487

332,135

350,940

349,187

Off-balance sheet exposures:







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

6,021

6,021

6,149

6,149

7,158

7,158

Repo-style transaction exposures

533

533

447

447

440

440

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

23,274

23,274

23,571

23,571

26,025

26,025

Total off-balance sheet exposures

29,828

29,828

30,167

30,167

33,623

33,623

Total leverage exposure

$

356,408

$

355,084

$

363,654

$

362,302

$

384,563

$

382,810









SLR - Consolidated (c)

6.0

%

5.6

%

6.0

%

5.7

%

5.4

%

4.9

%









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







Tier 1 capital

$

19,019

$

17,715

$

18,701

$

17,592

$

16,814

$

15,142

Total leverage exposure

$

290,623

$

290,230

$

299,641

$

299,236

$

316,812

$

316,270









SLR - The Bank of New York Mellon (c)

6.5

%

6.1

%

6.2

%

5.9

%

5.3

%

4.8

%

(a)  

Dec. 31, 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 require BNY Mellon to meet an LCR of 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 Dec. 31, 2016.  Our consolidated HQLA before haircuts totaled $156 billion at Dec. 31, 2016, compared with $195 billion at Sept. 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)





4Q16 vs.

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Revenue:







Investment management fees:







     Mutual funds

$

297

$

309

$

304

$

300

$

294

(4)

%

1

%

     Institutional clients

340

362

344

334

350

(6)

(3)

     Wealth management

164

166

160

152

155

(1)

6

Investment management fees (a)

801

837

808

786

799

(4)

—

Performance fees

32

8

9

11

55

N/M

(42)

Investment management and performance fees

833

845

817

797

854

(1)

(2)

Distribution and servicing

48

49

49

46

39

(2)

23

Other (a)

(1)

(18)

(10)

(31)

22

N/M

N/M

Total fee and other revenue (a)

880

876

856

812

915

—

(4)

Net interest revenue

80

82

82

83

84

(2)

(5)

Total revenue

960

958

938

895

999

—

(4)

Provision for credit losses

6

—

1

(1)

(4)

N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

672

680

684

660

689

(1)

(2)

Amortization of intangible assets

22

22

19

19

24

—

(8)

Total noninterest expense

694

702

703

679

713

(1)

(3)

Income before taxes

$

260

$

256

$

234

$

217

$

290

2

%

(10)

%

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

$

282

$

278

$

253

$

236

$

314

1

%

(10)

%









Pre-tax operating margin

27

%

27

%

25

%

24

%

29

%

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

33

%

33

%

30

%

30

%

34

%










Changes in AUM (in billions): (c)







Beginning balance of AUM

$

1,715

$

1,664

$

1,639

$

1,625

$

1,625


Net inflows (outflows):







Long-term strategies:







     Equity

(4)

(3)

(2)

(3)

(9)


     Fixed income

(1)

—

(2)

—

1


     Liability-driven investments (d)

(7)

4

15

14

11


     Alternative investments

2

2

1

1

2


     Total long-term active strategies (outflows) inflows

(10)

3

12

12

5


     Index

(1)

(2)

(17)

(11)

(16)


     Total long-term strategies (outflows) inflows

(11)

1

(5)

1

(11)


Short term strategies:







     Cash

(3)

(1)

4

(9)

2


Total net (outflows)

(14)

—

(1)

(8)

(9)


Net market impact/other

(11)

80

71

41

24


Net currency impact

(42)

(29)

(47)

(19)

(15)


Acquisition

—

—

2

—

—


Ending balance of AUM

$

1,648

(e)

$

1,715

$

1,664

$

1,639

$

1,625

(4)

%

1

%









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







Equity

14

%

13

%

14

%

14

%

14

%

Fixed income

13

14

13

13

13


Index

19

18

18

19

20


Liability-driven investments (d)

34

35

34

33

32


Alternative investments

4

4

4

4

4


Cash

16

16

17

17

17


Total AUM

100

%

(e)

100

%

100

%

100

%

100

%










Average balances:







Average loans

$

15,673

$

15,308

$

14,795

$

14,275

$

13,447

2

%

17

%

Average deposits

$

15,511

$

15,600

$

15,518

$

15,971

$

15,497

(1)

%

—

%

(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 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 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 totaled $260 million in 4Q16, a decrease of 10% year-over-year and an increase of 2% sequentially.  Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $282 million in 4Q16, a decrease of 10% year-over-year and an increase of 1% sequentially.
    • Pre-tax operating margin of 27% in 4Q16 decreased 197 basis points year-over-year and increased 41 basis points sequentially.
    • Adjusted pre-tax operating margin (Non-GAAP) of 33% in 4Q16 decreased 85 basis points year-over-year and increased 83 basis points sequentially.
  • Total revenue was $960 million, a decrease of 4% year-over-year and a slight increase sequentially.
    • 42% non-U.S. revenue in 4Q16 vs. 42% in 4Q15.
  • Investment management fees were $801 million, a slight increase year-over-year and a decrease of 4% 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).  The sequential decrease primarily reflects outflows of assets under management, lower fixed income market values and money market fees.
    • Net long-term outflows of $11 billion in 4Q16 were a combination of $10 billion of outflows from actively managed strategies and $1 billion of outflows from index strategies.
    • Net short-term outflows were $3 billion in 4Q16.
  • Performance fees were $32 million in 4Q16 compared with $55 million in 4Q15 and $8 million in 3Q16.  The sequential increase was driven by seasonality.
  • Distribution and servicing fees were $48 million in 4Q16 compared with $39 million in 4Q15 and $49 million in 3Q16.  The year-over-year increase primarily reflects higher money market fees.
  • Other revenue was a loss of $1 million in 4Q16 compared with other revenue of $22 million in 4Q15 and a loss of $18 million in 3Q16.  The year-over-year decrease reflects payments to Investment Services related to higher money market fees and lower seed capital gains, partially offset by gains on investments.  The sequential increase primarily reflects gains on hedging activity and investments, as well as losses on investments recorded in 3Q16, partially offset by lower seed capital gains.
  • Net interest revenue decreased 5% year-over-year and 2% 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 rates on deposits.
    • Average loans increased 17% year-over-year and 2% sequentially; average deposits increased slightly year-over-year and decreased 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) decreased 2% year-over-year and 1% sequentially.  The year-over-year decrease was primarily driven by the favorable impact of a stronger U.S. dollar (principally versus the British pound) and lower professional, legal and other purchased services and lower staff expense, partially offset by higher distribution and servicing expense as a result of lower money market fee waivers.  The sequential decrease primarily reflects lower severance expense, partially offset by higher other expenses.

 

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

(dollars in millions, unless otherwise noted)





4Q16 vs.

4Q16

3Q16

2Q16

1Q16

4Q15

3Q16

4Q15

Revenue:







Investment services fees:







     Asset servicing

$

1,043

$

1,039

$

1,043

$

1,016

$

1,009

—

%

3

%

     Clearing services

354

347

350

348

337

2

5

     Issuer services

211

336

233

244

199

(37)

6

     Treasury services

139

136

137

129

135

2

3

     Total investment services fees

1,747

1,858

1,763

1,737

1,680

(6)

4

Foreign exchange and other trading revenue

157

177

161

168

150

(11)

5

Other (a)

128

148

130

125

127

(14)

1

     Total fee and other revenue

2,032

2,183

2,054

2,030

1,957

(7)

4

Net interest revenue

713

715

690

679

664

—

7

Total revenue

2,745

2,898

2,744

2,709

2,621

(5)

5

Provision for credit losses

—

1

(7)

14

8

N/M

N/M

Noninterest expense (ex. amortization of intangible assets)

1,786

1,812

1,819

1,770

1,791

(1)

—

Amortization of intangible assets

38

39

40

38

40

(3)

(5)

Total noninterest expense

1,824

1,851

1,859

1,808

1,831

(1)

—

Income before taxes

$

921

$

1,046

$

892

$

887

$

782

(12)

%

18

%

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

$

959

$

1,085

$

932

$

925

$

822

(12)

%

17

%









Pre-tax operating margin

34

%

36

%

33

%

33

%

30

%

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

35

%

37

%

34

%

35

%

32

%










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

98

%

103

%

97

%

98

%

94

%










Securities lending revenue

$

44

$

42

$

42

$

42

$

39

5

%

13

%









Metrics:







Average loans

$

45,832

$

44,329

$

43,786

$

45,004

$

45,844

3

%

—

%

Average deposits

$

213,531

$

220,316

$

221,998

$

215,707

$

229,241

(3)

%

(7)

%









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

$

29.9

(c)

$

30.5

$

29.5

$

29.1

$

28.9

(2)

%

3

%

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

$

296

$

288

$

278

$

300

$

277

3

%

7

%









Asset servicing:







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

$

141

(c)

$

150

$

167

$

40

$

49











Depositary Receipts:







Number of sponsored programs

1,062

1,094

1,112

1,131

1,145

(3)

%

(7)

%









Clearing services:







Average active clearing accounts (U.S. platform)

(in thousands)

5,960

5,942

5,946

5,947

5,959

—

%

—

%

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

$

438,460

$

443,112

$

431,150

$

415,025

$

437,260

(1)

%

—

%

Average investor margin loans (U.S. platform)

$

10,562

$

10,834

$

10,633

$

11,063

$

11,575

(3)

%

(9)

%









Broker-Dealer:







Average tri-party repo balances (in billions)

$

2,307

$

2,212

$

2,108

$

2,104

$

2,153

4

%

7

%

(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 Dec. 31, 2016 and Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 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 $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016 and $55 billion at Dec. 31, 2015.

N/M – Not meaningful.

 

INVESTMENT SERVICES KEY POINTS

  • Income before taxes totaled $921 million in 4Q16.  Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $959 million in 4Q16.
    • The pre-tax operating margin was 34% in 4Q16.  The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 35% in 4Q16 and the investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 98% in 4Q16, reflecting the continued focus on the business improvement process to drive operating leverage.
  • Investment services fees were $1.7 billion, an increase of 4% year-over-year and a decrease of 6% sequentially.
    • Asset servicing fees were $1.043 billion in 4Q16 compared with $1.009 billion in 4Q15 and $1.039 billion in 3Q16.  The year-over-year increase primarily reflects higher money market fees, net new business and higher equity market values, partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing of the UK retail transfer agency business.
      • Estimated new business wins (AUC/A) in Asset Servicing of $141 billion in 4Q16.
    • Clearing services fees were $354 million in 4Q16 compared with $337 million in 4Q15 and $347 million in 3Q16.  Both increases were primarily driven by higher money market fees.  The year-over-year increase was partially offset by the impact of previously disclosed lost business.
    • Issuer services fees were $211 million in 4Q16 compared with $199 million in 4Q15 and $336 million in 3Q16.  The year-over-year increase primarily reflects higher fees in Depositary Receipts and higher money market fees in Corporate Trust.  The sequential decrease primarily reflects seasonality in Depositary Receipts. 
    • Treasury services fees were $139 million in 4Q16 compared with $135 million in 4Q15 and $136 million in 3Q16.  Both increases primarily resulted from higher payment volumes.  The year-over-year increase was partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.
  • Foreign exchange and other trading revenue was $157 million in 4Q16 compared with $150 million in 4Q15 and $177 million in 3Q16.  The year-over-year increase primarily reflects higher volatility.  The sequential decrease primarily reflects lower Depositary Receipt-related foreign exchange activity, partially offset by higher volatility.
  • Other revenue was $128 million in 4Q16 compared with $127 million in 4Q15 and $148 million in 3Q16.  Year-over-year, increased payments from Investment Management related to higher money market fees were offset by termination fees related to lost business in our clearing services business recorded in 4Q15 and certain fees paid to introducing brokers.  The sequential decrease primarily reflects termination fees related to lost business in our clearing services business in 3Q16.
  • Net interest revenue was $713 million in 4Q16 compared with $664 million in 4Q15 and $715 million in 3Q16.  The year-over-year increase primarily reflects the impact of the higher short-term rates on lower balances.
  • Noninterest expense (excluding amortization of intangible assets) was $1.786 billion in 4Q16 compared with $1.791 billion in 4Q15 and $1.812 billion in 3Q16.  Both decreases primarily reflect lower incentive and litigation expense.  The year-over-year decrease also reflects lower severance and temporary services expenses.  The sequential decrease was partially offset by higher software expense.

 

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




(dollars in millions)

4Q16

3Q16

2Q16

1Q16

4Q15

Revenue:




Fee and other revenue

$

42

$

100

$

95

$

129

$

89

Net interest revenue (expense)

38

(23)

(5)

4

12

Total revenue

80

77

90

133

101

Provision for credit losses

1

(20)

(3)

(3)

159

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

108

88

53

141

150

Amortization of intangible assets

—

—

—

—

—

M&I and restructuring charges (recoveries)

2

—

3

(1)

(4)

Total noninterest expense

110

88

56

140

146

(Loss) income before taxes

$

(31)

$

9

$

37

$

(4)

$

(204)

(Loss) income before taxes (ex. amortization of intangible assets and M&I and restructuring charges (recoveries)) – Non-GAAP

$

(29)

$

9

$

40

$

(5)

$

(208)






Average loans and leases

$

2,142

$

1,941

$

1,703

$

1,917

$

2,673

 

KEY POINTS

  • Total fee and other revenue decreased $47 million compared with 4Q15 and $58 million compared with 3Q16.  Both decreases primarily reflect the negative impact of interest rate hedging activities, which are offset in net interest revenue.  Both decreases also reflect lower net securities gains and investment and other income.
  • Net interest revenue increased $26 million compared with 4Q15 and $61 million compared with 3Q16.  Both increases were driven by the positive impact of interest rate hedging activities.  Substantially all of this impact was offset in fee and other revenue.  The sequential increase also reflects approximately $15 million related to the premium amortization adjustment, partially offset by the results of the leasing portfolio.
  • The provision for credit losses was $1 million in 4Q16, compared with $159 million in 4Q15 and a credit of $20 million in 3Q16.
  • Noninterest expense (excluding amortization of intangible assets and M&I and restructuring charges (recoveries)) decreased $42 million compared with 4Q15 and increased $20 million compared with 3Q16.  The year-over-year decrease primarily reflects lower staff expense.  The sequential increase was primarily driven by higher professional, legal and other purchased services and software expense.

 

 

THE BANK OF NEW YORK MELLON CORPORATION

Condensed Consolidated Income Statement


(in millions)

Quarter ended

Year-to-date

Dec. 31,
2016

Sept. 30,
2016

Dec. 31,
2015

Dec. 31,
2016

Dec. 31,
2015


Fee and other revenue






Investment services fees:






Asset servicing

$

1,068

$

1,067

$

1,032

$

4,244

$

4,187

Clearing services

355

349

339

1,404

1,375

Issuer services

211

337

199

1,026

978

Treasury services

140

137

137

547

555

Total investment services fees

1,774

1,890

1,707

7,221

7,095

Investment management and performance fees

848

860

864

3,350

3,438

Foreign exchange and other trading revenue

161

183

173

701

768

Financing-related fees

50

58

51

219

220

Distribution and servicing

41

43

41

166

162

Investment and other income

70

92

93

341

316

Total fee revenue

2,944

3,126

2,929

11,998

11,999

Net securities gains

10

24

21

75

83

Total fee and other revenue

2,954

3,150

2,950

12,073

12,082

Operations of consolidated investment management funds






Investment income

8

20

19

35

115

Interest of investment management fund note holders

3

3

3

9

29

Income from consolidated investment management funds

5

17

16

26

86

Net interest revenue






Interest revenue

928

874

834

3,575

3,326

Interest expense

97

100

74

437

300

Net interest revenue

831

774

760

3,138

3,026

Total revenue

3,790

3,941

3,726

15,237

15,194

Provision for credit losses

7

(19)

163

(11)

160

Noninterest expense






Staff

1,395

1,467

1,481

5,733

5,837

Professional, legal and other purchased services

325

292

328

1,185

1,230

Software and equipment

237

215

225

894

907

Net occupancy

153

143

148

590

600

Distribution and servicing

98

105

92

405

381

Sub-custodian

57

59

60

245

270

Business development

71

52

75

245

267

Other

228

231

201

940

961

Amortization of intangible assets

60

61

64

237

261

M&I, litigation and restructuring charges

7

18

18

49

85

Total noninterest expense

2,631

2,643

2,692

10,523

10,799

Income






Income before income taxes

1,152

1,317

871

4,725

4,235

Provision for income taxes

280

324

175

1,177

1,013

Net income

872

993

696

3,548

3,222

Net (income) attributable to noncontrolling interests (includes $(4), $(9), $(5), $(10) and $(68) related to consolidated investment management funds, respectively)

(2)

(6)

(3)

(1)

(64)

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

870

987

693

3,547

3,158

Preferred stock dividends

(48)

(13)

(56)

(122)

(105)

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

$

822

$

974

$

637

$

3,425

$

3,053

 

 


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

Dec. 31, 2016

Sept. 30, 2016

Dec. 31, 2015

Dec. 31,
2016

Dec. 31,
2015

(in millions)

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

$

822

$

974

$

637

$

3,425

$

3,053

Less:  Earnings allocated to participating securities

13

15

9

52

43

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

$

809

$

959

$

628

$

3,373

$

3,010







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

Quarter ended

Year-to-date

Dec. 31, 2016

Sept. 30, 2016

Dec. 31, 2015

Dec. 31,
2016

Dec. 31,
2015

(in thousands)

Basic

1,050,888

1,062,248

1,088,880

1,066,286

1,104,719

Diluted

1,056,818

1,067,682

1,096,385

1,072,013

1,112,511





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

Quarter ended

Year-to-date

Dec. 31, 2016

Sept. 30, 2016

Dec. 31, 2015

Dec. 31,
2016

Dec. 31,
2015

(in dollars)

Basic

$

0.77

$

0.90

$

0.58

$

3.16

$

2.73

Diluted

$

0.77

$

0.90

$

0.57

$

3.15

$

2.71

 

 


THE BANK OF NEW YORK MELLON CORPORATION

Consolidated Balance Sheet




(dollars in millions, except per share amounts)

Dec. 31,
2016

Sept. 30,
2016

Dec. 31,
2015

Assets



Cash and due from:



Banks

$

4,822

$

4,957

$

6,537

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

58,041

80,359

113,203

Interest-bearing deposits with banks

15,086

14,416

15,146

Federal funds sold and securities purchased under resale agreements

25,801

34,851

24,373

Securities:



Held-to-maturity (fair value of $40,669, $41,387 and $43,204)

40,905

40,728

43,312

Available-for-sale

73,822

78,270

75,867

Total securities

114,727

118,998

119,179

Trading assets

5,733

5,340

7,368

Loans

64,458

65,997

63,703

Allowance for loan losses

(169)

(148)

(157)

Net loans

64,289

65,849

63,546

Premises and equipment

1,303

1,338

1,379

Accrued interest receivable

568

522

562

Goodwill

17,316

17,449

17,618

Intangible assets

3,598

3,671

3,842

Other assets

20,954

25,355

19,626

Subtotal assets of operations

332,238

373,105

392,379

Assets of consolidated investment management funds, at fair value:



Trading assets

979

873

1,228

Other assets

252

136

173

Subtotal assets of consolidated investment management funds, at fair value

1,231

1,009

1,401

Total assets

$

333,469

$

374,114

$

393,780

Liabilities



Deposits:



Noninterest-bearing (principally U.S. offices)

$

78,342

$

105,632

$

96,277

Interest-bearing deposits in U.S. offices

52,049

56,713

51,704

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

91,099

99,033

131,629

Total deposits

221,490

261,378

279,610

Federal funds purchased and securities sold under repurchase agreements

9,989

8,052

15,002

Trading liabilities

4,389

4,154

4,501

Payables to customers and broker-dealers

20,987

21,162

21,900

Other borrowed funds

754

993

523

Accrued taxes and other expenses

5,867

5,687

5,986

Other liabilities (includes allowance for lending-related commitments of $112, $126 and $118)

5,635

7,709

5,490

Long-term debt

24,463

24,374

21,547

Subtotal liabilities of operations

293,574

333,509

354,559

Liabilities of consolidated investment management funds, at fair value:



Trading liabilities

282

219

229

Other liabilities

33

13

17

Subtotal liabilities of consolidated investment management funds, at fair value

315

232

246

Total liabilities

293,889

333,741

354,805

Temporary equity



Redeemable noncontrolling interests

151

178

200

Permanent equity



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

3,542

3,542

2,552

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,333,706,427, 1,325,167,583 and 1,312,941,113 shares

13

13

13

Additional paid-in capital

25,962

25,637

25,262

Retained earnings

22,621

22,002

19,974

Accumulated other comprehensive loss, net of tax

(3,765)

(2,785)

(2,600)

Less:  Treasury stock of 286,218,126, 267,830,962 and 227,598,128 common shares, at cost

(9,562)

(8,714)

(7,164)

Total The Bank of New York Mellon Corporation shareholders' equity

38,811

39,695

38,037

Nonredeemable noncontrolling interests of consolidated investment management funds

618

500

738

Total permanent equity

39,429

40,195

38,775

Total liabilities, temporary equity and permanent equity

$

333,469

$

374,114

$

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

 

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

4Q16

3Q16

4Q15

(in millions, except per common share amounts)

Net

income

Diluted
EPS


Net
income

Diluted

EPS


Net
income

Diluted
EPS

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

$

822

$

0.77


$

974

$

0.90


$

637

$

0.57

Add:  M&I, litigation and restructuring charges

7



18



18


  Tax impact of M&I, litigation and restructuring charges

(3)



(5)



(6)


Net impact of M&I, litigation and restructuring charges

4

—


13

0.01


12

0.01













Add:  (Recovery) impairment charge related to Sentinel

N/A



(13)



170


  Tax impact of recovery (impairment charge) related to Sentinel

N/A



5



(64)


(Recovery) impairment charge related to Sentinel – after-tax

N/A

N/A


(8)

(0.01)


106

0.10

Non-GAAP adjustments – after-tax

4

—


5

—


118

0.11

Non-GAAP results

$

826

$

0.77


$

979

$

0.90


$

755

$

0.68

N/A – Not applicable.

 

 

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

Full-year 2016

Full-year 2015

Growth

(in millions, except per common share amounts)

Net
income

Diluted
EPS


Net
income

Diluted
EPS


Net
income

Diluted
EPS

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

$

3,425

$

3.15


$

3,053

$

2.71


12

%

16

%

Add:  M&I, litigation and restructuring charges

49



85






  Tax impact of M&I, litigation and restructuring charges

(16)



(29)






Net impact of M&I, litigation and restructuring charges

33

0.03


56

0.05

















Add:  (Recovery) impairment charge related to Sentinel

(13)



170






  Tax impact of recovery (impairment charge) related to Sentinel

5



(64)






(Recovery) impairment charge related to Sentinel – after-tax

(8)

(0.01)


106

0.09





Non-GAAP adjustments – after-tax

25

0.02


162

0.14





Non-GAAP results

$

3,450

$

3.17


$

3,215

$

2.85


7

%

11

%

 

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)

4Q16

3Q16

2Q16

1Q16

4Q15

Income before income taxes – GAAP

$

1,152

$

1,317

$

1,165

$

1,091

$

871

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

4

9

4

(7)

5

Add:  Amortization of intangible assets

60

61

59

57

64

M&I, litigation and restructuring charges

7

18

7

17

18

(Recovery) impairment charge related to Sentinel

—

(13)

—

—

170

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

$

1,215

$

1,374

$

1,227

$

1,172

$

1,118






Fee and other revenue – GAAP

$

2,954

$

3,150

$

2,999

$

2,970

$

2,950

Income (loss) from consolidated investment management funds – GAAP

5

17

10

(6)

16

Net interest revenue – GAAP

831

774

767

766

760

Total revenue – GAAP

3,790

3,941

3,776

3,730

3,726

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

4

9

4

(7)

5

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

$

3,786

$

3,932

$

3,772

$

3,737

$

3,721






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

30

%

33

%

31

%

29

%

23

%

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

32

%

35

%

33

%

31

%

30

%

(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 $92 million for 4Q16, $74 million for 3Q16 and 2Q16, $77 million for 1Q16 and $73 million for 4Q15 and would increase our pre-tax operating margin by approximately 1.7% for 4Q16, 1.2% for 3Q16, 1.3% for 2Q16, 1.4% for 1Q16 and 1.5% for 4Q15.

 

The following tables present the reconciliation of the operating leverage.

Operating leverage


4Q16 vs.

(dollars in millions)

4Q16

3Q16

4Q15

3Q16

4Q15

Total revenue – GAAP

$

3,790

$

3,941

$

3,726

(3.83)

%

1.72

%

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

4

9

5


Total revenue, as adjusted – Non-GAAP

$

3,786

$

3,932

$

3,721

(3.71)

%

1.75

%






Total noninterest expense – GAAP

$

2,631

$

2,643

$

2,692

(0.45)

%

(2.27)

%

Less:  Amortization of intangible assets

60

61

64


M&I, litigation and restructuring charges

7

18

18


Total noninterest expense, as adjusted – Non-GAAP

$

2,564

$

2,564

$

2,610

—

%

(1.76)

%






Operating leverage – GAAP (a)


(338)

 bps

399

bps

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


(371)

 bps

351

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.

 

 

Operating leverage

2016 vs.

(dollars in millions)

2016

2015

2015

Total revenue – GAAP

$

15,237

$

15,194

0.28

%

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

10

68

Total revenue, as adjusted – Non-GAAP

$

15,227

$

15,126

0.67

%




Total noninterest expense – GAAP

10,523

10,799

(2.56)

%

Less:  Amortization of intangible assets

237

261

M&I, litigation and restructuring charges

49

85

Total noninterest expense, as adjusted – Non-GAAP

$

10,237

$

10,453

(2.07)

%




Operating leverage – GAAP (a)

284

bps

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

274

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)

4Q16

3Q16

2Q16

1Q16

4Q15

FY16

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

$

822

$

974

$

825

$

804

$

637

$

3,425

Add:  Amortization of intangible assets

60

61

59

57

64

237

Less:  Tax impact of amortization of intangible assets

19

21

21

20

22

81

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

863

1,014

863

841

679

3,581

Add:  M&I, litigation and restructuring charges

7

18

7

17

18

49

 (Recovery) impairment charge related to Sentinel

—

(13)

—

—

170

(13)

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

3

5

2

6

6

16

 Tax impact of (recovery) impairment charge related to Sentinel

—

(5)

—

—

64

(5)

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

$

867

$

1,019

$

868

$

852

$

797

$

3,606







Average common shareholders' equity

$

35,171

$

35,767

$

35,827

$

35,252

$

35,664

$

35,504

Less:  Average goodwill

17,344

17,463

17,622

17,562

17,673

17,497

Average intangible assets

3,638

3,711

3,789

3,812

3,887

3,737

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

1,497

1,477

1,452

1,428

1,401

1,497

Deferred tax liability – intangible assets (b)

1,105

1,116

1,129

1,140

1,148

1,105

Average tangible common shareholders' equity – Non-GAAP

$

16,791

$

17,186

$

16,997

$

16,446

$

16,653

$

16,872







Return on common equity – GAAP (c)

9.3

%

10.8

%

9.3

%

9.2

%

7.1

%

9.6

%

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

9.8

%

11.3

%

9.7

%

9.7

%

8.9

%

10.2

%







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

20.4

%

23.5

%

20.4

%

20.6

%

16.2

%

21.2

%

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

20.5

%

23.6

%

20.5

%

20.8

%

19.0

%

21.4

%

(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)   

Quarterly returns are 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

Dec. 31,

2016

Sept. 30,
2016

June 30,
2016

March 31,
2016

Dec. 31,
2015

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

38,811

$

39,695

$

38,559

$

38,459

$

38,037

Less:  Preferred stock

3,542

3,542

2,552

2,552

2,552

BNY Mellon common shareholders' equity at period end – GAAP

35,269

36,153

36,007

35,907

35,485

Less:  Goodwill

17,316

17,449

17,501

17,604

17,618

Intangible assets

3,598

3,671

3,738

3,781

3,842

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

1,497

1,477

1,452

1,428

1,401

Deferred tax liability – intangible assets (a)

1,105

1,116

1,129

1,140

1,148

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

$

16,957

$

17,626

$

17,349

$

17,090

$

16,574






Total assets at period end – GAAP

$

333,469

$

374,114

$

372,351

$

372,870

$

393,780

Less:  Assets of consolidated investment management funds

1,231

1,009

1,083

1,300

1,401

Subtotal assets of operations – Non-GAAP

332,238

373,105

371,268

371,570

392,379

Less:  Goodwill

17,316

17,449

17,501

17,604

17,618

Intangible assets

3,598

3,671

3,738

3,781

3,842

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

58,146

80,362

88,080

96,421

116,211

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

$

253,178

$

271,623

$

261,949

$

253,764

$

254,708






BNY Mellon shareholders' equity to total assets ratio – GAAP

11.6

%

10.6

%

10.4

%

10.3

%

9.7

%

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

10.6

%

9.7

%

9.7

%

9.6

%

9.0

%

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

6.7

%

6.5

%

6.6

%

6.7

%

6.5

%






Period-end common shares outstanding (in thousands)

1,047,488

1,057,337

1,067,674

1,077,083

1,085,343






Book value per common share – GAAP

$

33.67

$

34.19

$

33.72

$

33.34

$

32.69

Tangible book value per common share – Non-GAAP

$

16.19

$

16.67

$

16.25

$

15.87

$

15.27

(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)

4Q16

3Q16

2Q16

1Q16

4Q15

Income (loss) from consolidated investment management funds

$

5

$

17

$

10

$

(6)

$

16

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

4

9

4

(7)

5

Income from consolidated investment management funds, net of noncontrolling interests

$

1

$

8

$

6

$

1

$

11

 

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)

4Q16

3Q16

2Q16

1Q16

4Q15

Investment management fees

$

4

$

2

$

3

$

2

$

7

Other (Investment income (loss))

(3)

6

3

(1)

4

Income from consolidated investment management funds, net of noncontrolling interests

$

1

$

8

$

6

$

1

$

11

 

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)

4Q16

3Q16

2Q16

1Q16

4Q15

Income before income taxes – GAAP

$

260

$

256

$

234

$

217

$

290

Add:  Amortization of intangible assets

22

22

19

19

24

Provision for credit losses

6

—

1

(1)

(4)

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

$

288

$

278

$

254

$

235

$

310






Total revenue – GAAP

$

960

$

958

$

938

$

895

$

999

Less:  Distribution and servicing expense

98

104

102

100

92

Total revenue net of distribution and servicing expense – Non-GAAP

$

862

$

854

$

836

$

795

$

907






Pre-tax operating margin – GAAP (a)

27

%

27

%

25

%

24

%

29

%

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

33

%

33

%

30

%

30

%

34

%

(a)  

Income before taxes divided by total revenue.

 

DIVIDENDS

Common – On Jan. 19, 2017, 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 Feb. 10, 2017 to shareholders of record as of the close of business on Jan. 31, 2017.

Preferred – On Jan. 19, 2017, 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 2017, in each case payable on March 20, 2017 to holders of record as of the close of business on March 5, 2017:

  • $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
  • $2,942.01 per share on the Series F Preferred Stock (equivalent to $29.4201 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 enhancing our clients' experience, the impact of our digital transformation and capital plans.  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 Sept. 30, 2016 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. 19, 2017, 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.

 

Media Relations:  Ligia Braun   (212) 635-8588
Investor Relations:  Valerie Haertel   (212) 635-8529

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bny-mellon-reports-fourth-quarter-earnings-of-822-million-or-077-per-common-share-300393484.html

SOURCE BNY Mellon

Copyright 2017 PR Newswire

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