BK Bank of New York Mellon Corporation

NEW YORK, July 21, 2016 /PRNewswire/ --

• Earnings of $830 million or $0.76 per common share on an adjusted basis (a)
• Earnings per common share up 3%, or down 1% on an adjusted basis year-over-year (a)

CONTINUED FOCUS ON EXPENSE CONTROL

• Total noninterest expense decreased 4%, or 2% on an adjusted basis year-over-year (a)

TOTAL REVENUE OF $3.78 BILLION

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

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS

• Repurchased 12.5 million common shares for $509 million
• Return on common equity of 9%; Adjusted return on tangible common equity of 21% (a)

BOARD APPROVED PREVIOUSLY ANNOUNCED COMMON STOCK DIVIDEND INCREASE OF 12% AND THE REPURCHASE OF UP TO APPROXIMATELY $2.7 BILLION OF COMMON STOCK

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $825 million, or $0.75 per diluted common share, or $830 million, or $0.76 per diluted common share, adjusted for M&I, litigation and restructuring charges (Non-GAAP).  In the second quarter of 2015, net income applicable to common shareholders was $830 million, or $0.73 per diluted common share, or $868 million, or $0.77 per diluted common share, adjusted for M&I,  litigation and restructuring charges (Non-GAAP).  In the first quarter of 2016, net income applicable to common shareholders was $804 million, or $0.73 per diluted common share (a).

"Our success in aggressively controlling expenses and executing on our business improvement process helped sustain earnings momentum in a period of market uncertainty.  We continue to believe our distinctive capabilities in areas such as collateral management and liquidity services, middle-office outsourcing and liability-driven investments, as well as our efforts to build a digital enterprise, will drive revenue growth in the future.  Our diversified, lower-risk business model positions us to deliver consistent results and solid risk-adjusted returns for our shareholders," Gerald L. Hassell, chairman and chief executive officer, said.

"Our digital transformation is simplifying how clients connect with us and creating services for the future.  We are partnering with third-party developers to create a wider variety of new applications and, through our Innovation Centers, are collaborating with clients to develop scalable, enterprise solutions to meet their evolving needs," Mr. Hassell added.

"Our status as a strong, safe, trusted counterparty is increasingly important to clients in times like this, and was proven by the results of the 2016 annual stress test.  The earnings power and strength of our business model enabled us to announce a capital plan that includes share repurchases of up to $2.7 billion, and an approximately 12 percent increase in the quarterly dividend," Mr. Hassell concluded.

(a)  These measures are considered to be Non-GAAP. See the "Financial Summary" on page 4 for the Non-GAAP adjustments and additional information related to revenue and expense growth rates.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the adjusted earnings and earnings per common share reconciliation and tangible common equity ratio reconciliation.

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 executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on July 21, 2016.  This conference call and audio webcast will include forward-looking statements and may include other material information. 

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (888) 898-7224 (U.S.) or (913) 312-9027 (International), and using the passcode: 619690, or by logging on to www.bnymellon.com.  Earnings materials will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EDT on July 21, 2016.  Replays of the conference call and audio webcast will be available beginning July 21, 2016 at approximately 2 p.m. EDT through Aug. 20, 2016 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 2620345.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

 

SECOND QUARTER 2016 FINANCIAL HIGHLIGHTS (a)
(comparisons are 2Q16 vs. 2Q15, unless otherwise stated)

• Earnings

 

• Total revenue was $3.8 billion, a decrease of 3%, or 2% on an adjusted basis (Non-GAAP) (a).
  • Investment services fees increased slightly reflecting higher money market fees and net new business, offset by lower market values.
  • Investment management and performance fees decreased 5% driven by net outflows in 2015, the unfavorable impact of a stronger U.S. dollar and lower performance fees, offset by higher money market fees and the impact of the April 2016 acquisition of the assets of Atherton Lane Advisors, LLC ("Atherton").  Investment management and performance fees decreased 4% on a constant currency basis (Non-GAAP) (a).
  • Foreign exchange revenue decreased 8% reflecting lower volumes, offset by the positive net impact of foreign currency hedging activities.
  • Investment and other income decreased $30 million driven by lower lease-related gains, offset by foreign currency remeasurement gains.
  • Net interest revenue decreased $12 million driven by the negative impact of interest rate hedging activities and higher premium amortization adjustments related to the decrease in interest rates.
• The provision for credit losses was a credit of $9 million.
• Noninterest expense was $2.6 billion, a decrease of 4%, or 2% on an adjusted basis (Non-GAAP) (a).  The decrease reflects lower expenses in nearly all categories, driven by the favorable impact of a stronger U.S. dollar, lower litigation, staff and legal expenses and the benefit of the business improvement process, partially offset by higher net occupancy and distribution and servicing expenses.
• Effective tax rate of 24.9%.
  
  
• Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
  • AUC/A of $29.5 trillion increased 3% reflecting net new business and higher market values, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • Estimated new AUC/A wins in Asset Servicing of $167 billion in 2Q16.
  • AUM of $1.66 trillion decreased 2% reflecting net outflows primarily in 2015 and the unfavorable impact of a stronger U.S. dollar (principally versus the British pound), offset by higher market values.
    • Net long-term outflows of $5 billion in 2Q16 were driven by index investments, offset by the continued strength in liability-driven investments.
    • Net short-term inflows totaled $4 billion in 2Q16.
      
      
• Capital
  • Repurchased 12.5 million common shares for $509 million in 2Q16.
  • Return on common equity of 9%; Adjusted return on tangible common equity of 21% in 2Q16 (a).
  • Board approved previously announced common stock dividend increase of 12% and the repurchase of up to approximately $2.7 billion of common stock.

 

(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").
(b)   Does not foot due to rounding.
Note: Throughout this document, sequential growth rates are unannualized.

 

FINANCIAL SUMMARY

(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 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

(a)   Excludes securities lending cash management assets and assets managed in the Investment Services business.
(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 $1.1 trillion at June 30, 2016 and March 31, 2016, $1.0 trillion at  Dec. 31, 2015 and Sept. 30, 2015 and  $1.1 trillion at June 30, 2015.
(e)    Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015, $61 billion at Sept. 30, 2015 and $68 billion at June 30, 2015.

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

(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

(a)   Asset servicing fees include securities lending revenue of $52 million in 2Q16, $50 million in 1Q16, $46 million in 4Q15, $38 million in 3Q15 and $49 million in 2Q15. 
N/M – Not meaningful.

KEY POINTS

• Asset servicing fees were $1.1 billion, an increase of 1% year-over-year and 3% sequentially.  The year-over-year increase primarily reflects net new business and higher money market fees, partially offset by lower market values and the unfavorable impact of a stronger U.S. dollar.  The sequential increase primarily reflects higher market values and net new business.
• Clearing services fees were $350 million, an increase of 1% year-over-year and unchanged sequentially.  The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of lost business.  Sequentially, higher average balances and the increase in the number of trading days were offset by lower volumes.
• Issuer services fees were $234 million, unchanged year-over-year and a decrease of 4% sequentially.  Both comparisons reflect lower Depositary Receipts revenue.  Year-over-year, issuer services fees also reflect higher money market fees in Corporate Trust.
• Treasury services fees were $139 million, a decrease of 3% year-over-year and an increase of 6% sequentially.  The year-over-year decrease primarily reflects higher compensating balance credits provided to clients, which shifts revenue from fees to net interest revenue.  The sequential increase primarily reflects higher payment volumes due to an increase in number of trading days.
• Investment management and performance fees were $830 million, a decrease of 5% year-over-year and an increase of 2% sequentially.  The year-over-year decrease primarily reflects outflows in 2015, the unfavorable impact of a stronger U.S. dollar and lower performance fees, partially offset by higher money market fees and the impact of the Atherton acquisition.  On a constant currency basis (Non-GAAP), investment management and performance fees decreased 4% year-over-year.  The sequential increase primarily reflects higher equity market values and the impact of the Atherton acquisition, partially offset by net outflows.

 

Foreign exchange and other trading revenue totaled $182 million in 2Q16 compared with $187 million in 2Q15 and $175 million in 1Q16.  In 2Q16, foreign exchange revenue totaled $166 million, a decrease of 8% year-over-year and 3% sequentially.  The year-over-year decrease primarily reflects lower volumes, partially offset by the positive net impact of foreign currency hedging activities.  The sequential decrease primarily reflects the continued trend of clients migrating to lower margin products.

Other trading revenue was $16 million in 2Q16, compared with $6 million in 2Q15 and $4 million in 1Q16.  The year-over-year increase primarily reflects higher fixed income trading. Year-over-year, losses on hedging activities in the Investment Management businesses were offset by the positive impact of interest rate hedging.  The sequential increase primarily reflects hedging activities in the Investment Management businesses. 

• Financing-related fees were $57 million in 2Q16 compared with $58 million in 2Q15 and $54 million in 1Q16.
• Distribution and servicing fees were $43 million in 2Q16 compared with $39 million in both 2Q15 and 1Q16.  Distribution and servicing fees were favorably impacted by higher money market fees.  The year-over-year increase was partially offset by fees paid to introducing brokers.

 

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

Investment and other income was $74 million in 2Q16 compared with $104 million in 2Q15 and $105 million in 1Q16.  Both decreases primarily reflect lower lease-related gains, partially offset by foreign currency remeasurement gains.

NET INTEREST REVENUE

FTE – fully taxable equivalent.
bps – basis points.

KEY POINTS

• Net interest revenue totaled $767 million in 2Q16, a decrease of $12 million year-over-year and an increase of  $1 million sequentially.  The year-over-year decrease primarily reflects the negative impact of interest rate hedging activities and higher premium amortization adjustments related to the decrease in interest rates.  The sequential increase primarily reflects lower losses on interest rate hedging activities, partially offset by higher premium amortization.
• Following the receipt of feedback from the Federal Reserve and the Federal Deposit Insurance Corporation in April 2016 on our 2015 resolution plan, we are changing our preferred resolution strategy from a bridge bank to a single point of entry in the event of our material financial distress or failure.  While we are still evaluating the impact of our single point of entry strategy, it is likely that related expenses will increase and our net interest revenue may be negatively impacted if we conclude that the revised strategy requires us to issue additional long-term debt to fund holdings of high-quality liquid assets ("HQLA") for potential contribution to material subsidiaries in times of distress.

 

NONINTEREST EXPENSE

N/M – Not meaningful.

KEY POINTS

• Total noninterest expense decreased 4% 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 reflects lower expenses in nearly all categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower litigation, staff and legal expenses and the benefit of the business improvement process, partially offset by higher net occupancy and distribution and servicing expenses.  Staff expense decreased year-over-year primarily reflecting lower incentive expense.  The increase in net occupancy expense reflects the cost to exit leases consistent with our global real estate strategy.  The savings generated by the business improvement process primarily reflect the benefits of our technology insourcing strategy and the benefit of renegotiating vendor contracts.
• The sequential decrease primarily reflects lower staff expense, offset by higher sub-custodian, net occupancy, legal and business development expenses.  The decrease in staff expense primarily reflects lower incentive expense.  The increase in sub-custodian expenses primarily reflects higher client activity.  The increase in business development expense was driven by the timing of client-related conferences.

INVESTMENT SECURITIES PORTFOLIO

At June 30, 2016, the fair value of our investment securities portfolio totaled $117.3 billion.  The net unrealized pre-tax gain on our total securities portfolio was $1.6 billion at June 30, 2016 compared with $1.2 billion at March 31, 2016.  The increase in the net unrealized pre-tax gain was primarily driven by a decline in market interest rates.  At June 30, 2016, the fair value of the held-to-maturity securities totaled $41.8 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.

(a)   Amortized cost before impairments.
(b)   These RMBS were included in the former Grantor Trust and were marked-to-market in 2009.  We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.
(c)    Includes commercial paper with a fair value of $1.7 billion and $1.7 billion and money market funds with a fair value of $862 million and $865 million at March 31, 2016 and June 30, 2016, respectively.
(d)   Includes net unrealized losses on derivatives hedging securities available-for-sale of $763 million at March 31, 2016 and $1,023 million at June 30, 2016.
(e)    Unrealized gains of $840 million at June 30, 2016 related to available-for-sale securities.

 

NONPERFORMING ASSETS

Nonperforming assets were $289 million at June 30, 2016, a decrease of $3 million compared with March 31, 2016.  Nonperforming loans include our claim in the bankruptcy proceedings of Sentinel.  On July 13, 2016, a settlement agreement between BNY Mellon and Sentinel's Liquidation Trustee was accepted by the bankruptcy court.  This is expected to become effective in 3Q16 and result in release of trust assets to BNY Mellon in an amount that should exceed BNY Mellon's carrying value of $171 million.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

The allowance for credit losses was $280 million at June 30, 2016, a decrease of $7 million compared with $287 million at March 31, 2016.  Net recoveries were $2 million in 2Q16 reflected in the other residential mortgage and foreign portfolios.

CAPITAL AND LIQUIDITY

(a)   Regulatory capital ratios for June 30, 2016 are preliminary.  For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under application capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches.
(b)   The leverage capital ratios are 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.

 

(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 U.S. capital rules.
(c)    Estimated.

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

(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.

(a)   June 30, 2016 information is preliminary.
(b)   Estimated.
(c)    The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules.  When the SLR is fully phased-in in 2018 as a required minimum ratio, we expect to maintain an SLR of over 5%.  The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs.  The insured depository institution subsidiaries of the U.S. G-SIBs, including those of BNY Mellon, must maintain a 6% SLR to be considered "well capitalized."

Liquidity Coverage Ratio ("LCR")

The U.S. LCR rules became effective Jan. 1, 2015 and currently require BNY Mellon to meet an LCR of 90%, increasing to 100% when fully phased-in on Jan. 1, 2017.  Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of June 30, 2016 based on our understanding of the U.S. LCR rules.  Our consolidated HQLA before haircuts, totaled $191 billion at June 30, 2016, compared with $202 billion at March 31, 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.

(a)   Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See page 28 for a breakdown of the revenue line items in the Investment Management business impacted by the consolidated investment management funds.  Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.
(b)   Excludes the net negative impact of money market fee waivers, amortization of intangible assets and provision for credit losses and is net of distribution and servicing expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of this Non-GAAP measure.
(c)    Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d)   Includes currency overlay assets under management.
(e)    Preliminary.
N/M – Not meaningful.

INVESTMENT MANAGEMENT KEY POINTS

• Assets under management were $1.66 trillion at June 30, 2016, a decrease of 2% year-over-year and an increase of 2% sequentially.  The year-over-year decrease primarily reflects net outflows primarily in 2015 and the unfavorable impact of a stronger U.S. dollar (principally versus the British pound), offset by higher market values.
  • Net long-term outflows of $5 billion in 2Q16 were driven by index investments, offset by the continued strength in liability-driven investments.
  • Net short-term inflows were $4 billion in 2Q16.
• Income before taxes, excluding amortization of intangible assets, totaled $253 million in 2Q16, a decrease of 11% year-over-year and an increase of 7% sequentially.
• Total revenue was $938 million, a decrease of 5% year-over-year and an increase of 5% sequentially.
  • 40% non-U.S. revenue in 2Q16 vs. 42% in 2Q15.
• Investment management fees were $808 million, a decrease of 3% year-over-year and an increase of 3% sequentially.  The year-over-year decrease primarily reflects outflows in 2015 and the unfavorable impact of a stronger U.S. dollar, partially offset by higher money market fees and the impact of the Atherton acquisition.  On a constant currency basis (Non-GAAP), investment management fees decreased 2% year-over-year.  The sequential increase primarily reflects higher equity market values and the impact of the Atherton acquisition, partially offset by net outflows.
• Performance fees were $9 million in 2Q16 compared with $20 million in 2Q15 and $11 million in 1Q16.
• Distribution and servicing fees were $49 million in 2Q16 compared with $38 million in 2Q15 and $46 million in 1Q16.  The year-over-year increase primarily reflects higher money market fees.
• Other losses were $10 million in 2Q16 compared with other revenue of $17 million in 2Q15 and other losses of $31 million in 1Q16.  The year-over-year decrease primarily reflects losses on hedging activities and increased payments to Investment Services related to higher money market fees, partially offset by higher seed capital gains.  The sequential increase primarily reflects gains on hedging activities and higher seed capital gains. 
• Net interest revenue increased 6% year-over-year and decreased 1% sequentially.  The year-over-year increase primarily reflects record average loans and increased deposits, partially offset by the impact of changes in the internal crediting rates for deposits beginning in the first quarter of 2016.  The sequential decrease primarily reflects lower average deposits, partially offset by higher average loans.
  • Average loans increased 20% year-over-year and 4% sequentially; average deposits increased 6% year-over-year and decreased 3% sequentially.
• Total noninterest expense (excluding amortization of intangible assets) decreased 2% year-over-year and increased 4% sequentially.  The year-over-year decrease primarily reflects lower incentive expense and the favorable impact of a stronger U.S. dollar, partially offset by higher distribution and servicing expense driven by lower money market fee waivers.  Both comparisons reflect the impact of the Atherton acquisition and higher professional, legal and other purchased services.  The sequential increase also reflects higher staff expense.

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

(a)   Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income.
(b)   Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) was lower in 2Q15 primarily reflecting litigation expense.
(c)    Includes the AUC/A of CIBC Mellon of $1.1 trillion at June 30, 2016 and March 31, 2016, $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015 and $1.1 trillion at June 30, 2015.
(d)   Preliminary.
(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 $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015, $61 billion at Sept. 30, 2015 and $68 billion at June 30, 2015.
N/M - Not meaningful.

INVESTMENT SERVICES KEY POINTS

• Income before taxes, excluding amortization of intangible assets, totaled $932 million in 2Q16.
  • The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets, was 34% in 2Q16 and the investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) was 97% in 2Q16, reflecting the continued focus on the business improvement process to drive operating leverage.
• Investment services fees were $1.8 billion, flat year-over-year and an increase of 1% sequentially.
  • Asset servicing fees (global custody, broker-dealer services and global collateral services) were $1.043 billion in 2Q16 compared with $1.038 billion in 2Q15 and $1.016 billion in 1Q16.  The year-over-year increase primarily reflects net new business and higher money market fees, partially offset by lower market values and the unfavorable impact of a stronger U.S. dollar.  The sequential increase primarily reflects higher market values and net new business.
    • Estimated new business wins (AUC/A) in Asset Servicing of $167 billion in 2Q16.
  • Clearing services fees were $350 million in 2Q16 compared with $346 million in 2Q15 and $348 million in 1Q16.  The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of lost business.  Sequentially, higher average balances and the increase in the number of trading days were offset by lower volumes.
  • Issuer services fees (Corporate Trust and Depositary Receipts) were $233 million in 2Q16 compared with $234 million in 2Q15 and $244 million in 1Q16.  Both comparisons reflect lower Depositary Receipts revenue.  Year-over-year, issuer services fees also reflect higher money market fees in Corporate Trust.
  • Treasury services fees were $137 million in 2Q16 compared with $141 million in 2Q15 and $129 million in 1Q16.  The year-over-year decrease primarily reflects higher compensating balance credits provided to clients, which shifts revenue from fees to net interest revenue.  The sequential increase primarily reflects higher payment volumes due to an increase in number of trading days.
• Foreign exchange and other trading revenue was $161 million in 2Q16 compared with $181 million in 2Q15 and $168 million in 1Q16.  The year-over-year decrease primarily reflects lower volumes.  The sequential decrease primarily reflects the continued trend of clients migrating to lower margin products.
• Other revenue was $130 million in 2Q16 compared with $117 million in 2Q15 and $125 million in 1Q16.  The year-over-year increase primarily reflects increased payments from Investment Management related to higher money market fees, partially offset by certain fees paid to introducing brokers.  The sequential increase primarily reflects higher financing-related fees.
• Net interest revenue was $690 million in 2Q16 compared with $667 million in 2Q15 and $679 million in 1Q16.  The year-over-year increase primarily reflects the impact of changes in the internal crediting rates for deposits, partially offset by lower average deposits.  The sequential increase primarily reflects higher average deposits.
• Noninterest expense (excluding amortization of intangible assets) was $1.82 billion in 2Q16 compared with $1.87 billion in 2Q15 and $1.77 billion in 1Q16.  The year-over-year decrease primarily reflects lower litigation expense, partially offset by higher staff expense.  The sequential increase primarily reflects higher staff expense, partially offset by lower litigation expense.

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

KEY POINTS

• Total fee and other revenue decreased $8 million compared with 2Q15 and $34 million compared with 1Q16.  Both decreases primarily reflect lower lease-related gains.  The year-over-year decrease was partially offset by the positive impact of foreign currency hedging activities and higher fixed income trading.
• Net interest revenue decreased $40 million compared with 2Q15 and $9 million compared with 1Q16.  Both decreases reflect lower average loans and leases.  The year-over-year decrease also reflects the negative impact of interest rate hedging and higher premium amortization adjustments related to the decrease in interest rates.
• Noninterest expense, excluding amortization of intangible assets and restructuring charges (recoveries), decreased $26 million compared with 2Q15 and $88 million compared with 1Q16.  Both comparisons were impacted by lower staff expense and professional, legal, and other purchased services.

 

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement

 

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

 

 

 

 

 

 

 

THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet

 

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

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

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

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

The presentation of income (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.

In this Earnings Release, net interest revenue and the net interest margin are presented on an FTE basis.  We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.  Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.

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

(a)   Does not foot due to rounding.

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

(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 4Q15 excludes the impairment charge related to a court decision regarding Sentinel.
(b)   Income before taxes divided by total revenue.
(c)    Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities.  The benefits of these investments are primarily reflected in tax expense.  If reported on a tax-equivalent basis, these investments would increase revenue and income before taxes by $74 million for 2Q16, $77 million for 1Q16, $73 million for 4Q15, $53 million for 3Q15 and $52 million for 2Q15 and would increase our pre-tax operating margin by approximately 1.3% for 2Q16, 1.4% for 1Q16, 1.5% for 4Q15, 1.0% for 3Q15 and 0.9% for 2Q15.

 

The following table presents the reconciliation of the operating leverage.

(a)   Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)   Non-GAAP operating leverage for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps - basis points.

 

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

(a)   Non-GAAP information for all periods presented excludes amortization of intangible assets, net of tax, and M&I, litigation and restructuring charges.  Non-GAAP information for 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.
(b)   Deferred tax liabilities are based on fully phased-in Basel III rules.
(c)    Annualized.

 

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

(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.

 

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

 

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

 

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

 

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

(a)   Income before taxes divided by total revenue.

DIVIDENDS

Common – On July 21, 2016, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.19 per common share, an increase from the prior dividend amount of $0.17 per common share.  This cash dividend is payable on Aug. 12, 2016 to shareholders of record as of the close of business on Aug. 2, 2016.

Preferred – On July 21, 2016, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in September 2016, in each case payable on Sept. 20, 2016 to holders of record as of the close of business on Sept. 5, 2016:

• $1,022.22 per share on the Series A Preferred Stock (equivalent to $10.2222 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock); and
• $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).

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 June 30, 2016, BNY Mellon had $29.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management.  BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available on www.bnymellon.com.  Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding driving revenue growth, our business model, technology, digital transformation, capital plans and the potential effects of adopting a single point of entry resolution strategy.  These statements may be expressed in a variety of ways, including the use of future or present tense language.  Words such as "estimate," "forecast," "project," "anticipate," "target," "likely," "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 and BNY Mellon's other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of July 21, 2016, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

Contact:

MEDIA:
Kevin Heine
(212) 635-1590
kevin.heine@bnymellon.com  

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

 

 

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SOURCE BNY Mellon