EX-99.1 2 ex991_earningsreleasex2q16.htm EXHIBIT 99.1 Exhibit
BNY Mellon 2Q16 Earnings Release


News Release

Contacts: MEDIA:
ANALYSTS:
Kevin Heine
Valerie Haertel
(212) 635-1590
(212) 635-8529
kevin.heine@bnymellon.com
valerie.haertel@bnymellon.com


BNY MELLON REPORTS SECOND QUARTER EARNINGS OF $825 MILLION OR $0.75 PER COMMON SHARE
•
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


NEW YORK, July 21, 2016 – 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.


_________________________________________________________________________________
(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.

Page - 1
BNY Mellon 2Q16 Earnings Release


“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.


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.


Page - 2
BNY Mellon 2Q16 Earnings Release


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

 
2Q15

 
Inc/(Dec)

 
2Q16

 
2Q15

 
Inc/(Dec)

GAAP results
$
0.75


$
0.73

 
3
 %
 
$
825

 
$
830

 
(1
)%
Add: M&I, litigation and restructuring charges
—

 
0.03

 
 
 
5

 
38

 
 
Non-GAAP results
$
0.76

(b)
$
0.77

(b)
(1
)%
 
$
830

 
$
868

 
(4
)%


•
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.

Page - 3
BNY Mellon 2Q16 Earnings Release


FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in thousands)
 
 
 
 
 
2Q16 vs.
2Q16

1Q16

4Q15

3Q15

2Q15

1Q16
2Q15
Revenue:
 
 
 
 
 
 
 
Fee and other revenue
$
2,999

$
2,970

$
2,950

$
3,053

$
3,067

1%

(2)%

Income (loss) from consolidated investment management funds
10

(6
)
16

(22
)
40

 
 
Net interest revenue
767

766

760

759

779

—

(2
)
Total revenue – GAAP
3,776

3,730

3,726

3,790

3,886

1

(3
)
Less: Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds
4

(7
)
5

(5
)
37

 
 
Total revenue – Non-GAAP
3,772

3,737

3,721

3,795

3,849

1

(2
)
Provision for credit losses
(9
)
10

163

1

(6
)
 
 
Expense:
 
 
 
 
 
 
 
Noninterest expense – GAAP
2,620

2,629

2,692

2,680

2,727

—

(4
)
Less: Amortization of intangible assets
59

57

64

66

65

 
 
M&I, litigation and restructuring charges
7

17

18

11

59

 
 
Total noninterest expense – Non-GAAP
2,554

2,555

2,610

2,603

2,603

—

(2
)
Income:
 
 
 
 
 
 
 
Income before income taxes
1,165

1,091

871

1,109

1,165

7%

—%
Provision for income taxes
290

283

175

282

276

 
 
Net income
$
875

$
808

$
696

$
827

$
889

 
 
Net (income) loss attributable to noncontrolling interests (a)
(2
)
9

(3
)
6

(36
)
 
 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
873

817

693

833

853

 
 
Preferred stock dividends
(48
)
(13
)
(56
)
(13
)
(23
)
 
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
825

$
804

$
637

$
820

$
830

 
 
 
 
 
 
 
 
 
 
Operating leverage (b)
 
 
 
 
 
157
 bps
109
 bps
Operating leverage – Non-GAAP (b)
 
 
 
 
 
98
 bps
(12
) bps
 
 
 
 
 
 
 
 
Key Metrics:
 
 
 
 
 
 

Pre-tax operating margin (c)
31
%
29
%
23
%
29
%
30
%
 
 
Pre-tax operating margin – Non-GAAP (c)
33
%
31
%
30
%
31
%
33
%
 
 
 
 
 
 
 
 
 
 
Return on common equity (annualized) (c)
9.3
%
9.2
%
7.1
%
9.1
%
9.4
%
 
 
Return on common equity (annualized) – Non-GAAP (c)
9.7
%
9.7
%
8.9
%
9.7
%
10.3
%
 
 
 
 
 
 
 
 
 
 
Return on tangible common equity (annualized) – Non-GAAP (d)
20.4
%
20.6
%
16.2
%
20.8
%
21.5
%
 
 
Adjusted return on tangible common equity (annualized) – Non-GAAP (c)(d)
20.5
%
20.8
%
19.0
%
21.0
%
22.5
%
 
 
 
 
 
 
 
 
 
 
Fee revenue as a percentage of total revenue
79
%
80
%
79
%
81
%
79
%
 
 
 
 
 
 
 
 
 
 
Percentage of non-U.S. total revenue
34
%
33
%
34
%
37
%
36
%
 
 
 
 
 
 
 
 
 
 
Average common shares and equivalents outstanding:
 
 
 
 
 
 
 
Basic
1,072,583

1,079,641

1,088,880

1,098,003

1,113,790

 
 
Diluted
1,078,271

1,085,284

1,096,385

1,105,645

1,122,135

 
 
 
 
 
 
 
 
 
 
Period end:
 
 
 
 
 
 
 
Full-time employees
52,200

52,100

51,200

51,300

50,700

 
 
Book value per common share – GAAP (d)
$
33.72

$
33.34

$
32.69

$
32.59

$
32.28

 
 
Tangible book value per common share – Non-GAAP (d)
$
16.25

$
15.87

$
15.27

$
15.16

$
14.86

 
 
Cash dividends per common share
$
0.17

$
0.17

$
0.17

$
0.17

$
0.17

 
 
Common dividend payout ratio
23
%
23
%
30
%
23
%
23
%
 
 
Closing stock price per common share
$
38.85

$
36.83

$
41.22

$
39.15

$
41.97

 
 
Market capitalization
$
41,479

$
39,669

$
44,738

$
42,789

$
46,441

 
 
Common shares outstanding
1,067,674

1,077,083

1,085,343

1,092,953

1,106,518

 
 
(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.

Page - 4
BNY Mellon 2Q16 Earnings Release


CONSOLIDATED BUSINESS METRICS

Consolidated business metrics
 
 
 
 
 
 
2Q16 vs.
2Q16

 
1Q16

4Q15

3Q15

2Q15

1Q16
2Q15
Changes in AUM (in billions): (a)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,639

 
$
1,625

$
1,625

$
1,700

$
1,717

 
 
Net inflows (outflows):
 
 
 
 
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
Equity
(2
)
 
(3
)
(9
)
(4
)
(13
)
 
 
Fixed income
(2
)
 
—

1

(3
)
(2
)
 
 
Liability-driven investments (b)
15

 
14

11

11

5

 
 
Alternative investments
1

 
1

2

1

3

 
 
Total long-term active inflows (outflows)
12

 
12

5

5

(7
)
 
 
Index
(17
)
 
(11
)
(16
)
(10
)
(9
)
 
 
Total long-term (outflows) inflows
(5
)
 
1

(11
)
(5
)
(16
)
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
4

 
(9
)
2

(10
)
(11
)
 
 
Total net (outflows)
(1
)
 
(8
)
(9
)
(15
)
(27
)
 
 
Net market impact/other
71

 
41

24

(35
)
(29
)
 
 
Net currency impact
(47
)
 
(19
)
(15
)
(25
)
39

 
 
Acquisition
2

 
—

—

—

—

 
 
Ending balance of AUM
$
1,664

(c)
$
1,639

$
1,625

$
1,625

$
1,700

2
 %
(2
)%
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (a)
 
 
 
 
 
 
 
 
Equity
14
%
 
14
%
14
%
14
%
15
%
 
 
Fixed income
13

 
13

13

13

13

 
 
Index
18

 
19

20

20

21

 
 
Liability-driven investments (b)
34

 
33

32

32

30

 
 
Alternative investments
4

 
4

4

4

4

 
 
Cash
17

 
17

17

17

17

 
 
Total AUM
100
%
(c)
100
%
100
%
100
%
100
%
 
 
 
 
 
 
 
 
 
 
 
Investment Management:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
14,795

 
$
14,275

$
13,447

$
12,779

$
12,298

4
 %
20
 %
Average deposits (in millions)
$
15,518

 
$
15,971

$
15,497

$
15,282

$
14,638

(3
)%
6
 %
 
 
 
 
 
 
 
 
 
Investment Services:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
43,786

 
$
45,004

$
45,844

$
46,222

$
45,822

(3
)%
(4
)%
Average deposits (in millions)
$
221,998

 
$
215,707

$
229,241

$
232,250

$
238,404

3
 %
(7
)%
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (d)
$
29.5

(c)
$
29.1

$
28.9

$
28.5

$
28.6

1
 %
3
 %
 
 
 
 
 
 
 
 
 
Market value of securities on loan at period end (in billions) (e)
$
278

 
$
300

$
277

$
288

$
283

(7
)%
(2
)%
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
167

(c)
$
40

$
49

$
84

$
933

 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,112

 
1,131

1,145

1,176

1,206

(2
)%
(8
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Average active clearing accounts (U.S. platform) (in thousands)
5,946

 
5,947

5,959

6,107

6,046

—
 %
(2
)%
Average long-term mutual fund assets (U.S. platform)
(in millions)
$
431,150

 
$
415,025

$
437,260

$
447,287

$
466,195

4
 %
(8
)%
Average investor margin loans (U.S. platform) (in millions)
$
10,633

 
$
11,063

$
11,575

$
11,806

$
11,890

(4
)%
(11
)%
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
2,108

 
$
2,104

$
2,153

$
2,142

$
2,174

—
 %
(3
)%
(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.

Page - 5
BNY Mellon 2Q16 Earnings Release


(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.

Page - 6
BNY Mellon 2Q16 Earnings Release


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

Key market metrics
 
 
 
 
 
2Q16 vs.
 
2Q16

1Q16

4Q15

3Q15

2Q15

1Q16

2Q15

S&P 500 Index (a)
2099

2060

2044

1920

2063

2%

2%

S&P 500 Index – daily average
2075

1951

2052

2027

2102

6

(1
)
FTSE 100 Index (a)
6504

6175

6242

6062

6521

5

—

FTSE 100 Index – daily average
6204

5988

6271

6399

6920

4

(10
)
MSCI World Index (a)
1653

1648

1663

1582

1736

—

(5
)
MSCI World Index – daily average
1656

1568

1677

1691

1780

6

(7
)
Barclays Capital Global Aggregate BondSM Index (a)(b)
382

368

342

346

342

4

12

NYSE and NASDAQ share volume (in billions)
203

218

198

206

185

(7
)
10

JPMorgan G7 Volatility Index – daily average (c)
11.12

10.60

9.49

9.93

10.06

5

11

Average Fed Funds effective rate
0.37
%
0.36
%
0.16
%
0.13
%
0.13
%
1 bps

24 bps

Foreign exchange rates vs. U.S. dollar:
 
 
 
 
 
 
 
British pound (a)
$
1.34

$
1.44

$
1.48

$
1.52

$
1.57

(7)%

(15)%

British pound - average rate
1.43

1.43

1.52

1.55

1.53

—

(7
)
Euro (a)
1.11

1.14

1.09

1.12

1.11

(3
)
—

Euro - average rate
1.13

1.10

1.10

1.11

1.11

3

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.


Page - 7
BNY Mellon 2Q16 Earnings Release


FEE AND OTHER REVENUE

Fee and other revenue
 
 
 
 
 
2Q16 vs.
(dollars in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

1Q16

2Q15

Investment services fees:
 
 
 
 
 
 
 
Asset servicing (a)
$
1,069

$
1,040

$
1,032

$
1,057

$
1,060

3
 %
1
 %
Clearing services
350

350

339

345

347

—

1

Issuer services
234

244

199

313

234

(4
)
—

Treasury services
139

131

137

137

144

6

(3
)
Total investment services fees
1,792

1,765

1,707

1,852

1,785

2

—

Investment management and performance fees
830

812

864

829

878

2

(5
)
Foreign exchange and other trading revenue
182

175

173

179

187

4

(3
)
Financing-related fees
57

54

51

71

58

6

(2
)
Distribution and servicing
43

39

41

41

39

10

10

Investment and other income
74

105

93

59

104

(30
)
(29
)
Total fee revenue
2,978

2,950

2,929

3,031

3,051

1

(2
)
Net securities gains
21

20

21

22

16

N/M
N/M
Total fee and other revenue
$
2,999

$
2,970

$
2,950

$
3,053

$
3,067

1
 %
(2
)%
(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.

Page - 8
BNY Mellon 2Q16 Earnings Release


•
Foreign exchange and other trading revenue
 
 
 
 
 
 
(in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

 
Foreign exchange
$
166

$
171

$
165

$
180

$
181

 
Other trading revenue (loss)
16

4

8

(1
)
6

 
Total foreign exchange and other trading revenue
$
182

$
175

$
173

$
179

$
187



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.

•
Investment and other income
 
 
 
 
 
 
(in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

 
Corporate/bank-owned life insurance
$
31

$
31

$
43

$
32

$
31

 
Expense reimbursements from joint venture
17

17

16

16

17

 
Seed capital gains (a)
11

11

10

7

2

 
Asset-related gains (losses)
1

—

5

(9
)
1

 
Lease-related gains (losses)
—

44

(8
)
—

54

 
Private equity gains
—

2

—

1

3

 
Equity investment (losses)
(4
)
(3
)
(2
)
(6
)
(7
)
 
Other income
18

3

29

18

3

 
Total investment and other income
$
74

$
105

$
93

$
59

$
104

(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.


Page - 9
BNY Mellon 2Q16 Earnings Release


NET INTEREST REVENUE

Net interest revenue
 
 
 
 
 
2Q16 vs.
(dollars in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

1Q16

2Q15

Net interest revenue (non-FTE)
$
767

$
766

$
760

$
759

$
779

—

(2)%

Net interest revenue (FTE)
780

780

774

773

794

—

(2
)
Net interest margin (FTE)
0.98
%
1.01
%
0.99
%
0.98
%
1.00
%
(3
) bps
(2
) bps
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
Cash/interbank investments
$
137,995

$
127,624

$
128,328

$
130,090

$
125,626

8
 %
10%

Trading account securities
2,152

3,320

2,786

2,737

3,253

(35
)
(34
)
Securities
118,002

118,538

119,532

121,188

128,641

—

(8
)
Loans
60,284

61,196

61,964

61,657

61,076

(1
)
(1
)
Interest-earning assets
318,433

310,678

312,610

315,672

318,596

2

—

Interest-bearing deposits
165,122

162,017

160,334

169,753

170,716

2

(3
)
Noninterest-bearing deposits
84,033

82,944

85,878

85,046

84,890

1

(1
)
 
 
 
 
 
 
 
 
Selected average yields/rates:
 
 
 
 
 
 
 
Cash/interbank investments
0.44
%
0.43
%
0.32
%
0.32
%
0.34
%
 
 
Trading account securities
2.45

2.16

2.79

2.74

2.63

 
 
Securities
1.56

1.61

1.62

1.60

1.57

 
 
Loans
1.85

1.76

1.54

1.56

1.51

 
 
Interest-earning assets
1.14

1.16

1.08

1.08

1.08

 
 
Interest-bearing deposits
0.03

0.04

0.01

0.02

0.02

 
 
 
 
 
 
 
 
 
 
Average cash/interbank investments as a percentage of average interest-earning assets
43
%
41
%
41
%
41
%
39
%
 
 
Average noninterest-bearing deposits as a percentage of average interest-earning assets
26
%
27
%
27
%
27
%
27
%
 
 
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.


Page - 10
BNY Mellon 2Q16 Earnings Release


NONINTEREST EXPENSE

Noninterest expense
 
 
 
 
 
2Q16 vs.
(dollars in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

1Q16

2Q15

Staff
$
1,412

$
1,459

$
1,481

$
1,437

$
1,434

(3
)%
(2
)%
Professional, legal and other purchased services
290

278

328

301

299

4

(3
)
Software and equipment
223

219

225

226

228

2

(2
)
Net occupancy
152

142

148

152

149

7

2

Distribution and servicing
102

100

92

95

96

2

6

Sub-custodian
70

59

60

65

75

19

(7
)
Business development
65

57

75

59

72

14

(10
)
Other
240

241

201

268

250

—

(4
)
Amortization of intangible assets
59

57

64

66

65

4

(9
)
M&I, litigation and restructuring charges
7

17

18

11

59

N/M
N/M
Total noninterest expense – GAAP
$
2,620

$
2,629

$
2,692

$
2,680

$
2,727

—
 %
(4
)%
 
 
 
 
 
 
 
 
Total staff expense as a percentage of total revenue
37
%
39
%
40
%
38
%
37
%
 
 
 
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
 
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP
$
2,554

$
2,555

$
2,610

$
2,603

$
2,603

—
 %
(2
)%
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.



Page - 11
BNY Mellon 2Q16 Earnings Release


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.

Investment securities
portfolio


(dollars in millions)
March 31, 2016

 
2Q16
change in
unrealized
gain (loss)

June 30, 2016
Fair value
as a % of amortized
cost (a)

Unrealized
gain (loss)

 
Ratings
 
 
 
 
BB+
and
lower
 
 Fair
value

 
Amortized
cost

Fair
value

 
 
AAA/
AA-
A+/
A-
BBB+/
BBB-
Not
rated
Agency RMBS
$
49,870

 
$
157

$
48,947

$
49,506

 
101
%
$
559

 
100
%
—
%
—
%
—
%
—
%
U.S. Treasury
23,870

 
110

23,716

23,893

 
101

177

 
100

—

—

—

—

Sovereign debt/sovereign guaranteed
15,866

 
56

15,309

15,605

 
102

296

 
73

5

22

—

—

Non-agency RMBS (b)
1,685

 
(19
)
1,237

1,529

 
80

292

 
—

1

1

90

8

Non-agency RMBS
862

 
4

789

797

 
93

8

 
8

3

17

71

1

European floating rate notes
1,244

 
(2
)
1,137

1,104

 
97

(33
)
 
65

30

5

—

—

Commercial MBS
6,003

 
46

6,250

6,316

 
101

66

 
98

2

—

—

—

State and political subdivisions
3,740

 
19

3,657

3,765

 
103

108

 
80

17

—

—

3

Foreign covered bonds
2,279

 
7

2,334

2,376

 
102

42

 
100

—

—

—

—

Corporate bonds
1,737

 
9

1,554

1,610

 
104

56

 
15

69

16

—

—

CLO
2,424

 
5

2,494

2,482

 
100

(12
)
 
100

—

—

—

—

U.S. Government agencies
1,881

 
(6
)
1,904

1,889

 
99

(15
)
 
100

—

—

—

—

Consumer ABS
2,408

 
6

2,460

2,454

 
100

(6
)
 
100

—

—

—

—

Other (c)
3,893

 
—

3,949

4,002

 
101

53

 
54

—

43

—

3

Total investment securities
$
117,762

(d)
$
392

$
115,737

$
117,328

(d)
101
%
$
1,591

(d)(e)
91
%
2
%
5
%
2
%
—
%
(a)    Amortized cost before impairments.
(b)
These RMBS were included in the former Grantor Trust and were marked-to-market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.
(c)
Includes commercial paper with a fair value of $1.7 billion and $1.7 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.


Page - 12
BNY Mellon 2Q16 Earnings Release


NONPERFORMING ASSETS

Nonperforming assets
(dollars in millions)
June 30, 2016

March 31, 2016

June 30, 2015

Loans:
 
 
 
Financial institutions
$
171

$
171

$
—

Other residential mortgages
97

99

110

Wealth management loans and mortgages
10

11

11

Lease financing
4

5

—

Commercial real estate
2

2

1

Total nonperforming loans
284

288

122

Other assets owned
5

4

5

Total nonperforming assets
$
289

$
292

$
127

Nonperforming assets ratio
0.45
%
0.48
%
0.20
%
Allowance for loan losses/nonperforming loans
55.6

56.3

150.0

Total allowance for credit losses/nonperforming loans
98.6

99.7

227.9



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

Allowance for credit losses, provision and net charge-offs
(in millions)
June 30,
2016

March 31, 2016

June 30,
2015

Allowance for credit losses - beginning of period
$
287

$
275

$
283

Provision for credit losses
(9
)
10

(6
)
Net recoveries:
 
 
 
Other residential mortgages
1

2

—

Foreign
1

—

—

Financial institutions
—

—

1

Net recoveries
2

2

1

Allowance for credit losses - end of period
$
280

$
287

$
278

Allowance for loan losses
$
158

$
162

$
183

Allowance for lending-related commitments
122

125

95



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.

Page - 13
BNY Mellon 2Q16 Earnings Release


CAPITAL AND LIQUIDITY

Capital ratios
June 30,
2016

March 31, 2016

Dec. 31, 2015

Consolidated regulatory capital ratios: (a)
 
 
 
Standardized:
 
 
 
CET1 ratio
11.8
%
11.8
%
11.5
%
Tier 1 capital ratio
13.3

13.5

13.1

Total (Tier 1 plus Tier 2) capital ratio
13.7

13.9

13.5

Advanced:






CET1 ratio
10.2

10.6

10.8

Tier 1 capital ratio
11.5

12.0

12.3

Total (Tier 1 plus Tier 2) capital ratio
11.7

12.3

12.5

Leverage capital ratio (b)
5.8

5.9

6.0

Supplementary leverage ratio (“SLR”)
5.3

5.4

5.4

BNY Mellon shareholders’ equity to total assets ratio – GAAP (c)
10.4

10.3

9.7

BNY Mellon common shareholders’ equity to total assets ratio – GAAP (c)
9.7

9.6

9.0

BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)
6.6

6.7

6.5

 
 
 
 
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(d)
 
 
 
CET1 ratio: 
 
 
 
Standardized Approach
10.9

11.0

10.2

Advanced Approach
9.5

9.8

9.5

SLR
5.0

5.1

4.9

(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.

CET1 generation in 2Q16 – preliminary
Transitional
basis (b)

Fully
phased-in -
Non-GAAP (c)

 
(in millions)
CET1 – Beginning of period
$
18,069

$
16,607

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
825

825

Goodwill and intangible assets, net of related deferred tax liabilities
146

159

Gross CET1 generated
971

984

Capital deployed:
 
 
Dividends
(185
)
(185
)
Common stock repurchased
(509
)
(509
)
Total capital deployed
(694
)
(694
)
Other comprehensive income
(209
)
(162
)
Additional paid-in capital (a)
131

131

Other
10

12

Total other deductions
(68
)
(19
)
Net CET1 generated
209

271

CET1 – End of period
$
18,278

$
16,878

(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.

Page - 14
BNY Mellon 2Q16 Earnings Release


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.

Basel III capital components and ratios
June 30, 2016 (a)
 
March 31, 2016
 
Dec. 31, 2015
(dollars in millions)
Transitional
basis (b)

Fully
phased-in -
Non-GAAP (c)

 
Transitional
basis (b)

Fully
phased-in -
Non-GAAP (c)

 
Transitional
basis (b)

Fully
phased-in -
Non-GAAP (c)

CET1:
 
 
 
 
 
 
 
 
Common shareholders’ equity
$
36,282

$
36,007

 
$
36,229

$
35,907

 
$
36,067

$
35,485

Goodwill and intangible assets
(17,614
)
(18,658
)
 
(17,760
)
(18,817
)
 
(17,295
)
(18,911
)
Net pension fund assets
(53
)
(88
)
 
(54
)
(89
)
 
(46
)
(116
)
Equity method investments
(322
)
(356
)
 
(324
)
(359
)
 
(296
)
(347
)
Deferred tax assets
(14
)
(23
)
 
(14
)
(23
)
 
(8
)
(20
)
Other
(1
)
(4
)
 
(8
)
(12
)
 
(5
)
(9
)
Total CET1
18,278

16,878

 
18,069

16,607

 
18,417

16,082

Other Tier 1 capital:


 
 


 
 


 
Preferred stock
2,552

2,552

 
2,552

2,552

 
2,552

2,552

Trust preferred securities
—

—

 
—

—

 
74

—

Deferred tax assets
(9
)
—

 
(9
)
—

 
(12
)
—

Net pension fund assets
(35
)
—

 
(36
)
—

 
(70
)
—

Other
(113
)
(109
)
 
(11
)
(8
)
 
(25
)
(22
)
Total Tier 1 capital
20,673

19,321

 
20,565

19,151

 
20,936

18,612

 


 
 


 
 


 
Tier 2 capital:


 
 


 
 


 
Trust preferred securities
161

—

 
173

—

 
222

—

Subordinated debt
149

149

 
149

149

 
149

149

Allowance for credit losses
280

280

 
287

287

 
275

275

Other
(6
)
(7
)
 
(2
)
(1
)
 
(12
)
(12
)
Total Tier 2 capital - Standardized Approach
584

422

 
607

435

 
634

412

Excess of expected credit losses
53

53

 
46

46

 
37

37

Less: Allowance for credit losses
280

280

 
287

287

 
275

275

Total Tier 2 capital - Advanced Approach
$
357

$
195

 
$
366

$
194

 
$
396

$
174

 


 
 


 
 


 
Total capital:


 
 


 
 


 
Standardized Approach
$
21,257

$
19,743

 
$
21,172

$
19,586

 
$
21,570

$
19,024

Advanced Approach
$
21,030

$
19,516

 
$
20,931

$
19,345

 
$
21,332

$
18,786

 
 
 
 
 
 
 
 
 
Risk-weighted assets:


 
 


 
 


 
Standardized Approach
$
155,448

$
154,182

 
$
152,673

$
151,388

 
$
159,893

$
158,015

Advanced Approach
$
179,457

$
178,114

 
$
170,709

$
169,347

 
$
170,384

$
168,509

 
 
 
 
 
 
 
 
 
Standardized Approach:


 
 


 
 


 
CET1 ratio
11.8
%
10.9
%
 
11.8
%
11.0
%
 
11.5
%
10.2
%
Tier 1 capital ratio
13.3

12.5

 
13.5

12.7

 
13.1

11.8

Total (Tier 1 plus Tier 2) capital ratio
13.7

12.8

 
13.9

12.9

 
13.5

12.0

Advanced Approach:
 
 
 
 
 
 
 
 
CET1 ratio
10.2
%
9.5
%
 
10.6
%
9.8
%
 
10.8
%
9.5
%
Tier 1 capital ratio
11.5

10.8

 
12.0

11.3

 
12.3

11.0

Total (Tier 1 plus Tier 2) capital ratio
11.7

11.0

 
12.3

11.4

 
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

Page - 15
BNY Mellon 2Q16 Earnings Release


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
June 30, 2016 (a)

March 31, 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
$
20,673

$
19,321

 
$
20,565

$
19,151

 
$
20,936

$
18,612

 

 
 
 
 
 

 
Total leverage exposure:


 
 
 
 
 


 
Quarterly average total assets
$
374,220

$
374,220

 
$
364,554

$
364,554

 
$
368,590

$
368,590

Less: Amounts deducted from Tier 1 capital
18,156

19,233

 
18,160

19,300

 
17,650

19,403

Total on-balance sheet assets
356,064

354,987


346,394

345,254


350,940

349,187

Off-balance sheet exposures:


 
 
 
 
 


 
Potential future exposure for derivatives contracts (plus certain other items)
6,125

6,125

 
5,838

5,838

 
7,158

7,158

Repo-style transaction exposures
402

402

 
403

403

 
440

440

Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)
24,122

24,122

 
24,950

24,950

 
26,025

26,025

Total off-balance sheet exposures
30,649

30,649


31,191

31,191


33,623

33,623

Total leverage exposure
$
386,713

$
385,636


$
377,585

$
376,445


$
384,563

$
382,810

 

 
 
 
 
 
 
 
SLR - Consolidated (c)
5.3
%
5.0
%
 
5.4
%
5.1
%
 
5.4
%
4.9
%
 
 
 
 
 
 
 
 
 
The Bank of New York Mellon, our largest bank subsidiary:
 
 
 
 
 
 
 
 
Tier 1 capital
$
18,042

$
16,942

 
$
17,322

$
16,167

 
$
16,814

$
15,142

Total leverage exposure
$
322,879

$
322,559

 
$
313,331

$
312,988

 
$
316,812

$
316,270

 
 

 
 

 
 

SLR - The Bank of New York Mellon (c)
5.6
%
5.3
%
 
5.5
%
5.2
%
 
5.3
%
4.8
%
(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.

Page - 16
BNY Mellon 2Q16 Earnings Release


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.

Page - 17
BNY Mellon 2Q16 Earnings Release


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)
 
 
 
 
 
 
2Q16 vs.
2Q16

 
1Q16

4Q15

3Q15

2Q15

1Q16
2Q15
Revenue:
 
 
 
 
 
 
 
 
Investment management fees:
 
 
 
 
 
 
 
 
Mutual funds
$
304

 
$
300

$
294

$
301

$
312

1
 %
(3
)%
Institutional clients
344

 
334

350

347

363

3

(5
)
Wealth management
160

 
152

155

156

160

5

—

Investment management fees (a)
808

 
786

799

804

835

3

(3
)
Performance fees
9

 
11

55

7

20

N/M
(55
)
Investment management and performance fees
817

 
797

854

811

855

3

(4
)
Distribution and servicing
49

 
46

39

37

38

7

29

Other (a)
(10
)
 
(31
)
22

(5
)
17

N/M
N/M
Total fee and other revenue (a)
856

 
812

915

843

910

5

(6
)
Net interest revenue
82

 
83

84

83

77

(1
)
6

Total revenue
938

 
895

999

926

987

5

(5
)
Provision for credit losses
1

 
(1
)
(4
)
1

3

N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
684

 
660

689

665

700

4

(2
)
Income before taxes (ex. amortization of intangible assets)
253

 
236

314

260

284

7

(11
)
Amortization of intangible assets
19

 
19

24

24

25

—

(24
)
Income before taxes
$
234

 
$
217

$
290

$
236

$
259

8
 %
(10
)%
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
25
%
 
24
%
29
%
25
%
26
%
 
 
Adjusted pre-tax operating margin - Non-GAAP (b)
31
%
 
30
%
36
%
34
%
34
%
 
 
 
 
 
 
 
 
 
 
 
Changes in AUM (in billions): (c)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,639

 
$
1,625

$
1,625

$
1,700

$
1,717

 
 
Net inflows (outflows):
 
 
 
 
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
Equity
(2
)
 
(3
)
(9
)
(4
)
(13
)
 
 
Fixed income
(2
)
 
—

1

(3
)
(2
)
 
 
Liability-driven investments (d)
15

 
14

11

11

5

 
 
Alternative investments
1

 
1

2

1

3

 
 
Total long-term active inflows (outflows)
12

 
12

5

5

(7
)
 
 
Index
(17
)
 
(11
)
(16
)
(10
)
(9
)
 
 
Total long-term (outflows) inflows
(5
)

1

(11
)
(5
)
(16
)
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
4

 
(9
)
2

(10
)
(11
)
 
 
Total net (outflows)
(1
)

(8
)
(9
)
(15
)
(27
)
 
 
Net market impact/other
71

 
41

24

(35
)
(29
)
 
 
Net currency impact
(47
)
 
(19
)
(15
)
(25
)
39

 
 
Acquisition
2

 
—

—

—

—

 
 
Ending balance of AUM
$
1,664

(e)
$
1,639

$
1,625

$
1,625

$
1,700

2
 %
(2
)%
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (c)
 
 
 
 
 
 
 
 
Equity
14
%
 
14
%
14
%
14
%
15
%

 
Fixed income
13

 
13

13

13

13


 
Index
18

 
19

20

20

21


 
Liability-driven investments (d)
34

 
33

32

32

30


 
Alternative investments
4

 
4

4

4

4


 
Cash
17

 
17

17

17

17


 
Total AUM
100
%
(e)
100
%
100
%
100
%
100
%

 
 
 
 
 
 
 
 
 
 
Average balances:
 
 
 
 
 
 
 
 
Average loans
$
14,795

 
$
14,275

$
13,447

$
12,779

$
12,298

4
 %
20
 %
Average deposits
$
15,518

 
$
15,971

$
15,497

$
15,282

$
14,638

(3
)%
6
 %
(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.

Page - 18
BNY Mellon 2Q16 Earnings Release


N/M – Not meaningful.

Page - 19
BNY Mellon 2Q16 Earnings Release


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.

Page - 20
BNY Mellon 2Q16 Earnings Release


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

(dollars in millions, unless otherwise noted)
 
 
 
 
 
 
2Q16 vs.
2Q16

 
1Q16

4Q15

3Q15

2Q15

1Q16

2Q15

Revenue:
 
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
 
Asset servicing
$
1,043

 
$
1,016

$
1,009

$
1,034

$
1,038

3
 %
—
 %
Clearing services
350

 
348

337

345

346

1

1

Issuer services
233

 
244

199

312

234

(5
)
—

Treasury services
137

 
129

135

135

141

6

(3
)
Total investment services fees
1,763

 
1,737

1,680

1,826

1,759

1

—

Foreign exchange and other trading revenue
161

 
168

150

179

181

(4
)
(11
)
Other (a)
130

 
125

127

129

117

4

11

Total fee and other revenue
2,054

 
2,030

1,957

2,134

2,057

1

—

Net interest revenue
690

 
679

664

662

667

2

3

Total revenue
2,744

 
2,709

2,621

2,796

2,724

1

1

Provision for credit losses
(7
)
 
14

8

7

6

N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
1,819

 
1,770

1,791

1,853

1,874

3

(3
)
Income before taxes (ex. amortization of intangible assets)
932

 
925

822

936

844

1

10
Amortization of intangible assets
40

 
38

40

41

40

5

—

Income before taxes
$
892

 
$
887

$
782

$
895

$
804

1
 %
11
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
33
%
 
33
%
30
%
32
%
30
%
 
 
Pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets)
34
%
 
35
%
32
%
34
%
31
%
 
 
 
 
 
 
 
 
 
 
 
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) (b)
97
%
 
98
%
94
%
99
%
94
%
 
 
 
 
 
 
 
 
 
 
 
Securities lending revenue
$
42

 
$
42

$
39

$
33

$
43

—
 %
(2
)%
 
 
 
 
 
 
 
 
 
Metrics:
 
 
 
 
 
 
 
 
Average loans
$
43,786

 
$
45,004

$
45,844

$
46,222

$
45,822

(3
)%
(4
)%
Average deposits
$
221,998

 
$
215,707

$
229,241

$
232,250

$
238,404

3
 %
(7
)%
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (c)
$
29.5

(d)
$
29.1

$
28.9

$
28.5

$
28.6

1
 %
3
 %
Market value of securities on loan at period end
(in billions) (e)
$
278

 
$
300

$
277

$
288

$
283

(7
)%
(2
)%
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
167

(d)
$
40

$
49

$
84

$
933

 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,112

 
1,131

1,145

1,176

1,206

(2
)%
(8
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Average active clearing accounts (U.S. platform)
(in thousands)
5,946

 
5,947

5,959

6,107

6,046

—
 %
(2
)%
Average long-term mutual fund assets (U.S. platform)
$
431,150

 
$
415,025

$
437,260

$
447,287

$
466,195

4
 %
(8
)%
Average investor margin loans (U.S. platform)
$
10,633

 
$
11,063

$
11,575

$
11,806

$
11,890

(4
)%
(11
)%
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
2,108

 
$
2,104

$
2,153

$
2,142

$
2,174

—
 %
(3
)%
(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.

Page - 21
BNY Mellon 2Q16 Earnings Release


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.


Page - 22
BNY Mellon 2Q16 Earnings Release


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

 
 
 
 
 
 
(dollars in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

Revenue:
 
 
 
 
 
Fee and other revenue
$
95

$
129

$
89

$
59

$
103

Net interest (expense) revenue
(5
)
4

12

14

35

Total revenue
90

133

101

73

138

Provision for credit losses
(3
)
(3
)
159

(7
)
(15
)
Noninterest expense (ex. amortization of intangible assets and restructuring charges (recoveries))
53

141

150

97

79

Income (loss) before taxes (ex. amortization of intangible assets and restructuring charges (recoveries))
40

(5
)
(208
)
(17
)
74

Amortization of intangible assets
—

—

—

1

—

M&I and restructuring charges (recoveries)
3

(1
)
(4
)
(2
)
8

Income (loss) before taxes
$
37

$
(4
)
$
(204
)
$
(16
)
$
66

 
 
 
 
 
 
Average loans and leases
$
1,703

$
1,917

$
2,673

$
2,656

$
2,956



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.


Page - 23
BNY Mellon 2Q16 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement


(in millions)
Quarter ended
 
Year-to-date
June 30, 2016

March 31, 2016

June 30, 2015

 
June 30, 2016

June 30, 2015

 
Fee and other revenue
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
Asset servicing
$
1,069

$
1,040

$
1,060

 
$
2,109

$
2,098

Clearing services
350

350

347

 
700

691

Issuer services
234

244

234

 
478

466

Treasury services
139

131

144

 
270

281

Total investment services fees
1,792

1,765

1,785

 
3,557

3,536

Investment management and performance fees
830

812

878

 
1,642

1,745

Foreign exchange and other trading revenue
182

175

187

 
357

416

Financing-related fees
57

54

58

 
111

98

Distribution and servicing
43

39

39

 
82

80

Investment and other income
74

105

104

 
179

164

Total fee revenue
2,978

2,950

3,051

 
5,928

6,039

Net securities gains
21

20

16

 
41

40

Total fee and other revenue
2,999

2,970

3,067

 
5,969

6,079

Operations of consolidated investment management funds
 
 
 
 
 
 
Investment income (loss)
10

(3
)
46

 
7

102

Interest of investment management fund note holders
—

3

6

 
3

10

Income (loss) from consolidated investment management funds
10

(6
)
40

 
4

92

Net interest revenue
 
 
 
 
 
 
Interest revenue
890

883

847

 
1,773

1,654

Interest expense
123

117

68

 
240

147

Net interest revenue
767

766

779

 
1,533

1,507

Provision for credit losses
(9
)
10

(6
)
 
1

(4
)
Net interest revenue after provision for credit losses
776

756

785

 
1,532

1,511

Noninterest expense
 
 
 
 
 
 
Staff
1,412

1,459

1,434

 
2,871

2,919

Professional, legal and other purchased services
290

278

299

 
568

601

Software and equipment
223

219

228

 
442

456

Net occupancy
152

142

149

 
294

300

Distribution and servicing
102

100

96

 
202

194

Sub-custodian
70

59

75

 
129

145

Business development
65

57

72

 
122

133

Other
240

241

250

 
481

492

Amortization of intangible assets
59

57

65

 
116

131

M&I, litigation and restructuring charges
7

17

59

 
24

56

Total noninterest expense
2,620

2,629

2,727

 
5,249

5,427

Income
 
 
 
 
 
 
Income before income taxes
1,165

1,091

1,165

 
2,256

2,255

Provision for income taxes
290

283

276

 
573

556

Net income
875

808

889

 
1,683

1,699

Net (income) loss attributable to noncontrolling interests (includes $(4), $7, $(37), $3 and $(68) related to consolidated investment management funds, respectively)
(2
)
9

(36
)
 
7

(67
)
Net income applicable to shareholders of The Bank of New York Mellon Corporation
873

817

853

 
1,690

1,632

Preferred stock dividends
(48
)
(13
)
(23
)
 
(61
)
(36
)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
825

$
804

$
830

 
$
1,629

$
1,596




Page - 24
BNY Mellon 2Q16 Earnings Release


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
June 30, 2016

March 31, 2016

June 30, 2015

 
June 30, 2016

June 30, 2015

(in millions)
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
825

$
804

$
830

 
$
1,629

$
1,596

Less: Earnings allocated to participating securities
13

11

9

 
24

24

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
$
812

$
793

$
821


$
1,605

$
1,572



Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
June 30, 2016

March 31, 2016

June 30, 2015

 
June 30, 2016

June 30, 2015

(in thousands)
 
Basic
1,072,583

1,079,641

1,113,790

 
1,076,112

1,116,183

Diluted
1,078,271

1,085,284

1,122,135

 
1,081,847

1,124,154



Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
June 30, 2016

March 31, 2016

June 30, 2015

 
June 30, 2016

June 30, 2015

(in dollars)
 
Basic
$
0.76

$
0.73

$
0.74

 
$
1.49

$
1.41

Diluted
$
0.75

$
0.73

$
0.73

 
$
1.48

$
1.40




Page - 25
BNY Mellon 2Q16 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
 
(dollars in millions, except per share amounts)
June 30, 2016

March 31, 2016

Dec. 31, 2015

 
 
Assets
 
 
 
 
Cash and due from:
 
 
 
 
Banks
$
5,809

$
3,928

$
6,537

 
Interest-bearing deposits with the Federal Reserve and other central banks
88,080

96,426

113,203

 
Interest-bearing deposits with banks
13,303

14,662

15,146

 
Federal funds sold and securities purchased under resale agreements
28,060

26,904

24,373

 
Securities:
 
 
 
 
Held-to-maturity (fair value of $41,804, $42,231 and $43,204)
41,053

41,717

43,312

 
Available-for-sale
76,547

76,294

75,867

 
Total securities
117,600

118,011

119,179

 
Trading assets
7,148

6,526

7,368

 
Loans
64,513

61,661

63,703

 
Allowance for loan losses
(158
)
(162
)
(157
)
 
Net loans
64,355

61,499

63,546

 
Premises and equipment
1,399

1,377

1,379

 
Accrued interest receivable
540

545

562

 
Goodwill
17,501

17,604

17,618

 
Intangible assets
3,738

3,781

3,842

 
Other assets 
23,735

20,307

19,626

 
Subtotal assets of operations 
371,268

371,570

392,379

 
Assets of consolidated investment management funds, at fair value:
 
 
 
 
Trading assets 
959

1,186

1,228

 
Other assets 
124

114

173

 
Subtotal assets of consolidated investment management funds, at fair value
1,083

1,300

1,401

 
Total assets 
$
372,351

$
372,870

$
393,780

 
Liabilities
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing (principally U.S. offices)
$
99,035

$
93,005

$
96,277

 
Interest-bearing deposits in U.S. offices
58,519

52,124

51,704

 
Interest-bearing deposits in Non-U.S. offices
102,124

112,213

131,629

 
Total deposits
259,678

257,342

279,610

 
Federal funds purchased and securities sold under repurchase agreements
7,611

14,803

15,002

 
Trading liabilities
6,195

5,247

4,501

 
Payables to customers and broker-dealers
21,172

22,008

21,900

 
Other borrowed funds
1,098

828

523

 
Accrued taxes and other expenses
5,385

5,288

5,986

 
Other liabilities (includes allowance for lending-related commitments of $122, $125 and $118)
8,105

6,129

5,490

 
Long-term debt
23,573

21,686

21,547

 
Subtotal liabilities of operations
332,817

333,331

354,559

 
Liabilities of consolidated investment management funds, at fair value:
 
 
 
 
Trading liabilities 
214

245

229

 
Other liabilities 
23

9

17

 
Subtotal liabilities of consolidated investment management funds, at fair value
237

254

246

 
Total liabilities 
333,054

333,585

354,805

 
Temporary equity
 
 
 
 
Redeemable noncontrolling interests
172

169

200

 
Permanent equity
 
 
 
 
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 25,826, 25,826 and 25,826 shares
2,552

2,552

2,552

 
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,323,941,399, 1,320,883,792 and 1,312,941,113 shares
13

13

13

 
Additional paid-in capital
25,563

25,432

25,262

 
Retained earnings
21,233

20,593

19,974

 
Accumulated other comprehensive loss, net of tax
(2,552
)
(2,390
)
(2,600
)
 
Less: Treasury stock of 256,266,980, 243,801,160 and 227,598,128 common shares, at cost
(8,250
)
(7,741
)
(7,164
)
 
Total The Bank of New York Mellon Corporation shareholders’ equity
38,559

38,459

38,037

 
Nonredeemable noncontrolling interests of consolidated investment management funds 
566

657

738

 
Total permanent equity 
39,125

39,116

38,775

 
Total liabilities, temporary equity and permanent equity 
$
372,351

$
372,870

$
393,780


Page - 26
BNY Mellon 2Q16 Earnings Release


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.

Page - 27
BNY Mellon 2Q16 Earnings Release


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.

Reconciliation of net income and diluted EPS – GAAP to Non-GAAP
2Q16
 
2Q15
 
(in millions, except per share amounts)
Net income

Diluted EPS

 
Net income

Diluted EPS

 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
825

$
0.75

 
$
830

$
0.73

 
Add: M&I, litigation and restructuring charges
7

 
 
59

 
 
Less: Tax impact of M&I, litigation and restructuring charges
2

 
 
21

 
 
M&I, litigation and restructuring charges after-tax
5

—

 
38

0.03

 
Non-GAAP results
$
830

$
0.76

(a)
$
868

$
0.77

(a)
(a)
Does not foot due to rounding.

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)
2Q16

1Q16

4Q15

3Q15

2Q15

Income before income taxes – GAAP
$
1,165

$
1,091

$
871

$
1,109

$
1,165

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
4

(7
)
5

(5
)
37

Add: Amortization of intangible assets
59

57

64

66

65

M&I, litigation and restructuring charges
7

17

18

11

59

Impairment charge related to a court decision regarding Sentinel
—

—

170

—

—

Income before income taxes, as adjusted – Non-GAAP (a)
$
1,227

$
1,172

$
1,118

$
1,191

$
1,252

 
 
 
 
 
 
Fee and other revenue – GAAP
$
2,999

$
2,970

$
2,950

$
3,053

$
3,067

Income (loss) from consolidated investment management funds – GAAP
10

(6
)
16

(22
)
40

Net interest revenue – GAAP
767

766

760

759

779

Total revenue – GAAP
3,776

3,730

3,726

3,790

3,886

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
4

(7
)
5

(5
)
37

Total revenue, as adjusted – Non-GAAP (a)
$
3,772

$
3,737

$
3,721

$
3,795

$
3,849

 
 
 
 
 
 
Pre-tax operating margin (b)(c)
31
%
29
%
23
%
29
%
30
%
Pre-tax operating margin – Non-GAAP (a)(b)(c)
33
%
31
%
30
%
31
%
33
%
(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.



Page - 28
BNY Mellon 2Q16 Earnings Release


The following table presents the reconciliation of the operating leverage.

Operating leverage
 
 
 
2Q16 vs.
(dollars in millions)
2Q16

1Q16

2Q15

1Q16

2Q15

Total revenue – GAAP
$
3,776

$
3,730

$
3,886

1.23%

(2.83)%

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
4

(7
)
37

 
 
Total revenue, as adjusted – Non-GAAP
$
3,772

$
3,737

$
3,849

0.94%

(2.00)%

 
 
 
 
 
 
Total noninterest expense – GAAP
$
2,620

$
2,629

$
2,727

(0.34)%

(3.92)%

Less: Amortization of intangible assets
59

57

65

 
 
M&I, litigation and restructuring charges
7

17

59

 
 
Total noninterest expense, as adjusted – Non-GAAP
$
2,554

$
2,555

$
2,603

(0.04)%

(1.88)%

 
 
 
 
 
 
Operating leverage – GAAP (a)
 
 
 
157
 bps
109
 bps
Operating leverage, as adjusted – Non-GAAP (a)(b)
 
 
 
98
 bps
(12
) bps
(a)
Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)
Non-GAAP operating leverage for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps - basis points.


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

Return on common equity and tangible common equity
 
 
 
 
 
(dollars in millions)
2Q16

1Q16

4Q15

3Q15

2Q15

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
825

$
804

$
637

$
820

$
830

Add: Amortization of intangible assets
59

57

64

66

65

Less: Tax impact of amortization of intangible assets
21

20

22

23

21

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible
assets – Non-GAAP
863

841

679

863

874

Add: M&I, litigation and restructuring charges
7

17

18

11

59

 Impairment charge related to a court decision regarding Sentinel
—

—

170

—

—

Less: Tax impact of M&I, litigation and restructuring charges
2

6

6

3

21

 Tax impact of impairment charge related to a court decision regarding Sentinel
—

—

64

—

—

Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)
$
868

$
852

$
797

$
871

$
912

 
 
 
 
 
 
Average common shareholders’ equity
$
35,826

$
35,252

$
35,664

$
35,588

$
35,516

Less: Average goodwill
17,622

17,562

17,673

17,742

17,752

Average intangible assets
3,789

3,812

3,887

3,962

4,031

Add: Deferred tax liability – tax deductible goodwill (b)
1,452

1,428

1,401

1,379

1,351

Deferred tax liability – intangible assets (b)
1,129

1,140

1,148

1,164

1,179

Average tangible common shareholders’ equity – Non-GAAP
$
16,996

$
16,446

$
16,653

$
16,427

$
16,263

 
 
 
 
 
 
Return on common equity – GAAP (c)
9.3
%
9.2
%
7.1
%
9.1
%
9.4
%
Return on common equity – Non-GAAP (a)(c)
9.7
%
9.7
%
8.9
%
9.7
%
10.3
%
 
 
 
 
 
 
Return on tangible common equity – Non-GAAP (c)
20.4
%
20.6
%
16.2
%
20.8
%
21.5
%
Return on tangible common equity – Non-GAAP adjusted (a)(c)
20.5
%
20.8
%
19.0
%
21.0
%
22.5
%
(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.


Page - 29
BNY Mellon 2Q16 Earnings Release


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
June 30, 2016

March 31, 2016

Dec. 31, 2015

Sept. 30, 2015

June 30, 2015

(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
$
38,559

$
38,459

$
38,037

$
38,170

$
38,270

Less: Preferred stock
2,552

2,552

2,552

2,552

2,552

BNY Mellon common shareholders’ equity at period end – GAAP
36,007

35,907

35,485

35,618

35,718

Less: Goodwill
17,501

17,604

17,618

17,679

17,807

Intangible assets
3,738

3,781

3,842

3,914

4,000

Add: Deferred tax liability – tax deductible goodwill (a)
1,452

1,428

1,401

1,379

1,351

Deferred tax liability – intangible assets (a)
1,129

1,140

1,148

1,164

1,179

BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP
$
17,349

$
17,090

$
16,574

$
16,568

$
16,441

 
 
 
 
 
 
Total assets at period end – GAAP
$
372,351

$
372,870

$
393,780

$
377,371

$
395,254

Less: Assets of consolidated investment management funds
1,083

1,300

1,401

2,297

2,231

Subtotal assets of operations – Non-GAAP
371,268

371,570

392,379

375,074

393,023

Less: Goodwill
17,501

17,604

17,618

17,679

17,807

Intangible assets
3,738

3,781

3,842

3,914

4,000

Cash on deposit with the Federal Reserve and other central banks (b)
88,080

96,421

116,211

86,426

106,628

Tangible total assets of operations at period end – Non-GAAP
$
261,949

$
253,764

$
254,708

$
267,055

$
264,588

 
 
 
 
 
 
BNY Mellon shareholders’ equity to total assets ratio – GAAP
10.4
%
10.3
%
9.7
%
10.1
%
9.7
%
BNY Mellon common shareholders’ equity to total assets ratio – GAAP
9.7
%
9.6
%
9.0
%
9.4
%
9.0
%
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP
6.6
%
6.7
%
6.5
%
6.2
%
6.2
%
 
 
 
 
 
 
Period-end common shares outstanding (in thousands)
1,067,674

1,077,083

1,085,343

1,092,953

1,106,518

 
 
 
 
 
 
Book value per common share – GAAP
$
33.72

$
33.34

$
32.69

$
32.59

$
32.28

Tangible book value per common share – Non-GAAP
$
16.25

$
15.87

$
15.27

$
15.16

$
14.86

(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)
2Q16

1Q16

4Q15

3Q15

2Q15

Income (loss) from consolidated investment management funds
$
10

$
(6
)
$
16

$
(22
)
$
40

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
4

(7
)
5

(5
)
37

Income (loss) from consolidated investment management funds, net of noncontrolling interests
$
6

$
1

$
11

$
(17
)
$
3



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

Investment management and performance fees – Consolidated
 
 
2Q16 vs.

(dollars in millions)
2Q16

2Q15

2Q15

Investment management and performance fees – GAAP
$
830

$
878

(5
)%
Impact of changes in foreign currency exchange rates
—

(14
)

Investment management and performance fees, as adjusted – Non-GAAP
$
830

$
864

(4
)%


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BNY Mellon 2Q16 Earnings Release


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)
2Q16

1Q16

4Q15

3Q15

2Q15

Investment management fees
$
3

$
2

$
7

$
3

$
4

Other (Investment income (loss))
3

(1
)
4

(20
)
(1
)
Income (loss) from consolidated investment management funds, net of noncontrolling interests
$
6

$
1

$
11

$
(17
)
$
3



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

Investment management fees - Investment Management business
 
 
2Q16 vs.

(dollars in millions)
2Q16

2Q15

2Q15

Investment management fees – GAAP
$
808

$
835

(3
)%
Impact of changes in foreign currency exchange rates
—

(14
)
 
Investment management fees, as adjusted – Non-GAAP
$
808

$
821

(2
)%


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)
2Q16

1Q16

4Q15

3Q15

2Q15

Income before income taxes – GAAP
$
234

$
217

$
290

$
236

$
259

Add: Amortization of intangible assets
19

19

24

24

25

Provision for credit losses
1

(1
)
(4
)
1

3

Money market fee waivers
11

9

23

28

29

Income before income taxes excluding amortization of intangible assets, provision for credit losses and money market fee waivers – Non-GAAP
$
265

$
244

$
333

$
289

$
316

 
 
 
 
 
 
Total revenue – GAAP
$
938

$
895

$
999

$
926

$
987

Less: Distribution and servicing expense
102

100

92

94

95

Money market fee waivers benefiting distribution and servicing expense
15

23

27

35

37

Add: Money market fee waivers impacting total revenue
26

32

50

63

66

Total revenue net of distribution and servicing expense
and excluding money market fee waivers – Non-GAAP
$
847

$
804

$
930

$
860

$
921

 
 
 
 
 
 
Pre-tax operating margin (a)
25
%
24
%
29
%
25
%
26
%
Pre-tax operating margin excluding amortization of intangible assets, provision for credit losses, money market fee waivers and net of distribution and servicing expense – Non-GAAP (a)
31
%
30
%
36
%
34
%
34
%
(a)    Income before taxes divided by total revenue.



Page - 31
BNY Mellon 2Q16 Earnings Release


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,” “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 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.


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