EX-99.1 2 ex991_earningsreleasex3q16.htm EXHIBIT 99.1 Exhibit
BNY Mellon 3Q16 Earnings Release


News Release
bnylogoa01a09.jpg

Contacts: MEDIA:
ANALYSTS:
Colleen Krieger
Valerie Haertel
(212) 635-6491
(212) 635-8529
ColleenAnne.Krieger@bnymellon.com
Valerie.Haertel@bnymellon.com


BNY MELLON REPORTS THIRD QUARTER EARNINGS OF $974 MILLION OR $0.90 PER COMMON SHARE
•
Earnings of $979 million or $0.90 per common share on an adjusted basis (a)
•
Earnings per common share up 22% on both a GAAP and adjusted basis year-over-year (a)

TOTAL REVENUE OF $3.94 BILLION
•
Fee and other revenue increased 3% year-over-year
•
Net interest revenue increased 2% year-over-year

CONTINUED FOCUS ON EXPENSE CONTROL
•
Total noninterest expense decreased 1% year-over-year

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS
•
Repurchased 11.6 million common shares for $464 million
•
Return on common equity of 11%; Adjusted return on tangible common equity of 24% (a)
•
SLR - transitional of 6.0%; SLR - fully phased-in of 5.7% (a)


NEW YORK, October 20, 2016 – The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE: BK) today reported third quarter net income applicable to common shareholders of $974 million, or $0.90 per diluted common share, or $979 million, or $0.90 per diluted common share, as adjusted (Non-GAAP). In the third quarter of 2015, net income applicable to common shareholders was $820 million, or $0.74 per diluted common share, or $828 million, or $0.74 per diluted common share, as adjusted (Non-GAAP). In the second quarter of 2016, net income applicable to common shareholders was $825 million, or $0.75 per diluted common share, or $830 million, or $0.76 per diluted common share, as adjusted (Non-GAAP) (a).

“We delivered strong results for the quarter, once again meeting or exceeding our three-year Investor Day goals. Each of our businesses performed well, as total revenue was up 4 percent and our business improvement process continued to pay off, generating more than 500 basis points of positive operating leverage. Our strategy is benefiting our clients and shareholders through all market environments,” Gerald L. Hassell, chairman and chief executive officer, said.

“We also strengthened our capital ratios while returning significant capital to shareholders through repurchases and dividends, and made progress in our resolution planning to ensure that BNY Mellon can be resolved without posing systemic risk to the financial system,” Mr. Hassell added.

“We continue to invest in best-in-class technology and data analytics to enhance our clients’ experience with us and provide actionable insights for them to drive better financial results and investment performance. We are confident in our ability to deliver world-class solutions to our clients while we achieve solid growth rates and returns for our shareholders,” Mr. Hassell concluded.
__________________________________________
(a)
These measures are considered to be Non-GAAP. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the adjusted earnings and earnings per common share reconciliation and tangible common equity ratio reconciliation. See “Capital and Liquidity” beginning on page 13 for the reconciliation of the SLR.

Page - 1
BNY Mellon 3Q16 Earnings Release


CONFERENCE CALL INFORMATION

Gerald L. Hassell, chairman and chief executive officer, and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 20, 2016. This conference call and audio webcast will include forward-looking statements and may include other material information.

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


Page - 2
BNY Mellon 3Q16 Earnings Release


THIRD QUARTER 2016 FINANCIAL HIGHLIGHTS (a)
(comparisons are 3Q16 vs. 3Q15, unless otherwise stated)

•Earnings
 
Earnings per share
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
(in millions, except per share amounts)
3Q16

 
3Q15

 
Inc/(Dec)

 
3Q16

 
3Q15

 
Inc/(Dec)

GAAP results
$
0.90


$
0.74

 
22
%
 
$
974

 
$
820

 
19
%
Add: M&I, litigation and restructuring charges
0.01

 
0.01

 
 
 
13

 
8

 
 
Less: Recovery related to Sentinel
0.01

 
N/A

 
 
 
8

 
N/A

 
 
Non-GAAP results
$
0.90

 
$
0.74

(b)
22
%
 
$
979

 
$
828

 
18
%


•
Total revenue of $3.9 billion, increased 4% on both a GAAP and adjusted basis (Non-GAAP) (a).
-    Investment services fees increased 2% reflecting higher money market fees, higher fees in Depositary Receipts and higher securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar.
-    Investment management and performance fees increased 4% due to higher market values and money market fees, offset by the unfavorable impact of a stronger U.S. dollar and net outflows.
-    Foreign exchange revenue decreased 3% reflecting lower volumes and volatility, partially offset by the positive net impact of foreign currency hedging activity.
-    Investment and other income increased $33 million driven by higher asset-related and seed capital gains.
-    Net interest revenue increased $15 million driven by the actions we have taken to reduce the levels of our lower yielding interest-earning assets and higher yielding interest-bearing deposits, as well as the impact of higher market interest rates.
•
The provision for credit losses was a credit of $19 million, driven by net recoveries of $13 million.
•
Noninterest expense of $2.6 billion, decreased 1% on both a GAAP and adjusted basis (Non-GAAP) (a). The decrease reflects lower expenses in most categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower other, software and equipment, legal, net occupancy and business development expenses, partially offset by higher staff and distribution and servicing expenses.
•
Effective tax rate of 24.6%.

•Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
-    AUC/A of $30.5 trillion increased 7% reflecting higher market values, offset by the unfavorable impact of a stronger U.S. dollar.
--    Estimated new AUC/A wins in Asset Servicing of $150 billion in 3Q16.
-    AUM of $1.72 trillion increased 6% reflecting higher market values offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
--    Net long-term inflows of $1 billion in 3Q16 were a combination of $3 billion of inflows into actively managed strategies and $2 billion of outflows from index strategies.
--    Net short-term outflows totaled $1 billion in 3Q16.

•Capital
-    Repurchased 11.6 million common shares for $464 million in 3Q16.
-    Return on common equity of 11%; Adjusted return on tangible common equity of 24% in 3Q16 (a).
-    SLR - transitional of 6.0%; SLR - fully phased-in of 5.7% (a).
 
 
 
 
 
(a)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures. In all periods presented, Non-GAAP information excludes the net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel Management Group, Inc. (“Sentinel”) loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel. See “Capital and Liquidity” beginning on page 13 for the reconciliation of the SLR.
(b)
Does not foot due to rounding.
N/A - Not applicable.
Note: Throughout this document, sequential growth rates are unannualized.

Page - 3
BNY Mellon 3Q16 Earnings Release


FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in thousands)
 
 
 
 
 
3Q16 vs.
3Q16

2Q16

1Q16

4Q15

3Q15

2Q16
3Q15
Revenue:
 
 
 
 
 
 
 
Fee and other revenue
$
3,150

$
2,999

$
2,970

$
2,950

$
3,053

5%

3%

Income (loss) from consolidated investment management funds
17

10

(6
)
16

(22
)
 
 
Net interest revenue
774

767

766

760

759

1

2

Total revenue – GAAP
3,941

3,776

3,730

3,726

3,790

4

4

Less: Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds
9

4

(7
)
5

(5
)
 
 
Total revenue – Non-GAAP
3,932

3,772

3,737

3,721

3,795

4

4

Provision for credit losses
(19
)
(9
)
10

163

1

 
 
Expense:
 
 
 
 
 
 
 
Noninterest expense – GAAP
2,643

2,620

2,629

2,692

2,680

1

(1
)
Less: Amortization of intangible assets
61

59

57

64

66

 
 
M&I, litigation and restructuring charges
18

7

17

18

11

 
 
Total noninterest expense – Non-GAAP
2,564

2,554

2,555

2,610

2,603

—

(1
)
Income:
 
 
 
 
 
 
 
Income before income taxes
1,317

1,165

1,091

871

1,109

13%

19%
Provision for income taxes
324

290

283

175

282

 
 
Net income
$
993

$
875

$
808

$
696

$
827

 
 
Net (income) loss attributable to noncontrolling interests (a)
(6
)
(2
)
9

(3
)
6

 
 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
987

873

817

693

833

 
 
Preferred stock dividends
(13
)
(48
)
(13
)
(56
)
(13
)
 
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
974

$
825

$
804

$
637

$
820

 
 
 
 
 
 
 
 
 
 
Operating leverage (b)
 
 
 
 
 
349
 bps
536
 bps
Adjusted operating leverage – Non-GAAP (b)
 
 
 
 
 
385
 bps
511
 bps
 
 
 
 
 
 
 
 
Key Metrics:
 
 
 
 
 
 

Pre-tax operating margin (c)
33
%
31
%
29
%
23
%
29
%
 
 
Adjusted pre-tax operating margin – Non-GAAP (c)
35
%
33
%
31
%
30
%
31
%
 
 
 
 
 
 
 
 
 
 
Return on common equity (annualized) (c)
10.8
%
9.3
%
9.2
%
7.1
%
9.1
%
 
 
Adjusted return on common equity (annualized) – Non-GAAP (c)
11.3
%
9.7
%
9.7
%
8.9
%
9.7
%
 
 
 
 
 
 
 
 
 
 
Return on tangible common equity (annualized) – Non-GAAP (d)
23.5
%
20.4
%
20.6
%
16.2
%
20.8
%
 
 
Adjusted return on tangible common equity (annualized) – Non-GAAP (c)(d)
23.6
%
20.5
%
20.8
%
19.0
%
21.0
%
 
 
 
 
 
 
 
 
 
 
Fee revenue as a percentage of total revenue
79
%
79
%
80
%
79
%
81
%
 
 
 
 
 
 
 
 
 
 
Percentage of non-U.S. total revenue
36
%
34
%
33
%
34
%
37
%
 
 
 
 
 
 
 
 
 
 
Average common shares and equivalents outstanding:
 
 
 
 
 
 
 
Basic
1,062,248

1,072,583

1,079,641

1,088,880

1,098,003

 
 
Diluted
1,067,682

1,078,271

1,085,284

1,096,385

1,105,645

 
 
 
 
 
 
 
 
 
 
Period end:
 
 
 
 
 
 
 
Full-time employees
52,300

52,200

52,100

51,200

51,300

 
 
Book value per common share – GAAP (d)
$
34.19

$
33.72

$
33.34

$
32.69

$
32.59

 
 
Tangible book value per common share – Non-GAAP (d)
$
16.67

$
16.25

$
15.87

$
15.27

$
15.16

 
 
Cash dividends per common share
$
0.19

$
0.17

$
0.17

$
0.17

$
0.17

 
 
Common dividend payout ratio
21
%
23
%
23
%
30
%
23
%
 
 
Closing stock price per common share
$
39.88

$
38.85

$
36.83

$
41.22

$
39.15

 
 
Market capitalization
$
42,167

$
41,479

$
39,669

$
44,738

$
42,789

 
 
Common shares outstanding
1,057,337

1,067,674

1,077,083

1,085,343

1,092,953

 
 
(a)    Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b)
Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the components of this measure.
(c)
Non-GAAP information for all periods presented excludes the net income (loss) attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures.
(d)
Tangible book value per common share - Non-GAAP and tangible common equity exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of Non-GAAP measures.
bps – basis points.

Page - 4
BNY Mellon 3Q16 Earnings Release


CONSOLIDATED BUSINESS METRICS

Consolidated business metrics
 
 
 
 
 
 
3Q16 vs.
3Q16

 
2Q16

1Q16

4Q15

3Q15

2Q16
3Q15
Changes in AUM (in billions): (a)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,664

 
$
1,639

$
1,625

$
1,625

$
1,700

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

 
(2
)
—

1

(3
)
 
 
Liability-driven investments (b)
4

 
15

14

11

11

 
 
Alternative investments
2

 
1

1

2

1

 
 
Total long-term active inflows
3

 
12

12

5

5

 
 
Index
(2
)
 
(17
)
(11
)
(16
)
(10
)
 
 
Total long-term inflows (outflows)
1

 
(5
)
1

(11
)
(5
)
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
(1
)
 
4

(9
)
2

(10
)
 
 
Total net (outflows)
—

 
(1
)
(8
)
(9
)
(15
)
 
 
Net market impact/other
80

 
71

41

24

(35
)
 
 
Net currency impact
(29
)
 
(47
)
(19
)
(15
)
(25
)
 
 
Acquisition
—

 
2

—

—

—

 
 
Ending balance of AUM
$
1,715

(c)
$
1,664

$
1,639

$
1,625

$
1,625

3
 %
6
 %
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (a)
 
 
 
 
 
 
 
 
Equity
13
%
 
14
%
14
%
14
%
14
%
 
 
Fixed income
14

 
13

13

13

13

 
 
Index
18

 
18

19

20

20

 
 
Liability-driven investments (b)
35

 
34

33

32

32

 
 
Alternative investments
4

 
4

4

4

4

 
 
Cash
16

 
17

17

17

17

 
 
Total AUM
100
%
(c)
100
%
100
%
100
%
100
%
 
 
 
 
 
 
 
 
 
 
 
Investment Management:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
15,308

 
$
14,795

$
14,275

$
13,447

$
12,779

3
 %
20
 %
Average deposits (in millions)
$
15,600

 
$
15,518

$
15,971

$
15,497

$
15,282

1
 %
2
 %
 
 
 
 
 
 
 
 
 
Investment Services:
 
 
 
 
 
 
 
 
Average loans (in millions)
$
44,329

 
$
43,786

$
45,004

$
45,844

$
46,222

1
 %
(4
)%
Average deposits (in millions)
$
220,316

 
$
221,998

$
215,707

$
229,241

$
232,250

(1
)%
(5
)%
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (d)
$
30.5

(c)
$
29.5

$
29.1

$
28.9

$
28.5

3
 %
7
 %
 
 
 
 
 
 
 
 
 
Market value of securities on loan at period end (in billions) (e)
$
288

 
$
278

$
300

$
277

$
288

4
 %
—
 %
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
150

(c)
$
167

$
40

$
49

$
84

 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,094

 
1,112

1,131

1,145

1,176

(2
)%
(7
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Average active clearing accounts (U.S. platform) (in thousands)
5,942

 
5,946

5,947

5,959

6,107

—
 %
(3
)%
Average long-term mutual fund assets (U.S. platform)
(in millions)
$
443,112

 
$
431,150

$
415,025

$
437,260

$
447,287

3
 %
(1
)%
Average investor margin loans (U.S. platform) (in millions)
$
10,834

 
$
10,633

$
11,063

$
11,575

$
11,806

2
 %
(8
)%
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
2,212

 
$
2,108

$
2,104

$
2,153

$
2,142

5
 %
3
 %
(a)
Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.
(b)
Includes currency overlay assets under management.
(c)
Preliminary.
(d)
Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015.
(e)
Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015 and $61 billion at Sept. 30, 2015.

Page - 5
BNY Mellon 3Q16 Earnings Release


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

Key market metrics
 
 
 
 
 
3Q16 vs.
 
3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

S&P 500 Index (a)
2168

2099

2060

2044

1920

3%

13%

S&P 500 Index – daily average
2162

2075

1951

2052

2027

4

7

FTSE 100 Index (a)
6899

6504

6175

6242

6062

6

14

FTSE 100 Index – daily average
6765

6204

5988

6271

6399

9

6

MSCI EAFE (a)
1702

1608

1652

1716

1644

6

4

MSCI EAFE – daily average
1677

1648

1593

1732

1785

2

(6
)
Barclays Capital Global Aggregate BondSM Index (a)(b)
386

382

368

342

346

1

12

NYSE and NASDAQ share volume (in billions)
186

203

218

198

206

(8
)
(10
)
JPMorgan G7 Volatility Index – daily average (c)
10.19

11.12

10.60

9.49

9.93

(8
)
3

Average Fed Funds effective rate
0.39
%
0.37
%
0.36
%
0.16
%
0.13
%
2 bps

26 bps

Foreign exchange rates vs. U.S. dollar:
 
 
 
 
 
 
 
British pound (a)
$
1.30

$
1.34

$
1.44

$
1.48

$
1.52

(3)%

(14)%

British pound – average rate
1.31

1.43

1.43

1.52

1.55

(8
)
(15
)
Euro (a)
1.12

1.11

1.14

1.09

1.12

1

—

Euro – average rate
1.12

1.13

1.10

1.10

1.11

(1
)
1

(a)
Period end.
(b)
Unhedged in U.S. dollar terms.
(c)
The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.
bps – basis points.


Page - 6
BNY Mellon 3Q16 Earnings Release


FEE AND OTHER REVENUE

Fee and other revenue
 
 
 
 
 
3Q16 vs.
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Investment services fees:
 
 
 
 
 
 
 
Asset servicing (a)
$
1,067

$
1,069

$
1,040

$
1,032

$
1,057

—
 %
1
 %
Clearing services
349

350

350

339

345

—

1

Issuer services
337

234

244

199

313

44

8

Treasury services
137

139

131

137

137

(1
)
—

Total investment services fees
1,890

1,792

1,765

1,707

1,852

5

2

Investment management and performance fees
860

830

812

864

829

4

4

Foreign exchange and other trading revenue
183

182

175

173

179

1

2

Financing-related fees
58

57

54

51

71

2

(18
)
Distribution and servicing
43

43

39

41

41

—

5

Investment and other income
92

74

105

93

59

24

56

Total fee revenue
3,126

2,978

2,950

2,929

3,031

5

3

Net securities gains
24

21

20

21

22

N/M
N/M
Total fee and other revenue
$
3,150

$
2,999

$
2,970

$
2,950

$
3,053

5
 %
3
 %
(a)
Asset servicing fees include securities lending revenue of $51 million in 3Q16, $52 million in 2Q16, $50 million in 1Q16, $46 million in 4Q15 and $38 million in 3Q15.
N/M – Not meaningful.


KEY POINTS

•
Asset servicing fees were $1.1 billion, an increase of 1% year-over-year and a slight decrease sequentially. The year-over-year increase primarily reflects higher money market fees and securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar and downsizing of the UK transfer agency business.

•
Clearing services fees were $349 million, an increase of 1% year-over-year and a slight decrease sequentially. The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of the previously disclosed lost business.

•
Issuer services fees were $337 million, an increase of 8% year-over-year and 44% sequentially. The year-over-year increase primarily reflects higher corporate actions in Depositary Receipts and higher money market fees in Corporate Trust. The sequential increase primarily reflects seasonally higher fees in Depositary Receipts.

•
Treasury services fees were $137 million, unchanged year-over-year and a decrease of 1% sequentially.

•
Investment management and performance fees were $860 million, an increase of 4% both year-over-year and sequentially. The year-over-year increase primarily reflects higher market values and money market fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and net outflows of assets under management in prior periods. The sequential increase primarily reflects higher market values.

Page - 7
BNY Mellon 3Q16 Earnings Release


•
Foreign exchange and other trading revenue
 
 
 
 
 
 
(in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

 
Foreign exchange
$
175

$
166

$
171

$
165

$
180

 
Other trading revenue (loss)
8

16

4

8

(1
)
 
Total foreign exchange and other trading revenue
$
183

$
182

$
175

$
173

$
179



Foreign exchange and other trading revenue totaled $183 million in 3Q16 compared with $179 million in 3Q15 and $182 million in 2Q16. In 3Q16, foreign exchange revenue totaled $175 million, a decrease of 3% year-over-year and an increase of 5% sequentially. The year-over-year decrease primarily reflects lower volumes and volatility, partially offset by the positive net impact of foreign currency hedging activity. The year-over-year decrease also reflects the continued trend of clients migrating to lower margin products. The sequential increase primarily reflects higher Depositary Receipt-related foreign exchange activity, partially offset by lower volatility.

Other trading revenue was $8 million in 3Q16, compared with a $1 million loss in 3Q15 and $16 million in 2Q16. The year-over-year increase primarily reflects higher fixed income trading, partially offset by lower equity and other trading. The sequential decrease primarily reflects lower results from derivative trading and hedging activity.

•
Financing-related fees were $58 million in 3Q16 compared with $71 million in 3Q15 and $57 million in 2Q16. The year-over-year decrease primarily reflects lower underwriting fees and lower fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.

•
Distribution and servicing fees were $43 million in 3Q16 compared with $41 million in 3Q15 and $43 million in 2Q16. The year-over-year increase primarily reflects higher money market fees, partially offset by fees paid to introducing brokers.

•
Investment and other income
 
 
 
 
 
 
(in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

 
Corporate/bank-owned life insurance
$
34

$
31

$
31

$
43

$
32

 
Expense reimbursements from joint venture
18

17

17

16

16

 
Seed capital gains (a)
16

11

11

10

7

 
Asset-related gains (losses)
8

1

—

5

(9
)
 
Lease-related gains (losses)
—

—

44

(8
)
—

 
Equity investment (losses)
(1
)
(4
)
(3
)
(2
)
(6
)
 
Other income
17

18

5

29

19

 
Total investment and other income
$
92

$
74

$
105

$
93

$
59

(a)
Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in operations of consolidated investment management funds, net of noncontrolling interests. The gain (loss) on seed capital investments in consolidated investment management funds was $8 million in 3Q16, $6 million in 2Q16, $1 million in 1Q16, $11 million in 4Q15 and $(17) million in 3Q15.


Investment and other income was $92 million in 3Q16 compared with $59 million in 3Q15 and $74 million in 2Q16. Both increases primarily reflect higher asset-related and seed capital gains.


Page - 8
BNY Mellon 3Q16 Earnings Release


NET INTEREST REVENUE

Net interest revenue
 
 
 
 
 
3Q16 vs.
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Net interest revenue (non-FTE)
$
774

$
767

$
766

$
760

$
759

1%

2%

Net interest revenue (FTE)
786

780

780

774

773

1

2

Net interest margin (FTE)
1.06
 %
0.98
%
1.01
%
0.99
%
0.98
%
8
 bps
8
 bps
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
Cash/interbank investments
$
114,544

$
137,995

$
127,624

$
128,328

$
130,090

(17
)%
(12)%

Trading account securities
2,176

2,152

3,320

2,786

2,737

1

(20
)
Securities
118,405

118,002

118,538

119,532

121,188

—

(2
)
Loans
61,578

60,284

61,196

61,964

61,657

2

—

Interest-earning assets
296,703

318,433

310,678

312,610

315,672

(7
)
(6
)
Interest-bearing deposits
155,109

165,122

162,017

160,334

169,753

(6
)
(9
)
Noninterest-bearing deposits
81,619

84,033

82,944

85,878

85,046

(3
)
(4
)
 
 
 
 
 
 
 
 
Selected average yields/rates:
 
 
 
 
 
 
 
Cash/interbank investments
0.43
 %
0.44
%
0.43
%
0.32
%
0.32
%
 
 
Trading account securities
2.62

2.45

2.16

2.79

2.74

 
 
Securities
1.56

1.56

1.61

1.62

1.60

 
 
Loans
1.84

1.85

1.76

1.54

1.56

 
 
Interest-earning assets
1.19

1.14

1.16

1.08

1.08

 
 
Interest-bearing deposits
(0.02
)
0.03

0.04

0.01

0.02

 
 
 
 
 
 
 
 
 
 
Average cash/interbank investments as a percentage of average interest-earning assets
39
 %
43
%
41
%
41
%
41
%
 
 
Average noninterest-bearing deposits as a percentage of average interest-earning assets
28
 %
26
%
27
%
27
%
27
%
 
 
FTE – fully taxable equivalent.
bps – basis points.


KEY POINTS

•
Net interest revenue totaled $774 million in 3Q16, an increase of $15 million year-over-year and $7 million sequentially. Both increases primarily reflect the actions we have taken to reduce the levels of our lower yielding interest-earning assets and higher yielding interest-bearing deposits, as well as the impact of higher market interest rates. The sequential increase also reflects higher average loans.

•
As we previously indicated, we have been evaluating the impact of our resolution plan strategy on net interest revenue. We currently believe that it requires us to issue approximately $2-4 billion of incremental unsecured long-term debt above our typical funding requirements by July 2017 to satisfy resource needs in a time of distress. This estimate is subject to change as we further refine our strategy and related assumptions. This is currently expected to have a modest negative impact to net interest revenue.


Page - 9
BNY Mellon 3Q16 Earnings Release


NONINTEREST EXPENSE

Noninterest expense
 
 
 
 
 
3Q16 vs.
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Staff
$
1,467

$
1,412

$
1,459

$
1,481

$
1,437

4
 %
2
 %
Professional, legal and other purchased services
292

290

278

328

301

1

(3
)
Software and equipment
215

223

219

225

226

(4
)
(5
)
Net occupancy
143

152

142

148

152

(6
)
(6
)
Distribution and servicing
105

102

100

92

95

3

11

Sub-custodian
59

70

59

60

65

(16
)
(9
)
Business development
52

65

57

75

59

(20
)
(12
)
Other
231

240

241

201

268

(4
)
(14
)
Amortization of intangible assets
61

59

57

64

66

3

(8
)
M&I, litigation and restructuring charges
18

7

17

18

11

N/M
N/M
Total noninterest expense – GAAP
$
2,643

$
2,620

$
2,629

$
2,692

$
2,680

1
 %
(1
)%
 
 
 
 
 
 
 
 
Total staff expense as a percentage of total revenue
37
%
37
%
39
%
40
%
38
%
 
 
 
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
 
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP
$
2,564

$
2,554

$
2,555

$
2,610

$
2,603

—
 %
(1
)%
N/M – Not meaningful.


KEY POINTS

•
Total noninterest expense decreased 1% year-over-year and increased 1% sequentially. Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP) decreased 1% year-over-year and increased slightly sequentially.

•
The year-over-year decrease reflects lower expenses in most categories, primarily driven by the favorable impact of a stronger U.S. dollar, lower other, software and equipment, legal, net occupancy and business development expenses, partially offset by higher staff and distribution and servicing expenses. The increase in staff expense was primarily due to higher incentive and severance expenses and the annual employee merit increase, partially offset by lower temporary services expense. We continue to benefit from the savings generated by the business improvement process, including the continued impact from vendor renegotiations, and the execution of additional real estate actions that will allows us to optimize our physical footprint and improve how our employees work.

•
The sequential increase primarily reflects higher staff expense and M&I, litigation and restructuring charges, partially offset by lower expenses in nearly all other expense categories including business development, sub-custodian, net occupancy, other and software and equipment expenses.


Page - 10
BNY Mellon 3Q16 Earnings Release


INVESTMENT SECURITIES PORTFOLIO

At Sept. 30, 2016, the fair value of our investment securities portfolio totaled $118.7 billion. The net unrealized pre-tax gain on our total securities portfolio was $1.4 billion at Sept. 30, 2016 compared with $1.6 billion at June 30, 2016. The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates. At Sept. 30, 2016, the fair value of the held-to-maturity securities totaled $41.4 billion and represented 35% of the fair value of the total investment securities portfolio.

The following table shows the distribution of our investment securities portfolio.

Investment securities
portfolio


(dollars in millions)
June 30, 2016

 
3Q16
change in
unrealized
gain (loss)

Sept. 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
$
49,506

 
$
(70
)
$
48,498

$
48,987

 
101
%
$
489

 
100
%
—
%
—
%
—
%
—
%
U.S. Treasury
23,893

 
(154
)
25,112

25,135

 
100

23

 
100

—

—

—

—

Sovereign debt/sovereign guaranteed
15,605

 
12

15,690

15,998

 
102

308

 
74

5

21

—

—

Non-agency RMBS (b)
1,529

 
5

1,166

1,463

 
80

297

 
—

1

1

90

8

Non-agency RMBS
797

 
8

741

757

 
94

16

 
8

4

16

71

1

European floating rate notes
1,104

 
15

869

851

 
98

(18
)
 
71

22

7

—

—

Commercial MBS
6,316

 
8

7,236

7,310

 
101

74

 
98

2

—

—

—

State and political subdivisions
3,765

 
(24
)
3,494

3,578

 
102

84

 
80

17

—

—

3

Foreign covered bonds
2,376

 
(4
)
2,395

2,433

 
102

38

 
100

—

—

—

—

Corporate bonds
1,610

 
(3
)
1,585

1,638

 
103

53

 
16

68

16

—

—

CLO
2,482

 
16

2,530

2,534

 
100

4

 
100

—

—

—

—

U.S. Government agencies
1,889

 
3

1,820

1,808

 
99

(12
)
 
100

—

—

—

—

Consumer ABS
2,454

 
7

2,202

2,203

 
100

1

 
98

—

2

—

—

Other (c)
4,002

 
(23
)
3,931

3,961

 
101

30

 
60

—

38

—

2

Total investment securities
$
117,328

(d)
$
(204
)
$
117,269

$
118,656

(d)
101
%
$
1,387

(d)(e)
91
%
2
%
5
%
2
%
—
%
(a)    Amortized cost before impairments.
(b)
These RMBS were included in the former Grantor Trust and were marked-to-market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.
(c)
Includes commercial paper with a fair value of $1.7 billion and $1.5 billion and money market funds with a fair value of $865 million and $931 million at June 30, 2016 and Sept. 30, 2016, respectively.
(d)
Includes net unrealized losses on derivatives hedging securities available-for-sale of $1,023 million at June 30, 2016 and $1,001 million at Sept. 30, 2016.
(e)
Unrealized gains of $728 million at Sept. 30, 2016 related to available-for-sale securities.


Page - 11
BNY Mellon 3Q16 Earnings Release


NONPERFORMING ASSETS

Nonperforming assets
(dollars in millions)
Sept. 30, 2016

June 30, 2016

Sept. 30, 2015

Loans:
 
 
 
Other residential mortgages
$
93

$
97

$
103

Wealth management loans and mortgages
7

10

12

Lease financing
4

4

—

Commercial real estate
1

2

1

Financial institutions
—

171

—

Total nonperforming loans
105

284

116

Other assets owned
4

5

7

Total nonperforming assets
$
109

$
289

$
123

Nonperforming assets ratio
0.17
%
0.45
%
0.20
%
Allowance for loan losses/nonperforming loans
141.0

55.6

156.0

Total allowance for credit losses/nonperforming loans
261.0

98.6

241.4



Nonperforming assets were $109 million at Sept. 30, 2016, a decrease of $180 million compared with June 30, 2016. The decrease in nonperforming loans reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel.


ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

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

June 30, 2016

Sept. 30, 2015

Allowance for credit losses - beginning of period
$
280

$
287

$
278

Provision for credit losses
(19
)
(9
)
1

Net recoveries:
 
 
 
Financial institutions
13

—

—

Other residential mortgages
—

1

1

Foreign
—

1

—

Net recoveries
13

2

1

Allowance for credit losses - end of period
$
274

$
280

$
280

Allowance for loan losses
$
148

$
158

$
181

Allowance for lending-related commitments
126

122

99



The allowance for credit losses was $274 million at Sept. 30, 2016, a decrease of $6 million compared with $280 million at June 30, 2016. Net recoveries of $13 million in 3Q16 were recorded in the financial institutions portfolio. The recovery reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel in excess of the carrying value of $171 million.


Page - 12
BNY Mellon 3Q16 Earnings Release


CAPITAL AND LIQUIDITY

Capital ratios
Sept. 30, 2016

June 30, 2016

Dec. 31, 2015

Consolidated regulatory capital ratios: (a)
 
 
 
Standardized:
 
 
 
CET1 ratio
12.1
%
11.8
%
11.5
%
Tier 1 capital ratio
14.3

13.4

13.1

Total (Tier 1 plus Tier 2) capital ratio
14.7

13.8

13.5

Advanced:






CET1 ratio
10.5

10.2

10.8

Tier 1 capital ratio
12.4

11.5

12.3

Total (Tier 1 plus Tier 2) capital ratio
12.6

11.7

12.5

Leverage capital ratio (b)
6.6

5.8

6.0

Supplementary leverage ratio (“SLR”)
6.0

5.3

5.4

BNY Mellon shareholders’ equity to total assets ratio – GAAP (c)
10.6

10.4

9.7

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

9.7

9.0

BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP (c)
6.5

6.6

6.5

 
 
 
 
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(d)
 
 
 
CET1 ratio: 
 
 
 
Standardized Approach
11.3

11.0

10.2

Advanced Approach
9.8

9.5

9.5

SLR
5.7

5.0

4.9

(a)
Regulatory capital ratios for Sept. 30, 2016 are preliminary. For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches.
(b)
The leverage capital ratio is based on Tier 1 capital, as phased-in and quarterly average total assets.
(c)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for a reconciliation of these ratios.
(d)
Estimated.


CET1 generation in 3Q16 – preliminary
Transitional
basis (b)

Fully
phased-in -
Non-GAAP (c)

 
(in millions)
CET1 – Beginning of period
$
18,275

$
16,873

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
974

974

Goodwill and intangible assets, net of related deferred tax liabilities
109

131

Gross CET1 generated
1,083

1,105

Capital deployed:
 
 
Dividends
(205
)
(205
)
Common stock repurchased
(464
)
(464
)
Total capital deployed
(669
)
(669
)
Other comprehensive income
(211
)
(233
)
Additional paid-in capital (a)
74

74

Other
7

9

Total other deductions
(130
)
(150
)
Net CET1 generated
284

286

CET1 – End of period
$
18,559

$
17,159

(a)    Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
(b)    Reflects transitional adjustments to CET1 required under the U.S. capital rules.
(c)    Estimated.

Page - 13
BNY Mellon 3Q16 Earnings Release


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

Basel III capital components and ratios
Sept. 30, 2016 (a)
 
June 30, 2016
 
Dec. 31, 2015
(dollars in millions)
Transitional
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
$
36,450

$
36,153

 
$
36,282

$
36,007

 
$
36,067

$
35,485

Goodwill and intangible assets
(17,505
)
(18,527
)
 
(17,614
)
(18,658
)
 
(17,295
)
(18,911
)
Net pension fund assets
(56
)
(94
)
 
(56
)
(94
)
 
(46
)
(116
)
Equity method investments
(314
)
(347
)
 
(322
)
(356
)
 
(296
)
(347
)
Deferred tax assets
(15
)
(25
)
 
(14
)
(23
)
 
(8
)
(20
)
Other
(1
)
(1
)
 
(1
)
(3
)
 
(5
)
(9
)
Total CET1
18,559

17,159

 
18,275

16,873

 
18,417

16,082

Other Tier 1 capital:


 
 


 
 


 
Preferred stock
3,542

3,542

 
2,552

2,552

 
2,552

2,552

Trust preferred securities
—

—

 
—

—

 
74

—

Deferred tax assets
(10
)
—

 
(9
)
—

 
(12
)
—

Net pension fund assets
(38
)
—

 
(38
)
—

 
(70
)
—

Other
(110
)
(109
)
 
(112
)
(110
)
 
(25
)
(22
)
Total Tier 1 capital
21,943

20,592

 
20,668

19,315

 
20,936

18,612

 


 
 


 
 


 
Tier 2 capital:


 
 


 
 


 
Trust preferred securities
156

—

 
161

—

 
222

—

Subordinated debt
149

149

 
149

149

 
149

149

Allowance for credit losses
274

274

 
280

280

 
275

275

Other
(6
)
(7
)
 
(6
)
(7
)
 
(12
)
(12
)
Total Tier 2 capital - Standardized Approach
573

416

 
584

422

 
634

412

Excess of expected credit losses
27

27

 
36

36

 
37

37

Less: Allowance for credit losses
274

274

 
280

280

 
275

275

Total Tier 2 capital - Advanced Approach
$
326

$
169

 
$
340

$
178

 
$
396

$
174

 


 
 


 
 


 
Total capital:


 
 


 
 


 
Standardized Approach
$
22,516

$
21,008

 
$
21,252

$
19,737

 
$
21,570

$
19,024

Advanced Approach
$
22,269

$
20,761

 
$
21,008

$
19,493

 
$
21,332

$
18,786

 
 
 
 
 
 
 
 
 
Risk-weighted assets:


 
 


 
 


 
Standardized Approach
$
153,042

$
151,797

 
$
154,464

$
153,198

 
$
159,893

$
158,015

Advanced Approach
$
177,104

$
175,784

 
$
179,172

$
177,829

 
$
170,384

$
168,509

 
 
 
 
 
 
 
 
 
Standardized Approach:


 
 


 
 


 
CET1 ratio
12.1
%
11.3
%
 
11.8
%
11.0
%
 
11.5
%
10.2
%
Tier 1 capital ratio
14.3

13.6

 
13.4

12.6

 
13.1

11.8

Total (Tier 1 plus Tier 2) capital ratio
14.7

13.8

 
13.8

12.9

 
13.5

12.0

Advanced Approach:
 
 
 
 
 
 
 
 
CET1 ratio
10.5
%
9.8
%
 
10.2
%
9.5
%
 
10.8
%
9.5
%
Tier 1 capital ratio
12.4

11.7

 
11.5

10.9

 
12.3

11.0

Total (Tier 1 plus Tier 2) capital ratio
12.6

11.8

 
11.7

11.0

 
12.5

11.1

(a)    Preliminary.
(b)    Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required under the U.S. capital rules.
(c)    Estimated.


BNY Mellon has presented its estimated fully phased-in CET1 and other risk-based capital ratios and the fully phased-in SLR based on its interpretation of the U.S. capital rules, which are being gradually phased-in over a multi-year period, and on the application of such rules to BNY Mellon’s businesses as currently conducted. Management views the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR as key measures in monitoring BNY Mellon’s capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated fully phased-in CET1 and other risk-based capital ratios

Page - 14
BNY Mellon 3Q16 Earnings Release


and fully phased-in SLR are intended to allow investors to compare these ratios with estimates presented by other companies.

Our capital and liquidity ratios are necessarily subject to, among other things, BNY Mellon’s further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. Consequently, our capital and liquidity ratios remain subject to ongoing review and revision and may change based on these factors.

Supplementary Leverage Ratio (“SLR”)

The following table presents the SLR on both the transitional and fully phased-in Basel III basis for BNY Mellon and our largest bank subsidiary, The Bank of New York Mellon.

SLR
Sept. 30, 2016 (a)

June 30, 2016
 
Dec. 31, 2015
(dollars in millions)
Transitional
basis

Fully
phased-in -
Non-GAAP (b)

 
Transitional basis

Fully
phased-in -
Non-GAAP (b)

 
Transitional basis

Fully
phased-in -
Non-GAAP (b)

Consolidated:
 
 
 
 
 
 
 
 
Tier 1 capital
$
21,943

$
20,592

 
$
20,668

$
19,315

 
$
20,936

$
18,612

 

 
 
 
 
 

 
Total leverage exposure:


 
 
 
 
 


 
Quarterly average total assets
$
351,230

$
351,230

 
$
374,220

$
374,220

 
$
368,590

$
368,590

Less: Amounts deducted from Tier 1 capital
17,760

19,095

 
17,876

19,234

 
17,650

19,403

Total on-balance sheet assets
333,470

332,135


356,344

354,986


350,940

349,187

Off-balance sheet exposures:


 
 
 
 
 


 
Potential future exposure for derivatives contracts (plus certain other items)
6,149

6,149

 
6,125

6,125

 
7,158

7,158

Repo-style transaction exposures
447

447

 
402

402

 
440

440

Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)
23,571

23,571

 
24,157

24,157

 
26,025

26,025

Total off-balance sheet exposures
30,167

30,167


30,684

30,684


33,623

33,623

Total leverage exposure
$
363,637

$
362,302


$
387,028

$
385,670


$
384,563

$
382,810

 

 
 
 
 
 
 
 
SLR - Consolidated (c)
6.0
%
5.7
%
 
5.3
%
5.0
%
 
5.4
%
4.9
%
 
 
 
 
 
 
 
 
 
The Bank of New York Mellon, our largest bank subsidiary:
 
 
 
 
 
 
 
 
Tier 1 capital
$
18,701

$
17,592

 
$
18,049

$
16,948

 
$
16,814

$
15,142

Total leverage exposure
$
299,615

$
299,236

 
$
322,978

$
322,588

 
$
316,812

$
316,270

 
 

 
 

 
 

SLR - The Bank of New York Mellon (c)
6.2
%
5.9
%
 
5.6
%
5.3
%
 
5.3
%
4.8
%
(a)
Sept. 30, 2016 information is preliminary.
(b)
Estimated.
(c)
The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules. When the SLR is fully phased-in in 2018 as a required minimum ratio, we expect to maintain an SLR of over 5%. The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs. The insured depository institution subsidiaries of the U.S. G-SIBs, including those of BNY Mellon, must maintain a 6% SLR to be considered “well capitalized.”


Liquidity Coverage Ratio (“LCR”)

The U.S. LCR rules became effective Jan. 1, 2015 and currently require BNY Mellon to meet an LCR of 90%, increasing to 100% when fully phased-in on Jan. 1, 2017. Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of Sept. 30, 2016 based on our understanding of the U.S. LCR rules. Our consolidated HQLA before haircuts, totaled $195 billion at Sept. 30, 2016, compared with $191 billion at June 30, 2016 and $218 billion at Dec. 31, 2015.

Page - 15
BNY Mellon 3Q16 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)
 
 
 
 
 
 
3Q16 vs.
3Q16

 
2Q16

1Q16

4Q15

3Q15

2Q16
3Q15
Revenue:
 
 
 
 
 
 
 
 
Investment management fees:
 
 
 
 
 
 
 
 
Mutual funds
$
309

 
$
304

$
300

$
294

$
301

2
 %
3
 %
Institutional clients
362

 
344

334

350

347

5

4

Wealth management
166

 
160

152

155

156

4

6

Investment management fees (a)
837

 
808

786

799

804

4

4

Performance fees
8

 
9

11

55

7

N/M
14

Investment management and performance fees
845

 
817

797

854

811

3

4

Distribution and servicing
49

 
49

46

39

37

—

32

Other (a)
(18
)
 
(10
)
(31
)
22

(5
)
N/M
N/M
Total fee and other revenue (a)
876

 
856

812

915

843

2

4

Net interest revenue
82

 
82

83

84

83

—

(1
)
Total revenue
958

 
938

895

999

926

2

3

Provision for credit losses
—

 
1

(1
)
(4
)
1

N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
680

 
684

660

689

665

(1
)
2

Income before taxes (ex. amortization of intangible assets)
278

 
253

236

314

260

10

7

Amortization of intangible assets
22

 
19

19

24

24

16

(8
)
Income before taxes
$
256

 
$
234

$
217

$
290

$
236

9
 %
8
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
27
%
 
25
%
24
%
29
%
25
%
 
 
Adjusted pre-tax operating margin - Non-GAAP (b)
33
%
 
31
%
30
%
36
%
34
%
 
 
 
 
 
 
 
 
 
 
 
Changes in AUM (in billions): (c)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,664

 
$
1,639

$
1,625

$
1,625

$
1,700

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

 
(2
)
—

1

(3
)
 
 
Liability-driven investments (d)
4

 
15

14

11

11

 
 
Alternative investments
2

 
1

1

2

1

 
 
Total long-term active inflows
3

 
12

12

5

5

 
 
Index
(2
)
 
(17
)
(11
)
(16
)
(10
)
 
 
Total long-term inflows (outflows)
1


(5
)
1

(11
)
(5
)
 
 
Short term:
 
 
 
 
 
 
 
 
Cash
(1
)
 
4

(9
)
2

(10
)
 
 
Total net inflows (outflows)
—


(1
)
(8
)
(9
)
(15
)
 
 
Net market impact/other
80

 
71

41

24

(35
)
 
 
Net currency impact
(29
)
 
(47
)
(19
)
(15
)
(25
)
 
 
Acquisition
—

 
2

—

—

—

 
 
Ending balance of AUM
$
1,715

(e)
$
1,664

$
1,639

$
1,625

$
1,625

3
 %
6
 %
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (c)
 
 
 
 
 
 
 
 
Equity
13
%
 
14
%
14
%
14
%
14
%

 
Fixed income
14

 
13

13

13

13


 
Index
18

 
18

19

20

20


 
Liability-driven investments (d)
35

 
34

33

32

32


 
Alternative investments
4

 
4

4

4

4


 
Cash
16

 
17

17

17

17


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

 
 
 
 
 
 
 
 
 
 
Average balances:
 
 
 
 
 
 
 
 
Average loans
$
15,308

 
$
14,795

$
14,275

$
13,447

$
12,779

3
 %
20
 %
Average deposits
$
15,600

 
$
15,518

$
15,971

$
15,497

$
15,282

1
 %
2
 %
(a)
Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. See page 28 for a breakdown of the revenue line items in the Investment Management business impacted by the consolidated investment management funds. Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.
(b)
Excludes the net negative impact of money market fee waivers, amortization of intangible assets and provision for credit losses and is net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 24 for the reconciliation of this Non-GAAP measure.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.
(d)
Includes currency overlay assets under management.
(e)
Preliminary.
N/M – Not meaningful.

Page - 16
BNY Mellon 3Q16 Earnings Release


INVESTMENT MANAGEMENT KEY POINTS

•
Income before taxes, excluding amortization of intangible assets, totaled $278 million in 3Q16, an increase of 7% year-over-year and 10% sequentially.

•
Pre-tax operating margin of 27% in 3Q16 increased 126 basis points year-over-year and 184 basis points sequentially.
•
Adjusted pre-tax operating margin (Non-GAAP) of 33% in 3Q16 decreased 17 basis points year-over-year and increased 220 basis points sequentially.

•
Total revenue was $958 million, an increase of 3% year-over-year and 2% sequentially.

•
40% non-U.S. revenue in 3Q16 vs. 42% in 3Q15.

•
Investment management fees were $837 million, an increase of 4% both year-over-year and sequentially. The year-over-year increase primarily reflects higher market values and money market fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and net outflows of assets under management in prior periods. The sequential increase primarily reflects higher market values.

•
Net long-term inflows of $1 billion in 3Q16 were a combination of $3 billion of inflows into actively managed strategies and $2 billion of outflows from index strategies.

•
3Q16 is our 5th consecutive quarter with active inflows reflecting our strategy to focus on high-value active solutions.
•
Net short-term outflows were $1 billion in 3Q16.

•
Performance fees were $8 million in 3Q16 compared with $7 million in 3Q15 and $9 million in 2Q16.

•
Distribution and servicing fees were $49 million in 3Q16 compared with $37 million in 3Q15 and $49 million in 2Q16. The year-over-year increase primarily reflects higher money market fees.

•
Other revenue was a loss of $18 million in 3Q16 compared with a loss of $5 million in 3Q15 and a loss of $10 million in 2Q16. Both decreases primarily reflect losses on hedging activity and investments, partially offset by higher seed capital gains. The year-over-year decrease also reflects payments to Investment Services related to higher money market fees.

•
Net interest revenue decreased 1% year-over-year and was unchanged sequentially. The year-over-year decrease primarily reflects the impact of the 1Q16 changes in the internal crediting rates, partially offset by record average loans and higher average deposits.

•
Average loans increased 20% year-over-year and 3% sequentially; average deposits increased 2% year-over-year and 1% sequentially. The increases in average loans were driven by our program to extend banking solutions to high net worth clients.

•
Total noninterest expense (excluding amortization of intangible assets) increased 2% year-over-year and decreased 1% sequentially. The year-over-year increase was primarily driven by higher distribution and servicing expense as a result of lower money market fee waivers and higher incentive and severance expenses, partially offset by the impact of a stronger U.S. dollar. The sequential decrease primarily reflects lower other expenses, partially offset by higher incentive and severance expenses.

Page - 17
BNY Mellon 3Q16 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)
 
 
 
 
 
 
3Q16 vs.
3Q16

 
2Q16

1Q16

4Q15

3Q15

2Q16

3Q15

Revenue:
 
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
 
Asset servicing
$
1,039

 
$
1,043

$
1,016

$
1,009

$
1,034

—
 %
—
 %
Clearing services
347

 
350

348

337

345

(1
)
1

Issuer services
336

 
233

244

199

312

44

8

Treasury services
136

 
137

129

135

135

(1
)
1

Total investment services fees
1,858

 
1,763

1,737

1,680

1,826

5

2

Foreign exchange and other trading revenue
177

 
161

168

150

179

10

(1
)
Other (a)
148

 
130

125

127

129

14

15

Total fee and other revenue
2,183

 
2,054

2,030

1,957

2,134

6

2

Net interest revenue
715

 
690

679

664

662

4

8

Total revenue
2,898

 
2,744

2,709

2,621

2,796

6

4

Provision for credit losses
1

 
(7
)
14

8

7

N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
1,812

 
1,819

1,770

1,791

1,853

—

(2
)
Income before taxes (ex. amortization of intangible assets)
1,085

 
932

925

822

936

16

16
Amortization of intangible assets
39

 
40

38

40

41

(3
)
(5
)
Income before taxes
$
1,046

 
$
892

$
887

$
782

$
895

17
 %
17
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
36
%
 
33
%
33
%
30
%
32
%
 
 
Pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets)
37
%
 
34
%
35
%
32
%
34
%
 
 
 
 
 
 
 
 
 
 
 
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)
103
%
 
97
%
98
%
94
%
99
%
 
 
 
 
 
 
 
 
 
 
 
Securities lending revenue
$
42

 
$
42

$
42

$
39

$
33

—
 %
27
 %
 
 
 
 
 
 
 
 
 
Metrics:
 
 
 
 
 
 
 
 
Average loans
$
44,329

 
$
43,786

$
45,004

$
45,844

$
46,222

1
 %
(4
)%
Average deposits
$
220,316

 
$
221,998

$
215,707

$
229,241

$
232,250

(1
)%
(5
)%
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (b)
$
30.5

(c)
$
29.5

$
29.1

$
28.9

$
28.5

3
 %
7
 %
Market value of securities on loan at period end
(in billions) (d)
$
288

 
$
278

$
300

$
277

$
288

4
 %
—
 %
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
150

(c)
$
167

$
40

$
49

$
84

 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,094

 
1,112

1,131

1,145

1,176

(2
)%
(7
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Average active clearing accounts (U.S. platform)
(in thousands)
5,942

 
5,946

5,947

5,959

6,107

—
 %
(3
)%
Average long-term mutual fund assets (U.S. platform)
$
443,112

 
$
431,150

$
415,025

$
437,260

$
447,287

3
 %
(1
)%
Average investor margin loans (U.S. platform)
$
10,834

 
$
10,633

$
11,063

$
11,575

$
11,806

2
 %
(8
)%
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
2,212

 
$
2,108

$
2,104

$
2,153

$
2,142

5
 %
3
 %
(a)
Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income.
(b)
Includes the AUC/A of CIBC Mellon of $1.2 trillion at Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015.
(c)
Preliminary.
(d)
Represents the total amount of securities on loan managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016, $55 billion at Dec. 31, 2015 and $61 billion at Sept. 30, 2015.
N/M - Not meaningful.

Page - 18
BNY Mellon 3Q16 Earnings Release


INVESTMENT SERVICES KEY POINTS

•
Income before taxes, excluding amortization of intangible assets, totaled $1.1 billion in 3Q16.

•
The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets, was 37% in 3Q16 and the investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) was 103% in 3Q16, reflecting the continued focus on the business improvement process to drive operating leverage.

•
Investment services fees were $1.9 billion, an increase of 2% year-over-year and 5% sequentially.

•
Asset servicing fees (global custody, broker-dealer services and global collateral services) were $1.039 billion in 3Q16 compared with $1.034 billion in 3Q15 and $1.043 billion in 2Q16. The year-over-year increase primarily reflects higher money market fees and securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar and downsizing of the UK transfer agency business.

--    Estimated new business wins (AUC/A) in Asset Servicing of $150 billion in 3Q16.

•
Clearing services fees were $347 million in 3Q16 compared with $345 million in 3Q15 and $350 million in 2Q16. The year-over-year increase was primarily driven by higher money market fees, partially offset by the impact of the previously disclosed lost business.

•
Issuer services fees (Corporate Trust and Depositary Receipts) were $336 million in 3Q16 compared with $312 million in 3Q15 and $233 million in 2Q16. The year-over-year increase primarily reflects higher corporate actions in Depositary Receipts and higher money market fees in Corporate Trust. The sequential increase primarily reflects seasonally higher fees in Depositary Receipts.

•
Treasury services fees were $136 million in 3Q16 compared with $135 million in 3Q15 and $137 million in 2Q16.

•
Foreign exchange and other trading revenue was $177 million in 3Q16 compared with $179 million in 3Q15 and $161 million in 2Q16. The year-over-year decrease primarily reflects lower volumes and volatility. The year-over-year decrease also reflects the continued trend of clients migrating to lower margin products. The sequential increase primarily reflects higher Depositary Receipt-related foreign exchange activity, partially offset by lower volatility.

•
Other revenue was $148 million in 3Q16 compared with $129 million in 3Q15 and $130 million in 2Q16. Both comparisons reflect increased payments from Investment Management related to higher money market fees, and termination fees related to lost business in our clearing services business. The year-over-year increase is partially offset by certain fees paid to introducing brokers and lower financing-related fees. The sequential increase also reflects higher financing-related fees.

•
Net interest revenue was $715 million in 3Q16 compared with $662 million in 3Q15 and $690 million in 2Q16. The year-over-year increase primarily reflects the impact of the 1Q16 changes in the internal crediting rates for deposits. The sequential increase primarily reflects higher asset yields and lower interest on deposits.

•
Noninterest expense (excluding amortization of intangible assets) was $1.812 billion in 3Q16 compared with $1.853 billion in 3Q15 and $1.819 billion in 2Q16. The year-over-year decrease primarily reflects lower other, temporary services and legal expenses. Both decreases also reflect lower sub-custodian and business development expenses, partially offset by higher incentive and severance expenses and the annual employee merit increase.

Page - 19
BNY Mellon 3Q16 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)
3Q16

2Q16

1Q16

4Q15

3Q15

Revenue:
 
 
 
 
 
Fee and other revenue
$
100

$
95

$
129

$
89

$
59

Net interest (expense) revenue
(23
)
(5
)
4

12

14

Total revenue
77

90

133

101

73

Provision for credit losses
(20
)
(3
)
(3
)
159

(7
)
Noninterest expense (ex. amortization of intangible assets and restructuring charges (recoveries))
88

53

141

150

97

Income (loss) before taxes (ex. amortization of intangible assets and restructuring charges (recoveries))
9

40

(5
)
(208
)
(17
)
Amortization of intangible assets
—

—

—

—

1

M&I and restructuring charges (recoveries)
—

3

(1
)
(4
)
(2
)
Income (loss) before taxes
$
9

$
37

$
(4
)
$
(204
)
$
(16
)
 
 
 
 
 
 
Average loans and leases
$
1,941

$
1,703

$
1,917

$
2,673

$
2,656



KEY POINTS

•
Total fee and other revenue increased $41 million compared with 3Q15 and $5 million compared with 2Q16. Both increases primarily reflect higher asset-related gains. The year-over-year increase also reflects the positive net impact of foreign currency hedging activity and higher fixed income trading.

•
Net interest revenue decreased $37 million compared with 3Q15 and $18 million compared with 2Q16. Both decreases were driven by the results of the leasing portfolio inclusive of changes to internal transfer pricing in 1Q16.

•
The provision for credit losses was a credit of $20 million in 3Q16 primarily reflecting a net recovery of $13 million recorded in the financial institutions portfolio. The recovery reflects the receipt of trust assets from the bankruptcy proceedings of Sentinel in excess of the carrying value.

•
Noninterest expense, excluding amortization of intangible assets and restructuring charges (recoveries), decreased $9 million compared with 3Q15 and increased $35 million compared with 2Q16. The year-over-year decrease primarily reflects lower equipment and occupancy expenses, partially offset by higher other expense. The sequential increase was primarily driven by the annual employee merit increase and higher professional, legal, and other purchased services.


Page - 20
BNY Mellon 3Q16 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement


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

June 30, 2016

Sept. 30, 2015

 
Sept. 30, 2016

Sept. 30, 2015

 
Fee and other revenue
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
Asset servicing
$
1,067

$
1,069

$
1,057

 
$
3,176

$
3,155

Clearing services
349

350

345

 
1,049

1,036

Issuer services
337

234

313

 
815

779

Treasury services
137

139

137

 
407

418

Total investment services fees
1,890

1,792

1,852

 
5,447

5,388

Investment management and performance fees
860

830

829

 
2,502

2,574

Foreign exchange and other trading revenue
183

182

179

 
540

595

Financing-related fees
58

57

71

 
169

169

Distribution and servicing
43

43

41

 
125

121

Investment and other income
92

74

59

 
271

223

Total fee revenue
3,126

2,978

3,031

 
9,054

9,070

Net securities gains
24

21

22

 
65

62

Total fee and other revenue
3,150

2,999

3,053

 
9,119

9,132

Operations of consolidated investment management funds
 
 
 
 
 
 
Investment income (loss)
20

10

(6
)
 
27

96

Interest of investment management fund note holders
3

—

16

 
6

26

Income (loss) from consolidated investment management funds
17

10

(22
)
 
21

70

Net interest revenue
 
 
 
 
 
 
Interest revenue
874

890

838

 
2,647

2,492

Interest expense
100

123

79

 
340

226

Net interest revenue
774

767

759

 
2,307

2,266

Total revenue
3,941

3,776

3,790

 
11,447

11,468

Provision for credit losses
(19
)
(9
)
1

 
(18
)
(3
)
Noninterest expense
 
 
 
 
 
 
Staff
1,467

1,412

1,437

 
4,338

4,356

Professional, legal and other purchased services
292

290

301

 
860

902

Software and equipment
215

223

226

 
657

682

Net occupancy
143

152

152

 
437

452

Distribution and servicing
105

102

95

 
307

289

Sub-custodian
59

70

65

 
188

210

Business development
52

65

59

 
174

192

Other
231

240

268

 
712

760

Amortization of intangible assets
61

59

66

 
177

197

M&I, litigation and restructuring charges
18

7

11

 
42

67

Total noninterest expense
2,643

2,620

2,680

 
7,892

8,107

Income
 
 
 
 
 
 
Income before income taxes
1,317

1,165

1,109

 
3,573

3,364

Provision for income taxes
324

290

282

 
897

838

Net income
993

875

827

 
2,676

2,526

Net (income) loss attributable to noncontrolling interests (includes $(9), $(4), $5, $(6) and $(63) related to consolidated investment management funds, respectively)
(6
)
(2
)
6

 
1

(61
)
Net income applicable to shareholders of The Bank of New York Mellon Corporation
987

873

833

 
2,677

2,465

Preferred stock dividends
(13
)
(48
)
(13
)
 
(74
)
(49
)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
974

$
825

$
820

 
$
2,603

$
2,416




Page - 21
BNY Mellon 3Q16 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
Sept. 30, 2016

June 30, 2016

Sept. 30, 2015

 
Sept. 30, 2016

Sept. 30, 2015

(in millions)
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
974

$
825

$
820

 
$
2,603

$
2,416

Less: Earnings allocated to participating securities
15

13

6

 
39

34

Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and diluted earnings per common share
$
959

$
812

$
814


$
2,564

$
2,382



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

June 30, 2016

Sept. 30, 2015

 
Sept. 30, 2016

Sept. 30, 2015

(in thousands)
 
Basic
1,062,248

1,072,583

1,098,003

 
1,071,457

1,110,056

Diluted
1,067,682

1,078,271

1,105,645

 
1,077,150

1,117,975



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

June 30, 2016

Sept. 30, 2015

 
Sept. 30, 2016

Sept. 30, 2015

(in dollars)
 
Basic
$
0.90

$
0.76

$
0.74

 
$
2.39

$
2.15

Diluted
$
0.90

$
0.75

$
0.74

 
$
2.38

$
2.13




Page - 22
BNY Mellon 3Q16 Earnings Release


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

June 30, 2016

Dec. 31, 2015

 
 
Assets
 
 
 
 
Cash and due from:
 
 
 
 
Banks
$
4,957

$
5,809

$
6,537

 
Interest-bearing deposits with the Federal Reserve and other central banks
80,359

88,080

113,203

 
Interest-bearing deposits with banks
14,416

13,303

15,146

 
Federal funds sold and securities purchased under resale agreements
34,851

28,060

24,373

 
Securities:
 
 
 
 
Held-to-maturity (fair value of $41,387, $41,804 and $43,204)
40,728

41,053

43,312

 
Available-for-sale
78,270

76,547

75,867

 
Total securities
118,998

117,600

119,179

 
Trading assets
5,340

7,148

7,368

 
Loans
65,997

64,513

63,703

 
Allowance for loan losses
(148
)
(158
)
(157
)
 
Net loans
65,849

64,355

63,546

 
Premises and equipment
1,338

1,399

1,379

 
Accrued interest receivable
522

540

562

 
Goodwill
17,449

17,501

17,618

 
Intangible assets
3,671

3,738

3,842

 
Other assets 
25,355

23,735

19,626

 
Subtotal assets of operations 
373,105

371,268

392,379

 
Assets of consolidated investment management funds, at fair value:
 
 
 
 
Trading assets 
873

959

1,228

 
Other assets 
136

124

173

 
Subtotal assets of consolidated investment management funds, at fair value
1,009

1,083

1,401

 
Total assets 
$
374,114

$
372,351

$
393,780

 
Liabilities
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing (principally U.S. offices)
$
105,632

$
99,035

$
96,277

 
Interest-bearing deposits in U.S. offices
56,713

58,519

51,704

 
Interest-bearing deposits in Non-U.S. offices
99,033

102,124

131,629

 
Total deposits
261,378

259,678

279,610

 
Federal funds purchased and securities sold under repurchase agreements
8,052

7,611

15,002

 
Trading liabilities
4,154

6,195

4,501

 
Payables to customers and broker-dealers
21,162

21,172

21,900

 
Other borrowed funds
993

1,098

523

 
Accrued taxes and other expenses
5,687

5,385

5,986

 
Other liabilities (includes allowance for lending-related commitments of $126, $122 and $118)
7,709

8,105

5,490

 
Long-term debt
24,374

23,573

21,547

 
Subtotal liabilities of operations
333,509

332,817

354,559

 
Liabilities of consolidated investment management funds, at fair value:
 
 
 
 
Trading liabilities 
219

214

229

 
Other liabilities 
13

23

17

 
Subtotal liabilities of consolidated investment management funds, at fair value
232

237

246

 
Total liabilities 
333,741

333,054

354,805

 
Temporary equity
 
 
 
 
Redeemable noncontrolling interests
178

172

200

 
Permanent equity
 
 
 
 
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 25,826 and 25,826 shares
3,542

2,552

2,552

 
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,325,167,583, 1,323,941,399 and 1,312,941,113 shares
13

13

13

 
Additional paid-in capital
25,637

25,563

25,262

 
Retained earnings
22,002

21,233

19,974

 
Accumulated other comprehensive loss, net of tax
(2,785
)
(2,552
)
(2,600
)
 
Less: Treasury stock of 267,830,962, 256,266,980 and 227,598,128 common shares, at cost
(8,714
)
(8,250
)
(7,164
)
 
Total The Bank of New York Mellon Corporation shareholders’ equity
39,695

38,559

38,037

 
Nonredeemable noncontrolling interests of consolidated investment management funds 
500

566

738

 
Total permanent equity 
40,195

39,125

38,775

 
Total liabilities, temporary equity and permanent equity 
$
374,114

$
372,351

$
393,780


Page - 23
BNY Mellon 3Q16 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 (recovery) impairment charge related to Sentinel, are also presented. Operating margin measures may also exclude the provision for credit losses and the net negative impact of money market fee waivers, net of distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions, Operational Excellence Initiatives and migrating positions to Global Delivery Centers. Excluding these charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

The presentation of income (loss) from consolidated investment management funds, net of net income (loss) attributable to noncontrolling interests related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with how management views the business. BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.

Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.

Page - 24
BNY Mellon 3Q16 Earnings Release


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

Reconciliation of net income and diluted EPS – GAAP
  to Non-GAAP
(in millions, except per common share amounts)
3Q16
 
2Q16
 
3Q15
 
Net income

Diluted EPS

 
Net income

Diluted EPS

 
Net income

Diluted EPS

 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
974

$
0.90

 
$
825

$
0.75

 
$
820

$
0.74

 
Add: M&I, litigation and restructuring charges
18

 
 
7

 
 
11

 
 
  Tax impact of the recovery related to Sentinel
5

 
 
N/A

 
 
N/A

 
 
Less: Recovery related to Sentinel
13

 
 
N/A

 
 
N/A

 
 
  Tax impact of M&I, litigation and restructuring charges
5

 
 
2

 
 
3

 
 
Non-GAAP adjustments – after-tax
5

—

 
5

—

 
8

0.01

 
Non-GAAP results
$
979

$
0.90

 
$
830

$
0.76

(a)
$
828

$
0.74

(a)
(a)
Does not foot due to rounding.
N/A - Not applicable.


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

Reconciliation of income before income taxes – pre-tax operating margin
 
 
 
 
 
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

Income before income taxes – GAAP
$
1,317

$
1,165

$
1,091

$
871

$
1,109

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
9

4

(7
)
5

(5
)
Add: Amortization of intangible assets
61

59

57

64

66

M&I, litigation and restructuring charges
18

7

17

18

11

(Recovery) impairment charge related to Sentinel
(13
)
—

—

170

—

Income before income taxes, as adjusted – Non-GAAP (a)
$
1,374

$
1,227

$
1,172

$
1,118

$
1,191

 
 
 
 
 
 
Fee and other revenue – GAAP
$
3,150

$
2,999

$
2,970

$
2,950

$
3,053

Income (loss) from consolidated investment management funds – GAAP
17

10

(6
)
16

(22
)
Net interest revenue – GAAP
774

767

766

760

759

Total revenue – GAAP
3,941

3,776

3,730

3,726

3,790

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
9

4

(7
)
5

(5
)
Total revenue, as adjusted – Non-GAAP (a)
$
3,932

$
3,772

$
3,737

$
3,721

$
3,795

 
 
 
 
 
 
Pre-tax operating margin – GAAP (b)(c)
33
%
31
%
29
%
23
%
29
%
Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c)
35
%
33
%
31
%
30
%
31
%
(a)
Non-GAAP information for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.
(b)
Income before taxes divided by total revenue.
(c)
Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities. The benefits of these investments are primarily reflected in tax expense. If reported on a tax-equivalent basis, these investments would increase revenue and income before taxes by $74 million for 3Q16, $74 million for 2Q16, $77 million for 1Q16, $73 million for 4Q15 and $53 million for 3Q15 and would increase our pre-tax operating margin by approximately 1.2% for 3Q16, 1.3% for 2Q16, 1.4% for 1Q16, 1.5% for 4Q15 and 1.0% for 3Q15.



Page - 25
BNY Mellon 3Q16 Earnings Release


The following table presents the reconciliation of the operating leverage.

Operating leverage
 
 
 
3Q16 vs.
(dollars in millions)
3Q16

2Q16

3Q15

2Q16

3Q15

Total revenue – GAAP
$
3,941

$
3,776

$
3,790

4.37%

3.98%

Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
9

4

(5
)
 
 
Total revenue, as adjusted – Non-GAAP
$
3,932

$
3,772

$
3,795

4.24%

3.61%

 
 
 
 
 
 
Total noninterest expense – GAAP
$
2,643

$
2,620

$
2,680

0.88%

(1.38)%

Less: Amortization of intangible assets
61

59

66

 
 
M&I, litigation and restructuring charges
18

7

11

 
 
Total noninterest expense, as adjusted – Non-GAAP
$
2,564

$
2,554

$
2,603

0.39%

(1.50)%

 
 
 
 
 
 
Operating leverage – GAAP (a)
 
 
 
349
 bps
536
 bps
Adjusted operating leverage – Non-GAAP (a)(b)
 
 
 
385
 bps
511
 bps
(a)
Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)
Non-GAAP operating leverage for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps - basis points.


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

Return on common equity and tangible common equity
 
 
 
 
 
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
974

$
825

$
804

$
637

$
820

Add: Amortization of intangible assets
61

59

57

64

66

Less: Tax impact of amortization of intangible assets
21

21

20

22

23

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible
assets – Non-GAAP
1,014

863

841

679

863

Add: M&I, litigation and restructuring charges
18

7

17

18

11

 (Recovery) impairment charge related to Sentinel
(13
)
—

—

170

—

Less: Tax impact of M&I, litigation and restructuring charges
5

2

6

6

3

 Tax impact of (recovery) impairment charge related to Sentinel
(5
)
—

—

64

—

Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)
$
1,019

$
868

$
852

$
797

$
871

 
 
 
 
 
 
Average common shareholders’ equity
$
35,767

$
35,827

$
35,252

$
35,664

$
35,588

Less: Average goodwill
17,463

17,622

17,562

17,673

17,742

Average intangible assets
3,711

3,789

3,812

3,887

3,962

Add: Deferred tax liability – tax deductible goodwill (b)
1,477

1,452

1,428

1,401

1,379

Deferred tax liability – intangible assets (b)
1,116

1,129

1,140

1,148

1,164

Average tangible common shareholders’ equity – Non-GAAP
$
17,186

$
16,997

$
16,446

$
16,653

$
16,427

 
 
 
 
 
 
Return on common equity – GAAP (c)
10.8
%
9.3
%
9.2
%
7.1
%
9.1
%
Adjusted return on common equity – Non-GAAP (a)(c)
11.3
%
9.7
%
9.7
%
8.9
%
9.7
%
 
 
 
 
 
 
Return on tangible common equity – Non-GAAP (c)
23.5
%
20.4
%
20.6
%
16.2
%
20.8
%
Adjusted return on tangible common equity – Non-GAAP (a)(c)
23.6
%
20.5
%
20.8
%
19.0
%
21.0
%
(a)
Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.
(b)
Deferred tax liabilities are based on fully phased-in Basel III rules.
(c)
Annualized.


Page - 26
BNY Mellon 3Q16 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
Sept. 30, 2016

June 30, 2016

March 31, 2016

Dec. 31, 2015

Sept. 30, 2015

(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
$
39,695

$
38,559

$
38,459

$
38,037

$
38,170

Less: Preferred stock
3,542

2,552

2,552

2,552

2,552

BNY Mellon common shareholders’ equity at period end – GAAP
36,153

36,007

35,907

35,485

35,618

Less: Goodwill
17,449

17,501

17,604

17,618

17,679

Intangible assets
3,671

3,738

3,781

3,842

3,914

Add: Deferred tax liability – tax deductible goodwill (a)
1,477

1,452

1,428

1,401

1,379

Deferred tax liability – intangible assets (a)
1,116

1,129

1,140

1,148

1,164

BNY Mellon tangible common shareholders’ equity at period
  end – Non-GAAP
$
17,626

$
17,349

$
17,090

$
16,574

$
16,568

 
 
 
 
 
 
Total assets at period end – GAAP
$
374,114

$
372,351

$
372,870

$
393,780

$
377,371

Less: Assets of consolidated investment management funds
1,009

1,083

1,300

1,401

2,297

Subtotal assets of operations – Non-GAAP
373,105

371,268

371,570

392,379

375,074

Less: Goodwill
17,449

17,501

17,604

17,618

17,679

Intangible assets
3,671

3,738

3,781

3,842

3,914

Cash on deposit with the Federal Reserve and other central banks (b)
80,362

88,080

96,421

116,211

86,426

Tangible total assets of operations at period end – Non-GAAP
$
271,623

$
261,949

$
253,764

$
254,708

$
267,055

 
 
 
 
 
 
BNY Mellon shareholders’ equity to total assets ratio – GAAP
10.6
%
10.4
%
10.3
%
9.7
%
10.1
%
BNY Mellon common shareholders’ equity to total assets ratio – GAAP
9.7
%
9.7
%
9.6
%
9.0
%
9.4
%
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio – Non-GAAP
6.5
%
6.6
%
6.7
%
6.5
%
6.2
%
 
 
 
 
 
 
Period-end common shares outstanding (in thousands)
1,057,337

1,067,674

1,077,083

1,085,343

1,092,953

 
 
 
 
 
 
Book value per common share – GAAP
$
34.19

$
33.72

$
33.34

$
32.69

$
32.59

Tangible book value per common share – Non-GAAP
$
16.67

$
16.25

$
15.87

$
15.27

$
15.16

(a)
Deferred tax liabilities are based on fully phased-in Basel III rules.
(b)    Assigned a zero percent risk-weighting by the regulators.


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

Income (loss) from consolidated investment management funds, net of noncontrolling interests
(in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

Income (loss) from consolidated investment management funds
$
17

$
10

$
(6
)
$
16

$
(22
)
Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds
9

4

(7
)
5

(5
)
Income (loss) from consolidated investment management funds, net of noncontrolling interests
$
8

$
6

$
1

$
11

$
(17
)




Page - 27
BNY Mellon 3Q16 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)
3Q16

2Q16

1Q16

4Q15

3Q15

Investment management fees
$
3

$
3

$
2

$
7

$
3

Other (Investment income (loss))
6

3

(1
)
4

(20
)
Income (loss) from consolidated investment management funds, net of noncontrolling interests
$
9

$
6

$
1

$
11

$
(17
)


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

Pre-tax operating margin - Investment Management business
 
 
 
 
 
(dollars in millions)
3Q16

2Q16

1Q16

4Q15

3Q15

Income before income taxes – GAAP
$
256

$
234

$
217

$
290

$
236

Add: Amortization of intangible assets
22

19

19

24

24

Provision for credit losses
—

1

(1
)
(4
)
1

Money market fee waivers
11

11

9

23

28

Income before income taxes excluding amortization of intangible assets, provision for credit losses and money market fee waivers – Non-GAAP
$
289

$
265

$
244

$
333

$
289

 
 
 
 
 
 
Total revenue – GAAP
$
958

$
938

$
895

$
999

$
926

Less: Distribution and servicing expense
104

102

100

92

94

Money market fee waivers benefiting distribution and servicing expense
15

15

23

27

35

Add: Money market fee waivers impacting total revenue
26

26

32

50

63

Total revenue net of distribution and servicing expense
and excluding money market fee waivers – Non-GAAP
$
865

$
847

$
804

$
930

$
860

 
 
 
 
 
 
Pre-tax operating margin (a)
27
%
25
%
24
%
29
%
25
%
Pre-tax operating margin excluding amortization of intangible assets, provision for credit losses, money market fee waivers and net of distribution and servicing expense – Non-GAAP (a)
33
%
31
%
30
%
36
%
34
%
(a)    Income before taxes divided by total revenue.


DIVIDENDS

Common – On Oct. 20, 2016, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.19 per common share. This cash dividend is payable on Nov. 10, 2016 to shareholders of record as of the close of business on Nov. 1, 2016.

Preferred – On Oct. 20, 2016, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in December 2016, in each case payable on Dec. 20, 2016 to holders of record as of the close of business on Dec. 5, 2016:
•
$1,011.11 per share on the Series A Preferred Stock (equivalent to $10.1111 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock);
•
$1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock);
•
$2,250.00 per share on the Series D Preferred Stock (equivalent to $22.5000 per depositary share, each representing a 1/100th interest in a share of the Series D Preferred Stock); and
•
$2,475.00 per share on the Series E Preferred Stock (equivalent to $24.7500 per depositary share, each representing a 1/100th interest in a share of the Series E Preferred Stock).


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BNY Mellon 3Q16 Earnings Release


BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Sept. 30, 2016, BNY Mellon had $30.5 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.


CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding our strategy, goals, revenue growth, shareholder returns, business improvement process, technology, client enhancements, capital plans and the resolution plan and expected effects of adopting a single point of entry strategy. These statements may be expressed in a variety of ways, including the use of future or present tense language. Words such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “may,” “will,” “strategy,” “opportunities,” “trends” and words of similar meaning signify forward-looking statements. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2015, the Quarterly Report on Form 10-Q for the period ended June 30, 2016 and BNY Mellon’s other filings with the Securities and Exchange Commission. In addition, the actual effects of our adopting a single point of entry resolution strategy may differ from those expressed or implied in forward-looking statements as a result of changes to our strategy and related assumptions. All forward-looking statements in this Earnings Release speak only as of October 20, 2016, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.


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