EX-99.1 2 ex991_earningsrelease2q17.htm EXHIBIT 99.1 Exhibit
BNY Mellon 2Q17 Earnings Release


News Release
bnylogoa01a24.jpg


BNY MELLON REPORTS SECOND QUARTER EARNINGS OF $926 MILLION OR $0.88 PER COMMON SHARE
•
Earnings per common share up 17% year-over-year

TOTAL REVENUE OF $3.96 BILLION, INCREASED 5% YEAR-OVER-YEAR
•
Investment management and performance fees increased 6% on record assets under management
•
Investment services fees increased 4% on record assets under custody and/or administration
•
Net interest revenue increased 8%

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

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS
•
Returned over $700 million to shareholders through share repurchases and dividends
•
Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a)
•
SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a)

BOARD APPROVED QUARTERLY COMMON STOCK DIVIDEND INCREASE OF 26% TO $0.24 PER SHARE AND THE REPURCHASE OF UP TO $3.1 BILLION OF COMMON STOCK


NEW YORK, July 20, 2017 – The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE: BK) today reported second quarter net income applicable to common shareholders of $926 million, or $0.88 per diluted common share. Net income applicable to common shareholders was $825 million, or $0.75 per diluted common share, in the second quarter of 2016, and $880 million, or $0.83 per diluted common share, in the first quarter of 2017.

“During the second quarter, healthy revenue growth in both our investment management and investment services businesses and the more favorable rate environment helped us maintain double-digit earnings per share growth and drive substantial positive operating leverage on a year-over-year basis. We and our clients are just beginning to capitalize on the benefits of our strategy and investments in growth. We have distinctive capabilities in areas such as collateral management solutions, middle-office outsourcing and liability-driven investments, and made an early commitment to delivering an industry-leading digital investment platform. We believe we are well positioned to help our clients meet regulatory requirements and navigate today’s financial marketplace while at the same time make it easier for them to access the insights and information they need,” Gerald L. Hassell, chairman, said.

“The results of the 2017 annual stress tests proved the resilience of our capital position. Our business model has been consistently generating high levels of capital, enabling us to announce a capital plan that includes share repurchases of up to $3.1 billion and an approximately 26 percent increase in the quarterly dividend,” Mr. Hassell concluded.

Charles W. Scharf, chief executive officer, added, “I am excited to join the company and I’m pleased to see Gerald and the team were able to deliver solid results in Gerald’s last quarter as CEO. They have generated momentum, and we will work really hard to build on it by continuing to put our clients first and by maintaining our position as a strong, trusted and well-respected partner. We will not waver in our focus on continually becoming more efficient, improving our client experience, and growing our revenues by expanding our already great set of capabilities.”
__________________________________________
(a)
These measures are considered to be Non-GAAP. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 22 for the adjusted return on tangible common equity reconciliation. See “Capital and Liquidity” beginning on page 11 for the reconciliation of the SLR.

 
 
Media Relations: Eva Radtke (212) 635-1504
Investor Relations:  Valerie Haertel (212) 635-8529
BNY Mellon 2Q17 Earnings Release


SECOND QUARTER 2017 FINANCIAL HIGHLIGHTS (a)
(comparisons are 2Q17 vs. 2Q16, unless otherwise stated)


Earnings
•
Total revenue of $4.0 billion, increased 5%.
•
Investment services fees increased 4% reflecting growth in clearing services fees, net new business, including collateral management solutions, and higher equity market values, offset by the unfavorable impact of a stronger U.S. dollar.
•
Investment management and performance fees increased 6% due to higher market values, money market fees and performance fees, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) (a).
•
Foreign exchange revenue decreased 9% reflecting lower volatility, offset by higher volumes.
•
Investment and other income increased $48 million driven by lease-related gains.
•
Net interest revenue increased 8% driven by interest rates and lower premium amortization, offset by lower interest-earning assets and higher average long-term debt.
•
The provision for credit losses was a credit of $7 million.
•
Noninterest expense of $2.7 billion, increased 1% reflecting higher professional, legal and other purchased services (related to regulatory and compliance costs, including the 2017 resolution plan), software and litigation expenses, offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense.
•
Effective tax rate of 25.4% for 2Q17.
•
Preferred stock dividends of $49 million in 2Q17.

Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
•
Record AUC/A of $31.1 trillion increased 5% reflecting higher market values.
•
Estimated new AUC/A wins in Asset Servicing of $152 billion in 2Q17.
•
Record AUM of $1.77 trillion increased 6% reflecting higher market values and net inflows, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
•
Net long-term inflows of $3 billion in 2Q17 reflecting inflows of liability-driven and fixed income investments, partially offset by outflows of index investments.
•
Net short-term inflows of $11 billion in 2Q17 were a result of increased distribution through our liquidity portals.

Capital and liquidity
•
Repurchased 11 million common shares for $506 million and paid $199 million in dividends to common shareholders.
•
Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a).
•
SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a).
•
Average LCR of 116%.
•
Board approved quarterly common stock dividend increase of 26% to $0.24 per share and the repurchase of up to $3.1 billion of common stock, including the repurchase of $500 million of common stock contingent upon a preferred stock issuance, over the next four quarters.
 
 
 
 
 
(a)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 22 for the reconciliation of Non-GAAP measures. In all periods presented, Non-GAAP information excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. See “Capital and Liquidity” beginning on page 11 for the reconciliation of the SLR.
Note: Throughout this document, sequential growth rates are unannualized.

Page - 2
BNY Mellon 2Q17 Earnings Release


FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in thousands)
 
 
 
 
 
2Q17 vs.
2Q17

1Q17

4Q16

3Q16

2Q16

1Q17
2Q16
Revenue:
 
 
 
 
 
 
 
Fee and other revenue
$
3,120

$
3,018

$
2,954

$
3,150

$
2,999

3%

4%

Income from consolidated investment management funds
10

33

5

17

10

 
 
Net interest revenue
826

792

831

774

767

4

8

Total revenue – GAAP
3,956

3,843

3,790

3,941

3,776

3

5

Less: Net income attributable to noncontrolling interests related to consolidated investment management funds
3

18

4

9

4

 
 
Total revenue, as adjusted – Non-GAAP
3,953

3,825

3,786

3,932

3,772

3

5

Provision for credit losses
(7
)
(5
)
7

(19
)
(9
)
 
 
Expense:
 
 
 
 
 
 
 
Noninterest expense – GAAP
2,655

2,642

2,631

2,643

2,620

—

1

Less: Amortization of intangible assets
53

52

60

61

59

 
 
M&I, litigation and restructuring charges
12

8

7

18

7

 
 
Total noninterest expense, as adjusted – Non-GAAP
2,590

2,582

2,564

2,564

2,554

—

1

Income:
 
 
 
 
 
 
 
Income before income taxes
1,308

1,206

1,152

1,317

1,165

8%

12%
Provision for income taxes
332

269

280

324

290

 
 
Net income
$
976

$
937

$
872

$
993

$
875

 
 
Net (income) attributable to noncontrolling interests (a)
(1
)
(15
)
(2
)
(6
)
(2
)
 
 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
975

922

870

987

873

 
 
Preferred stock dividends
(49
)
(42
)
(48
)
(13
)
(48
)
 
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
926

$
880

$
822

$
974

$
825

 
 
 
 
 
 
 
 
 
 
Operating leverage (b)
 
 
 
 
 
245
 bps
343
 bps
Adjusted operating leverage – Non-GAAP (b)(c)
 
 
 
 
 
304
 bps
339
 bps
 
 
 
 
 
 
 
 
Key Metrics:
 
 
 
 
 
 

Pre-tax operating margin (c)
33
%
31
%
30
%
33
%
31
%
 
 
Adjusted pre-tax operating margin – Non-GAAP (c)
35
%
33
%
32
%
35
%
33
%
 
 
 
 
 
 
 
 
 
 
Return on common equity (annualized) (c)
10.4
%
10.2
%
9.3
%
10.8
%
9.3
%
 
 
Adjusted return on common equity (annualized) – Non-GAAP (c)
10.8
%
10.7
%
9.8
%
11.3
%
9.7
%
 
 
 
 
 
 
 
 
 
 
Return on tangible common equity (annualized) – Non-
GAAP (c)(d)
21.9
%
22.2
%
20.4
%
23.5
%
20.4
%
 
 
Adjusted return on tangible common equity (annualized) – Non-GAAP (c)(d)
22.1
%
22.4
%
20.5
%
23.6
%
20.5
%
 
 
 
 
 
 
 
 
 
 
Fee revenue as a percentage of total revenue
79
%
78
%
78
%
79
%
79
%
 
 
 
 
 
 
 
 
 
 
Percentage of non-U.S. total revenue
35
%
34
%
34
%
36
%
34
%
 
 
 
 
 
 
 
 
 
 
Average common shares and equivalents outstanding:
 
 
 
 
 
 
 
Basic
1,035,829

1,041,158

1,050,888

1,062,248

1,072,583

 
 
Diluted
1,041,879

1,047,746

1,056,818

1,067,682

1,078,271

 
 
 
 
 
 
 
 
 
 
Period end:
 
 
 
 
 
 
 
Full-time employees
52,800

52,600

52,000

52,300

52,200

 
 
Book value per common share – GAAP (d)
$
35.26

$
34.23

$
33.67

$
34.19

$
33.72

 
 
Tangible book value per common share – Non-GAAP (d)
$
17.53

$
16.65

$
16.19

$
16.67

$
16.25

 
 
Cash dividends per common share
$
0.19

$
0.19

$
0.19

$
0.19

$
0.17

 
 
Common dividend payout ratio
22
%
23
%
25
%
21
%
23
%
 
 
Closing stock price per common share
$
51.02

$
47.23

$
47.38

$
39.88

$
38.85

 
 
Market capitalization
$
52,712

$
49,113

$
49,630

$
42,167

$
41,479

 
 
Common shares outstanding
1,033,156

1,039,877

1,047,488

1,057,337

1,067,674

 
 
(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 22 for the components of this measure.
(c)
Non-GAAP information for all periods presented excludes the net income 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 loan to Sentinel Management Group, Inc. (“Sentinel”). See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 22 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 22 for the reconciliation of Non-GAAP measures.
bps – basis points.

Page - 3
BNY Mellon 2Q17 Earnings Release


KEY MARKET METRICS

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

Key market metrics
 
 
 
 
 
2Q17 vs.
 
2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

S&P 500 Index (a)
2423

2363

2239

2168

2099

3%

15%

S&P 500 Index – daily average
2398

2326

2185

2162

2075

3

16

FTSE 100 Index (a)
7313

7323

7143

6899

6504

—

12

FTSE 100 Index – daily average
7391

7274

6923

6765

6204

2

19

MSCI EAFE (a)
1883

1793

1684

1702

1608

5

17

MSCI EAFE – daily average
1856

1749

1660

1677

1648

6

13

Barclays Capital Global Aggregate BondSM Index (a)(b)
471

459

451

486

482

3

(2
)
NYSE and NASDAQ share volume (in billions)
199

186

189

186

203

7

(2
)
JPMorgan G7 Volatility Index – daily average (c)
7.98

10.10

10.24

10.19

11.12

(21
)
(28
)
Average interest on excess reserves paid by the Federal Reserve
1.04
%
0.79
%
0.55
%
0.50
%
0.50
%
25 bps

54 bps

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

$
1.25

$
1.23

$
1.30

$
1.34

4%

(3)%

British pound – average rate
1.28

1.24

1.24

1.31

1.43

3

(10
)
Euro (a)
1.14

1.07

1.05

1.12

1.11

7

3

Euro – average rate
1.10

1.07

1.08

1.12

1.13

3

(3
)
(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 - 4
BNY Mellon 2Q17 Earnings Release


FEE AND OTHER REVENUE

Fee and other revenue
 
 
 
 
 
2Q17 vs.
(dollars in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Investment services fees:
 
 
 
 
 
 
 
Asset servicing (a)
$
1,085

$
1,063

$
1,068

$
1,067

$
1,069

2
 %
1
 %
Clearing services
394

376

355

349

350

5

13

Issuer services
241

251

211

337

234

(4
)
3

Treasury services
140

139

140

137

139

1

1

Total investment services fees
1,860

1,829

1,774

1,890

1,792

2

4

Investment management and performance fees
879

842

848

860

830

4

6

Foreign exchange and other trading revenue
165

164

161

183

182

1

(9
)
Financing-related fees
53

55

50

58

57

(4
)
(7
)
Distribution and servicing
41

41

41

43

43

—

(5
)
Investment and other income
122

77

70

92

74

N/M
N/M
Total fee revenue
3,120

3,008

2,944

3,126

2,978

4

5

Net securities gains
—

10

10

24

21

N/M
N/M
Total fee and other revenue
$
3,120

$
3,018

$
2,954

$
3,150

$
2,999

3
 %
4
 %
(a)
Asset servicing fees include securities lending revenue of $48 million in 2Q17, $49 million in 1Q17, $54 million in 4Q16, $51 million in 3Q16 and $52 million in 2Q16.
N/M – Not meaningful.


KEY POINTS

•
Asset servicing fees increased 1% year-over-year and 2% sequentially, primarily reflecting net new business, including growth of collateral management solutions, and higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing the retail UK transfer agency business.

•
Clearing services fees increased 13% year-over-year and 5% sequentially, primarily driven by higher money market fees and growth in long-term mutual fund assets.

•
Issuer services fees increased 3% year-over-year and decreased 4% sequentially. The year-over-year increase primarily reflects higher Depositary Receipts revenue. The sequential decrease primarily reflects seasonality in Depositary Receipts revenue.

•
Treasury services fees increased 1% both year-over-year and sequentially, primarily reflecting higher payment volumes, partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.

•
Investment management and performance fees increased 6% year-over-year and 4% sequentially, primarily reflecting higher market values, money market fees and performance fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) year-over-year.

Page - 5
BNY Mellon 2Q17 Earnings Release


•
Foreign exchange and other trading revenue
 
 
 
 
 
 
(in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

 
Foreign exchange
$
151

$
154

$
175

$
175

$
166

 
Other trading revenue (loss)
14

10

(14
)
8

16

 
Total foreign exchange and other trading revenue
$
165

$
164

$
161

$
183

$
182



Foreign exchange revenue decreased 9% year-over-year and 2% sequentially, primarily reflecting lower volatility, partially offset by higher volumes.

•
Financing-related fees decreased 7% year-over-year and 4% sequentially, primarily reflecting lower underwriting fees.

•
Investment and other income
 
 
 
 
 
 
(in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

 
Lease-related gains (losses)
$
51

$
1

$
(6
)
$
—

$
—

 
Corporate/bank-owned life insurance
43

30

53

34

31

 
Expense reimbursements from joint venture
17

14

15

18

17

 
Seed capital gains (a)
10

9

6

16

11

 
Equity investment income (loss)
7

26

(2
)
(1
)
(4
)
 
Asset-related (losses) gains
(5
)
3

1

8

1

 
Other (loss) income
(1
)
(6
)
3

17

18

 
Total investment and other income
$
122

$
77

$
70

$
92

$
74

(a)
Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in operations of consolidated investment management funds, net of noncontrolling interests. The gain on seed capital investments in consolidated investment management funds was $7 million in 2Q17, $15 million in 1Q17, $1 million in 4Q16, $8 million in 3Q16 and $6 million in 2Q16.


Both the year-over-year and sequential increases in investment and other income primarily reflect lease-related gains and higher income from corporate/bank-owned life insurance. The year-over-year increase was partially offset by the negative impact of foreign exchange translation and lower other income driven by our investments in renewable energy. The sequential increase was partially offset by a net gain related to an equity investment recorded in 1Q17.


Page - 6
BNY Mellon 2Q17 Earnings Release


NET INTEREST REVENUE

Net interest revenue
 
 
 
 
 
2Q17 vs.
(dollars in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Net interest revenue – GAAP
$
826

$
792

$
831

$
774

$
767

4%

8%

Tax equivalent adjustment
12

12

12

12

13

N/M
N/M
Net interest revenue (FTE) – Non-GAAP (a)
$
838

$
804

$
843

$
786

$
780

4%

7%

 
 
 
 
 
 
 
 
Net interest margin – GAAP
1.14
%
1.13
%
1.16
 %
1.05
 %
0.97
%
1
 bps
17
 bps
Net interest margin (FTE) – Non-GAAP (a)
1.16
%
1.14
%
1.17
 %
1.06
 %
0.98
%
2
 bps
18
 bps
 
 
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
 
 
Cash/interbank investments
$
111,021

$
106,069

$
104,352

$
114,544

$
137,995

5
 %
(20)%

Trading account securities
2,455

2,254

2,288

2,176

2,152

9

14

Securities
117,227

114,786

117,660

118,405

118,002

2

(1
)
Loans
58,793

60,312

63,647

61,578

60,284

(3
)
(2
)
Interest-earning assets
289,496

283,421

287,947

296,703

318,433

2

(9
)
Interest-bearing deposits
142,336

139,820

145,681

155,109

165,122

2

(14
)
Noninterest-bearing deposits
73,886

73,555

82,267

81,619

84,033

—

(12
)
Long-term debt
27,398

25,882

24,986

23,930

22,838

6

20

 
 
 
 
 
 
 
 
Selected average yields/rates: (b)
 
 
 
 
 
 
 
Cash/interbank investments
0.67
%
0.56
%
0.47
 %
0.43
 %
0.44
%
 
 
Trading account securities
2.85

3.12

3.17

2.62

2.45

 
 
Securities
1.72

1.71

1.67

1.56

1.56

 
 
Loans
2.44

2.15

1.92

1.84

1.85

 
 
Interest-earning assets
1.47

1.38

1.30

1.19

1.14

 
 
Interest-bearing deposits
0.09

0.03

(0.01
)
(0.02
)
0.03

 
 
Long-term debt
1.87

1.85

1.36

1.54

1.54

 
 
 
 
 
 
 
 
 
 
Average cash/interbank investments as a percentage of average interest-earning assets
38
%
37
%
36
 %
39
 %
43
%
 
 
Average noninterest-bearing deposits as a percentage of average interest-earning assets
26
%
26
%
29
 %
28
 %
26
%
 
 
(a)
Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons 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.
(b)
Yields/rates include the impact of interest rate hedging activities.
FTE – fully taxable equivalent.
N/M – Not meaningful.
bps – basis points.


KEY POINTS

•
Net interest revenue increased 8% year-over-year and 4% sequentially, primarily reflecting higher interest rates. The year-over-year increase also reflects lower premium amortization, partially offset by lower interest-earning assets and higher average long-term debt. The sequential increase also reflects an additional interest-earning day and higher interest-earning assets.


Page - 7
BNY Mellon 2Q17 Earnings Release


NONINTEREST EXPENSE

Noninterest expense
 
 
 
 
 
2Q17 vs.
(dollars in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Staff
$
1,417

$
1,472

$
1,395

$
1,467

$
1,412

(4
)%
—
 %
Professional, legal and other purchased services
319

312

325

292

290

2

10

Software and equipment
232

223

237

215

223

4

4

Net occupancy
139

136

153

143

152

2

(9
)
Distribution and servicing
104

100

98

105

102

4

2

Sub-custodian
65

64

57

59

70

2

(7
)
Bank assessment charges
59

57

53

61

52

4

13

Business development
63

51

71

52

65

24

(3
)
Other
192

167

175

170

188

15

2

Amortization of intangible assets
53

52

60

61

59

2

(10
)
M&I, litigation and restructuring charges
12

8

7

18

7

N/M
N/M
Total noninterest expense – GAAP
$
2,655

$
2,642

$
2,631

$
2,643

$
2,620

—
 %
1
 %
 
 
 
 
 
 
 
 
Staff expense as a percentage of total revenue
36
%
38
%
37
%
37
%
37
%
 
 
 
 
 
 
 
 
 
 
Memo:
 
 
 
 
 
 
 
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP
$
2,590

$
2,582

$
2,564

$
2,564

$
2,554

—
 %
1
 %
N/M – Not meaningful.


KEY POINTS

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

•
The year-over-year increase primarily reflects higher professional, legal and other purchased services, software and litigation expenses, partially offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense. The increase in professional, legal and other purchased services primarily reflects expenses related to regulatory and compliance costs, including the 2017 resolution plan. Net occupancy expense decreased as we continued to benefit from the savings generated by the business improvement process.

•
Sequentially, lower staff expense was primarily offset by higher other, business development and software expenses. The decrease in staff expense was primarily driven by the impact of vesting of long-term stock awards for retirement eligible employees recorded in 1Q17.

Page - 8
BNY Mellon 2Q17 Earnings Release


INVESTMENT SECURITIES PORTFOLIO

At June 30, 2017, the fair value of our investment securities portfolio totaled $118.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $151 million at June 30, 2017 compared with a pre-tax loss of $23 million at March 31, 2017. The improvement in the net unrealized pre-tax gain was primarily driven by a decrease in market interest rates. At June 30, 2017, the fair value of the held-to-maturity securities totaled $40.9 billion and represented 34% 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, 2017

 
2Q17
change in
unrealized
gain (loss)

June 30, 2017
Fair value
as a % of amortized
cost (a)

Unrealized
gain (loss)

 
Ratings (b)
 
 
 
 
BB+
and
lower
 
 Fair
value

 
Amortized
cost

Fair
value

 
 
AAA/
AA-
A+/
A-
BBB+/
BBB-
Not
rated
Agency RMBS
$
47,680

 
$
79

$
49,829

$
49,544

 
99
%
$
(285
)
 
100
%
—
%
—
%
—
%
—
%
U.S. Treasury
26,149

 
47

25,417

25,325

 
100

(92
)
 
100

—

—

—

—

Sovereign debt/sovereign guaranteed
13,885

 
(14
)
13,880

14,025

 
101

145

 
74

6

19

1

—

Non-agency RMBS (c)
1,298

 
9

948

1,239

 
82

291

 
—

1

3

87

9

Non-agency RMBS
670

 
8

597

627

 
96

30

 
7

4

15

73

1

European floating rate notes
639

 
3

528

523

 
98

(5
)
 
70

30

—

—

—

Commercial MBS
8,796

 
20

10,597

10,574

 
100

(23
)
 
99

1

—

—

—

State and political subdivisions
3,322

 
21

3,268

3,299

 
101

31

 
81

16

—

—

3

Foreign covered bonds
2,144

 
(4
)
2,458

2,471

 
101

13

 
100

—

—

—

—

Corporate bonds
1,366

 
4

1,309

1,318

 
101

9

 
17

70

13

—

—

CLOs
2,569

 
(1
)
2,635

2,642

 
100

7

 
99

—

—

—

1

U.S. Government agencies
1,985

 
—

2,196

2,210

 
101

14

 
100

—

—

—

—

Consumer ABS
1,456

 
2

1,326

1,330

 
100

4

 
90

4

4

2

—

Other (d)
3,553

 
—

3,746

3,758

 
100

12

 
79

19

—

—

2

Total investment securities
$
115,512

(e)
$
174

$
118,734

$
118,885

(e)
100
%
$
151

(e)(f)
93
%
3
%
3
%
1
%
—
%
(a)    Amortized cost before impairments.
(b)
Represents ratings by S&P, or the equivalent.
(c)
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.
(d)
Includes commercial paper with a fair value of $701 million and $700 million and money market funds with a fair value of $853 million and $896 million at March 31, 2017 and June 30, 2017, respectively.
(e)
Includes net unrealized losses on derivatives hedging securities available-for-sale of $134 million at March 31, 2017 and $251 million at June 30, 2017.
(f)
Unrealized gains of $275 million at June 30, 2017 related to available-for-sale securities, net of hedges.


Page - 9
BNY Mellon 2Q17 Earnings Release


NONPERFORMING ASSETS

Nonperforming assets
(dollars in millions)
June 30, 2017

March 31, 2017

Dec. 31, 2016

Nonperforming loans:
 
 
 
Other residential mortgages
$
84

$
88

$
91

Wealth management loans and mortgages
10

10

8

Financial institutions
2

—

—

Lease financing
—

—

4

Total nonperforming loans
96

98

103

Other assets owned
4

9

4

Total nonperforming assets
$
100

$
107

$
107

Nonperforming assets ratio
0.16
%
0.18
%
0.17
%
Allowance for loan losses/nonperforming loans
171.9

167.3

164.1

Total allowance for credit losses/nonperforming loans
281.3

281.6

272.8



Nonperforming assets decreased $7 million compared with March 31, 2017 and Dec. 31, 2016. The decrease compared with March 31, 2017 primarily reflects lower other assets owned and other residential mortgages.


ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs
(in millions)
June 30,
2017

March 31, 2017

June 30,
2016

Allowance for credit losses - beginning of period
$
276

$
281

$
287

Provision for credit losses
(7
)
(5
)
(9
)
Net recoveries (charge-offs):
 
 
 
Other residential mortgages
1

—

1

Foreign
—

—

1

Net recoveries (charge-offs)
1

—

2

Allowance for credit losses - end of period
$
270

$
276

$
280

Allowance for loan losses
$
165

$
164

$
158

Allowance for lending-related commitments
105

112

122




Page - 10
BNY Mellon 2Q17 Earnings Release


CAPITAL AND LIQUIDITY

Our consolidated capital ratios are shown in the following table. The common equity Tier 1 (“CET1”), Tier 1 and Total risk-based regulatory capital ratios in the first section of the table below are based on Basel III components of capital, as phased-in (referred to as “Transitional ratios”).

Capital ratios
June 30,
2017

March 31, 2017

Dec. 31, 2016

Consolidated regulatory capital ratios: (a)
 
 
 
Standardized Approach:
 
 
 
CET1 ratio
11.8
%
12.0
%
12.3
%
Tier 1 capital ratio
14.1

14.4

14.5

Total (Tier 1 plus Tier 2) capital ratio
14.6

14.9

15.2

Advanced Approach:




 
CET1 ratio
10.8

10.4

10.6

Tier 1 capital ratio
12.8

12.5

12.6

Total (Tier 1 plus Tier 2) capital ratio
13.2

12.8

13.0

Leverage capital ratio (b)
6.7

6.6

6.6

Supplementary leverage ratio (“SLR”)
6.2

6.1

6.0

BNY Mellon shareholders’ equity to total assets ratio
11.3

11.6

11.6

BNY Mellon common shareholders’ equity to total assets ratio
10.3

10.5

10.6

 
 
 
 
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(c)
 
 
 
CET1 ratio: 
 
 
 
Standardized Approach
11.4
%
11.5
%
11.3
%
Advanced Approach
10.4

10.0

9.7

SLR
6.0

5.9

5.6

(a)
Regulatory capital ratios for June 30, 2017 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)
Estimated.


CET1 generation in 2Q17 – preliminary
Transitional
basis (b)

Fully
phased-in – 
Non-GAAP (c)

 
(in millions)
CET1 – Beginning of period
$
17,606

$
16,835

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
926

926

Goodwill and intangible assets, net of related deferred tax liabilities
(47
)
(40
)
Gross CET1 generated
879

886

Capital deployed:
 
 
Dividends
(199
)
(199
)
Common stock repurchased
(506
)
(506
)
Total capital deployed
(705
)
(705
)
Other comprehensive income
410

431

Additional paid-in capital (a)
184

184

Other
(3
)
(2
)
Total other additions
591

613

Net CET1 generated
765

794

CET1 – End of period
$
18,371

$
17,629

(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 - 11
BNY Mellon 2Q17 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
June 30, 2017 (a)
 
March 31, 2017
 
Dec. 31, 2016
(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
$
36,652

$
36,432

 
$
35,837

$
35,596

 
35,794

35,269

Goodwill and intangible assets
(17,843
)
(18,326
)
 
(17,796
)
(18,286
)
 
(17,314
)
(18,312
)
Net pension fund assets
(72
)
(90
)
 
(72
)
(90
)
 
(55
)
(90
)
Equity method investments
(325
)
(339
)
 
(326
)
(341
)
 
(313
)
(344
)
Deferred tax assets
(29
)
(37
)
 
(27
)
(34
)
 
(19
)
(32
)
Other
(12
)
(11
)
 
(10
)
(10
)
 
—

(1
)
Total CET1
18,371

17,629

 
17,606

16,835

 
18,093

16,490

Other Tier 1 capital:


 
 


 
 
 
 
Preferred stock
3,542

3,542

 
3,542

3,542

 
3,542

3,542

Deferred tax assets
(8
)
—

 
(7
)
—

 
(13
)
—

Net pension fund assets
(18
)
—

 
(18
)
—

 
(36
)
—

Other
(18
)
(19
)
 
(14
)
(14
)
 
(121
)
(121
)
Total Tier 1 capital
21,869

21,152

 
21,109

20,363

 
21,465

19,911

 


 
 


 
 
 
 
Tier 2 capital:


 
 


 
 
 
 
Trust preferred securities
—

—

 
—

—

 
148

—

Subordinated debt
550

550

 
550

550

 
550

550

Allowance for credit losses
270

270

 
276

276

 
281

281

Other
(2
)
(2
)
 
(2
)
(2
)
 
(12
)
(11
)
Total Tier 2 capital - Standardized Approach
818

818

 
824

824

 
967

820

Excess of expected credit losses
55

55

 
51

51

 
50

50

Less: Allowance for credit losses
270

270

 
276

276

 
281

281

Total Tier 2 capital - Advanced Approach
$
603

$
603

 
$
599

$
599

 
$
736

$
589

 


 
 


 
 
 
 
Total capital:


 
 


 
 
 
 
Standardized Approach
$
22,687

$
21,970

 
$
21,933

$
21,187

 
$
22,432

$
20,731

Advanced Approach
$
22,472

$
21,755

 
$
21,708

$
20,962

 
$
22,201

$
20,500

 
 
 
 
 
 
 
 
 
Risk-weighted assets:


 
 


 
 
 
 
Standardized Approach
$
155,313

$
154,779

 
$
146,747

$
146,122

 
$
147,671

$
146,475

Advanced Approach
$
170,445

$
169,879

 
$
169,195

$
168,534

 
$
170,495

$
169,227

 
 
 
 
 
 
 
 
 
Standardized Approach:


 
 


 
 
 
 
CET1 ratio
11.8
%
11.4
%
 
12.0
%
11.5
%
 
12.3
%
11.3
%
Tier 1 capital ratio
14.1

13.7

 
14.4

13.9

 
14.5

13.6

Total (Tier 1 plus Tier 2) capital ratio
14.6

14.2

 
14.9

14.5

 
15.2

14.2

Advanced Approach:
 
 
 
 
 
 
 
 
CET1 ratio
10.8
%
10.4
%
 
10.4
%
10.0
%
 
10.6
%
9.7
%
Tier 1 capital ratio
12.8

12.5

 
12.5

12.1

 
12.6

11.8

Total (Tier 1 plus Tier 2) capital ratio
13.2

12.8

 
12.8

12.4

 
13.0

12.1

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


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

Page - 12
BNY Mellon 2Q17 Earnings Release


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

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, 2017 (a)

March 31, 2017
 
Dec. 31, 2016
(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
$
21,869

$
21,152

 
$
21,109

$
20,363

 
$
21,465

$
19,911

 

 
 
 
 
 
 
 
Total leverage exposure:


 
 
 
 
 
 
 
Quarterly average total assets
$
342,515

$
342,515

 
$
336,200

$
336,200

 
$
344,142

$
344,142

Less: Amounts deducted from Tier 1 capital
18,070

18,809

 
18,016

18,763

 
17,333

18,887

Total on-balance sheet assets
324,445

323,706


318,184

317,437

 
326,809

325,255

Off-balance sheet exposures:


 
 
 
 
 
 
 
Potential future exposure for derivative contracts (plus certain other items)
6,013

6,013

 
5,898

5,898

 
6,021

6,021

Repo-style transaction exposures
598

598

 
536

536

 
533

533

Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)
22,092

22,092

 
22,901

22,901

 
23,274

23,274

Total off-balance sheet exposures
28,703

28,703


29,335

29,335

 
29,828

29,828

Total leverage exposure
$
353,148

$
352,409


$
347,519

$
346,772

 
$
356,637

$
355,083

 

 
 
 
 
 
 
 
SLR - Consolidated (c)
6.2
%
6.0
%
 
6.1
%
5.9
%
 
6.0
%
5.6
%
 
 
 
 
 
 
 
 
 
The Bank of New York Mellon, our largest bank subsidiary:
 
 
 
 
 
 
 
 
Tier 1 capital
$
19,897

$
19,125

 
$
19,320

$
18,523

 
$
19,011

$
17,708

Total leverage exposure
$
286,972

$
286,604

 
$
281,114

$
280,741

 
$
291,022

$
290,230

 
 

 
 

 
 
 
SLR - The Bank of New York Mellon (c)
6.9
%
6.7
%
 
6.9
%
6.6
%
 
6.5
%
6.1
%
(a)
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 fully phased-in on Jan. 1, 2017 and require BNY Mellon to meet an LCR of 100%. On a consolidated basis, our average LCR was 116% for 2Q17. High-quality liquid assets (“HQLA”), before haircuts and trapped liquidity, totaled $174 billion at June 30, 2017 and averaged $166 billion for 2Q17.

Page - 13
BNY Mellon 2Q17 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)
 
 
 
 
 
 
2Q17 vs.
2Q17

 
1Q17

4Q16

3Q16

2Q16

1Q17
2Q16
Revenue:
 
 
 
 
 
 
 
 
Investment management fees:
 
 
 
 
 
 
 
 
Mutual funds
$
314

 
$
299

$
297

$
309

$
304

5
 %
3
 %
Institutional clients
362

 
348

340

362

344

4

5

Wealth management
169

 
167

164

166

160

1

6

Investment management fees (a)
845

 
814

801

837

808

4

5

Performance fees
17

 
12

32

8

9

N/M
N/M
Investment management and performance fees
862

 
826

833

845

817

4

6

Distribution and servicing
53

 
52

48

49

49

2

8

Other (a)
(16
)
 
(1
)
(1
)
(18
)
(10
)
N/M
N/M
Total fee and other revenue (a)
899

 
877

880

876

856

3

5

Net interest revenue
87

 
86

80

82

82

1

6

Total revenue
986

 
963

960

958

938

2

5

Provision for credit losses
—

 
3

6

—

1

N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
683

 
668

672

680

684

2

—

Amortization of intangible assets
15

 
15

22

22

19

—

(21
)
Total noninterest expense
698

 
683

694

702

703

2

(1
)
Income before taxes
$
288

 
$
277

$
260

$
256

$
234

4
 %
23
 %
Income before taxes (ex. amortization of intangible
assets) – Non-GAAP
$
303

 
$
292

$
282

$
278

$
253

4
 %
20
 %
Pre-tax operating margin
29
%
 
29
%
27
%
27
%
25
%
 
 
Adjusted pre-tax operating margin – Non-GAAP (b)
34
%
 
34
%
33
%
33
%
30
%
 
 
 
 
 
 
 
 
 
 
 
Changes in AUM (in billions): (c)
 
 
 
 
 
 
 
 
Beginning balance of AUM
$
1,727

 
$
1,648

$
1,715

$
1,664

$
1,639

 
 
Net inflows (outflows):
 
 
 
 
 
 
 
 
Long-term strategies:
 
 
 
 
 
 
 
 
Equity
(2
)
 
(4
)
(5
)
(6
)
(2
)
 
 
Fixed income
2

 
2

(1
)
(1
)
(3
)
 
 
Liability-driven investments (d)
15

 
14

(7
)
4

15

 
 
Multi-asset and alternative investments
1

 
2

3

7

2

 
 
Total long-term active strategies inflows (outflows)
16

 
14

(10
)
4

12

 
 
Index
(13
)
 
—

(1
)
(3
)
(17
)
 
 
Total long-term strategies inflows (outflows)
3


14

(11
)
1

(5
)
 
 
Short term strategies:
 
 
 
 
 
 
 
 
Cash
11

 
13

(3
)
(1
)
4

 
 
Total net inflows (outflows)
14


27

(14
)
—

(1
)
 
 
Net market impact/other
1

 
41

(11
)
80

71

 
 
Net currency impact
29

 
11

(42
)
(29
)
(47
)
 
 
Acquisition
—

 
—

—

—

2

 
 
Ending balance of AUM
$
1,771

(e)
$
1,727

$
1,648

$
1,715

$
1,664

3
 %
6
 %
 
 
 
 
 
 
 
 
 
AUM at period end, by product type: (c)
 
 
 
 
 
 
 
 
Equity
9
%
 
9
%
9
%
9
%
9
%

 
Fixed income
11

 
11

11

11

12


 
Index
18

 
19

19

18

18


 
Liability-driven investments (d)
35

 
34

34

35

34


 
Multi-asset and alternative investments
11

 
11

11

11

11


 
Cash
16

 
16

16

16

16


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

 
 
 
 
 
 
 
 
 
 
Average balances:
 
 
 
 
 
 
 
 
Average loans
$
16,560

 
$
16,153

$
15,673

$
15,308

$
14,795

3
 %
12
 %
Average deposits
$
14,866

 
$
15,781

$
15,511

$
15,600

$
15,518

(6
)%
(4
)%
(a)
Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. See page 25 for a breakdown of the revenue line items in the Investment Management business impacted by the consolidated investment management funds. Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.
(b)
Excludes amortization of intangible assets, provision for credit losses and distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 22 for the reconciliation of this Non-GAAP measure.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d)
Includes currency overlay assets under management.
(e)
Preliminary.
N/M – Not meaningful.

Page - 14
BNY Mellon 2Q17 Earnings Release


INVESTMENT MANAGEMENT KEY POINTS

•
Income before taxes totaled $288 million in 2Q17, an increase of 23% year-over-year and 4% sequentially. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $303 million in 2Q17, an increase of 20% year-over-year and 4% sequentially.
•
Pre-tax operating margin of 29% in 2Q17 increased 438 bps year-over-year and 48 bps sequentially.
•
Adjusted pre-tax operating margin (Non-GAAP) of 34% in 2Q17 increased 397 bps year-over-year and 11 bps sequentially.

•
Total revenue was $986 million, an increase of 5% year-over-year primarily reflecting higher market values, performance fees and net interest revenue. The sequential increase of 2% primarily reflects higher market values and performance fees, partially offset by lower seed capital gains.
•
40% non-U.S. revenue in 2Q17 and 2Q16.

•
Investment management fees increased 5% year-over-year and 4% sequentially, primarily reflecting higher market values and money market fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management fees increased 8% (Non-GAAP) year-over-year.
•
Net long-term inflows of $3 billion in 2Q17 reflect inflows of liability-driven and fixed income investments, partially offset by outflows of index investments.
•
Net short-term inflows of $11 billion in 2Q17 were a result of increased distribution through our liquidity portals.

•
Performance fees increased year-over-year primarily reflecting liability-driven investment strategies.

•
Other revenue declined year-over-year primarily reflecting higher payments to Investment Services related to higher money market fees. The sequential decline in other revenue was driven by lower seed capital gains.

•
Net interest revenue increased 6% year-over-year and 1% sequentially, primarily reflecting higher interest rates on lower average deposit levels.
•
Average loans increased 12% year-over-year and 3% sequentially. Record average loans were driven by extending banking solutions to high net worth clients.
•
Average deposits decreased 4% year-over-year and 6% sequentially.

•
Total noninterest expense (excluding amortization of intangible assets) decreased slightly year-over-year, primarily reflecting the favorable impact of a stronger U.S. dollar (principally versus the British pound) and lower professional, legal and other purchased services, partially offset by higher incentive expense. The 2% sequential increase primarily reflects higher business development and distribution and servicing expenses.

Page - 15
BNY Mellon 2Q17 Earnings Release


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

(dollars in millions, unless otherwise noted)
 
 
 
 
 
 
2Q17 vs.
2Q17

 
1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Revenue:
 
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
 
Asset servicing
$
1,061

 
$
1,038

$
1,043

$
1,039

$
1,043

2
 %
2
 %
Clearing services
393

 
375

354

347

350

5

12

Issuer services
241

 
250

211

336

233

(4
)
3

Treasury services
139

 
139

139

136

137

—

1

Total investment services fees
1,834

 
1,802

1,747

1,858

1,763

2

4

Foreign exchange and other trading revenue
145

 
153

157

177

161

(5
)
(10
)
Other (a)
136

 
129

128

148

130

5

5

Total fee and other revenue
2,115

 
2,084

2,032

2,183

2,054

1

3

Net interest revenue
761

 
707

713

715

690

8

10

Total revenue
2,876

 
2,791

2,745

2,898

2,744

3

5

Provision for credit losses
(3
)
 
—

—

1

(7
)
N/M
N/M
Noninterest expense (ex. amortization of intangible assets)
1,889

 
1,812

1,786

1,812

1,819

4

4

Amortization of intangible assets
38

 
37

38

39

40

3

(5
)
Total noninterest expense
1,927

 
1,849

1,824

1,851

1,859

4

4

Income before taxes
$
952

 
$
942

$
921

$
1,046

$
892

1
 %
7
 %
Income before taxes (ex. amortization of intangible assets) – Non-GAAP
$
990

 
$
979

$
959

$
1,085

$
932

1
 %
6
 %
 
 
 
 
 
 
 
 
 
Pre-tax operating margin
33
%
 
34
%
34
%
36
%
33
%
 
 
Adjusted pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets) – Non-GAAP
34
%
 
35
%
35
%
37
%
34
%
 
 
 
 
 
 
 
 
 
 
 
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)
97
%
 
99
%
98
%
103
%
97
%
 
 
 
 
 
 
 
 
 
 
 
Securities lending revenue
$
42

 
$
40

$
44

$
42

$
42

5
 %
—
 %
 
 
 
 
 
 
 
 
 
Metrics:
 
 
 
 
 
 
 
 
Average loans
$
40,931

 
$
42,818

$
45,832

$
44,329

$
43,786

(4
)%
(7
)%
Average deposits
$
200,417

 
$
197,690

$
213,531

$
220,316

$
221,998

1
 %
(10
)%
 
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (b)
$
31.1

(c)
$
30.6

$
29.9

$
30.5

$
29.5

2
 %
5
 %
Market value of securities on loan at period end
(in billions) (d)
$
336

 
$
314

$
296

$
288

$
278

7
 %
21
 %
 
 
 
 
 
 
 
 
 
Asset servicing:
 
 
 
 
 
 
 
 
Estimated new business wins (AUC/A) (in billions)
$
152

(c)
$
109

$
141

$
150

$
167

 
 
 
 
 
 
 
 
 
 
 
Depositary Receipts:
 
 
 
 
 
 
 
 
Number of sponsored programs
1,025

 
1,050

1,062

1,094

1,112

(2
)%
(8
)%
 
 
 
 
 
 
 
 
 
Clearing services:
 
 
 
 
 
 
 
 
Average active clearing accounts (U.S. platform)
(in thousands)
6,159

 
6,058

5,960

5,942

5,946

2
 %
4
 %
Average long-term mutual fund assets (U.S. platform)
$
480,532

 
$
460,977

$
438,460

$
443,112

$
431,150

4
 %
11
 %
Average investor margin loans (U.S. platform)
$
9,812

 
$
10,740

$
10,562

$
10,834

$
10,633

(9
)%
(8
)%
 
 
 
 
 
 
 
 
 
Broker-Dealer:
 
 
 
 
 
 
 
 
Average tri-party repo balances (in billions)
$
2,498

 
$
2,373

$
2,307

$
2,212

$
2,108

5
 %
19
 %
(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 Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at June 30, 2017, March 31, 2017, Dec. 31, 2016 and Sept. 30, 2016 and $1.1 trillion at June 30, 2016.
(c)
Preliminary.
(d)
Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $66 billion at June 30, 2017, $65 billion at March 31, 2017, $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016 and $56 billion at June 30, 2016.
N/M – Not meaningful.

Page - 16
BNY Mellon 2Q17 Earnings Release


INVESTMENT SERVICES KEY POINTS

•
Income before taxes totaled $952 million in 2Q17. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $990 million in 2Q17.
•
The pre-tax operating margin was 33% in 2Q17. The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 34% in 2Q17.
•
Investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 97% in 2Q17.

•
Investment services fees increased 4% year-over-year and 2% sequentially.
•
Asset servicing fees increased 2% year-over-year and sequentially, primarily reflecting net new business, including growth of collateral management solutions, and higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing the retail UK transfer agency business.
•
Clearing services fees increased 12% year-over-year and 5% sequentially, primarily driven by higher money market fees and growth in long-term mutual fund assets.
•
Issuer services fees increased 3% year-over-year, primarily reflecting higher Depositary Receipts revenue. The 4% sequential decrease primarily reflects seasonality in Depositary Receipts revenue.
•
Treasury services fees increased 1% year-over-year, primarily reflecting higher payment volumes, partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.

•
Foreign exchange and other trading revenue decreased 10% year-over-year and 5% sequentially, primarily reflecting lower volatility, partially offset by higher volumes.

•
Other revenue increased 5% both year-over-year and sequentially, primarily reflecting higher payments from Investment Management related to higher money market fees, partially offset by certain fees paid to introducing brokers.

•
Net interest revenue increased 10% year-over-year primarily reflecting the impact of the higher interest rates, partially offset by lower deposits. The 8% sequential increase primarily reflects higher rates.

•
Noninterest expense (excluding amortization of intangible assets) increased 4% year-over-year, primarily reflecting higher expenses from regulatory and compliance costs and additional technology investments, partially offset by the favorable impact of a stronger U.S. dollar. The 4% sequential increase primarily reflects additional technology investments, the unfavorable impact of a weaker U.S. dollar, higher business development expense and increased volume-related clearing and sub-custodian expenses.


Page - 17
BNY Mellon 2Q17 Earnings Release


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

 
 
 
 
 
 
(in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

Revenue:
 
 
 
 
 
Fee and other revenue
$
113

$
72

$
42

$
100

$
95

Net interest (expense) revenue
(22
)
(1
)
38

(23
)
(5
)
Total revenue
91

71

80

77

90

Provision for credit losses
(4
)
(8
)
1

(20
)
(3
)
Noninterest expense (ex. M&I and restructuring charges)
28

106

108

88

53

M&I and restructuring charges
—

1

2

—

3

Total noninterest expense
28

107

110

88

56

Income (loss) before taxes
$
67

$
(28
)
$
(31
)
$
9

$
37

Income (loss) before taxes (ex. M&I and restructuring charges) – Non-GAAP
$
67

$
(27
)
$
(29
)
$
9

$
40

 
 
 
 
 
 
Average loans and leases
$
1,302

$
1,341

$
2,142

$
1,941

$
1,703



KEY POINTS

•
Total fee and other revenue increased $18 million compared with 2Q16 and $41 million compared with 1Q17. Both increases primarily reflect lease-related gains and higher income from corporate/bank-owned life insurance. The year-over-year increase was partially offset by the negative impact of foreign exchange translation and lower other income driven by our investments in renewable energy. The sequential increase was partially offset by a net gain related to an equity investment recorded in 1Q17.

•
Net interest revenue decreased $17 million compared with 2Q16 and $21 million compared with 1Q17. Both decreases primarily reflect the impact of higher crediting rates to the businesses.

•
Noninterest expense (excluding M&I and restructuring charges) decreased $25 million compared with 2Q16 and $78 million compared with 1Q17. Both decreases are primarily driven by lower staff expense.


Page - 18
BNY Mellon 2Q17 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement


 
(in millions)
Quarter ended
 
Year-to-date
 
June 30, 2017

March 31, 2017

June 30, 2016

 
June 30, 2017

June 30, 2016

 
 
Fee and other revenue
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
Asset servicing
$
1,085

$
1,063

$
1,069

 
$
2,148

$
2,109

 
Clearing services
394

376

350

 
770

700

 
Issuer services
241

251

234

 
492

478

 
Treasury services
140

139

139

 
279

270

 
Total investment services fees
1,860

1,829

1,792

 
3,689

3,557

 
Investment management and performance fees
879

842

830

 
1,721

1,642

 
Foreign exchange and other trading revenue
165

164

182

 
329

357

 
Financing-related fees
53

55

57

 
108

111

 
Distribution and servicing
41

41

43

 
82

82

 
Investment and other income
122

77

74

 
199

179

 
Total fee revenue
3,120

3,008

2,978

 
6,128

5,928

 
Net securities gains
—

10

21

 
10

41

 
Total fee and other revenue
3,120

3,018

2,999

 
6,138

5,969

 
Operations of consolidated investment management funds
 
 
 
 
 
 
 
Investment income
10

37

10

 
47

7

 
Interest of investment management fund note holders
—

4

—

 
4

3

 
Income from consolidated investment management funds
10

33

10

 
43

4

 
Net interest revenue
 
 
 
 
 
 
 
Interest revenue
1,052

960

890

 
2,012

1,773

 
Interest expense
226

168

123

 
394

240

 
Net interest revenue
826

792

767

 
1,618

1,533

 
Total revenue
3,956

3,843

3,776

 
7,799

7,506

 
Provision for credit losses
(7
)
(5
)
(9
)
 
(12
)
1

 
Noninterest expense
 
 
 
 
 
 
 
Staff
1,417

1,472

1,412

 
2,889

2,871

 
Professional, legal and other purchased services
319

312

290

 
631

568

 
Software and equipment
232

223

223

 
455

442

 
Net occupancy
139

136

152

 
275

294

 
Distribution and servicing
104

100

102

 
204

202

 
Sub-custodian
65

64

70

 
129

129

 
Bank assessment charges (a)
59

57

52

 
116

105

 
Business development
63

51

65

 
114

122

 
Other (a)
192

167

188

 
359

376

 
Amortization of intangible assets
53

52

59

 
105

116

 
M&I, litigation and restructuring charges
12

8

7

 
20

24

 
Total noninterest expense
2,655

2,642

2,620

 
5,297

5,249

 
Income
 
 
 
 
 
 
 
Income before income taxes
1,308

1,206

1,165

 
2,514

2,256

 
Provision for income taxes
332

269

290

 
601

573

 
Net income
976

937

875

 
1,913

1,683

 
Net (income) loss attributable to noncontrolling interests (includes $(3), $(18),$(4), $(21) and $3 related to consolidated investment management funds, respectively)
(1
)
(15
)
(2
)
 
(16
)
7

 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
975

922

873

 
1,897

1,690

 
Preferred stock dividends
(49
)
(42
)
(48
)
 
(91
)
(61
)
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
926

$
880

$
825

 
$
1,806

$
1,629

(a)
In the first quarter of 2017, we began disclosing bank assessment charges on a quarterly basis. The bank assessment charges were previously included in other expense.


Page - 19
BNY Mellon 2Q17 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, 2017

March 31, 2017

June 30, 2016

 
June 30, 2017

June 30, 2016

(in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
926

$
880

$
825

 
$
1,806

$
1,629

Less: Earnings allocated to participating securities
13

14

13

 
27

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
$
913

$
866

$
812

 
$
1,779

$
1,605



Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
June 30, 2017

March 31, 2017

June 30, 2016

 
June 30, 2017

June 30, 2016

(in thousands)
Basic
1,035,829

1,041,158

1,072,583

 
1,038,479

1,076,112

Diluted
1,041,879

1,047,746

1,078,271

 
1,044,809

1,081,847



Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
June 30, 2017

March 31, 2017

June 30, 2016

 
June 30, 2017

June 30, 2016

(in dollars)
Basic
$
0.88

$
0.83

$
0.76

 
$
1.71

$
1.49

Diluted
$
0.88

$
0.83

$
0.75

 
$
1.70

$
1.48




Page - 20
BNY Mellon 2Q17 Earnings Release


THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
 
(dollars in millions, except per share amounts)
June 30, 2017

March 31, 2017

Dec. 31, 2016

 
 
Assets
 
 
 
 
Cash and due from:
 
 
 
 
Banks
$
4,725

$
5,366

$
4,822

 
Interest-bearing deposits with the Federal Reserve and other central banks
74,130

65,086

58,041

 
Interest-bearing deposits with banks
13,601

14,554

15,086

 
Federal funds sold and securities purchased under resale agreements
27,440

25,776

25,801

 
Securities:
 
 
 
 
Held-to-maturity (fair value of $40,862, $40,066 and $40,669)
40,986

40,254

40,905

 
Available-for-sale
78,274

75,580

73,822

 
Total securities
119,260

115,834

114,727

 
Trading assets
5,279

4,912

5,733

 
Loans
61,673

60,868

64,458

 
Allowance for loan losses
(165
)
(164
)
(169
)
 
Net loans
61,508

60,704

64,289

 
Premises and equipment
1,640

1,307

1,303

 
Accrued interest receivable
567

551

568

 
Goodwill
17,457

17,355

17,316

 
Intangible assets
3,506

3,549

3,598

 
Other assets 
25,000

21,515

20,954

 
Subtotal assets of operations 
354,113

336,509

332,238

 
Assets of consolidated investment management funds, at fair value
702

1,027

1,231

 
Total assets 
$
354,815

$
337,536

$
333,469

 
Liabilities
 
 
 
 
Deposits:
 
 
 
 
Noninterest-bearing (principally U.S. offices)
$
89,063

$
79,771

$
78,342

 
Interest-bearing deposits in U.S. offices
48,798

50,991

52,049

 
Interest-bearing deposits in Non-U.S. offices
97,816

90,529

91,099

 
Total deposits
235,677

221,291

221,490

 
Federal funds purchased and securities sold under repurchase agreements
10,934

11,149

9,989

 
Trading liabilities
4,100

2,816

4,389

 
Payables to customers and broker-dealers
21,622

21,306

20,987

 
Commercial paper
876

2,543

—

 
Other borrowed funds
1,338

1,022

754

 
Accrued taxes and other expenses
5,670

5,290

5,867

 
Other liabilities (includes allowance for lending-related commitments of $105, $112 and $112)
6,379

5,733

5,635

 
Long-term debt
27,699

26,346

24,463

 
Subtotal liabilities of operations
314,295

297,496

293,574

 
Liabilities of consolidated investment management funds, at fair value
22

209

315

 
Total liabilities 
314,317

297,705

293,889

 
Temporary equity
 
 
 
 
Redeemable noncontrolling interests
181

159

151

 
Permanent equity
 

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

3,542

3,542

 
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,349,181,914, 1,345,247,459 and 1,333,706,427 shares
13

13

13

 
Additional paid-in capital
26,432

26,248

25,962

 
Retained earnings
24,027

23,300

22,621

 
Accumulated other comprehensive loss, net of tax
(3,093
)
(3,524
)
(3,765
)
 
Less: Treasury stock of 316,025,713, 305,370,439 and 286,218,126 common shares, at cost
(10,947
)
(10,441
)
(9,562
)
 
Total The Bank of New York Mellon Corporation shareholders’ equity
39,974

39,138

38,811

 
Nonredeemable noncontrolling interests of consolidated investment management funds 
343

534

618

 
Total permanent equity 
40,317

39,672

39,429

 
Total liabilities, temporary equity and permanent equity 
$
354,815

$
337,536

$
333,469


Page - 21
BNY Mellon 2Q17 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 estimated fully phased-in CET1 and other risk-based capital ratios, the estimated fully phased-in SLR and tangible common shareholders’ equity. BNY Mellon believes that the CET1 and other risk-based capital ratios, on a fully phased-in basis, and the SLR, on a fully phased-in basis, 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. BNY Mellon believes that the return on tangible common equity measure is an additional useful 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 amortization of intangible assets and M&I, litigation and restructuring charges.

Operating margin, operating leverage and return on equity measures, which exclude some or all of these items, as well as the recovery related to Sentinel, are also presented. Operating margin measures may also exclude the provision for credit losses and distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions and Operational Excellence Initiatives. Excluding the 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 from consolidated investment management funds, net of net income 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 - 22
BNY Mellon 2Q17 Earnings Release


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)
2Q17

1Q17

4Q16

3Q16

2Q16

Income before income taxes – GAAP
$
1,308

$
1,206

$
1,152

$
1,317

$
1,165

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
3

18

4

9

4

Add: Amortization of intangible assets
53

52

60

61

59

M&I, litigation and restructuring charges
12

8

7

18

7

Recovery related to Sentinel
—

—

—

(13
)
—

Income before income taxes, as adjusted – Non-GAAP (a)
$
1,370

$
1,248

$
1,215

$
1,374

$
1,227

 
 
 
 
 
 
Fee and other revenue – GAAP
$
3,120

$
3,018

$
2,954

$
3,150

$
2,999

Income from consolidated investment management funds – GAAP
10

33

5

17

10

Net interest revenue – GAAP
826

792

831

774

767

Total revenue – GAAP
3,956

3,843

3,790

3,941

3,776

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
3

18

4

9

4

Total revenue, as adjusted – Non-GAAP (a)
$
3,953

$
3,825

$
3,786

$
3,932

$
3,772

 
 
 
 
 
 
Pre-tax operating margin – GAAP (b)(c)
33
%
31
%
30
%
33
%
31
%
Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c)
35
%
33
%
32
%
35
%
33
%
(a)
Non-GAAP information for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan.
(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 $106 million for 2Q17, $101 million for 1Q17, $92 million for 4Q16 and $74 million for 3Q16 and 2Q16 and would increase our pre-tax operating margin by approximately 1.8% for 2Q17 and 1Q17, 1.7% for 4Q16, 1.2% for 3Q16 and 1.3% for 2Q16.


The following table presents the reconciliation of the operating leverage.

Operating leverage
 
 
 
2Q17 vs.
(dollars in millions)
2Q17

1Q17

2Q16

1Q17

2Q16

Total revenue – GAAP
$
3,956

$
3,843

$
3,776

2.94%

4.77%

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
3

18

4

 
 
Total revenue, as adjusted – Non-GAAP
$
3,953

$
3,825

$
3,772

3.35%

4.80%

 
 
 
 
 
 
Total noninterest expense – GAAP
$
2,655

$
2,642

$
2,620

0.49%

1.34%

Less: Amortization of intangible assets
53

52

59

 
 
M&I, litigation and restructuring charges
12

8

7

 
 
Total noninterest expense, as adjusted – Non-GAAP
$
2,590

$
2,582

$
2,554

0.31%

1.41%

 
 
 
 
 
 
Operating leverage – GAAP (a)
 
 
 
245
 bps
343
 bps
Adjusted operating leverage – Non-GAAP (a)(b)
 
 
 
304
 bps
339
 bps
(a)
Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)
Non-GAAP operating leverage for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps – basis points.



Page - 23
BNY Mellon 2Q17 Earnings Release


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)
2Q17

1Q17

4Q16

3Q16

2Q16

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
926

$
880

$
822

$
974

$
825

Add: Amortization of intangible assets
53

52

60

61

59

Less: Tax impact of amortization of intangible assets
19

18

19

21

21

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP
960

914

863

1,014

863

Add: M&I, litigation and restructuring charges
12

8

7

18

7

 Recovery related to Sentinel
—

—

—

(13
)
—

Less: Tax impact of M&I, litigation and restructuring charges
3

2

3

5

2

 Tax impact of recovery related to Sentinel
—

—

—

(5
)
—

Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)
$
969

$
920

$
867

$
1,019

$
868

 
 
 
 
 
 
Average common shareholders’ equity
$
35,862

$
34,965

$
35,171

$
35,767

$
35,827

Less: Average goodwill
17,408

17,338

17,344

17,463

17,622

Average intangible assets
3,532

3,578

3,638

3,711

3,789

Add: Deferred tax liability – tax deductible goodwill (b)
1,542

1,518

1,497

1,477

1,452

Deferred tax liability – intangible assets (b)
1,095

1,100

1,105

1,116

1,129

Average tangible common shareholders’ equity – Non-GAAP
$
17,559

$
16,667

$
16,791

$
17,186

$
16,997

 
 
 
 
 
 
Return on common equity – GAAP (c)
10.4
%
10.2
%
9.3
%
10.8
%
9.3
%
Adjusted return on common equity – Non-GAAP (a)(c)
10.8
%
10.7
%
9.8
%
11.3
%
9.7
%
 
 
 
 
 
 
Return on tangible common equity – Non-GAAP (c)
21.9
%
22.2
%
20.4
%
23.5
%
20.4
%
Adjusted return on tangible common equity – Non-GAAP (a)(c)
22.1
%
22.4
%
20.5
%
23.6
%
20.5
%
(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.
(b)
Deferred tax liabilities are based on fully phased-in Basel III capital rules.
(c)
Quarterly returns are annualized.


The following table presents the reconciliation of the book value per common share.

Book value per common share
June 30, 2017

March 31, 2017

Dec. 31, 2016

Sept. 30, 2016

June 30, 2016

(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP
$
39,974

$
39,138

$
38,811

$
39,695

$
38,559

Less: Preferred stock
3,542

3,542

3,542

3,542

2,552

BNY Mellon common shareholders’ equity at period end – GAAP
36,432

35,596

35,269

36,153

36,007

Less: Goodwill
17,457

17,355

17,316

17,449

17,501

Intangible assets
3,506

3,549

3,598

3,671

3,738

Add: Deferred tax liability – tax deductible goodwill (a)
1,542

1,518

1,497

1,477

1,452

Deferred tax liability – intangible assets (a)
1,095

1,100

1,105

1,116

1,129

BNY Mellon tangible common shareholders’ equity at period
end – Non-GAAP
$
18,106

$
17,310

$
16,957

$
17,626

$
17,349

 
 
 
 
 
 
Period-end common shares outstanding (in thousands)
1,033,156

1,039,877

1,047,488

1,057,337

1,067,674

 
 
 
 
 
 
Book value per common share – GAAP
$
35.26

$
34.23

$
33.67

$
34.19

$
33.72

Tangible book value per common share – Non-GAAP
$
17.53

$
16.65

$
16.19

$
16.67

$
16.25

(a)
Deferred tax liabilities are based on fully phased-in Basel III capital rules.



Page - 24
BNY Mellon 2Q17 Earnings Release


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
 
 
2Q17 vs.
(dollars in millions)
2Q17

2Q16

2Q16

Investment management and performance fees – GAAP
$
879

$
830

6
%
Impact of changes in foreign currency exchange rates
—

(26
)

Investment management and performance fees, as adjusted – Non-GAAP
$
879

$
804

9
%


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

Income from consolidated investment management funds, net of noncontrolling interests
(in millions)
2Q17

1Q17

4Q16

3Q16

2Q16

Income from consolidated investment management funds
$
10

$
33

$
5

$
17

$
10

Less: Net income attributable to noncontrolling interests of consolidated investment management funds
3

18

4

9

4

Income from consolidated investment management funds, net of noncontrolling interests
$
7

$
15

$
1

$
8

$
6



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

Investment management fees - Investment Management business
 
 
2Q17 vs.
(dollars in millions)
2Q17

2Q16

2Q16

Investment management fees – GAAP
$
845

$
808

5
%
Impact of changes in foreign currency exchange rates
—

(25
)
 
Investment management fees, as adjusted – Non-GAAP
$
845

$
783

8
%


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)
2Q17

1Q17

4Q16

3Q16

2Q16

Investment management fees
$
2

$
2

$
4

$
2

$
3

Other (Investment income (loss))
5

13

(3
)
6

3

Income from consolidated investment management funds, net of noncontrolling interests
$
7

$
15

$
1

$
8

$
6




Page - 25
BNY Mellon 2Q17 Earnings Release


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)
2Q17

1Q17

4Q16

3Q16

2Q16

Income before income taxes – GAAP
$
288

$
277

$
260

$
256

$
234

Add: Amortization of intangible assets
15

15

22

22

19

Provision for credit losses
—

3

6

—

1

Adjusted income before income taxes, excluding amortization of intangible assets and provision for credit losses – Non-GAAP
$
303

$
295

$
288

$
278

$
254

 
 
 
 
 
 
Total revenue – GAAP
$
986

$
963

$
960

$
958

$
938

Less: Distribution and servicing expense
104

101

98

104

102

Adjusted total revenue, net of distribution and servicing expense – Non-GAAP
$
882

$
862

$
862

$
854

$
836

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


DIVIDENDS

Common – On July 20, 2017, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.24 per share, an increase from the prior dividend amount of $0.19 per common share. This cash dividend is payable on Aug. 11, 2017 to shareholders of record as of the close of business on Aug. 1, 2017.

Preferred – On July 20, 2017, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in September 2017, in each case payable on Sept. 20, 2017 to holders of record as of the close of business on Sept. 5, 2017:

•
$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);
•
$1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock); and
•
$2,312.50 per share on the Series F Preferred Stock (equivalent to $23.1250 per depositary share, each representing a 1/100th interest in a share of the Series F Preferred Stock).


Page - 26
BNY Mellon 2Q17 Earnings Release


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, growth, positioning and focus. 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, 2016, the Quarterly Report on Form 10-Q for the period ended March 31, 2017 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 20, 2017, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.


ABOUT BNY MELLON

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, 2017, BNY Mellon had $31.1 trillion in assets under custody and/or administration, and $1.8 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.


CONFERENCE CALL INFORMATION

Gerald L. Hassell, chairman, Thomas P. Gibbons, vice chairman and chief financial officer, and Charles W. Scharf, chief executive 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 July 20, 2017. This conference call and audio webcast will include forward-looking statements and may include other material information.

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (719) 325-2110 (International), and using the passcode: 445371, or by logging on to www.bnymellon.com/investorrelations. Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EDT on July 20, 2017. Replays of the conference call and audio webcast will be available beginning July 20, 2017 at approximately 2 p.m. EDT through Aug. 20, 2017 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 6203153. The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.


Page - 27