EX-99.1 2 ex991_earningsreleasex3q18.htm EXHIBIT 99.1 Exhibit
BNY Mellon 3Q18 Earnings Release

News Release
bnylogoa01a64.jpg

BNY MELLON REPORTS THIRD QUARTER 2018 EARNINGS OF
$1.08 BILLION OR $1.06 PER COMMON SHARE


Revenue up 1%
 
EPS up 13%
 
ROE 11%
ROTCE 23% (a)
 
CET1 11.2%
SLR 6.4%

NEW YORK, October 18, 2018The Bank of New York Mellon Corporation (“BNY Mellon”) (NYSE: BK) today reported:
 
 
 
 
3Q18 vs.
 
3Q18

2Q18

3Q17

2Q18

3Q17

Net income applicable to common shareholders (in millions)
$
1,075

$
1,055

$
983

2
%
9
%
Diluted earnings per common share
$
1.06

$
1.03

$
0.94

3
%
13
%
Third Quarter Results
Total revenue of $4.1 billion, increased 1%
Fee revenue increased 1%
Net interest revenue increased 6%

Total noninterest expense of $2.7 billion, increased 3%
Continued investments in technology were partially offset by decreases in other expenses
Litigation increased expenses 2%; $(0.05) per common share

Income tax
Lower tax rate due to adjusted estimates for U.S. tax legislation and other changes; $0.05 per common share

Investment Services
Total revenue increased 3%
Income before taxes decreased 6%, driven by litigation expense
AUC/A of $34.5 trillion, up 7%

Investment Management
Total revenue increased 2%
Income before taxes increased 5%
AUM of $1.8 trillion

Returned $885 million to common shareholders
Repurchased 12 million common shares for $602 million
Paid $283 million in dividends to common shareholders
 
CEO Commentary
“Our results this quarter were mixed. While we continued to benefit from a reduction in our tax rate related to the new tax law in the U.S. and from strong capital returns, our revenue growth was modest. We did see reasonable growth in some of our businesses and remain confident that we can increase the rate of growth in the others,” Charles W. Scharf, chairman and chief executive officer, said.

“We are moving with a sense of urgency to improve our growth trajectory. Bringing in new talent to complement the great expertise we already have is critical.  Since the end of the second quarter, we have added a number of experienced senior leaders to our executive team, including a new CEO of Wealth Management, CEO of Treasury Services, Head of Digital, Head of Strategy, Head of Asset Servicing for the Americas, Chief Technology Officer, Wealth Management Technology Lead and Chief Marketing Officer,” Mr. Scharf continued.

“Knowing it will take time to increase our organic revenue growth, we remain keenly focused on expenses and continue to believe there are meaningful opportunities to become more efficient in both the short and the long term, which will help fund investments to improve the quality of our work and build additional capabilities for our clients,” Mr. Scharf concluded.

Investor Relations: Scott Freidenrich (212) 815-4008
Media Relations: Jennifer Hendricks Sullivan (212) 635-1374
(a) For information on this Non-GAAP measure, see “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 11.

Note: Above comparisons are 3Q18 vs. 3Q17.


BNY Mellon 3Q18 Earnings Release

CONSOLIDATED THIRD QUARTER 2018 FINANCIAL HIGHLIGHTS

(dollars in millions, except per share amounts; common shares in thousands)
 
 
 
3Q18 vs.
3Q18

2Q18

3Q17

2Q18

3Q17

Fee revenue
$
3,168

$
3,209

$
3,148

(1
)%
1
 %
Net securities gains

1

19

N/M
N/M
Total fee and other revenue
3,168

3,210

3,167

(1
)

Income from consolidated investment management funds
10

12

10

N/M
N/M
Net interest revenue
891

916

839

(3
)
6

Total revenue
4,069

4,138

4,016

(2
)
1

Provision for credit losses
(3
)
(3
)
(6
)
N/M
N/M
Noninterest expense
2,738

2,747

2,654


3

Income before income taxes
1,334

1,394

1,368

(4
)
(2
)
Provision for income taxes
220

286

348

(23
)
(37
)
Net income
$
1,114

$
1,108

$
1,020

1
 %
9
 %
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
1,075

$
1,055

$
983

2
 %
9
 %
Operating leverage (a)
 
 
 
(134
) bps
(185
) bps
Diluted earnings per common share
$
1.06

$
1.03

$
0.94

3
 %
13
 %
Average common shares and equivalents outstanding - diluted
1,003,665

1,014,357

1,041,138

 
 
Pre-tax operating margin
33
%
34
%
34
%
 
 
(a)
Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
N/M – Not meaningful.
bps – basis points.


KEY DRIVERS (comparisons are 3Q18 vs. 3Q17, unless otherwise stated)

Total revenue increased 1% primarily reflecting:
Fee revenue increased 1% primarily reflecting higher equity market values, growth in collateral management and clearance volumes and higher performance fees, partially offset by lower foreign currency hedging.
Net interest revenue increased 6% primarily driven by higher rates, partially offset by lower deposits and other borrowings.
Noninterest expense increased 3% primarily reflecting investments in technology and higher litigation expense, partially offset by lower staff and distribution and servicing expenses. Litigation increased noninterest expense by 2%.
Effective tax rate of 16.5%. The impact of adjusting provisional estimates for U.S. tax legislation and other changes decreased the effective rate by approximately 4.5%.

Assets under custody and/or administration (“AUC/A”) and Assets under management (“AUM”)
AUC/A of $34.5 trillion, up 7%, primarily reflecting net new business and higher equity market values, partially offset by the unfavorable impact of a stronger U.S. dollar.
AUM of $1.8 trillion increased slightly, primarily reflecting higher market values, partially offset by the divestiture of CenterSquare Investment Management (“CenterSquare”) and other changes and the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).

Capital and liquidity
Repurchased 12 million common shares for $602 million and paid $283 million in dividends to common shareholders.
Return on common equity (“ROE”) of 11%; Return on tangible common equity (“ROTCE”) of 23% (b).
Common Equity Tier 1 (“CET1”) ratio – 11.2%.
Supplementary leverage ratio (“SLR”) – 6.4%.
Average liquidity coverage ratio (“LCR”) – 121%.
 
(b)
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 11 for the reconciliation.
Note: Throughout this document, sequential growth rates are unannualized.

Page - 2

BNY Mellon 3Q18 Earnings Release

INVESTMENT SERVICES BUSINESS HIGHLIGHTS

(dollars in millions, unless otherwise noted; not meaningful - N/M)
 
 
 
3Q18 vs.
3Q18

2Q18

3Q17

2Q18

3Q17

Total revenue by line of business:

 
 
 
 
Asset Servicing
$
1,458

$
1,520

$
1,420

(4
)%
3
 %
Pershing
558

558

542


3

Issuer Services
453

431

442

5

2

Treasury Services
324

329

316

(2
)
3

Clearance and Collateral Management
264

269

244

(2
)
8

Total revenue by line of business
3,057

3,107

2,964

(2
)
3

Provision for credit losses
1

1

(2
)
N/M
N/M
Noninterest expense
2,030

1,967

1,874

3

8

Income before taxes
$
1,026

$
1,139

$
1,092

(10
)%
(6
)%
 

 
 


Pre-tax operating margin
34
%
37
%
37
%


 
 
 
 
 
 
Foreign exchange and other trading revenue
$
161

$
172

$
154

(6
)%
5
 %
Securities lending revenue
$
52

$
55

$
41

(5
)%
27
 %
 
 
 
 




Metrics:
 
 
 




Average loans
$
35,044

$
38,002

$
38,038

(8
)%
(8
)%
Average deposits
$
192,741

$
203,064

$
198,299

(5
)%
(3
)%



 
 


AUC/A at period end (in trillions) (current period is preliminary) (a)
$
34.5

$
33.6

$
32.2

3
 %
7
 %
Market value of securities on loan at period end (in billions) (b)
$
415

$
432

$
382

(4
)%
9
 %
 
 
 
 
 
 
Pershing


 
 


Average active clearing accounts (U.S. platform) (in thousands)
6,108

6,080

6,203

 %
(2
)%
Average long-term mutual fund assets (U.S. platform)
$
527,336

$
512,645

$
500,998

3
 %
5
 %
Average investor margin loans (U.S. platform)
$
10,696

$
10,772

$
8,886

(1
)%
20
 %



 
 


Clearance and Collateral Management


 
 


Average tri-party collateral management balances (in billions)
$
2,995

$
2,801

$
2,534

7
 %
18
 %
(a)
Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.4 trillion at Sept. 30, 2018 and June 30, 2018 and $1.3 trillion at Sept. 30, 2017.
(b)
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 $69 billion at Sept. 30, 2018, $70 billion at June 30, 2018 and $68 billion at Sept. 30, 2017.


KEY DRIVERS

Total revenue increased year-over-year and decreased sequentially. Net interest revenue increased year-over-year in all businesses, primarily driven by higher interest rates. The drivers of fee revenue by line of business are indicated below.
Asset Servicing - The year-over-year increase primarily reflects higher equity market values, securities lending volumes, net interest revenue and foreign exchange volumes. The sequential decrease primarily reflects lower net interest revenue, primarily driven by lower deposit balances, and lower foreign exchange volumes.
Pershing - The year-over-year increase primarily reflects higher net interest revenue, equity market values and long-term mutual funds balances, partially offset by the previously disclosed lost business.
Issuer Services - The year-over-year increase primarily reflects higher net interest revenue in Corporate Trust. The sequential increase primarily reflects seasonality in Depositary Receipts.
Treasury Services - The year-over-year increase primarily reflects higher net interest revenue and transaction volumes. The sequential decrease primarily reflects lower net interest revenue.
Clearance and Collateral Management - The year-over-year increase reflects growth in collateral management, clearance volumes and net interest revenue. The sequential decrease primarily reflects lower net interest revenue.

Noninterest expense increased both year-over-year and sequentially primarily driven by investments in technology and higher litigation expense, partially offset by lower staff expense. Litigation increased noninterest expense by 3%.

Page - 3

BNY Mellon 3Q18 Earnings Release

INVESTMENT MANAGEMENT BUSINESS HIGHLIGHTS

(dollars in millions, unless otherwise noted; not meaningful - N/M)
 
 
 
3Q18 vs.
3Q18

2Q18

3Q17

2Q18

3Q17

Total revenue by line of business:

 
 
 
 
Asset Management
$
704

$
702

$
693

 %
2
 %
Wealth Management
311

316

307

(2
)
1

Total revenue by line of business
1,015

1,018

1,000


2

Provision for credit losses
(2
)
2

(2
)
N/M
N/M
Noninterest expense
701

697

702

1


Income before taxes
$
316

$
319

$
300

(1
)%
5
 %


 
 
 
 
Pre-tax operating margin
31
%
31
%
30
%
 
 
Adjusted pre-tax operating margin – Non-GAAP (a)
35
%
35
%
34
%
 
 
 
 
 
 
 
 
Metrics:
 
 
 
 
 
Average loans
$
16,763

$
16,974

$
16,724

(1
)%
 %
Average deposits
$
14,634

$
14,252

$
12,374

3
 %
18
 %
 

 
 


Wealth Management client assets (in billions) (current period is preliminary) (b)
$
261

$
254

$
245

3
 %
7
 %
 

 
 
 
 
Changes in AUM (in billions) (current period is preliminary): (c)

 
 
 
 
Beginning balance of AUM
$
1,805

$
1,868

$
1,771

 
 
Net inflows (outflows):

 
 
 
 
Long-term strategies:


 
 
 
 
Equity
(2
)
(3
)
(2
)
 
 
Fixed income
2

(4
)
4

 
 
Liability-driven investments, including currency overlay
16

2

(2
)
 
 
Multi-asset and alternative investments
2

(3
)
3

 
 
Total long-term active strategies inflows (outflows)
18

(8
)
3

 
 
Index
(3
)
(7
)
(3
)
 
 
Total long-term strategies inflows (outflows)
15

(15
)

 
 
Short term strategies:
 
 
 
 
 
Cash

(11
)
10

 
 
Total net inflows (outflows)
15

(26
)
10

 
 
Net market impact
18

17

17

 
 
Net currency impact
(10
)
(53
)
26

 
 
Divestiture/Other

(1
)

 
 
Ending balance of AUM
$
1,828

$
1,805

$
1,824

1
 %
 %
(a)
Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 11 for the reconciliation of this Non-GAAP measure. In 1Q18, the adjusted pre-tax operating marginNon-GAAP for prior periods was restated to include amortization of intangible assets and the provision for credit losses.
(b)
Includes AUM and AUC/A in the Wealth Management business.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business.



KEY DRIVERS

Total revenue increased year-over-year and decreased sequentially.
Asset Management - The year-over-year increase reflects higher equity market values and performance fees, partially offset by the impact of net outflows and the divestiture of CenterSquare.
Wealth Management - The sequential decrease primarily reflects lower net interest revenue, partially offset by higher equity market values.


Page - 4

BNY Mellon 3Q18 Earnings Release

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

 
 
 
 
(in millions)
3Q18

2Q18

3Q17

Fee revenue
$
7

$
40

$
50

Net securities gains

1

19

Total fee and other revenue
7

41

69

Net interest (expense)
(13
)
(35
)
(20
)
Total (loss) revenue
(6
)
6

49

Provision for credit losses
(2
)
(6
)
(2
)
Noninterest expense
6

81

77

(Loss) before taxes
$
(10
)
$
(69
)
$
(26
)


KEY DRIVERS

Fee revenue decreased year-over-year and sequentially primarily reflecting our investments in renewable energy, including the impact of adjusting the provisional tax estimates (offset in income tax and de minimis to net income), and foreign currency hedging.

Net interest expense decreased year-over-year and sequentially primarily resulting from corporate treasury activity.

Noninterest expense decreased year-over-year and sequentially primarily reflecting lower staff expense. The sequential decrease also reflects the expenses associated with the consolidation of our real estate recorded in 2Q18. We expect to record the remaining expense related to relocating our corporate headquarters in 4Q18.


Page - 5

BNY Mellon 3Q18 Earnings Release

CAPITAL AND LIQUIDITY

Our consolidated capital and liquidity ratios are shown in the following table.

Capital and liquidity ratios
Sept. 30, 2018

June 30, 2018

Dec. 31, 2017

Consolidated regulatory capital ratios: (a)(b)
 
 
 
CET1 ratio
11.2
%
11.0
%
10.3
%
Tier 1 capital ratio
13.4
%
13.1
%
12.3
%
Total capital ratio
14.1
%
13.8
%
13.0
%
Tier 1 leverage ratio
7.0
%
6.7
%
6.4
%
SLR
6.4
%
6.1
%
5.9
%
BNY Mellon shareholders’ equity to total assets ratio
11.9
%
11.8
%
11.1
%
BNY Mellon common shareholders’ equity to total assets ratio
10.9
%
10.8
%
10.1
%
 
 
 
 
Average LCR
121
%
118
%
118
%

 
 
 
Book value per common share (c)
$
38.45

$
37.97

$
37.21

Tangible book value per common share – Non-GAAP (c)
$
19.35

$
19.00

$
18.24

Cash dividends per common share
$
0.28

$
0.24

$
0.24

Common dividend payout ratio
26
%
23
%
22
%
Closing stock price per common share
$
50.99

$
53.93

$
53.86

Market capitalization (in millions)
$
50,418

$
53,927

$
54,584

Common shares outstanding (in thousands)
988,777

999,945

1,013,442

(a)
Regulatory capital ratios for Sept. 30, 2018 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, which for the periods noted above was the Advanced Approaches.
(b)
Regulatory capital ratios for Dec. 31, 2017 are presented on a fully phased-in basis. On a transitional basis at Dec. 31, 2017, the CET1 ratio was 10.7%, the Tier 1 capital ratio was 12.7%, the Total capital ratio was 13.4%, the Tier 1 leverage ratio was 6.6% and the SLR was 6.1%.
(c)
Tangible book value per common shareNon-GAAP excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 11 for the reconciliation of this Non-GAAP measure.


KEY POINTS

CET1 capital totaled $18.5 billion at Sept. 30, 2018, an increase of $133 million compared with June 30, 2018. The increase primarily reflects capital generated through earnings, partially offset by capital deployed through common stock repurchases and dividend payments.


Page - 6

BNY Mellon 3Q18 Earnings Release

NET INTEREST REVENUE

Net interest revenue
 
 
 
3Q18 vs.
(dollars in millions; not meaningful - N/M)
3Q18

2Q18

3Q17

2Q18

3Q17

Net interest revenue
$
891

$
916

$
839

(3
)%
6
 %
Add: Tax equivalent adjustment
5

5

12

N/M
N/M
Net interest revenue, on a fully taxable equivalent (“FTE”)
basis – Non-GAAP (a)
$
896

$
921

$
851

(3
)%
5
 %
 
 
 
 
 
 
Net interest margin
1.27
%
1.26
%
1.15
%
1
 bps
12
 bps
Net interest margin (FTE) – Non-GAAP (a)
1.28
%
1.26
%
1.16
%
2
 bps
12
 bps
 
 
 
 
 
 
Selected average balances:
 
 
 
 
 
Cash/interbank investments (b)
$
102,645

$
113,475

$
114,449

(10
)%
(10
)%
Trading securities
4,261

3,784

2,359

13

81

Securities
118,505

117,761

119,089

1


Loans
53,807

57,066

55,944

(6
)
(4
)
Interest-earning assets
$
279,218

$
292,086

$
291,841

(4
)%
(4
)%
 
 
 
 
 
 
Interest-bearing deposits
$
148,636

$
152,799

$
142,490

(3
)%
4
 %
Federal funds purchased and securities sold under repurchase agreements (b)
14,199

18,146

21,403

(22
)
(34
)
Long-term debt
28,074

28,349

28,138

(1
)

Other interest-bearing liabilities
23,251

23,815

24,883

(2
)
(7
)
Interest-bearing liabilities
$
214,160

$
223,109

$
216,914

(4
)%
(1
)%
Noninterest-bearing deposits
$
60,677

$
64,768

$
70,168

(6
)%
(14
)%
 
 
 
 
 
 
Selected average yields/rates: (c)
 
 
 
 
 
Cash/interbank investments
1.79
%
1.48
%
0.84
%
 
 
Trading securities
3.05

3.10

2.26

 
 
Securities
2.25

2.16

1.80

 
 
Loans
3.50

3.32

2.63

 
 
Interest-earning assets
2.33

2.14

1.59

 
 
 
 
 
 
 
 
Interest-bearing deposits
0.63
%
0.45
%
0.16
%
 
 
Federal funds purchased and securities sold under repurchase agreements (b)
5.33

3.48

1.30

 
 
Long-term debt
3.17

3.06

2.07

 
 
Other interest-bearing liabilities
1.53

1.47

0.59

 
 
Interest-bearing liabilities
1.37

1.14

0.57

 
 
 
 
 
 
 
 
Average cash/interbank investments as a percentage of average interest-earning assets
37
%
39
%
39
%
 
 
Average noninterest-bearing deposits as a percentage of average interest-earning assets
22
%
22
%
24
%
 
 
(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)
Includes the impact of offsetting under enforceable netting agreements.
(c)
Yields/rates include the impact of interest rate hedging activities.
bps – basis points.


KEY DRIVERS

Net interest revenue increased year-over-year primarily reflecting higher interest rates, partially offset by lower deposits and other borrowings. The sequential decrease was primarily driven by lower deposits and other borrowings, partially offset by higher interest rates.


Page - 7

BNY Mellon 3Q18 Earnings Release

NONINTEREST EXPENSE

Noninterest expense
 
 
 
3Q18 vs.
(dollars in millions)
3Q18

2Q18

3Q17

2Q18

3Q17

Staff
$
1,478

$
1,489

$
1,485

(1
)%
 %
Professional, legal and other purchased services
332

328

305

1

9

Software and equipment
262

266

233

(2
)
12

Net occupancy
139

156

141

(11
)
(1
)
Sub-custodian and clearing
106

110

101

(4
)
5

Distribution and servicing
99

106

109

(7
)
(9
)
Business development
51

62

49

(18
)
4

Bank assessment charges
49

47

51

4

(4
)
Amortization of intangible assets
48

48

52


(8
)
Other
174

135

128

29

36

Total noninterest expense
$
2,738

$
2,747

$
2,654

 %
3
 %


KEY DRIVERS

Total noninterest expense increased year-over-year primarily reflecting investments in technology and higher litigation expense, partially offset by lower staff and distribution and servicing expenses. The investments in technology are included in staff, professional, legal and other purchased services and software and equipment expenses.

The sequential decrease in total noninterest expense primarily reflects lower net occupancy, staff and business development expenses, partially offset by higher litigation expense. The decrease in net occupancy expense is primarily due to expenses associated with the continued consolidation of our real estate recorded in 2Q18.

The total cost of relocating our corporate headquarters is estimated to be $75 million, of which $12 million was recorded in 2Q18. We expect to record the remaining expense in 4Q18.


Page - 8

BNY Mellon 3Q18 Earnings Release

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement

 
(in millions)
Quarter ended
 
Year-to-date
 
Sept. 30, 2018

June 30, 2018

Sept. 30, 2017

 
Sept. 30, 2018

Sept. 30, 2017

 
 
Fee and other revenue
 
 
 
 
 
 
 
Investment services fees:
 
 
 
 
 
 
 
Asset servicing
$
1,157

$
1,157

$
1,105

 
$
3,482

$
3,253

 
Clearing services
383

392

383

 
1,189

1,153

 
Issuer services
287

266

288

 
813

780

 
Treasury services
137

140

141

 
415

420

 
Total investment services fees
1,964

1,955

1,917


5,899

5,606

 
Investment management and performance fees
922

910

901

 
2,792

2,622

 
Foreign exchange and other trading revenue
155

187

173

 
551

502

 
Financing-related fees
52

53

54

 
157

162

 
Distribution and servicing
34

34

40

 
104

122

 
Investment and other income
41

70

63

 
193

262

 
Total fee revenue
3,168

3,209

3,148


9,696

9,276

 
Net securities gains (losses)

1

19

 
(48
)
29

 
Total fee and other revenue
3,168

3,210

3,167


9,648

9,305

 
Operations of consolidated investment management funds
 
 
 
 
 
 
 
Investment income
10

13

10

 
12

57

 
Interest of investment management fund note holders

1


 
1

4

 
Income from consolidated investment management funds
10

12

10


11

53

 
Net interest revenue
 
 
 
 
 
 
 
Interest revenue
1,634

1,553

1,151

 
4,568

3,163

 
Interest expense
743

637

312

 
1,842

706

 
Net interest revenue
891

916

839


2,726

2,457

 
Total revenue
4,069

4,138

4,016


12,385

11,815

 
Provision for credit losses
(3
)
(3
)
(6
)
 
(11
)
(18
)
 
Noninterest expense
 
 
 
 
 
 
 
Staff (a)
1,478

1,489

1,485

 
4,543

4,405

 
Professional, legal and other purchased services
332

328

305

 
951

937

 
Software and equipment
262

266

233

 
762

688

 
Net occupancy
139

156

141

 
434

417

 
Sub-custodian and clearing (b)
106

110

101

 
335

312

 
Distribution and servicing
99

106

109

 
311

313

 
Business development
51

62

49

 
164

163

 
Bank assessment charges
49

47

51

 
148

167

 
Amortization of intangible assets
48

48

52

 
145

157

 
Other (a)(b)(c)
174

135

128

 
431

392

 
Total noninterest expense
2,738

2,747

2,654


8,224

7,951

 
Income
 
 
 
 
 
 
 
Income before income taxes
1,334

1,394

1,368


4,172

3,882

 
Provision for income taxes
220

286

348

 
788

949

 
Net income
1,114

1,108

1,020


3,384

2,933

 
Net (income) loss attributable to noncontrolling interests (includes $(3), $(7), $(3), $1 and $(24) related to consolidated investment management funds, respectively)
(3
)
(5
)
(2
)
 
1

(18
)
 
Net income applicable to shareholders of The Bank of New York Mellon Corporation
1,111

1,103

1,018


3,385

2,915

 
Preferred stock dividends
(36
)
(48
)
(35
)
 
(120
)
(126
)
 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
1,075

$
1,055

$
983


$
3,265

$
2,789

(a)
In 1Q18, we adopted new accounting guidance included in Accounting Standards Update 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which required the reclassification of the components of pension and other postretirement costs, other than the service cost component. As a result, staff expense increased and other expense decreased. Prior periods have been reclassified.
(b)
Beginning in 1Q18, clearing expense, which was previously included in other expense, was included with sub-custodian expense. Prior periods have been reclassified.
(c)
Beginning in 1Q18, M&I, litigation and restructuring charges are no longer separately disclosed. Expenses previously reported in this line have been reclassified to existing expense categories, primarily other expense.

Page - 9

BNY Mellon 3Q18 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, 2018

June 30, 2018

Sept. 30, 2017

 
Sept. 30, 2018

Sept. 30, 2017

(in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
1,075

$
1,055

$
983

 
$
3,265

$
2,789

Less: Earnings allocated to participating securities
7

7

8

 
22

35

Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share
$
1,068

$
1,048

$
975

 
$
3,243

$
2,754



Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
Sept. 30, 2018

June 30, 2018

Sept. 30, 2017

 
Sept. 30, 2018

Sept. 30, 2017

(in thousands)
Basic
999,808

1,010,179

1,035,337

 
1,008,967

1,037,431

Diluted
1,003,665

1,014,357

1,041,138

 
1,013,242

1,043,585



Earnings per share applicable to the common shareholders of The Bank of New York Mellon Corporation
Quarter ended
 
Year-to-date
Sept. 30, 2018

June 30, 2018

Sept. 30, 2017

 
Sept. 30, 2018

Sept. 30, 2017

(in dollars)
Basic
$
1.07

$
1.04

$
0.94

 
$
3.21

$
2.66

Diluted
$
1.06

$
1.03

$
0.94

 
$
3.20

$
2.64




Page - 10

BNY Mellon 3Q18 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 on a tangible basis, as a supplement to GAAP information. Tangible common shareholders’ equity excludes goodwill and intangible assets, net of deferred tax liabilities. 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 the operating margin for the Investment Management business net of distribution and servicing expense that was passed to third parties who distribute or service our managed funds. BNY Mellon believes that this measure is useful when evaluating the performance of the Investment Management business relative to industry competitors.

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

Return on common equity and tangible common equity reconciliation
 
 
 
(dollars in millions)
3Q18

2Q18

3Q17

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP
$
1,075

$
1,055

$
983

Add: Amortization of intangible assets
48

48

52

Less: Tax impact of amortization of intangible assets
11

11

17

Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP
$
1,112

$
1,092

$
1,018

 
 
 
 
Average common shareholders’ equity
$
38,036

$
37,750

$
36,780

Less: Average goodwill
17,391

17,505

17,497

Average intangible assets
3,283

3,341

3,487

Add: Deferred tax liability – tax deductible goodwill (a)
1,066

1,054

1,561

Deferred tax liability – intangible assets (a)
699

709

1,092

Average tangible common shareholders’ equity – Non-GAAP
$
19,127

$
18,667

$
18,449

 
 
 
 
Return on common equity (annualized) – GAAP
11.2
%
11.2
%
10.6
%
Return on tangible common equity (annualized) – Non-GAAP
23.1
%
23.5
%
21.9
%
(a)
Deferred tax liabilities for 3Q17 are based on fully phased-in U.S. capital rules.


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

Book value and tangible book value per common share reconciliation
Sept. 30, 2018

June 30, 2018

Dec. 31, 2017

(dollars in millions except common shares)
BNY Mellon shareholders’ equity at period end – GAAP
$
41,560

$
41,505

$
41,251

Less: Preferred stock
3,542

3,542

3,542

BNY Mellon common shareholders’ equity at period end – GAAP
38,018

37,963

37,709

Less: Goodwill
17,390

17,418

17,564

Intangible assets
3,258

3,308

3,411

Add: Deferred tax liability – tax deductible goodwill (a)
1,066

1,054

1,034

Deferred tax liability – intangible assets (a)
699

709

718

BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP
$
19,135

$
19,000

$
18,486

 
 
 


Period-end common shares outstanding (in thousands)
988,777

999,945

1,013,442

 
 
 


Book value per common share – GAAP
$
38.45

$
37.97

$
37.21

Tangible book value per common share – Non-GAAP
$
19.35

$
19.00

$
18.24

(a)
Deferred tax liabilities at Dec. 31, 2017 are based on fully phased-in U.S. capital rules.


Page - 11

BNY Mellon 3Q18 Earnings Release

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

Pre-tax operating margin reconciliation - Investment Management business
 
 
 
(dollars in millions)
3Q18

2Q18

3Q17

Income before income taxes – GAAP
$
316

$
319

$
300

 
 
 
 
Total revenue – GAAP
$
1,015

$
1,018

$
1,000

Less: Distribution and servicing expense
99

103

110

Adjusted total revenue, net of distribution and servicing expense – Non-GAAP
$
916

$
915

$
890

 
 
 
 
Pre-tax operating margin – GAAP (a)
31
%
31
%
30
%
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a)
35
%
35
%
34
%
(a)    Income before taxes divided by total revenue.


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 statements about our capital plans, strategic priorities, financial goals, organic growth and efficiency, talent acquisition, expenses, including costs associated with the consolidation of our real estate and the timing of such costs, deposits, taxes, business opportunities, preliminary business metrics and regulatory capital ratios and statements regarding our aspirations, as well as our overall plans, strategies, goals, objectives, expectations, outlooks, estimates, intentions, targets, opportunities, focus and initiatives. 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,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “future” 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, 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 Oct. 18, 2018, 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. As of Sept. 30, 2018, BNY Mellon had $34.5 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.



Page - 12

BNY Mellon 3Q18 Earnings Release

CONFERENCE CALL INFORMATION

Charles W. Scharf, Chairman and Chief Executive Officer, and Michael P. Santomassimo, Chief Financial Officer, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 18, 2018. 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 (720) 452-9082 (International), and using the passcode: 678511, or by logging onto www.bnymellon.com/investorrelations. Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EDT on Oct. 18, 2018. Replays of the conference call and audio webcast will be available beginning Oct. 18, 2018 at approximately 2 p.m. EDT through Nov. 17, 2018 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 4968536. 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 - 13