Oct 19, 2017
NEW YORK, Oct. 19, 2017 /PRNewswire/ --
TOTAL REVENUE OF $4.02 BILLION, INCREASED 2% YEAR-OVER-YEAR
CONTINUED FOCUS ON EXPENSE CONTROL
EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS
The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported third quarter net income applicable to common shareholders of $983 million, or $0.94 per diluted common share. Net income applicable to common shareholders was $974 million, or $0.90 per diluted common share, in the third quarter of 2016, and $926 million, or $0.88 per diluted common share, in the second quarter of 2017.
"Since arriving in July, I have been spending time with clients, regulators, business leaders and employees, listening and learning. Based on what I have seen, I like our business model and what we do. While satisfied with our progress, our leadership team is not satisfied with our performance, as we see further opportunities to drive revenue growth and increase our efficiencies. We will do this while maintaining our strong capital position and continuing to deliver high returns to our shareholders," Charles W. Scharf, chief executive officer, said.
"Our third quarter performance was consistent with our expectation and some areas showed reasonable growth, such as asset servicing, clearing services and investment management. Other areas underperformed, such as depositary receipts, which also reduced foreign exchange trading revenue," Mr. Scharf continued.
"We want to be a consistently high-performing company. Our clients and shareholders expect as much. That will require disciplined management and execution. It will also require continued investment in our core technology platform, heightened focus on achieving platform integration and a reduction in the complexity of our operating environment. Client focus is at the core of our culture, and we have a big opportunity to do a better job delivering all of BNY Mellon to our clients," Mr. Scharf concluded.
(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. |
THIRD QUARTER 2017 FINANCIAL HIGHLIGHTS (a)
(comparisons are 3Q17 vs. 3Q16, unless otherwise stated)
Earnings
Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
Capital and liquidity
(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. |
FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in |
3Q17 vs. | ||||||||||||||||||
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | |||||||||||||
Revenue: |
|||||||||||||||||||
Fee and other revenue |
$ |
3,167 |
$ |
3,120 |
$ |
3,018 |
$ |
2,954 |
$ |
3,150 |
2 |
% |
1 |
% | |||||
Income from consolidated investment management funds |
10 |
10 |
33 |
5 |
17 |
||||||||||||||
Net interest revenue |
839 |
826 |
792 |
831 |
774 |
2 |
8 |
||||||||||||
Total revenue – GAAP |
4,016 |
3,956 |
3,843 |
3,790 |
3,941 |
2 |
2 |
||||||||||||
Less: Net income attributable to noncontrolling interests related |
3 |
3 |
18 |
4 |
9 |
||||||||||||||
Total revenue, as adjusted – Non-GAAP |
4,013 |
3,953 |
3,825 |
3,786 |
3,932 |
2 |
2 |
||||||||||||
Provision for credit losses |
(6) |
(7) |
(5) |
7 |
(19) |
||||||||||||||
Expense: |
|||||||||||||||||||
Noninterest expense – GAAP |
2,654 |
2,655 |
2,642 |
2,631 |
2,643 |
— |
— |
||||||||||||
Less: Amortization of intangible assets |
52 |
53 |
52 |
60 |
61 |
||||||||||||||
M&I, litigation and restructuring charges |
6 |
12 |
8 |
7 |
18 |
||||||||||||||
Total noninterest expense, as adjusted – Non-GAAP |
2,596 |
2,590 |
2,582 |
2,564 |
2,564 |
— |
1 |
||||||||||||
Income: |
|||||||||||||||||||
Income before income taxes |
1,368 |
1,308 |
1,206 |
1,152 |
1,317 |
5 |
% |
4% | |||||||||||
Provision for income taxes |
348 |
332 |
269 |
280 |
324 |
||||||||||||||
Net income |
$ |
1,020 |
$ |
976 |
$ |
937 |
$ |
872 |
$ |
993 |
|||||||||
Net (income) attributable to noncontrolling interests (a) |
(2) |
(1) |
(15) |
(2) |
(6) |
||||||||||||||
Net income applicable to shareholders of The Bank of New |
1,018 |
975 |
922 |
870 |
987 |
||||||||||||||
Preferred stock dividends |
(35) |
(49) |
(42) |
(48) |
(13) |
||||||||||||||
Net income applicable to common shareholders of The Bank |
$ |
983 |
$ |
926 |
$ |
880 |
$ |
822 |
$ |
974 |
|||||||||
Operating leverage (b) |
156 |
bps |
148 |
bps | |||||||||||||||
Adjusted operating leverage – Non-GAAP (b)(c) |
129 |
bps |
81 |
bps | |||||||||||||||
Key Metrics: |
|||||||||||||||||||
Pre-tax operating margin (c) |
34 |
% |
33 |
% |
31 |
% |
30 |
% |
33 |
% |
|||||||||
Adjusted pre-tax operating margin – Non-GAAP (c) |
35 |
% |
35 |
% |
33 |
% |
32 |
% |
35 |
% |
|||||||||
Return on common equity (annualized)(c) |
10.6 |
% |
10.4 |
% |
10.2 |
% |
9.3 |
% |
10.8 |
% |
|||||||||
Adjusted return on common equity (annualized) – Non-GAAP (c) |
11.0 |
% |
10.8 |
% |
10.7 |
% |
9.8 |
% |
11.3 |
% |
|||||||||
Return on tangible common equity (annualized) – Non- |
21.9 |
% |
21.9 |
% |
22.2 |
% |
20.4 |
% |
23.5 |
% |
|||||||||
Adjusted return on tangible common equity (annualized) – Non- |
22.0 |
% |
22.1 |
% |
22.4 |
% |
20.5 |
% |
23.6 |
% |
|||||||||
Fee revenue as a percentage of total revenue |
78 |
% |
79 |
% |
78 |
% |
78 |
% |
79 |
% |
|||||||||
Percentage of non-U.S. total revenue |
36 |
% |
35 |
% |
34 |
% |
34 |
% |
36 |
% |
|||||||||
Average common shares and equivalents outstanding: |
|||||||||||||||||||
Basic |
1,035,337 |
1,035,829 |
1,041,158 |
1,050,888 |
1,062,248 |
||||||||||||||
Diluted |
1,041,138 |
1,041,879 |
1,047,746 |
1,056,818 |
1,067,682 |
||||||||||||||
Period end: |
|||||||||||||||||||
Full-time employees |
52,900 |
52,800 |
52,600 |
52,000 |
52,300 |
||||||||||||||
Book value per common share – GAAP (d) |
$ |
36.11 |
$ |
35.26 |
$ |
34.23 |
$ |
33.67 |
$ |
34.19 |
|||||||||
Tangible book value per common share – Non-GAAP (d) |
$ |
18.19 |
$ |
17.53 |
$ |
16.65 |
$ |
16.19 |
$ |
16.67 |
|||||||||
Cash dividends per common share |
$ |
0.24 |
$ |
0.19 |
$ |
0.19 |
$ |
0.19 |
$ |
0.19 |
|||||||||
Common dividend payout ratio |
26 |
% |
22 |
% |
23 |
% |
25 |
% |
21 |
% |
|||||||||
Closing stock price per common share |
$ |
53.02 |
$ |
51.02 |
$ |
47.23 |
$ |
47.38 |
$ |
39.88 |
|||||||||
Market capitalization |
$ |
54,294 |
$ |
52,712 |
$ |
49,113 |
$ |
49,630 |
$ |
42,167 |
|||||||||
Common shares outstanding |
1,024,022 |
1,033,156 |
1,039,877 |
1,047,488 |
1,057,337 |
(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. |
KEY MARKET METRICS
The following table presents key market metrics at period end and on an average basis.
Key market metrics |
3Q17 vs. | ||||||||||||||||||
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | |||||||||||||
Standard & Poor's ("S&P") 500 Index (a) |
2519 |
2423 |
2363 |
2239 |
2168 |
4 |
% |
16 |
% | ||||||||||
S&P 500 Index – daily average |
2467 |
2398 |
2326 |
2185 |
2162 |
3 |
14 |
||||||||||||
FTSE 100 Index (a) |
7373 |
7313 |
7323 |
7143 |
6899 |
1 |
7 |
||||||||||||
FTSE 100 Index – daily average |
7380 |
7391 |
7274 |
6923 |
6765 |
— |
9 |
||||||||||||
MSCI EAFE (a) |
1974 |
1883 |
1793 |
1684 |
1702 |
5 |
16 |
||||||||||||
MSCI EAFE – daily average |
1934 |
1856 |
1749 |
1660 |
1677 |
4 |
15 |
||||||||||||
Barclays Capital Global Aggregate BondSM Index (a)(b) |
480 |
471 |
459 |
451 |
486 |
2 |
(1) |
||||||||||||
NYSE and NASDAQ share volume (in billions) |
179 |
199 |
186 |
189 |
186 |
(10) |
(4) |
||||||||||||
JPMorgan G7 Volatility Index – daily average (c) |
8.17 |
7.98 |
10.10 |
10.24 |
10.19 |
2 |
(20) |
||||||||||||
Average interest on excess reserves paid by the Federal Reserve |
1.25 |
% |
1.04 |
% |
0.79 |
% |
0.55 |
% |
0.50 |
% |
21 |
bps |
75 |
bps | |||||
Foreign exchange rates vs. U.S. dollar: |
|||||||||||||||||||
British pound (a) |
$ |
1.34 |
$ |
1.30 |
$ |
1.25 |
$ |
1.23 |
$ |
1.30 |
3 |
% |
3 |
% | |||||
British pound – average rate |
1.31 |
1.28 |
1.24 |
1.24 |
1.31 |
2 |
— |
||||||||||||
Euro (a) |
1.18 |
1.14 |
1.07 |
1.05 |
1.12 |
4 |
5 |
||||||||||||
Euro – average rate |
1.17 |
1.10 |
1.07 |
1.08 |
1.12 |
6 |
4 |
||||||||||||
(a) |
Period end. |
(b) |
Unhedged in U.S. dollar terms. |
(c) |
The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options. |
bps – basis points. |
FEE AND OTHER REVENUE
Fee and other revenue |
3Q17 vs. | ||||||||||||||||||
(dollars in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | ||||||||||||
Investment services fees: |
|||||||||||||||||||
Asset servicing (a) |
$ |
1,105 |
$ |
1,085 |
$ |
1,063 |
$ |
1,068 |
$ |
1,067 |
2 |
% |
4 |
% | |||||
Clearing services |
383 |
394 |
376 |
355 |
349 |
(3) |
10 |
||||||||||||
Issuer services |
288 |
241 |
251 |
211 |
337 |
20 |
(15) |
||||||||||||
Treasury services |
141 |
140 |
139 |
140 |
137 |
1 |
3 |
||||||||||||
Total investment services fees |
1,917 |
1,860 |
1,829 |
1,774 |
1,890 |
3 |
1 |
||||||||||||
Investment management and performance fees |
901 |
879 |
842 |
848 |
860 |
3 |
5 |
||||||||||||
Foreign exchange and other trading revenue |
173 |
165 |
164 |
161 |
183 |
5 |
(5) |
||||||||||||
Financing-related fees |
54 |
53 |
55 |
50 |
58 |
2 |
(7) |
||||||||||||
Distribution and servicing |
40 |
41 |
41 |
41 |
43 |
(2) |
(7) |
||||||||||||
Investment and other income |
63 |
122 |
77 |
70 |
92 |
N/M |
N/M | ||||||||||||
Total fee revenue |
3,148 |
3,120 |
3,008 |
2,944 |
3,126 |
1 |
1 |
||||||||||||
Net securities gains |
19 |
— |
10 |
10 |
24 |
N/M |
N/M | ||||||||||||
Total fee and other revenue |
$ |
3,167 |
$ |
3,120 |
$ |
3,018 |
$ |
2,954 |
$ |
3,150 |
2 |
% |
1 |
% |
(a) |
Asset servicing fees include securities lending revenue of $47 million in 3Q17, $48 million in 2Q17, $49 million in 1Q17,$54 million in 4Q16 and $51 million in 3Q16. |
N/M – Not meaningful. |
KEY POINTS
• |
Foreign exchange and other trading revenue |
|||||||||||||||
(in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | |||||||||||
Foreign exchange |
$ |
158 |
$ |
151 |
$ |
154 |
$ |
175 |
$ |
175 |
||||||
Other trading revenue (loss) |
15 |
14 |
10 |
(14) |
8 |
|||||||||||
Total foreign exchange and other trading revenue |
$ |
173 |
$ |
165 |
$ |
164 |
$ |
161 |
$ |
183 |
Foreign exchange revenue decreased 10% year-over-year and increased 5% sequentially. Year-over-year, lower volatility and lower Depositary Receipt-related foreign exchange activity were partially offset by higher volumes. The sequential increase reflects higher volumes. The year-over-year increase in other trading revenue primarily reflects higher fixed income trading revenue.
• |
Investment and other income |
|||||||||||||||
(in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | |||||||||||
Corporate/bank-owned life insurance |
$ |
37 |
$ |
43 |
$ |
30 |
$ |
53 |
$ |
34 |
||||||
Expense reimbursements from joint venture |
18 |
17 |
14 |
15 |
18 |
|||||||||||
Seed capital gains (a) |
6 |
10 |
9 |
6 |
16 |
|||||||||||
Asset-related gains (losses) |
1 |
(5) |
3 |
1 |
8 |
|||||||||||
Lease-related gains (losses) |
— |
51 |
1 |
(6) |
— |
|||||||||||
Equity investment income (loss) |
— |
7 |
26 |
(2) |
(1) |
|||||||||||
Other income (loss) |
1 |
(1) |
(6) |
3 |
17 |
|||||||||||
Total investment and other income |
$ |
63 |
$ |
122 |
$ |
77 |
$ |
70 |
$ |
92 |
(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 3Q17, $7 million in 2Q17, $15 million in 1Q17, $1 million in 4Q16 and $8 million in 3Q16. |
The year-over-year decrease in investment and other income primarily reflects lower other income driven by our investments in renewable energy and lower seed capital gains. The sequential decrease in investment and other income primarily reflects lease-related gains recorded in 2Q17 and lower income from corporate/bank-owned life insurance.
NET INTEREST REVENUE
Net interest revenue |
3Q17 vs. | ||||||||||||||||||
(dollars in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | ||||||||||||
Net interest revenue |
$ |
839 |
$ |
826 |
$ |
792 |
$ |
831 |
$ |
774 |
2 |
% |
8 |
% | |||||
Tax equivalent adjustment |
12 |
12 |
12 |
12 |
12 |
N/M |
N/M | ||||||||||||
Net interest revenue (FTE) – Non-GAAP (a) |
$ |
851 |
$ |
838 |
$ |
804 |
$ |
843 |
$ |
786 |
2 |
% |
8 |
% | |||||
Net interest margin |
1.15 |
% |
1.14 |
% |
1.13 |
% |
1.16 |
% |
1.05 |
% |
1 |
bps |
10 |
bps | |||||
Net interest margin (FTE) – Non-GAAP (a) |
1.16 |
% |
1.16 |
% |
1.14 |
% |
1.17 |
% |
1.06 |
% |
— |
bps |
10 |
bps | |||||
Selected average balances: |
|||||||||||||||||||
Cash/interbank investments |
$ |
114,449 |
$ |
111,021 |
$ |
106,069 |
$ |
104,352 |
$ |
114,544 |
3 |
% |
— |
% | |||||
Trading account securities |
2,359 |
2,455 |
2,254 |
2,288 |
2,176 |
(4) |
8 |
||||||||||||
Securities |
119,089 |
117,227 |
114,786 |
117,660 |
118,405 |
2 |
1 |
||||||||||||
Loans |
55,944 |
58,793 |
60,312 |
63,647 |
61,578 |
(5) |
(9) |
||||||||||||
Interest-earning assets |
291,841 |
289,496 |
283,421 |
287,947 |
296,703 |
1 |
(2) |
||||||||||||
Interest-bearing deposits |
142,490 |
142,336 |
139,820 |
145,681 |
155,109 |
— |
(8) |
||||||||||||
Noninterest-bearing deposits |
70,168 |
73,886 |
73,555 |
82,267 |
81,619 |
(5) |
(14) |
||||||||||||
Long-term debt |
28,138 |
27,398 |
25,882 |
24,986 |
23,930 |
3 |
18 |
||||||||||||
Selected average yields/rates: (b) |
|||||||||||||||||||
Cash/interbank investments |
0.84 |
% |
0.67 |
% |
0.56 |
% |
0.47 |
% |
0.43 |
% |
|||||||||
Trading account securities |
2.26 |
2.85 |
3.12 |
3.17 |
2.62 |
||||||||||||||
Securities |
1.80 |
1.72 |
1.71 |
1.67 |
1.56 |
||||||||||||||
Loans |
2.63 |
2.44 |
2.15 |
1.92 |
1.84 |
||||||||||||||
Interest-earning assets |
1.59 |
1.47 |
1.38 |
1.30 |
1.19 |
||||||||||||||
Interest-bearing deposits |
0.16 |
0.09 |
0.03 |
(0.01) |
(0.02) |
||||||||||||||
Long-term debt |
2.07 |
1.87 |
1.85 |
1.36 |
1.54 |
||||||||||||||
Average cash/interbank investments as a percentage |
39 |
% |
38 |
% |
37 |
% |
36 |
% |
39 |
% |
|||||||||
Average noninterest-bearing deposits as a percentage |
24 |
% |
26 |
% |
26 |
% |
29 |
% |
28 |
% |
(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
NONINTEREST EXPENSE
Noninterest expense |
3Q17 vs. | ||||||||||||||||||
(dollars in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | ||||||||||||
Staff |
$ |
1,469 |
$ |
1,417 |
$ |
1,472 |
$ |
1,395 |
$ |
1,467 |
4 |
% |
— |
% | |||||
Professional, legal and other purchased services |
305 |
319 |
312 |
325 |
292 |
(4) |
4 |
||||||||||||
Software and equipment |
233 |
232 |
223 |
237 |
215 |
— |
8 |
||||||||||||
Net occupancy |
141 |
139 |
136 |
153 |
143 |
1 |
(1) |
||||||||||||
Distribution and servicing |
109 |
104 |
100 |
98 |
105 |
5 |
4 |
||||||||||||
Sub-custodian |
62 |
65 |
64 |
57 |
59 |
(5) |
5 |
||||||||||||
Bank assessment charges |
51 |
59 |
57 |
53 |
61 |
(14) |
(16) |
||||||||||||
Business development |
49 |
63 |
51 |
71 |
52 |
(22) |
(6) |
||||||||||||
Other |
177 |
192 |
167 |
175 |
170 |
(8) |
4 |
||||||||||||
Amortization of intangible assets |
52 |
53 |
52 |
60 |
61 |
(2) |
(15) |
||||||||||||
M&I, litigation and restructuring charges |
6 |
12 |
8 |
7 |
18 |
N/M |
N/M | ||||||||||||
Total noninterest expense – GAAP |
$ |
2,654 |
$ |
2,655 |
$ |
2,642 |
$ |
2,631 |
$ |
2,643 |
— |
% |
— |
% | |||||
Staff expense as a percentage of total revenue |
37 |
% |
36 |
% |
38 |
% |
37 |
% |
37 |
% |
|||||||||
Memo: |
|||||||||||||||||||
Adjusted total noninterest expense excluding amortization |
$ |
2,596 |
$ |
2,590 |
$ |
2,582 |
$ |
2,564 |
$ |
2,564 |
— |
% |
1 |
% | |||||
N/M – Not meaningful. |
KEY POINTS
INVESTMENT SECURITIES PORTFOLIO
At Sept. 30, 2017, the fair value of our investment securities portfolio totaled $119.7 billion. The net unrealized pre-tax gain on our total securities portfolio was $257 million at Sept. 30, 2017 compared with a pre-tax gain of $151 million at June 30, 2017. The increase in the net unrealized pre-tax gain was primarily driven by a decrease in long-term interest rates. At Sept. 30, 2017, the fair value of the held-to-maturity securities totaled $39.9 billion and represented 33% of the fair value of the total investment securities portfolio.
The following table shows the distribution of our investment securities portfolio.
Investment securities |
June 30, 2017 |
3Q17 change in unrealized gain (loss) |
Sept. 30, 2017 |
Fair value as a % of cost (a) |
Unrealized gain (loss) |
Ratings (b) | ||||||||||||||||||||||||
BB+ and lower |
||||||||||||||||||||||||||||||
(dollars in millions) |
Fair value |
Amortized cost |
Fair value |
AAA/ AA- |
A+/ A- |
BBB+/ BBB- |
Not rated | |||||||||||||||||||||||
Agency RMBS |
$ |
49,544 |
$ |
81 |
$ |
50,121 |
$ |
49,917 |
100 |
% |
$ |
(204) |
100 |
% |
— |
% |
— |
% |
— |
% |
— |
% | ||||||||
U.S. Treasury |
25,325 |
(5) |
25,256 |
25,159 |
100 |
(97) |
100 |
— |
— |
— |
— |
|||||||||||||||||||
Sovereign debt/sovereign |
14,025 |
6 |
13,951 |
14,102 |
101 |
151 |
72 |
6 |
21 |
1 |
— |
|||||||||||||||||||
Non-agency RMBS (c) |
1,239 |
9 |
885 |
1,185 |
84 |
300 |
— |
1 |
3 |
87 |
9 |
|||||||||||||||||||
Non-agency RMBS |
627 |
9 |
555 |
594 |
97 |
39 |
7 |
4 |
17 |
71 |
1 |
|||||||||||||||||||
European floating rate |
523 |
(1) |
393 |
387 |
98 |
(6) |
63 |
37 |
— |
— |
— |
|||||||||||||||||||
Commercial MBS |
10,574 |
5 |
11,051 |
11,033 |
100 |
(18) |
99 |
1 |
— |
— |
— |
|||||||||||||||||||
State and political |
3,299 |
1 |
3,109 |
3,141 |
101 |
32 |
80 |
17 |
— |
— |
3 |
|||||||||||||||||||
Foreign covered bonds |
2,471 |
1 |
2,612 |
2,626 |
101 |
14 |
100 |
— |
— |
— |
— |
|||||||||||||||||||
Corporate bonds |
1,318 |
4 |
1,262 |
1,275 |
101 |
13 |
17 |
69 |
14 |
— |
— |
|||||||||||||||||||
CLOs |
2,642 |
1 |
2,542 |
2,550 |
100 |
8 |
99 |
— |
— |
1 |
— |
|||||||||||||||||||
U.S. Government agencies |
2,210 |
2 |
2,480 |
2,496 |
101 |
16 |
100 |
— |
— |
— |
— |
|||||||||||||||||||
Consumer ABS |
1,330 |
1 |
1,152 |
1,157 |
100 |
5 |
89 |
4 |
5 |
2 |
— |
|||||||||||||||||||
Other (d) |
3,758 |
(8) |
4,118 |
4,122 |
100 |
4 |
81 |
17 |
— |
— |
2 |
|||||||||||||||||||
Total investment |
$ |
118,885 |
(e) |
$ |
106 |
$ |
119,487 |
$ |
119,744 |
(e) |
100 |
% |
$ |
257 |
(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 $700 million and $700 million and money market funds with a fair value of $896 million and $939 million at June 30, 2017 and Sept. 30, 2017, respectively. |
(e) |
Includes net unrealized losses on derivatives hedging securities available-for-sale of $251 million at June 30, 2017 and $238 million at Sept. 30, 2017. |
(f) |
Unrealized gains of $324 million at Sept. 30, 2017 related to available-for-sale securities, net of hedges. |
NONPERFORMING ASSETS
Nonperforming assets (dollars in millions) |
Sept. 30, |
June 30, |
December 31, | ||||||
Nonperforming loans: |
|||||||||
Other residential mortgages |
$ |
80 |
$ |
84 |
$ |
91 |
|||
Wealth management loans and mortgages |
8 |
10 |
8 |
||||||
Financial institutions |
2 |
2 |
— |
||||||
Lease financing |
— |
— |
4 |
||||||
Total nonperforming loans |
90 |
96 |
103 |
||||||
Other assets owned |
4 |
4 |
4 |
||||||
Total nonperforming assets |
$ |
94 |
$ |
100 |
$ |
107 |
|||
Nonperforming assets ratio |
0.16 |
% |
0.16 |
% |
0.17 |
% | |||
Allowance for loan losses/nonperforming loans |
178.9 |
171.9 |
164.1 |
||||||
Total allowance for credit losses/nonperforming loans |
294.4 |
281.3 |
272.8 |
Nonperforming assets decreased $6 million compared with June 30, 2017 and $13 million compared with Dec. 31, 2016. The decrease compared with June 30, 2017 primarily reflects lower other residential mortgages and wealth management loans and mortgages.
ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS
Allowance for credit losses, provision and net recoveries (in millions) |
Sept. 30, |
June 30, |
Sept. 30, | ||||||
Allowance for credit losses - beginning of period |
$ |
270 |
$ |
276 |
$ |
280 |
|||
Provision for credit losses |
(6) |
(7) |
(19) |
||||||
Net recoveries: |
|||||||||
Other residential mortgages |
1 |
1 |
— |
||||||
Financial institutions |
— |
— |
13 |
||||||
Net recoveries |
1 |
1 |
13 |
||||||
Allowance for credit losses - end of period |
$ |
265 |
$ |
270 |
$ |
274 |
|||
Allowance for loan losses |
$ |
161 |
$ |
165 |
$ |
148 |
|||
Allowance for lending-related commitments |
104 |
105 |
126 |
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 |
Sept. 30, |
June 30, |
December 31, | |||
Consolidated regulatory capital ratios: (a) |
||||||
Standardized Approach: |
||||||
CET1 ratio |
12.3 |
% |
12.0 |
% |
12.3 |
% |
Tier 1 capital ratio |
14.6 |
14.3 |
14.5 |
|||
Total (Tier 1 plus Tier 2) capital ratio |
15.6 |
14.8 |
15.2 |
|||
Advanced Approach: |
||||||
CET1 ratio |
11.1 |
10.8 |
10.6 |
|||
Tier 1 capital ratio |
13.2 |
12.9 |
12.6 |
|||
Total (Tier 1 plus Tier 2) capital ratio |
14.0 |
13.2 |
13.0 |
|||
Leverage capital ratio (b) |
6.8 |
6.7 |
6.6 |
|||
Supplementary leverage ratio ("SLR") |
6.3 |
6.2 |
6.0 |
|||
BNY Mellon shareholders' equity to total assets ratio |
11.4 |
11.3 |
11.6 |
|||
BNY Mellon common shareholders' equity to total assets ratio |
10.4 |
10.3 |
10.6 |
|||
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(c) |
||||||
CET1 ratio: |
||||||
Standardized Approach |
11.9 |
% |
11.5 |
% |
11.3 |
% |
Advanced Approach |
10.7 |
10.4 |
9.7 |
|||
SLR |
6.1 |
6.0 |
5.6 |
(a) |
Regulatory capital ratios for Sept. 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 3Q17 – preliminary |
Transitional basis (b) |
Fully phased-in – Non-GAAP (c) |
|||||
(in millions) |
|||||||
CET1 – Beginning of period |
$ |
18,371 |
$ |
17,629 |
|||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP |
983 |
983 |
|||||
Goodwill and intangible assets, net of related deferred tax liabilities |
(33) |
(26) |
|||||
Gross CET1 generated |
950 |
957 |
|||||
Capital deployed: |
|||||||
Dividends |
(253) |
(253) |
|||||
Common stock repurchased |
(650) |
(650) |
|||||
Total capital deployed |
(903) |
(903) |
|||||
Other comprehensive income |
306 |
312 |
|||||
Additional paid-in capital (a) |
156 |
156 |
|||||
Other |
(10) |
(10) |
|||||
Total other additions |
452 |
458 |
|||||
Net CET1 generated |
499 |
512 |
|||||
CET1 – End of period |
$ |
18,870 |
$ |
18,141 |
(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. |
The table presented below compares the fully phased-in Basel III capital components and risk-based ratios to those capital components and ratios determined on a transitional basis.
Basel III capital components and ratios |
Sept. 30, 2017 (a) |
June 30, 2017 |
December 31, 2016 | |||||||||||||||||
(dollars in millions) |
Transitional |
Fully |
Transitional basis (b) |
Fully phased-in – Non-GAAP (c) |
Transitional basis (b) |
Fully phased-in – Non-GAAP (c) | ||||||||||||||
CET1: |
||||||||||||||||||||
Common shareholders' equity |
$ |
37,195 |
$ |
36,981 |
$ |
36,652 |
$ |
36,432 |
$ |
35,794 |
$ |
35,269 |
||||||||
Goodwill and intangible assets |
(17,876) |
(18,351) |
(17,843) |
(18,325) |
(17,314) |
(18,312) |
||||||||||||||
Net pension fund assets |
(72) |
(90) |
(72) |
(90) |
(55) |
(90) |
||||||||||||||
Equity method investments |
(334) |
(348) |
(325) |
(340) |
(313) |
(344) |
||||||||||||||
Deferred tax assets |
(31) |
(39) |
(30) |
(37) |
(19) |
(32) |
||||||||||||||
Other |
(12) |
(12) |
(11) |
(11) |
— |
(1) |
||||||||||||||
Total CET1 |
18,870 |
18,141 |
18,371 |
17,629 |
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 |
(19) |
— |
(18) |
— |
(36) |
— |
||||||||||||||
Other |
(34) |
(34) |
(24) |
(24) |
(121) |
(121) |
||||||||||||||
Total Tier 1 capital |
22,351 |
21,649 |
21,864 |
21,147 |
21,465 |
19,911 |
||||||||||||||
Tier 2 capital: |
||||||||||||||||||||
Subordinated debt |
1,300 |
1,250 |
550 |
550 |
550 |
550 |
||||||||||||||
Allowance for credit losses |
265 |
265 |
270 |
270 |
281 |
281 |
||||||||||||||
Trust preferred securities |
— |
— |
— |
— |
148 |
— |
||||||||||||||
Other |
(7) |
(7) |
(7) |
(7) |
(12) |
(11) |
||||||||||||||
Total Tier 2 capital - Standardized Approach |
1,558 |
1,508 |
813 |
813 |
967 |
820 |
||||||||||||||
Excess of expected credit losses |
49 |
49 |
59 |
59 |
50 |
50 |
||||||||||||||
Less: Allowance for credit losses |
265 |
265 |
270 |
270 |
281 |
281 |
||||||||||||||
Total Tier 2 capital - Advanced Approach |
$ |
1,342 |
$ |
1,292 |
$ |
602 |
$ |
602 |
$ |
736 |
$ |
589 |
||||||||
Total capital: |
||||||||||||||||||||
Standardized Approach |
$ |
23,909 |
$ |
23,157 |
$ |
22,677 |
$ |
21,960 |
$ |
22,432 |
$ |
20,731 |
||||||||
Advanced Approach |
$ |
23,693 |
$ |
22,941 |
$ |
22,466 |
$ |
21,749 |
$ |
22,201 |
$ |
20,500 |
||||||||
Risk-weighted assets: |
||||||||||||||||||||
Standardized Approach |
$ |
153,063 |
$ |
152,564 |
$ |
153,179 |
$ |
152,645 |
$ |
147,671 |
$ |
146,475 |
||||||||
Advanced Approach |
$ |
169,794 |
$ |
169,265 |
$ |
170,043 |
$ |
169,478 |
$ |
170,495 |
$ |
169,227 |
||||||||
Standardized Approach: |
||||||||||||||||||||
CET1 ratio |
12.3 |
% |
11.9 |
% |
12.0 |
% |
11.5 |
% |
12.3 |
% |
11.3 |
% | ||||||||
Tier 1 capital ratio |
14.6 |
14.2 |
14.3 |
13.9 |
14.5 |
13.6 |
||||||||||||||
Total (Tier 1 plus Tier 2) capital ratio |
15.6 |
15.2 |
14.8 |
14.4 |
15.2 |
14.2 |
||||||||||||||
Advanced Approach: |
||||||||||||||||||||
CET1 ratio |
11.1 |
% |
10.7 |
% |
10.8 |
% |
10.4 |
% |
10.6 |
% |
9.7 |
% | ||||||||
Tier 1 capital ratio |
13.2 |
12.8 |
12.9 |
12.5 |
12.6 |
11.8 |
||||||||||||||
Total (Tier 1 plus Tier 2) capital ratio |
14.0 |
13.6 |
13.2 |
12.8 |
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.
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 |
Sept. 30, 2017 (a) |
June 30, 2017 |
December 31, 2016 | |||||||||||||||||
(dollars in millions) |
Transitional |
Fully |
Transitional |
Fully |
Transitional |
Fully phased-in – Non-GAAP (b) | ||||||||||||||
Consolidated: |
||||||||||||||||||||
Tier 1 capital |
$ |
22,351 |
$ |
21,649 |
$ |
21,864 |
$ |
21,147 |
$ |
21,465 |
$ |
19,911 |
||||||||
Total leverage exposure: |
||||||||||||||||||||
Quarterly average total assets |
$ |
345,709 |
$ |
345,709 |
$ |
342,515 |
$ |
342,515 |
$ |
344,142 |
$ |
344,142 |
||||||||
Less: Amounts deducted from Tier 1 capital |
18,148 |
18,856 |
18,092 |
18,810 |
17,333 |
18,887 |
||||||||||||||
Total on-balance sheet assets, as adjusted |
327,561 |
326,853 |
324,423 |
323,705 |
326,809 |
325,255 |
||||||||||||||
Off-balance sheet exposures: |
||||||||||||||||||||
Potential future exposure for derivative |
6,209 |
6,209 |
6,014 |
6,014 |
6,021 |
6,021 |
||||||||||||||
Repo-style transaction exposures |
1,034 |
1,034 |
631 |
631 |
533 |
533 |
||||||||||||||
Credit-equivalent amount of other off-balance |
21,954 |
21,954 |
22,098 |
22,098 |
23,274 |
23,274 |
||||||||||||||
Total off-balance sheet exposures |
29,197 |
29,197 |
28,743 |
28,743 |
29,828 |
29,828 |
||||||||||||||
Total leverage exposure |
$ |
356,758 |
$ |
356,050 |
$ |
353,166 |
$ |
352,448 |
$ |
356,637 |
$ |
355,083 |
||||||||
SLR - Consolidated (c) |
6.3 |
% |
6.1 |
% |
6.2 |
% |
6.0 |
% |
6.0 |
% |
5.6 |
% | ||||||||
The Bank of New York Mellon, our largest |
||||||||||||||||||||
Tier 1 capital |
$ |
20,718 |
$ |
19,955 |
$ |
19,897 |
$ |
19,125 |
$ |
19,011 |
$ |
17,708 |
||||||||
Total leverage exposure |
$ |
292,859 |
$ |
292,513 |
$ |
286,983 |
$ |
286,634 |
$ |
291,022 |
$ |
290,230 |
||||||||
SLR - The Bank of New York Mellon (c) |
7.1 |
% |
6.8 |
% |
6.9 |
% |
6.7 |
% |
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 119% for 3Q17. High-quality liquid assets ("HQLA"), before haircuts and trapped liquidity, totaled $175 billion at Sept. 30, 2017 and averaged $162 billion for 3Q17.
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) |
3Q17 vs. | |||||||||||||||||||
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | ||||||||||||||
Revenue: |
||||||||||||||||||||
Investment management fees: |
||||||||||||||||||||
Mutual funds |
$ |
332 |
$ |
314 |
$ |
299 |
$ |
297 |
$ |
309 |
6 |
% |
7 |
% | ||||||
Institutional clients |
367 |
362 |
348 |
340 |
362 |
1 |
1 |
|||||||||||||
Wealth management |
172 |
169 |
167 |
164 |
166 |
2 |
4 |
|||||||||||||
Investment management fees (a) |
871 |
845 |
814 |
801 |
837 |
3 |
4 |
|||||||||||||
Performance fees |
15 |
17 |
12 |
32 |
8 |
N/M |
88 |
|||||||||||||
Investment management and performance fees |
886 |
862 |
826 |
833 |
845 |
3 |
5 |
|||||||||||||
Distribution and servicing |
51 |
53 |
52 |
48 |
49 |
(4) |
4 |
|||||||||||||
Other (a) |
(19) |
(16) |
(1) |
(1) |
(18) |
N/M |
N/M | |||||||||||||
Total fee and other revenue (a) |
918 |
899 |
877 |
880 |
876 |
2 |
5 |
|||||||||||||
Net interest revenue |
82 |
87 |
86 |
80 |
82 |
(6) |
— |
|||||||||||||
Total revenue |
1,000 |
986 |
963 |
960 |
958 |
1 |
4 |
|||||||||||||
Provision for credit losses |
(2) |
— |
3 |
6 |
— |
N/M |
N/M | |||||||||||||
Noninterest expense (ex. amortization of intangible assets) |
687 |
683 |
668 |
672 |
680 |
1 |
1 |
|||||||||||||
Amortization of intangible assets |
15 |
15 |
15 |
22 |
22 |
— |
(32) |
|||||||||||||
Total noninterest expense |
702 |
698 |
683 |
694 |
702 |
1 |
— |
|||||||||||||
Income before taxes |
$ |
300 |
$ |
288 |
$ |
277 |
$ |
260 |
$ |
256 |
4 |
% |
17 |
% | ||||||
Income before taxes (ex. amortization of intangible |
$ |
315 |
$ |
303 |
$ |
292 |
$ |
282 |
$ |
278 |
4 |
% |
13 |
% | ||||||
Pre-tax operating margin |
30 |
% |
29 |
% |
29 |
% |
27 |
% |
27 |
% |
||||||||||
Adjusted pre-tax operating margin – Non-GAAP (b) |
35 |
% |
34 |
% |
34 |
% |
33 |
% |
33 |
% |
||||||||||
Changes in AUM (in billions): (c) |
||||||||||||||||||||
Beginning balance of AUM |
$ |
1,771 |
$ |
1,727 |
$ |
1,648 |
$ |
1,715 |
$ |
1,664 |
||||||||||
Net inflows (outflows): |
||||||||||||||||||||
Long-term strategies: |
||||||||||||||||||||
Equity |
(2) |
(2) |
(4) |
(5) |
(6) |
|||||||||||||||
Fixed income |
4 |
2 |
2 |
(1) |
(1) |
|||||||||||||||
Liability-driven investments (d) |
(2) |
15 |
14 |
(7) |
4 |
|||||||||||||||
Multi-asset and alternative investments |
3 |
1 |
2 |
3 |
7 |
|||||||||||||||
Total long-term active strategies inflows (outflows) |
3 |
16 |
14 |
(10) |
4 |
|||||||||||||||
Index |
(3) |
(13) |
— |
(1) |
(3) |
|||||||||||||||
Total long-term strategies inflows (outflows) |
— |
3 |
14 |
(11) |
1 |
|||||||||||||||
Short term strategies: |
||||||||||||||||||||
Cash |
10 |
11 |
13 |
(3) |
(1) |
|||||||||||||||
Total net inflows (outflows) |
10 |
14 |
27 |
(14) |
— |
|||||||||||||||
Net market impact/other |
17 |
1 |
41 |
(11) |
80 |
|||||||||||||||
Net currency impact |
26 |
29 |
11 |
(42) |
(29) |
|||||||||||||||
Ending balance of AUM |
$ |
1,824 |
(e) |
$ |
1,771 |
$ |
1,727 |
$ |
1,648 |
$ |
1,715 |
3 |
% |
6 |
% | |||||
AUM at period end, by product type: (c) |
||||||||||||||||||||
Equity |
9 |
% |
9 |
% |
9 |
% |
9 |
% |
9 |
% |
||||||||||
Fixed income |
11 |
11 |
11 |
11 |
11 |
|||||||||||||||
Index |
18 |
18 |
19 |
19 |
18 |
|||||||||||||||
Liability-driven investments (d) |
35 |
35 |
34 |
34 |
35 |
|||||||||||||||
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 |
$ |
16,724 |
$ |
16,560 |
$ |
16,153 |
$ |
15,673 |
$ |
15,308 |
1 |
% |
9 |
% | ||||||
Average deposits |
$ |
12,374 |
$ |
14,866 |
$ |
15,781 |
$ |
15,511 |
$ |
15,600 |
(17) |
% |
(21) |
% |
(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. |
INVESTMENT MANAGEMENT KEY POINTS
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) |
3Q17 vs. | |||||||||||||||||||
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 |
2Q17 |
3Q16 | ||||||||||||||
Revenue: |
||||||||||||||||||||
Investment services fees: |
||||||||||||||||||||
Asset servicing |
$ |
1,081 |
$ |
1,061 |
$ |
1,038 |
$ |
1,043 |
$ |
1,039 |
2 |
% |
4 |
% | ||||||
Clearing services |
381 |
393 |
375 |
354 |
347 |
(3) |
10 |
|||||||||||||
Issuer services |
288 |
241 |
250 |
211 |
336 |
20 |
(14) |
|||||||||||||
Treasury services |
141 |
139 |
139 |
139 |
136 |
1 |
4 |
|||||||||||||
Total investment services fees |
1,891 |
1,834 |
1,802 |
1,747 |
1,858 |
3 |
2 |
|||||||||||||
Foreign exchange and other trading revenue |
154 |
145 |
153 |
157 |
177 |
6 |
(13) |
|||||||||||||
Other (a) |
142 |
136 |
129 |
128 |
148 |
4 |
(4) |
|||||||||||||
Total fee and other revenue |
2,187 |
2,115 |
2,084 |
2,032 |
2,183 |
3 |
— |
|||||||||||||
Net interest revenue |
777 |
761 |
707 |
713 |
715 |
2 |
9 |
|||||||||||||
Total revenue |
2,964 |
2,876 |
2,791 |
2,745 |
2,898 |
3 |
2 |
|||||||||||||
Provision for credit losses |
(2) |
(3) |
— |
— |
1 |
N/M |
N/M | |||||||||||||
Noninterest expense (ex. amortization of intangible assets) |
1,837 |
1,889 |
1,812 |
1,786 |
1,812 |
(3) |
1 |
|||||||||||||
Amortization of intangible assets |
37 |
38 |
37 |
38 |
39 |
(3) |
(5) |
|||||||||||||
Total noninterest expense |
1,874 |
1,927 |
1,849 |
1,824 |
1,851 |
(3) |
1 |
|||||||||||||
Income before taxes |
$ |
1,092 |
$ |
952 |
$ |
942 |
$ |
921 |
$ |
1,046 |
15 |
% |
4 |
% | ||||||
Income before taxes (ex. amortization of intangible |
$ |
1,129 |
$ |
990 |
$ |
979 |
$ |
959 |
$ |
1,085 |
14 |
% |
4 |
% | ||||||
Pre-tax operating margin |
37 |
% |
33 |
% |
34 |
% |
34 |
% |
36 |
% |
||||||||||
Adjusted pre-tax operating margin (ex. provision for credit |
38 |
% |
34 |
% |
35 |
% |
35 |
% |
37 |
% |
||||||||||
Investment services fees as a percentage of noninterest |
103 |
% |
97 |
% |
99 |
% |
98 |
% |
103 |
% |
||||||||||
Securities lending revenue |
$ |
41 |
$ |
42 |
$ |
40 |
$ |
44 |
$ |
42 |
(2) |
% |
(2) |
% | ||||||
Metrics: |
||||||||||||||||||||
Average loans |
$ |
38,038 |
$ |
40,931 |
$ |
42,818 |
$ |
45,832 |
$ |
44,329 |
(7) |
% |
(14) |
% | ||||||
Average deposits |
$ |
198,299 |
$ |
200,417 |
$ |
197,690 |
$ |
213,531 |
$ |
220,316 |
(1) |
% |
(10) |
% | ||||||
AUC/A at period end (in trillions) (b) |
$ |
32.2 |
(c) |
$ |
31.1 |
$ |
30.6 |
$ |
29.9 |
$ |
30.5 |
4 |
% |
6 |
% | |||||
Market value of securities on loan at period end |
$ |
382 |
$ |
336 |
$ |
314 |
$ |
296 |
$ |
288 |
14 |
% |
33 |
% | ||||||
Asset servicing: |
||||||||||||||||||||
Estimated new business wins (AUC/A) (in billions) |
$ |
166 |
(c) |
$ |
152 |
$ |
109 |
$ |
141 |
$ |
150 |
|||||||||
Clearing services: |
||||||||||||||||||||
Average active clearing accounts (U.S. platform) |
6,203 |
6,159 |
6,058 |
5,960 |
5,942 |
1 |
% |
4 |
% | |||||||||||
Average long-term mutual fund assets (U.S. platform) |
$ |
500,998 |
$ |
480,532 |
$ |
460,977 |
$ |
438,460 |
$ |
443,112 |
4 |
% |
13 |
% | ||||||
Average investor margin loans (U.S. platform) |
$ |
8,886 |
$ |
9,812 |
$ |
10,740 |
$ |
10,562 |
$ |
10,834 |
(9) |
% |
(18) |
% | ||||||
Depositary Receipts: |
||||||||||||||||||||
Number of sponsored programs |
938 |
1,025 |
1,050 |
1,062 |
1,094 |
(8) |
% |
(14) |
% | |||||||||||
Broker-Dealer: |
||||||||||||||||||||
Average tri-party repo balances (in billions) |
$ |
2,534 |
$ |
2,498 |
$ |
2,373 |
$ |
2,307 |
$ |
2,212 |
1 |
% |
15 |
% |
(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 $1.3 trillion at Sept. 30, 2017 and $1.2 trillion at June 30, 2017, March 31, 2017,Dec. 31, 2016 and Sept. 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 $68 billion at Sept. 30, 2017, $66 billion at June 30, 2017, $65 billion at March 31, 2017, $63 billion at Dec. 31, 2016 and $64 billion at Sept. 30, 2016. |
N/M – Not meaningful. |
INVESTMENT SERVICES KEY POINTS
OTHER SEGMENT primarily includes leasing operations, certain corporate treasury activities, derivatives, global markets, business exits and other corporate revenue and expense items.
(in millions) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Revenue: |
|||||||||||||||
Fee and other revenue |
$ |
69 |
$ |
113 |
$ |
72 |
$ |
42 |
$ |
100 |
|||||
Net interest (expense) revenue |
(20) |
(22) |
(1) |
38 |
(23) |
||||||||||
Total revenue |
49 |
91 |
71 |
80 |
77 |
||||||||||
Provision for credit losses |
(2) |
(4) |
(8) |
1 |
(20) |
||||||||||
Noninterest expense (ex. M&I and restructuring charges) |
77 |
28 |
106 |
108 |
88 |
||||||||||
M&I and restructuring charges |
— |
— |
1 |
2 |
— |
||||||||||
Total noninterest expense |
77 |
28 |
107 |
110 |
88 |
||||||||||
(Loss) income before taxes |
$ |
(26) |
$ |
67 |
$ |
(28) |
$ |
(31) |
$ |
9 |
|||||
(Loss) income before taxes (ex. M&I and restructuring charges) – Non- |
$ |
(26) |
$ |
67 |
$ |
(27) |
$ |
(29) |
$ |
9 |
|||||
Average loans and leases |
$ |
1,182 |
$ |
1,302 |
$ |
1,341 |
$ |
2,142 |
$ |
1,941 |
KEY POINTS
THE BANK OF NEW YORK MELLON CORPORATION | |||||||||||||||||
Condensed Consolidated Income Statement | |||||||||||||||||
(in millions) |
Quarter ended |
Year-to-date |
|||||||||||||||
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, |
|||||||||||||
Fee and other revenue |
|||||||||||||||||
Investment services fees: |
|||||||||||||||||
Asset servicing |
$ |
1,105 |
$ |
1,085 |
$ |
1,067 |
$ |
3,253 |
$ |
3,176 |
|||||||
Clearing services |
383 |
394 |
349 |
1,153 |
1,049 |
||||||||||||
Issuer services |
288 |
241 |
337 |
780 |
815 |
||||||||||||
Treasury services |
141 |
140 |
137 |
420 |
407 |
||||||||||||
Total investment services fees |
1,917 |
1,860 |
1,890 |
5,606 |
5,447 |
||||||||||||
Investment management and performance fees |
901 |
879 |
860 |
2,622 |
2,502 |
||||||||||||
Foreign exchange and other trading revenue |
173 |
165 |
183 |
502 |
540 |
||||||||||||
Financing-related fees |
54 |
53 |
58 |
162 |
169 |
||||||||||||
Distribution and servicing |
40 |
41 |
43 |
122 |
125 |
||||||||||||
Investment and other income |
63 |
122 |
92 |
262 |
271 |
||||||||||||
Total fee revenue |
3,148 |
3,120 |
3,126 |
9,276 |
9,054 |
||||||||||||
Net securities gains |
19 |
— |
24 |
29 |
65 |
||||||||||||
Total fee and other revenue |
3,167 |
3,120 |
3,150 |
9,305 |
9,119 |
||||||||||||
Operations of consolidated investment management funds |
|||||||||||||||||
Investment income |
10 |
10 |
20 |
57 |
27 |
||||||||||||
Interest of investment management fund note holders |
— |
— |
3 |
4 |
6 |
||||||||||||
Income from consolidated investment management funds |
10 |
10 |
17 |
53 |
21 |
||||||||||||
Net interest revenue |
|||||||||||||||||
Interest revenue |
1,151 |
1,052 |
874 |
3,163 |
2,647 |
||||||||||||
Interest expense |
312 |
226 |
100 |
706 |
340 |
||||||||||||
Net interest revenue |
839 |
826 |
774 |
2,457 |
2,307 |
||||||||||||
Total revenue |
4,016 |
3,956 |
3,941 |
11,815 |
11,447 |
||||||||||||
Provision for credit losses |
(6) |
(7) |
(19) |
(18) |
(18) |
||||||||||||
Noninterest expense |
|||||||||||||||||
Staff |
1,469 |
1,417 |
1,467 |
4,358 |
4,338 |
||||||||||||
Professional, legal and other purchased services |
305 |
319 |
292 |
936 |
860 |
||||||||||||
Software and equipment |
233 |
232 |
215 |
688 |
657 |
||||||||||||
Net occupancy |
141 |
139 |
143 |
416 |
437 |
||||||||||||
Distribution and servicing |
109 |
104 |
105 |
313 |
307 |
||||||||||||
Sub-custodian |
62 |
65 |
59 |
191 |
188 |
||||||||||||
Bank assessment charges (a) |
51 |
59 |
61 |
167 |
166 |
||||||||||||
Business development |
49 |
63 |
52 |
163 |
174 |
||||||||||||
Other (a) |
177 |
192 |
170 |
536 |
546 |
||||||||||||
Amortization of intangible assets |
52 |
53 |
61 |
157 |
177 |
||||||||||||
M&I, litigation and restructuring charges |
6 |
12 |
18 |
26 |
42 |
||||||||||||
Total noninterest expense |
2,654 |
2,655 |
2,643 |
7,951 |
7,892 |
||||||||||||
Income |
|||||||||||||||||
Income before income taxes |
1,368 |
1,308 |
1,317 |
3,882 |
3,573 |
||||||||||||
Provision for income taxes |
348 |
332 |
324 |
949 |
897 |
||||||||||||
Net income |
1,020 |
976 |
993 |
2,933 |
2,676 |
||||||||||||
Net (income) loss attributable to noncontrolling interests (includes $(3), |
(2) |
(1) |
(6) |
(18) |
1 |
||||||||||||
Net income applicable to shareholders of The Bank of New York Mellon |
1,018 |
975 |
987 |
2,915 |
2,677 |
||||||||||||
Preferred stock dividends |
(35) |
(49) |
(13) |
(126) |
(74) |
||||||||||||
Net income applicable to common shareholders of The Bank of New |
$ |
983 |
$ |
926 |
$ |
974 |
$ |
2,789 |
$ |
2,603 |
(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. |
THE BANK OF NEW YORK MELLON CORPORATION | |||||||||||||||||
Condensed Consolidated Income Statement - continued | |||||||||||||||||
Net income applicable to common shareholders of The Bank of New |
Quarter ended |
Year-to-date |
|||||||||||||||
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, |
|||||||||||||
(in millions) |
|||||||||||||||||
Net income applicable to common shareholders of The Bank of New York |
$ |
983 |
$ |
926 |
$ |
974 |
$ |
2,789 |
$ |
2,603 |
|||||||
Less: Earnings allocated to participating securities (a) |
8 |
13 |
15 |
35 |
39 |
||||||||||||
Net income applicable to the common shareholders of The Bank of New |
$ |
975 |
$ |
913 |
$ |
959 |
$ |
2,754 |
$ |
2,564 |
(a) |
Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes. This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for the quarter, which resulted in a de minimis impact to both basic and diluted earnings per share. |
Average common shares and equivalents outstanding of The Bank of |
Quarter ended |
Year-to-date |
||||||||||
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, |
||||||||
(in thousands) |
||||||||||||
Basic |
1,035,337 |
1,035,829 |
1,062,248 |
1,037,431 |
1,071,457 |
|||||||
Diluted |
1,041,138 |
1,041,879 |
1,067,682 |
1,043,585 |
1,077,150 |
(a) |
Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes. This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for the quarter, which resulted in a de minimis impact to both basic and diluted earnings per share. |
Earnings per share applicable to the common shareholders of The Bank |
Quarter ended |
Year-to-date |
|||||||||||||||
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, |
|||||||||||||
(in dollars) |
|||||||||||||||||
Basic |
$ |
0.94 |
$ |
0.88 |
$ |
0.90 |
$ |
2.66 |
$ |
2.39 |
|||||||
Diluted |
$ |
0.94 |
$ |
0.88 |
$ |
0.90 |
$ |
2.64 |
$ |
2.38 |
THE BANK OF NEW YORK MELLON CORPORATION | ||||||||||
Consolidated Balance Sheet | ||||||||||
(dollars in millions, except per share amounts) |
Sept. 30, |
June 30, |
December 31, |
|||||||
Assets |
||||||||||
Cash and due from: |
||||||||||
Banks |
$ |
5,557 |
$ |
4,725 |
$ |
4,822 |
||||
Interest-bearing deposits with the Federal Reserve and other central banks |
75,808 |
74,130 |
58,041 |
|||||||
Interest-bearing deposits with banks |
15,256 |
13,601 |
15,086 |
|||||||
Federal funds sold and securities purchased under resale agreements |
27,883 |
27,440 |
25,801 |
|||||||
Securities: |
||||||||||
Held-to-maturity (fair value of $39,928, $40,862 and $40,669) |
39,995 |
40,986 |
40,905 |
|||||||
Available-for-sale |
80,054 |
78,274 |
73,822 |
|||||||
Total securities |
120,049 |
119,260 |
114,727 |
|||||||
Trading assets |
4,666 |
5,279 |
5,733 |
|||||||
Loans |
59,068 |
61,673 |
64,458 |
|||||||
Allowance for loan losses |
(161) |
(165) |
(169) |
|||||||
Net loans |
58,907 |
61,508 |
64,289 |
|||||||
Premises and equipment |
1,631 |
1,640 |
1,303 |
|||||||
Accrued interest receivable |
547 |
567 |
568 |
|||||||
Goodwill |
17,543 |
17,457 |
17,316 |
|||||||
Intangible assets |
3,461 |
3,506 |
3,598 |
|||||||
Other assets |
22,287 |
25,000 |
20,954 |
|||||||
Subtotal assets of operations |
353,595 |
354,113 |
332,238 |
|||||||
Assets of consolidated investment management funds, at fair value |
802 |
702 |
1,231 |
|||||||
Total assets |
$ |
354,397 |
$ |
354,815 |
$ |
333,469 |
||||
Liabilities |
||||||||||
Deposits: |
||||||||||
Noninterest-bearing (principally U.S. offices) |
$ |
80,380 |
$ |
89,063 |
$ |
78,342 |
||||
Interest-bearing deposits in U.S. offices |
46,023 |
48,798 |
52,049 |
|||||||
Interest-bearing deposits in Non-U.S. offices |
104,593 |
97,816 |
91,099 |
|||||||
Total deposits |
230,996 |
235,677 |
221,490 |
|||||||
Federal funds purchased and securities sold under repurchase agreements |
10,314 |
10,934 |
9,989 |
|||||||
Trading liabilities |
3,253 |
4,100 |
4,389 |
|||||||
Payables to customers and broker-dealers |
21,176 |
21,622 |
20,987 |
|||||||
Commercial paper |
2,501 |
876 |
— |
|||||||
Other borrowed funds |
3,353 |
1,338 |
754 |
|||||||
Accrued taxes and other expenses |
6,070 |
5,670 |
5,867 |
|||||||
Other liabilities (includes allowance for lending-related commitments of $104, $105 and $112) |
7,195 |
6,379 |
5,635 |
|||||||
Long-term debt |
28,408 |
27,699 |
24,463 |
|||||||
Subtotal liabilities of operations |
313,266 |
314,295 |
293,574 |
|||||||
Liabilities of consolidated investment management funds, at fair value |
27 |
22 |
315 |
|||||||
Total liabilities |
313,293 |
314,317 |
293,889 |
|||||||
Temporary equity |
||||||||||
Redeemable noncontrolling interests |
197 |
181 |
151 |
|||||||
Permanent equity |
||||||||||
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 35,826 and |
3,542 |
3,542 |
3,542 |
|||||||
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,352,363,932, |
14 |
13 |
13 |
|||||||
Additional paid-in capital |
26,588 |
26,432 |
25,962 |
|||||||
Retained earnings |
24,757 |
24,027 |
22,621 |
|||||||
Accumulated other comprehensive loss, net of tax |
(2,781) |
(3,093) |
(3,765) |
|||||||
Less: Treasury stock of 328,341,579, 316,025,713 and 286,218,126 common shares, at cost |
(11,597) |
(10,947) |
(9,562) |
|||||||
Total The Bank of New York Mellon Corporation shareholders' equity |
40,523 |
39,974 |
38,811 |
|||||||
Nonredeemable noncontrolling interests of consolidated investment management funds |
384 |
343 |
618 |
|||||||
Total permanent equity |
40,907 |
40,317 |
39,429 |
|||||||
Total liabilities, temporary equity and permanent equity |
$ |
354,397 |
$ |
354,815 |
$ |
333,469 |
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 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.
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) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Income before income taxes – GAAP |
$ |
1,368 |
$ |
1,308 |
$ |
1,206 |
$ |
1,152 |
$ |
1,317 |
|||||
Less: Net income attributable to noncontrolling interests of consolidated |
3 |
3 |
18 |
4 |
9 |
||||||||||
Add: Amortization of intangible assets |
52 |
53 |
52 |
60 |
61 |
||||||||||
M&I, litigation and restructuring charges |
6 |
12 |
8 |
7 |
18 |
||||||||||
Recovery related to Sentinel |
— |
— |
— |
— |
(13) |
||||||||||
Income before income taxes, as adjusted – Non-GAAP (a) |
$ |
1,423 |
$ |
1,370 |
$ |
1,248 |
$ |
1,215 |
$ |
1,374 |
|||||
Fee and other revenue – GAAP |
$ |
3,167 |
$ |
3,120 |
$ |
3,018 |
$ |
2,954 |
$ |
3,150 |
|||||
Income from consolidated investment management funds – GAAP |
10 |
10 |
33 |
5 |
17 |
||||||||||
Net interest revenue – GAAP |
839 |
826 |
792 |
831 |
774 |
||||||||||
Total revenue – GAAP |
4,016 |
3,956 |
3,843 |
3,790 |
3,941 |
||||||||||
Less: Net income attributable to noncontrolling interests of consolidated |
3 |
3 |
18 |
4 |
9 |
||||||||||
Total revenue, as adjusted – Non-GAAP (a) |
$ |
4,013 |
$ |
3,953 |
$ |
3,825 |
$ |
3,786 |
$ |
3,932 |
|||||
Pre-tax operating margin – GAAP (b)(c) |
34 |
% |
33 |
% |
31 |
% |
30 |
% |
33 |
% | |||||
Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c) |
35 |
% |
35 |
% |
33 |
% |
32 |
% |
35 |
% |
(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, corporate/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 $102 million for 3Q17, $106 million for 2Q17, $101 million for 1Q17, $92 million for 4Q16 and $74 million for 3Q16 and would increase our pre-tax operating margin by approximately 1.6% for 3Q17, 1.8% for 2Q17 and 1Q17, 1.7% for 4Q16 and 1.2% for 3Q16. |
The following table presents the reconciliation of the operating leverage.
Operating leverage |
3Q17 vs. | ||||||||||||
(dollars in millions) |
3Q17 |
2Q17 |
3Q16 |
2Q17 |
3Q16 | ||||||||
Total revenue – GAAP |
$ |
4,016 |
$ |
3,956 |
$ |
3,941 |
1.52 |
% |
1.90 |
% | |||
Less: Net income attributable to noncontrolling interests of consolidated |
3 |
3 |
9 |
||||||||||
Total revenue, as adjusted – Non-GAAP |
$ |
4,013 |
$ |
3,953 |
$ |
3,932 |
1.52 |
% |
2.06 |
% | |||
Total noninterest expense – GAAP |
$ |
2,654 |
$ |
2,655 |
$ |
2,643 |
(0.04) |
% |
0.42 |
% | |||
Less: Amortization of intangible assets |
52 |
53 |
61 |
||||||||||
M&I, litigation and restructuring charges |
6 |
12 |
18 |
||||||||||
Total noninterest expense, as adjusted – Non-GAAP |
$ |
2,596 |
$ |
2,590 |
$ |
2,564 |
0.23 |
% |
1.25 |
% | |||
Operating leverage – GAAP (a) |
156 |
bps |
148 |
bps | |||||||||
Adjusted operating leverage – Non-GAAP (a)(b) |
129 |
bps |
81 |
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. |
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) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Net income applicable to common shareholders of The Bank of New York |
$ |
983 |
$ |
926 |
$ |
880 |
$ |
822 |
$ |
974 |
|||||
Add: Amortization of intangible assets |
52 |
53 |
52 |
60 |
61 |
||||||||||
Less: Tax impact of amortization of intangible assets |
17 |
19 |
18 |
19 |
21 |
||||||||||
Adjusted net income applicable to common shareholders of The Bank of |
1,018 |
960 |
914 |
863 |
1,014 |
||||||||||
Add: M&I, litigation and restructuring charges |
6 |
12 |
8 |
7 |
18 |
||||||||||
Recovery related to Sentinel |
— |
— |
— |
— |
(13) |
||||||||||
Less: Tax impact of M&I, litigation and restructuring charges |
— |
3 |
2 |
3 |
5 |
||||||||||
Tax impact of recovery related to Sentinel |
— |
— |
— |
— |
(5) |
||||||||||
Adjusted net income applicable to common shareholders of The Bank of |
$ |
1,024 |
$ |
969 |
$ |
920 |
$ |
867 |
$ |
1,019 |
|||||
Average common shareholders' equity |
$ |
36,780 |
$ |
35,862 |
$ |
34,965 |
$ |
35,171 |
$ |
35,767 |
|||||
Less: Average goodwill |
17,497 |
17,408 |
17,338 |
17,344 |
17,463 |
||||||||||
Average intangible assets |
3,487 |
3,532 |
3,578 |
3,638 |
3,711 |
||||||||||
Add: Deferred tax liability – tax deductible goodwill (b) |
1,561 |
1,542 |
1,518 |
1,497 |
1,477 |
||||||||||
Deferred tax liability – intangible assets (b) |
1,092 |
1,095 |
1,100 |
1,105 |
1,116 |
||||||||||
Average tangible common shareholders' equity – Non-GAAP |
$ |
18,449 |
$ |
17,559 |
$ |
16,667 |
$ |
16,791 |
$ |
17,186 |
|||||
Return on common equity – GAAP (c) |
10.6 |
% |
10.4 |
% |
10.2 |
% |
9.3 |
% |
10.8 |
% | |||||
Adjusted return on common equity – Non-GAAP (a)(c) |
11.0 |
% |
10.8 |
% |
10.7 |
% |
9.8 |
% |
11.3 |
% | |||||
Return on tangible common equity – Non-GAAP (c) |
21.9 |
% |
21.9 |
% |
22.2 |
% |
20.4 |
% |
23.5 |
% | |||||
Adjusted return on tangible common equity – Non-GAAP (a)(c) |
22.0 |
% |
22.1 |
% |
22.4 |
% |
20.5 |
% |
23.6 |
% |
(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 |
Sept. 30, |
June 30, |
March 31, |
Dec. 31, |
Sept. 30, | ||||||||||
(dollars in millions, unless otherwise noted) | |||||||||||||||
BNY Mellon shareholders' equity at period end – GAAP |
$ |
40,523 |
$ |
39,974 |
$ |
39,138 |
$ |
38,811 |
$ |
39,695 |
|||||
Less: Preferred stock |
3,542 |
3,542 |
3,542 |
3,542 |
3,542 |
||||||||||
BNY Mellon common shareholders' equity at period end – GAAP |
36,981 |
36,432 |
35,596 |
35,269 |
36,153 |
||||||||||
Less: Goodwill |
17,543 |
17,457 |
17,355 |
17,316 |
17,449 |
||||||||||
Intangible assets |
3,461 |
3,506 |
3,549 |
3,598 |
3,671 |
||||||||||
Add: Deferred tax liability – tax deductible goodwill (a) |
1,561 |
1,542 |
1,518 |
1,497 |
1,477 |
||||||||||
Deferred tax liability – intangible assets (a) |
1,092 |
1,095 |
1,100 |
1,105 |
1,116 |
||||||||||
BNY Mellon tangible common shareholders' equity at period |
$ |
18,630 |
$ |
18,106 |
$ |
17,310 |
$ |
16,957 |
$ |
17,626 |
|||||
Period-end common shares outstanding (in thousands) |
1,024,022 |
1,033,156 |
1,039,877 |
1,047,488 |
1,057,337 |
||||||||||
Book value per common share – GAAP |
$ |
36.11 |
$ |
35.26 |
$ |
34.23 |
$ |
33.67 |
$ |
34.19 |
|||||
Tangible book value per common share – Non-GAAP |
$ |
18.19 |
$ |
17.53 |
$ |
16.65 |
$ |
16.19 |
$ |
16.67 |
(a) |
Deferred tax liabilities are based on fully phased-in Basel III capital rules. |
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) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Income from consolidated investment management funds |
$ |
10 |
$ |
10 |
$ |
33 |
$ |
5 |
$ |
17 |
|||||
Less: Net income attributable to noncontrolling interests of consolidated investment |
3 |
3 |
18 |
4 |
9 |
||||||||||
Income from consolidated investment management funds, net of noncontrolling |
$ |
7 |
$ |
7 |
$ |
15 |
$ |
1 |
$ |
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) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Investment management fees |
$ |
1 |
$ |
2 |
$ |
2 |
$ |
4 |
$ |
2 |
|||||
Other (Investment income (loss)) |
6 |
5 |
13 |
(3) |
6 |
||||||||||
Income from consolidated investment management funds, net of noncontrolling |
$ |
7 |
$ |
7 |
$ |
15 |
$ |
1 |
$ |
8 |
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) |
3Q17 |
2Q17 |
1Q17 |
4Q16 |
3Q16 | ||||||||||
Income before income taxes – GAAP |
$ |
300 |
$ |
288 |
$ |
277 |
$ |
260 |
$ |
256 |
|||||
Add: Amortization of intangible assets |
15 |
15 |
15 |
22 |
22 |
||||||||||
Provision for credit losses |
(2) |
— |
3 |
6 |
— |
||||||||||
Adjusted income before income taxes, excluding amortization of intangible assets |
$ |
313 |
$ |
303 |
$ |
295 |
$ |
288 |
$ |
278 |
|||||
Total revenue – GAAP |
$ |
1,000 |
$ |
986 |
$ |
963 |
$ |
960 |
$ |
958 |
|||||
Less: Distribution and servicing expense |
110 |
104 |
101 |
98 |
104 |
||||||||||
Adjusted total revenue, net of distribution and servicing expense – Non-GAAP |
$ |
890 |
$ |
882 |
$ |
862 |
$ |
862 |
$ |
854 |
|||||
Pre-tax operating margin – GAAP (a) |
30 |
% |
29 |
% |
29 |
% |
27 |
% |
27 |
% | |||||
Adjusted pre-tax operating margin, excluding amortization of intangible assets, |
35 |
% |
34 |
% |
34 |
% |
33 |
% |
33 |
% |
(a) |
Income before taxes divided by total revenue. |
DIVIDENDS
Common – On Oct. 19, 2017, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.24 per share. This cash dividend is payable on Nov. 9, 2017 to shareholders of record as of the close of business on Oct. 31, 2017.
Preferred – On Oct. 19, 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 December 2017, in each case payable on Dec. 20, 2017 to holders of record as of the close of business on Dec. 5, 2017:
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 goals, growth, investments 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 Reports on Form 10-Q for the periods ended March 31, 2017 and June 30, 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. 19, 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 Sept. 30, 2017, BNY Mellon had $32.2 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
Charles W. Scharf, chief executive officer, and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on Oct. 19, 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 Oct. 19, 2017. Replays of the conference call and audio webcast will be available beginning Oct. 19, 2017 at approximately 2 p.m. EDT through Nov. 19, 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.
Media Relations
: Eva Radtke (212) 635-1504
Investor Relations
: Valerie Haertel (212) 635-8529
SOURCE BNY Mellon