BNY Mellon Reports Third Quarter 2018 Earnings of $1.08 Billion or $1.06 Per Common Share
Oct 18, 2018
NEW YORK, Oct. 18, 2018 /PRNewswire/ --
Revenue up 1% | EPS up 13% | ROE 11% ROTCE 23% (a) | CET1 11.2% SLR 6.4% |
The 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 | CEO Commentary | |
Total revenue of $4.1 billion, increased 1%
| "Our results this quarter were mixed. While we continued "We are moving with a sense of urgency to improve our "Knowing it will take time to increase our organic revenue | |
Total noninterest expense of $2.7 billion, increased 3%
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Income tax
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Investment Services
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Investment Management
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Returned $895 million to common shareholders
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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. | ||
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 | $ | 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.
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%.
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 margin – Non-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.
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.
CAPITAL AND LIQUIDITY
Our consolidated capital and liquidity ratios are shown in the following table.
Capital and liquidity ratios | Sept. 30, | June 30, | Dec.31, | ||||||
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 share – Non-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.
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") | $ | 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 | 37 | % | 39 | % | 39 | % | |||||||
Average noninterest-bearing deposits as a percentage of average interest-earning | 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.
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.
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 | $ | 1,157 | $ | 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), | (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 | $ | 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. | |||||||||||||||||
THE BANK OF NEW YORK MELLON CORPORATION | |||||||||||||||||
Condensed Consolidated Income Statement - continued | |||||||||||||||||
Net income applicable to common shareholders of The Bank of New York | 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 Mellon | $ | 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 | $ | 1,068 | $ | 1,048 | $ | 975 | $ | 3,243 | $ | 2,754 | |||||||
Average common shares and equivalents outstanding of The Bank of New York | Quarter ended | Year-to-date | ||||||||||
Sept. 30, | June 30, | Sept. 30, | Sept. 30, | Sept. 30, | ||||||||
(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 | Quarter ended | Year-to-date | |||||||||||||||
Sept. 30, | June 30, | Sept. 30, | Sept. 30, | Sept. 30, | |||||||||||||
(in dollars) | |||||||||||||||||
Basic | $ | 1.07 | $ | 1.04 | $ | 0.94 | $ | 3.21 | $ | 2.66 | |||||||
Diluted | $ | 1.06 | $ | 1.03 | $ | 0.94 | $ | 3.20 | $ | 2.64 | |||||||
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 | $ | 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, | June 30, | December 31, | ||||||
(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. | |||||||||
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.
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.
SOURCE BNY Mellon
