NEW YORK, July 20, 2017 /PRNewswire/ --
TOTAL REVENUE OF $3.96 BILLION, INCREASED 5% YEAR-OVER-YEAR
- Investment management and performance fees increased 6% on record assets under management
- Investment services fees increased 4% on record assets under custody and/or administration
- Net interest revenue increased 8%
CONTINUED FOCUS ON EXPENSE CONTROL
- Total noninterest expense up 1% year-over-year
EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS
- Returned over $700 million to shareholders through share repurchases and dividends
- Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a)
- SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a)
BOARD APPROVED QUARTERLY COMMON STOCK DIVIDEND INCREASE OF 26% TO $0.24 PER SHARE AND THE REPURCHASE OF UP TO $3.1 BILLION OF COMMON STOCK
The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $926 million, or $0.88 per diluted common share. Net income applicable to common shareholders was $825 million, or $0.75 per diluted common share, in the second quarter of 2016, and $880 million, or $0.83 per diluted common share, in the first quarter of 2017.
"During the second quarter, healthy revenue growth in both our investment management and investment services businesses and the more favorable rate environment helped us maintain double-digit earnings per share growth and drive substantial positive operating leverage on a year-over-year basis. We and our clients are just beginning to capitalize on the benefits of our strategy and investments in growth. We have distinctive capabilities in areas such as collateral management solutions, middle-office outsourcing and liability-driven investments, and made an early commitment to delivering an industry-leading digital investment platform. We believe we are well positioned to help our clients meet regulatory requirements and navigate today's financial marketplace while at the same time make it easier for them to access the insights and information they need," Gerald L. Hassell, chairman, said.
"The results of the 2017 annual stress tests proved the resilience of our capital position. Our business model has been consistently generating high levels of capital, enabling us to announce a capital plan that includes share repurchases of up to $3.1 billion and an approximately 26 percent increase in the quarterly dividend," Mr. Hassell concluded.
Charles W. Scharf, chief executive officer, added, "I am excited to join the company and I'm pleased to see Gerald and the team were able to deliver solid results in Gerald's last quarter as CEO. They have generated momentum, and we will work really hard to build on it by continuing to put our clients first and by maintaining our position as a strong, trusted and well-respected partner. We will not waver in our focus on continually becoming more efficient, improving our client experience, and growing our revenues by expanding our already great set of capabilities."
__________________________________________
(a) | These measures are considered to be Non-GAAP. See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 22 for the adjusted return on tangible common equity reconciliation. See "Capital and Liquidity" beginning on page 11 for the reconciliation of the SLR. |
SECOND QUARTER 2017 FINANCIAL HIGHLIGHTS (a)
(comparisons are 2Q17 vs. 2Q16, unless otherwise stated)
Earnings
- Total revenue of $4.0 billion, increased 5%.
- Investment services fees increased 4% reflecting growth in clearing services fees, net new business, including collateral management solutions, and higher equity market values, offset by the unfavorable impact of a stronger U.S. dollar.
- Investment management and performance fees increased 6% due to higher market values, money market fees and performance fees, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) (a).
- Foreign exchange revenue decreased 9% reflecting lower volatility, offset by higher volumes.
- Investment and other income increased $48 million driven by lease-related gains.
- Net interest revenue increased 8% driven by interest rates and lower premium amortization, offset by lower interest-earning assets and higher average long-term debt.
- The provision for credit losses was a credit of $7 million.
- Noninterest expense of $2.7 billion, increased 1% reflecting higher professional, legal and other purchased services (related to regulatory and compliance costs, including the 2017 resolution plan), software and litigation expenses, offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense.
- Effective tax rate of 25.4% for 2Q17.
- Preferred stock dividends of $49 million in 2Q17.
Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
- Record AUC/A of $31.1 trillion increased 5% reflecting higher market values.
- Estimated new AUC/A wins in Asset Servicing of $152 billion in 2Q17.
- Record AUM of $1.77 trillion increased 6% reflecting higher market values and net inflows, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
- Net long-term inflows of $3 billion in 2Q17 reflecting inflows of liability-driven and fixed income investments, partially offset by outflows of index investments.
- Net short-term inflows of $11 billion in 2Q17 were a result of increased distribution through our liquidity portals.
Capital and liquidity
- Repurchased 11 million common shares for $506 million and paid $199 million in dividends to common shareholders.
- Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a).
- SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a).
- Average LCR of 116%.
- Board approved quarterly common stock dividend increase of 26% to $0.24 per share and the repurchase of up to $3.1 billion of common stock, including the repurchase of $500 million of common stock contingent upon a preferred stock issuance, over the next four quarters.
(a) | See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 22 for the reconciliation of Non-GAAP measures. In all periods presented, Non-GAAP information excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. See "Capital and Liquidity" beginning on page 11 for the reconciliation of the SLR. |
Note: Throughout this document, sequential growth rates are unannualized. | |
FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in | 2Q17 vs. | ||||||||||||||||||
2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | |||||||||||||
Revenue: | |||||||||||||||||||
Fee and other revenue | $ | 3,120 | $ | 3,018 | $ | 2,954 | $ | 3,150 | $ | 2,999 | 3 | % | 4 | % | |||||
Income from consolidated investment management funds | 10 | 33 | 5 | 17 | 10 | ||||||||||||||
Net interest revenue | 826 | 792 | 831 | 774 | 767 | 4 | 8 | ||||||||||||
Total revenue – GAAP | 3,956 | 3,843 | 3,790 | 3,941 | 3,776 | 3 | 5 | ||||||||||||
Less: Net income attributable to noncontrolling interests related | 3 | 18 | 4 | 9 | 4 | ||||||||||||||
Total revenue, as adjusted – Non-GAAP | 3,953 | 3,825 | 3,786 | 3,932 | 3,772 | 3 | 5 | ||||||||||||
Provision for credit losses | (7) | (5) | 7 | (19) | (9) | ||||||||||||||
Expense: | |||||||||||||||||||
Noninterest expense – GAAP | 2,655 | 2,642 | 2,631 | 2,643 | 2,620 | — | 1 | ||||||||||||
Less: Amortization of intangible assets | 53 | 52 | 60 | 61 | 59 | ||||||||||||||
M&I, litigation and restructuring charges | 12 | 8 | 7 | 18 | 7 | ||||||||||||||
Total noninterest expense, as adjusted – Non-GAAP | 2,590 | 2,582 | 2,564 | 2,564 | 2,554 | — | 1 | ||||||||||||
Income: | |||||||||||||||||||
Income before income taxes | 1,308 | 1,206 | 1,152 | 1,317 | 1,165 | 8 | % | 12% | |||||||||||
Provision for income taxes | 332 | 269 | 280 | 324 | 290 | ||||||||||||||
Net income | $ | 976 | $ | 937 | $ | 872 | $ | 993 | $ | 875 | |||||||||
Net (income) attributable to noncontrolling interests (a) | (1) | (15) | (2) | (6) | (2) | ||||||||||||||
Net income applicable to shareholders of The Bank of New | 975 | 922 | 870 | 987 | 873 | ||||||||||||||
Preferred stock dividends | (49) | (42) | (48) | (13) | (48) | ||||||||||||||
Net income applicable to common shareholders of The Bank | $ | 926 | $ | 880 | $ | 822 | $ | 974 | $ | 825 | |||||||||
Operating leverage (b) | 245 | bps | 343 | bps | |||||||||||||||
Adjusted operating leverage – Non-GAAP (b)(c) | 304 | bps | 339 | bps | |||||||||||||||
Key Metrics: | |||||||||||||||||||
Pre-tax operating margin (c) | 33 | % | 31 | % | 30 | % | 33 | % | 31 | % | |||||||||
Adjusted pre-tax operating margin – Non-GAAP (c) | 35 | % | 33 | % | 32 | % | 35 | % | 33 | % | |||||||||
Return on common equity (annualized) (c) | 10.4 | % | 10.2 | % | 9.3 | % | 10.8 | % | 9.3 | % | |||||||||
Adjusted return on common equity (annualized) – Non-GAAP (c) | 10.8 | % | 10.7 | % | 9.8 | % | 11.3 | % | 9.7 | % | |||||||||
Return on tangible common equity (annualized) – Non- GAAP (c)(d) | 21.9 | % | 22.2 | % | 20.4 | % | 23.5 | % | 20.4 | % | |||||||||
Adjusted return on tangible common equity (annualized) – Non-GAAP (c)(d) | 22.1 | % | 22.4 | % | 20.5 | % | 23.6 | % | 20.5 | % | |||||||||
Fee revenue as a percentage of total revenue | 79 | % | 78 | % | 78 | % | 79 | % | 79 | % | |||||||||
Percentage of non-U.S. total revenue | 35 | % | 34 | % | 34 | % | 36 | % | 34 | % | |||||||||
Average common shares and equivalents outstanding: | |||||||||||||||||||
Basic | 1,035,829 | 1,041,158 | 1,050,888 | 1,062,248 | 1,072,583 | ||||||||||||||
Diluted | 1,041,879 | 1,047,746 | 1,056,818 | 1,067,682 | 1,078,271 | ||||||||||||||
Period end: | |||||||||||||||||||
Full-time employees | 52,800 | 52,600 | 52,000 | 52,300 | 52,200 | ||||||||||||||
Book value per common share – GAAP (d) | $ | 35.26 | $ | 34.23 | $ | 33.67 | $ | 34.19 | $ | 33.72 | |||||||||
Tangible book value per common share – Non-GAAP (d) | $ | 17.53 | $ | 16.65 | $ | 16.19 | $ | 16.67 | $ | 16.25 | |||||||||
Cash dividends per common share | $ | 0.19 | $ | 0.19 | $ | 0.19 | $ | 0.19 | $ | 0.17 | |||||||||
Common dividend payout ratio | 22 | % | 23 | % | 25 | % | 21 | % | 23 | % | |||||||||
Closing stock price per common share | $ | 51.02 | $ | 47.23 | $ | 47.38 | $ | 39.88 | $ | 38.85 | |||||||||
Market capitalization | $ | 52,712 | $ | 49,113 | $ | 49,630 | $ | 42,167 | $ | 41,479 | |||||||||
Common shares outstanding | 1,033,156 | 1,039,877 | 1,047,488 | 1,057,337 | 1,067,674 | ||||||||||||||
(a) | Primarily attributable to noncontrolling interests related to consolidated investment management funds. |
(b) | Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense. See "Supplemental information – Explanation of GAAP and Non-GAAP financial |
(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 | 2Q17 vs. | ||||||||||||||||||
2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | |||||||||||||
S&P 500 Index (a) | 2423 | 2363 | 2239 | 2168 | 2099 | 3 | % | 15 | % | ||||||||||
S&P 500 Index – daily average | 2398 | 2326 | 2185 | 2162 | 2075 | 3 | 16 | ||||||||||||
FTSE 100 Index (a) | 7313 | 7323 | 7143 | 6899 | 6504 | — | 12 | ||||||||||||
FTSE 100 Index – daily average | 7391 | 7274 | 6923 | 6765 | 6204 | 2 | 19 | ||||||||||||
MSCI EAFE (a) | 1883 | 1793 | 1684 | 1702 | 1608 | 5 | 17 | ||||||||||||
MSCI EAFE – daily average | 1856 | 1749 | 1660 | 1677 | 1648 | 6 | 13 | ||||||||||||
Barclays Capital Global Aggregate BondSM Index (a)(b) | 471 | 459 | 451 | 486 | 482 | 3 | (2) | ||||||||||||
NYSE and NASDAQ share volume (in billions) | 199 | 186 | 189 | 186 | 203 | 7 | (2) | ||||||||||||
JPMorgan G7 Volatility Index – daily average (c) | 7.98 | 10.10 | 10.24 | 10.19 | 11.12 | (21) | (28) | ||||||||||||
Average interest on excess reserves paid by the Federal Reserve | 1.04 | % | 0.79 | % | 0.55 | % | 0.50 | % | 0.50 | % | 25 | bps | 54 | bps | |||||
Foreign exchange rates vs. U.S. dollar: | |||||||||||||||||||
British pound (a) | $ | 1.30 | $ | 1.25 | $ | 1.23 | $ | 1.30 | $ | 1.34 | 4 | % | (3) | % | |||||
British pound – average rate | 1.28 | 1.24 | 1.24 | 1.31 | 1.43 | 3 | (10) | ||||||||||||
Euro (a) | 1.14 | 1.07 | 1.05 | 1.12 | 1.11 | 7 | 3 | ||||||||||||
Euro – average rate | 1.10 | 1.07 | 1.08 | 1.12 | 1.13 | 3 | (3) | ||||||||||||
(a) | Period end. |
(b) | Unhedged in U.S. dollar terms. |
(c) | The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options. |
bps – basis points. | |
FEE AND OTHER REVENUE
Fee and other revenue | 2Q17 vs. | ||||||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | ||||||||||||
Investment services fees: | |||||||||||||||||||
Asset servicing (a) | $ | 1,085 | $ | 1,063 | $ | 1,068 | $ | 1,067 | $ | 1,069 | 2 | % | 1 | % | |||||
Clearing services | 394 | 376 | 355 | 349 | 350 | 5 | 13 | ||||||||||||
Issuer services | 241 | 251 | 211 | 337 | 234 | (4) | 3 | ||||||||||||
Treasury services | 140 | 139 | 140 | 137 | 139 | 1 | 1 | ||||||||||||
Total investment services fees | 1,860 | 1,829 | 1,774 | 1,890 | 1,792 | 2 | 4 | ||||||||||||
Investment management and performance fees | 879 | 842 | 848 | 860 | 830 | 4 | 6 | ||||||||||||
Foreign exchange and other trading revenue | 165 | 164 | 161 | 183 | 182 | 1 | (9) | ||||||||||||
Financing-related fees | 53 | 55 | 50 | 58 | 57 | (4) | (7) | ||||||||||||
Distribution and servicing | 41 | 41 | 41 | 43 | 43 | — | (5) | ||||||||||||
Investment and other income | 122 | 77 | 70 | 92 | 74 | N/M | N/M | ||||||||||||
Total fee revenue | 3,120 | 3,008 | 2,944 | 3,126 | 2,978 | 4 | 5 | ||||||||||||
Net securities gains | — | 10 | 10 | 24 | 21 | N/M | N/M | ||||||||||||
Total fee and other revenue | $ | 3,120 | $ | 3,018 | $ | 2,954 | $ | 3,150 | $ | 2,999 | 3 | % | 4 | % | |||||
(a) | Asset servicing fees include securities lending revenue of $48 million in 2Q17, $49 million in 1Q17, $54 million in 4Q16, $51 million in 3Q16 and $52 million in |
N/M – Not meaningful. | |
KEY POINTS
- Asset servicing fees increased 1% year-over-year and 2% sequentially, primarily reflecting net new business, including growth of collateral management solutions, and higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing the retail UK transfer agency business.
- Clearing services fees increased 13% year-over-year and 5% sequentially, primarily driven by higher money market fees and growth in long-term mutual fund assets.
- Issuer services fees increased 3% year-over-year and decreased 4% sequentially. The year-over-year increase primarily reflects higher Depositary Receipts revenue. The sequential decrease primarily reflects seasonality in Depositary Receipts revenue.
- Treasury services fees increased 1% both year-over-year and sequentially, primarily reflecting higher payment volumes, partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.
- Investment management and performance fees increased 6% year-over-year and 4% sequentially, primarily reflecting higher market values, money market fees and performance fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) year-over-year.
• | Foreign exchange and other trading revenue | |||||||||||||||
(in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | |||||||||||
Foreign exchange | $ | 151 | $ | 154 | $ | 175 | $ | 175 | $ | 166 | ||||||
Other trading revenue (loss) | 14 | 10 | (14) | 8 | 16 | |||||||||||
Total foreign exchange and other trading revenue | $ | 165 | $ | 164 | $ | 161 | $ | 183 | $ | 182 | ||||||
Foreign exchange revenue decreased 9% year-over-year and 2% sequentially, primarily reflecting lower volatility, partially offset by higher volumes.
- Financing-related fees decreased 7% year-over-year and 4% sequentially, primarily reflecting lower underwriting fees.
• | Investment and other income | |||||||||||||||
(in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | |||||||||||
Lease-related gains (losses) | $ | 51 | $ | 1 | $ | (6) | $ | — | $ | — | ||||||
Corporate/bank-owned life insurance | 43 | 30 | 53 | 34 | 31 | |||||||||||
Expense reimbursements from joint venture | 17 | 14 | 15 | 18 | 17 | |||||||||||
Seed capital gains (a) | 10 | 9 | 6 | 16 | 11 | |||||||||||
Equity investment income (loss) | 7 | 26 | (2) | (1) | (4) | |||||||||||
Asset-related (losses) gains | (5) | 3 | 1 | 8 | 1 | |||||||||||
Other (loss) income | (1) | (6) | 3 | 17 | 18 | |||||||||||
Total investment and other income | $ | 122 | $ | 77 | $ | 70 | $ | 92 | $ | 74 | ||||||
(a) | Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in |
Both the year-over-year and sequential increases in investment and other income primarily reflect lease-related gains and higher income from corporate/bank-owned life insurance. The year-over-year increase was partially offset by the negative impact of foreign exchange translation and lower other income driven by our investments in renewable energy. The sequential increase was partially offset by a net gain related to an equity investment recorded in 1Q17.
NET INTEREST REVENUE
Net interest revenue | 2Q17 vs. | ||||||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | ||||||||||||
Net interest revenue – GAAP | $ | 826 | $ | 792 | $ | 831 | $ | 774 | $ | 767 | 4 | % | 8 | % | |||||
Tax equivalent adjustment | 12 | 12 | 12 | 12 | 13 | N/M | N/M | ||||||||||||
Net interest revenue (FTE) – Non-GAAP (a) | $ | 838 | $ | 804 | $ | 843 | $ | 786 | $ | 780 | 4 | % | 7 | % | |||||
Net interest margin – GAAP | 1.14 | % | 1.13 | % | 1.16 | % | 1.05 | % | 0.97 | % | 1 | bps | 17 | bps | |||||
Net interest margin (FTE) – Non-GAAP (a) | 1.16 | % | 1.14 | % | 1.17 | % | 1.06 | % | 0.98 | % | 2 | bps | 18 | bps | |||||
Selected average balances: | |||||||||||||||||||
Cash/interbank investments | $ | 111,021 | $ | 106,069 | $ | 104,352 | $ | 114,544 | $ | 137,995 | 5 | % | (20) | % | |||||
Trading account securities | 2,455 | 2,254 | 2,288 | 2,176 | 2,152 | 9 | 14 | ||||||||||||
Securities | 117,227 | 114,786 | 117,660 | 118,405 | 118,002 | 2 | (1) | ||||||||||||
Loans | 58,793 | 60,312 | 63,647 | 61,578 | 60,284 | (3) | (2) | ||||||||||||
Interest-earning assets | 289,496 | 283,421 | 287,947 | 296,703 | 318,433 | 2 | (9) | ||||||||||||
Interest-bearing deposits | 142,336 | 139,820 | 145,681 | 155,109 | 165,122 | 2 | (14) | ||||||||||||
Noninterest-bearing deposits | 73,886 | 73,555 | 82,267 | 81,619 | 84,033 | — | (12) | ||||||||||||
Long-term debt | 27,398 | 25,882 | 24,986 | 23,930 | 22,838 | 6 | 20 | ||||||||||||
Selected average yields/rates: (b) | |||||||||||||||||||
Cash/interbank investments | 0.67 | % | 0.56 | % | 0.47 | % | 0.43 | % | 0.44 | % | |||||||||
Trading account securities | 2.85 | 3.12 | 3.17 | 2.62 | 2.45 | ||||||||||||||
Securities | 1.72 | 1.71 | 1.67 | 1.56 | 1.56 | ||||||||||||||
Loans | 2.44 | 2.15 | 1.92 | 1.84 | 1.85 | ||||||||||||||
Interest-earning assets | 1.47 | 1.38 | 1.30 | 1.19 | 1.14 | ||||||||||||||
Interest-bearing deposits | 0.09 | 0.03 | (0.01) | (0.02) | 0.03 | ||||||||||||||
Long-term debt | 1.87 | 1.85 | 1.36 | 1.54 | 1.54 | ||||||||||||||
Average cash/interbank investments as a percentage | 38 | % | 37 | % | 36 | % | 39 | % | 43 | % | |||||||||
Average noninterest-bearing deposits as a percentage | 26 | % | 26 | % | 29 | % | 28 | % | 26 | % | |||||||||
(a) | Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts |
(b) | Yields/rates include the impact of interest rate hedging activities. |
FTE – fully taxable equivalent. | |
N/M – Not meaningful. | |
bps – basis points. | |
KEY POINTS
- Net interest revenue increased 8% year-over-year and 4% sequentially, primarily reflecting higher interest rates. The year-over-year increase also reflects lower premium amortization, partially offset by lower interest-earning assets and higher average long-term debt. The sequential increase also reflects an additional interest-earning day and higher interest-earning assets.
NONINTEREST EXPENSE
Noninterest expense | 2Q17 vs. | ||||||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | ||||||||||||
Staff | $ | 1,417 | $ | 1,472 | $ | 1,395 | $ | 1,467 | $ | 1,412 | (4)% | — | % | ||||||
Professional, legal and other purchased services | 319 | 312 | 325 | 292 | 290 | 2 | 10 | ||||||||||||
Software and equipment | 232 | 223 | 237 | 215 | 223 | 4 | 4 | ||||||||||||
Net occupancy | 139 | 136 | 153 | 143 | 152 | 2 | (9) | ||||||||||||
Distribution and servicing | 104 | 100 | 98 | 105 | 102 | 4 | 2 | ||||||||||||
Sub-custodian | 65 | 64 | 57 | 59 | 70 | 2 | (7) | ||||||||||||
Bank assessment charges | 59 | 57 | 53 | 61 | 52 | 4 | 13 | ||||||||||||
Business development | 63 | 51 | 71 | 52 | 65 | 24 | (3) | ||||||||||||
Other | 192 | 167 | 175 | 170 | 188 | 15 | 2 | ||||||||||||
Amortization of intangible assets | 53 | 52 | 60 | 61 | 59 | 2 | (10) | ||||||||||||
M&I, litigation and restructuring charges | 12 | 8 | 7 | 18 | 7 | N/M | N/M | ||||||||||||
Total noninterest expense – GAAP | $ | 2,655 | $ | 2,642 | $ | 2,631 | $ | 2,643 | $ | 2,620 | — | % | 1 | % | |||||
Staff expense as a percentage of total revenue | 36 | % | 38 | % | 37 | % | 37 | % | 37 | % | |||||||||
Memo: | |||||||||||||||||||
Total noninterest expense excluding amortization of | $ | 2,590 | $ | 2,582 | $ | 2,564 | $ | 2,564 | $ | 2,554 | — | % | 1 | % | |||||
N/M – Not meaningful. |
KEY POINTS
- Total noninterest expense increased 1% year-over-year and less than 1% sequentially. Total noninterest expense, excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP), increased 1% year-over-year and less than 1% sequentially.
- The year-over-year increase primarily reflects higher professional, legal and other purchased services, software and litigation expenses, partially offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense. The increase in professional, legal and other purchased services primarily reflects expenses related to regulatory and compliance costs, including the 2017 resolution plan. Net occupancy expense decreased as we continued to benefit from the savings generated by the business improvement process.
- Sequentially, lower staff expense was primarily offset by higher other, business development and software expenses. The decrease in staff expense was primarily driven by the impact of vesting of long-term stock awards for retirement eligible employees recorded in 1Q17.
INVESTMENT SECURITIES PORTFOLIO
At June 30, 2017, the fair value of our investment securities portfolio totaled $118.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $151 million at June 30, 2017 compared with a pre-tax loss of $23 million at March 31, 2017. The improvement in the net unrealized pre-tax gain was primarily driven by a decrease in market interest rates. At June 30, 2017, the fair value of the held-to-maturity securities totaled $40.9 billion and represented 34% of the fair value of the total investment securities portfolio.
The following table shows the distribution of our investment securities portfolio.
Investment securities
(dollars in millions) | March 31, 2017 | 2Q17 change in unrealized gain (loss) | June 30, 2017 | Fair value as a % of cost (a) | Unrealized gain (loss) | Ratings (b) | ||||||||||||||||||||||||
BB+ and lower | ||||||||||||||||||||||||||||||
Fair value | Amortized cost | Fair value | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | ||||||||||||||||||||||||
Agency RMBS | $ | 47,680 | $ | 79 | $ | 49,829 | $ | 49,544 | 99 | % | $ | (285) | 100 | % | — | % | — | % | — | % | — | % | ||||||||
U.S. Treasury | 26,149 | 47 | 25,417 | 25,325 | 100 | (92) | 100 | — | — | — | — | |||||||||||||||||||
Sovereign debt/sovereign guaranteed | 13,885 | (14) | 13,880 | 14,025 | 101 | 145 | 74 | 6 | 19 | 1 | — | |||||||||||||||||||
Non-agency RMBS (c) | 1,298 | 9 | 948 | 1,239 | 82 | 291 | — | 1 | 3 | 87 | 9 | |||||||||||||||||||
Non-agency RMBS | 670 | 8 | 597 | 627 | 96 | 30 | 7 | 4 | 15 | 73 | 1 | |||||||||||||||||||
European floating rate notes | 639 | 3 | 528 | 523 | 98 | (5) | 70 | 30 | — | — | — | |||||||||||||||||||
Commercial MBS | 8,796 | 20 | 10,597 | 10,574 | 100 | (23) | 99 | 1 | — | — | — | |||||||||||||||||||
State and political subdivisions | 3,322 | 21 | 3,268 | 3,299 | 101 | 31 | 81 | 16 | — | — | 3 | |||||||||||||||||||
Foreign covered bonds | 2,144 | (4) | 2,458 | 2,471 | 101 | 13 | 100 | — | — | — | — | |||||||||||||||||||
Corporate bonds | 1,366 | 4 | 1,309 | 1,318 | 101 | 9 | 17 | 70 | 13 | — | — | |||||||||||||||||||
CLOs | 2,569 | (1) | 2,635 | 2,642 | 100 | 7 | 99 | — | — | — | 1 | |||||||||||||||||||
U.S. Government agencies | 1,985 | — | 2,196 | 2,210 | 101 | 14 | 100 | — | — | — | — | |||||||||||||||||||
Consumer ABS | 1,456 | 2 | 1,326 | 1,330 | 100 | 4 | 90 | 4 | 4 | 2 | — | |||||||||||||||||||
Other (d) | 3,553 | — | 3,746 | 3,758 | 100 | 12 | 79 | 19 | — | — | 2 | |||||||||||||||||||
Total investment securities | $ | 115,512 | (e) | $ | 174 | $ | 118,734 | $ | 118,885 | (e) | 100 | % | $ | 151 | (e)(f) | 93 | % | 3 | % | 3 | % | 1 | % | — | % | |||||
(a) | Amortized cost before impairments. |
(b) | Represents ratings by S&P, or the equivalent. |
(c) | These RMBS were included in the former Grantor Trust and were marked-to-market in 2009. We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the |
(d) | Includes commercial paper with a fair value of $701 million and $700 million and money market funds with a fair value of $853 million and $896 million at March 31, 2017 and June 30, 2017, respectively. |
(e) | Includes net unrealized losses on derivatives hedging securities available-for-sale of $134 million at March 31, 2017 and $251 million at June 30, 2017. |
(f) | Unrealized gains of $275 million at June 30, 2017 related to available-for-sale securities, net of hedges. |
NONPERFORMING ASSETS
Nonperforming assets (dollars in millions) | June 30, | March 31, | December 31, | ||||||
Nonperforming loans: | |||||||||
Other residential mortgages | $ | 84 | $ | 88 | $ | 91 | |||
Wealth management loans and mortgages | 10 | 10 | 8 | ||||||
Financial institutions | 2 | — | — | ||||||
Lease financing | — | — | 4 | ||||||
Total nonperforming loans | 96 | 98 | 103 | ||||||
Other assets owned | 4 | 9 | 4 | ||||||
Total nonperforming assets | $ | 100 | $ | 107 | $ | 107 | |||
Nonperforming assets ratio | 0.16 | % | 0.18 | % | 0.17 | % | |||
Allowance for loan losses/nonperforming loans | 171.9 | 167.3 | 164.1 | ||||||
Total allowance for credit losses/nonperforming loans | 281.3 | 281.6 | 272.8 | ||||||
Nonperforming assets decreased $7 million compared with March 31, 2017 and Dec. 31, 2016. The decrease compared with March 31, 2017 primarily reflects lower other assets owned and other residential mortgages.
ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS
Allowance for credit losses, provision and net charge-offs (in millions) | June 30, | March 31, | June 30, | ||||||
Allowance for credit losses - beginning of period | $ | 276 | $ | 281 | $ | 287 | |||
Provision for credit losses | (7) | (5) | (9) | ||||||
Net recoveries (charge-offs): | |||||||||
Other residential mortgages | 1 | — | 1 | ||||||
Foreign | — | — | 1 | ||||||
Net recoveries (charge-offs) | 1 | — | 2 | ||||||
Allowance for credit losses - end of period | $ | 270 | $ | 276 | $ | 280 | |||
Allowance for loan losses | $ | 165 | $ | 164 | $ | 158 | |||
Allowance for lending-related commitments | 105 | 112 | 122 | ||||||
CAPITAL AND LIQUIDITY
Our consolidated capital ratios are shown in the following table. The common equity Tier 1 ("CET1"), Tier 1 and Total risk-based regulatory capital ratios in the first section of the table below are based on Basel III components of capital, as phased-in (referred to as "Transitional ratios").
Capital ratios | June 30, | March 31, | December 31, | ||||||
Consolidated regulatory capital ratios: (a) | |||||||||
Standardized Approach: | |||||||||
CET1 ratio | 11.8 | % | 12.0 | % | 12.3 | % | |||
Tier 1 capital ratio | 14.1 | 14.4 | 14.5 | ||||||
Total (Tier 1 plus Tier 2) capital ratio | 14.6 | 14.9 | 15.2 | ||||||
Advanced Approach: | |||||||||
CET1 ratio | 10.8 | 10.4 | 10.6 | ||||||
Tier 1 capital ratio | 12.8 | 12.5 | 12.6 | ||||||
Total (Tier 1 plus Tier 2) capital ratio | 13.2 | 12.8 | 13.0 | ||||||
Leverage capital ratio (b) | 6.7 | 6.6 | 6.6 | ||||||
Supplementary leverage ratio ("SLR") | 6.2 | 6.1 | 6.0 | ||||||
BNY Mellon shareholders' equity to total assets ratio | 11.3 | 11.6 | 11.6 | ||||||
BNY Mellon common shareholders' equity to total assets ratio | 10.3 | 10.5 | 10.6 | ||||||
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(c) | |||||||||
CET1 ratio: | |||||||||
Standardized Approach | 11.4 | % | 11.5 | % | 11.3 | % | |||
Advanced Approach | 10.4 | 10.0 | 9.7 | ||||||
SLR | 6.0 | 5.9 | 5.6 | ||||||
(a) | Regulatory capital ratios for June 30, 2017 are preliminary. For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. |
(b) | The leverage capital ratio is based on Tier 1 capital, as phased-in and quarterly average total assets. |
(c) | Estimated. |
CET1 generation in 2Q17 – preliminary | Transitional basis (b) | Fully phased-in – Non-GAAP (c) | |||||
(in millions) | |||||||
CET1 – Beginning of period | $ | 17,606 | $ | 16,835 | |||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | 926 | 926 | |||||
Goodwill and intangible assets, net of related deferred tax liabilities | (47) | (40) | |||||
Gross CET1 generated | 879 | 886 | |||||
Capital deployed: | |||||||
Dividends | (199) | (199) | |||||
Common stock repurchased | (506) | (506) | |||||
Total capital deployed | (705) | (705) | |||||
Other comprehensive income | 410 | 431 | |||||
Additional paid-in capital (a) | 184 | 184 | |||||
Other | (3) | (2) | |||||
Total other additions | 591 | 613 | |||||
Net CET1 generated | 765 | 794 | |||||
CET1 – End of period | $ | 18,371 | $ | 17,629 | |||
(a) | Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans. |
(b) | Reflects transitional adjustments to CET1 required under the U.S. capital rules. |
(c) | Estimated. |
The table presented below compares the fully phased-in Basel III capital components and risk-based ratios to those capital components and ratios determined on a transitional basis.
Basel III capital components and ratios | June 30, 2017 (a) | March 31, 2017 | 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 | $ | 36,652 | $ | 36,432 | $ | 35,837 | $ | 35,596 | 35,794 | 35,269 | ||||||||||
Goodwill and intangible assets | (17,843) | (18,326) | (17,796) | (18,286) | (17,314) | (18,312) | ||||||||||||||
Net pension fund assets | (72) | (90) | (72) | (90) | (55) | (90) | ||||||||||||||
Equity method investments | (325) | (339) | (326) | (341) | (313) | (344) | ||||||||||||||
Deferred tax assets | (29) | (37) | (27) | (34) | (19) | (32) | ||||||||||||||
Other | (12) | (11) | (10) | (10) | — | (1) | ||||||||||||||
Total CET1 | 18,371 | 17,629 | 17,606 | 16,835 | 18,093 | 16,490 | ||||||||||||||
Other Tier 1 capital: | ||||||||||||||||||||
Preferred stock | 3,542 | 3,542 | 3,542 | 3,542 | 3,542 | 3,542 | ||||||||||||||
Deferred tax assets | (8) | — | (7) | — | (13) | — | ||||||||||||||
Net pension fund assets | (18) | — | (18) | — | (36) | — | ||||||||||||||
Other | (18) | (19) | (14) | (14) | (121) | (121) | ||||||||||||||
Total Tier 1 capital | 21,869 | 21,152 | 21,109 | 20,363 | 21,465 | 19,911 | ||||||||||||||
Tier 2 capital: | ||||||||||||||||||||
Trust preferred securities | — | — | — | — | 148 | — | ||||||||||||||
Subordinated debt | 550 | 550 | 550 | 550 | 550 | 550 | ||||||||||||||
Allowance for credit losses | 270 | 270 | 276 | 276 | 281 | 281 | ||||||||||||||
Other | (2) | (2) | (2) | (2) | (12) | (11) | ||||||||||||||
Total Tier 2 capital - Standardized Approach | 818 | 818 | 824 | 824 | 967 | 820 | ||||||||||||||
Excess of expected credit losses | 55 | 55 | 51 | 51 | 50 | 50 | ||||||||||||||
Less: Allowance for credit losses | 270 | 270 | 276 | 276 | 281 | 281 | ||||||||||||||
Total Tier 2 capital - Advanced Approach | $ | 603 | $ | 603 | $ | 599 | $ | 599 | $ | 736 | $ | 589 | ||||||||
Total capital: | ||||||||||||||||||||
Standardized Approach | $ | 22,687 | $ | 21,970 | $ | 21,933 | $ | 21,187 | $ | 22,432 | $ | 20,731 | ||||||||
Advanced Approach | $ | 22,472 | $ | 21,755 | $ | 21,708 | $ | 20,962 | $ | 22,201 | $ | 20,500 | ||||||||
Risk-weighted assets: | ||||||||||||||||||||
Standardized Approach | $ | 155,313 | $ | 154,779 | $ | 146,747 | $ | 146,122 | $ | 147,671 | $ | 146,475 | ||||||||
Advanced Approach | $ | 170,445 | $ | 169,879 | $ | 169,195 | $ | 168,534 | $ | 170,495 | $ | 169,227 | ||||||||
Standardized Approach: | ||||||||||||||||||||
CET1 ratio | 11.8 | % | 11.4 | % | 12.0 | % | 11.5 | % | 12.3 | % | 11.3 | % | ||||||||
Tier 1 capital ratio | 14.1 | 13.7 | 14.4 | 13.9 | 14.5 | 13.6 | ||||||||||||||
Total (Tier 1 plus Tier 2) capital ratio | 14.6 | 14.2 | 14.9 | 14.5 | 15.2 | 14.2 | ||||||||||||||
Advanced Approach: | ||||||||||||||||||||
CET1 ratio | 10.8 | % | 10.4 | % | 10.4 | % | 10.0 | % | 10.6 | % | 9.7 | % | ||||||||
Tier 1 capital ratio | 12.8 | 12.5 | 12.5 | 12.1 | 12.6 | 11.8 | ||||||||||||||
Total (Tier 1 plus Tier 2) capital ratio | 13.2 | 12.8 | 12.8 | 12.4 | 13.0 | 12.1 | ||||||||||||||
(a) | Preliminary. |
(b) | Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required under the U.S. capital rules. |
(c) | Estimated. |
BNY Mellon has presented its estimated fully phased-in CET1 and other risk-based capital ratios and the fully phased-in SLR based on its interpretation of the U.S. capital rules, which are being gradually phased-in over a multi-year period, and on the application of such rules to BNY Mellon's businesses as currently conducted. Management views the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR as key measures in monitoring BNY Mellon's capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR are intended to allow investors to compare these ratios with estimates presented by other companies.
Our capital and liquidity ratios are necessarily subject to, among other things, BNY Mellon's further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. Consequently, our capital and liquidity ratios remain subject to ongoing review and revision and may change based on these factors.
Supplementary Leverage Ratio
The following table presents the SLR on both the transitional and fully phased-in Basel III basis for BNY Mellon and our largest bank subsidiary, The Bank of New York Mellon.
SLR | June 30, 2017 (a) | March 31, 2017 | December 31, 2016 | |||||||||||||||||
(dollars in millions) | Transitional | Fully | Transitional | Fully | Transitional | Fully phased-in – Non-GAAP (b) | ||||||||||||||
Consolidated: | ||||||||||||||||||||
Tier 1 capital | $ | 21,869 | $ | 21,152 | $ | 21,109 | $ | 20,363 | $ | 21,465 | $ | 19,911 | ||||||||
Total leverage exposure: | ||||||||||||||||||||
Quarterly average total assets | $ | 342,515 | $ | 342,515 | $ | 336,200 | $ | 336,200 | $ | 344,142 | $ | 344,142 | ||||||||
Less: Amounts deducted from Tier 1 capital | 18,070 | 18,809 | 18,016 | 18,763 | 17,333 | 18,887 | ||||||||||||||
Total on-balance sheet assets | 324,445 | 323,706 | 318,184 | 317,437 | 326,809 | 325,255 | ||||||||||||||
Off-balance sheet exposures: | ||||||||||||||||||||
Potential future exposure for derivative | 6,013 | 6,013 | 5,898 | 5,898 | 6,021 | 6,021 | ||||||||||||||
Repo-style transaction exposures | 598 | 598 | 536 | 536 | 533 | 533 | ||||||||||||||
Credit-equivalent amount of other off-balance | 22,092 | 22,092 | 22,901 | 22,901 | 23,274 | 23,274 | ||||||||||||||
Total off-balance sheet exposures | 28,703 | 28,703 | 29,335 | 29,335 | 29,828 | 29,828 | ||||||||||||||
Total leverage exposure | $ | 353,148 | $ | 352,409 | $ | 347,519 | $ | 346,772 | $ | 356,637 | $ | 355,083 | ||||||||
SLR - Consolidated (c) | 6.2 | % | 6.0 | % | 6.1 | % | 5.9 | % | 6.0 | % | 5.6 | % | ||||||||
The Bank of New York Mellon, our largest | ||||||||||||||||||||
Tier 1 capital | $ | 19,897 | $ | 19,125 | $ | 19,320 | $ | 18,523 | $ | 19,011 | $ | 17,708 | ||||||||
Total leverage exposure | $ | 286,972 | $ | 286,604 | $ | 281,114 | $ | 280,741 | $ | 291,022 | $ | 290,230 | ||||||||
SLR - The Bank of New York Mellon (c) | 6.9 | % | 6.7 | % | 6.9 | % | 6.6 | % | 6.5 | % | 6.1 | % | ||||||||
(a) | Preliminary. |
(b) | Estimated. |
(c) | The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules. When the SLR is fully phased-in in 2018 as a required minimum ratio, we expect to maintain an SLR of over 5%. The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs. The insured depository institution subsidiaries of the U.S. G-SIBs, including those of BNY Mellon, must maintain a 6% SLR to be considered "well capitalized." |
Liquidity Coverage Ratio ("LCR")
The U.S. LCR rules became fully phased-in on Jan. 1, 2017 and require BNY Mellon to meet an LCR of 100%. On a consolidated basis, our average LCR was 116% for 2Q17. High-quality liquid assets ("HQLA"), before haircuts and trapped liquidity, totaled $174 billion at June 30, 2017 and averaged $166 billion for 2Q17.
INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.
(dollars in millions, unless otherwise noted) | 2Q17 vs. | |||||||||||||||||||
2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | ||||||||||||||
Revenue: | ||||||||||||||||||||
Investment management fees: | ||||||||||||||||||||
Mutual funds | $ | 314 | $ | 299 | $ | 297 | $ | 309 | $ | 304 | 5 | % | 3 | % | ||||||
Institutional clients | 362 | 348 | 340 | 362 | 344 | 4 | 5 | |||||||||||||
Wealth management | 169 | 167 | 164 | 166 | 160 | 1 | 6 | |||||||||||||
Investment management fees (a) | 845 | 814 | 801 | 837 | 808 | 4 | 5 | |||||||||||||
Performance fees | 17 | 12 | 32 | 8 | 9 | N/M | N/M | |||||||||||||
Investment management and performance fees | 862 | 826 | 833 | 845 | 817 | 4 | 6 | |||||||||||||
Distribution and servicing | 53 | 52 | 48 | 49 | 49 | 2 | 8 | |||||||||||||
Other (a) | (16) | (1) | (1) | (18) | (10) | N/M | N/M | |||||||||||||
Total fee and other revenue (a) | 899 | 877 | 880 | 876 | 856 | 3 | 5 | |||||||||||||
Net interest revenue | 87 | 86 | 80 | 82 | 82 | 1 | 6 | |||||||||||||
Total revenue | 986 | 963 | 960 | 958 | 938 | 2 | 5 | |||||||||||||
Provision for credit losses | — | 3 | 6 | — | 1 | N/M | N/M | |||||||||||||
Noninterest expense (ex. amortization of intangible assets) | 683 | 668 | 672 | 680 | 684 | 2 | — | |||||||||||||
Amortization of intangible assets | 15 | 15 | 22 | 22 | 19 | — | (21) | |||||||||||||
Total noninterest expense | 698 | 683 | 694 | 702 | 703 | 2 | (1) | |||||||||||||
Income before taxes | $ | 288 | $ | 277 | $ | 260 | $ | 256 | $ | 234 | 4 | % | 23 | % | ||||||
Income before taxes (ex. amortization of intangible | $ | 303 | $ | 292 | $ | 282 | $ | 278 | $ | 253 | 4 | % | 20 | % | ||||||
Pre-tax operating margin | 29 | % | 29 | % | 27 | % | 27 | % | 25 | % | ||||||||||
Adjusted pre-tax operating margin – Non-GAAP (b) | 34 | % | 34 | % | 33 | % | 33 | % | 30 | % | ||||||||||
Changes in AUM (in billions): (c) | ||||||||||||||||||||
Beginning balance of AUM | $ | 1,727 | $ | 1,648 | $ | 1,715 | $ | 1,664 | $ | 1,639 | ||||||||||
Net inflows (outflows): | ||||||||||||||||||||
Long-term strategies: | ||||||||||||||||||||
Equity | (2) | (4) | (5) | (6) | (2) | |||||||||||||||
Fixed income | 2 | 2 | (1) | (1) | (3) | |||||||||||||||
Liability-driven investments (d) | 15 | 14 | (7) | 4 | 15 | |||||||||||||||
Multi-asset and alternative investments | 1 | 2 | 3 | 7 | 2 | |||||||||||||||
Total long-term active strategies inflows (outflows) | 16 | 14 | (10) | 4 | 12 | |||||||||||||||
Index | (13) | — | (1) | (3) | (17) | |||||||||||||||
Total long-term strategies inflows (outflows) | 3 | 14 | (11) | 1 | (5) | |||||||||||||||
Short term strategies: | ||||||||||||||||||||
Cash | 11 | 13 | (3) | (1) | 4 | |||||||||||||||
Total net inflows (outflows) | 14 | 27 | (14) | — | (1) | |||||||||||||||
Net market impact/other | 1 | 41 | (11) | 80 | 71 | |||||||||||||||
Net currency impact | 29 | 11 | (42) | (29) | (47) | |||||||||||||||
Acquisition | — | — | — | — | 2 | |||||||||||||||
Ending balance of AUM | $ | 1,771 | (e) | $ | 1,727 | $ | 1,648 | $ | 1,715 | $ | 1,664 | 3 | % | 6 | % | |||||
AUM at period end, by product type: (c) | ||||||||||||||||||||
Equity | 9 | % | 9 | % | 9 | % | 9 | % | 9 | % | ||||||||||
Fixed income | 11 | 11 | 11 | 11 | 12 | |||||||||||||||
Index | 18 | 19 | 19 | 18 | 18 | |||||||||||||||
Liability-driven investments (d) | 35 | 34 | 34 | 35 | 34 | |||||||||||||||
Multi-asset and alternative investments | 11 | 11 | 11 | 11 | 11 | |||||||||||||||
Cash | 16 | 16 | 16 | 16 | 16 | |||||||||||||||
Total AUM | 100 | % | (e) | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||
Average balances: | ||||||||||||||||||||
Average loans | $ | 16,560 | $ | 16,153 | $ | 15,673 | $ | 15,308 | $ | 14,795 | 3 | % | 12 | % | ||||||
Average deposits | $ | 14,866 | $ | 15,781 | $ | 15,511 | $ | 15,600 | $ | 15,518 | (6)% | (4)% | ||||||||
(a) | Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. See page 25 for a breakdown of the revenue line items in the |
(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
- Income before taxes totaled $288 million in 2Q17, an increase of 23% year-over-year and 4% sequentially. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $303 million in 2Q17, an increase of 20% year-over-year and 4% sequentially.
- Pre-tax operating margin of 29% in 2Q17 increased 438 bps year-over-year and 48 bps sequentially.
- Adjusted pre-tax operating margin (Non-GAAP) of 34% in 2Q17 increased 397 bps year-over-year and 11 bps sequentially.
- Total revenue was $986 million, an increase of 5% year-over-year primarily reflecting higher market values, performance fees and net interest revenue. The sequential increase of 2% primarily reflects higher market values and performance fees, partially offset by lower seed capital gains.
- 40% non-U.S. revenue in 2Q17 and 2Q16.
- Investment management fees increased 5% year-over-year and 4% sequentially, primarily reflecting higher market values and money market fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management fees increased 8% (Non-GAAP) year-over-year.
- Net long-term inflows of $3 billion in 2Q17 reflect inflows of liability-driven and fixed income investments, partially offset by outflows of index investments.
- Net short-term inflows of $11 billion in 2Q17 were a result of increased distribution through our liquidity portals.
- Performance fees increased year-over-year primarily reflecting liability-driven investment strategies.
- Other revenue declined year-over-year primarily reflecting higher payments to Investment Services related to higher money market fees. The sequential decline in other revenue was driven by lower seed capital gains.
- Net interest revenue increased 6% year-over-year and 1% sequentially, primarily reflecting higher interest rates on lower average deposit levels.
- Average loans increased 12% year-over-year and 3% sequentially. Record average loans were driven by extending banking solutions to high net worth clients.
- Average deposits decreased 4% year-over-year and 6% sequentially.
- Total noninterest expense (excluding amortization of intangible assets) decreased slightly year-over-year, primarily reflecting the favorable impact of a stronger U.S. dollar (principally versus the British pound) and lower professional, legal and other purchased services, partially offset by higher incentive expense. The 2% sequential increase primarily reflects higher business development and distribution and servicing expenses.
INVESTMENT SERVICES provides business and technology solutions to financial institutions, corporations, public funds and government agencies, including: asset servicing (custody, foreign exchange, fund services, broker-dealer services, securities finance, collateral and liquidity services), clearing services, issuer services (depositary receipts and corporate trust) and treasury services (global payments, trade finance and cash management).
(dollars in millions, unless otherwise noted) | 2Q17 vs. | |||||||||||||||||||
2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | 1Q17 | 2Q16 | ||||||||||||||
Revenue: | ||||||||||||||||||||
Investment services fees: | ||||||||||||||||||||
Asset servicing | $ | 1,061 | $ | 1,038 | $ | 1,043 | $ | 1,039 | $ | 1,043 | 2 | % | 2 | % | ||||||
Clearing services | 393 | 375 | 354 | 347 | 350 | 5 | 12 | |||||||||||||
Issuer services | 241 | 250 | 211 | 336 | 233 | (4) | 3 | |||||||||||||
Treasury services | 139 | 139 | 139 | 136 | 137 | — | 1 | |||||||||||||
Total investment services fees | 1,834 | 1,802 | 1,747 | 1,858 | 1,763 | 2 | 4 | |||||||||||||
Foreign exchange and other trading revenue | 145 | 153 | 157 | 177 | 161 | (5) | (10) | |||||||||||||
Other (a) | 136 | 129 | 128 | 148 | 130 | 5 | 5 | |||||||||||||
Total fee and other revenue | 2,115 | 2,084 | 2,032 | 2,183 | 2,054 | 1 | 3 | |||||||||||||
Net interest revenue | 761 | 707 | 713 | 715 | 690 | 8 | 10 | |||||||||||||
Total revenue | 2,876 | 2,791 | 2,745 | 2,898 | 2,744 | 3 | 5 | |||||||||||||
Provision for credit losses | (3) | — | — | 1 | (7) | N/M | N/M | |||||||||||||
Noninterest expense (ex. amortization of intangible assets) | 1,889 | 1,812 | 1,786 | 1,812 | 1,819 | 4 | 4 | |||||||||||||
Amortization of intangible assets | 38 | 37 | 38 | 39 | 40 | 3 | (5) | |||||||||||||
Total noninterest expense | 1,927 | 1,849 | 1,824 | 1,851 | 1,859 | 4 | 4 | |||||||||||||
Income before taxes | $ | 952 | $ | 942 | $ | 921 | $ | 1,046 | $ | 892 | 1 | % | 7 | % | ||||||
Income before taxes (ex. amortization of intangible | $ | 990 | $ | 979 | $ | 959 | $ | 1,085 | $ | 932 | 1 | % | 6 | % | ||||||
Pre-tax operating margin | 33 | % | 34 | % | 34 | % | 36 | % | 33 | % | ||||||||||
Adjusted pre-tax operating margin (ex. provision for credit | 34 | % | 35 | % | 35 | % | 37 | % | 34 | % | ||||||||||
Investment services fees as a percentage of noninterest | 97 | % | 99 | % | 98 | % | 103 | % | 97 | % | ||||||||||
Securities lending revenue | $ | 42 | $ | 40 | $ | 44 | $ | 42 | $ | 42 | 5 | % | — | % | ||||||
Metrics: | ||||||||||||||||||||
Average loans | $ | 40,931 | $ | 42,818 | $ | 45,832 | $ | 44,329 | $ | 43,786 | (4)% | (7)% | ||||||||
Average deposits | $ | 200,417 | $ | 197,690 | $ | 213,531 | $ | 220,316 | $ | 221,998 | 1 | % | (10)% | |||||||
AUC/A at period end (in trillions) (b) | $ | 31.1 | (c) | $ | 30.6 | $ | 29.9 | $ | 30.5 | $ | 29.5 | 2 | % | 5 | % | |||||
Market value of securities on loan at period end (in billions) (d) | $ | 336 | $ | 314 | $ | 296 | $ | 288 | $ | 278 | 7 | % | 21 | % | ||||||
Asset servicing: | ||||||||||||||||||||
Estimated new business wins (AUC/A) (in billions) | $ | 152 | (c) | $ | 109 | $ | 141 | $ | 150 | $ | 167 | |||||||||
Depositary Receipts: | ||||||||||||||||||||
Number of sponsored programs | 1,025 | 1,050 | 1,062 | 1,094 | 1,112 | (2)% | (8)% | |||||||||||||
Clearing services: | ||||||||||||||||||||
Average active clearing accounts (U.S. platform) (in thousands) | 6,159 | 6,058 | 5,960 | 5,942 | 5,946 | 2 | % | 4 | % | |||||||||||
Average long-term mutual fund assets (U.S. platform) | $ | 480,532 | $ | 460,977 | $ | 438,460 | $ | 443,112 | $ | 431,150 | 4 | % | 11 | % | ||||||
Average investor margin loans (U.S. platform) | $ | 9,812 | $ | 10,740 | $ | 10,562 | $ | 10,834 | $ | 10,633 | (9)% | (8)% | ||||||||
Broker-Dealer: | ||||||||||||||||||||
Average tri-party repo balances (in billions) | $ | 2,498 | $ | 2,373 | $ | 2,307 | $ | 2,212 | $ | 2,108 | 5 | % | 19 | % | ||||||
(a) | Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income. |
(b) | Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at June 30, 2017, March 31, 2017, |
(c) | Preliminary. |
(d) | Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $66 billion at June 30, 2017, $65 billion at March 31, 2017, $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016 and $56 billion at June 30, 2016. |
N/M – Not meaningful. | |
INVESTMENT SERVICES KEY POINTS
- Income before taxes totaled $952 million in 2Q17. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $990 million in 2Q17.
- The pre-tax operating margin was 33% in 2Q17. The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 34% in 2Q17.
- Investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 97% in 2Q17.
- Investment services fees increased 4% year-over-year and 2% sequentially.
- Asset servicing fees increased 2% year-over-year and sequentially, primarily reflecting net new business, including growth of collateral management solutions, and higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing the retail UK transfer agency business.
- Clearing services fees increased 12% year-over-year and 5% sequentially, primarily driven by higher money market fees and growth in long-term mutual fund assets.
- Issuer services fees increased 3% year-over-year, primarily reflecting higher Depositary Receipts revenue. The 4% sequential decrease primarily reflects seasonality in Depositary Receipts revenue.
- Treasury services fees increased 1% year-over-year, primarily reflecting higher payment volumes, partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.
- Foreign exchange and other trading revenue decreased 10% year-over-year and 5% sequentially, primarily reflecting lower volatility, partially offset by higher volumes.
- Other revenue increased 5% both year-over-year and sequentially, primarily reflecting higher payments from Investment Management related to higher money market fees, partially offset by certain fees paid to introducing brokers.
- Net interest revenue increased 10% year-over-year primarily reflecting the impact of the higher interest rates, partially offset by lower deposits. The 8% sequential increase primarily reflects higher rates.
- Noninterest expense (excluding amortization of intangible assets) increased 4% year-over-year, primarily reflecting higher expenses from regulatory and compliance costs and additional technology investments, partially offset by the favorable impact of a stronger U.S. dollar. The 4% sequential increase primarily reflects additional technology investments, the unfavorable impact of a weaker U.S. dollar, higher business development expense and increased volume-related clearing and sub-custodian expenses.
OTHER SEGMENT primarily includes leasing operations, certain corporate treasury activities, derivatives, global markets, business exits and other corporate revenue and expense items.
(in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Revenue: | |||||||||||||||
Fee and other revenue | $ | 113 | $ | 72 | $ | 42 | $ | 100 | $ | 95 | |||||
Net interest (expense) revenue | (22) | (1) | 38 | (23) | (5) | ||||||||||
Total revenue | 91 | 71 | 80 | 77 | 90 | ||||||||||
Provision for credit losses | (4) | (8) | 1 | (20) | (3) | ||||||||||
Noninterest expense (ex. M&I and restructuring charges) | 28 | 106 | 108 | 88 | 53 | ||||||||||
M&I and restructuring charges | — | 1 | 2 | — | 3 | ||||||||||
Total noninterest expense | 28 | 107 | 110 | 88 | 56 | ||||||||||
Income (loss) before taxes | $ | 67 | $ | (28) | $ | (31) | $ | 9 | $ | 37 | |||||
Income (loss) before taxes (ex. M&I and restructuring charges) – Non-GAAP | $ | 67 | $ | (27) | $ | (29) | $ | 9 | $ | 40 | |||||
Average loans and leases | $ | 1,302 | $ | 1,341 | $ | 2,142 | $ | 1,941 | $ | 1,703 | |||||
KEY POINTS
- Total fee and other revenue increased $18 million compared with 2Q16 and $41 million compared with 1Q17. Both increases primarily reflect lease-related gains and higher income from corporate/bank-owned life insurance. The year-over-year increase was partially offset by the negative impact of foreign exchange translation and lower other income driven by our investments in renewable energy. The sequential increase was partially offset by a net gain related to an equity investment recorded in 1Q17.
- Net interest revenue decreased $17 million compared with 2Q16 and $21 million compared with 1Q17. Both decreases primarily reflect the impact of higher crediting rates to the businesses.
- Noninterest expense (excluding M&I and restructuring charges) decreased $25 million compared with 2Q16 and $78 million compared with 1Q17. Both decreases are primarily driven by lower staff expense.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
(in millions) | Quarter ended | Year-to-date | |||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | |||||||||||||
Fee and other revenue | |||||||||||||||||
Investment services fees: | |||||||||||||||||
Asset servicing | $ | 1,085 | $ | 1,063 | $ | 1,069 | $ | 2,148 | $ | 2,109 | |||||||
Clearing services | 394 | 376 | 350 | 770 | 700 | ||||||||||||
Issuer services | 241 | 251 | 234 | 492 | 478 | ||||||||||||
Treasury services | 140 | 139 | 139 | 279 | 270 | ||||||||||||
Total investment services fees | 1,860 | 1,829 | 1,792 | 3,689 | 3,557 | ||||||||||||
Investment management and performance fees | 879 | 842 | 830 | 1,721 | 1,642 | ||||||||||||
Foreign exchange and other trading revenue | 165 | 164 | 182 | 329 | 357 | ||||||||||||
Financing-related fees | 53 | 55 | 57 | 108 | 111 | ||||||||||||
Distribution and servicing | 41 | 41 | 43 | 82 | 82 | ||||||||||||
Investment and other income | 122 | 77 | 74 | 199 | 179 | ||||||||||||
Total fee revenue | 3,120 | 3,008 | 2,978 | 6,128 | 5,928 | ||||||||||||
Net securities gains | — | 10 | 21 | 10 | 41 | ||||||||||||
Total fee and other revenue | 3,120 | 3,018 | 2,999 | 6,138 | 5,969 | ||||||||||||
Operations of consolidated investment management funds | |||||||||||||||||
Investment income | 10 | 37 | 10 | 47 | 7 | ||||||||||||
Interest of investment management fund note holders | — | 4 | — | 4 | 3 | ||||||||||||
Income from consolidated investment management funds | 10 | 33 | 10 | 43 | 4 | ||||||||||||
Net interest revenue | |||||||||||||||||
Interest revenue | 1,052 | 960 | 890 | 2,012 | 1,773 | ||||||||||||
Interest expense | 226 | 168 | 123 | 394 | 240 | ||||||||||||
Net interest revenue | 826 | 792 | 767 | 1,618 | 1,533 | ||||||||||||
Total revenue | 3,956 | 3,843 | 3,776 | 7,799 | 7,506 | ||||||||||||
Provision for credit losses | (7) | (5) | (9) | (12) | 1 | ||||||||||||
Noninterest expense | |||||||||||||||||
Staff | 1,417 | 1,472 | 1,412 | 2,889 | 2,871 | ||||||||||||
Professional, legal and other purchased services | 319 | 312 | 290 | 631 | 568 | ||||||||||||
Software and equipment | 232 | 223 | 223 | 455 | 442 | ||||||||||||
Net occupancy | 139 | 136 | 152 | 275 | 294 | ||||||||||||
Distribution and servicing | 104 | 100 | 102 | 204 | 202 | ||||||||||||
Sub-custodian | 65 | 64 | 70 | 129 | 129 | ||||||||||||
Bank assessment charges (a) | 59 | 57 | 52 | 116 | 105 | ||||||||||||
Business development | 63 | 51 | 65 | 114 | 122 | ||||||||||||
Other (a) | 192 | 167 | 188 | 359 | 376 | ||||||||||||
Amortization of intangible assets | 53 | 52 | 59 | 105 | 116 | ||||||||||||
M&I, litigation and restructuring charges | 12 | 8 | 7 | 20 | 24 | ||||||||||||
Total noninterest expense | 2,655 | 2,642 | 2,620 | 5,297 | 5,249 | ||||||||||||
Income | |||||||||||||||||
Income before income taxes | 1,308 | 1,206 | 1,165 | 2,514 | 2,256 | ||||||||||||
Provision for income taxes | 332 | 269 | 290 | 601 | 573 | ||||||||||||
Net income | 976 | 937 | 875 | 1,913 | 1,683 | ||||||||||||
Net (income) loss attributable to noncontrolling interests (includes $(3), | (1) | (15) | (2) | (16) | 7 | ||||||||||||
Net income applicable to shareholders of The Bank of New York Mellon | 975 | 922 | 873 | 1,897 | 1,690 | ||||||||||||
Preferred stock dividends | (49) | (42) | (48) | (91) | (61) | ||||||||||||
Net income applicable to common shareholders of The Bank of New York | $ | 926 | $ | 880 | $ | 825 | $ | 1,806 | $ | 1,629 | |||||||
(a) | In the first quarter of 2017, we began disclosing bank assessment charges on a quarterly basis. The bank assessment charges were previously included in other expense. |
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 | |||||||||||||||
June 30, | March 31, | June 30, | June 30, | June 30, | |||||||||||||
(in millions) | |||||||||||||||||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 926 | $ | 880 | $ | 825 | $ | 1,806 | $ | 1,629 | |||||||
Less: Earnings allocated to participating securities | 13 | 14 | 13 | 27 | 24 | ||||||||||||
Net income applicable to the common shareholders of The Bank of New | $ | 913 | $ | 866 | $ | 812 | $ | 1,779 | $ | 1,605 | |||||||
Average common shares and equivalents outstanding of The Bank of New | Quarter ended | Year-to-date | ||||||||||
June 30, 2017 | March 31, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | ||||||||
(in thousands) | ||||||||||||
Basic | 1,035,829 | 1,041,158 | 1,072,583 | 1,038,479 | 1,076,112 | |||||||
Diluted | 1,041,879 | 1,047,746 | 1,078,271 | 1,044,809 | 1,081,847 | |||||||
Earnings per share applicable to the common shareholders of The Bank of New | Quarter ended | Year-to-date | |||||||||||||||
June 30, 2017 | March 31, 2017 | June 30, 2016 | June 30, 2017 | June 30, 2016 | |||||||||||||
(in dollars) | |||||||||||||||||
Basic | $ | 0.88 | $ | 0.83 | $ | 0.76 | $ | 1.71 | $ | 1.49 | |||||||
Diluted | $ | 0.88 | $ | 0.83 | $ | 0.75 | $ | 1.70 | $ | 1.48 | |||||||
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
(dollars in millions, except per share amounts) | June 30, | March 31, | December 31, | |||||||
Assets | ||||||||||
Cash and due from: | ||||||||||
Banks | $ | 4,725 | $ | 5,366 | $ | 4,822 | ||||
Interest-bearing deposits with the Federal Reserve and other central banks | 74,130 | 65,086 | 58,041 | |||||||
Interest-bearing deposits with banks | 13,601 | 14,554 | 15,086 | |||||||
Federal funds sold and securities purchased under resale agreements | 27,440 | 25,776 | 25,801 | |||||||
Securities: | ||||||||||
Held-to-maturity (fair value of $40,862, $40,066 and $40,669) | 40,986 | 40,254 | 40,905 | |||||||
Available-for-sale | 78,274 | 75,580 | 73,822 | |||||||
Total securities | 119,260 | 115,834 | 114,727 | |||||||
Trading assets | 5,279 | 4,912 | 5,733 | |||||||
Loans | 61,673 | 60,868 | 64,458 | |||||||
Allowance for loan losses | (165) | (164) | (169) | |||||||
Net loans | 61,508 | 60,704 | 64,289 | |||||||
Premises and equipment | 1,640 | 1,307 | 1,303 | |||||||
Accrued interest receivable | 567 | 551 | 568 | |||||||
Goodwill | 17,457 | 17,355 | 17,316 | |||||||
Intangible assets | 3,506 | 3,549 | 3,598 | |||||||
Other assets | 25,000 | 21,515 | 20,954 | |||||||
Subtotal assets of operations | 354,113 | 336,509 | 332,238 | |||||||
Assets of consolidated investment management funds, at fair value | 702 | 1,027 | 1,231 | |||||||
Total assets | $ | 354,815 | $ | 337,536 | $ | 333,469 | ||||
Liabilities | ||||||||||
Deposits: | ||||||||||
Noninterest-bearing (principally U.S. offices) | $ | 89,063 | $ | 79,771 | $ | 78,342 | ||||
Interest-bearing deposits in U.S. offices | 48,798 | 50,991 | 52,049 | |||||||
Interest-bearing deposits in Non-U.S. offices | 97,816 | 90,529 | 91,099 | |||||||
Total deposits | 235,677 | 221,291 | 221,490 | |||||||
Federal funds purchased and securities sold under repurchase agreements | 10,934 | 11,149 | 9,989 | |||||||
Trading liabilities | 4,100 | 2,816 | 4,389 | |||||||
Payables to customers and broker-dealers | 21,622 | 21,306 | 20,987 | |||||||
Commercial paper | 876 | 2,543 | — | |||||||
Other borrowed funds | 1,338 | 1,022 | 754 | |||||||
Accrued taxes and other expenses | 5,670 | 5,290 | 5,867 | |||||||
Other liabilities (includes allowance for lending-related commitments of $105, $112 and $112) | 6,379 | 5,733 | 5,635 | |||||||
Long-term debt | 27,699 | 26,346 | 24,463 | |||||||
Subtotal liabilities of operations | 314,295 | 297,496 | 293,574 | |||||||
Liabilities of consolidated investment management funds, at fair value | 22 | 209 | 315 | |||||||
Total liabilities | 314,317 | 297,705 | 293,889 | |||||||
Temporary equity | ||||||||||
Redeemable noncontrolling interests | 181 | 159 | 151 | |||||||
Permanent equity | ||||||||||
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 35,826 and 35,826 shares | 3,542 | 3,542 | 3,542 | |||||||
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,349,181,914, 1,345,247,459 and 1,333,706,427 shares | 13 | 13 | 13 | |||||||
Additional paid-in capital | 26,432 | 26,248 | 25,962 | |||||||
Retained earnings | 24,027 | 23,300 | 22,621 | |||||||
Accumulated other comprehensive loss, net of tax | (3,093) | (3,524) | (3,765) | |||||||
Less: Treasury stock of 316,025,713, 305,370,439 and 286,218,126 common shares, at cost | (10,947) | (10,441) | (9,562) | |||||||
Total The Bank of New York Mellon Corporation shareholders' equity | 39,974 | 39,138 | 38,811 | |||||||
Nonredeemable noncontrolling interests of consolidated investment management funds | 343 | 534 | 618 | |||||||
Total permanent equity | 40,317 | 39,672 | 39,429 | |||||||
Total liabilities, temporary equity and permanent equity | $ | 354,815 | $ | 337,536 | $ | 333,469 | ||||
SUPPLEMENTAL INFORMATION – EXPLANATION OF GAAP AND NON-GAAP FINANCIAL MEASURES
BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based on estimated fully phased-in CET1 and other risk-based capital ratios, the estimated fully phased-in SLR and tangible common shareholders' equity. BNY Mellon believes that the CET1 and other risk-based capital ratios, on a fully phased-in basis, and the SLR, on a fully phased-in basis, are measures of capital strength that provide additional useful information to investors, supplementing the capital ratios which are, or were, required by regulatory authorities. The tangible common shareholders' equity ratio, which excludes goodwill and intangible assets, net of deferred tax liabilities, includes changes in investment securities valuations which are reflected in total shareholders' equity. In addition, this ratio is expressed as a percentage of the actual book value of assets. BNY Mellon believes that the return on tangible common equity measure is an additional useful measure for investors because it presents a measure of those assets that can generate income. BNY Mellon has provided a measure of tangible book value per common share, which it believes provides additional useful information as to the level of tangible assets in relation to shares of common stock outstanding.
BNY Mellon has presented revenue measures, which exclude the effect of noncontrolling interests related to consolidated investment management funds, and expense measures, which exclude amortization of intangible assets and M&I, litigation and restructuring charges.
Operating margin, operating leverage and return on equity measures, which exclude some or all of these items, as well as the recovery related to Sentinel, are also presented. Operating margin measures may also exclude the provision for credit losses and distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon's control. M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions and Operational Excellence Initiatives. Excluding the charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.
The presentation of revenue growth on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue. BNY Mellon believes that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.
The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds, permits investors to view revenue on a basis consistent with how management views the business. BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.
Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.
The following table presents the reconciliation of the pre-tax operating margin ratio.
Reconciliation of income before income taxes – pre-tax operating margin | |||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Income before income taxes – GAAP | $ | 1,308 | $ | 1,206 | $ | 1,152 | $ | 1,317 | $ | 1,165 | |||||
Less: Net income attributable to noncontrolling interests of consolidated investment management funds | 3 | 18 | 4 | 9 | 4 | ||||||||||
Add: Amortization of intangible assets | 53 | 52 | 60 | 61 | 59 | ||||||||||
M&I, litigation and restructuring charges | 12 | 8 | 7 | 18 | 7 | ||||||||||
Recovery related to Sentinel | — | — | — | (13) | — | ||||||||||
Income before income taxes, as adjusted – Non-GAAP (a) | $ | 1,370 | $ | 1,248 | $ | 1,215 | $ | 1,374 | $ | 1,227 | |||||
Fee and other revenue – GAAP | $ | 3,120 | $ | 3,018 | $ | 2,954 | $ | 3,150 | $ | 2,999 | |||||
Income from consolidated investment management funds – GAAP | 10 | 33 | 5 | 17 | 10 | ||||||||||
Net interest revenue – GAAP | 826 | 792 | 831 | 774 | 767 | ||||||||||
Total revenue – GAAP | 3,956 | 3,843 | 3,790 | 3,941 | 3,776 | ||||||||||
Less: Net income attributable to noncontrolling interests of consolidated investment management funds | 3 | 18 | 4 | 9 | 4 | ||||||||||
Total revenue, as adjusted – Non-GAAP (a) | $ | 3,953 | $ | 3,825 | $ | 3,786 | $ | 3,932 | $ | 3,772 | |||||
Pre-tax operating margin – GAAP (b)(c) | 33 | % | 31 | % | 30 | % | 33 | % | 31 | % | |||||
Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c) | 35 | % | 33 | % | 32 | % | 35 | % | 33 | % | |||||
(a) | Non-GAAP information for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and |
(b) | Income before taxes divided by total revenue. |
(c) | Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities. The benefits of these investments are primarily reflected in tax expense. If reported on a tax-equivalent basis, these investments would increase revenue and income before taxes by $106 million for 2Q17, $101 million for 1Q17, $92 million for 4Q16 and $74 million for 3Q16 and 2Q16 and would increase our pre-tax operating margin by approximately 1.8% for 2Q17 and 1Q17, 1.7% for 4Q16, 1.2% for 3Q16 and 1.3% for 2Q16. |
The following table presents the reconciliation of the operating leverage.
Operating leverage | 2Q17 vs. | ||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 2Q16 | 1Q17 | 2Q16 | ||||||||
Total revenue – GAAP | $ | 3,956 | $ | 3,843 | $ | 3,776 | 2.94 | % | 4.77 | % | |||
Less: Net income attributable to noncontrolling interests of consolidated | 3 | 18 | 4 | ||||||||||
Total revenue, as adjusted – Non-GAAP | $ | 3,953 | $ | 3,825 | $ | 3,772 | 3.35 | % | 4.80 | % | |||
Total noninterest expense – GAAP | $ | 2,655 | $ | 2,642 | $ | 2,620 | 0.49 | % | 1.34 | % | |||
Less: Amortization of intangible assets | 53 | 52 | 59 | ||||||||||
M&I, litigation and restructuring charges | 12 | 8 | 7 | ||||||||||
Total noninterest expense, as adjusted – Non-GAAP | $ | 2,590 | $ | 2,582 | $ | 2,554 | 0.31 | % | 1.41 | % | |||
Operating leverage – GAAP (a) | 245 | bps | 343 | bps | |||||||||
Adjusted operating leverage – Non-GAAP (a)(b) | 304 | bps | 339 | bps | |||||||||
(a) | Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense. |
(b) | Non-GAAP operating leverage for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. |
bps – basis points. | |
The following table presents the reconciliation of the returns on common equity and tangible common equity.
Return on common equity and tangible common equity | |||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 926 | $ | 880 | $ | 822 | $ | 974 | $ | 825 | |||||
Add: Amortization of intangible assets | 53 | 52 | 60 | 61 | 59 | ||||||||||
Less: Tax impact of amortization of intangible assets | 19 | 18 | 19 | 21 | 21 | ||||||||||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 960 | 914 | 863 | 1,014 | 863 | ||||||||||
Add: M&I, litigation and restructuring charges | 12 | 8 | 7 | 18 | 7 | ||||||||||
Recovery related to Sentinel | — | — | — | (13) | — | ||||||||||
Less: Tax impact of M&I, litigation and restructuring charges | 3 | 2 | 3 | 5 | 2 | ||||||||||
Tax impact of recovery related to Sentinel | — | — | — | (5) | — | ||||||||||
Net income applicable to common shareholders of The Bank of New York Mellon Corporation, | $ | 969 | $ | 920 | $ | 867 | $ | 1,019 | $ | 868 | |||||
Average common shareholders' equity | $ | 35,862 | $ | 34,965 | $ | 35,171 | $ | 35,767 | $ | 35,827 | |||||
Less: Average goodwill | 17,408 | 17,338 | 17,344 | 17,463 | 17,622 | ||||||||||
Average intangible assets | 3,532 | 3,578 | 3,638 | 3,711 | 3,789 | ||||||||||
Add: Deferred tax liability – tax deductible goodwill (b) | 1,542 | 1,518 | 1,497 | 1,477 | 1,452 | ||||||||||
Deferred tax liability – intangible assets (b) | 1,095 | 1,100 | 1,105 | 1,116 | 1,129 | ||||||||||
Average tangible common shareholders' equity – Non-GAAP | $ | 17,559 | $ | 16,667 | $ | 16,791 | $ | 17,186 | $ | 16,997 | |||||
Return on common equity – GAAP (c) | 10.4 | % | 10.2 | % | 9.3 | % | 10.8 | % | 9.3 | % | |||||
Adjusted return on common equity – Non-GAAP (a)(c) | 10.8 | % | 10.7 | % | 9.8 | % | 11.3 | % | 9.7 | % | |||||
Return on tangible common equity – Non-GAAP (c) | 21.9 | % | 22.2 | % | 20.4 | % | 23.5 | % | 20.4 | % | |||||
Adjusted return on tangible common equity – Non-GAAP (a)(c) | 22.1 | % | 22.4 | % | 20.5 | % | 23.6 | % | 20.5 | % | |||||
(a) | Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for 3Q16 also excludes a recovery of |
(b) | Deferred tax liabilities are based on fully phased-in Basel III capital rules. |
(c) | Quarterly returns are annualized. |
The following table presents the reconciliation of the book value per common share.
Book value per common share | June 30, | March 31, | Dec. 31, | Sept. 30, | June 30, | ||||||||||
(dollars in millions, unless otherwise noted) | |||||||||||||||
BNY Mellon shareholders' equity at period end – GAAP | $ | 39,974 | $ | 39,138 | $ | 38,811 | $ | 39,695 | $ | 38,559 | |||||
Less: Preferred stock | 3,542 | 3,542 | 3,542 | 3,542 | 2,552 | ||||||||||
BNY Mellon common shareholders' equity at period end – GAAP | 36,432 | 35,596 | 35,269 | 36,153 | 36,007 | ||||||||||
Less: Goodwill | 17,457 | 17,355 | 17,316 | 17,449 | 17,501 | ||||||||||
Intangible assets | 3,506 | 3,549 | 3,598 | 3,671 | 3,738 | ||||||||||
Add: Deferred tax liability – tax deductible goodwill (a) | 1,542 | 1,518 | 1,497 | 1,477 | 1,452 | ||||||||||
Deferred tax liability – intangible assets (a) | 1,095 | 1,100 | 1,105 | 1,116 | 1,129 | ||||||||||
BNY Mellon tangible common shareholders' equity at period | $ | 18,106 | $ | 17,310 | $ | 16,957 | $ | 17,626 | $ | 17,349 | |||||
Period-end common shares outstanding (in thousands) | 1,033,156 | 1,039,877 | 1,047,488 | 1,057,337 | 1,067,674 | ||||||||||
Book value per common share – GAAP | $ | 35.26 | $ | 34.23 | $ | 33.67 | $ | 34.19 | $ | 33.72 | |||||
Tangible book value per common share – Non-GAAP | $ | 17.53 | $ | 16.65 | $ | 16.19 | $ | 16.67 | $ | 16.25 | |||||
(a) | Deferred tax liabilities are based on fully phased-in Basel III capital rules. |
The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.
Investment management and performance fees – Consolidated | 2Q17 vs. | |||||||
(dollars in millions) | 2Q17 | 2Q16 | 2Q16 | |||||
Investment management and performance fees – GAAP | $ | 879 | $ | 830 | 6 | % | ||
Impact of changes in foreign currency exchange rates | — | (26) | ||||||
Investment management and performance fees, as adjusted – Non-GAAP | $ | 879 | $ | 804 | 9 | % | ||
The following table presents income from consolidated investment management funds, net of noncontrolling interests.
Income from consolidated investment management funds, net of noncontrolling interests | |||||||||||||||
(in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Income from consolidated investment management funds | $ | 10 | $ | 33 | $ | 5 | $ | 17 | $ | 10 | |||||
Less: Net income attributable to noncontrolling interests of consolidated investment management funds | 3 | 18 | 4 | 9 | 4 | ||||||||||
Income from consolidated investment management funds, net of noncontrolling interests | $ | 7 | $ | 15 | $ | 1 | $ | 8 | $ | 6 | |||||
The following table presents the impact of changes in foreign currency exchange rates on investment management fees reported in the Investment Management business.
Investment management fees - Investment Management business | 2Q17 vs. | |||||||
(dollars in millions) | 2Q17 | 2Q16 | 2Q16 | |||||
Investment management fees – GAAP | $ | 845 | $ | 808 | 5 | % | ||
Impact of changes in foreign currency exchange rates | — | (25) | ||||||
Investment management fees, as adjusted – Non-GAAP | $ | 845 | $ | 783 | 8 | % | ||
The following table presents the revenue line items in the Investment Management business impacted by the consolidated investment management funds.
Income (loss) from consolidated investment management funds, net of noncontrolling interests - Investment Management business | |||||||||||||||
(in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Investment management fees | $ | 2 | $ | 2 | $ | 4 | $ | 2 | $ | 3 | |||||
Other (Investment income (loss)) | 5 | 13 | (3) | 6 | 3 | ||||||||||
Income from consolidated investment management funds, net of noncontrolling interests | $ | 7 | $ | 15 | $ | 1 | $ | 8 | $ | 6 | |||||
The following table presents the reconciliation of the pre-tax operating margin for the Investment Management business.
Pre-tax operating margin - Investment Management business | |||||||||||||||
(dollars in millions) | 2Q17 | 1Q17 | 4Q16 | 3Q16 | 2Q16 | ||||||||||
Income before income taxes – GAAP | $ | 288 | $ | 277 | $ | 260 | $ | 256 | $ | 234 | |||||
Add: Amortization of intangible assets | 15 | 15 | 22 | 22 | 19 | ||||||||||
Provision for credit losses | — | 3 | 6 | — | 1 | ||||||||||
Adjusted income before income taxes, excluding amortization of intangible assets | $ | 303 | $ | 295 | $ | 288 | $ | 278 | $ | 254 | |||||
Total revenue – GAAP | $ | 986 | $ | 963 | $ | 960 | $ | 958 | $ | 938 | |||||
Less: Distribution and servicing expense | 104 | 101 | 98 | 104 | 102 | ||||||||||
Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 882 | $ | 862 | $ | 862 | $ | 854 | $ | 836 | |||||
Pre-tax operating margin – GAAP (a) | 29 | % | 29 | % | 27 | % | 27 | % | 25 | % | |||||
Adjusted pre-tax operating margin, excluding amortization of intangible assets, | 34 | % | 34 | % | 33 | % | 33 | % | 30 | % | |||||
(a) | Income before taxes divided by total revenue. |
DIVIDENDS
Common – On July 20, 2017, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.24 per share, an increase from the prior dividend amount of $0.19 per common share. This cash dividend is payable on Aug. 11, 2017 to shareholders of record as of the close of business on Aug. 1, 2017.
Preferred – On July 20, 2017, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in September 2017, in each case payable on Sept. 20, 2017 to holders of record as of the close of business on Sept. 5, 2017:
- $1,022.22 per share on the Series A Preferred Stock (equivalent to $10.2222 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock);
- $1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock); and
- $2,312.50 per share on the Series F Preferred Stock (equivalent to $23.1250 per depositary share, each representing a 1/100th interest in a share of the Series F Preferred Stock).
CAUTIONARY STATEMENT
A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding our strategy, growth, positioning and focus. These statements may be expressed in a variety of ways, including the use of future or present tense language. Words such as "estimate," "forecast," "project," "anticipate," "likely," "target," "expect," "intend," "continue," "seek," "believe," "plan," "goal," "could," "should," "may," "will," "strategy," "opportunities," "trends" and words of similar meaning signify forward-looking statements. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2016, the Quarterly Report on Form 10-Q for the period ended March 31, 2017 and BNY Mellon's other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of July 20, 2017, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
ABOUT BNY MELLON
BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2017, BNY Mellon had $31.1 trillion in assets under custody and/or administration, and $1.8 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.
CONFERENCE CALL INFORMATION
Gerald L. Hassell, chairman, Thomas P. Gibbons, vice chairman and chief financial officer, and Charles W. Scharf, chief executive officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EDT on July 20, 2017. This conference call and audio webcast will include forward-looking statements and may include other material information.
Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (719) 325-2110 (International), and using the passcode: 445371, or by logging on to www.bnymellon.com/investorrelations. Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EDT on July 20, 2017. Replays of the conference call and audio webcast will be available beginning July 20, 2017 at approximately 2 p.m. EDT through Aug. 20, 2017 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 6203153. The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.
Media Relations:
Eva Radtke
(212) 635-1504
Investor Relations:
Valerie Haertel
(212) 635-8529
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SOURCE BNY Mellon
