BANK OF NEW YORK MELLON CORPORATION (THE) NEW YORK, Jan. 19, 2017 /PRNewswire/ --
-- Earnings per common share up 35%, or 13% on an adjusted basis
year-over-year (a)
TOTAL REVENUE OF $3.79 BILLION, INCREASED 2% YEAR-OVER-YEAR
-- Fee and other revenue up slightly; Investment Services fees increased 4%
-- Net interest revenue increased 9%
CONTINUED FOCUS ON EXPENSE CONTROL
-- Total noninterest expense decreased 2% year-over-year
FULL-YEAR 2016 EARNINGS OF $3.43 BILLION OR $3.15 PER COMMON SHARE
-- Earnings of $3.45 billion or $3.17 per common share on an adjusted basis
(a)
-- Earnings per common share up 16%, or 11% on an adjusted basis (a)
-- Total revenue up slightly and total noninterest expense decreased 3%
EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS
-- Repurchased 18.4 million common shares for $848 million in the fourth
quarter of 2016 and 58.6 million common shares for $2.4 billion in
full-year 2016
-- Return on common equity of 9% in the fourth quarter of 2016 and 10% in
full-year 2016
-- Adjusted return on tangible common equity of 21% in both the fourth
quarter and full-year of 2016 (a)
-- SLR - transitional of 6.0%; SLR - fully phased-in of 5.6% (a)
The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported fourth quarter net income applicable to common shareholders of $822 million, or $0.77 per diluted common share, or $826 million, or $0.77 per diluted common share, as adjusted (Non-GAAP). In the fourth quarter of 2015, net income applicable to common shareholders was $637 million, or $0.57 per diluted common share, or $755 million, or $0.68 per diluted common share, as adjusted (Non-GAAP). In the third quarter of 2016, net income applicable to common shareholders was $974 million, or $0.90 per diluted common share, or $979 million, or $0.90 per diluted common share, as adjusted (Non-GAAP) (a).
In 2016, net income applicable to common shareholders totaled $3.43 billion, or $3.15 per diluted common share, or $3.45 billion, or $3.17 per diluted common share, as adjusted (Non-GAAP). In 2015, net income applicable to common shareholders totaled $3.05 billion, or $2.71 per diluted common share, or $3.22 billion, or $2.85 per diluted common share, as adjusted (Non-GAAP) (a).
"We delivered strong fourth-quarter results, capping another year of solid execution against our three-year strategic plan. For full-year 2016, our earnings per share increased significantly as we delivered a strong return on capital. In the fourth quarter, we also generated substantial positive operating leverage, as the Investment Services business performed well and our business improvement process helped reduce structural costs," Gerald L. Hassell, chairman and chief executive officer, said.
"As we enter 2017, we continue to prioritize enhancing our clients' experience with us in every way ... from ease of access of information, to providing data-driven insights and solutions, to improving responsiveness to inquiries. Our digital transformation is enhancing the user experience, raising our levels of automation and resiliency and allowing clients to connect to BNY Mellon anywhere, anytime" Mr. Hassell added.
"We also remain committed to providing value to our shareholders and, during the fourth quarter, we returned more than $1 billion through share repurchases and dividends," Mr. Hassell continued.
"I want to thank our clients for entrusting us with their business, my fellow shareholders for recognizing our value proposition and our 50,000-plus BNY Mellon professionals for executing on our strategy and challenging themselves to be the very best every day," Mr. Hassell concluded.
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 Dec. 31, 2016, BNY Mellon had $29.9 trillion in assets under custody and/or administration, and $1.6 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.
(a) These measures are considered to be
Non-GAAP. See "Supplemental
information - Explanation of GAAP and
Non-GAAP financial measures"
beginning on page 24 for the adjusted
earnings and earnings per common
share reconciliation and the adjusted
tangible common equity ratio
reconciliation. See "Capital and
Liquidity" beginning on page 13 for
the reconciliation of the SLR.
CONFERENCE CALL INFORMATION
Gerald L. Hassell, chairman and chief executive officer, and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EST on Jan. 19, 2017. This conference call and audio webcast will include forward-looking statements and may include other material information.
Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (719) 325-2110 (International), and using the passcode: 445371, or by logging on to www.bnymellon.com/investorrelations. Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EST on Jan. 19, 2017. Replays of the conference call and audio webcast will be available beginning Jan. 19, 2017 at approximately 2 p.m. EST through Feb. 19, 2017 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 6203153. The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.
FOURTH QUARTER 2016 FINANCIAL HIGHLIGHTS (a)
(comparisons are 4Q16 vs. 4Q15, unless otherwise stated)
-- Earnings
Earnings per share Net income applicable to common
shareholders of The Bank of New
York Mellon Corporation
(in millions, except per share amounts) 4Q16 4Q15 Inc/(Dec) 4Q16 4Q15 Inc/(Dec)
-------------------------------------- ---- ---- --------- ---- ---- ---------
GAAP results $0.77 $0.57 35% $822 $637 29%
Add: M&I, litigation and restructuring charges - 0.01 4 12
Impairment charge related to Sentinel N/A 0.10 N/A 106
------------------------------------- --- ---- --- ---
Non-GAAP results $0.77 $0.68 13% $826 $755 9%
---------------- ----- ----- --- ---- ---- ---
-- Total revenue of $3.8 billion, increased 2% on both a GAAP and adjusted
basis (Non-GAAP) (a).
-- Investment services fees increased 4% reflecting higher money market
fees.
-- Investment management and performance fees decreased 2% due to the
unfavorable impact of a stronger U.S. dollar (principally versus the
British pound) and lower performance fees, partially offset by
higher market values and money market fees.
-- Foreign exchange revenue increased 6% reflecting higher volatility.
-- Investment and other income decreased $23 million driven by lower
other income related to termination fees in our clearing business
recorded in 4Q15.
-- Net interest revenue increased $71 million driven by the increase in
interest rates, impact of interest rate hedging activities and
premium amortization adjustments, partially offset by lower
interest-earning assets.
-- The provision for credit losses was $7 million.
-- Noninterest expense of $2.6 billion, decreased 2% on both a GAAP and
adjusted basis (Non-GAAP) (a). The decrease reflects lower staff expense
driven by the favorable impact of a stronger U.S. dollar, lower employee
benefits and severance expense.
-- Effective tax rate of 24.3%.
-- Assets under custody and/or administration ("AUC/A") and Assets under
management ("AUM")
-- AUC/A of $29.9 trillion increased 3% reflecting higher market
values, offset by the unfavorable impact of a stronger U.S. dollar.
-- Estimated new AUC/A wins in Asset Servicing of $141 billion in
4Q16.
-- AUM of $1.65 trillion increased 1% reflecting higher market values
offset by the unfavorable impact of a stronger U.S. dollar
(principally versus the British pound).
-- Net long-term outflows of $11 billion in 4Q16 were a combination
of $10 billion of outflows from actively managed strategies and
$1 billion of outflows from index strategies.
-- Net short-term outflows totaled $3 billion in 4Q16.
-- Capital
-- Repurchased 18.4 million common shares for $848 million in 4Q16 and
58.6 million common shares for $2.4 billion in full-year 2016.
-- Return on common equity of 9% in 4Q16 and 10% in full-year 2016.
-- Adjusted return on tangible common equity of 21% in both 4Q16 and
full-year 2016 (a).
-- SLR - transitional of 6.0%; SLR - fully phased-in of 5.6% (a).
(a) See "Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on page
24 for the reconciliation of Non-
GAAP measures. In all periods
presented, Non-GAAP information
excludes the net income (loss)
attributable to noncontrolling
interests of consolidated investment
management funds, amortization of
intangible assets and M&I, litigation
and restructuring charges. Non-GAAP
information for 4Q15 also excludes
the impairment charge related to a
court decision regarding Sentinel
Management Group, Inc. ("Sentinel").
See "Capital and Liquidity" beginning
on page 13 for the reconciliation of
the SLR.
N/A - Not applicable.
Note: Throughout this document,
sequential growth rates are
unannualized.
FINANCIAL SUMMARY
-----------------
(dollars in millions, except per share amounts; common shares in thousands) 4Q16 vs.
--------------------------------------------------------------------------
4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
---- ---- ---- ---- ---- ---- ----
Revenue:
Fee and other revenue $2,954 $3,150 $2,999 $2,970 $2,950 (6)% - %
Income (loss) from consolidated investment management funds 5 17 10 (6) 16
Net interest revenue 831 774 767 766 760 7 9
-------------------- --- --- --- --- --- --- ---
Total revenue - GAAP 3,790 3,941 3,776 3,730 3,726 (4) 2
Less: Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds 4 9 4 (7) 5
--------------------------------------------------------------------------------------------------------------------- --- --- --- --- ---
Total revenue - Non-GAAP 3,786 3,932 3,772 3,737 3,721 (4) 2
------------------------ ----- ----- ----- ----- ----- --- ---
Provision for credit losses 7 (19) (9) 10 163
Expense:
Noninterest expense - GAAP 2,631 2,643 2,620 2,629 2,692 - (2)
Less: Amortization of intangible assets 60 61 59 57 64
M&I, litigation and restructuring charges 7 18 7 17 18
Total noninterest expense - Non-GAAP 2,564 2,564 2,554 2,555 2,610 - (2)
------------------------------------ ----- ----- ----- ----- ----- --- ---
Income:
Income before income taxes 1,152 1,317 1,165 1,091 871 (13)% 32%
Provision for income taxes 280 324 290 283 175
-------------------------- --- --- --- --- ---
Net income $872 $993 $875 $808 $696
Net (income) loss attributable to noncontrolling interests (a) (2) (6) (2) 9 (3)
------------------------------------------------------------- --- --- --- --- ---
Net income applicable to shareholders of The Bank of New York Mellon Corporation 870 987 873 817 693
Preferred stock dividends (48) (13) (48) (13) (56)
------------------------- --- --- --- --- ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation $822 $974 $825 $804 $637
--------------------------------------------------------------------------------------- ---- ---- ---- ---- ----
Operating leverage (b) (338) bps 399 bps
Adjusted operating leverage - Non-GAAP (b) (371) bps 351 bps
Key Metrics:
------------
Pre-tax operating margin (c) 30% 33% 31% 29% 23%
Adjusted pre-tax operating margin - Non-GAAP (c) 32% 35% 33% 31% 30%
Return on common equity (annualized) (c) 9.3% 10.8% 9.3% 9.2% 7.1%
Adjusted return on common equity (annualized) - Non-GAAP (c) 9.8% 11.3% 9.7% 9.7% 8.9%
Return on tangible common equity (annualized) - Non-GAAP (c)(d) 20.4% 23.5% 20.4% 20.6% 16.2%
Adjusted return on tangible common equity (annualized) - Non-GAAP (c)(d) 20.5% 23.6% 20.5% 20.8% 19.0%
Fee revenue as a percentage of total revenue 78% 79% 79% 80% 79%
Percentage of non-U.S. total revenue 34% 36% 34% 33% 34%
Average common shares and equivalents outstanding:
Basic 1,050,888 1,062,248 1,072,583 1,079,641 1,088,880
Diluted 1,056,818 1,067,682 1,078,271 1,085,284 1,096,385
Period end:
-----------
Full-time employees 52,000 52,300 52,200 52,100 51,200
Book value per common share - GAAP (d) $33.67 $34.19 $33.72 $33.34 $32.69
Tangible book value per common share - Non-GAAP (d) $16.19 $16.67 $16.25 $15.87 $15.27
Cash dividends per common share $0.19 $0.19 $0.17 $0.17 $0.17
Common dividend payout ratio 25% 21% 23% 23% 30%
Closing stock price per common share $47.38 $39.88 $38.85 $36.83 $41.22
Market capitalization $49,630 $42,167 $41,479 $39,669 $44,738
Common shares outstanding 1,047,488 1,057,337 1,067,674 1,077,083 1,085,343
------------------------- --------- --------- --------- --------- ---------
(a) Primarily attributable to
noncontrolling interests related to
consolidated investment management
funds.
(b) Operating leverage is the rate of
increase (decrease) in total revenue
less the rate of increase (decrease)
in total noninterest expense. See
"Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on page
24 for the components of this
measure.
(c) Non-GAAP information for all periods
presented excludes the net income
(loss) 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 Sentinel loan and
4Q15 also excludes the impairment
charge related to a court decision
regarding Sentinel. See
"Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on page
24 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 24 for the
reconciliation of Non-GAAP measures.
bps - basis points.
CONSOLIDATED BUSINESS METRICS
Consolidated business metrics 4Q16 vs.
-----------------------------
4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
---- ---- ---- ---- ---- ---- ----
Changes in AUM (in billions): (a)
Beginning balance of AUM $1,715 $1,664 $1,639 $1,625 $1,625
Net inflows (outflows):
Long-term strategies:
Equity (4) (3) (2) (3) (9)
Fixed income (1) - (2) - 1
Liability-driven investments (b) (7) 4 15 14 11
Alternative investments 2 2 1 1 2
----------------------- --- --- --- --- ---
Total long-term active strategies (outflows) inflows (10) 3 12 12 5
Index (1) (2) (17) (11) (16)
Total long-term strategies (outflows) inflows (11) 1 (5) 1 (11)
Short term strategies:
Cash (3) (1) 4 (9) 2
---- --- --- --- --- ---
Total net (outflows) (14) - (1) (8) (9)
Net market impact/other (11) 80 71 41 24
Net currency impact (42) (29) (47) (19) (15)
Acquisition - - 2 - -
----------- --- --- --- --- ---
Ending balance of AUM $1,648 (c) $1,715 $1,664 $1,639 $1,625 (4)% 1%
AUM at period end, by product type: (a)
Equity 14% 13% 14% 14% 14%
Fixed income 13 14 13 13 13
Index 19 18 18 19 20
Liability-driven investments (b) 34 35 34 33 32
Alternative investments 4 4 4 4 4
Cash 16 16 17 17 17
--- --- --- --- ---
Total AUM 100 % (c) 100% 100% 100% 100%
Investment Management:
----------------------
Average loans (in millions) $15,673 $15,308 $14,795 $14,275 $13,447 2% 17%
Average deposits (in millions) $15,511 $15,600 $15,518 $15,971 $15,497 (1)% - %
Investment Services:
--------------------
Average loans (in millions) $45,832 $44,329 $43,786 $45,004 $45,844 3% - %
Average deposits (in millions) $213,531 $220,316 $221,998 $215,707 $229,241 (3)% (7)%
AUC/A at period end (in trillions) (d) $29.9 (c) $30.5 $29.5 $29.1 $28.9 (2)% 3%
Market value of securities on loan at period end (in billions) (e) $296 $288 $278 $300 $277 3% 7%
Asset servicing:
----------------
Estimated new business wins (AUC/A) (in billions) $141 (c) $150 $167 $40 $49
Depositary Receipts:
--------------------
Number of sponsored programs 1,062 1,094 1,112 1,131 1,145 (3)% (7)%
Clearing services:
------------------
Average active clearing accounts (U.S. platform) (in thousands) 5,960 5,942 5,946 5,947 5,959 - % - %
Average long-term mutual fund assets (U.S. platform) (in millions) $438,460 $443,112 $431,150 $415,025 $437,260 (1)% - %
Average investor margin loans (U.S. platform) (in millions) $10,562 $10,834 $10,633 $11,063 $11,575 (3)% (9)%
Broker-Dealer:
--------------
Average tri-party repo balances (in billions) $2,307 $2,212 $2,108 $2,104 $2,153 4% 7%
-------------------------------------------- ------ ------ ------ ------ ------ --- ---
(a) Excludes securities lending cash
management assets and assets
managed in the Investment Services
business and the Other segment.
(b) Includes currency overlay assets
under management.
(c) Preliminary.
(d) 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 Dec.
31, 2016 and Sept. 30, 2016, $1.1
trillion at June 30, 2016 and March
31, 2016 and $1.0 trillion at Dec.
31, 2015.
(e) Represents the total amount of
securities on loan managed by the
Investment Services business.
Excludes securities for which BNY
Mellon acts as agent on behalf of
CIBC Mellon clients, which totaled
$63 billion at Dec. 31, 2016, $64
billion at Sept. 30, 2016, $56
billion at June 30, 2016 and March
31, 2016 and $55 billion at Dec.
31, 2015.
The following table presents key market metrics at period end and on an average basis.
Key market metrics 4Q16 vs.
4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
---- ---- ---- ---- ---- ---- ----
S&P 500 Index (a) 2239 2168 2099 2060 2044 3% 10%
S&P 500 Index - daily average 2185 2162 2075 1951 2052 1 6
FTSE 100 Index (a) 7143 6899 6504 6175 6242 4 14
FTSE 100 Index - daily average 6923 6765 6204 5988 6271 2 10
MSCI EAFE (a) 1684 1702 1608 1652 1716 (1) (2)
MSCI EAFE - daily average 1660 1677 1648 1593 1732 (1) (4)
Barclays Capital Global Aggregate BondSM Index (a)(b) 451 486 482 468 442 (7) 2
NYSE and NASDAQ share volume (in billions) 189 186 203 218 198 2 (5)
JPMorgan G7 Volatility Index - daily average (c) 10.24 10.19 11.12 10.60 9.49 - 8
Average Fed Funds effective rate 0.45% 0.39% 0.37% 0.36% 0.16% 6 bps 29 bps
Foreign exchange rates vs. U.S. dollar:
British pound (a) $1.23 $1.30 $1.34 $1.44 $1.48 (5)% (17)%
British pound - average rate 1.24 1.31 1.43 1.43 1.52 (5) (18)
Euro (a) 1.05 1.12 1.11 1.14 1.09 (6) (4)
Euro - average rate 1.08 1.12 1.13 1.10 1.10 (4) (2)
------------------- ---- ---- ---- ---- ---- --- ---
(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 4Q16 vs.
(dollars in millions) 4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
-------------------- ---- ---- ---- ---- ---- ---- ----
Investment services fees:
Asset servicing (a) $1,068 $1,067 $1,069 $1,040 $1,032 - % 3%
Clearing services 355 349 350 350 339 2 5
Issuer services 211 337 234 244 199 (37) 6
Treasury services 140 137 139 131 137 2 2
--- --- --- --- --- --- ---
Total investment services fees 1,774 1,890 1,792 1,765 1,707 (6) 4
Investment management and performance fees 848 860 830 812 864 (1) (2)
Foreign exchange and other trading revenue 161 183 182 175 173 (12) (7)
Financing-related fees 50 58 57 54 51 (14) (2)
Distribution and servicing 41 43 43 39 41 (5) -
Investment and other income 70 92 74 105 93 (24) (25)
--------------------------- --- ---
Total fee revenue 2,944 3,126 2,978 2,950 2,929 (6) 1
Net securities gains 10 24 21 20 21 N/M N/M
-------------------- --- --- --- --- --- --- ---
Total fee and other revenue $2,954 $3,150 $2,999 $2,970 $2,950 (6)% - %
--------------------------- ------ ------ ------ ------ ------ --- --- ---
(a) Asset servicing fees
include securities lending
revenue of $54 million in
4Q16, $51 million in 3Q16,
$52 million in 2Q16, $50
million in 1Q16 and $46
million in 4Q15.
N/M - Not meaningful.
KEY POINTS
-- Asset servicing fees were $1.1 billion, an increase of 3%
year-over-year. The year-over-year increase primarily reflects higher
money market fees, net new business and higher equity market values,
partially offset by the unfavorable impact of a stronger U.S. dollar and
the impact of downsizing of the UK retail transfer agency business.
-- Clearing services fees were $355 million, an increase of 5%
year-over-year and 2% sequentially. Both increases were primarily
driven by higher money market fees. The year-over-year increase was
partially offset by the impact of previously disclosed lost business.
-- Issuer services fees were $211 million, an increase of 6% year-over-year
and a decrease of 37% sequentially. The year-over-year increase
primarily reflects higher fees in Depositary Receipts and higher money
market fees in Corporate Trust. The sequential decrease primarily
reflects seasonality in Depositary Receipts.
-- Treasury services fees were $140 million, an increase of 2% both
year-over-year and sequentially. Both increases primarily resulted from
higher payment volumes. The year-over-year increase was partially
offset by higher compensating balance credits provided to clients, which
reduces fee revenue and increases net interest revenue.
-- Investment management and performance fees were $848 million, a decrease
of 2% year-over-year and 1% sequentially. The year-over-year decrease
primarily reflects the unfavorable impact of a stronger U.S. dollar
(principally versus the British pound) and lower performance fees,
partially offset by higher market values and money market fees. The
sequential decrease primarily reflects outflows of assets under
management, lower fixed income market values and money market fees,
partially offset by higher performance fees.
Foreign exchange and other trading revenue
(in millions)
-- 4Q16 3Q16 2Q16 1Q16 4Q15
---- ---- ---- ---- ----
Foreign exchange $175 $175 $166 $171 $165
Other trading revenue (loss) (14) 8 16 4 8
Total foreign exchange and other trading revenue $161 $183 $182 $175 $173
------------------------------------------------ ---- ---- ---- ---- ----
Foreign exchange and other trading revenue totaled $161 million in 4Q16 compared with $173 million in 4Q15 and $183 million in 3Q16. In 4Q16, foreign exchange revenue totaled $175 million, an increase of 6% year-over-year, primarily reflecting higher volatility.
Other trading losses were $14 million in 4Q16, compared with other trading revenue of $8 million in both 4Q15 and 3Q16. Both decreases primarily reflect the impact of interest rate hedging activities, which are offset in net interest revenue.
-- Financing-related fees were $50 million in 4Q16, compared with $51
million in 4Q15 and $58 million in 3Q16. The sequential decrease
primarily reflects lower underwriting fees.
-- Distribution and servicing fees were $41 million in 4Q16, compared with
$41 million in 4Q15 and $43 million in 3Q16. Year-over-year, higher
money market fees were offset by fees paid to introducing brokers.
-- Investment and other income
(in millions) 4Q16 3Q16 2Q16 1Q16 4Q15
------------ ---- ---- ---- ---- ----
Corporate/bank-owned life insurance $53 $34 $31 $31 $43
Expense reimbursements from joint venture 15 18 17 17 16
Seed capital gains (a) 6 16 11 11 10
Asset-related gains 1 8 1 - 5
Equity investment (losses) (2) (1) (4) (3) (2)
Lease-related gains (losses) (6) - - 44 (8)
Other income 3 17 18 5 29
--- --- --- --- ---
Total investment and other income $70 $92 $74 $105 $93
--------------------------------- --- --- --- ---- ---
(a) Excludes the gain (loss) on seed
capital investments in consolidated
investment management funds which
are reflected in operations of
consolidated investment management
funds, net of noncontrolling
interests. The gain on seed capital
investments in consolidated
investment management funds was $1
million in 4Q16, $8 million in 3Q16,
$6 million in 2Q16, $1 million in
1Q16 and $11 million in 4Q15.
Investment and other income was $70 million in 4Q16, compared with $93 million in 4Q15 and $92 million in 3Q16. The year-over-year decrease primarily reflects lower other income related to termination fees in our clearing business recorded in 4Q15, partially offset by higher income from corporate/bank-owned life insurance. The year-over-year and sequential decreases in other income also reflect the impact of increased investments in renewable energy, which generate losses in other revenue that are more than offset by tax benefits recorded to the provision for income taxes.
NET INTEREST REVENUE
Net interest revenue 4Q16 vs.
(dollars in millions) 4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
-------------------- ---- ---- ---- ---- ---- ---- ----
Net interest revenue (non-FTE) $831 $774 $767 $766 $760 7% 9%
Net interest revenue (FTE) 843 786 780 780 774 7 9
Net interest margin (FTE) 1.17% 1.06% 0.98% 1.01% 0.99% 11 bps 18 bps
Selected average balances:
Cash/interbank investments $104,352 $114,544 $137,995 $127,624 $128,328 (9)% (19)%
Trading account securities 2,288 2,176 2,152 3,320 2,786 5 (18)
Securities 117,660 118,405 118,002 118,538 119,532 (1) (2)
Loans 63,647 61,578 60,284 61,196 61,964 3 3
----- ------ ------ ------ ------ ------ --- ---
Interest-earning assets 287,947 296,703 318,433 310,678 312,610 (3) (8)
Interest-bearing deposits 145,681 155,109 165,122 162,017 160,334 (6) (9)
Noninterest-bearing deposits 82,267 81,619 84,033 82,944 85,878 1 (4)
Selected average yields/rates:
Cash/interbank investments 0.47% 0.43% 0.44% 0.43% 0.32%
Trading account securities 3.17 2.62 2.45 2.16 2.79
Securities 1.67 1.56 1.56 1.61 1.62
Loans 1.92 1.84 1.85 1.76 1.54
Interest-earning assets 1.30 1.19 1.14 1.16 1.08
Interest-bearing deposits (0.01) (0.02) 0.03 0.04 0.01
Average cash/interbank investments as a percentage of 36% 39% 43% 41% 41%
average interest-earning assets
Average noninterest-bearing deposits as a percentage of 29% 28% 26% 27% 27%
average interest-earning assets
-------------------------------
FTE - fully taxable
equivalent.
bps - basis points.
KEY POINTS
-- Net interest revenue totaled $831 million in 4Q16, an increase of $71
million year-over-year and $57 million sequentially. The year-over-year
increase was primarily driven by the increase in interest rates,
partially offset by lower interest-earning assets. Both increases
reflect the impact of interest rate hedging activities, which positively
impacted 4Q16 by approximately $25 million. Substantially all of this
impact was offset in foreign exchange and other trading revenue.
-- Effective Oct. 1, 2016, we changed our accounting method for the
amortization of premiums and accretion of discounts on certain
mortgage-backed securities from the prepayment method (also referred to
as the retrospective method) to the contractual method. Net interest
revenue for 4Q16 was positively adjusted approximately $15 million as a
result of this change. Prior periods were not adjusted as the impacts
were not material. Net interest revenue for 4Q16 would have been higher
had we continued to use the prepayment method.
-- The $25 million impact of interest rate hedging activities and the $15
million premium amortization adjustment positively impacted the 4Q16 net
interest margin by 5 basis points.
NONINTEREST EXPENSE
Noninterest expense 4Q16 vs.
(dollars in millions) 4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
-------------------- ---- ---- ---- ---- ---- ---- ----
Staff $1,395 $1,467 $1,412 $1,459 $1,481 (5)% (6)%
Professional, legal and other purchased services 325 292 290 278 328 11 (1)
Software and equipment 237 215 223 219 225 10 5
Net occupancy 153 143 152 142 148 7 3
Distribution and servicing 98 105 102 100 92 (7) 7
Business development 71 52 65 57 75 37 (5)
Sub-custodian 57 59 70 59 60 (3) (5)
Other 228 231 240 241 201 (1) 13
Amortization of intangible assets 60 61 59 57 64 (2) (6)
M&I, litigation and restructuring charges 7 18 7 17 18 N/M N/M
----------------------------------------- --- --- --- --- --- --- ---
Total noninterest expense - GAAP $2,631 $2,643 $2,620 $2,629 $2,692 - % (2)%
Total staff expense as a percentage of total revenue 37% 37% 37% 39% 40%
Memo:
-----
Total noninterest expense excluding amortization of
intangible assets and M&I, litigation and restructuring
charges - Non-GAAP $2,564 $2,564 $2,554 $2,555 $2,610 - % (2)%
-------------------------------------------------------- ------ ------ ------ ------ ------ --- --- ---
N/M - Not meaningful.
KEY POINTS
-- Total noninterest expense decreased 2% year-over-year and decreased
slightly sequentially. Total noninterest expense excluding amortization
of intangible assets and M&I, litigation and restructuring charges
(Non-GAAP) decreased 2% year-over-year and was flat sequentially.
-- The year-over-year decrease primarily reflects lower staff expense and
M&I, litigation and restructuring charges, partially offset by higher
other and software and equipment expenses. The decrease in staff
expense year-over-year was primarily driven by the favorable impact of a
stronger U.S. dollar, lower employee benefits and severance expense.
The increase in other expense primarily reflects a downward adjustment
in bank assessment charges recorded in 4Q15.
-- The sequential decrease primarily reflects lower staff expense and M&I,
litigation and restructuring charges, partially offset by higher
professional, legal and other purchased services, software and equipment
and business development expenses. The decrease in staff expense was
primarily due to lower incentives and severance expenses. The increase
in professional, legal and other purchased services primarily reflects
higher regulatory compliance costs.
INVESTMENT SECURITIES PORTFOLIO
At Dec. 31, 2016, the fair value of our investment securities portfolio totaled $114.3 billion. The net unrealized pre-tax loss on our total securities portfolio was $221 million at Dec. 31, 2016 compared with a net unrealized pre-tax gain of $1.4 billion at Sept. 30, 2016. The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates. At Dec. 31, 2016, the fair value of the held-to-
maturity securities totaled $40.7 billion and represented 36% of the fair value of the total investment securities portfolio.
The following table shows the distribution of our investment securities portfolio.
Investment securities Sept. 30, 2016 4Q16 Dec. 31, 2016 Fair value Unrealized Ratings
portfolio
change in as a % of
amortized gain (loss)
unrealized cost (a)
gain (loss)
(dollars in millions)
--------------------
BB+
and
lower
-----
Fair Amortized Fair AAA/ A+/ BBB+/ Not
value cost value AA- A- BBB- rated
----- ---- ----- --- --- ---- -----
Agency RMBS $48,987 $(924) $48,150 $47,715 99% $(435) 100% - % - % - % - %
U.S. Treasury 25,135 (269) 25,490 25,244 99 (246) 100 - - - -
Sovereign debt/sovereign guaranteed 15,998 (94) 14,159 14,373 102 214 75 5 20 - -
Non-agency RMBS (b) 1,463 (20) 1,080 1,357 80 277 - 1 2 87 10
Non-agency RMBS 757 4 698 718 94 20 8 4 15 72 1
European floating rate notes 851 7 717 706 98 (11) 68 24 8 - -
Commercial MBS 7,310 (143) 8,106 8,037 99 (69) 98 2 - - -
State and political subdivisions 3,578 (99) 3,411 3,396 100 (15) 80 17 - - 3
Foreign covered bonds 2,433 (22) 2,200 2,216 101 16 100 - - - -
Corporate bonds 1,638 (48) 1,391 1,396 100 5 18 67 15 - -
CLOs 2,534 1 2,593 2,598 100 5 100 - - - -
U.S. Government agencies 1,808 21 1,955 1,964 101 9 100 - - - -
Consumer ABS 2,203 (3) 1,729 1,727 100 (2) 90 4 5 1 -
Other (c) 3,961 (19) 2,822 2,833 100 11 83 - 14 - 3
----- --- -----
Total investment securities $118,656 (d) $(1,608) $114,501 $114,280 (d) 99% $(221) (d)(e) 93% 2% 3% 2% - %
--------------------------- -------- --- ------- -------- -------- --- --- ----- ----- --- --- --- --- --- ---
(a) Amortized cost before impairments.
(b) These RMBS were included in the former
Grantor Trust and were marked-to-
market in 2009. We believe these RMBS
would receive higher credit ratings if
these ratings incorporated, as
additional credit enhancements, the
difference between the written-down
amortized cost and the current face
amount of each of these securities.
(c) Includes commercial paper with a fair
value of $1,503 million and $401
million and money market funds with a
fair value of $931 million and $842
million at Sept. 30, 2016 and Dec. 31,
2016, respectively.
(d) Includes net unrealized losses on
derivatives hedging securities
available-for-sale of $1,001 million
at Sept. 30, 2016 and $211 million at
Dec. 31, 2016.
(e) Unrealized gains of $15 million at Dec.
31, 2016 related to available-for-
sale securities.
NONPERFORMING ASSETS
Nonperforming assets Dec. 31, Sept. 30, Dec. 31,
2016 2015
(dollars in millions) 2016
-------------------- ----
Loans:
Financial institutions $ - $ - $171
Other residential
mortgages 91 93 102
Wealth management loans
and mortgages 8 7 11
Lease financing 4 4 -
Commercial real estate - 1 2
Total nonperforming loans 103 105 286
Other assets owned 4 4 6
--- ---
Total nonperforming assets $107 $109 $292
-------------------------- ---- ---- ----
Nonperforming assets ratio 0.17% 0.17% 0.46%
Allowance for loan losses/
nonperforming loans 164.1 141.0 54.9
Total allowance for credit
losses/nonperforming
loans 272.8 261.0 96.2
-------------------------- ----- ----- ----
Nonperforming assets were $107 million at Dec. 31, 2016, a decrease of $2 million compared with Sept. 30, 2016, and a decrease of $185 million compared with Dec. 31, 2015. The decrease compared with Dec. 31, 2015 primarily reflects the receipt of trust assets from the bankruptcy proceeding of Sentinel.
ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS
Allowance for credit
losses, provision and
net charge-offs Dec. 31, Sept. 30, Dec. 31,
2016 2015
(in millions) 2016
------------ ----
Allowance for credit
losses -beginning of
period $274 $280 $280
Provision for credit
losses 7 (19) 163
Net recoveries
(charge-offs):
Financial institutions - 13 (170)
Other residential
mortgages - - 2
----------------- --- --- ---
Net recoveries
(charge-offs) - 13 (168)
-------------- --- --- ----
Allowance for credit
losses -end of
period $281 $274 $275
-------------------- ---- ---- ----
Allowance for loan
losses $169 $148 $157
Allowance for lending-
related commitments 112 126 118
---------------------- --- --- ---
The allowance for credit losses was $281 million at Dec. 31, 2016, an increase of $7 million compared with $274 million at Sept. 30, 2016.
CAPITAL AND LIQUIDITY
Capital ratios Dec. 31, Sept. 30, Dec. 31,
2016 2015
2016
--- ----
Consolidated regulatory capital
ratios: (a)
Standardized:
Common equity Tier 1 ("CET1")
ratio 12.3% 12.2% 11.5%
Tier 1 capital ratio 14.5 14.4 13.1
Total (Tier 1 plus Tier 2)
capital ratio 15.2 14.8 13.5
Advanced:
CET1 ratio 10.6 10.5 10.8
Tier 1 capital ratio 12.6 12.5 12.3
Total (Tier 1 plus Tier 2)
capital ratio 13.0 12.6 12.5
Leverage capital ratio (b) 6.6 6.6 6.0
Supplementary leverage ratio
("SLR") 6.0 6.0 5.4
---------------------------- --- --- ---
BNY Mellon shareholders' equity
to total assets ratio - GAAP
(c) 11.6 10.6 9.7
BNY Mellon common shareholders'
equity to total assets ratio -
GAAP (c) 10.6 9.7 9.0
BNY Mellon tangible common
shareholders' equity to
tangible assets of operations
ratio - Non-GAAP (c) 6.7 6.5 6.5
Selected regulatory capital
ratios - fully phased-in -
Non-GAAP: (a)(d)
CET1 ratio:
Standardized Approach 11.3% 11.4% 10.2%
Advanced Approach 9.7 9.8 9.5
SLR 5.6 5.7 4.9
--- --- --- ---
(a) Regulatory capital ratios for Dec. 31,
2016 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) See "Supplemental information -
Explanation of GAAP and Non-GAAP
financial measures" beginning on page
24 for a reconciliation of these
ratios.
(d) Estimated.
CET1 generation in 4Q16 -
preliminary Transitional Fully
basis (b) phased-in -
Non-GAAP (c)
-----------
(in millions)
CET1 - Beginning of period $18,559 $17,159
Net income applicable to
common shareholders of
The Bank of New York
Mellon Corporation - GAAP 822 822
Goodwill and intangible
assets, net of related
deferred tax liabilities 191 215
------------------------- --- ---
Gross CET1 generated 1,013 1,037
Capital deployed:
Dividends (203) (203)
Common stock repurchased (848) (848)
------------------------ ---- ----
Total capital deployed (1,051) (1,051)
Other comprehensive income (752) (980)
Additional paid-in
capital (a) 325 325
Other (1) -
Total other deductions (428) (655)
---------------------- ---- ----
Net CET1 generated (466) (669)
---- ----
CET1 - End of period $18,093 $16,490
-------------------- ------- -------
(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 Dec. 31, 2016 (a) Sept. 30, 2016 Dec. 31, 2015
-------------- -------------
(dollars in millions) Transitional Fully Transitional Fully Transitional Fully
basis (b) phased-in -
Non-GAAP (c) basis (b) phased-in - basis (b) phased-in -
Non-GAAP (c) Non-GAAP (c)
--- ----------- -----------
CET1:
Common shareholders' equity $35,794 $35,269 $36,450 $36,153 $36,067 $35,485
Goodwill and intangible assets (17,314) (18,312) (17,505) (18,527) (17,295) (18,911)
Net pension fund assets (54) (90) (56) (94) (46) (116)
Equity method investments (313) (344) (314) (347) (296) (347)
Deferred tax assets (19) (32) (15) (25) (8) (20)
Other (1) (1) (1) (1) (5) (9)
----- --- --- --- --- --- ---
Total CET1 18,093 16,490 18,559 17,159 18,417 16,082
Other Tier 1 capital:
Preferred stock 3,542 3,542 3,542 3,542 2,552 2,552
Trust preferred securities - - - - 74 -
Deferred tax assets (13) - (10) - (12) -
Net pension fund assets (36) - (38) - (70) -
Other (121) (121) (110) (109) (25) (22)
----- ---- ---- ---- ---- --- ---
Total Tier 1 capital 21,465 19,911 21,943 20,592 20,936 18,612
Tier 2 capital:
Trust preferred securities 148 - 156 - 222 -
Subordinated debt 550 550 149 149 149 149
Allowance for credit losses 281 281 274 274 275 275
Other (12) (11) (6) (6) (12) (12)
----- --- --- --- --- --- ---
Total Tier 2 capital - Standardized 967 820 573 417 634 412
Approach
Excess of expected credit losses 61 61 33 33 37 37
Less: Allowance for credit losses 281 281 274 274 275 275
--------------------------------- --- --- --- --- --- ---
Total Tier 2 capital - Advanced $747 $600 $332 $176 $396 $174
Approach
--------
Total capital:
Standardized Approach $22,432 $20,731 $22,516 $21,009 $21,570 $19,024
Advanced Approach $22,212 $20,511 $22,275 $20,768 $21,332 $18,786
Risk-weighted assets:
Standardized Approach $147,581 $146,392 $152,410 $151,173 $159,893 $158,015
Advanced Approach $170,519 $169,259 $176,232 $174,912 $170,384 $168,509
Standardized Approach:
CET1 ratio 12.3% 11.3% 12.2% 11.4% 11.5% 10.2%
Tier 1 capital ratio 14.5 13.6 14.4 13.6 13.1 11.8
Total (Tier 1 plus Tier 2) capital ratio 15.2 14.2 14.8 13.9 13.5 12.0
Advanced Approach:
CET1 ratio 10.6% 9.7% 10.5% 9.8% 10.8% 9.5%
Tier 1 capital ratio 12.6 11.8 12.5 11.8 12.3 11.0
Total (Tier 1 plus Tier 2) capital ratio 13.0 12.1 12.6 11.9 12.5 11.1
---------------------------------------- ---- ---- ---- ---- ---- ----
(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 ("SLR")
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 Dec. 31, 2016 (a) Sept. 30, 2016 Dec. 31, 2015
(dollars in millions) Transitional Fully Transitional Fully Transitional
basis basis Fully
basis phased-in - phased-in -
Non-GAAP (b) Non-GAAP (b) phased-in -
Non-GAAP (b)
--- -----------
Consolidated:
Tier 1 capital $21,465 $19,911 $21,943 $20,592 $20,936 $18,612
Total leverage exposure:
Quarterly average total assets $344,142 $344,142 $351,230 $351,230 $368,590 $368,590
Less: Amounts deducted from Tier 1 capital 17,562 18,886 17,743 19,095 17,650 19,403
------------------------------------------ ------ ------ ------ ------ ------ ------
Total on-balance sheet assets 326,580 325,256 333,487 332,135 350,940 349,187
Off-balance sheet exposures:
Potential future exposure for derivatives
contracts (plus certain other items) 6,021 6,021 6,149 6,149 7,158 7,158
Repo-style transaction exposures 533 533 447 447 440 440
Credit-equivalent amount of other off-balance
sheet exposures (less SLR exclusions) 23,274 23,274 23,571 23,571 26,025 26,025
Total off-balance sheet exposures 29,828 29,828 30,167 30,167 33,623 33,623
Total leverage exposure $356,408 $355,084 $363,654 $362,302 $384,563 $382,810
SLR - Consolidated (c) 6.0% 5.6% 6.0% 5.7% 5.4% 4.9%
The Bank of New York Mellon, our largest bank
subsidiary:
Tier 1 capital $19,019 $17,715 $18,701 $17,592 $16,814 $15,142
Total leverage exposure $290,623 $290,230 $299,641 $299,236 $316,812 $316,270
SLR - The Bank of New York Mellon (c) 6.5% 6.1% 6.2% 5.9% 5.3% 4.8%
------------------------------------ --- --- --- --- --- ---
(a) Dec. 31, 2016 information is
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 effective Jan. 1, 2015 and require BNY Mellon to meet an LCR of 100% when fully phased-in on Jan. 1, 2017. Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of Dec. 31, 2016. Our consolidated HQLA before haircuts totaled $156 billion at Dec. 31, 2016, compared with $195 billion at Sept. 30, 2016 and $218 billion at Dec. 31, 2015.
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) 4Q16 vs.
--------------------------------------------
4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
---- ---- ---- ---- ---- ---- ----
Revenue:
Investment management fees:
Mutual funds $297 $309 $304 $300 $294 (4)% 1%
Institutional clients 340 362 344 334 350 (6) (3)
Wealth management 164 166 160 152 155 (1) 6
----------------- --- --- --- --- --- --- ---
Investment management fees (a) 801 837 808 786 799 (4) -
Performance fees 32 8 9 11 55 N/M (42)
--- --- --- ---
Investment management and performance fees 833 845 817 797 854 (1) (2)
Distribution and servicing 48 49 49 46 39 (2) 23
Other (a) (1) (18) (10) (31) 22 N/M N/M
-------- --- --- --- --- --- ---
Total fee and other revenue (a) 880 876 856 812 915 - (4)
Net interest revenue 80 82 82 83 84 (2) (5)
-------------------- --- --- --- --- --- --- ---
Total revenue 960 958 938 895 999 - (4)
Provision for credit losses 6 - 1 (1) (4) N/M N/M
Noninterest expense (ex. amortization of intangible assets) 672 680 684 660 689 (1) (2)
Amortization of intangible assets 22 22 19 19 24 - (8)
--------------------------------- --- --- --- --- --- --- ---
Total noninterest expense 694 702 703 679 713 (1) (3)
------------------------- --- --- --- --- --- --- ---
Income before taxes $260 $256 $234 $217 $290 2% (10)%
------------------- ---- ---- ---- ---- ---- --- ----
Income before taxes (ex. amortization of intangible assets) - Non-GAAP $282 $278 $253 $236 $314 1% (10)%
---------------------------------------------------------------------- ---- ---- ---- ---- ---- --- ----
Pre-tax operating margin 27% 27% 25% 24% 29%
Adjusted pre-tax operating margin - Non-GAAP (b) 33% 33% 30% 30% 34%
Changes in AUM (in billions): (c)
Beginning balance of AUM $1,715 $1,664 $1,639 $1,625 $1,625
Net inflows (outflows):
Long-term strategies:
Equity (4) (3) (2) (3) (9)
Fixed income (1) - (2) - 1
Liability-driven investments (d) (7) 4 15 14 11
Alternative investments 2 2 1 1 2
--- --- --- --- ---
Total long-term active strategies (outflows) inflows (10) 3 12 12 5
Index (1) (2) (17) (11) (16)
Total long-term strategies (outflows) inflows (11) 1 (5) 1 (11)
Short term strategies:
Cash (3) (1) 4 (9) 2
---- --- --- --- --- ---
Total net (outflows) (14) - (1) (8) (9)
Net market impact/other (11) 80 71 41 24
Net currency impact (42) (29) (47) (19) (15)
Acquisition - - 2 - -
--- --- --- --- ---
Ending balance of AUM $1,648 (e) $1,715 $1,664 $1,639 $1,625 (4)% 1%
AUM at period end, by product type: (c)
Equity 14% 13% 14% 14% 14%
Fixed income 13 14 13 13 13
Index 19 18 18 19 20
Liability-driven investments (d) 34 35 34 33 32
Alternative investments 4 4 4 4 4
Cash 16 16 17 17 17
--- --- --- --- ---
Total AUM 100% (e) 100% 100% 100% 100%
Average balances:
Average loans $15,673 $15,308 $14,795 $14,275 $13,447 2% 17%
Average deposits $15,511 $15,600 $15,518 $15,971 $15,497 (1)% - %
---------------- ------- ------- ------- ------- ------- --- --- ---
(a) Total fee and other revenue includes
the impact of the consolidated
investment management funds, net of
noncontrolling interests. See page
28 for a breakdown of the revenue
line items in the Investment
Management business impacted by the
consolidated investment management
funds. Additionally, other revenue
includes asset servicing, treasury
services, foreign exchange and other
trading revenue and investment and
other income.
(b) Excludes amortization of intangible
assets, provision for credit losses
and distribution and servicing
expense. See "Supplemental
information - Explanation of GAAP and
Non-GAAP financial measures"
beginning on page 24 for the
reconciliation of this Non-GAAP
measure.
(c) Excludes securities lending cash
management assets and assets managed
in the Investment Services business
and the Other segment.
(d) Includes currency overlay assets
under management.
(e) Preliminary.
N/M - Not meaningful.
INVESTMENT MANAGEMENT KEY POINTS
-- Income before taxes totaled $260 million in 4Q16, a decrease of 10%
year-over-year and an increase of 2% sequentially. Income before taxes,
excluding amortization of intangible assets (Non-GAAP), totaled $282
million in 4Q16, a decrease of 10% year-over-year and an increase of 1%
sequentially.
-- Pre-tax operating margin of 27% in 4Q16 decreased 197 basis points
year-over-year and increased 41 basis points sequentially.
-- Adjusted pre-tax operating margin (Non-GAAP) of 33% in 4Q16
decreased 85 basis points year-over-year and increased 83 basis
points sequentially.
-- Total revenue was $960 million, a decrease of 4% year-over-year and a
slight increase sequentially.
-- 42% non-U.S. revenue in 4Q16 vs. 42% in 4Q15.
-- Investment management fees were $801 million, a slight increase
year-over-year and a decrease of 4% sequentially. The year-over-year
increase primarily reflects higher market values and money market fees,
partially offset by the unfavorable impact of a stronger U.S. dollar
(principally versus the British pound). The sequential decrease
primarily reflects outflows of assets under management, lower fixed
income market values and money market fees.
-- Net long-term outflows of $11 billion in 4Q16 were a combination of
$10 billion of outflows from actively managed strategies and $1
billion of outflows from index strategies.
-- Net short-term outflows were $3 billion in 4Q16.
-- Performance fees were $32 million in 4Q16 compared with $55 million in
4Q15 and $8 million in 3Q16. The sequential increase was driven by
seasonality.
-- Distribution and servicing fees were $48 million in 4Q16 compared with
$39 million in 4Q15 and $49 million in 3Q16. The year-over-year
increase primarily reflects higher money market fees.
-- Other revenue was a loss of $1 million in 4Q16 compared with other
revenue of $22 million in 4Q15 and a loss of $18 million in 3Q16. The
year-over-year decrease reflects payments to Investment Services related
to higher money market fees and lower seed capital gains, partially
offset by gains on investments. The sequential increase primarily
reflects gains on hedging activity and investments, as well as losses on
investments recorded in 3Q16, partially offset by lower seed capital
gains.
-- Net interest revenue decreased 5% year-over-year and 2% sequentially.
The year-over-year decrease primarily reflects the impact of the 1Q16
changes in the internal crediting rates, partially offset by record
average loans and higher rates on deposits.
-- Average loans increased 17% year-over-year and 2% sequentially;
average deposits increased slightly year-over-year and decreased 1%
sequentially. The increases in average loans were driven by our
program to extend banking solutions to high net worth clients.
-- Total noninterest expense (excluding amortization of intangible assets)
decreased 2% year-over-year and 1% sequentially. The year-over-year
decrease was primarily driven by the favorable impact of a stronger U.S.
dollar (principally versus the British pound) and lower professional,
legal and other purchased services and lower staff expense, partially
offset by higher distribution and servicing expense as a result of lower
money market fee waivers. The sequential decrease primarily reflects
lower severance expense, partially offset by higher other expenses.
INVESTMENT SERVICES provides business and technology solutions to financial institutions, corporations, public funds and government agencies, including: asset servicing (custody, accounting, broker-dealer services, securities lending, 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) 4Q16 vs.
--------------------------------------------
4Q16 3Q16 2Q16 1Q16 4Q15 3Q16 4Q15
---- ---- ---- ---- ---- ---- ----
Revenue:
Investment services fees:
Asset servicing $1,043 $1,039 $1,043 $1,016 $1,009 - % 3%
Clearing services 354 347 350 348 337 2 5
Issuer services 211 336 233 244 199 (37) 6
Treasury services 139 136 137 129 135 2 3
--- --- --- --- --- --- ---
Total investment services fees 1,747 1,858 1,763 1,737 1,680 (6) 4
Foreign exchange and other trading revenue 157 177 161 168 150 (11) 5
Other (a) 128 148 130 125 127 (14) 1
--- --- --- --- --- --- ---
Total fee and other revenue 2,032 2,183 2,054 2,030 1,957 (7) 4
Net interest revenue 713 715 690 679 664 - 7
--- --- --- --- --- --- ---
Total revenue 2,745 2,898 2,744 2,709 2,621 (5) 5
Provision for credit losses - 1 (7) 14 8 N/M N/M
Noninterest expense (ex. amortization of intangible assets) 1,786 1,812 1,819 1,770 1,791 (1) -
Amortization of intangible assets 38 39 40 38 40 (3) (5)
--------------------------------- --- --- --- --- --- --- ---
Total noninterest expense 1,824 1,851 1,859 1,808 1,831 (1) -
------------------------- ----- ----- ----- ----- ----- --- ---
Income before taxes $921 $1,046 $892 $887 $782 (12)% 18%
---- ------ ---- ---- ---- ---- ---
Income before taxes (ex. amortization of intangible assets) - Non-GAAP $959 $1,085 $932 $925 $822 (12)% 17%
---------------------------------------------------------------------- ---- ------ ---- ---- ---- ---- ---
Pre-tax operating margin 34% 36% 33% 33% 30%
Adjusted pre-tax operating margin (ex. provision for credit losses and
amortization of intangible assets) - Non-GAAP 35% 37% 34% 35% 32%
Investment services fees as a percentage of noninterest expense (ex. amortization
of intangible assets) 98% 103% 97% 98% 94%
Securities lending revenue $44 $42 $42 $42 $39 5% 13%
Metrics:
--------
Average loans $45,832 $44,329 $43,786 $45,004 $45,844 3% - %
Average deposits $213,531 $220,316 $221,998 $215,707 $229,241 (3)% (7)%
AUC/A at period end (in trillions) (b) $29.9 (c) $30.5 $29.5 $29.1 $28.9 (2)% 3%
Market value of securities on loan at period end (in billions) (d) $296 $288 $278 $300 $277 3% 7%
Asset servicing:
----------------
Estimated new business wins (AUC/A) (in billions) $141 (c) $150 $167 $40 $49
Depositary Receipts:
--------------------
Number of sponsored programs 1,062 1,094 1,112 1,131 1,145 (3)% (7)%
Clearing services:
------------------
Average active clearing accounts (U.S. platform) 5,960 5,942 5,946 5,947 5,959 - % - %
(in thousands)
Average long-term mutual fund assets (U.S. platform) $438,460 $443,112 $431,150 $415,025 $437,260 (1)% - %
Average investor margin loans (U.S. platform) $10,562 $10,834 $10,633 $11,063 $11,575 (3)% (9)%
Broker-Dealer:
--------------
Average tri-party repo balances (in billions) $2,307 $2,212 $2,108 $2,104 $2,153 4% 7%
-------------------------------------------- ------ ------ ------ ------ ------ --- ---
(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
of $1.2 trillion at Dec. 31, 2016
and Sept. 30, 2016, $1.1 trillion
at June 30, 2016 and March 31,
2016 and $1.0 trillion at Dec.
31, 2015.
(c) Preliminary.
(d) Represents the total amount of
securities on loan managed by the
Investment Services business.
Excludes securities for which BNY
Mellon acts as agent on behalf of
CIBC Mellon clients, which totaled
$63 billion at Dec. 31, 2016, $64
billion at Sept. 30, 2016, $56
billion at June 30, 2016 and March
31, 2016 and $55 billion at Dec.
31, 2015.
N/M - Not meaningful.
INVESTMENT SERVICES KEY POINTS
-- Income before taxes totaled $921 million in 4Q16. Income before taxes,
excluding amortization of intangible assets (Non-GAAP), totaled $959
million in 4Q16.
-- The pre-tax operating margin was 34% in 4Q16. The pre-tax operating
margin, excluding the provision for credit losses and amortization
of intangible assets (Non-GAAP), was 35% in 4Q16 and the investment
services fees as a percentage of noninterest expense (excluding
amortization of intangible assets) was 98% in 4Q16, reflecting the
continued focus on the business improvement process to drive
operating leverage.
-- Investment services fees were $1.7 billion, an increase of 4%
year-over-year and a decrease of 6% sequentially.
-- Asset servicing fees were $1.043 billion in 4Q16 compared with
$1.009 billion in 4Q15 and $1.039 billion in 3Q16. The
year-over-year increase primarily reflects higher money market fees,
net new business and higher equity market values, partially offset
by the unfavorable impact of a stronger U.S. dollar and the impact
of downsizing of the UK retail transfer agency business.
-- Estimated new business wins (AUC/A) in Asset Servicing of $141
billion in 4Q16.
-- Clearing services fees were $354 million in 4Q16 compared with $337
million in 4Q15 and $347 million in 3Q16. Both increases were
primarily driven by higher money market fees. The year-over-year
increase was partially offset by the impact of previously disclosed
lost business.
-- Issuer services fees were $211 million in 4Q16 compared with $199
million in 4Q15 and $336 million in 3Q16. The year-over-year
increase primarily reflects higher fees in Depositary Receipts and
higher money market fees in Corporate Trust. The sequential
decrease primarily reflects seasonality in Depositary Receipts.
-- Treasury services fees were $139 million in 4Q16 compared with $135
million in 4Q15 and $136 million in 3Q16. Both increases primarily
resulted from higher payment volumes. The year-over-year increase
was 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 was $157 million in 4Q16
compared with $150 million in 4Q15 and $177 million in 3Q16. The
year-over-year increase primarily reflects higher volatility. The
sequential decrease primarily reflects lower Depositary Receipt-related
foreign exchange activity, partially offset by higher volatility.
-- Other revenue was $128 million in 4Q16 compared with $127 million in
4Q15 and $148 million in 3Q16. Year-over-year, increased payments from
Investment Management related to higher money market fees were offset by
termination fees related to lost business in our clearing services
business recorded in 4Q15 and certain fees paid to introducing brokers.
The sequential decrease primarily reflects termination fees related to
lost business in our clearing services business in 3Q16.
-- Net interest revenue was $713 million in 4Q16 compared with $664 million
in 4Q15 and $715 million in 3Q16. The year-over-year increase primarily
reflects the impact of the higher short-term rates on lower balances.
-- Noninterest expense (excluding amortization of intangible assets) was
$1.786 billion in 4Q16 compared with $1.791 billion in 4Q15 and $1.812
billion in 3Q16. Both decreases primarily reflect lower incentive and
litigation expense. The year-over-year decrease also reflects lower
severance and temporary services expenses. The sequential decrease was
partially offset by higher software expense.
OTHER SEGMENT primarily includes leasing operations, certain corporate treasury activities, derivatives, global markets, business exits and other corporate revenue and expense items.
(dollars in millions) 4Q16 3Q16 2Q16 1Q16 4Q15
-------------------- ---- ---- ---- ---- ----
Revenue:
Fee and other revenue $42 $100 $95 $129 $89
Net interest revenue (expense) 38 (23) (5) 4 12
----------------------------- --- --- --- --- ---
Total revenue 80 77 90 133 101
Provision for credit losses 1 (20) (3) (3) 159
Noninterest expense (ex. amortization of intangible assets and M&I and
restructuring charges (recoveries)) 108 88 53 141 150
Amortization of intangible assets - - - - -
M&I and restructuring charges (recoveries) 2 - 3 (1) (4)
----------------------------------------- --- --- --- --- ---
Total noninterest expense 110 88 56 140 146
------------------------- --- --- --- --- ---
(Loss) income before taxes $(31) $9 $37 $(4) $(204)
---- --- --- --- -----
(Loss) income before taxes (ex. amortization of intangible assets and M&I and
restructuring charges (recoveries)) - Non-GAAP $(29) $9 $40 $(5) $(208)
----------------------------------------------------------------------------- ---- --- --- --- -----
Average loans and leases $2,142 $1,941 $1,703 $1,917 $2,673
------------------------ ------ ------ ------ ------ ------
KEY POINTS
-- Total fee and other revenue decreased $47 million compared with 4Q15 and
$58 million compared with 3Q16. Both decreases primarily reflect the
negative impact of interest rate hedging activities, which are offset in
net interest revenue. Both decreases also reflect lower net securities
gains and investment and other income.
-- Net interest revenue increased $26 million compared with 4Q15 and $61
million compared with 3Q16. Both increases were driven by the positive
impact of interest rate hedging activities. Substantially all of this
impact was offset in fee and other revenue. The sequential increase
also reflects approximately $15 million related to the premium
amortization adjustment, partially offset by the results of the leasing
portfolio.
-- The provision for credit losses was $1 million in 4Q16, compared with
$159 million in 4Q15 and a credit of $20 million in 3Q16.
-- Noninterest expense (excluding amortization of intangible assets and M&I
and restructuring charges (recoveries)) decreased $42 million compared
with 4Q15 and increased $20 million compared with 3Q16. The
year-over-year decrease primarily reflects lower staff expense. The
sequential increase was primarily driven by higher professional, legal
and other purchased services and software expense.
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
(in millions) Quarter ended Year-to-date
------------
Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31,
2016 2016 2015 2016 2015
---- ---- ---- ---- ----
Fee and other revenue
Investment services fees:
Asset servicing $1,068 $1,067 $1,032 $4,244 $4,187
Clearing services 355 349 339 1,404 1,375
Issuer services 211 337 199 1,026 978
Treasury services 140 137 137 547 555
----------------- --- --- ---
Total investment services fees 1,774 1,890 1,707 7,221 7,095
Investment management and performance fees 848 860 864 3,350 3,438
Foreign exchange and other trading revenue 161 183 173 701 768
Financing-related fees 50 58 51 219 220
Distribution and servicing 41 43 41 166 162
Investment and other income 70 92 93 341 316
--------------------------- --- --- ---
Total fee revenue 2,944 3,126 2,929 11,998 11,999
Net securities gains 10 24 21 75 83
-------------------- --- --- --- --- ---
Total fee and other revenue 2,954 3,150 2,950 12,073 12,082
Operations of consolidated investment management funds
Investment income 8 20 19 35 115
Interest of investment management fund note holders 3 3 3 9 29
--------------------------------------------------- --- --- --- --- ---
Income from consolidated investment management funds 5 17 16 26 86
Net interest revenue
Interest revenue 928 874 834 3,575 3,326
Interest expense 97 100 74 437 300
---------------- --- --- --- --- ---
Net interest revenue 831 774 760 3,138 3,026
--------------------
Total revenue 3,790 3,941 3,726 15,237 15,194
Provision for credit losses 7 (19) 163 (11) 160
Noninterest expense
Staff 1,395 1,467 1,481 5,733 5,837
Professional, legal and other purchased services 325 292 328 1,185 1,230
Software and equipment 237 215 225 894 907
Net occupancy 153 143 148 590 600
Distribution and servicing 98 105 92 405 381
Sub-custodian 57 59 60 245 270
Business development 71 52 75 245 267
Other 228 231 201 940 961
Amortization of intangible assets 60 61 64 237 261
M&I, litigation and restructuring charges 7 18 18 49 85
--- --- ---
Total noninterest expense 2,631 2,643 2,692 10,523 10,799
------------------------- ----- ----- ----- ------ ------
Income
Income before income taxes 1,152 1,317 871 4,725 4,235
Provision for income taxes 280 324 175 1,177 1,013
-------------------------- --- --- --- ----- -----
Net income 872 993 696 3,548 3,222
Net (income) attributable to noncontrolling interests (includes $(4), $(9), $(5),
$(10) and $(68) related to consolidated investment management funds, respectively) (2) (6) (3) (1) (64)
----------------------------------------------------------------------------------- --- --- --- --- ---
Net income applicable to shareholders of The Bank of New York Mellon Corporation 870 987 693 3,547 3,158
Preferred stock dividends (48) (13) (56) (122) (105)
------------------------- --- --- --- ---- ----
Net income applicable to common shareholders of The Bank of New York Mellon
Corporation $822 $974 $637 $3,425 $3,053
--------------------------------------------------------------------------- ---- ---- ---- ------ ------
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
York Mellon Corporation used for the earnings per share calculation
Dec. 31, 2016 Sept. 30,
2016 Dec. 31, 2015 Dec. 31, Dec. 31,
2016 2015
---- ----
(in millions)
Net income applicable to common shareholders of The Bank of New York $822 $974 $637 $3,425 $3,053
Mellon Corporation
Less: Earnings allocated to participating securities 13 15 9 52 43
Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and
diluted earnings per common share $809 $959 $628 $3,373 $3,010
------------------------------------------------------------------------------------------------------------------------------------------------------- ---- ---- ---- ------ ------
Average common shares and equivalents outstanding of The Bank of Quarter ended Year-to-date
New York Mellon Corporation
Dec. 31, 2016 Sept. 30,
2016 Dec. 31, 2015 Dec. 31, Dec. 31,
2016 2015
---- ----
(in thousands)
Basic 1,050,888 1,062,248 1,088,880 1,066,286 1,104,719
Diluted 1,056,818 1,067,682 1,096,385 1,072,013 1,112,511
------- --------- --------- --------- --------- ---------
Earnings per share applicable to the common shareholders of The Bank Quarter ended Year-to-date
of New York Mellon Corporation
Dec. 31, 2016 Sept. 30,
2016 Dec. 31, 2015 Dec. 31, Dec. 31,
2016 2015
---- ----
(in dollars)
Basic $0.77 $0.90 $0.58 $3.16 $2.73
Diluted $0.77 $0.90 $0.57 $3.15 $2.71
------- ----- ----- ----- ----- -----
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
(dollars in millions, except per share amounts) Dec. 31, Sept. 30, Dec. 31,
2016 2016 2015
--- ---- ---- ----
Assets
Cash and due from:
Banks $4,822 $4,957 $6,537
Interest-bearing deposits with the Federal Reserve and other central banks 58,041 80,359 113,203
Interest-bearing deposits with banks 15,086 14,416 15,146
Federal funds sold and securities purchased under resale agreements 25,801 34,851 24,373
Securities:
Held-to-maturity (fair value of $40,669, $41,387 and $43,204) 40,905 40,728 43,312
Available-for-sale 73,822 78,270 75,867
------------------ ------ ------ ------
Total securities 114,727 118,998 119,179
Trading assets 5,733 5,340 7,368
Loans 64,458 65,997 63,703
Allowance for loan losses (169) (148) (157)
------------------------- ---- ---- ----
Net loans 64,289 65,849 63,546
Premises and equipment 1,303 1,338 1,379
Accrued interest receivable 568 522 562
Goodwill 17,316 17,449 17,618
Intangible assets 3,598 3,671 3,842
Other assets 20,954 25,355 19,626
------------ ------ ------ ------
Subtotal assets of operations 332,238 373,105 392,379
Assets of consolidated investment management funds, at fair value:
Trading assets 979 873 1,228
Other assets 252 136 173
------------ --- --- ---
Subtotal assets of consolidated investment management funds, at fair value 1,231 1,009 1,401
-------------------------------------------------------------------------- ----- ----- -----
Total assets $333,469 $374,114 $393,780
------------ -------- -------- --------
Liabilities
Deposits:
Noninterest-bearing (principally U.S. offices) $78,342 $105,632 $96,277
Interest-bearing deposits in U.S. offices 52,049 56,713 51,704
Interest-bearing deposits in Non-U.S. offices 91,099 99,033 131,629
--------------------------------------------- ------ ------ -------
Total deposits 221,490 261,378 279,610
Federal funds purchased and securities sold under repurchase agreements 9,989 8,052 15,002
Trading liabilities 4,389 4,154 4,501
Payables to customers and broker-dealers 20,987 21,162 21,900
Other borrowed funds 754 993 523
Accrued taxes and other expenses 5,867 5,687 5,986
Other liabilities (includes allowance for lending-related commitments of $112, $126 and
$118) 5,635 7,709 5,490
Long-term debt 24,463 24,374 21,547
-------------- ------ ------ ------
Subtotal liabilities of operations 293,574 333,509 354,559
Liabilities of consolidated investment management funds, at fair value:
Trading liabilities 282 219 229
Other liabilities 33 13 17
----------------- --- --- ---
Subtotal liabilities of consolidated investment management funds, at fair value 315 232 246
------------------------------------------------------------------------------- --- --- ---
Total liabilities 293,889 333,741 354,805
Temporary equity
Redeemable noncontrolling interests 151 178 200
Permanent equity
Preferred stock - par value $0.01 per share; authorized 100,000,000 shares; issued
35,826, 35,826 and 25,826 shares 3,542 3,542 2,552
Common stock - par value $0.01 per share; authorized 3,500,000,000 shares; issued
1,333,706,427, 1,325,167,583 and 1,312,941,113 shares 13 13 13
Additional paid-in capital 25,962 25,637 25,262
Retained earnings 22,621 22,002 19,974
Accumulated other comprehensive loss, net of tax (3,765) (2,785) (2,600)
Less: Treasury stock of 286,218,126, 267,830,962 and 227,598,128 common shares, at cost (9,562) (8,714) (7,164)
---------------------------------------------------------------------------------------- ------ ------ ------
Total The Bank of New York Mellon Corporation shareholders' equity 38,811 39,695 38,037
Nonredeemable noncontrolling interests of consolidated investment management funds 618 500 738
---------------------------------------------------------------------------------- --- --- ---
Total permanent equity 39,429 40,195 38,775
---------------------- ------ ------ ------
Total liabilities, temporary equity and permanent equity $333,469 $374,114 $393,780
-------------------------------------------------------- -------- -------- --------
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 fully phased-in CET1 and other risk-based capital ratios, the 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, the SLR on a fully phased-in basis and the ratio of tangible common shareholders' equity to tangible assets of operations 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, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets, net of deferred tax liabilities, is a useful additional 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 M&I, litigation and restructuring charges and amortization of intangible assets. Earnings per share, return on equity, operating leverage and operating margin measures, which exclude some or all of these items, as well as the (recovery) impairment charge 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, Operational Excellence Initiatives and migrating positions to Global Delivery Centers. Excluding these charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.
The presentation of income (loss) from consolidated investment management funds, net of net income (loss) 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 tables present the reconciliation of net income applicable to common shareholders of The Bank of New York Mellon Corporation and diluted earnings per common share.
Reconciliation of net income and diluted EPS - GAAP to Non-GAAP 4Q16 3Q16 4Q15
(in millions, except per common share amounts) Net Diluted Net Diluted Net Diluted
EPS income income EPS
income EPS
--- ------ ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $822 $0.77 $974 $0.90 $637 $0.57
Add: M&I, litigation and restructuring charges 7 18 18
Tax impact of M&I, litigation and restructuring charges (3) (5) (6)
------------------------------------------------------- --- --- ---
Net impact of M&I, litigation and restructuring charges 4 - 13 0.01 12 0.01
Add: (Recovery) impairment charge related to Sentinel N/A (13) 170
Tax impact of recovery (impairment charge) related to Sentinel N/A 5 (64)
-------------------------------------------------------------- --- --- ---
(Recovery) impairment charge related to Sentinel - after-tax N/A N/A (8) (0.01) 106 0.10
Non-GAAP adjustments - after-tax 4 - 5 - 118 0.11
-------------------------------- --- --- --- --- --- ----
Non-GAAP results $826 $0.77 $979 $0.90 $755 $0.68
---------------- ---- ----- ---- ----- ---- -----
N/A - Not applicable.
Reconciliation of net income and diluted EPS - GAAP to Non-GAAP Full-year 2016 Full-year 2015 Growth
(in millions, except per common share amounts) Net Diluted Net Diluted Net Diluted
income EPS income EPS income EPS
--- ------ --- --- ------ ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $3,425 $3.15 $3,053 $2.71 12% 16%
Add: M&I, litigation and restructuring charges 49 85
Tax impact of M&I, litigation and restructuring charges (16) (29)
--- ---
Net impact of M&I, litigation and restructuring charges 33 0.03 56 0.05
Add: (Recovery) impairment charge related to Sentinel (13) 170
Tax impact of recovery (impairment charge) related to Sentinel 5 (64)
--- ---
(Recovery) impairment charge related to Sentinel - after-tax (8) (0.01) 106 0.09
------------------------------------------------------------
Non-GAAP adjustments - after-tax 25 0.02 162 0.14
-------------------------------- --- ---- --- ----
Non-GAAP results $3,450 $3.17 $3,215 $2.85 7% 11%
---------------- ------ ----- ------ ----- --- ---
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) 4Q16 3Q16 2Q16 1Q16 4Q15
-------------------- ---- ---- ---- ---- ----
Income before income taxes - GAAP $1,152 $1,317 $1,165 $1,091 $871
Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds 4 9 4 (7) 5
Add: Amortization of intangible assets 60 61 59 57 64
M&I, litigation and restructuring charges 7 18 7 17 18
(Recovery) impairment charge related to Sentinel - (13) - - 170
--- --- --- ---
Income before income taxes, as adjusted - Non-GAAP (a) $1,215 $1,374 $1,227 $1,172 $1,118
Fee and other revenue - GAAP $2,954 $3,150 $2,999 $2,970 $2,950
Income (loss) from consolidated investment management funds - GAAP 5 17 10 (6) 16
Net interest revenue - GAAP 831 774 767 766 760
--------------------------- --- --- --- --- ---
Total revenue - GAAP 3,790 3,941 3,776 3,730 3,726
Less: Net income (loss) attributable to noncontrolling interests of consolidated investment management funds 4 9 4 (7) 5
Total revenue, as adjusted - Non-GAAP (a) $3,786 $3,932 $3,772 $3,737 $3,721
Pre-tax operating margin - GAAP (b)(c) 30% 33% 31% 29% 23%
Adjusted pre-tax operating margin - Non-GAAP (a)(b)(c) 32% 35% 33% 31% 30%
----------------------------------------------------- --- --- --- --- ---
(a) Non-GAAP information for all
periods presented excludes net
income (loss) attributable to
noncontrolling interests of
consolidated investment
management funds, amortization of
intangible assets and M&I,
litigation and restructuring
charges. Non-GAAP information
for 3Q16 also excludes a recovery
of the previously impaired
Sentinel loan and 4Q15 also
excludes the impairment charge
related to a court decision
regarding Sentinel.
(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 $92 million for
4Q16, $74 million for 3Q16 and
2Q16, $77 million for 1Q16 and
$73 million for 4Q15 and would
increase our pre-tax operating
margin by approximately 1.7% for
4Q16, 1.2% for 3Q16, 1.3% for
2Q16, 1.4% for 1Q16 and 1.5% for
4Q15.
The following tables present the reconciliation of the operating leverage.
Operating leverage 4Q16 vs.
(dollars in millions) 4Q16 3Q16 4Q15 3Q16 4Q15
-------------------- ---- ---- ---- ---- ----
Total revenue - GAAP $3,790 $3,941 $3,726 (3.83)% 1.72%
Less: Net income attributable to noncontrolling interests of consolidated investment
management funds 4 9 5
Total revenue, as adjusted - Non-GAAP $3,786 $3,932 $3,721 (3.71)% 1.75%
Total noninterest expense - GAAP $2,631 $2,643 $2,692 (0.45)% (2.27)%
Less: Amortization of intangible assets 60 61 64
M&I, litigation and restructuring charges 7 18 18
Total noninterest expense, as adjusted - Non-GAAP $2,564 $2,564 $2,610 - % (1.76)%
Operating leverage - GAAP (a) (338) bps 399 bps
Adjusted operating leverage - Non-GAAP (a)(b) (371) bps 351 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.
Operating leverage 2016 vs.
(dollars in millions) 2016 2015 2015
-------------------- ---- ---- ----
Total revenue - GAAP $15,237 $15,194 0.28%
Less: Net income attributable to noncontrolling interests of consolidated investment
management funds 10 68
Total revenue, as adjusted - Non-GAAP $15,227 $15,126 0.67%
Total noninterest expense - GAAP 10,523 10,799 (2.56)%
Less: Amortization of intangible assets 237 261
M&I, litigation and restructuring charges 49 85
--- ---
Total noninterest expense, as adjusted - Non-GAAP $10,237 $10,453 (2.07)%
Operating leverage - GAAP (a) 284 bps
Adjusted operating leverage - Non-GAAP (a)(b) 274 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) 4Q16 3Q16 2Q16 1Q16 4Q15 FY16
-------------------- ---- ---- ---- ---- ---- ----
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $822 $974 $825 $804 $637 $3,425
Add: Amortization of intangible assets 60 61 59 57 64 237
Less: Tax impact of amortization of intangible assets 19 21 21 20 22 81
------------------------------------------------------
Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of
intangible assets - Non-GAAP 863 1,014 863 841 679 3,581
Add: M&I, litigation and restructuring charges 7 18 7 17 18 49
(Recovery) impairment charge related to Sentinel - (13) - - 170 (13)
Less: Tax impact of M&I, litigation and restructuring charges 3 5 2 6 6 16
Tax impact of (recovery) impairment charge related to Sentinel - (5) - - 64 (5)
-------------------------------------------------------------- --- --- --- --- --- ---
Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted - Non-GAAP (a) $867 $1,019 $868 $852 $797 $3,606
Average common shareholders' equity $35,171 $35,767 $35,827 $35,252 $35,664 $35,504
Less: Average goodwill 17,344 17,463 17,622 17,562 17,673 17,497
Average intangible assets 3,638 3,711 3,789 3,812 3,887 3,737
Add: Deferred tax liability - tax deductible goodwill (b) 1,497 1,477 1,452 1,428 1,401 1,497
Deferred tax liability - intangible assets (b) 1,105 1,116 1,129 1,140 1,148 1,105
--------------------------------------------- ----- ----- ----- ----- ----- -----
Average tangible common shareholders' equity - Non-GAAP $16,791 $17,186 $16,997 $16,446 $16,653 $16,872
Return on common equity - GAAP (c) 9.3% 10.8% 9.3% 9.2% 7.1% 9.6%
Adjusted return on common equity - Non-GAAP (a)(c) 9.8% 11.3% 9.7% 9.7% 8.9% 10.2%
Return on tangible common equity - Non-GAAP (c) 20.4% 23.5% 20.4% 20.6% 16.2% 21.2%
Adjusted return on tangible common equity - Non-GAAP (a)(c) 20.5% 23.6% 20.5% 20.8% 19.0% 21.4%
---------------------------------------------------------- ---- ---- ---- ---- ---- ----
(a) Non-GAAP information for all
periods presented excludes
amortization of intangible
assets and M&I, litigation and
restructuring charges. Non-
GAAP information for 3Q16 also
excludes a recovery of the
previously impaired Sentinel
loan and 4Q15 also excludes the
impairment charge related to a
court decision regarding
Sentinel.
(b) Deferred tax liabilities are
based on fully phased-in Basel
III rules.
(c) Quarterly returns are
annualized.
The following table presents the reconciliation of the equity to assets ratio and book value per common share.
Equity to assets and book value per common share Dec. 31, Sept. 30, June 30, March 31, Dec. 31,
2016 2016 2016 2015
2016
----
(dollars in millions, unless otherwise noted)
--------------------------------------------
BNY Mellon shareholders' equity at period end - GAAP $38,811 $39,695 $38,559 $38,459 $38,037
Less: Preferred stock 3,542 3,542 2,552 2,552 2,552
---------------------- ----- ----- ----- ----- -----
BNY Mellon common shareholders' equity at period end - GAAP 35,269 36,153 36,007 35,907 35,485
Less: Goodwill 17,316 17,449 17,501 17,604 17,618
Intangible assets 3,598 3,671 3,738 3,781 3,842
Add: Deferred tax liability - tax deductible goodwill (a) 1,497 1,477 1,452 1,428 1,401
Deferred tax liability - intangible assets (a) 1,105 1,116 1,129 1,140 1,148
--------------------------------------------- ----- ----- ----- ----- -----
BNY Mellon tangible common shareholders' equity at period end - Non-GAAP $16,957 $17,626 $17,349 $17,090 $16,574
Total assets at period end - GAAP $333,469 $374,114 $372,351 $372,870 $393,780
Less: Assets of consolidated investment management funds 1,231 1,009 1,083 1,300 1,401
--------------------------------------------------------- ----- ----- ----- ----- -----
Subtotal assets of operations - Non-GAAP 332,238 373,105 371,268 371,570 392,379
Less: Goodwill 17,316 17,449 17,501 17,604 17,618
Intangible assets 3,598 3,671 3,738 3,781 3,842
Cash on deposit with the Federal Reserve and other central banks (b) 58,146 80,362 88,080 96,421 116,211
------------------------------------------------------------------- ------ ------ ------ ------ -------
Tangible total assets of operations at period end - Non-GAAP $253,178 $271,623 $261,949 $253,764 $254,708
BNY Mellon shareholders' equity to total assets ratio - GAAP 11.6% 10.6% 10.4% 10.3% 9.7%
BNY Mellon common shareholders' equity to total assets ratio - GAAP 10.6% 9.7% 9.7% 9.6% 9.0%
BNY Mellon tangible common shareholders' equity to tangible assets of operations ratio - Non-GAAP 6.7% 6.5% 6.6% 6.7% 6.5%
Period-end common shares outstanding (in thousands) 1,047,488 1,057,337 1,067,674 1,077,083 1,085,343
Book value per common share - GAAP $33.67 $34.19 $33.72 $33.34 $32.69
Tangible book value per common share - Non-GAAP $16.19 $16.67 $16.25 $15.87 $15.27
----------------------------------------------- ------ ------ ------ ------ ------
(a) Deferred tax liabilities are
based on fully phased-in
Basel III rules.
(b) Assigned a zero percent
risk-weighting by the
regulators.
The following table presents income from consolidated investment management funds, net of noncontrolling interests.
Income (loss) from consolidated investment management funds, net of noncontrolling interests
(in millions) 4Q16 3Q16 2Q16 1Q16 4Q15
------------ ---- ---- ---- ---- ----
Income (loss) from
consolidated
investment
management funds $5 $17 $10 $(6) $16
Less: Net income
(loss) attributable
to noncontrolling
interests of
consolidated
investment
management funds 4 9 4 (7) 5
--- --- --- --- ---
Income from
consolidated
investment
management funds,
net of
noncontrolling
interests $1 $8 $6 $1 $11
------------------ --- --- --- --- ---
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) 4Q16 3Q16 2Q16 1Q16 4Q15
------------ ---- ---- ---- ---- ----
Investment management
fees $4 $2 $3 $2 $7
Other (Investment income
(loss)) (3) 6 3 (1) 4
------------------------ --- --- --- --- ---
Income from consolidated
investment management
funds, net of
noncontrolling
interests $1 $8 $6 $1 $11
------------------------ --- --- --- --- ---
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) 4Q16 3Q16 2Q16 1Q16 4Q15
-------------------- ---- ---- ---- ---- ----
Income before income taxes - GAAP $260 $256 $234 $217 $290
Add: Amortization of intangible assets 22 22 19 19 24
Provision for credit losses 6 - 1 (1) (4)
--------------------------- --- --- --- --- ---
Income before income taxes excluding amortization of intangible assets and provision for credit losses - Non-GAAP $288 $278 $254 $235 $310
Total revenue - GAAP $960 $958 $938 $895 $999
Less: Distribution and servicing expense 98 104 102 100 92
----------------------------------------- --- --- --- --- ---
Total revenue net of distribution and servicing expense - Non-GAAP $862 $854 $836 $795 $907
Pre-tax operating margin - GAAP (a) 27% 27% 25% 24% 29%
Pre-tax operating margin, excluding amortization of intangible assets, provision for credit losses and distribution and servicing
expense - Non-GAAP (a) 33% 33% 30% 30% 34%
--------------------------------------------------------------------------------------------------------------------------------- --- --- --- --- ---
(a) Income before taxes
divided by total
revenue.
DIVIDENDS
Common - On Jan. 19, 2017, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.19 per common share. This cash dividend is payable on Feb. 10, 2017 to shareholders of record as of the close of business on Jan. 31, 2017.
Preferred - On Jan. 19, 2017, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in March 2017, in each case payable on March 20, 2017 to holders of record as of the close of business on March 5, 2017:
-- $1,000.00 per share on the Series A Preferred Stock (equivalent to
$10.0000 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
-- $2,942.01 per share on the Series F Preferred Stock (equivalent to
$29.4201 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 enhancing our clients' experience, the impact of our digital transformation and capital plans. 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, 2015, the Quarterly Report on Form 10-Q for the period ended Sept. 30, 2016 and BNY Mellon's other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Jan. 19, 2017, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.
Media Relations: Ligia Braun (212) 635-8588
Investor Relations: Valerie Haertel (212) 635-8529
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bny-mellon-reports-fourth-quarter-earnings-of-822-million-or-077-per-common-share-300393484.html
SOURCE BNY Mellon
