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BNY Mellon Reports Second Quarter Earnings of $926 Million or $0.88 Per Common Share

CONTINUED FOCUS ON EXPENSE CONTROL

  • Total noninterest expense up 1% year-over-year

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS

  • Returned over $700 million to shareholders through share repurchases and dividends
  • Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a)
  • SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a)

BOARD APPROVED QUARTERLY COMMON STOCK DIVIDEND INCREASE OF 26% TO $0.24 PER SHARE AND THE REPURCHASE OF UP TO $3.1 BILLION OF COMMON STOCK

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported second quarter net income applicable to common shareholders of $926 million, or $0.88 per diluted common share. Net income applicable to common shareholders was $825 million, or $0.75 per diluted common share, in the second quarter of 2016, and $880 million, or $0.83 per diluted common share, in the first quarter of 2017.

"During the second quarter, healthy revenue growth in both our investment management and investment services businesses and the more favorable rate environment helped us maintain double-digit earnings per share growth and drive substantial positive operating leverage on a year-over-year basis. We and our clients are just beginning to capitalize on the benefits of our strategy and investments in growth. We have distinctive capabilities in areas such as collateral management solutions, middle-office outsourcing and liability-driven investments, and made an early commitment to delivering an industry-leading digital investment platform. We believe we are well positioned to help our clients meet regulatory requirements and navigate today's financial marketplace while at the same time make it easier for them to access the insights and information they need," Gerald L. Hassell, chairman, said.

"The results of the 2017 annual stress tests proved the resilience of our capital position. Our business model has been consistently generating high levels of capital, enabling us to announce a capital plan that includes share repurchases of up to $3.1 billion and an approximately 26 percent increase in the quarterly dividend," Mr. Hassell concluded.

Charles W. Scharf, chief executive officer, added, "I am excited to join the company and I'm pleased to see Gerald and the team were able to deliver solid results in Gerald's last quarter as CEO. They have generated momentum, and we will work really hard to build on it by continuing to put our clients first and by maintaining our position as a strong, trusted and well-respected partner. We will not waver in our focus on continually becoming more efficient, improving our client experience, and growing our revenues by expanding our already great set of capabilities."

__________________________________________

SECOND QUARTER 2017 FINANCIAL HIGHLIGHTS (a)
(comparisons are 2Q17 vs. 2Q16, unless otherwise stated)

Earnings

  • Total revenue of $4.0 billion, increased 5%.
    • Investment services fees increased 4% reflecting growth in clearing services fees, net new business, including collateral management solutions, and higher equity market values, offset by the unfavorable impact of a stronger U.S. dollar.
    • Investment management and performance fees increased 6% due to higher market values, money market fees and performance fees, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) (a).
    • Foreign exchange revenue decreased 9% reflecting lower volatility, offset by higher volumes.
    • Investment and other income increased $48 million driven by lease-related gains.
    • Net interest revenue increased 8% driven by interest rates and lower premium amortization, offset by lower interest-earning assets and higher average long-term debt.
  • The provision for credit losses was a credit of $7 million.
  • Noninterest expense of $2.7 billion, increased 1% reflecting higher professional, legal and other purchased services (related to regulatory and compliance costs, including the 2017 resolution plan), software and litigation expenses, offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense.
  • Effective tax rate of 25.4% for 2Q17.

Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")

  • Record AUC/A of $31.1 trillion increased 5% reflecting higher market values.
  • Record AUM of $1.77 trillion increased 6% reflecting higher market values and net inflows, offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
    • Net long-term inflows of $3 billion in 2Q17 reflecting inflows of liability-driven and fixed income investments, partially offset by outflows of index investments.
    • Net short-term inflows of $11 billion in 2Q17 were a result of increased distribution through our liquidity portals.

Capital and liquidity

  • Repurchased 11 million common shares for $506 million and paid $199 million in dividends to common shareholders.
  • Return on common equity of 10%; Adjusted return on tangible common equity of 22% (a).
  • SLR – transitional of 6.2%; SLR – fully phased-in of 6.0% (a).
  • Average LCR of 116%.
  • Board approved quarterly common stock dividend increase of 26% to $0.24 per share and the repurchase of up to $3.1 billion of common stock, including the repurchase of $500 million of common stock contingent upon a preferred stock issuance, over the next four quarters.

(a)

See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 22 for the reconciliation of Non-GAAP measures. In all periods presented, Non-GAAP information excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. See "Capital and Liquidity" beginning on page 11 for the reconciliation of the SLR.

Note: Throughout this document, sequential growth rates are unannualized.

FINANCIAL SUMMARY

View Table Fullscreen View Table Fullscreen

KEY MARKET METRICS

The following table presents key market metrics at period end and on an average basis.

View Table Fullscreen

Key market metrics






2Q17 vs.


2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

S&P 500 Index (a)

2423


2363


2239


2168


2099


3

%

15

%

S&P 500 Index – daily average

2398


2326


2185


2162


2075


3


16


FTSE 100 Index (a)

7313


7323


7143


6899


6504



12


FTSE 100 Index – daily average

7391


7274


6923


6765


6204


2


19


MSCI EAFE (a)

1883


1793


1684


1702


1608


5


17


MSCI EAFE – daily average

1856


1749


1660


1677


1648


6


13


Barclays Capital Global Aggregate BondSM Index (a)(b)

471


459


451


486


482


3


(2)


NYSE and NASDAQ share volume (in billions)

199


186


189


186


203


7


(2)


JPMorgan G7 Volatility Index – daily average (c)

7.98


10.10


10.24


10.19


11.12


(21)


(28)


Average interest on excess reserves paid by the Federal Reserve

1.04

%

0.79

%

0.55

%

0.50

%

0.50

%

25

bps

54

bps

Foreign exchange rates vs. U.S. dollar:








British pound (a)

$

1.30


$

1.25


$

1.23


$

1.30


$

1.34


4

%

(3)

%

British pound – average rate

1.28


1.24


1.24


1.31


1.43


3


(10)


Euro (a)

1.14


1.07


1.05


1.12


1.11


7


3


Euro – average rate

1.10


1.07


1.08


1.12


1.13


3


(3)


(a)

Period end.

(b)

Unhedged in U.S. dollar terms.

(c)

The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.

bps basis points.

FEE AND OTHER REVENUE

Fee and other revenue






2Q17 vs.

(dollars in millions)

2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Investment services fees:








Asset servicing (a)

$

1,085


$

1,063


$

1,068


$

1,067


$

1,069


2

%

1

%

Clearing services

394


376


355


349


350


5


13


Issuer services

241


251


211


337


234


(4)


3


Treasury services

140


139


140


137


139


1


1


Total investment services fees

1,860


1,829


1,774


1,890


1,792


2


4


Investment management and performance fees

879


842


848


860


830


4


6


Foreign exchange and other trading revenue

165


164


161


183


182


1


(9)


Financing-related fees

53


55


50


58


57


(4)


(7)


Distribution and servicing

41


41


41


43


43



(5)


Investment and other income

122


77


70


92


74


N/M

N/M

Total fee revenue

3,120


3,008


2,944


3,126


2,978


4


5


Net securities gains


10


10


24


21


N/M

N/M

Total fee and other revenue

$

3,120


$

3,018


$

2,954


$

3,150


$

2,999


3

%

4

%

KEY POINTS

  • Asset servicing fees increased 1% year-over-year and 2% sequentially, primarily reflecting net new business, including growth of collateral management solutions, and higher equity market values. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing the retail UK transfer agency business.
  • Clearing services fees increased 13% year-over-year and 5% sequentially, primarily driven by higher money market fees and growth in long-term mutual fund assets.
  • Issuer services fees increased 3% year-over-year and decreased 4% sequentially. The year-over-year increase primarily reflects higher Depositary Receipts revenue. The sequential decrease primarily reflects seasonality in Depositary Receipts revenue.
  • Treasury services fees increased 1% both year-over-year and sequentially, primarily reflecting higher payment volumes, partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.
  • Investment management and performance fees increased 6% year-over-year and 4% sequentially, primarily reflecting higher market values, money market fees and performance fees. The year-over-year increase was partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). On a constant currency basis, investment management and performance fees increased 9% (Non-GAAP) year-over-year.

Foreign exchange and other trading revenue







(in millions)

2Q17

1Q17

4Q16

3Q16

2Q16


Foreign exchange

$

151


$

154


$

175


$

175


$

166



Other trading revenue (loss)

14


10


(14)


8


16



Total foreign exchange and other trading revenue

$

165


$

164


$

161


$

183


$

182


Foreign exchange revenue decreased 9% year-over-year and 2% sequentially, primarily reflecting lower volatility, partially offset by higher volumes.

  • Financing-related fees decreased 7% year-over-year and 4% sequentially, primarily reflecting lower underwriting fees.

Investment and other income







(in millions)

2Q17

1Q17

4Q16

3Q16

2Q16


Lease-related gains (losses)

$

51


$

1


$

(6)


$


$



Corporate/bank-owned life insurance

43


30


53


34


31



Expense reimbursements from joint venture

17


14


15


18


17



Seed capital gains (a)

10


9


6


16


11



Equity investment income (loss)

7


26


(2)


(1)


(4)



Asset-related (losses) gains

(5)


3


1


8


1



Other (loss) income

(1)


(6)


3


17


18



Total investment and other income

$

122


$

77


$

70


$

92


$

74


(a)

Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in
operations of consolidated investment management funds, net of noncontrolling interests. The gain on seed capital
investments in consolidated investment management funds was $7 million in 2Q17, $15 million in 1Q17, $1 million in 4Q16,
$8 million in 3Q16 and $6 million in 2Q16.

Both the year-over-year and sequential increases in investment and other income primarily reflect lease-related gains and higher income from corporate/bank-owned life insurance. The year-over-year increase was partially offset by the negative impact of foreign exchange translation and lower other income driven by our investments in renewable energy. The sequential increase was partially offset by a net gain related to an equity investment recorded in 1Q17.

NET INTEREST REVENUE

View Table Fullscreen

Net interest revenue






2Q17 vs.

(dollars in millions)

2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Net interest revenue – GAAP

$

826


$

792


$

831


$

774


$

767


4

%

8

%

Tax equivalent adjustment

12


12


12


12


13


N/M

N/M

Net interest revenue (FTE) – Non-GAAP (a)

$

838


$

804


$

843


$

786


$

780


4

%

7

%









Net interest margin – GAAP

1.14

%

1.13

%

1.16

%

1.05

%

0.97

%

1

bps

17

bps

Net interest margin (FTE) – Non-GAAP (a)

1.16

%

1.14

%

1.17

%

1.06

%

0.98

%

2

bps

18

bps









Selected average balances:








Cash/interbank investments

$

111,021


$

106,069


$

104,352


$

114,544


$

137,995


5

%

(20)

%

Trading account securities

2,455


2,254


2,288


2,176


2,152


9


14


Securities

117,227


114,786


117,660


118,405


118,002


2


(1)


Loans

58,793


60,312


63,647


61,578


60,284


(3)


(2)


Interest-earning assets

289,496


283,421


287,947


296,703


318,433


2


(9)


Interest-bearing deposits

142,336


139,820


145,681


155,109


165,122


2


(14)


Noninterest-bearing deposits

73,886


73,555


82,267


81,619


84,033



(12)


Long-term debt

27,398


25,882


24,986


23,930


22,838


6


20










Selected average yields/rates: (b)








Cash/interbank investments

0.67

%

0.56

%

0.47

%

0.43

%

0.44

%



Trading account securities

2.85


3.12


3.17


2.62


2.45




Securities

1.72


1.71


1.67


1.56


1.56




Loans

2.44


2.15


1.92


1.84


1.85




Interest-earning assets

1.47


1.38


1.30


1.19


1.14




Interest-bearing deposits

0.09


0.03


(0.01)


(0.02)


0.03




Long-term debt

1.87


1.85


1.36


1.54


1.54












Average cash/interbank investments as a percentage
of average interest-earning assets

38

%

37

%

36

%

39

%

43

%



Average noninterest-bearing deposits as a percentage
of average interest-earning assets

26

%

26

%

29

%

28

%

26

%



View Table Fullscreen

KEY POINTS

  • Net interest revenue increased 8% year-over-year and 4% sequentially, primarily reflecting higher interest rates. The year-over-year increase also reflects lower premium amortization, partially offset by lower interest-earning assets and higher average long-term debt. The sequential increase also reflects an additional interest-earning day and higher interest-earning assets.

NONINTEREST EXPENSE

View Table Fullscreen

Noninterest expense






2Q17 vs.

(dollars in millions)

2Q17

1Q17

4Q16

3Q16

2Q16

1Q17

2Q16

Staff

$

1,417


$

1,472


$

1,395


$

1,467


$

1,412


(4)%


%

Professional, legal and other purchased services

319


312


325


292


290


2


10


Software and equipment

232


223


237


215


223


4


4


Net occupancy

139


136


153


143


152


2


(9)


Distribution and servicing

104


100


98


105


102


4


2


Sub-custodian

65


64


57


59


70


2


(7)


Bank assessment charges

59


57


53


61


52


4


13


Business development

63


51


71


52


65


24


(3)


Other

192


167


175


170


188


15


2


Amortization of intangible assets

53


52


60


61


59


2


(10)


M&I, litigation and restructuring charges

12


8


7


18


7


N/M

N/M

Total noninterest expense – GAAP

$

2,655


$

2,642


$

2,631


$

2,643


$

2,620


%

1

%









Staff expense as a percentage of total revenue

36

%

38

%

37

%

37

%

37

%











Memo:








Total noninterest expense excluding amortization of
intangible assets and M&I, litigation and restructuring
charges – Non-GAAP

$

2,590


$

2,582


$

2,564


$

2,564


$

2,554


%

1

%

KEY POINTS

  • Total noninterest expense increased 1% year-over-year and less than 1% sequentially. Total noninterest expense, excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP), increased 1% year-over-year and less than 1% sequentially.
  • The year-over-year increase primarily reflects higher professional, legal and other purchased services, software and litigation expenses, partially offset by the favorable impact of a stronger U.S. dollar and lower net occupancy expense. The increase in professional, legal and other purchased services primarily reflects expenses related to regulatory and compliance costs, including the 2017 resolution plan. Net occupancy expense decreased as we continued to benefit from the savings generated by the business improvement process.
  • Sequentially, lower staff expense was primarily offset by higher other, business development and software expenses. The decrease in staff expense was primarily driven by the impact of vesting of long-term stock awards for retirement eligible employees recorded in 1Q17.

INVESTMENT SECURITIES PORTFOLIO

At June 30, 2017, the fair value of our investment securities portfolio totaled $118.9 billion. The net unrealized pre-tax gain on our total securities portfolio was $151 million at June 30, 2017 compared with a pre-tax loss of $23 million at March 31, 2017. The improvement in the net unrealized pre-tax gain was primarily driven by a decrease in market interest rates. At June 30, 2017, the fair value of the held-to-maturity securities totaled $40.9 billion and represented 34% of the fair value of the total investment securities portfolio.

The following table shows the distribution of our investment securities portfolio.

View Table Fullscreen View Table Fullscreen

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

June 30,
2017

March 31,
2017

December 31,
2016

Nonperforming loans:




Other residential mortgages

$

84


$

88


$

91


Wealth management loans and mortgages

10


10


8


Financial institutions

2




Lease financing



4


Total nonperforming loans

96


98


103


Other assets owned

4


9


4


Total nonperforming assets

$

100


$

107


$

107


Nonperforming assets ratio

0.16

%

0.18

%

0.17

%

Allowance for loan losses/nonperforming loans

171.9


167.3


164.1


Total allowance for credit losses/nonperforming loans

281.3


281.6


272.8


Nonperforming assets decreased $7 million compared with March 31, 2017 and Dec. 31, 2016. The decrease compared with March 31, 2017 primarily reflects lower other assets owned and other residential mortgages.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs

(in millions)

June 30,
2017

March 31,
2017

June 30,
2016

Allowance for credit losses - beginning of period

$

276


$

281


$

287


Provision for credit losses

(7)


(5)


(9)


Net recoveries (charge-offs):




Other residential mortgages

1



1


Foreign



1


Net recoveries (charge-offs)

1



2


Allowance for credit losses - end of period

$

270


$

276


$

280


Allowance for loan losses

$

165


$

164


$

158


Allowance for lending-related commitments

105


112


122


CAPITAL AND LIQUIDITY

Our consolidated capital ratios are shown in the following table. The common equity Tier 1 ("CET1"), Tier 1 and Total risk-based regulatory capital ratios in the first section of the table below are based on Basel III components of capital, as phased-in (referred to as "Transitional ratios").

Capital ratios

June 30,
2017

March 31,
2017

December 31,
2016

Consolidated regulatory capital ratios: (a)




Standardized Approach:




CET1 ratio

11.8

%

12.0

%

12.3

%

Tier 1 capital ratio

14.1


14.4


14.5


Total (Tier 1 plus Tier 2) capital ratio

14.6


14.9


15.2


Advanced Approach:




CET1 ratio

10.8


10.4


10.6


Tier 1 capital ratio

12.8


12.5


12.6


Total (Tier 1 plus Tier 2) capital ratio

13.2


12.8


13.0


Leverage capital ratio (b)

6.7


6.6


6.6


Supplementary leverage ratio ("SLR")

6.2


6.1


6.0


BNY Mellon shareholders' equity to total assets ratio

11.3


11.6


11.6


BNY Mellon common shareholders' equity to total assets ratio

10.3


10.5


10.6






Selected regulatory capital ratios – fully phased-in – Non-GAAP: (a)(c)




CET1 ratio:




Standardized Approach

11.4

%

11.5

%

11.3

%

Advanced Approach

10.4


10.0


9.7


SLR

6.0


5.9


5.6


(a)

Regulatory capital ratios for June 30, 2017 are preliminary. For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the...


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