BNY Mellon Reports Fourth Quarter Earnings Of $637 Million Or $0.57 Per Common Share, Including: $0.11 per common share for the previously disclosed impairment charge related to a recent court decision, litigation and restructuring charges; Earnings per common share up 17% year-over-year on an adjusted basis (a)

21 Jan, 2016, 06:30 ET from BNY Mellon

NEW YORK, Jan. 21, 2016 /PRNewswire/ --

GENERATED MORE THAN 300 BASIS POINTS OF POSITIVE OPERATING LEVERAGE YEAR-OVER-YEAR ON AN ADJUSTED BASIS (a)

  • Total revenue up 2% on an adjusted basis (a)
    • Net interest revenue up 7%
  • Total noninterest expense decreased 2% on an adjusted basis (a)

FULL-YEAR 2015 EARNINGS OF $3.1 BILLION OR $2.71 PER COMMON SHARE, OR $2.85 PER COMMON SHARE EXCLUDING NON-OPERATING ITEMS (b)

  • Generated more than 400 basis points of positive operating leverage in 2015 on an adjusted basis (b)
  • Earnings per common share up 19% in 2015 on an adjusted basis (b)

EXECUTING ON CAPITAL PLAN AND RETURN OF VALUE TO COMMON SHAREHOLDERS

  • Repurchased 10.1 million common shares for $431 million in the fourth quarter and 55.6 million common shares for $2.4 billion in full-year 2015
  • Adjusted return on tangible common equity of 19% in the fourth quarter and 21% in full-year 2015 (b)

ACQUIRING SILICON VALLEY WEALTH MANAGER, ATHERTON LANE ADVISERS, WITH $2.7 BILLION OF AUM

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported fourth quarter net income applicable to common shareholders of $637 million, or $0.57 per diluted common share, or $755 million, or $0.68 per diluted common share, adjusted for the impairment charge related to a recent court decision, litigation and restructuring charges.  In the fourth quarter of 2014, net income applicable to common shareholders was $209 million, or $0.18 per diluted common share, or $667 million, or $0.58 per diluted common share, adjusted for litigation and restructuring charges, offset by the benefit primarily related to a tax carryback claim.  In the third quarter of 2015, net income applicable to common shareholders was $820 million, or $0.74 per diluted common share. (b)

"Our results in 2015 demonstrated that our strategic plan has positioned us well to perform in all operating environments. Even with geopolitical instability, emerging market weakness, higher regulatory compliance requirements and low interest rates, we executed on our strategic priorities and focused on what was within our control. For full-year 2015, our earnings per share increased by 19 percent on an adjusted basis as we generated more than 400 basis points of positive operating leverage and achieved a return on tangible common equity of 21 percent. Importantly, we are on track to achieve our three-year goals," Gerald L. Hassell, chairman and chief executive officer, said. (b)

"In the fourth quarter, we also generated strong positive operating leverage, mainly through our intense focus on our business improvement process, which is creating operating efficiencies for our clients and savings for our shareholders. As we look ahead to 2016, enhancing the client experience continues to be a priority, as we seek to strengthen service quality and productivity by leveraging our investments in industry-leading technologies," Mr. Hassell added.

"Our focus remains on relentlessly delivering value-added solutions, investment excellence and actionable, data-driven insights to our clients and strong returns to our shareholders. I want to thank our clients for their partnership and confidence in us as well as all our team members around the world for rising to the occasion to meet the heightened expectations of ourselves, our clients and our shareholders," Mr. Hassell concluded.

In 2015, net income applicable to common shareholders totaled $3.1 billion, or $2.71 per diluted common share, or $3.2 billion, or $2.85 per diluted common share, adjusted for the impairment charge related to a recent court decision, litigation and restructuring charges.  In 2014, net income applicable to common shareholders totaled $2.5 billion, or $2.15 per diluted common share, or $2.8 billion, or $2.39 per diluted common share, adjusted for litigation and restructuring charges, the charge related to investment management funds, net of incentives, the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, and the benefit primarily related to a tax carryback claim.

(a)   See pages 3-4 for the Non-GAAP adjustments and additional information. (b)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of these Non-GAAP measures.

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 executive management from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EST on Jan. 21, 2016.  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 (877) 397-0291 (U.S.) or (719) 325-2175 (International), and using the passcode: 619690, or by logging on to www.bnymellon.com.  Earnings materials will be available at www.bnymellon.com beginning at approximately 6:30 a.m. EST on Jan. 21, 2016.  Replays of the conference call and audio webcast will be available beginning Jan. 21, 2016 at approximately 2 p.m. EST through Feb. 21, 2016 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 2620345.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com for the same time period.

FOURTH QUARTER 2015 FINANCIAL HIGHLIGHTS (a) (comparisons are 4Q15 vs. 4Q14 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)

4Q15

4Q14

Inc

4Q15

4Q14

Inc

GAAP results

$

0.57

$

0.18

$

637

$

209

Add:  Litigation and restructuring charges

0.01

0.53

12

608

Impairment charge related to a recent court decision

0.10

N/A

106

N/A

Less:  Benefit primarily related to a tax carryback claim

N/A

0.13

N/A

150

Non-GAAP results

$

0.68

$

0.58

17

%

$

755

$

667

13

%

N/A - Not applicable.

  • Total revenue was $3.7 billion, an increase of 1%, or 2% (Non-GAAP).
    • Investment services fees were flat reflecting growth in the Global Collateral Services and Broker-Dealer Services and higher securities lending revenue, offset by lost business in clearing services due to industry consolidations and the unfavorable impact of a stronger U.S. dollar.
    • Investment management and performance fees decreased 2%, or an increase of 1% on a constant currency basis (Non-GAAP), driven by lower money market fee waivers and higher performance fees, partially offset by net outflows and lower market values.
    • Foreign exchange revenue was flat reflecting lower volumes in standing instruction programs and lower volatility, offset by higher volumes in other trading programs and the impact of hedging activity for foreign currency placements.
    • Financing-related fees increased $8 million driven by higher fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity.
    • Investment and other income increased $15 million driven by the higher other income related to termination fees in our clearing business and seed capital gains, partially offset by lower asset-related gains and lease residual gains.
    • Net interest revenue increased $48 million driven by higher yields, the shift out of cash into securities and loans and lower interest expense on deposits.
  • The provision for credit losses was $163 million reflecting the impairment charge related to a recent court decision.
  • Noninterest expense was $2.7 billion, a decrease of 24%, or 2% (Non-GAAP) excluding litigation and restructuring charges and amortization of intangible assets. Noninterest expense was lower in nearly all categories reflecting the favorable impact of a stronger U.S. dollar, offset by higher compensation and employee benefits expenses. The increase in compensation expenses primarily related to severance in support of our business improvement process. See page 10 for additional information.
  • Generated more than 300 basis points of positive operating leverage year-over-year on an adjusted basis (Non-GAAP).
  • Effective tax rate of 20.1%. The rate is approximately 3% lower primarily due to the impact of the impairment charge and a 2% benefit from a more favorable geographic mix of earnings and higher tax-exempt income.
  • Assets under custody and/or administration ("AUC/A") and Assets under management ("AUM")
    • AUC/A of $28.9 trillion, increased 1% reflecting net new business, partially offset by the unfavorable impact of a stronger U.S. dollar and lower market values.
      • Estimated new AUC/A wins in Asset Servicing of $49 billion in 4Q15.
    • AUM of $1.63 trillion, decreased 4% reflecting the unfavorable impact of a stronger U.S. dollar, net outflows and lower market values, partially offset by the January 2015 acquisition of Cutwater Asset Management.
      • Net long-term outflows of $11 billion in 4Q15 driven by index and equity investments offset by continued strength in liability-driven investments.
      • Net short-term inflows totaled $2 billion in 4Q15.
  • Capital
    • Repurchased 10.1 million common shares for $431 million in 4Q15 and 55.6 million common shares for $2.4 billion in full-year 2015.
    • Adjusted return on tangible common equity of 19% in 4Q15 and 21% in full-year 2015 (a).

 

(a)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.  Non-GAAP excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges, the impairment charge related to a recent court decision and the benefit primarily related to a tax carryback claim, if applicable. Note: In the table above and throughout this document, sequential growth rates are unannualized.

 

FINANCIAL SUMMARY

(dollars in millions, except per share amounts; common shares in

thousands)

4Q15 vs.

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Revenue:

Fee and other revenue

$

2,950

$

3,053

$

3,067

$

3,012

$

2,935

(3)%

1

%

Income (loss) from consolidated investment management funds

16

(22)

40

52

42

Net interest revenue

760

759

779

728

712

7

Total revenue – GAAP

3,726

3,790

3,886

3,792

3,689

(2)

1

Less:  Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds

5

(5)

37

31

24

Total revenue – Non-GAAP

3,721

3,795

3,849

3,761

3,665

(2)

2

Provision for credit losses

163

1

(6)

2

1

Expense:

Noninterest expense – GAAP

2,692

2,680

2,727

2,700

3,524

(24)

Less:  Amortization of intangible assets

64

66

65

66

73

M&I, litigation and restructuring charges (recoveries)

18

11

59

(3)

800

Total noninterest expense – Non-GAAP

2,610

2,603

2,603

2,637

2,651

(2)

Income:

Income before income taxes

871

1,109

1,165

1,090

164

(21)%

N/M

Provision (benefit) for income taxes

175

282

276

280

(93)

Net income

$

696

$

827

$

889

$

810

$

257

Net (income) loss attributable to noncontrolling interests (a)

(3)

6

(36)

(31)

(24)

Net income applicable to shareholders of The Bank of New York Mellon Corporation

693

833

853

779

233

Preferred stock dividends

(56)

(13)

(23)

(13)

(24)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

637

$

820

$

830

$

766

$

209

Operating leverage – Non-GAAP (b)

(222)

 bps

308

bps

Key Metrics:

Pre-tax operating margin (c)

23

%

29

%

30

%

29

%

4

%

Non-GAAP (c)

30

%

31

%

33

%

30

%

28

%

Return on common equity (annualized) (c)

7.1

%

9.1

%

9.4

%

8.8

%

2.2

%

Non-GAAP (c)

8.9

%

9.7

%

10.3

%

9.2

%

7.7

%

Return on tangible common equity (annualized) – Non-GAAP (c)

16.2

%

20.8

%

21.5

%

20.3

%

5.9

%

Non-GAAP adjusted (c)

19.0

%

21.0

%

22.5

%

20.2

%

16.3

%

Fee revenue as a percentage of total revenue excluding net securities gains

79

%

80

%

79

%

79

%

79

%

Percentage of non-U.S. total revenue (d)

34

%

37

%

36

%

36

%

35

%

Average common shares and equivalents outstanding:

Basic

1,088,880

1,098,003

1,113,790

1,118,602

1,120,672

Diluted

1,096,385

1,105,645

1,122,135

1,126,306

1,129,040

Period end:

Full-time employees

51,200

51,300

50,700

50,500

50,300

Book value per common share – GAAP (c)

$

32.69

$

32.59

$

32.28

$

31.89

$

32.09

Tangible book value per common share – Non-GAAP (c)

$

15.27

$

15.16

$

14.86

$

14.82

$

14.70

Cash dividends per common share

$

0.17

$

0.17

$

0.17

$

0.17

$

0.17

Common dividend payout ratio

30

%

23

%

23

%

25

%

94

%

Closing stock price per common share

$

41.22

$

39.15

$

41.97

$

40.24

$

40.57

Market capitalization

$

44,738

$

42,789

$

46,441

$

45,130

$

45,366

Common shares outstanding

1,085,343

1,092,953

1,106,518

1,121,512

1,118,228

(a)   Primarily attributable to noncontrolling interests related to consolidated investment management funds. (b)   Pre-tax operating leverage is the rate of increase in total revenue less the rate of increase in total noninterest expense.  The year-over-year pre-tax operating leverage (Non-GAAP) was based on growth in total revenue, as adjusted (Non-GAAP), of 153 basis points, and a decrease in total noninterest expense, as adjusted (Non-GAAP), of 155 basis points.  The sequential operating leverage (Non-GAAP) was based on decline in total revenue, as adjusted (Non-GAAP), of 195 basis points, and an increase in total noninterest expense, as adjusted (Non-GAAP), of 27 basis points. (c)    Non-GAAP excludes the net income (loss) attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges (recoveries), the impairment charge related to a recent court decision and the benefit primarily related to a tax carryback claim, if applicable.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures. (d)   Includes fee revenue, net interest revenue and (loss) income from consolidated investment management funds, net of net loss (income) attributable to noncontrolling interests. N/M – Not meaningful.

CONSOLIDATED BUSINESS METRICS

Consolidated business metrics

4Q15 vs.

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Changes in AUM (in billions): (a)

Beginning balance of AUM

$

1,625

$

1,700

$

1,717

$

1,686

$

1,620

Net inflows (outflows):

Long-term:

Equity

(9)

(4)

(13)

(5)

(5)

Fixed income

1

(3)

(2)

3

4

Index

(16)

(10)

(9)

8

1

Liability-driven investments (b)

11

11

5

8

24

Alternative investments

2

1

3

1

2

Total long-term inflows (outflows)

(11)

(5)

(16)

15

26

Short term:

Cash

2

(10)

(11)

1

6

Total net inflows (outflows)

(9)

(15)

(27)

16

32

Net market/currency impact/acquisition

9

(60)

10

15

34

Ending balance of AUM

$

1,625

(c)

$

1,625

$

1,700

$

1,717

$

1,686

%

(4)%

AUM at period end, by product type: (a)

Equity

14

%

14

%

15

%

15

%

15

%

Fixed income

13

13

13

12

12

Index

20

20

21

22

21

Liability-driven investments (b)

32

32

30

30

30

Alternative investments

4

4

4

4

4

Cash

17

17

17

17

18

Total AUM

100

%

(c)

100

%

100

%

100

%

100

%

Investment Management:

Average loans (in millions)

$

13,447

$

12,779

$

12,298

$

11,634

$

11,124

5

%

21

%

Average deposits (in millions)

$

15,497

$

15,282

$

14,638

$

15,217

$

14,602

1

%

6

%

Investment Services:

Average loans (in millions)

$

36,960

$

38,025

$

38,264

$

37,699

$

35,448

(3)%

4

%

Average deposits (in millions)

$

226,774

$

230,153

$

237,193

$

234,183

$

228,282

(1)%

(1)%

AUC/A at period end (in trillions) (d)

$

28.9

(c)

$

28.5

$

28.6

$

28.5

$

28.5

1

%

1

%

Market value of securities on loan at period end (in billions) (e)

$

277

$

288

$

283

$

291

$

289

(4)%

(4)%

Asset servicing:

Estimated new business wins (AUC/A) (in billions)

$

49

(c)

$

84

$

933

$

125

$

168

Depositary Receipts:

Number of sponsored programs

1,145

1,176

1,206

1,258

1,279

(3)%

(10)%

Clearing services:

Global DARTS volume (in thousands)

230

246

242

261

242

(7)%

(5)%

Average active clearing accounts (U.S. platform) (in thousands)

5,959

6,107

6,046

5,979

5,900

(2)%

1

%

Average long-term mutual fund assets (U.S. platform)

(in millions)

$

437,260

$

447,287

$

466,195

$

456,954

$

450,305

(2)%

(3)%

Average investor margin loans (U.S. platform) (in millions)

$

11,575

$

11,806

$

11,890

$

11,232

$

10,711

(2)%

8

%

Broker-Dealer:

Average tri-party repo balances (in billions)

$

2,153

$

2,142

$

2,174

$

2,153

$

2,101

1

%

2

%

(a)   Excludes securities lending cash management assets and assets managed in the Investment Services business.  In 3Q15, prior period AUM was restated to reflect the reclassification of Meriten from the Investment Management business to 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 $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015 and $1.1 trillion at June 30, 2015, March 31, 2015 and Dec. 31, 2014. (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 $55 billion at Dec. 31, 2015, $61 billion at Sept. 30, 2015, $68 billion at June 30, 2015, $69 billion at March 31, 2015 and $65 billion at Dec. 31, 2014.

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

Key market metrics

4Q15 vs.

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

S&P 500 Index (a)

2044

1920

2063

2068

2059

6

%

(1)%

S&P 500 Index – daily average

2052

2027

2102

2064

2009

1

2

FTSE 100 Index (a)

6242

6062

6521

6773

6566

3

(5)

FTSE 100 Index – daily average

6271

6399

6920

6793

6526

(2)

(4)

MSCI World Index (a)

1663

1582

1736

1741

1710

5

(3)

MSCI World Index – daily average

1677

1691

1780

1726

1695

(1)

(1)

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

342

346

342

348

357

(1)

(4)

NYSE and NASDAQ share volume (in billions)

198

206

185

187

198

(4)

JPMorgan G7 Volatility Index – daily average (c)

9.49

9.93

10.06

10.40

8.54

(4)

11

Average Fed Funds effective rate

0.16

%

0.13

%

0.13

%

0.11

%

0.10

%

3

bps

6

bps

Foreign exchange rates vs. U.S. dollar:

British pound - average rate

$

1.52

$

1.55

$

1.53

$

1.51

$

1.58

(2)%

(4)%

Euro - average rate

1.10

1.11

1.11

1.13

1.25

(1)

(12)

(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

4Q15 vs.

(dollars in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Investment services fees:

Asset servicing (a)

$

1,032

$

1,057

$

1,060

$

1,038

$

1,019

(2)%

1%

Clearing services

339

345

347

344

347

(2)

(2)

Issuer services

199

313

234

232

193

(36)

3

Treasury services

137

137

144

137

145

(6)

Total investment services fees

1,707

1,852

1,785

1,751

1,704

(8)

Investment management and performance fees

864

829

878

867

885

4

(2)

Foreign exchange and other trading revenue

173

179

187

229

151

(3)

15

Financing-related fees

51

71

58

40

43

(28)

19

Distribution and servicing

41

41

39

41

43

(5)

Total fee revenue excluding investment and other income

2,836

2,972

2,947

2,928

2,826

(5)

Investment and other income

93

59

104

60

78

58

19

Total fee revenue

2,929

3,031

3,051

2,988

2,904

(3)

1

Net securities gains

21

22

16

24

31

N/M

N/M

Total fee and other revenue

$

2,950

$

3,053

$

3,067

$

3,012

$

2,935

(3)%

1%

(a)   Asset servicing fees include securities lending revenue of $46 million in 4Q15, $38 million in 3Q15, $49 million in 2Q15 and $43 million in 1Q15 and $37 million in 4Q14.  N/M Not meaningful.

KEY POINTS

  • Asset servicing fees were $1.0 billion, an increase of 1% year-over-year and a decrease of 2% sequentially. The year-over-year increase primarily reflects growth in the Global Collateral Services and Broker-Dealer Services and higher securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar. The sequential decrease primarily reflects lower client activity.
  • Clearing services fees were $339 million, a decrease of 2% both year-over-year and sequentially. Both decreases primarily reflect lost business due to industry consolidations.
  • Issuer services fees were $199 million, an increase of 3% year-over-year and a decrease of 36% sequentially. The year-over-year increase primarily reflects net new business and lower money market fee waivers in Corporate Trust, partially offset by the unfavorable impact of a stronger U.S. dollar in Corporate Trust. The sequential decrease primarily reflects seasonality in Depositary Receipts.
  • Treasury services fees were $137 million, a decrease of 6% year-over-year and flat sequentially. The year-over-year decrease primarily reflects higher compensating balance credits provided to clients and lower volumes.
  • Investment management and performance fees were $864 million, a decrease of 2% year-over-year, or an increase of 1% on a constant currency basis (Non-GAAP). On a constant currency basis (Non-GAAP), investment management and performance fees primarily reflect lower money market fee waivers and higher performance fees, partially offset by net outflows and lower market values. Sequentially, investment management and performance fees increased 4% primarily reflecting higher performance fees, lower money market fee waivers and higher equity market values, partially offset by net outflows.

 

Foreign exchange and other trading revenue

(in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

Foreign exchange

$

165

$

180

$

181

$

217

$

165

Other trading revenue (loss)

8

(1)

6

12

(14)

Total foreign exchange and other trading revenue

$

173

$

179

$

187

$

229

$

151

 

Foreign exchange and other trading revenue totaled $173 million in 4Q15 compared with $151 million in 4Q14 and $179 million in 3Q15.  In 4Q15, foreign exchange revenue totaled $165 million, flat year-over-year and a decrease of 8% sequentially.  Year-over-year, lower volumes in standing instruction programs and lower volatility were offset by higher volumes in the other trading programs and the impact of hedging activity for foreign currency placements.  The sequential decrease primarily reflects lower volumes and volatility and lower Depositary Receipts-related activity, partially offset by the impact of hedging activity for foreign currency placements.

Other trading revenue was $8 million in 4Q15, compared with an other trading loss of $14 million in 4Q14 and an other trading loss of $1 million in 3Q15.  The year-over-year increase primarily reflects the losses on hedging activities within one of the Investment Management boutiques recorded in 4Q14.

  • Financing-related fees were $51 million in 4Q15 compared with $43 million in 4Q14 and $71 million in 3Q15. The year-over-year increase primarily reflects higher fees related to secured intraday credit provided to dealers in connection with their tri-party repo activity. The sequential decrease primarily reflects lower underwriting fees.

 

Investment and other income

(in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

Corporate/bank-owned life insurance

$

43

$

32

$

31

$

33

$

37

Expense reimbursements from joint venture

16

16

17

14

15

Seed capital gains (a)

10

7

2

16

Asset-related gains (losses)

5

(9)

1

3

20

Private equity gains (losses)

1

3

(3)

1

Equity investment (losses)

(2)

(6)

(7)

(4)

(5)

Lease residual gains (losses)

(8)

54

(1)

5

Other income

29

18

3

2

5

Total investment and other income

$

93

$

59

$

104

$

60

$

78

 

(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 (loss) on seed capital investments in consolidated investment management funds was $11 million in 4Q15, $(17) million in 3Q15, $3 million in 2Q15, $21 million in 1Q15 and $18 million in 4Q14.

Investment and other income was $93 million in 4Q15 compared with $78 million in 4Q14 and $59 million in 3Q15.  The year-over-year increase primarily reflects higher other income related to termination fees in our clearing business and seed capital gains, partially offset by lower asset-related gains and lease residual losses.  The sequential increase primarily reflects higher asset-related gains, income from corporate/bank owned life insurance and other income related to termination fees in our clearing business, partially offset by lease residual losses.

 

NET INTEREST REVENUE

Net interest revenue

4Q15 vs.

(dollars in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Net interest revenue (non-FTE)

$

760

$

759

$

779

$

728

$

712

%

7%

Net interest revenue (FTE) – Non-GAAP

774

773

794

743

726

7

Net interest margin (FTE)

0.99

%

0.98

%

1.00

%

0.97

%

0.91

%

1

bps

8 bps

Selected average balances:

Cash/interbank investments

$

128,328

$

130,090

$

125,626

$

123,647

$

140,599

(1)%

(9)%

Trading account securities

2,786

2,737

3,253

3,046

3,922

2

(29)

Securities

119,532

121,188

128,641

123,476

117,243

(1)

2

Loans

61,964

61,657

61,076

57,935

56,844

9

Interest-earning assets

312,610

315,672

318,596

308,104

318,608

(1)

(2)

Interest-bearing deposits

160,334

169,753

170,716

159,520

163,149

(6)

(2)

Noninterest-bearing deposits

85,878

85,046

84,890

89,592

85,330

1

1

Selected average yields/rates:

Cash/interbank investments

0.32%

0.32%

0.34%

0.35%

0.31%

Trading account securities

2.79

2.74

2.63

2.46

2.64

Securities

1.62

1.60

1.57

1.55

1.54

Loans

1.54

1.56

1.51

1.55

1.58

Interest-earning assets

1.08

1.08

1.08

1.07

1.02

Interest-bearing deposits

0.01

0.02

0.02

0.04

0.03

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

41%

41%

39%

40%

44%

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

27%

27%

27%

29%

27%

FTE – fully taxable equivalent. bps – basis points.

KEY POINTS

  • Net interest revenue totaled $760 million in 4Q15, an increase of $48 million year-over year and $1 million sequentially. The year-over-year increase primarily reflects higher yields, the shift out of cash into securities and loans and lower interest expense on deposits. The sequential increase primarily reflects higher yields, offset by lower accretion.

 

NONINTEREST EXPENSE

Noninterest expense

4Q15 vs.

(dollars in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Staff:

Compensation

$

927

$

905

$

877

$

871

$

893

2%

4%

Incentives

315

326

349

425

319

(3)

(1)

Employee benefits

239

206

208

189

206

16

16

Total staff

1,481

1,437

1,434

1,485

1,418

3

4

Professional, legal and other purchased services

328

301

299

302

390

9

(16)

Software and equipment

225

226

228

228

235

(4)

Net occupancy

148

152

149

151

150

(3)

(1)

Distribution and servicing

92

95

96

98

102

(3)

(10)

Sub-custodian

60

65

75

70

70

(8)

(14)

Business development

75

59

72

61

75

27

Other

201

268

250

242

211

(25)

(5)

Amortization of intangible assets

64

66

65

66

73

(3)

(12)

M&I, litigation and restructuring charges

18

11

59

(3)

800

N/M

N/M

Total noninterest expense – GAAP

$

2,692

$

2,680

$

2,727

$

2,700

$

3,524

—%

(24)%

Total staff expense as a percentage of total revenue

40

%

38

%

37

%

39

%

38

%

Memo:

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

$

2,610

$

2,603

$

2,603

$

2,637

$

2,651

—%

(2)%

N/M Not meaningful.

 

KEY POINTS

  • 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 reflects lower expenses in all categories, except compensation and employee benefits expenses. The lower expenses primarily reflect the favorable impact of a stronger U.S. dollar and lower professional, legal and other purchased services and other expenses.
    • Compensation expense increased year-over-year primarily reflecting severance expense of approximately $55 million recorded in 4Q15 in ongoing support of our business improvement process.
    • Employee benefits expense increased as a result of an adjustment of approximately $30 million related to updated information received from an administrator of our health care benefits, partially offset by the impact of curtailing the U.S. pension plan.
    • Other expense decreased primarily reflecting approximately $35 million of adjustments to bank assessment charges, partially offset by higher asset-based taxes.
  • The sequential increase reflects higher staff expense primarily reflecting the factors mentioned above, and higher professional, legal and other purchased services and business development expenses, partially offset by lower other expense, as described above.

INVESTMENT SECURITIES PORTFOLIO

At Dec. 31, 2015, the fair value of our investment securities portfolio totaled $118.8 billion.  The net unrealized pre-tax gain on our total securities portfolio was $357 million at Dec. 31, 2015 compared with $1.05 billion at Sept. 30, 2015.  The decrease in the net unrealized pre-tax gain was primarily driven by the increase in interest rates.  At Dec. 31, 2015, the fair value of the held-to-maturity securities totaled $43.2 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    portfolio

  (dollars in millions)

Sept. 30, 2015

4Q15

change in

unrealized

gain (loss)

Dec. 31, 2015

Fair value

as a % of amortized

cost (a)

Unrealized

gain (loss)

Ratings

BB+

and

lower

 Fair

value

Amortized

cost

Fair

value

AAA/

AA-

A+/

A-

BBB+/

BBB-

Not

rated

Agency RMBS

$

49,850

$

(408)

$

49,585

$

49,464

100

%

$

(121)

100

%

%

%

%

%

U.S. Treasury

23,642

(193)

24,019

23,920

100

(99)

100

Sovereign debt/sovereign guaranteed

17,674

5

16,574

16,708

101

134

75

25

Non-agency RMBS (b)

1,938

(36)

1,435

1,789

81

354

1

1

90

8

Non-agency RMBS

973

(4)

900

914

94

14

7

5

18

69

1

European floating rate notes

1,634

2

1,369

1,345

98

(24)

68

27

5

Commercial MBS

5,730

(57)

5,868

5,826

99

(42)

95

4

1

State and political subdivisions

4,334

1

3,988

4,065

102

77

80

17

3

Foreign covered bonds

2,379

(9)

2,201

2,242

102

41

100

Corporate bonds

1,822

(8)

1,740

1,752

101

12

21

66

13

CLO

2,291

(6)

2,363

2,351

99

(12)

100

U.S. Government agencies

1,572

(10)

1,817

1,810

100

(7)

100

Consumer ABS

3,129

(7)

2,909

2,893

99

(16)

100

Other (c)

3,055

38

3,654

3,700

101

46

45

51

4

Total investment securities

$

120,023

(d)

$

(692)

$

118,422

$

118,779

(d)

100

%

$

357

(d)(e)

90

%

2

%

6

%

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 $1.5 billion and $1.9 billion and money market funds with a fair value of $770 million and $886 million at Sept. 30, 2015 and Dec. 31, 2015, respectively. (d)   Includes net unrealized losses on derivatives hedging securities available-for-sale of $417 million at Sept. 30, 2015 and $292 million at Dec. 31, 2015. (e)    Unrealized gains of $465 million at Dec. 31, 2015 related to available-for-sale securities.

 

NONPERFORMING ASSETS

Nonperforming assets

(dollars in millions)

Dec.31,

2015

Sept. 30,

2015

Dec. 31,

2014

Loans:

Financial institutions

$

171

$

$

Other residential mortgages

102

103

112

Wealth management loans and mortgages

11

12

12

Commercial real estate

2

1

1

Total nonperforming loans

286

116

125

Other assets owned

6

7

3

Total nonperforming assets (a)

$

292

$

123

$

128

Nonperforming assets ratio

0.46

%

0.20

%

0.22

%

Allowance for loan losses/nonperforming loans

54.9

156.0

152.8

Total allowance for credit losses/nonperforming loans

96.2

241.4

224.0

(a)   Loans of consolidated investment management funds are not part of BNY Mellon's loan portfolio.  Included in the loans of consolidated investment management funds are nonperforming loans of $53 million at Dec. 31, 2014.  These loans are recorded at fair value and therefore do not impact the provision for credit losses and allowance for loan losses, and accordingly are excluded from the nonperforming assets table above.  In 2Q15, BNY Mellon adopted the new accounting guidance included in ASU 2015-02, Consolidations.  As a result, we deconsolidated substantially all of the loans of consolidated investment management funds retroactively to Jan. 1, 2015.

Nonperforming assets were $292 million at Dec. 31, 2015, an increase of $169 million compared with $123 million at Sept. 30, 2015.  The increase in nonperforming loans in the financial institutions portfolio is related to a recent court decision.

 

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net charge-offs

(in millions)

Dec. 31,  2015

Sept. 30,

2015

Dec. 31,  2014

Allowance for credit losses - beginning of period

$

280

$

278

$

288

Provision for credit losses

163

1

1

Net (charge-offs) recoveries:

Financial institutions

(170)

1

Other residential mortgages

2

1

Commercial

(8)

Commercial real estate

(2)

Net (charge-offs) recoveries

(168)

1

(9)

Allowance for credit losses - end of period

$

275

$

280

$

280

Allowance for loan losses

$

157

$

181

$

191

Allowance for lending-related commitments

118

99

89

The allowance for credit losses was $275 million at Dec. 31, 2015, a decrease of $5 million compared with $280 million at Sept. 30, 2015.  Net charge-offs were $168 million in 4Q15, primarily reflecting the impairment charge related to a recent court decision recorded in the financial institutions portfolio.

 

CAPITAL AND LIQUIDITY

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, and credit risk asset risk-weightings using the U.S. capital rules' advanced approaches framework (the "Advanced Approach") as the related risk-weighted assets ("RWA") were higher when calculated under the Advanced Approach at Dec. 31, 2015, Sept. 30, 2015 and Dec. 31, 2014.  Our risk-based capital adequacy is determined using the higher of RWA determined using the Advanced Approach and the U.S. capital rules' standardized approach (the "Standardized Approach").  The leverage capital ratios are based on Basel III components of capital, as phased-in and quarterly average total assets.  Our consolidated capital ratios are shown in the following table. 

Capital ratios

Dec. 31,  2015

Sept. 30, 2015

Dec. 31, 2014

Consolidated regulatory capital ratios: (a)(b)

CET1 ratio

10.8

%

10.5

%

11.2

%

Tier 1 capital ratio

12.3

11.9

12.2

Total (Tier 1 plus Tier 2) capital ratio

12.5

12.2

12.5

Leverage capital ratio

5.9

5.9

5.6

BNY Mellon shareholders' equity to total assets ratio – GAAP (c)

9.7

10.1

9.7

BNY Mellon common shareholders' equity to total assets ratio – GAAP (c)

9.0

9.4

9.3

BNY Mellon tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP (c)

6.5

6.2

6.5

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

Estimated CET1 ratio:

Standardized Approach

10.3

9.9

10.6

Advanced Approach

9.5

9.3

9.8

Estimated supplementary leverage ratio ("SLR") (d)

4.9

4.8

4.4

(a)   Regulatory capital ratios for Dec. 31, 2015 are preliminary. (b)   At Dec. 31, 2015 and Sept. 30, 2015, the CET1, Tier 1 and Total risk-based consolidated regulatory capital ratios determined under the transitional Basel III Standardized Approach were 11.6%, 13.2% and 13.6%, and 11.2%, 12.7%, and 13.1%, respectively.  At Dec. 31, 2014, the CET1, Tier 1 and Total risk-based consolidated regulatory capital ratios determined under the transitional Standardized Approach were 15.0%, 16.3% and 16.9%, and were calculated based on Basel III components of capital, as phased-in, and asset risk-weightings using Basel I-based requirements. (c)    See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for a reconciliation of these ratios. (d)   The estimated SLR on a fully phased-in basis (Non-GAAP) for our largest bank subsidiary, The Bank of New York Mellon, was 4.8% at Dec. 31, 2015 and 4.6% at Sept. 30, 2015.

Estimated Basel III CET1 generation presented on a fully phased-in basis – Non-GAAP – preliminary

(in millions)

4Q15

Estimated fully phased-in Basel III CET1 – Non-GAAP – Beginning of period

$

16,077

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

637

Goodwill and intangible assets, net of related deferred tax liabilities

139

Gross Basel III CET1 generated

776

Capital deployed:

Dividends

(188)

Common stock repurchased

(431)

Total capital deployed

(619)

Other comprehensive (loss)

(245)

Additional paid-in capital (a)

94

Other

(1)

Total other deductions

(152)

Net Basel III CET1 generated

5

Estimated fully phased-in Basel III CET1 – Non-GAAP – End of period

$

16,082

(a)   Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.

The table presented below compares the fully phased-in Basel III capital components and ratios to those capital components and ratios determined on a phased-in basis (referred to as the "Transitional Approach").

Basel III capital components and ratios at Dec. 31, 2015 preliminary

Fully phased-

in Basel III -

Non-GAAP

Transitional

Approach (a)

(dollars in millions)

CET1:

Common shareholders' equity

$

35,485

$

36,067

Goodwill and intangible assets

(18,911)

(17,295)

Net pension fund assets

(116)

(46)

Equity method investments

(347)

(296)

Deferred tax assets

(20)

(8)

Other

(9)

(5)

Total CET1

16,082

18,417

Other Tier 1 capital:

Preferred stock

2,552

2,552

Trust preferred securities

74

Disallowed deferred tax assets

(12)

Net pension fund assets

(70)

Other

(22)

(25)

Total Tier 1 capital

18,612

20,936

Tier 2 capital:

Trust preferred securities

222

Subordinated debt

149

149

Allowance for credit losses

275

275

Other

(12)

(12)

Total Tier 2 capital - Standardized Approach

412

634

Excess of expected credit losses

19

19

Less: Allowance for credit losses

275

275

Total Tier 2 capital - Advanced Approach

$

156

$

378

Total capital:

Standardized Approach

$

19,024

$

21,570

Advanced Approach

$

18,768

$

21,314

Risk-weighted assets:

Standardized Approach

$

156,428

$

158,273

Advanced Approach

$

168,703

$

170,578

Standardized Approach:

Estimated Basel III CET1 ratio

10.3

%

11.6

%

Tier 1 capital ratio

11.9

13.2

Total (Tier 1 plus Tier 2) capital ratio

12.2

13.6

Advanced Approach:

Estimated Basel III CET1 ratio

9.5

%

10.8

%

Tier 1 capital ratio

11.0

12.3

Total (Tier 1 plus Tier 2) capital ratio

11.1

12.5

(a)   Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2015 under the U.S. capital rules.

BNY Mellon has presented its estimated fully phased-in Basel III CET1 and other risk-based capital ratios and 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 Basel III CET1 and other risk-based capital ratios and 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 Basel III CET1 and other risk-based capital ratios and SLR are intended to allow investors to compare these ratios with estimates presented by other companies.  The estimated fully phased-in Basel III CET1 and other risk-based capital ratios for certain periods assume certain regulatory approvals.  The U.S. capital rules require approval by banking regulators of certain models used as part of RWA calculations.  If these models are not approved, the estimated fully phased-in Basel III CET1 and other risk-based capital ratios would likely be adversely impacted.

RWA at Dec. 31, 2014, for credit risk under the estimated fully phased-in Advanced Approach, reflects the use of a simple value-at-risk methodology for repo-style transactions (including agented indemnified securities lending transactions), eligible margin loans, and similar transactions.  The estimated fully phased-in Advanced Approach RWA at Dec. 31, 2015 and Sept. 30, 2015 no longer assumes the use of this methodology.

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 components of our estimated SLR using fully phased-in Basel III components of capital.

Estimated fully phased-in SLR – Non-GAAP (a)

(dollars in millions)

Dec. 31,  2015

(b)

Sept. 30,

2015

Dec. 31,  2014

Total estimated fully phased-in Basel III CET1 – Non-GAAP

$

16,082

$

16,077

$

15,931

Additional Tier 1 capital

2,530

2,528

1,550

Total Tier 1 capital

$

18,612

$

18,605

$

17,481

Total leverage exposure:

Quarterly average total assets

$

368,590

$

373,453

$

385,232

Less: Amounts deducted from Tier 1 capital

19,403

19,532

19,947

Total on-balance sheet assets, as adjusted

349,187

353,921

365,285

Off-balance sheet exposures:

Potential future exposure for derivatives contracts (plus certain other items)

7,358

8,358

11,376

Repo-style transaction exposures included in SLR

440

362

302

Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)

26,224

27,482

21,850

Total off-balance sheet exposures

34,022

36,202

33,528

Total leverage exposure

$

383,209

$

390,123

$

398,813

Estimated fully phased-in SLR – Non-GAAP

4.9

%

(c)

4.8

%

(c)

4.4

%

(a)   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, 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.  (b)   Dec. 31, 2015 information is preliminary. (c)    The estimated SLR on a fully phased-in basis (Non-GAAP) for our largest bank subsidiary, The Bank of New York Mellon, was 4.8% at Dec. 31, 2015 and 4.6% at Sept. 30, 2015.  At Dec. 31, 2015 and Sept. 30, 2015, total Tier 1 capital was $15,142 million and $14,882 million, respectively, and total leverage exposure was $316,268 million and $322,531 million, respectively, for The Bank of New York Mellon.

Liquidity Coverage Ratio ("LCR")

The U.S. LCR rules became effective Jan. 1, 2015 and require BNY Mellon to meet an LCR of 80%, increasing annually by 10% increments until fully phased-in on Jan. 1, 2017, at which time we will be required to meet an LCR of 100%.  Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of Dec. 31, 2015 based on our current understanding of the U.S. LCR rules.

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)

4Q15 vs.

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Revenue:

Investment management fees:

Mutual funds

$

294

$

301

$

312

$

301

$

306

(2)%

(4)%

Institutional clients

350

347

363

365

364

1

(4)

Wealth management

155

156

160

159

157

(1)

(1)

Investment management fees

799

804

835

825

827

(1)

(3)

Performance fees

55

7

20

15

40

N/M

38

Investment management and performance fees

854

811

855

840

867

5

(1)

Distribution and servicing

39

37

38

38

39

5

Other (a)

25

(2)

20

45

6

N/M

N/M

Total fee and other revenue (a)

918

846

913

923

912

9

1

Net interest revenue

84

83

78

74

69

1

22

Total revenue

1,002

929

991

997

981

8

2

Noninterest expense (ex. amortization of intangible assets)

691

668

703

710

716

3

(3)

Income before taxes (ex. amortization of intangible assets)

311

261

288

287

265

19

17

Amortization of intangible assets

24

24

25

24

29

(17)

Income before taxes

$

287

$

237

$

263

$

263

$

236

21

%

22

%

Pre-tax operating margin

29

%

26

%

27

%

26

%

24

%

Adjusted pre-tax operating margin (b)

36

%

34

%

34

%

34

%

33

%

Changes in AUM (in billions): (c)

Beginning balance of AUM

$

1,625

$

1,700

$

1,717

$

1,686

$

1,620

Net inflows (outflows):

Long-term:

Equity

(9)

(4)

(13)

(5)

(5)

Fixed income

1

(3)

(2)

3

4

Index

(16)

(10)

(9)

8

1

Liability-driven investments (d)

11

11

5

8

24

Alternative investments

2

1

3

1

2

Total long-term inflows (outflows)

(11)

(5)

(16)

15

26

Short term:

Cash

2

(10)

(11)

1

6

Total net inflows (outflows)

(9)

(15)

(27)

16

32

Net market/currency impact/acquisition

9

(60)

10

15

34

Ending balance of AUM

$

1,625

(e)

$

1,625

$

1,700

$

1,717

$

1,686

%

(4)%

AUM at period end, by product type: (c)

Equity

14

%

14

%

15

%

15

%

15

%

Fixed income

13

13

13

12

12

Index

20

20

21

22

21

Liability-driven investments (d)

32

32

30

30

30

Alternative investments

4

4

4

4

4

Cash

17

17

17

17

18

Total AUM

100

%

(e)

100

%

100

%

100

%

100

%

Average balances:

Average loans

$

13,447

$

12,779

$

12,298

$

11,634

$

11,124

5

%

21

%

Average deposits

$

15,497

$

15,282

$

14,638

$

15,217

$

14,602

1

%

6

%

(a)   Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.  Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income. (b)   Excludes the net negative impact of money market fee waivers, amortization of intangible assets and is net of 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.  In 3Q15, prior period AUM was restated to reflect the reclassification of Meriten from the Investment Management business to the Other segment. (d)   Includes currency overlay assets under management. (e)    Preliminary. N/M – Not meaningful.

INVESTMENT MANAGEMENT KEY POINTS

  • Assets under management were $1.63 trillion at Dec. 31, 2015, a decrease of 4% year-over-year and flat sequentially. Both comparisons reflect the unfavorable impact of a stronger U.S. dollar. The year-over-year decrease also reflects net outflows and lower market values, partially offset by the January 2015 acquisition of Cutwater Asset Management. Sequentially, higher market values were partially offset by net outflows.
    • Net long-term outflows of $11 billion in 4Q15 driven by index and equity investments offset by continued strength in liability-driven investments.
    • Net short-term inflows were $2 billion in 4Q15.
  • Income before taxes excluding amortization of intangible assets totaled $311 million in 4Q15, an increase of 17% year-over-year and 19% sequentially. 
  • Total revenue was $1.0 billion, an increase of 2% year-over-year and 8% sequentially. Both increases primarily reflect seasonally higher performance fees and seed capital gains. The year-over-year increase also reflects higher net interest revenue and higher other trading revenue related to losses on hedging activities within a boutique recorded in 4Q14, partially offset by the unfavorable impact of a stronger U.S. dollar.
    • 42% non-U.S. revenue in 4Q15 vs. 43% in 4Q14.
  • Investment management fees were $799 million, a decrease of 3% year-over-year, or flat on a constant currency basis (Non-GAAP). On a constant currency basis (Non-GAAP), investment management fees primarily reflect net outflows and lower market values, offset by lower money market fee waivers and the impact of strategic initiatives. Sequentially, investment management fees decreased 1% primarily reflecting net outflows, partially offset by lower money market fee waivers and higher equity market values.
  • Performance fees were $55 million in 4Q15 compared with $40 million in 4Q14 and $7 million in 3Q15. The sequential increase was driven by seasonality.
  • Other revenue was $25 million in 4Q15 compared with $6 million in 4Q14 and other losses of $2 million in 3Q15. Both increases primarily reflect higher seed capital gains. The year-over-year comparison also reflects higher other trading revenue related to losses on hedging activities within a boutique recorded in 4Q14.
  • Net interest revenue increased 22% year-over-year and 1% sequentially. Both increases primarily reflect record high average loans and deposits and higher internal crediting rates for deposits.
    • Average loans increased 21% year-over-year and 5% sequentially; average deposits increased 6% year-over-year and 1% sequentially.
  • Total noninterest expense (excluding amortization of intangible assets) decreased 3% year-over-year and increased 3% sequentially. The year-over-year decrease primarily reflects the favorable impact of a stronger U.S. dollar, lower incentives and distribution and servicing expenses and the business improvement process, partially offset by strategic initiatives. The sequential increase primarily reflects higher incentive expense driven by seasonally higher performance fees.
  • BNY Mellon has signed a definitive agreement to acquire the assets of Menlo Park, CA-based Atherton Lane Advisers, LLC. With approximately $2.7 billion in assets under management, Atherton is one of Silicon Valley's premier independent investment managers serving approximately 700 high net-worth clients.

 

INVESTMENT SERVICES provides global custody and related services, broker-dealer services, global collateral services, corporate trust, depositary receipt and clearing services as well as global payment/working capital solutions to global financial institutions.

(dollars in millions, unless otherwise noted)

4Q15 vs.

4Q15

3Q15

2Q15

1Q15

4Q14

3Q15

4Q14

Revenue:

Investment services fees:

Asset servicing

$

1,005

$

1,031

$

1,035

$

1,013

$

992

(3)%

1

%

Clearing services

337

345

346

342

346

(2)

(3)

Issuer services

199

312

234

231

193

(36)

3

Treasury services

135

135

141

135

142

(5)

Total investment services fees

1,676

1,823

1,756

1,721

1,673

(8)

Foreign exchange and other trading revenue

148

177

179

209

165

(16)

(10)

Other (a)

102

87

85

63

70

17

46

Total fee and other revenue

1,926

2,087

2,020

1,993

1,908

(8)

1

Net interest revenue

632

628

636

599

573

1

10

Total revenue

2,558

2,715

2,656

2,592

2,481

(6)

3

Noninterest expense (ex. amortization of intangible assets)

1,765

1,822

1,840

1,794

2,509

(3)

(30)

Income (loss) before taxes (ex. amortization of intangible assets)

793

893

816

798

(28)

(11)

N/M

Amortization of intangible assets

40

41

40

41

43

(2)

(7)

Income (loss) before taxes

$

753

$

852

$

776

$

757

$

(71)

(12)%

N/M

Pre-tax operating margin

29

%

31

%

29

%

29

%

(3)%

Pre-tax operating margin (ex. amortization of intangible assets)

31

%

33

%

31

%

31

%

(1)%

Investment services fees as a percentage of noninterest expense (b)

96

%

101

%

98

%

96

%

93

%

Securities lending revenue

$

36

$

30

$

40

$

34

$

28

20

%

29

%

Metrics:

Average loans

$

36,960

$

38,025

$

38,264

$

37,699

$

35,448

(3)%

4

%

Average deposits

$

226,774

$

230,153

$

237,193

$

234,183

$

228,282

(1)%

(1)%

AUC/A at period end (in trillions) (c)

$

28.9

(d)

$

28.5

$

28.6

$

28.5

$

28.5

1

%

1

%

Market value of securities on loan at period end

(in billions) (e)

$

277

$

288

$

283

$

291

$

289

(4)%

(4)%

Asset servicing:

Estimated new business wins (AUC/A) (in billions)

$

49

(d)

$

84

$

933

$

125

$

168

Depositary Receipts:

Number of sponsored programs

1,145

1,176

1,206

1,258

1,279

(3)%

(10)%

Clearing services:

Global DARTS volume (in thousands)

230

246

242

261

242

(7)%

(5)%

Average active clearing accounts (U.S. platform)

(in thousands)

5,959

6,107

6,046

5,979

5,900

(2)%

1

%

Average long-term mutual fund assets (U.S. platform)

$

437,260

$

447,287

$

466,195

$

456,954

$

450,305

(2)%

(3)%

Average investor margin loans (U.S. platform)

$

11,575

$

11,806

$

11,890

$

11,232

$

10,711

(2)%

8

%

Broker-Dealer:

Average tri-party repo balances (in billions)

$

2,153

$

2,142

$

2,174

$

2,153

$

2,101

1

%

2

%

(a)   Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income. (b)   Noninterest expense excludes amortization of intangible assets and litigation expense. (c)    Includes the AUC/A of CIBC Mellon of $1.0 trillion at Dec. 31, 2015 and Sept. 30, 2015 and $1.1 trillion at June 30, 2015, March 31, 2015 and Dec. 31, 2014. (d)   Preliminary. (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 $55 billion at Dec. 31, 2015, $61 billion at Sept. 30, 2015, $68 billion at June 30, 2015, $69 billion at March 31, 2015 and $65 billion at Dec. 31, 2014. N/M – Not meaningful.

INVESTMENT SERVICES KEY POINTS

  • Income before taxes excluding amortization of intangible assets totaled $793 million in 4Q15.
    • The pre-tax operating margin excluding amortization of intangible assets was 31% in 4Q15 and the investment services fees as a percentage of noninterest expense was 96% in 4Q15, reflecting the continued focus on the business improvement process to drive operating leverage.
  • Investment services fees were $1.7 billion, flat year-over-year and a decrease of 8% sequentially.
    • Asset servicing fees (global custody, broker-dealer services and global collateral services) were $1.01 billion in 4Q15 compared with $992 million in 4Q14 and $1.03 billion in 3Q15. The year-over-year increase primarily reflects growth in the Global Collateral Services and Broker-Dealer Services and higher securities lending revenue, partially offset by the unfavorable impact of a stronger U.S. dollar. The sequential decrease primarily reflects lower client activity.
      • Estimated new business wins (AUC/A) in Asset Servicing of $49 billion in 4Q15.
    • Clearing services fees were $337 million in 4Q15 compared with $346 million in 4Q14 and $345 million in 3Q15. Both decreases primarily reflect lost business due to industry consolidations.
    • Issuer services fees (Corporate Trust and Depositary Receipts) were $199 million in 4Q15 compared with $193 million in 4Q14 and $312 million in 3Q15. The year-over-year increase primarily reflects net new business and lower money market fee waivers in Corporate Trust, partially offset by the unfavorable impact of a stronger U.S. dollar in Corporate Trust. The sequential decrease primarily reflects seasonality in Depositary Receipts.
    • Treasury services fees were $135 million in 4Q15 compared with $142 million in 4Q14 and $135 million in 3Q15. The year-over-year decrease primarily reflects higher compensating balance credits provided to clients and lower volumes.
  • Foreign exchange and other trading revenue was $148 million in 4Q15 compared with $165 million in 4Q14 and $177 million in 3Q15. The year-over-year decrease primarily reflects lower volumes in standing instruction programs and lower volatility, partially offset by higher volumes in other trading programs. The sequential decrease primarily reflects lower volumes and volatility and lower Depositary Receipts-related activity.
  • Other revenue was $102 million in 4Q15 compared with $70 million in 4Q14 and $87 million in 3Q15. Both increases primarily relate to termination fees in our clearing services business.
  • Net interest revenue was $632 million in 4Q15 compared with $573 million in 4Q14 and $628 million in 3Q15. Both increases primarily reflect higher internal crediting rates for deposits, partially offset by lower average deposits.
  • Noninterest expense (excluding amortization of intangible assets) was $1.77 billion in 4Q15 compared with $2.51 billion in 4Q14 and $1.82 billion in 3Q15. The year-over-year decrease primarily reflects lower litigation and consulting expenses, an adjustment to bank assessment charges and the favorable impact of a stronger U.S. dollar, partially offset by higher staff expense. The sequential decrease primarily reflects an adjustment to bank assessment charges, partially offset by higher staff expense.

 

OTHER SEGMENT primarily includes credit-related activities, leasing operations, corporate treasury activities, global markets and institutional banking services, business exits, M&I expenses and other corporate revenue and expense items.

(dollars in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

Revenue:

Fee and other revenue

$

117

$

103

$

137

$

117

$

133

Net interest revenue

44

48

65

55

70

Total revenue

161

151

202

172

203

Provision for credit losses

163

1

(6)

2

1

Noninterest expense (ex. amortization of intangible assets, M&I and restructuring charges (recoveries))

174

125

110

134

226

(Loss) income before taxes (ex. amortization of intangible assets, M&I and restructuring charges (recoveries))

(176)

25

98

36

(24)

Amortization of intangible assets

1

1

1

M&I and restructuring charges (recoveries)

(4)

(2)

8

(4)

(Loss) income before taxes

$

(172)

$

26

$

90

$

39

$

(25)

Average loans and leases

$

11,557

$

10,853

$

10,514

$

8,602

$

10,272

KEY POINTS

  • Total fee and other revenue decreased $16 million compared with 4Q14 and increased $14 million compared with 3Q15. The year-over-year decrease primarily reflects lower asset-related gains, lease residual gains, the impact of the July 2015 sale of Meriten Investment Management GmbH and lower securities gains, partially offset by the impact of hedging activity for foreign currency placements. The sequential increase primarily reflects higher asset-related gains, income from corporate/bank-owned life insurance and the impact of hedging activity for foreign currency placements, partially offset by lower underwriting fees.
  • Net interest revenue decreased $26 million compared with 4Q14 and $4 million compared with 3Q15. Both decreases primarily reflect higher internal crediting rates to the businesses for deposits, partially offset by higher average loans and leases.
  • The provision for credit losses was $163 million in 4Q15 reflecting the impairment charge related to a recent court decision.
  • Noninterest expense, excluding amortization of intangible assets, M&I and restructuring charges (recoveries), decreased $52 million compared with 4Q14 and increased $49 million compared with 3Q15. Both comparisons were impacted by higher employee benefits expense primarily reflecting updated information received from an administrator of our health care benefits. The year-over-year decrease primarily reflects lower litigation and the impact of curtailing the U.S. pension plan. The sequential increase also reflects higher professional, legal and other purchased services.

 

THE BANK OF NEW YORK MELLON CORPORATION Condensed Consolidated Income Statement

(in millions)

Quarter ended

Year-to-date

Dec. 31,

2015

Sept. 30, 2015

Dec. 31,

2014

Dec. 31,

2015

Dec. 31,

2014

Fee and other revenue

Investment services fees:

Asset servicing

$

1,032

$

1,057

$

1,019

$

4,187

$

4,075

Clearing services

339

345

347

1,375

1,335

Issuer services

199

313

193

978

968

Treasury services

137

137

145

555

564

Total investment services fees

1,707

1,852

1,704

7,095

6,942

Investment management and performance fees

864

829

885

3,438

3,492

Foreign exchange and other trading revenue

173

179

151

768

570

Financing-related fees

51

71

43

220

169

Distribution and servicing

41

41

43

162

173

Investment and other income

93

59

78

316

1,212

Total fee revenue

2,929

3,031

2,904

11,999

12,558

Net securities gains

21

22

31

83

91

Total fee and other revenue

2,950

3,053

2,935

12,082

12,649

Operations of consolidated investment management funds

Investment income (loss)

19

(6)

101

115

503

Interest of investment management fund note holders

3

16

59

29

340

Income (loss) from consolidated investment management funds

16

(22)

42

86

163

Net interest revenue

Interest revenue

834

838

802

3,326

3,234

Interest expense

74

79

90

300

354

Net interest revenue

760

759

712

3,026

2,880

Provision for credit losses

163

1

1

160

(48)

Net interest revenue after provision for credit losses

597

758

711

2,866

2,928

Noninterest expense

Staff

1,481

1,437

1,418

5,837

5,845

Professional, legal and other purchased services

328

301

390

1,230

1,339

Software and equipment

225

226

235

907

942

Net occupancy

148

152

150

600

610

Distribution and servicing

92

95

102

381

428

Sub-custodian

60

65

70

270

286

Business development

75

59

75

267

268

Other

201

268

211

961

1,031

Amortization of intangible assets

64

66

73

261

298

Merger and integration, litigation and restructuring charges

18

11

800

85

1,130

Total noninterest expense

2,692

2,680

3,524

10,799

12,177

Income

Income before income taxes

871

1,109

164

4,235

3,563

Provision for income taxes

175

282

(93)

1,013

912

Net income

696

827

257

3,222

2,651

Net (income) loss attributable to noncontrolling interests (includes $(5), $5, $(24), $(68) and $(84) related to consolidated investment management funds, respectively)

(3)

6

(24)

(64)

(84)

Net income applicable to shareholders of The Bank of New York Mellon Corporation

693

833

233

3,158

2,567

Preferred stock dividends

(56)

(13)

(24)

(105)

(73)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

637

$

820

$

209

$

3,053

$

2,494

 

THE BANK OF NEW YORK MELLON CORPORATION Condensed Consolidated Income Statement - continued

 

Net income applicable to common shareholders of The Bank of

 New York Mellon Corporation used for the earnings per

 share calculation

(in millions)

Quarter ended

Year-to-date

Dec. 31, 2015

Sept. 30, 2015

Dec. 31, 2014

Dec. 31, 2015

Dec. 31, 2014

Net income applicable to common shareholders of The Bank of New York Mellon Corporation

$

637

$

820

$

209

$

3,053

$

2,494

Less:  Earnings allocated to participating securities

9

6

4

43

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

$

628

$

814

$

205

$

3,010

$

2,451

 

 

Average common shares and equivalents outstanding of The Bank

 of New York Mellon Corporation

(in thousands)

Quarter ended

Year-to-date

Dec. 31, 2015

Sept. 30, 2015

Dec. 31, 2014

Dec. 31, 2015

Dec. 31, 2014

Basic

1,088,880

1,098,003

1,120,672

1,104,719

1,129,897

Diluted

1,096,385

1,105,645

1,129,040

1,112,511

1,137,480

 

 

Earnings per share applicable to the common shareholders of The

 Bank of New York Mellon Corporation

(in dollars)

Quarter ended

Year-to-date

Dec. 31, 2015

Sept. 30, 2015

Dec. 31, 2014

Dec. 31, 2015

Dec. 31, 2014

Basic

$

0.58

$

0.74

$

0.18

$

2.73

$

2.17

Diluted

$

0.57

$

0.74

$

0.18

$

2.71

$

2.15

 

THE BANK OF NEW YORK MELLON CORPORATION Consolidated Balance Sheet

(dollars in millions, except per share amounts)

Dec. 31,

2015

Sept. 30,

2015

Dec. 31,

2014

Assets

Cash and due from:

Banks

$

6,537

$

8,234

$

6,970

Interest-bearing deposits with the Federal Reserve and other central banks

113,203

82,426

96,682

Interest-bearing deposits with banks

15,146

20,002

19,495

Federal funds sold and securities purchased under resale agreements

24,373

28,901

20,302

Securities:

Held-to-maturity (fair value of $43,204, $43,758 and $21,127)

43,312

43,423

20,933

Available-for-sale

75,867

76,682

98,330

Total securities

119,179

120,105

119,263

Trading assets

7,368

6,645

9,881

Loans

63,703

63,309

59,132

Allowance for loan losses

(157)

(181)

(191)

Net loans

63,546

63,128

58,941

Premises and equipment

1,379

1,361

1,394

Accrued interest receivable

562

530

607

Goodwill

17,618

17,679

17,869

Intangible assets

3,842

3,914

4,127

Other assets

19,626

22,149

20,490

Subtotal assets of operations

392,379

375,074

376,021

Assets of consolidated investment management funds, at fair value:

Trading assets

1,228

2,087

8,678

Other assets

173

210

604

Subtotal assets of consolidated investment management funds, at fair value

1,401

2,297

9,282

Total assets

$

393,780

$

377,371

$

385,303

Liabilities

Deposits:

Noninterest-bearing (principally U.S. offices)

$

96,277

$

101,111

$

104,240

Interest-bearing deposits in U.S. offices

51,704

54,073

53,236

Interest-bearing deposits in Non-U.S. offices

131,629

111,584

108,393

Total deposits

279,610

266,768

265,869

Federal funds purchased and securities sold under repurchase agreements

15,002

8,824

11,469

Trading liabilities

4,501

4,756

7,434

Payables to customers and broker-dealers

21,900

22,236

21,181

Other borrowed funds

523

648

786

Accrued taxes and other expenses

5,986

6,457

6,903

Other liabilities (includes allowance for lending-related commitments of $118, $99 and $89)

5,490

5,890

5,025

Long-term debt

21,547

21,430

20,264

Subtotal liabilities of operations

354,559

337,009

338,931

Liabilities of consolidated investment management funds, at fair value:

Trading liabilities

229

1,072

7,660

Other liabilities

17

91

9

Subtotal liabilities of consolidated investment management funds, at fair value

246

1,163

7,669

Total liabilities

354,805

338,172

346,600

Temporary equity

Redeemable noncontrolling interests

200

247

229

Permanent equity

Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 25,826, 25,826 and 15,826 shares

2,552

2,552

1,562

Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,312,941,113, 1,310,436,554 and 1,290,222,821 shares

13

13

13

Additional paid-in capital

25,262

25,168

24,626

Retained earnings

19,974

19,525

17,683

Accumulated other comprehensive loss, net of tax

(2,600)

(2,355)

(1,634)

Less:  Treasury stock of 227,598,128, 217,483,962 and 171,995,262 common shares, at cost

(7,164)

(6,733)

(4,809)

Total The Bank of New York Mellon Corporation shareholders' equity

38,037

38,170

37,441

Nonredeemable noncontrolling interests of consolidated investment management funds

738

782

1,033

Total permanent equity

38,775

38,952

38,474

Total liabilities, temporary equity and permanent equity

$

393,780

$

377,371

$

385,303

 

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 Basel III CET1 and other risk-based capital ratios, SLR and tangible common shareholders' equity.  BNY Mellon believes that the Basel III 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 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, a gain on the sale of our investment in Wing Hang and a gain on the sale of the One Wall Street building; and expense measures which exclude M&I expenses, litigation charges, restructuring charges and amortization of intangible assets.  Earnings per share, return on equity measures and operating margin measures, which exclude some or all of these items, as well as the impairment charge related to a recent court decision, are also presented.  Earnings per share and return on equity measures also exclude the benefit primarily related to a tax carryback claim.  Operating margin measures may also exclude amortization of intangible assets and the net negative impact of money market fee waivers, net of 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.  The excluded items, in general, relate to certain charges as a result of prior transactions.  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 revenue growth on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates.  Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue.  BNY Mellon believes that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds permits investors to view revenue on a basis consistent with how management views the business.  BNY Mellon believes that these presentations, as a supplement to GAAP information, give investors a clearer picture of the results of its primary businesses.

In this Earnings Release, the net interest margin is presented on an FTE basis.  We believe that this presentation provides comparability of amounts arising from both taxable and tax-exempt sources, and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.  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.

 

Reconciliation of net income and diluted EPS – GAAP to Non-GAAP

Net income

Diluted EPS

(in millions, except per common share amounts)

YTD15

YTD14

YTD15

YTD14

Inc

Net income applicable to common shareholders of The Bank of New York Mellon

Corporation – GAAP

$

3,053

$

2,494

$

2.71

$

2.15

Less:  Gain on the sale of our investment in Wing Hang Bank

N/A

315

N/A

0.27

Gain on the sale of the One Wall Street building

N/A

204

N/A

0.18

Benefit primarily related to a tax carryback claim

N/A

150

N/A

0.13

Add:   Litigation and restructuring charges

56

860

0.05

0.74

Impairment charge related to a recent court decision

106

N/A

0.09

N/A

Charge related to investment management funds, net of incentives

N/A

81

N/A

0.07

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP

$

3,215

$

2,766

$

2.85

$

2.39

(a)

19

%

(a)   Does not foot due to rounding. N/A - Not applicable.

 

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)

4Q15

3Q15

2Q15

1Q15

4Q14

Income before income taxes – GAAP

$

871

$

1,109

$

1,165

$

1,090

$

164

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

5

(5)

37

31

24

Add:  Amortization of intangible assets

64

66

65

66

73

M&I, litigation and restructuring charges (recoveries)

18

11

59

(3)

800

 Impairment charge related to a recent court decision

170

Income before income taxes, as adjusted – Non-GAAP (a)

$

1,118

$

1,191

$

1,252

$

1,122

$

1,013

Fee and other revenue – GAAP

$

2,950

$

3,053

$

3,067

$

3,012

$

2,935

Income (loss) from consolidated investment management funds – GAAP

16

(22)

40

52

42

Net interest revenue – GAAP

760

759

779

728

712

Total revenue – GAAP

3,726

3,790

3,886

3,792

3,689

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

5

(5)

37

31

24

Total revenue, as adjusted – Non-GAAP (a)

$

3,721

$

3,795

$

3,849

$

3,761

$

3,665

Pre-tax operating margin (b)

23

%

(c)

29

%

(c)

30

%

(c)

29

%

(c)

4

%

Pre-tax operating margin – Non-GAAP (a)(b)

30

%

(c)

31

%

(c)

33

%

(c)

30

%

(c)

28

%

(a)   Non-GAAP excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets, M&I, litigation and restructuring charges (recoveries), and the impairment charge related to a recent court decision, if applicable. (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 $73 million for 4Q15, $53 million for 3Q15, $52 million for 2Q15 and $64 million for 1Q15 and would increase our pre-tax operating margin by approximately 1.5% for 4Q15, 1.0% for 3Q15, 0.9% for 2Q15 and 1.2% for 1Q15.

 

Pre-tax operating leverage

YTD15 vs.

(dollars in millions)

YTD15

YTD14

YTD14

Total revenue - GAAP

$

15,194

$

15,692

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

68

84

Gain on the sale of our investment in Wing Hang Bank

490

Gain on the sale of the One Wall Street building

346

Total revenue, as adjusted - Non-GAAP

$

15,126

$

14,772

2.40

%

Total noninterest expense - GAAP

$

10,799

$

12,177

Less:  Amortization of intangible assets

261

298

M&I, litigation and restructuring charges

85

1,130

Charge related to investment management funds, net of incentives

104

Total noninterest expense, as adjusted - Non-GAAP

$

10,453

$

10,645

(1.80)

%

Pre-tax operating leverage, as adjusted - Non-GAAP (a)(b)

420

bps

(a)   Pre-tax operating leverage is the rate of increase in total revenue less the rate of increase in total noninterest expense. (b)   Non-GAAP excludes the gains on the sales of our investment in Wing Hang Bank and the One Wall Street building, amortization of intangible assets, M&I, litigation and restructuring charges and the charge related to investment management funds, net of incentives, if applicable.

 

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)

4Q15

3Q15

2Q15

1Q15

4Q14

YTD15

Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP

$

637

$

820

$

830

$

766

$

209

$

3,053

Add:  Amortization of intangible assets, net of tax

42

43

44

43

47

172

Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP

679

863

874

809

256

3,225

Less:  Benefit primarily related to a tax carryback claim

150

Add:  M&I, litigation and restructuring charges (recoveries)

12

8

38

(2)

608

56

 Impairment charge related to a recent court decision

106

106

Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)

$

797

$

871

$

912

$

807

$

714

$

3,387

Average common shareholders' equity

$

35,664

$

35,588

$

35,516

$

35,486

$

36,859

$

35,564

Less:  Average goodwill

17,673

17,742

17,752

17,756

17,924

17,731

Average intangible assets

3,887

3,962

4,031

4,088

4,174

3,992

Add:  Deferred tax liability – tax deductible goodwill (b)

1,401

1,379

1,351

1,362

1,340

1,401

Deferred tax liability – intangible assets (b)

1,148

1,164

1,179

1,200

1,216

1,148

Average tangible common shareholders' equity – Non-GAAP

$

16,653

$

16,427

$

16,263

$

16,204

$

17,317

$

16,390

Return on common equity – GAAP (c)

7.1

%

9.1

%

9.4

%

8.8

%

2.2

%

8.6

%

Return on common equity – Non-GAAP (a)(c)

8.9

%

9.7

%

10.3

%

9.2

%

7.7

%

9.5

%

Return on tangible common equity – Non-GAAP (c)

16.2

%

20.8

%

21.5

%

20.3

%

5.9

%

19.7

%

Return on tangible common equity – Non-GAAP adjusted (a)(c)

19.0

%

21.0

%

22.5

%

20.2

%

16.3

%

20.7

%

(a)   Non-GAAP excludes amortization of intangible assets, net of tax, the benefit primarily related to a tax carryback claim, M&I, litigation and restructuring charges (recoveries) and the impairment charge related to a recent court decision, if applicable. (b)   Deferred tax liabilities are based on fully phased-in Basel III rules. (c)    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,

2015

Sept. 30,

2015

June 30,

2015

March 31,

2015

Dec. 31,

2014

(dollars in millions, unless otherwise noted)

BNY Mellon shareholders' equity at period end – GAAP

$

38,037

$

38,170

$

38,270

$

37,328

$

37,441

Less:  Preferred stock

2,552

2,552

2,552

1,562

1,562

BNY Mellon common shareholders' equity at period end – GAAP

35,485

35,618

35,718

35,766

35,879

Less:  Goodwill

17,618

17,679

17,807

17,663

17,869

Intangible assets

3,842

3,914

4,000

4,047

4,127

Add:  Deferred tax liability – tax deductible goodwill (a)

1,401

1,379

1,351

1,362

1,340

Deferred tax liability – intangible assets (a)

1,148

1,164

1,179

1,200

1,216

BNY Mellon tangible common shareholders' equity at period end – Non-GAAP

$

16,574

$

16,568

$

16,441

$

16,618

$

16,439

Total assets at period end – GAAP

$

393,780

$

377,371

$

395,254

$

392,337

$

385,303

Less:  Assets of consolidated investment management funds

1,401

2,297

2,231

1,681

9,282

Subtotal assets of operations – Non-GAAP

392,379

375,074

393,023

390,656

376,021

Less:  Goodwill

17,618

17,679

17,807

17,663

17,869

Intangible assets

3,842

3,914

4,000

4,047

4,127

Cash on deposit with the Federal Reserve and other central banks (b)

116,211

86,426

106,628

93,044

99,901

Tangible total assets of operations at period end – Non-GAAP

$

254,708

$

267,055

$

264,588

$

275,902

$

254,124

BNY Mellon shareholders' equity to total assets ratio – GAAP

9.7

%

10.1

%

9.7

%

9.5

%

9.7

%

BNY Mellon common shareholders' equity to total assets ratio – GAAP

9.0

%

9.4

%

9.0

%

9.1

%

9.3

%

BNY Mellon tangible common shareholders' equity to tangible assets of operations ratio – Non-GAAP

6.5

%

6.2

%

6.2

%

6.0

%

6.5

%

Period-end common shares outstanding (in thousands)

1,085,343

1,092,953

1,106,518

1,121,512

1,118,228

Book value per common share – GAAP

$

32.69

$

32.59

$

32.28

$

31.89

$

32.09

Tangible book value per common share – Non-GAAP

$

15.27

$

15.16

$

14.86

$

14.82

$

14.70

(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 from consolidated investment management funds, net of noncontrolling interests

(in millions)

4Q15

3Q15

2Q15

1Q15

4Q14

Income (loss) from consolidated investment management funds

$

16

$

(22)

$

40

$

52

$

42

Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds

5

(5)

37

31

24

Income (loss) from consolidated investment management funds, net of noncontrolling interests

$

11

$

(17)

$

3

$

21

$

18

 

The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.

Investment management and performance fees – Consolidated

4Q15 vs.

(dollars in millions)

4Q15

4Q14

4Q14

Investment management and performance fees – GAAP

$

864

885

(2)%

Impact of changes in foreign currency exchange rates

(27)

Investment management and performance fees, as adjusted – Non-GAAP

$

864

$

858

1

%

 

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)

4Q15

3Q15

2Q15

1Q15

4Q14

Investment management fees

$

7

$

3

$

4

$

1

$

15

Other (Investment income (loss))

4

(20)

(1)

20

3

Income (loss) from consolidated investment management funds, net of noncontrolling interests

$

11

$

(17)

$

3

$

21

$

18

 

The following table presents the impact of changes in foreign currency exchange rates on investment management fees reported in the Investment Management segment.

Investment management fees - Investment Management business

4Q15 vs.

(dollars in millions)

4Q15

4Q14

4Q14

Investment management fees – GAAP

$

799

$

827

(3)

%

Impact of changes in foreign currency exchange rates

(24)

Investment management fees, as adjusted – Non-GAAP

$

799

$

803

%

 

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)

4Q15

3Q15

2Q15

1Q15

4Q14

Income before income taxes – GAAP

$

287

$

237

$

263

$

263

$

236

Add:  Amortization of intangible assets

24

24

25

24

29

Money market fee waivers

23

28

29

33

33

Income before income taxes excluding amortization of intangible assets and money market fee waivers – Non-GAAP

$

334

$

289

$

317

$

320

$

298

Total revenue – GAAP

$

1,002

$

929

$

991

$

997

$

981

Less:  Distribution and servicing expense

92

94

95

97

101

Money market fee waivers benefiting distribution and servicing expense

27

35

37

38

37

Add:  Money market fee waivers impacting total revenue

50

63

66

71

70

Total revenue net of distribution and servicing expense

and excluding money market fee waivers – Non-GAAP

$

933

$

863

$

925

$

933

$

913

Pre-tax operating margin (a)

29

%

26

%

27

%

26

%

24

%

Pre-tax operating margin excluding amortization of intangible assets, money market fee waivers and net of distribution and servicing expense – Non-GAAP (a)

36

%

34

%

34

%

34

%

33

%

(a)   Income before taxes divided by total revenue.

 

DIVIDENDS

Common – On Jan. 21, 2016, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.17 per common share.  This cash dividend is payable on Feb. 12, 2016 to shareholders of record as of the close of business on Feb. 2, 2016. 

Preferred – On Jan. 21, 2016, The Bank of New York Mellon Corporation also declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in March 2016, in each case payable on March 21, 2016 to holders of record as of the close of business on March 5, 2016:

  • $1,011.11 per share on the Series A Preferred Stock (equivalent to $10.1111 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock); and
  • $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).

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, 2015, BNY Mellon had $28.9 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.

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding our acquisition of Atherton, enhancing the client experience, our focus on delivering value-added solutions, investment excellence and actionable, data-driven insights, capital plans, strategic priorities and our business improvement process.  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", "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, 2014 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. 21, 2016, 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.

Contacts:

MEDIA:
Kevin Heine
(212) 635-1590
kevin.heine@bnymellon.com

ANALYSTS:
Valerie Haertel
(212) 635-8529
valerie.haertel@bnymellon.com

SOURCE BNY Mellon



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