BNY Mellon Reports Fourth Quarter 2018 Earnings Of $832 Million Or $0.84 Per Common Share

PR Newswire

NEW YORK, Jan. 16, 2019

NEW YORK, Jan. 16, 2019 /PRNewswire/ --

Revenue up 7%;
down 1% excluding
notable items
(a)


EPS down 22%;

up 9% excluding
notable items
(a)


ROE  9%

ROTCE  18% (a)


CET1  10.6%

SLR  6.0%

The Bank of New York Mellon Corporation ("BNY Mellon") (NYSE: BK) today reported:






4Q18 vs.


4Q18

3Q18

4Q17

3Q18

4Q17

Net income applicable to common shareholders (in millions)

$

832


$

1,075


$

1,126


(23)%


(26)%


Diluted earnings per common share

$

0.84


$

1.06


$

1.08


(21)%


(22)%



 

Notable Items


CEO Commentary

4Q18 results include $(155) million, or $(0.16) per share, for severance, real estate and litigation, offset by adjustments to estimates for U.S. tax legislation and other changes.


"While our reported earnings per share declined 22 percent, our
results in this quarter and the fourth quarter of 2017 included a
series of notable items that make comparisons difficult. 
Excluding these items, earnings per share grew by 9 percent,"
Charlie Scharf, chairman and chief executive officer, said.

"The underlying performance of our businesses was mixed as our
revenue declined, but we continued to maintain strong expense
discipline.  In addition, we benefited from a lower tax rate and
our ongoing ability to return capital to shareholders through
buybacks," Mr. Scharf added.

"Revenue growth in several of our Investment Services
businesses was more than offset by lower revenue in our
Investment Management business.  Our expenses were essentially
flat despite a sustained significant increase in technology and
infrastructure investments as we remain focused on driving
efficiency and maintaining our cost discipline," Mr. Scharf
continued.

"We are continuing to return a significant amount of the capital
we generate to shareholders.  During 2018, we returned $4.3
billion, which includes the incremental $830 million that we
announced in December.  This represents a payout of just over
100 percent of earnings in 2018," Mr. Scharf also noted.

"As we look forward, we are cautious regarding how the
economic and market environment will impact our business in
2019.  We will remain keenly focused on managing our expense
base.  Our ongoing drive toward efficiency will allow us to
continue to increase our investment in technology and
infrastructure without meaningfully impacting the total cost
base," Mr. Scharf concluded.

4Q17 results include $181 million, or $0.17 per share, for a net benefit of U.S. tax legislation, offset by severance, litigation and other charges.


Fourth Quarter Results


Total revenue of $4.0 billion, increased 7%; decreased 1% excluding notable items (a)


     •  Fee revenue increased 9%; decreased 1% excluding 
        notable items (a)


     •  Net interest revenue increased 4%


Total noninterest expense of $3.0 billion, decreased 1%


     •  Continued investments in technology more than offset
        by lower other expenses


Investment Services


     •  Total revenue increased 3%


     •  Income before taxes increased 7%


        •  Notable items increased income before taxes ~ 9%


     •  AUC/A of $33.1 trillion, decreased 1%


Investment Management


     •  Total revenue decreased 8%


     •  Income before taxes decreased 11%


     •  AUM of $1.7 trillion, decreased 9%


Repurchased 28.9 million common shares for $1.37 billion, including $830 million of incremental buybacks, and paid dividends of $278 million to common shareholders


 

Investor Relations: Scott Freidenrich  (212) 815-4008

Media Relations: Jennifer Hendricks Sullivan  (212) 635-1374


(a)  For information on this Non-GAAP measure, see "Consolidated Financial Highlights" beginning on page 2 and "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 12.

Note:  Above comparisons are 4Q18 vs. 4Q17.

 

CONSOLIDATED FINANCIAL HIGHLIGHTS


4Q18


4Q17


4Q18 vs. 4Q17

(in millions, except per share amounts)

Results -
GAAP

Notable
items
(a)

Results -
Non-GAAP


Results -
GAAP

Notable
items (b)

Results -
Non-GAAP


GAAP

Non-
GAAP

Fee revenue

$

3,146


$


$

3,146



$

2,886


$

(279)


$

3,165



9

%

(1)

%

Net securities (losses) gains





(26)


(37)


11



N/M

N/M

Total fee and other revenue

3,146



3,146



2,860


(316)


3,176



10


(1)


(Loss) income from consolidated
  investment management funds

(24)



(24)



17



17



N/M

N/M

Net interest revenue

885



885



851


(4)


855



4


4


Total revenue

4,007



4,007



3,728


(320)


4,048



7


(1)


Provision for credit losses





(6)



(6)



N/M

N/M

Noninterest expense

2,987


269


2,718



3,006


282


2,724



(1)



Income (loss) before income taxes

1,020


(269)


1,289



728


(602)


1,330



40


(3)


Provision (benefit) for income taxes

150


(114)


264



(453)


(783)


330



N/M

(20)


Net income (loss)

$

870


$

(155)


$

1,025



$

1,181


$

181


$

1,000



(26)

%

3

%

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

$

832


$

(155)


$

987



$

1,126


$

181


$

945



(26)

%

4

%

Operating leverage (c)









811

bps

(79)

 bps

Diluted earnings per common share

$

0.84


$

(0.16)


$

0.99


(d)

$

1.08


$

0.17


$

0.91



(22)

%

9

%

Average common shares and equivalents
  outstanding - diluted

988,650





1,030,404







Pre-tax operating margin

25

%


32

%


20

%


33

%




(a)

Includes adjustments to provisional estimates for U.S. tax legislation and other changes, severance, expenses associated with consolidating real estate and litigation expense.

(b)

Includes the estimated net benefit of U.S. tax legislation, severance, litigation expense, an asset impairment and investment securities losses related to the sale of certain securities.

(c)

Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.

(d)

Does not foot due to rounding.

N/M – Not meaningful.

 

KEY DRIVERS (comparisons are 4Q18 vs. 4Q17, unless otherwise stated)

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

Capital and liquidity


(a)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 12 for additional information.

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




 

FULL-YEAR CONSOLIDATED FINANCIAL HIGHLIGHTS




2018


2017


2018 vs. 2017

(in millions, except per share amounts)

Results -

GAAP

Notable
items
 (a)

Results -
Non-GAAP


Results -

GAAP

Notable

items (b)

Results -
Non-GAAP


GAAP

Non-
GAAP

Fee revenue

$

12,842


$

(13)


$

12,855



$

12,162


$

(279)


$

12,441



6

%

3

%

Net securities (losses) gains

(48)



(48)



3


(37)


40



N/M

N/M

Total fee and other revenue

12,794


(13)


12,807



12,165


(316)


12,481



5


3


(Loss) income from consolidated
  investment management funds

(13)



(13)



70



70



N/M

N/M

Net interest revenue

3,611



3,611



3,308


(4)


3,312



9


9


Total revenue

16,392


(13)


16,405



15,543


(320)


15,863



5


3


Provision for credit losses

(11)



(11)



(24)



(24)



N/M

N/M

Noninterest expense

11,211


343


10,868



10,957


309


10,648



2


2


Income before income taxes

5,192


(356)


5,548



4,610


(629)


5,239



13


6


Provision (benefit) for income taxes

938


(188)


1,126



496


(789)


1,285



N/M

(12)


Net income (loss)

$

4,254


$

(168)


$

4,422



$

4,114


$

160


$

3,954



3

%

12

%

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

$

4,097


$

(168)


$

4,265



$

3,915


$

160


$

3,755



5

%

14

%

Operating leverage (c)









314

bps

135

bps

Diluted earnings per common share

$

4.04


$

(0.17)


$

4.21



$

3.72


$

0.15


$

3.57



9

%

18

%

Average common shares and equivalents
  outstanding - diluted

1,007,141





1,040,290







Pre-tax operating margin

32

%


34

%


30

%


33

%




(a)

Includes adjustments to provisional estimates for U.S. tax legislation and other changes, severance, expenses associated with consolidating real estate and litigation expense, each recorded in 4Q18.  Also includes expenses associated with consolidating real estate recorded in 2Q18 and adjustments to provisional estimates for U.S. tax legislation and other changes and litigation expense, both recorded in 3Q18.

(b)

Includes the estimated net benefit of U.S. tax legislation, severance, an asset impairment and investment securities losses related to the sale of certain securities, each recorded in 4Q17, and litigation expense recorded in 2017.

(c)

Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.

N/M – Not meaningful.

 

KEY DRIVERS (comparisons are 2018 vs. 2017)

Repurchased 63.7 million common shares for $3.3 billion and paid $1.1 billion in dividends to common shareholders.

 

(a)   See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 12 for additional information.
Note:  Throughout this document, sequential growth rates are unannualized.

 

 

IMPACT OF NOTABLE ITEMS ON BUSINESS SEGMENTS



Notable items by business 
 segment

(dollars in millions)

4Q18


4Q17

Investment

Management

Investment

Services

Other

Total


Investment

Management

Investment

Services


Other


Total

Fee and other revenue

$


$


$


$



$


$



$

(316)



$

(316)


Net interest revenue









(4)



(4)


Total revenue









(320)



(320)


Total noninterest expense

28


110


131


269



30


199


(a)

53


(a)

282


Income before taxes

$

(28)


$

(110)


$

(131)


$

(269)



$

(30)


$

(199)



$

(373)



$

(602)


(a)   The impact on noninterest expense from the notable items reported in 4Q17 was adjusted in 4Q18 for Investment Services and Other with no impact to the reported segment results or in total.


 

 

INVESTMENT SERVICES BUSINESS HIGHLIGHTS

(dollars in millions, unless otherwise noted; not meaningful - N/M)




4Q18 vs.

4Q18

3Q18

4Q17

3Q18

4Q17

Total revenue by line of business:






Asset Servicing

$

1,435


$

1,458


$

1,459


(2)

%

(2)

%

Pershing

558


558


569



(2)


Issuer Services

441


453


352


(3)


25


Treasury Services

328


324


322


1


2


Clearance and Collateral Management

278


264


252


5


10


Total revenue by line of business

3,040


3,057


2,954


(1)


3


Provision for credit losses

6


1


(2)


N/M

N/M

Noninterest expense

2,112


2,030


2,097


4


1


Income before taxes

$

922


$

1,026


$

859


(10)

%

7

%







Pre-tax operating margin

30

%

34

%

29

%









Foreign exchange and other trading revenue

$

163


$

161


$

168


1

%

(3)

%

Securities lending revenue

$

43


$

52


$

45


(17)

%

(4)

%







Metrics:






Average loans

$

35,540


$

35,044


$

38,845


1

%

(9)

%

Average deposits

$

203,416


$

192,741


$

204,680


6

%

(1)

%







AUC/A at period end (in trillions) (current period is preliminary) (a)

$

33.1


$

34.5


$

33.3


(4)

%

(1)

%

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

$

373


$

415


$

408


(10)

%

(9)

%







Pershing






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

6,125


6,108


6,126


%

%

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

$

489,491


$

527,336


$

508,873


(7)

%

(4)

%

Average investor margin loans (U.S. platform)

$

10,921


$

10,696


$

9,822


2

%

11

%







Clearance and Collateral Management






Average tri-party collateral management balances (in billions)

$

3,181


$

2,995


$

2,606


6

%

22

%

(a)

Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Dec. 31, 2018, $1.4 trillion at Sept. 30, 2018 and $1.3 trillion at Dec. 31, 2017.

(b)

Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $58 billion at Dec. 31, 2018, $69 billion at Sept. 30, 2018 and $71 billion at Dec. 31, 2017.

 

KEY DRIVERS


 

INVESTMENT MANAGEMENT BUSINESS HIGHLIGHTS

(dollars in millions, unless otherwise noted; not meaningful - N/M)




4Q18 vs.

4Q18

3Q18

4Q17

3Q18

4Q17

Total revenue by line of business:






Asset Management

$

660


$

704


$

738


(6)

%

(11)

%

Wealth Management

303


311


310


(3)


(2)


Total revenue by line of business

963


1,015


1,048


(5)


(8)


Provision for credit losses

1


(2)


1


N/M

N/M

Noninterest expense

715


701


771


2


(7)


Income before taxes

$

247


$

316


$

276


(22)

%

(11)

%







Pre-tax operating margin

26

%

31

%

26

%



Adjusted pre-tax operating margin – Non-GAAP (a)

29

%

35

%

29

%









Metrics:






Average loans

$

16,485


$

16,763


$

16,813


(2)

%

(2)

%

Average deposits

$

14,893


$

14,634


$

11,633


2

%

28

%







Wealth Management client assets (in billions) (current period is preliminary) (b)

$

239


$

261


$

251


(8)

%

(5)

%







Changes in AUM (in billions) (current period is preliminary) (c)






Beginning balance of AUM

$

1,828


$

1,805


$

1,824




Net (outflows) inflows:






Long-term strategies:






Equity

(8)


(2)


(6)




Fixed income

(1)


2


(2)




Liability-driven investments

14


16


23




Multi-asset and alternative investments

(2)


2


2




Total long-term active strategies inflows

3


18


17




Index

(11)


(3)


(1)




Total long-term strategies (outflows) inflows

(8)


15


16




Short term strategies:






Cash

(10)



(4)




Total net (outflows) inflows

(18)


15


12




Net market impact

(69)


18


47




Net currency impact

(19)


(10)


10




Ending balance of AUM

$

1,722


$

1,828


$

1,893


(6)

%

(9)

%

(a)

Net of distribution and servicing expense.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 12 for the reconciliation of this Non-GAAP measure.  In 1Q18, the adjusted pre-tax operating margin – Non-GAAP for prior periods was restated to include amortization of intangible assets and the provision for credit losses.

(b)

Includes AUM and AUC/A in the Wealth Management business.

(c)

Excludes securities lending cash management assets and assets managed in the Investment Services business.

 

KEY DRIVERS

 

OTHER SEGMENT primarily includes leasing operations, certain corporate treasury activities, derivatives, business exits and other corporate revenue and expense items.





(in millions)

4Q18

3Q18

4Q17

Fee revenue (loss)

$

29


$

7


$

(221)


Net securities (losses)



(26)


Total fee and other revenue (loss)

29


7


(247)


Net interest (expense)

(15)


(13)


(36)


Total revenue (loss)

14


(6)


(283)


Provision for credit losses

(7)


(2)


(5)


Noninterest expense

160


6


135


(Loss) before taxes

$

(139)


$

(10)


$

(413)


 

KEY DRIVERS


 

CAPITAL AND LIQUIDITY
Our consolidated capital and liquidity ratios are shown in the following table.


Capital and liquidity ratios

Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017

Consolidated regulatory capital ratios: (a)(b)




CET1 ratio

10.6

%

11.2

%

10.3

%

Tier 1 capital ratio

12.7

%

13.3

%

12.3

%

Total capital ratio

13.5

%

14.1

%

13.0

%

Tier 1 leverage ratio

6.6

%

7.0

%

6.4

%

SLR

6.0

%

6.4

%

5.9

%

BNY Mellon shareholders' equity to total assets ratio

11.2

%

11.9

%

11.1

%

BNY Mellon common shareholders' equity to total assets ratio

10.2

%

10.9

%

10.1

%





Average LCR

118

%

121

%

118

%





Book value per common share (c)

$

38.63


$

38.45


$

37.21


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

$

19.04


$

19.35


$

18.24


Cash dividends per common share

$

0.28


$

0.28


$

0.24


Common dividend payout ratio

33

%

26

%

22

%

Closing stock price per common share

$

47.07


$

50.99


$

53.86


Market capitalization (in millions)

$

45,207


$

50,418


$

54,584


Common shares outstanding (in thousands)

960,426


988,777


1,013,442


(a)

Regulatory capital ratios for Dec. 31, 2018 are preliminary.  For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches, which for the periods noted above was the Advanced Approaches.

(b)

Regulatory capital ratios for Dec. 31, 2017 are presented on a fully phased-in basis.  On a transitional basis at Dec. 31, 2017, the CET1 ratio was 10.7%, the Tier 1 capital ratio was 12.7%, the Total capital ratio was 13.4%, the Tier 1 leverage ratio was 6.6% and the SLR was 6.1%.

(c)

Tangible book value per common shareNon-GAAP excludes goodwill and intangible assets, net of deferred tax liabilities.  See "Supplemental information – Explanation of GAAP and Non-GAAP financial measures" beginning on page 12 for the reconciliation of this Non-GAAP measure.

 

KEY POINTS

CET1 capital totaled $17.6 billion at Dec. 31, 2018, a decrease of $950 million compared with Sept. 30, 2018.  The decrease primarily reflects capital deployed through common stock repurchases and dividend payments, partially offset by capital generated through earnings.

 


NET INTEREST REVENUE

Net interest revenue




4Q18 vs.

(dollars in millions; not meaningful - N/M)

4Q18

3Q18

4Q17

3Q18

4Q17

Net interest revenue

$

885


$

891


$

851


(1)

%

4

%

Add: Tax equivalent adjustment

4


5


11


N/M

N/M

Net interest revenue, on a fully taxable equivalent ("FTE")

basis – Non-GAAP (a)

$

889


$

896


$

862


(1)

%

3

%







Net interest margin

1.24

%

1.27

%

1.14

%

(3)

 bps

10

bps

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

1.24

%

1.28

%

1.16

%

(4)

 bps

8

bps







Selected average balances:






Cash/interbank investments (b)

$

107,425


$

102,645


$

117,446


5

%

(9)

%

Trading securities

5,543


4,261


2,723


30


104


Securities

118,904


118,505


120,225



(1)


Loans

53,834


53,807


56,772



(5)


Interest-earning assets

$

285,706


$

279,218


$

297,166


2

%

(4)

%







Interest-bearing deposits

$

161,663


$

148,636


$

147,763


9

%

9

%

Federal funds purchased and securities sold under repurchase agreements (b)

10,980


14,199


20,211


(23)


(46)


Long-term debt

28,201


28,074


28,245




Other interest-bearing liabilities

20,313


23,251


26,086


(13)


(22)


Interest-bearing liabilities

$

221,157


$

214,160


$

222,305


3

%

(1)

%

Noninterest-bearing deposits

$

58,972


$

60,677


$

69,111


(3)

%

(15)

%







Selected average yields/rates: (c)






Cash/interbank investments (b)

2.36

%

1.79

%

0.98

%



Trading securities

2.77


3.05


2.02




Securities

2.31


2.25


1.85




Loans

3.69


3.50


2.60




Interest-earning assets

2.60


2.33


1.65










Interest-bearing deposits

0.86

%

0.63

%

0.17

%



Federal funds purchased and securities sold under repurchase agreements (b)

10.95


5.33


1.83




Long-term debt

3.29


3.17


2.29




Other interest-bearing liabilities

1.76


1.53


0.71




Interest-bearing liabilities

1.75


1.37


0.65










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

38

%

37

%

40

%



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

21

%

22

%

23

%



(a)

Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.

(b)

Includes the impact of offsetting under enforceable netting agreements.

(c)

Yields/rates include the impact of interest rate hedging activities.

bps – basis points.


 

KEY DRIVERS

 

NONINTEREST EXPENSE



Noninterest expense




4Q18 vs.

(dollars in millions)

4Q18

3Q18

4Q17

3Q18

4Q17

Staff

$

1,602


$

1,478


$

1,628


8

%

(2)

%

Professional, legal and other purchased services

383


332


339


15


13


Software and equipment

300


262


297


15


1


Net occupancy

196


139


153


41


28


Sub-custodian and clearing

115


106


102


8


13


Distribution and servicing

95


99


106


(4)


(10)


Business development

64


51


66


25


(3)


Bank assessment charges

22


49


53


(55)


(58)


Amortization of intangible assets

35


48


52


(27)


(33)


Other

175


174


210


1


(17)


Total noninterest expense

$

2,987


$

2,738


$

3,006


9

%

(1)

%

 

KEY DRIVERS

 

 

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement

(in millions)

Quarter ended


Year-to-date


Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017


Dec. 31,
2018

Dec. 31,
2017



Fee and other revenue








Investment services fees:








Asset servicing

$

1,126


$

1,157


$

1,130



$

4,608


$

4,383



Clearing services

389


383


400



1,578


1,553



Issuer services

286


287


197



1,099


977



Treasury services

139


137


137



554


557



Total investment services fees

1,940


1,964


1,864



7,839


7,470



Investment management and performance fees

893


922


962



3,685


3,584



Foreign exchange and other trading revenue

181


155


166



732


668



Financing-related fees

50


52


54



207


216



Distribution and servicing

35


34


38



139


160



Investment and other income (loss)

47


41


(198)



240


64



Total fee revenue

3,146


3,168


2,886



12,842


12,162



Net securities (losses) gains



(26)



(48)


3



Total fee and other revenue

3,146


3,168


2,860



12,794


12,165



Operations of consolidated investment management funds








Investment (loss) income

(24)


10


17



(12)


74



Interest of investment management fund note holders





1


4



(Loss) income from consolidated investment management funds

(24)


10


17



(13)


70



Net interest revenue








Interest revenue

1,864


1,634


1,219



6,432


4,382



Interest expense

979


743


368



2,821


1,074



Net interest revenue

885


891


851



3,611


3,308



Total revenue

4,007


4,069


3,728



16,392


15,543



Provision for credit losses


(3)


(6)



(11)


(24)



Noninterest expense








Staff (a)

1,602


1,478


1,628



6,145


6,033



Professional, legal and other purchased services

383


332


339



1,334


1,276



Software and equipment

300


262


297



1,062


985



Net occupancy

196


139


153



630


570



Sub-custodian and clearing (b)

115


106


102



450


414



Distribution and servicing

95


99


106



406


419



Business development

64


51


66



228


229



Bank assessment charges

22


49


53



170


220



Amortization of intangible assets

35


48


52



180


209



Other (a)(b)(c)

175


174


210



606


602



Total noninterest expense

2,987


2,738


3,006



11,211


10,957



Income








Income before income taxes

1,020


1,334


728



5,192


4,610



Provision (benefit) for income taxes

150


220


(453)



938


496



Net income

870


1,114


1,181



4,254


4,114



Net loss (income) attributable to noncontrolling interests (includes $11, $(3), $(9),
  $12 and $(33) related to consolidated investment management funds, respectively)

11


(3)


(6)



12


(24)



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

881


1,111


1,175



4,266


4,090



Preferred stock dividends

(49)


(36)


(49)



(169)


(175)



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

$

832


$

1,075


$

1,126



$

4,097


$

3,915



(a)

In 1Q18, we adopted new accounting guidance included in Accounting Standards Update 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which required the reclassification of the components of pension and other postretirement costs, other than the service cost component.  As a result, staff expense increased and other expense decreased.  Prior periods have been reclassified.

(b)

Beginning in 1Q18, clearing expense, which was previously included in other expense, was included with sub-custodian expense.  Prior periods have been reclassified.

(c)

Beginning in 1Q18, M&I, litigation and restructuring charges are no longer separately disclosed.  Expenses previously reported in this line have been reclassified to existing expense categories, primarily other expense.

 

 

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

Net income applicable to common shareholders of The Bank of New York Mellon
  Corporation used for the earnings per share calculation

Quarter ended


Year-to-date


Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017


Dec. 31,
2018

Dec. 31,
2017


(in millions)


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

$

832


$

1,075


$

1,126



$

4,097


$

3,915



Less:  Earnings allocated to participating securities

5


7


8



27


43



Net income applicable to the common shareholders of The Bank of New York
  Mellon Corporation after required adjustment for the calculation of basic and
  diluted earnings per common share

$

827


$

1,068


$

1,118



$

4,070


$

3,872



 

Average common shares and equivalents outstanding of The Bank of New
  York Mellon Corporation

Quarter ended


Year-to-date


Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017


Dec. 31,
2018

Dec. 31,
2017


(in thousands)


Basic

984,343


999,808


1,024,828



1,002,922


1,034,281



Diluted

988,650


1,003,665


1,030,404



1,007,141


1,040,290



 

Earnings per share applicable to the common shareholders of The Bank of
  New York Mellon Corporation

Quarter ended


Year-to-date


Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017


Dec. 31,
2018

Dec. 31,
2017


(in dollars)


Basic

$

0.84


$

1.07


$

1.09



$

4.06


$

3.74



Diluted

$

0.84


$

1.06


$

1.08



$

4.04


$

3.72



 

 

SUPPLEMENTAL INFORMATION – EXPLANATION OF GAAP AND NON-GAAP FINANCIAL MEASURES

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures on a tangible basis, as a supplement to GAAP information.  Tangible common shareholders' equity excludes goodwill and intangible assets, net of deferred tax liabilities.  BNY Mellon believes that the return on tangible common equity measure is an additional useful measure for investors because it presents a measure of those assets that can generate income.  BNY Mellon has provided a measure of tangible book value per common share, which it believes provides additional useful information as to the level of tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures excluding notable items, including the impact of U.S. tax legislation on our investments in renewable energy and investment securities losses related to the sale of certain securities.  Expense measures, excluding notable items, including severance, expenses associated with the consolidating real estate, litigation expense and an asset impairment, are also presented.  Litigation expense represents accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees.  Income before tax measures, excluding the notable items mentioned above, as well the estimated net benefit related to U.S. tax legislation and the adjustments to those provisional estimates and other changes, are provided.  In addition, operating leverage, operating margins and diluted earnings per share, excluding the notable items impacting revenue, expense and income tax items mentioned above are adjusted to permit investors to view the financial measures on a basis consistent with how management views the businesses.

BNY Mellon has presented the operating margin for the Investment Management business net of distribution and servicing expense that was passed to third parties who distribute or service our managed funds.  BNY Mellon believes that this measure is useful when evaluating the performance of the Investment Management business relative to industry competitors.

The following table presents the reconciliation of the return on common equity and tangible common equity.

Return on common equity and tangible common equity reconciliation




(dollars in millions)

4Q18

3Q18

4Q17

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

$

832


$

1,075


$

1,126


Add:  Amortization of intangible assets

35


48


52


Less:  Tax impact of amortization of intangible assets

8


11


18


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

$

859


$

1,112


$

1,160






Average common shareholders' equity

$

37,886


$

38,036


$

36,952


Less:  Average goodwill

17,358


17,391


17,518


Average intangible assets

3,239


3,283


3,437


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

1,072


1,066


1,034


Deferred tax liability – intangible assets (a)

692


699


718


    Average tangible common shareholders' equity – Non-GAAP

$

19,053


$

19,127


$

17,749






Return on common equity (annualized) – GAAP

8.7

%

11.2

%

12.1

%

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

17.9

%

23.1

%

25.9

%

(a)

Deferred tax liabilities for 4Q17 are based on fully phased-in U.S. capital rules.

 

The following table presents the reconciliation of the book value and tangible book value per common share.

Book value and tangible book value per common share reconciliation

Dec. 31,
2018

Sept. 30,
2018

Dec. 31,
2017

(dollars in millions except common shares)

BNY Mellon shareholders' equity at period end – GAAP

$

40,638


$

41,560


$

41,251


Less:  Preferred stock

3,542


3,542


3,542


BNY Mellon common shareholders' equity at period end – GAAP

37,096


38,018


37,709


Less:  Goodwill

17,350


17,390


17,564


       Intangible assets

3,220


3,258


3,411


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

1,072


1,066


1,034


Deferred tax liability – intangible assets (a)

692


699


718


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

$

18,290


$

19,135


$

18,486






Period-end common shares outstanding (in thousands)

960,426


988,777


1,013,442






Book value per common share – GAAP

$

38.63


$

38.45


$

37.21


Tangible book value per common share – Non-GAAP

$

19.04


$

19.35


$

18.24


(a)

Deferred tax liabilities at Dec. 31, 2017 are based on fully phased-in U.S. capital rules.

 

The following table presents the reconciliation of the pre-tax operating margin for the Investment Management business.

Pre-tax operating margin reconciliation - Investment Management business




(dollars in millions)

4Q18

3Q18

4Q17

Income before income taxes – GAAP

$

247


$

316


$

276






Total revenue – GAAP

$

963


$

1,015


$

1,048


Less:  Distribution and servicing expense

95


99


107


Adjusted total revenue, net of distribution and servicing expense – Non-GAAP

$

868


$

916


$

941






Pre-tax operating margin – GAAP (a)

26

%

31

%

26

%

Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a)

29

%

35

%

29

%

(a) 

Income before taxes divided by total revenue.

 

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including statements about our capital plans, strategic priorities, financial goals, organic growth and efficiency, expenses, deposits, taxes, business opportunities, economic and market impact on our business, preliminary business metrics and regulatory capital ratios and statements regarding our aspirations, as well as our overall plans, strategies, goals, objectives, expectations, outlooks, estimates, intentions, targets, opportunities, focus and initiatives.  These statements may be expressed in a variety of ways, including the use of future or present tense language.  Words such as "estimate," "forecast," "project," "anticipate," "likely," "target," "expect," "intend," "continue," "seek," "believe," "plan," "goal," "could," "should," "would," "may," "might," "will," "strategy," "synergies," "opportunities," "trends," "future" and words of similar meaning signify forward-looking statements.  These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon's control).  Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon's Annual Report on Form 10-K for the year ended Dec. 31, 2017 and BNY Mellon's other filings with the Securities and Exchange Commission.  All forward-looking statements in this Earnings Release speak only as of Jan. 16, 2019, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

ABOUT BNY MELLON

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle.  Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries.  As of Dec. 31, 2018, BNY Mellon had $33.1 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management.  BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments.  BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).  Additional information is available on www.bnymellon.com.  Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

CONFERENCE CALL INFORMATION

Charlie Scharf, Chairman and Chief Executive Officer, and Mike Santomassimo, Chief Financial Officer, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EST on Jan. 16, 2019.  This conference call and audio webcast will include forward-looking statements and may include other material information.

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (720) 452-9082 (International), and using the passcode: 807070, or by logging onto www.bnymellon.com/investorrelations.  Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EST on Jan. 16, 2019.  Replays of the conference call and audio webcast will be available beginning Jan. 16, 2019 at approximately 2 p.m. EST through Feb. 15, 2019 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 5953533.  The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

 

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SOURCE BNY Mellon