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Bank of New York Mellon Corporation$55.73$.31.56%

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 BNY Mellon Reports Fourth Quarter Earnings Of $822 Million Or $0.77 Per Common Share
   Thursday, January 19, 2017 6:30:00 AM ET

-- Earnings per common share up 35%, or 13% on an adjusted basis year-over-year (a)

TOTAL REVENUE OF $3.79 BILLION, INCREASED 2% YEAR-OVER-YEAR

-- Fee and other revenue up slightly; Investment Services fees increased 4%

-- Net interest revenue increased 9%

CONTINUED FOCUS ON EXPENSE CONTROL

-- Total noninterest expense decreased 2% year-over-year

FULL-YEAR 2016 EARNINGS OF $3.43 BILLION OR $3.15 PER COMMON SHARE

-- Earnings of $3.45 billion or $3.17 per common share on an adjusted basis (a)

-- Earnings per common share up 16%, or 11% on an adjusted basis (a)

-- Total revenue up slightly and total noninterest expense decreased 3%

EXECUTING ON CAPITAL PLAN AND RETURNING VALUE TO COMMON SHAREHOLDERS

-- Repurchased 18.4 million common shares for $848 million in the fourth quarter of 2016 and 58.6 million common shares for $2.4 billion in full-year 2016



-- Return on common equity of 9% in the fourth quarter of 2016 and 10% in full-year 2016

-- Adjusted return on tangible common equity of 21% in both the fourth quarter and full-year of 2016 (a)

-- SLR - transitional of 6.0%; SLR - fully phased-in of 5.6% (a)

The Bank of New York Mellon Corporation ("BNY Mellon") (BK ) today reported fourth quarter net income applicable to common shareholders of $822 million, or $0.77 per diluted common share, or $826 million, or $0.77 per diluted common share, as adjusted (Non-GAAP). In the fourth quarter of 2015, net income applicable to common shareholders was $637 million, or $0.57 per diluted common share, or $755 million, or $0.68 per diluted common share, as adjusted (Non-GAAP). In the third quarter of 2016, net income applicable to common shareholders was $974 million, or $0.90 per diluted common share, or $979 million, or $0.90 per diluted common share, as adjusted (Non-GAAP) (a).

In 2016, net income applicable to common shareholders totaled $3.43 billion, or $3.15 per diluted common share, or $3.45 billion, or $3.17 per diluted common share, as adjusted (Non-GAAP). In 2015, net income applicable to common shareholders totaled $3.05 billion, or $2.71 per diluted common share, or $3.22 billion, or $2.85 per diluted common share, as adjusted (Non-GAAP) (a).

"We delivered strong fourth-quarter results, capping another year of solid execution against our three-year strategic plan. For full-year 2016, our earnings per share increased significantly as we delivered a strong return on capital. In the fourth quarter, we also generated substantial positive operating leverage, as the Investment Services business performed well and our business improvement process helped reduce structural costs," Gerald L. Hassell, chairman and chief executive officer, said.

"As we enter 2017, we continue to prioritize enhancing our clients’ experience with us in every way ... from ease of access of information, to providing data-driven insights and solutions, to improving responsiveness to inquiries. Our digital transformation is enhancing the user experience, raising our levels of automation and resiliency and allowing clients to connect to BNY Mellon anywhere, anytime" Mr. Hassell added.

"We also remain committed to providing value to our shareholders and, during the fourth quarter, we returned more than $1 billion through share repurchases and dividends," Mr. Hassell continued.

"I want to thank our clients for entrusting us with their business, my fellow shareholders for recognizing our value proposition and our 50,000-plus BNY Mellon professionals for executing on our strategy and challenging themselves to be the very best every day," Mr. Hassell concluded.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Dec. 31, 2016, BNY Mellon had $29.9 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (BK ). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

(a) These measures are considered to be Non-GAAP.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the adjusted earnings and earnings per common share reconciliation and the adjusted tangible common equity ratio reconciliation.  See "Capital and Liquidity" beginning on page 13 for the reconciliation of the SLR.

CONFERENCE CALL INFORMATION

Gerald L. Hassell, chairman and chief executive officer, and Thomas P. Gibbons, vice chairman and chief financial officer, along with other members of the executive management team from BNY Mellon, will host a conference call and simultaneous live audio webcast at 8:00 a.m. EST on Jan. 19, 2017. This conference call and audio webcast will include forward-looking statements and may include other material information.

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (719) 325-2110 (International), and using the passcode: 445371, or by logging on to www.bnymellon.com/investorrelations. Earnings materials will be available at www.bnymellon.com/investorrelations beginning at approximately 6:30 a.m. EST on Jan. 19, 2017. Replays of the conference call and audio webcast will be available beginning Jan. 19, 2017 at approximately 2 p.m. EST through Feb. 19, 2017 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 6203153. The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

FOURTH QUARTER 2016 FINANCIAL HIGHLIGHTS (a) (comparisons are 4Q16 vs. 4Q15, unless otherwise stated)

-- Earnings

                                                Earnings per share            Net income applicable to common
                                                                              shareholders of The Bank of New
                                                                              York Mellon Corporation
(in millions, except per share amounts)         4Q16     4Q15      Inc/(Dec)  4Q16      4Q15      Inc/(Dec)
GAAP results                                    $ 0.77   $  0.57   35   %     $   822   $   637   29   %
Add:  M&I, litigation and restructuring charges --       0.01                 4         12
Impairment charge related to Sentinel           N/A      0.10                 N/A       106
Non-GAAP results                                $ 0.77   $  0.68   13   %     $   826   $   755   9    %

-- Total revenue of $3.8 billion, increased 2% on both a GAAP and adjusted basis (Non-GAAP) (a).

-- Investment services fees increased 4% reflecting higher money market fees.

-- Investment management and performance fees decreased 2% due to the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and lower performance fees, partially offset by higher market values and money market fees.

-- Foreign exchange revenue increased 6% reflecting higher volatility.

-- Investment and other income decreased $23 million driven by lower other income related to termination fees in our clearing business recorded in 4Q15.

-- Net interest revenue increased $71 million driven by the increase in interest rates, impact of interest rate hedging activities and premium amortization adjustments, partially offset by lower interest-earning assets.

-- The provision for credit losses was $7 million.

-- Noninterest expense of $2.6 billion, decreased 2% on both a GAAP and adjusted basis (Non-GAAP) (a). The decrease reflects lower staff expense driven by the favorable impact of a stronger U.S. dollar, lower employee benefits and severance expense.

-- Effective tax rate of 24.3%.

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

-- AUC/A of $29.9 trillion increased 3% reflecting higher market values, offset by the unfavorable impact of a stronger U.S. dollar.

-- Estimated new AUC/A wins in Asset Servicing of $141 billion in 4Q16.

-- AUM of $1.65 trillion increased 1% reflecting higher market values offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).

-- Net long-term outflows of $11 billion in 4Q16 were a combination of $10 billion of outflows from actively managed strategies and $1 billion of outflows from index strategies.

-- Net short-term outflows totaled $3 billion in 4Q16.

-- Capital

-- Repurchased 18.4 million common shares for $848 million in 4Q16 and 58.6 million common shares for $2.4 billion in full-year 2016.

-- Return on common equity of 9% in 4Q16 and 10% in full-year 2016.

-- Adjusted return on tangible common equity of 21% in both 4Q16 and full-year 2016 (a).

-- SLR - transitional of 6.0%; SLR - fully phased-in of 5.6% (a).

(a)                                  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.  In all periods presented, Non-GAAP information excludes the net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel Management Group, Inc. ("Sentinel").  See "Capital and Liquidity" beginning on page 13 for the reconciliation of the SLR.
N/A - Not applicable.
Note: Throughout this document, sequential growth rates are unannualized.
FINANCIAL SUMMARY
(dollars in millions, except per share amounts; common shares in thousands)                                                                                                                 4Q16 vs.
                                                                                                                      4Q16          3Q16          2Q16          1Q16          4Q15          3Q16      4Q15
Revenue:
Fee and other revenue                                                                                                 $    2,954    $    3,150    $    2,999    $    2,970    $    2,950    (6)   %   --  %
Income (loss) from consolidated investment management funds                                                           5             17            10            (6)           16
Net interest revenue                                                                                                  831           774           767           766           760           7         9
Total revenue - GAAP                                                                                                  3,790         3,941         3,776         3,730         3,726         (4)       2
Less:  Net income (loss) attributable to noncontrolling interests related to consolidated investment management funds 4             9             4             (7)           5
Total revenue - Non-GAAP                                                                                              3,786         3,932         3,772         3,737         3,721         (4)       2
Provision for credit losses                                                                                           7             (19)          (9)           10            163
Expense:
Noninterest expense - GAAP                                                                                            2,631         2,643         2,620         2,629         2,692         --        (2)
Less:  Amortization of intangible assets                                                                              60            61            59            57            64
M&I, litigation and restructuring charges                                                                             7             18            7             17            18
Total noninterest expense - Non-GAAP                                                                                  2,564         2,564         2,554         2,555         2,610         --        (2)
Income:
Income before income taxes                                                                                            1,152         1,317         1,165         1,091         871           (13)  %   32  %
Provision for income taxes                                                                                            280           324           290           283           175
Net income                                                                                                            $    872      $    993      $    875      $    808      $    696
Net (income) loss attributable to noncontrolling interests (a)                                                        (2)           (6)           (2)           9             (3)
Net income applicable to shareholders of The Bank of New York Mellon Corporation                                      870           987           873           817           693
Preferred stock dividends                                                                                             (48)          (13)          (48)          (13)          (56)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation                               $    822      $    974      $    825      $    804      $    637
Operating leverage (b)                                                                                                                                                                      (338) bps 399 bps
Adjusted operating leverage - Non-GAAP (b)                                                                                                                                                  (371) bps 351 bps
Key Metrics:
Pre-tax operating margin (c)                                                                                          30          % 33          % 31          % 29          % 23          %
Adjusted pre-tax operating margin - Non-GAAP (c)                                                                      32          % 35          % 33          % 31          % 30          %
Return on common equity (annualized) (c)                                                                              9.3         % 10.8        % 9.3         % 9.2         % 7.1         %
Adjusted return on common equity (annualized) - Non-GAAP (c)                                                          9.8         % 11.3        % 9.7         % 9.7         % 8.9         %
Return on tangible common equity (annualized) - Non-GAAP (c)(d)                                                       20.4        % 23.5        % 20.4        % 20.6        % 16.2        %
Adjusted return on tangible common equity (annualized) - Non-GAAP (c)(d)                                              20.5        % 23.6        % 20.5        % 20.8        % 19.0        %
Fee revenue as a percentage of total revenue                                                                          78          % 79          % 79          % 80          % 79          %
Percentage of non-U.S. total revenue                                                                                  34          % 36          % 34          % 33          % 34          %
Average common shares and equivalents outstanding:
Basic                                                                                                                 1,050,888     1,062,248     1,072,583     1,079,641     1,088,880
Diluted                                                                                                               1,056,818     1,067,682     1,078,271     1,085,284     1,096,385
Period end:
Full-time employees                                                                                                   52,000        52,300        52,200        52,100        51,200
Book value per common share - GAAP (d)                                                                                $    33.67    $    34.19    $    33.72    $    33.34    $    32.69
Tangible book value per common share - Non-GAAP (d)                                                                   $    16.19    $    16.67    $    16.25    $    15.87    $    15.27
Cash dividends per common share                                                                                       $    0.19     $    0.19     $    0.17     $    0.17     $    0.17
Common dividend payout ratio                                                                                          25          % 21          % 23          % 23          % 30          %
Closing stock price per common share                                                                                  $    47.38    $    39.88    $    38.85    $    36.83    $    41.22
Market capitalization                                                                                                 $    49,630   $    42,167   $    41,479   $    39,669   $    44,738
Common shares outstanding                                                                                             1,047,488     1,057,337     1,067,674     1,077,083     1,085,343
(a)       Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b)       Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the components of this measure.
(c)       Non-GAAP information for all periods presented excludes the net income (loss) attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.
(d)       Tangible book value per common share - Non-GAAP and tangible common equity exclude goodwill and intangible assets, net of deferred tax liabilities.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of Non-GAAP measures.
bps - basis points.
CONSOLIDATED BUSINESS METRICS
Consolidated business metrics                                                                                                                4Q16 vs.
                                                                   4Q16                  3Q16         2Q16         1Q16         4Q15         3Q16   4Q15
Changes in AUM (in billions): (a)
Beginning balance of AUM                                           $  1,715              $  1,664     $  1,639     $  1,625     $  1,625
Net inflows (outflows):
Long-term strategies:
Equity                                                             (4)                   (3)          (2)          (3)          (9)
Fixed income                                                       (1)                   --           (2)          --           1
Liability-driven investments (b)                                   (7)                   4            15           14           11
Alternative investments                                            2                     2            1            1            2
Total long-term active strategies (outflows) inflows               (10)                  3            12           12           5
Index                                                              (1)                   (2)          (17)         (11)         (16)
Total long-term strategies (outflows) inflows                      (11)                  1            (5)          1            (11)
Short term strategies:
Cash                                                               (3)                   (1)          4            (9)          2
Total net (outflows)                                               (14)                  --           (1)          (8)          (9)
Net market impact/other                                            (11)                  80           71           41           24
Net currency impact                                                (42)                  (29)         (47)         (19)         (15)
Acquisition                                                        --                    --           2            --           --
Ending balance of AUM                                              $  1,648   (c)        $  1,715     $  1,664     $  1,639     $  1,625     (4) %  1   %
AUM at period end, by product type: (a)
Equity                                                             14         %          13         % 14         % 14         % 14         %
Fixed income                                                       13                    14           13           13           13
Index                                                              19                    18           18           19           20
Liability-driven investments (b)                                   34                    35           34           33           32
Alternative investments                                            4                     4            4            4            4
Cash                                                               16                    16           17           17           17
Total AUM                                                          100        %     (c)  100        % 100        % 100        % 100        %
Investment Management:
Average loans (in millions)                                        $  15,673             $  15,308    $  14,795    $  14,275    $  13,447    2   %  17  %
Average deposits (in millions)                                     $  15,511             $  15,600    $  15,518    $  15,971    $  15,497    (1) %  --  %
Investment Services:
Average loans (in millions)                                        $  45,832             $  44,329    $  43,786    $  45,004    $  45,844    3   %  --  %
Average deposits (in millions)                                     $  213,531            $  220,316   $  221,998   $  215,707   $  229,241   (3) %  (7) %
AUC/A at period end (in trillions) (d)                             $  29.9    (c)        $  30.5      $  29.5      $  29.1      $  28.9      (2) %  3   %
Market value of securities on loan at period end (in billions) (e) $  296                $  288       $  278       $  300       $  277       3   %  7   %
Asset servicing:
Estimated new business wins (AUC/A) (in billions)                  $  141     (c)        $  150       $  167       $  40        $  49
Depositary Receipts:
Number of sponsored programs                                       1,062                 1,094        1,112        1,131        1,145        (3) %  (7) %
Clearing services:
Average active clearing accounts (U.S. platform) (in thousands)    5,960                 5,942        5,946        5,947        5,959        --  %  --  %
Average long-term mutual fund assets (U.S. platform) (in millions) $  438,460            $  443,112   $  431,150   $  415,025   $  437,260   (1) %  --  %
Average investor margin loans (U.S. platform) (in millions)        $  10,562             $  10,834    $  10,633    $  11,063    $  11,575    (3) %  (9) %
Broker-Dealer:
Average tri-party repo balances (in billions)                      $  2,307              $  2,212     $  2,108     $  2,104     $  2,153     4   %  7   %
(a) Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.
(b) Includes currency overlay assets under management.
(c) Preliminary.
(d) Includes the AUC/A of CIBC Mellon Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Dec. 31, 2016 and Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015.
(e) Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016 and $55 billion at Dec. 31, 2015.

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

Key market metrics                                                                                      4Q16 vs.
                                                      4Q16      3Q16      2Q16      1Q16      4Q15      3Q16    4Q15
S&P 500 Index (a)                                     2239      2168      2099      2060      2044      3   %   10   %
S&P 500 Index - daily average                         2185      2162      2075      1951      2052      1       6
FTSE 100 Index (a)                                    7143      6899      6504      6175      6242      4       14
FTSE 100 Index - daily average                        6923      6765      6204      5988      6271      2       10
MSCI EAFE (a)                                         1684      1702      1608      1652      1716      (1)     (2)
MSCI EAFE - daily average                             1660      1677      1648      1593      1732      (1)     (4)
Barclays Capital Global Aggregate BondSM Index (a)(b) 451       486       482       468       442       (7)     2
NYSE and NASDAQ share volume (in billions)            189       186       203       218       198       2       (5)
JPMorgan G7 Volatility Index - daily average (c)      10.24     10.19     11.12     10.60     9.49      --      8
Average Fed Funds effective rate                      0.45    % 0.39    % 0.37    % 0.36    % 0.16    % 6   bps 29   bps
Foreign exchange rates vs. U.S. dollar:
British pound (a)                                     $  1.23   $  1.30   $  1.34   $  1.44   $  1.48   (5) %   (17) %
British pound - average rate                          1.24      1.31      1.43      1.43      1.52      (5)     (18)
Euro (a)                                              1.05      1.12      1.11      1.14      1.09      (6)     (4)
Euro - average rate                                   1.08      1.12      1.13      1.10      1.10      (4)     (2)
(a)       Period end.
(b)       Unhedged in U.S. dollar terms.
(c)       The JPMorgan G7 Volatility Index is based on the implied volatility in 3-month currency options.
bps - basis points.
FEE AND OTHER REVENUE
Fee and other revenue                                                                        4Q16 vs.
(dollars in millions)                      4Q16      3Q16      2Q16      1Q16      4Q15      3Q16    4Q15
Investment services fees:
Asset servicing (a)                        $  1,068  $  1,067  $  1,069  $  1,040  $  1,032  --   %  3    %
Clearing services                          355       349       350       350       339       2       5
Issuer services                            211       337       234       244       199       (37)    6
Treasury services                          140       137       139       131       137       2       2
Total investment services fees             1,774     1,890     1,792     1,765     1,707     (6)     4
Investment management and performance fees 848       860       830       812       864       (1)     (2)
Foreign exchange and other trading revenue 161       183       182       175       173       (12)    (7)
Financing-related fees                     50        58        57        54        51        (14)    (2)
Distribution and servicing                 41        43        43        39        41        (5)     --
Investment and other income                70        92        74        105       93        (24)    (25)
Total fee revenue                          2,944     3,126     2,978     2,950     2,929     (6)     1
Net securities gains                       10        24        21        20        21        N/M     N/M
Total fee and other revenue                $  2,954  $  3,150  $  2,999  $  2,970  $  2,950  (6)  %  --   %
(a)        Asset servicing fees include securities lending revenue of $54 million in 4Q16, $51 million in 3Q16, $52 million in 2Q16, $50 million in 1Q16 and $46 million in 4Q15.
N/M - Not meaningful.

KEY POINTS

-- Asset servicing fees were $1.1 billion, an increase of 3% year-over-year. The year-over-year increase primarily reflects higher money market fees, net new business and higher equity market values, partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing of the UK retail transfer agency business.

-- Clearing services fees were $355 million, an increase of 5% year-over-year and 2% sequentially. Both increases were primarily driven by higher money market fees. The year-over-year increase was partially offset by the impact of previously disclosed lost business.

-- Issuer services fees were $211 million, an increase of 6% year-over-year and a decrease of 37% sequentially. The year-over-year increase primarily reflects higher fees in Depositary Receipts and higher money market fees in Corporate Trust. The sequential decrease primarily reflects seasonality in Depositary Receipts.

-- Treasury services fees were $140 million, an increase of 2% both year-over-year and sequentially. Both increases primarily resulted from higher payment volumes. The year-over-year increase was partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.

-- Investment management and performance fees were $848 million, a decrease of 2% year-over-year and 1% sequentially. The year-over-year decrease primarily reflects the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) and lower performance fees, partially offset by higher market values and money market fees. The sequential decrease primarily reflects outflows of assets under management, lower fixed income market values and money market fees, partially offset by higher performance fees.

- Foreign exchange and other trading revenue       4Q16     3Q16    2Q16     1Q16     4Q15
  (in millions)
  Foreign exchange                                 $  175   $  175  $   166  $   171  $   165
  Other trading revenue (loss)                        (14)     8        16       4        8
  Total foreign exchange and other trading revenue $  161   $  183  $   182  $   175  $   173

Foreign exchange and other trading revenue totaled $161 million in 4Q16 compared with $173 million in 4Q15 and $183 million in 3Q16. In 4Q16, foreign exchange revenue totaled $175 million, an increase of 6% year-over-year, primarily reflecting higher volatility.

Other trading losses were $14 million in 4Q16, compared with other trading revenue of $8 million in both 4Q15 and 3Q16. Both decreases primarily reflect the impact of interest rate hedging activities, which are offset in net interest revenue.

-- Financing-related fees were $50 million in 4Q16, compared with $51 million in 4Q15 and $58 million in 3Q16. The sequential decrease primarily reflects lower underwriting fees.

-- Distribution and servicing fees were $41 million in 4Q16, compared with $41 million in 4Q15 and $43 million in 3Q16. Year-over-year, higher money market fees were offset by fees paid to introducing brokers.

- Investment and other income
  (in millions)                             4Q16  3Q16  2Q16  1Q16   4Q15
  Corporate/bank-owned life insurance       $ 53  $ 34  $ 31  $ 31   $ 43
  Expense reimbursements from joint venture 15    18    17    17     16
  Seed capital gains (a)                    6     16    11    11     10
  Asset-related gains                       1     8     1     --     5
  Equity investment (losses)                (2)   (1)   (4)   (3)    (2)
  Lease-related gains (losses)              (6)   --    --    44     (8)
  Other income                              3     17    18    5      29
  Total investment and other income         $ 70  $ 92  $ 74  $ 105  $ 93
(a) Excludes the gain (loss) on seed capital investments in consolidated investment management funds which are reflected in operations of consolidated investment management funds, net of noncontrolling interests.  The gain on seed capital investments in consolidated investment management funds was $1 million in 4Q16, $8 million in 3Q16, $6 million in 2Q16, $1 million in 1Q16 and $11 million in 4Q15.

Investment and other income was $70 million in 4Q16, compared with $93 million in 4Q15 and $92 million in 3Q16. The year-over-year decrease primarily reflects lower other income related to termination fees in our clearing business recorded in 4Q15, partially offset by higher income from corporate/bank-owned life insurance. The year-over-year and sequential decreases in other income also reflect the impact of increased investments in renewable energy, which generate losses in other revenue that are more than offset by tax benefits recorded to the provision for income taxes.

NET INTEREST REVENUE
Net interest revenue                                                                                                          4Q16 vs.
(dollars in millions)                                   4Q16          3Q16          2Q16          1Q16          4Q15          3Q16    4Q15
Net interest revenue (non-FTE)                          $   831       $   774       $   767       $   766       $   760       7   %   9    %
Net interest revenue (FTE)                              843           786           780           780           774           7       9
Net interest margin (FTE)                               1.17        % 1.06        % 0.98        % 1.01        % 0.99        % 11  bps 18   bps
Selected average balances:
Cash/interbank investments                              $   104,352   $   114,544   $   137,995   $   127,624   $   128,328   (9) %   (19) %
Trading account securities                              2,288         2,176         2,152         3,320         2,786         5       (18)
Securities                                              117,660       118,405       118,002       118,538       119,532       (1)     (2)
Loans                                                   63,647        61,578        60,284        61,196        61,964        3       3
Interest-earning assets                                 287,947       296,703       318,433       310,678       312,610       (3)     (8)
Interest-bearing deposits                               145,681       155,109       165,122       162,017       160,334       (6)     (9)
Noninterest-bearing deposits                            82,267        81,619        84,033        82,944        85,878        1       (4)
Selected average yields/rates:
Cash/interbank investments                              0.47        % 0.43        % 0.44        % 0.43        % 0.32        %
Trading account securities                              3.17          2.62          2.45          2.16          2.79
Securities                                              1.67          1.56          1.56          1.61          1.62
Loans                                                   1.92          1.84          1.85          1.76          1.54
Interest-earning assets                                 1.30          1.19          1.14          1.16          1.08
Interest-bearing deposits                               (0.01)        (0.02)        0.03          0.04          0.01
Average cash/interbank investments as a percentage of   36          % 39          % 43          % 41          % 41          %
average interest-earning assets
Average noninterest-bearing deposits as a percentage of 29          % 28          % 26          % 27          % 27          %
average interest-earning assets
FTE - fully taxable equivalent.
bps - basis points.

KEY POINTS

-- Net interest revenue totaled $831 million in 4Q16, an increase of $71 million year-over-year and $57 million sequentially. The year-over-year increase was primarily driven by the increase in interest rates, partially offset by lower interest-earning assets. Both increases reflect the impact of interest rate hedging activities, which positively impacted 4Q16 by approximately $25 million. Substantially all of this impact was offset in foreign exchange and other trading revenue.

-- Effective Oct. 1, 2016, we changed our accounting method for the amortization of premiums and accretion of discounts on certain mortgage-backed securities from the prepayment method (also referred to as the retrospective method) to the contractual method. Net interest revenue for 4Q16 was positively adjusted approximately $15 million as a result of this change. Prior periods were not adjusted as the impacts were not material. Net interest revenue for 4Q16 would have been higher had we continued to use the prepayment method.

-- The $25 million impact of interest rate hedging activities and the $15 million premium amortization adjustment positively impacted the 4Q16 net interest margin by 5 basis points.

NONINTEREST EXPENSE
Noninterest expense                                                                                                                                                              4Q16 vs.
(dollars in millions)                                                                                                          4Q16      3Q16      2Q16      1Q16      4Q15      3Q16   4Q15
Staff                                                                                                                          $ 1,395   $ 1,467   $ 1,412   $ 1,459   $ 1,481   (5) %  (6) %
Professional, legal and other purchased services                                                                               325       292       290       278       328       11     (1)
Software and equipment                                                                                                         237       215       223       219       225       10     5
Net occupancy                                                                                                                  153       143       152       142       148       7      3
Distribution and servicing                                                                                                     98        105       102       100       92        (7)    7
Business development                                                                                                           71        52        65        57        75        37     (5)
Sub-custodian                                                                                                                  57        59        70        59        60        (3)    (5)
Other                                                                                                                          228       231       240       241       201       (1)    13
Amortization of intangible assets                                                                                              60        61        59        57        64        (2)    (6)
M&I, litigation and restructuring charges                                                                                      7         18        7         17        18        N/M    N/M
Total noninterest expense - GAAP                                                                                               $ 2,631   $ 2,643   $ 2,620   $ 2,629   $ 2,692   --  %  (2) %
Total staff expense as a percentage of total revenue                                                                           37      % 37      % 37      % 39      % 40      %
Memo:
Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges - Non-GAAP $ 2,564   $ 2,564   $ 2,554   $ 2,555   $ 2,610   --  %  (2) %
N/M - Not meaningful.

KEY POINTS

-- Total noninterest expense decreased 2% year-over-year and decreased slightly sequentially. Total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges (Non-GAAP) decreased 2% year-over-year and was flat sequentially.

-- The year-over-year decrease primarily reflects lower staff expense and M&I, litigation and restructuring charges, partially offset by higher other and software and equipment expenses. The decrease in staff expense year-over-year was primarily driven by the favorable impact of a stronger U.S. dollar, lower employee benefits and severance expense. The increase in other expense primarily reflects a downward adjustment in bank assessment charges recorded in 4Q15.

-- The sequential decrease primarily reflects lower staff expense and M&I, litigation and restructuring charges, partially offset by higher professional, legal and other purchased services, software and equipment and business development expenses. The decrease in staff expense was primarily due to lower incentives and severance expenses. The increase in professional, legal and other purchased services primarily reflects higher regulatory compliance costs.

INVESTMENT SECURITIES PORTFOLIO
At Dec. 31, 2016, the fair value of our investment securities portfolio totaled $114.3 billion.  The net unrealized pre-tax loss on our total securities portfolio was $221 million at Dec. 31, 2016 compared with a net unrealized pre-tax gain of $1.4 billion at Sept. 30, 2016.  The decrease in the net unrealized pre-tax gain was primarily driven by an increase in market interest rates.  At Dec. 31, 2016, the fair value of the held-to-maturity securities totaled $40.7 billion and represented 36% of the fair value of the total investment securities portfolio.
The following table shows the distribution of our investment securities portfolio.
Investment securities               Sept. 30, 2016                             4Q16                                   Dec. 31, 2016                                                                     Fair value                            Unrealized                                                Ratings
portfolio                                                                      change in                                                                                                                as a % of amortized                   gain (loss)
(dollars in millions)                                                          unrealized                                                                                                               cost (a)
                                                                               gain (loss)
                                                                                                                                                                                                                                                                                                                                                        BB+
                                                                                                                                                                                                                                                                                                                                                        and
                                                                                                                                                                                                                                                                                                                                                        lower
                                    Fair                                                                              Amortized                              Fair                                                                                                                                       AAA/                 A+/   BBB+/                Not
                                    value                                                                             cost                                   value                                                         AA-                                   AA-                                    AA-                  A-    BBB-                 rated
Agency RMBS                         $                  48,987                  $                  (924)               $                  48,150              $                  47,715                  99                 %                  $                  (435)                                  100                % --  % --                 % --                 % -- %
U.S. Treasury                       25,135                                     (269)                                  25,490                                 25,244                                     99                                    (246)                                                     100                  --    --                   --                   --
Sovereign debt/sovereign guaranteed 15,998                                     (94)                                   14,159                                 14,373                                     102                                   214                                                       75                   5     20                   --                   --
Non-agency RMBS (b)                 1,463                                      (20)                                   1,080                                  1,357                                      80                                    277                                                       --                   1     2                    87                   10
Non-agency RMBS                     757                                        4                                      698                                    718                                        94                                    20                                                        8                    4     15                   72                   1
European floating rate notes        851                                        7                                      717                                    706                                        98                                    (11)                                                      68                   24    8                    --                   --
Commercial MBS                      7,310                                      (143)                                  8,106                                  8,037                                      99                                    (69)                                                      98                   2     --                   --                   --
State and political subdivisions    3,578                                      (99)                                   3,411                                  3,396                                      100                                   (15)                                                      80                   17    --                   --                   3
Foreign covered bonds               2,433                                      (22)                                   2,200                                  2,216                                      101                                   16                                                        100                  --    --                   --                   --
Corporate bonds                     1,638                                      (48)                                   1,391                                  1,396                                      100                                   5                                                         18                   67    15                   --                   --
CLOs                                2,534                                      1                                      2,593                                  2,598                                      100                                   5                                                         100                  --    --                   --                   --
U.S. Government agencies            1,808                                      21                                     1,955                                  1,964                                      101                                   9                                                         100                  --    --                   --                   --
Consumer ABS                        2,203                                      (3)                                    1,729                                  1,727                                      100                                   (2)                                                       90                   4     5                    1                    --
Other (c)                           3,961                                      (19)                                   2,822                                  2,833                                      100                                   11                                                        83                   --    14                   --                   3
Total investment securities         $                  118,656             (d) $                  (1,608)             $                  114,501             $                  114,280             (d) 99                 %                  $                  (221)               (d)(e)             93                 % 2   % 3                  % 2                  % -- %
(a) Amortized cost before impairments.
(b) These RMBS were included in the former Grantor Trust and were marked-to-market in 2009.  We believe these RMBS would receive higher credit ratings if these ratings incorporated, as additional credit enhancements, the difference between the written-down amortized cost and the current face amount of each of these securities.
(c) Includes commercial paper with a fair value of $1,503 million and $401 million and money market funds with a fair value of $931 million and $842 million at Sept. 30, 2016 and Dec. 31, 2016, respectively.
(d) Includes net unrealized losses on derivatives hedging securities available-for-sale of $1,001 million at Sept. 30, 2016 and $211 million at Dec. 31, 2016.
(e) Unrealized gains of $15 million at Dec. 31, 2016 related to available-for-sale securities.
NONPERFORMING ASSETS
Nonperforming assets                                  Dec. 31,  Sept. 30,   Dec. 31,
(dollars in millions)                                 2016      2016        2015
Loans:
Financial institutions                                $  --     $   --      $  171
Other residential mortgages                           91        93          102
Wealth management loans and mortgages                 8         7           11
Lease financing                                       4         4           --
Commercial real estate                                --        1           2
Total nonperforming loans                             103       105         286
Other assets owned                                    4         4           6
Total nonperforming assets                            $  107    $   109     $  292
Nonperforming assets ratio                            0.17   %  0.17    %   0.46   %
Allowance for loan losses/nonperforming loans         164.1     141.0       54.9
Total allowance for credit losses/nonperforming loans 272.8     261.0       96.2

Nonperforming assets were $107 million at Dec. 31, 2016, a decrease of $2 million compared with Sept. 30, 2016, and a decrease of $185 million compared with Dec. 31, 2015. The decrease compared with Dec. 31, 2015 primarily reflects the receipt of trust assets from the bankruptcy proceeding of Sentinel.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS
Allowance for credit losses, provision and net charge-offs Dec. 31,     Sept. 30,    Dec. 31,
(in millions)                                              2016         2016         2015
Allowance for credit losses - beginning of period          $     274    $     280    $     280
Provision for credit losses                                7            (19)         163
Net recoveries (charge-offs):
Financial institutions                                     --           13           (170)
Other residential mortgages                                --           --           2
Net recoveries (charge-offs)                               --           13           (168)
Allowance for credit losses - end of period                $     281    $     274    $     275
Allowance for loan losses                                  $     169    $     148    $     157
Allowance for lending-related commitments                  112          126          118

The allowance for credit losses was $281 million at Dec. 31, 2016, an increase of $7 million compared with $274 million at Sept. 30, 2016.

CAPITAL AND LIQUIDITY
Capital ratios                                                                                        Dec. 31,  Sept. 30, 2016 Dec. 31, 2015
                                                                                                      2016
Consolidated regulatory capital ratios: (a)
Standardized:
Common equity Tier 1 ("CET1") ratio                                                                   12.3 %    12.2    %      11.5   %
Tier 1 capital ratio                                                                                  14.5      14.4           13.1
Total (Tier 1 plus Tier 2) capital ratio                                                              15.2      14.8           13.5
Advanced:
CET1 ratio                                                                                            10.6      10.5           10.8
Tier 1 capital ratio                                                                                  12.6      12.5           12.3
Total (Tier 1 plus Tier 2) capital ratio                                                              13.0      12.6           12.5
Leverage capital ratio (b)                                                                            6.6       6.6            6.0
Supplementary leverage ratio ("SLR")                                                                  6.0       6.0            5.4
BNY Mellon shareholders’ equity to total assets ratio - GAAP (c)                                      11.6      10.6           9.7
BNY Mellon common shareholders’ equity to total assets ratio - GAAP (c)                               10.6      9.7            9.0
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio - Non-GAAP (c) 6.7       6.5            6.5
Selected regulatory capital ratios - fully phased-in - Non-GAAP: (a)(d)
CET1 ratio:
Standardized Approach                                                                                 11.3 %    11.4    %      10.2   %
Advanced Approach                                                                                     9.7       9.8            9.5
SLR                                                                                                   5.6       5.7            4.9
(a) Regulatory capital ratios for Dec. 31, 2016 are preliminary.  For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches.
(b) The leverage capital ratio is based on Tier 1 capital, as phased-in and quarterly average total assets.
(c) See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for a reconciliation of these ratios.
(d) Estimated.
CET1 generation in 4Q16 - preliminary                                                          Transitional Fully
                                                                                               basis (b)    phased-in -
                                                                                                            Non-GAAP (c)
(in millions)
CET1 - Beginning of period                                                                     $    18,559  $    17,159
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP 822          822
Goodwill and intangible assets, net of related deferred tax liabilities                        191          215
Gross CET1 generated                                                                           1,013        1,037
Capital deployed:
Dividends                                                                                      (203)        (203)
Common stock repurchased                                                                       (848)        (848)
Total capital deployed                                                                         (1,051)      (1,051)
Other comprehensive income                                                                     (752)        (980)
Additional paid-in capital (a)                                                                 325          325
Other                                                                                          (1)          --
Total other deductions                                                                         (428)        (655)
Net CET1 generated                                                                             (466)        (669)
CET1 - End of period                                                                           $    18,093  $    16,490
(a) Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
(b) Reflects transitional adjustments to CET1 required under the U.S. capital rules.
(c) Estimated.

The table presented below compares the fully phased-in Basel III capital components and risk-based ratios to those capital components and ratios determined on a transitional basis.

Basel III capital components and ratios  Dec. 31, 2016 (a)                    Sept. 30, 2016                       Dec. 31, 2015
(dollars in millions)                    Transitional      Fully              Transitional      Fully              Transitional      Fully
                                         basis (b)         phased-in -        basis (b)         phased-in -        basis (b)         phased-in -
                                                           Non-GAAP (c)                         Non-GAAP (c)                         Non-GAAP (c)
CET1:
Common shareholders’ equity              $    35,794       $    35,269        $    36,450       $    36,153        $    36,067       $    35,485
Goodwill and intangible assets           (17,314)          (18,312)           (17,505)          (18,527)           (17,295)          (18,911)
Net pension fund assets                  (54)              (90)               (56)              (94)               (46)              (116)
Equity method investments                (313)             (344)              (314)             (347)              (296)             (347)
Deferred tax assets                      (19)              (32)               (15)              (25)               (8)               (20)
Other                                    (1)               (1)                (1)               (1)                (5)               (9)
Total CET1                               18,093            16,490             18,559            17,159             18,417            16,082
Other Tier 1 capital:
Preferred stock                          3,542             3,542              3,542             3,542              2,552             2,552
Trust preferred securities               --                --                 --                --                 74                --
Deferred tax assets                      (13)              --                 (10)              --                 (12)              --
Net pension fund assets                  (36)              --                 (38)              --                 (70)              --
Other                                    (121)             (121)              (110)             (109)              (25)              (22)
Total Tier 1 capital                     21,465            19,911             21,943            20,592             20,936            18,612
Tier 2 capital:
Trust preferred securities               148               --                 156               --                 222               --
Subordinated debt                        550               550                149               149                149               149
Allowance for credit losses              281               281                274               274                275               275
Other                                    (12)              (11)               (6)               (6)                (12)              (12)
Total Tier 2 capital - Standardized      967               820                573               417                634               412
Approach
Excess of expected credit losses         61                61                 33                33                 37                37
Less: Allowance for credit losses        281               281                274               274                275               275
Total Tier 2 capital - Advanced          $    747          $    600           $    332          $    176           $    396          $    174
Approach
Total capital:
Standardized Approach                    $    22,432       $    20,731        $    22,516       $    21,009        $    21,570       $    19,024
Advanced Approach                        $    22,212       $    20,511        $    22,275       $    20,768        $    21,332       $    18,786
Risk-weighted assets:
Standardized Approach                    $    147,581      $    146,392       $    152,410      $    151,173       $    159,893      $    158,015
Advanced Approach                        $    170,519      $    169,259       $    176,232      $    174,912       $    170,384      $    168,509
Standardized Approach:
CET1 ratio                               12.3         %    11.3         %     12.2         %    11.4         %     11.5         %    10.2         %
Tier 1 capital ratio                     14.5              13.6               14.4              13.6               13.1              11.8
Total (Tier 1 plus Tier 2) capital ratio 15.2              14.2               14.8              13.9               13.5              12.0
Advanced Approach:
CET1 ratio                               10.6         %    9.7          %     10.5         %    9.8          %     10.8         %    9.5          %
Tier 1 capital ratio                     12.6              11.8               12.5              11.8               12.3              11.0
Total (Tier 1 plus Tier 2) capital ratio 13.0              12.1               12.6              11.9               12.5              11.1
(a) Preliminary.
(b) Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required under the U.S. capital rules.
(c) Estimated.

BNY Mellon has presented its estimated fully phased-in CET1 and other risk-based capital ratios and the fully phased-in SLR based on its interpretation of the U.S. capital rules, which are being gradually phased-in over a multi-year period, and on the application of such rules to BNY Mellon’s businesses as currently conducted. Management views the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR as key measures in monitoring BNY Mellon’s capital position and progress against future regulatory capital standards. Additionally, the presentation of the estimated fully phased-in CET1 and other risk-based capital ratios and fully phased-in SLR are intended to allow investors to compare these ratios with estimates presented by other companies.

Our capital and liquidity ratios are necessarily subject to, among other things, BNY Mellon’s further review of applicable rules, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. Consequently, our capital and liquidity ratios remain subject to ongoing review and revision and may change based on these factors.

Supplementary Leverage Ratio ("SLR")

The following table presents the SLR on both the transitional and fully phased-in Basel III basis for BNY Mellon and our largest bank subsidiary, The Bank of New York Mellon.

SLR                                                                                 Dec. 31, 2016 (a)                    Sept. 30, 2016                        Dec. 31, 2015
(dollars in millions)                                                               Transitional      Fully              Transitional basis Fully              Transitional basis Fully
                                                                                    basis             phased-in -                           phased-in -                           phased-in -
                                                                                                      Non-GAAP (b)                          Non-GAAP (b)                          Non-GAAP (b)
Consolidated:
Tier 1 capital                                                                      $    21,465       $    19,911        $      21,943      $    20,592        $      20,936      $    18,612
Total leverage exposure:
Quarterly average total assets                                                      $    344,142      $    344,142       $      351,230     $    351,230       $      368,590     $    368,590
Less: Amounts deducted from Tier 1 capital                                          17,562            18,886             17,743             19,095             17,650             19,403
Total on-balance sheet assets                                                       326,580           325,256            333,487            332,135            350,940            349,187
Off-balance sheet exposures:
Potential future exposure for derivatives contracts (plus certain other items)      6,021             6,021              6,149              6,149              7,158              7,158
Repo-style transaction exposures                                                    533               533                447                447                440                440
Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions) 23,274            23,274             23,571             23,571             26,025             26,025
Total off-balance sheet exposures                                                   29,828            29,828             30,167             30,167             33,623             33,623
Total leverage exposure                                                             $    356,408      $    355,084       $      363,654     $    362,302       $      384,563     $    382,810
SLR - Consolidated (c)                                                              6.0          %    5.6          %     6.0            %   5.7          %     5.4            %   4.9          %
The Bank of New York Mellon, our largest bank subsidiary:
Tier 1 capital                                                                      $    19,019       $    17,715        $      18,701      $    17,592        $      16,814      $    15,142
Total leverage exposure                                                             $    290,623      $    290,230       $      299,641     $    299,236       $      316,812     $    316,270
SLR - The Bank of New York Mellon (c)                                               6.5          %    6.1          %     6.2            %   5.9          %     5.3            %   4.8          %
(a) Dec. 31, 2016 information is preliminary.
(b) Estimated.
(c) The estimated fully phased-in SLR (Non-GAAP) is based on our interpretation of the U.S. capital rules.  When the SLR is fully phased-in in 2018 as a required minimum ratio, we expect to maintain an SLR of over 5%.  The minimum required SLR is 3% and there is a 2% buffer, in addition to the minimum, that is applicable to U.S. G-SIBs.  The insured depository institution subsidiaries of the U.S. G-SIBs, including those of BNY Mellon, must maintain a 6% SLR to be considered "well capitalized."

Liquidity Coverage Ratio ("LCR")

The U.S. LCR rules became effective Jan. 1, 2015 and require BNY Mellon to meet an LCR of 100% when fully phased-in on Jan. 1, 2017. Our estimated LCR on a consolidated basis is compliant with the fully phased-in requirements of the U.S. LCR as of Dec. 31, 2016. Our consolidated HQLA before haircuts totaled $156 billion at Dec. 31, 2016, compared with $195 billion at Sept. 30, 2016 and $218 billion at Dec. 31, 2015.

INVESTMENT MANAGEMENT provides investment management services to institutional and retail investors, as well as investment management, wealth and estate planning and private banking solutions to high net worth individuals and families, and foundations and endowments.

(dollars in millions, unless otherwise noted)                                                                                          4Q16 vs.
                                                                       4Q16            3Q16        2Q16        1Q16        4Q15        3Q16   4Q15
Revenue:
Investment management fees:
Mutual funds                                                           $  297          $  309      $  304      $  300      $  294      (4) %  1    %
Institutional clients                                                  340             362         344         334         350         (6)    (3)
Wealth management                                                      164             166         160         152         155         (1)    6
Investment management fees (a)                                         801             837         808         786         799         (4)    --
Performance fees                                                       32              8           9           11          55          N/M    (42)
Investment management and performance fees                             833             845         817         797         854         (1)    (2)
Distribution and servicing                                             48              49          49          46          39          (2)    23
Other (a)                                                              (1)             (18)        (10)        (31)        22          N/M    N/M
Total fee and other revenue (a)                                        880             876         856         812         915         --     (4)
Net interest revenue                                                   80              82          82          83          84          (2)    (5)
Total revenue                                                          960             958         938         895         999         --     (4)
Provision for credit losses                                            6               --          1           (1)         (4)         N/M    N/M
Noninterest expense (ex. amortization of intangible assets)            672             680         684         660         689         (1)    (2)
Amortization of intangible assets                                      22              22          19          19          24          --     (8)
Total noninterest expense                                              694             702         703         679         713         (1)    (3)
Income before taxes                                                    $  260          $  256      $  234      $  217      $  290      2   %  (10) %
Income before taxes (ex. amortization of intangible assets) - Non-GAAP $  282          $  278      $  253      $  236      $  314      1   %  (10) %
Pre-tax operating margin                                               27        %     27        % 25        % 24        % 29        %
Adjusted pre-tax operating margin - Non-GAAP (b)                       33        %     33        % 30        % 30        % 34        %
Changes in AUM (in billions): (c)
Beginning balance of AUM                                               $  1,715        $  1,664    $  1,639    $  1,625    $  1,625
Net inflows (outflows):
Long-term strategies:
Equity                                                                 (4)             (3)         (2)         (3)         (9)
Fixed income                                                           (1)             --          (2)         --          1
Liability-driven investments (d)                                       (7)             4           15          14          11
Alternative investments                                                2               2           1           1           2
Total long-term active strategies (outflows) inflows                   (10)            3           12          12          5
Index                                                                  (1)             (2)         (17)        (11)        (16)
Total long-term strategies (outflows) inflows                          (11)            1           (5)         1           (11)
Short term strategies:
Cash                                                                   (3)             (1)         4           (9)         2
Total net (outflows)                                                   (14)            --          (1)         (8)         (9)
Net market impact/other                                                (11)            80          71          41          24
Net currency impact                                                    (42)            (29)        (47)        (19)        (15)
Acquisition                                                            --              --          2           --          --
Ending balance of AUM                                                  $  1,648    (e) $  1,715    $  1,664    $  1,639    $  1,625    (4) %  1    %
AUM at period end, by product type: (c)
Equity                                                                 14        %     13        % 14        % 14        % 14        %
Fixed income                                                           13              14          13          13          13
Index                                                                  19              18          18          19          20
Liability-driven investments (d)                                       34              35          34          33          32
Alternative investments                                                4               4           4           4           4
Cash                                                                   16              16          17          17          17
Total AUM                                                              100       % (e) 100       % 100       % 100       % 100       %
Average balances:
Average loans                                                          $  15,673       $  15,308   $  14,795   $  14,275   $  13,447   2   %  17   %
Average deposits                                                       $  15,511       $  15,600   $  15,518   $  15,971   $  15,497   (1) %  --   %
(a)        Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See page 28 for a breakdown of the revenue line items in the Investment Management business impacted by the consolidated investment management funds.  Additionally, other revenue includes asset servicing, treasury services, foreign exchange and other trading revenue and investment and other income.
(b)        Excludes amortization of intangible assets, provision for credit losses and distribution and servicing expense.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 24 for the reconciliation of this Non-GAAP measure.
(c)        Excludes securities lending cash management assets and assets managed in the Investment Services business and the Other segment.
(d)        Includes currency overlay assets under management.
(e)        Preliminary.
N/M - Not meaningful.

INVESTMENT MANAGEMENT KEY POINTS

-- Income before taxes totaled $260 million in 4Q16, a decrease of 10% year-over-year and an increase of 2% sequentially. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $282 million in 4Q16, a decrease of 10% year-over-year and an increase of 1% sequentially.

-- Pre-tax operating margin of 27% in 4Q16 decreased 197 basis points year-over-year and increased 41 basis points sequentially.

-- Adjusted pre-tax operating margin (Non-GAAP) of 33% in 4Q16 decreased 85 basis points year-over-year and increased 83 basis points sequentially.

-- Total revenue was $960 million, a decrease of 4% year-over-year and a slight increase sequentially.

-- 42% non-U.S. revenue in 4Q16 vs. 42% in 4Q15.

-- Investment management fees were $801 million, a slight increase year-over-year and a decrease of 4% sequentially. The year-over-year increase primarily reflects higher market values and money market fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). The sequential decrease primarily reflects outflows of assets under management, lower fixed income market values and money market fees.

-- Net long-term outflows of $11 billion in 4Q16 were a combination of $10 billion of outflows from actively managed strategies and $1 billion of outflows from index strategies.

-- Net short-term outflows were $3 billion in 4Q16.

-- Performance fees were $32 million in 4Q16 compared with $55 million in 4Q15 and $8 million in 3Q16. The sequential increase was driven by seasonality.

-- Distribution and servicing fees were $48 million in 4Q16 compared with $39 million in 4Q15 and $49 million in 3Q16. The year-over-year increase primarily reflects higher money market fees.

-- Other revenue was a loss of $1 million in 4Q16 compared with other revenue of $22 million in 4Q15 and a loss of $18 million in 3Q16. The year-over-year decrease reflects payments to Investment Services related to higher money market fees and lower seed capital gains, partially offset by gains on investments. The sequential increase primarily reflects gains on hedging activity and investments, as well as losses on investments recorded in 3Q16, partially offset by lower seed capital gains.

-- Net interest revenue decreased 5% year-over-year and 2% sequentially. The year-over-year decrease primarily reflects the impact of the 1Q16 changes in the internal crediting rates, partially offset by record average loans and higher rates on deposits.

-- Average loans increased 17% year-over-year and 2% sequentially; average deposits increased slightly year-over-year and decreased 1% sequentially. The increases in average loans were driven by our program to extend banking solutions to high net worth clients.

-- Total noninterest expense (excluding amortization of intangible assets) decreased 2% year-over-year and 1% sequentially. The year-over-year decrease was primarily driven by the favorable impact of a stronger U.S. dollar (principally versus the British pound) and lower professional, legal and other purchased services and lower staff expense, partially offset by higher distribution and servicing expense as a result of lower money market fee waivers. The sequential decrease primarily reflects lower severance expense, partially offset by higher other expenses.

INVESTMENT SERVICES provides business and technology solutions to financial institutions, corporations, public funds and government agencies, including: asset servicing (custody, accounting, broker-dealer services, securities lending, collateral and liquidity services), clearing services, issuer services (depositary receipts and corporate trust) and treasury services (global payments, trade finance and cash management).

(dollars in millions, unless otherwise noted)                                                                                                                                             4Q16 vs.
                                                                                                                     4Q16             3Q16         2Q16         1Q16         4Q15         3Q16    4Q15
Revenue:
Investment services fees:
Asset servicing                                                                                                      $  1,043         $  1,039     $  1,043     $  1,016     $  1,009     --   %  3   %
Clearing services                                                                                                    354              347          350          348          337          2       5
Issuer services                                                                                                      211              336          233          244          199          (37)    6
Treasury services                                                                                                    139              136          137          129          135          2       3
Total investment services fees                                                                                       1,747            1,858        1,763        1,737        1,680        (6)     4
Foreign exchange and other trading revenue                                                                           157              177          161          168          150          (11)    5
Other (a)                                                                                                            128              148          130          125          127          (14)    1
Total fee and other revenue                                                                                          2,032            2,183        2,054        2,030        1,957        (7)     4
Net interest revenue                                                                                                 713              715          690          679          664          --      7
Total revenue                                                                                                        2,745            2,898        2,744        2,709        2,621        (5)     5
Provision for credit losses                                                                                          --               1            (7)          14           8            N/M     N/M
Noninterest expense (ex. amortization of intangible assets)                                                          1,786            1,812        1,819        1,770        1,791        (1)     --
Amortization of intangible assets                                                                                    38               39           40           38           40           (3)     (5)
Total noninterest expense                                                                                            1,824            1,851        1,859        1,808        1,831        (1)     --
Income before taxes                                                                                                  $  921           $  1,046     $  892       $  887       $  782       (12) %  18  %
Income before taxes (ex. amortization of intangible assets) - Non-GAAP                                               $  959           $  1,085     $  932       $  925       $  822       (12) %  17  %
Pre-tax operating margin                                                                                             34         %     36         % 33         % 33         % 30         %
Adjusted pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets) - Non-GAAP 35         %     37         % 34         % 35         % 32         %
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)              98         %     103        % 97         % 98         % 94         %
Securities lending revenue                                                                                           $  44            $  42        $  42        $  42        $  39        5    %  13  %
Metrics:
Average loans                                                                                                        $  45,832        $  44,329    $  43,786    $  45,004    $  45,844    3    %  --  %
Average deposits                                                                                                     $  213,531       $  220,316   $  221,998   $  215,707   $  229,241   (3)  %  (7) %
AUC/A at period end (in trillions) (b)                                                                               $  29.9      (c) $  30.5      $  29.5      $  29.1      $  28.9      (2)  %  3   %
Market value of securities on loan at period end (in billions) (d)                                                   $  296           $  288       $  278       $  300       $  277       3    %  7   %
Asset servicing:
Estimated new business wins (AUC/A) (in billions)                                                                    $  141       (c) $  150       $  167       $  40        $  49
Depositary Receipts:
Number of sponsored programs                                                                                         1,062            1,094        1,112        1,131        1,145        (3)  %  (7) %
Clearing services:
Average active clearing accounts (U.S. platform)                                                                     5,960            5,942        5,946        5,947        5,959        --   %  --  %
(in thousands)
Average long-term mutual fund assets (U.S. platform)                                                                 $  438,460       $  443,112   $  431,150   $  415,025   $  437,260   (1)  %  --  %
Average investor margin loans (U.S. platform)                                                                        $  10,562        $  10,834    $  10,633    $  11,063    $  11,575    (3)  %  (9) %
Broker-Dealer:
Average tri-party repo balances (in billions)                                                                        $  2,307         $  2,212     $  2,108     $  2,104     $  2,153     4    %  7   %
(a)        Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income.
(b)        Includes the AUC/A of CIBC Mellon of $1.2 trillion at Dec. 31, 2016 and Sept. 30, 2016, $1.1 trillion at June 30, 2016 and March 31, 2016 and $1.0 trillion at Dec. 31, 2015.
(c)        Preliminary.
(d)        Represents the total amount of securities on loan managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $63 billion at Dec. 31, 2016, $64 billion at Sept. 30, 2016, $56 billion at June 30, 2016 and March 31, 2016 and $55 billion at Dec. 31, 2015.
N/M - Not meaningful.

INVESTMENT SERVICES KEY POINTS

-- Income before taxes totaled $921 million in 4Q16. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $959 million in 4Q16.

-- The pre-tax operating margin was 34% in 4Q16. The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 35% in 4Q16 and the investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 98% in 4Q16, reflecting the continued focus on the business improvement process to drive operating leverage.

-- Investment services fees were $1.7 billion, an increase of 4% year-over-year and a decrease of 6% sequentially.

-- Asset servicing fees were $1.043 billion in 4Q16 compared with $1.009 billion in 4Q15 and $1.039 billion in 3Q16. The year-over-year increase primarily reflects higher money market fees, net new business and higher equity market values, partially offset by the unfavorable impact of a stronger U.S. dollar and the impact of downsizing of the UK retail transfer agency business.

-- Estimated new business wins (AUC/A) in Asset Servicing of $141 billion in 4Q16.

-- Clearing services fees were $354 million in 4Q16 compared with $337 million in 4Q15 and $347 million in 3Q16. Both increases were primarily driven by higher money market fees. The year-over-year increase was partially offset by the impact of previously disclosed lost business.

-- Issuer services fees were $211 million in 4Q16 compared with $199 million in 4Q15 and $336 million in 3Q16. The year-over-year increase primarily reflects higher fees in Depositary Receipts and higher money market fees in Corporate Trust. The sequential decrease primarily reflects seasonality in Depositary Receipts.

-- Treasury services fees were $139 million in 4Q16 compared with $135 million in 4Q15 and $136 million in 3Q16. Both increases primarily resulted from higher payment volumes. The year-over-year increase was partially offset by higher compensating balance credits provided to clients, which reduces fee revenue and increases net interest revenue.

-- Foreign exchange and other trading revenue was $157 million in 4Q16 compared with $150 million in 4Q15 and $177 million in 3Q16. The year-over-year increase primarily reflects higher volatility. The sequential decrease primarily reflects lower Depositary Receipt-related foreign exchange activity, partially offset by higher volatility.

-- Other revenue was $128 million in 4Q16 compared with $127 million in 4Q15 and $148 million in 3Q16. Year-over-year, increased payments from Investment Management related to higher money market fees were offset by termination fees related to lost business in our clearing services business recorded in 4Q15 and certain fees paid to introducing brokers. The sequential decrease primarily reflects termination fees related to lost business in our clearing services business in 3Q16.

-- Net interest revenue was $713 million in 4Q16 compared with $664 million in 4Q15 and $715 million in 3Q16. The year-over-year increase primarily reflects the impact of the higher short-term rates on lower balances.

-- Noninterest expense (excluding amortization of intangible assets) was $1.786 billion in 4Q16 compared with $1.791 billion in 4Q15 and $1.812 billion in 3Q16. Both decreases primarily reflect lower incentive and litigation expense. The year-over-year decrease also reflects lower severance and temporary services expenses. The sequential decrease was partially offset by higher software expense.

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

(dollars in millions)                                                                                                        4Q16     3Q16      2Q16     1Q16     4Q15
Revenue:
Fee and other revenue                                                                                                        $ 42     $  100    $ 95     $ 129    $ 89
Net interest revenue (expense)                                                                                               38       (23)      (5)      4        12
Total revenue                                                                                                                80       77        90       133      101
Provision for credit losses                                                                                                  1        (20)      (3)      (3)      159
Noninterest expense (ex. amortization of intangible assets and M&I and restructuring charges (recoveries))                   108      88        53       141      150
Amortization of intangible assets                                                                                            --       --        --       --       --
M&I and restructuring charges (recoveries)                                                                                   2        --        3        (1)      (4)
Total noninterest expense                                                                                                    110      88        56       140      146
(Loss) income before taxes                                                                                                   $ (31)   $  9      $ 37     $ (4)    $ (204)
(Loss) income before taxes (ex. amortization of intangible assets and M&I and restructuring charges (recoveries)) - Non-GAAP $ (29)   $  9      $ 40     $ (5)    $ (208)
Average loans and leases                                                                                                     $ 2,142  $  1,941  $ 1,703  $ 1,917  $ 2,673

KEY POINTS

-- Total fee and other revenue decreased $47 million compared with 4Q15 and $58 million compared with 3Q16. Both decreases primarily reflect the negative impact of interest rate hedging activities, which are offset in net interest revenue. Both decreases also reflect lower net securities gains and investment and other income.

-- Net interest revenue increased $26 million compared with 4Q15 and $61 million compared with 3Q16. Both increases were driven by the positive impact of interest rate hedging activities. Substantially all of this impact was offset in fee and other revenue. The sequential increase also reflects approximately $15 million related to the premium amortization adjustment, partially offset by the results of the leasing portfolio.

-- The provision for credit losses was $1 million in 4Q16, compared with $159 million in 4Q15 and a credit of $20 million in 3Q16.

-- Noninterest expense (excluding amortization of intangible assets and M&I and restructuring charges (recoveries)) decreased $42 million compared with 4Q15 and increased $20 million compared with 3Q16. The year-over-year decrease primarily reflects lower staff expense. The sequential increase was primarily driven by higher professional, legal and other purchased services and software expense.

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
(in millions)                                                                                                                                                        Quarter ended                   Year-to-date
                                                                                                                                                                     Dec. 31,  Sept. 30,  Dec. 31,   Dec. 31,   Dec. 31,
                                                                                                                                                                     2016      2016       2015       2016       2015
Fee and other revenue
Investment services fees:
Asset servicing                                                                                                                                                      $  1,068  $   1,067  $  1,032   $   4,244  $   4,187
Clearing services                                                                                                                                                    355       349        339        1,404      1,375
Issuer services                                                                                                                                                      211       337        199        1,026      978
Treasury services                                                                                                                                                    140       137        137        547        555
Total investment services fees                                                                                                                                       1,774     1,890      1,707      7,221      7,095
Investment management and performance fees                                                                                                                           848       860        864        3,350      3,438
Foreign exchange and other trading revenue                                                                                                                           161       183        173        701        768
Financing-related fees                                                                                                                                               50        58         51         219        220
Distribution and servicing                                                                                                                                           41        43         41         166        162
Investment and other income                                                                                                                                          70        92         93         341        316
Total fee revenue                                                                                                                                                    2,944     3,126      2,929      11,998     11,999
Net securities gains                                                                                                                                                 10        24         21         75         83
Total fee and other revenue                                                                                                                                          2,954     3,150      2,950      12,073     12,082
Operations of consolidated investment management funds
Investment income                                                                                                                                                    8         20         19         35         115
Interest of investment management fund note holders                                                                                                                  3         3          3          9          29
Income from consolidated investment management funds                                                                                                                 5         17         16         26         86
Net interest revenue
Interest revenue                                                                                                                                                     928       874        834        3,575      3,326
Interest expense                                                                                                                                                     97        100        74         437        300
Net interest revenue                                                                                                                                                 831       774        760        3,138      3,026
Total revenue                                                                                                                                                        3,790     3,941      3,726      15,237     15,194
Provision for credit losses                                                                                                                                          7         (19)       163        (11)       160
Noninterest expense
Staff                                                                                                                                                                1,395     1,467      1,481      5,733      5,837
Professional, legal and other purchased services                                                                                                                     325       292        328        1,185      1,230
Software and equipment                                                                                                                                               237       215        225        894        907
Net occupancy                                                                                                                                                        153       143        148        590        600
Distribution and servicing                                                                                                                                           98        105        92         405        381
Sub-custodian                                                                                                                                                        57        59         60         245        270
Business development                                                                                                                                                 71        52         75         245        267
Other                                                                                                                                                                228       231        201        940        961
Amortization of intangible assets                                                                                                                                    60        61         64         237        261
M&I, litigation and restructuring charges                                                                                                                            7         18         18         49         85
Total noninterest expense                                                                                                                                            2,631     2,643      2,692      10,523     10,799
Income
Income before income taxes                                                                                                                                           1,152     1,317      871        4,725      4,235
Provision for income taxes                                                                                                                                           280       324        175        1,177      1,013
Net income                                                                                                                                                           872       993        696        3,548      3,222
Net (income) attributable to noncontrolling interests (includes $(4), $(9), $(5), $(10) and $(68) related to consolidated investment management funds, respectively) (2)       (6)        (3)        (1)        (64)
Net income applicable to shareholders of The Bank of New York Mellon Corporation                                                                                     870       987        693        3,547      3,158
Preferred stock dividends                                                                                                                                            (48)      (13)       (56)       (122)      (105)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation                                                                              $  822    $   974    $  637     $   3,425  $   3,053
THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement - continued
Net income applicable to common shareholders of The Bank of New                                                                                                                           Quarter ended                               Year-to-date
York Mellon Corporation used for the earnings per share calculation
                                                                                                                                                                                          Dec. 31, 2016 Sept. 30, 2016 Dec. 31, 2015  Dec. 31,    Dec. 31,
                                                                                                                                                                                                                                      2016        2015
(in millions)
Net income applicable to common shareholders of The Bank of New York                                                                                                                      $    822      $    974       $    637       $    3,425  $    3,053
Mellon Corporation
Less:  Earnings allocated to participating securities                                                                                                                                     13            15             9              52          43
Net income applicable to the common shareholders of The Bank of New York Mellon Corporation after required adjustments for the calculation of basic and diluted earnings per common share $    809      $    959       $    628       $    3,373  $    3,010
Average common shares and equivalents outstanding of The Bank of                                                                                                                          Quarter ended                               Year-to-date
New York Mellon Corporation
                                                                                                                                                                                          Dec. 31, 2016 Sept. 30, 2016 Dec. 31, 2015  Dec. 31,    Dec. 31,
                                                                                                                                                                                                                                      2016        2015
(in thousands)
Basic                                                                                                                                                                                     1,050,888     1,062,248      1,088,880      1,066,286   1,104,719
Diluted                                                                                                                                                                                   1,056,818     1,067,682      1,096,385      1,072,013   1,112,511
Earnings per share applicable to the common shareholders of The Bank                                                                                                                      Quarter ended                               Year-to-date
of New York Mellon Corporation
                                                                                                                                                                                          Dec. 31, 2016 Sept. 30, 2016 Dec. 31, 2015  Dec. 31,    Dec. 31,
                                                                                                                                                                                                                                      2016        2015
(in dollars)
Basic                                                                                                                                                                                     $    0.77     $    0.90      $    0.58      $    3.16   $    2.73
Diluted                                                                                                                                                                                   $    0.77     $    0.90      $    0.57      $    3.15   $    2.71
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
(dollars in millions, except per share amounts)                                                                                         Dec. 31,     Sept. 30,    Dec. 31,
                                                                                                                                        2016         2016         2015
Assets
Cash and due from:
Banks                                                                                                                                   $   4,822    $   4,957    $   6,537
Interest-bearing deposits with the Federal Reserve and other central banks                                                              58,041       80,359       113,203
Interest-bearing deposits with banks                                                                                                    15,086       14,416       15,146
Federal funds sold and securities purchased under resale agreements                                                                     25,801       34,851       24,373
Securities:
Held-to-maturity (fair value of $40,669, $41,387 and $43,204)                                                                           40,905       40,728       43,312
Available-for-sale                                                                                                                      73,822       78,270       75,867
Total securities                                                                                                                        114,727      118,998      119,179
Trading assets                                                                                                                          5,733        5,340        7,368
Loans                                                                                                                                   64,458       65,997       63,703
Allowance for loan losses                                                                                                               (169)        (148)        (157)
Net loans                                                                                                                               64,289       65,849       63,546
Premises and equipment                                                                                                                  1,303        1,338        1,379
Accrued interest receivable                                                                                                             568          522          562
Goodwill                                                                                                                                17,316       17,449       17,618
Intangible assets                                                                                                                       3,598        3,671        3,842
Other assets                                                                                                                            20,954       25,355       19,626
Subtotal assets of operations                                                                                                           332,238      373,105      392,379
Assets of consolidated investment management funds, at fair value:
Trading assets                                                                                                                          979          873          1,228
Other assets                                                                                                                            252          136          173
Subtotal assets of consolidated investment management funds, at fair value                                                              1,231        1,009        1,401
Total assets                                                                                                                            $   333,469  $   374,114  $   393,780
Liabilities
Deposits:
Noninterest-bearing (principally U.S. offices)                                                                                          $   78,342   $   105,632  $   96,277
Interest-bearing deposits in U.S. offices                                                                                               52,049       56,713       51,704
Interest-bearing deposits in Non-U.S. offices                                                                                           91,099       99,033       131,629
Total deposits                                                                                                                          221,490      261,378      279,610
Federal funds purchased and securities sold under repurchase agreements                                                                 9,989        8,052        15,002
Trading liabilities                                                                                                                     4,389        4,154        4,501
Payables to customers and broker-dealers                                                                                                20,987       21,162       21,900
Other borrowed funds                                                                                                                    754          993          523
Accrued taxes and other expenses                                                                                                        5,867        5,687        5,986
Other liabilities (includes allowance for lending-related commitments of $112, $126 and $118)                                           5,635        7,709        5,490
Long-term debt                                                                                                                          24,463       24,374       21,547
Subtotal liabilities of operations                                                                                                      293,574      333,509      354,559
Liabilities of consolidated investment management funds, at fair value:
Trading liabilities                                                                                                                     282          219          229
Other liabilities                                                                                                                       33           13           17
Subtotal liabilities of consolidated investment management funds, at fair value                                                         315          232          246
Total liabilities                                                                                                                       293,889      333,741      354,805
Temporary equity
Redeemable noncontrolling interests                                                                                                     151          178          200
Permanent equity
Preferred stock - par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 35,826 and 25,826 shares                     3,542        3,542        2,552
Common stock - par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,333,706,427, 1,325,167,583 and 1,312,941,113 shares 13           13           13
Additional paid-in capital                                                                                                              25,962       25,637       25,262
Retained earnings                                                                                                                       22,621       22,002       19,974
Accumulated other comprehensive loss, net of tax                                                                                        (3,765)      (2,785)      (2,600)
Less:  Treasury stock of 286,218,126, 267,830,962 and 227,598,128 common shares, at cost                                                (9,562)      (8,714)      (7,164)
Total The Bank of New York Mellon Corporation shareholders’ equity                                                                      38,811       39,695       38,037
Nonredeemable noncontrolling interests of consolidated investment management funds                                                      618          500          738
Total permanent equity                                                                                                                  39,429       40,195       38,775
Total liabilities, temporary equity and permanent equity                                                                                $   333,469  $   374,114  $   393,780

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

BNY Mellon has included in this Earnings Release certain Non-GAAP financial measures based on fully phased-in CET1 and other risk-based capital ratios, the fully phased-in SLR and tangible common shareholders’ equity. BNY Mellon believes that the CET1 and other risk-based capital ratios on a fully phased-in basis, the SLR on a fully phased-in basis and the ratio of tangible common shareholders’ equity to tangible assets of operations are measures of capital strength that provide additional useful information to investors, supplementing the capital ratios which are, or were, required by regulatory authorities. The tangible common shareholders’ equity ratio, which excludes goodwill and intangible assets, net of deferred tax liabilities, includes changes in investment securities valuations which are reflected in total shareholders’ equity. In addition, this ratio is expressed as a percentage of the actual book value of assets, as opposed to a percentage of a risk-based reduced value established in accordance with regulatory requirements, although BNY Mellon in its reconciliation has excluded certain assets which are given a zero percent risk-weighting for regulatory purposes and the assets of consolidated investment management funds to which BNY Mellon has limited economic exposure. Further, BNY Mellon believes that the return on tangible common equity measure, which excludes goodwill and intangible assets, net of deferred tax liabilities, is a useful additional measure for investors because it presents a measure of those assets that can generate income. BNY Mellon has provided a measure of tangible book value per common share, which it believes provides additional useful information as to the level of tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures, which exclude the effect of noncontrolling interests related to consolidated investment management funds, and expense measures, which exclude M&I, litigation and restructuring charges and amortization of intangible assets. Earnings per share, return on equity, operating leverage and operating margin measures, which exclude some or all of these items, as well as the (recovery) impairment charge related to Sentinel, are also presented. Operating margin measures may also exclude the provision for credit losses and distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions, Operational Excellence Initiatives and migrating positions to Global Delivery Centers. Excluding these charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

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

Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.

The following tables present the reconciliation of net income applicable to common shareholders of The Bank of New York Mellon Corporation and diluted earnings per common share.

Reconciliation of net income and diluted EPS - GAAP to Non-GAAP                                4Q16                 3Q16                 4Q15
(in millions, except per common share amounts)                                                 Net      Diluted     Net      Diluted     Net      Diluted
                                                                                               income   EPS         income   EPS         income   EPS
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $   822  $   0.77    $   974  $   0.90    $   637  $   0.57
Add:  M&I, litigation and restructuring charges                                                7                    18                   18
Tax impact of M&I, litigation and restructuring charges                                        (3)                  (5)                  (6)
Net impact of M&I, litigation and restructuring charges                                        4        --          13       0.01        12       0.01
Add:  (Recovery) impairment charge related to Sentinel                                         N/A                  (13)                 170
Tax impact of recovery (impairment charge) related to Sentinel                                 N/A                  5                    (64)
(Recovery) impairment charge related to Sentinel - after-tax                                   N/A      N/A         (8)      (0.01)      106      0.10
Non-GAAP adjustments - after-tax                                                               4        --          5        --          118      0.11
Non-GAAP results                                                                               $   826  $   0.77    $   979  $   0.90    $   755  $   0.68
N/A - Not applicable.
Reconciliation of net income and diluted EPS - GAAP to Non-GAAP                                Full-year 2016         Full-year 2015         Growth
(in millions, except per common share amounts)                                                 Net        Diluted     Net        Diluted     Net     Diluted
                                                                                               income     EPS         income     EPS         income  EPS
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP $   3,425  $   3.15    $   3,053  $   2.71    12  %   16  %
Add:  M&I, litigation and restructuring charges                                                49                     85
Tax impact of M&I, litigation and restructuring charges                                        (16)                   (29)
Net impact of M&I, litigation and restructuring charges                                        33         0.03        56         0.05
Add:  (Recovery) impairment charge related to Sentinel                                         (13)                   170
Tax impact of recovery (impairment charge) related to Sentinel                                 5                      (64)
(Recovery) impairment charge related to Sentinel - after-tax                                   (8)        (0.01)      106        0.09
Non-GAAP adjustments - after-tax                                                               25         0.02        162        0.14
Non-GAAP results                                                                               $   3,450  $   3.17    $   3,215  $   2.85    7   %   11  %

The following table presents the reconciliation of the pre-tax operating margin ratio.

Reconciliation of income before income taxes - pre-tax operating margin
(dollars in millions)                                                                                         4Q16       3Q16       2Q16       1Q16       4Q15
Income before income taxes - GAAP                                                                             $  1,152   $  1,317   $  1,165   $  1,091   $  871
Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds 4          9          4          (7)        5
Add:  Amortization of intangible assets                                                                       60         61         59         57         64
M&I, litigation and restructuring charges                                                                     7          18         7          17         18
(Recovery) impairment charge related to Sentinel                                                              --         (13)       --         --         170
Income before income taxes, as adjusted - Non-GAAP (a)                                                        $  1,215   $  1,374   $  1,227   $  1,172   $  1,118
Fee and other revenue - GAAP                                                                                  $  2,954   $  3,150   $  2,999   $  2,970   $  2,950
Income (loss) from consolidated investment management funds - GAAP                                            5          17         10         (6)        16
Net interest revenue - GAAP                                                                                   831        774        767        766        760
Total revenue - GAAP                                                                                          3,790      3,941      3,776      3,730      3,726
Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds 4          9          4          (7)        5
Total revenue, as adjusted - Non-GAAP (a)                                                                     $  3,786   $  3,932   $  3,772   $  3,737   $  3,721
Pre-tax operating margin - GAAP (b)(c)                                                                        30       % 33       % 31       % 29       % 23       %
Adjusted pre-tax operating margin - Non-GAAP (a)(b)(c)                                                        32       % 35       % 33       % 31       % 30       %
(a) Non-GAAP information for all periods presented excludes net income (loss) attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.
(b) Income before taxes divided by total revenue.
(c) Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, bank-owned life insurance and tax-exempt securities.  The benefits of these investments are primarily reflected in tax expense.  If reported on a tax-equivalent basis, these investments would increase revenue and income before taxes by $92 million for 4Q16, $74 million for 3Q16 and 2Q16, $77 million for 1Q16 and $73 million for 4Q15 and would increase our pre-tax operating margin by approximately 1.7% for 4Q16, 1.2% for 3Q16, 1.3% for 2Q16, 1.4% for 1Q16 and 1.5% for 4Q15.

The following tables present the reconciliation of the operating leverage.

Operating leverage                                                                                                                4Q16 vs.
(dollars in millions)                                                                                  4Q16     3Q16     4Q15     3Q16       4Q15
Total revenue - GAAP                                                                                   $ 3,790  $ 3,941  $ 3,726  (3.83) %   1.72   %
Less:  Net income attributable to noncontrolling interests of consolidated investment management funds 4        9        5
Total revenue, as adjusted - Non-GAAP                                                                  $ 3,786  $ 3,932  $ 3,721  (3.71) %   1.75   %
Total noninterest expense - GAAP                                                                       $ 2,631  $ 2,643  $ 2,692  (0.45) %   (2.27) %
Less:  Amortization of intangible assets                                                               60       61       64
M&I, litigation and restructuring charges                                                              7        18       18
Total noninterest expense, as adjusted - Non-GAAP                                                      $ 2,564  $ 2,564  $ 2,610  --     %   (1.76) %
Operating leverage - GAAP (a)                                                                                                     (338)  bps 399    bps
Adjusted operating leverage - Non-GAAP (a)(b)                                                                                     (371)  bps 351    bps
(a)       Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)       Non-GAAP operating leverage for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps - basis points.
Operating leverage                                                                                                             2016 vs.
(dollars in millions)                                                                                  2016        2015        2015
Total revenue - GAAP                                                                                   $   15,237  $   15,194  0.28   %
Less:  Net income attributable to noncontrolling interests of consolidated investment management funds 10          68
Total revenue, as adjusted - Non-GAAP                                                                  $   15,227  $   15,126  0.67   %
Total noninterest expense - GAAP                                                                       10,523      10,799      (2.56) %
Less:  Amortization of intangible assets                                                               237         261
M&I, litigation and restructuring charges                                                              49          85
Total noninterest expense, as adjusted - Non-GAAP                                                      $   10,237  $   10,453  (2.07) %
Operating leverage - GAAP (a)                                                                                                  284    bps
Adjusted operating leverage - Non-GAAP (a)(b)                                                                                  274    bps
(a)       Operating leverage is the rate of increase (decrease) in total revenue less the rate of increase (decrease) in total noninterest expense.
(b)       Non-GAAP operating leverage for all periods presented excludes net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.
bps - basis points.

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

Return on common equity and tangible common equity
(dollars in millions)                                                                                                                          4Q16         3Q16         2Q16         1Q16         4Q15         FY16
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP                                                 $   822      $   974      $   825      $   804      $   637      $   3,425
Add:  Amortization of intangible assets                                                                                                        60           61           59           57           64           237
Less:  Tax impact of amortization of intangible assets                                                                                         19           21           21           20           22           81
Net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets - Non-GAAP 863          1,014        863          841          679          3,581
Add:  M&I, litigation and restructuring charges                                                                                                7            18           7            17           18           49
(Recovery) impairment charge related to Sentinel                                                                                               --           (13)         --           --           170          (13)
Less:  Tax impact of M&I, litigation and restructuring charges                                                                                 3            5            2            6            6            16
Tax impact of (recovery) impairment charge related to Sentinel                                                                                 --           (5)          --           --           64           (5)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted - Non-GAAP (a)                            $   867      $   1,019    $   868      $   852      $   797      $   3,606
Average common shareholders’ equity                                                                                                            $   35,171   $   35,767   $   35,827   $   35,252   $   35,664   $   35,504
Less:  Average goodwill                                                                                                                        17,344       17,463       17,622       17,562       17,673       17,497
Average intangible assets                                                                                                                      3,638        3,711        3,789        3,812        3,887        3,737
Add:  Deferred tax liability - tax deductible goodwill (b)                                                                                     1,497        1,477        1,452        1,428        1,401        1,497
Deferred tax liability - intangible assets (b)                                                                                                 1,105        1,116        1,129        1,140        1,148        1,105
Average tangible common shareholders’ equity - Non-GAAP                                                                                        $   16,791   $   17,186   $   16,997   $   16,446   $   16,653   $   16,872
Return on common equity - GAAP (c)                                                                                                             9.3        % 10.8       % 9.3        % 9.2        % 7.1        % 9.6        %
Adjusted return on common equity - Non-GAAP (a)(c)                                                                                             9.8        % 11.3       % 9.7        % 9.7        % 8.9        % 10.2       %
Return on tangible common equity - Non-GAAP (c)                                                                                                20.4       % 23.5       % 20.4       % 20.6       % 16.2       % 21.2       %
Adjusted return on tangible common equity - Non-GAAP (a)(c)                                                                                    20.5       % 23.6       % 20.5       % 20.8       % 19.0       % 21.4       %
(a) Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges.  Non-GAAP information for 3Q16 also excludes a recovery of the previously impaired Sentinel loan and 4Q15 also excludes the impairment charge related to a court decision regarding Sentinel.
(b) Deferred tax liabilities are based on fully phased-in Basel III rules.
(c) Quarterly returns are annualized.

The following table presents the reconciliation of the equity to assets ratio and book value per common share.

Equity to assets and book value per common share                                                  Dec. 31,        Sept. 30,        June 30,        March 31,        Dec. 31,
                                                                                                  2016            2016             2016            2016             2015
(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end - GAAP                                              $    38,811     $    39,695      $    38,559     $    38,459      $    38,037
Less:  Preferred stock                                                                            3,542           3,542            2,552           2,552            2,552
BNY Mellon common shareholders’ equity at period end - GAAP                                       35,269          36,153           36,007          35,907           35,485
Less:  Goodwill                                                                                   17,316          17,449           17,501          17,604           17,618
Intangible assets                                                                                 3,598           3,671            3,738           3,781            3,842
Add:  Deferred tax liability - tax deductible goodwill (a)                                        1,497           1,477            1,452           1,428            1,401
Deferred tax liability - intangible assets (a)                                                    1,105           1,116            1,129           1,140            1,148
BNY Mellon tangible common shareholders’ equity at period end - Non-GAAP                          $    16,957     $    17,626      $    17,349     $    17,090      $    16,574
Total assets at period end - GAAP                                                                 $    333,469    $    374,114     $    372,351    $    372,870     $    393,780
Less:  Assets of consolidated investment management funds                                         1,231           1,009            1,083           1,300            1,401
Subtotal assets of operations - Non-GAAP                                                          332,238         373,105          371,268         371,570          392,379
Less:  Goodwill                                                                                   17,316          17,449           17,501          17,604           17,618
Intangible assets                                                                                 3,598           3,671            3,738           3,781            3,842
Cash on deposit with the Federal Reserve and other central banks (b)                              58,146          80,362           88,080          96,421           116,211
Tangible total assets of operations at period end - Non-GAAP                                      $    253,178    $    271,623     $    261,949    $    253,764     $    254,708
BNY Mellon shareholders’ equity to total assets ratio - GAAP                                      11.6         %  10.6         %   10.4         %  10.3         %   9.7          %
BNY Mellon common shareholders’ equity to total assets ratio - GAAP                               10.6         %  9.7          %   9.7          %  9.6          %   9.0          %
BNY Mellon tangible common shareholders’ equity to tangible assets of operations ratio - Non-GAAP 6.7          %  6.5          %   6.6          %  6.7          %   6.5          %
Period-end common shares outstanding (in thousands)                                               1,047,488       1,057,337        1,067,674       1,077,083        1,085,343
Book value per common share - GAAP                                                                $    33.67      $    34.19       $    33.72      $    33.34       $    32.69
Tangible book value per common share - Non-GAAP                                                   $    16.19      $    16.67       $    16.25      $    15.87       $    15.27
(a) Deferred tax liabilities are based on fully phased-in Basel III rules.
(b) Assigned a zero percent risk-weighting by the regulators.

The following table presents income from consolidated investment management funds, net of noncontrolling interests.

Income (loss) from consolidated investment management funds, net of noncontrolling interests
(in millions)                                                                                                 4Q16     3Q16         2Q16         1Q16         4Q15
Income (loss) from consolidated investment management funds                                                   $     5  $     17     $     10     $     (6)    $     16
Less:  Net income (loss) attributable to noncontrolling interests of consolidated investment management funds 4        9            4            (7)          5
Income from consolidated investment management funds, net of noncontrolling interests                         $     1  $     8      $     6      $     1      $     11

The following table presents the revenue line items in the Investment Management business impacted by the consolidated investment management funds.

Income (loss) from consolidated investment management funds, net of noncontrolling interests - Investment Management business
(in millions)                                                                         4Q16       3Q16       2Q16       1Q16       4Q15
Investment management fees                                                            $       4  $       2  $       3  $       2  $       7
Other (Investment income (loss))                                                      (3)        6          3          (1)        4
Income from consolidated investment management funds, net of noncontrolling interests $       1  $       8  $       6  $       1  $       11

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

Pre-tax operating margin - Investment Management business
(dollars in millions)                                                                                                                                    4Q16    3Q16    2Q16    1Q16    4Q15
Income before income taxes - GAAP                                                                                                                        $ 260   $ 256   $ 234   $ 217   $ 290
Add:  Amortization of intangible assets                                                                                                                  22      22      19      19      24
Provision for credit losses                                                                                                                              6       --      1       (1)     (4)
Income before income taxes excluding amortization of intangible assets and provision for credit losses - Non-GAAP                                        $ 288   $ 278   $ 254   $ 235   $ 310
Total revenue - GAAP                                                                                                                                     $ 960   $ 958   $ 938   $ 895   $ 999
Less:  Distribution and servicing expense                                                                                                                98      104     102     100     92
Total revenue net of distribution and servicing expense - Non-GAAP                                                                                       $ 862   $ 854   $ 836   $ 795   $ 907
Pre-tax operating margin - GAAP (a)                                                                                                                      27    % 27    % 25    % 24    % 29    %
Pre-tax operating margin, excluding amortization of intangible assets, provision for credit losses and distribution and servicing expense - Non-GAAP (a) 33    % 33    % 30    % 30    % 34    %
(a) Income before taxes divided by total revenue.

DIVIDENDS

Common - On Jan. 19, 2017, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.19 per common share. This cash dividend is payable on Feb. 10, 2017 to shareholders of record as of the close of business on Jan. 31, 2017.

Preferred - On Jan. 19, 2017, The Bank of New York Mellon Corporation declared the following dividends for the noncumulative perpetual preferred stock, liquidation preference $100,000 per share, for the dividend period ending in March 2017, in each case payable on March 20, 2017 to holders of record as of the close of business on March 5, 2017:

-- $1,000.00 per share on the Series A Preferred Stock (equivalent to $10.0000 per Normal Preferred Capital Security of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock);

-- $1,300.00 per share on the Series C Preferred Stock (equivalent to $0.3250 per depositary share, each representing a 1/4,000th interest in a share of the Series C Preferred Stock); and

-- $2,942.01 per share on the Series F Preferred Stock (equivalent to $29.4201 per depositary share, each representing a 1/100th interest in a share of the Series F Preferred Stock).

CAUTIONARY STATEMENT

A number of statements (i) in this Earnings Release, (ii) in our presentations and (iii) in the responses to questions on our conference call discussing our quarterly results and other public events may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 including our estimated capital ratios and expectations relating to those ratios, preliminary business metrics and statements regarding enhancing our clients’ experience, the impact of our digital transformation and capital plans. These statements may be expressed in a variety of ways, including the use of future or present tense language. Words such as "estimate," "forecast," "project," "anticipate," "likely," "target," "expect," "intend," "continue," "seek," "believe," "plan," "goal," "could," "should," "may," "will," "strategy," "opportunities," "trends" and words of similar meaning signify forward-looking statements. These statements and other forward-looking statements contained in other public disclosures of The Bank of New York Mellon Corporation which make reference to the cautionary factors described in this Earnings Release are based upon current beliefs and expectations and are subject to significant risks and uncertainties (some of which are beyond BNY Mellon’s control). Actual results may differ materially from those expressed or implied as a result of these risks and uncertainties, including, but not limited to, the risk factors and other uncertainties set forth in BNY Mellon’s Annual Report on Form 10-K for the year ended Dec. 31, 2015, the Quarterly Report on Form 10-Q for the period ended Sept. 30, 2016 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Jan. 19, 2017, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

Media Relations: Ligia Braun (212) 635-8588 Investor Relations: Valerie Haertel (212) 635-8529

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/bny-mellon-reports-fourth-quarter-earnings-of-822-million-or-077-per-common-share-300393484.html

SOURCE BNY Mellon

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