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Bank of New York Mellon Corporation$55.44$.04.07%

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 BNY Mellon Reports Fourth Quarter Earnings of $1.13 Billion Or $1.08 Per Common Share
   Thursday, January 18, 2018 6:30:00 AM ET

TOTAL REVENUE OF $3.7 BILLION, DECREASED 2%

-- Includes $320 million negative impact related to U.S. tax legislation and other charges (a); which decreased total revenue growth by 8%

-- Investment management and performance fees increased 13%

-- Investment services fees increased 5%; Asset servicing fees increased 6%

TOTAL EXPENSE OF $3.0 BILLION, INCREASED 14%

-- Includes $282 million (pre-tax) for severance, litigation and other charges (a); which increased total expense growth by 11%

FULL-YEAR 2017 EARNINGS OF $3.9 BILLION, OR $3.72 PER COMMON SHARE, AN INCREASE OF 18%

-- Total revenue up 2% and total expense up 4%

-- Includes impact of U.S. tax legislation, severance, litigation and other charges (a); which decreased revenue growth by 2% and increased expense growth by 3%



-- These items increased earnings per share growth by 5%

EXECUTING ON CAPITAL PLAN

-- Returned nearly $900 million through share repurchases and dividends and $3.6 billion in full-year 2017

The Bank of New York Mellon Corporation ("BNY Mellon") (BK ) today reported fourth quarter net income applicable to common shareholders of $1.13 billion, or $1.08 per diluted common share. Results for the fourth quarter 2017 include an estimated net benefit related to the Tax Cuts and Jobs Act ("U.S. tax legislation") of $427 million, or $0.41 per common share, and severance, litigation and other charges of $246 million, or $0.24 per common share (a). Net income applicable to common shareholders was $822 million, or $0.77 per diluted common share, in the fourth quarter of 2016, and $983 million, or $0.94 per diluted common share, in the third quarter of 2017.

"Our fourth quarter results were impacted by new tax legislation and actions that we took to strengthen our firm for the longer term. Aside from these items, our results were favorably impacted by strong equity markets and the underlying businesses continued to show modest growth in revenues and profits," Charles W. Scharf, chairman and chief executive officer, said.

"We saw strength in asset servicing along with growth in collateral management and clearing services - areas where we see continued client demand. Additionally, our investment management business performed well due to an uplift from global equity markets, net inflows and improved investment performance fees, resulting from good investment performance, especially in fixed income," Mr. Scharf continued.

"The actions that resulted in the severance and other charges during the quarter are part of an ongoing review of our performance. We expect this review to be completed by our March 8th Investor Day where we intend to provide a comprehensive update of the review and have a broader discussion about our firm."

"In addition, we have thought how best to use the ongoing benefit from lower taxes and we believe that we have a responsibility to our employees to share the benefit, as well as to invest as much as we intelligently can to build the company for the future so we can serve our clients, communities, and shareholders for the long term. At this point, we are anticipating that the impact of the lower tax rate would be almost entirely offset by actions that we will take to reinvest this benefit in our employees and our business," Mr. Scharf concluded.

(a)   Other charges include an asset impairment and investment securities losses related to the sale of certain securities.

FOURTH QUARTER 2017 FINANCIAL HIGHLIGHTS (comparisons are 4Q17 vs. 4Q16, unless otherwise stated)

Earnings

-- Reported 4Q earnings of $1.13 billion, or $1.08 per common share, including the estimated impact of U.S. tax legislation and other charges (a).

Amounts included in 4Q17 results
(dollars in millions, except earnings per share)     Results - GAAP            U.S. tax legislation      Other charges            (a)
Fee and other revenue                                $           2,860         $           (279)         $           (37)
Income from consolidated investment management funds 17                        --                        --
Net interest revenue                                 851                       (4)                       --
Total revenue                                        3,728                     (283)                     (37)
Provision for credit losses                          (6)                       --                        --
Total noninterest expense                            3,006                     --                        282
Income before taxes                                  728                       (283)                     (319)
(Benefit) provision for income taxes                 (453)                     (710)                     (73)
Net income                                           $           1,181         $           427           $           (246)
Diluted earnings per common share                    $           1.08          $           0.41          $           (0.24)
(a)   Other charges include severance, litigation, an asset impairment and investment securities losses related to the sale of certain securities.

-- Total revenue of $3.7 billion, decreased 2%.

-- Investment services fees increased 5% reflecting higher money market fees, higher equity market values and termination fees due to lost business recorded in 4Q17.

-- Investment management and performance fees increased 13% due to higher equity market values, money market fees, performance fees and the favorable impact of a weaker U.S. dollar. Investment management and performance fees increased 11% on a constant currency basis (Non-GAAP) (b).

-- Foreign exchange revenue was unchanged reflecting higher volumes offset by lower volatility.

-- Investment and other income decreased reflecting the impact of U.S. tax legislation on our renewable energy investments.

-- Net interest revenue increased 2% driven by higher interest rates, offset by lower average deposits and loans as well as the impact of interest rate hedging activities and leasing.

-- The provision for credit losses was a credit of $6 million.

-- Noninterest expense of $3.0 billion, increased 14% reflecting higher severance, litigation and an asset impairment, as well as higher incentive expense driven by stronger performance and the unfavorable impact of the weaker U.S. dollar.

-- Preferred stock dividends of $49 million.

U.S. tax legislation

-- U.S. tax legislation increased net income by an estimated $427 million as follows:

(estimated in millions)                           Total revenue      Income taxes       Net income
Remeasurement of net deferred tax liabilities (c) $        --        $        1,191     $        1,191
Repatriation tax                                  --                 (723)              (723)
Other items                                       (4)                (39)               (43)
Renewable energy investments                      (279)              281                2
                                                  $        (283)     $        710       $        427
(c)   Excluding deferred tax liabilities related to renewable energy investments.

-- Regulatory capital decreased by $551 million driven by the repatriation tax, offset by the tax benefit related to the remeasurement of certain deferred tax liabilities.

-- Effective tax rate for 2018 is expected to be approximately 21%.

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

-- Record AUC/A of $33.3 trillion increased 11% reflecting higher market values, the favorable impact of a weaker U.S. dollar and net new business.

-- Estimated new AUC/A wins in Asset Servicing of $575 billion in 4Q17.

-- Record AUM of $1.9 trillion increased 15% reflecting higher market values, the favorable impact of a weaker U.S. dollar and net inflows.

-- Net long-term inflows of $16 billion in 4Q17 reflect inflows of liability-driven investments, partially offset by outflows of active equity and fixed income investments and index funds.

-- Net short-term outflows of $4 billion in 4Q17.

Capital and liquidity

-- Repurchased 12 million common shares for $651 million and paid $248 million in dividends to common shareholders and repurchased 55 million common shares for $2.7 billion and paid $901 million in dividends in full-year 2017.

-- Return on common equity of 12% and 11% in full-year 2017.

-- Adjusted return on tangible common equity of 27% and 24% in full-year 2017 (b).

-- SLR - transitional of 6.1%; SLR - fully phased-in of 5.9% (b).

-- Average LCR of 118%.

(b)   See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of Non-GAAP measures.  In all periods presented, Non-GAAP information excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  See "Capital and Liquidity" beginning on page 12 for the reconciliation of the SLR.
Note:  Throughout this document, sequential growth rates are unannualized.

FINANCIAL SUMMARY

(dollars in millions, except per share amounts; common shares                                                                                                                                                                                                                                                                              4Q17 vs.
in thousands)
                                                                                                               4Q17                                        3Q17                                        2Q17                                        1Q17                                        4Q16                                        3Q17                     4Q16
Revenue:
Fee and other revenue                                                                                          $                    2,860                  $                    3,167                  $                    3,120                  $                    3,018                  $                    2,954                  (10)                 %   (3)                  %
Income from consolidated investment management funds                                                           17                                          10                                          10                                          33                                          5
Net interest revenue                                                                                           851                                         839                                         826                                         792                                         831                                         1                        2
Total revenue - GAAP                                                                                           3,728                                       4,016                                       3,956                                       3,843                                       3,790                                       (7)                      (2)
Less:  Net income attributable to noncontrolling interests related to consolidated investment management funds 9                                           3                                           3                                           18                                          4
Total revenue, as adjusted - Non-GAAP                                                                          3,719                                       4,013                                       3,953                                       3,825                                       3,786                                       (7)                      (2)
Provision for credit losses                                                                                    (6)                                         (6)                                         (7)                                         (5)                                         7
Expense:
Noninterest expense - GAAP                                                                                     3,006                                       2,654                                       2,655                                       2,642                                       2,631                                       13                       14
Less:  Amortization of intangible assets                                                                       52                                          52                                          53                                          52                                          60
M&I, litigation and restructuring charges                                                                      80                                          6                                           12                                          8                                           7
Total noninterest expense, as adjusted - Non-GAAP                                                              2,874                                       2,596                                       2,590                                       2,582                                       2,564                                       11                       12
Income:
Income before income taxes                                                                                     728                                         1,368                                       1,308                                       1,206                                       1,152                                       (47)                 %   (37)                 %
(Benefit) provision for income taxes                                                                           (453)                                       348                                         332                                         269                                         280
Net income                                                                                                     $                    1,181                  $                    1,020                  $                    976                    $                    937                    $                    872
Net (income) attributable to noncontrolling interests (a)                                                      (6)                                         (2)                                         (1)                                         (15)                                        (2)
Net income applicable to shareholders of The Bank of                                                           1,175                                       1,018                                       975                                         922                                         870
New York Mellon Corporation
Preferred stock dividends                                                                                      (49)                                        (35)                                        (49)                                        (42)                                        (48)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation                        $                    1,126                  $                    983                    $                    926                    $                    880                    $                    822
Operating leverage (b)                                                                                                                                                                                                                                                                                                                     (2,043)              bps (1,589)              bps
Adjusted operating leverage - Non-GAAP (b)(c)                                                                                                                                                                                                                                                                                              (1,804)              bps (1,386)              bps
Key Metrics:
Pre-tax operating margin (c)                                                                                   20                                        % 34                                        % 33                                        % 31                                        % 30                                        %
Adjusted pre-tax operating margin - Non-GAAP (c)                                                               23                                        % 35                                        % 35                                        % 33                                        % 32                                        %
Return on common equity (annualized) (c)                                                                       12.1                                      % 10.6                                      % 10.4                                      % 10.2                                      % 9.3                                       %
Adjusted return on common equity (annualized) -                                                                13.2                                      % 11.0                                      % 10.8                                      % 10.7                                      % 9.8                                       %
Non-GAAP (c)
Return on tangible common equity (annualized) -                                                                25.9                                      % 21.9                                      % 21.9                                      % 22.2                                      % 20.4                                      %
Non-GAAP (c)(d)
Adjusted return on tangible common equity (annualized) - Non-GAAP (c)(d)                                       27.4                                      % 22.0                                      % 22.1                                      % 22.4                                      % 20.5                                      %
Fee revenue as a percentage of total revenue                                                                   77                                        % 78                                        % 79                                        % 78                                        % 78                                        %
Percentage of non-U.S. total revenue                                                                           39                                        % 36                                        % 35                                        % 34                                        % 34                                        %
Average common shares and equivalents outstanding:
Basic                                                                                                          1,024,828                                   1,035,337                                   1,035,829                                   1,041,158                                   1,050,888
Diluted                                                                                                        1,030,404                                   1,041,138                                   1,041,879                                   1,047,746                                   1,056,818
Period end:
Full-time employees                                                                                            52,500                                      52,900                                      52,800                                      52,600                                      52,000
Book value per common share - GAAP (d)                                                                         $                    37.21                  $                    36.11                  $                    35.26                  $                    34.23                  $                    33.67
Tangible book value per common share - Non-GAAP (d)                                                            $                    18.24                  $                    18.19                  $                    17.53                  $                    16.65                  $                    16.19
Cash dividends per common share                                                                                $                    0.24                   $                    0.24                   $                    0.19                   $                    0.19                   $                    0.19
Common dividend payout ratio                                                                                   22                                        % 26                                        % 22                                        % 23                                        % 25                                        %
Closing stock price per common share                                                                           $                    53.86                  $                    53.02                  $                    51.02                  $                    47.23                  $                    47.38
Market capitalization                                                                                          $                    54,584                 $                    54,294                 $                    52,712                 $                    49,113                 $                    49,630
Common shares outstanding                                                                                      1,013,442                                   1,024,022                                   1,033,156                                   1,039,877                                   1,047,488
(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 23 for the components of this measure.
(c)    Non-GAAP information for all periods presented excludes the net income attributable to noncontrolling interests related to consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 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, which, at Dec. 31, 2017, have been remeasured at the lower statutory corporate tax rate.  See "Supplemental information - Explanation of GAAP and Non-GAAP financial measures" beginning on page 23 for the reconciliation of Non-GAAP measures.
bps - basis points.

KEY MARKET METRICS

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

Key market metrics                                                                                                                    4Q17 vs.
                                                                4Q17          3Q17          2Q17          1Q17          4Q16          3Q17        4Q16
Standard & Poor’s ("S&P") 500 Index (a)                         2674          2519          2423          2363          2239          6     %     19    %
S&P 500 Index - daily average                                   2603          2467          2398          2326          2185          6           19
FTSE 100 Index (a)                                              7688          7373          7313          7323          7143          4           8
FTSE 100 Index - daily average                                  7477          7380          7391          7274          6923          1           8
MSCI EAFE (a)                                                   2051          1974          1883          1793          1684          4           22
MSCI EAFE - daily average                                       2005          1934          1856          1749          1660          4           21
Barclays Capital Global Aggregate BondSM Index (a)(b)           485           480           471           459           451           1           8
NYSE and NASDAQ share volume (in billions)                      188           179           199           186           189           5           (1)
JPMorgan G7 Volatility Index - daily average (c)                7.41          8.17          7.98          10.10         10.24         (9)         (28)
Average interest on excess reserves paid by the Federal Reserve 1.30        % 1.25        % 1.04        % 0.79        % 0.55        % 5     bps   75    bps
Foreign exchange rates vs. U.S. dollar:
British pound (a)                                               $     1.35    $     1.34    $     1.30    $     1.25    $     1.23    1     %     10    %
British pound - average rate                                    1.33          1.31          1.28          1.24          1.24          2           7
Euro (a)                                                        1.20          1.18          1.14          1.07          1.05          2           14
Euro - average rate                                             1.18          1.17          1.10          1.07          1.08          1           9
(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                                                                                                                     4Q17 vs.
(dollars in millions)                      4Q17               3Q17               2Q17               1Q17               4Q16               3Q17       4Q16
Investment services fees:
Asset servicing (a)                        $        1,130     $        1,105     $        1,085     $        1,063     $        1,068     2        % 6        %
Clearing services                          400                383                394                376                355                4          13
Issuer services                            197                288                241                251                211                (32)       (7)
Treasury services                          137                141                140                139                140                (3)        (2)
Total investment services fees             1,864              1,917              1,860              1,829              1,774              (3)        5
Investment management and performance fees 962                901                879                842                848                7          13
Foreign exchange and other trading revenue 166                173                165                164                161                (4)        3
Financing-related fees                     54                 54                 53                 55                 50                 --         8
Distribution and servicing                 38                 40                 41                 41                 41                 (5)        (7)
Investment and other (loss) income         (198)              63                 122                77                 70                 N/M        N/M
Total fee revenue                          2,886              3,148              3,120              3,008              2,944              (8)        (2)
Net securities (losses) gains              (26)               19                 --                 10                 10                 N/M        N/M
Total fee and other revenue                $        2,860     $        3,167     $        3,120     $        3,018     $        2,954     (10)     % (3)      %
(a)   Asset servicing fees include securities lending revenue of $51 million in 4Q17, $47 million in 3Q17, $48 million in 2Q17, $49 million in 1Q17 and $54 million in 4Q16.
N/M - Not meaningful.

KEY POINTS

-- Asset servicing fees increased 6% year-over-year and 2% sequentially. The year-over-year increase primarily reflects higher equity market values, net new business, including growth in collateral management, and the favorable impact of the weaker U.S. dollar. The sequential increase was primarily driven by net new business, securities lending, equity market values and money market fees.

-- Clearing services fees increased 13% year-over-year and 4% sequentially. The year-over-year increase primarily reflects higher money market fees and growth in long-term mutual fund assets. Both increases also reflect termination fees due to lost business recorded in 4Q17.

-- Issuer services fees decreased 7% year-over-year primarily reflecting lower volumes, fewer corporate actions and lower fees due to a reduction in shares outstanding in certain Depositary Receipts programs, partially offset by higher Corporate Trust revenue. The 32% sequential decrease primarily reflects seasonality in Depositary Receipts revenue.

-- Treasury services fees decreased 2% year-over-year and 3% sequentially, primarily reflecting higher compensating balance credits provided to clients, which reduced fee revenue and increased net interest revenue, partially offset by higher payment volumes.

-- Investment management and performance fees increased 13% year-over-year and 7% sequentially, primarily reflecting higher equity market values, money market fees and performance fees. The year-over-year increase also reflects the favorable impact of a weaker U.S. dollar (principally versus the British pound). On a constant currency basis (Non-GAAP), investment management and performance fees increased 11% compared with 4Q16.

- Foreign exchange and other trading revenue
  (in millions)                                    4Q17   3Q17   2Q17   1Q17   4Q16
  Foreign exchange                                 $ 175  $ 158  $ 151  $ 154  $  175
  Other trading (loss) revenue                     (9)    15     14     10     (14)
  Total foreign exchange and other trading revenue $ 166  $ 173  $ 165  $ 164  $  161

Foreign exchange revenue was unchanged compared with 4Q16 and increased 11% sequentially. Year-over-year, higher volumes were offset by lower volatility. The sequential increase reflects higher volumes. The sequential decrease in other trading revenue primarily reflects the impact of hedging activities.

-- Financing-related fees increased 8% year-over-year primarily reflecting higher underwriting fees.

-                       Investment and other (loss) income
                        (in millions)                             4Q17                                             3Q17     2Q17      1Q17     4Q16
                        Corporate/bank-owned life insurance       $                       43                       $    37  $    43   $    30  $    53
                        Expense reimbursements from joint venture 15                                               18       17        14       15
                        Seed capital gains (a)                    7                                                6        10        9        6
                        Lease-related gains (losses)              4                                                --       51        1        (6)
                        Equity investment income (loss)           4                                                --       7         26       (2)
                        Asset-related gains (losses)              --                                               1        (5)       3        1
                        Other (loss) income                       (271)                                            1        (1)       (6)      3
                        Total investment and other (loss) income  $                       (198)                    $    63  $    122  $    77  $    70
(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 $8 million in 4Q17, $7 million in 3Q17, $7 million in 2Q17, $15 million in 1Q17 and $1 million in 4Q16.

Both decreases in investment and other income primarily reflect lower other income driven by the impact of U.S. tax legislation on our investments in renewable energy. The net impact of U.S. tax legislation on renewable energy investments was de minimis to net income, as the pre-tax accounting resulted in a reduction of $279 million to investment and other income, which was offset by the tax benefit from remeasurement of the related deferred tax liability.

-- Net securities losses were $26 million in 4Q17, driven by losses of $37 million on the sale of certain investment securities.

NET INTEREST REVENUE

Net interest revenue                                                                                                                                                                                                                                                      4Q17 vs.
(dollars in millions)                                                                 4Q17                                3Q17                                2Q17                                1Q17                                4Q16                                3Q17                 4Q16
Net interest revenue                                                                  $                851                $                839                $                826                $                792                $                831                1                %   2                %
Tax equivalent adjustment                                                             11                                  12                                  12                                  12                                  12                                  N/M                  N/M
Net interest revenue (FTE) - Non-GAAP (a)                                             $                862                $                851                $                838                $                804                $                843                1                %   2                %
Net interest margin                                                                   1.14                              % 1.15                              % 1.14                              % 1.13                              % 1.16                              % (1)              bps (2)              bps
Net interest margin (FTE) - Non-GAAP (a)                                              1.16                              % 1.16                              % 1.16                              % 1.14                              % 1.17                              % --               bps (1)              bps
Selected average balances:
Cash/interbank investments                                                            $                117,446            $                114,449            $                111,021            $                106,069            $                104,352            3                %   13               %
Trading account securities                                                            2,723                               2,359                               2,455                               2,254                               2,288                               15                   19
Securities                                                                            120,225                             119,089                             117,227                             114,786                             117,660                             1                    2
Loans                                                                                 56,772                              55,944                              58,793                              60,312                              63,647                              1                    (11)
Interest-earning assets                                                               297,166                             291,841                             289,496                             283,421                             287,947                             2                    3
Interest-bearing deposits                                                             147,763                             142,490                             142,336                             139,820                             145,681                             4                    1
Noninterest-bearing deposits                                                          69,111                              70,168                              73,886                              73,555                              82,267                              (2)                  (16)
Long-term debt                                                                        28,245                              28,138                              27,398                              25,882                              24,986                              --                   13
Selected average yields/rates: (b)
Cash/interbank investments                                                            0.98                              % 0.84                              % 0.67                              % 0.56                              % 0.47                              %
Trading account securities                                                            2.02                                2.26                                2.85                                3.12                                3.17
Securities                                                                            1.85                                1.80                                1.72                                1.71                                1.67
Loans                                                                                 2.60                                2.63                                2.44                                2.15                                1.92
Interest-earning assets                                                               1.65                                1.59                                1.47                                1.38                                1.30
Interest-bearing deposits                                                             0.17                                0.16                                0.09                                0.03                                (0.01)
Long-term debt                                                                        2.29                                2.07                                1.87                                1.85                                1.36
Average cash/interbank investments as a percentage of average interest-earning assets 40                                % 39                                % 38                                % 37                                % 36                                %
Average noninterest-bearing deposits as a percentage                                  23                                % 24                                % 26                                % 26                                % 29                                %
of average interest-earning assets
(a)   Net interest revenue (FTE) - Non-GAAP and net interest margin (FTE) - Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice.  The adjustment to an FTE basis has no impact on net income.
(b)   Yields/rates include the impact of interest rate hedging activities.
FTE - fully taxable equivalent.
N/M - Not meaningful.
bps - basis points.

KEY POINTS

-- Net interest revenue increased 2% year-over-year and 1% sequentially. The year-over-year increase primarily reflects higher interest rates, partially offset by lower average deposits and loans as well as the impact of interest rate hedging activities and leasing. The sequential increase primarily reflects higher interest rates and higher average deposits, partially offset by leasing-related adjustments. Net interest revenue in 4Q17 was negatively impacted by $15 million for leasing-related adjustments (including $4 million related to the impact of U.S. tax legislation). Net interest revenue in 4Q16 was positively impacted by $25 million of interest rate hedging activities and a $15 million premium amortization adjustment.

NONINTEREST EXPENSE

Noninterest expense                                                                                         4Q17 vs.
(dollars in millions)                                     4Q17      3Q17      2Q17      1Q17      4Q16      3Q17   4Q16
Staff                                                     $ 1,614   $ 1,469   $ 1,417   $ 1,472   $ 1,395   10  %  16   %
Professional, legal and other purchased services          338       305       319       312       325       11     4
Software and equipment                                    297       233       232       223       237       27     25
Net occupancy                                             153       141       139       136       153       9      --
Distribution and servicing                                106       109       104       100       98        (3)    8
Sub-custodian                                             59        62        65        64        57        (5)    4
Business development                                      66        49        63        51        71        35     (7)
Bank assessment charges                                   53        51        59        57        53        4      --
Other                                                     188       177       192       167       175       6      7
Amortization of intangible assets                         52        52        53        52        60        --     (13)
M&I, litigation and restructuring charges                 80        6         12        8         7         N/M    N/M
Total noninterest expense - GAAP                          $ 3,006   $ 2,654   $ 2,655   $ 2,642   $ 2,631   13  %  14   %
Staff expense as a percentage of total revenue            43      % 37      % 36      % 38      % 37      %
Memo:
Adjusted total noninterest expense excluding amortization $ 2,874   $ 2,596   $ 2,590   $ 2,582   $ 2,564   11  %  12   %
of intangible assets and M&I, litigation and
restructuring charges - Non-GAAP
N/M - Not meaningful.

KEY POINTS

-- Total noninterest expense increased 14% year-over-year and 13% sequentially. Total noninterest expense in 4Q17 includes $282 million for severance, litigation and an asset impairment, which increased the year-over-year and sequential noninterest expense growth by 11%.

-- Both the year-over-year and sequential increases primarily reflect higher staff, litigation, software and equipment and professional, legal and other purchased services expenses. The year-over-year increase also reflects the unfavorable impact of the weaker U.S. dollar.

-- Staff expense reflects higher severance expense. Year-over-year, staff expense also reflects higher incentives, driven by stronger performance.

-- Software and equipment and professional, legal and other purchased services expenses primarily reflect an asset impairment recorded in 4Q17.

-- The sequential increase also reflects seasonally higher business development expense and higher net occupancy expense, driven by the cost to exit leased space.

INVESTMENT SECURITIES PORTFOLIO

At Dec. 31, 2017, the fair value of our investment securities portfolio totaled $119.9 billion. The net unrealized pre-tax loss on our total securities portfolio was $85 million at Dec. 31, 2017 compared with a pre-tax gain of $257 million at Sept. 30, 2017. The net unrealized pre-tax loss was primarily driven by an increase in long-term interest rates. At Dec. 31, 2017, the fair value of the held-to-maturity securities totaled $40.5 billion and represented 34% of the fair value of the total investment securities portfolio.

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

Investment securities               Sept. 30,                         4Q17                   Dec. 31, 2017                                            Fair value            Unrealized                        Ratings (b)
portfolio                           2017                              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                         $          49,917                 $          (260)       $          50,210      $          49,746                 99         %          $          (464)                  100        % --         % --         % --         % -- %
U.S. Treasury                       25,159                            (6)                    24,951                 24,848                            100                   (103)                             100          --           --           --           --
Sovereign debt/sovereign guaranteed 14,102                            (21)                   13,998                 14,128                            101                   130                               72           6            21           1            --
Non-agency RMBS (c)                 1,185                             (20)                   811                    1,091                             85                    280                               --           1            3            85           11
Non-agency RMBS                     594                               (1)                    511                    549                               98                    38                                7            4            21           67           1
European floating rate notes        387                               2                      275                    271                               97                    (4)                               49           51           --           --           --
Commercial MBS                      11,033                            (13)                   11,425                 11,394                            100                   (31)                              99           1            --           --           --
State and political subdivisions    3,141                             (25)                   2,966                  2,973                             100                   7                                 80           17           --           --           3
Foreign covered bonds               2,626                             (3)                    2,604                  2,615                             100                   11                                100          --           --           --           --
Corporate bonds                     1,275                             (7)                    1,249                  1,255                             101                   6                                 17           69           14           --           --
CLOs                                2,550                             3                      2,898                  2,909                             100                   11                                98           --           --           1            1
U.S. Government agencies            2,496                             17                     2,570                  2,603                             101                   33                                100          --           --           --           --
Consumer ABS                        1,157                             (2)                    1,040                  1,043                             100                   3                                 93           --           5            2            --
Other (d)                           4,122                             (6)                    4,485                  4,483                             100                   (2)                               82           16           --           --           2
Total investment securities         $          119,744     (e)        $          (342)       $          119,993     $          119,908     (e)        99         %          $          (85)        (e)(f)     93         % 3          % 3          % 1          % -- %
(a)  Amortized cost before impairments.
(b)   Represents ratings by S&P, or the equivalent.
(c)    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.
(d)  Includes commercial paper with a fair value of $700 million and $700 million and money market funds with a fair value of $939 million and $963 million at Sept. 30, 2017 and Dec. 31, 2017, respectively.
(e)   Includes net unrealized losses on derivatives hedging securities available-for-sale of $238 million at Sept. 30, 2017 and $147 million at Dec. 31, 2017.
(f)   Unrealized gains of $230 million at Dec. 31, 2017 related to available-for-sale securities, net of hedges.

NONPERFORMING ASSETS

Nonperforming assets                                  Dec. 31, Sept. 30,   Dec. 31,
(dollars in millions)                                 2017     2017        2016
Nonperforming loans:
Other residential mortgages                           $  78    $   80      $  91
Wealth management loans and mortgages                 7        8           8
Commercial real estate                                1        --          --
Financial institutions                                --       2           --
Lease financing                                       --       --          4
Total nonperforming loans                             86       90          103
Other assets owned                                    4        4           4
Total nonperforming assets                            $  90    $   94      $  107
Nonperforming assets ratio                            0.15  %  0.16    %   0.17   %
Allowance for loan losses/nonperforming loans         184.9    178.9       164.1
Total allowance for credit losses/nonperforming loans 303.5    294.4       272.8

Nonperforming assets decreased $4 million compared with Sept. 30, 2017 and $17 million compared with Dec. 31, 2016. The decrease in nonperforming assets compared with Sept. 30, 2017 primarily reflects lower other residential mortgages and financial institutions.

ALLOWANCE FOR CREDIT LOSSES, PROVISION AND NET CHARGE-OFFS

Allowance for credit losses, provision and net recoveries Dec. 31,Sept. 30,Dec. 31,
(in millions)                                             2017    2017     2016
Allowance for credit losses - beginning of period         $  265  $   270  $  274
Provision for credit losses                               (6)     (6)      7
Net recoveries:
Other residential mortgages                               2       1        --
Financial institutions                                    --      --       --
Net recoveries                                            2       1        --
Allowance for credit losses - end of period               $  261  $   265  $  281
Allowance for loan losses                                 $  159  $   161  $  169
Allowance for lending-related commitments                 102     104      112

CAPITAL AND LIQUIDITY

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

Capital ratios                                                          Dec. 31,                                 Sept. 30,                                Dec. 31,
                                                                        2017                                     2017                                     2016
Consolidated regulatory capital ratios: (a)
Standardized Approach:
CET1 ratio                                                              12.0                                   % 12.3                                   % 12.3                                   %
Tier 1 capital ratio                                                    14.2                                     14.6                                     14.5
Total (Tier 1 plus Tier 2) capital ratio                                15.1                                     15.6                                     15.2
Advanced Approach:
CET1 ratio                                                              10.7                                     11.1                                     10.6
Tier 1 capital ratio                                                    12.7                                     13.2                                     12.6
Total (Tier 1 plus Tier 2) capital ratio                                13.4                                     14.0                                     13.0
Leverage capital ratio (b)                                              6.6                                      6.8                                      6.6
Supplementary leverage ratio ("SLR")                                    6.1                                      6.3                                      6.0
BNY Mellon shareholders’ equity to total assets ratio                   11.1                                     11.4                                     11.6
BNY Mellon common shareholders’ equity to total assets ratio            10.1                                     10.4                                     10.6
Selected regulatory capital ratios - fully phased-in - Non-GAAP: (a)(c)
CET1 ratio:
Standardized Approach                                                   11.5                                   % 11.9                                   % 11.3                                   %
Advanced Approach                                                       10.3                                     10.7                                     9.7
SLR                                                                     5.9                                      6.1                                      5.6
(a)  Regulatory capital ratios for Dec. 31, 2017 are preliminary. For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under the U.S. capital rules are the 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)   Estimated.
CET1 generation in 4Q17 - preliminary                                                          Transitional                   Fully
                                                                                               basis (b)                      phased-in -
                                                                                                                              Non-GAAP (c)
(in millions)
CET1 - Beginning of period                                                                     $              18,870          $              18,141
Net income applicable to common shareholders of The Bank of New York Mellon Corporation - GAAP 1,126                          1,126
Goodwill and intangible assets, net of related deferred tax liabilities                        (808)                          (872)
Gross CET1 generated                                                                           318                            254
Capital deployed:
Dividends                                                                                      (248)                          (248)
Common stock repurchased                                                                       (651)                          (651)
Total capital deployed                                                                         (899)                          (899)
Other comprehensive income                                                                     360                            424
Additional paid-in capital (a)                                                                 77                             77
Other                                                                                          (133)                          (159)
Total other additions                                                                          304                            342
Net CET1 deployed                                                                              (277)                          (303)
CET1 - End of period                                                                           $              18,593          $              17,838
(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, 2017 (a)                Sept. 30, 2017                   Dec. 31, 2016
(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                  $     37,859    $     37,709     $     37,195    $     36,981     $     35,794    $     35,269
Goodwill and intangible assets               (18,684)        (19,223)         (17,876)        (18,351)         (17,314)        (18,312)
Net pension fund assets                      (169)           (211)            (72)            (90)             (55)            (90)
Equity method investments                    (372)           (387)            (334)           (348)            (313)           (344)
Deferred tax assets                          (33)            (41)             (31)            (39)             (19)            (32)
Other                                        (8)             (9)              (12)            (12)             --              (1)
Total CET1                                   18,593          17,838           18,870          18,141           18,093          16,490
Other Tier 1 capital:
Preferred stock                              3,542           3,542            3,542           3,542            3,542           3,542
Deferred tax assets                          (8)             --               (8)             --               (13)            --
Net pension fund assets                      (42)            --               (19)            --               (36)            --
Other                                        (41)            (41)             (34)            (34)             (121)           (121)
Total Tier 1 capital                         22,044          21,339           22,351          21,649           21,465          19,911
Tier 2 capital:
Subordinated debt                            1,250           1,250            1,300           1,250            550             550
Allowance for credit losses                  261             261              265             265              281             281
Trust preferred securities                   --              --               --              --               148             --
Other                                        (12)            (12)             (7)             (7)              (12)            (11)
Total Tier 2 capital - Standardized Approach 1,499           1,499            1,558           1,508            967             820
Excess of expected credit losses             33              33               49              49               50              50
Less: Allowance for credit losses            261             261              265             265              281             281
Total Tier 2 capital - Advanced Approach     $     1,271     $     1,271      $     1,342     $     1,292      $     736       $     589
Total capital:
Standardized Approach                        $     23,543    $     22,838     $     23,909    $     23,157     $     22,432    $     20,731
Advanced Approach                            $     23,315    $     22,610     $     23,693    $     22,941     $     22,201    $     20,500
Risk-weighted assets:
Standardized Approach                        $     155,498   $     155,309    $     153,494   $     152,995    $     147,671   $     146,475
Advanced Approach                            $     174,117   $     173,916    $     169,822   $     169,293    $     170,495   $     169,227
Standardized Approach:
CET1 ratio                                   12.0          % 11.5          %  12.3          % 11.9          %  12.3          % 11.3          %
Tier 1 capital ratio                         14.2            13.7             14.6            14.2             14.5            13.6
Total (Tier 1 plus Tier 2) capital ratio     15.1            14.7             15.6            15.1             15.2            14.2
Advanced Approach:
CET1 ratio                                   10.7          % 10.3          %  11.1          % 10.7          %  10.6          % 9.7           %
Tier 1 capital ratio                         12.7            12.3             13.2            12.8             12.6            11.8
Total (Tier 1 plus Tier 2) capital ratio     13.4            13.0             14.0            13.6             13.0            12.1
(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

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, 2017 (a)                                                                                    Sept. 30, 2017                                                                                       Dec. 31, 2016
(dollars in millions)                                                         Transitional                                      Fully                                              Transitional                                      Fully                                              Transitional                                      Fully
                                                                              basis                                             phased-in -                                        basis                                             phased-in -                                        basis                                             phased-in -
                                                                                                                                Non-GAAP (b)                                                                                         Non-GAAP (b)                                                                                         Non-GAAP (b)
Consolidated:
Tier 1 capital                                                                $                       22,044                    $                       21,339                     $                       22,351                    $                       21,649                     $                       21,465                    $                       19,911
Total leverage exposure:
Quarterly average total assets                                                $                       350,786                   $                       350,786                    $                       345,709                   $                       345,709                    $                       344,142                   $                       344,142
Less: Amounts deducted from Tier 1 capital                                    19,186                                            19,892                                             18,154                                            18,856                                             17,333                                            18,887
Total on-balance sheet assets, as adjusted                                    331,600                                           330,894                                            327,555                                           326,853                                            326,809                                           325,255
Off-balance sheet exposures:
Potential future exposure for derivative contracts (plus certain other items) 6,613                                             6,613                                              6,213                                             6,213                                              6,021                                             6,021
Repo-style transaction exposures                                              1,086                                             1,086                                              1,034                                             1,034                                              533                                               533
Credit-equivalent amount of other off-balance                                 21,959                                            21,959                                             21,860                                            21,860                                             23,274                                            23,274
sheet exposures (less SLR exclusions)
Total off-balance sheet exposures                                             29,658                                            29,658                                             29,107                                            29,107                                             29,828                                            29,828
Total leverage exposure                                                       $                       361,258                   $                       360,552                    $                       356,662                   $                       355,960                    $                       356,637                   $                       355,083
SLR - Consolidated (c)                                                        6.1                                             % 5.9                                             %  6.3                                             % 6.1                                             %  6.0                                             % 5.6                                             %
The Bank of New York Mellon, our largest bank subsidiary:
Tier 1 capital                                                                $                       20,478                    $                       19,768                     $                       20,718                    $                       19,955                     $                       19,011                    $                       17,708
Total leverage exposure                                                       $                       296,517                   $                       296,231                    $                       292,759                   $                       292,421                    $                       291,022                   $                       290,230
SLR - The Bank of New York Mellon (c)                                         6.9                                             % 6.7                                             %  7.1                                             % 6.8                                             %  6.5                                             % 6.1                                             %
(a)    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 fully phased-in on Jan. 1, 2017 and require BNY Mellon to meet an LCR of 100%. On a consolidated basis, our average LCR was 118% for 4Q17. High-quality liquid assets ("HQLA"), before haircuts and trapped liquidity, totaled $193 billion at Dec. 31, 2017 and averaged $170 billion for 4Q17.

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)                                                                                                                                                                                                          4Q17 vs.
                                                                       4Q17                                            3Q17                                        2Q17                        1Q17                        4Q16                        3Q17                   4Q16
Revenue:
Investment management fees:
Mutual funds                                                           $                    341                        $                    332                    $    314                    $    299                    $    297                    3                    % 15                   %
Institutional clients                                                  378                                             367                                         362                         348                         340                         3                      11
Wealth management                                                      179                                             172                                         169                         167                         164                         4                      9
Investment management fees (a)                                         898                                             871                                         845                         814                         801                         3                      12
Performance fees                                                       50                                              15                                          17                          12                          32                          N/M                    56
Investment management and performance fees                             948                                             886                                         862                         826                         833                         7                      14
Distribution and servicing                                             51                                              51                                          53                          52                          48                          --                     6
Other (a)                                                              (25)                                            (19)                                        (16)                        (1)                         (1)                         N/M                    N/M
Total fee and other revenue (a)                                        974                                             918                                         899                         877                         880                         6                      11
Net interest revenue                                                   74                                              82                                          87                          86                          80                          (10)                   (8)
Total revenue                                                          1,048                                           1,000                                       986                         963                         960                         5                      9
Provision for credit losses                                            1                                               (2)                                         --                          3                           6                           N/M                    N/M
Noninterest expense (ex. amortization of intangible assets)            756                                             687                                         683                         668                         672                         10                     13
Amortization of intangible assets                                      15                                              15                                          15                          15                          22                          --                     (32)
Total noninterest expense                                              771                                             702                                         698                         683                         694                         10                     11
Income before taxes                                                    $                    276                        $                    300                    $    288                    $    277                    $    260                    (8)%                   6                    %
Income before taxes (ex. amortization of intangible assets) - Non-GAAP $                    291                        $                    315                    $    303                    $    292                    $    282                    (8)%                   3                    %
Pre-tax operating margin                                               26                                        %     30                                        % 29                        % 29                        % 27                        %
Adjusted pre-tax operating margin - Non-GAAP (b)                       31                                        %     35                                        % 34                        % 34                        % 33                        %
Changes in AUM (in billions): (c)
Beginning balance of AUM                                               $                    1,824                      $                    1,771                  $    1,727                  $    1,648                  $    1,715
Net inflows (outflows):
Long-term strategies:
Equity                                                                 (6)                                             (2)                                         (2)                         (4)                         (5)
Fixed income                                                           (2)                                             4                                           2                           2                           (1)
Liability-driven investments (d)                                       23                                              (2)                                         15                          14                          (7)
Multi-asset and alternative investments                                2                                               3                                           1                           2                           3
Total long-term active strategies inflows (outflows)                   17                                              3                                           16                          14                          (10)
Index                                                                  (1)                                             (3)                                         (13)                        --                          (1)
Total long-term strategies inflows (outflows)                          16                                              --                                          3                           14                          (11)
Short term strategies:
Cash                                                                   (4)                                             10                                          11                          13                          (3)
Total net inflows (outflows)                                           12                                              10                                          14                          27                          (14)
Net market impact/other                                                47                                              17                                          1                           41                          (11)
Net currency impact                                                    10                                              26                                          29                          11                          (42)
Ending balance of AUM                                                  $                    1,893                  (e) $                    1,824                  $    1,771                  $    1,727                  $    1,648                  4                    % 15                   %
AUM at period end, by product type: (c)
Equity                                                                 9                                         %     9                                         % 9                         % 9                         % 9                         %
Fixed income                                                           11                                              11                                          11                          11                          11
Index                                                                  18                                              18                                          18                          19                          19
Liability-driven investments (d)                                       35                                              35                                          35                          34                          34
Multi-asset and alternative investments                                11                                              11                                          11                          11                          11
Cash                                                                   16                                              16                                          16                          16                          16
Total AUM                                                              100                                       % (e) 100                                       % 100                       % 100                       % 100                       %
Average balances:
Average loans                                                          $                    16,813                     $                    16,724                 $    16,560                 $    16,153                 $    15,673                 1                    % 7                    %
Average deposits                                                       $                    11,633                     $                    12,374                 $    14,866                 $    15,781                 $    15,511                 (6)%                   (25)%
(a)    Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.  See page 27 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 23 for the reconciliation of this Non-GAAP measure.
(c)    Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d)    Includes currency overlay assets under management.
(e)    Preliminary
N/M - Not meaningful

INVESTMENT MANAGEMENT KEY POINTS

-- Income before taxes totaled $276 million in 4Q17, an increase of 6% year-over-year and a decrease of 8% sequentially. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $291 million in 4Q17, an increase of 3% year-over-year and a decrease of 8% sequentially.

-- Pre-tax operating margin of 26% in 4Q17 decreased 78 bps year-over-year and 366 bps sequentially.

-- Adjusted pre-tax operating margin (Non-GAAP) of 31% in 4Q17 decreased 240 bps year-over-year and 422 bps sequentially.

-- Total revenue was $1.0 billion, an increase of 9% year-over-year and 5% sequentially, primarily reflecting higher investment management fees and performance fees, partially offset by lower other revenue.

-- 42% of non-U.S. revenue in 4Q17 and 4Q16.

-- Investment management fees increased 12% year-over-year and 3% sequentially, primarily reflecting higher equity market values and higher money market fees. The year-over-year increase also reflects the favorable impact of a weaker U.S. dollar (principally versus the British pound). On a constant currency basis, investment management fees increased 9% (Non-GAAP) compared with 4Q16.

-- Net long-term inflows of $16 billion in 4Q17 reflect inflows of liability-driven investments, partially offset by outflows of active equity and fixed income investments and index funds.

-- Net short-term outflows of $4 billion in 4Q17.

-- Other revenue declined year-over-year primarily reflecting losses on hedging activity and higher payments to Investment Services related to higher money market fees, partially offset by seed capital gains.

-- Net interest revenue decreased 8% year-over-year and 10% sequentially. Both decreases primarily reflect lower average deposits.

-- Average loans increased 7% year-over-year and 1% sequentially.

-- Average deposits decreased 25% year-over-year and 6% sequentially.

-- Total noninterest expense (excluding amortization of intangible assets) increased 13% year-over-year and 10% sequentially. Both increases primarily reflect higher severance, incentive and software expenses. The year-over-year increase also reflects the unfavorable impact of the weaker U.S. dollar. The sequential increase also reflects seasonally higher business development expenses. Noninterest expense for 4Q17 includes $30 million related to severance and litigation.

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

(dollars in millions, unless otherwise noted)                                                                                                                                                                                                                                                                                 4Q17 vs.
                                                                                                        4Q17                                          3Q17                                      2Q17                                      1Q17                                      4Q16                                      3Q17                  4Q16
Revenue:
Investment services fees:
Asset servicing                                                                                         $                   1,106                     $                   1,081                 $                   1,061                 $                   1,038                 $                   1,043                 2                   % 6                   %
Clearing services                                                                                       400                                           381                                       393                                       375                                       354                                       5                     13
Issuer services                                                                                         196                                           288                                       241                                       250                                       211                                       (32)                  (7)
Treasury services                                                                                       136                                           141                                       139                                       139                                       139                                       (4)                   (2)
Total investment services fees                                                                          1,838                                         1,891                                     1,834                                     1,802                                     1,747                                     (3)                   5
Foreign exchange and other trading revenue                                                              168                                           154                                       145                                       153                                       157                                       9                     7
Other (a)                                                                                               135                                           142                                       136                                       129                                       128                                       (5)                   5
Total fee and other revenue                                                                             2,141                                         2,187                                     2,115                                     2,084                                     2,032                                     (2)                   5
Net interest revenue                                                                                    813                                           777                                       761                                       707                                       713                                       5                     14
Total revenue                                                                                           2,954                                         2,964                                     2,876                                     2,791                                     2,745                                     --                    8
Provision for credit losses                                                                             (2)                                           (2)                                       (3)                                       --                                        --                                        N/M                   N/M
Noninterest expense (ex. amortization of intangible assets)                                             2,060                                         1,837                                     1,889                                     1,812                                     1,786                                     12                    15
Amortization of intangible assets                                                                       37                                            37                                        38                                        37                                        38                                        --                    (3)
Total noninterest expense                                                                               2,097                                         1,874                                     1,927                                     1,849                                     1,824                                     12                    15
Income before taxes                                                                                     $                   859                       $                   1,092                 $                   952                   $                   942                   $                   921                   (21)                % (7)                 %
Income before taxes (ex. amortization of intangible                                                     $                   896                       $                   1,129                 $                   990                   $                   979                   $                   959                   (21)                % (7)                 %
assets) - Non-GAAP
Pre-tax operating margin                                                                                29                                      %     37                                      % 33                                      % 34                                      % 34                                      %
Adjusted pre-tax operating margin (ex. provision for credit                                             30                                      %     38                                      % 34                                      % 35                                      % 35                                      %
losses and amortization of intangible assets) - Non-GAAP
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets) 89                                      %     103                                     % 97                                      % 99                                      % 98                                      %
Securities lending revenue                                                                              $                   45                        $                   41                    $                   42                    $                   40                    $                   44                    10                  % 2                   %
Metrics:
Average loans                                                                                           $                   38,845                    $                   38,038                $                   40,931                $                   42,818                $                   45,832                2                   % (15)                %
Average deposits                                                                                        $                   204,680                   $                   198,299               $                   200,417               $                   197,690               $                   213,531               3                   % (4)                 %
AUC/A at period end (in trillions) (b)                                                                  $                   33.3                  (c) $                   32.2                  $                   31.1                  $                   30.6                  $                   29.9                  3                   % 11                  %
Market value of securities on loan at period end                                                        $                   408                       $                   382                   $                   336                   $                   314                   $                   296                   7                   % 38                  %
(in billions) (d)
Asset servicing:
Estimated new business wins (AUC/A) (in billions)                                                       $                   575                   (c) $                   166                   $                   152                   $                   109                   $                   141
Clearing services:
Average active clearing accounts (U.S. platform)                                                        6,126                                         6,203                                     6,159                                     6,058                                     5,960                                     (1)                 % 3                   %
(in thousands)
Average long-term mutual fund assets (U.S. platform)                                                    $                   508,873                   $                   500,998               $                   480,532               $                   460,977               $                   438,460               2                   % 16                  %
Average investor margin loans (U.S. platform)                                                           $                   9,822                     $                   8,886                 $                   9,812                 $                   10,740                $                   10,562                11                  % (7)                 %
Depositary Receipts:
Number of sponsored programs                                                                            886                                           938                                       1,025                                     1,050                                     1,062                                     (6)                 % (17)                %
Broker-Dealer:
Average tri-party repo balances (in billions)                                                           $                   2,606                     $                   2,534                 $                   2,498                 $                   2,373                 $                   2,307                 3                   % 13                  %
(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 Global Securities Services Company ("CIBC Mellon"), a joint venture with the Canadian Imperial Bank of Commerce, of $1.3 trillion at Dec. 31, 2017 and Sept. 30, 2017 and $1.2 trillion at June 30, 2017, March 31, 2017 and Dec. 31, 2016.
(c)    Preliminary
(d)    Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business.  Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $71 billion at Dec. 31, 2017, $68 billion at Sept. 30, 2017, $66 billion at June 30, 2017, $65 billion at March 31, 2017 and $63 billion at Dec. 31, 2016.
N/M - Not meaningful

INVESTMENT SERVICES KEY POINTS

-- Income before taxes totaled $859 million in 4Q17. Income before taxes, excluding amortization of intangible assets (Non-GAAP), totaled $896 million in 4Q17.

-- The pre-tax operating margin was 29% in 4Q17. The pre-tax operating margin, excluding the provision for credit losses and amortization of intangible assets (Non-GAAP), was 30% in 4Q17.

-- Investment services fees as a percentage of noninterest expense (excluding amortization of intangible assets) was 89% in 4Q17.

-- Investment services fees increased 5% year-over-year and decreased 3% sequentially.

-- Asset servicing fees increased 6% year-over-year and 2% sequentially. The year-over-year increase primarily reflects higher equity market values, net new business, including growth in collateral management, and the favorable impact of the weaker U.S. dollar. The sequential increase was primarily driven by net new business, securities lending, equity market values and money market fees.

-- Clearing services fees increased 13% year-over-year and 5% sequentially. The year-over-year increase primarily reflects higher money market fees and growth in long-term mutual fund assets. Both increases also reflect termination fees due to lost business recorded in 4Q17.

-- Issuer services fees decreased 7% year-over-year and 32% sequentially. The year-over-year decrease primarily reflects lower volumes, fewer corporate actions and lower fees due to a reduction in shares outstanding in certain Depositary Receipts programs, partially offset by higher Corporate Trust revenue. The sequential decrease primarily reflects seasonality in Depositary Receipts revenue.

-- Treasury services fees decreased 2% year-over-year and 4% sequentially, primarily reflecting higher compensating balance credits provided to clients, which reduced fee revenue and increased net interest revenue, partially offset by higher payment volumes.

-- Foreign exchange and other trading revenue increased 7% year-over-year and 9% sequentially. Year-over year, higher volumes were offset by lower volatility. The sequential increase reflects higher volumes.

-- Other revenue increased 5% year-over-year primarily reflecting higher payments from Investment Management related to higher money market fees. The 5% sequential decrease primarily reflects lower financing-related fees.

-- Net interest revenue increased 14% year-over-year and 5% sequentially. Both increases primarily reflect higher interest rates. The year-over-year increase was partially offset by lower loan and deposit volumes. The sequential increase also reflects higher loan and deposit volumes.

-- Noninterest expense (excluding amortization of intangible assets) increased 15% year-over-year and 12% sequentially. Both increases primarily reflect higher severance, litigation, an asset impairment and additional technology related costs. The year-over-year increase also reflects higher incentives expense and the unfavorable impact of the weaker U.S. dollar. Noninterest expense for 4Q17 includes $233 million related to severance, litigation and an asset impairment.

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

(in millions)                                                             4Q17      3Q17      2Q17      1Q17     4Q16
Revenue:
Fee and other revenue                                                     $  (247)  $  69     $  113    $ 72     $ 42
Net interest (expense) revenue                                            (36)      (20)      (22)      (1)      38
Total revenue                                                             (283)     49        91        71       80
Provision for credit losses                                               (5)       (2)       (4)       (8)      1
Noninterest expense (ex. M&I and restructuring charges)                   134       77        28        106      108
M&I and restructuring charges                                             1         --        --        1        2
Total noninterest expense                                                 135       77        28        107      110
(Loss) income before taxes                                                $  (413)  $  (26)   $  67     $ (28)   $ (31)
(Loss) income before taxes (ex. M&I and restructuring charges) - Non-GAAP $  (412)  $  (26)   $  67     $ (27)   $ (29)
Average loans and leases                                                  $  1,114  $  1,182  $  1,302  $ 1,341  $ 2,142

KEY POINTS

-- Total fee and other revenue decreased $289 million compared with 4Q16 and $316 million compared with 3Q17, primarily reflecting the impact of U.S. tax legislation on our investments in renewable energy and net securities losses. The net impact of U.S. tax legislation on renewable energy investments was de minimis to net income, as the pre-tax accounting resulted in a reduction of $279 million to investment and other income, which was offset by the tax benefit from remeasurement of the related deferred tax liability.

-- Net interest revenue decreased $74 million compared with 4Q16 and $16 million compared with 3Q17. Both decreases primarily reflect leasing-related adjustments, partially offset by higher interest rates. The year-over-year decrease also reflects the positive impact of interest rate hedging activities and a premium amortization adjustment, both recorded in 4Q16.

-- Noninterest expense (excluding M&I and restructuring charges) increased $26 million compared with 4Q16 and increased $57 million compared with 3Q17. Both increases were primarily driven by severance expense of $19 million recorded in 4Q17. The sequential increase also reflects higher professional, legal and other purchased services and occupancy expenses.

THE BANK OF NEW YORK MELLON CORPORATION
Condensed Consolidated Income Statement
(in millions)                                                               Quarter ended                   Year ended
                                                                            Dec. 31,  Sept. 30,  Dec. 31,   Dec. 31,   Dec. 31,
                                                                            2017      2017       2016       2017       2016
Fee and other revenue
Investment services fees:
Asset servicing                                                             $  1,130  $   1,105  $  1,068   $   4,383  $   4,244
Clearing services                                                           400       383        355        1,553      1,404
Issuer services                                                             197       288        211        977        1,026
Treasury services                                                           137       141        140        557        547
Total investment services fees                                              1,864     1,917      1,774      7,470      7,221
Investment management and performance fees                                  962       901        848        3,584      3,350
Foreign exchange and other trading revenue                                  166       173        161        668        701
Financing-related fees                                                      54        54         50         216        219
Distribution and servicing                                                  38        40         41         160        166
Investment and other income (loss)                                          (198)     63         70         64         341
Total fee revenue                                                           2,886     3,148      2,944      12,162     11,998
Net securities (losses) gains                                               (26)      19         10         3          75
Total fee and other revenue                                                 2,860     3,167      2,954      12,165     12,073
Operations of consolidated investment management funds
Investment income                                                           17        10         8          74         35
Interest of investment management fund note holders                         --        --         3          4          9
Income from consolidated investment management funds                        17        10         5          70         26
Net interest revenue
Interest revenue                                                            1,219     1,151      928        4,382      3,575
Interest expense                                                            368       312        97         1,074      437
Net interest revenue                                                        851       839        831        3,308      3,138
Total revenue                                                               3,728     4,016      3,790      15,543     15,237
Provision for credit losses                                                 (6)       (6)        7          (24)       (11)
Noninterest expense
Staff                                                                       1,614     1,469      1,395      5,972      5,733
Professional, legal and other purchased services                            338       305        325        1,274      1,185
Software and equipment                                                      297       233        237        985        894
Net occupancy                                                               153       141        153        569        590
Distribution and servicing                                                  106       109        98         419        405
Sub-custodian                                                               59        62         57         250        245
Business development                                                        66        49         71         229        245
Bank assessment charges                                                     53        51         53         220        219
Other                                                                       188       177        175        724        721
Amortization of intangible assets                                           52        52         60         209        237
M&I, litigation and restructuring charges                                   80        6          7          106        49
Total noninterest expense                                                   3,006     2,654      2,631      10,957     10,523
Income
Income before income taxes                                                  728       1,368      1,152      4,610      4,725
(Benefit) provision for income taxes                                        (453)     348        280        496        1,177
Net income                                                                  1,181     1,020      872        4,114      3,548
Net (income) attributable to noncontrolling interests (includes $(9), $(3), (6)       (2)        (2)        (24)       (1)
$(4), $(33) and $(10) related to consolidated investment management
funds, respectively)
Net income applicable to shareholders of The Bank of New York Mellon        1,175     1,018      870        4,090      3,547
Corporation
Preferred stock dividends                                                   (49)      (35)       (48)       (175)      (122)
Net income applicable to common shareholders of The Bank of New             $  1,126  $   983    $  822     $   3,915  $   3,425
York Mellon Corporation
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 ended
York Mellon Corporation used for the earnings per share calculation
                                                                                                                                                                                          Dec. 31,                                         Sept. 30,                    Dec. 31,                      Dec. 31,                                         Dec. 31,
                                                                                                                                                                                          2017                                             2017                         2016                          2017                                             2016
(in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation                                                                                                   $                       1,126                    $                       983  $                       822   $                       3,915                    $                       3,425
Less:  Earnings allocated to participating securities (a)                                                                                                                                 8                                                8                            13                            43                                               52
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 $                       1,118                    $                       975  $                       809   $                       3,872                    $                       3,373
(a)    Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes.  This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for 3Q17, which resulted in a de minimis impact to both basic and diluted earnings per share.
Average common shares and equivalents outstanding of The Bank of Quarter ended                                                                                          Year ended
New York Mellon Corporation (a)
                                                                 Dec. 31,                          Sept. 30,                         Dec. 31,                           Dec. 31,                          Dec. 31,
                                                                 2017                              2017                              2016                               2017                              2016
(in thousands)
Basic                                                            1,024,828                         1,035,337                         1,050,888                          1,034,281                         1,066,286
Diluted                                                          1,030,404                         1,041,138                         1,056,818                          1,040,290                         1,072,013
(a)    Beginning in 3Q17, vested stock awards to retirement eligible employees are included in common shares outstanding for earnings per share purposes.  This change increased both average basic and average diluted shares outstanding by approximately 6 million and reduced earnings allocated to participating securities by $6 million for 3Q17, which resulted in a de minimis impact to both basic and diluted earnings per share.
Earnings per share applicable to the common shareholders of The Bank Quarter ended                Year ended
of New York Mellon Corporation
                                                                     Dec. 31, Sept. 30, Dec. 31,  Dec. 31, Dec. 31,
                                                                     2017     2017      2016      2017     2016
(in dollars)
Basic                                                                $  1.09  $   0.94  $  0.77   $  3.74  $  3.16
Diluted                                                              $  1.08  $   0.94  $  0.77   $  3.72  $  3.15
THE BANK OF NEW YORK MELLON CORPORATION
Consolidated Balance Sheet
(dollars in millions, except per share amounts)                                                                                         Dec. 31,      Sept. 30,     Dec. 31,
                                                                                                                                        2017          2017          2016
Assets
Cash and due from:
Banks                                                                                                                                   $    5,382    $    5,557    $   4,822
Interest-bearing deposits with the Federal Reserve and other central banks                                                              91,510        75,808        58,041
Interest-bearing deposits with banks                                                                                                    11,979        15,256        15,086
Federal funds sold and securities purchased under resale agreements                                                                     28,135        27,883        25,801
Securities:
Held-to-maturity (fair value of $40,512, $39,928 and $40,669)                                                                           40,827        39,995        40,905
Available-for-sale                                                                                                                      79,543        80,054        73,822
Total securities                                                                                                                        120,370       120,049       114,727
Trading assets                                                                                                                          6,022         4,666         5,733
Loans                                                                                                                                   61,540        59,068        64,458
Allowance for loan losses                                                                                                               (159)         (161)         (169)
Net loans                                                                                                                               61,381        58,907        64,289
Premises and equipment                                                                                                                  1,634         1,631         1,303
Accrued interest receivable                                                                                                             610           547           568
Goodwill                                                                                                                                17,564        17,543        17,316
Intangible assets                                                                                                                       3,411         3,461         3,598
Other assets                                                                                                                            23,029        22,287        20,954
Subtotal assets of operations                                                                                                           371,027       353,595       332,238
Assets of consolidated investment management funds, at fair value                                                                       731           802           1,231
Total assets                                                                                                                            $    371,758  $    354,397  $   333,469
Liabilities
Deposits:
Noninterest-bearing (principally U.S. offices)                                                                                          $    82,716   $    80,380   $   78,342
Interest-bearing deposits in U.S. offices                                                                                               52,294        46,023        52,049
Interest-bearing deposits in Non-U.S. offices                                                                                           109,312       104,593       91,099
Total deposits                                                                                                                          244,322       230,996       221,490
Federal funds purchased and securities sold under repurchase agreements                                                                 15,163        10,314        9,989
Trading liabilities                                                                                                                     3,984         3,253         4,389
Payables to customers and broker-dealers                                                                                                20,184        21,176        20,987
Commercial paper                                                                                                                        3,075         2,501         --
Other borrowed funds                                                                                                                    3,028         3,353         754
Accrued taxes and other expenses                                                                                                        6,225         6,070         5,867
Other liabilities (includes allowance for lending-related commitments of $102, $104 and $112)                                           6,050         7,195         5,635
Long-term debt                                                                                                                          27,979        28,408        24,463
Subtotal liabilities of operations                                                                                                      330,010       313,266       293,574
Liabilities of consolidated investment management funds, at fair value                                                                  2             27            315
Total liabilities                                                                                                                       330,012       313,293       293,889
Temporary equity
Redeemable noncontrolling interests                                                                                                     179           197           151
Permanent equity
Preferred stock - par value $0.01 per share; authorized 100,000,000 shares; issued 35,826, 35,826 and                                   3,542         3,542         3,542
35,826 shares
Common stock - par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,354,163,581, 1,352,363,932 and 1,333,706,427 shares 14            14            13
Additional paid-in capital                                                                                                              26,665        26,588        25,962
Retained earnings                                                                                                                       25,635        24,757        22,621
Accumulated other comprehensive loss, net of tax                                                                                        (2,357)       (2,781)       (3,765)
Less:  Treasury stock of 340,721,136, 328,341,579 and 286,218,126 common shares, at cost                                                (12,248)      (11,597)      (9,562)
Total The Bank of New York Mellon Corporation shareholders’ equity                                                                      41,251        40,523        38,811
Nonredeemable noncontrolling interests of consolidated investment management funds                                                      316           384           618
Total permanent equity                                                                                                                  41,567        40,907        39,429
Total liabilities, temporary equity and permanent equity                                                                                $    371,758  $    354,397  $   333,469

SUPPLEMENTAL INFORMATION - IMPACT OF U.S. TAX LEGISLATION AND OTHER CHARGES

Amounts included in 4Q17 results - U.S. tax legislation                          Other charges (a)
by business segment
(dollars in millions)
                                   Investment     Investment     Other           Investment     Investment     Other          Total
                                   Management     Services                       Management     Services
Fee and other revenue              $      --      $      --      $      (279)    $      --      $      --      $      (37)    $      (37)
Net interest revenue               --             --             (4)             --             --             --             --
Total revenue                      --             --             (283)           --             --             (37)           (37)
Total noninterest expense          --             --             --              30             233            19             282
Income before taxes                $      --      $      --      $      (283)    $      (30)    $      (233)   $      (56)    $      (319)
(a)   Other charges include severance, litigation, an asset impairment and investment securities losses related to the sale of certain securities.

Our estimate of the impact of U.S. tax legislation is based on certain assumptions and our current interpretation of the Tax Cuts and Jobs Act, and may change, possibly materially, as we refine our analysis and as further information becomes available.

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 estimated fully phased-in CET1 and other risk-based capital ratios, the estimated 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, and the SLR, on a fully phased-in basis, 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. BNY Mellon believes that the return on tangible common equity measure is an additional useful measure for investors because it presents a measure of those assets that can generate income. BNY Mellon has provided a measure of tangible book value per common share, which it believes provides additional useful information as to the level of tangible assets in relation to shares of common stock outstanding.

BNY Mellon has presented revenue measures, which exclude the effect of noncontrolling interests related to consolidated investment management funds, and expense measures, which exclude amortization of intangible assets and M&I, litigation and restructuring charges.

Operating margin, operating leverage and return on equity measures, which exclude some or all of these items, 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 and Operational Excellence Initiatives. Excluding the charges mentioned above permits investors to view expenses on a basis consistent with how management views the business.

The presentation of revenue growth on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue. BNY Mellon believes that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

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

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

Pre-tax operating margin
(dollars in millions)                                                                                  4Q17          3Q17          2Q17          1Q17          4Q16
Income before income taxes - GAAP                                                                      $     728     $     1,368   $     1,308   $     1,206   $     1,152
Less:  Net income attributable to noncontrolling interests of consolidated                             9             3             3             18            4
investment management funds
Add:  Amortization of intangible assets                                                                52            52            53            52            60
M&I, litigation and restructuring charges                                                              80            6             12            8             7
Income before income taxes, as adjusted - Non-GAAP (a)                                                 $     851     $     1,423   $     1,370   $     1,248   $     1,215
Fee and other revenue - GAAP                                                                           $     2,860   $     3,167   $     3,120   $     3,018   $     2,954
Income from consolidated investment management funds - GAAP                                            17            10            10            33            5
Net interest revenue - GAAP                                                                            851           839           826           792           831
Total revenue - GAAP                                                                                   3,728         4,016         3,956         3,843         3,790
Less:  Net income attributable to noncontrolling interests of consolidated investment management funds 9             3             3             18            4
Total revenue, as adjusted - Non-GAAP (a)                                                              $     3,719   $     4,013   $     3,953   $     3,825   $     3,786
Pre-tax operating margin - GAAP (b)(c)                                                                 20          % 34          % 33          % 31          % 30          %
Adjusted pre-tax operating margin - Non-GAAP (a)(b)(c)                                                 23          % 35          % 35          % 33          % 32          %
(a)   Non-GAAP information 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.
(b)   Income before taxes divided by total revenue.
(c)    Our GAAP earnings include tax-advantaged investments such as low income housing, renewable energy, corporate/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 $66 million for 4Q17, $102 million for 3Q17, $106 million for 2Q17, $101 million for 1Q17 and $92 million for 4Q16 and would increase our pre-tax operating margin by approximately 1.4% for 4Q17, 1.6% for 3Q17, 1.8% for 2Q17 and 1Q17 and 1.7% for 4Q16.

The following table presents the reconciliation of the operating leverage.

Operating leverage                                                                                                                                                                                                    4Q17 vs.
(dollars in millions)                                                                                  4Q17                                 3Q17                                 4Q16                                 3Q17                  4Q16
Total revenue - GAAP                                                                                   $                 3,728              $                 4,016              $                 3,790              (7.17)            %   (1.64)%           %
Less:  Net income attributable to noncontrolling interests of consolidated investment management funds 9                                    3                                    4
Total revenue, as adjusted - Non-GAAP                                                                  $                 3,719              $                 4,013              $                 3,786              (7.33)            %   (1.77)            %
Total noninterest expense - GAAP                                                                       $                 3,006              $                 2,654              $                 2,631              13.26             %   14.25             %
Less:  Amortization of intangible assets                                                               52                                   52                                   60
M&I, litigation and restructuring charges                                                              80                                   6                                    7
Total noninterest expense, as adjusted - Non-GAAP                                                      $                 2,874              $                 2,596              $                 2,564              10.71             %   12.09             %
Operating leverage - GAAP (a)                                                                                                                                                                                         (2,043)           bps (1,589)           bps
Adjusted operating leverage - Non-GAAP (a)(b)                                                                                                                                                                         (1,804)           bps (1,386)           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)                                                                                                                                   4Q17                    3Q17                    2Q17                    1Q17                    4Q16                    FY17
Net income applicable to common shareholders of The Bank of                                                                                             $          1,126        $          983          $          926          $          880          $          822          $          3,915
New York Mellon Corporation - GAAP
Add:  Amortization of intangible assets                                                                                                                 52                      52                      53                      52                      60                      209
Less:  Tax impact of amortization of intangible assets                                                                                                  18                      17                      19                      18                      19                      72
Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets - Non-GAAP 1,160                   1,018                   960                     914                     863                     4,052
Add:  M&I, litigation and restructuring charges                                                                                                         80                      6                       12                      8                       7                       106
Less:  Tax impact of M&I, litigation and restructuring charges                                                                                          15                      --                      3                       2                       3                       20
Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted - Non-GAAP (a)                            $          1,225        $          1,024        $          969          $          920          $          867          $          4,138
Average common shareholders’ equity                                                                                                                     $          36,952       $          36,780       $          35,862       $          34,965       $          35,171       $          36,145
Less:  Average goodwill                                                                                                                                 17,518                  17,497                  17,408                  17,338                  17,344                  17,441
Average intangible assets                                                                                                                               3,437                   3,487                   3,532                   3,578                   3,638                   3,508
Add:  Deferred tax liability - tax deductible goodwill (b)                                                                                              1,034                   1,561                   1,542                   1,518                   1,497                   1,034
Deferred tax liability - intangible assets (b)                                                                                                          718                     1,092                   1,095                   1,100                   1,105                   718
Average tangible common shareholders’ equity - Non-GAAP                                                                                                 $          17,749       $          18,449       $          17,559       $          16,667       $          16,791       $          16,948
Return on common equity - GAAP (c)                                                                                                                      12.1                  % 10.6                  % 10.4                  % 10.2                  % 9.3                   % 10.8                  %
Adjusted return on common equity - Non-GAAP (a)(c)                                                                                                      13.2                  % 11.0                  % 10.8                  % 10.7                  % 9.8                   % 11.4                  %
Return on tangible common equity - Non-GAAP (c)                                                                                                         25.9                  % 21.9                  % 21.9                  % 22.2                  % 20.4                  % 23.9                  %
Adjusted return on tangible common equity - Non-GAAP (a)(c)                                                                                             27.4                  % 22.0                  % 22.1                  % 22.4                  % 20.5                  % 24.4                  %
(a)   Non-GAAP information for all periods presented excludes amortization of intangible assets and M&I, litigation and restructuring charges.
(b)   Deferred tax liabilities are based on fully phased-in Basel III capital rules.  Deferred tax liabilities at Dec. 31, 2017 have been remeasured at the lower statutory corporate tax rate.
(c)    Quarterly returns are annualized.

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

Book value per common share                                 Dec. 31,                 Sept. 30,                June 30,                 March 31, 2017           Dec. 31,
                                                            2017                     2017                     2017                                              2016
(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end - GAAP        $           41,251       $           40,523       $           39,974       $           39,138       $           38,811
Less:  Preferred stock                                      3,542                    3,542                    3,542                    3,542                    3,542
BNY Mellon common shareholders’ equity at period end - GAAP 37,709                   36,981                   36,432                   35,596                   35,269
Less:  Goodwill                                             17,564                   17,543                   17,457                   17,355                   17,316
Intangible assets                                           3,411                    3,461                    3,506                    3,549                    3,598
Add:  Deferred tax liability - tax deductible goodwill (a)  1,034                    1,561                    1,542                    1,518                    1,497
Deferred tax liability - intangible assets (a)              718                      1,092                    1,095                    1,100                    1,105
BNY Mellon tangible common shareholders’ equity at period   $           18,486       $           18,630       $           18,106       $           17,310       $           16,957
end - Non-GAAP
Period-end common shares outstanding (in thousands)         1,013,442                1,024,022                1,033,156                1,039,877                1,047,488
Book value per common share - GAAP                          $           37.21        $           36.11        $           35.26        $           34.23        $           33.67
Tangible book value per common share - Non-GAAP             $           18.24        $           18.19        $           17.53        $           16.65        $           16.19
(a)   Deferred tax liabilities are based on fully phased-in Basel III capital rules.  Deferred tax liabilities at Dec. 31, 2017 have been remeasured at the lower statutory corporate tax rate.

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

Investment management and performance fees - Consolidated                        4Q17 vs.
(dollars in millions)                                              4Q17   4Q16   4Q16
Investment management and performance fees - GAAP                  $ 962  $ 848  13   %
Impact of changes in foreign currency exchange rates               --     21
Investment management and performance fees, as adjusted - Non-GAAP $ 962  $ 869  11   %

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

Income from consolidated investment management funds, net of noncontrolling interests
(in millions)                                                                         4Q17         3Q17         2Q17         1Q17         4Q16
Income from consolidated investment management funds                                  $     17     $     10     $     10     $     33     $     5
Less:  Net income attributable to noncontrolling interests of consolidated investment 9            3            3            18           4
management funds
Income from consolidated investment management funds, net of noncontrolling interests $     8      $     7      $     7      $     15     $     1

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

Investment management fees - Investment Management business               4Q17 vs.
(dollars in millions)                                       4Q17   4Q16   4Q16
Investment management fees - GAAP                           $ 898  $ 801  12   %
Impact of changes in foreign currency exchange rates        --     20
Investment management fees, as adjusted - Non-GAAP          $ 898  $ 821  9    %

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

Income from consolidated investment management funds, net of noncontrolling interests - Investment Management business
(in millions)                                                                         4Q17             3Q17       2Q17       1Q17             4Q16
Investment management fees                                                            $       --       $       1  $       2  $       2        $       4
Other (Investment income (loss))                                                      8                6          5          13               (3)
Income from consolidated investment management funds, net of noncontrolling interests $       8        $       7  $       7  $       15       $       1

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)                                                                                                       4Q17          3Q17          2Q17        1Q17        4Q16
Income before income taxes - GAAP                                                                                           $   276       $   300       $   288     $   277     $ 260
Add:  Amortization of intangible assets                                                                                     15            15            15          15          22
Provision for credit losses                                                                                                 1             (2)           --          3           6
Adjusted income before income taxes, excluding amortization of intangible assets and provision for credit losses - Non-GAAP $   292       $   313       $   303     $   295     $ 288
Total revenue - GAAP                                                                                                        $   1,048     $   1,000     $   986     $   963     $ 960
Less:  Distribution and servicing expense                                                                                   107           110           104         101         98
Adjusted total revenue, net of distribution and servicing expense - Non-GAAP                                                $   941       $   890       $   882     $   862     $ 862
Pre-tax operating margin - GAAP (a)                                                                                         26        %   30        %   29      %   29      %   27    %
Adjusted pre-tax operating margin, excluding amortization of intangible assets,                                             31        %   35        %   34      %   34      %   33    %
provision for credit losses and distribution and servicing expense - Non-GAAP (a)
(a)   Income before taxes divided by total revenue.

DIVIDENDS

Common - On Jan. 18, 2018, The Bank of New York Mellon Corporation declared a quarterly common stock dividend of $0.24 per share. This cash dividend is payable on Feb. 9, 2018 to shareholders of record as of the close of business on Jan. 30, 2018.

Preferred - On Jan. 18, 2018, 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 2018, in each case payable on March 20, 2018 to holders of record as of the close of business on March 5, 2018:

-- $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

-- $2,312.50 per share on the Series F Preferred Stock (equivalent to $23.1250 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 the estimated impact of the U.S. tax legislation, including the effective tax rate. 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, 2016, the Quarterly Report on Form 10-Q for the period ended Sept. 30, 2017 and BNY Mellon’s other filings with the Securities and Exchange Commission. All forward-looking statements in this Earnings Release speak only as of Jan. 18, 2018, and BNY Mellon undertakes no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

ABOUT BNY MELLON

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of Dec. 31, 2017, BNY Mellon had $33.3 trillion in assets under custody and/or administration, and $1.9 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.

CONFERENCE CALL INFORMATION

Charles W. Scharf, chairman and chief executive officer, and Michael P. Santomassimo, 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. 18, 2018. This conference call and audio webcast will include forward-looking statements and may include other material information.

Investors and analysts wishing to access the conference call and audio webcast may do so by dialing (800) 390-5696 (U.S.) or (720) 452-9082 (International), and using the passcode: 678511, 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. 18, 2018. Replays of the conference call and audio webcast will be available beginning Jan. 18, 2018 at approximately 2 p.m. EST through Feb. 17, 2018 by dialing (888) 203-1112 (U.S.) or (719) 457-0820 (International), and using the passcode: 4968536. The archived version of the conference call and audio webcast will also be available at www.bnymellon.com/investorrelations for the same time period.

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

Investor Relations: Valerie Haertel (212) 635-8529

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