EX-13.1 2 form10-k_ex131x4q18.htm ALL PORTIONS OF 2018 ANNUAL REPORT TO SHAREHOLDERS Exhibit



Financial Section

Exhibit 13.1


THE BANK OF NEW YORK MELLON CORPORATION
2018 Annual Report
Table of Contents 
 
 
Page
 
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
Results of Operations:
 
Key 2018 events
 
Acronyms
 
 
Page
Financial Statements:
 
 
 
Notes to Consolidated Financial Statements:
 
Note 2 - Accounting changes and new accounting guidance
Note 9 - Contract revenue
Note 10 - Net interest revenue
Note 11 - Income taxes
Note 12 - Long-term debt
Note 13 - Variable interest entities and securitization
Note 14 - Shareholders’ equity
Note 15 - Other comprehensive income (loss)
Note 16 - Stock-based compensation
Note 17 - Employee benefit plans
Note 18 - Company financial information (Parent Corporation)
Note 19 - Fair value measurement
Note 20 - Fair value option
Note 21 - Commitments and contingent liabilities
Note 22 - Derivative instruments
Note 23 - Lines of business
Note 24 - International operations
Note 25 - Supplemental information to the Consolidated Statement of Cash Flows
 
 
 
 
Corporate Information
Inside back cover



The Bank of New York Mellon Corporation (and its subsidiaries)
 
Financial Summary
 

(dollar amounts in millions, except per common share
amounts and unless otherwise noted)
2018

2017

2016

2015

2014

Selected income statement information:
 
 
 

 
 
Fee and other revenue
$
12,794

$
12,165

$
12,073

$
12,082

$
12,649

(Loss) income from consolidated investment management funds
(13
)
70

26

86

163

Net interest revenue
3,611

3,308

3,138

3,026

2,880

Total revenue
16,392

15,543

15,237

15,194

15,692

Provision for credit losses
(11
)
(24
)
(11
)
160

(48
)
Noninterest expense
11,211

10,957

10,523

10,799

12,177

Income before income taxes
5,192

4,610

4,725

4,235

3,563

Provision for income taxes
938

496

1,177

1,013

912

Net income
4,254

4,114

3,548

3,222

2,651

Net loss (income) attributable to noncontrolling interests (a)
12

(24
)
(1
)
(64
)
(84
)
Net income applicable to shareholders of The Bank of New York Mellon Corporation
4,266

4,090

3,547

3,158

2,567

Preferred stock dividends
(169
)
(175
)
(122
)
(105
)
(73
)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
$
4,097

$
3,915

$
3,425

$
3,053

$
2,494

Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation:
 
 
 
 
 
Basic
$
4.06

$
3.74

$
3.16

$
2.73

$
2.17

Diluted
$
4.04

$
3.72

$
3.15

$
2.71

$
2.15

Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation (in thousands):
 
 
 
 
 
Basic
1,002,922

1,034,281

1,066,286

1,104,719

1,129,897

Diluted
1,007,141

1,040,290

1,072,013

1,112,511

1,137,480

Selected balance sheet information (at period-end):
 
 
 
 
 
Interest-earning assets
$
308,749

$
316,261

$
280,332

$
338,955

$
317,646

Total assets
362,873

371,758

333,469

393,780

385,303

Deposits
238,778

244,322

221,490

279,610

265,869

Long-term debt
29,163

27,979

24,463

21,547

20,264

Preferred stock
3,542

3,542

3,542

2,552

1,562

Total The Bank of New York Mellon Corporation common shareholders’ equity
37,096

37,709

35,269

35,485

35,879

At Dec. 31
 
 
 
 
 
Assets under custody and/or administration (in trillions) (b)
$
33.1

$
33.3

$
29.9

$
28.9

$
28.5

Assets under management (in billions) (c)
1,722

1,893

1,648

1,625

1,686

Market value of securities on loan (in billions) (d)
373

408

296

277

289

Selected ratios:
 
 
 
 
 
Return on common equity
10.8
%
10.8
%
9.6
%
8.6
%
6.8
%
Return on tangible common equity – Non-GAAP (e)
22.5

23.9

21.2

19.7

16.0

Return on average assets
1.19

1.14

0.96

0.82

0.67

Pre-tax operating margin
32

30

31

28

23

Fee revenue as a percentage of total revenue
78

78

79

79

80

Percentage of non-U.S. total revenue
37

36

34

36

38

Net interest margin
1.25

1.14

1.03

0.96

0.95

(a)
Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b)
Includes the assets under custody and/or administration of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.2 trillion at Dec. 31, 2018, $1.3 trillion at Dec. 31, 2017, $1.2 trillion at Dec. 31, 2016, $1.0 trillion at Dec. 31, 2015 and $1.1 trillion at Dec. 31, 2014.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business.
(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 an agent on behalf of CIBC Mellon clients, which totaled $58 billion at Dec. 31, 2018, $71 billion at Dec. 31, 2017, $63 billion at Dec. 31, 2016, $55 billion at Dec. 31, 2015 and $65 billion at Dec. 31, 2014.
(e)
Return on tangible common equity, a Non-GAAP measure, excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 105 for the reconciliation of the Non-GAAP measure.


2 BNY Mellon


The Bank of New York Mellon Corporation (and its subsidiaries)
 
Financial Summary (continued)
 

(dollar amounts in millions, except per common share
amounts and unless otherwise noted)
2018

2017

2016

2015

2014

Cash dividends per common share
$
1.04

$
0.86

$
0.72

$
0.68

$
0.66

Common dividend payout ratio
26
%
23
%
23
%
25
%
31
%
Common dividend yield
2.2
%
1.6
%
1.5
%
1.6
%
1.6
%
Closing stock price per common share
$
47.07

$
53.86

$
47.38

$
41.22

$
40.57

Market capitalization (in billions)
$
45.2

$
54.6

$
49.6

$
44.7

$
45.4

Book value per common share
$
38.63

$
37.21

$
33.67

$
32.69

$
32.09

Tangible book value per common share – Non-GAAP (a)
$
19.04

$
18.24

$
16.19

$
15.27

$
14.70

Full-time employees
51,300

52,500

52,000

51,200

50,300

Year-end common shares outstanding (in thousands)
960,426

1,013,442

1,047,488

1,085,343

1,118,228

Average total equity to average total assets
12.1
%
11.7
%
10.7
%
10.2
%
10.2
%
Capital ratios (at period-end):
 
 
 
 
 
Consolidated regulatory capital ratios - fully phased-in basis: (b)(c)
 
 
 
 
 
Advanced:
 
 
 
 
 
CET1 ratio
10.7
%
10.3
%
9.7
%
9.5
%
9.8
%
Tier 1 capital ratio
12.8

12.3

11.8

11.0

10.8

Total (Tier 1 plus Tier 2) capital ratio
13.6

13.0

12.1

11.1

11.0

Standardized:
 
 
 
 
 
CET1 ratio
11.7

11.5

11.3

10.2

10.6

Tier 1 capital ratio
14.1

13.7

13.6

11.8

11.6

Total (Tier 1 plus Tier 2) capital ratio
15.1

14.7

14.2

12.0

12.0

Tier 1 leverage ratio
6.6

6.4

N/A
N/A
N/A
Supplementary leverage ratio (“SLR”)
6.0

5.9

5.6

4.9

4.4

 
 
 
 
 
 
Consolidated regulatory capital ratios - transitional basis: (b)(d)
 
 
 
 
 
Advanced:
 
 
 
 
 
CET1 ratio
N/A
10.7
%
10.6
%
10.8
%
11.2
%
Tier 1 capital ratio
N/A
12.7

12.6

12.3

12.2

Total (Tier 1 plus Tier 2) capital ratio
N/A
13.4

13.0

12.5

12.5

Tier 1 leverage ratio
N/A
6.6

6.6

6.0

5.6

SLR
N/A
6.1

6.0

5.4

N/A
 
 
 
 
 
 
BNY Mellon shareholders’ equity to total assets ratio
11.2
%
11.1
%
11.6
%
9.7
%
9.7
%
BNY Mellon common shareholders’ equity to total assets ratio
10.2

10.1

10.6

9.0

9.3

(a)
Tangible book value per common share – Non-GAAP excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 105 for the reconciliation of the Non-GAAP measure.
(b)
Risk-based capital ratios at Dec. 31, 2014 do not reflect the adoption of accounting guidance related to Consolidations in Accounting Standards Update (“ASU”) 2015-02.
(c)
For our Common Equity Tier 1 (“CET1”), Tier 1 and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. Beginning Jan. 1, 2018, consolidated regulatory ratios are fully phased-in. The consolidated regulatory ratios for all prior periods are presented on an estimated fully phased-in basis. For additional information on our regulatory capital ratios, see “Capital” beginning on page 45.
(d)
Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in period periods under U.S. capital rules.



BNY Mellon 3

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

General

In this Annual Report, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.

BNY Mellon’s actual results of future operations may differ from those estimated or anticipated in certain forward-looking statements contained herein for reasons which are discussed below and under the heading “Forward-looking Statements.” When used in this Annual Report, words such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “future” and words of similar meaning, may signify forward-looking statements.

Certain business terms and commonly used acronyms used in this Annual Report are defined in the Glossary and Acronyms sections.

The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the section titled “Forward-looking Statements.”

Overview

Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a more than 230-year history, BNY Mellon is a global company that manages and services assets for financial institutions, corporations and individual investors in 35 countries.

BNY Mellon has two business segments, Investment Services and Investment Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell-side market participants, as well as leading institutional and wealth management clients globally.

 
The diagram below presents our two business segments and lines of business, with the remaining operations in the Other segment.

businesses4q18.jpg


Key 2018 events

Share repurchase program and increase in cash dividend on common stock

In June 2018, our Board of Directors approved the repurchase of up to $2.4 billion of common stock starting in the third quarter of 2018 and continuing through the second quarter of 2019.

In July 2018, our Board of Directors approved a 17% increase in the quarterly cash dividend per common share, from $0.24 to $0.28 per share. The first payment of the increased quarterly cash dividend was made on Aug. 10, 2018.

In December 2018, our Board of Directors approved the repurchase of $830 million of additional common stock, all of which was repurchased in the fourth quarter of 2018. These repurchases were in addition to the repurchase of $2.4 billion of common stock previously approved by the Board.



4 BNY Mellon

Results of Operations (continued)
 

Corporate headquarters

In July 2018, BNY Mellon relocated its corporate headquarters to 240 Greenwich Street in lower Manhattan.

Summary of financial highlights

We reported net income applicable to common shareholders of BNY Mellon of $4.1 billion, or $4.04 per diluted common share, in 2018, including a net charge of $168 million, or $(0.17) per diluted common share, related to severance, expenses associated with consolidating real estate and litigation expense, partially offset by adjustments to provisional estimates for U.S. tax legislation. In 2017, net income applicable to common shareholders of BNY Mellon was $3.9 billion, or $3.72 per diluted common share, including a net benefit of $160 million, or $0.15 per diluted common share, related to the estimated net benefit related to U.S. tax legislation, partially offset by severance, litigation expense and other charges.

Highlights of 2018 results

Assets under custody and/or administration (“AUC/A”) totaled $33.1 trillion at Dec. 31, 2018 compared with $33.3 trillion at Dec. 31, 2017. The 1% decrease primarily reflects lower market values and the unfavorable impact of a stronger U.S. dollar on a spot basis, partially offset by net new business. (See “Investment Services business” beginning on page 14.)
Assets under management (“AUM”) totaled $1.7 trillion at Dec. 31, 2018 compared with $1.9 trillion at Dec. 31, 2017. The 9% decrease primarily reflects the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) on a spot basis, lower market values, net outflows, the divestiture of CenterSquare Investment Management (“CenterSquare”) and other changes. AUM excludes securities lending cash management assets and assets managed in the Investment Services business. (See “Investment Management business” beginning on page 17.)
Investment services fees totaled $7.8 billion in 2018, an increase of 5% compared with $7.5 billion in 2017, primarily reflecting higher equity market values, net new business, including growth in collateral management and higher Depositary Receipts revenue, partially offset by
 
the previously disclosed lost business in Pershing. (See “Investment Services business” beginning on page 14.)
Investment management and performance fees totaled $3.7 billion in 2018 compared with $3.6 billion in 2017, an increase of 3%, primarily reflecting higher market values, performance fees and the favorable impact of a weaker U.S. dollar (principally versus the British pound), partially offset by the impact of net outflows. On a constant currency basis (Non-GAAP), investment management and performance fees increased 2% compared with 2017. (See “Investment Management business” beginning on page 17.)
Foreign exchange and other trading revenue totaled $732 million in 2018 compared with $668 million in 2017. Foreign exchange revenue totaled $663 million in 2018, an increase of 4% compared with $638 million in 2017. The increase in foreign exchange revenue primarily reflects higher volumes, partially offset by foreign currency hedging. (See “Fee and other revenue” beginning on page 7.)
Net interest revenue totaled $3.6 billion in 2018 compared with $3.3 billion in 2017, an increase of 9%. The increase primarily reflects higher interest rates. Net interest margin was 1.25% in 2018 compared with 1.14% in 2017. (See “Net interest revenue” beginning on page 9.)
The provision for credit losses was a credit of $11 million in 2018 and a credit of $24 million in 2017. (See “Asset quality and allowance for credit losses” beginning on page 35.)
Noninterest expense totaled $11.2 billion in 2018 compared with $11.0 billion in 2017. The 2% increase primarily reflects investments in technology, expenses associated with consolidating our real estate and the unfavorable impact of a weaker U.S. dollar, partially offset by lower bank assessment charges. (See “Noninterest expense” beginning on page 12.)
The provision for income taxes was $938 million (18.1% effective tax rate) in 2018, including the impact of the adjustments to provisional estimates for U.S. tax legislation and the tax impact of severance, expenses associated with consolidating real estate and litigation expense. (See “Income taxes” on page 12.)
The net unrealized pre-tax loss on our total securities portfolio was $907 million at Dec. 31,


BNY Mellon 5

Results of Operations (continued)
 

2018, compared with a pre-tax loss of $85 million at Dec. 31, 2017, including the impact of related hedges. The increase in net unrealized pre-tax loss was primarily driven by an increase in interest rates. (See “Securities” beginning on page 29.)
Our CET1 ratio calculated under the Advanced Approach was 10.7% at Dec. 31, 2018 and 10.7%, on a transitional basis, at Dec. 31, 2017. The ratio was unchanged compared to Dec. 31, 2017, reflecting capital deployed through common stock repurchases and dividend payments, and the final phase-in requirements under U.S. capital rules, offset by capital generated through earnings and lower risk-weighted assets (“RWAs”). (See “Capital” beginning on page 45.)
Our SLR was 6.0% at Dec. 31, 2018 and 6.1%, on a transitional basis, at Dec. 31, 2017. (See “Capital” beginning on page 45.)

Results for 2017

In 2017, we reported net income applicable to common shareholders of BNY Mellon of $3.9 billion, or $3.72 per diluted common share. These results were primarily driven by:

Investment services fees totaled $7.5 billion in 2017, an increase of 3% compared with $7.2 billion in 2016, primarily reflecting higher money market fees, higher equity market values and net new business, including growth in collateral management, partially offset by the previously disclosed lost business in Pershing and lower volumes in certain Depositary Receipts programs.
Investment management and performance fees totaled $3.6 billion in 2017 compared with $3.4 billion in 2016, an increase of 7%, primarily reflecting higher market values, money market fees and performance fees, partially offset by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound).
Foreign exchange and other trading revenue totaled $668 million in 2017 compared with $701 million in 2016. Foreign exchange revenue totaled $638 million in 2017, a decrease of 7%, compared with $687 million in 2016. The decrease in foreign exchange revenue primarily reflects lower volatility, partially offset by higher volumes.
 
The provision for credit losses was a credit of $24 million in 2017.
Noninterest expense totaled $11.0 billion in 2017 compared with $10.5 billion in 2016. The 4% increase primarily reflects higher staff, software, and professional, legal and other purchased services expenses.
The provision for income taxes was $496 million (10.8% effective tax rate), including the estimated tax benefit related to U.S. tax legislation.

Results for 2016

In 2016, we reported net income applicable to common shareholders of BNY Mellon of $3.4 billion, or $3.15 per diluted common share. These results were primarily driven by:

Investment services fees totaled $7.2 billion, primarily reflecting higher money market fees and securities lending revenue, partially offset by the unfavorable impact of lost business on clearing services fees, the unfavorable impact of a stronger U.S. dollar and the downsizing of the UK transfer agency business.
Investment management and performance fees totaled $3.4 billion, primarily reflecting the unfavorable impact of a stronger U.S. dollar (principally versus the British pound), net outflows of AUM and lower performance fees, partially offset by higher market values and money market fees.
Foreign exchange and other trading revenue totaled $701 million, of which $687 million represented foreign exchange revenue. The decrease in foreign exchange revenue primarily reflects the impact of clients migrating to lower margin products and lower volumes.
The provision for credit losses was a credit of $11 million.
Noninterest expense totaled $10.5 billion primarily reflecting lower expenses in nearly all categories, driven by the favorable impact of a stronger U.S. dollar, lower staff, other, litigation and legal expenses and the benefit of the business improvement process. The decrease was partially offset by higher bank assessment charges, distribution and servicing and software expenses.
The provision for income taxes was $1.2 billion (24.9% effective tax rate) in 2016.


6 BNY Mellon

Results of Operations (continued)
 

Fee and other revenue

Fee and other revenue
 
 
 
2018

2017

 
 
 
 
 vs.

 vs.

(dollars in millions, unless otherwise noted)
2018

2017

2016

2017

2016

Investment services fees:
 
 
 
 
 
Asset servicing (a)
$
4,608

$
4,383

$
4,244

5
 %
3
 %
Clearing services
1,578

1,553

1,404

2

11

Issuer services
1,099

977

1,026

12

(5
)
Treasury services
554

557

547

(1
)
2

Total investment services fees
7,839

7,470

7,221

5

3

Investment management and performance fees
3,685

3,584

3,350

3

7

Foreign exchange and other trading revenue
732

668

701

10

(5
)
Financing-related fees
207

216

219

(4
)
(1
)
Distribution and servicing
139

160

166

(13
)
(4
)
Investment and other income
240

64

341

N/M
N/M
Total fee revenue
12,842

12,162

11,998

6

1

Net securities (losses) gains
(48
)
3

75

N/M
N/M
Total fee and other revenue
$
12,794

$
12,165

$
12,073

5
 %
1
 %
 
 
 
 
 
 
Fee revenue as a percentage of total revenue
78
%
78
%
79
%
 
 
 
 
 
 
 
 
AUC/A at period end (in trillions) (b)
$
33.1

$
33.3

$
29.9

(1
)%
11
 %
AUM at period end (in billions) (c)
$
1,722

$
1,893

$
1,648

(9
)%
15
 %
(a)
Asset servicing fees include securities lending revenue of $220 million in 2018, $195 million in 2017 and $207 million in 2016.
(b)
Includes the AUC/A of CIBC Mellon of $1.2 trillion at Dec. 31, 2018, $1.3 trillion at Dec. 31, 2017 and $1.2 trillion at Dec. 31, 2016.
(c)
Excludes securities lending cash management assets and assets managed in the Investment Services business.


Fee and other revenue increased 5% compared with 2017. The increase primarily reflects higher asset servicing fees, investment and other income, issuer servicing fees and investment management and performance fees, partially offset by net securities losses.

Investment services fees

Investment services fees increased 5% compared with 2017 reflecting the following:

Asset servicing fees increased 5%, primarily reflecting growth in collateral management, higher equity market values and securities lending volumes.
Clearing services fees increased 2%, primarily driven by higher equity market values and average long-term mutual funds balances, partially offset by the previously disclosed lost business.
Issuer services fees increased 12%, primarily reflecting higher Depositary Receipts revenue and higher volumes in Corporate Trust.
Treasury services fees decreased 1%, primarily reflecting higher compensating balance credits
 
provided to clients, which reduce fee revenue and increase net interest revenue, partially offset by higher volumes.

See the “Investment Services business” in “Review of businesses” for additional details.

Investment management and performance fees

Investment management and performance fees increased 3% compared with 2017, primarily reflecting higher market values, performance fees and the favorable impact of a weaker U.S. dollar (principally versus the British pound), partially offset by the impact of net outflows. On a constant currency basis (Non-GAAP), investment management and performance fees increased 2% compared with 2017. Performance fees were $144 million in 2018, $94 million in 2017 and $60 million in 2016.

AUM was $1.7 trillion at Dec. 31, 2018, a decrease of 9% compared with $1.9 trillion at Dec. 31, 2017. The decrease primarily reflects the unfavorable impact of a stronger U.S. dollar (principally versus the British pound) on a spot basis, lower market values, net


BNY Mellon 7

Results of Operations (continued)
 

outflows, the divestiture of CenterSquare and other changes.

See the “Investment Management business” in “Review of businesses” for additional details regarding the drivers of investment management and performance fees, AUM and AUM flows.

Foreign exchange and other trading revenue

Foreign exchange and other trading revenue
 
(in millions)
2018

2017

2016

Foreign exchange
$
663

$
638

$
687

Other trading revenue
69

30

14

Total foreign exchange and other trading revenue
$
732

$
668

$
701



Foreign exchange and other trading revenue increased 10% compared with 2017.

Foreign exchange revenue is primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility, and the impact of foreign currency hedging activities. In 2018, foreign exchange revenue totaled $663 million, an increase of 4% compared with 2017, primarily reflecting higher volumes, partially offset by foreign currency hedging. Foreign exchange revenue is primarily reported in the Investment Services business and, to a lesser extent, the Investment Management business and the Other segment.

Total other trading revenue was $69 million in 2018, compared with $30 million in 2017. The increase primarily reflects gains on Investment Management hedging activities. Other trading revenue is reported in all three business segments.


Financing-related fees

Financing-related fees, which are primarily reported in the Investment Services business and the Other segment, include capital markets fees, loan commitment fees and credit-related fees. Financing-related fees totaled $207 million in 2018 compared with $216 million in 2017, primarily reflecting lower fees on standby letters of credit and underwriting.

 
Distribution and servicing fees

Distribution and servicing fees earned from mutual funds are primarily based on average assets in the funds and the sales of funds that we manage or administer and are primarily reported in the Investment Management business. These fees, which include 12b-1 fees, fluctuate with the overall level of net sales, the relative mix of sales between share classes, the funds’ market values and money market fee waivers.

Distribution and servicing fees were $139 million in 2018 compared with $160 million in 2017. The decrease primarily reflects the impact of lower fees from mutual funds.

Investment and other income

The following table provides the components of investment and other income.

Investment and other income
 
 
 
(in millions)
2018

2017

2016

Corporate/bank-owned life insurance
$
145

$
153

$
149

Expense reimbursements from joint venture
71

64

67

Asset-related gains (losses)
70

(1
)
10

Equity investment income (loss)
4

37

(10
)
Seed capital gains (a)
3

32

44

Lease-related gains
1

56

38

Other (loss) income
(54
)
(277
)
43

Total investment and other income
$
240

$
64

$
341

(a)
Excludes seed capital gains related to consolidated investment management funds, which are reflected in operations of consolidated investment management funds.


Investment and other income includes corporate and bank-owned life insurance contracts, expense reimbursements from our CIBC Mellon joint venture, gains or losses from asset-related activity, equity investments, seed capital, lease-related activity and other (loss) income. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Asset-related gains (losses) include real estate, loan and other asset dispositions. Other (loss) income primarily includes foreign currency remeasurement gain (loss), other investments, including renewable energy, and various miscellaneous revenues. Investments in renewable energy generate losses in other income that are more than offset by benefits and credits recorded to the provision for income taxes.


8 BNY Mellon

Results of Operations (continued)
 

Investment and other income was $240 million in 2018 compared with $64 million in 2017. The increase primarily reflects the impact of U.S. tax legislation on our renewable energy investments recorded in 2017.

Net securities losses

Net securities losses were $48 million in 2018, primarily reflecting the sale of debt securities.

2017 compared with 2016

Fee and other revenue totaled $12.2 billion in 2017 compared with $12.1 billion in 2016. The increase primarily reflects higher investment services fees and investment management and performance fees, partially offset by lower investment and other income and net securities gains.

 
The increase in investment services fees primarily reflects higher money market fees, higher equity market values and net new business, including growth in collateral management, partially offset by previously disclosed lost business in Pershing and lower volumes in certain Depositary Receipts programs.

The increase in investment management and performance fees primarily reflects higher market values, money market fees and performance fees, partially offset by the unfavorable impact of a stronger U.S. dollar on an average basis (principally versus the British pound).

The decrease in investment and other income primarily reflects the impact of U.S. tax legislation on our renewable energy investments.


Net interest revenue

Net interest revenue
 
 
 
2018

2017

 
 
 
 
 vs.

 vs.

(dollars in millions)
2018

2017

2016

2017

2016

Net interest revenue
$
3,611

$
3,308

$
3,138

9
 %
5
 %
Add: Tax equivalent adjustment
20

47

51

N/M
N/M
Net interest revenue on a fully taxable equivalent
basis (“FTE”) – Non-GAAP (a)
$
3,631

$
3,355

$
3,189

8
 %
5
 %
 
 
 
 
 
 
Average interest-earning assets
$
289,916

$
290,522

$
303,379


(4
)%
 
 
 
 
 
 
Net interest margin
1.25
%
1.14
%
1.03
%
11
 bps
11
 bps
Net interest margin (FTE) – Non-GAAP (a)
1.25
%
1.15
%
1.05
%
10
 bps
10
 bps
(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.


Net interest revenue increased 9% compared with 2017, primarily reflecting higher interest rates.

Net interest margin increased 11 basis points compared with 2017, primarily reflecting higher yields on interest-earning assets, partially offset by higher interest rates paid on interest-bearing liabilities.

Average interest-earning assets were $290 billion in 2018 compared with $291 billion in 2017. The decrease primarily reflects lower loans and interest-bearing deposits with the Federal Reserve and other central banks, partially offset by higher trading securities.

 
Average non-U.S. dollar deposits comprised approximately 30% of our average total deposits in 2018 and 2017. Approximately 45% of the average non-U.S. dollar deposits in 2018 and 2017 were euro-denominated.

2017 compared with 2016

Net interest revenue increased 5% compared with 2016, primarily driven by higher interest rates, partially offset by lower interest-earning assets driven by lower average deposits. The 11 basis points increase in the net interest margin primarily reflects higher yields on interest-earning assets, partially offset by higher interest rates paid on interest-bearing liabilities.


BNY Mellon 9

Results of Operations (continued)
 

Average balances and interest rates
2018
(dollar amounts in millions, presented on an FTE basis)
Average balance

 
Interest

 
Average rates

Assets
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
Interest-bearing deposits with banks (primarily foreign banks)
$
14,740

 
$
219

 
1.48
%
Interest-bearing deposits with the Federal Reserve and other central banks
68,408

 
531

 
0.78

Federal funds sold and securities purchased under resale agreements (a)
27,883

 
1,116

 
4.00

Margin loans
14,397

 
510

 
3.54

Non-margin loans:
 
 
 
 
 
Domestic offices:
 
 
 
 
 
Consumer
9,789

 
319

 
3.26

Commercial
19,853

 
701

 
3.53

Foreign offices
11,771

 
336

 
2.85

Total non-margin loans
41,413

 
1,356

(b)
3.27

Securities:
 
 
 
 
 
U.S. government obligations
23,908

 
486

 
2.03

U.S. government agency obligations
63,902

 
1,518

 
2.37

State and political subdivisions
2,565

 
69

 
2.69

Other securities:
 
 
 
 
 
Domestic offices
8,186

 
341

 
4.17

Foreign offices
19,848

 
179

 
0.90

Total other securities
28,034

 
520

 
1.85

Trading securities (primarily domestic)
4,666

 
127

 
2.74

Total securities
123,075

 
2,720

 
2.21

Total interest-earning assets
$
289,916

 
$
6,452

 
2.23
%
Noninterest-earning assets
53,858

 
 
 
 
Total assets
$
343,774

 
 
 
 
Liabilities
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
Domestic offices
$
59,226

 
$
537

 
0.91
%
Foreign offices
95,475

 
340

 
0.36

Total interest-bearing deposits
154,701

 
877

 
0.57

Federal funds purchased and securities sold under repurchase agreements (a)
15,546

 
758

 
4.88

Trading liabilities
1,310

 
29

 
2.21

Other borrowed funds:
 
 
 
 
 
Domestic offices
2,122

 
55

 
2.57

Foreign offices
423

 
3

 
0.73

Total other borrowed funds
2,545

 
58

 
2.26

Commercial paper
2,607

 
51

 
1.97

Payables to customers and broker-dealers
16,353

 
191

 
1.17

Long-term debt
28,257

 
857

 
3.03

Total interest-bearing liabilities
$
221,319

 
$
2,821

 
1.27
%
Total noninterest-bearing deposits
63,814

 
 
 
 
Other noninterest-bearing liabilities
16,952

 
 
 
 
Total liabilities
302,085

 
 
 
 
Temporary equity
 
 
 
 
 
Redeemable noncontrolling interests
187

 
 
 
 
Permanent equity
 
 
 
 
 
Total The Bank of New York Mellon Corporation shareholders’ equity
41,360

 
 
 
 
Noncontrolling interests
142

 
 
 
 
Total permanent equity
41,502

 
 
 
 
Total liabilities, temporary equity and permanent equity
$
343,774

 
 
 
 
Net interest revenue (FTE) – Non-GAAP
 
 
$
3,631

 
 
Net interest margin (FTE) – Non-GAAP
 
 
 
 
1.25
%
Less: Tax equivalent adjustment (c)
 
 
20

 
 
Net interest revenue - GAAP
 
 
$
3,611

 
 
Net interest margin- GAAP
 
 
 
 
1.25
%
Percentage of assets attributable to foreign offices (d)
31
%
 
 
 
 
Percentage of liabilities attributable to foreign offices (d)
34

 
 
 
 
Note: Interest and average rates were calculated on a taxable equivalent basis using dollar amounts in thousands and actual number of days in the year.
(a)
Includes the average impact of offsetting under enforceable netting agreements of approximately $25 billion in 2018.
(b)
Includes fees of $7 million in 2018. Non-accrual loans are included in average loans; the associated income, which was recognized on a cash basis, is included in interest income.
(c)
The tax equivalent adjustment relates to tax-exempt securities, primarily state and political subdivisions, and is based on the U.S. federal statutory tax rate of 21%, adjusted for applicable state income taxes, net of the related federal tax benefit.
(d)
Includes the Cayman Islands branch office.


10 BNY Mellon

Results of Operations (continued)
 

Average balances and interest rates (continued)
2017
 
2016
(dollar amounts in millions, presented on an FTE basis)
Average balance

 
Interest

 
Average rates

 
Average balance

 
Interest

 
Average rates

Assets
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits with banks (primarily foreign banks)
$
14,879

 
$
120

 
0.80
%
 
$
14,704

 
$
104

 
0.70
 %
Interest-bearing deposits with the Federal Reserve and other
central banks
70,213

 
319

 
0.45

 
80,593

 
198

 
0.25

Federal funds sold and securities purchased under resale agreements (a)
27,192

 
423

 
1.55

 
25,767

 
233

 
0.91

Margin loans
14,500

 
343

 
2.36

 
18,201

 
265

 
1.46

Non-margin loans:
 
 
 
 
 
 
 
 
 
 
 
Domestic offices:
 
 
 
 
 
 
 
 
 
 
 
Consumer
9,548

 
298

 
3.12

 
8,483

 
259

 
3.05

Commercial
20,976

 
521

 
2.49

 
21,820

 
417

 
1.91

Foreign offices
12,915

 
258

 
2.00

 
13,177

 
197

 
1.50

Total non-margin loans
43,439

 
1,077

(b)
2.48

 
43,480

 
873

(b)
2.01

Securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. government obligations
25,674

 
425

 
1.66

 
25,074

 
378

 
1.51

U.S. government agency obligations
60,268

 
1,195

 
1.98

 
56,384

 
986

 
1.75

State and political subdivisions
3,226

 
100

 
3.09

 
3,703

 
110

 
2.96

Other securities:
 
 
 
 
 
 
 
 
 
 
 
Domestic offices
9,141

 
215

 
2.35

 
12,326

 
210

 
1.71

Foreign offices
19,541

 
150

 
0.77

 
20,664

 
206

 
1.00

Total other securities
28,682

 
365

 
1.27

 
32,990

 
416

 
1.26

Trading securities (primarily domestic)
2,449

 
62

 
2.54

 
2,483

 
63

 
2.56

Total securities
120,299

 
2,147

 
1.79

 
120,634

 
1,953

 
1.62

Total interest-earning assets
$
290,522

 
$
4,429

 
1.52
%
 
$
303,379

 
$
3,626

 
1.20
 %
Noninterest-earning assets
53,326

 
 
 
 
 
55,098

 
 
 
 
Total assets
$
343,848

 
 
 
 
 
$
358,477

 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing deposits:
 
 
 
 
 
 
 
 
 
 
 
Domestic offices:
$
46,908

 
$
107

 
0.23
%
 
$
54,547

 
$
41

 
0.08
 %
Foreign offices
96,215

 
55

 
0.06

 
102,399

 
(25
)
 
(0.02
)
Total interest-bearing deposits
143,123

 
162

 
0.11

 
156,946

 
16

 
0.01

Federal funds purchased and securities sold under repurchase
agreements (a)
19,653

 
225

 
1.14

 
14,489

 
36

 
0.25

Trading liabilities
1,243

 
7

 
0.57

 
711

 
6

 
0.89

Other borrowed funds:
 
 
 
 
 
 
 
 
 
 
 
Domestic offices
1,113

 
21

 
1.86

 
93

 
4

 
4.15

Foreign offices
803

 
5

 
0.67

 
753

 
4

 
0.51

Total other borrowed funds
1,916

 
26

 
1.36

 
846

 
8

 
0.91

Commercial paper
2,630

 
29

 
1.08

 
1,337

 
5

 
0.37

Payables to customers and broker-dealers
18,984

 
64

 
0.34

 
16,925

 
12

 
0.07

Long-term debt
27,424

 
561

 
2.05

 
23,334

 
354

 
1.52

Total interest-bearing liabilities
$
214,973

 
$
1,074

 
0.50
%
 
$
214,588

 
$
437

 
0.20
 %
Total noninterest-bearing deposits
71,664

 
 
 
 
 
82,712

 
 
 
 
Other noninterest-bearing liabilities
16,932

 
 
 
 
 
21,928

 
 
 
 
Total liabilities
303,569

 
 
 
 
 
319,228

 
 
 
 
Temporary equity
 
 
 
 
 
 
 
 
 
 
 
Redeemable noncontrolling interests
180

 
 
 
 
 
182

 
 
 
 
Permanent equity
 
 
 
 
 
 
 
 
 
 
 
Total The Bank of New York Mellon Corporation shareholders’ equity
39,687

 
 
 
 
 
38,489

 
 
 
 
Noncontrolling interests
412

 
 
 
 
 
578

 
 
 
 
Total permanent equity
40,099

 
 
 
 
 
39,067

 
 
 
 
Total liabilities, temporary equity and permanent equity
$
343,848

 
 
 
 
 
$
358,477

 
 
 
 
Net interest revenue (FTE) – Non-GAAP
 
 
$
3,355

 
 
 
 
 
$
3,189

 
 
Net interest margin (FTE) – Non-GAAP
 
 
 
 
1.15
%
 
 
 
 
 
1.05
 %
Less: Tax equivalent adjustment (c)
 
 
47

 
 
 
 
 
51

 
 
Net interest revenue - GAAP
 
 
$
3,308

 
 
 
 
 
$
3,138

 
 
Net interest margin - GAAP
 
 
 
 
1.14
%
 
 
 
 
 
1.03
 %
Percentage of assets attributable to foreign offices (d)
30
%
 
 
 
 
 
29
%
 
 
 
 
Percentage of liabilities attributable to foreign offices (d)
35

 
 
 
 
 
36

 
 
 
 
Note: Interest and average rates were calculated on a taxable equivalent basis using dollar amounts in thousands and actual number of days in the year.
(a)
Includes the average impact of offsetting under enforceable netting agreements of approximately $6 billion in 2017 and less than $350 million in 2016.
(b)
Includes fees of $9 million in 2017 and $10 million in 2016. Non-accrual loans are included in the average loans; the associated income, which was recognized on a cash basis, is included in interest income.
(c)
The tax equivalent adjustment relates to tax-exempt securities, primarily state and political subdivisions, and is based on the U.S. federal statutory tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit.
(d)
Includes the Cayman Islands branch office.


BNY Mellon 11

Results of Operations (continued)
 

Noninterest expense

Noninterest expense
 
 
 
2018

2017

 
 
 
 
 vs.

 vs.

(dollars in millions)
2018

2017

2016

2017

2016

Staff (a)
$
6,145

$
6,033

$
5,809

2
 %
4
 %
Professional, legal and other purchased services
1,334

1,276

1,186

5

8

Software
772

744

647

4

15

Net occupancy
630

570

592

11

(4
)
Sub-custodian and clearing (b)
450

414

400

9

4

Distribution and servicing
406

419

405

(3
)
3

Furniture and equipment
290

241

247

20

(2
)
Business development
228

229

245


(7
)
Bank assessment charges
170

220

219

(23
)

Amortization of intangible assets
180

209

237

(14
)
(12
)
Other (a)(b)(c)
606

602

536

1

12

Total noninterest expense
$
11,211

$
10,957

$
10,523

2
 %
4
 %
 
 
 
 


 
Full-time employees at period end
51,300

52,500

52,000

(2
)%
1
 %
(a)
In 2018, we adopted new accounting guidance included in ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which required the reclassification of the components of pension and other postretirement costs, other than the service cost component. As a result, staff expense increased and other expense decreased. Prior periods have been reclassified. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
(b)
Beginning in 2018, clearing expense, which was previously included in other expense, was included with sub-custodian expense. Prior periods have been reclassified.
(c)
Beginning in 2018, merger and integration (“M&I”), litigation and restructuring charges are no longer separately disclosed. Expenses previously reported in this line have been reclassified to existing expense categories, primarily other expense.


Total noninterest expense increased 2% compared with 2017. The increase primarily reflects investments in technology, expenses associated with consolidating our real estate and the unfavorable impact of a weaker U.S. dollar, partially offset by lower bank assessment charges. The investments in technology are included in staff, professional, legal and other purchased services, software and furniture and equipment expenses.

Our investments in technology infrastructure and platforms increased throughout 2018 and are expected to continue at recent levels. As a result, we expect to incur higher technology-related expenses in 2019 than in 2018. This increase is expected to be mostly offset by decreases in other expenses as we continue to manage overall expenses.

2017 compared with 2016

Total noninterest expense increased 4% compared with 2016. The increase primarily reflects higher staff, software and professional, legal and other purchased services expenses. The increase in staff
 
expense primarily reflects higher incentive expense, driven by stronger performance, the annual employee merit increase and higher severance expense, partially offset by the favorable impact of a stronger U.S. dollar. The increase in software expense primarily reflects asset impairments and increased amortization. The increase in professional, legal and other purchased services expense primarily reflects higher consulting and purchased services expenses.

Income taxes

BNY Mellon recorded an income tax provision of $938 million (18.1% effective tax rate) in 2018, including the impact of adjusting provisional estimates related to U.S. tax legislation and the tax impact of severance, expenses associated with consolidating real estate and litigation expense. The income tax provision was $496 million (10.8% effective tax rate) in 2017, including the estimated tax benefit related to U.S. tax legislation. The income tax provision was $1.2 billion (24.9% effective tax rate) in 2016. For additional information, see Note 11 of the Notes to Consolidated Financial Statements.



12 BNY Mellon

Results of Operations (continued)
 

Review of businesses

We have an internal information system that produces performance data along product and service lines for our two principal businesses, Investment Services and Investment Management, and the Other segment.

Business accounting principles

Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.

For information on the accounting principles of our businesses, the primary products and services in each line of business, the primary types of revenue by business and how our businesses are presented and analyzed, see Note 23 of the Notes to Consolidated Financial Statements.

Business results are subject to reclassification when organizational changes are made. There were no significant organizational changes in 2018. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a prospective basis.

The results of our businesses may be influenced by client and other activities that vary by quarter. In the first quarter, incentive expense typically increases reflecting the vesting of long-term stock awards for retirement-eligible employees. In the third quarter, Depositary Receipts revenue is typically higher due to an increased level of client dividend payments. Also in the third quarter, volume-related fees may decline due to reduced client activity. In the third
 
quarter, staff expense typically increases reflecting the annual employee merit increase. In the fourth quarter, we typically incur higher business development and marketing expenses. In our Investment Management business, performance fees are typically higher in the fourth quarter, as the fourth quarter represents the end of the measurement period for many of the performance fee-eligible relationships.

The results of our businesses may also be impacted by the translation of financial results denominated in foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. On a consolidated basis and in our Investment Services business, we typically have more foreign currency-denominated expenses than revenues. However, our Investment Management business typically has more foreign currency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment Management business more than the Investment Services business. However, currency fluctuations, in isolation, are not expected to significantly impact net income on a consolidated basis.

Fee revenue in Investment Management, and to a lesser extent in Investment Services, is impacted by the value of market indices. At Dec. 31, 2018, we estimate that a 5% change in global equity markets, spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.03 to $0.05.

See Note 23 of the Notes to Consolidated Financial Statements for the consolidating schedules which show the contribution of our businesses to our overall profitability.



BNY Mellon 13

Results of Operations (continued)
 

Investment Services business

 
 
 
 
2018

2017

(dollars in millions unless otherwise noted)
 
 
 
 vs.

 vs.

2018

2017

2016

2017

2016

Revenue:
 
 
 
 
 
Investment services fees:
 
 
 
 
 
Asset servicing
$
4,520

$
4,286

$
4,141

5
 %
4
 %
Clearing services
1,577

1,549

1,399

2

11

Issuer services
1,099

975

1,024

13

(5
)
Treasury services
553

555

541


3

Total investment services fees
7,749

7,365

7,105

5

4

Foreign exchange and other trading revenue
665

620

663

7

(6
)
Other (a)
512

542

531

(6
)
2

Total fee and other revenue
8,926

8,527

8,299

5

3

Net interest revenue
3,372

3,058

2,797

10

9

Total revenue
12,298

11,585

11,096

6

4

Provision for credit losses
1

(7
)
8

N/M
N/M
Noninterest expense (excluding amortization of intangible assets)
7,929

7,598

7,187

4

6

Amortization of intangible assets
129

149

155

(13
)
(4
)
Total noninterest expense
8,058

7,747

7,342

4

6

Income before taxes
$
4,239

$
3,845

$
3,746

10
 %
3
 %
 
 
 
 

 
Pre-tax operating margin
34
%
33
%
34
%


 
 
 
 
 


 
Securities lending revenue
$
198

$
168

$
170

18
 %
(1
)%
 
 
 
 


 
Total revenue by line of business:
 
 
 


 
Asset Servicing
$
5,932

$
5,603

$
5,504

6
 %
2
 %
Pershing
2,255

2,180

1,979

3

10

Issuer Services
1,743

1,588

1,585

10


Treasury Services
1,302

1,251

1,136

4

10

Clearance and Collateral Management
1,066

963

892

11

8

Total revenue by line of business
$
12,298

$
11,585

$
11,096

6
 %
4
 %
 
 
 
 

 
Metrics:
 
 
 

 
Average loans
$
36,931

$
40,142

$
44,740

(8
)%
(10
)%
Average deposits
$
203,279

$
200,235

$
217,882

2
 %
(8
)%
 
 
 
 


 
AUC/A at period end (in trillions) (b)
$
33.1

$
33.3

$
29.9

(1
)%
11
 %
Market value of securities on loan at period end (in billions) (c)
$
373

$
408

$
296

(9
)%
38
 %
 
 
 
 




Pershing:
 
 
 




Average active clearing accounts (U.S. platform) (in thousands)
6,097

6,137

5,949

(1
)%
3
 %
Average long-term mutual fund assets (U.S. platform)
$
511,004

$
487,845

$
431,937

5
 %
13
 %
Average investor margin loans (U.S. platform)
$
10,829

$
9,810

$
10,772

10
 %
(9
)%
 
 
 
 




Clearance and Collateral Management:
 
 
 




Average tri-party collateral management balances (in billions)
$
2,918

$
2,502

$
2,183

17
 %
15
 %
(a)
Other revenue includes investment management fees, financing-related fees, distribution and servicing revenue and investment and other income.
(b)
Includes the AUC/A of CIBC Mellon of $1.2 trillion at Dec. 31, 2018, $1.3 trillion at Dec. 31, 2017 and $1.2 trillion at Dec. 31, 2016.
(c)
Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $58 billion at Dec. 31, 2018, $71 billion at Dec. 31, 2017 and $63 billion at Dec. 31, 2016.




14 BNY Mellon

Results of Operations (continued)
 

Business description

BNY Mellon Investment Services provides business services and technology solutions to entities including financial institutions, corporations, foundations and endowments, public funds and government agencies. Our lines of business include: Asset Servicing, Pershing, Issuer Services, Treasury Services and Clearance and Collateral Management.

We are one of the leading global investment services providers with $33.1 trillion of AUC/A at Dec. 31, 2018.

We are the primary provider of U.S. government securities clearance and a provider of non-U.S. government securities clearance.
We are a leading provider of tri-party collateral management services with an average of $2.9 trillion serviced globally including approximately $2.0 trillion of the U.S. tri-party repo market.
Our agency securities lending program is one of the largest lenders of U.S. and non-U.S. securities, servicing a lendable asset pool of approximately $3.4 trillion in 34 separate markets.

The Asset Servicing business provides a comprehensive suite of solutions. As one of the largest global custody and fund accounting providers and a trusted partner, we offer services for the safekeeping of assets in capital markets globally as well as alternative investment and structured product strategies. We provide custody and foreign exchange services, support exchange-traded funds and unit investment trusts and provide our clients outsourcing capabilities. We deliver securities lending and financing solutions on both an agency and principal basis. Our market leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.

Pershing provides clearing, custody, business and technology solutions, delivering dependable operational support to financial organizations globally.

The Issuer Services business includes Corporate Trust and Depositary Receipts. Our Corporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial
 
services. We are a leading provider to the debt capital markets, providing customized and market-driven solutions to investors, bondholders and lenders. Our Depositary Receipts business drives global investing by providing servicing and value-added solutions that enable, facilitate and enhance cross-border trading, clearing, settlement and ownership. We are one of the largest providers of depositary receipts services in the world, partnering with leading companies from more than 50 countries.

Our Treasury Services business includes global payments, liquidity management, payables/receivables and trade finance services for financial institutions, corporations and the public sector.

Our Clearance and Collateral Management business clears and settles equity and fixed-income transactions globally and serves as custodian for tri-party repo collateral worldwide. Our collateral services include collateral management, administration and segregation. We offer innovative solutions and industry expertise which help financial institutions and institutional investors with their liquidity, financing, risk and balance sheet challenges.

Review of financial results

AUC/A decreased 1% compared with Dec. 31, 2017 to $33.1 trillion, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar on a spot basis, partially offset by net new business. AUC/A consisted of 33% equity securities and 67% fixed-income securities at Dec. 31, 2018 and 37% equity securities and 63% fixed-income securities at Dec. 31, 2017.

Total revenue of $12.3 billion increased 6% compared with 2017. Net interest revenue increased compared with 2017 in all businesses, primarily driven by higher interest rates. The drivers of fee revenue by line of business are indicated below.

Asset Servicing revenue of $5.9 billion increased 6% compared with 2017. The increase primarily reflects higher net interest revenue, higher foreign exchange and securities lending volumes, higher equity market values and the favorable impact of a weaker U.S. dollar.


BNY Mellon 15

Results of Operations (continued)
 

Pershing revenue of $2.3 billion increased 3% compared with 2017. The increase primarily reflects higher net interest revenue and higher fees due to growth in average long-term mutual fund balances and higher clearance volumes, partially offset by the previously disclosed lost business.

Issuer Services revenue of $1.7 billion increased 10% compared with 2017. The increase primarily reflects higher Depositary Receipts revenue driven by corporate actions and higher volumes, higher net interest revenue and increased volumes in Corporate Trust.

Treasury Services revenue of $1.3 billion increased 4% compared with 2017. The increase primarily reflects higher net interest revenue and higher payment volumes.

Clearance and Collateral Management revenue of $1.1 billion increased 11% compared with 2017. The increase primarily reflects growth in collateral management, clearance volumes and net interest revenue.

Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with new regulations and reduce their operating costs.

 
Noninterest expense of $8.1 billion increased 4% compared with 2017. The increase was primarily driven by investments in technology, higher volume-related expenses and the unfavorable impact of a weaker U.S. dollar.

2017 compared with 2016

Total revenue of $11.6 billion increased 4% compared with 2016. Net interest revenue increased in most lines of business, primarily driven by higher interest rates. Asset Servicing revenue increased primarily reflecting higher net interest revenue, equity market values and money market fees, partially offset by the downsizing of the UK transfer agency business. Pershing revenue increased primarily reflecting higher net interest revenue, higher money market fees and growth in long-term mutual fund assets. Issuer Services revenue increased slightly primarily reflecting higher net interest revenue partially offset by lost business and lower volumes from weaker cross-border settlement activity in Depositary Receipts. Treasury Services revenue increased primarily reflecting higher net interest revenue and higher payment volumes. Clearance and Collateral Management revenue increased primarily reflecting growth in collateral management and higher clearance volumes, partially offset by lower net interest revenue.

Noninterest expense of $7.7 billion increased 6% compared with 2016 primarily reflecting higher staff expense, including severance, higher litigation expense, additional technology-related costs and asset impairments.


16 BNY Mellon

Results of Operations (continued)
 

Investment Management business

 
 
 
 
2018

2017

 
 
 
 
 vs.

 vs.

(dollars in millions)
2018

2017

2016

2017

2016

Revenue:
 
 
 
 
 
Investment management fees (a)
$
3,488

$
3,428

$
3,232

2
 %
6
 %
Performance fees
144

94

60

53

57

Investment management and performance fees (b)
3,632

3,522

3,292

3

7

Distribution and servicing
190

207

192

(8
)
8

Other (a)
(41
)
(61
)
(60
)
N/M

N/M

Total fee and other revenue (a)
3,781

3,668

3,424

3

7

Net interest revenue
303

329

327

(8
)
1

Total revenue
4,084

3,997

3,751

2

7

Provision for credit losses
3

2

6

N/M

N/M

Noninterest expense (excluding amortization of intangible assets)
2,767

2,794

2,696

(1
)
4

Amortization of intangible assets
51

60

82

(15
)
(27
)
Total noninterest expense
2,818

2,854

2,778

(1
)
3

Income before taxes
$
1,263

$
1,141

$
967

11
 %
18
 %
 
 
 
 

 
Pre-tax operating margin
31
%
29
%
26
%


 
Adjusted pre-tax operating margin – Non-GAAP (c)
34
%
32
%
29
%


 
 
 
 
 

 
Total revenue by line of business:
 
 
 

 
Asset Management
$
2,836

$
2,775

$
2,615

2
 %
6
 %
Wealth Management
1,248

1,222

1,136

2