The Bank of New York Mellon Corporation earnings

Management highlights

### Overall Financial & Strategic Progress - BNY delivered strong Q2 2026 results: $5.7 billion total revenue (up 13% YoY, a new record), $2.45 EPS (up 27% YoY), 600 basis points of positive operating leverage, 40% pre-tax margin, and 31% return on tangible common equity. - The company's multi-year transformation is complete: the new platform operating model is fully activated, and the new commercial model (in place for 2 years) is driving strong momentum. Phase 2 of the strategy is now focused on accelerating innovation in AI, digital assets, and core product lines. ### Commercial Momentum - 14 consecutive quarters of year-over-year sales growth, with two consecutive record sales quarters in H1 2026. - Average deal size up over 20% YoY, and ~10% of all deals are with entirely new clients. - Cross-selling is working: over half of clients that award new asset servicing business also award new business to at least one other BNY segment, and the number of clients buying from 3+ BNY business lines has grown more than 60% over 3 years. ### Operating Model & Innovation Progress - The new platform operating model enables faster collaboration, more integrated solutions, and quicker responses to changing client needs. The full transition was completed in Q2, and the company is now focused on capturing long-term benefits from the new structure. - Key product innovations launched in recent years (buy-side trading solutions, Collateral One, Borrow Plus) are now material revenue contributors. - BNY expanded its relationship with Circle in Q2, adding mint and burn capabilities for USDC to its existing role as custodian for USDC reserves, enabling seamless client movement between traditional cash and blockchain-based networks. ### Artificial Intelligence Strategy - BNY views AI as a key long-term opportunity, and has invested in enterprise capabilities, governance, and talent to embed AI across the firm over the past several years. - AI is already delivering value across three areas: 1) improving internal workflows and employee productivity to free up capacity for growth-focused work; 2) building better products and improving client experiences; 3) enabling new market capabilities via BNY's platforms, data, and expertise. - AI is expected to drive additional positive operating leverage over time, and BNY is flexible in deploying capacity gains to either revenue growth or expense efficiency, with positive operating leverage as the core north star. ### Capital & Balance Sheet Strength - BNY maintains strong capital and liquidity: CET1 ratio of 11% (flat QoQ), Tier 1 leverage ratio of 5.9%, consolidated liquidity coverage ratio of 111%, and net stable funding ratio of 130%. - Returned $1.5 billion to common shareholders in Q2, bringing H1 2026 capital return to $2.8 billion for an 87% year-to-date payout ratio. Increased the quarterly common dividend by 19% to 63 cents per share, effective Q2.

Guidance

- Management significantly upgraded 2026 full-year guidance, driven by strong H1 performance and ongoing operating momentum, assuming current market-implied forward interest rates and a broadly constructive operating environment. - Total revenue (excluding notable items) is now expected to grow 10-11% year-over-year, up from prior guidance. - Full-year 2026 net interest income is expected to grow 12-13% year-over-year. - Expenses (excluding notable items) are now expected to grow 6-7% year-over-year, with three-quarters of expense growth tied to revenue-related variable costs. - BNY now expects to deliver approximately 400 basis points of positive operating leverage for full-year 2026. - The quarterly effective tax rate is expected to remain ~23% for the remaining two quarters of 2026. - Medium-term pre-tax margin and ROTC targets set in January 2026 (a 500 basis point improvement from prior levels) are milestones for a 3-5 year through-the-cycle period, not endpoints, and management intends to outperform these targets.

Segment performance

1. Security Services: Total revenue of $2.8 billion, up 15% year-over-year, contributing 49.1% of total company revenue. Investment services fees grew 15% YoY: asset servicing fees up 12% (driven by higher activity/market values, with ETF AUCA at $4.4 trillion up 35% YoY and alternatives AUCA up 17% YoY), and issuer services fees up 23% (driven by higher corporate trust fees from a new public sector mandate and market share growth). Foreign exchange revenue rose 16% YoY, and net interest income grew 16% YoY. Pre-tax income hit $1.1 billion, up 28% YoY, with a 39% pre-tax margin. 2. Market and Wealth Services: Total revenue of $2 billion, up 12% year-over-year, contributing 35.1% of total company revenue. Investment services fees grew 10% YoY: Wealth Solutions fees up 5% (with $25 billion in net new assets, 4% annualized growth), clearance and collateral management fees up 18% (average collateral balances of $8.2 trillion up 16% YoY, double-digit clearing volume growth), and payments and trade fees up 7% (driven by net new business). Net interest income rose 21% YoY. Pre-tax income hit $1 billion, up 21% YoY, with a 52% pre-tax margin. 3. Investment and Wealth Management: Total revenue of $863 million, up 8% year-over-year, contributing 15.1% of total company revenue. Investment management fees grew 6% YoY, driven by higher market values partially offset by unfavorable AUM flow mix. Expenses rose 5% YoY. Pre-tax income hit $182 million, up 23% YoY, with a 21% pre-tax margin. AUM totaled $2.2 trillion, up 6% YoY, with $3 billion in net Q2 inflows concentrated in cash and fixed income strategies.

Risks & headwinds

- Geopolitical tensions, elevated energy prices, and ongoing uncertainty around inflation, interest rates, and fiscal policy create macroeconomic volatility that could impact market activity, client flows, and net interest income. - Changes in interest rates from current market-implied levels could create deviation from guidance, particularly for net interest income and deposit balances. - Seasonal patterns: Q2 is typically BNY's strongest quarter for activity, while Q3 is seasonally slower, and 2025 Q3 had idiosyncratic strength that creates tough year-over-year comparables for 2026 Q3 net interest income. - All forward-looking statements are based on current conditions as of July 15, 2026, and actual results may differ materially from projections.

Analyst Q&A

• Q: With first half growth already above updated full-year guidance, are there tougher year-over-year comparables or headwinds for sequential growth in the second half, specifically for deposits or issuer services? /

  A: Q2 is seasonally BNY's strongest quarter, and Q3 is typically the slowest, so a sequential moderation is expected. 2025 Q3 had unusual idiosyncratic strength that creates tough year-over-year comparables for 2026 Q3 net interest income, even with strong underlying momentum. Issuer services strength comes from three factors: multi-year investments that have delivered 200-400 basis points of market share growth, seasonal strength in depositary receipts in Q2 with new client activity, and the new public sector (Trump Accounts) mandate that launched in July. The strong trajectory reflects fundamental momentum beyond just temporary factors.

• Q: BNY has already hit its medium-term pre-tax margin target ahead of schedule. What is the long-term trajectory for profitability, and how does AI investment impact this path? /

  A: The medium-term targets set in January 2026 were 3-5 year through-the-cycle milestones, not the upper limit of BNY's profitability ambition. Management always intends to outperform these targets, and BNY's strategy is built to deliver durable margin expansion over time. AI investment is still in early stages, but it is expected to drive additional operating leverage over the long term. BNY's risk management framework narrows interest rate outcome uncertainty, and deposit betas are expected to follow prior cycle patterns: 80% for USD, 60-70% for EUR and GBP, aligned with BNY's 75% USD balance sheet mix.

• Q: How should investors think about AI and digital asset opportunities, and is on-chain tokenization a risk to traditional custody revenue streams? /

  A: The broader industry shift is to an always-on interconnected financial ecosystem, and digital assets are one tool enabling this transition alongside real-time payments and other innovations. This transition will be gradual, so traditional and new infrastructure will coexist for a long time. By leaning into innovation and partnering with both traditional and new clients on this evolution, BNY avoids disintermediation and captures new growth opportunities. For AI, it creates internal capacity that can be deployed to capture top-line white space growth rather than just delivering expense savings, supporting long-term organic acceleration. BNY has already seen organic fee growth rise from flat in 2022 to 4.5% in H1 2026, with consistent 10% of sales from new clients, supporting the expectation of long-term higher organic growth.

• Q: Pricing pressure has historically been a headwind for custody banks. Is pricing pressure still a major issue today, given new efficiencies from tools like AI? /

  A: Pricing pressure is less pervasive today than it was 2-3 years ago. While competition always exists, clients are willing to pay for differentiated integrated solutions that BNY now can offer by combining capabilities across its platforms. Lower cost to serve from operational improvements and AI allows BNY to remain competitive, and the shift to cross-selling combined solutions has changed client conversations: BNY now competes on value and breadth of capability rather than just price on commoditized products.