Bank of New York Mellon Corp (BNY) Earnings

Management highlights

- Overall Q2 2026 Performance * BNY delivered strong results with $5.7 billion total revenue (up 13% year over year, a new record), $2.45 EPS (up 27% year over year), 40% pretax margin, 31% return on tangible common equity, and 600 basis points of positive operating leverage. * Total AUC/A reached $62.6 trillion, up 12% year over year, driven by higher market values and net inflows, partially offset by U.S. dollar strength. * The firm maintains a strong balance sheet with 11% CET1 ratio, 111% liquidity coverage ratio, and 130% net stable funding ratio, returning $1.5 billion to shareholders in Q2 for a year-to-date total of $2.8 billion (87% payout ratio) after a 19% dividend increase. - Strategic Transformation Progress * BNY completed the multi-year foundational phase of its transformation, with the new platform operating model fully activated and the new commercial model (in place for 2 years) driving consistent momentum. * Transformation has delivered a more collaborative, ownership-focused culture, broken down internal silos, and enabled cross-platform integrated solutions that deepen client relationships and drive durable growth. * The firm is now entering phase 2 of its strategy, with increased focus on innovation across AI, digital assets, and core product lines. - Commercial and Operating Momentum * Q2 2026 marked the 14th consecutive quarter of year-over-year sales growth, with two straight record sales quarters in 2026 so far; average deal size is up over 20% year over year, and 10% of deals are with entirely new clients. * The completed operating model transition enables faster collaboration, quicker client response, and easier development of cross-platform integrated solutions; early mature products like buy-side trading solutions, Collateral 1, and Borrow+ are already material revenue contributors. - Digital Asset and Future Infrastructure Innovation * BNY announced an expanded relationship with Circle, combining institutional digital asset custody with USDC mint-and-burn capabilities to enable seamless client movement between traditional cash and blockchain-based networks. * The firm is positioned to lead the industry shift toward 24/7 interconnected financial ecosystems, investing in infrastructure for real-time payments, tokenized assets, collateral mobility, and digital cash that connects traditional and new systems. - Artificial Intelligence Strategy * AI is viewed as a long-term core opportunity that creates value across three dimensions: improving internal workflow productivity to free up capacity, enhancing client products and experiences, and enabling new market capabilities via BNY's platform, data, and expertise. * AI is already delivering tangible early impacts across the client lifecycle, and is expected to become an increasingly important source of competitive differentiation and long-term value creation.

Guidance

- Management significantly upgraded its 2026 full-year guidance following strong first-half performance, now expecting total revenue (excluding notable items) to grow 10% to 11% year over year (up from prior lower guidance), with full-year net interest income expected to grow 12% to 13% year over year. - Expenses (excluding notable items) are now expected to grow 6% to 7% year over year, primarily driven by higher revenue-related variable expenses, resulting in an expected 400 basis points of full-year positive operating leverage. - The quarterly effective tax rate is expected to remain approximately 23% for the remaining two quarters of 2026. - Guidance assumes current market-implied forward interest rates and a broadly constructive operating environment, with standard historical seasonal activity patterns; management built a conservative bias into the revised guidance range.

Segment performance

1. Security Services: Total revenue of $2.8 billion, up 15% year over year, accounting for 49.1% of BNY's total Q2 2026 revenue. Pretax income was $1.1 billion, up 28% year over year, with a 39% pretax margin. Investment services fees grew 15% year over year: asset servicing fees rose 12% on higher activity and market values, with ETF AUC/A reaching $4.4 trillion (up 35% year over year) and alternatives AUC/A growing 17% year over year; issuer services fees rose 23% driven by higher corporate trust fees, new public sector mandates and market share gains. Foreign exchange revenue rose 16% and net interest income rose 16% year over year. 2. Market and Wealth Services: Total revenue of $2 billion, up 12% year over year, accounting for 35.1% of total Q2 2026 revenue. Pretax income was $1 billion, up 21% year over year, with a 52% pretax margin. Investment services fees grew 10% year over year: wealth solutions fees rose 5% on higher market values and activity, with $25 billion in net new assets (4% annualized growth); clearance and collateral management fees rose 18% on higher collateral balances and clearing volumes, with average collateral balances of $8.2 trillion (up 16% year over year); payments and trade fees rose 7% on net new business, with new 24/7 USD transfer capabilities and expanded same-day FX settlement. Net interest income rose 21% year over year. 3. Investment and Wealth Management: Total revenue of $863 million, up 8% year over year, accounting for 15.1% of total Q2 2026 revenue. Pretax income was $182 million, up 23% year over year, with a 21% pretax margin. Investment management fees rose 6% on higher market values, partially offset by unfavorable AUM flow mix. AUM totaled $2.2 trillion, up 6% year over year, with $3 billion in net Q2 inflows driven by cash and fixed income strategies. Wealth management client assets totaled $348 billion, up 3% year over year.

Risks & headwinds

- Geopolitical tensions, sustained elevated energy prices, and ongoing uncertainty around inflation, interest rates, and fiscal policy create operating environment volatility that could impact market activity, client flows, and net interest income. - Higher-than-expected interest rate hikes could lead to higher deposit betas and compress net interest margins, though BNY's risk management framework mitigates downside exposure. - Industry pricing pressure remains a persistent dynamic in competitive capital markets services, though BNY's shift to integrated cross-platform solutions has reduced the impact of commodity pricing pressure. - Unpredictable changes in market levels, interest rates, and seasonal activity could lead to results deviating from guidance ranges. - On-chain migration and tokenization of assets create potential structural risk to traditional custody revenue streams if incumbents do not adapt to evolving client demand.

Analyst Q&A

• Q: With first-half growth already above initial guidance, what comp headwinds exist for sequential growth in the second half, particularly for net interest income and issuer services? /

  A: Q2 is typically BNY's strongest seasonally, and Q3 is seasonally the slowest. For NII, Q3 2026 will face a tough year-over-year comp because 2025 Q3 had unexpected idiosyncratic strength that did not follow normal seasonal patterns. For issuer services, strength comes from three factors: multi-year investments that delivered market share gains in corporate trust, seasonal strength in depositary receipts (Q2 is the strongest season for this business), and the new TRU-M public sector mandate that adds both revenue and expenses to the segment. Management built a conservative bias into guidance to account for these seasonal and comp factors, while noting underlying client momentum remains strong.

• Q: BNY has already hit its prior medium-term 38% pretax margin target earlier than expected. What is the trajectory for profitability over the next few years, especially as AI investments ramp? /

  A: The 38% pretax margin target was a 3-5 year through-the-cycle medium-term target, not an upper limit on BNY's profitability ambition. Strong Q2 performance reflects the execution of BNY's strategy, and management will only revisit medium-term targets after sustaining higher margins through a full cycle. Management continues to target incremental margin expansion over time, with strong client engagement in Q2 giving confidence that BNY will outperform its original medium-term targets over the planning horizon.

• Q: How should investors think about AI and digital assets impact on the bottom line, and is on-chain tokenization a risk to BNY's traditional custody business? /

  A: For digital assets, the larger trend is a shift to an always-on financial market infrastructure, of which digital assets are just one component. This shift will be gradual, leading to a long period of coexistence between traditional and new infrastructure, and BNY is positioned as a trusted bridge between the two. Leaning into this transition eliminates the risk of disintermediation that comes from failing to invest in new capabilities. For AI, it creates capacity across the firm that can be used to win new business, improve products, and drive positive operating leverage; freed capacity allows BNY to invest more in pursuing white space growth without a proportional increase in expenses, aligning with BNY's north star of increasing positive operating leverage.

• Q: Organic fee growth has accelerated from flat in 2022 to 4.5% in the first half of 2026. What are the core drivers of this acceleration, and should investors expect continued acceleration as BNY captures white space? /

  A: The acceleration comes from four core drivers: 10% of sales are to entirely new clients, creating a consistent new growth vector; deepening existing client relationships, with growth in the number of clients purchasing multiple cross-platform products from BNY; consistent new product innovation enabled by BNY's $4 billion annual technology investment budget; and the ability to deliver novel custom cross-platform solutions that BNY could not support before its operating and commercial model transformation. BNY's flywheel of stronger client relationships driving more business is clearly visible, and management has an explicit ambition for continued organic growth acceleration over time.