0001390777us-gaap:NondesignatedMemberus-gaap:OperatingSegmentsMemberus-gaap:FairValueInputsLevel2Memberus-gaap:ForeignExchangeContractMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


[ X ] ☒Quarterly Report Pursuant Toto Section 13 or 15(d) of the Securities Exchange Act of 1934


For the Quarterly Period Ended Sept. 30, 2017March 31, 2021
or
[ ]☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


Commission File No.Number 001-35651



THE BANK OF NEW YORK MELLON CORPORATION
(Exact name of registrant as specified in its charter)

Delaware13-2614959
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
incorporation or organization)


225 Liberty240 Greenwich Street
New York, New York 10286
(Address of principal executive offices) (Zip Code)


Registrant’s telephone number, including area code --– (212) 495-1784


Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
symbol(s)		Name of each exchange
on which registered
Common Stock, $0.01 par valueBKNew York Stock Exchange
6.244% Fixed-to-Floating Rate Normal Preferred Capital Securities of Mellon Capital IVBK/PNew York Stock Exchange
(fully and unconditionally guaranteed by The Bank of New York Mellon Corporation)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X☒No ___☐


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X☒No ___☐


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer [ X ]Smaller reporting company [ ]
Accelerated filer [ ]Emerging growth company [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ___☐No X☒


Indicate the numberAs of March 31, 2021, 875,480,847 shares outstanding of each of the issuer’s classes ofregistrant’s common stock, as of the latest practicable date.

$0.01 par value per share, were outstanding.

ClassOutstanding as of
Sept. 30, 2017
Common Stock, $0.01 par value1,024,022,353



THE BANK OF NEW YORK MELLON CORPORATION


ThirdFirst Quarter 20172021 Form 10-Q
Table of Contents
Page
Consolidated Financial Highlights (unaudited)
2
Page
Consolidated Financial Highlights (unaudited)
2
Part I -– Financial Information
Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk:
General
4
Overview
4
GeneralHighlights of first quarter 2021 results
4
OverviewImpact of coronavirus pandemic on our business
46
Key third quarter 2017 events
4
Highlights of third quarter 2017 results
5
Fee and other revenue
7
Net interest revenue
10
Average balances and interest rates
Noninterest expense
1112
Noninterest expense
Income taxes
1312
Income taxes
Review of businesses
1413
Review of businesses
Critical accounting estimates
1420
Critical accounting estimates
23
Consolidated balance sheet review
2420
Liquidity and dividends
3330
Capital
3734
Trading activities and risk management
4439
Asset/liability management
4741
Off-balance sheet arrangements
48
Supplemental information -– Explanation of GAAP and Non-GAAP financial measures
4942
Recent accounting and regulatory developments
5344
Website informationOther matters
5644
Website information
45
Item 1. Financial Statements:
Consolidated Income Statement (unaudited)
5746
Consolidated Comprehensive Income Statement (unaudited)
5948
Consolidated Balance Sheet (unaudited)
6049
Consolidated Statement of Cash Flows (unaudited)
6150
Consolidated Statement of Changes in Equity (unaudited)
6251
Page
Notes to Consolidated Financial Statements:
Note 1—Basis of presentation
53
Page
Notes to Consolidated Financial Statements:
Note 1—Basis of presentation2—Acquisitions and dispositions
6354
Note 2—Accounting change and new accounting guidance3—Securities
6354
Note 3—Acquisitions
644
Note 4—Securities
64
Note 5——Loans and asset quality
6959
Note 6—5—Goodwill and intangible assets
7564
Note 7—6—Other assets
7766
Note 8—7—Contract revenue
67
Note 8—Net interest revenue
7869
Note 9—9—Employee benefit plans
7869
Note 10—10—Income taxes
7970
Note 11—Variable interest entities and securitization
7970
Note 12—12—Preferred stock
8171
Note 13—13—Other comprehensive income (loss)
8272
Note 14—14—Fair value measurement
8372
Note 15—15—Fair value option
9078
Note 16—16—Derivative instruments
9079
Note 17—17—Commitments and contingent liabilities
9885
Note 18—18—Lines of business
10290
Note 19—19—Supplemental information to the Consolidated Statement of Cash Flows
10592
Item 4. Controls and Procedures
10693
Forward-looking Statements
10794
Part II -– Other Information
Item 1. Legal Proceedings
Proceedings.
10996
Item 1A. Risk Factors
109
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Proceeds.
11196
Item 6. Exhibits
Exhibits.
11196
Index to Exhibits
11297
Signature
11499




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


Consolidated Financial Highlights (unaudited)

Quarter ended
Quarter ended Year-to-date
(dollar amounts in millions, except per share amounts and unless otherwise noted)Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(dollars in millions, except per share amounts and unless
otherwise noted)		(dollars in millions, except per share amounts and unless
otherwise noted)		March 31, 2021Dec. 31, 2020March 31, 2020
Results applicable to common shareholders of The Bank of New York Mellon Corporation:   Results applicable to common shareholders of The Bank of New York Mellon Corporation:
Net income$983
$926
$974
 $2,789
$2,603
Net income$858 $702 $944 
Basic earnings per share0.94
0.88
0.90
 2.66
2.39
Basic earnings per share$0.97 $0.79 $1.05 
Diluted earnings per share0.94
0.88
0.90
 2.64
2.38
Diluted earnings per share$0.97 $0.79 $1.05 
   
Fee and other revenue$3,167
$3,120
$3,150
 $9,305
$9,119
Income from consolidated investment management funds10
10
17
 53
21
Fee and other revenue (a)
Fee and other revenue (a)
$3,266 $3,163 $3,294 
Net interest revenue839
826
774
 2,457
2,307
Net interest revenue655 680 814 
Total revenue$4,016
$3,956
$3,941
 $11,815
$11,447
Total revenue$3,921 $3,843 $4,108 
   
Return on common equity (annualized) (a)
10.6%10.4%10.8% 10.4%9.8%
Adjusted return on common equity (annualized) – Non-GAAP (a)(b)
11.0%10.8%11.3% 10.9%10.3%
   
Return on tangible common equity (annualized) – Non-GAAP (a)(c)
21.9%21.9%23.5% 22.0%21.5%
Adjusted return on tangible common equity (annualized) – Non-GAAP (a)(b)(c)
22.0%22.1%23.6% 22.1%21.7%
Return on common equity (annualized)
Return on common equity (annualized)
8.5 %6.9 %10.1 %
Return on tangible common equity (annualized) – Non-GAAP (b)
Return on tangible common equity (annualized) – Non-GAAP (b)
16.1 %13.0 %20.4 %
   
Return on average assets (annualized)
1.13%1.09%1.10% 1.09%0.96%
Return on average assets (annualized)
0.76 %0.64 %0.99 %
   
Fee revenue as a percentage of total revenue78%79%79% 79%79%
Fee revenue as a percentage of total revenue (a)
Fee revenue as a percentage of total revenue (a)
83 %81 %79 %
   
Percentage of non-U.S. total revenue36%35%36% 35%34%
Non-U.S. revenue as a percentage of total revenueNon-U.S. revenue as a percentage of total revenue37 %38 %36 %
   
Pre-tax operating margin (a)
34%33%33% 33%31%
Adjusted pre-tax operating margin – Non-GAAP (a)(b)
35%35%35% 34%33%
Pre-tax operating marginPre-tax operating margin29 %24 %30 %
   
Net interest margin1.15%1.14%1.05% 1.14%1.00%Net interest margin0.66 %0.72 %1.01 %
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (d)
1.16%1.16%1.06% 1.16%1.02%
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (c)
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (c)
0.67 %0.72 %1.01 %
   
Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (d)
Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (d)
$41.7 $41.1 $35.2 
Assets under management (“AUM”) at period end (in billions) (e)
$1,824
$1,771
$1,715
 $1,824
$1,715
Assets under management (“AUM”) at period end (in billions) (e)
$2,214 $2,211 $1,796 
Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (f)
$32.2
$31.1
$30.5
 $32.2
$30.5
Market value of securities on loan at period end (in billions) (g)
$382
$336
$288
 $382
$288
Market value of securities on loan at period end (in billions) (f)
Market value of securities on loan at period end (in billions) (f)
$445 $435 $389 
   
Average common shares and equivalents outstanding (in thousands): (h)
   
Average common shares and equivalents outstanding (in thousands):
Average common shares and equivalents outstanding (in thousands):
Basic1,035,337
1,035,829
1,062,248
 1,037,431
1,071,457
Basic882,558 889,928 894,122 
Diluted1,041,138
1,041,879
1,067,682
 1,043,585
1,077,150
Diluted885,655 891,846 896,689 
   
Selected average balances:   Selected average balances:
Interest-earning assets$291,841
$289,496
$296,703
 $288,283
$308,560
Interest-earning assets$397,297 $378,674 $323,936 
Assets of operations$344,966
$341,607
$350,190
 $340,588
$362,092
Total assets$345,709
$342,515
$351,230
 $341,510
$363,290
Total assets$460,379 $437,488 $385,278 
Interest-bearing deposits$142,490
$142,336
$155,109
 $141,558
$160,728
Interest-bearing deposits$245,115 $231,318 $197,632 
Noninterest-bearing depositsNoninterest-bearing deposits$83,429 $75,840 $60,577 
Long-term debt$28,138
$27,398
$23,930
 $27,148
$22,779
Long-term debt$26,199 $25,704 $27,231 
Noninterest-bearing deposits$70,168
$73,886
$81,619
 $72,524
$82,861
Preferred stock$3,542
$3,542
$3,284
 $3,542
$2,798
Preferred stock$4,541 $4,827 $3,542 
Total The Bank of New York Mellon Corporation common shareholders’ equity$36,780
$35,862
$35,767
 $35,876
$35,616
Total The Bank of New York Mellon Corporation common shareholders’ equity$40,720 $40,712 $37,664 
   
Other information at period end:   Other information at period end:
Cash dividends per common share$0.24
$0.19
$0.19
 $0.62
$0.53
Cash dividends per common share$0.31 $0.31 $0.31 
Common dividend payout ratio26%22%21% 23%22%Common dividend payout ratio32 %39 %30 %
Common dividend yield (annualized)
1.8%1.5%1.9% 1.6%1.8%
Common dividend yield (annualized)
2.7 %2.9 %3.7 %
Closing stock price per common share$53.02
$51.02
$39.88
 $53.02
$39.88
Closing stock price per common share$47.29 $42.44 $33.68 
Market capitalization$54,294
$52,712
$42,167
 $54,294
$42,167
Market capitalization$41,401 $37,634 $29,822 
Book value per common share (a)
$36.11
$35.26
$34.19
 $36.11
$34.19
Tangible book value per common share – Non-GAAP (a)(c)
$18.19
$17.53
$16.67
 $18.19
$16.67
Book value per common shareBook value per common share$46.16 $46.53 $42.47 
Tangible book value per common share – Non-GAAP (b)
Tangible book value per common share – Non-GAAP (b)
$24.88 $25.44 $21.53 
Full-time employees52,900
52,800
52,300
 52,900
52,300
Full-time employees48,000 48,500 47,900 
Common shares outstanding (in thousands)
1,024,022
1,033,156
1,057,337
 1,024,022
1,057,337
Common shares outstanding (in thousands)
875,481 886,764 885,443 

2 BNY Mellon


Consolidated Financial Highlights (unaudited)(continued)

Regulatory capital and other ratiosMarch 31, 2021Dec. 31, 2020
Average liquidity coverage ratio (“LCR”)110 %110 %
Regulatory capital ratios: (g)
Advanced:
Common Equity Tier 1 (“CET1”) ratio12.6 %13.1 %
Tier 1 capital ratio15.3 15.8 
Total capital ratio16.1 16.7 
Standardized:
CET1 ratio12.6 %13.4 %
Tier 1 capital ratio15.2 16.1 
Total capital ratio16.2 17.1 
Tier 1 leverage ratio5.8 %6.3 %
Supplementary leverage ratio (“SLR”) (h)
8.1 8.6 
BNY Mellon shareholders’ equity to total assets ratio9.7 %9.8 %
BNY Mellon common shareholders’ equity to total assets ratio8.7 8.8 
(a)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(b)    Return on tangible common equity and tangible book value per common share, Non-GAAP measures, exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 42 for the reconciliation of Non-GAAP measures.
(c)    See “Net interest revenue” on page 10 for a reconciliation of this Non-GAAP measure.
(d)    Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.6 trillion at March 31, 2021, $1.5 trillion at Dec. 31, 2020 and $1.2 trillion at March 31, 2020.
(e)    Excludes securities lending cash management assets and assets managed in the Investment Services business.
(f)    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 $64 billion at March 31, 2021, $68 billion at Dec. 31, 2020 and $59 billion at March 31, 2020.
(g)    For our CET1, Tier 1 capital 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. For additional information on our capital ratios, see “Capital” beginning on page 34.
(h)    The SLR at March 31, 2021 and Dec. 31, 2020 reflect the exclusion of certain central bank placements and the temporary exclusion of U.S. Treasury securities from the leverage exposure. The temporary exclusion increased our consolidated SLR by 68 basis points at March 31, 2021 and 72 basis points at Dec. 31, 2020. The temporary exclusion ceased to apply beginning April 1, 2021. See “Capital” beginning on page 34 for additional information.

Regulatory and Capital ratiosSept. 30, 2017
June 30, 2017
Dec. 31, 2016
Average liquidity coverage ratio (“LCR”) (i)
119%116%114%
    
Regulatory capital ratios: (j)
   
Standardized:   
Common equity Tier 1 (“CET1”) ratio12.3%12.0%12.3%
Tier 1 capital ratio14.6
14.3
14.5
Total (Tier 1 plus Tier 2) capital ratio15.6
14.8
15.2
Advanced:   
CET1 ratio11.1
10.8
10.6
Tier 1 capital ratio13.2
12.9
12.6
Total (Tier 1 plus Tier 2) capital ratio14.0
13.2
13.0
    
Leverage capital ratio (j)
6.8
6.7
6.6
Supplementary leverage ratio (“SLR”) (j)
6.3
6.2
6.0
    
BNY Mellon shareholders’ equity to total assets ratio – GAAP11.4
11.3
11.6
BNY Mellon common shareholders’ equity to total assets ratio – GAAP10.4
10.3
10.6
    
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (k)
   
Estimated CET1 ratio:   
Standardized Approach11.9%11.5%11.3%
Advanced Approach10.7
10.4
9.7
    
Estimated SLR6.1
6.0
5.6
(a)See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for a reconciliation of Non-GAAP measures.
(b)Non-GAAP information for all periods presented excludes the amortization of intangible assets and merger and integration (“M&I”), litigation and restructuring charges. Non-GAAP information for the third quarter of 2016 and for the first nine months of 2016 also excludes a recovery of the previously impaired loan to Sentinel Management Group, Inc. (“Sentinel”). Additionally, the pre-tax operating margin (Non-GAAP) excludes the net income attributable to noncontrolling interests of consolidated investment management funds.
(c)Tangible common equity – Non-GAAP and tangible book value per common share – Non-GAAP exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for the reconciliation of Non-GAAP measures.
(d)See “Average balances and interest rates” on page 11 for a reconciliation of Non-GAAP measures.
(e)Excludes securities lending cash management assets and assets managed in the Investment Services business.
(f)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 Sept. 30, 2017 and $1.2 trillion at both June 30, 2017 and Sept. 30, 2016.
(g)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 $68 billion at Sept. 30, 2017, $66 billion at June 30, 2017 and $64 billion at Sept. 30, 2016.
(h)Beginning in the third quarter of 2017, 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 for the quarter, which resulted in a de minimis impact to both basic and diluted earnings per share. For additional information, see the “Consolidated Income Statement” beginning on page 57.
(i)For additional information on our LCR, see “Liquidity and dividends” beginning on page 33.
(j)For our CET1, Tier 1 capital 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. The leverage capital ratio is based on Tier I capital, as phased-in, and quarterly average total assets. The SLR is based on Tier 1 capital, as phased-in, and average quarterly assets and certain off-balance sheet exposures. For additional information on our capital ratios, see “Capital” beginning on page 37.
(k)The estimated fully phased-in CET1 and SLR ratios (Non-GAAP) are based on our interpretation of the U.S. capital rules, which are being gradually phased-in over a multi-year period. For additional information on these Non-GAAP ratios, see “Capital” beginning on page 37.



BNY Mellon 3

Part I - Financial Information


Part I – Financial Information
Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk


General


In this Quarterly Report on Form 10-Q, 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.


Certain business terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended Dec. 31, 20162020 (“20162020 Annual Report”).


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.”


How we reported results

Throughout this Form 10-Q, certain measures, which are noted as “Non-GAAP financial measures,” exclude certain items or otherwise include components that differ from U.S. generally accepted accounting principles (“GAAP”). BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons using measures that relate to our ability to enhance revenues and limit expenses in circumstances where such matters are within our control or because they provide additional information about our ability to meet fully phased-in capital requirements. Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation. See “Supplemental information - Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for a reconciliation of financial measures presented in accordance with GAAP to adjusted Non-GAAP financial measures. See “Net interest revenue,” including the “Average balances and interest rates” beginning on page 10 for information on measures presented on a fully taxable equivalent basis. Also see “Capital” beginning on page 37 for information on our fully phased-in capital requirements.

Overview


The Bank of New York Mellon Corporation wasEstablished in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a rich history ofmaintaining our financial strength and stability through all business cycles, more than 235 years, BNY Mellon is a global investments company dedicated to improving lives through investing.

We managethat manages and serviceservices assets for financial institutions, corporations and individual investors in 35 countries and more than 100 markets. As of Sept. 30, 2017, countries.

BNY Mellon had $32.2 trillion in assets under custody and/or administration (“AUC/A”),has two business segments, Investment Services and $1.8 trillion in assets under management (“AUM”).

BNY Mellon is focused on enhancing our clients’ experience by leveraging our scaleInvestment and Wealth Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to deliver innovative and strategicprovide solutions for our clients, and building trusted relationships that drive value. We hold a unique position in the global financial services industry. We service both theto buy-side and sell-side providing usmarket participants, as well as leading institutional and wealth management clients globally.

The diagram below presents our two business segments and lines of business, with distinctive marketplace insights that enable us to support our clients’ success.

BNY Mellon’s businesses benefit from global growth in financial assets, the globalization of the investment process, changes in demographics and the continued evolution of the regulatory landscape—each providing us with opportunities to advise and service clients.

Key third quarter 2017 events

Definitive agreement to sell CenterSquare Investment Management

In September 2017, we announced that we entered into a definitive agreement to sell CenterSquare Investment Management (“CenterSquare”), one of our Investment Management boutiques. CenterSquare had approximately $9 billion in AUM in U.S. and global real estate and infrastructure investments. The transaction is subject to standard regulatory and other required approvals and is expected to be completedremaining operations in the fourth quarter of 2017 or first quarter of 2018.
Other segment.



bk-20210331_g1.jpg
4 BNY Mellon


Charles W. Scharf named chief executive officer; Gerald L. Hassell, chairman, to retire


In July 2017, Charles W. Scharf was appointed chief executive officer and member of the board of directors of the Company. Mr. Scharf succeeds Gerald L. Hassell, who will continue as the Company’s chairman of the board of directors until his retirement at the end of the year. After Mr. Hassell’s retirement, Mr. Scharf will become chairman, effective Jan. 1, 2018.

Resolution plan

As required by the Dodd-Frank Act, the Parent must submit annually to the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC”) a plan for its rapid and orderly resolution in the event of material financial distress or failure. The Parent filed its most recent resolution plan on July 1, 2017. We believe the 2017 resolution plan addresses all shortcomings and deficiencies identified by the FDIC and the Federal Reserve in the Company’s 2015 resolution plan. The public portion of our 2017 resolution plan is available on the Federal Reserve’s and FDIC’s websites.

In September 2017, the Federal Reserve and FDIC extended the filing deadline by one year to July 1, 2019 for the Parent’s next resolution plan.

Increase in cash dividend on common stock

BNY Mellon’s 2017 capital plan submitted in connection with our Comprehensive Capital Analysis and Review (“CCAR”) included a 26% increase in the quarterly cash dividend to $0.24 per common share. The first payment of the increased quarterly cash dividend was made on Aug. 11, 2017.

Highlights of thirdfirst quarter 20172021 results


We reported net income applicable to common shareholders of $983 million, or $0.94 per diluted common share, in the third quarter of 2017. Net income applicable to common shareholders was $974$858 million, or $0.90$0.97 per diluted common share, in the thirdfirst quarter of 2016 and $9262021. Net income applicable to common shareholders was $944 million, or $0.88$1.05 per diluted common share, in the secondfirst quarter of 20172020.

Highlights of The highlights below are based on the thirdfirst quarter of 2017 include:

AUC/A totaled a record $32.2 trillion at Sept. 30, 20172021 compared with $30.5 trillion at Sept. 30, 2016. The 6% increasethe first quarter of 2020, unless otherwise noted.

•Total revenue of $3.9 billion decreased 5%, primarily reflectsreflecting:
•Fee revenue increased 1%, primarily reflecting the positive impact of higher market values,markets, higher client volumes and balances and the favorable impact of a weaker U.S. dollar, partially offset by higher money market fee waivers. (See “Fee and net new business. (See “Investment Services business”other revenue” beginning on page 19.7.)
AUM totaled
4 BNY Mellon

•Other revenue includes a record $1.82 trillion$39 million impairment for a renewable energy investment. (See “Fee and other revenue” beginning on page 7.)
•Net interest revenue decreased 20%, primarily reflecting lower interest rates on interest-earning assets. This was partially offset by the benefit of lower deposit and funding rates, higher deposit balances and a larger securities portfolio. (See “Net interest revenue” on page 10.)
•Provision for credit losses was a benefit of $83 million primarily driven by an improvement in the macroeconomic forecast. (See “Consolidated balance sheet review – Allowance for credit losses” beginning on page 27.)
•Noninterest expense increased 5%, primarily reflecting higher staff expense, the unfavorable impact of a weaker U.S. dollar and higher technology-related expenses, partially offset by lower business development (travel and marketing) and distribution and servicing expenses. (See “Noninterest expense” on page 12.)
•Effective tax rate of 19.2%. (See “Income taxes” on page 12.)

Capital and liquidity

•CET1 ratio was 12.6% under the Standardized Approach at Sept. 30, 2017March 31, 2021, compared with $1.7213.1% under the Advanced Approaches at Dec.
31, 2020. The decrease in the CET1 ratio primarily reflects unrealized losses on securities available-for-sale, capital deployed through common stock repurchases and dividends and an increase in risk-weighted assets (“RWAs”) under the Standardized Approach, partially offset by capital generated through earnings. (See “Capital” beginning on page 34.)
•Repurchased 16.8 million common shares for $699 million.

Highlights of our principal businesses

Investment Services
•Total revenue decreased 8%.
•Income before income taxes decreased 12%.
•AUC/A of $41.7 trillion at Sept. 30, 2016. The 6% increaseincreased 18%, primarily reflectsreflecting higher market values, net inflowsnew business and the favorable impact of a weaker U.S. dollar.

Investment and Wealth Management
•Total revenue increased 10%.
•Income before income taxes increased 43%.
•AUM of $2.2 trillion increased 23%, primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar (principally versus the British pound). AUM excludes and net inflows.

See “Review of businesses” and Note 18 of the Notes to Consolidated Financial Statements for additional information on our businesses.

BNY Mellon 5

Impact of coronavirus pandemic on our business

See “Impact of coronavirus pandemic on our business” in our 2020 Annual Report for the areas of our business that have been impacted and could continue to be impacted by the coronavirus pandemic and its effect on the global macroeconomic environment. The following updates those disclosures.

Short-term interest rates have remained low through the first quarter of 2021, which has continued to result in lower net interest revenue and higher money market fee waivers. This has been partially offset by higher deposit balances and higher money market balances.

Equity markets and activity improved in the first quarter of 2021, resulting in increased volumes compared to the fourth quarter of 2020 in most of our Investment Services businesses and increased asset-based fees in Investment Services and Investment and Wealth Management.

The macroeconomic outlook also improved as of the end of the first quarter of 2021, resulting in a decrease in the allowance for credit losses and a benefit of $83 million to the provision for credit losses.

We suspended common stock repurchases for most of 2020, beginning in March 2020, while maintaining our quarterly common stock dividend of $0.31 per share. In June 2020, the Federal Reserve announced that participating Comprehensive Capital Analysis and Review (“CCAR”) bank holding companies (“BHCs”), including us, must update and resubmit their capital plans and that, as a result, CCAR BHCs were not permitted to conduct open market common stock repurchases in the third quarter of 2020, a
restriction subsequently extended through the fourth quarter of 2020. For the first and second quarters of 2021, the Federal Reserve permitted common stock dividends and repurchases subject to the limitations that the aggregate amounts per quarter not exceed average net income over the prior four quarters and that common stock dividends not be increased. If a CCAR BHC ceases to be subject to temporary restrictions on distributions beginning in the third quarter of 2021, it will continue to be subject to the normal constraints under the stress capital buffer (“SCB”) framework. See “Recent regulatory developments” for additional information related to the temporary restrictions on capital distributions.

It is difficult to forecast the impact of the coronavirus, together with related public health measures, on our results with certainty because so much depends on how the health crisis evolves and its impact on the global economy, as well as actions taken by central banks and governments to support the economy and the availability, use and effectiveness of vaccines.

The current macroeconomic environment has also resulted in responses by governmental and regulatory bodies. See “Supervision and Regulation – Pandemic-Related Measures” in our 2020 Annual Report for additional information on legislative and regulatory developments in response to the coronavirus pandemic.
For further discussion of the current and potential impact of the coronavirus pandemic, see “Risk Factors – The coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted,” in our 2020 Annual Report.

6 BNY Mellon

Fee and other revenue

Fee and other revenue
1Q21 vs.
(dollars in millions, unless otherwise noted)1Q214Q201Q204Q201Q20
Investment services fees:
Asset servicing fees (a)
$1,199 $1,138 $1,159 5 %3 %
Clearing services fees (b)
455 418 470 9 (3)
Issuer services fees245 257 263 (5)(7)
Treasury services fees157 156 149 1 5 
Total investment services fees2,056 1,969 2,041 4 1 
Investment management and performance fees890 884 862 1 3 
Foreign exchange revenue (c)
231 187 245 24 (6)
Financing-related fees51 46 59 11 (14)
Distribution and servicing29 28 31 4 (6)
Total fee revenue (c)
3,257 3,114 3,238 5 1 
Investment and other income (c)
9 43 47 N/MN/M
Net securities gains— 6 9 N/MN/M
Total other revenue9 49 56 N/MN/M
Total fee and other revenue (c)
$3,266 $3,163 $3,294 3 %(1)%
Fee revenue as a percentage of total revenue (c)
83 %81 %79 %
AUC/A at period end (in trillions) (d)
$41.7 $41.1 $35.2 1 %18 %
AUM at period end (in billions) (e)
$2,214 $2,211 $1,796 — %23 %
(a)    Asset servicing fees include the fees from the Clearance and Collateral Management business and also include securities lending revenue of $45 million in the first quarter of 2021, $39 million in the fourth quarter of 2020 and $51 million in the first quarter of 2020.
(b)    Clearing services fees are almost entirely earned by our Pershing business.
(c)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(d)    Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.6 trillion at March 31, 2021, $1.5 trillion at Dec. 31, 2020 and $1.2 trillion at March 31, 2020.
(e)    Excludes securities lending cash management assets and assets managed in the Investment Services business. (See “Investment Management business” beginning on page 16.)
Investment services fees totaled $1.92 billion, an increase of 1% compared with $1.89 billion in the third quarter of 2016. The increase primarily reflects higher money market fees, higher equity market values and net new business, partially offset by lower Depositary Receipts revenue. (See “Investment Services business” beginning on page 19.)
Investment management and performance fees totaled $901 million, an increase of 5% compared with $860 million in the third quarter of 2016. The increase primarily reflects higher equity market values and money market fees. (See “Investment Management business” beginning on page 16.)
Foreign exchange and other trading revenue totaled $173 million compared with $183 million in the third quarter of 2016. Foreign exchange revenue totaled $158 million, a decrease of 10% compared with $175 million in the third quarter of 2016, primarily reflecting lower volatility and lower Depositary Receipt-related foreign exchange activity, partially offset by higher volumes. (See “Fee and other revenue” beginning on page 7.)
Investment and other income totaled $63 million compared with $92 million in the third quarter of 2016. The decrease primarily reflects lower other income driven by our investments in renewable energy and lower seed capital gains. (See “Fee and other revenue” beginning on page 7.)


BNY Mellon 5

Net interest revenue totaled $839 million compared with $774 million in the third quarter of 2016. The 8% increase was primarily driven by higher interest rates, partially offset by lower average deposits and loans. Net interest margin was 1.15% in the third quarter of 2017 compared with 1.05% in the third quarter of 2016. The net interest margin (FTE) (Non-GAAP) was 1.16% in the third quarter of 2017 compared with 1.06% in the third quarter of 2016. (See “Net interest revenue” on page 10.)
The provision for credit losses was a credit of $6 million in the third quarter of 2017 and a credit of $19 million in the third quarter of 2016. (See “Asset quality and allowance for credit losses” beginning on page 29.)
Noninterest expense totaled $2.65 billion compared with $2.64 billion in the third quarter of 2016. The increase primarily reflects higher software and professional, legal and other purchased services expenses, partially offset by lower litigation expense and bank assessment charges. (See “Noninterest expense” beginning on page 13.)
The provision for income taxes was $348 million and the effective rate was 25.4% in the third quarter of 2017 compared with an income tax provision of $324 million and an effective tax rate of 24.6% in the third quarter of 2016. (See “Income taxes” on page 14.)

The net unrealized pre-tax gain on the total investment securities portfolio was $257 million at Sept. 30, 2017 compared with a pre-tax gain of $151 million at June 30, 2017. The increase was primarily driven by a decrease in long-term interest rates. (See “Investment securities” beginning on page 25.)
Our CET1 ratio under the Advanced Approach was 11.1% at Sept. 30, 2017 and 10.8% at June 30, 2017. The increase was primarily driven by CET1 generation. Our CET1 ratio under the Standardized Approach was 12.3% at Sept. 30, 2017 and 12.0% at June 30, 2017. (See “Capital” beginning on page 37.)
Our estimated CET1 ratio (Non-GAAP) calculated under the Advanced Approach on a fully phased-in basis was 10.7% at Sept. 30, 2017 and 10.4% at June 30, 2017. The increase primarily reflects CET1 generation. Our estimated CET1 ratio (Non-GAAP) calculated under the Standardized Approach on a fully phased-in basis was 11.9% at Sept. 30, 2017 and 11.5% at June 30, 2017. (See “Capital” beginning on page 37.)



6 BNY Mellon

Fee and other revenue

Fee and other revenue        YTD17
    3Q17 vs.   vs.
(dollars in millions, unless otherwise noted)3Q17
2Q17
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Investment services fees:         
Asset servicing (a)
$1,105
$1,085
$1,067
2 %4 % $3,253
$3,176
2 %
Clearing services383
394
349
(3)10
 1,153
1,049
10
Issuer services288
241
337
20
(15) 780
815
(4)
Treasury services141
140
137
1
3
 420
407
3
Total investment services fees1,917
1,860
1,890
3
1
 5,606
5,447
3
Investment management and performance fees901
879
860
3
5
 2,622
2,502
5
Foreign exchange and other trading revenue173
165
183
5
(5) 502
540
(7)
Financing-related fees54
53
58
2
(7) 162
169
(4)
Distribution and servicing40
41
43
(2)(7) 122
125
(2)
Investment and other income63
122
92
N/M
N/M
 262
271
N/M
Total fee revenue3,148
3,120
3,126
1
1
 9,276
9,054
2
Net securities gains19
—
24
N/M
N/M
 29
65
N/M
Total fee and other revenue$3,167
$3,120
$3,150
2 %1 % $9,305
$9,119
2 %
          
Fee revenue as a percentage of total revenue78%79%79%   79%79% 
          
AUM at period end (in billions) (b)
$1,824
$1,771
$1,715
3 %6 % $1,824
$1,715
6 %
AUC/A at period end (in trillions) (c)
$32.2
$31.1
$30.5
4 %6 % $32.2
$30.5
6 %
(a)Asset servicing fees include securities lending revenue of $47 million in the third quarter of 2017, $48 million in the second quarter of 2017, $51 million in the third quarter of 2016, $144 million in the first nine months of 2017 and $153 million in the first nine months of 2016.
(b)Excludes securities lending cash management assets and assets managed in the Investment Services business.
(c)
Includes the AUC/A of CIBC Mellon of $1.3 trillion at Sept. 30, 2017 and $1.2 trillion at both June 30, 2017 and Sept. 30, 2016.
N/M -– Not meaningful.




Fee and other revenue increased 1% compared with the thirdfirst quarter of 20162020 and 2% (unannualized)5% compared with the secondfourth quarter of 2017.2020. The increase compared with the thirdfirst quarter of 20162020 primarily reflects higher investment management and performance fees, asset servicing fees, and clearing services fees partially offset by lower issuer services fees, investment and other income and foreign exchange and other trading revenue. The increase compared with the second quarter of 2017 primarily reflects seasonally higher issuer services fees, investment management and performance fees, asset servicing fees and net securities gains, partially offset by lower investment and other income.

Investment services fees

Investment services fees were impacted by the following compared with the third quarter of 2016 and the second quarter of 2017:

Asset servicing fees increased 4% compared with the third quarter of 2016 and 2% (unannualized) compared with the second quarter of 2017. The
increase compared with the third quarter of 2016 primarily reflects higher equity market values and net new business, including growth in collateral management, partially offset by the impact of downsizing the retail UK transfer agency business. The increase compared with the second quarter of 2017 was primarily driven by the favorable impact of a weaker U.S. dollar, partially offset by higher money market fee waivers and higher equity market values.
Clearing services fees increased 10%lower foreign exchange revenue.The increase compared with the thirdfourth quarter of 20162020 primarily reflects higher asset servicing fees, clearing services fees, foreign exchange revenue and investment management and performance fees, partially offset by higher money market fee waivers.

Other revenue decreased 3% (unannualized)$47 million compared with the first quarter of 2020. The decrease primarily reflects a $39 million impairment related to a renewable energy investment.

Money market fee waivers

Given the recent levels of short-term interest rates, money market mutual fund fees and other similar fees are being waived to protect investors from negative returns. The fee waivers have primarily impacted fee revenues in Pershing and Investment Management, but also resulted in lower distribution and servicing expense. The fee waivers also began to impact fee revenues in our other businesses in the second half of 2020. Money market fee waivers are highly sensitive to changes in short-term interest rates and are difficult to predict. Assuming no change in money market balances, we expect to recover over 50% of the pre-tax income related to fee waivers with a 25 basis point increase in the Fed Funds rate and we expect to recover nearly 100% of the pre-tax income related to fee waivers when the Fed Funds rate increases 100 basis points.

BNY Mellon 7

The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In the first quarter of 2021, the net impact of money market fee waivers was $188 million, up from $134 million in the fourth quarter of 2020, driven by low short-term interest rates and higher money market balances.

Money market fee waivers
(in millions)1Q214Q201Q20
Investment services fees:
Asset servicing fees$(22)$(13)$— 
Clearing services fees(74)(64)(9)
Issuer services fees(10)(6)— 
Treasury services fees(3)(2)— 
Total investment services fees(109)(85)(9)
Investment management and performance fees(89)(56)(14)
Distribution and servicing revenue(13)(8)— 
Total fee revenue(211)(149)(23)
Less: Distribution and servicing expense23 15 — 
Net impact of money market fee waivers$(188)$(134)$(23)
Impact to revenue by line of business (a):
Asset Servicing$(29)$(13)$— 
Pershing(94)(85)(9)
Issuer Services(15)(10)— 
Treasury Services(9)(5)— 
Investment Management(61)(34)(14)
Wealth Management(3)(2)— 
Total impact to revenue by line of business$(211)$(149)$(23)
(a)    The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.


We expect the impact from money market fee waivers, net of distribution and servicing expense, to approximate $220 million in the second quarter of 2017. The increase was primarily driven by higher2021, based on implied forward rates and money market feesbalances as of the end of the first quarter of 2021. Fee waivers in subsequent periods will continue to be dependent on the level of short-term interest rates and growth in long-term mutual fund assets. The decrease primarily reflects lower clearance volumes.
money market balances.

IssuerInvestment services fees decreased 15%

Investment services fees increased 1% compared with the thirdfirst quarter of 20162020 and increased 20% (unannualized)4% compared with the secondfourth quarter of 2017. The decrease primarily reflects fewer corporate actions, lost business and lower fees due to a reduction in shares outstanding in certain depositary receipts programs, partially offset by higher Corporate Trust revenue. The increase
2020, reflecting the following:


BNY Mellon 7

compared with the second quarter of 2017 primarily reflects seasonality in Depositary Receipts revenue and higher Corporate Trust revenue.
Treasury services•Asset servicing fees increased 3% compared with the thirdfirst quarter of 20162020 and 1% (unannualized)5% compared with the secondfourth quarter of 2017. Both increases2020. The increase compared with the first quarter of 2020 primarily reflect
reflects higher paymentclient volumes and market values, partially offset by higher money market fee waivers. The increase compared with the fourth quarter of 2020 primarily reflects higher client volumes, partially offset by higher compensating balance credits provided to clients, which reducesmoney market fee revenuewaivers.
•Clearing services fees decreased 3% compared with the first quarter of 2020 and increases net interestincreased 9% compared with the fourth quarter of 2020. The decrease compared with the first quarter of 2020 primarily reflects the impact of money market fee waivers, partially offset by higher market values and client volumes. The increase compared with the fourth quarter of 2020 primarily reflects higher clearance volumes and market values.
•Issuer services fees decreased 7% compared with the first quarter of 2020 and 5% compared with the fourth quarter of 2020. Both decreases primarily reflect higher money market fee waivers in Corporate Trust and lower Depositary Receipts revenue.

•Treasury services fees increased 5% compared with the first quarter of 2020 and 1% compared with the fourth quarter of 2020. The increase compared with the first quarter of 2020 primarily reflects higher payment volumes.

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


Investment management and performance fees


Investment management and performance fees increased 5%3% compared with the thirdfirst quarter of 20162020 and 3% (unannualized)1% compared with the secondfourth quarter of 2017,2020. Both increases primarily reflectingreflect the impact of higher equity market values and money market fees. The increase compared with the third quarter of 2016 also reflects higher performance fees. The increase compared with the second quarter of 2017 also reflects the favorable impact of a weaker U.S. dollar. Changesdollar, partially offset by the impact of money market fee waivers. Performance fees were $40 million in the first quarter of 2021, $50 million in the first quarter of 2020 and $45 million in the fourth quarter of 2020. On a constant currency rates had an insignificant impact on the growth rate ofbasis (Non-GAAP), investment management and performance fees increased 1% compared with the thirdfirst quarter of 2016. Performance fees were $15 million in the third quarter2020.

AUM was $2.2 trillion at March 31, 2021, an increase of 2017, $8 million in the third quarter of 2016 and $17 million in the second quarter of 2017.

Total AUM for the Investment Management business increased 6%23% compared with Sept. 30, 2016 and 3% compared with June 30, 2017. The increase compared with Sept. 30, 2016March 31, 2020, primarily reflectsreflecting higher market values, net inflows and the favorable impact of a weaker U.S. dollar (principally versus the British pound). The increase compared with June 30, 2017 primarily reflects the favorable impact of a weaker U.S. dollar (principally versus the British pound), higher market values and net inflows. Net long-term inflows of fixed income and multi-asset and alternative investments were offset by outflows of index, equity and liability-driven investments in the third quarter of 2017. Net short-term inflows of $10 billion in the third quarter of 2017 were a result of increased distribution through our liquidity portals.

8 BNY Mellon

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


Foreign exchange and other trading revenue


Foreign exchange and other trading revenue  
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Foreign exchange$158
$151
$175
$463
$512
Other trading revenue15
14
8
39
28
Total foreign exchange and other trading revenue$173
$165
$183
$502
$540


Foreign exchange and other trading revenue decreased 5% compared with the third quarter of 2016 and increased 5% (unannualized) compared with the second quarter of 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. Foreignactivities and foreign currency remeasurement gain (loss). In the first quarter of 2021, foreign exchange revenue decreased 10%totaled $231 million, a decrease of 6% compared with the thirdfirst quarter of 2016,2020 and an increase of 24% compared with the fourth quarter of 2020. The decrease compared with the first quarter of 2020 primarily reflectingreflects lower volatility, and lower Depositary Receipt-related foreign exchange activity, partially offset by higher volumes. Foreign exchange revenue increased 5% (unannualized)the positive impact of foreign currency hedging. The increase compared with the secondfourth quarter of 2017 reflecting2020 primarily reflects higher volumes.volumes. Foreign exchange revenue is primarily reported in the Investment Services business and, to a lesser extent, the Investment and Wealth Management business and the Other segment.


Our custody clients may enter into foreign exchange transactions in a number of ways, including through our standing instruction programs. While the shift of custody clients from our standing instruction programs to other trading options has abated, our foreign exchange revenue continues to be impacted by changes in volume and volatility. For the quarter ended Sept. 30, 2017, our total revenue for all types of foreign exchange trading transactions was $158 million, or 4% of our total revenue, and approximately 28% of our foreign exchange revenue was generated by transactions in our standing instruction programs.



8 BNY Mellon

Financing-related fees


Financing-related fees, which are primarily reported in the Investment Services business, and the Other segment, include capital marketsmarket fees, loan commitment fees and credit-related fees. Financing-related fees decreasedtotaled $51 million in the first quarter of 2021, $59 million in the first quarter of 2020 and $46 million in the fourth quarter of 2020. The decrease compared with the thirdfirst quarter of 20162020 primarily reflectingreflects lower syndicationunderwriting fees. Financing-related fees increasedThe increase compared with the secondfourth quarter of 20172020 primarily reflectingreflects higher underwriting fees.

Distribution and servicing fees

Distribution and servicing fees decreased compared with the third quarter of 2016 primarily reflecting fees paid to introducing brokers, partially offset by higher money market fees.


Investment and other income


Investment and other income   
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Corporate/bank-owned life insurance$37
$43
$34
$110
$96
Lease-related gains—
51
—
52
44
Expense reimbursements from joint venture18
17
18
49
52
Equity investment income (loss)—
7
(1)33
(8)
Seed capital gains (a)
6
10
16
25
38
Asset-related gains (losses)1
(5)8
(1)9
Other income (loss)1
(1)17
(6)40
Total investment and other income$63
$122
$92
$262
$271
(a)Excludes the gains (losses) on seed capital investments in consolidated investment management funds which are reflected in operations of consolidated investment management funds, net of noncontrolling interests. The gains on seed capital investments in consolidated investment management funds were $7 million in the third quarter of 2017, $7 million in the second quarter of 2017, $8 million in the third quarter of 2016, $29 million in the first nine months of 2017 and $15 million in the first nine months of 2016.


Investment and other income decreased compared with both the third quarter of 2016includes income or loss from consolidated investment management funds, seed capital gains or losses, other trading revenue or loss, renewable energy investments losses, corporate and second quarter of 2017.bank-owned life insurance contracts, other investment gains or losses, gains or losses from disposals, expense reimbursements from our CIBC Mellon joint venture and other income or loss. The decrease comparedincome or loss from consolidated investment management funds should be considered together with the third quarternet income or loss attributable to noncontrolling interests, which reflects the portion of 2016
the consolidated funds for which we do not have an economic interest and is reflected below net income as a separate line item on the consolidated income statement. Other trading revenue or loss primarily reflects lowerincludes the impact of market-risk hedging activity related to our seed capital investments in investment management funds, non-foreign currency derivative and fixed income trading, and other income driven by increased pre-tax losses on our investmentshedging activity. Investments in renewable energy and lower seed capital gains. The pre-taxgenerate losses on the renewable energy investmentsin other income that are more than offset by corresponding tax benefits and credits recorded as a reduction to the provision for income taxes. Other investment gains or losses includes fair value changes of non-readily marketable equity securities, private equity and other investments. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Other income or loss includes various miscellaneous revenues.

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

Investment and other income (a)
(in millions)1Q214Q201Q20
Income (loss) from consolidated investment management funds$17 $41 $(38)
Seed capital gains (losses) (b)
3 22 (31)
Other trading (loss) revenue(7)(31)66 
Renewable energy investment (losses)(81)(27)(34)
Corporate/bank-owned life insurance33 43 36 
Other investments gains (losses) (c)
11 18 (7)
Disposal (losses)— (61)— 
Expense reimbursements from joint venture23 22 21 
Other income10 16 34 
Total investment and other income$9 $43 $47 
(a)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(b)    Includes gains (losses) on investments in BNY Mellon funds which hedge deferred incentive awards.
(c)    Includes strategic equity, private equity and other investments.


Investment and other income was $9 million in the first quarter of 2021 compared with $47 million in the first quarter of 2020 and $43 million in the fourth quarter of 2020. The decrease compared with the secondfirst quarter of 20172020 and fourth quarter of 2020 primarily reflects lease-related gains recorded in the second quarter of 2017 and lower income from corporate/bank-owned life insurance.

Year-to-date 2017 compared with year-to-date 2016

Fee and other revenue increased 2%$39 million impairment related to a renewable energy investment. The decrease compared with the first nine monthsquarter of 2016, primarily reflecting higher investment management2020 also reflects lower derivative and performance fees, clearing services feesfixed income trading results and asset servicing fees,a one-time fee in Pershing recorded in the first quarter of 2020, partially offset by higher investment income
BNY Mellon 9

(from consolidated investment management funds, seed capital and other investments), net of hedging reflected in other trading revenue.

The decrease compared with the fourth quarter of 2020 also reflects lower foreign exchangeinvestment income (from
consolidated investment management funds, seed capital, corporate/bank-owned life insurance and other investments), net of hedging reflected in other trading revenue, partially offset by losses on business sales recorded in the fourth quarter of 2020.


Net interest revenue

Net interest revenue
1Q21 vs.
(dollars in millions)1Q214Q201Q204Q201Q20
Net interest revenue – GAAP$655 $680 $814 (4)%(20)%
Add: Tax equivalent adjustment3 3 2 N/MN/M
Net interest revenue (FTE) – Non-GAAP (a)
$658 $683 $816 (4)%(19)%
Average interest-earning assets$397,297 $378,674 $323,936 5 %23 %
Net interest margin – GAAP0.66 %0.72 %1.01 %(6) bps(35) bps
Net interest margin (FTE) – Non-GAAP (a)
0.67 %0.72 %1.01 %(5) bps(34) bps
(a)    Net interest revenue (FTE) – Non-GAAP and net securities gainsinterest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and issuer services fees.tax-exempt sources and is consistent with industry practice. The 5% increase in investment managementadjustment to an FTE basis has no impact on net income.
N/M – Not meaningful.
bps – basis points.


Net interest revenue decreased 20% compared with the first quarter of 2020 and performance fees4% compared with the fourth quarter of 2020. The decrease compared with the first quarter of 2020 primarily reflects higher market values, money market fees and performance fees,lower interest rates on interest-earning assets, partially offset by the unfavorable impactbenefit of lower deposit and funding rates, higher deposit balances and a stronger U.S. dollar (principally versuslarger securities portfolio. The decrease compared with the British pound). The 10% increase in clearing services feesfourth quarter of 2020 was primarily reflects higher money market fees and growth in long-term mutual fund assets. The 2% increase in asset servicing fees primarily reflects net new business, including growth in collateral management and higher equity market values,driven by lower interest rates on interest-earning assets, partially offset by the unfavorable impactbenefit of a stronger U.S. dollarlower deposit and the impact of downsizing the retail UK transfer agency business. The 7% decrease in foreign exchangefunding rates, and other trading revenue primarily reflects lower volatilityhigher deposit and lower Depositary Receipts-related foreign exchange activity. The 4% decrease in issuer services fees primarily reflects lower Depositary Receipts revenue.loan balances.




BNY Mellon 9

Net interest revenue

Net interest revenue        YTD17
    3Q17 vs.   vs.
(dollars in millions)3Q17
2Q17
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Net interest revenue$839
$826
$774
2%8 % $2,457
$2,307
7 %
Tax equivalent adjustment12
12
12
N/MN/M 36
39
N/M
Net interest revenue (FTE) – Non-GAAP (a)
$851
$838
$786
2%8 % $2,493
$2,346
6 %
          
Average interest-earning assets$291,841
$289,496
$296,703
1%(2)% $288,283
$308,560
(7)%
          
Net interest margin1.15%1.14%1.05%1 bps10 bps 1.14%1.00%14 bps
Net interest margin (FTE) – Non-GAAP (a)
1.16%1.16%1.06%—
10 bps 1.16%1.02%14 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.
FTE - fully taxable equivalent.
N/M - Not meaningful.
bps - basis points.


Net interest revenue increased 8% compared with the third quarter of 2016 and 2% (unannualized) compared with the second quarter of 2017 primarily reflecting higher interest rates, partially offset by lower average deposits and loans. The sequential increase also reflects an additional interest-earning day during the quarter.

Net interest margin increased 10decreased 35 basis points compared with the thirdfirst quarter of 2016,2020 and 6 basis points compared with the fourth quarter of 2020. The decreases primarily reflectingreflect the factors listedmentioned above.


Average interest-earning assets increased 23% compared with the first quarter of 2020 and 5% compared with the fourth quarter of 2020. The increase compared with the first quarter of 2020 primarily reflects higher interest-bearing deposits
with the Federal Reserve and other central banks and a larger securities portfolio. The increase compared with the fourth quarter of 2020 primarily reflects higher interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks (primarily foreign banks) and margin loans.

Average non-U.S. dollar deposits comprised approximately 30%25% of our average total deposits in the thirdfirst quarter of 2017.2021. Approximately 45%40% of the average non-U.S. dollar deposits in the thirdfirst quarter of 20172021 were euro-denominated.euro denominated.

Year-to-date 2017 compared with year-to-date 2016


Net interest revenue in future periods will depend on the level and mix of client deposits and deposit rates, as well as the level and shape of the yield curve, which may result in lower yields on interest-earning assets.

Due to lower interest rates, net interest revenue has been trending lower and we expect net interest revenue to decrease in 2021 compared with 2020.
10 BNY Mellon

Average balances and interest ratesQuarter ended
March 31, 2021Dec. 31, 2020March 31, 2020
(dollars in millions; average rates annualized)Average
balance		InterestAverage
rates		Average
balance		InterestAverage
rates		Average balanceInterestAverage rates
Assets
Interest-earning assets:
Interest-bearing deposits with the Federal Reserve and other central banks$125,930 $(16)(0.05)%$112,274 $(13)(0.04)%$80,403 $80 0.39 %
Interest-bearing deposits with banks (primarily foreign banks)21,313 14 0.27 19,281 16 0.32 17,081 58 1.37 
Federal funds sold and securities purchased under resale agreements (a)
29,186 32 0.44 28,389 40 0.55 34,109 396 4.67 
Margin loans15,891 45 1.14 14,097 43 1.23 12,984 87 2.69 
Non-margin loans:
Domestic offices31,218 157 2.02 30,855 161 2.08 31,720 238 3.02 
Foreign offices9,680 28 1.18 9,776 32 1.31 11,170 71 2.55 
Total non-margin loans40,898 185 1.82 40,631 193 1.90 42,890 309 2.89 
Securities:
U.S. government obligations28,759 101 1.43 27,783 102 1.46 23,175 108 1.87 
U.S. government agency obligations77,623 291 1.50 79,712 311 1.56 69,046 400 2.32 
State and political subdivisions (b)
2,526 12 1.92 2,104 12 2.01 1,033 8 3.06 
Other securities (b)
47,030 58 0.50 46,280 56 0.48 36,375 86 0.95 
Total investment securities (b)
155,938 462 1.19 155,879 481 1.23 129,629 602 1.86 
Trading securities (b)
8,141 19 0.95 8,123 19 0.95 6,840 40 2.36 
Total securities (b)
164,079 481 1.18 164,002 500 1.22 136,469 642 1.88 
Total interest-earning assets (c)
$397,297 $741 0.75 %$378,674 $779 0.82 %$323,936 $1,572 1.95 %
Noninterest-earning assets63,082 58,814 61,342 
Total assets$460,379 $437,488 $385,278 
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic offices$128,543 $(7)(0.02)%$119,012 $(5)(0.02)%$99,915 $170 0.69 %
Foreign offices116,572 (30)(0.10)112,306 (28)(0.10)97,717 70 0.29 
Total interest-bearing deposits245,115 (37)(0.06)231,318 (33)(0.06)197,632 240 0.49 
Federal funds purchased and securities sold under repurchase agreements (a)
15,288 (3)(0.07)14,452 1 0.01 13,919 275 7.96 
Trading liabilities2,227 3 0.53 2,408 4 0.72 1,626 7 1.61 
Other borrowed funds331 2 2.01 338 2 1.71 719 4 2.27 
Commercial paper— — — 275 — 0.10 1,581 6 1.56 
Payables to customers and broker-dealers17,691 (1)(0.01)17,521 (1)(0.01)16,386 30 0.73 
Long-term debt26,199 119 1.81 25,704 123 1.88 27,231 194 2.83 
Total interest-bearing liabilities$306,851 $83 0.11 %$292,016 $96 0.13 %$259,094 $756 1.17 %
Total noninterest-bearing deposits83,429 75,840 60,577 
Other noninterest-bearing liabilities24,556 23,783 24,229 
Total liabilities414,836 391,639 343,900 
Temporary equity
Redeemable noncontrolling interests85 74 66 
Permanent equity
Total The Bank of New York Mellon Corporation shareholders’ equity45,261 45,539 41,206 
Noncontrolling interests197 236 106 
Total permanent equity45,458 45,775 41,312 
Total liabilities, temporary equity and permanent equity$460,379 $437,488 $385,278 
Net interest revenue (FTE) – Non-GAAP (c)
$658 $683 $816 
Net interest margin (FTE) – Non-GAAP (b)(c)
0.67 %0.72 %1.01 %
Less: Tax equivalent adjustment (b)
3 3 2 
Net interest revenue – GAAP$655 $680 $814 
Net interest margin – GAAP0.66 %0.72 %1.01 %
(a)Includes the average impact of offsetting under enforceable netting agreements of approximately $37 billion for the first quarter of 2021, $41 billion for the fourth quarter of 2020 and $80 billion for the first quarter of 2020. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.19% for the first quarter of 2021, 0.23% for the fourth quarter of 2020 and 1.39% for the first quarter of 2020. On a Non-GAAP basis, excluding the impact of offsetting, the rate on federal funds purchased and securities sold under repurchase agreements would have been (0.02)% for the first quarter of 2021, 0.00% for the fourth quarter of 2020 and 1.18% for the first quarter of 2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.
(b)    Average rates were calculated on an FTE basis, at tax rates of approximately 21%.
(c)    See “Net interest revenue” on page 10 for the reconciliation of this Non-GAAP measure.
BNY Mellon 11

Noninterest expense

Noninterest expense
1Q21 vs.
(dollars in millions)1Q214Q201Q204Q201Q20
Staff$1,602 $1,554 $1,482 3 %8 %
Software and equipment362 359 326 1 11 
Professional, legal and other purchased services343 381 330 (10)4 
Sub-custodian and clearing124 116 105 7 18 
Net occupancy123 173 135 (29)(9)
Distribution and servicing74 75 91 (1)(19)
Bank assessment charges34 24 35 42 (3)
Amortization of intangible assets24 26 26 (8)(8)
Business development19 26 42 (27)(55)
Other146 191 140 (24)4 
Total noninterest expense$2,851 $2,925 $2,712 (3)%5 %
Full-time employees at period end48,000 48,500 47,900 (1)%— %


Total noninterest expense increased 7%5% compared with the first nine monthsquarter of 2016,2020 and decreased 3% compared with the fourth quarter of 2020. The increase compared with the first quarter of 2020 primarily driven byreflects higher interest ratesstaff expense, the unfavorable impact of a weaker U.S. dollar and lower premium amortization,higher technology-related expenses, partially offset by lower average depositsbusiness development (travel and interest-earning assets. The increasemarketing) and distribution and servicing expenses. Staff expense includes the impact of an incentive reversal in the net interest margin was primarily driven byfirst quarter of 2020, the factors listed above.



10 BNY Mellon

Average balances and interest ratesQuarter ended
 Sept. 30, 2017 June 30, 2017 Sept. 30, 2016
(dollar amounts in millions, presented on an FTE basis)
Average
balance

Interest
Average
rates

 
Average
balance

Interest
Average
rates

 Average balance
Interest
Average rates
Assets           
Interest-earning assets:           
Interest-bearing deposits with banks (primarily foreign banks)$15,899
$34
0.86% $14,832
$27
0.73% $14,066
$26
0.74 %
Interest-bearing deposits held at the Federal Reserve and other central banks70,430
89
0.50
 69,316
71
0.41
 74,102
37
0.20
Federal funds sold and securities purchased under resale agreements28,120
119
1.67
 26,873
86
1.29
 26,376
62
0.93
Margin loans13,206
87
2.60
 15,058
87
2.32
 18,132
67
1.48
Non-margin loans:           
Domestic offices29,950
216
2.87
 30,734
207
2.70
 30,534
171
2.22
Foreign offices12,788
67
2.09
 13,001
65
1.99
 12,912
47
1.45
Total non-margin loans42,738
283
2.64
 43,735
272
2.49
 43,446
218
1.99
Securities:           
U.S. Government obligations25,349
106
1.67
 25,928
106
1.64
 25,279
94
1.49
U.S. Government agency obligations61,710
309
2.00
 59,533
290
1.95
 56,464
240
1.70
State and political subdivisions – tax-exempt3,226
25
3.06
 3,298
26
3.09
 3,598
27
2.98
Other securities28,804
98
1.34
 28,468
81
1.15
 33,064
102
1.23
Trading securities2,359
13
2.26
 2,455
18
2.85
 2,176
13
2.62
Total securities121,448
551
1.81
 119,682
521
1.74
 120,581
476
1.58
Total interest-earning assets (a)
$291,841
$1,163
1.59% $289,496
$1,064
1.47% $296,703
$886
1.19 %
Allowance for loan losses(165)   (164)   (165)  
Cash and due from banks4,961
   4,972
   4,189
  
Other assets48,329
   47,303
   49,463
  
Assets of consolidated investment management funds743
   908
   1,040
  
Total assets$345,709
   $342,515
   $351,230
  
Liabilities           
Interest-bearing liabilities:           
Interest-bearing deposits:           
Money market rate accounts$7,509
$1
0.06% $7,379
$1
0.04% $7,346
$1
0.06 %
Savings837
1
0.76
 1,014
2
0.75
 1,201
1
0.41
Demand deposits5,932
5
0.27
 5,659
2
0.14
 2,681
3
0.36
Time deposits29,934
24
0.32
 34,757
15
0.18
 45,186
7
0.07
Foreign offices98,278
26
0.10
 93,527
12
0.05
 98,695
(18)(0.08)
Total interest-bearing deposits142,490
57
0.16
 142,336
32
0.09
 155,109
(6)(0.02)
Federal funds purchased and securities sold under repurchase agreements21,403
70
1.30
 17,970
38
0.84
 9,585
6
0.24
Trading liabilities1,434
2
0.54
 1,216
2
0.61
 735
2
1.11
Other borrowed funds2,197
7
1.38
 1,193
4
1.24
 874
1
0.76
Commercial paper2,736
8
1.15
 2,215
5
0.95
 1,173
1
0.35
Payables to customers and broker-dealers18,516
19
0.42
 20,609
16
0.30
 16,873
3
0.07
Long-term debt28,138
149
2.07
 27,398
129
1.87
 23,930
93
1.54
Total interest-bearing liabilities$216,914
$312
0.57% $212,937
$226
0.42% $208,279
$100
0.19 %
Total noninterest-bearing deposits70,168
   73,886
   81,619
  
Other liabilities17,728
   15,545
   21,343
  
Liabilities and obligations of consolidated investment management funds35
   111
   238
  
Total liabilities304,845
   302,479
   311,479
  
Temporary equity           
Redeemable noncontrolling interests188
   172
   179
  
Permanent equity           
Total BNY Mellon shareholders’ equity40,322
   39,404
   39,051
  
Noncontrolling interests354
   460
   521
  
Total permanent equity40,676
   39,864
   39,572
  
Total liabilities, temporary equity and permanent equity$345,709
   $342,515
   $351,230
  
Net interest revenue (FTE) – Non-GAAP $851
   $838
   $786
 
Net interest margin (FTE) – Non-GAAP  1.16%   1.16%   1.06 %
Less: Tax equivalent adjustment (b)
 12
   12
   12
 
Net interest revenue – GAAP $839
   $826
   $774
 
Net interest margin – GAAP  1.15%   1.14%   1.05 %
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)Interest income and average yield are presented on an FTE basis (Non-GAAP).
(b)Based on the applicable tax rate of 35%.



BNY Mellon 11

Average balances and interest ratesYear-to-date
 Sept. 30, 2017 Sept. 30, 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)$15,153
$83
0.73% $14,455
$76
0.70 %
Interest-bearing deposits held at the Federal Reserve and other central banks68,613
217
0.42
 86,947
170
0.26
Federal funds sold and securities purchased under resale agreements26,779
272
1.36
 25,275
167
0.88
Margin loans14,663
249
2.27
 18,420
194
1.41
Non-margin loans:       
Domestic offices30,545
611
2.67
 29,488
493
2.23
Foreign offices13,126
189
1.93
 13,112
144
1.47
Total non-margin loans43,671
800
2.45
 42,600
637
2.00
Securities:       
U.S. Government obligations25,835
316
1.64
 24,778
278
1.50
U.S. Government agency obligations59,384
870
1.95
 56,161
727
1.73
State and political subdivisions – tax-exempt3,298
77
3.09
 3,784
83
2.92
Other securities28,531
267
1.25
 33,592
309
1.23
Trading securities2,356
48
2.74
 2,548
45
2.37
Total securities119,404
1,578
1.76
 120,863
1,442
1.59
Total interest-earning assets (a)
$288,283
$3,199
1.48% $308,560
$2,686
1.16 %
Allowance for loan losses(166)   (162)  
Cash and due from banks5,010
   4,070
  
Other assets47,461
   49,624
  
Assets of consolidated investment management funds922
   1,198
  
Total assets$341,510
   $363,290
  
Liabilities       
Interest-bearing liabilities:       
Interest-bearing deposits:       
Money market rate accounts$7,466
$3
0.05% $7,337
$3
0.06 %
Savings980
5
0.70
 1,203
3
0.36
Demand deposits5,656
8
0.18
 1,782
5
0.40
Time deposits33,354
50
0.20
 44,832
19
0.06
Foreign offices94,102
32
0.05
 105,574
(9)(0.01)
Total interest-bearing deposits141,558
98
0.09
 160,728
21
0.02
Federal funds purchased and securities sold under repurchase agreements19,465
132
0.90
 15,471
28
0.24
Trading liabilities1,188
6
0.65
 650
5
1.05
Other borrowed funds1,409
13
1.26
 827
5
0.90
Commercial paper2,374
18
1.01
 1,657
5
0.37
Payables to customers and broker-dealers19,360
42
0.29
 16,870
9
0.07
Long-term debt27,148
397
1.93
 22,779
267
1.55
Total interest-bearing liabilities$212,502
$706
0.44% $218,982
$340
0.21 %
Total noninterest-bearing deposits72,524
   82,861
  
Other liabilities16,299
   21,993
  
Liabilities and obligations of consolidated investment management funds129
   250
  
Total liabilities301,454
   324,086
  
Temporary equity       
Redeemable noncontrolling interests174
   183
  
Permanent equity       
Total BNY Mellon shareholders’ equity39,418
   38,414
  
Noncontrolling interests464
   607
  
Total permanent equity39,882
   39,021
  
Total liabilities, temporary equity and permanent equity$341,510
   $363,290
  
Net interest revenue (FTE) – Non-GAAP $2,493
   $2,346
 
Net interest margin (FTE) – Non-GAAP  1.16%   1.02 %
Less: Tax equivalent adjustment (b)
 36
   39
 
Net interest revenue – GAAP $2,457
   $2,307
 
Net interest margin – GAAP  1.14%   1.00 %
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)Interest income and average yield are presented on an FTE basis (Non-GAAP).
(b)Based on the applicable tax rate of 35%.




12 BNY Mellon

Noninterestimpact of a higher share price on share-based awards and increased expense

Noninterest expense        YTD17
    3Q17 vs.   vs.
(dollars in millions)3Q17
2Q17
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Staff$1,469
$1,417
$1,467
4 %— % $4,358
$4,338
— %
Professional, legal and other purchased services305
319
292
(4)4
 936
860
9
Software175
173
156
1
12
 514
470
9
Net occupancy141
139
143
1
(1) 416
437
(5)
Distribution and servicing109
104
105
5
4
 313
307
2
Sub-custodian62
65
59
(5)5
 191
188
2
Furniture and equipment58
59
59
(2)(2) 174
187
(7)
Bank assessment charges (a)
51
59
61
(14)(16) 167
166
1
Business development49
63
52
(22)(6) 163
174
(6)
Other (a)
177
192
170
(8)4
 536
546
(2)
Amortization of intangible assets52
53
61
(2)(15) 157
177
(11)
M&I, litigation and restructuring charges6
12
18
N/MN/M 26
42
N/M
Total noninterest expense – GAAP$2,654
$2,655
$2,643
— %— % $7,951
$7,892
1 %
          
Staff expense as a percentage of total revenue37%36%37%   37%38% 
          
Full-time employees at period end52,900
52,800
52,300
— %1 % 52,900
52,300
1 %
          
Memo:         
Adjusted total noninterest expense excluding amortization of intangible assets and M&I, litigation and restructuring charges – Non-GAAP$2,596
$2,590
$2,564
— %1 % $7,768
$7,673
1 %
(a)In the first quarter of 2017, we began disclosing bank assessment charges on a quarterly basis. The bank assessment charges were previously included in other expense. All prior periods were reclassified.
N/M - Not meaningful.


Total noninterest expense increased less than 1% for awards to retirement eligible employees. The technology-related expenses are included in staff, software and equipment, and professional, legal and other purchased services expenses. The decrease compared with the thirdfourth quarter of 2016 and decreased slightly compared with the second quarter of 2017. The increase2020 primarily reflects higher softwarelower severance, litigation and professional, legal and other purchased services expenses partially offset by lower litigation expense and bank assessment charges. The decrease primarily reflects lower other, professional, legal and other purchased services and business development expenses as well as lower bank assessmentreal estate charges recorded in the fourth quarter of 2020, partially offset by higher other staff expense. Excluding amortization of intangible assets and M&I, litigation and restructuring charges, total noninterest expense, as adjusted (Non-GAAP), increased 1% compared with the third quarter of 2016 and less than 1% (unannualized) compared with the second quarter of 2017.

We continue to invest in our risk management, regulatory compliance and other control functions to improve our safety and soundness and in light of increased global regulatory requirements. As a result of the submission of our 2017 resolution plan, we began to experience a modest decrease in the expenses relating to these functions in the third quarter of 2017.
Staff expense

Given our mix of fee-based businesses, which are staffed with high-quality professionals, staff expense comprised 55% of total noninterest expense in the third quarter of 2017, 56% in the third quarter of 2016 and 53%in the second quarter of 2017.

Staff expense increased slightly compared with the third quarter of 2016 as the annual employee merit increase was offset by lower severance. Staff expense increased 4% (unannualized) compared with the second quarter of 2017, primarily due to higher incentives expense reflecting stronger performance and the annual employee merit increase.

Non-staff expense

Non-staff expense includes certain expenses that vary with the levels of business activity and levels of expensed business investments, fixed infrastructure costs and expenses associated with corporate activities related to technology, compliance, legal, productivity initiatives and business development.



BNY Mellon 13

Non-staff expense totaled $1.2 billion, an increase of 1% compared with the third quarter of 2016 and a decrease of 4% (unannualized) compared with the second quarter of 2017. The increase primarily reflects higher software and professional, legal and other purchased services expenses, partially offset by lower litigation expense and bank assessment charges. The decrease primarily reflects lower other, professional, legal and other purchases services and business development expenses as well as lower bank assessment charges. The decrease in professional, legal and other purchased services was driven by lower consulting expense related to resolution planning.

Year-to-date 2017 compared with year-to-date 2016

Noninterest expense increased 1% compared with the first nine months of 2016, primarily reflecting higher consulting and software expenses, partially offset by lower net occupancy. The increase in consulting expense primarily reflects higher regulatory and compliance costs. Net occupancy expense decreased asAs we continue to benefitmanage overall expenses, we expect total reported noninterest expense to increase slightly for the full-year 2021 compared to 2020. This includes an unfavorable impact of foreign exchange rates which is expected to offset the impact of 2020 notable items, which were litigation expense, severance and real estate charges. Expenses could be impacted if foreign exchange rates change from the savings generated by the business improvement process.March 31, 2021 levels, revenue-related or volume-related expenses increase or there are unexpected charges or expenses.


Income taxes


BNY Mellon recorded an income tax provision of $348$221 million (25.4%(19.2% effective tax rate) in the thirdfirst quarter of 2017. The income tax provision was $3242021, $265 million (24.6%(21.6% effective tax rate) in the thirdfirst quarter of 20162020 and $332$148 million (25.4%(16.4% effective tax rate) in the secondfourth quarter of 2017.2020. For additional information, see Note 10 of the Notes to Consolidated Financial Statements.


We expect the effective tax rate to be approximately 25-26% in 2017 based on current income tax rates. Based on our expected revenue growth as well as the mix of earnings we project for next year, we expect our effective tax rate may rise approximately 100 basis points in 2018.

Any legislation affecting income tax rates could have an impact on our future effective tax rate, the significance of which would depend on the timing, nature and scope of any such legislation, as well as the level and composition of our earnings.

12 BNY Mellon

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 and Wealth 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 (“GAAP”) 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, see Note 18 of the Notes to Consolidated Financial Statements. For information on 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 1824 of the Notes to Consolidated Financial Statements.Statements in our 2020 Annual Report.


Business results are subject to reclassification when organizational changes are made, or when improvementsfor refinements in revenue and expense allocation methodologies. Refinements are madetypically reflected on a prospective basis. There were no reclassification or organization changes in the measurement principles.first quarter of 2021.


The results of our businesses may be influenced by client and other activities that vary by quarter. In the first quarter, incentivesstaff 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,activity, and staff expense typically increases reflecting the annual employee merit increase. In the fourth quarter, we typically incur higher business development and marketing expenses.expenses; however, 2020 was an exception given the impact of the coronavirus pandemic. In our Investment and Wealth Management business, performance fees are typically higher in the fourth quarter,and first quarters, as the fourth quarter representsthose quarters represent 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 denominatedcurrency-denominated expenses than revenues. However, our Investment


14 BNY Mellon

and Wealth Management business typically has more foreign currency denominatedcurrency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment and Wealth 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.


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

Key market metrics          YTD17
      3Q17 vs.   vs.
 3Q17
2Q17
1Q17
4Q16
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Standard & Poor’s (“S&P”) 500 Index (a)
2519
2423
2363
2239
2168
4  %16  % 2519
2168
16  %
S&P 500 Index – daily average2467
2398
2326
2185
2162
3
14
 2397
2065
16
FTSE 100 Index (a)
7373
7313
7323
7143
6899
1
7
 7373
6899
7
FTSE 100 Index – daily average7380
7391
7274
6923
6765
—
9
 7348
6326
16
MSCI EAFE (a)
1974
1883
1793
1684
1702
5
16
 1974
1702
16
MSCI EAFE – daily average1934
1856
1749
1660
1677
4
15
 1847
1640
13
Barclays Capital Global Aggregate BondSM Index (a)(b)
480
471
459
451
486
2
(1) 480
486
(1)
NYSE and NASDAQ share volume (in billions)
179
199
186
189
186
(10)(4) 565
608
(7)
JPMorgan G7 Volatility Index – daily average (c)
8.17
7.98
10.10
10.24
10.19
2
(20) 8.75
10.63
(18)
Average interest on excess reserves paid by the Federal Reserve1.25%1.04%0.79%0.55%0.50%21  bps75  bps 1.03%0.50%53  bps
            
Foreign exchange rates vs. U.S. dollar:     
     
British pound (a)
$1.34
$1.30
$1.25
$1.23
$1.30
3  %3  % $1.34
$1.30
3  %
British pound – average rate1.31
1.28
1.24
1.24
1.31
2
—
 1.28
1.39
(8)
Euro (a)
1.18
1.14
1.07
1.05
1.12
4
5
 1.18
1.12
5
Euro – average rate1.17
1.10
1.07
1.08
1.12
6
4
 1.13
1.12
1
(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 revenue in Investment and Wealth Management, and to a lesser extent in Investment Services, is impacted by the value of market indices. At Sept. 30, 2017,March 31, 2021, we estimateestimated 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 $0.02$0.03 to $0.04.
$0.06.

See Note 18 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


BNY Mellon 15


Investment ManagementServices business


(dollars in millions)1Q21 vs.
1Q214Q203Q202Q201Q204Q201Q20
Revenue:
Investment services fees:
Asset servicing fees (a)
$1,191 $1,130 $1,156 $1,164 $1,147 5 %4 %
Clearing services fees (b)
455 418 397 431 470 9 (3)
Issuer services fees245 257 295 277 263 (5)(7)
Treasury services fees157 156 152 144 149 1 5 
Total investment services fees2,048 1,961 2,000 2,016 2,029 4 1 
Foreign exchange revenue (c)
193 163 126 164 228 18 (15)
Other (c)(d)
104 111 120 159 179 (6)(42)
Total fee and other revenue2,345 2,235 2,246 2,339 2,436 5 (4)
Net interest revenue645 670 681 768 806 (4)(20)
Total revenue2,990 2,905 2,927 3,107 3,242 3 (8)
Provision for credit losses(79)31 (10)145 149 N/MN/M
Noninterest expense (excluding amortization of
intangible assets)
2,084 2,157 2,002 1,971 1,969 (3)6 
Amortization of intangible assets17 17 18 18 18 — (6)
Total noninterest expense2,101 2,174 2,020 1,989 1,987 (3)6 
Income before income taxes$968 $700 $917 $973 $1,106 38 %(12)%
Pre-tax operating margin32 %24 %31 %31 %34 %
Securities lending revenue$41 $36 $37 $51 $46 14 %(11)%
Total revenue by line of business:
Asset Servicing$1,424 $1,357 $1,354 $1,463 $1,531 5 %(7)%
Pershing605 563 538 578 653 7 (7)
Issuer Services363 385 435 431 419 (6)(13)
Treasury Services317 325 323 340 339 (2)(6)
Clearance and Collateral Management281 275 277 295 300 2 (6)
Total revenue by line of business$2,990 $2,905 $2,927 $3,107 $3,242 3 %(8)%
Average balances:
Average loans$43,468 $41,437 $40,308 $43,113 $41,789 5 %4 %
Average deposits$315,088 $292,631 $263,621 $268,467 $242,187 8 %30 %
           YTD17
      3Q17 vs.   vs.
(dollars in millions)3Q17
2Q17
1Q17
4Q16
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Revenue:           
Investment management fees:           
Mutual funds$332
$314
$299
$297
$309
6 %7 % $945
$913
4 %
Institutional clients367
362
348
340
362
1
1
 1,077
1,040
4
Wealth management172
169
167
164
166
2
4
 508
478
6
Investment management fees (a)
871
845
814
801
837
3
4
 2,530
2,431
4
Performance fees15
17
12
32
8
N/M
88
 44
28
57
Investment management and performance fees886
862
826
833
845
3
5
 2,574
2,459
5
Distribution and servicing51
53
52
48
49
(4)4
 156
144
8
Other (a)
(19)(16)(1)(1)(18)N/M
N/M
 (36)(59)N/M
Total fee and other revenue (a)
918
899
877
880
876
2
5
 2,694
2,544
6
Net interest revenue82
87
86
80
82
(6)—
 255
247
3
Total revenue1,000
986
963
960
958
1
4
 2,949
2,791
6
Provision for credit losses(2)—
3
6
—
N/M
N/M
 1
—
N/M
Noninterest expense (ex. amortization of intangible assets)687
683
668
672
680
1
1
 2,038
2,024
1
Amortization of intangible assets15
15
15
22
22
—
(32) 45
60
(25)
Total noninterest expense702
698
683
694
702
1
—
 2,083
2,084
—
Income before taxes$300
$288
$277
$260
$256
4 %17 % $865
$707
22 %
Income before taxes (ex. amortization of intangible assets) – Non-GAAP
$315
$303
$292
$282
$278
4 %13 % $910
$767
19 %
            
Pre-tax operating margin30%29%29%27%27%   29%25% 
Adjusted pre-tax operating margin – Non-GAAP (b)
35%34%34%33%33%   35%31% 
            
Average balances:           
Average loans$16,724
$16,560
$16,153
$15,673
$15,308
1 %9 % $16,481
$14,795
11 %
Average deposits$12,374
$14,866
$15,781
$15,511
$15,600
(17)%(21)% $14,283
$15,696
(9)%
(a)
Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. See page 52 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 49 for the reconciliation of this Non-GAAP measure.
N/M - Not meaningful.



16 BNY Mellon

AUM trends (a)
     3Q17 vs.
(dollars in billions)3Q17
2Q17
1Q17
4Q16
3Q16
2Q17
3Q16
AUM at period end, by product type:       
Equity$158
$163
$158
$153
$156
(3)%1%
Fixed income206
198
191
186
194
4
6
Index333
324
330
312
302
3
10
Liability-driven investments (b)
622
607
584
554
607
2
2
Multi-asset and alternative investments207
192
188
181
189
8
10
Cash298
287
276
262
267
4
12
Total AUM$1,824
$1,771
$1,727
$1,648
$1,715
3 %6%
        
AUM at period end, by client type:       
Institutional$1,285
$1,265
$1,243
$1,182
$1,234
2 %4%
Mutual funds447
418
397
381
396
7
13
Private client92
88
87
85
85
5
8
Total AUM$1,824
$1,771
$1,727
$1,648
$1,715
3 %6%
        
Changes in AUM:       
Beginning balance of AUM$1,771
$1,727
$1,648
$1,715
$1,664
  
Net inflows (outflows):       
Long-term strategies:       
Equity(2)(2)(4)(5)(6)  
Fixed income4
2
2
(1)(1)  
Liability-driven investments (b)
(2)15
14
(7)4
  
Multi-asset and alternative investments3
1
2
3
7
  
Total long-term active strategies inflows (outflows)3
16
14
(10)4
  
Index(3)(13)—
(1)(3)  
Total long-term strategies inflows (outflows)—
3
14
(11)1
  
Short term strategies:       
Cash10
11
13
(3)(1)  
Total net inflows (outflows)10
14
27
(14)—
  
Net market impact/other17
1
41
(11)80
  
Net currency impact26
29
11
(42)(29)  
Ending balance of AUM$1,824
$1,771
$1,727
$1,648
$1,715
3 %6%
(a)
Excludes securities lending cash management assets and assets managed in the Investment Services business.
(b)
Includes currency overlay AUM.


Business description

Our Investment Management business consists of our affiliated investment management boutiques, Wealth Management business(a)    Asset servicing fees include the fees from the Clearance and global distribution companies. See pages 19 and 20 of our 2016 Annual Report for additional information on our InvestmentCollateral Management business.

(b)    Clearing services fees are almost entirely earned by our Pershing business.
Review(c)    In the first quarter of financial results

AUM increased 6% compared2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with Sept. 30, 2016 primarily reflecting higher market values, net inflows and the favorable impactcurrent period presentation. See Note 1 of the weaker U.S. dollar (principally versus the British pound). The increase compared with June 30, 2017 primarily reflects the favorable impact of the weaker U.S. dollar (principally versus the British pound), higher market values and net inflows.Notes to Consolidated Financial Statements for additional information.

Net long-term inflows of fixed income and multi-asset and alternative investments were offset by outflows of index, equity and liability-driven investments in the third quarter of 2017. Net short-term inflows of $10 billion in the third quarter of 2017 were a result of increased distribution through our liquidity portals. Market and regulatory trends have driven investable assets toward investments in lower fee asset management products, which negatively impacted our investment management fees.

Total revenue increased 4% compared with the third quarter of 2016 and 1% (unannualized) compared with the second quarter of 2017. Both increases primarily reflect higher investment management and performance fees.

Revenue generated in the Investment Management business included 41% from non-U.S. sources in the


BNY Mellon 17

third quarter of 2017, compared with 40% in both the third quarter of 2016 and second quarter of 2017.

Investment management fees in the Investment Management business increased 4% compared with the third quarter of 2016 and 3% (unannualized) compared with the second quarter of 2017. Both increases primarily reflect higher equity market values and money market fees. The increase compared with the second quarter of 2017 also reflects the favorable impact of a weaker U.S. dollar.

Distribution and servicing fees increased compared with the third quarter of 2016 primarily reflecting higher money market fees.

(d)    Other revenue decreased compared with the third quarter of 2016 primarily reflecting higher payments to Investment Services related to higher money market fees.

Net interest revenue was unchanged compared with the third quarter of 2016 and decreased 6% (unannualized) compared with the second quarter of 2017. The decrease primarily reflects lower average deposits. Average loans increased 9% compared with the third quarter of 2016 and 1% compared with the second quarter of 2017. Average deposits decreased 21% compared with the third quarter of 2016 and 17% compared with the second quarter of 2017.

Noninterest expense, excluding amortization of intangible assets, increased 1% compared with the third quarter of 2016 and 1% (unannualized) compared with the second quarter of 2017. The increase compared with the third quarter of 2016 primarily reflects higher other and distribution and servicing expenses, partially offset by lower severance expense. The increase compared with the second quarter of 2017 primarily reflects higher distribution and servicing expense.

Year-to-date 2017 compared with year-to-date 2016

Income before taxes increased 22% compared with the first nine months of 2016, primarily reflecting revenue growth of 6%, partially offset by a 1% increase in noninterest expense, excluding amortization of intangible assets. Fee and other revenue increased 6% primarily reflecting higher investment management and performance fees. The increase inincludes investment management and performance fees, financing-related fees, distribution and servicing revenue, securities gains and losses and investment and other income.
N/M – Not meaningful.
14 BNY Mellon

Investment Services business metrics1Q21 vs.
(dollars in millions, unless otherwise noted)1Q214Q203Q202Q201Q204Q201Q20
AUC/A at period end (in trillions) (a)
$41.7 $41.1 $38.6 $37.3 $35.2 1 %18 %
Market value of securities on loan at period end (in billions) (b)
$445 $435 $378 $384 $389 2 %14 %
Pershing:
Net new assets (U.S. platform) (in billions) (c)
$28 $28 $12 $11 $31 N/MN/M
Average active clearing accounts (U.S. platform) (in thousands)
6,757 6,635 6,556 6,507 6,437 2 %5 %
Average long-term mutual fund assets (U.S. platform)$678,556 $630,086 $597,312 $547,579 $549,206 8 %24 %
Average investor margin loans (U.S. platform)$10,937 $10,097 $9,350 $9,235 $9,419 8 %16 %
Clearance and Collateral Management:
Average tri-party collateral management balances (in billions)
$3,638 $3,555 $3,417 $3,573 $3,724 2 %(2)%
(a)    Consists of AUC/A primarily reflects higher market values, money market feesfrom the Asset Servicing business and, performance fees, partially offsetto a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.6 trillion at March 31, 2021, $1.5 trillion at Dec. 31, 2020, $1.4 trillion at Sept. 30, 2020, $1.3 trillionat June 30, 2020 and$1.2 trillion at March 31, 2020.
(b)    Represents the total amount of securities on loan in our agency securities lending program managed by the unfavorable impact of a stronger U.S. dollar (principally versus the British pound). Net interest revenue increased 3% primarily due to higher interest rates and average loans, partially offset by lower average deposits. Noninterest expense, excluding amortization of intangible assets, increased 1% primarily reflecting higher incentives expense, driven by stronger performance, partially offset by the favorable impact of a stronger U.S. dollar (principally versus the British pound).



18 BNY Mellon

Investment Services businessbusiness. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $64 billion at March 31, 2021, $68 billion at Dec. 31, 2020, $62 billion at Sept. 30, 2020 and June 30, 2020 and $59 billion at March 31, 2020.

(c)    Net new assets represent net flows of assets excluding dividends and interest (e.g., net cash deposits and net securities transfers) in customer accounts in Pershing LLC, a U.S. broker-dealer.
N/M – Not meaningful.

           YTD17
(dollar amounts in millions, unless otherwise noted)     3Q17 vs.   vs.
3Q17
2Q17
1Q17
4Q16
3Q16
2Q17
3Q16
 YTD17
YTD16
YTD16
Revenue:           
Investment services fees:           
Asset servicing$1,081
$1,061
$1,038
$1,043
$1,039
2 %4 % $3,180
$3,098
3 %
Clearing services381
393
375
354
347
(3)10
 1,149
1,045
10
Issuer services288
241
250
211
336
20
(14) 779
813
(4)
Treasury services141
139
139
139
136
1
4
 419
402
4
Total investment services fees1,891
1,834
1,802
1,747
1,858
3
2
 5,527
5,358
3
Foreign exchange and other trading revenue154
145
153
157
177
6
(13) 452
506
(11)
Other (a)
142
136
129
128
148
4
(4) 407
403
1
Total fee and other revenue2,187
2,115
2,084
2,032
2,183
3
—
 6,386
6,267
2
Net interest revenue777
761
707
713
715
2
9
 2,245
2,084
8
Total revenue2,964
2,876
2,791
2,745
2,898
3
2
 8,631
8,351
3
Provision for credit losses(2)(3)—
—
1
N/MN/M (5)8
N/M
Noninterest expense (ex. amortization of intangible assets)1,837
1,889
1,812
1,786
1,812
(3)1
 5,538
5,401
3
Amortization of intangible assets37
38
37
38
39
(3)(5) 112
117
(4)
Total noninterest expense1,874
1,927
1,849
1,824
1,851
(3)1
 5,650
5,518
2
Income before taxes$1,092
$952
$942
$921
$1,046
15 %4 % $2,986
$2,825
6 %
Income before taxes (ex. amortization of intangible assets) – Non-GAAP
$1,129
$990
$979
$959
$1,085
14 %4 % $3,098
$2,942
5 %
           
Pre-tax operating margin37%33%34%34%36%   35%34%

Adjusted pre-tax operating margin (ex. provision for credit losses and amortization of intangible assets) – Non-GAAP
38%34%35%35%37%   36%35%

           
Investment services fees as a percentage of noninterest expense (ex. amortization of intangible assets)103%97%99%98%103%   100%99%

           

Securities lending revenue$41
$42
$40
$44
$42
(2)%(2)% $123
$126
(2)%
           
Metrics:          
Average loans$38,038
$40,931
$42,818
$45,832
$44,329
(7)%(14)% $40,578
$44,373
(9)%
Average deposits$198,299
$200,417
$197,690
$213,531
$220,316
(1)%(10)% $198,796
$219,344
(9)%
           

AUC/A at period end (in trillions) (b)
$32.2
$31.1
$30.6
$29.9
$30.5
4 %6 % $32.2
$30.5
6 %
Market value of securities on loan at period end (in billions) (c)
$382
$336
$314
$296
$288
14 %33 % $382
$288
33 %
           

Asset servicing:          

Estimated new business wins
(AUC/A) (in billions)
$166
$152
$109
$141
$150
      
            
Clearing services:           
Average active clearing accounts (U.S. platform) (in thousands)
6,203
6,159
6,058
5,960
5,942
1 %4 %    
Average long-term mutual fund assets (U.S. platform)$500,998
$480,532
$460,977
$438,460
$443,112
4 %13 %    
Average investor margin loans (U.S. platform)$8,886
$9,812
$10,740
$10,562
$10,834
(9)%(18)%    
      



    
Depositary Receipts:     



    
Number of sponsored programs938
1,025
1,050
1,062
1,094
(8)%(14)%    
            
Broker-Dealer:           
Average tri-party repo balances (in billions)
$2,534
$2,498
$2,373
$2,307
$2,212
1 %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 $1.3 trillion at Sept. 30, 2017 and $1.2 trillion at June 30, 2017, March 31, 2017, Dec. 31, 2016 and Sept. 30, 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 $68 billion at Sept. 30, 2017, $66 billion at June 30, 2017, $65 billion at March 31, 2017, $63 billion at Dec. 31, 2016 and $64 billion at Sept. 30, 2016.
N/M - Not meaningful.


BNY Mellon 19


Business description


BNY Mellon Investment Services provides business services and technology solutions across the investments process 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. For information on the drivers of the Investment Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements in our 2020 Annual Report.


We are one of the leading global investment services providers with $32.2$41.7 trillion of AUC/A at Sept. 30, 2017.March 31, 2021.


We areThe Asset Servicing business provides a comprehensive suite of solutions. As one of the primary provider of U.S. government securities clearancelargest global custody and fund accounting providers and a providertrusted partner, we offer services for the safekeeping of non-U.S. government securities clearance.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. Our robust digital and data offerings enable us to settleprovide fully integrated technology solutions for our clients. We deliver securities transactions in approximately 100 markets.
We are a leading provider of tri-party repo collateral services with approximately $2.5 trillion serviced globallylending and approximately $1.6 trillion of the U.S. tri-party repo market.
financing solutions on both an agency and principal basis. 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 $3.3$4.7 trillion in 3334 separate markets.
We serve as trustee and/or paying agent on more than 50,000 debt-related issuances globally.
As one of the largest providers of depositary receipts services in the world, we served as depositary for 938 sponsored American and global depositary receipts programs at Sept. 30, 2017, acting in partnership with leading companies from 59 countries.

We offer asset servicing, clearing services, issuer services and treasury services to our clients. BNY Mellon’s comprehensive suite of asset servicing solutions includes: custody, foreign exchange, fund services, securities finance, investment manager outsourcing, performance and risk analytics, alternative investment services, broker-dealer services, and collateral and liquidity services.

As one of the largest fund accounting providers and a trusted partner, we offer services to ensure the safekeeping of assets in capital markets globally. These services include financial reporting, tax reporting services, calculating and reporting net asset values (“NAV”), computing yields, maintaining brokerage account records, and providing
administrative support to clients so they may meet their Securities and Exchange Commission (“SEC”) and other compliance requirements.

Our alternative investment services and structured products business provides a full range of solutions for alternative investment managers, including prime custody, fund accounting, and client and regulatory reporting services. We also support exchange-traded funds and unit investment trusts, providing fund administration, custody, basket creation and dissemination, authorized participant interaction and order processing, among other services.

Securities finance delivers solutions on both an agency and principal basis. The principal finance program supports a diverse group of client segments, including hedge and liquid alternative funds and other institutional clients.

Inmarket-leading liquidity services our market leading portal enables cash investments for institutional clients via money market funds, deposit products, and direct investments in money market securities, and includes fund research and analytics.


Our broker-dealer services business clears and settles equity and fixed-income transactions globally and serves as custodian for tri-party repo collateral worldwide.

Clearing services, primarily Pershing LLC, an indirect subsidiary of BNY Mellon (“Pershing”) and its affiliates, provides execution, clearing, custody, business and technology solutions, to financial organizations globally, delivering dependable operational support robust trading services, flexible technology, an expansive array ofto broker-dealers, wealth managers and registered investment advisors (“RIAs”) globally.

The Issuer Services business includes Corporate Trust and retirement solutions, practice management support and service excellence.

Depositary Receipts. Our collateral services include collateral management, administration and segregation. We offer innovative solutions, like new collateral types and transaction structures, automation and efficiency, access to global markets, and industry expertise, to help financial institutions and institutional investors mine opportunities from liquidity, financing, risk and balance sheet challenges.

Our corporate trustCorporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial services.


20 BNY Mellon

Our treasury services include customizable solutions and innovative technology that deliver high-quality cash management, payment and trade support for corporate and institutional global treasury needs. 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.


We also provide credit facilitiesOur Treasury Services business is a leading provider of payments, liquidity management and solutions to support our clients globally.trade finance services for financial institutions, corporations and the public sector.


Role of BNY Mellon, as a trustee, for mortgage-backed securitizations

BNY Mellon acts15

Our Clearance and Collateral Management business clears and settles equity and fixed-income transactions globally and serves as trustee and document custodian for certain mortgage-backed security (“MBS”) securitization trusts. The roletri-party repo collateral worldwide. We are the primary provider of trustee for MBS securitizations is limited; our primary role as trustee is to calculateU.S. government securities clearance and distribute monthly bond payments to bondholders. As a document custodian, we hold the mortgage, note,provider of non-U.S. government securities clearance. Our collateral services include collateral management, administration and related documents provided to us by the loan originator or sellersegregation. We offer innovative solutions and provide periodic reporting to these parties. BNY Mellon, either as document custodian or trustee, does not receive mortgage underwriting files (the files that contain information related to the creditworthinessindustry expertise which help financial institutions and institutional investors with their liquidity, financing, risk and balance sheet challenges. We are a leading provider of tri-party collateral management services with an average of $3.6 trillion serviced globally, including approximately $2.5 trillion of the borrower). As trustee or custodian, we have no responsibility or liability for the quality of the portfolio; we are liable only for performance of our limited duties as described above and in the trust documents. BNY Mellon is indemnified by the servicers or directly from trust assets under the governing agreements. BNY Mellon may appear as the named plaintiff in legal actions brought by servicers in foreclosure and other related proceedings because the trustee is the nominee owner of the mortgage loans within the trusts.U.S. tri-party repo market at March 31, 2021.

BNY Mellon also has been named as a defendant in legal actions brought by MBS investors alleging that the trustee has expansive duties under the governing agreements, including to investigate and pursue claims against other parties to the MBS transaction. For additional information on our legal proceedings related to this matter, see Note 17 of the Notes to Consolidated Financial Statements.


Review of financial results


AUC/A of $41.7 trillion increased 6%18% compared with Sept. 30, 2016 to a record $32.2 trillion,March 31, 2020, primarily reflecting higher market values, net new business and the favorable impact of a weaker U.S. dollar and net new business.dollar. AUC/A consisted of
37% 38% equity securities and 63% fixed income62% fixed-income securities at Sept. 30, 2017, compared with 34%March 31, 2021 and 31% equity securities and 66% fixed income69% fixed-income securities at Sept. 30, 2016.March 31, 2020.


Investment services feesTotal revenue of $3.0 billion decreased 8% compared with the first quarter of 2020 and increased 3% compared with the fourth quarter of 2020. The drivers of total revenue by line of business are indicated below.

Asset Servicing revenue of $1.4 billion decreased 7% compared with the first quarter of 2020 and increased 5% compared with the fourth quarter of 2020. The decrease compared with the first quarter of 2020 primarily reflects lower interest rates and foreign exchange revenue and higher money market fee waivers, partially offset by higher client volumes and market values. The increase compared with the fourth quarter of 2020 primarily reflects higher client and foreign exchange volumes, partially offset by higher money market fee waivers.

Pershing revenue of $605 million decreased 7% compared with the first quarter of 2020 and increased 7% compared with the fourth quarter of 2020. The decrease compared with the first quarter of 2020
primarily reflects the impact of money market fee waivers and a one-time fee recorded in the first quarter of 2020, partially offset by higher market values and client volumes. The increase compared with the fourth quarter of 2020 primarily reflects higher clearance volumes and market values.

Issuer Services revenue of $363 million decreased 13% compared with the first quarter of 2020 and 6% compared with the fourth quarter of 2020. Both decreases primarily reflect lower interest rates and higher money market fee waivers in Corporate Trust and lower Depositary Receipts revenue.

Treasury Services revenue of $317 million decreased 6% compared with the first quarter of 2020 and 2% compared with the fourth quarter of 2020. Both decreases primarily reflect lower interest rates and higher money market fee waivers. The decrease compared with the first quarter of 2020 was partially offset by higher payment volumes and deposit levels.

Clearance and Collateral Management revenue of $281 million decreased 6% compared with the first quarter of 2020 and increased 2% compared with the thirdfourth quarter of 2016 and 3% (unannualized)2020. The decrease compared with the secondfirst quarter of 2017, reflecting the following factors:

Asset servicing fees (custody, fund services, broker-dealer services, securities finance, collateral2020 primarily reflects lower interest rates and liquidity services) increased 4% compared with the third quarter of 2016 and 2% (unannualized) compared with the second quarter of 2017.intraday credit fees. The increase compared with the thirdfourth quarter of 20162020 primarily reflects higher equity market values and net new business, including growth in collateral management, partially offset by the impact of downsizing the retail UK transfer agency business. The increase compared with the second quarter of 2017 was primarily driven by the favorable impact of a weaker U.S. dollar and higher equity market values.
Clearing services fees increased 10% compared with the third quarter of 2016 primarily driven by higher money market fees and growth in long-term mutual fund assets. Clearing services fees decreased 3% (unannualized) compared with the second quarter of 2017 primarily reflecting lower clearance volumes.
Issuer services fees (Depositary Receipts and Corporate Trust) decreased 14% compared with the third quarter of 2016 and increased 20% (unannualized) compared with the second quarter of 2017. The decrease compared with the third quarter of 2016 primarily reflects fewer corporate actions, lost business and lower fees due to a reduction in shares outstanding in certain depositary receipts programs, partially offset by higher Corporate Trust revenue. The increase compared with the second quarter of 2017 primarily reflects seasonality in Depositary Receipts revenue and higher Corporate Trust revenue.

Treasury services fees (global payments, trade finance and cash management) increased 4% compared with the third quarter of 2016 and 1% (unannualized) compared with the second quarter of 2017 primarily reflecting higher payment volumes, partially offset by higher compensating


BNY Mellon 21

balance credits provided to clients, which reduces fee revenue and increases 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.

Foreign exchange and other trading revenue decreased 13% compared with the third quarter of 2016 primarily reflecting lower volatility and lower Depositary Receipt-related foreign exchange activity, partially offset by higher volumes. Foreign exchange and other trading revenue increased 6% (unannualized) compared with the second quarter of 2017 primarily reflecting higher volumes.

Other revenue decreased 4% compared with the third quarter of 2016 and increased 4% (unannualized) compared with the second quarter of 2017. The third quarter of 2016 results include termination fees related to the clearing services business. Both comparisons reflect higher payments from Investment Management related to higher money market fees.

Net interest revenue increased 9% compared with the third quarter of 2016 primarily reflecting the impact of the higher interest rates, partially offset by lower average deposits and loans. Net interest revenue increased 2% (unannualized) compared with the second quarter of 2017 primarily reflecting higher interest rates.


Noninterest expense excluding amortization of intangible assets, increased 1% compared with the third quarter of 2016 and decreased 3% (unannualized) compared with the second quarter of 2017. The increase primarily reflects additional technology related-costs, partially offset by lower staff expense. The decrease primarily reflects lower consulting expense, volume-related clearing and sub-custodian expenses and lower business development expense.

Year-to-date 2017 compared with year-to-date 2016

Income before taxes$2.1 billion increased 6% compared with the first nine monthsquarter of 2016,2020 and decreased 3% compared with the fourth quarter of 2020. The increase compared with the first quarter of 2020 was primarily driven by revenue growthtechnology-related expense, higher staff, volume-related and litigation expenses and the unfavorable impact of 3%, partially offset by a 3% increase in noninterest expense, excluding amortizationweaker U.S. dollar. The decrease compared with the fourth quarter of intangible assets. Fee2020 primarily reflects lower litigation and severance expenses.
16 BNY Mellon

Investment and Wealth Management business

1Q21 vs.
(dollars in millions)1Q214Q203Q202Q201Q204Q201Q20
Revenue:
Investment management fees (a)
$850 $839 $828 $782 $812 1 %5 %
Performance fees40 45 7 5 50 N/M(20)
Investment management and performance fees (b)
890 884 835 787 862 1 3 
Distribution and servicing28 29 31 34 43 (3)(35)
Other (a)
25 27 5 17 (59)N/MN/M
Total fee and other revenue (a)
943 940 871 838 846 — 11 
Net interest revenue48 50 47 48 52 (4)(8)
Total revenue991 990 918 886 898 — 10 
Provision for credit losses4 (8)12 7 9 N/MN/M
Noninterest expense (excluding amortization of intangible assets)702 678 653 650 687 4 2 
Amortization of intangible assets7 9 8 8 8 (22)(13)
Total noninterest expense709 687 661 658 695 3 2 
Income before income taxes$278 $311 $245 $221 $194 (11)%43 %
Pre-tax operating margin28 %32 %27 %25 %22 %
Adjusted pre-tax operating margin – Non-GAAP (c)
30 %34 %29 %28 %24 %
Total revenue by line of business:
Investment Management$698 $714 $641 $621 $620 (2)%13 %
Wealth Management293 276 277 265 278 6 5 
Total revenue by line of business$991 $990 $918 $886 $898 — %10 %
Average balances:
Average loans$11,610 $11,497 $11,503 $11,791 $12,124 1 %(4)%
Average deposits$19,177 $18,144 $17,570 $17,491 $16,144 6 %19 %
(a)    Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. Additionally, other revenue includes asset servicing fees, treasury services fees, foreign exchange revenue and investment and other income.
(b)    On a constant currency basis, investment management and performance fees increased 2%1% (Non-GAAP) compared with the first quarter of 2020. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 42 for the reconciliation of this Non-GAAP measure.
(c)    Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 42.
N/M – Not meaningful.


BNY Mellon 17

AUM trends1Q21 vs.
(dollars in billions)1Q214Q203Q202Q201Q204Q201Q20
AUM at period end, by product type: (a)
Equity$173 $170 $149 $141 $120 2 %44 %
Fixed income261 259 241 224 211 1 24 
Index419 393 350 333 274 7 53 
Liability-driven investments802 855 788 752 705 (6)14 
Multi-asset and alternative investments214 209 193 185 171 2 25 
Cash345 325 320 326 315 6 10 
Total AUM by product type$2,214 $2,211 $2,041 $1,961 $1,796 — %23 %
Changes in AUM: (a)
Beginning balance of AUM$2,211 $2,041 $1,961 $1,796 $1,910 
Net inflows (outflows):
Long-term strategies:
Equity— (2)(4)(2)(2)
Fixed income8 5 1 4 — 
Liability-driven investments8 15 14 (2)(5)
Multi-asset and alternative investments(2)— (3)— (1)
Total long-term active strategies inflows (outflows)14 18 8 — (8)
Index3 (3)(3)9 3 
Total long-term strategies inflows (outflows)17 15 5 9 (5)
Short-term strategies:
Cash19 5 (10)11 43 
Total net inflows (outflows)36 20 (5)20 38 
Net market impact(36)93 41 143 (91)
Net currency impact3 57 44 2 (61)
Ending balance of AUM$2,214 $2,211 $2,041 $1,961 $1,796 — %23 %
Wealth Management client assets (b)
$292 $286 $265 $254 $236 2 %24 %
(a)    Excludes securities lending cash management assets and assets managed in the Investment Services business.
(b)    Includes AUM and AUC/A in the Wealth Management business.


Business description

Our Investment and Wealth Management business consists of two distinct lines of business, Investment Management and Wealth Management. Our investment firms deliver a highly diversified portfolio of investment strategies independently, and through our global distribution network, to institutional and retail clients globally. BNY Mellon Wealth Management provides investment management, custody, wealth and estate planning, private banking services, investment servicing and information management. See pages 19 and 20 of our 2020 Annual Report for additional information on our Investment and Wealth Management business.

Review of financial results

AUM increased 23% compared with March 31, 2020 primarily reflecting higher clearing servicesmarket values, the favorable impact of a weaker U.S. dollar (principally versus the British pound) and net inflows.

Net long-term strategy inflows were $17 billion in the first quarter of 2021, driven by fixed income and liability-driven investments. Short-term strategy inflows were $19 billion in the first quarter of 2021. Market and regulatory trends have resulted in increased demand for lower fee asset servicing fees, partially offset by lower foreign exchangemanagement products and other trading revenue.for performance-based fees.

Total revenue of $991 million increased 10% compared with the first quarter of 2020 and increased slightly compared with the fourth quarter of 2020.

Investment Management revenue of $698 million increased 13% compared with the first quarter of 2020 and decreased 2% compared with the fourth quarter of 2020. The increase in clearing services feescompared with the first quarter of 2020 primarily reflects the impact of higher money market fees and growth in long-term mutual fund assets. The increase in asset servicing fees primarily reflects net new business, including growth in collateral management and higher equity market values, equity investment gains, including seed capital, and the favorable impact of a weaker U.S. dollar, partially offset by the impact of downsizingmoney market fee waivers. The decrease compared with the retail UK transfer agencyfourth quarter of 2020 primarily reflects the impact of money market fee waivers and lower equity
18 BNY Mellon

investment gains, including seed capital, partially offset by higher market values and the favorable impact of a weaker U.S. dollar.

Wealth Management revenue of $293 million increased 5% compared with the first quarter of 2020 and 6% compared with the fourth quarter of 2020. Both increases reflect the impact of higher market values. The increase compared with the fourth quarter of 2020 also reflects a loss on a business sale recorded in the fourth quarter of 2020.

Revenue generated in the Investment and Wealth Management business included 38% from non-U.S.
sources in the first quarter of 2021, compared with 42% in the first quarter of 2020 and 41% in the fourth quarter of 2020.

Noninterest expense of $709 million increased 2% compared with the first quarter of 2020 and 3% compared with the fourth quarter of 2020. The increase compared with the first quarter of 2020 primarily reflects higher staff expense and the unfavorable impact of a stronger U.S. dollar. The decrease in foreign exchange and other trading revenue primarily reflects lower volatility and lower Depositary Receipt-related foreign exchange activity. Net interest revenue increased 8% primarily due to higher interest rates,weaker dollar, partially offset by lower average deposits. Noninterestdistribution and servicing and other expenses. The increase compared with the fourth quarter of 2020 primarily reflects timing of other staff expense, excluding amortization of intangible assets, increased 3% primarily reflecting higher expenses from regulatory and compliance costs and additional technology investments, partially offset by lower litigation expense and the favorable impact of a stronger U.S. dollar.severance expense.


22 BNY Mellon


Other segment


(in millions)1Q214Q203Q202Q201Q20
Fee revenue (a)
$9 $11 $7 $10 $6 
Other revenue (a)
(36)(28)13 28 24 
Total fee and other revenue(27)(17)20 38 30 
Net interest (expense)(38)(40)(25)(36)(44)
Total revenue(65)(57)(5)2 (14)
Provision for credit losses(8)(8)7 (9)11 
Noninterest expense41 64 — 39 30 
(Loss) before income taxes$(98)$(113)$(12)$(28)$(55)
Average loans and leases$1,711 $1,794 $1,805 $1,815 $1,961 
        
(in millions)3Q17
2Q17
1Q17
4Q16
3Q16
YTD17
YTD16
Revenue:       
Fee and other revenue$69
$113
$72
$42
$100
$254
$324
Net interest (expense) revenue(20)(22)(1)38
(23)(43)(24)
Total revenue49
91
71
80
77
211
300
Provision for credit losses(2)(4)(8)1
(20)(14)(26)
Noninterest expense (ex. M&I and restructuring charges)77
28
106
108
88
211
282
M&I and restructuring charges—
—
1
2
—
1
2
Total noninterest expense77
28
107
110
88
212
284
(Loss) income before taxes$(26)$67
$(28)$(31)$9
$13
$42
(Loss) income before taxes (ex. M&I and restructuring charges) – Non-GAAP
$(26)$67
$(27)$(29)$9
$14
$44
        
Average loans and leases$1,182
$1,302
$1,341
$2,142
$1,941
$1,275
$1,853
(a)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.




See page 2621 of our 20162020 Annual Report for additional information on the Other segment.


Review of financial results


Total revenue includes corporate treasury and other investment activity, including hedging activity which offsets between fee and other revenue and net interest expense.

Other revenue decreased $31$60 million compared with the thirdfirst quarter of 20162020 and $44$8 million compared with the secondfourth quarter of 2017.2020. Both decreases
primarily reflect an impairment of a renewable energy investment. The decrease compared with the thirdfourth quarter of 2016 primarily reflects lower other income, driven2020 was partially offset by increased lossesa loss on our investments in renewable energy, and lower asset-related and net securities gains. The decrease compared with the second quartera sale of 2017 primarily reflects lease-related gainsa business recorded in the secondfourth quarter of 2017 and lower income from corporate/bank-owned life insurance, partially offset by higher net securities gains.2020.

Net interest expense decreased $3 million compared with the third quarter of 2016 and $2 million compared with the second quarter of 2017. Both decreases primarily reflect higher interest rates.


Noninterest expense excluding M&I and restructuring charges, decreasedincreased $11 million compared with the thirdfirst quarter of 2016 and increased $492020, primarily reflecting higher staff expense. Noninterest expense decreased $23 million compared with the secondfourth quarter of 2017. The decrease was2020, primarily driven by lower litigationreflecting real estate charges and other expenses. The increase was primarily driven by higher staffseverance expense resulting from a methodology changeboth recorded in the secondfourth quarter of 2017 for allocating employee benefits expense to the business segments with no impact to consolidated results. The increase was2020, partially offset by lowerhigher other and professional, legal and other purchased services expenses.staff expense.

BNY Mellon 19

Year-to-date 2017 compared with year-to-date 2016

Income before taxes decreased $29 million compared with the first nine months of 2016. Fee and other revenue decreased $70 million primarily reflecting lower net securities gains and lower other income driven by increased pre-tax losses on our investments in renewable energy. Net interest expense increased $19 million reflecting the impact of higher crediting rates to the businesses. Noninterest expense, excluding M&I and restructuring charges, decreased $71 million primarily reflecting lower staff, other and litigation expenses.

Critical accounting estimates


Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in our 20162020 Annual Report. Our critical accounting estimates are those related to the allowance for loancredit losses, and allowance for lending-related commitments, fair value of financial instruments and derivatives, other-than-temporary impairment (“OTTI”), goodwill and other intangibles and pension accounting,litigation and regulatory contingencies, as referenced below.


Critical policyaccounting estimatesReference
Allowance for loancredit losses and allowance for lending-related commitments20162020 Annual Report, pages 29-31.24-26, and “Allowance for credit losses.”
Fair value of financial instruments and derivatives20162020 Annual Report, pages 31-32.26-28.
OTTI2016 Annual Report, page 33.
Goodwill and other intangiblesSecond quarter 2017 Form 10-Q, page 24.
Pension accounting20162020 Annual Report, pages 34-36.28-29.
Litigation and regulatory contingencies“Legal proceedings” in Note 17 of the Notes to Consolidated Financial Statements.




BNY Mellon 23

Consolidated balance sheet review


One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators.


We also seek to ensure that theundertake overall liquidity risk, including intra-dayintraday liquidity risk, that we undertake stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.


At Sept. 30, 2017,March 31, 2021, total assets were $354$465 billion, compared with $333$470 billion at Dec. 31, 2016.2020. The increasedecrease in total assets was primarily driven by higherlower interest-bearing deposits with the Federal Reserve and other central banks, partially offset by lower loans.banks. Deposits totaled $231$337 billion at Sept. 30, 2017 and $221March 31, 2021, compared with $342 billion at
Dec. 31, 2016, and were driven by higher2020. The decrease reflects lower interest-bearing deposits in non-U.S. offices. At Sept. 30, 2017, totaloffices, partially offset by higher noninterest-bearing deposits (principally U.S. offices). Total interest-bearing deposits were 50%as a percentage of total interest-earning assets compared with 51%were 60% at March 31, 2021 and 63% at Dec. 31, 2016.2020.


At Sept. 30, 2017, we had $43March 31, 2021, available funds totaled $184 billion, of liquid funds (whichwhich include cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements) and $82 billion of cash (including $76 billion of overnight deposits with the Federal Reserve and other central banks) for a total of $125 billion of available funds.agreements. This compares with available funds of $104$196 billion at Dec. 31, 2016.2020. Total available funds as a percentage of total assets were 35%39% at Sept. 30, 2017 compared with 31%March 31, 2021 and 42% at Dec. 31, 2016.2020. For additional information on our liquid funds and available funds, see “Liquidity and dividends.”


Investment securitiesSecurities were $120.0$155.8 billion, or 34% of total assets, at Sept. 30, 2017,March 31, 2021, compared with $114.7$156.4 billion, or 34%33% of total assets, at Dec. 31, 2016.2020. The increase in investment securitiesdecrease primarily reflects additional investments in commercial mortgage-
backed securities (“MBS”) andlower agency residential mortgage-backed securities (“RMBS”), foreign government agency, and U.S. government agency securities and a decrease in unrealized pre-tax gain, partially offset by fewer investmentsincreases in consumer asset-backed securities (“ABS”).U.S. treasury and sovereign debt/sovereign guaranteed securities. For additional information on our investment securities portfolio, see “Investment securities”“Securities” and Note 43 of the Notes to Consolidated Financial Statements.


Loans were $59.1$60.7 billion, or 17%13% of total assets, at Sept. 30, 2017,March 31, 2021, compared with $64.5$56.5 billion, or 19%12% of total assets, at Dec. 31, 2016.2020. The decrease in loansincrease was primarily driven by lowerhigher margin loans and loans to financial institutions.overdrafts. For additional information on our loan portfolio, see “Loans” and Note 54 of the Notes to Consolidated Financial Statements.


Long-term debt totaled $28.4$25.4 billion at Sept. 30, 2017March 31, 2021 and $24.5$26.0 billion at Dec. 31, 2016. The increase reflects issuances2020. A redemption, maturity and a decrease in the fair value of $4.75 billion,hedged long-term debt were partially offset by the maturity of $500 million and the redemption of trust preferred securities.issuances. For additional information on long-term debt, see “Liquidity and dividends.”


The Bank of New York Mellon Corporation total shareholders’ equity increaseddecreased to $40.5$45.0 billion at March 31, 2021 from $38.8$45.8 billion at Dec. 31, 2016.2020. For additional information, on our capital, see “Capital.”


20 BNY Mellon

Country risk exposure


We have exposure toThe following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of March 31, 2021, as well as certain countries with higher risk profiles. Exposure described below reflects the country of operationsprofiles, and is presented on an internal risk of the immediate counterparty.management basis. We continue to monitor our exposure to these and other countries as part of our internal country risk management process. See “Risk management” in

The country risk exposure below reflects the Company’s risk to an immediate default of the counterparty or obligor based on the country of residence of the entity which incurs the liability. If there is credit risk mitigation, the country of residence of the entity providing the risk mitigation is the country of risk. The country of risk for securities is generally based on the domicile of the issuer of the security.

Country risk exposure at March 31, 2021Interest-bearing depositsTotal exposure
(in billions)Central banksBanks
Lending (a)
Securities (b)
Other (c)
Top 10 country exposure:
United Kingdom (“UK”)$17.6 $0.4 $1.3 $3.5 $2.8 $25.6 
Germany17.6 0.7 0.7 4.3 0.5 23.8 
Japan18.4 1.0 — 0.6 0.1 20.1 
Belgium8.6 0.9 0.1 0.2 — 9.8 
Canada— 3.9 0.1 3.7 0.9 8.6 
Netherlands4.3 0.1 0.2 1.9 0.1 6.6 
Luxembourg2.4 0.1 0.2 0.1 2.3 5.1 
China— 2.5 1.7 — 0.1 4.3 
Ireland1.70.30.30.21.84.3
Australia— 2.5 0.3 0.9 0.3 4.0 
Total Top 10 country exposure$70.6 $12.4 $4.9 $15.4 $8.9 $112.2 (d)
Select country exposure:
Italy$0.1 $0.3 $— $1.8 $— $2.2 
Brazil— — 1.0 0.1 0.1 1.2 
Total select country exposure$0.1 $0.3 $1.0 $1.9 $0.1 $3.4 
(a)Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.
(b)    Securities include both the available-for-sale and held-to-maturity portfolios.
(c)Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.
(d)The top 10 country exposures comprise approximately 75% of our 2016 Annual Report for additional information on how our exposures are managed.total non-U.S. exposure.


BNY Mellon has a limited economic interest in the performance of assets of consolidated investment management funds, and therefore they are excluded from this disclosure.

Italy and Spain

Events in recent years have resulted in increased focus on Italy and Spain. We had net exposure of $1.3 billion to Italy and $2.0 billion to Spain at Sept. 30, 2017. We had net exposure of $1.2 billion to Italy and $2.0 billion to Spain at Dec. 31, 2016. At both Sept. 30, 2017 and Dec. 31, 2016,Brazil. The country risk exposure to Italy and Spain primarily consistedconsists of investment grade


24 BNY Mellon

sovereign debt. Investment securitiesThe country risk exposure totaled $1.2 billion in Italy and $1.7 billion in Spain at Sept. 30, 2017 and $1.1 billion in Italy and $1.8 billion in Spain at Dec. 31, 2016.

Brazil

Current conditions into Brazil have resulted in increased focus on its economic and political stability.is primarily short-term trade finance loans extended to large financial institutions. We also have operations in Brazil providing investment services and investment management services. In addition, at Sept. 30, 2017 and Dec. 31, 2016, we had total net exposure to Brazil of $1.4 billion and $1.3 billion, respectively. This included $1.2 billion and $1.3 billion, respectively, in loans, which are primarily short-term trade finance loans extended to large financial institutions. At Sept. 30, 2017 and Dec. 31, 2016, we held $140 million and $73 million, respectively, of noninvestment grade sovereign debt.



TurkeySecurities

Events in recent years have resulted in increased focus on exposure to Turkey. We mainly provide treasury and issuer services, as well as foreign exchange products primarily to the top-10 largest financial institutions in the country. As of Sept. 30, 2017 and Dec. 31, 2016, our exposure totaled $780 million and $713 million, respectively, consisting primarily of syndicated credit facilities and trade finance loans.

Investment securities


In the discussion of our investment securities portfolio, we have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications for our investment securities portfolio could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our investment securities portfolio.

BNY Mellon 21

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


Securities portfolioDec. 31, 2020
1Q21
change in
unrealized
gain (loss)
March 31, 2021
Fair value as a % of amortized
cost (a)
Unrealized
gain (loss)
% Floating
rate (b)
Ratings (c)
BBB+/
BBB-		BB+
and
lower		A1+/A2 & SP-1
(dollars in millions)Fair
value
Amortized
cost (a)
Fair
value		AAA/
AA-		A+/
A-		Not
rated
Agency RMBS$61,740 $(742)$58,107 $58,831 101 %$724 14 %100 %— %— %— %— %— %
U.S. Treasury26,958 (280)30,412 30,595 101 183 55 100 — — — — — 
Sovereign debt/sovereign guaranteed (d)
13,452 (83)14,454 14,571 101 117 16 73 5 21 1 — — 
Agency commercial mortgage-backed securities (“MBS”)11,685 (175)11,484 11,730 102 246 33 100 — — — — — 
Supranational7,208 (31)7,469 7,505 100 36 56 100 — — — — — 
Foreign covered bonds (e)
6,725 (16)6,491 6,542 101 51 34 100 — — — — — 
U.S. government agencies6,577 (110)5,498 5,469 99 (29)25 100 — — — — — 
Collateralized loan obligations (“CLOs”)4,703 6 4,751 4,754 100 3 100 99 — — — — 1 
Non-agency commercial MBS2,992 (87)2,907 2,948 101 41 24 99 1 — — — — 
Foreign government agencies (f)
4,132 (27)2,678 2,697 101 19 14 92 8 — — — — 
State and political subdivisions2,324 (55)2,665 2,649 99 (16)— 74 8 1 — 17 — 
Other asset-backed securities (“ABS”)3,164 (18)2,617 2,628 100 11 19 100 — — — — — 
Non-agency RMBS (g)
2,387 (7)2,365 2,509 106 144 53 71 4 1 13 — 11 
Corporate bonds1,994 (100)2,289 2,238 98 (51)— 15 68 17 — — — 
Commercial paper/certificates of deposit (“CDs”)249 — — — — — — — — — — — — 
Other1 — 1 1 100 — — — — — — — 100 
Total securities$156,291 (h)$(1,725)$154,188 $155,667 (h)101 %$1,479 (h)(i)30 %95 %2 %3 %— %— %— %
Investment securities
portfolio


(dollars in millions)
June 30, 2017
 
3Q17
change in
unrealized
gain (loss)

Sept. 30, 2017
Fair value
as a % of amortized
cost (a)

Unrealized
gain (loss)

 
Ratings (b)
    
BB+
and
lower
 
 Fair
value

 
Amortized
cost

Fair
value

  
AAA/
AA-
A+/
A-
BBB+/
BBB-
Not
rated
Agency RMBS$49,544
 $81
$50,121
$49,917
 100%$(204) 100%—%—%—%—%
U.S. Treasury25,325
 (5)25,256
25,159
 100
(97) 100
—
—
—
—
Sovereign debt/sovereign guaranteed (c)
14,025
 6
13,951
14,102
 101
151
 72
6
21
1
—
Non-agency RMBS (d)
1,239
 9
885
1,185
 84
300
 —
1
3
87
9
Non-agency RMBS627
 9
555
594
 97
39
 7
4
17
71
1
European floating rate
notes (e)
523
 (1)393
387
 98
(6) 63
37
—
—
—
Commercial MBS10,574
 5
11,051
11,033
 100
(18) 99
1
—
—
—
State and political subdivisions3,299
 1
3,109
3,141
 101
32
 80
17
—
—
3
Foreign covered bonds (f)
2,471
 1
2,612
2,626
 101
14
 100
—
—
—
—
Corporate bonds1,318
 4
1,262
1,275
 101
13
 17
69
14
—
—
CLOs2,642
 1
2,542
2,550
 100
8
 99
—
—
1
—
U.S. government agencies2,210
 2
2,480
2,496
 101
16
 100
—
—
—
—
Consumer ABS1,330
 1
1,152
1,157
 100
5
 89
4
5
2
—
Other (g)
3,758
 (8)4,118
4,122
 100
4
 81
17
—
—
2
Total investment securities$118,885
(h)$106
$119,487
$119,744
(h)100%$257
(h)(i)93%3%3%1%—%
(a)Amortized cost before impairments.
(b)Represents ratings by S&P, or the equivalent.
(c)Primarily consists of exposure to UK, France, Germany, Spain, Italy and the Netherlands.
(d)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.
(e)Includes RMBS and commercial MBS. Primarily consists of exposure to UK and the Netherlands.
(f)Primarily consists of exposure to Canada, Australia, the Netherlands, Norway and UK.
(g)
Includes commercial paper with a fair value of $700 million and $700 million and money market funds with a fair value of $896 million and $939 million at June 30, 2017 and Sept. 30, 2017, respectively.
(h)
Includes net unrealized losses on derivatives hedging securities available-for-sale of $251 million at June 30, 2017 and $238 million at Sept. 30, 2017.
(i)
Unrealized gains of $324 million at Sept. 30, 2017 related to available-for-sale securities, net of hedges.

(a)    Amortized cost reflects historical impairments, and is net of the allowance for credit losses.

(b)    Includes the impact of hedges.
BNY Mellon 25(c)    Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(d)    Primarily consists of exposure to Germany, France, Italy, Spain, UK and Singapore.

(e)    Primarily consists of exposure to Canada, UK, Australia and Norway.
(f)    Primarily consists of exposure to the Netherlands, Canada, France and Sweden.
(g)    Includes RMBS that were included in the former Grantor Trust of $487 million at Dec. 31, 2020 and $451 million at March 31, 2021.
(h)Includes net unrealized losses on derivatives hedging securities available-for-sale (including terminated hedges) of $1,428 million at Dec. 31, 2020 and $634 million at March 31, 2021.
(i)    Includes unrealized gains of $1,022 million at March 31, 2021 related to available-for-sale securities, net of hedges, and $457 million related to held-to-maturity securities.


The fair value of our investment securities portfolio, including related hedges, was $119.7$155.7 billion at Sept. 30, 2017,March 31, 2021, compared with $114.3$156.3 billion at Dec. 31, 2016.2020. The higher level of securitiesdecrease primarily reflects additional investmentslower agency RMBS, foreign government agency, and U.S. government agency securities and a decrease in commercial MBS and agency RMBS,unrealized pre-tax gain, partially offset by a decreaseincreases in consumer ABS.U.S. treasury and sovereign debt/sovereign guaranteed securities.


At Sept. 30, 2017,March 31, 2021, the total investment securities portfolio had a net unrealized pre-tax gain, of $257 million compared with a pre-tax loss of $221 million at Dec. 31, 2016, including the impact of related hedges.hedges, of $1.5 billion, compared with $3.2 billion at Dec. 31, 2020. The decrease in the net unrealized pre-tax gain was primarily driven by a decrease in long-termhigher market interest rates.

The fair value of the available-for-sale securities totaled $107.2 billion at March 31, 2021, net of hedges, or 69% of the securities portfolio, net of hedges. The fair value of the held-to-maturity
securities totaled $48.5 billion at March 31, 2021, or 31% of the securities portfolio, net of hedges.

The unrealized gain net of tax,(after-tax) on our available-for-sale investment securities portfolio, net of hedges, included in accumulated other comprehensive income (“OCI”) was $226$776 million at Sept. 30, 2017,March 31, 2021, compared with $45 million$1.5 billion at Dec. 31, 2016.2020. The decrease in the unrealized gain, net of tax, was primarily driven by higher market interest rates.


At Sept. 30, 2017, 93%March 31, 2021, 95% of the securities in our portfolio were rated AAA/AA-, unchanged compared with Dec. 31, 2016. 2020.


We routinely test our investmentSee Note 3 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 14 of the Notes to Consolidated Financial Statements for OTTI. See “Critical accounting estimates” for additional information regarding OTTI.securities by level in the fair value hierarchy.

22 BNY Mellon

The following table presents the amortizable purchase premium (net of discount) related to the investment securities portfolio and accretable discount related to the 2009 restructuring of the investment securities portfolio.


Net premium amortization and discount accretion of securities (a)
(dollars in millions)1Q214Q203Q202Q201Q20
Amortizable purchase premium (net of discount) relating to securities:
Balance at period-end$2,195 $2,283 $2,050 $1,693 $1,555 
Estimated average life remaining at period-end (in years)
4.3 3.9 3.8 3.7 3.8 
Amortization$189 $181 $161 $125 $101 
Accretable discount related to the prior restructuring of the securities portfolio:
Balance at period-end$121 $130 $133 $145 $159 
Estimated average life remaining at period-end (in years)
5.9 5.6 5.7 5.8 6.1 
Accretion$12 $8 $9 $10 $11 
(a)    Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were recorded on a level yield basis.


Loans
Net premium amortization and discount accretion of investment securities (a)
     
(dollars in millions)3Q17
2Q17
1Q17
4Q16
3Q16
Amortizable purchase premium (net of discount) relating to investment securities:     
Balance at period end$2,053
$2,111
$2,058
$2,188
$2,267
Estimated average life remaining at period end (in years)
5.0
5.0
4.9
4.9
4.5
Amortization$140
$134
$138
$146
$163
Accretable discount related to the prior restructuring of the investment securities portfolio:     
Balance at period end$302
$279
$299
$315
$331
Estimated average life remaining at period end (in years)
6.5
6.3
6.2
6.2
5.9
Accretion$24
$25
$25
$25
$24
(a)Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were recorded on a level yield basis.



Total exposure – consolidatedMarch 31, 2021Dec. 31, 2020
(in billions)LoansUnfunded
commitments		Total
exposure		LoansUnfunded
commitments		Total
exposure
Non-margin loans:
Financial institutions$11.0 $32.8 $43.8 $11.2 $32.8 $44.0 
Commercial1.4 12.3 13.7 1.4 12.7 14.1 
Subtotal institutional12.4 45.1 57.5 12.6 45.5 58.1 
Wealth management loans and mortgages16.6 1.4 18.0 16.4 1.1 17.5 
Commercial real estate5.9 3.5 9.4 6.1 3.2 9.3 
Lease financings1.0 — 1.0 1.0 — 1.0 
Other residential mortgages0.4 — 0.4 0.4 — 0.4 
Overdrafts4.8 — 4.8 2.7 — 2.7 
Other1.7 — 1.7 1.9 — 1.9 
Subtotal non-margin loans42.8 50.0 92.8 41.1 49.8 90.9 
Margin loans17.9 0.1 18.0 15.4 0.1 15.5 
Total$60.7 $50.1 $110.8 $56.5 $49.9 $106.4 
The following table presents pre-tax net securities gains (losses) by type.

Net securities gains (losses)   
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Agency RMBS$4
$—
$9
$5
$22
U.S. Treasury1
(1)(1)—
4
Foreign covered bonds—
—
—
—
10
Non-agency RMBS(1)—
(1)(2)1
Other15
1
17
26
28
Total net securities gains$19
$—
$24
$29
$65


On a quarterly basis, we perform our impairment analysis using several factors, including projected loss severities and default rates. In the third quarter of 2017, this analysis resulted in other-than-temporary credit losses of $1 million primarily in our non-agency RMBS portfolio. At Sept. 30, 2017, if we were to increase or decrease each of our projected loss severity and default rates by 100 basis points on each of the positions in our non-agency RMBS
portfolio, including the securities previously held by the Grantor Trust, credit-related impairment charges on these securities would have increased or decreased by less than $1 million (pre-tax). See Note 4 of the Notes to Consolidated Financial Statements for the projected weighted-average default rates and loss severities.

The following table shows the fair value of the European floating rate notes by geographical location at Sept. 30, 2017. The net unrealized loss on these securities was $6 million at Sept. 30, 2017, compared with $11 million at Dec. 31, 2016.

European floating rate notes at Sept. 30, 2017 (a)
(in millions)RMBS
Other
Total fair
value

United Kingdom$169
$58
$227
Netherlands160
—
160
Total fair value$329
$58
$387
(a)Sixty-three percent of these securities are in the AAA to AA- ratings category.




26 BNY Mellon

See Note 14 of the Notes to Consolidated Financial Statements for details of securities by level in the fair value hierarchy.


Loans

Total exposure – consolidatedSept. 30, 2017 Dec. 31, 2016
(in billions)Loans
Unfunded
commitments

Total
exposure

 Loans
Unfunded
commitments

Total
exposure

Non-margin loans:       
Financial institutions$11.9
$32.7
$44.6
 $14.7
$33.7
$48.4
Commercial3.0
16.6
19.6
 2.6
17.5
20.1
Subtotal institutional14.9
49.3
64.2
 17.3
51.2
68.5
Wealth management loans and mortgages16.3
1.1
17.4
 15.6
1.3
16.9
Commercial real estate4.9
3.5
8.4
 4.7
3.2
7.9
Lease financings1.3
—
1.3
 1.7
—
1.7
Other residential mortgages0.7
—
0.7
 0.9
—
0.9
Overdrafts5.8
—
5.8
 5.5
—
5.5
Other1.3
—
1.3
 1.2
—
1.2
Subtotal non-margin loans45.2
53.9
99.1
 46.9
55.7
102.6
Margin loans13.9
—
13.9
 17.6
0.1
17.7
Total$59.1
$53.9
$113.0
 $64.5
$55.8
$120.3



At Sept. 30, 2017,March 31, 2021, total exposureslending-related exposure of $113.0$110.8 billion decreased 6%increased 4% compared with Dec. 31, 2016,2020, primarily reflecting lowerhigher margin loans and exposure to financial institutions, partially offset by higher wealth management loans and mortgages.overdrafts.
Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 57%52% of our total exposure at both Sept. 30, 2017March 31, 2021 and 55% at Dec. 31, 2016.2020. Additionally, most of our overdrafts relate to financial institutions.



BNY Mellon 23

Financial institutions


The financial institutions portfolio is shown below.


Financial institutions
portfolio exposure
(dollar amounts in billions)
Sept. 30, 2017 Dec. 31, 2016
Loans
Unfunded
commitments

Total
exposure

% Inv.
grade

% due
<1 yr.

 Loans
Unfunded
commitments

Total
exposure

Financial institutions
portfolio exposure
(dollars in billions)
Financial institutions
portfolio exposure
(dollars in billions)
March 31, 2021Dec. 31, 2020
LoansUnfunded
commitments		Total
exposure		% Inv.
grade		% due
<1 yr.		LoansUnfunded
commitments		Total
exposure
Securities industry$2.9
$19.0
$21.9
99%99% $3.8
$19.2
$23.0
Securities industry$2.3 $21.3 $23.6 98 %99 %$2.3 $21.6 $23.9 
Asset managers1.6
6.5
8.1
97
87
 1.5
6.2
7.7
Asset managers1.4 6.5 7.9 98 85 1.4 6.4 7.8 
Banks6.3
1.4
7.7
68
94
 7.9
2.0
9.9
Banks6.4 1.1 7.5 85 96 6.7 1.1 7.8 
Insurance0.1
3.4
3.5
99
17
 0.1
3.8
3.9
Insurance0.1 3.0 3.1 100 19 0.1 2.8 2.9 
Government—
1.0
1.0
91
46
 0.1
0.9
1.0
Government0.1 0.2 0.3 100 44 0.1 0.2 0.3 
Other1.0
1.4
2.4
98
45
 1.3
1.6
2.9
Other0.7 0.7 1.4 96 65 0.6 0.7 1.3 
Total$11.9
$32.7
$44.6
93%86% $14.7
$33.7
$48.4
Total$11.0 $32.8 $43.8 96 %89 %$11.2 $32.8 $44.0 




The financial institutions portfolio exposure was $44.6$43.8 billion at Sept. 30, 2017,March 31, 2021, a slight decrease compared with $48.4 billion at Dec. 31, 2016. The decrease2020, primarily reflectsreflecting lower exposure inloans to the banks portfolio and lower unfunded commitments to the securities industry portfolios.portfolio, partially offset by a higher unfunded commitments to the insurance portfolio.


Financial institution exposures are high-quality, with 93%96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept. 30, 2017.March 31, 2021. Each customer is assigned an internal credit rating, which is mapped to
an equivalent external rating agency grade based upon a number of dimensions, which are continually evaluated and may change over time. The exposure to financial institutions is generally short-term. Of these exposures, 86% expire within one year and 61% expire within 90 days. In addition, 80% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.



BNY Mellon 27

For ratings of non-U.S. counterparties, our internal credit rating is generally capped at a rating equivalent to the sovereign rating of the country where the counterparty resides, regardless of the internal credit rating assigned to the counterparty or the underlying collateral.


In addition, 73% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.

The exposure to financial institutions is generally short-term, with 89% of the exposures expiring within one year. At both March 31, 2021 and Dec. 31, 2020, 18% of the exposure to financial institutions had an expiration within 90 days.

At Sept. 30, 2017,March 31, 2021 and Dec. 31, 2020, the secured intraday credit provided to dealers in connection with their tri-party repo activity totaled $18.5$18.2 billion and was primarily included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit.

Our bankbanks exposure primarily relates to our global trade finance. These exposures are short-term in nature, with 94%96% due in less than one year. The investment grade percentage of our bankbanks exposure was 68%85% at Sept. 30, 2017, compared with 69% atboth March 31, 2021 and Dec. 31, 2016.2020. Our non-investment grade exposures are primarily trade finance loans in Brazil.


The asset managermanagers portfolio exposure wasis high-quality, with 97%98% of the exposures meeting our investment grade equivalent ratings criteria as of Sept. 30, 2017.March 31, 2021. These exposures are generally short-term liquidity facilities, with the vast majority to regulated mutual funds.

24 BNY Mellon

Commercial


The commercial portfolio is presented below.


Commercial portfolio exposureSept. 30, 2017 Dec. 31, 2016Commercial portfolio exposureMarch 31, 2021Dec. 31, 2020
(dollar amounts in billions)Loans
Unfunded
commitments

Total
exposure

% Inv.
grade

% due
<1 yr.

 Loans
Unfunded
commitments

Total
exposure

(dollars in billions)(dollars in billions)LoansUnfunded
commitments		Total
exposure		% Inv.
grade		% due
<1 yr.		LoansUnfunded
commitments		Total
exposure
Manufacturing$1.4
$6.3
$7.7
96%22% $1.1
$6.7
$7.8
Manufacturing$0.4 $4.0 $4.4 95 %22 %$0.5 $4.1 $4.6 
Energy and utilitiesEnergy and utilities0.3 4.0 4.3 88 5 0.3 3.9 4.2 
Services and other0.9
4.4
5.3
95
28
 0.6
4.3
4.9
Services and other0.7 3.5 4.2 94 40 0.6 3.8 4.4 
Energy and utilities0.6
4.5
5.1
95
7
 0.6
4.7
5.3
Media and telecom0.1
1.4
1.5
95
15
 0.3
1.8
2.1
Media and telecom— 0.8 0.8 92 4 — 0.9 0.9 
Total$3.0
$16.6
$19.6
95%19% $2.6
$17.5
$20.1
Total$1.4 $12.3 $13.7 92 %21 %$1.4 $12.7 $14.1 




The commercial portfolio exposure decreased to $19.6was $13.7 billion at Sept. 30, 2017,March 31, 2021, a decrease of 3% from $20.1 billion at Dec. 31, 2016,2020, primarily reflectingdriven by lower exposure into the mediamanufacturing and telecom portfolio.services and other portfolios.


Utilities-relatedWe have $725 million of total direct exposure represents approximately 78%to the oil and gas industry at March 31, 2021, most of the energy and utilities portfolio. The remaining exposurewhich is reflected in the energy and utilities portfolio which includesin the table above. This exposure is to exploration and production, companies, refining pipelines and integrated companies and was 76%66% investment grade at both Sept. 30, 2017March 31, 2021 and Dec. 31, 2016.2020.


The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.

Percentage of the portfolios that are investment grade 
 Sept. 30, 2017
June 30, 2017
March 31, 2017
Dec. 31, 2016
Sept. 30, 2016
 
Financial institutions93%93%93%92%93%
Commercial95%96%95%94%94%


Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The executionfollowing table summarizes the percentage of our strategy has resulted in 93% of ourthe financial institutions portfolio and 95% of our commercial portfolio rated asexposures that are investment grade at Sept. 30, 2017.grade.


Percentage of the portfolios that are investment grade
Quarter ended
March 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020March 31, 2020
Financial institutions96 %95 %95 %95 %96 %
Commercial92 %92 %93 %92 %94 %
Wealth management loans and mortgages


Our wealth management exposure was $17.4$18.0 billion at Sept. 30, 2017,March 31, 2021, compared with $16.9$17.5 billion at Dec. 31, 2016.2020. Wealth management loans and mortgages primarily consist of loans to high-net-worth individuals, which are secured by marketable securities and/or residential property. Wealth management mortgages are primarily interest-only, adjustable-rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. In the wealth management portfolio, lessLess than 1% of the mortgages were past due at Sept. 30, 2017.March 31, 2021.


At Sept. 30, 2017,March 31, 2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 24%– 22%; New York - 19%– 16%; Massachusetts - 11%– 10%; Florida -– 8%; and other - 38%– 44%.



28 BNY Mellon 25


Commercial real estate


The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.

Composition of commercial real estate portfolio by asset classMarch 31, 2021Dec. 31, 2020
Total
exposure
Percentage
secured (a)
Total
exposure
Percentage
secured (a)
(in billions)
Residential$3.2 86 %$3.3 86 %
Office2.7 76 2.8 75 
Retail0.9 58 1.0 52 
Mixed-use0.7 22 0.7 22 
Hotels0.6 20 0.6 20 
Healthcare0.5 22 0.4 25 
Other0.8 14 0.5 23 
Total commercial real estate$9.4 63 %$9.3 64 %
(a)    Represents the amount of secured exposure in each asset class.


Our commercial real estate exposure totaled $8.4$9.4 billion at Sept. 30, 2017, compared with $7.9March 31, 2021 and $9.3 billion at Dec. 31, 2016.2020. Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. Loans are approved on the basis of existing or projected cash flows and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage, and in many instances, involve some level of recourse to the developer.


At Sept. 30, 2017, 59% of our commercial real estate portfolio was secured. The secured portfolio is diverse by project type, with 45% secured by residential buildings, 35% secured by office buildings, 12% secured by retail properties and 8% secured by other categories. Approximately 97% ofMarch 31, 2021, the unsecured portfolio consistsconsisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both predominantlyprimarily investment grade.


At Sept. 30, 2017,March 31, 2021, our commercial real estate portfolio consistsconsisted of the following concentrations: New York metro - 40%– 39%; REITs and real estate operating companies - 40%– 37%; and other - 20%– 24%.


Lease financings


The leasinglease financings portfolio exposure totaled $1.3$1.0 billion at Sept. 30, 2017 compared with $1.7 billion atboth March 31, 2021 and Dec. 31, 2016.2020. At Sept. 30, 2017,March 31, 2021, approximately 94%98% of the leasing portfolio exposure was investment grade, or investment grade equivalent.

At Sept. 30, 2017, the lease financings portfolioequivalent and consisted of exposures backed by well-diversified assets, includingprimarily large-ticket transportation equipment.equipment and real estate. The largest component of our lease residual value exposure is

freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in the U.S. and Germany.

Other residential mortgages


The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $741$364 million at Sept. 30, 2017March 31, 2021 and $854$389 million at Dec. 31, 2016.2020. Included in this portfolio at Sept. 30, 2017 are $181March 31, 2021 were $63 million of mortgage loans
purchased in 2005, 2006 and the first quarter of 2007 that are predominantly prime mortgage loans, with a small portion of Alt-A loans. As of Sept. 30, 2017, the purchased loans in this portfolio had a weighted-average loan-to-value ratio of 76% at origination and 11% of the serviced loan balance was at least 60 days delinquent. The properties securing the prime and Alt-A mortgage loans were located (in order of concentration) in California, Florida, Virginia, the tri-state area (New York, New Jersey and Connecticut) and Maryland.2007.

To determine the projected loss on the prime and Alt-A mortgage portfolios, we calculate the total estimated defaults of these mortgages and multiply that amount by an estimate of realizable value upon sale in the marketplace (severity).


Overdrafts


Overdrafts primarily relate to custody and securities clearance clients. Overdrafts occur on a daily basis in the custody and securities clearance businessclients and are generally repaid within two business days.


Other loans


Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed incomefixed-income securities.


Margin loans


Margin loans areloan exposure of $18.0 billion at March 31, 2021 and $15.5 billion at Dec. 31, 2020 was collateralized with marketable securities, and borrowerssecurities. Borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. Margin loans included $4.2$6.1 billion at Sept. 30, 2017March 31, 2021 and $6.3$4.6 billion at Dec. 31, 20162020 related to a term loan program that offers fully collateralized loans to broker-dealers.

26 BNY Mellon
Asset quality and allowance

Allowance for credit losses


Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a customer consists of funded loans, unfunded contractual commitments to lend, standby letters of credit and overdrafts associated with our custody and securities clearance businesses.


The following table details changes in our allowance for credit losses.

Allowance for credit losses activityMarch 31, 2021Dec. 31, 2020March 31, 2020
(dollars in millions)
Beginning balance of allowance for credit losses$501 $486 $216 
Impact of adopting ASU 2016-13N/AN/A(55)(a)
Provision for credit losses(83)15 169 
Net recoveries (charge-offs):
Loans:
Other residential mortgages2 — — 
Wealth management loans and mortgages(1)— — 
Other financial instruments— — (1)
Net recoveries (charge-offs)1 — (1)
Ending balance of allowance for credit losses$419 $501 $329 
Allowance for loan losses$327 $358 $140 
Allowance for lending-related commitments73 121 148 
Allowance for financial instruments (b)
19 22 41 
Total allowance for credit losses$419 $501 $329 
Non-margin loans$42,839 $41,053 $49,253 
Margin loans17,893 15,416 13,115 
Total loans$60,732 $56,469 $62,368 
Allowance for loan losses as a percentage of total loans0.54 %0.63 %0.22 %
Allowance for loan losses as a percentage of non-margin loans0.76 0.87 0.28 
Allowance for loan losses and lending-related commitments as a percentage of total loans0.66 0.85 0.46 
Allowance for loan losses and lending-related commitments as a percentage of non-margin loans0.93 1.17 0.58 
(a)    In 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. Includes the reclassification of credit-related reserves on accounts receivable of $4 million.
(b)    Includes allowance for credit losses on federal funds sold and securities purchased under resale agreements, available-for-sale securities, held-to-maturity securities, accounts receivable, cash and due from banks and interest-bearing deposits with banks.
N/A – Not applicable.



BNY Mellon 29

Allowance for credit losses activitySept. 30, 2017
June 30, 2017
Dec. 31, 2016
Sept. 30, 2016
(dollar amounts in millions)
Non-margin loans$45,196
$47,516
$46,868
$48,411
Margin loans13,872
14,157
17,590
17,557
Total loans$59,068
$61,673
$64,458
$65,968
Beginning balance of allowance for credit losses$270
$276
$274
$280
Provision for credit losses(6)(7)7
(19)
Net recoveries:    
Other residential mortgages1
1
—
—
Financial institutions—
—
—
13
Net recoveries1
1
—
13
Ending balance of allowance for credit losses$265
$270
$281
$274
Allowance for loan losses$161
$165
$169
$148
Allowance for lending-related commitments104
105
112
126
Allowance for loan losses as a percentage of total loans0.27%0.27%0.26%0.22%
Allowance for loan losses as a percentage of non-margin loans0.36
0.35
0.36
0.31
Total allowance for credit losses as a percentage of total loans0.45
0.44
0.44
0.42
Total allowance for credit losses as a percentage of non-margin loans0.59
0.57
0.60
0.57


Net recoveries were $1 million in the third quarter of 2017 and second quarter of 2017. Net recoveries in the third quarter of 2016 of $13 million were recorded in the financial institutions portfolio.

The provision for credit losses was a creditbenefit of $6$83 million in the thirdfirst quarter of 2017, a credit of $7 million in the second quarter of 2017 and a credit of $19 million in the third quarter of 2016.2021, primarily driven by an improved macroeconomic forecast.

The total allowance for credit losses was $265 million at Sept. 30, 2017, $281 million at Dec. 31, 2016 and $274 million at Sept. 30, 2016. The ratio of the total allowance for credit losses to non-margin loans was 0.59% at Sept. 30, 2017, 0.60% at Dec. 31, 2016 and 0.57% at Sept. 30, 2016. The ratio of the allowance for loan losses to non-margin loans was 0.36% at Sept. 30, 2017, 0.36% at Dec. 31, 2016 and 0.31% at Sept. 30, 2016.


We had $13.9$17.9 billion of secured margin loans on our balance sheet at Sept. 30, 2017March 31, 2021 compared with $17.6$15.4 billion at Dec. 31, 2016 and $17.6 billion at Sept. 30, 2016.2020. We have rarely suffered a loss on these types of loans and do not allocate any of our allowance for credit losses to them.loans. As a result, we believe that the ratio of total allowance for creditloan losses and lending-related commitments as a percentage of non-margin loans is a more appropriate metric to measure the adequacy of the reserve.



The allowance for loan losses and allowance for lending-related commitments represent management’s estimate of probablelifetime expected losses inherent in our credit portfolio. This evaluation process is subject to numerous estimates and judgments. For additional information on this process, see “Critical
accounting estimates” in our 2016 Annual Report. To the extent actual results differ from forecasts or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs.


Based on an evaluation of the allowance for credit losses as discussed in “Critical accounting estimates” and Note 1 of the Notes to Consolidated Financial Statements, bothestimates,” in our 20162020 Annual Report, we have allocated our allowance for loans and lending-related commitments as presented below.

BNY Mellon 27

Allocation of allowance for loan losses and lending-related commitmentsMarch 31, 2021Dec. 31, 2020March 31, 2020
Commercial real estate91 %89 %72 %
Commercial2 3 9 
Financial institutions2 2 6 
Other residential mortgages2 3 5 
Wealth management (a)
2 2 3 
Lease financings1 1 5 
Total100 %100 %100 %
(a)    Includes the allowance for credit losses as follows.on wealth management mortgages.


 Allocation of allowanceSept. 30, 2017
June 30, 2017
Dec. 31, 2016
Sept. 30, 2016
 
 Commercial31%30%29%33%
 Commercial real estate28
28
26
23
 Foreign13
13
13
11
 Financial institutions9
8
9
11
 
Wealth management (a)
8
9
8
7
 Other residential mortgages8
8
10
10
 Lease financing3
4
5
5
 Total100%100%100%100%
(a)Includes the allowance for wealth management mortgages.



The allocation of the allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the loss.losses.


TheOur allowance for credit ratinglosses is sensitive to a number of inputs, most notably the credit ratings assigned to each borrower, as well as macroeconomic forecast assumptions that are incorporated in our estimate of credit is a significant variablelosses through the expected life of the loan portfolio. Thus, as the macroeconomic environment and related forecasts change, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in determining the allowance.key inputs. If each credit were rated one grade better, the quantitative allowance would have decreased by $65$123 million, whileand if each credit were rated one grade worse, the quantitative allowance would have increased by $109$139 million. Similarly,Our multi-scenario based macroeconomic forecast used in determining the March 31, 2021 allowance for credit losses consisted of three scenarios. The baseline scenario reflects moderate and flat GDP growth and unemployment recovery but with declining commercial real estate prices that begin to recover later in 2021. The upside scenario reflects faster GDP growth and unemployment recovery and less severe commercial real estate declines than the baseline. The downside scenario contemplates negative GDP growth and increasing unemployment throughout 2021 and steeper declines in commercial real estate prices than the baseline. Consistent with the fourth quarter of 2020, we placed the most weight on our baseline scenario, with the remaining weighting resulting in slightly more weight placed on the downside scenario than the upside scenario. From a sensitivity perspective, at March 31, 2021, if the loss given default were one rating worse, the
we had


30 BNY Mellon

applied 100% weighting to the downside scenario, the quantitative allowance for credit losses would have increased by $41been approximately $190 million while if the loss given default were one rating better, the allowance would have decreased by $29 million. For impaired credits, if the net carrying value of the
higher.

loans was 10% higher or lower, the allowance would have decreased or increased by less than $1 million, respectively.


Nonperforming assets


The following table shows the distribution ofbelow presents our nonperforming assets.


Nonperforming assetsMarch 31, 2021Dec. 31, 2020
(dollars in millions)
Nonperforming loans:
Other residential mortgages$56 $57 
Wealth management loans and mortgages28 30 
Commercial real estate26 1 
Total nonperforming loans110 88 
Other assets owned2 1 
Total nonperforming assets$112 $89 
Nonperforming assets ratio0.18 %0.16 %
Nonperforming assets ratio, excluding margin loans0.26 0.22 
Allowance for loan losses/nonperforming loans297.3 406.8 
Allowance for loan losses/nonperforming assets292.0 402.2 
Total allowance for credit losses/nonperforming loans363.6 544.3 
Total allowance for credit losses/nonperforming assets357.1 538.2 
Nonperforming assetsSept. 30, 2017
June 30, 2017
Dec. 31, 2016
(dollars in millions)
Nonperforming loans:   
Other residential mortgages$80
$84
$91
Wealth management loans and mortgages8
10
8
Financial institutions2
2
—
Lease financings—
—
4
Total nonperforming loans90
96
103
Other assets owned4
4
4
Total nonperforming assets$94
$100
$107
Nonperforming assets ratio0.16%0.16%0.17%
Nonperforming assets ratio, excluding margin loans0.21
0.21
0.23
Allowance for loan losses/nonperforming loans178.9
171.9
164.1
Allowance for loan losses/nonperforming assets171.3
165.0
157.9
Total allowance for credit losses/nonperforming loans294.4
281.3
272.8
Total allowance for credit losses/nonperforming assets281.9
270.0
262.6




Nonperforming assets activitySept. 30, 2017
June 30, 2017
Dec. 31, 2016
(in millions)
Balance at beginning of quarter$100
$107
$109
Additions3
2
4
Return to accrual status(1)—
—
Charge-offs—
—
—
Paydowns/sales(8)(9)(6)
Balance at end of quarter$94
$100
$107


Nonperforming assets decreased $13increased $23 million compared with Dec. 31, 2016,2020, primarily reflecting lower other residential mortgagesan increase in nonperforming loans in the commercial real estate portfolio.

Lost interest

Interest revenue would have increased by $1 million in the first quarter of 2021, fourth quarter of 2020 and lease financings.first quarter of 2020, if nonperforming loans at period-end had been performing for the entire respective periods.


Loan modifications

Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as troubled debt restructurings (“TDRs”): The nonperforming assets ratio was 0.16% at Sept. 30, 2017, 0.16% at June 30, 2017Coronavirus Aid, Relief, and 0.17% at Dec. 31, 2016. The ratioEconomic Security Act (the “CARES Act”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the Interagency Guidance. See Note 1 of the allowanceNotes to Consolidated Financial Statements of our 2020 Annual Report for additional details on this guidance. Financial institutions may account for eligible loan lossesmodifications either under the CARES
28 BNY Mellon

Act or the Interagency Guidance and we have elected to nonperformingapply both, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic. We modified loans was 178.9% at Sept. 30, 2017, 171.9% at June 30, 2017of $6 million in the first quarter of 2021, less than $1 million in the first quarter of 2020 and 164.1% at Dec. 31, 2016. The ratio$16 million in the fourth quarter of 2020. Nearly all of the total allowance for credit losses to nonperformingmodifications were short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate loans. We also modified $14 million of commercial real estate loans in the first quarter of 2021 by providing payment modifications and an extension of maturity. We did not identify any of the modifications as TDRs. At March 31, 2021, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was 294.4% at Sept. 30, 2017, 281.3% at June 30, 2017 and 272.8% at Dec. 31, 2016.$91 million.


Deposits


Total deposits were $231.0$336.8 billion at Sept. 30, 2017, an increaseMarch 31, 2021, a decrease of 4%1%, compared with $221.5$341.5 billion at
Dec. 31, 2016.2020. The increase in depositsdecrease primarily reflects higherlower interest-bearing deposits in non-U.S. offices, and noninterest-bearing deposits in U.S. offices, partially offset by lower interest-bearinghigher noninterest-bearing deposits in(principally U.S. offices.offices).


Noninterest-bearing deposits were $80.4$95.3 billion at Sept. 30, 2017March 31, 2021 compared with $78.3$83.8 billion at Dec. 31, 2016.2020. Interest-bearing deposits were $150.6$241.5 billion at Sept. 30, 2017March 31, 2021, compared with $143.2$257.7 billion at Dec. 31, 2016.2020.


Short-term borrowings


We fund ourselves primarily through deposits and, to a lesser extent, other short-term borrowings and long-term debt. Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements, payables to customers and broker-dealers, commercial paper and other borrowed funds. Certain othershort-term borrowings, for example, securities sold under repurchase agreements, require the delivery of securities as collateral.

See “Liquidity and dividends” for a discussion of long-term debt and liquidity metrics that we monitor.




BNY Mellon 31

Information related to federal funds purchased and securities sold under repurchase agreements is presented below.


Federal funds purchased and securities sold under
repurchase agreements
Quarter ended
(dollars in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Maximum month-end balance during the quarter$15,863 $15,479 $16,644 
Average daily balance (a)
$15,288 $14,452 $13,919 
Weighted-average rate during the quarter (a)
(0.07)%0.01 %7.96 %
Ending balance (b)
$15,150 $11,305 $13,128 
Weighted-average rate at period end (b)
(0.12)%(0.03)%3.93 %
Federal funds purchased and securities sold under
repurchase agreements
 Quarter ended
(dollars in millions)Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
Maximum month-end balance during the quarter$21,850
$19,786
$11,184
Average daily balance$21,403
$17,970
$9,585
Weighted-average rate during the quarter1.30%0.84%0.24%
Ending balance$10,314
$10,934
$8,052
Weighted-average rate at period end1.35%0.93%0.25%
(a)    Includes the average impact of offsetting under enforceable netting agreements of $37,377 million in the first quarter of 2021, $40,641 million in the fourth quarter of 2020 and $80,216 million in the first quarter of 2020. On a Non-GAAP basis, excluding the impact of offsetting, the weighted-average rates would have been (0.02)% for the first quarter of 2021, 0.00% for the fourth quarter of 2020 and 1.18% for the first quarter of 2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates paid.

(b)    Includes the impact of offsetting under enforceable netting agreements of $33,544 million at March 31, 2021, $59,561 million at Dec. 31, 2020 and $80,203 million at March 31, 2020.



Fluctuations of federal funds purchased and securities sold under repurchase agreements between periods resulted fromreflect changes in overnight borrowing opportunities. The increase indecrease of the weighted-average rates compared with Sept. 30, 2016, March 31, 2020primarily reflects increases inlower interest rates and repurchase agreement activity with the Fed Funds effective rate.Fixed Income Clearing Corporation (the “FICC”), where we record interest expense gross, but the ending and average balances reflect the impact of offsetting under enforceable netting agreements. This activity primarily relates to government securities collateralized resale and repurchase agreements executed with clients that are novated to and settle with the FICC.


BNY Mellon 29

Information related to payables to customers and broker-dealers is presented below.


Payables to customers and broker-dealers
Quarter ended
(dollars in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Maximum month-end balance during the quarter$25,124 $25,085 $24,016 
Average daily balance (a)
$24,772 $23,589 $20,629 
Weighted-average rate during the quarter (a)
(0.01)%(0.01)%0.73 %
Ending balance$23,827 $25,085 $24,016 
Weighted-average rate at period end(0.01)%(0.01)%0.28 %
Payables to customers and broker-dealers
 Quarter ended
(dollars in millions)Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
Maximum month-end balance during the quarter$21,563
$21,622
$21,162
Average daily balance (a)
$21,280
$21,078
$20,616
Weighted-average rate during the quarter (a)
0.42%0.30%0.07%
Ending balance$21,176
$21,622
$21,162
Weighted-average rate at period end0.43%0.34%0.07%
(a)
The weighted-average rate is calculated based on, and is applied to, the average interest-bearing payables to customers and broker-dealers, which were $18,516 million in the third quarter of 2017, $20,609 million in the second quarter of 2017 and $16,873 million in the third quarter of 2016.

(a)The weighted-average rate is calculated based on, and is applied to, the average interest-bearing payables to customers and broker-dealers, which were $17,691 million in the first quarter of 2021, $17,521 million in the fourth quarter of 2020 and $16,386 million in the first quarter of 2020.



Payables to customers and broker-dealers represent funds awaiting re-investmentreinvestment and short sale proceeds payable on demand. Payables to customers and broker-dealers are driven by customer trading activity levels and market volatility.


Information related to commercial paper is presented below.


Commercial paperQuarter ended
(dollars in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Maximum month-end balance during the quarter$— $450 $3,379 
Average daily balance$— $275 $1,581 
Weighted-average rate during the quarter— %0.10 %1.56 %
Ending balance$— $— $1,121 
Weighted-average rate at period end— %— %1.57 %
Commercial paperQuarter ended
(dollars in millions)Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
Maximum month-end balance during the quarter$4,277
$2,193
$1,000
Average daily balance$2,736
$2,215
$1,173
Weighted-average rate during the quarter1.15%0.95%0.35%
Ending balance$2,501
$876
$—
Weighted-average rate at period end1.18%0.98%—%




The Bank of New York Mellon our largest bank subsidiary, issuesis authorized to issue commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. The increasedecrease in the commercial paper balances, compared with prior periods,March 31, 2020 primarily reflects managementthe continuation of overall liquidity. The increase in weighted-average rates, compared with prior periods, primarily reflects increases in the Fed Funds effective rate and the issuance of higher-yielding term commercial paper.elevated deposit levels.


Information related to other borrowed funds is presented below.


Other borrowed fundsQuarter ended
(dollars in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Maximum month-end balance during the quarter$348 $505 $1,544 
Average daily balance$331 $338 $719 
Weighted-average rate during the quarter2.01 %1.71 %2.27 %
Ending balance$348 $350 $1,544 
Weighted-average rate at period end2.05 %0.79 %2.01 %
Other borrowed fundsQuarter ended
(dollars in millions)Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
Maximum month-end balance during the quarter$3,353
$2,379
$993
Average daily balance$2,197
$1,193
$874
Weighted-average rate during the quarter1.38%1.24%0.76%
Ending balance$3,353
$1,338
$993
Weighted-average rate at period end1.56%1.69%0.75%




Other borrowed funds primarily include borrowings from the Federal Home Loan Bank (“FHLB”), overdrafts of sub-custodian account balances in our Investment Services businesses, capitalfinance lease obligations andliabilities, borrowings under lines of credit by our Pershing subsidiaries.subsidiaries and borrowings from the Federal Home Loan Bank. Borrowings from the Federal Reserve Bank of Boston under the Money Market Mutual Fund Liquidity Facility (the “MMLF”) program are also included in other borrowed funds at Dec. 31, 2020 and March 31, 2020. Overdrafts typically relate to timing differences for settlements. The increasedecreases in other borrowed funds balances compared with both prior periods primarilyMarch 31, 2020 and Dec. 31, 2020 reflect lower overdrafts of sub-custodian account balances in our Investment Services businesses. The decrease in other borrowed funds compared with March 31, 2020 also reflects a decline in borrowings from the FHLB. The increase compared with Sept. 30, 2016 also reflects an increase in capital lease obligations as a resultFederal Reserve Bank of converting an operating lease to a capital lease.
Boston under the MMLF program and the Federal Home Loan Bank.



32 BNY Mellon

Liquidity and dividends


BNY Mellon defines liquidity as the ability of the Parent and its subsidiaries to access funding or convert assets to cash quickly and efficiently, or to rolloverroll over or issue new debt, especially during periods of market stress, at a reasonable cost, and in order to meet its short-term (up to one year) obligations. Funding liquidity risk is the risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flow and collateral needs without adversely affecting daily operations or our financial condition. Funding liquidity risk can arise from funding mismatches, market constraints from the inability to convert assets tointo cash, the inability to hold or raise cash, low overnight deposits, deposit run-off or contingent liquidity events.


We also manage liquidity risks on an intra-day basis. Intraday liquidity risk is the risk that
30 BNY Mellon cannot access funds during the business day to make payments or settle immediate obligations, usually in real time. Intraday liquidity risk can arise from timing mismatches, market constraints from an inability to convert assets to cash, an inability to raise cash intraday, low overnight deposits and/or adverse stress events.

Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks also can affect BNY Mellon’s liquidity risk profile and are considered in our liquidity risk framework. For additional information, see “Risk Management – Liquidity Risk” in our 2020 Annual Report.


The Parent’s policy is to have access to sufficient unencumbered cash and cash equivalents at each quarter-end to cover maturities and other forecasted debt redemptions, net interest payments and net tax payments for the following 18-month period, and to provide sufficient collateral to satisfy transactions subject to Section 23A of the Federal Reserve Act. As of Sept. 30, 2017,March 31, 2021, the Parent was in compliance with this policy. For additional information

We monitor and control liquidity exposures and funding needs within and across significant legal entities, branches, currencies and business lines,
taking into account, among other factors, any applicable restrictions on ourthe transfer of liquidity policy, see “Risk Management - Liquidity risk” in our 2016 Annual Report. Our overall approachamong entities.

BNY Mellon also manages potential intraday liquidity risks. We monitor and manage intraday liquidity against existing and expected intraday liquid resources (such as cash balances, remaining intraday credit capacity, intraday contingency funding and available collateral) to liquidity management is further described in “Liquidityenable BNY Mellon to meet its intraday obligations under normal and dividends” in our 2016 Annual Report.reasonably severe stressed conditions.


We define available funds for internal liquidity management purposes as liquid funds (which includecash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements), cash and due from banks, and interest-bearing deposits with the Federal Reserve and other central banks.agreements. The following table presents our total available funds, including liquid funds at period end and on an average basis.


Available fundsMarch 31, 2021Dec. 31, 2020Average
(dollars in millions)1Q214Q201Q20
Cash and due from banks$5,991 $6,252 $5,720 $4,993 $4,595 
Interest-bearing deposits with the Federal Reserve and other central banks125,524 141,775 125,930 112,274 80,403 
Interest-bearing deposits with banks23,763 17,300 21,313 19,281 17,081 
Federal funds sold and securities purchased under resale agreements28,263 30,907 29,186 28,389 34,109 
Total available funds$183,541 $196,234 $182,149 $164,937 $136,188 
Total available funds as a percentage of total assets39 %42 %40 %38 %35 %


Available and liquid fundsSept. 30, 2017
Dec. 31, 2016
Average
(dollars in millions)3Q17
2Q17
3Q16
Available funds:     
Liquid funds:     
Interest-bearing deposits with banks$15,256
$15,086
$15,899
$14,832
$14,066
Federal funds sold and securities purchased under resale agreements27,883
25,801
28,120
26,873
26,376
Total liquid funds43,139
40,887
44,019
41,705
40,442
Cash and due from banks5,557
4,822
4,961
4,972
4,189
Interest-bearing deposits with the Federal Reserve and other central banks75,808
58,041
70,430
69,316
74,102
Total available funds$124,504
$103,750
$119,410
$115,993
$118,733
Total available funds as a percentage of total assets35%31%35%34%34%


We had $43 billion of liquid funds at Sept. 30, 2017 and $41 billionatDec. 31, 2016. Of the $43 billion in liquid funds held at Sept. 30, 2017, $15 billion was placed in interest-bearing deposits with large, highly rated global financial institutions with a weighted-average life to maturity of approximately nine days. Of the $15 billion, $3 billion was placed with banks in the Eurozone.

Total available funds were $125$183.5 billion at Sept. 30, 2017,March 31, 2021, compared with $104$196.2 billion at Dec. 31, 2016.
2020. The increasedecrease was primarily due to an increase inlower interest-bearing deposits with the Federal Reserve and other central banks.


On an average basis for the nine months ended Sept. 30, 2017 and the nine months ended Sept. 30, 2016,Average non-core sources of funds, such as money market rate accounts, federal funds purchased and securities sold under repurchase agreements, trading liabilities, commercial paper and other borrowings,borrowed funds, were $31.9$17.8 billion for both the first three months of 2021 and $25.9 billion, respectively. The increase
the first three months of 2020.


BNY Mellon 33

primarily reflects an increase in securities sold under repurchase agreements.


Average foreign deposits, primarily from our European-based Investment Services business, were $94.1$116.6 billion for the ninefirst three months ended Sept. 30, 2017,of 2021, compared with $105.6$97.7 billion for the ninefirst three months ended Sept. 30, 2016. Domestic savings,of 2020. Average interest-bearing demand and timedomestic deposits averaged $40.0were $128.5 billion for the ninefirst three months ended Sept. 30, 2017of 2021 and $47.8$99.9 billion for the ninefirst three months ended Sept. 30, 2016. of 2020.
The decreaseincrease primarily reflects a decrease in time deposits, partially offset by an increase in demand deposits.increased client activity.


Average payables to customers and broker-dealers were $19.4$17.7 billion for the ninefirst three months ended Sept. 30, 2017of 2021 and $16.9$16.4 billion for the ninefirst three months ended Sept. 30, 2016.of 2020. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.


Long-termAverage long-term debt averaged $27.1was $26.2 billion for the ninefirst three months ended Sept. 30, 2017of 2021 and $22.8$27.2 billion for the ninefirst three months ended Sept. 30, 2016, reflecting issuances of long-term debt.2020.


Average noninterest-bearing deposits decreasedincreased to $72.5$83.4 billion for the ninefirst three months ended Sept. 30, 2017of 2021 from $82.9$60.6 billion for the ninefirst three months ended Sept. 30, 2016,of 2020, primarily reflecting a decrease in client deposits.activity.


A significant reduction in our Investment Services business would reduce our access to deposits. See
BNY Mellon 31

“Asset/liability management” for additional factors that could impact our deposit balances.


Sources of liquidity


In the second quarter of 2017, we entered into a support agreement with certain key subsidiaries to facilitate the provision of capital and liquidity resources in the event of material financial distress or failure. Pursuant to the support agreement, the Parent transferred its intercompany loans and most of its cash to our intermediate holding company (“IHC”), and will continue to transfer cash and other liquid financial assets to the IHC, subject to certain amounts retained by the Parent to meet its near-term cash needs. In connection with the initial transfer, the IHC issued unsecured subordinated funding notes to the Parent. The IHC has also provided the Parent with a committed line of credit that allows the Parent to draw funds necessary to service near-term obligations. The Parent’s and the IHC’s obligations under the support agreement are secured.
The Parent’s three major sources of liquidity are access to the debt and equity markets, dividends from its subsidiaries, and cash on hand and cash otherwise
made available in business-as-usual circumstances to the Parent through a committed credit facility with our IHC.intermediate holding company (“IHC”).

The Parent had cash of $416 million at Sept. 30, 2017, compared with $8.7 billion at Dec. 31, 2016, a decrease of $8.3 billion, primarily reflecting the transfer of cash to the IHC pursuant to the support agreement.



34 BNY Mellon


Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which are as follows:



Credit ratings at Sept. 30, 2017March 31, 2021
Moody’sS&PFitchDBRS
Parent:
Long-term senior debtA1AAA-AA (low)
Subordinated debtA2A-A+AA (high)AA (low)
Preferred stockBaa1BBBBBBBBB+A (low)
Outlook - Parent:– ParentStableStableStableStable
The Bank of New York Mellon:
Long-term senior debtAa2AA-AAAA
Subordinated debtAa3AA+NR
Long-term depositsAa1AA-AA+AA
Short-term depositsP1A-1+F1+R-1 (high)
Commercial paperP1A-1+F1+R-1 (high)
BNY Mellon, N.A.:
Long-term senior debtAa2AA-
AA
(a)AA
Long-term depositsAa1AA-AA+AA
Short-term depositsP1A-1+F1+R-1 (high)
Outlook - Banks:StableStableStableStable
(a)RepresentsLong-term senior debt issuer default rating.Aa2AA-AAAA (high)
Subordinated debtNRANRNR
Long-term depositsAa1AA-AA+AA (high)
Short-term depositsP1A-1+F1+R-1 (high)
Commercial paperP1A-1+F1+R-1 (high)
BNY Mellon, N.A.:
Long-term senior debtAa2(a)AA-
AA
(a)AA (high)
Long-term depositsAa1AA-AA+AA (high)
Short-term depositsP1A-1+F1+R-1 (high)
Outlook – BanksStableStableStableStable
(a)    Represents senior debt issuer default rating.
NR -– Not rated.




Long-term debt totaled $28.4$25.4 billion at Sept. 30, 2017March 31, 2021 and $24.5$26.0 billion at Dec. 31, 2016. The increase reflects issuances2020. A redemption of $4.75$1.0 billion, partially offset by thea maturity of $500 million and a decrease in the redemptionfair value of trust preferred securities.hedged long-term debt were partially offset by issuances of $1.2 billion. The Parent has $250 million$2.75 billion of long-term debt that will mature in the remainder of 2017.2021.


In August 2017, weApril 2021, the Parent redeemed $1.25 billion of the outstanding 2.050% senior notes due May 2021 at par plus accrued and unpaid interest.

In April 2021, the Parent issued $750$600 million of fixed rate senior subordinated notes maturing in 20292024 at an annual interest rate of 3.30%.0.50%, $500 million of fixed rate senior notes maturing in 2028 at an annual interest rate of 1.65% and $400 million of floating rate senior notes maturing in 2024 at an annual interest rate of the compounded secured overnight financing rate (“SOFR”) plus 26 basis points.


The Bank of New York Mellon may issue notes and CDs. At March 31, 2021 and Dec. 31, 2020, $30 million of notes were outstanding. There were no CDs outstanding at March 31, 2021 and $100 million outstanding at Dec. 31, 2020.

The Bank of New York Mellon our largest bank subsidiary,also issues commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. The average commercial paper borrowings were $2.7 billion in the third quarter of 2017 and $1.2 billion in the third quarter of 2016. Commercial paper outstanding was $2.5 billion at Sept. 30, 2017. There was no commercial paper outstanding at March 31, 2021 and Dec. 31, 2016.2020. The average commercial paper outstanding was $1.6 billion for the first three months of 2020.


Subsequent to Sept. 30, 2017,March 31, 2021, our U.S. bank subsidiaries could declare dividends to the Parent of approximately $6.2$1.9 billion, without the need for a regulatory waiver. In addition, at Sept. 30, 2017,March 31, 2021, non-bank subsidiaries of the Parent had liquid assets of approximately $1.6$3.6 billion. Restrictions on our ability to obtain funds from our subsidiaries are
32 BNY Mellon

discussed in more detail in “Supervision and Regulation -– Capital Planning and Stress Testing -– Payment of Dividends, Stock Repurchases and Other Capital Distributions” and in Note 1719 of the Notes to Consolidated Financial Statements, both in our 20162020 Annual Report.


Pershing LLC has uncommitted lines of credit in place for liquidity purposes which are guaranteed by the Parent. Pershing LLC has eighttwo separate uncommitted lines of credit amounting to $1.5 billion$350 million in aggregate. There were no borrowings under these lines in the thirdfirst quarter of 2017.2021. Pershing Limited, an indirect UK-based subsidiary of BNY Mellon, has two separate uncommitted lines of credit amounting to $250$267 million in aggregate. Average borrowings under these lines were $6$71 million, in aggregate, in the thirdfirst quarter of 2017.2021.


The double leverage ratio is the ratio of our equity investment in subsidiaries divided by our consolidated parentParent company equity, which includes our noncumulative perpetual preferred stock. In short, the double leverage ratio measures the extent to which equity in subsidiaries is financed by Parent company debt. As the double leverage ratio increases, this can reflect greater demands on a company’s cash flows in order to service interest payments and debt maturities. BNY Mellon’s double leverage ratio is managed in a range considering the


BNY Mellon 35

high level of unencumbered available liquid assets held in its principal subsidiaries (such as central bank depositsdeposit placements and government securities), the Company’s cash generating fee-based business model, with feesfee revenue representing approximately 80%83% of total revenue in the first quarter of 2021, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 123.2%115.7% at Sept. 30, 2017March 31, 2021 and 119.1%114.3% at Dec. 31, 2016,2020, and within the range targeted by management.


Uses of funds


The Parent’s major uses of funds are payment of dividends, repurchases of common stock, payment of dividends, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries.


In August 2017,February 2021, a quarterly cash dividend of $0.31 per common share was paid to common shareholders of $0.24 per common share.shareholders. Our common stock dividend payout ratio was 23%32% for the first nine monthsquarter of 2017. The Federal Reserve’s instructions for the 2017 CCAR provided that, for large bank holding companies like us, dividend payout ratios exceeding 30% of after-tax net income would receive particularly close scrutiny.2021.


In the thirdfirst quarter of 2017,2021, we repurchased 1216.8 million common shares at an average price of $52.74$41.68 per common share, for a total cost of $650$699 million.


See “Recent regulatory developments” for additional information on the modified restrictions on common stock repurchases and common stock dividends applicable to the first and second quarters of 2021. Also see “Supervision and Regulation – Capital Planning and Stress Testing – Payment of Dividends, Stock Repurchases and Other Capital Distributions” in our 2020 Annual Report for additional information related to the 2020 CCAR.

Liquidity coverage ratio (“LCR”)


U.S. regulators have established an LCR that requires certain banking organizations, including BNY Mellon, to maintain a minimum amount of unencumbered high qualityhigh-quality liquid assets (“HQLA”) sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day time horizon.


The following table presents theBNY Mellon’s consolidated HQLA at Sept. 30, 2017,March 31, 2021, and the average HQLA and average LCR for the thirdfirst quarter of 2017.2021.


Consolidated HQLA and LCRSept. 30, 2017
(dollars in billions)
Securities (a)
$105
Cash (b)
70
Total consolidated HQLA (c)
$175
  
Total consolidated HQLA - average (c)
$162
Average LCR119%
Consolidated HQLA and LCRMarch 31, 2021
(dollars in billions)
Securities (a)
$120
Cash (b)
126
Total consolidated HQLA (c)
$246
(a)
Total consolidated HQLA – average (c)
Primarily includes U.S. Treasury, U.S. agency, sovereign securities, securities of U.S. government-sponsored enterprises, investment-grade corporate debt and publicly traded common equity.$
243
(b)Average LCRPrimarily includes cash on deposit with central banks.110%
(c)Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $137 billion at Sept. 30, 2017 and averaged $126 billion for the third quarter of 2017.


(a)    Primarily includes securities of U.S. government-sponsored enterprises, U.S. Treasury, sovereign securities, U.S. agency and investment-grade corporate debt.
The U.S. LCR rule became fully phased-in(b)    Primarily includes cash on Jan. 1, 2017deposit with central banks.
(c)    Consolidated HQLA presented before adjustments. After haircuts and requires the impact of trapped liquidity, consolidated HQLA totaled $182 billion at March 31, 2021 and averaged $176 billion for the first quarter of 2021.


BNY Mellon and each of our affected domestic bank subsidiaries to meet an LCR of at least 100%. The LCR for BNY Mellon and each of our domestic bank subsidiaries waswere compliant with the U.S. LCR requirements forof at least 100% throughout the thirdfirst quarter of 2017. For additional information on the LCR, see “Supervision and Regulation - Liquidity Standards - Basel III and U.S. Rules and Proposals” in our 2016 Annual Report.

We also perform liquidity stress tests to evaluate whether the Company maintains sufficient liquidity resources under multiple stress scenarios. Stress tests are based on scenarios that measure liquidity risks under unlikely but plausible conditions. We perform these tests under various time horizons ranging from one day to one year in a base case, as well as supplemental tests to determine whether the Company’s liquidity is sufficient for severe market events and firm-specific events. Under our scenario testing program, the results of the tests indicate that the Company has sufficient liquidity.

As part of our resolution planning, we monitor, among other measures, our Resolution Liquidity Adequacy and Positioning (“RLAP”).  The RLAP methodologies are designed to ensure that the liquidity needs of certain key subsidiaries in a stress environment can be met by available resources held at the entity or at the Parent or IHC, as applicable. 

2021.


36 BNY Mellon 33


Statement of cash flows


The following summarizes the activity reflected on the consolidated statement of cash flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity and dividends and asset/liability management herein may provide more useful context in evaluating our liquidity position and related activity.


Net cash used for operating activities was $3.2 billion in the three months ended March 31, 2021, compared with $1.7 billion in the three months ended March 31, 2020. In the three months ended March 31, 2021 cash flows used for operations primarily resulted from changes in trading assets and liabilities and change in accruals and other, net, partially offset by earnings. In the three months ended March 31, 2020, cash flows used for operations primarily resulted from changes in accruals and other, net, partially offset by earnings and changes in trading assets and liabilities.

Net cash provided by operatinginvesting activities was $3.4$4.7 billion in the ninethree months ended Sept. 30, 2017, March 31, 2021,
compared with $1.6 billion in the nine months ended Sept. 30, 2016. In the first nine months of 2017, cash flows provided by operations were principally the result of earnings. In the first nine months of 2016, cash flows provided by operations were principally the result of earnings and changes in trading activities, partially offset by changes in accruals.

Netnet cash used for investing activities was $14.0of $78.6 billion in the ninethree months ended Sept. 30, 2017, compared withMarch 31, 2020. In the three months ended March 31, 2021, net cash provided by investing activities
of $21.1 billion in the nine months ended Sept. 30, 2016. In the first nine months of 2017, primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, was a significant use of funds.partially offset by changes in interest-bearing deposits with banks and net change in loans. In the first ninethree months of 2016,ended March 31, 2020, net cash used for investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks was a significant source of funds, partially offset byand net changes in federal funds soldsecurities, loans and securities purchased under resale agreements.interest-bearing deposits with banks.


Net cash used for financing activities was $1.5 billion in the three months ended March 31, 2021, compared with net cash provided by financing activities was $11.2of $82.9 billion in the ninethree months ended Sept. 30, 2017, compared withMarch 31, 2020. In the three months ended March 31, 2021, net cash used for financing activities of $24.2 billionprimarily reflects changes in the nine months ended Sept. 30, 2016. In the first nine months of 2017, the proceeds from the issuancedeposits, repayments of long-term debt and changes in depositspayables to customers and increases in commercial paper and other borrowed funds were significant sources of funds,broker-dealers, partially offset by common stock repurchased. In the first nine months of 2016, changes in deposits, changes in federal funds purchased and securities sold under repurchase agreements, repayment of long-term debt and treasury stock repurchases were significant uses of funds, partially offsetrepurchased agreements. In the three months ended March 31, 2020, net cash provided by the issuance of long-term debt.financing activities primarily reflects changes in deposits.



Capital


Capital data
(dollars in millions, except per share amounts; common shares in thousands)
March 31, 2021Dec. 31, 2020
Average common equity to average assets8.8 %9.3 %
At period end:
BNY Mellon shareholders’ equity to total assets ratio9.7 %9.8 %
BNY Mellon common shareholders’ equity to total assets ratio8.7 %8.8 %
Total BNY Mellon shareholders’ equity$44,954 $45,801 
Total BNY Mellon common shareholders’ equity$40,413 $41,260 
BNY Mellon tangible common shareholders’ equity – Non-GAAP (a)
$21,779 $22,563 
Book value per common share$46.16 $46.53 
Tangible book value per common share – Non-GAAP (a)
$24.88 $25.44 
Closing stock price per common share$47.29 $42.44 
Market capitalization$41,401 $37,634 
Common shares outstanding875,481 886,764 
Cash dividends per common share$0.31 $0.31 
Common dividend payout ratio32 %39 %
Common dividend yield2.7 %2.9 %
(a)    See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 42 for a reconciliation of GAAP to Non-GAAP.


Capital data
(dollar amounts in millions except per share amounts; common shares in thousands)
Sept. 30, 2017
June 30, 2017
Dec. 31, 2016
Average common equity to average assets10.6%10.5%10.2%
    
At period end:   
BNY Mellon shareholders’ equity to total assets ratio11.4%11.3%11.6%
BNY Mellon common shareholders’ equity to total assets ratio10.4%10.3%10.6%
Total BNY Mellon shareholders’ equity$40,523
$39,974
$38,811
Total BNY Mellon common shareholders’ equity$36,981
$36,432
$35,269
BNY Mellon tangible common shareholders’ equity – Non-GAAP (a)
$18,630
$18,106
$16,957
Book value per common share (a)
$36.11
$35.26
$33.67
Tangible book value per common share – Non-GAAP (a)
$18.19
$17.53
$16.19
Closing stock price per common share$53.02
$51.02
$47.38
Market capitalization$54,294
$52,712
$49,630
Common shares outstanding1,024,022
1,033,156
1,047,488
    
Cash dividends per common share$0.24
$0.19
$0.19
Common dividend payout ratio26%22%25%
Common dividend yield1.8%1.5%1.6%
(a)See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 49 for a reconciliation of GAAP to Non-GAAP.




34 BNY Mellon 37


The Bank of New York Mellon Corporation total shareholders’ equity increaseddecreased to $40.5$45.0 billion at Sept. 30, 2017March 31, 2021 from $38.8$45.8 billion at Dec. 31, 2016.2020. The increasedecrease primarily reflects earnings, foreign currency translation adjustments, $638 million resulting fromunrealized losses on securities available-for-sale, common stock awards, the exercise of stock optionsrepurchases and stock issued for employee benefit plans, and the unrealized gain in our investment securities portfolio,dividends, partially offset by share repurchases and dividends.earnings.


The unrealized gain net of tax,(after-tax) on our available-for-sale investment securities portfolio, recordednet of hedges, included in accumulated other comprehensive income was $226$776 million at Sept. 30, 2017,March 31, 2021, compared with $45 million$1.5 billion at Dec. 31, 2016.2020. The increasedecrease in the unrealized gain, net of tax, was primarily driven by a decrease in long-termhigher market interest rates.


Our 2017 capital plan, submitted in connection with our CCAR, includedIn the authorization to repurchase an average of $650 million of common stock each quarter starting in the thirdfirst quarter of 2017 and continuing through the second quarter of 2018. In the third quarter of 2017,2021, we repurchased 1216.8 million common shares at an average price of $52.74$41.68 per common share for a total cost of $650 million.$699 million under the current program.


Also includedIn December 2020, the Federal Reserve released the results of the second round of CCAR stress tests during 2020 and extended the restriction on common stock dividends and open market common stock repurchases applicable to participating CCAR BHCs, including us, to the first quarter of 2021, with certain modifications. In March 2021, the Federal Reserve extended these restrictions through the second quarter of 2021. Under the modified restrictions, we are authorized to conduct open market common stock repurchases in an amount up to approximately $600 million in the 2017second quarter of 2021. See “Recent regulatory developments” for additional information on the restrictions on capital plan was a 26% increase in the quarterly cash dividend to $0.24 per common share. The first payment of the increased quarterly cash dividend was made on Aug. 11, 2017.distributions.

Capital adequacy


Regulators establish certain levels of capital for bank holding companiesBHCs and banks, including BNY Mellon and our bank subsidiaries, in accordance with established quantitative measurements. For the Parent to maintain its status as a financial holding company (“FHC”), our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.”

As of Sept. 30, 2017March 31, 2021 and Dec. 31, 2016, 2020, BNY Mellon and our U.S. bank subsidiaries were “well capitalized.”

Failure to satisfy regulatory standards, including “well capitalized” status or capital adequacy rules more generally, could result in limitations on our activities and adversely affect our financial condition. See the discussion of these matters in “Supervision and Regulation -– Regulated Entities of BNY Mellon and Ancillary Regulatory Requirements” and “Risk Factors -– Operational Risk -– Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition”condition,” both of which are in our 20162020 Annual Report.

The “well capitalized” and other capital categories (where applicable), as established by applicable regulations for bank holding companies and depository institutions, have been established by those regulations solely for purposes of implementing their respective requirements (for example, eligibility for financial holding company status in the case of bank holding companies and prompt corrective action measures in the case of depository institutions). A bank holding company’s or depository institution’s qualification for a capital category may not constitute an accurate representation of the entity’s overall financial condition or prospects.


The U.S. banking agencies’ capital rules are based on the framework adopted by the Basel Committee on Banking Supervision (“BCBS”), as amended from time to time. For additional information on these capital requirements, see “Supervision and Regulation” in our 20162020 Annual Report.

BNY Mellon is subject to the U.S. capital rules, which are being gradually phased-in over a multi-year period through 2018.35

Our estimated CET1 and SLR ratios on a fully phased-in basis are based on our current interpretation of the U.S. capital rules. Our risk-based capital adequacy is determined using the higher of risk-weighted assets (“RWAs”) determined using the Advanced Approach and Standardized Approach.



38 BNY Mellon


The transitional capital ratios for Sept. 30, 2017 and June 30, 2017 included in the following table were negatively impacted by the additional phase-in requirements that became effective on Jan. 1, 2017.

Consolidated and largest bank subsidiary regulatory capital ratiosSept. 30, 2017    
Well capitalized
 Minimum
required
 
Capital
ratios

 June 30, 2017
 Dec. 31, 2016
 (a)  
Consolidated regulatory capital ratios: (b)
         
Standardized Approach:         
CET1 ratioN/A
(c)6.5% 12.3% 12.0% 12.3%
Tier 1 capital ratio6% 8
 14.6
 14.3
 14.5
Total (Tier 1 plus Tier 2) capital ratio10
 10
 15.6
 14.8
 15.2
Advanced Approach:         
CET1 ratioN/A
(c)6.5% 11.1% 10.8% 10.6%
Tier 1 capital ratio6% 8
 13.2
 12.9
 12.6
Total (Tier 1 plus Tier 2) capital ratio10
 10
 14.0
 13.2
 13.0
Leverage capital ratio (b)
N/A
(c)4
 6.8
 6.7
 6.6
SLR (d)
5
(c)(e)3
 6.3
 6.2
 6.0
          
Selected regulatory capital ratios – fully phased-in – Non-GAAP: (c)
         
Estimated CET1 ratio:         
Standardized Approach8.5%(e)6.5% 11.9% 11.5% 11.3%
Advanced Approach8.5
(e)6.5
 10.7
 10.4
 9.7
Estimated SLR5
(e)3
 6.1
 6.0
 5.6
          
The Bank of New York Mellon regulatory capital ratios: (b)
         
Advanced Approach:         
CET1 ratio6.5% 5.75% 14.8% 14.1% 13.6%
Tier 1 capital ratio8
 7.25
 15.1
 14.4
 13.9
Total (Tier 1 plus Tier 2) capital ratio10
 9.25
 15.5
 14.8
 14.2
Leverage capital ratio5
 4
 7.8
 7.6
 7.2
SLR (d)
6
 3
 7.1
 6.9
 6.5
          
Selected regulatory capital ratios – fully phased-in – Non-GAAP:
         
Estimated SLR6% 3% 6.8% 6.7% 6.1%
(a)
Minimum requirements for Sept. 30, 2017 include Basel III minimum thresholds plus currently applicable buffers.
(b)
For our CET1, Tier 1 capital 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. The leverage capital ratio is based on Tier 1 capital, as phased-in and quarterly average total assets.
(c)
The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for bank holding companies.
(d)
The SLR does not become a binding measure until the first quarter of 2018. The SLR is based on Tier 1 capital, as phased-in, and average quarterly assets and certain off-balance sheet exposures.
(e)
Fully phased-in Basel III minimum with expected buffers. See page 41 for the capital ratios with the phase-in of the capital conservation buffer and the U.S. G-SIB surcharge, as well as the introduction of the SLR buffer.


Our CET1 ratio determined under the Advanced Approach was 11.1% at Sept. 30, 2017 and 10.6% at Dec. 31, 2016. The increase primarily reflects CET1 generation, partially offset by the additional phase-in requirements under the U.S. capital rules that became effective Jan. 1, 2017.

Our estimated CET1 ratio (Non-GAAP) calculated under the Advanced Approach on a fully phased-in basis was 10.7% at Sept. 30, 2017 and 9.7% at Dec. 31, 2016. The increase primarily reflects CET1 generation. Our estimated CET1 ratio (Non-GAAP) calculated under the Standardized Approach on a
fully phased-in basis was 11.9% at Sept. 30, 2017 and 11.3% at Dec. 31, 2016.

The estimated fully phased-in SLR (Non-GAAP) of 6.1% at Sept. 30, 2017table below presents our consolidated and 5.6% at Dec.largest bank subsidiary regulatory capital ratios.

Consolidated and largest bank subsidiary regulatory capital ratiosMarch 31, 2021Dec. 31, 2020
Well capitalizedMinimum requiredCapital
ratios		Capital
ratios
(a)
Consolidated regulatory capital ratios: (b)
Advanced Approaches:
CET1 ratioN/A(c)8.5 %12.6 %13.1 %
Tier 1 capital ratio6 %10 15.3 15.8 
Total capital ratio10 12 16.1 16.7 
Standardized Approach:
CET1 ratioN/A(c)8.5 %12.6 %13.4 %
Tier 1 capital ratio6 %10 15.2 16.1 
Total capital ratio10 12 16.2 17.1 
Tier 1 leverage ratioN/A(c)4 5.8 6.3 
SLR (d)(e)
N/A(c)5 8.1 8.6 
The Bank of New York Mellon regulatory capital ratios: (b)
Advanced Approaches:
CET1 ratio6.5 %7 %16.8 %17.1 %
Tier 1 capital ratio8 8.5 16.8 17.1 
Total capital ratio10 10.5 17.0 17.3 
Tier 1 leverage ratio5 4 6.1 6.4 
SLR (d)
6 3 8.2 8.5 
(a)    Minimum requirements for March 31, 2016 was based on our interpretation of the U.S. capital rules, as supplemented by the Federal Reserve’s final rules on the SLR. BNY Mellon will be subject to an enhanced SLR, which will require a buffer in excess of 2% over the2021 include minimum SLR of 3%.thresholds plus currently applicable buffers. The insured depository institution subsidiaries of the U.S. global systemically important banks (“G-SIBs”G-SIB”) surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. The stress capital buffer (“SCB”) requirement is 2.5%, including
equal to the regulatory minimum for Standardized Approach capital ratios.


BNY Mellon 39

those of BNY Mellon, must maintain a 6% SLR to be considered “well capitalized.”

(b)    For additional information on theour CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules see “Supervisionare the lower of the ratios as calculated under the Standardized and Regulation - Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets.
(c)    The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs.
(d)    The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures.
(e)    The consolidated SLR at March 31, 2021 and Dec. 31, 2020 reflects the temporary exclusion of U.S. Treasury securities from total leverage exposure which increased our consolidated SLR by 68 basis points and 72 basis points, respectively. The temporary exclusion ceased to apply beginning April 1, 2021.


Our CET1 ratio was 12.6% at March 31, 2021 determined under the Standardized Approach and was 13.1% at Dec. 31, 2020 under the Advanced Approaches. The decrease primarily reflects unrealized losses on securities available-for-sale, capital deployed through common stock repurchases and dividends and an increase in RWAs under the Standardized Approach, partially offset by capital generated through earnings.

Capital Requirements - Generally”ratios vary depending on the size of the balance sheet at period-end and the levels and types of investments in assets. The balance sheet size fluctuates from period to period based on levels of customer and market activity. In general, when servicing clients are more actively trading securities, deposit balances and the balance sheet as a whole are higher. In addition, when markets experience significant volatility or stress, our 2016 Annual Report.balance sheet size may increase considerably as client deposit levels increase.

The Advanced Approach
Our capital ratios are significantly impactednecessarily subject to, among other things, anticipated compliance with all necessary enhancements to model calibration, approval by RWAs for operational risk. Ourregulators 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. As a consequence of these factors, our capital ratios may materially change, and may be volatile over time and from period to period.

Under the Advanced Approaches, our operational loss risk model is informed by external losses, including fines and penalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a result external losses have impacted and could in the future impact the amount of capital that we are required to hold.


Management views the estimated fully phased-in CET1 and other risk-based capital ratios and 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 SLR are intended to allow investors to compare these ratios with estimates presented by other companies.

Our capital ratios are necessarily subject to, among other things, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, further implementation guidance from regulators, market practices and standards and any changes36 BNY Mellon may make to its businesses. As a consequence of these factors, our capital ratios may materially change, and may be volatile over time and from period to period.

Minimum capital ratios and capital buffers

The U.S. capital rules include a series of buffers and surcharges over required minimums that apply to bank holding companies, including BNY Mellon, which are being phased-in over time. Banking organizations with a risk-based ratio or SLR above the minimum required level, but with a risk-based ratio or SLR below the minimum level with buffers
will face constraints on dividends, equity repurchases and discretionary executive compensation based on the amount of the shortfall. Different regulatory capital minimums, buffers and surcharges apply to our banking subsidiaries.

The U.S. capital rules introduced a capital conservation buffer and countercyclical capital buffer that add to the minimum regulatory capital ratios. The capital conservation buffer–1.25% for 2017 and 2.5% when fully phased-in on Jan. 1, 2019–is designed to absorb losses during periods of economic stress and applies to all banking organizations. During periods of excessive growth, the capital conservation buffer may be expanded through the imposition of a countercyclical capital buffer that may be as high as an additional 2.5%. The countercyclical capital buffer, when applicable, applies only to Advanced Approach banking organizations. The countercyclical capital buffer is currently set to zero with respect to U.S. exposures, but it could increase if the banking agencies determine that systemic vulnerabilities are meaningfully above normal.

BNY Mellon is subject to an additional G-SIB surcharge, which is implemented as an extension of the capital conservation buffer and must be satisfied with CET1 capital. For 2017, the G-SIB surcharge applicable to BNY Mellon is 0.75%, and, when fully phased-in on Jan. 1, 2019, as calculated, applying metrics as currently applicable to BNY Mellon, would be 1.5%.

The following table presents the principal minimumour capital ratio requirementscomponents and RWAs.

Capital components and risk-weighted assetsMarch 31, 2021Dec. 31, 2020
(in millions)
CET1:
Common shareholders’ equity$40,413 $41,260 
Adjustments for:
Goodwill and intangible assets (a)
(18,634)(18,697)
Net pension fund assets(321)(319)
Equity method investments(307)(306)
Deferred tax assets(53)(54)
Other(8)(9)
Total CET121,090 21,875 
Other Tier 1 capital:
Preferred stock4,541 4,541 
Other(97)(106)
Total Tier 1 capital$25,534 $26,310 
Tier 2 capital:
Subordinated debt$1,248 $1,248 
Allowance for credit losses409 490 
Other(1)(10)
Total Tier 2 capital – Standardized Approach1,656 1,728 
Excess of expected credit losses127 247 
Less: Allowance for credit losses409 490 
Total Tier 2 capital – Advanced Approaches$1,374 $1,485 
Total capital:
Standardized Approach$27,190 $28,038 
Advanced Approaches$26,908 $27,795 
Risk-weighted assets:
Standardized Approach$167,510 $163,848 
Advanced Approaches:
Credit Risk$99,398 $98,262 
Market Risk3,599 4,226 
Operational Risk64,038 63,938 
Total Advanced Approaches$167,035 $166,426 
Average assets for Tier 1 leverage ratio$440,968 $417,982 
Total leverage exposure for SLR$314,334 $304,823 
(a)    Reduced by deferred tax liabilities associated with buffersintangible assets and surcharges, as phased-in, applicable to the Parent and The Bank of New York Mellon. This table does not include the imposition of a countercyclical capital buffer. The U.S. capital rules also provide for transitional arrangements for qualifying instruments, deductions and adjustments, which are not reflected in this table. Buffers and surcharges are not applicable to the leverage capital ratio. These buffers, other than the SLR buffer, and surcharge began to phase-in on Jan. 1, 2016 and will be fully implemented on Jan. 1, 2019.
tax-deductible goodwill.


40 BNY Mellon

Capital ratio requirementsWell capitalized
 Minimum ratios
 
Minimum ratios with buffers, as phased-in (a)
   2017
 2018
 2019
 
Capital conservation buffer (CET1)    1.25% 1.875% 2.5% 
U.S. G-SIB surcharge (CET1) (b)(c)
    0.75% 1.125% 1.5% 
           
Consolidated:          
CET1 ratioN/A
 4.5% 6.5% 7.5% 8.5% 
Tier 1 capital ratio6.0% 6.0% 8.0% 9.0% 10.0% 
Total capital ratio10.0% 8.0% 10.0% 11.0% 12.0% 
           
Enhanced SLR buffer (Tier 1 capital)N/A
   N/A
 2.0% 2.0% 
SLRN/A
 3.0% N/A
 5.0% 5.0% 
           
Bank subsidiaries: (c)
          
CET1 ratio6.5% 4.5% 5.75% 6.375% 7.0% 
Tier 1 capital ratio8.0% 6.0% 7.25% 7.875% 8.5% 
Total capital ratio10.0% 8.0% 9.25% 9.875% 10.5% 
           
SLR6.0% 3.0% N/A
 6.0%(d)6.0%(d)
(a)
Countercyclical capital buffer currently set to 0%.
(b)
The fully phased-in U.S. G-SIB surcharge of 1.5% applicable to BNY Mellon is subject to change.
(c)
The U.S. G-SIB surcharge is not applicable to the regulatory capital ratios of the bank subsidiaries.
(d)
Well capitalized threshold.


The table below presents the factors that impacted the transitional and fully phased-in CET1.CET1 capital.


Estimated CET1 generationQuarter ended Sept. 30, 2017
(in millions)
Transitional basis (a)

Fully phased-in - Non-GAAP (b)

CET1 – Beginning of period$18,371
$17,629
Net income applicable to common shareholders of The Bank of New York Mellon Corporation983
983
Goodwill and intangible assets, net of related deferred tax liabilities(33)(26)
Gross CET1 generated950
957
Capital deployed:  
Common stock dividends(253)(253)
Common stock repurchased(650)(650)
Total capital deployed(903)(903)
Other comprehensive income:  
Foreign currency translation281
281
Unrealized loss on assets available-for-sale13
16
Defined benefit plans12
15
Total other comprehensive income306
312
Additional paid-in capital (c)
156
156
Other additions (deductions):  
Deferred tax assets(1)(2)
Embedded goodwill(9)(8)
Total other deductions(10)(10)
Net CET1 generated499
512
CET1 – End of period$18,870
$18,141
CET1 generation1Q21
(in millions)
CET1 – Beginning of period$21,875
Net income applicable to common shareholders of The Bank of New York Mellon Corporation858
Goodwill and intangible assets, net of related deferred tax liabilities63
Gross CET1 generated921
Capital deployed:
Common stock dividends (a)
(277)
Common stock repurchases(699)
Total capital deployed(976)
Other comprehensive income:
Unrealized loss on assets available-for-sale(703)
Foreign currency translation(150)
Unrealized loss on cash flow hedges(3)
Defined benefit plans22
(a)Total other comprehensive incomeReflects transitional adjustments to CET1 required under the U.S. capital rules.
(834)
Additional paid-in capital (b)
Estimated.
105
(c)Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.



BNY Mellon 41

The following table presents the components of our transitional and fully phased-in CET1, Tier 1 and Tier 2 capital, the RWAs determined under both the Standardized and Advanced Approaches, the average assets used for leverage capital purposes and the total leverage exposure for estimated SLR purposes.

Capital components and ratiosSept. 30, 2017 June 30, 2017 Dec. 31, 2016
(dollars in millions)
Transitional
Approach (a)

Fully
phased-in - Non-GAAP (b)

 
Transitional
Approach (a)

Fully
phased-in - Non-GAAP (b)

 
Transitional
Approach (a)

Fully
phased-in - Non-GAAP (b)

CET1:        
Common shareholders’ equity$37,195
$36,981
 $36,652
$36,432
 $35,794
$35,269
Goodwill and intangible assets(17,876)(18,351) (17,843)(18,325) (17,314)(18,312)
Net pension fund assets(72)(90) (72)(90) (55)(90)
Equity method investments(334)(348) (325)(340) (313)(344)
Deferred tax assets(31)(39) (30)(37) (19)(32)
Other(12)(12) (11)(11) —
(1)
Total CET118,870
18,141

18,371
17,629
 18,093
16,490
Other Tier 1 capital:        
Preferred stock3,542
3,542
 3,542
3,542
 3,542
3,542
Deferred tax assets(8)—
 (7)—
 (13)—
Net pension fund assets(19)—
 (18)—
 (36)—
Other(34)(34) (24)(24) (121)(121)
Total Tier 1 capital$22,351
$21,649

$21,864
$21,147
 $21,465
$19,911
Tier 2 capital:        
Subordinated debt$1,300
$1,250
 $550
$550
 $550
$550
Allowance for credit losses265
265
 270
270
 281
281
Trust preferred securities—
—
 —
—
 148
—
Other(7)(7) (7)(7) (12)(11)
Total Tier 2 capital - Standardized Approach1,558
1,508

813
813
 967
820
Excess of expected credit losses49
49
 59
59
 50
50
Less: Allowance for credit losses265
265
 270
270
 281
281
Total Tier 2 capital - Advanced Approach$1,342
$1,292

$602
$602
 $736
$589
Total capital:        
Standardized Approach$23,909
$23,157
 $22,677
$21,960
 $22,432
$20,731
Advanced Approach$23,693
$22,941
 $22,466
$21,749
 $22,201
$20,500

        
Risk-weighted assets:        
Standardized Approach$153,494
$152,995
 $153,179
$152,645
 $147,671
$146,475
Advanced Approach:        
Credit Risk$98,201
$97,672
 $99,030
$98,465
 $97,659
$96,391
Market Risk2,996
2,996
 3,225
3,225
 2,836
2,836
Operational Risk68,625
68,625
 67,788
67,788
 70,000
70,000
Total Advanced Approach$169,822
$169,293

$170,043
$169,478
 $170,495
$169,227
         
Standardized Approach:        
CET1 ratio12.3%11.9% 12.0%11.5% 12.3%11.3%
Tier 1 capital ratio14.6
14.2
 14.3
13.9
 14.5
13.6
Total (Tier 1 plus Tier 2) capital ratio15.6
15.1
 14.8
14.4
 15.2
14.2
Advanced Approach:        
CET1 ratio11.1%10.7% 10.8%10.4% 10.6%9.7%
Tier 1 capital ratio13.2
12.8
 12.9
12.5
 12.6
11.8
Total (Tier 1 plus Tier 2) capital ratio14.0
13.6
 13.2
12.8
 13.0
12.1
         
Average assets for leverage capital purposes$327,555
  $324,423
  $326,809
 
Total leverage exposure for SLR purposes $355,960
  $352,448
  $355,083
Other additions (deductions):
(a)Net pension fund assetsReflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2017 and 2016 under the U.S. capital rules.
(2)
(b)Embedded goodwillEstimated.(1)
Deferred tax assets1
Other1
Total other deductions(1)
Net CET1 deployed(785)
CET1 – End of period$21,090


(a)    Includes dividend-equivalents on share-based awards.

(b)    Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
42 BNY Mellon



The following table shows the impact on the consolidated capital ratios at Sept. 30, 2017March 31, 2021 of a $100 million increase or decrease in common equity, or a $1 billion increase or decrease in RWAs, quarterly average assets or total leverage exposure.


Sensitivity of consolidated capital ratios at March 31, 2021
 Increase or decrease of
(in basis points)$100 million
in common 
equity		$1 billion in RWA, quarterly average assets or total leverage exposure
CET1:
Standardized Approach6bps8bps
Advanced Approaches68
Tier 1 capital:
Standardized Approach69
Advanced Approaches69
Total capital:
Standardized Approach610
Advanced Approaches610
Tier 1 leverage21
SLR33
Sensitivity of consolidated capital ratios at Sept. 30, 2017
 Increase or decrease of
(in basis points)
$100 million
in common 
equity
$1 billion in 
RWA, quarterly
average assets or total leverage exposure
CET1:    
Standardized Approach7bps8bps
Advanced Approach6 7 
     
Tier 1 capital:    
Standardized Approach7 10 
Advanced Approach6 8 
     
Total capital:    
Standardized Approach7 10 
Advanced Approach6 8 
     
Leverage capital3 2 
     
SLR3 2 
     
Estimated CET1 ratio, fully phased-in – Non-GAAP:    
Standardized Approach7 8 
Advanced Approach6 6 
     
Estimated SLR, fully phased-in – Non-GAAP3 2 

Capital ratios vary depending on the size of the balance sheet at quarter-end and the levels and types of investments in assets. The balance sheet size fluctuates from quarter to quarter based on levels of customer and market activity. In general, when servicing clients are more actively trading securities, deposit balances and the balance sheet as a whole are higher. In addition, when markets experience significant volatility or stress, our balance sheet size may increase considerably as client deposit levels increase.

Supplementary Leverage Ratio

BNY Mellon has presented its37

Effective April 1, 2020 and lasting through March 31, 2021, BHCs were permitted to temporarily exclude U.S. Treasury securities from total leverage exposure used in the SLR calculation. This temporary exclusion increased our consolidated SLR by 68 basis points at March 31, 2021 and largest72 basis points at Dec. 31, 2020. The temporary exclusion also impacted the TLAC and LTD calculations. BNY Mellon and The Bank of New York Mellon, as custody banks, will continue to be able to exclude certain central bank subsidiary’s estimated fully phased-in SLRs based on its interpretationplacements from the total leverage exposure used in the SLR calculation, consistent with the amendments to the SLR finalized by the U.S. banking agencies in 2019 pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act. See “Recent regulatory developments” for additional information.

Stress capital buffer

In August 2020, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory floor, effective as of Oct. 1, 2020. The SCB replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios for CCAR BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the static 2.5% capital conservation buffer.

The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements and buffers, including the SCB. In conjunction with the release of the 2020 CCAR results, the Federal Reserve imposed restrictions on capital distributions as described earlier in “Capital” and “Recent regulatory developments.”

Total Loss-Absorbing Capacity (“TLAC”)

The final TLAC rule establishing external TLAC, external long-term debt (“LTD”) and related requirements for U.S. capital rules, which are being gradually phased-in over a multi-year period andG-SIBs, including BNY Mellon, at the top-tier holding company level became effective on Jan. 1, 2019. The following summarizes the application of such rules tominimum requirements for BNY Mellon’s businesses asexternal TLAC and external LTD ratios, plus currently conducted.

applicable buffers.


As a % of RWAs (a)
As a % of total leverage exposure
Eligible external TLAC ratios
Regulatory minimum of 18% plus a buffer (b) equal to the sum of 2.5%, the method 1 G-SIB surcharge (currently 1%), and the countercyclical capital buffer, if any
Regulatory minimum of 7.5% plus a buffer (c) equal to 2%
Eligible external LTD ratiosRegulatory minimum of 6% plus the greater of the method 1 or method 2 G-SIB surcharge (currently 1.5%)4.5%
BNY Mellon 43(a)    RWA is the greater of Standardized and Advanced Approaches.
(b)    Buffer to be met using only CET1.

(c)    Buffer to be met using only Tier 1 capital.


External TLAC consists of the Parent’s Tier 1 capital and eligible unsecured LTD issued by it that has a remaining term to maturity of at least one year and satisfies certain other conditions. Eligible LTD consists of the unpaid principal balance of eligible unsecured debt securities, subject to haircuts for amounts due to be paid within two years, that satisfy certain other conditions. Debt issued prior to Dec. 31, 2016 has been permanently grandfathered to the extent these instruments otherwise would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.

The following table presents the components of our SLR on both the transitionalexternal TLAC and fully phased-in basis forexternal LTD ratios.

TLAC and LTD ratiosMarch 31, 2021
Minimum
required		Minimum ratios
with buffers
Ratios
Eligible external TLAC:
As a percentage of RWA18.0 %21.5 %27.5 %
As a percentage of total leverage exposure7.5 %9.5 %14.6 %
Eligible external LTD:
As a percentage of RWA7.5 %N/A11.4 %
As a percentage of total leverage exposure4.5 %N/A6.1 %
N/A – Not applicable.


If BNY Mellon maintains risk-based ratio or leverage TLAC measures above the minimum required level, but with a risk-based ratio or leverage below the minimum level with buffers, we will face constraints on dividends, equity repurchases and our largest bank subsidiary, The Bankdiscretionary executive compensation based on the amount of New York Mellon.

the shortfall and eligible retained income.
SLRSept. 30, 2017 June 30, 2017 Dec. 31, 2016
(dollars in millions)Transitional basis
Fully
phased-in -
Non-GAAP (a)

 Transitional basis
Fully
phased-in -
Non-GAAP (a)

 Transitional basis
Fully
phased-in -
Non-GAAP (a)

Consolidated:        
Total Tier 1 capital$22,351
$21,649
 $21,864
$21,147
 $21,465
$19,911
         
Total leverage exposure:        
Quarterly average total assets$345,709
$345,709
 $342,515
$342,515
 $344,142
$344,142
Less: Amounts deducted from Tier 1 capital18,154
18,856
 18,092
18,810
 17,333
18,887
Total on-balance sheet assets, as adjusted327,555
326,853

324,423
323,705
 326,809
325,255
Off-balance sheet exposures:        
Potential future exposure for derivative contracts (plus certain other items)6,213
6,213
 6,014
6,014
 6,021
6,021
Repo-style transaction exposures1,034
1,034
 631
631
 533
533
Credit-equivalent amount of other off-balance sheet exposures (less SLR exclusions)21,860
21,860
 22,098
22,098
 23,274
23,274
Total off-balance sheet exposures29,107
29,107

28,743
28,743
 29,828
29,828
Total leverage exposure$356,662
$355,960

$353,166
$352,448
 $356,637
$355,083
         
SLR - Consolidated (b)
6.3%6.1% 6.2%6.0% 6.0%5.6%
         
The Bank of New York Mellon, our largest bank subsidiary:        
Tier 1 capital$20,718
$19,955
 $19,897
$19,125
 $19,011
$17,708
Total leverage exposure$292,759
$292,421
 $286,983
$286,634
 $291,022
$290,230
         
SLR - The Bank of New York Mellon (b)
7.1%6.8% 6.9%6.7% 6.5%6.1%
(a)Estimated.
(b)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.”


38 BNY Mellon

Trading activities and risk management


Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk mitigatingrisk-mitigating hedging in compliance with the Volcker Rule. The risk from market-making activities for customers is managed by our traders and limited in total exposure through a system of position limits, value-at-risk (“VaR”) methodology and other market sensitivity measures. VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. The calculation of our VaR used by management and presented below assumes a one-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. VaR facilitates comparisons across portfolios of different risk characteristics. VaR also captures the
diversification of aggregated risk at the firm widefirm-wide level.


VaR represents a key risk management measure and it is important to note the inherent limitations to VaR, which include:

•VaR does not estimate potential losses over longer time horizons where moves may be extreme;
•VaR does not take account of potential variability of market liquidity; and
•Previous moves in market risk factors may not produce accurate predictions of all future market moves.


See Note 16 of the Notes to Consolidated Financial Statements for additional information on the VaR methodology.



44 BNY Mellon

In an effort to improve our enterprise level risk management capabilities, we have changed our VaR model from Monte Carlo simulation to historical simulation for both management and RWA calculations. This change was effective as of Jan. 1, 2017. In addition to this model enhancement, the impact of credit valuation adjustment (“CVA”) is now included.


The following tables indicate the calculated VaR amounts for the trading portfolio for the designated periods using the newly implemented historical simulation VaR model. The

VaR (a)
1Q21March 31, 2021
(in millions)AverageMinimumMaximum
Interest rate$2.1 $1.6 $2.7 $2.5 
Foreign exchange2.7 2.2 3.9 3.0 
Equity0.1 0.1 0.9 0.1 
Credit1.8 1.3 2.8 2.2 
Diversification(3.5)N/MN/M(4.3)
Overall portfolio3.2 2.5 4.9 3.5 

VaR (a)
4Q20Dec. 31, 2020
(in millions)AverageMinimumMaximum
Interest rate$2.2 $1.8 $3.0 $1.8 
Foreign exchange2.5 1.9 3.6 3.0 
Equity0.1 — 0.7 0.7 
Credit1.8 1.2 2.7 2.1 
Diversification(3.1)N/MN/M(3.7)
Overall portfolio3.5 2.3 4.7 3.9 

VaR (a)
1Q20March 31, 2020
(in millions)AverageMinimumMaximum
Interest rate$4.9 $3.2 $11.3 $5.1 
Foreign exchange3.1 1.7 6.3 4.5 
Equity1.4 0.8 2.3 0.9 
Credit3.4 1.2 12.1 9.8 
Diversification(6.4)N/MN/M(9.9)
Overall portfolio6.4 3.5 14.3 10.4 
(a)VaR exposure does not include the impact of changes in methodology is not material.the Company’s consolidated investment management funds and seed capital investments.

VaR (a)
3Q17Sept. 30, 2017
(in millions)Average
Minimum
Maximum
Interest rate$3.3
$2.8
$4.2
$2.7
Foreign exchange3.7
3.1
5.6
4.8
Equity0.9
0.8
1.1
0.9
Credit1.0
0.6
1.4
1.0
Diversification(5.1)N/M
N/M
(5.3)
Overall portfolio3.8
3.2
5.3
4.1

VaR (a)
2Q17June 30, 2017
(in millions)Average
Minimum
Maximum
Interest rate$3.3
$2.8
$4.1
$4.0
Foreign exchange4.3
3.4
5.8
4.6
Equity0.2
0.1
1.1
1.1
Credit1.1
0.5
1.4
0.8
Diversification(4.8)N/M
N/M
(5.8)
Overall portfolio4.1
3.3
5.4
4.7

VaR (a)
YTD17
(in millions)Average
Minimum
Maximum
Interest rate$3.5
$2.8
$4.9
Foreign exchange3.9
2.6
5.8
Equity0.4
0.1
1.1
Credit1.1
0.5
1.7
Diversification(4.9)N/M
N/M
Overall portfolio4.0
3.2
5.4
(a)
Beginning Jan. 1, 2017, the VaR figures reflect the impact of the CVA and hedges as per the guidance included in ASC 820, Fair Value Measurement. VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments.
N/M -– Because the minimum and maximum may occur on different days for different risk components, it is not meaningful to compute a minimum and maximum portfolio diversification effect.



The following tables indicate the calculated VaR amounts for the trading portfolio for the designated periods as previously reported under the former Monte Carlo simulation VaR model.

VaR (a)
3Q16Sept. 30, 2016
(in millions)Average
Minimum
Maximum
Interest rate$7.3
$5.4
$8.9
$7.9
Foreign exchange4.2
3.2
7.5
3.7
Equity0.6
0.5
0.8
0.6
Credit0.3
0.3
0.4
0.4
Diversification(5.8)N/M
N/M
(5.7)
Overall portfolio6.6
5.0
7.7
6.9

VaR (a)
YTD16
(in millions)Average
Minimum
Maximum
Interest rate$6.3
$4.3
$8.9
Foreign exchange2.8
1.2
11.1
Equity0.6
0.4
0.8
Credit0.3
0.2
0.4
Diversification(4.0)N/M
N/M
Overall portfolio6.0
4.3
7.7
(a)VaR figures do not reflect the impact of the CVA guidance in ASC 820, Fair Value Measurement. This is consistent with the regulatory treatment. VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments.
N/M - Because the minimum and maximum may occur on different days for different risk components, it is not meaningful to compute a minimum and maximum portfolio diversification effect.



The interest rate component of VaR represents instruments whose values are predominantly vary with the level or volatility ofdriven by interest rates.rate levels. These instruments include, but are not limited to: sovereign debt,to, U.S. Treasury securities, swaps, swaptions, forward rate agreements, exchange-traded futures and options, and other interest rate derivative products.


The foreign exchange component of VaR represents instruments whose values predominantly vary with the level or volatility of currency exchange rates or interest rates. These instruments include, but are not limited to:to, currency balances, spot and forward transactions, currency options exchange-traded futures and options, and other currency derivative products.


The equity component of VaR consists of instruments that represent an ownership interest in the form of domestic and foreign common stock or other equity-linked instruments. These instruments include, but are not limited to:to, common stock, exchange-traded funds, preferred stock, listed equity options (puts and calls), over-the-counter (“OTC”)OTC equity options, equity total return swaps, equity index futures and other equity derivative products.




BNY Mellon 45

The credit component of VaR represents instruments whose values are predominantly vary with thedriven by credit worthiness of counterparties.spread levels, i.e., idiosyncratic default risk. These instruments include, but are not limited to, credit derivatives (credit default swaps and exchange-traded credit index instruments) andsecurities
BNY Mellon 39

with exposures from corporate and municipal credit spreads, and mortgage prepayments. Credit derivatives are used to hedge various credit exposures.spreads.


The diversification component of VaR is the risk reduction benefit that occurs when combining portfolios and offsetting positions, and from the correlated behavior of risk factor movements.


During the thirdfirst quarter of 2017,2021, interest rate risk generated 37%31% of average gross VaR, foreign exchange risk generated 42%40% of average gross VaR, equity risk accounted for 10%generated 2% of average gross VaR and credit risk generated 11%27% of average gross VaR. During the thirdfirst quarter of 2017,2021, our daily trading loss did not exceed our calculated VaR amount of the overall portfolio.


The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading revenue or loss fell within particular ranges during the past five quarters.


Distribution of trading revenue (loss) (a)
Quarter ended
(dollars in millions)March 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020March 31, 2020
Revenue range:Number of days
Less than $(2.5)— 2 4 6 — 
$(2.5) – $06 12 10 12 3 
$0 – $2.517 11 23 17 19 
$2.5 – $5.021 26 16 15 19 
More than $5.017 11 12 14 21 
Distribution of trading revenue (loss) (a)
   
 Quarter ended
(dollars in millions)Sept. 30, 2017
June 30,
2017
March 31,
2017
Dec. 31, 2016
Sept. 30, 2016
Revenue range:Number of days
Less than $(2.5)—
—
—
—
—
$(2.5) – $01
2
1
3
6
$0 – $2.529
31
31
28
22
$2.5 – $5.029
27
26
23
25
More than $5.04
4
4
7
11
(a)(a)    Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue.




Trading assets include debt and equity instruments and derivative assets, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading assets were $4.7$16.9 billion at Sept. 30, 2017March 31, 2021 and $5.7$15.3 billion atDec. 31, 2016.2020.


Trading liabilities include debt and equity instruments and derivative liabilities, primarily interest rate and
foreign exchange contracts, not designated as hedging instruments. Trading liabilities were $3.3$4.6 billion at Sept. 30, 2017March 31, 2021 and $4.4$6.0 billion at Dec. 31, 2016.2020.


Under our fair value methodology for derivative contracts, an initial “risk-neutral” valuation is
performed on each position assuming time-discounting based on a AA credit curve. In addition, we consider credit risk in arriving at the fair value of our derivatives.derivatives.


We reflect external credit ratings as well as observable credit default swap spreads for both ourselves and our counterparties when measuring the fair value of our derivative positions. Accordingly, the valuation of our derivative positions is sensitive to the current changes in our own credit spreads, as well as those of our counterparties.


At Sept. 30, 2017,March 31, 2021, our OTC derivative assets, including those in hedging relationships, of $3.6$3.5 billion included a CVAcredit valuation adjustment (“CVA”) deduction of $30$24 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.2$2.9 billion included a debit valuation adjustment (“DVA”) of $2 million related to our own credit spread. Net of hedges, the CVA decreased byincreased $1 million and the DVA was unchanged in the third quarter of 2017. The net impact of these adjustments increased foreign exchange and other trading revenue by $1 million in the third quarter of 2017.

In the second quarter of 2017, net of hedges, the CVA decreased by $3 million and the DVA decreased by less than $1 million in the first quarter of 2021, which decreased other trading revenue by $1 million. The net impact of these adjustments increased foreign exchange and other trading revenue by $2less than $1 million in the secondfourth quarter of 2017.

In the third quarter of 2016, net of hedges, the CVA decreased by $8 million2020 and the DVA decreased by $4 million. The net impact of these adjustments increased foreign exchange and other trading revenue by $4 million in the thirdfirst quarter of 2016.2020.


The table below summarizes the riskdistribution of credit ratings for our foreign exchange and interest rate derivative counterparty credit exposure duringcounterparties over the past five quarters. This informationquarters, which indicates the degreelevel of risk to which we are exposed.counterparty credit associated with these trading activities. Significant changes in counterparty credit ratings classifications for our foreign exchange and other trading activity could result in increasedalter the level of credit risk for us.faced by BNY Mellon.

Foreign exchange and other trading counterparty risk rating profile (a)
Quarter ended
March 31, 2021Dec. 31, 2020Sept. 30, 2020June 30, 2020March 31, 2020
Rating:
AAA to AA-45 %46 %54 %56 %56 %
A+ to A-26 28 20 18 24 
BBB+ to BBB-22 18 17 18 14 
BB+ and
lower (b)
7 8 9 8 6 
Total100 %100 %100 %100 %100 %
(a)    Represents credit rating agency equivalent of internal credit ratings.
(b)    Non-investment grade.



46 BNY Mellon


Foreign exchange and other trading counterparty risk
rating profile (a)
 Quarter ended
 Sept. 30, 2017
June 30,
2017
March 31,
2017
Dec. 31, 2016
Sept. 30, 2016
Rating:     
AAA to AA-41%44%43%35%45%
A+ to A-30
27
36
39
32
BBB+ to BBB-24
22
17
22
19
Noninvestment grade (BB+ and lower)5
7
4
4
4
Total100%100%100%100%100%
40 BNY Mellon
(a)Represents credit rating agency equivalent of internal credit ratings.



Asset/liability management


Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities areinclude interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.


An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue. The model incorporates management’s assumptions regarding interest rates, balance changes on core deposits, market spreads, changes in the prepayment behavior of loans and securities and the impact of
derivative financial instruments used for interest rate risk management purposes. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior and are inherently uncertain. As a result, the earnings simulation model cannot precisely estimate net interest revenue or the impact of higher or lower interest rates on net interest revenue. Actual results may differ materially from projected results due to timing, magnitude and frequency of interest rate changes, and changes in market conditions and management’s strategies, among other factors.


TheIn the table below, relies on certain critical assumptions regardingwe use the balance sheet and depositors’ behavior relatedearnings simulation model to interest rate fluctuations and the prepayment and extension risk in certain of our assets. Generally, there has been an inverse relationship between interest rates and client deposit levels. To the extent that actual behavior is different from that assumed in the models, there could be a change in interest rate sensitivity.

We evaluate the effect on earnings by runningrun various interest rate ramp scenarios from a baseline scenario. The interest rate ramp scenarios are reviewed to examine the impact of large interest rate movements. In each scenario, all currenciescurrencies’ interest rates are shifted higher or lower. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period.

The following table shows net interest revenue sensitivity for BNY Mellon.

Estimated changes in net interest revenue
(in millions)
Sept. 30, 2017
June 30,
2017
March 31,
2017
Dec. 31, 2016
Sept. 30, 2016
up 200 bps parallel rate ramp vs. baseline (a)
$(2)$(69)$(136)$6
$62
up 100 bps parallel rate ramp vs. baseline (a)
112
58
87
145
147
Long-term up 50 bps, short-term unchanged (b)
113
92
92
81
116
Long-term down 50 bps, short-term unchanged (b)
(129)(85)(104)(88)(128)
(a)
In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments.
(b)Long-term is equal to or greater than one year.
bps - basis points.


The baseline scenario used for the calculations in the estimated changes in net interest revenue table above as of Sept. 30, 2017, June 30, 2017, March 31, 2017 and Dec. 31, 2016 arebased on our quarter-end balance sheet and the spot yield curve. The baseline scenario used for Sept. 30, 2016 was based on implied forward yield curves. We revised the
methodology as of Dec. 31, 2016 as we believe using the spot yield curve forTypically, the baseline scenario providesuses the average deposit balances of the last month of the quarter. However, during the months of December 2020 and March 2020, we experienced a more accurate reflection of net interest revenue sensitivity given the recentsignificant increase in short-term interest ratesdeposits and a corresponding increase in central bank placements. To normalize the implied forward rates. Because interest ratesanalysis, we used the fourth and the implied forward yield curves were lower in prior periods, the impact of using a


BNY Mellon 47

spot yield curve versus an implied forward yield curve was not as significant.first quarter 2020 averages, respectively, for these balances. The 100 basis point ramp scenario assumes rates increasechange 25 basis points above or below the yield curve in each of the next four quarters and the 200 basis point ramp scenario assumes a 50 basis point per quarter increase.

Ourchange. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period. The net interest revenue sensitivity methodology assumes static deposit levels
and also assumes that no management actions will be taken to mitigate the effects of interest rate changes.

The following table above incorporates assumptions aboutshows net interest revenue sensitivity for BNY Mellon.

Estimated changes in net interest revenue
(in millions)
March 31, 2021Dec. 31, 2020March 31, 2020
Up 200 bps parallel rate ramp vs. baseline (a)
$1,024 $826 $557 
Up 100 bps parallel rate ramp vs. baseline (a)
551 449 334 
Down 100 bps parallel rate ramp vs. baseline (a)
384 411 100 
Long-term up 50 bps, short-term unchanged (b)
120 125 166 
Long-term down 50 bps, short-term unchanged (b)
(116)(144)(158)
(a)In the impactparallel rate ramp, both short-term and long-term rates move in four equal quarterly increments.
(b)Long-term is equal to or greater than one year.


The increases in the scenarios compared with Dec. 31, 2020 and March 31, 2020 are primarily driven by increased deposits.

While the net interest revenue sensitivity scenarios calculations assume static deposit balances to facilitate consistent period-over-period comparisons, it is likely that a portion of the recent monetary policy-driven deposit inflows would run-off in rising rate environments, such as the up 100 bps and up 200 bps parallel ramps. Noninterest-bearing deposits are particularly sensitive to changes in short-term rates.

To illustrate the net interest rates on depositor behavior based on historical experience. Givenrevenue sensitivity to deposit runoff, we note that a $5 billion instantaneous reduction of U.S. dollar denominated noninterest-bearing deposits would reduce the current historically lownet interest rate environment and the potential change to the implementation of monetary policy, the impact of depositor behavior is highly uncertain. The lowerrevenue sensitivity results in the ramp up 100 basis point and 200 basis point scenario compared with the 100 basis point scenario is driven by the assumption of increased deposit runoff and forecasted changesscenarios in the deposit pricing.table above by approximately $30 million and approximately $65 million, respectively. The impact would be smaller if the runoff was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.


GrowthFor a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors – Our business, financial condition and results of operations could also be adversely affected by the following factors:if we do not effectively manage our liquidity,” in our 2020 Annual Report.


Monetary policy;
BNY Mellon 41

Global economic uncertainty;
Our ratings relative to other financial institutions’ ratings; and
Regulatory reform.

Any of these events could change our assumptions about depositor behavior and have a significant impact on our balance sheet and net interest revenue.

Off-balance sheet arrangements

Off-balance sheet arrangements discussed in this section are limited to guarantees, retained or contingent interests and obligations arising out of unconsolidated variable interest entities (“VIEs”). For BNY Mellon, these items include certain credit guarantees and a securitization. Guarantees include lending-related guarantees issued as part of our corporate banking business and securities lending indemnifications issued as part of our Investment Services business. See Note 17 of the Notes to Consolidated Financial Statements for a further discussion of our off-balance sheet arrangements.



48 BNY Mellon

Supplemental information -– Explanation of GAAP and Non-GAAP financial measures


BNY Mellon has included in this Form 10-Q 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-intangible basis and the SLR, onas a fully phased-in basis, are measures of capital strength that provide additional usefulsupplement to GAAP information, to investors, supplementing the capital ratios which are, or were, required by regulatory authorities. The tangible common shareholders’ equity ratio, which excludesexclude goodwill and intangible assets, net of deferred tax liabilities, includes changes in investment securities valuations which are reflected in total shareholders’ equity. BNY Mellon believesliabilities. We believe that the return on tangible common equity measure is an additional useful measureinformation for investors because it presents a measure of those assets that can generate income. BNY Mellon has provided a measure ofincome, and the tangible book value per common share which it believes providesis additional useful information as tobecause it presents 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, as well as the recovery related to Sentinel, are also presented. Operating margin measures may also exclude the provision for credit losses and distribution and servicing expense. BNY Mellon believes that these measures are useful to investors because they permit a focus on period-to-period comparisons, which relate to the ability of BNY Mellon to enhance revenues and limit expenses in circumstances where such matters are within BNY Mellon’s control. M&I expenses primarily relate to acquisitions and generally continue for approximately three years after the transaction. Litigation charges represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relate to our streamlining actions 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 income from consolidatedthe growth rates of investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds,and performance fees on a constant currency basis permits investors to view revenueassess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis consistent with how management viewswere
determined by applying the business. BNY Mellon believescurrent period foreign currency exchange rates to the prior period revenue. We believe that these presentations,this presentation, as a supplement to GAAP information, givegives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.

BNY Mellon has also included the adjusted pre-tax operating margin – Non-GAAP, which is the pre-tax operating margin for the Investment and Wealth Management business, net of its primary businesses.

Eachdistribution and servicing expense that was passed to third parties who distribute or service our managed funds. We believe that this measure is useful when evaluating the performance of these measures as described above is used by managementthe Investment and Wealth Management business relative to monitor financial performance, both on a company-wide and on a business-level basis.

industry competitors.



BNY Mellon 49

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

Pre-tax operating margin3Q17
2Q17
3Q16
YTD17
YTD16
(dollars in millions)
Income before income taxes – GAAP$1,368
$1,308
$1,317
$3,882
$3,573
Less: Net income attributable to noncontrolling interests of consolidated investment management funds3
3
9
24
6
Add: Amortization of intangible assets52
53
61
157
177
M&I, litigation and restructuring charges6
12
18
26
42
Recovery related to Sentinel—
—
(13)—
(13)
Income before income taxes, as adjusted – Non-GAAP (a)
$1,423
$1,370
$1,374
$4,041
$3,773
      
Fee and other revenue – GAAP$3,167
$3,120
$3,150
$9,305
$9,119
Income from consolidated investment management funds – GAAP10
10
17
53
21
Net interest revenue – GAAP839
826
774
2,457
2,307
Total revenue – GAAP4,016
3,956
3,941
11,815
11,447
Less: Net income attributable to noncontrolling interests of consolidated investment management funds3
3
9
24
6
Total revenue, as adjusted – Non-GAAP (a)
$4,013
$3,953
$3,932
$11,791
$11,441
      
Pre-tax operating margin – GAAP (b)(c)
34%33%33%33%31%
Adjusted pre-tax operating margin – Non-GAAP (a)(b)(c)
35%35%35%34%33%
(a)Non-GAAP information for all periods presented excludes the net income attributable to noncontrolling interests of consolidated investment management funds, amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for the third quarter of 2016 and for the first nine months of 2016 also excludes a recovery of the previously impaired Sentinel loan.
(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 $102 million for the third quarter of 2017, $106 million for the second quarter of 2017, $74 million for the third quarter of 2016, $309 million for the first nine months of 2017 and $225 million for the first nine months of 2016 and would increase our pre-tax operating margin by approximately 1.6% for the third quarter of 2017, 1.8% for the second quarter of 2017, 1.2% for the third quarter of 2016, 1.7% for the first nine months of 2017 and 1.3% for the first nine months of 2016.


The following table presents the reconciliation of operating leverage.

Operating leverage3Q17
2Q17
3Q16
3Q17 vs.
(dollars in millions)2Q17
3Q16
Total revenue – GAAP$4,016
$3,956
$3,941
1.52 %1.90%
Less: Net income attributable to noncontrolling interests of consolidated investment management funds3
3
9
  
Total revenue, as adjusted – Non-GAAP$4,013
$3,953
$3,932
1.52 %2.06%
      
Total noninterest expense – GAAP$2,654
$2,655
$2,643
(0.04)%0.42%
Less: Amortization of intangible assets52
53
61
  
M&I, litigation and restructuring charges6
12
18
  
Total noninterest expense, as adjusted – Non-GAAP$2,596
$2,590
$2,564
0.23 %1.25%
      
Operating leverage – GAAP (a)
   156 bps148 bps
Adjusted operating leverage – Non-GAAP (a)(b)
   129 bps81 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 the 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.




50 BNY Mellon

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


Return on common equity and tangible common equity reconciliation1Q214Q201Q20
(dollars in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP$858 $702 $944 
Add:  Amortization of intangible assets24 26 26 
Less: Tax impact of amortization of intangible assets6 6 6 
Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP$876 $722 $964 
Average common shareholders’ equity$40,720 $40,712 $37,664 
Less: Average goodwill17,494 17,411 17,311 
Average intangible assets3,000 3,019 3,089 
Add: Deferred tax liability – tax deductible goodwill1,153 1,144 1,109 
  Deferred tax liability – intangible assets665 667 666 
Average tangible common shareholders’ equity – Non-GAAP$22,044 $22,093 $19,039 
Return on common shareholders’ equity – GAAP
8.5 %6.9 %10.1 %
Return on tangible common shareholders’ equity – Non-GAAP16.1 %13.0 %20.4 %


42 BNY Mellon
Return on common equity and tangible common equity3Q17
2Q17
3Q16
YTD17
YTD16
(dollars in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP$983
$926
$974
$2,789
$2,603
Add:  Amortization of intangible assets52
53
61
157
177
Less: Tax impact of amortization of intangible assets17
19
21
54
62
Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation excluding amortization of intangible assets – Non-GAAP1,018
960
1,014
2,892
2,718
Add: M&I, litigation and restructuring charges6
12
18
26
42
Recovery related to Sentinel—
—
(13)—
(13)
Less: Tax impact of M&I, litigation and restructuring charges—
3
5
5
13
Tax impact of recovery related to Sentinel—
—
(5)—
(5)
Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, as adjusted – Non-GAAP (a)
$1,024
$969
$1,019
$2,913
$2,739
      
Average common shareholders’ equity$36,780
$35,862
$35,767
$35,876
$35,616
Less: Average goodwill17,497
17,408
17,463
17,415
17,549
Average intangible assets3,487
3,532
3,711
3,532
3,770
Add: Deferred tax liability – tax deductible goodwill (b)
1,561
1,542
1,477
1,561
1,477
Deferred tax liability – intangible assets (b)
1,092
1,095
1,116
1,092
1,116
Average tangible common shareholders’ equity – Non-GAAP$18,449
$17,559
$17,186
$17,582
$16,890
      
Return on common equity – GAAP (c)
10.6%10.4%10.8%10.4%9.8%
Adjusted return on common equity – Non-GAAP (a)(c)
11.0%10.8%11.3%10.9%10.3%
      
Return on tangible common equity – Non-GAAP (c)
21.9%21.9%23.5%22.0%21.5%
Adjusted return on tangible common equity – Non-GAAP (a)(c)
22.0%22.1%23.6%22.1%21.7%

(a)Non-GAAP information for all periods presented excludes the amortization of intangible assets and M&I, litigation and restructuring charges. Non-GAAP information for the third quarter of 2016 and for the first nine months of 2016 also excludes a recovery of the previously impaired Sentinel loan.
(b)Deferred tax liabilities are based on fully phased-in Basel III capital rules.
(c)Quarterly returns are annualized.


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


Book value and tangible book value per common share reconciliationMarch 31, 2021Dec. 31, 2020March 31, 2020
(dollars in millions, except per share amounts and unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP$44,954 $45,801 $41,145 
Less: Preferred stock4,541 4,541 3,542 
BNY Mellon common shareholders’ equity at period end – GAAP40,413 41,260 37,603 
Less: Goodwill17,469 17,496 17,240 
Intangible assets2,983 3,012 3,070 
Add: Deferred tax liability – tax deductible goodwill1,153 1,144 1,109 
Deferred tax liability – intangible assets665 667 666 
BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP$21,779 $22,563 $19,068 
Period-end common shares outstanding (in thousands)
875,481 886,764 885,443 
Book value per common share – GAAP$46.16 $46.53 $42.47 
Tangible book value per common share – Non-GAAP$24.88 $25.44 $21.53 
Book value per common shareSept. 30, 2017
June 30,
2017
Dec. 31, 2016
Sept. 30, 2016
(dollars in millions, unless otherwise noted)
BNY Mellon shareholders’ equity at period end – GAAP$40,523
$39,974
$38,811
$39,695
Less: Preferred stock3,542
3,542
3,542
3,542
BNY Mellon common shareholders’ equity at period end – GAAP36,981
36,432
35,269
36,153
Less: Goodwill17,543
17,457
17,316
17,449
Intangible assets3,461
3,506
3,598
3,671
Add: Deferred tax liability – tax deductible goodwill (a)
1,561
1,542
1,497
1,477
Deferred tax liability – intangible assets (a)
1,092
1,095
1,105
1,116
BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP$18,630
$18,106
$16,957
$17,626
     
Period-end common shares outstanding (in thousands)
1,024,022
1,033,156
1,047,488
1,057,337
     
Book value per common share – GAAP$36.11
$35.26
$33.67
$34.19
Tangible book value per common share – Non-GAAP$18.19
$17.53
$16.19
$16.67
(a)Deferred tax liabilities are based on fully phased-in Basel III capital rules.








BNY Mellon 51

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

Income from consolidated investment management funds, net of noncontrolling interests 
 YTD17
YTD16
(in millions)3Q17
2Q17
3Q16
Income from consolidated investment management funds$10
$10
$17
$53
$21
Less: Net income attributable to noncontrolling interests of consolidated investment management funds3
3
9
24
6
Income from consolidated investment management funds, net of noncontrolling interests$7
$7
$8
$29
$15



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

Constant currency reconciliation – Consolidated1Q211Q201Q21 vs.
(dollars in millions)1Q20
Investment management and performance fees – GAAP$890 $862 3 %
Impact of changes in foreign currency exchange rates— 23 
Adjusted investment management and performance fees – Non-GAAP$890 $885 1 %


The following table presents the impact of changes in foreign currency exchange rates on investment management and performance fees reported in the Investment and Wealth Management business impacted by the consolidated investment management funds.business.


Constant currency reconciliation – Investment and Wealth Management business
1Q21 vs.
(dollars in millions)1Q211Q201Q20
Investment management and performance fees – GAAP
$890 $862 3 %
Impact of changes in foreign currency exchange rates— 23 
Adjusted investment management and performance fees – Non-GAAP$890 $885 1 %
Income from consolidated investment management funds, net of noncontrolling interests - Investment Management business
(in millions)3Q17
2Q17
1Q17
4Q16
3Q16
YTD17
YTD16
Investment management fees$1
$2
$2
$4
$2
$5
$7
Other (Investment income (loss))6
5
13
(3)6
24
8
Income from consolidated investment management funds, net of noncontrolling interests$7
$7
$15
$1
$8
$29
$15




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


Pre-tax operating margin reconciliation – Investment and Wealth Management business
(dollars in millions)1Q214Q203Q202Q201Q20
Income before income taxes – GAAP$278 $311 $245 $221 $194 
Total revenue – GAAP$991 $990 $918 $886 $898 
Less: Distribution and servicing expense
75 76 85 86 91 
Adjusted total revenue, net of distribution and servicing expense – Non-GAAP$916 $914 $833 $800 $807 
Pre-tax operating margin – GAAP (a)
28 %32 %27 %25 %22 %
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a)
30 %34 %29 %28 %24 %
Pre-tax operating margin - Investment Management business      
(dollars in millions)3Q17
2Q17
1Q17
4Q16
3Q16
YTD17
YTD16
Income before income taxes – GAAP$300
$288
$277
$260
$256
$865
$707
Add: Amortization of intangible assets15
15
15
22
22
45
60
Provision for credit losses(2)—
3
6
—
1
—
Adjusted income before income taxes, excluding amortization of intangible assets and provision for credit losses – Non-GAAP$313
$303
$295
$288
$278
$911
$767
        
Total revenue – GAAP$1,000
$986
$963
$960
$958
$2,949
$2,791
Less:  Distribution and servicing expense
110
104
101
98
104
315
306
Adjusted total revenue, net of distribution and servicing expense – Non-GAAP$890
$882
$862
$862
$854
$2,634
$2,485
        
Pre-tax operating margin – GAAP (a)
30%29%29%27%27%29%25%
Adjusted pre-tax operating margin, excluding amortization of intangible assets, provision for credit losses and distribution and servicing expense – Non-GAAP (a)
35%34%34%33%33%35%31%
(a)(a)    Income before taxes divided by total revenue.




52 BNY Mellon


Recent accounting and regulatory developments

Recently issued accounting standards

The following Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) have not yet been adopted.

ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued an ASU, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities and to simplify the application of hedge accounting guidance.

The most significant impact of the new guidance to the Company relates to the new accounting alternatives for fair value hedges of interest rate risk, specifically, the ability to hedge only the benchmark component of the contractual cash flows, partial-term hedging and the introduction of the “last of layer” method for hedges of portfolios of prepayable financial assets. The guidance also changed presentation and disclosure requirements and made changes to how the shortcut method is applied which may result in the Company using that method going forward for certain hedging relationships.

This ASU is effective for the first quarter of 2019, with early adoption permitted. Certain transition elections are available including the ability to reclassify a debt security from held-to-maturity to available-for-sale if it is eligible to be hedged under the last of layer method with any unrealized gain or loss at the transfer date being recorded in other comprehensive income. If this ASU is adopted early, the new guidance will be applicable as of the beginning of that year. BNY Mellon is currently assessing the impacts of the new standard.

ASU 2017-07, Compensation-Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued an ASU, Compensation-Retirement Benefits - Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires the disaggregation of the service cost component from the other components of the net benefit cost in the income statement. The ASU also permits only the service cost component of net benefit cost to be eligible for capitalization. The ASU is effective for the first quarter of 2018, with early adoption permitted. The guidance in this ASU should be applied retrospectively for the presentation of the service cost component and the other components in the income statement, and prospectively for the capitalization of the service cost component in assets. BNY Mellon is assessing the impacts of the new standard. For information on the components of our pension and post-retirement health plan costs, see Note 9 of the Notes to Consolidated Financial Statements in this Form 10-Q and Note 16 of the Notes to Consolidated Financial Statements in our 2016 Annual Report.  To the extent that our recent trend of having a net credit for pension and other post-retirement costs continues, the standard will result in an increase to staff expense and a reduction in other expense.

ASU 2016-18, Statement of Cash Flows – Restricted Cash

In November 2016, the FASB issued an ASU, Statement of Cash Flows – Restricted Cash. This ASU provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows and is effective for the first quarter of 2018. Earlier application is permitted. BNY Mellon is assessing the impacts of the new standard, and expects to include restricted cash (which totaled $4 billion as of Sept. 30, 2017) with cash and due from banks when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.

ASU 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued an ASU, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. This ASU provides guidance on eight specific cash flow presentation issues and is effective for the first quarter of 2018. Earlier application is permitted, however all of the amendments must be adopted in the same period. BNY Mellon is assessing the impacts of the new43



BNY Mellon 53

standard, and does not expect this ASU to materially affect the results of operations or financial condition.

ASU 2016-13, Financial Instruments – Credit Losses

In June 2016, the FASB issued an ASU, Financial Instruments – Credit Losses. This ASU introduces a new current expected credit losses model, which will apply to financial assets subject to credit losses and measured at amortized cost, including held-to-maturity securities and certain off-balance sheet credit exposures. The guidance will also change current practice for the impairment model for available-for-sale debt securities. The available-for-sale debt securities model will require the use of an allowance to record estimated credit losses and subsequent recoveries. This ASU is effective for the first quarter of 2020. Earlier application is permitted beginning with the first quarter of 2019. BNY Mellon has begun its implementation efforts and is currently identifying key interpretive issues, and will assess existing credit loss forecasting models and processes against the new guidance to determine what modifications may be required. The extent of the impact to our financial statements upon adoption depends on several factors including the remaining expected life of financial instruments at the time of adoption, the establishment of an allowance for expected credit loss on held-to-maturity securities, and the macroeconomic conditions and forecasts that exist at that date.

ASU 2014-09, Revenue from Contracts with Customers

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. This ASU, as amended, provides guidance on the recognition of revenue related to the transfer of promised goods or services to customers, guidance on accounting for certain contract costs and additional disclosure requirements about revenue and contract costs. The standard supersedes most existing revenue recognition guidance and is effective for the first quarter of 2018 using either the retrospective or cumulative effect transition method upon adoption.

The Company has completed its evaluation of the potential impact of this guidance on our accounting policies, and based on that evaluation, the timing of most of our revenue recognition will remain the same and the impacts will not be material. The impacts primarily relate to deferring and amortizing certain
sales commission costs related to obtaining customer contracts and the timing of recognizing the contra revenue related to certain payments made to customers. The Company plans to adopt the guidance as of Jan. 1, 2018 using the cumulative effect transition method. The Company is currently developing the disclosures required about revenue and contract costs and finalizing changes to internal control.

ASU 2016-02, Leases

In February 2016, the FASB issued ASU 2016-02, Leases. The primary objective of this ASU is to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and expand related disclosures. ASU 2016-02 requires a “right-of-use” asset and a payment obligation liability on the balance sheet for most leases and subleases. Additionally, depending on the lease classification under the standard, it may result in different expense recognition patterns and classification than under existing accounting principles. For leases classified as finance leases, it will result in higher expense recognition in the earlier periods and lower expense in the later periods of the lease.

The standard is effective for the first quarter of 2019, with early adoption permitted. We will utilize the modified retrospective transition approach as of the beginning of the earliest period presented, which will result in a cumulative effect recorded in the earliest period presented. Additionally, the standard allows for various optional practical expedients to assist with the implementation and reporting requirements. We are currently evaluating the potential impact of the leasing standard on our consolidated financial statements and evaluating the practical expedients that may be elected. Upon adoption, the implementation of the leasing standard is expected to result in an immaterial increase in both assets and liabilities.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires investments in equity securities that do not result in consolidation and are not accounted for under the equity method to be measured at fair value with


54 BNY Mellon

changes in the fair value recognized through net income, unless one of two available exceptions apply. The first exception, a scope exception, allows Federal Reserve Bank stock, FHLB stock and other exchange memberships held by broker dealers to remain accounted for at cost, less impairment. The second exception, a practicability exception, will be available for equity investments that do not have readily determinable fair values and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurement. To the extent the practicability exception applies, such investments will be accounted for at cost adjusted for impairment, if any, plus or minus changes from observable price changes.

The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from the entity’s “own credit risk” when the entity has elected to measure the liability at fair value. The amendments also eliminate the requirement to disclose the methods and significant assumptions used to estimate the fair values of financial instruments measured at amortized cost that are on the balance sheet.

The Company plans to adopt this guidance in the first quarter of 2018 using the cumulative effect method of adoption. BNY Mellon does not expect the adoption of this ASU to have a material impact to the financial statements.

Recent regulatory developments


For a summary of additional regulatory matters relevant to our operations, see Supervision“Supervision and RegulationRegulation” in our 20162020 Annual Report. The following discussions summarize certain regulatory, legislative and other developments that may affect BNY Mellon.


Final RuleEnd of Temporary Restrictions on Qualified Financial ContractsCapital Distributions


On Sept. 1, 2017,March 25, 2021, the Federal Reserve adopted a final ruleannounced that the temporary restrictions on the dividends and share repurchases of certain BHCs that are subject to requireCCAR currently in effect will end after June 30, 2021 for the CCAR BHCs that remain above all of their minimum risk-based capital requirements after completion of the current round of stress tests. For the first quarter of 2021, CCAR BHCs, such as BNY Mellon, were generally authorized to repurchase stock in connection with employee benefit plans; pay dividends and make share repurchases that, in the aggregate, do not exceed an amount equal to the firm’s average net income for the four preceding quarters, provided that common stock dividends would not be increased; and redeem and make scheduled payments on additional Tier 1 and Tier 2 capital instruments. The Federal Reserve has announced that these restrictions will remain in place for the second quarter of 2021. The Federal Reserve has also announced that after June 30, 2021, the CCAR BHCs that are no longer subject to these temporary restrictions will continue to be subject to the normal constraints under the SCB framework. For additional information regarding the SCB framework, capital planning and stress testing, see “Supervision and Regulation – Capital Planning and Stress Testing” in our 2020 Annual Report.

Expiration of Certain Temporary Relief Measures and Facilities

On March 19, 2021, the Federal Reserve announced that the temporary exclusions of on-balance sheet amounts of U.S. global systemically important banking organizations (“G-SIBs”)Treasury securities from the SLR calculations for certain BHCs and depository institutions which were put in place by the U.S. operationsbanking agencies in 2020 expired as scheduled on March 31, 2021. BNY Mellon and The Bank of foreign G-SIBsNew York Mellon, as custody banks, will continue to amend their covered qualified financial contractsbe able to exclude certain central bank placements from the total leverage exposure used in the SLR calculation, consistent with the amendments to the
SLR finalized by the U.S. banking agencies in 2019 pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Also on March 31, 2021, the MMLF program, which was designed to provide indirect liquidity to money market mutual funds, expired as scheduled. For additional information regarding these and other temporary measures, see “Supervision and Regulation – Pandemic-Related Measures” in our 2020 Annual Report.

Other matters

On March 5, 2021, the administrator of LIBOR announced that it would cease the publication of non-U.S. dollar London Interbank Offered Rate (“QFCs”LIBOR”). The FDIC adopted a substantially equivalent proposal settings and one-week and two-month U.S. dollar LIBOR settings on Oct. 30, 2017Dec. 31, 2021 and would cease the Officepublication of the Comptroller ofother U.S. dollar LIBOR settings on June 30, 2023. On the Currency is expectedsame day, the UK Financial Conduct Authority (“FCA”) made a related announcement regarding when LIBOR settings will cease to do so in the near future. QFCs generally include derivatives, repurchase agreements and securities lending arrangements, among others.be provided by any administrator or no longer be representative. The final rule includes two key requirements. First, the final rule generally requires
that QFCs of G-SIBs explicitly provide that any resolution stays applicable to the exercise of default rights with respect to such QFCs and to any resolution transfers under U.S. special resolution regimes apply to such covered QFCs.  Second, the final rule requires that QFCs of G-SIBs be amended to neither permit the exercise of default or cross-default rights against entities covered by the final rule based on the resolution or bankruptcy of an affiliate of such entities, nor allow for any transfer restrictions with respect to such QFCs.

The final rule allows G-SIBs to comply with the rule by adhering to the International Swaps and Derivatives Association 2015 Universal Resolution Stay Protocol (the “Protocol”(“ISDA”) also announced that the FCA’s announcement was an index cessation event under its fallbacks protocol for all LIBOR settings and that consequently, the fallback spread adjustment was fixed as of the date of the announcement.

In April 2021, New York adopted legislation that provides a statutory fallback mechanism to replace LIBOR with a benchmark rate based on SOFR for New York-law governed contracts that reference LIBOR and either have no fallback provisions or provisions that are based on LIBOR. The New York legislation also has a similar protocolsafe harbor regarding the selection and use of that accomplishes the contractual amendments requiredSOFR-based benchmark rate.

The U.S. bank regulators have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by the rule.Dec. 31, 2021. We are continuing to work to facilitate an orderly transition from interbank offered rates, including LIBOR, to alternative reference rates for us and our clients.

44 BNY Mellon entities that engage in QFC activities covered by the Protocol have adhered to the Protocol.  Compliance with the Federal Reserve’s final rule will be required on a phased-in basis beginning on Jan. 1, 2019. BNY Mellon is evaluating the impact of the new regulations on its activities.

Resolution plan

As required by the Dodd-Frank Act, BNY Mellon must submit annually to the Federal Reserve and the FDIC a plan for its rapid and orderly resolution in the event of material financial distress or failure. BNY Mellon filed its most recent resolution plan on July 1, 2017. We believe the 2017 resolution plan addresses all shortcomings and deficiencies identified by the FDIC and the Federal Reserve in the Company’s 2015 resolution plan. The public portion of our 2017 resolution plan is available on the Federal Reserve’s and FDIC’s websites.

In September 2017, the Federal Reserve and FDIC extended the filing deadline by one year to July 1, 2019 for the Parent’s next resolution plan.



BNY Mellon 55


Website information


Our website is www.bnymellon.com. We currently make available the following information under the Investor Relations portion of our website. With respect to filings with the SEC, filings, we post such information as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

•All of our SEC filings, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, as well as proxy statements and SEC Forms 3, 4 and 5 and any proxy statement mailed by us in connection with the solicitation of proxies;5;
Financial statements and footnotes prepared using eXtensible Business Reporting Language (“XBRL”);
•Our earnings materials and selected management conference calls and presentations;
•Other regulatory disclosures, including: Pillar 3 Disclosures (and Market Risk Disclosure contained therein); Liquidity Coverage Ratio Disclosures; Federal Financial Institutions Examination Council -– Consolidated Reports of Condition and Income for a Bank With Domestic and Foreign Offices; Consolidated Financial Statements for Bank Holding Companies; and the Dodd-Frank Act Stress Test Results for BNY Mellon and The Bank of New York Mellon; and
•Our Corporate Governance Guidelines, Amended and Restated By-laws, DirectorsDirectors’ Code of Conduct and the Charters of the Audit, Finance, Corporate Governance, and Nominating Corporateand Social Responsibility, Human Resources and Compensation, Risk and Technology Committees of our Board of Directors.


We may use our website, our Twitter account (@BNYMellon) and other social media channels as additional means of disclosing information to the public. The information disclosed through those channels may be considered to be material. The contents of theour website listed above or any other websitessocial media channels referenced herein are not incorporated by reference into this Quarterly Report on Form 10-Q.

BNY Mellon 45


56 BNY Mellon
Item 1. Financial Statements
The Bank of New York Mellon Corporation (and its subsidiaries)


Consolidated Income Statement (unaudited)


Quarter ended
March 31, 2021Dec. 31, 2020March 31, 2020
(in millions)
Fee and other revenue
Investment services fees:
Asset servicing fees$1,199 $1,138 $1,159 
Clearing services fees455 418 470 
Issuer services fees245 257 263 
Treasury services fees157 156 149 
Total investment services fees2,056 1,969 2,041 
Investment management and performance fees890 884 862 
Foreign exchange revenue (a)
231 187 245 
Financing-related fees51 46 59 
Distribution and servicing29 28 31 
Total fee revenue (a)
3,257 3,114 3,238 
Investment and other income (a)
9 43 47 
Net securities gains0 6 9 
Total other revenue (a)
9 49 56 
Total fee and other revenue (a)
3,266 3,163 3,294 
Net interest revenue
Interest revenue738 776 1,570 
Interest expense83 96 756 
Net interest revenue655 680 814 
Total revenue3,921 3,843 4,108 
Provision for credit losses(83)15 169 
Noninterest expense
Staff1,602 1,554 1,482 
Software and equipment362 359 326 
Professional, legal and other purchased services343 381 330 
Sub-custodian and clearing124 116 105 
Net occupancy123 173 135 
Distribution and servicing74 75 91 
Bank assessment charges34 24 35 
Amortization of intangible assets24 26 26 
Business development19 26 42 
Other146 191 140 
Total noninterest expense2,851 2,925 2,712 
Income
Income before income taxes1,153 903 1,227 
Provision for income taxes221 148 265 
Net income932 755 962 
Net (income) loss attributable to noncontrolling interests related to consolidated investment management funds(5)(5)18 
Net income applicable to shareholders of The Bank of New York Mellon Corporation927 750 980 
Preferred stock dividends(69)(48)(36)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation$858 $702 $944 
(a)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
46 BNY Mellon
  Quarter ended Year-to-date
 Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in millions) 
Fee and other revenue      
Investment services fees:      
Asset servicing$1,105
$1,085
$1,067
 $3,253
$3,176
Clearing services383
394
349
 1,153
1,049
Issuer services288
241
337
 780
815
Treasury services141
140
137
 420
407
Total investment services fees1,917
1,860
1,890
 5,606
5,447
Investment management and performance fees901
879
860
 2,622
2,502
Foreign exchange and other trading revenue173
165
183
 502
540
Financing-related fees54
53
58
 162
169
Distribution and servicing40
41
43
 122
125
Investment and other income63
122
92
 262
271
Total fee revenue3,148
3,120
3,126
 9,276
9,054
Net securities gains — including other-than-temporary impairment18
—
27
 28
67
Noncredit-related portion of other-than-temporary impairment
(recognized in other comprehensive income)
(1)—
3
 (1)2
Net securities gains19
—
24
 29
65
Total fee and other revenue3,167
3,120
3,150
 9,305
9,119
Operations of consolidated investment management funds      
Investment income10
10
20
 57
27
Interest of investment management fund note holders—
—
3
 4
6
Income from consolidated investment management funds10
10
17
 53
21
Net interest revenue      
Interest revenue1,151
1,052
874
 3,163
2,647
Interest expense312
226
100
 706
340
Net interest revenue839
826
774
 2,457
2,307
Total revenue4,016
3,956
3,941
 11,815
11,447
Provision for credit losses(6)(7)(19) (18)(18)
Noninterest expense      
Staff1,469
1,417
1,467
 4,358
4,338
Professional, legal and other purchased services305
319
292
 936
860
Software175
173
156
 514
470
Net occupancy141
139
143
 416
437
Distribution and servicing109
104
105
 313
307
Sub-custodian62
65
59
 191
188
Furniture and equipment58
59
59
 174
187
Bank assessment charges (a)
51
59
61
 167
166
Business development49
63
52
 163
174
Other (a)
177
192
170
 536
546
Amortization of intangible assets52
53
61
 157
177
Merger and integration, litigation and restructuring charges6
12
18
 26
42
Total noninterest expense2,654
2,655
2,643
 7,951
7,892
Income      
Income before income taxes1,368
1,308
1,317
 3,882
3,573
Provision for income taxes348
332
324
 949
897
Net income1,020
976
993
 2,933
2,676
Net (income) loss attributable to noncontrolling interests (includes $(3), $(3), $(9), $(24) and $(6) related to consolidated investment management funds, respectively)(2)(1)(6) (18)1
Net income applicable to shareholders of The Bank of New York Mellon Corporation1,018
975
987
 2,915
2,677
Preferred stock dividends(35)(49)(13) (126)(74)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation$983
$926
$974
 $2,789
$2,603
(a)In the first quarter of 2017, we began disclosing bank assessment charges on a quarterly basis. The bank assessment charges were previously included in other expense. All prior periods were reclassified.



BNY Mellon 57
The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Income Statement (unaudited)(continued)


Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculationQuarter ended
(in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Net income applicable to common shareholders of The Bank of New York Mellon Corporation$858 $702 $944 
Less: Earnings allocated to participating securities1 1 3 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share$857 $701 $941 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculationQuarter ended Year-to-date
Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in millions) 
Net income applicable to common shareholders of The Bank of New York Mellon Corporation$983
$926
$974
 $2,789
$2,603
Less:  Earnings allocated to participating securities (a)
8
13
15
 35
39
Net income applicable to common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share$975
$913
$959

$2,754
$2,564




Average common shares and equivalents outstanding of The Bank of New York Mellon CorporationQuarter ended
(in thousands)March 31, 2021Dec. 31, 2020March 31, 2020
Basic882,558 889,928 894,122 
Common stock equivalents3,824 2,654 3,941 
Less: Participating securities(727)(736)(1,374)
Diluted885,655 891,846 896,689 
Anti-dilutive securities (a)
4,133 1,493 2,584 
(a)    Represents stock options, restricted stock, restricted stock units and participating securities outstanding but not included in the computation of diluted average common shares because their effect would be anti-dilutive.
Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation (a)
Quarter ended Year-to-date
Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in thousands) 
Basic1,035,337
1,035,829
1,062,248
 1,037,431
1,071,457
Common stock equivalents9,226
15,598
15,406
 14,216
15,306
Less: Participating securities(3,425)(9,548)(9,972) (8,062)(9,613)
Diluted1,041,138
1,041,879
1,067,682
 1,043,585
1,077,150
       
Anti-dilutive securities (b)
8,059
16,256
32,232
 13,906
32,699




Earnings per share applicable to common shareholders of The Bank of New York Mellon CorporationQuarter ended
(in dollars)March 31, 2021Dec. 31, 2020March 31, 2020
Basic$0.97 $0.79 $1.05 
Diluted$0.97 $0.79 $1.05 

Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation (c)
Quarter ended Year-to-date
Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in dollars) 
Basic$0.94
$0.88
$0.90
 $2.66
$2.39
Diluted$0.94
$0.88
$0.90
 $2.64
$2.38
(a)Beginning in the third quarter of 2017, 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 the quarter, which resulted in a de minimis impact to both basic and diluted earnings per share.
(b)Represents stock options, restricted stock, restricted stock units and participating securities outstanding but not included in the computation of diluted average common shares because their effect would be anti-dilutive.
(c)Basic and diluted earnings per share under the two-class method are determined on the net income applicable to common shareholders of The Bank of New York Mellon Corporation reported on the income statement less earnings allocated to participating securities.



See accompanying unaudited Notes to Consolidated Financial Statements.



58 BNY Mellon 47
The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Comprehensive Income Statement (unaudited)


Quarter ended
(in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Net income$932 $755 $962 
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments(150)431 (369)
Unrealized gain (loss) on assets available-for-sale:
Unrealized (loss) gain arising during the period(703)33 183 
Reclassification adjustment0 (5)(7)
Total unrealized (loss) gain on assets available-for-sale(703)28 176 
Defined benefit plans:
Net (loss) arising during the period0 (107)0 
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost22 20 18 
Total defined benefit plans22 (87)18 
Net unrealized (loss) gain on cash flow hedges(3)4 (11)
Total other comprehensive (loss) income, net of tax (a)
(834)376 (186)
Total comprehensive income98 1,131 776 
Net (income) loss attributable to noncontrolling interests(5)(5)18 
Other comprehensive (income) loss attributable to noncontrolling interests0 (2)2 
Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation$93 $1,124 $796 
 Quarter ended Year-to-date
 Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in millions) 
Net income$1,020
$976
$993
 $2,933
$2,676
Other comprehensive income (loss), net of tax:      
Foreign currency translation adjustments286
330
(186) 741
(433)
Unrealized gain on assets available-for-sale:      
Unrealized gain (loss) arising during the period28
91
(53) 213
227
Reclassification adjustment(12)(1)(15) (19)(43)
Total unrealized gain (loss) on assets available-for-sale16
90
(68) 194
184
Defined benefit plans:      
Net gain arising during the period—
—
—
 2
2
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost15
16
14
 49
43
Total defined benefit plans15
16
14
 51
45
Net unrealized gain (loss) on cash flow hedges—
1
2
 11
(4)
Total other comprehensive income (loss), net of tax (a)
317
437
(238) 997
(208)
Total comprehensive income1,337
1,413
755
 3,930
2,468
Net (income) loss attributable to noncontrolling interests(2)(1)(6) (18)1
Other comprehensive (income) loss attributable to noncontrolling interests(5)(6)5
 (13)23
Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation$1,330
$1,406
$754
 $3,899
$2,492
(a)Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $312 million for the quarter ended Sept. 30, 2017, $431 million for the quarter ended June 30, 2017, $(233) million for the quarter ended Sept. 30, 2016, $984 million for the nine months ended Sept. 30, 2017 and $(185) million for the nine months ended Sept. 30, 2016.

(a)    Other comprehensive (loss) income attributable to The Bank of New York Mellon Corporation shareholders was $(834) million for the quarter ended March 31, 2021, $374 million for the quarter ended Dec. 31, 2020 and $(184) million for the quarter ended March 31, 2020.



See accompanying unaudited Notes to Consolidated Financial Statements.



48 BNY Mellon 59
The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Balance Sheet (unaudited)


March 31, 2021Dec. 31, 2020
(dollars in millions, except per share amounts)
Assets
Cash and due from banks, net of allowance for credit losses of $3 and $4$5,991 $6,252 
Interest-bearing deposits with the Federal Reserve and other central banks125,524 141,775 
Interest-bearing deposits with banks, net of allowance for credit losses of $2 and $3 (includes restricted of $3,379 and $3,167)23,763 17,300 
Federal funds sold and securities purchased under resale agreements28,263 30,907 
Securities:
Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 and less than $1 (fair value of $48,489 and $49,224)48,032 47,946 
Available-for-sale, at fair value (amortized cost of $106,156 and $105,141, net of allowance for credit losses of $10 and $11)107,812 108,495 
Total securities155,844 156,441 
Trading assets16,884 15,272 
Loans60,732 56,469 
Allowance for credit losses(327)(358)
Net loans60,405 56,111 
Premises and equipment3,521 3,602 
Accrued interest receivable485 510 
Goodwill17,469 17,496 
Intangible assets2,983 3,012 
Other assets, net of allowance for credit losses on accounts receivable of $4 and $4 (includes $1,159 and $1,009, at fair value) (a)
23,852 20,955 
Total assets$464,984 $469,633 
Liabilities
Deposits:
Noninterest-bearing (principally U.S. offices)$95,306 $83,854 
Interest-bearing deposits in U.S. offices132,558 133,479 
Interest-bearing deposits in non-U.S. offices108,904 124,212 
Total deposits336,768 341,545 
Federal funds purchased and securities sold under repurchase agreements15,150 11,305 
Trading liabilities4,566 6,031 
Payables to customers and broker-dealers23,827 25,085 
Other borrowed funds348 350 
Accrued taxes and other expenses
4,916 5,696 
Other liabilities (including allowance for credit losses on lending-related commitments of $73 and $121, also includes $441 and $1,110, at fair value) (a)
8,656 7,517 
Long-term debt (includes $400 and $400, at fair value)25,350 25,984 
Total liabilities419,581 423,513 
Temporary equity
Redeemable noncontrolling interests187 176 
Permanent equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 45,826 shares4,541 4,541 
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,387,789,904 and 1,382,306,327 shares14 14 
Additional paid-in capital27,928 27,823 
Retained earnings34,822 34,241 
Accumulated other comprehensive loss, net of tax(1,819)(985)
Less: Treasury stock of 512,309,057 and 495,542,796 common shares, at cost(20,532)(19,833)
Total The Bank of New York Mellon Corporation shareholders’ equity44,954 45,801 
Nonredeemable noncontrolling interests of consolidated investment management funds262 143 
Total permanent equity45,216 45,944 
Total liabilities, temporary equity and permanent equity$464,984 $469,633 
  Sept. 30, 2017
Dec. 31, 2016
(dollars in millions, except per share amounts)
Assets  
Cash and due from:  
Banks$5,557
$4,822
Interest-bearing deposits with the Federal Reserve and other central banks75,808
58,041
Interest-bearing deposits with banks15,256
15,086
Federal funds sold and securities purchased under resale agreements27,883
25,801
Securities: 

Held-to-maturity (fair value of $39,928 and $40,669)39,995
40,905
Available-for-sale80,054
73,822
Total securities120,049
114,727
Trading assets4,666
5,733
Loans59,068
64,458
Allowance for loan losses(161)(169)
Net loans58,907
64,289
Premises and equipment1,631
1,303
Accrued interest receivable547
568
Goodwill17,543
17,316
Intangible assets3,461
3,598
Other assets (includes $827 and $1,339, at fair value)22,287
20,954
Subtotal assets of operations353,595
332,238
Assets of consolidated investment management funds, at fair value802
1,231
Total assets$354,397
$333,469
Liabilities 

Deposits: 

Noninterest-bearing (principally U.S. offices)$80,380
$78,342
Interest-bearing deposits in U.S. offices46,023
52,049
Interest-bearing deposits in non-U.S. offices104,593
91,099
Total deposits230,996
221,490
Federal funds purchased and securities sold under repurchase agreements10,314
9,989
Trading liabilities3,253
4,389
Payables to customers and broker-dealers21,176
20,987
Commercial paper2,501
—
Other borrowed funds3,353
754
Accrued taxes and other expenses 
6,070
5,867
Other liabilities (including allowance for lending-related commitments of $104 and $112, also includes $812 and $597, at fair value)7,195
5,635
Long-term debt (includes $369 and $363, at fair value)28,408
24,463
Subtotal liabilities of operations313,266
293,574
Liabilities of consolidated investment management funds, at fair value27
315
Total liabilities313,293
293,889
Temporary equity 

Redeemable noncontrolling interests197
151
Permanent equity 

Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826 and 35,826 shares3,542
3,542
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,352,363,932 and 1,333,706,427 shares14
13
Additional paid-in capital26,588
25,962
Retained earnings24,757
22,621
Accumulated other comprehensive loss, net of tax(2,781)(3,765)
Less: Treasury stock of 328,341,579 and 286,218,126 common shares, at cost(11,597)(9,562)
Total The Bank of New York Mellon Corporation shareholders’ equity40,523
38,811
Nonredeemable noncontrolling interests of consolidated investment management funds384
618
Total permanent equity40,907
39,429
Total liabilities, temporary equity and permanent equity$354,397
$333,469
(a)    In the first quarter of 2021, we reclassified the assets and liabilities of consolidated investment management funds, at fair value, to other assets and other liabilities, respectively. Prior periods have been reclassified. See Note 1 of the Notes to Consolidated Financial Statements for additional information.




See accompanying unaudited Notes to Consolidated Financial Statements.


60 BNY Mellon 49
The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Cash Flows (unaudited)


Three months ended March 31,
(in millions)20212020
Operating activities
Net income$932 $962 
Net (income) attributable to noncontrolling interests(5)18 
Net income applicable to shareholders of The Bank of New York Mellon Corporation927 980 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for credit losses (a)
(83)169 
Pension plan contributions(7)(6)
Depreciation and amortization466 354 
Deferred tax (benefit)275 (300)
Net securities (gains)0 (9)
Change in trading assets and liabilities(3,074)2,419 
Change in accruals and other, net(1,678)(5,292)
Net cash (used for) operating activities(3,174)(1,685)
Investing activities
Change in interest-bearing deposits with banks(6,385)(6,066)
Change in interest-bearing deposits with the Federal Reserve and other central banks13,940 (52,370)
Purchases of securities held-to-maturity(3,425)(5,151)
Paydowns of securities held-to-maturity2,969 1,503 
Maturities of securities held-to-maturity161 1,310 
Purchases of securities available-for-sale(12,247)(22,222)
Sales of securities available-for-sale3,209 3,107 
Paydowns of securities available-for-sale3,498 2,042 
Maturities of securities available-for-sale3,878 4,727 
Net change in loans(4,254)(7,626)
Sales of loans and other real estate1 1 
Change in federal funds sold and securities purchased under resale agreements2,630 2,739 
Net change in seed capital investments(38)18 
Purchases of premises and equipment/capitalized software(220)(264)
Dispositions, net of cash8 0 
Other, net953 (349)
Net cash provided by (used for) investing activities4,678 (78,601)
Financing activities
Change in deposits(2,922)79,678 
Change in federal funds purchased and securities sold under repurchase agreements3,936 1,775 
Change in payables to customers and broker-dealers(1,229)5,329 
Change in other borrowed funds5 961 
Change in commercial paper0 (2,838)
Net proceeds from the issuance of long-term debt1,196 998 
Repayments of long-term debt(1,500)(1,750)
Proceeds from the exercise of stock options26 30 
Issuance of common stock3 3 
Treasury stock acquired(699)(985)
Common cash dividends paid(277)(282)
Preferred cash dividends paid(69)(36)
Other, net10 (3)
Net cash (used for) provided by financing activities(1,520)82,880 
Effect of exchange rate changes on cash(33)(56)
Change in cash and due from banks and restricted cash
Change in cash and due from banks and restricted cash(49)2,538 
Cash and due from banks and restricted cash at beginning of period9,419 7,267 
Cash and due from banks and restricted cash at end of period$9,370 $9,805 
Cash and due from banks and restricted cash
Cash and due from banks at end of period (unrestricted cash)$5,991 $5,091 
Restricted cash at end of period3,379 4,714 
Cash and due from banks and restricted cash at end of period$9,370 $9,805 
Supplemental disclosures
Interest paid$126 $851 
Income taxes paid122 185 
Income taxes refunded4 10 
 Nine months ended Sept. 30,
(in millions)2017
 2016
Operating activities   
Net income$2,933
 $2,676
Net (income) loss attributable to noncontrolling interests(18) 1
Net income applicable to shareholders of The Bank of New York Mellon Corporation2,915
 2,677
Adjustments to reconcile net income to net cash provided by operating activities:   
Provision for credit losses(18) (18)
Pension plan contributions(12) (17)
Depreciation and amortization1,044
 1,118
Deferred tax expense (benefit)272
 (282)
Net securities (gains)(29) (65)
Change in trading assets and liabilities(66) 1,680
Originations of loans held-for-sale—
 (350)
Proceeds from the sales of loans originated for sale—
 802
Change in accruals and other, net(756) (3,988)
Net cash provided by operating activities3,350
 1,557
Investing activities   
Change in interest-bearing deposits with banks507
 880
Change in interest-bearing deposits with the Federal Reserve and other central banks(14,467) 33,473
Purchases of securities held-to-maturity(5,878) (4,169)
Paydowns of securities held-to-maturity3,332
 3,577
Maturities of securities held-to-maturity3,412
 2,933
Purchases of securities available-for-sale(18,974) (21,491)
Sales of securities available-for-sale3,531
 5,624
Paydowns of securities available-for-sale7,047
 6,552
Maturities of securities available-for-sale4,820
 7,610
Net change in loans5,283
 (2,884)
Sales of loans and other real estate369
 172
Change in federal funds sold and securities purchased under resale agreements(2,082) (10,456)
Net change in seed capital investments(52) (57)
Purchases of premises and equipment/capitalized software(933) (495)
Proceeds from the sale of premises and equipment—
 65
Acquisitions, net of cash—
 (38)
Dispositions, net of cash—
 1
Other, net82
 (239)
Net cash (used for) provided by investing activities(14,003) 21,058
Financing activities   
Change in deposits4,459
 (18,378)
Change in federal funds purchased and securities sold under repurchase agreements325
 (6,950)
Change in payables to customers and broker-dealers177
 (743)
Change in other borrowed funds2,187
 427
Change in commercial paper2,501
 —
Net proceeds from the issuance of long-term debt4,739
 4,982
Repayments of long-term debt(796) (2,453)
Proceeds from the exercise of stock options383
 129
Issuance of common stock24
 20
Issuance of preferred stock—
 990
Treasury stock acquired(2,035) (1,550)
Common cash dividends paid(653) (576)
Preferred cash dividends paid(126) (74)
Other, net46
 (2)
Net cash provided by (used for) financing activities11,231
 (24,178)
Effect of exchange rate changes on cash157
 (17)
Change in cash and due from banks   
Change in cash and due from banks735
 (1,580)
Cash and due from banks at beginning of period4,822
 6,537
Cash and due from banks at end of period$5,557
 $4,957
Supplemental disclosures   
Interest paid$721
 $371
Income taxes paid316
 597
Income taxes refunded19
 293




See accompanying unaudited Notes to Consolidated Financial Statements.


50 BNY Mellon 61
The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Changes in Equity (unaudited)


The Bank of New York Mellon Corporation shareholdersNonredeemable
noncontrolling
interests of
consolidated
investment
management
funds		Total
permanent
equity		Redeemable
non-
controlling
interests/
temporary
equity
(in millions, except per
share amount)		Preferred stockCommon
stock		Additional
paid-in
capital		Retained
earnings		Accumulated other comprehensive (loss), net
of tax		Treasury
stock
Balance at Dec. 31, 2020$4,541 $14 $27,823 $34,241 $(985)$(19,833)$143 $45,944 (a)$176 
Shares issued to shareholders of noncontrolling interests— — — — — — — — 23 
Redemption of subsidiary shares from noncontrolling interests— — — — — — — — (30)
Other net changes in noncontrolling interests— — (33)— — — 114 81 18 
Net income— — — 927 — — 5 932 — 
Other comprehensive income— — — — (834)— — (834)— 
Dividends:
Common stock at $0.31 per
  share (b)
— — — (277)— — — (277)— 
Preferred stock— — — (69)— — — (69)— 
Repurchase of common stock— — — — — (699)— (699)— 
Common stock issued under employee benefit plans— — 5 — — — — 5 — 
Stock awards and options exercised— — 133 — — — — 133 — 
Balance at March 31, 2021$4,541 $14 $27,928 $34,822 $(1,819)$(20,532)$262 $45,216 (a)$187 
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $41,260 million at Dec. 31, 2020 and $40,413 million at March 31, 2021.
(b)    Includes dividend-equivalents on share-based awards.


The Bank of New York Mellon Corporation shareholdersNonredeemable
noncontrolling
interests of
consolidated
investment
management
funds		Total
permanent
equity		Redeemable
non-
controlling
interests/
temporary
equity
(in millions, except per
share amount)		Preferred stockCommon
stock		Additional
paid-in
capital		Retained
earnings		Accumulated other comprehensive (loss), net
of tax		Treasury
stock
Balance at Sept. 30, 2020$4,532 $14 $27,741 $33,821 $(1,359)$(19,832)$251 $45,168 (a)$179 
Shares issued to shareholders of noncontrolling interests— — — — — — — — 25 
Redemption of subsidiary shares from noncontrolling interests— — — — — — — — (14)
Other net changes in noncontrolling interests— — 17 — — — (113)(96)(16)
Net income— — — 750 — — 5 755 — 
Other comprehensive income— — — — 370 — — 370 2 
Dividends:
Common stock at $0.31 per
  share
— — — (278)— — — (278)— 
Preferred stock— — — (33)— — — (33)— 
Repurchase of common stock— — — — — (1)— (1)— 
Common stock issued under employee benefit plans— — 5 — — — — 5 — 
Preferred stock redemption(583)— — — — — — (583)— 
Preferred stock issued577 — — — — — — 577 — 
Stock awards and options exercised— — 60 — — — — 60 — 
Amortization of preferred stock discount15 — — (15)— — — 0 — 
Other— — — (4)4 — — 0 — 
Balance at Dec. 31, 2020$4,541 $14 $27,823 $34,241 $(985)$(19,833)$143 $45,944 (a)$176 
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $40,385 million at Sept. 30, 2020 and $41,260 million at Dec. 31, 2020.
BNY Mellon 51
 The Bank of New York Mellon Corporation shareholders
Non-
redeemable
noncontrolling
interests of
consolidated
investment
management
funds

Total
permanent
equity

 
Redeemable
non-
controlling
interests/
temporary
equity

(in millions, except per
share amount)		Preferred stock
Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive (loss) income,
net of tax
Treasury
stock

Balance at Dec. 31, 2016$3,542
$13
$25,962
$22,621
$(3,765)$(9,562)$618
$39,429
(a)$151
Shares issued to shareholders of noncontrolling interests—
—
—
—
—
—
—
—
 40
Redemption of subsidiary shares from noncontrolling interests—
—
—
—
—
—
—
—
 (16)
Other net changes in noncontrolling interests—
—
(11)—
—
—
(258)(269) 15
Net income (loss)—
—
—
2,915
—
—
24
2,939
 (6)
Other comprehensive income—
—
—
—
984
—
—
984
 13
Dividends:          
Common stock at $0.62 per
share		—
—
—
(653)—
—
—
(653) —
Preferred stock—
—
—
(126)—
—
—
(126) —
Repurchase of common stock—
—
—
—
—
(2,035)—
(2,035) —
Common stock issued under:          
Employee benefit plans—
—
21
—
—
—
—
21
 —
Direct stock purchase and dividend reinvestment plan—
—
18
—
—
—
—
18
 —
Stock awards and options exercised—
1
598
—
—
—
—
599
 —
Balance at Sept. 30, 2017$3,542
$14
$26,588
$24,757
$(2,781)$(11,597)$384
$40,907
(a)$197
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,269 million at Dec. 31, 2016 and $36,981 million at Sept. 30, 2017.(and its subsidiaries)


Consolidated Statement of Changes in Equity (unaudited)(continued)

The Bank of New York Mellon Corporation shareholdersNonredeemable
noncontrolling
interests of
consolidated
investment
management
funds		Total
permanent
equity		Redeemable
non-
controlling
interests/
temporary
equity
(in millions, except per
share amount)		Preferred stockCommon
stock		Additional
paid-in
capital		Retained
earnings		Accumulated other comprehensive (loss), net
of tax		Treasury
stock
Balance at Dec. 31, 2019$3,542 $14 $27,515 $31,894 $(2,638)$(18,844)$102 $41,585 (a)$143 
Impact of adopting ASU 2016-13, Financial Instruments – Credit Losses
— — — 45 (5)— — 40 — 
Adjusted balance at Jan. 1, 20193,542 14 27,515 31,939 (2,643)(18,844)102 41,625 143 
Shares issued to shareholders of noncontrolling interests— — — — — — — — 17 
Redemption of subsidiary shares from noncontrolling interests— — — — — — — — (16)
Other net changes in noncontrolling interests— — (5)— — — 10 5 (2)
Net income— — — 980 — — (18)962 — 
Other comprehensive income— — — — (184)— — (184)(2)
Dividends:
Common stock at $0.31 per
  share
— — — (282)— — — (282)— 
Preferred stock— — — (36)— — — (36)— 
Repurchase of common stock— — — — — (985)— (985)— 
Common stock issued under employee benefit plans— — 9 — — — — 9 — 
Stock awards and options exercised— — 125 — — — — 125 — 
Balance at March 31, 2020$3,542 $14 $27,644 $32,601 $(2,827)$(19,829)$94 $41,239 (a)$140 
(a)    Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,941 million at Dec. 31, 2019 and $37,603 million at March 31, 2020.


See accompanying unaudited Notes to Consolidated Financial Statements.



6252 BNY Mellon
Notes to Consolidated Financial Statements


Note 1 - 1–Basis of presentation


In this Quarterly Report on Form 10-Q, 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 to its subsidiaries.

Basis of presentation


The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices. For information on our significant accounting and reporting policies, see Note 1 in our 2020 Annual Report.


The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented have been made. These financial statements should be read in conjunction with BNY Mellon’sour 2020 Annual ReportReport.

In order to combine items of a similar nature within total revenue and to simplify our income statement presentation, in the first quarter of 2021, we made the following reporting changes.The reclassifications had no impact on Form 10-Kconsolidated total revenue or total revenue for the year ended Dec. 31, 2016. business segments.Prior periods were reclassified to be comparable with the current period presentation.
•Other trading revenue was reclassified from foreign exchange and other trading revenue to investment and other income.
•Foreign exchange and other trading revenue was renamed foreign exchange revenue.
•The impact of foreign currency remeasurement was reclassified from investment and other income to foreign exchange revenue.
•Income (loss) from consolidated investment management funds was reclassified to investment and other income.
•Investment and other income was reclassified from fee revenue to other revenue. Other revenue includes investment and other income and net securities gains (losses).

In addition, the assets and liabilities of consolidated investment management funds were reclassified to other assets and other liabilities, respectively, on the consolidated balance sheet.The reclassifications had no impact on total assets or total liabilities. Prior periods were reclassified to be comparable with the current period presentation.

The table below summarizes the effects of the reclassifications on the consolidated income statement.

Consolidated income statement reclassificationsQuarter ended
Dec. 31, 2020March 31, 2020
(in millions)
Before reclassifications
Foreign exchange and other trading revenue$167 $319 
Total fee revenue$3,116 $3,323 
Investment and other income$22 $11 
Income (loss) from consolidated investment management funds$41 $(38)
After reclassifications
Foreign exchange revenue$187 $245 
Total fee revenue$3,114 $3,238 
Investment and other income$43 $47 


The table below summarizes the effects of the reclassifications on the consolidated balance sheet.

Consolidated balance sheet reclassificationsDec. 31, 2020
(in millions)
Before reclassifications
Other assets$20,468 
Assets of consolidated investment management funds, at fair value$487 
Other liabilities$7,514 
Liabilities of consolidated investment management funds, at fair value$3 
After reclassifications
Other assets$20,955 
Other liabilities$7,517 


BNY Mellon 53
Notes to Consolidated Financial Statements (continued)
The table below summarizes the effects of the reclassifications on the business segments.

Business segment reclassifications
(in millions)4Q203Q202Q201Q20
Investment Services business
Before reclassifications
Foreign exchange and other trading revenue$180 $146 $178 $261 
Other revenue$94 $100 $145 $146 
After reclassifications
Foreign exchange revenue$163 $126 $164 $228 
Other revenue$111 $120 $159 $179 
Other segment
Before reclassifications
Fee (loss) revenue$(23)$11 $29 $21 
Net securities gains$6 $9 $9 $9 
After reclassifications
Fee revenue$11 $7 $10 $6 
Other (loss) revenue$(28)$13 $28 $24 


Certain additional immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.


Use of estimates


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to estimates are items such as the allowance for loan losses and lending-related commitments, the fair value of financial instruments and derivatives, other-than-temporary impairment, goodwill and other intangibles and pension accounting. Among other effects, such changes in estimates could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as changes in pension and post-retirement expense.


Note 2–Acquisitions and dispositions

In the fourth quarter of 2020, BNY Mellon entered into agreements to sell 2 - Accounting change and new accounting guidance

ASU 2017-04, Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This ASU simplifies the annual goodwill impairment test by eliminating Step 2. The Step 2 calculation estimated the implied goodwill using the fair valueslegal entities, one of all assets, including previously unrecorded intangibles, and liabilities at the date of the test. Step 2 was required ifwhich closed in the first stepquarter of the annual test indicated that the fair value of a reporting unit2021. The remaining transaction is less than its carrying value. After adopting this ASU, the amount of any goodwill impairment will be determined by the excess of the carrying value of a reporting unit over its fair value. The Company early adopted this ASUexpected to close in the second quarter of 2017, in conjunction with its annual goodwill impairment test. The annual test did not result in any impairment.

ASU 2016-09, Compensation – Stock Compensation

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation. This ASU simplifies several aspects2021. BNY Mellon recorded a total after-tax loss of the accounting for share-based payment$34 million on these transactions including income tax consequences, recognition of forfeitures and classification on the statement of cash flows. The Company adopted this ASU effective Jan. 1, 2017.

For the first nine months of 2017, we recorded an income tax benefit of $45 million related to the vesting of stock awards and option exercises in the provision for income taxes. Previously, this had been recorded directly to additional paid-in capital. The impact in future periods will vary depending on the number of restricted stock units vesting (which primarily occurs in the firstfourth quarter of each year), the number of stock options exercised and the change in value since the grant date.2020.


We continue to apply our accounting policy election for estimating forfeitures. Additionally, beginning in the quarter ended March 31, 2017, we report excess tax benefits related to stock-based compensation as operating activities on the statement of cash flows and the employee taxes paid will continue to be reported as financing activities.



BNY Mellon 63
Notes to Consolidated Financial Statements(continued)

Note 3 - Acquisitions

We sometimes structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. Contingent payments totaled $2 million in the third quarter of 2017 and the first nine months of 2017.

At Sept. 30, 2017, we are potentially obligated to pay additional consideration which, using reasonable assumptions, could range from $0 million to $16 millionover the nexttwo years, but could be higher as certain of the arrangements do not contain a contractual maximum. The acquisition described below did not have a material impact on BNY Mellon’s results of operations.

Acquisition in 2016

On April 1, 2016, BNY Mellon acquired the assets of Atherton Lane Advisers, LLC, a U.S.-based investment manager with approximately $2.45 billion in AUM and servicer for approximately 700 high-net-worth clients, for cash of $38 million, plus contingent payments measured at $22 million. Goodwill related to this acquisition totaled $29 million and is included in the Investment Management business. The customer relationship intangible asset related to this acquisition is included in the Investment Management business, with an estimated life of 14 years, and totaled $30 million at acquisition.


Note 4 - 3–Securities


The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of securities at Sept. 30, 2017March 31, 2021 and Dec. 31, 2016.2020.


Securities at March 31, 2021Gross
unrealized		Fair
value
Amortized cost
(in millions)GainsLosses
Available-for-sale:
U.S. Treasury$27,474 $730 $276 $27,928 
Agency residential mortgage-backed securities (“RMBS”)19,501 405 60 19,846 
Sovereign debt/sovereign guaranteed13,453 141 34 13,560 
Agency commercial mortgage-backed securities (“MBS”)8,797 446 27 9,216 
Supranational7,414 44 20 7,438 
Foreign covered bonds6,491 55 4 6,542 
Collateralized loan obligations (“CLOs”)4,751 7 4 4,754 
Non-agency commercial MBS2,907 80 28 2,959 
U.S. government agencies2,823 113 17 2,919 
Foreign government agencies2,678 24 4 2,698 
State and political subdivisions2,650 19 35 2,634 
Other asset-backed securities (“ABS”)2,617 20 9 2,628 
Non-agency RMBS (a)
2,310 156 15 2,451 
Corporate bonds2,289 32 83 2,238 
Other debt securities1 0 0 1 
Total securities available-for-sale (b)(c)
$106,156 $2,272 $616 $107,812 
Held-to-maturity:
Agency RMBS$38,606 $728 $346 $38,988 
U.S. Treasury2,938 72 0 3,010 
Agency commercial MBS2,687 69 30 2,726 
U.S. government agencies2,675 1 68 2,608 
Sovereign debt/sovereign guaranteed1,001 30 2 1,029 
Non-agency RMBS55 3 0 58 
Supranational55 0 0 55 
State and political subdivisions15 1 1 15 
Total securities held-to-maturity$48,032 $904 $447 $48,489 
Total securities$154,188 $3,176 $1,063 $156,301 
(a)    Includes $451 million that was included in the former Grantor Trust.
(b)    The amortized cost of available-for-sale securities is net of the allowance for credit loss of $10 million. The allowance for credit loss primarily relates to CLOs.
(c)    Includes gross unrealized gains of $72 million and gross unrealized losses of $39 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains are primarily related to agency commercial MBS and losses are primarily related to agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
54 BNY Mellon
Securities at Sept. 30, 2017
Gross
unrealized
 
 Amortized cost
Fair
value

(in millions)Gains
Losses
Available-for-sale:    
U.S. Treasury$15,389
$236
$123
$15,502
U.S. government agencies866
4
6
864
State and political subdivisions3,091
57
24
3,124
Agency RMBS24,546
135
250
24,431
Non-agency RMBS491
37
3
525
Other RMBS270
3
8
265
Commercial MBS960
9
4
965
Agency commercial MBS9,026
41
57
9,010
CLOs2,542
9
1
2,550
Other asset-backed securities1,152
5
—
1,157
Foreign covered bonds2,529
20
7
2,542
Corporate bonds1,262
21
8
1,275
Sovereign debt/sovereign guaranteed12,393
195
23
12,565
Other debt securities3,149
12
10
3,151
Equity securities2
2
—
4
Money market funds939
—
—
939
Non-agency RMBS (a)
885
304
4
1,185
Total securities available-for-sale (b)
$79,492
$1,090
$528
$80,054
Held-to-maturity:    
U.S. Treasury$9,867
$21
$29
$9,859
U.S. government agencies1,614
—
6
1,608
State and political subdivisions18
—
1
17
Agency RMBS25,575
96
185
25,486
Non-agency RMBS64
5
—
69
Other RMBS65
—
1
64
Commercial MBS6
—
—
6
Agency commercial MBS1,118
5
5
1,118
Foreign covered bonds83
1
—
84
Sovereign debt/sovereign guaranteed1,558
32
—
1,590
Other debt securities27
—
—
27
Total securities held-to-maturity$39,995
$160
$227
$39,928
Total securities$119,487
$1,250
$755
$119,982
(a)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(b)Includes gross unrealized gains of $53 million and gross unrealized losses of $155 million recorded in accumulated other comprehensive income related to investment securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.


64 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Securities at Dec. 31, 2020Gross
unrealized
Amortized costFair
value
(in millions)GainsLosses
Available-for-sale:
U.S. Treasury$23,557 $1,358 $21 $24,894 
Agency RMBS21,919 479 51 22,347 
Sovereign debt/sovereign guaranteed12,202 190 1 12,391 
Agency commercial MBS8,605 625 2 9,228 
Supranational7,086 75 1 7,160 
Foreign covered bonds6,658 68 1 6,725 
CLOs4,706 7 10 4,703 
Foreign government agencies4,086 49 0 4,135 
U.S. government agencies3,680 174 1 3,853 
Other ABS3,135 32 3 3,164 
Non-agency commercial MBS2,864 159 6 3,017 
Non-agency RMBS (a)
2,178 157 9 2,326 
State and political subdivisions2,270 39 1 2,308 
Corporate bonds1,945 50 1 1,994 
Commercial paper/certificates of deposit (“CDs”)249 0 0 249 
Other debt securities1 0 0 1 
Total securities available-for-sale (b)(c)
$105,141 $3,462 $108 $108,495 
Held-to-maturity:
Agency RMBS$38,355 $1,055 $14 $39,396 
U.S. Treasury2,938 90 0 3,028 
U.S. government agencies2,816 4 6 2,814 
Agency commercial MBS2,659 105 2 2,762 
Sovereign debt/sovereign guaranteed1,050 42 0 1,092 
Non-agency RMBS58 3 0 61 
Supranational55 0 0 55 
State and political subdivisions15 1 0 16 
Total securities held-to-maturity$47,946 $1,300 $22 $49,224 
Total securities$153,087 $4,762 $130 $157,719 
(a)    Includes $487 million that was included in the former Grantor Trust.
(b)    The amortized cost of available-for-sale securities is net of the allowance for credit loss of $11 million. The allowance for credit loss primarily relates to CLOs.
(c)    Includes gross unrealized gains of $75 million and gross unrealized losses of $44 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains are primarily related to agency commercial MBS and losses are primarily related to agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
Securities at Dec. 31, 2016Gross
unrealized

 Amortized cost
Fair
value

(in millions)Gains
Losses
Available-for-sale:    
U.S. Treasury$14,373
$115
$181
$14,307
U.S. government agencies366
2
9
359
State and political subdivisions3,392
38
52
3,378
Agency RMBS22,929
148
341
22,736
Non-agency RMBS620
31
13
638
Other RMBS517
4
8
513
Commercial MBS931
8
11
928
Agency commercial MBS6,505
28
84
6,449
CLOs2,593
6
1
2,598
Other asset-backed securities1,729
4
6
1,727
Foreign covered bonds2,126
24
9
2,141
Corporate bonds1,391
22
17
1,396
Sovereign debt/sovereign guaranteed12,248
261
20
12,489
Other debt securities1,952
19
10
1,961
Equity securities2
1
—
3
Money market funds842
—
—
842
Non-agency RMBS (a)
1,080
286
9
1,357
Total securities available-for-sale (b)
$73,596
$997
$771
$73,822
Held-to-maturity:    
U.S. Treasury$11,117
$22
$41
$11,098
U.S. government agencies1,589
—
6
1,583
State and political subdivisions19
—
1
18
Agency RMBS25,221
57
299
24,979
Non-agency RMBS78
4
2
80
Other RMBS142
—
4
138
Commercial MBS7
—
—
7
Agency commercial MBS721
1
10
712
Foreign covered bonds74
1
—
75
Sovereign debt/sovereign guaranteed1,911
42
—
1,953
Other debt securities26
—
—
26
Total securities held-to-maturity$40,905
$127
$363
$40,669
Total securities$114,501
$1,124
$1,134
$114,491


(a)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(b)Includes gross unrealized gains of $62 million and gross unrealized losses of $190 million recorded in accumulated other comprehensive income related to investment securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
The following table presents the realized gains and losses, on a gross basis.

Net securities gains (losses)
(in millions)1Q214Q201Q20
Realized gross gains$12 $8 $12 
Realized gross losses(12)(2)(3)
Total net securities gains$0 $6 $9 


The following table presents pre-tax net securities gains (losses) by type.

Net securities gains (losses)
(in millions)1Q214Q201Q20
U.S. Treasury$(4)$1 $5 
Other4 5 4 
Total net securities gains$0 $6 $9 


Allowance for credit losses – Securities

The allowance for credit losses related to securities was $10 million at March 31, 2021 and impairments.$11 million at Dec. 31, 2020, and primarily relates to the available-for-sale CLO portfolio.


Credit quality indicators – Securities
Net securities gains (losses)   
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Realized gross gains$20
$3
$26
$34
$71
Realized gross losses—
(2)(1)(2)(1)
Recognized gross impairments(1)(1)(1)(3)(5)
Total net securities gains$19
$—
$24
$29
$65


In September 2017, other residential mortgage-backed securities with an aggregate amortized cost of $74 million and fair value of $76 million were transferred from held-to-maturity securities to available-for-sale securities. Due to recent ratings downgrades, the Company no longer intends to hold these securities to maturity.

Temporarily impaired securities


At Sept. 30, 2017,March 31, 2021, the gross unrealized losses on the investment securities portfolio were primarily attributable to an increase in interest ratescredit spreads from the date of purchase, and for certain securities that were transferred from available-for-sale to held-to-maturity, an increase in interest rates through the date they were transferred. Specifically, $155$39 million of the unrealized losses at Sept. 30, 2017March 31, 2021 and $190$44 million at Dec. 31, 20162020 reflected in the available-for-sale sections of the tables below relate to certain securities (primarily Agencyagency RMBS) that were transferred in prior periods from available-for-sale to held-to-maturity. The unrealized losses will be amortized into net interest revenue over the contractual lives of the securities. The transfer created a new cost basis for the securities. As a result, if these securities have experienced unrealized losses since the date of transfer, the corresponding fair value and unrealized losses would be reflected in the held-to-maturity sections ofsecurities portfolio in the following tables. We do not intend to sell these securities, and it is not more likely than not that we will have to sell these securities.




BNY Mellon 6555
Notes to Consolidated Financial Statements(continued)

The following tables show the aggregate related fair value of investmentsavailable-for-sale securities with a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more at Sept. 30, 2017without an allowance for credit losses.

Available-for-sale securities in an unrealized loss position without an allowance for credit losses at March 31, 2021 (a)
Less than 12 months12 months or moreTotal
Fair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
(in millions)
Agency RMBS$1,452 $22 $604 $38 $2,056 $60 
U.S. Treasury9,032 276 0 0 9,032 276 
Sovereign debt/sovereign guaranteed3,751 34 190 0 3,941 34 
Agency commercial MBS1,164 26 233 1 1,397 27 
Foreign covered bonds849 4 14 0 863 4 
Supranational1,818 20 133 0 1,951 20 
CLOs749 1 451 3 1,200 4 
Foreign government agencies698 4 0 0 698 4 
U.S. government agencies829 17 0 0 829 17 
Other ABS1,031 8 138 1 1,169 9 
Non-agency commercial MBS998 27 104 1 1,102 28 
Non-agency RMBS (b)
1,114 11 263 4 1,377 15 
State and political subdivisions1,420 35 2 0 1,422 35 
Corporate bonds1,559 83 0 0 1,559 83 
Total securities available-for-sale (c)
$26,464 $568 $2,132 $48 $28,596 $616 
(a)    Includes $10.0 billion of securities with an unrealized loss of greater than $1 million.
(b)    Includes $3 million of securities with an unrealized loss of less than $1 million for less than 12 months and Dec. 31, 2016.$9 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust.
(c)    Includes gross unrealized losses of $39 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.


Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2020 (a)
Less than 12 months12 months or moreTotal
Fair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
(in millions)
Available-for-sale:
Agency RMBS$850 $4 $1,965 $47 $2,815 $51 
U.S. Treasury4,253 21 0 0 4,253 21 
Sovereign debt/sovereign guaranteed1,349 1 135 0 1,484 1 
Agency commercial MBS440 1 266 1 706 2 
Foreign covered bonds468 1 90 0 558 1 
Supranational1,041 1 132 0 1,173 1 
CLOs1,849 6 579 4 2,428 10 
U.S. government agencies160 1 0 0 160 1 
Other ABS449 2 226 1 675 3 
Non-agency commercial MBS468 4 170 2 638 6 
Non-agency RMBS (b)
973 3 103 6 1,076 9 
State and political subdivisions273 1 2 0 275 1 
Corporate bonds282 1 0 0 282 1 
Total securities available-for-sale (c)
$12,855 $47 $3,668 $61 $16,523 $108 
(a)    Includes $1.6 billion of securities with an unrealized loss of greater than $1 million.
(b)    Includes $16 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust.
(c)    Includes gross unrealized losses of $44 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.


56 BNY Mellon
Temporarily impaired securities at Sept. 30, 2017Less than 12 months 12 months or more Total
(in millions)Fair
value
Unrealized
losses
 Fair
value
Unrealized
losses
 Fair
value
Unrealized
losses
Available-for-sale:        
U.S. Treasury$7,900
$111
 $495
$12
 $8,395
$123
U.S. government agencies399
6
 —
—
 399
6
State and political subdivisions310
4
 384
20
 694
24
Agency RMBS8,935
72
 4,145
178
 13,080
250
Non-agency RMBS5
—
 156
3
 161
3
Other RMBS72
4
 83
4
 155
8
Commercial MBS193
2
 92
2
 285
4
Agency commercial MBS3,610
47
 561
10
 4,171
57
CLOs449
1
 —
—
 449
1
Foreign covered bonds1,017
7
 28
—
 1,045
7
Corporate bonds306
3
 144
5
 450
8
Sovereign debt/sovereign guaranteed2,263
20
 137
3
 2,400
23
Other debt securities1,347
9
 84
1
 1,431
10
Non-agency RMBS (a)
8
2
 13
2
 21
4
Total securities available-for-sale (b)
$26,814
$288
 $6,322
$240
 $33,136
$528
Held-to-maturity:        
U.S. Treasury$7,281
$29
 $—
$—
 $7,281
$29
U.S. government agencies1,459
5
 99
1
 1,558
6
State and political subdivisions—
—
 4
1
 4
1
Agency RMBS17,125
172
 847
13
 17,972
185
Other RMBS15
—
 35
1
 50
1
Agency commercial MBS557
5
 —
—
 557
5
Total securities held-to-maturity$26,437
$211
 $985
$16
 $27,422
$227
Total temporarily impaired securities$53,251
$499
 $7,307
$256
 $60,558
$755
(a)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(b)Gross unrealized losses for 12 months or more of $155 million were recorded in accumulated other comprehensive income and related to investment securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were no gross unrealized losses for less than 12 months.


66 BNY Mellon
Notes to Consolidated Financial Statements(continued)

The following tables show the credit quality of the held-to-maturity securities. We have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.

Held-to-maturity securities portfolio at March 31, 2021
Ratings (a)
Net unrealized gainBB+
and
lower		A1+/A2/SP-1
(dollars in millions)Amortized
cost		AAA/
AA-		A+/
A-		BBB+/
BBB-		Not
rated
Agency RMBS$38,606 $382 100 %0 %0 %0 %0 %0 %
U.S. Treasury2,938 72 100 0 0 0 0 0 
U.S. government agencies2,675 (67)100 0 0 0 0 0 
Agency commercial MBS2,687 39 100 0 0 0 0 0 
Sovereign debt/sovereign guaranteed (b)
1,001 28 100 0 0 0 0 0 
Non-agency RMBS55 3 28 56 1 14 0 1 
Supranational55 0 100 0 0 0 0 0 
State and political subdivisions15 0 6 2 5 0 0 87 
Total held-to-maturity securities$48,032 $457 100 %0 %0 %0 %0 %0 %
(a)    Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(b)    Primarily consists of exposure to France, UK and Germany.


Held-to-maturity securities portfolio at Dec. 31, 2020
Ratings (a)
Net unrealized gainBB+
and
lower		A1+/A2/SP-1
(dollars in millions)Amortized
cost		AAA/
AA-		A+/
A-		BBB+/
BBB-		Not
rated
Agency RMBS$38,355 $1,041 100 %0 %0 %0 %0 %0 %
U.S. Treasury2,938 90 100 0 0 0 0 0 
U.S. government agencies2,816 (2)100 0 0 0 0 0 
Agency commercial MBS2,659 103 100 0 0 0 0 0 
Sovereign debt/sovereign guaranteed (b)
1,050 42 98 0 0 0 2 0 
Non-agency RMBS58 3 28 55 2 14 0 1 
Supranational55 0 100 0 0 0 0 0 
State and political subdivisions15 1 6 2 6 0 0 86 
Total held-to-maturity securities$47,946 $1,278 100 %0 %0 %0 %0 %0 %
(a)    Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(b)    Primarily consists of exposure to France, UK and Germany.


BNY Mellon 57
Temporarily impaired securities at Dec. 31, 2016Less than 12 months 12 months or more Total
(in millions)
Fair
value

Unrealized
losses

 
Fair
value

Unrealized
losses

 
Fair
value

Unrealized
losses

Available-for-sale:        
U.S. Treasury$8,489
$181
 $—
$—
 $8,489
$181
U.S. government agencies257
9
 —
—
 257
9
State and political subdivisions1,058
33
 131
19
 1,189
52
Agency RMBS14,766
141
 1,673
200
 16,439
341
Non-agency RMBS21
—
 332
13
 353
13
Other RMBS26
—
 136
8
 162
8
Commercial MBS302
7
 163
4
 465
11
Agency commercial MBS3,570
78
 589
6
 4,159
84
CLOs443
1
 404
—
 847
1
Other asset-backed securities276
1
 357
5
 633
6
Foreign covered bonds712
9
 —
—
 712
9
Corporate bonds594
16
 7
1
 601
17
Sovereign debt/sovereign guaranteed1,521
20
 63
—
 1,584
20
Other debt securities742
10
 50
—
 792
10
Non-agency RMBS (a)
25
—
 47
9
 72
9
Total securities available-for-sale (b)
$32,802
$506

$3,952
$265

$36,754
$771
Held-to-maturity:        
U.S. Treasury$6,112
$41
 $—
$—
 $6,112
$41
U.S. government agencies1,533
6
 —
—
 1,533
6
State and political subdivisions—
—
 4
1
 4
1
Agency RMBS19,498
297
 102
2
 19,600
299
Non-agency RMBS4
—
 48
2
 52
2
Other RMBS15
—
 123
4
 138
4
Agency commercial MBS621
10
 —
—
 621
10
Total securities held-to-maturity$27,783
$354

$277
$9

$28,060
$363
Total temporarily impaired securities$60,585
$860

$4,229
$274

$64,814
$1,134
(a)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
Notes to Consolidated Financial Statements (continued)
(b)Includes gross unrealized losses for 12 months or more of $190 million recorded in accumulated other comprehensive income related to investment securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were no gross unrealized losses for less than 12 months.


Maturity distribution

The following table shows the maturity distribution by carrying amount and yield (on a tax equivalent basis) of our investment securities portfolio at Sept. 30, 2017.portfolio.


Maturity distribution and yields on securities at March 31, 2021U.S. TreasuryU.S. government
agencies		State and political
subdivisions		Other bonds, notes and debenturesMortgage/
asset-backed
(dollars in millions)Amount
Yield (a)
Amount
Yield (a)
Amount
Yield (a)
Amount
Yield (a)
Amount
Yield (a)
Total
Securities available-for-sale:
One year or less$3,637 1.36 %$0 0 %$702 1.27 %$9,028 0.46 %$— — %$13,367 
Over 1 through 5 years11,763 1.11 1,382 0.86 531 2.72 18,095 0.56 — — 31,771 
Over 5 through 10 years9,784 1.34 1,400 2.38 1,079 1.50 5,181 0.77 — — 17,444 
Over 10 years2,744 3.11 137 1.98 322 2.24 173 0.72 — — 3,376 
Mortgage-backed securities— — — — — — — — 34,472 2.18 34,472 
Asset-backed securities— — — — — — — — 7,382 1.55 7,382 
Total$27,928 1.42 %$2,919 1.64 %$2,634 1.77 %$32,477 0.57 %$41,854 2.07 %$107,812 
Securities held-to-maturity:
One year or less$1,429 2.03 %$0 0 %$0 0 %$48 0.23 %$— — %$1,477 
Over 1 through 5 years1,509 1.93 880 0.68 2 5.62 925 0.69 — — 3,316 
Over 5 through 10 years0 0 1,530 1.07 0 0 83 0.60 — — 1,613 
Over 10 years0 0 265 2.18 13 4.76 0 0 — — 278 
Mortgage-backed securities— — — — — — — — 41,348 2.38 41,348 
Total$2,938 1.98 %$2,675 1.05 %$15 4.90 %$1,056 0.66 %$41,348 2.38 %$48,032 
(a)Yields are based upon the amortized cost of securities.


Maturity distribution and yield on investment securities at Sept. 30, 2017U.S. Treasury 
U.S. government
agencies
 
State and political
subdivisions
 Other bonds, notes and debentures 
Mortgage/
asset-backed and
equity securities
  
(dollars in millions)Amount
Yield (a)

 Amount
Yield (a)

 Amount
Yield (a)

 Amount
Yield (a)

 Amount
Yield (a)

 Total
Securities available-for-sale:                
One year or less$2,223
1.02% $—
—% $438
2.60% $3,852
1.01% $—
—% $6,513
Over 1 through 5 years5,790
1.66
 174
1.29
 1,576
3.07
 12,648
0.99
 —
—
 20,188
Over 5 through 10 years4,002
1.90
 690
2.46
 912
3.34
 2,835
0.81
 —
—
 8,439
Over 10 years3,487
3.11
 —
—
 198
2.36
 198
1.64
 —
—
 3,883
Mortgage-backed securities—
—
 —
—
 —
—
 —
—
 36,381
2.78
 36,381
Asset-backed securities—
—
 —
—
 —
—
 —
—
 3,707
2.32
 3,707
Equity securities (b)
—
—
 —
—
 —
—
 —
—
 943
—
 943
Total$15,502
1.96% $864
2.23% $3,124
3.04% $19,533
0.97% $41,031
2.68% $80,054
Securities held-to-maturity:                
One year or less$4,943
0.97% $731
0.99% $—
—% $700
0.60% $—
—% $6,374
Over 1 through 5 years3,517
1.67
 883
1.38
 2
6.88
 307
0.59
 —
—
 4,709
Over 5 through 10 years1,407
1.92
 —
—
 2
6.86
 661
0.73
 —
—
 2,070
Over 10 years—
—
 —
—
 14
5.32
 —
—
 —
—
 14
Mortgage-backed securities—
—
 —
—
 —
—
 —
—
 26,828
2.80
 26,828
Total$9,867
1.36% $1,614
1.20% $18
5.64% $1,668
0.65% $26,828
2.80% $39,995
(a)Yields are based upon the amortized cost of securities.
(b)Includes money market funds.


BNY Mellon 67
Notes to Consolidated Financial Statements(continued)

Other-than-temporary impairment

We conduct periodic reviews of all securities to determine whether OTTI has occurred. Such reviews may incorporate the use of economic models. Various inputs to the economic models are used to determine if an unrealized loss on securities is other-than-temporary. For example, the most significant inputs related to non-agency RMBS are:

Default rate - the number of mortgage loans expected to go into default over the life of the transaction, which is driven by the roll rate of loans in each performance bucket that will ultimately migrate to default; and
Severity - the loss expected to be realized when a loan defaults.

To determine if an unrealized loss is other-than-temporary, we project total estimated defaults of the underlying assets (mortgages) and multiply that calculated amount by an estimate of realizable value upon sale of these assets in the marketplace (severity) in order to determine the projected collateral loss. In determining estimated default rate and severity assumptions, we review the performance of the underlying securities, industry studies and market forecasts, as well as our view of the economic outlook affecting collateral. We also evaluate the current credit enhancement underlying the bond to determine the impact on cash flows. If we determine that a given security will be subject to a write-down or loss, we record the expected credit loss as a charge to earnings.

The table below shows the projected weighted-average default rates and loss severities for the 2007, 2006 and late 2005 non-agency RMBS and the securities previously held in the Grantor Trust that we established in connection with the restructuring of our investment securities portfolio in 2009, at Sept. 30, 2017 and Dec. 31, 2016.

Projected weighted-average default rates and loss severities
 Sept. 30, 2017 Dec. 31, 2016
 Default rate
Severity
 Default rate
Severity
Alt-A22%54% 30%54%
Subprime38%66% 49%70%
Prime13%39% 18%39%

The following table presents pre-tax net securities gains (losses) by type.

Net securities gains (losses)    
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Agency RMBS$4
$—
$9
$5
$22
U.S. Treasury1
(1)(1)—
4
Foreign covered bonds—
—
—
—
10
Non-agency RMBS(1)—
(1)(2)1
Other15
1
17
26
28
Total net securities gains$19
$—
$24
$29
$65


The following tables reflect investment securities credit losses recorded in earnings. The beginning balance represents the credit loss component for which OTTI occurred on debt securities in prior periods. The additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred. The deductions represent credit losses on securities that have been sold, are required to be sold, or for which it is our intention to sell.

Debt securities credit loss roll forward  
(in millions)3Q17
3Q16
Beginning balance as of June 30$85
$91
Add: Initial OTTI credit losses—
—
 Subsequent OTTI credit losses1
1
Less: Realized losses for securities sold2
5
Ending balance as of Sept. 30$84
$87

Debt securities credit loss roll forward  
(in millions)YTD17
YTD16
Beginning balance as of Jan. 1$88
$91
Add: Initial OTTI credit losses—
—
 Subsequent OTTI credit losses3
5
Less: Realized losses for securities sold7
9
Ending balance as of Sept. 30$84
$87


Pledged assets


At Sept. 30, 2017,March 31, 2021, BNY Mellon had pledged assets of $108$142 billion, including $87$113 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $4$6 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Sept. 30, 2017March 31, 2021 included $92$124 billion of securities, $13$11 billion of loans, $2$6 billion of trading assets and $1 billion of interest-bearing deposits with banks.




68 BNY Mellon
Notes to Consolidated Financial Statements(continued)

If there has been no borrowing at the Federal Reserve Discount Window, the Federal Reserve generally allows banks to freely move assets in and out of their pledged assets account to sell or repledge the assets for other purposes. BNY Mellon regularly moves assets in and out of its pledged assets account at the Federal Reserve.


At Dec. 31, 2016,2020, BNY Mellon had pledged assets of $102$141 billion, including $84$113 billion pledged as collateral for potential borrowing at the Federal Reserve Discount Window.Window and $5 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Dec. 31, 20162020 included $87$124 billion of securities, $8$11 billion of loans, $4$6 billion of trading assets and less than $1 billion of interest-bearing deposits with banks and $3 billion of trading assets.banks.

At Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, pledged assets included $13$20 billion and $6$18 billion, respectively, for which the recipients were permitted to sell or repledge the assets delivered.


We also obtain securities as collateral, including receipts under resale agreements, securities borrowed, derivative contracts and custody agreements, on terms which permit us to sell or repledge the securities to others. At Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, the market value of the securities received that can be sold or repledged was $68$95 billion and $50$121 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, the market value of securities collateral sold or repledged was $39$58 billion and $20$84 billion, respectively.


Restricted cash and securities


Cash and securities may also be segregated under federal and other regulations or requirements. At Sept. 30, 2017both March 31, 2021 and Dec. 31, 2016,2020, cash segregated under federal and other regulations or requirements was $4 billion and $3 billion, respectively.billion. Restricted cash is included in interest-bearing deposits with banks on the consolidated balance sheet. Securities segregated for these purposesunder federal and other regulations or requirements were $2$4 billion at Sept. 30, 2017March 31, 2021 and $2$6 billion at Dec. 31, 2016.2020. Restricted securities were sourced from securities purchased
58 BNY Mellon
Notes to Consolidated Financial Statements (continued)
under resale agreements at Sept. 30, 2017 and Dec. 31, 2016 and are included in federal funds sold and securities purchased under resale agreements on the consolidated balance sheet.


Note 5 - 4–Loans and asset quality


Loans


The table below provides the details of our loan portfolioportfolio.

LoansMarch 31, 2021Dec. 31, 2020
(in millions)
Domestic:
Commercial$1,428 $1,356 
Commercial real estate5,876 6,056 
Financial institutions4,431 4,495 
Lease financings399 431 
Wealth management loans and mortgages16,460 16,211 
Other residential mortgages364 389 
Overdrafts954 651 
Other1,780 1,823 
Margin loans15,514 13,141 
Total domestic47,206 44,553 
Foreign:
Commercial16 73 
Commercial real estate6 0 
Financial institutions6,531 6,750 
Lease financings561 559 
Wealth management loans and mortgages123 146 
Other (primarily overdrafts)3,910 2,113 
Margin loans2,379 2,275 
Total foreign13,526 11,916 
Total loans (a)
$60,732 $56,469 
(a)Net of unearned income of $265 million at March 31, 2021 and industry concentrations of credit risk$274 million at Sept. 30, 2017 and Dec. 31, 2016.2020 primarily related to domestic and foreign lease financings.


LoansSept. 30, 2017
Dec. 31, 2016
(in millions)
Domestic:  
Financial institutions$5,155
$6,342
Commercial2,698
2,286
Wealth management loans and mortgages16,161
15,555
Commercial real estate4,921
4,639
Lease financings823
989
Other residential mortgages741
854
Overdrafts1,487
1,055
Other1,159
1,202
Margin loans13,720
17,503
Total domestic46,865
50,425
Foreign:  
Financial institutions6,741
8,347
Commercial305
331
Wealth management loans and mortgages104
99
Commercial real estate6
15
Lease financings522
736
Other (primarily overdrafts)4,373
4,418
Margin loans152
87
Total foreign12,203
14,033
Total loans (a)
$59,068
$64,458
(a)
Net of unearned income of $414 million at Sept. 30, 2017 and $527 million at Dec. 31, 2016 primarily on domestic and foreign lease financings.


Our loan portfolio consists of three3 portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level, which consists of six6 classes of financing receivables: commercial, commercial real estate, financial institutions, lease financings, wealth
management loans and mortgages and other residential mortgages.


The following tables are presented for each class of financing receivablereceivables and provide additional information about our credit risks and the adequacy of our allowance for credit losses.risks.




BNY Mellon 69
Notes to Consolidated Financial Statements(continued)

Allowance for credit losses


TransactionsActivity in the allowance for credit losses are summarized as follows.on loans and lending-related commitments is presented below. This does not include activity in the allowance for credit losses related to other financial instruments, including cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements, held-to-maturity securities, available-for-sale securities and accounts receivable.


Allowance for credit losses activity for the quarter ended March 31, 2021Wealth management loans and mortgagesOther
residential
mortgages
(in millions)CommercialCommercial
real estate		Financial
institutions		Lease
financings		Total
Beginning balance$16 $430 $10 $2 $8 $13 $479 
Charge-offs0 0 0 0 (1)0 (1)
Recoveries0 0 0 0 0 2 2 
Net (charge-offs) recoveries0 0 0 0 (1)2 1 
Provision (a)
(5)(65)(3)0 (1)(6)(80)
Ending balance (b)
$11 $365 $7 $2 $6 $9 $400 
Allowance for:
Loan losses$4 $303 $4 $2 $5 $9 $327 
Lending-related commitments7 62 3 0 1 0 73 
Individually evaluated for impairment:
Loan balance (c)
$0 $26 $0 $0 $18 $1 $45 
Allowance for loan losses0 5 0 0 0 0 5 
(a)    Does not include the provision for credit losses benefit related to other financial instruments of $3 million for the first quarter 2021.
(b)    Includes $3 million of allowance for credit losses related to foreign loans, primarily financial institutions.
(c)    Includes collateral dependent loans of $45 million with $59 million of collateral at fair value.

BNY Mellon 59
Allowance for credit losses activity for the quarter ended Sept. 30, 2017Wealth management loans and mortgages
Other
residential
mortgages

    
(in millions)Commercial
Commercial
real estate

Financial
institutions

Lease
financings

All
other

 Foreign
Total
Beginning balance$80
$75
$23
$10
$25
$23
$—
 $34
$270
Charge-offs—
—
—
—
—
—
—
 —
—
Recoveries—
—
—
—
—
1
—
 —
1
Net recoveries—
—
—
—
—
1
—
 —
1
Provision1
—
—
(1)(4)(3)—
 1
(6)
Ending balance$81
$75
$23
$9
$21
$21
$—
 $35
$265
Allowance for:          
Loan losses$26
$57
$7
$9
$17
$21
$—
 $24
$161
Lending-related commitments55
18
16
—
4
—
—
 11
104
Individually evaluated for impairment:          
Loan balance$—
$—
$2
$—
$5
$—
$—
 $—
$7
Allowance for loan losses—
—
2
—
—
—
—
 —
2
Collectively evaluated for impairment:          
Loan balance$2,698
$4,921
$5,153
$823
$16,156
$741
$16,366
(a)$12,203
$59,061
Allowance for loan losses26
57
5
9
17
21
—
 24
159
(a)Includes $1,487 million of domestic overdrafts, $13,720 million of margin loans and $1,159 million of other loans at Sept. 30, 2017.


Allowance for credit losses activity for the quarter ended June 30, 2017Wealth management loans and mortgages
Other
residential
mortgages

    
(in millions)Commercial
Commercial
real estate

Financial
institutions

Lease
financings

All
other

 Foreign
Total
Beginning balance$82
$73
$23
$10
$26
$25
$—
 $37
$276
Charge-offs—
—
—
—
—
—
—
 —
—
Recoveries—
—
—
—
—
1
—
 —
1
Net recoveries—
—
—
—
—
1
—
 —
1
Provision(2)2
—
—
(1)(3)—
 (3)(7)
Ending balance$80
$75
$23
$10
$25
$23
$—
 $34
$270
Allowance for:          
Loan losses$26
$55
$7
$10
$21
$23
$—

$23
$165
Lending-related commitments54
20
16
—
4
—
—

11
105
Individually evaluated for impairment:          
Loan balance$—
$—
$2
$—
$7
$—
$—

$—
$9
Allowance for loan losses—
—
2
—
3
—
—

—
5
Collectively evaluated for impairment:          
Loan balance$2,580
$5,017
$5,952
$847
$16,024
$780
$15,950
(a)$14,514
$61,664
Allowance for loan losses26
55
5
10
18
23
—

23
160
(a)Includes $855 million of domestic overdrafts, $13,973 million of margin loans and $1,122 million of other loans at June 30, 2017.




70 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Allowance for credit losses activity for the quarter ended Dec. 31, 2020Wealth management loans and mortgagesOther
residential
mortgages
(in millions)CommercialCommercial
real estate		Financial
institutions		Lease
financings		Total
Beginning balance$27 $386 $11 $3 $15 $18 $460 
Charge-offs0 0 0 0 0 (1)(1)
Recoveries0 0 0 0 0 1 1 
Net (charge-offs) recoveries0 0 0 0 0 0 0 
Provision (a)
(11)44 (1)(1)(7)(5)19 
Ending balance (b)
$16 $430 $10 $2 $8 $13 $479 
Allowance for:
Loan losses$6 $324 $6 $2 $7 $13 $358 
Lending-related commitments10 106 4 0 1 0 121 
Individually evaluated for impairment:
Loan balance$0 $0 $0 $0 $20 (c)$0 $20 
Allowance for loan losses0 0 0 0 0 0 0 
(a)    Does not include the provision for credit losses benefit related to other financial instruments of $4 million for the fourth quarter 2020.
(b)    Includes $6 million of allowance for credit losses related to foreign loans, primarily financial institutions.
(c)    Includes collateral dependent loans of $20 million with $30 million of collateral at fair value.


Allowance for credit losses activity for the quarter ended March 31, 2020Wealth management loans and mortgagesOther
residential
mortgages		ForeignTotal
(in millions)CommercialCommercial
real estate		Financial
institutions		Lease
financings		(a)
Balance at Dec. 31, 2019$60 $76 $20 $3 $20 $13 $24 $216 
Impact of adopting ASU 2016-13(43)14 (6)0 (12)2 (24)(69)
Balance at Jan. 1, 202017 90 14 3 8 15 0 147 
Charge-offs0 0 0 0 0 0 — 0 
Recoveries0 0 0 0 0 0 — 0 
Net (charge-offs) recoveries0 0 0 0 0 0 — 0 
Provision (b)
9 118 4 10 1 (1)— 141 
Ending balance (c)
$26 $208 $18 $13 $9 $14 $— $288 
Allowance for:
Loan losses$13 $83 $10 $13 $7 $14 $— $140 
Lending-related commitments13 125 8 0 2 0 — 148 
Individually evaluated for impairment:
Loan balance$0 $0 $0 $0 $18 (d)$0 $— $18 
Allowance for loan losses0 0 0 0 0 0 — 0 
(a)    The allowance related to foreign exposure has been reclassified to financial institutions ($10 million), commercial ($10 million) and lease financings ($4 million).
(b)    Does not include the provision for credit losses related to other financial instruments of $28 million for the first quarter 2020.
(c)    Includes $12 million of allowance for credit losses related to foreign loans, primarily financial institutions.
(d)    Includes collateral dependent loans of $18 million with $26 million of collateral at fair value.


60 BNY Mellon
Allowance for credit losses activity for the quarter ended Sept. 30, 2016Wealth management loans and mortgages
Other
residential
mortgages

All
other

 Foreign
Total
(in millions)Commercial
Commercial
real estate

Financial
institutions

Lease
financings

 
Beginning balance$90
$63
$29
$14
$18
$29
$—
 $37
$280
Charge-offs—
—
—
—
—
(1)—
 —
(1)
Recoveries—
—
13
—
—
1
—
 —
14
Net recoveries—
—
13
—
—
—
—
 —
13
Provision1
—
(13)—
—
(1)—
 (6)(19)
Ending balance$91
$63
$29
$14
$18
$28
$—
 $31
$274
Allowance for:          
Loan losses$22
$45
$9
$14
$14
$28
$—
 $16
$148
Lending-related commitments69
18
20
—
4
—
—
 15
126
Individually evaluated for impairment:          
Loan balance$—
$1
$—
$4
$4
$—
$—
 $—
$9
Allowance for loan losses—
1
—
2
—
—
—
 —
3
Collectively evaluated for impairment:          
Loan balance$2,292
$4,693
$6,783
$1,013
$15,027
$901
$20,189
(a)$15,061
$65,959
Allowance for loan losses22
44
9
12
14
28
—
 16
145
(a)Includes $1,580 million of domestic overdrafts, $17,487 million of margin loans and $1,122 million of other loans at Sept. 30, 2016.


Allowance for credit losses activity for the nine months ended Sept. 30, 2017Wealth management loans and mortgages
Other
residential
mortgages
All
other
Foreign
Total
(in millions)Commercial
Commercial
real estate
Financial
institutions
Lease
financings
Beginning balance$82
$73
$26
$13
$23
$28
$—
$36
$281
Charge-offs—
—
—
—
—
(1)—
—
(1)
Recoveries—
—
—
—
—
3
—
—
3
Net recoveries—
—
—
—
—
2
—
—
2
Provision(1)2
(3)(4)(2)(9)—
(1)(18)
Ending balance$81
$75
$23
$9
$21
$21
$—
$35
$265


Allowance for credit losses activity for the nine months ended Sept. 30, 2016Wealth management loans and mortgages
Other
residential
mortgages
All
other
Foreign
Total
(in millions)Commercial
Commercial
real estate
Financial
institutions
Lease
financings
Beginning balance$82
$59
$31
$15
$19
$34
$—
$35
$275
Charge-offs—
—
—
—
—
(1)—
—
(1)
Recoveries—
—
13
—
—
4
—
1
18
Net recoveries—
—
13
—
—
3
—
1
17
Provision9
4
(15)(1)(1)(9)—
(5)(18)
Ending balance$91
$63
$29
$14
$18
$28
$—
$31
$274




BNY Mellon 71
Notes to Consolidated Financial Statements(continued)

Nonperforming assets


The table below presents our nonperforming assets.


Nonperforming assetsMarch 31, 2021Dec. 31, 2020
Recorded investmentRecorded investment
With an
allowance		Without an allowanceWith an
allowance		Without an allowance
(in millions)TotalTotal
Nonperforming loans:
Other residential mortgages$55 $1 $56 $57 $0 $57 
Wealth management loans and mortgages10 18 28 10 20 30 
Commercial real estate26 0 26 1 0 1 
Total nonperforming loans91 19 110 68 20 88 
Other assets owned0 2 2 0 1 1 
Total nonperforming assets$91 $21 $112 $68 $21 $89 
 
Nonperforming assets
(in millions)
Sept. 30, 2017
Dec. 31, 2016
 
 Nonperforming loans:  
 Other residential mortgages$80
$91
 Wealth management loans and mortgages8
8
 Financial institutions2
—
 Lease financings—
4
 Total nonperforming loans90
103
 Other assets owned4
4
 Total nonperforming assets$94
$107




At Sept. 30, 2017,March 31, 2021, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material.

Lost interest

The table below presents the amount of lost interest income.

Lost interest     
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Amount by which interest income recognized on nonperforming loans exceeded reversals$—
$—
$—
$—
$—
Amount by which interest income would have increased if nonperforming loans at period end had been performing for the entire period$1
$1
$1
$4
$4





Impaired loans

The tables below present information about our impaired loans. We use the discounted cash flow method as the primary method for valuing impaired loans. 

Impaired loans3Q172Q173Q16 YTD17YTD16
(in millions)
Average
recorded
investment

Interest
income
recognized
Average
recorded
investment

Interest
income
recognized

Average
recorded
investment
Interest
income
recognized
 Average
recorded
investment
Interest
income
recognized
Average
recorded
investment
Interest
income
recognized
Impaired loans with an allowance:           
Commercial real estate$—
$—
$—
$—
$1
$—
 $—
$—
$1
$—
Financial institutions2
—
1
—
—
—
 1
—
—
—
Wealth management loans and mortgages2
—
3
—
3
—
 3
—
5
—
Lease financings—
—
—
—
4
—
 1
—
3
—
Total impaired loans with an allowance4
—
4
—
8
—
 5
—
9
—
Impaired loans without an allowance:
           
Commercial real estate—
—
—
—
1
—
 —
—
1
—
Financial institutions—
—
—
—
85
—
 —
—
128
—
Wealth management loans and mortgages4
—
3
—
3
—
 3
—
2
—
Total impaired
loans without an allowance (a)
4
—
3
—
89
—
 3
—
131
—
Total impaired loans$8
$—
$7
$—
$97
$—
 $8
$—
$140
$—
(a)When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under the accounting standard related to impaired loans.




72 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Impaired loansSept. 30, 2017 Dec. 31, 2016
(in millions)
Recorded
investment

Unpaid
principal
balance

Related
allowance (a)

 
Recorded
investment

Unpaid
principal
balance

Related
allowance (a)

Impaired loans with an allowance:       
Commercial real estate$—
$3
$—
 $—
$3
$—
Financial institutions2
2
2
 —
—
—
Wealth management loans and mortgages1
1
—
 3
3
3
Lease financings—
—
—
 4
4
2
Total impaired loans with an allowance3
6
2
 7
10
5
Impaired loans without an allowance:
       
Wealth management loans and mortgages4
4
N/A
 2
2
N/A
Total impaired loans without an allowance (b)
4
4
N/A
 2
2
N/A
Total impaired loans (c)
$7
$10
$2
 $9
$12
$5
(a)The allowance for impaired loans is included in the allowance for loan losses.
(b)When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not require an allowance under the accounting standard related to impaired loans.
(c)
Excludes an aggregate of less than $1 million of impaired loans in amounts individually less than $1 million at both Sept. 30, 2017 and Dec. 31, 2016, respectively. The allowance for loan losses associated with these loans totaled less than $1 million at both Sept. 30, 2017 and Dec. 31, 2016, respectively.


Past due loans


The table below presents our past due loans.


Past due loans and still accruing interestSept. 30, 2017 Dec. 31, 2016Past due loans and still accruing interestMarch 31, 2021Dec. 31, 2020
Days past due
Total
past due

 Days past due
Total
past due

 Days past dueTotal
past due		Days past dueTotal
past due
(in millions)30-59
60-89
≥90
30-59
60-89
≥90
(in millions)30-5960-89≥9030-5960-89≥90
Wealth management loans and mortgagesWealth management loans and mortgages$56 $0 $0 $56 $54 $1 $0 $55 
Financial institutionsFinancial institutions11 8 0 19 11 0 0 11 
Other residential mortgagesOther residential mortgages7 0 0 7 3 1 0 4 
Commercial real estate$51
$60
$—
$111
 $78
$—
$—
$78
Commercial real estate4 0 0 4 19 16 0 35 
Wealth management loans and mortgages86
15
1
102
 21
2
—
23
Other residential mortgages20
3
5
28
 20
6
7
33
Financial institutions—
—
—
—
 1
27
—
28
Total past due loans$157
$78
$6
$241

$120
$35
$7
$162
Total past due loans$78 $8 $0 $86 $87 $18 $0 $105 




Loan modifications
Troubled debt restructurings (“TDRs”)

A modified loan is considered a TDR ifDue to the debtor is experiencing financial difficultiescoronavirus pandemic, there have been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the creditor grants a concessionInteragency Guidance. See Note 1 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for additional details on the CARES Act, Consolidated Appropriations Act, 2021, and Interagency Guidance. Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in
providing borrowers with loan modification relief in response to the debtor that would not
otherwise be considered. A TDR may include a transfercoronavirus pandemic. We modified loans of $6 million in the first quarter of 2021, less than $1 million in the first quarter of 2020 and $16 million in the fourth quarter of 2020. Nearly all of the modifications were short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate or other assets fromloans. We also modified $14 million of commercial real estate loans in the debtor to the creditor, or a modificationfirst quarter of 2021 by providing payment modifications and an extension of maturity. We did not identify any of the termmodifications as TDRs. At March 31, 2021, the unpaid principal balance of the loan. Not allloans modified loans are considered TDRs.under the CARES Act or Interagency Guidance was $91 million.

The following table presents our TDRs.

TDRs3Q17 2Q17 3Q16
  
Outstanding
recorded investment
  
Outstanding
recorded investment
  
Outstanding
recorded investment
(dollars in millions)
Number of
contracts

Pre-modification Post-modification  Number of contracts
Pre-modification Post-modification  Number of contracts
Pre-modification Post-modification 
Other residential mortgages19
 $5
 $5
 16
 $4
 $4
 17
 $4
 $4
Wealth management loans and mortgages1
 2
 2
 —
 —
 —
 —
 —
 —
Total TDRs20
 $7
 $7
 16
 $4
 $4
 17
 $4
 $4




BNY Mellon 7361
Notes to Consolidated Financial Statements(continued)

Other residential mortgages

The modifications of the other residential mortgage loans in the third quarter of 2017, second quarter of 2017 and third quarter of 2016 consisted of reducing the stated interest rates and, in certain cases, a forbearance of default and extending the maturity dates. The modified loans are primarily collateral dependent for which the value is based on the fair value of the collateral.

TDRs that subsequently defaulted

There were three residential mortgage loans that had been restructured in a TDR during the previous 12
months and have subsequently defaulted in the third quarter of 2017. The total recorded investment of these loans was less than $1 million.

Credit quality indicators


Our credit strategy is to focus on investment gradeinvestment-grade clients that are active users of our non-credit services. Each customer is assigned an internal credit rating, which is mapped to an external rating agency grade equivalent, if possible, based upon a number of dimensions, which are continually evaluated and may change over time.


The following tables presentbelow provide information about the credit quality indicators.

Commercialprofile of the loan portfolio by the period of origination.


Credit profile of the loan portfolioMarch 31, 2021
Revolving loans
Originated, at amortized costAmortized costConverted to term loans – Amortized costAccrued
interest
receivable
(in millions)1Q212020201920182017Prior to 2017
Total (a)
Commercial:
Investment grade$392 $20 $0 $0 $208 $57 $589 $0 $1,266 
Non-investment grade98 23 0 0 0 0 57 0 178 
Total commercial490 43 0 0 208 57 646 0 1,444 $1 
Commercial real estate:
Investment grade892 457 818 175 319 542 123 0 3,326 
Non-investment grade525 179 591 439 117 471 208 26 2,556 
Total commercial real estate1,417 636 1,409 614 436 1,013 331 26 5,882 8 
Financial institutions:
Investment grade409 159 0 0 0 97 8,582 0 9,247 
Non-investment grade43 20 0 0 0 0 1,652 0 1,715 
Total financial institutions452 179 0 0 0 97 10,234 0 10,962 14 
Wealth management loans and mortgages:
Investment grade7 16 77 5 150 171 8,070 0 8,496 
Non-investment grade0 0 0 0 0 0 58 0 58 
Wealth management mortgages437 1,089 982 616 1,113 3,750 42 0 8,029 
Total wealth management loans and mortgages444 1,105 1,059 621 1,263 3,921 8,170 0 16,583 27 
Lease financings5 100 17 13 7 818 0 0 960 0 
Other residential mortgages0 0 0 0 0 364 0 0 364 1 
Other loans0 0 0 0 0 0 1,842 0 1,842 1 
Margin loans3,265 2,800 0 0 0 0 11,828 0 17,893 8 
Total loans$6,073 $4,863 $2,485 $1,248 $1,914 $6,270 $33,051 $26 $55,930 $60 
(a)    Excludes overdrafts of $4,802 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.

62 BNY Mellon
Commercial loan portfolio – Credit risk profile
by creditworthiness category
Commercial Commercial real estate Financial institutions
Sept. 30, 2017
Dec. 31, 2016
 Sept. 30, 2017
Dec. 31, 2016
 Sept. 30, 2017
Dec. 31, 2016
(in millions)  
Investment grade$2,857
$2,397
 $4,339
$3,823
 $9,217
$11,459
Non-investment grade146
220
 588
831
 2,679
3,230
Total$3,003
$2,617
 $4,927
$4,654
 $11,896
$14,689
Notes to Consolidated Financial Statements (continued)

Credit profile of the loan portfolioDec. 31, 2020
Revolving loans
Originated, at amortized costAmortized costConverted to term loans – Amortized costAccrued
interest
receivable
(in millions)20202019201820172016Prior to 2016
Total (a)
Commercial:
Investment grade$128 $18 $71 $420 $57 $0 $493 $0 $1,187 
Non-investment grade142 0 6 0 0 0 94 0 242 
Total commercial270 18 77 420 57 0 587 0 1,429 $2 
Commercial real estate:
Investment grade778 1,010 458 543 312 346 127 0 3,574 
Non-investment grade285 619 643 159 376 144 229 27 2,482 
Total commercial real estate1,063 1,629 1,101 702 688 490 356 27 6,056 8 
Financial institutions:
Investment grade132 146 47 125 13 156 8,760 0 9,379 
Non-investment grade84 36 0 0 0 0 1,746 0 1,866 
Total financial institutions216 182 47 125 13 156 10,506 0 11,245 12 
Wealth management loans and mortgages:
Investment grade18 85 11 147 59 112 7,786 0 8,218 
Non-investment grade0 0 0 0 0 0 54 0 54 
Wealth management mortgages1,117 1,044 637 1,188 1,515 2,546 38 0 8,085 
Total wealth management loans and mortgages1,135 1,129 648 1,335 1,574 2,658 7,878 0 16,357 27 
Lease financings116 18 14 9 20 813 0 0 990 0 
Other residential mortgages0 0 0 0 0 389 0 0 389 1 
Other loans0 0 0 0 0 0 1,904 0 1,904 1 
Margin loans4,614 0 0 0 0 0 10,802 0 15,416 8 
Total loans$7,414 $2,976 $1,887 $2,591 $2,352 $4,506 $32,033 $27 $53,786 $59 

(a)    Excludes overdrafts of $2,683 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.


Commercial

The commercial loan portfolio is divided into investment grade and non-investment grade categories based on rating criteria largely consistent with those of the public rating agencies. Each customer in the portfolio is assigned an internal credit rating. These internal credit ratings, which are generally consistent with the ratings categoriesthose of the public rating agencies. Customers with ratings consistent with BBB- (S&P)/Baa3 (Moody’s) or better are considered to be investment grade. Those clients with ratings lower than this threshold are considered to be non-investment grade.


Commercial real estate

Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities.

Financial institutions

Financial institution exposures are high quality, with 96% of the exposures meeting the investment grade
equivalent criteria of our internal credit rating classification at March 31, 2021. In addition, 73% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody. The exposure to financial institutions is generally short term, with 89% expiring within one year.

Wealth management loans and mortgages


Wealth management loans and mortgages – Credit risk
profile by internally assigned grade
(in millions)Sept. 30, 2017
Dec. 31, 2016
Wealth management loans:  
Investment grade$7,128
$7,127
Non-investment grade135
260
Wealth management mortgages9,002
8,267
Total$16,265
$15,654


Wealth management non-mortgage loans are not typically rated by external rating agencies. A majority of the wealth management loans are secured by the customers’ investment management accounts or custody accounts. Eligible assets pledged for these loans are typically investment grade fixed-income securities, equities and/or mutual funds. Internal ratings for this portion of the wealth management portfolio, therefore, would equate to investment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets, including business assets, fixed assets or a modest amount of commercial real estate. For the loans collateralized by other assets, the credit
BNY Mellon 63
Notes to Consolidated Financial Statements (continued)
quality of the obligor is carefully analyzed, but we do not consider this portfolio of loans to be investment grade.


Credit quality indicators for wealth management mortgages are not correlated to external ratings. Wealth management mortgages are typically loans to high-net-worth individuals, which are secured primarily by residential property. These loans are primarily interest-only, adjustable rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. InDelinquency rate is a key indicator of credit quality in the wealth management portfolio,portfolio. At March 31, 2021, less


74 BNY Mellon
Notes to Consolidated Financial Statements(continued)

than 1% of the mortgages were past due at Sept. 30, 2017.due.


At Sept. 30, 2017,March 31, 2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 24%– 22%; New York - 19%– 16%; Massachusetts - 11%– 10%; Florida -– 8%; and other - 38%– 44%.


Lease financing

At March 31, 2021, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily large-ticket transportation equipment and real estate. The largest component of our lease residual value exposure is freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in the U.S. and Germany.

Other residential mortgages


The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $741$364 million at Sept. 30, 2017March 31, 2021 and $854 $389
million at Dec. 31, 2016.2020. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 2017 are $181March 31, 2021 were $63 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007 that are predominantly prime mortgage loans, with a small portion of Alt-A loans. As of Sept. 30, 2017, the purchased loans in this portfolio had a weighted-average loan-to-value ratio of 76% at origination and 11% of the serviced loan balance was at least 60 days delinquent. The properties securing the prime and Alt-A mortgage loans were located (in order of concentration) in California, Florida, Virginia, the tri-state area (New York, New Jersey and Connecticut) and Maryland.2007.


Overdrafts


Overdrafts primarily relate to custody and securities clearance clients and totaled $5.8$4.8 billion at Sept. 30,
2017March 31, 2021 and $5.5$2.7 billion at Dec. 31, 2016.2020. Overdrafts occur on a daily basis in the custody and securities clearance business and are generally repaid within two business days.


Other loans


Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed incomefixed-income securities.


Margin loans


We had $13.9$17.9 billion of secured margin loans on our balance sheet at Sept. 30, 2017March 31, 2021, compared with $17.6$15.4 billion at Dec. 31, 2016.2020. Margin loans are collateralized with marketable securities, and borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. We have rarely suffered a loss on these types of loans and do not allocate any of ourloans.

Reverse repurchase agreements

Reverse repurchase agreements at March 31, 2021 were fully secured with high quality collateral. As a result, there was 0 allowance for credit losses related to margin loans.these assets at March 31, 2021.

Reverse repurchase agreements

Reverse repurchase agreements are transactions fully collateralized with high-quality liquid securities. These transactions carry minimal credit risk and therefore are not allocated an allowance for credit losses.



Note 6 - 5–Goodwill and intangible assets


Goodwill


The tables below provide a breakdown of goodwill by business.


Goodwill by business

(in millions)
Investment
Services		Investment
and Wealth
Management		OtherConsolidated
Balance at Dec. 31, 2020$8,456 $9,040 $0 $17,496 
Dispositions0 (5)0 (5)
Foreign currency translation(28)6 0 (22)
Balance at March 31, 2021$8,428 $9,041 $0 $17,469 


64 BNY Mellon
Goodwill by business
(in millions)
Investment
Management
Investment
Services
Other
Consolidated
Balance at Dec. 31, 2016$9,000
$8,269
$47
$17,316
Foreign currency translation120
107
—
227
Balance at Sept. 30, 2017$9,120
$8,376
$47
$17,543


Goodwill by business
(in millions)
Investment
Management
Investment
Services
Other
Consolidated
Balance at Dec. 31, 2015$9,207
$8,366
$45
$17,618
Acquisitions29
(1)—
28
Foreign currency translation(167)(30)—
(197)
Other (a)
2
(4)2
—
Balance at Sept. 30, 2016$9,071
$8,331
$47
$17,449
(a)Other changes in goodwill include purchase price adjustments and certain other reclassifications.



BNY Mellon 75
Notes to Consolidated Financial Statements(continued)

Goodwill by business

(in millions)
Investment
Services		Investment
and Wealth
Management		OtherConsolidated
Balance at Dec. 31, 2019$8,332 $9,007 $47 $17,386 
Foreign currency translation(43)(103)0 (146)
Other (a)
47 0 (47)0 
Balance at March 31, 2020$8,336 $8,904 $0 $17,240 
(a)    Reflects the transfer of goodwill associated with Capital Markets business.


Intangible assets


The tables below provide a breakdown of intangible assets by business.


Intangible assets – net carrying amount by business

(in millions)
Investment
Services		Investment and Wealth ManagementOtherConsolidated
Balance at Dec. 31, 2020$608 $1,555 $849 $3,012 
Disposition0 (6)0 (6)
Amortization(17)(7)0 (24)
Foreign currency translation(1)2 0 1 
Balance at March 31, 2021$590 $1,544 $849 $2,983 
Intangible assets – net carrying amount by business
(in millions)
Investment
Management
Investment
Services
Other
Consolidated
Balance at Dec. 31, 2016$1,717
$1,032
$849
$3,598
Amortization(45)(112)—
(157)
Foreign currency translation16
4
—
20
Balance at Sept. 30, 2017$1,688
$924
$849
$3,461




Intangible assets – net carrying amount by business
(in millions)
Investment
Services		Investment and Wealth ManagementOtherConsolidated
Balance at Dec. 31, 2019$678 $1,580 $849 $3,107 
Amortization(18)(8)0 (26)
Foreign currency translation(1)(10)0 (11)
Balance at March 31, 2020$659 $1,562 $849 $3,070 

Intangible assets – net carrying amount by business
(in millions)
Investment
Management
Investment
Services
Other
Consolidated
Balance at Dec. 31, 2015$1,807
$1,186
$849
$3,842
Acquisitions30
2
—
32
Amortization(60)(117)—
(177)
Foreign currency translation(27)1
—
(26)
Balance at Sept. 30, 2016$1,750
$1,072
$849
$3,671



The table below provides a breakdown of intangible assets by type.


Intangible assetsMarch 31, 2021Dec. 31, 2020
(in millions)Gross
carrying
amount		Accumulated
amortization		Net
carrying
amount		Remaining
weighted-
average
amortization
period		Gross
carrying
amount		Accumulated
amortization		Net
carrying
amount
Subject to amortization: (a)
Customer contracts—Investment Services$1,431 $(1,212)$219 10 years$1,435 $(1,199)$236 
Customer relationships—Investment and Wealth Management697 (567)130 9 years705 (564)141 
Other59 (17)42 14 years59 (15)44 
Total subject to amortization2,187 (1,796)391 10 years2,199 (1,778)421 
Not subject to amortization: (b)
Tradename1,295 N/A1,295 N/A1,295 N/A1,295 
Customer relationships1,297 N/A1,297 N/A1,296 N/A1,296 
Total not subject to amortization2,592 N/A2,592 N/A2,591 N/A2,591 
Total intangible assets$4,779 $(1,796)$2,983 N/A$4,790 $(1,778)$3,012 
(a)    Excludes fully amortized intangible assets.
(b)Intangible assets not subject to amortization have an indefinite life.
N/A – Not applicable.


BNY Mellon 65
Intangible assetsSept. 30, 2017 Dec. 31, 2016
(in millions)
Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Remaining
weighted-
average
amortization
period
 Gross
carrying
amount
Accumulated
amortization
Net
carrying
amount

Subject to amortization: (a)
        
Customer relationships—Investment Management$1,483
$(1,221)$262
11 years $1,439
$(1,136)$303
Customer contracts—Investment Services2,257
(1,705)552
10 years 2,249
(1,590)659
Other25
(22)3
2 years 37
(33)4
Total subject to amortization3,765
(2,948)817
10 years 3,725
(2,759)966
Not subject to amortization: (b)
        
Trade name1,350
N/A
1,350
N/A 1,348
N/A
1,348
Customer relationships1,294
N/A
1,294
N/A 1,284
N/A
1,284
Total not subject to amortization2,644
N/A
2,644
N/A 2,632
N/A
2,632
Total intangible assets$6,409
$(2,948)$3,461
N/A $6,357
$(2,759)$3,598
(a)Excludes fully amortized intangible assets.
Notes to Consolidated Financial Statements (continued)
(b)Intangible assets not subject to amortization have an indefinite life.


Estimated annual amortization expense for current intangibles for the next five years is as follows:


For the year ended
Dec. 31,
Estimated amortization expense
(in millions)
2021$81 
202263 
202353 
202445 
202538 
For the year ended
Dec. 31,
Estimated amortization expense
(in millions)
 
2017 $209
2018 180
2019 109
2020 98
2021 75




Impairment testing


The goodwill impairment test is performed at least annually at the reporting unit level. Intangible assets not subject to amortization are tested for impairment annually or more often if events or circumstances indicate they may be impaired.


BNY Mellon’s three business segments include eight reporting units for which goodwill impairment testing is performed on an annual basis. In the second quarter of 2017, BNY Mellon conducted an annual goodwill impairment test on all eight reporting units.



76 BNY Mellon
Notes to Consolidated Financial Statements(continued)

As a result of the annual goodwill impairment test of the eight reporting units, no goodwill impairment was recognized.

Note 7 - 6–Other assets


The following table provides the components of other assets presented on the consolidated balance sheet.


Other assetsMarch 31, 2021Dec. 31, 2020
(in millions)
Corporate/bank-owned life insurance$5,325 $5,301 
Accounts receivable4,390 3,619 
Fails to deliver3,042 1,371 
Software1,905 1,884 
Prepaid pension assets1,602 1,556 
Equity in a joint venture and other investments1,283 1,259 
Renewable energy investments1,134 1,206 
Qualified affordable housing project investments1,113 1,145 
Income taxes receivable807 599 
Prepaid expense540 477 
Assets of consolidated investment management funds (a)
508 487 
Federal Reserve Bank stock480 479 
Seed capital263 215 
Fair value of hedging derivatives85 19 
Other (b)
1,375 1,338 
Total other assets (a)
$23,852 $20,955 
(a)    In the first quarter of 2021, we reclassified the assets of consolidated investment management funds, at fair value, to other assets on the consolidated balance sheet. Prior periods have been reclassified. See Note 1 for additional information.
(b)    At March 31, 2021 and Dec. 31, 2020, other assets include $8 million and $7 million, respectively, of Federal Home Loan Bank stock, at cost.

Other assetsSept. 30, 2017
Dec. 31, 2016
(in millions)
Corporate/bank-owned life insurance$4,824
$4,789
Accounts receivable3,899
4,060
Fails to deliver3,532
1,732
Software1,513
1,451
Renewable energy investments1,344
1,282
Equity in a joint venture and other investments1,153
1,063
Income taxes receivable1,020
1,172
Qualified affordable housing project investments

988
914
Prepaid pension assets951
836
Prepaid expenses512
438
Federal Reserve Bank stock474
466
Fair value of hedging derivatives344
784
Due from customers on acceptances318
340
Seed capital302
395
Other (a)
1,113
1,232
Total other assets$22,287
$20,954
(a)At Sept. 30, 2017, other assets include $76 million of Federal Home Loan Bank stock, at cost.


Non-readily marketable equity securities

Non-readily marketable equity securities do not have readily determinable fair values. These investments are valued using a measurement alternative where the investments are carried at cost, less any impairment, and plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The observable price changes are recorded in investment and other income on the consolidated income statement. Our non-readily marketable equity securities totaled $137 million at March 31, 2021 and $129 million at Dec. 31, 2020 and are included in equity in a joint venture and other investments in the table above.

The following table presents the adjustments on the non-readily marketable equity securities.

Adjustments on non-readily marketable equity securitiesLife-to-date
(in millions)1Q214Q201Q20
Upward adjustments$0 $11 $4 $53 
Downward adjustments0 0 0 (4)
Net adjustments$0 $11 $4 $49 


Qualified affordable housing project investments


We invest in affordable housing projects primarily to satisfy the Company’s requirements under the Community Reinvestment Act. Our total investment in qualified affordable housing projects totaled $988 million$1.1 billion at Sept. 30, 2017March 31, 2021 and $914 million at Dec. 31, 2016.2020. Commitments to fund future investments in qualified affordable housing projects totaled $439$493 million at Sept. 30, 2017March 31, 2021 and $369$514 million at Dec. 31, 2016.2020 and are recorded in other liabilities on the consolidated balance sheet. A summary of the commitments to fund future investments is as follows: 20172021 – $75$186 million; 20182022 –
$161 $106 million; 20192023 – $107$144 million; 20202024 – $79$31 million; 20212025 – $1$1 million; and 20222026 and thereafter – $16$25 million.


Tax credits and other tax benefits recognized were $39 million in the third quarter of 2017, $39 million in the third quarter of 2016, $38 million in the secondfirst quarter of 2017, $1152021, $26 million in the fourth quarter of 2020, $38 million in the first nine monthsquarter of 2017 and $115 million in the first nine months of 2016.2020.


Amortization expense included in the provision for income taxes was $29 million in the third quarter of 2017, $30 million in the third quarter of 2016, $28 million in the second quarter of 2017, $84$32 million in the first nine monthsquarter of 20172021, $21 million in the fourth quarter of 2020 and $86$31 million in the first nine monthsquarter of 2016.2020.

66 BNY Mellon
Certain seed capital and private equity investments
Notes to Consolidated Financial Statements (continued)
Investments valued using net asset value (“NAV”) per share


In our Investment and Wealth Management business, we manage investment assets, including equities, fixed income, money market and alternative investment funds for institutions and other investors. As part of that activity, we make seed capital investments in certain funds. BNY Mellonfunds we manage. We also holdshold private equity investments, specifically in small business investment companies
(“SBICs”), which are compliant with the Volcker Rule.Rule, and certain other corporate investments. Seed capital, and private equity and other corporate investments are generally included in other assets. Certain risk retention investments in our CLOs are classified as available-for-sale securities.

assets on the consolidated balance sheet. The fair value of certain of these investments has beenwas estimated using the NAV per share of BNY Mellon’sfor our ownership interest in the funds.


The table below presents information abouton our investments valued using NAV.

Investments valued using NAVMarch 31, 2021Dec. 31, 2020
(in millions)Fair valueUnfunded 
commitments		Fair valueUnfunded
commitments
Seed capital (a)
$53 $20 $52 $22 
Private equity investments (SBICs) (b)
110 54 102 52 
Other (c)
43 0 47 0 
Total$206 $74 $201 $74 
(a)Primarily includes leveraged loans and structured credit funds, which are generally not redeemable. Distributions from such investments will be received as the underlying investments in seed capitalthe funds, which have lives of three to 11 years at both March 31, 2021 and Dec. 31, 2020, are liquidated.
(b)    Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated.
(c)    Primarily includes investments in funds that haverelate to deferred compensation arrangements with employees. Investments in funds can be redeemed on a monthly to quarterly basis with redemption notice periods of up to 95 days.


Note 7–Contract revenue

Fee and other revenue in Investment Services and Investment and Wealth Management is primarily variable, based on levels of assets under custody and/or administration, assets under management and the level of client-driven transactions, as specified in fee schedules. See Note 10 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for information on the nature of our services and revenue recognition. See Note 24 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for additional information on our principal businesses, Investment Services and
Investment and Wealth Management, and the primary services provided.

Disaggregation of contract revenue

Contract revenue is included in fee and other revenue on the consolidated income statement. The following table presents fee and other revenue, disaggregated by type, related to contracts with customers for each business segment. Business segment data has been valued using NAV.determined on an internal management basis of accounting, rather than GAAP, which is used for consolidated financial reporting.


BNY Mellon 67
Seed capital and private equity investments valued using NAV
 Sept. 30, 2017 Dec. 31, 2016
(dollar amounts in millions)
Fair
value

Unfunded 
commitments
 
Redemption 
frequency
Redemption 
notice period
 
Fair
value

Unfunded
commitments
 
Redemption 
frequency
Redemption 
notice period
Seed capital and other funds (a)
$97
 $2
Daily-quarterly1-95 days $171
 $1
Daily-quarterly1-180 days
Private equity investments (SBICs) (b)
54
 47
N/AN/A 43
 46
N/AN/A
Total$151
 $49
   $214
 $47
  
(a)Other funds include various leveraged loans, hedge funds and structured credit funds. Redemption notice periods vary by fund.
(b)Private equity investments primarily include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments are liquidated.


BNY Mellon 77
Notes to Consolidated Financial Statements(continued)

Disaggregation of contract revenue by business segment
Quarter ended
March 31, 2021Dec. 31, 2020March 31, 2020
(in millions)ISIWMOtherTotalISIWMOtherTotalISIWMOtherTotal
Fee and other revenue – contract revenue:
Investment services fees:
Asset servicing fees$1,175 $25 $(18)$1,182 $1,115 $22 $(14)$1,123 $1,127 $23 $(11)$1,139 
Clearing services fees455 0 0 455 418 0 0 418 470 0 0 470 
Issuer services fees245 0 0 245 257 — 0 257 263 0 0 263 
Treasury services fees159 0 1 160 156 0 1 157 149 0 0 149 
Total investment services
fees
2,034 25 (17)2,042 1,946 22 (13)1,955 2,009 23 (11)2,021 
Investment management and performance fees4 883 (5)882 4 881 (5)880 5 862 (4)863 
Financing-related fees20 0 0 20 13 0 0 13 28 0 0 28 
Distribution and servicing1 28 0 29 (1)29 0 28 (12)43 0 31 
Investment and other income36 (11)0 25 48 (24)0 24 72 (50)0 22 
Total fee and other revenue – contract revenue2,095 925 (22)2,998 2,010 908 (18)2,900 2,102 878 (15)2,965 
Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b)
250 18 (5)263 225 32 1 258 334 (32)45 347 
Total fee and other revenue$2,345 $943 $(27)$3,261 $2,235 $940 $(17)$3,158 $2,436 $846 $30 $3,312 
(a)    Primarily includes asset servicing fees, foreign exchange revenue, financing-related fees, investment and other income (loss) and net securities gains (losses), all of which are accounted for using other accounting guidance.
(b)    The Investment and Wealth Management business segment includes income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $5 million in the first quarter of 2021, $5 million in the fourth quarter of 2020 and $(18) million in the first quarter of 2020.
IS – Investment Services segment.
IWM – Investment and Wealth Management segment.


Contract balances

Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $3.0 billion at March 31, 2021 and $2.4 billion at Dec. 31, 2020.

Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time and were $68 million at March 31, 2021 and $32 million at Dec. 31, 2020. Accrued revenues recorded as contract assets are usually billed on an annual basis.

Both receivables from customers and contract assets are included in other assets on the consolidated balance sheet.

Contract liabilities represent payments received in advance of providing services under certain contracts and were $184 million at March 31, 2021 and $167 million at Dec. 31, 2020. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the first quarter
of 2021 relating to contract liabilities as of Dec. 31, 2020 was $49 million.

Changes in contract assets and liabilities primarily relate to either party’s performance under the contracts.

Contract costs

Incremental costs for obtaining contracts that are deemed recoverable are capitalized as contract costs. Such costs result from the payment of sales incentives, primarily in the Wealth Management business, and totaled $72 million at March 31, 2021 and $73 million at Dec. 31, 2020. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate and typically average nine years. The amortization of capitalized sales incentives, which is primarily included in staff expense on the consolidated income statement, totaled $5 million in the first quarter of 2021, first quarter of 2020 and fourth quarter of 2020.

Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific
68 BNY Mellon
Notes to Consolidated Financial Statements (continued)
anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent set-up costs, which include any direct cost incurred at the inception of a contract which enables the fulfillment of the performance obligation, and totaled $17 million at March 31, 2021 and $15 million at Dec. 31, 2020. These capitalized costs are amortized on a straight-line basis over the expected contract period, which generally ranges from seven to nine years. The amortization is included in professional, legal and other purchased services and other expenses on the consolidated income statement and totaled less than $1 million in the first quarter of 2021 and $1 million in the first quarter of 2020 and fourth quarter of 2020.

Unsatisfied performance obligations

We do not have any unsatisfied performance obligations other than those that are subject to a practical expedient election under ASC 606, Revenue From Contracts With Customers. The practical expedient election applies to (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.


Note 8 - 8–Net interest revenue


The following table provides the components of net interest revenue presented on the consolidated income statement.


Net interest revenueQuarter ended
(in millions)March 31, 2021Dec. 31, 2020March 31, 2020
Interest revenue
Deposits with the Federal Reserve and other central banks$(16)$(13)$80 
Deposits with banks14 16 58 
Federal funds sold and securities purchased under resale agreements32 40 396 
Margin loans45 43 87 
Non-margin loans185 193 309 
Securities:
Taxable450 469 594 
Exempt from federal income taxes9 9 6 
Total securities459 478 600 
Trading securities19 19 40 
Total interest revenue738 776 1,570 
Interest expense
Deposits(37)(33)240 
Federal funds purchased and securities sold under repurchase agreements(3)1 275 
Trading liabilities3 4 7 
Other borrowed funds2 2 4 
Commercial paper0 0 6 
Customer payables(1)(1)30 
Long-term debt119 123 194 
Total interest expense83 96 756 
Net interest revenue655 680 814 
Provision for credit losses(83)15 169 
Net interest revenue after provision for credit losses$738 $665 $645 


Net interest revenueQuarter ended Year-to-date
 Sept. 30, 2017
June 30, 2017
Sept. 30, 2016
 Sept. 30, 2017
Sept. 30, 2016
(in millions) 
Interest revenue      
Non-margin loans$283
$272
$218
 $800
$637
Margin loans87
87
67
 249
194
Securities:      
Taxable510
476
434
 1,447
1,307
Exempt from federal income taxes16
16
17
 49
53
Total securities526
492
451

1,496
1,360
Deposits with banks34
27
26
 83
76
Deposits with the Federal Reserve and other central banks89
71
37
 217
170
Federal funds sold and securities purchased under resale agreements119
86
62
 272
167
Trading assets13
17
13
 46
43
Total interest revenue1,151
1,052
874

3,163
2,647
Interest expense      
Deposits57
32
(6) 98
21
Federal funds purchased and securities sold under repurchase agreements70
38
6
 132
28
Trading liabilities2
2
2
 6
5
Other borrowed funds7
4
1
 13
5
Commercial paper8
5
1
 18
5
Customer payables19
16
3
 42
9
Long-term debt149
129
93
 397
267
Total interest expense312
226
100

706
340
Net interest revenue839
826
774

2,457
2,307
Provision for credit losses(6)(7)(19) (18)(18)
Net interest revenue after provision for credit losses$845
$833
$793

$2,475
$2,325


Note 9 - 9–Employee benefit plans


The components of net periodic benefit (credit) cost are as follows.presented below. The service cost component is reflected in staff expense, whereas the remaining components are reflected in other expense.


Net periodic benefit (credit) costQuarter ended
March 31, 2021March 31, 2020
(in millions)Domestic pension benefitsForeign pension benefitsHealth care benefitsDomestic pension benefitsForeign pension benefitsHealth care benefits
Service cost$0 $4 $0 $0 $3 $0 
Interest cost34 6 1 39 7 1 
Expected return on assets(75)(9)(2)(80)(10)(1)
Other25 4 0 22 3 (1)
Net periodic benefit (credit) cost$(16)$5 $(1)$(19)$3 $(1)

BNY Mellon 69
Net periodic benefit (credit) costQuarter ended
Sept. 30, 2017 June 30, 2017 Sept. 30, 2016
(in millions)Domestic pension benefits
Foreign pension benefits
Health care benefits
 Domestic pension benefits
Foreign pension benefits
Health care benefits
 Domestic pension benefits
Foreign pension benefits
Health care benefits
Service cost$—
$7
$—
 $—
$7
$—
 $—
$8
$1
Interest cost45
8
2
 45
8
2
 45
9
2
Expected return on assets(81)(12)(2) (81)(12)(2) (82)(13)(2)
Other17
9
(1) 17
9
(1) 17
4
(1)
Net periodic benefit (credit) cost$(19)$12
$(1) $(19)$12
$(1) $(20)$8
$—




78 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Net periodic benefit (credit) cost Year-to-date  
 Sept. 30, 2017 Sept. 30, 2016
(in millions)Domestic pension benefits
Foreign pension benefits
Health care benefits
 Domestic pension benefits
Foreign pension benefits
Health care benefits
Service cost$—
$21
$—
 $—
$24
$3
Interest cost135
24
6
 135
27
6
Expected return on assets(243)(36)(6) (246)(39)(6)
Other51
27
(3) 52
13
(3)
Net periodic benefit (credit) cost$(57)$36
$(3) $(59)$25
$—


Note 10 - 10–Income taxes


BNY Mellon recorded an income tax provision of $348$221 million (25.4%(19.2% effective tax rate) in the thirdfirst quarter of 2017. The income tax provision was $3242021, $265 million (24.6%(21.6% effective tax rate) in the thirdfirst quarter of 20162020 and $332$148 million (25.4%(16.4% effective tax rate) in the secondfourth quarter of 2017.2020.


Our total tax reserves as of Sept. 30, 2017March 31, 2021 were $157$121 million compared with $143$119 million at June 30, 2017.Dec. 31, 2020. If these tax reserves were unnecessary, $157$121 million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in income tax expense. Included in the balance sheet at Sept. 30, 2017March 31, 2021 is accrued interest, where applicable, of $24$33 million. The additional tax expense related to interest for the ninethree months ended Sept. 30, 2017March 31, 2021 was $7$2 million, compared with $2$4 million for the ninethree months ended Sept. 30, 2016.March 31, 2020.


It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $57$7 million as a result of adjustments related to tax years that are still subject to examination.


Our federal income tax returns are closed to examination through 2013.2016. Our New York State and New York City andincome tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2012.2016.

Note 11 - 11–Variable interest entities and securitization


BNY Mellon hasWe have variable interests in VIEs,variable interest entities (“VIEs”), which include investments in retail, institutional and alternative investment funds, including collateralized loan obligation (“CLO”)CLO structures in which we provide asset management services, some of which are consolidated. The investment funds are offered to our retail and institutional clients to provide them

with access to investment vehicles with specific investment objectives and strategies that address the client’s investment needs.

BNY Mellon earnsWe earn management fees from these funds as well as performance fees in certain funds and may also provide start-up capital for its new funds. The funds are primarily financed by our customers’ investments in the funds’ equity or debt.


Additionally, BNY Mellon investswe invest in qualified affordable housing and renewable energy projects, which are designed to generate a return primarily through the realization of tax credits by the Company.credits. The projects, which are structured as limited partnerships and LLCs,limited liability companies, are also VIEs, but are not consolidated.


The VIEs discussed above are included in the scope of ASU 2015-02, which was adopted effective Jan. 1, 2015, and are reviewed for consolidation based on the guidance in ASC 810, Consolidation.We reconsider and reassess whether or not we are the primary beneficiary of a VIE when governing documents or contractual arrangements are changed that would reallocate the obligation to absorb expected losses or receive expected residual returns between BNY Mellon and the other investors. This could occur when BNY Mellon disposes of its variable interests in the fund, when additional variable interests are issued to other investors or when we acquire additional variable interests in the VIE.

The following tables presenttable presents the incremental assets and liabilities included in BNY Mellon’sthe consolidated financial statements, after applying intercompany eliminations,balance sheet as of Sept. 30, 2017March 31, 2021 and Dec. 31, 2016.2020. The net assets of any consolidated VIE are solely available to settle the liabilities of the VIE and to settle any investors’ ownership liquidation requests, including any seed capital we invested in the VIE by BNY Mellon.

VIE.




BNY Mellon 79
Consolidated investmentsMarch 31, 2021Dec. 31, 2020
(in millions)Investment
Management
funds		SecuritizationTotal
consolidated
investments		Investment
Management
funds		SecuritizationTotal
consolidated
investments
Trading assets$483 $400 $883 $482 $400 $882 
Other assets25 0 25 5 0 5 
Total assets$508 (a)$400 $908 $487 (b)$400 $887 
Other liabilities$10 $400 $410 $3 $400 $403 
Total liabilities$10 (a)$400 $410 $3 (b)$400 $403 
Nonredeemable noncontrolling interests$262 (a)$0 $262 $143 (b)$0 $143 
Notes to Consolidated Financial Statements(continued)
(a)    Includes voting model entities (“VMEs”) with assets of $196 million, liabilities of $1 million and nonredeemable noncontrolling interests of $55 million.

(b)    Includes VMEs with assets of $314 million, liabilities of $3 million and nonredeemable noncontrolling interests of $76 million.


Investments consolidated at Sept. 30, 2017
(in millions)
Investment
Management
funds
Securitization
Total
consolidated
investments

Securities - Available-for-sale$—
 $400
$400
Trading assets576
 —
576
Other assets226
 —
226
Total assets$802
(a)$400
$1,202
Other liabilities$27
 $369
$396
Total liabilities$27
(a)$369
$396
Nonredeemable noncontrolling interests$384
(a)$—
$384
(a)Includes voting model entities (“VMEs”) with assets of $90 million, liabilities of $2 million and nonredeemable noncontrolling interests of $20 million.


Investments consolidated at Dec. 31, 2016
(in millions)
Investment
Management
funds
Securitization
Total
consolidated
investments

Securities - Available-for-sale$—
 $400
$400
Trading assets979
 —
979
Other assets252
 —
252
Total assets$1,231
(a)$400
$1,631
Trading liabilities$282
 $—
$282
Other liabilities33
 363
396
Total liabilities$315
(a)$363
$678
Nonredeemable noncontrolling interests$618
(a)$—
$618
(a)Includes VMEs with assets of $114 million, liabilities of $3 million and nonredeemable noncontrolling interests of $25 million.


BNY Mellon hasWe have not provided financial or other support that was not otherwise contractually required to be provided to our VIEs. Additionally, creditors of any consolidated VIEs do not have any recourse to the general credit of BNY Mellon.



70 BNY Mellon
Notes to Consolidated Financial Statements (continued)
Non-consolidated VIEs


As of Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, the following assets and liabilities related to the VIEs where BNY Mellon iswe are not the primary beneficiary arewere included in our consolidated financial statementsbalance sheets and primarily relaterelated to accounting for our investments in
qualified affordable housing and renewable energy projects.


Non-consolidated VIEs at Sept. 30, 2017
(in millions)Assets
Liabilities
Maximum loss exposure
Securities - Available-for-sale (a)
$143
$—
$143
Other2,559
439
3,321
(a)Investments in the Company’s sponsored CLOs.


Non-consolidated VIEs at Dec. 31, 2016
(in millions)Assets
Liabilities
Maximum loss exposure
Securities - Available-for-sale (a)
$42
$—
$42
Other2,400
369
2,769
(a)Investments in the Company’s sponsored CLOs.


The maximum loss exposure indicated in the above tablesfollowing table relates solely to BNY Mellon’sour investments in, and unfunded commitments to, the VIEs.




Non-consolidated VIEsMarch 31, 2021Dec. 31, 2020
(in millions)AssetsLiabilitiesMaximum
loss exposure		AssetsLiabilitiesMaximum
loss exposure
Securities – Available-for-sale (a)
$212 $0 $212 $217 $0 $217 
Other2,450 493 2,959 2,565 514 3,096 
80 BNY Mellon
(a)    Includes investments in the Company’s sponsored CLOs.

Notes to Consolidated Financial Statements(continued)


Note 12 - 12–Preferred stock


BNY MellonThe Parent has 100 million authorized shares of preferred stock with a par value of $0.01 per share. The following table summarizes BNY Mellon’sthe Parent’s preferred stock issued and outstanding at Sept. 30, 2017March 31, 2021 and Dec. 31, 2016.2020.


Preferred stock summary (a)
Total shares issued and outstanding
Carrying value (b)
(in millions)
March 31, 2021Dec. 31, 2020March 31, 2021Dec. 31, 2020
Per annum dividend rate
Series AGreater of (i) three-month LIBOR plus 0.565% for the related distribution period or (ii) 4.000%5,001 5,001 $500 $500 
Series D4.500% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46%5,000 5,000 494 494 
Series E4.950% to but excluding June 20, 2020, then a floating rate equal to the three-month LIBOR plus 3.42%10,000 10,000 990 990 
Series F4.625% to but excluding Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131%10,000 10,000 990 990 
Series G4.700% to but excluding Sept. 20, 2025, then a floating rate equal to the five-year treasury rate plus 4.358%10,000 10,000 990 990 
Series H3.700% to but excluding March 20, 2026, then a floating rate equal to the five-year treasury rate plus 3.352%5,825 5,825 577 577 
Total45,826 45,826 $4,541 $4,541 
Preferred stock summary (a)
Total shares issued and outstanding 
Carrying value (b)
  (in millions)
 Per annum dividend rateSept. 30, 2017
Dec. 31, 2016
Sept. 30, 2017
Dec. 31, 2016
Series AGreater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000%5,001
5,001
 $500
$500
Series C5.2%5,825
5,825
 568
568
Series D4.50% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46%5,000
5,000
 494
494
Series E4.95% to and including June 20, 2020, then a floating rate equal to the three-month LIBOR plus 3.42%10,000
10,000
 990
990
Series F4.625% to and including Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131%10,000
10,000
 990
990
Total35,826
35,826
 $3,542
$3,542
(a)(a)    All outstanding preferred stock is noncumulative perpetual preferred stock with a liquidation preference of $100,000 per share.
(b)The carrying value of the Series C, Series D, Series E and Series F preferred stock is recorded net of issuance costs.


On Sept. 20, 2017, The Bank of New York Mellon Corporation paid the following dividends for the noncumulative perpetual preferred stock for the dividend period ending in September 2017 to holderswith a liquidation preference of record as$100,000 per share.
(b)    The carrying value of the closeSeries D, Series E, Series F, Series G and Series H preferred stock is recorded net of businessissuance costs.


The table below presents the dividends paid on Sept. 5, 2017:the Parent’s preferred stock.


$1,022.22 per share
Preferred dividends paid
(dollars in millions, except per share amounts)Depositary shares
per share		1Q214Q201Q20
Per shareTotal
dividend		Per shareTotal
dividend		Per shareTotal
dividend
Series A100 (a)$1,011.11 $5 $1,011.11 $5 $1,011.11 $5 
Series C4,000 N/AN/A1,300.00 23 (b)1,300.00 8 
Series D100 N/A— 2,250.00 11 N/A— 
Series E100 924.82 9 921.98 9 N/A— 
Series F100 2,312.50 23 N/A— 2,312.50 23 
Series G100 2,350.00 24 N/A— N/A— 
Series H100 1,408.06 8 N/A— N/A— 
Total$69 $48 $36 
(a)    Represents Normal Preferred Capital Securities.
(b)    Includes deferred fees of approximately $15 million related to the redemption of the Series C preferred stock.
N/A – Not applicable.

BNY Mellon 71
Notes to Consolidated Financial Statements (continued)
In December 2020, all of the outstanding shares of the Series C preferred stock were redeemed.

All of the outstanding shares of the Series A preferred stock are owned by Mellon Capital IV, a 100% owned finance subsidiary of the Parent, which will pass through any dividend on the Series A Preferred Stock (equivalentpreferred stock to $10.2222 perthe holders of its Normal Preferred Capital SecuritySecurities. The Parent’s obligations under the trust and other agreements relating to Mellon Capital IV
have the effect of providing a full and unconditional guarantee, on a subordinated basis, of payments due on the Normal Preferred Capital Securities. No other subsidiary of the Parent guarantees the securities of Mellon Capital IV, each representing a 1/100th interest in a share of the Series A Preferred Stock);IV.
$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).

For additional information on the preferred stock, see Note 1315 of the Notes to Consolidated Financial Statements in our 20162020 Annual Report.

Terms of the Series A, Series C, Series D, Series E and Series F preferred stock are more fully described in each of their Certificates of Designations, each of which is filed as an Exhibit to this Form 10-Q.





BNY Mellon 81
Notes to Consolidated Financial Statements(continued)

Note 13 - 13–Other comprehensive income (loss)

Components of other comprehensive income (loss)Quarter ended
March 31, 2021Dec. 31, 2020March 31, 2020
(in millions)Pre-tax
amount		Tax
(expense)
benefit		After-tax
amount		Pre-tax
amount		Tax
(expense)
benefit		After-tax
amount		Pre-tax
amount		Tax
(expense)
benefit		After-tax
amount
Foreign currency translation:
Foreign currency translation adjustments arising during the period (a)
$(127)$(23)$(150)$340 $91 $431 $(265)$(104)$(369)
Total foreign currency translation(127)(23)(150)340 91 431 (265)(104)(369)
Unrealized (loss) gain on assets available-for-sale:
Unrealized (loss) gain arising during period(926)223 (703)44 (11)33 243 (60)183 
Reclassification adjustment (b)
0 0 0 (6)1 (5)(9)2 (7)
Net unrealized (loss) gain on assets available-for-sale(926)223 (703)38 (10)28 234 (58)176 
Defined benefit plans:
Net (loss) arising during the period0 0 0 (138)31 (107)0 0 0 
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b)
28 (6)22 23 (3)20 24 (6)18 
Total defined benefit plans28 (6)22 (115)28 (87)24 (6)18 
Unrealized (loss) gain on cash flow hedges:
Unrealized hedge gain (loss) arising during period1 0 1 6 (2)4 (13)3 (10)
Reclassification of net loss (gain) to net income:
FX contracts – staff expense(5)1 (4)(1)1 0 (1)0 (1)
Total reclassifications to net income(5)1 (4)(1)1 0 (1)0 (1)
Net unrealized (loss) gain on cash flow hedges(4)1 (3)5 (1)4 (14)3 (11)
Total other comprehensive (loss) income$(1,029)$195 $(834)$268 $108 $376 $(21)$(165)$(186)
(a)    Includes the impact of hedges of net investments in foreign subsidiaries. See Note 16 for additional information.
Components of other comprehensive income (loss)Quarter ended
Sept. 30, 2017 June 30, 2017 Sept. 30, 2016
(in millions)
Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

 
Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

 
Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Foreign currency translation:           
Foreign currency translation adjustments arising during the period (a)
$221
$65
$286
 $249
$81
$330
 $(104)$(82)$(186)
Total foreign currency translation221
65
286
 249
81
330
 (104)(82)(186)
Unrealized gain (loss) on assets available-for-sale:           
Unrealized gain (loss) arising during period47
(19)28
 146
(55)91
 (87)34
(53)
Reclassification adjustment (b)
(19)7
(12) —
(1)(1) (24)9
(15)
Net unrealized gain (loss) on assets available-for-sale28
(12)16
 146
(56)90
 (111)43
(68)
Defined benefit plans:           
Net gain (loss) arising during the period—
—
—
 —
—
—
 —
—
—
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b)
25
(10)15
 24
(8)16
 22
(8)14
Total defined benefit plans25
(10)15
 24
(8)16
 22
(8)14
Unrealized gain (loss) on cash flow hedges:           
Unrealized hedge gain (loss) arising during period(2)—
(2) (8)4
(4) (24)7
(17)
Reclassification adjustment (b)
3
(1)2
 9
(4)5
 28
(9)19
Net unrealized gain (loss) on cash flow hedges1
(1)—
 1
—
1
 4
(2)2
Total other comprehensive income (loss)$275
$42
$317
 $420
$17
$437
 $(189)$(49)$(238)
(a)Includes the impact of hedges of net investments in foreign subsidiaries. See Note 16 for additional information.
(b)The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the Consolidated Income Statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense on the Consolidated Income Statement. See Note 16 of the Notes to Consolidated Financial Statements for the location of the reclassification adjustment related to cash flow hedges on the Consolidated Income Statement.

(b)    The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as other expense on the consolidated income statement.



Components of other comprehensive income (loss)Year-to-date
 Sept. 30, 2017 Sept. 30, 2016
(in millions)
Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

 
Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Foreign currency translation:       
Foreign currency translation adjustments arising during the period (a)
$566
$175
$741
 $(223)$(210)$(433)
Total foreign currency translation566
175
741
 (223)(210)(433)
Unrealized gain (loss) on assets available-for-sale:       
Unrealized gain (loss) arising during period357
(144)213
 338
(111)227
Reclassification adjustment (b)
(29)10
(19) (65)22
(43)
Net unrealized gain (loss) on assets available-for-sale328
(134)194
 273
(89)184
Defined benefit plans:       
Net gain (loss) arising during the period3
(1)2
 3
(1)2
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b)
74
(25)49
 65
(22)43
Total defined benefit plans77
(26)51
 68
(23)45
Unrealized gain (loss) on cash flow hedges:       
Unrealized hedge gain (loss) arising during period4
(1)3
 (115)38
(77)
Reclassification adjustment (b)
13
(5)8
 110
(37)73
Net unrealized gain (loss) on cash flow hedges17
(6)11
 (5)1
(4)
Total other comprehensive income (loss)$988
$9
$997
 $113
$(321)$(208)
(a)Includes the impact of hedges of net investments in foreign subsidiaries. See Note 16 for additional information.
(b)The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the Consolidated Income Statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense on the Consolidated Income Statement. See Note 16 of the Notes to Consolidated Financial Statements for the location of the reclassification adjustment related to cash flow hedges on the Consolidated Income Statement.




82 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Note 14 - 14–Fair value measurement


Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy for fair value measurements is utilized based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. BNY Mellon’s own creditworthiness is considered when valuing liabilities. See Note 1820 of the Notes to Consolidated Financial Statements in our 20162020 Annual Report for
information on how we determine fair value and the fair value hierarchy.

The following tables present the financial instruments carried at fair value at Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, by caption on the consolidated balance sheet and by the three-level valuation hierarchy. We have included credit ratings information in certain of the tables because the information indicates the degree of credit risk to which we are exposed, and significant changes in ratings classifications could result in increased risk for us. There
72 BNY Mellon
Notes to Consolidated Financial Statements (continued)
Assets and liabilities measured at fair value on a recurring basis at March 31, 2021Total carrying
value
(dollars in millions)Level 1Level 2Level 3
Netting (a)
Assets:
Available-for-sale securities:
U.S. Treasury$27,928 $0 $0 $— $27,928 
Agency RMBS0 19,846 0 — 19,846 
Sovereign debt/sovereign guaranteed5,941 7,619 0 — 13,560 
Agency commercial MBS0 9,216 0 — 9,216 
Supranational0 7,438 0 — 7,438 
Foreign covered bonds0 6,542 0 — 6,542 
CLOs0 4,754 0 — 4,754 
Non-agency commercial MBS0 2,959 0 — 2,959 
U.S. government agencies0 2,919 0 — 2,919 
Foreign government agencies0 2,698 0 — 2,698 
State and political subdivisions0 2,634 0 — 2,634 
Other ABS0 2,628 0 — 2,628 
Non-agency RMBS (b)
0 2,451 0 — 2,451 
Corporate bonds0 2,238 0 — 2,238 
Other debt securities0 1 0 — 1 
Total available-for-sale securities33,869 73,943 0 — 107,812 
Trading assets:
Debt instruments2,777 3,225 0 — 6,002 
Equity instruments (c)
7,495 0 0 — 7,495 
Derivative assets not designated as hedging:
Interest rate6 3,344 0 (1,496)1,854 
Foreign exchange0 6,940 0 (5,418)1,522 
Equity and other contracts1 82 0 (72)11 
Total derivative assets not designated as hedging7 10,366 0 (6,986)3,387 
Total trading assets10,279 13,591 0 (6,986)16,884 
Other assets:
Derivative assets designated as hedging:
Foreign exchange0 85 0 — 85 
Total derivative assets designated as hedging0 85 0 — 85 
Other assets (d)
453 415 0 — 868 
Assets measured at NAV (d)
206 
Total assets$44,601 $88,034 $0 $(6,986)$125,855 
Percentage of total assets prior to netting34 %66 %0 %
Liabilities:
Trading liabilities:
Debt instruments$2,010 $25 $0 $— $2,035 
Equity instruments52 0 0 — 52 
Derivative liabilities not designated as hedging:
Interest rate2 2,925 0 (1,925)1,002 
Foreign exchange0 6,266 0 (4,796)1,470 
Equity and other contracts1 22 0 (16)7 
Total derivative liabilities not designated as hedging3 9,213 0 (6,737)2,479 
Total trading liabilities2,065 9,238 0 (6,737)4,566 
Long-term debt (c)
0 400 0 — 400 
Other liabilities – derivative liabilities designated as hedging:
Interest rate0 282 0 — 282 
Foreign exchange0 149 0 — 149 
Total other liabilities – derivative liabilities designated as hedging0 431 0 — 431 
Other liabilities1 9 0 — 10 
Total liabilities$2,066 $10,078 $0 $(6,737)$5,407 
Percentage of total liabilities prior to netting17 %83 %0 %
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.
(b)Includes $451 million in Level 2 that was included in the former Grantor Trust.
(c)Includes certain interests in securitizations.
(d)Includes seed capital, private equity investments and other assets.
BNY Mellon 73
Notes to Consolidated Financial Statements (continued)
Assets measured at fair value on a recurring basis at Dec. 31, 2020Total carrying
value
(dollars in millions)Level 1Level 2Level 3
Netting (a)
Assets:
Available-for-sale securities:
U.S. Treasury$24,894 $0 $0 $— $24,894 
Agency RMBS0 22,347 0 — 22,347 
Sovereign debt/sovereign guaranteed5,909 6,482 0 — 12,391 
Agency commercial MBS0 9,228 0 — 9,228 
Supranational0 7,160 0 — 7,160 
Foreign covered bonds0 6,725 0 — 6,725 
CLOs0 4,703 0 — 4,703 
Foreign government agencies0 4,135 0 — 4,135 
U.S. government agencies0 3,853 0 — 3,853 
Other ABS0 3,164 0 — 3,164 
Non-agency commercial MBS0 3,017 0 — 3,017 
Non-agency RMBS (b)
0 2,326 0 — 2,326 
State and political subdivisions0 2,308 0 — 2,308 
Corporate bonds0 1,994 0 — 1,994 
Commercial paper/CDs0 249 0 — 249 
Other debt securities0 1 0 — 1 
Total available-for-sale securities30,803 77,692 0 — 108,495 
Trading assets:
Debt instruments1,803 3,868 0 — 5,671 
Equity instruments (c)
5,775 0 0 — 5,775 
Derivative assets not designated as hedging:
Interest rate5 4,477 0 (1,952)2,530 
Foreign exchange0 7,688 0 (6,392)1,296 
Equity and other contracts0 2 0 (2)0 
Total derivative assets not designated as hedging5 12,167 0 (8,346)3,826 
Total trading assets7,583 16,035 0 (8,346)15,272 
Other assets:
Derivative assets designated as hedging:
Foreign exchange0 19 0 — 19 
Total derivative assets designated as hedging0 19 0 — 19 
Other assets (d)(e)
504 285 0 — 789 
Assets measured at NAV (d)
201 
Total assets$38,890 $94,031 $0 $(8,346)$124,776 
Percentage of total assets prior to netting29 %71 %0 %

74 BNY Mellon
Notes to Consolidated Financial Statements (continued)
Liabilities measured at fair value on a recurring basis at Dec. 31, 2020Total carrying
value
(dollars in millions)Level 1Level 2Level 3
Netting (a)
Liabilities:
Trading liabilities:
Debt instruments$2,287 $35 $0 $— $2,322 
Equity instruments11 0 0 — 11 
Derivative liabilities not designated as hedging:
Interest rate2 3,878 0 (2,348)1,532 
Foreign exchange0 7,622 0 (5,484)2,138 
Equity and other contracts7 34 0 (13)28 
Total derivative liabilities not designated as hedging9 11,534 0 (7,845)3,698 
Total trading liabilities2,307 11,569 0 (7,845)6,031 
Long-term debt (c)
0 400 0 — 400 
Other liabilities – derivative liabilities designated as hedging:
Interest rate0 666 0 — 666 
Foreign exchange0 441 0 — 441 
Total other liabilities – derivative liabilities designated as hedging0 1,107 0 — 1,107 
Other liabilities (e)
1 2 0 — 3 
Total liabilities$2,308 $13,078 $0 $(7,845)$7,541 
Percentage of total liabilities prior to netting15 %85 %0 %
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.
(b)Includes $487 million in Level 2 that was included in the former Grantor Trust.
(c)Includes certain interests in securitizations.
(d)Includes seed capital, private equity investments and other assets.
(e)    In the first quarter of 2021, we reclassified the assets and liabilities of consolidated investment management funds, at fair value, to other assets and other liabilities, respectively, on the consolidated balance sheet. The reclassifications had no impact on total assets or total liabilities. Prior periods were no material transfers betweenreclassified to be comparable with the current period presentation. See Note 1 for additional information.
BNY Mellon 75
Notes to Consolidated Financial Statements (continued)
Details of certain available-for-sale securities measured at fair value on a recurring basisMarch 31, 2021Dec. 31, 2020
Total
carrying
value
Ratings (a)
Total
carrying value
Ratings (a)
AAA/
AA-		A+/
A-		BBB+/
BBB-		BB+ and
lower		AAA/
AA-		A+/
A-		BBB+/
BBB-		BB+ and
lower
(dollars in millions)(b)(b)
Non-agency RMBS (c), originated in:
2008-2021$1,727 100 %0 %0 %0 %$1,548 100 %0 %0 %0 %
2007166 12 3 0 85 179 12 3 0 85 
2006223 0 23 0 77 237 0 23 0 77 
2005208 3 0 7 90 227 3 0 7 90 
2004 and earlier127 18 9 6 67 135 19 10 11 60 
Total non-agency RMBS$2,451 72 %3 %1 %24 %$2,326 69 %3 %1 %27 %
Non-agency commercial MBS originated in:
2009-2021$2,959 99 %1 %0 %0 %$3,017 99 %1 %0 %0 %
Foreign covered bonds:
Canada$2,354 100 %0 %0 %0 %$2,552 100 %0 %0 %0 %
UK1,299 100 0 0 0 1,259 100 0 0 0 
Australia900 100 0 0 0 951 100 0 0 0 
Norway715 100 0 0 0 703 100 0 0 0 
Germany500 100 0 0 0 494 100 0 0 0 
Other774 100 0 0 0 766 100 0 0 0 
Total foreign covered bonds$6,542 100 %0 %0 %0 %$6,725 100 %0 %0 %0 %
Sovereign debt/sovereign guaranteed:
Germany$3,504 100 %0 %0 %0 %$2,222 100 %0 %0 %0 %
Italy1,827 0 0 100 0 2,010 0 0 100 0 
France1,826 100 0 0 0 1,697 100 0 0 0 
Spain1,383 0 7 93 0 1,920 0 5 95 0 
Singapore1,040 100 0 0 0 984 100 0 0 0 
UK1,015 100 0 0 0 1,089 100 0 0 0 
Canada660 100 0 0 0 572 100 0 0 0 
Netherlands487 100 0 0 0 491 100 0 0 0 
Hong Kong455 100 0 0 0 29 100 0 0 0 
Japan429 0 100 0 0 408 0 100 0 0 
Austria251 100 0 0 0 256 100 0 0 0 
Ireland240 0 100 0 0 252 0 100 0 0 
Other (d)
443 76 0 0 24 461 73 0 0 27 
Total sovereign debt/sovereign guaranteed$13,560 71 %5 %23 %1 %$12,391 62 %6 %31 %1 %
Foreign government agencies:
Netherlands$796 100 %0 %0 %0 %$847 100 %0 %0 %0 %
Canada547 77 23 0 0 511 75 25 0 0 
France310 100 0 0 0 305 100 0 0 0 
Sweden305 100 0 0 0 281 100 0 0 0 
Finland224 100 0 0 0 225 100 0 0 0 
Germany49 100 0 0 0 1,473 100 0 0 0 
Other467 79 21 0 0 493 80 20 0 0 
Total foreign government agencies$2,698 92 %8 %0 %0 %$4,135 95 %5 %0 %0 %
(a)Represents ratings by S&P or the equivalent.
(b)    At March 31, 2021 and Dec. 31, 2020, sovereign debt/sovereign guaranteed securities were included in Level 1 and Level 2 duringin the third quartervaluation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy.
(c)    Includes $451 million at March 31, 2021 and $487 million at Dec. 31, 2020 that were included in the former Grantor Trust.
(d)    Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of 2017.$108 million at March 31, 2021 and $125 million at Dec. 31, 2020.




Assets measured at fair value on a recurring basis at Sept. 30, 2017Total carrying
value
(dollar amounts in millions)Level 1
Level 2
Level 3
Netting (a)

Available-for-sale securities:     
U.S. Treasury$15,502
$—
$—
$—
$15,502
U.S. government agencies—
864
—
—
864
Sovereign debt/sovereign guaranteed74
12,491
—
—
12,565
State and political subdivisions—
3,124
—
—
3,124
Agency RMBS—
24,431
—
—
24,431
Non-agency RMBS—
525
—
—
525
Other RMBS—
265
—
—
265
Commercial MBS—
965
—
—
965
Agency commercial MBS—
9,010
—
—
9,010
CLOs—
2,550
—
—
2,550
Other asset-backed securities—
1,157
—
—
1,157
Equity securities4
—
—
—
4
Money market funds (b)
939
—
—
—
939
Corporate bonds—
1,275
—
—
1,275
Other debt securities—
3,151
—
—
3,151
Foreign covered bonds2,284
258
—
—
2,542
Non-agency RMBS (c)
—
1,185
—
—
1,185
Total available-for-sale securities18,803
61,251
—
—
80,054
Trading assets:     
Debt and equity instruments (b)
433
1,016
—
—
1,449
Derivative assets not designated as hedging:     
Interest rate3
6,731
—
(5,301)1,433
Foreign exchange—
4,879
—
(3,120)1,759
Equity and other contracts1
73
—
(49)25
Total derivative assets not designated as hedging4
11,683
—
(8,470)3,217
Total trading assets437
12,699
—
(8,470)4,666
Other assets:     
Derivative assets designated as hedging:     
Interest rate—
307
—
—
307
Foreign exchange—
37
—
—
37
Total derivative assets designated as hedging—
344
—
—
344
Other assets (d)
148
184
—
—
332
Other assets measured at net asset value (d)
    151
Total other assets148
528
—
—
827
Subtotal assets of operations at fair value19,388
74,478
—
(8,470)85,547
Percentage of assets of operations prior to netting21%79%—%  
Assets of consolidated investment management funds398
404
—
—
802
Total assets$19,786
$74,882
$—
$(8,470)$86,349
Percentage of total assets prior to netting21%79%—%  


76 BNY Mellon 83
Notes to Consolidated Financial Statements(continued)

Liabilities measured at fair value on a recurring basis at Sept. 30, 2017Total carrying
value
(dollar amounts in millions)Level 1
Level 2
Level 3
Netting (a)

Trading liabilities:     
Debt and equity instruments$684
$159
$—
$—
$843
Derivative liabilities not designated as hedging:     
Interest rate3
6,681
—
(5,705)979
Foreign exchange—
4,463
—
(3,095)1,368
Equity and other contracts3
135
—
(75)63
Total derivative liabilities not designated as hedging6
11,279
—
(8,875)2,410
Total trading liabilities690
11,438
—
(8,875)3,253
Long-term debt (b)
—
369
—
—
369
Other liabilities – derivative liabilities designated as hedging:
     
Interest rate—
494
—
—
494
Foreign exchange—
318
—
—
318
Total other liabilities – derivative liabilities designated as hedging—
812
—
—
812
Subtotal liabilities of operations at fair value690
12,619
—
(8,875)4,434
Percentage of liabilities of operations prior to netting5%95%—%  
Liabilities of consolidated investment management funds2
25
—
—
27
Total liabilities$692
$12,644
$—
$(8,875)$4,461
Percentage of total liabilities prior to netting5%95%—%  
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities, and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.
(b)Includes certain interests in securitizations.
(c)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(d)Includes private equity investments and seed capital.


84 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Assets measured at fair value on a recurring basis at Dec. 31, 2016
Total carrying
value

(dollar amounts in millions)Level 1
Level 2
Level 3
Netting (a)

Available-for-sale securities:     
U.S. Treasury$14,307
$—
$—
$—
$14,307
U.S. government agencies—
359
—
—
359
Sovereign debt/sovereign guaranteed66
12,423
—
—
12,489
State and political subdivisions—
3,378
—
—
3,378
Agency RMBS—
22,736
—
—
22,736
Non-agency RMBS—
638
—
—
638
Other RMBS—
513
—
—
513
Commercial MBS—
928
—
—
928
Agency commercial MBS—
6,449
—
—
6,449
CLOs—
2,598
—
—
2,598
Other asset-backed securities—
1,727
—
—
1,727
Equity securities3
—
—
—
3
Money market funds (b)
842
—
—
—
842
Corporate bonds—
1,396
—
—
1,396
Other debt securities—
1,961
—
—
1,961
Foreign covered bonds1,876
265
—
—
2,141
Non-agency RMBS (c)
—
1,357
—
—
1,357
Total available-for-sale securities17,094
56,728
—
—
73,822
Trading assets:     
Debt and equity instruments (b)
240
2,013
—
—
2,253
Derivative assets not designated as hedging:     
Interest rate4
7,583
—
(6,047)1,540
Foreign exchange—
6,104
—
(4,172)1,932
Equity and other contracts—
46
—
(38)8
Total derivative assets not designated as hedging4
13,733
—
(10,257)3,480
Total trading assets244
15,746
—
(10,257)5,733
Other assets:
     
Derivative assets designated as hedging:     
Interest rate—
415
—
—
415
Foreign exchange—
369
—
—
369
Total derivative assets designated as hedging—
784
—
—
784
Other assets (d)
268
73
—
—
341
Other assets measured at net asset value (d)
    214
Total other assets268
857
—
—
1,339
Subtotal assets of operations at fair value17,606
73,331
—
(10,257)80,894
Percentage of assets of operations prior to netting19%81%—%  
Assets of consolidated investment management funds464
767
—
—
1,231
Total assets$18,070
$74,098
$—
$(10,257)$82,125
Percentage of total assets prior to netting20%80%—%  



BNY Mellon 85
Notes to Consolidated Financial Statements(continued)

Liabilities measured at fair value on a recurring basis at Dec. 31, 2016
Total carrying
value

(dollar amounts in millions)Level 1
Level 2
Level 3
Netting (a)

Trading liabilities:     
Debt and equity instruments$349
$236
$—
$—
$585
Derivative liabilities not designated as hedging:     
Interest rate4
7,629
—
(6,634)999
Foreign exchange—
6,103
—
(3,363)2,740
Equity and other contracts—
115
—
(50)65
Total derivative liabilities not designated as hedging4
13,847
—
(10,047)3,804
Total trading liabilities353
14,083
—
(10,047)4,389
Long-term debt (b)
—
363
—
—
363
Other liabilities – derivative liabilities designated as hedging:
     
Interest rate—
545
—
—
545
Foreign exchange—
52
—
—
52
Total other liabilities – derivative liabilities designated as hedging—
597
—
—
597
Subtotal liabilities of operations at fair value353
15,043
—
(10,047)5,349
Percentage of liabilities of operations prior to netting2%98%—%  
Liabilities of consolidated investment management funds3
312
—
—
315
Total liabilities$356
$15,355
$—
$(10,047)$5,664
Percentage of total liabilities prior to netting2%98%—%  
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities, and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.
(b)Includes certain interests in securitizations.
(c)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.
(d)Includes private equity investments and seed capital.



86 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Details of certain items measured at fair value
 on a recurring basis
Sept. 30, 2017 Dec. 31, 2016
Total
carrying
value (b)

 
Ratings (a)
 
Total
carrying value (b)

 
Ratings (a)
AAA/
AA-

A+/
A-

BBB+/
BBB-

BB+ and
lower

  
AAA/
AA-

A+/
A-

BBB+/
BBB-

BB+ and
lower

(dollar amounts in millions) 
Non-agency RMBS, originated in:             
2007$42
 —%—%—%100% $58
 —%—%—%100%
200685
 —
—
—
100
 98
 —
—
—
100
2005152
 20
3
18
59
 180
 23
5
9
63
2004 and earlier246
 4
2
27
67
 302
 5
3
24
68
Total non-agency RMBS$525
 8%2%14%76% $638
 9%3%14%74%
Commercial MBS - Domestic, originated in:             
2009-2017$909
 89%11%—%—% $674
 84%16%—%—%
20085
 100
—
—
—
 14
 100
—
—
—
2007—
 —
—
—
—
 190
 71
29
—
—
2006—
 —
—
—
—
 3
 7
93
—
—
Total commercial MBS - Domestic$914
 89%11%—%—% $881
 81%19%—%—%
Foreign covered bonds:             
Canada$1,648
 100%—%—%—% $1,320
 100%—%—%—%
Australia261
 100
—
—
—
 40
 100
—
—
—
Netherlands177
 100
—
—
—
 160
 100
—
—
—
United Kingdom136
 100
—
—
—
 280
 100
—
—
—
Other320
 100
—
—
—
 341
 100
—
—
—
Total foreign covered bonds$2,542
 100%—%—%—% $2,141
 100%—%—%—%
European floating rate notes - available-for-sale:             
United Kingdom$204
 87%13%—%—% $379
 90%10%—%—%
Netherlands113
 37
63
—
—
 125
 100
—
—
—
Ireland—
 —
—
—
—
 58
 —
—
100
—
Total European floating rate notes - available-for-sale$317
 69%31%—%—% $562
 83%7%10%—%
Sovereign debt/sovereign guaranteed:             
United Kingdom$3,036
 100%—%—%—% $3,209
 100%—%—%—%
France1,993
 100
—
—
—
 1,998
 100
—
—
—
Spain1,740
 —
—
100
—
 1,749
 —
—
100
—
Germany1,688
 100
—
—
—
 1,347
 100
—
—
—
Italy1,169
 —
—
100
—
 1,130
 —
—
100
—
Netherlands1,016
 100
—
—
—
 1,061
 100
—
—
—
Ireland832
 —
100
—
—
 736
 —
100
—
—
Belgium809
 100
—
—
—
 1,005
 100
—
—
—
Other (c)
282
 48
3
—
49
 254
 71
—
—
29
Total sovereign debt/sovereign guaranteed$12,565
 69%7%23%1% $12,489
 70%6%23%1%
Non-agency RMBS (d), originated in:
             
2007$337
 —%—%—%100% $387
 —%—%—%100%
2006345
 —
—
—
100
 391
 —
—
—
100
2005387
 1
1
1
97
 437
 —
2
1
97
2004 and earlier116
 2
2
22
74
 142
 2
2
17
79
Total non-agency RMBS (d)
$1,185
 —%1%3%96% $1,357
 —%1%2%97%
(a)Represents ratings by S&P, or the equivalent.
(b)At Sept. 30, 2017 and Dec. 31, 2016, foreign covered bonds and sovereign debt/sovereign guaranteed securities were included in Level 1 and Level 2 in the valuation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy.
(c)Includes noninvestment grade sovereign debt/sovereign guaranteed securities related to Brazil of $140 million at Sept. 30, 2017 and $73 million at Dec. 31, 2016.
(d)Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.


Changes in Level 3 fair value measurements

Our classification of a financial instrument in Level 3 of the valuation hierarchy is based on the significance of the unobservable factors to the overall fair value measurement. However, these instruments generally include other observable components that are actively quoted or validated to third-party sources; accordingly, the gains and losses in the table below include changes in fair value due to observable parameters as well as the unobservable parameters in our valuation methodologies. We also manage the
risks of Level 3 financial instruments using securities and derivatives positions that are Level 1 or Level 2 instruments which are not included in the table; accordingly, the gains or losses below do not reflect the effect of our risk management activities related to the Level 3 instruments.

The Company has a Level 3 Pricing Committee which evaluates the valuation techniques used in


BNY Mellon 87
Notes to Consolidated Financial Statements(continued)

determining the fair value of Level 3 assets and liabilities.

There were no financial instruments recorded at fair value on a recurring basis classified in Level 3 of the valuation hierarchy in the first nine months of 2017.
The table below includes a roll forward of the balance sheet amount for the three and nine months ended Sept. 30, 2016 (including the change in fair value), for financial instruments classified in Level 3 of the valuation hierarchy.

Fair value measurements for assets using significant unobservable inputsLoans
(in millions)3Q16
YTD16
Fair value at the beginning of the period$101
$—
Transfers into Level 3—
19
Total gains for the period included in earnings (a)
—
2
Purchases and sales:  
Purchases—
113
Issuances1
1
Sales(102)(135)
Fair value at Sept. 30, 2016$—
$—
Change in unrealized gains for the period included in earnings for assets held at the end of the reporting period$—
$—
(a)Reported in investment and other income.


Assets and liabilities measured at fair value on a nonrecurring basis


Under certain circumstances, we make adjustments to the fair value of our assets, liabilities and unfunded lending-related commitments, although they are not measured at fair value on an ongoing basis. An exampleExamples would be the recording of an impairment of an asset.
an asset and non-readily marketable equity securities carried at cost with upward or downward adjustments.

The following tables presenttable presents the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy as of Sept. 30, 2017March 31, 2021 and Dec. 31, 2016, for which a nonrecurring change in2020.

Assets measured at fair value on a nonrecurring basisMarch 31, 2021Dec. 31, 2020
Total carrying
value		Total carrying
value
(in millions)Level 1Level 2Level 3Level 1Level 2Level 3
Loans (a)
$0 $47 $0 $47 $0 $48 $0 $48 
Other assets (b)(c)
0 138 41 179 0 131 0 131 
Total assets at fair value on a nonrecurring basis$0 $185 $41 $226 $0 $179 $0 $179 
(a)    The fair value has been recorded duringof these loans decreased less than $1 million in both the quarters ended Sept. 30, 2017first quarter of 2021 and Dec. 31, 2016.
the fourth quarter of 2020, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses.

(b)    Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt.
(c)    The level 3 other assets relate to a renewable energy equity method investment. The Company recognized an other-than-temporary impairment of $39 million the first quarter of 2021, which was derived by preparing a discounted cash flow using unobservable inputs and was primarily driven by revised projections of future operating results and realizability of tax credits. The development of these expectations requires management review and judgment.

Assets measured at fair value on a nonrecurring basis at Sept. 30, 2017
Total carrying
value

(in millions)Level 1
Level 2
Level 3
Loans (a)
$—
$75
$7
$82
Other assets (b)
—
4
—
4
Total assets at fair value on a nonrecurring basis$—
$79
$7
$86


Assets measured at fair value on a nonrecurring basis at Dec. 31, 2016
Total carrying
value

(in millions)Level 1
Level 2
Level 3
Loans (a)
$—
$84
$7
$91
Other assets (b)
—
4
—
4
Total assets at fair value on a nonrecurring basis$—
$88
$7
$95
(a)During the quarters ended Sept. 30, 2017 and Dec. 31, 2016, the fair value of these loans decreased less than $1 million and $1 million, respectively, based on the fair value of the underlying collateral based on guidance in ASC 310, Receivables, with an offset to the allowance for credit losses.
(b)Includes other assets received in satisfaction of debt.


Estimated fair value of financial instruments


The following tables present the estimated fair value and the carrying amount of financial instruments not carried at fair value on the consolidated balance sheet at Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, by caption on the consolidated balance sheet and by the valuation
hierarchy.

Summary of financial instrumentsMarch 31, 2021
(in millions)Level 1Level 2Level 3Total
estimated
fair value		Carrying
amount
Assets:
Interest-bearing deposits with the Federal Reserve and other central banks$0 $125,524 $0 $125,524 $125,524 
Interest-bearing deposits with banks0 23,772 0 23,772 23,763 
Federal funds sold and securities purchased under resale agreements0 28,263 0 28,263 28,263 
Securities held-to-maturity4,039 44,450 0 48,489 48,032 
Loans (a)
0 59,741 0 59,741 59,445 
Other financial assets5,991 1,142 0 7,133 7,133 
Total$10,030 $282,892 $0 $292,922 $292,160 
Liabilities:
Noninterest-bearing deposits$0 $95,306 $0 $95,306 $95,306 
Interest-bearing deposits0 240,778 0 240,778 241,462 
Federal funds purchased and securities sold under repurchase agreements0 15,150 0 15,150 15,150 
Payables to customers and broker-dealers0 23,827 0 23,827 23,827 
Borrowings0 518 0 518 518 
Long-term debt0 26,107 0 26,107 24,950 
Total$0 $401,686 $0 $401,686 $401,213 
(a)    Does not include the leasing portfolio.

hierarchy. See Note 18 of the Notes to Consolidated Financial Statements in our 2016 Annual Report for additional information regarding the financial instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value.



88 BNY Mellon 77
Notes to Consolidated Financial Statements(continued)

Summary of financial instrumentsSept. 30, 2017
(in millions)Level 1
Level 2
Level 3
Total
estimated
fair value

Carrying
amount

Assets:     
Interest-bearing deposits with the Federal Reserve and other central banks$—
$75,808
$—
$75,808
$75,808
Interest-bearing deposits with banks—
15,254
—
15,254
15,256
Federal funds sold and securities purchased under resale agreements—
27,883
—
27,883
27,883
Securities held-to-maturity9,943
29,985
—
39,928
39,995
Loans (a)
—
57,709
—
57,709
57,562
Other financial assets5,557
1,169
—
6,726
6,726
Total$15,500
$207,808
$—
$223,308
$223,230
Liabilities:     
Noninterest-bearing deposits$—
$80,380
$—
$80,380
$80,380
Interest-bearing deposits—
148,967
—
148,967
150,616
Federal funds purchased and securities sold under repurchase agreements—
10,314
—
10,314
10,314
Payables to customers and broker-dealers—
21,176
—
21,176
21,176
Commercial paper—
2,501
—
2,501
2,501
Borrowings—
3,544
—
3,544
3,544
Long-term debt—
28,335
—
28,335
28,039
Total$—
$295,217
$—
$295,217
$296,570
(a)Does not include the leasing portfolio.


Summary of financial instrumentsDec. 31, 2016
(in millions)Level 1
Level 2
Level 3
Total estimated
fair value
Carrying
amount
Assets:     
Interest-bearing deposits with the Federal Reserve and other central banks$—
$58,041
$—
$58,041
$58,041
Interest-bearing deposits with banks—
15,091
—
15,091
15,086
Federal funds sold and securities purchased under resale agreements—
25,801
—
25,801
25,801
Securities held-to-maturity11,173
29,496
—
40,669
40,905
Loans (a)
—
62,829
—
62,829
62,564
Other financial assets4,822
1,112
—
5,934
5,934
Total$15,995
$192,370
$—
$208,365
$208,331
Liabilities:     
Noninterest-bearing deposits$—
$78,342
$—
$78,342
$78,342
Interest-bearing deposits—
141,418
—
141,418
143,148
Federal funds purchased and securities sold under repurchase agreements—
9,989
—
9,989
9,989
Payables to customers and broker-dealers—
20,987
—
20,987
20,987
Borrowings—
960
—
960
960
Long-term debt—
24,184
—
24,184
24,100
Total$—
$275,880
$—
$275,880
$277,526
(a)Does not include the leasing portfolio.


The table below summarizes the carrying amount of the hedged financial instruments, the notional amount of the hedge and the unrealized gain (loss) (estimated fair value) of the derivatives.

Hedged financial instruments
Carrying
amount

Notional amount of hedge
  
 Unrealized
(in millions)Gain
(Loss)
Sept. 30, 2017    
Securities available-for-sale$12,416
$12,333
$56
$(337)
Long-term debt24,249
24,200
249
(157)
Dec. 31, 2016 
Securities available-for-sale$9,184
$9,233
$83
$(342)
Long-term debt20,511
20,450
330
(203)


BNY Mellon 89
Notes to Consolidated Financial Statements(continued)

Summary of financial instrumentsDec. 31, 2020
(in millions)Level 1Level 2Level 3Total estimated
fair value		Carrying
amount
Assets:
Interest-bearing deposits with the Federal Reserve and other central banks$0 $141,775 $0 $141,775 $141,775 
Interest-bearing deposits with banks0 17,310 0 17,310 17,300 
Federal funds sold and securities purchased under resale agreements0 30,907 0 30,907 30,907 
Securities held-to-maturity4,120 45,104 0 49,224 47,946 
Loans (a)
0 53,586 0 53,586 55,121 
Other financial assets6,252 1,160 0 7,412 7,412 
Total$10,372 $289,842 $0 $300,214 $300,461 
Liabilities:
Noninterest-bearing deposits$0 $83,854 $0 $83,854 $83,854 
Interest-bearing deposits0 257,287 0 257,287 257,691 
Federal funds purchased and securities sold under repurchase agreements0 11,305 0 11,305 11,305 
Payables to customers and broker-dealers0 25,085 0 25,085 25,085 
Borrowings0 563 0 563 563 
Long-term debt0 27,306 0 27,306 25,584 
Total$0 $405,400 $0 $405,400 $404,082 
(a)    Does not include the leasing portfolio.


Note 15 - 15–Fair value option


We elected fair value as an alternative measurement for selected financial assets and financial liabilities.

liabilities that are not otherwise required to be measured at fair value, including the assets and liabilities of consolidated investment management funds and certain long-term debt. The following table presents the assets and liabilities by type, of consolidated investment management funds, recorded at fair value.


Assets and liabilities of consolidated investment
management funds, at fair value
March 31, 2021Dec. 31, 2020
(in millions)
Assets of consolidated investment management funds:
Trading assets$483 $482 
Other assets25 5 
Total assets of consolidated investment management funds$508 $487 
Liabilities of consolidated investment management funds:
Other liabilities10 3 
Total liabilities of consolidated investment management funds$10 $3 
Assets and liabilities of consolidated investment management funds, at fair value
 Sept. 30, 2017
Dec. 31, 2016
(in millions)
Assets of consolidated investment management funds:  
Trading assets$576
$979
Other assets226
252
Total assets of consolidated investment management funds$802
$1,231
Liabilities of consolidated investment management funds:  
Trading liabilities$—
$282
Other liabilities27
33
Total liabilities of consolidated investment management funds$27
$315




BNY Mellon values the assets and liabilities of its consolidated investment management funds using quoted prices for identical assets or liabilities in active markets or observable inputs such as quoted
prices for similar assets or liabilities. Quoted prices for either identical or similar assets or liabilities in inactive markets may also be used. Accordingly, fair value best reflects the interests BNY Mellon holds in the economic performance of the consolidated investment management funds. Changes in the value of the assets and liabilities are recorded in theas income statement as investment income of(loss) from consolidated investment management funds, which is included in investment and other income in the interest of investment management fund note holders, respectively.consolidated income statement.


We have elected the fair value option on $240$240 million of long-term debt. The fair value of this long-term debt was $369$400 million at Sept. 30, 2017March 31, 2021 and $363$400 million at Dec. 31, 2016.2020. The long-term debt is valued using observable market inputs and is included in Level 2 of the valuation hierarchy.


The following table presents the changes in fair value of long-term debt recorded in other trading revenue which is included in investment and certain loans for which we electedother income in the consolidated income statement.

Change in fair value of long-term debt (a)
(in millions)1Q214Q201Q20
Investment and other income – other trading revenue$0 $0 $(10)
(a)    The changes in fair value option that we previously heldare approximately offset by an economic hedge included in 2016, and the location of the changes in the income statement.other trading revenue.



Impact of changes in fair value in the income statement (a)
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Loans:     
Investment and other income$—
$—
$(1)$—
$13
Long-term debt:     
Foreign exchange and other trading revenue$(1)$(4)$2
$(6)$(17)
78 BNY Mellon
(a)
Notes to Consolidated Financial Statements (continued)
The changes in fair value of the loans and long-term debt are approximately offset by economic hedges included in foreign exchange and other trading revenue.


Note 16 - 16–Derivative instruments


We use derivatives to manage exposure to market risk, including interest rate risk, equity price risk and foreign currency risk, as well as credit risk. Our trading activities are focused on acting as a market-maker for our customers and facilitating customer trades in compliance with the Volcker Rule.


The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller. We perform credit reviews and enter into netting agreements and collateral arrangements to minimize the credit risk of derivative financial instruments. We enter into offsetting positions to reduce exposure to foreign currency, interest rate and equity price risk.


Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were no0 counterparty default losses recorded in the thirdfirst quarter of 2017 or the third quarter of 2016.2021.


Hedging derivatives


We utilize interest rate swap agreements to manage our exposure to interest rate fluctuations. ForWe enter into fair value hedges of available-for-sale investment securities, deposits and long-term debt, the hedge documentation specifies the terms of the hedged items and theas an interest rate swaps and indicates that the derivative is hedging a fixed rate item and is a fair value hedge, that the hedge exposure isrisk management strategy to the changes in the fair value of the hedged item due to changes in benchmark interest rates, and that the strategy is to eliminatereduce fair value variability by converting certain fixed rate interest payments associated with available-for-sale securities and long-term debt to LIBOR.floating interest rates. We also utilize interest rate swaps and forward exchange contracts as cash flow hedges to manage our exposure to interest rate and foreign exchange rate changes.




90 BNY Mellon
Notes to Consolidated Financial Statements(continued)

The available-for-sale investment securities hedged consist of U.S. Treasury, bonds, agency and non-agency commercial MBS, sovereign debtdebt/sovereign guaranteed, corporate bonds and foreign covered bonds that had original maturitiesbonds. At March 31, 2021, $20.6 billion par value of 30 years or less at initial purchase. The swaps on all of these investment securities are not callable. All of these securities are hedged with “pay fixed rate, receive variable rate” swaps of similar maturity, repricing and fixed rate coupon. At Sept. 30, 2017, $12.4 billion face amount ofavailable-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $12.3$20.6 billion.


The fixed rate long-term debt instruments hedged generally have original maturities of five to 30 years. We issue both callable and non-callable debt. The non-callableIn fair value hedging relationships, fixed rate debt is hedged with “receive fixed rate, pay variable rate” swaps with similar maturity, repricing and fixed rate coupon. Callable debt is hedged with callable swaps where the call dates of the swaps exactly match the call dates of the debt.swaps. At Sept. 30, 2017, $24.2March 31, 2021, $15.1 billion par value of debt was hedged with interest rate swaps designated
as fair value hedges that had notional values of $24.2$15.1 billion.


In addition, we enter intoutilize forward foreign exchange hedges.contracts as hedges to mitigate foreign exchange exposures. We use forward foreign exchange contracts as cash flow hedges to convert certain forecasted non-U.S. dollar revenue and expenses into U.S. dollars. We use forward foreign exchange contracts with maturities of nine15 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, Euro, Hong Kong dollar, Polish zloty and Singapore dollar Polish zloty, Canadian dollar and Japanese yen foreign exchange exposure with respect to foreign currency forecastedused in revenue and expense transactions infor entities that have the U.S. dollar as their functional currency. As of Sept. 30, 2017,March 31, 2021, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $539$353 million (notional), with a pre-tax lossgain of $9$7 million recorded in accumulated other comprehensive income.OCI. This lossgain will be reclassified to income or expenseearnings over the next nine12 months.


We also utilize forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. Forward points are designated as an excluded component and amortized into earnings over the hedge period. The unamortized derivative value associated with the excluded component is recognized in accumulated OCI. At March 31, 2021, $145 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $145 million.

Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than two years.one year. The derivatives employed are designated as hedges of changes in value of our foreign investments due to exchange rates. Changes in the value of the forward foreign exchange contracts offset the changes in value of the foreign investments due to changes in foreign exchange rates. The change in fair market value of these forward foreign exchange contracts is deferred and reported within foreign currency translation adjustments in shareholders’ equity, net of tax. At Sept. 30, 2017,March 31, 2021, forward foreign exchange contracts with notional amounts totaling $7.8$8.3 billion were designated as net investment hedges.


In addition to forward foreign exchange contracts, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. Those non-derivative financial instruments
BNY Mellon 79
Notes to Consolidated Financial Statements (continued)
designated as hedges of our net investments in foreign subsidiaries were all long-term liabilities of
BNY Mellon in various currencies, and, at Sept. 30, 2017,March 31, 2021, had a combined U.S. dollar equivalent carrying value of $181$179 million.

Ineffectiveness
The following table presents the pre-tax gains (losses) related to our fair value and cash flow hedging activities recognized in the consolidated income statement.

Income statement impact of fair value and cash flow hedges
(in millions)Location of
gains (losses)		1Q214Q201Q20
Interest rate fair value hedges of available-for-sale securities
DerivativeInterest revenue$791 $237 $(1,033)
Hedged itemInterest revenue(785)(232)1,011 
Interest rate fair value hedges of long-term debt
DerivativeInterest expense(353)(106)714 
Hedged itemInterest expense351 105 (708)
Foreign exchange fair value hedges of available-for-sale securities
Derivative (a)
Foreign exchange revenue8 2 (7)
Hedged itemForeign exchange revenue(7)(2)7 
Cash flow hedges of forecasted FX exposures
Gain reclassified from OCI into incomeStaff expense5 1 1 
Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships$10 $5 $(15)
(a)    Includes gains of less than $1 million in the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020 associated with the amortization of the excluded component. At March 31, 2021 and Dec. 31, 2020, the remaining accumulated OCI balance associated with the excluded component was de minimis.


The following table presents the impact of hedging derivatives used in net investment hedging relationships.

Impact of derivative instruments used in net investment hedging relationships
(in millions)
Derivatives in net investment hedging relationshipsGain or (loss) recognized in accumulated OCI on derivativesLocation of gain or (loss) reclassified from accumulated OCI into incomeGain or (loss) reclassified from accumulated OCI into income
1Q214Q201Q201Q214Q201Q20
FX contracts$82 $(387)$437 Net interest revenue$0 $0 $0 


The following table presents information on the hedged items in fair value hedging relationships.

Hedged items in fair value hedging relationshipsCarrying amount of hedged
asset or liability
Hedge accounting basis adjustment increase (decrease) (a)
(in millions)March 31, 2021Dec. 31, 2020March 31, 2021Dec. 31, 2020
Available-for-sale securities (b)(c)
$20,571 $17,536 $634 $1,428 
Long-term debt$15,635 $14,784 $450 $783 
(a)    Includes $168 million and hedging relationships$177 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at March 31, 2021 and Dec. 31, 2020, respectively, and $99 million and $118 million of basis adjustment decreases on discontinued hedges associated with long-term debt at March 31, 2021 and Dec. 31, 2020, respectively.
(b)    Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was recorded in income as follows:$145 million at March 31, 2021 and $148 million at Dec. 31, 2020.

(c)    Carrying amount represents the amortized cost.
80 BNY Mellon
IneffectivenessNine months ended
(in millions)Sept. 30, 2017
Sept. 30, 2016
Fair value hedges of securities$(13.3)$(5.4)
Fair value hedges of long-term debt0.1
(23.0)
Cash flow hedges—
—
Other (a)
—
—
Total$(13.2)$(28.4)
(a)Includes ineffectiveness recorded on foreign exchange hedges.


BNY Mellon 91
Notes to Consolidated Financial Statements(continued)

The following table summarizes the notional amount and credit exposurecarrying values of our total derivative portfolioportfolio.

Impact of derivative instruments on the balance sheetNotional valueAsset derivatives
fair value		Liability derivatives
fair value
March 31, 2021Dec. 31, 2020March 31, 2021Dec. 31, 2020March 31, 2021Dec. 31, 2020
(in millions)
Derivatives designated as hedging instruments: (a)(b)
Interest rate contracts$35,689 $31,360 $0 $0 $282 $666 
Foreign exchange contracts8,803 8,706 85 19 149 441 
Total derivatives designated as hedging instruments  $85 $19 $431 $1,107 
Derivatives not designated as hedging instruments: (b)(c)
Interest rate contracts$221,043 $198,865 $3,350 $4,482 $2,927 $3,880 
Foreign exchange contracts913,156 813,003 6,940 7,688 6,266 7,622 
Equity contracts6,709 5,142 83 2 19 37 
Credit contracts165 165 0 0 4 4 
Total derivatives not designated as hedging instruments$10,373 $12,172 $9,216 $11,543 
Total derivatives fair value (d)
$10,458 $12,191 $9,647 $12,650 
Effect of master netting agreements (e)
(6,986)(8,346)(6,737)(7,845)
Fair value after effect of master netting agreements$3,472 $3,845 $2,910 $4,805 
(a)The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the consolidated balance sheet.
(b)    For derivative transactions settled at Sept. 30, 2017clearing organizations, cash collateral exchanged is deemed a settlement of the derivative each day. The settlement reduces the gross fair value of derivative assets and liabilities and results in a corresponding decrease in the effect of master netting agreements, with no impact to the consolidated balance sheet.
(c)    The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the consolidated balance sheet.
(d)Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging.
(e)    Effect of master netting agreements includes cash collateral received and paid of $1,231 million and $982 million, respectively, at March 31, 2021, and $1,552 million and $1,051 million, respectively, at Dec. 31, 2016.2020.


Impact of derivative instruments on the balance sheetNotional value 
Asset derivatives
fair value
 
Liability derivatives
fair value
(in millions)Sept. 30, 2017
Dec. 31, 2016
 Sept. 30, 2017
Dec. 31, 2016
 Sept. 30, 2017
Dec. 31, 2016
Derivatives designated as hedging instruments: (a)
        
Interest rate contracts$36,533
$29,683
 $307
$415
 $494
$545
Foreign exchange contracts8,399
7,796
 37
369
 318
52
Total derivatives designated as hedging instruments   $344
$784
 $812
$597
Derivatives not designated as hedging instruments: (b)
        
Interest rate contracts$283,384
$325,412
 $6,734
$7,587
 $6,684
$7,633
Foreign exchange contracts639,336
530,729
 4,879
6,104
 4,463
6,103
Equity contracts1,354
1,167
 74
46
 134
112
Credit contracts180
160
 —
—
 4
3
Total derivatives not designated as hedging instruments   $11,687
$13,737
 $11,285
$13,851
Total derivatives fair value (c)
   $12,031
$14,521
 $12,097
$14,448
Effect of master netting agreements (d)
   (8,470)(10,257) (8,875)(10,047)
Fair value after effect of master netting agreements   $3,561
$4,264
 $3,222
$4,401
(a)The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the balance sheet.
(b)The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the balance sheet.
(c)Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging.
(d)
Effect of master netting agreements includes cash collateral received and paid of $834 million and $1,239 million, respectively, at Sept. 30, 2017, and $1,119 million and $909 million, respectively, at Dec. 31, 2016.


The following tables present the impact of derivative instruments used in fair value, cash flow and net investment hedging relationships in the income statement.

Impact of derivative instruments in the income statement
(in millions)
  
Derivatives in fair value hedging relationships
Location of
gain or (loss)
recognized in income
on derivatives
 
Gain or (loss) recognized in income
on derivatives
 
Location of
gain or (loss)
recognized in income
on hedged item
 
Gain or (loss) recognized
in hedged item
3Q17
 2Q17
 3Q16
 3Q17
 2Q17
 3Q16
Interest rate contractsNet interest revenue $(33) $2
 $(174) Net interest revenue $31
 $(9) $168


Derivatives in cash flow hedging
relationships
Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Gain or (loss)
reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)
 
Gain or (loss) recognized
in income on derivatives
(ineffectiveness portion
and amount excluded from
effectiveness testing)
3Q17
2Q17
3Q16
  3Q17
2Q17
3Q16
  3Q17
2Q17
3Q16
FX contracts$—
$—
$(7) Net interest revenue $—
$—
$(6) Net interest revenue $—
$—
$—
FX contracts3
(1)—
 Other revenue —
—
—
 Other revenue —
—
—
FX contracts(1)—
(19) Trading revenue (1)—
(19) Trading revenue —
—
—
FX contracts(4)(7)2
 Salary expense (2)(9)(3) Salary expense —
—
—
Total$(2)$(8)$(24)   $(3)$(9)$(28)   $—
$—
$—




92 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Derivatives in net
investment hedging
relationships
Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Gain or (loss)
reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)
 
Gain or (loss) recognized
in income on derivatives
(ineffectiveness portion
and amount excluded from
effectiveness testing)
3Q17
2Q17
3Q16
  3Q17
2Q17
3Q16
  3Q17
2Q17
3Q16
FX contracts$(206)$(274)$47
 Net interest revenue $—
$—
$—
 Other revenue $—
$—
$—


Impact of derivative instruments in the income statement
(in millions)
 
Derivatives in fair value hedging relationships
Location of
gain or (loss)
recognized in income
on derivatives
 Gain or (loss) recognized in income on derivatives 
Location of
gain or (loss)
recognized in income
on hedged item
 
Gain or (loss) recognized
in hedged item
YTD17
 YTD16
YTD17
 YTD16
Interest rate contractsNet interest revenue $(21) $(445) Net interest revenue $8
 $417


Derivatives in cash flow hedging
relationships
Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Gain or (loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)
 
Gain or (loss) recognized
in income on derivatives
(ineffectiveness portion
and amount excluded from
effectiveness testing)
YTD17
YTD16
  YTD17
YTD16
  YTD17
YTD16
FX contracts$—
$(16) Net interest revenue $—
$(16) Net interest revenue $—
$—
FX contracts2
—
 Other revenue —
—
 Other revenue —
—
FX contracts2
(89) Trading revenue 2
(89) Trading revenue —
—
FX contracts—
(10) Salary expense (15)(5) Salary expense —
—
Total$4
$(115)   $(13)$(110)   $—
$—


Derivatives in net
investment hedging
relationships
Gain or (loss)
recognized in
accumulated OCI
on derivatives
(effective portion)
 
Location of gain or
(loss) reclassified
from accumulated
OCI into income
(effective portion)
 
Gain or (loss)
reclassified
from accumulated
OCI into income
(effective portion)
 
Location of gain or
(loss) recognized in
income on derivatives
(ineffective portion and
amount excluded from
effectiveness testing)
 
Gain or (loss) recognized
in income on derivatives 
(ineffectiveness portion
and amount excluded from
effectiveness testing)
YTD17
YTD16
  YTD17
YTD16
  YTD17
YTD16
FX contracts$(576)$320
 Net interest revenue $—
$—
 Other revenue $—
$—



Trading activities (including trading derivatives)


Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk-mitigating economic hedging in compliance with the Volcker Rule. The change in the fair value of the derivatives utilized in our trading activities is recorded in foreign exchange revenue and investment and other income on the consolidated income statement.

The following table presents our foreign exchange revenue and other trading revenue.

Foreign exchange revenue and other trading revenue
(in millions)1Q214Q201Q20
Foreign exchange revenue (a)
$231 $187 $245 
Other trading (loss) revenue (a)
(7)(31)66 
(a)    In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 for additional information.



Foreign exchange revenue includes income from purchasing and selling foreign currencies, currency forwards, futures and options as well as foreign currency remeasurement. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities, and trading and economic hedging activity with non-foreign exchange derivatives.

We also use derivative financial instruments as risk-mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were a gain of $10 million in the first quarter of 2021, a loss of $41 million in the first
BNY Mellon 81
Notes to Consolidated Financial Statements (continued)
quarter of 2020 and a gain of $23 million in the fourth quarter of 2020.

We manage trading risk through a system of position limits, a VaRvalue-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one-dayone-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. The VaR model is one of several statistical models used to develop economic capital results, which are allocated to lines of business for computing risk-adjusted performance.


As the VaR methodology does not evaluate risk attributable to extraordinary financial, economic or other occurrences,occurrences. As a result, the risk assessment process includes a number of stress scenarios based upon the risk factors in the portfolio and management’s assessment of market conditions. Additional stress scenarios based upon historical market events are also performed. Stress tests may incorporate the impact of reduced market liquidity and the breakdown of historically observed correlations and extreme scenarios. VaR and other statistical measures, stress testing and sensitivity analysis are incorporated ininto other risk management materials.



BNY Mellon 93
Notes to Consolidated Financial Statements(continued)

The following table presents our foreign exchange and other trading revenue.

Foreign exchange and other trading revenue
(in millions)3Q17
2Q17
3Q16
YTD17
YTD16
Foreign exchange$158
$151
$175
$463
$512
Other trading revenue15
14
8
39
28
Total foreign exchange and other trading revenue$173
$165
$183
$502
$540


Foreign exchange revenue includes income from purchasing and selling foreign currencies and currency forwards, futures and options. Other trading revenue reflects results from futures and forward contracts, interest rate swaps, structured foreign currency swaps, options, equity derivatives and fixed income and equity securities.


Counterparty credit risk and collateral


We assess the credit risk of our counterparties through regular examination of their financial statements, confidential communication with the management of those counterparties and regular monitoring of publicly available credit rating information. This and other information is used to develop proprietary credit rating metrics used to assess credit quality.


Collateral requirements are determined after a comprehensive review of the credit quality of each counterparty. Collateral is generally held or pledged in the form of cash and/or highly liquid government securities. Collateral requirements are monitored and adjusted daily.


Additional disclosures concerning derivative financial instruments are provided in Note 14 of the Notes to Consolidated Financial Statements.14.

Disclosure of contingent features in OTCover-the-counter (“OTC”) derivative instruments


Certain OTC derivative contracts and/or collateral agreements contain credit risk-contingent features triggered upon a rating downgrade in which the counterparty has the right to request additional collateral or the right to terminate the contracts in a net liability position.

The following table shows the aggregate fair value of OTC derivative contracts in net liability positions that contained credit risk-contingent features and the value of collateral that has been posted.

March 31, 2021Dec. 31, 2020
(in millions)
Aggregate fair value of OTC derivatives in net liability positions (a)
$3,785 $5,235 
Collateral posted$4,325 $5,568 
(a)    Before consideration of cash collateral.


The aggregate fair value of OTC derivative contracts containing credit risk-contingent features can fluctuate from quarter to quarter due to changes in market conditions, composition of counterparty trades, new business or changes to the contingent features.

The Bank of New York Mellon, our largest banking subsidiary, and the subsidiary through which BNY Mellon enters into the substantial majority of itsour OTC derivative contracts and/or collateral agreements, contain provisions thatagreements. As such, the contingent features may require us to take certain actionsbe triggered if The Bank of New York Mellon’s public debtlong-term issuer rating fell to a certain level. Early termination provisions, or “close-out”
were downgraded.
agreements, in those contracts could trigger immediate payment of outstanding contracts that are in net liability positions. Certain collateral agreements would require The Bank of New York Mellon to immediately post additional collateral to cover some or all of The Bank of New York Mellon’s liabilities to a counterparty.


The following table shows the fair value of contracts falling under early termination provisions that were in net liability positions as of Sept. 30, 2017 for three key ratings triggers.


Potential close-out exposures (fair value) (a)
March 31, 2021Dec. 31, 2020
(in millions)
If The Bank of New York Mellon’s rating changed to: (b)
A3/A-$73 $79 
Baa2/BBB$333 $813 
Ba1/BB+$1,829 $2,859 
(a)    The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating were to immediately drop to the indicated levels, and do not reflect collateral posted.
(b)    Represents ratings by Moody’s/S&P.


82 BNY Mellon
If The Bank of New York Mellon’s rating was changed to (Moody’s/S&P)
Potential close-out exposures (fair value) (a)
 
A3/A- $92 million
Baa2/BBB $430 million
Ba1/BB+ $1,899 million
(a)The amounts represent potential total close-out values if The Bank of New York Mellon’s rating were
Notes to immediately drop to the indicated levels.Consolidated Financial Statements (continued)


The aggregated fair value of contracts impacting potential trade close-out amounts and collateral obligations can fluctuate from quarter to quarter due to changes in market conditions, changes in the composition of counterparty trades, new business or changes to the agreement definitions establishing close-out or collateral obligations.

Additionally, ifIf The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept. 30, 2017,March 31, 2021 and Dec. 31, 2020, existing collateral arrangements would
have required us to post an additional $151collateral of $54 million of collateral.and $41 million, respectively.




94 BNY Mellon
Notes to Consolidated Financial Statements(continued)



Offsetting assets and liabilities


The following tables present derivative instruments and financial instruments that are either subject to an enforceable netting agreement or offset by collateral arrangements.and their related offsets. There were no derivative instruments or financial instruments subject to a legally enforceable netting agreement for which we are not currently netting.


Offsetting of derivative assets and financial assets at March 31, 2021
Gross assets recognizedGross amounts offset in the balance sheetNet assets recognized in the balance sheetGross amounts not offset in the balance sheet
(in millions)(a)Financial instrumentsCash collateral receivedNet amount
Derivatives subject to netting arrangements:
Interest rate contracts$2,280 $1,496 $784 $206 $0 $578 
Foreign exchange contracts6,600 5,418 1,182 66 0 1,116 
Equity and other contracts83 72 11 0 0 11 
Total derivatives subject to netting arrangements8,963 6,986 1,977 272 0 1,705 
Total derivatives not subject to netting arrangements1,495 — 1,495 — — 1,495 
Total derivatives10,458 6,986 3,472 272 0 3,200 
Reverse repurchase agreements50,722 33,544 (b)17,178 17,150 0 28 
Securities borrowing11,085 — 11,085 10,624 — 461 
Total$72,265 $40,530 $31,735 $28,046 $0 $3,689 
(a)Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation (“FICC”), where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative assets and financial assets at Dec. 31, 2020
Gross assets recognizedGross amounts offset in the balance sheetNet assets recognized
in the
balance sheet		Gross amounts not offset in the balance sheet
(in millions)(a)Financial instrumentsCash collateral receivedNet amount
Derivatives subject to netting arrangements:
Interest rate contracts$2,972 $1,952 $1,020 $311 $0 $709 
Foreign exchange contracts7,128 6,392 736 146 0 590 
Equity and other contracts2 2 0 0 0 0 
Total derivatives subject to netting arrangements10,102 8,346 1,756 457 0 1,299 
Total derivatives not subject to netting arrangements2,089 — 2,089 — — 2,089 
Total derivatives12,191 8,346 3,845 457 0 3,388 
Reverse repurchase agreements78,828 59,561 (b)19,267 19,252 0 15 
Securities borrowing11,640 — 11,640 11,166 — 474 
Total$102,659 $67,907 $34,752 $30,875 $0 $3,877 
(a)Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of reverse repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.

BNY Mellon 83
Offsetting of derivative assets and financial assets at Sept. 30, 2017    
 Gross assets recognized
Gross amounts offset in the balance sheet
 Net assets recognized on the balance sheet
Gross amounts not offset in the balance sheet 
(in millions)(a)Financial instruments
Cash collateral received
Net amount
Derivatives subject to netting arrangements:       
Interest rate contracts$6,182
$5,301
 $881
$189
$—
$692
Foreign exchange contracts4,281
3,120
 1,161
82
—
1,079
Equity and other contracts69
49
 20
—
—
20
Total derivatives subject to netting arrangements10,532
8,470
 2,062
271
—
1,791
Total derivatives not subject to netting arrangements1,499
—
 1,499
—
—
1,499
Total derivatives12,031
8,470
 3,561
271
—
3,290
Reverse repurchase agreements36,118
19,171
(b)16,947
16,890
—
57
Securities borrowing10,936
—
 10,936
10,627
—
309
Total$59,085
$27,641
 $31,444
$27,788
$—
$3,656
(a)Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative assets and financial assets at Dec. 31, 2016    
 Gross assets recognized
Gross amounts offset in the balance sheet
 
Net assets recognized
on the
balance sheet

Gross amounts not offset in the balance sheet 
(in millions)(a)Financial instruments
Cash collateral received
Net amount
Derivatives subject to netting arrangements:       
Interest rate contracts$7,205
$6,047
 $1,158
$321
$—
$837
Foreign exchange contracts5,265
4,172
 1,093
202
—
891
Equity and other contracts44
38
 6
—
—
6
Total derivatives subject to netting arrangements12,514
10,257
 2,257
523
—
1,734
Total derivatives not subject to netting arrangements2,007
—
 2,007
—
—
2,007
Total derivatives14,521
10,257
 4,264
523
—
3,741
Reverse repurchase agreements17,588
481
(b)17,107
17,104
—
3
Securities borrowing8,694
—
 8,694
8,425
—
269
Total$40,803
$10,738
 $30,065
$26,052
$—
$4,013
(a)Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.




BNY Mellon 95
Notes to Consolidated Financial Statements(continued)

Offsetting of derivative liabilities and financial liabilities at March 31, 2021Net liabilities recognized in the balance sheet
Gross liabilities recognizedGross amounts offset in the balance sheetGross amounts not offset in the balance sheet
(in millions)(a)Financial instrumentsCash collateral pledgedNet amount
Derivatives subject to netting arrangements:
Interest rate contracts$3,168 $1,925 $1,243 $1,168 $0 $75 
Foreign exchange contracts5,810 4,796 1,014 173 0 841 
Equity and other contracts19 16 3 0 0 3 
Total derivatives subject to netting arrangements8,997 6,737 2,260 1,341 0 919 
Total derivatives not subject to netting arrangements650 — 650 — — 650 
Total derivatives9,647 6,737 2,910 1,341 0 1,569 
Repurchase agreements47,516 33,544 (b)13,972 13,968 1 3 
Securities lending1,178 — 1,178 1,153 — 25 
Total$58,341 $40,281 $18,060 $16,462 $1 $1,597 
(a)Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2020Net liabilities recognized
in the
balance sheet
Gross liabilities recognizedGross amounts offset in the balance sheetGross amounts not offset in the balance sheet
(in millions)(a)Financial instrumentsCash collateral pledgedNet amount
Derivatives subject to netting arrangements:
Interest rate contracts$4,533 $2,348 $2,185 $2,115 $0 $70 
Foreign exchange contracts7,280 5,484 1,796 143 0 1,653 
Equity and other contracts37 13 24 7 0 17 
Total derivatives subject to netting arrangements11,850 7,845 4,005 2,265 0 1,740 
Total derivatives not subject to netting arrangements800 — 800 — — 800 
Total derivatives12,650 7,845 4,805 2,265 0 2,540 
Repurchase agreements69,831 59,561 (b)10,270 10,270 0 0 
Securities lending1,035 — 1,035 983 — 52 
Total$83,516 $67,406 $16,110 $13,518 $0 $2,592 
(a)Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.



84 BNY Mellon
Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2017Net liabilities recognized on the balance sheet
   
 Gross liabilities recognized
Gross amounts offset in the balance sheet
 Gross amounts not offset in the balance sheet 
(in millions)(a)Financial instruments
Cash collateral pledged
Net amount
Derivatives subject to netting arrangements:       
Interest rate contracts$7,103
$5,705
 $1,398
$1,311
$—
$87
Foreign exchange contracts4,074
3,095
 979
234
—
745
Equity and other contracts130
75
 55
49
—
6
Total derivatives subject to netting arrangements11,307
8,875
 2,432
1,594
—
838
Total derivatives not subject to netting arrangements790
—
 790
—
—
790
Total derivatives12,097
8,875
 3,222
1,594
—
1,628
Repurchase agreements27,321
19,171
(b)8,150
8,149
—
1
Securities lending1,904
—
 1,904
1,812
—
92
Total$41,322
$28,046
 $13,276
$11,555
$—
$1,721
(a)Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2016
Net liabilities recognized
on the
balance sheet

   
 Gross liabilities recognized
Gross amounts offset in the balance sheet
 Gross amounts not offset in the balance sheet 
(in millions)(a)Financial instruments
Cash collateral pledged
Net amount
Derivatives subject to netting arrangements:       
Interest rate contracts$8,116
$6,634
 $1,482
$1,266
$—
$216
Foreign exchange contracts4,957
3,363
 1,594
355
—
1,239
Equity and other contracts104
50
 54
54
—
—
Total derivatives subject to netting arrangements13,177
10,047
 3,130
1,675
—
1,455
Total derivatives not subject to netting arrangements1,271
—
 1,271
—
—
1,271
Total derivatives14,448
10,047
 4,401
1,675
—
2,726
Repurchase agreements8,703
481
(b)8,222
8,222
—
—
Securities lending1,615
—
 1,615
1,522
—
93
Total$24,766
$10,528
 $14,238
$11,419
$—
$2,819
(a)Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)Offsetting of repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


96 BNY Mellon
Notes to Consolidated Financial Statements(continued)

Secured borrowings


The following tables presenttable presents the contract value of repurchase agreements and securities lending transactions accounted for as secured borrowings by the type of collateral provided to counterparties.


Repurchase agreements and securities lending transactions accounted for as secured borrowings
March 31, 2021Dec. 31, 2020
Remaining contractual maturityTotalRemaining contractual maturityTotal
(in millions)Overnight and continuousUp to 30 days30 days or moreOvernight and continuousUp to 30 days30 days or more
Repurchase agreements:
U.S. Treasury$38,425 $46 $0 $38,471 $62,381 $0 $0 $62,381 
Agency RMBS2,518 0 2 2,520 3,117 0 80 3,197 
Corporate bonds243 131 1,555 1,929 190 218 1,436 1,844 
Sovereign debt/sovereign guaranteed74 0 1,879 1,953 0 0 0 0 
State and political subdivisions31 70 780 881 66 40 864 970 
U.S. government agencies632 0 0 632 425 0 0 425 
Other debt securities23 48 92 163 7 21 138 166 
Equity securities0 51 916 967 0 21 827 848 
Total$41,946 $346 $5,224 $47,516 $66,186 $300 $3,345 $69,831 
Securities lending:
Agency RMBS$172 $0 $0 $172 $161 $0 $0 $161 
Other debt securities68 0 0 68 52 0 0 52 
Equity securities938 0 0 938 822 0 0 822 
Total$1,178 $0 $0 $1,178 $1,035 $0 $0 $1,035 
Total secured borrowings$43,124 $346 $5,224 $48,694 $67,221 $300 $3,345 $70,866 
Repurchase agreements and securities lending transactions accounted for as secured borrowings at Sept. 30, 2017
 Remaining contractual maturity of the agreements
(in millions)Overnight and continuous
Up to 30 days
30 days or more
Total
Repurchase agreements:    
U.S. Treasury$21,432
$—
$—
$21,432
U.S. government agencies489
110
—
599
Agency RMBS1,798
190
—
1,988
Corporate bonds282
—
940
1,222
Other debt securities254
—
871
1,125
Equity securities466
—
489
955
Total$24,721
$300
$2,300
$27,321
Securities lending:    
U.S. government agencies$15
$—
$—
$15
Other debt securities477
—
—
477
Equity securities1,412
—
—
1,412
Total$1,904
$—
$—
$1,904
Total borrowings$26,625
$300
$2,300
$29,225



Repurchase agreements and securities lending transactions accounted for as secured borrowings at Dec. 31, 2016
 Remaining contractual maturity of the agreements
(in millions)Overnight and continuous
Up to 30 days
30 days or more
Total
Repurchase agreements:    
U.S. Treasury$2,488
$4
$—
$2,492
U.S. government agencies396
10
—
406
Agency RMBS3,294
386
—
3,680
Corporate bonds304
—
694
998
Other debt securities146
—
563
709
Equity securities375
—
43
418
Total$7,003
$400
$1,300
$8,703
Securities lending:    
U.S. government agencies$39
$—
$—
$39
Other debt securities477
—
—
477
Equity securities1,099
—
—
1,099
Total$1,615
$—
$—
$1,615
Total borrowings$8,618
$400
$1,300
$10,318



BNY Mellon’s repurchase agreements and securities lending transactions primarily encounter risk associated with liquidity. We are required to pledge collateral based on predetermined terms within the agreements. If we were to experience a decline in the fair value of the collateral pledged for these transactions, we could be required to provide
additional collateral to the counterparty, therefore decreasing the amount of assets available for other liquidity needs that may arise. BNY Mellon also offers tri-party collateral agency services in the tri-party repo market where we are exposed to credit risk. In order to mitigate this risk, we require dealers to fully secure intraday credit.





BNY Mellon 97
Notes to Consolidated Financial Statements(continued)

Note 17 - 17–Commitments and contingent liabilities


Off-balance sheet arrangements


In the normal course of business, various commitments and contingent liabilities are outstanding that are not reflected in the accompanying consolidated balance sheets.


Our significant trading and off-balance sheet risks are securities, foreign currency and interest rate risk management products, commercial lending commitments, letters of credit and securities lending indemnifications. We assume these risks to reduce interest rate and foreign currency risks, to provide customers with the ability to meet credit and liquidity needs and to hedge foreign currency and interest rate risks. These items involve, to varying degrees, credit, foreign currency and interest rate riskrisks not recognized on the balance sheet. Our off-balance sheet risks are managed and monitored in manners similar to those used for on-balance sheet risks.


BNY Mellon 85
Notes to Consolidated Financial Statements (continued)
The following table presents a summary of our off-balance sheet credit risks.


Off-balance sheet credit risksMarch 31, 2021Dec. 31, 2020
(in millions)
Lending commitments$47,758 $47,577 
Standby letters of credit (“SBLC”) (a)
2,295 2,265 
Commercial letters of credit51 60 
Securities lending
indemnifications (b)(c)
479,719 469,121 
Off-balance sheet credit risksSept. 30, 2017
Dec. 31, 2016
(in millions)
Lending commitments$49,983
$51,270
Standby letters of credit (a)
3,619
4,185
Commercial letters of credit265
339
Securities lending indemnifications (b)
406,434
317,690
(a)Net of participations totaling $681 million at Sept. 30, 2017 and $662 million at Dec. 31, 2016.
(b)
Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $65 billion at Sept. 30, 2017 and $61 billion at Dec. 31, 2016.

(a)Net of participations totaling $155 million at March 31, 2021 and $154 million at Dec. 31, 2020.

(b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $60 billion at March 31, 2021 and $62 billion at Dec. 31, 2020.
(c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $42 billion at March 31, 2021 and $41 billion at Dec. 31, 2020.


The total potential loss on undrawn lending commitments, standby and commercial letters of credit, and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral.


Since many of the lending commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. A summary of lending commitment maturities is as follows: $29.8$30.5 billion in less than one year, $20.0$16.3 billion in one to five years and $158$954 million over five years.


Standby letters of credit (“SBLC”)SBLCs principally support obligations of corporate obligationsclients and were collateralized with cash and securities of $178$191 million at Sept. 30, 2017March 31, 2021 and $293$194 million at Dec. 31, 2016.2020. At Sept. 30, 2017, $2.3March 31, 2021, $1.6 billion of the SBLCs will expire within one year, and $1.2 billion$730 million in one to five years and $48 million inNaN over five years.


We must recognize, at the inception of an SBLC and foreign and other guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The fair value of the liability, which was recorded with a corresponding asset in other assets, was estimated as the present value of contractual customer fees. The estimated liability for losses related to SBLCs and foreign and other guarantees, if any, is included in the allowance for lending-related commitments. The allowance for lending-related commitments was $104 million at Sept. 30, 2017 and $112 million at Dec. 31, 2016.


Payment/performance risk of SBLCs is monitored using both historical performance and internal ratings
criteria. BNY Mellon’s historical experience is that SBLCs typically expire without being funded. SBLCs below investment grade are monitored closely for payment/performance risk. The table below shows SBLCs by investment grade:


Standby letters of creditMarch 31, 2021Dec. 31, 2020
Investment grade84 %82 %
Non-investment grade16 %18 %
Standby letters of creditSept. 30, 2017
Dec. 31, 2016
  
Investment grade86%89%
Non-investment grade14%11%




A commercial letter of credit is normally a short-term instrument used to finance a commercial contract for the shipment of goods from a seller to a buyer. Although the commercial letter of credit is contingent upon the satisfaction of specified conditions, it represents a credit exposure if the buyer defaults on the underlying transaction. As a result, the total contractual amounts do not necessarily represent future cash requirements. Commercial letters of credit totaled $265$51 million at Sept. 30, 2017March 31, 2021 and $339$60 million at Dec. 31, 2016.2020.


We expect many of the lending commitments and letters of credit to expire without the need to advance any cash. The revenue associated with guarantees frequently depends on the credit rating of the obligor and the structure of the transaction, including collateral, if any.
The allowance for lending-related commitments was $73 million at March 31, 2021 and $121 million at Dec. 31, 2020.



98 BNY Mellon
Notes to Consolidated Financial Statements(continued)

A securities lending transaction is a fully collateralized transaction in which the owner of a security agrees to lend the security (typically through an agent, in our case, The Bank of New York Mellon), to a borrower, usually a broker-dealer or bank, on an open, overnight or term basis, under the terms of a prearranged contract, which normally matures in less than 90 days.contract.


We typically lend securities with indemnification against borrower default. We generally require the borrower to provide collateral with a minimum value of102% of the fair value of the securities borrowed, which is monitored on a daily basis, thus reducing credit risk. Market risk can also arise in securities lending transactions. These risks are controlled through policies limiting the level of risk that can be undertaken. Securities lending transactions are generally entered into only with highly rated counterparties. Securities lending indemnifications
86 BNY Mellon
Notes to Consolidated Financial Statements (continued)
were secured by collateral of $424504 billion at Sept. 30, 2017March 31, 2021 and $331493 billion at Dec. 31, 2016.2020.


CIBC Mellon, a joint venture between BNY Mellon and the Canadian Imperial Bank of Commerce (“CIBC”), engages in securities lending activities.  CIBC Mellon, BNY Mellon and CIBC jointly and severally indemnify securities lenders against specific types of borrower default. At Sept. 30, 2017March 31, 2021 and Dec. 31, 2016, $652020, $60 billion and $61$62 billion, respectively, of borrowings at CIBC Mellon, for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, were secured by collateral of $69$64 billion and $64$66 billion, respectively. If, upon a default, a borrower’s collateral was not sufficient to cover its related obligations, certain losses related to the indemnification could be covered by the indemnitors.


Unsettled repurchase and reverse repurchase agreements

In the normal course of business, we enter into repurchase agreements and reverse repurchase agreements that settle at a future date. In repurchase agreements, BNY Mellon receives cash from and provides securities as collateral to a counterparty at settlement. In reverse repurchase agreements, BNY Mellon advances cash to and receives securities as collateral from the counterparty at settlement. These transactions are recorded on the consolidated balance sheet on the settlement date. At March 31, 2021, we had 0 unsettled repurchase agreements and $2.9 billion of unsettled reverse repurchase agreements.

Industry concentrations


We have significant industry concentrations related to credit exposure at Sept. 30, 2017.March 31, 2021. The tables below present our credit exposure in the financial institutions and commercial portfolios.


Financial institutions
portfolio exposure
(in billions)
March 31, 2021
LoansUnfunded
commitments		Total exposure
Securities industry$2.3 $21.3 $23.6 
Asset managers1.4 6.5 7.9 
Banks6.4 1.1 7.5 
Insurance0.1 3.0 3.1 
Government0.1 0.2 0.3 
Other0.7 0.7 1.4 
Total$11.0 $32.8 $43.8 


Financial institutions
portfolio exposure
(in billions)
Sept. 30, 2017
Loans
Unfunded
commitments

Total
exposure

Securities industry$2.9
$19.0
$21.9
Asset managers1.6
6.5
8.1
Banks6.3
1.4
7.7
Insurance0.1
3.4
3.5
Government—
1.0
1.0
Other1.0
1.4
2.4
Total$11.9
$32.7
$44.6
Commercial portfolio
exposure
(in billions)
March 31, 2021
LoansUnfunded
commitments		Total exposure
Manufacturing$0.4 $4.0 $4.4 
Energy and utilities0.3 4.0 4.3 
Services and other0.7 3.5 4.2 
Media and telecom0 0.8 0.8 
Total$1.4 $12.3 $13.7 

Commercial portfolio
exposure
(in billions)
Sept. 30, 2017
Loans
Unfunded
commitments

Total
exposure

Manufacturing$1.4
$6.3
$7.7
Services and other0.9
4.4
5.3
Energy and utilities0.6
4.5
5.1
Media and telecom0.1
1.4
1.5
Total$3.0
$16.6
$19.6



Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash and/or securities.


ExposureSponsored member repo program

BNY Mellon is a sponsoring member in the FICC sponsored member program, where we submit eligible overnight repurchase and reverse repurchase transactions in U.S. Treasury securities (“Sponsored Member Transactions”) between BNY Mellon and our sponsored member clients for certain administrative errors

Innovation and clearing through FICC pursuant to the FICC Government Securities Division rulebook (the “FICC Rules”). We also guarantee to FICC the prompt and full payment and performance of our sponsored member clients’ respective obligations under the FICC Rules in connection with certain offshore tax-exempt funds that we manage, we may be liable to the fundssuch clients’ Sponsored Member Transactions. We minimize our credit exposure under this guaranty by obtaining a security interest in our sponsored member clients’ collateral and rights under Sponsored Member Transactions. See “Offsetting assets and liabilities” in Note 16 for certain administrative errors. The errors relate to the resident status of such funds, potentially exposing the Company to a tax liability related to the funds’ earnings. The Company is in discussions with tax authorities regarding the funds. We believe we are appropriately accruedadditional information on our repurchase and the additional reasonably possible exposure is not significant.reverse repurchase agreements.


Indemnification arrangements


We have provided standard representations for underwriting agreements, acquisition and divestiture agreements, sales of loans and commitments, and other similar types of arrangements and customary indemnification for claims and legal proceedingsrelated to providing financial services that are not otherwise included above. Insurance has been purchased to mitigate certain of these risks. Generally, there are no stated or notional amounts included in these indemnifications and the contingencies triggering the obligation for indemnification are not expected to occur. Furthermore, often counterparties to these transactions provide us with comparable indemnifications. We are unable to develop an estimate of the maximum payout under these


BNY Mellon 99
Notes to Consolidated Financial Statements(continued)

indemnifications for several reasons. In addition to
BNY Mellon 87
Notes to Consolidated Financial Statements (continued)
the lack of a stated or notional amount in a majority of such indemnifications, we are unable to predict the nature of events that would trigger indemnification or the level of indemnification for a certain event. We believe, however, that the possibility that we will have to make any material payments for these indemnifications is remote. At Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, we have not recorded any material liabilities under these arrangements.


Clearing and settlement exchanges


We are a noncontrolling equity investor in, and/or member of, several industry clearing or settlement exchanges through which foreign exchange, securities, derivatives or other transactions settle. Certain of these industry clearing and settlement exchanges require their members to guarantee their obligations and liabilities and/or to provide liquidity support in the event other members do not honor their obligations. We believe the likelihood that a clearing or settlement exchange (of which we are a member) would become insolvent is remote. Additionally, certain settlement exchanges have implemented loss allocation policies that enable the exchange to allocate settlement losses to the members of the exchange. It is not possible to quantify such mark-to-market loss until the loss occurs. Any ancillary costs that occur as a result of any mark-to-market loss cannot be quantified. In addition, we also sponsor clients as members on clearing and settlement exchanges and guarantee their obligations. At Sept. 30, 2017March 31, 2021 and Dec. 31, 2016,2020, we havedid not recordedrecord any material liabilities under these arrangements.


Legal proceedings


In the ordinary course of business, BNYThe Bank of New York Mellon Corporation and its subsidiaries are routinely named as defendants in or made parties to pending and potential legal actions. We also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal). Claims for significant monetary damages are often asserted in many of these legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in governmental and regulatory matters. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of our current knowledge and
knowledge and understanding, we do not believe that judgments, settlements or orders, if any, arising from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on the consolidated financial position or liquidity of BNY Mellon, although they could have a material effect on net incomeour results of operations in a given period.


In view of the inherent unpredictability of outcomes in litigation and governmental and regulatory matters, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and governmental and regulatory matters, including a possible eventual loss, fine, penalty or business impact, if any, associated with each such matter. In accordance with applicable accounting guidance, BNY Mellon establisheswe establish accruals for litigation and governmental and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. BNY Mellon will continue toWe regularly monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, BNY Mellon doeswe do not establish an accrual and the matter will continuecontinues to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. BNY Mellon believesWe believe that itsour accruals for legal proceedings are appropriate and, in the aggregate, are not material to the consolidated financial position of BNY Mellon, although future accruals could have a material effect on net incomethe results of operations in a given period. In addition, if we have the potential to recover a portion of an estimated loss from a third party, we record a receivable up to the amount of the accrual that is probable of recovery.


For certain of those matters described here for which a loss contingency may, in the future, be reasonably possible (whether in excess of a related accrued liability or where there is no accrued liability), BNY Mellon is currently unable to estimate a range of reasonably possible loss. For those matters described here where BNY Mellon is able to estimate a reasonably possible loss, the aggregate range of such reasonably possible loss is up to $940$650 millionin
88 BNY Mellon
Notes to Consolidated Financial Statements (continued)
excess of the accrued liability (if any) related to those matters.
For matters where a reasonably possible loss is denominated in a foreign currency, our estimate is adjusted quarterly based on prevailing exchange rates. We do not consider potential recoveries when estimating reasonably possible losses.



100 BNY Mellon
Notes to Consolidated Financial Statements(continued)

The following describes certain judicial, regulatory and arbitration proceedings involving BNY Mellon:


Mortgage-Securitization Trusts Proceedings
The Bank of New York Mellon has been named as a defendant in a number of legal actions brought by MBS investors alleging that the trustee has expansive duties under the governing agreements, including the duty to investigate and pursue breach of representation and warranty claims against other parties to the MBS transactions. TheseNaN actions include a lawsuit broughtcommenced in December 2014, December 2015 and February 2017 are pending in New York State court on June 18, 2014,federal court; and later re-filed1 action commenced in federal court, by a group of institutional investors who purport to sue on behalf of 253 MBS trusts.May 2016 is pending in New York state court.


Matters Related to R. Allen Stanford
In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, (“SIB”), also controlled by Stanford, issued certificates of deposit (“CDs”). Some investors allegedly wired funds from their SGC accounts to purchase CDs. In 2009, the SECSecurities and Exchange Commission charged Stanford with operating a Ponzi scheme in connection with the sale of CDs, and SGC was placed into receivership. Alleged purchasers of CDs have filed 152 putative class action proceedings against Pershing: one in November 2009 in Texas federal court, and one in May 2016 in New Jersey federal court. After dismissals, 3 lawsuits remain against Pershing that are pending in Texas, including two putative class actions.Louisiana and New Jersey federal courts, which were filed in January 2010, October 2015 and May 2016. The purchasers allege that Pershing, as SGC’s clearing firm, assisted Stanford in a fraudulent scheme and assert contractual, statutory and common law claims. In March 2019, a group of investors filed a putative class action against The remainingBank of New York Mellon in New Jersey federal court, making the same allegations as in the prior actions brought against Pershing. All the cases that have been brought in federal court against Pershing and the case brought against The Bank of New York Mellon have been consolidated in Texas federal court for discovery
purposes. In July 2020, after being enjoined from pursuing claims before the Financial Industry Regulatory Authority, Inc. (“FINRA”), an investment firm filed an action against Pershing in Texas federal court. FINRA action hasarbitration proceedings also have been resolved and dismissed.initiated by alleged purchasers asserting similar claims.


Brazilian Postalis Litigation
BNY Mellon Servicos Financeiros DTVM S.A. (“DTVM”), a subsidiary that provides a number of asset services in Brazil, acts as administrator for certain investment funds in which the exclusive investor is a public pension fund for postal workers called Postalis-Instituto de Seguridade Social dos Correios e Telégrafos (“Postalis”). invested. On Aug. 22, 2014, Postalis sued DTVM in Rio de Janeiro, Brazil for losses related to a Postalis investment fund for which DTVM serves as fundis administrator. Postalis alleges that DTVM failed to properly perform alleged duties, including duties to conduct due diligence of and exert control over the fund manager, Atlântica Administração de Recursos (“Atlântica”), and Atlântica’s investments.manager. On March 12, 2015, Postalis filed a lawsuit in Rio de Janeiro against DTVM and
BNY Mellon Administração de Ativos Ltda. (“Ativos”) alleging failure to properly perform alleged duties relating to another fund of which DTVM is administrator and Ativos is investment manager. On Dec. 14, 2015, AssociaceãAssociacão Dosdos Profissionais Dos Correirosdos Correios (“ADCAP”), a Brazilian postal workers association, filed a lawsuit in São Paulo against DTVM and other defendants alleging that DTVM improperly contributed to Postalis investment losses in the Postalis portfolio.losses. On March 20, 2017, the lawsuit was dismissed without prejudice, and ADCAP has appealed that decision. On Dec. 17, 2015, Postalis filed three additional3 lawsuits in Rio de Janeiro against DTVM and Ativos alleging failure to properly perform alleged duties and liabilities for losses with respect to investments in several other funds. On Feb. 4, 2016, Postalis filed anothera lawsuit in Brasilia against DTVM, Ativos and BNY Mellon Alocação de Patrimônio Ltda. (“Alocação de Patrimônio”), an investment management subsidiary, alleging failure to properly perform duties and liability for losses with respect to investments in various other funds of which the defendants were administrator and/or manager. TheOn Jan. 16, 2018, the Brazilian Federal Prosecution Service (“MPF”) filed a civil lawsuit has been transferred toin São Paulo.Paulo against DTVM alleging liability for Postalis losses based on alleged failures to properly perform certain duties as administrator to certain funds in which Postalis invested or as controller of Postalis’s own investment portfolio. On April 18, 2018, the court dismissed the lawsuit without prejudice, and the MPF has appealed that decision. In addition, the Tribunal de Contas da Uniao (“TCU”), an administrative

Depositary Receipt Litigation
Between late December 2015 and February 2016, four putative class action lawsuits were filed against BNY Mellon asserting claims relating89
Notes to Consolidated Financial Statements (continued)
tribunal, has initiated two proceedings with the purpose of determining liability for losses to BNY Mellon’s foreign exchange pricing when converting dividendstwo investment funds administered by DTVM in which Postalis was the exclusive investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and other distributions from non-U.S. companiestwo former Postalis directors jointly and severally liable for approximately $45 million. TCU also imposed on DTVM a fine of approximately $2 million. DTVM has filed an administrative appeal of the decision. On Oct. 4, 2019, Postalis and another pension fund filed a request for arbitration in São Paulo against DTVM and Ativos alleging liability for losses to an investment fund for which DTVM was administrator and Ativos was manager. On March 26, 2021, DTVM and Ativos filed a lawsuit challenging the decision rendered by the Arbitration Court with respect to its role as depositary bank to Depositary Receipt issuers. The claims arejurisdiction over the case. On Oct. 25, 2019, Postalis filed a lawsuit in Rio de Janeiro against DTVM and Alocação de Patrimônio, alleging liability for breach of contractlosses in another fund for which DTVM was administrator and violations of ERISA. The lawsuits have been consolidated into two suits that are pendingAlocação de Patrimônio and Ativos were managers. On June 19, 2020, a lawsuit was filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator. On Feb. 10, 2021, Postalis and another pension fund served DTVM in a lawsuit filed in Rio de Janeiro, alleging liability for losses in another investment fund for which DTVM was administrator and the Southern District of New York.other defendant was manager.


Brazilian Silverado Litigation
DTVM acts as administrator for the Fundo de Investimento em Direitos Creditórios Multisetorial Silverado Maximum (“Silverado Maximum Fund”), which invests in commercial credit receivables. On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. - Banco Alemão in its capacity as custodian and Silverado Gestão e Investimentos Ltda. in its capacity as investment manager. The Fund alleges that each of the defendants failed to fulfill its respective duty, and caused losses to the Fund for which the defendants are jointly and severally liable.


German Tax Matters
German authorities are investigating past “cum/ex” trading, which involved the purchase of equity securities on or shortly before the dividend date, but settled after that date, potentially resulting in an


unwarranted refund of withholding tax. German authorities have taken the view that past cum/ex trading may have resulted in tax avoidance or evasion. European subsidiaries of BNY Mellon 101
Notes to Consolidated Financial Statements(continued)

Depositary Receipt Pre-Release Inquiry
have been informed by German authorities about investigations into potential cum/ex trading by certain third-party investment funds, where one of the subsidiaries had acquired entities that served as depositary and/or fund manager for those third-party investment funds. We have received information requests from the authorities relating to pre-acquisition activity and are cooperating fully with those requests. In August 2019, the District Court of Bonn ordered that one of these subsidiaries be joined as a secondary party in connection with the prosecution of unrelated individual defendants. Trial commenced in September 2019. In March 2014,2020, the Staffcourt stated that it would refrain from taking action against the subsidiary in order to expedite the conclusion of the U.S. Securitiestrial. The court convicted the unrelated individual defendants, and Exchange Commission’s Enforcement Division (the “Staff”) commenced an investigation into certain issuersdetermined that the cum/ex trading activities of American Depositary Receipts (“ADRs”), including BNY Mellon,the relevant third-party investment funds were unlawful. In November and December 2020, we received secondary liability notices from the German tax authorities totaling approximately $150 million related to pre-acquisition activity in various funds for which the period of 2011 to 2015. The Staff has issued several requests to BNY Mellon for information relating toentities we acquired were depositary and/or fund manager. We have appealed the pre-release of ADRs.notices. In May 2017, BNY Mellon began discussionsconnection with the Staff about a possible resolutionacquisition of the investigation. BNY Mellon has fully cooperated with this matter.subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.


Note 18 - 18–Lines of business


We have an internal information system that produces performance data along product and service lines for our two2 principal businesses and the Other segment. The primary products and services and types of revenue for our principal businesses and a description of the Other segment are presented in Note 24 of the Notes to Consolidated Financial Statements in our 2020 Annual Report.


Business accounting principles


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

90 BNY Mellon
Notes to Consolidated Financial Statements (continued)
Business results are subject to reclassification when organizational changes are made, or when improvementsfor refinements in revenue and expense allocation methodologies. Refinements are madetypically reflected on a prospective basis. There were no reclassification or organization changes in the measurement principles.first quarter of 2021.


The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 20162020 Annual Report.


The primary types of revenue for our two principal businesses and the Other segment are presented below.

BusinessPrimary types of revenue
Investment Management
•   Investment management and performance fees from:
Mutual funds
Institutional clients
Private clients
High-net-worth individuals and families, endowments and foundations and related entities
•   Distribution and servicing fees
•   Other revenue from seed capital investments
Investment Services
•   Asset servicing fees, including custody fees, fund services, broker-dealer services, securities finance and collateral and liquidity services
•   Issuer services fees, including Depositary Receipts and Corporate Trust
•   Clearing services fees
•   Treasury services fees, including global payments, trade finance and cash management
•   Foreign exchange revenue
•   Financing-related fees and net interest revenue from credit-related activities
Other segment
•   Net interest revenue and lease-related gains (losses) from leasing operations
•   Gain (loss) on securities and net interest revenue from corporate treasury activity
•   Other trading revenue from derivatives and other trading activity
•   Results of business exits


The results of our businesses are presented and analyzed on an internal management reporting basis.


•Revenue amounts reflect fee and other revenue generated by each business.business and include revenue for services provided between the segments that are also provided to third parties. Fee and other revenue transferred between businesses under revenue transfer agreements is included within other revenue in each business.
•Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated
with clients using custody products is included in Investment Services.
•Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds transfer pricing system that matches funds with the specific assets and liabilities of each business based on their interest sensitivity and maturity characteristics.
•The provision for credit losses associated with the respective credit portfolios is reflected in each business segment.


102 BNY Mellon
Notes to Consolidated Financial Statements(continued)

•Incentives expense related to restricted stock and RSUs is allocated to the businesses.
•Support and other indirect expenses, including services provided between segments that are not provided to third parties or not subject to a revenue transfer agreement, are allocated to businesses based on internally developed methodologies.methodologies and reflected in noninterest expense.
•Recurring FDIC expense is allocated to the businesses based on average deposits generated within each business.
•Litigation expense is generally recorded in the business in which the charge occurs.
•Management of the investment securities portfolio is a shared service contained in the Other segment. As a result, gains and losses associated with the valuation of the securities portfolio are generally included in the Other segment.
•Client deposits serve as the primary funding source for our investment securities portfolio.
We typically allocate all interest revenue to the businesses generating the deposits. Accordingly, accretion related to the portion of the investment securities portfolio restructured in 2009 has been included in the results of the businesses.
M&I expense is a corporate level item and is recorded in the Other segment.
Restructuring charges relate to corporate-level initiatives and were therefore recorded in the Other segment.
•Balance sheet assets and liabilities and their related income or expense are specifically assigned to each business. Businesses with a net liability position have been allocated assets.
•Goodwill and intangible assets are reflected within individual businesses.


The following consolidating schedules presentspresent the contribution of our businesses to our overall profitability.


For the quarter ended March 31, 2021Investment
Services		Investment
and Wealth Management		OtherConsolidated
(dollars in millions)
Total fee and other revenue (loss)$2,345 $943 (a)$(27)$3,261 (a)
Net interest revenue (expense)645 48 (38)655 
Total revenue (loss)2,990 991 (a)(65)3,916 (a)
Provision for credit losses(79)4 (8)(83)
Noninterest expense2,101 709 41 2,851 
Income (loss) before income taxes$968 $278 (a)$(98)$1,148 (a)
Pre-tax operating margin (b)
32 %28 %N/M29 %
Average assets$385,054 $32,066 $43,259 $460,379 
(a)Total fee and other revenue, total revenue and income before income taxes are net of noncontrolling interests of $5 million.
(b)    Income before income taxes divided by total revenue.
N/M – Not meaningful.
BNY Mellon 91
For the quarter ended Sept. 30, 2017Investment
Management
 Investment
Services
 Other
 Consolidated
 
(dollar amounts in millions)
Fee and other revenue$918
(a) $2,187
 $69
 $3,174
(a) 
Net interest revenue (expense)82
 777
 (20) 839
 
Total revenue1,000
(a)2,964
 49
 4,013
(a)
Provision for credit losses(2) (2) (2) (6) 
Noninterest expense702
 1,874
 77
 2,653
(b)
Income (loss) before taxes$300
(a) $1,092
 $(26) $1,366
(a)(b)
Pre-tax operating margin (c)
30% 37% N/M
 34% 
Average assets$31,689
 $252,461
 $61,559
 $345,709
 
(a)
Both fee and other revenue and total revenue include the net income from consolidated investment management funds of $7 million representing $10 million of income and noncontrolling interests of $3 million. Income before taxes is net of noncontrolling interests of $3 million.
(b)Noninterest expense includes a loss attributable to noncontrolling interest of $1 million related to other consolidated subsidiaries.
(c)Income before taxes divided by total revenue.
N/M - Not meaningful.


For the quarter ended June 30, 2017
Investment
Management

 
Investment
Services

 Other
 Consolidated
 
(dollar amounts in millions)
Fee and other revenue$899
(a) $2,115
 $113
 $3,127
(a) 
Net interest revenue (expense)87
 761
 (22) 826
 
Total revenue986
(a)2,876
 91
 3,953
(a)
Provision for credit losses—
 (3) (4) (7) 
Noninterest expense698
 1,927
 28
 2,653
(b)
Income before taxes$288
(a) $952
 $67
 $1,307
(a)(b)
Pre-tax operating margin (c)
29% 33% N/M
 33% 
Average assets$31,355
 $254,724
 $56,436
 $342,515
 
(a)Both fee and other revenue and total revenue include the net income from consolidated investment management funds of $7 million, representing $10 million of income and noncontrolling interests of $3 million. Income before taxes is net of noncontrolling interests of $3 million.
(b)
Noninterest expense includes a loss attributable to noncontrolling interest of $2 millionrelated to other consolidated subsidiaries.
(c)Income before taxes divided by total revenue.
N/M - Not meaningful.



BNY Mellon 103
Notes to Consolidated Financial Statements(continued)

For the quarter ended Sept. 30, 2016Investment
Management
 Investment
Services
 Other
 Consolidated
 
(dollar amounts in millions)
Fee and other revenue$876
(a) $2,183
 $100
 $3,159
(a) 
Net interest revenue (expense)82
 715
 (23) 774
 
Total revenue958
(a)2,898
 77
 3,933
(a)
Provision for credit losses—
 1
 (20) (19) 
Noninterest expense702
 1,851
 88
 2,641
(b)
Income before taxes$256
(a) $1,046
 $9
 $1,311
(a)(b)
Pre-tax operating margin (c)
27% 36% N/M
 33% 
Average assets$30,392
 $275,714
 $45,124
 $351,230
 
(a)Both fee and other revenue and total revenue include net income from consolidated investment management funds of $8 million, representing $17 million of income and noncontrolling interests of $9 million. Income before taxes is net of noncontrolling interests of $9 million.
(b)
Noninterest expense includes a loss attributable to noncontrolling interest of $2 millionrelated to other consolidated subsidiaries.
(c)Income before taxes divided by total revenue.
N/M - Not meaningful.


For the nine months ended Sept. 30, 2017Investment
Management
 Investment
Services
 Other
 Consolidated
 
(dollar amounts in millions)
Fee and other revenue$2,694
(a)$6,386
 $254
 $9,334
(a) 
Net interest revenue (expense)255
 2,245
 (43) 2,457
 
Total revenue2,949
(a)8,631
 211
 11,791
(a) 
Provision for credit losses1
 (5) (14) (18) 
Noninterest expense2,083
 5,650
 212
 7,945
(b)
Income before taxes$865
(a)$2,986
 $13
 $3,864
(a)(b)
Pre-tax operating margin (c)
29% 35% N/M
 33% 
Average assets$31,372
 $252,675
 $57,463
 $341,510
 
(a)Both total fee and other revenue and total revenue include net income from consolidated investment management funds of $29 million, representing $53 million of income and noncontrolling interests of $24 million. Income before taxes is net of noncontrolling interests of $24 million.
(b)Noninterest expense includes a loss attributable to noncontrolling interest of $6 million related to other consolidated subsidiaries.
(c)Income before taxes divided by total revenue.
N/M - Not meaningful.


For the nine months ended Sept. 30, 2016Investment
Management
 Investment
Services
 Other
 Consolidated
 
(dollar amounts in millions)
Fee and other revenue$2,544
(a)$6,267
 $324
 $9,135
(a)
Net interest revenue (expense)247
 2,084
 (24) 2,307
 
Total revenue2,791
(a)8,351
 300
 11,442
(a)
Provision for credit losses—
 8
 (26) (18) 
Noninterest expense2,084
 5,518
 284
 7,886
(b)
Income before taxes$707
(a)$2,825
 $42
 $3,574
(a)(b)
Pre-tax operating margin (c)
25% 34% N/M
 31% 
Average assets$30,048
 $275,410
 $57,832
 $363,290
 
(a)Both total fee and other revenue and total revenue include net income from consolidated investment management funds of $15 million, representing $21 million of income and noncontrolling interests of $6 million. Income before taxes is net of a loss attributable to noncontrolling interests of $6 million.
(b)Noninterest expense includes a loss attributable to noncontrolling interest of $6 million related to other consolidated subsidiaries.
(c)Income before taxes divided by total revenue.
N/M - Not meaningful.




104 BNY Mellon
Notes to Consolidated Financial Statements(continued)

For the quarter ended Dec. 31, 2020Investment
Services		Investment
and Wealth Management		OtherConsolidated
(dollars in millions)
Total fee and other revenue (loss)$2,235 $940 (a)$(17)$3,158 (a)
Net interest revenue (expense)670 50 (40)680 
Total revenue (loss)2,905 990 (a)(57)3,838 (a)
Provision for credit losses31 (8)(8)15 
Noninterest expense2,174 687 64 2,925 
Income (loss) before income taxes$700 $311 (a)$(113)$898 (a)
Pre-tax operating margin (b)
24 %32 %N/M24 %
Average assets$358,270 $30,804 $48,414 $437,488 
(a)Total fee and other revenue, total revenue and income before income taxes are net of noncontrolling interests of $5 million.
(b)Income before income taxes divided by total revenue.
N/M – Not meaningful.


For the quarter ended March 31, 2020Investment
Services		Investment
and Wealth Management		OtherConsolidated
(dollars in millions)
Total fee and other revenue$2,436 $846 (a)$30 $3,312 (a)
Net interest revenue (expense)806 52 (44)814 
Total revenue (loss)3,242 898 (a)(14)4,126 (a)
Provision for credit losses149 9 11 169 
Noninterest expense1,987 695 30 2,712 
Income (loss) before income taxes$1,106 $194 (a)$(55)$1,245 (a)
Pre-tax operating margin (b)
34 %22 %N/M30 %
Average assets$304,089 $30,543 $50,646 $385,278 
(a)Total fee and other revenue, total revenue and income before income taxes are net of a loss attributable to noncontrolling interests of $18 million.
(b)Income before income taxes divided by total revenue.
N/M – Not meaningful.


Note 19 - 19–Supplemental information to the Consolidated Statement of Cash Flows


NoncashNon-cash investing and financing transactions that, appropriately, are not reflected in the Consolidated Statementconsolidated statement of Cash Flowscash flows are listed below.


Noncash investing and financing transactionsNine months ended Sept. 30,
(in millions)2017
 2016
Transfers from loans to other assets for other real estate owned (“OREO”)$3
 $4
Change in assets of consolidated VIEs429
 392
Change in liabilities of consolidated VIEs288
 14
Change in nonredeemable noncontrolling interests of consolidated investment management funds234
 238
Securities purchased not settled1,277
 229
Securities sales not settled—
 218
Securities matured not settled350
 —
Held-to-maturity securities transferred to available-for-sale74
 10
Premises and equipment/capitalized software funded by capital lease obligations347
 12
Non-cash investing and financing transactionsThree months ended March 31,
(in millions)20212020
Transfers from loans to other assets for other real estate owned$1 $0 
Change in assets of consolidated investment management funds21 16 
Change in liabilities of consolidated investment management funds7 0 
Change in nonredeemable noncontrolling interests of consolidated investment management funds119 8 
Securities purchased not settled413 1,667 
Securities sold not settled443 0 
Securities matured not settled0 9 
Premises and equipment/operating lease obligations24 15 
Investment redemptions not settled0 37 


BNY Mellon 105

92 BNY Mellon
Item 4. Controls and Procedures

Disclosure controls and procedures


Our management, including the Chief Executive Officer and Chief Financial Officer, with participation by the members of the Disclosure Committee, has responsibility for ensuring that there is an adequate and effective process for establishing, maintaining, and evaluating disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our SEC reports is timely recorded, processed, summarized and reported and that information required to be disclosed by BNY Mellon is accumulated and communicated to BNY Mellon’s management to allow timely decisions regarding the required disclosure. In addition, our ethics hotline can also be used by employees and others for the anonymous communication of concerns about financial controls or reporting matters. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.


As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.


Changes in internal control over financial reporting


In the ordinary course of business, we may routinely modify, upgrade or enhance our internal controls and procedures for financial reporting. There have not been any changes in our internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act during the thirdfirst quarter of 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




106 BNY Mellon 93
Forward-looking Statements


Some statements in this documentQuarterly Report are forward-looking. These include all statements about the usefulness of Non-GAAP measures, the future results of BNY Mellon, our businesses, financial, liquidity and capital condition, results of operations, liquidity, risk and capital management and processes, goals, strategies, outlook, objectives, expectations (including those regarding our performance results, expenses, nonperforming assets, products, impacts of currency fluctuations, impacts of money market fee waivers, deposits, impacts of trends on our businesses, regulatory, technology, market, economic or accounting developments and the impacts of such developments on our businesses, legal proceedings and other contingencies,contingencies), human capital management (including related ambitions, objectives, aims and goals), effective tax rate, net interest revenue, estimates (including those regarding expenses, losses inherent in our credit portfolios and capital ratios), intentions (including those regarding our resolution strategy)capital returns and expenses, including our investments in technology and pension expense), targets, opportunities, potential actions, growth and initiatives.initiatives, including the potential effects of the coronavirus pandemic on any of the foregoing.


In this report, any other report, any press release or any written or oral statement that BNY Mellon or its executives may make, 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”“trends,” “ambition,” “objective,” “aim,” “future,” “potentially,” “outlook” and words of similar meaning, may signify forward-looking statements.


Actual results may differ materially from those expressed or implied as a result of a number of factors, including those discussed in the “Risk Factors” section ofin our 20162020 Annual Report, and this Form 10-Q, such as: an information security event
•errors or delays in our operational and transaction processing may materially adversely affect our business, financial condition, results of operations and reputation;
•our risk management framework, models and processes may not be effective in mitigating risk and reducing the potential for losses;
•the coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future
developments, which are highly uncertain and cannot be predicted;
•a communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients and any material adverse effect onmay materially adversely affect our business, financial condition and results of operations;
•a cybersecurity incident, or a failure of our technology or that of a third party or vendor, or if we neglect to update our technology, develop and market new technology to meet clients’ needs or protect our intellectual propertycomputer systems, networks and any material adverse effect oninformation and our business; a determination thatclients’ information against cybersecurity threats, could result in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information. Any such incident or failure could adversely impact our resolution plan is not credibleability to conduct our businesses, damage our reputation and any material negative impact on our business, reputation, results of operations and financial condition and the application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority and any adverse effects on our liquidity, financial condition and security holders;cause losses;
•we are subject to extensive government rulemaking, policies, regulation and supervision whichthat impact our operations. Changes to and introduction of new rules and regulations have, and in the future may, compel us to change how we manage our businesses, which could have a material adverse effect on our business, financial condition and results of operations;
•regulatory or enforcement actions or litigation could materially adversely affect our results of operations and have increasedor harm our compliance and operational risks and costs; businesses or reputation;
•failure to satisfy regulatory standards, including “well capitalized” and
“well “well managed” status or capital adequacy and liquidity rules and any resultingmore generally, could result in limitations on our activities or adverse effects onand adversely affect our business and financial condition; regulatory or enforcement actions or litigation and any material adverse effect on our results of operations or harm to our businesses or reputation; adverse events, publicity, government scrutiny or other reputational harm and any negative effect on our businesses; operational risk and any material adverse effect on our business;
•a failure or circumvention of our controls and procedures and anycould have a material adverse effect on our business, reputation,financial condition, results of operations and financial condition; failure of our risk management framework to be effective in mitigating risk and reducing the potential for losses; change or uncertainty in monetary, tax and other governmental policies and the impact on our businesses, profitability and ability to compete; political, economic, legal, operational and other risks inherent in operating globally and any adverse effect on our business; acts of terrorism, natural disasters, pandemics and global conflicts and any negative impact on our business and operations; ongoing concerns about the financial stability of certain countries, the failure or instability of any of our significant global counterparties, new barriers to global trade or a breakup of the EU or Eurozone and any material adverse effect on our business and results of operations; the United Kingdom’s referendum decision to leave the EU and any negative effects on global economic conditions, global financial markets, and our business and results of operations; weakness and volatility in financial markets and the economy generally and any material adverse effect on our business, results of operations and financial condition; changes in interest rates and any material adverse effect on our profitability; write-downs of securities that reputation;
•we own and other losses related to volatile and illiquid market conditions and any reduction in our earnings or impact on our financial condition; our dependenceare dependent on fee-based business for a substantial majority of our revenue and the adverse effects of aour fee-based revenues could be adversely affected by slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences; any
•weakness and volatility in financial markets and the economy generally may materially adversely affect our business, financial condition and results of operations;
94 BNY Mellon
Forward-looking Statements (continued)
•changes in interest rates and yield curves have had, and may in the future continue to have, a material adverse effect on our foreign exchange revenuesprofitability;
•we may experience losses on securities related to volatile and illiquid market conditions, reducing our earnings and impacting our financial condition;
•transitions away from decreased market volatility or cross-border investment activityand the replacement of LIBOR and other interbank offered rates could adversely impact our clients; business, financial condition and results of operations;
•following the end of the transition period, the UK and the EU have not agreed to alternatives to the “passporting rights,” which may result in negative effects on global economic conditions, global financial markets, and our business, financial condition and results of operations;
•the failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions or sovereign entities, and our assumption of credit and counterparty risk, which could expose us to loss and adversely affect our business;
•we could incur losses if our allowance for credit losses, including loan and lending-related commitment reserves, is inadequate or if our expectations of future economic conditions deteriorate;
•our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity;
•the Parent is a non-operating holding company, and as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of dividends to its stockholders;
•our ability to return capital to shareholders is subject to the discretion of our Board of Directors and may be limited by U.S. banking laws and regulations, including those governing capital and capital planning, applicable provisions of Delaware law and our failure to pay full and timely dividends on our preferred stock;
•any material reduction in our credit ratings or the credit ratings of


BNY Mellon 107
Forward-looking Statements (continued)

our principal bank subsidiaries, whichThe Bank of New York Mellon or BNY Mellon, N.A., could increase the cost of funding and borrowing to us and our rated subsidiaries and have a material adverse effect on our business, financial condition and results of operations and financial condition and on the value of the securities we issue; any adverse effect on
•the application of our business,Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect the Parent’s liquidity and financial condition and results of operations of not effectively managing our liquidity; the potential to incur losses if our allowance for credit losses is inadequate; the risks relating to Parent’s security holders;
•new lines of business, new products and services or transformational or strategic project initiatives may subject us to additional risks, and the failure to implement these initiatives which could affect our results of operations; the risks and uncertainties relating
•we are subject to our strategic transactions and any adverse effect on our business, results of operations and financial condition; competition in all aspects of our business, and any negative effect onwhich could negatively affect our ability to maintain or increase our profitability; failure
•our business may be adversely affected if we are unable to attract, retain and retain employeesmotivate employees;
•our strategic transactions present risks and anyuncertainties and could have an adverse effect on our business; business, financial condition and results of operations;
•our businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm;
•climate change concerns could adversely affect our business, affect client activity levels and damage our reputation;
•impacts from natural disasters, climate change, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations;
•tax law changes or challenges to our tax positions and any adverse effect onwith respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition; and
•changes in accounting standards governing the preparation of our financial statements and anyfuture events could have a material impact on our reported financial condition, results of operations,
cash flows and other financial data; risks associated with being a non-operating holding company, including our dependence on dividends from our subsidiaries to meet obligations, to provide funds for payment of dividends and for stock repurchases; and the impact of provisions of U.S. banking laws and regulations, including those governing capital and the approval of our capital plan, applicable provisions of Delaware law or failure to pay full and timely dividends on our preferred stock, on our ability to return capital to shareholders.data.


Investors should consider all risk factors discussed in our 20162020 Annual Report this Form 10-Q and any subsequent reports filed with the SEC by BNY Mellon pursuant to the Exchange Act. All forward-looking statements speak only as of the date on which such statements are made, and BNY Mellon undertakes no obligation to update any statement to reflect events or circumstances after the date on which such forward-looking statement is made or to reflect the occurrence of unanticipated events. The contents of BNY Mellon’s website or any other websiteswebsite referenced herein are not part of this report.




108 BNY Mellon 95
Part II -– Other Information

Item 1. Legal Proceedings.
Item 1. Legal Proceedings

The information required by this Item is set forth in the “Legal proceedings” section in Note 17 of the Notes to Consolidated Financial Statements, which portion is incorporated herein by reference in response to this item.


Item 1A. Risk Factors

The following discussion supplements the discussion of risk factors that could affect our business, financial condition or results of operations set forth in Part I, Item 1A, Risk Factors, on pages 90 through 116 of our 2016 Annual Report. The discussion of Risk Factors, as so supplemented, sets forth our most significant risk factors that could affect our business, financial condition or results of operations. However, other factors, besides that discussed below or in our 2016 Annual Report or other of our reports filed with or furnished to the SEC, also could adversely affect our business or results. We cannot assure you that the risk factors described below or elsewhere in this report and such other reports address all potential risks that we may face. These risk factors also serve to describe factors which may cause our results to differ materially from those described in forward-looking statements included herein or in other documents or statements that make reference to this Form 10-Q. See Forward-looking Statements.

If our resolution plan is determined not to be credible or not to facilitate an orderly resolution under the U.S. Bankruptcy Code, our business, reputation, results of operations and financial condition could be materially negatively impacted. The application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect our liquidity and financial condition and our security holders.

Large BHCs must develop and submit to the Federal Reserve and the FDIC for review plans for their rapid and orderly resolution in the event of material financial distress or failure. BNY Mellon and The Bank of New York Mellon each file periodic complementary resolution plans. In April 2016, the Federal Reserve and the FDIC jointly determined that our 2015 resolution plan was not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The agencies issued a joint notice of deficiencies and shortcomings and the actions that
must be taken to address them, which we responded to in an Oct. 1, 2016 submission. In December 2016, the agencies jointly determined that our Oct. 1, 2016 submission adequately remedied the identified deficiencies. If the agencies determine that our future submissions are not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, and we fail to address the deficiencies in a timely manner, the agencies may jointly impose more stringent capital, leverage or liquidity requirements or restrictions on our growth, activities or operations. If we continue to fail to adequately remedy any deficiencies identified in future submissions, we could be required to divest assets or operations that the agencies determine necessary to facilitate our orderly resolution.

Following the receipt of feedback from the Federal Reserve and the FDIC in April 2016 on our 2015 resolution plan, we determined that, in the event of our material financial distress or failure, our preferred resolution strategy under Title I of the Dodd-Frank Act is a single point of entry strategy.

In connection with our single point of entry resolution strategy, we have established the IHC to facilitate the provision of capital and liquidity resources to certain key subsidiaries in the event of material financial distress or failure. In the second quarter of 2017, we entered into a binding support agreement that required the IHC to provide that support. The support agreement required the Parent to transfer its intercompany loans and most of its cash to the IHC, and requires the Parent to continue to transfer cash and other liquid financial assets to the IHC.

If our projected liquidity resources deteriorate so severely that resolution of the Parent becomes imminent, the committed line of credit the IHC provided to the Parent will automatically terminate, with all amounts outstanding becoming due and payable, and the support agreement will require the Parent to transfer most of its remaining assets (other than stock in subsidiaries and a cash reserve to fund bankruptcy expenses) to the IHC. As a result, during a period of severe financial stress the Parent might commence bankruptcy proceedings at an earlier time than it otherwise would if the support agreement had not been implemented.

If the Parent were to become subject to a bankruptcy proceeding and our single point of entry strategy is successful, creditors of some or all of our material


BNY Mellon 109
Part II - Other Information (continued)

entities would receive full recoveries on their claims, while the Parent’s security holders, including unsecured debt holders, could face significant losses, potentially including the loss of their entire investment. It is possible that the application of the single point of entry strategy – in which the Parent would be the only legal entity to enter resolution proceedings – could result in greater losses to holders of our unsecured debt securities and other securities than the losses that could result from the application of a different resolution strategy. Further, if the single point of entry strategy is not successful, our liquidity and financial condition would be adversely affected and our security holders may, as a consequence, be in a worse position than if the strategy had not been implemented.

In addition, Title II of the Dodd-Frank Act established an orderly liquidation process in the event of the failure of a large systemically important financial institution, such as BNY Mellon, in order to avoid or mitigate serious adverse effects on the U.S. financial system. Specifically, when a U.S. G-SIB, such as BNY Mellon is in default or danger of default, and certain specified conditions are met, the FDIC may be appointed receiver under the orderly liquidation authority, and BNY Mellon would be resolved under that authority instead of the U.S. Bankruptcy Code.

U.S. supervisors have indicated that a single point of entry strategy may be a desirable strategy to resolve a large financial institution such as BNY Mellon under Title II in a manner that would, similar to our preferred strategy under our Title I resolution plan, impose losses on shareholders, unsecured debt holders and other unsecured creditors of the top-tier holding company (in our case, the Parent), while permitting the holding company’s subsidiaries to continue to operate and remain solvent. Under such a strategy, assuming the Parent entered resolution proceedings and its subsidiaries remained solvent, losses at the subsidiary level could be transferred to the Parent and ultimately borne by the Parent’s security holders (including holders of the Parent’s unsecured debt securities), while third-party creditors of the Parent’s subsidiaries would receive full recoveries on their claims. Accordingly, the Parent’s security holders (including holders of unsecured debt securities and other unsecured creditors) could face losses in excess of what otherwise would have been the case.




110 BNY Mellon
Part II - Other Information (continued)

Item 2. Unregistered Sales of Equity Securities and Use of ProceedsProceeds.

(c)The following table discloses repurchases of our common stock made in the third quarter of 2017. All of the Company’s preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends.



(c)    The following table discloses repurchases of our common stock made in the first quarter of 2021. All of the Company’s preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends.

Issuer purchases of equity securities


Share repurchases – first quarter of 2021Total shares
repurchased as
 part of a publicly
announced plan
or program		Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at March 31, 2021
(dollars in millions, except per share amounts; common shares in thousands)Total shares
repurchased		Average price
per share
January 20218,608 $41.12 8,608 $4,095 
February 20218,142 42.27 8,142 3,751 
March 202116 43.46 16 3,751 
First quarter of 2021 (a)
16,766 $41.68 16,766 $3,751 
Share repurchases - third quarter of 2017    Total shares repurchased as part of a publicly announced plan or program
Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at Sept. 30, 2017  
(dollars in millions, except per share information; common shares in thousands)Total shares
repurchased
 Average price
per share
  
July 20177
 $51.08
 7
 $2,600
 
August 201712,300
 52.74
 12,300
 1,951
 
September 20179
 52.29
 9
 1,950
 
Third quarter of 2017 (a)
12,316
 $52.74
 12,316
 $1,950
(b)
(a)Includes 32 thousand shares repurchased at a purchase price of $2 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $52.74.
(b)Represents the maximum value of the shares authorized to be repurchased through the second quarter of 2018, including employee benefit plan repurchases, in connection with the Federal Reserve’s non-objection to our 2017 capital plan.

(a)    Includes 1,675 thousand shares repurchased at a purchase price of $71 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market repurchases was $41.63.



On June 28, 2017,In December 2020, in connection with the Federal Reserve’s non-objection to our 2017 capital plan, BNY Mellonrelease of the second round of CCAR stress tests during 2020, we announced a share repurchase plan providingapproved by our Board of Directors. This program provides for the repurchase of up to $2.6$4.451 billion of common stock and up to an additional $500 million of common stock contingent on a prior issuance of $500 million of noncumulative perpetual preferred stock. The 2017 capital plan began infrom the third quarter of 2017 and continues2020 through the secondthird quarter of 2018.2021. Any repurchases during that period will be made in a manner consistent with any applicable distribution limitations imposed by the Federal Reserve. This new share repurchase plan replaces all previously authorized share repurchase plans.


Share repurchases may be executed through open market repurchases, in privately negotiated
transactions or by other means, including through repurchase plans designed to comply with Rule 10b5-1 and throughother derivative, accelerated share repurchase and other structured transactions. The timing and exact amount of any common stock repurchases will depend on various factors, including market conditions and the common stock trading price; the Company’s capital position, liquidity and financial performance; alternative uses of capital; and legal and regulatory limitations and considerations.



Item 6. ExhibitsExhibits.


The list of exhibits required to be filed as exhibits to this report appears below.

96 BNY Mellon


BNY Mellon 111
Index to Exhibits

Exhibit No.DescriptionMethod of Filing
3.1
Restated Certificate of Incorporation of The Bank of New York Mellon Corporation.
3.2Certificate of Amendment to the The Bank of New York Mellon Corporation’s Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on April 9, 2019.
3.3Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series A Noncumulative Preferred Stock, dated June 15, 2007.2007.
3.33.4
Certificate of Designations of The Bank of New York Mellon Corporation with respect to Series C Noncumulative Perpetual Preferred Stock, dated Sept. 13, 2012.
Previously filed as Exhibit 3.2 to the Company’s Registration Statement on Form 8A12B (File No. 001-35651) as filed with the Commission on Sept. 14, 2012, and incorporated herein by reference.
3.4
Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series D Noncumulative Perpetual Preferred Stock, dated May 16, 2013.

3.5
Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series E Noncumulative Perpetual Preferred Stock, dated April 27, 2015.



3.6
Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series F Noncumulative Perpetual Preferred Stock, dated July 29, 2016.
3.7
Amended and Restated By-LawsCertificate of Designations of The Bank of New York Mellon Corporation as amended and restated on Oct. 13, 2015.
with respect to the Series G Noncumulative Perpetual Preferred Stock, dated May 15, 2020.
4.13.8Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series H Noncumulative Perpetual Preferred Stock, dated Nov. 2, 2020.
3.9Amended and Restated By-Laws of The Bank of New York Mellon Corporation, as amended and restated on Feb. 12, 2018.
BNY Mellon 97
Index to Exhibits (continued)
Exhibit No.DescriptionMethod of Filing
4.1
None of the instruments defining the rights of holders of long-term debt of the Parent or any of its subsidiaries represented long-term debt in excess of 10% of the total assets of the Company as of Sept. 30, 2017.March 31, 2021. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument.
N/A


112 BNY Mellon
22.1
Subsidiary Issuer of Guaranteed Securities.
Index to Exhibits (continued)Filed herewith.


31.1
Exhibit No.DescriptionMethod of Filing
12.1
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends.
Filed herewith.
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSInline XBRL Instance Document.Filed herewith.The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document.Filed herewith.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.Filed herewith.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.Filed herewith.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.Filed herewith.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.Filed herewith.
104
The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in inline XBRL.
The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101.







98 BNY Mellon 113












SIGNATURE
















Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



















THE BANK OF NEW YORK MELLON CORPORATION
(Registrant)

Date: May 6, 2021By:
Date: November 7, 2017By:/s/ Kurtis R. Kurimsky
Kurtis R. Kurimsky
Corporate Controller
(Duly Authorized Officer and
Principal Accounting Officer of
the Registrant)




BNY Mellon 99


114 BNY Mellon