Securities (a) $ | 121 | | Cash (b) | 127 | | Total consolidated HQLA (c) | $ | 248 | | | | (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.$ |
229 | | (b)Average LCR | Primarily includes cash on deposit with central banks.111 | % |
| | (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 $174 billion at Sept. 30, 2021 and averaged $156 billion for the third 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 third 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.2021.
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.
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 provided byused for operating activities was $3.4$291 million in the nine months ended Sept. 30, 2021, compared with net cash provided by operations of $5.9 billion in the nine months ended Sept. 30, 2017,2020. In the nine months ended Sept. 30, 2021 cash flows used for operations primarily resulted from changes in trading assets and liabilities, partially offset by earnings. In the nine months ended Sept. 30, 2020, cash flows provided by operations primarily resulted from earnings and changes in trading assets and liabilities.
Net cash used for investing activities was $259 million in the nine months ended Sept. 30, 2021, compared with $1.6$44.3 billion in the nine months ended Sept. 30, 2016.2020. 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.
Net cash used for investing activities was $14.0 billion in the nine months ended Sept. 30, 2017, compared with2021, net cash provided byused for investing activities primarily reflects the net change in loans and securities, offset
of $21.1 billion in the nine months ended Sept. 30, 2016. In the first nine months of 2017,by changes in interest-bearing deposits with the Federal Reserve and other central banks was a significant use of funds.banks. In the first nine months of 2016,ended Sept. 30, 2020, net cash used for investing activities primarily reflects net changes in securities and changes in interest-bearing deposits with the Federal Reserve and other central banks was a significant source of funds, partially offset by changes in federal funds sold and securities purchased under resale agreements.banks.
Net cash provided by financing activities was $11.2$2.2 billion in the nine months ended Sept. 30, 2017,2021, compared with cash used for financing activities of $24.2$38.1 billion in the nine months ended Sept. 30, 2016.2020. In the first nine months of 2017, the proceeds from the issuanceended Sept. 30, 2021, net cash provided by financing activities primarily reflects changes in deposits, issuances of long-term debt and changes in payables to customers and broker-dealers, partially offset by repayments of long-term debt and common stock repurchases. In the nine months ended Sept. 30, 2020, net cash provided by financing activity reflects changes in deposits, payables to customers and increases in commercial paperbroker-dealers and other borrowed funds were significant sources of funds, 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 offset by the issuance of long-term debt.changes in commercial paper.
Capital
| | | | | | | | | | | | Capital data | Sept. 30, 2021 | June 30, 2021 | Dec. 31, 2020 | (dollars in millions, except per share amounts; common shares in thousands) | Average common equity to average assets | 8.9 | % | 8.9 | % | 9.3 | % | | | | | At period end: | | | | BNY Mellon shareholders’ equity to total assets ratio | 9.3 | % | 9.7 | % | 9.8 | % | BNY Mellon common shareholders’ equity to total assets ratio | 8.3 | % | 8.7 | % | 8.8 | % | Total BNY Mellon shareholders’ equity | $ | 43,601 | | $ | 45,281 | | $ | 45,801 | | Total BNY Mellon common shareholders’ equity | $ | 39,060 | | $ | 40,740 | | $ | 41,260 | | BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 20,545 | | $ | 22,127 | | $ | 22,563 | | Book value per common share | $ | 47.30 | | $ | 47.20 | | $ | 46.53 | | Tangible book value per common share – Non-GAAP (a) | $ | 24.88 | | $ | 25.64 | | $ | 25.44 | | Closing stock price per common share | $ | 51.84 | | $ | 51.23 | | $ | 42.44 | | Market capitalization | $ | 42,811 | | $ | 44,220 | | $ | 37,634 | | Common shares outstanding | 825,821 | | 863,174 | | 886,764 | | | | | | | | | | | | | | Cash dividends per common share | $ | 0.34 | | $ | 0.31 | | $ | 0.31 | | Common dividend payout ratio | 33 | % | 27 | % | 39 | % | Common dividend yield | 2.6 | % | 2.4 | % | 2.9 | % |
(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 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 assets | 10.6 | % | 10.5 | % | 10.2 | % | | | | | At period end: | | | | BNY Mellon shareholders’ equity to total assets ratio | 11.4 | % | 11.3 | % | 11.6 | % | BNY Mellon common shareholders’ equity to total assets ratio | 10.4 | % | 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 outstanding | 1,024,022 |
| 1,033,156 |
| 1,047,488 |
| | | | | Cash dividends per common share | $ | 0.24 |
| $ | 0.19 |
| $ | 0.19 |
| Common dividend payout ratio | 26 | % | 22 | % | 25 | % | Common dividend yield | 1.8 | % | 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. |
The Bank of New York Mellon Corporation total shareholders’ equity increaseddecreased to $40.5$43.6 billion at Sept. 30, 20172021 from $38.8$45.8 billion at Dec. 31, 2016.2020. The increasedecrease primarily reflects earnings, foreign currency translation adjustments, $638 million resulting fromcommon stock awards, the exercise of stock optionsrepurchases, dividend payments and stock issued for employee benefit plans, and the unrealized gain in our investmentlosses on securities portfolio,available-for-sale, 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$703 million at Sept. 30, 2017,2021, 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, included the authorization to repurchase an average of $650 million of common stock each quarter starting in the third quarter of 2017 and continuing through the second quarter of 2018. In the third quarterfirst nine months of 2017,2021, we repurchased 1267.7 million common shares at an average price of $52.74$49.03 per common share for a total cost of $650 million.$3.3 billion.
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. The temporary restrictions on dividends and share repurchases ended for BNY Mellon after June 30, 2021. After these temporary restrictions were lifted, BNY Mellon continued to be subject to the stress capital buffer (“SCB”) framework, which would impose restrictions on capital distributions on an incremental basis if BNY Mellon’s risk-based capital ratios decline into the buffer zone.
In June 2021, the Federal Reserve released the results of its stress tests for 2021. Our Board of Directors subsequently authorized the repurchase of up to $6.0 billion of common shares over the six quarters beginning in the 2017 capitalthird quarter of 2021 and continuing through the fourth quarter of 2022. This new share repurchase 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.replaced all previously authorized share repurchase plans.
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, 20172021 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 2018.37
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.
The transitionaltable below presents our consolidated and largest bank subsidiary regulatory capital ratiosratios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated and largest bank subsidiary regulatory capital ratios | Sept. 30, 2021 | | June 30, 2021 | | Dec. 31, 2020 | | Well capitalized | | Minimum required | | Capital ratios | | Capital ratios | | Capital ratios | | | (a) | | Consolidated regulatory capital ratios: (b) | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 11.8 | % | | 12.7 | % | | 13.1 | % | | Tier 1 capital ratio | 6 | % | | 10 | | | 14.5 | | | 15.3 | | | 15.8 | | | Total capital ratio | 10 | | | 12 | | | 15.2 | | | 16.0 | | | 16.7 | | | Standardized Approach: | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 11.7 | % | | 12.6 | % | | 13.4 | % | | Tier 1 capital ratio | 6 | % | | 10 | | | 14.4 | | | 15.2 | | | 16.1 | | | Total capital ratio | 10 | | | 12 | | | 15.3 | | | 16.2 | | | 17.1 | | | Tier 1 leverage ratio | N/A | (c) | 4 | | | 5.7 | | | 6.0 | | | 6.3 | | | SLR (d)(e) | N/A | (c) | 5 | | | 7.0 | | | 7.5 | | | 8.6 | | | | | | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | CET1 ratio | 6.5 | % | | 7 | % | | 16.5 | % | | 16.7 | % | | 17.1 | % | | Tier 1 capital ratio | 8 | | | 8.5 | | | 16.5 | | | 16.7 | | | 17.1 | | | Total capital ratio | 10 | | | 10.5 | | | 16.5 | | | 16.8 | | | 17.3 | | | Tier 1 leverage ratio | 5 | | | 4 | | | 6.1 | | | 6.1 | | | 6.4 | | | SLR (d) | 6 | | | 3 | | | 7.8 | | | 8.0 | | | 8.5 | | |
(a) Minimum requirements 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 ratios | Sept. 30, 2017 | | | | | Well capitalized |
| | Minimum required |
| | Capital ratios |
| | June 30, 2017 |
| | Dec. 31, 2016 |
| | (a) | | | Consolidated regulatory capital ratios: (b) | | | | | | | | | | Standardized Approach: | | | | | | | | | | CET1 ratio | N/A |
| (c) | 6.5 | % | | 12.3 | % | | 12.0 | % | | 12.3 | % | Tier 1 capital ratio | 6 | % | | 8 |
| | 14.6 |
| | 14.3 |
| | 14.5 |
| Total (Tier 1 plus Tier 2) capital ratio | 10 |
| | 10 |
| | 15.6 |
| | 14.8 |
| | 15.2 |
| Advanced Approach: | | | | | | | | | | CET1 ratio | N/A |
| (c) | 6.5 | % | | 11.1 | % | | 10.8 | % | | 10.6 | % | Tier 1 capital ratio | 6 | % | | 8 |
| | 13.2 |
| | 12.9 |
| | 12.6 |
| Total (Tier 1 plus Tier 2) capital ratio | 10 |
| | 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 Approach | 8.5 | % | (e) | 6.5 | % | | 11.9 | % | | 11.5 | % | | 11.3 | % | Advanced Approach | 8.5 |
| (e) | 6.5 |
| | 10.7 |
| | 10.4 |
| | 9.7 |
| Estimated SLR | 5 |
| (e) | 3 |
| | 6.1 |
| | 6.0 |
| | 5.6 |
| | | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | | Advanced Approach: | | | | | | | | | | CET1 ratio | 6.5 | % | | 5.75 | % | | 14.8 | % | | 14.1 | % | | 13.6 | % | Tier 1 capital ratio | 8 |
| | 7.25 |
| | 15.1 |
| | 14.4 |
| | 13.9 |
| Total (Tier 1 plus Tier 2) capital ratio | 10 |
| | 9.25 |
| | 15.5 |
| | 14.8 |
| | 14.2 |
| Leverage capital ratio | 5 |
| | 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 SLR | 6 | % | | 3 | % | | 6.8 | % | | 6.7 | % | | 6.1 | % |
| | (a) | Minimum requirements for Sept. 30, 20172021 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, 2017 and 5.6% at Dec. 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 the minimum SLR of 3%. 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.
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 Dec. 31, 2020 reflects the temporary exclusion of U.S. Treasury securities from total leverage exposure which increased our consolidated SLR by 72 basis points. The temporary exclusion ceased to apply beginning April 1, 2021.
Our CET1 ratio under the Standardized Approach was 11.7% at Sept. 30, 2021 and 13.1% at Dec. 31, 2020 under the Advanced Approaches. The decrease was primarily driven by common stock repurchases, dividend payments, unrealized losses on securities available-for-sale and an increase in RWAs, partially offset by capital generated through earnings.
Tier 1 leverage was 5.7% at Sept. 30, 2021, compared with 6.0% at June 30, 2021. The decrease reflects lower Tier 1 common equity driven by common share repurchases, partially offset by lower average assets.
Capital Requirements - Generally”ratios vary depending on the size of the balance sheet at period-end and the levels and types of investments in our 2016 Annual Report.
assets. The Advanced Approach capital ratiosbalance sheet size fluctuates from period to period based on levels of customer and market activity. In general, when servicing clients are significantly impacted by RWAs for operational risk. Our operational loss risk model is informed by external losses, including finesmore actively trading securities, deposit balances and penalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, andbalance sheet as a result external losses have impacted and could in the future impact the amount of capital that wewhole are required to hold.higher. In addition, when markets experience
Management views the estimated fully phased-in CET1 and other risk-based capital ratios and SLRsignificant volatility or stress, our balance sheet size may increase considerably 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.client deposit levels increase.
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, 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.
Minimum capital ratiosUnder the Advanced Approaches, our operational loss risk model is informed by external losses, including fines and capital bufferspenalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a
The U.S. capital rules include a series of buffers and surcharges over required minimums that apply to bank holding companies, including38 BNY Mellon which are being phased-in over time. Banking organizations with a risk-based ratio or SLR above
result external losses have impacted and could in 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 onfuture impact the amount of the shortfall. Different regulatory capital minimums, buffers and surcharges applythat we are required to our banking subsidiaries.hold.
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 assets | | | | Sept. 30, 2021 | June 30, 2021 | Dec. 31, 2020 | (in millions) | CET1: | | | | Common shareholders’ equity | $ | 39,060 | | $ | 40,740 | | $ | 41,260 | | Adjustments for: | | | | Goodwill and intangible assets (a) | (18,515) | | (18,613) | | (18,697) | | Net pension fund assets | (304) | | (308) | | (319) | | Equity method investments | (299) | | (305) | | (306) | | Deferred tax assets | (55) | | (55) | | (54) | | Other | (43) | | (3) | | (9) | | Total CET1 | 19,844 | | 21,456 | | 21,875 | | Other Tier 1 capital: | | | | Preferred stock | 4,541 | | 4,541 | | 4,541 | | Other | (93) | | (101) | | (106) | | Total Tier 1 capital | $ | 24,292 | | $ | 25,896 | | $ | 26,310 | | Tier 2 capital: | | | | Subordinated debt | $ | 1,248 | | $ | 1,248 | | $ | 1,248 | | Allowance for credit losses | 282 | | 326 | | 490 | | Other | (6) | | (6) | | (10) | | Total Tier 2 capital – Standardized Approach | 1,524 | | 1,568 | | 1,728 | | Excess of expected credit losses | — | | 45 | | 247 | | Less: Allowance for credit losses | 282 | | 326 | | 490 | | Total Tier 2 capital – Advanced Approaches | $ | 1,242 | | $ | 1,287 | | $ | 1,485 | | Total capital: | | | | Standardized Approach | $ | 25,816 | | $ | 27,464 | | $ | 28,038 | | Advanced Approaches | $ | 25,534 | | $ | 27,183 | | $ | 27,795 | | | | | | Risk-weighted assets: | | | | Standardized Approach | $ | 169,216 | | $ | 169,885 | | $ | 163,848 | | Advanced Approaches: | | | | Credit Risk | $ | 99,631 | | $ | 101,282 | | $ | 98,262 | | Market Risk | 3,113 | | 3,010 | | 4,226 | | Operational Risk | 64,863 | | 65,088 | | 63,938 | | Total Advanced Approaches | $ | 167,607 | | $ | 169,380 | | $ | 166,426 | | | | | | Average assets for Tier 1 leverage ratio | $ | 427,461 | | $ | 432,954 | | $ | 417,982 | | Total leverage exposure for SLR | $ | 347,856 | | $ | 346,455 | | $ | 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.
| | | | | | | | | | | | | | | | | Capital ratio requirements | Well 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 ratio | N/A |
| | 4.5 | % | | 6.5 | % | | 7.5 | % | | 8.5 | % | | Tier 1 capital ratio | 6.0 | % | | 6.0 | % | | 8.0 | % | | 9.0 | % | | 10.0 | % | | Total capital ratio | 10.0 | % | | 8.0 | % | | 10.0 | % | | 11.0 | % | | 12.0 | % | | | | | | | | | | | | | Enhanced SLR buffer (Tier 1 capital) | N/A |
| | | | N/A |
| | 2.0 | % | | 2.0 | % | | SLR | N/A |
| | 3.0 | % | | N/A |
| | 5.0 | % | | 5.0 | % | | | | | | | | | | | | | Bank subsidiaries: (c) | | | | | | | | | | | CET1 ratio | 6.5 | % | | 4.5 | % | | 5.75 | % | | 6.375 | % | | 7.0 | % | | Tier 1 capital ratio | 8.0 | % | | 6.0 | % | | 7.25 | % | | 7.875 | % | | 8.5 | % | | Total capital ratio | 10.0 | % | | 8.0 | % | | 9.25 | % | | 9.875 | % | | 10.5 | % | | | | | | | | | | | | | SLR | 6.0 | % | | 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 generation | Quarter 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 Corporation | 983 |
| 983 |
| Goodwill and intangible assets, net of related deferred tax liabilities | (33 | ) | (26 | ) | Gross CET1 generated | 950 |
| 957 |
| Capital deployed: | | | Common stock dividends | (253 | ) | (253 | ) | Common stock repurchased | (650 | ) | (650 | ) | Total capital deployed | (903 | ) | (903 | ) | Other comprehensive income: | | | Foreign currency translation | 281 |
| 281 |
| Unrealized loss on assets available-for-sale | 13 |
| 16 |
| Defined benefit plans | 12 |
| 15 |
| Total other comprehensive income | 306 |
| 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 generated | 499 |
| 512 |
| CET1 – End of period | $ | 18,870 |
| $ | 18,141 |
|
| | | | | | CET1 generation | 3Q21 | (in millions) | CET1 – Beginning of period | $ | 21,456 | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 881 | | Goodwill and intangible assets, net of related deferred tax liabilities | 98 | | Gross CET1 generated | 979 | | Capital deployed: | | Common stock dividends (a) (296) | | Common stock repurchases | (2,001) | | Total capital deployed | (2,297) | | Other comprehensive income: | | Unrealized loss on assets available-for-sale | (152) | | Foreign currency translation | (202) | | Unrealized loss on cash flow hedges | (1) | | Defined benefit plans | 22 | | | | (a)Total other comprehensive income | Reflects transitional adjustments to CET1 required under the U.S.(333) | | Additional paid-in capital rules.(b) | 69 | |
Other additions (deductions): | | Net pension fund assets | 4 | | Embedded goodwill | 6 | | | | (b)Other | Estimated. |
(40) | | (c)Total other deductions | Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans. |
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 ratios | Sept. 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 CET1 | 18,870 |
| 18,141 |
|
| 18,371 |
| 17,629 |
| | 18,093 |
| 16,490 |
| Other Tier 1 capital: | | | | | | | | | Preferred stock | 3,542 |
| 3,542 |
| | 3,542 |
| 3,542 |
| | 3,542 |
| 3,542 |
| Deferred tax assets | (8 | ) | — |
| | (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 losses | 265 |
| 265 |
| | 270 |
| 270 |
| | 281 |
| 281 |
| Trust preferred securities | — |
| — |
| | — |
| — |
| | 148 |
| — |
| Other | (7 | ) | (7 | ) | | (7 | ) | (7 | ) | | (12 | ) | (11 | ) | Total Tier 2 capital - Standardized Approach | 1,558 |
| 1,508 |
|
| 813 |
| 813 |
| | 967 |
| 820 |
| Excess of expected credit losses | 49 |
| 49 |
| | 59 |
| 59 |
| | 50 |
| 50 |
| Less: Allowance for credit losses | 265 |
| 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 Risk | 2,996 |
| 2,996 |
| | 3,225 |
| 3,225 |
| | 2,836 |
| 2,836 |
| Operational Risk | 68,625 |
| 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 ratio | 12.3 | % | 11.9 | % | | 12.0 | % | 11.5 | % | | 12.3 | % | 11.3 | % | Tier 1 capital ratio | 14.6 |
| 14.2 |
| | 14.3 |
| 13.9 |
| | 14.5 |
| 13.6 |
| Total (Tier 1 plus Tier 2) capital ratio | 15.6 |
| 15.1 |
| | 14.8 |
| 14.4 |
| | 15.2 |
| 14.2 |
| Advanced Approach: | | | | | | | | | CET1 ratio | 11.1 | % | 10.7 | % | | 10.8 | % | 10.4 | % | | 10.6 | % | 9.7 | % | Tier 1 capital ratio | 13.2 |
| 12.8 |
| | 12.9 |
| 12.5 |
| | 12.6 |
| 11.8 |
| Total (Tier 1 plus Tier 2) capital ratio | 14.0 |
| 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 |
|
(30) | | (a)Net CET1 deployed | Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2017 and 2016 under the U.S. capital rules. |
(1,612) | | (b)CET1 – End of period | Estimated.$ | 19,844 | |
(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, 20172021 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 Sept. 30, 2017 | | Sensitivity of consolidated capital ratios at Sept. 30, 2021 | | Sensitivity of consolidated capital ratios at Sept. 30, 2021 | | Increase or decrease of | | Increase or decrease of | (in basis points) | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure | (in basis points) | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure | CET1: | | CET1: | | Standardized Approach | 7 | bps | 8 | bps | Standardized Approach | 6 | bps | 7 | bps | Advanced Approach | 6 | | 7 | | | Advanced Approaches | | Advanced Approaches | 6 | | 7 | | | | | Tier 1 capital: | | Tier 1 capital: | | Standardized Approach | 7 | | 10 | | Standardized Approach | 6 | | 9 | | Advanced Approach | 6 | | 8 | | | Advanced Approaches | | Advanced Approaches | 6 | | 9 | | | | | Total capital: | | Total capital: | | Standardized Approach | 7 | | 10 | | Standardized Approach | 6 | | 9 | | Advanced Approach | 6 | | 8 | | | Advanced Approaches | | Advanced Approaches | 6 | | 9 | | | | | Leverage capital | 3 | | 2 | | | Tier 1 leverage | | Tier 1 leverage | 2 | | 1 | | | | | SLR | 3 | | 2 | | SLR | 3 | | 2 | | | | | Estimated CET1 ratio, fully phased-in – Non-GAAP: | | | Standardized Approach | 7 | | 8 | | | Advanced Approach | 6 | | 6 | | | | | | Estimated SLR, fully phased-in – Non-GAAP | 3 | | 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 its39
From April 1, 2020 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 72 basis points at Dec. 31, 2020. The temporary exclusion also impacted the TLAC and largestLTD 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 basedplacements 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.
Stress capital buffer
In August 2021, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory floor, effective as of Oct. 1, 2021. The SCB replaced the static 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. See “Recent regulatory developments” for additional information on its interpretationthe SCB.
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.
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 ratios | Regulatory 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 ratios | Sept. 30, 2021 | | Minimum required | Minimum ratios with buffers | | | Ratios | Eligible external TLAC: | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 27.3 | % | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 13.3 | % | | | | | Eligible external LTD: | | | | As a percentage of RWA | 7.5 | % | N/A | 11.4 | % | As a percentage of total leverage exposure | 4.5 | % | N/A | 5.5 | % |
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. | | | | | | | | | | | | | | | | | | | | | | SLR | Sept. 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 capital | 18,154 |
| 18,856 |
| | 18,092 |
| 18,810 |
| | 17,333 |
| 18,887 |
| Total on-balance sheet assets, as adjusted | 327,555 |
| 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 exposures | 1,034 |
| 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 exposures | 29,107 |
| 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 | % |
| | (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.” |
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.
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) | 3Q21 | Sept. 30, 2021 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.1 | | $ | 1.5 | | $ | 3.1 | | $ | 1.6 | | Foreign exchange | 2.3 | | 1.9 | | 4.0 | | 2.8 | | Equity | 0.1 | | — | | 0.2 | | 0.1 | | Credit | 1.5 | | 1.1 | | 2.2 | | 1.8 | | Diversification | (2.6) | | N/M | N/M | (2.9) | | Overall portfolio | 3.4 | | 2.4 | | 5.2 | | 3.4 | |
| | | | | | | | | | | | | | | VaR (a) | 2Q21 | June 30, 2021 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.2 | | $ | 1.6 | | $ | 2.7 | | $ | 1.9 | | Foreign exchange | 2.6 | | 1.9 | | 3.7 | | 2.3 | | Equity | 0.1 | | — | | 0.3 | | 0.2 | | Credit | 1.8 | | 1.4 | | 2.6 | | 2.0 | | Diversification | (3.7) | | N/M | N/M | (3.5) | | Overall portfolio | 3.0 | | 2.5 | | 4.5 | | 2.9 | |
| | | | | | | | | | | | | | | VaR (a) | 3Q20 | Sept. 30, 2020 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.1 | | $ | 1.7 | | $ | 2.6 | | $ | 2.2 | | Foreign exchange | 2.6 | | 2.0 | | 3.7 | | 2.5 | | Equity | 0.3 | | 0.1 | | 0.6 | | 0.1 | | Credit | 2.2 | | 1.5 | | 3.5 | | 2.3 | | Diversification | (3.8) | | N/M | N/M | (3.7) | | Overall portfolio | 3.4 | | 2.4 | | 4.6 | | 3.4 | |
| | | | | | | | | | | | | VaR (a) | YTD21 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.1 | | $ | 1.5 | | $ | 3.1 | | | Foreign exchange | 2.6 | | 1.9 | | 4.0 | | | Equity | 0.1 | | — | | 0.9 | | | Credit | 1.7 | | 1.1 | | 2.8 | | | Diversification | (3.3) | | N/M | N/M | | Overall portfolio | 3.2 | | 2.4 | | 5.2 | | |
| | | | | | | | | | | | | VaR (a) | YTD20 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 3.4 | | $ | 1.7 | | $ | 11.3 | | | Foreign exchange | 3.0 | | 1.7 | | 6.3 | | | Equity | 0.7 | | 0.1 | | 2.3 | | | Credit | 3.0 | | 1.2 | | 12.1 | | | Diversification | (5.3) | | N/M | N/M | | Overall portfolio | 4.8 | | 2.4 | | 14.3 | | |
(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) | 3Q17 | Sept. 30, 2017 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 3.3 |
| $ | 2.8 |
| $ | 4.2 |
| $ | 2.7 |
| Foreign exchange | 3.7 |
| 3.1 |
| 5.6 |
| 4.8 |
| Equity | 0.9 |
| 0.8 |
| 1.1 |
| 0.9 |
| Credit | 1.0 |
| 0.6 |
| 1.4 |
| 1.0 |
| Diversification | (5.1 | ) | N/M |
| N/M |
| (5.3 | ) | Overall portfolio | 3.8 |
| 3.2 |
| 5.3 |
| 4.1 |
|
| | | | | | | | | | | | | | VaR (a) | 2Q17 | June 30, 2017 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 3.3 |
| $ | 2.8 |
| $ | 4.1 |
| $ | 4.0 |
| Foreign exchange | 4.3 |
| 3.4 |
| 5.8 |
| 4.6 |
| Equity | 0.2 |
| 0.1 |
| 1.1 |
| 1.1 |
| Credit | 1.1 |
| 0.5 |
| 1.4 |
| 0.8 |
| Diversification | (4.8 | ) | N/M |
| N/M |
| (5.8 | ) | Overall portfolio | 4.1 |
| 3.3 |
| 5.4 |
| 4.7 |
|
| | | | | | | | | | | VaR (a) | YTD17 | (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 3.5 |
| $ | 2.8 |
| $ | 4.9 |
| Foreign exchange | 3.9 |
| 2.6 |
| 5.8 |
| Equity | 0.4 |
| 0.1 |
| 1.1 |
| Credit | 1.1 |
| 0.5 |
| 1.7 |
| Diversification | (4.9 | ) | N/M |
| N/M |
| Overall portfolio | 4.0 |
| 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) | 3Q16 | Sept. 30, 2016 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 7.3 |
| $ | 5.4 |
| $ | 8.9 |
| $ | 7.9 |
| Foreign exchange | 4.2 |
| 3.2 |
| 7.5 |
| 3.7 |
| Equity | 0.6 |
| 0.5 |
| 0.8 |
| 0.6 |
| Credit | 0.3 |
| 0.3 |
| 0.4 |
| 0.4 |
| Diversification | (5.8 | ) | N/M |
| N/M |
| (5.7 | ) | Overall portfolio | 6.6 |
| 5.0 |
| 7.7 |
| 6.9 |
|
| | | | | | | | | | | VaR (a) | YTD16 | (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 6.3 |
| $ | 4.3 |
| $ | 8.9 |
| Foreign exchange | 2.8 |
| 1.2 |
| 11.1 |
| Equity | 0.6 |
| 0.4 |
| 0.8 |
| Credit | 0.3 |
| 0.2 |
| 0.4 |
| Diversification | (4.0 | ) | N/M |
| N/M |
| Overall portfolio | 6.0 |
| 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.
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 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 third quarter of 2017,2021, interest rate risk generated 37%35% of average gross VaR, foreign exchange risk generated 42%38% of average gross VaR, equity risk accounted for 10%generated 2% of average gross VaR and credit risk generated 11%25% of average gross VaR. During the third quarter of 2017,2021, our daily trading loss did not exceedexceeded our calculated VaR amount of the overall portfolio.portfolio on one occasion.
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) | Sept. 30, 2021 | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | | Revenue range: | Number of days | Less than $(2.5) | — | | — | | — | | 2 | | 4 | | $(2.5) – $0 | 2 | | 7 | | 6 | | 12 | | 10 | | $0 – $2.5 | 23 | | 22 | | 17 | | 11 | | 23 | | $2.5 – $5.0 | 30 | | 25 | | 21 | | 26 | | 16 | | More than $5.0 | 9 | | 10 | | 17 | | 11 | | 12 | |
| | | | | | | | | | | | 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) – $0 | 1 |
| 2 |
| 1 |
| 3 |
| 6 |
| $0 – $2.5 | 29 |
| 31 |
| 31 |
| 28 |
| 22 |
| $2.5 – $5.0 | 29 |
| 27 |
| 26 |
| 23 |
| 25 |
| More than $5.0 | 4 |
| 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$17.9 billion at Sept. 30, 20172021 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$5.2 billion at Sept. 30, 20172021 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, 2017,2021, our OTC derivative assets, including those in hedging relationships, of $3.6$4.4 billion included a CVAcredit valuation adjustment (“CVA”) deduction of $30$27 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.2$3.1 billion included a debit valuation adjustment (“DVA”) of $2 million related to our own credit spread. Net of hedges, the CVA decreased byincreased less than $1 million and the DVA was unchanged in the third quarter of 2017.2021, which decreased other trading revenue by less than $1 million. 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 by2021 and $3 million and the DVA decreased by $1 million. The net impact of these adjustments increased foreign exchange and other trading revenue by $2 million in the second quarter of 2017.
In the third quarter of 2016, net of hedges, the CVA decreased by $8 million 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 third 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 | | Sept. 30, 2021 | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | | Rating: | | | | | | AAA to AA- | 52 | % | 52 | % | 45 | % | 46 | % | 54 | % | A+ to A- | 17 | | 19 | | 26 | | 28 | | 20 | | BBB+ to BBB- | 25 | | 24 | | 22 | | 18 | | 17 | | BB+ and lower (b) | 6 | | 5 | | 7 | | 8 | | 9 | | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
46 BNY Mellon
(a) Represents credit rating agency equivalent of internal credit ratings.
| | | | | | | | | | | | 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 |
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
| | (a) | Represents credit rating agency equivalent of internal credit ratings. |
(b) Non-investment grade.
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. revenue between a baseline scenario and hypothetical interest rate scenarios. 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 modelbaseline scenario incorporates the market’s forward rate expectations and management’s assumptions regarding interestclient deposit rates, balance changes on core deposits, marketcredit 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. Client deposit levels and mix are key assumptions impacting net interest revenue in the baseline as well as the hypothetical interest rate scenarios. The earnings simulation model assumes static deposit levels and mix and it also assumes that no management actions will be taken to mitigate the effects of interest rate changes. Typically, the baseline scenario uses the average deposit balances of the quarter.
TheIn the table below, relies on certain critical assumptions regardingwe use the balance sheet and depositors’ behavior relatedearnings simulation model to assess the impact of various hypothetical interest rate fluctuations andscenarios compared to 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 assumedbaseline scenario. Beginning in the models, there could be a change in interest rate sensitivity.
We evaluate the effect on earningsthird quarter of 2021, we have refined our scenario analysis by running various interestreplacing gradual rate ramp scenarios from a baseline scenario. The interest rate rampwith scenarios are reviewed to examinethat reflect the impact of largeinstantaneous interest rate shock movements. In each scenario,of the new scenarios, all currenciescurrencies’ interest rates are instantaneously shifted higher or lower. InterestThe scenarios assume instantaneous rate sensitivitychanges at the start of the forecast. Long-term interest rates are defined as all tenors equal to or greater than three years and short-term interest rates are defined as all tenors equal to or less than three months. Interim term points are interpolated where applicable. The refined scenarios are intended to provide information on a basis that is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period.
consistent with industry practice.
The following table shows net interest revenue sensitivity for BNY Mellon. Prior periods have been updated to reflect the impact of instantaneous interest rate shock movements.
| | | | | | | | | | | | Estimated changes in net interest revenue (in millions) | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | Up 100 bps rate shock vs. baseline | $ | 840 | | $ | 857 | | $ | 628 | | Long-term up 100 bps, short-term unchanged | 239 | | 214 | | 267 | | Short-term up 100 bps, long-term unchanged | 601 | | 643 | | 361 | | Long-term down 50 bps, short-term unchanged | (117) | | (113) | | (150) | | Down 100 bps rate shock vs. baseline | 794 | | 648 | | 639 | |
| | | | | | | | | | | | | | | | | 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 forslight decreases in certain of the calculations in the estimated changes in net interest revenue table above as of Sept. 30, 2017,rising rate sensitivities compared with June 30, 2017, March 31, 2017 and Dec. 31, 20162021 arebased on our quarter-end balance sheet and driven by slightly lower client deposits.
While 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 for the baseline scenario provides a more accurate reflection of net interest revenue sensitivity givenscenario calculations assume static deposit balances to facilitate consistent period-over-period comparisons, it is likely that a portion of the recent increasemonetary policy-driven deposit inflows would run-off in a rising short-term rate environment. Noninterest-bearing deposits are particularly sensitive to changes in short-term interest rates andrates.
To illustrate the implied forward rates. Because interest rates and the implied forward yield curves were lower in prior periods, the impact of using a
spot yield curve versus an implied forward yield curve was not as significant. The 100 basis point ramp scenario assumes rates increase 25 basis points above 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.
Our net interest revenue sensitivity table above incorporates assumptions aboutto deposit runoff, we note that a $5 billion instantaneous reduction of U.S. dollar denominated noninterest-bearing deposits would reduce the impact of changes innet interest rates on depositor behavior based on historical experience. Given the current historically low 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 200 basis point scenario compared with the 100 basis point scenario is driven by the assumption of increased deposit runoff and forecasted changes in the deposit pricing.table above by approximately $60 million. The impact would be smaller if the run-off was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.
GrowthAdditionally, given the continued low short-term interest rates, money market mutual fund fees and other similar fees are being waived to protect investors from negative returns. See “Fee and other revenue” beginning on page 7 for additional details on the impact of money market fee waivers on fee revenues.
For 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.
Global economic uncertainty;44 BNY Mellon
Our ratings relative to other financial institutions’ ratings; and
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.
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– Non-GAAP 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 provides– Non-GAAP is additional useful information as tobecause it presents the level of tangible assets in relation to shares of common stock outstanding.
BNY Mellon has presented the measure of fee revenue, measures, which excludeexcluding money market fee waivers – Non-GAAP. We believe that this measure is useful information for investors for evaluating the effectimpact of noncontrolling interests related to consolidatedcurrent interest rates and market conditions on fee revenue growth rates and the performance of our business.
The presentation of the growth rates of investment management funds, and expense measures, which exclude amortization of intangible assets and M&I, litigation and restructuring charges. Operating margin, operating leverage and returnperformance fees 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 aboveconstant currency basis permits investors to view expensesassess 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.
The presentation of income from consolidated investment management funds, net of net income attributable to noncontrolling interests relatedcurrent period foreign currency exchange rates to the consolidation of certain investment management funds, permits investors to view revenue on a basis consistent with how management views the business. BNY Mellon believesprior 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.
The following table presents the reconciliation of the pre-tax operating margin ratio.
| | | | | | | | | | | | | | | | | Pre-tax operating margin | 3Q17 |
| 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 funds | 3 |
| 3 |
| 9 |
| 24 |
| 6 |
| Add: Amortization of intangible assets | 52 |
| 53 |
| 61 |
| 157 |
| 177 |
| M&I, litigation and restructuring charges | 6 |
| 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 – GAAP | 10 |
| 10 |
| 17 |
| 53 |
| 21 |
| Net interest revenue – GAAP | 839 |
| 826 |
| 774 |
| 2,457 |
| 2,307 |
| Total revenue – GAAP | 4,016 |
| 3,956 |
| 3,941 |
| 11,815 |
| 11,447 |
| Less: Net income attributable to noncontrolling interests of consolidated investment management funds | 3 |
| 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 leverage | 3Q17 |
| 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 funds | 3 |
| 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 assets | 52 |
| 53 |
| 61 |
| | | M&I, litigation and restructuring charges | 6 |
| 12 |
| 18 |
| | | Total noninterest expense, as adjusted – Non-GAAP | $ | 2,596 |
| $ | 2,590 |
| $ | 2,564 |
| 0.23 | % | 1.25 | % | | | | | | | Operating leverage – GAAP (a) | | | | 156 | bps | 148 | bps | Adjusted operating leverage – Non-GAAP (a)(b) | | | | 129 | bps | 81 | 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.
The following table presents the reconciliation of the returnsreturn on common equity and tangible common equity.
| | | | | | | | | | | | | | | | | | Return on common equity and tangible common equity reconciliation | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | (dollars in millions) | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 881 | | $ | 991 | | $ | 876 | | $ | 2,730 | | $ | 2,721 | | Add: Amortization of intangible assets | 19 | | 20 | | 26 | | 63 | | 78 | | Less: Tax impact of amortization of intangible assets | 4 | | 5 | | 7 | | 15 | | 19 | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 896 | | $ | 1,006 | | $ | 895 | | $ | 2,778 | | $ | 2,780 | | | | | | | | Average common shareholders’ equity | $ | 39,755 | | $ | 40,393 | | $ | 39,924 | | $ | 40,286 | | $ | 38,693 | | Less: Average goodwill | 17,474 | | 17,517 | | 17,357 | | 17,495 | | 17,304 | | Average intangible assets | 2,953 | | 2,975 | | 3,039 | | 2,976 | | 3,062 | | Add: Deferred tax liability – tax deductible goodwill | 1,173 | | 1,163 | | 1,132 | | 1,173 | | 1,132 | | Deferred tax liability – intangible assets | 673 | | 675 | | 666 | | 673 | | 666 | | Average tangible common shareholders’ equity – Non-GAAP | $ | 21,174 | | $ | 21,739 | | $ | 21,326 | | $ | 21,661 | | $ | 20,125 | | | | | | | | Return on common shareholders’ equity – GAAP | 8.8 | % | 9.8 | % | 8.7 | % | 9.1 | % | 9.4 | % | Return on tangible common shareholders’ equity – Non-GAAP | 16.8 | % | 18.6 | % | 16.7 | % | 17.1 | % | 18.5 | % |
| | | | | | | | | | | | | | | | | Return on common equity and tangible common equity | 3Q17 |
| 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 assets | 52 |
| 53 |
| 61 |
| 157 |
| 177 |
| Less: Tax impact of amortization of intangible assets | 17 |
| 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-GAAP | 1,018 |
| 960 |
| 1,014 |
| 2,892 |
| 2,718 |
| Add: M&I, litigation and restructuring charges | 6 |
| 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 goodwill | 17,497 |
| 17,408 |
| 17,463 |
| 17,415 |
| 17,549 |
| Average intangible assets | 3,487 |
| 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 reconciliation | Sept. 30, 2021 | June 30, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | | | (dollars in millions, except per share amounts and unless otherwise noted) | | | BNY Mellon shareholders’ equity at period end – GAAP | $ | 43,601 | | $ | 45,281 | | $ | 45,801 | | $ | 44,917 | | | | Less: Preferred stock | 4,541 | | 4,541 | | 4,541 | | 4,532 | | | | BNY Mellon common shareholders’ equity at period end – GAAP | 39,060 | | 40,740 | | 41,260 | | 40,385 | | | | Less: Goodwill | 17,420 | | 17,487 | | 17,496 | | 17,357 | | | | Intangible assets | 2,941 | | 2,964 | | 3,012 | | 3,026 | | | | Add: Deferred tax liability – tax deductible goodwill | 1,173 | | 1,163 | | 1,144 | | 1,132 | | | | Deferred tax liability – intangible assets | 673 | | 675 | | 667 | | 666 | | | | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 20,545 | | $ | 22,127 | | $ | 22,563 | | $ | 21,800 | | | | | | | | | | | Period-end common shares outstanding (in thousands) | 825,821 | | 863,174 | | 886,764 | | 886,136 | | | | | | | | | | | Book value per common share – GAAP | $ | 47.30 | | $ | 47.20 | | $ | 46.53 | | $ | 45.58 | | | | Tangible book value per common share – Non-GAAP | $ | 24.88 | | $ | 25.64 | | $ | 25.44 | | $ | 24.60 | | | |
| | | | | | | | | | | | | | Book value per common share | Sept. 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 stock | 3,542 |
| 3,542 |
| 3,542 |
| 3,542 |
| BNY Mellon common shareholders’ equity at period end – GAAP | 36,981 |
| 36,432 |
| 35,269 |
| 36,153 |
| Less: Goodwill | 17,543 |
| 17,457 |
| 17,316 |
| 17,449 |
| Intangible assets | 3,461 |
| 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. |
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 funds | 3 |
| 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 money market fee waivers on our consolidated fee revenue.
| | | | | | | | | | | | Fee revenue reconciliation | 3Q21 | 3Q20 | 3Q21 vs. | (dollars in millions) | 3Q20 | Fee revenue | $ | 3,265 | | $ | 3,074 | | 6 | % | Less: Money market fee waivers | (262) | | (110) | | | Fee revenue, excluding money market fee waivers – Non-GAAP | $ | 3,527 | | $ | 3,184 | | 11 | % |
The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.
| | | | | | | | | | | | Constant currency reconciliation – Consolidated | 3Q21 | 3Q20 | 3Q21 vs. | (dollars in millions) | 3Q20 | Investment management and performance fees – GAAP | $ | 913 | | $ | 835 | | 9 | % | Impact of changes in foreign currency exchange rates | — | | 15 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 913 | | $ | 850 | | 7 | % |
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 | | | 3Q21 vs. | (dollars in millions) | 3Q21 | 3Q20 | 3Q20 | Investment management and performance fees – GAAP | $ | 914 | | $ | 835 | | 9 | % | Impact of changes in foreign currency exchange rates | — | | 15 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 914 | | $ | 850 | | 8 | % |
| | | | | | | | | | | | | | | | | | | | | | | 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) | 3Q21 | 2Q21 | 1Q21 | 4Q20 | 3Q20 | YTD21 | YTD20 | Income before income taxes – GAAP | $ | 348 | | $ | 326 | | $ | 278 | | $ | 311 | | $ | 245 | | $ | 952 | | $ | 660 | | | | | | | | | | Total revenue – GAAP | $ | 1,032 | | $ | 999 | | $ | 991 | | $ | 990 | | $ | 918 | | $ | 3,022 | | $ | 2,702 | | Less: Distribution and servicing expense | 76 | | 74 | | 75 | | 76 | | 85 | | 225 | | 262 | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 956 | | $ | 925 | | $ | 916 | | $ | 914 | | $ | 833 | | $ | 2,797 | | $ | 2,440 | | | | | | | | | | Pre-tax operating margin – GAAP (a) | 34 | % | 33 | % | 28 | % | 32 | % | 27 | % | 31 | % | 24 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 36 | % | 35 | % | 30 | % | 34 | % | 29 | % | 34 | % | 27 | % |
(a) Income before taxes divided by total revenue.
| | | | | | | | | | | | | | | | | | | | | | | 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 assets | 15 |
| 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) | Income before taxes divided by total revenue. |
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 new
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
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 and Regulation“Recent regulatory developments” in our 2016Form 10-Q for the quarters ended March 31, 2021 and June 30, 2021 and “Supervision and Regulation” in our 2020 Annual Report.
Final Rule on Qualified Financial Contracts
Other matters
On Sept. 1, 2017,March 5, 2021, the Federal Reserve adopted a final rule to requireadministrator of LIBOR announced that it would cease the publication of non-U.S. dollar London Interbank Offered Rate (“LIBOR”) settings and one-week and two-month U.S. global systemically important banking organizations (“G-SIBs”)dollar LIBOR settings on Dec. 31, 2021 and would cease the U.S. operations of foreign G-SIBs to amend their covered qualified financial contracts (“QFCs”). The FDIC adopted a substantially equivalent proposal on Oct. 30, 2017 and 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”) or a similaralso announced that the FCA’s announcement was an index cessation event under its fallbacks protocol for all LIBOR settings and that accomplishesconsequently, the contractual amendments required by the rule. 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 impactfallback spread adjustment was fixed as of the new regulationsdate of the announcement.
In April 2021, New York state adopted legislation that provides a statutory fallback mechanism to replace LIBOR with a benchmark rate based on its activities.
Resolution plan
As required by the Dodd-Frank Act, BNY Mellon must submit annually to the Federal ReserveSOFR for New York-law governed contracts that reference U.S. dollar LIBOR and the FDICeither have no fallback provisions or provisions that are based on LIBOR. The New York legislation also has 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.
safe
harbor regarding the selection and use of that SOFR-based benchmark rate.
BNY Mellon 55
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 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.
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.
| | | Item 1. Financial Statements | | The Bank of New York Mellon Corporation (and its subsidiaries) | |
Consolidated Income Statement (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | | Year-to-date | | | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | | Sept. 30, 2021 | Sept. 30, 2020 | | (in millions) | | | | Fee and other revenue | | | | | | | | | Investment services fees: | | | | | | | | | Asset servicing fees | $ | 1,223 | | $ | 1,200 | | $ | 1,168 | | | | $ | 3,622 | | $ | 3,500 | | | Clearing services fees | 423 | | 435 | | 397 | | | | 1,313 | | 1,298 | | | Issuer services fees | 280 | | 281 | | 295 | | | | 806 | | 835 | | | Treasury services fees | 165 | | 160 | | 152 | | | | 482 | | 445 | | | Total investment services fees | 2,091 | | 2,076 | | 2,012 | | | | 6,223 | | 6,078 | | | Investment management and performance fees | 913 | | 889 | | 835 | | | | 2,692 | | 2,483 | | | Foreign exchange revenue | 185 | | 184 | | 149 | | (a) | | 600 | | 587 | | (a) | Financing-related fees | 48 | | 48 | | 49 | | | | 147 | | 166 | | | Distribution and servicing | 28 | | 27 | | 29 | | | | 84 | | 87 | | | Total fee revenue | 3,265 | | 3,224 | | 3,074 | | (a) | | 9,746 | | 9,401 | | (a) | Investment and other income | 127 | | 89 | | 61 | | (a) | | 225 | | 240 | | (a) | Net securities gains | 2 | | 2 | | 9 | | | | 4 | | 27 | | | Total other revenue | 129 | | 91 | | 70 | | (a) | | 229 | | 267 | | (a) | Total fee and other revenue | 3,394 | | 3,315 | | 3,144 | | | | 9,975 | | 9,668 | | | Net interest revenue | | | | | | | | | Interest revenue | 693 | | 685 | | 820 | | | | 2,116 | | 3,333 | | | Interest expense | 52 | | 40 | | 117 | | | | 175 | | 1,036 | | | Net interest revenue | 641 | | 645 | | 703 | | | | 1,941 | | 2,297 | | | Total revenue | 4,035 | | 3,960 | | 3,847 | | | | 11,916 | | 11,965 | | | Provision for credit losses | (45) | | (86) | | 9 | | | | (214) | | 321 | | | Noninterest expense | | | | | | | | | Staff | 1,584 | | 1,518 | | 1,466 | | | | 4,704 | | 4,412 | | | Software and equipment | 372 | | 365 | | 340 | | | | 1,099 | | 1,011 | | | Professional, legal and other purchased services | 363 | | 363 | | 355 | | | | 1,069 | | 1,022 | | | Sub-custodian and clearing | 129 | | 132 | | 119 | | | | 385 | | 344 | | | Net occupancy | 120 | | 122 | | 136 | | | | 365 | | 408 | | | Distribution and servicing | 76 | | 73 | | 85 | | | | 223 | | 261 | | | Bank assessment charges | 34 | | 35 | | 30 | | | | 103 | | 100 | | | Business development | 22 | | 22 | | 17 | | | | 63 | | 79 | | | Amortization of intangible assets | 19 | | 20 | | 26 | | | | 63 | | 78 | | | Other | 199 | | 128 | | 107 | | | | 473 | | 364 | | | Total noninterest expense | 2,918 | | 2,778 | | 2,681 | | | | 8,547 | | 8,079 | | | Income | | | | | | | | | Income before income taxes | 1,162 | | 1,268 | | 1,157 | | | | 3,583 | | 3,565 | | | Provision for income taxes | 219 | | 241 | | 213 | | | | 681 | | 694 | | | Net income | 943 | | 1,027 | | 944 | | | | 2,902 | | 2,871 | | | Net loss (income) attributable to noncontrolling interests related to consolidated investment management funds | 4 | | (5) | | (7) | | | | (6) | | (4) | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 947 | | 1,022 | | 937 | | | | 2,896 | | 2,867 | | | Preferred stock dividends | (66) | | (31) | | (61) | | | | (166) | | (146) | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 881 | | $ | 991 | | $ | 876 | | | | $ | 2,730 | | $ | 2,721 | | |
(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.
| | | | | | | | | | | | | | | | | | | 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 services | 383 |
| 394 |
| 349 |
| | 1,153 |
| 1,049 |
| Issuer services | 288 |
| 241 |
| 337 |
| | 780 |
| 815 |
| Treasury services | 141 |
| 140 |
| 137 |
| | 420 |
| 407 |
| Total investment services fees | 1,917 |
| 1,860 |
| 1,890 |
| | 5,606 |
| 5,447 |
| Investment management and performance fees | 901 |
| 879 |
| 860 |
| | 2,622 |
| 2,502 |
| Foreign exchange and other trading revenue | 173 |
| 165 |
| 183 |
| | 502 |
| 540 |
| Financing-related fees | 54 |
| 53 |
| 58 |
| | 162 |
| 169 |
| Distribution and servicing | 40 |
| 41 |
| 43 |
| | 122 |
| 125 |
| Investment and other income | 63 |
| 122 |
| 92 |
| | 262 |
| 271 |
| Total fee revenue | 3,148 |
| 3,120 |
| 3,126 |
| | 9,276 |
| 9,054 |
| Net securities gains — including other-than-temporary impairment | 18 |
| — |
| 27 |
| | 28 |
| 67 |
| Noncredit-related portion of other-than-temporary impairment (recognized in other comprehensive income) | (1 | ) | — |
| 3 |
| | (1 | ) | 2 |
| Net securities gains | 19 |
| — |
| 24 |
| | 29 |
| 65 |
| Total fee and other revenue | 3,167 |
| 3,120 |
| 3,150 |
| | 9,305 |
| 9,119 |
| Operations of consolidated investment management funds | | | | | | | Investment income | 10 |
| 10 |
| 20 |
| | 57 |
| 27 |
| Interest of investment management fund note holders | — |
| — |
| 3 |
| | 4 |
| 6 |
| Income from consolidated investment management funds | 10 |
| 10 |
| 17 |
| | 53 |
| 21 |
| Net interest revenue | | | | | | | Interest revenue | 1,151 |
| 1,052 |
| 874 |
| | 3,163 |
| 2,647 |
| Interest expense | 312 |
| 226 |
| 100 |
| | 706 |
| 340 |
| Net interest revenue | 839 |
| 826 |
| 774 |
| | 2,457 |
| 2,307 |
| Total revenue | 4,016 |
| 3,956 |
| 3,941 |
| | 11,815 |
| 11,447 |
| Provision for credit losses | (6 | ) | (7 | ) | (19 | ) | | (18 | ) | (18 | ) | Noninterest expense | | | | | | | Staff | 1,469 |
| 1,417 |
| 1,467 |
| | 4,358 |
| 4,338 |
| Professional, legal and other purchased services | 305 |
| 319 |
| 292 |
| | 936 |
| 860 |
| Software | 175 |
| 173 |
| 156 |
| | 514 |
| 470 |
| Net occupancy | 141 |
| 139 |
| 143 |
| | 416 |
| 437 |
| Distribution and servicing | 109 |
| 104 |
| 105 |
| | 313 |
| 307 |
| Sub-custodian | 62 |
| 65 |
| 59 |
| | 191 |
| 188 |
| Furniture and equipment | 58 |
| 59 |
| 59 |
| | 174 |
| 187 |
| Bank assessment charges (a) | 51 |
| 59 |
| 61 |
| | 167 |
| 166 |
| Business development | 49 |
| 63 |
| 52 |
| | 163 |
| 174 |
| Other (a) | 177 |
| 192 |
| 170 |
| | 536 |
| 546 |
| Amortization of intangible assets | 52 |
| 53 |
| 61 |
| | 157 |
| 177 |
| Merger and integration, litigation and restructuring charges | 6 |
| 12 |
| 18 |
| | 26 |
| 42 |
| Total noninterest expense | 2,654 |
| 2,655 |
| 2,643 |
| | 7,951 |
| 7,892 |
| Income | | | | | | | Income before income taxes | 1,368 |
| 1,308 |
| 1,317 |
| | 3,882 |
| 3,573 |
| Provision for income taxes | 348 |
| 332 |
| 324 |
| | 949 |
| 897 |
| Net income | 1,020 |
| 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 Corporation | 1,018 |
| 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. |
| | 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 calculation | Quarter ended | | Year-to-date | | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | Sept. 30, 2021 | Sept. 30, 2020 | | (in millions) | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 881 | | $ | 991 | | $ | 876 | | | $ | 2,730 | | $ | 2,721 | | | Less: Earnings allocated to participating securities | — | | 1 | | 1 | | | 2 | | 5 | | | 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 | $ | 881 | | $ | 990 | | $ | 875 | | | $ | 2,728 | | $ | 2,716 | | |
| | | | | | | | | | | | | | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation | Quarter 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 Corporation | Quarter ended | | Year-to-date | | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | Sept. 30, 2021 | Sept. 30, 2020 | | (in thousands) | | | Basic | 844,088 | | 869,460 | | 889,499 | | | 865,374 | | 891,050 | | | Common stock equivalents | 5,297 | | 4,315 | | 2,173 | | | 4,401 | | 2,522 | | | Less: Participating securities | (357) | | (300) | | (603) | | | (451) | | (779) | | | Diluted | 849,028 | | 873,475 | | 891,069 | | | 869,324 | | 892,793 | | | | | | | | | | | Anti-dilutive securities (a) | 517 | | 547 | | 1,485 | | | 739 | | 1,828 | | |
(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) | | Basic | 1,035,337 |
| 1,035,829 |
| 1,062,248 |
| | 1,037,431 |
| 1,071,457 |
| Common stock equivalents | 9,226 |
| 15,598 |
| 15,406 |
| | 14,216 |
| 15,306 |
| Less: Participating securities | (3,425 | ) | (9,548 | ) | (9,972 | ) | | (8,062 | ) | (9,613 | ) | Diluted | 1,041,138 |
| 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 Corporation | Quarter ended | | Year-to-date | | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | Sept. 30, 2021 | Sept. 30, 2020 | | (in dollars) | | | Basic | $ | 1.04 | | $ | 1.14 | | $ | 0.98 | | | $ | 3.15�� | | $ | 3.05 | | | Diluted | $ | 1.04 | | $ | 1.13 | | $ | 0.98 | | | $ | 3.14 | | $ | 3.04 | | |
| | | | | | | | | | | | | | | | | | 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.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Comprehensive Income Statement (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | | | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | Sept. 30, 2021 | Sept. 30, 2020 | | (in millions) | | | Net income | $ | 943 | | $ | 1,027 | | $ | 944 | | | $ | 2,902 | | $ | 2,871 | | | Other comprehensive income (loss), net of tax: | | | | | | | | Foreign currency translation adjustments | (202) | | 51 | | 331 | | | (301) | | 77 | | | Unrealized (loss) gain on assets available-for-sale: | | | | | | | | Unrealized (loss) gain arising during the period | (150) | | 77 | | 233 | | | (776) | | 1,169 | | | Reclassification adjustment | (2) | | (1) | | (6) | | | (3) | | (20) | | | Total unrealized (loss) gain on assets available-for-sale | (152) | | 76 | | 227 | | | (779) | | 1,149 | | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 22 | | 25 | | 20 | | | 69 | | 57 | | | Total defined benefit plans | 22 | | 25 | | 20 | | | 69 | | 57 | | | Net unrealized (loss) gain on cash flow hedges | (1) | | (3) | | 8 | | | (7) | | 1 | | | Total other comprehensive (loss) income, net of tax (a) | (333) | | 149 | | 586 | | | (1,018) | | 1,284 | | | Total comprehensive income | 610 | | 1,176 | | 1,530 | | | 1,884 | | 4,155 | | | Net loss (income) attributable to noncontrolling interests | 4 | | (5) | | (7) | | | (6) | | (4) | | | Other comprehensive loss attributable to noncontrolling interests | — | | — | | (2) | | | — | | — | | | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 614 | | $ | 1,171 | | $ | 1,521 | | | $ | 1,878 | | $ | 4,151 | | |
| | | | | | | | | | | | | | | | | | | 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 adjustments | 286 |
| 330 |
| (186 | ) | | 741 |
| (433 | ) | Unrealized gain on assets available-for-sale: | | | | | | | Unrealized gain (loss) arising during the period | 28 |
| 91 |
| (53 | ) | | 213 |
| 227 |
| Reclassification adjustment | (12 | ) | (1 | ) | (15 | ) | | (19 | ) | (43 | ) | Total unrealized gain (loss) on assets available-for-sale | 16 |
| 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 cost | 15 |
| 16 |
| 14 |
| | 49 |
| 43 |
| Total defined benefit plans | 15 |
| 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 income | 1,337 |
| 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 $(333) million for the quarter ended Sept. 30, 2021, $149 million for the quarter ended June 30, 2021, $584 million for the quarter ended Sept. 30, 2020, $(1,018) million for the nine months ended Sept. 30, 2021 and $1,284 million for the nine months ended Sept. 30, 2020.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Balance Sheet (unaudited)
| | | | | | | | | | Sept. 30, 2021 | Dec. 31, 2020 | (dollars in millions, except per share amounts) | Assets | | | Cash and due from banks, net of allowance for credit losses of $2 and $4 | $ | 6,752 | | $ | 6,252 | | Interest-bearing deposits with the Federal Reserve and other central banks | 126,959 | | 141,775 | | Interest-bearing deposits with banks, net of allowance for credit losses of $2 and $3 (includes restricted of $4,201 and $3,167) | 20,057 | | 17,300 | | Federal funds sold and securities purchased under resale agreements | 28,497 | | 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 $56,708 and $49,224) | 56,267 | | 47,946 | | Available-for-sale, at fair value (amortized cost of $99,338 and $105,141, net of allowance for credit losses of $10 and $11) | 101,007 | | 108,495 | | Total securities | 157,274 | | 156,441 | | Trading assets | 17,854 | | 15,272 | | Loans | 64,328 | | 56,469 | | Allowance for credit losses | (233) | | (358) | | Net loans | 64,095 | | 56,111 | | Premises and equipment | 3,422 | | 3,602 | | Accrued interest receivable | 464 | | 510 | | Goodwill | 17,420 | | 17,496 | | Intangible assets | 2,941 | | 3,012 | | Other assets, net of allowance for credit losses on accounts receivable of $4 and $4 (includes $1,313 and $1,009, at fair value) | 24,798 | | 20,955 | | Total assets | $ | 470,533 | | $ | 469,633 | | Liabilities | | | Deposits: | | | Noninterest-bearing (principally U.S. offices) | $ | 100,498 | | $ | 83,854 | | Interest-bearing deposits in U.S. offices | 130,468 | | 133,479 | | Interest-bearing deposits in non-U.S. offices | 112,173 | | 124,212 | | Total deposits | 343,139 | | 341,545 | | Federal funds purchased and securities sold under repurchase agreements | 11,973 | | 11,305 | | Trading liabilities | 5,152 | | 6,031 | | Payables to customers and broker-dealers | 26,002 | | 25,085 | | | | | Other borrowed funds | 767 | | 350 | | Accrued taxes and other expenses | 5,609 | | 5,696 | | Other liabilities (including allowance for credit losses on lending-related commitments of $40 and $121, also includes $433 and $1,110, at fair value) | 8,796 | | 7,517 | | Long-term debt (includes $400 and $400, at fair value) | 25,043 | | 25,984 | | Total liabilities | 426,481 | | 423,513 | | Temporary equity | | | Redeemable noncontrolling interests | 178 | | 176 | | Permanent equity | | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 45,826 shares | 4,541 | | 4,541 | | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,389,042,033 and 1,382,306,327 shares | 14 | | 14 | | Additional paid-in capital | 28,075 | | 27,823 | | Retained earnings | 36,125 | | 34,241 | | Accumulated other comprehensive loss, net of tax | (2,003) | | (985) | | Less: Treasury stock of 563,220,970 and 495,542,796 common shares, at cost | (23,151) | | (19,833) | | Total The Bank of New York Mellon Corporation shareholders’ equity | 43,601 | | 45,801 | | Nonredeemable noncontrolling interests of consolidated investment management funds | 273 | | 143 | | Total permanent equity | 43,874 | | 45,944 | | Total liabilities, temporary equity and permanent equity | $ | 470,533 | | $ | 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 banks | 75,808 |
| 58,041 |
| Interest-bearing deposits with banks | 15,256 |
| 15,086 |
| Federal funds sold and securities purchased under resale agreements | 27,883 |
| 25,801 |
| Securities: | |
|
| Held-to-maturity (fair value of $39,928 and $40,669) | 39,995 |
| 40,905 |
| Available-for-sale | 80,054 |
| 73,822 |
| Total securities | 120,049 |
| 114,727 |
| Trading assets | 4,666 |
| 5,733 |
| Loans | 59,068 |
| 64,458 |
| Allowance for loan losses | (161 | ) | (169 | ) | Net loans | 58,907 |
| 64,289 |
| Premises and equipment | 1,631 |
| 1,303 |
| Accrued interest receivable | 547 |
| 568 |
| Goodwill | 17,543 |
| 17,316 |
| Intangible assets | 3,461 |
| 3,598 |
| Other assets (includes $827 and $1,339, at fair value) | 22,287 |
| 20,954 |
| Subtotal assets of operations | 353,595 |
| 332,238 |
| Assets of consolidated investment management funds, at fair value | 802 |
| 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. offices | 46,023 |
| 52,049 |
| Interest-bearing deposits in non-U.S. offices | 104,593 |
| 91,099 |
| Total deposits | 230,996 |
| 221,490 |
| Federal funds purchased and securities sold under repurchase agreements | 10,314 |
| 9,989 |
| Trading liabilities | 3,253 |
| 4,389 |
| Payables to customers and broker-dealers | 21,176 |
| 20,987 |
| Commercial paper | 2,501 |
| — |
| Other borrowed funds | 3,353 |
| 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 operations | 313,266 |
| 293,574 |
| Liabilities of consolidated investment management funds, at fair value | 27 |
| 315 |
| Total liabilities | 313,293 |
| 293,889 |
| Temporary equity | |
|
| Redeemable noncontrolling interests | 197 |
| 151 |
| Permanent equity | |
|
| Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826 and 35,826 shares | 3,542 |
| 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 shares | 14 |
| 13 |
| Additional paid-in capital | 26,588 |
| 25,962 |
| Retained earnings | 24,757 |
| 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’ equity | 40,523 |
| 38,811 |
| Nonredeemable noncontrolling interests of consolidated investment management funds | 384 |
| 618 |
| Total permanent equity | 40,907 |
| 39,429 |
| Total liabilities, temporary equity and permanent equity | $ | 354,397 |
| $ | 333,469 |
|
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Cash Flows (unaudited)
| | | | | | | | | | | | | | Nine months ended Sept. 30, | (in millions) | 2021 | | 2020 | | Operating activities | | | | | Net income | $ | 2,902 | | | $ | 2,871 | | | Net (income) attributable to noncontrolling interests | (6) | | | (4) | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 2,896 | | | 2,867 | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | Provision for credit losses | (214) | | | 321 | | | Pension plan contributions | (5) | | | (18) | | | Depreciation and amortization | 1,406 | | | 1,175 | | | Deferred tax (benefit) | 255 | | | (351) | | | Net securities (gains) | (4) | | | (27) | | | Change in trading assets and liabilities | (3,466) | | | 1,736 | | | Change in accruals and other, net | (1,159) | | | 200 | | | Net cash (used for) provided by operating activities | (291) | | | 5,903 | | | Investing activities | | | | | Change in interest-bearing deposits with banks | (2,005) | | | (3,808) | | | Change in interest-bearing deposits with the Federal Reserve and other central banks | 11,450 | | | (9,775) | | | Purchases of securities held-to-maturity | (7,587) | | | (23,507) | | | Paydowns of securities held-to-maturity | 8,601 | | | 6,291 | | | Maturities of securities held-to-maturity | 1,242 | | | 5,477 | | | Purchases of securities available-for-sale | (38,201) | | | (56,860) | | | Sales of securities available-for-sale | 8,846 | | | 10,824 | | | Paydowns of securities available-for-sale | 10,132 | | | 7,300 | | | Maturities of securities available-for-sale | 13,396 | | | 21,113 | | | Net change in loans | (7,823) | | | (537) | | | Sales of loans and other real estate | 1 | | | 10 | | | Change in federal funds sold and securities purchased under resale agreements | 2,343 | | | 525 | | | Net change in seed capital investments | (83) | | | 20 | | | Purchases of premises and equipment/capitalized software | (841) | | | (956) | | | Proceeds from the sale of premises and equipment | 34 | | | — | | | | | | | | Dispositions, net of cash | 8 | | | — | | | Other, net | 228 | | | (417) | | | Net cash (used for) investing activities | (259) | | | (44,300) | | | Financing activities | | | | | Change in deposits | 4,805 | | | 35,736 | | | Change in federal funds purchased and securities sold under repurchase agreements | 806 | | | 4,299 | | | Change in payables to customers and broker-dealers | 954 | | | 4,627 | | | Change in other borrowed funds | 432 | | | (183) | | | Change in commercial paper | — | | | (3,288) | | | Net proceeds from the issuance of long-term debt | 3,689 | | | 2,245 | | | Repayments of long-term debt | (4,250) | | | (4,400) | | | Proceeds from the exercise of stock options | 45 | | | 36 | | | Issuance of common stock | 10 | | | 9 | | | Issuance of preferred stock | — | | | 990 | | | Treasury stock acquired | (3,318) | | | (988) | | | | | | | | Common cash dividends paid | (846) | | | (838) | | | Preferred cash dividends paid | (166) | | | (146) | | | | | | | | Other, net | 4 | | | 36 | | | Net cash provided by financing activities | 2,165 | | | 38,135 | | | Effect of exchange rate changes on cash | (81) | | | (10) | | | Change in cash and due from banks and restricted cash | | | | | Change in cash and due from banks and restricted cash | 1,534 | | | (272) | | | Cash and due from banks and restricted cash at beginning of period | 9,419 | | | 7,267 | | | Cash and due from banks and restricted cash at end of period | $ | 10,953 | | | $ | 6,995 | | | Cash and due from banks and restricted cash | | | | | Cash and due from banks at end of period (unrestricted cash) | $ | 6,752 | | | $ | 4,104 | | | Restricted cash at end of period | 4,201 | | | 2,891 | | | Cash and due from banks and restricted cash at end of period | $ | 10,953 | | | $ | 6,995 | | | Supplemental disclosures | | | | | Interest paid | $ | 226 | | | $ | 1,166 | | | Income taxes paid | 376 | | | 1,112 | | | Income taxes refunded | 36 | | | 23 | | |
| | | | | | | | | | 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 Corporation | 2,915 |
| | 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 amortization | 1,044 |
| | 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 activities | 3,350 |
| | 1,557 |
| Investing activities | | | | Change in interest-bearing deposits with banks | 507 |
| | 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-maturity | 3,332 |
| | 3,577 |
| Maturities of securities held-to-maturity | 3,412 |
| | 2,933 |
| Purchases of securities available-for-sale | (18,974 | ) | | (21,491 | ) | Sales of securities available-for-sale | 3,531 |
| | 5,624 |
| Paydowns of securities available-for-sale | 7,047 |
| | 6,552 |
| Maturities of securities available-for-sale | 4,820 |
| | 7,610 |
| Net change in loans | 5,283 |
| | (2,884 | ) | Sales of loans and other real estate | 369 |
| | 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, net | 82 |
| | (239 | ) | Net cash (used for) provided by investing activities | (14,003 | ) | | 21,058 |
| Financing activities | | | | Change in deposits | 4,459 |
| | (18,378 | ) | Change in federal funds purchased and securities sold under repurchase agreements | 325 |
| | (6,950 | ) | Change in payables to customers and broker-dealers | 177 |
| | (743 | ) | Change in other borrowed funds | 2,187 |
| | 427 |
| Change in commercial paper | 2,501 |
| | — |
| Net proceeds from the issuance of long-term debt | 4,739 |
| | 4,982 |
| Repayments of long-term debt | (796 | ) | | (2,453 | ) | Proceeds from the exercise of stock options | 383 |
| | 129 |
| Issuance of common stock | 24 |
| | 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, net | 46 |
| | (2 | ) | Net cash provided by (used for) financing activities | 11,231 |
| | (24,178 | ) | Effect of exchange rate changes on cash | 157 |
| | (17 | ) | Change in cash and due from banks | | | | Change in cash and due from banks | 735 |
| | (1,580 | ) | Cash and due from banks at beginning of period | 4,822 |
| | 6,537 |
| Cash and due from banks at end of period | $ | 5,557 |
| | $ | 4,957 |
| Supplemental disclosures | | | | Interest paid | $ | 721 |
| | $ | 371 |
| Income taxes paid | 316 |
| | 597 |
| Income taxes refunded | 19 |
| | 293 |
|
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable 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), net of tax | Treasury stock | Balance at June 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,006 | | $ | 35,540 | | $ | (1,670) | | $ | (21,150) | | $ | 344 | | $ | 45,625 | | (a) | $ | 169 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 8 | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | — | | — | | — | | — | | (67) | | (67) | | | 1 | | Net income (loss) | — | | — | | — | | 947 | | — | | — | | (4) | | 943 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (333) | | — | | — | | (333) | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.34 per share (b) | — | | — | | — | | (296) | | — | | — | | — | | (296) | | | — | | Preferred stock | — | | — | | — | | (66) | | — | | — | | — | | (66) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (2,001) | | — | | (2,001) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 4 | | — | | — | | — | | — | | 4 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 65 | | — | | — | | — | | — | | 65 | | | — | | Balance at Sept. 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,075 | | $ | 36,125 | | $ | (2,003) | | $ | (23,151) | | $ | 273 | | $ | 43,874 | | (a) | $ | 178 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $40,740 million at June 30, 2021 and $39,060 million at Sept. 30, 2021. (b) Includes dividend-equivalents on share-based awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable 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 March 31, 2021 | $ | 4,541 | | $ | 14 | | $ | 27,928 | | $ | 34,822 | | $ | (1,819) | | $ | (20,532) | | $ | 262 | | $ | 45,216 | | (a) | $ | 187 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 6 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (22) | | Other net changes in noncontrolling interests | — | | — | | 9 | | — | | — | | — | | 77 | | 86 | | | (2) | | Net income | — | | — | | — | | 1,022 | | — | | — | | 5 | | 1,027 | | | — | | Other comprehensive income | — | | — | | — | | — | | 149 | | — | | — | | 149 | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.31 per �� share (b) | — | | — | | — | | (273) | | — | | — | | — | | (273) | | | — | | Preferred stock | — | | — | | — | | (31) | | — | | — | | — | | (31) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (618) | | — | | (618) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 64 | | — | | — | | — | | — | | 64 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Balance at June 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,006 | | $ | 35,540 | | $ | (1,670) | | $ | (21,150) | | $ | 344 | | $ | 45,625 | | (a) | $ | 169 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $40,413 million at March 31, 2021 and $40,740 million at June 30, 2021. (b) Includes dividend-equivalents on share-based awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)(continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable 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), net of tax | Treasury stock | Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 21 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (1) | | Other net changes in noncontrolling interests | — | | — | | — | | — | | — | | — | | 132 | | 132 | | | — | | Net income | — | | — | | — | | 937 | | — | | — | | 7 | | 944 | | | — | | Other comprehensive income | — | | — | | — | | — | | 584 | | — | | — | | 584 | | | 2 | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (279) | | — | | — | | — | | (279) | | | — | | Preferred stock | — | | — | | — | | (61) | | — | | — | | — | | (61) | | | — | | | | | | | | | | | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 33 | | — | | — | | — | | — | | 33 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $39,165 million at June 30, 2020 and $40,385 million at Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable 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), 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 | — | | — | | — | | — | | — | | — | | — | | — | | | 37 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (52) | | Other net changes in noncontrolling interests | — | | — | | (24) | | — | | — | | — | | 124 | | 100 | | | 17 | | Net income | — | | — | | — | | 2,896 | | — | | — | | 6 | | 2,902 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (1,018) | | — | | — | | (1,018) | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.96 per share (b) | — | | — | | — | | (846) | | — | | — | | — | | (846) | | | — | | Preferred stock | — | | — | | — | | (166) | | — | | — | | — | | (166) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (3,318) | | — | | (3,318) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 14 | | — | | — | | — | | — | | 14 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 262 | | — | | — | | — | | — | | 262 | | | — | | Balance at Sept. 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,075 | | $ | 36,125 | | $ | (2,003) | | $ | (23,151) | | $ | 273 | | $ | 43,874 | | (a) | $ | 178 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $41,260 million at Dec. 31, 2020 and $39,060 million at Sept. 30, 2021. (b) Includes dividend-equivalents on share-based awards.
| | | The Bank of $35,269 million at Dec. 31, 2016 and $36,981 million at Sept. 30, 2017.New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)(continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable 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), 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, 2020 | 3,542 | | 14 | | 27,515 | | 31,939 | | (2,643) | | (18,844) | | 102 | | 41,625 | | | 143 | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 55 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (17) | | Other net changes in noncontrolling interests | — | | — | | (5) | | — | | — | | — | | 145 | | 140 | | | (2) | | Net income | — | | — | | — | | 2,867 | | — | | — | | 4 | | 2,871 | | | — | | Other comprehensive income | — | | — | | — | | — | | 1,284 | | — | | — | | 1,284 | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.93 per share | — | | — | | — | | (839) | | — | | — | | — | | (839) | | | — | | Preferred stock | — | | — | | — | | (146) | | — | | — | | — | | (146) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (988) | | — | | (988) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 21 | | — | | — | | — | | — | | 21 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | Stock awards and options exercised | — | | — | | 210 | | — | | — | | — | | — | | 210 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,941 million at Dec. 31, 2019 and $40,385 million at Sept. 30, 2020.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | 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, consisting of normal recurring adjustments, 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 reclassifications | Quarter ended | Year-to-date | Sept. 30, 2020 | Sept. 30, 2020 | (in millions) | | | | Before reclassifications | | | Foreign exchange and other trading revenue | $ | 137 | | $ | 622 | | Total fee revenue | $ | 3,108 | | $ | 9,598 | | Investment and other income | $ | 46 | | $ | 162 | | Income from consolidated investment management funds | $ | 27 | | $ | 43 | | | | | After reclassifications | | | Foreign exchange revenue | $ | 149 | | $ | 587 | | Total fee revenue | $ | 3,074 | | $ | 9,401 | | Investment and other income | $ | 61 | | $ | 240 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The table below summarizes the effects of the reclassifications on the business segments.
| | | | | | Business segment reclassifications | Year-to-date | | Sept. 30, 2020 | (in millions) | Investment Services business | | Before reclassifications | | Foreign exchange and other trading revenue | $ | 585 | | Other revenue | $ | 391 | | | | After reclassifications | | Foreign exchange revenue | $ | 518 | | Other revenue | $ | 458 | | | | Other segment | | Before reclassifications | | Fee revenue | $ | 61 | | Net securities gains | $ | 27 | | | | After reclassifications | | Fee revenue | $ | 23 | | Other revenue | $ | 65 | |
Certain additional immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.
| | | Notes to Consolidated Financial Statements (continued) | |
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 - Accounting change2–Acquisitions and new accounting guidancedispositions
ASU 2017-04, SimplifyingIn 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 values of all assets, including previously unrecorded intangibles, and liabilities at the date of the test. Step 2 was required if the first step of the annual test indicated that the fair value of a reporting unit 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 ASU in the secondfourth 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 aspects of the accounting for share-based payment 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 related2020, BNY Mellon entered into agreements 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 occurssell 2 legal entities. Those sales closed in the first and third quarters of 2021. BNY Mellon recorded a total after-tax loss of $34 million on these transactions in the fourth quarter of each year), the number of stock options exercised2020 and the change in value since the grant date.
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.
| | 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 $2a $4 million gain in the third quarter of 2017 and the first nine months of 2017.2021.
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, 20172021 and Dec. 31, 2016.2020.
| | | | | | | | | | | | | | | Securities at Sept. 30, 2021 | Gross unrealized | Fair value | | Amortized cost | (in millions) | Gains | Losses | Available-for-sale: | | | | | U.S. Treasury | $ | 25,392 | | $ | 795 | | $ | 226 | | $ | 25,961 | | Agency residential mortgage-backed securities (“RMBS”) | 14,616 | | 339 | | 47 | | 14,908 | | Sovereign debt/sovereign guaranteed | 12,999 | | 112 | | 42 | | 13,069 | | Agency commercial mortgage-backed securities (“MBS”) | 8,139 | | 430 | | 25 | | 8,544 | | Supranational | 7,931 | | 34 | | 26 | | 7,939 | | Foreign covered bonds | 6,917 | | 38 | | 9 | | 6,946 | | Collateralized loan obligations (“CLOs”) | 5,202 | | 5 | | 3 | | 5,204 | | Non-agency commercial MBS | 3,108 | | 90 | | 16 | | 3,182 | | Foreign government agencies | 2,670 | | 16 | | 7 | | 2,679 | | State and political subdivisions | 2,651 | | 15 | | 22 | | 2,644 | | U.S. government agencies | 2,541 | | 115 | | 13 | | 2,643 | | Non-agency RMBS (a) | 2,469 | | 144 | | 15 | | 2,598 | | Corporate bonds | 2,395 | | 29 | | 47 | | 2,377 | | Other asset-backed securities (“ABS”) | 2,307 | | 14 | | 9 | | 2,312 | | | | | | | Other debt securities | 1 | | — | | — | | 1 | | Total securities available-for-sale (b)(c) | $ | 99,338 | | $ | 2,176 | | $ | 507 | | $ | 101,007 | | Held-to-maturity: | | | | | Agency RMBS | $ | 37,607 | | $ | 631 | | $ | 230 | | $ | 38,008 | | U.S. Treasury | 10,528 | | 52 | | 31 | | 10,549 | | Agency commercial MBS | 4,170 | | 64 | | 29 | | 4,205 | | U.S. government agencies | 2,879 | | 1 | | 41 | | 2,839 | | Sovereign debt/sovereign guaranteed | 969 | | 23 | | 3 | | 989 | | | | | | | Supranational | 54 | | — | | — | | 54 | | Non-agency RMBS | 46 | | 3 | | — | | 49 | | State and political subdivisions | 14 | | 1 | | — | | 15 | | Total securities held-to-maturity | $ | 56,267 | | $ | 775 | | $ | 334 | | $ | 56,708 | | Total securities | $ | 155,605 | | $ | 2,951 | | $ | 841 | | $ | 157,715 | |
(a) Includes $387 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 $477 million and gross unrealized losses of $80 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 RMBS, U.S. Treasury securities, agency commercial MBS and U.S. government agency securities and losses are primarily related to U.S. Treasury securities and agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
| | | | | | | | | | | | | | 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 agencies | 866 |
| 4 |
| 6 |
| 864 |
| State and political subdivisions | 3,091 |
| 57 |
| 24 |
| 3,124 |
| Agency RMBS | 24,546 |
| 135 |
| 250 |
| 24,431 |
| Non-agency RMBS | 491 |
| 37 |
| 3 |
| 525 |
| Other RMBS | 270 |
| 3 |
| 8 |
| 265 |
| Commercial MBS | 960 |
| 9 |
| 4 |
| 965 |
| Agency commercial MBS | 9,026 |
| 41 |
| 57 |
| 9,010 |
| CLOs | 2,542 |
| 9 |
| 1 |
| 2,550 |
| Other asset-backed securities | 1,152 |
| 5 |
| — |
| 1,157 |
| Foreign covered bonds | 2,529 |
| 20 |
| 7 |
| 2,542 |
| Corporate bonds | 1,262 |
| 21 |
| 8 |
| 1,275 |
| Sovereign debt/sovereign guaranteed | 12,393 |
| 195 |
| 23 |
| 12,565 |
| Other debt securities | 3,149 |
| 12 |
| 10 |
| 3,151 |
| Equity securities | 2 |
| 2 |
| — |
| 4 |
| Money market funds | 939 |
| — |
| — |
| 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 agencies | 1,614 |
| — |
| 6 |
| 1,608 |
| State and political subdivisions | 18 |
| — |
| 1 |
| 17 |
| Agency RMBS | 25,575 |
| 96 |
| 185 |
| 25,486 |
| Non-agency RMBS | 64 |
| 5 |
| — |
| 69 |
| Other RMBS | 65 |
| — |
| 1 |
| 64 |
| Commercial MBS | 6 |
| — |
| — |
| 6 |
| Agency commercial MBS | 1,118 |
| 5 |
| 5 |
| 1,118 |
| Foreign covered bonds | 83 |
| 1 |
| — |
| 84 |
| Sovereign debt/sovereign guaranteed | 1,558 |
| 32 |
| — |
| 1,590 |
| Other debt securities | 27 |
| — |
| — |
| 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. |
| | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | Securities at Dec. 31, 2020 | Gross unrealized | | | Amortized cost | Fair value | (in millions) | Gains | Losses | Available-for-sale: | | | | | U.S. Treasury | $ | 23,557 | | $ | 1,358 | | $ | 21 | | $ | 24,894 | | Agency RMBS | 21,919 | | 479 | | 51 | | 22,347 | | Sovereign debt/sovereign guaranteed | 12,202 | | 190 | | 1 | | 12,391 | | Agency commercial MBS | 8,605 | | 625 | | 2 | | 9,228 | | Supranational | 7,086 | | 75 | | 1 | | 7,160 | | Foreign covered bonds | 6,658 | | 68 | | 1 | | 6,725 | | CLOs | 4,706 | | 7 | | 10 | | 4,703 | | Foreign government agencies | 4,086 | | 49 | | — | | 4,135 | | U.S. government agencies | 3,680 | | 174 | | 1 | | 3,853 | | Other ABS | 3,135 | | 32 | | 3 | | 3,164 | | Non-agency commercial MBS | 2,864 | | 159 | | 6 | | 3,017 | | Non-agency RMBS (a) | 2,178 | | 157 | | 9 | | 2,326 | | State and political subdivisions | 2,270 | | 39 | | 1 | | 2,308 | | Corporate bonds | 1,945 | | 50 | | 1 | | 1,994 | | Commercial paper/certificates of deposit (“CDs”) | 249 | | — | | — | | 249 | | Other debt securities | 1 | | — | | — | | 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. Treasury | 2,938 | | 90 | | — | | 3,028 | | U.S. government agencies | 2,816 | | 4 | | 6 | | 2,814 | | Agency commercial MBS | 2,659 | | 105 | | 2 | | 2,762 | | Sovereign debt/sovereign guaranteed | 1,050 | | 42 | | — | | 1,092 | | Non-agency RMBS | 58 | | 3 | | — | | 61 | | Supranational | 55 | | — | | — | | 55 | | State and political subdivisions | 15 | | 1 | | — | | 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. | | | | | | | | | | | | | | Securities at Dec. 31, 2016 | Gross unrealized |
|
| | Amortized cost |
| Fair value |
| (in millions) | Gains |
| Losses |
| Available-for-sale: | | | | | U.S. Treasury | $ | 14,373 |
| $ | 115 |
| $ | 181 |
| $ | 14,307 |
| U.S. government agencies | 366 |
| 2 |
| 9 |
| 359 |
| State and political subdivisions | 3,392 |
| 38 |
| 52 |
| 3,378 |
| Agency RMBS | 22,929 |
| 148 |
| 341 |
| 22,736 |
| Non-agency RMBS | 620 |
| 31 |
| 13 |
| 638 |
| Other RMBS | 517 |
| 4 |
| 8 |
| 513 |
| Commercial MBS | 931 |
| 8 |
| 11 |
| 928 |
| Agency commercial MBS | 6,505 |
| 28 |
| 84 |
| 6,449 |
| CLOs | 2,593 |
| 6 |
| 1 |
| 2,598 |
| Other asset-backed securities | 1,729 |
| 4 |
| 6 |
| 1,727 |
| Foreign covered bonds | 2,126 |
| 24 |
| 9 |
| 2,141 |
| Corporate bonds | 1,391 |
| 22 |
| 17 |
| 1,396 |
| Sovereign debt/sovereign guaranteed | 12,248 |
| 261 |
| 20 |
| 12,489 |
| Other debt securities | 1,952 |
| 19 |
| 10 |
| 1,961 |
| Equity securities | 2 |
| 1 |
| — |
| 3 |
| Money market funds | 842 |
| — |
| — |
| 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 agencies | 1,589 |
| — |
| 6 |
| 1,583 |
| State and political subdivisions | 19 |
| — |
| 1 |
| 18 |
| Agency RMBS | 25,221 |
| 57 |
| 299 |
| 24,979 |
| Non-agency RMBS | 78 |
| 4 |
| 2 |
| 80 |
| Other RMBS | 142 |
| — |
| 4 |
| 138 |
| Commercial MBS | 7 |
| — |
| — |
| 7 |
| Agency commercial MBS | 721 |
| 1 |
| 10 |
| 712 |
| Foreign covered bonds | 74 |
| 1 |
| — |
| 75 |
| Sovereign debt/sovereign guaranteed | 1,911 |
| 42 |
| — |
| 1,953 |
| Other debt securities | 26 |
| — |
| — |
| 26 |
| Total securities held-to-maturity | $ | 40,905 |
| $ | 127 |
| $ | 363 |
| $ | 40,669 |
| Total securities | $ | 114,501 |
| $ | 1,124 |
| $ | 1,134 |
| $ | 114,491 |
|
(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. | | (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) | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | Realized gross gains | $ | 3 | | $ | 6 | | $ | 10 | | $ | 21 | | $ | 38 | | | Realized gross losses | (1) | | (4) | | (1) | | (17) | | (11) | | | | | | | | | | Total net securities gains | $ | 2 | | $ | 2 | | $ | 9 | | $ | 4 | | $ | 27 | | |
The following table presents pre-tax net securities gains losses and impairments.(losses) by type.
| | | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | | (in millions) | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | U.S. Treasury | $ | — | | $ | — | | $ | 1 | | $ | (4) | | $ | 7 | | | Foreign government agencies | — | | — | | 5 | | 1 | | 7 | | | Supranational | — | | — | | — | | — | | 6 | | | Other | 2 | | 2 | | 3 | | 7 | | 7 | | | Total net securities gains | $ | 2 | | $ | 2 | | $ | 9 | | $ | 4 | | $ | 27 | | |
| | | | | | | | | | | | | | | | | 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-backedthe third quarter of 2021, agency RMBS, U.S. Treasury securities and U.S. government agencies with an aggregate amortized cost of $74 million$4.81 billion and fair value of $76 million$5.08 billion were transferred from available-for-sale securities to held-to-maturity securities to available-for-sale securities. Due to recent ratings downgrades,reduce the Company no longer intends to hold theseimpact of changes in interest rates on accumulated other comprehensive income.
In the second quarter of 2021, U.S. Treasury securities and agency commercial MBS with an aggregate amortized cost of $5.95 billion and fair value of $5.96 billion were transferred from available-for-sale securities to maturity.held-to-maturity securities to reduce the impact of changes in interest rates on accumulated other comprehensive income.
Temporarily impairedAllowance for credit losses – Securities
The allowance for credit losses related to securities was $10 million at Sept. 30, 2021 and $11 million at Dec. 31, 2020, and primarily relates to the available-for-sale CLO portfolio.
| | | Notes to Consolidated Financial Statements (continued) | |
Credit quality indicators – Securities
At Sept. 30, 2017,2021, 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$80 million of the unrealized losses at Sept. 30, 20172021 and $190$44 million at Dec. 31, 20162020 reflected in the available-for-sale sections of the tables below relate to certain securities (primarily Agency RMBS) that were previously 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.
| | 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 Sept. 30, 2021 (a) | Less than 12 months | | 12 months or more | | Total | Fair value | Unrealized losses | | Fair value | Unrealized losses | | Fair value | Unrealized losses | (in millions) | | | Agency RMBS | $ | 2,830 | | $ | 16 | | | $ | 491 | | $ | 31 | | | $ | 3,321 | | $ | 47 | | U.S. Treasury | 12,106 | | 222 | | | 46 | | 4 | | | 12,152 | | 226 | | Sovereign debt/sovereign guaranteed | 3,921 | | 42 | | | 104 | | — | | | 4,025 | | 42 | | Agency commercial MBS | 1,945 | | 24 | | | 561 | | 1 | | | 2,506 | | 25 | | Foreign covered bonds | 1,637 | | 9 | | | 93 | | — | | | 1,730 | | 9 | | Supranational | 2,357 | | 23 | | | 268 | | 3 | | | 2,625 | | 26 | | CLOs | 422 | | 1 | | | 337 | | 2 | | | 759 | | 3 | | Foreign government agencies | 947 | | 7 | | | 42 | | — | | | 989 | | 7 | | U.S. government agencies | 904 | | 13 | | | — | | — | | | 904 | | 13 | | Other ABS | 1,066 | | 8 | | | 144 | | 1 | | | 1,210 | | 9 | | Non-agency commercial MBS | 766 | | 13 | | | 137 | | 3 | | | 903 | | 16 | | | | | | | | | | | Non-agency RMBS (b) | 1,190 | | 11 | | | 318 | | 4 | | | 1,508 | | 15 | | State and political subdivisions | 1,607 | | 22 | | | 21 | | — | | | 1,628 | | 22 | | Corporate bonds | 1,577 | | 47 | | | — | | — | | | 1,577 | | 47 | | | | | | | | | | | Total securities available-for-sale (c) | $ | 33,275 | | $ | 458 | | | $ | 2,562 | | $ | 49 | | | $ | 35,837 | | $ | 507 | |
(a) Includes $8.7 billion of securities with an unrealized loss of greater than $1 million. (b) Includes $1 million of securities with an unrealized loss of less than $1 million for less than 12 months and Dec. 31, 2016.$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 $49 million gross unrealized losses for less than 12 months and gross unrealized losses of $31 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 U.S. Treasury securities and agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
| | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Sept. 30, 2017 | Less 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 agencies | 399 |
| 6 |
| | — |
| — |
| | 399 |
| 6 |
| State and political subdivisions | 310 |
| 4 |
| | 384 |
| 20 |
| | 694 |
| 24 |
| Agency RMBS | 8,935 |
| 72 |
| | 4,145 |
| 178 |
| | 13,080 |
| 250 |
| Non-agency RMBS | 5 |
| — |
| | 156 |
| 3 |
| | 161 |
| 3 |
| Other RMBS | 72 |
| 4 |
| | 83 |
| 4 |
| | 155 |
| 8 |
| Commercial MBS | 193 |
| 2 |
| | 92 |
| 2 |
| | 285 |
| 4 |
| Agency commercial MBS | 3,610 |
| 47 |
| | 561 |
| 10 |
| | 4,171 |
| 57 |
| CLOs | 449 |
| 1 |
| | — |
| — |
| | 449 |
| 1 |
| Foreign covered bonds | 1,017 |
| 7 |
| | 28 |
| — |
| | 1,045 |
| 7 |
| Corporate bonds | 306 |
| 3 |
| | 144 |
| 5 |
| | 450 |
| 8 |
| Sovereign debt/sovereign guaranteed | 2,263 |
| 20 |
| | 137 |
| 3 |
| | 2,400 |
| 23 |
| Other debt securities | 1,347 |
| 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 agencies | 1,459 |
| 5 |
| | 99 |
| 1 |
| | 1,558 |
| 6 |
| State and political subdivisions | — |
| — |
| | 4 |
| 1 |
| | 4 |
| 1 |
| Agency RMBS | 17,125 |
| 172 |
| | 847 |
| 13 |
| | 17,972 |
| 185 |
| Other RMBS | 15 |
| — |
| | 35 |
| 1 |
| | 50 |
| 1 |
| Agency commercial MBS | 557 |
| 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. |
| | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2020 (a) | Less than 12 months | | 12 months or more | | Total | 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. Treasury | 4,253 | | 21 | | | — | | — | | | 4,253 | | 21 | | Sovereign debt/sovereign guaranteed | 1,349 | | 1 | | | 135 | | — | | | 1,484 | | 1 | | Agency commercial MBS | 440 | | 1 | | | 266 | | 1 | | | 706 | | 2 | | Foreign covered bonds | 468 | | 1 | | | 90 | | — | | | 558 | | 1 | | Supranational | 1,041 | | 1 | | | 132 | | — | | | 1,173 | | 1 | | CLOs | 1,849 | | 6 | | | 579 | | 4 | | | 2,428 | | 10 | | U.S. government agencies | 160 | | 1 | | | — | | — | | | 160 | | 1 | | | | | | | | | | | Other ABS | 449 | | 2 | | | 226 | | 1 | | | 675 | | 3 | | Non-agency commercial MBS | 468 | | 4 | | | 170 | | 2 | | | 638 | | 6 | | Non-agency RMBS (b) | 973 | | 3 | | | 103 | | 6 | | | 1,076 | | 9 | | State and political subdivisions | 273 | | 1 | | | 2 | | — | | | 275 | | 1 | | Corporate bonds | 282 | | 1 | | | — | | — | | | 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.
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 Sept. 30, 2021 | | | | Ratings (a) | | | | Net unrealized gain (loss) | | | | | BB+ and lower | A1+/A2/SP-1 | | (dollars in millions) | Amortized cost | | | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | Agency RMBS | $ | 37,607 | | | $ | 401 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | U.S. Treasury | 10,528 | | | 21 | | | 100 | | — | | — | | — | | — | | — | | U.S. government agencies | 2,879 | | | (40) | | | 100 | | — | | — | | — | | — | | — | | Agency commercial MBS | 4,170 | | | 35 | | | 100 | | — | | — | | — | | — | | — | | Sovereign debt/sovereign guaranteed (b) | 969 | | | 20 | | | 100 | | — | | — | | — | | — | | — | | | | | | | | | | | | | Non-agency RMBS | 46 | | | 3 | | | 24 | | 59 | | 1 | | 15 | | — | | 1 | | Supranational | 54 | | | — | | | 100 | | — | | — | | — | | — | | — | | State and political subdivisions | 14 | | | 1 | | | 5 | | 2 | | 5 | | — | | — | | 88 | | | | | | | | | | | | | Total held-to-maturity securities | $ | 56,267 | | | $ | 441 | | | 100 | % | — | % | — | % | — | % | — | % | — | % |
(a) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent. (b) Primarily consists of exposure to France, UK and Germany.
| | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Dec. 31, 2016 | Less 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 agencies | 257 |
| 9 |
| | — |
| — |
| | 257 |
| 9 |
| State and political subdivisions | 1,058 |
| 33 |
| | 131 |
| 19 |
| | 1,189 |
| 52 |
| Agency RMBS | 14,766 |
| 141 |
| | 1,673 |
| 200 |
| | 16,439 |
| 341 |
| Non-agency RMBS | 21 |
| — |
| | 332 |
| 13 |
| | 353 |
| 13 |
| Other RMBS | 26 |
| — |
| | 136 |
| 8 |
| | 162 |
| 8 |
| Commercial MBS | 302 |
| 7 |
| | 163 |
| 4 |
| | 465 |
| 11 |
| Agency commercial MBS | 3,570 |
| 78 |
| | 589 |
| 6 |
| | 4,159 |
| 84 |
| CLOs | 443 |
| 1 |
| | 404 |
| — |
| | 847 |
| 1 |
| Other asset-backed securities | 276 |
| 1 |
| | 357 |
| 5 |
| | 633 |
| 6 |
| Foreign covered bonds | 712 |
| 9 |
| | — |
| — |
| | 712 |
| 9 |
| Corporate bonds | 594 |
| 16 |
| | 7 |
| 1 |
| | 601 |
| 17 |
| Sovereign debt/sovereign guaranteed | 1,521 |
| 20 |
| | 63 |
| — |
| | 1,584 |
| 20 |
| Other debt securities | 742 |
| 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 agencies | 1,533 |
| 6 |
| | — |
| — |
| | 1,533 |
| 6 |
| State and political subdivisions | — |
| — |
| | 4 |
| 1 |
| | 4 |
| 1 |
| Agency RMBS | 19,498 |
| 297 |
| | 102 |
| 2 |
| | 19,600 |
| 299 |
| Non-agency RMBS | 4 |
| — |
| | 48 |
| 2 |
| | 52 |
| 2 |
| Other RMBS | 15 |
| — |
| | 123 |
| 4 |
| | 138 |
| 4 |
| Agency commercial MBS | 621 |
| 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities portfolio at Dec. 31, 2020 | | | | Ratings | | | | Net unrealized gain (loss) | | | | | BB+ 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 | % | — | % | — | % | — | % | — | % | — | % | U.S. Treasury | 2,938 | | | 90 | | | 100 | | — | | — | | — | | — | | — | | U.S. government agencies | 2,816 | | | (2) | | | 100 | | — | | — | | — | | — | | — | | Agency commercial MBS | 2,659 | | | 103 | | | 100 | | — | | — | | — | | — | | — | | Sovereign debt/sovereign guaranteed (a) | 1,050 | | | 42 | | | 98 | | — | | — | | — | | 2 | | — | | | | | | | | | | | | | Non-agency RMBS | 58 | | | 3 | | | 28 | | 55 | | 2 | | 14 | | — | | 1 | | Supranational | 55 | | | — | | | 100 | | — | | — | | — | | — | | — | | State and political subdivisions | 15 | | | 1 | | | 6 | | 2 | | 6 | | — | | — | | 86 | | | | | | | | | | | | | Total held-to-maturity securities | $ | 47,946 | | | $ | 1,278 | | | 100 | % | — | % | — | % | — | % | — | % | — | % |
(a) Primarily consists of exposure to France, UK and Germany.
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 Sept. 30, 2021 | U.S. Treasury | | U.S. government agencies | | State and political subdivisions | | Other bonds, notes and debentures | | Mortgage/ 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 | $ | 2,159 | | 1.44 | % | | $ | 195 | | 0.21 | % | | $ | 235 | | 2.44 | % | | $ | 7,710 | | 0.58 | % | | $ | — | | — | % | | $ | 10,299 | | Over 1 through 5 years | 8,883 | | 1.01 | | | 1,720 | | 0.95 | | | 633 | | 2.07 | | | 19,077 | | 0.49 | | | — | | — | | | 30,313 | | Over 5 through 10 years | 12,051 | | 1.22 | | | 614 | | 2.00 | | | 1,499 | | 1.55 | | | 6,146 | | 0.74 | | | — | | — | | | 20,310 | | Over 10 years | 2,868 | | 3.10 | | | 114 | | 1.91 | | | 277 | | 2.26 | | | 78 | | 1.14 | | | — | | — | | | 3,337 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 29,232 | | 1.93 | | | 29,232 | | Asset-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 7,516 | | 1.38 | | | 7,516 | | Total | $ | 25,961 | | 1.35 | % | | $ | 2,643 | | 1.17 | % | | $ | 2,644 | | 1.83 | % | | $ | 33,011 | | 0.56 | % | | $ | 36,748 | | 1.81 | % | | $ | 101,007 | | Securities held-to-maturity: | | | | | | | | | | | | | | | | | One year or less | $ | 1,653 | | 1.27 | % | | $ | — | | — | % | | $ | 1 | | 5.52 | % | | $ | 94 | | 0.45 | % | | $ | — | | — | % | | $ | 1,748 | | Over 1 through 5 years | 5,978 | | 0.95 | | | 862 | | 0.68 | | | 1 | | 5.72 | | | 848 | | 0.70 | | | — | | — | | | 7,689 | | Over 5 through 10 years | 2,897 | | 1.21 | | | 1,869 | | 1.08 | | | 4 | | 4.65 | | | 81 | | 0.59 | | | — | | — | | | 4,851 | | Over 10 years | — | | — | | | 148 | | 1.88 | | | 8 | | 4.80 | | | — | | — | | | — | | — | | | 156 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 41,823 | | 2.27 | | | 41,823 | | Total | $ | 10,528 | | 1.07 | % | | $ | 2,879 | | 1.00 | % | | $ | 14 | | 4.89 | % | | $ | 1,023 | | 0.66 | % | | $ | 41,823 | | 2.27 | % | | $ | 56,267 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity distribution and yield on investment securities at Sept. 30, 2017 | U.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 years | 5,790 |
| 1.66 |
| | 174 |
| 1.29 |
| | 1,576 |
| 3.07 |
| | 12,648 |
| 0.99 |
| | — |
| — |
| | 20,188 |
| Over 5 through 10 years | 4,002 |
| 1.90 |
| | 690 |
| 2.46 |
| | 912 |
| 3.34 |
| | 2,835 |
| 0.81 |
| | — |
| — |
| | 8,439 |
| Over 10 years | 3,487 |
| 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 years | 3,517 |
| 1.67 |
| | 883 |
| 1.38 |
| | 2 |
| 6.88 |
| | 307 |
| 0.59 |
| | — |
| — |
| | 4,709 |
| Over 5 through 10 years | 1,407 |
| 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) | (a) Yields are based upon the amortized cost of securities. |
| | (b) | Includes money market funds. |
| | 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 determinedo not reflect 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.of hedging.
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-A | 22 | % | 54 | % | | 30 | % | 54 | % | Subprime | 38 | % | 66 | % | | 49 | % | 70 | % | Prime | 13 | % | 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. Treasury | 1 |
| (1 | ) | (1 | ) | — |
| 4 |
| Foreign covered bonds | — |
| — |
| — |
| — |
| 10 |
| Non-agency RMBS | (1 | ) | — |
| (1 | ) | (2 | ) | 1 |
| Other | 15 |
| 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 losses | 1 |
| 1 |
| Less: Realized losses for securities sold | 2 |
| 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 losses | 3 |
| 5 |
| Less: Realized losses for securities sold | 7 |
| 9 |
| Ending balance as of Sept. 30 | $ | 84 |
| $ | 87 |
|
Pledged assets
At Sept. 30, 2017,2021, BNY Mellon had pledged assets of $108$141 billion, including $87$110 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $4$7 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Sept. 30, 20172021 included $92$123 billion of securities, $13$12 billion of loans, $2$5 billion of trading assets and $1 billion of interest-bearing deposits with banks.
| | 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.
| | | Notes to Consolidated Financial Statements (continued) | |
At Sept. 30, 20172021 and Dec. 31, 2016,2020, pledged assets included $13$23 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, 20172021 and Dec. 31, 2016,2020, the market value of the securities received that can be sold or repledged was $68$119 billion and $50$121 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept. 30, 20172021 and Dec. 31, 2016,2020, the market value of securities collateral sold or repledged was $39$71 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, 20172021 and Dec. 31, 2016,2020, cash segregated under federal and other regulations or requirements was $4 billion and $3 billion, respectively. 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$3 billion at Sept. 30, 20172021 and $2$6 billion at Dec. 31, 2016.2020. Restricted securities were sourced from securities purchased 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 portfolio and industry concentrationsportfolio.
| | | | | | | | | Loans | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | Domestic: | | | Commercial | $ | 1,659 | | $ | 1,356 | | Commercial real estate | 6,081 | | 6,056 | | Financial institutions | 4,049 | | 4,495 | | Lease financings | 297 | | 431 | | Wealth management loans and mortgages | 17,819 | | 16,211 | | Other residential mortgages | 317 | | 389 | | Overdrafts | 1,667 | | 651 | | Other | 2,308 | | 1,823 | | Margin loans | 17,915 | | 13,141 | | Total domestic | 52,112 | | 44,553 | | Foreign: | | | Commercial | 16 | | 73 | | Commercial real estate | 311 | | — | | Financial institutions | 5,399 | | 6,750 | | Lease financings | 476 | | 559 | | Wealth management loans and mortgages | 168 | | 146 | | Other (primarily overdrafts) | 2,940 | | 2,113 | | Margin loans | 2,906 | | 2,275 | | Total foreign | 12,216 | | 11,916 | | Total loans (a) | $ | 64,328 | | $ | 56,469 | |
(a)Net of credit riskunearned income of $247 million at Sept. 30, 20172021 and $274 million at Dec. 31, 2016.2020 primarily related to domestic and foreign lease financings.
| | | | | | | | Loans | Sept. 30, 2017 |
| Dec. 31, 2016 |
| (in millions) | Domestic: | | | Financial institutions | $ | 5,155 |
| $ | 6,342 |
| Commercial | 2,698 |
| 2,286 |
| Wealth management loans and mortgages | 16,161 |
| 15,555 |
| Commercial real estate | 4,921 |
| 4,639 |
| Lease financings | 823 |
| 989 |
| Other residential mortgages | 741 |
| 854 |
| Overdrafts | 1,487 |
| 1,055 |
| Other | 1,159 |
| 1,202 |
| Margin loans | 13,720 |
| 17,503 |
| Total domestic | 46,865 |
| 50,425 |
| Foreign: | | | Financial institutions | 6,741 |
| 8,347 |
| Commercial | 305 |
| 331 |
| Wealth management loans and mortgages | 104 |
| 99 |
| Commercial real estate | 6 |
| 15 |
| Lease financings | 522 |
| 736 |
| Other (primarily overdrafts) | 4,373 |
| 4,418 |
| Margin loans | 152 |
| 87 |
| Total foreign | 12,203 |
| 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.
| | | 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 Sept. 30, 2021 | Wealth management loans and mortgages | | Other residential mortgages | | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Other | | Total | Beginning balance | $ | 8 | | $ | 289 | | $ | 7 | | $ | 2 | | $ | 5 | | | $ | 8 | | $ | — | | | $ | 319 | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | — | | — | | — | | — | | — | | | — | | — | | | — | | Recoveries | — | | — | | — | | — | | — | | | 1 | | — | | | 1 | | Net recoveries | — | | — | | — | | — | | — | | | 1 | | — | | | 1 | | Provision (a) | 2 | | (63) | | 2 | | (1) | | — | | | (3) | | 16 | | | (47) | | Ending balance (b) | $ | 10 | | $ | 226 | | $ | 9 | | $ | 1 | | $ | 5 | | | $ | 6 | | $ | 16 | | | $ | 273 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 2 | | $ | 199 | | $ | 5 | | $ | 1 | | $ | 4 | | | $ | 6 | | $ | 16 | | | $ | 233 | | Lending-related commitments | 8 | | 27 | | 4 | | — | | 1 | | | — | | — | | | 40 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance (c) | $ | — | | $ | 25 | | $ | — | | $ | — | | $ | 18 | | | $ | 1 | | $ | 16 | | | $ | 60 | | Allowance for loan losses | — | | 3 | | — | | — | | — | | | — | | 16 | | | 19 | |
(a) Does not include the provision for credit losses related to other financial instruments of $2 million for the third quarter 2021. (b) Includes $4 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $60 million with $52 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2021 | Wealth management loans and mortgages | | Other residential mortgages | | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | | Total | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | $ | 11 | | $ | 365 | | $ | 7 | | $ | 2 | | $ | 6 | | | $ | 9 | | | | $ | 400 | | Charge-offs | — | | — | | — | | — | | — | | | (1) | | | | (1) | | Recoveries | — | | — | | 2 | | — | | — | | | 1 | | | | 3 | | Net recoveries | — | | — | | 2 | | — | | — | | | — | | | | 2 | | Provision (a) | (3) | | (76) | | (2) | | — | | (1) | | | (1) | | | | (83) | | Ending balance (b) | $ | 8 | | $ | 289 | | $ | 7 | | $ | 2 | | $ | 5 | | | $ | 8 | | | | $ | 319 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 3 | | $ | 248 | | $ | 4 | | $ | 2 | | $ | 4 | | | $ | 8 | | | | $ | 269 | | Lending-related commitments | 5 | | 41 | | 3 | | — | | 1 | | | — | | | | 50 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance (c) | $ | — | | $ | 26 | | $ | — | | $ | — | | $ | 17 | | | $ | 1 | | | | $ | 44 | | Allowance for loan losses | — | | 3 | | — | | — | | — | | | — | | | | 3 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $3 million for the second quarter 2021. (b) Includes $4 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $44 million with $50 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2017 | Wealth 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 |
| Provision | 1 |
| — |
| — |
| (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 commitments | 55 |
| 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 losses | 26 |
| 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, 2017 | Wealth 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 commitments | 54 |
| 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 losses | 26 |
| 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. |
| | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2020 | Wealth management loans and mortgages | Other residential mortgages | | | | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | | Beginning balance | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | $ | 12 | | | | | | $ | 454 | | | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | — | | — | | — | | — | | — | | — | | | | | | — | | Recoveries | — | | — | | — | | — | | — | | 1 | | | | | | 1 | | Net recoveries | — | | — | | — | | — | | — | | 1 | | | | | | 1 | | Provision (a) | (13) | | 14 | | (5) | | — | | 4 | | 5 | | | | | | 5 | | Ending balance (b) | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | $ | 18 | | | | | | $ | 460 | | Allowance for: | | | | | | | | | | | | Loan losses | $ | 14 | | $ | 270 | | $ | 7 | | $ | 3 | | $ | 13 | | $ | 18 | | | | | | $ | 325 | | Lending-related commitments | 13 | | 116 | | 4 | | — | | 2 | | — | | | | | | 135 | | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance (c) | $ | — | | $ | — | | $ | — | | $ | — | | $ | 17 | | $ | — | | | | | | $ | 17 | | Allowance for loan losses | — | | — | | — | | — | | — | | — | | | | | | — | |
(a) Does not include the provision for credit losses related to other financial instruments of $4 million for the third quarter 2020. (b) Includes $8 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral-dependent loans of $17 million with $25 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2021 | Wealth management loans and mortgages | Other residential mortgages | Other | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | Beginning balance | $ | 16 | | $ | 430 | | $ | 10 | | $ | 2 | | $ | 8 | | $ | 13 | | $ | — | | | $ | 479 | | | | | | | | | | | | | | | | | | | | | | Charge-offs | — | | — | | — | | — | | (1) | | (1) | | — | | | (2) | | Recoveries | — | | — | | 2 | | — | | — | | 4 | | — | | | 6 | | Net recoveries (charge-offs) | — | | — | | 2 | | — | | (1) | | 3 | | — | | | 4 | | Provision (a) | (6) | | (204) | | (3) | | (1) | | (2) | | (10) | | 16 | | | (210) | | Ending balance | $ | 10 | | $ | 226 | | $ | 9 | | $ | 1 | | $ | 5 | | $ | 6 | | $ | 16 | | | $ | 273 | |
(a) Does not include provision for credit losses benefit related to other financial instruments of $4 million for the nine months ended Sept. 30, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2020 | Wealth management loans and mortgages | Other residential mortgages | | Foreign | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Balance at Dec. 31, 2019 | $ | 60 | | $ | 76 | | $ | 20 | | $ | 3 | | $ | 20 | | $ | 13 | | | $ | 24 | | $ | 216 | | Impact of adopting ASU 2016-13 | (43) | | 14 | | (6) | | — | | (12) | | 2 | | | (24) | | (69) | | Balance at Jan. 1, 2020 | 17 | | 90 | | 14 | | 3 | | 8 | | 15 | | | — | | 147 | | Charge-offs | — | | — | | — | | — | | — | | — | | | — | | — | | Recoveries | — | | — | | — | | — | | — | | 4 | | | — | | 4 | | Net recoveries | — | | — | | — | | — | | — | | 4 | | | — | | 4 | | Provision (a) | 10 | | 296 | | (3) | | — | | 7 | | (1) | | | — | | 309 | | Ending balance | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | $ | 18 | | | $ | — | | $ | 460 | |
(a) Does not include provision for credit losses related to other financial instruments of $12 million for the nine months ended Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2016 | Wealth 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 |
| Provision | 1 |
| — |
| (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 commitments | 69 |
| 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 losses | 22 |
| 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, 2017 | Wealth 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, 2016 | Wealth 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 |
| Provision | 9 |
| 4 |
| (15 | ) | (1 | ) | (1 | ) | (9 | ) | — |
| (5 | ) | (18 | ) | Ending balance | $ | 91 |
| $ | 63 |
| $ | 29 |
| $ | 14 |
| $ | 18 |
| $ | 28 |
| $ | — |
| $ | 31 |
| $ | 274 |
|
| | Notes to Consolidated Financial Statements(continued) | |
Nonperforming assets
The table below presents our nonperforming assets.
| | | | | | | | | | | | | | | | | | | | | | | | Nonperforming assets | Sept. 30, 2021 | | Dec. 31, 2020 | | Recorded investment | | Recorded investment | | With an allowance | Without an allowance | | | With an allowance | Without an allowance | | (in millions) | Total | | Total | Nonperforming loans: | | | | | | | | | | | | | | | | Other residential mortgages | $ | 39 | | $ | 1 | | $ | 40 | | | $ | 57 | | $ | — | | $ | 57 | | Wealth management loans and mortgages | 8 | | 18 | | 26 | | | 10 | | 20 | | 30 | | Commercial real estate | 25 | | — | | 25 | | | 1 | | — | | 1 | | Other | 16 | | — | | 16 | | | — | | — | | — | | Total nonperforming loans | 88 | | 19 | | 107 | | | 68 | | 20 | | 88 | | Other assets owned | — | | 1 | | 1 | | | — | | 1 | | 1 | | Total nonperforming assets | $ | 88 | | $ | 20 | | $ | 108 | | | $ | 68 | | $ | 21 | | $ | 89 | |
| | | | | | | | | | Nonperforming assets (in millions) | Sept. 30, 2017 |
| Dec. 31, 2016 |
| | | Nonperforming loans: | | | | Other residential mortgages | $ | 80 |
| $ | 91 |
| | Wealth management loans and mortgages | 8 |
| 8 |
| | Financial institutions | 2 |
| — |
| | Lease financings | — |
| 4 |
| | Total nonperforming loans | 90 |
| 103 |
| | Other assets owned | 4 |
| 4 |
| | Total nonperforming assets | $ | 94 |
| $ | 107 |
|
At Sept. 30, 2017,2021 and Dec. 31, 2020, 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 loans | 3Q17 | 2Q17 | 3Q16 | | YTD17 | YTD16 | (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 institutions | 2 |
| — |
| 1 |
| — |
| — |
| — |
| | 1 |
| — |
| — |
| — |
| Wealth management loans and mortgages | 2 |
| — |
| 3 |
| — |
| 3 |
| — |
| | 3 |
| — |
| 5 |
| — |
| Lease financings | — |
| — |
| — |
| — |
| 4 |
| — |
| | 1 |
| — |
| 3 |
| — |
| Total impaired loans with an allowance | 4 |
| — |
| 4 |
| — |
| 8 |
| — |
| | 5 |
| — |
| 9 |
| — |
| Impaired loans without an allowance: | | | | | | | | | | | | Commercial real estate | — |
| — |
| — |
| — |
| 1 |
| — |
| | — |
| — |
| 1 |
| — |
| Financial institutions | — |
| — |
| — |
| — |
| 85 |
| — |
| | — |
| — |
| 128 |
| — |
| Wealth management loans and mortgages | 4 |
| — |
| 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. |
| | Notes to Consolidated Financial Statements(continued)
| |
| | | | | | | | | | | | | | | | | | | | | Impaired loans | Sept. 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 institutions | 2 |
| 2 |
| 2 |
| | — |
| — |
| — |
| Wealth management loans and mortgages | 1 |
| 1 |
| — |
| | 3 |
| 3 |
| 3 |
| Lease financings | — |
| — |
| — |
| | 4 |
| 4 |
| 2 |
| Total impaired loans with an allowance | 3 |
| 6 |
| 2 |
| | 7 |
| 10 |
| 5 |
| Impaired loans without an allowance: | | | | | | | | Wealth management loans and mortgages | 4 |
| 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 interest | Sept. 30, 2017 | | Dec. 31, 2016 | Past due loans and still accruing interest | Sept. 30, 2021 | | Dec. 31, 2020 | | Days past due | Total past due |
| | Days past due | Total past due |
| | Days past due | Total past due | | Days past due | Total past due | (in millions) | 30-59 |
| 60-89 |
| ≥90 |
| 30-59 |
| 60-89 |
| ≥90 |
| (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 | Wealth management loans and mortgages | | Wealth management loans and mortgages | $ | 73 | | $ | 11 | | $ | — | | $ | 84 | | | $ | 54 | | $ | 1 | | $ | — | | $ | 55 | | Commercial real estate | $ | 51 |
| $ | 60 |
| $ | — |
| $ | 111 |
| | $ | 78 |
| $ | — |
| $ | — |
| $ | 78 |
| Commercial real estate | 27 | | — | | — | | 27 | | | 19 | | 16 | | — | | 35 | | Wealth management loans and mortgages | 86 |
| 15 |
| 1 |
| 102 |
| | 21 |
| 2 |
| — |
| 23 |
| | Financial institutions | | Financial institutions | 10 | | — | | — | | 10 | | | 11 | | — | | — | | 11 | | Other residential mortgages | 20 |
| 3 |
| 5 |
| 28 |
| | 20 |
| 6 |
| 7 |
| 33 |
| Other residential mortgages | 3 | | — | | — | | 3 | | | 3 | | 1 | | — | | 4 | | Financial institutions | — |
| — |
| — |
| — |
| | 1 |
| 27 |
| — |
| 28 |
| | Total past due loans | $ | 157 |
| $ | 78 |
| $ | 6 |
| $ | 241 |
|
| $ | 120 |
| $ | 35 |
| $ | 7 |
| $ | 162 |
| Total past due loans | $ | 113 | | $ | 11 | | $ | — | | $ | 124 | | | $ | 87 | | $ | 18 | | $ | — | | $ | 105 | |
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 notcoronavirus pandemic. We modified
otherwise be considered. A TDR may include a transferloans of real estate or other assets from the debtor to the creditor, or a modification of the term of the loan. Not all modified loans are considered TDRs.
The following table presents our TDRs.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | TDRs | 3Q17 | | 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 mortgages | 19 |
| | $ | 5 |
| | $ | 5 |
| | 16 |
| | $ | 4 |
| | $ | 4 |
| | 17 |
| | $ | 4 |
| | $ | 4 |
| Wealth management loans and mortgages | 1 |
| | 2 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Total TDRs | 20 |
| | $ | 7 |
| | $ | 7 |
| | 16 |
| | $ | 4 |
| | $ | 4 |
| | 17 |
| | $ | 4 |
| | $ | 4 |
|
| | Notes to Consolidated Financial Statements(continued)
| |
Other residential mortgages
The modifications of the other residential mortgage loans$23 million 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 defaulted2021, $106 million in the third quarter of 2017. The total recorded investment2020 and $3 million in the second quarter of these2021. 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 loans. We also modified loans of $56 million in the third quarter of 2020, a majority of which were commercial real estate loans, by providing long-term loan payment modifications and an extension of maturity. We did not identify any of the modifications as TDRs. There were no long-term loan modifications in the third quarter of 2021 and second quarter of 2021. At Sept. 30, 2021, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was less than $1$94 million.
| | | Notes to Consolidated Financial Statements (continued) | |
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 portfolio | | | | Sept. 30, 2021 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued interest receivable | (in millions) | YTD21 | 2020 | 2019 | 2018 | 2017 | Prior to 2017 | Total (a) | Commercial: | | | | | | | | | | | Investment grade | $ | 401 | | $ | 20 | | $ | — | | $ | — | | $ | 195 | | $ | 57 | | $ | 818 | | $ | — | | $ | 1,491 | | | Non-investment grade | 90 | | 23 | | — | | — | | — | | — | | 71 | | — | | 184 | | | Total commercial | 491 | | 43 | | — | | — | | 195 | | 57 | | 889 | | — | | 1,675 | | $ | — | | Commercial real estate: | | | | | | | | | | | Investment grade | 1,265 | | 524 | | 793 | | 166 | | 275 | | 651 | | 670 | | — | | 4,344 | | | Non-investment grade | 613 | | 92 | | 625 | | 355 | | 74 | | 106 | | 157 | | 26 | | 2,048 | | | Total commercial real estate | 1,878 | | 616 | | 1,418 | | 521 | | 349 | | 757 | | 827 | | 26 | | 6,392 | | 8 | | Financial institutions: | | | | | | | | | | | Investment grade | 759 | | — | | — | | — | | — | | 72 | | 6,949 | | — | | 7,780 | | | Non-investment grade | 45 | | — | | 6 | | — | | — | | — | | 1,617 | | — | | 1,668 | | | Total financial institutions | 804 | | — | | 6 | | — | | — | | 72 | | 8,566 | | — | | 9,448 | | 10 | | Wealth management loans and mortgages: | | | | | | | | | | | Investment grade | 67 | | 15 | | 74 | | 4 | | 153 | | 125 | | 9,500 | | — | | 9,938 | | | Non-investment grade | 2 | | — | | — | | — | | — | | — | | 28 | | — | | 30 | | | Wealth management mortgages | 1,468 | | 1,036 | | 899 | | 561 | | 944 | | 3,084 | | 27 | | — | | 8,019 | | | Total wealth management loans and mortgages | 1,537 | | 1,051 | | 973 | | 565 | | 1,097 | | 3,209 | | 9,555 | | — | | 17,987 | | 28 | | Lease financings | 23 | | 81 | | 15 | | 11 | | 4 | | 639 | | — | | — | | 773 | | — | | Other residential mortgages | — | | — | | — | | — | | — | | 317 | | — | | — | | 317 | | 1 | | Other loans | — | | — | | — | | — | | — | | — | | 2,362 | | — | | 2,362 | | 1 | | Margin loans | 6,254 | | 800 | | — | | — | | — | | — | | 13,767 | | — | | 20,821 | | 8 | | Total loans | $ | 10,987 | | $ | 2,591 | | $ | 2,412 | | $ | 1,097 | | $ | 1,645 | | $ | 5,051 | | $ | 35,966 | | $ | 26 | | $ | 59,775 | | $ | 56 | |
(a) Excludes overdrafts of $4,553 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.
| | | | | | | | | | | | | | | | | | | | | | 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 grade | 146 |
| 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 portfolio | | | | | Dec. 31, 2020 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued interest receivable | (in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior to 2016 | Total (a) | Commercial: | | | | | | | | | | | Investment grade | $ | 128 | | $ | 18 | | $ | 71 | | $ | 420 | | $ | 57 | | $ | — | | $ | 493 | | $ | — | | $ | 1,187 | | | Non-investment grade | 142 | | — | | 6 | | — | | — | | — | | 94 | | — | | 242 | | | Total commercial | 270 | | 18 | | 77 | | 420 | | 57 | | — | | 587 | | — | | 1,429 | | $ | 2 | | Commercial real estate: | | | | | | | | | | | Investment grade | 778 | | 1,010 | | 458 | | 543 | | 312 | | 346 | | 127 | | — | | 3,574 | | | Non-investment grade | 285 | | 619 | | 643 | | 159 | | 376 | | 144 | | 229 | | 27 | | 2,482 | | | Total commercial real estate | 1,063 | | 1,629 | | 1,101 | | 702 | | 688 | | 490 | | 356 | | 27 | | 6,056 | | 8 | | Financial institutions: | | | | | | | | | | | Investment grade | 132 | | 146 | | 47 | | 125 | | 13 | | 156 | | 8,760 | | — | | 9,379 | | | Non-investment grade | 84 | | 36 | | — | | — | | — | | — | | 1,746 | | — | | 1,866 | | | Total financial institutions | 216 | | 182 | | 47 | | 125 | | 13 | | 156 | | 10,506 | | — | | 11,245 | | 12 | | Wealth management loans and mortgages: | | | | | | | | | | | Investment grade | 18 | | 85 | | 11 | | 147 | | 59 | | 112 | | 7,786 | | — | | 8,218 | | | Non-investment grade | — | | — | | — | | — | | — | | — | | 54 | | — | | 54 | | | Wealth management mortgages | 1,117 | | 1,044 | | 637 | | 1,188 | | 1,515 | | 2,546 | | 38 | | — | | 8,085 | | | Total wealth management loans and mortgages | 1,135 | | 1,129 | | 648 | | 1,335 | | 1,574 | | 2,658 | | 7,878 | | — | | 16,357 | | 27 | | Lease financings | 116 | | 18 | | 14 | | 9 | | 20 | | 813 | | — | | — | | 990 | | — | | Other residential mortgages | — | | — | | — | | — | | — | | 389 | | — | | — | | 389 | | 1 | | Other loans | — | | — | | — | | — | | — | | — | | 1,904 | | — | | 1,904 | | 1 | | Margin loans | 4,614 | | — | | — | | — | | — | | — | | 10,802 | | — | | 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 Sept. 30, 2021. In addition, 68% 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 84% 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 grade | 135 |
| 260 |
| Wealth management mortgages | 9,002 |
| 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
| | | Notes to Consolidated Financial Statements (continued) | |
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 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 Sept. 30, 2021, less
| | Notes to Consolidated Financial Statements(continued)
| |
than 1% of the mortgages were past due at Sept. 30, 2017.due.
At Sept. 30, 2017,2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 24%– 22%; New York - 19%– 16%; Florida – 9%; Massachusetts - 11%; Florida - 8%– 9%; and other - 38%– 44%.
Lease financings
At Sept. 30, 2021, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest components of our lease residual value exposure relate to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.
Other residential mortgages
The other residential mortgagemortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $741$317 million at Sept. 30, 20172021 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 $1812021 were $54 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$4.6 billion at Sept. 30, 2017 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$20.8 billion of secured margin loans on our balance sheet at Sept. 30, 20172021, 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 Sept. 30, 2021 were fully secured with high quality collateral. As a result, there was no allowance for credit losses related to margin loans.
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.
these assets at Sept. 30, 2021.
| | | Notes to Consolidated Financial Statements (continued) | |
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 | Other | Consolidated | Balance at Dec. 31, 2020 | $ | 8,456 | | $ | 9,040 | | $ | — | | $ | 17,496 | | Dispositions | — | | (5) | | — | | (5) | | Foreign currency translation | (48) | | (23) | | — | | (71) | | Balance at Sept. 30, 2021 | $ | 8,408 | | $ | 9,012 | | $ | — | | $ | 17,420 | |
| | | | | | | | | | | | | | 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 translation | 120 |
| 107 |
| — |
| 227 |
| Balance at Sept. 30, 2017 | $ | 9,120 |
| $ | 8,376 |
| $ | 47 |
| $ | 17,543 |
|
| | | | | | | | | | | | | | | Goodwill by business
(in millions) | Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2019 | $ | 8,332 | | $ | 9,007 | | $ | 47 | | $ | 17,386 | | | | | | | Foreign currency translation | 21 | | (50) | | — | | (29) | | Other (a) | 47 | | — | | (47) | | — | | Balance at Sept. 30, 2020 | $ | 8,400 | | $ | 8,957 | | $ | — | | $ | 17,357 | |
(a) Reflects the transfer of goodwill associated with Capital Markets business. | | | | | | | | | | | | | | Goodwill by business (in millions) | Investment Management |
| Investment Services |
| Other |
| Consolidated |
| Balance at Dec. 31, 2015 | $ | 9,207 |
| $ | 8,366 |
| $ | 45 |
| $ | 17,618 |
| Acquisitions | 29 |
| (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. |
| | Notes to Consolidated Financial Statements(continued)
| |
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 Management | Other | Consolidated | Balance at Dec. 31, 2020 | $ | 608 | | $ | 1,555 | | $ | 849 | | $ | 3,012 | | Disposition | — | | (6) | | — | | (6) | | Amortization | (41) | | (22) | | — | | (63) | | Foreign currency translation | — | | (2) | | — | | (2) | | Balance at Sept. 30, 2021 | $ | 567 | | $ | 1,525 | | $ | 849 | | $ | 2,941 | |
| | | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions) | Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2019 | $ | 678 | | $ | 1,580 | | $ | 849 | | $ | 3,107 | | Amortization | (54) | | (24) | | — | | (78) | | Foreign currency translation | 1 | | (4) | | — | | (3) | | Balance at Sept. 30, 2020 | $ | 625 | | $ | 1,552 | | $ | 849 | | $ | 3,026 | |
| | | | | | | | | | | | | | 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 translation | 16 |
| 4 |
| — |
| 20 |
| Balance at Sept. 30, 2017 | $ | 1,688 |
| $ | 924 |
| $ | 849 |
| $ | 3,461 |
|
| | | | | | | | | | | | | | 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 |
| Acquisitions | 30 |
| 2 |
| — |
| 32 |
| Amortization | (60 | ) | (117 | ) | — |
| (177 | ) | Foreign currency translation | (27 | ) | 1 |
| — |
| (26 | ) | Balance at Sept. 30, 2016 | $ | 1,750 |
| $ | 1,072 |
| $ | 849 |
| $ | 3,671 |
|
| | | Notes to Consolidated Financial Statements (continued) | |
The table below provides a breakdown of intangible assets by type.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 30, 2021 | | Dec. 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 | $ | 1,059 | | $ | (864) | | $ | 195 | | 9 years | | $ | 1,435 | | $ | (1,199) | | $ | 236 | | Customer relationships—Investment and Wealth Management | 609 | | (491) | | 118 | | 9 years | | 705 | | (564) | | 141 | | Other | 46 | | (7) | | 39 | | 14 years | | 59 | | (15) | | 44 | | Total subject to amortization | 1,714 | | (1,362) | | 352 | | 10 years | | 2,199 | | (1,778) | | 421 | | Not subject to amortization: (b) | | | | | | | | | Tradename | 1,294 | | N/A | 1,294 | | N/A | | 1,295 | | N/A | 1,295 | | Customer relationships | 1,295 | | N/A | 1,295 | | N/A | | 1,296 | | N/A | 1,296 | | Total not subject to amortization | 2,589 | | N/A | 2,589 | | N/A | | 2,591 | | N/A | 2,591 | | Total intangible assets | $ | 4,303 | | $ | (1,362) | | $ | 2,941 | | N/A | | $ | 4,790 | | $ | (1,778) | | $ | 3,012 | |
| | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 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 Services | 2,257 |
| (1,705 | ) | 552 |
| 10 years | | 2,249 |
| (1,590 | ) | 659 |
| Other | 25 |
| (22 | ) | 3 |
| 2 years | | 37 |
| (33 | ) | 4 |
| Total subject to amortization | 3,765 |
| (2,948 | ) | 817 |
| 10 years | | 3,725 |
| (2,759 | ) | 966 |
| Not subject to amortization: (b) | | | | | | | | | Trade name | 1,350 |
| N/A |
| 1,350 |
| N/A | | 1,348 |
| N/A |
| 1,348 |
| Customer relationships | 1,294 |
| N/A |
| 1,294 |
| N/A | | 1,284 |
| N/A |
| 1,284 |
| Total not subject to amortization | 2,644 |
| 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) | (a) Excludes fully amortized intangible assets. |
| | (b) | Intangible assets not subject to amortization have an indefinite life. |
(b)Intangible assets not subject to amortization have an indefinite life.
N/A – Not applicable.
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 | | 2022 | | 63 | | 2023 | | 53 | | 2024 | | 45 | | 2025 | | 38 | |
| | | | | | 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 three3 business segments include eight6 reporting units for which goodwill impairment testing is performed on an annual basis. InThe Investment Services segment is comprised of 4 reporting units and the second quarterInvestment and Wealth Management segment is comprised of 2017, BNY Mellon conducted an annual goodwill impairment test on all eight2 reporting units.
| | Notes to Consolidated Financial Statements(continued)
| |
As a result of the annual goodwill impairment test of the eightsix reporting units conducted in the second quarter of 2021, 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 assets | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | Corporate/bank-owned life insurance | $ | 5,349 | | $ | 5,301 | | Accounts receivable | 4,187 | | 3,619 | | Fails to deliver | 3,531 | | 1,371 | | Software | 1,999 | | 1,884 | | Prepaid pension assets | 1,683 | | 1,556 | | Equity in a joint venture and other investments | 1,409 | | 1,259 | | Qualified affordable housing project investments | 1,104 | | 1,145 | | Renewable energy investments | 1,066 | | 1,206 | | Income taxes receivable | 610 | | 599 | | Assets of consolidated investment management funds | 505 | | 487 | | Prepaid expense | 488 | | 477 | | Federal Reserve Bank stock | 470 | | 479 | | Seed capital | 255 | | 215 | | Fair value of hedging derivatives | 238 | | 19 | | Other (a) | 1,904 | | 1,338 | | Total other assets | $ | 24,798 | | $ | 20,955 | |
(a) At Sept. 30, 2021 and Dec. 31, 2020, other assets include $7 million and $7 million, respectively, 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
| | | | | | | | Other assets | Sept. 30, 2017 |
| Dec. 31, 2016 |
| (in millions) | Corporate/bank-owned life insurance | $ | 4,824 |
| $ | 4,789 |
| Accounts receivable | 3,899 |
| 4,060 |
| Fails to deliver | 3,532 |
| 1,732 |
| Software | 1,513 |
| 1,451 |
| Renewable energy investments | 1,344 |
| 1,282 |
| Equity in a joint venture and other investments | 1,153 |
| 1,063 |
| Income taxes receivable | 1,020 |
| 1,172 |
| Qualified affordable housing project investments
| 988 |
| 914 |
| Prepaid pension assets | 951 |
| 836 |
| Prepaid expenses | 512 |
| 438 |
| Federal Reserve Bank stock | 474 |
| 466 |
| Fair value of hedging derivatives | 344 |
| 784 |
| Due from customers on acceptances | 318 |
| 340 |
| Seed capital | 302 |
| 395 |
| Other (a) | 1,113 |
| 1,232 |
| Total other assets | $ | 22,287 |
| $ | 20,954 |
|
| | | (a)Notes to Consolidated Financial Statements (continued) | At Sept. 30, 2017, other assets include $76 million of Federal Home Loan Bank stock, at cost. |
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 $212 million at Sept. 30, 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 securities | Life-to-date | (in millions) | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | Upward adjustments | $ | 55 | | $ | 6 | | $ | 4 | | $ | 61 | | $ | 10 | | $ | 114 | | Downward adjustments | — | | — | | — | | — | | — | | (4) | | Net adjustments | $ | 55 | | $ | 6 | | $ | 4 | | $ | 61 | | $ | 10 | | $ | 110 | |
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, 20172021 and $914 million at Dec. 31, 2016.2020. Commitments to fund future investments in qualified affordable housing projects totaled $439$480 million at Sept. 30, 20172021 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$77 million; 20182022 – $161 $163 million; 20192023 – $107$162 million; 20202024 – $79$58 million; 20212025 – $1$2 million; and 20222026 and thereafter – $16$18 million.
Tax credits and other tax benefits recognized were $39$38 million in the third quarter of 2017, $39 million in the third quarter of 2016,2021, $38 million in the second quarter of 2017, $1152021, $35 million in the third quarter of 2020, $114 million in the first nine months of 20172021 and $115$111 million in the first nine months of 2016.2020.
Amortization expense included in the provision for income taxes was $29$32 million in the third quarter of 2017,2021, $32 million in the second quarter of 2021, $30 million in the third quarter of 2016, $28 million in the second quarter of 2017, $842020, $96 million in the first nine months of 20172021 and $86$92 million in the first nine months of 2016.2020.
Certain seed capital and private equity investments
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 inprimarily 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 NAV | Sept. 30, 2021 | | | | Dec. 31, 2020 | | | (in millions) | Fair value | Unfunded commitments | | | | Fair value | Unfunded commitments | | | Seed capital (a) | $ | 59 | | | $ | 25 | | | | | $ | 52 | | | $ | 22 | | | | Private equity investments (b) | 114 | | | 61 | | | | | 102 | | | 52 | | | | Other (c) | 46 | | | — | | | | | 47 | | | — | | | | Total | $ | 219 | | | $ | 86 | | | | | $ | 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 Sept. 30, 2021 and Dec. 31, 2020, are liquidated. (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, which have a life of 10 years, are liquidated. (c) Primarily includes investments in funds that have been valued using NAV.relate 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.
| | | | | | | | | | | | | | | | | | | | | 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-quarterly | 1-95 days | | $ | 171 |
| | $ | 1 |
| Daily-quarterly | 1-180 days | Private equity investments (SBICs) (b) | 54 |
| | 47 |
| N/A | N/A | | 43 |
| | 46 |
| N/A | N/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. |
| | Notes to Consolidated Financial Statements(continued) | |
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 determined on an internal management basis of accounting, rather than GAAP, which is used for consolidated financial reporting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | | | | | | | | | | | Quarter ended | | Sept. 30, 2021 | | June 30, 2021 | | Sept. 30, 2020 | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | IS | IWM | Other | Total | Fee and other revenue – contract revenue: | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | Asset servicing fees | $ | 1,199 | | $ | 25 | | $ | (17) | | $ | 1,207 | | | $ | 1,175 | | $ | 24 | | $ | (16) | | $ | 1,183 | | | $ | 1,143 | | $ | 25 | | $ | (13) | | $ | 1,155 | | Clearing services fees | 423 | | — | | — | | 423 | | | 435 | | — | | — | | 435 | | | 397 | | — | | — | | 397 | | Issuer services fees | 280 | | — | | — | | 280 | | | 281 | | — | | — | | 281 | | | 296 | | — | | — | | 296 | | Treasury services fees | 168 | | 1 | | — | | 169 | | | 164 | | — | | (1) | | 163 | | | 153 | | 1 | | (2) | | 152 | | Total investment services fees | 2,070 | | 26 | | (17) | | 2,079 | | | 2,055 | | 24 | | (17) | | 2,062 | | | 1,989 | | 26 | | (15) | | 2,000 | | Investment management and performance fees | 5 | | 901 | | (6) | | 900 | | | 4 | | 870 | | (4) | | 870 | | | 4 | | 838 | | (3) | | 839 | | Financing-related fees | 16 | | — | | — | | 16 | | | 16 | | — | | — | | 16 | | | 13 | | 1 | | 1 | | 15 | | Distribution and servicing | (1) | | 28 | | 1 | | 28 | | | — | | 28 | | (1) | | 27 | | | (2) | | 31 | | — | | 29 | | Investment and other income | 38 | | (10) | | — | | 28 | | | 32 | | (7) | | — | | 25 | | | 57 | | (33) | | (2) | | 22 | | Total fee and other revenue – contract revenue | 2,128 | | 945 | | (22) | | 3,051 | | | 2,107 | | 915 | | (22) | | 3,000 | | | 2,061 | | 863 | | (19) | | 2,905 | | Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b) | 250 | | 40 | | 57 | | 347 | | | 229 | | 37 | | 44 | | 310 | | | 185 | | 8 | | 39 | | 232 | | Total fee and other revenue | $ | 2,378 | | $ | 985 | | $ | 35 | | $ | 3,398 | | | $ | 2,336 | | $ | 952 | | $ | 22 | | $ | 3,310 | | | $ | 2,246 | | $ | 871 | | $ | 20 | | $ | 3,137 | |
(a) Primarily includes asset servicing fees, foreign exchange revenue, financing-related fees, investment and other income and net securities gains, all of which are accounted for using other accounting guidance. (b) The revenue in the Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $(4) million in the third quarter of 2021, $5 million in the second quarter of 2021 and $7 million in the third quarter of 2020. IS – Investment Services business segment. IWM – Investment and Wealth Management business segment.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | | | | | | | | | Year-to-date | | Sept. 30, 2021 | | Sept. 30, 2020 | | | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | | | | | Fee and other revenue – contract revenue: | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | Asset servicing fees | $ | 3,549 | | $ | 74 | | $ | (51) | | $ | 3,572 | | | $ | 3,417 | | $ | 73 | | $ | (39) | | $ | 3,451 | | | | | | | Clearing services fees | 1,313 | | — | | — | | 1,313 | | | 1,298 | | — | | — | | 1,298 | | | | | | | Issuer services fees | 806 | | — | | — | | 806 | | | 836 | | — | | — | | 836 | | | | | | | Treasury services fees | 491 | | 1 | | — | | 492 | | | 446 | | 1 | | (1) | | 446 | | | | | | | Total investment services fees | 6,159 | | 75 | | (51) | | 6,183 | | | 5,997 | | 74 | | (40) | | 6,031 | | | | | | | Investment management and performance fees | 13 | | 2,654 | | (15) | | 2,652 | | | 13 | | 2,492 | | (12) | | 2,493 | | | | | | | Financing-related fees | 52 | | — | | — | | 52 | | | 64 | | 2 | | 1 | | 67 | | | | | | | Distribution and servicing | — | | 84 | | — | | 84 | | | (21) | | 108 | | — | | 87 | | | | | | | Investment and other income | 106 | | (28) | | — | | 78 | | | 191 | | (124) | | 1 | | 68 | | | | | | | Total fee and other revenue – contract revenue | 6,330 | | 2,785 | | (66) | | 9,049 | | | 6,244 | | 2,552 | | (50) | | 8,746 | | | | | | | Fee and other revenue – not in scope of ASC 606 (a)(b) | 729 | | 95 | | 96 | | 920 | | | 777 | | 3 | | 138 | | 918 | | | | | | | Total fee and other revenue | $ | 7,059 | | $ | 2,880 | | $ | 30 | | $ | 9,969 | | | $ | 7,021 | | $ | 2,555 | | $ | 88 | | $ | 9,664 | | | | | | |
(a) Primarily includes asset servicing fees, foreign exchange revenue, financing-related fees, investment and other income and net securities gains, all of which are accounted for using other accounting guidance. (b) The revenue in the Investment and Wealth Management business segment is net of income attributable to noncontrolling interests related to consolidated investment management funds of $6 million in the first nine months of 2021 and $4 million in the first nine months of 2020. IS – Investment Services business segment. IWM – Investment and Wealth Management business segment.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.5 billion at Sept. 30, 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 $108 million at Sept. 30, 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 $185 million at Sept. 30, 2021 and $167 million at Dec. 31, 2020. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the third quarter of 2021 relating to contract liabilities as of June 30, 2021 was $68 million. Revenue recognized in the first nine months of 2021 relating to contract liabilities as of Dec. 31, 2020 was $101 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 $62 million at Sept. 30, 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 third quarter of 2021, $6 million in the third quarter of 2020, $5 million in the second quarter of 2021, $15 million in the first nine months of 2021 and $16 million in the first nine months of 2020.
Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific 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
| | | Notes to Consolidated Financial Statements (continued) | |
the inception of a contract which enables the fulfillment of the performance obligation, and totaled $19 million at Sept. 30, 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 third quarter of 2021, $1 million in the third quarter of 2020, less than $1 million in the second quarter of 2021, $1 million in the first nine months of 2021 and $4 million in the first nine months 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 revenue | Quarter ended | | Year-to-date | (in millions) | Sept. 30, 2021 | June 30, 2021 | Sept. 30, 2020 | | Sept. 30, 2021 | Sept. 30, 2020 | Interest revenue | | | | | | | Deposits with the Federal Reserve and other central banks | $ | (21) | | $ | (25) | | $ | (10) | | | $ | (62) | | $ | 63 | | Deposits with banks | 12 | | 11 | | 20 | | | 37 | | 118 | | Federal funds sold and securities purchased under resale agreements | 32 | | 25 | | 48 | | | 89 | | 505 | | Margin loans | 52 | | 49 | | 41 | | | 146 | | 168 | | Non-margin loans | 186 | | 188 | | 199 | | | 559 | | 738 | | Securities: | | | | | | | Taxable | 413 | | 415 | | 499 | | | 1,278 | | 1,649 | | Exempt from federal income taxes | 11 | | 11 | | 7 | | | 31 | | 19 | | Total securities | 424 | | 426 | | 506 | | | 1,309 | | 1,668 | | Trading securities | 8 | | 11 | | 16 | | | 38 | | 73 | | Total interest revenue | 693 | | 685 | | 820 | | | 2,116 | | 3,333 | | Interest expense | | | | | | | Deposits | (44) | | (49) | | (29) | | | (130) | | 194 | | Federal funds purchased and securities sold under repurchase agreements | 2 | | (5) | | 6 | | | (6) | | 282 | | Trading liabilities | 1 | | 2 | | 2 | | | 6 | | 11 | | Other borrowed funds | 3 | | 1 | | 3 | | | 6 | | 14 | | Commercial paper | — | | — | | — | | | — | | 7 | | Customer payables | (1) | | — | | — | | | (2) | | 29 | | Long-term debt | 91 | | 91 | | 135 | | | 301 | | 499 | | Total interest expense | 52 | | 40 | | 117 | | | 175 | | 1,036 | | Net interest revenue | 641 | | 645 | | 703 | | | 1,941 | | 2,297 | | Provision for credit losses | (45) | | (86) | | 9 | | | (214) | | 321 | | Net interest revenue after provision for credit losses | $ | 686 | | $ | 731 | | $ | 694 | | | $ | 2,155 | | $ | 1,976 | |
| | | | | | | | | | | | | | | | | | Net interest revenue | Quarter 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 loans | 87 |
| 87 |
| 67 |
| | 249 |
| 194 |
| Securities: | | | | | | | Taxable | 510 |
| 476 |
| 434 |
| | 1,447 |
| 1,307 |
| Exempt from federal income taxes | 16 |
| 16 |
| 17 |
| | 49 |
| 53 |
| Total securities | 526 |
| 492 |
| 451 |
|
| 1,496 |
| 1,360 |
| Deposits with banks | 34 |
| 27 |
| 26 |
| | 83 |
| 76 |
| Deposits with the Federal Reserve and other central banks | 89 |
| 71 |
| 37 |
| | 217 |
| 170 |
| Federal funds sold and securities purchased under resale agreements | 119 |
| 86 |
| 62 |
| | 272 |
| 167 |
| Trading assets | 13 |
| 17 |
| 13 |
| | 46 |
| 43 |
| Total interest revenue | 1,151 |
| 1,052 |
| 874 |
|
| 3,163 |
| 2,647 |
| Interest expense | | | | | | | Deposits | 57 |
| 32 |
| (6 | ) | | 98 |
| 21 |
| Federal funds purchased and securities sold under repurchase agreements | 70 |
| 38 |
| 6 |
| | 132 |
| 28 |
| Trading liabilities | 2 |
| 2 |
| 2 |
| | 6 |
| 5 |
| Other borrowed funds | 7 |
| 4 |
| 1 |
| | 13 |
| 5 |
| Commercial paper | 8 |
| 5 |
| 1 |
| | 18 |
| 5 |
| Customer payables | 19 |
| 16 |
| 3 |
| | 42 |
| 9 |
| Long-term debt | 149 |
| 129 |
| 93 |
| | 397 |
| 267 |
| Total interest expense | 312 |
| 226 |
| 100 |
|
| 706 |
| 340 |
| Net interest revenue | 839 |
| 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 |
|
| | | Notes to Consolidated Financial Statements (continued) | |
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) cost | Quarter ended | Sept. 30, 2021 | | June 30, 2021 | | Sept. 30, 2020 | (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 | $ | — | | $ | 4 | | $ | — | | | $ | — | | $ | 3 | | $ | — | | | $ | — | | $ | 3 | | $ | — | | Interest cost | 35 | | 6 | | 1 | | | 34 | | 7 | | 1 | | | 39 | | 7 | | 2 | | Expected return on assets | (75) | | (9) | | (2) | | | (75) | | (8) | | (1) | | | (80) | | (10) | | (2) | | Other | 24 | | 3 | | — | | | 24 | | 3 | | — | | | 22 | | 2 | | (1) | | Net periodic benefit (credit) cost | $ | (16) | | $ | 4 | | $ | (1) | | | $ | (17) | | $ | 5 | | $ | — | | | $ | (19) | | $ | 2 | | $ | (1) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Quarter 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 cost | 45 |
| 8 |
| 2 |
| | 45 |
| 8 |
| 2 |
| | 45 |
| 9 |
| 2 |
| Expected return on assets | (81 | ) | (12 | ) | (2 | ) | | (81 | ) | (12 | ) | (2 | ) | | (82 | ) | (13 | ) | (2 | ) | Other | 17 |
| 9 |
| (1 | ) | | 17 |
| 9 |
| (1 | ) | | 17 |
| 4 |
| (1 | ) | Net periodic benefit (credit) cost | $ | (19 | ) | $ | 12 |
| $ | (1 | ) | | $ | (19 | ) | $ | 12 |
| $ | (1 | ) | | $ | (20 | ) | $ | 8 |
| $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Year-to-date | | Sept. 30, 2021 | | Sept. 30, 2020 | (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | | Domestic pension benefits | Foreign pension benefits | Health care benefits | Service cost | $ | — | | $ | 11 | | $ | — | | | $ | — | | $ | 9 | | $ | — | | Interest cost | 103 | | 19 | | 3 | | | 117 | | 20 | | 4 | | Expected return on assets | (225) | | (26) | | (5) | | | (239) | | (29) | | (5) | | Other | 73 | | 10 | | — | | | 65 | | 8 | | (2) | | Net periodic benefit (credit) cost | $ | (49) | | $ | 14 | | $ | (2) | | | $ | (57) | | $ | 8 | | $ | (3) | |
| | 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 cost | 135 |
| 24 |
| 6 |
| | 135 |
| 27 |
| 6 |
| Expected return on assets | (243 | ) | (36 | ) | (6 | ) | | (246 | ) | (39 | ) | (6 | ) | Other | 51 |
| 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$219 million (25.4%(18.8% effective tax rate) in the third quarter of 2017. The income tax provision was $3242021, $213 million (24.6%(18.4% effective tax rate) in the third quarter of 20162020 and $332$241 million (25.4%(19.0% effective tax rate) in the second quarter of 2017.2021.
Our total tax reserves as of Sept. 30, 20172021 were $157$120 million compared with $143$119 million at June 30, 2017.Dec. 31, 2020. If these tax reserves were unnecessary, $157$120 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, 20172021 is accrued interest, where applicable, of $24$33 million. The additional tax expense related to interest for the nine months ended Sept. 30, 20172021 was $7$6 million, compared with $2$5 million for the nine months ended Sept. 30, 2016.2020.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $57$1 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 income tax returns are closed to examination through 2014. Our New York City andincome tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2012.2018.
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.
| | | Notes to Consolidated Financial Statements (continued) | |
Additionally, we 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, 20172021 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated investments | Sept. 30, 2021 | | Dec. 31, 2020 | (in millions) | Investment Management funds | Securitization | Total consolidated investments | | Investment Management funds | Securitization | Total consolidated investments | Trading assets | $ | 487 | | | $ | 400 | | $ | 887 | | | $ | 482 | | | $ | 400 | | $ | 882 | | Other assets | 18 | | | — | | 18 | | | 5 | | | — | | 5 | | Total assets | $ | 505 | | (a) | $ | 400 | | $ | 905 | | | $ | 487 | | (b) | $ | 400 | | $ | 887 | | | | | | | | | | | | Other liabilities | $ | 5 | | | $ | 400 | | $ | 405 | | | $ | 3 | | | $ | 400 | | $ | 403 | | Total liabilities | $ | 5 | | (a) | $ | 400 | | $ | 405 | | | $ | 3 | | (b) | $ | 400 | | $ | 403 | | Nonredeemable noncontrolling interests | $ | 273 | | (a) | $ | — | | $ | 273 | | | $ | 143 | | (b) | $ | — | | $ | 143 | |
| | Notes to Consolidated Financial Statements(continued)
| | (a) Includes voting model entities (“VMEs”) with assets of $185 million, liabilities of $1 million and nonredeemable noncontrolling interests of $48 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 assets | 576 |
| | — |
| 576 |
| Other assets | 226 |
| | — |
| 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 assets | 979 |
| | — |
| 979 |
| Other assets | 252 |
| | — |
| 252 |
| Total assets | $ | 1,231 |
| (a) | $ | 400 |
| $ | 1,631 |
| Trading liabilities | $ | 282 |
| | $ | — |
| $ | 282 |
| Other liabilities | 33 |
| | 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.
Non-consolidated VIEs
As of Sept. 30, 20172021 and Dec. 31, 2016,2020, the following assets and liabilities related to the VIEs where BNY Mellon is we 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 |
| Other | 2,559 |
| 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 |
| Other | 2,400 |
| 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 VIEs | Sept. 30, 2021 | | Dec. 31, 2020 | (in millions) | Assets | Liabilities | Maximum loss exposure | | Assets | Liabilities | Maximum loss exposure | Securities – Available-for-sale (a) | $ | 208 | | $ | — | | $ | 208 | | | $ | 217 | | $ | — | | $ | 217 | | Other | 2,380 | | 480 | | 2,882 | | | 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, 20172021 and Dec. 31, 2016.2020.
| | | | | | | | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | | Sept. 30, 2021 | Dec. 31, 2020 | Sept. 30, 2021 | Dec. 31, 2020 | | Per annum dividend rate | Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period or (ii) 4.000% | 5,001 | | 5,001 | | | $ | 500 | | $ | 500 | | Series D | 4.500% 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 E | 4.950% 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 F | 4.625% 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 G | 4.700% 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 H | 3.700% 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 | | Total | 45,826 | | 45,826 | | | $ | 4,541 | | $ | 4,541 | |
| | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | Per annum dividend rate | Sept. 30, 2017 |
| Dec. 31, 2016 |
| Sept. 30, 2017 |
| Dec. 31, 2016 |
| Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000% | 5,001 |
| 5,001 |
| | $ | 500 |
| $ | 500 |
| Series C | 5.2% | 5,825 |
| 5,825 |
| | 568 |
| 568 |
| Series D | 4.50% 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 E | 4.95% 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 F | 4.625% 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 |
| Total | 35,826 |
| 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 | | 3Q21 | | 2Q21 | | | 3Q20 | | YTD21 | | YTD20 | | Per share | Total dividend | | Per share | Total dividend | | | Per share | Total dividend | | Per share | Total dividend | | Per share | Total dividend | Series A | | 100 | | (a) | | $ | 1,011.11 | | $ | 5 | | | $ | 1,011.11 | | $ | 5 | | | | $ | 1,011.11 | | $ | 5 | | | $ | 3,033.33 | | $ | 15 | | | $ | 3,044.44 | | $ | 15 | | Series C | | 4,000 | | | | N/A | N/A | | N/A | N/A | | | 1,300.00 | | 7 | | | N/A | N/A | | 3,900.00 | | 23 | | Series D | | 100 | | | | N/A | — | | | 2,250.00 | | 11 | | | | N/A | — | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | | Series E | | 100 | | | | 898.50 | | 10 | | | 911.68 | | 9 | | | | 962.65 | | 10 | | | 2,735.00 | | 28 | | | 3,437.65 | | 35 | | Series F | | 100 | | | | 2,312.50 | | 23 | | | N/A | — | | | | 2,312.50 | | 23 | | | 4,625.00 | | 46 | | | 4,625.00 | | 46 | | Series G | | 100 | | | | 2,350.00 | | 23 | | | N/A | — | | | | 1,579.72 | | 16 | | | 4,700.00 | | 47 | | | 1,579.72 | | 16 | | Series H | | 100 | | | | 925.00 | | 5 | | | 925.00 | | 6 | | | | N/A | N/A | | 3,258.06 | | 19 | | | N/A | N/A | Total | | | | | | $ | 66 | | | | $ | 31 | | | | | $ | 61 | | | | $ | 166 | | | | $ | 146 | |
(a) Represents Normal Preferred Capital Securities. N/A – Not applicable.
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.
| | | Notes to Consolidated Financial Statements(continued) | |
Note 13 - 13–Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | Sept. 30, 2021 | | June 30, 2021 | | Sept. 30, 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) | $ | (158) | | $ | (44) | | $ | (202) | | | $ | 38 | | $ | 13 | | $ | 51 | | | $ | 262 | | $ | 69 | | $ | 331 | | Total foreign currency translation | (158) | | (44) | | (202) | | | 38 | | 13 | | 51 | | | 262 | | 69 | | 331 | | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | | | | | Unrealized (loss) gain arising during period | (201) | | 51 | | (150) | | | 106 | | (29) | | 77 | | | 297 | | (64) | | 233 | | Reclassification adjustment (b) | (2) | | — | | (2) | | | (2) | | 1 | | (1) | | | (9) | | 3 | | (6) | | Net unrealized (loss) gain on assets available-for-sale | (203) | | 51 | | (152) | | | 104 | | (28) | | 76 | | | 288 | | (61) | | 227 | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 28 | | (6) | | 22 | | | 27 | | (2) | | 25 | | | 24 | | (4) | | 20 | | Total defined benefit plans | 28 | | (6) | | 22 | | | 27 | | (2) | | 25 | | | 24 | | (4) | | 20 | | Unrealized (loss) gain on cash flow hedges: | | | | | | | | | | | | Unrealized hedge gain arising during period | 1 | | — | | 1 | | | — | | — | | — | | | 9 | | (1) | | 8 | | Reclassification of net loss (gain) to net income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | FX contracts – staff expense | (2) | | — | | (2) | | | (4) | | 1 | | (3) | | | — | | — | | — | | Total reclassifications to net income | (2) | | — | | (2) | | | (4) | | 1 | | (3) | | | — | | — | | — | | Net unrealized (loss) gain on cash flow hedges | (1) | | — | | (1) | | | (4) | | 1 | | (3) | | | 9 | | (1) | | 8 | | Total other comprehensive (loss) income | $ | (334) | | $ | 1 | | $ | (333) | | | $ | 165 | | $ | (16) | | $ | 149 | | | $ | 583 | | $ | 3 | | $ | 586 | |
(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 other expense on the consolidated income statement.
| | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Year-to-date | | Sept. 30, 2021 | | Sept. 30, 2020 | (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) | $ | (247) | | $ | (54) | | $ | (301) | | | $ | 101 | | $ | (24) | | $ | 77 | | Total foreign currency translation | (247) | | (54) | | (301) | | | 101 | | (24) | | 77 | | Unrealized (loss) gain on assets available-for-sale: | | | | | | | | Unrealized (loss) gain arising during period | (1,021) | | 245 | | (776) | | | 1,529 | | (360) | | 1,169 | | Reclassification adjustment (b) | (4) | | 1 | | (3) | | | (27) | | 7 | | (20) | | Net unrealized (loss) gain on assets available-for-sale | (1,025) | | 246 | | (779) | | | 1,502 | | (353) | | 1,149 | | Defined benefit plans: | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 83 | | (14) | | 69 | | | 72 | | (15) | | 57 | | Total defined benefit plans | 83 | | (14) | | 69 | | | 72 | | (15) | | 57 | | Unrealized gain (loss) on cash flow hedges: | | | | | | | | Unrealized hedge gain (loss) arising during period | 2 | | — | | 2 | | | (1) | | 1 | | — | | Reclassification of net (gains) losses to net income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | FX contracts – staff expense | (11) | | 2 | | (9) | | | 2 | | (1) | | 1 | | Total reclassifications to net income | (11) | | 2 | | (9) | | | 2 | | (1) | | 1 | | Net unrealized (loss) on cash flow hedges | (9) | | 2 | | (7) | | | 1 | | — | | 1 | | Total other comprehensive (loss) income | $ | (1,198) | | $ | 180 | | $ | (1,018) | | | $ | 1,676 | | $ | (392) | | $ | 1,284 | |
(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 other expense on the consolidated income statement.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 translation | 221 |
| 65 |
| 286 |
| | 249 |
| 81 |
| 330 |
| | (104 | ) | (82 | ) | (186 | ) | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | | | | | Unrealized gain (loss) arising during period | 47 |
| (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-sale | 28 |
| (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 plans | 25 |
| (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 hedges | 1 |
| (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. |
(continued)
| | | | | | | | | | | | | | | | | | | | | 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 translation | 566 |
| 175 |
| 741 |
| | (223 | ) | (210 | ) | (433 | ) | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | Unrealized gain (loss) arising during period | 357 |
| (144 | ) | 213 |
| | 338 |
| (111 | ) | 227 |
| Reclassification adjustment (b) | (29 | ) | 10 |
| (19 | ) | | (65 | ) | 22 |
| (43 | ) | Net unrealized gain (loss) on assets available-for-sale | 328 |
| (134 | ) | 194 |
| | 273 |
| (89 | ) | 184 |
| Defined benefit plans: | | | | | | | | Net gain (loss) arising during the period | 3 |
| (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 plans | 77 |
| (26 | ) | 51 |
| | 68 |
| (23 | ) | 45 |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | | Unrealized hedge gain (loss) arising during period | 4 |
| (1 | ) | 3 |
| | (115 | ) | 38 |
| (77 | ) | Reclassification adjustment (b) | 13 |
| (5 | ) | 8 |
| | 110 |
| (37 | ) | 73 |
| Net unrealized gain (loss) on cash flow hedges | 17 |
| (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. |
| | 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, 20172021 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
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Sept. 30, 2021 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Assets: | | | | | | Available-for-sale securities: | | | | | | U.S. Treasury | $ | 25,961 | | $ | — | | $ | — | | $ | — | | $ | 25,961 | | Agency RMBS | — | | 14,908 | | — | | — | | 14,908 | | Sovereign debt/sovereign guaranteed | 5,587 | | 7,482 | | — | | — | | 13,069 | | Agency commercial MBS | — | | 8,544 | | — | | — | | 8,544 | | Supranational | — | | 7,939 | | — | | — | | 7,939 | | Foreign covered bonds | — | | 6,946 | | — | | — | | 6,946 | | CLOs | — | | 5,204 | | — | | — | | 5,204 | | Non-agency commercial MBS | — | | 3,182 | | — | | — | | 3,182 | | Foreign government agencies | — | | 2,679 | | — | | — | | 2,679 | | State and political subdivisions | — | | 2,644 | | — | | — | | 2,644 | | U.S. government agencies | — | | 2,643 | | — | | — | | 2,643 | | Non-agency RMBS (b) | — | | 2,598 | | — | | — | | 2,598 | | Corporate bonds | — | | 2,377 | | — | | — | | 2,377 | | Other ABS | — | | 2,312 | | — | | — | | 2,312 | | | | | | | | Other debt securities | — | | 1 | | — | | — | | 1 | | Total available-for-sale securities | 31,548 | | 69,459 | | — | | — | | 101,007 | | Trading assets: | | | | | | Debt instruments | 1,811 | | 2,604 | | — | | — | | 4,415 | | Equity instruments (c) | 9,274 | | — | | — | | — | | 9,274 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 4 | | 3,420 | | — | | (1,455) | | 1,969 | | Foreign exchange | — | | 6,351 | | — | | (4,251) | | 2,100 | | Equity and other contracts | 6 | | 259 | | — | | (169) | | 96 | | Total derivative assets not designated as hedging | 10 | | 10,030 | | — | | (5,875) | | 4,165 | | Total trading assets | 11,095 | | 12,634 | | — | | (5,875) | | 17,854 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | Foreign exchange | — | | 238 | | — | | — | | 238 | | Total derivative assets designated as hedging | — | | 238 | | — | | — | | 238 | | Other assets (d) | 531 | | 325 | | — | | — | | 856 | | Total other assets | 531 | | 563 | | — | | — | | 1,094 | | Assets measured at NAV (d) | | | | | 219 | | Total assets | $ | 43,174 | | $ | 82,656 | | $ | — | | $ | (5,875) | | $ | 120,174 | | Percentage of total assets prior to netting | 34 | % | 66 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Sept. 30, 2021 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Liabilities: | | | | | | Trading liabilities: | | | | | | Debt instruments | $ | 2,331 | | $ | 68 | | $ | — | | $ | — | | $ | 2,399 | | Equity instruments | 61 | | — | | — | | — | | 61 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 3 | | 2,986 | | — | | (1,844) | | 1,145 | | Foreign exchange | — | | 6,218 | | — | | (4,685) | | 1,533 | | Equity and other contracts | — | | 14 | | — | | — | | 14 | | Total derivative liabilities not designated as hedging | 3 | | 9,218 | | — | | (6,529) | | 2,692 | | Total trading liabilities | 2,395 | | 9,286 | | — | | (6,529) | | 5,152 | | Long-term debt (c) | — | | 400 | | — | | — | | 400 | | Other liabilities: | | | | | | Derivative liabilities designated as hedging: | | | | | | Interest rate | — | | 421 | | — | | — | | 421 | | Foreign exchange | — | | 7 | | — | | — | | 7 | | Total derivative liabilities designated as hedging | — | | 428 | | — | | — | | 428 | | Other liabilities | 1 | | 4 | | — | | — | | 5 | | Total other liabilities | 1 | | 432 | | — | | — | | 433 | | Total liabilities | $ | 2,396 | | $ | 10,118 | | $ | — | | $ | (6,529) | | $ | 5,985 | | Percentage of total liabilities prior to netting | 19 | % | 81 | % | — | % | | |
(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 $387 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.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Dec. 31, 2020 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Assets: | | | | | | Available-for-sale securities: | | | | | | U.S. Treasury | $ | 24,894 | | $ | — | | $ | — | | $ | — | | $ | 24,894 | | Agency RMBS | — | | 22,347 | | — | | — | | 22,347 | | Sovereign debt/sovereign guaranteed | 5,909 | | 6,482 | | — | | — | | 12,391 | | Agency commercial MBS | — | | 9,228 | | — | | — | | 9,228 | | Supranational | — | | 7,160 | | — | | — | | 7,160 | | Foreign covered bonds | — | | 6,725 | | — | | — | | 6,725 | | CLOs | — | | 4,703 | | — | | — | | 4,703 | | Foreign government agencies | — | | 4,135 | | — | | — | | 4,135 | | U.S. government agencies | — | | 3,853 | | — | | — | | 3,853 | | Other ABS | — | | 3,164 | | — | | — | | 3,164 | | Non-agency commercial MBS | — | | 3,017 | | — | | — | | 3,017 | | Non-agency RMBS (b) | — | | 2,326 | | — | | — | | 2,326 | | State and political subdivisions | — | | 2,308 | | — | | — | | 2,308 | | Corporate bonds | — | | 1,994 | | — | | — | | 1,994 | | Commercial paper/CDs | — | | 249 | | — | | —�� | | 249 | | Other debt securities | — | | 1 | | — | | — | | 1 | | Total available-for-sale securities | 30,803 | | 77,692 | | — | | — | | 108,495 | | Trading assets: | | | | | | Debt instruments | 1,803 | | 3,868 | | — | | — | | 5,671 | | Equity instruments (c) | 5,775 | | — | | — | | — | | 5,775 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 5 | | 4,477 | | — | | (1,952) | | 2,530 | | Foreign exchange | — | | 7,688 | | — | | (6,392) | | 1,296 | | Equity and other contracts | — | | 2 | | — | | (2) | | — | | Total derivative assets not designated as hedging | 5 | | 12,167 | | — | | (8,346) | | 3,826 | | Total trading assets | 7,583 | | 16,035 | | — | | (8,346) | | 15,272 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | Foreign exchange | — | | 19 | | — | | — | | 19 | | Total derivative assets designated as hedging | — | | 19 | | — | | — | | 19 | | Other assets (d) | 504 | | 285 | | — | | — | | 789 | | Total other assets | 504 | | 304 | | — | | — | | 808 | | Assets measured at NAV (d) | | | | | 201 | | Total assets | $ | 38,890 | | $ | 94,031 | | $ | — | | $ | (8,346) | | $ | 124,776 | | Percentage of total assets prior to netting | 29 | % | 71 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2020 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Liabilities: | | | | | | Trading liabilities: | | | | | | Debt instruments | $ | 2,287 | | $ | 35 | | $ | — | | $ | — | | $ | 2,322 | | Equity instruments | 11 | | — | | — | | — | | 11 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 2 | | 3,878 | | — | | (2,348) | | 1,532 | | Foreign exchange | — | | 7,622 | | — | | (5,484) | | 2,138 | | Equity and other contracts | 7 | | 34 | | — | | (13) | | 28 | | Total derivative liabilities not designated as hedging | 9 | | 11,534 | | — | | (7,845) | | 3,698 | | Total trading liabilities | 2,307 | | 11,569 | | — | | (7,845) | | 6,031 | | Long-term debt (c) | — | | 400 | | — | | — | | 400 | | Other liabilities: | | | | | | Derivative liabilities designated as hedging: | | | | | | Interest rate | — | | 666 | | — | | — | | 666 | | Foreign exchange | — | | 441 | | — | | — | | 441 | | Total derivative liabilities designated as hedging | — | | 1,107 | | — | | — | | 1,107 | | Other liabilities | 1 | | 2 | | — | | — | | 3 | | Total other liabilities | 1 | | 1,109 | | — | | — | | 1,110 | | Total liabilities | $ | 2,308 | | $ | 13,078 | | $ | — | | $ | (7,845) | | $ | 7,541 | | Percentage of total liabilities prior to netting | 15 | % | 85 | % | — | % | | |
(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.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2021 | | Dec. 31, 2020 | Total carrying value (b) | | Ratings (a) | | Total carrying value (b) | | Ratings (a) | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | A1+/A2 & SP-1 | Not rated | | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | A1+/A2 & SP-1 | Not rated | (dollars in millions) | | | Non-agency RMBS (c), originated in: | | | | | | | | | | | | | | | | | | 2008-2021 | $ | 1,996 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 1,548 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | 2007 | 124 | | | — | | 4 | | — | | 40 | | — | | 56 | | | 179 | | | 12 | | 3 | | — | | 42 | | — | | 43 | | 2006 | 194 | | | — | | 24 | | — | | 33 | | — | | 43 | | | 237 | | | — | | 23 | | — | | 40 | | — | | 37 | | 2005 | 179 | | | 3 | | 5 | | 1 | | 40 | | — | | 51 | | | 227 | | | 3 | | — | | 7 | | 52 | | — | | 38 | | 2004 and earlier | 105 | | | 16 | | 10 | | 5 | | 57 | | — | | 12 | | | 135 | | | 19 | | 10 | | 11 | | 54 | | — | | 6 | | Total non-agency RMBS | $ | 2,598 | | | 78 | % | 3 | % | — | % | 9 | % | — | % | 10 | % | | $ | 2,326 | | | 69 | % | 3 | % | 1 | % | 16 | % | — | % | 11 | % | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | | | | | 2009-2021 | $ | 3,182 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 3,017 | | | 99 | % | 1 | % | — | % | — | % | — | % | — | % | Foreign covered bonds: | | | | | | | | | | | | | | | | | | Canada | $ | 2,537 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 2,552 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | UK | 1,220 | | | 100 | | — | | — | | — | | — | | — | | | 1,259 | | | 100 | | — | | — | | — | | — | | — | | Australia | 865 | | | 100 | | — | | — | | — | | — | | — | | | 951 | | | 100 | | — | | — | | — | | — | | — | | Germany | 666 | | | 100 | | — | | — | | — | | — | | — | | | 494 | | | 100 | | — | | — | | — | | — | | — | | Norway | 621 | | | 100 | | — | | — | | — | | — | | — | | | 703 | | | 100 | | — | | — | | — | | — | | — | | Other | 1,037 | | | 100 | | — | | — | | — | | — | | — | | | 766 | | | 100 | | — | | — | | — | | — | | — | | Total foreign covered bonds | $ | 6,946 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 6,725 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | | | | | Germany | $ | 3,651 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 2,222 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | France | 1,852 | | | 100 | | — | | — | | — | | — | | — | | | 1,697 | | | 100 | | — | | — | | — | | — | | — | | Italy | 1,536 | | | — | | — | | 100 | | — | | — | | — | | | 2,010 | | | — | | — | | 100 | | — | | — | | — | | UK | 1,203 | | | 99 | | — | | — | | — | | 1 | | — | | | 1,089 | | | 100 | | — | | — | | — | | — | | — | | Singapore | 1,102 | | | 100 | | — | | — | | — | | — | | — | | | 984 | | | 100 | | — | | — | | — | | — | | — | | Spain | 998 | | | — | | 9 | | 91 | | — | | — | | — | | | 1,920 | | | — | | 5 | | 95 | | — | | — | | — | | Canada | 651 | | | 100 | | — | | — | | — | | — | | — | | | 572 | | | 100 | | — | | — | | — | | — | | — | | Hong Kong | 568 | | | 100 | | — | | — | | — | | — | | — | | | 29 | | | 100 | | — | | — | | — | | — | | — | | Netherlands | 340 | | | 100 | | — | | — | | — | | — | | — | | | 491 | | | 100 | | — | | — | | — | | — | | — | | Austria | 306 | | | 100 | | — | | — | | — | | — | | — | | | 256 | | | 100 | | — | | — | | — | | — | | — | | Japan | 296 | | | — | | 100 | | — | | — | | — | | — | | | 408 | | | — | | 100 | | — | | — | | — | | — | | Ireland | 235 | | | — | | 100 | | — | | — | | — | | — | | | 252 | | | — | | 100 | | — | | — | | — | | — | | Other (d) | 331 | | | 60 | | — | | — | | 40 | | — | | — | | | 461 | | | 73 | | — | | — | | 27 | | — | | — | | Total sovereign debt/sovereign guaranteed | $ | 13,069 | | | 75 | % | 5 | % | 19 | % | 1 | % | — | % | — | % | | $ | 12,391 | | | 62 | % | 6 | % | 31 | % | 1 | % | — | % | — | % | Foreign government agencies: | | | | | | | | | | | | | | | | | | Netherlands | $ | 834 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | | $ | 847 | | | 100 | % | — | % | — | % | — | % | — | % | — | % | Canada | 572 | | | 78 | | 22 | | — | | — | | — | | — | | | 511 | | | 75 | | 25 | | — | | — | | — | | — | | France | 277 | | | 100 | | — | | — | | — | | — | | — | | | 305 | | | 100 | | — | | — | | — | | — | | — | | Norway | 270 | | | 100 | | — | | — | | — | | — | | — | | | 273 | | | 100 | | — | | — | | — | | — | | — | | Sweden | 253 | | | 100 | | — | | — | | — | | — | | — | | | 281 | | | 100 | | — | | — | | — | | — | | — | | Finland | 205 | | | 100 | | — | | — | | — | | — | | — | | | 225 | | | 100 | | — | | — | | — | | — | | — | | Germany | — | | | — | | — | | — | | — | | — | | — | | | 1,473 | | | 100 | | — | | — | | — | | — | | — | | Other | 268 | | | 64 | | 36 | | — | | — | | — | | — | | | 220 | | | 55 | | 45 | | — | | — | | — | | — | | Total foreign government agencies | $ | 2,679 | | | 92 | % | 8 | % | — | % | — | % | — | % | — | % | | $ | 4,135 | | | 95 | % | 5 | % | — | % | — | % | — | % | — | % |
(a)Represents ratings by S&P or the equivalent. (b) At Sept. 30, 2021 and Dec. 31, 2020, sovereign debt/sovereign guaranteed securities were no material transfers betweenincluded 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 $387 million at Sept. 30, 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.$134 million at Sept. 30, 2021 and $125 million at Dec. 31, 2020.
| | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Sept. 30, 2017 | Total 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 guaranteed | 74 |
| 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 securities | 4 |
| — |
| — |
| — |
| 4 |
| Money market funds (b) | 939 |
| — |
| — |
| — |
| 939 |
| Corporate bonds | — |
| 1,275 |
| — |
| — |
| 1,275 |
| Other debt securities | — |
| 3,151 |
| — |
| — |
| 3,151 |
| Foreign covered bonds | 2,284 |
| 258 |
| — |
| — |
| 2,542 |
| Non-agency RMBS (c) | — |
| 1,185 |
| — |
| — |
| 1,185 |
| Total available-for-sale securities | 18,803 |
| 61,251 |
| — |
| — |
| 80,054 |
| Trading assets: | | | | | | Debt and equity instruments (b) | 433 |
| 1,016 |
| — |
| — |
| 1,449 |
| Derivative assets not designated as hedging: | | | | | | Interest rate | 3 |
| 6,731 |
| — |
| (5,301 | ) | 1,433 |
| Foreign exchange | — |
| 4,879 |
| — |
| (3,120 | ) | 1,759 |
| Equity and other contracts | 1 |
| 73 |
| — |
| (49 | ) | 25 |
| Total derivative assets not designated as hedging | 4 |
| 11,683 |
| — |
| (8,470 | ) | 3,217 |
| Total trading assets | 437 |
| 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 assets | 148 |
| 528 |
| — |
| — |
| 827 |
| Subtotal assets of operations at fair value | 19,388 |
| 74,478 |
| — |
| (8,470 | ) | 85,547 |
| Percentage of assets of operations prior to netting | 21 | % | 79 | % | — | % | | | Assets of consolidated investment management funds | 398 |
| 404 |
| — |
| — |
| 802 |
| Total assets | $ | 19,786 |
| $ | 74,882 |
| $ | — |
| $ | (8,470 | ) | $ | 86,349 |
| Percentage of total assets prior to netting | 21 | % | 79 | % | — | % | | |
| | | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Sept. 30, 2017 | Total 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 rate | 3 |
| 6,681 |
| — |
| (5,705 | ) | 979 |
| Foreign exchange | — |
| 4,463 |
| — |
| (3,095 | ) | 1,368 |
| Equity and other contracts | 3 |
| 135 |
| — |
| (75 | ) | 63 |
| Total derivative liabilities not designated as hedging | 6 |
| 11,279 |
| — |
| (8,875 | ) | 2,410 |
| Total trading liabilities | 690 |
| 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 value | 690 |
| 12,619 |
| — |
| (8,875 | ) | 4,434 |
| Percentage of liabilities of operations prior to netting | 5 | % | 95 | % | — | % | | | Liabilities of consolidated investment management funds | 2 |
| 25 |
| — |
| — |
| 27 |
| Total liabilities | $ | 692 |
| $ | 12,644 |
| $ | — |
| $ | (8,875 | ) | $ | 4,461 |
| Percentage of total liabilities prior to netting | 5 | % | 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. |
| | 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 guaranteed | 66 |
| 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 securities | 3 |
| — |
| — |
| — |
| 3 |
| Money market funds (b) | 842 |
| — |
| — |
| — |
| 842 |
| Corporate bonds | — |
| 1,396 |
| — |
| — |
| 1,396 |
| Other debt securities | — |
| 1,961 |
| — |
| — |
| 1,961 |
| Foreign covered bonds | 1,876 |
| 265 |
| — |
| — |
| 2,141 |
| Non-agency RMBS (c) | — |
| 1,357 |
| — |
| — |
| 1,357 |
| Total available-for-sale securities | 17,094 |
| 56,728 |
| — |
| — |
| 73,822 |
| Trading assets: | | | | | | Debt and equity instruments (b) | 240 |
| 2,013 |
| — |
| — |
| 2,253 |
| Derivative assets not designated as hedging: | | | | | | Interest rate | 4 |
| 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 hedging | 4 |
| 13,733 |
| — |
| (10,257 | ) | 3,480 |
| Total trading assets | 244 |
| 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 assets | 268 |
| 857 |
| — |
| — |
| 1,339 |
| Subtotal assets of operations at fair value | 17,606 |
| 73,331 |
| — |
| (10,257 | ) | 80,894 |
| Percentage of assets of operations prior to netting | 19 | % | 81 | % | — | % | | | Assets of consolidated investment management funds | 464 |
| 767 |
| — |
| — |
| 1,231 |
| Total assets | $ | 18,070 |
| $ | 74,098 |
| $ | — |
| $ | (10,257 | ) | $ | 82,125 |
| Percentage of total assets prior to netting | 20 | % | 80 | % | — | % | | |
| | 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 rate | 4 |
| 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 hedging | 4 |
| 13,847 |
| — |
| (10,047 | ) | 3,804 |
| Total trading liabilities | 353 |
| 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 value | 353 |
| 15,043 |
| — |
| (10,047 | ) | 5,349 |
| Percentage of liabilities of operations prior to netting | 2 | % | 98 | % | — | % | | | Liabilities of consolidated investment management funds | 3 |
| 312 |
| — |
| — |
| 315 |
| Total liabilities | $ | 356 |
| $ | 15,355 |
| $ | — |
| $ | (10,047 | ) | $ | 5,664 |
| Percentage of total liabilities prior to netting | 2 | % | 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. |
| | 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 | % | 2006 | 85 |
| | — |
| — |
| — |
| 100 |
| | 98 |
| | — |
| — |
| — |
| 100 |
| 2005 | 152 |
| | 20 |
| 3 |
| 18 |
| 59 |
| | 180 |
| | 23 |
| 5 |
| 9 |
| 63 |
| 2004 and earlier | 246 |
| | 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 | % | — | % | — | % | 2008 | 5 |
| | 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 | % | — | % | — | % | — | % | Australia | 261 |
| | 100 |
| — |
| — |
| — |
| | 40 |
| | 100 |
| — |
| — |
| — |
| Netherlands | 177 |
| | 100 |
| — |
| — |
| — |
| | 160 |
| | 100 |
| — |
| — |
| — |
| United Kingdom | 136 |
| | 100 |
| — |
| — |
| — |
| | 280 |
| | 100 |
| — |
| — |
| — |
| Other | 320 |
| | 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 | % | — | % | — | % | Netherlands | 113 |
| | 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 | % | — | % | — | % | — | % | France | 1,993 |
| | 100 |
| — |
| — |
| — |
| | 1,998 |
| | 100 |
| — |
| — |
| — |
| Spain | 1,740 |
| | — |
| — |
| 100 |
| — |
| | 1,749 |
| | — |
| — |
| 100 |
| — |
| Germany | 1,688 |
| | 100 |
| — |
| — |
| — |
| | 1,347 |
| | 100 |
| — |
| — |
| — |
| Italy | 1,169 |
| | — |
| — |
| 100 |
| — |
| | 1,130 |
| | — |
| — |
| 100 |
| — |
| Netherlands | 1,016 |
| | 100 |
| — |
| — |
| — |
| | 1,061 |
| | 100 |
| — |
| — |
| — |
| Ireland | 832 |
| | — |
| 100 |
| — |
| — |
| | 736 |
| | — |
| 100 |
| — |
| — |
| Belgium | 809 |
| | 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 | % | 2006 | 345 |
| | — |
| — |
| — |
| 100 |
| | 391 |
| | — |
| — |
| — |
| 100 |
| 2005 | 387 |
| | 1 |
| 1 |
| 1 |
| 97 |
| | 437 |
| | — |
| 2 |
| 1 |
| 97 |
| 2004 and earlier | 116 |
| | 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
| | 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 inputs | Loans | (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 |
| Issuances | 1 |
| 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, 20172021 and Dec. 31, 2016, for which a nonrecurring change in2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2021 | | Dec. 31, 2020 | | | | | Total carrying value | | | | | Total carrying value | (in millions) | Level 1 | Level 2 | Level 3 | | | Level 1 | Level 2 | Level 3 | Loans (a) | $ | — | | $ | 42 | | $ | — | | | $ | 42 | | | $ | — | | $ | 48 | | $ | — | | $ | 48 | | Other assets (b) | — | | 214 | | — | | | 214 | | | — | | 131 | | — | | 131 | | Total assets at fair value on a nonrecurring basis | $ | — | | $ | 256 | | $ | — | | | $ | 256 | | | $ | — | | $ | 179 | | $ | — | | $ | 179 | |
(a) The fair value has been recorded duringof these loans was unchanged in the quarters ended Sept. 30, 2017third quarter of 2021 and Dec. 31, 2016. decreased less than $1 million in 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.
| | | | | | | | | | | | | | 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, 20172021 and Dec. 31, 2016,2020, by caption on the consolidated balance sheet and by the valuation hierarchy.
| | | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 30, 2021 | (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 | $ | — | | $ | 126,959 | | $ | — | | $ | 126,959 | | $ | 126,959 | | Interest-bearing deposits with banks | — | | 20,063 | | — | | 20,063 | | 20,057 | | Federal funds sold and securities purchased under resale agreements | — | | 28,497 | | — | | 28,497 | | 28,497 | | Securities held-to-maturity | 11,538 | | 45,170 | | — | | 56,708 | | 56,267 | | Loans (a) | — | | 63,513 | | — | | 63,513 | | 63,322 | | Other financial assets | 6,752 | | 1,186 | | — | | 7,938 | | 7,938 | | Total | $ | 18,290 | | $ | 285,388 | | $ | — | | $ | 303,678 | | $ | 303,040 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | — | | $ | 100,498 | | $ | — | | $ | 100,498 | | $ | 100,498 | | Interest-bearing deposits | — | | 241,183 | | — | | 241,183 | | 242,641 | | Federal funds purchased and securities sold under repurchase agreements | — | | 11,973 | | — | | 11,973 | | 11,973 | | Payables to customers and broker-dealers | — | | 26,002 | | — | | 26,002 | | 26,002 | | | | | | | | Borrowings | — | | 929 | | — | | 929 | | 929 | | Long-term debt | — | | 25,741 | | — | | 25,741 | | 24,643 | | Total | $ | — | | $ | 406,326 | | $ | — | | $ | 406,326 | | $ | 406,686 | |
(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.
| | | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 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-maturity | 9,943 |
| 29,985 |
| — |
| 39,928 |
| 39,995 |
| Loans (a) | — |
| 57,709 |
| — |
| 57,709 |
| 57,562 |
| Other financial assets | 5,557 |
| 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 instruments | Dec. 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-maturity | 11,173 |
| 29,496 |
| — |
| 40,669 |
| 40,905 |
| Loans (a) | — |
| 62,829 |
| — |
| 62,829 |
| 62,564 |
| Other financial assets | 4,822 |
| 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 debt | 24,249 |
| 24,200 |
| 249 |
| (157 | ) | Dec. 31, 2016 | | Securities available-for-sale | $ | 9,184 |
| $ | 9,233 |
| $ | 83 |
| $ | (342 | ) | Long-term debt | 20,511 |
| 20,450 |
| 330 |
| (203 | ) |
| | Notes to Consolidated Financial Statements(continued)
| |
| | | | | | | | | | | | | | | | | | Summary of financial instruments | Dec. 31, 2020 | (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 | $ | — | | $ | 141,775 | | $ | — | | $ | 141,775 | | $ | 141,775 | | Interest-bearing deposits with banks | — | | 17,310 | | — | | 17,310 | | 17,300 | | Federal funds sold and securities purchased under resale agreements | — | | 30,907 | | — | | 30,907 | | 30,907 | | Securities held-to-maturity | 4,120 | | 45,104 | | — | | 49,224 | | 47,946 | | Loans (a) | — | | 53,586 | | — | | 53,586 | | 55,121 | | Other financial assets | 6,252 | | 1,160 | | — | | 7,412 | | 7,412 | | Total | $ | 10,372 | | $ | 289,842 | | $ | — | | $ | 300,214 | | $ | 300,461 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | — | | $ | 83,854 | | $ | — | | $ | 83,854 | | $ | 83,854 | | Interest-bearing deposits | — | | 257,287 | | — | | 257,287 | | 257,691 | | Federal funds purchased and securities sold under repurchase agreements | — | | 11,305 | | — | | 11,305 | | 11,305 | | Payables to customers and broker-dealers | — | | 25,085 | | — | | 25,085 | | 25,085 | | Borrowings | — | | 563 | | — | | 563 | | 563 | | Long-term debt | — | | 27,306 | | — | | 27,306 | | 25,584 | | Total | $ | — | | $ | 405,400 | | $ | — | | $ | 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 | | | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | Assets of consolidated investment management funds: | | | Trading assets | $ | 487 | | $ | 482 | | Other assets | 18 | | 5 | | Total assets of consolidated investment management funds | $ | 505 | | $ | 487 | | Liabilities of consolidated investment management funds: | | | | | | Other liabilities | 5 | | 3 | | Total liabilities of consolidated investment management funds | $ | 5 | | $ | 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 assets | 226 |
| 252 |
| Total assets of consolidated investment management funds | $ | 802 |
| $ | 1,231 |
| Liabilities of consolidated investment management funds: | | | Trading liabilities | $ | — |
| $ | 282 |
| Other liabilities | 27 |
| 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, 20172021 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 (loss) 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) | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | Investment and other income – other trading revenue (loss) | $ | — | | $ | — | | $ | (1) | | $ | — | | $ | (13) | | |
(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 | ) |
| | (a) | 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-makermarket-
| | | Notes to Consolidated Financial Statements (continued) | |
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 no counterparty default losses recorded in the third 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.
| | 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 maturities 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.bonds. At Sept. 30, 2017, $12.42021, $24.7 billion face amountpar value of available-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $12.3$24.7 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, $24.22021, $21.1 billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $24.2$21.1 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, Hong Kong dollar, Polish zloty, Singapore dollar Polish zloty, Canadian dollar and Japanese yen foreign exchange exposure with respect to foreign currency forecastedeuro used in revenue and expense transactions infor entities that have the U.S. dollar as their functional currency. As of Sept. 30, 2017,2021, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $539$330 million (notional), with a net pre-tax lossgain of $9$1 million recorded in accumulated other comprehensive income. This lossOCI. Over the next 12 months, a gain of $1 million will be reclassified to income or expenseearnings.
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 next nine months.hedge period. The unamortized derivative value associated with the excluded component is recognized in accumulated OCI. At Sept. 30, 2021, $143 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $143 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, 2017,2021, forward foreign exchange contracts with notional amounts totaling $7.8$8.3 billion were designated as net investment hedges.
In additionFrom time to forward foreign exchange contracts,time, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. ThoseAt Sept. 30, 2021, there were 0 non-derivative financial instruments designated as hedges ofhedging our net investments in foreign subsidiaries were all long-term liabilities of subsidiaries.
BNY Mellon in various currencies, and, at Sept. 30, 2017, had a combined U.S. dollar equivalent value of $181 million.87
Ineffectiveness related to derivatives and hedging relationships was recorded in income as follows:
| | | | | | | | Ineffectiveness | Nine 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 debt | 0.1 |
| (23.0 | ) | Cash flow hedges | — |
| — |
| Other (a) | — |
| — |
| Total | $ | (13.2 | ) | $ | (28.4 | ) |
| | | (a) | Includes ineffectiveness recorded on foreign exchange hedges. |
| | Notes to Consolidated Financial Statements(continued) | |
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) | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | Interest rate fair value hedges of available-for-sale securities | | | | | | | | Derivative | Interest revenue | $ | 183 | | $ | (325) | | $ | 150 | | $ | 649 | | $ | (864) | | | Hedged item | Interest revenue | (184) | | 322 | | (140) | | (647) | | 856 | | | Interest rate fair value hedges of long-term debt | | | | | | | | Derivative | Interest expense | (96) | | 22 | | (68) | | (427) | | 693 | | | Hedged item | Interest expense | 96 | | (21) | | 66 | | 426 | | (691) | | | Foreign exchange fair value hedges of available-for-sale securities | | | | | | | | Derivative (a) | Foreign exchange revenue | — | | (1) | | 1 | | 7 | | (11) | | | Hedged item | Foreign exchange revenue | — | | 1 | | 1 | | (6) | | 13 | | | | | | | | | | | | | | | | | | | Cash flow hedges of forecasted FX exposures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gain (loss) reclassified from OCI into income | Staff expense | 2 | | 4 | | — | | 11 | | (2) | | | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 1 | | $ | 2 | | $ | 10 | | $ | 13 | | $ | (6) | | |
(a) Includes gains of less than $1 million in the third quarter of 2021, second quarter of 2021 and third quarter of 2020 and gains of $1 million in the first nine months of 2021 and first nine months of 2020 associated with the amortization of the excluded component. At Sept. 30, 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 relationships | Gain or (loss) recognized in accumulated OCI on derivatives | | Location of gain or (loss) reclassified from accumulated OCI into income | Gain or (loss) reclassified from accumulated OCI into income | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | | 3Q21 | 2Q21 | 3Q20 | YTD21 | YTD20 | | FX contracts | $ | 201 | | $ | (62) | | $ | (289) | | $ | 221 | | $ | 103 | | | | Net interest revenue | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | |
The following table presents information on the hedged items in fair value hedging relationships.
| | | | | | | | | | | | | | | | | | Hedged items in fair value hedging relationships | Carrying amount of hedged asset or liability | | Hedge accounting basis adjustment increase (decrease) (a) | | | | | | (in millions) | Sept. 30, 2021 | Dec. 31, 2020 | | Sept. 30, 2021 | Dec. 31, 2020 | Available-for-sale securities (b)(c) | $ | 24,662 | | $ | 17,536 | | | $ | 742 | | $ | 1,428 | | Long-term debt | $ | 21,565 | | $ | 14,784 | | | $ | 395 | | $ | 783 | |
(a) Includes $182 million and $177 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2021 and Dec. 31, 2020, respectively, and $80 million and $118 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 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 $143 million at Sept. 30, 2021 and $148 million at Dec. 31, 2020. (c) Carrying amount represents the amortized cost.
| | | 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 sheet | Notional value | | Asset derivatives fair value | | Liability derivatives fair value | | Sept. 30, 2021 | Dec. 31, 2020 | | Sept. 30, 2021 | Dec. 31, 2020 | | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | Interest rate contracts | $ | 45,771 | | $ | 31,360 | | | $ | — | | $ | — | | | $ | 421 | | $ | 666 | | Foreign exchange contracts | 8,749 | | 8,706 | | | 238 | | 19 | | | 7 | | 441 | | Total derivatives designated as hedging instruments | | | | $ | 238 | | $ | 19 | | | $ | 428 | | $ | 1,107 | | Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | Interest rate contracts | $ | 195,065 | | $ | 198,865 | | | $ | 3,424 | | $ | 4,482 | | | $ | 2,989 | | $ | 3,880 | | Foreign exchange contracts | 925,721 | | 813,003 | | | 6,351 | | 7,688 | | | 6,218 | | 7,622 | | Equity contracts | 8,214 | | 5,142 | | | 265 | | 2 | | | 9 | | 37 | | Credit contracts | 190 | | 165 | | | — | | — | | | 5 | | 4 | | Total derivatives not designated as hedging instruments | | | | $ | 10,040 | | $ | 12,172 | | | $ | 9,221 | | $ | 11,543 | | Total derivatives fair value (d) | | | | $ | 10,278 | | $ | 12,191 | | | $ | 9,649 | | $ | 12,650 | | Effect of master netting agreements (e) | | | | (5,875) | | (8,346) | | | (6,529) | | (7,845) | | Fair value after effect of master netting agreements | | | | $ | 4,403 | | $ | 3,845 | | | $ | 3,120 | | $ | 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 clearing 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 $1,060 million and $1,714 million, respectively, at Sept. 30, 20172021, and $1,552 million and $1,051 million, respectively, at Dec. 31, 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments on the balance sheet | Notional 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 contracts | 8,399 |
| 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 contracts | 639,336 |
| 530,729 |
| | 4,879 |
| 6,104 |
| | 4,463 |
| 6,103 |
| Equity contracts | 1,354 |
| 1,167 |
| | 74 |
| 46 |
| | 134 |
| 112 |
| Credit contracts | 180 |
| 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 contracts | Net 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 contracts | 3 |
| (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 | ) | | | | $ | — |
| $ | — |
| $ | — |
|
| | 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 contracts | Net 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 contracts | 2 |
| — |
| | Other revenue | | — |
| — |
| | Other revenue | | — |
| — |
| FX contracts | 2 |
| (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) | 3Q21 | 2Q21 | 3Q20 | | YTD21 | YTD20 | | | Foreign exchange revenue | $ | 185 | | $ | 184 | | $ | 149 | | (a) | $ | 600 | | $ | 587 | | (a) | | Other trading revenue (loss) | 20 | | (1) | | (14) | | (a) | 12 | | 44 | | (a) | | | | | | | | | | |
(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 loss of $2 million in the third quarter of 2021, gains of $12 million in the third quarter of 2020, $13 million in the second quarter of 2021 and $21 million in the first nine months of 2021 and a loss of $1 million in the first nine months of 2020.
| | | Notes to Consolidated Financial Statements (continued) | |
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.
| | 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 revenue | 15 |
| 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.
| | | | | | | | | | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 4,790 | | $ | 5,235 | | Collateral posted | $ | 5,216 | | $ | 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) | | | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | If The Bank of New York Mellon’s rating changed to: (b) | | | A3/A- | $ | 45 | | $ | 79 | | Baa2/BBB | $ | 465 | | $ | 813 | | Ba1/BB+ | $ | 2,597 | | $ | 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.
| | | | | | 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 wereNotes 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, 2017,2021 and Dec. 31, 2020, existing collateral arrangements would
have required us to post an additional $151collateral of $47 million of collateral.and $41 million, respectively.
| | Notes to Consolidated Financial Statements(continued)
| |
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 Sept. 30, 2021 | | | | | | Gross assets recognized | Gross amounts offset in the balance sheet | | Net assets recognized in 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 | $ | 2,238 | | $ | 1,456 | | | $ | 782 | | $ | 223 | | $ | — | | $ | 559 | | Foreign exchange contracts | 5,943 | | 4,251 | | | 1,692 | | 66 | | — | | 1,626 | | Equity and other contracts | 265 | | 168 | | | 97 | | 28 | | — | | 69 | | Total derivatives subject to netting arrangements | 8,446 | | 5,875 | | | 2,571 | | 317 | | — | | 2,254 | | Total derivatives not subject to netting arrangements | 1,832 | | — | | | 1,832 | | — | | — | | 1,832 | | Total derivatives | 10,278 | | 5,875 | | | 4,403 | | 317 | | — | | 4,086 | | Reverse repurchase agreements | 66,757 | | 49,195 | | (b) | 17,562 | | 17,536 | | — | | 26 | | Securities borrowing | 10,935 | | — | | | 10,935 | | 10,355 | | — | | 580 | | Total | $ | 87,970 | | $ | 55,070 | | | $ | 32,900 | | $ | 28,208 | | $ | — | | $ | 4,692 | |
(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 recognized | Gross amounts offset in the balance sheet | | Net assets recognized in 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 | $ | 2,972 | | $ | 1,952 | | | $ | 1,020 | | $ | 311 | | $ | — | | $ | 709 | | Foreign exchange contracts | 7,128 | | 6,392 | | | 736 | | 146 | | — | | 590 | | Equity and other contracts | 2 | | 2 | | | — | | — | | — | | — | | Total derivatives subject to netting arrangements | 10,102 | | 8,346 | | | 1,756 | | 457 | | — | | 1,299 | | Total derivatives not subject to netting arrangements | 2,089 | | — | | | 2,089 | | — | | — | | 2,089 | | Total derivatives | 12,191 | | 8,346 | | | 3,845 | | 457 | | — | | 3,388 | | Reverse repurchase agreements | 78,828 | | 59,561 | | (b) | 19,267 | | 19,252 | | — | | 15 | | Securities borrowing | 11,640 | | — | | | 11,640 | | 11,166 | | — | | 474 | | Total | $ | 102,659 | | $ | 67,907 | | | $ | 34,752 | | $ | 30,875 | | $ | — | | $ | 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.
| | | | | | | | | | | | | | | | | | | | | 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 contracts | 4,281 |
| 3,120 |
| | 1,161 |
| 82 |
| — |
| 1,079 |
| Equity and other contracts | 69 |
| 49 |
| | 20 |
| — |
| — |
| 20 |
| Total derivatives subject to netting arrangements | 10,532 |
| 8,470 |
| | 2,062 |
| 271 |
| — |
| 1,791 |
| Total derivatives not subject to netting arrangements | 1,499 |
| — |
| | 1,499 |
| — |
| — |
| 1,499 |
| Total derivatives | 12,031 |
| 8,470 |
| | 3,561 |
| 271 |
| — |
| 3,290 |
| Reverse repurchase agreements | 36,118 |
| 19,171 |
| (b) | 16,947 |
| 16,890 |
| — |
| 57 |
| Securities borrowing | 10,936 |
| — |
| | 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 contracts | 5,265 |
| 4,172 |
| | 1,093 |
| 202 |
| — |
| 891 |
| Equity and other contracts | 44 |
| 38 |
| | 6 |
| — |
| — |
| 6 |
| Total derivatives subject to netting arrangements | 12,514 |
| 10,257 |
| | 2,257 |
| 523 |
| — |
| 1,734 |
| Total derivatives not subject to netting arrangements | 2,007 |
| — |
| | 2,007 |
| — |
| — |
| 2,007 |
| Total derivatives | 14,521 |
| 10,257 |
| | 4,264 |
| 523 |
| — |
| 3,741 |
| Reverse repurchase agreements | 17,588 |
| 481 |
| (b) | 17,107 |
| 17,104 |
| — |
| 3 |
| Securities borrowing | 8,694 |
| — |
| | 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. |
| | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2021 | Net liabilities recognized in 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 | $ | 3,389 | | $ | 1,844 | | | $ | 1,545 | | $ | 1,503 | | $ | — | | $ | 42 | | Foreign exchange contracts | 5,744 | | 4,685 | | | 1,059 | | 247 | | — | | 812 | | Equity and other contracts | 9 | | — | | | 9 | | — | | — | | 9 | | Total derivatives subject to netting arrangements | 9,142 | | 6,529 | | | 2,613 | | 1,750 | | — | | 863 | | Total derivatives not subject to netting arrangements | 507 | | — | | | 507 | | — | | — | | 507 | | Total derivatives | 9,649 | | 6,529 | | | 3,120 | | 1,750 | | — | | 1,370 | | Repurchase agreements | 59,510 | | 49,195 | | (b) | 10,315 | | 10,308 | | 2 | | 5 | | Securities lending | 1,658 | | — | | | 1,658 | | 1,581 | | — | | 77 | | Total | $ | 70,817 | | $ | 55,724 | | | $ | 15,093 | | $ | 13,639 | | $ | 2 | | $ | 1,452 | |
(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, 2020 | Net liabilities recognized in 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 | $ | 4,533 | | $ | 2,348 | | | $ | 2,185 | | $ | 2,115 | | $ | — | | $ | 70 | | Foreign exchange contracts | 7,280 | | 5,484 | | | 1,796 | | 143 | | — | | 1,653 | | Equity and other contracts | 37 | | 13 | | | 24 | | 7 | | — | | 17 | | Total derivatives subject to netting arrangements | 11,850 | | 7,845 | | | 4,005 | | 2,265 | | — | | 1,740 | | Total derivatives not subject to netting arrangements | 800 | | — | | | 800 | | — | | — | | 800 | | Total derivatives | 12,650 | | 7,845 | | | 4,805 | | 2,265 | | — | | 2,540 | | Repurchase agreements | 69,831 | | 59,561 | | (b) | 10,270 | | 10,270 | | — | | — | | Securities lending | 1,035 | | — | | | 1,035 | | 983 | | — | | 52 | | Total | $ | 83,516 | | $ | 67,406 | | | $ | 16,110 | | $ | 13,518 | | $ | — | | $ | 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.
| | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2017 | 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 | $ | 7,103 |
| $ | 5,705 |
| | $ | 1,398 |
| $ | 1,311 |
| $ | — |
| $ | 87 |
| Foreign exchange contracts | 4,074 |
| 3,095 |
| | 979 |
| 234 |
| — |
| 745 |
| Equity and other contracts | 130 |
| 75 |
| | 55 |
| 49 |
| — |
| 6 |
| Total derivatives subject to netting arrangements | 11,307 |
| 8,875 |
| | 2,432 |
| 1,594 |
| — |
| 838 |
| Total derivatives not subject to netting arrangements | 790 |
| — |
| | 790 |
| — |
| — |
| 790 |
| Total derivatives | 12,097 |
| 8,875 |
| | 3,222 |
| 1,594 |
| — |
| 1,628 |
| Repurchase agreements | 27,321 |
| 19,171 |
| (b) | 8,150 |
| 8,149 |
| — |
| 1 |
| Securities lending | 1,904 |
| — |
| | 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 contracts | 4,957 |
| 3,363 |
| | 1,594 |
| 355 |
| — |
| 1,239 |
| Equity and other contracts | 104 |
| 50 |
| | 54 |
| 54 |
| — |
| — |
| Total derivatives subject to netting arrangements | 13,177 |
| 10,047 |
| | 3,130 |
| 1,675 |
| — |
| 1,455 |
| Total derivatives not subject to netting arrangements | 1,271 |
| — |
| | 1,271 |
| — |
| — |
| 1,271 |
| Total derivatives | 14,448 |
| 10,047 |
| | 4,401 |
| 1,675 |
| — |
| 2,726 |
| Repurchase agreements | 8,703 |
| 481 |
| (b) | 8,222 |
| 8,222 |
| — |
| — |
| Securities lending | 1,615 |
| — |
| | 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. |
| | 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 | | Sept. 30, 2021 | | Dec. 31, 2020 | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | (in millions) | Overnight and continuous | Up to 30 days | 30 days or more | | Overnight and continuous | Up to 30 days | 30 days or more | Repurchase agreements: | | | | | | | | | | U.S. Treasury | $ | 52,216 | | $ | 144 | | $ | — | | $ | 52,360 | | | $ | 62,381 | | $ | — | | $ | — | | $ | 62,381 | | Corporate bonds | 217 | | 16 | | 1,161 | | 1,394 | | | 190 | | 218 | | 1,436 | | 1,844 | | Agency RMBS | 1,369 | | — | | — | | 1,369 | | | 3,117 | | — | | 80 | | 3,197 | | U.S. government agencies | 985 | | — | | — | | 985 | | | 425 | | — | | — | | 425 | | State and political subdivisions | 57 | | 48 | | 857 | | 962 | | | 66 | | 40 | | 864 | | 970 | | Sovereign debt/sovereign guaranteed | 578 | | — | | 349 | | 927 | | | — | | — | | — | | — | | Other debt securities | 1 | | 5 | | 198 | | 204 | | | 7 | | 21 | | 138 | | 166 | | Equity securities | — | | 230 | | 1,079 | | 1,309 | | | — | | 21 | | 827 | | 848 | | Total | $ | 55,423 | | $ | 443 | | $ | 3,644 | | $ | 59,510 | | | $ | 66,186 | | $ | 300 | | $ | 3,345 | | $ | 69,831 | | Securities lending: | | | | | | | | | | Agency RMBS | $ | 123 | | $ | — | | $ | — | | $ | 123 | | | $ | 161 | | $ | — | | $ | — | | $ | 161 | | Other debt securities | 119 | | — | | — | | 119 | | | 52 | | — | | — | | 52 | | Equity securities | 1,416 | | — | | — | | 1,416 | | | 822 | | — | | — | | 822 | | Total | $ | 1,658 | | $ | — | | $ | — | | $ | 1,658 | | | $ | 1,035 | | $ | — | | $ | — | | $ | 1,035 | | Total secured borrowings | $ | 57,081 | | $ | 443 | | $ | 3,644 | | $ | 61,168 | | | $ | 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 agencies | 489 |
| 110 |
| — |
| 599 |
| Agency RMBS | 1,798 |
| 190 |
| — |
| 1,988 |
| Corporate bonds | 282 |
| — |
| 940 |
| 1,222 |
| Other debt securities | 254 |
| — |
| 871 |
| 1,125 |
| Equity securities | 466 |
| — |
| 489 |
| 955 |
| Total | $ | 24,721 |
| $ | 300 |
| $ | 2,300 |
| $ | 27,321 |
| Securities lending: | | | | | U.S. government agencies | $ | 15 |
| $ | — |
| $ | — |
| $ | 15 |
| Other debt securities | 477 |
| — |
| — |
| 477 |
| Equity securities | 1,412 |
| — |
| — |
| 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 agencies | 396 |
| 10 |
| — |
| 406 |
| Agency RMBS | 3,294 |
| 386 |
| — |
| 3,680 |
| Corporate bonds | 304 |
| — |
| 694 |
| 998 |
| Other debt securities | 146 |
| — |
| 563 |
| 709 |
| Equity securities | 375 |
| — |
| 43 |
| 418 |
| Total | $ | 7,003 |
| $ | 400 |
| $ | 1,300 |
| $ | 8,703 |
| Securities lending: | | | | | U.S. government agencies | $ | 39 |
| $ | — |
| $ | — |
| $ | 39 |
| Other debt securities | 477 |
| — |
| — |
| 477 |
| Equity securities | 1,099 |
| — |
| — |
| 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.
| | 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.
| | | Notes to Consolidated Financial Statements (continued) | |
The following table presents a summary of our off-balance sheet credit risks.
| | | | | | | | | Off-balance sheet credit risks | Sept. 30, 2021 | Dec. 31, 2020 | (in millions) | Lending commitments | $ | 46,892 | | $ | 47,577 | | Standby letters of credit (“SBLC”) (a) | 1,993 | | 2,265 | | Commercial letters of credit | 146 | | 60 | | Securities lending indemnifications (b)(c) | 485,626 | | 469,121 | |
| | | | | | | | Off-balance sheet credit risks | Sept. 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 credit | 265 |
| 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 $126 million at Sept. 30, 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 $64 billion at Sept. 30, 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 $50 billion at Sept. 30, 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$28.0 billion in less than one year, $20.0$18.1 billion in one to five years and $158$787 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$163 million at Sept. 30, 20172021 and $293$194 million at Dec. 31, 2016.2020. At Sept. 30, 2017, $2.32021, $1.4 billion of the SBLCs will expire within one year, and $1.2 billion$558 million in one to five years and $48 million innone 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 credit | Sept. 30, 2021 | Dec. 31, 2020 | | Investment grade | 85 | % | 82 | % | Non-investment grade | 15 | % | 18 | % |
| | | | | | Standby letters of credit | Sept. 30, 2017 |
| Dec. 31, 2016 |
| | Investment grade | 86 | % | 89 | % | Non-investment grade | 14 | % | 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$146 million at Sept. 30, 20172021 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 $40 million at Sept. 30, 2021 and $121 million at Dec. 31, 2020.
| | 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
| | | Notes to Consolidated Financial Statements (continued) | |
counterparties. Securities lending indemnifications were secured by collateral of $424511 billion at Sept. 30, 20172021 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, 20172021 and Dec. 31, 2016, $652020, $64 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$68 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 Sept. 30, 2021, we had $3.7 billion of unsettled repurchase agreements and $10.4 billion of unsettled reverse repurchase agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at Sept. 30, 2017.2021. The tables below present our credit exposure in the financial institutions and commercial portfolios.
| | | | | | | | | | | | Financial institutions portfolio exposure (in billions) | Sept. 30, 2021 | Loans | Unfunded commitments | Total exposure | Securities industry | $ | 2.0 | | $ | 18.8 | | $ | 20.8 | | Asset managers | 1.5 | | 7.4 | | 8.9 | | Banks | 4.9 | | 1.7 | | 6.6 | | Insurance | 0.3 | | 3.0 | | 3.3 | | Government | 0.1 | | 0.1 | | 0.2 | | Other | 0.6 | | 1.1 | | 1.7 | | Total | $ | 9.4 | | $ | 32.1 | | $ | 41.5 | |
| | | | | | | | | | | Financial institutions portfolio exposure (in billions) | Sept. 30, 2017 | Loans |
| Unfunded commitments |
| Total exposure |
| Securities industry | $ | 2.9 |
| $ | 19.0 |
| $ | 21.9 |
| Asset managers | 1.6 |
| 6.5 |
| 8.1 |
| Banks | 6.3 |
| 1.4 |
| 7.7 |
| Insurance | 0.1 |
| 3.4 |
| 3.5 |
| Government | — |
| 1.0 |
| 1.0 |
| Other | 1.0 |
| 1.4 |
| 2.4 |
| Total | $ | 11.9 |
| $ | 32.7 |
| $ | 44.6 |
|
| | | | | | | | | | | | Commercial portfolio exposure (in billions) | Sept. 30, 2021 | Loans | Unfunded commitments | Total exposure | Manufacturing | $ | 0.5 | | $ | 4.0 | | $ | 4.5 | | Energy and utilities | 0.3 | | 3.9 | | 4.2 | | Services and other | 0.8 | | 3.2 | | 4.0 | | Media and telecom | 0.1 | | 0.8 | | 0.9 | | Total | $ | 1.7 | | $ | 11.9 | | $ | 13.6 | |
| | | | | | | | | | | Commercial portfolio exposure (in billions) | Sept. 30, 2017 | Loans |
| Unfunded commitments |
| Total exposure |
| Manufacturing | $ | 1.4 |
| $ | 6.3 |
| $ | 7.7 |
| Services and other | 0.9 |
| 4.4 |
| 5.3 |
| Energy and utilities | 0.6 |
| 4.5 |
| 5.1 |
| Media and telecom | 0.1 |
| 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 repurchase and reverse repurchase transactions in U.S. Treasury and agency 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
| | | Notes to Consolidated Financial Statements(continued) | |
indemnifications for several reasons. In addition to 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, 20172021 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, 20172021 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 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
| | | Notes to Consolidated Financial Statements (continued) | |
reasonably possible loss is up to $940$615 millionin 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.
| | 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-filed2 actions commenced in federal court, by a group of institutional investors who purport to sue on behalf of 253 MBS trusts.May 2016 and September 2021 are 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 remaining FINRABank 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. This action has been resolved and dismissed.resolved. Various alleged Stanford CD purchasers asserted similar claims in FINRA arbitration proceedings.
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.appealed. On Aug. 4, 2021, the appellate court overturned the dismissal and sent the lawsuit to a state lower court. 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 May 20, 2021, the court in one of those lawsuits entered a $3 million judgment against DTVM and Ativos. On Aug. 23, 2021, DTVM and Ativos filed an appeal of the May 20 decision. 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
Depositary Receipt Litigation
Between late December 2015 and February 2016, four putative class action lawsuits were filed against BNY Mellon asserting claims relating97
| | | Notes to Consolidated Financial Statements (continued) | |
alleged failures to BNY Mellon’s foreign exchange pricing when converting dividendsproperly 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. On Aug. 4, 2021, the appellate court overturned the dismissal and other distributions from non-U.S. companiesreturned the lawsuit to the lower court. In addition, the Tribunal de Contas da União (“TCU”), an administrative tribunal, has initiated 3 proceedings with the purpose of determining liability for losses to 3 investment funds administered by DTVM in which Postalis was an investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and two 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.
| | | Notes to Consolidated Financial Statements (continued) | |
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.
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.third 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.
| | | Business | Primary 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.
| | Notes to Consolidated Financial Statements(continued)
| |
•Incentives expense related to restricted stock and RSUs is allocated to the businesses.each business segment. •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.
| | | Notes to Consolidated Financial Statements (continued) | |
The following consolidating schedules presentspresent the contribution of our businesses to our overall profitability.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2021 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 2,378 | | | $ | 985 | | (a) | $ | 35 | | | $ | 3,398 | | (a) | Net interest revenue (expense) | 632 | | | 47 | | | (38) | | | 641 | | | Total revenue (loss) | 3,010 | | | 1,032 | | (a) | (3) | | | 4,039 | | (a) | Provision for credit losses | (35) | | | (7) | | | (3) | | | (45) | | | Noninterest expense | 2,211 | | | 691 | | | 16 | | | 2,918 | | | Income (loss) before income taxes | $ | 834 | | | $ | 348 | | (a) | $ | (16) | | | $ | 1,166 | | (a) | Pre-tax operating margin (b) | 28 | % | | 34 | % | | N/M | | 29 | % | | Average assets | $ | 379,273 | | | $ | 30,195 | | | $ | 37,293 | | | $ | 446,761 | | |
(a)Total fee and other revenue, total revenue and income before income taxes are net of loss attributable to noncontrolling interests related to consolidated investment management funds of $4 million. (b) Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended June 30, 2021 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 2,336 | | | $ | 952 | | (a) | $ | 22 | | | $ | 3,310 | | (a) | Net interest revenue (expense) | 643 | | | 47 | | | (45) | | | 645 | | | Total revenue (loss) | 2,979 | | | 999 | | (a) | (23) | | | 3,955 | | (a) | Provision for credit losses | (77) | | | (4) | | | (5) | | | (86) | | | Noninterest expense | 2,052 | | | 677 | | | 49 | | | 2,778 | | | Income (loss) before income taxes | $ | 1,004 | | | $ | 326 | | (a) | $ | (67) | | | $ | 1,263 | | (a) | Pre-tax operating margin (b) | 34 | % | | 33 | % | | N/M | | 32 | % | | Average assets | $ | 383,330 | | | $ | 30,370 | | | $ | 38,629 | | | $ | 452,329 | | |
(a)Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management funds of $5 million. (b)Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2020 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 2,246 | | | $ | 871 | | (a) | $ | 20 | | | $ | 3,137 | | (a) | Net interest revenue (expense) | 681 | | | 47 | | | (25) | | | 703 | | | Total revenue (loss) | 2,927 | | | 918 | | (a) | (5) | | | 3,840 | | (a) | Provision for credit losses | (10) | | | 12 | | | 7 | | | 9 | | | Noninterest expense | 2,020 | | | 661 | | | — | | | 2,681 | | | Income (loss) before income taxes | $ | 917 | | | $ | 245 | | (a) | $ | (12) | | | $ | 1,150 | | (a) | Pre-tax operating margin (b) | 31 | % | | 27 | % | | N/M | | 30 | % | | Average assets | $ | 329,324 | | | $ | 30,160 | | | $ | 55,381 | | | $ | 414,865 | | |
(a)Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management funds of $7 million. (b)Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2017 | Investment 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 revenue | 1,000 |
| (a) | 2,964 |
| | 49 |
| | 4,013 |
| (a) | Provision for credit losses | (2 | ) | | (2 | ) | | (2 | ) | | (6 | ) | | Noninterest expense | 702 |
| | 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 revenue | 986 |
| (a) | 2,876 |
| | 91 |
| | 3,953 |
| (a) | Provision for credit losses | — |
| | (3 | ) | | (4 | ) | | (7 | ) | | Noninterest expense | 698 |
| | 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.
| | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2016 | Investment 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 revenue | 958 |
| (a) | 2,898 |
| | 77 |
| | 3,933 |
| (a) | Provision for credit losses | — |
| | 1 |
| | (20 | ) | | (19 | ) | | Noninterest expense | 702 |
| | 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, 2017 | Investment 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 revenue | 2,949 |
| (a) | 8,631 |
| | 211 |
| | 11,791 |
| (a) | Provision for credit losses | 1 |
| | (5 | ) | | (14 | ) | | (18 | ) | | Noninterest expense | 2,083 |
| | 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, 2016 | Investment 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 revenue | 2,791 |
| (a) | 8,351 |
| | 300 |
| | 11,442 |
| (a) | Provision for credit losses | — |
| | 8 |
| | (26 | ) | | (18 | ) | | Noninterest expense | 2,084 |
| | 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.
| | Notes to Consolidated Financial Statements(continued)
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2021 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 7,059 | | | $ | 2,880 | | (a) | $ | 30 | | | $ | 9,969 | | (a) | Net interest revenue (expense) | 1,920 | | | 142 | | | (121) | | | 1,941 | | | Total revenue (loss) | 8,979 | | | 3,022 | | (a) | (91) | | | 11,910 | | (a) | Provision for credit losses | (191) | | | (7) | | | (16) | | | (214) | | | Noninterest expense | 6,364 | | | 2,077 | | | 106 | | | 8,547 | | | Income (loss) before income taxes | $ | 2,806 | | | $ | 952 | | (a) | $ | (181) | | | $ | 3,577 | | (a) | Pre-tax operating margin (b) | 31 | % | | 31 | % | | N/M | | 30 | % | | Average assets | $ | 382,531 | | | $ | 30,870 | | | $ | 39,705 | | | $ | 453,106 | | |
(a)Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management fund of $6 million. (b) Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2020 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 7,021 | | | $ | 2,555 | | (a) | $ | 88 | | | $ | 9,664 | | (a) | Net interest revenue (expense) | 2,255 | | | 147 | | | (105) | | | 2,297 | | | Total revenue (loss) | 9,276 | | | 2,702 | | (a) | (17) | | | 11,961 | | (a) | Provision for credit losses | 284 | | | 28 | | | 9 | | | 321 | | | Noninterest expense | 5,996 | | | 2,014 | | | 69 | | | 8,079 | | | Income (loss) before income taxes | $ | 2,996 | | | $ | 660 | | (a) | $ | (95) | | | $ | 3,561 | | (a) | Pre-tax operating margin (b) | 32 | % | | 24 | % | | N/M | | 30 | % | | Average assets | $ | 322,924 | | | $ | 30,343 | | | $ | 51,936 | | | $ | 405,203 | | |
(a)Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment funds of $4 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.
| | | | | | | | | | | | | | | Non-cash investing and financing transactions | Nine months ended Sept. 30, | | | | (in millions) | 2021 | | 2020 | | | | Transfers from loans to other assets for other real estate owned | $ | 1 | | | $ | 1 | | | | | Change in assets of consolidated investment management funds | 18 | | | 343 | | | | | Change in liabilities of consolidated investment management funds | 2 | | | 3 | | | | | Change in nonredeemable noncontrolling interests of consolidated investment management funds | 130 | | | 149 | | | | | Securities purchased not settled | 531 | | | 846 | | | | | Securities sold not settled | 29 | | | — | | | | | | | | | | | | Available-for-sale securities transferred to held-to-maturity | 11,028 | | | — | | | | | | | | | | | | | | | | | | | Premises and equipment/capitalized software funded by finance lease obligations | 11 | | | — | | | | | Premises and equipment/operating lease obligations | 72 | | | 126 | | | | | | | | | | | |
| | | | | | | | | Noncash investing and financing transactions | Nine 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 VIEs | 429 |
| | 392 |
| Change in liabilities of consolidated VIEs | 288 |
| | 14 |
| Change in nonredeemable noncontrolling interests of consolidated investment management funds | 234 |
| | 238 |
| Securities purchased not settled | 1,277 |
| | 229 |
| Securities sales not settled | — |
| | 218 |
| Securities matured not settled | 350 |
| | — |
| Held-to-maturity securities transferred to available-for-sale | 74 |
| | 10 |
| Premises and equipment/capitalized software funded by capital lease obligations | 347 |
| | 12 |
|
| | | 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 third quarter of 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | 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;
| | | 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
| | 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.
| | | 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
| | 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.
| | 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 third 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 – third quarter of 2021 | | | | | 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, 2021 | | | (dollars in millions, except per share amounts; common shares in thousands) | Total shares repurchased | | Average price per share | | | | July 2021 | 12,471 | | | $ | 50.02 | | | 12,471 | | | $ | 5,376 | | | | August 2021 | 25,601 | | | 53.79 | | | 25,601 | | | 3,999 | | | | September 2021 | 6 | | | 53.62 | | | 6 | | | 3,999 | | | | Third quarter of 2021 (a) | 38,078 | | | $ | 52.55 | | | 38,078 | | | $ | 3,999 | | (b) | |
| | | | | | | | | | | | | | | | 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 2017 | 7 |
| | $ | 51.08 |
| | 7 |
| | $ | 2,600 |
| | August 2017 | 12,300 |
| | 52.74 |
| | 12,300 |
| | 1,951 |
| | September 2017 | 9 |
| | 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 11 thousand shares repurchased at a purchase price of $1 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 $52.55.
(b) Represents the maximum value of the shares to be repurchased through the fourth quarter of 2022 under the share repurchase plan announced in June 2021 and includes shares repurchased in connection with employee benefit plans.
OnIn June 28, 2017,2021, in connection with the Federal Reserve’s non-objection to our 2017 capital plan, BNY Mellonrelease of the 2021 CCAR stress tests, we announced a share repurchase planprogram approved by our Board of Directors providing for the repurchase of up to $2.6$6.0 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 beganbeginning in the third quarter of 20172021 and continuescontinuing through the secondfourth quarter of 2018.2022. This new share repurchase plan replacesreplaced 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.
| | | | | | | | | | | | | | | Exhibit No. | | Description | | Method of Filing | 3.1 | | | | | 3.2 | | Certificate 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. | | | 3.3 | | Certificate 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 | | | | 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 | | | |
| 3.5 | |
| |
| 3.6 | | | | | 3.7 | | with respect to the Series G Noncumulative Perpetual Preferred Stock, dated May 15, 2020. | | | 4.13.8 | | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series H Noncumulative Perpetual Preferred Stock, dated Nov. 2, 2020. | | | 3.9 | | Amended and Restated By-Laws of The Bank of New York Mellon Corporation, as amended and restated on Feb. 12, 2018. | | |
| | | Index to Exhibits (continued) | |
| | | | | | | | | | | | | | | Exhibit No. | | Description | | Method 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, 2017.2021. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument. | | N/A |
| 22.1 | | Subsidiary Issuer of Guaranteed Securities. | | | |
| 31.1 | | | | | Exhibit No. | | Description | | Method of Filing | 12.1 | | | | Filed herewith. | 31.1 | | | | | 31.2 | | | | | 32.1 | | | | | 32.2 | | | | | 101.INS | | Inline 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.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith. | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith. | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith. | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith. | 101.PRE | | Inline 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 Sept. 30, 2021, formatted in inline XBRL. | | The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101. |
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: November 7, 20175, 2021 | By: | | /s/ Kurtis R. Kurimsky | | | | Kurtis R. Kurimsky | | | | Corporate Controller | | | | (Duly Authorized Officer and | | | | Principal Accounting Officer of | | | | the Registrant) |
|
|