Common stock dividends (a) (333) | | Total capital deployed | (783) | | Other comprehensive gain (loss): | | Unrealized (loss) on assets available-for-sale | (15) | | Foreign currency translation | (185) | | | | (a)Defined benefit plans | Reflects transitional adjustments to CET1 required under the U.S. capital rules.(3) | |
| | (b)Total other comprehensive (loss) | Estimated. |
(203) | | (c)Additional paid-in capital (b) | 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 |
|
67 | | (a) | Reflects transitional adjustments to CET1, Tier 1 capital and Tier 2 capital required in 2017 and 2016 under the U.S. capital rules. |
Other additions (deductions): | | (b)Net pension fund assets | Estimated.(3) | | Embedded goodwill | 5 | | Deferred tax assets | (5) | | Other | (7) | | Total other (deductions) | (10) | | Net CET1 generated | 137 | | CET1 – End of period | $ | 18,264 | |
(a) Includes dividend equivalents on share-based awards.
(b) Primarily related to stock awards and stock issued for employee benefit plans.
42 BNY Mellon
The following table shows the impact on the consolidated capital ratios at Sept. 30, 20172023 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, 2023 | | Sensitivity of consolidated capital ratios at Sept. 30, 2023 | | 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 | 7 | bps | 8 | bps | Advanced Approach | 6 | | 7 | | | Advanced Approaches | | Advanced Approaches | 6 | | 7 | | | | | Tier 1 capital: | | Tier 1 capital: | | Standardized Approach | 7 | | 10 | | Standardized Approach | 7 | | 10 | | Advanced Approach | 6 | | 8 | | | Advanced Approaches | | Advanced Approaches | 6 | | 9 | | | | | Total capital: | | Total capital: | | Standardized Approach | 7 | | 10 | | Standardized Approach | 7 | | 11 | | Advanced Approach | 6 | | 8 | | | Advanced Approaches | | Advanced Approaches | 6 | | 10 | | | | | Leverage capital | 3 | | 2 | | | Tier 1 leverage | | Tier 1 leverage | 3 | | 2 | | | | | 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 | | |
CapitalStress capital buffer
In July 2023, the Federal Reserve announced that BNY Mellon’s SCB requirement would remain at 2.5%, equal to the regulatory floor, for the period from Oct. 1, 2023 through Sept. 30, 2024. The SCB replaced the static 2.5% capital conservation buffer for Standardized Approach capital ratios vary depending onfor CCAR BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the sizestatic 2.5% capital conservation buffer. See “Supervision and Regulation” in our 2022 Annual Report for additional information.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the balance sheet at quarter-enddistributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements and buffers, including the levelsSCB.
Total Loss-Absorbing Capacity (“TLAC”)
The following summarizes the minimum requirements for BNY Mellon’s external TLAC and typesexternal long-term debt (“LTD”) ratios, plus currently 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% |
(a) RWA is the greater of investments in assets. The balance sheet size fluctuates from quarterStandardized Approach and Advanced Approaches. (b) Buffer 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.be met using only CET1. (c) Buffer to be met using only Tier 1 capital.
Supplementary Leverage Ratio
BNY Mellon has presented its consolidated and largest bank subsidiary’s estimated fully phased-in SLRs based on its interpretationExternal TLAC consists of the U.S.Parent’s Tier 1 capital rules, which areand 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 gradually phased-in over a multi-year period and on the application of such rules to BNY Mellon’s businesses as currently conducted.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, 2023 | | Minimum required | Minimum ratios with buffers | | | Ratios | Eligible external TLAC: | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 30.6 | % | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 15.4 | % | | | | | Eligible external LTD: | | | | As a percentage of RWA | 7.5 | % | N/A | 14.6 | % | As a percentage of total leverage exposure | 4.5 | % | N/A | 7.3 | % |
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 into account ofthe potential variability of market liquidity; and •Previous moves in market risk factors may not produce accurate predictions of all future market moves.
See Note 1617 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) | 3Q23 | Sept. 30, 2023 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.6 | | $ | 1.9 | | $ | 4.6 | | $ | 2.4 | | Foreign exchange | 2.5 | | 2.0 | | 3.2 | | 2.1 | | Equity | 0.1 | | — | | 0.3 | | 0.2 | | Credit | 1.2 | | 0.9 | | 1.7 | | 1.3 | | Diversification | (4.3) | | N/M | N/M | (4.1) | | Overall portfolio | 2.1 | | 1.3 | | 3.2 | | 1.9 | |
| | | | | | | | | | | | | | | VaR (a) | 2Q23 | June 30, 2023 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 3.1 | | $ | 2.0 | | $ | 5.1 | | $ | 2.6 | | Foreign exchange | 3.0 | | 2.0 | | 4.5 | | 2.3 | | Equity | 0.1 | | — | | 0.3 | | 0.1 | | Credit | 1.4 | | 1.0 | | 2.0 | | 1.3 | | Diversification | (4.6) | | N/M | N/M | (4.0) | | Overall portfolio | 3.0 | | 1.8 | | 4.9 | | 2.3 | |
| | | | | | | | | | | | | | | VaR (a) | 3Q22 | Sept. 30, 2022 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 4.1 | | $ | 2.6 | | $ | 7.5 | | $ | 3.3 | | Foreign exchange | 3.9 | | 2.7 | | 7.1 | | 4.7 | | Equity | 0.2 | | 0.1 | | 0.5 | | 0.2 | | Credit | 1.9 | | 1.0 | | 4.4 | | 3.9 | | Diversification | (5.6) | | N/M | N/M | (7.1) | | Overall portfolio | 4.5 | | 2.5 | | 7.7 | | 5.0 | |
| | | | | | | | | | | | | VaR (a) | YTD23 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 3.2 | | $ | 1.9 | | $ | 7.6 | | | Foreign exchange | 3.0 | | 2.0 | | 5.7 | | | Equity | 0.1 | | — | | 0.3 | | | Credit | 1.4 | | 0.7 | | 3.5 | | | Diversification | (4.7) | | N/M | N/M | | Overall portfolio | 3.0 | | 1.3 | | 8.9 | | |
| | | | | | | | | | | | | VaR (a) | YTD22 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 4.4 | | $ | 1.6 | | $ | 9.3 | | | Foreign exchange | 3.6 | | 2.2 | | 10.2 | | | Equity | 0.3 | | — | | 0.9 | | | Credit | 1.9 | | 1.0 | | 4.4 | | | Diversification | (4.8) | | N/M | N/M | | Overall portfolio | 5.4 | | 2.5 | | 11.4 | | |
(a) VaR exposure does not include the impact of changes in methodology is not material.the Company’s consolidated investment management funds and seed capital investments.
| | | | | | | | | | | | | | VaR (a) | 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, single issuer 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 2017,2023, interest rate risk generated 37%41% of average gross VaR, foreign exchange risk generated 42%39% of average gross VaR, equity risk accounted for 10%generated 1% of average gross VaR and credit risk generated 11%19% of average gross VaR. During the third quarter of 2017,2023, our daily trading loss did not exceed our calculated VaR amount of the overall portfolio.
The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading revenue or loss fell within particular ranges during the past five quarters.
| | | | | | | | | | | | | | | | | | Distribution of trading revenue (loss) (a) | | | | Quarter ended | (dollars in millions) | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | | Revenue range: | Number of days | Less than $(2.5) | — | | — | | — | | 2 | | — | | $(2.5) – $0 | 5 | | 2 | | 1 | | 4 | | 3 | | $0 – $2.5 | 14 | | 15 | | 20 | | 13 | | 10 | | $2.5 – $5.0 | 24 | | 37 | | 26 | | 24 | | 32 | | More than $5.0 | 20 | | 9 | | 15 | | 20 | | 19 | |
| | | | | | | | | | | | 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 foreign exchange and interest rate and foreign exchange contracts, not designated as hedging instruments. Trading assets were $4.7$10.7 billion at Sept. 30, 20172023 and $5.7$9.9 billion atDec. 31, 2016.2022.
Trading liabilities include debt and equity instruments and derivative liabilities, primarily foreign exchange and interest rate and foreign exchange contracts, not designated as hedging instruments. Trading liabilities were $3.3$7.4 billion at Sept. 30, 20172023 and $4.4$5.4 billion at Dec. 31, 2016.2022.
Under our fair value methodology for derivative contracts, an initial “risk-neutral” valuation is performed on each position assuming time-discountingtime 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, 2017,2023, our OTC derivative assets, including those in hedging relationships, of $3.6$2.7 billion included a CVAcredit valuation adjustment (“CVA”) deduction of $30$12 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.2 billion included a debit valuation adjustment (“DVA”) of $2$8 million related to our own credit spread. Net of hedges, the CVA decreased by less than $1 million and the DVA was unchanged in the third quarter of 2017. The net impact of these adjustments increased foreign exchange and other trading revenue by less than $1 million in the third quarter of 2017.
In the second quarter of 2017, net of hedges, the CVA decreased2023, which increased investment and other revenue – other trading revenue by $3 million and the DVA decreased byless than $1 million. The net impact of these adjustments increased foreign exchangedecreased investment and other revenue – other trading revenue by $2less than $1 million in the second quarter of 2017.
In the third quarter of 2016, net of hedges, the CVA decreased by $8 million2023 and the DVA decreased by $4 million. The net impact of these adjustments increased foreign exchangeinvestment and other revenue – other trading revenue by $4$3 million in the third quarter of 2016.2022.
The table below summarizes theour exposure, net of collateral related to our derivative counterparties, as determined on an internal risk ratings for our foreign exchange and interest rate derivative counterparty credit exposure during the past five quarters. This information indicates the degree of risk to which we are exposed.management basis. 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 | | | | | | | | | | | | | | Sept. 30, 2023 | | Dec. 31, 2022 | | | | | | (dollars in millions) | Exposure, net of collateral | Percentage of exposure, net of collateral | | Exposure, net of collateral | Percentage of exposure, net of collateral | | | | | | | | | | | | Investment grade | $ | 2,056 | | 96 | % | | $ | 2,553 | | 98 | % | | | | | | Non-investment grade | 82 | | 4 | % | | 63 | | 2 | % | | | | | | Total | $ | 2,138 | | 100 | % | | $ | 2,616 | | 100 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
46 BNY Mellon
| | | | | | | | | | | | Foreign exchange and other trading counterparty risk rating profile (a) | | Quarter ended | | Sept. 30, 2017 |
| June 30, 2017 |
| March 31, 2017 |
| Dec. 31, 2016 |
| Sept. 30, 2016 |
| Rating: | | | | | | AAA to AA- | 41 | % | 44 | % | 43 | % | 35 | % | 45 | % | A+ to A- | 30 |
| 27 |
| 36 |
| 39 |
| 32 |
| BBB+ to BBB- | 24 |
| 22 |
| 17 |
| 22 |
| 19 |
| Noninvestment grade (BB+ and lower) | 5 |
| 7 |
| 4 |
| 4 |
| 4 |
| Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
| | (a) | Represents credit rating agency equivalent of internal credit ratings. |
Asset/liability management
Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities areinclude interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.
An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue. 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.purposes as of each respective quarter-end. 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 interest rate fluctuations and the prepayment and extension risk in certain of our assets. Generally, there has been an inverse relationship between interest rates and client deposit levels. To the extent that actual behavior is different from that assumed in the models, there could be a change in interest rate sensitivity.
We evaluate the effect on earnings by running various interest rate ramp scenarios from a baseline scenario. The interest rate ramp scenarios are reviewed to examineassess the impact of largevarious hypothetical interest rate movements.scenarios compared to the baseline scenario. In each scenario,of the scenarios, all currenciescurrencies’ interest rates are instantaneously shifted higher or lower. Interestlower 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 impact of interest rate sensitivity is quantified by calculatingshifts may not be linear. The results of this earnings simulation should therefore not be extrapolated for more severe interest rate scenarios than those presented in the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period.
table below.
The following table shows net interest revenue sensitivity for BNY Mellon.
| | | | | | | | | | | | Estimated changes in net interest revenue (in millions) | Sept. 30, 2023 | June 30, 2023 | Sept. 30, 2022 | Up 100 bps rate shock vs. baseline | $ | 166 | | $ | 324 | | $ | 267 | | Long-term up 100 bps, short-term unchanged | 13 | | 7 | | (17) | | Short-term up 100 bps, long-term unchanged | 153 | | 317 | | 283 | | Long-term down 100 bps, short-term unchanged (a) | (14) | | (13) | | 14 | | Short-term down 100 bps, long-term unchanged | (214) | | (346) | | (408) | | Down 100 bps rate shock vs. baseline | (228) | | (358) | | (394) | |
| | | | | | | | | | | | | | | | | 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) Prior periods have been updated to reflect the impact of a 100 basis point decrease in long-term rates while short-term rates were unchanged. | | (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. |
At Sept. 30, 2023, the impact of a 100 bps - basis points.
The baseline scenario used for the calculationsupward shift in the estimated changes inrates on net interest revenue table above as of Sept. 30, 2017,decreased compared with June 30, 2017, March 31, 2017 and Dec. 31, 2016 arebased on our quarter-end balance sheet and2023. The primary driver is lower deposit balances in the spot yield curve. The baseline scenario used for Sept. 30, 2016 was based on implied forward yield curves. We revisedmost recent quarter, which reduce the benefit of rising interest rates.
methodology as of Dec. 31, 2016 as we believe usingWhile the spot yield curve for the baseline scenario provides a more accurate reflection of net interest revenue sensitivity given the recent increasescenario calculations assume static deposit balances to facilitate consistent period-over-period comparisons, net interest revenue is impacted by changes in deposit balances. 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 run-off, we estimate that a $5 billion instantaneous reduction/increase in U.S. dollar-denominated noninterest-bearing deposits would reduce/increase 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 $320 million. The impact would be smaller if the run-off was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.
GrowthAdditionally, during periods of low short-term interest rates, money market mutual fund fees and other similar fees are typically waived to protect investors from negative returns. See “Fee and other revenue” in our 2022 Annual Report for additional details on money market fee waivers.
For a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors – Capital and Liquidity Risk – 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 2022 Annual Report.
Global economic uncertainty;42 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 revenue measures which exclude the effect of noncontrolling interests related to consolidated investment management funds,excluding notable items, including disposal gains. Expense measures, excluding notable items, including goodwill impairment, severance expense and expense measures, which exclude amortization of intangible assets and M&I, litigation and restructuring charges. Operating margin, operating leverage and return on equity measures, which exclude some or all of these items, as well as the recovery related to Sentinel,reserves, 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 chargesreserves represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Restructuring charges relateTotal revenue, noninterest expense, net income applicable to our streamlining actionscommon shareholders of The Bank of New York Mellon Corporation, diluted earnings per share and Operational Excellence Initiatives. Excluding the charges effective tax rate, excluding the notable items
mentioned above, permitsare also provided. These measures are provided to permit investors to view expensesfinancial measures on a basis consistent with how management views the business.
The presentation of income from consolidatedthe growth rates of investment management funds, net of net income attributable to noncontrolling interests related to the consolidation of certain investment management funds,and performance fees on a constant currency basis permits investors to view revenueassess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis consistent with how management viewswere determined by applying the business. BNY Mellon believescurrent period foreign currency exchange rates to the prior period revenue. We believe that these presentations,this presentation, as a supplement to GAAP information, givegives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.
BNY Mellon has also included the adjusted pre-tax operating margin – Non-GAAP, which is the pre-tax operating margin for the Investment and Wealth Management business segment, net of its primary businesses.distribution 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 the Investment and Wealth Management business segment relative to industry competitors.
Each of these measures as described above is used by management to monitor financial performance, both on a company-wide and on a business-level basis.
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 | 3Q23 | | 2Q23 | 3Q22 | YTD23 | YTD22 | (dollars in millions) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 956 | | | $ | 1,031 | | $ | 319 | | $ | 2,892 | | $ | 1,853 | | Add: Amortization of intangible assets | 15 | | | 14 | | 17 | | 43 | | 51 | | Less: Tax impact of amortization of intangible assets | 3 | | | 4 | | 4 | | 10 | | 12 | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 968 | | | $ | 1,041 | | $ | 332 | | $ | 2,925 | | $ | 1,892 | | | | | | | | | | | | | | | | | | | | | | | Average common shareholders’ equity | $ | 35,983 | | | $ | 35,769 | | $ | 35,942 | | $ | 35,787 | | $ | 36,483 | | Less: Average goodwill | 16,237 | | | 16,219 | | 17,189 | | 16,206 | | 17,341 | | Average intangible assets | 2,875 | | | 2,888 | | 2,922 | | 2,887 | | 2,950 | | Add: Deferred tax liability – tax deductible goodwill | 1,197 | | | 1,193 | | 1,175 | | 1,197 | | 1,175 | | Deferred tax liability – intangible assets | 657 | | | 660 | | 660 | | 657 | | 660 | | Average tangible common shareholders’ equity – Non-GAAP | $ | 18,725 | | | $ | 18,515 | | $ | 17,666 | | $ | 18,548 | | $ | 18,027 | | | | | | | | | Return on common equity (annualized) – GAAP | 10.5 | % | | 11.6 | % | 3.5 | % | 10.8 | % | 6.8 | % | | | | | | | | Return on tangible common equity (annualized) – Non-GAAP | 20.5 | % | | 22.6 | % | 7.5 | % | 21.1 | % | 14.0 | % | | | | | | | |
| | | | | | | | | | | | | | | | | 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, 2023 | June 30, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | (dollars in millions, except per share amounts and unless otherwise noted) | BNY Mellon shareholders’ equity at period end – GAAP | $ | 40,966 | | $ | 40,933 | | $ | 40,734 | | $ | 39,737 | | Less: Preferred stock | 4,838 | | 4,838 | | 4,838 | | 4,838 | | BNY Mellon common shareholders’ equity at period end – GAAP | 36,128 | | 36,095 | | 35,896 | | 34,899 | | Less: Goodwill | 16,159 | | 16,246 | | 16,150 | | 16,412 | | Intangible assets | 2,859 | | 2,881 | | 2,901 | | 2,902 | | Add: Deferred tax liability – tax deductible goodwill | 1,197 | | 1,193 | | 1,181 | | 1,175 | | Deferred tax liability – intangible assets | 657 | | 660 | | 660 | | 660 | | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 18,964 | | $ | 18,821 | | $ | 18,686 | | $ | 17,420 | | | | | | | Period-end common shares outstanding (in thousands) | 769,073 | | 778,782 | | 808,445 | | 808,280 | | | | | | | Book value per common share – GAAP | $ | 46.98 | | $ | 46.35 | | $ | 44.40 | | $ | 43.18 | | Tangible book value per common share – Non-GAAP | $ | 24.66 | | $ | 24.17 | | $ | 23.11 | | $ | 21.55 | |
| | | | | | | | | | | | | | 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 reconciliation of growth in total revenue, line items in the Investment Management business impacted by the consolidated investment management funds.noninterest expense, net income applicable to common shareholders and diluted earnings per common share.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Non-GAAP measures, excluding notable items | | | | | | | | | | YTD23 | | | | | | | 3Q23 vs. | | | | vs. | (dollars in millions, except per share amounts) | 3Q23 | | | 3Q22 | | 3Q22 | | YTD23 | YTD22 | YTD22 | Total revenue – GAAP | $ | 4,374 | | | | $ | 4,279 | | | 2 | % | | | | | Less: Disposal gain (reflected in investment and other revenue) | 2 | | | | 37 | | | | | | | | Adjusted total revenue – Non-GAAP | $ | 4,372 | | | | $ | 4,242 | | | 3 | % | | | | | | | | | | | | | | | | Noninterest expense – GAAP | $ | 3,089 | | | | $ | 3,679 | | | (16) | % | | $ | 9,300 | | $ | 9,797 | | (5) | % | Less: Severance | 41 | | | | 32 | | | | | 67 | | 32 | | | Litigation reserves | 5 | | | | 2 | | | | | 46 | | 105 | | | Goodwill impairment | — | | | | 680 | | | | | — | | 680 | | | Adjusted noninterest expense – Non-GAAP | $ | 3,043 | | | | $ | 2,965 | | | 3 | % | | $ | 9,187 | | $ | 8,980 | | 2 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 956 | | | | $ | 319 | | | 200 | % | | | | | Less: Disposal gain (reflected in investment and other revenue) | — | | | | 28 | | | | | | | | Less: Severance | (32) | | | | (25) | | | | | | | | Litigation reserves | (4) | | | | (2) | | | | | | | | Goodwill impairment | — | | | | (665) | | | | | | | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP | $ | 992 | | | | $ | 983 | | | 1 | % | | | | | | | | | | | | | | | | | | | | | | | | | | | Diluted earnings per common share | $ | 1.22 | | | | $ | 0.39 | | | 213 | % | | | | | Less: Disposal gain (loss) (reflected in investment and other revenue) | — | | | | 0.03 | | | | | | | | Less: Severance | (0.04) | | | | (0.03) | | | | | | | | Litigation reserves | (0.01) | | | | — | | | | | | | | Goodwill impairment | — | | | | (0.82) | | | | | | | | Total diluted earnings per share common share impact of notable items | (0.05) | | | | (0.81) | | (a) | | | | | | Adjusted diluted earnings per common share – Non-GAAP | $ | 1.27 | | | | $ | 1.21 | | | 5 | % | | | | |
(a) Does not foot due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | 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 effective tax rate.
| | | | | | Effective tax rate reconciliation | | (dollars in millions) | 3Q22 | Provision for income taxes – GAAP | $ | 242 | | Less: Disposal gain (reflected in investment and other revenue) | 9 | | Less: Severance | (7) | | Litigation reserves | — | | Goodwill impairment | (15) | | Adjusted provision for income taxes – Non-GAAP | $ | 255 | | | | Income before taxes – GAAP | $ | 630 | | Less: Disposal gain (reflected in investment and other revenue) | 37 | | Less: Severance | (32) | | Litigation reserves | (2) | | Goodwill impairment | (680) | | Adjusted income before taxes – Non-GAAP | $ | 1,307 | | | | Effective tax rate – GAAP | 38.4 | % | Adjusted effective tax rate – Non-GAAP | 19.5 | % |
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 | | | 3Q23 vs. | (dollars in millions) | 3Q23 | 3Q22 | 3Q22 | Investment management and performance fees – GAAP | $ | 777 | | $ | 800 | | (3) | % | Impact of changes in foreign currency exchange rates | — | | 15 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 777 | | $ | 815 | | (5) | % |
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 segment.
| | | | | | | | | | | | Constant currency reconciliation – Investment and Wealth Management business segment | | | 3Q23 vs. | (dollars in millions) | 3Q23 | 3Q22 | 3Q22 | Investment management and performance fees – GAAP | $ | 776 | | $ | 798 | | (3) | % | Impact of changes in foreign currency exchange rates | — | | 15 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 776 | | $ | 813 | | (5) | % |
The following tables present the reconciliations of noninterest expense, income before income taxes and the pre-tax operating margin for the Investment and Wealth Management business.business segment.
| | | | | | | | | | | | | | | | | | | | | | | | Reconciliation of Non-GAAP measures – Investment and Wealth Management business segment | | | | | | | | | | | | | | | | | | 3Q23 vs. | | | | | (dollars in millions) | 3Q23 | | | | 3Q22 | | 3Q22 | | | YTD22 | | Noninterest expense – GAAP | $ | 672 | | | | | $ | 1,356 | | | | | | $ | 2,802 | | | Less: Severance | 5 | | | | | (1) | | | | | | (1) | | | Goodwill impairment | — | | | | | 680 | | | | | | 680 | | | Adjusted noninterest expense – Non-GAAP | $ | 667 | | | | | $ | 677 | | | | | | $ | 2,123 | | | | | | | | | | | | | | | Income (loss) before income taxes – GAAP | $ | 164 | | | | | $ | (497) | | | N/M | | | $ | (77) | | | Less: Severance | (5) | | | | | 1 | | | | | | 1 | | | Goodwill impairment | — | | | | | (680) | | | | | | (680) | | | Adjusted income before income taxes – Non-GAAP | $ | 169 | | | | | $ | 182 | | | (7) | % | | | $ | 602 | | | | | | | | | | | | | | | Total revenue – GAAP | | | | | $ | 862 | | | | | | $ | 2,725 | | | Less: Distribution and servicing expense | | | | | 88 | | | | | | 258 | | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | | | | | $ | 774 | | | | | | $ | 2,467 | | | | | | | | | | | | | | | Pre-tax operating margin – GAAP (a) | | | | | (57) | % | | | | | (3) | % | | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | | | | | (64) | % | | | | | (3) | % | | Adjusted pre-tax operating margin, net of distribution and servicing expense and excluding notable items – Non-GAAP (a) | | | | | 24 | % | | | | | 24 | % | |
(a) Income before income taxes divided by total revenue.
| | | | | | | | | | | | | | | | | | | | Pre-tax operating margin reconciliation – Investment and Wealth Management business segment | | | | | | | | (dollars in millions) | 3Q23 | 2Q23 | 1Q23 | 4Q22 | | YTD23 | | Income before income taxes – GAAP | $ | 164 | | $ | 129 | | $ | 93 | | $ | 125 | | | $ | 386 | | | | | | | | | | | Total revenue – GAAP | $ | 827 | | $ | 813 | | $ | 827 | | $ | 825 | | | $ | 2,467 | | | Less: Distribution and servicing expense | 87 | | 93 | | 86 | | 87 | | | 266 | | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 740 | | $ | 720 | | $ | 741 | | $ | 738 | | | $ | 2,201 | | | | | | | | | | | Pre-tax operating margin – GAAP (a) | 20 | % | 16 | % | 11 | % | 15 | % | | 16 | % | | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 22 | % | 18 | % | 13 | % | 17 | % | | 18 | % | |
(a) Income before income 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 issuedRecent accounting standardsdevelopments
The following Accounting Standards Updates (“ASUs”)accounting guidance issued by the Financial Accounting Standards Board (“FASB”) havehas not yet been adopted.adopted as of Sept. 30, 2023.
ASU 2017-12, DerivativesAccounting Standards Update (“ASU”) 2023-02, Investments—Equity Method and Hedging: Targeted Improvements toJoint Ventures (Topic 323): Accounting for Hedging ActivitiesInvestments in Tax Credit Structures Using the Proportional Amortization Method
In August 2017,March 2023, the FASB issued an ASU Derivatives and Hedging: Targeted Improvements to 2023-02, Accounting for Hedging Activities. The objective of this ASU isInvestments in Tax Credit Structures Using the Proportional Amortization Method, which permits reporting entities to improve the financial reporting of hedging relationshipselect 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 impactaccount for their tax equity investments, regardless of the new guidancetax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the Company relates toincome tax credits and other income tax benefits received, and recognizes the new accounting alternatives for fair value hedges of interest rate risk, specifically,net amortization and income tax credits and other income tax benefits in the ability to hedge only the benchmarkincome statement as a component of the contractual cash flows, partial-term hedging and the introduction of the “last of layer” methodprovision 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.income taxes.
This ASU is effective for the first quarter of 2019,Jan. 1, 2024 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 assessingevaluating this guidance with respect to our investments in renewable energy projects, which historically have not been eligible to apply the impactsproportional amortization method. These investments currently generate losses in investment and other revenue that are more than offset by benefits and credits recorded to the provision for income taxes. The impact of adopting this new guidance for our renewable energy investments that meet the new standard.
ASU 2017-07, Compensation-Retirement Benefits - Improving the Presentation of Net Periodic Pension Costeligibility criteria would be an increase in investment and Net Periodic Postretirement Benefit Cost
In March 2017, the FASB issuedother revenue and 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 costincrease in the provision for 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 informationtaxes 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. consolidated income statement.
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 and other 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, 2023 and June 30, 2023, and “Supervision and Regulation” in our 2022 Annual Report.
Final Rule on Qualified Financial ContractsReport. The following discussion summarizes certain regulatory, legislative and other developments that may affect BNY Mellon.
Federal Deposit Insurance Corporation (“FDIC”) Special Assessment
On Sept.May 11, 2023, the FDIC proposed a rule to impose a special assessment on insured depository institutions (“IDIs”) to recover losses to the Deposit Insurance Fund (“DIF”) associated with the closures of Silicon Valley Bank and Signature Bank. Under the proposal, the FDIC would collect from each IDI a special assessment at an annual rate of approximately 12.5 basis points of the IDI’s estimated uninsured deposits (excluding the first $5 billion of estimated uninsured deposits), as of Dec. 31, 2022. For an IDI that is part of a holding company containing multiple IDIs, the $5 billion deduction would be apportioned based on the IDI’s estimated uninsured deposits as a percentage of total estimated uninsured deposits held by all IDI affiliates in the consolidated banking organization. The special assessment would be collected during an initial special assessment period of eight quarters, with the first quarterly assessment period beginning on Jan. 1, 2017,2024, subject to potential extension and a potential one-time final special assessment for any shortfall to the DIF. If the assessment is finalized as proposed, we estimate a noninterest expense of approximately $470 million to be recorded in the quarter in which the rule is finalized, which would significantly affect the results of operations for that quarter.
U.S. Regulatory Capital Requirements
On July 27, 2023, the Federal Reserve, adopted a final rule to require U.S. global systemically important banking organizations (“G-SIBs”) and 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 Office of the Comptroller of the Currency is expectedand the Federal Deposit Insurance Corporation proposed substantial revisions to do sothe capital requirements applicable to large banking organizations and to banking organizations with significant trading activity, including BNY Mellon. The proposed revisions would implement international capital standards issued by the Basel Committee on Banking Supervision in December 2017 to finalize the near future. QFCs generally include derivatives, repurchase agreements and securities lending arrangements, among others.Basel III reforms, as well as the Basel Committee’s revised standard for market risk capital requirements finalized in February 2019. In addition, on July 27, 2023, the Federal Reserve proposed amendments to its rule regarding risk-based capital surcharges for GSIBs, including BNY Mellon. The final rule includes two key requirements. First,period to submit comments on the final rule generally requiresproposals has been extended to Jan.
that QFCs16, 2024. We continue to assess the potential impact of the proposals.
European Central Bank (“ECB”) remuneration on minimum reserves
On July 27, 2023, the Governing Council of the ECB established 0% as the remuneration of minimum reserves credit institutions are required to hold with their Eurosystem national central bank on average over a maintenance period. The change became effective as of the beginning of the reserve maintenance period starting Sept. 20, 2023.
FDIC Long-Term Debt and Clean Holding Company Requirements
On Aug. 29, 2023, the Federal Reserve proposed amendments to its total loss-absorbing capacity (“TLAC”) rule applicable to G-SIBs, including BNY Mellon. Among other requirements, the proposal would (i) require a $400,000 minimum denomination for newly issued long-term debt of G-SIBs explicitly provide that any resolution stays applicableused to satisfy TLAC and long-term debt requirements and (ii) subject to notice and comment procedures, require a G-SIB to maintain an amount of eligible TLAC or long-term debt instruments greater or less than generally required under the exerciserule. The proposal would also exempt certain agreements from the scope of default rightsthe TLAC rule’s clean holding company prohibitions 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 basedqualified financial contracts with third parties. Comments on the resolution or bankruptcy of an affiliate of such entities, nor allow for any transfer restrictions with respect to such QFCs.
The finalproposed rule allows G-SIBs to comply withare due by Nov. 30, 2023. We are evaluating the rule by adhering to the International Swaps and Derivatives Association 2015 Universal Resolution Stay Protocol (the “Protocol”) or a similar protocol that accomplishes 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 thepotential impact of the new regulationsproposed rule.
FDIC Resolution Planning for Large Banks
On Aug. 29, 2023, the FDIC proposed revisions to the resolution plan rule applicable to covered IDIs. The proposed amendment would expand certain IDI resolution plan content requirements, adjust the frequency of resolution plan submissions from a 3-year cycle to a 2-year cycle, and require supplemental submissions of information in the interim period between filing years. Comments on its activities.the proposed rule are due by Nov. 30, 2023. We are evaluating the potential impact of the proposed rule.
Resolution planSEC Naming Convention Rules for Funds
As requiredOn Sept. 20, 2023, the SEC adopted amendments expanding the scope of terms that the SEC considers materially deceptive and misleading in a fund’s name
without a corresponding policy and related controls to invest at least 80% of the fund’s net asset value (plus certain borrowings) in the manner suggested by the Dodd-Frankfund’s name (“80% Policy”), including names that reference “growth” or “value,” or a name indicating that investment decisions incorporate any environmental, social and governance factors. The amendments will become effective 60 days after publication in the Federal Register and fund groups will have either 24 months or 30 months to come into compliance, depending upon their net asset size.
SEC Money Market Fund Reforms
On July 12, 2023, the SEC adopted amendments to rules that govern money market funds. The amendments became effective Oct. 2, 2023, with tiered compliance dates. The amendments include, among other things: (i) a mandatory liquidity fee for institutional prime and institutional tax-exempt money market funds, which will apply when a fund experiences daily net redemptions that exceed 5% of net assets (effective Oct. 2, 2023); (ii) maintenance of a fund board’s ability to impose liquidity fees (not to exceed 2% of the value of the shares redeemed) on a discretionary basis for non-government money market funds (effective April 2, 2024), (iii) substantially increasing the required minimum levels of daily and weekly liquid assets for all money market funds from 10% and 30%, to 25% and 50%, respectively (effective April 2, 2024), and (iv) removal of a money market fund’s ability to impose temporary “gates” to suspend redemptions in order to prevent dilution and remove the link between a money market fund’s liquidity level and its imposition of liquidity fees (effective Oct. 2, 2023).
California Climate Disclosure Laws
On Oct. 7, 2023, California enacted three climate-related bills imposing extensive new climate-related disclosure obligations applicable to companies doing business in California. The Climate Corporate Data Accountability Act (SB 253) requires covered companies with total annual revenues of $1 billion or more to disclose annually their Scope 1 (owned and controlled sources) and Scope 2 (from energy purchased and used) greenhouse gas emissions beginning in 2026, and Scope 3 (up and down value chain) greenhouse gas emissions beginning in 2027. The Climate-Related Financial Risk Act (SB 261) requires covered companies with total annual revenues of $500 million or more to publish biennial 48 BNY Mellon must submit annually
reports disclosing climate-related financial risks and the measures adopted to mitigate the disclosed risks by Jan. 1, 2026. The Voluntary Carbon Market Disclosures Act (AB 1305), effective Jan. 1, 2024, requires companies making certain claims, including regarding carbon neutrality or reduction of greenhouse gas emissions, and companies purchasing carbon offsets in addition to making such claims, to disclose information on the determination of accuracy of the claim, interim progress measures, third-party verification and, if applicable, information on the carbon offsets purchased and emissions data. The laws may be modified by future legislation. We are assessing the potential impact of the climate disclosure laws.
Federal Reserve Novel Activities Supervisory Program
On Aug. 8, 2023, the Federal Reserve issued a Supervision and Regulation Letter (SR 23-7) announcing the FDIC a plan forestablishment of its rapidNovel Activities Supervision Program (“NAS Program”) to complement its existing supervision and orderly resolution inoversight of supervised banking organizations, including BNY Mellon. The NAS Program will encompass risk-based monitoring and examination and focus on novel activities related to crypto-assets, distributed ledger technology, and complex, technology-driven partnerships with nonbank providers of banking products and services to customers. We are evaluating the eventpotential impact 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.NAS Program.
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.
Website information
Our website is www.bnymellon.com.www.bnymellon.com. We currently make available the following information under the Investor Relations portion of our website. With respect to SEC filings with the Securities and Exchange Commission (“SEC”), 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; Net Stable Funding 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, DirectorsBy-Laws, Directors’ 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 X (formerly known as 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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | (in millions) | | Fee and other revenue | | | | | | | Investment services fees | $ | 2,230 | | $ | 2,252 | | $ | 2,157 | | | $ | 6,601 | | $ | 6,356 | | Investment management and performance fees | 777 | | 762 | | 800 | | | 2,315 | | 2,516 | | Foreign exchange revenue | 154 | | 158 | | 203 | | | 488 | | 632 | | Financing-related fees | 45 | | 50 | | 43 | | | 147 | | 132 | | Distribution and servicing fees | 39 | | 35 | | 33 | | | 107 | | 97 | | Total fee revenue | 3,245 | | 3,257 | | 3,236 | | | 9,658 | | 9,733 | | Investment and other revenue | 113 | | 97 | | 117 | | | 289 | | 278 | | Total fee and other revenue | 3,358 | | 3,354 | | 3,353 | | | 9,947 | | 10,011 | | Net interest revenue | | | | | | | Interest revenue | 5,519 | | 5,224 | | 1,984 | | | 14,685 | | 3,921 | | Interest expense | 4,503 | | 4,124 | | 1,058 | | | 11,441 | | 1,473 | | Net interest revenue | 1,016 | | 1,100 | | 926 | | | 3,244 | | 2,448 | | Total revenue | 4,374 | | 4,454 | | 4,279 | | | 13,191 | | 12,459 | | Provision for credit losses | 3 | | 5 | | (30) | | | 35 | | 19 | | Noninterest expense | | | | | | | Staff | 1,755 | | 1,718 | | 1,673 | | | 5,264 | | 4,998 | | Software and equipment | 452 | | 450 | | 421 | | | 1,331 | | 1,225 | | Professional, legal and other purchased services | 368 | | 378 | | 363 | | | 1,121 | | 1,112 | | Net occupancy | 140 | | 121 | | 124 | | | 380 | | 371 | | Sub-custodian and clearing | 121 | | 119 | | 124 | | | 358 | | 373 | | Distribution and servicing | 87 | | 93 | | 88 | | | 265 | | 257 | | Business development | 36 | | 47 | | 34 | | | 122 | | 107 | | Bank assessment charges | 37 | | 41 | | 35 | | | 118 | | 107 | | Goodwill impairment | — | | — | | 680 | | | — | | 680 | | Amortization of intangible assets | 15 | | 14 | | 17 | | | 43 | | 51 | | Other | 78 | | 130 | | 120 | | | 298 | | 516 | | Total noninterest expense | 3,089 | | 3,111 | | 3,679 | | | 9,300 | | 9,797 | | Income | | | | | | | Income before income taxes | 1,282 | | 1,338 | | 630 | | | 3,856 | | 2,643 | | Provision for income taxes | 241 | | 270 | | 242 | | | 771 | | 626 | | Net income | 1,041 | | 1,068 | | 388 | | | 3,085 | | 2,017 | | Net (income) loss attributable to noncontrolling interests related to consolidated investment management funds | (3) | | (1) | | — | | | (4) | | 13 | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 1,038 | | 1,067 | | 388 | | | 3,081 | | 2,030 | | Preferred stock dividends | (82) | | (36) | | (69) | | | (189) | | (177) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 956 | | $ | 1,031 | | $ | 319 | | | $ | 2,892 | | $ | 1,853 | |
| | | | | | | | | | | | | | | | | | | 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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | (in millions) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 956 | | $ | 1,031 | | $ | 319 | | | $ | 2,892 | | $ | 1,853 | | Less: Earnings allocated to participating securities | — | | — | | — | | | — | | — | | 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 | $ | 956 | | $ | 1,031 | | $ | 319 | | | $ | 2,892 | | $ | 1,853 | |
| | | | | | | | | | | | | | | | | | 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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | (in thousands) | | Basic | 777,813 | | 787,718 | | 811,304 | | | 789,609 | | 810,703 | | Common stock equivalents | 4,058 | | 3,097 | | 3,311 | | | 3,848 | | 3,713 | | Less: Participating securities | (90) | | (90) | | (99) | | | (93) | | (202) | | Diluted | 781,781 | | 790,725 | | 814,516 | | | 793,364 | | 814,214 | | | | | | | | | Anti-dilutive securities (a) | 1,305 | | 7,059 | | 3,306 | | | 5,559 | | 3,294 | |
(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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | (in dollars) | | Basic | $ | 1.23 | | $ | 1.31 | | $ | 0.39 | | | $ | 3.66 | | $ | 2.29 | | Diluted | $ | 1.22 | | $ | 1.30 | | $ | 0.39 | | | $ | 3.65 | | $ | 2.28 | |
| | | | | | | | | | | | | | | | | | 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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | (in millions) | | Net income | $ | 1,041 | | $ | 1,068 | | $ | 388 | | | $ | 3,085 | | $ | 2,017 | | Other comprehensive income (loss), net of tax: | | | | | | | Foreign currency translation adjustments | (185) | | 97 | | (442) | | | 15 | | (1,150) | | Unrealized gain (loss) on assets available-for-sale: | | | | | | | Unrealized (loss) gain arising during the period | (29) | | (157) | | (908) | | | 131 | | (3,321) | | Reclassification adjustment | 14 | | — | | (1) | | | 15 | | (4) | | Total unrealized (loss) gain on assets available-for-sale | (15) | | (157) | | (909) | | | 146 | | (3,325) | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | (3) | | (2) | | 13 | | | (8) | | 44 | | Total defined benefit plans | (3) | | (2) | | 13 | | | (8) | | 44 | | Net unrealized gain (loss) on cash flow hedges | — | | 3 | | (1) | | | 8 | | (8) | | Total other comprehensive (loss) income, net of tax (a) | (203) | | (59) | | (1,339) | | | 161 | | (4,439) | | Total comprehensive income (loss) | 838 | | 1,009 | | (951) | | | 3,246 | | (2,422) | | Net (income) loss attributable to noncontrolling interests | (3) | | (1) | | — | | | (4) | | 13 | | Other comprehensive loss attributable to noncontrolling interests | — | | — | | 19 | | | — | | 25 | | Comprehensive income (loss) applicable to shareholders of The Bank of New York Mellon Corporation | $ | 835 | | $ | 1,008 | | $ | (932) | | | $ | 3,242 | | $ | (2,384) | |
| | | | | | | | | | | | | | | | | | | 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 income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $(203) million for the quarter ended Sept. 30, 2023, $(59) million for the quarter ended June 30, 2023, $(1,320) million for the quarter ended Sept. 30, 2022, $161 million for the nine months ended Sept. 30, 2023 and $(4,414) million for the nine months ended Sept. 30, 2022.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Balance Sheet (unaudited)
| | | | | | | | | | Sept. 30, 2023 | Dec. 31, 2022 | (dollars in millions, except per share amounts) | Assets | | | Cash and due from banks, net of allowance for credit losses of $23 and $29 | $ | 4,904 | | $ | 5,030 | | Interest-bearing deposits with the Federal Reserve and other central banks | 107,419 | | 91,655 | | Interest-bearing deposits with banks, net of allowance for credit losses of $2 and $4 (includes restricted of $3,084 and $6,499) | 12,999 | | 17,169 | | Federal funds sold and securities purchased under resale agreements | 26,299 | | 24,298 | | Securities: | | | Held-to-maturity, at amortized cost, net of allowance for credit losses of $1 and less than $1 (fair value of $44,211 and $49,992) | 51,007 | | 56,194 | | Available-for-sale, at fair value (amortized cost of $83,074 and $92,484, net of allowance for credit losses of less than $1 and $1) | 77,218 | | 86,622 | | Total securities | 128,225 | | 142,816 | | Trading assets | 10,699 | | 9,908 | | Loans | 66,290 | | 66,063 | | Allowance for credit losses | (211) | | (176) | | Net loans | 66,079 | | 65,887 | | Premises and equipment | 3,234 | | 3,256 | | Accrued interest receivable | 1,141 | | 858 | | Goodwill | 16,159 | | 16,150 | | Intangible assets | 2,859 | | 2,901 | | Other assets, net of allowance for credit losses on accounts receivable of $3 and $4 (includes $1,561 and $971, at fair value) | 25,231 | | 25,855 | | Total assets | $ | 405,248 | | $ | 405,783 | | Liabilities | | | Deposits: | | | Noninterest-bearing (principally U.S. offices) | $ | 60,571 | | $ | 78,017 | | Interest-bearing deposits in U.S. offices | 132,245 | | 108,362 | | Interest-bearing deposits in non-U.S. offices | 84,651 | | 92,591 | | Total deposits | 277,467 | | 278,970 | | Federal funds purchased and securities sold under repurchase agreements | 14,771 | | 12,335 | | Trading liabilities | 7,358 | | 5,385 | | Payables to customers and broker-dealers | 17,441 | | 23,435 | | | | | Other borrowed funds | 728 | | 397 | | Accrued taxes and other expenses | 5,389 | | 5,410 | | Other liabilities (including allowance for credit losses on lending-related commitments of $85 and $78, also includes $23 and $221, at fair value) | 11,758 | | 8,543 | | Long-term debt | 29,205 | | 30,458 | | Total liabilities | 364,117 | | 364,933 | | Temporary equity | | | Redeemable noncontrolling interests | 109 | | 109 | | Permanent equity | | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 48,826 and 48,826 shares | 4,838 | | 4,838 | | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,402,122,865 and 1,395,725,198 shares | 14 | | 14 | | Additional paid-in capital | 28,793 | | 28,508 | | Retained earnings | 39,822 | | 37,864 | | Accumulated other comprehensive loss, net of tax | (5,805) | | (5,966) | | Less: Treasury stock of 633,049,587 and 587,280,598 common shares, at cost | (26,696) | | (24,524) | | Total The Bank of New York Mellon Corporation shareholders’ equity | 40,966 | | 40,734 | | Nonredeemable noncontrolling interests of consolidated investment management funds | 56 | | 7 | | Total permanent equity | 41,022 | | 40,741 | | Total liabilities, temporary equity and permanent equity | $ | 405,248 | | $ | 405,783 | |
| | | | | | | | | 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) | 2023 | | 2022 | | Operating activities | | | | | Net income | $ | 3,085 | | | $ | 2,017 | | | Net (income) loss attributable to noncontrolling interests | (4) | | | 13 | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 3,081 | | | 2,030 | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | | Provision for credit losses | 35 | | | 19 | | | Pension plan contributions | (4) | | | (2) | | | Depreciation and amortization | 1,122 | | | 1,255 | | | Goodwill impairment | — | | | 680 | | | Deferred tax (benefit) expense | (42) | | | 255 | | | Net securities losses (gains) | 20 | | | (5) | | | Change in trading assets and liabilities | 1,015 | | | 6,945 | | | Change in accruals and other, net | 2,753 | | | 967 | | | Net cash provided by operating activities | 7,980 | | | 12,144 | | | Investing activities | | | | | Change in interest-bearing deposits with banks | 453 | | | 2,937 | | | Change in interest-bearing deposits with the Federal Reserve and other central banks | (16,667) | | | (12,186) | | | Purchases of securities held-to-maturity | (273) | | | (2,144) | | | Paydowns of securities held-to-maturity | 3,540 | | | 5,851 | | | Maturities of securities held-to-maturity | 1,715 | | | 1,423 | | | Purchases of securities available-for-sale | (15,779) | | | (26,007) | | | Sales of securities available-for-sale | 9,449 | | | 11,303 | | | Paydowns of securities available-for-sale | 2,794 | | | 4,205 | | | Maturities of securities available-for-sale | 12,988 | | | 8,392 | | | Net change in loans | (243) | | | (2,517) | | | | | | | | Change in federal funds sold and securities purchased under resale agreements | (2,002) | | | 6,109 | | | Net change in seed capital investments | 18 | | | 24 | | | Purchases of premises and equipment/capitalized software | (951) | | | (989) | | | Proceeds from the sale of premises and equipment | — | | | 45 | | | | | | | | Disposition, net of cash | — | | | 51 | | | Other, net | 494 | | | (1,747) | | | Net cash (used for) investing activities | (4,464) | | | (5,250) | | | Financing activities | | | | | Change in deposits | 81 | | | (8,202) | | | Change in federal funds purchased and securities sold under repurchase agreements | 2,538 | | | (129) | | | Change in payables to customers and broker-dealers | (5,983) | | | (1,108) | | | Change in other borrowed funds | 342 | | | (347) | | | | | | | | Net proceeds from the issuance of long-term debt | 4,493 | | | 6,684 | | | Repayments, redemptions and repurchases of long-term debt | (5,466) | | | (3,250) | | | Proceeds from the exercise of stock options | — | | | 9 | | | Issuance of common stock | 12 | | | 10 | | | | | | | | Treasury stock acquired | (2,154) | | | (122) | | | | | | | | Common cash dividends paid | (934) | | | (860) | | | Preferred cash dividends paid | (189) | | | (177) | | | | | | | | Other, net | — | | | (12) | | | Net cash (used for) financing activities | (7,260) | | | (7,504) | | | Effect of exchange rate changes on cash | 203 | | | 327 | | | Change in cash and due from banks and restricted cash | | | | | Change in cash and due from banks and restricted cash | (3,541) | | | (283) | | | Cash and due from banks and restricted cash at beginning of period | 11,529 | | | 9,883 | | | Cash and due from banks and restricted cash at end of period | $ | 7,988 | | | $ | 9,600 | | | Cash and due from banks and restricted cash | | | | | Cash and due from banks at end of period (unrestricted cash) | $ | 4,904 | | | $ | 4,707 | | | Restricted cash at end of period | 3,084 | | | 4,893 | | | Cash and due from banks and restricted cash at end of period | $ | 7,988 | | | $ | 9,600 | | | Supplemental disclosures | | | | | Interest paid | $ | 11,196 | | | $ | 1,355 | | | Income taxes paid | 653 | | | 319 | | | Income taxes refunded | 13 | | | 7 | | |
| | | | | | | | | | 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, 2023 | $ | 4,838 | | $ | 14 | | $ | 28,726 | | $ | 39,199 | | $ | (5,602) | | $ | (26,242) | | $ | 65 | | $ | 40,998 | | (a) | $ | 104 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 10 | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 1 | | — | | — | | — | | (12) | | (11) | | | (2) | | Net income | — | | — | | — | | 1,038 | | — | | — | | 3 | | 1,041 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (203) | | — | | — | | (203) | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.42 per share (b) | — | | — | | — | | (333) | | — | | — | | — | | (333) | | | — | | Preferred stock | — | | — | | — | | (82) | | — | | — | | — | | (82) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (450) | | — | | (450) | | | — | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | — | | — | | 61 | | — | | — | | — | | — | | 61 | | | — | | Excise tax on share repurchases | — | | — | | — | | — | | — | | (4) | | — | | (4) | | | — | | Other | — | | — | | — | | — | | — | | — | | — | | — | | | (3) | | Balance at Sept. 30, 2023 | $ | 4,838 | | $ | 14 | | $ | 28,793 | | $ | 39,822 | | $ | (5,805) | | $ | (26,696) | | $ | 56 | | $ | 41,022 | | (a) | $ | 109 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $36,095 million at June 30, 2023 and $36,128 million at Sept. 30, 2023. (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), net of tax | Treasury stock | Balance at March 31, 2023 | $ | 4,838 | | $ | 14 | | $ | 28,650 | | $ | 38,465 | | $ | (5,543) | | $ | (25,790) | | $ | 72 | | $ | 40,706 | | (a) | $ | 96 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 7 | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 2 | | — | | — | | — | | (8) | | (6) | | | (1) | | Net income | — | | — | | — | | 1,067 | | — | | — | | 1 | | 1,068 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (59) | | — | | — | | (59) | | | — | | Dividends: | | | | | | | | | | | Common stock at $0.37 per share (b) | — | | — | | — | | (297) | | — | | — | | — | | (297) | | | — | | Preferred stock | — | | — | | — | | (36) | | — | | — | | — | | (36) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (448) | | — | | (448) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | — | | — | | 69 | | — | | — | | — | | — | | 69 | | | — | | | | | | | | | | | | | Excise tax of share repurchases | — | | — | | — | | — | | — | | (4) | | — | | (4) | | | — | | Other | — | | — | | — | | — | | — | | — | | — | | — | | | 2 | | Balance at June 30, 2023 | $ | 4,838 | | $ | 14 | | $ | 28,726 | | $ | 39,199 | | $ | (5,602) | | $ | (26,242) | | $ | 65 | | $ | 40,998 | | (a) | $ | 104 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,796 million at March 31, 2023 and $36,095 million at June 30, 2023. (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, 2022 | $ | 4,838 | | $ | 14 | | $ | 28,316 | | $ | 37,644 | | $ | (5,307) | | $ | (24,521) | | $ | 7 | | $ | 40,991 | | (a) | $ | 154 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 17 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (1) | | Other net changes in noncontrolling interests | — | | — | | 2 | | — | | — | | — | | — | | 2 | | | 1 | | Net income | — | | — | | — | | 388 | | — | | — | | — | | 388 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (1,320) | | — | | — | | (1,320) | | | (19) | | Dividends: | | | | | | | | | | | Common stock at $0.37 per share (b) | — | | — | | — | | (303) | | — | | — | | — | | (303) | | | — | | Preferred stock | — | | — | | — | | (69) | | — | | — | | — | | (69) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (1) | | — | | (1) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 51 | | — | | — | | — | | — | | 51 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Balance at Sept. 30, 2022 | $ | 4,838 | | $ | 14 | | $ | 28,374 | | $ | 37,660 | | $ | (6,627) | | $ | (24,522) | | $ | 7 | | $ | 39,744 | | (a) | $ | 152 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $36,146 million at June 30, 2022 and $34,899 million at Sept. 30, 2022. (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 Dec. 31, 2022 | $ | 4,838 | | $ | 14 | | $ | 28,508 | | $ | 37,864 | | $ | (5,966) | | $ | (24,524) | | $ | 7 | | $ | 40,741 | | (a) | $ | 109 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 27 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (34) | | Other net changes in noncontrolling interests | — | | — | | (5) | | — | | — | | — | | 45 | | 40 | | | 6 | | Net income | — | | — | | — | | 3,081 | | — | | — | | 4 | | 3,085 | | | — | | Other comprehensive income | — | | — | | — | | — | | 161 | | — | | — | | 161 | | | — | | Dividends: | | | | | | | | | | | Common stock at $1.16 per share (b) | — | | — | | — | | (934) | | — | | — | | — | | (934) | | | — | | Preferred stock | — | | — | | — | | (189) | | — | | — | | — | | (189) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (2,154) | | — | | (2,154) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 15 | | — | | — | | — | | — | | 15 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock-based compensation | — | | — | | 275 | | — | | — | | — | | — | | 275 | | | — | | Excise tax on share repurchases | — | | — | | — | | — | | — | | (18) | | — | | (18) | | | — | | Other | — | | — | | — | | — | | — | | — | | — | | — | | | 1 | | Balance at Sept. 30, 2023 | $ | 4,838 | | $ | 14 | | $ | 28,793 | | $ | 39,822 | | $ | (5,805) | | $ | (26,696) | | $ | 56 | | $ | 41,022 | | (a) | $ | 109 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,896 million at Dec. 31, 2022 and $36,128 million at Sept. 30, 2023. (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, 2021 | $ | 4,838 | | $ | 14 | | $ | 28,128 | | $ | 36,667 | | $ | (2,213) | | $ | (24,400) | | $ | 196 | | $ | 43,230 | | (a) | $ | 161 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 26 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (15) | | Other net changes in noncontrolling interests | — | | — | | (3) | | — | | — | | — | | (176) | | (179) | | | 5 | | Net income (loss) | — | | — | | — | | 2,030 | | — | | — | | (13) | | 2,017 | | | — | | Other comprehensive (loss) | — | | — | | — | | — | | (4,414) | | — | | — | | (4,414) | | | (25) | | Dividends: | | | | | | | | | | | Common stock at $1.05 per share (b) | — | | — | | — | | (860) | | — | | — | | — | | (860) | | | — | | Preferred stock | — | | — | | — | | (177) | | — | | — | | — | | (177) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (122) | | — | | (122) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 15 | | — | | — | | — | | — | | 15 | | | — | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 234 | | — | | — | | — | | — | | 234 | | | — | | Balance at Sept. 30, 2022 | $ | 4,838 | | $ | 14 | | $ | 28,374 | | $ | 37,660 | | $ | (6,627) | | $ | (24,522) | | $ | 7 | | $ | 39,744 | | (a) | $ | 152 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $38,196 million at Dec. 31, 2021 and $34,899 million at Sept. 30, 2022. (b) Includes dividend equivalents on share-based awards.
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 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended Dec. 31, 2022 (the “2022 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 Consolidated Financial Statements included in our 2022 Annual Report on Form 10-K for the year ended Dec. 31, 2016.Report. Certain additional immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to estimates are items such as the allowance for loan losses and lending-related commitments, the fair value of financial instruments and derivatives, other-than-temporary impairment, goodwill and other intangibles and pension accounting. Among other effects, such changes in estimates could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as changes in pension and post-retirement expense.
Note 2 - Accounting change and new2–New accounting guidance
ASU 2017-04, Simplifying the Test for Goodwill Impairment
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. This ASU simplifies the annual goodwill impairment test by eliminating Step 2. The Step 2 calculation estimated the implied goodwill using the fair values of all assets, including previously unrecorded intangibles, and liabilities at the date of the test. Step 2following accounting guidance 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 second quarter of 2017, in conjunction with its annual goodwill impairment test. The annual test did not result in any impairment.
ASU 2016-09, Compensation – Stock Compensation
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation. This ASU simplifies several 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 related to the vesting of stock awards and option exercises in the provision for income taxes. Previously, this had been recorded directly to additional paid-in capital. The impact in future periods will vary depending on the number of restricted stock units vesting (which primarily occurs in the first quarter of each year)2023.
Accounting Standards Update (“ASU”) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method, which provides guidance that expands the numberability to hedge interest rate risk by permitting the use of stock options exercisedmultiple hedged layers of a single closed portfolio of assets and will (1) Allow multiple layer hedging within the changesame closed portfolio, (2) Expand the scope of the portfolio layer method to include non-prepayable assets, (3) Expand the eligible hedging instruments to be utilized in value sincea single-layer hedge, and (4) Permit held-to-maturity debt securities to be transferred to available-for-sale at the grantdate of adoption, provided such transferred securities are designated in a portfolio layer method hedge within 30 days of the adoption date.
The standard also provides further guidance and disclosure requirements with respect to hedge basis adjustments related to portfolio layer method hedges.
We continueadopted this guidance as of Jan. 1, 2023. The Company did not choose to make the one-time election to reclassify securities classified as held-to-maturity to available-for-sale as of Jan. 1, 2023 and can choose to prospectively apply our accounting policy election for estimating forfeitures. Additionally, beginning inportfolio layer method hedging.
ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the quarter ended March 31, 2017, we report excess tax benefitsFASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which provides post-implementation guidance related to stock-based compensation as operating activitiesthe adoption of ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which was effective Jan. 1, 2020. This ASU amends the statementguidance related to two issues: Troubled Debt Restructurings (“TDRs”) and disclosure requirements for the credit profile of cash flowsthe loan portfolio. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. An entity must apply the employee taxes paid will continueloan refinancing and restructuring guidance to be reported as financing activities. determine whether a
| | | Notes to Consolidated Financial Statements(continued) | |
modification results in a new loan or a continuation of an existing loan.
This ASU also requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost.
We adopted the revised guidance related to loan modifications on Jan. 1, 2023. The impact was immaterial. The updated disclosures are included in Note 5.
Note 3 - 3–Acquisitions and dispositions
We sometimes structure our acquisitions and divestitures with both an initial payment or receipt and later contingent payments or receipts tied to post-closing revenue or income growth. Contingent payments totaled $2$5 million in the third quarter of 2017 and the first nine months of 2017.
2023. There were no contingent receipts in the first nine months of 2023. At Sept. 30, 2017,2023, we are potentially obligated to pay additional considerationwhich, using reasonable assumptions and estimates, could range from $0$25 million to $16$40 millionover the nexttwo years, but. At Sept. 30, 2023, we could potentially receive additional consideration which, using reasonable assumptions and estimates, could be higher as certainup to $390 million over the next five years.
See Note 3 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.
AcquisitionNotes to Consolidated Financial Statements 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 servicerour 2022 Annual Report for approximately 700 high-net-worth clients, for cash of $38 million, plus contingent payments measured at $22 million. Goodwillinformation 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.2022 transactions.
Note 4 - 4–Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of securities at Sept. 30, 20172023 and Dec. 31, 2016.2022.
| | | | | | | | | | | | | | | Securities at Sept. 30, 2023 | Gross unrealized | Fair value | | Amortized cost | (in millions) | Gains | Losses | Available-for-sale: | | | | | U.S. Treasury | $ | 23,212 | | $ | 67 | | $ | 2,381 | | $ | 20,898 | | Agency residential mortgage-backed securities (“RMBS”) | 10,581 | | 93 | | 687 | | 9,987 | | Sovereign debt/sovereign guaranteed | 9,192 | | 2 | | 504 | | 8,690 | | Supranational | 7,988 | | 1 | | 421 | | 7,568 | | Agency commercial mortgage-backed securities (“MBS”) | 8,233 | | 69 | | 770 | | 7,532 | | Foreign covered bonds | 6,364 | | 3 | | 257 | | 6,110 | | Collateralized loan obligations (“CLOs”) | 5,965 | | 4 | | 34 | | 5,935 | | Non-agency commercial MBS | 3,315 | | 1 | | 399 | | 2,917 | | U.S. government agencies | 3,014 | | 43 | | 295 | | 2,762 | | Foreign government agencies/local governments | 2,256 | | — | | 97 | | 2,159 | | Non-agency RMBS | 1,927 | | 31 | | 221 | | 1,737 | | Other asset-backed securities (“ABS”) | 1,026 | | — | | 104 | | 922 | | | | | | | | | | | | Other debt securities | 1 | | — | | — | | 1 | | Total securities available-for-sale (a)(b) | $ | 83,074 | | $ | 314 | | $ | 6,170 | | $ | 77,218 | | Held-to-maturity: | | | | | Agency RMBS | $ | 30,760 | | $ | 1 | | $ | 4,898 | | $ | 25,863 | | U.S. Treasury | 9,477 | | — | | 835 | | 8,642 | | U.S. government agencies | 4,199 | | — | | 543 | | 3,656 | | Agency commercial MBS | 3,506 | | — | | 407 | | 3,099 | | Sovereign debt/sovereign guaranteed | 1,456 | | — | | 73 | | 1,383 | | CLOs | 983 | | — | | 10 | | 973 | | | | | | | Supranational | 510 | | — | | 24 | | 486 | | Foreign government agencies | 78 | | — | | 5 | | 73 | | Non-agency RMBS | 26 | | 1 | | 1 | | 26 | | State and political subdivisions | 12 | | — | | 2 | | 10 | | Total securities held-to-maturity | $ | 51,007 | | $ | 2 | | $ | 6,798 | | $ | 44,211 | | Total securities | $ | 134,081 | | $ | 316 | | $ | 12,968 | | $ | 121,429 | |
(a) The amortized cost of available-for-sale is net of the allowance for credit losses of less than $1 million. The allowance for credit loss relates to non-agency RMBS. (b) Includes gross unrealized gains of $272 million and gross unrealized losses of $153 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains primarily relate to agency RMBS, agency commercial MBS and U.S. Treasury securities. The unrealized losses primarily relate to agency RMBS and U.S. Treasury securities. The unrealized gains and losses 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, 2022 | Gross unrealized | | | Amortized cost | Fair value | (in millions) | Gains | Losses | Available-for-sale: | | | | | U.S. Treasury | $ | 32,103 | | $ | 93 | | $ | 2,663 | | $ | 29,533 | | Sovereign debt/sovereign guaranteed | 10,906 | | 5 | | 547 | | 10,364 | | Agency RMBS | 9,388 | | 113 | | 544 | | 8,957 | | Agency commercial MBS | 8,656 | | 89 | | 685 | | 8,060 | | Supranational | 8,129 | | 4 | | 399 | | 7,734 | | Foreign covered bonds | 6,041 | | 3 | | 286 | | 5,758 | | CLOs | 5,446 | | 1 | | 104 | | 5,343 | | Non-agency commercial MBS | 3,334 | | — | | 357 | | 2,977 | | U.S. government agencies | 2,465 | | 52 | | 223 | | 2,294 | | Foreign government agencies/local governments | 2,363 | | 1 | | 123 | | 2,241 | | Non-agency RMBS | 2,197 | | 43 | | 211 | | 2,029 | | Other ABS | 1,443 | | — | | 124 | | 1,319 | | State and political subdivisions | 12 | | — | | — | | 12 | | | | | | | Other debt securities | 1 | | — | | — | | 1 | | Total securities available-for-sale (a)(b) | $ | 92,484 | | $ | 404 | | $ | 6,266 | | $ | 86,622 | | Held-to-maturity: | | | | | Agency RMBS | $ | 34,188 | | $ | 1 | | $ | 4,229 | | $ | 29,960 | | U.S. Treasury | 10,863 | | — | | 895 | | 9,968 | | U.S. government agencies | 4,206 | | — | | 534 | | 3,672 | | Agency commercial MBS | 4,014 | | — | | 411 | | 3,603 | | Sovereign debt/sovereign guaranteed | 1,388 | | — | | 76 | | 1,312 | | CLOs | 983 | | — | | 26 | | 957 | | Supranational | 443 | | — | | 25 | | 418 | | Foreign government agencies | 66 | | — | | 6 | | 60 | | Non-agency RMBS | 30 | | 2 | | 1 | | 31 | | State and political subdivisions | 13 | | — | | 2 | | 11 | | Total securities held-to-maturity | $ | 56,194 | | $ | 3 | | $ | 6,205 | | $ | 49,992 | | Total securities | $ | 148,678 | | $ | 407 | | $ | 12,471 | | $ | 136,614 | |
(a) The amortized cost of available-for-sale securities is net of the allowance for credit losses of $1 million. The allowance for credit loss primarily relates to non-agency RMBS. (b) Includes gross unrealized gains of $347 million and gross unrealized losses of $179 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains primarily relate to agency RMBS, U.S. Treasury securities and agency commercial MBS. The unrealized losses primarily relate to agency RMBS and U.S. Treasury securities. The unrealized gains and losses will be amortized into net interest revenue over the contractual lives of the securities.
| | | | | | | | | | | | | | 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 |
|
| | (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) | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | Realized gross gains | $ | 1 | | $ | 4 | | $ | 9 | | $ | 19 | | $ | 89 | | Realized gross losses | (20) | | (4) | | (8) | | (39) | | (84) | | Total net securities (losses) gains | $ | (19) | | $ | — | | $ | 1 | | $ | (20) | | $ | 5 | |
The following table presents pre-tax net securities gains (losses) by type.
| | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | (in millions) | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | Non-agency RMBS | $ | — | | $ | — | | $ | — | | $ | 2 | | $ | 49 | | U.S. Treasury | (19) | | — | | — | | (27) | | 12 | | State and political subdivisions | — | | — | | — | | — | | (13) | | Corporate bonds | — | | — | | — | | — | | (51) | | Other | — | | — | | 1 | | 5 | | 8 | | Total net securities (losses) gains | $ | (19) | | $ | — | | $ | 1 | | $ | (20) | | $ | 5 | |
Allowance for credit losses – Securities
The allowance for credit losses related to securities was $1 million at Sept. 30, 2023 and impairments.$1 million at Dec. 31, 2022, and relates to state and political subdivision and non-agency RMBS securities.
Credit quality indicators – Securities | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | (in millions) | 3Q17 |
| 2Q17 |
| 3Q16 |
| YTD17 |
| YTD16 |
| Realized gross gains | $ | 20 |
| $ | 3 |
| $ | 26 |
| $ | 34 |
| $ | 71 |
| Realized gross losses | — |
| (2 | ) | (1 | ) | (2 | ) | (1 | ) | Recognized gross impairments | (1 | ) | (1 | ) | (1 | ) | (3 | ) | (5 | ) | Total net securities gains | $ | 19 |
| $ | — |
| $ | 24 |
| $ | 29 |
| $ | 65 |
|
In September 2017, other residential mortgage-backed securities with an aggregate amortized cost of $74 million and fair value of $76 million were transferred from held-to-maturity securities to available-for-sale securities. Due to recent ratings downgrades, the Company no longer intends to hold these securities to maturity.
Temporarily impaired securities
At Sept. 30, 2017,2023, the gross unrealized losses on the investment securities portfolio were primarily attributable to an increase in interest rates 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$153 million of the unrealized losses at Sept. 30, 20172023 and $190$179 million at Dec. 31, 20162022 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, 2023 | Less than 12 months | | 12 months or more | | Total | Fair value | Unrealized losses | | Fair value | Unrealized losses | | Fair value | Unrealized losses | (in millions) | | | U.S. Treasury | $ | 749 | | $ | 64 | | | $ | 20,149 | | $ | 2,317 | | | $ | 20,898 | | $ | 2,381 | | Agency RMBS | 2,975 | | 108 | | | 6,848 | | 579 | | | 9,823 | | 687 | | Sovereign debt/sovereign guaranteed | 1,686 | | 27 | | | 5,988 | | 477 | | | 7,674 | | 504 | | Agency commercial MBS | 474 | | 23 | | | 6,925 | | 747 | | | 7,399 | | 770 | | Supranational | 2,555 | | 58 | | | 4,499 | | 363 | | | 7,054 | | 421 | | Foreign covered bonds | 1,449 | | 18 | | | 3,606 | | 239 | | | 5,055 | | 257 | | CLOs | 459 | | 1 | | | 4,233 | | 33 | | | 4,692 | | 34 | | Non-agency commercial MBS | 139 | | 1 | | | 2,632 | | 398 | | | 2,771 | | 399 | | U.S. government agencies | 837 | | 25 | | | 1,685 | | 270 | | | 2,522 | | 295 | | Foreign government agencies/local governments | 587 | | 10 | | | 1,512 | | 87 | | | 2,099 | | 97 | | | | | | | | | | | Non-agency RMBS | 53 | | 2 | | | 1,288 | | 219 | | | 1,341 | | 221 | | Other ABS | — | | — | | | 858 | | 104 | | | 858 | | 104 | | | | | | | | | | | | | | | | | | | | Total securities available-for-sale (a) | $ | 11,963 | | $ | 337 | | | $ | 60,223 | | $ | 5,833 | | | $ | 72,186 | | $ | 6,170 | |
(a) Includes $153 million of gross unrealized losses 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. There were no gross unrealized losses for less than 12 months. The unrealized losses are primarily related to agency RMBS and Dec. 31, 2016.U.S. Treasury securities and will be amortized into net interest revenue over the contractual lives of the securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2022 | Less than 12 months | | 12 months or more | | Total | Fair value | Unrealized losses | | Fair value | Unrealized losses | | Fair value | Unrealized losses | (in millions) | | | U.S. Treasury | $ | 14,058 | | $ | 824 | | | $ | 15,236 | | $ | 1,839 | | | $ | 29,294 | | $ | 2,663 | | Agency RMBS | 7,929 | | 376 | | | 789 | | 168 | | | 8,718 | | 544 | | Agency commercial MBS | 6,088 | | 389 | | | 1,878 | | 296 | | | 7,966 | | 685 | | Sovereign debt/sovereign guaranteed | 4,176 | | 184 | | | 3,788 | | 363 | | | 7,964 | | 547 | | Supranational | 3,451 | | 109 | | | 2,571 | | 290 | | | 6,022 | | 399 | | CLOs | 4,806 | | 94 | | | 403 | | 10 | | | 5,209 | | 104 | | Foreign covered bonds | 2,830 | | 83 | | | 1,977 | | 203 | | | 4,807 | | 286 | | Non-agency commercial MBS | 1,914 | | 201 | | | 932 | | 156 | | | 2,846 | | 357 | | Foreign government agencies/local governments | 1,148 | | 43 | | | 1,013 | | 80 | | | 2,161 | | 123 | | U.S. government agencies | 1,710 | | 186 | | | 208 | | 37 | | | 1,918 | | 223 | | Non-agency RMBS | 588 | | 16 | | | 1,148 | | 193 | | | 1,736 | | 209 | | Other ABS | 333 | | 18 | | | 876 | | 106 | | | 1,209 | | 124 | | | | | | | | | | | State and political subdivisions | — | | — | | | 12 | | — | | | 12 | | — | | | | | | | | | | | Total securities available-for-sale (a) | $ | 49,031 | | $ | 2,523 | | | $ | 30,831 | | $ | 3,741 | | | $ | 79,862 | | $ | 6,264 | |
(a) Includes $120 million of gross unrealized losses for less than 12 months and $59 million of gross unrealized losses 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 U.S. Treasury securities 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) | |
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, 2023 | | | | Ratings (a) | | | | Net unrealized gain (loss) | | | | | BB+ and lower | | | (dollars in millions) | Amortized cost | | | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | Agency RMBS | $ | 30,760 | | | $ | (4,897) | | | 100 | % | — | % | — | % | — | % | | — | % | U.S. Treasury | 9,477 | | | (835) | | | 100 | | — | | — | | — | | | — | | U.S. government agencies | 4,199 | | | (543) | | | 100 | | — | | — | | — | | | — | | Agency commercial MBS | 3,506 | | | (407) | | | 100 | | — | | — | | — | | | — | | Sovereign debt/sovereign guaranteed (b) | 1,456 | | | (73) | | | 100 | | — | | — | | — | | | — | | CLOs | 983 | | | (10) | | | 100 | | — | | — | | — | | | — | | Supranational | 510 | | | (24) | | | 100 | | — | | — | | — | | | — | | Foreign government agencies | 78 | | | (5) | | | 100 | | — | | — | | — | | | — | | Non-agency RMBS | 26 | | | — | | | 27 | | 52 | | 2 | | 17 | | | 2 | | State and political subdivisions | 12 | | | (2) | | | — | | — | | 3 | | — | | | 97 | | Total held-to-maturity securities | $ | 51,007 | | | $ | (6,796) | | | 100 | % | — | % | — | % | — | % | | — | % |
(a) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent. (b) Primarily consists of exposure to Germany, France, UK and the Netherlands.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities portfolio at Dec. 31, 2022 | | | | Ratings (a) | | | | Net unrealized gain (loss) | | | | | BB+ and lower | | | (dollars in millions) | Amortized cost | | | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | Agency RMBS | $ | 34,188 | | | $ | (4,228) | | | 100 | % | — | % | — | % | — | % | | — | % | U.S. Treasury | 10,863 | | | (895) | | | 100 | | — | | — | | — | | | — | | U.S. government agencies | 4,206 | | | (534) | | | 100 | | — | | — | | — | | | — | | Agency commercial MBS | 4,014 | | | (411) | | | 100 | | — | | — | | — | | | — | | Sovereign debt/sovereign guaranteed (b) | 1,388 | | | (76) | | | 100 | | — | | — | | — | | | — | | CLOs | 983 | | | (26) | | | 100 | | — | | — | | — | | | — | | Supranational | 443 | | | (25) | | | 100 | | — | | — | | — | | | — | | Foreign government agencies | 66 | | | (6) | | | 100 | | — | | — | | — | | | — | | Non-agency RMBS | 30 | | | 1 | | | 22 | | 58 | | 2 | | 17 | | | 1 | | State and political subdivisions | 13 | | | (2) | | | 2 | | 2 | | 3 | | — | | | 93 | | | | | | | | | | | | | | | | | | | | | | | | Total held-to-maturity securities | $ | 56,194 | | | $ | (6,202) | | | 100 | % | — | % | — | % | — | % | | — | % |
(a) Represents ratings by S&P or the equivalent. (b) Primarily consists of exposure to Germany, UK and France.
| | | | | | | | | | | | | | | | | | | | | | 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. |
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, 2023 | | | | | | | | | | | | | | | Within 1 year | | 1-5 years | | 5-10 years | | After 10 years | | Total | (dollars in millions) | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | Available-for-sale: | | | | | | | | | | | | | | | U.S. Treasury | $ | 5,957 | | 0.87 | % | | $ | 12,059 | | 1.15 | % | | $ | 1,055 | | 1.35 | % | | $ | 1,827 | | 2.92 | % | | $ | 20,898 | | 1.27 | % | Sovereign debt/sovereign guaranteed | 2,850 | | 2.29 | | | 4,934 | | 1.95 | | | 841 | | 1.31 | | | 65 | | 3.55 | | | 8,690 | | 2.00 | | Supranational | 530 | | 1.33 | | | 5,438 | | 2.88 | | | 1,570 | | 3.28 | | | 30 | | 3.42 | | | 7,568 | | 2.86 | | Foreign covered bonds | 748 | | 1.47 | | | 4,969 | | 3.50 | | | 393 | | 1.05 | | | — | | — | | | 6,110 | | 3.08 | | Foreign government agencies/local governments | 348 | | 2.12 | | | 1,682 | | 2.63 | | | 129 | | 3.68 | | | — | | — | | | 2,159 | | 2.61 | | U.S. government agencies | 20 | | 2.98 | | | 1,605 | | 3.37 | | | 1,033 | | 2.90 | | | 104 | | 2.73 | | | 2,762 | | 3.15 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other debt securities | — | | — | | | — | | — | | | — | | — | | | 1 | | 4.85 | | | 1 | | 4.85 | | Mortgage-backed securities: | | | | | | | | | | | | | | | Agency RMBS | | | | | | | | | | | | | 9,987 | | 4.94 | | Non-agency RMBS | | | | | | | | | | | | | 1,737 | | 4.50 | | Agency commercial MBS | | | | | | | | | | | | | 7,532 | | 3.03 | | Non-agency commercial MBS | | | | | | | | | | | | | 2,917 | | 3.56 | | CLOs | | | | | | | | | | | | | 5,935 | | 6.83 | | Other ABS | | | | | | | | | | | | | 922 | | 2.21 | | Total securities available-for-sale | $ | 10,453 | | 1.37 | % | | $ | 30,687 | | 2.13 | % | | $ | 5,021 | | 2.26 | % | | $ | 2,027 | | 2.93 | % | | $ | 77,218 | | 2.97 | % | Held-to-maturity: | | | | | | | | | | | | | | | U.S. Treasury | $ | 1,307 | | 1.99 | % | | $ | 7,256 | | 1.21 | % | | $ | 914 | | 1.24 | % | | $ | — | | — | % | | $ | 9,477 | | 1.32 | % | U.S. government agencies | 294 | | 1.32 | | | 2,629 | | 1.48 | | | 1,063 | | 1.48 | | | 213 | | 1.99 | | | 4,199 | | 1.49 | | Sovereign debt/sovereign guaranteed | 573 | | 1.17 | | | 810 | | 0.99 | | | 73 | | 0.59 | | | — | | — | | | 1,456 | | 1.04 | | Supranational | — | | — | | | 510 | | 1.42 | | | — | | — | | | — | | — | | | 510 | | 1.42 | | Foreign government agencies | — | | — | | | 78 | | 1.16 | | | — | | — | | | — | | — | | | 78 | | 1.16 | | State and political subdivisions | — | | — | | | — | | — | | | 12 | | 4.75 | | | — | | — | | | 12 | | 4.75 | | Mortgage-backed securities: | | | | | | | | | | | | | | | Agency RMBS | | | | | | | | | | | | | 30,760 | | 2.32 | | Non-agency RMBS | | | | | | | | | | | | | 26 | | 2.75 | | Agency commercial MBS | | | | | | | | | | | | | 3,506 | | 2.40 | | CLOs | | | | | | | | | | | | | 983 | | 6.73 | | Total securities held-to-maturity | $ | 2,174 | | 1.69 | % | | $ | 11,283 | | 1.27 | % | | $ | 2,062 | | 1.36 | % | | $ | 213 | | 1.99 | % | | $ | 51,007 | | 2.11 | % | Total securities | $ | 12,627 | | 1.42 | % | | $ | 41,970 | | 1.91 | % | | $ | 7,083 | | 2.02 | % | | $ | 2,240 | | 2.86 | % | | $ | 128,225 | | 2.64 | % |
(a) Yields are based upon the amortized cost of securities and consider the contractual coupon, amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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) | 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 determine the impact on cash flows. If we determine that a given security will be subject to a write-down or loss, we record the expected credit loss as a charge to earnings.
The table below shows the projected weighted-average default rates and loss severities for the 2007, 2006 and late 2005 non-agency RMBS and the securities previously held in the Grantor Trust that we established in connection with the restructuring of our investment securities portfolio in 2009, at Sept. 30, 2017 and Dec. 31, 2016.
| | | | | | | | | | | Projected weighted-average default rates and loss severities | | Sept. 30, 2017 | | Dec. 31, 2016 | | Default rate |
| Severity |
| | Default rate |
| Severity |
| Alt-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, 2017,2023, BNY Mellon had pledged assets of $108$127 billion, including $87$95 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $4$9 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Sept. 30, 20172023 included $92$109 billion of securities, $13 billion of loans, $2$4 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.Reserve as there have been no borrowings.
At Dec. 31, 2016,2022, BNY Mellon had pledged assets of $102$138 billion, including $84$106 billion pledged as collateral for potential borrowing at the Federal Reserve Discount Window.Window and $8 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Dec. 31, 20162022 included $87$121 billion of securities, $8$12 billion of loans, $4 billion of trading assets and $1 billion of interest-bearing deposits with banks and $3 billion of trading assets.banks.
At Sept. 30, 20172023 and Dec. 31, 2016,2022, pledged assets included $13$23 billion and $6$24 billion, respectively, for
| | | Notes to Consolidated Financial Statements (continued) | |
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, 20172023 and Dec. 31, 2016,2022, the market value of the securities received that can be sold or repledged was $68$191 billion and $50$115 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept. 30, 20172023 and Dec. 31, 2016,2022, the market value of securities collateral sold or repledged was $39$163 billion and $20$78 billion, respectively.
Restricted cash and securities
Cash and securities may also be segregated under federal and other regulations or requirements. At Sept. 30, 20172023 and Dec. 31, 2016,2022, cash segregated under federal and other regulations or requirements was $4$3 billion and $3$7 billion, respectively. Restricted cash is primarily 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, 20172023 and $2$3 billion at Dec. 31, 2016.2022. 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 - 5–Loans and asset quality
Loans
The table below provides the details of our loan portfolio and industry concentrationsportfolio.
| | | | | | | | | Loans | Sept. 30, 2023 | Dec. 31, 2022 | (in millions) | Commercial | $ | 1,944 | | $ | 1,732 | | Commercial real estate | 6,730 | | 6,226 | | Financial institutions | 10,441 | | 9,684 | | Lease financings | 633 | | 657 | | Wealth management loans | 9,415 | | 10,302 | | Wealth management mortgages | 9,130 | | 8,966 | | Other residential mortgages | 972 | | 345 | | Capital call financing | 3,410 | | 3,438 | | Other | 2,804 | | 2,941 | | Overdrafts | 3,628 | | 4,839 | | Margin loans | 17,183 | | 16,933 | | Total loans (a) | $ | 66,290 | | $ | 66,063 | |
(a)Net of credit riskunearned income of $270 million at Sept. 30, 20172023 and $225 million at Dec. 31, 2016.2022 primarily related to lease financings.
We disclose information related to our loans and asset quality by the class of the financing receivable in the following tables.
| | | | | | | | 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 three portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level which consists of six 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 receivable and provide additional information about our credit risks and the adequacy of our allowance for credit losses.
| | 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, available-for-sale securities, held-to-maturity securities and accounts receivable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2023 | Wealth management loans | Wealth management mortgages | Other residential mortgages | Capital call financing | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | Total | Beginning balance | $ | 21 | | $ | 199 | | $ | 32 | | $ | 1 | | $ | 1 | | $ | 15 | | $ | 9 | | $ | 4 | | | $ | 282 | | Charge-offs | — | | — | | — | | — | | — | | — | | — | | — | | | — | | Recoveries | — | | — | | — | | — | | — | | — | | — | | — | | | — | | Net (charge-offs) recoveries | — | | — | | — | | — | | — | | — | | — | | — | | | — | | Provision (a) | 11 | | 23 | | (10) | | — | | — | | (6) | | (3) | | (1) | | | 14 | | Ending balance | $ | 32 | | $ | 222 | | $ | 22 | | $ | 1 | | $ | 1 | | $ | 9 | | $ | 6 | | $ | 3 | | | $ | 296 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 17 | | $ | 166 | | $ | 10 | | $ | 1 | | $ | 1 | | $ | 8 | | $ | 6 | | $ | 2 | | | $ | 211 | | Lending-related commitments | 15 | | 56 | | 12 | | — | | — | | 1 | | — | | 1 | | | 85 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance (b) | $ | — | | $ | 102 | | $ | — | | $ | — | | $ | — | | $ | 14 | | $ | 1 | | $ | — | | | $ | 117 | | Allowance for loan losses | — | | 2 | | — | | — | | — | | — | | — | | — | | | 2 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $11 million for the quarter ended Sept. 30, 2023. (b) Includes collateral-dependent loans of $117 million with $198 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2023 | Wealth management loans | Wealth management mortgages | Other residential mortgages | Capital call financing | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | Total | Beginning balance | $ | 21 | | $ | 177 | | $ | 24 | | $ | 1 | | $ | 1 | | $ | 14 | | $ | 9 | | $ | 6 | | | $ | 253 | | Charge-offs | — | | — | | — | | — | | — | | — | | (3) | | — | | | (3) | | Recoveries | — | | — | | — | | — | | — | | — | | 2 | | — | | | 2 | | Net (charge-offs) | — | | — | | — | | — | | — | | — | | (1) | | — | | | (1) | | Provision (a) | — | | 22 | | 8 | | — | | — | | 1 | | 1 | | (2) | | | 30 | | Ending balance | $ | 21 | | $ | 199 | | $ | 32 | | $ | 1 | | $ | 1 | | $ | 15 | | $ | 9 | | $ | 4 | | | $ | 282 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 4 | | $ | 143 | | $ | 17 | | $ | 1 | | $ | 1 | | $ | 14 | | $ | 9 | | $ | 2 | | | $ | 191 | | Lending-related commitments | 17 | | 56 | | 15 | | — | | — | | 1 | | — | | 2 | | | 91 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance (b) | $ | — | | $ | 101 | | $ | — | | $ | — | | $ | — | | $ | 11 | | $ | 1 | | $ | — | | | $ | 113 | | Allowance for loan losses | — | | 3 | | — | | — | | — | | — | | — | | — | | | 3 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $25 million for the quarter ended June 30, 2023. (b) Includes collateral-dependent loans of $113 million with $167 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, 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)
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2022 | Wealth management loans | Wealth management mortgages | Other residential mortgages | Capital call financing | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Beginning balance | $ | 16 | | $ | 184 | | $ | 21 | | $ | 1 | | $ | 1 | | $ | 7 | | $ | 7 | | $ | 6 | | | $ | 243 | | Charge-offs | — | | — | | — | | — | | — | | — | | — | | — | | | — | | Recoveries | — | | — | | — | | — | | — | | — | | 1 | | — | | | 1 | | Net recoveries | — | | — | | — | | — | | — | | — | | 1 | | — | | | 1 | | Provision (a) | 1 | | (8) | | (1) | | — | | — | | 2 | | — | | (2) | | | (8) | | Ending balance | $ | 17 | | $ | 176 | | $ | 20 | | $ | 1 | | $ | 1 | | $ | 9 | | $ | 8 | | $ | 4 | | | $ | 236 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 4 | | $ | 130 | | $ | 9 | | $ | 1 | | $ | 1 | | $ | 8 | | $ | 8 | | $ | 3 | | | $ | 164 | | Lending-related commitments | 13 | | 46 | | 11 | | — | | — | | 1 | | — | | 1 | | | 72 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance (b) | $ | — | | $ | 75 | | $ | — | | $ | — | | $ | — | | $ | 14 | | $ | 1 | | $ | — | | | $ | 90 | | Allowance for loan losses | — | | 1 | | — | | — | | — | | — | | — | | — | | | 1 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $22 million for the quarter ended Sept. 30, 2022. (b) Includes collateral-dependent loans of $90 million with $135 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2023 | | Other residential mortgages | Capital call financing | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Wealth management loans | Wealth management mortgages | | Beginning balance | $ | 18 | | $ | 184 | | $ | 24 | | $ | 1 | | $ | 1 | | $ | 12 | | $ | 8 | | $ | 6 | | | $ | 254 | | Charge-offs | — | | — | | — | | — | | — | | — | | (3) | | — | | | (3) | | Recoveries | 1 | | — | | — | | — | | — | | — | | 2 | | — | | | 3 | | Net recoveries (charge-offs) | 1 | | — | | — | | — | | — | | — | | (1) | | — | | | — | | Provision (a) | 13 | | 38 | | (2) | | — | | — | | (3) | | (1) | | (3) | | | 42 | | Ending balance | $ | 32 | | $ | 222 | | $ | 22 | | $ | 1 | | $ | 1 | | $ | 9 | | $ | 6 | | $ | 3 | | | $ | 296 | |
(a) Does not include provision for credit losses benefit related to other financial instruments of $7 million for the nine months ended Sept. 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2022 | | Other residential mortgages | Capital call financing | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Wealth management loans | Wealth management mortgages | Beginning balance | $ | 12 | | $ | 199 | | $ | 13 | | $ | 1 | | $ | 1 | | $ | 6 | | $ | 7 | | $ | 2 | | | $ | 241 | | Charge-offs | — | | — | | — | | — | | — | | — | | — | | — | | | — | | Recoveries | — | | — | | — | | — | | — | | — | | 3 | | — | | | 3 | | Net recoveries | — | | — | | — | | — | | — | | — | | 3 | | — | | | 3 | | Provision (a) | 5 | | (23) | | 7 | | — | | — | | 3 | | (2) | | 2 | | | (8) | | Ending balance | $ | 17 | | $ | 176 | | $ | 20 | | $ | 1 | | $ | 1 | | $ | 9 | | $ | 8 | | $ | 4 | | | $ | 236 | |
(a) Does not include provision for credit losses related to other financial instruments of $27 million for the nine months ended Sept. 30, 2022.
Nonperforming assets
The table below presents our nonperforming assets.
| | | | | | | | | | | | | | | | | | | | | | | | Nonperforming assets | Sept. 30, 2023 | | Dec. 31, 2022 | | 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 | $ | 23 | | $ | 1 | | $ | 24 | | | $ | 30 | | $ | 1 | | $ | 31 | | Wealth management mortgages | 7 | | 15 | | 22 | | | 8 | | 14 | | 22 | | Commercial real estate | — | | — | | — | | | — | | 54 | | 54 | | | | | | | | | | Total nonperforming loans | 30 | | 16 | | 46 | | | 38 | | 69 | | 107 | | Other assets owned | — | | 2 | | 2 | | | — | | 2 | | 2 | | Total nonperforming assets | $ | 30 | | $ | 18 | | $ | 48 | | | $ | 38 | | $ | 71 | | $ | 109 | |
| | | | | | | | | | 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, 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 | | Past due loans and still accruing interest | Sept. 30, 2023 | | Dec. 31, 2022 | | Days past due | Total past due | | Days past due | Total past due | (in millions) | | (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 | Wealth management loans | | Wealth management loans | $ | 40 | | $ | 1 | | $ | — | | $ | 41 | | | $ | 43 | | $ | 1 | | $ | — | | $ | 44 | | Commercial real estate | | Commercial real estate | 9 | | 4 | | — | | 13 | | | 11 | | — | | — | | 11 | | Other residential mortgages | | Other residential mortgages | 6 | | 2 | | — | | 8 | | | 5 | | — | | — | | 5 | | Wealth management mortgages | | Wealth management mortgages | 1 | | 2 | | — | | 3 | | | 54 | | 1 | | — | | 55 | | | | Past due loans and still accruing interest | Sept. 30, 2017 | | Dec. 31, 2016 | | | Days past due | Total past due |
| | Days past due | Total past due |
| | (in millions) | 30-59 |
| 60-89 |
| ≥90 |
| 30-59 |
| 60-89 |
| ≥90 |
| | Commercial real estate | $ | 51 |
| $ | 60 |
| $ | — |
| $ | 111 |
| | $ | 78 |
| $ | — |
| $ | — |
| $ | 78 |
| | Wealth management loans and mortgages | 86 |
| 15 |
| 1 |
| 102 |
| | 21 |
| 2 |
| — |
| 23 |
| | Other residential mortgages | 20 |
| 3 |
| 5 |
| 28 |
| | 20 |
| 6 |
| 7 |
| 33 |
| | Financial institutions | — |
| — |
| — |
| — |
| | 1 |
| 27 |
| — |
| 28 |
| | | Total past due loans | $ | 157 |
| $ | 78 |
| $ | 6 |
| $ | 241 |
|
| $ | 120 |
| $ | 35 |
| $ | 7 |
| $ | 162 |
| Total past due loans | $ | 56 | | $ | 9 | | $ | — | | $ | 65 | | | $ | 113 | | $ | 2 | | $ | — | | $ | 115 | |
Troubled debt restructurings (“TDRs”)
Modified loans are evaluated to determine whether a modification or restructuring with a borrower experiencing financial difficulty results in principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension. The modification could result in a new loan or a continuation of the existing loan.
A
In the third quarter of 2023, we modified one other residential mortgage loan, iswith an aggregate recorded investment of less than $1 million, by providing payment modifications.
In the second quarter of 2023, we modified one commercial real estate exposure, with a recorded investment of $59 million and an unfunded lending commitment of $15 million, by extending the maturity date. We also modified two other residential mortgage loans, with an aggregate recorded investment of less than $1 million, by extending the maturity dates and reducing the interest rates.
We modified one commercial real estate loan in the first quarter of 2023, with a recorded investment of $12 million, by extending the maturity date.
Loans modified prior to 2023 are considered a TDRto be TDRs if the debtor is experiencing financial difficulties and the creditor grants a concession to the debtor that would not otherwise be considered. A TDR may include a transfer 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
We modified eight loans in the first nine months of 2022 with an aggregate recorded investment of $13 million. The modifications of the other residential mortgageand commercial real estate loans in the third quarterfirst nine months of 2017, second quarter of 2017 and third quarter of 20162022 consisted of reducing the stated interest rates and, in certain cases, a forbearance of default and extending the maturity dates. The modified loans are primarily collateral dependent for which the value is based on the fair value of the collateral.
TDRs that subsequently defaulted
There were three residential mortgage loans that had been restructured in a TDR during the previous 12
months and have subsequently defaulted in the third quarter of 2017. The total recorded investment of these loans was less than $1 million.
| | | 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, 2023 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued interest receivable | (in millions) | YTD23 | 2022 | 2021 | 2020 | 2019 | Prior to 2019 | Total (a) | Commercial: | | | | | | | | | | | Investment grade | $ | 128 | | $ | 121 | | $ | 69 | | $ | — | | $ | — | | $ | 45 | | $ | 1,440 | | $ | — | | $ | 1,803 | | | Non-investment grade | 56 | | 18 | | — | | — | | — | | — | | 67 | | — | | 141 | | | Total commercial | 184 | | 139 | | 69 | | — | | — | | 45 | | 1,507 | | — | | 1,944 | | $ | 2 | | Commercial real estate: | | | | | | | | | | | Investment grade | 1,538 | | 882 | | 585 | | 153 | | 307 | | 894 | | 187 | | 22 | | 4,568 | | | Non-investment grade | 1,098 | | 634 | | 154 | | 43 | | 30 | | 142 | | 61 | | — | | 2,162 | | | Total commercial real estate | 2,636 | | 1,516 | | 739 | | 196 | | 337 | | 1,036 | | 248 | | 22 | | 6,730 | | 29 | | Financial institutions: | | | | | | | | | | | Investment grade | 579 | | 86 | | 58 | | — | | — | | 10 | | 7,390 | | — | | 8,123 | | | Non-investment grade | 4 | | 10 | | — | | — | | — | | — | | 2,304 | | — | | 2,318 | | | Total financial institutions | 583 | | 96 | | 58 | | — | | — | | 10 | | 9,694 | | — | | 10,441 | | 103 | | Wealth management loans: | | | | | | | | | | | Investment grade | 36 | | 32 | | 61 | | 22 | | 8 | | 164 | | 8,949 | | 100 | | 9,372 | | | Non-investment grade | — | | 2 | | — | | — | | — | | — | | 41 | | — | | 43 | | | Total wealth management loans | 36 | | 34 | | 61 | | 22 | | 8 | | 164 | | 8,990 | | 100 | | 9,415 | | 69 | | Wealth management mortgages | 692 | | 1,709 | | 1,931 | | 873 | | 742 | | 3,163 | | 20 | | — | | 9,130 | | 21 | | Lease financings | 167 | | — | | — | | 42 | | 8 | | 416 | | — | | — | | 633 | | — | | Other residential mortgages (b) | 1 | | 547 | | 196 | | 5 | | — | | 223 | | — | | — | | 972 | | 3 | | Capital call financing | — | | — | | — | | — | | — | | — | | 3,410 | | — | | 3,410 | | 14 | | Other loans | — | | — | | — | | — | | — | | — | | 2,804 | | — | | 2,804 | | 6 | | Margin loans | 6,452 | | — | | — | | — | | — | | — | | 10,731 | | — | | 17,183 | | 36 | | Total loans | $ | 10,751 | | $ | 4,041 | | $ | 3,054 | | $ | 1,138 | | $ | 1,095 | | $ | 5,057 | | $ | 37,404 | | $ | 122 | | $ | 62,662 | | $ | 283 | |
(a) Excludes overdrafts of $3,628 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days. (b) The gross write-offs related to other residential mortgage loans were $3 million in the third quarter of 2023.
| | | | | | | | | | | | | | | | | | | | | | 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, 2022 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued interest receivable | (in millions) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior to 2018 | Total (a) | Commercial: | | | | | | | | | | | Investment grade | $ | 379 | | $ | 148 | | $ | — | | $ | — | | $ | 43 | | $ | 45 | | $ | 963 | | $ | — | | $ | 1,578 | | | Non-investment grade | 78 | | 6 | | — | | — | | — | | — | | 70 | | — | | 154 | | | Total commercial | 457 | | 154 | | — | | — | | 43 | | 45 | | 1,033 | | — | | 1,732 | | $ | 2 | | Commercial real estate: | | | | | | | | | | | Investment grade | 1,265 | | 973 | | 407 | | 739 | | 204 | | 904 | | 183 | | — | | 4,675 | | | Non-investment grade | 431 | | 511 | | 145 | | 323 | | 93 | | 6 | | 20 | | 22 | | 1,551 | | | Total commercial real estate | 1,696 | | 1,484 | | 552 | | 1,062 | | 297 | | 910 | | 203 | | 22 | | 6,226 | | 25 | | Financial institutions: | | | | | | | | | | | Investment grade | 126 | | 389 | | — | | — | | — | | 25 | | 7,216 | | — | | 7,756 | | | Non-investment grade | 20 | | — | | — | | — | | — | | — | | 1,896 | | 12 | | 1,928 | | | Total financial institutions | 146 | | 389 | | — | | — | | — | | 25 | | 9,112 | | 12 | | 9,684 | | 78 | | Wealth management loans: | | | | | | | | | | | Investment grade | 45 | | 57 | | 22 | | 45 | | — | | 217 | | 9,887 | | — | | 10,273 | | | Non-investment grade | — | | — | | — | | — | | — | | — | | 29 | | — | | 29 | | | Total wealth management loans | 45 | | 57 | | 22 | | 45 | | — | | 217 | | 9,916 | | — | | 10,302 | | 49 | | Wealth management mortgages | 1,775 | | 1,976 | | 918 | | 775 | | 485 | | 3,012 | | 25 | | — | | 8,966 | | 20 | | Lease financings | 17 | | — | | 49 | | 11 | | 7 | | 573 | | — | | — | | 657 | | — | | Other residential mortgages | 27 | | 70 | | — | | — | | — | | 248 | | — | | — | | 345 | | 1 | | Capital call financing | — | | — | | — | | — | | — | | — | | 3,438 | | — | | 3,438 | | 17 | | Other loans | — | | — | | — | | — | | — | | — | | 2,941 | | — | | 2,941 | | 6 | | Margin loans | 5,984 | | — | | — | | — | | — | | — | | 10,949 | | — | | 16,933 | | 33 | | Total loans | $ | 10,147 | | $ | 4,130 | | $ | 1,541 | | $ | 1,893 | | $ | 832 | | $ | 5,030 | | $ | 37,617 | | $ | 34 | | $ | 61,224 | | $ | 231 | |
(a) Excludes overdrafts of $4,839 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.
Commercial loans
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 94% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept. 30, 2023. In addition, 64% 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 loan portfolio, therefore, would equate to investment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets, including business assets, fixed assets or a modest amount of commercial real estate.assets. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed,
| | | Notes to Consolidated Financial Statements (continued) | |
but we do not consider this portfolioportion of loansour wealth management loan portfolio to be investment grade.
Wealth management mortgages
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 rateadjustable-rate mortgages with a weighted-average loan-to-value ratio of 62%61% at origination. In theDelinquency rate is a key indicator of credit quality in our wealth management portfolio,portfolio. At Sept. 30, 2023, less
| | Notes to Consolidated Financial Statements(continued)
| |
than 1% of the mortgages were past due at Sept. 30, 2017.due.
At Sept. 30, 2017,2023, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 24%– 21%; New York - 19%– 14%; Florida – 11%; Massachusetts - 11%; Florida -– 8%; and other - 38%– 46%.
Lease financings
At Sept. 30, 2023, 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 freight-related rail cars and aircraft. 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 million$1.0 billion at Sept. 30, 20172023 and $854$345 million at Dec. 31, 2016.2022. Included in this portfolio at Sept. 30, 2023 were $750 million of fixed-rate jumbo mortgage loans, purchased primarily in the first quarter of 2023, with a weighted-average loan-to-value ratio of 73% at origination. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 2017
Capital call financing
Capital call financing includes loans to private equity funds that are $181 million of mortgage loans purchased in 2005, 2006secured by the fund investors’ capital commitments 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.funds’ right to call capital.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $5.8 billion at Sept. 30,
2017 and $5.5 billion at Dec. 31, 2016. Overdrafts occur on a daily basis in the custody and securities clearance business and are generally repaid within two business days.
Other loans
Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed incomefixed-income securities.
Margin loans
We had $13.9$17.2 billion of secured margin loans on our balance sheet at Sept. 30, 20172023, compared with $17.6$16.9 billion at Dec. 31, 2016.2022. 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 loansloans.
Overdrafts
Overdrafts primarily relate to custody and do not allocate any of oursecurities clearance clients and totaled $3.6 billion at Sept. 30, 2023 and $4.8 billion at Dec. 31, 2022. Overdrafts occur on a daily basis and are generally repaid within two business days.
Reverse repurchase agreements
Reverse repurchase agreements at Sept. 30, 2023 and Dec. 31, 2022 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 riskthese assets at Sept. 30, 2023 and therefore are not allocated an allowance for credit losses.
Dec. 31, 2022.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 6 - 6–Goodwill and intangible assets
Goodwill
The tables below provide a breakdown of goodwill by business.business segment.
| | | | | | | | | | | | | | | Goodwill by business segment
(in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Consolidated | Balance at Dec. 31, 2022 | | | | | Goodwill | $ | 6,973 | | $ | 1,424 | | $ | 8,433 | | $ | 16,830 | | Accumulated impairment losses | — | | — | | (680) | | (680) | | Net goodwill | $ | 6,973 | | $ | 1,424 | | $ | 7,753 | | $ | 16,150 | | | | | | | | | | | | Foreign currency translation | (7) | | 1 | | 15 | | 9 | | Balance at Sept. 30, 2023 | | | | | Goodwill | $ | 6,966 | | $ | 1,425 | | $ | 8,448 | | $ | 16,839 | | Accumulated impairment losses | — | | — | | (680) | | (680) | | Net goodwill | $ | 6,966 | | $ | 1,425 | | $ | 7,768 | | $ | 16,159 | |
| | | | | | | | | | | | | | | Goodwill by business segment
(in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Consolidated | Balance at Dec. 31, 2021 | $ | 7,062 | | $ | 1,435 | | $ | 9,015 | | $ | 17,512 | | Impairment loss | — | | — | | (680) | | (680) | | Dispositions | (13) | | — | | — | | (13) | | Foreign currency translation | (142) | | (18) | | (247) | | (407) | | | | | | | Balance at Sept. 30, 2022 | | | | | Goodwill | $ | 6,907 | | $ | 1,417 | | $ | 8,768 | | $ | 17,092 | | Accumulated impairment losses | — | | — | | (680) | | (680) | | Net goodwill | $ | 6,907 | | $ | 1,417 | | $ | 8,088 | | $ | 16,412 | |
Goodwill impairment testing
The goodwill impairment test is performed at least annually at the reporting unit level. An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value. In the third quarter of 2023, due to the results of the second quarter 2023 interim goodwill impairment test and macroeconomic conditions, we performed an interim goodwill impairment test of the Investment Management reporting unit, which had $6.0 billion of allocated goodwill. No additional goodwill impairment was recognized.
| | | | | | | | | | | | | | 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 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.business segment.
| | | | | | | | | | | | | | | | | | Intangible assets – net carrying amount by business segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2022 | $ | 193 | | $ | 384 | | $ | 1,475 | | $ | 849 | | $ | 2,901 | | | | | | | | Amortization | (23) | | (5) | | (15) | | — | | (43) | | Foreign currency translation | — | | — | | 1 | | — | | 1 | | Balance at Sept. 30, 2023 | $ | 170 | | $ | 379 | | $ | 1,461 | | $ | 849 | | $ | 2,859 | |
| | | | | | | | | | | | | | 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 segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2021 | $ | 230 | | $ | 392 | | $ | 1,520 | | $ | 849 | | $ | 2,991 | | | | | | | | Amortization | (25) | | (6) | | (20) | | — | | (51) | | Foreign currency translation | (8) | | — | | (30) | | — | | (38) | | Balance at Sept. 30, 2022 | $ | 197 | | $ | 386 | | $ | 1,470 | | $ | 849 | | $ | 2,902 | |
| | | | | | | | | | | | | | 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 |
|
The table below provides a breakdown of intangible assets by type.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 30, 2023 | | Dec. 31, 2022 | (dollars 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 – Securities Services | $ | 727 | | $ | (558) | | $ | 169 | | 10 years | | $ | 731 | | $ | (539) | | $ | 192 | | Customer contracts – Market and Wealth Services | 280 | | (271) | | 9 | | 3 years | | 280 | | (267) | | 13 | | Customer relationships – Investment and Wealth Management | 553 | | (475) | | 78 | | 8 years | | 553 | | (461) | | 92 | | Other | 41 | | (11) | | 30 | | 13 years | | 41 | | (9) | | 32 | | Total subject to amortization | $ | 1,601 | | $ | (1,315) | | $ | 286 | | 10 years | | $ | 1,605 | | $ | (1,276) | | $ | 329 | | Not subject to amortization: (b) | | | | | | | | | Tradename | $ | 1,290 | | N/A | $ | 1,290 | | N/A | | $ | 1,290 | | N/A | $ | 1,290 | | Customer relationships | 1,283 | | N/A | 1,283 | | N/A | | 1,282 | | N/A | 1,282 | | Total not subject to amortization | $ | 2,573 | | N/A | $ | 2,573 | | N/A | | $ | 2,572 | | N/A | $ | 2,572 | | Total intangible assets | $ | 4,174 | | $ | (1,315) | | $ | 2,859 | | N/A | | $ | 4,177 | | $ | (1,276) | | $ | 2,901 | |
| | | | | | | | | | | | | | | | | | | | | | 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) | 2023 | | $ | 57 | | 2024 | | 49 | | 2025 | | 43 | | 2026 | | 34 | | 2027 | | 28 | |
| | | | | | For the year ended Dec. 31, | Estimated amortization expense (in millions) | | 2017 | | $ | 209 |
| 2018 | | 180 |
| 2019 | | 109 |
| 2020 | | 98 |
| 2021 | | 75 |
|
ImpairmentIntangible asset impairment testing
The goodwill impairment test is performed at least annually at the reporting unit level. Intangible assets not subject to amortization are tested for impairment annually or more often if events or circumstances indicate they may be impaired.
BNY Mellon’s three business segments include eight reporting units for which goodwill impairment testing is performed on an annual basis. In the second quarter of 2017,72 BNY Mellon conducted an annual goodwill impairment test on all eight reporting units.
| | | Notes to Consolidated Financial Statements(continued) | |
As a result of the annual goodwill impairment test of the eight reporting units, no goodwill impairment was recognized.
Note 7 - 7–Other assets
The following table provides the components of other assets presented on the consolidated balance sheet.
| | | | | | | | | Other assets | Sept. 30, 2023 | Dec. 31, 2022 | (in millions) | Corporate/bank-owned life insurance | $ | 5,449 | | $ | 5,417 | | Accounts receivable | 5,054 | | 4,924 | | Software | 2,385 | | 2,260 | | Fails to deliver | 2,163 | | 2,569 | | Prepaid pension assets | 1,943 | | 1,651 | | Qualified affordable housing project investments | 1,225 | | 1,298 | | Cash collateral receivable on derivative transactions | 881 | | 1,014 | | Equity method investments | 873 | | 803 | | Prepaid expense | 809 | | 764 | | Renewable energy investments | 711 | | 871 | | Other equity investments (a) | 694 | | 695 | | Fair value of hedging derivatives | 589 | | 319 | | Assets of consolidated investment management funds | 541 | | 209 | | Federal Reserve Bank stock | 485 | | 478 | | Income taxes receivable | 475 | | 481 | | Seed capital (b) | 191 | | 218 | | Other (c) | 763 | | 1,884 | | Total other assets | $ | 25,231 | | $ | 25,855 | |
(a) Includes strategic equity, private equity and other investments. (b) Includes investments in BNY Mellon funds that hedge deferred incentive awards. (c) At Sept. 30, 2023 and Dec. 31, 2022, other assets include $7 million and $6 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 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 revenue on the consolidated income statement. Our non-readily marketable equity securities totaled $420 million at Sept. 30, 2023 and $445 million at Dec. 31, 2022, and are included in other equity investments in the table above.
The following table presents the adjustments on the non-readily marketable equity securities. | | | | | | | | 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) | At Sept. 30, 2017, other assets include $76 million of Federal Home Loan Bank stock, at cost. |
| | | | | | | | | | | | | | | | | | | | | Adjustments on non-readily marketable equity securities | Life-to-date | (in millions) | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | Upward adjustments | $ | — | | $ | 5 | | $ | 3 | | $ | 5 | | $ | 125 | | $ | 288 | | Downward adjustments | (21) | | (1) | | — | | (40) | | (7) | | (52) | | Net adjustments | $ | (21) | | $ | 4 | | $ | 3 | | $ | (35) | | $ | 118 | | $ | 236 | |
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$1.2 billion at Sept. 30, 20172023 and $914 million$1.3 billion at Dec. 31, 2016.2022. Commitments to fund future investments in qualified affordable housing projects totaled $439$589 million at Sept. 30, 20172023 and $369$614 million at Dec. 31, 2016.2022 and are recorded in other liabilities on the consolidated balance sheet. A summary of the commitments to fund future investments is as follows: 2017remainder of 2023 – $75$175 million; 20182024 – $161 $137 million; 20192025 – $107$183 million; 20202026 – $79$24 million; 20212027 – $1$28 million; and 20222028 and thereafter – $16$42 million.
Tax credits and other tax benefits recognized were $39$45 million in the third quarter of 2017, $392023, $45 million in the second quarter of 2023, $38 million in the third quarter of 2016, $38 million in the second quarter of 2017, $1152022, $135 million in the first nine months of 20172023 and $115$114 million in the first nine months of 2016.2022.
Amortization expense included in the provision for income taxes was $29$38 million in the third quarter of 2017, $302023, $38 million in the second quarter of 2023, $32 million in the third quarter of 2016, $28 million in the second quarter of 2017, $842022, $114 million in the first nine months of 20172023 and $86$97 million in the first nine months of 2016.2022.
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,segment, 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
| | | Notes to Consolidated Financial Statements (continued) | |
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, 2023 | | | | Dec. 31, 2022 | | | (in millions) | Fair value | Unfunded commitments | | | | Fair value | Unfunded commitments | | | Seed capital (a) (b) | $ | 3 | | | $ | — | | | | | $ | 3 | | | $ | — | | | | Private equity investments (c) | 144 | | | 47 | | | | | 130 | | | 53 | | | | Other | 7 | | | — | | | | | 5 | | | — | | | | Total | $ | 154 | | | $ | 47 | | | | | $ | 138 | | | $ | 53 | | | |
(a)Seed capital investments at Sept. 30, 2023 are generally redeemable on request. Distributions are received as the underlying investments in seed capital andthe funds, which have redemption notice periods of seven days, are liquidated. (b) Includes investments in funds that relate to deferred compensation arrangements with employees. (c) 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, thatwhich have a life of 10 years, are liquidated.
Note 8–Contract revenue
Fee and other revenue in the Securities Services, Market and Wealth Services and Investment and Wealth Management business segments 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 the fee schedules. See Note 10 of the Notes to Consolidated Financial Statements in our 2022 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 2022 Annual Report for additional information on our principal business segments — Securities Services, Market and Wealth 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 tables present fee and other revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment. Business segment data has been valued using NAV.determined on an internal management basis of accounting, rather than GAAP, which is used for consolidated financial reporting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | | | | | | | | | | | | | Quarter ended | | Sept. 30, 2023 | | | | Sept. 30, 2022 | (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | | | | | | | | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | Fee and other revenue – contract revenue: | | | | | | | | | | | | | | | | | | Investment services fees | $ | 1,259 | | $ | 952 | | $ | 27 | | $ | (19) | | $ | 2,219 | | | | | | | | | $ | 1,233 | | $ | 903 | | $ | 26 | | $ | (16) | | $ | 2,146 | | Investment management and performance fees | — | | 4 | | 774 | | (2) | | 776 | | | | | | | | | — | | 5 | | 800 | | (3) | | 802 | | Financing-related fees | 7 | | 2 | | — | | — | | 9 | | | | | | | | | 7 | | 3 | | — | | 1 | | 11 | | Distribution and servicing fees | 2 | | (25) | | 62 | | — | | 39 | | | | | | | | | 1 | | (23) | | 55 | | — | | 33 | | Investment and other revenue | 58 | | 52 | | (81) | | — | | 29 | | | | | | | | | 56 | | 49 | | (76) | | (1) | | 28 | | Total fee and other revenue – contract revenue | 1,326 | | 985 | | 782 | | (21) | | 3,072 | | | | | | | | | 1,297 | | 937 | | 805 | | (19) | | 3,020 | | Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b) | 163 | | 58 | | 7 | | 55 | | 283 | | | | | | | | | 239 | | 52 | | — | | 42 | | 333 | | Total fee and other revenue | $ | 1,489 | | $ | 1,043 | | $ | 789 | | $ | 34 | | $ | 3,355 | | | | | | | | | $ | 1,536 | | $ | 989 | | $ | 805 | | $ | 23 | | $ | 3,353 | |
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance. (b) The Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $3 million in the third quarter of 2023 and $— million in the third quarter of 2022.
| | | | | | | | | | | | | | | | | | | | | 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) | |
| | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | Quarter ended | | June 30, 2023 | | | (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | | | | | | | Fee and other revenue – contract revenue: | | | | | | | | | | | | Investment services fees | $ | 1,299 | | $ | 932 | | $ | 23 | | $ | (14) | | $ | 2,240 | | | | | | | | Investment management and performance fees | — | | 5 | | 760 | | (4) | | 761 | | | | | | | | Financing-related fees | 10 | | 4 | | — | | 1 | | 15 | | | | | | | | Distribution and servicing fees | 1 | | (23) | | 58 | | (1) | | 35 | | | | | | | | Investment and other revenue | 60 | | 50 | | (79) | | — | | 31 | | | | | | | | Total fee and other revenue – contract revenue | 1,370 | | 968 | | 762 | | (18) | | 3,082 | | | | | | | | Fee and other revenue – not in scope of ASC 606 (a)(b) | 202 | | 57 | | 12 | | — | | 271 | | | | | | | | Total fee and other revenue | $ | 1,572 | | $ | 1,025 | | $ | 774 | | $ | (18) | | $ | 3,353 | | | | | | | |
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance. (b) The Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $1 million in the second quarter of 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | | | | | | | | | | Year-to-date | | Sept. 30, 2023 | | Sept. 30, 2022 | | | (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | | | | | | Fee and other revenue – contract revenue: | | | | | | | | | | | | | | | | | Investment services fees | $ | 3,734 | | $ | 2,809 | | $ | 74 | | $ | (48) | | $ | 6,569 | | | $ | 3,657 | | $ | 2,647 | | $ | 75 | | $ | (50) | | $ | 6,329 | | | | | | | Investment management and performance fees | — | | 14 | | 2,315 | | (9) | | 2,320 | | | — | | 17 | | 2,509 | | (11) | | 2,515 | | | | | | | Financing-related fees | 30 | | 11 | | — | | 1 | | 42 | | | 21 | | 21 | | — | | 1 | | 43 | | | | | | | Distribution and servicing fees | 3 | | (71) | | 175 | | — | | 107 | | | 3 | | (44) | | 138 | | — | | 97 | | | | | | | Investment and other revenue | 178 | | 152 | | (240) | | 1 | | 91 | | | 157 | | 96 | | (169) | | (1) | | 83 | | | | | | | Total fee and other revenue – contract revenue | 3,945 | | 2,915 | | 2,324 | | (55) | | 9,129 | | | 3,838 | | 2,737 | | 2,553 | | (61) | | 9,067 | | | | | | | Fee and other revenue – not in scope of ASC 606 (a)(b) | 566 | | 167 | | 21 | | 60 | | 814 | | | 650 | | 132 | | (4) | | 179 | | 957 | | | | | | | Total fee and other revenue | $ | 4,511 | | $ | 3,082 | | $ | 2,345 | | $ | 5 | | $ | 9,943 | | | $ | 4,488 | | $ | 2,869 | | $ | 2,549 | | $ | 118 | | $ | 10,024 | | | | | | |
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance. (b) The Investment and Wealth Management business segment is net of income (loss) income attributable to noncontrolling interests related to consolidated investment management funds of $4 million in the first nine months of 2023 and $(13) million in the first nine months of 2022.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.6 billion at Sept. 30, 2023 and Dec. 31, 2022.
Contract assets represent accrued revenues that have not yet been billed to customers due to certain contractual terms other than the passage of time and were $49 million at Sept. 30, 2023 and $48 million at Dec. 31, 2022. 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 $205 million at Sept. 30, 2023 and $164 million at Dec. 31, 2022. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the first nine months of 2023 relating to contract liabilities as of Dec. 31, 2022 was $104 million. Revenue recognized in the third quarter of 2023 relating to contract liabilities as of June 30, 2023 was $77 million.
| | | Notes to Consolidated Financial Statements (continued) | |
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 $51 million at Sept. 30, 2023 and $58 million at Dec. 31, 2022. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate. The amortization of capitalized sales incentives, which is included in staff expense on the consolidated income statement, totaled $4 million in the third quarter of 2023, $5 million in the third quarter of 2022, $4 million in the second quarter of 2023, $12 million in the first nine months of 2023 and $14 million in the first nine months of 2022.
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 the inception of a contract which enables the fulfillment of the performance obligation, and totaled $88 million at Sept. 30, 2023 and $77 million at Dec. 31, 2022. These capitalized costs are amortized on a straight-line basis over the expected contract period.
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 - 9–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, 2023 | June 30, 2023 | Sept. 30, 2022 | | Sept. 30, 2023 | Sept. 30, 2022 | Interest revenue | | | | | | | Deposits with the Federal Reserve and other central banks | $ | 1,153 | | $ | 1,241 | | $ | 288 | | | $ | 3,247 | | $ | 389 | | Deposits with banks | 125 | | 128 | | 67 | | | 393 | | 114 | | Federal funds sold and securities purchased under resale agreements | 2,066 | | 1,776 | | 321 | | | 4,833 | | 474 | | Loans | 1,029 | | 957 | | 581 | | | 2,852 | | 1,211 | | Securities: | | | | | | | Taxable | 1,069 | | 1,042 | | 683 | | | 3,133 | | 1,626 | | Exempt from federal income taxes | 1 | | — | | 9 | | | 1 | | 29 | | Total securities | 1,070 | | 1,042 | | 692 | | | 3,134 | | 1,655 | | Trading securities | 76 | | 80 | | 35 | | | 226 | | 78 | | Total interest revenue | 5,519 | | 5,224 | | 1,984 | | | 14,685 | | 3,921 | | Interest expense | | | | | | | Deposits | 1,911 | | 1,739 | | 488 | | | 5,016 | | 541 | | Federal funds purchased and securities sold under repurchase agreements | 1,956 | | 1,729 | | 250 | | | 4,577 | | 339 | | Trading liabilities | 48 | | 43 | | 23 | | | 121 | | 37 | | Other borrowed funds | 6 | | 32 | | 1 | | | 41 | | 6 | | | | | | | | | Customer payables | 147 | | 143 | | 48 | | | 418 | | 57 | | Long-term debt | 435 | | 438 | | 248 | | | 1,268 | | 493 | | Total interest expense | 4,503 | | 4,124 | | 1,058 | | | 11,441 | | 1,473 | | Net interest revenue | 1,016 | | 1,100 | | 926 | | | 3,244 | | 2,448 | | Provision for credit losses | 3 | | 5 | | (30) | | | 35 | | 19 | | Net interest revenue after provision for credit losses | $ | 1,013 | | $ | 1,095 | | $ | 956 | | | $ | 3,209 | | $ | 2,429 | |
| | | | | | | | | | | | | | | | | | 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 - 10–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, 2023 | | June 30, 2023 | | Sept. 30, 2022 | (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 | $ | — | | $ | 3 | | $ | — | | | $ | — | | $ | 2 | | $ | — | | | $ | — | | $ | 3 | | $ | — | | Interest cost | 47 | | 9 | | 1 | | | 47 | | 9 | | 2 | | | 35 | | 6 | | 1 | | Expected return on assets | (95) | | (23) | | (2) | | | (95) | | (22) | | (3) | | | (78) | | (8) | | (2) | | Other | 2 | | (4) | | (3) | | | 3 | | (4) | | (3) | | | 17 | | 1 | | (1) | | Net periodic benefit (credit) cost | $ | (46) | | $ | (15) | | $ | (4) | | | $ | (45) | | $ | (15) | | $ | (4) | | | $ | (26) | | $ | 2 | | $ | (2) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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, 2023 | | Sept. 30, 2022 | (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | | Domestic pension benefits | Foreign pension benefits | Health care benefits | Service cost | $ | — | | $ | 8 | | $ | — | | | $ | — | | $ | 9 | | $ | — | | Interest cost | 142 | | 26 | | 4 | | | 105 | | 21 | | 3 | | Expected return on assets | (285) | | (67) | | (7) | | | (234) | | (27) | | (5) | | Other | 7 | | (11) | | (9) | | | 51 | | 3 | | (3) | | Net periodic benefit (credit) cost | $ | (136) | | $ | (44) | | $ | (12) | | | $ | (78) | | $ | 6 | | $ | (5) | |
| | 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 - 11–Income taxes
BNY Mellon recorded an income tax provision of $348$241 million (25.4%(18.8% effective tax rate) in the third quarter of 2017.2023. The income tax provision was $324$242 million (24.6%(38.4% effective tax rate) in the third quarter of 2016 and $3322022, which includes approximately 19% impact due to the goodwill impairment. The income tax provision was $270 million (25.4%(20.2% effective tax rate) in the second quarter of 2017.2023.
Our total tax reserves as of Sept. 30, 20172023 were $157$109 million, compared with $143$106 million at June 30, 2017.Dec. 31, 2022. If these tax reserves were unnecessary, $157$109 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, 20172023 is accrued interest, where applicable, of $24$36 million. The additional tax expense related to interest for the nine months ended Sept. 30, 20172023 was $7$3 million, compared with $2$3 million for the nine months ended Sept. 30, 2016.2022.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $57$9 million as a result of adjustments related to tax years that are still subject to examination.
Our federal income tax returns are closed to examination through 2013.2016. Our New York State and New York City andincome tax returns are closed to examination through 2014. Our UK income tax returns are closed to examination through 2012.2020.
Note 11 - 12–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”) 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 funds.
with access to investment vehicles with specific investment objectives and strategies that address the client’s investment needs.
BNY Mellon earnsWe earn management fees from these funds, as well as performance fees in certain funds, and may also provide start-up capital for its new funds. The funds are primarily financed by our customers’ investments in the funds’ equity or debt.
Additionally, BNY Mellon investswe invest in qualified affordable housing and renewable energy projects, which are designed to generate a return primarily through the realization of tax credits by the Company.credits. The projects, which are structured as limited partnerships and LLCs,limited liability companies, are also VIEs, but are not consolidated.
The VIEs discussed above are included in the scope of ASU 2015-02, which was adopted effective Jan. 1, 2015, and are reviewed for consolidation based on the guidance in ASC 810, Consolidation.We reconsider and reassess whether or not we are the primary beneficiary of a VIE when governing documents or contractual arrangements are changed that would reallocate the obligation to absorb expected losses or receive expected residual returns between BNY Mellon and the other investors. This could occur when BNY Mellon disposes of its variable interests in the fund, when additional variable interests are issued to other investors or when we acquire additional variable interests in the VIE.77
| | | Notes to Consolidated Financial Statements (continued) | |
The following tables presenttable presents the incremental assets and liabilities included in BNY Mellon’son the consolidated financial statements, after applying intercompany eliminations,balance sheet as of Sept. 30, 20172023 and Dec. 31, 2016.2022. 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 investment management funds | | | | | | | | | Sept. 30, 2023 | | Dec. 31, 2022 | (in millions) | | | | | | | | | | Trading assets | $ | 529 | | | | | | $ | 203 | | | | | Other assets | 12 | | | | | | 6 | | | | | Total assets (a) | $ | 541 | | | | | | $ | 209 | | | | | | | | | | | | | | | Other liabilities | $ | 7 | | | | | | $ | 1 | | | | | Total liabilities (b) | $ | 7 | | | | | | $ | 1 | | | | | Nonredeemable noncontrolling interests (c) | $ | 56 | | | | | | $ | 7 | | | | |
(a) Includes voting model entities (“VMEs”) with assets of $113 million at Sept. 30, 2023 and $86 million at Dec. 31, 2022. (b) Includes VMEs with liabilities of $1 million at Sept. 30, 2023 and $1 million at Dec. 31, 2022. (c) Includes VMEs with nonredeemable noncontrolling interests of $16 million at Sept. 30, 2023 and $7 million at Dec. 31, 2022.
| | Notes to Consolidated Financial Statements(continued)
| |
| | | | | | | | | | | | 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, 20172023 and Dec. 31, 2016, the following2022, assets and liabilities related to the VIEs where BNY Mellon iswe are not the primary beneficiary arewere included in ourother assets and other liabilities on the consolidated financial statementsbalance sheet 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, 2023 | Dec. 31, 2022 | (in millions) | Other assets | $ | 2,005 | | $ | 2,235 | | Other liabilities | 589 | | 614 | | Maximum loss exposure | 2,595 | | 2,850 | |
| | Notes to Consolidated Financial Statements(continued)
| |
Note 12 - 13–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, 20172023 and Dec. 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | | Sept. 30, 2023 | Dec. 31, 2022 | Sept. 30, 2023 | Dec. 31, 2022 | | Per annum dividend rate (c) | Series A | Greater of (i) SOFR plus 0.565% and (ii) 4.000% | 5,001 | | 5,001 | | | $ | 500 | | $ | 500 | | Series D | SOFR plus 2.46% | 5,000 | | 5,000 | | | 494 | | 494 | | Series F | 4.625% to but excluding Sept. 20, 2026, then SOFR 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 | | Series I | 3.750% to but excluding Dec. 20, 2026, then a floating rate equal to the five-year treasury rate plus 2.630% | 13,000 | | 13,000 | | | 1,287 | | 1,287 | | Total | 48,826 | | 48,826 | | | $ | 4,838 | | $ | 4,838 | |
| | | | | | | | | | | | | | 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 F, Series G, Series H and Series I preferred stock is recorded net of business on Sept. 5, 2017:issuance costs. (c) References to SOFR are to a floating rate equal to the three-month CME Term SOFR (plus a spread adjustment of 0.26161% per annum).
$1,022.22 per share
| | | Notes to Consolidated Financial Statements (continued) | |
The table below presents the Parent’s preferred dividends.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Preferred dividends | | | | | | | | | | | | | | (dollars in millions, except per share amounts) | Depositary shares per share | | 3Q23 | | 2Q23 | | | 3Q22 | | YTD23 | | YTD22 | | Per share | Total dividend | | Per share | Total dividend | | | Per share | Total dividend | | Per share | Total dividend | | Per share | Total dividend | Series A | | 100 | | (a) | | $ | 1,552.50 | | $ | 8 | | | $ | 1,412.60 | | $ | 7 | | | | $ | 1,011.11 | | $ | 5 | | | $ | 4,292.82 | | $ | 22 | | | $ | 3,044.44 | | $ | 15 | | Series D | | 100 | | | | 2,036.78 | | 10 | | | 2,250.00 | | 11 | | | | — | | — | | | 4,286.78 | | 21 | | | 2,250.00 | | 11 | | | | | | | | | | | | | | | | | | | | | | Series F | | 100 | | | | 2,312.50 | | 23 | | | — | | — | | | | 2,312.50 | | 23 | | | 4,625.00 | | 46 | | | 4,625.00 | | 46 | | Series G | | 100 | | | | 2,350.00 | | 23 | | | — | | — | | | | 2,350.00 | | 23 | | | 4,700.00 | | 47 | | | 4,700.00 | | 47 | | Series H | | 100 | | | | 925.00 | | 6 | | | 925.00 | | 6 | | | | 925.00 | | 6 | | | 2,775.00 | | 17 | | | 2,775.00 | | 17 | | Series I | | 100 | | | | 937.50 | | 12 | | | 937.50 | | 12 | | | | 937.50 | | 12 | | | 2,812.50 | | 36 | | | 3,145.83 | | 41 | | Total | | | | | $ | 82 | | | | $ | 36 | | | | | $ | 69 | | | | $ | 189 | | | | $ | 177 | |
(a) Represents Normal Preferred Capital Securities.
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 theour preferred stock, see Note 1315 of the Notes to Consolidated Financial Statements in our 20162022 Annual Report.
Terms
Note 14–Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | Sept. 30, 2023 | | June 30, 2023 | | Sept. 30, 2022 | (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) | $ | (106) | | $ | (79) | | $ | (185) | | | $ | 61 | | $ | 36 | | $ | 97 | | | $ | (292) | | $ | (150) | | $ | (442) | | Total foreign currency translation | (106) | | (79) | | (185) | | | 61 | | 36 | | 97 | | | (292) | | (150) | | (442) | | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | | | | | Unrealized (loss) arising during period | (38) | | 9 | | (29) | | | (202) | | 45 | | (157) | | | (1,205) | | 297 | | (908) | | Reclassification adjustment (b) | 19 | | (5) | | 14 | | | — | | — | | — | | | (1) | | — | | (1) | | Net unrealized (loss) on assets available-for-sale | (19) | | 4 | | (15) | | | (202) | | 45 | | (157) | | | (1,206) | | 297 | | (909) | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | (5) | | 2 | | (3) | | | (4) | | 2 | | (2) | | | 17 | | (4) | | 13 | | Total defined benefit plans | (5) | | 2 | | (3) | | | (4) | | 2 | | (2) | | | 17 | | (4) | | 13 | | Unrealized gain (loss) on cash flow hedges: | | | | | | | | | | | | Unrealized hedge (loss) gain arising during period | (1) | | 1 | | — | | | 3 | | (1) | | 2 | | | (5) | | 1 | | (4) | | Reclassification of net loss to net income: | | | | | | | | | | | | FX contracts – investment and other revenue | 2 | | (1) | | 1 | | | 1 | | — | | 1 | | | 1 | | — | | 1 | | Foreign exchange (“FX”) contracts – staff expense | (2) | | 1 | | (1) | | | — | | — | | — | | | 3 | | (1) | | 2 | | | | | | | | | | | | | | Total reclassifications to net income | — | | — | | — | | | 1 | | — | | 1 | | | 4 | | (1) | | 3 | | Net unrealized (loss) gain on cash flow hedges | (1) | | 1 | | — | | | 4 | | (1) | | 3 | | | (1) | | — | | (1) | | Total other comprehensive (loss) income | $ | (131) | | $ | (72) | | $ | (203) | | | $ | (141) | | $ | 82 | | $ | (59) | | | $ | (1,482) | | $ | 143 | | $ | (1,339) | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information. (b) The reclassification adjustment related to 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 ofunrealized gain (loss) on assets available-for-sale is recorded as net securities gains (losses), which is filedincluded in investment and other revenue 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 an Exhibit to this Form 10-Q.other expense on the consolidated income statement.
| | | Notes to Consolidated Financial Statements(continued) | |
Note 13 - Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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. |
| | | | | | | | | | | | | | | | | | | | | 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)
| |
| | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Year-to-date | | Sept. 30, 2023 | | Sept. 30, 2022 | (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) | $ | 32 | | $ | (17) | | $ | 15 | | | $ | (848) | | $ | (302) | | $ | (1,150) | | Total foreign currency translation | 32 | | (17) | | 15 | | | (848) | | (302) | | (1,150) | | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | Unrealized gain (loss) arising during period | 179 | | (48) | | 131 | | | (4,393) | | 1,072 | | (3,321) | | Reclassification adjustment (b) | 20 | | (5) | | 15 | | | (5) | | 1 | | (4) | | Net unrealized gain (loss) on assets available-for-sale | 199 | | (53) | | 146 | | | (4,398) | | 1,073 | | (3,325) | | Defined benefit plans: | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | (13) | | 5 | | (8) | | | 51 | | (7) | | 44 | | Total defined benefit plans | (13) | | 5 | | (8) | | | 51 | | (7) | | 44 | | Unrealized gain (loss) on cash flow hedges: | | | | | | | | Unrealized hedge gain (loss) arising during period | 6 | | (1) | | 5 | | | (16) | | 4 | | (12) | | Reclassification of net loss to net income: | | | | | | | | | | | | | | | | FX contracts – staff expense | 1 | | — | | 1 | | | 4 | | (1) | | 3 | | FX contracts – investment and other revenue | 3 | | (1) | | 2 | | | 1 | | — | | 1 | | | | | | | | | | Total reclassifications to net income | 4 | | (1) | | 3 | | | 5 | | (1) | | 4 | | Net unrealized gain (loss) on cash flow hedges | 10 | | (2) | | 8 | | | (11) | | 3 | | (8) | | Total other comprehensive income (loss) | $ | 228 | | $ | (67) | | $ | 161 | | | $ | (5,206) | | $ | 767 | | $ | (4,439) | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information. (b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains, which is included in investment and other revenue 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.
Note 14 - 15–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 20162022 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, 20172023 and Dec. 31, 2016,2022, 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
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Assets and liabilities measured at fair value on a recurring basis at Sept. 30, 2023 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | | | | | | | Available-for-sale securities: | | | | | | U.S. Treasury | $ | 20,898 | | $ | — | | $ | — | | $ | — | | $ | 20,898 | | Agency RMBS | — | | 9,987 | | — | | — | | 9,987 | | Sovereign debt/sovereign guaranteed | 2,583 | | 6,107 | | — | | — | | 8,690 | | Supranational | — | | 7,568 | | — | | — | | 7,568 | | Agency commercial MBS | — | | 7,532 | | — | | — | | 7,532 | | Foreign covered bonds | — | | 6,110 | | — | | — | | 6,110 | | CLOs | — | | 5,935 | | — | | — | | 5,935 | | Non-agency commercial MBS | — | | 2,917 | | — | | — | | 2,917 | | U.S. government agencies | — | | 2,762 | | — | | — | | 2,762 | | Foreign government agencies/local governments | — | | 2,159 | | — | | — | | 2,159 | | Non-agency RMBS | — | | 1,737 | | — | | — | | 1,737 | | Other ABS | — | | 922 | | — | | — | | 922 | | | | | | | | | | | | | | Other debt securities | — | | 1 | | — | | — | | 1 | | Total available-for-sale securities | 23,481 | | 53,737 | | — | | — | | 77,218 | | Trading assets: | | | | | | Debt instruments | 2,068 | | 2,048 | | — | | — | | 4,116 | | Equity instruments | 4,431 | | — | | — | | — | | 4,431 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 11 | | 1,041 | | — | | (1,052) | | — | | Foreign exchange | — | | 7,813 | | — | | (5,734) | | 2,079 | | Equity and other contracts | 9 | | 126 | | — | | (62) | | 73 | | Total derivative assets not designated as hedging | 20 | | 8,980 | | — | | (6,848) | | 2,152 | | Total trading assets | 6,519 | | 11,028 | | — | | (6,848) | | 10,699 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | Interest rate | — | | 369 | | — | | — | | 369 | | Foreign exchange | — | | 220 | | — | | — | | 220 | | Total derivative assets designated as hedging | — | | 589 | | — | | — | | 589 | | Other assets (b) | 469 | | 349 | | — | | — | | 818 | | Total other assets | 469 | | 938 | | — | | — | | 1,407 | | Assets measured at NAV (b) | | | | | 154 | | Total assets | $ | 30,469 | | $ | 65,703 | | $ | — | | $ | (6,848) | | $ | 89,478 | | Percentage of total assets prior to netting | 32 | % | 68 | % | — | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | Trading liabilities: | | | | | | Debt instruments | $ | 4,069 | | $ | 19 | | $ | — | | $ | — | | $ | 4,088 | | Equity instruments | 49 | | — | | — | | — | | 49 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 3 | | 1,483 | | — | | (501) | | 985 | | Foreign exchange | 2 | | 7,701 | | — | | (5,472) | | 2,231 | | Equity and other contracts | — | | 15 | | — | | (10) | | 5 | | Total derivative liabilities not designated as hedging | 5 | | 9,199 | | — | | (5,983) | | 3,221 | | Total trading liabilities | 4,123 | | 9,218 | | — | | (5,983) | | 7,358 | | Other liabilities: | | | | | | Derivative liabilities designated as hedging: | | | | | | | | | | | | Foreign exchange | — | | 16 | | — | | — | | 16 | | Total derivative liabilities designated as hedging | — | | 16 | | — | | — | | 16 | | Other liabilities | — | | 7 | | — | | — | | 7 | | Total other liabilities | — | | 23 | | — | | — | | 23 | | Total liabilities | $ | 4,123 | | $ | 9,241 | | $ | — | | $ | (5,983) | | $ | 7,381 | | Percentage of total liabilities prior to netting | 31 | % | 69 | % | — | % | | |
(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 seed capital, private equity investments and other assets.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2022 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Assets | | | | | | Available-for-sale securities: | | | | | | U.S. Treasury | $ | 29,533 | | $ | — | | $ | — | | $ | — | | $ | 29,533 | | Sovereign debt/sovereign guaranteed | 4,237 | | 6,127 | | — | | — | | 10,364 | | Agency RMBS | — | | 8,957 | | — | | — | | 8,957 | | Agency commercial MBS | — | | 8,060 | | — | | — | | 8,060 | | Supranational | — | | 7,734 | | — | | — | | 7,734 | | Foreign covered bonds | — | | 5,758 | | — | | — | | 5,758 | | CLOs | — | | 5,343 | | — | | — | | 5,343 | | Non-agency commercial MBS | — | | 2,977 | | — | | — | | 2,977 | | U.S. government agencies | — | | 2,294 | | — | | — | | 2,294 | | Foreign government agencies/local governments | — | | 2,241 | | — | | — | | 2,241 | | Non-agency RMBS | — | | 2,029 | | — | | — | | 2,029 | | Other ABS | — | | 1,319 | | — | | — | | 1,319 | | State and political subdivisions | — | | 12 | | — | | — | | 12 | | | | | | | | Other debt securities | — | | 1 | | — | | — | | 1 | | Total available-for-sale securities | 33,770 | | 52,852 | | — | | — | | 86,622 | | Trading assets: | | | | | | Debt instruments | 1,590 | | 1,901 | | — | | — | | 3,491 | | Equity instruments | 3,791 | | — | | — | | — | | 3,791 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 10 | | 1,287 | | — | | (986) | | 311 | | Foreign exchange | — | | 9,433 | | — | | (7,215) | | 2,218 | | Equity and other contracts | 4 | | 98 | | — | | (5) | | 97 | | Total derivative assets not designated as hedging | 14 | | 10,818 | | — | | (8,206) | | 2,626 | | Total trading assets | 5,395 | | 12,719 | | — | | (8,206) | | 9,908 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | Interest rate | — | | 205 | | — | | — | | 205 | | Foreign exchange | — | | 114 | | — | | — | | 114 | | Total derivative assets designated as hedging | — | | 319 | | — | | — | | 319 | | Other assets (b) | 294 | | 220 | | — | | — | | 514 | | Total other assets | 294 | | 539 | | — | | — | | 833 | | Assets measured at NAV (b) | | | | | 138 | | Total assets | $ | 39,459 | | $ | 66,110 | | $ | — | | $ | (8,206) | | $ | 97,501 | | Percentage of total assets prior to netting | 37 | % | 63 | % | — | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | Trading liabilities: | | | | | | Debt instruments | $ | 2,373 | | $ | 101 | | $ | — | | $ | — | | $ | 2,474 | | Equity instruments | 97 | | — | | — | | — | | 97 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 6 | | 1,578 | | — | | (798) | | 786 | | Foreign exchange | — | | 9,456 | | — | | (7,444) | | 2,012 | | Equity and other contracts | — | | 17 | | — | | (1) | | 16 | | Total derivative liabilities not designated as hedging | 6 | | 11,051 | | — | | (8,243) | | 2,814 | | Total trading liabilities | 2,476 | | 11,152 | | — | | (8,243) | | 5,385 | | Other liabilities: | | | | | | Derivative liabilities designated as hedging: | | | | | | | | | | | | Foreign exchange | — | | 220 | | — | | — | | 220 | | Total derivative liabilities designated as hedging | — | | 220 | | — | | — | | 220 | | Other liabilities | — | | 1 | | — | | — | | 1 | | Total other liabilities | — | | 221 | | — | | — | | 221 | | Total liabilities | $ | 2,476 | | $ | 11,373 | | $ | — | | $ | (8,243) | | $ | 5,606 | | Percentage of total liabilities prior to netting | 18 | % | 82 | % | — | % | | |
(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 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, 2023 | | Dec. 31, 2022 | Total carrying value (b) | | Ratings (a) | | Total carrying value (b) | | Ratings (a) | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | | Not rated | | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | | Not rated | (dollars in millions) | | | Non-agency RMBS, originated in: | | | | | | | | | | | | | | | | | | 2008-2023 | $ | 1,479 | | | 100 | % | — | % | — | % | — | % | | — | % | | $ | 1,728 | | | 100 | % | — | % | — | % | — | % | | — | % | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 and earlier | 258 | | | 4 | | 14 | | 1 | | 41 | | | 40 | | | 301 | | | 5 | | 13 | | 1 | | 45 | | | 36 | | Total non-agency RMBS | $ | 1,737 | | | 86 | % | 2 | % | — | % | 6 | % | | 6 | % | | $ | 2,029 | | | 86 | % | 2 | % | — | % | 7 | % | | 5 | % | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | | | | | 2009-2023 | $ | 2,917 | | | 100 | % | — | % | — | % | — | % | | — | % | | $ | 2,977 | | | 100 | % | — | % | — | % | — | % | | — | % | Foreign covered bonds: | | | | | | | | | | | | | | | | | | Canada | $ | 2,476 | | | 100 | % | — | % | — | % | — | % | | — | % | | $ | 2,384 | | | 100 | % | — | % | — | % | — | % | | — | % | UK | 1,045 | | | 100 | | — | | — | | — | | | — | | | 1,215 | | | 100 | | — | | — | | — | | | — | | Australia | 703 | | | 100 | | — | | — | | — | | | — | | | 696 | | | 100 | | — | | — | | — | | | — | | Germany | 580 | | | 100 | | — | | — | | — | | | — | | | 542 | | | 100 | | — | | — | | — | | | — | | Norway | 266 | | | 100 | | — | | — | | — | | | — | | | 377 | | | 100 | | — | | — | | — | | | — | | Other | 1,040 | | | 100 | | — | | — | | — | | | — | | | 544 | | | 100 | | — | | — | | — | | | — | | Total foreign covered bonds | $ | 6,110 | | | 100 | % | — | % | — | % | — | % | | — | % | | $ | 5,758 | | | 100 | % | — | % | — | % | — | % | | — | % | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | | | | | Germany | $ | 2,778 | | | 100 | % | — | % | — | % | — | % | | — | % | | $ | 3,103 | | | 100 | % | — | % | — | % | — | % | | — | % | France | 1,445 | | | 100 | | — | | — | | — | | | — | | | 1,665 | | | 100 | | — | | — | | — | | | — | | UK | 1,232 | | | 100 | | — | | — | | — | | | — | | | 2,225 | | | 100 | | — | | — | | — | | | — | | Canada | 608 | | | 100 | | — | | — | | — | | | — | | | 702 | | | 100 | | — | | — | | — | | | — | | Singapore | 562 | | | 100 | | — | | — | | — | | | — | | | 797 | | | 100 | | — | | — | | — | | | — | | Japan | 341 | | | — | | 100 | | — | | — | | | — | | | 475 | | | — | | 100 | | — | | — | | | — | | Spain | 287 | | | — | | 28 | | 72 | | — | | | — | | | 214 | | | — | | 40 | | 60 | | — | | | — | | Hong Kong | 254 | | | 100 | | — | | — | | — | | | — | | | 273 | | | 100 | | — | | — | | — | | | — | | Italy | 211 | | | — | | — | | 100 | | — | | | — | | | 390 | | | — | | — | | 100 | | — | | | — | | Austria | 197 | | | 100 | | — | | — | | — | | | — | | | 177 | | | 100 | | — | | — | | — | | | — | | Other (c) | 775 | | | 80 | | 5 | | — | | 15 | | | — | | | 343 | | | 55 | | 9 | | — | | 36 | | | — | | Total sovereign debt/sovereign guaranteed | $ | 8,690 | | | 89 | % | 5 | % | 5 | % | 1 | % | | — | % | | $ | 10,364 | | | 88 | % | 6 | % | 5 | % | 1 | % | | — | % | Foreign government agencies/local governments: | | | | | | | | | | | | | | | | | | Canada | $ | 746 | | | 85 | % | 15 | % | — | % | — | % | | — | % | | $ | 652 | | | 83 | % | 17 | % | — | % | — | % | | — | % | Norway | 430 | | | 100 | | — | | — | | — | | | — | | | 427 | | | 100 | | — | | — | | — | | | — | | Netherlands | 296 | | | 100 | | — | | — | | — | | | — | | | 363 | | | 100 | | — | | — | | — | | | — | | Sweden | 212 | | | 100 | | — | | — | | — | | | — | | | 260 | | | 100 | | — | | — | | — | | | — | | France | 18 | | | 100 | | — | | — | | — | | | — | | | 240 | | | 100 | | — | | — | | — | | | — | | | | | | | | | | | | | | | | | | | | Other | 457 | | | 86 | | 14 | | — | | — | | | — | | | 299 | | | 100 | | — | | — | | — | | | — | | Total foreign government agencies/local governments | $ | 2,159 | | | 92 | % | 8 | % | — | % | — | % | | — | % | | $ | 2,241 | | | 95 | % | 5 | % | — | % | — | % | | — | % |
(a)Represents ratings by S&P or the equivalent. (b) At Sept. 30, 2023 and Dec. 31, 2022, 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 non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of 2017. $118 million at Sept. 30, 2023 and $123 million at Dec. 31, 2022.
| | | | | | | | | | | | | | | | | 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 example would be the recording of an impairment of an asset. The following tables presenttable presents the carrying value as of Sept. 30, 2023 and Dec. 31, 2022 of financial instruments for which nonrecurring adjustments to fair value have been recorded during 2023 and/or 2022 and all non-readily marketable equity securities carried on the consolidatedat cost with upward or downward adjustments by balance sheet by caption and by level in the fair value hierarchy as of Sept. 30, 2017 and Dec. 31, 2016, for which a nonrecurring change inhierarchy.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2023 | | Dec. 31, 2022 | | | | | Total carrying value | | | | | Total carrying value | (in millions) | Level 1 | Level 2 | Level 3 | | | Level 1 | Level 2 | Level 3 | Loans (a) | $ | — | | $ | 29 | | $ | — | | | $ | 29 | | | $ | — | | $ | 33 | | $ | — | | $ | 33 | | Other assets (b) | — | | 421 | | — | | | 421 | | | — | | 448 | | — | | 448 | | Total assets at fair value on a nonrecurring basis | $ | — | | $ | 450 | | $ | — | | | $ | 450 | | | $ | — | | $ | 481 | | $ | — | | $ | 481 | |
(a) The fair value has been recorded duringof these loans was unchanged in the quarters ended Sept. 30, 2017in the third quarter of 2023 and Dec. 31, 2016. the fourth quarter of 2022, 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, 20172023 and Dec. 31, 2016,2022, by caption on the consolidated balance sheet and by the valuation hierarchy.
| | | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 30, 2023 | (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 | $ | — | | $ | 107,419 | | $ | — | | $ | 107,419 | | $ | 107,419 | | Interest-bearing deposits with banks | — | | 12,995 | | — | | 12,995 | | 12,999 | | Federal funds sold and securities purchased under resale agreements | — | | 26,299 | | — | | 26,299 | | 26,299 | | Securities held-to-maturity | 9,617 | | 34,594 | | — | | 44,211 | | 51,007 | | Loans (a) | — | | 64,309 | | — | | 64,309 | | 65,446 | | Other financial assets | 4,904 | | 2,086 | | — | | 6,990 | | 6,990 | | Total | $ | 14,521 | | $ | 247,702 | | $ | — | | $ | 262,223 | | $ | 270,160 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | — | | $ | 60,571 | | $ | — | | $ | 60,571 | | $ | 60,571 | | Interest-bearing deposits | — | | 212,309 | | — | | 212,309 | | 216,896 | | Federal funds purchased and securities sold under repurchase agreements | — | | 14,771 | | — | | 14,771 | | 14,771 | | Payables to customers and broker-dealers | — | | 17,441 | | — | | 17,441 | | 17,441 | | | | | | | | Borrowings | — | | 1,487 | | — | | 1,487 | | 1,487 | | Long-term debt | — | | 27,306 | | — | | 27,306 | | 29,205 | | Total | $ | — | | $ | 333,885 | | $ | — | | $ | 333,885 | | $ | 340,371 | |
(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, 2022 | (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 | $ | — | | $ | 91,655 | | $ | — | | $ | 91,655 | | $ | 91,655 | | Interest-bearing deposits with banks | — | | 17,167 | | — | | 17,167 | | 17,169 | | Federal funds sold and securities purchased under resale agreements | — | | 24,298 | | — | | 24,298 | | 24,298 | | Securities held-to-maturity | 10,948 | | 39,044 | | — | | 49,992 | | 56,194 | | Loans (a) | — | | 64,668 | | — | | 64,668 | | 65,230 | | Other financial assets | 5,030 | | 1,817 | | — | | 6,847 | | 6,847 | | Total | $ | 15,978 | | $ | 238,649 | | $ | — | | $ | 254,627 | | $ | 261,393 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | — | | $ | 78,017 | | $ | — | | $ | 78,017 | | $ | 78,017 | | Interest-bearing deposits | — | | 196,258 | | — | | 196,258 | | 200,953 | | Federal funds purchased and securities sold under repurchase agreements | — | | 12,335 | | — | | 12,335 | | 12,335 | | Payables to customers and broker-dealers | — | | 23,435 | | — | | 23,435 | | 23,435 | | Borrowings | — | | 911 | | — | | 911 | | 911 | | Long-term debt | — | | 28,977 | | — | | 28,977 | | 30,458 | | Total | $ | — | | $ | 339,933 | | $ | — | | $ | 339,933 | | $ | 346,109 | |
(a) Does not include the leasing portfolio.
Note 15 - 16–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 subordinated notes associated with certain equity investments.
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, 2023 | Dec. 31, 2022 | (in millions) | Assets of consolidated investment management funds: | | | Trading assets | $ | 529 | | $ | 203 | | Other assets | 12 | | 6 | | Total assets of consolidated investment management funds | $ | 541 | | $ | 209 | | Liabilities of consolidated investment management funds: | | | | | | Other liabilities | $ | 7 | | $ | 1 | | Total liabilities of consolidated investment management funds | $ | 7 | | $ | 1 | |
| | | | | | | | 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 valuesThe assets and liabilities of the consolidated investment management funds are included in other assets and other liabilities on the consolidated balance sheet. We value 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 fair 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 inother revenue on the interest of investment management fund note holders, respectively.consolidated income statement.
We have elected the fair value option on $240 million of long-term debt.subordinated notes associated with certain equity investments. The fair value of this long-term debtthese subordinated notes was $369$8 million at Sept. 30, 20172023 and $363$10 million at Dec. 31, 2016.2022. The long-term debt issubordinated notes were 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 and certain loans for which we elected the fair value option that we previously held in 2016, and the location of the changes in the income statement.
| | | | | | | | | | | | | | | | | 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 - 17–Derivative instruments
We use derivatives to manage exposure to market risk, including interest rate risk, equity price risk and foreign currency risk, as well as credit risk. Our trading activities are focused on acting as a market-maker for our customers and facilitating customer trades in compliance with the Volcker Rule.
The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller.
| | | Notes to Consolidated Financial Statements (continued) | |
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 2016.2023.
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 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, $12.42023, $31.4 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$31.4 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, $24.22023, $22.7 billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $24.2$22.7 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 nine18 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as the Indian rupee, British pound,Polish zloty, Hong Kong dollar, Singapore dollar, Polish zloty, Canadian dollarBritish pound 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, 2017,2023, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $539$639 million (notional), with a net pre-tax lossgain of $9$4 million recorded in accumulated other comprehensive income.income (“OCI”). This lossgain will be reclassified to income or expenseearnings over the next nine12 months.
In 2022, we utilized forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. At Sept. 30, 2023, there were no remaining foreign exchange contracts. Forward points are designated as an excluded component and amortized into earnings over the hedge period.
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, 2017,2023, forward foreign exchange contracts with notional amounts totaling $7.8$9.4 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, 2023, there were no non-derivative financial instruments designated as hedges ofhedging our net investments in foreign subsidiaries were all long-term liabilities ofsubsidiaries.
86 BNY Mellon in various currencies, and, at Sept. 30, 2017, had a combined U.S. dollar equivalent value of $181 million.
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) | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | Interest rate fair value hedges of available-for-sale securities | | | | | | | Derivative | Interest revenue | $ | 439 | | $ | 388 | | $ | 1,294 | | $ | 392 | | $ | 3,644 | | Hedged item | Interest revenue | (438) | | (389) | | (1,292) | | (393) | | (3,630) | | Interest rate fair value hedges of long-term debt | | | | | | | Derivative | Interest expense | (281) | | (277) | | (540) | | (279) | | (1,573) | | Hedged item | Interest expense | 281 | | 278 | | 539 | | 280 | | 1,570 | | Foreign exchange fair value hedges of available-for-sale securities | | | | | | | Derivative (a) | Foreign exchange revenue | — | | — | | (2) | | — | | (4) | | Hedged item | Foreign exchange revenue | — | | — | | 2 | | — | | 5 | | | | | | | | | | | | | | | | Cash flow hedges of forecasted FX exposures | | | | | | | | | | | | | | | | | | | | | Gain (loss) reclassified from OCI into income | Staff expense | 2 | | — | | (3) | | (1) | | (4) | | (Loss) reclassified from OCI into income | Investment and other revenue | (2) | | (1) | | (1) | | (3) | | (1) | | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 1 | | $ | (1) | | $ | (3) | | $ | (4) | | $ | 7 | |
(a) There was no amortization associated with the excluded component in the third quarter of 2023, second quarter of 2023 and first nine months of 2023. Includes gains of less than $1 million in the third quarter of 2022 and $1 million in the first nine months of 2022 associated with the amortization of the excluded component.
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 | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | FX contracts | $ | 333 | | $ | (152) | | $ | 631 | | $ | 70 | | $ | 1,279 | | | 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, 2023 | Dec. 31, 2022 | | Sept. 30, 2023 | Dec. 31, 2022 | Available-for-sale securities (b) | $ | 31,303 | | $ | 31,370 | | | $ | (2,820) | | $ | (2,678) | | Long-term debt | $ | 21,236 | | $ | 23,510 | | | $ | (1,497) | | $ | (1,232) | |
(a) Includes a $464 million decrease and less than $1 million increase of basis adjustment on discontinued hedges associated with available-for-sale securities at Sept. 30, 2023 and Dec. 31, 2022, respectively, and $49 million and $48 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2023 and Dec. 31, 2022, respectively. (b) 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, 2023 | Dec. 31, 2022 | | Sept. 30, 2023 | Dec. 31, 2022 | | Sept. 30, 2023 | Dec. 31, 2022 | (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | Interest rate contracts | $ | 54,076 | | $ | 56,142 | | | $ | 369 | | $ | 205 | | | $ | — | | $ | — | | Foreign exchange contracts | 10,058 | | 10,096 | | | 220 | | 114 | | | 16 | | 220 | | Total derivatives designated as hedging instruments | | | | $ | 589 | | $ | 319 | | | $ | 16 | | $ | 220 | | Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | Interest rate contracts | $ | 160,712 | | $ | 190,917 | | | $ | 1,052 | | $ | 1,297 | | | $ | 1,486 | | $ | 1,584 | | Foreign exchange contracts | 895,679 | | 880,948 | | | 7,813 | | 9,433 | | | 7,703 | | 9,456 | | Equity contracts | 3,801 | | 2,993 | | | 135 | | 102 | | | 10 | | 13 | | Credit contracts | 220 | | 200 | | | — | | — | | | 5 | | 4 | | Total derivatives not designated as hedging instruments | | | | $ | 9,000 | | $ | 10,832 | | | $ | 9,204 | | $ | 11,057 | | Total derivatives fair value (d) | | | | $ | 9,589 | | $ | 11,151 | | | $ | 9,220 | | $ | 11,277 | | Effect of master netting agreements (e) | | | | (6,848) | | (8,206) | | | (5,983) | | (8,243) | | Fair value after effect of master netting agreements | | | | $ | 2,741 | | $ | 2,945 | | | $ | 3,237 | | $ | 3,034 | |
(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 $1,909 million and $1,044 million, respectively, at Sept. 30, 20172023, and $1,786 million and $1,823 million, respectively, at Dec. 31, 2016.2022.
| | | | | | | | | | | | | | | | | | | | | | 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 revenue 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) | 3Q23 | 2Q23 | 3Q22 | YTD23 | YTD22 | Foreign exchange revenue | $ | 154 | | $ | 158 | | $ | 203 | | $ | 488 | | $ | 632 | | Other trading revenue | 86 | | 53 | | 65 | | 184 | | 115 | | | | | | | |
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 losses of $11 million in the third quarter of 2023 and $11 million in the third quarter of 2022, gains of $8 million in the second quarter of 2023 and $4 million in the first nine months of 2023 and a loss of $54 million in the first nine months of 2022.
We manage trading risk through a system of position limits, a VaRvalue-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity
| | | Notes to Consolidated Financial Statements (continued) | |
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.15.
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, 2023 | | Dec. 31, 2022 | | (in millions) | | | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 1,479 | | | $ | 3,069 | | | Collateral posted | $ | 1,519 | | | $ | 3,484 | | |
(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, 2023 | Dec. 31, 2022 | (in millions) | If The Bank of New York Mellon’s rating changed to: (b) | | | A3/A- | $ | 60 | | $ | 20 | | Baa2/BBB | $ | 814 | | $ | 545 | | Ba1/BB+ | $ | 1,714 | | $ | 1,803 | |
| | | | | | 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) | (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. |
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 orindicated levels, and do not reflect collateral obligations.posted.
(b) Represents ratings by Moody’s/S&P.
Additionally, if
If The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept. 30, 2017,2023 and Dec. 31, 2022, existing collateral arrangements would have required us to post an additional $151collateral of $378 million of collateral. and $214 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, 2023 | | | | | | 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 | $ | 1,297 | | $ | 1,052 | | | $ | 245 | | $ | 56 | | $ | — | | $ | 189 | | Foreign exchange contracts | 7,361 | | 5,734 | | | 1,627 | | 46 | | — | | 1,581 | | Equity and other contracts | 126 | | 62 | | | 64 | | 1 | | — | | 63 | | Total derivatives subject to netting arrangements | 8,784 | | 6,848 | | | 1,936 | | 103 | | — | | 1,833 | | Total derivatives not subject to netting arrangements | 805 | | — | | | 805 | | — | | — | | 805 | | Total derivatives | 9,589 | | 6,848 | | | 2,741 | | 103 | | — | | 2,638 | | Reverse repurchase agreements | 151,944 | | 134,691 | | (b) | 17,253 | | 17,204 | | — | | 49 | | Securities borrowing | 9,046 | | — | | | 9,046 | | 8,649 | | — | | 397 | | Total | $ | 170,579 | | $ | 141,539 | | | $ | 29,040 | | $ | 25,956 | | $ | — | | $ | 3,084 | |
(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, 2022 | | | | | | 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 | $ | 1,208 | | $ | 986 | | | $ | 222 | | $ | 33 | | $ | — | | $ | 189 | | Foreign exchange contracts | 8,920 | | 7,215 | | | 1,705 | | 314 | | — | | 1,391 | | Equity and other contracts | 95 | | 5 | | | 90 | | — | | — | | 90 | | Total derivatives subject to netting arrangements | 10,223 | | 8,206 | | | 2,017 | | 347 | | — | | 1,670 | | Total derivatives not subject to netting arrangements | 928 | | — | | | 928 | | — | | — | | 928 | | Total derivatives | 11,151 | | 8,206 | | | 2,945 | | 347 | | — | | 2,598 | | Reverse repurchase agreements | 75,614 | | 60,322 | | (b) | 15,292 | | 15,182 | | — | | 110 | | Securities borrowing | 9,006 | | — | | | 9,006 | | 8,531 | | — | | 475 | | Total | $ | 95,771 | | $ | 68,528 | | | $ | 27,243 | | $ | 24,060 | | $ | — | | $ | 3,183 | |
(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, 2023 | 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 | $ | 1,073 | | $ | 501 | | | $ | 572 | | $ | 71 | | $ | — | | $ | 501 | | Foreign exchange contracts | 6,992 | | 5,472 | | | 1,520 | | 280 | | — | | 1,240 | | Equity and other contracts | 10 | | 10 | | | — | | — | | — | | — | | Total derivatives subject to netting arrangements | 8,075 | | 5,983 | | | 2,092 | | 351 | | — | | 1,741 | | Total derivatives not subject to netting arrangements | 1,145 | | — | | | 1,145 | | — | | — | | 1,145 | | Total derivatives | 9,220 | | 5,983 | | | 3,237 | | 351 | | — | | 2,886 | | Repurchase agreements | 147,027 | | 134,691 | | (b) | 12,336 | | 12,278 | | 58 | | — | | Securities lending | 2,435 | | — | | | 2,435 | | 2,344 | | — | | 91 | | Total | $ | 158,682 | | $ | 140,674 | | | $ | 18,008 | | $ | 14,973 | | $ | 58 | | $ | 2,977 | |
(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, 2022 | 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 | $ | 1,306 | | $ | 798 | | | $ | 508 | | $ | 67 | | $ | — | | $ | 441 | | Foreign exchange contracts | 9,261 | | 7,444 | | | 1,817 | | 51 | | — | | 1,766 | | Equity and other contracts | 15 | | 1 | | | 14 | | — | | — | | 14 | | Total derivatives subject to netting arrangements | 10,582 | | 8,243 | | | 2,339 | | 118 | | — | | 2,221 | | Total derivatives not subject to netting arrangements | 695 | | — | | | 695 | | — | | — | | 695 | | Total derivatives | 11,277 | | 8,243 | | | 3,034 | | 118 | | — | | 2,916 | | Repurchase agreements | 70,830 | | 60,322 | | (b) | 10,508 | | 10,476 | | 31 | | 1 | | Securities lending | 1,827 | | — | | | 1,827 | | 1,754 | | — | | 73 | | Total | $ | 83,934 | | $ | 68,565 | | | $ | 15,369 | | $ | 12,348 | | $ | 31 | | $ | 2,990 | |
(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, 2023 | | Dec. 31, 2022 | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | (in millions) | Overnight and continuous | Up to 30 days | 30-90 days | Over 90 days | | Overnight and continuous | Up to 30 days | 30-90 days | Over 90 days | Repurchase agreements: | | | | | | | | | | | | U.S. Treasury | $ | 115,930 | | $ | 743 | | $ | 1,044 | | $ | 627 | | $ | 118,344 | | | $ | 62,401 | | $ | 7 | | $ | 827 | | $ | 553 | | $ | 63,788 | | Agency RMBS | 21,846 | | 508 | | 371 | | 25 | | 22,750 | | | 1,460 | | 493 | | — | | — | | 1,953 | | Corporate bonds | 91 | | 122 | | 1,039 | | 628 | | 1,880 | | | 99 | | 88 | | 782 | | 306 | | 1,275 | | Sovereign debt/sovereign guaranteed | 1,445 | | — | | — | | — | | 1,445 | | | 1,008 | | — | | — | | — | | 1,008 | | State and political subdivisions | 48 | | 37 | | 431 | | 272 | | 788 | | | 38 | | 49 | | 443 | | 159 | | 689 | | U.S. government agencies | 164 | | 7 | | 47 | | 7 | | 225 | | | 161 | | — | | — | | — | | 161 | | Other debt securities | 2 | | 129 | | 90 | | 14 | | 235 | | | 13 | | 102 | | 92 | | 7 | | 214 | | Equity securities | — | | 5 | | 1,353 | | 2 | | 1,360 | | | — | | 61 | | 1,681 | | — | | 1,742 | | Total | $ | 139,526 | | $ | 1,551 | | $ | 4,375 | | $ | 1,575 | | $ | 147,027 | | | $ | 65,180 | | $ | 800 | | $ | 3,825 | | $ | 1,025 | | $ | 70,830 | | Securities lending: | | | | | | | | | | | | Agency RMBS | $ | 98 | | $ | — | | $ | — | | $ | — | | $ | 98 | | | $ | 110 | | $ | — | | $ | — | | $ | — | | $ | 110 | | Other debt securities | 40 | | — | | — | | — | | 40 | | | 66 | | — | | — | | — | | 66 | | Equity securities | 2,297 | | — | | — | | — | | 2,297 | | | 1,651 | | — | | — | | — | | 1,651 | | Total | $ | 2,435 | | $ | — | | $ | — | | $ | — | | $ | 2,435 | | | $ | 1,827 | | $ | — | | $ | — | | $ | — | | $ | 1,827 | | Total secured borrowings | $ | 141,961 | | $ | 1,551 | | $ | 4,375 | | $ | 1,575 | | $ | 149,462 | | | $ | 67,007 | | $ | 800 | | $ | 3,825 | | $ | 1,025 | | $ | 72,657 | |
| | | | | | | | | | | | | | 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 - 18–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, 2023 | Dec. 31, 2022 | (in millions) | Lending commitments | $ | 48,624 | | $ | 49,750 | | Standby letters of credit (“SBLC”) (a) | 1,974 | | 1,918 | | Commercial letters of credit | 51 | | 19 | | Securities lending indemnifications (b)(c) | 452,620 | | 491,043 | |
| | | | | | | | 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 $184 million at Sept. 30, 2023 and $175 million at Dec. 31, 2022.
(b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $60 billion at Sept. 30, 2023 and $64 billion at Dec. 31, 2022.
(c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $48 billion at Sept. 30, 2023 and $43 billion at Dec. 31, 2022.
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$28.8 billion in less than one year, $20.0$19.5 billion in one to five years and $158$337 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$145 million at Sept. 30, 20172023 and $293$144 million at Dec. 31, 2016.2022. At Sept. 30, 2017, $2.32023, $1.3 billion of the SBLCs will expire within one year, and $1.2 billion$634 million in one to five years and $48$8 million in 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, 2023 | Dec. 31, 2022 | | Investment grade | 74 | % | 75 | % | Non-investment grade | 26 | % | 25 | % |
| | | | | | 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$51 million at Sept. 30, 20172023 and $339$19 million at Dec. 31, 2016.2022.
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 $85 million at Sept. 30, 2023 and $78 million at Dec. 31, 2022.
| | Notes to Consolidated Financial Statements(continued)
| |
A securities lending transaction is a fully collateralized transaction in which the owner of a security agrees to lend the security (typically through an agent, in our case, The Bank of New York Mellon), to a borrower, usually a broker-dealer or bank, on an open, overnight or term basis, under the terms of a prearranged contract, which normally matures in less than 90 days.contract.
We typically lend securities with indemnification against borrower default. We generally require the borrower to provide collateral with a minimum value of102% of the fair value of the securities borrowed, which is monitored on a daily basis, thus reducing credit risk. Market risk can also arise in securities lending transactions. These risks are controlled through policies limiting the level of risk that can be undertaken. Securities lending transactions are generally entered into only with highly rated counterparties. Securities lending indemnifications
| | | Notes to Consolidated Financial Statements (continued) | |
were secured by collateral of $424476 billion at Sept. 30, 20172023 and $331515 billion at Dec. 31, 2016.2022.
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, 20172023 and Dec. 31, 2016, $652022, $60 billion and $61$64 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$63 billion and $64$68 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, 2023, we had no unsettled repurchase agreements and $65.9 billion of unsettled reverse repurchase agreements. At Dec. 31, 2022, we had $4.0 billion of unsettled repurchase agreements and $11.3 billion of unsettled reverse repurchase agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at Sept. 30, 2017.2023. The tables below present our credit exposure in the financial institutions and commercial portfolios.
| | Financial institutions portfolio exposure (in billions) | Sept. 30, 2017 | Financial institutions portfolio exposure (in billions) | Sept. 30, 2023 | Loans |
| Unfunded commitments |
| Total exposure |
| Loans | Unfunded commitments | Total exposure | Securities industry | $ | 2.9 |
| $ | 19.0 |
| $ | 21.9 |
| Securities industry | $ | 1.7 | | $ | 17.2 | | $ | 18.9 | | Asset managers | 1.6 |
| 6.5 |
| 8.1 |
| Asset managers | 1.5 | | 8.0 | | 9.5 | | Banks | 6.3 |
| 1.4 |
| 7.7 |
| Banks | 6.8 | | 1.5 | | 8.3 | | Insurance | 0.1 |
| 3.4 |
| 3.5 |
| Insurance | 0.1 | | 3.9 | | 4.0 | | Government | — |
| 1.0 |
| 1.0 |
| Government | — | | 0.2 | | 0.2 | | Other | 1.0 |
| 1.4 |
| 2.4 |
| Other | 0.3 | | 1.0 | | 1.3 | | Total | $ | 11.9 |
| $ | 32.7 |
| $ | 44.6 |
| Total | $ | 10.4 | | $ | 31.8 | | $ | 42.2 | |
| | Commercial portfolio exposure (in billions) | Sept. 30, 2017 | Commercial portfolio exposure (in billions) | Sept. 30, 2023 | Loans |
| Unfunded commitments |
| Total exposure |
| Loans | Unfunded commitments | Total exposure | Services and other | | Services and other | $ | 1.1 | | $ | 3.4 | | $ | 4.5 | | Manufacturing | $ | 1.4 |
| $ | 6.3 |
| $ | 7.7 |
| Manufacturing | 0.5 | | 3.6 | | 4.1 | | Services and other | 0.9 |
| 4.4 |
| 5.3 |
| | Energy and utilities | 0.6 |
| 4.5 |
| 5.1 |
| Energy and utilities | 0.3 | | 3.7 | | 4.0 | | Media and telecom | 0.1 |
| 1.4 |
| 1.5 |
| Media and telecom | — | | 0.7 | | 0.7 | | Total | $ | 3.0 |
| $ | 16.6 |
| $ | 19.6 |
| Total | $ | 1.9 | | $ | 11.4 | | $ | 13.3 | |
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 17 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 proceedings
| | | Notes to Consolidated Financial Statements (continued) | |
related 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, 20172023 and Dec. 31, 2016,2022, 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, 20172023 and Dec. 31, 2016,2022, 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
| | | Notes to Consolidated Financial Statements (continued) | |
receivable up to the amount of the accrual that is probable of recovery.
For certain of those matters described here for which a loss contingency may, in the future, be reasonably possible (whether in excess of a related accrued liability or where there is no accrued liability), BNY Mellon is currently unable to estimate a range of reasonably possible loss. For those matters described here where BNY Mellon is able to estimate a reasonably possible loss, the aggregate range of such reasonably possible loss is up to $940$590 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 YorkBNY 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. TheseTwo actions include a lawsuit broughtcommenced in December 2015 and February 2017 are pending in New York State court on June 18,federal court. An action commenced in December 2014 and later re-filed in New York federal court by a group of institutional investors who purport to suewas dismissed and the dismissal was affirmed on behalf of 253 MBS trusts.appeal in April 2023. In New York state court, six actions are pending: one case commenced in May 2016; two related cases commenced in September 2021 and October 2022; and three related cases commenced in October 2021, December 2021 and February 2022.
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 15 lawsuits against Pershing that are pending in Texas, including two putative class actions.action proceedings against Pershing: one in November 2009 in Texas federal court, and one in May 2016 in New Jersey federal court. On Nov. 5, 2021, the court dismissed the class action filed in New Jersey and that matter has concluded. Three lawsuits remain against Pershing in 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. On Nov. 12, 2021, the court dismissed the class action hasagainst The Bank of New York Mellon; on Dec. 15, 2022, an appeals court reversed the dismissal and returned the case to the trial court for further proceedings. All the cases that have been resolved and dismissed.brought in federal court against Pershing have been consolidated in Texas federal court for discovery purposes. Various alleged Stanford CD purchasers asserted similar claims in Financial Industry Regulatory Authority, Inc. (“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 hasappealed. On Aug. 4, 2021, the appellate court overturned the dismissal and sent the lawsuit to a
| | | Notes to Consolidated Financial Statements (continued) | |
state lower court. On March 2, 2023, DTVM appealed that decision.the August 4 decision to Brazil’s Superior Court of Justice. On Dec. 17, 2015, Postalis filed three additional 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 judgment of approximately $3 million against DTVM and Ativos. On Aug. 23, 2021, DTVM and Ativos filed an appeal of the May 20 decision. On June 7, 2022, the appellate court partially granted and partially denied the appeal, reducing the judgment to approximately $2 million. On July 13, 2023, DTVM and Ativos filed a further appeal to Brazil’s Superior Court of Justice. On Aug. 24, 2022, the court dismissed one of the other lawsuits. On Nov. 24, 2022, Postalis appealed that 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 alleged failures to properly perform certain duties as administrator to certain funds in which Postalis invested or as controller of Postalis’s own investment portfolio. On April 18, 2018, the court dismissed the lawsuit without prejudice. On Aug. 4, 2021, the appellate court overturned the dismissal and returned the lawsuit to the lower court. On April 11, 2022, DTVM appealed the Aug. 4 decision to Brazil’s Superior Court of Justice. On Aug. 21, 2023, DTVM’s appeal was denied. In addition, the Tribunal de Contas da União (“TCU”), an administrative tribunal, has initiated proceedings with the purpose of determining liability for losses to three 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 $50 million. TCU also imposed on DTVM a fine of approximately $2 million. DTVM’s administrative appeal of the decision was denied. On Feb. 25, 2022, DTVM filed a lawsuit in Brazil federal court in Brasilia seeking annulment of TCU’s decision and an injunction preventing TCU from enforcing the judgment. On Aug. 24, 2022, the Brazilian Federal Attorneys filed
Depositary Receipt Litigation
Between late December 2015an action in Rio de Janeiro court seeking to enforce the fine portion of the judgment. On Nov. 8, 2022, the Brasilia federal court in the annulment action granted DTVM’s request for an injunction, suspending the Sept. 9, 2020 TCU decision until the annulment action is decided. On Oct. 4, 2019, Postalis and February 2016, four putative class action lawsuitsanother 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 in São Paulo challenging the decision rendered by the Arbitration Court with respect to its jurisdiction over the case. On Feb. 24, 2023, the São Paulo court annulled the Arbitration Court’s decision that it had jurisdiction, and Postalis and the other pension fund have appealed. On Sept. 21, 2023, the São Paulo court issued an order suspending the arbitration; the Arbitration Court implemented the suspension on Oct. 6, 2023. On Oct. 25, 2019, Postalis filed a lawsuit in Rio de Janeiro against DTVM and Alocação de Patrimônio, alleging liability for losses in another fund for which DTVM was administrator and Alocação de Patrimônio and Ativos were filed against BNY Mellon asserting claims relating to BNY Mellon’s foreign exchange pricing when converting dividendsmanagers. On May 9, 2022, the court found DTVM and other distributions from non-U.S. companies in its role as depositary bank to Depositary Receipt issuers. The claims areAlocação de Patrimônio jointly and severally liable for breach of contractapproximately $20 million. On Aug. 12, 2022, DTVM and violations of ERISA. The lawsuits have been consolidated into two suits that are pendingAlocação de Patrimônio appealed the decision. 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.
| | | Notes to Consolidated Financial Statements(continued) | |
German Tax Matters Depositary Receipt Pre-Release Inquiry
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 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”) commenceddetermined that the cum/ex trading activities of the relevant third-party investment funds were unlawful. In November and December 2020 and February 2023, we received secondary liability notices from the German tax authorities totaling approximately $150 million (at then-prevailing exchange rates) related to pre-acquisition activity in various funds for which the entities we acquired were depositary and/or fund manager. We have appealed the notices. In connection with the acquisition of the subject entities, we obtained an investigation into certain issuers of American Depositary Receipts (“ADRs”), including BNY Mellon,indemnity for liabilities from the period of 2011sellers that we intend to 2015. pursue as necessary.
Off-Channel Business-Related Communications The Company has been responding to a request for information from the SEC concerning compliance with recordkeeping obligations relating to business communications transmitted on unapproved electronic communication platforms. SEC Staff has issued several requests to BNY Mellon for information relating to the pre-release of ADRs. In May 2017, BNY Mellon began discussionsstated that it is conducting similar inquiries into recordkeeping practices at other financial institutions. The Company is cooperating with the Staff aboutinquiry. In April 2023, the Company received a possible resolution ofsimilar request from the investigation. BNY Mellon has fully cooperatedCommodity Futures Trading Commission and is cooperating with this matter.that inquiry as well.
Note 18 - Lines of business19–Business segments
We have an internal information system that produces performance data along product and service lines for our twothree principal business segments and the Other segment. The primary products and services and types of revenue for our principal businesses and a description of the Other segment.segment are presented in Note 24 of the Notes to Consolidated Financial Statements in our 2022 Annual Report.
Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principlesGAAP which is used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
Business segment 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 reclassifications or organization changes in the measurement principles.third quarter of 2023.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 20162022 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 businessesbusiness segments 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 revenuefees in each business.segment. •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.the Securities Services segment. •Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds
| | | Notes to Consolidated Financial Statements (continued) | |
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.segments. •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 the 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. •Severance expense is recorded in the segments based on the business or function the impacted employees reside, with severance related to corporate staff, technology and operations reflected in the Other segment. •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. BusinessesSegments with a net liability position have been allocated assets. •Goodwill and intangible assets are reflected within individual businesses.
The following consolidating schedules presentspresent the contribution of our businessessegments to our overall profitability.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2023 | Securities Services | | Market and Wealth Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | | Total fee and other revenue | $ | 1,489 | | | $ | 1,043 | | | $ | 789 | | (a) | $ | 34 | | | $ | 3,355 | | (a) | Net interest revenue (expense) | 600 | | | 402 | | | 38 | | | (24) | | | 1,016 | | | Total revenue | 2,089 | | | 1,445 | | | 827 | | (a) | 10 | | | 4,371 | | (a) | Provision for credit losses | 19 | | | 6 | | | (9) | | | (13) | | | 3 | | | Noninterest expense | 1,585 | | | 808 | | | 672 | | | 24 | | | 3,089 | | | Income (loss) before income taxes | $ | 485 | | | $ | 631 | | | $ | 164 | | (a) | $ | (1) | | | $ | 1,279 | | (a) | Pre-tax operating margin (b) | 23 | % | | 44 | % | | 20 | % | | N/M | | 29 | % | | Average assets | $ | 190,964 | | | $ | 129,804 | | | $ | 26,531 | | | $ | 50,193 | | | $ | 397,492 | | |
(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 $3 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 June 30, 2023 | Securities Services | | Market and Wealth Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | | Total fee and other revenue | $ | 1,572 | | | $ | 1,025 | | | $ | 774 | | (a) | $ | (18) | | | $ | 3,353 | | (a) | Net interest revenue (expense) | 668 | | | 420 | | | 39 | | | (27) | | | 1,100 | | | Total revenue (loss) | 2,240 | | | 1,445 | | | 813 | | (a) | (45) | | | 4,453 | | (a) | Provision for credit losses | 16 | | | 7 | | | 7 | | | (25) | | | 5 | | | Noninterest expense | 1,582 | | | 781 | | | 677 | | | 71 | | | 3,111 | | | Income (loss) before income taxes | $ | 642 | | | $ | 657 | | | $ | 129 | | (a) | $ | (91) | | | $ | 1,337 | | (a) | Pre-tax operating margin (b) | 29 | % | | 46 | % | | 16 | % | | N/M | | 30 | % | | Average assets | $ | 202,207 | | | $ | 131,657 | | | $ | 27,260 | | | $ | 60,050 | | | $ | 421,174 | | |
(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 $1 million. (b)Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2022 | Securities Services | | Market and Wealth Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | | Total fee and other revenue | $ | 1,536 | | | $ | 989 | | | $ | 805 | | (a) | $ | 23 | | | $ | 3,353 | | (a) | Net interest revenue (expense) | 538 | | | 378 | | | 57 | | | (47) | | | 926 | | | Total revenue (loss) | 2,074 | | | 1,367 | | | 862 | | (a) | (24) | | | 4,279 | | (a) | Provision for credit losses | (6) | | | (1) | | | 3 | | | (26) | | | (30) | | | Noninterest expense | 1,557 | | | 737 | | | 1,356 | | | 29 | | | 3,679 | | | Income (loss) before income taxes | $ | 523 | | | $ | 631 | | | $ | (497) | | (a) | $ | (27) | | | $ | 630 | | (a) | Pre-tax operating margin (b) | 25 | % | | 46 | % | | (57) | % | | N/M | | 15 | % | | Average assets | $ | 203,063 | | | $ | 138,204 | | | $ | 29,996 | | | $ | 44,407 | | | $ | 415,670 | | |
(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 $— million. (b)Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2023 | Securities Services | | Market and Wealth Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | | Total fee and other revenue | $ | 4,511 | | | $ | 3,082 | | | $ | 2,345 | | (a) | $ | 5 | | | $ | 9,943 | | (a) | Net interest revenue (expense) | 1,934 | | | 1,275 | | | 122 | | | (87) | | | 3,244 | | | Total revenue (loss) | 6,445 | | | 4,357 | | | 2,467 | | (a) | (82) | | | 13,187 | | (a) | Provision for credit losses | 35 | | | 13 | | | (2) | | | (11) | | | 35 | | | Noninterest expense | 4,723 | | | 2,358 | | | 2,083 | | | 136 | | | 9,300 | | | Income (loss) before income taxes | $ | 1,687 | | | $ | 1,986 | | | $ | 386 | | (a) | $ | (207) | | | $ | 3,852 | | (a) | Pre-tax operating margin (b) | 26 | % | | 46 | % | | 16 | % | | N/M | | 29 | % | | Average assets | $ | 196,556 | | | $ | 131,193 | | | $ | 26,968 | | | $ | 53,968 | | | $ | 408,685 | | |
(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 $4 million. (b) Income before income taxes divided by total revenue. N/M – Not meaningful.
| | | | | | | | | | | | | | | | | | 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, 2022 | Securities Services | | Market and Wealth Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | | Total fee and other revenue | $ | 4,488 | | | $ | 2,869 | | | $ | 2,549 | | (a) | $ | 118 | | | $ | 10,024 | | (a) | Net interest revenue (expense) | 1,372 | | | 1,014 | | | 176 | | | (114) | | | 2,448 | | | Total revenue | 5,860 | | | 3,883 | | | 2,725 | | (a) | 4 | | | 12,472 | | (a) | Provision for credit losses | (3) | | | 1 | | | — | | | 21 | | | 19 | | | Noninterest expense | 4,723 | | | 2,147 | | | 2,802 | | | 125 | | | 9,797 | | | Income (loss) before income taxes | $ | 1,140 | | | $ | 1,735 | | | $ | (77) | | (a) | $ | (142) | | | $ | 2,656 | | (a) | Pre-tax operating margin (b) | 19 | % | | 45 | % | | (3) | % | | N/M | | 21 | % | | Average assets | $ | 214,518 | | | $ | 140,435 | | | $ | 33,077 | | | $ | 43,044 | | | $ | 431,074 | | |
(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 $13 million. (b) Income before income taxes divided by total revenue. N/M – Not meaningful.
Note 19 - 20–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) | 2023 | | 2022 | | | | Transfers from loans to other assets for other real estate owned | $ | 1 | | | $ | 1 | | | | | Change in assets of consolidated investment management funds | 332 | | | 248 | | | | | Change in liabilities of consolidated investment management funds | 6 | | | 2 | | | | | Change in nonredeemable noncontrolling interests of consolidated investment management funds | 49 | | | 189 | | | | | Securities purchased not settled | 234 | | | 126 | | | | | | | | | | | | Securities matured not settled | 455 | | | — | | | | | Available-for-sale securities transferred to held-to-maturity securities | — | | | 6,067 | | | | | | | | | | | | | | | | | | | | | | | | | | Premises and equipment/operating lease obligations | 203 | | | 177 | | | | | | | | | | | | Excise tax on share repurchases | 18 | | | — | | | | |
| | | | | | | | | 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 20172023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | Forward-looking Statements | |
Some statements in this document are forward-looking.Quarterly Report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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, efficiency, expenses, nonperforming assets, products, impacts of currency fluctuations, deposits, securities portfolio, divestments, 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, focus and initiatives.
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 20162022 Annual Report, and this Form 10-Q, such as: an information security event •errors or delays in our operational and transaction processing, or those of third parties, 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 identifying or mitigating risk and reducing the potential for losses; •our business may be adversely affected if we are unable to attract, retain, develop and motivate employees; •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 in our computer systems, networks and information, or those of third parties, 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 technology or that of a third party or vendor, or if ability to conduct our businesses, damage our reputation and cause losses; •we neglectare subject to update our technology, develop and market new technology to meet clients’ needs or protect our intellectual property and any material adverse effect on our business; a determination that our resolution plan is not credible 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; extensive government rulemaking, policies, regulation and supervision whichthat impact our operations. Changes to and introduction of new rules and regulations have compelled, 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 and have increased our compliance and operational risks and costs; failure to satisfy regulatory standards, including “well capitalized” and operations;“well managed” status or capital adequacy and liquidity rules, and any resulting limitations on our activities, or adverse effects on our business and financial condition; •regulatory or enforcement actions or litigation and any material adverse effect oncould materially adversely affect 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 adverse effect •weakness and volatility in financial markets and the economy generally may materially adversely affect our business, financial condition and results of operations; •levels of and changes in interest rates have impacted, and will in the future continue to impact, our profitability and capital levels, at times adversely; •we have experienced, and may continue to experience, unrealized or realized losses on
| | | Forward-looking Statements (continued) | |
securities related to volatile and illiquid market conditions, reducing our foreign exchange revenuescapital levels and/or earnings; •transitions away from decreased market volatility or cross-border investment activityand the replacement of LIBOR and other IBORs could adversely impact our clients; 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, counterparty and counterpartyconcentration 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; •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; •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 subject us to new or 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 to attract •our strategic transactions present risks and retain employeesuncertainties and anycould 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; •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; and •risks associated with being a non-operating holding company, including our dependence on dividends from our subsidiariesrelating 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.FDIC special deposits insurance assessments.
Investors should not place undue reliance on any forward-looking statement and consider all risk factors discussed in our 20162022 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.
The information required by this Item is set forth in the “Legal proceedings” section in Note 1718 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)
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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)
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Item 2. Unregistered Sales of Equity Securities, and Use of Proceeds, and Issuer Purchases of Equity Securities.
| | (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 2023. 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 2023 | | | | | 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, 2023 | | | (dollars in millions, except per share amounts; common shares in thousands) | Total shares repurchased | | Average price per share | | | | July 2023 | 1,909 | | | $ | 45.52 | | | 1,909 | | | $ | 3,209 | | | | August 2023 | 4,238 | | | 44.73 | | | 4,238 | | | 3,019 | | | | September 2023 | 3,832 | | | 45.13 | | | 3,832 | | | 2,846 | | | | Third quarter of 2023 (a) | 9,979 | | | $ | 45.03 | | | 9,979 | | | $ | 2,846 | | (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(a) Includes 62 thousand shares repurchased at a purchase price of $3 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. |
On June 28, 2017, in connection with the Federal Reserve’s non-objectionemployees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market repurchases was $45.03.
(b) Represents the maximum value of the shares to our 2017 capitalbe repurchased under the share repurchase plan BNY Mellonannounced in January 2023 and includes shares repurchased in connection with employee benefit plans.
In January 2023, we announced a share repurchase planprogram approved by our Board of Directors providing for the repurchase of up to $2.6$5.0 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 began in the third quarter of 2017 and continues through the second quarter of 2018.shares beginning Jan. 1, 2023. 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 5. Other Information.
(a) An amendment to the offer terms for Dermot McDonogh, Chief Financial Officer of the Company, was approved by the Human Resources and Compensation Committee of the Company on Oct. 30, 2023. The amended terms provide that Mr. McDonogh will receive a cash payment of $2,230,000 in 2023 to reflect additional tax obligations on previously disclosed equity buyout awards resulting from the Company’s request that he relocate from the United Kingdom to the United States in connection with his employment. Such payment will be subject to the Company’s standard terms and conditions, including clawback and recoupment.
(c) Certain of our officers or directors have made elections to participate in, and are participating in, our dividend reinvestment plan, employee stock purchase plan and 401(k) plan, and have made, and may from time to time make, elections to have shares withheld to cover withholding taxes or pay the exercise price of stock awards, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Item 6. Exhibits.
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 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 | |
| | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on April 28, 2015, and incorporated herein by reference.
| 3.6 | | | | | 3.73.6 | | with respect to the Series G Noncumulative Perpetual Preferred Stock, dated May 15, 2020. | | | 4.13.7 | | 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. | | | 3.8 | | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series I Noncumulative Perpetual Preferred Stock, dated Nov. 16, 2021. | | | 3.9 | | Amended and Restated By-Laws of The Bank of New York Mellon Corporation, as amended and restated on Aug. 8, 2023. | | |
| | | 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, 2017.2023. 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 Bank of New York Mellon Corporation’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2023, 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, 20173, 2023 | By: | | /s/ Kurtis R. Kurimsky | | | | Kurtis R. Kurimsky | | | | Corporate Controller | | | | (Duly Authorized Officer and | | | | Principal Accounting Officer of | | | | the Registrant) |
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