Securities (a) $ | 120 | | Cash (b) | 103 | | Total consolidated HQLA (c) | $ | 223 | | | | (a)Total consolidated HQLA – average (c) | Primarily includes securities of U.S. government-sponsored enterprises, U.S. Treasury, sovereign securities, U.S. agency and investment-grade corporate debt.$ |
213 | | (b)Average LCR | Primarily includes cash on deposit with central banks.111 | % |
| | (c) | Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $142 billion at Sept. 30, 2019 and averaged $125 billion for the third quarter of 2019. |
(a) Primarily includes securities of U.S. government-sponsored enterprises, sovereign securities, U.S. Treasury, U.S. agency and investment-grade corporate debt.
(b) Primarily includes cash on deposit with central banks. (c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $163 billion at Sept. 30, 2020 and averaged $154 billion for the third quarter of 2020. BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the U.S. LCR requirements of at least 100% throughout the third quarter of 2019.2020.
Statement of cash flows
The following summarizes the activity reflected on the consolidated statement of cash flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity and dividends and asset/liability management herein may provide more useful context in evaluating our liquidity position and related activity.
Net cash provided by operating activities was $5.9 billion in the nine months ended Sept. 30, 2020, compared with $2.6 billion in the nine months ended Sept. 30, 2019, compared with $2.8 billion in the nine months ended Sept. 30, 2018.2019. In the nine months ended Sept. 30, 20192020, cash flows provided by operations primarily resulted from earnings and changes in trading assets and liabilities. In the nine months ended Sept. 30, 2018,2019, cash flows provided by operations primarily resulted from earnings, partially offset by changes in trading activities.assets and liabilities.
Net cash used for investing activities was $44.3 billion in the nine months ended Sept. 30, 2020, compared with $5.2 billion in the nine months ended Sept. 30, 2019, compared with net cash provided by investing activities of $18.0 billion in2019. In the nine months ended Sept. 30, 2018.2020, net cash used for investing activities primarily reflects net changes in securities and changes in interest-bearing deposits with the Federal Reserve and other central banks. In the nine months ended Sept. 30, 2019, net cash used for investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, partially offset by changechanges in federal funds sold and securities purchased under resale agreements. In the nine months ended Sept. 30, 2018, net cash provided by investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks and changes in loans, partially offset by changes in interest-bearing deposits with banks.
Net cash provided by financing activities was $38.1 billion in the nine months ended Sept. 30, 2020, compared with $3.5 billion in the nine months ended Sept. 30, 2019, compared with net cash used for financing activities of $21.6 billion in2019. In the nine months ended Sept. 30, 2018.2020, net cash provided by financing activity reflects changes in deposits, payables to customers and broker-dealers and federal funds purchased and securities sold under repurchase agreements, partially offset by changes in commercial paper. In the nine months ended Sept. 30, 2019, net cash provided by financing activities primarily reflects changes in deposits and net proceeds from the issuance of long-term debt, partially offset by repayments of long-term debt, changes in federal funds purchased and
securities sold under repurchase agreements, changes in other borrowed funds and common stock repurchases. In the nine months ended Sept. 30, 2018, net cash used for financing activities primarily reflects changes in deposits, changes in federal funds purchased and securities sold under repurchase agreements, repayments of long-term debt, a change in commercial paper and common stock repurchases, partially offset by net proceeds from the issuance of long-term debt.
32 BNY Mellon
Capital
| | | | | | | | | | | | Capital data (dollars in millions, except per share amounts; common shares in thousands) | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | Average common equity to average assets | 9.6 | % | 9.3 | % | 10.7 | % | | | | | At period end: | | | | BNY Mellon shareholders’ equity to total assets ratio | 10.5 | % | 9.9 | % | 10.9 | % | BNY Mellon common shareholders’ equity to total assets ratio | 9.4 | % | 8.9 | % | 9.9 | % | Total BNY Mellon shareholders’ equity | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | Total BNY Mellon common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | Book value per common share | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | Tangible book value per common share – Non-GAAP (a) | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | Closing stock price per common share | $ | 34.34 | | $ | 38.65 | | $ | 50.33 | | Market capitalization | $ | 30,430 | | $ | 34,239 | | $ | 45,331 | | Common shares outstanding | 886,136 | | 885,862 | | 900,683 | | | | | | | | | | | | | | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | | Common dividend payout ratio | 32 | % | 31 | % | 20 | % | Common dividend yield | 3.6 | % | 3.2 | % | 2.4 | % |
| | | | | | | | | | | Capital data (dollars in millions, except per share amounts; common shares in thousands) | Sept. 30, 2019 |
| June 30, 2019 |
| Dec. 31, 2018 |
| Average common equity to average assets | 10.7 | % | 10.9 | % | 11.2 | % | | | | | At period end: | | | | BNY Mellon shareholders’ equity to total assets ratio | 11.0 | % | 10.9 | % | 11.2 | % | BNY Mellon common shareholders’ equity to total assets ratio | 10.1 | % | 10.0 | % | 10.2 | % | Total BNY Mellon shareholders’ equity | $ | 41,120 |
| $ | 41,533 |
| $ | 40,638 |
| Total BNY Mellon common shareholders’ equity (a) | $ | 37,578 |
| $ | 37,991 |
| $ | 37,096 |
| BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 18,988 |
| $ | 19,275 |
| $ | 18,290 |
| Book value per common share (a) | $ | 40.75 |
| $ | 40.30 |
| $ | 38.63 |
| Tangible book value per common share – Non-GAAP (a) | $ | 20.59 |
| $ | 20.45 |
| $ | 19.04 |
| Closing stock price per common share | $ | 45.21 |
| $ | 44.15 |
| $ | 47.07 |
| Market capitalization | $ | 41,693 |
| $ | 41,619 |
| $ | 45,207 |
| Common shares outstanding | 922,199 |
| 942,662 |
| 960,426 |
| | | | | Cash dividends per common share | $ | 0.31 |
| $ | 0.28 |
| $ | 0.28 |
| Common dividend payout ratio | 29 | % | 28 | % | 33 | % | Common dividend yield (annualized) | 2.7 | % | 2.5 | % | 2.4 | % |
| | (a) | See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 40(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for a reconciliation of GAAP to Non-GAAP. |
The Bank of New York Mellon Corporation total shareholders’ equity increased to $41.1$44.9 billion at Sept. 30, 20192020 from $40.6$41.5 billion at Dec. 31, 2018.2019. The increase primarily reflects earnings, unrealized gains on assets available-for-sale and the unrealized gainissuance of preferred stock in our investment securities portfolio, and additional paid-in capital resulting from stock awards,May 2020, partially offset by common stock repurchases and dividend payments.
In May 2020, the third quarterParent issued 1,000,000 depositary shares, each representing a 1/100th interest in a share of 2019, we repurchased 21.3 million common sharesthe Parent’s Series G Noncumulative Perpetual Preferred Stock (the “Series G Preferred Stock”). The Series G Preferred Stock has a liquidation preference of $100,000 per share. The Parent will pay dividends on the Series G Preferred Stock, if declared by its board of directors, on each March 20 and September 20, at an average priceannual rate equal to 4.70% from the original issue date to but excluding, Sept. 20, 2025; and at a floating rate equal to the five-year treasury rate (as defined in the certificate of $46.11designations) on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and including Sept. 20, 2025. The floating rate will initially reset on Sept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
In November 2020, the Parent issued 582,500 depositary shares, each representing a 1/100th interest in a share of the Parent’s Series H Noncumulative Perpetual Preferred Stock (the “Series H Preferred Stock”). The Series H Preferred Stock has a liquidation preference of $100,000 per common shareshare. The Parent will pay dividends on the Series H Preferred Stock, if declared by its board of directors, on each March 20, June 20, September 20 and December 20, commencing on March 20, 2021, at an annual rate equal to 3.70% from the original issue date to but excluding, March 20, 2026; and at a floating rate equal to the five-year treasury rate (as defined in the certificate of designations) on the date that is three business days prior to the reset date plus 3.352% for each reset period, from and including March 20, 2026. The floating rate will initially reset on March 20, 2026 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
The Parent will use the net proceeds, after deducting the underwriting discount and estimated offering expenses, of approximately $575 million from the sale of the depositary shares to redeem all outstanding shares of the Series C Preferred Stock. On Nov. 4, 2020, the Parent issued a totalnotice of $981redemption to the holders of the Series C Preferred Stock to redeem in full the Series C Preferred Stock on Dec. 20, 2020.
Deferred fees of approximately $15 million under the current program.will be realized as preferred stock dividends upon redemption.
The unrealized gain (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated OCI was $473 million$1.4 billion at Sept. 30, 2019,2020, compared with an unrealized loss (after-tax) of $167$361 million at Dec. 31, 2018.2019. The increase in the unrealized gain, net of tax, was primarily driven by lower market interest rates.
In the nine months ended Sept. 30, 2020, we repurchased 21.8 million common shares at an average price of $45.43 per common share for a total of $988 million, nearly all of which were repurchased prior to the temporary suspension of share repurchases in March 2020.
In June 2020, the Federal Reserve announced that it would require participating CCAR firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms were not permitted, during the third quarter of 2020, to conduct open market common stock repurchases, to increase their common stock dividends or to pay common stock dividends that exceed average net income for the preceding four quarters. On Sept. 30, 2020, the Federal Reserve extended these limitations through the fourth quarter of 2020.
BNY Mellon intends to resume the common stock repurchase program as early as possible, depending on factors such as prevailing market conditions, our outlook for the economic environment and the additional capital analysis required by the Federal Reserve. For additional information, see “Recent regulatory developments.” Capital adequacy
Regulators establish certain levels of capital for bank holding companies (“BHCs”) and banks, including BNY Mellon and our bank subsidiaries, in accordance with established quantitative measurements. For the Parent to maintain its status as a financial holding company (“FHC”), our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.” As of Sept. 30, 20192020 and Dec. 31, 2018,2019, BNY Mellon and our U.S. bank subsidiaries were “well capitalized.”
Failure to satisfy regulatory standards, including “well capitalized” status or capital adequacy rules more generally, could result in limitations on our activities and adversely affect our financial condition. See the discussion of these matters in “Supervision and Regulation - Regulated Entities of BNY Mellon and Ancillary Regulatory Requirements” and “Risk Factors - Operational Risk - Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition,” both of which are in our 20182019 Annual Report.
The U.S. banking agencies’ capital rules are based on the framework adopted by the Basel Committee on Banking Supervision (“BCBS”), as amended from time to time. For additional information on these capital requirements, see “Supervision and Regulation” in our 20182019 Annual Report. Report and “Recent regulatory developments” in this Form 10-Q.
BNY Mellon is subject to the U.S. capital rules, which were gradually phased-in over a multi-year period through Jan. 1, 2019. The phase-in requirements for consolidated capital were completed on Jan. 1, 2018.37
The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated and largest bank subsidiary regulatory capital ratios | Sept. 30, 2020 | | June 30, 2020 | | Dec. 31, 2019 | | Well capitalized | | Minimum required | | Capital ratios | | Capital ratios | | Capital ratios | | | (a) | | Consolidated regulatory capital ratios: (b) | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 13.0 | % | | 12.6 | % | | 11.5 | % | | Tier 1 capital ratio | 6 | % | | 10 | | | 15.7 | | | 15.4 | | | 13.7 | | | Total capital ratio | 10 | | | 12 | | | 16.6 | | | 16.3 | | | 14.4 | | | Standardized Approach: | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 13.5 | % | | 12.7 | % | | 12.5 | % | | Tier 1 capital ratio | 6 | % | | 10 | | | 16.3 | | | 15.6 | | | 14.8 | | | Total capital ratio | 10 | | | 12 | | | 17.4 | | | 16.6 | | | 15.8 | | | Tier 1 leverage ratio | N/A | (c) | 4 | | | 6.5 | | | 6.2 | | | 6.6 | | | SLR (d)(e) | N/A | (c) | 5 | | | 8.5 | | | 8.2 | | | 6.1 | | | | | | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | CET1 ratio | 6.5 | % | | 7 | % | | 17.2 | % | | 17.1 | % | | 15.1 | % | | Tier 1 capital ratio | 8 | | | 8.5 | | | 17.2 | | | 17.1 | | | 15.1 | | | Total capital ratio | 10 | | | 10.5 | | | 17.4 | | | 17.2 | | | 15.2 | | | Tier 1 leverage ratio | 5 | | | 4 | | | 6.9 | | | 6.7 | | | 6.9 | | | SLR (d) | 6 | | | 3 | | | 8.5 | | | 8.4 | | | 6.4 | | |
| | | | | | | | | | | | | | | | Consolidated and largest bank subsidiary regulatory capital ratios | Sept. 30, 2019 | | June 30, 2019 |
| | Dec. 31, 2018 |
| Well capitalized |
| | Minimum required |
| | Capital ratios |
| | Capital ratios |
| | Capital ratios |
| | (a) | Consolidated regulatory capital ratios: (b) | | | | | | | | | | Advanced Approaches: | | | | | | | | | | CET1 ratio | N/A |
| (c) | 8.5 | % | | 11.1 | % | | 11.1 | % | | 10.7 | % | Tier 1 capital ratio | 6 | % | | 10 |
| | 13.2 |
| | 13.2 |
| | 12.8 |
| Total capital ratio | 10 | % | | 12 |
| | 14.0 |
| | 14.0 |
| | 13.6 |
| Standardized Approach: | | | | | | | | | | CET1 ratio | N/A |
| (c) | 8.5 | % | | 12.3 | % | | 12.4 | % | | 11.7 | % | Tier 1 capital ratio | 6 | % | | 10 |
| | 14.6 |
| | 14.8 |
| | 14.1 |
| Total capital ratio | 10 | % | | 12 |
| | 15.6 |
| | 15.7 |
| | 15.1 |
| Tier 1 leverage ratio | N/A |
| (c) | 4 |
| | 6.5 |
| | 6.8 |
| | 6.6 |
| SLR (d) | N/A |
| (c) | 5 |
| | 6.0 |
| | 6.3 |
| | 6.0 |
| | | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | | Advanced Approaches: | | | | | | | | | | CET1 ratio | 6.5 | % | | 7 | % | | 14.5 | % | | 14.2 | % | | 14.0 | % | Tier 1 capital ratio | 8 |
| | 8.5 |
| | 14.5 |
| | 14.2 |
| | 14.3 |
| Total capital ratio | 10 |
| | 10.5 |
| | 14.5 |
| | 14.2 |
| | 14.7 |
| Tier 1 leverage ratio | 5 |
| | 4 |
| | 7.0 |
| | 7.3 |
| | 7.6 |
| SLR (d) | 6 |
| | 3 |
| | 6.4 |
| | 6.7 |
| | 6.8 |
|
| | (a) | Minimum requirements for Sept. 30, 2019 include minimum thresholds plus currently applicable buffers.
|
| | (b) | For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets. The fully phased-in U.S. G-SIB surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. |
| | (c) | The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs.
|
| | (d) | The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures.
|
(a) Minimum requirements for Sept. 30, 2020 include minimum thresholds plus currently applicable buffers. The U.S. global systemically important banks (“G-SIB”) surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. Effective Oct. 1, 2020, the stress capital buffer (“SCB”) requirement is 2.5%, equal to the regulatory minimum, and replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios.
(b) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets. (c) The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs. (d) The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures. The SLR at Sept. 30, 2020 and June 30, 2020 reflects the exclusion of certain central bank placements from leverage exposure. (e) The SLR at Sept. 30, 2020 and June 30, 2020 reflects the temporary exclusion of U.S. Treasury securities from the leverage exposure which increased our consolidated SLR by 78 basis points and 40 basis points, respectively.
Our CET1 ratio determined under the Advanced Approaches was 11.1%13.0% at Sept. 30, 20192020 and 10.7%11.5% at Dec. 31, 2018.2019. The increase compared with Dec. 31, 2018 primarily reflects capital generated through earnings theand unrealized gaingains on our investment securities portfolio and additional paid-in capital resulting from stock awards,assets available-for-sale, partially offset by capital deployed through common stock repurchased, prior to the temporary suspension of share repurchases that began in March 2020, and dividend payments. RWAs are essentially flat compared with Dec. 31, 2018, as an increase in credit risk RWAs was offset by a decrease in operational risk RWAs primarily due to the external loss data used in our model.
The Advanced Approaches capital ratios are significantly impacted by RWAs for operational risk. Our operational loss risk model is informed by external losses, including fines and penalties levied
against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a result external losses have impacted and could in the future impact the amount of capital that we are required to hold.
Our capital ratios are necessarily subject to, among other things, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. As a consequence of these factors, our capital ratios may materially change, and may be volatile over time and from period to period.
The following table presents our capital components and RWAs.
| | | | | | | | | | | | Capital components and risk-weighted assets | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | (in millions) | CET1: | | | | Common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | Adjustments for: | | | | Goodwill and intangible assets (a) | (18,585) | | (18,515) | | (18,725) | | Net pension fund assets | (275) | | (270) | | (272) | | Equity method investments | (298) | | (297) | | (311) | | Deferred tax assets | (51) | | (48) | | (46) | | Other | (5) | | — | | (47) | | Total CET1 | 21,171 | | 20,035 | | 18,540 | | Other Tier 1 capital: | | | | Preferred stock | 4,532 | | 4,532 | | 3,542 | | Other | (92) | | (89) | | (86) | | Total Tier 1 capital | $ | 25,611 | | $ | 24,478 | | $ | 21,996 | | Tier 2 capital: | | | | Subordinated debt | $ | 1,248 | | $ | 1,248 | | $ | 1,248 | | Allowance for credit losses | 474 | | 463 | | 216 | | Other | (6) | | (6) | | (11) | | Total Tier 2 capital – Standardized Approach | 1,716 | | 1,705 | | 1,453 | | Excess of expected credit losses | 228 | | 217 | | — | | Less: Allowance for credit losses | 474 | | 463 | | 216 | | Total Tier 2 capital – Advanced Approaches | $ | 1,470 | | $ | 1,459 | | $ | 1,237 | | Total capital: | | | | Standardized Approach | $ | 27,327 | | $ | 26,183 | | $ | 23,449 | | Advanced Approaches | $ | 27,081 | | $ | 25,937 | | $ | 23,233 | | | | | | Risk-weighted assets: | | | | Standardized Approach | $ | 156,698 | | $ | 157,290 | | $ | 148,695 | | Advanced Approaches: | | | | Credit Risk | $ | 95,881 | | $ | 95,647 | | $ | 95,490 | | Market Risk | 3,077 | | 2,793 | | 4,020 | | Operational Risk | 64,150 | | 60,900 | | 61,388 | | Total Advanced Approaches | $ | 163,108 | | $ | 159,340 | | $ | 160,898 | | | | | | Average assets for Tier 1 leverage ratio | $ | 394,945 | | $ | 394,394 | | $ | 334,869 | | Total leverage exposure for SLR | $ | 300,265 | | $ | 297,300 | | $ | 362,452 | |
(a) Reduced by deferred tax liabilities associated with intangible assets and tax-deductible goodwill. | | | | | | | | | | | Capital components and risk-weighted assets | Sept. 30, 2019 |
| June 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | CET1: | | | | Common shareholders’ equity | $ | 37,578 |
| $ | 37,991 |
| $ | 37,096 |
| Adjustments for: | | | | Goodwill and intangible assets (a) | (18,590 | ) | (18,716 | ) | (18,806 | ) | Net pension fund assets | (326 | ) | (331 | ) | (320 | ) | Equity method investments | (361 | ) | (358 | ) | (361 | ) | Deferred tax assets | (44 | ) | (45 | ) | (42 | ) | Other | (61 | ) | (7 | ) | — |
| Total CET1 | 18,196 |
| 18,534 |
| 17,567 |
| Other Tier 1 capital: | | | | Preferred stock | 3,542 |
| 3,542 |
| 3,542 |
| Other | (61 | ) | (61 | ) | (65 | ) | Total Tier 1 capital | $ | 21,677 |
| $ | 22,015 |
| $ | 21,044 |
| Tier 2 capital: | | | | Subordinated debt | $ | 1,250 |
| $ | 1,250 |
| $ | 1,250 |
| Allowance for credit losses | 224 |
| 241 |
| 252 |
| Other | (6 | ) | (6 | ) | (10 | ) | Total Tier 2 capital – Standardized Approach | 1,468 |
| 1,485 |
| 1,492 |
| Excess of expected credit losses | — |
| 41 |
| 65 |
| Less: Allowance for credit losses | 224 |
| 241 |
| 252 |
| Total Tier 2 capital – Advanced Approaches | $ | 1,244 |
| $ | 1,285 |
| $ | 1,305 |
| Total capital: | | | | Standardized Approach | $ | 23,145 |
| $ | 23,500 |
| $ | 22,536 |
| Advanced Approaches | $ | 22,921 |
| $ | 23,300 |
| $ | 22,349 |
| | | | | Risk-weighted assets: | | | | Standardized Approach | $ | 148,399 |
| $ | 149,226 |
| $ | 149,618 |
| Advanced Approaches: | | | | Credit Risk | $ | 98,553 |
| $ | 94,304 |
| $ | 92,917 |
| Market Risk | 3,356 |
| 3,241 |
| 3,454 |
| Operational Risk | 62,263 |
| 69,025 |
| 68,300 |
| Total Advanced Approaches | $ | 164,172 |
| $ | 166,570 |
| $ | 164,671 |
| | | | | Average assets for Tier 1 leverage ratio | $ | 331,241 |
| $ | 322,879 |
| $ | 319,007 |
| Total leverage exposure for SLR | $ | 359,023 |
| $ | 350,747 |
| $ | 347,943 |
|
| | (a) | Reduced by deferred tax liabilities associated with intangible assets and tax deductible goodwill. |
The table below presents the factors that impacted CET1 capital.
| | | | | CET1 generation | 3Q19 |
| (in millions) | CET1 – Beginning of period | $ | 18,534 |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 1,002 |
| Goodwill and intangible assets, net of related deferred tax liabilities | 126 |
| Gross CET1 generated | 1,128 |
| Capital deployed: | | Common stock dividend payments | (294 | ) | Common stock repurchases | (981 | ) | Total capital deployed | (1,275 | ) | Other comprehensive income: | | Foreign currency translation | (273 | ) | Unrealized gain on assets available-for-sale | 64 |
| Defined benefit plans | 10 |
| Unrealized gain on cash flow hedges | (6 | ) | Total other comprehensive income | (205 | ) | Additional paid-in capital (a) | 65 |
| Other additions (deductions): | | Net pension fund assets | 5 |
| Deferred tax assets | 1 |
| Embedded goodwill | (3 | ) | Other | (54 | ) | Total other deductions | (51 | ) | Net CET1 deployed | (338 | ) | CET1 – End of period | $ | 18,196 |
|
| | | | | | CET1 generation | 3Q20 | (in millions) | CET1 – Beginning of period | $ | 20,035 | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 876 | | Goodwill and intangible assets, net of related deferred tax liabilities | (70) | | Gross CET1 generated | 806 | | Capital deployed: | | Common stock dividend payments | (279) | | | | (a)Total capital deployed | Primarily related to stock awards, the exercise(279) | | Other comprehensive income: | | Foreign currency translation | 329 | | Unrealized gain on assets available-for-sale | 227 | | Defined benefit plans | 20 | | Unrealized gain on cash flow hedges | 8 | | | | Total other comprehensive income | 584 | | Additional paid-in capital (a) | 39 | | Other (deductions): | | Embedded goodwill | (1) | | Net pension fund assets | (5) | | Deferred tax assets | (3) | | Other | (5) | | Total other deductions | (14) | | Net CET1 generated | 1,136 | | CET1 – End of stock options and stock issued for employee benefit plans.period | $ | 21,171 | |
(a) Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
The following table shows the impact on the consolidated capital ratios at Sept. 30, 20192020 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, 2019 | | Sensitivity of consolidated capital ratios at Sept. 30, 2020 | | Sensitivity of consolidated capital ratios at Sept. 30, 2020 | | Increase or decrease of | | Increase or decrease of | (in basis points) | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure | (in basis points) | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure | CET1: | | CET1: | | Standardized Approach | 7 | bps | 8 | bps | Standardized Approach | 6 | bps | 9 | bps | Advanced Approaches | 6 | | 7 | | Advanced Approaches | 6 | | 8 | | | | | Tier 1 capital: | | Tier 1 capital: | | Standardized Approach | 7 | | 10 | | Standardized Approach | 6 | | 10 | | Advanced Approaches | 6 | | 8 | | Advanced Approaches | 6 | | 10 | | | | | Total capital: | | Total capital: | | Standardized Approach | 7 | | 11 | | Standardized Approach | 6 | | 11 | | Advanced Approaches | 6 | | 9 | | Advanced Approaches | 6 | | 10 | | | | | Tier 1 leverage | 3 | | 2 | | Tier 1 leverage | 3 | | 2 | | | | | SLR | 3 | | 2 | | SLR | 3 | | 3 | |
Capital ratios vary depending on the size of the balance sheet at period end and the levels and types of investments in assets. The balance sheet size fluctuates from period to period based on levels of customer and market activity. In general, when servicing clients are more actively trading securities, deposit balances and the balance sheet as a whole are higher. In addition, when markets experience significant volatility or stress, our balance sheet size may increase considerably as client deposit levels increase.
Effective April 1, 2020, custody banks, including BNY Mellon and The Bank of New York Mellon, are permitted to exclude certain central bank placements from leverage exposure used in the SLR calculation. Also, effective April 1, 2020 and lasting through March 31, 2021, BHCs are permitted to temporarily exclude U.S. Treasury securities from the leverage exposure used in the SLR calculation. This temporary exclusion increased our consolidated SLR by 78 basis points at Sept. 30, 2020 and 40 basis points at June 30, 2020. See “Supervision and Regulation” in our 2019 Annual Report and “Recent regulatory developments” in our First Quarter 2020 Form 10-Q for additional information.
Stress capital buffer
In August 2020, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory minimum, effective as of Oct. 1, 2020. The SCB replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements, including the SCB. In conjunction with the release of the 2020 CCAR results, the Federal Reserve has imposed restrictions on capital distributions for the third quarter of 2020, which have been extended through the fourth quarter of 2020. For more detail regarding these restrictions, see “Recent regulatory developments - CCAR 2020 results” in this Quarterly Report on Form 10-Q.
Total Loss-Absorbing Capacity (“TLAC”)
The final TLAC rule establishing external TLAC, external long-term debt (“LTD”) and related requirements for U.S. G-SIBs, including BNY Mellon, at the top-tier holding company level became effective on Jan. 1, 2019.
The following summarizes the minimum requirements for BNY Mellon’s external TLAC and external 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 Standardized and Advanced Approaches. (b) Buffer to be met using only CET1. (c) Buffer to be met using only Tier 1 capital.
| | (c) | Buffer to be met using only Tier 1 capital. |
External TLAC consists of the Parent’s Tier 1 capital and eligible unsecured long-term debtLTD issued by it that has a remaining term to maturity of at least one year and satisfies certain other conditions. Eligible long-term debtLTD consists of the unpaid principal balance of eligible unsecured debt securities, subject to haircuts for amounts due to be paid within two years, andthat satisfy certain other conditions. Debt issued prior to Dec. 31, 2016 has been permanently grandfathered to the extent these instruments otherwise would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.
The following table presents our external TLAC and external LTD ratios.
| | | | | | | | TLAC and LTD ratios | Sept. 30, 2019 | | Minimum required |
| Minimum ratios with buffers |
| | | Ratios |
| Eligible external TLAC: | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 26.5 | % | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 12.1 | % | | | | | Eligible external LTD: | | | | As a percentage of RWA | 7.5 | % | N/A | 11.8 | % | As a percentage of total leverage exposure | 4.5 | % | N/A | 5.4 | % |
| | | | | | | | | | | | TLAC and LTD ratios | Sept. 30, 2020 | | Minimum required | Minimum ratios with buffers | | | Ratios | Eligible external TLAC: | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 27.8 | % | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 15.1 | % | | | | | Eligible external LTD: | | | | As a percentage of RWA | 7.5 | % | N/A | 11.4 | % | As a percentage of total leverage exposure | 4.5 | % | N/A | 6.2 | % |
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 discretionary executive compensation based on the amount of the shortfall. shortfall and eligible retained income.
Trading activities and risk management
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk 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-wide level.
VaR represents a key risk management measure and it is important to note the inherent limitations to VaR, which include: •VaR does not estimate potential losses over longer time horizons where moves may be extreme;
•VaR does not take account of potential variability of market liquidity; and •Previous moves in market risk factors may not produce accurate predictions of all future market moves.
See Note 1817 of the Notes to Consolidated Financial Statements for additional information on the VaR methodology.
The following tables indicate the calculated VaR amounts for the trading portfolio for the designated periods using the historical simulation VaR model.
| | | | | | | | | | | | | | | VaR (a) | 3Q20 | Sept. 30, 2020 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 2.1 | | $ | 1.7 | | $ | 2.6 | | $ | 2.2 | | Foreign exchange | 2.6 | | 2.0 | | 3.7 | | 2.5 | | Equity | 0.3 | | 0.1 | | 0.6 | | 0.1 | | Credit | 2.2 | | 1.5 | | 3.5 | | 2.3 | | Diversification | (3.8) | | N/M | N/M | (3.7) | | Overall portfolio | 3.4 | | 2.4 | | 4.6 | | 3.4 | |
| | | | | | | | | | | | | | | VaR (a) | 2Q20 | June 30, 2020 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 3.0 | | $ | 2.1 | | $ | 4.9 | | $ | 2.2 | | Foreign exchange | 3.4 | | 2.2 | | 5.9 | | 2.4 | | Equity | 0.5 | | 0.4 | | 1.4 | | 0.4 | | Credit | 3.5 | | 1.8 | | 10.2 | | 2.8 | | Diversification | (5.7) | | N/M | N/M | (4.0) | | Overall portfolio | 4.7 | | 3.1 | | 11.4 | | 3.8 | |
| | | | | | | | | | | | | | | VaR (a) | 3Q19 | Sept. 30, 2019 | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 4.7 | | $ | 3.7 | | $ | 7.3 | | $ | 4.3 | | Foreign exchange | 3.0 | | 1.8 | | 5.1 | | 3.3 | | Equity | 0.9 | | 0.6 | | 1.2 | | 1.1 | | Credit | 1.0 | | 0.5 | | 2.0 | | 1.6 | | Diversification | (3.5) | | N/M | N/M | (3.6) | | Overall portfolio | 6.1 | | 4.0 | | 8.2 | | 6.7 | |
| | | | | | | | | | | | | VaR (a) | YTD20 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 3.4 | | $ | 1.7 | | $ | 11.3 | | | Foreign exchange | 3.0 | | 1.7 | | 6.3 | | | Equity | 0.7 | | 0.1 | | 2.3 | | | Credit | 3.0 | | 1.2 | | 12.1 | | | Diversification | (5.3) | | N/M | N/M | | Overall portfolio | 4.8 | | 2.4 | | 14.3 | | |
| | | | | | | | | | | | | | VaR (a) | 3Q19 | Sept. 30, 2019 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 4.7 |
| $ | 3.7 |
| $ | 7.3 |
| $ | 4.3 |
| Foreign exchange | 3.0 |
| 1.8 |
| 5.1 |
| 3.3 |
| Equity | 0.9 |
| 0.6 |
| 1.2 |
| 1.1 |
| Credit | 1.0 |
| 0.5 |
| 2.0 |
| 1.6 |
| Diversification | (3.5 | ) | N/M |
| N/M |
| (3.6 | ) | Overall portfolio | 6.1 |
| 4.0 |
| 8.2 |
| 6.7 |
|
| | | | | | | | | | | | | | VaR (a) | 2Q19 | June 30, 2019 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 4.2 |
| $ | 3.3 |
| $ | 5.2 |
| $ | 3.8 |
| Foreign exchange | 2.7 |
| 1.9 |
| 4.2 |
| 2.3 |
| Equity | 0.8 |
| 0.6 |
| 0.9 |
| 0.7 |
| Credit | 0.8 |
| 0.5 |
| 1.2 |
| 0.9 |
| Diversification | (3.2 | ) | N/M |
| N/M |
| (3.2 | ) | Overall portfolio | 5.3 |
| 4.0 |
| 6.9 |
| 4.5 |
|
| | | | | | | | | | | | | | VaR (a) | 3Q18 | Sept. 30, 2018 |
| (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 3.6 |
| $ | 3.0 |
| $ | 5.0 |
| $ | 3.7 |
| Foreign exchange | 3.6 |
| 2.9 |
| 5.6 |
| 5.5 |
| Equity | 0.5 |
| — |
| 0.8 |
| 0.1 |
| Credit | 0.8 |
| 0.6 |
| 1.1 |
| 0.9 |
| Diversification | (3.8 | ) | N/M |
| N/M |
| (4.6 | ) | Overall portfolio | 4.7 |
| 3.6 |
| 6.3 |
| 5.6 |
|
| | | | | | | | | | | VaR (a) | YTD19 | (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 4.3 |
| $ | 3.2 |
| $ | 7.3 |
| Foreign exchange | 3.2 |
| 1.8 |
| 6.4 |
| Equity | 0.8 |
| 0.6 |
| 1.2 |
| Credit | 0.8 |
| 0.4 |
| 2.0 |
| Diversification | (3.3 | ) | N/M |
| N/M |
| Overall portfolio | 5.8 |
| 4.0 |
| 9.5 |
|
| | | | | | | | | | | VaR (a) | YTD18 | (in millions) | Average |
| Minimum |
| Maximum |
| Interest rate | $ | 4.0 |
| $ | 3.0 |
| $ | 5.5 |
| Foreign exchange | 4.2 |
| 2.9 |
| 8.3 |
| Equity | 0.7 |
| — |
| 1.2 |
| Credit | 1.0 |
| 0.6 |
| 2.6 |
| Diversification | (4.4 | ) | N/M |
| N/M |
| Overall portfolio | 5.5 |
| 3.6 |
| 10.4 |
|
BNY Mellon 41 | | (a) | VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments. |
| | | | | | | | | | | | | VaR (a) | YTD19 | | (in millions) | Average | Minimum | Maximum | Interest rate | $ | 4.3 | | $ | 3.2 | | $ | 7.3 | | | Foreign exchange | 3.2 | | 1.8 | | 6.4 | | | Equity | 0.8 | | 0.6 | | 1.2 | | | Credit | 0.8 | | 0.4 | | 2.0 | | | Diversification | (3.3) | | N/M | N/M | | Overall portfolio | 5.8 | | 4.0 | | 9.5 | | |
(a)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,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, 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, common stock, exchange-traded funds, preferred stock, listed equity options (puts and calls), 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 the creditworthiness of counterparties.driven by credit spread levels, i.e., idiosyncratic default risk. These instruments include, but are not limited to, credit derivatives (credit default swaps and exchange-traded credit index instruments),securities with exposures from corporate and municipal credit spreads and mortgage prepayments. Credit derivatives are used to hedge various credit exposures.
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 2019,2020, interest rate risk generated 49%29% of average gross VaR, foreign exchange risk generated 31%36% of average gross VaR, equity risk generated 9%4% of average gross VaR and credit risk generated 11%31% of average gross VaR. During the third quarter of 2019,2020, 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, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | Revenue range: | Number of days | Less than $(2.5) | 4 | | 6 | | — | | 3 | | 2 | | $(2.5) – $0 | 10 | | 12 | | 3 | | 5 | | 7 | | $0 – $2.5 | 23 | | 17 | | 19 | | 23 | | 26 | | $2.5 – $5.0 | 16 | | 15 | | 19 | | 24 | | 22 | | More than $5.0 | 12 | | 14 | | 21 | | 7 | | 7 | |
| | | | | | | | | | | | | | Distribution of trading revenue (loss) (a) | | | | Quarter ended | | (dollars in millions) | Sept. 30, 2019 |
| June 30, 2019 |
| March 31, 2019 |
| Dec. 31, 2018 |
| Sept. 30, 2018 |
| | | Revenue range: | Number of days | | Less than $(2.5) | 2 |
| — |
| 1 |
| 1 |
| — |
| | $(2.5) – $0 | 7 |
| 4 |
| 5 |
| 7 |
| 6 |
| | $0 – $2.5 | 26 |
| 30 |
| 22 |
| 17 |
| 30 |
| | $2.5 – $5.0 | 22 |
| 23 |
| 23 |
| 24 |
| 20 |
| | More than $5.0 | 7 |
| 7 |
| 10 |
| 13 |
| 7 |
|
| | (a) | (a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue. |
Trading assets include debt and equity instruments and derivative assets, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading assets were $10.2$13.1 billion at Sept. 30, 20192020 and $7.0$13.6 billion at Dec. 31, 2018.2019.
Trading liabilities include debt and equity instruments and derivative liabilities, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading liabilities were $4.8$6.1 billion at Sept. 30, 20192020 and $3.5$4.8 billion at Dec. 31, 2018.2019.
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.
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, 2019,2020, our OTC derivative assets, including those in hedging relationships, of $3.5$4.2 billion included a credit valuation adjustment (“CVA”) deduction of $31$39 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.1$3.6 billion included a debit valuation adjustment (“DVA”) of $1 million related to our own credit spread. Net of hedges, the CVA decreased by $1$3 million and the DVA was unchanged in the third quarter of 2019,2020, which increased foreign exchange and other trading revenue by $1$3 million. The net impact increaseddecreased foreign exchange and other trading revenue by $1$2 million in the second quarter of 20192020 and decreasedincreased foreign exchange and other trading revenue by $1 million in the third quarter of 2018.2019.
The table below summarizes the riskdistribution of credit ratings for our foreign exchange and interest rate derivative counterparty credit exposure duringcounterparties over the past five quarters. This informationquarters, which indicates the degreelevel of risk to which we are exposed.counterparty credit associated with these trading activities. Significant changes in counterparty credit ratings classifications for our foreign exchange and other trading activity could result in increasedalter the level of credit risk for us.faced by BNY Mellon.
| | | | | | | | | | | | | | | | | | Foreign exchange and other trading counterparty risk rating profile (a) | | | Quarter ended | | Sept. 30, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | Rating: | | | | | | AAA to AA- | 54 | % | 56 | % | 56 | % | 54 | % | 55 | % | A+ to A- | 20 | | 18 | | 24 | | 24 | | 24 | | BBB+ to BBB- | 17 | | 18 | | 14 | | 17 | | 16 | | BB+ and lower (b) | 9 | | 8 | | 6 | | 5 | | 5 | | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(a) Represents credit rating agency equivalent of internal credit ratings. (b) Non-investment grade.
| | | | | | | | | | | | Foreign exchange and other trading counterparty risk rating profile (a) | | Quarter ended | | Sept. 30, 2019 |
| June 30, 2019 |
| March 31, 2019 |
| Dec. 31, 2018 |
| Sept. 30, 2018 |
| | Rating: | | | | | | AAA to AA- | 55 | % | 54 | % | 49 | % | 50 | % | 48 | % | A+ to A- | 24 |
| 26 |
| 28 |
| 28 |
| 30 |
| BBB+ to BBB- | 16 |
| 17 |
| 20 |
| 18 |
| 19 |
| BB+ and lower (b) | 5 |
| 3 |
| 3 |
| 4 |
| 3 |
| 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 include interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.
An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue. The model incorporates management’s assumptions regarding interest rates, market spreads, changes in the prepayment behavior of loans and securities and the impact of derivative financial instruments used for interest rate risk management purposes. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior and are inherently uncertain. 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.
In the table below, we use the earnings simulation model to run various interest rate ramp scenarios from a baseline scenario. The interest rate ramp scenarios examine the impact of large interest rate movements. In each scenario, all currencies’ interest rates are shifted higher or lower. The baseline scenario is based on our quarter-end balance sheet and the spot yield curve. The 100 basis point ramp scenario assumes rates change 25 basis points above or below the yield curve in each of the next four quarters and the 200 basis point ramp scenario assumes a 50 basis point per quarter change. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period. The net interest revenue sensitivity methodology assumes static deposit levels and also assumes that no management actions will be taken to mitigate the effects of interest rate changes.
The following table shows net interest revenue sensitivity for BNY Mellon.
| | | | | | | | | | | | Estimated changes in net interest revenue (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | Up 200 bps parallel rate ramp vs. baseline (a) | $ | 608 | | $ | 591 | | $ | 187 | | Up 100 bps parallel rate ramp vs. baseline (a) | 343 | | 349 | | 74 | | Down 100 bps parallel rate ramp vs. baseline (a) | 418 | | 315 | | (45) | | Long-term up 50 bps, short-term unchanged (b) | 144 | | 153 | | 115 | | Long-term down 50 bps, short-term unchanged (b) | (164) | | (173) | | (119) | |
(a)In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments. | | | | | | | | | | | Estimated changes in net interest revenue (in millions) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| Up 200 bps parallel rate ramp vs. baseline (a) | $ | 187 |
| $ | 380 |
| $ | 362 |
| Up 100 bps parallel rate ramp vs. baseline (a) | 74 |
| 200 |
| 180 |
| Down 100 bps parallel rate ramp vs. baseline (a) | (45 | ) | (179 | ) | (140 | ) | Long-term up 50 bps, short-term unchanged (b) | 115 |
| 171 |
| 83 |
| Long-term down 50 bps, short-term unchanged (b) | (119 | ) | (192 | ) | (96 | ) |
| | (a) | In the parallel rate ramp, both short-term and long-term rates move (b)Long-term is equal to or greater than one year.in four equal quarterly increments.
|
| | (b) | Long-term is equal to or greater than one year. |
The down 100 basis point scenario was impacted by a change in our deposit assumptions. Specifically, we increased the sensitivity compared with June 30, 2019 was primarily driven byamount of deposit balances to which we would pass through negative central bank rates in the impact of lower rates and balance sheet mix changes, including the fixed versus floating rate exposure of the investment portfolio.
scenario.
To illustrate the net interest revenue sensitivity to deposit runoff, we note that a $5 billion instantaneous reduction of U.S. dollar denominated noninterest-bearing deposits would reduce the net interest revenue sensitivity results in the ramp up 100 basis point and 200 basis point scenarios in the table above by approximately $120$30 million and approximately $150$65 million, respectively. The impact would be smaller if the runoff was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.
For a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors - Our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity,”liquidity” in our 20182019 Annual Report.
Off-balance sheet arrangements
Off-balance sheet arrangements discussed in this section are limited to certain guarantees, retained or contingent interests and obligations arising out of unconsolidated variable interest entities (“VIEs”). For BNY Mellon, these items include certain guarantees. Guarantees include SBLCs issued as part of our corporate banking business and securities lending indemnifications issued as part of our Investment Services business. See Note 1918 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 on a tangible basis as a supplement to generally accepted accounting principles (“GAAP”) information, which exclude goodwill and intangible assets, net of deferred tax liabilities. BNY Mellon believesWe believe that the return on tangible common equity is additional useful information for investors because it presents a measure of those assets that can generate income, and the tangible book value per common share is additional useful information because it presents the level of tangible assets in relation to shares of common stock outstanding.
The presentation of the growth rates of investment management and performance fees on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue. BNY Mellon believesWe believe that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.
BNY Mellon has also included the adjusted pre-tax operating margin – Non-GAAP, which is the pre-tax operating margin for the Investment and Wealth Management business net of distribution and servicing expense that was passed to third parties who distribute or service our managed funds. BNY Mellon believesWe believe that this measure is useful when evaluating the performance of the Investment and Wealth Management business relative to industry competitors.
The following table presents the reconciliation of the return on common equity and tangible common equity.
| | | | | | | | | | | | | | | | | | Return on common equity and tangible common equity reconciliation | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | (dollars in millions) | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 876 | | $ | 901 | | $ | 1,002 | | $ | 2,721 | | $ | 2,881 | | Add: Amortization of intangible assets | 26 | | 26 | | 30 | | 78 | | 89 | | Less: Tax impact of amortization of intangible assets | 7 | | 6 | | 7 | | 19 | | 21 | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 895 | | $ | 921 | | $ | 1,025 | | $ | 2,780 | | $ | 2,949 | | | | | | | | Average common shareholders’ equity | $ | 39,924 | | $ | 38,476 | | $ | 37,597 | | $ | 38,693 | | $ | 37,392 | | Less: Average goodwill | 17,357 | | 17,243 | | 17,267 | | 17,304 | | 17,328 | | Average intangible assets | 3,039 | | 3,058 | | 3,141 | | 3,062 | | 3,176 | | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,103 | | 1,132 | | 1,103 | | Deferred tax liability – intangible assets | 666 | | 664 | | 679 | | 666 | | 679 | | Average tangible common shareholders’ equity – Non-GAAP | $ | 21,326 | | $ | 19,958 | | $ | 18,971 | | $ | 20,125 | | $ | 18,670 | | | | | | | | Return on common shareholders’ equity – GAAP | 8.7 | % | 9.4 | % | 10.6 | % | 9.4 | % | 10.3 | % | Return on tangible common shareholders’ equity – Non-GAAP | 16.7 | % | 18.5 | % | 21.4 | % | 18.5 | % | 21.1 | % |
| | | | | | | | | | | | | | | | | Return on common equity and tangible common equity reconciliation | | | | | | (dollars in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 1,002 |
| $ | 969 |
| $ | 1,075 |
| $ | 2,881 |
| $ | 3,265 |
| Add: Amortization of intangible assets | 30 |
| 30 |
| 48 |
| 89 |
| 145 |
| Less: Tax impact of amortization of intangible assets | 7 |
| 7 |
| 11 |
| 21 |
| 34 |
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 1,025 |
| $ | 992 |
| $ | 1,112 |
| $ | 2,949 |
| $ | 3,376 |
| | | | | | | Average common shareholders’ equity | $ | 37,597 |
| $ | 37,487 |
| $ | 38,036 |
| $ | 37,392 |
| $ | 37,795 |
| Less: Average goodwill | 17,267 |
| 17,343 |
| 17,391 |
| 17,328 |
| 17,492 |
| Average intangible assets | 3,141 |
| 3,178 |
| 3,283 |
| 3,176 |
| 3,340 |
| Add: Deferred tax liability – tax deductible goodwill | 1,103 |
| 1,094 |
| 1,066 |
| 1,103 |
| 1,066 |
| Deferred tax liability – intangible assets | 679 |
| 687 |
| 699 |
| 679 |
| 699 |
| Average tangible common shareholders’ equity – Non-GAAP | $ | 18,971 |
| $ | 18,747 |
| $ | 19,127 |
| $ | 18,670 |
| $ | 18,728 |
| | | | | | | Return on common equity (annualized) – GAAP | 10.6 | % | 10.4 | % | 11.2 | % | 10.3 | % | 11.6 | % | Return on tangible common equity (annualized) – Non-GAAP | 21.4 | % | 21.2 | % | 23.1 | % | 21.1 | % | 24.1 | % |
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, 2020 | June 30, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | | (dollars in millions, except per share amounts and unless otherwise noted) | | | BNY Mellon shareholders’ equity at period end – GAAP | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | $ | 41,120 | | | | Less: Preferred stock | 4,532 | | 4,532 | | 3,542 | | 3,542 | | | | BNY Mellon common shareholders’ equity at period end – GAAP | 40,385 | | 39,165 | | 37,941 | | 37,578 | | | | Less: Goodwill | 17,357 | | 17,253 | | 17,386 | | 17,248 | | | | Intangible assets | 3,026 | | 3,045 | | 3,107 | | 3,124 | | | | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,098 | | 1,103 | | | | Deferred tax liability – intangible assets | 666 | | 664 | | 670 | | 679 | | | | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | $ | 18,988 | | | | | | | | | | | Period-end common shares outstanding (in thousands) | 886,136 | | 885,862 | | 900,683 | | 922,199 | | | | | | | | | | | Book value per common share – GAAP | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | $ | 40.75 | | | | Tangible book value per common share – Non-GAAP | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | $ | 20.59 | | | |
| | | | | | | | | | | | | | Book value and tangible book value per common share reconciliation | Sept. 30, 2019 |
| June 30, 2019 |
| Dec. 31, 2018 |
| Sept. 30, 2018 |
| (dollars in millions, except common shares) | BNY Mellon shareholders’ equity at period end – GAAP | $ | 41,120 |
| $ | 41,533 |
| $ | 40,638 |
| $ | 41,560 |
| Less: Preferred stock | 3,542 |
| 3,542 |
| 3,542 |
| 3,542 |
| BNY Mellon common shareholders’ equity at period end – GAAP | 37,578 |
| 37,991 |
| 37,096 |
| 38,018 |
| Less: Goodwill | 17,248 |
| 17,337 |
| 17,350 |
| 17,390 |
| Intangible assets | 3,124 |
| 3,160 |
| 3,220 |
| 3,258 |
| Add: Deferred tax liability – tax deductible goodwill | 1,103 |
| 1,094 |
| 1,072 |
| 1,066 |
| Deferred tax liability – intangible assets | 679 |
| 687 |
| 692 |
| 699 |
| BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 18,988 |
| $ | 19,275 |
| $ | 18,290 |
| $ | 19,135 |
| | | | | | Period-end common shares outstanding (in thousands) | 922,199 |
| 942,662 |
| 960,426 |
| 988,777 |
| | | | | | Book value per common share – GAAP | $ | 40.75 |
| $ | 40.30 |
| $ | 38.63 |
| $ | 38.45 |
| Tangible book value per common share – Non-GAAP | $ | 20.59 |
| $ | 20.45 |
| $ | 19.04 |
| $ | 19.35 |
|
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 | 3Q20 | 3Q19 | 3Q20 vs. | (dollars in millions) | 3Q19 | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | Impact of changes in foreign currency exchange rates | — | | 11 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % |
| | | | | | | | | | Constant currency reconciliation – Consolidated | | | 3Q19 vs. |
| (dollars in millions) | 3Q19 |
| 3Q18 |
| 3Q18 |
| Investment management and performance fees – GAAP (a) | $ | 832 |
| $ | 912 |
| (9 | )% | Impact of changes in foreign currency exchange rates | — |
| (14 | ) | | Adjusted investment management and performance fees – Non-GAAP | $ | 832 |
| $ | 898 |
| (7 | )% |
| | (a) | In the first quarter of 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior periods have been reclassified. |
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.
| | | | | | | | | | | | Constant currency reconciliation – Investment and Wealth Management business | | | 3Q20 vs. | (dollars in millions) | 3Q20 | 3Q19 | 3Q19 | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | Impact of changes in foreign currency exchange rates | — | | 11 | | | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % |
| | | | | | | | | | Constant currency reconciliation – Investment Management business | | | 3Q19 vs. |
| (dollars in millions) | 3Q19 |
| 3Q18 |
| 3Q18 |
| Investment management and performance fees – GAAP | $ | 828 |
| $ | 909 |
| (9 | )% | Impact of changes in foreign currency exchange rates | — |
| (14 | ) | | Adjusted investment management and performance fees – Non-GAAP | $ | 828 |
| $ | 895 |
| (7 | )% |
The following table presents the reconciliation of the pre-tax operating margin for the Investment and Wealth Management business.
| | | | | | | | | | | | | | | | | | | | | | | | Pre-tax operating margin reconciliation – Investment and Wealth Management business | | | | (dollars in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | YTD20 | YTD19 | Income before income taxes – GAAP | $ | 245 | | $ | 221 | | $ | 194 | | $ | 240 | | $ | 295 | | $ | 660 | | $ | 821 | | | | | | | | | | Total revenue – GAAP | $ | 918 | | $ | 886 | | $ | 898 | | $ | 971 | | $ | 887 | | $ | 2,702 | | $ | 2,736 | | Less: Distribution and servicing expense | 85 | | 86 | | 91 | | 93 | | 98 | | 262 | | 283 | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 833 | | $ | 800 | | $ | 807 | | $ | 878 | | $ | 789 | | $ | 2,440 | | $ | 2,453 | | | | | | | | | | Pre-tax operating margin – GAAP (a) | 27 | % | 25 | % | 22 | % | 25 | % | 33 | % | 24 | % | 30 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 29 | % | 28 | % | 24 | % | 27 | % | 37 | % | 27 | % | 33 | % |
(a) Income before taxes divided by total revenue. | | | | | | | | | | | | | | | | | | | | | | | Pre-tax operating margin reconciliation - Investment Management business | | | | | | (dollars in millions) | 3Q19 |
| 2Q19 |
| 1Q19 |
| 4Q18 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Income before income taxes – GAAP | $ | 300 |
| $ | 265 |
| $ | 269 |
| $ | 247 |
| $ | 316 |
| $ | 834 |
| $ | 1,016 |
| | | | | | | | | Total revenue – GAAP | $ | 890 |
| $ | 917 |
| $ | 939 |
| $ | 963 |
| $ | 1,015 |
| $ | 2,746 |
| $ | 3,121 |
| Less: Distribution and servicing expense | 98 |
| 94 |
| 91 |
| 95 |
| 99 |
| 283 |
| 312 |
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 792 |
| $ | 823 |
| $ | 848 |
| $ | 868 |
| $ | 916 |
| $ | 2,463 |
| $ | 2,809 |
| | | | | | | | | Pre-tax operating margin – GAAP (a) | 34 | % | 29 | % | 29 | % | 26 | % | 31 | % | 30 | % | 33 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 38 | % | 32 | % | 32 | % | 29 | % | 35 | % | 34 | % | 36 | % |
| | (a) | Income before income taxes divided by total revenue. |
Recent accounting and regulatory developments
Recently issuedRecent accounting standardsdevelopments
The following Accounting Standards Update (“ASU”)ASU issued by the Financial Accounting Standards Board (“FASB”) hasFASB had not yet been adopted.
adopted as of Sept. 30, 2020.
ASU 2016-13, Financial Instruments – Credit Losses: Measurement2020-04, Reference Rate Reform: Facilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments Reporting
In June 2016,March 2020, the FASB issued an ASUFinancial Instruments – Credit Losses: Measurement, Reference Rate Reform: Facilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial InstrumentsReporting. . This ASU introduces a new current expected credit losses model, which will applyprovides temporary optional expedients and exceptions for applying U.S. GAAP to financial assets subjectcontracts, hedging relationships and other transactions affected by reference rate reform. This ASU also permits an entity to credit losses and measured at amortized cost, includingmake a one-time election to sell and/or transfer held-to-maturity securities that are affected by reference rate reform and certain off-balance sheet credit exposures.were classified as held-to-maturity on or before Jan. 1, 2020. The guidance will also change current practice forin this ASU can be adopted as of March 12, 2020 through Dec. 31, 2022. We are assessing the impairment model for available-for-sale debt securities. The available-for-sale debt securities model will require the useimpacts of an allowance to record estimated credit losses and subsequent recoveries.
The standard requires a cumulative effect of initial application to be recognized in retained earnings at the date of initial application. We plan to adopt the new standard, but would not expect this ASU to have a material impact on Jan. 1, 2020. BNY Mellon has developed expected credit loss models and approaches that include consideration of multiple forecast scenarios and other methodologies, and our focus for the remainder of 2019 is model validation, business process refinements and continued parallel testing to ensure the expected credit losses are calculated in accordance with the standard. We are continuing to assess the impact of the standard on our consolidated financial statements, disclosures and internal controls. Based on the current economic environment and our current portfolio composition, we expect a reduction in the allowance for credit losses. The adoption impact will depend on the size, composition and remaining expected lives of financial instruments, the macroeconomic conditions and forecasts at the time of adoption, as well as any refinements to our models, methodologies and other key assumptions.Mellon.
Recent regulatory developments
For a summary of additional regulatory matters relevant to our operations, see “Supervision and Regulation” in our 2018 Annual Report and “Recent regulatory developments” in our Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and “Supervision and Regulation” in our 2019 Form 10-Qs.Annual Report. The following discussions summarize certain regulatory, legislative and other developments that may affect BNY Mellon, the impact of many of which we are still evaluating.
Revisions to Resolution Planning RequirementsCCAR Refiling, Limitations and SCB
In October 2019,light of the Board of Governors ofchanges in the financial markets and the economy, in June 2020, the Federal Reserve System (“FRB”) and Federal Deposit Insurance Corporation (“FDIC”) issued a final rule modifying certain resolution plan requirements. The final rule allows U.S. G-SIBs, such asannounced that all banking institutions subject to CCAR, including BNY Mellon, are required to file alternating fullresubmit their capital plans. On Sept. 17, 2020, the Federal Reserve released the supervisory scenarios for the resubmission, which was submitted on Nov. 2, 2020.
Also in September 2020, the Federal Reserve extended through the fourth quarter of 2020 the limitations on capital distributions and more limited, targeted resolution plans every two years.share repurchases that the Federal Reserve imposed on CCAR firms, including BNY Mellon’s next targeted resolution plan is due on July 1, 2021, followed by a full resolution plan submission due on July 1, 2023. The final rule does not generally modifyMellon, earlier in the components or informational requirements of full resolution plans. See “Supervision and Regulationyear. For additional information regarding these limitations, see “Recent regulatory developments - Recovery and Resolution”CCAR 2020 results” in our 2018 Annual ReportSecond Quarter 2020 Form 10-Q.Consistent with these limitations, for additional information.the fourth quarter, BNY Mellon maintained its quarterly common stock dividend of $0.31 per share and plans to maintain the suspension of its open market common stock repurchases.
Revisions to Certain Stress Testing Requirements
In October 2019,On Aug. 10, 2020, the FRB finalized its previously proposed revisionsFederal Reserve announced the individual CCAR firms’ SCBs. The BNY Mellon SCB requirement is 2.5%, which equals the regulatory minimum, and is unchanged compared to the enhanced prudential standards regulations, which removedcapital conservation buffer that previously applied. The SCB became effective on Oct. 1, 2020. For additional information regarding the requirement for BNY MellonSCB, see “Recent regulatory developments - Changes to CCAR and other affected BHCs to conduct a mid-cycle company-run stress test. BNY Mellon will continue to be required to conduct an annual company-run stress test. The FRB also eliminated the adverse scenario from supervisoryStress Capital Buffer” in our First Quarter 2020 Form 10-Q and company-run stress tests to which BNY Mellon and other affected BHCs are subject. Both changes will be effective with the 2020 stress-test cycle. See “Supervision and Regulation - Capital Planning and Stress Testing” in our 20182019 Annual ReportReport.
Capital, Liquidity and TLAC Relief
On Sept. 29, 2020, the Federal Reserve, the FDIC and the OCC (the “Agencies”) finalized without changes an interim final rule issued in March 2020 that neutralizes the regulatory capital and liquidity coverage ratio effects for institutions that participate in the Federal Reserve’s MMLF.
Similarly, in August 2020, the Agencies finalized without change an interim final rule issued in March 2020 that revised the definition of “eligible retained income” to make more gradual the automatic restrictions on capital distributions, such as share repurchases, dividend payments, and bonus payments. In the same final rulemaking, the Federal Reserve also finalized the March 2020 interim final rule that made corresponding changes to the TLAC buffer requirements. The final rule is effective as of Jan. 1, 2021.
Also in August 2020, the Agencies finalized a current expected credit loss (“CECL”) final rule that is substantially similar to the interim final rule issued in March 2020. The final rule permits banking organizations to temporarily delay the estimated
effects of CECL on regulatory capital until Jan. 1, 2022 and then to phase in those effects through Jan. 1, 2025. Under the final rule, during 2020 and 2021, the adjustment to CET1 capital reflects the change in retained earnings upon adoption of CECL at Jan. 1, 2020 plus 25% of the increase in the allowance for credit losses since Jan. 1, 2020. BNY Mellon has not yet elected to apply this final rule. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
Revisions toinformation on the Volcker Rule
Over the course of August, September and October 2019, the FRB, the Officeimpact of the Comptrolleradoption of CECL and Note 5 of the CurrencyNotes to Consolidated Financial Statements for the change in the allowance for credit losses during the third quarter of 2020.
For additional information regarding the interim final rulemakings noted above, see “Recent regulatory developments – Capital, Liquidity and TLAC Relief” in our First Quarter 2020 Form 10-Q.
Net Stable Funding Ratio
On Oct. 20, 2020, the Agencies issued a final net stable funding ratio (“OCC”NSFR”), FDIC, rule that implements a quantitative measure of funding stability over a one-year horizon, and is applicable to certain large banking organizations, including BNY Mellon. Under the Commodity Futures Trading Commission (“CFTC”)rule, BNY Mellon’s NSFR would be expressed as a ratio of its available stable funding to its required stable funding amount, calculated on an ongoing basis, and the Securities and Exchange Commission (“SEC”) issued final rules containing revisions to the Volcker Rule. The most impactful aspects of the revisions with respect to BNY Mellon concern the compliance requirements applicable to banks with moderate exposure to trading assets and trading liabilities. Banks with less
than $20 billion and more than $1 billion of trading assets and trading liabilities will now be subject to a compliance program tailored to their moderate exposure to trading. Specifically, among other revisions, such “moderate trading” banks will notwould be required to filemaintain an annual CEO attestation and will not be required to file quantitative metrics. Furthermore,NSFR of 100%. The effective date of the comprehensive six-pillar compliance program associatedfinal NSFR rule is July 1, 2021, with the Volcker Ruleexception of certain disclosure requirements, which will no longerbegin to apply to “moderate trading” banks; rather, such banks are permitted to tailor their compliance programs to the size and nature of their activities.in 2023. BNY Mellon expects to be treatedin compliance with the NSFR rule by the effective date.
Capital Treatment of Investments in Certain Debt Instruments of G-SIBs
On Oct. 20, 2020, the Agencies finalized a rule that generally requires certain advanced approaches banking organizations (including BNY Mellon) to deduct from Tier 2 capital, subject to certain exceptions, direct, indirect and synthetic exposures to covered debt instruments. Covered debt instruments under the rule include, for example, unsecured debt instruments issued by U.S. or foreign G-SIBs, among other entities, to meet TLAC requirements or similar foreign requirements as well as any other unsecured debt instruments pari passu or subordinated to such debt instruments. The rule is effective on April 1, 2021. The impact of the final rule is not expected to be material to BNY Mellon.
ECB Declaration of Exceptional Circumstances
In September 2020, the European Central Bank (“ECB”) issued a declaration of exceptional circumstances, which is in effect from Sept. 26, 2020 to June 27, 2021, and which, as a “moderate trading”result of the so-called “quick-fix” to the Capital Requirements Regulation (“CRR”) earlier in the year, has the effect of allowing credit institutions subject to direct ECB supervision, such as The Bank of New York Mellon SA/NV, to disclose their leverage ratios excluding central bank deposits (as well as the leverage ratios absent this exclusion). The leverage ratio requirement is currently not binding on EU credit institutions but will become a binding requirement as part of the CRR 2, on June 28, 2021. The ECB declaration also has the effect of providing relief for subsidiaries of G-SIBs, such as The Bank of New York Mellon SA/NV, under the revised Volcker Rule.binding internal TLAC requirement.
The final revisions include many other changes to the existing rule, most of which are to the proprietary trading section of the regulations. They do not include the proposed revision of definitions applicable to the prohibition on proprietary trading, which would have made all financial instruments accounted for at fair value on a recurring basis subject to the prohibition. Rather, the revisions are likely to result in fewer financial instruments and other transactions being subjected to the prohibitions. Further, compliance with key exemptions is likely to be less challenging under the revised regulations. The revisions are effective on Jan. 1, 2020; institutions must comply by Jan. 1, 2021 but may elect to comply as soon as the revisions are effective. For moreadditional information regarding the Volcker Rule,so-called CRR “quick-fix”, see “Supervision and Regulation - Volcker Rule”“Recent regulatory developments – ‘CRR Quick-Fix’” in our 2018 Annual Report.Second Quarter 2020 Form 10-Q.
Website information
Our website is www.bnymellon.com. We currently make available the following information under the Investor Relations portion of our website. With respect to filings with the SEC, 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; •Financial statements and footnotes prepared using eXtensible Business Reporting Language (“XBRL”); •Our earnings materials and selected management conference calls and presentations; •Other regulatory disclosures, including: Pillar 3 Disclosures (and Market Risk Disclosure contained therein); Liquidity Coverage Ratio Disclosures; Federal Financial Institutions Examination Council - Consolidated Reports of Condition and Income for a Bank With Domestic and Foreign Offices; Consolidated Financial Statements for Bank Holding Companies; and the Dodd-Frank Act Stress Test Results for BNY Mellon and The Bank of New York Mellon; and •Our Corporate Governance Guidelines, Amended and Restated By-laws, Directors’ Code of Conduct and the Charters of the Audit, Finance, Corporate Governance, Nominating and Social Responsibility, Human Resources and Compensation, Risk and Technology Committees of our Board of Directors.
We may use our website, our Twitter account (twitter.com/BNYMellon)(@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 our website or social 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 | (in millions) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| Sept. 30, 2018 |
| Fee and other revenue | | | | | | | Investment services fees: | | | | | | | Asset servicing fees | $ | 1,152 |
| $ | 1,141 |
| $ | 1,157 |
| | $ | 3,415 |
| $ | 3,482 |
| Clearing services fees (a) | 419 |
| 410 |
| 393 |
| | 1,227 |
| 1,218 |
| Issuer services fees | 324 |
| 291 |
| 287 |
| | 866 |
| 813 |
| Treasury services fees | 140 |
| 140 |
| 137 |
| | 412 |
| 415 |
| Total investment services fees (a) | 2,035 |
| 1,982 |
| 1,974 |
| | 5,920 |
| 5,928 |
| Investment management and performance fees (a) | 832 |
| 833 |
| 912 |
| | 2,506 |
| 2,763 |
| Foreign exchange and other trading revenue | 150 |
| 166 |
| 155 |
| | 486 |
| 551 |
| Financing-related fees | 49 |
| 50 |
| 52 |
| | 150 |
| 157 |
| Distribution and servicing | 33 |
| 31 |
| 34 |
| | 95 |
| 104 |
| Investment and other income | 30 |
| 43 |
| 41 |
| | 108 |
| 193 |
| Total fee revenue | 3,129 |
| 3,105 |
| 3,168 |
| | 9,265 |
| 9,696 |
| Net securities (losses) gains — including other-than-temporary impairment | (1 | ) | 8 |
| — |
| | 8 |
| (48 | ) | Noncredit-related portion of other-than-temporary impairment (recognized in other comprehensive income) | — |
| 1 |
| — |
| | 1 |
| — |
| Net securities (losses) gains | (1 | ) | 7 |
| — |
| | 7 |
| (48 | ) | Total fee and other revenue | 3,128 |
| 3,112 |
| 3,168 |
| | 9,272 |
| 9,648 |
| Operations of consolidated investment management funds | | | | | | | Investment income | 4 |
| 10 |
| 10 |
| | 40 |
| 12 |
| Interest of investment management fund note holders | 1 |
| — |
| — |
| | 1 |
| 1 |
| Income from consolidated investment management funds | 3 |
| 10 |
| 10 |
| | 39 |
| 11 |
| Net interest revenue | | | | | | | Interest revenue | 1,942 |
| 1,965 |
| 1,634 |
| | 5,827 |
| 4,568 |
| Interest expense | 1,212 |
| 1,163 |
| 743 |
| | 3,454 |
| 1,842 |
| Net interest revenue | 730 |
| 802 |
| 891 |
| | 2,373 |
| 2,726 |
| Total revenue | 3,861 |
| 3,924 |
| 4,069 |
| | 11,684 |
| 12,385 |
| Provision for credit losses | (16 | ) | (8 | ) | (3 | ) | | (17 | ) | (11 | ) | Noninterest expense | | | | | | | Staff | 1,479 |
| 1,421 |
| 1,478 |
| | 4,424 |
| 4,543 |
| Professional, legal and other purchased services | 316 |
| 337 |
| 332 |
| | 978 |
| 951 |
| Software and equipment | 309 |
| 304 |
| 262 |
| | 896 |
| 762 |
| Net occupancy | 138 |
| 138 |
| 139 |
| | 413 |
| 434 |
| Sub-custodian and clearing | 111 |
| 115 |
| 106 |
| | 331 |
| 335 |
| Distribution and servicing | 97 |
| 94 |
| 99 |
| | 282 |
| 311 |
| Business development | 47 |
| 56 |
| 51 |
| | 148 |
| 164 |
| Bank assessment charges | 31 |
| 31 |
| 49 |
| | 93 |
| 148 |
| Amortization of intangible assets | 30 |
| 30 |
| 48 |
| | 89 |
| 145 |
| Other | 32 |
| 121 |
| 174 |
| | 282 |
| 431 |
| Total noninterest expense | 2,590 |
| 2,647 |
| 2,738 |
| | 7,936 |
| 8,224 |
| Income | | | | | | | Income before income taxes | 1,287 |
| 1,285 |
| 1,334 |
| | 3,765 |
| 4,172 |
| Provision for income taxes | 246 |
| 264 |
| 220 |
| | 747 |
| 788 |
| Net income | 1,041 |
| 1,021 |
| 1,114 |
| | 3,018 |
| 3,384 |
| Net (income) loss attributable to noncontrolling interests (includes $(3), $(4), $(3), $(17) and $1 related to consolidated investment management funds, respectively) | (3 | ) | (4 | ) | (3 | ) | | (17 | ) | 1 |
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | 1,038 |
| 1,017 |
| 1,111 |
| | 3,001 |
| 3,385 |
| Preferred stock dividends | (36 | ) | (48 | ) | (36 | ) | | (120 | ) | (120 | ) | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 1,002 |
| $ | 969 |
| $ | 1,075 |
| | $ | 2,881 |
| $ | 3,265 |
|
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | Fee and other revenue | | | | | | | | Investment services fees: | | | | | | | | Asset servicing fees | $ | 1,168 | | $ | 1,173 | | $ | 1,152 | | | $ | 3,500 | | $ | 3,415 | | | Clearing services fees | 397 | | 431 | | 419 | | | 1,298 | | 1,227 | | | Issuer services fees | 295 | | 277 | | 324 | | | 835 | | 866 | | | Treasury services fees | 152 | | 144 | | 140 | | | 445 | | 412 | | | Total investment services fees | 2,012 | | 2,025 | | 2,035 | | | 6,078 | | 5,920 | | | Investment management and performance fees | 835 | | 786 | | 832 | | | 2,483 | | 2,506 | | | Foreign exchange and other trading revenue | 137 | | 166 | | 150 | | | 622 | | 486 | | | Financing-related fees | 49 | | 58 | | 49 | | | 166 | | 150 | | | Distribution and servicing | 29 | | 27 | | 33 | | | 87 | | 95 | | | Investment and other income | 46 | | 105 | | 30 | | | 162 | | 108 | | | Total fee revenue | 3,108 | | 3,167 | | 3,129 | | | 9,598 | | 9,265 | | | | | | | | | | | | | | | | | | | Net securities gains (losses) | 9 | | 9 | | (1) | | | 27 | | 7 | | | Total fee and other revenue | 3,117 | | 3,176 | | 3,128 | | | 9,625 | | 9,272 | | | Operations of consolidated investment management funds | | | | | | | | Investment income | 27 | | 54 | | 4 | | | 43 | | 40 | | | Interest of investment management fund note holders | 0 | | 0 | | 1 | | | 0 | | 1 | | | Income from consolidated investment management funds | 27 | | 54 | | 3 | | | 43 | | 39 | | | Net interest revenue | | | | | | | | Interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | Interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | Total revenue | 3,847 | | 4,010 | | 3,861 | | | 11,965 | | 11,684 | | | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | Noninterest expense | | | | | | | | Staff | 1,466 | | 1,464 | | 1,479 | | | 4,412 | | 4,424 | | | Professional, legal and other purchased services | 355 | | 337 | | 316 | | | 1,022 | | 978 | | | Software and equipment | 340 | | 345 | | 309 | | | 1,011 | | 896 | | | Net occupancy | 136 | | 137 | | 138 | | | 408 | | 413 | | | Sub-custodian and clearing | 119 | | 120 | | 111 | | | 344 | | 331 | | | Distribution and servicing | 85 | | 85 | | 97 | | | 261 | | 282 | | | Bank assessment charges | 30 | | 35 | | 31 | | | 100 | | 93 | | | Business development | 17 | | 20 | | 47 | | | 79 | | 148 | | | Amortization of intangible assets | 26 | | 26 | | 30 | | | 78 | | 89 | | | Other | 107 | | 117 | | 32 | | | 364 | | 282 | | | Total noninterest expense | 2,681 | | 2,686 | | 2,590 | | | 8,079 | | 7,936 | | | Income | | | | | | | | Income before income taxes | 1,157 | | 1,181 | | 1,287 | | | 3,565 | | 3,765 | | | Provision for income taxes | 213 | | 216 | | 246 | | | 694 | | 747 | | | Net income | 944 | | 965 | | 1,041 | | | 2,871 | | 3,018 | | | Net (income) attributable to noncontrolling interests related to consolidated investment management funds | (7) | | (15) | | (3) | | | (4) | | (17) | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 937 | | 950 | | 1,038 | | | 2,867 | | 3,001 | | | Preferred stock dividends | (61) | | (49) | | (36) | | | (146) | | (120) | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | |
| | | (a) | In the first quarter of 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior periods have been 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 | (in millions) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| Sept. 30, 2018 |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 1,002 |
| $ | 969 |
| $ | 1,075 |
| | $ | 2,881 |
| $ | 3,265 |
| Less: Earnings allocated to participating securities | 3 |
| 4 |
| 7 |
| | 12 |
| 22 |
| 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 | $ | 999 |
| $ | 965 |
| $ | 1,068 |
|
| $ | 2,869 |
| $ | 3,243 |
|
| | | | | | | | | | | | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | (in thousands) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| Sept. 30, 2018 |
| Basic | 933,264 |
| 951,281 |
| 999,808 |
| | 949,035 |
| 1,008,967 |
| Common stock equivalents | 3,811 |
| 3,891 |
| 6,451 |
| | 4,484 |
| 6,967 |
| Less: Participating securities | (1,398 | ) | (1,244 | ) | (2,594 | ) | | (1,643 | ) | (2,692 | ) | Diluted | 935,677 |
| 953,928 |
| 1,003,665 |
| | 951,876 |
| 1,013,242 |
| | | | | | | | Anti-dilutive securities (a) | 3,701 |
| 3,999 |
| 6,972 |
| | 4,269 |
| 7,061 |
|
| | (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. |
| | | | | | | | | | | | | | | | | | Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | (in dollars) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| Sept. 30, 2018 |
| Basic | $ | 1.07 |
| $ | 1.01 |
| $ | 1.07 |
| | $ | 3.02 |
| $ | 3.21 |
| Diluted | $ | 1.07 |
| $ | 1.01 |
| $ | 1.06 |
| | $ | 3.01 |
| $ | 3.20 |
|
| | | | | | | | | | | | | | | | | | | | | | | | 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 | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | | | | Less: Earnings allocated to participating securities | 1 | | 1 | | 3 | | | 5 | | 12 | | | | | 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 | $ | 875 | | $ | 900 | | $ | 999 | | | $ | 2,716 | | $ | 2,869 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | (in thousands) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | Basic | 889,499 | | 889,020 | | 933,264 | | | 891,050 | | 949,035 | | | | | Common stock equivalents | 2,173 | | 2,044 | | 3,811 | | | 2,522 | | 4,484 | | | | | Less: Participating securities | (603) | | (503) | | (1,398) | | | (779) | | (1,643) | | | | | Diluted | 891,069 | | 890,561 | | 935,677 | | | 892,793 | | 951,876 | | | | | | | | | | | | | | | Anti-dilutive securities (a) | 1,485 | | 1,578 | | 3,701 | | | 1,828 | | 4,269 | | | | |
(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.
| | | | | | | | | | | | | | | | | | | | | | | | Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | (in dollars) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | Basic | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.05 | | $ | 3.02 | | | | | Diluted | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.04 | | $ | 3.01 | | | | |
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 | (in millions) | Sept. 30, 2019 |
| June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| Sept. 30, 2018 |
| Net income | $ | 1,041 |
| $ | 1,021 |
| $ | 1,114 |
| | $ | 3,018 |
| $ | 3,384 |
| Other comprehensive (loss) income, net of tax: | | | | | | | Foreign currency translation adjustments | (276 | ) | 10 |
| (60 | ) | | (237 | ) | (216 | ) | Unrealized gain (loss) on assets available-for-sale: | | | | | | | Unrealized gain (loss) arising during the period | 63 |
| 287 |
| (144 | ) | | 589 |
| (483 | ) | Reclassification adjustment | 1 |
| (5 | ) | — |
| | (5 | ) | 37 |
| Total unrealized gain (loss) on assets available-for-sale | 64 |
| 282 |
| (144 | ) | | 584 |
| (446 | ) | Defined benefit plans: | | | | | | | Net (loss) arising during the period | — |
| — |
| — |
| | (9 | ) | — |
| Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 10 |
| 10 |
| 18 |
| | 30 |
| 51 |
| Total defined benefit plans | 10 |
| 10 |
| 18 |
| | 21 |
| 51 |
| Net unrealized (loss) on cash flow hedges | (6 | ) | — |
| (4 | ) | | (1 | ) | (20 | ) | Total other comprehensive (loss) income, net of tax (a) | (208 | ) | 302 |
| (190 | ) | | 367 |
| (631 | ) | Total comprehensive income | 833 |
| 1,323 |
| 924 |
| | 3,385 |
| 2,753 |
| Net (income) loss attributable to noncontrolling interests | (3 | ) | (4 | ) | (3 | ) | | (17 | ) | 1 |
| Other comprehensive loss (income) attributable to noncontrolling interests | 3 |
| — |
| 2 |
| | 1 |
| 7 |
| Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 833 |
| $ | 1,319 |
| $ | 923 |
| | $ | 3,369 |
| $ | 2,761 |
|
| | (a) | Other comprehensive (loss) income attributable to The Bank of New York Mellon Corporation shareholders was $(205) million for the quarter ended Sept. 30, 2019, $302 million for the quarter ended June 30, 2019, $(188) million for the quarter ended Sept. 30, 2018, $368 million for the nine months ended Sept. 30, 2019 and $(624) million for the nine months ended Sept. 30, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | Net income | $ | 944 | | $ | 965 | | $ | 1,041 | | | $ | 2,871 | | $ | 3,018 | | | Other comprehensive income (loss), net of tax: | | | | | | | | Foreign currency translation adjustments | 331 | | 115 | | (276) | | | 77 | | (237) | | | Unrealized gain on assets available-for-sale: | | | | | | | | Unrealized gain arising during the period | 233 | | 753 | | 63 | | | 1,169 | | 589 | | | Reclassification adjustment | (6) | | (7) | | 1 | | | (20) | | (5) | | | Total unrealized gain on assets available-for-sale | 227 | | 746 | | 64 | | | 1,149 | | 584 | | | Defined benefit plans: | | | | | | | | | | | | | | | | Net (loss) arising during the period | 0 | | 0 | | 0 | | | 0 | | (9) | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 20 | | 19 | | 10 | | | 57 | | 30 | | | Total defined benefit plans | 20 | | 19 | | 10 | | | 57 | | 21 | | | Net unrealized gain (loss) on cash flow hedges | 8 | | 4 | | (6) | | | 1 | | (1) | | | Total other comprehensive income (loss), net of tax (a) | 586 | | 884 | | (208) | | | 1,284 | | 367 | | | Total comprehensive income | 1,530 | | 1,849 | | 833 | | | 4,155 | | 3,385 | | | Net (income) attributable to noncontrolling interests | (7) | | (15) | | (3) | | | (4) | | (17) | | | Other comprehensive (income) loss attributable to noncontrolling interests | (2) | | 0 | | 3 | | | 0 | | 1 | | | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 1,521 | | $ | 1,834 | | $ | 833 | | | $ | 4,151 | | $ | 3,369 | | |
(a) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $584 million for the quarter ended Sept. 30, 2020, $884 million for the quarter ended June 30, 2020, $(205) million for the quarter ended Sept. 30, 2019, $1,284 million for the nine months ended Sept. 30, 2020 and $368 million for the nine months ended Sept. 30, 2019.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Balance Sheet(unaudited)
| | | | | | | | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (dollars in millions, except per share amounts) | Assets | | | Cash and due from banks | $ | 6,718 |
| $ | 5,864 |
| Interest-bearing deposits with the Federal Reserve and other central banks | 73,811 |
| 67,988 |
| Interest-bearing deposits with banks ($2,274 and $2,394 is restricted) | 15,417 |
| 14,148 |
| Federal funds sold and securities purchased under resale agreements | 43,723 |
| 46,795 |
| Securities: | | | Held-to-maturity (fair value of $34,092 and $33,302) | 33,778 |
| 33,982 |
| Available-for-sale | 88,562 |
| 85,809 |
| Total securities | 122,340 |
| 119,791 |
| Trading assets | 10,180 |
| 7,035 |
| Loans | 54,881 |
| 56,564 |
| Allowance for loan losses | (127 | ) | (146 | ) | Net loans | 54,754 |
| 56,418 |
| Premises and equipment | 3,149 |
| 1,832 |
| Accrued interest receivable | 596 |
| 671 |
| Goodwill | 17,248 |
| 17,350 |
| Intangible assets | 3,124 |
| 3,220 |
| Other assets (includes $674 and $742, at fair value) | 21,727 |
| 21,298 |
| Subtotal assets of operations | 372,787 |
| 362,410 |
| Assets of consolidated investment management funds, at fair value | 381 |
| 463 |
| Total assets | $ | 373,168 |
| $ | 362,873 |
| Liabilities | | | Deposits: | | | Noninterest-bearing (principally U.S. offices) | $ | 55,452 |
| $ | 70,783 |
| Interest-bearing deposits in U.S. offices | 90,946 |
| 74,904 |
| Interest-bearing deposits in non-U.S. offices | 103,262 |
| 93,091 |
| Total deposits | 249,660 |
| 238,778 |
| Federal funds purchased and securities sold under repurchase agreements | 11,796 |
| 14,243 |
| Trading liabilities | 4,756 |
| 3,479 |
| Payables to customers and broker-dealers | 18,364 |
| 19,731 |
| Commercial paper | 3,538 |
| 1,939 |
| Other borrowed funds | 820 |
| 3,227 |
| Accrued taxes and other expenses | 5,081 |
| 5,669 |
| Other liabilities (including allowance for lending-related commitments of $97 and $106, also includes $605 and $88, at fair value) | 9,796 |
| 5,774 |
| Long-term debt (includes $386 and $371, at fair value) | 27,872 |
| 29,163 |
| Subtotal liabilities of operations | 331,683 |
| 322,003 |
| Liabilities of consolidated investment management funds, at fair value | 15 |
| 2 |
| Total liabilities | 331,698 |
| 322,005 |
| Temporary equity | | | Redeemable noncontrolling interests | 147 |
| 129 |
| 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 1,373,782,514 and 1,364,877,915 shares | 14 |
| 14 |
| Additional paid-in capital | 27,471 |
| 27,118 |
| Retained earnings | 30,789 |
| 28,652 |
| Accumulated other comprehensive loss, net of tax | (2,893 | ) | (3,171 | ) | Less: Treasury stock of 451,583,637 and 404,452,246 common shares, at cost | (17,803 | ) | (15,517 | ) | Total The Bank of New York Mellon Corporation shareholders’ equity | 41,120 |
| 40,638 |
| Nonredeemable noncontrolling interests of consolidated investment management funds | 203 |
| 101 |
| Total permanent equity | 41,323 |
| 40,739 |
| Total liabilities, temporary equity and permanent equity | $ | 373,168 |
| $ | 362,873 |
|
| | | | | | | | | | Sept. 30, 2020 | Dec. 31, 2019 | (dollars in millions, except per share amounts) | Assets | | | Cash and due from banks, net of allowance for credit losses of $5 at Sept. 30, 2020 (a) | $ | 4,104 | | $ | 4,830 | | Interest-bearing deposits with the Federal Reserve and other central banks | 106,185 | | 95,042 | | Interest-bearing deposits with banks, net of allowance for credit losses of $4 at Sept. 30, 2020 (includes restricted of $2,891 and $2,437) (a) | 19,027 | | 14,811 | | Federal funds sold and securities purchased under resale agreements | 29,647 | | 30,182 | | Securities: | | | Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 at Sept. 30, 2020 (fair value of $47,458 and $34,805) (a) | 46,096 | | 34,483 | | Available-for-sale, at fair value (amortized cost of $105,684 and $87,435, net of allowance for credit losses of $12 at Sept 30, 2020) (a) | 109,243 | | 88,550 | | Total securities | 155,339 | | 123,033 | | Trading assets | 13,074 | | 13,571 | | Loans | 55,491 | | 54,953 | | Allowance for credit losses (a) | (325) | | (122) | | Net loans | 55,166 | | 54,831 | | Premises and equipment | 3,617 | | 3,625 | | Accrued interest receivable | 489 | | 624 | | Goodwill | 17,357 | | 17,386 | | Intangible assets | 3,026 | | 3,107 | | Other assets, net of allowance for credit losses on accounts receivable of $5 at Sept. 30, 2020 (includes $527 and $419, at fair value) (a) | 20,779 | | 20,221 | | Subtotal assets of operations | 427,810 | | 381,263 | | Assets of consolidated investment management funds, at fair value | 588 | | 245 | | Total assets | $ | 428,398 | | $ | 381,508 | | Liabilities | | | Deposits: | | | Noninterest-bearing (principally U.S. offices) | $ | 79,470 | | $ | 57,630 | | Interest-bearing deposits in U.S. offices | 111,703 | | 101,542 | | Interest-bearing deposits in non-U.S. offices | 105,139 | | 100,294 | | Total deposits | 296,312 | | 259,466 | | Federal funds purchased and securities sold under repurchase agreements | 15,907 | | 11,401 | | Trading liabilities | 6,084 | | 4,841 | | Payables to customers and broker-dealers | 23,514 | | 18,758 | | Commercial paper | 671 | | 3,959 | | Other borrowed funds | 420 | | 599 | | Accrued taxes and other expenses | 5,347 | | 5,642 | | Other liabilities (including allowance for credit losses on lending-related commitments of $135 and $94, also includes $997 and $607, at fair value) (a) | 8,671 | | 7,612 | | Long-term debt (includes $400 and $387, at fair value) | 26,121 | | 27,501 | | Subtotal liabilities of operations | 383,047 | | 339,779 | | Liabilities of consolidated investment management funds, at fair value | 4 | | 1 | | Total liabilities | 383,051 | | 339,780 | | Temporary equity | | | Redeemable noncontrolling interests | 179 | | 143 | | Permanent equity | | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 35,826 shares | 4,532 | | 3,542 | | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,381,650,891 and 1,374,443,376 shares | 14 | | 14 | | Additional paid-in capital | 27,741 | | 27,515 | | Retained earnings | 33,821 | | 31,894 | | Accumulated other comprehensive loss, net of tax | (1,359) | | (2,638) | | Less: Treasury stock of 495,515,086 and 473,760,338 common shares, at cost | (19,832) | | (18,844) | | Total The Bank of New York Mellon Corporation shareholders’ equity | 44,917 | | 41,483 | | Nonredeemable noncontrolling interests of consolidated investment management funds | 251 | | 102 | | Total permanent equity | 45,168 | | 41,585 | | Total liabilities, temporary equity and permanent equity | $ | 428,398 | | $ | 381,508 | |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
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) | 2019 |
| 2018 |
| Operating activities | | | Net income | $ | 3,018 |
| $ | 3,384 |
| Net (income) loss attributable to noncontrolling interests | (17 | ) | 1 |
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | 3,001 |
| 3,385 |
| Adjustments to reconcile net income to net cash (used for) provided by operating activities: | | | Provision for credit losses | (17 | ) | (11 | ) | Pension plan contributions | (30 | ) | (47 | ) | Depreciation and amortization | 971 |
| 1,011 |
| Deferred tax (benefit) | (185 | ) | (401 | ) | Net securities (gains) losses | (7 | ) | 48 |
| Change in trading assets and liabilities | (1,880 | ) | (1,282 | ) | Change in accruals and other, net | 714 |
| 109 |
| Net cash provided by operating activities | 2,567 |
| 2,812 |
| Investing activities | | | Change in interest-bearing deposits with banks | (1,503 | ) | (3,367 | ) | Change in interest-bearing deposits with the Federal Reserve and other central banks | (7,171 | ) | 15,570 |
| Purchases of securities held-to-maturity | (5,390 | ) | (4,029 | ) | Paydowns of securities held-to-maturity | 3,501 |
| 3,289 |
| Maturities of securities held-to-maturity | 2,274 |
| 6,047 |
| Purchases of securities available-for-sale | (33,929 | ) | (22,898 | ) | Sales of securities available-for-sale | 7,482 |
| 5,538 |
| Paydowns of securities available-for-sale | 5,260 |
| 5,683 |
| Maturities of securities available-for-sale | 20,006 |
| 6,113 |
| Net change in loans | 1,478 |
| 7,227 |
| Sales of loans and other real estate | 147 |
| 257 |
| Change in federal funds sold and securities purchased under resale agreements | 3,071 |
| (592 | ) | Net change in seed capital investments | 68 |
| 54 |
| Purchases of premises and equipment/capitalized software | (1,112 | ) | (819 | ) | Proceeds from the sale of premises and equipment | — |
| 23 |
| Dispositions, net of cash | — |
| 84 |
| Other, net | 588 |
| (163 | ) | Net cash (used for) provided by investing activities | (5,230 | ) | 18,017 |
| Financing activities | | | Change in deposits | 13,207 |
| (10,680 | ) | Change in federal funds purchased and securities sold under repurchase agreements | (2,447 | ) | (5,005 | ) | Change in payables to customers and broker-dealers | (1,332 | ) | (1,487 | ) | Change in other borrowed funds | (2,422 | ) | (133 | ) | Change in commercial paper | 1,599 |
| (2,340 | ) | Net proceeds from the issuance of long-term debt | 2,246 |
| 4,144 |
| Repayments of long-term debt | (4,250 | ) | (3,400 | ) | Proceeds from the exercise of stock options | 51 |
| 74 |
| Issuance of common stock | 19 |
| 30 |
| Treasury stock acquired | (2,286 | ) | (1,897 | ) | Common cash dividends paid | (834 | ) | (774 | ) | Preferred cash dividends paid | (120 | ) | (120 | ) | Other, net | 23 |
| 32 |
| Net cash provided by (used for) financing activities | 3,454 |
| (21,556 | ) | Effect of exchange rate changes on cash | (57 | ) | (57 | ) | Change in cash and due from banks and restricted cash | | | Change in cash and due from banks and restricted cash | 734 |
| (784 | ) | Cash and due from banks and restricted cash at beginning of period | 8,258 |
| 7,133 |
| Cash and due from banks and restricted cash at end of period | $ | 8,992 |
| $ | 6,349 |
| Cash and due from banks and restricted cash: | | | Cash and due from banks at end of period (unrestricted cash) | $ | 6,718 |
| $ | 5,047 |
| Restricted cash at end of period | 2,274 |
| 1,302 |
| Cash and due from banks and restricted cash at end of period | $ | 8,992 |
| $ | 6,349 |
| Supplemental disclosures | | | Interest paid | $ | 3,528 |
| $ | 1,795 |
| Income taxes paid | 697 |
| 699 |
| Income taxes refunded | 445 |
| 155 |
|
| | | | | | | | | | | Nine months ended Sept. 30, | | (in millions) | 2020 | 2019 | | Operating activities | | | | Net income | $ | 2,871 | | $ | 3,018 | | | Net (income) attributable to noncontrolling interests | (4) | | (17) | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 2,867 | | 3,001 | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | Provision for credit losses (a) | 321 | | (17) | | | Pension plan contributions | (18) | | (30) | | | Depreciation and amortization | 1,175 | | 971 | | | Deferred tax (benefit) | (351) | | (185) | | | Net securities (gains) | (27) | | (7) | | | Change in trading assets and liabilities | 1,736 | | (1,880) | | | Change in accruals and other, net | 200 | | 714 | | | Net cash provided by operating activities | 5,903 | | 2,567 | | | Investing activities | | | | Change in interest-bearing deposits with banks | (3,808) | | (1,503) | | | Change in interest-bearing deposits with the Federal Reserve and other central banks | (9,775) | | (7,171) | | | Purchases of securities held-to-maturity | (23,507) | | (5,390) | | | Paydowns of securities held-to-maturity | 6,291 | | 3,501 | | | Maturities of securities held-to-maturity | 5,477 | | 2,274 | | | Purchases of securities available-for-sale | (56,860) | | (33,929) | | | Sales of securities available-for-sale | 10,824 | | 7,482 | | | Paydowns of securities available-for-sale | 7,300 | | 5,260 | | | Maturities of securities available-for-sale | 21,113 | | 20,006 | | | Net change in loans | (537) | | 1,478 | | | Sales of loans and other real estate | 10 | | 147 | | | Change in federal funds sold and securities purchased under resale agreements | 525 | | 3,071 | | | Net change in seed capital investments | 20 | | 68 | | | Purchases of premises and equipment/capitalized software | (956) | | (1,112) | | | | | | | | | | | | | | | Other, net | (417) | | 588 | | | Net cash (used for) investing activities | (44,300) | | (5,230) | | | Financing activities | | | | Change in deposits | 35,736 | | 13,207 | | | Change in federal funds purchased and securities sold under repurchase agreements | 4,299 | | (2,447) | | | Change in payables to customers and broker-dealers | 4,627 | | (1,332) | | | Change in other borrowed funds | (183) | | (2,422) | | | Change in commercial paper | (3,288) | | 1,599 | | | Net proceeds from the issuance of long-term debt | 2,245 | | 2,246 | | | Repayments of long-term debt | (4,400) | | (4,250) | | | Proceeds from the exercise of stock options | 36 | | 51 | | | Issuance of common stock | 9 | | 19 | | | Issuance of preferred stock | 990 | | 0 | | | Treasury stock acquired | (988) | | (2,286) | | | | | | | Common cash dividends paid | (838) | | (834) | | | Preferred cash dividends paid | (146) | | (120) | | | Other, net | 36 | | 23 | | | Net cash provided by financing activities | 38,135 | | 3,454 | | | Effect of exchange rate changes on cash | (10) | | (57) | | | Change in cash and due from banks and restricted cash | | | | Change in cash and due from banks and restricted cash | (272) | | 734 | | | Cash and due from banks and restricted cash at beginning of period | 7,267 | | 8,258 | | | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | Cash and due from banks and restricted cash | | | | Cash and due from banks at end of period (unrestricted cash) | $ | 4,104 | | $ | 6,718 | | | Restricted cash at end of period | 2,891 | | 2,274 | | | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | Supplemental disclosures | | | | Interest paid | $ | 1,166 | | $ | 3,528 | | | Income taxes paid | 1,112 | | 697 | | | Income taxes refunded | 23 | | 445 | | |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
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 | 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), net of tax |
| Treasury stock |
| Balance at June 30, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,406 |
| $ | 30,081 |
| $ | (2,688 | ) | $ | (16,822 | ) | $ | 166 |
| $ | 41,699 |
| (a) | $ | 136 |
| Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 16 |
| Other net changes in noncontrolling interests | — |
| — |
| 2 |
| — |
| — |
| — |
| 34 |
| 36 |
| | (2 | ) | Net income | — |
| — |
| — |
| 1,038 |
| — |
| — |
| 3 |
| 1,041 |
| | — |
| Other comprehensive income | — |
| — |
| — |
| — |
| (205 | ) | — |
| — |
| (205 | ) | | (3 | ) | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — |
| — |
| — |
| (294 | ) | — |
| — |
| — |
| (294 | ) | | — |
| Preferred stock | — |
| — |
| — |
| (36 | ) | — |
| — |
| — |
| (36 | ) | | — |
| Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (981 | ) | — |
| (981 | ) | | — |
| Common stock issued under: | | | | | | | | | | | Employee benefit plans | — |
| — |
| 6 |
| — |
| — |
| — |
| — |
| 6 |
| | — |
| Stock awards and options exercised | — |
| — |
| 57 |
| — |
| — |
| — |
| — |
| 57 |
| | — |
| Balance at Sept. 30, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,471 |
| $ | 30,789 |
| $ | (2,893 | ) | $ | (17,803 | ) | $ | 203 |
| $ | 41,323 |
| (a) | $ | 147 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | | Redeemable non- controlling interests/ temporary equity | (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 21 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (1) | | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 132 | | 132 | | | 0 | | Net income | — | | — | | — | | 937 | | — | | — | | 7 | | 944 | | | — | | Other comprehensive income | — | | — | | — | | — | | 584 | | — | | — | | 584 | | | 2 | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (279) | | — | | — | | — | | (279) | | | — | | Preferred stock | — | | — | | — | | (61) | | — | | — | | — | | (61) | | | — | | | | | | | | | | | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 33 | | — | | — | | — | | — | | 33 | | | — | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $39,165 million at June 30, 2020 and $40,385 million at Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | | Redeemable non- controlling interests/ temporary equity | (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | Balance at March 31, 2020 | $ | 3,542 | | $ | 14 | | $ | 27,644 | | $ | 32,601 | | $ | (2,827) | | $ | (19,829) | | $ | 94 | | $ | 41,239 | | (a) | $ | 140 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 17 | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 3 | | 3 | | | 0 | | Net income | — | | — | | — | | 950 | | — | | — | | 15 | | 965 | | | — | | Other comprehensive income | — | | — | | — | | — | | 884 | | — | | — | | 884 | | | 0 | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (278) | | — | | — | | — | | (278) | | | — | | Preferred stock | — | | — | | — | | (49) | | — | | — | | — | | (49) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (3) | | — | | (3) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | Stock awards and options exercised | — | | — | | 52 | | — | | — | | — | | — | | 52 | | | — | | Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,603 million at March 31, 2020 and $39,165 million at June 30, 2020.
| | | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,991 million at June 30, 2019 and $37,578 million at Sept. 30, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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), net of tax |
| Treasury stock |
| Balance at March 31, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,349 |
| $ | 29,382 |
| $ | (2,990 | ) | $ | (16,072 | ) | $ | 122 |
| $ | 41,347 |
| (a) | $ | 122 |
| Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 16 |
| Other net changes in noncontrolling interests | — |
| — |
| 2 |
| — |
| — |
| — |
| 40 |
| 42 |
| | (2 | ) | Net income | — |
| — |
| — |
| 1,017 |
| — |
| — |
| 4 |
| 1,021 |
| | — |
| Other comprehensive income | — |
| — |
| — |
| — |
| 302 |
| — |
| — |
| 302 |
| | — |
| Dividends: | | | | | | | | | | | Common stock at $0.28 per share | — |
| — |
| — |
| (270 | ) | — |
| — |
| — |
| (270 | ) | | — |
| Preferred stock | — |
| — |
| — |
| (48 | ) | — |
| — |
| — |
| (48 | ) | | — |
| Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (750 | ) | — |
| (750 | ) | | — |
| Common stock issued under: | | | | | | | | | | | Employee benefit plans | — |
| — |
| 6 |
| — |
| — |
| — |
| — |
| 6 |
| | — |
| Stock awards and options exercised | — |
| — |
| 49 |
| — |
| — |
| — |
| — |
| 49 |
| | — |
| Balance at June 30, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,406 |
| $ | 30,081 |
| $ | (2,688 | ) | $ | (16,822 | ) | $ | 166 |
| $ | 41,699 |
| (a) | $ | 136 |
|
| | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,683 million at March 31, 2019 and $37,991 million at June 30, 2019. |
| | 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, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,406 | | $ | 30,081 | | $ | (2,688) | | $ | (16,822) | | $ | 166 | | $ | 41,699 | | (a) | $ | 136 | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 16 | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 2 | | — | | — | | — | | 34 | | 36 | | | (2) | | Net income | — | | — | | — | | 1,038 | | — | | — | | 3 | | 1,041 | | | — | | Other comprehensive income | — | | — | | — | | — | | (205) | | — | | — | | (205) | | | (3) | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (294) | | — | | — | | — | | (294) | | | — | | Preferred stock | — | | — | | — | | (36) | | — | | — | | — | | (36) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (981) | | — | | (981) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 57 | | — | | — | | — | | — | | 57 | | | — | | Balance at Sept. 30, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,471 | | $ | 30,789 | | $ | (2,893) | | $ | (17,803) | | $ | 203 | | $ | 41,323 | | (a) | $ | 147 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,991 million at June 30, 2019 and $37,578 million at Sept. 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | | Redeemable non- controlling interests/ temporary equity | (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | Balance at Dec. 31, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,515 | | $ | 31,894 | | $ | (2,638) | | $ | (18,844) | | $ | 102 | | $ | 41,585 | | (a) | $ | 143 | | Impact of adopting ASU 2016-13, Financial Instruments – Credit Losses | — | | — | | — | | 45 | | (5) | | — | | — | | 40 | | | — | | Adjusted balance at Jan. 1, 2020 | 3,542 | | 14 | | 27,515 | | 31,939 | | (2,643) | | (18,844) | | 102 | | 41,625 | | | 143 | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 55 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (17) | | Other net changes in noncontrolling interests | — | | — | | (5) | | — | | — | | — | | 145 | | 140 | | | (2) | | Net income (loss) | — | | — | | — | | 2,867 | | — | | — | | 4 | | 2,871 | | | — | | Other comprehensive income (loss) | — | | — | | — | | — | | 1,284 | | — | | — | | 1,284 | | | 0 | | Dividends: | | | | | | | | | | | Common stock at $0.93 per share | — | | — | | — | | (839) | | — | | — | | — | | (839) | | | — | | Preferred stock | — | | — | | — | | (146) | | — | | — | | — | | (146) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (988) | | — | | (988) | | | — | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 21 | | — | | — | | — | | — | | 21 | | | — | | | | | | | | | | | | | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | Stock awards and options exercised | — | | — | | 210 | | — | | — | | — | | — | | 210 | | | — | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,941 million at Dec. 31, 2019 and $40,385 million at Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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), net of tax |
| Treasury stock |
| Balance at June 30, 2018 | $ | 3,542 |
| $ | 14 |
| $ | 26,981 |
| $ | 27,306 |
| $ | (2,795 | ) | $ | (13,543 | ) | $ | 52 |
| $ | 41,557 |
| (a) | $ | 189 |
| Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 22 |
| Other net changes in noncontrolling interests | — |
| — |
| (4 | ) | — |
| — |
| — |
| 35 |
| 31 |
| | 2 |
| Net income | — |
| — |
| — |
| 1,111 |
| — |
| — |
| 3 |
| 1,114 |
| | — |
| Other comprehensive (loss) | — |
| — |
| — |
| — |
| (188 | ) | — |
| — |
| (188 | ) | | (2 | ) | Dividends: | | | | | | | | | | | Common stock at $0.28 per share | — |
| — |
| — |
| (283 | ) | — |
| — |
| — |
| (283 | ) | | — |
| Preferred stock | — |
| — |
| — |
| (36 | ) | — |
| — |
| — |
| (36 | ) | | — |
| Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (602 | ) | — |
| (602 | ) | | — |
| Common stock issued under: | | | | | | | | | | | Employee benefit plans | — |
| — |
| 7 |
| — |
| — |
| — |
| — |
| 7 |
| | — |
| Direct stock purchase and dividend reinvestment plan | — |
| — |
| 7 |
| — |
| — |
| — |
| — |
| 7 |
| | — |
| Stock awards and options exercised | — |
| — |
| 43 |
| — |
| — |
| — |
| — |
| 43 |
| | — |
| Balance at Sept. 30, 2018 | $ | 3,542 |
| $ | 14 |
| $ | 27,034 |
| $ | 28,098 |
| $ | (2,983 | ) | $ | (14,145 | ) | $ | 90 |
| $ | 41,650 |
| (a) | $ | 211 |
|
| | | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,963 million at June 30, 2018 and $38,018 million at Sept. 30, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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), net of tax |
| Treasury stock |
| Balance at Dec. 31, 2018 | $ | 3,542 |
| $ | 14 |
| $ | 27,118 |
| $ | 28,652 |
| $ | (3,171 | ) | $ | (15,517 | ) | $ | 101 |
| $ | 40,739 |
| (a) | $ | 129 |
| Reclassification of certain tax effects related to adopting ASU 2018-02 | — |
| — |
| — |
| 90 |
| (90 | ) | — |
| — |
| — |
| | — |
| Adjusted balance at Jan. 1, 2019 | 3,542 |
| 14 |
| 27,118 |
| 28,742 |
| (3,261 | ) | (15,517 | ) | 101 |
| 40,739 |
| | 129 |
| Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 52 |
| Redemption of subsidiary shares from noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | (7 | ) | Other net changes in noncontrolling interests | — |
| — |
| 23 |
| — |
| — |
| — |
| 85 |
| 108 |
| | (26 | ) | Net income | — |
| — |
| — |
| 3,001 |
| — |
| — |
| 17 |
| 3,018 |
| | — |
| Other comprehensive income | — |
| — |
| — |
| — |
| 368 |
| — |
| — |
| 368 |
| | (1 | ) | Dividends: | | | | | | | | | | | Common stock at $0.87 per share | — |
| — |
| — |
| (834 | ) | — |
| — |
| — |
| (834 | ) | | — |
| Preferred stock | — |
| — |
| — |
| (120 | ) | — |
| — |
| — |
| (120 | ) | | — |
| Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (2,286 | ) | — |
| (2,286 | ) | | — |
| Common stock issued under: | | | | | | | | | | | Employee benefit plans | — |
| — |
| 22 |
| — |
| — |
| — |
| — |
| 22 |
| | — |
| Direct stock purchase and dividend reinvestment plan | — |
| — |
| 11 |
| — |
| — |
| — |
| — |
| 11 |
| | — |
| Stock awards and options exercised | — |
| — |
| 297 |
| — |
| — |
| — |
| — |
| 297 |
| | — |
| Balance at Sept. 30, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,471 |
| $ | 30,789 |
| $ | (2,893 | ) | $ | (17,803 | ) | $ | 203 |
| $ | 41,323 |
| (a) | $ | 147 |
|
| | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,096 million at Dec. 31, 2018 and $37,578 million at Sept. 30, 2019. |
| | 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 Dec. 31, 2018 | $ | 3,542 | | $ | 14 | | $ | 27,118 | | $ | 28,652 | | $ | (3,171) | | $ | (15,517) | | $ | 101 | | $ | 40,739 | | (a) | $ | 129 | | | | | | | | | | | | | Reclassification of certain tax effects related to adopting ASU 2018-02 | — | | — | | — | | 90 | | (90) | | — | | — | | 0 | | | — | | Adjusted balance at Jan. 1, 2019 | 3,542 | | 14 | | 27,118 | | 28,742 | | (3,261) | | (15,517) | | 101 | | 40,739 | | | 129 | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 52 | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (7) | | Other net changes in noncontrolling interests | — | | — | | 23 | | — | | — | | — | | 85 | | 108 | | | (26) | | Net income | — | | — | | — | | 3,001 | | — | | — | | 17 | | 3,018 | | | — | | Other comprehensive income | — | | — | | — | | — | | 368 | | — | | — | | 368 | | | (1) | | Dividends: | | | | | | | | | | | Common stock at $0.87 per share | — | | — | | — | | (834) | | — | | — | | — | | (834) | | | — | | Preferred stock | — | | — | | — | | (120) | | — | | — | | — | | (120) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (2,286) | | — | | (2,286) | | | — | | Common stock issued under: | | | | | | | | | | | Employee benefit plans | — | | — | | 22 | | — | | — | | — | | — | | 22 | | | — | | Direct stock purchase and dividend reinvestment plan | — | | — | | 11 | | — | | — | | — | | — | | 11 | | | — | | Stock awards and options exercised | — | | — | | 297 | | — | | — | | — | | — | | 297 | | | — | | Balance at Sept. 30, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,471 | | $ | 30,789 | | $ | (2,893) | | $ | (17,803) | | $ | 203 | | $ | 41,323 | | (a) | $ | 147 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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), net of tax |
| Treasury stock |
| Balance at Dec. 31, 2017 | $ | 3,542 |
| $ | 14 |
| $ | 26,665 |
| $ | 25,635 |
| $ | (2,357 | ) | $ | (12,248 | ) | $ | 316 |
| $ | 41,567 |
| (a) | $ | 179 |
| Adjustment for the cumulative effect of applying ASU 2014-09 for contract revenue | — |
| — |
| — |
| (55 | ) | — |
| — |
| — |
| (55 | ) | | — |
| Adjustment for the cumulative effect of applying ASU 2017-12 for derivatives and hedging | — |
| — |
| — |
| 27 |
| (2 | ) | — |
| — |
| 25 |
| | — |
| Adjusted balance at Jan. 1, 2018 | 3,542 |
| 14 |
| 26,665 |
| 25,607 |
| (2,359 | ) | (12,248 | ) | 316 |
| 41,537 |
| | 179 |
| Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 56 |
| Redemption of subsidiary shares from noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | (32 | ) | Other net changes in noncontrolling interests | — |
| — |
| (17 | ) | — |
| — |
| — |
| (225 | ) | (242 | ) | | 15 |
| Net income (loss) | — |
| — |
| — |
| 3,385 |
| — |
| — |
| (1 | ) | 3,384 |
| | — |
| Other comprehensive (loss) | — |
| — |
| — |
| — |
| (624 | ) | — |
| — |
| (624 | ) | | (7 | ) | Dividends: | | | | | | | | | | | Common stock at $0.76 per share | — |
| — |
| — |
| (774 | ) | — |
| — |
| — |
| (774 | ) | | — |
| Preferred stock | — |
| — |
| — |
| (120 | ) | — |
| — |
| — |
| (120 | ) | | — |
| Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (1,897 | ) | — |
| (1,897 | ) | | — |
| Common stock issued under: | | | | | | | | | | | Employee benefit plans | — |
| — |
| 24 |
| — |
| — |
| — |
| — |
| 24 |
| | — |
| Direct stock purchase and dividend reinvestment plan | — |
| — |
| 23 |
| — |
| — |
| — |
| — |
| 23 |
| | — |
| Stock awards and options exercised | — |
| — |
| 339 |
| — |
| — |
| — |
| — |
| 339 |
| | — |
| Balance at Sept. 30, 2018 | $ | 3,542 |
| $ | 14 |
| $ | 27,034 |
| $ | 28,098 |
| $ | (2,983 | ) | $ | (14,145 | ) | $ | 90 |
| $ | 41,650 |
| (a) | $ | 211 |
|
| | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,709 million at Dec. 31, 2017 and $38,018 million at Sept. 30, 2018. |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,096 million at Dec. 31, 2018 and $37,578 million at Sept. 30, 2019.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | Notes to Consolidated Financial Statements | |
Note 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 its subsidiaries.
Basis of presentation
The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. GAAPgenerally accepted accounting principles (“GAAP”) and prevailing industry practices. For information on our significant accounting and reporting policies, see Note 1 in our 20182019 Annual Report.
The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented have been made. These financial statements should be read in conjunction with our 20182019 Annual Report. Certain 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 allowance for loan losses and lending-related commitments, fair value of financial instruments and derivatives, goodwill and other intangibles and litigation and regulatory contingencies. Among other effects, such changes in estimates could result in future impairments of goodwill and intangible assets and establishment of allowances for loan losses and lending-related commitments as well as accruals for litigation and regulatory contingencies.
Note 2–Accounting changes and new accounting guidance
The following accounting changes and new accounting guidance werewas adopted in the first quarter of 2019.2020.
Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments
ASU 2016-02, Leases
In FebruaryJune 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued an ASU, LeasesFinancial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. 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. This ASU introduces a new current expected credit losses model, which applies 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 also changes current practice for the impairment model for available-for-sale debt securities by requiring the use of an allowance to record estimated credit losses and subsequent recoveries. The standard requires a “right-of-use” assetcumulative effect of initial application to be recognized in retained earnings at the date of initial application.
In conjunction with adopting the new standard, we developed expected credit loss models and a payment obligation liability on the balance sheet for most leasesapproaches that include consideration of multiple forecast scenarios 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 Companyother methodologies. On Jan. 1, 2020, we adopted this new accounting guidance on Jan. 1, 2019 using the alternative transition method on a prospective basis and recognized right-of-use assets of $1.3 billiona $45 million after-tax increase in retained earnings primarily attributable to a reduction to the allowance for credit losses for our commercial lending portfolios. The comparative financial information for prior periods has not been restated. See the Consolidated Balance Sheet and lease liabilities of $1.5 billion on the consolidated balance sheet, both based on the present value of the expected remaining lease payments. See Note 6Notes 4 and 5 for the disclosures required by this ASU.
ASU 2018-02, Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued an ASU, Income Statement—Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a reclassification from accumulated other comprehensive income to retained earnings for the tax effects of items within accumulated other comprehensive income that do not reflect the lower statutory tax rate which was enacted by the 2017 U.S. tax legislation. BNY Mellon adopted this guidance in the first quarter of 2019, which resulted in a $90 million reclassification that decreased accumulated other comprehensive income and increased retained earnings.
| | | Notes to Consolidated Financial Statements (continued) | |
The table below presents the reconciliation of the allowance for credit losses (pre-tax).
| | | | | | Allowance for credit losses | | (in millions) | | Allowance for credit losses – Dec. 31, 2019 | $ | 216 | | Impact of adopting ASU 2016-13: | | Securities | 7 | | Loans (a) | (69) | | Other | 3 | | Total impact of adoption of ASU 2016-13 | (59) | | Reclassification of credit-related reserves on accounts receivable | 4 | | Allowance for credit losses – Jan. 1, 2020 | $ | 161 | |
(a) Includes $48 million related to loans and $21 million for lending-related commitments.
Significant accounting policies
Loans
Loans are reported at amortized cost, net of any unearned income and deferred fees and costs. Certain loan origination and upfront commitment fees, as well as certain direct loan origination and commitment costs, are deferred and amortized as a yield adjustment over the lives of the related loans. Loans held for sale are carried at the lower of cost or fair value.
Troubled debt restructuring/loan modifications
A modified loan is considered a troubled debt restructuring (“TDR”) 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. Credit losses related to TDRs are accounted for under an individual evaluation methodology (see “Allowance for credit losses” below). Credit losses for anticipated TDRs are accounted for similarly to TDRs and are identified when there is a reasonable expectation that a TDR will be executed with the borrower and when we expect the modification to affect the timing or amount of payments and/or the payment term.
Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Interagency Guidance (as defined below). Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic.
The CARES Act, which became law on March 27, 2020, provides that financial institutions may, subject to certain conditions, elect to temporarily suspend the U.S. GAAP requirements with respect to loan modifications related to the coronavirus pandemic that were current as of Dec. 31, 2019 and that would otherwise be identified and treated as TDRs.
This TDR relief is applicable to modifications that were made from March 1, 2020 until the earlier of Dec. 31, 2020 or 60 days from the date the national emergency related to the coronavirus pandemic officially ends.
Various banking regulators issued guidance in the April 7, 2020 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (revised)” (“Interagency Guidance”) on loan modification treatment pursuant to which financial institutions can apply the U.S. GAAP requirements for loan modifications. In accordance with this guidance, a loan modification is not considered a TDR if the modification is related to the coronavirus pandemic, the borrower had been current when the modification program was implemented, and the modification includes payment deferrals for not more than six months.
Nonperforming assets
Commercial loans are placed on nonaccrual status when principal or interest is past due 90 days or more, or when there is reasonable doubt that interest or principal will be collected.
When a first or second lien residential mortgage loan reaches 90 days delinquent, it is subject to an individual evaluation of credit loss and placed on nonaccrual status.
When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against current period interest revenue. Interest receipts on nonaccrual loans are recognized
| | | Notes to Consolidated Financial Statements(continued) | |
as interest revenue or are applied to principal when we believe the ultimate collectability of principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and remain current for a specified period.
“Allowance for credit losses” below provides additional information regarding the individual evaluation of credit losses for nonperforming loans.
Allowance for credit losses
The accounting policy for estimating credit losses related to financial assets measured at amortized cost, including loans and lending-related commitments changed beginning in the first quarter of 2020 as a result of the adoption of ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU also included targeted amendments with respect to credit losses for available-for-sale debt securities. The accounting policy for determining the allowances has been identified as a “critical accounting estimate” as it requires us to make numerous complex and subjective estimates and assumptions relating to amounts which are judgmental and inherently uncertain.
Credit quality is monitored by management and is reflected within the allowance for credit losses. The allowance represents management’s estimate of expected credit losses over the expected contractual life of the financial instruments as of the balance sheet date. The allowance methodology is designed to provide procedural discipline in assessing the appropriateness of the allowance.
A quantitative methodology and qualitative framework is used to estimate the allowance for credit losses. The qualitative framework is described in further detail within “Allowance for credit losses - Other” below. The quantitative component of our estimate uses models and methodologies that categorize financial assets based on product type, collateral type, and other credit trends and risk characteristics, including relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of the recorded amounts. The allowance may be determined using various methods, including discounted cash flow methods, loss-rate methods, probability of default methods or other methods that we determine to be appropriate. We estimate our expected credit losses using the probability of default method for the majority of our financial assets. We measure expected credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. For a financial asset that does not share risk characteristics with other assets, expected credit losses are measured based on an individual evaluation method.
In our estimate, with the exception of our small home equity line of credit portfolio, available-for-sale debt securities, and individually evaluated financial assets, we utilize a multi-scenario macroeconomic forecast which includes a weighting of baseline, stronger near-term growth and moderate recession scenarios. This approach allows us to develop our estimate using a wide span of economic input variables. Our baseline scenario reflects a view on likely performance of each global region and the other two scenarios are designed relative to the baseline scenario. The scenarios include both a reasonable and supportable forecast period as well as a reversion period. The reasonable and supportable forecast is typically over a two- to three-year horizon, followed by a reversion period in which the economic data reverts to long-term historical experience. In general, the forecasts across the alternative economic scenarios tend to revert toward the long-term trends after the forecast period, which is the period in which the confidence interval is considered reasonable and supportable. The speed at which the scenario specific forecasts revert is based on observed historical patterns of mean reversion that are reflected in our model parameter estimates. Certain macroeconomic variables such as unemployment or home prices take longer to revert after a contraction, though specific recovery times are scenario-specific. Reversion will usually take longer the further away the scenario specific forecast is from the historical mean. On a quarterly basis, within a developed governance structure, we update these scenarios for current economic conditions and may adjust the scenario weighting based on our economic outlook.
Allowance for credit losses - Loans and lending-related commitments
The allowance for credit losses on loans is presented as a valuation allowance to loans, and the allowance for credit losses on lending-related commitments is recorded in other liabilities. The components of the allowance for credit losses on loans and lending-
| | | Notes to Consolidated Financial Statements(continued) | |
related commitments consist of the following three elements:
•a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits; •a pooled allowance component for residential mortgage loans; and •an asset-specific allowance component involving individually evaluated credits of $1 million or greater.
The first element, a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits, is based on our expected credit loss model. Individual credit analyses are performed on such loans before being assigned a credit rating. All borrowers are collectively evaluated based on their credit rating. The loss expected in each loan incorporates the borrower’s credit rating, facility rating and maturity. The loss given default, derived from the facility rating, incorporates a recovery expectation, and for unfunded lending exposures, an estimate of the use of the facility at default (usage given default). The borrower’s probability of default is derived from the associated credit rating. For each of the different parameters, specific credit models are developed for each segment of our portfolio, including commercial loans and lease financing, commercial real estate, financial institutions, and other. Segmentation is established based on risk characteristics of the loans and how risk is monitored. We use both internal and external data in the development of these parameters. In estimating the term of the exposures and resulting effect on the measurement of expected credit loss, we consider the impact of potential prepayments as well as the effect of borrower extension options. Borrower ratings are reviewed at least annually and are periodically mapped to third-party databases, including rating agency and default and recovery databases, to ensure ongoing consistency and validity. Higher risk-rated loans and lending-related commitments are reviewed quarterly.
The second element, a pooled allowance component for residential mortgage loans, is determined by first segregating our mortgage pools into two categories: (i) our wealth management mortgages and (ii) our legacy mortgage portfolio disclosed as other residential mortgages. We then apply models to each portfolio to predict prepayments, default rates and loss severity. We consider historical loss experience and use a loan-level, multi-period default model which further segments each portfolio by product type including first lien fixed rate mortgages, first lien adjustable rate mortgages, second lien mortgages, and interest-only mortgages. We calculate the mortgage loss up to loan contractual maturity and embed a reasonable and supportable forecast and macroeconomic variable inputs which are described above. For home equity lines of credit, probability of default and loss given default are based on external data from third-party databases due to the small size of the portfolio and limited internal data. Our legacy mortgage portfolio and home equity line of credit portfolios represent small sub-segments of our mortgage loans.
The third element, individually evaluated credits, is based on individual analysis of loans of $1 million and greater which no longer share the risk characteristics with other loans. Factors we consider in measuring the extent of expected credit loss include the payment status, collateral value, the borrower’s financial condition, guarantor support, the probability of collecting scheduled principal and interest payments when due, anticipated modifications of payment structure or term for troubled borrowers, and recoveries if they can be reasonably estimated. We measure the expected credit loss as the difference between the amortized cost basis in the loan and the present value of the expected future cash flows from the borrower which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. We generally consider nonperforming loans as well as loans that have been or are anticipated to be modified under a troubled debt restructuring for individual evaluation given the risk characteristics of such loans.
Allowance for credit losses - Securities - Debt
When estimating expected credit losses, we segment our available-for-sale and held-to-maturity debt securities portfolios by major asset class. This is influenced by whether the security is structured or non-structured (i.e., direct obligation), as well as the issuer type.
Debt securities are classified as available-for-sale securities when we intend to hold the securities for an indefinite period of time or when the securities may be used for tactical asset/liability management
| | | Notes to Consolidated Financial Statements(continued) | |
purposes and may be sold from time to time to effectively manage interest rate exposure, prepayment risk and liquidity needs. Available-for-sale securities are measured at fair value. The difference between fair value and amortized cost represents the unrealized gains or losses on assets classified as available-for-sale, and is recorded net of tax as an addition to, or deduction from, other comprehensive income, unless we determine that this difference or a portion thereof represents an expected credit loss. If we determine that a credit loss exists, the amount is recognized as an allowance for credit losses in securities - available-for sale, with a corresponding adjustment to the provision for credit losses. We evaluate credit losses at the individual security level and do not recognize credit losses if the fair value exceeds amortized cost, and if we determine that a credit loss exists, we limit the recognition of the loss to the difference between fair value and amortized cost. In our determination of whether an expected credit loss exists, we routinely conduct periodic reviews and examine various quantitative and qualitative factors that are unique to each portfolio, including the severity of the unrealized loss position, agency rating, credit enhancement, cash flow deterioration and other factors. The measurement of an expected credit loss is then based on the best estimate of the present value of cash flows to be collected from the debt security. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. Changes to the present value of cash flows due to the passage of time are recognized within the allowance for credit losses.
We estimate expected credit losses for held-to-maturity debt securities using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on held-to-maturity debt securities are recorded in securities - held-to-maturity. The components of the credit loss calculation for each major portfolio or asset class include a probability of default and loss given default and their values depend on the forecast behavior of variables in the macroeconomic environment. For structured debt securities, we estimated expected credit losses at the individual security level and use a cash flow model to project principal losses. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. The difference is reflected in the allowance for credit losses, and changes to the present value of cash flows due to the passage of time are recognized within the allowance for credit losses.
We currently do not require an estimate of expected credit losses to be measured and recorded for U.S. Treasury securities, agency debt securities, as well as other debt securities that meet certain conditions that are based on a combination of factors such as guarantees, credit ratings, and other credit quality factors. These assets are monitored within our established governance structure on a recurring basis to determine if any changes are warranted.
Allowance for credit losses – Other financial instruments
We also estimate expected credit losses associated with margin loans, reverse repurchase agreements, security lending indemnifications, and deposits with third-party financial institutions using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on reverse repurchase agreements are recorded in federal funds sold and securities purchased under resale agreements; the allowance for credit losses on securities lending indemnifications is recorded in other liabilities and the allowance for credit losses on deposits with third-party financial institutions is recorded in cash and due from banks or interest-bearing deposits with banks. Our reverse repurchase agreements are short term and subject to continuous overcollateralization by our counterparties and timely collateral replenishment, when necessary. As a result, we estimate the expected credit loss related to the uncollateralized portion of the asset at the balance sheet date, if any, and when there is a reasonable expectation that the counterparty will not replenish the collateral in compliance with the terms of the repurchase agreement. This method is also applied to margin lending arrangements and securities lending indemnifications.
Allowance for credit losses - Other
We do not apply our credit loss measurement methodologies to accrued interest receivable balances related to our loan, debt securities and deposits with third party financial institutions assets given our nonaccrual policy that requires charge-off of interest receivable when deemed uncollectible. Accrued interest receivable related to these instruments is
| | | Notes to Consolidated Financial Statements(continued) | |
presented in total with other interest-bearing instruments in the consolidated balance sheet. Accrued interest receivable related to each major loan class is disclosed within our credit quality disclosure in Note 5.
Our policy for credit losses related to purchased financial assets requires an evaluation to be performed prior to the effective purchase date to determine if more than an insignificant decline in credit quality has occurred during the period between the origination and purchase date, or, in the case of debt securities, the period between the issuance and purchase date. If we purchase a financial asset with more than insignificant deterioration in credit quality, the measurement of expected credit loss is performed using the methodologies described above, and the credit loss is recorded as an allowance for credit losses on the purchase date. Subsequent to purchase, changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the allowance. We evaluate various factors in the determination of whether a more than an insignificant decline in credit quality has occurred and these factors vary depending upon the type of asset purchased. Such factors include changes in risk rating and/or agency rating, collateral deterioration, payment status, purchase price, credit spreads, and other factors. We did not purchase any such assets during the first nine months of 2020 and did not own such assets as of Sept. 30, 2020.
We apply a separate credit loss methodology to accounts receivables to estimate the expected credit losses associated with these short-term receivables which historically have not resulted in significant credit losses. The allowance for credit losses on accounts receivable is reflected in other assets.
The qualitative component of our estimate for the allowance for credit losses is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, management determines the qualitative allowance each period based on an evaluation of various internal and environmental factors which include: scenario weighting and sensitivity risk, credit concentration risk, economic conditions and other considerations. We may also make adjustments for idiosyncratic risks. Once determined in the aggregate, our qualitative allowance is then allocated to each of our financial instrument portfolios except for debt securities and those instruments carried in other assets based on the respective instruments’ quantitative allowance balances. The allocation of this additional allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the loss.
Note 3–Acquisitions and dispositions
We sometimes structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. ContingentThere were 0 contingent payments totaled $4 million in the third quarter of 2019and$62020. Contingent payment totaled $3 million in the first nine months of 2019.2020.
At Sept. 30, 2019,2020, we are potentially obligated to pay additional considerationwhich, using reasonable assumptions, could range from $4$5 million to $1310 millionover the nextthree two years, but could be higher as certain of the arrangements do not contain a contractual maximum.
Transaction in 2019 The transactions described below did
not have a material impact on BNY Mellon’s results of operations.
Transactions in 2018
On Jan. 2, 2018,Nov. 8, 2019, BNY Mellon, along with the other holders of Promontory Interfinancial Network, LLC (“PIN”), completed the sale of CenterSquare, onetheir interests in PIN. BNY Mellon recorded an after-tax gain of our Investment Management boutiques, and recorded a gain$622 million on this transaction. CenterSquare had approximately $10 billion in AUM in U.S. and global real estate and infrastructure investments. In addition, goodwill of $52 million was removed from the consolidated balance sheet as a resultsale of this sale.
equity investment.
On June 29, 2018, BNY Mellon completed the exchange of its majority equity interest in Amherst Capital Management LLC for a minority equity stake in Amherst Holdings LLC. Goodwill of $13 million was removed from the consolidated balance sheet and a gain was recorded as a result of this sale.
Note 4–Securities
On Jan. 1, 2020, we adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments on a prospective basis. See Note 2 for the significant accounting policy related to securities.
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of securities at Sept. 30, 20192020 and Dec. 31, 2018, respectively.
2019.
| | | | | | | | | | | | | | Securities at Sept. 30, 2019 | Gross unrealized | | | Amortized cost |
| Fair value |
| (in millions) | Gains |
| Losses |
| Available-for-sale: | | | | | Agency RMBS | $ | 26,359 |
| $ | 169 |
| $ | 137 |
| $ | 26,391 |
| U.S. Treasury | 14,480 |
| 662 |
| 16 |
| 15,126 |
| Sovereign debt/sovereign guaranteed | 12,980 |
| 172 |
| 2 |
| 13,150 |
| Agency commercial MBS | 9,304 |
| 282 |
| 10 |
| 9,576 |
| Supranational | 4,052 |
| 44 |
| 3 |
| 4,093 |
| CLOs | 3,882 |
| 1 |
| 15 |
| 3,868 |
| Foreign covered bonds | 3,575 |
| 22 |
| 4 |
| 3,593 |
| Other ABS | 2,477 |
| 10 |
| 3 |
| 2,484 |
| U.S. government agencies | 2,386 |
| 91 |
| — |
| 2,477 |
| Non-agency commercial MBS | 2,207 |
| 62 |
| 1 |
| 2,268 |
| Foreign government agencies | 2,175 |
| 12 |
| 1 |
| 2,186 |
| Non-agency RMBS (a) | 1,003 |
| 217 |
| 7 |
| 1,213 |
| State and political subdivisions | 1,159 |
| 27 |
| 2 |
| 1,184 |
| Corporate bonds | 858 |
| 22 |
| 1 |
| 879 |
| Other debt securities | 71 |
| 3 |
| — |
| 74 |
| Total securities available-for-sale (b) | $ | 86,968 |
| $ | 1,796 |
| $ | 202 |
| $ | 88,562 |
| Held-to-maturity: | | | | | Agency RMBS | $ | 26,652 |
| $ | 270 |
| $ | 59 |
| $ | 26,863 |
| U.S. Treasury | 4,017 |
| 31 |
| 4 |
| 4,044 |
| Agency commercial MBS | 1,197 |
| 34 |
| 1 |
| 1,230 |
| U.S. government agencies | 922 |
| 1 |
| 1 |
| 922 |
| Sovereign debt/sovereign guaranteed | 787 |
| 40 |
| — |
| 827 |
| Non-agency RMBS | 86 |
| 4 |
| 2 |
| 88 |
| Foreign covered bonds | 76 |
| 1 |
| — |
| 77 |
| Supranational | 25 |
| — |
| — |
| 25 |
| State and political subdivisions | 16 |
| — |
| — |
| 16 |
| Total securities held-to-maturity | $ | 33,778 |
| $ | 381 |
| $ | 67 |
| $ | 34,092 |
| Total securities | $ | 120,746 |
| $ | 2,177 |
| $ | 269 |
| $ | 122,654 |
|
| | (a) | Includes $689 million that was included in the former Grantor Trust. |
| | (b) | Includes gross unrealized gains of $33 million and gross unrealized losses of $70 million recorded in accumulated other comprehensive income related to 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 Sept. 30, 2020 | Gross unrealized | Fair value | | Amortized cost | (in millions) | Gains | Losses | Available-for-sale: | | | | | Agency RMBS | $ | 24,262 | | $ | 526 | | $ | 55 | | $ | 24,733 | | U.S. Treasury | 23,166 | | 1,568 | | 1 | | 24,733 | | Sovereign debt/sovereign guaranteed | 13,925 | | 169 | | 1 | | 14,093 | | Agency commercial mortgage-backed securities (“MBS”) | 9,299 | | 646 | | 3 | | 9,942 | | Supranational | 7,069 | | 68 | | 1 | | 7,136 | | Foreign covered bonds | 5,777 | | 64 | | 0 | | 5,841 | | Collateralized loan obligations (“CLOs”) | 4,696 | | 5 | | 44 | | 4,657 | | Foreign government agencies | 3,924 | | 46 | | 0 | | 3,970 | | U.S. government agencies | 3,300 | | 180 | | 2 | | 3,478 | | Other asset-backed securities (“ABS”) | 2,903 | | 31 | | 4 | | 2,930 | | Non-agency commercial MBS | 2,565 | | 156 | | 10 | | 2,711 | | Non-agency RMBS (a) | 1,793 | | 157 | | 9 | | 1,941 | | State and political subdivisions | 1,661 | | 33 | | 4 | | 1,690 | | Corporate bonds | 988 | | 43 | | 1 | | 1,030 | | Commercial paper/certificates of deposit (“CDs”) | 355 | | 2 | | 0 | | 357 | | Other debt securities | 1 | | 0 | | 0 | | 1 | | Total securities available-for-sale (b)(c) | $ | 105,684 | | $ | 3,694 | | $ | 135 | | $ | 109,243 | | Held-to-maturity: | | | | | Agency RMBS | $ | 37,086 | | $ | 1,117 | | $ | 10 | | $ | 38,193 | | U.S. Treasury | 3,288 | | 103 | | 0 | | 3,391 | | U.S. government agencies | 2,266 | | 5 | | 4 | | 2,267 | | Agency commercial MBS | 2,041 | | 107 | | 0 | | 2,148 | | Sovereign debt/sovereign guaranteed | 983 | | 41 | | 0 | | 1,024 | | Commercial paper/CDs | 295 | | 0 | | 0 | | 295 | | | | | | | Non-agency RMBS | 70 | | 3 | | 1 | | 72 | | Supranational | 52 | | 1 | | 0 | | 53 | | State and political subdivisions | 15 | | 0 | | 0 | | 15 | | Total securities held-to-maturity | $ | 46,096 | | $ | 1,377 | | $ | 15 | | $ | 47,458 | | Total securities | $ | 151,780 | | $ | 5,071 | | $ | 150 | | $ | 156,701 | |
(a) Includes $512 million that was included in the former Grantor Trust. (b) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. The amortized cost of available-for-sale securities is net of the allowance for credit loss of $12 million. The allowance for credit lossprimarily relates to CLOs. See Note 2 for additional information. (c) Includes gross unrealized gains of $25 million and gross unrealized losses of $49 million recorded in accumulated other comprehensive income related to 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.
| | | | | | | | | | | | | | | Securities at Dec. 31, 2019 | Gross unrealized | | | Amortized cost | Fair value | (in millions) | Gains | Losses | Available-for-sale: | | | | | Agency RMBS | $ | 27,022 | | $ | 164 | | $ | 143 | | $ | 27,043 | | U.S. Treasury | 14,979 | | 472 | | 20 | | 15,431 | | Sovereign debt/sovereign guaranteed | 12,548 | | 109 | | 11 | | 12,646 | | Agency commercial MBS | 9,231 | | 203 | | 17 | | 9,417 | | Foreign covered bonds | 4,189 | | 15 | | 7 | | 4,197 | | CLOs | 4,078 | | 1 | | 16 | | 4,063 | | Supranational | 3,697 | | 18 | | 6 | | 3,709 | | Foreign government agencies | 2,638 | | 7 | | 2 | | 2,643 | | Non-agency commercial MBS | 2,134 | | 46 | | 2 | | 2,178 | | Other ABS | 2,141 | | 7 | | 5 | | 2,143 | | U.S. government agencies | 1,890 | | 61 | | 2 | | 1,949 | | Non-agency RMBS (a) | 1,038 | | 202 | | 7 | | 1,233 | | State and political subdivisions | 1,017 | | 27 | | 0 | | 1,044 | | Corporate bonds | 832 | | 21 | | 0 | | 853 | | Other debt securities | 1 | | 0 | | 0 | | 1 | | Total securities available-for-sale (b) | $ | 87,435 | | $ | 1,353 | | $ | 238 | | $ | 88,550 | | Held-to-maturity: | | | | | Agency RMBS | $ | 27,357 | | $ | 292 | | $ | 46 | | $ | 27,603 | | U.S. Treasury | 3,818 | | 28 | | 3 | | 3,843 | | Agency commercial MBS | 1,326 | | 21 | | 3 | | 1,344 | | U.S. government agencies | 1,023 | | 1 | | 2 | | 1,022 | | Sovereign debt/sovereign guaranteed | 756 | | 31 | | 0 | | 787 | | Non-agency RMBS | 80 | | 4 | | 1 | | 83 | | Foreign covered bonds | 79 | | 0 | | 0 | | 79 | | Supranational | 27 | | 0 | | 0 | | 27 | | State and political subdivisions | 17 | | 0 | | 0 | | 17 | | Total securities held-to-maturity | $ | 34,483 | | $ | 377 | | $ | 55 | | $ | 34,805 | | Total securities | $ | 121,918 | | $ | 1,730 | | $ | 293 | | $ | 123,355 | |
(a) Includes $640 million that was included in the former Grantor Trust. | | | | | | | | | | | | | | Securities at Dec. 31, 2018 | Gross unrealized | | | Amortized cost |
| Fair value |
| (in millions) | Gains |
| Losses |
| Available-for-sale: | | | | | Agency RMBS | $ | 25,594 |
| $ | 83 |
| $ | 369 |
| $ | 25,308 |
| U.S. Treasury | 20,190 |
| 96 |
| 210 |
| 20,076 |
| Sovereign debt/sovereign guaranteed | 10,663 |
| 108 |
| 21 |
| 10,750 |
| Agency commercial MBS | 9,836 |
| 16 |
| 161 |
| 9,691 |
| CLOs | 3,410 |
| — |
| 46 |
| 3,364 |
| Supranational | 2,985 |
| 7 |
| 8 |
| 2,984 |
| Foreign covered bonds | 2,890 |
| 7 |
| 19 |
| 2,878 |
| State and political subdivisions | 2,251 |
| 18 |
| 22 |
| 2,247 |
| Other ABS | 1,776 |
| 1 |
| 4 |
| 1,773 |
| U.S. government agencies | 1,676 |
| 5 |
| 24 |
| 1,657 |
| Non-agency commercial MBS | 1,491 |
| 1 |
| 28 |
| 1,464 |
| Non-agency RMBS (a) | 1,095 |
| 241 |
| 11 |
| 1,325 |
| Foreign government agencies | 1,164 |
| 1 |
| 4 |
| 1,161 |
| Corporate bonds | 1,074 |
| 6 |
| 26 |
| 1,054 |
| Other debt securities | 72 |
| 5 |
| — |
| 77 |
| Total securities available-for-sale (b) | $ | 86,167 |
| $ | 595 |
| $ | 953 |
| $ | 85,809 |
| Held-to-maturity: | | | | | Agency RMBS | $ | 25,507 |
| $ | 32 |
| $ | 632 |
| $ | 24,907 |
| U.S. Treasury | 4,727 |
| 3 |
| 77 |
| 4,653 |
| U.S. government agencies | 1,497 |
| — |
| 10 |
| 1,487 |
| Agency commercial MBS | 1,195 |
| — |
| 26 |
| 1,169 |
| Sovereign debt/sovereign guaranteed | 833 |
| 26 |
| — |
| 859 |
| Non-agency RMBS | 100 |
| 4 |
| 2 |
| 102 |
| Foreign covered bonds | 80 |
| 1 |
| — |
| 81 |
| Supranational | 26 |
| 1 |
| — |
| 27 |
| State and political subdivisions | 17 |
| — |
| — |
| 17 |
| Total securities held-to-maturity | $ | 33,982 |
| $ | 67 |
| $ | 747 |
| $ | 33,302 |
| Total securities | $ | 120,149 |
| $ | 662 |
| $ | 1,700 |
| $ | 119,111 |
|
(b) Includes gross unrealized gains of $32 million and gross unrealized losses of $65 million recorded in accumulated other comprehensive income related to 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.
| | (a) | Includes $832 million that was included in the former Grantor Trust. |
| | (b) | Includes gross unrealized gains of $39 million and gross unrealized losses of $87 million recorded in accumulated other comprehensive income related to 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, losses and impairments, on a gross basis.
| | | | | | | | | | | | | | | | | Net securities (losses) gains | | | | | (in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Realized gross gains | $ | 1 |
| $ | 12 |
| $ | 1 |
| $ | 18 |
| $ | 5 |
| Realized gross losses | (1 | ) | (5 | ) | (1 | ) | (10 | ) | (53 | ) | Recognized gross impairments | (1 | ) | — |
| — |
| (1 | ) | — |
| Total net securities (losses) gains | $ | (1 | ) | $ | 7 |
| $ | — |
| $ | 7 |
| $ | (48 | ) |
| | | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Realized gross gains | $ | 10 | | $ | 16 | | $ | 1 | | $ | 38 | | $ | 18 | | | Realized gross losses | (1) | | (7) | | (1) | | (11) | | (10) | | | Recognized gross impairments | 0 | | 0 | | (1) | | 0 | | (1) | | | Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | |
| | | Notes to Consolidated Financial Statements(continued) | |
The following table presents pre-tax net securities gains (losses) gains by type.
| | | | | | | | | | | | | | | | | Net securities (losses) gains | | | | (in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| U.S. Treasury | $ | — |
| $ | 3 |
| $ | (1 | ) | $ | 4 |
| $ | (5 | ) | Sovereign debt/sovereign guaranteed | — |
| 2 |
| — |
| 3 |
| — |
| State and political subdivisions | — |
| 2 |
| — |
| 2 |
| (1 | ) | Agency RMBS | — |
| — |
| — |
| — |
| (42 | ) | Other | (1 | ) | — |
| 1 |
| (2 | ) | — |
| Total net securities (losses) gains | $ | (1 | ) | $ | 7 |
| $ | — |
| $ | 7 |
| $ | (48 | ) |
| | | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Foreign government agencies | $ | 5 | | $ | 2 | | $ | 0 | | $ | 7 | | $ | 0 | | | U.S. Treasury | 1 | | 1 | | 0 | | 7 | | 4 | | | | | | | | | | Supranational | 0 | | 6 | | 0 | | 6 | | 0 | | | Sovereign debt/sovereign guaranteed | 1 | | 2 | | 0 | | 3 | | 3 | | | State and political subdivisions | 0 | | 0 | | 0 | | 0 | | 2 | | | Other | 2 | | (2) | | (1) | | 4 | | (2) | | | Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | |
Temporarily impaired
Allowance for credit losses - Securities
In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. The allowance for credit losses related to securities was $7 million on Jan. 1, 2020 and $12 million at Sept. 30, 2020. The increase reflects additional credit deterioration in the available-for-sale CLO portfolio. For additional information about the review of securities under previous other-than-temporary impairment guidance, refer to Notes 1 and 4, both Notes to Consolidated Financial Statements, in our 2019 Annual Report. Credit quality indicators - Securities
At Sept. 30, 2019,2020, the gross unrealized losses on the securities portfolio were primarily attributable to an increase in interest ratescredit spreads from the date of purchase, and for certain securities that were transferred from available-for-sale to held-to-maturity, an increase in interest rates through the date they were transferred. Specifically, $70$49 million of the unrealized losses at Sept. 30, 20192020 and $87$65 million at Dec. 31, 20182019 reflected in the available-for-sale sections of the tables below relate to certain securities (primarily Agency RMBS) that were transferred in prior periods from available-for-sale to held-to-maturity. The unrealized losses will be amortized into net interest revenue over the contractual lives of the securities. The transfer created a new cost basis for the securities. As a result, if these securities have experienced unrealized losses since the date of transfer, the corresponding fair value and unrealized losses would be reflected in the held-to-maturity sections of 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 showtable shows the aggregate fair value of available-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 without an allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Sept. 30, 2020 (a) | Less than 12 months | | 12 months or more | | Total | Fair value | Unrealized losses | | Fair value | Unrealized losses | | Fair value | Unrealized losses | (in millions) | | | Agency RMBS | $ | 1,126 | | $ | 3 | | | $ | 2,102 | | $ | 52 | | | $ | 3,228 | | $ | 55 | | U.S. Treasury | 1,041 | | 1 | | | 0 | | 0 | | | 1,041 | | 1 | | Sovereign debt/sovereign guaranteed | 1,069 | | 1 | | | 119 | | 0 | | | 1,188 | | 1 | | Agency commercial MBS | 566 | | 1 | | | 306 | | 2 | | | 872 | | 3 | | | | | | | | | | | Supranational | 1,583 | | 1 | | | 127 | | 0 | | | 1,710 | | 1 | | CLOs | 3,449 | | 31 | | | 579 | | 13 | | | 4,028 | | 44 | | | | | | | | | | | U.S. government agencies | 99 | | 2 | | | 0 | | 0 | | | 99 | | 2 | | Other ABS | 675 | | 2 | | | 229 | | 2 | | | 904 | | 4 | | Non-agency commercial MBS | 358 | | 6 | | | 194 | | 4 | | | 552 | | 10 | | | | | | | | | | | Non-agency RMBS (b) | 636 | | 3 | | | 97 | | 6 | | | 733 | | 9 | | State and political subdivisions | 262 | | 4 | | | 2 | | 0 | | | 264 | | 4 | | Corporate bonds | 173 | | 1 | | | 0 | | 0 | | | 173 | | 1 | | | | | | | | | | | Total securities available-for-sale (c) | $ | 11,037 | | $ | 56 | | | $ | 3,755 | | $ | 79 | | | $ | 14,792 | | $ | 135 | |
(a) Includes $370 million of securities with an unrealized loss of greater than $1 million. (b) Includes $22 million of securities with an unrealized loss of $1 million for less than 12 months and $1 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. (c) Includes gross unrealized losses of $49 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.
The following table presents the temporarily impaired securities under the disclosure guidance that existed prior to the adoption of ASU 2016-13 and shows the aggregate fair value of available-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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Dec. 31, 2019 | 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: | | | | | | | | | Agency RMBS | $ | 8,373 | | $ | 33 | | | $ | 5,912 | | $ | 110 | | | $ | 14,285 | | $ | 143 | | U.S. Treasury | 1,976 | | 16 | | | 766 | | 4 | | | 2,742 | | 20 | | Sovereign debt/sovereign guaranteed | 4,045 | | 10 | | | 225 | | 1 | | | 4,270 | | 11 | | Agency commercial MBS | 1,960 | | 12 | | | 775 | | 5 | | | 2,735 | | 17 | | Foreign covered bonds | 1,009 | | 4 | | | 690 | | 3 | | | 1,699 | | 7 | | CLOs | 1,066 | | 2 | | | 1,499 | | 14 | | | 2,565 | | 16 | | Supranational | 1,336 | | 6 | | | 360 | | 0 | | | 1,696 | | 6 | | Foreign government agencies | 1,706 | | 2 | | | 47 | | 0 | | | 1,753 | | 2 | | Non-agency commercial MBS | 525 | | 2 | | | 45 | | 0 | | | 570 | | 2 | | Other ABS | 456 | | 3 | | | 305 | | 2 | | | 761 | | 5 | | U.S. government agencies | 377 | | 2 | | | 0 | | 0 | | | 377 | | 2 | | Non-agency RMBS (a) | 101 | | 0 | | | 113 | | 7 | | | 214 | | 7 | | State and political subdivisions | 0 | | 0 | | | 16 | | 0 | | | 16 | | 0 | | Corporate bonds | 82 | | 0 | | | 21 | | 0 | | | 103 | | 0 | | | | | | | | | | | Total securities available-for-sale (b) | $ | 23,012 | | $ | 92 | | | $ | 10,774 | | $ | 146 | | | $ | 33,786 | | $ | 238 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Includes $2 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. (b) Includes gross unrealized losses of $65 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.
| | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Sept. 30, 2019 | Less than 12 months | | 12 months or more | | Total | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| (in millions) | | | Available-for-sale: | | | | | | | | | Agency RMBS | $ | 9,513 |
| $ | 32 |
| | $ | 4,485 |
| $ | 105 |
| | $ | 13,998 |
| $ | 137 |
| U.S. Treasury | 2,536 |
| 11 |
| | 764 |
| 5 |
| | 3,300 |
| 16 |
| Sovereign debt/sovereign guaranteed | 2,227 |
| 2 |
| | 149 |
| — |
| | 2,376 |
| 2 |
| Agency commercial MBS | 1,691 |
| 7 |
| | 583 |
| 3 |
| | 2,274 |
| 10 |
| Supranational | 979 |
| 2 |
| | 204 |
| 1 |
| | 1,183 |
| 3 |
| CLOs | 1,491 |
| 4 |
| | 1,098 |
| 11 |
| | 2,589 |
| 15 |
| Foreign covered bonds | 712 |
| 2 |
| | 440 |
| 2 |
| | 1,152 |
| 4 |
| Other ABS | 1,062 |
| 3 |
| | 55 |
| — |
| | 1,117 |
| 3 |
| Non-agency commercial MBS | 554 |
| 1 |
| | 55 |
| — |
| | 609 |
| 1 |
| Foreign government agencies | 860 |
| 1 |
| | 50 |
| — |
| | 910 |
| 1 |
| Non-agency RMBS (a) | 26 |
| 1 |
| | 111 |
| 6 |
| | 137 |
| 7 |
| State and political subdivisions | 101 |
| 2 |
| | 16 |
| — |
| | 117 |
| 2 |
| Corporate bonds | 77 |
| 1 |
| | 67 |
| — |
| | 144 |
| 1 |
| Total securities available-for-sale (b) | $ | 21,829 |
| $ | 69 |
| | $ | 8,077 |
| $ | 133 |
| | $ | 29,906 |
| $ | 202 |
| Held-to-maturity: | | | | | | | | | Agency RMBS | $ | 3,745 |
| $ | 12 |
| | $ | 4,952 |
| $ | 47 |
| | $ | 8,697 |
| $ | 59 |
| U.S. Treasury | 346 |
| 2 |
| | 1,104 |
| 2 |
| | 1,450 |
| 4 |
| Agency commercial MBS | 67 |
| 1 |
| | — |
| — |
| | 67 |
| 1 |
| U.S. government agencies | 225 |
| 1 |
| | 225 |
| — |
| | 450 |
| 1 |
| Non-agency RMBS | 7 |
| — |
| | 39 |
| 2 |
| | 46 |
| 2 |
| Total securities held-to-maturity | $ | 4,390 |
| $ | 16 |
| | $ | 6,320 |
| $ | 51 |
| | $ | 10,710 |
| $ | 67 |
| Total temporarily impaired securities | $ | 26,219 |
| $ | 85 |
| | $ | 14,397 |
| $ | 184 |
| | $ | 40,616 |
| $ | 269 |
|
| | (a) | Includes $5 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. |
| | (b) | Includes gross unrealized losses of $70 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months. |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table shows 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 a reduction in the fair value of our securities portfolio.
| | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Dec. 31, 2018 | 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: | | | | | | | | | Agency RMBS | $ | 6,678 |
| $ | 30 |
| | $ | 9,250 |
| $ | 339 |
| | $ | 15,928 |
| $ | 369 |
| U.S. Treasury | 6,126 |
| 23 |
| | 6,880 |
| 187 |
| | 13,006 |
| 210 |
| Sovereign debt/sovereign guaranteed | 2,185 |
| 8 |
| | 988 |
| 13 |
| | 3,173 |
| 21 |
| Agency commercial MBS | 4,505 |
| 50 |
| | 3,082 |
| 111 |
| | 7,587 |
| 161 |
| CLOs | 3,280 |
| 46 |
| | 2 |
| — |
| | 3,282 |
| 46 |
| Supranational | 974 |
| 2 |
| | 481 |
| 6 |
| | 1,455 |
| 8 |
| Foreign covered bonds | 1,058 |
| 7 |
| | 736 |
| 12 |
| | 1,794 |
| 19 |
| State and political subdivisions | 316 |
| 1 |
| | 668 |
| 21 |
| | 984 |
| 22 |
| Other ABS | 1,289 |
| 4 |
| | 23 |
| — |
| | 1,312 |
| 4 |
| U.S. government agencies | 513 |
| 4 |
| | 673 |
| 20 |
| | 1,186 |
| 24 |
| Non-agency commercial MBS | 1,015 |
| 14 |
| | 362 |
| 14 |
| | 1,377 |
| 28 |
| Non-agency RMBS (a) | 94 |
| 1 |
| | 157 |
| 10 |
| | 251 |
| 11 |
| Foreign government agencies | 397 |
| 1 |
| | 256 |
| 3 |
| | 653 |
| 4 |
| Corporate bonds | 685 |
| 24 |
| | 50 |
| 2 |
| | 735 |
| 26 |
| Total securities available-for-sale (b) | $ | 29,115 |
| $ | 215 |
| | $ | 23,608 |
| $ | 738 |
| | $ | 52,723 |
| $ | 953 |
| Held-to-maturity: | | | | | | | | | Agency RMBS | $ | 4,602 |
| $ | 56 |
| | $ | 17,107 |
| $ | 576 |
| | $ | 21,709 |
| $ | 632 |
| U.S. Treasury | 157 |
| 2 |
| | 4,343 |
| 75 |
| | 4,500 |
| 77 |
| U.S. government agencies | — |
| — |
| | 1,111 |
| 10 |
| | 1,111 |
| 10 |
| Agency commercial MBS | 477 |
| 7 |
| | 654 |
| 19 |
| | 1,131 |
| 26 |
| Non-agency RMBS | 22 |
| 1 |
| | 31 |
| 1 |
| | 53 |
| 2 |
| Total securities held-to-maturity | $ | 5,258 |
| $ | 66 |
| | $ | 23,246 |
| $ | 681 |
| | $ | 28,504 |
| $ | 747 |
| Total temporarily impaired securities | $ | 34,373 |
| $ | 281 |
| | $ | 46,854 |
| $ | 1,419 |
| | $ | 81,227 |
| $ | 1,700 |
|
| | (a) | Includes $22 million of securities with an unrealized loss of less than $1 million for less than 12 months and $3 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. |
| | (b) | Includes gross unrealized losses of $87 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities portfolio at Sept. 30, 2020 (a) | | | | Ratings (b) | | | | Net unrealized gain | | | | | BB+ and lower | A1+/A2/SP-1+ | | (dollars in millions) | Amortized cost | | | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | Agency RMBS | $ | 37,086 | | | $ | 1,107 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | U.S. Treasury | 3,288 | | | 103 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | U.S. government agencies | 2,266 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Agency commercial MBS | 2,041 | | | 107 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Sovereign debt/sovereign guaranteed (c) | 983 | | | 41 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Commercial paper/CDs | 295 | | | 0 | | | 0 | | 0 | | 0 | | 0 | | 100 | | 0 | | | | | | | | | | | | | Non-agency RMBS | 70 | | | 2 | | | 39 | | 46 | | 2 | | 12 | | 0 | | 1 | | Supranational | 52 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | State and political subdivisions | 15 | | | 0 | | | 6 | | 2 | | 6 | | 0 | | 0 | | 86 | | | | | | | | | | | | | Total held-to-maturity securities | $ | 46,096 | | | $ | 1,362 | | | 99 | % | 0 | % | 0 | % | 0 | % | 1 | % | 0 | % |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 for additional information. (b) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent. (c) Primarily consists of exposure to France, UK and Germany.
Maturity distribution
The following table shows the maturity distribution by carrying amount and yield (on a tax equivalent basis) of our securities portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity distribution and yields on securities at Sept. 30, 2020 | U.S. Treasury | | U.S. government agencies | | State and political subdivisions | | Other bonds, notes and debentures | | Mortgage/ asset-backed | | | (dollars in millions) | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Total | Securities available-for-sale: | | | | | | | | | | | | | | | | | One year or less | $ | 4,405 | | 1.11 | % | | $ | 25 | | 2.55 | % | | $ | 549 | | 1.49 | % | | $ | 11,186 | | 0.44 | % | | $ | — | | — | % | | $ | 16,165 | | Over 1 through 5 years | 10,546 | | 1.28 | | | 1,866 | | 0.85 | | | 570 | | 3.16 | | | 17,769 | | 0.61 | | | — | | — | | | 30,751 | | Over 5 through 10 years | 6,517 | | 1.57 | | | 1,468 | | 2.51 | | | 223 | | 1.88 | | | 3,240 | | 0.56 | | | — | | — | | | 11,448 | | Over 10 years | 3,265 | | 3.11 | | | 119 | | 2.06 | | | 348 | | 2.22 | | | 233 | | 0.62 | | | — | | — | | | 3,965 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,327 | | 2.18 | | | 39,327 | | Asset-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 7,587 | | 1.72 | | | 7,587 | | Total | $ | 24,733 | | 1.57 | % | | $ | 3,478 | | 1.60 | % | | $ | 1,690 | | 2.26 | % | | $ | 32,428 | | 0.55 | % | | $ | 46,914 | | 2.10 | % | | $ | 109,243 | | Securities held-to-maturity: | | | | | | | | | | | | | | | | | One year or less | $ | 785 | | 1.43 | % | | $ | 0 | | 0 | % | | $ | 0 | | 0 | % | | $ | 307 | | 1.99 | % | | $ | — | | — | % | | $ | 1,092 | | Over 1 through 5 years | 2,503 | | 1.90 | | | 1,253 | | 0.82 | | | 2 | | 5.66 | | | 946 | | 0.67 | | | — | | — | | | 4,704 | | Over 5 through 10 years | 0 | | 0 | | | 564 | | 1.13 | | | 0 | | 0 | | | 32 | | 0.92 | | | — | | — | | | 596 | | Over 10 years | 0 | | 0 | | | 449 | | 2.28 | | | 13 | | 4.76 | | | 45 | | 0.35 | | | — | | — | | | 507 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,197 | | 2.57 | | | 39,197 | | Total | $ | 3,288 | | 1.79 | % | | $ | 2,266 | | 1.19 | % | | $ | 15 | | 4.91 | % | | $ | 1,330 | | 0.96 | % | | $ | 39,197 | | 2.57 | % | | $ | 46,096 | |
(a)Yields are based upon the amortized cost of securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity distribution and yields on securities at Sept. 30, 2019 | U.S. Treasury | | U.S. government agencies | | State and political subdivisions | | Other bonds, notes and debentures | | Mortgage/ asset-backed | | | (dollars in millions) | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Total |
| Securities available-for-sale: | | | | | | | | | | | | | | | | | One year or less | $ | 2,692 |
| 2.60 | % | | $ | 81 |
| 2.28 | % | | $ | 144 |
| 2.85 | % | | $ | 8,129 |
| 1.20 | % | | $ | — |
| — | % | | $ | 11,046 |
| Over 1 through 5 years | 5,703 |
| 1.78 |
| | 804 |
| 2.54 |
| | 799 |
| 3.18 |
| | 13,993 |
| 1.22 |
| | — |
| — |
| | 21,299 |
| Over 5 through 10 years | 3,851 |
| 2.23 |
| | 1,592 |
| 2.76 |
| | 130 |
| 3.05 |
| | 1,649 |
| 1.01 |
| | — |
| — |
| | 7,222 |
| Over 10 years | 2,880 |
| 3.11 |
| | — |
| — |
| | 111 |
| 2.72 |
| | 204 |
| 1.78 |
| | — |
| — |
| | 3,195 |
| Mortgage-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 39,448 |
| 3.00 |
| | 39,448 |
| Asset-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 6,352 |
| 3.09 |
| | 6,352 |
| Total | $ | 15,126 |
| 2.29 | % | | $ | 2,477 |
| 2.68 | % | | $ | 1,184 |
| 3.08 | % | | $ | 23,975 |
| 1.20 | % | | $ | 45,800 |
| 3.02 | % | | $ | 88,562 |
| Securities held-to-maturity: | | | | | | | | | | | | | | | | | One year or less | $ | 1,106 |
| 1.45 | % | | $ | 300 |
| 1.49 | % | | $ | — |
| — | % | | $ | 186 |
| 0.66 | % | | $ | — |
| — | % | | $ | 1,592 |
| Over 1 through 5 years | 2,600 |
| 1.96 |
| | 478 |
| 2.29 |
| | 3 |
| 5.68 |
| | 488 |
| 0.79 |
| | — |
| — |
| | 3,569 |
| Over 5 through 10 years | 311 |
| 2.18 |
| | 132 |
| 2.81 |
| | — |
| — |
| | 214 |
| 0.43 |
| | — |
| — |
| | 657 |
| Over 10 years | — |
| — |
| | 12 |
| 3.25 |
| | 13 |
| 4.76 |
| | — |
| — |
| | — |
| — |
| | 25 |
| Mortgage-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 27,935 |
| 2.96 |
| | 27,935 |
| Total | $ | 4,017 |
| 1.84 | % | | $ | 922 |
| 2.12 | % | | $ | 16 |
| 4.93 | % | | $ | 888 |
| 0.67 | % | | $ | 27,935 |
| 2.96 | % | | $ | 33,778 |
|
| | (a) | Yields are based upon the amortized cost of securities. |
| | | Notes to Consolidated Financial Statements (continued) | |
Other-than-temporary impairment
For each security in the securities portfolio, a quarterly review is conducted to determine if an OTTI has occurred. See Note 1 of the Notes to Consolidated Financial Statements in our 2018 Annual Report for a discussion of the determination of OTTI.
The following table reflects 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) | 3Q19 |
| 3Q18 |
| Beginning balance as of June 30 | $ | 77 |
| $ | 79 |
| Add: Initial OTTI credit losses | — |
| — |
| Subsequent OTTI credit losses | 1 |
| — |
| Less: Realized losses for securities sold | — |
| 1 |
| Ending balance as of September 30 | $ | 78 |
| $ | 78 |
|
| | | | | | | | Debt securities credit loss roll forward | | | (in millions) | YTD19 |
| YTD18 |
| Beginning balance as of Dec. 31 | $ | 78 |
| $ | 84 |
| Add: Initial OTTI credit losses | — |
| — |
| Subsequent OTTI credit losses | 1 |
| — |
| Less: Realized losses for securities sold | 1 |
| 6 |
| Ending balance as of September 30 | $ | 78 |
| $ | 78 |
|
Pledged assets
At Sept. 30, 2019,2020, BNY Mellon had pledged assets of $116$141 billion, including $91$108 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $6$5 billion pledged as collateral for borrowing at the FHLB.Federal Home Loan Bank. The components of the assets pledged at Sept. 30, 20192020 included $98$123 billion of securities, $13$11 billion of loans, $4$6 billion of trading assets and $1 billion of interest-bearing deposits with banks.
If there has been no borrowing at the Federal Reserve Discount Window, the Federal Reserve generally allows banks to freely move assets in and out of their pledged assets account to sell or repledge the assets for other purposes. BNY Mellon regularly moves assets in and out of its pledged assets account at the Federal Reserve.
At Dec. 31, 2018,2019, BNY Mellon had pledged assets of $120$118 billion, including $96$80 billion pledged as collateral for potential borrowing at the Federal Reserve Discount Window and $7$6 billion pledged as collateral for borrowing at the FHLB.Federal Home Loan Bank. The components of the assets pledged at Dec. 31, 20182019 included $100$98 billion of securities, $15$13 billion of loans, $4$7 billion of trading assets and less than $1 billion of interest-bearing deposits with banks.
At Sept. 30, 20192020 and Dec. 31, 2018,2019, pledged assets included $17$23 billion and $13$29 billion, respectively, for which the recipients were permitted to sell or repledge the assets delivered.
At Sept. 30, 2020, we pledged commercial paper and CDs totaling $295 million as collateral to the Federal Reserve Bank of Boston to secure non-recourse borrowings under the Federal Reserve’s Money Market Mutual Fund Liquidity Facility (“MMLF”) program.
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, 20192020 and Dec. 31, 2018,2019, the market value of the securities received that can be sold or repledged was $129$112 billion and $151$153 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept. 30, 20192020 and Dec. 31, 2018,2019, the market value of securities collateral sold or repledged was $83$80 billion and $101$107 billion, respectively.
Restricted cash and securities
Cash and securities may be segregated under federal and other regulations or requirements. At Sept. 30, 20192020 and Dec. 31, 2018,2019, cash segregated under federal and other regulations or requirements was $2$3 billion and $2 billion, respectively. Restricted cash is included in interest-bearing deposits with banks on the consolidated balance sheet. Securities segregated for these purposesunder federal and other regulations or requirements were $2$4 billion at Sept. 30, 20192020 and $2$1 billion at Dec. 31, 2018.2019. Restricted securities were sourced from securities purchased under resale agreements and are included in federal funds sold and securities purchased under resale agreements on the consolidated balance sheet.
Note 5–Loans and asset quality
Loans
The table below provides the details of our loan portfolio.
| | | | | | | | | Loans | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | Domestic: | | | Commercial | $ | 1,839 | | $ | 1,442 | | Commercial real estate | 5,987 | | 5,575 | | Financial institutions | 4,915 | | 4,852 | | Lease financings | 482 | | 537 | | Wealth management loans and mortgages | 15,805 | | 16,050 | | Other residential mortgages | 423 | | 494 | | Overdrafts | 899 | | 524 | | Other | 1,616 | | 1,167 | | Margin loans | 11,220 | | 11,907 | | Total domestic | 43,186 | | 42,548 | | Foreign: | | | Commercial | 102 | | 347 | | Commercial real estate | 5 | | 7 | | Financial institutions | 6,097 | | 7,626 | | Lease financings | 596 | | 576 | | Wealth management loans and mortgages | 121 | | 140 | | Other (primarily overdrafts) | 3,106 | | 2,230 | | Margin loans | 2,278 | | 1,479 | | Total foreign | 12,305 | | 12,405 | | Total loans (a) | $ | 55,491 | | $ | 54,953 | |
(a)Net of unearned income of $285 million at Sept. 30, 2020 and $313 million at Dec. 31, 2019 primarily related to domestic and foreign lease financings.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 5–Loans and asset quality
Loans
The table below provides the details of our loan portfolio and industry concentrations of credit risk at Sept. 30, 2019 and Dec. 31, 2018.
| | | | | | | | Loans | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Domestic: | | | Commercial | $ | 1,335 |
| $ | 1,949 |
| Commercial real estate | 5,292 |
| 4,787 |
| Financial institutions | 4,973 |
| 5,091 |
| Lease financings | 559 |
| 706 |
| Wealth management loans and mortgages | 15,764 |
| 15,843 |
| Other residential mortgages | 520 |
| 594 |
| Overdrafts | 1,247 |
| 1,550 |
| Other | 1,143 |
| 1,181 |
| Margin loans | 10,177 |
| 13,343 |
| Total domestic | 41,010 |
| 45,044 |
| Foreign: | | | Commercial | 358 |
| 183 |
| Commercial real estate | 18 |
| — |
| Financial institutions | 8,441 |
| 6,492 |
| Lease financings | 569 |
| 551 |
| Wealth management loans and mortgages | 92 |
| 122 |
| Other (primarily overdrafts) | 4,106 |
| 4,031 |
| Margin loans | 287 |
| 141 |
| Total foreign | 13,871 |
| 11,520 |
| Total loans (a) | $ | 54,881 |
| $ | 56,564 |
|
| | (a) | Net of unearned income of $325 million at Sept. 30, 2019 and $358 million at Dec. 31, 2018 primarily related to domestic and foreign lease financings.
|
Our loan portfolio consists of 3 portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level, which consists of 6 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 receivables and provide additional information about our credit risks andrisks.
Allowance for credit losses
On Jan. 1, 2020, we adopted ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 for the adequacy of oursignificant accounting policy related to allowance for credit losses.losses on loans and lending-related commitments.
Activity in the allowance for credit losses on loans and lending-related commitments is presented below. This does not include activity in the allowance for credit losses related to other financial instruments, including cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements, held-to-maturity securities, available-for-sale securities and accounts receivable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2020 | Wealth management loans and mortgages | | Other residential mortgages | | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | | Total | Beginning balance | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | | $ | 12 | | | | $ | 454 | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | | 1 | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | | 1 | | Provision (a) | (13) | | 14 | | (5) | | 0 | | 4 | | | 5 | | | | 5 | | Ending balance (b) | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | | $ | 18 | | | | $ | 460 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 14 | | $ | 270 | | $ | 7 | | $ | 3 | | $ | 13 | | | $ | 18 | | | | $ | 325 | | Lending-related commitments | 13 | | 116 | | 4 | | 0 | | 2 | | | 0 | | | | 135 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | (c) | $ | 0 | | | | $ | 17 | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | |
(a) Does not include provision for credit losses related to other financial instruments of $4 million for the third quarter 2020. (b) Includes $8 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral dependent loans of $17 million with $25 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2020 | Wealth management loans and mortgages | | Other residential mortgages | | | | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | | Total | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | $ | 26 | | $ | 208 | | $ | 18 | | $ | 13 | | $ | 9 | | | $ | 14 | | | | $ | 288 | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | | 3 | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | | 3 | | Provision (a) | 14 | | 164 | | (2) | | (10) | | 2 | | | (5) | | | | 163 | | Ending balance (b) | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | | $ | 12 | | | | $ | 454 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 23 | | $ | 244 | | $ | 11 | | $ | 3 | | $ | 9 | | | $ | 12 | | | | $ | 302 | | Lending-related commitments | 17 | | 128 | | 5 | | 0 | | 2 | | | 0 | | | | 152 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 18 | | (c) | $ | 0 | | | | $ | 18 | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | |
(a) Does not include provision for credit losses related to other financial instruments of $(20) million for the second quarter 2020. (b) Includes $11 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral dependent loans of $18 million with $26 million of collateral at fair value.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2019 | Wealth management loans and mortgages | Other residential mortgages | All other | | Foreign | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | | Beginning balance | $ | 77 | | $ | 72 | | $ | 21 | | $ | 4 | | $ | 20 | | $ | 14 | | $ | 0 | | | $ | 33 | | $ | 241 | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | (1) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | (1) | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | Net (charge-offs) | (1) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | (1) | | Provision | (15) | | 5 | | 0 | | (1) | | 0 | | 0 | | 0 | | | (5) | | (16) | | Ending balance | $ | 61 | | $ | 77 | | $ | 21 | | $ | 3 | | $ | 20 | | $ | 14 | | $ | 0 | | | $ | 28 | | $ | 224 | | Allowance for: | | | | | | | | | | | Loan losses | $ | 10 | | $ | 57 | | $ | 7 | | $ | 3 | | $ | 17 | | $ | 14 | | $ | 0 | | | $ | 19 | | $ | 127 | | Lending-related commitments | 51 | | 20 | | 14 | | 0 | | 3 | | 0 | | 0 | | | 9 | | 97 | | Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 16 | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 16 | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,335 | | $ | 5,292 | | $ | 4,973 | | $ | 559 | | $ | 15,748 | | $ | 520 | | $ | 12,567 | | (a) | $ | 13,871 | | $ | 54,865 | | Allowance for loan losses | 10 | | 57 | | 7 | | 3 | | 17 | | 14 | | 0 | | | 19 | | 127 | |
Allowance for credit losses(a) Includes $1,247 million of domestic overdrafts, $10,177 million of margin loans and $1,143 million of other loans at Sept. 30, 2019.
Activity in the
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2020 | Wealth management loans and mortgages | Other residential mortgages | Foreign | | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | (a) | Balance at Dec. 31, 2019 | $ | 60 | | $ | 76 | | $ | 20 | | $ | 3 | | $ | 20 | | $ | 13 | | $ | 24 | | | $ | 216 | | Impact of adopting ASU 2016-13 | (43) | | 14 | | (6) | | 0 | | (12) | | 2 | | (24) | | | (69) | | Balance at Jan. 1, 2020 | 17 | | 90 | | 14 | | 3 | | 8 | | 15 | | 0 | | | 147 | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 4 | | 0 | | | 4 | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 4 | | 0 | | | 4 | | Provision (b) | 10 | | 296 | | (3) | | 0 | | 7 | | (1) | | 0 | | | 309 | | Ending balance | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | $ | 18 | | $ | 0 | | | $ | 460 | |
(a) The allowance related to foreign exposure has been reclassified to financial institutions ($10 million), commercial ($10 million) and lease financings ($4 million). (b) Does not include provision for credit losses is presented below.related to other financial instruments of $12 million for the nine months ended Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2019 | Wealth management loans and mortgages |
| Other residential mortgages |
| | | | | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| All other |
| | Foreign |
| Total |
| Beginning balance | $ | 77 |
| $ | 72 |
| $ | 21 |
| $ | 4 |
| $ | 20 |
| $ | 14 |
| $ | — |
| | $ | 33 |
| $ | 241 |
| Charge-offs | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| (1 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| Net (charge-offs) | (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| (1 | ) | Provision | (15 | ) | 5 |
| — |
| (1 | ) | — |
| — |
| — |
| | (5 | ) | (16 | ) | Ending balance | $ | 61 |
| $ | 77 |
| $ | 21 |
| $ | 3 |
| $ | 20 |
| $ | 14 |
| $ | — |
| | $ | 28 |
| $ | 224 |
| Allowance for: | | | | | | | | | | | Loan losses | $ | 10 |
| $ | 57 |
| $ | 7 |
| $ | 3 |
| $ | 17 |
| $ | 14 |
| $ | — |
| | $ | 19 |
| $ | 127 |
| Lending-related commitments | 51 |
| 20 |
| 14 |
| — |
| 3 |
| — |
| — |
| | 9 |
| 97 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 16 |
| $ | — |
| $ | — |
| | $ | — |
| $ | 16 |
| Allowance for loan losses | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,335 |
| $ | 5,292 |
| $ | 4,973 |
| $ | 559 |
| $ | 15,748 |
| $ | 520 |
| $ | 12,567 |
| (a) | $ | 13,871 |
| $ | 54,865 |
| Allowance for loan losses | 10 |
| 57 |
| 7 |
| 3 |
| 17 |
| 14 |
| — |
| | 19 |
| 127 |
|
| | (a) | Includes $1,247 million of domestic overdrafts, $10,177 million of margin loans and $1,143 million of other loans at Sept. 30, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2019 | Wealth management loans and mortgages | Other residential mortgages | All other | Foreign | Total | (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Beginning balance | $ | 81 | | $ | 75 | | $ | 22 | | $ | 5 | | $ | 21 | | $ | 16 | | $ | 0 | | $ | 32 | | $ | 252 | | | | | | | | | | | | | | | | | | | | | | Charge-offs | (12) | | 0 | | 0 | | 0 | | (1) | | 0 | | 0 | | 0 | | (13) | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 2 | | 0 | | 0 | | 2 | | Net (charge-offs) recoveries | (12) | | 0 | | 0 | | 0 | | (1) | | 2 | | 0 | | 0 | | (11) | | Provision | (8) | | 2 | | (1) | | (2) | | 0 | | (4) | | 0 | | (4) | | (17) | | Ending balance | $ | 61 | | $ | 77 | | $ | 21 | | $ | 3 | | $ | 20 | | $ | 14 | | $ | 0 | | $ | 28 | | $ | 224 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2019 | 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 |
| $ | 74 |
| $ | 23 |
| $ | 4 |
| $ | 21 |
| $ | 15 |
| $ | — |
| | $ | 29 |
| $ | 248 |
| Charge-offs | — |
| — |
| — |
| — |
| (1 | ) | — |
| — |
| | — |
| (1 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
| | — |
| 2 |
| Net (charge-offs) recoveries | — |
| — |
| — |
| — |
| (1 | ) | 2 |
| — |
| | — |
| 1 |
| Provision | (5 | ) | (2 | ) | (2 | ) | — |
| — |
| (3 | ) | — |
| | 4 |
| (8 | ) | Ending balance | $ | 77 |
| $ | 72 |
| $ | 21 |
| $ | 4 |
| $ | 20 |
| $ | 14 |
| $ | — |
| | $ | 33 |
| $ | 241 |
| Allowance for: | | | | | | | | | | | Loan losses | $ | 23 |
| $ | 57 |
| $ | 8 |
| $ | 4 |
| $ | 17 |
| $ | 14 |
| $ | — |
| | $ | 23 |
| $ | 146 |
| Lending-related commitments | 54 |
| 15 |
| 13 |
| — |
| 3 |
| — |
| — |
| | 10 |
| 95 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 96 |
| $ | — |
| $ | — |
| $ | — |
| $ | 16 |
| $ | — |
| $ | — |
| | $ | — |
| $ | 112 |
| Allowance for loan losses | 10 |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| 10 |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,356 |
| $ | 5,192 |
| $ | 4,574 |
| $ | 662 |
| $ | 15,563 |
| $ | 549 |
| $ | 12,849 |
| (a) | $ | 11,539 |
| $ | 52,284 |
| Allowance for loan losses | 13 |
| 57 |
| 8 |
| 4 |
| 17 |
| 14 |
| — |
| | 23 |
| 136 |
|
| | (a) | Includes $1,575 million of domestic overdrafts, $10,152 million of margin loans and $1,122 million of other loans at June 30, 2019. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2018 | Wealth management loans and mortgages |
| Other residential mortgages |
| All other |
| | Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| | Beginning balance | $ | 76 |
| $ | 74 |
| $ | 24 |
| $ | 6 |
| $ | 23 |
| $ | 18 |
| $ | — |
| | $ | 33 |
| $ | 254 |
| Charge-offs | — |
| — |
| — |
| — |
| — |
| (1 | ) | — |
| | — |
| (1 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| | — |
| 1 |
| Net recoveries | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| Provision | — |
| (1 | ) | 1 |
| — |
| (2 | ) | (1 | ) | — |
| | — |
| (3 | ) | Ending balance | $ | 76 |
| $ | 73 |
| $ | 25 |
| $ | 6 |
| $ | 21 |
| $ | 17 |
| $ | — |
| | $ | 33 |
| $ | 251 |
| Allowance for: | | | | | | | | | | | Loan losses | $ | 17 |
| $ | 53 |
| $ | 9 |
| $ | 6 |
| $ | 17 |
| $ | 17 |
| $ | — |
| | $ | 21 |
| $ | 140 |
| Lending-related commitments | 59 |
| 20 |
| 16 |
| — |
| 4 |
| — |
| — |
| | 12 |
| 111 |
| Individually evaluated for impairment: | | | | | | | | | | | Loan balance | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 4 |
| $ | — |
| $ | — |
| | $ | — |
| $ | 4 |
| Allowance for loan losses | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| Collectively evaluated for impairment: | | | | | | | | | | | Loan balance | $ | 1,928 |
| $ | 5,034 |
| $ | 4,237 |
| $ | 738 |
| $ | 15,848 |
| $ | 623 |
| $ | 15,306 |
| (a) | $ | 10,269 |
| $ | 53,983 |
| Allowance for loan losses | 17 |
| 53 |
| 9 |
| 6 |
| 17 |
| 17 |
| — |
| | 21 |
| 140 |
|
| | (a) | Includes $784 million of domestic overdrafts, $13,326 million of margin loans and $1,196 million of other loans at Sept. 30, 2018. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2019 | Wealth management loans and mortgages |
| Other residential mortgages |
| All other |
| Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| Beginning balance | $ | 81 |
| $ | 75 |
| $ | 22 |
| $ | 5 |
| $ | 21 |
| $ | 16 |
| $ | — |
| $ | 32 |
| $ | 252 |
| Charge-offs | (12 | ) | — |
| — |
| — |
| (1 | ) | — |
| — |
| — |
| (13 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
| — |
| 2 |
| Net (charge-offs) recoveries | (12 | ) | — |
| — |
| — |
| (1 | ) | 2 |
| — |
| — |
| (11 | ) | Provision | (8 | ) | 2 |
| (1 | ) | (2 | ) | — |
| (4 | ) | — |
| (4 | ) | (17 | ) | Ending balance | $ | 61 |
| $ | 77 |
| $ | 21 |
| $ | 3 |
| $ | 20 |
| $ | 14 |
| $ | — |
| $ | 28 |
| $ | 224 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2018 | Wealth management loans and mortgages |
| Other residential mortgages |
| All other |
| Foreign |
| Total |
| (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| Beginning balance | $ | 77 |
| $ | 76 |
| $ | 23 |
| $ | 8 |
| $ | 22 |
| $ | 20 |
| $ | — |
| $ | 35 |
| $ | 261 |
| Charge-offs | — |
| — |
| — |
| — |
| — |
| (1 | ) | — |
| — |
| (1 | ) | Recoveries | — |
| — |
| — |
| — |
| — |
| 2 |
| — |
| — |
| 2 |
| Net recoveries | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| — |
| 1 |
| Provision | (1 | ) | (3 | ) | 2 |
| (2 | ) | (1 | ) | (4 | ) | — |
| (2 | ) | (11 | ) | Ending balance | $ | 76 |
| $ | 73 |
| $ | 25 |
| $ | 6 |
| $ | 21 |
| $ | 17 |
| $ | — |
| $ | 33 |
| $ | 251 |
|
| | Notes to Consolidated Financial Statements(continued)
| |
Nonperforming assets
The table below presents our nonperforming assets.
| | | | | | | | | | Nonperforming assets (in millions) | Sept. 30, 2019 |
| Dec. 31, 2018 |
| | | Nonperforming loans: | | | | Other residential mortgages | $ | 62 |
| $ | 67 |
| | Wealth management loans and mortgages | 24 |
| 9 |
| | Total nonperforming loans | 86 |
| 76 |
| | Other assets owned | 2 |
| 3 |
| | Total nonperforming assets | $ | 88 |
| $ | 79 |
|
| | | | | | | | | | | | | | | Nonperforming assets | Sept. 30, 2020 | Dec. 31, 2019 | | Recorded investment | | With an allowance | Without an allowance | | (in millions) | Total | Nonperforming loans: | | | | | | | | | | Other residential mortgages | $ | 56 | | $ | 0 | | $ | 56 | | $ | 62 | | Wealth management loans and mortgages | 10 | | 17 | | 27 | | 24 | | Total nonperforming loans | 66 | | 17 | | 83 | | 86 | | Other assets owned | 0 | | 1 | | 1 | | 3 | | Total nonperforming assets | $ | 66 | | $ | 18 | | $ | 84 | | $ | 89 | |
At Sept. 30, 2019,2020, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material.
Past due loans
The table below presents our past due loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Past due loans and still accruing interest | Sept. 30, 2020 | | Dec. 31, 2019 | | Days past due | Total past due | | Days past due | Total past due | (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 | Wealth management loans and mortgages | $ | 20 | | $ | 1 | | $ | 0 | | $ | 21 | | | $ | 22 | | $ | 5 | | $ | 0 | | $ | 27 | | Other residential mortgages | 7 | | 0 | | 0 | | 7 | | | 8 | | 3 | | 0 | | 11 | | Financial institutions | 0 | | 0 | | 0 | | 0 | | | 1 | | 30 | | 0 | | 31 | | Commercial real estate | 9 | | 0 | | 0 | | 9 | | | 6 | | 12 | | 0 | | 18 | | Total past due loans | $ | 36 | | $ | 1 | | $ | 0 | | $ | 37 | | | $ | 37 | | $ | 50 | | $ | 0 | | $ | 87 | |
Loan modifications
Due to the coronavirus pandemic, there have increased by $1been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Interagency Guidance. See Note 2 for additional details on the CARES Act and Interagency Guidance. Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic. We modified loans of $106 million in the third quarter of 2019, $42020 and $282 million in the second quarter of 2019, $12020. Nearly all of the modifications were short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate loans. We also modified loans of $56 million in the third quarter of 2018,2020, a majority of which were commercial real estate loans, by providing long-term loan payment modifications and an extension of maturity. We did not identify any of the modifications as troubled debt restructurings (“TDRs”). None of these loans were reported as past due or nonperforming at Sept. 30, 2020. At Sept. 30, 2020, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $174 million. We modified other residential mortgage loans of $4 million in the first nine monthsthird quarter of 2019 and $4 million in the first nine months of 2018 if nonperforming loans at period-end had been performing for the entire respective period.
2019.
Impaired loans
The tables below present information about our impaired loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impaired loans | 3Q19 | 2Q19 | 3Q18 | YTD19 | YTD18 | (in millions) | Average recorded investment |
| Interest revenue recognized |
| Average recorded investment |
| Interest revenue recognized |
| Average recorded investment |
| Interest revenue recognized |
| Average recorded investment |
| Interest revenue recognized |
| Average recorded investment |
| Interest revenue recognized |
| Impaired loans with an allowance: | | | | | | | | | | | Commercial | $ | 48 |
| $ | — |
| $ | 96 |
| $ | — |
| $ | — |
| $ | — |
| $ | 48 |
| $ | — |
| $ | — |
| $ | — |
| Wealth management loans and mortgages | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| Total impaired loans with an allowance | 48 |
| — |
| 96 |
| — |
| — |
| — |
| 48 |
| — |
| 1 |
| — |
| Impaired loans without an allowance: (a) | | | | | | | | | | | Wealth management loans and mortgages | 16 |
| — |
| 10 |
| — |
| 4 |
| — |
| 10 |
| — |
| 4 |
| — |
| Total impaired loans | $ | 64 |
| $ | — |
| $ | 106 |
| $ | — |
| $ | 4 |
| $ | — |
| $ | 58 |
| $ | — |
| $ | 5 |
| $ | — |
|
| | (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. |
| | | | | | | | | | | | | | | | | | | | | Impaired loans | Sept. 30, 2019 | | Dec. 31, 2018 | (in millions) | Recorded investment |
| Unpaid principal balance |
| Related allowance (a) |
| | Recorded investment |
| Unpaid principal balance |
| Related allowance (a) |
| Impaired loans without an allowance: (b) | | | | | | | | Wealth management loans and mortgages | 16 |
| 16 |
| N/A |
| | 4 |
| 4 |
| N/A |
| Total impaired loans (c) | $ | 16 |
| $ | 16 |
| $ | — |
| | $ | 4 |
| $ | 4 |
| $ | — |
|
| | (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, 2019 and Dec. 31, 2018, respectively. The allowance for loan losses associated with these loans totaled less than $1 million at both Sept. 30, 2019 and Dec. 31, 2018, respectively. |
N/A - Not applicable.
| | | Notes to Consolidated Financial Statements (continued) | |
Past due loans
The table below presents our past due loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Past due loans and still accruing interest | Sept. 30, 2019 | | Dec. 31, 2018 | | Days past due | Total past due |
| | Days past due | Total past due |
| (in millions) | 30-59 |
| 60-89 |
| ≥90 |
| 30-59 |
| 60-89 |
| ≥90 |
| Financial institutions | $ | 99 |
| $ | — |
| $ | — |
| $ | 99 |
| | $ | 3 |
| $ | 3 |
| $ | — |
| $ | 6 |
| Wealth management loans and mortgages | 46 |
| — |
| — |
| 46 |
| | 22 |
| 1 |
| 5 |
| 28 |
| Other residential mortgages | 10 |
| 3 |
| — |
| 13 |
| | 12 |
| 6 |
| 7 |
| 25 |
| Commercial real estate | 13 |
| — |
| — |
| 13 |
| | 1 |
| — |
| — |
| 1 |
| Total past due loans | $ | 168 |
| $ | 3 |
| $ | — |
| $ | 171 |
|
| $ | 38 |
| $ | 10 |
| $ | 12 |
| $ | 60 |
|
Troubled debt restructurings
A modified loan is considered a TDR if the debtor is experiencing financial difficulties and the creditor grants a concession to the debtor that would not otherwise be considered. We modified loans of $4 million in the third quarter of 2019, $1 million in the third quarter of 2018 and less than $1 million in the second quarter of 2019. The loans were primarily other residential mortgages.
Credit quality indicators
Our credit strategy is to focus on investment-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 present information about credit quality indicators.
Commercial loan portfolio
| | | | | | | | | | | | | | | | | | | | | | Commercial loan portfolio – Credit risk profile by creditworthiness category | Commercial | | Commercial real estate | | Financial institutions | Sept. 30, 2019 |
| Dec. 31, 2018 |
| | Sept. 30, 2019 |
| Dec. 31, 2018 |
| | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | | | Investment grade | $ | 1,652 |
| $ | 2,036 |
| | $ | 4,753 |
| $ | 4,184 |
| | $ | 11,346 |
| $ | 9,586 |
| Non-investment grade | 41 |
| 96 |
| | 557 |
| 603 |
| | 2,068 |
| 1,997 |
| Total | $ | 1,693 |
| $ | 2,132 |
| | $ | 5,310 |
| $ | 4,787 |
| | $ | 13,414 |
| $ | 11,583 |
|
The table below provides information about the credit profile of the loan portfolio by the period of origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit profile of the loan portfolio | | | | Sept. 30, 2020 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans - Amortized cost | | Accrued interest receivable | (in millions) | YTD20 | 2019 | 2018 | 2017 | 2016 | Prior to 2016 | Total (a) | Commercial: | | | | | | | | | | | Investment grade | $ | 153 | | $ | 73 | | $ | 96 | | $ | 450 | | $ | 57 | | $ | 0 | | $ | 893 | | $ | 0 | | $ | 1,722 | | | Non-investment grade | 85 | | 61 | | 7 | | 0 | | 0 | | 0 | | 66 | | 0 | | 219 | | | Total commercial | 238 | | 134 | | 103 | | 450 | | 57 | | 0 | | 959 | | 0 | | 1,941 | | $ | 1 | | Commercial real estate: | | | | | | | | | | | Investment grade | 611 | | 1,065 | | 542 | | 543 | | 385 | | 430 | | 175 | | 0 | | 3,751 | | | Non-investment grade | 160 | | 526 | | 604 | | 159 | | 367 | | 152 | | 244 | | 29 | | 2,241 | | | Total commercial real estate | 771 | | 1,591 | | 1,146 | | 702 | | 752 | | 582 | | 419 | | 29 | | 5,992 | | 8 | | Financial institutions: | | | | | | | | | | | Investment grade | 60 | | 238 | | 47 | | 125 | | 14 | | 165 | | 8,471 | | 0 | | 9,120 | | | Non-investment grade | 98 | | 36 | | 0 | | 0 | | 0 | | 0 | | 1,758 | | 0 | | 1,892 | | | Total financial institutions | 158 | | 274 | | 47 | | 125 | | 14 | | 165 | | 10,229 | | 0 | | 11,012 | | 13 | | Wealth management loans and mortgages: | | | | | | | | | | | Investment grade | 31 | | 80 | | 11 | | 149 | | 56 | | 85 | | 7,235 | | 0 | | 7,647 | | | Non-investment grade | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 63 | | 0 | | 63 | | | Wealth management mortgages | 781 | | 1,082 | | 682 | | 1,267 | | 1,622 | | 2,748 | | 34 | | 0 | | 8,216 | | | Total wealth management loans and mortgages | 812 | | 1,162 | | 693 | | 1,416 | | 1,678 | | 2,833 | | 7,332 | | 0 | | 15,926 | | 29 | | Lease financings | 126 | | 19 | | 17 | | 10 | | 25 | | 881 | | 0 | | 0 | | 1,078 | | 0 | | Other residential mortgages | 0 | | 0 | | 0 | | 0 | | 0 | | 423 | | 0 | | 0 | | 423 | | 2 | | Other loans | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,658 | | 0 | | 1,658 | | 1 | | Margin loans | 3,553 | | 0 | | 0 | | 0 | | 0 | | 0 | | 9,945 | | 0 | | 13,498 | | 7 | | Total loans | $ | 5,658 | | $ | 3,180 | | $ | 2,006 | | $ | 2,703 | | $ | 2,526 | | $ | 4,884 | | $ | 30,542 | | $ | 29 | | $ | 51,528 | | $ | 61 | |
(a) Excludes overdrafts of $3,963 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 the assigned internal credit ratings, which are generally consistent with those 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 95% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept. 30, 2020. In addition, 75% 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
| | | Notes to Consolidated Financial Statements(continued) | |
institutions is generally short-term, with 89% expiring within one year.
Wealth management loans and mortgages
| | | | | | | | Wealth management loans and mortgages – Credit risk profile by internally assigned grade | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Wealth management loans: | | | Investment grade | $ | 6,966 |
| $ | 6,901 |
| Non-investment grade | 57 |
| 106 |
| Wealth management mortgages | 8,833 |
| 8,958 |
| Total | $ | 15,856 |
| $ | 15,965 |
|
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
| | Notes to Consolidated Financial Statements(continued)
| |
loans are typically investment grade fixed-income securities, equities and/or mutual funds. Internal ratings for this portion of the wealth management portfolio, therefore, would equate to investment-gradeinvestment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets, including business assets, fixed assets or a modest amount of commercial real estate. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed, but we do not consider this portfolio of loans to be investment grade.
Credit quality indicators for wealth management mortgages are not correlated to external ratings. Wealth management mortgages are typically loans to high-net-worth individuals, which are secured primarily by residential property. These loans are primarily interest-only, adjustable rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. InDelinquency rate is a key indicator of credit quality in the wealth management portfolio,portfolio. At Sept. 30, 2020, less than 1% of the mortgages were past due at Sept. 30, 2019.due.
At Sept. 30, 2019,2020, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 23%22%; New York - 18%17%; Massachusetts - 10%; Florida - 8%; and other - 41%43%.
Lease financing
At Sept. 30, 2020, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily large-ticket transportation equipment and real estate. The largest component of our lease residual value exposure is freight-related rail. Assets are both domestic and foreign-based, with primary concentrations in the U.S. and Germany.
Other residential mortgages
The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $520$423 million at Sept. 30, 20192020 and $594$494 million at Dec. 31, 2018.2019. These loans are not typically correlated to external ratings. Included in this portfolio at Sept. 30, 20192020 were $102$76 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007, of which 11%19% of the serviced loan balance was at least 60 days delinquent.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $5.3$4.0 billion at Sept. 30, 20192020 and $5.5$2.7 billion at Dec. 31, 2018.2019. Overdrafts occur on a daily basis primarily 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-income securities.
Margin loans
We had $10.5$13.5 billion of secured margin loans at Sept. 30, 20192020, compared with $13.5$13.4 billion at Dec. 31, 2018.2019. Margin loans are collateralized with marketable securities, and borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. We have rarely suffered a loss on these types of loans and do not allocate any of ourloans.
Reverse repurchase agreements
Reverse repurchase agreements at Sept. 30, 2020 were fully secured with high quality collateral. As a result, there was 0 allowance for credit losses to margin loans.
Reverse repurchase agreements
Reverse repurchase agreements are transactions fully collateralized with high-quality liquid securities. These transactions carry minimal credit risk and therefore are not allocated an allowance for credit losses.
Note 6–Leasing
Significant accounting policy
We determine if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments. The ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. We use our incremental borrowing rate based on the information available at commencement date of the lease in determining the present value of lease payments. In addition to the lease payments, the determination of an ROU asset may also include certain adjustments related to lease incentives and initial direct costs incurred. Options to extend or terminate a lease are included in the determination of the ROU asset and lease liability only when it is reasonably certain that we will exercise that option.
Lease expense for operating leases is recognized on a straight-line basis over the lease term, while the lease expense for finance leases is recognized using the effective interest method. ROUthese assets are reviewed for impairment when events or circumstances indicate that the carrying amount may not be recoverable. Forat Sept. 30, 2020.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 6–Goodwill and intangible assets
operating leases, if deemed impaired, the ROU asset is written down and the remaining balance is subsequently amortized on a straight-line basis which results in lease expense recognition that is similar to finance leases.
We have elected to account for the lease and non-lease components as a single lease component and exclude the non-lease variable components. Additionally, for certain equipment leases, we apply a portfolio approach to account for the operating lease ROU assets and liabilities.
BNY Mellon engages in subleasing activities and reports the rental income as part of net occupancy expense, as this activity is not a significant business activity and is part of the Company’s customary business practice.
BNY Mellon engages in leverage lease transactions that were entered into prior to Dec. 31, 2018. These leases are grandfathered under the new standard and will continue to be accounted for under the prior guidance unless subsequently modified.
Leases
We have operating and finance leases for corporate offices, data centers and certain equipment. Our leases have remaining lease terms of one year to 20 years, some of which include options to extend or terminate the lease. In some of our corporate office locations, we may enter into sublease arrangements for portions or all of the space and/or lease term.
The following table presents the consolidated balance sheet information related to operating and finance leases.
| | | | | | | | | | | Balance sheet information | Sept. 30, 2019 | (dollar in millions) | Operating leases |
| Finance leases |
| Total |
| Right-of-use assets (a) | $ | 1,274 |
| $ | 19 |
| $ | 1,293 |
| Lease liability (b) | $ | 1,488 |
| $ | 6 |
| $ | 1,494 |
| | | | | Weighted average: | | | | Remaining lease term | 9.9 years |
| 3.0 years |
| | Discount rate (annualized) | 2.99 | % | 2.81 | % | |
| | (a) | Included in premises and equipment on the consolidated balance sheet. |
| | (b) | Operating lease liabilities are included in other liabilities and finance lease liabilities are included in other borrowed funds, both on the consolidated balance sheet. |
The following table presents the components of lease expense.
| | | | | | | | | | | Lease expense | Quarter ended | | | Year-to-date | | (in millions) | Sept. 30, 2019 | | Sept. 30, 2019 | | Operating lease expense | | $ | 66 |
| | | $ | 198 |
| Variable lease expense | | 10 |
| | | 29 |
| Sublease income | | (8 | ) | | | (24 | ) | Finance lease expense: | | | | | | Amortization of right-of-use assets | | 2 |
| | | 6 |
| Interest on lease liabilities | | — |
| | | — |
| Total finance lease expense | | $ | 2 |
| | | $ | 6 |
| Total lease expense | | $ | 70 |
| | | $ | 209 |
|
The following table presents cash flow information related to leases.
| | | | | | Cash flow information | Nine months ended | | (in millions) | Sept. 30, 2019 | | Cash paid for amounts included in measurement of liabilities: | | | Operating cash flows from finance leases | $ | — |
| Operating cash flows from operating leases | $ | 203 |
| Financing cash flows from finance leases | $ | 16 |
|
Goodwill
See Note 21 for information on non-cash operating and/or finance lease transactions.
The following table presents the maturity of lease liabilities on operating leases prior to adopting ASU 2016-02, Leases.
| | | | | Maturities of lease liabilities | Operating leases |
| (in millions) | For the year ended Dec. 31, | | 2019 | $ | 264 |
| 2020 | 244 |
| 2021 | 211 |
| 2022 | 172 |
| 2023 | 136 |
| 2024 and thereafter | 432 |
| Total | $ | 1,459 |
|
The tables below provide a breakdown of goodwill by business.
| | | | | | | | | | | | | | | Goodwill by business
(in millions) | Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2019 | $ | 8,332 | | $ | 9,007 | | $ | 47 | | $ | 17,386 | | Foreign currency translation | 21 | | (50) | | 0 | | (29) | | Other (a) | 47 | | 0 | | (47) | | 0 | | Balance at Sept. 30, 2020 | $ | 8,400 | | $ | 8,957 | | $ | 0 | | $ | 17,357 | |
(a) Reflects the transfer of goodwill associated with the Capital Markets business.
| | | | | | | | | | | | | | | Goodwill by business
(in millions) | Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2018 | $ | 8,333 | | $ | 8,970 | | $ | 47 | | $ | 17,350 | | Foreign currency translation | (45) | | (57) | | 0 | | (102) | | Balance at Sept. 30, 2019 | $ | 8,288 | | $ | 8,913 | | $ | 47 | | $ | 17,248 | |
Intangible assets
The tables below provide a breakdown of intangible assets by business.
| | | | | | | | | | | | | | | Intangible assets – net carrying amount by business (in millions)
| Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2019 | $ | 678 | | $ | 1,580 | | $ | 849 | | $ | 3,107 | | Amortization | (54) | | (24) | | 0 | | (78) | | Foreign currency translation | 1 | | (4) | | 0 | | (3) | | Balance at Sept. 30, 2020 | $ | 625 | | $ | 1,552 | | $ | 849 | | $ | 3,026 | |
| | | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions) | Investment Services | Investment and Wealth Management | Other | Consolidated | Balance at Dec. 31, 2018 | $ | 758 | | $ | 1,613 | | $ | 849 | | $ | 3,220 | | Amortization | (61) | | (28) | | 0 | | (89) | | Foreign currency translation | (1) | | (6) | | 0 | | (7) | | Balance at Sept. 30, 2019 | $ | 696 | | $ | 1,579 | | $ | 849 | | $ | 3,124 | |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table presents the maturities of lease liabilities after adopting ASU 2016-02, Leases.
| | | | | | | | Maturities of lease liabilities | Operating leases |
| Finance leases |
| (in millions) | For the year ended Dec. 31, | | | 2019 (excluding nine months ended Sept. 30, 2019) | $ | 80 |
| $ | 5 |
| 2020 | 275 |
| 1 |
| 2021 | 220 |
| — |
| 2022 | 181 |
| — |
| 2023 | 144 |
| — |
| 2024 and thereafter | 803 |
| — |
| Total lease payments | 1,703 |
| 6 |
| Less: Imputed interest | (215 | ) | — |
| Total | $ | 1,488 |
| $ | 6 |
|
Note 7–Goodwill and intangible assets
Goodwill
The tables below provide a breakdown of goodwill by business.
| | | | | | | | | | | | | | Goodwill by business (in millions) | Investment Services |
| Investment Management |
| Other |
| Consolidated |
| Balance at Dec. 31, 2018 | $ | 8,333 |
| $ | 8,970 |
| $ | 47 |
| $ | 17,350 |
| Foreign currency translation | (45 | ) | (57 | ) | — |
| (102 | ) | Balance at Sept. 30, 2019 | $ | 8,288 |
| $ | 8,913 |
| $ | 47 |
| $ | 17,248 |
|
| | | | | | | | | | | | | | Goodwill by business (in millions) | Investment Services |
| Investment Management |
| Other |
| Consolidated |
| Balance at Dec. 31, 2017 | $ | 8,389 |
| $ | 9,128 |
| $ | 47 |
| $ | 17,564 |
| Dispositions | — |
| (65 | ) | — |
| (65 | ) | Foreign currency translation | (39 | ) | (70 | ) | — |
| (109 | ) | Balance at Sept. 30, 2018 | $ | 8,350 |
| $ | 8,993 |
| $ | 47 |
| $ | 17,390 |
|
Intangible assets
The tables below provide a breakdown of intangible assets by business.
| | | | | | | | | | | | | | Intangible assets – net carrying amount by business (in millions) | Investment Services |
| Investment Management |
| Other |
| Consolidated |
| Balance at Dec. 31, 2018 | $ | 758 |
| $ | 1,613 |
| $ | 849 |
| $ | 3,220 |
| Amortization | (61 | ) | (28 | ) | — |
| (89 | ) | Foreign currency translation | (1 | ) | (6 | ) | — |
| (7 | ) | Balance at Sept. 30, 2019 | $ | 696 |
| $ | 1,579 |
| $ | 849 |
| $ | 3,124 |
|
| | | | | | | | | | | | | | Intangible assets – net carrying amount by business (in millions) | Investment Services |
| Investment Management |
| Other |
| Consolidated |
| Balance at Dec. 31, 2017 | $ | 888 |
| $ | 1,674 |
| $ | 849 |
| $ | 3,411 |
| Amortization | (107 | ) | (38 | ) | — |
| (145 | ) | Foreign currency translation | (1 | ) | (7 | ) | — |
| (8 | ) | Balance at Sept. 30, 2018 | $ | 780 |
| $ | 1,629 |
| $ | 849 |
| $ | 3,258 |
|
| | Notes to Consolidated Financial Statements(continued)
| |
The table below provides a breakdown of intangible assets by type.
| | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 30, 2019 | | Dec. 31, 2018 | (in millions) | Gross carrying amount |
| Accumulated amortization |
| Net carrying amount |
| Remaining weighted- average amortization period | | Gross carrying amount |
| Accumulated amortization |
| Net carrying amount |
| Subject to amortization: (a) | | | | | | | | | Customer contracts—Investment Services | $ | 1,516 |
| $ | (1,191 | ) | $ | 325 |
| 10 years | | $ | 1,572 |
| $ | (1,186 | ) | $ | 386 |
| Customer relationships—Investment Management | 890 |
| (714 | ) | 176 |
| 11 years | | 899 |
| (699 | ) | 200 |
| Other | 64 |
| (15 | ) | 49 |
| 14 years | | 26 |
| (12 | ) | 14 |
| Total subject to amortization | 2,470 |
| (1,920 | ) | 550 |
| 11 years | | 2,497 |
| (1,897 | ) | 600 |
| Not subject to amortization: (b) | | | | | | | | | Tradenames | 1,291 |
| N/A |
| 1,291 |
| N/A | | 1,332 |
| N/A |
| 1,332 |
| Customer relationships | 1,283 |
| N/A |
| 1,283 |
| N/A | | 1,288 |
| N/A |
| 1,288 |
| Total not subject to amortization | 2,574 |
| N/A |
| 2,574 |
| N/A | | 2,620 |
| N/A |
| 2,620 |
| Total intangible assets | $ | 5,044 |
| $ | (1,920 | ) | $ | 3,124 |
| N/A | | $ | 5,117 |
| $ | (1,897 | ) | $ | 3,220 |
|
| | (a) | Excludes fully amortized intangible assets. |
| | (b) | Intangible assets not subject to amortization have an indefinite life. |
N/A - Not applicable. | | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 30, 2020 | | Dec. 31, 2019 | (in millions) | Gross carrying amount | Accumulated amortization | Net carrying amount | Remaining weighted- average amortization period | | Gross carrying amount | Accumulated amortization | Net carrying amount | Subject to amortization: (a) | | | | | | | | | Customer contracts—Investment Services | $ | 1,482 | | $ | (1,228) | | $ | 254 | | 10 years | | $ | 1,520 | | $ | (1,214) | | $ | 306 | | Customer relationships—Investment and Wealth Management | 711 | | (563) | | 148 | | 10 years | | 712 | | (544) | | 168 | | Other | 64 | | (21) | | 43 | | 14 years | | 64 | | (16) | | 48 | | Total subject to amortization | 2,257 | | (1,812) | | 445 | | 10 years | | 2,296 | | (1,774) | | 522 | | Not subject to amortization: (b) | | | | | | | | | Tradenames | 1,292 | | N/A | 1,292 | | N/A | | 1,293 | | N/A | 1,293 | | Customer relationships | 1,289 | | N/A | 1,289 | | N/A | | 1,292 | | N/A | 1,292 | | Total not subject to amortization | 2,581 | | N/A | 2,581 | | N/A | | 2,585 | | N/A | 2,585 | | Total intangible assets | $ | 4,838 | | $ | (1,812) | | $ | 3,026 | | N/A | | $ | 4,881 | | $ | (1,774) | | $ | 3,107 | |
(a) Excludes fully amortized intangible assets.
(b)Intangible assets not subject to amortization have an indefinite life.
Estimated annual amortization expense for current intangibles for the next five years is as follows:
| | | | | | For the year ended Dec. 31, | Estimated amortization expense (in millions) | | 2019 | | $ | 117 |
| 2020 | | 104 |
| 2021 | | 81 |
| 2022 | | 63 |
| 2023 | | 52 |
|
| | | | | | | | | For the year ended Dec. 31, | Estimated amortization expense (in millions) | 2020 | | $ | 104 | | 2021 | | 81 | | 2022 | | 63 | | 2023 | | 52 | | 2024 | | 45 | |
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 3 business segments include 76 reporting units for which goodwill impairment testing is performed on an annual basis. The Investment Services segment is comprised of 4 reporting units;units and the Investment and Wealth Management segment is comprised of 2 reporting units and 1 reporting unit is included in the Other segment.units. As a result of the annual goodwill impairment test of the 76 reporting units conducted in the second quarter of 2019, 2020, 0 goodwill impairment was recognized.
Note 8–7–Other assets
The following table provides the components of other assets presented on the consolidated balance sheet.
| | | | | | | | | Other assets | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | Corporate/bank-owned life insurance | $ | 5,276 | | $ | 5,219 | | Accounts receivable | 3,549 | | 3,802 | | Fails to deliver | 2,192 | | 1,671 | | Software | 1,832 | | 1,590 | | Prepaid pension assets | 1,599 | | 1,464 | | Equity in a joint venture and other investments | 1,190 | | 1,102 | | Renewable energy investments | 1,057 | | 1,144 | | Qualified affordable housing project investments | 997 | | 1,024 | | Prepaid expense | 522 | | 491 | | Federal Reserve Bank stock | 478 | | 466 | | Income taxes receivable | 332 | | 388 | | Seed capital | 200 | | 184 | | Fair value of hedging derivatives | 56 | | 21 | | Other (a) | 1,499 | | 1,655 | | Total other assets | $ | 20,779 | | $ | 20,221 | |
(a) At Sept. 30, 2020 and Dec. 31, 2019, other assets include $8 million and $22 million, respectively, of Federal Home Loan Bank stock, at cost.
| | | | | | | | Other assets | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Corporate/bank-owned life insurance | $ | 5,179 |
| $ | 4,937 |
| Accounts receivable | 3,319 |
| 3,692 |
| Fails to deliver | 3,091 |
| 2,274 |
| Software | 1,706 |
| 1,652 |
| Prepaid pension assets | 1,479 |
| 1,357 |
| Equity in a joint venture and other investments | 1,178 |
| 1,064 |
| Renewable energy investments | 1,174 |
| 1,264 |
| Qualified affordable housing project investments | 1,047 |
| 999 |
| Income taxes receivable | 512 |
| 1,125 |
| Federal Reserve Bank stock | 465 |
| 484 |
| Prepaid expense | 461 |
| 385 |
| Fair value of hedging derivatives | 287 |
| 289 |
| Seed capital | 167 |
| 224 |
| Other (a) | 1,662 |
| 1,552 |
| Total other assets | $ | 21,727 |
| $ | 21,298 |
|
| | | (a)Notes to Consolidated Financial Statements(continued) | At Sept. 30, 2019 and Dec. 31, 2018, other assets include $23 million and $111 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
| | Notes to Consolidated Financial Statements(continued)
| |
price changes in orderly transactions for an identical or similar investment of the same issuer. The observable price changes are recorded in investment and other income on the consolidated income statement. Our non-readily marketable equity securities totaled $62$112 million at Sept. 30, 20192020 and $55$61 million at Dec. 31, 20182019 and are included in equity in a joint venture and other investments in the table above.
The following table presents the adjustments on the non-readily marketable equity securities.
| | | | | | | | | | | | | | | | | | | | Non-readily marketable equity securities | | Life-to-date |
| (in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Upward adjustments | $ | 1 |
| $ | 2 |
| $ | 3 |
| $ | 3 |
| $ | 28 |
| $ | 31 |
| Downward adjustments | — |
| (1 | ) | (1 | ) | (1 | ) | (1 | ) | (2 | ) | Net adjustments | $ | 1 |
| $ | 1 |
| $ | 2 |
| $ | 2 |
| $ | 27 |
| $ | 29 |
|
| | | | | | | | | | | | | | | | | | | | | Adjustments on non-readily marketable equity securities | Life-to-date | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | Upward adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 3 | | $ | 42 | | Downward adjustments | 0 | | 0 | | 0 | | 0 | | (1) | | (4) | | Net adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 2 | | $ | 38 | |
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 $1.0 billion at both Sept. 30, 20192020 and Dec. 31, 2018.2019. Commitments to fund future investments in qualified affordable housing projects totaled $504$388 million at Sept. 30, 20192020 and $479$422 million at Dec. 31, 20182019 and are recorded in other liabilities. A summary of the commitments to fund future investments is as follows: 20192020 – $59$40 million; 20202021 – $173$187 million; 20212022 – $161$99 million; 20222023 – $81$36 million; 20232024 – $6$1 million; and 20242025 and thereafter – $25 million. $24 million.
Tax credits and other tax benefits recognized were $35 million in the third quarter of 2020, $38 million in the second quarter of 2020, $39 million in the third quarter of 2019, $40$111 million in the third quarterfirst nine months of 2018, $39 million in the second quarter of 2019,2020 and $117 million in the first nine months of 2019 and $122 million in the first nine months of 2018.2019.
Amortization expense included in the provision for income taxes was $30 million in the third quarter of 2020, $31 million in the second quarter of 2020, $33 million in the third quarter of 2019, $34$92 million in the third quarterfirst nine months of 2018, $32 million in the second quarter of 2019,2020 and $97 million in the first nine months of 2019 and $102 million in the first nine months of 2018.2019.
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 multi-asset and alternative investment funds for institutions and other investors. As part of that activity, we make seed capital investments in certain funds.funds we manage. We also hold private equity investments, specifically small business investment companies (“SBICs”), which are compliant with the Volcker Rule, and certain other corporate investments. Seed capital, private equity and other corporate investments are included in other assets on the consolidated balance sheet. The fair value of certain of these investments was estimated using the net asset value (“NAV”)NAV per share for BNY Mellon’sour ownership interest in the funds.
The table below presents information on our investments valued using NAV.
| | | | | | | | | | | | | | | | | | | | | Investments valued using NAV | | Sept. 30, 2019 | | Dec. 31, 2018 | (dollars in millions) | Fair value |
| Unfunded commitments | | Redemption frequency | Redemption notice period | | Fair value |
| Unfunded commitments | | Redemption frequency | Redemption notice period | Seed capital | $ | 59 |
| | $ | — |
| Daily-quarterly | 1-90 days | | $ | 54 |
| | $ | — |
| Daily-quarterly | 1-90 days | Private equity investments (SBICs) (a) | 86 |
| | 49 |
| N/A | N/A | | 74 |
| | 41 |
| N/A | N/A | Other (b) | 32 |
| | — |
| Daily-quarterly | 1-95 days | | 87 |
| | — |
| Daily-quarterly | 1-95 days | Total | $ | 177 |
| | $ | 49 |
| | | | $ | 215 |
| | $ | 41 |
| | |
| | (a) | Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated. |
| | (b) | Primarily relates to investments in funds that relate to deferred compensation arrangements with employees. |
N/A - Not applicable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Investments valued using NAV | Sept. 30, 2020 | | | | Dec. 31, 2019 | | | (in millions) | Fair value | Unfunded commitments | | | | Fair value | Unfunded commitments | | | Seed capital (a) | $ | 44 | | | $ | 11 | | | | | $ | 59 | | | $ | 0 | | | | Private equity investments (SBICs) (b) | 97 | | | 55 | | | | | 89 | | | 55 | | | | Other (c) | 43 | | | 0 | | | | | 33 | | | 0 | | | | Total | $ | 184 | | | $ | 66 | | | | | $ | 181 | | | $ | 55 | | | |
BNY Mellon 67(a)Primarily includes leveraged loans and structured credit funds, which are generally not redeemable. Distributions from such investments will be received as the underlying investments in the funds, which have lives of six to 11 years at Sept. 30, 2020 and lives of six years at Dec. 31, 2019, are liquidated.
(b) Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated.
(c) Primarily includes investments in funds that relate to deferred compensation arrangements with employees. Investments in funds can be redeemed on a monthly to quarterly basis with redemption notice periods of up to 95 days.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 9–8–Contract revenue
Fee revenue in Investment Services and Investment and Wealth Management is primarily variable, based on levels of AUC/A, AUMassets under custody and/or administration, assets under management and the level of client-driven transactions, as specified in fee schedules. See Note 910 of the Notes to Consolidated Financial Statements in our 20182019 Annual Report for information on the nature of our services and revenue recognition. See Note 2324 of the Notes to Consolidated Financial StatementStatements in our 20182019 Annual Report for additional information on our principal businesses, Investment Services and Investment and Wealth Management, and the primary services provided.
Disaggregation of contract revenue
Contract revenue is included in fee revenue on the consolidated income statement. The following tables presenttable presents fee revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment. Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | Quarter ended | | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 (a) | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | IS | IWM | Other | Total | Fee revenue - contract revenue: | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | Asset servicing fees | $ | 1,143 | | $ | 25 | | $ | (13) | | $ | 1,155 | | | $ | 1,147 | | $ | 25 | | $ | (15) | | $ | 1,157 | | | $ | 1,106 | | $ | 20 | | $ | (5) | | $ | 1,121 | | Clearing services fees | 397 | | 0 | | 0 | | 397 | | | 431 | | 0 | | 0 | | 431 | | | 419 | | 0 | | 0 | | 419 | | Issuer services fees | 296 | | 0 | | 0 | | 296 | | | 277 | | 0 | | 0 | | 277 | | | 324 | | 0 | | 0 | | 324 | | Treasury services fees | 153 | | 1 | | (2) | | 152 | | | 144 | | 0 | | 1 | | 145 | | | 140 | | 0 | | 0 | | 140 | | Total investment services fees | 1,989 | | 26 | | (15) | | 2,000 | | | 1,999 | | 25 | | (14) | | 2,010 | | | 1,989 | | 20 | | (5) | | 2,004 | | Investment management and performance fees | 4 | | 838 | | (3) | | 839 | | | 4 | | 792 | | (5) | | 791 | | | 4 | | 829 | | (4) | | 829 | | Financing-related fees | 13 | | 1 | | 1 | | 15 | | | 23 | | 1 | | 0 | | 24 | | | 14 | | 0 | | 0 | | 14 | | Distribution and servicing | (2) | | 31 | | 0 | | 29 | | | (7) | | 34 | | 0 | | 27 | | | (12) | | 45 | | 0 | | 33 | | Investment and other income | 57 | | (33) | | (2) | | 22 | | | 62 | | (41) | | 3 | | 24 | | | 72 | | (50) | | 0 | | 22 | | Total fee revenue - contract revenue | 2,061 | | 863 | | (19) | | 2,905 | | | 2,081 | | 811 | | (16) | | 2,876 | | | 2,067 | | 844 | | (9) | | 2,902 | | Fee and other revenue - not in scope of Accounting Standards Codification (“ASC”) 606 (b)(c) | 185 | | 8 | | 39 | | 232 | | | 258 | | 27 | | 54 | | 339 | | | 229 | | (6) | | 3 | | 226 | | Total fee and other revenue (loss) | $ | 2,246 | | $ | 871 | | $ | 20 | | $ | 3,137 | | | $ | 2,339 | | $ | 838 | | $ | 38 | | $ | 3,215 | | | $ | 2,296 | | $ | 838 | | $ | (6) | | $ | 3,128 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment (a) | | | | | | | | | | | | Quarter ended | | Sept. 30, 2019 | | June 30, 2019 | | Sept. 30, 2018 | (in millions) | IS |
| IM |
| Other |
| Total |
| | IS |
| IM |
| Other |
| Total |
| | IS |
| IM |
| Other |
| Total |
| Fee revenue - contract revenue: | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | Asset servicing fees | $ | 1,100 |
| $ | 20 |
| $ | 1 |
| $ | 1,121 |
| | $ | 1,089 |
| $ | 20 |
| $ | — |
| $ | 1,109 |
| | $ | 1,103 |
| $ | 21 |
| $ | — |
| $ | 1,124 |
| Clearing services fees (b) | 419 |
| — |
| — |
| 419 |
| | 411 |
| — |
| (1 | ) | 410 |
| | 393 |
| — |
| — |
| 393 |
| Issuer services fees | 324 |
| — |
| — |
| 324 |
| | 291 |
| — |
| — |
| 291 |
| | 288 |
| — |
| — |
| 288 |
| Treasury services fees | 140 |
| — |
| — |
| 140 |
| | 140 |
| 1 |
| — |
| 141 |
| | 136 |
| — |
| — |
| 136 |
| Total investment services fees (b) | 1,983 |
| 20 |
| 1 |
| 2,004 |
| | 1,931 |
| 21 |
| (1 | ) | 1,951 |
| | 1,920 |
| 21 |
| — |
| 1,941 |
| Investment management and performance fees (b) | 4 |
| 825 |
| — |
| 829 |
| | 4 |
| 829 |
| — |
| 833 |
| | 3 |
| 904 |
| — |
| 907 |
| Financing-related fees | 14 |
| — |
| — |
| 14 |
| | 16 |
| — |
| 1 |
| 17 |
| | 13 |
| — |
| 1 |
| 14 |
| Distribution and servicing | (12 | ) | 45 |
| — |
| 33 |
| | (13 | ) | 44 |
| — |
| 31 |
| | (13 | ) | 48 |
| — |
| 35 |
| Investment and other income | 72 |
| (50 | ) | — |
| 22 |
| | 69 |
| (48 | ) | — |
| 21 |
| | 71 |
| (51 | ) | (1 | ) | 19 |
| Total fee revenue - contract revenue | 2,061 |
| 840 |
| 1 |
| 2,902 |
| | 2,007 |
| 846 |
| — |
| 2,853 |
| | 1,994 |
| 922 |
| — |
| 2,916 |
| Fee and other revenue - not in scope of ASC 606 (c)(d) | 230 |
| (7 | ) | 3 |
| 226 |
| | 220 |
| 4 |
| 41 |
| 265 |
| | 236 |
| 16 |
| 7 |
| 259 |
| Total fee and other revenue | $ | 2,291 |
| $ | 833 |
| $ | 4 |
| $ | 3,128 |
| | $ | 2,227 |
| $ | 850 |
| $ | 41 |
| $ | 3,118 |
| | $ | 2,230 |
| $ | 938 |
| $ | 7 |
| $ | 3,175 |
|
(a) Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate. See Note 19 for additional information related to the reclassifications. | | (a) | Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. |
| | (b) | In the first quarter of 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior periods have been reclassified. |
| | (c) | Primarily includes foreign exchange and other trading revenue, financing-related fees, asset servicing fees, investment and other income and net securities gains (losses), all of which are accounted for using other accounting guidance. |
| | (d) | The Investment Management business includes income from consolidated investment management funds, net of noncontrolling interests, of $- million in the third quarter of 2019, $6 million in the second quarter of 2019 and $7 million in the third quarter of 2018. |
(b) Primarily includes foreign exchange and other trading revenue, financing-related fees, investment and other income (loss), asset servicing fees and net securities gains (losses), all of which are accounted for using other accounting guidance. (c) The Investment and Wealth Management business segment includes income from consolidated investment management funds, net of noncontrolling interests, of $20 millionin the third quarter of 2020, $39 million in the second quarter of 2020 and $— millionin the third quarter of 2019. IS - Investment Services business segment. IMIWM - Investment and Wealth Management business segment.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 (a) | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | Fee revenue - contract revenue: | | | | | | | | | | Investment services fees: | | | | | | | | | | Asset servicing fees | $ | 3,417 | | $ | 73 | | $ | (39) | | $ | 3,451 | | | $ | 3,282 | | $ | 60 | | $ | (19) | | $ | 3,323 | | Clearing services fees | 1,298 | | 0 | | 0 | | 1,298 | | | 1,228 | | 0 | | (1) | | 1,227 | | Issuer services fees | 836 | | 0 | | 0 | | 836 | | | 866 | | 0 | | 0 | | 866 | | Treasury services fees | 446 | | 1 | | (1) | | 446 | | | 412 | | 1 | | 0 | | 413 | | Total investment services fees | 5,997 | | 74 | | (40) | | 6,031 | | | 5,788 | | 61 | | (20) | | 5,829 | | Investment management and performance fees | 13 | | 2,492 | | (12) | | 2,493 | | | 12 | | 2,503 | | (12) | | 2,503 | | Financing-related fees | 64 | | 2 | | 1 | | 67 | | | 47 | | 0 | | 1 | | 48 | | Distribution and servicing | (21) | | 108 | | 0 | | 87 | | | (39) | | 134 | | 0 | | 95 | | Investment and other income | 191 | | (124) | | 1 | | 68 | | | 210 | | (147) | | 0 | | 63 | | Total fee revenue - contract revenue | 6,244 | | 2,552 | | (50) | | 8,746 | | | 6,018 | | 2,551 | | (31) | | 8,538 | | Fee and other revenue - not in scope of ASC 606 (b)(c) | 777 | | 3 | | 138 | | 918 | | | 672 | | 10 | | 74 | | 756 | | Total fee and other revenue | $ | 7,021 | | $ | 2,555 | | $ | 88 | | $ | 9,664 | | | $ | 6,690 | | $ | 2,561 | | $ | 43 | | $ | 9,294 | |
(a) Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate. See Note 19 for additional information related to the reclassifications. | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment (a) | | | | | | | Year-to-date | | Sept. 30, 2019 | | Sept. 30, 2018 | (in millions) | IS |
| IM |
| Other |
| Total |
| | IS |
| IM |
| Other |
| Total |
| Fee revenue - contract revenue: | | | | | | | | | | Investment services fees: | | | | | | | | | | Asset servicing fees | $ | 3,262 |
| $ | 60 |
| $ | 1 |
| $ | 3,323 |
| | $ | 3,318 |
| $ | 67 |
| $ | 1 |
| $ | 3,386 |
| Clearing services fees (b) | 1,228 |
| — |
| (1 | ) | 1,227 |
| | 1,217 |
| — |
| 1 |
| 1,218 |
| Issuer services fees | 866 |
| — |
| — |
| 866 |
| | 813 |
| — |
| — |
| 813 |
| Treasury services fees | 412 |
| 1 |
| — |
| 413 |
| | 414 |
| 1 |
| — |
| 415 |
| Total investment services fees (b) | 5,768 |
| 61 |
| — |
| 5,829 |
| | 5,762 |
| 68 |
| 2 |
| 5,832 |
| Investment management and performance fees (b) | 12 |
| 2,491 |
| — |
| 2,503 |
| | 12 |
| 2,739 |
| — |
| 2,751 |
| Financing-related fees | 47 |
| — |
| 1 |
| 48 |
| | 45 |
| — |
| 1 |
| 46 |
| Distribution and servicing | (39 | ) | 134 |
| — |
| 95 |
| | (41 | ) | 146 |
| — |
| 105 |
| Investment and other income | 210 |
| (147 | ) | — |
| 63 |
| | 209 |
| (152 | ) | — |
| 57 |
| Total fee revenue - contract revenue | 5,998 |
| 2,539 |
| 1 |
| 8,538 |
| | 5,987 |
| 2,801 |
| 3 |
| 8,791 |
| Fee and other revenue - not in scope of ASC 606 (c)(d) | 674 |
| 8 |
| 74 |
| 756 |
| | 726 |
| 90 |
| 53 |
| 869 |
| Total fee and other revenue | $ | 6,672 |
| $ | 2,547 |
| $ | 75 |
| $ | 9,294 |
| | $ | 6,713 |
| $ | 2,891 |
| $ | 56 |
| $ | 9,660 |
|
(b) Primarily includes foreign exchange and other trading revenue, financing-related fees, investment and other income (loss), asset servicing fees and net securities gains (losses), all of which are accounted for using other accounting guidance. | | (a) | Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. |
| | (b) | In the first quarter of 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior periods have been reclassified. |
| | (c) | Primarily includes foreign exchange and other trading revenue, financing-related fees, asset servicing fees, investment and other income and net securities gains (losses), all of which are accounted for using other accounting guidance. |
| | (d) | The Investment Management business includes income from consolidated investment management funds, net of noncontrolling interests, of $22 million in the first nine months of 2019 and $12 million in the first nine months of 2018. |
(c) The Investment and Wealth Management business segment includes income from consolidated investment management funds, net of noncontrolling interests, of $39 million in the first nine months of 2020 and $22 million in the first nine months of 2019. IS - Investment Services business segment. IMIWM - Investment and Wealth Management business segment.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.4$2.5 billion at Sept. 30, 20192020 and $2.5$2.4 billion at Dec. 31, 2018. An allowance is maintained for accounts receivable which is generally based on the number of days outstanding. Adjustments to the allowance are recorded in other expense on the consolidated income statement. We recorded a provision of $2 million in the third quarter of 2019, third quarter of 2018 and second quarter of 2019 and $8 million in the first nine months of 2019 and first nine months of 2018.2019.
Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time and were $47$57 million at Sept. 30, 20192020 and $36$32 million at Dec. 31, 2018.2019. Accrued revenues recorded as contract assets are usually billed on an annual basis. There were 0 impairments recorded on contract assets in the first nine months of 2019.
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 $193$187 million at Sept. 30, 20192020 and $171168 million at Dec. 31, 2018.2019. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the third quarter of 20192020 relating to contract liabilities as of June 30, 20192020 was $61$65 million. Revenue recognized in the first nine months of 20192020 relating to contract liabilities as of Dec. 31, 20182019 was $91$95 million.
Changes in contract assets and liabilities primarily relate to either party’s performance under the contracts.
Contract costs
Incremental costs for obtaining contracts that are deemed recoverable are capitalized as contract costs. Such costs result from the payment of sales incentives, primarily in the Wealth Management business, and totaled $91$77 million at Sept. 30, 20192020 and $98$86 million at Dec. 31, 2018.2019. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate and typically average nine years. The amortization of capitalized sales incentives, which is primarily included in staff expense on the consolidated income
| | Notes to Consolidated Financial Statements(continued)
| |
statement, totaled $6 million in the third quarter of 2020, $7 million in the third quarter of 2019, $6 million in the third quarter of 2018, $5 million in the second quarter of 20192020, $16 million in the first nine months of 2020 and $17 million in the first nine months of 2019 and first nine months of 2018.
2019.
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
| | | Notes to Consolidated Financial Statements(continued) | |
fulfillment of the performance obligation, and totaled $17$12 million at Sept. 30, 20192020 and $20$16 million at Dec. 31, 2018.2019. These capitalized costs are amortized on a straight-line basis over the expected contract period, which generally rangeranges from seven to nine years. The amortization is included in professional, legal and other expensepurchased services and other expenses on the consolidated income statement and totaled $1 million in the third quarter of 20192020 and third quarter of 2018,2019, $2 million in the second quarter of 20192020 and $4 million in the first nine months of 20192020 and first nine months of 2018.
2019. There were 0 impairments recorded on capitalized contract costs in the first nine months of 2019.2020.
Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to a practical expedient election under Accounting Standards Codification (“ASC”)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 10–9–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, 2019 |
| | June 30, 2019 |
| Sept. 30, 2018 |
| | Sept. 30, 2019 |
| | Sept. 30, 2018 |
| Interest revenue | | | | | | | | | Deposits with the Federal Reserve and other central banks | $ | 102 |
| | $ | 113 |
| $ | 125 |
| | $ | 354 |
| | $ | 387 |
| Deposits with banks | 73 |
| | 64 |
| 59 |
| | 200 |
| | 157 |
| Federal funds sold and securities purchased under resale agreements | 660 |
| | 568 |
| 281 |
| | 1,702 |
| | 681 |
| Margin loans | 104 |
| | 119 |
| 129 |
| | 358 |
| | 372 |
| Non-margin loans | 287 |
| (a) | 365 |
| 344 |
| | 1,007 |
| (a) | 994 |
| Securities: | | | | | | | | | Taxable | 669 |
| | 687 |
| 650 |
| | 2,062 |
| | 1,846 |
| Exempt from federal income taxes | 7 |
| | 10 |
| 14 |
| | 29 |
| | 43 |
| Total securities | 676 |
| | 697 |
| 664 |
| | 2,091 |
| | 1,889 |
| Trading securities | 40 |
| | 39 |
| 32 |
| | 115 |
| | 88 |
| Total interest revenue | 1,942 |
| | 1,965 |
| 1,634 |
| | 5,827 |
| | 4,568 |
| Interest expense | | | | | | | | | Deposits | 437 |
| | 432 |
| 237 |
| | 1,260 |
| | 527 |
| Federal funds purchased and securities sold under repurchase agreements | 443 |
| | 372 |
| 190 |
| | 1,146 |
| | 455 |
| Trading liabilities | 8 |
| | 11 |
| 7 |
| | 26 |
| | 23 |
| Other borrowed funds | 10 |
| | 20 |
| 16 |
| | 54 |
| | 39 |
| Commercial paper | 22 |
| | 18 |
| 16 |
| | 48 |
| | 49 |
| Customer payables | 59 |
| | 69 |
| 51 |
| | 198 |
| | 127 |
| Long-term debt | 233 |
| | 241 |
| 226 |
| | 722 |
| | 622 |
| Total interest expense | 1,212 |
| | 1,163 |
| 743 |
| | 3,454 |
| | 1,842 |
| Net interest revenue | 730 |
| | 802 |
| 891 |
| | 2,373 |
| | 2,726 |
| Provision for credit losses | (16 | ) | | (8 | ) | (3 | ) | | (17 | ) | | (11 | ) | Net interest revenue after provision for credit losses | $ | 746 |
| | $ | 810 |
| $ | 894 |
| | $ | 2,390 |
| | $ | 2,737 |
|
| | (a) | | | | | | | | | | | | | | | | | | | | | | | | | | Net interest revenue | Quarter ended | | Year-to-date | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | Interest revenue | | | | | | | | | Deposits with the Federal Reserve and other central banks | $ | (10) | | $ | (7) | | $ | 102 | | | $ | 63 | | $ | 354 | | | | Deposits with banks | 20 | | 40 | | 73 | | | 118 | | 200 | | | | Federal funds sold and securities purchased under resale agreements | 48 | | 61 | | 660 | | | 505 | | 1,702 | | | | Margin loans | 41 | | 40 | | 104 | | | 168 | | 358 | | | | Non-margin loans | 199 | | 230 | | 287 | | (a) | 738 | | 1,007 | | (a) | | Securities: | | | | | | | | | Taxable | 499 | | 556 | | 669 | | | 1,649 | | 2,062 | | | | Exempt from federal income taxes | 7 | | 6 | | 7 | | | 19 | | 29 | | | | Total securities | 506 | | 562 | | 676 | | | 1,668 | | 2,091 | | | | Trading securities | 16 | | 17 | | 40 | | | 73 | | 115 | | | | Total interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | | Interest expense | | | | | | | | | | | | | | | | | | Deposits | (29) | | (17) | | 437 | | | 194 | | 1,260 | | | | Federal funds purchased and securities sold under repurchase agreements | 6 | | 1 | | 443 | | | 282 | | 1,146 | | | | Trading liabilities | 2 | | 2 | | 8 | | | 11 | | 26 | | | | Other borrowed funds | 3 | | 7 | | 10 | | | 14 | | 54 | | | | Commercial paper | 0 | | 1 | | 22 | | | 7 | | 48 | | | | Customer payables | 0 | | (1) | | 59 | | | 29 | | 198 | | | | Long-term debt | 135 | | 170 | | 233 | | | 499 | | 722 | | | | Total interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | | Net interest revenue after provision for credit losses | $ | 694 | | $ | 637 | | $ | 746 | | | $ | 1,976 | | $ | 2,390 | | | |
(a) Includes the impact of a lease-related impairment of $70 million. |
| | | Notes to Consolidated Financial Statements (continued) | |
Note 11–10–Employee benefit plans
The components of net periodic benefit (credit) cost are 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, 2019 | | June 30, 2019 | | Sept. 30, 2018 | (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 |
| $ | — |
| | $ | — |
| $ | 3 |
| $ | — |
| | $ | — |
| $ | 7 |
| $ | 1 |
| Interest cost | 44 |
| 8 |
| 2 |
| | 45 |
| 8 |
| 1 |
| | 42 |
| 8 |
| 1 |
| Expected return on assets | (84 | ) | (11 | ) | (1 | ) | | (84 | ) | (12 | ) | (2 | ) | | (85 | ) | (14 | ) | (2 | ) | Other | 13 |
| — |
| (1 | ) | | 13 |
| 1 |
| — |
| | 19 |
| 5 |
| (1 | ) | Net periodic benefit (credit) cost | $ | (27 | ) | $ | — |
| $ | — |
| | $ | (26 | ) | $ | — |
| $ | (1 | ) | | $ | (24 | ) | $ | 6 |
| $ | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Quarter ended | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | (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 | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | Interest cost | 39 | | 7 | | 2 | | | 39 | | 6 | | 1 | | | 44 | | 8 | | 2 | | Expected return on assets | (80) | | (10) | | (2) | | | (79) | | (9) | | (2) | | | (84) | | (11) | | (1) | | Other | 22 | | 2 | | (1) | | | 21 | | 3 | | 0 | | | 13 | | 0 | | (1) | | Net periodic benefit (credit) cost | $ | (19) | | $ | 2 | | $ | (1) | | | $ | (19) | | $ | 3 | | $ | (1) | | | $ | (27) | | $ | 0 | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Year-to-date | | Sept. 30, 2019 | | Sept. 30, 2018 | (in millions) | Domestic pension benefits |
| Foreign pension benefits |
| Health care benefits |
| | Domestic pension benefits |
| Foreign pension benefits |
| Health care benefits |
| Service cost | $ | — |
| $ | 9 |
| $ | — |
| | $ | — |
| $ | 21 |
| $ | 1 |
| Interest cost | 133 |
| 24 |
| 5 |
| | 127 |
| 24 |
| 5 |
| Expected return on assets | (252 | ) | (34 | ) | (5 | ) | | (255 | ) | (43 | ) | (6 | ) | Other | 39 |
| 1 |
| (2 | ) | | 53 |
| 17 |
| (2 | ) | Net periodic benefit (credit) cost | $ | (80 | ) | $ | — |
| $ | (2 | ) | | $ | (75 | ) | $ | 19 |
| $ | (2 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 | (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | | Domestic pension benefits | Foreign pension benefits | Health care benefits | Service cost | $ | 0 | | $ | 9 | | $ | 0 | | | $ | 0 | | $ | 9 | | $ | 0 | | Interest cost | 117 | | 20 | | 4 | | | 133 | | 24 | | 5 | | Expected return on assets | (239) | | (29) | | (5) | | | (252) | | (34) | | (5) | | Other | 65 | | 8 | | (2) | | | 39 | | 1 | | (2) | | Net periodic benefit (credit) cost | $ | (57) | | $ | 8 | | $ | (3) | | | $ | (80) | | $ | 0 | | $ | (2) | |
Note 12–11–Income taxes
The provision forBNY Mellon recorded an income tax was $246provision of $213 million (19.1% (18.4% effective tax rate) in the third quarter of 2019, $2202020, $246 million (16.5% (19.1% effective tax rate) in the third quarter of 20182019 and $264$216 million (20.5% (18.3% effective tax rate) in the second quarter of 2019. The effective rate for the third quarter of 2018 was impacted by adjustments to the provisional estimates for U.S. tax legislation and other changes.2020.
Our total tax reserves as of Sept. 30, 20192020 were $147$85 million compared with $135$173 million at June 30,Dec. 31, 2019. If these tax reserves were unnecessary, $147$85 million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in the provision for income taxes on the consolidated income statement.tax expense. Included in the balance sheet at Sept. 30, 20192020 is accrued interest, where applicable, of $27 $23 million. The additional tax expense related to interest for the nine months ended Sept. 30, 20192020 was $9$5 million, compared with $3$9 million for the nine months ended Sept. 30, 2018.2019.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $100$15 million as a result of adjustments related to tax years that are still subject to examination.
Our federal income tax returns are closed to examination through 2013.2016. Our New York State and New York City andincome tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2012.
Note 13–Variable interest entities and securitization
2015.
BNY Mellon has variable interests in 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 with access to investment vehicles with specific investment objectives and strategies that address the client’s investment needs.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 12–Variable interest entities and securitization
We have variable interests in variable interest entities (“VIEs”), which include investments in retail, institutional and alternative investment funds, including CLO structures in which we provide asset management services, some of which are consolidated. BNY Mellon earns
We 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 following table presents the incremental assets and liabilities included in BNY Mellon’sthe consolidated balance sheet as of Sept. 30, 20192020 and Dec. 31, 2018. 2019. The net assets of any consolidated VIE are solely available to settle the liabilities of the VIE and to settle any investors’ ownership liquidation requests, including any seed capital we invested in the VIE by BNY Mellon.VIE.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated investments | Sept. 30, 2020 | | Dec. 31, 2019 | (in millions) | Investment Management funds | Securitization | Total consolidated investments | | Investment Management funds | Securitization | Total consolidated investments | Trading assets | $ | 579 | | | $ | 400 | | $ | 979 | | | $ | 229 | | | $ | 400 | | $ | 629 | | Other assets | 9 | | | 0 | | 9 | | | 16 | | | 0 | | 16 | | Total assets | $ | 588 | | (a) | $ | 400 | | $ | 988 | | | $ | 245 | | (b) | $ | 400 | | $ | 645 | | | | | | | | | | | | Other liabilities | $ | 4 | | | $ | 400 | | $ | 404 | | | $ | 1 | | | $ | 387 | | $ | 388 | | Total liabilities | $ | 4 | | (a) | $ | 400 | | $ | 404 | | | $ | 1 | | (b) | $ | 387 | | $ | 388 | | Nonredeemable noncontrolling interests | $ | 251 | | (a) | $ | 0 | | $ | 251 | | | $ | 102 | | (b) | $ | 0 | | $ | 102 | |
| | | | | | | | | | | | | | | | | | | | | | | Consolidated investments | | | | | | | | | | | Sept. 30, 2019 | | Dec. 31, 2018 | (in millions) | Investment Management funds | Securitization |
| Total consolidated investments |
| | Investment Management funds | Securitization |
| Total consolidated investments |
| Trading assets | $ | 349 |
| | $ | 400 |
| $ | 749 |
| | $ | 243 |
| | $ | 400 |
| $ | 643 |
| Other assets | 32 |
| | — |
| 32 |
| | 220 |
| | — |
| 220 |
| Total assets | $ | 381 |
| (a) | $ | 400 |
| $ | 781 |
| | $ | 463 |
| (b) | $ | 400 |
| $ | 863 |
| Trading liabilities | $ | 7 |
| | $ | — |
| $ | 7 |
| | $ | — |
| | $ | — |
| $ | — |
| Other liabilities | 8 |
| | 386 |
| 394 |
| | 2 |
| | 371 |
| 373 |
| Total liabilities | $ | 15 |
| (a) | $ | 386 |
| $ | 401 |
| | $ | 2 |
| (b) | $ | 371 |
| $ | 373 |
| Nonredeemable noncontrolling interests | $ | 203 |
| (a) | $ | — |
| $ | 203 |
| | $ | 101 |
| (b) | $ | — |
| $ | 101 |
|
(a) Includes voting model entities (“VMEs”) with assets of $226 million, liabilities of $1 million and nonredeemable noncontrolling interests of $31 million.(b) Includes VMEs with assets of $50 million, liabilities of $1 million and nonredeemable noncontrolling interests of $1 million.
| | (a) | Includes voting model entities (“VMEs”) with assets of $53 million, liabilities of $2 million and nonredeemable noncontrolling interests of $2 million. |
| | (b) | Includes VMEs with assets of $253 million, liabilities of $2 million and nonredeemable noncontrolling interests of less than $1 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, 20192020 and Dec. 31, 2018,2019, the following assets and liabilities related to the VIEs where BNYwe are Mellon is not the primary beneficiary arewere included in our consolidated balance sheets and primarily relaterelated to accounting for our investments in qualified affordable housing and renewable energy projects.
The maximum loss exposure indicated in the table below relates solely to BNY Mellon’sour investments in, and unfunded commitments to, the VIEs.
| | | | | | | | | | | | | | | | | | | | | | | | Non-consolidated VIEs | Sept. 30, 2020 | | Dec. 31, 2019 | (in millions) | Assets | Liabilities | Maximum loss exposure | | Assets | Liabilities | Maximum loss exposure | Securities - Available-for-sale (a) | $ | 206 | | $ | 0 | | $ | 206 | | | $ | 208 | | $ | 0 | | $ | 208 | | Other | 2,278 | | 388 | | 2,675 | | | 2,400 | | 422 | | 2,822 | |
| | | | | | | | | | | | | | | | | | | | | Non-consolidated VIEs | | | | | | Sept. 30, 2019 | | Dec. 31, 2018 | (in millions) | Assets |
| Liabilities |
| Maximum loss exposure |
| | Assets |
| Liabilities |
| Maximum loss exposure |
| Securities - Available-for-sale (a) | $ | 206 |
| $ | — |
| $ | 206 |
| | $ | 214 |
| $ | — |
| $ | 214 |
| Other | 2,436 |
| 503 |
| 2,941 |
| | 2,450 |
| 479 |
| 2,929 |
|
| | (a) | (a) Includes investments in the Company’s sponsored CLOs. |
| | | Notes to Consolidated Financial Statements (continued) | |
Note 14–13–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, 20192020 and Dec. 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | | Sept. 30, 2020 | Dec. 31, 2019 | Sept. 30, 2020 | Dec. 31, 2019 | | Per annum dividend rate | Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000% | 5,001 | | 5,001 | | | $ | 500 | | $ | 500 | | Series 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 but excluding June 20, 2020, then a floating rate equal to the three-month LIBOR plus 3.42% | 10,000 | | 10,000 | | | 990 | | 990 | | Series F | 4.625% to but excluding Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131% | 10,000 | | 10,000 | | | 990 | | 990 | | Series G | 4.70% to but excluding Sept. 20, 2025, then a floating rate equal to the five-year treasury rate plus 4.358% | 10,000 | | 0 | | | 990 | | 0 | | Total | 45,826 | | 35,826 | | | $ | 4,532 | | $ | 3,542 | |
(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, Series F and Series G preferred stock is recorded net of issuance costs.
In May 2020, the Parent issued 1,000,000 depositary shares, each representing a 1/100th interest in a share of the Parent’s Series G Noncumulative Perpetual Preferred Stock (the “Series G Preferred Stock”). The Parent will pay dividends on the Series G Preferred Stock, if declared by its board of directors, on each March 20 and September 20, at an annual rate of 4.70%, from the original issue date to but | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| Sept. 30, 2019 |
| Dec. 31, 2018 |
| | Per annum dividend rate | Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000% | 5,001 |
| 5,001 |
| | $ | 500 |
| $ | 500 |
| Series 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) | 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. |
excluding Sept. 20, 2025; and at a floating rate equal to the five-year treasury rate on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and including Sept. 20, 2025. The floating rate will initially reset on Sept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
The table below presents the dividends paid on ourthe Parent’s preferred stock.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Preferred dividends paid | | | | | | | | | | | | | | | | | | | | | | (dollars in millions, except per share amounts) | Depositary shares per share | | 3Q20 | | 2Q20 | | 3Q19 | | YTD20 | | YTD19 | | | | | | | | Per share | Total dividend | | Per share | Total dividend | | Per share | Total dividend | | Per share | Total dividend | | Per share | Total dividend | | | | | | | | | | Series A | | 100 | | (a) | | $ | 1,011.11 | | $ | 5 | | | $ | 1,022.22 | | $ | 5 | | | $ | 1,022.22 | | $ | 5 | | | $ | 3,044.44 | | $ | 15 | | | $ | 3,044.44 | | $ | 15 | | | | | | | | | | | Series C | | 4,000 | | | | 1,300.00 | | 7 | | | 1,300.00 | | 8 | | | 1,300.00 | | 8 | | | 3,900.00 | | 23 | | | 3,900.00 | | 23 | | | | | | | | | | | Series D | | 100 | | | | N/A | 0 | | | 2,250.00 | | 11 | | | N/A | 0 | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | | | | | | | | | | | Series E | | 100 | | | | 962.65 | | 10 | | | 2,475.00 | | 25 | | | N/A | 0 | | | 3,437.65 | | 35 | | | 2,475.00 | | 25 | | | | | | | | | | | Series F | | 100 | | | | 2,312.50 | | 23 | | | N/A | 0 | | | 2,312.50 | | 23 | | | 4,625.00 | | 46 | | | 4,625.00 | | 46 | | | | | | | | | | | Series G | | 100 | | | | 1,579.72 | | 16 | | | N/A | 0 | | | N/A | 0 | | | 1,579.72 | | 16 | | | N/A | 0 | | | | | | | | | | | Total | | | | | | $ | 61 | | | | $ | 49 | | | | $ | 36 | | | | $ | 146 | | | | $ | 120 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Preferred dividends paid | | | | | | | | | | | | | (dollars in millions, except per share amounts) | Depositary shares per share | | 3Q19 | | 2Q19 | | 3Q18 | | YTD19 | | YTD18 | | Per share |
| Total dividend |
| | Per share |
| Total dividend |
| | Per share |
| Total dividend |
| | Per share |
| Total dividend |
| | Per share |
| Total dividend |
| Series A | 100 |
| (a) | | $ | 1,022.22 |
| $ | 5 |
| | $ | 1,022.22 |
| $ | 5 |
| | $ | 1,022.22 |
| $ | 5 |
| | $ | 3,044.44 |
| $ | 15 |
| | $ | 3,044.44 |
| $ | 15 |
| Series C | 4,000 |
| | | 1,300.00 |
| 8 |
| | 1,300.00 |
| 7 |
| | 1,300.00 |
| 8 |
| | 3,900.00 |
| 23 |
| | 3,900.00 |
| 23 |
| Series D | 100 |
| | | N/A |
| — |
| | 2,250.00 |
| 11 |
| | N/A |
| — |
| | 2,250.00 |
| 11 |
| | 2,250.00 |
| 11 |
| Series E | 100 |
| | | N/A |
| — |
| | 2,475.00 |
| 25 |
| | N/A |
| — |
| | 2,475.00 |
| 25 |
| | 2,475.00 |
| 25 |
| Series F | 100 |
| | | 2,312.50 |
| 23 |
| | N/A |
| — |
| | 2,312.50 |
| 23 |
| | 4,625.00 |
| 46 |
| | 4,625.00 |
| 46 |
| Total | | | | | $ | 36 |
| | | $ | 48 |
| | | $ | 36 |
| | | $ | 120 |
| | | $ | 120 |
|
(a) Represents Normal Preferred Capital Securities. | | (a) | Represents Normal Preferred Capital Securities. |
N/A - Not applicable.
For additional information on the preferred stock, see Note 1415 of the Notes to Consolidated Financial Statements in our 20182019 Annual Report.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 15–14–Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | Sept. 30, 2019 | | June 30, 2019 | | Sept. 30, 2018 | (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) | $ | (213 | ) | $ | (63 | ) | $ | (276 | ) | | $ | 29 |
| $ | (19 | ) | $ | 10 |
| | $ | (21 | ) | $ | (39 | ) | $ | (60 | ) | Total foreign currency translation | (213 | ) | (63 | ) | (276 | ) | | 29 |
| (19 | ) | 10 |
| | (21 | ) | (39 | ) | (60 | ) | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | | | | | Unrealized gain (loss) arising during period | 88 |
| (25 | ) | 63 |
| | 384 |
| (97 | ) | 287 |
| | (190 | ) | 46 |
| (144 | ) | Reclassification adjustment (b) | 1 |
| — |
| 1 |
| | (7 | ) | 2 |
| (5 | ) | | — |
| — |
| — |
| Net unrealized gain (loss) on assets available-for-sale | 89 |
| (25 | ) | 64 |
| | 377 |
| (95 | ) | 282 |
| | (190 | ) | 46 |
| (144 | ) | Defined benefit plans: | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 13 |
| (3 | ) | 10 |
| | 12 |
| (2 | ) | 10 |
| | 23 |
| (5 | ) | 18 |
| Total defined benefit plans | 13 |
| (3 | ) | 10 |
| | 12 |
| (2 | ) | 10 |
| | 23 |
| (5 | ) | 18 |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | | | | | | Unrealized hedge (loss) gain arising during period | (9 | ) | 4 |
| (5 | ) | | 2 |
| (2 | ) | — |
| | (9 | ) | 2 |
| (7 | ) | Reclassification of net loss (gain) to net income: | | | | | | | | | | | | Interest rate contracts - interest expense | 1 |
| — |
| 1 |
| | — |
| — |
| — |
| | — |
| — |
| — |
| FX contracts - staff expense | (2 | ) | — |
| (2 | ) | | — |
| — |
| — |
| | 4 |
| (1 | ) | 3 |
| Total reclassifications to net income | (1 | ) | — |
| (1 | ) | | — |
| — |
| — |
| | 4 |
| (1 | ) | 3 |
| Net unrealized (loss) gain on cash flow hedges | (10 | ) | 4 |
| (6 | ) | | 2 |
| (2 | ) | — |
| | (5 | ) | 1 |
| (4 | ) | Total other comprehensive (loss) income | $ | (121 | ) | $ | (87 | ) | $ | (208 | ) | | $ | 420 |
| $ | (118 | ) | $ | 302 |
| | $ | (193 | ) | $ | 3 |
| $ | (190 | ) |
| | (a) | Includes the impact of hedges of net investments in foreign subsidiaries. See Note 18 for additional information. |
| | (b) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | | | | | | | | | | | | | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | | | | | | | (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) | $ | 262 | | $ | 69 | | $ | 331 | | | $ | 104 | | $ | 11 | | $ | 115 | | | $ | (213) | | $ | (63) | | $ | (276) | | | | | | | | | | | | | | Total foreign currency translation | 262 | | 69 | | 331 | | | 104 | | 11 | | 115 | | | (213) | | (63) | | (276) | | | | | | | | | | | | | | Unrealized gain on assets available-for-sale: | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gain arising during period | 297 | | (64) | | 233 | | | 989 | | (236) | | 753 | | | 88 | | (25) | | 63 | | | | | | | | | | | | | | Reclassification adjustment (b) | (9) | | 3 | | (6) | | | (9) | | 2 | | (7) | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | Net unrealized gain on assets available-for-sale | 288 | | (61) | | 227 | | | 980 | | (234) | | 746 | | | 89 | | (25) | | 64 | | | | | | | | | | | | | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 24 | | (4) | | 20 | | | 24 | | (5) | | 19 | | | 13 | | (3) | | 10 | | | | | | | | | | | | | | Total defined benefit plans | 24 | | (4) | | 20 | | | 24 | | (5) | | 19 | | | 13 | | (3) | | 10 | | | | | | | | | | | | | | Unrealized gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | Unrealized hedge gain (loss) arising during period | 9 | | (1) | | 8 | | | 3 | | (1) | | 2 | | | (9) | | 4 | | (5) | | | | | | | | | | | | | | Reclassification of net (gain) loss to net income: | | | | | | | | | | | | | | | | | | | | | | | | Interest rate contracts - interest expense | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange (“FX”) contracts - staff expense | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (2) | | 0 | | (2) | | | | | | | | | | | | | | Total reclassifications to net income | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (1) | | 0 | | (1) | | | | | | | | | | | | | | Net unrealized gain (loss) on cash flow hedges | 9 | | (1) | | 8 | | | 6 | | (2) | | 4 | | | (10) | | 4 | | (6) | | | | | | | | | | | | | | Total other comprehensive income (loss) | $ | 583 | | $ | 3 | | $ | 586 | | | $ | 1,114 | | $ | (230) | | $ | 884 | | | $ | (121) | | $ | (87) | | $ | (208) | | | | | | | | | | | | | |
(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 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.
| | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 | (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) | $ | 101 | | $ | (24) | | $ | 77 | | | $ | (157) | | $ | (80) | | $ | (237) | | Total foreign currency translation | 101 | | (24) | | 77 | | | (157) | | (80) | | (237) | | Unrealized gain on assets available-for-sale: | | | | | | | | Unrealized gain (loss) arising during period | 1,529 | | (360) | | 1,169 | | | 794 | | (205) | | 589 | | Reclassification adjustment (b) | (27) | | 7 | | (20) | | | (7) | | 2 | | (5) | | Net unrealized gain on assets available-for-sale | 1,502 | | (353) | | 1,149 | | | 787 | | (203) | | 584 | | Defined benefit plans: | | | | | | | | Net (loss) arising during the period | 0 | | 0 | | 0 | | | (11) | | 2 | | (9) | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 72 | | (15) | | 57 | | | 38 | | (8) | | 30 | | Total defined benefit plans | 72 | | (15) | | 57 | | | 27 | | (6) | | 21 | | Unrealized (loss) gain on cash flow hedges: | | | | | | | | Unrealized hedge (loss) arising during period | (1) | | 1 | | 0 | | | (1) | | (2) | | (3) | | Reclassification of net loss (gain) to net income: | | | | | | | | Interest rate contracts - interest expense | 0 | | 0 | | 0 | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | FX contracts - staff expense | 2 | | (1) | | 1 | | | (1) | | 2 | | 1 | | Total reclassifications to net income | 2 | | (1) | | 1 | | | 0 | | 2 | | 2 | | Net unrealized (loss) on cash flow hedges | 1 | | 0 | | 1 | | | (1) | | 0 | | (1) | | Total other comprehensive income | $ | 1,676 | | $ | (392) | | $ | 1,284 | | | $ | 656 | | $ | (289) | | $ | 367 | |
(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 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. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Year-to-date | | Sept. 30, 2019 | | Sept. 30, 2018 | (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) | $ | (157 | ) | $ | (80 | ) | $ | (237 | ) | | $ | (122 | ) | $ | (94 | ) | $ | (216 | ) | Total foreign currency translation | (157 | ) | (80 | ) | (237 | ) | | (122 | ) | (94 | ) | (216 | ) | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | Unrealized gain (loss) arising during period | 794 |
| (205 | ) | 589 |
| | (635 | ) | 152 |
| (483 | ) | Reclassification adjustment (b) | (7 | ) | 2 |
| (5 | ) | | 48 |
| (11 | ) | 37 |
| Net unrealized gain (loss) on assets available-for-sale | 787 |
| (203 | ) | 584 |
| | (587 | ) | 141 |
| (446 | ) | Defined benefit plans: | | | | | | | | Net (loss) gain arising during the period | (11 | ) | 2 |
| (9 | ) | | — |
| — |
| — |
| Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 38 |
| (8 | ) | 30 |
| | 67 |
| (16 | ) | 51 |
| Total defined benefit plans | 27 |
| (6 | ) | 21 |
| | 67 |
| (16 | ) | 51 |
| Unrealized (loss) gain on cash flow hedges: | | | | | | | | Unrealized hedge (loss) gain arising during period | (1 | ) | (2 | ) | (3 | ) | | (19 | ) | 4 |
| (15 | ) | Reclassification of net loss (gain) to net income: | | | | | | | | Interest rate contracts - interest expense
| 1 |
| — |
| 1 |
| | — |
| — |
| — |
| FX contracts - staff expense | (1 | ) | 2 |
| 1 |
| | (4 | ) | 1 |
| (3 | ) | FX contracts - other revenue | — |
| — |
| — |
| | (3 | ) | 1 |
| (2 | ) | Total reclassifications to net income | — |
| 2 |
| 2 |
| | (7 | ) | 2 |
| (5 | ) | Net unrealized (loss) gain on cash flow hedges | (1 | ) | — |
| (1 | ) | | (26 | ) | 6 |
| (20 | ) | Total other comprehensive income (loss) | $ | 656 |
| $ | (289 | ) | $ | 367 |
| | $ | (668 | ) | $ | 37 |
| $ | (631 | ) |
| | (a) | Includes the impact of hedges of net investments in foreign subsidiaries. See Note 18 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. |
| | Notes to Consolidated Financial Statements(continued)
| |
Note 16–15–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 1920 of the Notes to Consolidated Financial Statements in our 20182019 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, 20192020 and Dec. 31, 2018,2019, 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.
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Sept. 30, 2020 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Available-for-sale securities: | | | | | | Agency RMBS | $ | 0 | | $ | 24,733 | | $ | 0 | | $ | — | | $ | 24,733 | | U.S. Treasury | 24,733 | | 0 | | 0 | | — | | 24,733 | | Sovereign debt/sovereign guaranteed | 7,179 | | 6,914 | | 0 | | — | | 14,093 | | Agency commercial MBS | 0 | | 9,942 | | 0 | | — | | 9,942 | | Supranational | 0 | | 7,136 | | 0 | | — | | 7,136 | | Foreign covered bonds | 0 | | 5,841 | | 0 | | — | | 5,841 | | CLOs | 0 | | 4,657 | | 0 | | — | | 4,657 | | Foreign government agencies | 0 | | 3,970 | | 0 | | — | | 3,970 | | U.S. government agencies | 0 | | 3,478 | | 0 | | — | | 3,478 | | Other ABS | 0 | | 2,930 | | 0 | | — | | 2,930 | | Non-agency commercial MBS | 0 | | 2,711 | | 0 | | — | | 2,711 | | Non-agency RMBS (b) | 0 | | 1,941 | | 0 | | — | | 1,941 | | State and political subdivisions | 0 | | 1,690 | | 0 | | — | | 1,690 | | Corporate bonds | 0 | | 1,030 | | 0 | | — | | 1,030 | | Commercial paper/CDs | 0 | | 357 | | 0 | | — | | 357 | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | Total available-for-sale securities | 31,912 | | 77,331 | | 0 | | — | | 109,243 | | Trading assets: | | | | | | Debt instruments | 3,181 | | 3,050 | | 0 | | — | | 6,231 | | Equity instruments (c) | 2,694 | | 0 | | 0 | | — | | 2,694 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 4 | | 4,958 | | 0 | | (2,133) | | 2,829 | | Foreign exchange | 0 | | 4,410 | | 0 | | (3,102) | | 1,308 | | Equity and other contracts | 4 | | 11 | | 0 | | (3) | | 12 | | Total derivative assets not designated as hedging | 8 | | 9,379 | | 0 | | (5,238) | | 4,149 | | Total trading assets | 5,883 | | 12,429 | | 0 | | (5,238) | | 13,074 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | Foreign exchange | 0 | | 56 | | 0 | | — | | 56 | | Total derivative assets designated as hedging | 0 | | 56 | | 0 | | — | | 56 | | Other assets (d) | 113 | | 174 | | 0 | | — | | 287 | | Assets measured at NAV (d) | | | | | 184 | | Subtotal assets of operations at fair value | 37,908 | | 89,990 | | 0 | | (5,238) | | 122,844 | | Percentage of assets of operations prior to netting | 30 | % | 70 | % | 0 | % | | | Assets of consolidated investment management funds | 360 | | 228 | | 0 | | — | | 588 | | Total assets | $ | 38,268 | | $ | 90,218 | | $ | 0 | | $ | (5,238) | | $ | 123,432 | | Percentage of total assets prior to netting | 30 | % | 70 | % | 0 | % | | |
| | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Sept. 30, 2019 | Total carrying value |
| (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| Available-for-sale securities: | | | | | | Agency RMBS | $ | — |
| $ | 26,391 |
| $ | — |
| $ | — |
| $ | 26,391 |
| U.S. Treasury | 15,126 |
| — |
| — |
| — |
| 15,126 |
| Sovereign debt/sovereign guaranteed | 8,325 |
| 4,825 |
| — |
| — |
| 13,150 |
| Agency commercial MBS | — |
| 9,576 |
| — |
| — |
| 9,576 |
| Supranational | — |
| 4,093 |
| — |
| — |
| 4,093 |
| CLOs | — |
| 3,868 |
| — |
| — |
| 3,868 |
| Foreign covered bonds | — |
| 3,593 |
| — |
| — |
| 3,593 |
| Other ABS | — |
| 2,484 |
| — |
| — |
| 2,484 |
| U.S. government agencies | — |
| 2,477 |
| — |
| — |
| 2,477 |
| Non-agency commercial MBS | — |
| 2,268 |
| — |
| — |
| 2,268 |
| Foreign government agencies | — |
| 2,186 |
| — |
| — |
| 2,186 |
| Non-agency RMBS (b) | — |
| 1,213 |
| — |
| — |
| 1,213 |
| State and political subdivisions | — |
| 1,184 |
| — |
| — |
| 1,184 |
| Corporate bonds | — |
| 879 |
| — |
| — |
| 879 |
| Other debt securities | — |
| 74 |
| — |
| — |
| 74 |
| Total available-for-sale securities | 23,451 |
| 65,111 |
| — |
| — |
| 88,562 |
| Trading assets: | | | | | | Debt instruments | 1,217 |
| 3,658 |
| — |
| — |
| 4,875 |
| Equity instruments (c) | 2,066 |
| — |
| — |
| — |
| 2,066 |
| Derivative assets not designated as hedging: | | | | | | Interest rate | 7 |
| 4,833 |
| — |
| (2,585 | ) | 2,255 |
| Foreign exchange | — |
| 5,066 |
| — |
| (4,094 | ) | 972 |
| Equity and other contracts | — |
| 14 |
| — |
| (2 | ) | 12 |
| Total derivative assets not designated as hedging | 7 |
| 9,913 |
| — |
| (6,681 | ) | 3,239 |
| Total trading assets | 3,290 |
| 13,571 |
| — |
| (6,681 | ) | 10,180 |
| Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | Foreign exchange | — |
| 287 |
| — |
| — |
| 287 |
| Total derivative assets designated as hedging | — |
| 287 |
| — |
| — |
| 287 |
| Other assets (d) | 51 |
| 159 |
| — |
| — |
| 210 |
| Assets measured at NAV (d) | | | | | 177 |
| Subtotal assets of operations at fair value | 26,792 |
| 79,128 |
| — |
| (6,681 | ) | 99,416 |
| Percentage of assets of operations prior to netting | 25 | % | 75 | % | — | % | | | Assets of consolidated investment management funds | 359 |
| 22 |
| — |
| — |
| 381 |
| Total assets | $ | 27,151 |
| $ | 79,150 |
| $ | — |
| $ | (6,681 | ) | $ | 99,797 |
| Percentage of total assets prior to netting | 26 | % | 74 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Sept. 30, 2020 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Trading liabilities: | | | | | | Debt instruments | $ | 3,396 | | $ | 66 | | $ | 0 | | $ | — | | $ | 3,462 | | Equity instruments | 26 | | 0 | | 0 | | — | | 26 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 3 | | 4,243 | | 0 | | (2,551) | | 1,695 | | Foreign exchange | 0 | | 4,522 | | 0 | | (3,631) | | 891 | | Equity and other contracts | 0 | | 11 | | 0 | | (1) | | 10 | | Total derivative liabilities not designated as hedging | 3 | | 8,776 | | 0 | | (6,183) | | 2,596 | | Total trading liabilities | 3,425 | | 8,842 | | 0 | | (6,183) | | 6,084 | | Long-term debt (c) | 0 | | 400 | | 0 | | — | | 400 | | Other liabilities – derivative liabilities designated as hedging: | | | | | | Interest rate | 0 | | 803 | | 0 | | — | | 803 | | Foreign exchange | 0 | | 194 | | 0 | | — | | 194 | | Total other liabilities – derivative liabilities designated as hedging | 0 | | 997 | | 0 | | — | | 997 | | Subtotal liabilities of operations at fair value | 3,425 | | 10,239 | | 0 | | (6,183) | | 7,481 | | Percentage of liabilities of operations prior to netting | 25 | % | 75 | % | 0 | % | | | Liabilities of consolidated investment management funds | 0 | | 4 | | 0 | | — | | 4 | | Total liabilities | $ | 3,425 | | $ | 10,243 | | $ | 0 | | $ | (6,183) | | $ | 7,485 | | Percentage of total liabilities prior to netting | 25 | % | 75 | % | 0 | % | | |
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product. (b)Includes $512 million in Level 2 that was included in the former Grantor Trust. (c)Includes certain interests in securitizations. (d)Includes seed capital, private equity investments and other assets.
| | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Sept. 30, 2019 | Total carrying value |
| (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| Trading liabilities: | | | | | | Debt instruments | $ | 2,044 |
| $ | 90 |
| $ | — |
| $ | — |
| $ | 2,134 |
| Equity instruments | 75 |
| — |
| — |
| — |
| 75 |
| Derivative liabilities not designated as hedging: | | | | | | Interest rate | 11 |
| 4,070 |
| — |
| (2,532 | ) | 1,549 |
| Foreign exchange | — |
| 5,012 |
| — |
| (4,024 | ) | 988 |
| Equity and other contracts | 1 |
| 19 |
| — |
| (10 | ) | 10 |
| Total derivative liabilities not designated as hedging | 12 |
| 9,101 |
| — |
| (6,566 | ) | 2,547 |
| Total trading liabilities | 2,131 |
| 9,191 |
| — |
| (6,566 | ) | 4,756 |
| Long-term debt (c) | — |
| 386 |
| — |
| — |
| 386 |
| Other liabilities – derivative liabilities designated as hedging: | | | | | | Interest rate | — |
| 521 |
| — |
| — |
| 521 |
| Foreign exchange | — |
| 84 |
| — |
| — |
| 84 |
| Total other liabilities – derivative liabilities designated as hedging | — |
| 605 |
| — |
| — |
| 605 |
| Subtotal liabilities of operations at fair value | 2,131 |
| 10,182 |
| — |
| (6,566 | ) | 5,747 |
| Percentage of liabilities of operations prior to netting | 17 | % | 83 | % | — | % | | | Liabilities of consolidated investment management funds | 2 |
| 13 |
| — |
| — |
| 15 |
| Total liabilities | $ | 2,133 |
| $ | 10,195 |
| $ | — |
| $ | (6,566 | ) | $ | 5,762 |
| Percentage of total liabilities prior to netting | 17 | % | 83 | % | — | % | | |
| | (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 $689 million in Level 2 that was included in the former Grantor Trust. |
| | (c) | Includes certain interests in securitizations. |
| | (d) | Includes seed capital, private equity investments and other assets. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Available-for-sale securities: | | | | | | Agency RMBS | $ | 0 | | $ | 27,043 | | $ | 0 | | $ | — | | $ | 27,043 | | U.S. Treasury | 15,431 | | 0 | | 0 | | — | | 15,431 | | Sovereign debt/sovereign guaranteed | 7,784 | | 4,862 | | 0 | | — | | 12,646 | | Agency commercial MBS | 0 | | 9,417 | | 0 | | — | | 9,417 | | Foreign covered bonds | 0 | | 4,197 | | 0 | | — | | 4,197 | | CLOs | 0 | | 4,063 | | 0 | | — | | 4,063 | | Supranational | 0 | | 3,709 | | 0 | | — | | 3,709 | | Foreign government agencies | 0 | | 2,643 | | 0 | | — | | 2,643 | | Non-agency commercial MBS | 0 | | 2,178 | | 0 | | — | | 2,178 | | Other ABS | 0 | | 2,143 | | 0 | | — | | 2,143 | | U.S. government agencies | 0 | | 1,949 | | 0 | | — | | 1,949 | | Non-agency RMBS (b) | 0 | | 1,233 | | 0 | | — | | 1,233 | | State and political subdivisions | 0 | | 1,044 | | 0 | | — | | 1,044 | | Corporate bonds | 0 | | 853 | | 0 | | — | | 853 | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | Total available-for-sale securities | 23,215 | | 65,335 | | 0 | | — | | 88,550 | | Trading assets: | | | | | | Debt instruments | 1,568 | | 4,243 | | 0 | | — | | 5,811 | | Equity instruments (c) | 4,539 | | 0 | | 0 | | — | | 4,539 | | Derivative assets not designated as hedging: | | | | | | Interest rate | 4 | | 3,686 | | 0 | | (1,792) | | 1,898 | | Foreign exchange | 0 | | 5,331 | | 0 | | (4,021) | | 1,310 | | Equity and other contracts | 0 | | 19 | | 0 | | (6) | | 13 | | Total derivative assets not designated as hedging | 4 | | 9,036 | | 0 | | (5,819) | | 3,221 | | Total trading assets | 6,111 | | 13,279 | | 0 | | (5,819) | | 13,571 | | Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | Foreign exchange | 0 | | 21 | | 0 | | — | | 21 | | Total derivative assets designated as hedging | 0 | | 21 | | 0 | | — | | 21 | | Other assets (d) | 38 | | 179 | | 0 | | — | | 217 | | Assets measured at NAV (d) | | | | | 181 | | Subtotal assets of operations at fair value | 29,364 | | 78,814 | | 0 | | (5,819) | | 102,540 | | Percentage of assets of operations prior to netting | 27 | % | 73 | % | 0 | % | | | Assets of consolidated investment management funds | 212 | | 33 | | 0 | | — | | 245 | | Total assets | $ | 29,576 | | $ | 78,847 | | $ | 0 | | $ | (5,819) | | $ | 102,785 | | Percentage of total assets prior to netting | 27 | % | 73 | % | 0 | % | | |
| | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Dec. 31, 2018 | Total carrying value |
| (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| Available-for-sale securities: | | | | | | Agency RMBS | $ | — |
| $ | 25,308 |
| $ | — |
| $ | — |
| $ | 25,308 |
| U.S. Treasury | 20,076 |
| — |
| — |
| — |
| 20,076 |
| Sovereign debt/sovereign guaranteed | 6,613 |
| 4,137 |
| — |
| — |
| 10,750 |
| Agency commercial MBS | — |
| 9,691 |
| — |
| — |
| 9,691 |
| CLOs | — |
| 3,364 |
| — |
| — |
| 3,364 |
| Supranational | — |
| 2,984 |
| — |
| — |
| 2,984 |
| Foreign covered bonds | — |
| 2,878 |
| — |
| — |
| 2,878 |
| State and political subdivisions | — |
| 2,247 |
| — |
| — |
| 2,247 |
| Other ABS | — |
| 1,773 |
| — |
| — |
| 1,773 |
| U.S. government agencies | — |
| 1,657 |
| — |
| — |
| 1,657 |
| Non-agency commercial MBS | — |
| 1,464 |
| — |
| — |
| 1,464 |
| Non-agency RMBS (b) | — |
| 1,325 |
| — |
| — |
| 1,325 |
| Foreign government agencies | — |
| 1,161 |
| — |
| — |
| 1,161 |
| Corporate bonds | — |
| 1,054 |
| — |
| — |
| 1,054 |
| Other debt securities | — |
| 77 |
| — |
| — |
| 77 |
| Total available-for-sale securities | 26,689 |
| 59,120 |
| — |
| — |
| 85,809 |
| Trading assets: | | | | | | Debt instruments | 801 |
| 2,594 |
| — |
| — |
| 3,395 |
| Equity instruments (c) | 1,114 |
| — |
| — |
| — |
| 1,114 |
| Derivative assets not designated as hedging: | | | | | | Interest rate | 7 |
| 3,583 |
| — |
| (2,202 | ) | 1,388 |
| Foreign exchange | — |
| 4,807 |
| — |
| (3,724 | ) | 1,083 |
| Equity and other contracts | 9 |
| 59 |
| — |
| (13 | ) | 55 |
| Total derivative assets not designated as hedging | 16 |
| 8,449 |
| — |
| (5,939 | ) | 2,526 |
| Total trading assets | 1,931 |
| 11,043 |
| — |
| (5,939 | ) | 7,035 |
| Other assets: | | | | | | Derivative assets designated as hedging: | | | | | | Interest rate | — |
| 23 |
| — |
| — |
| 23 |
| Foreign exchange | — |
| 266 |
| — |
| — |
| 266 |
| Total derivative assets designated as hedging | — |
| 289 |
| — |
| — |
| 289 |
| Other assets (d) | 68 |
| 170 |
| — |
| — |
| 238 |
| Assets measured at NAV (d) | | | | | 215 |
| Subtotal assets of operations at fair value | 28,688 |
| 70,622 |
| — |
| (5,939 | ) | 93,586 |
| Percentage of assets of operations prior to netting | 29 | % | 71 | % | — | % | | | Assets of consolidated investment management funds | 210 |
| 253 |
| — |
| — |
| 463 |
| Total assets | $ | 28,898 |
| $ | 70,875 |
| $ | — |
| $ | (5,939 | ) | $ | 94,049 |
| Percentage of total assets prior to netting | 29 | % | 71 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Trading liabilities: | | | | | | Debt instruments | $ | 1,477 | | $ | 107 | | $ | 0 | | $ | — | | $ | 1,584 | | Equity instruments | 73 | | 0 | | 0 | | — | | 73 | | Derivative liabilities not designated as hedging: | | | | | | Interest rate | 6 | | 3,244 | | 0 | | (1,986) | | 1,264 | | Foreign exchange | 0 | | 5,340 | | 0 | | (3,428) | | 1,912 | | Equity and other contracts | 3 | | 6 | | 0 | | (1) | | 8 | | Total derivative liabilities not designated as hedging | 9 | | 8,590 | | 0 | | (5,415) | | 3,184 | | Total trading liabilities | 1,559 | | 8,697 | | 0 | | (5,415) | | 4,841 | | Long-term debt (c) | 0 | | 387 | | 0 | | — | | 387 | | Other liabilities – derivative liabilities designated as hedging: | | | | | | Interest rate | 0 | | 350 | | 0 | | — | | 350 | | Foreign exchange | 0 | | 257 | | 0 | | — | | 257 | | Total other liabilities – derivative liabilities designated as hedging | 0 | | 607 | | 0 | | — | | 607 | | Subtotal liabilities of operations at fair value | 1,559 | | 9,691 | | 0 | | (5,415) | | 5,835 | | Percentage of liabilities of operations prior to netting | 14 | % | 86 | % | 0 | % | | | Liabilities of consolidated investment management funds | 1 | | 0 | | 0 | | — | | 1 | | Total liabilities | $ | 1,560 | | $ | 9,691 | | $ | 0 | | $ | (5,415) | | $ | 5,836 | | Percentage of total liabilities prior to netting | 14 | % | 86 | % | 0 | % | | |
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product. (b)Includes $640 million in Level 2 that was included in the former Grantor Trust. (c)Includes certain interests in securitizations. (d)Includes seed capital, private equity investments and other assets.
| | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2018 | Total carrying value |
| (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| Trading liabilities: | | | | | | Debt instruments | $ | 1,006 |
| $ | 118 |
| $ | — |
| $ | — |
| $ | 1,124 |
| Equity instruments | 75 |
| — |
| — |
| — |
| 75 |
| Derivative liabilities not designated as hedging: | | | | | | Interest rate | 12 |
| 3,104 |
| — |
| (2,508 | ) | 608 |
| Foreign exchange | — |
| 5,215 |
| — |
| (3,626 | ) | 1,589 |
| Equity and other contracts | 1 |
| 118 |
| — |
| (36 | ) | 83 |
| Total derivative liabilities not designated as hedging | 13 |
| 8,437 |
| — |
| (6,170 | ) | 2,280 |
| Total trading liabilities | 1,094 |
| 8,555 |
| — |
| (6,170 | ) | 3,479 |
| Long-term debt (c) | — |
| 371 |
| — |
| — |
| 371 |
| Other liabilities – derivative liabilities designated as hedging: | | | | | | Interest rate | — |
| 74 |
| — |
| — |
| 74 |
| Foreign exchange | — |
| 14 |
| — |
| — |
| 14 |
| Total other liabilities – derivative liabilities designated as hedging | — |
| 88 |
| — |
| — |
| 88 |
| Subtotal liabilities of operations at fair value | 1,094 |
| 9,014 |
| — |
| (6,170 | ) | 3,938 |
| Percentage of liabilities of operations prior to netting | 11 | % | 89 | % | — | % | | | Liabilities of consolidated investment management funds | 2 |
| — |
| — |
| — |
| 2 |
| Total liabilities | $ | 1,096 |
| $ | 9,014 |
| $ | — |
| $ | (6,170 | ) | $ | 3,940 |
| Percentage of total liabilities prior to netting | 11 | % | 89 | % | — | % | | |
| | (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 $832 million in Level 2 that was included in the former Grantor Trust. |
| | (c) | Includes certain interests in securitizations. |
| | (d) | Includes seed capital, private equity investments and other assets. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | Total carrying value | | Ratings (a) | | Total carrying value | | Ratings (a) | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | (dollars in millions) | (b) | (b) | Non-agency RMBS (c), originated in: | | | | | | | | | | | | | | 2007-2020 | $ | 1,311 | | | 88 | % | 0 | % | 0 | % | 12 | % | | $ | 464 | | | 55 | % | 1 | % | 0 | % | 44 | % | 2006 | 244 | | | 0 | | 23 | | 0 | | 77 | | | 291 | | | 0 | | 21 | | 0 | | 79 | | 2005 | 243 | | | 4 | | 0 | | 7 | | 89 | | | 305 | | | 5 | | 2 | | 8 | | 85 | | 2004 and earlier | 143 | | | 20 | | 9 | | 12 | | 59 | | | 173 | | | 22 | | 24 | | 4 | | 50 | | Total non-agency RMBS | $ | 1,941 | | | 61 | % | 4 | % | 2 | % | 33 | % | | $ | 1,233 | | | 25 | % | 9 | % | 3 | % | 63 | % | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | 2009-2020 | $ | 2,711 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 2,178 | | | 98 | % | 2 | % | 0 | % | 0 | % | Foreign covered bonds: | | | | | | | | | | | | | | Canada | $ | 2,368 | | | 98 | % | 2 | % | 0 | % | 0 | % | | $ | 1,798 | | | 100 | % | 0 | % | 0 | % | 0 | % | UK | 1,130 | | | 100 | | 0 | | 0 | | 0 | | | 984 | | | 100 | | 0 | | 0 | | 0 | | Australia | 775 | | | 100 | | 0 | | 0 | | 0 | | | 431 | | | 100 | | 0 | | 0 | | 0 | | Norway | 609 | | | 100 | | 0 | | 0 | | 0 | | | 287 | | | 100 | | 0 | | 0 | | 0 | | Germany | 479 | | | 100 | | 0 | | 0 | | 0 | | | 357 | | | 100 | | 0 | | 0 | | 0 | | Other | 480 | | | 100 | | 0 | | 0 | | 0 | | | 340 | | | 100 | | 0 | | 0 | | 0 | | Total foreign covered bonds | $ | 5,841 | | | 99 | % | 1 | % | 0 | % | 0 | % | | $ | 4,197 | | | 100 | % | 0 | % | 0 | % | 0 | % | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | Germany | $ | 2,155 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,997 | | | 100 | % | 0 | % | 0 | % | 0 | % | UK | 2,037 | | | 100 | | 0 | | 0 | | 0 | | | 3,318 | | | 100 | | 0 | | 0 | | 0 | | Italy | 1,974 | | | 0 | | 0 | | 100 | | 0 | | | 1,260 | | | 0 | | 0 | | 100 | | 0 | | France | 1,846 | | | 100 | | 0 | | 0 | | 0 | | | 1,272 | | | 100 | | 0 | | 0 | | 0 | | Spain | 1,835 | | | 0 | | 5 | | 95 | | 0 | | | 1,453 | | | 0 | | 6 | | 94 | | 0 | | Singapore | 949 | | | 100 | | 0 | | 0 | | 0 | | | 742 | | | 100 | | 0 | | 0 | | 0 | | Canada | 732 | | | 100 | | 0 | | 0 | | 0 | | | 271 | | | 100 | | 0 | | 0 | | 0 | | Ireland | 522 | | | 0 | | 100 | | 0 | | 0 | | | 301 | | | 0 | | 100 | | 0 | | 0 | | Netherlands | 471 | | | 100 | | 0 | | 0 | | 0 | | | 791 | | | 100 | | 0 | | 0 | | 0 | | Japan | 437 | | | 0 | | 100 | | 0 | | 0 | | | 274 | | | 0 | | 100 | | 0 | | 0 | | Austria | 294 | | | 100 | | 0 | | 0 | | 0 | | | 240 | | | 100 | | 0 | | 0 | | 0 | | Belgium | 253 | | | 100 | | 0 | | 0 | | 0 | | | 79 | | | 100 | | 0 | | 0 | | 0 | | Hong Kong | 206 | | | 100 | | 0 | | 0 | | 0 | | | 411 | | | 100 | | 0 | | 0 | | 0 | | Other (d) | 382 | | | 51 | | 0 | | 18 | | 31 | | | 237 | | | 39 | | 4 | | 0 | | 57 | | Total sovereign debt/sovereign guaranteed | $ | 14,093 | | | 65 | % | 7 | % | 27 | % | 1 | % | | $ | 12,646 | | | 73 | % | 5 | % | 21 | % | 1 | % | Foreign government agencies: | | | | | | | | | | | | | | Germany | $ | 1,483 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,131 | | | 100 | % | 0 | % | 0 | % | 0 | % | Netherlands | 800 | | | 100 | | 0 | | 0 | | 0 | | | 678 | | | 100 | | 0 | | 0 | | 0 | | Canada | 442 | | | 72 | | 28 | | 0 | | 0 | | | 71 | | | 0 | | 100 | | 0 | | 0 | | France | 293 | | | 100 | | 0 | | 0 | | 0 | | | 42 | | | 100 | | 0 | | 0 | | 0 | | Sweden | 276 | | | 100 | | 0 | | 0 | | 0 | | | 202 | | | 100 | | 0 | | 0 | | 0 | | Finland | 246 | | | 100 | | 0 | | 0 | | 0 | | | 245 | | | 100 | | 0 | | 0 | | 0 | | Other | 430 | | | 77 | | 23 | | 0 | | 0 | | | 274 | | | 79 | | 21 | | 0 | | 0 | | Total foreign government agencies | $ | 3,970 | | | 94 | % | 6 | % | 0 | % | 0 | % | | $ | 2,643 | | | 95 | % | 5 | % | 0 | % | 0 | % |
(a)Represents ratings by S&P or the equivalent. | | | | | | | | | | | | | | | | | | | | | | | | | | | Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2019 | | Dec. 31, 2018 | Total carrying value |
| | Ratings (a) | | Total carrying value |
| | Ratings (a) | AAA/ AA- |
| A+/ A- |
| BBB+/ BBB- |
| BB+ and lower |
| | AAA/ AA- |
| A+/ A- |
| BBB+/ BBB- |
| BB+ and lower |
| (dollars in millions) | (b) | (b) | Non-agency RMBS (c), originated in: | | | | | | | | | | | | | | 2007-2019 | $ | 376 |
| | 41 | % | 1 | % | 3 | % | 55 | % | | $ | 315 |
| | 15 | % | 2 | % | 3 | % | 80 | % | 2006 | 310 |
| | — |
| 20 |
| — |
| 80 |
| | 363 |
| | — |
| 19 |
| — |
| 81 |
| 2005 | 333 |
| | 7 |
| 1 |
| 8 |
| 84 |
| | 396 |
| | 9 |
| 1 |
| 7 |
| 83 |
| 2004 and earlier | 194 |
| | 17 |
| 21 |
| 11 |
| 51 |
| | 251 |
| | 16 |
| 24 |
| 11 |
| 49 |
| Total non-agency RMBS | $ | 1,213 |
| | 17 | % | 9 | % | 5 | % | 69 | % | | $ | 1,325 |
| | 9 | % | 11 | % | 5 | % | 75 | % | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | 2009-2019 | $ | 2,268 |
| | 98 | % | 2 | % | — | % | — | % | | $ | 1,464 |
| | 96 | % | 4 | % | — | % | — | % | Foreign covered bonds: | | | | | | | | | | | | | | Canada | $ | 1,656 |
| | 100 | % | — | % | — | % | — | % | | $ | 1,524 |
| | 100 | % | — | % | — | % | — | % | United Kingdom | 880 |
| | 100 |
| — |
| — |
| — |
| | 529 |
| | 100 |
| — |
| — |
| — |
| Australia | 412 |
| | 100 |
| — |
| — |
| — |
| | 333 |
| | 100 |
| — |
| — |
| — |
| Sweden | 269 |
| | 100 |
| — |
| — |
| — |
| | 187 |
| | 100 |
| — |
| — |
| — |
| Other | 376 |
| | 100 |
| — |
| — |
| — |
| | 305 |
| | 100 |
| — |
| — |
| — |
| Total foreign covered bonds | $ | 3,593 |
| | 100 | % | — | % | — | % | — | % | | $ | 2,878 |
| | 100 | % | — | % | — | % | — | % | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | United Kingdom | $ | 3,815 |
| | 100 | % | — | % | — | % | — | % | | $ | 2,153 |
| | 100 | % | — | % | — | % | — | % | Germany | 2,120 |
| | 100 |
| — |
| — |
| — |
| | 1,826 |
| | 100 |
| — |
| — |
| — |
| France | 1,473 |
| | 100 |
| — |
| — |
| — |
| | 1,548 |
| | 100 |
| — |
| — |
| — |
| Italy | 1,393 |
| | — |
| — |
| 100 |
| — |
| | 939 |
| | — |
| — |
| 100 |
| — |
| Spain | 1,382 |
| | — |
| 5 |
| 95 |
| — |
| | 1,365 |
| | — |
| — |
| 100 |
| — |
| Netherlands | 774 |
| | 100 |
| — |
| — |
| — |
| | 875 |
| | 100 |
| — |
| — |
| — |
| Canada | 478 |
| | 100 |
| — |
| — |
| — |
| | 378 |
| | 100 |
| — |
| — |
| — |
| Hong Kong | 465 |
| | 100 |
| — |
| — |
| — |
| | 450 |
| | 100 |
| — |
| — |
| — |
| Singapore | 434 |
| | 100 |
| — |
| — |
| — |
| | 165 |
| | 100 |
| — |
| — |
| — |
| Ireland | 349 |
| | — |
| 100 |
| — |
| — |
| | 625 |
| | — |
| 100 |
| — |
| — |
| Other (d) | 467 |
| | 53 |
| 23 |
| — |
| 24 |
| | 426 |
| | 75 |
| — |
| — |
| 25 |
| Total sovereign debt/sovereign guaranteed | $ | 13,150 |
| | 75 | % | 4 | % | 21 | % | — | % | | $ | 10,750 |
| | 72 | % | 6 | % | 21 | % | 1 | % | Foreign government agencies: | | | | | | | | | | | | | | Germany | $ | 843 |
| | 100 | % | — | % | — | % | — | % | | $ | 401 |
| | 100 | % | — | % | — | % | — | % | Netherlands | 684 |
| | 100 |
| — |
| — |
| — |
| | 461 |
| | 100 |
| — |
| — |
| — |
| Sweden | 205 |
| | 100 |
| — |
| — |
| — |
| | 23 |
| | 100 |
| — |
| — |
| — |
| Other | 454 |
| | 76 |
| 24 |
| — |
| — |
| | 276 |
| | 100 |
| — |
| — |
| — |
| Total foreign government agencies | $ | 2,186 |
| | 95 | % | 5 | % | — | % | — | % | | $ | 1,161 |
| | 100 | % | — | % | — | % | — | % |
(b) At Sept. 30, 2020 and Dec. 31, 2019, 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 $512 million at Sept. 30, 2020 and $640 million at Dec. 31, 2019 that were included in the former Grantor Trust. (d) Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $119 million at Sept. 30, 2020 and $134 million at Dec. 31, 2019.
| | | (a) | Represents ratings by S&P or the equivalent. |
| Notes to Consolidated Financial Statements(continued) | (b) | At Sept. 30, 2019 and Dec. 31, 2018, 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 $689 million at Sept. 30, 2019 and $832 million at Dec. 31, 2018 that were included in the former Grantor Trust. |
| | (d) | Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $113 million at Sept. 30, 2019 and $107 million at Dec. 31, 2018. |
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.
Examples would be the recording of an impairment of an asset and non-readily marketable equity securities carried at cost with upward or downward adjustments.
The following table presents the financial instruments carried on the consolidated balance sheet by caption and level in the fair value hierarchy as of Sept. 30, 20192020 and Dec. 31, 2018, for which a nonrecurring change in2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | | | | Total carrying value | | | | | Total carrying value | (in millions) | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | Loans (a) | $ | 0 | | $ | 52 | | $ | 0 | | $ | 52 | | | $ | 0 | | $ | 58 | | $ | 0 | | $ | 58 | | Other assets (b) | 0 | | 113 | | 0 | | 113 | | | 0 | | 64 | | 0 | | 64 | | Total assets at fair value on a nonrecurring basis | $ | 0 | | $ | 165 | | $ | 0 | | $ | 165 | | | $ | 0 | | $ | 122 | | $ | 0 | | $ | 122 | |
(a)The fair value has been recordedof these loans decreased less than $1 million in the respective year.third quarter of 2020 and the fourth quarter of 2019, 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.
| | Notes to Consolidated Financial Statements(continued)
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2019 | | Dec. 31, 2018 | | | | Total carrying value |
| | | | | Total carrying value |
| (in millions) | Level 1 |
| Level 2 |
| Level 3 |
| | Level 1 |
| Level 2 |
| Level 3 |
| Loans (a) | $ | — |
| $ | 59 |
| $ | 4 |
| $ | 63 |
| | $ | — |
| $ | 64 |
| $ | 4 |
| $ | 68 |
| Other assets (b) | — |
| 64 |
| — |
| 64 |
| | — |
| 57 |
| — |
| 57 |
| Total assets at fair value on a nonrecurring basis | $ | — |
| $ | 123 |
| $ | 4 |
| $ | 127 |
| | $ | — |
| $ | 121 |
| $ | 4 |
| $ | 125 |
|
| | (a) | The fair value of these loans decreased $1 million in the quarter ended Sept. 30, 2019 and less than $1 million in the quarter ended Dec. 31, 2018, based on the fair value of the underlying collateral, as required by guidance in ASC 310, Receivables, 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. |
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, 20192020 and Dec. 31, 2018,2019, by caption on the consolidated balance sheet and by the valuation hierarchy.
| | | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 30, 2020 | (in millions) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying amount | Assets: | | | | | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 106,185 | | $ | 0 | | $ | 106,185 | | $ | 106,185 | | Interest-bearing deposits with banks | 0 | | 19,037 | | 0 | | 19,037 | | 19,027 | | Federal funds sold and securities purchased under resale agreements | 0 | | 29,647 | | 0 | | 29,647 | | 29,647 | | Securities held-to-maturity | 4,415 | | 43,043 | | 0 | | 47,458 | | 46,096 | | Loans (a) | 0 | | 54,475 | | 0 | | 54,475 | | 54,088 | | Other financial assets | 4,104 | | 1,121 | | 0 | | 5,225 | | 5,225 | | Total | $ | 8,519 | | $ | 253,508 | | $ | 0 | | $ | 262,027 | | $ | 260,268 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | 0 | | $ | 79,470 | | $ | 0 | | $ | 79,470 | | $ | 79,470 | | Interest-bearing deposits | 0 | | 216,499 | | 0 | | 216,499 | | 216,842 | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 15,907 | | 0 | | 15,907 | | 15,907 | | Payables to customers and broker-dealers | 0 | | 23,514 | | 0 | | 23,514 | | 23,514 | | Commercial paper | 0 | | 671 | | 0 | | 671 | | 671 | | Borrowings | 0 | | 607 | | 0 | | 607 | | 607 | | Long-term debt | 0 | | 27,457 | | 0 | | 27,457 | | 25,721 | | Total | $ | 0 | | $ | 364,125 | | $ | 0 | | $ | 364,125 | | $ | 362,732 | |
(a) Does not include the leasing portfolio.
| | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 30, 2019 | (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 | $ | — |
| $ | 73,811 |
| $ | — |
| $ | 73,811 |
| $ | 73,811 |
| Interest-bearing deposits with banks | — |
| 15,434 |
| — |
| 15,434 |
| 15,417 |
| Federal funds sold and securities purchased under resale agreements | — |
| 43,723 |
| — |
| 43,723 |
| 43,723 |
| Securities held-to-maturity | 4,871 |
| 29,221 |
| — |
| 34,092 |
| 33,778 |
| Loans (a) | — |
| 54,186 |
| — |
| 54,186 |
| 53,626 |
| Other financial assets | 6,718 |
| 1,206 |
| — |
| 7,924 |
| 7,924 |
| Total | $ | 11,589 |
| $ | 217,581 |
| $ | — |
| $ | 229,170 |
| $ | 228,279 |
| Liabilities: | | | | | | Noninterest-bearing deposits | $ | — |
| $ | 55,452 |
| $ | — |
| $ | 55,452 |
| $ | 55,452 |
| Interest-bearing deposits | — |
| 195,449 |
| — |
| 195,449 |
| 194,208 |
| Federal funds purchased and securities sold under repurchase agreements | — |
| 11,796 |
| — |
| 11,796 |
| 11,796 |
| Payables to customers and broker-dealers | — |
| 18,364 |
| — |
| 18,364 |
| 18,364 |
| Commercial paper | — |
| 3,538 |
| — |
| 3,538 |
| 3,538 |
| Borrowings | — |
| 1,103 |
| — |
| 1,103 |
| 1,103 |
| Long-term debt | — |
| 28,209 |
| — |
| 28,209 |
| 27,486 |
| Total | $ | — |
| $ | 313,911 |
| $ | — |
| $ | 313,911 |
| $ | 311,947 |
|
| | (a) | Does not include the leasing portfolio. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | Summary of financial instruments | Dec. 31, 2019 | (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 | $ | 0 | | $ | 95,042 | | $ | 0 | | $ | 95,042 | | $ | 95,042 | | Interest-bearing deposits with banks | 0 | | 14,832 | | 0 | | 14,832 | | 14,811 | | Federal funds sold and securities purchased under resale agreements | 0 | | 30,182 | | 0 | | 30,182 | | 30,182 | | Securities held-to-maturity | 4,630 | | 30,175 | | 0 | | 34,805 | | 34,483 | | Loans (a) | 0 | | 54,194 | | 0 | | 54,194 | | 53,718 | | Other financial assets | 4,830 | | 1,233 | | 0 | | 6,063 | | 6,063 | | Total | $ | 9,460 | | $ | 225,658 | | $ | 0 | | $ | 235,118 | | $ | 234,299 | | Liabilities: | | | | | | Noninterest-bearing deposits | $ | 0 | | $ | 57,630 | | $ | 0 | | $ | 57,630 | | $ | 57,630 | | Interest-bearing deposits | 0 | | 200,846 | | 0 | | 200,846 | | 201,836 | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 11,401 | | 0 | | 11,401 | | 11,401 | | Payables to customers and broker-dealers | 0 | | 18,758 | | 0 | | 18,758 | | 18,758 | | Commercial paper | 0 | | 3,959 | | 0 | | 3,959 | | 3,959 | | Borrowings | 0 | | 917 | | 0 | | 917 | | 917 | | Long-term debt | 0 | | 27,858 | | 0 | | 27,858 | | 27,114 | | Total | $ | 0 | | $ | 321,369 | | $ | 0 | | $ | 321,369 | | $ | 321,615 | |
(a) Does not include the leasing portfolio. | | | | | | | | | | | | | | | | | Summary of financial instruments | Dec. 31, 2018 | (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 | $ | — |
| $ | 67,988 |
| $ | — |
| $ | 67,988 |
| $ | 67,988 |
| Interest-bearing deposits with banks | — |
| 14,168 |
| — |
| 14,168 |
| 14,148 |
| Federal funds sold and securities purchased under resale agreements | — |
| 46,795 |
| — |
| 46,795 |
| 46,795 |
| Securities held-to-maturity | 5,512 |
| 27,790 |
| — |
| 33,302 |
| 33,982 |
| Loans (a) | — |
| 55,142 |
| — |
| 55,142 |
| 55,161 |
| Other financial assets | 5,864 |
| 1,383 |
| — |
| 7,247 |
| 7,247 |
| Total | $ | 11,376 |
| $ | 213,266 |
| $ | — |
| $ | 224,642 |
| $ | 225,321 |
| Liabilities: | | | | | | Noninterest-bearing deposits | $ | — |
| $ | 70,783 |
| $ | — |
| $ | 70,783 |
| $ | 70,783 |
| Interest-bearing deposits | — |
| 165,914 |
| — |
| 165,914 |
| 167,995 |
| Federal funds purchased and securities sold under repurchase agreements | — |
| 14,243 |
| — |
| 14,243 |
| 14,243 |
| Payables to customers and broker-dealers | — |
| 19,731 |
| — |
| 19,731 |
| 19,731 |
| Commercial paper | — |
| 1,939 |
| — |
| 1,939 |
| 1,939 |
| Borrowings | — |
| 3,584 |
| — |
| 3,584 |
| 3,584 |
| Long-term debt | — |
| 28,347 |
| — |
| 28,347 |
| 28,792 |
| Total | $ | — |
| $ | 304,541 |
| $ | — |
| $ | 304,541 |
| $ | 307,067 |
|
| | (a) | Does not include the leasing portfolio. |
Note 17–16–Fair value option
We elected fair value as an alternative measurement for selected financial assets and liabilities.liabilities that are not otherwise required to be measured at fair value, including the assets and liabilities of consolidated investment management funds and certain long-term debt. The following table presents the assets and liabilities of consolidated investment management funds, at fair value.
| | | | | | | | Assets and liabilities of consolidated investment management funds, at fair value | | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Assets of consolidated investment management funds: | | | Trading assets | $ | 349 |
| $ | 243 |
| Other assets | 32 |
| 220 |
| Total assets of consolidated investment management funds | $ | 381 |
| $ | 463 |
| Liabilities of consolidated investment management funds: | | | Trading liabilities | $ | 7 |
| $ | — |
| Other liabilities | 8 |
| 2 |
| Total liabilities of consolidated investment management funds | $ | 15 |
| $ | 2 |
|
| | | | | | | | | Assets and liabilities of consolidated investment management funds, at fair value | | | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | Assets of consolidated investment management funds: | | | Trading assets | $ | 579 | | $ | 229 | | Other assets | 9 | | 16 | | Total assets of consolidated investment management funds | $ | 588 | | $ | 245 | | Liabilities of consolidated investment management funds: | | | | | | Other liabilities | 4 | | 1 | | Total liabilities of consolidated investment management funds | $ | 4 | | $ | 1 | |
BNY Mellon values the assets and liabilities of its consolidated investment management funds using quoted prices for identical assets or liabilities in active markets or observable inputs such as quoted prices for similar assets or liabilities. Quoted prices for either identical or similar assets or liabilities in inactive markets may also be used. Accordingly, fair value best reflects the interests BNY Mellon holds in the economic performance of the consolidated investment management funds. Changes in the value of the assets and liabilities are recorded in the consolidated income statement as investment income of consolidated investment management funds and in the interest of investment management fund note holders, respectively.
We have elected the fair value option on $240$240 million of long-term debt. The fair value of this long-term debt was $386$400 million at Sept. 30, 20192020 and $371$387 million at Dec. 31, 2018.2019. The long-term debt is valued using observable market inputs and is included in Level 2 of the valuation hierarchy.
The following table presents the changes in fair value of long-term debt recorded in foreign exchange and other trading revenue in the consolidated income statement.
| | | | | | | | | | | | | | | | | Foreign exchange and other trading revenue (a) | (in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Long-term debt | $ | (3 | ) | $ | (7 | ) | $ | — |
| $ | (15 | ) | $ | 4 |
|
| | | | | | | | | | | | | | | | | | | Change in fair value of long-term debt (a) | | | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Foreign exchange and other trading revenue | $ | (1) | | $ | (2) | | $ | (3) | | $ | (13) | | $ | (15) | | |
(a) The changes in fair value are approximately offset by an economic hedge included in foreign exchange and other trading revenue.
| | | (a)Notes to Consolidated Financial Statements(continued) | The changes in fair value are approximately offset by an economic hedge included in foreign exchange and other trading revenue. |
Note 18–17–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-
| | Notes to Consolidated Financial Statements(continued)
| |
makermarket-maker for our customers and facilitating customer trades in compliance with the Volcker Rule.
The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller. We perform credit reviews and enter into netting agreements and collateral arrangements to minimize the credit risk of derivative financial instruments. We enter into offsetting positions to reduce exposure to foreign currency, interest rate and equity price risk.
Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were 0 counterparty default losses recorded in the third quarter of 2019.2020.
Hedging derivatives
We utilize interest rate swap agreements to manage our exposure to interest rate fluctuations. We enter into fair value hedges as an interest rate risk management strategy to reduce 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.
The available-for-sale securities hedged consist of U.S. Treasury, bonds, agency and non-agency commercial MBS, sovereign debt,debt/sovereign guaranteed, corporate bonds and foreign covered bonds that had original maturities of 30 years or less at initial purchase.bonds. At Sept. 30, 2019, $12.62020, $14.5 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 $12.6$14.5 billion.
The fixed rate long-term debt instruments hedged generally have original maturities of five to 30 years. In fair value hedging relationships, debt is hedged with “receive fixed rate, pay variable rate” swaps. At Sept. 30, 2019,2020, $13.9 billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $13.9 billion. In addition, at Sept. 30, 2019, the Company utilized interest rate swaps with notional values of $1.0 billion as cash flow hedges to convert floating rate long-term debt with a par value of $1.0 billion to a fixed interest rate. A pre-tax loss of $1 million was recognized in OCI related to the cash flow hedges at Sept. 30, 2019 and will be reclassified to earnings over the next 12 months.
In addition, we utilize forward foreign exchange 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 1215 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, Euro, Hong Kong dollar, Singapore dollar and Polish zloty used in revenue and expense transactions infor entities that have the U.S. dollar as their functional currency. As of Sept. 30, 2019,2020, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $369$319 million (notional), with a pre-tax lossgain of $1$5 million recorded in accumulated OCI. This lossgain will be reclassified to earnings over the next 12 months.
We also utilize forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. Forward points are designated as an excluded component and amortized into earnings over the hedge period. The unamortized derivative value associated with the excluded component is recognized in accumulated OCI. At Sept. 30, 2019, $1392020, $140 million face amountpar value of available-for-sale securities werewas hedged with foreign currency forward contracts that had a notional value of $139$140 million.
Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than 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 reported within foreign currency translation adjustments in shareholders’ equity, net of tax. At Sept. 30, 2019,2020, forward foreign exchange contracts with notional amounts totaling $7.3$7.9 billion were designated as net investment hedges.
| | Notes to Consolidated Financial Statements(continued)
| |
In addition to forward foreign exchange contracts, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. Those non-derivative financial instruments designated as hedges of our net investments in foreign subsidiaries were all long-term liabilities of BNY Mellon in various currencies, and, at Sept. 30, 2019,2020, had a combined U.S. dollar equivalent carrying value of $167$179 million.
| | | Notes to Consolidated Financial Statements(continued) | |
The following table presents the pre-tax gains (losses) related to our fair value and cash flow hedging derivative portfolioactivities recognized in the consolidated income statement.
| | | | | | | | | | | | | | | | | | Income statement impact of fair value and cash flow hedges | | | | (in millions) | Location of gains (losses) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Interest rate fair value hedges of available-for-sale securities | | | | | | | Derivative | Interest revenue | $ | (250 | ) | $ | (486 | ) | $ | 214 |
| $ | (1,119 | ) | $ | 747 |
| Hedged item | Interest revenue | 243 |
| 480 |
| (209 | ) | 1,099 |
| (725 | ) | Interest rate fair value hedges of long-term debt | | | | | | | Derivative | Interest expense | 146 |
| 300 |
| (101 | ) | 631 |
| (610 | ) | Hedged item | Interest expense | (145 | ) | (298 | ) | 103 |
| (627 | ) | 609 |
| Foreign exchange fair value hedges of available-for-sale securities | | | | | | | Derivative (a) | Other revenue | 2 |
| (5 | ) | — |
| 3 |
| — |
| Hedged item | Other revenue | (2 | ) | 5 |
| — |
| (2 | ) | — |
| Cash flow hedge of interest rate risk | | | | | | | (Loss) reclassified from OCI into income | Interest expense | (1 | ) | — |
| — |
| (1 | ) | — |
| Cash flow hedges of forecasted FX exposures | | | | | | | Gain reclassified from OCI into income | Other revenue | — |
| — |
| — |
| — |
| 3 |
| Gain (loss) reclassified from OCI into income | Staff expense | 2 |
| — |
| (4 | ) | 1 |
| 4 |
| (Loss) gain recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | (5 | ) | $ | (4 | ) | $ | 3 |
| $ | (15 | ) | $ | 28 |
|
| | (a) | Includes de minimis gains in the third quarter of 2019 and second quarter of 2019 and a gain of $1 million in the first nine months of 2019 associated with the amortization of the excluded component. At Sept. 30, 2019 and Dec. 31, 2018, the remaining accumulated OCI balance associated with the excluded component was de minimis. |
| | | | | | | | | | | | | | | | | | | | | | Income statement impact of fair value and cash flow hedges | | | | (in millions) | Location of gains (losses) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Interest rate fair value hedges of available-for-sale securities | | | | | | | | Derivative | Interest revenue | $ | 150 | | $ | 19 | | $ | (250) | | $ | (864) | | $ | (1,119) | | | Hedged item | Interest revenue | (140) | | (15) | | 243 | | 856 | | 1,099 | | | Interest rate fair value hedges of long-term debt | | | | | | | | Derivative | Interest expense | (68) | | 47 | | 146 | | 693 | | 631 | | | Hedged item | Interest expense | 66 | | (49) | | (145) | | (691) | | (627) | | | Foreign exchange fair value hedges of available-for-sale securities | | | | | | | | Derivative (a) | Other revenue | 1 | | (5) | | 2 | | (11) | | 3 | | | Hedged item | Other revenue | 1 | | 5 | | (2) | | 13 | | (2) | | | Cash flow hedge of interest rate risk | | | | | | | | (Loss) reclassified from OCI into income | Interest expense | 0 | | 0 | | (1) | | 0 | | (1) | | | Cash flow hedges of forecasted FX exposures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Loss) gain reclassified from OCI into income | Staff expense | 0 | | (3) | | 2 | | (2) | | 1 | | | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 10 | | $ | (1) | | $ | (5) | | $ | (6) | | $ | (15) | | |
(a) Includes gains of less than $1 million in the third quarter of 2020, second quarter of 2020 and third quarter of 2019 and gains of $1 million in the first nine months of 2020 and first nine months of 2019 associated with the amortization of the excluded component. At Sept. 30, 2020 and Dec. 31, 2019, the remaining accumulated OCI balance associated with the excluded component was de minimis.
The following table presents the impact of hedging derivatives used in net investment hedging relationships in the consolidated income statement.relationships.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments used in net investment hedging relationships in the income statement | | | | (in millions) | Gain or (loss) recognized in accumulated OCI on derivatives | | | Gain or (loss) reclassified from accumulated OCI into income | Derivatives in net investment hedging relationships | | Location of gain or (loss) reclassified from accumulated OCI into income | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| FX contracts | $ | 252 |
| $ | 76 |
| $ | 83 |
| $ | 322 |
| $ | 354 |
| | Net interest revenue | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 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 | | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | FX contracts | $ | (289) | | $ | (45) | | $ | 252 | | $ | 103 | | $ | 322 | | | | Net interest revenue | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | |
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, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | Available-for-sale securities (b)(c) | $ | 14,629 | | $ | 13,792 | | | $ | 1,650 | | $ | 687 | | Long-term debt | $ | 14,889 | | $ | 13,945 | | | $ | 870 | | $ | 116 | |
(a) Includes $187 million and $53 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2020 and Dec. 31, 2019, respectively, and $136 million and $200 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2020 and Dec. 31, 2019, respectively. (b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was $140 million at Sept. 30, 2020 and $142 million at Dec. 31, 2019. (c) Carrying amount represents the amortized cost.
| | | | | | | | | | | | | | | 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, 2019 |
| Dec. 31, 2018 |
| | Sept. 30, 2019 |
| Dec. 31, 2018 |
| Available-for-sale securities (b) | $ | 12,684 |
| $ | 19,201 |
| | $ | 1,090 |
| $ | (125 | ) | Long-term debt | $ | 14,340 |
| $ | 16,147 |
| | $ | 239 |
| $ | (453 | ) |
| | (a) | Includes $140 million and $- million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2019 and Dec. 31, 2018, respectively, and $221 million and $284 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2019 and Dec. 31, 2018, respectively. |
| | (b) | Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was $139 million at Sept. 30, 2019 and $148 million at Dec. 31, 2018. |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table summarizes the notional amount and credit exposurecarrying values of our total derivative portfolio at Sept. 30, 20192020 and Dec. 31, 2018.2019.
| | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments on the balance sheet | Notional value | | Asset derivatives fair value | | Liability derivatives fair value | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| | Sept. 30, 2019 |
| Dec. 31, 2018 |
| | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | Interest rate contracts | $ | 27,510 |
| $ | 35,890 |
| | $ | — |
| $ | 23 |
| | $ | 521 |
| $ | 74 |
| Foreign exchange contracts | 7,792 |
| 6,330 |
| | 287 |
| 266 |
| | 84 |
| 14 |
| Total derivatives designated as hedging instruments | | | | $ | 287 |
| $ | 289 |
| | $ | 605 |
| $ | 88 |
| Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | Interest rate contracts | $ | 320,205 |
| $ | 248,534 |
| | $ | 4,840 |
| $ | 3,590 |
| | $ | 4,081 |
| $ | 3,116 |
| Foreign exchange contracts | 823,138 |
| 831,730 |
| | 5,066 |
| 4,807 |
| | 5,012 |
| 5,215 |
| Equity contracts | 1,559 |
| 927 |
| | 14 |
| 68 |
| | 17 |
| 118 |
| Credit contracts | 165 |
| 150 |
| | — |
| — |
| | 3 |
| 1 |
| Total derivatives not designated as hedging instruments | | | | $ | 9,920 |
| $ | 8,465 |
| | $ | 9,113 |
| $ | 8,450 |
| Total derivatives fair value (d) | | | | $ | 10,207 |
| $ | 8,754 |
| | $ | 9,718 |
| $ | 8,538 |
| Effect of master netting agreements (e) | | | | (6,681 | ) | (5,939 | ) | | (6,566 | ) | (6,170 | ) | Fair value after effect of master netting agreements | | | | $ | 3,526 |
| $ | 2,815 |
| | $ | 3,152 |
| $ | 2,368 |
|
| | (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 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 $815 million and $700 million, respectively, at Sept. 30, 2019, and $809 million and $1,040 million, respectively, at Dec. 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments on the balance sheet | Notional value | | Asset derivatives fair value | | Liability derivatives fair value | | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | Interest rate contracts | $ | 28,441 | | $ | 28,365 | | | $ | 0 | | $ | 0 | | | $ | 803 | | $ | 350 | | Foreign exchange contracts | 8,369 | | 8,390 | | | 56 | | 21 | | | 194 | | 257 | | Total derivatives designated as hedging instruments | | | | $ | 56 | | $ | 21 | | | $ | 997 | | $ | 607 | | Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | Interest rate contracts | $ | 206,771 | | $ | 306,790 | | | $ | 4,962 | | $ | 3,690 | | | $ | 4,246 | | $ | 3,250 | | Foreign exchange contracts | 753,812 | | 848,961 | | | 4,410 | | 5,331 | | | 4,522 | | 5,340 | | Equity contracts | 2,241 | | 3,189 | | | 15 | | 19 | | | 8 | | 5 | | Credit contracts | 165 | | 165 | | | 0 | | 0 | | | 3 | | 4 | | Total derivatives not designated as hedging instruments | | | | $ | 9,387 | | $ | 9,040 | | | $ | 8,779 | | $ | 8,599 | | Total derivatives fair value (d) | | | | $ | 9,443 | | $ | 9,061 | | | $ | 9,776 | | $ | 9,206 | | Effect of master netting agreements (e) | | | | (5,238) | | (5,819) | | | (6,183) | | (5,415) | | Fair value after effect of master netting agreements | | | | $ | 4,205 | | $ | 3,242 | | | $ | 3,593 | | $ | 3,791 | |
(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 $675 million and $1,620 million, respectively, at Sept. 30, 2020, and $1,022 million and $618 million, respectively, at Dec. 31, 2019.
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 and other trading revenue on the consolidated income statement.
The following table presents our foreign exchange and other trading revenue.
| | | | | | | | | | | | | | | | | Foreign exchange and other trading revenue | | | (in millions) | 3Q19 |
| 2Q19 |
| 3Q18 |
| YTD19 |
| YTD18 |
| Foreign exchange | $ | 129 |
| $ | 150 |
| $ | 150 |
| $ | 439 |
| $ | 504 |
| Other trading revenue | 21 |
| 16 |
| 5 |
| 47 |
| 47 |
| Total foreign exchange and other trading revenue | $ | 150 |
| $ | 166 |
| $ | 155 |
| $ | 486 |
| $ | 551 |
|
| | | | | | | | | | | | | | | | | | | Foreign exchange and other trading revenue | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Foreign exchange | $ | 151 | | $ | 174 | | $ | 129 | | $ | 578 | | $ | 439 | | | Other trading (loss) revenue | (14) | | (8) | | 21 | | 44 | | 47 | | | Total foreign exchange and other trading revenue | $ | 137 | | $ | 166 | | $ | 150 | | $ | 622 | | $ | 486 | | |
Foreign exchange revenue includes income from purchasing and selling foreign currencies and currency forwards, futures and options. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities and non-foreign exchange derivatives.
We also use derivative financial instruments as risk mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were a gain of $12 million in the third quarter of 2020, a de minimis loss in the third quarter of 2019, and gainsa gain of $7 million in the third quarter of 2018, $5$28 million in the second quarter of 2019,2020, a loss of $1 million in the first nine months of 2020 and a gain of $23 million in the first nine months of 2019 and $6 million in the first nine months of 2018.
We manage trading risk through a system of position limits, a VaR methodology based on historical2019.
| | | Notes to Consolidated Financial Statements (continued) | |
We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one-dayone-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. The VaR model is one of several statistical models used to develop economic capital results, which are allocated to lines of business for computing risk-adjusted performance.
VaR methodology does not evaluate risk attributable to extraordinary financial, economic or other 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.
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 16.15.
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, 2020 | Dec. 31, 2019 | (in millions) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 5,958 | | $ | 3,442 | | Collateral posted | $ | 6,384 | | $ | 3,671 | |
| | | | | | | | | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 4,034 |
| $ | 2,877 |
| Collateral posted | $ | 3,820 |
| $ | 2,801 |
|
| | (a) | (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, enters into the substantial majority of our OTC derivative contracts and/or collateral agreements. As such, the contingent features may be triggered if The Bank of New York Mellon’s long-term issuer rating was downgraded.
The following table shows the fair value of contracts falling under early termination provisions that were in net liability positions for three key ratings triggers.
| | | | | | | | | Potential close-out exposures (fair value) (a) | | | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | If The Bank of New York Mellon’s rating changed to: (b) | | | A3/A- | $ | 10 | | $ | 56 | | Baa2/BBB | $ | 565 | | $ | 608 | | Ba1/BB+ | $ | 3,113 | | $ | 2,084 | |
(a) The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating were to immediately drop to the indicated levels, and do not reflect collateral posted. (b) Represents ratings by Moody’s/S&P.
| | | | | | | | Potential close-out exposures (fair value) (a) | | (in millions) | Sept. 30, 2019 |
| Dec. 31, 2018 |
| If The Bank of New York Mellon’s rating changed to: (b) | | | A3/A- | $ | 17 |
| $ | 15 |
| Baa2/BBB | $ | 472 |
| $ | 116 |
| Ba1/BB+ | $ | 2,131 |
| $ | 1,041 |
|
| | | (a) | The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating wereNotes to immediately drop to the indicated levels, and do not reflect collateral posted. |
| Consolidated Financial Statements(continued) | (b) | Represents rating by Moody’s/S&P. |
If The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept. 30, 20192020 and Dec. 31, 2018,2019, existing collateral arrangements would have required us to post additional collateral of $65$31 million and $100$63 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, 2019 | | | | | | 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 | $ | 3,292 |
| $ | 2,585 |
| | $ | 707 |
| $ | 203 |
| $ | — |
| $ | 504 |
| Foreign exchange contracts | 4,882 |
| 4,094 |
| | 788 |
| 1 |
| — |
| 787 |
| Equity and other contracts | 2 |
| 2 |
| | — |
| — |
| — |
| — |
| Total derivatives subject to netting arrangements | 8,176 |
| 6,681 |
| | 1,495 |
| 204 |
| — |
| 1,291 |
| Total derivatives not subject to netting arrangements | 2,031 |
| — |
| | 2,031 |
| — |
| — |
| 2,031 |
| Total derivatives | 10,207 |
| 6,681 |
| | 3,526 |
| 204 |
| — |
| 3,322 |
| Reverse repurchase agreements | 93,236 |
| 60,094 |
| (b) | 33,142 |
| 33,122 |
| — |
| 20 |
| Securities borrowing | 10,581 |
| — |
| | 10,581 |
| 10,266 |
| — |
| 315 |
| Total | $ | 114,024 |
| $ | 66,775 |
| | $ | 47,249 |
| $ | 43,592 |
| $ | — |
| $ | 3,657 |
|
| | (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 Dec. 31, 2018 | | | | | | Gross assets recognized |
| Gross amounts offset in the balance sheet |
| | Net assets recognized in the balance sheet |
| Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments |
| Cash collateral received |
| Net amount |
| Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 2,654 |
| $ | 2,202 |
| | $ | 452 |
| $ | 133 |
| $ | — |
| $ | 319 |
| Foreign exchange contracts | 4,409 |
| 3,724 |
| | 685 |
| 70 |
| — |
| 615 |
| Equity and other contracts | 38 |
| 13 |
| | 25 |
| — |
| — |
| 25 |
| Total derivatives subject to netting arrangements | 7,101 |
| 5,939 |
| | 1,162 |
| 203 |
| — |
| 959 |
| Total derivatives not subject to netting arrangements | 1,653 |
| — |
| | 1,653 |
| — |
| — |
| 1,653 |
| Total derivatives | 8,754 |
| 5,939 |
| | 2,815 |
| 203 |
| — |
| 2,612 |
| Reverse repurchase agreements | 112,245 |
| 76,040 |
| (b) | 36,205 |
| 36,205 |
| — |
| — |
| Securities borrowing | 10,588 |
| — |
| | 10,588 |
| 10,286 |
| — |
| 302 |
| Total | $ | 131,587 |
| $ | 81,979 |
| | $ | 49,608 |
| $ | 46,694 |
| $ | — |
| $ | 2,914 |
|
| | (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, 2020 | | | | | | Gross assets recognized | Gross amounts offset in the balance sheet | | Net assets recognized in the balance sheet | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 3,183 | | $ | 2,133 | | | $ | 1,050 | | $ | 350 | | $ | 0 | | $ | 700 | | Foreign exchange contracts | 4,043 | | 3,102 | | | 941 | | 33 | | 0 | | 908 | | Equity and other contracts | 8 | | 3 | | | 5 | | 0 | | 0 | | 5 | | Total derivatives subject to netting arrangements | 7,234 | | 5,238 | | | 1,996 | | 383 | | 0 | | 1,613 | | Total derivatives not subject to netting arrangements | 2,209 | | — | | | 2,209 | | — | | — | | 2,209 | | Total derivatives | 9,443 | | 5,238 | | | 4,205 | | 383 | | 0 | | 3,822 | | Reverse repurchase agreements | 72,507 | | 54,629 | | (b) | 17,878 | | 17,852 | | 0 | | 26 | | Securities borrowing | 11,769 | | — | | | 11,769 | | 11,216 | | — | | 553 | | Total | $ | 93,719 | | $ | 59,867 | | | $ | 33,852 | | $ | 29,451 | | $ | 0 | | $ | 4,401 | |
(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, 2019 | | | | | | Gross assets recognized | Gross amounts offset in the balance sheet | | Net assets recognized in the balance sheet | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 2,394 | | $ | 1,792 | | | $ | 602 | | $ | 207 | | $ | 0 | | $ | 395 | | Foreign exchange contracts | 4,861 | | 4,021 | | | 840 | | 44 | | 0 | | 796 | | Equity and other contracts | 9 | | 6 | | | 3 | | 0 | | 0 | | 3 | | Total derivatives subject to netting arrangements | 7,264 | | 5,819 | | | 1,445 | | 251 | | 0 | | 1,194 | | Total derivatives not subject to netting arrangements | 1,797 | | — | | | 1,797 | | — | | — | | 1,797 | | Total derivatives | 9,061 | | 5,819 | | | 3,242 | | 251 | | 0 | | 2,991 | | Reverse repurchase agreements | 112,355 | | 93,794 | | (b) | 18,561 | | 18,554 | | 0 | | 7 | | Securities borrowing | 11,621 | | — | | | 11,621 | | 11,278 | | — | | 343 | | Total | $ | 133,037 | | $ | 99,613 | | | $ | 33,424 | | $ | 30,083 | | $ | 0 | | $ | 3,341 | |
(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.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2020 | Net liabilities recognized in the balance sheet | | | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 5,035 | | $ | 2,551 | | | $ | 2,484 | | $ | 2,477 | | $ | 0 | | $ | 7 | | Foreign exchange contracts | 4,294 | | 3,631 | | | 663 | | 224 | | 0 | | 439 | | Equity and other contracts | 8 | | 1 | | | 7 | | 0 | | 0 | | 7 | | Total derivatives subject to netting arrangements | 9,337 | | 6,183 | | | 3,154 | | 2,701 | | 0 | | 453 | | Total derivatives not subject to netting arrangements | 439 | | — | | | 439 | | — | | — | | 439 | | Total derivatives | 9,776 | | 6,183 | | | 3,593 | | 2,701 | | 0 | | 892 | | Repurchase agreements | 69,494 | | 54,629 | | (b) | 14,865 | | 14,863 | | 1 | | 1 | | Securities lending | 1,002 | | — | | | 1,002 | | 961 | | — | | 41 | | Total | $ | 80,272 | | $ | 60,812 | | | $ | 19,460 | | $ | 18,525 | | $ | 1 | | $ | 934 | |
(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. | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2019 | Net liabilities recognized in the balance sheet |
| | | | | Gross liabilities recognized |
| Gross amounts offset in the balance sheet |
| | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments |
| Cash collateral pledged |
| Net amount |
| Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 4,562 |
| $ | 2,532 |
| | $ | 2,030 |
| $ | 1,679 |
| $ | — |
| $ | 351 |
| Foreign exchange contracts | 4,639 |
| 4,024 |
| | 615 |
| 226 |
| — |
| 389 |
| Equity and other contracts | 18 |
| 10 |
| | 8 |
| — |
| — |
| 8 |
| Total derivatives subject to netting arrangements | 9,219 |
| 6,566 |
| | 2,653 |
| 1,905 |
| — |
| 748 |
| Total derivatives not subject to netting arrangements | 499 |
| — |
| | 499 |
| — |
| — |
| 499 |
| Total derivatives | 9,718 |
| 6,566 |
| | 3,152 |
| 1,905 |
| — |
| 1,247 |
| Repurchase agreements | 69,004 |
| 60,094 |
| (b) | 8,910 |
| 8,910 |
| — |
| — |
| Securities lending | 758 |
| — |
| | 758 |
| 724 |
| — |
| 34 |
| Total | $ | 79,480 |
| $ | 66,660 |
| | $ | 12,820 |
| $ | 11,539 |
| $ | — |
| $ | 1,281 |
|
(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.
| | (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, 2018 | Net liabilities recognized in the balance sheet |
| | | | | Gross liabilities recognized |
| Gross amounts offset in the balance sheet |
| | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments |
| Cash collateral pledged |
| Net amount |
| Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 3,144 |
| $ | 2,508 |
| | $ | 636 |
| $ | 547 |
| $ | — |
| $ | 89 |
| Foreign exchange contracts | 4,747 |
| 3,626 |
| | 1,121 |
| 187 |
| — |
| 934 |
| Equity and other contracts | 75 |
| 36 |
| | 39 |
| 37 |
| — |
| 2 |
| Total derivatives subject to netting arrangements | 7,966 |
| 6,170 |
| | 1,796 |
| 771 |
| — |
| 1,025 |
| Total derivatives not subject to netting arrangements | 572 |
| — |
| | 572 |
| — |
| — |
| 572 |
| Total derivatives | 8,538 |
| 6,170 |
| | 2,368 |
| 771 |
| — |
| 1,597 |
| Repurchase agreements | 84,665 |
| 76,040 |
| (b) | 8,625 |
| 8,625 |
| — |
| — |
| Securities lending | 997 |
| — |
| | 997 |
| 937 |
| — |
| 60 |
| Total | $ | 94,200 |
| $ | 82,210 |
| | $ | 11,990 |
| $ | 10,333 |
| $ | — |
| $ | 1,657 |
|
| | (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, 2019 | Net liabilities recognized in the balance sheet | | | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | Derivatives subject to netting arrangements: | | | | | | | | Interest rate contracts | $ | 3,550 | | $ | 1,986 | | | $ | 1,564 | | $ | 1,539 | | $ | 0 | | $ | 25 | | Foreign exchange contracts | 4,873 | | 3,428 | | | 1,445 | | 74 | | 0 | | 1,371 | | Equity and other contracts | 5 | | 1 | | | 4 | | 2 | | 0 | | 2 | | Total derivatives subject to netting arrangements | 8,428 | | 5,415 | | | 3,013 | | 1,615 | | 0 | | 1,398 | | Total derivatives not subject to netting arrangements | 778 | | — | | | 778 | | — | | — | | 778 | | Total derivatives | 9,206 | | 5,415 | | | 3,791 | | 1,615 | | 0 | | 2,176 | | Repurchase agreements | 104,451 | | 93,794 | | (b) | 10,657 | | 10,657 | | 0 | | 0 | | Securities lending | 718 | | — | | | 718 | | 694 | | — | | 24 | | Total | $ | 114,375 | | $ | 99,209 | | | $ | 15,166 | | $ | 12,966 | | $ | 0 | | $ | 2,200 | |
(a)88 BNY MellonIncludes 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.
| | | Notes to Consolidated Financial Statements (continued) | |
Secured borrowings
The following table 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, 2019 | | Dec. 31, 2018 | | Remaining contractual maturity | Total |
| | Remaining contractual maturity | Total |
| (in millions) | Overnight and continuous |
| Up to 30 days |
| 30 days or more |
| | Overnight and continuous |
| Up to 30 days |
| 30 days or more |
| Repurchase agreements: | | | | | | | | | | U.S. Treasury | $ | 60,878 |
| $ | — |
| $ | — |
| $ | 60,878 |
| | $ | 76,822 |
| $ | — |
| $ | — |
| $ | 76,822 |
| U.S. government agencies | 930 |
| — |
| — |
| 930 |
| | 759 |
| — |
| — |
| 759 |
| Agency RMBS | 3,383 |
| — |
| — |
| 3,383 |
| | 3,184 |
| — |
| 4 |
| 3,188 |
| Corporate bonds | 268 |
| — |
| 1,719 |
| 1,987 |
| | 416 |
| — |
| 1,413 |
| 1,829 |
| Other debt securities | 217 |
| — |
| 1,038 |
| 1,255 |
| | 271 |
| — |
| 1,106 |
| 1,377 |
| Equity securities | 78 |
| — |
| 493 |
| 571 |
| | 163 |
| — |
| 527 |
| 690 |
| Total | $ | 65,754 |
| $ | — |
| $ | 3,250 |
| $ | 69,004 |
| | $ | 81,615 |
| $ | — |
| $ | 3,050 |
| $ | 84,665 |
| Securities lending: | | | | | | | | | | U.S. government agencies | $ | 9 |
| $ | — |
| $ | — |
| $ | 9 |
| | $ | 7 |
| $ | — |
| $ | — |
| $ | 7 |
| Other debt securities | 228 |
| — |
| — |
| 228 |
| | 294 |
| — |
| — |
| 294 |
| Equity securities | 521 |
| — |
| — |
| 521 |
| | 696 |
| — |
| — |
| 696 |
| Total | $ | 758 |
| $ | — |
| $ | — |
| $ | 758 |
| | $ | 997 |
| $ | — |
| $ | — |
| $ | 997 |
| Total borrowings | $ | 66,512 |
| $ | — |
| $ | 3,250 |
| $ | 69,762 |
| | $ | 82,612 |
| $ | — |
| $ | 3,050 |
| $ | 85,662 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase agreements and securities lending transactions accounted for as secured borrowings | | Sept. 30, 2020 | | Dec. 31, 2019 | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | (in millions) | Overnight and continuous | Up to 30 days | 30 days or more | | Overnight and continuous | Up to 30 days | 30 days or more | Repurchase agreements: | | | | | | | | | | U.S. Treasury | $ | 60,350 | | $ | 0 | | $ | 0 | | $ | 60,350 | | | $ | 94,788 | | $ | 10 | | $ | 0 | | $ | 94,798 | | Agency RMBS | 2,913 | | 675 | | 2 | | 3,590 | | | 4,234 | | 774 | | 0 | | 5,008 | | Corporate bonds | 232 | | 64 | | 1,432 | | 1,728 | | | 266 | | 236 | | 1,617 | | 2,119 | | Sovereign debt/ sovereign guaranteed | 128 | | 0 | | 1,151 | | 1,279 | | | 0 | | 22 | | 0 | | 22 | | State and political subdivisions | 43 | | 39 | | 810 | | 892 | | | 38 | | 166 | | 1,077 | | 1,281 | | U.S. government agencies | 610 | | 0 | | 0 | | 610 | | | 594 | | 16 | | 0 | | 610 | | Other debt securities | 47 | | 44 | | 186 | | 277 | | | 2 | | 0 | | 2 | | 4 | | Equity securities | 0 | | 53 | | 715 | | 768 | | | 31 | | 99 | | 479 | | 609 | | Total | $ | 64,323 | | $ | 875 | | $ | 4,296 | | $ | 69,494 | | | $ | 99,953 | | $ | 1,323 | | $ | 3,175 | | $ | 104,451 | | Securities lending: | | | | | | | | | | Agency RMBS | $ | 180 | | $ | 0 | | $ | 0 | | $ | 180 | | | $ | 160 | | $ | 0 | | $ | 0 | | $ | 160 | | U.S. government agencies | 1 | | 0 | | 0 | | 1 | | | 19 | | 0 | | 0 | | 19 | | Other debt securities | 49 | | 0 | | 0 | | 49 | | | 41 | | 0 | | 0 | | 41 | | Equity securities | 772 | | 0 | | 0 | | 772 | | | 498 | | 0 | | 0 | | 498 | | Total | $ | 1,002 | | $ | 0 | | $ | 0 | | $ | 1,002 | | | $ | 718 | | $ | 0 | | $ | 0 | | $ | 718 | | Total secured borrowings | $ | 65,325 | | $ | 875 | | $ | 4,296 | | $ | 70,496 | | | $ | 100,671 | | $ | 1,323 | | $ | 3,175 | | $ | 105,169 | |
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.
Note 19–18–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 risks 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.
The following table presents a summary of our off-balance sheet credit risks.
| | | | | | | | Off-balance sheet credit risks | Sept. 30, 2019 |
| Dec. 31, 2018 |
| (in millions) | Lending commitments | $ | 50,303 |
| $ | 50,631 |
| Standby letters of credit (a) | 2,417 |
| 2,817 |
| Commercial letters of credit | 156 |
| 165 |
| Securities lending indemnifications (b)(c) | 398,226 |
| 401,504 |
|
| | (a) | Net of participations totaling $154 million at Sept. 30, 2019 and $163 million at Dec. 31, 2018. |
| | (b) | Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $63 billion at Sept. 30, 2019 and $56 billion at Dec. 31, 2018.
|
| | (c) | Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $42 billion at Sept. 30, 2019 and $35 billion at Dec. 31, 2018. |
| | | 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, 2020 | Dec. 31, 2019 | (in millions) | Lending commitments | $ | 47,658 | | $ | 49,119 | | Standby letters of credit (“SBLC”) (a) | 2,175 | | 2,298 | | Commercial letters of credit | 87 | | 74 | | Securities lending indemnifications (b)(c) | 414,324 | | 408,378 | |
(a)Net of participations totaling $145 million at Sept. 30, 2020 and $146 million at Dec. 31, 2019. (b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $58 billion at Sept. 30, 2020 and $57 billion at Dec. 31, 2019. (c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $43 billion at Sept. 30, 2020 and $37 billion at Dec. 31, 2019.
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: $31.3$31.0 billion in less than one year, $18.7$16.3 billion in one to five years and $346$336 million over five years.
SBLCs principally support obligations of corporate clients and were collateralized with cash and securities of $166$200 million at Sept. 30, 20192020 and $223$184 million at Dec. 31, 2018.2019. At Sept. 30, 2019,2020, $1.6 billion of the SBLCs will expire within one year, $783$568 million in one to five years and $4$1 million 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.
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, 2019 |
| Dec. 31, 2018 |
| | Investment grade | 90 | % | 89 | % | Non-investment grade | 10 | % | 11 | % |
| | | | | | | | | Standby letters of credit | Sept. 30, 2020 | Dec. 31, 2019 | | Investment grade | 87 | % | 90 | % | Non-investment grade | 13 | % | 10 | % |
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 $156$87 million at Sept. 30, 20192020 and $165$74 million at Dec. 31, 2018.2019.
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 $97$135 million at Sept. 30, 20192020 and $106$94 million at Dec. 31, 2018.
2019.
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.
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 $417435 billion at Sept. 30, 20192020 and $420428 billion at Dec. 31, 2018.2019.
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, 20192020 and Dec. 31, 2018, $632019, $58 billion and $56$57 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 $67 $61 billion and $59$61 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.
| | Notes to Consolidated Financial Statements(continued)
| |
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, 2019,2020, we had 0$150 million of unsettled repurchase agreements and $1.3 billion of0 unsettled reverse repurchase agreements which all settled the following day.agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at Sept. 30, 2019.2020. The tables below present our credit exposure in the financial institutions and commercial portfolios.
| | | | | | | | | | | Financial institutions portfolio exposure (in billions) | Sept. 30, 2019 | Loans |
| Unfunded commitments |
| Total exposure |
| Securities industry | $ | 3.2 |
| $ | 23.4 |
| $ | 26.6 |
| Banks | 7.9 |
| 1.2 |
| 9.1 |
| Asset managers | 1.3 |
| 6.7 |
| 8.0 |
| Insurance | 0.1 |
| 2.5 |
| 2.6 |
| Government | 0.1 |
| 0.3 |
| 0.4 |
| Other | 0.8 |
| 0.8 |
| 1.6 |
| Total | $ | 13.4 |
| $ | 34.9 |
| $ | 48.3 |
|
| | | | | | | | | | | Commercial portfolio exposure (in billions) | Sept. 30, 2019 | Loans |
| Unfunded commitments |
| Total exposure |
| Manufacturing | $ | 0.8 |
| $ | 4.7 |
| $ | 5.5 |
| Services and other | 0.7 |
| 3.7 |
| 4.4 |
| Energy and utilities | 0.2 |
| 3.8 |
| 4.0 |
| Media and telecom | — |
| 1.0 |
| 1.0 |
| Total | $ | 1.7 |
| $ | 13.2 |
| $ | 14.9 |
|
| | | | | | | | | | | | Financial institutions portfolio exposure (in billions) | Sept. 30, 2020 | Loans | Unfunded commitments | Total exposure | Securities industry | $ | 2.8 | | $ | 22.3 | | $ | 25.1 | | Asset managers | 1.2 | | 6.5 | | 7.7 | | Banks | 6.1 | | 1.1 | | 7.2 | | Insurance | 0.1 | | 2.7 | | 2.8 | | Government | 0.1 | | 0.2 | | 0.3 | | Other | 0.7 | | 0.7 | | 1.4 | | Total | $ | 11.0 | | $ | 33.5 | | $ | 44.5 | |
| | | | | | | | | | | | Commercial portfolio exposure (in billions) | Sept. 30, 2020 | Loans | Unfunded commitments | Total exposure | Services and other | $ | 1.0 | | $ | 3.5 | | $ | 4.5 | | Manufacturing | 0.7 | | 3.8 | | 4.5 | | Energy and utilities | 0.2 | | 4.0 | | 4.2 | | Media and telecom | 0 | | 0.9 | | 0.9 | | Total | $ | 1.9 | | $ | 12.2 | | $ | 14.1 | |
Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash and/or securities.
Exposure for certain administrative errors
In connection with certain offshore tax-exempt funds that we manage, we were potentially liable to the funds for certain administrative errors. The errors
related to the resident status of such funds, which exposed the Company to a tax liability related to the funds’ earnings. In the third quarter of 2019, we reduced the previously established reserves for this exposure based on recent discussions and agreement with the tax authorities.
Sponsored Member Repo Program
BNY Mellon is a sponsoring member in the FICC sponsored member program, where we submit eligible overnight repurchase and reverse repurchase transactions in U.S. treasuryTreasury securities (“Sponsored Member Transactions”) between BNY Mellon and our sponsored member clients for novation 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 such 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 1817 for additional information on our repurchase and 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 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
| | Notes to Consolidated Financial Statements(continued)
| |
have to make any material payments for these indemnifications is remote. At Sept. 30, 20192020 and Dec. 31, 2018,2019, 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, 20192020 and Dec. 31, 2018,2019, we havedid not recordedrecord any material liabilities under these arrangements.
Legal proceedings
In the ordinary course of business, BNYThe Bank of New York Mellon isCorporation 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 our results of operations in a given period.
In view of the inherent unpredictability of outcomes in litigation 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 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 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 MellonWe regularly monitorsmonitor 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 continues 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 the results of operations in a given period.
In addition, if we have the potential to recover a portion of an estimated loss from a third party, we record a receivable up to the amount of the accrual that is probable of recovery.
For certain of those matters described here for which a loss contingency may, in the future, be reasonably possible (whether in excess of a related accrued liability or where there is no accrued liability), BNY Mellon is currently unable to estimate a range of reasonably possible loss. For those matters described here where BNY Mellon is able to estimate a reasonably possible loss, the aggregate range of such
| | | Notes to Consolidated Financial Statements(continued) | |
reasonably possible loss is up to $750 million $850 million in 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.
The following describes certain judicial, regulatory and arbitration proceedings involving BNY Mellon:
Mortgage-Securitization Trusts Proceedings The Bank of New York Mellon has been named as a defendant in a number of legal actions brought by
| | Notes to Consolidated Financial Statements(continued)
| |
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. NaN actions remaincommenced in December 2014, December 2015 and February 2017 are pending in New York federal court; and 1 action commenced in May 2016 is pending in New York state court. A New York federal court action filed in August 2014 has been dismissed.
Matters Related to R. Allen Stanford In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, (“SIB”), also controlled by Stanford, issued certificates of deposit (“CDs”). Some investors allegedly wired funds from their SGC accounts to purchase CDs. In 2009, the SECSecurities and Exchange Commission charged Stanford with operating a Ponzi scheme in connection with the sale of CDs, and SGC was placed into receivership. Alleged purchasers of CDs have filed 152 putative class action proceedings against Pershing: one in November 2009 in Texas federal court, and one in May 2016 in New Jersey federal court. NaN lawsuits have been filed against Pershing that are pending in Texas, including a putative class action.Louisiana, Florida and New Jersey federal courts in January 2010, January and February 2015, 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. On July 12, 2018, a federal district court dismissed 6 of the individual lawsuits and those cases are on appeal. OnIn March 8, 2019, a group of investors filed a putative class action against The Bank of New York Mellon in New Jersey federal court, making the same allegations as in the prior actions brought against Pershing. All the cases that have been brought in federal court against Pershing and the case brought against The Bank of New York Mellon have been consolidated in Texas federal court for discovery purposes. On Dec. 19, 2019, the Court of Appeals for the Fifth Circuit affirmed the dismissal of 6 individual federal lawsuits brought under Florida law, which will also apply to four other similarly situated cases. On March 18, 2020, the plaintiffs in those lawsuits filed a Petition for Writ of Certiorari seeking permission to appeal to the United States Supreme Court. On Oct. 5, 2020, the United States Supreme Court denied the Petition. In July 2020, after being enjoined from pursuing claims before the Financial Industry Regulatory Authority, Inc. (“FINRA”), an investment firm filed an action against Pershing in Texas federal court. FINRA arbitration proceedings also have been initiated by alleged purchasers asserting similar claims.
Brazilian Postalis Litigation BNY Mellon Servicos Financeiros DTVM S.A. (“DTVM”), a subsidiary that provides asset services in Brazil, acts as administrator for certain investment funds in which 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 fund for which DTVM is administrator. Postalis alleges that DTVM failed to properly perform duties, including to conduct due diligence of and exert control over the 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 duties relating to another fund of which DTVM is administrator and Ativos is manager. On Dec. 14, 2015, Associacão dos Profissionais dos 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. On March 20, 2017, the lawsuit was dismissed without prejudice, and ADCAP has appealed that decision. On Dec. 17, 2015, Postalis filed 3 lawsuits in Rio de Janeiro against DTVM and Ativos alleging failure to properly perform duties with respect to investments in several other funds. On Feb. 4, 2016, Postalis filed a 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
| | | Notes to Consolidated Financial Statements(continued) | |
respect to investments in various funds of which the defendants were administrator and/or manager. On Jan. 16, 2018, the Brazilian Federal Prosecution Service (“MPF”) filed a civil lawsuit in São Paulo against DTVM alleging liability for Postalis losses based on alleged failures to properly perform certain duties as administrator to certain funds in which Postalis invested or as controller of Postalis’s own investment portfolio. On April 18, 2018, the court dismissed the lawsuit without prejudice, and the MPF has appealed that decision. In addition, the Tribunal de Contas da Uniao (“TCU”), an administrative tribunal, has initiated two proceedings with the purpose of determining liability for losses to two investment funds administered by DTVM in which Postalis was the exclusive investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and two former Postalis directors jointly and severally liable for approximately $41.7 million. TCU also imposed on DTVM a fine of approximately $1.8 million. DTVM has filed an administrative appeal of the decision. On Oct. 4, 2019, Postalis and another pension fund filed a request for arbitration in São Paulo against DTVM and Ativos alleging liability for losses to an investment fund for which DTVM was administrator and Ativos was manager. On 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 managers. On June 19, 2020, a lawsuit was filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator.
Brazilian Silverado Litigation DTVM acts as administrator for the Fundo de Investimento em Direitos Creditórios Multisetorial Silverado Maximum (“Silverado Maximum Fund”), which invests in commercial credit receivables. On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. - Banco Alemão in its capacity as custodian and Silverado Gestão e Investimentos Ltda. in its capacity as investment manager. The Fund alleges that each of the defendants failed to fulfill its respective duty, and caused losses to the Fund for which the defendants are jointly and severally liable.
German Tax Matters German authorities are investigating past “cum/ex” trading, which involved the purchase of equity
| | Notes to Consolidated Financial Statements(continued)
| |
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. We have not received any tax demand concerning cum/ex trading. In addition, 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 third parties.individual defendants. Trial commenced in September.September 2019. In March 2020, the court stated that it would refrain from taking action against the subsidiary in order to expedite the conclusion of the trial. The court convicted the unrelated individual defendants, and determined that the cum/ex trading activities of the relevant third-party investment funds were unlawful. In connection with the acquisition of the subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.
Note 20–19–Lines of business
We have an internal information system that produces performance data along product and service lines for our 2 principal businesses and the Other segment. The primary products and services and types of revenue for our principal businesses and a description of the Other segment are presented in Note 2324 of the Notes to Consolidated Financial Statements in our 20182019 Annual Report.
Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
| | | Notes to Consolidated Financial Statements(continued) | |
Business results are subject to reclassification when organizational changes are made.made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no significant organizational changes in the second or third quarters of 2020. In the first quarter of 2019.2020, we reclassified the results of certain services provided between the segments from noninterest expense to fee and other revenue. The resultsintersegment activity is eliminated in the Other segment and relates to services that are also subjectprovided to refinementsthird parties and provides consistency with the reporting of the revenues. This adjustment had no impact on income before taxes of the businesses. Also in the first quarter of 2020, we reclassified the results related to certain lending activities from the Wealth Management business to the Pershing business. These loans were originated by the Wealth Management business as a service to Pershing clients. This resulted in an increase in total revenue, noninterest expense and expense allocation methodologies, which are typically reflected on a prospective basis. income before taxes in the Pershing business and corresponding decrease in the Wealth Management business. Prior periods were restated in the first quarter of 2020 for both reclassifications.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 20182019 Annual Report.
The results of our businesses are presented and analyzed on an internal management reporting basis.
•Revenue amounts reflect fee and other revenue generated by each business.business and include revenue for services provided between the segments that are also provided to third parties. Fee and other revenue transferred between businesses under revenue transfer agreements is included within other revenue in each business. •Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated with clients using custody products is included in Investment Services. •Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds transfer pricing system that matches funds with the specific assets and liabilities of each business based on their interest sensitivity and maturity characteristics. •The provision for credit losses associated with the respective credit portfolios is reflected in each business segment. •Incentives expense related to restricted stock is allocated to the businesses. •Support and other indirect expenses, including services provided between segments that are not provided to third parties or not subject to a revenue transfer agreement, are allocated to businesses based on internally developed methodologies.methodologies and reflected in noninterest expense. •Recurring FDIC expense is allocated to the businesses based on average deposits generated within each business. •Litigation expense is generally recorded in the business in which the charge occurs. •Management of the 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 securities portfolio. We typically allocate all interest revenue to the businesses generating the deposits. Accordingly, accretion related to the portion of the securities portfolio restructured in 2009 has been included in the results of the businesses.
| | Notes to Consolidated Financial Statements(continued)
| |
Balance sheet assets and liabilities and their related income or expense are specifically assigned to each business. Businesses with a net liability position have been allocated assets. •Goodwill and intangible assets are reflected within individual businesses.
| | | Notes to Consolidated Financial Statements(continued) | |
The following consolidating schedules present the contribution of our businesses to our overall profitability.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2020 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 2,246 | | | $ | 871 | | (a) | $ | 20 | | | $ | 3,137 | | (a) | Net interest revenue (expense) | 681 | | | 47 | | | (25) | | | 703 | | | Total revenue (loss) | 2,927 | | | 918 | | (a) | (5) | | | 3,840 | | (a) | Provision for credit losses | (10) | | | 12 | | | 7 | | | 9 | | | Noninterest expense | 2,020 | | | 661 | | | 0 | | | 2,681 | | | Income (loss) before income taxes | $ | 917 | | | $ | 245 | | (a) | $ | (12) | | | $ | 1,150 | | (a) | Pre-tax operating margin (b) | 31 | % | | 27 | % | | N/M | | 30 | % | | Average assets | $ | 329,324 | | | $ | 30,160 | | | $ | 55,381 | | | $ | 414,865 | | |
| | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2019 | Investment Services |
| | Investment Management |
| | Other |
| | Consolidated |
| | (dollars in millions) | Total fee and other revenue | $ | 2,291 |
| | $ | 833 |
| (a) | $ | 4 |
| | $ | 3,128 |
| (a) | Net interest revenue (expense) | 753 |
| | 57 |
| | (80 | ) | | 730 |
| | Total revenue (loss) | 3,044 |
| | 890 |
| (a) | (76 | ) | | 3,858 |
| (a) | Provision for credit losses | (15 | ) | | — |
| | (1 | ) | | (16 | ) | | Noninterest expense | 1,965 |
| | 590 |
| | 35 |
| | 2,590 |
| | Income (loss) before income taxes | $ | 1,094 |
| | $ | 300 |
| (a) | $ | (110 | ) | | $ | 1,284 |
| (a) | Pre-tax operating margin (b) | 36 | % | | 34 | % | | N/M |
| | 33 | % | | Average assets | $ | 269,784 |
| | $ | 30,326 |
| | $ | 50,569 |
| | $ | 350,679 |
| |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $20 million, representing $27 million of income and noncontrolling interests of $7 million. Total revenue and income before income taxes are net of noncontrolling interests of $7 million. | | (a) | Total fee and other revenue includes net income from consolidated investment management funds of $- million, representing $3 million of income and noncontrolling interests of $3 million. Total revenue and income before income taxes are net of noncontrolling interests of $3 million. |
| | (b) | Income before income taxes divided by total revenue. |
(b) Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended June 30, 2020 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 2,339 | | | $ | 838 | | (a) | $ | 38 | | | $ | 3,215 | | (a) | Net interest revenue (expense) | 768 | | | 48 | | | (36) | | | 780 | | | Total revenue | 3,107 | | | 886 | | (a) | 2 | | | 3,995 | | (a) | Provision for credit losses | 145 | | | 7 | | | (9) | | | 143 | | | Noninterest expense | 1,989 | | | 658 | | | 39 | | | 2,686 | | | Income (loss) before income taxes | $ | 973 | | | $ | 221 | | (a) | $ | (28) | | | $ | 1,166 | | (a) | Pre-tax operating margin (b) | 31 | % | | 25 | % | | N/M | | 29 | % | | Average assets | $ | 335,288 | | | $ | 30,327 | | | $ | 49,744 | | | $ | 415,359 | | |
| | | | | | | | | | | | | | | | | | For the quarter ended June 30, 2019 | Investment Services |
| | Investment Management |
| | Other |
| | Consolidated |
| | (dollars in millions) | Total fee and other revenue | $ | 2,227 |
| | $ | 850 |
| (a) | $ | 41 |
| | $ | 3,118 |
| (a) | Net interest revenue (expense) | 775 |
| | 67 |
| | (40 | ) | | 802 |
| | Total revenue | 3,002 |
| | 917 |
| (a) | 1 |
| | 3,920 |
| (a) | Provision for credit losses | (4 | ) | | (2 | ) | | (2 | ) | | (8 | ) | | Noninterest expense | 1,954 |
| | 654 |
| | 39 |
| | 2,647 |
| | Income (loss) before income taxes | $ | 1,052 |
| | $ | 265 |
| (a) | $ | (36 | ) | | $ | 1,281 |
| (a) | Pre-tax operating margin (b) | 35 | % | | 29 | % | | N/M |
| | 33 | % | | Average assets | $ | 264,639 |
| | $ | 30,709 |
| | $ | 47,036 |
| | $ | 342,384 |
| |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $39 million, representing $54 million of income and noncontrolling interests of $15 million. Total revenue and income before income taxes are net of noncontrolling interests of $15 million. | | (a) | Total fee and other revenue includes net income from consolidated investment management funds of $6 million, representing $10 million of income and noncontrolling interests of $4 million. Total revenue and income before income taxes are net of noncontrolling interests of $4 million. |
| | (b) | Income before income taxes divided by total revenue. |
(b)Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2019 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue (loss) | $ | 2,296 | | | $ | 838 | | (a) | $ | (6) | | | $ | 3,128 | | (a) | Net interest revenue (expense) | 761 | | | 49 | | | (80) | | | 730 | | | Total revenue (loss) | 3,057 | | | 887 | | (a) | (86) | | | 3,858 | | (a) | Provision for credit losses | (15) | | | 0 | | | (1) | | | (16) | | | Noninterest expense | 1,973 | | | 592 | | | 25 | | | 2,590 | | | Income (loss) before income taxes | $ | 1,099 | | | $ | 295 | | (a) | $ | (110) | | | $ | 1,284 | | (a) | Pre-tax operating margin (b) | 36 | % | | 33 | % | | N/M | | 33 | % | | Average assets | $ | 269,926 | | | $ | 27,840 | | | $ | 52,913 | | | $ | 350,679 | | |
| | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2018 | Investment Services |
| | Investment Management |
| | Other |
| | Consolidated |
| | (dollars in millions) | Total fee and other revenue | $ | 2,230 |
| | $ | 938 |
| (a) | $ | 7 |
| | $ | 3,175 |
| (a) | Net interest revenue (expense) | 827 |
| | 77 |
| | (13 | ) | | 891 |
| | Total revenue (loss) | 3,057 |
| | 1,015 |
| (a) | (6 | ) | | 4,066 |
| (a) | Provision for credit losses | 1 |
| | (2 | ) | | (2 | ) | | (3 | ) | | Noninterest expense | 2,030 |
| | 701 |
| | 6 |
| | 2,737 |
| (b) | Income (loss) before income taxes | $ | 1,026 |
| | $ | 316 |
| (a) | $ | (10 | ) | | $ | 1,332 |
| (a)(b) | Pre-tax operating margin (c) | 34 | % | | 31 | % | | N/M |
| | 33 | % | | Average assets | $ | 246,276 |
| | $ | 31,283 |
| | $ | 54,782 |
| | $ | 332,341 |
| |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $— million, representing $3 million of income and noncontrolling interests of $3 million. Total revenue and income before income taxes are net of noncontrolling interests of $3 million. | | (a) | Total fee and other revenue includes net income from consolidated investment management funds of $7 million, representing $10 million of income and noncontrolling interests of $3 million. Total revenue and income before income taxes are net of noncontrolling interests of $3 million. |
| | (b) | Noninterest expense and income before income taxes include a loss attributable to noncontrolling interests of $1 million related to other consolidated subsidiaries. |
| | (c) | Income before income taxes divided by total revenue. |
(b)Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2020 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 7,021 | | | $ | 2,555 | | (a) | $ | 88 | | | $ | 9,664 | | (a) | Net interest revenue (expense) | 2,255 | | | 147 | | | (105) | | | 2,297 | | | Total revenue (loss) | 9,276 | | | 2,702 | | (a) | (17) | | | 11,961 | | (a) | Provision for credit losses | 284 | | | 28 | | | 9 | | | 321 | | | Noninterest expense | 5,996 | | | 2,014 | | | 69 | | | 8,079 | | | Income (loss) before income taxes | $ | 2,996 | | | $ | 660 | | (a) | $ | (95) | | | $ | 3,561 | | (a) | Pre-tax operating margin (b) | 32 | % | | 24 | % | | N/M | | 30 | % | | Average assets | $ | 322,924 | | | $ | 30,343 | | | $ | 51,936 | | | $ | 405,203 | | |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $39 million, representing $43 million of income and noncontrolling interests of $4 million. Total revenue and income before income taxes are net of noncontrolling interests of $4 million. | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2019 | Investment Services |
| | Investment Management |
| | Other |
| | Consolidated |
| | (dollars in millions) | Total fee and other revenue | $ | 6,672 |
| | $ | 2,547 |
| (a) | $ | 75 |
| | $ | 9,294 |
| (a) | Net interest revenue (expense) | 2,324 |
| | 199 |
| | (150 | ) | | 2,373 |
| | Total revenue (loss) | 8,996 |
| | 2,746 |
| (a) | (75 | ) | | 11,667 |
| (a) | Provision for credit losses | (11 | ) | | (1 | ) | | (5 | ) | | (17 | ) | | Noninterest expense | 5,888 |
| | 1,913 |
| | 135 |
| | 7,936 |
| | Income (loss) before income taxes | $ | 3,119 |
| | $ | 834 |
| (a) | $ | (205 | ) | | $ | 3,748 |
| (a) | Pre-tax operating margin (b) | 35 | % | | 30 | % | | N/M |
| | 32 | % | | Average assets | $ | 263,489 |
| | $ | 30,724 |
| | $ | 48,916 |
| | $ | 343,129 |
| |
(b) Income before income taxes divided by total revenue. | | (a) | Total fee and other revenue includes net income from consolidated investment management funds of $22 million, representing $39 million of income and noncontrolling interests of $17 million. Total revenue and income before income taxes are net of noncontrolling interests of $17 million. |
| | (b) | Income before income taxes divided by total revenue. |
N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2019 | Investment Services | | Investment and Wealth Management | | Other | | Consolidated | | (dollars in millions) | Total fee and other revenue | $ | 6,690 | | | $ | 2,561 | | (a) | $ | 43 | | | $ | 9,294 | | (a) | Net interest revenue (expense) | 2,348 | | | 175 | | | (150) | | | 2,373 | | | Total revenue (loss) | 9,038 | | | 2,736 | | (a) | (107) | | | 11,667 | | (a) | Provision for credit losses | (11) | | | (1) | | | (5) | | | (17) | | | Noninterest expense | 5,917 | | | 1,916 | | | 103 | | | 7,936 | | | Income (loss) before income taxes | $ | 3,132 | | | $ | 821 | | (a) | $ | (205) | | | $ | 3,748 | | (a) | Pre-tax operating margin (b) | 35 | % | | 30 | % | | N/M | | 32 | % | | Average assets | $ | 263,631 | | | $ | 29,815 | | | $ | 49,683 | | | $ | 343,129 | | |
| | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2018 | Investment Services |
| | Investment Management |
| | Other |
| | Consolidated |
| | (dollars in millions) | Total fee and other revenue | $ | 6,713 |
| | $ | 2,891 |
| (a) | $ | 56 |
| | $ | 9,660 |
| (a) | Net interest revenue (expense) | 2,545 |
| | 230 |
| | (49 | ) | | 2,726 |
| | Total revenue | 9,258 |
| | 3,121 |
| (a) | 7 |
| | 12,386 |
| (a) | Provision for credit losses | (5 | ) | | 2 |
| | (8 | ) | | (11 | ) | | Noninterest expense | 5,946 |
| | 2,103 |
| | 174 |
| | 8,223 |
| (b) | Income (loss) before income taxes | $ | 3,317 |
| | $ | 1,016 |
| (a) | $ | (159 | ) | | $ | 4,174 |
| (a)(b) | Pre-tax operating margin (c) | 36 | % | | 33 | % | | N/M |
| | 34 | % | | Average assets | $ | 262,804 |
| | $ | 31,577 |
| | $ | 51,139 |
| | $ | 345,520 |
| |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $22 million, representing $39 million of income and noncontrolling interests of $17 million. Total revenue and income before income taxes are net of noncontrolling interests of $17 million. | | (a) | Total fee and other revenue includes net income from consolidated investment management funds of $12 million, representing $11 million of income and a loss attributable to noncontrolling interests of $1 million. Total revenue and income before income taxes are net of a loss attributable to noncontrolling interests of $1 million. |
| | (b) | Noninterest expense and income before income taxes include a loss attributable to noncontrolling interests of $1 million related to other consolidated subsidiaries. |
| | (c) | Income before income taxes divided by total revenue. |
(b) Income before income taxes divided by total revenue. N/M - Not meaningful.
Note 21–20–Supplemental information to the Consolidated Statement of Cash Flows
Non-cash investing and financing transactions that, appropriately, are not reflected in the consolidated statement of cash flows are listed below.
| | | | | | | | | | | | | | | | Non-cash investing and financing transactions | Nine months ended Sept. 30, | | (in millions) | 2020 | | 2019 | | | Transfers from loans to other assets for other real estate owned | $ | 1 | | | $ | 1 | | | | Change in assets of consolidated investment management funds | 343 | | | 120 | | | | Change in liabilities of consolidated investment management funds | 3 | | | 13 | | | | Change in nonredeemable noncontrolling interests of consolidated investment management funds | 149 | | | 102 | | | | Securities purchased not settled | 846 | | | 804 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premises and equipment/capitalized software funded by finance lease obligations | 0 | | | 14 | | | | Premises and equipment/operating lease obligations | 126 | | | 1,440 | | (a) | | | | | | | |
(a) Includes $1,244 million related to the adoption of ASU 2016-02, Leases, and $196 million related to new or modified leases.
| | | | | | | | | Non-cash investing and financing transactions | Nine months ended Sept. 30, | (in millions) | 2019 |
| | 2018 |
| Transfers from loans to other assets for other real estate owned | $ | 1 |
| | $ | 2 |
| Change in assets of consolidated investment management funds | 120 |
| | 232 |
| Change in liabilities of consolidated investment management funds | 13 |
| | 5 |
| Change in nonredeemable noncontrolling interests of consolidated investment management funds | 102 |
| | 226 |
| Securities purchased not settled | 804 |
| | 885 |
| Securities sold not settled | — |
| | 249 |
| Available-for-sale securities transferred to trading assets | — |
| | 963 |
| Held-to-maturity securities transferred to available-for-sale | — |
| | 1,087 |
| Premises and equipment/capitalized software funded by finance lease obligations | 14 |
| | 25 |
| Premises and equipment/operating lease obligations | 1,440 |
| (a) | — |
|
BNY Mellon 105
| | | (a) | Includes $1,244 million related to the adoption of ASU 2016-02, Leases, and $196 million related to new or modified leases. |
| | Item 4. Controls and Procedures | |
Disclosure controls and procedures
Our management, including the interim 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 interim 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 interim 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 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | Forward-looking Statements | |
Some statements in this documentQuarterly Report are forward-looking. These include all statements about the usefulness of Non-GAAP measures, the future results of BNY Mellon, our businesses, financial, liquidity and capital condition, results of operations, liquidity, risk and capital management and processes, goals, strategies, outlook, objectives, expectations (including those regarding our performance results, expenses, nonperforming assets, closing of certain transactions,products, impacts of currency fluctuations, impacts of money market fee waivers, 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), 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 capital returns and investmentexpenses, including our investments in technology)technology and pension expense), targets, opportunities, potential actions, growth (including those regarding our net interest revenue sensitivity and growth) and initiatives.initiatives, including the potential effects of the coronavirus pandemic on any of the foregoing.
In this report, any other report, any press release or any written or oral statement that BNY Mellon or its executives may make, words, such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “future”“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 “Risk Factors” in this Quarterly Report and our 20182019 Annual Report, such as:
•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 may materially adversely affect our business, financial condition and results of operations; •a cybersecurity incident, or a failure to protect our computer systems, networks and information and our clients’ information against cybersecurity threats, could result in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information; any such incident or failure could adversely impact our ability to conduct our businesses, damage our reputation and cause losses; •our business may be materially adversely affected by operational risk; •the coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted; •our risk management framework may not be effective in mitigating risk and reducing the potential for losses; •we are subject to extensive government rulemaking, policies, regulation and supervision; these rules and regulations have, and in the future may, compel us to change how we manage our businesses, which could have a material adverse effect on our business, financial condition and results of operations; in addition, these rules and regulations have increased our compliance and operational risk and costs; •regulatory or enforcement actions or litigation could materially adversely affect our results of operations or harm our businesses or reputation; •our businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm; •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; •a failure or circumvention of our controls and procedures could have a material adverse effect on our business, reputation, results of operations and financial condition; •the application of our 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 the Parent’s security holders; 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;
acts of terrorism, •impacts from climate change, natural disasters, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations;
•we are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by
| | | Forward-looking Statements (continued) | |
slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences; ��weakness and volatility in financial markets and the economy generally may materially adversely
| | Forward-looking Statements (continued)
| |
affect our business, results of operations and financial condition; •changes in interest rates and yield curves could have a material adverse effect on our profitability; •transitions away from or changes inand the calculationanticipated replacement of LIBOR and other benchmark ratesIBORs could adversely impact our business and results of operations; •the United Kingdom’s referendum decision to leaveUK’s withdrawal from the EU has had and may continue to have negative effects on global economic conditions, global financial markets, and our business and results of operations; changes in interest rates and yield curves could have a material adverse effect on our profitability;
•we may experience write-downs oflosses on securities that we own and other losses related to volatile and illiquid market conditions, reducing our earnings and impacting our financial condition; our FX revenue may be adversely affected by decreases in market volatility and the cross-border investment activity of our clients;
•the failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions and sovereign entities, and our assumption of credit and counterparty risk, could expose us to loss and adversely affect our business; •our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity; •we could incur losses if our allowance for credit losses, including loan and lending-related commitments reserves, is inadequate; •any material reduction in our credit ratings or the credit ratings of our principal bank subsidiaries, The 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 results of operations and financial condition and on the value of the securities we issue; •new lines of business, new products and services or transformational or strategic project initiatives may subject us to additional risks, and the failure to implement these initiatives could affect our results of operations;
•we are subject to competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability; •our business may be adversely affected if we are unable to attract and retain employees; •our strategic transactions present risks and uncertainties and could have an adverse effect on our business, results of operations and financial condition; •tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition; •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 the approval of our capital plan, applicable provisions of Delaware law or our failure to pay full and timely dividends on our preferred stock; •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; and •changes in accounting standards governing the preparation of our financial statements and future events could have a material impact on our reported financial condition, results of operations, cash flows and other financial data.
Investors should consider all risk factors discussed in this Quarterly Report and our 20182019 Annual Report 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 1918 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 75 through 99 of our 2019 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 those discussed below or in our 2019 Annual Report or other of our reports filed with or furnished to the SEC, also could adversely affect our business, financial condition or results of operations. 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.”
The coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted.
The coronavirus pandemic has negatively affected the global economy, decreased liquidity in fixed income markets, created significant volatility and disruption in financial and equity markets, increased unemployment levels and disrupted businesses in many industries. This has resulted in increased demand on our transaction processing and clearance capabilities in many of our Investment Services businesses and volatility in the levels and mix of the assets under management of our Investment and Wealth Management business. Moreover, governmental actions in response to the pandemic are meaningfully influencing the interest rate environment, which has reduced, and is expected to continue to reduce, our net interest margin. As a result, we have granted and may continue to grant money market fee waivers. The effects of the pandemic have resulted, and could continue to result, in higher and more volatile provisions for credit losses for financial instruments subject to ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, held by us. The continuing effects of the pandemic could also result in increased credit losses and charge-offs, particularly if our credit exposures increase and as more clients and customers experience credit deterioration, as well as increased risk of other asset write-downs and impairments, including, but not limited to, equity investments, goodwill and intangibles. Any of these events could potentially result in a material adverse impact on our business and results of operations.
In addition, reliance on work-from-home capabilities by us, our clients and other industry participants, as well as the potential inability to maintain critical staff in operational facilities due to stay-at-home orders or operational precautions across jurisdictions, illness and quarantines present heightened cybersecurity, information security and operational risks. Any disruption to our ability to deliver services to our clients and customers could result in potential liability to our clients and customers, regulatory fines, penalties or other sanctions, increased operational costs or harm to our reputation.
The pandemic has resulted in an increase in our balance sheet and volatility in risk-weighted assets, as we experience elevated deposit levels. Moreover, on March 15, 2020, we, along with the other member banks of the Financial Services Forum, announced that we would temporarily suspend share repurchases through the second quarter of 2020 to preserve capital and liquidity in order to further our objective of using our capital and liquidity to support our clients and customers. Further, in June 2020, the Federal Reserve announced that it has required participating CCAR firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms would not be permitted, during the third quarter of 2020, to conduct open market common stock repurchases, to increase their common stock dividends or to pay common stock dividends that exceed average net income for the preceding four quarters. The Federal Reserve has extended these limitations to the fourth quarter and may further extend these limitations. Our ability to resume our common stock repurchase program and maintain our
| | | Part II - Other Information (continued) | |
common stock dividend depends on factors such as prevailing market conditions, our outlook for the economic environment, the performance of our business, the additional capital analysis required by the Federal Reserve, and whether the Federal Reserve keeps the limitations for the third and fourth quarters of 2020 in place for subsequent quarters.
The extent to which the pandemic impacts our business, financial condition, liquidity and results of operations, as well as our regulatory capital, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, actions taken by governmental authorities in response to the pandemic, as well as the direct and indirect impact on us, our clients and customers, and third parties. As the pandemic adversely affects the United States or the global economy, or our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| | (c) | The following table discloses repurchases of our common stock made in the third quarter of 2019. 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 2020. 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 2020 | | | | | 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, 2020 | | (dollars in millions, except per share amounts; common shares in thousands) | Total shares repurchased | | Average price per share | | | July 2020 | $ | 5 | | | $ | 37.41 | | | $ | 5 | | | N/A | | August 2020 | 2 | | | 37.96 | | | 2 | | | N/A | | September 2020 | 8 | | | 35.81 | | | 8 | | | N/A | | Third quarter of 2020 (a) | 15 | | | $ | 36.65 | | | 15 | | | N/A | (b) |
(a) Reflects shares repurchased from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. (b) The Federal Reserve has announced that it will conduct additional analysis for all participating CCAR firms later this year and will not allow participating firms to make open market common stock repurchases during the third or fourth quarter of 2020. We are permitted to continue to repurchase shares from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. N/A - Not applicable. | | | | | | | | | | | | | | | | Share repurchases - third quarter of 2019 | | | | | 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, 2019 | | | (dollars in millions, except per share information; common shares in thousands) | Total shares repurchased |
| | Average price per share |
| | | July 2019 | 11,276 |
| | $ | 46.67 |
| | 11,276 |
| | $ | 3,414 |
| | August 2019 | 9,765 |
| | 45.49 |
| | 9,765 |
| | 2,969 |
| | September 2019 | 233 |
| | 44.99 |
| | 233 |
| | 2,959 |
| | Third quarter of 2019 (a) | 21,274 |
| | $ | 46.11 |
| | 21,274 |
| | 2,959 |
| (b) |
| | (a) | Includes 29 thousand shares repurchased at a purchase price of $1 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $46.11. |
| | (b) | Represents the maximum value of the shares authorized to be repurchased through the second quarter of 2020, including employee benefit plan repurchases. |
In June 2019, in connection with2020, the Federal Reserve’s non-objectionReserve announced that it has required participating Comprehensive Capital Analysis and Review (“CCAR”) firms, including us, to our 2019update and resubmit their capital plan, BNY Mellon announcedplans and that, as a share repurchase plan providing forresult, unless otherwise approved by the repurchase of upFederal Reserve, participating firms were not permitted to $3.94 billion ofconduct open market common stock startingrepurchase in the third quarter of 2019 and continuing2020. On Sept. 30, 2020, the Federal Reserve extended the limitation on open market common stock repurchase through the secondfourth quarter of 2020. This new share
BNY Mellon intends to resume the common stock repurchase plan replaces all previously authorized share repurchase plans.program as early as possible, depending on factors such as prevailing market conditions, our outlook for the economic environment and the additional capital analysis required by the Federal Reserve.
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 other 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 considerations.
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 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-52710) as filed with the Commission on July 2, 2007, and incorporated herein by reference. | 3.2 | | | | Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-52710) as filed with the Commission on July 5, 2007, and incorporated herein by reference. | 3.3 | | | | 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 | | | | 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 May 16, 2013, and incorporated herein by reference.
| 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 | | | | 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 Aug. 1, 2016, and incorporated herein by reference. | 3.7 | | | | 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 May 19, 2020, and incorporated herein by reference. | 3.8 | | | | 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 Nov. 3, 2020, and incorporated herein by reference. | 3.9 | | | | 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 10, 2019, and incorporated herein by reference. | 3.83.10 | | | | 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 Feb. 13, 2018, and incorporated herein by reference. |
| | | 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, 2019.2020. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument. | | N/A | 10.1 | * | | | Filed herewith. | 31.110.2 | | | | Filed herewith. | 31.1 | | | | Filed herewith. | 31.2 | | | | Filed herewith. | 32.1 | | | | Furnished herewith. | 32.2 | | | | Furnished herewith. | 101.INS | | Inline XBRL Instance Document. | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith. | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith. | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith. | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith. | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith. | 104 | | The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2019,2020, formatted in inline XBRL. | | The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101. |
* Management contract or compensatory plan, contract or arrangement.
102 BNY Mellon
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, 20195, 2020 | By: | | /s/ Kurtis R. Kurimsky | | | | Kurtis R. Kurimsky | | | | Corporate Controller | | | | (Duly Authorized Officer and | | | | Principal Accounting Officer of | | | | the Registrant) |
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