UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2022
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-35651
THE BANK OF NEW YORK MELLON CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 13-2614959 | ||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
240 Greenwich Street
New York, New York 10286
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code – (212) 495-1784
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.01 par value | BK | New York Stock Exchange | ||||||
6.244% Fixed-to-Floating Rate Normal Preferred Capital Securities of Mellon Capital IV | BK/P | New York Stock Exchange | ||||||
(fully and unconditionally guaranteed by The Bank of New York Mellon Corporation) | ||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of Sept. 30, 2022, 808,279,949 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
THE BANK OF NEW YORK MELLON CORPORATION
Third Quarter 2022 Form 10-Q
Table of Contents
| Page | |||||
Consolidated Financial Highlights (unaudited) | |||||
| Part I – Financial Information | |||||
Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk: | |||||
General | |||||
Overview | |||||
| Key third quarter 2022 and subsequent events | |||||
Net interest revenue | |||||
Noninterest expense | |||||
Income taxes | |||||
Critical accounting estimates | |||||
Consolidated balance sheet review | |||||
Liquidity and dividends | |||||
Capital | |||||
Trading activities and risk management | |||||
Asset/liability management | |||||
Supplemental information – Explanation of GAAP and Non-GAAP financial measures | |||||
Website information | |||||
| Item 1. Financial Statements: | |||||
Consolidated Income Statement (unaudited) | |||||
Consolidated Comprehensive Income Statement (unaudited) | |||||
Consolidated Balance Sheet (unaudited) | |||||
Consolidated Statement of Cash Flows (unaudited) | |||||
Consolidated Statement of Changes in Equity (unaudited) | |||||
| Page | |||||
| Notes to Consolidated Financial Statements: | |||||
Note 2—New accounting guidance | |||||
Note 3—Acquisitions and dispositions | |||||
Item 4. Controls and Procedures | |||||
Forward-looking Statements | |||||
| Part II – Other Information | |||||
Item 1. Legal Proceedings. | |||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | |||||
Item 6. Exhibits. | |||||
| Index to Exhibits | |||||
| Signature | |||||
The Bank of New York Mellon Corporation (and its subsidiaries)
Consolidated Financial Highlights (unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
| (dollars in millions, except per share amounts and unless otherwise noted) | Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | |||||||||||||||
Results applicable to common shareholders of The Bank of New York Mellon Corporation: | ||||||||||||||||||||
| Net income | $ | 319 | $ | 835 | $ | 881 | $ | 1,853 | $ | 2,730 | ||||||||||
| Basic earnings per share | $ | 0.39 | $ | 1.03 | $ | 1.04 | $ | 2.29 | $ | 3.15 | ||||||||||
| Diluted earnings per share | $ | 0.39 | $ | 1.03 | $ | 1.04 | $ | 2.28 | $ | 3.14 | ||||||||||
| Fee and other revenue | $ | 3,353 | $ | 3,430 | $ | 3,394 | $ | 10,011 | $ | 9,975 | ||||||||||
| Net interest revenue | 926 | 824 | 641 | 2,448 | 1,941 | |||||||||||||||
| Total revenue | $ | 4,279 | $ | 4,254 | $ | 4,035 | $ | 12,459 | $ | 11,916 | ||||||||||
Return on common equity (annualized) | 3.5 | % | 9.3 | % | 8.8 | % | 6.8 | % | 9.1 | % | ||||||||||
Return on tangible common equity (annualized) – Non-GAAP (a) | 7.5 | % | 19.2 | % | 16.8 | % | 14.0 | % | 17.1 | % | ||||||||||
| Fee revenue as a percentage of total revenue | 76 | % | 78 | % | 81 | % | 78 | % | 82 | % | ||||||||||
| Non-U.S. revenue as a percentage of total revenue | 35 | % | 36 | % | 38 | % | 35 | % | 38 | % | ||||||||||
| Pre-tax operating margin | 15 | % | 26 | % | 29 | % | 21 | % | 30 | % | ||||||||||
| Net interest margin | 1.05 | % | 0.89 | % | 0.67 | % | 0.89 | % | 0.67 | % | ||||||||||
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (b) | 1.05 | % | 0.89 | % | 0.68 | % | 0.90 | % | 0.67 | % | ||||||||||
Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (c) | $ | 42.2 | $ | 43.0 | $ | 45.3 | $ | 42.2 | $ | 45.3 | ||||||||||
Assets under management (“AUM”) at period end (in billions) (d) | $ | 1,776 | $ | 1,937 | $ | 2,310 | $ | 1,776 | $ | 2,310 | ||||||||||
Average common shares and equivalents outstanding (in thousands): | ||||||||||||||||||||
| Basic | 811,304 | 810,903 | 844,088 | 810,703 | 865,374 | |||||||||||||||
| Diluted | 814,516 | 813,590 | 849,028 | 814,214 | 869,324 | |||||||||||||||
| Selected average balances: | ||||||||||||||||||||
| Interest-earning assets | $ | 352,062 | $ | 370,782 | $ | 381,065 | $ | 365,279 | $ | 388,823 | ||||||||||
| Total assets | $ | 415,670 | $ | 437,623 | $ | 446,761 | $ | 431,074 | $ | 453,106 | ||||||||||
| Interest-bearing deposits | $ | 203,659 | $ | 219,124 | $ | 233,363 | $ | 215,271 | $ | 239,272 | ||||||||||
| Noninterest-bearing deposits | $ | 84,804 | $ | 91,893 | $ | 85,581 | $ | 88,952 | $ | 84,945 | ||||||||||
| Long-term debt | $ | 28,449 | $ | 26,195 | $ | 25,751 | $ | 26,754 | $ | 25,740 | ||||||||||
| Preferred stock | $ | 4,838 | $ | 4,838 | $ | 4,541 | $ | 4,838 | $ | 4,541 | ||||||||||
Total The Bank of New York Mellon Corporation common shareholders’ equity | $ | 35,942 | $ | 36,199 | $ | 39,755 | $ | 36,483 | $ | 40,286 | ||||||||||
| Other information at period end: | ||||||||||||||||||||
| Cash dividends per common share | $ | 0.37 | $ | 0.34 | $ | 0.34 | $ | 1.05 | $ | 0.96 | ||||||||||
| Common dividend payout ratio | 95 | % | 33 | % | 34 | % | 46 | % | 31 | % | ||||||||||
Common dividend yield (annualized) | 3.8 | % | 3.3 | % | 2.6 | % | 3.6 | % | 2.5 | % | ||||||||||
| Closing stock price per common share | $ | 38.52 | $ | 41.71 | $ | 51.84 | $ | 38.52 | $ | 51.84 | ||||||||||
| Market capitalization | $ | 31,135 | $ | 33,706 | $ | 42,811 | $ | 31,135 | $ | 42,811 | ||||||||||
| Book value per common share | $ | 43.18 | $ | 44.73 | $ | 47.30 | $ | 43.18 | $ | 47.30 | ||||||||||
Tangible book value per common share – Non-GAAP (a) | $ | 21.55 | $ | 22.02 | $ | 24.88 | $ | 21.55 | $ | 24.88 | ||||||||||
| Full-time employees | 51,100 | 50,800 | 48,900 | 51,100 | 48,900 | |||||||||||||||
Common shares outstanding (in thousands) | 808,280 | 808,103 | 825,821 | 808,280 | 825,821 | |||||||||||||||
2 BNY Mellon
Consolidated Financial Highlights (unaudited) (continued)
| Regulatory capital and other ratios | Sept. 30, 2022 | June 30, 2022 | Dec. 31, 2021 | ||||||||
| Average liquidity coverage ratio (“LCR”) | 116 | % | 111 | % | 109 | % | |||||
Regulatory capital ratios: (e) | |||||||||||
| Advanced: | |||||||||||
| Common Equity Tier 1 (“CET1”) ratio | 10.1 | % | 10.0 | % | 11.4 | % | |||||
| Tier 1 capital ratio | 13.0 | 12.8 | 14.2 | ||||||||
| Total capital ratio | 13.7 | 13.6 | 15.0 | ||||||||
| Standardized: | |||||||||||
| CET1 ratio | 10.0 | % | 10.1 | % | 11.2 | % | |||||
| Tier 1 capital ratio | 12.8 | 12.9 | 14.0 | ||||||||
| Total capital ratio | 13.7 | 13.8 | 14.9 | ||||||||
| Tier 1 leverage ratio | 5.4 | % | 5.2 | % | 5.5 | % | |||||
| Supplementary leverage ratio (“SLR”) | 6.3 | 6.2 | 6.6 | ||||||||
| BNY Mellon shareholders’ equity to total assets ratio | 9.3 | % | 9.1 | % | 9.7 | % | |||||
| BNY Mellon common shareholders’ equity to total assets ratio | 8.2 | 8.0 | 8.6 | ||||||||
(a) Return on tangible common equity and tangible book value per common share, Non-GAAP measures, exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of Non-GAAP measures.
(b) See “Net interest revenue” on page 11 for a reconciliation of this Non-GAAP measure.
(c) Consists of AUC/A primarily from the Asset Servicing line of business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management lines of business. Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.4 trillion at Sept. 30, 2022, $1.5 trillion at June 30, 2022 and $1.7 trillion at Sept. 30, 2021.
(d) Excludes assets managed outside of the Investment and Wealth Management business segment.
(e) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. For additional information on our capital ratios, see “Capital” beginning on page 37.
BNY Mellon 3
| Part I – Financial Information | ||
| Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk | ||
General
In this Quarterly Report on Form 10-Q, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.
Certain business terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended Dec. 31, 2021 (the “2021 Annual Report”).
The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the section titled “Forward-looking Statements.”
Overview
Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a history of more than 235 years, BNY Mellon is a global company dedicated to helping its clients manage and service their financial assets throughout the investment life cycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries.
BNY Mellon has three business segments, Securities Services, Market and Wealth Services and Investment and Wealth Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell-side market participants, as well as leading institutional and wealth management clients globally.
The diagram below presents our three business segments and lines of business, with the remaining operations in the Other segment.
Key third quarter 2022 and subsequent events
Alcentra
On Nov. 1, 2022, we completed the sale of BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”). At Sept. 30, 2022, Alcentra had $32 billion in AUM concentrated in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.
Leadership succession
In July 2022, we announced that Dermot McDonogh was appointed to the position of Chief Financial Officer (“CFO”), effective Feb. 1, 2023, succeeding Emily Portney, who has served in that role since July 19, 2020. Mr. McDonogh joined BNY Mellon on Nov. 1, 2022. Ms. Portney will continue serving as CFO through Jan. 31, 2023, at which time she will assume a new position leading the Company’s Treasury Services, Credit Services and Clearance & Collateral Management businesses.
4 BNY Mellon
Mr. McDonogh most recently served as the chief operating officer of the Europe, Middle East and Africa region for Goldman Sachs International and as the chief executive officer of Goldman Sachs International Bank since 2015.
Increase in cash dividend on common stock
In July, our Board of Directors approved a 9% increase in the quarterly cash dividend on common stock, from $0.34 to $0.37 per share.
Goodwill impairment
In the third quarter of 2022, we recorded a $680 million impairment of the goodwill associated with the Investment Management reporting unit, which was driven by lower market values and a higher discount rate. This goodwill impairment represents a non-cash charge and did not affect BNY Mellon’s liquidity position, tangible common equity or regulatory capital ratios. See “Critical accounting estimates” for additional information.
Highlights of third quarter 2022 results
Net income applicable to common shareholders was $319 million, or $0.39 per diluted common share, in the third quarter of 2022, including the impact of notable items. Notable items in the third quarter of 2022 include goodwill impairment in the Investment Management reporting unit, a disposal gain (reflected in investment and other revenue), severance expense and litigation reserves. Excluding notable items, net income applicable to common shareholders was $983 million (Non-GAAP), or $1.21 (Non-GAAP) per diluted common share, in the third quarter of 2022. Net income applicable to common shareholders was $881 million, or $1.04 per diluted common share, in the third quarter of 2021, including the impact of notable items. Notable items in the third quarter of 2021 include litigation reserves, gains on disposals (reflected in investment and other revenue) and severance expense. Excluding notable items, net income applicable to common shareholders was $926 million (Non-GAAP), or $1.09 (Non-GAAP) per diluted common share, in the third quarter of 2021.
The highlights below are based on the third quarter of 2022 compared with the third quarter of 2021, unless otherwise noted.
•Total revenue of $4.3 billion increased 6%, primarily reflecting:
•Fee and other revenue decreased 1%, primarily reflecting:
•Fee revenue decreased 1%, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar, the impact of lost business in the prior year in both Pershing and Corporate Trust and an unfavorable change in the mix of AUM, partially offset by lower money market fee waivers and higher client activity. (See “Fee and other revenue” beginning on page 7.)
•Investment and other revenue decreased primarily reflecting strategic equity investment gains recorded in the third quarter of 2021, partially offset by higher other trading revenue and higher disposal gains. (See “Fee and other revenue” beginning on page 7.)
•Net interest revenue increased 44%, primarily reflecting higher interest rates on interest-earning assets, partially offset by higher funding expense and lower interest-earning assets. (See “Net interest revenue” on page 11.)
•Provision for credit losses was a benefit of $30 million, primarily reflecting reserve releases related to cash balances with exposure to Russia and a modest benefit from our commercial real estate portfolio. (See “Consolidated balance sheet review – Allowance for credit losses” beginning on page 31.)
•Noninterest expense increased 26%, primarily reflecting the goodwill impairment in the Investment Management reporting unit. Excluding notable items, noninterest expense increased 4% (Non-GAAP), primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar. (See “Noninterest expense” on page 14.)
•Effective tax rate of 38.4% or 19.5% (Non-GAAP) excluding notable items, primarily the goodwill impairment. (See “Income taxes” on page 14.)
•Return on common equity (“ROE”) was 3.5% for the third quarter of 2022. Excluding notable items, the adjusted ROE was 10.9% (Non-GAAP) for the third quarter of 2022.
BNY Mellon 5
•Return on tangible common equity (“ROTCE”) was 7.5% (Non-GAAP) for the third quarter of 2022. Excluding notable items, the adjusted ROTCE was 22.4% (Non-GAAP) for the third quarter of 2022.
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for a reconciliation of these Non-GAAP measures.
Metrics
•AUC/A of $42.2 trillion decreased 7%, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business.
•AUM of $1.8 trillion decreased 23%, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by net inflows.
Capital and liquidity
•Our CET1 ratio calculated under the Standardized Approach was 10.0% at Sept. 30, 2022 and 10.0% at June 30, 2022 under the Advanced Approaches, as unrealized losses on securities available-for-sale, foreign currency translation and capital deployed through dividends were offset by capital generated through earnings and lower risk-weighted assets (“RWA”). (See “Capital” beginning on page 37.)
•Tier 1 leverage was 5.4% at Sept. 30, 2022, compared with 5.2% at June 30, 2022. The increase was driven by lower average assets,
partially offset by the decrease in capital. (See “Capital” beginning on page 37.)
•Dividends to common shareholders were $303 million (including dividend-equivalents on share-based awards).
Highlights of our principal business segments
Securities Services
•Total revenue increased 13%.
•Income before income taxes increased 67%, or 32% (Non-GAAP) excluding notable items, primarily litigation reserves in 3Q21.
•Pre-tax operating margin of 25%.
Market and Wealth Services
•Total revenue increased 17%.
•Income before income taxes increased 21%.
•Pre-tax operating margin of 46%.
Investment and Wealth Management
•Total revenue decreased 16%.
•Income before income taxes decreased 243%, or 48% (Non-GAAP) excluding notable items.
•Pre-tax operating margin of (57)%; adjusted pre-tax operating margin – Non-GAAP of 24%.
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for a reconciliation of these Non-GAAP measure. See “Review of business segments” and Note 19 of the Notes to Consolidated Financial Statements for additional information on our business segments.
6 BNY Mellon
Fee and other revenue
| Fee and other revenue | YTD22 | ||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 3Q22 vs. | vs. | |||||||||||||||||||||||||||
| 3Q22 | 2Q22 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | ||||||||||||||||||||||
| Investment services fees | $ | 2,157 | $ | 2,206 | $ | 2,091 | (2) | % | 3 | % | $ | 6,356 | $ | 6,223 | 2 | % | |||||||||||||
Investment management and performance fees (a) | 800 | 833 | 913 | (4) | (12) | 2,516 | 2,692 | (7) | |||||||||||||||||||||
| Foreign exchange revenue | 203 | 222 | 185 | (9) | 10 | 632 | 600 | 5 | |||||||||||||||||||||
| Financing-related fees | 43 | 44 | 48 | (2) | (10) | 132 | 147 | (10) | |||||||||||||||||||||
| Distribution and servicing fees | 33 | 34 | 28 | (3) | 18 | 97 | 84 | 15 | |||||||||||||||||||||
| Total fee revenue | 3,236 | 3,339 | 3,265 | (3) | (1) | 9,733 | 9,746 | — | |||||||||||||||||||||
| Investment and other revenue | 117 | 91 | 129 | N/M | N/M | 278 | 229 | N/M | |||||||||||||||||||||
| Total fee and other revenue | $ | 3,353 | $ | 3,430 | $ | 3,394 | (2) | % | (1) | % | $ | 10,011 | $ | 9,975 | — | % | |||||||||||||
| Fee revenue as a percentage of total revenue | 76 | % | 78 | % | 81 | % | 78 | % | 82 | % | |||||||||||||||||||
AUC/A at period end (in trillions) (b) | $ | 42.2 | $ | 43.0 | $ | 45.3 | (2) | % | (7) | % | $ | 42.2 | $ | 45.3 | (7) | % | |||||||||||||
AUM at period end (in billions) (c) | $ | 1,776 | $ | 1,937 | $ | 2,310 | (8) | % | (23) | % | $ | 1,776 | $ | 2,310 | (23) | % | |||||||||||||
(a) Excludes seed capital gains (losses) related to consolidated investment management funds.
(b) Consists of AUC/A primarily from the Asset Servicing line of business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management lines of business. Includes the AUC/A of CIBC Mellon of $1.4 trillion at Sept. 30, 2022, $1.5 trillion at June 30, 2022 and $1.7 trillion at Sept. 30, 2021.
(c) Excludes assets managed outside of the Investment and Wealth Management business segment.
N/M – Not meaningful.
Fee revenue decreased 1% compared with the third quarter of 2021 and 3% compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects lower investment management and performance fees, partially offset by higher investment services fees and foreign exchange revenue. The decrease compared with the second quarter of 2022 primarily reflects lower investment services fees, investment management and performance fees and foreign exchange revenue.
Investment and other revenue decreased $12 million compared with the third quarter of 2021 and increased $26 million compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects strategic equity investment gains recorded in the third quarter of 2021, partially offset by higher other trading revenue and higher disposal gains. The increase compared with the second quarter of 2022 primarily reflects a gain on disposal, higher other trading revenue and improved seed capital results, partially
offset by strategic equity investment gains recorded in the second quarter of 2022.
Money market fee waivers
In recent periods, low short-term interest rates resulted in money market mutual fund fees and other similar fees being waived to protect investors from negative returns. The fee waivers impacted fee revenues in most of our businesses, but also resulted in lower distribution and servicing expense. Money market fee waivers are highly sensitive to changes in short-term interest rates and are difficult to predict.
The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In the third quarter of 2022, the net impact of money market fee waivers was $22 million, down from $66 million in the second quarter of 2022, driven by higher interest rates.
BNY Mellon 7
| Money market fee waivers | |||||||||||||||||
| (in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||
| Investment services fees (see table below) | $ | (1) | $ | (26) | $ | (142) | $ | (153) | $ | (399) | |||||||
| Investment management and performance fees | (21) | (40) | (109) | (146) | (313) | ||||||||||||
| Distribution and servicing fees | — | (2) | (11) | (13) | (37) | ||||||||||||
| Total fee revenue | (22) | (68) | (262) | (312) | (749) | ||||||||||||
| Less: Distribution and servicing expense | — | 2 | 29 | 25 | 76 | ||||||||||||
| Net impact of money market fee waivers | $ | (22) | $ | (66) | $ | (233) | $ | (287) | $ | (673) | |||||||
Impact to investment services fees by line of business: (a) | |||||||||||||||||
| Asset Servicing | $ | — | $ | — | $ | (29) | $ | (19) | $ | (74) | |||||||
| Issuer Services | — | (1) | (17) | (12) | (44) | ||||||||||||
| Pershing | (1) | (25) | (86) | (116) | (254) | ||||||||||||
| Treasury Services | — | — | (10) | (6) | (27) | ||||||||||||
| Total impact to investment services fees by line of business | $ | (1) | $ | (26) | $ | (142) | $ | (153) | $ | (399) | |||||||
Impact to fee revenue by line of business: (a) | |||||||||||||||||
| Asset Servicing | $ | — | $ | (1) | $ | (47) | $ | (29) | $ | (126) | |||||||
| Issuer Services | (1) | (1) | (22) | (16) | (59) | ||||||||||||
| Pershing | (1) | (29) | (102) | (137) | (295) | ||||||||||||
| Treasury Services | — | — | (13) | (8) | (38) | ||||||||||||
| Investment Management | (20) | (37) | (76) | (120) | (222) | ||||||||||||
| Wealth Management | — | — | (2) | (2) | (9) | ||||||||||||
| Total impact to fee revenue by line of business | $ | (22) | $ | (68) | $ | (262) | $ | (312) | $ | (749) | |||||||
(a) The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.
Investment services fees
Investment services fees increased 3% compared with the third quarter of 2021 and decreased 2% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects lower money market fee waivers and higher client activity, partially offset by lower market values, the impact of lost business in the prior year in Pershing and Corporate Trust and the unfavorable impact of a stronger U.S. dollar. The decrease compared with the second quarter of 2022 primarily reflects lower depositary receipts revenue, lower market values, and the unfavorable impact of a stronger U.S. dollar, partially offset by lower money market fee waivers.
AUC/A totaled $42.2 trillion at Sept. 30, 2022, a decrease of 7% compared with Sept. 30, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business.
AUC/A consisted of 33% equity securities and 67% fixed income securities at Sept. 30, 2022, and 37% equity securities and 63% fixed income securities at Sept. 30, 2021.
See “Securities Services business segment” and “Market and Wealth Services business segment” in “Review of business segments” for additional details.
Investment management and performance fees
Investment management and performance fees decreased 12% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects lower market values, the unfavorable impact of a stronger U.S. dollar, an unfavorable change in the mix of AUM and lower equity income, partially offset by lower money market fee waivers. The decrease compared with the second quarter of 2022 primarily reflects lower market values, the unfavorable impact of a stronger U.S. dollar and lower equity income, partially offset by lower money market fee waivers. Performance fees were $10 million in the third quarter of 2022, $21 million in the third quarter of 2021 and $5 million in the second quarter of 2022. On a constant currency basis (Non-GAAP), investment management and performance fees decreased 8% compared with the third quarter of 2021. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of Non-GAAP measures.
8 BNY Mellon
AUM was $1.8 trillion at Sept. 30, 2022, a decrease of 23% compared with Sept. 30, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by net inflows.
See “Investment and Wealth Management business segment” in “Review of business segments” for additional details regarding the drivers of investment management and performance fees, AUM and AUM flows.
Foreign exchange revenue
Foreign exchange revenue is primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility, the impact of foreign currency hedging activities and foreign currency remeasurement gain (loss). Foreign exchange revenue increased 10% compared with the third quarter of 2021 and decreased 9% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher volatility. The decrease compared with the second quarter of 2022 reflects lower volumes, partially offset by higher volatility. Foreign exchange revenue is primarily reported in the Securities Services business segment and, to a lesser extent, in the Market and Wealth Services and Investment and Wealth Management business segments and the Other segment.
Investment and other revenue
Investment and other revenue includes income or loss from consolidated investment management funds, seed capital gains or losses, other trading revenue or loss, renewable energy investments losses, income from corporate and bank-owned life insurance contracts, other investment gains or losses, gains or losses from disposals, expense reimbursements from our CIBC Mellon joint venture, other income or loss and net securities gains or losses. The income or loss from consolidated investment management funds should be considered together with the net income or loss attributable to noncontrolling interests, which reflects the portion of the consolidated funds for which we do not have an economic interest and is reflected below net income as a separate line item on the consolidated income statement. Other trading revenue or loss primarily includes the impact of market-risk hedging activity related to our seed capital investments in investment management funds, non-foreign currency derivative and fixed income trading, and other hedging activity. Investments in renewable energy generate losses in investment and other revenue that are more than offset by benefits and credits recorded to the provision for income taxes. Other investment gains or losses includes fair value changes of non-readily marketable equity securities, private equity and other investments. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Other income or loss includes various miscellaneous revenues.
BNY Mellon 9
The following table provides the components of investment and other revenue.
| Investment and other revenue | |||||||||||||||||
| (in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||
| (Loss) income from consolidated investment management funds | $ | (7) | $ | (24) | $ | (7) | $ | (51) | $ | 23 | |||||||
Seed capital (losses) gains (a) | (11) | (24) | 7 | (43) | 28 | ||||||||||||
| Other trading revenue | 65 | 45 | 20 | 115 | 12 | ||||||||||||
| Renewable energy investment (losses) | (44) | (44) | (42) | (132) | (164) | ||||||||||||
| Corporate/bank-owned life insurance | 32 | 28 | 33 | 93 | 95 | ||||||||||||
Other investments gains (b) | 13 | 78 | 70 | 152 | 104 | ||||||||||||
| Disposal gains | 37 | — | 7 | 37 | 13 | ||||||||||||
| Expense reimbursements from joint venture | 27 | 26 | 25 | 80 | 73 | ||||||||||||
| Other income | 4 | 6 | 14 | 22 | 41 | ||||||||||||
| Net securities gains | 1 | — | 2 | 5 | 4 | ||||||||||||
| Total investment and other revenue | $ | 117 | $ | 91 | $ | 129 | $ | 278 | $ | 229 | |||||||
(a) Includes gains (losses) on investments in BNY Mellon funds which hedge deferred incentive awards.
(b) Includes strategic equity, private equity and other investments.
Investment and other revenue was $117 million in the third quarter of 2022 compared with $129 million in the third quarter of 2021 and $91 million in the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects strategic equity investment gains recorded in the third quarter of 2021, partially offset by higher other trading revenue and higher disposal gains. The increase compared with the second quarter of 2022 primarily reflects a gain on disposal, higher other trading revenue and improved seed capital results, partially offset by strategic equity investment gains recorded in the second quarter of 2022.
Year-to-date 2022 compared with year-to-date 2021
Fee revenue decreased slightly compared with the first nine months of 2021, primarily reflecting lower investment management and performance fees, partially offset by higher investment services fees and foreign exchange revenue. The 7% decrease in investment management and performance fees
primarily reflects the unfavorable impact of a stronger U.S. dollar, lower market values, an unfavorable change in the mix of AUM and lower equity income,
partially offset by lower money market fee waivers. The 2% increase in investment services fees primarily reflects lower money market fee waivers and higher client activity, partially offset by the impact of lost business in the prior year in Pershing and Corporate Trust and the accelerated amortization of deferred costs for depositary receipts services related to Russia recorded in the first quarter of 2022. The 5% increase in foreign exchange revenue primarily reflects higher volatility.
Investment and other revenue increased $49 million compared with the first nine months of 2021, primarily reflecting higher strategic equity investment gains and other trading revenue, a $39 million impairment for a renewable energy investment recorded in the first quarter of 2021 and higher disposal gains, partially offset by lower seed capital results.
10 BNY Mellon
Net interest revenue
| Net interest revenue | YTD22 | ||||||||||||||||||||||||||||
| 3Q22 vs. | vs. | ||||||||||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | |||||||||||||||||||||
| Net interest revenue | $ | 926 | $ | 824 | $ | 641 | 12 | % | 44 | % | $ | 2,448 | $ | 1,941 | 26 | % | |||||||||||||
| Add: Tax equivalent adjustment | 3 | 3 | 3 | N/M | N/M | 9 | 9 | N/M | |||||||||||||||||||||
Net interest revenue (FTE) – Non-GAAP (a) | $ | 929 | $ | 827 | $ | 644 | 12 | % | 44 | % | $ | 2,457 | $ | 1,950 | 26 | % | |||||||||||||
Average interest-earning assets | $ | 352,062 | $ | 370,782 | $ | 381,065 | (5) | % | (8) | % | $ | 365,279 | $ | 388,823 | (6) | % | |||||||||||||
| Net interest margin | 1.05 | % | 0.89 | % | 0.67 | % | 16 | bps | 38 | bps | 0.89 | % | 0.67 | % | 22 | bps | |||||||||||||
Net interest margin (FTE) – Non-GAAP (a) | 1.05 | % | 0.89 | % | 0.68 | % | 16 | bps | 37 | bps | 0.90 | % | 0.67 | % | 23 | bps | |||||||||||||
(a) Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income, which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income.
N/M – Not meaningful.
bps – basis points.
Net interest revenue increased 44% compared with the third quarter of 2021 and 12% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher interest rates on interest-earning assets, partially offset by higher funding expense and lower interest-earning assets. The increase compared with the second quarter of 2022 primarily reflects higher interest rates on interest-earning assets, partially offset by higher funding expense.
Net interest margin increased 38 basis points compared with the third quarter of 2021 and 16 basis points compared with the second quarter of 2022. The changes compared with the third quarter of 2021 and the second quarter of 2022 primarily reflect the factors mentioned above.
Average interest-earning assets decreased 8% compared with the third quarter of 2021 and 5% compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects lower interest-bearing deposits with the Federal Reserve and other central banks, securities and federal funds sold and securities purchased under resale agreements balances. The decrease was partially offset by larger loan balances. The decrease compared with the second quarter of 2022 primarily reflects lower interest-bearing deposits with the Federal Reserve and other central banks and securities balances.
Average non-U.S. dollar deposits comprised approximately 25% of our average total deposits in the third quarter of 2022. Approximately 40% of the average non-U.S. dollar deposits in the third quarter of 2022 were euro-denominated.
Year-to-date 2022 compared with year-to-date 2021
Net interest revenue increased 26% compared with the first nine months of 2021, primarily driven by higher interest rates on interest-earning assets and a change in asset mix, partially offset by higher funding expense and lower interest-earning assets. The increase in the net interest margin primarily reflects the factors mentioned above.
Average interest-earning assets decreased 6% compared with the first nine months of 2021. The decrease primarily reflects lower interest-bearing deposits with the Federal Reserve and other central banks, securities, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements balances. The decrease was partially offset by larger loan balances.
BNY Mellon 11
| Average balances and interest rates | Quarter ended | ||||||||||||||||||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | |||||||||||||||||||||||||||||||||
| (dollars in millions; average rates annualized) | Average balance | Interest | Average rates | Average balance | Interest | Average rates | Average balance | Interest | Average rates | ||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest-earning assets: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits with the Federal Reserve and other central banks | $ | 91,836 | $ | 288 | 1.23 | % | $ | 102,844 | $ | 99 | 0.38 | % | $ | 108,110 | $ | (21) | (0.07) | % | |||||||||||||||||
| Interest-bearing deposits with banks | 16,298 | 67 | 1.62 | 18,097 | 33 | 0.74 | 20,465 | 12 | 0.22 | ||||||||||||||||||||||||||
Federal funds sold and securities purchased under resale agreements (a) | 22,971 | 321 | 5.55 | 24,212 | 116 | 1.91 | 29,304 | 32 | 0.44 | ||||||||||||||||||||||||||
| Loans | 68,082 | 581 | 3.39 | 69,036 | 370 | 2.15 | 61,206 | 238 | 1.55 | ||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||||||||
| U.S. government obligations | 40,829 | 179 | 1.75 | 41,267 | 110 | 1.07 | 36,255 | 67 | 0.73 | ||||||||||||||||||||||||||
| U.S. government agency obligations | 62,819 | 300 | 1.91 | 64,939 | 258 | 1.59 | 70,199 | 234 | 1.34 | ||||||||||||||||||||||||||
State and political subdivisions (b) | 1,982 | 12 | 2.39 | 2,065 | 11 | 2.13 | 2,628 | 13 | 2.07 | ||||||||||||||||||||||||||
Other securities (b) | 42,642 | 204 | 1.90 | 43,635 | 142 | 1.31 | 47,334 | 112 | 0.94 | ||||||||||||||||||||||||||
Total investment securities (b) | 148,272 | 695 | 1.87 | 151,906 | 521 | 1.37 | 156,416 | 426 | 1.09 | ||||||||||||||||||||||||||
Trading securities (b) | 4,603 | 35 | 3.06 | 4,687 | 23 | 1.91 | 5,564 | 9 | 0.53 | ||||||||||||||||||||||||||
Total securities (b) | 152,875 | 730 | 1.91 | 156,593 | 544 | 1.39 | 161,980 | 435 | 1.07 | ||||||||||||||||||||||||||
Total interest-earning assets (b) | $ | 352,062 | $ | 1,987 | 2.24 | % | $ | 370,782 | $ | 1,162 | 1.25 | % | $ | 381,065 | $ | 696 | 0.73 | % | |||||||||||||||||
| Noninterest-earning assets | 63,608 | 66,841 | 65,696 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 415,670 | $ | 437,623 | $ | 446,761 | |||||||||||||||||||||||||||||
| Liabilities and equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 203,659 | $ | 488 | 0.95 | % | $ | 219,124 | $ | 90 | 0.16 | % | $ | 233,363 | $ | (44) | (0.08) | % | |||||||||||||||||
Federal funds purchased and securities sold under repurchase agreements (a) | 12,297 | 250 | 8.05 | 12,610 | 77 | 2.47 | 13,415 | 2 | 0.08 | ||||||||||||||||||||||||||
| Trading liabilities | 3,550 | 23 | 2.52 | 3,231 | 10 | 1.25 | 2,821 | 1 | 0.11 | ||||||||||||||||||||||||||
| Other borrowed funds | 504 | 1 | 1.15 | 437 | 2 | 2.14 | 383 | 3 | 2.53 | ||||||||||||||||||||||||||
| Commercial paper | 5 | — | 2.34 | 5 | — | 1.61 | 11 | — | 0.07 | ||||||||||||||||||||||||||
| Payables to customers and broker-dealers | 18,030 | 48 | 1.07 | 16,592 | 9 | 0.21 | 16,648 | (1) | (0.01) | ||||||||||||||||||||||||||
| Long-term debt | 28,449 | 248 | 3.43 | 26,195 | 147 | 2.22 | 25,751 | 91 | 1.39 | ||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 266,494 | $ | 1,058 | 1.57 | % | $ | 278,194 | $ | 335 | 0.48 | % | $ | 292,392 | $ | 52 | 0.07 | % | |||||||||||||||||
| Total noninterest-bearing deposits | 84,804 | 91,893 | 85,581 | ||||||||||||||||||||||||||||||||
| Other noninterest-bearing liabilities | 23,547 | 26,354 | 24,164 | ||||||||||||||||||||||||||||||||
| Total liabilities | 374,845 | 396,441 | 402,137 | ||||||||||||||||||||||||||||||||
| Total The Bank of New York Mellon Corporation shareholders’ equity | 40,780 | 41,037 | 44,296 | ||||||||||||||||||||||||||||||||
| Noncontrolling interests | 45 | 145 | 328 | ||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 415,670 | $ | 437,623 | $ | 446,761 | |||||||||||||||||||||||||||||
Net interest revenue (FTE) – Non-GAAP (b)(c) | $ | 929 | $ | 827 | $ | 644 | |||||||||||||||||||||||||||||
Net interest margin (FTE) – Non-GAAP (b)(c) | 1.05 | % | 0.89 | % | 0.68 | % | |||||||||||||||||||||||||||||
| Less: Tax equivalent adjustment | 3 | 3 | 3 | ||||||||||||||||||||||||||||||||
| Net interest revenue – GAAP | $ | 926 | $ | 824 | $ | 641 | |||||||||||||||||||||||||||||
| Net interest margin – GAAP | 1.05 | % | 0.89 | % | 0.67 | % | |||||||||||||||||||||||||||||
(a) Includes the average impact of offsetting under enforceable netting agreements of approximately $35 billion for the third quarter of 2022, $33 billion for the second quarter of 2022 and $47 billion for the third quarter of 2021. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 2.21% for the third quarter of 2022, 0.80% for the second quarter of 2022 and 0.17% for the third quarter of 2021. On a Non-GAAP basis, excluding the impact of offsetting, the rate on federal funds purchased and securities sold under repurchase agreements would have been 2.11% for the third quarter of 2022, 0.68% for the second quarter of 2022 and 0.02% for the third quarter of 2021. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.
(b) Average rates were calculated on an FTE basis, at tax rates of approximately 21%.
(c) See “Net interest revenue” on page 11 for the reconciliation of this Non-GAAP measure.
12 BNY Mellon
(a) Includes the average impact of offsetting under enforceable netting agreements of approximately $40 billion for the first nine months of 2022 and $42 billion for the first nine months of 2021. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.98% for the first nine months of 2022 and 0.17% for the first nine months of 2021. On a Non-GAAP basis, excluding the impact of offsetting, the rate on federal funds purchased and securities sold under repurchase agreements would have been 0.86% for the first nine months of 2022 and (0.01)% for the first nine months of 2021. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.
(b) Average rates were calculated on an FTE basis, at tax rates of approximately 21%.
(c) See “Net interest revenue” on page 11 for the reconciliation of this Non-GAAP measure.
BNY Mellon 13
Noninterest expense
| Noninterest expense | YTD22 | ||||||||||||||||||||||||||||
| 3Q22 vs. | vs. | ||||||||||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | |||||||||||||||||||||
| Staff | $ | 1,673 | $ | 1,623 | $ | 1,584 | 3 | % | 6 | % | $ | 4,998 | $ | 4,704 | 6 | % | |||||||||||||
| Software and equipment | 421 | 405 | 372 | 4 | 13 | 1,225 | 1,099 | 11 | |||||||||||||||||||||
| Professional, legal and other purchased services | 363 | 379 | 363 | (4) | — | 1,112 | 1,069 | 4 | |||||||||||||||||||||
| Sub-custodian and clearing | 124 | 131 | 129 | (5) | (4) | 373 | 385 | (3) | |||||||||||||||||||||
| Net occupancy | 124 | 125 | 120 | (1) | 3 | 371 | 365 | 2 | |||||||||||||||||||||
| Distribution and servicing | 88 | 90 | 76 | (2) | 16 | 257 | 223 | 15 | |||||||||||||||||||||
| Bank assessment charges | 35 | 37 | 34 | (5) | 3 | 107 | 103 | 4 | |||||||||||||||||||||
| Business development | 34 | 43 | 22 | (21) | 55 | 107 | 63 | 70 | |||||||||||||||||||||
| Goodwill impairment | 680 | — | — | N/M | N/M | 680 | — | N/M | |||||||||||||||||||||
| Amortization of intangible assets | 17 | 17 | 19 | — | (11) | 51 | 63 | (19) | |||||||||||||||||||||
| Other | 120 | 262 | 199 | (54) | (40) | 516 | 473 | 9 | |||||||||||||||||||||
| Total noninterest expense | $ | 3,679 | $ | 3,112 | $ | 2,918 | 18 | % | 26 | % | $ | 9,797 | $ | 8,547 | 15 | % | |||||||||||||
| Full-time employees at period end | 51,100 | 50,800 | 48,900 | 1 | % | 4 | % | 51,100 | 48,900 | 4 | % | ||||||||||||||||||
Total noninterest expense increased 26% compared with the third quarter of 2021 and increased 18% compared with the second quarter of 2022, primarily reflecting goodwill impairment in the Investment Management reporting unit. Excluding notable items, noninterest expense increased 4% (Non-GAAP) compared with the third quarter of 2021, primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar. The investments in growth, infrastructure and efficiency initiatives are primarily included in staff, software and equipment, and professional, legal and other purchased services expenses. Excluding notable items, noninterest expense decreased 1% (Non-GAAP) compared with the second quarter of 2022, primarily reflecting the favorable impact of a stronger U.S. dollar.
Year-to-date 2022 compared with year-to-date 2021
Noninterest expense increased 15% compared with the first nine months of 2021, primarily reflecting goodwill impairment in the Investment Management reporting unit. Excluding notable items, noninterest
expense increased 6% (Non-GAAP), primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
Income taxes
BNY Mellon recorded an income tax provision of $242 million in the third quarter of 2022. The effective tax rate was 38.4% in the third quarter of 2022, or 19.5% (Non-GAAP) excluding notable items, primarily goodwill impairment. The income tax provision was $219 million (18.8% effective tax rate) in the third quarter of 2021 and $231 million (21.1% effective tax rate) in the second quarter of 2022. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure. For additional information, see Note 11 of the Notes to Consolidated Financial Statements.
14 BNY Mellon
Review of business segments
We have an internal information system that produces performance data along product and service lines for our three principal business segments: Securities Services, Market and Wealth Services and Investment and Wealth Management, and the Other segment.
Business segment accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles (“GAAP”) used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
For information on the accounting principles of our businesses, see Note 19 of the Notes to Consolidated Financial Statements. For information on the primary products and services in each line of business, the primary types of revenue by line of business and how our business segments are presented and analyzed, see Note 24 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
Business segment results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no reclassification or organizational changes in the third quarter of 2022.
The results of our business segments may be influenced by client and other activities that vary by quarter. In the first quarter, staff expense typically increases, reflecting the vesting of long-term stock awards for retirement-eligible employees. Prior to 2022, in the third quarter, staff expense typically increased, reflecting the annual employee merit increase. In 2022, this increase was reflected in the second quarter.
In the third quarter, volume-related fees may decline due to reduced client activity. In the fourth quarter, we typically incur higher business development and marketing expenses. In our Investment and Wealth Management business segment, performance fees are typically higher in the fourth and first quarters, as those quarters represent the end of the measurement period for many of the performance fee-eligible relationships.
The results of our business segments may also be impacted by the translation of financial results denominated in foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. On a consolidated basis and in our Securities Services and Market and Wealth Services business segments, we typically have more foreign currency-denominated expenses than revenues. However, our Investment and Wealth Management business segment typically has more foreign currency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment and Wealth Management business segment more than the Securities Services and Market and Wealth Services business segments. However, currency fluctuations, in isolation, are not expected to significantly impact net income on a consolidated basis.
Fee revenue in the Investment and Wealth Management business segment, and, to a lesser extent, the Securities Services and Market and Wealth Services business segments, is impacted by the global market fluctuations. At Sept. 30, 2022, we estimated that a 5% change in global equity markets, spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.04 to $0.07.
See Note 19 of the Notes to Consolidated Financial Statements for the consolidating schedules, which show the contribution of our business segments to our overall profitability.
BNY Mellon 15
Securities Services business segment
| YTD22 | |||||||||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 3Q22 vs. | vs. | |||||||||||||||||||||||||||||||||
| 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | ||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees: | |||||||||||||||||||||||||||||||||||
| Asset Servicing | $ | 953 | $ | 995 | $ | 999 | $ | 984 | $ | 979 | (4) | % | (3) | % | $ | 2,947 | $ | 2,892 | 2 | % | |||||||||||||||
| Issuer Services | 288 | 309 | 141 | 253 | 281 | (7) | 2 | 738 | 808 | (9) | |||||||||||||||||||||||||
| Total investment services fees | 1,241 | 1,304 | 1,140 | 1,237 | 1,260 | (5) | (2) | 3,685 | 3,700 | — | |||||||||||||||||||||||||
| Foreign exchange revenue | 132 | 155 | 148 | 148 | 125 | (15) | 6 | 435 | 426 | 2 | |||||||||||||||||||||||||
Other fees (a) | 52 | 54 | 41 | 28 | 30 | (4) | 73 | 147 | 85 | 73 | |||||||||||||||||||||||||
| Total fee revenue | 1,425 | 1,513 | 1,329 | 1,413 | 1,415 | (6) | 1 | 4,267 | 4,211 | 1 | |||||||||||||||||||||||||
| Investment and other revenue | 111 | 36 | 74 | 53 | 73 | N/M | N/M | 221 | 141 | N/M | |||||||||||||||||||||||||
| Total fee and other revenue | 1,536 | 1,549 | 1,403 | 1,466 | 1,488 | (1) | 3 | 4,488 | 4,352 | 3 | |||||||||||||||||||||||||
| Net interest revenue | 538 | 457 | 377 | 367 | 349 | 18 | 54 | 1,372 | 1,059 | 30 | |||||||||||||||||||||||||
| Total revenue | 2,074 | 2,006 | 1,780 | 1,833 | 1,837 | 3 | 13 | 5,860 | 5,411 | 8 | |||||||||||||||||||||||||
| Provision for credit losses | (6) | 13 | (10) | (7) | (19) | N/M | N/M | (3) | (127) | N/M | |||||||||||||||||||||||||
| Noninterest expense (excluding amortization of intangible assets) | 1,549 | 1,647 | 1,502 | 1,481 | 1,535 | (6) | 1 | 4,698 | 4,339 | 8 | |||||||||||||||||||||||||
| Amortization of intangible assets | 8 | 9 | 8 | 9 | 8 | (11) | — | 25 | 23 | 9 | |||||||||||||||||||||||||
| Total noninterest expense | 1,557 | 1,656 | 1,510 | 1,490 | 1,543 | (6) | 1 | 4,723 | 4,362 | 8 | |||||||||||||||||||||||||
| Income before income taxes | $ | 523 | $ | 337 | $ | 280 | $ | 350 | $ | 313 | 55 | % | 67 | % | $ | 1,140 | $ | 1,176 | (3) | % | |||||||||||||||
| Pre-tax operating margin | 25 | % | 17 | % | 16 | % | 19 | % | 17 | % | 19 | % | 22 | % | |||||||||||||||||||||
Securities lending revenue (b) | $ | 48 | $ | 45 | $ | 39 | $ | 45 | $ | 45 | 7 | % | 7 | % | $ | 132 | $ | 128 | 3 | % | |||||||||||||||
Total revenue by line of business: | |||||||||||||||||||||||||||||||||||
| Asset Servicing | $ | 1,596 | $ | 1,534 | $ | 1,512 | $ | 1,456 | $ | 1,437 | 4 | % | 11 | % | $ | 4,642 | $ | 4,243 | 9 | % | |||||||||||||||
| Issuer Services | 478 | 472 | 268 | 377 | 400 | 1 | 20 | 1,218 | 1,168 | 4 | |||||||||||||||||||||||||
| Total revenue by line of business | $ | 2,074 | $ | 2,006 | $ | 1,780 | $ | 1,833 | $ | 1,837 | 3 | % | 13 | % | $ | 5,860 | $ | 5,411 | 8 | % | |||||||||||||||
| Selected average balances: | |||||||||||||||||||||||||||||||||||
| Average loans | $ | 11,573 | $ | 11,386 | $ | 10,150 | $ | 9,764 | $ | 8,389 | 2 | % | 38 | % | $ | 11,042 | $ | 8,416 | 31 | % | |||||||||||||||
| Average deposits | $ | 176,328 | $ | 191,191 | $ | 192,156 | $ | 200,272 | $ | 198,680 | (8) | % | (11) | % | $ | 186,500 | $ | 200,553 | (7) | % | |||||||||||||||
| Selected metrics: | |||||||||||||||||||||||||||||||||||
AUC/A at period end (in trillions) (c) | $ | 30.0 | $ | 31.0 | $ | 33.7 | $ | 34.6 | $ | 33.8 | (3) | % | (11) | % | |||||||||||||||||||||
Market value of securities on loan at period end (in billions) (d) | $ | 435 | $ | 441 | $ | 449 | $ | 447 | $ | 443 | (1) | % | (2) | % | |||||||||||||||||||||
(a) Other fees primarily include financing-related fees.
(b) Included in investment services fees reported in the Asset Servicing line of business.
(c) Consists of AUC/A primarily from the Asset Servicing line of business and, to a lesser extent, the Issuer Services line of business. Includes the AUC/A of CIBC Mellon of $1.4 trillion at Sept. 30, 2022, $1.5 trillion at June 30, 2022 and $1.7 trillion at March 31, 2022, Dec. 31, 2021 and Sept. 30, 2021.
(d) Represents the total amount of securities on loan in our agency securities lending program. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $75 billion at Sept. 30, 2022, $70 billion at June 30, 2022, $78 billion at March 31, 2022, $71 billion at Dec. 31, 2021 and $68 billion at Sept. 30, 2021.
N/M – Not meaningful.
Business segment description
The Securities Services business segment consists of two distinct lines of business, Asset Servicing and Issuer Services, which provide business solutions across the transaction life cycle to our global asset owner and asset manager clients. We are one of the leading global investment services providers with $30.0 trillion of AUC/A at Sept. 30, 2022. For information on the drivers of the Securities Services
fee revenue, see Note 10 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
The Asset Servicing business provides a comprehensive suite of solutions. We are one of the largest global custody and front-to-back outsourcing partners. We offer services for the safekeeping of assets in capital markets globally, as well as fund accounting services, exchange-traded funds servicing, transfer agency, trust and depository, front-to-back
16 BNY Mellon
capabilities and data and analytics solutions for our clients. We deliver foreign exchange, and securities lending and financing solutions, on both an agency and principal basis. Our agency securities lending program is one of the largest lenders of U.S. and non-U.S. securities, servicing a lendable asset pool of approximately $4.0 trillion in 34 separate markets. Our market-leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.
The Issuer Services business includes Corporate Trust and Depositary Receipts. Our Corporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial services. We are a leading provider to the debt capital markets, providing customized and market-driven solutions to investors, bondholders and lenders. Our Depositary Receipts business drives global investing by providing servicing and value-added solutions that enable, facilitate and enhance cross-border trading, clearing, settlement and ownership. We are one of the largest providers of depositary receipts services in the world, partnering with leading companies from more than 50 countries.
Review of financial results
AUC/A of $30.0 trillion decreased 11% compared with Sept. 30, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business.
Total revenue of $2.1 billion increased 13% compared with the third quarter of 2021 and 3% compared with the second quarter of 2022. The drivers of total revenue by line of business are indicated below.
Asset Servicing revenue of $1.6 billion increased 11% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher net interest revenue and lower money market fee waivers, partially offset by lower market values. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue and a disposal gain, partially offset by lower market values and the unfavorable impact of a stronger U.S. dollar.
Issuer Services revenue of $478 million increased 20% compared with the third quarter of 2021 and 1% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher net interest revenue and lower money market fee waivers, partially offset by the impact of lost business in the prior year in Corporate Trust and lower Depositary Receipts revenue. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue in Corporate Trust, partially offset by lower Depositary Receipts revenue.
Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with regulations and reduce their operating costs.
Noninterest expense of $1.6 billion increased 1% compared with the third quarter of 2021 and decreased 6% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher investments in growth, infrastructure and efficiency initiatives, as well as the impact of inflation, partially offset by lower litigation reserves and the favorable impact of a stronger U.S. dollar. The decrease compared with the second quarter of 2022 primarily reflects lower litigation reserves.
Year-to-date 2022 compared with year-to-date 2021
Total revenue of $5.9 billion increased 8% compared with the first nine months of 2021. Asset Servicing revenue of $4.6 billion increased 9%, primarily reflecting higher net interest revenue, lower money market fee waivers, higher client activity and a disposal gain, partially offset by the unfavorable impact of a stronger U.S. dollar. Issuer Services revenue of $1.2 billion increased 4%, primarily reflecting higher net interest revenue and lower money market fee waivers in Corporate Trust, partially offset by accelerated amortization of deferred costs for depositary receipts services related to Russia recorded in the first quarter of 2022 and the impact of lost business in the prior year in Corporate Trust.
BNY Mellon 17
Noninterest expense of $4.7 billion increased 8% compared with the first nine months of 2021, primarily reflecting investments in growth, infrastructure and efficiency initiatives, higher
revenue-related expenses and litigation reserves, as well as inflation, partially offset by the favorable impact of a stronger U.S. dollar.
Market and Wealth Services business segment
| YTD22 | |||||||||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 3Q22 vs. | vs. | |||||||||||||||||||||||||||||||||
| 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | ||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees: | |||||||||||||||||||||||||||||||||||
| Pershing | $ | 494 | $ | 479 | $ | 433 | $ | 412 | $ | 427 | 3 | % | 16 | % | $ | 1,406 | $ | 1,325 | 6 | % | |||||||||||||||
| Treasury Services | 173 | 176 | 170 | 170 | 168 | (2) | 3 | 519 | 492 | 5 | |||||||||||||||||||||||||
| Clearance and Collateral Management | 239 | 240 | 243 | 236 | 228 | — | 5 | 722 | 682 | 6 | |||||||||||||||||||||||||
| Total investment services fees | 906 | 895 | 846 | 818 | 823 | 1 | 10 | 2,647 | 2,499 | 6 | |||||||||||||||||||||||||
| Foreign exchange revenue | 20 | 22 | 26 | 21 | 23 | (9) | (13) | 68 | 67 | 1 | |||||||||||||||||||||||||
Other fees (a) | 49 | 46 | 34 | 31 | 31 | 7 | 58 | 129 | 100 | 29 | |||||||||||||||||||||||||
| Total fee revenue | 975 | 963 | 906 | 870 | 877 | 1 | 11 | 2,844 | 2,666 | 7 | |||||||||||||||||||||||||
| Investment and other revenue | 14 | 11 | — | 6 | 13 | N/M | N/M | 25 | 41 | N/M | |||||||||||||||||||||||||
| Total fee and other revenue | 989 | 974 | 906 | 876 | 890 | 2 | 11 | 2,869 | 2,707 | 6 | |||||||||||||||||||||||||
| Net interest revenue | 378 | 340 | 296 | 297 | 283 | 11 | 34 | 1,014 | 861 | 18 | |||||||||||||||||||||||||
| Total revenue | 1,367 | 1,314 | 1,202 | 1,173 | 1,173 | 4 | 17 | 3,883 | 3,568 | 9 | |||||||||||||||||||||||||
| Provision for credit losses | (1) | 4 | (2) | (3) | (16) | N/M | N/M | 1 | (64) | N/M | |||||||||||||||||||||||||
| Noninterest expense (excluding amortization of intangible assets) | 735 | 700 | 706 | 670 | 665 | 5 | 11 | 2,141 | 1,985 | 8 | |||||||||||||||||||||||||
| Amortization of intangible assets | 2 | 2 | 2 | 4 | 3 | — | (33) | 6 | 17 | (65) | |||||||||||||||||||||||||
| Total noninterest expense | 737 | 702 | 708 | 674 | 668 | 5 | 10 | 2,147 | 2,002 | 7 | |||||||||||||||||||||||||
| Income before income taxes | $ | 631 | $ | 608 | $ | 496 | $ | 502 | $ | 521 | 4 | % | 21 | % | $ | 1,735 | $ | 1,630 | 6 | % | |||||||||||||||
| Pre-tax operating margin | 46 | % | 46 | % | 41 | % | 43 | % | 44 | % | 45 | % | 46 | % | |||||||||||||||||||||
Total revenue by line of business: | |||||||||||||||||||||||||||||||||||
| Pershing | $ | 658 | $ | 636 | $ | 570 | $ | 553 | $ | 566 | 3 | % | 16 | % | $ | 1,864 | $ | 1,761 | 6 | % | |||||||||||||||
| Treasury Services | 390 | 373 | 338 | 331 | 326 | 5 | 20 | 1,101 | 962 | 14 | |||||||||||||||||||||||||
| Clearance and Collateral Management | 319 | 305 | 294 | 289 | 281 | 5 | 14 | 918 | 845 | 9 | |||||||||||||||||||||||||
| Total revenue by line of business | $ | 1,367 | $ | 1,314 | $ | 1,202 | $ | 1,173 | $ | 1,173 | 4 | % | 17 | % | $ | 3,883 | $ | 3,568 | 9 | % | |||||||||||||||
| Selected average balances: | |||||||||||||||||||||||||||||||||||
| Average loans | $ | 40,882 | $ | 42,391 | $ | 42,113 | $ | 40,812 | $ | 39,041 | (4) | % | 5 | % | $ | 41,791 | $ | 37,513 | 11 | % | |||||||||||||||
| Average deposits | $ | 90,612 | $ | 94,716 | $ | 95,704 | $ | 100,653 | $ | 101,253 | (4) | % | (11) | % | $ | 93,658 | $ | 103,720 | (10) | % | |||||||||||||||
| Selected metrics: | |||||||||||||||||||||||||||||||||||
AUC/A at period end (in trillions) (b) | $ | 12.0 | $ | 11.8 | $ | 11.6 | $ | 11.8 | $ | 11.2 | 2 | % | 7 | % | |||||||||||||||||||||
Pershing: | |||||||||||||||||||||||||||||||||||
AUC/A at period end (in trillions) | $ | 2.1 | $ | 2.2 | $ | 2.5 | $ | 2.6 | $ | 2.6 | (5) | % | (19) | % | |||||||||||||||||||||
Net new assets (U.S. platform) (in billions) (c) | $ | 45 | $ | 16 | $ | 18 | $ | 69 | $ | 13 | N/M | N/M | |||||||||||||||||||||||
Average active clearing accounts (in thousands) | 7,466 | 7,432 | 7,432 | 7,334 | 7,259 | — | % | 3 | % | ||||||||||||||||||||||||||
| Treasury Services: | |||||||||||||||||||||||||||||||||||
| Average daily U.S. dollar payment volumes | 234,468 | 237,763 | 240,403 | 245,634 | 232,144 | (1) | % | 1 | % | ||||||||||||||||||||||||||
Clearance and Collateral Management: | |||||||||||||||||||||||||||||||||||
Average tri-party collateral management balances (in billions) | $ | 5,457 | $ | 5,207 | $ | 5,026 | $ | 4,972 | $ | 4,516 | 5 | % | 21 | % | |||||||||||||||||||||
(a) Other fees primarily include financing-related fees.
(b) Consists of AUC/A from the Clearance and Collateral Management and Pershing lines of business.
(c) Net new assets represent net flows of assets (e.g., net cash deposits and net securities transfers, including dividends and interest) in customer accounts in Pershing LLC, a U.S. broker-dealer.
N/M – Not meaningful.
18 BNY Mellon
Business segment description
The Market and Wealth Services business segment consists of three distinct lines of business, Pershing, Treasury Services and Clearance and Collateral Management, which provide business services and technology solutions to entities including financial institutions, corporations, foundations and endowments, public funds and government agencies. For information on the drivers of the Market and Wealth Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
Pershing provides execution, clearing, custody, business and technology solutions, delivering operational support to broker-dealers, wealth managers and registered investment advisors (“RIAs”) globally.
Our Treasury Services business is a leading provider of global payments, liquidity management and trade finance services for financial institutions, corporations and the public sector.
Our Clearance and Collateral Management business clears and settles equity and fixed income transactions globally and serves as custodian for tri-party repo collateral worldwide. We are the primary provider of U.S. government securities clearance and a provider of non-U.S. government securities clearance. Our collateral services include collateral management, administration and segregation. We offer innovative solutions and industry expertise, which help financial institutions and institutional investors with their financing, risk and balance sheet challenges. We are a leading provider of tri-party collateral management services with an average of $5.5 trillion serviced globally, including approximately $4.4 trillion of the U.S. tri-party repo market at Sept. 30, 2022.
Review of financial results
AUC/A of $12.0 trillion increased 7% compared with Sept. 30, 2021, primarily reflecting net client inflows, partially offset by lower market values and the impact of a stronger U.S. dollar.
Total revenue of $1.4 billion increased 17% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. The
drivers of total revenue by line of business are indicated below.
Pershing revenue of $658 million increased 16% compared with the third quarter of 2021 and 3% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects lower money market fee waivers and higher client activity, partially offset by the impact of prior year lost business. The increase compared with the second quarter of 2022 primarily reflects lower money market fee waivers.
Treasury Services revenue of $390 million increased 20% compared with the third quarter of 2021 and 5% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher net interest revenue and lower money market fee waivers. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue.
Clearance and Collateral Management revenue of $319 million increased 14% compared with the third quarter of 2021 and 5% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher net interest revenue and clearance volumes. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue.
Noninterest expense of $737 million increased 10% compared with the third quarter of 2021 and 5% compared with the second quarter of 2022. The increase compared with the third quarter of 2021 primarily reflects higher investments in growth, infrastructure and efficiency initiatives, as well as the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar. The increase compared with the second quarter of 2022 primarily reflects higher staff expense.
Year-to-date 2022 compared with year-to-date 2021
Total revenue of $3.9 billion increased 9% compared with the first nine months of 2021. Pershing revenue of $1.9 billion increased 6%, primarily reflecting lower money market fee waivers and growth from existing clients, partially offset by the impact of prior year lost business. Treasury Services revenue of $1.1 billion increased 14%, primarily reflecting higher net interest revenue and lower money market fee waivers.
BNY Mellon 19
Clearance and Collateral Management revenue of $918 million increased 9%, primarily reflecting higher net interest revenue and clearance volumes.
Noninterest expense of $2.1 billion increased 7% compared with the first nine months of 2021,
primarily reflecting higher investments in growth, infrastructure and efficiency initiatives, including the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar.
Investment and Wealth Management business segment
| YTD22 | |||||||||||||||||||||||||||||||||||||||||
| 3Q22 vs. | vs. | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | |||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 788 | $ | 825 | $ | 848 | $ | 864 | $ | 893 | (4) | % | (12) | % | $ | 2,461 | $ | 2,619 | (6) | % | |||||||||||||||||||||
| Performance fees | 10 | 5 | 34 | 32 | 21 | N/M | (52) | 49 | 75 | (35) | |||||||||||||||||||||||||||||||
Investment management and performance fees (a) | 798 | 830 | 882 | 896 | 914 | (4) | (13) | 2,510 | 2,694 | (7) | |||||||||||||||||||||||||||||||
| Distribution and servicing fees | 55 | 51 | 32 | 28 | 28 | 8 | 96 | 138 | 84 | 64 | |||||||||||||||||||||||||||||||
Other fees (b) | (45) | (31) | 1 | 22 | 20 | N/M | N/M | (75) | 58 | N/M | |||||||||||||||||||||||||||||||
| Total fee revenue | 808 | 850 | 915 | 946 | 962 | (5) | (16) | 2,573 | 2,836 | (9) | |||||||||||||||||||||||||||||||
Investment and other revenue (c) | (3) | (13) | (8) | 23 | 23 | N/M | N/M | (24) | 44 | N/M | |||||||||||||||||||||||||||||||
Total fee and other revenue (c) | 805 | 837 | 907 | 969 | 985 | (4) | (18) | 2,549 | 2,880 | (11) | |||||||||||||||||||||||||||||||
| Net interest revenue | 57 | 62 | 57 | 51 | 47 | (8) | 21 | 176 | 142 | 24 | |||||||||||||||||||||||||||||||
| Total revenue | 862 | 899 | 964 | 1,020 | 1,032 | (4) | (16) | 2,725 | 3,022 | (10) | |||||||||||||||||||||||||||||||
| Provision for credit losses | 3 | — | (3) | (6) | (7) | N/M | N/M | — | (7) | N/M | |||||||||||||||||||||||||||||||
| Noninterest expense (excluding goodwill impairment and amortization of intangible assets) | 669 | 685 | 748 | 741 | 684 | (2) | (2) | 2,102 | 2,055 | 2 | |||||||||||||||||||||||||||||||
| Goodwill impairment | 680 | — | — | — | — | N/M | N/M | 680 | — | N/M | |||||||||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 6 | 7 | 7 | 7 | 17 | — | 20 | 22 | (9) | |||||||||||||||||||||||||||||||
| Total noninterest expense | 1,356 | 691 | 755 | 748 | 691 | 96 | 96 | 2,802 | 2,077 | 35 | |||||||||||||||||||||||||||||||
(Loss) income before income taxes (d) | $ | (497) | $ | 208 | $ | 212 | $ | 278 | $ | 348 | (339) | % | (243) | % | $ | (77) | $ | 952 | (108) | % | |||||||||||||||||||||
| Pre-tax operating margin | (57) | % | 23 | % | 22 | % | 27 | % | 34 | % | (3) | % | 31 | % | |||||||||||||||||||||||||||
Adjusted pre-tax operating margin – Non-GAAP (e) | (64) | % | (f) | 26 | % | 24 | % | 29 | % | 36 | % | (3) | % | (f) | 34 | % | |||||||||||||||||||||||||
Total revenue by line of business: | |||||||||||||||||||||||||||||||||||||||||
| Investment Management | $ | 579 | $ | 603 | $ | 658 | $ | 709 | $ | 727 | (4) | % | (20) | % | $ | 1,840 | $ | 2,125 | (13) | % | |||||||||||||||||||||
| Wealth Management | 283 | 296 | 306 | 311 | 305 | (4) | (7) | 885 | 897 | (1) | |||||||||||||||||||||||||||||||
| Total revenue by line of business | $ | 862 | $ | 899 | $ | 964 | $ | 1,020 | $ | 1,032 | (4) | % | (16) | % | $ | 2,725 | $ | 3,022 | (10) | % | |||||||||||||||||||||
Average balances: | |||||||||||||||||||||||||||||||||||||||||
| Average loans | $ | 14,482 | $ | 14,087 | $ | 13,228 | $ | 12,737 | $ | 12,248 | 3 | % | 18 | % | $ | 13,937 | $ | 11,912 | 17 | % | |||||||||||||||||||||
| Average deposits | $ | 17,225 | $ | 20,802 | $ | 22,501 | $ | 18,374 | $ | 17,270 | (17) | % | — | % | $ | 20,157 | $ | 17,964 | 12 | % | |||||||||||||||||||||
(a) On a constant currency basis, investment management and performance fees decreased 8% (Non-GAAP) compared with the third quarter of 2021. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
(b) Other fees primarily include investment services fees.
(c) Investment and other revenue and total fee and other revenue are net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds.
(d) Excluding notable items, income before income taxes decreased 48% (Non-GAAP) compared with the third quarter of 2021, 13% (Non-GAAP) compared with the second quarter of 2022 and 37% (Non-GAAP) compared with the first nine months of 2021. See “Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for information on this Non-GAAP measure.
(e) Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
(f) Excluding notable items and net of distribution and servicing expense, the adjusted pre-tax operating margin was 24% (Non-GAAP) in the third quarter of 2022 and the first nine months of 2022. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
N/M – Not meaningful.
20 BNY Mellon
| AUM trends | 3Q22 vs. | ||||||||||||||||||||||
| (dollars in billions) | 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q22 | 3Q21 | ||||||||||||||||
AUM by product type: (a) | |||||||||||||||||||||||
| Equity | $ | 125 | $ | 139 | $ | 168 | $ | 187 | $ | 180 | (10) | % | (31) | % | |||||||||
| Fixed income | 205 | 226 | 248 | 267 | 269 | (9) | (24) | ||||||||||||||||
| Index | 366 | 387 | 440 | 467 | 436 | (5) | (16) | ||||||||||||||||
| Liability-driven investments | 546 | 641 | 812 | 890 | 843 | (15) | (35) | ||||||||||||||||
| Multi-asset and alternative investments | 181 | 188 | 215 | 228 | 218 | (4) | (17) | ||||||||||||||||
| Cash | 353 | 356 | 383 | 395 | 364 | (1) | (3) | ||||||||||||||||
| Total AUM | $ | 1,776 | $ | 1,937 | $ | 2,266 | $ | 2,434 | $ | 2,310 | (8) | % | (23) | % | |||||||||
Changes in AUM: (a) | |||||||||||||||||||||||
| Beginning balance of AUM | $ | 1,937 | $ | 2,266 | $ | 2,434 | $ | 2,310 | $ | 2,320 | |||||||||||||
| Net inflows (outflows): | |||||||||||||||||||||||
| Long-term strategies: | |||||||||||||||||||||||
| Equity | (5) | (4) | (4) | (4) | (5) | ||||||||||||||||||
| Fixed income | (3) | (1) | (5) | — | 1 | ||||||||||||||||||
| Liability-driven investments | 30 | 12 | 17 | 1 | 16 | ||||||||||||||||||
| Multi-asset and alternative investments | 2 | (5) | (4) | 1 | (2) | ||||||||||||||||||
| Total long-term active strategies inflows (outflows) | 24 | 2 | 4 | (2) | 10 | ||||||||||||||||||
| Index | (1) | 12 | (5) | (2) | (3) | ||||||||||||||||||
| Total long-term strategies inflows (outflows) | 23 | 14 | (1) | (4) | 7 | ||||||||||||||||||
| Short-term strategies: | |||||||||||||||||||||||
| Cash | (2) | (26) | (11) | 31 | 7 | ||||||||||||||||||
| Total net inflows (outflows) | 21 | (12) | (12) | 27 | 14 | ||||||||||||||||||
| Net market impact | (118) | (241) | (130) | 96 | 4 | ||||||||||||||||||
| Net currency impact | (64) | (76) | (26) | 1 | (28) | ||||||||||||||||||
| Ending balance of AUM | $ | 1,776 | $ | 1,937 | $ | 2,266 | $ | 2,434 | $ | 2,310 | (8) | % | (23) | % | |||||||||
Wealth Management client assets (b) | $ | 256 | $ | 264 | $ | 305 | $ | 321 | $ | 307 | (3) | % | (17) | % | |||||||||
(a) Excludes assets managed outside of the Investment and Wealth Management business segment.
(b) Includes AUM and AUC/A in the Wealth Management line of business.
Business segment description
Our Investment and Wealth Management business segment consists of two distinct lines of business, Investment Management and Wealth Management. Our investment firms deliver a highly diversified portfolio of investment strategies independently, and through our global distribution network, to institutional and retail clients globally. BNY Mellon Wealth Management provides investment management, custody, wealth and estate planning, private banking services, investment servicing and information management. See pages 20 and 21 of our 2021 Annual Report for additional information on our Investment and Wealth Management business segment.
In May 2022, we entered into a definitive agreement to sell Alcentra. At Sept. 30, 2022, Alcentra had $32 billion in AUM concentrated in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies. The transaction was completed on Nov. 1, 2022.
Review of financial results
AUM decreased 23% compared with Sept. 30, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by net inflows.
Net long-term strategy inflows were $23 billion in the third quarter of 2022, driven by inflows of liability-driven investments. Short-term strategy outflows were $2 billion in the third quarter of 2022. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.
Total revenue of $862 million decreased 16% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. Investment Management revenue of $579 million decreased 20% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects lower market values, the
BNY Mellon 21
unfavorable impact of a stronger U.S. dollar, an unfavorable change in the mix of AUM, lower equity income and strategic equity investment gains recorded in the third quarter of 2021, partially offset by lower money market fee waivers. The decrease compared with the second quarter of 2022 primarily reflects lower market values, the unfavorable impact of a stronger U.S. dollar and lower equity income, partially offset by lower money market fee waivers.
Wealth Management revenue of $283 million decreased 7% compared with the third quarter of 2021 and 4% compared with the second quarter of 2022. The decrease compared with the third quarter of 2021 primarily reflects lower market values, partially offset by higher net interest revenue.
Revenue generated in the Investment and Wealth Management business segment included 33% from non-U.S. sources in the third quarter of 2022, compared with 38% in the third quarter of 2021 and 35% in the second quarter of 2022.
Noninterest expense of $1.4 billion increased 96% compared with the third quarter of 2021 and second quarter of 2022, primarily reflecting goodwill impairment in the Investment Management reporting unit. Excluding notable items, noninterest expense decreased 2% (Non-GAAP) compared with the third quarter of 2021 and second quarter of 2022, reflecting the favorable impact of a stronger U.S. dollar. The decrease compared with the third quarter of 2021 was partially offset by investments in growth initiatives and higher distribution and servicing expense. See
“Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
Year-to-date 2022 compared with year-to-date 2021
Total revenue of $2.7 billion decreased 10% compared with the first nine months of 2021. Investment Management revenue of $1.8 billion decreased 13%, primarily reflecting the unfavorable impact of a stronger U.S. dollar, lower seed capital results and market values, an unfavorable change in the mix of AUM, lower equity income and strategic equity investment gains recorded in the third quarter of 2021, partially offset by lower money market fee waivers. Wealth Management revenue of $885 million decreased 1%, primarily reflecting lower market values, partially offset by higher net interest revenue.
Noninterest expense of $2.8 billion increased 35% compared with the first nine months of 2021, primarily reflecting goodwill impairment in the Investment Management reporting unit. Excluding notable items, noninterest expense increased 2% (Non-GAAP) compared with the first nine months of 2021, primarily reflecting investments in growth initiatives and higher distribution and servicing expense, partially offset by the favorable impact of a stronger U.S. dollar. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.
Other segment
| (in millions) | 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | YTD22 | YTD21 | ||||||||||||||||
| Fee revenue | $ | 28 | $ | 13 | $ | 8 | $ | 2 | $ | 12 | $ | 49 | $ | 34 | |||||||||
| Investment and other revenue | (5) | 62 | 12 | 19 | 23 | 69 | (4) | ||||||||||||||||
| Total fee and other revenue | 23 | 75 | 20 | 21 | 35 | 118 | 30 | ||||||||||||||||
| Net interest expense | (47) | (35) | (32) | (38) | (38) | (114) | (121) | ||||||||||||||||
| Total revenue | (24) | 40 | (12) | (17) | (3) | 4 | (91) | ||||||||||||||||
| Provision for credit losses | (26) | 30 | 17 | (1) | (3) | 21 | (16) | ||||||||||||||||
| Noninterest expense | 29 | 63 | 33 | 55 | 16 | 125 | 106 | ||||||||||||||||
| (Loss) before income taxes | $ | (27) | $ | (53) | $ | (62) | $ | (71) | $ | (16) | $ | (142) | $ | (181) | |||||||||
| Average loans and leases | $ | 1,145 | $ | 1,172 | $ | 1,319 | $ | 1,337 | $ | 1,528 | $ | 1,210 | $ | 1,680 | |||||||||
See page 22 of our 2021 Annual Report for additional information on the Other segment.
22 BNY Mellon
Review of financial results
Total revenue includes corporate treasury and other investment activity, including hedging activity, which has an offsetting impact between fee and other revenue and net interest expense.
Total revenue decreased $21 million compared with the third quarter of 2021 and $64 million compared with the second quarter of 2022. The decrease compared with the second quarter of 2022 primarily reflects strategic equity gains recorded in the second quarter of 2022.
The provision for credit losses was a benefit of $26 million in the third quarter of 2022, including reserve releases related to cash balances with exposure to Russia.
Noninterest expense increased $13 million compared with the third quarter of 2021 and decreased $34 million compared with the second quarter of 2022. Both variances were primarily driven by staff expense.
Year-to-date 2022 compared with year-to-date 2021
Loss before income taxes decreased $39 million compared with the first nine months of 2021. Total fee and other revenue increased $88 million, primarily reflecting higher strategic equity investment gains and a $39 million impairment for a renewable energy investment recorded in the first quarter of 2021.
The provision for credit losses was $21 million in the first nine months of 2022, primarily related to changes in the macroeconomic forecast and an increase in cash balances with exposure to Russia.
Noninterest expense increased $19 million compared with the first nine months of 2021, primarily reflecting higher staff expense.
Critical accounting estimates
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in our 2021 Annual Report. Our critical accounting estimates are those related to the allowance for credit losses, goodwill and other intangibles and litigation and regulatory contingencies, as referenced below.
Critical accounting estimates | Reference | ||||
| Allowance for credit losses | 2021 Annual Report, pages 25-26, and “Allowance for credit losses.” | ||||
| Goodwill and other intangibles | 2021 Annual Report, pages 26-27, and second quarter 2022 Form 10-Q, page 23. Also see below. | ||||
| Litigation and regulatory contingencies | “Legal proceedings” in Note 18 of the Notes to Consolidated Financial Statements. | ||||
Goodwill and other intangibles
BNY Mellon’s business segments include six reporting units for which goodwill impairment testing is performed on an annual basis. As a result of the annual goodwill impairment test conducted in the second quarter of 2022, no goodwill impairment was recognized.
An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value.
In the third quarter of 2022, due to decreases in market values and the related outlook as well as increased market interest rates, we performed an interim goodwill impairment test of the Investment Management reporting unit, which had $7.0 billion of allocated goodwill. The fair value of the Investment Management reporting unit was determined to be 7% below its carrying value, resulting in a goodwill impairment charge of $680 million. This goodwill impairment represents a non-cash charge and did not affect BNY Mellon’s liquidity position, tangible common equity or regulatory capital ratios. We determined it was not necessary to perform an interim goodwill impairment test for our other reporting units.
We determined the fair value of the Investment Management reporting unit using an income approach based on management’s projections as of Sept. 30, 2022. The discount rate applied to these cash flows was 10.5% compared with a 10.0% discount rate used in the annual impairment test conducted in the second quarter of 2022. The increase was driven by a higher risk free rate. Determining the fair value of a reporting unit is subject to uncertainty as it is reliant on estimates of cash flows that extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame. The cash flow estimates for the Investment Management reporting
BNY Mellon 23
unit are impacted by projections of the level and mix of AUM, market values, operating margins and long-term growth rates. In the future, changes in the assumptions or the discount rate could produce a material non-cash goodwill impairment.
As of Sept. 30, 2022, if the discount rate applied to the estimated cash flows was increased or decreased by 25 basis points, the fair value of the Investment Management reporting unit would decrease or increase by 4%, respectively. Similarly, if the long-term growth rate was increased or decreased by 10 basis points, the fair value of the Investment Management reporting unit would increase or decrease by approximately 1%, respectively.
Consolidated balance sheet review
One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators.
We also seek to undertake overall liquidity risk, including intraday liquidity risk, that stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.
At Sept. 30, 2022, total assets were $428 billion, compared with $444 billion at Dec. 31, 2021. The decrease in total assets was primarily driven by lower securities and federal funds sold and securities purchased under resale agreements, partially offset by higher other assets. Deposits totaled $302 billion at Sept. 30, 2022, compared with $320 billion at Dec. 31, 2021. The decrease reflects lower interest-bearing deposits in U.S. offices, noninterest-bearing
deposits (principally U.S. offices) and interest-bearing deposits in non-U.S. offices. Total interest-bearing deposits as a percentage of total interest-earning assets were 59% at Sept. 30, 2022 and 60% at Dec. 31, 2021.
At Sept. 30, 2022, available funds totaled $150 billion and included cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. This compares with available funds of $155 billion at Dec. 31, 2021. Total available funds as a percentage of total assets were 35% at Sept. 30, 2022 and Dec. 31, 2021. For additional information on our available funds, see “Liquidity and dividends.”
Securities were $144 billion, or 34% of total assets, at Sept. 30, 2022, compared with $159 billion, or 36% of total assets, at Dec. 31, 2021. The decrease primarily reflects unrealized pre-tax losses and lower agency residential mortgage-backed securities (“RMBS”), partially offset by higher U.S. Treasury securities. For additional information on our securities portfolio, see “Securities” and Note 4 of the Notes to Consolidated Financial Statements.
Loans were $70 billion, or 16% of total assets, at Sept. 30, 2022, compared with $68 billion, or 15% of total assets, at Dec. 31, 2021. The increase was driven by higher loans in nearly all portfolios, partially offset by lower margin loans. For additional information on our loan portfolio, see “Loans” and Note 5 of the Notes to Consolidated Financial Statements.
Long-term debt totaled $28 billion at Sept. 30, 2022 and $26 billion at Dec. 31, 2021. Issuances were partially offset by redemptions and maturities and a decrease in the fair value of hedged long-term debt. For additional information on long-term debt, see “Liquidity and dividends.”
The Bank of New York Mellon Corporation total shareholders’ equity decreased to $40 billion at Sept. 30, 2022 from $43 billion at Dec. 31, 2021. For additional information, see “Capital.”
24 BNY Mellon
Country risk exposure
The following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of Sept. 30, 2022, as well as certain countries with higher risk profiles. The exposure is presented on an internal risk management basis and has not been reduced by the allowance for credit losses. We monitor our exposure to these and other countries as part of our internal country risk management process.
The country risk exposure below reflects the Company’s risk to an immediate default of the counterparty or obligor based on the country of residence of the entity which incurs the liability. If there is credit risk mitigation, the country of residence of the entity providing the risk mitigation is the country of risk. The country of risk for securities is generally based on the domicile of the issuer of the security.
Country risk exposure at Sept. 30, 2022 | Interest-bearing deposits | Total exposure | |||||||||||||||||||||||||||||||||
| (in billions) | Central banks | Banks | Lending (a) | Securities (b) | Other (c) | ||||||||||||||||||||||||||||||
| Top 10 country exposure: | |||||||||||||||||||||||||||||||||||
| Germany | $ | 24.1 | $ | 1.0 | $ | 0.8 | $ | 4.1 | $ | 0.5 | $ | 30.5 | |||||||||||||||||||||||
| United Kingdom (“UK”) | 12.0 | 0.2 | 1.3 | 3.7 | 2.9 | 20.1 | |||||||||||||||||||||||||||||
| Belgium | 7.5 | 0.6 | 0.1 | 0.1 | — | 8.3 | |||||||||||||||||||||||||||||
| Canada | — | 1.7 | 0.6 | 3.6 | 2.2 | 8.1 | |||||||||||||||||||||||||||||
| Japan | 5.1 | 0.4 | 0.1 | 0.5 | 0.1 | 6.2 | |||||||||||||||||||||||||||||
| Luxembourg | 0.2 | 0.2 | 1.4 | 0.1 | 1.5 | 3.4 | |||||||||||||||||||||||||||||
| Ireland | 0.2 | 0.3 | 0.3 | 0.1 | 2.2 | 3.1 | |||||||||||||||||||||||||||||
| South Korea | 0.1 | — | 2.4 | 0.1 | 0.3 | 2.9 | |||||||||||||||||||||||||||||
| Singapore | — | 0.4 | 0.1 | 1.3 | 1.1 | 2.9 | |||||||||||||||||||||||||||||
| France | — | — | 0.2 | 2.2 | 0.4 | 2.8 | |||||||||||||||||||||||||||||
| Total Top 10 country exposure | $ | 49.2 | $ | 4.8 | $ | 7.3 | $ | 15.8 | $ | 11.2 | $ | 88.3 | (d) | ||||||||||||||||||||||
| Select country exposure: | |||||||||||||||||||||||||||||||||||
| Brazil | $ | — | $ | — | $ | 0.9 | $ | 0.1 | $ | 0.2 | $ | 1.2 | |||||||||||||||||||||||
| Russia | — | 0.2 | (e) | — | — | — | 0.2 | ||||||||||||||||||||||||||||
| Total select country exposure | $ | — | $ | 0.2 | $ | 0.9 | $ | 0.1 | $ | 0.2 | $ | 1.4 | |||||||||||||||||||||||
(a) Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.
(b) Securities includes both the available-for-sale and held-to-maturity portfolios.
(c) Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.
(d) The top 10 country exposures comprise approximately 75% of our total non-U.S. exposure.
(e) Represents cash balances with exposure to Russia.
Events in recent years have resulted in increased focus on Brazil. The country risk exposure to Brazil is primarily short-term trade finance loans extended to large financial institutions. We also have operations in Brazil providing investment services and investment management services.
The war in Ukraine has increased our focus on Russia. The country risk exposure to Russia consists of cash balances related to our securities services businesses and may increase in the future to the extent cash is received for the benefit of our clients that is subject to distribution restrictions. BNY Mellon has ceased new banking business in Russia and suspended investment management purchases of Russian securities. At Sept. 30, 2022, less than 0.1%
of our AUC/A and less than 0.01% of our AUM consisted of Russian securities. We will continue to work with multinational clients that depend on our custody and record keeping services to manage their exposures.
Securities
In the discussion of our securities portfolio, we have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.
BNY Mellon 25
The following table shows the distribution of our total securities portfolio.
| Securities portfolio | June 30, 2022 | 3Q22 change in unrealized gain (loss) | Sept. 30, 2022 | Fair value as a % of amortized cost (a) | Unrealized gain (loss) | % Floating rate (b) | Ratings (c) | |||||||||||||||||||||||||||||||||||||||||||
| BBB+/ BBB- | BB+ and lower | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Fair value | Amortized cost (a) | Fair value | AAA/ AA- | A+/ A- | Not rated | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 42,547 | $ | (426) | $ | 41,617 | $ | 40,031 | 96 | % | $ | (1,586) | 56 | % | 100 | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||||||||
| Agency RMBS | 42,241 | (1,839) | 44,081 | 39,035 | 89 | (5,046) | 15 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Agency commercial mortgage-backed securities (“MBS”) | 12,257 | (294) | 12,840 | 12,005 | 93 | (835) | 41 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Sovereign debt/sovereign guaranteed (d) | 12,577 | (259) | 12,280 | 11,697 | 95 | (583) | 20 | 88 | 5 | 6 | 1 | — | ||||||||||||||||||||||||||||||||||||||
| Supranational | 7,949 | (112) | 8,429 | 8,135 | 97 | (294) | 62 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Collateralized loan obligations (“CLOs”) | 6,046 | (43) | 6,408 | 6,181 | 96 | (227) | 100 | 99 | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | 5,671 | (186) | 6,386 | 5,807 | 91 | (579) | 35 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Foreign covered bonds (e) | 5,831 | (74) | 5,546 | 5,293 | 95 | (253) | 54 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Non-agency commercial MBS | 3,045 | (69) | 3,270 | 2,976 | 91 | (294) | 52 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
Foreign government agencies (f) | 2,599 | (20) | 2,509 | 2,404 | 96 | (105) | 29 | 92 | 8 | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS | 2,346 | (62) | 2,306 | 2,143 | 93 | (163) | 50 | 85 | 3 | — | 8 | 4 | ||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | 2,049 | (59) | 2,200 | 1,914 | 87 | (286) | 25 | 90 | 9 | — | — | 1 | ||||||||||||||||||||||||||||||||||||||
| Other asset-backed securities (“ABS”) | 1,668 | (26) | 1,594 | 1,465 | 92 | (129) | 19 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Corporate bonds | 1,342 | (26) | 1,409 | 1,270 | 90 | (139) | 47 | 17 | 68 | 15 | — | — | ||||||||||||||||||||||||||||||||||||||
| Other | 1 | — | 1 | 1 | 100 | — | — | — | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||||
| Total securities | $ | 148,169 | (g) | $ | (3,495) | $ | 150,876 | $ | 140,357 | (g) | 93 | % | $ | (10,519) | (g)(h) | 40 | % | 98 | % | 1 | % | 1 | % | — | % | — | % | |||||||||||||||||||||||
(a) Amortized cost reflects historical impairments, and is net of the allowance for credit losses.
(b) Includes the impact of hedges.
(c) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(d) Primarily consists of exposure to Germany, UK, France, Singapore, Canada and Italy.
(e) Primarily consists of exposure to Canada, UK, Australia, Germany and Norway.
(f) Primarily consists of exposure to Canada, Norway, the Netherlands, Sweden, Finland and France.
(g) Includes net unrealized gains on derivatives hedging securities available-for-sale (including terminated hedges) of $1,764 million at June 30, 2022 and $2,948 million at Sept. 30, 2022.
(h) At Sept. 30, 2022, includes net unrealized losses of $3,747 million related to available-for-sale securities, net of hedges, and $6,772 million related to held-to-maturity securities.
The fair value of our securities portfolio, including related hedges, was $140.4 billion at Sept. 30, 2022, compared with $158.0 billion at Dec. 31, 2021. The decrease primarily reflects unrealized pre-tax losses and lower agency RMBS, partially offset by an increase in U.S. Treasury securities.
At Sept. 30, 2022, the securities portfolio had a net unrealized loss, including the impact of related hedges, of $10.5 billion, compared with a net unrealized gain, including the impact of related hedges, of $384 million at Dec. 31, 2021. The increase in the net unrealized loss, including the impact of hedges, was primarily driven by higher market interest rates.
The fair value of the available-for-sale securities totaled $89.9 billion at Sept. 30, 2022, net of hedges, or 64% of the securities portfolio, net of hedges. The fair value of the held-to-maturity securities totaled $50.5 billion at Sept. 30, 2022, or 36% of the securities portfolio, net of hedges.
The unrealized loss (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated other comprehensive income was $2.8 billion at Sept. 30, 2022, compared with an unrealized gain (after-tax), net of hedges, of $362 million at Dec. 31, 2021. The increase in the unrealized loss, net of tax, was primarily driven by higher market interest rates.
At Sept. 30, 2022, 98% of the securities in our portfolio were rated AAA/AA-, compared with 96% at Dec. 31, 2021.
See Note 4 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 15 of the Notes to Consolidated Financial Statements for securities by level in the fair value hierarchy.
26 BNY Mellon
The following table presents the amortizable purchase premium (net of discount) related to the securities portfolio and accretable discount related to the 2009 restructuring of the securities portfolio.
Net premium amortization and discount accretion of securities (a) | |||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 1Q22 | 4Q21 | 3Q21 | ||||||||||||
Amortizable purchase premium (net of discount) relating to securities: | |||||||||||||||||
| Balance at period-end | $ | 1,435 | $ | 1,541 | $ | 1,761 | $ | 1,972 | $ | 2,120 | |||||||
Estimated average life remaining at period-end (in years) | 4.7 | 4.7 | 4.7 | 4.4 | 4.5 | ||||||||||||
| Amortization | $ | 87 | $ | 105 | $ | 130 | $ | 158 | $ | 168 | |||||||
Accretable discount related to the prior restructuring of the securities portfolio: | |||||||||||||||||
| Balance at period-end | $ | 49 | $ | 55 | $ | 62 | $ | 109 | $ | 115 | |||||||
Estimated average life remaining at period-end (in years) | 8.2 | 7.3 | 7.0 | 6.1 | 6.0 | ||||||||||||
| Accretion | $ | 5 | $ | 7 | $ | 9 | $ | 11 | $ | 11 | |||||||
(a) Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were recorded on a level yield basis.
Loans
| Total exposure – consolidated | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||
| (in billions) | Loans | Unfunded commitments | Total exposure | Loans | Unfunded commitments | Total exposure | |||||||||||||||||
| Financial institutions | $ | 11.1 | $ | 33.2 | $ | 44.3 | $ | 10.2 | $ | 30.6 | $ | 40.8 | |||||||||||
| Commercial | 2.1 | 11.6 | 13.7 | 2.1 | 11.9 | 14.0 | |||||||||||||||||
| Wealth management loans | 10.7 | 0.6 | 11.3 | 9.8 | 0.5 | 10.3 | |||||||||||||||||
| Wealth management mortgages | 8.9 | 0.3 | 9.2 | 8.2 | 0.4 | 8.6 | |||||||||||||||||
| Commercial real estate | 6.3 | 3.6 | 9.9 | 6.0 | 3.3 | 9.3 | |||||||||||||||||
| Lease financings | 0.7 | — | 0.7 | 0.7 | — | 0.7 | |||||||||||||||||
| Other residential mortgages | 0.4 | — | 0.4 | 0.3 | — | 0.3 | |||||||||||||||||
| Overdrafts | 5.1 | — | 5.1 | 3.1 | — | 3.1 | |||||||||||||||||
| Capital call financing | 4.0 | 2.8 | 6.8 | 2.3 | 1.5 | 3.8 | |||||||||||||||||
| Other | 2.8 | — | 2.8 | 2.6 | — | 2.6 | |||||||||||||||||
| Margin loans | 17.7 | — | 17.7 | 22.5 | — | 22.5 | |||||||||||||||||
| Total | $ | 69.8 | $ | 52.1 | $ | 121.9 | $ | 67.8 | $ | 48.2 | $ | 116.0 | |||||||||||
At Sept. 30, 2022, total lending-related exposure of $121.9 billion increased 5% compared with Dec. 31, 2021, primarily reflecting higher exposure in the financial institutions and capital call financing portfolios, higher overdrafts and higher exposure to the wealth management loans and wealth management mortgages portfolios, partially offset by lower margin loans.
Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 48% of our total exposure at Sept. 30, 2022 and 47% at Dec. 31, 2021. Additionally, most of our overdrafts relate to financial institutions.
BNY Mellon 27
Financial institutions
The financial institutions portfolio is shown below.
Financial institutions portfolio exposure (dollars in billions) | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||||||||
| Loans | Unfunded commitments | Total exposure | % Inv. grade | % due <1 yr. | Loans | Unfunded commitments | Total exposure | ||||||||||||||||||||||
| Securities industry | $ | 1.7 | $ | 18.8 | $ | 20.5 | 98 | % | 95 | % | $ | 1.7 | $ | 17.5 | $ | 19.2 | |||||||||||||
| Asset managers | 1.6 | 8.0 | 9.6 | 99 | 83 | 1.7 | 7.1 | 8.8 | |||||||||||||||||||||
| Banks | 7.3 | 1.5 | 8.8 | 87 | 97 | 5.8 | 1.5 | 7.3 | |||||||||||||||||||||
| Insurance | 0.1 | 3.7 | 3.8 | 100 | 9 | 0.2 | 3.4 | 3.6 | |||||||||||||||||||||
| Government | — | 0.3 | 0.3 | 100 | 46 | 0.1 | 0.2 | 0.3 | |||||||||||||||||||||
| Other | 0.4 | 0.9 | 1.3 | 97 | 62 | 0.7 | 0.9 | 1.6 | |||||||||||||||||||||
| Total | $ | 11.1 | $ | 33.2 | $ | 44.3 | 96 | % | 84 | % | $ | 10.2 | $ | 30.6 | $ | 40.8 | |||||||||||||
The financial institutions portfolio exposure was $44.3 billion at Sept. 30, 2022, an increase of 9% compared with Dec. 31, 2021, primarily reflecting higher exposure in the banks, securities industry and asset managers portfolios.
Financial institution exposures are high quality, with 96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept. 30, 2022. Each customer is assigned an internal credit rating, which is mapped to an equivalent external rating agency grade based upon a number of dimensions, which are continually evaluated and may change over time. For ratings of non-U.S. counterparties, our internal credit rating is generally capped at a rating equivalent to the sovereign rating of the country where the counterparty resides, regardless of the internal credit rating assigned to the counterparty or the underlying collateral.
The exposure to financial institutions is generally short term, with 84% of the exposures expiring within one year. At Sept. 30, 2022, 55% of the exposure to financial institutions had an expiration within 90 days, compared with 17% at Dec. 31, 2021.
In addition, 66% of the financial institutions exposure is secured. For example, securities industry clients
and asset managers often borrow against marketable securities held in custody.
At Sept. 30, 2022, the secured intra-day credit provided to dealers in connection with their tri-party repo activity totaled $16.9 billion and was included in the securities industry portfolio. Dealers secure the outstanding intra-day credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit. Secured intraday credit facilities represent approximately 38% of the exposure in the financial institutions portfolio and are reviewed and reapproved annually.
The asset managers portfolio exposure is high quality, with 99% of the exposures meeting our investment grade equivalent ratings criteria as of Sept. 30, 2022. These exposures are generally short-term liquidity facilities, with the majority to regulated mutual funds.
Our banks portfolio exposure primarily relates to our global trade finance. These exposures are short term in nature, with 97% due in less than one year. The investment grade percentage of our banks portfolio exposure was 87% at Sept. 30, 2022, compared with 88% at Dec. 31, 2021. Our non-investment grade exposures are primarily trade finance loans in Brazil.
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Commercial
The commercial portfolio is presented below.
| Commercial portfolio exposure | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||||||||
| (dollars in billions) | Loans | Unfunded commitments | Total exposure | % Inv. grade | % due <1 yr. | Loans | Unfunded commitments | Total exposure | |||||||||||||||||||||
| Manufacturing | $ | 0.8 | $ | 4.1 | $ | 4.9 | 96 | % | 19 | % | $ | 0.6 | $ | 3.9 | $ | 4.5 | |||||||||||||
| Services and other | 1.0 | 3.1 | 4.1 | 96 | 38 | 1.0 | 3.2 | 4.2 | |||||||||||||||||||||
| Energy and utilities | 0.2 | 3.7 | 3.9 | 94 | 4 | 0.4 | 3.9 | 4.3 | |||||||||||||||||||||
| Media and telecom | 0.1 | 0.7 | 0.8 | 88 | — | 0.1 | 0.9 | 1.0 | |||||||||||||||||||||
| Total | $ | 2.1 | $ | 11.6 | $ | 13.7 | 95 | % | 20 | % | $ | 2.1 | $ | 11.9 | $ | 14.0 | |||||||||||||
The commercial portfolio exposure was $13.7 billion at Sept. 30, 2022, a decrease of 2% from Dec. 31, 2021, primarily reflecting lower exposure to the energy and utilities and media and telecom portfolios, partially offset by higher exposure to the manufacturing portfolios.
Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.
Wealth management loans
Our wealth management loan exposure was $11.3 billion at Sept. 30, 2022, compared with $10.3 billion
at Dec. 31, 2021. Wealth management loans primarily consist of loans to high-net-worth individuals, a majority of which are secured by the customers’ investment management accounts or custody accounts.
Wealth management mortgages
Our wealth management mortgage exposure was $9.2 billion at Sept. 30, 2022, compared with $8.6 billion at Dec. 31, 2021. Wealth management mortgages primarily consist of loans to high-net-worth individuals, which are secured by residential property. Wealth management mortgages are primarily interest-only, adjustable-rate mortgages with a weighted-average loan-to-value ratio of 61% at origination. At Sept. 30, 2022, less than 1% of the mortgages were past due.
At Sept. 30, 2022, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 21%; New York – 15%; Florida – 11%; Massachusetts – 8%; and other – 45%.
BNY Mellon 29
Commercial real estate
The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.
Composition of commercial real estate portfolio by asset class | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||
| Total exposure | Percentage secured (a) | Total exposure | Percentage secured (a) | ||||||||||||||
(in billions) | |||||||||||||||||
| Residential | $ | 3.9 | 85 | % | $ | 3.6 | 81 | % | |||||||||
| Office | 2.7 | 76 | 2.6 | 77 | |||||||||||||
| Retail | 0.9 | 58 | 0.9 | 58 | |||||||||||||
| Mixed-use | 0.8 | 33 | 0.7 | 37 | |||||||||||||
| Hotels | 0.7 | 44 | 0.5 | 23 | |||||||||||||
| Healthcare | 0.4 | 49 | 0.4 | 25 | |||||||||||||
| Other | 0.5 | 63 | 0.6 | 45 | |||||||||||||
| Total commercial real estate | $ | 9.9 | 71 | % | $ | 9.3 | 66 | % | |||||||||
(a) Represents the percentage of exposure secured by real estate in each asset class.
Our commercial real estate exposure totaled $9.9 billion at Sept. 30, 2022 and $9.3 billion at Dec. 31, 2021. Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. Loans are approved on the basis of existing or projected cash flows and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage and, in many instances, involve some level of recourse to the developer.
At Sept. 30, 2022, the unsecured portfolio consisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both primarily investment grade.
At Sept. 30, 2022, our commercial real estate portfolio consisted of the following concentrations: New York metro – 36%; REITs and real estate operating companies – 29%; and other – 35%.
Lease financings
The lease financings portfolio exposure totaled $702 million at Sept. 30, 2022 and $731 million at Dec. 31, 2021. At Sept. 30, 2022, approximately 99% of leasing exposure was investment grade, or investment grade equivalent and consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest components of our lease residual value exposure
relate to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $356 million at Sept. 30, 2022 and $299 million at Dec. 31, 2021. Included in this portfolio at Sept. 30, 2022 were $94 million of fixed-rate jumbo mortgage loans purchased in the second quarter of 2022 with a weighted-average loan-to-value ratio of 69% at origination.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and are generally repaid within two business days.
Capital call financing
Capital call financing includes loans to private equity funds that are secured by the fund investors’ capital commitments and the funds’ rights to call capital.
Other loans
Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed-income securities.
30 BNY Mellon
Margin loans
Margin loan exposure of $17.7 billion at Sept. 30, 2022 and $22.5 billion at Dec. 31, 2021 was collateralized with marketable securities. Borrowers are required to maintain a daily collateral margin in
excess of 100% of the value of the loan. Margin loans included $5.3 billion at Sept. 30, 2022 and $7.7 billion at Dec. 31, 2021 related to a term loan program that offers fully collateralized loans to broker-dealers.
Allowance for credit losses
Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a customer consists of funded loans, unfunded contractual commitments to lend, standby letters of credit and overdrafts associated with our custody and securities clearance businesses.
The following table details changes in our allowance for credit losses.
| Allowance for credit losses activity | Sept. 30, 2022 | June 30, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | ||||||||||
| (dollars in millions) | ||||||||||||||
| Beginning balance of allowance for credit losses | $ | 310 | $ | 263 | $ | 291 | $ | 335 | ||||||
| Provision for credit losses | (30) | 47 | (17) | (45) | ||||||||||
| Net recoveries (charge-offs): | ||||||||||||||
| Loans: | ||||||||||||||
| Other residential mortgages | 1 | 1 | 2 | 1 | ||||||||||
| Other loans | — | — | (16) | — | ||||||||||
Other financial instruments | (1) | (1) | — | — | ||||||||||
| Net recoveries (charge-offs) | — | — | (14) | 1 | ||||||||||
| Ending balance of allowance for credit losses | $ | 280 | $ | 310 | $ | 260 | $ | 291 | ||||||
| Allowance for loan losses | $ | 164 | $ | 181 | $ | 196 | $ | 233 | ||||||
Allowance for lending-related commitments | 72 | 62 | 45 | 40 | ||||||||||
Allowance for financial instruments (a) | 44 | 67 | 19 | 18 | ||||||||||
Total allowance for credit losses | $ | 280 | $ | 310 | $ | 260 | $ | 291 | ||||||
| Total loans, at period end | $ | 69,829 | $ | 69,347 | $ | 67,787 | $ | 64,328 | ||||||
Allowance for loan losses as a percentage of total loans | 0.23 | % | 0.26 | % | 0.29 | % | 0.36 | % | ||||||
| Allowance for loan losses and lending-related commitments as a percentage of total loans | 0.34 | % | 0.35 | % | 0.36 | % | 0.42 | % | ||||||
(a) Includes allowance for credit losses on federal funds sold and securities purchased under resale agreements, available-for-sale securities, held-to-maturity securities, accounts receivable, cash and due from banks and interest-bearing deposits with banks.
The provision for credit losses was a benefit of $30 million in the third quarter of 2022, primarily reflecting reserve releases related to cash balances with exposure to Russia and a modest benefit from our commercial real estate portfolio.
The allowance for loan losses and allowance for lending-related commitments represent management’s estimate of lifetime expected losses in our credit portfolio. This evaluation process is
subject to numerous estimates and judgments. To the extent actual results differ from forecasts or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs.
Based on an evaluation of the allowance for credit losses as discussed in “Critical accounting estimates” in our 2021 Annual Report, we have allocated our allowance for loans and lending-related commitments as presented below.
BNY Mellon 31
Allocation of allowance for loan losses and lending-related commitments (a) | Sept. 30, 2022 | June 30, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | |||||||||||||||||||||||||||||||
| (dollars in millions) | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||
| Commercial real estate | $ | 176 | 74 | % | $ | 184 | 75 | % | $ | 199 | 82 | % | $ | 226 | 82 | % | |||||||||||||||||||
| Financial institutions | 20 | 8 | 21 | 9 | 13 | 5 | 8 | 3 | |||||||||||||||||||||||||||
| Commercial | 17 | 7 | 16 | 6 | 12 | 5 | 10 | 3 | |||||||||||||||||||||||||||
| Wealth management mortgages | 9 | 4 | 7 | 3 | 6 | 2 | 4 | 1 | |||||||||||||||||||||||||||
| Other residential mortgages | 8 | 3 | 7 | 3 | 7 | 3 | 6 | 2 | |||||||||||||||||||||||||||
| Capital call financing | 4 | 2 | 6 | 2 | 2 | 1 | 1 | 1 | |||||||||||||||||||||||||||
| Lease financings | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
| Wealth management loans | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
| Other loans | — | — | — | — | — | — | 16 | 6 | |||||||||||||||||||||||||||
| Total | $ | 236 | 100 | % | $ | 243 | 100 | % | $ | 241 | 100 | % | $ | 273 | 100 | % | |||||||||||||||||||
(a) The allowance allocated to margin loans and overdrafts was insignificant at Sept. 30, 2022, June 30, 2022, Dec. 31, 2021 and Sept. 30, 2021.
The allocation of the allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the losses.
Our allowance for credit losses is sensitive to a number of inputs, most notably the credit ratings assigned to each borrower, as well as macroeconomic forecast assumptions that are incorporated in our estimate of credit losses through the expected life of the loan portfolio. Thus, as the macroeconomic environment and related forecasts change, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. If commercial real estate property values were increased 10% and all other credit were rated one grade better, the quantitative allowance would have decreased by $32 million, and if commercial real estate property values were decreased 10% and all other credit were rated one grade worse, the quantitative allowance would have increased by $64 million. Our multi-scenario based macroeconomic forecast used in determining the Sept. 30, 2022 allowance for credit losses consisted of three scenarios. The baseline scenario reflects slowing GDP growth through the end of 2022, and slightly rising unemployment and moderating growth in commercial real estate prices through the end of 2023. The upside scenario reflects faster GDP growth, slightly declining unemployment and higher commercial real estate prices compared with the baseline. The downside scenario contemplates negative GDP growth through the first quarter of 2023 with subsequent stabilization as well as
increasing unemployment through 2023 and lower commercial real estate prices than the baseline. In the third quarter of 2022, we placed the most weight on our baseline scenario, followed by the downside scenario, with the remaining weighting placed on the upside scenario. From a sensitivity perspective, at Sept. 30, 2022, if we had applied 100% weighting to the downside scenario, the allowance for credit losses would have been approximately $96 million higher.
Nonperforming assets
The table below presents our nonperforming assets.
| Nonperforming assets | Sept. 30, 2022 | Dec. 31, 2021 | ||||||
| (dollars in millions) | ||||||||
| Nonperforming loans: | ||||||||
| Commercial real estate | $ | 51 | $ | 54 | ||||
| Other residential mortgages | 33 | 39 | ||||||
| Wealth management mortgages | 20 | 25 | ||||||
| Total nonperforming loans | 104 | 118 | ||||||
| Other assets owned | 3 | 2 | ||||||
| Total nonperforming assets | $ | 107 | $ | 120 | ||||
| Nonperforming assets ratio | 0.15 | % | 0.18 | % | ||||
| Allowance for loan losses/nonperforming loans | 157.7 | 166.1 | ||||||
| Allowance for loan losses/nonperforming assets | 153.3 | 163.3 | ||||||
| Total allowance for credit losses/nonperforming loans | 226.9 | 204.2 | ||||||
| Total allowance for credit losses/nonperforming assets | 220.6 | 200.8 | ||||||
Deposits
Total deposits were $302.0 billion at Sept. 30, 2022, a decrease of 6%, compared with $319.7 billion at Dec. 31, 2021. The decrease reflects lower interest-bearing deposits in U.S. offices, noninterest-bearing
32 BNY Mellon
deposits (principally U.S. offices) and interest-bearing deposits in non-U.S. offices.
Noninterest-bearing deposits were $88.3 billion at Sept. 30, 2022, compared with $93.7 billion at Dec. 31, 2021. Interest-bearing deposits were primarily demand deposits and totaled $213.7 billion at Sept. 30, 2022, compared with $226.0 billion at Dec. 31, 2021.
Short-term borrowings
We fund ourselves primarily through deposits and, to a lesser extent, other short-term borrowings and long-term debt. Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements, payables to customers and broker-dealers, commercial paper and other borrowed funds. Certain short-term borrowings, for example, securities sold under repurchase agreements, require the delivery of securities as collateral.
Federal funds purchased and securities sold under repurchase agreements include repurchase agreement activity with the Fixed Income Clearing Corporation (“FICC”), where we record interest expense on a gross basis, but the ending and average balances reflect the impact of offsetting under enforceable netting agreements. This activity primarily relates to government securities collateralized resale and repurchase agreements executed with clients that are novated to and settle with the FICC.
Payables to customers and broker-dealers represent funds awaiting reinvestment and short sale proceeds payable on demand. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.
The Bank of New York Mellon may issue commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment.
Other borrowed funds primarily include overdrafts of sub-custodian account balances in our Securities Services businesses, finance lease liabilities, and borrowings under lines of credit by our Pershing subsidiaries. Overdrafts typically relate to timing differences for settlements.
Liquidity and dividends
BNY Mellon defines liquidity as the ability of the Parent and its subsidiaries to access funding or convert assets to cash quickly and efficiently, or to roll over or issue new debt, especially during periods of market stress, at a reasonable cost, and in order to meet its short-term (up to one year) obligations. Funding liquidity risk is the risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flow and collateral needs without adversely affecting daily operations or our financial condition. Funding liquidity risk can arise from funding mismatches, market constraints from the inability to convert assets into cash, the inability to hold or raise cash, low overnight deposits, deposit run-off or contingent liquidity events.
Changes in economic conditions or exposure to credit, market, operational, legal and reputational risks also can affect BNY Mellon’s liquidity risk profile and are considered in our liquidity risk framework. For additional information, see “Risk Management – Liquidity Risk” in our 2021 Annual Report.
The Parent’s policy is to have access to sufficient unencumbered cash and cash equivalents at each quarter-end to cover maturities and other forecasted debt redemptions, net interest payments and net tax payments for the following 18-month period, and to provide sufficient collateral to satisfy transactions subject to Section 23A of the Federal Reserve Act. As of Sept. 30, 2022, the Parent was in compliance with this policy.
We monitor and control liquidity exposures and funding needs within and across significant legal entities, branches, currencies and business lines, taking into account, among other factors, any applicable restrictions on the transfer of liquidity among entities.
BNY Mellon also manages potential intraday liquidity risks. We monitor and manage intraday liquidity against existing and expected intraday liquid resources (such as cash balances, remaining intraday credit capacity, intraday contingency funding and available collateral) to enable BNY Mellon to meet its intraday obligations under normal and reasonably severe stressed conditions.
BNY Mellon 33
We define available funds for internal liquidity management purposes as cash and due from banks, interest-bearing deposits with the Federal Reserve
and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements.
The following table presents our total available funds at period end and on an average basis.
| Available funds | Sept. 30, 2022 | Dec. 31, 2021 | Average | ||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||||||||
| Cash and due from banks | $ | 4,707 | $ | 6,061 | $ | 5,089 | $ | 5,640 | $ | 5,990 | $ | 5,585 | $ | 5,884 | |||||||||
| Interest-bearing deposits with the Federal Reserve and other central banks | 107,427 | 102,467 | 91,836 | 102,844 | 108,110 | 98,310 | 116,136 | ||||||||||||||||
| Interest-bearing deposits with banks | 13,890 | 16,630 | 16,298 | 18,097 | 20,465 | 17,189 | 21,411 | ||||||||||||||||
| Federal funds sold and securities purchased under resale agreements | 23,483 | 29,607 | 22,971 | 24,212 | 29,304 | 24,715 | 28,783 | ||||||||||||||||
| Total available funds | $ | 149,507 | $ | 154,765 | $ | 136,194 | $ | 150,793 | $ | 163,869 | $ | 145,799 | $ | 172,214 | |||||||||
| Total available funds as a percentage of total assets | 35 | % | 35 | % | 33 | % | 34 | % | 37 | % | 34 | % | 38 | % | |||||||||
Total available funds were $149.5 billion at Sept. 30, 2022, compared with $154.8 billion at Dec. 31, 2021. The decrease was primarily due to lower federal funds sold and securities purchased under resale agreements and interest-bearing deposits with banks, partially offset by higher interest-bearing deposits with the Federal Reserve and other central banks.
Average non-core sources of funds, such as federal funds purchased and securities sold under repurchase agreements, trading liabilities, other borrowed funds and commercial paper were $16.4 billion for the first nine months of 2022 and $16.9 billion for the first nine months of 2021. The decrease primarily reflects lower federal funds purchased and securities sold under repurchase agreements, partially offset by higher trading liabilities and other borrowed funds.
Average interest-bearing foreign deposits, primarily from our European-based businesses included in the Securities Services and Market and Wealth Services segments, were $103.0 billion for the first nine months of 2022, compared with $112.9 billion for the first nine months of 2021. Average interest-bearing domestic deposits were $112.3 billion for the first nine months of 2022 and $126.4 billion for the first nine months of 2021. The decreases primarily reflect client activity.
Average payables to customers and broker-dealers were $17.1 billion for the first nine months of 2022 and $17.0 billion for the first nine months of 2021.
Payables to customers and broker-dealers are driven by customer trading activity and market volatility.
Average long-term debt was $26.8 billion for the first nine months of 2022 and $25.7 billion for the first nine months of 2021.
Average noninterest-bearing deposits increased to $89.0 billion for the first nine months of 2022 from $84.9 billion for the first nine months of 2021, primarily reflecting client activity.
A significant reduction of client activity in our Securities Services and Market and Wealth Services business segments would reduce our access to deposits. See “Asset/liability management” for additional factors that could impact our deposit balances.
Sources of liquidity
The Parent’s major sources of liquidity are access to the debt and equity markets, dividends from its subsidiaries, and cash on hand and cash otherwise made available in business-as-usual circumstances to the Parent through a committed credit facility with our intermediate holding company (“IHC”).
Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which are as follows:
34 BNY Mellon
Credit ratings at Sept. 30, 2022 | |||||||||||||||||||||||
| Moody’s | S&P | Fitch | DBRS | ||||||||||||||||||||
| Parent: | |||||||||||||||||||||||
| Long-term senior debt | A1 | A | AA- | AA | |||||||||||||||||||
| Subordinated debt | A2 | A- | A | AA (low) | |||||||||||||||||||
| Preferred stock | Baa1 | BBB | BBB+ | A | |||||||||||||||||||
| Outlook – Parent | Stable | Stable | Stable | Stable | |||||||||||||||||||
| The Bank of New York Mellon: | |||||||||||||||||||||||
| Long-term senior debt | Aa2 | AA- | AA | AA (high) | |||||||||||||||||||
| Subordinated debt | NR | A | NR | NR | |||||||||||||||||||
| Long-term deposits | Aa1 | AA- | AA+ | AA (high) | |||||||||||||||||||
| Short-term deposits | P1 | A-1+ | F1+ | R-1 (high) | |||||||||||||||||||
| Commercial paper | P1 | A-1+ | F1+ | R-1 (high) | |||||||||||||||||||
| BNY Mellon, N.A.: | |||||||||||||||||||||||
| Long-term senior debt | Aa2 | (a) | AA- | AA | (a) | AA (high) | |||||||||||||||||
| Long-term deposits | Aa1 | AA- | AA+ | AA (high) | |||||||||||||||||||
| Short-term deposits | P1 | A-1+ | F1+ | R-1 (high) | |||||||||||||||||||
| Outlook – Banks | Stable | Stable | Stable | Stable | |||||||||||||||||||
(a) Represents senior debt issuer default rating.
NR – Not rated.
Long-term debt totaled $27.8 billion at Sept. 30, 2022 and $25.9 billion at Dec. 31, 2021. Issuances of $6.7 billion were partially offset by redemptions and maturities of $3.3 billion and a decrease in the fair value of hedged long-term debt. No long-term debt will mature in the fourth quarter of 2022.
In October 2022, the Parent issued $1.0 billion of fixed to floating rate senior notes maturing in 2028. The annual fixed interest rate is 5.802% from issuance to, but excluding, Oct. 25, 2027, and then an annual interest rate of the compounded secured overnight financing rate (“SOFR”) plus 180.2 basis points. The Parent also issued $1.5 billion of fixed to floating rate senior notes maturing in 2033. The annual fixed interest rate is 5.834% from issuance to, but excluding, Oct. 25, 2032, and then an annual interest rate of the compounded SOFR plus 207.4 basis points.
In October 2022, the Parent redeemed all of the issued and outstanding floating rate senior notes due Oct. 30, 2023 at par plus any accrued and unpaid interest. The notes have an aggregate principal amount of $750 million.
The Bank of New York Mellon may issue notes and certificates of deposit (“CDs”). At Sept. 30, 2022 and Dec. 31, 2021, $30 million of notes were outstanding. At Sept. 30, 2022, $20 million of CDs were outstanding. There were no CDs outstanding at Dec. 31, 2021.
The Bank of New York Mellon also issues commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. There was no commercial paper outstanding at Sept. 30, 2022 and Dec. 31, 2021. The average commercial paper outstanding was $5 million for the first nine months of 2022 and $4 million for the first nine months of 2021.
Subsequent to Sept. 30, 2022, our U.S. bank subsidiaries could declare dividends to the Parent of approximately $3.0 billion, without the need for a regulatory waiver. In addition, at Sept. 30, 2022, non-bank subsidiaries of the Parent had liquid assets of approximately $4.8 billion. Restrictions on our ability to obtain funds from our subsidiaries are discussed in more detail in “Supervision and Regulation – Capital Planning and Stress Testing – Payment of Dividends, Stock Repurchases and Other Capital Distributions” and in Note 19 of the Notes to Consolidated Financial Statements, both in our 2021 Annual Report.
Pershing LLC has uncommitted lines of credit in place for liquidity purposes that are guaranteed by the Parent. Pershing LLC has two separate uncommitted lines of credit amounting to $350 million in aggregate. There were no average borrowings under these lines in the third quarter of 2022. Pershing Limited, an indirect UK-based subsidiary of BNY Mellon, has two separate uncommitted lines of credit
BNY Mellon 35
amounting to $254 million in aggregate. Average borrowings under these lines were less than $1 million in the third quarter of 2022.
The double leverage ratio is the ratio of our equity investment in subsidiaries divided by our consolidated Parent company equity, which includes our noncumulative perpetual preferred stock. In short, the double leverage ratio measures the extent to which equity in subsidiaries is financed by Parent company debt. As the double leverage ratio increases, this can reflect greater demands on a company’s cash flows in order to service interest payments and debt maturities. BNY Mellon’s double leverage ratio is managed in a range considering the high level of unencumbered available liquid assets held in its principal subsidiaries (such as central bank deposit placements and government securities), the Company’s cash generating fee-based business model, with fee revenue representing 76% of total revenue in the third quarter of 2022, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 119.6% at Sept. 30, 2022 and 119.3% at Dec. 31, 2021, and within the range targeted by management.
Uses of funds
The Parent’s major uses of funds are repurchases of common stock, payment of dividends, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries.
In August 2022, a quarterly dividend of $0.37 per common share was paid to common shareholders. Our common stock dividend payout ratio was 95% for the third quarter of 2022.
In the third quarter of 2022, we repurchased 36 thousand common shares at an average price of $48.07 per common share, for a total cost of $1 million.
Liquidity coverage ratio (“LCR”)
U.S. regulators have established an LCR that requires certain banking organizations, including BNY Mellon, to maintain a minimum amount of unencumbered high-quality liquid assets (“HQLA”) sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day time horizon.
The following table presents BNY Mellon’s consolidated HQLA at Sept. 30, 2022, and the average HQLA and average LCR for the third quarter of 2022.
| Consolidated HQLA and LCR | Sept. 30, 2022 | ||||
| (dollars in billions) | |||||
Cash (a) | $ | 107 | |||
Securities (b) | 104 | ||||
Total consolidated HQLA (c) | $ | 211 | |||
Total consolidated HQLA – average (c) | $ | 198 | |||
| Average LCR | 116 | % | |||
(a) Primarily includes cash on deposit with central banks.
(b) Primarily includes securities of U.S. government-sponsored enterprises, U.S. Treasury, sovereign securities, U.S. agency and investment-grade corporate debt.
(c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $148 billion at Sept. 30, 2022 and averaged $136 billion for the third quarter of 2022.
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 2022.
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 $12.1 billion in the nine months ended Sept. 30, 2022, compared with net cash used for operating activities of $291 million in the nine months ended Sept. 30, 2021. In the nine months ended Sept. 30, 2022, cash flows provided by operations primarily resulted from changes in trading assets and liabilities and earnings. In the nine months ended Sept. 30, 2021, cash flows used for operations primarily resulted from changes in trading assets and liabilities, partially offset by earnings.
Net cash used for investing activities was $5.3 billion in the nine months ended Sept. 30, 2022, compared
36 BNY Mellon
with net cash used for investing activities of $259 million in the nine months ended Sept. 30, 2021. In the nine months ended Sept. 30, 2022, net cash used for investing activities primarily resulted from changes in interest-bearing deposits with the Federal Reserve and other central banks, partially offset by changes in federal funds sold and securities purchased under resale agreements. In the nine months ended Sept. 30, 2021, net cash used for investing activities primarily resulted from the net change in loans and securities, partially offset by changes in interest-bearing deposits with the Federal Reserve and other central banks.
Net cash used for financing activities was $7.5 billion in the nine months ended Sept. 30, 2022, compared
with net cash provided by financing activities of $2.2 billion in the nine months ended Sept. 30, 2021. In the nine months ended Sept. 30, 2022, net cash used for financing activities primarily resulted from changes in deposits, repayments of long-term debt and changes in payables to customers and broker-dealers, partially offset by proceeds from the issuance of long-term debt. In the nine months ended Sept. 30, 2021, net cash provided by financing activities primarily resulted from changes in deposits, issuances of long-term debt and changes in payables to customers and broker-dealers, partially offset by repayments of long-term debt and common stock repurchases.
Capital
| Capital data | Sept. 30, 2022 | June 30, 2022 | Dec. 31, 2021 | ||||||||
| (dollars in millions, except per share amounts; common shares in thousands) | |||||||||||
| BNY Mellon shareholders’ equity to total assets ratio | 9.3 | % | 9.1 | % | 9.7 | % | |||||
| BNY Mellon common shareholders’ equity to total assets ratio | 8.2 | % | 8.0 | % | 8.6 | % | |||||
| Total BNY Mellon shareholders’ equity | $ | 39,737 | $ | 40,984 | $ | 43,034 | |||||
| Total BNY Mellon common shareholders’ equity | $ | 34,899 | $ | 36,146 | $ | 38,196 | |||||
BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 17,420 | $ | 17,796 | $ | 19,547 | |||||
| Book value per common share | $ | 43.18 | $ | 44.73 | $ | 47.50 | |||||
Tangible book value per common share – Non-GAAP (a) | $ | 21.55 | $ | 22.02 | $ | 24.31 | |||||
| Closing stock price per common share | $ | 38.52 | $ | 41.71 | $ | 58.08 | |||||
| Market capitalization | $ | 31,135 | $ | 33,706 | $ | 46,705 | |||||
| Common shares outstanding | 808,280 | 808,103 | 804,145 | ||||||||
| Cash dividends per common share | $ | 0.37 | $ | 0.34 | $ | 0.34 | |||||
| Common dividend payout ratio | 95 | % | 33 | % | 34 | % | |||||
Common dividend yield (annualized) | 3.8 | % | 3.3 | % | 2.3 | % | |||||
(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 decreased to $40 billion at Sept. 30, 2022 from $43 billion at Dec. 31, 2021. The decrease primarily reflects unrealized losses on securities available-for-sale, foreign currency translation and dividend payments, partially offset by earnings.
The unrealized loss (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated other comprehensive income was $2.8 billion at Sept. 30, 2022, compared with an unrealized gain (after-tax), net of hedges, of $362 million at Dec. 31, 2021. The increase in the unrealized loss, net of
tax, was primarily driven by higher market interest rates.
In the first nine months of 2022, we repurchased 2.0 million common shares at an average price of $61.38 per common share for a total of $122 million.
In June 2021, our Board of Directors authorized the repurchase of up to $6.0 billion of common shares over the six quarters beginning in the third quarter of 2021 and continuing through the fourth quarter of 2022. This share repurchase plan replaced all previously authorized share repurchase plans.
BNY Mellon 37
In July, our Board of Directors approved a 9% increase in the quarterly cash dividend on common stock, from $0.34 to $0.37 per share. The increased quarterly cash dividend was paid on Aug. 5, 2022.
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, our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.” As of Sept. 30, 2022 and Dec. 31, 2021, 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 – Capital and Liquidity 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 2021 Annual Report.
The U.S. banking agencies’ capital rules are based on the framework adopted by the Basel Committee on Banking Supervision, as amended from time to time. For additional information on these capital requirements, see “Supervision and Regulation” in our 2021 Annual Report.
The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.
Consolidated and largest bank subsidiary regulatory capital ratios | Sept. 30, 2022 | June 30, 2022 | Dec. 31, 2021 | ||||||||||||||||||||||||||
| 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 | % | 10.1 | % | 10.0 | % | 11.4 | % | |||||||||||||||||||
| Tier 1 capital ratio | 6 | % | 10 | 13.0 | 12.8 | 14.2 | |||||||||||||||||||||||
| Total capital ratio | 10 | 12 | 13.7 | 13.6 | 15.0 | ||||||||||||||||||||||||
| Standardized Approach: | |||||||||||||||||||||||||||||
| CET1 ratio | N/A | (c) | 8.5 | % | 10.0 | % | 10.1 | % | 11.2 | % | |||||||||||||||||||
| Tier 1 capital ratio | 6 | % | 10 | 12.8 | 12.9 | 14.0 | |||||||||||||||||||||||
| Total capital ratio | 10 | 12 | 13.7 | 13.8 | 14.9 | ||||||||||||||||||||||||
| Tier 1 leverage ratio | N/A | (c) | 4 | 5.4 | 5.2 | 5.5 | |||||||||||||||||||||||
SLR (d) | N/A | (c) | 5 | 6.3 | 6.2 | 6.6 | |||||||||||||||||||||||
The Bank of New York Mellon regulatory capital ratios: (b) | |||||||||||||||||||||||||||||
| Advanced Approaches: | |||||||||||||||||||||||||||||
| CET1 ratio | 6.5 | % | 7 | % | 14.6 | % | 14.4 | % | 16.5 | % | |||||||||||||||||||
| Tier 1 capital ratio | 8 | 8.5 | 14.6 | 14.4 | 16.5 | ||||||||||||||||||||||||
| Total capital ratio | 10 | 10.5 | 14.6 | 14.5 | 16.5 | ||||||||||||||||||||||||
| Tier 1 leverage ratio | 5 | 4 | 6.0 | 5.8 | 6.0 | ||||||||||||||||||||||||
SLR (d) | 6 | 3 | 7.4 | 7.2 | 7.6 | ||||||||||||||||||||||||
(a) Minimum requirements for Sept. 30, 2022 include minimum thresholds plus currently applicable buffers. The U.S. global systemically important banks (“G-SIB”) surcharge is 1.5%. The countercyclical capital buffer is currently set to 0%. The stress capital buffer (“SCB”) requirement is 2.5%, equal to the regulatory minimum 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.
38 BNY Mellon
Our CET1 ratio under the Standardized Approach was 10.0% at Sept. 30, 2022 and 11.2% at Dec. 31, 2021. The decrease was primarily driven by unrealized losses on securities available-for-sale, foreign currency translation and capital deployed through dividends, partially offset by capital generated through earnings.
In the first quarter of 2022, we implemented the Standardized Approach for Counterparty Credit Risk (“SA-CCR”), which replaced the current exposure method used to measure derivative counterparty exposure.
The Tier 1 leverage ratio was 5.4% at Sept. 30, 2022, compared with 5.5% at Dec. 31, 2021. The decrease reflects the decrease in capital, partially offset by the benefit of lower average assets.
Risk-based capital ratios vary depending on the size of the balance sheet at period-end and the levels and types of investments in assets, and leverage ratios vary based on the average size of the balance sheet over the quarter. 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.
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.
Under the Advanced Approaches, our operational loss risk model is informed by external losses, including fines and penalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a result, external losses have impacted and could in the future impact the amount of capital that we are required to hold.
The following table presents our capital components and RWAs.
(a) Reduced by deferred tax liabilities associated with intangible assets and tax-deductible goodwill.
BNY Mellon 39
The table below presents the factors that impacted CET1 capital.
| CET1 generation | 3Q22 | ||||
| (in millions) | |||||
| CET1 – Beginning of period | $ | 17,067 | |||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 319 | ||||
| Goodwill and intangible assets, net of related deferred tax liabilities | 871 | ||||
| Gross CET1 generated | 1,190 | ||||
| Capital deployed: | |||||
Common stock dividends (a) | (303) | ||||
| Common stock repurchases | (1) | ||||
| Total capital deployed | (304) | ||||
| Other comprehensive loss: | |||||
| Unrealized loss on assets available-for-sale | (909) | ||||
| Foreign currency translation | (423) | ||||
| Unrealized loss on cash flow hedges | (1) | ||||
| Defined benefit plans | 13 | ||||
| Total other comprehensive loss | (1,320) | ||||
Additional paid-in capital (b) | 58 | ||||
| Other additions: | |||||
| Net pension fund assets | 20 | ||||
| Embedded goodwill | 15 | ||||
| Deferred tax assets | 3 | ||||
| Other | (3) | ||||
| Total other additions | 35 | ||||
| Net CET1 deployed | (341) | ||||
| CET1 – End of period | $ | 16,726 | |||
(a) Includes dividend-equivalents on share-based awards.
(b) Primarily related to stock awards and stock issued for employee benefit plans.
The following table shows the impact on the consolidated capital ratios at Sept. 30, 2022 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.
Stress capital buffer
In August 2022, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory floor, effective as of Oct. 1, 2022. The SCB replaced the static 2.5% capital conservation buffer for Standardized Approach capital ratios for CCAR BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the static 2.5% capital conservation buffer.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements and buffers, including the SCB.
Total Loss-Absorbing Capacity (“TLAC”)
The following summarizes the minimum requirements for BNY Mellon’s external TLAC and external long-term debt (“LTD”) ratios, plus currently applicable buffers.
As a % of RWAs (a) | As a % of total leverage exposure | |||||||
| Eligible external TLAC ratios | Regulatory minimum of 18% plus a buffer (b) equal to the sum of 2.5%, the method 1 G-SIB surcharge (currently 1%), and the countercyclical capital buffer, if any | Regulatory minimum of 7.5% plus a buffer (c) equal to 2% | ||||||
| Eligible external LTD ratios | Regulatory minimum of 6% plus the greater of the method 1 or method 2 G-SIB surcharge (currently 1.5%) | 4.5% | ||||||
(a) RWA is the greater of Standardized and Advanced Approaches.
(b) Buffer to be met using only CET1.
(c) Buffer to be met using only Tier 1 capital.
External TLAC consists of the Parent’s Tier 1 capital and eligible unsecured LTD issued by it that has a remaining term to maturity of at least one year and satisfies certain other conditions. Eligible LTD consists of the unpaid principal balance of eligible unsecured debt securities, subject to haircuts for amounts due to be paid within two years, that satisfy certain other conditions. Debt issued prior to Dec. 31, 2016 has been permanently grandfathered to the extent these instruments otherwise would be
40 BNY Mellon
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, 2022 | ||||||||||
| Minimum required | Minimum ratios with buffers | ||||||||||
| Ratios | |||||||||||
| Eligible external TLAC: | |||||||||||
As a percentage of RWA | 18.0 | % | 21.5 | % | 27.6 | % | |||||
As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 13.6 | % | |||||
| Eligible external LTD: | |||||||||||
| As a percentage of RWA | 7.5 | % | N/A | 13.5 | % | ||||||
As a percentage of total leverage exposure | 4.5 | % | N/A | 6.6 | % | ||||||
N/A – Not applicable.
If BNY Mellon maintains risk-based ratio or leverage TLAC measures above the minimum required level, but with a risk-based ratio or leverage below the minimum level with buffers, we will face constraints on dividends, equity repurchases and discretionary executive compensation based on the amount of the 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 into account potential variability of market liquidity; and
•Previous moves in market risk factors may not produce accurate predictions of all future market moves.
See Note 17 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) | 3Q22 | Sept. 30, 2022 | ||||||||||||
| (in millions) | Average | Minimum | Maximum | |||||||||||
| Interest rate | $ | 4.1 | $ | 2.6 | $ | 7.5 | $ | 3.3 | ||||||
| Foreign exchange | 3.9 | 2.7 | 7.1 | 4.7 | ||||||||||
| Equity | 0.2 | 0.1 | 0.5 | 0.2 | ||||||||||
| Credit | 1.9 | 1.0 | 4.4 | 3.9 | ||||||||||
| Diversification | (5.6) | N/M | N/M | (7.1) | ||||||||||
| Overall portfolio | 4.5 | 2.5 | 7.7 | 5.0 | ||||||||||
VaR (a) | 2Q22 | June 30, 2022 | ||||||||||||
| (in millions) | Average | Minimum | Maximum | |||||||||||
| Interest rate | $ | 5.8 | $ | 4.0 | $ | 9.3 | $ | 6.5 | ||||||
| Foreign exchange | 3.7 | 2.7 | 10.2 | 3.3 | ||||||||||
| Equity | 0.4 | 0.2 | 0.9 | 0.3 | ||||||||||
| Credit | 1.7 | 1.0 | 3.8 | 1.8 | ||||||||||
| Diversification | (4.7) | N/M | N/M | (4.7) | ||||||||||
| Overall portfolio | 6.9 | 4.7 | 11.4 | 7.2 | ||||||||||
VaR (a) | 3Q21 | Sept. 30, 2021 | ||||||||||||
| (in millions) | Average | Minimum | Maximum | |||||||||||
| Interest rate | $ | 2.1 | $ | 1.5 | $ | 3.1 | $ | 1.6 | ||||||
| Foreign exchange | 2.3 | 1.9 | 4.0 | 2.8 | ||||||||||
| Equity | 0.1 | — | 0.2 | 0.1 | ||||||||||
| Credit | 1.5 | 1.1 | 2.2 | 1.8 | ||||||||||
| Diversification | (2.6) | N/M | N/M | (2.9) | ||||||||||
| Overall portfolio | 3.4 | 2.4 | 5.2 | 3.4 | ||||||||||
BNY Mellon 41
VaR (a) | YTD22 | ||||||||||
| (in millions) | Average | Minimum | Maximum | ||||||||
| Interest rate | $ | 4.4 | $ | 1.6 | $ | 9.3 | |||||
| Foreign exchange | 3.6 | 2.2 | 10.2 | ||||||||
| Equity | 0.3 | — | 0.9 | ||||||||
| Credit | 1.9 | 1.0 | 4.4 | ||||||||
| Diversification | (4.8) | N/M | N/M | ||||||||
| Overall portfolio | 5.4 | 2.5 | 11.4 | ||||||||
VaR (a) | YTD21 | ||||||||||
| (in millions) | Average | Minimum | Maximum | ||||||||
| Interest rate | $ | 2.1 | $ | 1.5 | $ | 3.1 | |||||
| Foreign exchange | 2.6 | 1.9 | 4.0 | ||||||||
| Equity | 0.1 | — | 0.9 | ||||||||
| Credit | 1.7 | 1.1 | 2.8 | ||||||||
| Diversification | (3.3) | N/M | N/M | ||||||||
| Overall portfolio | 3.2 | 2.4 | 5.2 | ||||||||
(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 driven by interest rate levels. These instruments include, but are not limited to, U.S. Treasury securities, swaps, swaptions, forward rate agreements, exchange-traded futures and options, and other interest rate derivative products.
The foreign exchange component of VaR represents instruments whose values predominantly vary with the level or volatility of currency exchange rates or interest rates. These instruments include, but are not limited to, currency balances, spot and forward transactions, currency 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 driven by credit spread levels, i.e., idiosyncratic default risk. These instruments include, but are not limited to, single
issuer credit default swaps, securities with exposures from corporate and municipal credit spreads.
The diversification component of VaR is the risk reduction benefit that occurs when combining portfolios and offsetting positions, and from the correlated behavior of risk factor movements.
During the third quarter of 2022, interest rate risk generated 40% of average gross VaR, foreign exchange risk generated 39% of average gross VaR, equity risk generated 2% of average gross VaR and credit risk generated 19% of average gross VaR. During the third quarter of 2022, 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.
(a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue.
Trading assets include debt and equity instruments and derivative assets, primarily foreign exchange and interest rate contracts, not designated as hedging instruments. Trading assets were $12.7 billion at Sept. 30, 2022 and $16.6 billion at Dec. 31, 2021.
Trading liabilities include debt and equity instruments and derivative liabilities, primarily foreign exchange and interest rate contracts, not designated as hedging instruments. Trading liabilities were $7.5 billion at Sept. 30, 2022 and $5.5 billion at Dec. 31, 2021.
Under our fair value methodology for derivative contracts, an initial “risk-neutral” valuation is performed on each position assuming time-discounting based on a AA credit curve. In addition,
42 BNY Mellon
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, 2022, our OTC derivative assets, including those in hedging relationships, of $5.0 billion included a credit valuation adjustment (“CVA”) deduction of $20 million. Our OTC derivative liabilities, including those in hedging relationships, of $4.0 billion included a debit valuation adjustment (“DVA”) of $7 million related to our own credit spread. Net of hedges, the CVA decreased by $2 million and the DVA increased by $1 million in the third quarter of 2022, which increased investment and other revenue - other trading revenue by $3 million. The net impact increased investment and other revenue - other trading revenue by $2 million in the second quarter of 2022 and decreased investment and other revenue - other trading revenue by less than $1 million in the third quarter of 2021.
The table below summarizes the distribution of credit ratings for our foreign exchange and interest rate derivative counterparties over the past five quarters, which indicates the level of counterparty credit associated with these trading activities. Beginning in the third quarter of 2022, equity derivative counterparties are also included. Significant changes in counterparty credit ratings could alter the level of credit risk faced by BNY Mellon.
(a) Represents credit rating agency equivalent of internal credit ratings.
(b) Non-investment grade.
Asset/liability management
Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities 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 between a baseline scenario and hypothetical interest rate scenarios. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period.
The baseline scenario incorporates the market’s forward rate expectations and management’s assumptions regarding client deposit rates, credit spreads, changes in the prepayment behavior of loans and securities and the impact of derivative financial instruments used for interest rate risk management purposes as of Sept. 30, 2022. 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. Client deposit levels and mix are key assumptions impacting net interest revenue in the baseline as well as the hypothetical interest rate scenarios. The earnings simulation model assumes static deposit levels and mix and it also assumes that no management actions will be taken to mitigate the effects of interest rate changes. Typically, the baseline scenario uses the average deposit balances of the quarter.
In the table below, we use the earnings simulation model to assess the impact of various hypothetical interest rate scenarios compared to the baseline scenario. In each of the scenarios, all currencies’ interest rates are instantaneously shifted higher or lower. The scenarios assume instantaneous rate changes at the start of the forecast. Long-term interest rates are defined as all tenors equal to or
BNY Mellon 43
greater than three years and short-term interest rates are defined as all tenors equal to or less than three months. Interim term points are interpolated where applicable. The scenarios are intended to provide information on a basis that is consistent with industry practice.
The following table shows net interest revenue sensitivity for BNY Mellon.
Estimated changes in net interest revenue (in millions) | Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | ||||||||
Up 100 bps rate shock vs. baseline | $ | 267 | $ | 161 | $ | 840 | |||||
Long-term up 100 bps, short-term unchanged | (17) | 42 | 239 | ||||||||
Short-term up 100 bps, long-term unchanged | 283 | 119 | 601 | ||||||||
Long-term down 50 bps, short-term unchanged | 7 | (18) | (117) | ||||||||
Down 100 bps rate shock vs. baseline | (394) | (370) | 794 | ||||||||
The increase in nearly all of the rate sensitivities compared with June 30, 2022 was primarily due to the rates paid on interest-bearing deposits being slightly less sensitive to changes in interest rates than previously modeled. The investment portfolio is also slightly more sensitive to changes in interest rates compared with June 30, 2022.
While the net interest revenue sensitivity scenario calculations assume static deposit balances to facilitate consistent period-over-period comparisons, it is likely that a portion of deposits would run off in a rising short-term rate environment. Noninterest-bearing deposits are particularly sensitive to changes in short-term rates.
To illustrate the net interest revenue sensitivity to deposit run-off, we estimate that a $5 billion instantaneous reduction of U.S. dollar denominated noninterest-bearing deposits would reduce the net interest revenue sensitivity results in the up 100 basis point scenario compared with the baseline in the table above by approximately $270 million. The impact would be smaller if the run-off 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” in our 2021 Annual Report.
44 BNY Mellon
Supplemental information – Explanation of GAAP and Non-GAAP financial measures
BNY Mellon has included in this Form 10-Q certain Non-GAAP financial measures on a tangible basis as a supplement to GAAP information, which exclude goodwill and intangible assets, net of deferred tax liabilities. We believe that the return on tangible common equity – Non-GAAP 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 – Non-GAAP is additional useful information because it presents the level of tangible assets in relation to shares of common stock outstanding.
BNY Mellon has presented revenue measures excluding notable items, including disposal gains. Expense measures, excluding notable items, including goodwill impairment, severance expense and litigation reserves, are also presented. Litigation reserves represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. Income before taxes, net income applicable to common shareholders of The Bank of New York Mellon Corporation, diluted earnings per share, return on common equity, return on tangible common equity, pre-tax operating margin and the effective tax rate, excluding the notable items mentioned above, are also provided. These measures have been provided to permit investors to view the financial measures on a basis consistent with how management views the businesses.
BNY Mellon has presented income before tax, excluding notable items for the Securities Services business segment. This measure is provided to permit investors to view the financial measures on a basis consistent with how management views the businesses.
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. We 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 segment, net of distribution and servicing expense that was passed to third parties who distribute or service our managed funds. We believe that this measure is useful when evaluating the performance of the Investment and Wealth Management business segment relative to industry competitors.
| Reconciliation of Non-GAAP measures, excluding notable items | 3Q22 vs. | YTD22 vs. | ||||||||||||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | ||||||||||||||||||||||||
| Total noninterest expense – GAAP | $ | 3,679 | $ | 3,112 | $ | 2,918 | 18 | % | 26 | % | $ | 9,797 | $ | 8,547 | 15 | % | ||||||||||||||||
Impact of notable items (a) | 714 | 103 | 73 | 817 | 92 | |||||||||||||||||||||||||||
| Adjusted total noninterest expense – Non-GAAP | $ | 2,965 | $ | 3,009 | $ | 2,845 | (1) | % | 4 | % | $ | 8,980 | $ | 8,455 | 6 | % | ||||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 319 | $ | 835 | $ | 881 | (62) | % | (64) | % | ||||||||||||||||||||||
Impact of notable items (a) | (664) | (100) | (45) | |||||||||||||||||||||||||||||
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation – Non-GAAP | $ | 983 | $ | 935 | $ | 926 | 5 | % | 6 | % | ||||||||||||||||||||||
| Diluted earnings per share – GAAP | $ | 0.39 | $ | 1.03 | $ | 1.04 | (62) | % | (63) | % | ||||||||||||||||||||||
Impact of notable items (a) | (0.81) | (0.12) | (0.05) | |||||||||||||||||||||||||||||
| Adjusted diluted earnings per share – Non-GAAP | $ | 1.21 | (b) | $ | 1.15 | $ | 1.09 | 5 | % | 11 | % | |||||||||||||||||||||
(a) Notable items in the third quarter of 2022 include goodwill impairment, a disposal gain, severance expense and litigation reserves. Notable items in the second quarter of 2022 include litigation reserves. Notable items in the third quarter of 2021 include litigation reserves, gains on disposals and severance expense.
(b) Does not foot due to rounding.
BNY Mellon 45
The following table presents the reconciliation of the effective tax rate.
| Effective tax rate reconciliation | |||||
| (dollars in millions) | 3Q22 | ||||
| Provision for income taxes – GAAP | $ | 242 | |||
Impact of notable items (a) | (13) | ||||
| Adjusted provision for income taxes, excluding notable items – Non-GAAP | $ | 255 | |||
| Income before taxes – GAAP | $ | 630 | |||
Impact of notable items (a) | (677) | ||||
| Adjusted income before taxes, excluding notable items – Non-GAAP | $ | 1,307 | |||
| Effective tax rate – GAAP | 38.4 | % | |||
| Adjusted effective tax rate – Non-GAAP | 19.5 | % | |||
(a) Notable items in the third quarter of 2022 include goodwill impairment, a disposal gain, severance expense and litigation reserves.
The following tables present the reconciliation of the return on common equity and tangible common equity.
| Return on common equity and tangible common equity reconciliation | 3Q22 | YTD22 | ||||||
| (dollars in millions) | ||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 319 | $ | 1,853 | ||||
| Add: Amortization of intangible assets | 17 | 51 | ||||||
| Less: Tax impact of amortization of intangible assets | 4 | 12 | ||||||
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 332 | $ | 1,892 | ||||
Impact of notable items (a) | (664) | (763) | ||||||
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets and notable items – Non-GAAP | 996 | 2,655 | ||||||
| Average common shareholders’ equity | $ | 35,942 | $ | 36,483 | ||||
| Less: Average goodwill | 17,189 | 17,341 | ||||||
| Average intangible assets | 2,922 | 2,950 | ||||||
| Add: Deferred tax liability – tax deductible goodwill | 1,175 | 1,175 | ||||||
| Deferred tax liability – intangible assets | 660 | 660 | ||||||
| Average tangible common shareholders’ equity – Non-GAAP | $ | 17,666 | $ | 18,027 | ||||
Return on common equity (annualized) – GAAP | 3.5 | % | 6.8 | % | ||||
Adjusted return on common equity (annualized) – Non-GAAP | 10.9 | % | 9.6 | % | ||||
Return on tangible common equity (annualized) – Non-GAAP | 7.5 | % | 14.0 | % | ||||
Adjusted return on tangible common equity (annualized) – Non-GAAP | 22.4 | % | 19.7 | % | ||||
(a) Notable items in the third quarter and first nine months of 2022 include goodwill impairment, a disposal gain, severance expense and litigation reserves.
46 BNY Mellon
| Return on common equity and tangible common equity reconciliation | 2Q22 | 3Q21 | YTD21 | ||||||||
| (dollars in millions) | |||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 835 | $ | 881 | $ | 2,730 | |||||
| Add: Amortization of intangible assets | 17 | 19 | 63 | ||||||||
| Less: Tax impact of amortization of intangible assets | 4 | 4 | 15 | ||||||||
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 848 | $ | 896 | $ | 2,778 | |||||
| Average common shareholders’ equity | $ | 36,199 | $ | 39,755 | $ | 40,286 | |||||
| Less: Average goodwill | 17,347 | 17,474 | 17,495 | ||||||||
| Average intangible assets | 2,949 | 2,953 | 2,976 | ||||||||
| Add: Deferred tax liability – tax deductible goodwill | 1,187 | 1,173 | 1,173 | ||||||||
| Deferred tax liability – intangible assets | 668 | 673 | 673 | ||||||||
| Average tangible common shareholders’ equity – Non-GAAP | $ | 17,758 | $ | 21,174 | $ | 21,661 | |||||
Return on common equity (annualized) – GAAP | 9.3 | % | 8.8 | % | 9.1 | % | |||||
Return on tangible common equity (annualized) – Non-GAAP | 19.2 | % | 16.8 | % | 17.1 | % | |||||
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, 2022 | June 30, 2022 | Dec. 31, 2021 | Sept. 30, 2021 | ||||||||||
| (dollars in millions, except per share amounts and unless otherwise noted) | ||||||||||||||
| BNY Mellon shareholders’ equity at period end – GAAP | $ | 39,737 | $ | 40,984 | $ | 43,034 | $ | 43,601 | ||||||
| Less: Preferred stock | 4,838 | 4,838 | 4,838 | 4,541 | ||||||||||
| BNY Mellon common shareholders’ equity at period end – GAAP | 34,899 | 36,146 | 38,196 | 39,060 | ||||||||||
| Less: Goodwill | 16,412 | 17,271 | 17,512 | 17,420 | ||||||||||
| Intangible assets | 2,902 | 2,934 | 2,991 | 2,941 | ||||||||||
| Add: Deferred tax liability – tax deductible goodwill | 1,175 | 1,187 | 1,178 | 1,173 | ||||||||||
| Deferred tax liability – intangible assets | 660 | 668 | 676 | 673 | ||||||||||
BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 17,420 | $ | 17,796 | $ | 19,547 | $ | 20,545 | ||||||
Period-end common shares outstanding (in thousands) | 808,280 | 808,103 | 804,145 | 825,821 | ||||||||||
| Book value per common share – GAAP | $ | 43.18 | $ | 44.73 | $ | 47.50 | $ | 47.30 | ||||||
| Tangible book value per common share – Non-GAAP | $ | 21.55 | $ | 22.02 | $ | 24.31 | $ | 24.88 | ||||||
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 | 3Q22 vs. | ||||||||||
| (dollars in millions) | 3Q22 | 3Q21 | 3Q21 | ||||||||
| Investment management and performance fees – GAAP | $ | 800 | $ | 913 | (12) | % | |||||
| Impact of changes in foreign currency exchange rates | — | (48) | |||||||||
| Adjusted investment management and performance fees – Non-GAAP | $ | 800 | $ | 865 | (8) | % | |||||
The following table presents the reconciliation of income before income taxes for the Securities Services business segment.
| Income before income taxes reconciliation – Securities Services business segment | 3Q22 vs. | ||||||||||
| (dollars in millions) | 3Q22 | 3Q21 | 3Q21 | ||||||||
| Income before income taxes – GAAP | $ | 523 | $ | 313 | 67 | % | |||||
Impact of notable items (a) | 19 | (70) | |||||||||
| Adjusted income before income taxes – Non-GAAP | $ | 504 | $ | 383 | 32 | % | |||||
(a) Notable items in the third quarter of 2022 include a disposal gain and severance expense. Notable items in the third quarter of 2021 include litigation reserves and severance expense.
BNY Mellon 47
The following table presents the impact of changes in foreign currency exchange rates on investment management and performance fees reported in the Investment and Wealth Management business segment.
Constant currency reconciliation – Investment and Wealth Management business segment | 3Q22 vs. | ||||||||||
| (dollars in millions) | 3Q22 | 3Q21 | 3Q21 | ||||||||
| Investment management and performance fees – GAAP | $ | 798 | $ | 914 | (13) | % | |||||
| Impact of changes in foreign currency exchange rates | — | (48) | |||||||||
| Adjusted investment management and performance fees – Non-GAAP | $ | 798 | $ | 866 | (8) | % | |||||
The following tables present the reconciliations of noninterest expense, income before income taxes and the pre-tax operating margin for the Investment and Wealth Management business segment.
Reconciliation of Non-GAAP measures – Investment and Wealth Management business segment | YTD22 | ||||||||||||||||||||||||||||
| 3Q22 vs. | vs. | ||||||||||||||||||||||||||||
| (dollars in millions) | 3Q22 | 2Q22 | 3Q21 | 2Q22 | 3Q21 | YTD22 | YTD21 | YTD21 | |||||||||||||||||||||
| Noninterest expense – GAAP | $ | 1,356 | $ | 691 | $ | 691 | 96 | % | 96 | % | $ | 2,802 | $ | 2,077 | 35 | % | |||||||||||||
Impact of notable items (a) | 679 | — | 1 | 679 | 3 | ||||||||||||||||||||||||
| Adjusted noninterest expense – Non-GAAP | $ | 677 | $ | 691 | $ | 690 | (2) | % | (2) | % | $ | 2,123 | $ | 2,074 | 2 | % | |||||||||||||
| (Loss) income before income taxes – GAAP | $ | (497) | $ | 208 | $ | 348 | (339) | % | (243) | % | $ | (77) | $ | 952 | (108) | % | |||||||||||||
Impact of notable items (a) | (679) | — | (1) | (679) | (4) | ||||||||||||||||||||||||
| Adjusted income before income taxes - Non-GAAP | $ | 182 | $ | 208 | $ | 349 | (13) | % | (48) | % | $ | 602 | $ | 956 | (37) | % | |||||||||||||
| Total revenue – GAAP | $ | 862 | $ | 2,725 | |||||||||||||||||||||||||
Less: Distribution and servicing expense | 88 | 258 | |||||||||||||||||||||||||||
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 774 | $ | 2,467 | |||||||||||||||||||||||||
Pre-tax operating margin – GAAP (b) | (57) | % | (3) | % | |||||||||||||||||||||||||
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (b) | (64) | % | (3) | % | |||||||||||||||||||||||||
Adjusted pre-tax operating margin, net of distribution and servicing expense and excluding notable items – Non-GAAP (b) | 24 | % | 24 | % | |||||||||||||||||||||||||
(a) Notable items in the third quarter of 2022 include goodwill impairment and severance expense. Notable items in the third quarter of 2021 include severance expense. Notable items in the first nine months of 2022 include goodwill impairment and severance expense. Notable items in the first nine months of 2021 include litigation reserves and severance expense.
(b) Income before income taxes divided by total revenue.
| Pre-tax operating margin reconciliation – Investment and Wealth Management business segment | |||||||||||||||||
| (dollars in millions) | 2Q22 | 1Q22 | 4Q21 | 3Q21 | YTD21 | ||||||||||||
| Income before income taxes – GAAP | $ | 208 | $ | 212 | $ | 278 | $ | 348 | $ | 952 | |||||||
| Total revenue – GAAP | $ | 899 | $ | 964 | $ | 1,020 | $ | 1,032 | $ | 3,022 | |||||||
| Less: Distribution and servicing expense | 91 | 79 | 75 | 76 | 225 | ||||||||||||
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 808 | $ | 885 | $ | 945 | $ | 956 | $ | 2,797 | |||||||
Pre-tax operating margin – GAAP (a) | 23 | % | 22 | % | 27 | % | 34 | % | 31 | % | |||||||
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 26 | % | 24 | % | 29 | % | 36 | % | 34 | % | |||||||
(a) Income before income taxes divided by total revenue.
48 BNY Mellon
Recent accounting and regulatory developments
Recent accounting developments
The following accounting guidance issued by the Financial Accounting Standards Board (“FASB”) has not yet been adopted as of September 30, 2022.
Accounting Standards Update (“ASU”) 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method
In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method, which provides guidance that expands the ability to hedge interest rate risk by permitting the use of multiple hedged layers of a single closed portfolio of assets and will (1) Allow multiple layer hedging within the same closed portfolio, (2) Expand the scope of the portfolio layer method to include non-prepayable assets, (3) Expand the eligible hedging instruments to be utilized in a single-layer hedge, and (4) Permit held-to-maturity debt securities to be transferred to available-for-sale at the date of adoption, provided such transferred securities are designated in a portfolio layer method hedge within 30 days of the adoption date.
The standard also provides further guidance and disclosure requirements with respect to hedge basis adjustments related to portfolio layer method hedges.
BNY Mellon is currently evaluating this guidance. This ASU is effective Jan. 1, 2023, with early adoption permitted.
ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which provides post-implementation guidance related to the adoption of ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which was effective Jan. 1, 2020. This ASU amends the guidance related to two issues: Troubled Debt Restructurings (“TDRs”) and disclosure requirements for the credit profile of the loan portfolio. This ASU
eliminates the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. An entity must apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or a continuation of an existing loan.
This ASU also requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost.
We are currently evaluating this guidance. The ASU is effective Jan. 1, 2023, with early adoption permitted.
Recent regulatory developments
For a summary of additional regulatory matters relevant to our operations, see “Recent regulatory developments” in our Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, and “Supervision and Regulation” in our 2021 Annual Report. The following discussion summarizes certain regulatory, legislative and other developments that may affect BNY Mellon.
Inflation Reduction Act
In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law. The IRA includes a number of changes to existing federal tax law including, among other things, an excise tax on stock repurchases and a new corporate alternative minimum tax. These provisions are effective for tax years beginning after Dec. 31, 2022. We are currently assessing the impact of the IRA and will continue to analyze as further guidance is issued.
Other matters
Replacement of Interbank Offered Rates (“IBORs”), including LIBOR
The UK Financial Conduct Authority (the “FCA”) and the administrator for LIBOR have announced that the publication of the most commonly used U.S. dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023. The
BNY Mellon 49
publication of all other LIBOR settings ceased to be published or to be representative as of Dec. 31, 2021. In addition, the U.S. bank regulators had also issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts by Dec. 31, 2021. As a result, financial market participants have begun to transition away from LIBOR and other IBORs to alternative reference rates. The transition event on Dec. 31, 2021 had minimal impact across BNY Mellon’s businesses, however the remaining U.S. dollar LIBOR transition will impact assets and liabilities on our balance sheet that reference IBORs, investments that we manage linked to IBORs in our Investment Management business and the operational servicing of products that reference IBORs in our Market and Wealth Services and Securities Services business segments.
In March 2022, the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was enacted. The LIBOR Act provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the Secured Overnight Financing Rate (“SOFR”) for contracts governed by U.S. law that have no fallbacks or fallbacks that would require the use of a poll or LIBOR-based rate. Under the LIBOR Act, the Federal Reserve must adopt rules to identify the SOFR-based replacement rate and conforming changes for legacy LIBOR-linked contracts. The Federal Reserve issued proposed rules in July 2022, which have not yet been finalized.
We are working to facilitate an orderly transition from IBORs to alternative reference rates for us and our clients. Accordingly, we have created a global transition program with senior management oversight that focuses on, among other things, evaluating and monitoring the impacts of the discontinuance of reference IBORs and the transition to replacement benchmarks on our business operations and financial condition; identifying and evaluating the scope of impacted financial instruments and contracts and the attendant risks; and implementing technology systems, models and analytics to support the transition. In addition, we continue to actively engage with our regulators and clients and participate in central bank and sector working groups.
Despite the proximity of the June 30, 2023 cessation date, there remain, however, a number of unknown factors regarding the transition from the IBORs and/or interest rate benchmark reforms that could impact
our business. For a further discussion of the various risks, see “Risk Factors – Market Risk – Transitions away from and the replacement of LIBOR and other IBORs could adversely impact our business, financial condition and results of operations” in our 2021 Annual Report.
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 Securities and Exchange Commission (“SEC”), we post such information as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.
•All of our SEC filings, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, as well as proxy statements and SEC Forms 3, 4 and 5;
•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 (@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.
50 BNY Mellon
Consolidated Income Statement (unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Fee and other revenue | ||||||||||||||||||||
| Investment services fees | $ | 2,157 | $ | 2,206 | $ | 2,091 | $ | 6,356 | $ | 6,223 | ||||||||||
| Investment management and performance fees | 800 | 833 | 913 | 2,516 | 2,692 | |||||||||||||||
| Foreign exchange revenue | 203 | 222 | 185 | 632 | 600 | |||||||||||||||
| Financing-related fees | 43 | 44 | 48 | 132 | 147 | |||||||||||||||
| Distribution and servicing fees | 33 | 34 | 28 | 97 | 84 | |||||||||||||||
| Total fee revenue | 3,236 | 3,339 | 3,265 | 9,733 | 9,746 | |||||||||||||||
| Investment and other revenue | 117 | 91 | 129 | 278 | 229 | |||||||||||||||
| Total fee and other revenue | 3,353 | 3,430 | 3,394 | 10,011 | 9,975 | |||||||||||||||
| Net interest revenue | ||||||||||||||||||||
| Interest revenue | 1,984 | 1,159 | 693 | 3,921 | 2,116 | |||||||||||||||
| Interest expense | 1,058 | 335 | 52 | 1,473 | 175 | |||||||||||||||
| Net interest revenue | 926 | 824 | 641 | 2,448 | 1,941 | |||||||||||||||
| Total revenue | 4,279 | 4,254 | 4,035 | 12,459 | 11,916 | |||||||||||||||
| Provision for credit losses | (30) | 47 | (45) | 19 | (214) | |||||||||||||||
| Noninterest expense | ||||||||||||||||||||
| Staff | 1,673 | 1,623 | 1,584 | 4,998 | 4,704 | |||||||||||||||
| Software and equipment | 421 | 405 | 372 | 1,225 | 1,099 | |||||||||||||||
| Professional, legal and other purchased services | 363 | 379 | 363 | 1,112 | 1,069 | |||||||||||||||
| Sub-custodian and clearing | 124 | 131 | 129 | 373 | 385 | |||||||||||||||
| Net occupancy | 124 | 125 | 120 | 371 | 365 | |||||||||||||||
| Distribution and servicing | 88 | 90 | 76 | 257 | 223 | |||||||||||||||
| Bank assessment charges | 35 | 37 | 34 | 107 | 103 | |||||||||||||||
| Business development | 34 | 43 | 22 | 107 | 63 | |||||||||||||||
| Goodwill impairment | 680 | — | — | 680 | — | |||||||||||||||
| Amortization of intangible assets | 17 | 17 | 19 | 51 | 63 | |||||||||||||||
| Other | 120 | 262 | 199 | 516 | 473 | |||||||||||||||
| Total noninterest expense | 3,679 | 3,112 | 2,918 | 9,797 | 8,547 | |||||||||||||||
| Income | ||||||||||||||||||||
| Income before income taxes | 630 | 1,095 | 1,162 | 2,643 | 3,583 | |||||||||||||||
| Provision for income taxes | 242 | 231 | 219 | 626 | 681 | |||||||||||||||
| Net income | 388 | 864 | 943 | 2,017 | 2,902 | |||||||||||||||
| Net loss (income) attributable to noncontrolling interests related to consolidated investment management funds | — | 5 | 4 | 13 | (6) | |||||||||||||||
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | 388 | 869 | 947 | 2,030 | 2,896 | |||||||||||||||
| Preferred stock dividends | (69) | (34) | (66) | (177) | (166) | |||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 319 | $ | 835 | $ | 881 | $ | 1,853 | $ | 2,730 | ||||||||||
BNY Mellon 51
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Income Statement (unaudited) (continued)
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation | Quarter ended | Year-to-date | ||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 319 | $ | 835 | $ | 881 | $ | 1,853 | $ | 2,730 | ||||||||||
| Less: Earnings allocated to participating securities | — | — | — | — | 2 | |||||||||||||||
| 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 | $ | 319 | $ | 835 | $ | 881 | $ | 1,853 | $ | 2,728 | ||||||||||
| Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | Year-to-date | ||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Basic | 811,304 | 810,903 | 844,088 | 810,703 | 865,374 | |||||||||||||||
| Common stock equivalents | 3,311 | 2,834 | 5,297 | 3,713 | 4,401 | |||||||||||||||
| Less: Participating securities | (99) | (147) | (357) | (202) | (451) | |||||||||||||||
| Diluted | 814,516 | 813,590 | 849,028 | 814,214 | 869,324 | |||||||||||||||
Anti-dilutive securities (a) | 3,306 | 4,112 | 517 | 3,294 | 739 | |||||||||||||||
(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 | ||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||
| (in dollars) | ||||||||||||||||||||
| Basic | $ | 0.39 | $ | 1.03 | $ | 1.04 | $ | 2.29 | $ | 3.15 | ||||||||||
| Diluted | $ | 0.39 | $ | 1.03 | $ | 1.04 | $ | 2.28 | $ | 3.14 | ||||||||||
See accompanying unaudited Notes to Consolidated Financial Statements.
52 BNY Mellon
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Comprehensive Income Statement (unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net income | $ | 388 | $ | 864 | $ | 943 | $ | 2,017 | $ | 2,902 | ||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation adjustments | (442) | (555) | (202) | (1,150) | (301) | |||||||||||||||
| Unrealized (loss) on assets available-for-sale: | ||||||||||||||||||||
| Unrealized (loss) arising during the period | (908) | (882) | (150) | (3,321) | (776) | |||||||||||||||
| Reclassification adjustment | (1) | — | (2) | (4) | (3) | |||||||||||||||
| Total unrealized (loss) on assets available-for-sale | (909) | (882) | (152) | (3,325) | (779) | |||||||||||||||
| Defined benefit plans: | ||||||||||||||||||||
| Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 13 | 13 | 22 | 44 | 69 | |||||||||||||||
| Total defined benefit plans | 13 | 13 | 22 | 44 | 69 | |||||||||||||||
| Net unrealized (loss) on cash flow hedges | (1) | (5) | (1) | (8) | (7) | |||||||||||||||
Total other comprehensive (loss), net of tax (a) | (1,339) | (1,429) | (333) | (4,439) | (1,018) | |||||||||||||||
| Total comprehensive (loss) income | (951) | (565) | 610 | (2,422) | 1,884 | |||||||||||||||
| Net loss (income) attributable to noncontrolling interests | — | 5 | 4 | 13 | (6) | |||||||||||||||
| Other comprehensive loss attributable to noncontrolling interests | 19 | 3 | — | 25 | — | |||||||||||||||
| Comprehensive (loss) income applicable to shareholders of The Bank of New York Mellon Corporation | $ | (932) | $ | (557) | $ | 614 | $ | (2,384) | $ | 1,878 | ||||||||||
(a) Other comprehensive (loss) attributable to The Bank of New York Mellon Corporation shareholders was $(1,320) million for the quarter ended Sept. 30, 2022, $(1,426) million for the quarter ended June 30, 2022, $(333) million for the quarter ended Sept. 30, 2021, $(4,414) million for the nine months ended Sept. 30, 2022 and $(1,018) million for the nine months ended Sept. 30, 2021.
See accompanying unaudited Notes to Consolidated Financial Statements.
BNY Mellon 53
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Balance Sheet (unaudited)
| Sept. 30, 2022 | Dec. 31, 2021 | |||||||
| (dollars in millions, except per share amounts) | ||||||||
| Assets | ||||||||
Cash and due from banks, net of allowance for credit losses of $28 and $3 | $ | 4,707 | $ | 6,061 | ||||
| Interest-bearing deposits with the Federal Reserve and other central banks | 107,427 | 102,467 | ||||||
Interest-bearing deposits with banks, net of allowance for credit losses of $2 and $2 (includes restricted of $4,893 and $3,822) | 13,890 | 16,630 | ||||||
| Federal funds sold and securities purchased under resale agreements | 23,483 | 29,607 | ||||||
| Securities: | ||||||||
Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 and less than $1 (fair value of $50,485 and $56,775) | 57,257 | 56,866 | ||||||
Available-for-sale, at fair value (amortized cost of $93,619 and $100,774, net of allowance for credit losses of $9 and $10) | 86,924 | 101,839 | ||||||
| Total securities | 144,181 | 158,705 | ||||||
| Trading assets | 12,650 | 16,577 | ||||||
| Loans | 69,829 | 67,787 | ||||||
| Allowance for credit losses | (164) | (196) | ||||||
| Net loans | 69,665 | 67,591 | ||||||
| Premises and equipment | 3,311 | 3,431 | ||||||
| Accrued interest receivable | 723 | 457 | ||||||
| Goodwill | 16,412 | 17,512 | ||||||
| Intangible assets | 2,902 | 2,991 | ||||||
Other assets, net of allowance for credit losses on accounts receivable of $5 and $4 (includes $1,599 and $1,187, at fair value) | 28,602 | 22,409 | ||||||
| Total assets | $ | 427,953 | $ | 444,438 | ||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing (principally U.S. offices) | $ | 88,275 | $ | 93,695 | ||||
| Interest-bearing deposits in U.S. offices | 112,486 | 120,903 | ||||||
| Interest-bearing deposits in non-U.S. offices | 101,228 | 105,096 | ||||||
| Total deposits | 301,989 | 319,694 | ||||||
| Federal funds purchased and securities sold under repurchase agreements | 11,339 | 11,566 | ||||||
| Trading liabilities | 7,494 | 5,469 | ||||||
| Payables to customers and broker-dealers | 23,741 | 25,150 | ||||||
| Other borrowed funds | 357 | 749 | ||||||
Accrued taxes and other expenses | 5,316 | 5,767 | ||||||
Other liabilities (including allowance for credit losses on lending-related commitments of $72 and $45, also includes $26 and $496, at fair value) | 10,001 | 6,721 | ||||||
| Long-term debt | 27,820 | 25,931 | ||||||
| Total liabilities | 388,057 | 401,047 | ||||||
| Temporary equity | ||||||||
| Redeemable noncontrolling interests | 152 | 161 | ||||||
| Permanent equity | ||||||||
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 48,826 and 48,826 shares | 4,838 | 4,838 | ||||||
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,395,525,936 and 1,389,397,912 shares | 14 | 14 | ||||||
| Additional paid-in capital | 28,374 | 28,128 | ||||||
| Retained earnings | 37,660 | 36,667 | ||||||
| Accumulated other comprehensive loss, net of tax | (6,627) | (2,213) | ||||||
Less: Treasury stock of 587,245,987 and 585,252,546 common shares, at cost | (24,522) | (24,400) | ||||||
| Total The Bank of New York Mellon Corporation shareholders’ equity | 39,737 | 43,034 | ||||||
| Nonredeemable noncontrolling interests of consolidated investment management funds | 7 | 196 | ||||||
| Total permanent equity | 39,744 | 43,230 | ||||||
| Total liabilities, temporary equity and permanent equity | $ | 427,953 | $ | 444,438 | ||||
See accompanying unaudited Notes to Consolidated Financial Statements.
54 BNY Mellon
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Statement of Cash Flows (unaudited)
| Nine months ended Sept. 30, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Operating activities | |||||||||||
| Net income | $ | 2,017 | $ | 2,902 | |||||||
| Net loss (income) attributable to noncontrolling interests | 13 | (6) | |||||||||
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | 2,030 | 2,896 | |||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||||||||
| Provision for credit losses | 19 | (214) | |||||||||
Pension plan contributions | (2) | (5) | |||||||||
Depreciation and amortization | 1,255 | 1,406 | |||||||||
| Goodwill impairment | 680 | — | |||||||||
Deferred tax (benefit) | 255 | 255 | |||||||||
| Net securities (gains) | (5) | (4) | |||||||||
| Change in trading assets and liabilities | 6,945 | (3,466) | |||||||||
| Change in accruals and other, net | 967 | (1,159) | |||||||||
| Net cash provided by (used for) operating activities | 12,144 | (291) | |||||||||
| Investing activities | |||||||||||
| Change in interest-bearing deposits with banks | 2,937 | (2,005) | |||||||||
| Change in interest-bearing deposits with the Federal Reserve and other central banks | (12,186) | 11,450 | |||||||||
| Purchases of securities held-to-maturity | (2,144) | (7,587) | |||||||||
| Paydowns of securities held-to-maturity | 5,851 | 8,601 | |||||||||
| Maturities of securities held-to-maturity | 1,423 | 1,242 | |||||||||
| Purchases of securities available-for-sale | (26,007) | (38,201) | |||||||||
| Sales of securities available-for-sale | 11,303 | 8,846 | |||||||||
| Paydowns of securities available-for-sale | 4,205 | 10,132 | |||||||||
| Maturities of securities available-for-sale | 8,392 | 13,396 | |||||||||
| Net change in loans | (2,517) | (7,823) | |||||||||
| Sales of loans and other real estate | — | 1 | |||||||||
| Change in federal funds sold and securities purchased under resale agreements | 6,109 | 2,343 | |||||||||
| Net change in seed capital investments | 24 | (83) | |||||||||
| Purchases of premises and equipment/capitalized software | (989) | (841) | |||||||||
| Proceeds from the sale of premises and equipment | 45 | 34 | |||||||||
| Dispositions, net of cash | 51 | 8 | |||||||||
| Other, net | (1,747) | 228 | |||||||||
| Net cash (used for) investing activities | (5,250) | (259) | |||||||||
| Financing activities | |||||||||||
| Change in deposits | (8,202) | 4,805 | |||||||||
| Change in federal funds purchased and securities sold under repurchase agreements | (129) | 806 | |||||||||
| Change in payables to customers and broker-dealers | (1,108) | 954 | |||||||||
| Change in other borrowed funds | (347) | 432 | |||||||||
| Net proceeds from the issuance of long-term debt | 6,684 | 3,689 | |||||||||
| Repayments of long-term debt | (3,250) | (4,250) | |||||||||
| Proceeds from the exercise of stock options | 9 | 45 | |||||||||
| Issuance of common stock | 10 | 10 | |||||||||
| Treasury stock acquired | (122) | (3,318) | |||||||||
| Common cash dividends paid | (860) | (846) | |||||||||
| Preferred cash dividends paid | (177) | (166) | |||||||||
| Other, net | (12) | 4 | |||||||||
| Net cash (used for) provided by financing activities | (7,504) | 2,165 | |||||||||
| Effect of exchange rate changes on cash | 327 | (81) | |||||||||
| Change in cash and due from banks and restricted cash | |||||||||||
| Change in cash and due from banks and restricted cash | (283) | 1,534 | |||||||||
| Cash and due from banks and restricted cash at beginning of period | 9,883 | 9,419 | |||||||||
| Cash and due from banks and restricted cash at end of period | $ | 9,600 | $ | 10,953 | |||||||
| Cash and due from banks and restricted cash | |||||||||||
| Cash and due from banks at end of period (unrestricted cash) | $ | 4,707 | $ | 6,752 | |||||||
| Restricted cash at end of period | 4,893 | 4,201 | |||||||||
| Cash and due from banks and restricted cash at end of period | $ | 9,600 | $ | 10,953 | |||||||
| Supplemental disclosures | |||||||||||
| Interest paid | $ | 1,355 | $ | 226 | |||||||
| Income taxes paid | 319 | 376 | |||||||||
| Income taxes refunded | 7 | 36 | |||||||||
See accompanying unaudited Notes to Consolidated Financial Statements.
BNY Mellon 55
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Statement of Changes in Equity (unaudited)
| The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | Redeemable non- controlling interests/ temporary equity | |||||||||||||||||||||||||||||
| (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | ||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 4,838 | $ | 14 | $ | 28,316 | $ | 37,644 | $ | (5,307) | $ | (24,521) | $ | 7 | $ | 40,991 | (a) | $ | 154 | |||||||||||||
| Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — | 17 | |||||||||||||||||||||||
| Redemption of subsidiary shares from noncontrolling interests | — | — | — | — | — | — | — | — | (1) | |||||||||||||||||||||||
| Other net changes in noncontrolling interests | — | — | 2 | — | — | — | — | 2 | 1 | |||||||||||||||||||||||
| Net income | — | — | — | 388 | — | — | — | 388 | — | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (1,320) | — | — | (1,320) | (19) | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
Common stock at $0.37 per share (b) | — | — | — | (303) | — | — | — | (303) | — | |||||||||||||||||||||||
| Preferred stock | — | — | — | (69) | — | — | — | (69) | — | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (1) | — | (1) | — | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — | 5 | — | — | — | — | 5 | — | |||||||||||||||||||||||
| Stock awards and options exercised | — | — | 51 | — | — | — | — | 51 | — | |||||||||||||||||||||||
| Balance at Sept. 30, 2022 | $ | 4,838 | $ | 14 | $ | 28,374 | $ | 37,660 | $ | (6,627) | $ | (24,522) | $ | 7 | $ | 39,744 | (a) | $ | 152 | |||||||||||||
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $36,146 million at June 30, 2022 and $34,899 million at Sept. 30, 2022.
(b) Includes dividend-equivalents on share-based awards.
| The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | Redeemable non- controlling interests/ temporary equity | |||||||||||||||||||||||||||||
| (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | ||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 4,838 | $ | 14 | $ | 28,258 | $ | 37,088 | $ | (3,881) | $ | (24,518) | $ | 198 | $ | 41,997 | (a) | $ | 155 | |||||||||||||
Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — | 2 | |||||||||||||||||||||||
Other net changes in noncontrolling interests | — | — | — | — | — | — | (186) | (186) | — | |||||||||||||||||||||||
| Net income (loss) | — | — | — | 869 | — | — | (5) | 864 | — | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (1,426) | — | — | (1,426) | (3) | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
Common stock at $0.34 per share (b) | — | — | — | (279) | — | — | — | (279) | — | |||||||||||||||||||||||
| Preferred stock | — | — | — | (34) | — | — | — | (34) | — | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (3) | — | (3) | — | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — | 5 | — | — | — | — | 5 | — | |||||||||||||||||||||||
| Stock awards and options exercised | — | — | 53 | — | — | — | — | 53 | — | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ | 4,838 | $ | 14 | $ | 28,316 | $ | 37,644 | $ | (5,307) | $ | (24,521) | $ | 7 | $ | 40,991 | (a) | $ | 154 | |||||||||||||
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $36,961 million at March 31, 2022 and $36,146 million at June 30, 2022.
(b) Includes dividend-equivalents on share-based awards.
56 BNY Mellon
| 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) income, net of tax | Treasury stock | ||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | 4,541 | $ | 14 | $ | 28,006 | $ | 35,540 | $ | (1,670) | $ | (21,150) | $ | 344 | $ | 45,625 | (a) | $ | 169 | |||||||||||||
Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — | 8 | |||||||||||||||||||||||
Other net changes in noncontrolling interests | — | — | — | — | — | — | (67) | (67) | 1 | |||||||||||||||||||||||
| Net income (loss) | — | — | — | 947 | — | — | (4) | 943 | — | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (333) | — | — | (333) | — | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
Common stock at $0.34 per share (b) | — | — | — | (296) | — | — | — | (296) | — | |||||||||||||||||||||||
| Preferred stock | — | — | — | (66) | — | — | — | (66) | — | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (2,001) | — | (2,001) | — | |||||||||||||||||||||||
Common stock issued under employee benefit plans | — | — | 4 | — | — | — | — | 4 | — | |||||||||||||||||||||||
Stock awards and options exercised | — | — | 65 | — | — | — | — | 65 | — | |||||||||||||||||||||||
| Balance at Sept. 30, 2021 | $ | 4,541 | $ | 14 | $ | 28,075 | $ | 36,125 | $ | (2,003) | $ | (23,151) | $ | 273 | $ | 43,874 | (a) | $ | 178 | |||||||||||||
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $40,740 million at June 30, 2021 and $39,060 million at Sept. 30, 2021.
(b) Includes dividend-equivalents on share-based awards.
| The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | Redeemable non- controlling interests/ temporary equity | |||||||||||||||||||||||||||||
| (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | ||||||||||||||||||||||||||
| Balance at Dec. 31, 2021 | $ | 4,838 | $ | 14 | $ | 28,128 | $ | 36,667 | $ | (2,213) | $ | (24,400) | $ | 196 | $ | 43,230 | (a) | $ | 161 | |||||||||||||
Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — | 26 | |||||||||||||||||||||||
Redemption of subsidiary shares from noncontrolling interests | — | — | — | — | — | — | — | — | (15) | |||||||||||||||||||||||
Other net changes in noncontrolling interests | — | — | (3) | — | — | — | (176) | (179) | 5 | |||||||||||||||||||||||
| Net income (loss) | — | — | — | 2,030 | — | — | (13) | 2,017 | — | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (4,414) | — | — | (4,414) | (25) | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
Common stock at $1.05 per share (b) | — | — | — | (860) | — | — | — | (860) | — | |||||||||||||||||||||||
| Preferred stock | — | — | — | (177) | — | — | — | (177) | — | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (122) | — | (122) | — | |||||||||||||||||||||||
Common stock issued under employee benefit plans | — | — | 15 | — | — | — | — | 15 | — | |||||||||||||||||||||||
Stock awards and options exercised | — | — | 234 | — | — | — | — | 234 | — | |||||||||||||||||||||||
| Balance at Sept. 30, 2022 | $ | 4,838 | $ | 14 | $ | 28,374 | $ | 37,660 | $ | (6,627) | $ | (24,522) | $ | 7 | $ | 39,744 | (a) | $ | 152 | |||||||||||||
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $38,196 million at Dec. 31, 2021 and $34,899 million at Sept. 30, 2022.
(b) Includes dividend equivalents on share-based awards.
BNY Mellon 57
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
| The Bank of New York Mellon Corporation shareholders | Nonredeemable noncontrolling interests of consolidated investment management funds | Total permanent equity | Redeemable non- controlling interests/ temporary equity | |||||||||||||||||||||||||||||
| (in millions, except per share amount) | Preferred stock | Common stock | Additional paid-in capital | Retained earnings | Accumulated other comprehensive (loss), net of tax | Treasury stock | ||||||||||||||||||||||||||
| Balance at Dec. 31, 2020 | $ | 4,541 | $ | 14 | $ | 27,823 | $ | 34,241 | $ | (985) | $ | (19,833) | $ | 143 | $ | 45,944 | (a) | $ | 176 | |||||||||||||
Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — | 37 | |||||||||||||||||||||||
Redemption of subsidiary shares from noncontrolling interests | — | — | — | — | — | — | — | — | (52) | |||||||||||||||||||||||
Other net changes in noncontrolling interests | — | — | (24) | — | — | — | 124 | 100 | 17 | |||||||||||||||||||||||
| Net income | — | — | — | 2,896 | — | — | 6 | 2,902 | — | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — | (1,018) | — | — | (1,018) | — | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
Common stock at $0.96 per share (b) | — | — | — | (846) | — | — | — | (846) | — | |||||||||||||||||||||||
| Preferred stock | — | — | — | (166) | — | — | — | (166) | — | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (3,318) | — | (3,318) | — | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — | 14 | — | — | — | — | 14 | — | |||||||||||||||||||||||
Stock awards and options exercised | — | — | 262 | — | — | — | — | 262 | — | |||||||||||||||||||||||
| Balance at Sept. 30, 2021 | $ | 4,541 | $ | 14 | $ | 28,075 | $ | 36,125 | $ | (2,003) | $ | (23,151) | $ | 273 | $ | 43,874 | (a) | $ | 178 | |||||||||||||
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $41,260 million at Dec. 31, 2020 and $39,060 million at Sept. 30, 2021.
(b) Includes dividend equivalents on share-based awards.
See accompanying unaudited Notes to Consolidated Financial Statements.
58 BNY Mellon
| 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 to its subsidiaries.
Basis of presentation
The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices. For information on our significant accounting and reporting policies, see Note 1 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended Dec. 31, 2021 (the “2021 Annual Report”).
The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of financial position, results of operations and cash flows for the periods presented have been made. These financial statements should be read in conjunction with our Consolidated Financial Statements included in our 2021 Annual Report. Certain additional immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition.
Note 2–New accounting guidance
Staff Accounting Bulletin No. 121
In March 2022, the SEC staff released Staff Accounting Bulletin No. 121 (“SAB 121”). SAB 121
expresses the staff’s views regarding the accounting for entities that have obligations to safeguard “crypto-assets” held for their platform users. SAB 121 provides that these entities should present a liability and corresponding asset in respect of the crypto-assets safeguarded for their platform users, with the liability and asset measured at the fair value of the crypto-assets. This differs from the accounting treatment of non-crypto-assets held in custody, which do not result in assets recorded on a custodian’s balance sheet. We adopted the guidance in the third quarter of 2022 and recorded a de minimis asset and liability related to digital assets we safeguard.
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. There were no contingent payments in the first nine months of 2022.
At Sept. 30, 2022, we were potentially obligated to pay additional consideration which, using reasonable assumptions and estimates, could range from $15 million to $45 million over the next three years.
Goodwill and intangible assets related to acquisitions completed in 2021 totaled $99 million and $70 million, respectively. See Note 3 of the Notes to Consolidated Financial Statements in our 2021 Annual Report for information related to the 2021 acquisitions.
Transaction in 2022
On Aug. 1, 2022, BNY Mellon completed the sale of HedgeMark Advisors, LLC (“HedgeMark”), and recorded a $37 million pre-tax gain. As part of the sale, BNY Mellon received an equity interest in the acquiring firm. In addition, goodwill related to HedgeMark of $13 million was removed from the consolidated balance sheet as result of this sale.
Note 4–Securities
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of securities at Sept. 30, 2022 and Dec. 31, 2021.
BNY Mellon 59
Notes to Consolidated Financial Statements (continued) | ||
| Securities at Sept. 30, 2022 | Gross unrealized | Fair value | ||||||||||||
| Amortized cost | ||||||||||||||
| (in millions) | Gains | Losses | ||||||||||||
| Available-for-sale: | ||||||||||||||
| U.S. Treasury | $ | 30,902 | $ | 103 | $ | 2,849 | $ | 28,156 | ||||||
| Sovereign debt/sovereign guaranteed | 10,906 | 3 | 574 | 10,335 | ||||||||||
| Agency residential mortgage-backed securities (“RMBS”) | 8,732 | 119 | 486 | 8,365 | ||||||||||
| Agency commercial mortgage-backed securities (“MBS”) | 8,723 | 95 | 718 | 8,100 | ||||||||||
| Supranational | 8,022 | 3 | 426 | 7,599 | ||||||||||
| Foreign covered bonds | 5,546 | 2 | 268 | 5,280 | ||||||||||
| Collateralized loan obligations (“CLOs”) | 5,425 | — | 183 | 5,242 | ||||||||||
| Non-agency commercial MBS | 3,270 | — | 377 | 2,893 | ||||||||||
| Foreign government agencies | 2,449 | — | 134 | 2,315 | ||||||||||
| Non-agency RMBS | 2,276 | 50 | 213 | 2,113 | ||||||||||
| U.S. government agencies | 2,177 | 55 | 235 | 1,997 | ||||||||||
| State and political subdivisions | 2,187 | — | 321 | 1,866 | ||||||||||
| Other asset-backed securities (“ABS”) | 1,594 | — | 129 | 1,465 | ||||||||||
| Corporate bonds | 1,409 | — | 212 | 1,197 | ||||||||||
| Other debt securities | 1 | — | — | 1 | ||||||||||
Total securities available-for-sale (a)(b) | $ | 93,619 | $ | 430 | $ | 7,125 | $ | 86,924 | ||||||
| Held-to-maturity: | ||||||||||||||
| Agency RMBS | $ | 35,349 | $ | 1 | $ | 4,679 | $ | 30,671 | ||||||
| U.S. Treasury | 10,715 | — | 966 | 9,749 | ||||||||||
| Agency commercial MBS | 4,117 | — | 428 | 3,689 | ||||||||||
| U.S. government agencies | 4,209 | — | 558 | 3,651 | ||||||||||
| Sovereign debt/sovereign guaranteed | 1,374 | — | 69 | 1,305 | ||||||||||
| CLOs | 983 | — | 44 | 939 | ||||||||||
| Supranational | 407 | — | 23 | 384 | ||||||||||
| Foreign government agencies | 60 | — | 4 | 56 | ||||||||||
| Non-agency RMBS | 30 | 1 | 1 | 30 | ||||||||||
| State and political subdivisions | 13 | — | 2 | 11 | ||||||||||
Total securities held-to-maturity (a) | $ | 57,257 | $ | 2 | $ | 6,774 | $ | 50,485 | ||||||
| Total securities | $ | 150,876 | $ | 432 | $ | 13,899 | $ | 137,409 | ||||||
(a) The amortized cost of available-for-sale and held-to-maturity securities are net of the allowance for credit loss of $9 million and less than $1 million, respectively. The allowance for credit loss related to available-for-sale securities primarily relates to CLOs.
(b) Includes gross unrealized gains of $373 million and gross unrealized losses of $188 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains primarily relate to agency RMBS, U.S. Treasury securities and agency commercial MBS. The unrealized losses primarily relate to agency RMBS and U.S. Treasury securities. The unrealized gains and losses will be amortized into net interest revenue over the contractual lives of the securities.
| Securities at Dec. 31, 2021 | Gross unrealized | |||||||||||||
| Amortized cost | Fair value | |||||||||||||
| (in millions) | Gains | Losses | ||||||||||||
| Available-for-sale: | ||||||||||||||
| U.S. Treasury | $ | 28,966 | $ | 771 | $ | 328 | $ | 29,409 | ||||||
| Agency RMBS | 14,333 | 270 | 73 | 14,530 | ||||||||||
Sovereign debt/sovereign guaranteed | 13,367 | 79 | 67 | 13,379 | ||||||||||
Agency commercial MBS | 8,102 | 345 | 42 | 8,405 | ||||||||||
| Supranational | 7,599 | 24 | 50 | 7,573 | ||||||||||
Foreign covered bonds | 6,236 | 25 | 23 | 6,238 | ||||||||||
| CLOs | 4,441 | 3 | 5 | 4,439 | ||||||||||
Non-agency commercial MBS | 3,083 | 65 | 23 | 3,125 | ||||||||||
| Non-agency RMBS | 2,641 | 132 | 25 | 2,748 | ||||||||||
Foreign government agencies | 2,694 | 9 | 17 | 2,686 | ||||||||||
U.S. government agencies | 2,464 | 99 | 27 | 2,536 | ||||||||||
State and political subdivisions | 2,543 | 11 | 40 | 2,514 | ||||||||||
Other ABS | 2,205 | 7 | 22 | 2,190 | ||||||||||
| Corporate bonds | 2,099 | 19 | 52 | 2,066 | ||||||||||
| Other debt securities | 1 | — | — | 1 | ||||||||||
Total securities available-for-sale (a)(b) | $ | 100,774 | $ | 1,859 | $ | 794 | $ | 101,839 | ||||||
| Held-to-maturity: | ||||||||||||||
| Agency RMBS | $ | 36,167 | $ | 428 | $ | 388 | $ | 36,207 | ||||||
| U.S. Treasury | 11,617 | 36 | 103 | 11,550 | ||||||||||
Agency commercial MBS | 4,068 | 41 | 52 | 4,057 | ||||||||||
U.S. government agencies | 2,998 | — | 71 | 2,927 | ||||||||||
| CLOs | 983 | — | 1 | 982 | ||||||||||
Sovereign debt/sovereign guaranteed | 922 | 18 | 2 | 938 | ||||||||||
Supranational | 54 | — | — | 54 | ||||||||||
| Non-agency RMBS | 43 | 2 | — | 45 | ||||||||||
State and political subdivisions | 14 | 1 | — | 15 | ||||||||||
Total securities held-to-maturity | $ | 56,866 | $ | 526 | $ | 617 | $ | 56,775 | ||||||
| Total securities | $ | 157,640 | $ | 2,385 | $ | 1,411 | $ | 158,614 | ||||||
(a) The amortized cost of available-for-sale securities is net of the allowance for credit loss of $10 million. The allowance for credit loss primarily relates to CLOs.
(b) Includes gross unrealized gains of $455 million and gross unrealized losses of $75 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains primarily relate to U.S. Treasury securities, agency RMBS and agency commercial MBS. The unrealized losses primarily relate to U.S. Treasury securities and agency RMBS. The unrealized gains and losses will be amortized into net interest revenue over the contractual lives of the securities.
60 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
The following table presents the realized gains and losses, on a gross basis.
| Net securities gains (losses) | |||||||||||||||||
| (in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||
| Realized gross gains | $ | 9 | $ | 7 | $ | 3 | $ | 89 | $ | 21 | |||||||
| Realized gross losses | (8) | (7) | (1) | (84) | (17) | ||||||||||||
| Total net securities gains | $ | 1 | $ | — | $ | 2 | $ | 5 | $ | 4 | |||||||
The following table presents pre-tax net securities gains (losses) by type.
| Net securities gains (losses) | |||||||||||||||||
| (in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||
| Non-agency RMBS | $ | — | $ | — | $ | — | $ | 49 | $ | 2 | |||||||
| U.S. Treasury | — | 1 | — | 12 | (4) | ||||||||||||
| State and political subdivisions | — | — | — | (13) | — | ||||||||||||
| Corporate bonds | — | (4) | — | (51) | — | ||||||||||||
| Other | 1 | 3 | 2 | 8 | 6 | ||||||||||||
| Total net securities gains | $ | 1 | $ | — | $ | 2 | $ | 5 | $ | 4 | |||||||
In the second quarter of 2022, agency RMBS and agency commercial MBS, with an aggregate amortized cost of $975 million and fair value of $906 million, were transferred from available-for-sale securities to held-to-maturity securities.
In the first quarter of 2022, agency RMBS, U.S. government agencies and agency commercial MBS, with an aggregate amortized cost of $5.3 billion and fair value of $5.2 billion, were transferred from available-for-sale securities to held-to-maturity securities.
The above transfers reduce the impact of changes in interest rates on accumulated other comprehensive income.
Allowance for credit losses – Securities
The allowance for credit losses related to securities was $9 million at Sept. 30, 2022 and $10 million at Dec. 31, 2021, and primarily relates to the available-for-sale CLO portfolio.
Credit quality indicators – Securities
At Sept. 30, 2022, the gross unrealized losses on the securities portfolio were primarily attributable to an increase in interest rates from the date of purchase, and for certain securities that were transferred from available-for-sale to held-to-maturity, an increase in interest rates through the date they were transferred. Specifically, $188 million of the unrealized losses at Sept. 30, 2022 and $75 million at Dec. 31, 2021 reflected in the tables below relate to certain securities that were previously transferred 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 unrealized losses would be reflected in the held-to-maturity securities portfolio in the following tables. We do not intend to sell these securities, and it is not more likely than not that we will have to sell these securities.
BNY Mellon 61
Notes to Consolidated Financial Statements (continued) | ||
The following tables show 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, 2022 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
| Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| U.S. Treasury | $ | 22,678 | $ | 1,942 | $ | 5,479 | $ | 907 | $ | 28,157 | $ | 2,849 | ||||||||||||||
| Sovereign debt/sovereign guaranteed | 7,361 | 334 | 1,738 | 240 | 9,099 | 574 | ||||||||||||||||||||
| Agency RMBS | 7,912 | 416 | 384 | 70 | 8,296 | 486 | ||||||||||||||||||||
| Agency commercial MBS | 6,602 | 518 | 1,410 | 200 | 8,012 | 718 | ||||||||||||||||||||
| Supranational | 4,590 | 214 | 1,491 | 212 | 6,081 | 426 | ||||||||||||||||||||
| CLOs | 4,815 | 164 | 324 | 15 | 5,139 | 179 | ||||||||||||||||||||
| Foreign covered bonds | 3,657 | 166 | 945 | 102 | 4,602 | 268 | ||||||||||||||||||||
| Non-agency commercial MBS | 2,249 | 259 | 594 | 118 | 2,843 | 377 | ||||||||||||||||||||
| Foreign government agencies | 1,700 | 68 | 615 | 66 | 2,315 | 134 | ||||||||||||||||||||
| Non-agency RMBS | 1,058 | 82 | 804 | 131 | 1,862 | 213 | ||||||||||||||||||||
| State and political subdivisions | 757 | 128 | 991 | 193 | 1,748 | 321 | ||||||||||||||||||||
| U.S. government agencies | 1,515 | 197 | 206 | 38 | 1,721 | 235 | ||||||||||||||||||||
| Other ABS | 925 | 75 | 505 | 54 | 1,430 | 129 | ||||||||||||||||||||
| Corporate bonds | 521 | 39 | 665 | 173 | 1,186 | 212 | ||||||||||||||||||||
Total securities available-for-sale (a) | $ | 66,340 | $ | 4,602 | $ | 16,151 | $ | 2,519 | $ | 82,491 | $ | 7,121 | ||||||||||||||
(a) Includes $126 million gross unrealized losses for less than 12 months and $62 million of gross unrealized losses for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to agency RMBS and U.S. Treasury securities and will be amortized into net interest revenue over the contractual lives of the securities.
Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2021 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
| Fair value | Unrealized losses | Fair value | Unrealized losses | Fair value | Unrealized losses | |||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| U.S. Treasury | $ | 16,855 | $ | 235 | $ | 1,944 | $ | 93 | $ | 18,799 | $ | 328 | ||||||||||||||
| Sovereign debt/sovereign guaranteed | 6,040 | 66 | 58 | 1 | 6,098 | 67 | ||||||||||||||||||||
| Agency RMBS | 4,089 | 44 | 457 | 29 | 4,546 | 73 | ||||||||||||||||||||
| Supranational | 3,093 | 44 | 305 | 6 | 3,398 | 50 | ||||||||||||||||||||
| Agency commercial MBS | 2,233 | 39 | 585 | 3 | 2,818 | 42 | ||||||||||||||||||||
| Foreign covered bonds | 2,694 | 23 | — | — | 2,694 | 23 | ||||||||||||||||||||
| CLOs | 1,808 | 3 | 318 | 2 | 2,126 | 5 | ||||||||||||||||||||
| Non-agency RMBS | 1,573 | 20 | 345 | 5 | 1,918 | 25 | ||||||||||||||||||||
| State and political subdivisions | 1,848 | 40 | 13 | — | 1,861 | 40 | ||||||||||||||||||||
| U.S. government agencies | 1,780 | 27 | — | — | 1,780 | 27 | ||||||||||||||||||||
| Other ABS | 1,383 | 20 | 201 | 2 | 1,584 | 22 | ||||||||||||||||||||
| Foreign government agencies | 1,446 | 17 | 15 | — | 1,461 | 17 | ||||||||||||||||||||
| Corporate bonds | 1,247 | 42 | 198 | 10 | 1,445 | 52 | ||||||||||||||||||||
| Non-agency commercial MBS | 947 | 16 | 222 | 7 | 1,169 | 23 | ||||||||||||||||||||
Total securities available-for-sale (a) | $ | 47,036 | $ | 636 | $ | 4,661 | $ | 158 | $ | 51,697 | $ | 794 | ||||||||||||||
(a) Includes $47 million of gross unrealized losses for less than 12 months and $28 million of gross unrealized losses for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to U.S. Treasury securities and agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
62 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
The following tables show the credit quality of the held-to-maturity securities. We have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.
Held-to-maturity securities portfolio at Sept. 30, 2022 | Ratings (a) | ||||||||||||||||||||||||||||
| Net unrealized gain (loss) | BB+ and lower | ||||||||||||||||||||||||||||
| (dollars in millions) | Amortized cost | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | ||||||||||||||||||||||||
| Agency RMBS | $ | 35,349 | $ | (4,678) | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||
| U.S. Treasury | 10,715 | (966) | 100 | — | — | — | — | ||||||||||||||||||||||
| Agency commercial MBS | 4,117 | (428) | 100 | — | — | — | — | ||||||||||||||||||||||
| U.S. government agencies | 4,209 | (558) | 100 | — | — | — | — | ||||||||||||||||||||||
Sovereign debt/sovereign guaranteed (b) | 1,374 | (69) | 100 | — | — | — | — | ||||||||||||||||||||||
| CLOs | 983 | (44) | 100 | — | — | — | — | ||||||||||||||||||||||
| Supranational | 407 | (23) | 100 | — | — | — | — | ||||||||||||||||||||||
| Foreign government agencies | 60 | (4) | 100 | — | — | — | — | ||||||||||||||||||||||
| Non-agency RMBS | 30 | — | 22 | 58 | 2 | 17 | 1 | ||||||||||||||||||||||
| State and political subdivisions | 13 | (2) | 2 | 2 | 3 | — | 93 | ||||||||||||||||||||||
| Total held-to-maturity securities | $ | 57,257 | $ | (6,772) | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||
(a) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(b) Primarily consists of exposure to Germany, France and UK.
Held-to-maturity securities portfolio at Dec. 31, 2021 | Ratings (a) | ||||||||||||||||||||||||||||
| Net unrealized gain (loss) | BB+ and lower | ||||||||||||||||||||||||||||
| (dollars in millions) | Amortized cost | AAA/ AA- | A+/ A- | BBB+/ BBB- | Not rated | ||||||||||||||||||||||||
| Agency RMBS | $ | 36,167 | $ | 40 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||
| U.S. Treasury | 11,617 | (67) | 100 | — | — | — | — | ||||||||||||||||||||||
| Agency commercial MBS | 4,068 | (11) | 100 | — | — | — | — | ||||||||||||||||||||||
| U.S. government agencies | 2,998 | (71) | 100 | — | — | — | — | ||||||||||||||||||||||
| CLOs | 983 | (1) | 100 | — | — | — | — | ||||||||||||||||||||||
Sovereign debt/sovereign guaranteed (b) | 922 | 16 | 100 | — | — | — | — | ||||||||||||||||||||||
| Supranational | 54 | — | 100 | — | — | — | — | ||||||||||||||||||||||
| Non-agency RMBS | 43 | 2 | 23 | 59 | 2 | 15 | 1 | ||||||||||||||||||||||
| State and political subdivisions | 14 | 1 | 5 | 2 | 5 | — | 88 | ||||||||||||||||||||||
| Total held-to-maturity securities | $ | 56,866 | $ | (91) | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||
(a) Represents ratings by S&P or the equivalent.
(b) Primarily consists of exposure to France, UK and Germany.
BNY Mellon 63
Notes to Consolidated Financial Statements (continued) | ||
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, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Within 1 year | 1-5 years | 5-10 years | After 10 years | Total | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Amount | Yield (a) | Amount | Yield (a) | Amount | Yield (a) | Amount | Yield (a) | Amount | Yield (a) | ||||||||||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 4,837 | 1.87 | % | $ | 13,970 | 0.93 | % | $ | 7,324 | 1.25 | % | $ | 2,025 | 2.92 | % | $ | 28,156 | 1.32 | % | ||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed | 3,846 | 1.82 | 5,734 | 1.13 | 710 | 0.42 | 45 | 2.65 | 10,335 | 1.32 | ||||||||||||||||||||||||||||||||||
| Supranational | 1,303 | 1.21 | 4,745 | 1.90 | 1,536 | 2.26 | 15 | (0.09) | 7,599 | 1.86 | ||||||||||||||||||||||||||||||||||
| Foreign covered bonds | 1,131 | 1.66 | 3,619 | 1.64 | 530 | 0.18 | — | — | 5,280 | 1.48 | ||||||||||||||||||||||||||||||||||
| Foreign government agencies | 540 | 1.03 | 1,743 | 1.49 | 32 | 0.16 | — | — | 2,315 | 1.36 | ||||||||||||||||||||||||||||||||||
| U.S. government agencies | — | — | 711 | 2.52 | 1,122 | 2.41 | 164 | 2.54 | 1,997 | 2.46 | ||||||||||||||||||||||||||||||||||
| State and political subdivisions | 119 | 3.98 | 688 | 1.50 | 889 | 1.62 | 170 | 2.41 | 1,866 | 1.79 | ||||||||||||||||||||||||||||||||||
| Corporate bonds | 82 | 2.40 | 338 | 2.75 | 757 | 1.61 | 20 | 2.01 | 1,197 | 1.95 | ||||||||||||||||||||||||||||||||||
| Other debt securities | — | — | — | — | — | — | 1 | 3.60 | 1 | 3.60 | ||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | 8,365 | 3.10 | ||||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS | 2,113 | 3.32 | ||||||||||||||||||||||||||||||||||||||||||
| Agency commercial MBS | 8,100 | 2.60 | ||||||||||||||||||||||||||||||||||||||||||
| Non-agency commercial MBS | 2,893 | 2.81 | ||||||||||||||||||||||||||||||||||||||||||
| CLOs | 5,242 | 3.72 | ||||||||||||||||||||||||||||||||||||||||||
| Other ABS | 1,465 | 1.94 | ||||||||||||||||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 11,858 | 1.75 | % | $ | 31,548 | 1.29 | % | $ | 12,900 | 1.41 | % | $ | 2,440 | 2.82 | % | $ | 86,924 | 1.96 | % | ||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 1,464 | 1.79 | % | $ | 7,292 | 1.25 | % | $ | 1,959 | 1.16 | % | $ | — | — | % | $ | 10,715 | 1.31 | % | ||||||||||||||||||||||||
| U.S. government agencies | — | — | 2,309 | 1.40 | 1,639 | 1.56 | 261 | 1.90 | 4,209 | 1.49 | ||||||||||||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed | 132 | 0.16 | 1,133 | 0.88 | 109 | 0.95 | — | — | 1,374 | 0.82 | ||||||||||||||||||||||||||||||||||
| Supranational | 45 | 0.54 | 362 | 1.01 | — | — | — | — | 407 | 0.96 | ||||||||||||||||||||||||||||||||||
| Foreign government agencies | — | — | 60 | 0.79 | — | — | — | — | 60 | 0.79 | ||||||||||||||||||||||||||||||||||
| State and political subdivisions | 1 | 5.48 | 1 | 5.93 | 3 | 4.65 | 8 | 4.80 | 13 | 4.84 | ||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | 35,349 | 2.29 | ||||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS | 30 | 2.22 | ||||||||||||||||||||||||||||||||||||||||||
| Agency commercial MBS | 4,117 | 2.31 | ||||||||||||||||||||||||||||||||||||||||||
| CLOs | 983 | 3.80 | ||||||||||||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 1,642 | 1.63 | % | $ | 11,157 | 1.23 | % | $ | 3,710 | 1.33 | % | $ | 269 | 1.98 | % | $ | 57,257 | 2.03 | % | ||||||||||||||||||||||||
| Total securities | $ | 13,500 | 1.73 | % | $ | 42,705 | 1.27 | % | $ | 16,610 | 1.40 | % | $ | 2,709 | 2.75 | % | $ | 144,181 | 1.99 | % | ||||||||||||||||||||||||
(a) Yields are based upon the amortized cost of securities and consider the contractual coupon, amortization of premiums and accretion of discounts, excluding the effect of related hedging derivatives.
Pledged assets
At Sept. 30, 2022, BNY Mellon had pledged assets of $137 billion, including $106 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $8 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Sept. 30, 2022 included $120 billion of securities, $12 billion of loans, $4 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, 2021, BNY Mellon had pledged assets of $144 billion, including $112 billion pledged as collateral for potential borrowing at the Federal Reserve Discount Window and $7 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Dec. 31, 2021 included $126 billion of securities, $12 billion of loans, $5 billion of trading assets and $1 billion of interest-bearing deposits with banks.
64 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
At Sept. 30, 2022 and Dec. 31, 2021, pledged assets included $22 billion and $24 billion, respectively, for which the recipients were permitted to sell or repledge the assets delivered.
We also obtain securities as collateral, including receipts under resale agreements, securities borrowed, derivative contracts and custody agreements, on terms which permit us to sell or repledge the securities to others. At Sept. 30, 2022 and Dec. 31, 2021, the market value of the securities received that can be sold or repledged was $99 billion and $122 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept. 30, 2022 and Dec. 31, 2021, the market value of securities collateral sold or repledged was $63 billion and $78 billion, respectively.
Restricted cash and securities
Cash and securities may be segregated under federal and other regulations or requirements. At Sept. 30, 2022 and Dec. 31, 2021, cash segregated under federal and other regulations or requirements was $5 billion and $4 billion, respectively. Restricted cash is primarily included in interest-bearing deposits with banks on the consolidated balance sheet. Securities segregated under federal and other regulations or requirements were $4 billion at Sept. 30, 2022 and $4 billion at Dec. 31, 2021. 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, 2022 | Dec. 31, 2021 | ||||||
| (in millions) | ||||||||
| Commercial | $ | 2,135 | $ | 2,128 | ||||
| Commercial real estate | 6,299 | 6,033 | ||||||
| Financial institutions | 11,105 | 10,232 | ||||||
| Lease financings | 702 | 731 | ||||||
| Wealth management loans | 10,676 | 9,792 | ||||||
| Wealth management mortgages | 8,878 | 8,200 | ||||||
| Other residential mortgages | 356 | 299 | ||||||
| Capital call financing | 3,985 | 2,284 | ||||||
| Other | 2,884 | 2,541 | ||||||
| Overdrafts | 5,100 | 3,060 | ||||||
| Margin loans | 17,709 | 22,487 | ||||||
Total loans (a) | $ | 69,829 | $ | 67,787 | ||||
(a) Net of unearned income of $238 million at Sept. 30, 2022 and $240 million at Dec. 31, 2021 primarily related to lease financings.
We disclose information related to our loans and asset quality by the class of the financing receivable in the following tables.
BNY Mellon 65
Notes to Consolidated Financial Statements (continued) | ||
Allowance for credit losses
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, available-for-sale securities, held-to-maturity securities and accounts receivable.
Allowance for credit losses activity for the quarter ended Sept. 30, 2022 | Wealth management loans | Wealth management mortgages | Other residential mortgages | Capital call financing | |||||||||||||||||||||||||
| (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Total | ||||||||||||||||||||||||
| Beginning balance | $ | 16 | $ | 184 | $ | 21 | $ | 1 | $ | 1 | $ | 7 | $ | 7 | $ | 6 | $ | 243 | |||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Recoveries | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||
| Net recoveries | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||
Provision (a) | 1 | (8) | (1) | — | — | 2 | — | (2) | (8) | ||||||||||||||||||||
| Ending balance | $ | 17 | $ | 176 | $ | 20 | $ | 1 | $ | 1 | $ | 9 | $ | 8 | $ | 4 | $ | 236 | |||||||||||
| Allowance for: | |||||||||||||||||||||||||||||
| Loan losses | $ | 4 | $ | 130 | $ | 9 | $ | 1 | $ | 1 | $ | 8 | $ | 8 | $ | 3 | $ | 164 | |||||||||||
| Lending-related commitments | 13 | 46 | 11 | — | — | 1 | — | 1 | 72 | ||||||||||||||||||||
| Individually evaluated for impairment: | |||||||||||||||||||||||||||||
Loan balance (b) | $ | — | $ | 75 | $ | — | $ | — | $ | — | $ | 14 | $ | 1 | $ | — | $ | 90 | |||||||||||
| Allowance for loan losses | — | 1 | — | — | — | — | — | — | 1 | ||||||||||||||||||||
(a) Does not include the provision for credit losses benefit related to other financial instruments of $22 million for the quarter ended Sept. 30, 2022.
(b) Includes collateral-dependent loans of $90 million with $135 million of collateral at fair value.
Allowance for credit losses activity for the quarter ended June 30, 2022 | Wealth management loans | Wealth management mortgages | Other residential mortgages | Capital call financing | |||||||||||||||||||||||||
| (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Total | ||||||||||||||||||||||||
| Beginning balance | $ | 12 | $ | 176 | $ | 15 | $ | 1 | $ | 1 | $ | 9 | $ | 7 | $ | 3 | $ | 224 | |||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Recoveries | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||
| Net recoveries | — | — | — | — | — | — | 1 | — | 1 | ||||||||||||||||||||
Provision (a) | 4 | 8 | 6 | — | — | (2) | (1) | 3 | 18 | ||||||||||||||||||||
| Ending balance | $ | 16 | $ | 184 | $ | 21 | $ | 1 | $ | 1 | $ | 7 | $ | 7 | $ | 6 | $ | 243 | |||||||||||
| Allowance for: | |||||||||||||||||||||||||||||
| Loan losses | $ | 4 | $ | 147 | $ | 10 | $ | 1 | $ | 1 | $ | 6 | $ | 7 | $ | 5 | $ | 181 | |||||||||||
| Lending-related commitments | 12 | 37 | 11 | — | — | 1 | — | 1 | 62 | ||||||||||||||||||||
| Individually evaluated for impairment: | |||||||||||||||||||||||||||||
Loan balance (b) | $ | — | $ | 121 | $ | — | $ | — | $ | — | $ | 14 | $ | 1 | $ | — | $ | 136 | |||||||||||
| Allowance for loan losses | — | 1 | — | — | — | — | — | — | 1 | ||||||||||||||||||||
(a) Does not include the provision for credit losses related to other financial instruments of $29 million for the quarter ended June 30, 2022.
(b) Includes collateral-dependent loans of $136 million with $179 million of collateral at fair value.
66 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Allowance for credit losses activity for the quarter ended Sept. 30, 2021 | Wealth management loans (a) | Wealth management mortgages (a) | Other residential mortgages | Capital call financing (a) | Other | Total | ||||||||||||||||||||||||||
| (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | ||||||||||||||||||||||||||||
| Beginning balance | $ | 8 | $ | 289 | $ | 6 | $ | 2 | $ | 1 | $ | 4 | $ | 8 | $ | 1 | $ | — | $ | 319 | ||||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
| Recoveries | — | — | — | — | — | — | 1 | — | — | 1 | ||||||||||||||||||||||
| Net recoveries | — | — | — | — | — | — | 1 | — | — | 1 | ||||||||||||||||||||||
Provision (b) | 2 | (63) | 2 | (1) | — | — | (3) | — | 16 | (47) | ||||||||||||||||||||||
| Ending balance | $ | 10 | $ | 226 | $ | 8 | $ | 1 | $ | 1 | $ | 4 | $ | 6 | $ | 1 | $ | 16 | $ | 273 | ||||||||||||
| Allowance for: | ||||||||||||||||||||||||||||||||
| Loan losses | $ | 2 | $ | 199 | $ | 4 | $ | 1 | $ | 1 | $ | 3 | $ | 6 | $ | 1 | $ | 16 | $ | 233 | ||||||||||||
| Lending-related commitments | 8 | 27 | 4 | — | — | 1 | — | — | — | 40 | ||||||||||||||||||||||
| Individually evaluated for impairment: | ||||||||||||||||||||||||||||||||
Loan balance (c) | $ | — | $ | 25 | $ | — | $ | — | $ | — | $ | 18 | $ | 1 | $ | — | $ | 16 | $ | 60 | ||||||||||||
| Allowance for loan losses | — | 3 | — | — | — | — | — | — | 16 | 19 | ||||||||||||||||||||||
(a) In 2021, we began disclosing wealth management loans and wealth management mortgages separately and capital call financing loans. Beginning balances and the activity for the third quarter of 2021 have been revised to be comparable.
(b) Does not include the provision for credit losses related to other financial instruments of $2 million for the third quarter of 2021.
(c) Includes collateral-dependent loans of $60 million with $52 million of collateral at fair value.
Allowance for credit losses activity for the nine months ended Sept. 30, 2022 | Other residential mortgages | Capital call financing | Total | ||||||||||||||||||||||||||
| (in millions) | Commercial | Commercial real estate | Financial institutions | Lease financings | Wealth management loans | Wealth management mortgages | |||||||||||||||||||||||
| Beginning balance | $ | 12 | $ | 199 | $ | 13 | $ | 1 | $ | 1 | $ | 6 | $ | 7 | $ | 2 | $ | 241 | |||||||||||
| Charge-offs | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||
| Recoveries | — | — | — | — | — | — | 3 | — | 3 | ||||||||||||||||||||
| Net recoveries | — | — | — | — | — | — | 3 | — | 3 | ||||||||||||||||||||
Provision (a) | 5 | (23) | 7 | — | — | 3 | (2) | 2 | (8) | ||||||||||||||||||||
| Ending balance | $ | 17 | $ | 176 | $ | 20 | $ | 1 | $ | 1 | $ | 9 | $ | 8 | $ | 4 | $ | 236 | |||||||||||
(a) Does not include the provision for credit losses related to other financial instruments of $27 million for the nine months ended Sept. 30, 2022.
(a) In 2021, we began disclosing wealth management loans and wealth management mortgages separately and capital call financing loans. Beginning balances and the activity for the first nine months of 2021 have been revised to be comparable.
(b) Does not include the provision for credit losses benefit related to other financial instruments of $4 million for the nine months ended Sept. 30, 2021.
BNY Mellon 67
Notes to Consolidated Financial Statements (continued) | ||
Nonperforming assets
The table below presents our nonperforming assets.
| Nonperforming assets | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||
| Recorded investment | Recorded investment | ||||||||||||||||||||||
| With an allowance | Without an allowance | With an allowance | Without an allowance | ||||||||||||||||||||
| (in millions) | Total | Total | |||||||||||||||||||||
| Nonperforming loans: | |||||||||||||||||||||||
| Commercial real estate | $ | — | $ | 51 | $ | 51 | $ | 12 | $ | 42 | $ | 54 | |||||||||||
| Other residential mortgages | 32 | 1 | 33 | 38 | 1 | 39 | |||||||||||||||||
| Wealth management mortgages | 8 | 12 | 20 | 8 | 17 | 25 | |||||||||||||||||
| Total nonperforming loans | 40 | 64 | 104 | 58 | 60 | 118 | |||||||||||||||||
| Other assets owned | — | 3 | 3 | — | 2 | 2 | |||||||||||||||||
Total nonperforming assets | $ | 40 | $ | 67 | $ | 107 | $ | 58 | $ | 62 | $ | 120 | |||||||||||
Past due loans
The table below presents our past due loans.
| Past due loans and still accruing interest | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||||||||
| 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 | $ | 33 | $ | 5 | $ | — | $ | 38 | $ | 33 | $ | — | $ | — | $ | 33 | |||||||||||||
| Wealth management mortgages | 1 | 5 | — | 6 | 24 | — | — | 24 | |||||||||||||||||||||
| Commercial real estate | 5 | — | — | 5 | 3 | — | — | 3 | |||||||||||||||||||||
| Other residential mortgages | 4 | 1 | — | 5 | 2 | 1 | — | 3 | |||||||||||||||||||||
| Financial institutions | — | — | — | — | 31 | — | — | 31 | |||||||||||||||||||||
| Total past due loans | $ | 43 | $ | 11 | $ | — | $ | 54 | $ | 93 | $ | 1 | $ | — | $ | 94 | |||||||||||||
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. Not all modified loans are considered TDRs. We modified eight loans in the first nine months of 2022 with an aggregate recorded investment of $13 million. The modifications of the other residential and commercial real estate loans in the first nine months of 2022 consisted of reducing the stated interest rates and, in certain cases, forbearance of default and extending the maturity dates.
TDRs that subsequently defaulted
There were two residential mortgage loans that had been restructured in a TDR in 2022 and have subsequently defaulted in the third quarter of 2022.
The total recorded investment of these loans was less than $1 million.
Due to the coronavirus pandemic, there were two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the Interagency Guidance. The extension period ended Jan. 1, 2022. See Note 1 of the Notes to Consolidated Financial Statements in our 2021 Annual Report for additional details on the CARES Act, Consolidated Appropriations Act, 2021, and Interagency Guidance. Loans modified under the CARES Act or Interagency Guidance totaled $23 million in the third quarter of 2021. 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 did not identify any of the modifications as TDRs. At Sept. 30, 2022, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $74 million.
68 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
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 tables below provide information about the credit profile of the loan portfolio by the period of origination.
| Credit profile of the loan portfolio | Sept. 30, 2022 | |||||||||||||||||||||||||||||||
| Revolving loans | ||||||||||||||||||||||||||||||||
| Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | Accrued interest receivable | |||||||||||||||||||||||||||||
| (in millions) | YTD22 | 2021 | 2020 | 2019 | 2018 | Prior to 2018 | Total (a) | |||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Investment grade | $ | 322 | $ | 168 | $ | 20 | $ | — | $ | 13 | $ | 45 | $ | 1,402 | $ | — | $ | 1,970 | ||||||||||||||
| Non-investment grade | 82 | 6 | — | — | — | — | 77 | — | 165 | |||||||||||||||||||||||
| Total commercial | 404 | 174 | 20 | — | 13 | 45 | 1,479 | — | 2,135 | $ | 3 | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||
| Investment grade | 919 | 1,172 | 458 | 904 | 212 | 912 | 296 | — | 4,873 | |||||||||||||||||||||||
| Non-investment grade | 416 | 445 | 145 | 236 | 109 | 19 | 33 | 23 | 1,426 | |||||||||||||||||||||||
| Total commercial real estate | 1,335 | 1,617 | 603 | 1,140 | 321 | 931 | 329 | 23 | 6,299 | 20 | ||||||||||||||||||||||
| Financial institutions: | ||||||||||||||||||||||||||||||||
| Investment grade | 176 | 391 | — | — | — | 33 | 9,029 | — | 9,629 | |||||||||||||||||||||||
| Non-investment grade | 70 | — | — | — | — | — | 1,406 | — | 1,476 | |||||||||||||||||||||||
| Total financial institutions | 246 | 391 | — | — | — | 33 | 10,435 | — | 11,105 | 57 | ||||||||||||||||||||||
| Wealth management loans: | ||||||||||||||||||||||||||||||||
| Investment grade | 28 | 58 | 18 | 47 | — | 228 | 10,264 | — | 10,643 | |||||||||||||||||||||||
| Non-investment grade | — | — | — | — | — | — | 33 | — | 33 | |||||||||||||||||||||||
| Total wealth management loans | 28 | 58 | 18 | 47 | — | 228 | 10,297 | — | 10,676 | 38 | ||||||||||||||||||||||
| Wealth management mortgages | 1,523 | 1,997 | 934 | 788 | 494 | 3,120 | 22 | — | 8,878 | 18 | ||||||||||||||||||||||
| Lease financings | 18 | — | 52 | 11 | 7 | 614 | — | — | 702 | — | ||||||||||||||||||||||
| Other residential mortgages | — | — | — | — | — | 356 | — | — | 356 | 1 | ||||||||||||||||||||||
| Capital call financing | — | — | — | — | — | — | 3,985 | — | 3,985 | 18 | ||||||||||||||||||||||
| Other loans | — | — | — | — | — | — | 2,884 | — | 2,884 | 4 | ||||||||||||||||||||||
| Margin loans | 5,259 | — | — | — | — | — | 12,450 | — | 17,709 | 24 | ||||||||||||||||||||||
| Total loans | $ | 8,813 | $ | 4,237 | $ | 1,627 | $ | 1,986 | $ | 835 | $ | 5,327 | $ | 41,881 | $ | 23 | $ | 64,729 | $ | 183 | ||||||||||||
(a) Excludes overdrafts of $5,100 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within business days.
BNY Mellon 69
Notes to Consolidated Financial Statements (continued) | ||
| Credit profile of the loan portfolio | Dec. 31, 2021 | |||||||||||||||||||||||||||||||
| Revolving loans | ||||||||||||||||||||||||||||||||
| Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | Accrued interest receivable | |||||||||||||||||||||||||||||
| (in millions) | 2021 | 2020 | 2019 | 2018 | 2017 | Prior to 2017 | Total (a) | |||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Investment grade | $ | 348 | $ | 20 | $ | — | $ | 8 | $ | 145 | $ | — | $ | 1,450 | $ | — | $ | 1,971 | ||||||||||||||
| Non-investment grade | 81 | — | — | — | — | — | 76 | — | 157 | |||||||||||||||||||||||
| Total commercial | 429 | 20 | — | 8 | 145 | — | 1,526 | — | 2,128 | $ | 1 | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||
| Investment grade | 1,577 | 528 | 683 | 173 | 298 | 601 | 205 | — | 4,065 | |||||||||||||||||||||||
| Non-investment grade | 660 | 97 | 568 | 351 | 50 | 95 | 121 | 26 | 1,968 | |||||||||||||||||||||||
| Total commercial real estate | 2,237 | 625 | 1,251 | 524 | 348 | 696 | 326 | 26 | 6,033 | 7 | ||||||||||||||||||||||
| Financial institutions: | ||||||||||||||||||||||||||||||||
| Investment grade | 705 | — | — | — | — | 60 | 8,015 | — | 8,780 | |||||||||||||||||||||||
| Non-investment grade | 20 | — | — | — | — | — | 1,432 | — | 1,452 | |||||||||||||||||||||||
| Total financial institutions | 725 | — | — | — | — | 60 | 9,447 | — | 10,232 | 11 | ||||||||||||||||||||||
| Wealth management loans: | ||||||||||||||||||||||||||||||||
| Investment grade | 117 | 18 | 73 | 6 | 104 | 122 | 9,320 | — | 9,760 | |||||||||||||||||||||||
| Non-investment grade | 1 | — | — | — | — | — | 31 | — | 32 | |||||||||||||||||||||||
| Total wealth management loans | 118 | 18 | 73 | 6 | 104 | 122 | 9,351 | — | 9,792 | 12 | ||||||||||||||||||||||
| Wealth management mortgages | 2,058 | 1,008 | 855 | 542 | 885 | 2,838 | 14 | — | 8,200 | 14 | ||||||||||||||||||||||
| Lease financings | 25 | 67 | 15 | 10 | 2 | 612 | — | — | 731 | — | ||||||||||||||||||||||
| Other residential mortgages | — | — | — | — | — | 299 | — | — | 299 | 1 | ||||||||||||||||||||||
| Capital call financing | — | — | — | — | — | — | 2,284 | — | 2,284 | 3 | ||||||||||||||||||||||
| Other loans | — | — | — | — | — | — | 2,541 | — | 2,541 | 2 | ||||||||||||||||||||||
| Margin loans | 7,697 | — | — | — | — | — | 14,790 | — | 22,487 | 10 | ||||||||||||||||||||||
| Total loans | $ | 13,289 | $ | 1,738 | $ | 2,194 | $ | 1,090 | $ | 1,484 | $ | 4,627 | $ | 40,279 | $ | 26 | $ | 64,727 | $ | 61 | ||||||||||||
(a) Excludes overdrafts of $3,060 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within 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 96% of the exposures meeting the investment grade
equivalent criteria of our internal credit rating classification at Sept. 30, 2022. In addition, 66% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody. The exposure to financial institutions is generally short-term, with 84% expiring within one year.
Wealth management loans
Wealth management loans are not typically rated by external rating agencies. A majority of the wealth management loans are secured by the customers’ investment management accounts or custody accounts. Eligible assets pledged for these loans are typically investment grade fixed-income securities, equities and/or mutual funds. Internal ratings for this portion of the wealth management loan portfolio, therefore, would equate to investment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed,
70 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
but we do not consider this portion of wealth management loan portfolio to be investment grade.
Wealth management mortgages
Credit quality indicators for wealth management mortgages are not correlated to external ratings. Wealth management mortgages are typically loans to high-net-worth individuals, which are secured primarily by residential property. These loans are primarily interest-only, adjustable rate mortgages with a weighted-average loan-to-value ratio of 61% at origination. Delinquency rate is a key indicator of credit quality in the wealth management portfolio. At Sept. 30, 2022, less than 1% of the mortgages were past due.
At Sept. 30, 2022, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 21%; New York – 15%; Florida – 11%; Massachusetts – 8%; and other – 45%.
Lease financings
At Sept. 30, 2022, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest components of our lease residual value exposure relate to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $356 million at Sept. 30, 2022 and $299 million at Dec. 31, 2021. Included in this portfolio at Sept. 30, 2022 were $94 million of fixed-rate jumbo mortgage loans purchased in the second quarter of
2022 with a weighted-average loan-to-value ratio of 69% at origination. These loans are not typically correlated to external ratings.
Capital call financing
Capital call financing includes loans to private equity funds that are secured by the fund investors’ capital commitments and the funds’ right to call capital.
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 $17.7 billion of secured margin loans at Sept. 30, 2022, compared with $22.5 billion at Dec. 31, 2021. 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.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $5.1 billion at Sept. 30, 2022 and $3.1 billion at Dec. 31, 2021. Overdrafts occur on a daily basis and are generally repaid within business days.
Reverse repurchase agreements
Reverse repurchase agreements at Sept. 30, 2022 and Dec. 31, 2021 were fully secured with high-quality collateral. As a result, there was no allowance for credit losses related to these assets at Sept. 30, 2022 and Dec. 31, 2021.
BNY Mellon 71
Notes to Consolidated Financial Statements (continued) | ||
Note 6–Goodwill and intangible assets
Goodwill
The tables below provide a breakdown of goodwill by business segment.
Goodwill by business segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Consolidated | ||||||||||
| Balance at Dec. 31, 2021 | $ | 7,062 | $ | 1,435 | $ | 9,015 | $ | 17,512 | ||||||
| Impairment losses | — | — | (680) | (680) | ||||||||||
| Dispositions | (13) | — | — | (13) | ||||||||||
| Foreign currency translation | (142) | (18) | (247) | (407) | ||||||||||
| Balance at Sept. 30, 2022 | ||||||||||||||
| Goodwill | $ | 6,907 | $ | 1,417 | $ | 8,768 | $ | 17,092 | ||||||
| Accumulated impairment losses | — | — | (680) | (680) | ||||||||||
| Net goodwill | $ | 6,907 | $ | 1,417 | $ | 8,088 | $ | 16,412 | ||||||
Goodwill by business segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Consolidated | ||||||||||
| Balance at Dec. 31, 2020 | $ | 7,033 | $ | 1,423 | $ | 9,040 | $ | 17,496 | ||||||
| Dispositions | — | — | (5) | (5) | ||||||||||
| Foreign currency translation | (47) | (1) | (23) | (71) | ||||||||||
| Balance at Sept. 30, 2021 | $ | 6,986 | $ | 1,422 | $ | 9,012 | $ | 17,420 | ||||||
Goodwill impairment testing
The goodwill impairment test is performed at least annually at the reporting unit level. BNY Mellon’s business segments include six reporting units for which goodwill impairment testing is performed. As a result of the annual goodwill impairment test conducted in the second quarter of 2022, no goodwill impairment was recognized.
An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value.
In the third quarter 2022, due to decreases in market values and the related outlook as well as increased market interest rates, we performed an interim goodwill impairment test of the Investment Management reporting unit which had $7.0 billion of allocated goodwill. The fair value of the Investment Management reporting unit was determined to be 7% below its carrying value, resulting in a goodwill impairment charge of $680 million. This goodwill impairment represents a non-cash charge and did not
affect BNY Mellon’s liquidity position, tangible common equity or regulatory capital ratios. We determined it was not necessary to perform an interim goodwill impairment test for our other reporting units.
We determined the fair value of the Investment Management reporting unit using an income approach based on management’s projections as of Sept 30, 2022. The discount rate applied to these cash flows was 10.5% compared with the 10% discount rate used in the annual impairment test conducted in the second quarter of 2022. The increase was driven by a higher risk free rate. Determining the fair value of a reporting unit is subject to uncertainty as it is reliant on estimates of cash flows that extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame. The cash flow estimates for the Investment Management reporting unit are impacted by projections of the level and mix of assets under management, market values, operating margins and long-term growth rates. In the future, changes in the assumptions or the discount rate could produce a material non-cash goodwill impairment.
72 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Intangible assets
The tables below provide a breakdown of intangible assets by business segment.
Intangible assets – net carrying amount by business segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | ||||||||||||
| Balance at Dec. 31, 2021 | $ | 230 | $ | 392 | $ | 1,520 | $ | 849 | $ | 2,991 | |||||||
| Amortization | (25) | (6) | (20) | — | (51) | ||||||||||||
| Foreign currency translation | (8) | — | (30) | — | (38) | ||||||||||||
| Balance at Sept. 30, 2022 | $ | 197 | $ | 386 | $ | 1,470 | $ | 849 | $ | 2,902 | |||||||
Intangible assets – net carrying amount by business segment (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | ||||||||||||
| Balance at Dec. 31, 2020 | $ | 194 | $ | 414 | $ | 1,555 | $ | 849 | $ | 3,012 | |||||||
| Disposition | — | — | (6) | — | (6) | ||||||||||||
| Amortization | (24) | (17) | (22) | — | (63) | ||||||||||||
| Foreign currency translation | — | — | (2) | — | (2) | ||||||||||||
| Balance at Sept. 30, 2021 | $ | 170 | $ | 397 | $ | 1,525 | $ | 849 | $ | 2,941 | |||||||
The table below provides a breakdown of intangible assets by type.
| Intangible assets | Sept. 30, 2022 | Dec. 31, 2021 | ||||||||||||||||||||||||
| (dollars in millions) | Gross carrying amount | Accumulated amortization | Net carrying amount | Remaining weighted- average amortization period | Gross carrying amount | Accumulated amortization | Net carrying amount | |||||||||||||||||||
Subject to amortization: (a) | ||||||||||||||||||||||||||
| Customer contracts—Securities Services | $ | 733 | $ | (538) | $ | 195 | 11 years | $ | 747 | $ | (518) | $ | 229 | |||||||||||||
| Customer contracts—Market and Wealth Services | 314 | (299) | 15 | 4 years | 378 | (356) | 22 | |||||||||||||||||||
| Customer relationships—Investment and Wealth Management | 553 | (456) | 97 | 9 years | 568 | (456) | 112 | |||||||||||||||||||
| Other | 47 | (13) | 34 | 14 years | 47 | (8) | 39 | |||||||||||||||||||
| Total subject to amortization | 1,647 | (1,306) | 341 | 10 years | 1,740 | (1,338) | 402 | |||||||||||||||||||
Not subject to amortization: (b) | ||||||||||||||||||||||||||
| Tradename | 1,288 | N/A | 1,288 | N/A | 1,294 | N/A | 1,294 | |||||||||||||||||||
| Customer relationships | 1,273 | N/A | 1,273 | N/A | 1,295 | N/A | 1,295 | |||||||||||||||||||
| Total not subject to amortization | 2,561 | N/A | 2,561 | N/A | 2,589 | N/A | 2,589 | |||||||||||||||||||
| Total intangible assets | $ | 4,208 | $ | (1,306) | $ | 2,902 | N/A | $ | 4,329 | $ | (1,338) | $ | 2,991 | |||||||||||||
(a) Excludes fully amortized intangible assets.
(b) Intangible assets not subject to amortization have an indefinite life.
N/A – Not applicable.
Estimated annual amortization expense for current intangibles for the next five years is as follows:
| For the year ended Dec. 31, | Estimated amortization expense (in millions) | |||||||
| 2022 | $ | 67 | ||||||
| 2023 | 57 | |||||||
| 2024 | 49 | |||||||
| 2025 | 42 | |||||||
| 2026 | 34 | |||||||
Intangible asset impairment testing
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 73
Notes to Consolidated Financial Statements (continued) | ||
Note 7–Other assets
The following table provides the components of other assets presented on the consolidated balance sheet.
| Other assets | Sept. 30, 2022 | Dec. 31, 2021 | ||||||
| (in millions) | ||||||||
| Corporate/bank-owned life insurance | $ | 5,391 | $ | 5,359 | ||||
| Accounts receivable | 4,838 | 4,178 | ||||||
| Fails to deliver | 4,622 | 1,561 | ||||||
| Software | 2,190 | 2,096 | ||||||
| Prepaid pension assets | 2,012 | 1,946 | ||||||
| Cash collateral receivable on derivative transactions | 1,423 | 304 | ||||||
| Qualified affordable housing project investments | 1,255 | 1,153 | ||||||
| Renewable energy investments | 907 | 1,027 | ||||||
| Fair value of hedging derivatives | 875 | 206 | ||||||
| Prepaid expense | 804 | 476 | ||||||
| Equity method investments | 781 | 939 | ||||||
Other equity investments (a) | 642 | 449 | ||||||
| Income taxes receivable | 577 | 538 | ||||||
| Federal Reserve Bank stock | 477 | 472 | ||||||
Seed capital (b) | 342 | 357 | ||||||
| Assets of consolidated investment management funds | 214 | 462 | ||||||
Other (c) | 1,252 | 886 | ||||||
| Total other assets | $ | 28,602 | $ | 22,409 | ||||
(a) Includes strategic equity, private equity and other investments.
(b) Includes investments in BNY Mellon funds which hedge deferred incentive awards.
(c) At Sept. 30, 2022 and Dec. 31, 2021, other assets include $6 million and $7 million, respectively, of Federal Home Loan Bank stock, at cost.
Non-readily marketable equity securities
Non-readily marketable equity securities do not have readily determinable fair values. These investments are valued using a measurement alternative where the investments are carried at cost, less any impairment, and plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The observable price changes are recorded in investment and other revenue on the consolidated income statement. Our non-readily marketable equity securities totaled $434 million at Sept. 30, 2022 and $264 million at Dec. 31, 2021 and are included in other equity investments in the table above.
The following table presents the adjustments on the non-readily marketable equity securities.
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 $1.3 billion at Sept. 30, 2022 and $1.2 billion at Dec. 31, 2021. Commitments to fund future investments in qualified affordable housing projects totaled $595 million at Sept. 30, 2022 and $543 million at Dec. 31, 2021 and are recorded in other liabilities on the consolidated balance sheet. A summary of the commitments to fund future investments is as follows: remainder of 2022 – $92 million; 2023 – $210 million; 2024 – $144 million; 2025 – $90 million; 2026 – $21 million; and 2027 and thereafter – $38 million.
Tax credits and other tax benefits recognized were $38 million in the third quarter of 2022, $38 million in the second quarter of 2022, $38 million in the third quarter of 2021, $114 million in the first nine months of 2022 and $114 million in the first nine months of 2021.
Amortization expense included in the provision for income taxes was $32 million in the third quarter of 2022, $33 million in the second quarter of 2022, $32 million in the third quarter of 2021, $97 million in the first nine months of 2022 and $96 million in the first nine months of 2021.
Investments valued using net asset value (“NAV”) per share
In our Investment and Wealth Management business segment, we make seed capital investments in certain funds we manage. We also hold private equity investments, primarily small business investment companies (“SBICs”), which are compliant with the Volcker Rule, and certain other corporate investments. Seed capital, private equity and other
74 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
corporate investments are included in other assets on the consolidated balance sheet. The fair value of certain of these investments was estimated using the
NAV per share for our ownership interest in the funds.
The table below presents information on our investments valued using NAV.
(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 to 11 years at both Sept. 30, 2022 and Dec. 31, 2021, are liquidated.
(b) Includes investments in funds that relate to deferred compensation arrangements with employees.
(c) Private equity investments primarily include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated.
Note 8–Contract revenue
Fee and other revenue in the Securities Services, Market and Wealth Services and Investment and Wealth Management business segments is primarily variable, based on levels of assets under custody and/or administration, assets under management and the level of client-driven transactions, as specified in fee schedules. See Note 10 of the Notes to Consolidated Financial Statements in our 2021 Annual Report for information on the nature of our services and revenue recognition. See Note 24 of the Notes to Consolidated Financial Statements in our 2021 Annual Report for additional information on our principal business segments, Securities Services,
Market and Wealth Services and Investment and Wealth Management, and the primary services provided.
Disaggregation of contract revenue
Contract revenue is included in fee and other revenue on the consolidated income statement. The following tables present fee and other revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment. Business segment data has been determined on an internal management basis of accounting, rather than GAAP, which is used for consolidated financial reporting.
BNY Mellon 75
Notes to Consolidated Financial Statements (continued) | ||
| Disaggregation of contract revenue by business segment | |||||||||||||||||||||||||||||||||||
| Quarter ended | |||||||||||||||||||||||||||||||||||
| Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | |||||||||||||||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees | $ | 1,233 | $ | 903 | $ | 26 | $ | (16) | $ | 2,146 | $ | 1,260 | $ | 810 | $ | 26 | $ | (17) | $ | 2,079 | |||||||||||||||
| Investment management and performance fees | — | 5 | 800 | (3) | 802 | — | 5 | 901 | (6) | 900 | |||||||||||||||||||||||||
| Financing-related fees | 7 | 3 | — | 1 | 11 | 4 | 12 | — | — | 16 | |||||||||||||||||||||||||
| Distribution and servicing fees | 1 | (23) | 55 | — | 33 | 1 | (2) | 28 | 1 | 28 | |||||||||||||||||||||||||
| Investment and other revenue | 56 | 49 | (76) | (1) | 28 | 35 | 3 | (10) | — | 28 | |||||||||||||||||||||||||
| Total fee and other revenue – contract revenue | 1,297 | 937 | 805 | (19) | 3,020 | 1,300 | 828 | 945 | (22) | 3,051 | |||||||||||||||||||||||||
Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b) | 239 | 52 | — | 42 | 333 | 188 | 62 | 40 | 57 | 347 | |||||||||||||||||||||||||
| Total fee and other revenue | $ | 1,536 | $ | 989 | $ | 805 | $ | 23 | $ | 3,353 | $ | 1,488 | $ | 890 | $ | 985 | $ | 35 | $ | 3,398 | |||||||||||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of (loss) attributable to noncontrolling interests related to consolidated investment management funds of $— million in the third quarter of 2022 and $(4) million in the third quarter of 2021.
| Disaggregation of contract revenue by business segment | Quarter ended | ||||||||||||||||
| June 30, 2022 | |||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | ||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||
| Investment services fees | $ | 1,294 | $ | 898 | $ | 24 | $ | (17) | $ | 2,199 | |||||||
| Investment management and performance fees | — | 6 | 822 | (2) | 826 | ||||||||||||
| Financing-related fees | 11 | 4 | — | — | 15 | ||||||||||||
| Distribution and servicing fees | 1 | (17) | 51 | (1) | 34 | ||||||||||||
| Investment and other revenue | 54 | 38 | (66) | 1 | 27 | ||||||||||||
| Total fee and other revenue – contract revenue | 1,360 | 929 | 831 | (19) | 3,101 | ||||||||||||
Fee and other revenue – not in scope of ASC 606 (a)(b) | 189 | 45 | 6 | 94 | 334 | ||||||||||||
| Total fee and other revenue | $ | 1,549 | $ | 974 | $ | 837 | $ | 75 | $ | 3,435 | |||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of (loss) attributable to noncontrolling interests related to consolidated investment management funds of $(5) million in the second quarter of 2022.
76 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
| Disaggregation of contract revenue by business segment | |||||||||||||||||||||||||||||||||||
| Year-to-date | |||||||||||||||||||||||||||||||||||
| Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||||||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | |||||||||||||||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees | $ | 3,657 | $ | 2,647 | $ | 75 | $ | (50) | $ | 6,329 | $ | 3,685 | $ | 2,474 | $ | 75 | $ | (51) | $ | 6,183 | |||||||||||||||
| Investment management and performance fees | — | 17 | 2,509 | (11) | 2,515 | — | 13 | 2,654 | (15) | 2,652 | |||||||||||||||||||||||||
| Financing-related fees | 21 | 21 | — | 1 | 43 | 13 | 39 | — | — | 52 | |||||||||||||||||||||||||
| Distribution and servicing fees | 3 | (44) | 138 | — | 97 | 4 | (4) | 84 | — | 84 | |||||||||||||||||||||||||
| Investment and other revenue | 157 | 96 | (169) | (1) | 83 | 100 | 6 | (28) | — | 78 | |||||||||||||||||||||||||
| Total fee and other revenue – contract revenue | 3,838 | 2,737 | 2,553 | (61) | 9,067 | 3,802 | 2,528 | 2,785 | (66) | 9,049 | |||||||||||||||||||||||||
Fee and other revenue – not in scope of ASC 606 (a)(b) | 650 | 132 | (4) | 179 | 957 | 550 | 179 | 95 | 96 | 920 | |||||||||||||||||||||||||
| Total fee and other revenue | $ | 4,488 | $ | 2,869 | $ | 2,549 | $ | 118 | $ | 10,024 | $ | 4,352 | $ | 2,707 | $ | 2,880 | $ | 30 | $ | 9,969 | |||||||||||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of (loss) income attributable to noncontrolling interests related to consolidated investment management funds of $(13) million in the first nine months of 2022 and $6 million in the first nine months of 2021.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.5 billion at Sept. 30, 2022 and Dec. 31, 2021.
Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time and were $68 million at Sept. 30, 2022 and $42 million at Dec. 31, 2021. Accrued revenues recorded as contract assets are usually billed on an annual basis.
Both receivables from customers and contract assets are included in other assets on the consolidated balance sheet.
Contract liabilities represent payments received in advance of providing services under certain contracts and were $182 million at Sept. 30, 2022 and $163 million at Dec. 31, 2021. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the third quarter of 2022 relating to contract liabilities as of June 30, 2022 was $71 million. Revenue recognized in the first nine months of 2022 relating to contract liabilities as of Dec. 31, 2021 was $106 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 $57 million at Sept. 30, 2022 and $64 million at Dec. 31, 2021. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate and typically average nine years. The amortization of capitalized sales incentives, which is primarily included in staff expense on the consolidated income statement, totaled $5 million in the third quarter of 2022 and third quarter of 2021, $4 million in the second quarter of 2022, $14 million in the first nine months of 2022 and $15 million in the first nine months of 2021.
Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent set-up costs, which include any direct cost incurred at the inception of a contract which enables the fulfillment of the performance obligation, and totaled $25 million at Sept. 30, 2022 and $23 million at Dec. 31, 2021. These capitalized costs are amortized on a straight-line basis over the expected contract period, which generally ranges from to nine years. The amortization is included in professional, legal and other purchased services and other expenses on the
BNY Mellon 77
Notes to Consolidated Financial Statements (continued) | ||
consolidated income statement and totaled less than $1 million in the third quarter of 2022, third quarter of 2021 and second quarter of 2022 and $1 million in the first nine months of 2022 and first nine months of 2021.
Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to a
practical expedient election under ASC 606, Revenue From Contracts With Customers. The practical expedient election applies to (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Note 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, 2022 | June 30, 2022 | Sept. 30, 2021 | Sept. 30, 2022 | Sept. 30, 2021 | |||||||||||||||
| Interest revenue | ||||||||||||||||||||
| Deposits with the Federal Reserve and other central banks | $ | 288 | $ | 99 | $ | (21) | $ | 389 | $ | (62) | ||||||||||
| Deposits with banks | 67 | 33 | 12 | 114 | 37 | |||||||||||||||
| Federal funds sold and securities purchased under resale agreements | 321 | 116 | 32 | 474 | 89 | |||||||||||||||
| Loans | 581 | 370 | 238 | 1,211 | 705 | |||||||||||||||
| Securities: | ||||||||||||||||||||
| Taxable | 683 | 509 | 413 | 1,626 | 1,278 | |||||||||||||||
| Exempt from federal income taxes | 9 | 10 | 11 | 29 | 31 | |||||||||||||||
| Total securities | 692 | 519 | 424 | 1,655 | 1,309 | |||||||||||||||
| Trading securities | 35 | 22 | 8 | 78 | 38 | |||||||||||||||
| Total interest revenue | 1,984 | 1,159 | 693 | 3,921 | 2,116 | |||||||||||||||
| Interest expense | ||||||||||||||||||||
| Deposits | 488 | 90 | (44) | 541 | (130) | |||||||||||||||
| Federal funds purchased and securities sold under repurchase agreements | 250 | 77 | 2 | 339 | (6) | |||||||||||||||
| Trading liabilities | 23 | 10 | 1 | 37 | 6 | |||||||||||||||
| Other borrowed funds | 1 | 2 | 3 | 6 | 6 | |||||||||||||||
| Customer payables | 48 | 9 | (1) | 57 | (2) | |||||||||||||||
| Long-term debt | 248 | 147 | 91 | 493 | 301 | |||||||||||||||
| Total interest expense | 1,058 | 335 | 52 | 1,473 | 175 | |||||||||||||||
| Net interest revenue | 926 | 824 | 641 | 2,448 | 1,941 | |||||||||||||||
| Provision for credit losses | (30) | 47 | (45) | 19 | (214) | |||||||||||||||
| Net interest revenue after provision for credit losses | $ | 956 | $ | 777 | $ | 686 | $ | 2,429 | $ | 2,155 | ||||||||||
78 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Note 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, 2022 | June 30, 2022 | Sept. 30, 2021 | |||||||||||||||||||||||||||||||||
| (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 | $ | — | $ | — | $ | 4 | $ | — | |||||||||||||||||
| Interest cost | 35 | 6 | 1 | 35 | 7 | 1 | 35 | 6 | 1 | ||||||||||||||||||||||||||
| Expected return on assets | (78) | (8) | (2) | (78) | (9) | (1) | (75) | (9) | (2) | ||||||||||||||||||||||||||
| Other | 17 | 1 | (1) | 17 | 1 | (1) | 24 | 3 | — | ||||||||||||||||||||||||||
Net periodic benefit (credit) cost | $ | (26) | $ | 2 | $ | (2) | $ | (26) | $ | 2 | $ | (1) | $ | (16) | $ | 4 | $ | (1) | |||||||||||||||||
| Net periodic benefit (credit) cost | Year-to-date | ||||||||||||||||||||||
| Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||||||||
| (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | Domestic pension benefits | Foreign pension benefits | Health care benefits | |||||||||||||||||
| Service cost | $ | — | $ | 9 | $ | — | $ | — | $ | 11 | $ | — | |||||||||||
| Interest cost | 105 | 21 | 3 | 103 | 19 | 3 | |||||||||||||||||
| Expected return on assets | (234) | (27) | (5) | (225) | (26) | (5) | |||||||||||||||||
| Other | 51 | 3 | (3) | 73 | 10 | — | |||||||||||||||||
| Net periodic benefit (credit) cost | $ | (78) | $ | 6 | $ | (5) | $ | (49) | $ | 14 | $ | (2) | |||||||||||
Note 11–Income taxes
BNY Mellon recorded an income tax provision of $242 million (38.4% effective tax rate) in the third quarter of 2022, which includes approximately 19% impact due to the goodwill impairment. The income tax provision was $219 million (18.8% effective tax rate) in the third quarter of 2021 and $231 million (21.1% effective tax rate) in the second quarter of 2022.
Our total tax reserves as of Sept. 30, 2022 were $130 million compared with $138 million at Dec. 31, 2021. If these tax reserves were unnecessary, $130 million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in income tax expense. Included in the balance sheet at Sept. 30,
2022 is accrued interest, where applicable, of $38 million. The additional tax expense related to interest for the nine months ended Sept. 30, 2022 was $3 million, compared with $6 million for the nine months ended Sept. 30, 2021.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $12 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 2016. Our New York State income tax returns are closed to examination through 2014. Our New York City income tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2019.
BNY Mellon 79
Notes to Consolidated Financial Statements (continued) | ||
Note 12–Variable interest entities
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.
We earn management fees from these funds, as well as performance fees in certain funds, and may also provide start-up capital for new funds. The funds are primarily financed by our customers’ investments in the funds’ equity or debt.
Additionally, we invest in qualified affordable housing and renewable energy projects, which are designed to generate a return primarily through the realization of tax credits. The projects, which are structured as limited partnerships and limited liability companies, are also VIEs, but are not consolidated.
The following table presents the incremental assets and liabilities included in the consolidated balance sheet as of Sept. 30, 2022 and Dec. 31, 2021. 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.
(a) Includes voting model entities (“VMEs”) with assets of $99 million at Sept. 30, 2022 and $187 million at Dec. 31, 2021.
(b) Includes VMEs with liabilities of $1 million at Sept. 30, 2022 and $2 million at Dec. 31, 2021.
(c) Includes VMEs with nonredeemable noncontrolling interests of $7 million at Sept. 30, 2022 and $43 million at Dec. 31, 2021.
We 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, 2022 and Dec. 31, 2021, the following assets and liabilities related to the VIEs where we are not the primary beneficiary were included in our consolidated balance sheets and primarily related to accounting for our investments in qualified affordable housing and renewable energy projects.
The maximum loss exposure indicated in the following table relates solely to our investments in, and unfunded commitments to, the VIEs.
(a) Includes investments in the Company’s sponsored CLOs.
80 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Note 13–Preferred stock
The Parent has 100 million authorized shares of preferred stock with a par value of $0.01 per share. The following table summarizes the Parent’s preferred stock issued and outstanding at Sept. 30, 2022 and Dec. 31, 2021.
Preferred stock summary (a) | Total shares issued and outstanding | Carrying value (b) | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Sept. 30, 2022 | Dec. 31, 2021 | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||
| Per annum dividend rate | ||||||||||||||||||||
| Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period or (ii) 4.000% | 5,001 | 5,001 | $ | 500 | $ | 500 | |||||||||||||
| Series D | 4.500% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46% | 5,000 | 5,000 | 494 | 494 | |||||||||||||||
| Series F | 4.625% to but excluding Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131% | 10,000 | 10,000 | 990 | 990 | |||||||||||||||
| Series G | 4.700% to but excluding Sept. 20, 2025, then a floating rate equal to the five-year treasury rate plus 4.358% | 10,000 | 10,000 | 990 | 990 | |||||||||||||||
| Series H | 3.700% to but excluding March 20, 2026, then a floating rate equal to the five-year treasury rate plus 3.352% | 5,825 | 5,825 | 577 | 577 | |||||||||||||||
| Series I | 3.750% to but excluding Dec. 20, 2026, then a floating rate equal to the five-year treasury rate plus 2.630% | 13,000 | 13,000 | 1,287 | 1,287 | |||||||||||||||
| Total | 48,826 | 48,826 | $ | 4,838 | $ | 4,838 | ||||||||||||||
(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 D, Series F, Series G, Series H and Series I preferred stock is recorded net of issuance costs.
The table below presents the Parent’s preferred dividends.
| Preferred dividends | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per share amounts) | Depositary shares per share | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 | $ | 1,011.11 | $ | 5 | $ | 3,044.44 | $ | 15 | $ | 3,033.33 | $ | 15 | ||||||||||||||||||||||||||||||||||
| Series D | 100 | N/A | — | 2,250.00 | 11 | N/A | — | 2,250.00 | 11 | 2,250.00 | 11 | |||||||||||||||||||||||||||||||||||||||||||||
| Series E | 100 | N/A | N/A | N/A | N/A | 898.50 | 10 | N/A | N/A | 2,735.00 | 28 | |||||||||||||||||||||||||||||||||||||||||||||
| Series F | 100 | 2,312.50 | 23 | N/A | — | 2,312.50 | 23 | 4,625.00 | 46 | 4,625.00 | 46 | |||||||||||||||||||||||||||||||||||||||||||||
| Series G | 100 | 2,350.00 | 23 | N/A | — | 2,350.00 | 23 | 4,700.00 | 47 | 4,700.00 | 47 | |||||||||||||||||||||||||||||||||||||||||||||
| Series H | 100 | 925.00 | 6 | 925.00 | 6 | 925.00 | 5 | 2,775.00 | 17 | 3,258.06 | 19 | |||||||||||||||||||||||||||||||||||||||||||||
| Series I | 100 | 937.50 | 12 | 937.50 | 12 | N/A | N/A | 3,145.83 | 41 | N/A | N/A | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 69 | $ | 34 | $ | 66 | $ | 177 | $ | 166 | ||||||||||||||||||||||||||||||||||||||||||||||
(a) Represents Normal Preferred Capital Securities.
N/A – Not applicable.
In December 2021, all of the outstanding shares of the Series E preferred stock were redeemed.
All of the outstanding shares of the Series A preferred stock are owned by Mellon Capital IV, a 100% owned finance subsidiary of the Parent, which will pass through any dividend on the Series A preferred stock to the holders of its Normal Preferred Capital Securities. The Parent’s obligations under the trust and other agreements relating to Mellon Capital IV
have the effect of providing a full and unconditional guarantee, on a subordinated basis, of payments due on the Normal Preferred Capital Securities. No other subsidiary of the Parent guarantees the securities of Mellon Capital IV.
For additional information on the preferred stock, see Note 15 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
BNY Mellon 81
Notes to Consolidated Financial Statements (continued) | ||
Note 14–Other comprehensive income (loss)
| Components of other comprehensive income (loss) | Quarter ended | ||||||||||||||||||||||||||||||||||
| Sept. 30, 2022 | June 30, 2022 | Sept. 30, 2021 | |||||||||||||||||||||||||||||||||
| (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) | $ | (292) | $ | (150) | $ | (442) | $ | (436) | $ | (119) | $ | (555) | $ | (158) | $ | (44) | $ | (202) | |||||||||||||||||
| Total foreign currency translation | (292) | (150) | (442) | (436) | (119) | (555) | (158) | (44) | (202) | ||||||||||||||||||||||||||
| Unrealized (loss) on assets available-for-sale: | |||||||||||||||||||||||||||||||||||
| Unrealized (loss) arising during period | (1,205) | 297 | (908) | (1,167) | 285 | (882) | (201) | 51 | (150) | ||||||||||||||||||||||||||
Reclassification adjustment (b) | (1) | — | (1) | — | — | — | (2) | — | (2) | ||||||||||||||||||||||||||
| Net unrealized (loss) on assets available-for-sale | (1,206) | 297 | (909) | (1,167) | 285 | (882) | (203) | 51 | (152) | ||||||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||||||||||||||
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 17 | (4) | 13 | 17 | (4) | 13 | 28 | (6) | 22 | ||||||||||||||||||||||||||
| Total defined benefit plans | 17 | (4) | 13 | 17 | (4) | 13 | 28 | (6) | 22 | ||||||||||||||||||||||||||
| Unrealized (loss) gain on cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Unrealized hedge (loss) gain arising during period | (5) | 1 | (4) | (8) | 2 | (6) | 1 | — | 1 | ||||||||||||||||||||||||||
| Reclassification of net loss (gain) to net income: | |||||||||||||||||||||||||||||||||||
| Foreign exchange (“FX”) contracts – staff expense | 3 | (1) | 2 | 1 | — | 1 | (2) | — | (2) | ||||||||||||||||||||||||||
| FX contracts – investment and other revenue | 1 | — | 1 | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Total reclassifications to net income | 4 | (1) | 3 | 1 | — | 1 | (2) | — | (2) | ||||||||||||||||||||||||||
| Net unrealized (loss) on cash flow hedges | (1) | — | (1) | (7) | 2 | (5) | (1) | — | (1) | ||||||||||||||||||||||||||
| Total other comprehensive (loss) | $ | (1,482) | $ | 143 | $ | (1,339) | $ | (1,593) | $ | 164 | $ | (1,429) | $ | (334) | $ | 1 | $ | (333) | |||||||||||||||||
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information.
(b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains, which is included in investment and other revenue on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as other expense on the consolidated income statement.
| Components of other comprehensive income (loss) | Year-to-date | ||||||||||||||||||||||
| Sept. 30, 2022 | Sept. 30, 2021 | ||||||||||||||||||||||
| (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) | $ | (848) | $ | (302) | $ | (1,150) | $ | (247) | $ | (54) | $ | (301) | |||||||||||
| Total foreign currency translation | (848) | (302) | (1,150) | (247) | (54) | (301) | |||||||||||||||||
| Unrealized (loss) on assets available-for-sale: | |||||||||||||||||||||||
| Unrealized (loss) arising during period | (4,393) | 1,072 | (3,321) | (1,021) | 245 | (776) | |||||||||||||||||
Reclassification adjustment (b) | (5) | 1 | (4) | (4) | 1 | (3) | |||||||||||||||||
| Net unrealized (loss) on assets available-for-sale | (4,398) | 1,073 | (3,325) | (1,025) | 246 | (779) | |||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 51 | (7) | 44 | 83 | (14) | 69 | |||||||||||||||||
| Total defined benefit plans | 51 | (7) | 44 | 83 | (14) | 69 | |||||||||||||||||
| Unrealized (loss) gain on cash flow hedges: | |||||||||||||||||||||||
| Unrealized hedge (loss) gain arising during period | (16) | 4 | (12) | 2 | — | 2 | |||||||||||||||||
| Reclassification of net losses (gains) to net income: | |||||||||||||||||||||||
| FX contracts – staff expense | 4 | (1) | 3 | (11) | 2 | (9) | |||||||||||||||||
| FX contracts – investment and other revenue | 1 | — | 1 | — | — | — | |||||||||||||||||
| Total reclassifications to net income | 5 | (1) | 4 | (11) | 2 | (9) | |||||||||||||||||
| Net unrealized (loss) on cash flow hedges | (11) | 3 | (8) | (9) | 2 | (7) | |||||||||||||||||
| Total other comprehensive (loss) | $ | (5,206) | $ | 767 | $ | (4,439) | $ | (1,198) | $ | 180 | $ | (1,018) | |||||||||||
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information.
(b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains, which is included in investment and other revenue on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as other expense on the consolidated income statement.
82 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Note 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 20 of the Notes to Consolidated Financial Statements in our 2021 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, 2022 and Dec. 31, 2021, 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, 2022 | Total carrying value | ||||||||||||||||
| (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | |||||||||||||
| Available-for-sale securities: | |||||||||||||||||
| U.S. Treasury | $ | 28,156 | $ | — | $ | — | $ | — | $ | 28,156 | |||||||
| Sovereign debt/sovereign guaranteed | 4,335 | 6,000 | — | — | 10,335 | ||||||||||||
| Agency RMBS | — | 8,365 | — | — | 8,365 | ||||||||||||
| Agency commercial MBS | — | 8,100 | — | — | 8,100 | ||||||||||||
| Supranational | — | 7,599 | — | — | 7,599 | ||||||||||||
| Foreign covered bonds | — | 5,280 | — | — | 5,280 | ||||||||||||
| CLOs | — | 5,242 | — | — | 5,242 | ||||||||||||
| Non-agency commercial MBS | — | 2,893 | — | — | 2,893 | ||||||||||||
| Foreign government agencies | — | 2,315 | — | — | 2,315 | ||||||||||||
| Non-agency RMBS | — | 2,113 | — | — | 2,113 | ||||||||||||
| U.S. government agencies | — | 1,997 | — | — | 1,997 | ||||||||||||
| State and political subdivisions | — | 1,866 | — | — | 1,866 | ||||||||||||
| Other ABS | — | 1,465 | — | — | 1,465 | ||||||||||||
| Corporate bonds | — | 1,197 | — | — | 1,197 | ||||||||||||
| Other debt securities | — | 1 | — | — | 1 | ||||||||||||
| Total available-for-sale securities | 32,491 | 54,433 | — | — | 86,924 | ||||||||||||
| Trading assets: | |||||||||||||||||
| Debt instruments | 2,290 | 1,780 | — | — | 4,070 | ||||||||||||
| Equity instruments | 4,448 | — | — | — | 4,448 | ||||||||||||
| Derivative assets not designated as hedging: | |||||||||||||||||
| Interest rate | 28 | 1,504 | — | (1,053) | 479 | ||||||||||||
| Foreign exchange | — | 15,389 | — | (11,915) | 3,474 | ||||||||||||
| Equity and other contracts | 16 | 242 | — | (79) | 179 | ||||||||||||
| Total derivative assets not designated as hedging | 44 | 17,135 | — | (13,047) | 4,132 | ||||||||||||
| Total trading assets | 6,782 | 18,915 | — | (13,047) | 12,650 | ||||||||||||
| Other assets: | |||||||||||||||||
| Derivative assets designated as hedging: | |||||||||||||||||
| Interest rate | — | 195 | — | — | 195 | ||||||||||||
| Foreign exchange | — | 680 | — | — | 680 | ||||||||||||
| Total derivative assets designated as hedging | — | 875 | — | — | 875 | ||||||||||||
Other assets (b) | 302 | 206 | — | — | 508 | ||||||||||||
| Total other assets | 302 | 1,081 | — | — | 1,383 | ||||||||||||
Assets measured at NAV (b) | 216 | ||||||||||||||||
| Total assets | $ | 39,575 | $ | 74,429 | $ | — | $ | (13,047) | $ | 101,173 | |||||||
| Percentage of total assets prior to netting | 35 | % | 65 | % | — | % | |||||||||||
BNY Mellon 83
Notes to Consolidated Financial Statements (continued) | ||
Liabilities measured at fair value on a recurring basis at Sept. 30, 2022 | Total carrying value | ||||||||||||||||
| (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | |||||||||||||
| Trading liabilities: | |||||||||||||||||
| Debt instruments | $ | 3,426 | $ | 36 | $ | — | $ | — | $ | 3,462 | |||||||
| Equity instruments | 91 | — | — | — | 91 | ||||||||||||
| Derivative liabilities not designated as hedging: | |||||||||||||||||
| Interest rate | 11 | 1,793 | — | (1,025) | 779 | ||||||||||||
| Foreign exchange | — | 15,756 | — | (12,625) | 3,131 | ||||||||||||
| Equity and other contracts | — | 33 | — | (2) | 31 | ||||||||||||
| Total derivative liabilities not designated as hedging | 11 | 17,582 | — | (13,652) | 3,941 | ||||||||||||
| Total trading liabilities | 3,528 | 17,618 | — | (13,652) | 7,494 | ||||||||||||
| Other liabilities: | |||||||||||||||||
| Derivative liabilities designated as hedging: | |||||||||||||||||
| Interest rate | — | — | — | — | — | ||||||||||||
| Foreign exchange | — | 25 | — | — | 25 | ||||||||||||
| Total derivative liabilities designated as hedging | — | 25 | — | — | 25 | ||||||||||||
| Other liabilities | — | 1 | — | — | 1 | ||||||||||||
| Total other liabilities | — | 26 | — | — | 26 | ||||||||||||
| Total liabilities | $ | 3,528 | $ | 17,644 | $ | — | $ | (13,652) | $ | 7,520 | |||||||
| 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 seed capital, private equity investments and other assets.
84 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
Assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2021 | Total carrying value | ||||||||||||||||
| (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | |||||||||||||
| Assets | |||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||
| U.S. Treasury | $ | 29,409 | $ | — | $ | — | $ | — | $ | 29,409 | |||||||
| Agency RMBS | — | 14,530 | — | — | 14,530 | ||||||||||||
| Sovereign debt/sovereign guaranteed | 6,017 | 7,362 | — | — | 13,379 | ||||||||||||
| Agency commercial MBS | — | 8,405 | — | — | 8,405 | ||||||||||||
| Supranational | — | 7,573 | — | — | 7,573 | ||||||||||||
| Foreign covered bonds | — | 6,238 | — | — | 6,238 | ||||||||||||
| CLOs | — | 4,439 | — | — | 4,439 | ||||||||||||
| Non-agency commercial MBS | — | 3,125 | — | — | 3,125 | ||||||||||||
| Non-agency RMBS | — | 2,748 | — | — | 2,748 | ||||||||||||
| Foreign government agencies | — | 2,686 | — | — | 2,686 | ||||||||||||
| U.S. government agencies | — | 2,536 | — | — | 2,536 | ||||||||||||
| State and political subdivisions | — | 2,514 | — | — | 2,514 | ||||||||||||
| Other ABS | — | 2,190 | — | — | 2,190 | ||||||||||||
| Corporate bonds | — | 2,066 | — | — | 2,066 | ||||||||||||
| Other debt securities | — | 1 | — | — | 1 | ||||||||||||
| Total available-for-sale securities | 35,426 | 66,413 | — | — | 101,839 | ||||||||||||
| Trading assets: | |||||||||||||||||
| Debt instruments | 1,447 | 2,750 | — | — | 4,197 | ||||||||||||
| Equity instruments | 9,766 | — | — | — | 9,766 | ||||||||||||
| Derivative assets not designated as hedging: | |||||||||||||||||
| Interest rate | 6 | 3,253 | — | (1,424) | 1,835 | ||||||||||||
| Foreign exchange | — | 6,279 | — | (5,501) | 778 | ||||||||||||
| Equity and other contracts | — | 49 | — | (48) | 1 | ||||||||||||
| Total derivative assets not designated as hedging | 6 | 9,581 | — | (6,973) | 2,614 | ||||||||||||
| Total trading assets | 11,219 | 12,331 | — | (6,973) | 16,577 | ||||||||||||
Other assets: | |||||||||||||||||
| Derivative assets designated as hedging: | |||||||||||||||||
| Foreign exchange | — | 206 | — | — | 206 | ||||||||||||
| Total derivative assets designated as hedging | — | 206 | — | — | 206 | ||||||||||||
Other assets (b) | 438 | 325 | — | — | 763 | ||||||||||||
| Total other assets | 438 | 531 | — | — | 969 | ||||||||||||
Assets measured at NAV (b) | 218 | ||||||||||||||||
| Total assets | $ | 47,083 | $ | 79,275 | $ | — | $ | (6,973) | $ | 119,603 | |||||||
| Percentage of total assets prior to netting | 37 | % | 63 | % | — | % | |||||||||||
| Liabilities | |||||||||||||||||
| Trading liabilities: | |||||||||||||||||
| Debt instruments | $ | 2,452 | $ | 46 | $ | — | $ | — | $ | 2,498 | |||||||
| Equity instruments | 40 | — | — | — | 40 | ||||||||||||
| Derivative liabilities not designated as hedging: | |||||||||||||||||
| Interest rate | 1 | 2,834 | — | (2,028) | 807 | ||||||||||||
| Foreign exchange | — | 6,215 | — | (4,111) | 2,104 | ||||||||||||
| Equity and other contracts | 5 | 211 | — | (196) | 20 | ||||||||||||
| Total derivative liabilities not designated as hedging | 6 | 9,260 | — | (6,335) | 2,931 | ||||||||||||
| Total trading liabilities | 2,498 | 9,306 | — | (6,335) | 5,469 | ||||||||||||
| Other liabilities: | |||||||||||||||||
| Derivative liabilities designated as hedging: | |||||||||||||||||
| Interest rate | — | 453 | — | — | 453 | ||||||||||||
| Foreign exchange | — | 40 | — | — | 40 | ||||||||||||
| Total derivative liabilities designated as hedging | — | 493 | — | — | 493 | ||||||||||||
| Other liabilities | 1 | 2 | — | — | 3 | ||||||||||||
| Total other liabilities | 1 | 495 | — | — | 496 | ||||||||||||
| Total liabilities | $ | 2,499 | $ | 9,801 | $ | — | $ | (6,335) | $ | 5,965 | |||||||
| Percentage of total liabilities prior to netting | 20 | % | 80 | % | — | % | |||||||||||
(a) ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.
(b) Includes seed capital, private equity investments and other assets.
BNY Mellon 85
Notes to Consolidated Financial Statements (continued) | ||
| Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||||||||||||||||||||
Total carrying value (b) | Ratings (a) | Total carrying value (b) | Ratings (a) | ||||||||||||||||||||||||||||||||||||||
| AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | Not rated | AAA/ AA- | A+/ A- | BBB+/ BBB- | BB+ and lower | Not rated | ||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS, originated in: | |||||||||||||||||||||||||||||||||||||||||
| 2008-2022 | $ | 1,796 | 100 | % | — | % | — | % | — | % | — | % | $ | 2,190 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||||
| 2007 | 56 | — | 6 | — | 50 | 44 | 114 | — | 4 | — | 39 | 57 | |||||||||||||||||||||||||||||
| 2006 | 91 | — | 33 | — | 50 | 17 | 181 | — | 24 | — | 33 | 43 | |||||||||||||||||||||||||||||
| 2005 | 95 | 5 | 3 | 1 | 42 | 49 | 167 | 3 | 5 | 1 | 37 | 54 | |||||||||||||||||||||||||||||
| 2004 and earlier | 75 | 14 | 9 | 5 | 58 | 14 | 96 | 16 | 10 | 5 | 57 | 12 | |||||||||||||||||||||||||||||
| Total non-agency RMBS | $ | 2,113 | 86 | % | 2 | % | — | % | 7 | % | 5 | % | $ | 2,748 | 81 | % | 2 | % | — | % | 8 | % | 9 | % | |||||||||||||||||
| Non-agency commercial MBS originated in: | |||||||||||||||||||||||||||||||||||||||||
| 2009-2022 | $ | 2,893 | 100 | % | — | % | — | % | — | % | — | % | $ | 3,125 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||||
| Foreign covered bonds: | |||||||||||||||||||||||||||||||||||||||||
| Canada | $ | 2,108 | 100 | % | — | % | — | % | — | % | — | % | $ | 2,332 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||||
| UK | 1,088 | 100 | — | — | — | — | 1,141 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Australia | 613 | 100 | — | — | — | — | 762 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Germany | 556 | 100 | — | — | — | — | 638 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Norway | 350 | 100 | — | — | — | — | 457 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Other | 565 | 100 | — | — | — | — | 908 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Total foreign covered bonds | $ | 5,280 | 100 | % | — | % | — | % | — | % | — | % | $ | 6,238 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||||
| Sovereign debt/sovereign guaranteed: | |||||||||||||||||||||||||||||||||||||||||
| Germany | $ | 3,027 | 100 | % | — | % | — | % | — | % | — | % | $ | 3,585 | 100 | % | — | % | — | % | — | % | — | % | |||||||||||||||||
| UK | 1,693 | 100 | — | — | — | — | 1,969 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| France | 1,552 | 100 | — | — | — | — | 1,921 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Singapore | 1,059 | 100 | — | — | — | — | 1,018 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Canada | 676 | 100 | — | — | — | — | 630 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Italy | 549 | — | — | 100 | — | — | 1,382 | — | — | 100 | — | — | |||||||||||||||||||||||||||||
| Hong Kong | 488 | 100 | — | — | — | — | 531 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Japan | 423 | — | 100 | — | — | — | 363 | — | 100 | — | — | — | |||||||||||||||||||||||||||||
| Spain | 228 | — | 35 | 65 | — | — | 782 | — | 8 | 92 | — | — | |||||||||||||||||||||||||||||
Other (c) | 640 | 63 | 18 | — | 19 | — | 1,198 | 71 | 19 | — | 10 | — | |||||||||||||||||||||||||||||
| Total sovereign debt/sovereign guaranteed | $ | 10,335 | 86 | % | 6 | % | 7 | % | 1 | % | — | % | $ | 13,379 | 78 | % | 5 | % | 16 | % | 1 | % | — | % | |||||||||||||||||
| Foreign government agencies: | |||||||||||||||||||||||||||||||||||||||||
| Canada | $ | 625 | 83 | % | 17 | % | — | % | — | % | — | % | $ | 566 | 78 | % | 22 | % | — | % | — | % | — | % | |||||||||||||||||
| Norway | 461 | 100 | — | — | — | — | 269 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Netherlands | 349 | 100 | — | — | — | — | 765 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Sweden | 275 | 100 | — | — | — | — | 252 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Finland | 202 | 100 | — | — | — | — | 267 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| France | 177 | 100 | — | — | — | — | 301 | 100 | — | — | — | — | |||||||||||||||||||||||||||||
| Other | 226 | 63 | 37 | — | — | — | 266 | 64 | 36 | — | — | — | |||||||||||||||||||||||||||||
| Total foreign government agencies | $ | 2,315 | 92 | % | 8 | % | — | % | — | % | — | % | $ | 2,686 | 92 | % | 8 | % | — | % | — | % | — | % | |||||||||||||||||
(a) Represents ratings by S&P or the equivalent.
(b) At Sept. 30, 2022 and Dec. 31, 2021, 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 non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $122 million at Sept. 30, 2022 and $119 million at Dec. 31, 2021.
86 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
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, 2022 and Dec. 31, 2021.
Assets measured at fair value on a nonrecurring basis | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||||||||
| Total carrying value | Total carrying value | ||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
Loans (a) | $ | — | $ | 35 | $ | — | $ | 35 | $ | — | $ | 42 | $ | — | $ | 42 | |||||||||||||
Other assets (b) | — | 437 | — | 437 | — | 265 | — | 265 | |||||||||||||||||||||
| Total assets at fair value on a nonrecurring basis | $ | — | $ | 472 | $ | — | $ | 472 | $ | — | $ | 307 | $ | — | $ | 307 | |||||||||||||
(a) The fair value of these loans was unchanged in the third quarter of 2022 and the fourth quarter of 2021, 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.
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, 2022 and Dec. 31, 2021, by caption on the consolidated balance sheet and by the valuation hierarchy.
| Summary of financial instruments | Sept. 30, 2022 | ||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying amount | ||||||||||||
| Assets: | |||||||||||||||||
Interest-bearing deposits with the Federal Reserve and other central banks | $ | — | $ | 107,427 | $ | — | $ | 107,427 | $ | 107,427 | |||||||
| Interest-bearing deposits with banks | — | 13,887 | — | 13,887 | 13,890 | ||||||||||||
| Federal funds sold and securities purchased under resale agreements | — | 23,483 | — | 23,483 | 23,483 | ||||||||||||
| Securities held-to-maturity | 10,750 | 39,735 | — | 50,485 | 57,257 | ||||||||||||
Loans (a) | — | 68,585 | — | 68,585 | 68,963 | ||||||||||||
| Other financial assets | 4,707 | 1,671 | — | 6,378 | 6,378 | ||||||||||||
| Total | $ | 15,457 | $ | 254,788 | $ | — | $ | 270,245 | $ | 277,398 | |||||||
| Liabilities: | |||||||||||||||||
| Noninterest-bearing deposits | $ | — | $ | 88,275 | $ | — | $ | 88,275 | $ | 88,275 | |||||||
| Interest-bearing deposits | — | 208,794 | — | 208,794 | 213,714 | ||||||||||||
| Federal funds purchased and securities sold under repurchase agreements | — | 11,339 | — | 11,339 | 11,339 | ||||||||||||
| Payables to customers and broker-dealers | — | 23,741 | — | 23,741 | 23,741 | ||||||||||||
| Borrowings | — | 683 | — | 683 | 683 | ||||||||||||
| Long-term debt | — | 25,975 | — | 25,975 | 27,820 | ||||||||||||
| Total | $ | — | $ | 358,807 | $ | — | $ | 358,807 | $ | 365,572 | |||||||
(a) Does not include the leasing portfolio.
BNY Mellon 87
Notes to Consolidated Financial Statements (continued) | ||
| Summary of financial instruments | Dec. 31, 2021 | ||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying amount | ||||||||||||
| Assets: | |||||||||||||||||
Interest-bearing deposits with the Federal Reserve and other central banks | $ | — | $ | 102,467 | $ | — | $ | 102,467 | $ | 102,467 | |||||||
| Interest-bearing deposits with banks | — | 16,636 | — | 16,636 | 16,630 | ||||||||||||
| Federal funds sold and securities purchased under resale agreements | — | 29,607 | — | 29,607 | 29,607 | ||||||||||||
| Securities held-to-maturity | 12,488 | 44,287 | — | 56,775 | 56,866 | ||||||||||||
Loans (a) | — | 67,026 | — | 67,026 | 66,860 | ||||||||||||
| Other financial assets | 6,061 | 1,239 | — | 7,300 | 7,300 | ||||||||||||
| Total | $ | 18,549 | $ | 261,262 | $ | — | $ | 279,811 | $ | 279,730 | |||||||
| Liabilities: | |||||||||||||||||
| Noninterest-bearing deposits | $ | — | $ | 93,695 | $ | — | $ | 93,695 | $ | 93,695 | |||||||
| Interest-bearing deposits | — | 224,665 | — | 224,665 | 225,999 | ||||||||||||
| Federal funds purchased and securities sold under repurchase agreements | — | 11,566 | — | 11,566 | 11,566 | ||||||||||||
| Payables to customers and broker-dealers | — | 25,150 | — | 25,150 | 25,150 | ||||||||||||
| Borrowings | — | 956 | — | 956 | 956 | ||||||||||||
| Long-term debt | — | 26,701 | — | 26,701 | 25,931 | ||||||||||||
| Total | $ | — | $ | 382,733 | $ | — | $ | 382,733 | $ | 383,297 | |||||||
(a) Does not include the leasing portfolio.
Note 16–Fair value option
We elected fair value as an alternative measurement for selected financial assets and liabilities that are not otherwise required to be measured at fair value, including the assets and liabilities of consolidated investment management funds and subordinated notes associated with certain equity investments. The following table presents the assets and liabilities of consolidated investment management funds, at fair value.
Assets and liabilities of consolidated investment management funds, at fair value | ||||||||
| Sept. 30, 2022 | Dec. 31, 2021 | |||||||
| (in millions) | ||||||||
| Assets of consolidated investment management funds: | ||||||||
| Trading assets | $ | 206 | $ | 443 | ||||
| Other assets | 8 | 19 | ||||||
| Total assets of consolidated investment management funds | $ | 214 | $ | 462 | ||||
| Liabilities of consolidated investment management funds: | ||||||||
| Other liabilities | 1 | 3 | ||||||
| Total liabilities of consolidated investment management funds | $ | 1 | $ | 3 | ||||
The assets and liabilities of the consolidated investment management funds are included in other assets and other liabilities on the consolidated balance sheet. We value the assets and liabilities of consolidated investment management funds using quoted prices for identical assets or liabilities in active markets or observable inputs such as quoted
prices for similar assets or liabilities. Quoted prices for either identical or similar assets or liabilities in inactive markets may also be used. Accordingly, fair value best reflects the interests BNY Mellon holds in the economic performance of the consolidated investment management funds. Changes in the fair value of the assets and liabilities are recorded as income (loss) from consolidated investment management funds, which is included in investment and other revenue in the consolidated income statement.
We elected the fair value option on subordinated notes associated with certain equity investments. The fair value of these subordinated notes was $10 million at Sept. 30, 2022 and $15 million at Dec. 31, 2021. The subordinated notes were valued using observable market inputs and included in Level 2 of the valuation hierarchy.
Note 17–Derivative instruments
We use derivatives to manage exposure to market risk, including interest rate risk, equity price risk and foreign currency risk, as well as credit risk. Our trading activities are focused on acting as a market-maker for our customers and facilitating customer trades in compliance with the Volcker Rule.
The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller. We perform credit reviews and enter into netting
88 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
agreements and collateral arrangements to minimize the credit risk of derivative financial instruments. We enter into offsetting positions to reduce exposure to foreign currency, interest rate and equity price risk.
Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were no counterparty default losses recorded in the third quarter of 2022.
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 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, agency and non-agency commercial MBS, sovereign debt/sovereign guaranteed, state and political subdivisions, corporate bonds and foreign covered bonds. At Sept. 30, 2022, $32.6 billion par value of available-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $32.6 billion.
The fixed rate long-term debt instruments hedged generally have original maturities of to 30 years. In fair value hedging relationships, fixed rate debt is hedged with “receive fixed rate, pay variable rate” swaps. At Sept. 30, 2022, $22.9 billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $22.9 billion.
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 12 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, euro, Hong Kong dollar, Polish zloty and Singapore dollar used in revenue and expense transactions for entities that have the U.S. dollar as their functional currency. As of Sept. 30, 2022, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $407 million (notional), with a net pre-tax loss of $9 million recorded in accumulated other comprehensive income (“OCI”). This loss 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, 2022, $110 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $110 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. 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, 2022, forward foreign exchange contracts with notional amounts totaling $8.1 billion were designated as net investment hedges.
From time to time, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. At Sept. 30, 2022, there were no non-derivative financial instruments hedging our net investments in foreign subsidiaries.
BNY Mellon 89
Notes to Consolidated Financial Statements (continued) | ||
The following table presents the pre-tax gains (losses) related to our fair value and cash flow hedging activities recognized in the consolidated income statement.
| Income statement impact of fair value and cash flow hedges | ||||||||||||||||||||
| (in millions) | Location of gains (losses) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||||
| Interest rate fair value hedges of available-for-sale securities | ||||||||||||||||||||
| Derivative | Interest revenue | $ | 1,294 | $ | 866 | $ | 183 | $ | 3,644 | $ | 649 | |||||||||
| Hedged item | Interest revenue | (1,292) | (858) | (184) | (3,630) | (647) | ||||||||||||||
| Interest rate fair value hedges of long-term debt | ||||||||||||||||||||
| Derivative | Interest expense | (540) | (292) | (96) | (1,573) | (427) | ||||||||||||||
| Hedged item | Interest expense | 539 | 291 | 96 | 1,570 | 426 | ||||||||||||||
| Foreign exchange fair value hedges of available-for-sale securities | ||||||||||||||||||||
Derivative (a) | Foreign exchange revenue | (2) | (1) | — | (4) | 7 | ||||||||||||||
| Hedged item | Foreign exchange revenue | 2 | 2 | — | 5 | (6) | ||||||||||||||
| Cash flow hedges of forecasted FX exposures | ||||||||||||||||||||
| (Loss) gain reclassified from OCI into income | Staff expense | (3) | (1) | 2 | (4) | 11 | ||||||||||||||
| (Loss) reclassified from OCI into income | Investment and other revenue | (1) | — | — | (1) | — | ||||||||||||||
| (Loss) gain recognized in the consolidated income statement due to fair value and cash flow hedging relationships | $ | (3) | $ | 7 | $ | 1 | $ | 7 | $ | 13 | ||||||||||
(a) Includes gains of less than $1 million in the third quarter of 2022, $1 million in the second quarter of 2022, less than $1 million in the third quarter of 2021 and gains of $1 million in the first nine months of 2022 and first nine months of 2021 associated with the amortization of the excluded component. At Sept. 30, 2022 and Dec. 31, 2021, 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.
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, 2022 | Dec. 31, 2021 | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||
Available-for-sale securities (b)(c) | $ | 32,585 | $ | 24,400 | $ | (2,948) | $ | 590 | |||||||||
| Long-term debt | $ | 21,627 | $ | 22,447 | $ | (1,368) | $ | 183 | |||||||||
(a) Includes $90 million and $165 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2022 and Dec. 31, 2021, respectively, and $52 million and $72 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2022 and Dec. 31, 2021, 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 $110 million at Sept. 30, 2022 and $141 million at Dec. 31, 2021.
(c) Carrying amount represents the amortized cost.
90 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
The following table summarizes the notional amount and carrying values of our total derivative portfolio.
| Impact of derivative instruments on the balance sheet | Notional value | Asset derivatives fair value | Liability derivatives fair value | |||||||||||||||||||||||
| Sept. 30, 2022 | Dec. 31, 2021 | Sept. 30, 2022 | Dec. 31, 2021 | Sept. 30, 2022 | Dec. 31, 2021 | |||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
Derivatives designated as hedging instruments: (a)(b) | ||||||||||||||||||||||||||
| Interest rate contracts | $ | 55,575 | $ | 46,717 | $ | 195 | $ | — | $ | — | $ | 453 | ||||||||||||||
| Foreign exchange contracts | 8,610 | 10,367 | 680 | 206 | 25 | 40 | ||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ | 875 | $ | 206 | $ | 25 | $ | 493 | ||||||||||||||||||
Derivatives not designated as hedging instruments: (b)(c) | ||||||||||||||||||||||||||
| Interest rate contracts | $ | 219,878 | $ | 193,747 | $ | 1,532 | $ | 3,259 | $ | 1,804 | $ | 2,835 | ||||||||||||||
| Foreign exchange contracts | 870,047 | 915,694 | 15,389 | 6,279 | 15,756 | 6,215 | ||||||||||||||||||||
| Equity contracts | 4,304 | 9,659 | 257 | 49 | 30 | 211 | ||||||||||||||||||||
| Credit contracts | 275 | 190 | 1 | — | 3 | 5 | ||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ | 17,179 | $ | 9,587 | $ | 17,593 | $ | 9,266 | ||||||||||||||||||
Total derivatives fair value (d) | $ | 18,054 | $ | 9,793 | $ | 17,618 | $ | 9,759 | ||||||||||||||||||
Effect of master netting agreements (e) | (13,047) | (6,973) | (13,652) | (6,335) | ||||||||||||||||||||||
| Fair value after effect of master netting agreements | $ | 5,007 | $ | 2,820 | $ | 3,966 | $ | 3,424 | ||||||||||||||||||
(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 $2,497 million and $3,102 million, respectively, at Sept. 30, 2022, and $1,424 million and $786 million, respectively, at Dec. 31, 2021.
Trading activities (including trading derivatives)
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk-mitigating economic hedging in compliance with the Volcker Rule. The change in the fair value of the derivatives utilized in our trading activities is recorded in foreign exchange revenue and investment and other revenue on the consolidated income statement.
The following table presents our foreign exchange revenue and other trading revenue.
| Foreign exchange revenue and other trading revenue | |||||||||||||||||
| (in millions) | 3Q22 | 2Q22 | 3Q21 | YTD22 | YTD21 | ||||||||||||
| Foreign exchange revenue | $ | 203 | $ | 222 | $ | 185 | $ | 632 | $ | 600 | |||||||
| Other trading revenue | 65 | 45 | 20 | 115 | 12 | ||||||||||||
Foreign exchange revenue includes income from purchasing and selling foreign currencies, currency forwards, futures and options as well as foreign currency remeasurement. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities, and
trading and economic hedging activity with non-foreign exchange derivatives.
We also use derivative financial instruments as risk-mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were losses of $11 million in the third quarter of 2022, $2 million in the third quarter of 2021, $30 million in the second quarter of 2022 and $54 million in the first nine months of 2022 and a gain of $21 million in the first nine months of 2021.
We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity
BNY Mellon 91
Notes to Consolidated Financial Statements (continued) | ||
measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a -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.
The 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 into 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 15.
Disclosure of contingent features in over-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, 2022 | Dec. 31, 2021 | |||||||
| (in millions) | ||||||||
Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 4,709 | $ | 3,606 | ||||
| Collateral posted | $ | 5,667 | $ | 5,388 | ||||
(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 were 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, 2022 | Dec. 31, 2021 | |||||||
| (in millions) | ||||||||
If The Bank of New York Mellon’s rating changed to: (b) | ||||||||
| A3/A- | $ | 123 | $ | 56 | ||||
| Baa2/BBB | $ | 621 | $ | 563 | ||||
| Ba1/BB+ | $ | 1,802 | $ | 1,778 | ||||
(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.
92 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
If The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept. 30, 2022 and Dec. 31, 2021, existing collateral arrangements would
have required us to post additional collateral of $253 million and $71 million, respectively.
Offsetting assets and liabilities
The following tables present derivative and financial instruments 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.
(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.
(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b) Offsetting of reverse repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
BNY Mellon 93
Notes to Consolidated Financial Statements (continued) | ||
Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2022 | Net liabilities recognized in the balance sheet | ||||||||||||||||||||||
| Gross liabilities recognized | Gross amounts offset in the balance sheet | Gross amounts not offset in the balance sheet | |||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | |||||||||||||||||||
Derivatives subject to netting arrangements: | |||||||||||||||||||||||
| Interest rate contracts | $ | 1,560 | $ | 1,026 | $ | 534 | $ | 66 | $ | — | $ | 468 | |||||||||||
| Foreign exchange contracts | 14,897 | 12,624 | 2,273 | 391 | — | 1,882 | |||||||||||||||||
| Equity and other contracts | 22 | 2 | 20 | — | — | 20 | |||||||||||||||||
Total derivatives subject to netting arrangements | 16,479 | 13,652 | 2,827 | 457 | — | 2,370 | |||||||||||||||||
Total derivatives not subject to netting arrangements | 1,139 | — | 1,139 | — | — | 1,139 | |||||||||||||||||
| Total derivatives | 17,618 | 13,652 | 3,966 | 457 | — | 3,509 | |||||||||||||||||
| Repurchase agreements | 54,476 | 45,006 | (b) | 9,470 | 9,440 | 29 | 1 | ||||||||||||||||
| Securities lending | 1,869 | — | 1,869 | 1,777 | — | 92 | |||||||||||||||||
| Total | $ | 73,963 | $ | 58,658 | $ | 15,305 | $ | 11,674 | $ | 29 | $ | 3,602 | |||||||||||
(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, 2021 | Net liabilities recognized in the balance sheet | ||||||||||||||||||||||
| Gross liabilities recognized | Gross amounts offset in the balance sheet | Gross amounts not offset in the balance sheet | |||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | |||||||||||||||||||
Derivatives subject to netting arrangements: | |||||||||||||||||||||||
| Interest rate contracts | $ | 3,263 | $ | 2,028 | $ | 1,235 | $ | 1,197 | $ | — | $ | 38 | |||||||||||
| Foreign exchange contracts | 5,619 | 4,111 | 1,508 | 29 | — | 1,479 | |||||||||||||||||
| Equity and other contracts | 211 | 196 | 15 | — | — | 15 | |||||||||||||||||
Total derivatives subject to netting arrangements | 9,093 | 6,335 | 2,758 | 1,226 | — | 1,532 | |||||||||||||||||
Total derivatives not subject to netting arrangements | 666 | — | 666 | — | — | 666 | |||||||||||||||||
| Total derivatives | 9,759 | 6,335 | 3,424 | 1,226 | — | 2,198 | |||||||||||||||||
| Repurchase agreements | 64,734 | 54,709 | (b) | 10,025 | 10,025 | — | — | ||||||||||||||||
| Securities lending | 1,541 | — | 1,541 | 1,478 | — | 63 | |||||||||||||||||
| Total | $ | 76,034 | $ | 61,044 | $ | 14,990 | $ | 12,729 | $ | — | $ | 2,261 | |||||||||||
(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.
94 BNY Mellon
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, 2022 | Dec. 31, 2021 | ||||||||||||||||||||||||||||||||||
| Remaining contractual maturity | Total | Remaining contractual maturity | Total | ||||||||||||||||||||||||||||||||
| (in millions) | Overnight and continuous | Up to 30 days | 30-90 days | Over 90 days | Overnight and continuous | Up to 30 days | 30-90 days | Over 90 days | |||||||||||||||||||||||||||
| Repurchase agreements: | |||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ | 46,527 | $ | — | $ | 1,063 | $ | 508 | $ | 48,098 | $ | 56,556 | $ | 304 | $ | 450 | $ | — | $ | 57,310 | |||||||||||||||
| Agency RMBS | 1,786 | 40 | 2 | — | 1,828 | 2,795 | 1 | — | — | 2,796 | |||||||||||||||||||||||||
| Corporate bonds | 114 | 160 | 647 | 269 | 1,190 | 97 | 77 | 870 | 270 | 1,314 | |||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed | 622 | — | 1 | — | 623 | 160 | — | — | — | 160 | |||||||||||||||||||||||||
| State and political subdivisions | 27 | 55 | 250 | 98 | 430 | 44 | 16 | 630 | 155 | 845 | |||||||||||||||||||||||||
| U.S. government agencies | 397 | — | — | — | 397 | 503 | — | — | — | 503 | |||||||||||||||||||||||||
| Other debt securities | 4 | 19 | 9 | — | 32 | — | 30 | 245 | — | 275 | |||||||||||||||||||||||||
| Equity securities | — | 26 | 1,852 | — | 1,878 | — | 276 | 1,255 | — | 1,531 | |||||||||||||||||||||||||
| Total | $ | 49,477 | $ | 300 | $ | 3,824 | $ | 875 | $ | 54,476 | $ | 60,155 | $ | 704 | $ | 3,450 | $ | 425 | $ | 64,734 | |||||||||||||||
| Securities lending: | |||||||||||||||||||||||||||||||||||
| Agency RMBS | $ | 101 | $ | — | $ | — | $ | — | $ | 101 | $ | 152 | $ | — | $ | — | $ | — | $ | 152 | |||||||||||||||
| Other debt securities | 75 | — | — | — | 75 | 88 | — | — | — | 88 | |||||||||||||||||||||||||
| Equity securities | 1,693 | — | — | — | 1,693 | 1,301 | — | — | — | 1,301 | |||||||||||||||||||||||||
| Total | $ | 1,869 | $ | — | $ | — | $ | — | $ | 1,869 | $ | 1,541 | $ | — | $ | — | $ | — | $ | 1,541 | |||||||||||||||
| Total secured borrowings | $ | 51,346 | $ | 300 | $ | 3,824 | $ | 875 | $ | 56,345 | $ | 61,696 | $ | 704 | $ | 3,450 | $ | 425 | $ | 66,275 | |||||||||||||||
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 intra-day credit.
Note 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.
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The following table presents a summary of our off-balance sheet credit risks.
| Off-balance sheet credit risks | Sept. 30, 2022 | Dec. 31, 2021 | ||||||
| (in millions) | ||||||||
| Lending commitments | $ | 50,000 | $ | 46,183 | ||||
Standby letters of credit (“SBLC”) (a) | 2,013 | 1,971 | ||||||
| Commercial letters of credit | 46 | 56 | ||||||
Securities lending indemnifications (b)(c) | 482,002 | 487,298 | ||||||
(a)Net of participations totaling $138 million at Sept. 30, 2022 and $128 million at Dec. 31, 2021.
(b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $71 billion at Sept. 30, 2022 and $67 billion at Dec. 31, 2021.
(c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $50 billion at Sept. 30, 2022 and $48 billion at Dec. 31, 2021.
The total potential loss on undrawn lending commitments, standby and commercial letters of credit and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral.
Since many of the lending commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. A summary of lending commitment maturities is as follows: $29.8 billion in less than one year, $19.4 billion in one to five years and $859 million over five years.
SBLCs principally support obligations of corporate clients and were collateralized with cash and securities of $161 million at Sept. 30, 2022 and $172 million at Dec. 31, 2021. At Sept. 30, 2022, $1.4 billion of the SBLCs will expire within one year, $621 million in one to five years and none 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, 2022 | Dec. 31, 2021 | ||||||
| Investment grade | 76 | % | 85 | % | ||||
| Non-investment grade | 24 | % | 15 | % | ||||
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 $46 million at Sept. 30, 2022 and $56 million at Dec. 31, 2021.
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 $72 million at Sept. 30, 2022 and $45 million at Dec. 31, 2021.
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 of 102% 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
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counterparties. Securities lending indemnifications were secured by collateral of $506 billion at Sept. 30, 2022 and $511 billion at Dec. 31, 2021.
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, 2022 and Dec. 31, 2021, $71 billion and $67 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 $76 billion and $71 billion, respectively. If, upon a default, a borrower’s collateral was not sufficient to cover its related obligations, certain losses related to the indemnification could be covered by the indemnitors.
Unsettled repurchase and reverse repurchase agreements
In the normal course of business, we enter into repurchase agreements and reverse repurchase agreements that settle at a future date. In repurchase agreements, BNY Mellon receives cash from and provides securities as collateral to a counterparty at settlement. In reverse repurchase agreements, BNY Mellon advances cash to and receives securities as collateral from the counterparty at settlement. These transactions are recorded on the consolidated balance sheet on the settlement date. At Sept. 30, 2022, we had $2.5 billion of unsettled repurchase agreements and $6.1 billion of unsettled reverse repurchase agreements. At Dec. 31, 2021, we had $2.6 billion of unsettled repurchase agreements and $9.1 billion of unsettled reverse repurchase agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at Sept. 30, 2022. The tables below present our credit exposure in the financial institutions and commercial portfolios.
Financial institutions portfolio exposure (in billions) | Sept. 30, 2022 | ||||||||||
| Loans | Unfunded commitments | Total exposure | |||||||||
| Securities industry | $ | 1.7 | $ | 18.8 | $ | 20.5 | |||||
| Asset managers | 1.6 | 8.0 | 9.6 | ||||||||
| Banks | 7.3 | 1.5 | 8.8 | ||||||||
| Insurance | 0.1 | 3.7 | 3.8 | ||||||||
| Government | — | 0.3 | 0.3 | ||||||||
| Other | 0.4 | 0.9 | 1.3 | ||||||||
| Total | $ | 11.1 | $ | 33.2 | $ | 44.3 | |||||
Commercial portfolio exposure (in billions) | Sept. 30, 2022 | ||||||||||
| Loans | Unfunded commitments | Total exposure | |||||||||
| Manufacturing | $ | 0.8 | $ | 4.1 | $ | 4.9 | |||||
| Services and other | 1.0 | 3.1 | 4.1 | ||||||||
| Energy and utilities | 0.2 | 3.7 | 3.9 | ||||||||
| Media and telecom | 0.1 | 0.7 | 0.8 | ||||||||
| Total | $ | 2.1 | $ | 11.6 | $ | 13.7 | |||||
Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash and/or securities.
Sponsored member repo program
BNY Mellon is a sponsoring member in the FICC sponsored member program, where we submit eligible repurchase and reverse repurchase transactions in U.S. Treasury and agency securities (“Sponsored Member Transactions”) between BNY Mellon and our sponsored member clients for 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 17 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
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Notes to Consolidated Financial Statements (continued) | ||
related to providing financial services that are not otherwise included above. Insurance has been purchased to mitigate certain of these risks. Generally, there are no stated or notional amounts included in these indemnifications and the contingencies triggering the obligation for indemnification are not expected to occur. Furthermore, often counterparties to these transactions provide us with comparable indemnifications. We are unable to develop an estimate of the maximum payout under these indemnifications for several reasons. In addition to the lack of a stated or notional amount in a majority of such indemnifications, we are unable to predict the nature of events that would trigger indemnification or the level of indemnification for a certain event. We believe, however, that the possibility that we will have to make any material payments for these indemnifications is remote. At Sept. 30, 2022 and Dec. 31, 2021, 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, 2022 and Dec. 31, 2021, we did not record any material liabilities under these arrangements.
Legal proceedings
In the ordinary course of business, The Bank of New York Mellon Corporation and its subsidiaries are routinely named as defendants in or made parties to pending and potential legal actions. We also are subject to governmental and regulatory examinations,
information-gathering requests, investigations and proceedings (both formal and informal). Claims for significant monetary damages are often asserted in many of these legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in governmental and regulatory matters. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters. However, on the basis of our current knowledge and understanding, we do not believe that judgments, settlements or orders, if any, arising from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on the consolidated financial position or liquidity of BNY Mellon, although they could have a material effect on 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, we 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. We regularly monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we 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. We believe that our 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
98 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
receivable up to the amount of the accrual that is probable of recovery.
For certain of those matters described here for which a loss contingency may, in the future, be reasonably possible (whether in excess of a related accrued liability or where there is no accrued liability), BNY Mellon is currently unable to estimate a range of reasonably possible loss. For those matters described here where BNY Mellon is able to estimate a reasonably possible loss, the aggregate range of such reasonably possible loss is up to $520 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 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. Three actions commenced in December 2014, December 2015 and February 2017 are pending in New York federal court. In New York state court, seven actions are pending: one case commenced in May 2016; three related cases commenced in September 2021 and October 2022; and three related cases commenced in October 2021, December 2021 and February 2022.
Matters Related to R. Allen Stanford
In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, also controlled by Stanford, issued certificates of deposit (“CDs”). Some investors allegedly wired funds from their SGC accounts to purchase CDs. In 2009, the Securities 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 two putative class action proceedings against Pershing: one in November 2009 in Texas federal
court, and one in May 2016 in New Jersey federal court. On Nov. 5, 2021, the court dismissed the class action filed in New Jersey and that matter has concluded. Three lawsuits remain against Pershing in Louisiana and New Jersey federal courts, which were filed in January 2010, October 2015 and May 2016. The purchasers allege that Pershing, as SGC’s clearing firm, assisted Stanford in a fraudulent scheme and assert contractual, statutory and common law claims. In March 2019, a group of investors filed a putative class action against The Bank of New York Mellon in New Jersey federal court, making the same allegations as in the prior actions brought against Pershing. On Nov. 12, 2021, the court dismissed the class action against The Bank of New York Mellon and that matter is on appeal. All the cases that have been brought in federal court against Pershing have been consolidated in Texas federal court for discovery purposes. Various alleged Stanford CD purchasers asserted similar claims in Financial Industry Regulatory Authority, Inc. (“FINRA”) arbitration proceedings.
Brazilian Postalis Litigation
BNY Mellon Servicos Financeiros DTVM S.A. (“DTVM”), a subsidiary that provides 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 appealed. On Aug. 4, 2021, the appellate court overturned the dismissal and sent the lawsuit to a state lower court. On Dec. 17, 2015, Postalis filed three lawsuits in Rio de Janeiro against DTVM and Ativos alleging failure to properly perform duties with respect to investments in several other funds.
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Notes to Consolidated Financial Statements (continued) | ||
On May 20, 2021, the court in one of those lawsuits entered a judgment of approximately $3 million against DTVM and Ativos. On Aug. 23, 2021, DTVM and Ativos filed an appeal of the May 20 decision. On June 7, 2022, the appellate court partially granted and partially denied the appeal, reducing the judgment to approximately $2 million. DTVM and Ativos intend to file a further appeal. On Aug. 24, 2022, the court dismissed one of the other lawsuits. 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 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. On Aug. 4, 2021, the appellate court overturned the dismissal and returned the lawsuit to the lower court. On April 11, 2022, DTVM appealed the Aug. 4 decision to Brazil’s Superior Court of Justice. In addition, the Tribunal de Contas da União (“TCU”), an administrative tribunal, has initiated three proceedings with the purpose of determining liability for losses to three investment funds administered by DTVM in which Postalis was an investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and two former Postalis directors jointly and severally liable for approximately $50 million. TCU also imposed on DTVM a fine of approximately $2 million. DTVM’s administrative appeal of the decision was denied. On Feb. 25, 2022, DTVM filed a lawsuit in Brazil federal court in Brasilia seeking annulment of TCU’s decision and an injunction preventing TCU from enforcing the judgment. On Oct. 4, 2019, Postalis and another pension fund filed a request for arbitration in São Paulo against DTVM and Ativos alleging liability for losses to an investment fund for which DTVM was administrator and Ativos was manager. On March 26, 2021, DTVM and Ativos filed a lawsuit challenging the decision rendered by the Arbitration Court with respect to its jurisdiction over the case. 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 May 9, 2022, the court found DTVM and Alocação de Patrimônio jointly and severally liable for approximately $20 million. On Aug. 12, 2022, DTVM and Alocação de Patrimônio appealed the decision. On June 19, 2020, a lawsuit was filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator. On Feb. 10, 2021, Postalis and another pension fund served DTVM in a lawsuit filed in Rio de Janeiro, alleging liability for losses in another investment fund for which DTVM was administrator and the other defendant was manager.
Brazilian Silverado Litigation
DTVM acts as administrator for the Fundo de Investimento em Direitos Creditórios Multisetorial Silverado Maximum (“Silverado Maximum Fund”), which invests in commercial credit receivables. On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. - Banco Alemão in its capacity as custodian and Silverado Gestão e Investimentos Ltda. in its capacity as investment manager. The Fund alleges that each of the defendants failed to fulfill its respective duty, and caused losses to the Fund for which the defendants are jointly and severally liable.
German Tax Matters
German authorities are investigating past “cum/ex” trading, which involved the purchase of equity securities on or shortly before the dividend date, but settled after that date, potentially resulting in an unwarranted refund of withholding tax. German authorities have taken the view that past cum/ex trading may have resulted in tax avoidance or evasion. European subsidiaries of BNY Mellon have been informed by German authorities about investigations into potential cum/ex trading by certain third-party investment funds, where one of the subsidiaries had acquired entities that served as depositary and/or fund manager for those third-party investment funds. We have received information requests from the authorities relating to pre-acquisition activity and are cooperating fully with those requests. In August 2019, the District Court of Bonn ordered that one of these subsidiaries be joined as a secondary party in connection with the prosecution of unrelated individual defendants. Trial
100 BNY Mellon
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commenced in 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 November and December 2020, we received secondary liability notices from the German tax authorities totaling approximately $150 million (at then-prevailing exchange rates) related to pre-acquisition activity in various funds for which the entities we acquired were depositary and/or fund manager. We have appealed the notices. In connection with the acquisition of the subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.
Note 19–Business segments
We have an internal information system that produces performance data along product and service lines for our three principal business segments and the Other segment. The primary products and services and types of revenue for our principal businesses and a description of the Other segment are presented in Note 24 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than GAAP which is used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
Business segment results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no reclassification or organization changes in the third quarter of 2022.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 2021 Annual Report.
The results of our business segments are presented and analyzed on an internal management reporting basis.
•Revenue amounts reflect fee and other revenue generated by each 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 fees in each segment.
•Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated with clients using custody products is included in the Securities Services segment.
•Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds 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 segment.
•Incentives expense related to restricted stock and RSUs is allocated to the segments.
•Support and other indirect expenses, including services provided between segments that are not provided to third parties or not subject to a revenue transfer agreement, are allocated to the businesses based on internally developed methodologies 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
BNY Mellon 101
Notes to Consolidated Financial Statements (continued) | ||
related to the portion of the securities portfolio restructured in 2009 has been included in the results of the businesses.
•Balance sheet assets and liabilities and their related income or expense are specifically
assigned to each business. Segments with a net liability position have been allocated assets.
•Goodwill and intangible assets are reflected within individual businesses.
The following consolidating schedules present the contribution of our segments to our overall profitability.
For the quarter ended Sept. 30, 2022 | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ | 1,536 | $ | 989 | $ | 805 | (a) | $ | 23 | $ | 3,353 | (a) | ||||||||||||||||||||
| Net interest revenue (expense) | 538 | 378 | 57 | (47) | 926 | |||||||||||||||||||||||||||
| Total revenue (loss) | 2,074 | 1,367 | 862 | (a) | (24) | 4,279 | (a) | |||||||||||||||||||||||||
| Provision for credit losses | (6) | (1) | 3 | (26) | (30) | |||||||||||||||||||||||||||
| Noninterest expense | 1,557 | 737 | 1,356 | 29 | 3,679 | |||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 523 | $ | 631 | $ | (497) | (a) | $ | (27) | $ | 630 | (a) | ||||||||||||||||||||
Pre-tax operating margin (b) | 25 | % | 46 | % | (57) | % | N/M | 15 | % | |||||||||||||||||||||||
| Average assets | $ | 203,063 | $ | 138,204 | $ | 29,996 | $ | 44,407 | $ | 415,670 | ||||||||||||||||||||||
(a) Total fee and other revenue, total revenue and income before income taxes are net of loss attributable to noncontrolling interests related to consolidated investment management funds of $— million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
For the quarter ended June 30, 2022 | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ | 1,549 | $ | 974 | $ | 837 | (a) | $ | 75 | $ | 3,435 | (a) | ||||||||||||||||||||
| Net interest revenue (expense) | 457 | 340 | 62 | (35) | 824 | |||||||||||||||||||||||||||
| Total revenue | 2,006 | 1,314 | 899 | (a) | 40 | 4,259 | (a) | |||||||||||||||||||||||||
| Provision for credit losses | 13 | 4 | — | 30 | 47 | |||||||||||||||||||||||||||
| Noninterest expense | 1,656 | 702 | 691 | 63 | 3,112 | |||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 337 | $ | 608 | $ | 208 | (a) | $ | (53) | $ | 1,100 | (a) | ||||||||||||||||||||
Pre-tax operating margin (b) | 17 | % | 46 | % | 23 | % | N/M | 26 | % | |||||||||||||||||||||||
| Average assets | $ | 219,797 | $ | 141,952 | $ | 33,668 | $ | 42,206 | $ | 437,623 | ||||||||||||||||||||||
(a) Total fee and other revenue, total revenue and income before income taxes are net of loss attributable to noncontrolling interests related to consolidated investment management funds of $5 million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
For the quarter ended Sept. 30, 2021 | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ | 1,488 | $ | 890 | $ | 985 | (a) | $ | 35 | $ | 3,398 | (a) | ||||||||||||||||||||
| Net interest revenue (expense) | 349 | 283 | 47 | (38) | 641 | |||||||||||||||||||||||||||
| Total revenue (loss) | 1,837 | 1,173 | 1,032 | (a) | (3) | 4,039 | (a) | |||||||||||||||||||||||||
| Provision for credit losses | (19) | (16) | (7) | (3) | (45) | |||||||||||||||||||||||||||
| Noninterest expense | 1,543 | 668 | 691 | 16 | 2,918 | |||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 313 | $ | 521 | $ | 348 | (a) | $ | (16) | $ | 1,166 | (a) | ||||||||||||||||||||
Pre-tax operating margin (b) | 17 | % | 44 | % | 34 | % | N/M | 29 | % | |||||||||||||||||||||||
| Average assets | $ | 226,930 | $ | 143,630 | $ | 30,195 | $ | 46,006 | $ | 446,761 | ||||||||||||||||||||||
(a) Total fee and other revenue, total revenue and income before income taxes are net of loss attributable to noncontrolling interests related to consolidated investment management funds of $4 million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
102 BNY Mellon
Notes to Consolidated Financial Statements (continued) | ||
For the nine months ended Sept. 30, 2022 | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ | 4,488 | $ | 2,869 | $ | 2,549 | (a) | $ | 118 | $ | 10,024 | (a) | ||||||||||||||||||||
| Net interest revenue (expense) | 1,372 | 1,014 | 176 | (114) | 2,448 | |||||||||||||||||||||||||||
| Total revenue | 5,860 | 3,883 | 2,725 | (a) | 4 | 12,472 | (a) | |||||||||||||||||||||||||
| Provision for credit losses | (3) | 1 | — | 21 | 19 | |||||||||||||||||||||||||||
| Noninterest expense | 4,723 | 2,147 | 2,802 | 125 | 9,797 | |||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 1,140 | $ | 1,735 | $ | (77) | (a) | $ | (142) | $ | 2,656 | (a) | ||||||||||||||||||||
Pre-tax operating margin (b) | 19 | % | 45 | % | (3) | % | N/M | 21 | % | |||||||||||||||||||||||
| Average assets | $ | 214,518 | $ | 140,435 | $ | 33,077 | $ | 43,044 | $ | 431,074 | ||||||||||||||||||||||
(a) Total fee and other revenue, total revenue and income before income taxes are net of loss attributable to noncontrolling interests related to consolidated investment management funds of $13 million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
For the nine months ended Sept. 30, 2021 | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ | 4,352 | $ | 2,707 | $ | 2,880 | (a) | $ | 30 | $ | 9,969 | (a) | ||||||||||||||||||||
| Net interest revenue (expense) | 1,059 | 861 | 142 | (121) | 1,941 | |||||||||||||||||||||||||||
| Total revenue (loss) | 5,411 | 3,568 | 3,022 | (a) | (91) | 11,910 | (a) | |||||||||||||||||||||||||
| Provision for credit losses | (127) | (64) | (7) | (16) | (214) | |||||||||||||||||||||||||||
| Noninterest expense | 4,362 | 2,002 | 2,077 | 106 | 8,547 | |||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 1,176 | $ | 1,630 | $ | 952 | (a) | $ | (181) | $ | 3,577 | (a) | ||||||||||||||||||||
Pre-tax operating margin (b) | 22 | % | 46 | % | 31 | % | N/M | 30 | % | |||||||||||||||||||||||
| Average assets | $ | 228,714 | $ | 145,562 | $ | 30,870 | $ | 47,960 | $ | 453,106 | ||||||||||||||||||||||
(a) Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management funds of $6 million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
Note 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) | 2022 | 2021 | |||||||||
| Transfers from loans to other assets for other real estate owned | $ | 1 | $ | 1 | |||||||
| Change in assets of consolidated investment management funds | 248 | 18 | |||||||||
| Change in liabilities of consolidated investment management funds | 2 | 2 | |||||||||
| Change in nonredeemable noncontrolling interests of consolidated investment management funds | 189 | 130 | |||||||||
| Securities purchased not settled | 126 | 531 | |||||||||
| Securities sold not settled | — | 29 | |||||||||
| Available-for-sale securities transferred to held-to-maturity securities | 6,067 | 11,028 | |||||||||
| Premises and equipment/capitalized software funded by finance lease obligations | — | 11 | |||||||||
| Premises and equipment/operating lease obligations | 177 | 72 | |||||||||
BNY Mellon 103
| Item 4. Controls and Procedures | ||
Disclosure controls and procedures
Our management, including the Chief Executive Officer and Chief Financial Officer, with participation by the members of the Disclosure Committee, has responsibility for ensuring that there is an adequate and effective process for establishing, maintaining, and evaluating disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our SEC reports is timely recorded, processed, summarized and reported and that information required to be disclosed by BNY Mellon is accumulated and communicated to BNY Mellon’s management to allow timely decisions regarding the required disclosure. In addition, our ethics hotline can also be used by employees and others for the anonymous communication of concerns about financial controls or reporting matters. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in internal control over financial reporting
In the ordinary course of business, we may routinely modify, upgrade or enhance our internal controls and procedures for financial reporting. There have not been any changes in our internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act during the third quarter of 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
104 BNY Mellon
Forward-looking Statements | ||
Some statements in this Quarterly Report are forward-looking. These include statements about the usefulness of Non-GAAP measures, the future results of BNY Mellon, our businesses, financial, liquidity and capital condition, results of operations, liquidity, risk and capital management and processes, goals, strategies, outlook, objectives, expectations (including those regarding our performance results, expenses, nonperforming assets, products, impacts of currency fluctuations, impacts of money market fee waivers, deposits, impacts of trends on our businesses, regulatory, technology, market, economic or accounting developments and the impacts of such developments on our businesses, legal proceedings and other contingencies), human capital management (including related ambitions, objectives, aims and goals), effective tax rate, net interest revenue, estimates (including those regarding expenses, losses inherent in our credit portfolios and capital ratios), intentions (including those regarding our capital returns and expenses, including our investments in technology and pension expense), targets, opportunities, potential actions, growth and 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,” “ambition,” “objective,” “aim,” “future,” “potentially,” “outlook” and words of similar meaning, may signify forward-looking statements.
Actual results may differ materially from those expressed or implied as a result of a number of factors, including the war in Ukraine, as well as those discussed in “Risk Factors” in our 2021 Annual Report, such as:
•errors or delays in our operational and transaction processing, or those of third parties, may materially adversely affect our business, financial condition, results of operations and reputation;
•our risk management framework, models and processes may not be effective in identifying or mitigating risk and reducing the potential for losses;
•our business may be adversely affected if we are unable to attract, retain and motivate employees;
•a communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients may materially adversely affect our business, financial condition and results of operations;
•a cybersecurity incident, or a failure in our computer systems, networks and information, or those of third parties, could result in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information. Any such incident or failure could adversely impact our ability to conduct our businesses, damage our reputation and cause losses;
•we are subject to extensive government rulemaking, policies, regulation and supervision that impact our operations. Changes to and introduction of new rules and regulations have compelled, and in the future may compel, us to change how we manage our businesses, which could have a material adverse effect on our business, financial condition and results of operations;
•regulatory or enforcement actions or litigation could materially adversely affect our results of operations or harm our businesses or reputation;
•a failure or circumvention of our controls and procedures could have a material adverse effect on our business, financial condition, results of operations and reputation;
•we are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences;
•weakness and volatility in financial markets and the economy generally may materially adversely affect our business, financial condition and results of operations;
•changes in interest rates and yield curves have had, and may in the future continue to have, a material adverse effect on our profitability;
•we may experience losses on securities related to volatile and illiquid market conditions, reducing our earnings and impacting our financial condition;
BNY Mellon 105
Forward-looking Statements (continued) | ||
•transitions away from and the replacement of LIBOR and other IBORs could adversely impact our business, financial condition and results of operations;
•the failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions or sovereign entities, and our assumption of credit, counterparty and concentration risk, could expose us to loss and adversely affect our business;
•we could incur losses if our allowance for credit losses, including loan and lending-related commitment reserves, is inadequate or if our expectations of future economic conditions deteriorate;
•our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity;
•failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition;
•the Parent is a non-operating holding company and, as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of dividends to its stockholders;
•our ability to return capital to shareholders is subject to the discretion of our Board of Directors and may be limited by U.S. banking laws and regulations, including those governing capital and capital planning, applicable provisions of Delaware law and our failure to pay full and timely dividends on our preferred stock;
•any material reduction in our credit ratings or the credit ratings of 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 business, financial condition and results of operations and on the value of the securities we issue;
•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;
•new lines of business, new products and services or transformational or strategic project initiatives subject us to new or additional risks, and the failure to implement these initiatives 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 strategic transactions present risks and uncertainties and could have an adverse effect on our business, financial condition and results of operations;
•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 businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm;
•climate change concerns could adversely affect our business, affect client activity levels and damage our reputation;
•impacts from natural disasters, climate change, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations;
•tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition; and
•changes in accounting standards governing the preparation of our financial statements and 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 our 2021 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 website referenced herein are not part of this report.
106 BNY Mellon
Part II – Other Information | ||
Item 1. Legal Proceedings.
The information required by this Item is set forth in the “Legal proceedings” section in Note 18 of the Notes to Consolidated Financial Statements, which portion is incorporated herein by reference in response to this item.
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 2022. 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 2022 | 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, 2022 | ||||||||||||||||||||||||
| (dollars in millions, except per share amounts; common shares in thousands) | Total shares repurchased | Average price per share | ||||||||||||||||||||||||
| July 2022 | 21 | $ | 49.18 | 21 | $ | 2,628 | ||||||||||||||||||||
| August 2022 | 4 | 44.24 | 4 | 2,628 | ||||||||||||||||||||||
| September 2022 | 11 | 47.45 | 11 | 2,628 | ||||||||||||||||||||||
Third quarter of 2022 (a) | 36 | $ | 48.07 | 36 | $ | 2,628 | (b) | |||||||||||||||||||
(a) Includes 36 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. There were no open market repurchases in the third quarter of 2022.
(b) Represents the maximum value of the shares to be repurchased through the fourth quarter of 2022 under the share repurchase plan announced in June 2021 and includes shares repurchased in connection with employee benefit plans.
In June 2021, in connection with the Federal Reserve’s release of the 2021 CCAR stress tests, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $6.0 billion of common shares beginning in the third quarter of 2021 and continuing through the fourth quarter of 2022. This share repurchase plan replaced all previously authorized share repurchase plans.
Share repurchases may be executed through open market repurchases, in privately negotiated transactions or by other means, including through repurchase plans designed to comply with Rule
10b5-1 and 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 limitations and considerations.
Item 6. Exhibits.
The list of exhibits required to be filed as exhibits to this report appears below.
BNY Mellon 107
Index to Exhibits | ||
| Exhibit No. | Description | Method of Filing | ||||||||||||
| 3.1 | Restated Certificate of Incorporation of The Bank of New York Mellon Corporation. | |||||||||||||
| 3.2 | Certificate of Amendment to The Bank of New York Mellon Corporation’s Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on April 9, 2019. | |||||||||||||
| 3.3 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series A Noncumulative Preferred Stock, dated June 15, 2007. | |||||||||||||
| 3.4 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series D Noncumulative Perpetual Preferred Stock, dated May 16, 2013. | |||||||||||||
| 3.5 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series F Noncumulative Perpetual Preferred Stock, dated July 29, 2016. | |||||||||||||
| 3.6 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series G Noncumulative Perpetual Preferred Stock, dated May 15, 2020. | |||||||||||||
| 3.7 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series H Noncumulative Perpetual Preferred Stock, dated Nov. 2, 2020. | |||||||||||||
| 3.8 | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series I Noncumulative Perpetual Preferred Stock, dated Nov. 16, 2021. | |||||||||||||
| 3.9 | Amended and Restated By-Laws of The Bank of New York Mellon Corporation, as amended and restated on Feb. 12, 2018. | |||||||||||||
108 BNY Mellon
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, 2022. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument. | N/A | ||||||||||||
| 10.1 | 2022 Form of Restricted Stock Unit Agreement. | |||||||||||||
| 10.2 | 2022 Form of Performance Share Unit Agreement. | |||||||||||||
| 22.1 | Subsidiary Issuer of Guaranteed Securities. | |||||||||||||
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||||||||
| 31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||||||||
| 32.1 | Certification of the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||||||||
| 32.2 | Certification of the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||||||||
| 101.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 Bank of New York Mellon Corporation’s Quarterly Report on Form 10-Q for the quarter ended Sept. 30, 2022, formatted in inline XBRL. | The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101. | ||||||||||||
BNY Mellon 109
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, 2022 | By: | /s/ Kurtis R. Kurimsky | |||||||||
| Kurtis R. Kurimsky | |||||||||||
| Corporate Controller | |||||||||||
| (Duly Authorized Officer and | |||||||||||
| Principal Accounting Officer of | |||||||||||
| the Registrant) | |||||||||||
110 BNY Mellon