BANK OF NEW YORK MELLON CORP
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
For the Quarterly Period Ended
June 30, 2023
or
Commission File Number
001-35651
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code – (
212
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495-1784
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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Title of each class
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Trading
symbol(s) |
Name of each exchange
on which registered |
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(fully and unconditionally guaranteed by The Bank of New York Mellon Corporation)
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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
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No
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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
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No
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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.
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☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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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.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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As of June 30, 2023,
778,782,468
shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
THE BANK OF NEW YORK MELLON CORPORATION
Second Quarter 2023 Form 10-Q
Table of Contents
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Consolidated Financial Highlights (unaudited)
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| Part I – Financial Information | |||||
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Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk:
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Overview
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Supplemental information – Explanation of GAAP
and Non-GAAP financial measures
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| Item 1. Financial Statements: | |||||
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Consolidated Income Statement (unaudited)
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Consolidated Comprehensive Income Statement (unaudited)
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Consolidated Balance Sheet (unaudited)
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Consolidated Statement of Cash Flows (unaudited)
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Consolidated Statement of Changes in Equity (unaudited)
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| Notes to Consolidated Financial Statements: | |||||
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Note 2—New accounting guidance
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Note 3—Acquisitions
and dispositions
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Item 4. Controls and Procedures
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| Part II – Other Information | |||||
The Bank of New York Mellon Corporation (and its subsidiaries)
Consolidated Financial Highlights (unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
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(dollars in millions, except per share amounts and unless
otherwise noted) |
June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||
| Results applicable to common shareholders of The Bank of New York Mellon Corporation: | ||||||||||||||||||||
| Net income | $ | 1,031 | $ | 905 | $ | 835 | $ | 1,936 | $ | 1,534 | ||||||||||
| Basic earnings per share | $ | 1.31 | $ | 1.13 | $ | 1.03 | $ | 2.43 | $ | 1.89 | ||||||||||
| Diluted earnings per share | $ | 1.30 | $ | 1.12 | $ | 1.03 | $ | 2.42 | $ | 1.88 | ||||||||||
| Fee and other revenue | $ | 3,354 | $ | 3,235 | $ | 3,430 | $ | 6,589 | $ | 6,658 | ||||||||||
| Net interest revenue | 1,100 | 1,128 | 824 | 2,228 | 1,522 | |||||||||||||||
| Total revenue | $ | 4,454 | $ | 4,363 | $ | 4,254 | $ | 8,817 | $ | 8,180 | ||||||||||
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Return on common equity
(annualized)
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11.6 | % | 10.3 | % | 9.3 | % | 10.9 | % | 8.4 | % | ||||||||||
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Return on tangible common equity
(annualized) –
Non-GAAP
(a)
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22.6 | % | 20.2 | % | 19.2 | % | 21.4 | % | 17.2 | % | ||||||||||
| Fee revenue as a percentage of total revenue | 73 | % | 72 | % | 78 | % | 73 | % | 79 | % | ||||||||||
| Non-U.S. revenue as a percentage of total revenue | 37 | % | 35 | % | 36 | % | 36 | % | 35 | % | ||||||||||
| Pre-tax operating margin | 30 | % | 28 | % | 26 | % | 29 | % | 25 | % | ||||||||||
| Net interest margin | 1.20 | % | 1.29 | % | 0.89 | % | 1.25 | % | 0.82 | % | ||||||||||
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Net interest margin on a fully taxable equivalent (“FTE”) basis
– Non-GAAP
(b)
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1.20 | % | 1.29 | % | 0.89 | % | 1.25 | % | 0.83 | % | ||||||||||
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Assets under custody and/or administration (“AUC/A”) at period end
(in trillions) (c)
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$ | 46.9 | $ | 46.6 | $ | 43.0 | $ | 46.9 | $ | 43.0 | ||||||||||
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Assets under management (“AUM”) at period end
(in billions) (d)
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$ | 1,906 | $ | 1,908 | $ | 1,937 | $ | 1,906 | $ | 1,937 | ||||||||||
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Average common shares and equivalents outstanding
(in thousands)
:
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| Basic | 787,718 | 803,340 | 810,903 | 795,512 | 810,233 | |||||||||||||||
| Diluted | 790,725 | 807,718 | 813,590 | 799,157 | 813,894 | |||||||||||||||
| Selected average balances: | ||||||||||||||||||||
| Interest-earning assets | $ | 362,049 | $ | 348,378 | $ | 370,782 | $ | 355,251 | $ | 371,997 | ||||||||||
| Total assets | $ | 421,174 | $ | 407,501 | $ | 437,623 | $ | 414,375 | $ | 438,924 | ||||||||||
| Interest-bearing deposits | $ | 215,057 | $ | 204,114 | $ | 219,124 | $ | 209,616 | $ | 221,172 | ||||||||||
| Noninterest-bearing deposits | $ | 62,152 | $ | 69,886 | $ | 91,893 | $ | 65,997 | $ | 91,060 | ||||||||||
| Long-term debt | $ | 31,970 | $ | 30,246 | $ | 26,195 | $ | 31,112 | $ | 25,893 | ||||||||||
| Preferred stock | $ | 4,838 | $ | 4,838 | $ | 4,838 | $ | 4,838 | $ | 4,838 | ||||||||||
| Total The Bank of New York Mellon Corporation common shareholders’ equity | $ | 35,769 | $ | 35,604 | $ | 36,199 | $ | 35,687 | $ | 36,778 | ||||||||||
| Other information at period end: | ||||||||||||||||||||
| Cash dividends per common share | $ | 0.37 | $ | 0.37 | $ | 0.34 | $ | 0.74 | $ | 0.68 | ||||||||||
| Common dividend payout ratio | 29 | % | 34 | % | 33 | % | 31 | % | 36 | % | ||||||||||
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Common dividend yield
(annualized)
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3.3 | % | 3.3 | % | 3.3 | % | 3.4 | % | 3.3 | % | ||||||||||
| Closing stock price per common share | $ | 44.52 | $ | 45.44 | $ | 41.71 | $ | 44.52 | $ | 41.71 | ||||||||||
| Market capitalization | $ | 34,671 | $ | 35,858 | $ | 33,706 | $ | 34,671 | $ | 33,706 | ||||||||||
| Book value per common share | $ | 46.35 | $ | 45.36 | $ | 44.73 | $ | 46.35 | $ | 44.73 | ||||||||||
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Tangible book value per common share – Non-GAAP
(a)
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$ | 24.17 | $ | 23.52 | $ | 22.02 | $ | 24.17 | $ | 22.02 | ||||||||||
| Full-time employees | 53,200 | 51,600 | 50,800 | 53,200 | 50,800 | |||||||||||||||
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Common shares outstanding
(in thousands)
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778,782 | 789,134 | 808,103 | 778,782 | 808,103 | |||||||||||||||
2 BNY Mellon
Consolidated Financial Highlights (unaudited)
(continued)
| Regulatory capital and other ratios | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | |||||||||||
| Average liquidity coverage ratio (“LCR”) | 120 | % | 118 | % | 118 | % | ||||||||
| Average net stable funding ratio (“NSFR”) | 136 | % | 132 | % | N/A | (e) | ||||||||
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Regulatory capital ratios:
(f)
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| Advanced Approaches: | ||||||||||||||
| Common Equity Tier 1 (“CET1”) ratio | 11.1 | % | 11.0 | % | 11.2 | % | ||||||||
| Tier 1 capital ratio | 14.0 | 13.9 | 14.1 | |||||||||||
| Total capital ratio | 14.8 | 14.7 | 14.9 | |||||||||||
| Standardized Approach: | ||||||||||||||
| CET1 ratio | 11.8 | % | 11.4 | % | 11.3 | % | ||||||||
| Tier 1 capital ratio | 15.0 | 14.4 | 14.4 | |||||||||||
| Total capital ratio | 16.0 | 15.4 | 15.3 | |||||||||||
| Tier 1 leverage ratio | 5.7 | % | 5.8 | % | 5.8 | % | ||||||||
| Supplementary leverage ratio (“SLR”) | 7.0 | 6.9 | 6.8 | |||||||||||
| BNY Mellon shareholders’ equity to total assets ratio | 9.5 | % | 9.6 | % | 10.0 | % | ||||||||
| BNY Mellon common shareholders’ equity to total assets ratio | 8.4 | 8.4 | 8.8 | |||||||||||
(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
43
for the reconciliation of Non-GAAP measures.
(b) See “Net interest revenue” on page
9
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 $1.6 trillion at June 30, 2023 and $1.5 trillion at March 31, 2023 and June 30, 2022.
(d) Excludes assets managed outside of the Investment and Wealth Management business segment.
(e) The reporting requirement for the average NSFR became effective in the second quarter of 2023, inclusive of reporting the average ratio for the first quarter of 2023. For additional information on our NSFR, see “Liquidity and dividends” beginning on page
31
.
(f) 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
35
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N/A – Not applicable.
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, 2022 (the “2022 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,
BNY Mellon is America’s oldest bank and the first company listed on the New York Stock Exchange
(NYSE: BK).
Today, BNY Mellon powers capital markets around the world through comprehensive solutions that help clients manage and service their financial assets throughout the investment life cycle. BNY Mellon has been named among Fortune’s World’s Most Admired Companies and Fast Company’s Best Workplaces for Innovators. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation.
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 life cycle, 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.
| The Bank of New York Mellon Corporation | ||||||||||||||||||||||||||||||||||||||||||||||||||
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Securities
Services |
Market and Wealth Services | Investment and Wealth Management | ||||||||||||||||||||||||||||||||||||||||||||||||
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Asset
Servicing |
Pershing |
Investment
Management |
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Issuer
Services |
Treasury
Services |
Wealth
Management |
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| Clearance and Collateral Management | ||||||||||||||||||||||||||||||||||||||||||||||||||
Key second quarter 2023 and subsequent events
Increase in cash dividend on common stock
In July, our Board of Directors approved a 14% increase in the quarterly cash dividend on our common stock, from $0.37 to $0.42 per share.
Highlights of second quarter 2023 results
Net income applicable to common shareholders was $1.0 billion, or $1.30 per diluted common share, in the second quarter of 2023, compared with $835 million, or $1.03 per diluted common share, in the second quarter of 2022.
The highlights below are based on the second quarter of 2023 compared with the second quarter of 2022, unless otherwise noted.
•
Total revenue of $4.5 billion increased 5%, primarily reflecting:
•
Fee revenue decreased 2%, primarily reflecting lower foreign exchange revenue, the impact of the Alcentra divestiture and the mix of cumulative AUM net inflows, partially offset by the abatement of money market fee waivers.
4 BNY Mellon
(See “Fee and other revenue” beginning on page
6
.)
•
Net interest revenue increased 33%, primarily reflecting higher interest rates, partially offset by changes in balance sheet size and mix. (See “Net interest revenue” on page
9
.)
•
Provision for credit losses was $5 million, primarily reflecting changes in the macroeconomic forecast driving increased reserves related to commercial real estate, which were partially offset by a reduction in reserves related to financial institutions. (See “Consolidated balance sheet review – Allowance for credit losses” beginning on page
29
.)
•
Noninterest expense was flat, or increased 1%, excluding notable items (Non-GAAP), related to litigation reserves and severance. The increase reflects higher investments and revenue-related expenses, as well as the impact of inflation, partially offset by the favorable impact of efficiency savings and the impact of the Alcentra divestiture. (See “Noninterest expense” on page
12
.)
•
Effective tax rate of 20.2%. (See “Income taxes” on page
12
.)
•
Return on common equity (“ROE”) was 11.6% for the second quarter of 2023.
•
Return on tangible common equity (“ROTCE”) was 22.6% (Non-GAAP) for the second quarter of 2023.
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for a reconciliation of the Non-GAAP measure.
Metrics
•
AUC/A of $46.9 trillion increased 9%, primarily reflecting higher market values, client inflows and net new business.
•
AUM of $1.9 trillion decreased 2%, primarily reflecting lower market values driven by the year-over-year decrease in UK fixed income markets and the divestiture of Alcentra, partially offset by net inflows and the favorable impact of a weaker U.S. dollar.
Capital and liquidity
•
Our CET1 ratio calculated under the Advanced Approaches was 11.1% at June 30, 2023 and 11.0% at March 31, 2023. The increase primarily reflects capital generated through earnings, partially offset by common stock repurchase activity, capital deployed through dividends and higher risk-weighted assets (“RWAs”). (See “Capital” beginning on page
35
.)
•
Tier 1 leverage was 5.7% at June 30, 2023 and 5.8% at March 31, 2023, as an increase in capital was more than offset by an increase in average assets. (See “Capital” beginning on page
35
.)
•
Returned $745 million to common shareholders, including $448 million of common share repurchases.
Highlights of our principal business segments
Securities Services
•
Total revenue increased 12%.
•
Income before income taxes increased 91% or increased 52% excluding notable items (Non-GAAP), primarily litigation reserves.
•
Pre-tax operating margin of 29%.
Market and Wealth Services
•
Total revenue increased 10%.
•
Income before income taxes increased 8%.
•
Pre-tax operating margin of 46%.
Investment and Wealth Management
•
Total revenue decreased 10%.
•
Income before income taxes decreased 38%.
•
Pre-tax operating margin of 16%; adjusted pre-tax operating margin – Non-GAAP of 18%.
See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for a reconciliation of the 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.
BNY Mellon 5
Fee and other revenue
| Fee and other revenue | YTD23 | ||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 2Q23 vs. | vs. | |||||||||||||||||||||||||||
| 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | ||||||||||||||||||||||
| Investment services fees | $ | 2,252 | $ | 2,119 | $ | 2,206 | 6 | % | 2 | % | $ | 4,371 | $ | 4,199 | 4 | % | |||||||||||||
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Investment management and performance fees
(a)
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762 | 776 | 833 | (2) | (9) | 1,538 | 1,716 | (10) | |||||||||||||||||||||
| Foreign exchange revenue | 158 | 176 | 222 | (10) | (29) | 334 | 429 | (22) | |||||||||||||||||||||
| Financing-related fees | 50 | 52 | 44 | (4) | 14 | 102 | 89 | 15 | |||||||||||||||||||||
| Distribution and servicing fees | 35 | 33 | 34 | 6 | 3 | 68 | 64 | 6 | |||||||||||||||||||||
| Total fee revenue | 3,257 | 3,156 | 3,339 | 3 | (2) | 6,413 | 6,497 | (1) | |||||||||||||||||||||
| Investment and other revenue | 97 | 79 | 91 | N/M | N/M | 176 | 161 | N/M | |||||||||||||||||||||
| Total fee and other revenue | $ | 3,354 | $ | 3,235 | $ | 3,430 | 4 | % | (2) | % | $ | 6,589 | $ | 6,658 | (1) | % | |||||||||||||
| Fee revenue as a percentage of total revenue | 73 | % | 72 | % | 78 | % | 73 | % | 79 | % | |||||||||||||||||||
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AUC/A at period end
(in trillions) (b)
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$ | 46.9 | $ | 46.6 | $ | 43.0 | 1 | % | 9 | % | $ | 46.9 | $ | 43.0 | 9 | % | |||||||||||||
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AUM at period end
(in billions) (c)
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$ | 1,906 | $ | 1,908 | $ | 1,937 | — | % | (2) | % | $ | 1,906 | $ | 1,937 | (2) | % | |||||||||||||
(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 $1.6 trillion at June 30, 2023 and $1.5 trillion at March 31, 2023 and June 30, 2022.
(c) Excludes assets managed outside of the Investment and Wealth Management business segment.
N/M – Not meaningful.
Fee revenue decreased 2% compared with the second quarter of 2022 and increased 3% compared with the first quarter of 2023.
The decrease compared with the second quarter of 2022 primarily reflects lower investment management and performance fees and foreign exchange revenue, partially offset by higher investment services fees. The increase compared with the first quarter of 2023 primarily reflects higher investment services fees, partially offset by lower foreign exchange revenue and investment management and performance fees.
Investment and other revenue increased $6 million compared with the second quarter of 2022 and $18 million compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher fixed income trading and improved seed capital results, partially offset by strategic equity investment gains recorded in the second quarter of 2022. The increase compared with the
first quarter of 2023 primarily reflects a strategic equity investment loss recorded in the first quarter of 2023 and higher other trading revenue, partially offset by higher losses on renewable energy investments.
Investment services fees
Investment services fees increased 2% compared with the second quarter of 2022 and 6% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects the
abatement of money market fee waivers, higher U.S. government clearance volumes and U.S. collateral management balances and higher Depositary Receipts revenue. The increase compared with the
first quarter of 2023 primarily reflects higher Depositary Receipts revenue and client activity.
AUC/A totaled $46.9 trillion at June 30, 2023, an increase of 9% compared with June 30, 2022, primarily reflecting higher market values, client inflows and net new business. AUC/A consisted of 34% equity securities and 66% fixed income securities at June 30, 2023, and 33% equity securities and 67% fixed income securities at June 30, 2022.
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 9% compared with the second quarter of 2022 and 2% compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects the impact of the Alcentra divestiture and the mix of cumulative net inflows, partially offset by the abatement of money market fee waivers. The decrease compared with the first quarter of 2023 primarily reflects the timing of performance fees. Performance fees were $10
6 BNY Mellon
million in the second quarter of 2023, $5 million in the second quarter of 2022 and $22 million in the first quarter of 2023. On a constant currency basis (Non-GAAP), investment management and performance fees decreased 8% compared with the second quarter of 2022. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for the reconciliation of Non-GAAP measures.
AUM was $1.9 trillion at June 30, 2023, a decrease of 2% compared with June 30, 2022, primarily reflecting lower market values driven by the year-over-year decrease in UK fixed income markets and the divestiture of Alcentra, partially offset by net inflows and the favorable impact of a weaker U.S. dollar.
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 decreased 29% compared with the second quarter of 2022 and 10% compared with the first quarter of 2023, primarily reflecting lower volumes and 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.
Financing-related fees
Financing-related fees, which are primarily reported in the Market and Wealth Services and Securities
Services business segments, include capital market fees, loan commitment fees and credit-related fees. Financing-related fees increased 14% compared with the second quarter of 2022 and decreased 4% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher loan commitment fees.
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 strategic equity, 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 includes various miscellaneous revenues.
BNY Mellon 7
The following table provides the components of investment and other revenue.
| Investment and other revenue | |||||||||||||||||
| (in millions) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||
| Income (loss) from consolidated investment management funds | $ | 10 | $ | 5 | $ | (24) | $ | 15 | $ | (44) | |||||||
|
Seed capital gains (losses)
(a)
|
7 | 8 | (24) | 15 | (32) | ||||||||||||
| Other trading revenue | 53 | 45 | 45 | 98 | 50 | ||||||||||||
| Renewable energy investments (losses) | (45) | (32) | (44) | (77) | (88) | ||||||||||||
| Corporate/bank-owned life insurance | 23 | 27 | 28 | 50 | 61 | ||||||||||||
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Other investments gains (losses)
(b)
|
10 | (9) | 78 | 1 | 139 | ||||||||||||
| Disposal (losses) | (1) | (1) | — | (2) | — | ||||||||||||
| Expense reimbursements from joint venture | 31 | 29 | 26 | 60 | 53 | ||||||||||||
| Other income | 9 | 8 | 6 | 17 | 18 | ||||||||||||
| Net securities (losses) gains | — | (1) | — | (1) | 4 | ||||||||||||
| Total investment and other revenue | $ | 97 | $ | 79 | $ | 91 | $ | 176 | $ | 161 | |||||||
(a) Includes gains (losses) on investments in BNY Mellon funds which hedge deferred incentive awards.
(b) Includes strategic equity, private equity and other investments.
The increase in total investment and other revenue compared with the second quarter of 2022 primarily reflects higher fixed income trading and improved seed capital results, partially offset by strategic equity investment gains recorded in the second quarter of 2022. The increase compared with the first quarter of 2023 primarily reflects a strategic equity investment loss recorded in the first quarter of 2023 and higher other trading revenue, partially offset by higher losses on renewable energy investments.
Year-to-date 2023 compared with year-to-date 2022
Fee revenue decreased 1% compared with the first six months of 2022, primarily reflecting lower investment management and performance fees and foreign exchange revenue, partially offset by higher investment services fees. The 10% decrease in investment management and performance fees primarily reflects the impact of the Alcentra divestiture, the mix of cumulative net inflows, lower
market values and the unfavorable impact of a stronger U.S. dollar, partially offset by the abatement of money market fee waivers. The 4% increase in investment services fees primarily reflects the abatement of money market fee waivers, the accelerated amortization of deferred costs for depositary receipts services related to Russia recorded in the first quarter of 2022, higher U.S. government clearance volumes and U.S. collateral management balances and higher fees on sweep balances, partially offset by lower market values and client activity. The 22% decrease in foreign exchange revenue primarily reflects lower volumes.
Investment and other revenue increased $15 million compared with the first six months of 2022, primarily reflecting higher other trading revenue and improved seed capital results, partially offset by strategic equity investment gains recorded in the first six months of 2022.
8 BNY Mellon
Net interest revenue
| Net interest revenue | YTD23 | ||||||||||||||||||||||||||||
| 2Q23 vs. | vs. | ||||||||||||||||||||||||||||
| (dollars in millions) | 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | |||||||||||||||||||||
| Net interest revenue | $ | 1,100 | $ | 1,128 | $ | 824 | (2)% | 33% | $ | 2,228 | $ | 1,522 | 46% | ||||||||||||||||
| Add: Tax equivalent adjustment | 1 | — | 3 | N/M | N/M | 1 | 6 | N/M | |||||||||||||||||||||
|
Net interest revenue (FTE) – Non-GAAP
(a)
|
$ | 1,101 | $ | 1,128 | $ | 827 | (2)% | 33% | $ | 2,229 | $ | 1,528 | 46% | ||||||||||||||||
|
Average interest-earning assets
|
$ | 362,049 | $ | 348,378 | $ | 370,782 | 4% | (2)% | $ | 355,251 | $ | 371,997 | (5)% | ||||||||||||||||
| Net interest margin | 1.20 | % | 1.29 | % | 0.89 | % | (9) | bps | 31 | bps | 1.25 | % | 0.82 | % | 43 | bps | |||||||||||||
|
Net interest margin (FTE) – Non-GAAP
(a)
|
1.20 | % | 1.29 | % | 0.89 | % | (9) | bps | 31 | bps | 1.25 | % | 0.83 | % | 42 | 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 33% compared with the second quarter of 2022 and decreased 2% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher interest rates, partially offset by changes in balance sheet size and mix. The decrease compared with the first quarter of 2023 primarily reflects a change in deposit mix, partially offset by higher interest rates.
Net interest margin increased 31 basis points compared with the second quarter of 2022 and decreased 9 basis points compared with the first quarter of 2023. The changes compared with the second quarter of 2022 and the first quarter of 2023 primarily reflect the factors mentioned above.
Average interest-earning assets decreased 2% compared with the second quarter of 2022 and increased 4% compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects lower securities and loan balances and interest-bearing deposits with banks. The decrease was partially offset by higher interest-bearing deposits with the Federal Reserve and other central banks. The increase compared with the first quarter of 2023 primarily reflects higher interest-bearing deposits with the Federal Reserve and other central banks and federal funds sold and securities purchased under resale agreements, partially offset by lower securities balances and interest-bearing deposits with banks.
Average non-U.S. dollar deposits comprised approximately 25% of our average total deposits in the second quarter of 2023. Approximately 45% of the average non-U.S. dollar deposits in the second quarter of 2023 were euro-denominated.
Year-to-date 2023 compared with year-to-date 2022
Net interest revenue increased 46% compared with the first six months of 2022, primarily driven by higher interest rates, partially offset by lower deposit volume. The increase in the net interest margin primarily reflects the factors mentioned above.
Average interest-earning assets decreased 5% compared with the first six months of 2022, primarily reflecting lower securities and loan balances and interest-bearing deposits with banks. The decrease was partially offset by larger interest-bearing deposits with the Federal Reserve and other central banks.
BNY Mellon 9
| Average balances and interest rates | Quarter ended | ||||||||||||||||||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||||
| (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 | $ | 114,578 | $ | 1,241 | 4.29 | % | $ | 94,899 | $ | 853 | 3.59 | % | $ | 102,844 | $ | 99 | 0.38 | % | |||||||||||||||||
| Interest-bearing deposits with banks | 13,919 | 128 | 3.68 | 16,225 | 140 | 3.51 | 18,097 | 33 | 0.74 | ||||||||||||||||||||||||||
|
Federal funds sold and securities purchased under resale agreements
(a)
|
26,989 | 1,776 | 26.38 | 24,631 | 991 | 16.32 | 24,212 | 116 | 1.91 | ||||||||||||||||||||||||||
| Loans | 63,459 | 957 | 6.05 | 63,261 | 866 | 5.54 | 69,036 | 370 | 2.15 | ||||||||||||||||||||||||||
| Securities: | |||||||||||||||||||||||||||||||||||
| U.S. government obligations | 34,147 | 247 | 2.90 | 38,852 | 279 | 2.89 | 41,267 | 110 | 1.07 | ||||||||||||||||||||||||||
| U.S. government agency obligations | 61,565 | 428 | 2.78 | 62,280 | 405 | 2.60 | 64,939 | 258 | 1.59 | ||||||||||||||||||||||||||
|
State and political subdivisions
(b)
|
13 | — | 4.45 | 23 | — | 7.07 | 2,065 | 11 | 2.13 | ||||||||||||||||||||||||||
|
Other securities
(b)
|
40,976 | 367 | 3.59 | 42,429 | 338 | 3.21 | 43,635 | 142 | 1.31 | ||||||||||||||||||||||||||
|
Total investment securities
(b)
|
136,701 | 1,042 | 3.05 | 143,584 | 1,022 | 2.86 | 151,906 | 521 | 1.37 | ||||||||||||||||||||||||||
|
Trading securities
(b)
|
6,403 | 81 | 5.02 | 5,778 | 70 | 4.97 | 4,687 | 23 | 1.91 | ||||||||||||||||||||||||||
|
Total securities
(b)
|
143,104 | 1,123 | 3.14 | 149,362 | 1,092 | 2.94 | 156,593 | 544 | 1.39 | ||||||||||||||||||||||||||
|
Total interest-earning assets
(b)
|
$ | 362,049 | $ | 5,225 | 5.77 | % | $ | 348,378 | $ | 3,942 | 4.56 | % | $ | 370,782 | $ | 1,162 | 1.25 | % | |||||||||||||||||
| Noninterest-earning assets | 59,125 | 59,123 | 66,841 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 421,174 | $ | 407,501 | $ | 437,623 | |||||||||||||||||||||||||||||
| Liabilities and equity | |||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 215,057 | $ | 1,739 | 3.24 | % | $ | 204,114 | $ | 1,366 | 2.71 | % | $ | 219,124 | $ | 90 | 0.16 | % | |||||||||||||||||
|
Federal funds purchased and securities sold under repurchase agreements
(a)
|
26,282 | 1,729 | 26.39 | 18,316 | 892 | 19.75 | 12,610 | 77 | 2.47 | ||||||||||||||||||||||||||
| Trading liabilities | 3,893 | 43 | 4.46 | 3,025 | 30 | 4.05 | 3,231 | 10 | 1.25 | ||||||||||||||||||||||||||
| Other borrowed funds | 2,702 | 32 | 4.60 | 711 | 3 | 1.75 | 437 | 2 | 2.14 | ||||||||||||||||||||||||||
| Commercial paper | 5 | — | 5.11 | — | — | — | 5 | — | 1.61 | ||||||||||||||||||||||||||
| Payables to customers and broker-dealers | 14,801 | 143 | 3.85 | 16,954 | 128 | 3.08 | 16,592 | 9 | 0.21 | ||||||||||||||||||||||||||
| Long-term debt | 31,970 | 438 | 5.45 | 30,246 | 395 | 5.22 | 26,195 | 147 | 2.22 | ||||||||||||||||||||||||||
| Total interest-bearing liabilities | $ | 294,710 | $ | 4,124 | 5.61 | % | $ | 273,366 | $ | 2,814 | 4.17 | % | $ | 278,194 | $ | 335 | 0.48 | % | |||||||||||||||||
| Total noninterest-bearing deposits | 62,152 | 69,886 | 91,893 | ||||||||||||||||||||||||||||||||
| Other noninterest-bearing liabilities | 23,625 | 23,789 | 26,354 | ||||||||||||||||||||||||||||||||
| Total liabilities | 380,487 | 367,041 | 396,441 | ||||||||||||||||||||||||||||||||
| Total The Bank of New York Mellon Corporation shareholders’ equity | 40,607 | 40,442 | 41,037 | ||||||||||||||||||||||||||||||||
| Noncontrolling interests | 80 | 18 | 145 | ||||||||||||||||||||||||||||||||
| Total liabilities and equity | $ | 421,174 | $ | 407,501 | $ | 437,623 | |||||||||||||||||||||||||||||
|
Net interest revenue (FTE) – Non-GAAP
(b)(c)
|
$ | 1,101 | $ | 1,128 | $ | 827 | |||||||||||||||||||||||||||||
|
Net interest margin (FTE) – Non-GAAP
(b)(c)
|
1.20 | % | 1.29 | % | 0.89 | % | |||||||||||||||||||||||||||||
| Less: Tax equivalent adjustment | 1 | — | 3 | ||||||||||||||||||||||||||||||||
| Net interest revenue – GAAP | $ | 1,100 | $ | 1,128 | $ | 824 | |||||||||||||||||||||||||||||
| Net interest margin – GAAP | 1.20 | % | 1.29 | % | 0.89 | % | |||||||||||||||||||||||||||||
(a)
Includes the average impact of offsetting under enforceable netting agreements of approximately $113 billion for the second quarter of 2023, $62 billion for the first quarter of 2023 and $33 billion for the second quarter of 2022. 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 5.10% for the second quarter of 2023, 4.62% for the first quarter of 2023 and 0.80% for the second quarter of 2022. 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 4.99% for the second quarter of 2023, 4.49% for the first quarter of 2023 and 0.68% for the second quarter of 2022. 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
9
for the reconciliation of this Non-GAAP measure.
10 BNY Mellon
| Average balances and interest rates | Year-to-date | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
| (dollars in millions; average rates annualized) | 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 | $ | 104,793 | $ | 2,094 | 3.97 | % | $ | 101,600 | $ | 101 | 0.20 | % | |||||||||||
| Interest-bearing deposits with banks | 15,065 | 268 | 3.59 | 17,641 | 47 | 0.54 | |||||||||||||||||
|
Federal funds sold and securities purchased under resale agreements
(a)
|
25,817 | 2,767 | 21.61 | 25,602 | 153 | 1.20 | |||||||||||||||||
| Loans | 63,361 | 1,823 | 5.79 | 67,929 | 630 | 1.87 | |||||||||||||||||
| Securities: | |||||||||||||||||||||||
| U.S. government obligations | 36,487 | 526 | 2.89 | 41,069 | 184 | 0.90 | |||||||||||||||||
| U.S. government agency obligations | 61,920 | 833 | 2.69 | 65,991 | 503 | 1.52 | |||||||||||||||||
|
State and political subdivisions
(b)
|
18 | — | 6.15 | 2,200 | 24 | 2.15 | |||||||||||||||||
|
Other securities
(b)
|
41,699 | 705 | 3.40 | 44,583 | 257 | 1.16 | |||||||||||||||||
|
Total investment securities
(b)
|
140,124 | 2,064 | 2.95 | 153,843 | 968 | 1.26 | |||||||||||||||||
|
Trading securities
(b)
|
6,091 | 151 | 4.99 | 5,382 | 44 | 1.64 | |||||||||||||||||
|
Total securities
(b)
|
146,215 | 2,215 | 3.04 | 159,225 | 1,012 | 1.27 | |||||||||||||||||
|
Total interest-earning assets
(b)
|
$ | 355,251 | $ | 9,167 | 5.18 | % | $ | 371,997 | $ | 1,943 | 1.05 | % | |||||||||||
| Noninterest-earning assets | 59,124 | 66,927 | |||||||||||||||||||||
| Total assets | $ | 414,375 | $ | 438,924 | |||||||||||||||||||
| Liabilities and equity | |||||||||||||||||||||||
| Interest-bearing liabilities: | |||||||||||||||||||||||
| Interest-bearing deposits | $ | 209,616 | $ | 3,105 | 2.99 | % | $ | 221,172 | $ | 53 | 0.05 | % | |||||||||||
|
Federal funds purchased and securities sold under repurchase agreements
(a)
|
22,321 | 2,621 | 23.68 | 12,736 | 89 | 1.41 | |||||||||||||||||
| Trading liabilities | 3,461 | 73 | 4.28 | 3,301 | 14 | 0.88 | |||||||||||||||||
| Other borrowed funds | 1,711 | 35 | 4.01 | 448 | 5 | 2.25 | |||||||||||||||||
| Commercial paper | 3 | — | 5.11 | 5 | — | 0.89 | |||||||||||||||||
| Payables to customers and broker-dealers | 15,872 | 271 | 3.44 | 16,626 | 9 | 0.11 | |||||||||||||||||
| Long-term debt | 31,112 | 833 | 5.34 | 25,893 | 245 | 1.88 | |||||||||||||||||
| Total interest-bearing liabilities | $ | 284,096 | $ | 6,938 | 4.92 | % | $ | 280,181 | $ | 415 | 0.30 | % | |||||||||||
| Total noninterest-bearing deposits | 65,997 | 91,060 | |||||||||||||||||||||
| Other noninterest-bearing liabilities | 23,707 | 25,888 | |||||||||||||||||||||
| Total liabilities | 373,800 | 397,129 | |||||||||||||||||||||
| Total The Bank of New York Mellon Corporation shareholders’ equity | 40,525 | 41,616 | |||||||||||||||||||||
| Noncontrolling interests | 50 | 179 | |||||||||||||||||||||
| Total liabilities and equity | $ | 414,375 | $ | 438,924 | |||||||||||||||||||
|
Net interest revenue (FTE) – Non-GAAP
(b)(c)
|
$ | 2,229 | $ | 1,528 | |||||||||||||||||||
|
Net interest margin (FTE) – Non-GAAP
(b)(c)
|
1.25 | % | 0.83 | % | |||||||||||||||||||
| Less: Tax equivalent adjustment | 1 | 6 | |||||||||||||||||||||
| Net interest revenue – GAAP | $ | 2,228 | $ | 1,522 | |||||||||||||||||||
| Net interest margin – GAAP | 1.25 | % | 0.82 | % | |||||||||||||||||||
(a) Includes the average impact of offsetting under enforceable netting agreements of approximately $88 billion for the first six months of 2023 and $43 billion for the first six months of 2022. 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 4.92% for the first six months of 2023 and 0.45% for the first six months of 2022. 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 4.81% for the first six months of 2023 and 0.32% for the first six months of 2022. 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
9
for the reconciliation of this Non-GAAP measure.
BNY Mellon 11
Noninterest expense
| Noninterest expense | YTD23 | ||||||||||||||||||||||||||||
| 2Q23 vs. | vs. | ||||||||||||||||||||||||||||
| (dollars in millions) | 2Q23 | 1Q23 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | |||||||||||||||||||||
| Staff | $ | 1,718 | $ | 1,791 | $ | 1,623 | (4) | % | 6 | % | $ | 3,509 | $ | 3,325 | 6 | % | |||||||||||||
| Software and equipment | 450 | 429 | 405 | 5 | 11 | 879 | 804 | 9 | |||||||||||||||||||||
| Professional, legal and other purchased services | 378 | 375 | 379 | 1 | — | 753 | 749 | 1 | |||||||||||||||||||||
| Net occupancy | 121 | 119 | 125 | 2 | (3) | 240 | 247 | (3) | |||||||||||||||||||||
| Sub-custodian and clearing | 119 | 118 | 131 | 1 | (9) | 237 | 249 | (5) | |||||||||||||||||||||
| Distribution and servicing | 93 | 85 | 90 | 9 | 3 | 178 | 169 | 5 | |||||||||||||||||||||
| Business development | 47 | 39 | 43 | 21 | 9 | 86 | 73 | 18 | |||||||||||||||||||||
| Bank assessment charges | 41 | 40 | 37 | 3 | 11 | 81 | 72 | 13 | |||||||||||||||||||||
| Amortization of intangible assets | 14 | 14 | 17 | — | (18) | 28 | 34 | (18) | |||||||||||||||||||||
| Other | 130 | 90 | 262 | 44 | (50) | 220 | 396 | (44) | |||||||||||||||||||||
| Total noninterest expense | $ | 3,111 | $ | 3,100 | $ | 3,112 | — | % | — | % | $ | 6,211 | $ | 6,118 | 2 | % | |||||||||||||
| Full-time employees at period end | 53,200 | 51,600 | 50,800 | 3 | % | 5 | % | 53,200 | 50,800 | 5 | % | ||||||||||||||||||
Total noninterest expense was flat, or increased 1% excluding notable items (Non-GAAP) related to litigation reserves and severance, compared with the second quarter of 2022. The increase reflects higher investments and revenue-related expense, as well as the impact of inflation, partially offset by the favorable impact of efficiency savings and the impact of the Alcentra divestiture. The investments, net of savings, are primarily included in staff, software and equipment, and professional, legal and other purchased services expenses. Total noninterest expense was flat compared with the first quarter of 2023, primarily reflecting higher investments and litigation reserves as well as inflation, offset by lower staff expense driven by the annual vesting of stock-based awards to retirement-eligible employees recorded in the first quarter of 2023. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for the reconciliation of this Non-GAAP measure.
Year-to-date 2023 compared with year-to-date 2022
Noninterest expense increased 2% compared with the first six months of 2022, primarily reflecting higher revenue-related expense and higher investments, as well as the impact of inflation, partially offset by the favorable impact of efficiency savings, the impact of the Alcentra divestiture and the favorable impact of a stronger U.S. dollar.
Income taxes
BNY Mellon recorded an income tax provision of $270 million (20.2% effective tax rate) in the second quarter of 2023, $231 million (21.1% effective tax rate) in the second quarter of 2022 and $260 million (21.0% effective tax rate) in the first quarter of 2023. For additional information, see Note 11 of the Notes to Consolidated Financial Statements.
12 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 segment 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 business segments, 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 2022 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 second quarter of 2023.
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. In the second quarter, staff expense typically increases, reflecting the annual employee merit increase. 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 global market fluctuations. At June 30, 2023, 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 13
Securities Services business segment
| YTD23 | |||||||||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 2Q23 vs. | vs. | |||||||||||||||||||||||||||||||||
| 2Q23 | 1Q23 | 4Q22 | 3Q22 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | ||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees: | |||||||||||||||||||||||||||||||||||
| Asset Servicing | $ | 991 | $ | 948 | $ | 971 | $ | 953 | $ | 995 | 5 | % | — | % | $ | 1,939 | $ | 1,994 | (3) | % | |||||||||||||||
| Issuer Services | 319 | 236 | 271 | 288 | 309 | 35 | 3 | 555 | 450 | 23 | |||||||||||||||||||||||||
| Total investment services fees | 1,310 | 1,184 | 1,242 | 1,241 | 1,304 | 11 | — | 2,494 | 2,444 | 2 | |||||||||||||||||||||||||
| Foreign exchange revenue | 124 | 139 | 149 | 132 | 155 | (11) | (20) | 263 | 303 | (13) | |||||||||||||||||||||||||
|
Other fees
(a)
|
54 | 55 | 55 | 52 | 54 | (2) | — | 109 | 95 | 15 | |||||||||||||||||||||||||
| Total fee revenue | 1,488 | 1,378 | 1,446 | 1,425 | 1,513 | 8 | (2) | 2,866 | 2,842 | 1 | |||||||||||||||||||||||||
| Investment and other revenue | 84 | 72 | 70 | 111 | 36 | N/M | N/M | 156 | 110 | N/M | |||||||||||||||||||||||||
| Total fee and other revenue | 1,572 | 1,450 | 1,516 | 1,536 | 1,549 | 8 | 1 | 3,022 | 2,952 | 2 | |||||||||||||||||||||||||
| Net interest revenue | 668 | 666 | 656 | 538 | 457 | — | 46 | 1,334 | 834 | 60 | |||||||||||||||||||||||||
| Total revenue | 2,240 | 2,116 | 2,172 | 2,074 | 2,006 | 6 | 12 | 4,356 | 3,786 | 15 | |||||||||||||||||||||||||
| Provision for credit losses | 16 | — | 11 | (6) | 13 | N/M | N/M | 16 | 3 | N/M | |||||||||||||||||||||||||
| Noninterest expense (excluding amortization of intangible assets) | 1,575 | 1,548 | 1,568 | 1,549 | 1,647 | 2 | (4) | 3,123 | 3,149 | (1) | |||||||||||||||||||||||||
| Amortization of intangible assets | 7 | 8 | 8 | 8 | 9 | (13) | (22) | 15 | 17 | (12) | |||||||||||||||||||||||||
| Total noninterest expense | 1,582 | 1,556 | 1,576 | 1,557 | 1,656 | 2 | (4) | 3,138 | 3,166 | (1) | |||||||||||||||||||||||||
| Income before income taxes | $ | 642 | $ | 560 | $ | 585 | $ | 523 | $ | 337 | 15 | % | 91 | % | $ | 1,202 | $ | 617 | 95 | % | |||||||||||||||
| Pre-tax operating margin | 29 | % | 26 | % | 27 | % | 25 | % | 17 | % | 28 | % | 16 | % | |||||||||||||||||||||
|
Securities lending revenue
(b)
|
$ | 47 | $ | 48 | $ | 50 | $ | 48 | $ | 45 | (2) | % | 4 | % | $ | 95 | $ | 84 | 13 | % | |||||||||||||||
|
Total revenue by line of business
:
|
|||||||||||||||||||||||||||||||||||
| Asset Servicing | $ | 1,706 | $ | 1,664 | $ | 1,681 | $ | 1,596 | $ | 1,534 | 3 | % | 11 | % | $ | 3,370 | $ | 3,046 | 11 | % | |||||||||||||||
| Issuer Services | 534 | 452 | 491 | 478 | 472 | 18 | 13 | 986 | 740 | 33 | |||||||||||||||||||||||||
| Total revenue by line of business | $ | 2,240 | $ | 2,116 | $ | 2,172 | $ | 2,074 | $ | 2,006 | 6 | % | 12 | % | $ | 4,356 | $ | 3,786 | 15 | % | |||||||||||||||
|
Selected average balances
:
|
|||||||||||||||||||||||||||||||||||
| Average loans | $ | 11,283 | $ | 10,939 | $ | 11,850 | $ | 11,573 | $ | 11,386 | 3 | % | (1) | % | $ | 11,112 | $ | 10,772 | 3 | % | |||||||||||||||
| Average deposits | $ | 172,863 | $ | 167,209 | $ | 176,541 | $ | 176,328 | $ | 191,191 | 3 | % | (10) | % | $ | 170,051 | $ | 191,671 | (11) | % | |||||||||||||||
|
Selected metrics
:
|
|||||||||||||||||||||||||||||||||||
|
AUC/A at period end
(in trillions) (c)
|
$ | 33.2 | $ | 32.6 | $ | 31.4 | $ | 30.0 | $ | 31.0 | 2 | % | 7 | % | |||||||||||||||||||||
|
Market value of securities on loan at period end
(in billions) (d)
|
$ | 415 | $ | 441 | $ | 449 | $ | 435 | $ | 441 | (6) | % | (6) | % | |||||||||||||||||||||
(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 $1.6 trillion at June 30, 2023, $1.5 trillion at March 31, 2023 and Dec. 31, 2022, $1.4 trillion at Sept. 30, 2022 and $1.5 trillion at June 30, 2022.
(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 $66 billion at June 30, 2023, $69 billion at March 31, 2023, $68 billion at Dec. 31, 2022, $75 billion at Sept. 30, 2022 and $70 billion at June 30, 2022.
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 $33.2 trillion of AUC/A at June 30, 2023. For
information on the drivers of the Securities Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements in our 2022 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
14 BNY Mellon
accounting services, exchange-traded funds servicing, transfer agency, trust and depository, front-to-back capabilities as well as 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 $4.5 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 $33.2 trillion increased 7% compared with June 30, 2022, primarily reflecting higher market values and net new business.
Total revenue of $2.2 billion increased 12% compared with the second quarter of 2022 and 6% compared with the first quarter of 2023. The drivers of total revenue by line of business are indicated below.
Asset Servicing revenue of $1.7 billion increased 11% compared with the second quarter of 2022 and 3% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue, partially offset by lower foreign exchange revenue. The increase compared with the first quarter of 2023 primarily reflects higher client activity, partially offset by lower foreign exchange revenue.
Issuer Services revenue of $534 million increased 13% compared with the second quarter of 2022 and 18% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue and Depositary Receipts revenue. The increase compared with the first quarter of 2023 primarily reflects higher Depositary Receipts revenue, partially offset by lower net interest revenue.
Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with regulations and reduce their operating costs.
Noninterest expense of $1.6 billion decreased 4% compared with the second quarter of 2022 and increased 2% compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects lower litigation reserves and the favorable impact of efficiency savings, partially offset by higher investments and the impact of inflation.
Year-to-date 2023 compared with year-to-date 2022
Total revenue of $4.4 billion increased 15% compared with the first six months of 2022. Asset Servicing revenue of $3.4 billion increased 11%, primarily reflecting higher net interest revenue, net new business and the abatement of money market fee waivers, partially offset by lower foreign exchange revenue, market values and client activity. Issuer Services revenue of $1.0 billion increased 33%, primarily reflecting higher net interest revenue, the accelerated amortization of deferred costs for depositary receipts services related to Russia recorded in the first quarter of 2022 and the abatement of money market fee waivers.
Noninterest expense of $3.1 billion decreased 1% compared with the first six months of 2022, primarily reflecting the favorable impact of efficiency savings and lower litigation reserves, partially offset by higher investments as well as the impact of inflation.
BNY Mellon 15
Market and Wealth Services business segment
| YTD23 | |||||||||||||||||||||||||||||||||||
| (dollars in millions, unless otherwise noted) | 2Q23 vs. | vs. | |||||||||||||||||||||||||||||||||
| 2Q23 | 1Q23 | 4Q22 | 3Q22 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | ||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees: | |||||||||||||||||||||||||||||||||||
| Pershing | $ | 496 | $ | 499 | $ | 502 | $ | 494 | $ | 479 | (1) | % | 4 | % | $ | 995 | $ | 912 | 9 | % | |||||||||||||||
| Treasury Services | 172 | 168 | 170 | 173 | 176 | 2 | (2) | 340 | 346 | (2) | |||||||||||||||||||||||||
| Clearance and Collateral Management | 265 | 260 | 249 | 239 | 240 | 2 | 10 | 525 | 483 | 9 | |||||||||||||||||||||||||
| Total investment services fees | 933 | 927 | 921 | 906 | 895 | 1 | 4 | 1,860 | 1,741 | 7 | |||||||||||||||||||||||||
| Foreign exchange revenue | 21 | 18 | 20 | 20 | 22 | 17 | (5) | 39 | 48 | (19) | |||||||||||||||||||||||||
|
Other fees
(a)
|
55 | 54 | 47 | 49 | 46 | 2 | 20 | 109 | 80 | 36 | |||||||||||||||||||||||||
| Total fee revenue | 1,009 | 999 | 988 | 975 | 963 | 1 | 5 | 2,008 | 1,869 | 7 | |||||||||||||||||||||||||
| Investment and other revenue | 16 | 15 | 15 | 14 | 11 | N/M | N/M | 31 | 11 | N/M | |||||||||||||||||||||||||
| Total fee and other revenue | 1,025 | 1,014 | 1,003 | 989 | 974 | 1 | 5 | 2,039 | 1,880 | 8 | |||||||||||||||||||||||||
| Net interest revenue | 420 | 453 | 396 | 378 | 340 | (7) | 24 | 873 | 636 | 37 | |||||||||||||||||||||||||
| Total revenue | 1,445 | 1,467 | 1,399 | 1,367 | 1,314 | (1) | 10 | 2,912 | 2,516 | 16 | |||||||||||||||||||||||||
| Provision for credit losses | 7 | — | 6 | (1) | 4 | N/M | N/M | 7 | 2 | N/M | |||||||||||||||||||||||||
| Noninterest expense (excluding amortization of intangible assets) | 779 | 768 | 783 | 735 | 700 | 1 | 11 | 1,547 | 1,406 | 10 | |||||||||||||||||||||||||
| Amortization of intangible assets | 2 | 1 | 2 | 2 | 2 | 100 | — | 3 | 4 | (25) | |||||||||||||||||||||||||
| Total noninterest expense | 781 | 769 | 785 | 737 | 702 | 2 | 11 | 1,550 | 1,410 | 10 | |||||||||||||||||||||||||
| Income before income taxes | $ | 657 | $ | 698 | $ | 608 | $ | 631 | $ | 608 | (6) | % | 8 | % | $ | 1,355 | $ | 1,104 | 23 | % | |||||||||||||||
| Pre-tax operating margin | 46 | % | 48 | % | 43 | % | 46 | % | 46 | % | 47 | % | 44 | % | |||||||||||||||||||||
|
Total revenue by line of business
:
|
|||||||||||||||||||||||||||||||||||
| Pershing | $ | 686 | $ | 693 | $ | 673 | $ | 658 | $ | 636 | (1) | % | 8 | % | $ | 1,379 | $ | 1,206 | 14 | % | |||||||||||||||
| Treasury Services | 402 | 412 | 382 | 390 | 373 | (2) | 8 | 814 | 711 | 14 | |||||||||||||||||||||||||
| Clearance and Collateral Management | 357 | 362 | 344 | 319 | 305 | (1) | 17 | 719 | 599 | 20 | |||||||||||||||||||||||||
| Total revenue by line of business | $ | 1,445 | $ | 1,467 | $ | 1,399 | $ | 1,367 | $ | 1,314 | (1) | % | 10 | % | $ | 2,912 | $ | 2,516 | 16 | % | |||||||||||||||
|
Selected average balances
:
|
|||||||||||||||||||||||||||||||||||
| Average loans | $ | 36,432 | $ | 36,854 | $ | 39,843 | $ | 40,882 | $ | 42,391 | (1) | % | (14) | % | $ | 36,642 | $ | 42,253 | (13) | % | |||||||||||||||
| Average deposits | $ | 85,407 | $ | 86,040 | $ | 86,083 | $ | 90,612 | $ | 94,716 | (1) | % | (10) | % | $ | 85,721 | $ | 95,207 | (10) | % | |||||||||||||||
|
Selected metrics
:
|
|||||||||||||||||||||||||||||||||||
|
AUC/A at period end
(in trillions) (b)
|
$ | 13.4 | $ | 13.7 | $ | 12.7 | $ | 12.0 | $ | 11.8 | (2) | % | 14 | % | |||||||||||||||||||||
|
Pershing
:
|
|||||||||||||||||||||||||||||||||||
|
AUC/A at period end
(in trillions)
|
$ | 2.4 | $ | 2.4 | $ | 2.3 | $ | 2.1 | $ | 2.2 | — | % | 9 | % | |||||||||||||||||||||
|
Net new assets (U.S. platform)
(in billions) (c)
|
$ | (34) | $ | 37 | $ | 42 | $ | 45 | $ | 16 | N/M | N/M | |||||||||||||||||||||||
|
Average active clearing accounts
(in thousands)
|
7,946 | 7,849 | 7,603 | 7,466 | 7,432 | 1 | % | 7 | % | ||||||||||||||||||||||||||
|
Treasury Services
:
|
|||||||||||||||||||||||||||||||||||
| Average daily U.S. dollar payment volumes | 233,931 | 236,322 | 246,189 | 234,468 | 237,763 | (1) | % | (2) | % | ||||||||||||||||||||||||||
|
Clearance and Collateral Management
:
|
|||||||||||||||||||||||||||||||||||
|
Average tri-party collateral management balances
(in billions)
|
$ | 6,044 | $ | 5,626 | $ | 5,451 | $ | 5,457 | $ | 5,207 | 7 | % | 16 | % | |||||||||||||||||||||
(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 represents 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.
16 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 2022 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 $6.0 trillion serviced globally, including approximately $5.0 trillion of the U.S. tri-party repo market at June 30, 2023.
Review of financial results
AUC/A of $13.4 trillion increased 14% compared with June 30, 2022, primarily reflecting net client inflows and higher market values.
Total revenue of $1.4 billion increased 10% compared with the second quarter of 2022 and decreased 1% compared with the first quarter of 2023. The drivers of total revenue by line of business are indicated below.
Pershing revenue of $686 million increased 8% compared with the second quarter of 2022 and decreased 1% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects the abatement of money market fee waivers, higher net interest revenue and higher fees on sweep balances, partially offset by lower client activity. The decrease compared with the first quarter of 2023 primarily reflects lower net interest revenue. Net new assets were $(34) billion in the second quarter of 2023, reflecting the deconversion of a regional bank client that was acquired in May.
Treasury Services revenue of $402 million increased 8% compared with the second quarter of 2022 and decreased 2% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue. The decrease compared with the first quarter of 2023 primarily reflects lower net interest revenue.
Clearance and Collateral Management revenue of $357 million increased 17% compared with the second quarter of 2022 and decreased 1% compared with the first quarter of 2023. The increase compared with the second quarter of 2022 primarily reflects higher net interest revenue, U.S. government clearance volumes and U.S. collateral management balances. The decrease compared with the first quarter of 2023 primarily reflects lower net interest revenue.
Noninterest expense of $781 million increased 11% compared with the second quarter of 2022. The increase compared with the second quarter of 2022 primarily reflects higher investments and revenue-related expense, as well as the impact of inflation, partially offset by the favorable impact of efficiency savings.
Year-to-date 2023 compared with year-to-date 2022
Total revenue of $2.9 billion increased 16% compared with the first six months of 2022. Pershing revenue of $1.4 billion increased 14%, primarily reflecting the abatement of money market fee waivers, higher net interest revenue and higher fees on sweep balances, partially offset by lower client activity. Treasury Services revenue of $0.8 billion increased 14%, primarily reflecting higher net interest revenue. Clearance and Collateral Management revenue of $719 million increased 20%, primarily
BNY Mellon 17
reflecting higher net interest revenue, U.S. government clearance volumes and U.S. collateral management balances.
Noninterest expense of $1.6 billion increased 10% compared with the first six months of 2022, primarily
reflecting higher investments and revenue-related expense, as well as the impact of inflation, partially offset by the favorable impact of efficiency savings.
Investment and Wealth Management business segment
| YTD23 | ||||||||||||||||||||||||||||||||||||||
| 2Q23 vs. | vs. | |||||||||||||||||||||||||||||||||||||
| (dollars in millions) | 2Q23 | 1Q23 | 4Q22 | 3Q22 | 2Q22 | 1Q23 | 2Q22 | YTD23 | YTD22 | YTD22 | ||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||
| Investment management fees | $ | 750 | $ | 752 | $ | 754 | $ | 788 | $ | 825 | — | % | (9) | % | $ | 1,502 | $ | 1,673 | (10) | % | ||||||||||||||||||
| Performance fees | 10 | 22 | 26 | 10 | 5 | N/M | 100 | 32 | 39 | (18) | ||||||||||||||||||||||||||||
|
Investment management and performance fees
(a)
|
760 | 774 | 780 | 798 | 830 | (2) | (8) | 1,534 | 1,712 | (10) | ||||||||||||||||||||||||||||
| Distribution and servicing fees | 58 | 55 | 54 | 55 | 51 | 5 | 14 | 113 | 83 | 36 | ||||||||||||||||||||||||||||
|
Other fees
(b)
|
(56) | (53) | (58) | (45) | (31) | N/M | N/M | (109) | (30) | N/M | ||||||||||||||||||||||||||||
| Total fee revenue | 762 | 776 | 776 | 808 | 850 | (2) | (10) | 1,538 | 1,765 | (13) | ||||||||||||||||||||||||||||
|
Investment and other revenue
(c)
|
12 | 6 | (3) | (3) | (13) | N/M | N/M | 18 | (21) | N/M | ||||||||||||||||||||||||||||
|
Total fee and other revenue
(c)
|
774 | 782 | 773 | 805 | 837 | (1) | (8) | 1,556 | 1,744 | (11) | ||||||||||||||||||||||||||||
| Net interest revenue | 39 | 45 | 52 | 57 | 62 | (13) | (37) | 84 | 119 | (29) | ||||||||||||||||||||||||||||
| Total revenue | 813 | 827 | 825 | 862 | 899 | (2) | (10) | 1,640 | 1,863 | (12) | ||||||||||||||||||||||||||||
| Provision for credit losses | 7 | — | 1 | 3 | — | N/M | N/M | 7 | (3) | N/M | ||||||||||||||||||||||||||||
| Noninterest expense (excluding goodwill impairment and amortization of intangible assets) | 672 | 729 | 693 | 669 | 685 | (8) | (2) | 1,401 | 1,433 | (2) | ||||||||||||||||||||||||||||
| Goodwill impairment | — | — | — | 680 | — | N/M | N/M | — | — | N/M | ||||||||||||||||||||||||||||
| Amortization of intangible assets | 5 | 5 | 6 | 7 | 6 | — | (17) | 10 | 13 | (23) | ||||||||||||||||||||||||||||
| Total noninterest expense | 677 | 734 | 699 | 1,356 | 691 | (8) | (2) | 1,411 | 1,446 | (2) | ||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 129 | $ | 93 | $ | 125 | $ | (497) | $ | 208 | 39 | % | (38) | % | $ | 222 | $ | 420 | (47) | % | ||||||||||||||||||
| Pre-tax operating margin | 16 | % | 11 | % | 15 | % | (57) | % | 23 | % | 14 | % | 23 | % | ||||||||||||||||||||||||
|
Adjusted pre-tax operating margin
–
Non-GAAP
(d)
|
18 | % | 13 | % | 17 | % | (64) | % | (e) | 26 | % | 15 | % | 25 | % | |||||||||||||||||||||||
|
Total revenue by line of business
:
|
||||||||||||||||||||||||||||||||||||||
| Investment Management | $ | 546 | $ | 557 | $ | 550 | $ | 579 | $ | 603 | (2) | % | (9) | % | $ | 1,103 | $ | 1,261 | (13) | % | ||||||||||||||||||
| Wealth Management | 267 | 270 | 275 | 283 | 296 | (1) | (10) | 537 | 602 | (11) | ||||||||||||||||||||||||||||
| Total revenue by line of business | $ | 813 | $ | 827 | $ | 825 | $ | 862 | $ | 899 | (2) | % | (10) | % | $ | 1,640 | $ | 1,863 | (12) | % | ||||||||||||||||||
|
Average balances
:
|
||||||||||||||||||||||||||||||||||||||
| Average loans | $ | 13,995 | $ | 13,960 | $ | 14,404 | $ | 14,482 | $ | 14,087 | — | % | (1) | % | $ | 13,977 | $ | 13,660 | 2 | % | ||||||||||||||||||
| Average deposits | $ | 15,410 | $ | 16,144 | $ | 16,416 | $ | 17,225 | $ | 20,802 | (5) | % | (26) | % | $ | 15,775 | $ | 21,647 | (27) | % | ||||||||||||||||||
(a) On a constant currency basis, investment management and performance fees decreased
8%
(Non-GAAP) compared with the second quarter of 2022. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
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) Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for the reconciliation of this Non-GAAP measure.
(e) 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. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for the reconciliation of this Non-GAAP measure.
N/M – Not meaningful.
18 BNY Mellon
| AUM trends | 2Q23 vs. | ||||||||||||||||||||||
| (dollars in billions) | 2Q23 | 1Q23 | 4Q22 | 3Q22 | 2Q22 | 1Q23 | 2Q22 | ||||||||||||||||
|
AUM by product type:
(a)
|
|||||||||||||||||||||||
| Equity | $ | 145 | $ | 142 | $ | 135 | $ | 125 | $ | 139 | 2 | % | 4 | % | |||||||||
| Fixed income | 203 | 207 | 198 | 205 | 226 | (2) | (10) | ||||||||||||||||
| Index | 440 | 408 | 395 | 366 | 387 | 8 | 14 | ||||||||||||||||
| Liability-driven investments | 579 | 604 | 570 | 546 | 641 | (4) | (10) | ||||||||||||||||
| Multi-asset and alternative investments | 162 | 161 | 153 | 181 | 188 | 1 | (14) | ||||||||||||||||
| Cash | 377 | 386 | 385 | 353 | 356 | (2) | 6 | ||||||||||||||||
| Total AUM | $ | 1,906 | $ | 1,908 | $ | 1,836 | $ | 1,776 | $ | 1,937 | — | % | (2) | % | |||||||||
|
Changes in AUM:
(a)
|
|||||||||||||||||||||||
| Beginning balance of AUM | $ | 1,908 | $ | 1,836 | $ | 1,776 | $ | 1,937 | $ | 2,266 | |||||||||||||
| Net inflows (outflows): | |||||||||||||||||||||||
| Long-term strategies: | |||||||||||||||||||||||
| Equity | (3) | (4) | (5) | (5) | (4) | ||||||||||||||||||
| Fixed income | (4) | 4 | (12) | (3) | (1) | ||||||||||||||||||
| Liability-driven investments | (3) | 10 | 19 | 30 | 12 | ||||||||||||||||||
| Multi-asset and alternative investments | (1) | (3) | (4) | 2 | (5) | ||||||||||||||||||
| Total long-term active strategies (outflows) inflows | (11) | 7 | (2) | 24 | 2 | ||||||||||||||||||
| Index | 2 | (2) | (4) | (1) | 12 | ||||||||||||||||||
| Total long-term strategies (outflows) inflows | (9) | 5 | (6) | 23 | 14 | ||||||||||||||||||
| Short-term strategies: | |||||||||||||||||||||||
| Cash | (9) | — | 27 | (2) | (26) | ||||||||||||||||||
| Total net (outflows) inflows | (18) | 5 | 21 | 21 | (12) | ||||||||||||||||||
| Net market impact | (3) | 52 | 18 | (118) | (241) | ||||||||||||||||||
| Net currency impact | 19 | 15 | 53 | (64) | (76) | ||||||||||||||||||
| Divestiture | — | — | (32) | — | — | ||||||||||||||||||
| Ending balance of AUM | $ | 1,906 | $ | 1,908 | $ | 1,836 | $ | 1,776 | $ | 1,937 | — | % | (2) | % | |||||||||
|
Wealth Management client assets
(b)
|
$ | 286 | $ | 279 | $ | 269 | $ | 256 | $ | 264 | 3 | % | 8 | % | |||||||||
(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 19 and 20 of our 2022 Annual Report for additional information on our Investment and Wealth Management business segment.
Review of financial results
AUM decreased 2% compared with June 30, 2022, primarily reflecting lower market values driven by the year-over-year decrease in UK fixed income markets
and the divestiture of Alcentra, partially offset by net inflows and the favorable impact of a weaker U.S. dollar.
Net long-term strategy outflows were $9 billion in the second quarter of 2023, driven by fixed income, equity and liability-driven investments. Short-term strategy outflows were $9 billion in the second quarter of 2023. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.
Total revenue of $813 million decreased 10% compared with the second quarter of 2022 and 2% compared with the first quarter of 2023. The drivers of total revenue by line of business are indicated below.
Investment Management revenue of $546 million decreased 9% compared with the second quarter of 2022 and 2% compared with the first quarter of 2023.
BNY Mellon 19
The decrease compared with the second quarter of 2022 primarily reflects the impact of the Alcentra divestiture and the mix of cumulative net inflows, partially offset by improved seed capital results and the abatement of money market fee waivers. The decrease compared with the first quarter of 2023 primarily reflects the timing of performance fees.
Wealth Management revenue of $267 million decreased 10% compared with the second quarter of 2022 and 1% compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects lower net interest revenue and changes in product mix.
Revenue generated in the Investment and Wealth Management business segment included 30% from non-U.S. sources in the second quarter of 2023, compared with 35% in the second quarter of 2022 and 31% in the first quarter of 2023.
Noninterest expense of $677 million decreased 2% compared with the second quarter of 2022 and 8% compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects the impact of the Alcentra divestiture, partially offset by higher revenue-related
expenses. The decrease compared with the first quarter of 2023 primarily reflects lower staff expense driven by the annual vesting of stock-based awards to retirement-eligible employees recorded in the first quarter of 2023.
Year-to-date 2023 compared with year-to-date 2022
Total revenue of $1.6 billion decreased 12% compared with the first six months of 2022. Investment Management revenue of $1.1 billion decreased 13%, primarily reflecting the impact of the Alcentra divestiture, the mix of cumulative net inflows, lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by the abatement of money market fee waivers and improved seed capital results. Wealth Management revenue of $537 million decreased 11%, primarily reflecting lower net interest revenue and market values, and changes in product mix.
Noninterest expense of $1.4 billion decreased 2% compared with the first six months of 2022, primarily reflecting the impact of the Alcentra divestiture and the favorable impact of a stronger U.S. dollar, partially offset by higher revenue-related expense.
Other segment
| (in millions) | 2Q23 | 1Q23 | 4Q22 | 3Q22 | 2Q22 | YTD23 | YTD22 | ||||||||||||||||
| Fee revenue | $ | (2) | $ | 3 | $ | 12 | $ | 28 | $ | 13 | $ | 1 | $ | 21 | |||||||||
| Investment and other revenue | (16) | (14) | (442) | (5) | 62 | (30) | 74 | ||||||||||||||||
| Total fee and other revenue | (18) | (11) | (430) | 23 | 75 | (29) | 95 | ||||||||||||||||
| Net interest expense | (27) | (36) | (48) | (47) | (35) | (63) | (67) | ||||||||||||||||
| Total revenue | (45) | (47) | (478) | (24) | 40 | (92) | 28 | ||||||||||||||||
| Provision for credit losses | (25) | 27 | 2 | (26) | 30 | 2 | 47 | ||||||||||||||||
| Noninterest expense | 71 | 41 | 153 | 29 | 63 | 112 | 96 | ||||||||||||||||
| (Loss) before income taxes | $ | (91) | $ | (115) | $ | (633) | $ | (27) | $ | (53) | $ | (206) | $ | (115) | |||||||||
| Average loans and leases | $ | 1,749 | $ | 1,508 | $ | 1,267 | $ | 1,145 | $ | 1,172 | $ | 1,630 | $ | 1,244 | |||||||||
See page 21 of our 2022 Annual Report for additional information on the Other segment.
Review of financial results
Total revenue includes corporate treasury and other investment activity, including hedging activity, which has an offsetting impact between fee and other revenue and net interest expense.
Total revenue decreased $85 million compared with the second quarter of 2022 and increased $2 million compared with the first quarter of 2023. The decrease compared with the second quarter of 2022 primarily reflects a strategic equity investment gain recorded in the second quarter of 2022.
The provision for credit losses was a benefit of $25 million in the second quarter of 2023, primarily
20 BNY Mellon
reflecting a reduction in reserves related to financial institutions.
Noninterest expense increased $8 million compared with the second quarter of 2022 and $30 million compared with the first quarter of 2023. The increase compared with the first quarter of 2023 primarily reflects higher litigation reserves and severance expense.
Year-to-date 2023 compared with year-to-date 2022
Loss before income taxes increased $91 million compared with the first six months of 2022. Total fee and other revenue decreased $124 million, primarily reflecting strategic equity investment gains recorded in the first six months of 2022.
Noninterest expense increased $16 million compared with the first six months of 2022, 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 2022 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 | 2022 Annual Report, pages 23-25, and “Allowance for credit losses.” | ||||
| Goodwill and other intangibles | 2022 Annual Report, pages 25-27. 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. 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 second quarter of 2023, due to the results of the first quarter 2023 interim and annual impairment test and macroeconomic conditions, we performed an interim goodwill impairment test of the Investment Management reporting unit, which had $6.1 billion of allocated goodwill. The fair value of the Investment Management reporting unit exceeded its carrying value by approximately 3%. We determined the fair value of the Investment Management reporting unit using an income approach based on management’s projections as of June 30, 2023. The discount rate applied to these cash flows was 10.5%.
As of June 30, 2023, 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.
In the second quarter of 2023, we also performed our annual goodwill impairment test on the remaining five reporting units using an income approach to estimate fair values of each reporting unit. Estimated cash flows used in the income approach were based on management’s projections as of April 1, 2023. The discount rate applied to these cash flows was 10%.
As a result of the annual goodwill impairment test, no goodwill impairment was recognized. The fair values of the Company’s remaining five reporting units were substantially in excess of the respective reporting units’ carrying value.
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. In the future, changes in the assumptions or the discount rate could produce a material non-cash goodwill impairment. See “Critical accounting estimates” in our 2022 Annual Report for additional information on the annual goodwill impairment test.
BNY Mellon 21
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 June 30, 2023, total assets were $430 billion, compared with $406 billion at Dec. 31, 2022. The increase in total assets was primarily driven by higher interest-bearing deposits with the Federal Reserve and other central banks and federal funds sold and securities purchased under resale agreements, partially offset by lower securities and interest-bearing deposits with banks. Deposits totaled $292 billion at June 30, 2023, compared with $279 billion at Dec. 31, 2022. The increase reflects higher interest-bearing deposits in U.S. offices and interest-bearing deposits in non-U.S. offices, partially offset by lower noninterest-bearing (principally in U.S. offices). Total interest-bearing deposits as a percentage of total interest-earning assets was 61% at June 30, 2023 and 58% at Dec. 31, 2022.
At June 30, 2023, available funds totaled $172 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 $138 billion at Dec. 31, 2022. Total available funds as a percentage of total assets was 40% at June 30, 2023 and 34% at Dec. 31, 2022. For additional information on our available funds, see “Liquidity and dividends.”
Securities were $134 billion, or 31% of total assets, at June 30, 2023, compared with $143 billion, or 35% of total assets, at Dec. 31, 2022. The decrease primarily reflects lower U.S. Treasury securities, partially offset by higher U.S. government agencies, unrealized pre-tax gains in the first six months of 2023, and higher supranational securities. For additional information on our securities portfolio, see “Securities” and Note 4 of the Notes to Consolidated Financial Statements.
Loans were $64 billion, or 15% of total assets, at June 30, 2023, compared with $66 billion, or 16% of total assets, at Dec. 31, 2022. The decrease was driven by lower overdrafts and margin loans, partially offset by higher loans to financial institutions and other residential mortgages. For additional information on our loan portfolio, see “Loans” and Note 5 of the Notes to Consolidated Financial Statements.
Long-term debt totaled $32 billion at June 30, 2023 and $30 billion at Dec. 31, 2022. Issuances and an increase in the fair value of hedged long-term debt were partially offset by maturities. For additional information on long-term debt, see “Liquidity and dividends.”
The Bank of New York Mellon Corporation total shareholders’ equity totaled $41 billion at June 30, 2023 and Dec. 31, 2022. For additional information, see “Capital.”
22 BNY Mellon
Country risk exposure
The following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of June 30, 2023, 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 June 30, 2023
|
Interest-bearing deposits | Total exposure | |||||||||||||||||||||||||||||||||
| (in billions) |
Central
banks |
Banks |
Lending
(a)
|
Securities
(b)
|
Other
(c)
|
||||||||||||||||||||||||||||||
| Top 10 country exposure: | |||||||||||||||||||||||||||||||||||
| Germany | $ | 19.2 | $ | 0.4 | $ | 0.7 | $ | 3.9 | $ | 0.5 | $ | 24.7 | |||||||||||||||||||||||
| United Kingdom (“UK”) | 12.1 | 0.5 | 1.4 | 3.4 | 2.1 | 19.5 | |||||||||||||||||||||||||||||
| Belgium | 8.6 | 1.1 | 0.1 | 0.2 | — | 10.0 | |||||||||||||||||||||||||||||
| Canada | — | 2.1 | 0.1 | 4.0 | 1.5 | 7.7 | |||||||||||||||||||||||||||||
| Japan | 5.6 | 0.8 | 0.1 | 0.5 | 0.2 | 7.2 | |||||||||||||||||||||||||||||
| South Korea | 0.1 | — | 2.2 | 0.2 | 0.4 | 2.9 | |||||||||||||||||||||||||||||
| France | — | 0.1 | 0.1 | 2.2 | 0.3 | 2.7 | |||||||||||||||||||||||||||||
| Australia | — | 1.0 | 0.2 | 0.8 | 0.6 | 2.6 | |||||||||||||||||||||||||||||
| Cayman Islands | — | — | 1.1 | — | 1.3 | 2.4 | |||||||||||||||||||||||||||||
| Luxembourg | 0.1 | 0.1 | 1.0 | — | 1.0 | 2.2 | |||||||||||||||||||||||||||||
| Total Top 10 country exposure | $ | 45.7 | $ | 6.1 | $ | 7.0 | $ | 15.2 | $ | 7.9 | $ | 81.9 | (d) | ||||||||||||||||||||||
| Select country exposure: | |||||||||||||||||||||||||||||||||||
| Brazil | $ | — | $ | — | $ | 0.8 | $ | 0.1 | $ | 0.1 | $ | 1.0 | |||||||||||||||||||||||
| Russia | — | 0.4 | (e) | — | — | — | 0.4 | ||||||||||||||||||||||||||||
(a)
Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.
(b)
S
ecurities include both the available-for-sale and held-to-maturity portfolios.
(c)
Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.
(d)
The top 10 country exposures comprise approximately 70% 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 June 30, 2023, 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 recordkeeping services to manage their exposures.
BNY Mellon 23
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.
The following table shows the distribution of our total securities portfolio.
| Securities portfolio | March 31, 2023 |
2Q23
change in
unrealized
gain (loss)
|
June 30, 2023 |
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 |
||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | $ | 39,519 | $ | (358) | $ | 42,582 | $ | 38,052 | 89 | % | $ | (4,530) | 16 | % | 100 | % | — | % | — | % | — | % | — | % | ||||||||||||||||||||||||||
| U.S. Treasury | 35,505 | (111) | 35,086 | 33,818 | 96 | (1,268) | 50 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Agency commercial mortgage-backed securities (“MBS”) | 11,824 | (42) | 12,188 | 11,441 | 94 | (747) | 43 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
|
Sovereign debt/sovereign guaranteed
(d)
|
11,783 | (76) | 11,217 | 10,662 | 95 | (555) | 25 | 89 | 6 | 4 | 1 | — | ||||||||||||||||||||||||||||||||||||||
| Supranational | 8,595 | (43) | 9,025 | 8,742 | 97 | (283) | 60 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Collateralized loan obligations (“CLOs”) | 6,664 | 28 | 6,853 | 6,765 | 99 | (88) | 100 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | 6,655 | (23) | 7,262 | 6,745 | 93 | (517) | 42 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
|
Foreign covered bonds
(e)
|
5,991 | (6) | 6,382 | 6,133 | 96 | (249) | 58 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Non-agency commercial MBS | 3,069 | (9) | 3,329 | 3,031 | 91 | (298) | 55 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
|
Foreign government agencies
(f)
|
2,415 | (14) | 2,500 | 2,380 | 95 | (120) | 36 | 95 | 5 | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS | 1,986 | (3) | 2,058 | 1,895 | 92 | (163) | 48 | 85 | 3 | — | 6 | 6 | ||||||||||||||||||||||||||||||||||||||
| Other asset-backed securities (“ABS”) | 1,145 | (3) | 1,153 | 1,043 | 90 | (110) | 14 | 100 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| State and political subdivisions | 11 | 1 | 12 | 11 | 88 | (1) | — | 1 | 2 | 3 | — | 94 | ||||||||||||||||||||||||||||||||||||||
| Other | 1 | — | 1 | 1 | 100 | — | — | — | — | — | — | 100 | ||||||||||||||||||||||||||||||||||||||
| Total securities | $ | 135,163 | (g) | $ | (659) | $ | 139,648 | $ | 130,719 | (g) | 94 | % | $ | (8,929) | (g)(h) | 40 | % | 99 | % | 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, France, UK, Canada, Singapore and Japan.
(e) Primarily consists of exposure to Canada, UK, Australia, Germany and Norway.
(f) Primarily consists of exposure to Canada, Norway, the Netherlands, Sweden and France.
(g) Includes net unrealized gains on derivatives hedging securities available-for-sale (including terminated hedges) of $1,979 million at March 31, 2023 and $2,406 million at June 30, 2023.
(h) At June 30, 2023, includes net unrealized losses of $3,009 million related to available-for-sale securities, net of hedges, and $5,920 million related to held-to-maturity securities. The after-tax unrealized losses, net of hedges, related to available-for-sale securities is $2,269 million and the after-tax equivalent related to held-to-maturity securities is $4,513 million.
The fair value of our securities portfolio, including related hedges, was $130.7 billion at June 30, 2023, compared with $139.3 billion at Dec. 31, 2022. The decrease primarily reflects lower U.S. Treasury securities, partially offset by higher U.S. government agencies, unrealized pre-tax gains in the first six months of 2023 and higher supranational securities.
At June 30, 2023, the securities portfolio had a net unrealized loss, including the impact of related hedges, of $8.9 billion, compared with $9.4 billion at Dec. 31, 2022. Net unrealized loss, including the impact of hedges, decreased as securities moved closer to maturity, partially offset by the impact of higher interest rates
The fair value of the available-for-sale securities totaled $83.5 billion at June 30, 2023, net of hedges, or 64% of the securities portfolio, net of hedges. The fair value of the held-to-maturity securities totaled $47.2 billion at June 30, 2023, 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 $2.3 billion at June 30, 2023, compared with $2.4 billion at Dec. 31, 2022. Net unrealized loss, including the impact of hedges, decreased as securities moved closer to maturity, partially offset by the impact of higher interest rates.
24 BNY Mellon
At June 30, 2023, 99% of the securities in our portfolio were rated AAA/AA-, unchanged compared with Dec. 31, 2022.
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.
The following table presents the amortizable purchase premium (net of discount) and net amortization related to the securities portfolio.
|
Amortizable purchase premium (net of discount) and net amortization of securities
(a)
|
|||||||||||
| (in millions) | 2Q23 | 1Q23 | 2Q22 | ||||||||
| Amortizable purchase premium, net of discount | $ | 1,028 | $ | 1,096 | $ | 1,486 | |||||
| Net amortization | $ | 42 | $ | 42 | $ | 98 | |||||
(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 | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||
| (in billions) | Loans |
Unfunded
commitments |
Total
exposure |
Loans |
Unfunded
commitments |
Total
exposure |
|||||||||||||||||
| Financial institutions | $ | 11.0 | $ | 31.8 | $ | 42.8 | $ | 9.7 | $ | 31.7 | $ | 41.4 | |||||||||||
| Commercial | 1.7 | 11.9 | 13.6 | 1.7 | 11.7 | 13.4 | |||||||||||||||||
| Wealth management loans | 10.0 | 0.6 | 10.6 | 10.3 | 0.6 | 10.9 | |||||||||||||||||
| Wealth management mortgages | 9.1 | 0.3 | 9.4 | 9.0 | 0.2 | 9.2 | |||||||||||||||||
| Commercial real estate | 6.5 | 3.7 | 10.2 | 6.2 | 3.9 | 10.1 | |||||||||||||||||
| Lease financings | 0.7 | — | 0.7 | 0.7 | — | 0.7 | |||||||||||||||||
| Other residential mortgages | 1.0 | — | 1.0 | 0.4 | — | 0.4 | |||||||||||||||||
| Overdrafts | 2.7 | — | 2.7 | 4.8 | — | 4.8 | |||||||||||||||||
| Capital call financing | 3.3 | 3.2 | 6.5 | 3.4 | 3.5 | 6.9 | |||||||||||||||||
| Other | 2.9 | — | 2.9 | 3.0 | — | 3.0 | |||||||||||||||||
| Margin loans | 15.6 | — | 15.6 | 16.9 | — | 16.9 | |||||||||||||||||
| Total | $ | 64.5 | $ | 51.5 | $ | 116.0 | $ | 66.1 | $ | 51.6 | $ | 117.7 | |||||||||||
At June 30, 2023, our total lending-related exposure of $116.0 billion decreased 1% compared with Dec. 31, 2022, primarily reflecting lower overdrafts, margin loans and exposure in the capital call financing portfolio, partially offset by higher exposure in the financial institutions portfolio.
Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 49% of our total exposure at June 30, 2023 and 47% at Dec. 31, 2022. Additionally, most of our overdrafts relate to financial institutions.
BNY Mellon 25
Financial institutions
The financial institutions portfolio is shown below.
|
Financial institutions
portfolio exposure
(dollars in billions)
|
June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||||||||
| Loans |
Unfunded
commitments |
Total
exposure |
% Inv.
grade |
% due
<1 yr. |
Loans |
Unfunded
commitments |
Total
exposure |
||||||||||||||||||||||
| Securities industry | $ | 2.1 | $ | 17.3 | $ | 19.4 | 94 | % | 99 | % | $ | 1.6 | $ | 17.5 | $ | 19.1 | |||||||||||||
| Asset managers | 1.5 | 7.9 | 9.4 | 98 | 80 | 1.6 | 7.6 | 9.2 | |||||||||||||||||||||
| Banks | 6.9 | 1.6 | 8.5 | 88 | 96 | 6.1 | 1.5 | 7.6 | |||||||||||||||||||||
| Insurance | 0.1 | 3.8 | 3.9 | 100 | 10 | 0.1 | 3.8 | 3.9 | |||||||||||||||||||||
| Government | — | 0.2 | 0.2 | 100 | 42 | — | 0.2 | 0.2 | |||||||||||||||||||||
| Other | 0.4 | 1.0 | 1.4 | 98 | 43 | 0.3 | 1.1 | 1.4 | |||||||||||||||||||||
| Total | $ | 11.0 | $ | 31.8 | $ | 42.8 | 94 | % | 84 | % | $ | 9.7 | $ | 31.7 | $ | 41.4 | |||||||||||||
The financial institutions portfolio exposure was $42.8 billion at June 30, 2023, an increase of 3% compared with Dec. 31, 2022, primarily reflecting higher exposure in the banks, securities industry and asset managers portfolios.
Financial institution exposures are high quality, with 94% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at June 30, 2023. 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 June 30, 2023 and Dec. 31, 2022, 17% of the exposure to financial institutions had an expiration within 90 days.
In addition, 65% of the financial institutions exposure is secured. For example, securities industry clients
and asset managers often borrow against marketable securities held in custody.
At June 30, 2023, the secured intraday credit provided to dealers in connection with their tri-party repo activity totaled $16.1 billion and was included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit. 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 98% of the exposures meeting our investment grade equivalent ratings criteria as of June 30, 2023. 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 96% due in less than one year. The investment grade percentage of our banks portfolio exposure was 88% at June 30, 2023, compared with 86% at Dec. 31, 2022. Our non-investment grade exposures are primarily trade finance loans in Brazil.
26 BNY Mellon
Commercial
The commercial portfolio is presented below.
| Commercial portfolio exposure | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||||||||
| (dollars in billions) | Loans |
Unfunded
commitments |
Total
exposure |
% Inv.
grade |
% due
<1 yr. |
Loans |
Unfunded
commitments |
Total
exposure |
|||||||||||||||||||||
| Manufacturing | $ | 0.6 | $ | 4.0 | $ | 4.6 | 96 | % | 24 | % | $ | 0.5 | $ | 4.1 | $ | 4.6 | |||||||||||||
| Services and other | 0.8 | 3.4 | 4.2 | 98 | 30 | 0.8 | 3.2 | 4.0 | |||||||||||||||||||||
| Energy and utilities | 0.2 | 3.8 | 4.0 | 93 | 4 | 0.3 | 3.7 | 4.0 | |||||||||||||||||||||
| Media and telecom | 0.1 | 0.7 | 0.8 | 87 | — | 0.1 | 0.7 | 0.8 | |||||||||||||||||||||
| Total | $ | 1.7 | $ | 11.9 | $ | 13.6 | 95 | % | 19 | % | $ | 1.7 | $ | 11.7 | $ | 13.4 | |||||||||||||
The commercial portfolio exposure was $13.6 billion at June 30, 2023, an increase of 1% from Dec. 31, 2022, primarily reflecting higher exposure to the services and other 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.
| Percentage of the portfolios that are investment grade | |||||||||||||||||
| Quarter ended | |||||||||||||||||
| June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | |||||||||||||
| Financial institutions | 94 | % | 95 | % | 95 | % | 96 | % | 96 | % | |||||||
| Commercial | 95 | % | 95 | % | 95 | % | 95 | % | 95 | % | |||||||
Wealth management loans
Our wealth management loan exposure was $10.6 billion at June 30, 2023, compared with $10.9 billion at Dec. 31, 2022. 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 $9.4 billion at June 30, 2023, compared with $9.2 billion at Dec. 31, 2022. 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 June 30, 2023, less than 1% of the mortgages were past due.
At June 30, 2023, 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 27
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
|
June 30, 2023 | Dec. 31, 2022 | |||||||||||||||
|
Total
exposure |
Percentage
secured
(a)
|
Total
exposure |
Percentage
secured
(a)
|
||||||||||||||
|
(in billions)
|
|||||||||||||||||
| Residential | $ | 4.2 | 86 | % | $ | 4.1 | 85 | % | |||||||||
| Office | 2.7 | 74 | 2.8 | 75 | |||||||||||||
| Retail | 0.9 | 61 | 0.9 | 58 | |||||||||||||
| Mixed use | 0.8 | 32 | 0.8 | 33 | |||||||||||||
| Hotels | 0.6 | 39 | 0.6 | 42 | |||||||||||||
| Healthcare | 0.5 | 56 | 0.4 | 49 | |||||||||||||
| Other | 0.5 | 67 | 0.5 | 66 | |||||||||||||
| Total commercial real estate | $ | 10.2 | 71 | % | $ | 10.1 | 71 | % | |||||||||
(a) Represents the percentage of exposure secured by real estate in each asset class.
Our commercial real estate exposure totaled $10.2 billion at June 30, 2023 and $10.1 billion at Dec. 31, 2022. 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 June 30, 2023, the unsecured portfolio consisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both primarily investment grade.
At June 30, 2023, our commercial real estate portfolio consisted of the following concentrations: New York metro – 35%; REITs and real estate operating companies – 29%; and other – 36%.
Lease financings
The lease financings portfolio exposure totaled $640 million at June 30, 2023 and $657 million at Dec. 31, 2022. At June 30, 2023, 100% 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 freight-related rail cars and aircraft. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $1.0 billion at June 30, 2023 and $345 million at Dec. 31, 2022. Included in this portfolio at June 30, 2023 was $760 million of fixed-rate jumbo mortgage loans, purchased primarily in the first quarter of 2023, with a weighted-average loan-to-value ratio of 73% at origination.
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.
28 BNY Mellon
Margin loans
Margin loan exposure of $15.6 billion at June 30, 2023 and $16.9 billion at Dec. 31, 2022 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 billion at June 30, 2023 and $6 billion at Dec. 31, 2022 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 | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | June 30, 2022 | ||||||||||
| (dollars in millions) | ||||||||||||||
| Beginning balance of allowance for credit losses | $ | 320 | $ | 292 | $ | 280 | $ | 263 | ||||||
| Provision for credit losses | 5 | 27 | 20 | 47 | ||||||||||
| Net (charge-offs) recoveries: | ||||||||||||||
| Loans: | ||||||||||||||
| Other residential mortgages | (1) | — | 1 | 1 | ||||||||||
| Commercial | — | 1 | — | — | ||||||||||
| Other financial instruments | (1) | — | (9) | (1) | ||||||||||
| Net (charge-offs) recoveries | (2) | 1 | (8) | — | ||||||||||
| Ending balance of allowance for credit losses | $ | 323 | $ | 320 | $ | 292 | $ | 310 | ||||||
| Allowance for loan losses | $ | 191 | $ | 170 | $ | 176 | $ | 181 | ||||||
|
Allowance for lending-related commitments
|
91 | 83 | 78 | 62 | ||||||||||
|
Allowance for other financial instruments
(a)
|
41 | 67 | 38 | 67 | ||||||||||
| Total allowance for credit losses | $ | 323 | $ | 320 | $ | 292 | $ | 310 | ||||||
| Total loans, at period end | $ | 64,469 | $ | 62,323 | $ | 66,063 | $ | 69,347 | ||||||
|
Allowance for loan losses as a percentage of total loans
|
0.30 | % | 0.27 | % | 0.27 | % | 0.26 | % | ||||||
| Allowance for loan losses and lending-related commitments as a percentage of total loans | 0.44 | % | 0.41 | % | 0.38 | % | 0.35 | % | ||||||
(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 $5 million in the second quarter of 2023, primarily reflecting changes in the macroeconomic forecast driving increased reserves related to commercial real estate, which were partially offset by a reduction in reserves related to financial institutions. The reduction in reserves related to financial institutions is reflected in the allowance for other financial instruments in the table above.
The allowance for loan losses and the 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.
BNY Mellon 29
Based on an evaluation of the allowance for credit losses as discussed in “Critical accounting estimates” in our 2022 Annual Report, we have allocated our allowance for loans and lending-related commitments as presented below.
|
Allocation of allowance for loan losses and
lending-related commitments
(a)
|
June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | June 30, 2022 | |||||||||||||||||||||||||||||||
| (dollars in millions) | $ | % | $ | % | $ | % | $ | % | |||||||||||||||||||||||||||
| Commercial real estate | $ | 199 | 71 | % | $ | 177 | 70 | % | $ | 184 | 72 | % | $ | 184 | 75 | % | |||||||||||||||||||
| Financial institutions | 32 | 11 | 24 | 9 | 24 | 9 | 21 | 9 | |||||||||||||||||||||||||||
| Commercial | 21 | 7 | 21 | 8 | 18 | 7 | 16 | 6 | |||||||||||||||||||||||||||
| Wealth management mortgages | 15 | 5 | 14 | 5 | 12 | 5 | 7 | 3 | |||||||||||||||||||||||||||
| Other residential mortgages | 9 | 3 | 9 | 4 | 8 | 3 | 7 | 3 | |||||||||||||||||||||||||||
| Capital call financing | 4 | 1 | 6 | 2 | 6 | 2 | 6 | 2 | |||||||||||||||||||||||||||
| Lease financings | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
| Wealth management loans | 1 | 1 | 1 | 1 | 1 | 1 | 1 | 1 | |||||||||||||||||||||||||||
| Total | $ | 282 | 100 | % | $ | 253 | 100 | % | $ | 254 | 100 | % | $ | 243 | 100 | % | |||||||||||||||||||
(a) The allowance allocated to margin loans, overdrafts and other loans was insignificant at June 30, 2023, March 31, 2023, Dec. 31, 2022 and June 30, 2022.
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 into 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 credits were rated one grade better, the quantitative allowance would have decreased by $41 million, and if commercial real estate property values were decreased 10% and all other credits were rated one grade worse, the quantitative allowance would have increased by $90 million. Our multi-scenario-based macroeconomic forecast used in determining the June 30, 2023 allowance for credit losses consisted of three scenarios. The baseline scenario reflects slightly negative GDP growth through the third quarter of 2023 before moderating, slightly rising unemployment and declining commercial real estate prices through the end of 2024. 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 2024 with subsequent stabilization, as well as rapidly increasing unemployment through mid-2024 and sharply lower commercial real estate prices than the baseline. In the second quarter of 2023, we placed the most weight on our downside scenario, followed by the baseline scenario, with the remaining weighting placed on the upside scenario. From a sensitivity perspective, at June 30, 2023, if we had applied 100% weighting to the downside scenario, the allowance for credit losses would have been approximately $78 million higher.
Nonperforming assets
The table below presents our nonperforming assets.
| Nonperforming assets | June 30, 2023 | Dec. 31, 2022 | ||||||
| (dollars in millions) | ||||||||
| Nonperforming loans: | ||||||||
| Commercial real estate | $ | 42 | $ | 54 | ||||
| Other residential mortgages | 25 | 31 | ||||||
| Wealth management mortgages | 18 | 22 | ||||||
| Total nonperforming loans | 85 | 107 | ||||||
| Other assets owned | 3 | 2 | ||||||
| Total nonperforming assets | $ | 88 | $ | 109 | ||||
| Nonperforming assets ratio | 0.14 | % | 0.16 | % | ||||
| Allowance for loan losses/nonperforming loans | 224.7 | 164.5 | ||||||
| Allowance for loan losses/nonperforming assets | 217.0 | 161.5 | ||||||
| Allowance for loan losses and lending-related commitments/nonperforming loans | 331.8 | 237.4 | ||||||
| Allowance for loan losses and lending-related commitments/nonperforming assets | 320.5 | 233.0 | ||||||
30 BNY Mellon
Deposits
Total deposits were $292.0 billion at June 30, 2023, an increase of 5%, compared with $279.0 billion at Dec. 31, 2022. The increase reflects higher interest-bearing deposits in U.S. offices and interest-bearing deposits in non-U.S. offices, partially offset by lower noninterest-bearing (principally in U.S. offices).
Noninterest-bearing deposits were $67.6 billion at June 30, 2023, compared with $78.0 billion at Dec. 31, 2022. Interest-bearing deposits were primarily demand deposits and totaled $224.4 billion at June 30, 2023, compared with $201.0 billion at Dec. 31, 2022.
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 borrowings from the Federal Home Loan Bank, 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 2022 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 June 30, 2023, 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
BNY Mellon 31
its intraday obligations under normal and reasonably severe stressed conditions.
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 | June 30, 2023 | Dec. 31, 2022 | Average | ||||||||||||||||||||
| (dollars in millions) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||||||||
| Cash and due from banks | $ | 5,720 | $ | 5,030 | $ | 5,295 | $ | 5,697 | $ | 5,640 | $ | 5,495 | $ | 5,839 | |||||||||
| Interest-bearing deposits with the Federal Reserve and other central banks | 118,908 | 91,655 | 114,578 | 94,899 | 102,844 | 104,793 | 101,600 | ||||||||||||||||
| Interest-bearing deposits with banks | 12,316 | 17,169 | 13,919 | 16,225 | 18,097 | 15,065 | 17,641 | ||||||||||||||||
| Federal funds sold and securities purchased under resale agreements | 35,378 | 24,298 | 26,989 | 24,631 | 24,212 | 25,817 | 25,602 | ||||||||||||||||
| Total available funds | $ | 172,322 | $ | 138,152 | $ | 160,781 | $ | 141,452 | $ | 150,793 | $ | 151,170 | $ | 150,682 | |||||||||
| Total available funds as a percentage of total assets | 40 | % | 34 | % | 38 | % | 35 | % | 34 | % | 36 | % | 34 | % | |||||||||
Total available funds were $172.3 billion at June 30, 2023, compared with $138.2 billion at Dec. 31, 2022. The increase was primarily due to higher interest-bearing deposits with the Federal Reserve and other central banks and federal funds sold and securities purchased under resale agreements, partially offset by lower interest-bearing deposits with 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 $27.5 billion for the first six months of 2023, compared with $16.5 billion for the first six months of 2022. The increase primarily reflects higher federal funds purchased and securities sold under repurchase agreements 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 $90.3 billion for the first six months of 2023, compared with $104.8 billion for the first six months of 2022. Average interest-bearing domestic deposits were $119.3 billion for the first six months of 2023, compared with $116.4 billion for the first six months of 2022. The changes primarily reflect client activity.
Average payables to customers and broker-dealers were $15.9 billion for the first six months of 2023 and $16.6 billion for the first six months of 2022. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.
Average long-term debt was $31.1 billion for the first six months of 2023 and $25.9 billion for the first six months of 2022.
Average noninterest-bearing deposits decreased to $66.0 billion for the first six months of 2023 from $91.1 billion for the first six months of 2022, 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”).
32 BNY Mellon
Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which are as follows:
|
Credit ratings at June 30, 2023
|
|||||||||||||||||||||||
| 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 $32.5 billion at June 30, 2023 and $30.5 billion at Dec. 31, 2022. Issuances of $4.5 billion and an increase in the fair value of hedged long-term debt were partially offset by maturities of $2.5 billion. Long-term debt of $2.8 billion will mature in the remainder of 2023.
The Bank of New York Mellon may issue notes and certificates of deposit (“CDs”). At June 30, 2023 and Dec. 31, 2022, $1.3 billion and $780 million, respectively, of notes were outstanding. At June 30, 2023 and Dec. 31, 2022, $395 million and $122 million, respectively, of CDs were outstanding.
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 June 30, 2023 and Dec. 31, 2022. The average commercial paper outstanding was $3 million for the first six months of 2023 and $5 million for the first six months of 2022.
Subsequent to June 30, 2023, our U.S. bank subsidiaries could declare dividends to the Parent of approximately $2.0 billion, without the need for a regulatory waiver. In addition, at June 30, 2023, non-bank subsidiaries of the Parent had liquid assets of
approximately $4.3 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 2022 Annual Report.
Pershing LLC has one uncommitted line of credit in place for funding purposes that is guaranteed by the Parent for $300 million. There were no borrowings under this line in the second quarter of 2023. Pershing Limited, an indirect UK-based subsidiary of BNY Mellon, has two separate uncommitted lines of credit amounting to $259 million in aggregate. Average borrowings under these lines were $47 million in the second quarter of 2023.
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
BNY Mellon 33
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 73% of total revenue in the second quarter of 2023, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 121.0% at June 30, 2023 and 120.5% at Dec. 31, 2022, 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 May 2023, a quarterly dividend of $0.37 per common share was paid to common shareholders. Our common stock dividend payout ratio was 29% for the second quarter of 2023.
In July 2023, our Board of Directors approved a 14% increase in the quarterly cash dividend on common stock, from $0.37 to $0.42 per share. The increased quarterly cash dividend is expected to be paid on Aug. 10, 2023.
In the second quarter of 2023, we repurchased 10.6 million common shares at an average price of $42.14 per common share, for a total cost of $448 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, and the average HQLA and average LCR.
| Consolidated HQLA and LCR | June 30, 2023 | March 31, 2023 | ||||||
| (dollars in billions) | ||||||||
|
Cash
(a)
|
$ | 118 | $ | 117 | ||||
|
Securities
(b)
|
93 | 87 | ||||||
|
Total consolidated HQLA
(c)
|
$ | 211 | $ | 204 | ||||
|
Total consolidated HQLA – average
(c)
|
$ | 198 | $ | 195 | ||||
| Average consolidated LCR | 120 | % | 118 | % | ||||
(a) Primarily includes cash on deposit with central banks.
(b) Primarily includes securities of U.S. government-sponsored enterprises, the U.S. Treasury, sovereigns and U.S. agencies.
(c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $151 billion at June 30, 2023 and $140 billion at March 31, 2023, and averaged $141 billion for the second quarter of 2023 and $135 billion for the first quarter of 2023.
BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the U.S. LCR requirements of at least 100% throughout the second quarter of 2023.
Net stable funding ratio (“NSFR”)
The NSFR is a liquidity requirement applicable to large U.S. banking organizations, including BNY Mellon. The NSFR is expressed as a ratio of the available stable funding to the required stable funding amount over a one-year horizon. Our average consolidated NSFR was 136% for the second quarter of 2023 and 132% for the first quarter of 2023.
BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the NSFR requirement of at least 100% throughout the first and second quarters of 2023.
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.
34 BNY Mellon
Net cash provided by operating activities was $2.9 billion in the six months ended June 30, 2023, compared with $8.4 billion in the six months ended June 30, 2022. In the six months ended June 30, 2023, cash flows provided by operations primarily resulted from earnings. In the six months ended June 30, 2022, cash flows provided by operations primarily resulted from changes in trading assets and liabilities and earnings.
Net cash used for investing activities was $25.1 billion in the six months ended June 30, 2023, compared with $24.6 billion in the six months ended June 30, 2022. In the six months ended June 30, 2023, net cash used for investing activities primarily resulted from changes in interest-bearing deposits with the Federal Reserve and other central banks and changes in federal funds sold and securities purchased under resale agreements, partially offset by net changes in securities and changes in interest-bearing
deposits with banks. In the six months ended June 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.
Net cash provided by financing activities was $20.0 billion in the six months ended June 30, 2023, compared with $15.6 billion in the six months ended June 30, 2022. In the six months ended June 30, 2023, net cash provided by financing activities primarily resulted from changes in deposits and changes in federal funds purchased and securities sold under repurchase agreements. In the six months ended June 30, 2022, net cash provided by financing activities primarily resulted from changes in deposits and net proceeds from the issuance of long-term debt, partially offset by repayments of long-term debt.
Capital
| Capital data | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | ||||||||
| (dollars in millions, except per share amounts; common shares in thousands) | |||||||||||
| BNY Mellon shareholders’ equity to total assets ratio | 9.5 | % | 9.6 | % | 10.0 | % | |||||
| BNY Mellon common shareholders’ equity to total assets ratio | 8.4 | % | 8.4 | % | 8.8 | % | |||||
| Total BNY Mellon shareholders’ equity | $ | 40,933 | $ | 40,634 | $ | 40,734 | |||||
| Total BNY Mellon common shareholders’ equity | $ | 36,095 | $ | 35,796 | $ | 35,896 | |||||
|
BNY Mellon tangible common shareholders’ equity – Non-GAAP
(a)
|
$ | 18,821 | $ | 18,561 | $ | 18,686 | |||||
| Book value per common share | $ | 46.35 | $ | 45.36 | $ | 44.40 | |||||
|
Tangible book value per common share – Non-GAAP
(a)
|
$ | 24.17 | $ | 23.52 | $ | 23.11 | |||||
| Closing stock price per common share | $ | 44.52 | $ | 45.44 | $ | 45.52 | |||||
| Market capitalization | $ | 34,671 | $ | 35,858 | $ | 36,800 | |||||
| Common shares outstanding | 778,782 | 789,134 | 808,445 | ||||||||
| Cash dividends per common share | $ | 0.37 | $ | 0.37 | $ | 0.37 | |||||
| Common dividend payout ratio | 29 | % | 34 | % | 60 | % | |||||
|
Common dividend yield
(annualized)
|
3.3 | % | 3.3 | % | 3.2 | % | |||||
(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page
43
for a reconciliation of GAAP to Non-GAAP measures.
The Bank of New York Mellon Corporation total shareholders’ equity increased to $40.9 billion at June 30, 2023 from $40.7 billion at Dec. 31, 2022. The increase primarily reflects earnings, partially offset by common stock repurchase activity.
The unrealized loss (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated other comprehensive income was $2.3 billion at June 30, 2023, compared with $2.4 billion at Dec. 31, 2022. Net unrealized loss, including the impact of hedges, decreased as securities moved
closer to maturity, partially offset by the impact of higher interest rates.
In the first six months of 2023, we repurchased 35.8 million common shares at an average price of $47.62 per common share for a total of $1.7 billion.
In January 2023, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $5.0 billion of common shares beginning Jan. 1, 2023. This new
BNY Mellon 35
share repurchase plan replaced all previously authorized share repurchase plans.
In July 2023, our Board of Directors approved a 14% increase in the quarterly cash dividend on common stock, from $0.34 to $0.42 per share. The increased quarterly cash dividend is expected to be paid on Aug. 10, 2023.
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 June 30, 2023 and Dec. 31, 2022, 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 2022 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 2022 Annual Report.
The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.
|
Consolidated and largest bank subsidiary regulatory capital ratios
|
June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | ||||||||||||||||||||||||||
| Well capitalized | Minimum required |
Capital
ratios |
Capital
ratios |
Capital
ratios |
|||||||||||||||||||||||||
| (a) | |||||||||||||||||||||||||||||
|
Consolidated regulatory capital ratios
:
(b)
|
|||||||||||||||||||||||||||||
| Advanced Approaches: | |||||||||||||||||||||||||||||
| CET1 ratio | N/A | (c) | 8.5 | % | 11.1 | % | 11.0 | % | 11.2 | % | |||||||||||||||||||
| Tier 1 capital ratio | 6 | % | 10 | 14.0 | 13.9 | 14.1 | |||||||||||||||||||||||
| Total capital ratio | 10 | 12 | 14.8 | 14.7 | 14.9 | ||||||||||||||||||||||||
| Standardized Approach: | |||||||||||||||||||||||||||||
| CET1 ratio | N/A | (c) | 8.5 | % | 11.8 | % | 11.4 | % | 11.3 | % | |||||||||||||||||||
| Tier 1 capital ratio | 6 | % | 10 | 15.0 | 14.4 | 14.4 | |||||||||||||||||||||||
| Total capital ratio | 10 | 12 | 16.0 | 15.4 | 15.3 | ||||||||||||||||||||||||
| Tier 1 leverage ratio | N/A | (c) | 4 | 5.7 | 5.8 | 5.8 | |||||||||||||||||||||||
|
SLR
(d)
|
N/A | (c) | 5 | 7.0 | 6.9 | 6.8 | |||||||||||||||||||||||
|
The Bank of New York Mellon regulatory capital ratios
:
(b)
|
|||||||||||||||||||||||||||||
| Advanced Approaches: | |||||||||||||||||||||||||||||
| CET1 ratio | 6.5 | % | 7 | % | 15.6 | % | 15.4 | % | 15.6 | % | |||||||||||||||||||
| Tier 1 capital ratio | 8 | 8.5 | 15.6 | 15.4 | 15.6 | ||||||||||||||||||||||||
| Total capital ratio | 10 | 10.5 | 15.7 | 15.5 | 15.7 | ||||||||||||||||||||||||
| Tier 1 leverage ratio | 5 | 4 | 6.2 | 6.3 | 6.2 | ||||||||||||||||||||||||
|
SLR
(d)
|
6 | 3 | 8.2 | 7.8 | 7.7 | ||||||||||||||||||||||||
(a) Minimum requirements for June 30, 2023 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.
N/A – Not applicable.
36 BNY Mellon
Our CET1 ratio under the Advanced Approaches was 11.1% at June 30, 2023 and 11.2% at Dec. 31, 2022. The decrease was primarily driven by capital deployed through common stock repurchase activity and common dividends and higher RWAs, partially offset by capital generated through earnings.
The Tier 1 leverage ratio was 5.7% at June 30, 2023 and 5.8% at Dec. 31, 2022, as an increase in capital was more than offset by an increase in 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.
| Capital components and risk-weighted assets | |||||||||||
| June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | |||||||||
| (in millions) | |||||||||||
| CET1: | |||||||||||
| Common shareholders’ equity | $ | 36,095 | $ | 35,796 | $ | 35,896 | |||||
| Adjustments for: | |||||||||||
|
Goodwill and intangible assets
(a)
|
(17,274) | (17,235) | (17,210) | ||||||||
| Net pension fund assets | (350) | (347) | (317) | ||||||||
| Embedded goodwill | (278) | (277) | (279) | ||||||||
| Deferred tax assets | (58) | (57) | (56) | ||||||||
| Other | (8) | (4) | (2) | ||||||||
| Total CET1 | 18,127 | 17,876 | 18,032 | ||||||||
| Other Tier 1 capital: | |||||||||||
| Preferred stock | 4,838 | 4,838 | 4,838 | ||||||||
| Other | (8) | (4) | (14) | ||||||||
| Total Tier 1 capital | $ | 22,957 | $ | 22,710 | $ | 22,856 | |||||
| Tier 2 capital: | |||||||||||
| Subordinated debt | $ | 1,248 | $ | 1,248 | $ | 1,248 | |||||
| Allowance for credit losses | 323 | 319 | 291 | ||||||||
| Other | (6) | (1) | (11) | ||||||||
| Total Tier 2 capital – Standardized Approach | 1,565 | 1,566 | 1,528 | ||||||||
| Excess of expected credit losses | 61 | 48 | 50 | ||||||||
| Less: Allowance for credit losses | 323 | 319 | 291 | ||||||||
| Total Tier 2 capital – Advanced Approaches | $ | 1,303 | $ | 1,295 | $ | 1,287 | |||||
| Total capital: | |||||||||||
| Standardized Approach | $ | 24,522 | $ | 24,276 | $ | 24,384 | |||||
| Advanced Approaches | $ | 24,260 | $ | 24,005 | $ | 24,143 | |||||
| Risk-weighted assets: | |||||||||||
| Standardized Approach | $ | 153,359 | $ | 157,399 | $ | 159,096 | |||||
| Advanced Approaches: | |||||||||||
| Credit Risk | $ | 89,894 | $ | 91,142 | $ | 90,243 | |||||
| Market Risk | 2,629 | 3,238 | 2,979 | ||||||||
| Operational Risk | 71,013 | 68,525 | 68,450 | ||||||||
| Total Advanced Approaches | $ | 163,536 | $ | 162,905 | $ | 161,672 | |||||
| Average assets for Tier 1 leverage ratio | $ | 403,206 | $ | 389,581 | $ | 396,643 | |||||
| Total leverage exposure for SLR | $ | 326,215 | $ | 330,501 | $ | 336,049 | |||||
(a) Reduced by deferred tax liabilities associated with intangible assets and tax-deductible goodwill.
BNY Mellon 37
The table below presents the factors that impacted CET1 capital.
| CET1 generation | 2Q23 | ||||
| (in millions) | |||||
| CET1 – Beginning of period | $ | 17,876 | |||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 1,031 | ||||
| Goodwill and intangible assets, net of related deferred tax liabilities | (39) | ||||
| Gross CET1 generated | 992 | ||||
| Capital deployed: | |||||
| Common stock repurchases | (448) | ||||
|
Common stock dividends
(a)
|
(297) | ||||
| Total capital deployed | (745) | ||||
| Other comprehensive gain (loss): | |||||
| Unrealized loss on assets available-for-sale | (157) | ||||
| Foreign currency translation | 97 | ||||
| Unrealized gain on cash flow hedges | 3 | ||||
| Defined benefit plans | (2) | ||||
| Total other comprehensive (loss) | (59) | ||||
|
Additional paid-in capital
(b)
|
76 | ||||
| Other (deductions) additions: | |||||
| Net pension fund assets | (3) | ||||
| Embedded goodwill | (1) | ||||
| Deferred tax assets | (1) | ||||
| Other | (8) | ||||
| Total other deductions | (13) | ||||
| Net CET1 generated | 251 | ||||
| CET1 – End of period | $ | 18,127 | |||
(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 June 30, 2023 of a $100 million increase or decrease in common equity, or a $1 billion increase or decrease in RWAs, quarterly average assets or total leverage exposure.
|
Sensitivity of consolidated capital ratios at June 30, 2023
|
||||||||||||||
| Increase or decrease of | ||||||||||||||
| (in basis points) |
$100 million
in common equity |
$1 billion in RWA, quarterly average assets or total leverage exposure | ||||||||||||
| CET1: | ||||||||||||||
|
Standardized Approach
|
7 | bps | 8 | bps | ||||||||||
|
Advanced Approaches
|
6 | 7 | ||||||||||||
| Tier 1 capital: | ||||||||||||||
|
Standardized Approach
|
7 | 10 | ||||||||||||
|
Advanced Approaches
|
6 | 9 | ||||||||||||
| Total capital: | ||||||||||||||
|
Standardized Approach
|
7 | 10 | ||||||||||||
|
Advanced Approaches
|
6 | 9 | ||||||||||||
| Tier 1 leverage | 2 | 1 | ||||||||||||
|
SLR
|
3 | 2 | ||||||||||||
Stress capital buffer
In July 2023, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory floor, effective as of Oct. 1, 2023. The SCB replaced the static 2.5% capital conservation buffer for Standardized Approach capital ratios for CCAR BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the static 2.5% capital conservation buffer. See “Supervision and Regulation” in our 2022 Annual Report for additional information.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the 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 Approach 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
38 BNY Mellon
extent these instruments otherwise would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.
The following table presents our external TLAC and external LTD ratios.
| TLAC and LTD ratios | June 30, 2023 | ||||||||||
|
Minimum
required |
Minimum ratios
with buffers |
||||||||||
| Ratios | |||||||||||
| Eligible external TLAC: | |||||||||||
|
As a percentage of RWA
|
18.0 | % | 21.5 | % | 30.8 | % | |||||
|
As a percentage of total leverage exposure
|
7.5 | % | 9.5 | % | 15.4 | % | |||||
| Eligible external LTD: | |||||||||||
| As a percentage of RWA | 7.5 | % | N/A | 14.7 | % | ||||||
|
As a percentage of total leverage exposure
|
4.5 | % | N/A | 7.4 | % | ||||||
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 the 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)
|
2Q23 | June 30, 2023 | ||||||||||||
| (in millions) | Average | Minimum | Maximum | |||||||||||
| Interest rate | $ | 3.1 | $ | 2.0 | $ | 5.1 | $ | 2.6 | ||||||
| Foreign exchange | 3.0 | 2.0 | 4.5 | 2.3 | ||||||||||
| Equity | 0.1 | — | 0.3 | 0.1 | ||||||||||
| Credit | 1.4 | 1.0 | 2.0 | 1.3 | ||||||||||
| Diversification | (4.6) | N/M | N/M | (4.0) | ||||||||||
| Overall portfolio | 3.0 | 1.8 | 4.9 | 2.3 | ||||||||||
|
VaR
(a)
|
1Q23 | March 31, 2023 | ||||||||||||
| (in millions) | Average | Minimum | Maximum | |||||||||||
| Interest rate | $ | 3.8 | $ | 2.1 | $ | 7.6 | $ | 4.4 | ||||||
| Foreign exchange | 3.6 | 2.4 | 5.7 | 3.1 | ||||||||||
| Equity | 0.1 | — | 0.3 | 0.2 | ||||||||||
| Credit | 1.8 | 0.7 | 3.5 | 1.9 | ||||||||||
| Diversification | (5.3) | N/M | N/M | (4.9) | ||||||||||
| Overall portfolio | 4.0 | 2.2 | 8.9 | 4.7 | ||||||||||
|
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 | ||||||||||
BNY Mellon 39
|
VaR
(a)
|
YTD23 | ||||||||||
| (in millions) | Average | Minimum | Maximum | ||||||||
| Interest rate | $ | 3.4 | $ | 2.0 | $ | 7.6 | |||||
| Foreign exchange | 3.3 | 2.0 | 5.7 | ||||||||
| Equity | 0.1 | — | 0.3 | ||||||||
| Credit | 1.6 | 0.7 | 3.5 | ||||||||
| Diversification | (4.9) | N/M | N/M | ||||||||
| Overall portfolio | 3.5 | 1.8 | 8.9 | ||||||||
|
VaR
(a)
|
YTD22 | ||||||||||
| (in millions) | Average | Minimum | Maximum | ||||||||
| Interest rate | $ | 4.6 | $ | 1.6 | $ | 9.3 | |||||
| Foreign exchange | 3.5 | 2.2 | 10.2 | ||||||||
| Equity | 0.3 | — | 0.9 | ||||||||
| Credit | 2.0 | 1.0 | 3.8 | ||||||||
| Diversification | (4.5) | N/M | N/M | ||||||||
| Overall portfolio | 5.9 | 2.8 | 11.4 | ||||||||
(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, and 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 second quarter of 2023, interest rate risk generated 41% of average gross VaR, foreign exchange risk generated 40% of average gross VaR, equity risk generated 1% of average gross VaR and credit risk generated 18% of average gross VaR. During the second quarter of 2023, our daily trading loss did not exceed our calculated VaR amount of the overall portfolio.
The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading revenue or loss fell within particular ranges during the past five quarters.
|
Distribution of trading revenue (loss)
(a)
|
|||||||||||||||||
| Quarter ended | |||||||||||||||||
| (dollars in millions) | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | Sept. 30, 2022 | June 30, 2022 | ||||||||||||
| Revenue range: | Number of days | ||||||||||||||||
| Less than $(2.5) | — | — | 2 | — | 1 | ||||||||||||
| $(2.5) – $0 | 2 | 1 | 4 | 3 | 4 | ||||||||||||
| $0 – $2.5 | 15 | 20 | 13 | 10 | 10 | ||||||||||||
| $2.5 – $5.0 | 37 | 26 | 24 | 32 | 24 | ||||||||||||
| More than $5.0 | 9 | 15 | 20 | 19 | 24 | ||||||||||||
(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 $10.6 billion at June 30, 2023 and $9.9 billion at Dec. 31, 2022.
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 $6.3 billion at June 30, 2023 and $5.4 billion at Dec. 31, 2022.
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,
40 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 June 30, 2023, our OTC derivative assets, including those in hedging relationships, of $2.0 billion included a credit valuation adjustment (“CVA”) deduction of $16 million. Our OTC derivative liabilities, including those in hedging relationships, of $2.9 billion included a debit valuation adjustment (“DVA”) of $4 million related to our own credit spread. Net of hedges, the CVA increased by less than $1 million and the DVA decreased by less than $1 million in the second quarter of 2023, which decreased investment and other revenue – other trading revenue by less than $1 million. The net impact increased investment and other revenue – other trading revenue by $1 million in the first quarter of 2023 and $2 million in the second quarter of 2022.
The table below summarizes our exposure, net of collateral related to our derivative counterparties, as determined on an internal risk management basis. Significant changes in counterparty credit ratings could alter the level of credit risk faced by BNY Mellon.
|
Foreign exchange and other trading
counterparty risk-rating profile
|
|||||||||||||||||
| June 30, 2023 | Dec. 31, 2022 | ||||||||||||||||
| (dollars in millions) | Exposure, net of collateral | Percentage of exposure, net of collateral | Exposure, net of collateral | Percentage of exposure, net of collateral | |||||||||||||
| Investment grade | $ | 1,776 | 98 | % | $ | 2,553 | 98 | % | |||||||||
| Non-investment grade | 30 | 2 | % | 63 | 2 | % | |||||||||||
| Total | $ | 1,806 | 100 | % | $ | 2,616 | 100 | % | |||||||||
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 each respective quarter-end. 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 at the start of the forecast. Long-term interest rates are defined as all tenors equal to or greater than three years and short-term interest rates are defined as
BNY Mellon 41
all tenors equal to or less than three months. Interim term points are interpolated where applicable. The impact of interest rate shifts may not be linear. The results of this earnings simulation should therefore not be extrapolated for more severe interest rate scenarios than those presented in the table below.
The following table shows net interest revenue sensitivity for BNY Mellon.
|
Estimated changes in net interest revenue
(in millions)
|
June 30, 2023 | March 31, 2023 | June 30, 2022 | ||||||||
|
Up 100 bps rate shock vs. baseline
|
$ | 324 | $ | 441 | $ | 161 | |||||
|
Long-term up 100 bps, short-term unchanged
|
7 | 109 | 42 | ||||||||
|
Short-term up 100 bps, long-term unchanged
|
317 | 332 | 119 | ||||||||
|
Long-term down 100 bps, short-term unchanged
(a)
|
(13) | (108) | (38) | ||||||||
|
Short-term down 100 bps, long-term unchanged
|
(346) | (354) | (331) | ||||||||
|
Down 100 bps rate shock vs. baseline
|
(358) | (463) | (370) | ||||||||
(a) Prior periods have been updated to reflect the impact of a 100 basis point decrease in long-term rates while short-term rates were unchanged.
At June 30, 2023, the impact of a 100 bps upward shift in rates on net interest revenue decreased compared with March 31, 2023. The drivers were higher expected deposit interest expense in rising rate scenarios, driven by changes in the forward rate curve resulting in higher deposit rate sensitivity.
While the net interest revenue sensitivity scenario calculations assume static deposit balances to facilitate consistent period-over-period comparisons, net interest revenue is impacted by changes in deposit balances. Noninterest-bearing deposits are particularly sensitive to changes in short-term 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 in the table above by approximately $320 million. The impact would be smaller if the run-off was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.
Additionally, during periods of low short-term interest rates, money market mutual fund fees and other similar fees are typically waived to protect investors from negative returns. See “Fee and other revenue” in our 2022 Annual Report for additional details on money market fee waivers.
For a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors – Capital and Liquidity Risk – Our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity” in our 2022 Annual Report.
42 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 total noninterest expense, excluding litigation reserves and severance. Litigation reserves represent accruals for loss contingencies that are both probable and reasonably estimable, but exclude standard business-related legal fees. These measures are provided to permit investors to view financial measures on a basis consistent with management’s view.
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 presented the pre-tax operating margin excluding litigation reserves, severance and a disposal loss for the Securities Services business segment. These measures are provided to permit investor to view the financial measures on a basis consistent with how management views the business.
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.
The following table presents the reconciliation of the return on common equity and tangible common equity.
| Return on common equity and tangible common equity reconciliation | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||
| (dollars in millions) | |||||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 1,031 | $ | 905 | $ | 835 | $ | 1,936 | $ | 1,534 | |||||||
| Add: Amortization of intangible assets | 14 | 14 | 17 | 28 | 34 | ||||||||||||
| Less: Tax impact of amortization of intangible assets | 4 | 3 | 4 | 7 | 8 | ||||||||||||
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 1,041 | $ | 916 | $ | 848 | $ | 1,957 | $ | 1,560 | |||||||
| Average common shareholders’ equity | $ | 35,769 | $ | 35,604 | $ | 36,199 | $ | 35,687 | $ | 36,778 | |||||||
| Less: Average goodwill | 16,219 | 16,160 | 17,347 | 16,190 | 17,418 | ||||||||||||
| Average intangible assets | 2,888 | 2,899 | 2,949 | 2,894 | 2,964 | ||||||||||||
| Add: Deferred tax liability – tax deductible goodwill | 1,193 | 1,187 | 1,187 | 1,193 | 1,187 | ||||||||||||
| Deferred tax liability – intangible assets | 660 | 660 | 668 | 660 | 668 | ||||||||||||
| Average tangible common shareholders’ equity – Non-GAAP | $ | 18,515 | $ | 18,392 | $ | 17,758 | $ | 18,456 | $ | 18,251 | |||||||
|
Return on common equity
(annualized)
– GAAP
|
11.6 | % | 10.3 | % | 9.3 | % | 10.9 | % | 8.4 | % | |||||||
|
Return on tangible common equity
(annualized)
– Non-GAAP
|
22.6 | % | 20.2 | % | 19.2 | % | 21.4 | % | 17.2 | % | |||||||
BNY Mellon 43
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 | June 30, 2023 | March 31, 2023 | Dec. 31, 2022 | June 30, 2022 | ||||||||||
| (dollars in millions, except per share amounts and unless otherwise noted) | ||||||||||||||
| BNY Mellon shareholders’ equity at period end – GAAP | $ | 40,933 | $ | 40,634 | $ | 40,734 | $ | 40,984 | ||||||
| Less: Preferred stock | 4,838 | 4,838 | 4,838 | 4,838 | ||||||||||
| BNY Mellon common shareholders’ equity at period end – GAAP | 36,095 | 35,796 | 35,896 | 36,146 | ||||||||||
| Less: Goodwill | 16,246 | 16,192 | 16,150 | 17,271 | ||||||||||
| Intangible assets | 2,881 | 2,890 | 2,901 | 2,934 | ||||||||||
| Add: Deferred tax liability – tax deductible goodwill | 1,193 | 1,187 | 1,181 | 1,187 | ||||||||||
| Deferred tax liability – intangible assets | 660 | 660 | 660 | 668 | ||||||||||
|
BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP
|
$ | 18,821 | $ | 18,561 | $ | 18,686 | $ | 17,796 | ||||||
|
Period-end common shares outstanding
(in thousands)
|
778,782 | 789,134 | 808,445 | 808,103 | ||||||||||
| Book value per common share – GAAP | $ | 46.35 | $ | 45.36 | $ | 44.40 | $ | 44.73 | ||||||
| Tangible book value per common share – Non-GAAP | $ | 24.17 | $ | 23.52 | $ | 23.11 | $ | 22.02 | ||||||
The following table presents the reconciliation of noninterest expense growth.
| Noninterest expense growth reconciliation | 2Q23 vs. | ||||||||||
| (dollars in millions) | 2Q23 | 2Q22 | 2Q22 | ||||||||
| Noninterest expense – GAAP | $ | 3,111 | $ | 3,112 | — | % | |||||
|
Impact of notable items
(a)
|
62 | 103 | |||||||||
| Adjusted noninterest expense – Non-GAAP | $ | 3,049 | $ | 3,009 | 1 | % | |||||
(a) Notable items in 2Q23 reflect litigation reserves and severance. Notable items in 2Q22 reflect litigation reserves.
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 | 2Q23 vs. | ||||||||||
| (dollars in millions) | 2Q23 | 2Q22 | 2Q22 | ||||||||
| Investment management and performance fees – GAAP | $ | 762 | $ | 833 | (9) | % | |||||
| Impact of changes in foreign currency exchange rates | — | (2) | |||||||||
| Adjusted investment management and performance fees – Non-GAAP | $ | 762 | $ | 831 | (8) | % | |||||
The following table presents the reconciliation of income before income taxes growth for the Securities Services business segment.
| Income before income taxes growth reconciliation – Securities Services business segment | 2Q23 vs. | ||||||||||
| (dollars in millions) | 2Q23 | 2Q22 | 2Q22 | ||||||||
| Income before income taxes – GAAP | $ | 642 | $ | 337 | 91 | % | |||||
|
Impact of notable items
(a)
|
(10) | (92) | |||||||||
| Adjusted income before income taxes, excluding notable items – Non-GAAP | $ | 652 | $ | 429 | 52 | % | |||||
(a) Notable items in 2Q23 reflect severance, litigation reserves and a disposal loss. Notable items in 2Q22 reflect litigation reserves.
44 BNY Mellon
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
|
2Q23 vs. | ||||||||||
| (dollars in millions) | 2Q23 | 2Q22 | 2Q22 | ||||||||
| Investment management and performance fees – GAAP | $ | 760 | $ | 830 | (8) | % | |||||
| Impact of changes in foreign currency exchange rates | — | (2) | |||||||||
| Adjusted investment management and performance fees – Non-GAAP | $ | 760 | $ | 828 | (8) | % | |||||
The following tables present the reconciliations of income before income taxes and the pre-tax operating margin for the Investment and Wealth Management business segment.
|
Pre-tax operating margin reconciliation
–
Investment and Wealth Management business segment
|
|||||
| (dollars in millions) | 3Q22 | ||||
| Income before income taxes – GAAP | $ | (497) | |||
|
Impact of notable items
(a)
|
(679) | ||||
| Adjusted income before income taxes – Non-GAAP | $ | 182 | |||
| Total revenue – GAAP | $ | 862 | |||
|
Less:
Distribution and servicing expense
|
88 | ||||
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 774 | |||
|
Pre-tax operating margin – GAAP
(b)
|
(57) | % | |||
|
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP
(b)
|
(64) | % | |||
|
Adjusted pre-tax operating margin, net of distribution and servicing expense and excluding notable items – Non-GAAP
(b)
|
24 | % | |||
(a) Notable items in the third quarter of 2022 include goodwill impairment 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) | 2Q23 | 1Q23 | 4Q22 | 2Q22 | YTD23 | YTD22 | ||||||||||||||
| Income before income taxes – GAAP | $ | 129 | $ | 93 | $ | 125 | $ | 208 | $ | 222 | $ | 420 | ||||||||
| Total revenue – GAAP | $ | 813 | $ | 827 | $ | 825 | $ | 899 | $ | 1,640 | $ | 1,863 | ||||||||
| Less: Distribution and servicing expense | 93 | 86 | 87 | 91 | 179 | 170 | ||||||||||||||
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 720 | $ | 741 | $ | 738 | $ | 808 | $ | 1,461 | $ | 1,693 | ||||||||
|
Pre-tax operating margin – GAAP
(a)
|
16 | % | 11 | % | 15 | % | 23 | % | 14 | % | 23 | % | ||||||||
|
Adjusted pre-tax operating margin, net of distribution and servicing
expense – Non-GAAP
(a)
|
18 | % | 13 | % | 17 | % | 26 | % | 15 | % | 25 | % | ||||||||
(a) Income before income taxes divided by total revenue.
BNY Mellon 45
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 June 30, 2023.
Accounting Standards Update (“ASU”) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
In March 2023, the FASB issued ASU 2023-02,
Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method
, which permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received, and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of the provision for income taxes.
This ASU is effective Jan. 1, 2024 with early adoption permitted. BNY Mellon is currently evaluating this guidance with respect to our investments in renewable energy projects, which historically have not been eligible to apply the proportional amortization method. These investments currently generate losses in investment and other revenue that are more than offset by benefits and credits recorded to the provision for income taxes. The impact of adopting this new guidance for our renewable energy investments that meet the eligibility criteria would be an increase in investment and other revenue and an increase in the provision for income taxes on the consolidated income statement.
Recent regulatory and other developments
For a summary of additional regulatory matters relevant to our operations, see “Recent regulatory developments” in our Form 10-Q for the quarter ended March 31, 2023, and “Supervision and Regulation” in our 2022 Annual Report. The
following discussion summarizes certain regulatory, legislative and other developments that may affect BNY Mellon.
U.S. Regulatory Capital Requirements
On July 27, 2023, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation proposed substantial revisions to the capital requirements applicable to large banking organizations and to banking organizations with significant trading activity, including BNY Mellon. The proposed revisions would implement international capital standards issued by the Basel Committee on Banking Supervision.
Large banking organizations would be required to calculate risk-based capital ratios under both a new Expanded Risk-based Approach and the current Standardized Approach. Large banking organizations would be subject to the lower of the Expanded Risk-based Approach and the sum of the current Standardized Approach and new market risk rule for each risk-based capital ratio. All applicable capital buffer requirements, including the stress capital buffer, would apply regardless of which approach produces the more binding ratio.
The proposal would replace existing models-based approaches for calculating RWA for credit risk and operational risk with new standardized approaches. Under the proposed Expanded Risk-based Approach, RWAs would be calculated using: (i) a new standardized approach for credit risk; (ii) one of two non-models-based approaches for credit valuation adjustment risk; (iii) a new standardized approach for operational risk that is not based on internal models; and (iv) a revised approach to market risk. For market risk, the proposal would implement a standardized approach, adopt a new models-based approach and would allow use of internal models for certain risks subject to enhanced requirements for model approval and performance and an “output floor” limiting the extent to which a banking organization’s internal models may reduce total RWA under the Expanded Risk-based Approach.
The proposal would also indirectly impact several other regulations, including the requirements for total loss-absorbing capacity, long-term debt requirements, and the surcharge for global systemically important bank holding companies (“GSIBs”). It would remove
46 BNY Mellon
the option of using internal models in the calculation of derivatives exposure amounts under single-counterparty credit limit rules.
Comments on the proposal are due on Nov. 30, 2023. Under the proposal, the revisions would become effective on July 1, 2025, subject to a three-year transition period for calculating RWAs under the Expanded Risk-based Approach. We are assessing the potential impact of the proposal.
Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies
On July 27, 2023, the Federal Reserve proposed amendments to its rule regarding risk-based capital surcharges for GSIBs, including BNY Mellon. For certain systemic indicators currently measured only as of year-end, the proposal would change to measurement of average daily or monthly values over the full year. The proposal would also revise various aspects of the systemic indicators and measure GSIB surcharges in 10-basis point increments rather than 50-basis point increments.
Comments on the proposal are due on Nov. 30, 2023. The proposal provides the amendments would become effective two calendar quarters after adoption of a final rule. We are assessing the potential impact of the proposal.
Cybersecurity
On July 26, 2023, the SEC adopted rules requiring public companies to disclose
cybersecurity incidents and details regarding their cybersecurity risk management, strategy and governance
. Under the rules, public companies must disclose material cybersecurity incidents on Form 8-K. Disclosure of material incidents generally is due within four
business days after a public company determines that a cybersecurity incident is material
. On an annual basis, public companies, including the Parent, must include in their annual report on Form 10-K a description of their processes for assessing, identifying, and managing, and management’s role and expertise in assessing and managing, material cybersecurity risks; a description of the potential or reasonably likely material effects of cybersecurity risks; and the board of directors’ oversight of cybersecurity risks.
The final rules will become effective 30 days following publication in the Federal Register. The Parent will be required to file incident disclosures beginning the later of 90 days after publication in the Federal Register or Dec. 18, 2023, and annual disclosures beginning with its annual report for fiscal year ending Dec. 31, 2023.
LIBOR transition
For a summary of developments related to the cessation of LIBOR, see “Other Matters – Replacement of Interbank Offered Rates (“IBORs”), including LIBOR” in our 2022 Annual Report. Despite the passage of the June 30, 2023 cessation date, a number of unknown factors remain regarding the transition from the IBORs that could impact our business, as the first reset date following the LIBOR replacement date under a number of outstanding LIBOR-linked contracts has not yet occurred. 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 2022 Annual Report.
Federal Deposit Insurance Corporation (“FDIC”) special assessment
On May 11, 2023, the FDIC proposed a rule to impose a special assessment on insured depository institutions (“IDIs”) to recover losses to the Deposit Insurance Fund (“DIF”) associated with the closures of Silicon Valley Bank and Signature Bank. Under the proposal, the FDIC would collect from each IDI a special assessment at an annual rate of approximately 12.5 basis points of the IDI’s estimated uninsured deposits (excluding the first $5 billion of estimated uninsured deposits), as of Dec. 31, 2022. For an IDI that is part of a holding company containing multiple IDIs, the $5 billion deduction would be apportioned based on the IDI’s estimated uninsured deposits as a percentage of total estimated uninsured deposits held by all IDI affiliates in the consolidated banking organization. The special assessment would be collected during an initial special assessment period of eight quarters, with the first quarterly assessment period beginning on Jan. 1, 2024, subject to potential extension and a potential one-time final special assessment for any shortfall to the DIF. If the assessment is finalized as proposed, we expect the expense to be recorded in a single quarter which
BNY Mellon 47
would significantly affect noninterest expense and the results of operations for that quarter.
Share repurchase disclosure modernization
On May 3, 2023, the SEC adopted a final rule requiring disclosures related to issuers’ repurchases of equity securities. The rule requires corporate issuers, including the Parent, to disclose daily share repurchase activity on a quarterly basis. The rule also requires quarterly disclosure regarding the adoption, modification and termination of Rule 10b5-1 trading arrangements by issuers and requires narrative disclosure about the issuer’s repurchase programs and practices. The Parent will be required to comply with the new disclosure obligations starting with the fiscal quarter that begins on Oct. 1, 2023.
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.
48 BNY Mellon
| Item 1. Financial Statements | ||
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Income Statement
(unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Fee and other revenue | ||||||||||||||||||||
| Investment services fees | $ |
|
$ |
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$ |
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$ |
|
$ |
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||||||||||
| Investment management and performance fees |
|
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|||||||||||||||
| Foreign exchange revenue |
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| Financing-related fees |
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| Distribution and servicing fees |
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| Total fee revenue |
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| Investment and other revenue |
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| Total fee and other revenue |
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|||||||||||||||
| Net interest revenue | ||||||||||||||||||||
| Interest revenue |
|
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| Interest expense |
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| Net interest revenue |
|
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| Total revenue |
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|||||||||||||||
| Provision for credit losses |
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| Noninterest expense | ||||||||||||||||||||
| Staff |
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| Software and equipment |
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| Professional, legal and other purchased services |
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| Net occupancy |
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| Sub-custodian and clearing |
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| Distribution and servicing |
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| Business development |
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| Bank assessment charges |
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| Amortization of intangible assets |
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| Other |
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| Total noninterest expense |
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| Income | ||||||||||||||||||||
| Income before income taxes |
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| Provision for income taxes |
|
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|
|||||||||||||||
| Net income |
|
|
|
|
|
|||||||||||||||
| Net (income) loss attributable to noncontrolling interests related to consolidated investment management funds |
(
|
|
|
(
|
|
|||||||||||||||
| Net income applicable to shareholders of The Bank of New York Mellon Corporation |
|
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|||||||||||||||
| Preferred stock dividends |
(
|
(
|
(
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(
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(
|
|||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
BNY Mellon 49
| 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 | ||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Less: Earnings allocated to participating securities |
|
|
|
|
|
|||||||||||||||
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | Year-to-date | ||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Basic |
|
|
|
|
|
|||||||||||||||
| Common stock equivalents |
|
|
|
|
|
|||||||||||||||
| Less: Participating securities |
(
|
(
|
(
|
(
|
(
|
|||||||||||||||
| Diluted |
|
|
|
|
|
|||||||||||||||
|
Anti-dilutive securities
(a)
|
|
|
|
|
|
|||||||||||||||
(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 | ||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| (in dollars) | ||||||||||||||||||||
| Basic | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Diluted | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
See accompanying unaudited Notes to Consolidated Financial Statements.
50 BNY Mellon
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Comprehensive Income Statement
(unaudited)
| Quarter ended | Year-to-date | |||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | ||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Net income | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| Foreign currency translation adjustments |
|
|
(
|
|
(
|
|||||||||||||||
| Unrealized gain (loss) on assets available-for-sale: | ||||||||||||||||||||
| Unrealized (loss) gain arising during the period |
(
|
|
(
|
|
(
|
|||||||||||||||
| Reclassification adjustment |
|
|
|
|
(
|
|||||||||||||||
| Total unrealized (loss) gain on assets available-for-sale |
(
|
|
(
|
|
(
|
|||||||||||||||
| Defined benefit plans: | ||||||||||||||||||||
| Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost |
(
|
(
|
|
(
|
|
|||||||||||||||
| Total defined benefit plans |
(
|
(
|
|
(
|
|
|||||||||||||||
| Net unrealized gain (loss) on cash flow hedges |
|
|
(
|
|
(
|
|||||||||||||||
|
Total other comprehensive (loss) income, net of tax
(a)
|
(
|
|
(
|
|
(
|
|||||||||||||||
| Total comprehensive income (loss) |
|
|
(
|
|
(
|
|||||||||||||||
| Net (income) loss attributable to noncontrolling interests |
(
|
|
|
(
|
|
|||||||||||||||
| Other comprehensive loss attributable to noncontrolling interests |
|
|
|
|
|
|||||||||||||||
| Comprehensive income (loss) applicable to shareholders of The Bank of New York Mellon Corporation | $ |
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
||||||||||
(a)
Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $(
59
) million for the quarter ended June 30, 2023, $
423
million for the quarter ended March 31, 2023, $(
1,426
) million for the quarter ended June 30, 2022, $
364
million for the six months ended June 30, 2023 and $(
3,094
) million for the six months ended June 30, 2022.
See accompanying unaudited Notes to Consolidated Financial Statements.
BNY Mellon 51
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Balance Sheet
(unaudited)
| June 30, 2023 | Dec. 31, 2022 | |||||||
| (dollars in millions, except per share amounts) | ||||||||
| Assets | ||||||||
|
Cash and due from banks, net of allowance for credit losses of $
|
$ |
|
$ |
|
||||
| Interest-bearing deposits with the Federal Reserve and other central banks |
|
|
||||||
|
Interest-bearing deposits with banks, net of allowance for credit losses of $
|
|
|
||||||
| Federal funds sold and securities purchased under resale agreements |
|
|
||||||
| Securities: | ||||||||
|
Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $
|
|
|
||||||
|
Available-for-sale, at fair value (amortized cost of $
|
|
|
||||||
| Total securities |
|
|
||||||
| Trading assets |
|
|
||||||
| Loans |
|
|
||||||
| Allowance for credit losses |
(
|
(
|
||||||
| Net loans |
|
|
||||||
| Premises and equipment |
|
|
||||||
| Accrued interest receivable |
|
|
||||||
| Goodwill |
|
|
||||||
| Intangible assets |
|
|
||||||
|
Other assets, net of allowance for credit losses on accounts receivable of $
|
|
|
||||||
| Total assets | $ |
|
$ |
|
||||
| Liabilities | ||||||||
| Deposits: | ||||||||
| Noninterest-bearing (principally U.S. offices) | $ |
|
$ |
|
||||
| Interest-bearing deposits in U.S. offices |
|
|
||||||
| Interest-bearing deposits in non-U.S. offices |
|
|
||||||
| Total deposits |
|
|
||||||
| Federal funds purchased and securities sold under repurchase agreements |
|
|
||||||
| Trading liabilities |
|
|
||||||
| Payables to customers and broker-dealers |
|
|
||||||
| Other borrowed funds |
|
|
||||||
|
Accrued taxes and other expenses
|
|
|
||||||
|
Other liabilities (including allowance for credit losses on lending-related commitments of $
|
|
|
||||||
| Long-term debt |
|
|
||||||
| Total liabilities |
|
|
||||||
| Temporary equity | ||||||||
| Redeemable noncontrolling interests |
|
|
||||||
| Permanent equity | ||||||||
|
Preferred stock – par value $
|
|
|
||||||
|
Common stock – par value $
|
|
|
||||||
| Additional paid-in capital |
|
|
||||||
| Retained earnings |
|
|
||||||
| Accumulated other comprehensive loss, net of tax |
(
|
(
|
||||||
|
Less: Treasury stock of
|
(
|
(
|
||||||
| Total The Bank of New York Mellon Corporation shareholders’ equity |
|
|
||||||
| Nonredeemable noncontrolling interests of consolidated investment management funds |
|
|
||||||
| Total permanent equity |
|
|
||||||
| Total liabilities, temporary equity and permanent equity | $ |
|
$ |
|
||||
See accompanying unaudited Notes to Consolidated Financial Statements.
52 BNY Mellon
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Statement of Cash Flows
(unaudited)
| Six months ended June 30, | |||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| Operating activities | |||||||||||
| Net income | $ |
|
$ |
|
|||||||
| Net (income) loss attributable to noncontrolling interests |
(
|
|
|||||||||
| Net income applicable to shareholders of The Bank of New York Mellon Corporation |
|
|
|||||||||
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | |||||||||||
| Provision for credit losses |
|
|
|||||||||
| Pension plan contributions |
(
|
(
|
|||||||||
| Depreciation and amortization |
|
|
|||||||||
| Deferred tax expense |
|
|
|||||||||
| Net securities losses (gains) |
|
(
|
|||||||||
| Change in trading assets and liabilities |
|
|
|||||||||
| Change in accruals and other, net |
|
(
|
|||||||||
| Net cash provided by operating activities |
|
|
|||||||||
| Investing activities | |||||||||||
| Change in interest-bearing deposits with banks |
|
|
|||||||||
| Change in interest-bearing deposits with the Federal Reserve and other central banks |
(
|
(
|
|||||||||
| Purchases of securities held-to-maturity |
(
|
(
|
|||||||||
| Paydowns of securities held-to-maturity |
|
|
|||||||||
| Maturities of securities held-to-maturity |
|
|
|||||||||
| Purchases of securities available-for-sale |
(
|
(
|
|||||||||
| Sales of securities available-for-sale |
|
|
|||||||||
| Paydowns of securities available-for-sale |
|
|
|||||||||
| Maturities of securities available-for-sale |
|
|
|||||||||
| Net change in loans |
|
(
|
|||||||||
| Change in federal funds sold and securities purchased under resale agreements |
(
|
|
|||||||||
| Net change in seed capital investments |
|
(
|
|||||||||
| Purchases of premises and equipment/capitalized software |
(
|
(
|
|||||||||
| Proceeds from the sale of premises and equipment |
|
|
|||||||||
| Other, net |
(
|
(
|
|||||||||
| Net cash (used for) investing activities |
(
|
(
|
|||||||||
| Financing activities | |||||||||||
| Change in deposits |
|
|
|||||||||
| Change in federal funds purchased and securities sold under repurchase agreements |
|
(
|
|||||||||
| Change in payables to customers and broker-dealers |
(
|
|
|||||||||
| Change in other borrowed funds |
|
(
|
|||||||||
| Net proceeds from the issuance of long-term debt |
|
|
|||||||||
| Repayments of long-term debt |
(
|
(
|
|||||||||
| Proceeds from the exercise of stock options |
|
|
|||||||||
| Issuance of common stock |
|
|
|||||||||
| Treasury stock acquired |
(
|
(
|
|||||||||
| Common cash dividends paid |
(
|
(
|
|||||||||
| Preferred cash dividends paid |
(
|
(
|
|||||||||
| Other, net |
(
|
(
|
|||||||||
| Net cash provided by financing activities |
|
|
|||||||||
| Effect of exchange rate changes on cash |
|
|
|||||||||
| Change in cash and due from banks and restricted cash | |||||||||||
| Change in cash and due from banks and restricted cash |
(
|
(
|
|||||||||
| Cash and due from banks and restricted cash at beginning of period |
|
|
|||||||||
| Cash and due from banks and restricted cash at end of period | $ |
|
$ |
|
|||||||
| Cash and due from banks and restricted cash | |||||||||||
| Cash and due from banks at end of period (unrestricted cash) | $ |
|
$ |
|
|||||||
| Restricted cash at end of period |
|
|
|||||||||
| Cash and due from banks and restricted cash at end of period | $ |
|
$ |
|
|||||||
| Supplemental disclosures | |||||||||||
| Interest paid | $ |
|
$ |
|
|||||||
| Income taxes paid |
|
|
|||||||||
| Income taxes refunded |
|
|
|||||||||
See accompanying unaudited Notes to Consolidated Financial Statements.
BNY Mellon 53
| 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 March 31, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
| Shares issued to shareholders of noncontrolling interests | — | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
| Other net changes in noncontrolling interests | — | — |
|
— | — | — |
(
|
(
|
(
|
|||||||||||||||||||||||
| Net income | — | — | — |
|
— | — |
|
|
— | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — |
(
|
— | — |
(
|
|
|||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
|
Common stock at $
share
(b)
|
— | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Preferred stock | — | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Stock-based compensation | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Excise tax on share repurchases | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
| Balance at June 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
(a)
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $
35,796
million at March 31, 2023 and $
36,095
million at June 30, 2023.
(b)
Includes dividend equivalents on share-based awards.
| The Bank of New York Mellon Corporation shareholders |
Nonredeemable
noncontrolling interests of consolidated investment management funds |
Total
permanent equity |
Redeemable
non- controlling interests/ temporary equity |
|||||||||||||||||||||||||||||
|
(in millions, except per
share amount) |
Preferred stock |
Common
stock |
Additional
paid-in capital |
Retained
earnings |
Accumulated other comprehensive (loss) income, net of tax |
Treasury
stock |
||||||||||||||||||||||||||
| Balance at Dec. 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
|
Shares issued to shareholders of noncontrolling interests
|
— | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
|
Redemption of subsidiary shares from noncontrolling interests
|
— | — | — | — | — | — | — | — |
(
|
|||||||||||||||||||||||
|
Other net changes in noncontrolling interests
|
— | — |
(
|
— | — | — |
|
|
|
|||||||||||||||||||||||
| Net income | — | — | — |
|
— | — | — |
|
— | |||||||||||||||||||||||
| Other comprehensive income | — | — | — | — |
|
— | — |
|
— | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
|
Common stock at $
share
(b)
|
— | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Preferred stock | — | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Stock-based compensation | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Excise tax of share repurchases | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
| Balance at March 31, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
(a)
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $
35,896
million at Dec. 31, 2022 and $
35,796
million at March 31, 2023.
(b)
Includes dividend equivalents on share-based awards.
54 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), net
of tax |
Treasury
stock |
||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
|
Shares issued to shareholders of noncontrolling interests
|
— | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
|
Other net changes in noncontrolling interests
|
— | — | — | — | — | — |
(
|
(
|
— | |||||||||||||||||||||||
| Net income (loss) | — | — | — |
|
— | — |
(
|
|
— | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — |
(
|
— | — |
(
|
(
|
|||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
|
Common stock at $
share
(b)
|
— | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Preferred stock | — | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
|
Common stock issued under employee benefit plans
|
— | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
|
Stock awards and options exercised
|
— | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
(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.
| The Bank of New York Mellon Corporation shareholders |
Nonredeemable
noncontrolling interests of consolidated investment management funds |
Total
permanent equity |
Redeemable
non- controlling interests/ temporary equity |
|||||||||||||||||||||||||||||
|
(in millions, except per
share amount) |
Preferred stock |
Common
stock |
Additional
paid-in capital |
Retained
earnings |
Accumulated other comprehensive (loss) income,
net of tax |
Treasury
stock |
||||||||||||||||||||||||||
| Balance at Dec. 31, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
|
Shares issued to shareholders of noncontrolling interests
|
— | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
|
Redemption of subsidiary shares from noncontrolling interests
|
— | — | — | — | — | — | — | — |
(
|
|||||||||||||||||||||||
|
Other net changes in noncontrolling interests
|
— | — |
(
|
— | — | — |
|
|
|
|||||||||||||||||||||||
| Net income | — | — | — |
|
— | — |
|
|
— | |||||||||||||||||||||||
| Other comprehensive income | — | — | — | — |
|
— | — |
|
— | |||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
|
Common stock at $
share
(b)
|
— | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Preferred stock | — | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
|
Common stock issued under employee benefit plans
|
— | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Stock-based compensation | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Excise tax on share repurchases | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Other | — | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
| Balance at June 30, 2023 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
(a)
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $
35,896
million at Dec. 31, 2022 and $
36,095
million at June 30, 2023.
(b)
Includes dividend equivalents on share-based awards
.
BNY Mellon 55
| The Bank of New York Mellon Corporation (and its subsidiaries) | ||
Consolidated Statement of Changes in Equity
(unaudited)
(continued)
| The Bank of New York Mellon Corporation shareholders |
Nonredeemable
noncontrolling interests of consolidated investment management funds |
Total
permanent equity |
Redeemable
non- controlling interests/ temporary equity |
|||||||||||||||||||||||||||||
|
(in millions, except per
share amount) |
Preferred stock |
Common
stock |
Additional
paid-in capital |
Retained
earnings |
Accumulated other comprehensive (loss), net
of tax |
Treasury
stock |
||||||||||||||||||||||||||
| Balance at Dec. 31, 2021 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
|
Shares issued to shareholders of noncontrolling interests
|
— | — | — | — | — | — | — | — |
|
|||||||||||||||||||||||
|
Redemption of subsidiary shares from noncontrolling interests
|
— | — | — | — | — | — | — | — |
(
|
|||||||||||||||||||||||
|
Other net changes in noncontrolling interests
|
— | — |
(
|
— | — | — |
(
|
(
|
|
|||||||||||||||||||||||
| Net income (loss) | — | — | — |
|
— | — |
(
|
|
— | |||||||||||||||||||||||
| Other comprehensive (loss) | — | — | — | — |
(
|
— | — |
(
|
(
|
|||||||||||||||||||||||
| Dividends: | ||||||||||||||||||||||||||||||||
|
Common stock at $
share
(b)
|
— | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Preferred stock | — | — | — |
(
|
— | — | — |
(
|
— | |||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | — |
(
|
— |
(
|
— | |||||||||||||||||||||||
| Common stock issued under employee benefit plans | — | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
|
Stock awards and options exercised
|
— | — |
|
— | — | — | — |
|
— | |||||||||||||||||||||||
| Balance at June 30, 2022 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
(a) | $ |
|
|||||||||||||
(a)
Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $
38,196
million at Dec. 31, 2021 and $
36,146
million at June 30, 2022.
(b)
Includes dividend equivalents on share-based awards.
See accompanying unaudited Notes to Consolidated Financial Statements.
56 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, 2022 (the “2022 Annual Report”).
Note 2–
New accounting guidance
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.
We adopted this guidance as of Jan. 1, 2023. The Company did not choose to make the one-time election to reclassify securities classified as held-to-maturity to available-for-sale as of Jan. 1, 2023 and can choose to prospectively apply portfolio layer method hedging.
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
BNY Mellon 57
|
Notes to Consolidated Financial Statements
(continued)
|
||
modification results in a new loan or a continuation of an existing loan.
This ASU also requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20,
Financial Instruments – Credit Losses – Measured at Amortized Cost
.
Note 3–
Acquisitions and dispositions
Note 4–
Securities
|
Securities at June 30, 2023
|
Gross
unrealized |
Fair
value |
||||||||||||
| Amortized cost | ||||||||||||||
| (in millions) | Gains | Losses | ||||||||||||
| Available-for-sale: | ||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Agency residential mortgage-backed securities (“RMBS”) |
|
|
|
|
||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
||||||||||
| Supranational |
|
|
|
|
||||||||||
| Agency commercial mortgage-backed securities (“MBS”) |
|
|
|
|
||||||||||
| Foreign covered bonds |
|
|
|
|
||||||||||
| Collateralized loan obligations (“CLOs”) |
|
|
|
|
||||||||||
| Non-agency commercial MBS |
|
|
|
|
||||||||||
| U.S. government agencies |
|
|
|
|
||||||||||
| Foreign government agencies |
|
|
|
|
||||||||||
| Non-agency RMBS |
|
|
|
|
||||||||||
| Other asset-backed securities (“ABS”) |
|
|
|
|
||||||||||
| Other debt securities |
|
|
|
|
||||||||||
|
Total securities available-for-sale
(a)(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
| Held-to-maturity: | ||||||||||||||
| Agency RMBS | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| U.S. Treasury |
|
|
|
|
||||||||||
| U.S. government agencies |
|
|
|
|
||||||||||
| Agency commercial MBS |
|
|
|
|
||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
||||||||||
| CLOs |
|
|
|
|
||||||||||
| Supranational |
|
|
|
|
||||||||||
| Foreign government agencies |
|
|
|
|
||||||||||
| Non-agency RMBS |
|
|
|
|
||||||||||
| State and political subdivisions |
|
|
|
|
||||||||||
| Total securities held-to-maturity | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Total securities | $ |
|
$ |
|
$ |
|
$ |
|
||||||
(a) The amortized cost of available-for-sale is net of the allowance for credit losses of less than $
1
million. The allowance for credit loss relates to non-agency RMBS.
(b) Includes gross unrealized gains of $
297
million and gross unrealized losses of $
162
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.
58 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
Securities at Dec. 31, 2022
|
Gross
unrealized |
|||||||||||||
| Amortized cost |
Fair
value |
|||||||||||||
| (in millions) | Gains | Losses | ||||||||||||
| Available-for-sale: | ||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
||||||||||
| Agency RMBS |
|
|
|
|
||||||||||
| Agency commercial MBS |
|
|
|
|
||||||||||
| Supranational |
|
|
|
|
||||||||||
| Foreign covered bonds |
|
|
|
|
||||||||||
| CLOs |
|
|
|
|
||||||||||
| Non-agency commercial MBS |
|
|
|
|
||||||||||
| U.S. government agencies |
|
|
|
|
||||||||||
| Foreign government agencies |
|
|
|
|
||||||||||
| Non-agency RMBS |
|
|
|
|
||||||||||
| Other ABS |
|
|
|
|
||||||||||
| State and political subdivisions |
|
|
|
|
||||||||||
| Other debt securities |
|
|
|
|
||||||||||
|
Total securities available-for-sale
(a)(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
| Held-to-maturity: | ||||||||||||||
| Agency RMBS | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| U.S. Treasury |
|
|
|
|
||||||||||
| U.S. government agencies |
|
|
|
|
||||||||||
| Agency commercial MBS |
|
|
|
|
||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
||||||||||
| CLOs |
|
|
|
|
||||||||||
| Supranational |
|
|
|
|
||||||||||
| Foreign government agencies |
|
|
|
|
||||||||||
| Non-agency RMBS |
|
|
|
|
||||||||||
| State and political subdivisions |
|
|
|
|
||||||||||
| Total securities held-to-maturity | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Total securities | $ |
|
$ |
|
$ |
|
$ |
|
||||||
(a) The amortized cost of available-for-sale securities is net of the allowance for credit losses of $
1
million. The allowance for credit loss primarily relates to non-agency RMBS.
(b) Includes gross unrealized gains of $
347
million and gross unrealized losses of $
179
million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains primarily relate to agency RMBS, U.S. Treasury securities and agency commercial MBS. The unrealized losses primarily relate to agency RMBS and U.S. Treasury securities. The unrealized gains and losses will be amortized into net interest revenue over the contractual lives of the securities.
The following table presents the realized gains and losses, on a gross basis.
| Net securities gains (losses) | |||||||||||||||||
| (in millions) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||
| Realized gross gains | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Realized gross losses |
(
|
(
|
(
|
(
|
(
|
||||||||||||
| Total net securities (losses) gains | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||
The following table presents pre-tax net securities gains (losses) by type.
| Net securities gains (losses) | |||||||||||||||||
| (in millions) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||
| Non-agency RMBS | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| U.S. Treasury |
|
(
|
|
(
|
|
||||||||||||
| Corporate bonds |
|
|
(
|
|
(
|
||||||||||||
| State and political subdivisions |
|
|
|
|
(
|
||||||||||||
| Other |
|
|
|
|
|
||||||||||||
| Total net securities (losses) gains | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||
Allowance for credit losses – Securities
The allowance for credit losses related to securities was $
1
million at June 30, 2023 and $
1
million at Dec. 31, 2022, and relates to non-agency RMBS and state and political subdivision securities.
Credit quality indicators – Securities
At June 30, 2023, 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, $
162
million of the unrealized losses at June 30, 2023 and $
179
million at Dec. 31, 2022 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 59
|
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 June 30, 2023
|
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
|
Fair
value |
Unrealized
losses |
Fair
value |
Unrealized
losses |
Fair
value |
Unrealized
losses |
|||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Agency RMBS |
|
|
|
|
|
|
||||||||||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
|
|
||||||||||||||||||||
| Agency commercial MBS |
|
|
|
|
|
|
||||||||||||||||||||
| Supranational |
|
|
|
|
|
|
||||||||||||||||||||
| Foreign covered bonds |
|
|
|
|
|
|
||||||||||||||||||||
| CLOs |
|
|
|
|
|
|
||||||||||||||||||||
| Non-agency commercial MBS |
|
|
|
|
|
|
||||||||||||||||||||
| U.S. government agencies |
|
|
|
|
|
|
||||||||||||||||||||
| Foreign government agencies |
|
|
|
|
|
|
||||||||||||||||||||
| Non-agency RMBS |
|
|
|
|
|
|
||||||||||||||||||||
| Other ABS |
|
|
|
|
|
|
||||||||||||||||||||
|
Total securities available-for-sale
(a)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
(a) Includes $
162
million of gross unrealized losses for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. There were
no
gross unrealized losses for less than 12 months. The unrealized losses are primarily related to agency RMBS and U.S. Treasury securities and will be amortized into net interest revenue over the contractual lives of the securities.
|
Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2022
|
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
|
Fair
value |
Unrealized
losses |
Fair
value |
Unrealized
losses |
Fair
value |
Unrealized
losses |
|||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Agency RMBS |
|
|
|
|
|
|
||||||||||||||||||||
| Agency commercial MBS |
|
|
|
|
|
|
||||||||||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
|
|
||||||||||||||||||||
| Supranational |
|
|
|
|
|
|
||||||||||||||||||||
| CLOs |
|
|
|
|
|
|
||||||||||||||||||||
| Foreign covered bonds |
|
|
|
|
|
|
||||||||||||||||||||
| Non-agency commercial MBS |
|
|
|
|
|
|
||||||||||||||||||||
| Foreign government agencies |
|
|
|
|
|
|
||||||||||||||||||||
| U.S. government agencies |
|
|
|
|
|
|
||||||||||||||||||||
| Non-agency RMBS |
|
|
|
|
|
|
||||||||||||||||||||
| Other ABS |
|
|
|
|
|
|
||||||||||||||||||||
| State and political subdivisions |
|
|
|
|
|
|
||||||||||||||||||||
|
Total securities available-for-sale
(a)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
60 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 June 30, 2023
|
Ratings
(a)
|
||||||||||||||||||||||||||||
| Net unrealized gain (loss) |
BB+
and lower |
||||||||||||||||||||||||||||
| (dollars in millions) |
Amortized
cost |
AAA/
AA- |
A+/
A- |
BBB+/
BBB- |
Not
rated |
||||||||||||||||||||||||
| Agency RMBS | $ |
|
$ |
(
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
| U.S. Treasury |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| U.S. government agencies |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Agency commercial MBS |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
|
Sovereign debt/sovereign guaranteed
(b)
|
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| CLOs |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Supranational |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Foreign government agencies |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Non-agency RMBS |
|
|
|
|
|
|
|
||||||||||||||||||||||
| State and political subdivisions |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Total held-to-maturity securities | $ |
|
$ |
(
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
(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, 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 | $ |
|
$ |
(
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
| U.S. Treasury |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| U.S. government agencies |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Agency commercial MBS |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
|
Sovereign debt/sovereign guaranteed
(b)
|
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| CLOs |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Supranational |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Foreign government agencies |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Non-agency RMBS |
|
|
|
|
|
|
|
||||||||||||||||||||||
| State and political subdivisions |
|
(
|
|
|
|
|
|
||||||||||||||||||||||
| Total held-to-maturity securities | $ |
|
$ |
(
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||
(a) Represents ratings by S&P or the equivalent.
(b) Primarily consists of exposure to Germany, UK and France.
BNY Mellon 61
|
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 June 30, 2023
|
||||||||||||||||||||||||||||||||||||||||||||
| Within 1 year | 1-5 years | 5-10 years | After 10 years | Total | ||||||||||||||||||||||||||||||||||||||||
| (dollars in millions) | Amount |
Yield
(a)
|
Amount |
Yield
(a)
|
Amount |
Yield
(a)
|
Amount |
Yield
(a)
|
Amount |
Yield
(a)
|
||||||||||||||||||||||||||||||||||
| Available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | ||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Supranational |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Foreign covered bonds |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Foreign government agencies |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| U.S. government agencies |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Other debt securities |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Agency commercial MBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Non-agency commercial MBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| CLOs |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Other ABS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Total securities available-for-sale | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | ||||||||||||||||||||||||
| Held-to-maturity: | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | ||||||||||||||||||||||||
| U.S. government agencies |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Supranational |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Foreign government agencies |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Agency commercial MBS |
|
|
||||||||||||||||||||||||||||||||||||||||||
| CLOs |
|
|
||||||||||||||||||||||||||||||||||||||||||
| Total securities held-to-maturity | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | ||||||||||||||||||||||||
| Total securities | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | $ |
|
|
% | ||||||||||||||||||||||||
(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 June 30, 2023, BNY Mellon had pledged assets of $
133
billion, including $
93
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 June 30, 2023 included $
114
billion of securities, $
13
billion of loans, $
5
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 as there has been no borrowings.
At Dec. 31, 2022, BNY Mellon had pledged assets of $
138
billion, including $
106
billion pledged as collateral for potential borrowing 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 Dec. 31, 2022 included $
121
billion of securities, $
12
billion of loans, $
4
billion of trading assets and $
1
billion of interest-bearing deposits with banks.
At June 30, 2023 and Dec. 31, 2022, pledged assets included $
30
billion and $
24
billion, respectively, for
62 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
which the recipients were permitted to sell or repledge the assets delivered.
We also obtain securities as collateral, including receipts under resale agreements, securities borrowed, derivative contracts and custody agreements, on terms which permit us to sell or repledge the securities to others. At June 30, 2023 and Dec. 31, 2022, the market value of the securities received that can be sold or repledged was $
199
billion and $
115
billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of June 30, 2023 and Dec. 31, 2022, the market value of securities collateral sold or repledged was $
161
billion and $
78
billion, respectively.
Restricted cash and securities
Cash and securities may be segregated under federal and other regulations or requirements. At June 30, 2023 and Dec. 31, 2022, cash segregated under federal and other regulations or requirements was $
4
billion and $
7
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 June 30, 2023 and $
3
billion at Dec. 31, 2022. Restricted securities were sourced from securities purchased under resale agreements and are included in federal funds sold and
Note 5–
Loans and asset quality
Loans
The table below provides the details of our loan portfolio.
| Loans | June 30, 2023 | Dec. 31, 2022 | ||||||
| (in millions) | ||||||||
| Commercial | $ |
|
$ |
|
||||
| Commercial real estate |
|
|
||||||
| Financial institutions |
|
|
||||||
| Lease financings |
|
|
||||||
| Wealth management loans |
|
|
||||||
| Wealth management mortgages |
|
|
||||||
| Other residential mortgages |
|
|
||||||
| Capital call financing |
|
|
||||||
| Other |
|
|
||||||
| Overdrafts |
|
|
||||||
| Margin loans |
|
|
||||||
|
Total loans
(a)
|
$ |
|
$ |
|
||||
(a)
Net of unearned income of $
266
million at June 30, 2023 and $
225
million at Dec. 31, 2022 primarily related to lease financings.
We disclose information related to our loans and asset quality by the class of the financing receivable in the following tables.
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 June 30, 2023
|
Wealth management loans | Wealth management mortgages |
Other
residential mortgages |
Capital call financing | |||||||||||||||||||||||||
| (in millions) | Commercial |
Commercial
real estate |
Financial
institutions |
Lease
financings |
Total | ||||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Charge-offs |
|
|
|
|
|
|
(
|
|
(
|
||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Net charge-offs |
|
|
|
|
|
|
(
|
|
(
|
||||||||||||||||||||
|
Provision
(a)
|
|
|
|
|
|
|
|
(
|
|
||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for: | |||||||||||||||||||||||||||||
| Loan losses | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Lending-related commitments |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Individually evaluated for impairment: | |||||||||||||||||||||||||||||
|
Loan balance
(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for loan losses |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
(
a) Does not include the provision for credit losses benefit related to other financial instruments of $
25
million for the quarter ended June 30, 2023.
(b) Includes collateral-dependent loans of $
113
million with $
167
million of collateral at fair value.
BNY Mellon 63
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
Allowance for credit losses activity for the quarter ended March 31, 2023
|
Wealth management loans | Wealth management mortgages |
Other
residential mortgages |
Capital call financing | |||||||||||||||||||||||||
| (in millions) | Commercial |
Commercial
real estate |
Financial
institutions |
Lease
financings |
Total | ||||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Charge-offs |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Net recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Provision
(a)
|
|
(
|
|
|
|
|
|
|
(
|
||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for: | |||||||||||||||||||||||||||||
| Loan losses | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Lending-related commitments |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Individually evaluated for impairment: | |||||||||||||||||||||||||||||
|
Loan balance
(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for loan losses |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
(a) Does not include the provision for credit losses related to other financial instruments of $
29
million for the quarter ended March 31, 2023.
(b) Includes collateral-dependent loans of $
68
million with $
103
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 | Total | ||||||||||||||||||||||||
| (in millions) | Commercial |
Commercial
real estate |
Financial
institutions |
Lease
financings |
|||||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Charge-offs |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Net recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Provision
(a)
|
|
|
|
|
|
(
|
(
|
|
|
||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for: | |||||||||||||||||||||||||||||
| Loan losses | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Lending-related commitments |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Individually evaluated for impairment: | |||||||||||||||||||||||||||||
|
Loan balance
(b)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Allowance for loan losses |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
(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.
| Allowance for credit losses activity for the six months ended June 30, 2023 |
Other
residential mortgages |
Capital call financing | Total | ||||||||||||||||||||||||||
| (in millions) | Commercial |
Commercial
real estate |
Financial
institutions |
Lease
financings |
Wealth management loans | Wealth management mortgages | |||||||||||||||||||||||
| Beginning balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Charge-offs |
|
|
|
|
|
|
(
|
|
(
|
||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Net recoveries (charge-offs) |
|
|
|
|
|
|
(
|
|
|
||||||||||||||||||||
|
Provision
(a)
|
|
|
|
|
|
|
|
(
|
|
||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(a) Does not include provision for credit losses related to other financial instruments of $
4
million for the six months ended June 30, 2023.
64 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Allowance for credit losses activity for the six months ended June 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Charge-offs |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
| Net recoveries |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
Provision
(a)
|
|
(
|
|
|
|
|
(
|
|
|
||||||||||||||||||||
| Ending balance | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(a) Does not include provision for credit losses related to other financial instruments of $
49
million for the six months ended June 30, 2022.
Nonperforming assets
The table below presents our nonperforming assets.
| Nonperforming assets | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||
| Recorded investment | Recorded investment | ||||||||||||||||||||||
|
With an
allowance |
Without an allowance |
With an
allowance |
Without an allowance | ||||||||||||||||||||
| (in millions) | Total | Total | |||||||||||||||||||||
| Nonperforming loans: | |||||||||||||||||||||||
| Commercial real estate | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Other residential mortgages |
|
|
|
|
|
|
|||||||||||||||||
| Wealth management mortgages |
|
|
|
|
|
|
|||||||||||||||||
| Total nonperforming loans |
|
|
|
|
|
|
|||||||||||||||||
| Other assets owned |
|
|
|
|
|
|
|||||||||||||||||
|
Total nonperforming assets
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
Past due loans
The table below presents our past due loans.
| Past due loans and still accruing interest | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||||||||
| 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 | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
| Other residential mortgages |
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Commercial real estate |
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Wealth management mortgages |
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total past due loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
Loan modifications
Modified loans are evaluated to determine whether a modification or restructuring with a borrower experiencing financial difficulty results in principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension. The modification could result in a new loan or a continuation of the existing loan.
In the second quarter of 2023, we modified
one
commercial real estate exposure, with a recorded investment of $
59
million and an unfunded lending
commitment of $
15
million, by extending the maturity date. We also modified
two
other residential mortgage loans, with an aggregate recorded investment of less than $
1
million, by extending the maturity dates and reducing the interest rates.
We modified
one
commercial real estate loan in the first quarter of 2023, with a recorded investment of $
12
million, by extending the maturity date.
Loans modified prior to 2023 are considered a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the creditor
BNY Mellon 65
|
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 | June 30, 2023 | |||||||||||||||||||||||||||||||
| Revolving loans | ||||||||||||||||||||||||||||||||
| Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost |
Accrued
interest receivable |
|||||||||||||||||||||||||||||
| (in millions) | YTD23 | 2022 | 2021 | 2020 | 2019 | Prior to 2019 |
Total
(a)
|
|||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Investment grade | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total commercial |
|
|
|
|
|
|
|
|
|
$ |
|
|||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Financial institutions: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total financial institutions |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Wealth management loans: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total wealth management loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Wealth management mortgages |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Lease financings |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
|
Other residential mortgages
(b)
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Capital call financing |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Other loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Margin loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Total loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
(a) Excludes overdrafts of $
2,738
million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within
business days.
(b) The gross write-offs related to other residential mortgage loans were $
3
million in the second quarter of 2023.
66 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Credit profile of the loan portfolio | Dec. 31, 2022 | |||||||||||||||||||||||||||||||
| Revolving loans | ||||||||||||||||||||||||||||||||
| Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost |
Accrued
interest receivable |
|||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | 2020 | 2019 | 2018 | Prior to 2018 |
Total
(a)
|
|||||||||||||||||||||||||
| Commercial: | ||||||||||||||||||||||||||||||||
| Investment grade | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total commercial |
|
|
|
|
|
|
|
|
|
$ |
|
|||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total commercial real estate |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Financial institutions: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total financial institutions |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Wealth management loans: | ||||||||||||||||||||||||||||||||
| Investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Non-investment grade |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
| Total wealth management loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Wealth management mortgages |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Lease financings |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Other residential mortgages |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Capital call financing |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Other loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Margin loans |
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Total loans | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||
(a) Excludes overdrafts of $
4,839
million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within
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
94
% of the exposures meeting the investment grade
equivalent criteria of our internal credit rating classification at June 30, 2023. In addition,
65
% 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,
BNY Mellon 67
|
Notes to Consolidated Financial Statements
(continued)
|
||
but we do not consider this portion of our 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 our wealth management portfolio. At June 30, 2023, less than
1
% of the mortgages were past due.
At June 30, 2023, 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 June 30, 2023, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest components of our lease residual value exposure relate to freight-related rail cars and aircraft. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $
1.0
billion at June 30, 2023 and $
345
million at Dec. 31, 2022. Included in this portfolio at June 30, 2023 were $
760
million of fixed-rate jumbo mortgage loans, purchased primarily in the first
quarter of 2023, with a weighted-average loan-to-value ratio of
73
% at origination. These loans are not typically correlated to external ratings.
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 $
15.6
billion of secured margin loans at June 30, 2023, compared with $
16.9
billion at Dec. 31, 2022. Margin loans are collateralized with marketable securities, and borrowers are required to maintain a daily collateral margin in excess of
100
% of the value of the loan. We have rarely suffered a loss on these types of loans.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $
2.7
billion at June 30, 2023 and $
4.8
billion at Dec. 31, 2022. Overdrafts occur on a daily basis and are generally repaid within
business days.
Reverse repurchase agreements
68 BNY Mellon
|
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, 2022
|
||||||||||||||
| Goodwill | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Accumulated impairment losses |
|
|
(
|
(
|
||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Foreign currency translation |
|
|
|
|
||||||||||
|
Balance at June 30, 2023
|
||||||||||||||
| Goodwill | $ |
|
$ |
|
$ |
|
$ |
|
||||||
| Accumulated impairment losses |
|
|
(
|
(
|
||||||||||
| $ |
|
$ |
|
$ |
|
$ |
|
|||||||
|
Goodwill by business segment
(in millions)
|
Securities
Services |
Market and Wealth Services |
Investment
and Wealth Management |
Consolidated | ||||||||||
|
Balance at Dec. 31, 2021
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
| Foreign currency translation |
(
|
(
|
(
|
(
|
||||||||||
|
Balance at June 30, 2022
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||
Goodwill impairment testing
The goodwill impairment test is performed at least annually at the reporting unit level. An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value.
In the second quarter of 2023, due to the results of the first quarter 2023 interim and annual impairment test
and macroeconomic conditions, we performed an interim goodwill impairment test of the Investment Management reporting unit, which had $
6.1
billion of allocated goodwill.
No
additional goodwill impairment was recognized.
In the second quarter of 2023, we also performed our annual goodwill impairment test on the remaining
five
reporting units. As a result of the annual goodwill impairment test,
no
goodwill impairment was recognized.
BNY Mellon 69
|
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, 2022
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Amortization |
(
|
(
|
(
|
|
(
|
||||||||||||
| Foreign currency translation |
|
|
|
|
|
||||||||||||
|
Balance at June 30, 2023
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
|
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
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Amortization |
(
|
(
|
(
|
|
(
|
||||||||||||
| Foreign currency translation |
(
|
|
(
|
|
(
|
||||||||||||
|
Balance at June 30, 2022
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
The table below provides a breakdown of intangible assets by type.
| Intangible assets | June 30, 2023 | Dec. 31, 2022 | ||||||||||||||||||||||||
| (dollars in millions) |
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
Remaining
weighted- average amortization period |
Gross
carrying amount |
Accumulated
amortization |
Net
carrying amount |
|||||||||||||||||||
|
Subject to amortization:
(a)
|
||||||||||||||||||||||||||
|
Customer contracts
–
Securities Services
|
$ |
|
$ |
(
|
$ |
|
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||
|
Customer contracts
–
Market and Wealth Services
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||
|
Customer relationships
–
Investment and Wealth Management
|
|
(
|
|
|
|
(
|
|
|||||||||||||||||||
| Other |
|
(
|
|
|
|
(
|
|
|||||||||||||||||||
| Total subject to amortization | $ |
|
$ |
(
|
$ |
|
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||
|
Not subject to amortization:
(b)
|
||||||||||||||||||||||||||
| Tradename | $ |
|
N/A | $ |
|
N/A | $ |
|
N/A | $ |
|
|||||||||||||||
| Customer relationships |
|
N/A |
|
N/A |
|
N/A |
|
|||||||||||||||||||
| Total not subject to amortization | $ |
|
N/A | $ |
|
N/A | $ |
|
N/A | $ |
|
|||||||||||||||
| Total intangible assets | $ |
|
$ |
(
|
$ |
|
N/A | $ |
|
$ |
(
|
$ |
|
|||||||||||||
(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)
|
|||||||
| 2023 | $ |
|
||||||
| 2024 |
|
|||||||
| 2025 |
|
|||||||
| 2026 |
|
|||||||
| 2027 |
|
|||||||
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.
70 BNY Mellon
|
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 | June 30, 2023 | Dec. 31, 2022 | ||||||
| (in millions) | ||||||||
| Corporate/bank-owned life insurance |
$
|
$
|
||||||
| Accounts receivable |
|
|
||||||
| Fails to deliver |
|
|
||||||
| Software |
|
|
||||||
| Prepaid pension assets |
|
|
||||||
| Qualified affordable housing project investments |
|
|
||||||
| Prepaid expense |
|
|
||||||
| Equity method investments |
|
|
||||||
| Renewable energy investments |
|
|
||||||
|
Other equity investments
(a)
|
|
|
||||||
| Cash collateral receivable on derivative transactions |
|
|
||||||
| Assets of consolidated investment management funds |
|
|
||||||
| Federal Reserve Bank stock |
|
|
||||||
| Income taxes receivable |
|
|
||||||
|
Seed capital
(b)
|
|
|
||||||
| Fair value of hedging derivatives |
|
|
||||||
|
Other
(c)
|
|
|
||||||
| Total other assets | $ |
|
$ |
|
||||
(a) Includes strategic equity, private equity and other investments.
(b) Includes investments in BNY Mellon funds that hedge deferred incentive awards.
(c) At June 30, 2023 and Dec. 31, 2022, other assets include $
47
million and $
6
million, respectively, of Federal Home Loan Bank stock, at cost.
Non-readily marketable equity securities
Non-readily marketable equity securities do not have readily determinable fair values. These investments are valued using a measurement alternative where the investments are carried at cost, less any impairment, and plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The observable price changes are recorded in investment and other revenue on the consolidated income statement. Our non-readily marketable equity securities totaled $
443
million at June 30, 2023 and $
445
million at Dec. 31, 2022, and are included in other equity investments in the table above.
The following table presents the adjustments on the non-readily marketable equity securities.
| Adjustments on non-readily marketable equity securities | Life-to-date | |||||||||||||||||||
| (in millions) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | |||||||||||||||
| Upward adjustments | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Downward adjustments |
(
|
(
|
(
|
(
|
(
|
(
|
||||||||||||||
| Net adjustments | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
|
||||||||
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 $
1.2
billion at June 30, 2023 and $
1.3
billion at Dec. 31, 2022. Commitments to fund future investments in qualified affordable housing projects totaled $
570
million at June 30, 2023 and $
614
million at Dec. 31, 2022 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 2023 – $
184
million; 2024 – $
145
million; 2025 – $
173
million; 2026 – $
24
million; 2027 – $
1
million; and 2028 and thereafter – $
43
million.
Tax credits and other tax benefits recognized were $
45
million in the second quarter of 2023, $
45
million in the first quarter of 2023, $
38
million in the second quarter of 2022, $
90
million in the first six months of 2023 and $
76
million in the first six months of 2022.
Amortization expense included in the provision for income taxes was $
38
million in the second quarter of 2023, $
38
million in the first quarter of 2023, $
33
million in the second quarter of 2022, $
76
million in the first six months of 2023 and $
65
million in the first six months of 2022.
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
BNY Mellon 71
|
Notes to Consolidated Financial Statements
(continued)
|
||
investments. Seed capital, private equity and other corporate investments are included in other assets on the consolidated balance sheet. The fair value of
certain of these investments was estimated using the NAV per share for our ownership interest in the funds.
The table below presents information on our investments valued using NAV.
| Investments valued using NAV | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||
| (in millions) | Fair value |
Unfunded
commitments |
Fair value |
Unfunded
commitments |
|||||||||||||||||||
|
Seed capital
(a) (b)
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Private equity investments
(c)
|
|
|
|
|
|||||||||||||||||||
| Other |
|
|
|
|
|||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(
a)
Seed capital investments at June 30, 2023 are generally redeemable on request. Distributions are received as the underlying investments in the funds, which have redemption notice periods of
seven days
, are liquidated.
(b) Includes investments in funds that relate to deferred compensation arrangements with employees.
(c) Private equity investments primarily include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of
10
years, are liquidated.
Note 8–
Contract revenue
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.
| Disaggregation of contract revenue by business segment | |||||||||||||||||||||||||||||||||||
| Quarter ended | |||||||||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | |||||||||||||||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Investment management and performance fees |
|
|
|
(
|
|
|
|
|
(
|
|
|||||||||||||||||||||||||
| Financing-related fees |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Distribution and servicing fees |
|
(
|
|
(
|
|
|
(
|
|
(
|
|
|||||||||||||||||||||||||
| Investment and other revenue |
|
|
(
|
|
|
|
|
(
|
|
|
|||||||||||||||||||||||||
| Total fee and other revenue – contract revenue |
|
|
|
(
|
|
|
|
|
(
|
|
|||||||||||||||||||||||||
|
Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606
(a)(b)
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $
1
million in the second quarter of 2023 and $(
5
) million in the second quarter of 2022.
72 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Disaggregation of contract revenue by business segment | Quarter ended | ||||||||||||||||
| March 31, 2023 | |||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | ||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||
| Investment services fees | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
| Investment management and performance fees |
|
|
|
(
|
|
||||||||||||
| Financing-related fees |
|
|
|
|
|
||||||||||||
| Distribution and servicing fees |
|
(
|
|
|
|
||||||||||||
| Investment and other revenue |
|
|
(
|
|
|
||||||||||||
| Total fee and other revenue – contract revenue |
|
|
|
(
|
|
||||||||||||
|
Fee and other revenue – not in scope of ASC 606
(a)(b)
|
|
|
|
|
|
||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of income (loss) attributable to noncontrolling interests related to consolidated investment management funds of $
— million
in the first quarter of 2023.
| Disaggregation of contract revenue by business segment | |||||||||||||||||||||||||||||||||||
| Year-to-date | |||||||||||||||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||||||||||||||
| (in millions) | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | Securities Services | Market and Wealth Services | Investment and Wealth Management | Other | Total | |||||||||||||||||||||||||
| Fee and other revenue – contract revenue: | |||||||||||||||||||||||||||||||||||
| Investment services fees | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
| Investment management and performance fees |
|
|
|
(
|
|
|
|
|
(
|
|
|||||||||||||||||||||||||
| Financing-related fees |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Distribution and servicing fees |
|
(
|
|
|
|
|
(
|
|
|
|
|||||||||||||||||||||||||
| Investment and other revenue |
|
|
(
|
|
|
|
|
(
|
|
|
|||||||||||||||||||||||||
| Total fee and other revenue – contract revenue |
|
|
|
(
|
|
|
|
|
(
|
|
|||||||||||||||||||||||||
|
Fee and other revenue – not in scope of ASC 606
(a)(b)
|
|
|
|
|
|
|
|
(
|
|
|
|||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
(a) Primarily includes investment services fees, foreign exchange revenue, financing-related fees and investment and other revenue, all of which are accounted for using other accounting guidance.
(b) The Investment and Wealth Management business segment is net of income (loss)
income
attributable to noncontrolling interests related to consolidated investment management funds of $
1
million in the first six months of 2023 and $(
13
) million in the first six months of 2022.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $
2.7
billion at June 30, 2023 and $
2.6
billion at Dec. 31, 2022.
Contract assets represent accrued revenues that have not yet been billed to customers due to certain contractual terms other than the passage of time and were $
70
million at June 30, 2023 and $
48
million at Dec. 31, 2022. Accrued revenues recorded as contract assets are usually billed on an annual basis.
Both receivables from customers and contract assets are included in other assets on the consolidated balance sheet.
Contract liabilities represent payments received in advance of providing services under certain contracts and were $
217
million at June 30, 2023 and $
164
million at Dec. 31, 2022. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the first six months of 2023 relating to contract liabilities as of Dec. 31, 2022 was $
84
million. Revenue recognized in the second quarter of 2023 relating to contract liabilities as of March 31, 2023 was $
66
million.
BNY Mellon 73
|
Notes to Consolidated Financial Statements
(continued)
|
||
Changes in contract assets and liabilities primarily relate to either party’s performance under the contracts.
Contract costs
Incremental costs for obtaining contracts that are deemed recoverable are capitalized as contract costs. Such costs result from the payment of sales incentives, primarily in the Wealth Management business, and totaled $
53
million at June 30, 2023 and $
58
million at Dec. 31, 2022. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate. The amortization of capitalized sales incentives, which is included in staff expense on the consolidated income statement, totaled $
4
million in the second quarter of 2023, second quarter of 2022 and first quarter of 2023, $
8
million in the first six months of 2023 and $
9
million in the first six months of 2022.
Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific
anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent set-up costs, which include any direct cost incurred at the inception of a contract which enables the fulfillment of the performance obligation, and totaled $
85
million at June 30, 2023 and $
77
million at Dec. 31, 2022. These capitalized costs are amortized on a straight-line basis over the expected contract period.
Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to a practical expedient election under ASC 606,
Revenue From Contracts With Customers
. The practical expedient election applies to (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Note 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) | June 30, 2023 | March 31, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||||
| Interest revenue | ||||||||||||||||||||
| Deposits with the Federal Reserve and other central banks | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
| Deposits with banks |
|
|
|
|
|
|||||||||||||||
| Federal funds sold and securities purchased under resale agreements |
|
|
|
|
|
|||||||||||||||
| Loans |
|
|
|
|
|
|||||||||||||||
| Securities: | ||||||||||||||||||||
| Taxable |
|
|
|
|
|
|||||||||||||||
| Exempt from federal income taxes |
|
|
|
|
|
|||||||||||||||
| Total securities |
|
|
|
|
|
|||||||||||||||
| Trading securities |
|
|
|
|
|
|||||||||||||||
| Total interest revenue |
|
|
|
|
|
|||||||||||||||
| Interest expense | ||||||||||||||||||||
| Deposits |
|
|
|
|
|
|||||||||||||||
| Federal funds purchased and securities sold under repurchase agreements |
|
|
|
|
|
|||||||||||||||
| Trading liabilities |
|
|
|
|
|
|||||||||||||||
| Other borrowed funds |
|
|
|
|
|
|||||||||||||||
| Customer payables |
|
|
|
|
|
|||||||||||||||
| Long-term debt |
|
|
|
|
|
|||||||||||||||
| Total interest expense |
|
|
|
|
|
|||||||||||||||
| Net interest revenue |
|
|
|
|
|
|||||||||||||||
| Provision for credit losses |
|
|
|
|
|
|||||||||||||||
| Net interest revenue after provision for credit losses | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||
74 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 | ||||||||||||||||||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||||
| (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | Domestic pension benefits | Foreign pension benefits | Health care benefits | Domestic pension benefits | Foreign pension benefits | Health care benefits | ||||||||||||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||
| Interest cost |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||||||
| Other |
|
(
|
(
|
|
(
|
(
|
|
|
(
|
||||||||||||||||||||||||||
|
Net periodic benefit (credit) cost
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
| Net periodic benefit (credit) cost | Year-to-date | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
| (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | Domestic pension benefits | Foreign pension benefits | Health care benefits | |||||||||||||||||
| Service cost | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Interest cost |
|
|
|
|
|
|
|||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||
| Other |
|
(
|
(
|
|
|
(
|
|||||||||||||||||
| Net periodic benefit (credit) cost | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||
Note 11–
Income taxes
BNY Mellon recorded an income tax provision of $
270
million (
20.2
% effective tax rate) in the second quarter of 2023, $
231
million (
21.1
% effective tax rate) in the second quarter of 2022 and $
260
million (
21.0
% effective tax rate) in the first quarter of 2023.
Our total tax reserves as of June 30, 2023 were $
107
million, compared with $
106
million at Dec. 31, 2022. If these tax reserves were unnecessary, $
107
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 June 30, 2023 is accrued interest, where applicable, of $
34
million. The additional tax expense related to interest for the six months ended June 30, 2023 was $
1
million, compared with $
4
million for the six months ended June 30, 2022.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $
10
million as a result of adjustments related to tax years that are still subject to examination.
Note 12–
Variable interest entities
We have variable interests in variable interest entities (“VIEs”), which include investments in retail, institutional and alternative investment funds.
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.
BNY Mellon 75
|
Notes to Consolidated Financial Statements
(continued)
|
||
The following table presents the incremental assets and liabilities included on the consolidated balance sheet as of June 30, 2023 and Dec. 31, 2022. The net assets of any consolidated VIE are solely available to settle the liabilities of the VIE and to settle any investors’ ownership liquidation requests, including any seed capital we invested in the VIE.
| Consolidated investment management funds | |||||||||||
| June 30, 2023 | Dec. 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Trading assets | $ |
|
$ |
|
|||||||
| Other assets |
|
|
|||||||||
|
Total assets
(a)
|
$ |
|
$ |
|
|||||||
| Other liabilities | $ |
|
$ |
|
|||||||
|
Total liabilities
(b)
|
$ |
|
$ |
|
|||||||
|
Nonredeemable noncontrolling
interests
(c)
|
$ |
|
$ |
|
|||||||
(a) Includes voting model entities (“VMEs”) with assets of $
118
million at June 30, 2023 and $
86
million at Dec. 31, 2022.
(b) Includes VMEs with liabilities of $
1
million at June 30, 2023 and $
1
million at Dec. 31, 2022.
(c) Includes VMEs with nonredeemable noncontrolling interests of $
17
million at June 30, 2023 and $
7
million at Dec. 31, 2022.
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 June 30, 2023 and Dec. 31, 2022, assets and liabilities related to the VIEs where we are not the primary beneficiary were included in other assets and other liabilities on the consolidated balance sheet 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.
| Non-consolidated VIEs | June 30, 2023 | Dec. 31, 2022 | ||||||
| (in millions) | ||||||||
| Other assets | $ |
|
$ |
|
||||
| Other liabilities |
|
|
||||||
| Maximum loss exposure |
|
|
||||||
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 June 30, 2023 and Dec. 31, 2022.
|
Preferred stock summary
(a)
|
Total shares issued and outstanding |
Carrying value
(b)
|
||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| June 30, 2023 | Dec. 31, 2022 | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||
| Per annum dividend rate | ||||||||||||||||||||
| Series A |
Greater of (i) three-month LIBOR plus
|
|
|
$ |
|
$ |
|
|||||||||||||
| Series D |
|
|
|
|
|
|||||||||||||||
| Series F |
|
|
|
|
|
|||||||||||||||
| Series G |
|
|
|
|
|
|||||||||||||||
| Series H |
|
|
|
|
|
|||||||||||||||
| Series I |
|
|
|
|
|
|||||||||||||||
| Total |
|
|
$ |
|
$ |
|
||||||||||||||
(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.
On July 3, 2023, pursuant to the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s Regulation ZZ, three-month Term SOFR plus
0.26161
% replaced three-month LIBOR in the Series A, Series D and Series F preferred stock.
76 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
The table below presents the Parent’s preferred dividends.
| Preferred dividends | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in millions, except per share amounts) |
Depositary shares
per share |
2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Per share |
Total
dividend |
Per share |
Total
dividend |
Per share |
Total
dividend |
Per share |
Total
dividend |
Per share |
Total
dividend |
|||||||||||||||||||||||||||||||||||||||||||||||
| Series A | 100 | (a) | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||
| Series D | 100 |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
| Series F | 100 |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
| Series G | 100 |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
| Series H | 100 |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
| Series I | 100 |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||||||||||||||||||||||||||
(a) Represents Normal Preferred Capital Securities.
Note 14–
Other comprehensive income (loss)
| Components of other comprehensive income (loss) | Quarter ended | ||||||||||||||||||||||||||||||||||
| June 30, 2023 | March 31, 2023 | June 30, 2022 | |||||||||||||||||||||||||||||||||
| (in millions) |
Pre-tax
amount |
Tax
(expense) benefit |
After-tax
amount |
Pre-tax
amount |
Tax
(expense) benefit |
After-tax
amount |
Pre-tax
amount |
Tax
(expense) benefit |
After-tax
amount |
||||||||||||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||||||||||||||
|
Foreign currency translation adjustments arising during the period
(a)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||||
| Total foreign currency translation |
|
|
|
|
|
|
(
|
(
|
(
|
||||||||||||||||||||||||||
| Unrealized (loss) gain on assets available-for-sale: | |||||||||||||||||||||||||||||||||||
| Unrealized (loss) gain arising during period |
(
|
|
(
|
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||||
|
Reclassification adjustment
(b)
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
| Net unrealized (loss) gain on assets available-for-sale |
(
|
|
(
|
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||||||||||||||
|
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost
(b)
|
(
|
|
(
|
(
|
|
(
|
|
(
|
|
||||||||||||||||||||||||||
| Total defined benefit plans |
(
|
|
(
|
(
|
|
(
|
|
(
|
|
||||||||||||||||||||||||||
| Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||||||||||||||||||||
| Unrealized hedge gain (loss) arising during period |
|
(
|
|
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||||
| Reclassification of net loss (gain) to net income: | |||||||||||||||||||||||||||||||||||
| FX contracts – investment and other revenue |
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||||
| Foreign exchange (“FX”) contracts – staff expense |
|
|
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||
| Total reclassifications to net income |
|
|
|
|
(
|
|
|
|
|
||||||||||||||||||||||||||
| Net unrealized gain (loss) on cash flow hedges |
|
(
|
|
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||||
| Total other comprehensive (loss) income | $ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||||
(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 (losses), 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.
BNY Mellon 77
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Components of other comprehensive income (loss) | Year-to-date | ||||||||||||||||||||||
| June 30, 2023 | June 30, 2022 | ||||||||||||||||||||||
| (in millions) |
Pre-tax
amount |
Tax
(expense) benefit |
After-tax
amount |
Pre-tax
amount |
Tax
(expense) benefit |
After-tax
amount |
|||||||||||||||||
| Foreign currency translation: | |||||||||||||||||||||||
|
Foreign currency translation adjustments arising during the period
(a)
|
$ |
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||
| Total foreign currency translation |
|
|
|
(
|
(
|
(
|
|||||||||||||||||
| Unrealized gain (loss) on assets available-for-sale: | |||||||||||||||||||||||
| Unrealized gain (loss) arising during period |
|
(
|
|
(
|
|
(
|
|||||||||||||||||
|
Reclassification adjustment
(b)
|
|
|
|
(
|
|
(
|
|||||||||||||||||
| Net unrealized gain (loss) on assets available-for-sale |
|
(
|
|
(
|
|
(
|
|||||||||||||||||
| Defined benefit plans: | |||||||||||||||||||||||
|
Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost
(b)
|
(
|
|
(
|
|
(
|
|
|||||||||||||||||
| Total defined benefit plans |
(
|
|
(
|
|
(
|
|
|||||||||||||||||
| Unrealized gain (loss) on cash flow hedges: | |||||||||||||||||||||||
| Unrealized hedge gain (loss) arising during period |
|
(
|
|
(
|
|
(
|
|||||||||||||||||
| Reclassification of net loss to net income: | |||||||||||||||||||||||
| FX contracts – staff expense |
|
(
|
|
|
|
|
|||||||||||||||||
| FX contracts – investment and other revenue |
|
|
|
|
|
|
|||||||||||||||||
| Total reclassifications to net income |
|
(
|
|
|
|
|
|||||||||||||||||
| Net unrealized gain (loss) on cash flow hedges |
|
(
|
|
(
|
|
(
|
|||||||||||||||||
| Total other comprehensive income (loss) | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information.
Note 15–
Fair value measurement
78 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
Assets measured at fair value on a recurring basis at June 30, 2023
|
Total carrying
value |
||||||||||||||||
| (dollars in millions) | Level 1 | Level 2 | Level 3 |
Netting
(a)
|
|||||||||||||
| Available-for-sale securities: | |||||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||
| Agency RMBS |
|
|
|
— |
|
||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
— |
|
||||||||||||
| Supranational |
|
|
|
— |
|
||||||||||||
| Agency commercial MBS |
|
|
|
— |
|
||||||||||||
| Foreign covered bonds |
|
|
|
— |
|
||||||||||||
| CLOs |
|
|
|
— |
|
||||||||||||
| Non-agency commercial MBS |
|
|
|
— |
|
||||||||||||
| U.S. government agencies |
|
|
|
— |
|
||||||||||||
| Foreign government agencies |
|
|
|
— |
|
||||||||||||
| Non-agency RMBS |
|
|
|
— |
|
||||||||||||
| Other ABS |
|
|
|
— |
|
||||||||||||
| Other debt securities |
|
|
|
— |
|
||||||||||||
| Total available-for-sale securities |
|
|
|
— |
|
||||||||||||
| Trading assets: | |||||||||||||||||
| Debt instruments |
|
|
|
— |
|
||||||||||||
| Equity instruments |
|
|
|
— |
|
||||||||||||
| Derivative assets not designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
(
|
|
||||||||||||
| Foreign exchange |
|
|
|
(
|
|
||||||||||||
| Equity and other contracts |
|
|
|
(
|
|
||||||||||||
| Total derivative assets not designated as hedging |
|
|
|
(
|
|
||||||||||||
| Total trading assets |
|
|
|
(
|
|
||||||||||||
| Other assets: | |||||||||||||||||
| Derivative assets designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
— |
|
||||||||||||
| Foreign exchange |
|
|
|
— |
|
||||||||||||
| Total derivative assets designated as hedging |
|
|
|
— |
|
||||||||||||
|
Other assets
(b)
|
|
|
|
— |
|
||||||||||||
| Total other assets |
|
|
|
— |
|
||||||||||||
|
Assets measured at NAV
(b)
|
|
||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
| Percentage of total assets prior to netting |
|
% |
|
% |
|
% | |||||||||||
| Liabilities | |||||||||||||||||
| Trading liabilities: | |||||||||||||||||
| Debt instruments | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||
| Equity instruments |
|
|
|
— |
|
||||||||||||
| Derivative liabilities not designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
(
|
|
||||||||||||
| Foreign exchange |
|
|
|
(
|
|
||||||||||||
| Equity and other contracts |
|
|
|
(
|
|
||||||||||||
| Total derivative liabilities not designated as hedging |
|
|
|
(
|
|
||||||||||||
| Total trading liabilities |
|
|
|
(
|
|
||||||||||||
| Other liabilities: | |||||||||||||||||
| Derivative liabilities designated as hedging: | |||||||||||||||||
| Foreign exchange |
|
|
|
— |
|
||||||||||||
| Total derivative liabilities designated as hedging |
|
|
|
— |
|
||||||||||||
| Other liabilities |
|
|
|
— |
|
||||||||||||
| Total other liabilities |
|
|
|
— |
|
||||||||||||
| Total liabilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
| Percentage of total liabilities prior to netting |
|
% |
|
% |
|
% | |||||||||||
(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 79
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
Assets and liabilities measured at fair value on a recurring basis at Dec. 31, 2022
|
Total carrying
value |
||||||||||||||||
| (dollars in millions) | Level 1 | Level 2 | Level 3 |
Netting
(a)
|
|||||||||||||
| Assets | |||||||||||||||||
| Available-for-sale securities: | |||||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
— |
|
||||||||||||
| Agency RMBS |
|
|
|
— |
|
||||||||||||
| Agency commercial MBS |
|
|
|
— |
|
||||||||||||
| Supranational |
|
|
|
— |
|
||||||||||||
| Foreign covered bonds |
|
|
|
— |
|
||||||||||||
| CLOs |
|
|
|
— |
|
||||||||||||
| Non-agency commercial MBS |
|
|
|
— |
|
||||||||||||
| U.S. government agencies |
|
|
|
— |
|
||||||||||||
| Foreign government agencies |
|
|
|
— |
|
||||||||||||
| Non-agency RMBS |
|
|
|
— |
|
||||||||||||
| Other ABS |
|
|
|
— |
|
||||||||||||
| State and political subdivisions |
|
|
|
— |
|
||||||||||||
| Other debt securities |
|
|
|
— |
|
||||||||||||
| Total available-for-sale securities |
|
|
|
— |
|
||||||||||||
| Trading assets: | |||||||||||||||||
| Debt instruments |
|
|
|
— |
|
||||||||||||
| Equity instruments |
|
|
|
— |
|
||||||||||||
| Derivative assets not designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
(
|
|
||||||||||||
| Foreign exchange |
|
|
|
(
|
|
||||||||||||
| Equity and other contracts |
|
|
|
(
|
|
||||||||||||
| Total derivative assets not designated as hedging |
|
|
|
(
|
|
||||||||||||
| Total trading assets |
|
|
|
(
|
|
||||||||||||
|
Other assets
:
|
|||||||||||||||||
| Derivative assets designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
— |
|
||||||||||||
| Foreign exchange |
|
|
|
— |
|
||||||||||||
| Total derivative assets designated as hedging |
|
|
|
— |
|
||||||||||||
|
Other assets
(b)
|
|
|
|
— |
|
||||||||||||
| Total other assets |
|
|
|
— |
|
||||||||||||
|
Assets measured at NAV
(b)
|
|
||||||||||||||||
| Total assets | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
| Percentage of total assets prior to netting |
|
% |
|
% |
|
% | |||||||||||
| Liabilities | |||||||||||||||||
| Trading liabilities: | |||||||||||||||||
| Debt instruments | $ |
|
$ |
|
$ |
|
$ | — | $ |
|
|||||||
| Equity instruments |
|
|
|
— |
|
||||||||||||
| Derivative liabilities not designated as hedging: | |||||||||||||||||
| Interest rate |
|
|
|
(
|
|
||||||||||||
| Foreign exchange |
|
|
|
(
|
|
||||||||||||
| Equity and other contracts |
|
|
|
(
|
|
||||||||||||
| Total derivative liabilities not designated as hedging |
|
|
|
(
|
|
||||||||||||
| Total trading liabilities |
|
|
|
(
|
|
||||||||||||
| Other liabilities: | |||||||||||||||||
| Derivative liabilities designated as hedging: | |||||||||||||||||
| Foreign exchange |
|
|
|
— |
|
||||||||||||
| Total derivative liabilities designated as hedging |
|
|
|
— |
|
||||||||||||
| Other liabilities |
|
|
|
— |
|
||||||||||||
| Total other liabilities |
|
|
|
— |
|
||||||||||||
| Total liabilities | $ |
|
$ |
|
$ |
|
$ |
(
|
$ |
|
|||||||
| Percentage of total liabilities prior to netting |
|
% |
|
% |
|
% | |||||||||||
(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.
80 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Details of certain available-for-sale securities measured at fair value on a recurring basis | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||||||||||||||||||||
|
Total
carrying
value
(b)
|
Ratings
(a)
|
Total
carrying value
(b)
|
Ratings
(a)
|
||||||||||||||||||||||||||||||||||||||
|
AAA/
AA- |
A+/
A- |
BBB+/
BBB- |
BB+ and
lower |
Not rated |
AAA/
AA- |
A+/
A- |
BBB+/
BBB- |
BB+ and
lower |
Not rated | ||||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||
| Non-agency RMBS, originated in: | |||||||||||||||||||||||||||||||||||||||||
| 2008-2023 | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| 2007 and earlier |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total non-agency RMBS | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| Non-agency commercial MBS originated in: | |||||||||||||||||||||||||||||||||||||||||
| 2009-2023 | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| Foreign covered bonds: | |||||||||||||||||||||||||||||||||||||||||
| Canada | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| UK |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Germany |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Norway |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total foreign covered bonds | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| Sovereign debt/sovereign guaranteed: | |||||||||||||||||||||||||||||||||||||||||
| Germany | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| France |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| UK |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Singapore |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Spain |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Hong Kong |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Austria |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Italy |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Other
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total sovereign debt/sovereign guaranteed | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| Foreign government agencies: | |||||||||||||||||||||||||||||||||||||||||
| Canada | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
| Norway |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Netherlands |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Sweden |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| France |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total foreign government agencies | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | $ |
|
|
% |
|
% |
|
% |
|
% |
|
% | |||||||||||||||||
(a)
Represents ratings by S&P or the equivalent.
(b) At June 30, 2023 and Dec. 31, 2022, 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 $
123
million at June 30, 2023 and $
123
million at Dec. 31, 2022.
BNY Mellon 81
|
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. The following table presents the carrying value as of June 30, 2023 and Dec. 31, 2022 of financial instruments for which nonrecurring adjustments to fair value have been recorded during 2023 and/or 2022 and all non-readily marketable equity securities carried at cost with upward or downward adjustments by balance sheet caption and level in the fair value hierarchy.
|
Assets measured at fair value on a nonrecurring basis
|
June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||||||||
|
Total carrying
value |
Total carrying
value |
||||||||||||||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||
|
Loans
(a)
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
|
Other assets
(b)
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| Total assets at fair value on a nonrecurring basis | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||
(a) The fair value of these loans decreased $
3
million in the second quarter of 2023 and was unchanged in the fourth quarter of 2022, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses.
(b) Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt.
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 June 30, 2023 and Dec. 31, 2022, by caption on the consolidated balance sheet and by the valuation hierarchy.
| Summary of financial instruments | June 30, 2023 | ||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 |
Total
estimated fair value |
Carrying
amount |
||||||||||||
| Assets: | |||||||||||||||||
|
Interest-bearing deposits with the Federal Reserve and other central banks
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Interest-bearing deposits with banks |
|
|
|
|
|
||||||||||||
| Federal funds sold and securities purchased under resale agreements |
|
|
|
|
|
||||||||||||
| Securities held-to-maturity |
|
|
|
|
|
||||||||||||
|
Loans
(a)
|
|
|
|
|
|
||||||||||||
| Other financial assets |
|
|
|
|
|
||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Liabilities: | |||||||||||||||||
| Noninterest-bearing deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Interest-bearing deposits |
|
|
|
|
|
||||||||||||
| Federal funds purchased and securities sold under repurchase agreements |
|
|
|
|
|
||||||||||||
| Payables to customers and broker-dealers |
|
|
|
|
|
||||||||||||
| Borrowings |
|
|
|
|
|
||||||||||||
| Long-term debt |
|
|
|
|
|
||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
(a) Does not include the leasing portfolio.
82 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
| Summary of financial instruments | Dec. 31, 2022 | ||||||||||||||||
| (in millions) | Level 1 | Level 2 | Level 3 |
Total estimated
fair value |
Carrying
amount |
||||||||||||
| Assets: | |||||||||||||||||
|
Interest-bearing deposits with the Federal Reserve and other central banks
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Interest-bearing deposits with banks |
|
|
|
|
|
||||||||||||
| Federal funds sold and securities purchased under resale agreements |
|
|
|
|
|
||||||||||||
| Securities held-to-maturity |
|
|
|
|
|
||||||||||||
|
Loans
(a)
|
|
|
|
|
|
||||||||||||
| Other financial assets |
|
|
|
|
|
||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Liabilities: | |||||||||||||||||
| Noninterest-bearing deposits | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Interest-bearing deposits |
|
|
|
|
|
||||||||||||
| Federal funds purchased and securities sold under repurchase agreements |
|
|
|
|
|
||||||||||||
| Payables to customers and broker-dealers |
|
|
|
|
|
||||||||||||
| Borrowings |
|
|
|
|
|
||||||||||||
| Long-term debt |
|
|
|
|
|
||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
(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
|
||||||||
| June 30, 2023 | Dec. 31, 2022 | |||||||
| (in millions) | ||||||||
| Assets of consolidated investment management funds: | ||||||||
| Trading assets | $ |
|
$ |
|
||||
| Other assets |
|
|
||||||
| Total assets of consolidated investment management funds | $ |
|
$ |
|
||||
| Liabilities of consolidated investment management funds: | ||||||||
| Other liabilities | $ |
|
$ |
|
||||
| Total liabilities of consolidated investment management funds | $ |
|
$ |
|
||||
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 on 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 $
8
million at June 30, 2023 and $
10
million at Dec. 31, 2022. 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.
BNY Mellon 83
|
Notes to Consolidated Financial Statements
(continued)
|
||
We perform credit reviews and enter into netting agreements and collateral arrangements to minimize the credit risk of derivative financial instruments. We enter into offsetting positions to reduce exposure to foreign currency, interest rate and equity price risk.
Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were
no
counterparty default losses recorded in the second quarter of 2023.
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 and foreign covered bonds. At June 30, 2023, $
29.4
billion par value of available-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $
29.7
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 June 30, 2023, $
24.2
billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $
24.2
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
15
months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as the Indian rupee, Polish zloty, Hong Kong dollar, Singapore dollar, British pound and euro used in revenue and expense transactions for entities that have the U.S. dollar as their functional currency. As of June 30, 2023, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $
589
million (notional), with a net pre-tax gain of $
5
million recorded in accumulated other comprehensive income (“OCI”). This gain will be reclassified to earnings over the next 12 months.
In 2022, we utilized forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. At June 30, 2023, there were
no
remaining foreign exchange contracts. Forward points are designated as an excluded component and amortized into earnings over the hedge period.
Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than
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 June 30, 2023, forward foreign exchange contracts with notional amounts totaling $
10.3
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 June 30, 2023, there were
no
non-derivative financial instruments hedging our net investments in foreign subsidiaries.
84 BNY Mellon
|
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) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||||
| Interest rate fair value hedges of available-for-sale securities | ||||||||||||||||||||
| Derivative | Interest revenue | $ |
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||
| Hedged item | Interest revenue |
(
|
|
(
|
|
(
|
||||||||||||||
| Interest rate fair value hedges of long-term debt | ||||||||||||||||||||
| Derivative | Interest expense |
(
|
|
(
|
|
(
|
||||||||||||||
| Hedged item | Interest expense |
|
(
|
|
(
|
|
||||||||||||||
| Foreign exchange fair value hedges of available-for-sale securities | ||||||||||||||||||||
|
Derivative
(a)
|
Foreign exchange revenue |
|
|
(
|
|
(
|
||||||||||||||
| Hedged item | Foreign exchange revenue |
|
|
|
|
|
||||||||||||||
| Cash flow hedges of forecasted FX exposures | ||||||||||||||||||||
| (Loss) reclassified from OCI into income | Staff expense |
|
(
|
(
|
(
|
(
|
||||||||||||||
| (Loss) reclassified from OCI into income | Investment and other revenue |
(
|
|
|
(
|
|
||||||||||||||
| (Loss) gain recognized in the consolidated income statement due to fair value and cash flow hedging relationships | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
||||||||||
The following table presents the impact of hedging derivatives used in net investment hedging relationships.
| Impact of derivative instruments used in net investment hedging relationships | ||||||||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||||||||
| Derivatives in net investment hedging relationships | Gain or (loss) recognized in accumulated OCI on derivatives |
Location of gain or (loss) reclassified from accumulated
OCI into income |
Gain or (loss) reclassified from
accumulated OCI into income |
|||||||||||||||||||||||||||||||||||
| 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | |||||||||||||||||||||||||||||
| FX contracts | $ |
(
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
Net interest revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||
The following table presents information on the hedged items in fair value hedging relationships.
| Hedged items in fair value hedging relationships |
Carrying amount of hedged
asset or liability |
Hedge accounting basis adjustment increase (decrease)
(a)
|
|||||||||||||||
| (in millions) | June 30, 2023 | Dec. 31, 2022 | June 30, 2023 | Dec. 31, 2022 | |||||||||||||
|
Available-for-sale securities
(b)
|
$ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||
| Long-term debt | $ |
|
$ |
|
$ |
(
|
$ |
(
|
|||||||||
(a) Includes a $
440
million decrease and less than $
1
million increase of basis adjustment on discontinued hedges associated with available-for-sale securities at June 30, 2023 and Dec. 31, 2022, respectively, and $
55
million and $
48
million of basis adjustment decreases on discontinued hedges associated with long-term debt at June 30, 2023 and Dec. 31, 2022, respectively.
(b) Carrying amount represents the amortized cost.
BNY Mellon 85
|
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 |
|||||||||||||||||||||||
| June 30, 2023 | Dec. 31, 2022 | June 30, 2023 | Dec. 31, 2022 | June 30, 2023 | Dec. 31, 2022 | |||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
|
Derivatives designated as hedging instruments:
(a)(b)
|
||||||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
||||||||||||||||||||
| Total derivatives designated as hedging instruments | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Derivatives not designated as hedging instruments:
(b)(c)
|
||||||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
||||||||||||||||||||
| Equity contracts |
|
|
|
|
|
|
||||||||||||||||||||
| Credit contracts |
|
|
|
|
|
|
||||||||||||||||||||
| Total derivatives not designated as hedging instruments | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Total derivatives fair value
(d)
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
|
Effect of master netting agreements
(e)
|
(
|
(
|
(
|
(
|
||||||||||||||||||||||
| Fair value after effect of master netting agreements | $ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||
(a)
The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the consolidated balance sheet.
(b) For derivative transactions settled at clearing organizations, cash collateral exchanged is deemed a settlement of the derivative each day. The settlement reduces the gross fair value of derivative assets and liabilities and results in a corresponding decrease in the effect of master netting agreements, with no impact to the consolidated balance sheet.
(c) The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the consolidated balance sheet.
(d)
Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging.
(e) Effect of master netting agreements includes cash collateral received and paid of $
1,468
million and $
1,104
million, respectively, at June 30, 2023, and $
1,786
million and $
1,823
million, respectively, at Dec. 31, 2022.
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) | 2Q23 | 1Q23 | 2Q22 | YTD23 | YTD22 | ||||||||||||
| Foreign exchange revenue | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||
| Other trading revenue |
|
|
|
|
|
||||||||||||
Foreign exchange revenue includes income from purchasing and selling foreign currencies, currency forwards, futures and options as well as foreign currency remeasurement. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities, and
trading and economic hedging activity with non-foreign exchange derivatives.
We also use derivative financial instruments as risk-mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were a gain of $
8
million in the second quarter of 2023, a loss of $
30
million in the second quarter of 2022, gains of $
7
million in the first quarter of 2023 and $
15
million in the first six months of 2023 and a loss of $
43
million in the first six months of 2022.
We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on
86 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
historical simulation and other market sensitivity measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a
-day holding period, utilizes a
99
% confidence level and incorporates non-linear product characteristics. The VaR model is one of several statistical models used to develop economic capital results, which are allocated to lines of business for computing risk-adjusted performance.
VaR methodology does not evaluate risk attributable to extraordinary financial, economic or other occurrences. As a result, the risk assessment process includes a number of stress scenarios based upon the risk factors in the portfolio and management’s assessment of market conditions. Additional stress scenarios based upon historical market events are also performed. Stress tests may incorporate the impact of reduced market liquidity and the breakdown of historically observed correlations and extreme scenarios. VaR and other statistical measures, stress testing and sensitivity analysis are incorporated 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.
| June 30, 2023 | Dec. 31, 2022 | |||||||
| (in millions) | ||||||||
|
Aggregate fair value of OTC derivatives in net liability positions
(a)
|
$ |
|
$ |
|
||||
| Collateral posted | $ |
|
$ |
|
||||
(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)
|
||||||||
| June 30, 2023 | Dec. 31, 2022 | |||||||
| (in millions) | ||||||||
|
If The Bank of New York Mellon’s rating changed to:
(b)
|
||||||||
| A3/A- | $ |
|
$ |
|
||||
| Baa2/BBB | $ |
|
$ |
|
||||
| Ba1/BB+ | $ |
|
$ |
|
||||
(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.
BNY Mellon 87
|
Notes to Consolidated Financial Statements
(continued)
|
||
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.
|
Offsetting of derivative assets and financial assets at June 30, 2023
|
|||||||||||||||||||||||
| Gross assets recognized | Gross amounts offset in the balance sheet | Net assets recognized in the balance sheet | Gross amounts not offset in the balance sheet | ||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | |||||||||||||||||||
|
Derivatives subject to netting arrangements:
|
|||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
|||||||||||||||||
| Equity and other contracts |
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives subject to netting arrangements
|
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives not subject to netting arrangements
|
|
— |
|
— | — |
|
|||||||||||||||||
| Total derivatives |
|
|
|
|
|
|
|||||||||||||||||
| Reverse repurchase agreements |
|
|
(b) |
|
|
|
|
||||||||||||||||
| Securities borrowing |
|
— |
|
|
— |
|
|||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(a)
Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)
Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation (“FICC”), where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
|
Offsetting of derivative assets and financial assets at Dec. 31, 2022
|
|||||||||||||||||||||||
| Gross assets recognized | Gross amounts offset in the balance sheet |
Net assets recognized
in the balance sheet |
Gross amounts not offset in the balance sheet | ||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | |||||||||||||||||||
|
Derivatives subject to netting arrangements:
|
|||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
|||||||||||||||||
| Equity and other contracts |
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives subject to netting arrangements
|
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives not subject to netting arrangements
|
|
— |
|
— | — |
|
|||||||||||||||||
| Total derivatives |
|
|
|
|
|
|
|||||||||||||||||
| Reverse repurchase agreements |
|
|
(b) |
|
|
|
|
||||||||||||||||
| Securities borrowing |
|
— |
|
|
— |
|
|||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(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.
88 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
Offsetting of derivative liabilities and financial liabilities at June 30, 2023
|
Net liabilities recognized in the balance sheet | ||||||||||||||||||||||
| Gross liabilities recognized | Gross amounts offset in the balance sheet | Gross amounts not offset in the balance sheet | |||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | |||||||||||||||||||
|
Derivatives subject to netting arrangements:
|
|||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
|||||||||||||||||
| Equity and other contracts |
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives subject to netting arrangements
|
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives not subject to netting arrangements
|
|
— |
|
— | — |
|
|||||||||||||||||
| Total derivatives |
|
|
|
|
|
|
|||||||||||||||||
| Repurchase agreements |
|
|
(b) |
|
|
|
|
||||||||||||||||
| Securities lending |
|
— |
|
|
— |
|
|||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(a)
Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.
(b)
Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
|
Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2022
|
Net liabilities recognized
in the balance sheet |
||||||||||||||||||||||
| Gross liabilities recognized | Gross amounts offset in the balance sheet | Gross amounts not offset in the balance sheet | |||||||||||||||||||||
| (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | |||||||||||||||||||
|
Derivatives subject to netting arrangements:
|
|||||||||||||||||||||||
| Interest rate contracts | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
| Foreign exchange contracts |
|
|
|
|
|
|
|||||||||||||||||
| Equity and other contracts |
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives subject to netting arrangements
|
|
|
|
|
|
|
|||||||||||||||||
|
Total derivatives not subject to netting arrangements
|
|
— |
|
— | — |
|
|||||||||||||||||
| Total derivatives |
|
|
|
|
|
|
|||||||||||||||||
| Repurchase agreements |
|
|
(b) |
|
|
|
|
||||||||||||||||
| Securities lending |
|
— |
|
|
— |
|
|||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||
(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.
BNY Mellon 89
|
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 | |||||||||||||||||||||||||||||||||||
| June 30, 2023 | Dec. 31, 2022 | ||||||||||||||||||||||||||||||||||
| Remaining contractual maturity | Total | Remaining contractual maturity | Total | ||||||||||||||||||||||||||||||||
| (in millions) | Overnight and continuous | Up to 30 days | 30-90 days | Over 90 days | Overnight and continuous | Up to 30 days | 30-90 days |
Over 90
days |
|||||||||||||||||||||||||||
| Repurchase agreements: | |||||||||||||||||||||||||||||||||||
| U.S. Treasury | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Agency RMBS |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Sovereign debt/sovereign guaranteed |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| State and political subdivisions |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| U.S. government agencies |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Other debt securities |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Equity securities |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Securities lending: | |||||||||||||||||||||||||||||||||||
| Agency RMBS | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Other debt securities |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Equity securities |
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Total secured borrowings | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
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.
90 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
The following table presents a summary of our off-balance sheet credit risks.
| Off-balance sheet credit risks | June 30, 2023 | Dec. 31, 2022 | ||||||
| (in millions) | ||||||||
| Lending commitments | $ |
|
$ |
|
||||
|
Standby letters of credit (“SBLC”)
(a)
|
|
|
||||||
| Commercial letters of credit |
|
|
||||||
|
Securities lending
indemnifications
(b)(c)
|
|
|
||||||
(a)
Net of participations totaling $
185
million at June 30, 2023 and $
175
million at Dec. 31, 2022.
(b)
Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $
63
billion at June 30, 2023 and $
64
billion at Dec. 31, 2022.
The total potential loss on undrawn lending commitments, standby and commercial letters of credit and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral.
Since many of the lending commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. A summary of lending commitment maturities is as follows: $
29.5
billion in less than one year, $
19.8
billion in one to five years and $
253
million over five years.
SBLCs principally support obligations of corporate clients and were collateralized with cash and securities of $
145
million at June 30, 2023 and $
144
million at Dec. 31, 2022. At June 30, 2023, $
1.4
billion of the SBLCs will expire within one year, $
537
million in one to five years and $
8
million over five years.
We must recognize, at the inception of an SBLC and foreign and other guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The fair value of the liability, which was recorded with a corresponding asset in other assets, was estimated as the present value of contractual customer fees. The estimated liability for losses related to SBLCs and foreign and other guarantees, if any, is included in the allowance for lending-related commitments.
Payment/performance risk of SBLCs is monitored using both historical performance and internal ratings criteria. BNY Mellon’s historical experience is that SBLCs typically expire without being funded. SBLCs below investment grade are monitored closely for payment/performance risk.
The table below shows SBLCs by investment grade:
| Standby letters of credit | June 30, 2023 | Dec. 31, 2022 | ||||||
| Investment grade |
|
% |
|
% | ||||
| Non-investment grade |
|
% |
|
% | ||||
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 June 30, 2023 and $
19
million at Dec. 31, 2022.
We expect many of the lending commitments and letters of credit to expire without the need to advance any cash. The revenue associated with guarantees frequently depends on the credit rating of the obligor and the structure of the transaction, including collateral, if any. The allowance for lending-related commitments was $
91
million at June 30, 2023 and $
78
million at Dec. 31, 2022.
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 counterparties. Securities lending indemnifications
BNY Mellon 91
|
Notes to Consolidated Financial Statements
(continued)
|
||
were secured by collateral of
$
481
billion
at
June 30, 2023
and
$
515
billion
at
Dec. 31, 2022.
CIBC Mellon, a joint venture between BNY Mellon and the Canadian Imperial Bank of Commerce (“CIBC”), engages in securities lending activities. CIBC Mellon, BNY Mellon and CIBC jointly and severally indemnify securities lenders against specific types of borrower default. At June 30, 2023 and Dec. 31, 2022, $
63
billion and $
64
billion, respectively, of borrowings at CIBC Mellon, for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, were secured by collateral of $
66
billion and $
68
billion, respectively. If, upon a default, a borrower’s collateral was not sufficient to cover its related obligations, certain losses related to the indemnification could be covered by the indemnitors.
Unsettled repurchase and reverse repurchase agreements
In the normal course of business, we enter into repurchase agreements and reverse repurchase agreements that settle at a future date. In repurchase agreements, BNY Mellon receives cash from and provides securities as collateral to a counterparty at settlement. In reverse repurchase agreements, BNY Mellon advances cash to and receives securities as collateral from the counterparty at settlement. These transactions are recorded on the consolidated balance sheet on the settlement date. At June 30, 2023, we had
no
unsettled repurchase agreements and $
53.0
billion of unsettled reverse repurchase agreements. At Dec. 31, 2022, we had $
4.0
billion of unsettled repurchase agreements and $
11.3
billion of unsettled reverse repurchase agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at June 30, 2023.
The tables below present our credit exposure in the financial institutions and commercial portfolios.
|
Financial institutions
portfolio exposure
(in billions)
|
June 30, 2023 | ||||||||||
| Loans |
Unfunded
commitments |
Total exposure | |||||||||
| Securities industry | $ |
|
$ |
|
$ |
|
|||||
| Asset managers |
|
|
|
||||||||
| Banks |
|
|
|
||||||||
| Insurance |
|
|
|
||||||||
| Government |
|
|
|
||||||||
| Other |
|
|
|
||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||
|
Commercial portfolio
exposure
(in billions)
|
June 30, 2023 | ||||||||||
| Loans |
Unfunded
commitments |
Total exposure | |||||||||
| Manufacturing | $ |
|
$ |
|
$ |
|
|||||
| Services and other |
|
|
|
||||||||
| Energy and utilities |
|
|
|
||||||||
| Media and telecom |
|
|
|
||||||||
| Total | $ |
|
$ |
|
$ |
|
|||||
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 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
92 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
indemnifications for several reasons. In addition to the lack of a stated or notional amount in a majority of such indemnifications, we are unable to predict the nature of events that would trigger indemnification or the level of indemnification for a certain event. We believe, however, that the possibility that we will have to make any material payments for these indemnifications is remote. At June 30, 2023 and Dec. 31, 2022, we have not recorded any material liabilities under these arrangements.
Clearing and settlement exchanges
We are a noncontrolling equity investor in, and/or member of, several industry clearing or settlement exchanges through which foreign exchange, securities, derivatives or other transactions settle. Certain of these industry clearing and settlement exchanges require their members to guarantee their obligations and liabilities and/or to provide liquidity support in the event other members do not honor their obligations. We believe the likelihood that a clearing or settlement exchange (of which we are a member) would become insolvent is remote. Additionally, certain settlement exchanges have implemented loss allocation policies that enable the exchange to allocate settlement losses to the members of the exchange. It is not possible to quantify such mark-to-market loss until the loss occurs. Any ancillary costs that occur as a result of any mark-to-market loss cannot be quantified. In addition, we also sponsor clients as members on clearing and settlement exchanges and guarantee their obligations. At June 30, 2023 and Dec. 31, 2022, 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 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 $
620
million
in
BNY Mellon 93
|
Notes to Consolidated Financial Statements
(continued)
|
||
excess of the accrued liability (if any) related to those matters.
For matters where a reasonably possible loss is denominated in a foreign currency, our estimate is adjusted quarterly based on prevailing exchange rates. We do not consider potential recoveries when estimating reasonably possible losses.
The following describes certain judicial, regulatory and arbitration proceedings involving BNY Mellon:
Mortgage-Securitization Trusts Proceedings
BNY 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.
Two
actions commenced in December 2015 and February 2017 are pending in New York federal court. An action commenced in December 2014 in New York federal court was dismissed and the dismissal was affirmed on appeal in April 2023. In New York state court,
six
actions are pending:
one
case commenced in May 2016;
two
related cases commenced in September 2021 and October 2022; and
three
related cases commenced in October 2021, December 2021 and February 2022.
Matters Related to R. Allen Stanford
In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, 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; on Dec. 15, 2022, an appeals court reversed the dismissal and returned the case to the trial court for further proceedings. All the cases that have been 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 March 2, 2023, DTVM appealed the August 4 decision to Brazil’s Superior Court of Justice. 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. 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,
94 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
reducing the judgment to approximately $
2
million. On July 13, 2023, DTVM and Ativos filed a further appeal to Brazil’s Superior Court of Justice. On Aug. 24, 2022, the court dismissed one of the other lawsuits. On Nov. 24, 2022, Postalis appealed that decision. On Feb. 4, 2016, Postalis filed 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 proceedings with the purpose of determining liability for losses to
three
investment funds administered by DTVM in which Postalis was an investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and two former Postalis directors jointly and severally liable for approximately $
50
million. TCU also imposed on DTVM a fine of approximately $
2
million. DTVM’s administrative appeal of the decision was denied. On Feb. 25, 2022, DTVM filed a lawsuit in Brazil federal court in Brasilia seeking annulment of TCU’s decision and an injunction preventing TCU from enforcing the judgment. On Aug. 24, 2022, the Brazilian Federal Attorneys filed an action in Rio de Janeiro court seeking to enforce the fine portion of the judgment. On Nov. 8, 2022, the Brasilia federal court in the annulment action granted DTVM’s request for an injunction, suspending the Sept. 9, 2020 TCU decision until the annulment action is decided. On Oct. 4, 2019, Postalis and 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 in São Paulo challenging the decision rendered by the Arbitration Court with respect to its
jurisdiction over the case. On Feb. 24, 2023, the São Paulo court annulled the Arbitration Court’s decision that it had jurisdiction. 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-
BNY Mellon 95
|
Notes to Consolidated Financial Statements
(continued)
|
||
acquisition activity and are cooperating fully with those requests. In August 2019, the District Court of Bonn ordered that one of these subsidiaries be joined as a secondary party in connection with the prosecution of unrelated individual defendants. Trial commenced in September 2019. In March 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 and February 2023, we received secondary liability notices from the German tax authorities totaling approximately $
150
million (at then-prevailing exchange rates) related to pre-acquisition activity in various funds for which the entities we acquired were depositary and/or fund manager. We have appealed the notices. In connection with the acquisition of the subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.
Off-Channel Business-Related Communications
The Company has been responding to a request for information from the SEC concerning compliance with recordkeeping obligations relating to business communications transmitted on unapproved electronic communication platforms. SEC Staff has stated that it is conducting similar inquiries into recordkeeping practices at other financial institutions. The Company is cooperating with the inquiry. In April 2023, the Company received a similar request from the Commodity Futures Trading Commission and is cooperating with that inquiry as well.
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 2022 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 second quarter of 2023.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 2022 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.
96 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
•
Recurring FDIC expense is allocated to the businesses based on average deposits generated within each business.
•
Severance expense is recorded in the segments based on the business or function the impacted employees reside, with severance related to corporate staff, technology and operations reflected in the Other segment.
•
Litigation expense is generally recorded in the business in which the charge occurs.
•
Management of the securities portfolio is a shared service contained in the Other segment. As a result, gains and losses associated with the valuation of the securities portfolio are generally included in the Other segment.
•
Client deposits serve as the primary funding source for our securities portfolio. We typically allocate all interest revenue to the businesses generating the deposits. Accordingly, accretion related to the portion of the securities portfolio restructured in 2009 has been included in the results of the businesses.
•
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 June 30, 2023
|
Securities
Services |
Market and Wealth Services |
Investment
and Wealth Management |
Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
| Net interest revenue (expense) |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Total revenue (loss) |
|
|
|
(a) |
(
|
|
(a) | |||||||||||||||||||||||||
| Provision for credit losses |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Noninterest expense |
|
|
|
|
|
|||||||||||||||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
|
Pre-tax operating margin
(b)
|
|
% |
|
% |
|
% | N/M |
|
% | |||||||||||||||||||||||
| Average assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(a)
Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management funds of $
1
million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
|
For the quarter ended March 31, 2023
|
Securities
Services |
Market and Wealth Services |
Investment
and Wealth Management |
Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
| Net interest revenue (expense) |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Total revenue (loss) |
|
|
|
(a) |
(
|
|
(a) | |||||||||||||||||||||||||
| Provision for credit losses |
|
|
|
|
|
|||||||||||||||||||||||||||
| Noninterest expense |
|
|
|
|
|
|||||||||||||||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
|
Pre-tax operating margin
(b)
|
|
% |
|
% |
|
% | N/M |
|
% | |||||||||||||||||||||||
| Average assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(a)
Total fee and other revenue, total revenue and income before income taxes are net of income (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.
BNY Mellon 97
|
Notes to Consolidated Financial Statements
(continued)
|
||
|
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 | $ |
|
$ |
|
$ |
|
(a) | $ |
|
$ |
|
(a) | ||||||||||||||||||||
| Net interest revenue (expense) |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Total revenue |
|
|
|
(a) |
|
|
(a) | |||||||||||||||||||||||||
| Provision for credit losses |
|
|
|
|
|
|||||||||||||||||||||||||||
| Noninterest expense |
|
|
|
|
|
|||||||||||||||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
|
Pre-tax operating margin
(b)
|
|
% |
|
% |
|
% | N/M |
|
% | |||||||||||||||||||||||
| Average assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(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 six months ended June 30, 2023
|
Securities
Services |
Market and Wealth Services |
Investment
and Wealth Management |
Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
| Net interest revenue (expense) |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Total revenue (loss) |
|
|
|
(a) |
(
|
|
(a) | |||||||||||||||||||||||||
| Provision for credit losses |
|
|
|
|
|
|||||||||||||||||||||||||||
| Noninterest expense |
|
|
|
|
|
|||||||||||||||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
|
Pre-tax operating margin
(b)
|
|
% |
|
% |
|
% | N/M |
|
% | |||||||||||||||||||||||
| Average assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(a)
Total fee and other revenue, total revenue and income before income taxes are net of income attributable to noncontrolling interests related to consolidated investment management funds of $
1
million.
(b) Income before income taxes divided by total revenue.
N/M – Not meaningful.
|
For the six months ended June 30, 2022
|
Securities
Services |
Market and Wealth Services |
Investment
and Wealth Management |
Other | Consolidated | |||||||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||||||||
| Total fee and other revenue | $ |
|
$ |
|
$ |
|
(a) | $ |
|
$ |
|
(a) | ||||||||||||||||||||
| Net interest revenue (expense) |
|
|
|
(
|
|
|||||||||||||||||||||||||||
| Total revenue |
|
|
|
(a) |
|
|
(a) | |||||||||||||||||||||||||
| Provision for credit losses |
|
|
(
|
|
|
|||||||||||||||||||||||||||
| Noninterest expense |
|
|
|
|
|
|||||||||||||||||||||||||||
| Income (loss) before income taxes | $ |
|
$ |
|
$ |
|
(a) | $ |
(
|
$ |
|
(a) | ||||||||||||||||||||
|
Pre-tax operating margin
(b)
|
|
% |
|
% |
|
% | N/M |
|
% | |||||||||||||||||||||||
| Average assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
||||||||||||||||||||||
(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.
98 BNY Mellon
|
Notes to Consolidated Financial Statements
(continued)
|
||
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 | Six months ended June 30, | ||||||||||
| (in millions) | 2023 | 2022 | |||||||||
| Transfers from loans to other assets for other real estate owned | $ |
|
$ |
|
|||||||
| Change in assets of consolidated investment management funds |
|
|
|||||||||
| Change in liabilities of consolidated investment management funds |
|
|
|||||||||
| Change in nonredeemable noncontrolling interests of consolidated investment management funds |
|
|
|||||||||
| Securities purchased not settled |
|
|
|||||||||
| Securities sold not settled |
|
|
|||||||||
| Available-for-sale securities transferred to held-to-maturity securities |
|
|
|||||||||
| Premises and equipment/operating lease obligations |
|
|
|||||||||
| Excise tax on share repurchases |
|
|
|||||||||
BNY Mellon 99
| 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 second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
100 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, efficiency, expenses, nonperforming assets, products, impacts of currency fluctuations, deposits, securities portfolio, divestments, impacts of trends on our businesses, regulatory, technology, market, economic or accounting developments and the impacts of such developments on our businesses, legal proceedings and other contingencies), 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, focus and initiatives.
In this report, any other report, any press release or any written or oral statement that BNY Mellon or its executives may make, words, such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “ambition,” “objective,” “aim,” “future,” “potentially,” “outlook” and words of similar meaning, may signify forward-looking statements.
Actual results may differ materially from those expressed or implied as a result of a number of factors, including those discussed in “Risk Factors” in our 2022 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, develop and motivate employees;
•
a communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients 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;
•
levels of and changes in interest rates have impacted, and will in the future continue to impact, our profitability and capital levels, at times adversely;
•
we have experienced, and may continue to experience, unrealized or realized losses on securities related to volatile and illiquid market conditions, reducing our capital levels and/or earnings;
BNY Mellon 101
|
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;
•
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;
•
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; and
•
risks relating to FDIC special deposits insurance assessments.
Investors should consider all risk factors discussed in our 2022 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.
102 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 second quarter of 2023. All of the Company’s preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends.
Issuer purchases of equity securities
|
Share repurchases – second quarter of 2023
|
Total shares
repurchased as part of a publicly announced plan or program |
Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at June 30, 2023
|
||||||||||||||||||||||||
| (dollars in millions, except per share amounts; common shares in thousands) |
Total shares
repurchased |
Average price
per share |
||||||||||||||||||||||||
| April 2023 | 1,425 | $ | 43.91 | 1,425 | $ | 3,682 | ||||||||||||||||||||
| May 2023 | 4,864 | 41.02 | 4,864 | 3,482 | ||||||||||||||||||||||
| June 2023 | 4,353 | 42.81 | 4,353 | 3,296 | ||||||||||||||||||||||
|
Second quarter of 2023
(a)
|
10,642 | $ | 42.14 | 10,642 | $ | 3,296 | (b) | |||||||||||||||||||
(a) Includes 71 thousand shares repurchased at a purchase price of $3 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market repurchases was $42.11.
(b) Represents the maximum value of the shares to be repurchased under the share repurchase plan announced in January 2023 and includes shares repurchased in connection with employee benefit plans.
In January 2023, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to $5.0 billion of common shares beginning Jan. 1, 2023. This new 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 5.
Other Information
.
(c)
Certain
of our officers or directors have made elections to participate in, and are participating in, our dividend reinvestment plan, employee stock purchase plan and 401(k) plan, and have made, and may from time to time make, elections to have shares withheld to cover withholding taxes or pay the exercise price of stock awards, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Item 6.
Exhibits
.
The list of exhibits required to be filed as exhibits to this report appears below.
BNY Mellon 103
|
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. | |||||||||||||
104 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
June 30, 2023
. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument.
|
N/A | ||||||||||||
| 22.1 | Subsidiary Issuer of Guaranteed Securities. | |||||||||||||
| 31.1 | 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
June 30, 2023
, formatted in inline XBRL.
|
The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101. | ||||||||||||
BNY Mellon 105
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: August 4, 2023 | By: | /s/ Kurtis R. Kurimsky | |||||||||
| Kurtis R. Kurimsky | |||||||||||
| Corporate Controller | |||||||||||
| (Duly Authorized Officer and | |||||||||||
| Principal Accounting Officer of | |||||||||||
| the Registrant) | |||||||||||
106 BNY Mellon
TABLE OF CONTENTS
Part I Financial InformationprintItem 1. Financial Statementsthe Bank Of New York Mellon Corporation (and Its Subsidiaries)printItem 1. Financial StatementsprintNote 1 Basis Of PresentationprintNote 2 New Accounting GuidanceprintNote 3 Acquisitions and DispositionsprintNote 4 SecuritiesprintNote 5 Loans and Asset QualityprintNote 6 Goodwill and Intangible AssetsprintNote 7 Other AssetsprintNote 8 Contract RevenueprintNote 9 Net Interest RevenueprintNote 10 Employee Benefit PlansprintNote 11 Income TaxesprintNote 12 Variable Interest EntitiesprintNote 13 Preferred StockprintNote 14 Other Comprehensive Income (loss)printNote 15 Fair Value MeasurementprintNote 16 Fair Value OptionprintNote 17 Derivative InstrumentsprintNote 18 Commitments and Contingent LiabilitiesprintNote 19 Business SegmentsprintNote 20 Supplemental Information To The Consolidated Statement Of Cash FlowsprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1. Legal Proceedings.the Information Required By This Item Is Set Forth in The Legal Proceedings Section in Note 18 Of TheprintItem 1. Legal ProceedingsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5. Other InformationprintItem 6. Exhibitsprint