Securities (a) | $ | 120 | | Cash (b) | 103 | | Total consolidated HQLA (c) | $ | 223 | | | | (a)Total consolidated HQLA – average (c) | Primarily includes securities of U.S. government-sponsored enterprises, sovereign securities, U.S. Treasury, U.S. agency and investment-grade corporate debt.$ |
| 213 | | (b)Average LCR | Primarily includes cash on deposit with central banks.111 | % |
| | (c) | Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $202 billion at March 31, 2020 and averaged $142 billion for the first quarter of 2020. |
(b) Primarily includes cash on deposit with central banks. (c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $163 billion at Sept. 30, 2020 and averaged $154 billion for the third quarter of 2020. BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the U.S. LCR requirements of at least 100% throughout the firstthird quarter of 2020.
Statement of cash flows
The following summarizes the activity reflected on the consolidated statement of cash flows. While this
information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity and dividends and asset/liability management herein may provide more useful context in evaluating our liquidity position and related activity.
Net cash used forprovided by operating activities was $1.7$5.9 billion in the threenine months ended March 31,Sept. 30, 2020, compared with $949 million$2.6 billion in the threenine months ended March 31,Sept. 30, 2019. In the threenine months ended March 31,Sept. 30, 2020, and three months ended March 31, 2019, cash flows used forprovided by operations primarily resulted from the changeearnings and changes in accrualstrading assets and other, net, partially offset by earnings.liabilities. In the threenine months ended March 31, 2020,Sept. 30, 2019, cash flows used forprovided by operations was alsoprimarily resulted from earnings, partially offset by changes in trading assets and liabilities.
Net cash used for investing activities was $78.6$44.3 billion in the threenine months ended March 31,Sept. 30, 2020, compared with net cash provided by investing activities of $20.8$5.2 billion in the threenine months ended March 31,Sept. 30, 2019. In the threenine months ended March 31,Sept. 30, 2020, net cash used for investing activities primarily reflects net changes in securities and changes in interest-bearing deposits with the Federal Reserve and other central banks. In the nine months ended Sept. 30, 2019, net cash used for investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, net changes in securities, loans and interest-bearing deposits with banks. In the three months ended March 31, 2019, net cash providedpartially offset by investing activities primarily reflects changes in interest-bearing deposits with the Federal Reserve and other central banks, changes in federal funds sold and securities purchased under resale agreements, and net changes in securities and loans.agreements.
Net cash provided by financing activities was $82.9$38.1 billion in the threenine months ended March 31,Sept. 30, 2020, compared with net cash used for financing activities of $19.8$3.5 billion in the threenine months ended March 31,Sept. 30, 2019. In the threenine months ended March 31,Sept. 30, 2020, net cash provided by financing activity reflects changes in deposits, payables to customers and broker-dealers and federal funds purchased and securities sold under repurchase agreements, partially offset by changes in commercial paper. In the nine months ended Sept. 30, 2019, net cash provided by financing activities primarily reflects changes in deposits. Indeposits and net proceeds from the three months ended March 31, 2019, net cash used for financing activities primarily reflects the change in deposits, changeissuance of long-term debt, partially offset by repayments of long-term debt, changes in federal funds purchased and
securities sold under repurchase agreements, changes in other borrowed funds and repayment of long-term debt.common stock repurchases.
Capital
| | | | | | | | | | | | Capital data (dollars in millions, except per share amounts; common shares in thousands) | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | | Average common equity to average assets | 9.6 | % | 9.3 | % | 10.7 | % | | | | | | At period end: | | | | | BNY Mellon shareholders’ equity to total assets ratio | 10.5 | % | 9.9 | % | 10.9 | % | | BNY Mellon common shareholders’ equity to total assets ratio | 9.4 | % | 8.9 | % | 9.9 | % | | Total BNY Mellon shareholders’ equity | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | | Total BNY Mellon common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | | Book value per common share | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | Tangible book value per common share – Non-GAAP (a) | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | | Closing stock price per common share | $ | 34.34 | | $ | 38.65 | | $ | 50.33 | | | Market capitalization | $ | 30,430 | | $ | 34,239 | | $ | 45,331 | | | Common shares outstanding | 886,136 | | 885,862 | | 900,683 | | | | | | | | | | | | | | | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | | | Common dividend payout ratio | 32 | % | 31 | % | 20 | % | | Common dividend yield | 3.6 | % | 3.2 | % | 2.4 | % |
| | | | | | | | Capital data (dollars in millions, except per share amounts; common shares in thousands) | March 31, 2020 |
| Dec. 31, 2019 |
| | Average common equity to average assets | 9.8 | % | 10.7 | % | | | | | | At period end: | | | | BNY Mellon shareholders’ equity to total assets ratio | 8.8 | % | 10.9 | % | | BNY Mellon common shareholders’ equity to total assets ratio | 8.0 | % | 9.9 | % | | Total BNY Mellon shareholders’ equity | $ | 41,145 |
| $ | 41,483 |
| | Total BNY Mellon common shareholders’ equity | $ | 37,603 |
| $ | 37,941 |
| BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 19,068 |
| $ | 19,216 |
| Book value per common share (a) | $ | 42.47 |
| $ | 42.12 |
| Tangible book value per common share – Non-GAAP (a) | $ | 21.53 |
| $ | 21.33 |
| | Closing stock price per common share | $ | 33.68 |
| $ | 50.33 |
| | Market capitalization | $ | 29,822 |
| $ | 45,331 |
| | Common shares outstanding | 885,443 |
| 900,683 |
| | | | | | Cash dividends per common share | $ | 0.31 |
| $ | 0.31 |
| | Common dividend payout ratio | 30 | % | 20 | % | | Common dividend yield | 3.7 | % | 2.4 | % |
| | (a) | See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 43(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for a reconciliation of GAAP to Non-GAAP. |
The Bank of New York Mellon Corporation total shareholders’ equity decreasedincreased to $41.1$44.9 billion at March 31,Sept. 30, 2020 from $41.5$41.5 billion at Dec. 31, 2019. The decreaseincrease primarily reflects commonearnings, unrealized gains on assets available-for-sale and the issuance of preferred stock repurchases, foreign currency translation and dividend payments, in May 2020, partially offset by earningscommon stock repurchases and unrealized gainsdividend payments.
In May 2020, the Parent issued 1,000,000 depositary shares, each representing a 1/100th interest in a share of the Parent’s Series G Noncumulative Perpetual Preferred Stock (the “Series G Preferred Stock”). The Series G Preferred Stock has a liquidation preference of $100,000 per share. The Parent will pay dividends on securities available-for-sale.the Series G Preferred Stock, if declared by its board of directors, on each March 20 and September 20, at an annual rate equal to 4.70% from the original issue date to but excluding, Sept. 20, 2025; and at a floating rate equal to the five-year treasury rate (as defined in the certificate of designations) on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and including Sept. 20, 2025. The floating rate will initially reset on Sept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
In November 2020, the Parent issued 582,500 depositary shares, each representing a 1/100th interest in a share of the Parent’s Series H Noncumulative Perpetual Preferred Stock (the “Series H Preferred Stock”). The Series H Preferred Stock has a liquidation preference of $100,000 per share. The Parent will pay dividends on the Series H Preferred Stock, if declared by its board of directors, on each March 20, June 20, September 20 and December 20, commencing on March 20, 2021, at an annual rate equal to 3.70% from the original issue date to but excluding, March 20, 2026; and at a floating rate equal to the five-year treasury rate (as defined in the certificate of designations) on the date that is three business days prior to the reset date plus 3.352% for each reset period, from and including March 20, 2026. The floating rate will initially reset on March 20, 2026 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
The Parent will use the net proceeds, after deducting the underwriting discount and estimated offering expenses, of approximately $575 million from the sale of the depositary shares to redeem all outstanding shares of the Series C Preferred Stock. On Nov. 4, 2020, the Parent issued a notice of redemption to the holders of the Series C Preferred Stock to redeem in full the Series C Preferred Stock on Dec. 20, 2020.
In the first quarterDeferred fees of 2020, we repurchased 21.7approximately $15 million common shares at an average price of $45.44 per common share for a total of $985 million under the current program.will be realized as preferred stock dividends upon redemption.
The unrealized gain (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated OCI was $608 million$1.4 billion at March 31,Sept. 30, 2020, compared with an unrealized gain (after-tax), net of hedges, of $361 million at Dec. 31, 2019. The increase in the unrealized gain, net of tax, was primarily driven by lower market interest rates.
In the nine months ended Sept. 30, 2020, we repurchased 21.8 million common shares at an average price of $45.43 per common share for a total of $988 million, nearly all of which were repurchased prior to the temporary suspension of share repurchases in March 2020.
In June 2020, the Federal Reserve announced that it would require participating CCAR firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms were not permitted, during the third quarter of 2020, to conduct open market common stock repurchases, to increase their common stock dividends or to pay common stock dividends that exceed average net income for the preceding four quarters. On Sept. 30, 2020, the Federal Reserve extended these limitations through the fourth quarter of 2020.
BNY Mellon intends to resume the common stock repurchase program as early as possible, depending on factors such as prevailing market conditions, our outlook for the economic environment and the additional capital analysis required by the Federal Reserve. For additional information, see “Recent regulatory developments.” Capital adequacy
Regulators establish certain levels of capital for bank holding companies (“BHCs”) and banks, including BNY Mellon and our bank subsidiaries, in accordance with established quantitative measurements. For the Parent to maintain its status as a financial holding company (“FHC”), our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.” As of March 31,Sept. 30, 2020 and Dec. 31, 2019, BNY Mellon and our U.S. bank subsidiaries were “well capitalized.”
Failure to satisfy regulatory standards, including “well capitalized” status or capital adequacy rules more generally, could result in limitations on our activities and adversely affect our financial condition. See the discussion of these matters in “Supervision and Regulation - Regulated Entities of BNY Mellon and Ancillary Regulatory Requirements” and “Risk Factors - Operational Risk - Failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition,” both of which are in our 2019 Annual Report.
The U.S. banking agencies’ capital rules are based on the framework adopted by the Basel Committee on Banking Supervision (“BCBS”), as amended from time to time. For additional information on these capital requirements, see “Supervision and Regulation” in our 2019 Annual Report and “Recent regulatory developments” in this Form 10-Q.
The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated and largest bank subsidiary regulatory capital ratios | Sept. 30, 2020 | | June 30, 2020 | | Dec. 31, 2019 | | | Well capitalized | | Minimum required | | Capital
ratios | | Capital
ratios | | Capital
ratios | | | (a) | | Consolidated regulatory capital ratios: (b) | | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 13.0 | % | | 12.6 | % | | 11.5 | % | | | Tier 1 capital ratio | 6 | % | | 10 | | | 15.7 | | | 15.4 | | | 13.7 | | | | Total capital ratio | 10 | | | 12 | | | 16.6 | | | 16.3 | | | 14.4 | | | | Standardized Approach: | | | | | | | | | | | | CET1 ratio | N/A | (c) | 8.5 | % | | 13.5 | % | | 12.7 | % | | 12.5 | % | | | Tier 1 capital ratio | 6 | % | | 10 | | | 16.3 | | | 15.6 | | | 14.8 | | | | Total capital ratio | 10 | | | 12 | | | 17.4 | | | 16.6 | | | 15.8 | | | | Tier 1 leverage ratio | N/A | (c) | 4 | | | 6.5 | | | 6.2 | | | 6.6 | | | SLR (d)(e) | N/A | (c) | 5 | | | 8.5 | | | 8.2 | | | 6.1 | | | | | | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | | | | Advanced Approaches: | | | | | | | | | | | | CET1 ratio | 6.5 | % | | 7 | % | | 17.2 | % | | 17.1 | % | | 15.1 | % | | | Tier 1 capital ratio | 8 | | | 8.5 | | | 17.2 | | | 17.1 | | | 15.1 | | | | Total capital ratio | 10 | | | 10.5 | | | 17.4 | | | 17.2 | | | 15.2 | | | | Tier 1 leverage ratio | 5 | | | 4 | | | 6.9 | | | 6.7 | | | 6.9 | | | SLR (d) | 6 | | | 3 | | | 8.5 | | | 8.4 | | | 6.4 | | |
| | | | | | | | | | | | | | Consolidated and largest bank subsidiary regulatory capital ratios | March 31, 2020 | | Dec. 31, 2019 |
| | Well capitalized |
| | Minimum required |
| | Capital ratios |
| | Capital ratios |
| | | (a) | Consolidated regulatory capital ratios: (b) | | | | | | | | | Advanced Approaches: | | | | | | | | | CET1 ratio | N/A |
| (c) | 8.5 | % | | 11.4 | % | | 11.5 | % | | Tier 1 capital ratio | 6 | % | | 10 |
| | 13.5 |
| | 13.7 |
| | Total capital ratio | 10 | % | | 12 |
| | 14.3 |
| | 14.4 |
| | Standardized Approach: | | | | | | | | | CET1 ratio | N/A |
| (c) | 8.5 | % | | 11.3 | % | | 12.5 | % | | Tier 1 capital ratio | 6 | % | | 10 |
| | 13.5 |
| | 14.8 |
| | Total capital ratio | 10 | % | | 12 |
| | 14.4 |
| | 15.8 |
| | Tier 1 leverage ratio | N/A |
| (c) | 4 |
| | 6.0 |
| | 6.6 |
| SLR (d) | N/A |
| (c) | 5 |
| | 5.6 |
| | 6.1 |
| | | | | | | | | | The Bank of New York Mellon regulatory capital ratios: (b) | | | | | | | | | Advanced Approaches: | | | | | | | | | CET1 ratio | 6.5 | % | | 7 | % | | 15.5 | % | | 15.1 | % | | Tier 1 capital ratio | 8 |
| | 8.5 |
| | 15.5 |
| | 15.1 |
| | Total capital ratio | 10 |
| | 10.5 |
| | 15.6 |
| | 15.2 |
| | Tier 1 leverage ratio | 5 |
| | 4 |
| | 6.7 |
| | 6.9 |
| SLR (d) | 6 |
| | 3 |
| | 6.2 |
| | 6.4 |
|
| | (a) | Minimum requirements for March 31, 2020 include minimum thresholds plus currently applicable buffers.
|
| | (b) | For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets. The U.S. global systemically important banks (“G-SIB”) surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. |
| | (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.
|
(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.
(d) The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures. The SLR at Sept. 30, 2020 and June 30, 2020 reflects the exclusion of certain central bank placements from leverage exposure. (e) The SLR at Sept. 30, 2020 and June 30, 2020 reflects the temporary exclusion of U.S. Treasury securities from the leverage exposure which increased our consolidated SLR by 78 basis points and 40 basis points, respectively. 36 BNY Mellon
Our CET1 ratio determined under the Standardized ApproachAdvanced Approaches was 11.3%13.0% at March 31,Sept. 30, 2020 and was 11.5% at Dec. 31, 2019 under the Advanced Approaches.2019. The decreaseincrease primarily reflects an increasecapital generated through earnings and unrealized gains on assets available-for-sale, partially offset by capital deployed through common stock repurchased, prior to the temporary suspension of share repurchases that began in RWAs driven by a larger balance sheet.March 2020, and dividend payments.
Our operational loss risk model is informed by external losses, including fines and penalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a result external losses have impacted and could in the future impact the amount of capital that we are required to hold.
Our capital ratios are necessarily subject to, among other things, anticipated compliance with all necessary enhancements to model calibration, approval by regulators of certain models used as part of RWA calculations, other refinements, further implementation guidance from regulators, market practices and standards and any changes BNY Mellon may make to its businesses. As a consequence of these factors, our capital ratios may materially change, and may be volatile over time and from period to period.
The following table presents our capital components and RWAs.
| | | | | | | | | | | | | Capital components and risk-weighted assets | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | | (in millions) | | CET1: | | | | | Common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | | Adjustments for: | | | | Goodwill and intangible assets (a) | (18,585) | | (18,515) | | (18,725) | | | Net pension fund assets | (275) | | (270) | | (272) | | | Equity method investments | (298) | | (297) | | (311) | | | Deferred tax assets | (51) | | (48) | | (46) | | | Other | (5) | | — | | (47) | | | Total CET1 | 21,171 | | 20,035 | | 18,540 | | | Other Tier 1 capital: | | | | | Preferred stock | 4,532 | | 4,532 | | 3,542 | | | Other | (92) | | (89) | | (86) | | | Total Tier 1 capital | $ | 25,611 | | $ | 24,478 | | $ | 21,996 | | | Tier 2 capital: | | | | | Subordinated debt | $ | 1,248 | | $ | 1,248 | | $ | 1,248 | | | Allowance for credit losses | 474 | | 463 | | 216 | | | Other | (6) | | (6) | | (11) | | | Total Tier 2 capital – Standardized Approach | 1,716 | | 1,705 | | 1,453 | | | Excess of expected credit losses | 228 | | 217 | | — | | | Less: Allowance for credit losses | 474 | | 463 | | 216 | | | Total Tier 2 capital – Advanced Approaches | $ | 1,470 | | $ | 1,459 | | $ | 1,237 | | | Total capital: | | | | | Standardized Approach | $ | 27,327 | | $ | 26,183 | | $ | 23,449 | | | Advanced Approaches | $ | 27,081 | | $ | 25,937 | | $ | 23,233 | | | | | | | Risk-weighted assets: | | | | | Standardized Approach | $ | 156,698 | | $ | 157,290 | | $ | 148,695 | | | Advanced Approaches: | | | | | Credit Risk | $ | 95,881 | | $ | 95,647 | | $ | 95,490 | | | Market Risk | 3,077 | | 2,793 | | 4,020 | | | Operational Risk | 64,150 | | 60,900 | | 61,388 | | | Total Advanced Approaches | $ | 163,108 | | $ | 159,340 | | $ | 160,898 | | | | | | | Average assets for Tier 1 leverage ratio | $ | 394,945 | | $ | 394,394 | | $ | 334,869 | | | Total leverage exposure for SLR | $ | 300,265 | | $ | 297,300 | | $ | 362,452 | |
(a) Reduced by deferred tax liabilities associated with intangible assets and tax-deductible goodwill. | | | | | | | | | Capital components and risk-weighted assets | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | | CET1: | | | | Common shareholders’ equity | $ | 37,603 |
| $ | 37,941 |
| | Adjustments for: | | | Goodwill and intangible assets (a) | (18,535 | ) | (18,725 | ) | | Net pension fund assets | (269 | ) | (272 | ) | | Equity method investments | (290 | ) | (311 | ) | | Deferred tax assets | (46 | ) | (46 | ) | | Other | 2 |
| (47 | ) | | Total CET1 | 18,465 |
| 18,540 |
| | Other Tier 1 capital: | | | | Preferred stock | 3,542 |
| 3,542 |
| | Other | (74 | ) | (86 | ) | | Total Tier 1 capital | $ | 21,933 |
| $ | 21,996 |
| | Tier 2 capital: | | | | Subordinated debt | $ | 1,248 |
| $ | 1,248 |
| | Allowance for credit losses | 314 |
| 216 |
| | Other | (1 | ) | (11 | ) | | Total Tier 2 capital – Standardized Approach | 1,561 |
| 1,453 |
| | Excess of expected credit losses | 101 |
| — |
| | Less: Allowance for credit losses | 314 |
| 216 |
| | Total Tier 2 capital – Advanced Approaches | $ | 1,348 |
| $ | 1,237 |
| | Total capital: | | | | Standardized Approach | $ | 23,494 |
| $ | 23,449 |
| | Advanced Approaches | $ | 23,281 |
| $ | 23,233 |
| | | | | | Risk-weighted assets: | | | | Standardized Approach | $ | 163,006 |
| $ | 148,695 |
| | Advanced Approaches: | | | | Credit Risk | $ | 97,093 |
| $ | 95,490 |
| | Market Risk | 3,630 |
| 4,020 |
| | Operational Risk | 61,838 |
| 61,388 |
| | Total Advanced Approaches | $ | 162,561 |
| $ | 160,898 |
| | | | | | Average assets for Tier 1 leverage ratio | $ | 366,058 |
| $ | 334,869 |
| | Total leverage exposure for SLR | $ | 392,807 |
| $ | 362,452 |
|
| | (a) | Reduced by deferred tax liabilities associated with intangible assets and tax deductible goodwill. |
The table below presents the factors that impacted CET1 capital.
| | | | | | CET1 generation | 1Q20 |
| | (in millions) | | CET1 – Beginning of period | $ | 18,540 |
| | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 944 |
| | Goodwill and intangible assets, net of related deferred tax liabilities | 190 |
| | Gross CET1 generated | 1,134 |
| | Capital deployed: | | | Common stock repurchases | (985 | ) | | Common stock dividend payments | (282 | ) | | Total capital deployed | (1,267 | ) | | Other comprehensive income: | | | Foreign currency translation | (367 | ) | | Unrealized gain on assets available-for-sale | 176 |
| | Defined benefit plans | 18 |
| | Unrealized gain on cash flow hedges | (11 | ) | | Other | (5 | ) | | Total other comprehensive income | (189 | ) | Additional paid-in capital (a) | 129 |
| | Other additions: | | | Embedded goodwill | 21 |
| | Net pension fund assets | 3 |
| | Deferred tax assets | — |
| | Other | 94 |
| | Total other additions | 118 |
| | Net CET1 deployed | (75 | ) | | CET1 – End of period | $ | 18,465 |
|
| | | | | | | CET1 generation | 3Q20 | | (in millions) | | CET1 – Beginning of period | $ | 20,035 | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 876 | | | Goodwill and intangible assets, net of related deferred tax liabilities | (70) | | | Gross CET1 generated | 806 | | | Capital deployed: | | | Common stock dividend payments | (279) | | | | (a)Total capital deployed | Primarily related to stock awards, the exercise(279) | | | Other comprehensive income: | | | Foreign currency translation | 329 | | | Unrealized gain on assets available-for-sale | 227 | | | Defined benefit plans | 20 | | | Unrealized gain on cash flow hedges | 8 | | | | | Total other comprehensive income | 584 | | Additional paid-in capital (a) | 39 | | | Other (deductions): | | | Embedded goodwill | (1) | | | Net pension fund assets | (5) | | | Deferred tax assets | (3) | | | Other | (5) | | | Total other deductions | (14) | | | Net CET1 generated | 1,136 | | CET1 – End of stock options and stock issued for employee benefit plans.period | $ | 21,171 | |
(a) Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
The following table shows the impact on the consolidated capital ratios at March 31,Sept. 30, 2020 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 March 31, 2020 | | | Sensitivity of consolidated capital ratios at Sept. 30, 2020 | | Sensitivity of consolidated capital ratios at Sept. 30, 2020 | | | Increase or decrease of | | Increase or decrease of | | (in basis points) | $100 million in common equity | $1 billion in RWA, quarterly average assets or total leverage exposure | (in basis points) | $100 million
in common
equity | $1 billion in RWA, quarterly average assets or total leverage exposure | | CET1: | | CET1: | | | Standardized Approach | 6 | bps | 7 | bps | Standardized Approach | 6 | bps | 9 | bps | | Advanced Approaches | 6 | | 7 | | Advanced Approaches | 6 | | 8 | | | | | | | Tier 1 capital: | | Tier 1 capital: | | | Standardized Approach | 6 | | 8 | | Standardized Approach | 6 | | 10 | | | Advanced Approaches | 6 | | 8 | | Advanced Approaches | 6 | | 10 | | | | | | | Total capital: | | Total capital: | | | Standardized Approach | 6 | | 9 | | Standardized Approach | 6 | | 11 | | | Advanced Approaches | 6 | | 9 | | Advanced Approaches | 6 | | 10 | | | | | | | Tier 1 leverage | 3 | | 2 | | Tier 1 leverage | 3 | | 2 | | | | | | | SLR | 3 | | 1 | | SLR | 3 | | 3 | |
Capital ratios vary depending on the size of the balance sheet at period end and the levels and types of investments in assets. The balance sheet size fluctuates from period to period based on levels of customer and market activity. In general, when servicing clients are more actively trading securities, deposit balances and the balance sheet as a whole are higher. In addition, when markets experience significant volatility or stress, our balance sheet size may increase considerably as client deposit levels increase.
Effective April 1, 2020, custody banks, including BNY Mellon and The Bank of New York Mellon, are permitted to exclude certain central bank placements from leverage exposure used in the SLR calculation. Based on our current leverage exposure, this change would increase our consolidated SLR by approximately 145 basis points. Also, effective April 1, 2020 and lasting through March 31, 2021, BHCs are permitted to temporarily exclude U.S. Treasury securities from the SLR’s leverage exposure. Based on BNY Mellon’s current leverage exposure and amount of U.S. Treasury securities,used in the interim rule would additionally increaseSLR calculation. This temporary exclusion increased our consolidated SLR approximately 55by 78 basis points.points at Sept. 30, 2020 and 40 basis points at June 30, 2020. See “Supervision and Regulation” in our 2019 Annual Report and “Recent regulatory developments” in thisour First Quarter 2020 Form 10-Q for additional information.
Stress capital buffer
In August 2020, the Federal Reserve announced that BNY Mellon’s SCB requirement would be 2.5%, equal to the regulatory minimum, effective as of Oct. 1, 2020. The SCB replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements, including the SCB. In conjunction with the release of the 2020 CCAR results, the Federal Reserve has imposed restrictions on capital distributions for the third quarter of 2020, which have been extended through the fourth quarter of 2020. For more detail regarding these restrictions, see “Recent regulatory developments - CCAR 2020 results” in this Quarterly Report on Form 10-Q.
Total Loss-Absorbing Capacity (“TLAC”)
The final TLAC rule establishing external TLAC, external long-term debt (“LTD”) and related requirements for U.S. G-SIBs, including BNY Mellon, at the top-tier holding company level became effective on Jan. 1, 2019.The following summarizes the minimum requirements for BNY Mellon’s external TLAC and external LTD ratios, plus currently applicable buffers.
| | | | | | | | | | As a % of RWAs (a) | As a % of total leverage exposure | | Eligible external TLAC ratios | Regulatory minimum of 18% plus a buffer (b) equal to the sum of 2.5%, the method 1 G-SIB surcharge (currently 1%), and the countercyclical capital buffer, if any
| Regulatory minimum of 7.5% plus a buffer (c) equal to 2%
| | Eligible external LTD ratios | Regulatory minimum of 6% plus the greater of the method 1 or method 2 G-SIB surcharge (currently 1.5%) | 4.5% |
(a) RWA is the greater of Standardized and Advanced Approaches. (b) Buffer to be met using only CET1. | | (c) | (c) Buffer to be met using only Tier 1 capital. |
External TLAC consists of the Parent’s Tier 1 capital and eligible unsecured LTD issued by it that has a remaining term to maturity of at least one year and satisfies certain other conditions. Eligible LTD consists of the unpaid principal balance of eligible unsecured debt securities, subject to haircuts for amounts due to be paid within two years, that satisfy certain other conditions. Debt issued prior to Dec. 31, 2016 has been permanently grandfathered to the extent these instruments otherwise would be ineligible only due to containing impermissible acceleration rights or being governed by foreign law.
The following table presents our external TLAC and external LTD ratios.
| | | | | | | | | TLAC and LTD ratios | March 31, 2020 | | | Minimum
required |
| Minimum ratios
with buffers |
| | | | Ratios |
| | Eligible external TLAC: | | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 27.1 | % | | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 11.3 | % | | | | | | | Eligible external LTD: | | | | | As a percentage of RWA | 7.5 | % | N/A | 12.1 | % | | As a percentage of total leverage exposure | 4.5 | % | N/A | 5.0 | % |
| | | | | | | | | | | | | TLAC and LTD ratios | Sept. 30, 2020 | | Minimum
required | Minimum ratios
with buffers | | | Ratios | | Eligible external TLAC: | | | | | As a percentage of RWA | 18.0 | % | 21.5 | % | 27.8 | % | | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 15.1 | % | | | | | | Eligible external LTD: | | | | | As a percentage of RWA | 7.5 | % | N/A | 11.4 | % | | As a percentage of total leverage exposure | 4.5 | % | N/A | 6.2 | % |
If BNY Mellon maintains risk-based ratio or leverage TLAC measures above the minimum required level, but with a risk-based ratio or leverage below the minimum level with buffers, we will face constraints on dividends, equity repurchases and discretionary executive compensation based on the amount of the shortfall and eligible retained income.
Trading activities and risk management
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk mitigating hedging in compliance with the Volcker Rule. The risk from market-making activities for customers is managed by our traders and limited in total exposure through a system of position limits, value-at-risk (“VaR”) methodology and other market sensitivity measures. VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. The calculation of our VaR used by management and presented below assumes a one-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. VaR facilitates comparisons across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firm-wide level.
VaR represents a key risk management measure and it is important to note the inherent limitations to VaR, which include: •VaR does not estimate potential losses over longer time horizons where moves may be extreme;
•VaR does not take account of potential variability of market liquidity; and •Previous moves in market risk factors may not produce accurate predictions of all future market moves.
See Note 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) | 3Q20 | Sept. 30, 2020 | | (in millions) | Average | Minimum | Maximum | | Interest rate | $ | 2.1 | | $ | 1.7 | | $ | 2.6 | | $ | 2.2 | | | Foreign exchange | 2.6 | | 2.0 | | 3.7 | | 2.5 | | | Equity | 0.3 | | 0.1 | | 0.6 | | 0.1 | | | Credit | 2.2 | | 1.5 | | 3.5 | | 2.3 | | | Diversification | (3.8) | | N/M | N/M | (3.7) | | | Overall portfolio | 3.4 | | 2.4 | | 4.6 | | 3.4 | |
| | | | | | | | | | | | | | VaR (a) | 1Q20 | March 31, 2020 |
| | (in millions) | Average |
| Minimum |
| Maximum |
| | Interest rate | $ | 4.9 |
| $ | 3.2 |
| $ | 11.3 |
| $ | 5.1 |
| | Foreign exchange | 3.1 |
| 1.7 |
| 6.3 |
| 4.5 |
| | Equity | 1.4 |
| 0.8 |
| 2.3 |
| 0.9 |
| | Credit | 3.4 |
| 1.2 |
| 12.1 |
| 9.8 |
| | Diversification | (6.4 | ) | N/M |
| N/M |
| (9.9 | ) | | Overall portfolio | 6.4 |
| 3.5 |
| 14.3 |
| 10.4 |
|
| | | | | | | | | | | | | | | VaR (a) | 2Q20 | June 30, 2020 | | (in millions) | Average | Minimum | Maximum | | Interest rate | $ | 3.0 | | $ | 2.1 | | $ | 4.9 | | $ | 2.2 | | | Foreign exchange | 3.4 | | 2.2 | | 5.9 | | 2.4 | | | Equity | 0.5 | | 0.4 | | 1.4 | | 0.4 | | | Credit | 3.5 | | 1.8 | | 10.2 | | 2.8 | | | Diversification | (5.7) | | N/M | N/M | (4.0) | | | Overall portfolio | 4.7 | | 3.1 | | 11.4 | | 3.8 | |
| | | | | | | | | | | | | | | VaR (a) | 3Q19 | Sept. 30, 2019 | | (in millions) | Average | Minimum | Maximum | | Interest rate | $ | 4.7 | | $ | 3.7 | | $ | 7.3 | | $ | 4.3 | | | Foreign exchange | 3.0 | | 1.8 | | 5.1 | | 3.3 | | | Equity | 0.9 | | 0.6 | | 1.2 | | 1.1 | | | Credit | 1.0 | | 0.5 | | 2.0 | | 1.6 | | | Diversification | (3.5) | | N/M | N/M | (3.6) | | | Overall portfolio | 6.1 | | 4.0 | | 8.2 | | 6.7 | |
| | | | | | | | | | | | | VaR (a) | YTD20 | | | (in millions) | Average | Minimum | Maximum | | Interest rate | $ | 3.4 | | $ | 1.7 | | $ | 11.3 | | | | Foreign exchange | 3.0 | | 1.7 | | 6.3 | | | | Equity | 0.7 | | 0.1 | | 2.3 | | | | Credit | 3.0 | | 1.2 | | 12.1 | | | | Diversification | (5.3) | | N/M | N/M | | | Overall portfolio | 4.8 | | 2.4 | | 14.3 | | |
| | VaR (a) | 4Q19 | Dec. 31, 2019 |
| VaR (a) | YTD19 | | | (in millions) | Average |
| Minimum |
| Maximum |
| (in millions) | Average | Minimum | Maximum | | Interest rate | $ | 4.4 |
| $ | 3.3 |
| $ | 6.6 |
| $ | 4.8 |
| Interest rate | $ | 4.3 | | $ | 3.2 | | $ | 7.3 | | | | Foreign exchange | 2.7 |
| 1.5 |
| 5.3 |
| 2.7 |
| Foreign exchange | 3.2 | | 1.8 | | 6.4 | | | | Equity | 0.8 |
| 0.3 |
| 1.1 |
| 1.0 |
| Equity | 0.8 | | 0.6 | | 1.2 | | | | Credit | 1.4 |
| 1.0 |
| 2.0 |
| 1.3 |
| Credit | 0.8 | | 0.4 | | 2.0 | | | | Diversification | (3.6 | ) | N/M |
| N/M |
| (4.0 | ) | Diversification | (3.3) | | N/M | | | Overall portfolio | 5.7 |
| 3.9 |
| 9.2 |
| 5.8 |
| Overall portfolio | 5.8 | | 4.0 | | 9.5 | | |
| | | | | | | | | | | | | | VaR (a) | 1Q19 | March 31, 2019 |
| | (in millions) | Average |
| Minimum |
| Maximum |
| | Interest rate | $ | 4.0 |
| $ | 3.2 |
| $ | 5.3 |
| $ | 4.2 |
| | Foreign exchange | 3.8 |
| 2.8 |
| 6.4 |
| 3.9 |
| | Equity | 0.7 |
| 0.6 |
| 1.1 |
| 0.9 |
| | Credit | 0.6 |
| 0.4 |
| 1.0 |
| 0.7 |
| | Diversification | (2.9 | ) | N/M |
| N/M |
| (3.5 | ) | | Overall portfolio | 6.2 |
| 4.6 |
| 9.5 |
| 6.2 |
|
| | (a) | VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments. |
N/M - Because the minimum and maximum may occur on different days for different risk components, it is not meaningful to compute a minimum and maximum portfolio diversification effect.
The increase in VaR at March 31, 2020 compared with both March 31, 2019 and Dec. 31, 2019 reflects higher market volatility due to the coronavirus pandemic.
The interest rate component of VaR represents instruments whose values are predominantly driven by U.S. Treasury securities 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, 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 firstthird quarter of 2020, interest rate risk generated 38%29% of average gross VaR, foreign exchange risk generated 24%36% of average gross VaR, equity risk generated 11%4% of average gross VaR and credit risk generated 27%31% of average gross VaR. During the firstthird quarter of 2020, our daily trading loss did not exceed our calculated VaR amount of the overall portfolio.
The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading revenue or loss fell within particular ranges during the past five quarters.
| | | | | | | | | | | | | | | | | | Distribution of trading revenue (loss) (a) | | | | Quarter ended | | (dollars in millions) | Sept. 30, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | | Revenue range: | Number of days | | Less than $(2.5) | 4 | | 6 | | — | | 3 | | 2 | | | $(2.5) – $0 | 10 | | 12 | | 3 | | 5 | | 7 | | | $0 – $2.5 | 23 | | 17 | | 19 | | 23 | | 26 | | | $2.5 – $5.0 | 16 | | 15 | | 19 | | 24 | | 22 | | | More than $5.0 | 12 | | 14 | | 21 | | 7 | | 7 | |
| | | | | | | | | | | | | | | Distribution of trading revenue (loss) (a) | | | | | | | Quarter ended | | | (dollars in millions) | March 31,
2020 |
| Dec. 31, 2019 |
| Sept. 30, 2019 |
| June 30,
2019 |
| March 31, 2019 |
| | | | | Revenue range: | Number of days | | | Less than $(2.5) | — |
| 3 |
| 2 |
| — |
| 1 |
| | | $(2.5) – $0 | 3 |
| 5 |
| 7 |
| 4 |
| 5 |
| | | $0 – $2.5 | 19 |
| 23 |
| 26 |
| 30 |
| 22 |
| | | $2.5 – $5.0 | 19 |
| 24 |
| 22 |
| 23 |
| 23 |
| | | More than $5.0 | 21 |
| 7 |
| 7 |
| 7 |
| 10 |
|
| | (a) | (a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue. |
The number of days when revenue was generated increased compared with both the first quarter of 2019 and the fourth quarter of 2019 driven by the significant increase in volatility and volumes in the first quarter of 2020.
40 BNY Mellon
Trading assets include debt and equity instruments and derivative assets, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading assets were $12.9$13.1 billion at March 31,Sept. 30, 2020 and $13.6 billion at Dec. 31, 2019.
Trading liabilities include debt and equity instruments and derivative liabilities, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading liabilities were $6.6$6.1 billion at March 31,Sept. 30, 2020 and $4.8 billion at Dec. 31, 2019.
Under our fair value methodology for derivative contracts, an initial “risk-neutral” valuation is performed on each position assuming time-discounting based on a AA credit curve. In addition, we consider credit risk in arriving at the fair value of our derivatives.
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 March 31,Sept. 30, 2020, our OTC derivative assets, including those in hedging relationships, of $5.9$4.2 billion included a credit valuation adjustment (“CVA”) deduction of $44$39 million. Our OTC derivative liabilities, including those in hedging relationships, of $6.3$3.6 billion included a debit valuation adjustment (“DVA”) of $1 million related to our own credit spread. Net of hedges, the CVA decreased by $4$3 million and the DVA was unchanged in the firstthird quarter of 2020. The net impact of these adjustments2020, which increased foreign exchange and other trading revenue by $4$3 million. The net impact decreased foreign exchange and other trading revenue by $2 million in the firstsecond quarter of 2020 and increased foreign exchange and other trading revenue by $1 million in the fourth quarter of 2019 and less than $1 million in the firstthird quarter of 2019.
The table below summarizes the distribution of credit ratings for our foreign exchange and interest rate derivative counterparties over the past five quarters, which indicates the level of counterparty credit associated with these trading activities. 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 (a) | | | Quarter ended | | Sept. 30, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | | Rating: | | | | | | | AAA to AA- | 54 | % | 56 | % | 56 | % | 54 | % | 55 | % | | A+ to A- | 20 | | 18 | | 24 | | 24 | | 24 | | | BBB+ to BBB- | 17 | | 18 | | 14 | | 17 | | 16 | | BB+ and lower (b) | 9 | | 8 | | 6 | | 5 | | 5 | | | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(a) Represents credit rating agency equivalent of internal credit ratings. (b) Non-investment grade.
| | | | | | | | | | | | Foreign exchange and other trading counterparty risk rating profile (a) | | | | Quarter ended | | | March 31, 2020 |
| Dec. 31, 2019 |
| Sept. 30, 2019 |
| June 30,
2019 |
| March 31,
2019 |
| | | | Rating: | | | | | | | AAA to AA- | 56 | % | 54 | % | 55 | % | 54 | % | 49 | % | | A+ to A- | 24 |
| 24 |
| 24 |
| 26 |
| 28 |
| | BBB+ to BBB- | 14 |
| 17 |
| 16 |
| 17 |
| 20 |
| BB+ and lower (b) | 6 |
| 5 |
| 5 |
| 3 |
| 3 |
| | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
| | (a) | Represents credit rating agency equivalent of internal credit ratings. |
Asset/liability management
Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities include interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.
An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue. The model incorporates management’s assumptions regarding interest rates, market spreads, changes in the prepayment behavior of loans and securities and the impact of derivative financial instruments used for interest rate risk management purposes. These assumptions have been developed through a combination of historical analysis and future expected pricing behavior and are inherently uncertain. Actual results may differ materially from projected results due to timing, magnitude and frequency of interest rate changes, and changes in market conditions and management’s strategies, among other factors.
In the table below, we use the earnings simulation model to run various interest rate ramp scenarios from a baseline scenario. The interest rate ramp scenarios examine the impact of large interest rate movements. In each scenario, all currencies’ interest rates are shifted higher or lower. Typically, the baseline scenario uses the average deposit balances of the last month of the quarter. However, during the month of March we experienced a significant increase in deposits and a corresponding increase in
central bank placements. To normalize the analysis, we used the first quarter average for these balances. The 100 basis point ramp scenario assumes rates change 25 basis points above or below the yield curve in each of the next four quarters and the 200 basis point ramp scenario assumes a 50 basis point per quarter change. Interest rate sensitivity is quantified by calculating the change in pre-tax net interest revenue between the scenarios over a 12-month measurement period. The net interest revenue sensitivity methodology assumes static deposit levels and also assumes that no management actions will be taken to mitigate the effects of interest rate changes.
The following table shows net interest revenue sensitivity for BNY Mellon.
| | | | | | | | | | | Estimated changes in net interest revenue
(in millions) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31,
2019 |
| Up 200 bps parallel rate ramp vs. baseline (a) | $ | 557 |
| $ | 195 |
| $ | 410 |
| Up 100 bps parallel rate ramp vs. baseline (a) | 334 |
| 79 |
| 208 |
| Down 100 bps parallel rate ramp vs. baseline (a) | 100 |
| (40 | ) | (91 | ) | Long-term up 50 bps, short-term unchanged (b) | 166 |
| 110 |
| 149 |
| Long-term down 50 bps, short-term unchanged (b) | (158 | ) | (105 | ) | (178 | ) |
| | (a) | In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments.
|
| | (b) | Long-term is equal to or greater than one year. |
| | | | | | | | | | | | Estimated changes in net interest revenue
(in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | Up 200 bps parallel rate ramp vs. baseline (a) | $ | 608 | | $ | 591 | | $ | 187 | | Up 100 bps parallel rate ramp vs. baseline (a) | 343 | | 349 | | 74 | | Down 100 bps parallel rate ramp vs. baseline (a) | 418 | | 315 | | (45) | | Long-term up 50 bps, short-term unchanged (b) | 144 | | 153 | | 115 | | Long-term down 50 bps, short-term unchanged (b) | (164) | | (173) | | (119) | |
(a)In the parallel rate ramp, both short-term and long-term rates move in four equal quarterly increments. (b)Long-term is equal to or greater than one year.
The increasedown 100 basis point scenario was impacted by a change in sensitivities at March 31, 2020 compared with Dec. 31, 2019 primarily reflects higherour deposit balances and the forecasted difference in deposit rate changes versus asset yield changes given the prevailing low interest rate environment. This was partially offset by an increase inassumptions. Specifically, we increased the amount of higher fixed rate securities in our securities portfolio. The down 100 bps scenario assumesdeposit balances to which we would pass on the cost ofthrough negative central bank rates.rates in the scenario.
To illustrate the net interest revenue sensitivity to deposit runoff, we note that a $5 billion instantaneous reduction of U.S. dollar denominated noninterest-bearing deposits would reduce the net interest revenue sensitivity results in the ramp up 100 basis point and 200 basis point scenarios in the table above by approximately $30 million and approximately $60$65 million, respectively. The impact would be smaller if the runoff was assumed to be a mixture of interest-bearing and noninterest-bearing deposits.
For a discussion of factors impacting the growth or contraction of deposits, see “Risk Factors - Our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity,”liquidity” in our 2019 Annual Report.
Off-balance sheet arrangements
Off-balance sheet arrangements discussed in this section are limited to certain guarantees, retained or contingent interests and obligations arising out of unconsolidated variable interest entities (“VIEs”). Guarantees include SBLCs issued as part of our corporate banking business and securities lending indemnifications issued as part of our Investment Services business. See Note 18 of the Notes to Consolidated Financial Statements for a further discussion of our off-balance sheet arrangements.
Supplemental information -– Explanation of GAAP and Non-GAAP financial measures
BNY Mellon has included in this Form 10-Q certain Non-GAAP financial measures on a tangible basis as a supplement to generally accepted accounting principles (“GAAP”) information, which exclude goodwill and intangible assets, net of deferred tax liabilities. We believe that the return on tangible common equity is additional useful information for investors because it presents a measure of those assets that can generate income, and the tangible book value per common share is additional useful information because it presents the level of tangible assets in relation to shares of common stock outstanding.
The presentation of the growth rates of investment management and performance fees on a constant currency basis permits investors to assess the significance of changes in foreign currency exchange rates. Growth rates on a constant currency basis were determined by applying the current period foreign currency exchange rates to the prior period revenue. We believe that this presentation, as a supplement to GAAP information, gives investors a clearer picture of the related revenue results without the variability caused by fluctuations in foreign currency exchange rates.
BNY Mellon has also included the adjusted pre-tax operating margin – Non-GAAP, which is the pre-tax operating margin for the Investment and Wealth Management business 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 relative to industry competitors.
The following table presents the reconciliation of the return on common equity and tangible common equity.
| | | | | | | | | | | | | | | | | | | Return on common equity and tangible common equity reconciliation | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (dollars in millions) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 876 | | $ | 901 | | $ | 1,002 | | $ | 2,721 | | $ | 2,881 | | | Add: Amortization of intangible assets | 26 | | 26 | | 30 | | 78 | | 89 | | | Less: Tax impact of amortization of intangible assets | 7 | | 6 | | 7 | | 19 | | 21 | | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 895 | | $ | 921 | | $ | 1,025 | | $ | 2,780 | | $ | 2,949 | | | | | | | | | Average common shareholders’ equity | $ | 39,924 | | $ | 38,476 | | $ | 37,597 | | $ | 38,693 | | $ | 37,392 | | | Less: Average goodwill | 17,357 | | 17,243 | | 17,267 | | 17,304 | | 17,328 | | | Average intangible assets | 3,039 | | 3,058 | | 3,141 | | 3,062 | | 3,176 | | | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,103 | | 1,132 | | 1,103 | | | Deferred tax liability – intangible assets | 666 | | 664 | | 679 | | 666 | | 679 | | | Average tangible common shareholders’ equity – Non-GAAP | $ | 21,326 | | $ | 19,958 | | $ | 18,971 | | $ | 20,125 | | $ | 18,670 | | | | | | | | Return on common shareholders’ equity – GAAP | 8.7 | % | 9.4 | % | 10.6 | % | 9.4 | % | 10.3 | % | | Return on tangible common shareholders’ equity – Non-GAAP | 16.7 | % | 18.5 | % | 21.4 | % | 18.5 | % | 21.1 | % |
| | | | | | | | | | | | Return on common equity and tangible common equity reconciliation | 1Q20 |
| 4Q19 |
| 1Q19 |
| | (dollars in millions) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 944 |
| $ | 1,391 |
| $ | 910 |
| | Add: Amortization of intangible assets | 26 |
| 28 |
| 29 |
| | Less: Tax impact of amortization of intangible assets | 6 |
| 7 |
| 7 |
| | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 964 |
| $ | 1,412 |
| $ | 932 |
| | | | | | | Average common shareholders’ equity | $ | 37,664 |
| $ | 37,842 |
| $ | 37,086 |
| | Less: Average goodwill | 17,311 |
| 17,332 |
| 17,376 |
| | Average intangible assets | 3,089 |
| 3,119 |
| 3,209 |
| Add: Deferred tax liability – tax deductible goodwill (a) | 1,109 |
| 1,098 |
| 1,083 |
| Deferred tax liability – intangible assets (a) | 666 |
| 670 |
| 690 |
| | Average tangible common shareholders’ equity – Non-GAAP | $ | 19,039 |
| $ | 19,159 |
| $ | 18,274 |
| | | | | | Return on common shareholders’ equity – GAAP | 10.1 | % | 14.6 | % | 10.0 | % | | Return on tangible common shareholders’ equity – Non-GAAP | 20.4 | % | 29.3 | % | 20.7 | % |
| | (a) | Deferred tax liabilities are based on fully phased-in U.S. capital rules. |
The following table presents the reconciliation of book value and tangible book value per common share.
| | | | | | | | | | | | | | | | | | Book value and tangible book value per common share reconciliation | Sept. 30, 2020 | June 30,
2020 | Dec. 31, 2019 | Sept. 30, 2019 | | | | (dollars in millions, except per share amounts and unless otherwise noted) | | | | BNY Mellon shareholders’ equity at period end – GAAP | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | $ | 41,120 | | | | | Less: Preferred stock | 4,532 | | 4,532 | | 3,542 | | 3,542 | | | | | BNY Mellon common shareholders’ equity at period end – GAAP | 40,385 | | 39,165 | | 37,941 | | 37,578 | | | | | Less: Goodwill | 17,357 | | 17,253 | | 17,386 | | 17,248 | | | | | Intangible assets | 3,026 | | 3,045 | | 3,107 | | 3,124 | | | | | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,098 | | 1,103 | | | | | Deferred tax liability – intangible assets | 666 | | 664 | | 670 | | 679 | | | | | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | $ | 18,988 | | | | | | | | | | | Period-end common shares outstanding (in thousands) | 886,136 | | 885,862 | | 900,683 | | 922,199 | | | | | | | | | | | | Book value per common share – GAAP | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | $ | 40.75 | | | | | Tangible book value per common share – Non-GAAP | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | $ | 20.59 | | | |
| | | | | | | | | | | | Book value and tangible book value per common share reconciliation | March 31, 2020 |
| Dec. 31, 2019 |
| March 31,
2019 |
| | (dollars in millions, except per share amounts and unless otherwise noted) | | BNY Mellon shareholders’ equity at period end – GAAP | $ | 41,145 |
| $ | 41,483 |
| $ | 41,225 |
| | Less: Preferred stock | 3,542 |
| 3,542 |
| 3,542 |
| | BNY Mellon common shareholders’ equity at period end – GAAP | 37,603 |
| 37,941 |
| 37,683 |
| | Less: Goodwill | 17,240 |
| 17,386 |
| 17,367 |
| | Intangible assets | 3,070 |
| 3,107 |
| 3,193 |
| Add: Deferred tax liability – tax deductible goodwill (a) | 1,109 |
| 1,098 |
| 1,083 |
| Deferred tax liability – intangible assets (a) | 666 |
| 670 |
| 690 |
| | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 19,068 |
| $ | 19,216 |
| $ | 18,896 |
| | | | | | Period-end common shares outstanding (in thousands) | 885,443 |
| 900,683 |
| 957,517 |
| | | | | | | Book value per common share – GAAP | $ | 42.47 |
| $ | 42.12 |
| $ | 39.36 |
| | Tangible book value per common share – Non-GAAP | $ | 21.53 |
| $ | 21.33 |
| $ | 19.74 |
|
| | (a) | Deferred tax liabilities are based on fully phased-in U.S. capital rules. |
The following table presents the impact of changes in foreign currency exchange rates on our consolidated investment management and performance fees.
| | | | | | | | | | | | | Constant currency reconciliation – Consolidated | 3Q20 | 3Q19 | 3Q20 vs. | | (dollars in millions) | 3Q19 | | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | | Impact of changes in foreign currency exchange rates | — | | 11 | | | | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % |
| | | | | | | | | | | Constant currency reconciliation – Consolidated | 1Q20 |
| 1Q19 |
| 1Q20 vs. |
| | (dollars in millions) | 1Q19 |
| | Investment management and performance fees – GAAP | $ | 862 |
| $ | 841 |
| 2 | % | | Impact of changes in foreign currency exchange rates | — |
| (5 | ) | | | Adjusted investment management and performance fees – Non-GAAP | $ | 862 |
| $ | 836 |
| 3 | % |
The following table presents the impact of changes in foreign currency exchange rates on investment management and performance fees reported in the Investment and Wealth Management business.
| | | | | | | | | | | | Constant currency reconciliation – Investment and Wealth Management business | | | 3Q20 vs. | | (dollars in millions) | 3Q20 | 3Q19 | 3Q19 | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | | Impact of changes in foreign currency exchange rates | — | | 11 | | | | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % |
| | | | | | | | | | Constant currency reconciliation – Investment Management business | | | 1Q20 vs. |
| | (dollars in millions) | 1Q20 |
| 1Q19 |
| 1Q19 |
| Investment management and performance fees – GAAP | $ | 862 |
| $ | 841 |
| 2 | % | | Impact of changes in foreign currency exchange rates | — |
| (5 | ) | | | Adjusted investment management and performance fees – Non-GAAP | $ | 862 |
| $ | 836 |
| 3 | % |
The following table presents the reconciliation of the pre-tax operating margin for the Investment and Wealth Management business.
| | | | | | | | | | | | | | | | | | | | | | | | Pre-tax operating margin reconciliation – Investment and Wealth Management business | | | | | (dollars in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | YTD20 | YTD19 | | Income before income taxes – GAAP | $ | 245 | | $ | 221 | | $ | 194 | | $ | 240 | | $ | 295 | | $ | 660 | | $ | 821 | | | | | | | | | | | Total revenue – GAAP | $ | 918 | | $ | 886 | | $ | 898 | | $ | 971 | | $ | 887 | | $ | 2,702 | | $ | 2,736 | | Less: Distribution and servicing expense | 85 | | 86 | | 91 | | 93 | | 98 | | 262 | | 283 | | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 833 | | $ | 800 | | $ | 807 | | $ | 878 | | $ | 789 | | $ | 2,440 | | $ | 2,453 | | | | | | | | | | Pre-tax operating margin – GAAP (a) | 27 | % | 25 | % | 22 | % | 25 | % | 33 | % | 24 | % | 30 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 29 | % | 28 | % | 24 | % | 27 | % | 37 | % | 27 | % | 33 | % |
(a) Income before taxes divided by total revenue. | | | | | | | | | | | | | | | | | Pre-tax operating margin reconciliation – Investment Management business | | | | (dollars in millions) | 1Q20 |
| 4Q19 |
| 3Q19 |
| 2Q19 |
| 1Q19 |
| | Income before income taxes – GAAP | $ | 194 |
| $ | 240 |
| $ | 295 |
| $ | 260 |
| $ | 266 |
| | | | | | | | | Total revenue – GAAP | $ | 898 |
| $ | 971 |
| $ | 887 |
| $ | 913 |
| $ | 936 |
| Less: Distribution and servicing expense | 91 |
| 93 |
| 98 |
| 94 |
| 91 |
| | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 807 |
| $ | 878 |
| $ | 789 |
| $ | 819 |
| $ | 845 |
| | | | | | | | Pre-tax operating margin – GAAP (a) | 22 | % | 25 | % | 33 | % | 29 | % | 28 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 24 | % | 27 | % | 37 | % | 32 | % | 31 | % |
| | (a) | Income before taxes divided by total revenue. |
Recent accounting and regulatory developments
Recent accounting developments
The following ASU issued by the FASB had not yet been adopted as of March 31,Sept. 30, 2020.
ASU 2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the FASB issued an ASU, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions for applying U.S. GAAP to financial contracts, hedging relationships and other transactions affected by reference rate reform. This ASU also permits an entity to make a one-time election to sell and/or transfer held-to-maturity securities that are affected by reference rate reform and were classified as held-to-maturity on or before Jan. 1, 2020. The guidance in this ASU can be adopted as of March 12, 2020 through Dec. 31, 2022. We are assessing the impacts of the new standard, but would not expect this ASU to have a material impact on BNY Mellon.
Recent regulatory developments
For a summary of additional regulatory matters relevant to our operations, see “Recent regulatory developments” in our Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020 and “Supervision and Regulation” in our 2019 Annual Report. The following discussions summarize certain regulatory, legislative and other developments that may affect BNY Mellon, the impact of many of which we are still evaluating.
The Coronavirus Aid, Relief,CCAR Refiling, Limitations and Economic Security Act (the “CARES Act”)SCB
On March 27, 2020, the President signed into law the CARES Act, a law that provides unprecedented economic stimulus and emergency relief to address the effectsIn light of the coronavirus pandemic. The CARES Act provides assistance to industries, businesses, nonprofits and individuals and spans areas such as financial assistance, tax, financial reporting, financial regulation, real estate, employee benefits and family and medical leave. Some provisions that may be of particular interest tochanges in the financial industry includemarkets and the grant of temporary authority to the U.S. Department
of Treasury to guarantee U.S. money market mutual funds (“MMMF”); approval for the establishment by the FDIC of a program to guarantee obligations of insured depository institutions; expansion of the FDIC’s power to guarantee deposits heldeconomy, in noninterest-bearing business transaction accounts; and expansion of the OCC’s authority to exempt certain transactions from, or suspend, the OCC lending limits. The authorities granted under these provisions are set to expire on Dec. 31, 2020. In addition, the CARES Act provides that financial institutions may, subject to certain conditions, elect to temporarily suspend (i) U.S. GAAP requirements with respect to loan modifications related to the coronavirus pandemic that would otherwise be treated as TDRs and (ii) any determination that a loan modified as a result of the coronavirus pandemic is a TDR. The CARES Act also includes an appropriation of $454 billion, which is to be used byJune 2020, the Federal Reserve announced that all banking institutions subject to provide liquidityCCAR, including BNY Mellon, are required to resubmit their capital plans. On Sept. 17, 2020, the financial system under existing Federal Reserve facilities or new programs.released the supervisory scenarios for the resubmission, which was submitted on Nov. 2, 2020.
Money Market Mutual Fund Liquidity Facility
Also in September 2020, the Federal Reserve extended through the fourth quarter of 2020 the limitations on capital distributions and share repurchases that the Federal Reserve imposed on CCAR firms, including BNY Mellon, earlier in the year. For additional information regarding these limitations, see “Recent regulatory developments - CCAR 2020 results” in our Second Quarter 2020 Form 10-Q.Consistent with these limitations, for the fourth quarter, BNY Mellon maintained its quarterly common stock dividend of $0.31 per share and plans to maintain the suspension of its open market common stock repurchases.
On March 18,Aug. 10, 2020, the Federal Reserve announced the establishment of the MMLF, which is designed to provide indirect liquidity to MMMFs so that such MMMFs can meet the demands for redemptions by households and businesses. Under the terms of the MMLF, the Federal Reserve Bank of Boston may make loans to U.S. depository institutions, U.S. bank holding companies and their U.S. broker-dealer subsidiaries and other eligible financial institutions (“borrowers”) subject to stringent terms and conditions imposed by the Federal Reserve Bank of Boston. Among other terms and conditions, such loans must be secured by certain high-quality short-dated debt instruments purchased by the borrowers from qualifying MMMFs promptly before the loans are extended.individual CCAR firms’ SCBs. The qualifying instruments include U.S. Treasuries; U.S. agency securities; secured commercial paper; highly rated unsecured or asset-backed commercial paper; highly rated certificates of deposit; highly rated municipal short-term debt and variable demand notes; and receivables from certain repurchase agreements. MMLF loans must generally be repaid contemporaneously with the maturity of the collateral and borrowers are not generally required to repay the loans if the obligors of the collateral instruments fail to make payments on such instruments. The MMLF will terminate on Sept. 30, 2020, unless extended. See “Impact of coronavirus
SCB requirement is 2.5%, which equals the regulatory minimum, and is unchanged compared to the capital conservation buffer that previously applied. The SCB became effective on Oct. 1, 2020. For additional information regarding the SCB, see “Recent regulatory developments - Changes to CCAR and Stress Capital Buffer” in our First Quarter 2020 Form 10-Q and “Supervision and Regulation - Capital Planning and Stress Testing” in our 2019 Annual Report.
pandemic on our business” for additional information.
Capital, Liquidity and TLAC Relief
In light of the coronavirus pandemic, the Federal Reserve has taken a series of regulatory actions to encourage banks to deploy capital and liquidity to support businesses and individuals affected by the pandemic.
On March 15,Sept. 29, 2020, the Federal Reserve issued a statement encouraging banking organizations to use their capital and liquidity buffers to support lending to individuals and businesses affected by the coronavirus pandemic. To facilitate banking organizations’ use of the buffers, the Federal Reserve, the FDIC and the OCC (the “Agencies”) issuedfinalized without changes an interim final rule revisingissued in March 2020 that neutralizes the regulatory capital and liquidity coverage ratio effects for institutions that participate in the Federal Reserve’s MMLF.
Similarly, in August 2020, the Agencies finalized without change an interim final rule issued in March 2020 that revised the definition of “eligible retained income”. To to make more gradual the extent a banking organization’s capital buffer is less than 100%, its distributions and discretionary bonus payments are constrained by the amount of the shortfall and its eligible retained income. The definition of eligible retained income, as previously defined, created the potential for sudden and severe limitationsautomatic restrictions on capital distributions. Underdistributions, such as share repurchases, dividend payments, and bonus payments. In the same final rulemaking, the Federal Reserve also finalized the March 2020 interim final rule eligible retained income is defined as the greater of (i) a banking organization’s net income for the four preceding calendar quarters, net of any distributions and associated tax effects not already reflected in net income, and (ii) the average of a banking organization’s net income over the preceding four quarters. The Federal Reservethat made corresponding changes to the total-loss absorbing capacityTLAC buffer requirements. The final rule is effective as of Jan. 1, 2021.
On March 23,Also in August 2020, the Agencies issued anfinalized a current expected credit loss (“CECL”) final rule that is substantially similar to the interim final rule to exclude non-recourse exposures acquired as part of the MMLF from a banking organization’s total leverage exposure, average total consolidated assets, advanced approaches-total risk weighted assets and standardized total RWAs.issued in March 2020. The relief applies to assets purchased beginning on March 19, 2020, including assets purchased by BNY Mellon and pledged as eligible collateral to the Federal Reserve Bank of Boston in connection with BNY Mellon’s participation in the MMLF. In addition, on May 5, 2020, the Agencies issued an interim final rule to neutralize the LCR effects of the advances made by the MMLF and the exposures securing MMLF advances.
The Agencies have adopted an interim final rule permittingpermits banking organizations to temporarily delay the estimated
effects of CECL on regulatory capital until Jan. 1, 2022 and then to phase-inphase in those effects through Jan. 1, 2025. Under the interim final rule, during 2020 and 2021, the adjustment to CET1 capital reflects the change in retained earnings upon adoption of CECL at Jan. 1, 2020 plus 25% of the increase in the allowance for credit losses since Jan. 1, 2020. BNY Mellon has not yet elected to apply this interim final rule. See NotesNote 2 and 5 of the Notes to Consolidated Financial Statements for additional information on the impact of the adoption of CECL and Note 5 of the Notes to Consolidated Financial Statements for the change in the allowance for credit losses during the firstthird quarter of 2020.
To increaseFor additional information regarding the flexibilityinterim final rulemakings noted above, see “Recent regulatory developments – Capital, Liquidity and TLAC Relief” in our First Quarter 2020 Form 10-Q.
Net Stable Funding Ratio
On Oct. 20, 2020, the Agencies issued a final net stable funding ratio (“NSFR”) rule that implements a quantitative measure of BHCs, likefunding stability over a one-year horizon, and is applicable to certain large banking organizations, including BNY Mellon. Under the rule, BNY Mellon’s NSFR would be expressed as a ratio of its available stable funding to its required stable funding amount, calculated on an ongoing basis, and BNY Mellon would be required to maintain an NSFR of 100%. The effective date of the final NSFR rule is July 1, 2021, with the exception of certain disclosure requirements, which will begin to apply in 2023. BNY Mellon expects to be in compliance with the NSFR rule by the effective date.
Capital Treatment of Investments in Certain Debt Instruments of G-SIBs
On Oct. 20, 2020, the Agencies finalized a rule that generally requires certain advanced approaches banking organizations (including BNY Mellon) to deduct from Tier 2 capital, subject to certain exceptions, direct, indirect and synthetic exposures to covered debt instruments. Covered debt instruments under the rule include, for example, unsecured debt instruments issued by U.S. or foreign G-SIBs, among other financial companies,entities, to actmeet TLAC requirements or similar foreign requirements as financial intermediaries,well as any other unsecured debt instruments pari passu or subordinated to such debt instruments. The rule is effective on April 1, 2021. The impact of the final rule is not expected to be material to BNY Mellon.
ECB Declaration of Exceptional Circumstances
In September 2020, the Federal ReserveEuropean Central Bank (“ECB”) issued an interim final rulea declaration of exceptional circumstances, which is in effect from Sept. 26, 2020 to temporarily exclude from the calculationJune 27, 2021, and which, as a result of the SLRso-called “quick-fix” to the Capital Requirements Regulation (“CRR”) earlier in the year, has the effect of bank holding companies,allowing credit institutions subject to direct ECB supervision, such as The Bank of New York Mellon SA/NV, to disclose their leverage ratios excluding central bank deposits (as well as the Parent, on-balance sheet amounts of U.S. Treasury securities and deposits at Federal Reserve Banks beginning with the second quarter of 2020.leverage ratios absent this exclusion). The interim final ruleleverage ratio requirement is currently not binding on EU credit institutions but will remain in effect through March 31, 2021. See “Capital” for additional information.
Volcker Covered Funds Proposal
On Jan. 30, 2020, the Federal Reserve, OCC, FDIC, Securities and Exchange Commission (“SEC”) and Commodity Futures Trading Commission (“CFTC”) approvedbecome a notice of proposed rulemaking to amend the implementing regulations for the provisionsbinding requirement as part of the Dodd-Frank Act commonly referred toCRR 2, on June 28, 2021. The ECB declaration also has the effect of providing relief for subsidiaries of G-SIBs, such as The Bank of New York Mellon SA/NV, under the “Volcker Rule”. This proposal, which follows revisions tobinding internal TLAC requirement.
For additional information regarding the proprietary trading provisions of the Volcker Ruleso-called CRR “quick-fix”, see “Recent regulatory developments – ‘CRR Quick-Fix’” in 2019, contains a number of targeted amendments to the Volcker Rule regulations, principally focused on the restrictions on banking entities’ investments in and other relationships with covered funds. BNY Mellon’s preliminary assessment is that the proposed changes would be favorable and reduce certain compliance burdens; however, the general prohibitions and requirements with respect to investment in, sponsoring and transactions with covered funds would remain in place. The proposed provision that, if enacted, may have the most targeted benefits for BNY Mellon, concerns transactions with covered funds which we sponsor or advise. The proposal would exempt certain transactions from the currently applicableour Second Quarter 2020 Form 10-Q.
prohibitions, including intraday credit extensions and certain payment, clearing and settlement transactions, subject to certain conditions. Comments on the proposal were due on May 1, 2020.
Changes to CCAR and Stress Capital Buffer
On March 4, 2020, the Federal Reserve finalized a stress capital buffer (“SCB”) rule. The final rule eliminates the quantitative grounds for objection to a firm’s CCAR capital plan. The rule introduces an SCB that will be part of quarterly capital requirements beginning Oct. 1, 2020. The final rule replaces the current 2.5% capital conservation buffer with an SCB requirement for Standardized Approach capital ratios that is based on the largest projected decrease in a firm’s CET1 ratio in the nine quarter CCAR supervisory severely adverse scenario based on the Federal Reserve’s models, subject to a 2.5% floor. Each CCAR firm, including BNY Mellon, will be notified of its SCB by June 30, and the SCB will become effective on October 1 of the applicable calendar year. Starting on Oct. 1, 2020, it requires that firms reduce their planned capital actions if those distributions would cause the firm to fall below applicable buffer requirements based on a firm’s own baseline scenario projections, and allows firms to increase certain capital distributions if they are forecasted to be above capital buffer constraints. The final rule also eliminates the requirement for prior approval of common stock distributions in excess of the distributions in a firm’s capital plan, provided that such distributions do not cause a breach of the firm’s capital ratios, including applicable capital buffer.
Website information
Our website is www.bnymellon.com. We currently make available the following information under the Investor Relations portion of our website. With respect to filings with the SEC, we post such information as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.
•All of our SEC filings, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, as well as proxy statements and SEC Forms 3, 4 and 5; •Financial statements and footnotes prepared using eXtensible Business Reporting Language (“XBRL”); •Our earnings materials and selected management conference calls and presentations; •Other regulatory disclosures, including: Pillar 3 Disclosures (and Market Risk Disclosure contained therein); Liquidity Coverage Ratio Disclosures; Federal Financial Institutions Examination Council - Consolidated Reports of Condition and Income for a Bank With Domestic and Foreign Offices; Consolidated Financial Statements for Bank Holding Companies; and the Dodd-Frank Act Stress Test Results for BNY Mellon and The Bank of New York Mellon; and •Our Corporate Governance Guidelines, Amended and Restated By-laws, Directors’ Code of Conduct and the Charters of the Audit, Finance, Corporate Governance, Nominating and Social Responsibility, Human Resources and Compensation, Risk and Technology Committees of our Board of Directors.
We may use our website, our Twitter account (twitter.com/BNYMellon)(@BNYMellon) and other social media channels as additional means of disclosing information to the public. The information disclosed through those channels may be considered to be material. The contents of our website or social media channels referenced herein are not incorporated by reference into this Quarterly Report on Form 10-Q.
| | | Item 1. Financial Statements | | | The Bank of New York Mellon Corporation (and its subsidiaries) | |
Consolidated Income Statement (unaudited)
| | | | | | | | | | | | | Quarter ended | | (in millions) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Fee and other revenue | | | | | Investment services fees: | | | | | Asset servicing fees | $ | 1,159 |
| $ | 1,148 |
| $ | 1,122 |
| | Clearing services fees | 470 |
| 421 |
| 398 |
| | Issuer services fees | 263 |
| 264 |
| 251 |
| | Treasury services fees | 149 |
| 147 |
| 132 |
| | Total investment services fees | 2,041 |
| 1,980 |
| 1,903 |
| | Investment management and performance fees | 862 |
| 883 |
| 841 |
| | Foreign exchange and other trading revenue | 319 |
| 168 |
| 170 |
| | Financing-related fees | 59 |
| 46 |
| 51 |
| | Distribution and servicing | 31 |
| 34 |
| 31 |
| | Investment and other income | 11 |
| 860 |
| 35 |
| | Total fee revenue | 3,323 |
| 3,971 |
| 3,031 |
| | Net securities gains (losses) | 9 |
| (25 | ) | 1 |
| | Total fee and other revenue | 3,332 |
| 3,946 |
| 3,032 |
| | Operations of consolidated investment management funds | | | | | Investment (loss) income | (38 | ) | 17 |
| 26 |
| | Interest of investment management fund note holders | — |
| — |
| — |
| | (Loss) income from consolidated investment management funds | (38 | ) | 17 |
| 26 |
| | Net interest revenue | | | | | Interest revenue | 1,570 |
| 1,721 |
| 1,920 |
| | Interest expense | 756 |
| 906 |
| 1,079 |
| | Net interest revenue | 814 |
| 815 |
| 841 |
| | Total revenue | 4,108 |
| 4,778 |
| 3,899 |
| Provision for credit losses (a) | 169 |
| (8 | ) | 7 |
| | Noninterest expense | | | | | Staff | 1,482 |
| 1,639 |
| 1,524 |
| | Professional, legal and other purchased services | 330 |
| 367 |
| 325 |
| | Software and equipment | 326 |
| 326 |
| 283 |
| | Net occupancy | 135 |
| 151 |
| 137 |
| | Sub-custodian and clearing | 105 |
| 119 |
| 105 |
| | Distribution and servicing | 91 |
| 92 |
| 91 |
| | Business development | 42 |
| 65 |
| 45 |
| | Bank assessment charges | 35 |
| 32 |
| 31 |
| | Amortization of intangible assets | 26 |
| 28 |
| 29 |
| | Other | 140 |
| 145 |
| 129 |
| | Total noninterest expense | 2,712 |
| 2,964 |
| 2,699 |
| | Income | | | | | Income before income taxes | 1,227 |
| 1,822 |
| 1,193 |
| | Provision for income taxes | 265 |
| 373 |
| 237 |
| | Net income | 962 |
| 1,449 |
| 956 |
| | Net loss (income) attributable to noncontrolling interests (includes $18, $(9) and $(10) related to consolidated investment management funds, respectively) | 18 |
| (9 | ) | (10 | ) | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 980 |
| 1,440 |
| 946 |
| | Preferred stock dividends | (36 | ) | (49 | ) | (36 | ) | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 944 |
| $ | 1,391 |
| $ | 910 |
|
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | Fee and other revenue | | | | | | | | | Investment services fees: | | | | | | | | | Asset servicing fees | $ | 1,168 | | $ | 1,173 | | $ | 1,152 | | | $ | 3,500 | | $ | 3,415 | | | | Clearing services fees | 397 | | 431 | | 419 | | | 1,298 | | 1,227 | | | | Issuer services fees | 295 | | 277 | | 324 | | | 835 | | 866 | | | | Treasury services fees | 152 | | 144 | | 140 | | | 445 | | 412 | | | | Total investment services fees | 2,012 | | 2,025 | | 2,035 | | | 6,078 | | 5,920 | | | | Investment management and performance fees | 835 | | 786 | | 832 | | | 2,483 | | 2,506 | | | | Foreign exchange and other trading revenue | 137 | | 166 | | 150 | | | 622 | | 486 | | | | Financing-related fees | 49 | | 58 | | 49 | | | 166 | | 150 | | | | Distribution and servicing | 29 | | 27 | | 33 | | | 87 | | 95 | | | | Investment and other income | 46 | | 105 | | 30 | | | 162 | | 108 | | | | Total fee revenue | 3,108 | | 3,167 | | 3,129 | | | 9,598 | | 9,265 | | | | | | | | | | | | | | | | | | | | Net securities gains (losses) | 9 | | 9 | | (1) | | | 27 | | 7 | | | | Total fee and other revenue | 3,117 | | 3,176 | | 3,128 | | | 9,625 | | 9,272 | | | | Operations of consolidated investment management funds | | | | | | | | | Investment income | 27 | | 54 | | 4 | | | 43 | | 40 | | | | Interest of investment management fund note holders | 0 | | 0 | | 1 | | | 0 | | 1 | | | | Income from consolidated investment management funds | 27 | | 54 | | 3 | | | 43 | | 39 | | | | Net interest revenue | | | | | | | | | Interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | | Interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | | Total revenue | 3,847 | | 4,010 | | 3,861 | | | 11,965 | | 11,684 | | | | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | | Noninterest expense | | | | | | | | | Staff | 1,466 | | 1,464 | | 1,479 | | | 4,412 | | 4,424 | | | | Professional, legal and other purchased services | 355 | | 337 | | 316 | | | 1,022 | | 978 | | | | Software and equipment | 340 | | 345 | | 309 | | | 1,011 | | 896 | | | | Net occupancy | 136 | | 137 | | 138 | | | 408 | | 413 | | | | Sub-custodian and clearing | 119 | | 120 | | 111 | | | 344 | | 331 | | | | Distribution and servicing | 85 | | 85 | | 97 | | | 261 | | 282 | | | | Bank assessment charges | 30 | | 35 | | 31 | | | 100 | | 93 | | | | Business development | 17 | | 20 | | 47 | | | 79 | | 148 | | | | Amortization of intangible assets | 26 | | 26 | | 30 | | | 78 | | 89 | | | | Other | 107 | | 117 | | 32 | | | 364 | | 282 | | | | Total noninterest expense | 2,681 | | 2,686 | | 2,590 | | | 8,079 | | 7,936 | | | | Income | | | | | | | | | Income before income taxes | 1,157 | | 1,181 | | 1,287 | | | 3,565 | | 3,765 | | | | Provision for income taxes | 213 | | 216 | | 246 | | | 694 | | 747 | | | | Net income | 944 | | 965 | | 1,041 | | | 2,871 | | 3,018 | | | | Net (income) attributable to noncontrolling interests related to consolidated investment management funds | (7) | | (15) | | (3) | | | (4) | | (17) | | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 937 | | 950 | | 1,038 | | | 2,867 | | 3,001 | | | | Preferred stock dividends | (61) | | (49) | | (36) | | | (146) | | (120) | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | |
| | | (a) | The provision for credit losses for the quarter ended March 31, 2020 relates to the financial instruments within the scope of Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses On Financial Instruments. See Note 2 of the Notes to Consolidated Financial Statements for additional information. |
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Income Statement (continued)(unaudited) (continued)
| | | | | | | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation (in millions) | Quarter ended | | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 944 |
| $ | 1,391 |
| $ | 910 |
| | Less: Earnings allocated to participating securities | 3 |
| 6 |
| 5 |
| | Net income applicable to common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share | $ | 941 |
| $ | 1,385 |
| $ | 905 |
|
| | | | | | | | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | (in thousands) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Basic | 894,122 |
| 911,324 |
| 962,397 |
| | Common stock equivalents | 3,941 |
| 5,191 |
| 6,071 |
| | Less: Participating securities | (1,374 | ) | (1,776 | ) | (2,508 | ) | | Diluted | 896,689 |
| 914,739 |
| 965,960 |
| | | | | | Anti-dilutive securities (a) | 2,584 |
| 3,515 |
| 5,550 |
|
| | (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 | | (in dollars) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Basic | $ | 1.05 |
| $ | 1.52 |
| $ | 0.94 |
| | Diluted | $ | 1.05 |
| $ | 1.52 |
| $ | 0.94 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation | Quarter ended | | Year-to-date | | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | | | | | Less: Earnings allocated to participating securities | 1 | | 1 | | 3 | | | 5 | | 12 | | | | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation after required adjustment for the calculation of basic and diluted earnings per common share | $ | 875 | | $ | 900 | | $ | 999 | | | $ | 2,716 | | $ | 2,869 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | | (in thousands) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | | Basic | 889,499 | | 889,020 | | 933,264 | | | 891,050 | | 949,035 | | | | | | Common stock equivalents | 2,173 | | 2,044 | | 3,811 | | | 2,522 | | 4,484 | | | | | | Less: Participating securities | (603) | | (503) | | (1,398) | | | (779) | | (1,643) | | | | | | Diluted | 891,069 | | 890,561 | | 935,677 | | | 892,793 | | 951,876 | | | | | | | | | | | | | | | Anti-dilutive securities (a) | 1,485 | | 1,578 | | 3,701 | | | 1,828 | | 4,269 | | | | |
(a) Represents stock options, restricted stock, restricted stock units and participating securities outstanding but not included in the computation of diluted average common shares because their effect would be anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | | | Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | | (in dollars) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | | Basic | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.05 | | $ | 3.02 | | | | | | Diluted | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.04 | | $ | 3.01 | | | | |
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Comprehensive Income Statement (unaudited)
| | | | | | | | | | | | | Quarter ended | | (in millions) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Net income | $ | 962 |
| $ | 1,449 |
| $ | 956 |
| | Other comprehensive (loss) income, net of tax: | | | | | Foreign currency translation adjustments | (369 | ) | 388 |
| 29 |
| | Unrealized gain (loss) on assets available-for-sale: | | | | | Unrealized gain (loss) arising during the period | 183 |
| (77 | ) | 239 |
| | Reclassification adjustment | (7 | ) | 19 |
| (1 | ) | | Total unrealized gain (loss) on assets available-for-sale | 176 |
| (58 | ) | 238 |
| | Defined benefit plans: | | | | | Prior service cost arising during the period | — |
| (1 | ) | — |
| | Net (loss) gain arising during the period | — |
| (78 | ) | (9 | ) | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 18 |
| 4 |
| 10 |
| | Total defined benefit plans | 18 |
| (75 | ) | 1 |
| | Net unrealized (loss) gain on cash flow hedges | (11 | ) | 4 |
| 5 |
| Total other comprehensive (loss) income, net of tax (a) | (186 | ) | 259 |
| 273 |
| | Total comprehensive income | 776 |
| 1,708 |
| 1,229 |
| | Net loss (income) attributable to noncontrolling interests | 18 |
| (9 | ) | (10 | ) | | Other comprehensive loss (income) attributable to noncontrolling interests | 2 |
| (4 | ) | (2 | ) | | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 796 |
| $ | 1,695 |
| $ | 1,217 |
|
| | (a) | Other comprehensive (loss) income attributable to The Bank of New York Mellon Corporation shareholders was $(184) million for the quarter ended March 31, 2020, $255 million for the quarter ended Dec. 31, 2019 and $271 million for the quarter ended March 31, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | Net income | $ | 944 | | $ | 965 | | $ | 1,041 | | | $ | 2,871 | | $ | 3,018 | | | | Other comprehensive income (loss), net of tax: | | | | | | | | | Foreign currency translation adjustments | 331 | | 115 | | (276) | | | 77 | | (237) | | | | Unrealized gain on assets available-for-sale: | | | | | | | | | Unrealized gain arising during the period | 233 | | 753 | | 63 | | | 1,169 | | 589 | | | | Reclassification adjustment | (6) | | (7) | | 1 | | | (20) | | (5) | | | | Total unrealized gain on assets available-for-sale | 227 | | 746 | | 64 | | | 1,149 | | 584 | | | | Defined benefit plans: | | | | | | | | | | | | | | | | | Net (loss) arising during the period | 0 | | 0 | | 0 | | | 0 | | (9) | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 20 | | 19 | | 10 | | | 57 | | 30 | | | | Total defined benefit plans | 20 | | 19 | | 10 | | | 57 | | 21 | | | | Net unrealized gain (loss) on cash flow hedges | 8 | | 4 | | (6) | | | 1 | | (1) | | | Total other comprehensive income (loss), net of tax (a) | 586 | | 884 | | (208) | | | 1,284 | | 367 | | | | Total comprehensive income | 1,530 | | 1,849 | | 833 | | | 4,155 | | 3,385 | | | | Net (income) attributable to noncontrolling interests | (7) | | (15) | | (3) | | | (4) | | (17) | | | | Other comprehensive (income) loss attributable to noncontrolling interests | (2) | | 0 | | 3 | | | 0 | | 1 | | | | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 1,521 | | $ | 1,834 | | $ | 833 | | | $ | 4,151 | | $ | 3,369 | | |
(a) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $584 million for the quarter ended Sept. 30, 2020, $884 million for the quarter ended June 30, 2020, $(205) million for the quarter ended Sept. 30, 2019, $1,284 million for the nine months ended Sept. 30, 2020 and $368 million for the nine months ended Sept. 30, 2019.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Balance Sheet (unaudited)
| | | | | | | | | | March 31, 2020 |
| Dec. 31, 2019 |
| | (dollars in millions, except per share amounts) | | Assets | | | Cash and due from banks (including allowance for credit losses of $3 at March 31, 2020) (a) | $ | 5,091 |
| $ | 4,830 |
| | Interest-bearing deposits with the Federal Reserve and other central banks | 146,535 |
| 95,042 |
| Interest-bearing deposits with banks (including allowance for credit losses of $1 at March 31, 2020; $4,714 and $2,437 is restricted) (a) | 22,672 |
| 14,811 |
| Federal funds sold and securities purchased under resale agreements (including allowance for credit losses of $18 at March 31, 2020) (a) | 27,363 |
| 30,182 |
| | Securities: | | | Held-to-maturity (including allowance for credit losses of less than $1 at March 31, 2020; fair value of $38,418 and $34,805) (a) | 37,305 |
| 34,483 |
| Available-for-sale (including allowance for credit losses of $15 at March 31, 2020; amortized cost of $99,503 and $87,435) (a) | 101,968 |
| 88,550 |
| | Total securities | 139,273 |
| 123,033 |
| | Trading assets | 12,918 |
| 13,571 |
| | Loans | 62,368 |
| 54,953 |
| Allowance for credit losses (a) | (140 | ) | (122 | ) | | Net loans | 62,228 |
| 54,831 |
| | Premises and equipment | 3,514 |
| 3,625 |
| | Accrued interest receivable | 576 |
| 624 |
| | Goodwill | 17,240 |
| 17,386 |
| | Intangible assets | 3,070 |
| 3,107 |
| Other assets (including allowance for credit losses on accounts receivable of $4 at March 31, 2020, also includes $527 and $419, at fair value) (a) | 27,446 |
| 20,221 |
| | Subtotal assets of operations | 467,926 |
| 381,263 |
| | Assets of consolidated investment management funds, at fair value | 229 |
| 245 |
| | Total assets | $ | 468,155 |
| $ | 381,508 |
| | Liabilities | | | | Deposits: | | | | Noninterest-bearing (principally U.S. offices) | $ | 96,600 |
| $ | 57,630 |
| | Interest-bearing deposits in U.S. offices | 118,466 |
| 101,542 |
| | Interest-bearing deposits in non-U.S. offices | 121,651 |
| 100,294 |
| | Total deposits | 336,717 |
| 259,466 |
| | Federal funds purchased and securities sold under repurchase agreements | 13,128 |
| 11,401 |
| | Trading liabilities | 6,625 |
| 4,841 |
| | Payables to customers and broker-dealers | 24,016 |
| 18,758 |
| | Commercial paper | 1,121 |
| 3,959 |
| | Other borrowed funds | 1,544 |
| 599 |
| Accrued taxes and other expenses | 4,705 |
| 5,642 |
| Other liabilities (including allowance for credit losses on lending-related commitments of $148 and $94, also includes $973 and $607, at fair value) (a) | 11,425 |
| 7,612 |
| | Long-term debt (includes $397 and $387, at fair value) | 27,494 |
| 27,501 |
| | Subtotal liabilities of operations | 426,775 |
| 339,779 |
| | Liabilities of consolidated investment management funds, at fair value | 1 |
| 1 |
| | Total liabilities | 426,776 |
| 339,780 |
| | Temporary equity | | | | Redeemable noncontrolling interests | 140 |
| 143 |
| | Permanent equity | | | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826 and 35,826 shares | 3,542 |
| 3,542 |
| | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,380,881,570 and 1,374,443,376 shares | 14 |
| 14 |
| | Additional paid-in capital | 27,644 |
| 27,515 |
| | Retained earnings | 32,601 |
| 31,894 |
| | Accumulated other comprehensive loss, net of tax | (2,827 | ) | (2,638 | ) | | Less: Treasury stock of 495,438,749 and 473,760,338 common shares, at cost | (19,829 | ) | (18,844 | ) | | Total The Bank of New York Mellon Corporation shareholders’ equity | 41,145 |
| 41,483 |
| | Nonredeemable noncontrolling interests of consolidated investment management funds | 94 |
| 102 |
| | Total permanent equity | 41,239 |
| 41,585 |
| | Total liabilities, temporary equity and permanent equity | $ | 468,155 |
| $ | 381,508 |
|
| | (a) | In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses On | | | | | | | | | | Sept. 30, 2020 | Dec. 31, 2019 | | (dollars in millions, except per share amounts) | | Assets | | | Cash and due from banks, net of allowance for credit losses of $5 at Sept. 30, 2020 (a) | $ | 4,104 | | $ | 4,830 | | | Interest-bearing deposits with the Federal Reserve and other central banks | 106,185 | | 95,042 | | Interest-bearing deposits with banks, net of allowance for credit losses of $4 at Sept. 30, 2020 (includes restricted of $2,891 and $2,437) (a) | 19,027 | | 14,811 | | | Federal funds sold and securities purchased under resale agreements | 29,647 | | 30,182 | | | Securities: | | | Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 at Sept. 30, 2020 (fair value of $47,458 and $34,805) (a) | 46,096 | | 34,483 | | Available-for-sale, at fair value (amortized cost of $105,684 and $87,435, net of allowance for credit losses of $12 at Sept 30, 2020) (a) | 109,243 | | 88,550 | | | Total securities | 155,339 | | 123,033 | | | Trading assets | 13,074 | | 13,571 | | | Loans | 55,491 | | 54,953 | | Allowance for credit losses (a) | (325) | | (122) | | | Net loans | 55,166 | | 54,831 | | | Premises and equipment | 3,617 | | 3,625 | | | Accrued interest receivable | 489 | | 624 | | | Goodwill | 17,357 | | 17,386 | | | Intangible assets | 3,026 | | 3,107 | | Other assets, net of allowance for credit losses on accounts receivable of $5 at Sept. 30, 2020 (includes $527 and $419, at fair value) (a) | 20,779 | | 20,221 | | | Subtotal assets of operations | 427,810 | | 381,263 | | | Assets of consolidated investment management funds, at fair value | 588 | | 245 | | | Total assets | $ | 428,398 | | $ | 381,508 | | | Liabilities | | | | Deposits: | | | | Noninterest-bearing (principally U.S. offices) | $ | 79,470 | | $ | 57,630 | | | Interest-bearing deposits in U.S. offices | 111,703 | | 101,542 | | | Interest-bearing deposits in non-U.S. offices | 105,139 | | 100,294 | | | Total deposits | 296,312 | | 259,466 | | | Federal funds purchased and securities sold under repurchase agreements | 15,907 | | 11,401 | | | Trading liabilities | 6,084 | | 4,841 | | | Payables to customers and broker-dealers | 23,514 | | 18,758 | | | Commercial paper | 671 | | 3,959 | | | Other borrowed funds | 420 | | 599 | | Accrued taxes and other expenses | 5,347 | | 5,642 | | Other liabilities (including allowance for credit losses on lending-related commitments of $135 and $94, also includes $997 and $607, at fair value) (a) | 8,671 | | 7,612 | | | Long-term debt (includes $400 and $387, at fair value) | 26,121 | | 27,501 | | | Subtotal liabilities of operations | 383,047 | | 339,779 | | | Liabilities of consolidated investment management funds, at fair value | 4 | | 1 | | | Total liabilities | 383,051 | | 339,780 | | | Temporary equity | | | | Redeemable noncontrolling interests | 179 | | 143 | | | Permanent equity | | | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 35,826 shares | 4,532 | | 3,542 | | | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,381,650,891 and 1,374,443,376 shares | 14 | | 14 | | | Additional paid-in capital | 27,741 | | 27,515 | | | Retained earnings | 33,821 | | 31,894 | | | Accumulated other comprehensive loss, net of tax | (1,359) | | (2,638) | | | Less: Treasury stock of 495,515,086 and 473,760,338 common shares, at cost | (19,832) | | (18,844) | | | Total The Bank of New York Mellon Corporation shareholders’ equity | 44,917 | | 41,483 | | | Nonredeemable noncontrolling interests of consolidated investment management funds | 251 | | 102 | | | Total permanent equity | 45,168 | | 41,585 | | | Total liabilities, temporary equity and permanent equity | $ | 428,398 | | $ | 381,508 | |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information. |
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Cash Flows (unaudited)
| | | | | | | | | | Three months ended March 31, | | (in millions) | 2020 |
| 2019 |
| | Operating activities | | | | Net income | $ | 962 |
| $ | 956 |
| | Net (income) loss attributable to noncontrolling interests | 18 |
| (10 | ) | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 980 |
| 946 |
| | Adjustments to reconcile net income to net cash (used for) operating activities: | | | Provision for credit losses (a) | 169 |
| 7 |
| | Pension plan contributions | (6 | ) | (17 | ) | | Depreciation and amortization | 354 |
| 302 |
| | Deferred tax (benefit) | (300 | ) | (28 | ) | | Net securities (gains) | (9 | ) | (1 | ) | | Change in trading assets and liabilities | 2,419 |
| (57 | ) | | Change in accruals and other, net | (5,292 | ) | (2,101 | ) | | Net cash (used for) operating activities | (1,685 | ) | (949 | ) | | Investing activities | | | | Change in interest-bearing deposits with banks | (6,066 | ) | 413 |
| | Change in interest-bearing deposits with the Federal Reserve and other central banks | (52,370 | ) | 7,096 |
| | Purchases of securities held-to-maturity | (5,151 | ) | (1,403 | ) | | Paydowns of securities held-to-maturity | 1,503 |
| 914 |
| | Maturities of securities held-to-maturity | 1,310 |
| 500 |
| | Purchases of securities available-for-sale | (22,222 | ) | (8,894 | ) | | Sales of securities available-for-sale | 3,107 |
| 3,692 |
| | Paydowns of securities available-for-sale | 2,042 |
| 1,400 |
| | Maturities of securities available-for-sale | 4,727 |
| 7,223 |
| | Net change in loans | (7,626 | ) | 3,010 |
| | Sales of loans and other real estate | 1 |
| 51 |
| | Change in federal funds sold and securities purchased under resale agreements | 2,739 |
| 6,640 |
| | Net change in seed capital investments | 18 |
| 3 |
| | Purchases of premises and equipment/capitalized software | (264 | ) | (264 | ) | | Other, net | (349 | ) | 429 |
| | Net cash (used for) provided by investing activities | (78,601 | ) | 20,810 |
| | Financing activities | | | | Change in deposits | 79,678 |
| (16,146 | ) | | Change in federal funds purchased and securities sold under repurchase agreements | 1,775 |
| (2,482 | ) | | Change in payables to customers and broker-dealers | 5,329 |
| (414 | ) | | Change in other borrowed funds | 961 |
| 695 |
| | Change in commercial paper | (2,838 | ) | 834 |
| | Net proceeds from the issuance of long-term debt | 998 |
| — |
| | Repayments of long-term debt | (1,750 | ) | (1,500 | ) | | Proceeds from the exercise of stock options | 30 |
| 31 |
| | Issuance of common stock | 3 |
| 13 |
| | Treasury stock acquired | (985 | ) | (555 | ) | | Common cash dividends paid | (282 | ) | (270 | ) | | Preferred cash dividends paid | (36 | ) | (36 | ) | | Other, net | (3 | ) | (7 | ) | | Net cash provided by (used for) financing activities | 82,880 |
| (19,837 | ) | | Effect of exchange rate changes on cash | (56 | ) | 11 |
| | Change in cash and due from banks and restricted cash | | | | Change in cash and due from banks and restricted cash | 2,538 |
| 35 |
| | Cash and due from banks and restricted cash at beginning of period | 7,267 |
| 8,258 |
| | Cash and due from banks and restricted cash at end of period | $ | 9,805 |
| $ | 8,293 |
| | Cash and due from banks and restricted cash: | | | | Cash and due from banks at end of period (unrestricted cash) | $ | 5,091 |
| $ | 5,980 |
| | Restricted cash at end of period | 4,714 |
| 2,313 |
| | Cash and due from banks and restricted cash at end of period | $ | 9,805 |
| $ | 8,293 |
| | Supplemental disclosures | | | | Interest paid | $ | 851 |
| $ | 1,122 |
| | Income taxes paid | 185 |
| 100 |
| | Income taxes refunded | 10 |
| 3 |
|
| | (a) | In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses On Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information. |
| | | | | | | | | | | Nine months ended Sept. 30, | | | (in millions) | 2020 | 2019 | | | Operating activities | | | | | Net income | $ | 2,871 | | $ | 3,018 | | | | Net (income) attributable to noncontrolling interests | (4) | | (17) | | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 2,867 | | 3,001 | | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | | Provision for credit losses (a) | 321 | | (17) | | | | Pension plan contributions | (18) | | (30) | | | | Depreciation and amortization | 1,175 | | 971 | | | | Deferred tax (benefit) | (351) | | (185) | | | | Net securities (gains) | (27) | | (7) | | | | Change in trading assets and liabilities | 1,736 | | (1,880) | | | | Change in accruals and other, net | 200 | | 714 | | | | Net cash provided by operating activities | 5,903 | | 2,567 | | | | Investing activities | | | | | Change in interest-bearing deposits with banks | (3,808) | | (1,503) | | | | Change in interest-bearing deposits with the Federal Reserve and other central banks | (9,775) | | (7,171) | | | | Purchases of securities held-to-maturity | (23,507) | | (5,390) | | | | Paydowns of securities held-to-maturity | 6,291 | | 3,501 | | | | Maturities of securities held-to-maturity | 5,477 | | 2,274 | | | | Purchases of securities available-for-sale | (56,860) | | (33,929) | | | | Sales of securities available-for-sale | 10,824 | | 7,482 | | | | Paydowns of securities available-for-sale | 7,300 | | 5,260 | | | | Maturities of securities available-for-sale | 21,113 | | 20,006 | | | | Net change in loans | (537) | | 1,478 | | | | Sales of loans and other real estate | 10 | | 147 | | | | Change in federal funds sold and securities purchased under resale agreements | 525 | | 3,071 | | | | Net change in seed capital investments | 20 | | 68 | | | | Purchases of premises and equipment/capitalized software | (956) | | (1,112) | | | | | | | | | | | | | | | | Other, net | (417) | | 588 | | | | Net cash (used for) investing activities | (44,300) | | (5,230) | | | | Financing activities | | | | | Change in deposits | 35,736 | | 13,207 | | | | Change in federal funds purchased and securities sold under repurchase agreements | 4,299 | | (2,447) | | | | Change in payables to customers and broker-dealers | 4,627 | | (1,332) | | | | Change in other borrowed funds | (183) | | (2,422) | | | | Change in commercial paper | (3,288) | | 1,599 | | | | Net proceeds from the issuance of long-term debt | 2,245 | | 2,246 | | | | Repayments of long-term debt | (4,400) | | (4,250) | | | | Proceeds from the exercise of stock options | 36 | | 51 | | | | Issuance of common stock | 9 | | 19 | | | | Issuance of preferred stock | 990 | | 0 | | | | Treasury stock acquired | (988) | | (2,286) | | | | | | | | Common cash dividends paid | (838) | | (834) | | | | Preferred cash dividends paid | (146) | | (120) | | | | Other, net | 36 | | 23 | | | | Net cash provided by financing activities | 38,135 | | 3,454 | | | | Effect of exchange rate changes on cash | (10) | | (57) | | | | Change in cash and due from banks and restricted cash | | | | | Change in cash and due from banks and restricted cash | (272) | | 734 | | | | Cash and due from banks and restricted cash at beginning of period | 7,267 | | 8,258 | | | | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | | Cash and due from banks and restricted cash | | | | | Cash and due from banks at end of period (unrestricted cash) | $ | 4,104 | | $ | 6,718 | | | | Restricted cash at end of period | 2,891 | | 2,274 | | | | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | | Supplemental disclosures | | | | | Interest paid | $ | 1,166 | | $ | 3,528 | | | | Income taxes paid | 1,112 | | 697 | | | | Income taxes refunded | 23 | | 445 | | |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | (in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock | | Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 21 | | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (1) | | | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 132 | | 132 | | | 0 | | | Net income | — | | — | | — | | 937 | | — | | — | | 7 | | 944 | | | — | | | Other comprehensive income | — | | — | | — | | — | | 584 | | — | | — | | 584 | | | 2 | | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (279) | | — | | — | | — | | (279) | | | — | | | Preferred stock | — | | — | | — | | (61) | | — | | — | | — | | (61) | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 33 | | — | | — | | — | | — | | 33 | | | — | | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $39,165 million at June 30, 2020 and $40,385 million at Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | (in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock | | Balance at March 31, 2020 | $ | 3,542 | | $ | 14 | | $ | 27,644 | | $ | 32,601 | | $ | (2,827) | | $ | (19,829) | | $ | 94 | | $ | 41,239 | | (a) | $ | 140 | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 17 | | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 3 | | 3 | | | 0 | | | Net income | — | | — | | — | | 950 | | — | | — | | 15 | | 965 | | | — | | | Other comprehensive income | — | | — | | — | | — | | 884 | | — | | — | | 884 | | | 0 | | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (278) | | — | | — | | — | | (278) | | | — | | | Preferred stock | — | | — | | — | | (49) | | — | | — | | — | | (49) | | | — | | | Repurchase of common stock | — | | — | | — | | — | | — | | (3) | | — | | (3) | | | — | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | | Stock awards and options exercised | — | | — | | 52 | | — | | — | | — | | — | | 52 | | | — | | | Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,603 million at March 31, 2020 and $39,165 million at June 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds |
| Total
permanent
equity |
| | Redeemable
non-
controlling
interests/
temporary
equity |
| (in millions, except per
share amount) | Preferred stock |
| Common
stock |
| Additional
paid-in
capital |
| Retained
earnings |
| Accumulated other comprehensive (loss), net
of tax |
| Treasury
stock |
| | Balance at Dec. 31, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,515 |
| $ | 31,894 |
| $ | (2,638 | ) | $ | (18,844 | ) | $ | 102 |
| $ | 41,585 |
| (a) | $ | 143 |
| Impact of adopting ASU 2016-13, Financial Instruments - Credit Losses | — |
| — |
| — |
| 45 |
| (5 | ) | — |
| — |
| 40 |
| | — |
| | Adjusted balance at Jan. 1, 2020 | 3,542 |
| 14 |
| 27,515 |
| 31,939 |
| (2,643 | ) | (18,844 | ) | 102 |
| 41,625 |
| | 143 |
| | Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 17 |
| | Redemption of subsidiary shares from noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | (16 | ) | | Other net changes in noncontrolling interests | — |
| — |
| (5 | ) | — |
| — |
| — |
| 10 |
| 5 |
| | (2 | ) | | Net income | — |
| — |
| — |
| 980 |
| — |
| — |
| (18 | ) | 962 |
| | — |
| | Other comprehensive income | — |
| — |
| — |
| — |
| (184 | ) | — |
| — |
| (184 | ) | | (2 | ) | | Dividends: | | | | | | | | | | | Common stock at $0.31 per
share | — |
| — |
| — |
| (282 | ) | — |
| — |
| — |
| (282 | ) | | — |
| | Preferred stock | — |
| — |
| — |
| (36 | ) | — |
| — |
| — |
| (36 | ) | | — |
| | Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (985 | ) | — |
| (985 | ) | | — |
| | Common stock issued under employee benefit plans | — |
| — |
| 9 |
| — |
| — |
| — |
| — |
| 9 |
| | — |
| | Stock awards and options exercised | — |
| — |
| 125 |
| — |
| — |
| — |
| — |
| 125 |
| | — |
| | Balance at March 31, 2020 | $ | 3,542 |
| $ | 14 |
| $ | 27,644 |
| $ | 32,601 |
| $ | (2,827 | ) | $ | (19,829 | ) | $ | 94 |
| $ | 41,239 |
| (a) | $ | 140 |
|
| | | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,941 million at Dec. 31, 2019 and $37,603 million at March 31, 2020. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds |
| Total
permanent
equity |
| | Redeemable
non-
controlling
interests/
temporary
equity |
| (in millions, except per
share amount) | Preferred stock |
| Common
stock |
| Additional
paid-in
capital |
| Retained
earnings |
| Accumulated other comprehensive (loss), net
of tax |
| Treasury
stock |
| | Balance at Sept. 30, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,471 |
| $ | 30,789 |
| $ | (2,893 | ) | $ | (17,803 | ) | $ | 203 |
| $ | 41,323 |
| (a) | $ | 147 |
| | Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 25 |
| | Redemption of subsidiary shares from noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | (41 | ) | | Other net changes in noncontrolling interests | — |
| — |
| (17 | ) | — |
| — |
| — |
| (110 | ) | (127 | ) | | 8 |
| | Net income | — |
| — |
| — |
| 1,440 |
| — |
| — |
| 9 |
| 1,449 |
| | — |
| | Other comprehensive income | — |
| — |
| — |
| — |
| 255 |
| — |
| — |
| 255 |
| | 4 |
| | Dividends: | | | | | | | | | | | Common stock at $0.31 per
share | — |
| — |
| — |
| (286 | ) | — |
| — |
| — |
| (286 | ) | | — |
| | Preferred stock | — |
| — |
| — |
| (49 | ) | — |
| — |
| — |
| (49 | ) | | — |
| | Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (1,041 | ) | — |
| (1,041 | ) | | — |
| | Common stock issued under: | | | | | | | | | | | | Employee benefit plans | — |
| — |
| 6 |
| — |
| — |
| — |
| — |
| 6 |
| | — |
| | Stock awards and options exercised | — |
| — |
| 55 |
| — |
| — |
| — |
| — |
| 55 |
| | — |
| | Balance at Dec. 31, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,515 |
| $ | 31,894 |
| $ | (2,638 | ) | $ | (18,844 | ) | $ | 102 |
| $ | 41,585 |
| (a) | $ | 143 |
|
| | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,578 million at Sept. 30, 2019 and $37,941 million at Dec. 31, 2019. |
| | | The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited) (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | (in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock | | Balance at June 30, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,406 | | $ | 30,081 | | $ | (2,688) | | $ | (16,822) | | $ | 166 | | $ | 41,699 | | (a) | $ | 136 | | | | | | | | | | | | | | | | | | | | | | | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 16 | | | | | | | | | | | | | | Other net changes in noncontrolling interests | — | | — | | 2 | | — | | — | | — | | 34 | | 36 | | | (2) | | | Net income | — | | — | | — | | 1,038 | | — | | — | | 3 | | 1,041 | | | — | | | Other comprehensive income | — | | — | | — | | — | | (205) | | — | | — | | (205) | | | (3) | | | Dividends: | | | | | | | | | | | Common stock at $0.31 per share | — | | — | | — | | (294) | | — | | — | | — | | (294) | | | — | | | Preferred stock | — | | — | | — | | (36) | | — | | — | | — | | (36) | | | — | | | Repurchase of common stock | — | | — | | — | | — | | — | | (981) | | — | | (981) | | | — | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | | | | | | | | | | | | | Stock awards and options exercised | — | | — | | 57 | | — | | — | | — | | — | | 57 | | | — | | | Balance at Sept. 30, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,471 | | $ | 30,789 | | $ | (2,893) | | $ | (17,803) | | $ | 203 | | $ | 41,323 | | (a) | $ | 147 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,991 million at June 30, 2019 and $37,578 million at Sept. 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | (in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock | | Balance at Dec. 31, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,515 | | $ | 31,894 | | $ | (2,638) | | $ | (18,844) | | $ | 102 | | $ | 41,585 | | (a) | $ | 143 | | Impact of adopting ASU 2016-13, Financial Instruments – Credit Losses | — | | — | | — | | 45 | | (5) | | — | | — | | 40 | | | — | | | Adjusted balance at Jan. 1, 2020 | 3,542 | | 14 | | 27,515 | | 31,939 | | (2,643) | | (18,844) | | 102 | | 41,625 | | | 143 | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 55 | | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (17) | | | Other net changes in noncontrolling interests | — | | — | | (5) | | — | | — | | — | | 145 | | 140 | | | (2) | | | Net income (loss) | — | | — | | — | | 2,867 | | — | | — | | 4 | | 2,871 | | | — | | | Other comprehensive income (loss) | — | | — | | — | | — | | 1,284 | | — | | — | | 1,284 | | | 0 | | | Dividends: | | | | | | | | | | | Common stock at $0.93 per share | — | | — | | — | | (839) | | — | | — | | — | | (839) | | | — | | | Preferred stock | — | | — | | — | | (146) | | — | | — | | — | | (146) | | | — | | | Repurchase of common stock | — | | — | | — | | — | | — | | (988) | | — | | (988) | | | — | | | | | | | | | | | | | | Common stock issued under employee benefit plans | — | | — | | 21 | | — | | — | | — | | — | | 21 | | | — | | | | | | | | | | | | | | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | | Stock awards and options exercised | — | | — | | 210 | | — | | — | | — | | — | | 210 | | | — | | | Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,941 million at Dec. 31, 2019 and $40,385 million at Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds |
| Total
permanent
equity |
| | Redeemable
non-
controlling
interests/
temporary
equity |
| (in millions, except per
share amount) | Preferred stock |
| Common
stock |
| Additional
paid-in
capital |
| Retained
earnings |
| Accumulated other comprehensive (loss), net
of tax |
| Treasury
stock |
| | Balance at Dec. 31, 2018 | $ | 3,542 |
| $ | 14 |
| $ | 27,118 |
| $ | 28,652 |
| $ | (3,171 | ) | $ | (15,517 | ) | $ | 101 |
| $ | 40,739 |
| (a) | $ | 129 |
| | Reclassification of certain tax effects related to adopting ASU 2018-02 | — |
| — |
| — |
| 90 |
| (90 | ) | — |
| — |
| — |
| | — |
| | Adjusted balance at Jan. 1, 2019 | 3,542 |
| 14 |
| 27,118 |
| 28,742 |
| (3,261 | ) | (15,517 | ) | 101 |
| 40,739 |
| | 129 |
| | Shares issued to shareholders of noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | 20 |
| | Redemption of subsidiary shares from noncontrolling interests | — |
| — |
| — |
| — |
| — |
| — |
| — |
| — |
| | (7 | ) | | Other net changes in noncontrolling interests | — |
| — |
| 19 |
| — |
| — |
| — |
| 11 |
| 30 |
| | (22 | ) | | Net income | — |
| — |
| — |
| 946 |
| — |
| — |
| 10 |
| 956 |
| | — |
| | Other comprehensive income | — |
| — |
| — |
| — |
| 271 |
| — |
| — |
| 271 |
| | 2 |
| | Dividends: | | | | | | | | | | | Common stock at $0.28 per
share | — |
| — |
| — |
| (270 | ) | — |
| — |
| — |
| (270 | ) | | — |
| | Preferred stock | — |
| — |
| — |
| (36 | ) | — |
| — |
| — |
| (36 | ) | | — |
| | Repurchase of common stock | — |
| — |
| — |
| — |
| — |
| (555 | ) | — |
| (555 | ) | | — |
| | Common stock issued under: | | | | | | | | | | | | Employee benefit plans | — |
| — |
| 10 |
| — |
| — |
| — |
| — |
| 10 |
| | — |
| | Direct stock purchase and dividend reinvestment plan | — |
| — |
| 11 |
| — |
| — |
| — |
| — |
| 11 |
| | — |
| | Stock awards and options exercised | — |
| — |
| 191 |
| — |
| — |
| — |
| — |
| 191 |
| | — |
| | Balance at March 31, 2019 | $ | 3,542 |
| $ | 14 |
| $ | 27,349 |
| $ | 29,382 |
| $ | (2,990 | ) | $ | (16,072 | ) | $ | 122 |
| $ | 41,347 |
| (a) | $ | 122 |
|
| | | (a) | Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,096 million at Dec. 31, 2018 and $37,683 million at March 31, 2019.(and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)(continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | (in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock | | Balance at Dec. 31, 2018 | $ | 3,542 | | $ | 14 | | $ | 27,118 | | $ | 28,652 | | $ | (3,171) | | $ | (15,517) | | $ | 101 | | $ | 40,739 | | (a) | $ | 129 | | | | | | | | | | | | | Reclassification of certain tax effects related to adopting ASU 2018-02 | — | | — | | — | | 90 | | (90) | | — | | — | | 0 | | | — | | | Adjusted balance at Jan. 1, 2019 | 3,542 | | 14 | | 27,118 | | 28,742 | | (3,261) | | (15,517) | | 101 | | 40,739 | | | 129 | | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 52 | | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (7) | | | Other net changes in noncontrolling interests | — | | — | | 23 | | — | | — | | — | | 85 | | 108 | | | (26) | | | Net income | — | | — | | — | | 3,001 | | — | | — | | 17 | | 3,018 | | | — | | | Other comprehensive income | — | | — | | — | | — | | 368 | | — | | — | | 368 | | | (1) | | | Dividends: | | | | | | | | | | | Common stock at $0.87 per share | — | | — | | — | | (834) | | — | | — | | — | | (834) | | | — | | | Preferred stock | — | | — | | — | | (120) | | — | | — | | — | | (120) | | | — | | | Repurchase of common stock | — | | — | | — | | — | | — | | (2,286) | | — | | (2,286) | | | — | | | Common stock issued under: | | | | | | | | | | | | Employee benefit plans | — | | — | | 22 | | — | | — | | — | | — | | 22 | | | — | | | Direct stock purchase and dividend reinvestment plan | — | | — | | 11 | | — | | — | | — | | — | | 11 | | | — | | | Stock awards and options exercised | — | | — | | 297 | | — | | — | | — | | — | | 297 | | | — | | | Balance at Sept. 30, 2019 | $ | 3,542 | | $ | 14 | | $ | 27,471 | | $ | 30,789 | | $ | (2,893) | | $ | (17,803) | | $ | 203 | | $ | 41,323 | | (a) | $ | 147 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,096 million at Dec. 31, 2018 and $37,578 million at Sept. 30, 2019.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | | | Notes to Consolidated Financial Statements | |
Note 1–Basis of presentation
In this Quarterly Report on Form 10-Q, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.
Basis of presentation
The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices. For information on our significant accounting and reporting policies, see Note 1 in our 2019 Annual Report.
The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented have been made. These financial statements should be read in conjunction with our 2019 Annual Report. Certain immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition.
Note 2–Accounting changes and new accounting guidance
The following accounting guidance was adopted in the first quarter of 2020.
Accounting Standards Update (“ASU”) 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments
In June 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU introduces a new current expected credit losses model, which applies to financial assets subject to credit losses and measured at amortized cost, including held-to-maturity securities and certain off-balance sheet credit exposures. The guidance also changes current practice for the impairment model for available-for-sale debt securities by requiring the use of an allowance to record estimated credit losses and subsequent recoveries. The standard requires a cumulative effect of initial application to be recognized in retained earnings at the date of initial application.
In conjunction with adopting the new standard, we developed expected credit loss models and approaches that include consideration of multiple forecast scenarios and other methodologies. On Jan. 1, 2020, we adopted this new accounting guidance on a prospective basis and recognized a $45 million after-tax increase in retained earnings primarily attributable to a reduction to the allowance for credit losses for our commercial lending portfolios. The comparative financial information for prior periods has not been restated. See the Consolidated Balance Sheet and Notes 4 and 5 for the disclosures required by this ASU.
| | | Notes to Consolidated Financial Statements (continued) | |
The table below presents the reconciliation of the allowance for credit losses (pre-tax).
| | | | | | Allowance for credit losses | | | (in millions) | | | Allowance for credit losses – Dec. 31, 2019 | $ | 216 |
| | Impact of adopting ASU 2016-13: | | | Securities | 7 |
| Loans (a) | (69 | ) | | Other | 3 |
| | Total impact of adoption of ASU 2016-13 | (59 | ) | | Reclassification of credit-related reserves on accounts receivable | 4 |
| | Allowance for credit losses – Jan. 1, 2020 | $ | 161 |
|
| | | | | | (a)Allowance for credit losses | Includes $48 million related to loans and $21 million | | (in millions) | | Allowance for lending-related commitments.credit losses – Dec. 31, 2019 | $ | 216 | | | Impact of adopting ASU 2016-13: | | | Securities | 7 | | Loans (a) | (69) | | | Other | 3 | | | Total impact of adoption of ASU 2016-13 | (59) | | | Reclassification of credit-related reserves on accounts receivable | 4 | | | Allowance for credit losses – Jan. 1, 2020 | $ | 161 | |
(a) Includes $48 million related to loans and $21 million for lending-related commitments.
Significant accounting policies
Loans
Loans are reported at amortized cost, net of any unearned income and deferred fees and costs. Certain loan origination and upfront commitment fees, as well as certain direct loan origination and commitment costs, are deferred and amortized as a yield adjustment over the lives of the related loans. Loans held for sale are carried at the lower of cost or fair value.
Troubled debt restructuring/loan modifications
A modified loan is considered a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the creditor grants a concession to the debtor that would not otherwise be considered. A TDR may include a transfer of real estate or other assets from the debtor to the creditor, or a modification of the term of the loan. Credit losses related to TDRs are accounted for under an individual evaluation methodology (see “Allowance for credit losses” below). Credit losses for anticipated TDRs are accounted for similarly to TDRs and are identified when there is a reasonable expectation that a TDR will be executed with the borrower and when we expect the modification to affect the timing or amount of payments and/or the payment term.
Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), and the Interagency Guidance (as defined below). Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic.
The CARES Act, which became law on March 27, 2020, provides that financial institutions may, subject to certain conditions, elect to temporarily suspend the U.S. GAAP requirements with respect to loan modifications related to the coronavirus pandemic that were current as of Dec. 31, 2019 and that would otherwise be identified and treated as TDRsTDRs.
This TDR relief is applicable to modifications that were made from March 1, 2020 until the earlier of Dec. 31, 2020 or 60 days from the date the national emergency related to the coronavirus pandemic officially ends.
Various banking regulators issued guidance in the April 7, 2020 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the determination that suchCoronavirus (revised)” (“Interagency Guidance”) on loan modification treatment pursuant to which financial institutions can apply the U.S. GAAP requirements for loan modifications. In accordance with this guidance, a loan modification is not considered a TDR.TDR if the modification is related to the coronavirus pandemic, the borrower had been current when the modification program was implemented, and the modification includes payment deferrals for not more than six months.
Nonperforming assets
Commercial loans are placed on nonaccrual status when principal or interest is past due 90 days or more, or when there is reasonable doubt that interest or principal will be collected.
When a first or second lien residential mortgage loan reaches 90 days delinquent, it is subject to an individual evaluation of credit loss and placed on nonaccrual status.
When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against current period interest revenue. Interest receipts on nonaccrual loans are recognized
| | | Notes to Consolidated Financial Statements(continued) | |
as interest revenue or are applied to principal when we believe the ultimate collectability of principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and remain current for a specified period.
“Allowance for credit losses” below provides additional information regarding the individual evaluation of credit losses for nonperforming loans.
Allowance for credit losses
The accounting policy for estimating credit losses related to financial assets measured at amortized cost, including loans and lending-related commitments changed beginning in the first quarter of 2020 as a result of the adoption of ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU also included targeted amendments with respect to credit losses for available-for-sale debt securities. The accounting policy for determining the allowances has been identified as a “critical accounting estimate” as it requires us to make numerous complex and subjective estimates and assumptions relating to amounts which are judgmental and inherently uncertain.
Credit quality is monitored by management and is reflected within the allowance for credit losses. The allowance represents management’s estimate of expected credit losses over the expected contractual life of the financial instruments as of the balance sheet date. The allowance methodology is designed
| | Notes to Consolidated Financial Statements(continued)
| |
to provide procedural discipline in assessing the appropriateness of the allowance.
A quantitative methodology and qualitative framework is used to estimate the allowance for credit losses. The qualitative framework is described in further detail within “Allowance for credit losses - Other” below. The quantitative component of our estimate uses models and methodologies that categorize financial assets based on product type, collateral type, and other credit trends and risk characteristics, including relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of the recorded amounts. The allowance may be determined using various methods, including discounted cash flow methods, loss-rate methods, probability of default methods or other methods that we determine to be appropriate. We estimate our expected credit losses using the probability of default method for the majority of our financial assets. We measure expected credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. For a financial asset that does not share risk characteristics with other assets, expected credit losses are measured based on an individual evaluation method.
In our estimate, with the exception of our small home equity line of credit portfolio, available-for-sale debt securities, and individually evaluated financial assets, we utilize a multi-scenario macroeconomic forecast which includes a weighting of baseline, stronger near-term growth and moderate recession scenarios. This approach allows us to develop our estimate using a wide span of economic input variables. Our baseline scenario reflects a view on likely performance of each global region and the other two scenarios are designed relative to the baseline scenario. The scenarios include both a reasonable and supportable forecast period as well as a reversion period. The reasonable and supportable forecast is typically over a twotwo- to three yearthree-year horizon, followed by a reversion period in which the economic data reverts to long-term historical experience. In general, the forecasts across the alternative economic scenarios tend to revert toward the long-term trends after the forecast period, which is the period in which the confidence interval is considered reasonable and supportable. The speed at which the scenario specific forecasts revert is based on observed historical patterns of mean reversion that are reflected in our model parameter estimates. Certain macroeconomic variables such as unemployment or home prices take longer to revert after a contraction, though specific recovery times are scenario-specific. Reversion will usually take longer the further away the scenario specific forecast is from the historical mean. On a quarterly basis, within a developed governance structure, we update these scenarios for current economic conditions and may adjust the scenario weighting based on our economic outlook.
Allowance for credit losses - Loans and lending-related commitments
The allowance for credit losses on loans is presented as a valuation allowance to loans, and the allowance for credit losses on lending-related commitments is recorded in other liabilities. The components of the allowance for credit losses on loans and lending-relatedlending-
| | | Notes to Consolidated Financial Statements(continued) | |
related commitments consist of the following three elements:
•a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits; •a pooled allowance component for residential mortgage loans; and •an asset-specific allowance component involving individually evaluated credits of $1 million or greater.
The first element, a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits, is based on our expected credit loss model. Individual credit analyses are performed on such loans before being assigned a credit rating. All borrowers are collectively evaluated based on their credit rating. The loss expected in each loan incorporates the borrower’s credit rating, facility rating and maturity. The loss given default, derived from the facility rating, incorporates a recovery expectation, and for unfunded lending exposures, an estimate of the use of the facility at default (usage given default). The borrower’s probability of default is derived from the associated credit rating. For each of the different parameters, specific credit models are developed for each segment of our portfolio, including commercial loans and lease financing, commercial real estate, financial institutions, and other. Segmentation is established based on risk characteristics of the loans and how risk is monitored. We use both internal and external data in the development of these parameters. In estimating the
| | Notes to Consolidated Financial Statements(continued)
| |
term of the exposures and resulting effect on the measurement of expected credit loss, we consider the impact of potential prepayments as well as the effect of borrower extension options. Borrower ratings are reviewed at least annually and are periodically mapped to third-party databases, including rating agency and default and recovery databases, to ensure ongoing consistency and validity. Higher risk-rated loans and lending-related commitments are reviewed quarterly.
The second element, a pooled allowance component for residential mortgage loans, is determined by first segregating our mortgage pools into two categories: (i) our wealth management mortgages and (ii) our legacy mortgage portfolio disclosed as other residential mortgages. We then apply models to each portfolio to predict prepayments, default rates and loss severity. We consider historical loss experience and use a loan-level, multi-period default model which further segments each portfolio by product type including first lien fixed rate mortgages, first lien adjustable rate mortgages, second lien mortgages, and interest onlyinterest-only mortgages. We calculate the mortgage loss up to loan contractual maturity and embed a reasonable and supportable forecast and macroeconomic variable inputs which are described above. For home equity lines of credit, probability of default and loss given default are based on external data from third-party databases due to the small size of the portfolio and limited internal data. Our legacy mortgage portfolio and home equity line of credit portfolios represent small sub-segments of our mortgage loans.
The third element, individually evaluated credits, is based on individual analysis of loans of $1 million and greater which no longer share the risk characteristics with other loans. Factors we consider in measuring the extent of expected credit loss include the payment status, collateral value, the borrower’s financial condition, guarantor support, the probability of collecting scheduled principal and interest payments when due, anticipated modifications of payment structure or term for troubled borrowers, and recoveries if they can be reasonably estimated. We measure the expected credit loss as the difference between the amortized cost basis in the loan and the present value of the expected future cash flows from the borrower which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. We generally consider nonperforming loans as well as loans that have been or are anticipated to be modified under a troubled debt restructuring for individual evaluation given the risk characteristics of such loans.
Allowance for credit losses - Securities - Debt
When estimating expected credit losses, we segment our available-for-sale and held-to-maturity debt securities portfolios by major asset class. This is influenced by whether the security is structured or non-structured (i.e., direct obligation), as well as the issuer type.
Debt securities are classified as available-for-sale securities when we intend to hold the securities for an indefinite period of time or when the securities may be used for tactical asset/liability management
| | | Notes to Consolidated Financial Statements(continued) | |
purposes and may be sold from time to time to effectively manage interest rate exposure, prepayment risk and liquidity needs. Available-for-sale securities are measured at fair value. The difference between fair value and amortized cost represents the unrealized gains or losses on assets classified as available-for-sale, and is recorded net of tax as an addition to, or deduction from, other comprehensive income, unless we determine that this difference or a portion thereof represents an expected credit loss. If we determine that a credit loss exists, the amount is recognized as an allowance for credit losses in securities - available-for sale, with a corresponding adjustment to the provision for credit losses. We evaluate credit losses at the individual security level and do not recognize credit losses if the fair value exceeds amortized cost, and if we determine that a credit loss exists, we limit the recognition of the loss to the difference between fair value and amortized cost. In our determination of whether an expected credit loss exists, we routinely conduct periodic reviews and examine various quantitative and qualitative factors that are unique to each portfolio, including the severity of the unrealized loss position, agency rating, credit enhancement, cash flow deterioration and other factors. The measurement of an expected credit loss is then based on the best estimate of the present value of cash flows to be collected from the debt security. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. Changes to the present value of cash flows due to the passage of time are recognized within the allowance for credit losses.
| | Notes to Consolidated Financial Statements(continued)
| |
We estimate expected credit losses for held-to-maturity debt securities using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on held-to-maturity debt securities are recorded in securities - held-to-maturity. The components of the credit loss calculation for each major portfolio or asset class include a probability of default and loss given default and their values depend on the forecast behavior of variables in the macroeconomic environment. For structured debt securities, we estimated expected credit losses at the individual security level and use a cash flow model to project principal losses. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. The difference is reflected in the allowance for credit losses, and changes to the present value of cash flows due to the passage of time are recognized within the allowance for credit losses.
We currently do not require an estimate of expected credit losses to be measured and recorded for U.S. Treasury securities, agency debt securities, as well as other debt securities that meet certain conditions that are based on a combination of factors such as guarantees, credit ratings, and other credit quality factors. These assets are monitored within our established governance structure on a recurring basis to determine if any changes are warranted.
Allowance for credit losses – Other financial instruments
We also estimate expected credit losses associated with margin loans, reverse repurchase agreements, security lending indemnifications, and deposits with third-party financial institutions using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on reverse repurchase agreements are recorded in federal funds sold and securities purchased under resale agreements; the allowance for credit losses on securities lending indemnifications is recorded in other liabilities and the allowance for credit losses on deposits with third partythird-party financial institutions is recorded in cash and due from banks or interest-bearing deposits with banks. Our reverse repurchase agreements are short term and subject to continuous overcollateralization by our counterparties and timely collateral replenishment, when necessary. As a result, we estimate the expected credit loss related to the uncollateralized portion of the asset at the balance sheet date, if any, and when there is a reasonable expectation that the counterparty will not replenish the collateral in compliance with the terms of the repurchase agreement. This method is also applied to margin lending arrangements and securities lending indemnifications.
Allowance for credit losses - Other
We do not apply our credit loss measurement methodologies to accrued interest receivable balances related to our loan, debt securities and deposits with third party financial institutions assets given our nonaccrual policy that requires charge-off of interest receivable when deemed uncollectible. Accrued interest receivable balances related to these instruments is
| | | Notes to Consolidated Financial Statements(continued) | |
presented in total with other interest-bearing instruments in the consolidated balance sheet. Accrued interest receivable related to each major loan class is disclosed within our credit quality disclosure in Note 5.
Our policy for credit losses related to purchased financial assets requires an evaluation to be performed prior to the effective purchase date to determine if more than an insignificant decline in credit quality has occurred during the period between the origination and purchase date, or, in the case of debt securities, the period between the issuance and purchase date. If we purchase a financial asset with more than insignificant deterioration in credit quality, the measurement of expected credit loss is performed using the methodologies described above, and the credit loss is recorded as an allowance for credit losses on the purchase date. Subsequent to purchase, changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the allowance. We evaluate various factors in the determination of whether a more than an insignificant decline in credit quality has occurred and these factors vary depending upon the type of asset purchased. Such factors include changes in risk rating and/or agency rating, collateral deterioration, payment status, purchase price, credit spreads, and other factors. We did not purchase any such assets during the most recent reporting periodfirst nine months of 2020 and did not own such assets as of March 31,Sept. 30, 2020.
We apply a separate credit loss methodology to accounts receivables to estimate the expected credit losses associated with these short-term receivables
| | Notes to Consolidated Financial Statements(continued)
| |
which historically have not resulted in significant credit losses. The allowance for credit losses on accounts receivable is reflected in other assets.
The qualitative component of our estimate for the allowance for credit losses is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, management determines the qualitative allowance each period based on an evaluation of various internal and environmental factors which include: scenario weighting and sensitivity risk, credit concentration risk, economic conditions and other considerations. We may also make adjustments for idiosyncratic risks. Once determined in the aggregate, our qualitative allowance is then allocated to each of our financial instrument portfolios except for debt securities and those instruments carried in other assets based on the respective instruments’ quantitative allowance balances. The allocation of this additional allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the loss.
Note 3–Acquisitions and dispositions
We sometimes structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. There were 0 contingent payments in the firstthird quarter of 2020. Contingent payment totaled $3 million in the first nine months of 2020.
At March 31,Sept. 30, 2020, we are potentially obligated to pay additional considerationwhich, using reasonable assumptions, could range from $5 million to $1310 millionover the nexttwo years, but could be higher as certain of the arrangements do not contain a contractual maximum.
Transaction in 2019
On Nov. 8, 2019, BNY Mellon, along with the other holders of Promontory Interfinancial Network, LLC (“PIN”), completed the sale of their interests in PIN. BNY Mellon recorded an after-tax gain of $622 million on the sale of this equity investment.
Note 4–Securities
On Jan. 1, 2020, we adopted ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments on a prospective basis. See Note 2 for the significant accounting policy related to securities.
The following tables present the amortized cost, the gross unrealized gains and losses and the fair value of securities at March 31,Sept. 30, 2020 and Dec. 31, 2019.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | Securities at Sept. 30, 2020 | Gross
unrealized | Fair
value | | Amortized cost | | (in millions) | Gains | Losses | | Available-for-sale: | | | | | | Agency RMBS | $ | 24,262 | | $ | 526 | | $ | 55 | | $ | 24,733 | | | U.S. Treasury | 23,166 | | 1,568 | | 1 | | 24,733 | | | Sovereign debt/sovereign guaranteed | 13,925 | | 169 | | 1 | | 14,093 | | | Agency commercial mortgage-backed securities (“MBS”) | 9,299 | | 646 | | 3 | | 9,942 | | | Supranational | 7,069 | | 68 | | 1 | | 7,136 | | | Foreign covered bonds | 5,777 | | 64 | | 0 | | 5,841 | | | Collateralized loan obligations (“CLOs”) | 4,696 | | 5 | | 44 | | 4,657 | | | Foreign government agencies | 3,924 | | 46 | | 0 | | 3,970 | | | U.S. government agencies | 3,300 | | 180 | | 2 | | 3,478 | | | Other asset-backed securities (“ABS”) | 2,903 | | 31 | | 4 | | 2,930 | | | Non-agency commercial MBS | 2,565 | | 156 | | 10 | | 2,711 | | Non-agency RMBS (a) | 1,793 | | 157 | | 9 | | 1,941 | | | State and political subdivisions | 1,661 | | 33 | | 4 | | 1,690 | | | Corporate bonds | 988 | | 43 | | 1 | | 1,030 | | | Commercial paper/certificates of deposit (“CDs”) | 355 | | 2 | | 0 | | 357 | | | Other debt securities | 1 | | 0 | | 0 | | 1 | | Total securities available-for-sale (b)(c) | $ | 105,684 | | $ | 3,694 | | $ | 135 | | $ | 109,243 | | | Held-to-maturity: | | | | | | Agency RMBS | $ | 37,086 | | $ | 1,117 | | $ | 10 | | $ | 38,193 | | | U.S. Treasury | 3,288 | | 103 | | 0 | | 3,391 | | | U.S. government agencies | 2,266 | | 5 | | 4 | | 2,267 | | | Agency commercial MBS | 2,041 | | 107 | | 0 | | 2,148 | | | Sovereign debt/sovereign guaranteed | 983 | | 41 | | 0 | | 1,024 | | | Commercial paper/CDs | 295 | | 0 | | 0 | | 295 | | | | | | | | Non-agency RMBS | 70 | | 3 | | 1 | | 72 | | | Supranational | 52 | | 1 | | 0 | | 53 | | | State and political subdivisions | 15 | | 0 | | 0 | | 15 | | | Total securities held-to-maturity | $ | 46,096 | | $ | 1,377 | | $ | 15 | | $ | 47,458 | | | Total securities | $ | 151,780 | | $ | 5,071 | | $ | 150 | | $ | 156,701 | |
(a) Includes $512 million that was included in the former Grantor Trust. (b) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. The amortized cost of available-for-sale securities is net of the allowance for credit loss of $12 million. The allowance for credit lossprimarily relates to CLOs. See Note 2 for additional information. (c) Includes gross unrealized gains of $25 million and gross unrealized losses of $49 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. | | | | | | | | | | | | | | | Securities at March 31, 2020 | Gross unrealized | Fair value |
| | | Amortized cost |
| | (in millions) | Gains |
| Losses |
| | Available-for-sale: | | | | | | Agency RMBS | $ | 26,484 |
| $ | 426 |
| $ | 219 |
| $ | 26,691 |
| | U.S. Treasury | 21,430 |
| 1,651 |
| — |
| 23,081 |
| | Sovereign debt/sovereign guaranteed | 12,791 |
| 128 |
| 9 |
| 12,910 |
| | Agency commercial mortgage-backed securities (“MBS”) | 9,315 |
| 510 |
| 20 |
| 9,805 |
| | Foreign covered bonds | 5,284 |
| 24 |
| 36 |
| 5,272 |
| | Supranational | 4,316 |
| 38 |
| 6 |
| 4,348 |
| | Collateralized loan obligations (“CLOs”) | 4,341 |
| 1 |
| 244 |
| 4,098 |
| | Commercial paper/certificates of deposit (“CDs”) | 2,813 |
| 3 |
| 2 |
| 2,814 |
| | Foreign government agencies | 2,736 |
| 31 |
| 3 |
| 2,764 |
| | Non-agency commercial MBS | 2,501 |
| 35 |
| 63 |
| 2,473 |
| | Other asset-backed securities (“ABS”) | 2,257 |
| 6 |
| 43 |
| 2,220 |
| | U.S. government agencies | 2,059 |
| 156 |
| 2 |
| 2,213 |
| Non-agency RMBS (a) | 1,404 |
| 114 |
| 43 |
| 1,475 |
| | State and political subdivisions | 967 |
| 20 |
| 2 |
| 985 |
| | Corporate bonds | 804 |
| 16 |
| 2 |
| 818 |
| | Other debt securities | 1 |
| — |
| — |
| 1 |
| Total securities available-for-sale (b)(c) | $ | 99,503 |
| $ | 3,159 |
| $ | 694 |
| $ | 101,968 |
| | Held-to-maturity: | | | | | | Agency RMBS | $ | 29,518 |
| $ | 874 |
| $ | 5 |
| $ | 30,387 |
| | U.S. Treasury | 2,937 |
| 121 |
| — |
| 3,058 |
| | Agency commercial MBS | 1,868 |
| 84 |
| — |
| 1,952 |
| | U.S. government agencies | 1,244 |
| 7 |
| 3 |
| 1,248 |
| | Sovereign debt/sovereign guaranteed | 919 |
| 37 |
| — |
| 956 |
| | Commercial paper/CDs | 651 |
| — |
| — |
| 651 |
| | Foreign covered bonds | 77 |
| — |
| — |
| 77 |
| | Non-agency RMBS | 75 |
| 3 |
| 5 |
| 73 |
| | State and political subdivisions | 16 |
| — |
| — |
| 16 |
| | Total securities held-to-maturity | $ | 37,305 |
| $ | 1,126 |
| $ | 13 |
| $ | 38,418 |
| | Total securities | $ | 136,808 |
| $ | 4,285 |
| $ | 707 |
| $ | 140,386 |
|
| | (a) | Includes $535 million that was included in the former Grantor Trust. |
| | (b) | In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses On Financial Instruments, on a prospective basis. The allowance for credit loss on available-for-sale securities of $15 million primarily relates to CLOs and Non-Agency RMBS. See Note 2 for additional information. |
| | (c) | Includes gross unrealized gains of $29 million and gross unrealized losses of $59 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. |
| | | | | | | | | | | | | | | | Securities at Dec. 31, 2019 | Gross
unrealized | | | Amortized cost | Fair
value | | (in millions) | Gains | Losses | | Available-for-sale: | | | | | | Agency RMBS | $ | 27,022 | | $ | 164 | | $ | 143 | | $ | 27,043 | | | U.S. Treasury | 14,979 | | 472 | | 20 | | 15,431 | | | Sovereign debt/sovereign guaranteed | 12,548 | | 109 | | 11 | | 12,646 | | | Agency commercial MBS | 9,231 | | 203 | | 17 | | 9,417 | | | Foreign covered bonds | 4,189 | | 15 | | 7 | | 4,197 | | | CLOs | 4,078 | | 1 | | 16 | | 4,063 | | | Supranational | 3,697 | | 18 | | 6 | | 3,709 | | | Foreign government agencies | 2,638 | | 7 | | 2 | | 2,643 | | | Non-agency commercial MBS | 2,134 | | 46 | | 2 | | 2,178 | | | Other ABS | 2,141 | | 7 | | 5 | | 2,143 | | | U.S. government agencies | 1,890 | | 61 | | 2 | | 1,949 | | Non-agency RMBS (a) | 1,038 | | 202 | | 7 | | 1,233 | | | State and political subdivisions | 1,017 | | 27 | | 0 | | 1,044 | | | Corporate bonds | 832 | | 21 | | 0 | | 853 | | | Other debt securities | 1 | | 0 | | 0 | | 1 | | Total securities available-for-sale (b) | $ | 87,435 | | $ | 1,353 | | $ | 238 | | $ | 88,550 | | | Held-to-maturity: | | | | | | Agency RMBS | $ | 27,357 | | $ | 292 | | $ | 46 | | $ | 27,603 | | | U.S. Treasury | 3,818 | | 28 | | 3 | | 3,843 | | | Agency commercial MBS | 1,326 | | 21 | | 3 | | 1,344 | | | U.S. government agencies | 1,023 | | 1 | | 2 | | 1,022 | | | Sovereign debt/sovereign guaranteed | 756 | | 31 | | 0 | | 787 | | | Non-agency RMBS | 80 | | 4 | | 1 | | 83 | | | Foreign covered bonds | 79 | | 0 | | 0 | | 79 | | | Supranational | 27 | | 0 | | 0 | | 27 | | | State and political subdivisions | 17 | | 0 | | 0 | | 17 | | | Total securities held-to-maturity | $ | 34,483 | | $ | 377 | | $ | 55 | | $ | 34,805 | | | Total securities | $ | 121,918 | | $ | 1,730 | | $ | 293 | | $ | 123,355 | |
| | | | | | | | | | | | | | | Securities at Dec. 31, 2019 | Gross unrealized | | | | Amortized cost |
| Fair value |
| | (in millions) | Gains |
| Losses |
| | Available-for-sale: | | | | | | Agency RMBS | $ | 27,022 |
| $ | 164 |
| $ | 143 |
| $ | 27,043 |
| | U.S. Treasury | 14,979 |
| 472 |
| 20 |
| 15,431 |
| | Sovereign debt/sovereign guaranteed | 12,548 |
| 109 |
| 11 |
| 12,646 |
| | Agency commercial MBS | 9,231 |
| 203 |
| 17 |
| 9,417 |
| | Foreign covered bonds | 4,189 |
| 15 |
| 7 |
| 4,197 |
| | CLOs | 4,078 |
| 1 |
| 16 |
| 4,063 |
| | Supranational | 3,697 |
| 18 |
| 6 |
| 3,709 |
| | Foreign government agencies | 2,638 |
| 7 |
| 2 |
| 2,643 |
| | Non-agency commercial MBS | 2,134 |
| 46 |
| 2 |
| 2,178 |
| | Other ABS | 2,141 |
| 7 |
| 5 |
| 2,143 |
| | U.S. government agencies | 1,890 |
| 61 |
| 2 |
| 1,949 |
| Non-agency RMBS (a) | 1,038 |
| 202 |
| 7 |
| 1,233 |
| | State and political subdivisions | 1,017 |
| 27 |
| — |
| 1,044 |
| | Corporate bonds | 832 |
| 21 |
| — |
| 853 |
| | Other debt securities | 1 |
| — |
| — |
| 1 |
| Total securities available-for-sale (b) | $ | 87,435 |
| $ | 1,353 |
| $ | 238 |
| $ | 88,550 |
| | Held-to-maturity: | | | | | | Agency RMBS | $ | 27,357 |
| $ | 292 |
| $ | 46 |
| $ | 27,603 |
| | U.S. Treasury | 3,818 |
| 28 |
| 3 |
| 3,843 |
| | Agency commercial MBS | 1,326 |
| 21 |
| 3 |
| 1,344 |
| | U.S. government agencies | 1,023 |
| 1 |
| 2 |
| 1,022 |
| | Sovereign debt/sovereign guaranteed | 756 |
| 31 |
| — |
| 787 |
| | Non-agency RMBS | 80 |
| 4 |
| 1 |
| 83 |
| | Foreign covered bonds | 79 |
| — |
| — |
| 79 |
| | Supranational | 27 |
| — |
| — |
| 27 |
| | State and political subdivisions | 17 |
| — |
| — |
| 17 |
| | Total securities held-to-maturity | $ | 34,483 |
| $ | 377 |
| $ | 55 |
| $ | 34,805 |
| | Total securities | $ | 121,918 |
| $ | 1,730 |
| $ | 293 |
| $ | 123,355 |
|
(b) Includes gross unrealized gains of $32 million and gross unrealized losses of $65 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
| | (a) | Includes $640 million that was included in the former Grantor Trust. |
| | (b) | Includes gross unrealized gains of $32 million and gross unrealized losses of $65 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains and losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. |
The following table presents the realized gains, losses and impairments, on a gross basis.
| | | | | | | | | | | | Net securities gains (losses) | | | | (in millions) | 1Q20 |
| 4Q19 |
| 1Q19 |
| | Realized gross gains | $ | 12 |
| $ | 5 |
| $ | 5 |
| | Realized gross losses | (3 | ) | (29 | ) | (4 | ) | | Recognized gross impairments | — |
| (1 | ) | — |
| | Total net securities gains (losses) | $ | 9 |
| $ | (25 | ) | $ | 1 |
|
| | | | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | Realized gross gains | $ | 10 | | $ | 16 | | $ | 1 | | $ | 38 | | $ | 18 | | | | Realized gross losses | (1) | | (7) | | (1) | | (11) | | (10) | | | | Recognized gross impairments | 0 | | 0 | | (1) | | 0 | | (1) | | | | Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table presents pre-tax net securities gains (losses) by type.
| | | | | | | | | | | | Net securities gains (losses) | | | (in millions) | 1Q20 |
| 4Q19 |
| 1Q19 |
| | U.S. Treasury | $ | 5 |
| $ | (17 | ) | $ | 1 |
| | Other | 4 |
| (8 | ) | — |
| | Total net securities gains (losses) | $ | 9 |
| $ | (25 | ) | $ | 1 |
|
| | | | | | | | | | | | | | | | | | | | Net securities gains (losses) | | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | Foreign government agencies | $ | 5 | | $ | 2 | | $ | 0 | | $ | 7 | | $ | 0 | | | | U.S. Treasury | 1 | | 1 | | 0 | | 7 | | 4 | | | | | | | | | | | Supranational | 0 | | 6 | | 0 | | 6 | | 0 | | | | Sovereign debt/sovereign guaranteed | 1 | | 2 | | 0 | | 3 | | 3 | | | | State and political subdivisions | 0 | | 0 | | 0 | | 0 | | 2 | | | | Other | 2 | | (2) | | (1) | | 4 | | (2) | | | | Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | |
Allowance for credit losses - Securities
In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses Onon Financial Instruments, on a prospective basis. The allowance for credit losses related to securities was $7 million on Jan. 1, 2020 and $15$12 million at March 31,Sept. 30, 2020. The increase reflects additional credit deterioration in the available-for-sale CLO portfolio. For additional information about the review of securities under previous other-than-temporary impairment guidance, refer to Notes 1 and 4, both Notes to Consolidated Financial Statements, in theour 2019 Annual Report.
Credit quality indicators - Securities
At March 31,Sept. 30, 2020, the gross unrealized losses on the securities portfolio were primarily attributable to an increase in interest ratescredit spreads from the date of purchase, and for certain securities that were transferred from available-for-sale to held-to-maturity, an increase in interest rates through the date they were transferred. Specifically, $59$49 million of the unrealized losses at March 31,Sept. 30, 2020 and $65 million at Dec. 31, 2019 reflected in the available-for-sale sections of the tables below relate to certain securities (primarily Agency RMBS) that were transferred in prior periods from available-for-sale to held-to-maturity. The unrealized losses will be amortized into net interest revenue over the contractual lives of the securities. The transfer created a new cost basis for the securities. As a result, if these securities have experienced unrealized losses since the date of transfer, the corresponding fair value and unrealized losses would be reflected in the held-to-maturity sections of the following tables. We do not intend to sell these securities, and it is not more likely than not that we will have to sell these securities.
| | | Notes to Consolidated Financial Statements(continued) | |
The following table shows the aggregate fair value of available-for-sale securities with a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more without an allowance for credit losses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Sept. 30, 2020 (a) | Less than 12 months | | 12 months or more | | Total | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | (in millions) | | | | Agency RMBS | $ | 1,126 | | $ | 3 | | | $ | 2,102 | | $ | 52 | | | $ | 3,228 | | $ | 55 | | | U.S. Treasury | 1,041 | | 1 | | | 0 | | 0 | | | 1,041 | | 1 | | | Sovereign debt/sovereign guaranteed | 1,069 | | 1 | | | 119 | | 0 | | | 1,188 | | 1 | | | Agency commercial MBS | 566 | | 1 | | | 306 | | 2 | | | 872 | | 3 | | | | | | | | | | | | Supranational | 1,583 | | 1 | | | 127 | | 0 | | | 1,710 | | 1 | | | CLOs | 3,449 | | 31 | | | 579 | | 13 | | | 4,028 | | 44 | | | | | | | | | | | | U.S. government agencies | 99 | | 2 | | | 0 | | 0 | | | 99 | | 2 | | | Other ABS | 675 | | 2 | | | 229 | | 2 | | | 904 | | 4 | | | Non-agency commercial MBS | 358 | | 6 | | | 194 | | 4 | | | 552 | | 10 | | | | | | | | | | | Non-agency RMBS (b) | 636 | | 3 | | | 97 | | 6 | | | 733 | | 9 | | | State and political subdivisions | 262 | | 4 | | | 2 | | 0 | | | 264 | | 4 | | | Corporate bonds | 173 | | 1 | | | 0 | | 0 | | | 173 | | 1 | | | | | | | | | | | Total securities available-for-sale (c) | $ | 11,037 | | $ | 56 | | | $ | 3,755 | | $ | 79 | | | $ | 14,792 | | $ | 135 | |
(a) Includes $370 million of securities with an unrealized loss of greater than $1 million. | | | | | | | | | | | | | | | | | | | | | | Available-for-sale securities in an unrealized loss position at March 31, 2020 (a) | Less than 12 months | | 12 months or more | | Total | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| | (in millions) | | | | Agency RMBS | $ | 5,200 |
| $ | 53 |
| | $ | 6,969 |
| $ | 166 |
| | $ | 12,169 |
| $ | 219 |
| | Sovereign debt/sovereign guaranteed | 2,801 |
| 9 |
| | 104 |
| — |
| | 2,905 |
| 9 |
| | Agency commercial MBS | 1,440 |
| 14 |
| | 522 |
| 6 |
| | 1,962 |
| 20 |
| | Foreign covered bonds | 2,934 |
| 33 |
| | 255 |
| 3 |
| | 3,189 |
| 36 |
| | Supranational | 1,663 |
| 6 |
| | 203 |
| — |
| | 1,866 |
| 6 |
| | CLOs | 3,456 |
| 189 |
| | 554 |
| 41 |
| | 4,010 |
| 230 |
| | Commercial paper/CDs | 1,225 |
| 2 |
| | — |
| — |
| | 1,225 |
| 2 |
| | Foreign government agencies | 942 |
| 3 |
| | 50 |
| — |
| | 992 |
| 3 |
| | Non-agency commercial MBS | 1,050 |
| 60 |
| | 37 |
| 3 |
| | 1,087 |
| 63 |
| | Other ABS | 1,283 |
| 38 |
| | 193 |
| 5 |
| | 1,476 |
| 43 |
| | U.S. government agencies | 73 |
| 2 |
| | — |
| — |
| | 73 |
| 2 |
| Non-agency RMBS (b) | 737 |
| 27 |
| | 96 |
| 12 |
| | 833 |
| 39 |
| | State and political subdivisions | 37 |
| 2 |
| | 15 |
| — |
| | 52 |
| 2 |
| | Corporate bonds | 232 |
| 2 |
| | — |
| — |
| | 232 |
| 2 |
| Total securities available-for-sale (c) | $ | 23,073 |
| $ | 440 |
| | $ | 8,998 |
| $ | 236 |
| | $ | 32,071 |
| $ | 676 |
|
| | (a) | Includes $3.9 billion of securities with an unrealized loss of greater than $1 million. |
| | (b) | Includes $97 million of securities with an unrealized loss of $7 million for less than 12 months and $1 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. |
| | (c) | Includes gross unrealized losses of $59(c) Includes gross unrealized losses of $49 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months. |
| | Notes to Consolidated Financial Statements
(continued)
| |
The following table presents the temporarily impaired securities under the disclosure guidance that existed prior to the adoption of ASU 2016-13 and shows the aggregate fair value of available-for-sale securities with a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Dec. 31, 2019 | Less than 12 months | | 12 months or more | | Total | | (in millions) | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Available-for-sale: | | | | | | | | | | Agency RMBS | $ | 8,373 | | $ | 33 | | | $ | 5,912 | | $ | 110 | | | $ | 14,285 | | $ | 143 | | | U.S. Treasury | 1,976 | | 16 | | | 766 | | 4 | | | 2,742 | | 20 | | | Sovereign debt/sovereign guaranteed | 4,045 | | 10 | | | 225 | | 1 | | | 4,270 | | 11 | | | Agency commercial MBS | 1,960 | | 12 | | | 775 | | 5 | | | 2,735 | | 17 | | | Foreign covered bonds | 1,009 | | 4 | | | 690 | | 3 | | | 1,699 | | 7 | | | CLOs | 1,066 | | 2 | | | 1,499 | | 14 | | | 2,565 | | 16 | | | Supranational | 1,336 | | 6 | | | 360 | | 0 | | | 1,696 | | 6 | | | Foreign government agencies | 1,706 | | 2 | | | 47 | | 0 | | | 1,753 | | 2 | | | Non-agency commercial MBS | 525 | | 2 | | | 45 | | 0 | | | 570 | | 2 | | | Other ABS | 456 | | 3 | | | 305 | | 2 | | | 761 | | 5 | | | U.S. government agencies | 377 | | 2 | | | 0 | | 0 | | | 377 | | 2 | | Non-agency RMBS (a) | 101 | | 0 | | | 113 | | 7 | | | 214 | | 7 | | | State and political subdivisions | 0 | | 0 | | | 16 | | 0 | | | 16 | | 0 | | | Corporate bonds | 82 | | 0 | | | 21 | | 0 | | | 103 | | 0 | | | | | | | | | | | Total securities available-for-sale (b) | $ | 23,012 | | $ | 92 | | | $ | 10,774 | | $ | 146 | | | $ | 33,786 | | $ | 238 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Includes $2 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. (b) Includes gross unrealized losses of $65 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.
| | | | | | | | | | | | | | | | | | | | | | | Temporarily impaired securities at Dec. 31, 2019 | Less than 12 months | | 12 months or more | | Total | | (in millions) | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| | Fair value |
| Unrealized losses |
| | Available-for-sale: | | | | | | | | | | Agency RMBS | $ | 8,373 |
| $ | 33 |
| | $ | 5,912 |
| $ | 110 |
| | $ | 14,285 |
| $ | 143 |
| | U.S. Treasury | 1,976 |
| 16 |
| | 766 |
| 4 |
| | 2,742 |
| 20 |
| | Sovereign debt/sovereign guaranteed | 4,045 |
| 10 |
| | 225 |
| 1 |
| | 4,270 |
| 11 |
| | Agency commercial MBS | 1,960 |
| 12 |
| | 775 |
| 5 |
| | 2,735 |
| 17 |
| | Foreign covered bonds | 1,009 |
| 4 |
| | 690 |
| 3 |
| | 1,699 |
| 7 |
| | CLOs | 1,066 |
| 2 |
| | 1,499 |
| 14 |
| | 2,565 |
| 16 |
| | Supranational | 1,336 |
| 6 |
| | 360 |
| — |
| | 1,696 |
| 6 |
| | Foreign government agencies | 1,706 |
| 2 |
| | 47 |
| — |
| | 1,753 |
| 2 |
| | Non-agency commercial MBS | 525 |
| 2 |
| | 45 |
| — |
| | 570 |
| 2 |
| | Other ABS | 456 |
| 3 |
| | 305 |
| 2 |
| | 761 |
| 5 |
| | U.S. government agencies | 377 |
| 2 |
| | — |
| — |
| | 377 |
| 2 |
| Non-agency RMBS (a) | 101 |
| — |
| | 113 |
| 7 |
| | 214 |
| 7 |
| | State and political subdivisions | — |
| — |
| | 16 |
| — |
| | 16 |
| — |
| | Corporate bonds | 82 |
| — |
| | 21 |
| — |
| | 103 |
| — |
| Total securities available-for-sale (b) | $ | 23,012 |
| $ | 92 |
| | $ | 10,774 |
| $ | 146 |
| | $ | 33,786 |
| $ | 238 |
|
| | | (a) | Includes $2 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust. |
| Notes to Consolidated Financial Statements(continued) | (b) | Includes gross unrealized losses of $65 million for 12 months or more recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months. |
The following table shows the credit quality of the held-to-maturity securities. We have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by a reduction in the fair value of our securities portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities portfolio at Sept. 30, 2020 (a) | | | | Ratings (b) | | | | Net unrealized gain | | | | | BB+
and
lower | A1+/A2/SP-1+ | | | (dollars in millions) | Amortized
cost | | | AAA/
AA- | A+/
A- | BBB+/
BBB- | Not
rated | | Agency RMBS | $ | 37,086 | | | $ | 1,107 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | | U.S. Treasury | 3,288 | | | 103 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | | U.S. government agencies | 2,266 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | | Agency commercial MBS | 2,041 | | | 107 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Sovereign debt/sovereign guaranteed (c) | 983 | | | 41 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | | Commercial paper/CDs | 295 | | | 0 | | | 0 | | 0 | | 0 | | 0 | | 100 | | 0 | | | | | | | | | | | | | | Non-agency RMBS | 70 | | | 2 | | | 39 | | 46 | | 2 | | 12 | | 0 | | 1 | | | Supranational | 52 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | | State and political subdivisions | 15 | | | 0 | | | 6 | | 2 | | 6 | | 0 | | 0 | | 86 | | | | | | | | | | | | | | Total held-to-maturity securities | $ | 46,096 | | | $ | 1,362 | | | 99 | % | 0 | % | 0 | % | 0 | % | 1 | % | 0 | % |
| | | | | | | | | | | | | | | | | | | | | | Held-to-maturity securities portfolio at March 31, 2020 (a) | | | | Ratings (b) | | | | | | | | | | BB+
and
lower | | | | (dollars in millions) | Amortized
cost |
| | Unrealized gain (loss) |
| | AAA/
AA- | A+/
A- | BBB+/
BBB- | A1+/A1 | Not
rated | | Agency RMBS | $ | 29,518 |
| | $ | 869 |
| | 100 | % | — | % | — | % | — | % | — | % | — | % | | U.S. Treasury | 2,937 |
| | 121 |
| | 100 |
| — |
| — |
| — |
| — |
| — |
| | Agency commercial MBS | 1,868 |
| | 84 |
| | 100 |
| — |
| — |
| — |
| — |
| — |
| | U.S. government agencies | 1,244 |
| | 4 |
| | 100 |
| — |
| — |
| — |
| — |
| — |
| Sovereign debt/sovereign guaranteed (c) | 919 |
| | 37 |
| | 100 |
| — |
| — |
| — |
| — |
| — |
| | Commercial paper/CDs | 651 |
| | — |
| | — |
| — |
| — |
| — |
| 100 |
| — |
| Foreign covered bonds (d) | 77 |
| | — |
| | 100 |
| — |
| — |
| — |
| — |
| — |
| | Non-agency RMBS | 75 |
| | (2 | ) | | 42 |
| 43 |
| 3 |
| 12 |
| — |
| — |
| | State and political subdivisions | 16 |
| | — |
| | 7 |
| 2 |
| 6 |
| — |
| — |
| 85 |
| | Total held-to-maturity securities | $ | 37,305 |
| | $ | 1,113 |
| | 98 | % | — | % | — | % | — | % | 2 | % | — | % |
| | (a) | In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses On Financial Instruments, on a prospective basis. See Note 2 for additional information. |
| | (b) | Represents ratings by Standard & Poor’s (“S&P”) or the equivalent. |
| | (c) | (b) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent. (c) Primarily consists of exposure to France, UK and Germany. |
| | (d) | Primarily consists of exposure to Canada. |
| | Notes to Consolidated Financial Statements
(continued)
| |
Maturity distribution
The following table shows the maturity distribution by carrying amount and yield (on a tax equivalent basis) of our securities portfolio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity distribution and yields on securities at Sept. 30, 2020 | U.S. Treasury | | U.S. government
agencies | | State and political
subdivisions | | Other bonds, notes and debentures | | Mortgage/
asset-backed | | | | (dollars in millions) | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Total | | Securities available-for-sale: | | | | | | | | | | | | | | | | | | One year or less | $ | 4,405 | | 1.11 | % | | $ | 25 | | 2.55 | % | | $ | 549 | | 1.49 | % | | $ | 11,186 | | 0.44 | % | | $ | — | | — | % | | $ | 16,165 | | | Over 1 through 5 years | 10,546 | | 1.28 | | | 1,866 | | 0.85 | | | 570 | | 3.16 | | | 17,769 | | 0.61 | | | — | | — | | | 30,751 | | | Over 5 through 10 years | 6,517 | | 1.57 | | | 1,468 | | 2.51 | | | 223 | | 1.88 | | | 3,240 | | 0.56 | | | — | | — | | | 11,448 | | | Over 10 years | 3,265 | | 3.11 | | | 119 | | 2.06 | | | 348 | | 2.22 | | | 233 | | 0.62 | | | — | | — | | | 3,965 | | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,327 | | 2.18 | | | 39,327 | | | Asset-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 7,587 | | 1.72 | | | 7,587 | | | Total | $ | 24,733 | | 1.57 | % | | $ | 3,478 | | 1.60 | % | | $ | 1,690 | | 2.26 | % | | $ | 32,428 | | 0.55 | % | | $ | 46,914 | | 2.10 | % | | $ | 109,243 | | | Securities held-to-maturity: | | | | | | | | | | | | | | | | | | One year or less | $ | 785 | | 1.43 | % | | $ | 0 | | 0 | % | | $ | 0 | | 0 | % | | $ | 307 | | 1.99 | % | | $ | — | | — | % | | $ | 1,092 | | | Over 1 through 5 years | 2,503 | | 1.90 | | | 1,253 | | 0.82 | | | 2 | | 5.66 | | | 946 | | 0.67 | | | — | | — | | | 4,704 | | | Over 5 through 10 years | 0 | | 0 | | | 564 | | 1.13 | | | 0 | | 0 | | | 32 | | 0.92 | | | — | | — | | | 596 | | | Over 10 years | 0 | | 0 | | | 449 | | 2.28 | | | 13 | | 4.76 | | | 45 | | 0.35 | | | — | | — | | | 507 | | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,197 | | 2.57 | | | 39,197 | | | Total | $ | 3,288 | | 1.79 | % | | $ | 2,266 | | 1.19 | % | | $ | 15 | | 4.91 | % | | $ | 1,330 | | 0.96 | % | | $ | 39,197 | | 2.57 | % | | $ | 46,096 | |
(a)Yields are based upon the amortized cost of securities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Maturity distribution and yields on securities at March 31, 2020 | U.S. Treasury | | U.S. government agencies | | State and political subdivisions | | Other bonds, notes and debentures | | Mortgage/ asset-backed | | | | (dollars in millions) | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Amount |
| Yield (a) |
| | Total |
| | Securities available-for-sale: | | | | | | | | | | | | | | | | | | One year or less | $ | 1,353 |
| 2.58 | % | | $ | 26 |
| 2.46 | % | | $ | 165 |
| 2.93 | % | | $ | 11,377 |
| 1.20 | % | | $ | — |
| — | % | | $ | 12,921 |
| | Over 1 through 5 years | 12,422 |
| 1.53 |
| | 474 |
| 1.73 |
| | 719 |
| 3.29 |
| | 14,763 |
| 0.76 |
| | — |
| — |
| | 28,378 |
| | Over 5 through 10 years | 6,009 |
| 1.69 |
| | 1,594 |
| 2.70 |
| | 88 |
| 2.58 |
| | 2,601 |
| 0.65 |
| | — |
| — |
| | 10,292 |
| | Over 10 years | 3,297 |
| 3.11 |
| | 119 |
| 2.06 |
| | 13 |
| 2.32 |
| | 186 |
| 1.67 |
| | — |
| — |
| | 3,615 |
| | Mortgage-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 40,444 |
| 2.50 |
| | 40,444 |
| | Asset-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 6,318 |
| 2.70 |
| | 6,318 |
| | Total | $ | 23,081 |
| 1.86 | % | | $ | 2,213 |
| 2.46 | % | | $ | 985 |
| 3.15 | % | | $ | 28,927 |
| 0.93 | % | | $ | 46,762 |
| 2.53 | % | | $ | 101,968 |
| | Securities held-to-maturity: | | | | | | | | | | | | | | | | | | One year or less | $ | — |
| — | % | | $ | — |
| — | % | | $ | — |
| — | % | | $ | 758 |
| 1.53 | % | | $ | — |
| — | % | | $ | 758 |
| | Over 1 through 5 years | 2,937 |
| 1.98 |
| | 603 |
| 1.86 |
| | 3 |
| 5.68 |
| | 703 |
| 0.68 |
| | — |
| — |
| | 4,246 |
| | Over 5 through 10 years | — |
| — |
| | 259 |
| 2.30 |
| | — |
| — |
| | 186 |
| 0.69 |
| | — |
| — |
| | 445 |
| | Over 10 years | — |
| — |
| | 382 |
| 2.43 |
| | 13 |
| 4.76 |
| | — |
| — |
| | — |
| — |
| | 395 |
| | Mortgage-backed securities | — |
| — |
| | — |
| — |
| | — |
| — |
| | — |
| — |
| | 31,461 |
| 2.88 |
| | 31,461 |
| | Total | $ | 2,937 |
| 1.98 | % | | $ | 1,244 |
| 2.12 | % | | $ | 16 |
| 4.92 | % | | $ | 1,647 |
| 1.06 | % | | $ | 31,461 |
| 2.88 | % | | $ | 37,305 |
|
| | | (a)Notes to Consolidated Financial Statements(continued) | Yields are based upon the amortized cost of securities. |
Pledged assets
At March 31,Sept. 30, 2020, BNY Mellon had pledged assets of $131$141 billion, including $99$108 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $6$5 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at March 31,Sept. 30, 2020 included $111$123 billion of securities, $13$11 billion of loans, $6 billion of trading assets and $1 billion of interest-bearing deposits with banks.
If there has been no borrowing at the Federal Reserve Discount Window, the Federal Reserve generally allows banks to freely move assets in and out of their pledged assets account to sell or repledge the assets for other purposes. BNY Mellon regularly moves assets in and out of its pledged assets account at the Federal Reserve.
At Dec. 31, 2019, BNY Mellon had pledged assets of $118 billion, including $80 billion pledged as collateral for potential borrowing at the Federal Reserve Discount Window and $6 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Dec. 31, 2019 included $98 billion of securities, $13 billion of loans, $7 billion of trading assets and less than $1 billion of interest-bearing deposits with banks.
At March 31,Sept. 30, 2020 and Dec. 31, 2019, pledged assets included $24$23 billion and $29 billion, respectively, for which the recipients were permitted to sell or repledge the assets delivered.
At March 31,Sept. 30, 2020, we pledged commercial paper and CDs totaling $651$295 million as collateral to the Federal Reserve Bank of Boston to secure non-recourse borrowings under the Federal Reserve’s Money Market Mutual Fund Liquidity Facility (“MMLF”) program.
We also obtain securities as collateral, including receipts under resale agreements, securities borrowed, derivative contracts and custody agreements, on terms which permit us to sell or repledge the securities to others. At March 31,Sept. 30, 2020 and Dec. 31, 2019, the market value of the securities received that can be sold or repledged was $132$112 billion and $153 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of March 31,Sept. 30, 2020 and Dec. 31, 2019, the market value of securities collateral sold or repledged was $101$80 billion and $107 billion, respectively.
Restricted cash and securities
Cash and securities may be segregated under federal and other regulations or requirements. At March 31,Sept. 30, 2020 and Dec. 31, 2019, cash segregated under
| | Notes to Consolidated Financial Statements(continued)
| |
federal and other regulations or requirements was $5$3 billion and $2 billion, respectively. Restricted cash is included in interest-bearing deposits with banks on the consolidated balance sheet. Securities segregated under federal and other regulations or requirements were $5$4 billion at March 31,Sept. 30, 2020 and $1 billion at Dec. 31, 2019. Restricted securities were sourced from securities purchased under resale agreements and are included in federal funds sold and securities purchased under resale agreements on the consolidated balance sheet.
Note 5–Loans and asset quality
Loans
The table below provides the details of our loan portfolio and industry concentrationsportfolio.
| | | | | | | | | | Loans | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | | Domestic: | | | | Commercial | $ | 1,839 | | $ | 1,442 | | | Commercial real estate | 5,987 | | 5,575 | | | Financial institutions | 4,915 | | 4,852 | | | Lease financings | 482 | | 537 | | | Wealth management loans and mortgages | 15,805 | | 16,050 | | | Other residential mortgages | 423 | | 494 | | | Overdrafts | 899 | | 524 | | | Other | 1,616 | | 1,167 | | | Margin loans | 11,220 | | 11,907 | | | Total domestic | 43,186 | | 42,548 | | | Foreign: | | | | Commercial | 102 | | 347 | | | Commercial real estate | 5 | | 7 | | | Financial institutions | 6,097 | | 7,626 | | | Lease financings | 596 | | 576 | | | Wealth management loans and mortgages | 121 | | 140 | | | Other (primarily overdrafts) | 3,106 | | 2,230 | | | Margin loans | 2,278 | | 1,479 | | | Total foreign | 12,305 | | 12,405 | | Total loans (a) | $ | 55,491 | | $ | 54,953 | |
(a)Net of credit riskunearned income of $285 million at March 31,Sept. 30, 2020 and $313 million at Dec. 31, 2019.2019 primarily related to domestic and foreign lease financings.
| | | | | | | | | Loans | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | | Domestic: | | | | Commercial | $ | 3,010 |
| $ | 1,442 |
| | Commercial real estate | 6,429 |
| 5,575 |
| | Financial institutions | 6,231 |
| 4,852 |
| | Lease financings | 472 |
| 537 |
| | Wealth management loans and mortgages | 16,128 |
| 16,050 |
| | Other residential mortgages | 472 |
| 494 |
| | Overdrafts | 1,851 |
| 524 |
| | Other | 1,168 |
| 1,167 |
| | Margin loans | 11,733 |
| 11,907 |
| | Total domestic | 47,494 |
| 42,548 |
| | Foreign: | | | | Commercial | 425 |
| 347 |
| | Commercial real estate | 22 |
| 7 |
| | Financial institutions | 7,985 |
| 7,626 |
| | Lease financings | 582 |
| 576 |
| | Wealth management loans and mortgages | 131 |
| 140 |
| | Other (primarily overdrafts) | 4,347 |
| 2,230 |
| | Margin loans | 1,382 |
| 1,479 |
| | Total foreign | 14,874 |
| 12,405 |
| Total loans (a) | $ | 62,368 |
| $ | 54,953 |
|
| | | (a) | Net of unearned income of $301 millionNotes to Consolidated Financial Statements at March 31, 2020 and $313 million at Dec. 31, 2019 primarily related to domestic and foreign lease financings.(continued)
| |
Our loan portfolio consists of 3 portfolio segments: commercial, lease financings and mortgages. We manage our portfolio at the class level, which consists of 6 classes of financing receivables: commercial, commercial real estate, financial institutions, lease financings, wealth management loans and mortgages, and other residential mortgages.
The following tables are presented for each class of financing receivables and provide additional information about our credit risks.
| | Notes to Consolidated Financial Statements(continued)
| |
Allowance for credit losses
On Jan. 1, 2020, we adopted ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 for the significant accounting policy related to allowance for credit losses on loans and lending-related commitments.
Activity in the allowance for credit losses on loans and lending-related commitments is presented below. This does not include activity in the allowance for credit losses related to other financial instruments, including cash and due from banks, interest-bearing deposits with banks, federal funds sold and securities purchased under resale agreements, held-to-maturity securities, available-for-sale securities and accounts receivable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2020 | Wealth management loans and mortgages | | Other
residential
mortgages | | | | | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | | Total | | Beginning balance | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | | $ | 12 | | | | $ | 454 | | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | | 1 | | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | | 1 | | Provision (a) | (13) | | 14 | | (5) | | 0 | | 4 | | | 5 | | | | 5 | | Ending balance (b) | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | | $ | 18 | | | | $ | 460 | | | Allowance for: | | | | | | | | | | | | Loan losses | $ | 14 | | $ | 270 | | $ | 7 | | $ | 3 | | $ | 13 | | | $ | 18 | | | | $ | 325 | | | Lending-related commitments | 13 | | 116 | | 4 | | 0 | | 2 | | | 0 | | | | 135 | | | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | (c) | $ | 0 | | | | $ | 17 | | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | |
(a) Does not include provision for credit losses related to other financial instruments of $4 million for the third quarter 2020. (b) Includes $8 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral dependent loans of $17 million with $25 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended June 30, 2020 | Wealth management loans and mortgages | | Other
residential
mortgages | | | | | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | | Total | | | | | | | | | | | | | | | | | | | | | | | | Beginning balance | $ | 26 | | $ | 208 | | $ | 18 | | $ | 13 | | $ | 9 | | | $ | 14 | | | | $ | 288 | | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | | 3 | | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | | 3 | | Provision (a) | 14 | | 164 | | (2) | | (10) | | 2 | | | (5) | | | | 163 | | Ending balance (b) | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | | $ | 12 | | | | $ | 454 | | | Allowance for: | | | | | | | | | | | | Loan losses | $ | 23 | | $ | 244 | | $ | 11 | | $ | 3 | | $ | 9 | | | $ | 12 | | | | $ | 302 | | | Lending-related commitments | 17 | | 128 | | 5 | | 0 | | 2 | | | 0 | | | | 152 | | | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 18 | | (c) | $ | 0 | | | | $ | 18 | | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | | 0 | |
(a) Does not include provision for credit losses related to other financial instruments of $(20) million for the second quarter 2020. (b) Includes $11 million of allowance for credit losses related to foreign loans, primarily financial institutions. (c) Includes collateral dependent loans of $18 million with $26 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended March 31, 2020 | Wealth management loans and mortgages |
| | Other residential mortgages |
| | | | | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| Foreign |
| (a) | Total |
| | Balance at Dec. 31, 2019 | $ | 60 |
| $ | 76 |
| $ | 20 |
| $ | 3 |
| $ | 20 |
| | $ | 13 |
| $ | 24 |
| | $ | 216 |
| | Impact of adopting ASU 2016-13 | (43 | ) | 14 |
| (6 | ) | — |
| (12 | ) | | 2 |
| (24 | ) | | (69 | ) | | Balance at Jan. 1, 2020 | 17 |
| 90 |
| 14 |
| 3 |
| 8 |
| | 15 |
| — |
| | 147 |
| | Charge-offs | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | — |
| | Recoveries | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | — |
| | Net (charge-offs) recoveries | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | — |
| | Provision | 9 |
| 118 |
| 4 |
| 10 |
| 1 |
| | (1 | ) | — |
| | 141 |
| Ending balance (b) | $ | 26 |
| $ | 208 |
| $ | 18 |
| $ | 13 |
| $ | 9 |
| | $ | 14 |
| $ | — |
| | $ | 288 |
| | Allowance for: | | | | | | | | | | | | Loan losses | $ | 13 |
| $ | 83 |
| $ | 10 |
| $ | 13 |
| $ | 7 |
| | $ | 14 |
| $ | — |
| | $ | 140 |
| | Lending-related commitments | 13 |
| 125 |
| 8 |
| — |
| 2 |
| | — |
| — |
| | 148 |
| | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 18 |
| (c) | $ | — |
| $ | — |
| | $ | 18 |
| | Allowance for loan losses | — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | — |
|
| | (a) | The allowance related to the foreign exposure has been reclassified to financial institutions ($10 million), commercial ($10 million) and lease financings ($4 million). |
| | (b) | Includes $12 million of allowance for credit losses related to foreign loans, primarily financial institutions. |
| | (c) | Includes collateral dependent loans of $18 million with $26 million of collateral at fair value. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Dec. 31, 2019 | Wealth management loans and mortgages |
| Other residential mortgages |
| | | | | | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| All other |
| | Foreign |
| Total |
| | Beginning balance | $ | 61 |
| $ | 77 |
| $ | 21 |
| $ | 3 |
| $ | 20 |
| $ | 14 |
| $ | — |
| | $ | 28 |
| $ | 224 |
| | Charge-offs | — |
| — |
| — |
| — |
| — |
| (1 | ) | — |
| | — |
| (1 | ) | | Recoveries | — |
| — |
| — |
| — |
| — |
| 1 |
| — |
| | — |
| 1 |
| | Net (charge-offs) recoveries | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | Provision | (1 | ) | (1 | ) | (1 | ) | — |
| — |
| (1 | ) | — |
| | (4 | ) | (8 | ) | | Ending balance | $ | 60 |
| $ | 76 |
| $ | 20 |
| $ | 3 |
| $ | 20 |
| $ | 13 |
| $ | — |
| | $ | 24 |
| $ | 216 |
| | Allowance for: | | | | | | | | | | | | Loan losses | $ | 11 |
| $ | 57 |
| $ | 5 |
| $ | 3 |
| $ | 18 |
| $ | 13 |
| $ | — |
| | $ | 15 |
| $ | 122 |
| | Lending-related commitments | 49 |
| 19 |
| 15 |
| — |
| 2 |
| — |
| — |
| | 9 |
| 94 |
| | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 15 |
| $ | — |
| $ | — |
| | $ | — |
| $ | 15 |
| | Allowance for loan losses | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | Collectively evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 1,442 |
| $ | 5,575 |
| $ | 4,852 |
| $ | 537 |
| $ | 16,035 |
| $ | 494 |
| $ | 13,598 |
| (a) | $ | 12,405 |
| $ | 54,938 |
| | Allowance for loan losses | 11 |
| 57 |
| 5 |
| 3 |
| 18 |
| 13 |
| — |
| | 15 |
| 122 |
|
| | (a) | Includes $524 million of domestic overdrafts, $11,907 million of margin loans and $1,167 million of other loans at Dec. 31, 2019. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended Sept. 30, 2019 | Wealth management loans and mortgages | Other
residential
mortgages | All
other | | Foreign | Total | | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | | Beginning balance | $ | 77 | | $ | 72 | | $ | 21 | | $ | 4 | | $ | 20 | | $ | 14 | | $ | 0 | | | $ | 33 | | $ | 241 | | | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | (1) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | (1) | | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | | Net (charge-offs) | (1) | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | (1) | | | Provision | (15) | | 5 | | 0 | | (1) | | 0 | | 0 | | 0 | | | (5) | | (16) | | | Ending balance | $ | 61 | | $ | 77 | | $ | 21 | | $ | 3 | | $ | 20 | | $ | 14 | | $ | 0 | | | $ | 28 | | $ | 224 | | | Allowance for: | | | | | | | | | | | | Loan losses | $ | 10 | | $ | 57 | | $ | 7 | | $ | 3 | | $ | 17 | | $ | 14 | | $ | 0 | | | $ | 19 | | $ | 127 | | | Lending-related commitments | 51 | | 20 | | 14 | | 0 | | 3 | | 0 | | 0 | | | 9 | | 97 | | | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 16 | | $ | 0 | | $ | 0 | | | $ | 0 | | $ | 16 | | | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | 0 | | | Collectively evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 1,335 | | $ | 5,292 | | $ | 4,973 | | $ | 559 | | $ | 15,748 | | $ | 520 | | $ | 12,567 | | (a) | $ | 13,871 | | $ | 54,865 | | | Allowance for loan losses | 10 | | 57 | | 7 | | 3 | | 17 | | 14 | | 0 | | | 19 | | 127 | |
(a) Includes $1,247 million of domestic overdrafts, $10,177 million of margin loans and $1,143 million of other loans at Sept. 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2020 | Wealth management loans and mortgages | Other
residential
mortgages | Foreign | | Total | | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | (a) | | Balance at Dec. 31, 2019 | $ | 60 | | $ | 76 | | $ | 20 | | $ | 3 | | $ | 20 | | $ | 13 | | $ | 24 | | | $ | 216 | | Impact of adopting ASU 2016-13 | (43) | | 14 | | (6) | | 0 | | (12) | | 2 | | (24) | | | (69) | | | Balance at Jan. 1, 2020 | 17 | | 90 | | 14 | | 3 | | 8 | | 15 | | 0 | | | 147 | | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 4 | | 0 | | | 4 | | | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 4 | | 0 | | | 4 | | Provision (b) | 10 | | 296 | | (3) | | 0 | | 7 | | (1) | | 0 | | | 309 | | | Ending balance | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | $ | 18 | | $ | 0 | | | $ | 460 | |
(a) The allowance related to foreign exposure has been reclassified to financial institutions ($10 million), commercial ($10 million) and lease financings ($4 million). (b) Does not include provision for credit losses related to other financial instruments of $12 million for the nine months ended Sept. 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the nine months ended Sept. 30, 2019 | Wealth management loans and mortgages | Other
residential
mortgages | All
other | Foreign | Total | | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | Beginning balance | $ | 81 | | $ | 75 | | $ | 22 | | $ | 5 | | $ | 21 | | $ | 16 | | $ | 0 | | $ | 32 | | $ | 252 | | | | | | | | | | | | | | | | | | | | | | | Charge-offs | (12) | | 0 | | 0 | | 0 | | (1) | | 0 | | 0 | | 0 | | (13) | | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 2 | | 0 | | 0 | | 2 | | | Net (charge-offs) recoveries | (12) | | 0 | | 0 | | 0 | | (1) | | 2 | | 0 | | 0 | | (11) | | | Provision | (8) | | 2 | | (1) | | (2) | | 0 | | (4) | | 0 | | (4) | | (17) | | | Ending balance | $ | 61 | | $ | 77 | | $ | 21 | | $ | 3 | | $ | 20 | | $ | 14 | | $ | 0 | | $ | 28 | | $ | 224 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Allowance for credit losses activity for the quarter ended March 31, 2019 | Wealth management loans and mortgages |
| Other residential mortgages |
| All other |
| | Foreign |
| Total |
| | (in millions) | Commercial |
| Commercial real estate |
| Financial institutions |
| Lease financings |
| | | Beginning balance | $ | 81 |
| $ | 75 |
| $ | 22 |
| $ | 5 |
| $ | 21 |
| $ | 16 |
| $ | — |
| | $ | 32 |
| $ | 252 |
| | Charge-offs | (11 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| (11 | ) | | Recoveries | — |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| — |
| | Net recoveries | (11 | ) | — |
| — |
| — |
| — |
| — |
| — |
| | — |
| (11 | ) | | Provision | 12 |
| (1 | ) | 1 |
| (1 | ) | — |
| (1 | ) | — |
| | (3 | ) | 7 |
| | Ending balance | $ | 82 |
| $ | 74 |
| $ | 23 |
| $ | 4 |
| $ | 21 |
| $ | 15 |
| $ | — |
| | $ | 29 |
| $ | 248 |
| | Allowance for: | | | | | | | | | | | | Loan losses | $ | 24 |
| $ | 56 |
| $ | 10 |
| $ | 4 |
| $ | 18 |
| $ | 15 |
| $ | — |
| | $ | 19 |
| $ | 146 |
| | Lending-related commitments | 58 |
| 18 |
| 13 |
| — |
| 3 |
| — |
| — |
| | 10 |
| 102 |
| | Individually evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 96 |
| $ | — |
| $ | — |
| $ | — |
| $ | 4 |
| $ | — |
| $ | — |
| | $ | — |
| $ | 100 |
| | Allowance for loan losses | 10 |
| — |
| — |
| — |
| — |
| — |
| — |
| | — |
| 10 |
| | Collectively evaluated for impairment: | | | | | | | | | | | | Loan balance | $ | 1,626 |
| $ | 4,921 |
| $ | 4,652 |
| $ | 653 |
| $ | 15,724 |
| $ | 574 |
| $ | 13,913 |
| (a) | $ | 11,324 |
| $ | 53,387 |
| | Allowance for loan losses | 14 |
| 56 |
| 10 |
| 4 |
| 18 |
| 15 |
| — |
| | 19 |
| 136 |
|
| | | (a)Notes to Consolidated Financial Statements(continued) | Includes $654 million of domestic overdrafts, $12,107 million of margin loans and $1,152 million of other loans at March 31, 2019. |
Nonperforming assets
The table below presents our nonperforming assets.
| | | | | | | | | | | | | | | Nonperforming assets | March 31, 2020 | Dec. 31, 2019 |
| | | Recorded investment | | | With an allowance |
| Without an allowance |
| | | (in millions) | Total |
| | Nonperforming loans: | | | | | | Other residential mortgages | $ | 60 |
| $ | — |
| $ | 60 |
| $ | 62 |
| | Wealth management loans and mortgages | 9 |
| 18 |
| 27 |
| 24 |
| | Total nonperforming loans | 69 |
| 18 |
| 87 |
| 86 |
| | Other assets owned | 1 |
| — |
| 1 |
| 3 |
| | Total nonperforming assets | $ | 70 |
| $ | 18 |
| $ | 88 |
| $ | 89 |
|
| | | | | | | | | | | | | | | | Nonperforming assets | Sept. 30, 2020 | Dec. 31, 2019 | | Recorded investment | | With an
allowance | Without an allowance | | | (in millions) | Total | | Nonperforming loans: | | | | | | | | | | | Other residential mortgages | $ | 56 | | $ | 0 | | $ | 56 | | $ | 62 | | | Wealth management loans and mortgages | 10 | | 17 | | 27 | | 24 | | | Total nonperforming loans | 66 | | 17 | | 83 | | 86 | | | Other assets owned | 0 | | 1 | | 1 | | 3 | | | Total nonperforming assets | $ | 66 | | $ | 18 | | $ | 84 | | $ | 89 | |
At March 31,Sept. 30, 2020, undrawn commitments to borrowers whose loans were classified as nonaccrual or reduced rate were not material.
Past due loans
The table below presents our past due loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Past due loans and still accruing interest | Sept. 30, 2020 | | Dec. 31, 2019 | | | Days past due | Total
past due | | Days past due | Total
past due | | (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 | | Wealth management loans and mortgages | $ | 20 | | $ | 1 | | $ | 0 | | $ | 21 | | | $ | 22 | | $ | 5 | | $ | 0 | | $ | 27 | | | Other residential mortgages | 7 | | 0 | | 0 | | 7 | | | 8 | | 3 | | 0 | | 11 | | | Financial institutions | 0 | | 0 | | 0 | | 0 | | | 1 | | 30 | | 0 | | 31 | | | Commercial real estate | 9 | | 0 | | 0 | | 9 | | | 6 | | 12 | | 0 | | 18 | | | Total past due loans | $ | 36 | | $ | 1 | | $ | 0 | | $ | 37 | | | $ | 37 | | $ | 50 | | $ | 0 | | $ | 87 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Past due loans and still accruing interest | March 31, 2020 | | Dec. 31, 2019 | | | Days past due | Total past due |
| | Days past due | Total past due |
| | (in millions) | 30-59 |
| 60-89 |
| ≥90 |
| 30-59 |
| 60-89 |
| ≥90 |
| | Financial institutions | $ | — |
| $ | — |
| $ | — |
| $ | — |
| | $ | 1 |
| $ | 30 |
| $ | — |
| $ | 31 |
| | Wealth management loans and mortgages | 77 |
| 1 |
| — |
| 78 |
| | 22 |
| 5 |
| — |
| 27 |
| | Commercial real estate | — |
| — |
| — |
| — |
| | 6 |
| 12 |
| — |
| 18 |
| | Other residential mortgages | 9 |
| 1 |
| — |
| 10 |
| | 8 |
| 3 |
| — |
| 11 |
| | Total past due loans | $ | 86 |
| $ | 2 |
| $ | — |
| $ | 88 |
|
| $ | 37 |
| $ | 50 |
| $ | — |
| $ | 87 |
|
Loan modifications
| | | Notes to Consolidated Financial Statements (continued) | |
Loan modifications
The CARES Act, which became law on March 27, 2020, provides that financial institutions may, subject to certain conditions, elect to temporarily suspend the U.S. GAAP requirements with respect to loan modifications related to the coronavirus pandemic that would otherwise be treated as troubled debt restructurings (“TDRs”) and the determination that such a loan modification is a TDR. We modified loans of less than $1 million in the first quarter of 2020, first quarter of 2019 and fourth quarter of 2019. The loans were primarily other residential loans.
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 table below provides information about the credit profile of the loan portfolio by the period of origination.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit profile of the loan portfolio | | | | Sept. 30, 2020 | | | | | | | | Revolving loans | | | | Originated, at amortized cost | Amortized cost | Converted to term loans - Amortized cost | | Accrued
interest
receivable | | (in millions) | YTD20 | 2019 | 2018 | 2017 | 2016 | Prior to 2016 | Total (a) | | Commercial: | | | | | | | | | | | | Investment grade | $ | 153 | | $ | 73 | | $ | 96 | | $ | 450 | | $ | 57 | | $ | 0 | | $ | 893 | | $ | 0 | | $ | 1,722 | | | | Non-investment grade | 85 | | 61 | | 7 | | 0 | | 0 | | 0 | | 66 | | 0 | | 219 | | | | Total commercial | 238 | | 134 | | 103 | | 450 | | 57 | | 0 | | 959 | | 0 | | 1,941 | | $ | 1 | | | Commercial real estate: | | | | | | | | | | | | Investment grade | 611 | | 1,065 | | 542 | | 543 | | 385 | | 430 | | 175 | | 0 | | 3,751 | | | | Non-investment grade | 160 | | 526 | | 604 | | 159 | | 367 | | 152 | | 244 | | 29 | | 2,241 | | | | Total commercial real estate | 771 | | 1,591 | | 1,146 | | 702 | | 752 | | 582 | | 419 | | 29 | | 5,992 | | 8 | | | Financial institutions: | | | | | | | | | | | | Investment grade | 60 | | 238 | | 47 | | 125 | | 14 | | 165 | | 8,471 | | 0 | | 9,120 | | | | Non-investment grade | 98 | | 36 | | 0 | | 0 | | 0 | | 0 | | 1,758 | | 0 | | 1,892 | | | | Total financial institutions | 158 | | 274 | | 47 | | 125 | | 14 | | 165 | | 10,229 | | 0 | | 11,012 | | 13 | | | Wealth management loans and mortgages: | | | | | | | | | | | | Investment grade | 31 | | 80 | | 11 | | 149 | | 56 | | 85 | | 7,235 | | 0 | | 7,647 | | | | Non-investment grade | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 63 | | 0 | | 63 | | | | Wealth management mortgages | 781 | | 1,082 | | 682 | | 1,267 | | 1,622 | | 2,748 | | 34 | | 0 | | 8,216 | | | | Total wealth management loans and mortgages | 812 | | 1,162 | | 693 | | 1,416 | | 1,678 | | 2,833 | | 7,332 | | 0 | | 15,926 | | 29 | | | Lease financings | 126 | | 19 | | 17 | | 10 | | 25 | | 881 | | 0 | | 0 | | 1,078 | | 0 | | | Other residential mortgages | 0 | | 0 | | 0 | | 0 | | 0 | | 423 | | 0 | | 0 | | 423 | | 2 | | | Other loans | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,658 | | 0 | | 1,658 | | 1 | | | Margin loans | 3,553 | | 0 | | 0 | | 0 | | 0 | | 0 | | 9,945 | | 0 | | 13,498 | | 7 | | | Total loans | $ | 5,658 | | $ | 3,180 | | $ | 2,006 | | $ | 2,703 | | $ | 2,526 | | $ | 4,884 | | $ | 30,542 | | $ | 29 | | $ | 51,528 | | $ | 61 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit profile of the loan portfolio |
|
|
| March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
| Revolving loans |
|
|
|
|
| Originated, at amortized cost | Amortized cost |
| Converted to term loans - Amortized cost |
|
|
| Accrued
interest
receivable |
| | (in millions) | 1Q20 |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| Prior to 2016 |
| Total (a) |
| | Commercial: |
|
|
|
|
|
|
|
|
|
| | Investment grade | $ | 20 |
| $ | 286 |
| $ | 107 |
| $ | 600 |
| $ | 57 |
| $ | — |
| $ | 1,994 |
| $ | — |
| $ | 3,064 |
| | | Non-investment grade | 41 |
| 72 |
| 12 |
| — |
| 6 |
| — |
| 240 |
| — |
| 371 |
| | | Total commercial | 61 |
| 358 |
| 119 |
| 600 |
| 63 |
| — |
| 2,234 |
| — |
| 3,435 |
| $ | 4 |
| | Commercial real estate: | | | | | | | | | | | | Investment grade | 414 |
| 1,412 |
| 1,047 |
| 624 |
| 636 |
| 640 |
| 586 |
| — |
| $ | 5,359 |
| | | Non-investment grade | 15 |
| 136 |
| 213 |
| 106 |
| 313 |
| 48 |
| 232 |
| 29 |
| 1,092 |
| | | Total commercial real estate | 429 |
| 1,548 |
| 1,260 |
| 730 |
| 949 |
| 688 |
| 818 |
| 29 |
| 6,451 |
| 11 |
| | Financial institutions: | | | | | | | | | | | | Investment grade | 49 |
| 270 |
| 133 |
| 125 |
| 14 |
| 189 |
| 11,429 |
| — |
| $ | 12,209 |
| | | Non-investment grade | 15 |
| 8 |
| — |
| — |
| — |
| — |
| 1,984 |
| — |
| 2,007 |
| | | Total financial institutions | 64 |
| 278 |
| 133 |
| 125 |
| 14 |
| 189 |
| 13,413 |
| — |
| 14,216 |
| 26 |
| | Wealth management loans and mortgages: | | | | | | | | | | | | Investment grade | 3 |
| 83 |
| 12 |
| 178 |
| 58 |
| 94 |
| 7,049 |
| — |
| $ | 7,477 |
| | | Non-investment grade | — |
| — |
| — |
| — |
| — |
| — |
| 132 |
| — |
| 132 |
| | | Wealth management mortgages | 208 |
| 1,139 |
| 752 |
| 1,438 |
| 1,833 |
| 3,239 |
| 41 |
| — |
| 8,650 |
| | | Total wealth management loans and mortgages | 211 |
| 1,222 |
| 764 |
| 1,616 |
| 1,891 |
| 3,333 |
| 7,222 |
| — |
| 16,259 |
| 38 |
| | Lease financings | — |
| 21 |
| 23 |
| 72 |
| 34 |
| 904 |
| — |
| — |
| 1,054 |
| — |
| | Other residential mortgages | — |
| — |
| — |
| — |
| — |
| 472 |
| — |
| — |
| 472 |
| 2 |
| | Other loans | 5 |
| — |
| — |
| — |
| — |
| — |
| 1,214 |
| — |
| 1,219 |
| 1 |
| | Margin loans | 2,260 |
| 1,300 |
| — |
| — |
| — |
| — |
| 9,555 |
| — |
| 13,115 |
| 12 |
| | Total loans | $ | 3,030 |
| $ | 4,727 |
| $ | 2,299 |
| $ | 3,143 |
| $ | 2,951 |
| $ | 5,586 |
| $ | 34,456 |
| $ | 29 |
| $ | 56,221 |
| $ | 94 |
|
| | (a) | Excludes overdrafts of $6,147 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days. |
Commercial loans
The commercial loan portfolio is divided into investment grade and non-investment grade categories based on the assigned internal credit ratings, which are generally consistent with those of the public rating agencies. Customers with ratings consistent with BBB- (S&P)/Baa3 (Moody’s) or better are considered to be investment grade. Those clients with ratings lower than this threshold are considered to be non-investment grade.
Commercial real estate
Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending
| | Notes to Consolidated Financial Statements(continued)
| |
activities also include construction and renovation facilities.
Financial institutions
Financial institution exposures are high quality, with 96%95% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at March 31,Sept. 30, 2020. In addition, 79%75% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody. The exposure to financial
| | | Notes to Consolidated Financial Statements(continued) | |
institutions is generally short-term, with 90%89% expiring within one year.
Wealth management loans and mortgages
Wealth management non-mortgage loans are not typically rated by external rating agencies. A majority of the wealth management loans are secured by the customers’ investment management accounts or custody accounts. Eligible assets pledged for these loans are typically investment grade fixed-income securities, equities and/or mutual funds. Internal ratings for this portion of the wealth management portfolio, therefore, would equate to investment grade external ratings. Wealth management loans are provided to select customers based on the pledge of other types of assets, including business assets, fixed assets or a modest amount of commercial real estate. For the loans collateralized by other assets, the credit quality of the obligor is carefully analyzed, but we do not consider this portfolio of loans to be investment grade.
Credit quality indicators for wealth management mortgages are not correlated to external ratings. Wealth management mortgages are typically loans to high-net-worth individuals, which are secured primarily by residential property. These loans are primarily interest-only, adjustable rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. Delinquency rate is a key indicator of credit quality in the wealth management portfolio. At March 31,Sept. 30, 2020, less than 1% of the mortgages were past due.
At March 31,Sept. 30, 2020, the wealth management mortgage portfolio consisted of the following geographic concentrations: California - 23%22%; New York - 17%; Massachusetts - 10%; Florida - 8%; and other - 42%43%.
Lease financing
At March 31,Sept. 30, 2020, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily large-ticket transportation equipment and real estate. The largest component of our lease residual value exposure is freight-related rail. Assets are both domestic and foreign-based, with primary concentrations in the U.S. and Germany.
Other residential mortgages
The other residential mortgage portfolio primarily consists of 1-4 family residential mortgage loans and totaled $472$423 million at March 31,Sept. 30, 2020 and $494 million at Dec. 31, 2019. These loans are not typically correlated to external ratings. Included in this portfolio at March 31,Sept. 30, 2020 were $87$76 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007, of which 9%19% of the serviced loan balance was at least 60 days delinquent.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $6.1$4.0 billion at March 31,Sept. 30, 2020 and $2.7 billion at Dec. 31, 2019. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.
Other loans
Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed-income securities.
Margin loans
We had $13.1$13.5 billion of secured margin loans at March 31,Sept. 30, 2020, compared with $13.4 billion at Dec. 31, 2019. Margin loans are collateralized with marketable securities, and borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. We have rarely suffered a loss on these types of loans.
Reverse repurchase agreements
Reverse repurchase agreements are fully collateralized transactions. Substantially all of the collateral was high quality. At March 31,at Sept. 30, 2020 we had $1.2 billion of reverse reposwere fully secured bywith high quality collateral. As a result, there was 0 allowance for credit losses related to these assets at Sept. 30, 2020.
| | | Notes to Consolidated Financial Statements (continued) | |
non-agency debt securities that have experienced decreased liquidity during March 2020. The
allowance for credit losses related to these assets at March 31, 2020 is $18 million.
Note 6–Goodwill and intangible assets
Goodwill
The tables below provide a breakdown of goodwill by business.
| | | | | | | | | | | | | | Goodwill by business (in millions) | Investment
Services |
| Investment
Management |
| Other |
| Consolidated |
| | Balance at Dec. 31, 2019 | $ | 8,332 |
| $ | 9,007 |
| $ | 47 |
| $ | 17,386 |
| | Foreign currency translation | (43 | ) | (103 | ) | — |
| (146 | ) | Other (a) | 47 |
| — |
| (47 | ) | — |
| | Balance at March 31, 2020 | $ | 8,336 |
| $ | 8,904 |
| $ | — |
| $ | 17,240 |
|
| | (a) | Reflects the transfer of goodwill associated with the Capital Markets business. |
| | | | | | | | | | | | | | Goodwill by business (in millions) | Investment
Services |
| Investment
Management |
| Other |
| Consolidated |
| | Balance at Dec. 31, 2018 | $ | 8,333 |
| $ | 8,970 |
| $ | 47 |
| $ | 17,350 |
| | Foreign currency translation | (5 | ) | 22 |
| — |
| 17 |
| | Balance at March 31, 2019 | $ | 8,328 |
| $ | 8,992 |
| $ | 47 |
| $ | 17,367 |
|
| | | | | | | | | | | | | | | Goodwill by business
(in millions) | Investment
Services | Investment and Wealth
Management | Other | Consolidated | | Balance at Dec. 31, 2019 | $ | 8,332 | | $ | 9,007 | | $ | 47 | | $ | 17,386 | | | Foreign currency translation | 21 | | (50) | | 0 | | (29) | | Other (a) | 47 | | 0 | | (47) | | 0 | | | Balance at Sept. 30, 2020 | $ | 8,400 | | $ | 8,957 | | $ | 0 | | $ | 17,357 | |
(a) Reflects the transfer of goodwill associated with the Capital Markets business.
| | | | | | | | | | | | | | | Goodwill by business
(in millions) | Investment
Services | Investment and Wealth Management | Other | Consolidated | | Balance at Dec. 31, 2018 | $ | 8,333 | | $ | 8,970 | | $ | 47 | | $ | 17,350 | | | Foreign currency translation | (45) | | (57) | | 0 | | (102) | | | Balance at Sept. 30, 2019 | $ | 8,288 | | $ | 8,913 | | $ | 47 | | $ | 17,248 | |
Intangible assets
The tables below provide a breakdown of intangible assets by business.
| | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions) | Investment
Services |
| Investment
Management |
| Other |
| Consolidated |
| | Balance at Dec. 31, 2019 | $ | 678 |
| $ | 1,580 |
| $ | 849 |
| $ | 3,107 |
| | Amortization | (18 | ) | (8 | ) | — |
| (26 | ) | | Foreign currency translation | (1 | ) | (10 | ) | — |
| (11 | ) | | Balance at March 31, 2020 | $ | 659 |
| $ | 1,562 |
| $ | 849 |
| $ | 3,070 |
|
| | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions) | Investment
Services |
| Investment
Management |
| Other |
| Consolidated |
| | Balance at Dec. 31, 2018 | $ | 758 |
| $ | 1,613 |
| $ | 849 |
| $ | 3,220 |
| | Amortization | (20 | ) | (9 | ) | — |
| (29 | ) | | Foreign currency translation | (1 | ) | 3 |
| — |
| 2 |
| | Balance at March 31, 2019 | $ | 737 |
| $ | 1,607 |
| $ | 849 |
| $ | 3,193 |
|
| | | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions)
| Investment
Services | Investment and Wealth Management | Other | Consolidated | | Balance at Dec. 31, 2019 | $ | 678 | | $ | 1,580 | | $ | 849 | | $ | 3,107 | | | Amortization | (54) | | (24) | | 0 | | (78) | | | Foreign currency translation | 1 | | (4) | | 0 | | (3) | | | Balance at Sept. 30, 2020 | $ | 625 | | $ | 1,552 | | $ | 849 | | $ | 3,026 | |
| | | | | | | | | | | | | | | Intangible assets – net carrying amount by business
(in millions) | Investment
Services | Investment and Wealth Management | Other | Consolidated | | Balance at Dec. 31, 2018 | $ | 758 | | $ | 1,613 | | $ | 849 | | $ | 3,220 | | | Amortization | (61) | | (28) | | 0 | | (89) | | | Foreign currency translation | (1) | | (6) | | 0 | | (7) | | | Balance at Sept. 30, 2019 | $ | 696 | | $ | 1,579 | | $ | 849 | | $ | 3,124 | |
| | | Notes to Consolidated Financial Statements (continued) | |
The table below provides a breakdown of intangible assets by type.
| | | | | | | | | | | | | | | | | | | | | | | Intangible assets | March 31, 2020 | | Dec. 31, 2019 | | (in millions) | Gross carrying amount |
| Accumulated amortization |
| Net carrying amount |
| Remaining weighted- average amortization period | | Gross
carrying
amount |
| Accumulated
amortization |
| Net carrying amount |
| Subject to amortization: (a) | | | | | | | | | | Customer contracts—Investment Services | $ | 1,515 |
| $ | (1,227 | ) | $ | 288 |
| 10 years | | $ | 1,520 |
| $ | (1,214 | ) | $ | 306 |
| | Customer relationships—Investment Management | 709 |
| (548 | ) | 161 |
| 11 years | | 712 |
| (544 | ) | 168 |
| | Other | 64 |
| (18 | ) | 46 |
| 14 years | | 64 |
| (16 | ) | 48 |
| | Total subject to amortization | 2,288 |
| (1,793 | ) | 495 |
| 10 years | | 2,296 |
| (1,774 | ) | 522 |
| Not subject to amortization: (b) | | | | | | | | | | Tradenames | 1,291 |
| N/A |
| 1,291 |
| N/A | | 1,293 |
| N/A |
| 1,293 |
| | Customer relationships | 1,284 |
| N/A |
| 1,284 |
| N/A | | 1,292 |
| N/A |
| 1,292 |
| | Total not subject to amortization | 2,575 |
| N/A |
| 2,575 |
| N/A | | 2,585 |
| N/A |
| 2,585 |
| | Total intangible assets | $ | 4,863 |
| $ | (1,793 | ) | $ | 3,070 |
| N/A | | $ | 4,881 |
| $ | (1,774 | ) | $ | 3,107 |
|
| | (a) | Excludes fully amortized intangible assets. |
| | (b) | Intangible assets not subject to amortization have an indefinite life. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Intangible assets | Sept. 30, 2020 | | Dec. 31, 2019 | | (in millions) | Gross
carrying
amount | Accumulated
amortization | Net
carrying
amount | Remaining
weighted-
average
amortization
period | | Gross
carrying
amount | Accumulated
amortization | Net
carrying
amount | Subject to amortization: (a) | | | | | | | | | | Customer contracts—Investment Services | $ | 1,482 | | $ | (1,228) | | $ | 254 | | 10 years | | $ | 1,520 | | $ | (1,214) | | $ | 306 | | | Customer relationships—Investment and Wealth Management | 711 | | (563) | | 148 | | 10 years | | 712 | | (544) | | 168 | | | Other | 64 | | (21) | | 43 | | 14 years | | 64 | | (16) | | 48 | | | Total subject to amortization | 2,257 | | (1,812) | | 445 | | 10 years | | 2,296 | | (1,774) | | 522 | | Not subject to amortization: (b) | | | | | | | | | | Tradenames | 1,292 | | N/A | 1,292 | | N/A | | 1,293 | | N/A | 1,293 | | | Customer relationships | 1,289 | | N/A | 1,289 | | N/A | | 1,292 | | N/A | 1,292 | | | Total not subject to amortization | 2,581 | | N/A | 2,581 | | N/A | | 2,585 | | N/A | 2,585 | | | Total intangible assets | $ | 4,838 | | $ | (1,812) | | $ | 3,026 | | N/A | | $ | 4,881 | | $ | (1,774) | | $ | 3,107 | |
(a) Excludes fully amortized intangible assets. (b)Intangible assets not subject to amortization have an indefinite life.
Estimated annual amortization expense for current intangibles for the next five years is as follows:
| | | | | | For the year ended
Dec. 31, | Estimated amortization expense (in millions) | | | 2020 | | $ | 104 |
| | 2021 | | 81 |
| | 2022 | | 63 |
| | 2023 | | 52 |
| | 2024 | | 45 |
|
| | | | | | | | | For the year ended
Dec. 31, | Estimated amortization expense (in millions) | | 2020 | | $ | 104 | | | 2021 | | 81 | | | 2022 | | 63 | | | 2023 | | 52 | | | 2024 | | 45 | |
Impairment testing
BNY Mellon’s business segments include 6 reporting units for which goodwill impairment testing is performed on an annual basis, in the second quarter. In the first quarter of 2020, we performed an interimThe goodwill impairment test ofis performed at least annually at the Asset Management reporting unit which resulted in 0 goodwill impairment.
level. Intangible assets not subject to amortization are tested for impairment annually or more often if events or circumstances indicate they may be impaired.
BNY Mellon’s 3 business segments include 6 reporting units for which goodwill impairment testing is performed on an annual basis. The Investment Services segment is comprised of 4 reporting units and the Investment and Wealth Management segment is comprised of 2 reporting units. As a result of the annual goodwill impairment test of the 6 reporting units conducted in the second quarter of 2020, 0 goodwill impairment was recognized.
Note 7–Other assets
The following table provides the components of other assets presented on the consolidated balance sheet.
| | | | | | | | | | Other assets | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | | Corporate/bank-owned life insurance | $ | 5,276 | | $ | 5,219 | | | Accounts receivable | 3,549 | | 3,802 | | | Fails to deliver | 2,192 | | 1,671 | | | Software | 1,832 | | 1,590 | | | Prepaid pension assets | 1,599 | | 1,464 | | | Equity in a joint venture and other investments | 1,190 | | 1,102 | | | Renewable energy investments | 1,057 | | 1,144 | | | Qualified affordable housing project investments | 997 | | 1,024 | | | Prepaid expense | 522 | | 491 | | | Federal Reserve Bank stock | 478 | | 466 | | | Income taxes receivable | 332 | | 388 | | | Seed capital | 200 | | 184 | | | Fair value of hedging derivatives | 56 | | 21 | | Other (a) | 1,499 | | 1,655 | | | Total other assets | $ | 20,779 | | $ | 20,221 | |
| | | | | | | | | | Other assets | March 31, 2020 |
| | Dec. 31, 2019 |
| | (in millions) | | Fails to deliver | $ | 8,200 |
| (a) | $ | 1,671 |
| | Corporate/bank-owned life insurance | 5,240 |
| | 5,219 |
| | Accounts receivable | 4,649 |
| | 3,802 |
| | Software | 1,678 |
| | 1,590 |
| | Prepaid pension assets | 1,502 |
| | 1,464 |
| | Renewable energy investments | 1,119 |
| | 1,144 |
| | Equity in a joint venture and other investments | 1,091 |
| | 1,102 |
| | Qualified affordable housing project investments | 993 |
| | 1,024 |
| | Prepaid expense | 515 |
| | 491 |
| | Federal Reserve Bank stock | 466 |
| | 466 |
| | Fair value of hedging derivatives | 187 |
| | 21 |
| | Seed capital | 141 |
| | 184 |
| | Income taxes receivable | 47 |
| | 388 |
| Other (b) | 1,618 |
| | 1,655 |
| | Total other assets | $ | 27,446 |
| | $ | 20,221 |
|
| | (a) | The increase at March 31, 2020 primarily reflects higher trade volumes in the current macroeconomic environment. |
| | (b) | At March 31, 2020 and Dec. 31, 2019, other assets include $20(a) At Sept. 30, 2020 and Dec. 31, 2019, other assets include $8 million and $22 million, respectively, of Federal Home Loan Bank stock, at cost. |
| | | Notes to Consolidated Financial Statements (continued) | |
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 income on the consolidated income statement. Our non-readily marketable equity securities totaled $101$112 million at March 31,Sept. 30, 2020 and $61 million at Dec. 31, 2019 and are included in equity in a joint venture and other investments in the table above.
The following table presents the adjustments on the non-readily marketable equity securities.
| | | | | | | | | | | | | | | Non-readily marketable equity securities | | Life-to-date |
| | (in millions) | 1Q20 | 4Q19 | 1Q19 | | Upward adjustments | $ | 4 |
| $ | 1 |
| $ | — |
| $ | 36 |
| | Downward adjustments | — |
| (2 | ) | — |
| (4 | ) | | Net adjustments | $ | 4 |
| $ | (1 | ) | $ | — |
| $ | 32 |
|
| | | | | | | | | | | | | | | | | | | | | | Adjustments on non-readily marketable equity securities | Life-to-date | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Upward adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 3 | | $ | 42 | | | Downward adjustments | 0 | | 0 | | 0 | | 0 | | (1) | | (4) | | | Net adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 2 | | $ | 38 | |
Qualified affordable housing project investments
We invest in affordable housing projects primarily to satisfy the Company’s requirements under the Community Reinvestment Act. Our total investment in qualified affordable housing projects totaled $1.0 billion at both March 31,Sept. 30, 2020 and Dec. 31, 2019. Commitments to fund future investments in qualified affordable housing projects totaled $390$388 million at March 31,Sept. 30, 2020 and $422 million at Dec. 31, 2019 and are recorded in other liabilities. A summary of the commitments to fund future investments is as follows: 2020 – $114$40 million; 2021 – $181$187 million; 2022 – $83$99 million; 2023 – $6$36 million; 2024 – $2$1 million; and 2025 and thereafter – $4$25 million.
Tax credits and other tax benefits recognized were $35 million in the third quarter of 2020, $38 million in the firstsecond quarter of 2020, $31 million in the fourth quarter of 2019 and $39 million in the firstthird quarter of 2019, $111 million in the first nine months of 2020 and $117 million in the first nine months of 2019.
Amortization expense included in the provision for income taxes was $30 million in the third quarter of 2020, $31 million in the firstsecond quarter of 2020, $24$33 million in the fourththird quarter of 2019, and $32$92 million in the first quarternine months of 2020 and $97 million in the first nine months of 2019.
Investments valued using net asset value (“NAV”) per share
In our Investment and Wealth Management business, we make seed capital investments in certain funds we manage. We also hold private equity investments, specifically small business investment companies (“SBICs”), which are compliant with the Volcker Rule, and certain other corporate investments. Seed capital, private equity and other corporate investments are included in other assets on the consolidated balance sheet. The fair value of certain of these investments was estimated using the 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 | March 31, 2020 | | Dec. 31, 2019 | | (in millions) | Fair value |
| Unfunded commitments | | | Fair value |
| Unfunded commitments | | Seed capital (a) | $ | 51 |
| | $ | — |
| | $ | 59 |
| | $ | — |
| Private equity investments (SBICs) (b) | 80 |
| | 52 |
| | 89 |
| | 55 |
| Other (c) | 27 |
| | — |
| | 33 |
| | — |
| | Total | $ | 158 |
| | $ | 52 |
| | $ | 181 |
| | $ | 55 |
|
| | (a) | Primarily includes leveraged loans and structured credit funds, which are generally not redeemable. Distributions from such investments will be received as the underlying investments in the funds, which have a life of six years, are liquidated. |
| | (b) | Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated. |
| | (c) | Primarily includes investments in funds that relate to deferred compensation arrangements with employees. Investments in funds can be redeemed on a quarterly basis with redemption notice periods of up to 95 days. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investments valued using NAV | Sept. 30, 2020 | | | | Dec. 31, 2019 | | | | (in millions) | Fair value | Unfunded
commitments | | | | Fair value | Unfunded
commitments | | | Seed capital (a) | $ | 44 | | | $ | 11 | | | | | $ | 59 | | | $ | 0 | | | | Private equity investments (SBICs) (b) | 97 | | | 55 | | | | | 89 | | | 55 | | | | Other (c) | 43 | | | 0 | | | | | 33 | | | 0 | | | | | Total | $ | 184 | | | $ | 66 | | | | | $ | 181 | | | $ | 55 | | | |
(a)72 BNY MellonPrimarily includes leveraged loans and structured credit funds, which are generally not redeemable. Distributions from such investments will be received as the underlying investments in the funds, which have lives of six to 11 years at Sept. 30, 2020 and lives of six years at Dec. 31, 2019, are liquidated. (b) Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private equity investments, which have a life of 10 years, are liquidated.
(c) Primarily includes investments in funds that relate to deferred compensation arrangements with employees. Investments in funds can be redeemed on a monthly to quarterly basis with redemption notice periods of up to 95 days.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 8–Contract revenue
Fee revenue in Investment Services and Investment and Wealth Management is primarily variable, based on levels of assets under custody and/or administration, assets under management and the level of client-driven transactions, as specified in fee schedules. See Note 10 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for information on the nature of our services and revenue recognition. See Note 24 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for additional information on our principal businesses, Investment Services and Investment and Wealth Management, and the primary services provided.
Disaggregation of contract revenue
Contract revenue is included in fee revenue on the consolidated income statement. The following table presents fee revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment. Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | | Quarter ended | | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 (a) | | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | IS | IWM | Other | Total | | Fee revenue - contract revenue: | | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | | Asset servicing fees | $ | 1,143 | | $ | 25 | | $ | (13) | | $ | 1,155 | | | $ | 1,147 | | $ | 25 | | $ | (15) | | $ | 1,157 | | | $ | 1,106 | | $ | 20 | | $ | (5) | | $ | 1,121 | | | Clearing services fees | 397 | | 0 | | 0 | | 397 | | | 431 | | 0 | | 0 | | 431 | | | 419 | | 0 | | 0 | | 419 | | | Issuer services fees | 296 | | 0 | | 0 | | 296 | | | 277 | | 0 | | 0 | | 277 | | | 324 | | 0 | | 0 | | 324 | | | Treasury services fees | 153 | | 1 | | (2) | | 152 | | | 144 | | 0 | | 1 | | 145 | | | 140 | | 0 | | 0 | | 140 | | | Total investment services fees | 1,989 | | 26 | | (15) | | 2,000 | | | 1,999 | | 25 | | (14) | | 2,010 | | | 1,989 | | 20 | | (5) | | 2,004 | | | Investment management and performance fees | 4 | | 838 | | (3) | | 839 | | | 4 | | 792 | | (5) | | 791 | | | 4 | | 829 | | (4) | | 829 | | | Financing-related fees | 13 | | 1 | | 1 | | 15 | | | 23 | | 1 | | 0 | | 24 | | | 14 | | 0 | | 0 | | 14 | | | Distribution and servicing | (2) | | 31 | | 0 | | 29 | | | (7) | | 34 | | 0 | | 27 | | | (12) | | 45 | | 0 | | 33 | | | Investment and other income | 57 | | (33) | | (2) | | 22 | | | 62 | | (41) | | 3 | | 24 | | | 72 | | (50) | | 0 | | 22 | | | Total fee revenue - contract revenue | 2,061 | | 863 | | (19) | | 2,905 | | | 2,081 | | 811 | | (16) | | 2,876 | | | 2,067 | | 844 | | (9) | | 2,902 | | Fee and other revenue - not in scope of Accounting Standards Codification (“ASC”) 606 (b)(c) | 185 | | 8 | | 39 | | 232 | | | 258 | | 27 | | 54 | | 339 | | | 229 | | (6) | | 3 | | 226 | | | Total fee and other revenue (loss) | $ | 2,246 | | $ | 871 | | $ | 20 | | $ | 3,137 | | | $ | 2,339 | | $ | 838 | | $ | 38 | | $ | 3,215 | | | $ | 2,296 | | $ | 838 | | $ | (6) | | $ | 3,128 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment (a) | | | | | | | | | | | | | Quarter ended | | | March 31, 2020 | | Dec. 31, 2019 | | March 31, 2019 | | (in millions) | IS |
| IM |
| Other |
| Total |
| | IS (b) |
| IM (b) |
| Other (b) |
| Total |
| | IS (b) |
| IM (b) |
| Other (b) |
| Total |
| | Fee revenue - contract revenue: | | | | | | | | | | | | | | | | Investment services fees: | | | | | | | | | | | | | | | | Asset servicing fees | $ | 1,127 |
| $ | 23 |
| $ | (11 | ) | $ | 1,139 |
| | $ | 1,117 |
| $ | 25 |
| $ | (14 | ) | $ | 1,128 |
| | $ | 1,081 |
| $ | 20 |
| $ | (8 | ) | $ | 1,093 |
| | Clearing services fees | 470 |
| — |
| — |
| 470 |
| | 421 |
| — |
| — |
| 421 |
| | 398 |
| — |
| — |
| 398 |
| | Issuer services fees | 263 |
| — |
| — |
| 263 |
| | 264 |
| — |
| — |
| 264 |
| | 251 |
| — |
| — |
| 251 |
| | Treasury services fees | 149 |
| — |
| — |
| 149 |
| | 148 |
| — |
| — |
| 148 |
| | 132 |
| — |
| — |
| 132 |
| | Total investment services fees | 2,009 |
| 23 |
| (11 | ) | 2,021 |
| | 1,950 |
| 25 |
| (14 | ) | 1,961 |
| | 1,862 |
| 20 |
| (8 | ) | 1,874 |
| | Investment management and performance fees | 5 |
| 862 |
| (4 | ) | 863 |
| | 5 |
| 886 |
| (4 | ) | 887 |
| | 4 |
| 841 |
| (4 | ) | 841 |
| | Financing-related fees | 28 |
| — |
| — |
| 28 |
| | 12 |
| — |
| — |
| 12 |
| | 17 |
| — |
| — |
| 17 |
| | Distribution and servicing | (12 | ) | 43 |
| — |
| 31 |
| | (10 | ) | 44 |
| — |
| 34 |
| | (14 | ) | 45 |
| — |
| 31 |
| | Investment and other income | 72 |
| (50 | ) | — |
| 22 |
| | 72 |
| (50 | ) | — |
| 22 |
| | 69 |
| (49 | ) | — |
| 20 |
| | Total fee revenue - contract revenue | 2,102 |
| 878 |
| (15 | ) | 2,965 |
| | 2,029 |
| 905 |
| (18 | ) | 2,916 |
| | 1,938 |
| 857 |
| (12 | ) | 2,783 |
| Fee and other revenue - not in scope of Accounting Standards Codification (“ASC”) 606 (c)(d) | 334 |
| (32 | ) | 45 |
| 347 |
| | 207 |
| 19 |
| 812 |
| 1,038 |
| | 223 |
| 12 |
| 30 |
| 265 |
| | Total fee and other revenue | $ | 2,436 |
| $ | 846 |
| $ | 30 |
| $ | 3,312 |
| | $ | 2,236 |
| $ | 924 |
| $ | 794 |
| $ | 3,954 |
| | $ | 2,161 |
| $ | 869 |
| $ | 18 |
| $ | 3,048 |
|
| | (a) | Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. |
| | (b) | Prior periods have been restated to reflect the reclassifications. See Note 19 for additional information. |
| | (c) | Primarily includes foreign exchange and other trading revenue, financing-related fees, asset servicing fees, net securities gains (losses) and investment and other income (loss), all of which are accounted for using other accounting guidance. |
| | (d) | The Investment Management business includes (loss) income from consolidated investment management funds, net of noncontrolling interests, of $(20) million in the first quarter of 2020, $8 million in the fourth quarter of 2019 and $16 million in the first quarter of 2019. |
(b) Primarily includes foreign exchange and other trading revenue, financing-related fees, investment and other income (loss), asset servicing fees and net securities gains (losses), all of which are accounted for using other accounting guidance. (c) The Investment and Wealth Management business segment includes income from consolidated investment management funds, net of noncontrolling interests, of $20 millionin the third quarter of 2020, $39 million in the second quarter of 2020 and $— millionin the third quarter of 2019. IS - Investment Services business segment. IMIWM - Investment and Wealth Management business segment.
| | | Notes to Consolidated Financial Statements(continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Disaggregation of contract revenue by business segment | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 (a) | | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | Fee revenue - contract revenue: | | | | | | | | | | | Investment services fees: | | | | | | | | | | | Asset servicing fees | $ | 3,417 | | $ | 73 | | $ | (39) | | $ | 3,451 | | | $ | 3,282 | | $ | 60 | | $ | (19) | | $ | 3,323 | | | Clearing services fees | 1,298 | | 0 | | 0 | | 1,298 | | | 1,228 | | 0 | | (1) | | 1,227 | | | Issuer services fees | 836 | | 0 | | 0 | | 836 | | | 866 | | 0 | | 0 | | 866 | | | Treasury services fees | 446 | | 1 | | (1) | | 446 | | | 412 | | 1 | | 0 | | 413 | | | Total investment services fees | 5,997 | | 74 | | (40) | | 6,031 | | | 5,788 | | 61 | | (20) | | 5,829 | | | Investment management and performance fees | 13 | | 2,492 | | (12) | | 2,493 | | | 12 | | 2,503 | | (12) | | 2,503 | | | Financing-related fees | 64 | | 2 | | 1 | | 67 | | | 47 | | 0 | | 1 | | 48 | | | Distribution and servicing | (21) | | 108 | | 0 | | 87 | | | (39) | | 134 | | 0 | | 95 | | | Investment and other income | 191 | | (124) | | 1 | | 68 | | | 210 | | (147) | | 0 | | 63 | | | Total fee revenue - contract revenue | 6,244 | | 2,552 | | (50) | | 8,746 | | | 6,018 | | 2,551 | | (31) | | 8,538 | | Fee and other revenue - not in scope of ASC 606 (b)(c) | 777 | | 3 | | 138 | | 918 | | | 672 | | 10 | | 74 | | 756 | | | Total fee and other revenue | $ | 7,021 | | $ | 2,555 | | $ | 88 | | $ | 9,664 | | | $ | 6,690 | | $ | 2,561 | | $ | 43 | | $ | 9,294 | |
(a) Restated to reflect the first quarter 2020 business segment reclassifications. There was no impact on total revenue, by type or in aggregate. See Note 19 for additional information related to the reclassifications. (b) Primarily includes foreign exchange and other trading revenue, financing-related fees, investment and other income (loss), asset servicing fees and net securities gains (losses), all of which are accounted for using other accounting guidance. (c) The Investment and Wealth Management business segment includes income from consolidated investment management funds, net of noncontrolling interests, of $39 million in the first nine months of 2020 and $22 million in the first nine months of 2019. IS - Investment Services business segment. IWM - Investment and Wealth Management business segment.
Contract balances
Our clients are billed based on fee schedules that are agreed upon in each customer contract. Receivables from customers were $2.6$2.5 billion at March 31,Sept. 30, 2020 and $2.4 billion at Dec. 31, 2019.
Contract assets represent accrued revenues that have not yet been billed to the customers due to certain contractual terms other than the passage of time and were $48$57 million at March 31,Sept. 30, 2020 and $32 million at Dec. 31, 2019. Accrued revenues recorded as contract assets are usually billed on an annual basis.
| | Notes to Consolidated Financial Statements(continued)
| |
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 $194$187 million at March 31,Sept. 30, 2020 and $168 million at Dec. 31, 2019. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the third quarter of 2020 relating to contract liabilities as of June 30, 2020 was $65 million. Revenue recognized in the first quarternine months of 2020 relating to contract liabilities as of Dec. 31, 2019 was $50$95 million.
Changes in contract assets and liabilities primarily relate to either party’s performance under the contracts.
Contract costs
Incremental costs for obtaining contracts that are deemed recoverable are capitalized as contract costs. Such costs result from the payment of sales incentives, primarily in the Wealth Management business, and totaled $89$77 million at March 31,Sept. 30, 2020 and $86 million at Dec. 31, 2019. Capitalized sales incentives are amortized based on the transfer of goods or services to which the assets relate and typically average nine years. The amortization of capitalized sales incentives, which is primarily included in staff expense on the consolidated income statement, totaled $6 million in the third quarter of 2020, $7 million in the third quarter of 2019, $5 million in the firstsecond quarter of 2020, $16 million in the first quarternine months of 20192020 and fourth quarter$17 million in the first nine months of 2019.
Costs to fulfill a contract are capitalized when they relate directly to an existing contract or a specific anticipated contract, generate or enhance resources that will be used to fulfill performance obligations, and are recoverable. Such costs generally represent set-up costs, which include any direct cost incurred at the inception of a contract which enables the
| | | Notes to Consolidated Financial Statements(continued) | |
fulfillment of the performance obligation, and totaled $14$12 million at March 31,Sept. 30, 2020 and $16 million at Dec. 31, 2019. These capitalized costs are amortized on a straight-line basis over the expected contract period, which generally ranges from seven to nine years. The amortization is included in professional, legal and other expensepurchased services and other expenses on the consolidated income statement and totaled $1 million in the firstthird quarter of 2020 firstand third quarter of 2019, $2 million in the second quarter of 2020 and fourth quarter$4 million in the first nine months of 2020 and first nine months of 2019. There were 0 impairments recorded on capitalized contract costs in the first quarternine months of 2020.
Unsatisfied performance obligations
We do not have any unsatisfied performance obligations other than those that are subject to a practical expedient election under ASC 606, Revenue From Contracts With Customers. The practical expedient election applies to (i) contracts with an original expected length of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.
Note 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 | | (in millions) | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2019 |
| | Interest revenue | | | | | Deposits with the Federal Reserve and other central banks | $ | 80 |
| $ | 94 |
| $ | 139 |
| | Deposits with banks | 58 |
| 65 |
| 63 |
| | Federal funds sold and securities purchased under resale agreements | 396 |
| 452 |
| 474 |
| | Margin loans | 87 |
| 96 |
| 135 |
| | Non-margin loans | 309 |
| 328 |
| 355 |
| | Securities: | | | | | Taxable | 594 |
| 639 |
| 706 |
| | Exempt from federal income taxes | 6 |
| 7 |
| 12 |
| | Total securities | 600 |
| 646 |
| 718 |
| | Trading securities | 40 |
| 40 |
| 36 |
| | Total interest revenue | 1,570 |
| 1,721 |
| 1,920 |
| | Interest expense | | | | | Deposits | 240 |
| 334 |
| 391 |
| | Federal funds purchased and securities sold under repurchase agreements | 275 |
| 291 |
| 331 |
| | Trading liabilities | 7 |
| 9 |
| 7 |
| | Other borrowed funds | 4 |
| 5 |
| 24 |
| | Commercial paper | 6 |
| 7 |
| 8 |
| | Customer payables | 30 |
| 40 |
| 70 |
| | Long-term debt | 194 |
| 220 |
| 248 |
| | Total interest expense | 756 |
| 906 |
| 1,079 |
| | Net interest revenue | 814 |
| 815 |
| 841 |
| | Provision for credit losses | 169 |
| (8 | ) | 7 |
| | Net interest revenue after provision for credit losses | $ | 645 |
| $ | 823 |
| $ | 834 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | Net interest revenue | Quarter ended | | Year-to-date | | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | | Interest revenue | | | | | | | | | | Deposits with the Federal Reserve and other central banks | $ | (10) | | $ | (7) | | $ | 102 | | | $ | 63 | | $ | 354 | | | | | Deposits with banks | 20 | | 40 | | 73 | | | 118 | | 200 | | | | | Federal funds sold and securities purchased under resale agreements | 48 | | 61 | | 660 | | | 505 | | 1,702 | | | | | Margin loans | 41 | | 40 | | 104 | | | 168 | | 358 | | | | | Non-margin loans | 199 | | 230 | | 287 | | (a) | 738 | | 1,007 | | (a) | | | Securities: | | | | | | | | | | Taxable | 499 | | 556 | | 669 | | | 1,649 | | 2,062 | | | | | Exempt from federal income taxes | 7 | | 6 | | 7 | | | 19 | | 29 | | | | | Total securities | 506 | | 562 | | 676 | | | 1,668 | | 2,091 | | | | | Trading securities | 16 | | 17 | | 40 | | | 73 | | 115 | | | | | Total interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | | | Interest expense | | | | | | | | | | | | | | | | | | | Deposits | (29) | | (17) | | 437 | | | 194 | | 1,260 | | | | | Federal funds purchased and securities sold under repurchase agreements | 6 | | 1 | | 443 | | | 282 | | 1,146 | | | | | Trading liabilities | 2 | | 2 | | 8 | | | 11 | | 26 | | | | | Other borrowed funds | 3 | | 7 | | 10 | | | 14 | | 54 | | | | | Commercial paper | 0 | | 1 | | 22 | | | 7 | | 48 | | | | | Customer payables | 0 | | (1) | | 59 | | | 29 | | 198 | | | | | Long-term debt | 135 | | 170 | | 233 | | | 499 | | 722 | | | | | Total interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | | | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | | | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | | | Net interest revenue after provision for credit losses | $ | 694 | | $ | 637 | | $ | 746 | | | $ | 1,976 | | $ | 2,390 | | | |
(a) Includes the impact of a lease-related impairment of $70 million.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 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 | | March 31, 2020 | | March 31, 2019 | | (in millions) | Domestic pension benefits |
| Foreign pension benefits |
| Health care benefits |
| | Domestic pension benefits |
| Foreign pension benefits |
| Health care benefits |
| | Service cost | $ | — |
| $ | 3 |
| $ | — |
| | $ | — |
| $ | 3 |
| $ | — |
| | Interest cost | 39 |
| 7 |
| 1 |
| | 44 |
| 8 |
| 2 |
| | Expected return on assets | (80 | ) | (10 | ) | (1 | ) | | (84 | ) | (11 | ) | (2 | ) | | Other | 22 |
| 3 |
| (1 | ) | | 13 |
| — |
| (1 | ) | | Net periodic benefit (credit) cost | $ | (19 | ) | $ | 3 |
| $ | (1 | ) | | $ | (27 | ) | $ | — |
| $ | (1 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Quarter ended | | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | | (in millions) | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Service cost | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | | Interest cost | 39 | | 7 | | 2 | | | 39 | | 6 | | 1 | | | 44 | | 8 | | 2 | | | Expected return on assets | (80) | | (10) | | (2) | | | (79) | | (9) | | (2) | | | (84) | | (11) | | (1) | | | Other | 22 | | 2 | | (1) | | | 21 | | 3 | | 0 | | | 13 | | 0 | | (1) | | | Net periodic benefit (credit) cost | $ | (19) | | $ | 2 | | $ | (1) | | | $ | (19) | | $ | 3 | | $ | (1) | | | $ | (27) | | $ | 0 | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | Net periodic benefit (credit) cost | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 | | (in millions) | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Service cost | $ | 0 | | $ | 9 | | $ | 0 | | | $ | 0 | | $ | 9 | | $ | 0 | | | Interest cost | 117 | | 20 | | 4 | | | 133 | | 24 | | 5 | | | Expected return on assets | (239) | | (29) | | (5) | | | (252) | | (34) | | (5) | | | Other | 65 | | 8 | | (2) | | | 39 | | 1 | | (2) | | | Net periodic benefit (credit) cost | $ | (57) | | $ | 8 | | $ | (3) | | | $ | (80) | | $ | 0 | | $ | (2) | |
Note 11–Income taxes
BNY Mellon recorded an income tax provision of $265$213 million (21.6% (18.4% effective tax rate) in the firstthird quarter of 2020,, $237 $246 million (19.9% (19.1% effective tax rate) in the firstthird quarter of 2019 and $373$216 million (20.5% (18.3% effective tax rate) in the fourthsecond quarter of 2019.2020.
Our total tax reserves as of March 31,Sept. 30, 2020 were $176$85 million compared with $173 million at Dec. 31, 2019. If these tax reserves were unnecessary, $176$85 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 March 31,Sept. 30, 2020 is accrued interest, where applicable, of $35 $23 million. The additional tax expense related to interest for the first quarter ofnine months ended Sept. 30, 2020 was $4$5 million, compared with $2$9 million for the first quarter ofnine months ended Sept. 30, 2019.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $100$15 million as a result of adjustments related to tax years that are still subject to examination.
Our federal income tax returns are closed to examination through 2013.2016. Our New York State and New York City andincome tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2012.2015.
| | | Notes to Consolidated Financial Statements(continued) | |
Note 12–Variable interest entities and securitization
We have variable interests in variable interest entities (“VIEs”), which include investments in retail, institutional and alternative investment funds, including CLO structures in which we provide asset management services, some of which are consolidated.
We earn management fees from these funds as well as performance fees in certain funds and may also provide start-up capital for new funds. The funds are primarily financed by our customers’ investments in the funds’ equity or debt.
Additionally, we invest in qualified affordable housing and renewable energy projects, which are designed to generate a return primarily through the realization of tax credits. The projects, which are structured as limited partnerships and limited liability companies, are also VIEs, but are not consolidated.
The following table presents the incremental assets and liabilities included in the consolidated balance sheet as of March 31,Sept. 30, 2020 and Dec. 31, 2019. The net assets of any consolidated VIE are solely available to settle the liabilities of the VIE and to settle any investors’ ownership liquidation requests, including any seed capital we invested in the VIE.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Consolidated investments | Sept. 30, 2020 | | Dec. 31, 2019 | | (in millions) | Investment
Management
funds | Securitization | Total
consolidated
investments | | Investment
Management
funds | Securitization | Total
consolidated
investments | | Trading assets | $ | 579 | | | $ | 400 | | $ | 979 | | | $ | 229 | | | $ | 400 | | $ | 629 | | | Other assets | 9 | | | 0 | | 9 | | | 16 | | | 0 | | 16 | | | Total assets | $ | 588 | | (a) | $ | 400 | | $ | 988 | | | $ | 245 | | (b) | $ | 400 | | $ | 645 | | | | | | | | | | | | | Other liabilities | $ | 4 | | | $ | 400 | | $ | 404 | | | $ | 1 | | | $ | 387 | | $ | 388 | | | Total liabilities | $ | 4 | | (a) | $ | 400 | | $ | 404 | | | $ | 1 | | (b) | $ | 387 | | $ | 388 | | | Nonredeemable noncontrolling interests | $ | 251 | | (a) | $ | 0 | | $ | 251 | | | $ | 102 | | (b) | $ | 0 | | $ | 102 | |
(a) Includes voting model entities (“VMEs”) with assets of $226 million, liabilities of $1 million and nonredeemable noncontrolling interests of $31 million.
BNY Mellon 75
| | Notes to Consolidated Financial Statements
(continued)
| |
| | | | | | | | | | | | | | | | | | | | | | | | Consolidated investments | March 31, 2020 | | Dec. 31, 2019 | | (in millions) | Investment Management funds | Securitization |
| Total consolidated investments |
| | Investment Management funds | Securitization |
| Total consolidated investments |
| | Trading assets | $ | 215 |
| | $ | 400 |
| $ | 615 |
| | $ | 229 |
| | $ | 400 |
| $ | 629 |
| | Other assets | 14 |
| | — |
| 14 |
| | 16 |
| | — |
| 16 |
| | Total assets | $ | 229 |
| (a) | $ | 400 |
| $ | 629 |
| | $ | 245 |
| (b) | $ | 400 |
| $ | 645 |
| | Other liabilities | $ | 1 |
| | $ | 397 |
| $ | 398 |
| | $ | 1 |
| | $ | 387 |
| $ | 388 |
| | Total liabilities | $ | 1 |
| (a) | $ | 397 |
| $ | 398 |
| | $ | 1 |
| (b) | $ | 387 |
| $ | 388 |
| | Nonredeemable noncontrolling interests | $ | 94 |
| (a) | $ | — |
| $ | 94 |
| | $ | 102 |
| (b) | $ | — |
| $ | 102 |
|
| | (a) | Includes voting model entities (“VMEs”) with assets of $44 million, liabilities of $1 million and nonredeemable noncontrolling interests of less than $1 million. |
| | (b) | Includes VMEs with assets of $50 million, liabilities of $1 million and nonredeemable noncontrolling interests of $1 million. |
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 March 31,Sept. 30, 2020 and Dec. 31, 2019, the following assets and liabilities related to the VIEs not the primary beneficiary were included in our consolidated balance sheets and primarily related to accounting for our investments in qualified affordable housing and renewable energy projects.
The maximum loss exposure indicated in the table below relates solely to our investments in, and unfunded commitments to, the VIEs.
| | | | | | | | | | | | | | | | | | | | | | | | | Non-consolidated VIEs | Sept. 30, 2020 | | Dec. 31, 2019 | | (in millions) | Assets | Liabilities | Maximum
loss exposure | | Assets | Liabilities | Maximum
loss exposure | Securities - Available-for-sale (a) | $ | 206 | | $ | 0 | | $ | 206 | | | $ | 208 | | $ | 0 | | $ | 208 | | | Other | 2,278 | | 388 | | 2,675 | | | 2,400 | | 422 | | 2,822 | |
(a) Includes investments in the Company’s sponsored CLOs.
| | | | | | | | | | | | | | | | | | | | | | Non-consolidated VIEs | March 31, 2020 | | Dec. 31, 2019 | | (in millions) | Assets |
| Liabilities |
| Maximum loss exposure |
| | Assets |
| Liabilities |
| Maximum loss exposure |
| Securities - Available-for-sale (a) | $ | 180 |
| $ | — |
| $ | 180 |
| | $ | 208 |
| $ | — |
| $ | 208 |
| | Other | 2,287 |
| 390 |
| 2,677 |
| | 2,400 |
| 422 |
| 2,822 |
|
| | | (a)Notes to Consolidated Financial Statements(continued) | Includes investments in the Company’s sponsored CLOs. |
Note 13–Preferred stock
BNY MellonThe Parent has 100 million authorized shares of preferred stock with a par value of $0.01 per share. The following table summarizes BNY Mellon’sthe Parent’s preferred stock issued and outstanding at March 31,Sept. 30, 2020 and Dec. 31, 2019.
| | | | | | | | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | (in millions) | | | Sept. 30, 2020 | Dec. 31, 2019 | Sept. 30, 2020 | Dec. 31, 2019 | | Per annum dividend rate | | Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000% | 5,001 | | 5,001 | | | $ | 500 | | $ | 500 | | | Series C | 5.2% | 5,825 | | 5,825 | | | 568 | | 568 | | | Series D | 4.50% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46% | 5,000 | | 5,000 | | | 494 | | 494 | | | Series E | 4.95% to but excluding June 20, 2020, then a floating rate equal to the three-month LIBOR plus 3.42% | 10,000 | | 10,000 | | | 990 | | 990 | | | Series F | 4.625% to but excluding Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131% | 10,000 | | 10,000 | | | 990 | | 990 | | | Series G | 4.70% to but excluding Sept. 20, 2025, then a floating rate equal to the five-year treasury rate plus 4.358% | 10,000 | | 0 | | | 990 | | 0 | | | Total | 45,826 | | 35,826 | | | $ | 4,532 | | $ | 3,542 | |
(a) All outstanding preferred stock is noncumulative perpetual preferred stock with a liquidation preference of $100,000 per share. (b) The carrying value of the Series C, Series D, Series E, Series F and Series G preferred stock is recorded net of issuance costs.
In May 2020, the Parent issued 1,000,000 depositary shares, each representing a 1/100th interest in a share of the Parent’s Series G Noncumulative Perpetual Preferred Stock (the “Series G Preferred Stock”). The Parent will pay dividends on the Series G Preferred Stock, if declared by its board of directors, on each March 20 and September 20, at an annual rate of 4.70%, from the original issue date to but | | | | | | | | | | | | | | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | | | | (in millions) | | | | March 31, 2020 |
| Dec. 31, 2019 |
| March 31, 2020 |
| Dec. 31, 2019 |
| | | Per annum dividend rate | | Series A | Greater of (i) three-month LIBOR plus 0.565% for the related distribution period; or (ii) 4.000% | 5,001 |
| 5,001 |
| | $ | 500 |
| $ | 500 |
| | Series C | 5.2% | 5,825 |
| 5,825 |
| | 568 |
| 568 |
| | Series D | 4.50% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46% | 5,000 |
| 5,000 |
| | 494 |
| 494 |
| | Series E | 4.95% to and including June 20, 2020, then a floating rate equal to the three-month LIBOR plus 3.42% | 10,000 |
| 10,000 |
| | 990 |
| 990 |
| | Series F | 4.625% to and including Sept. 20, 2026, then a floating rate equal to the three-month LIBOR plus 3.131% | 10,000 |
| 10,000 |
| | 990 |
| 990 |
| | Total | 35,826 |
| 35,826 |
| | $ | 3,542 |
| $ | 3,542 |
|
| | (a) | All outstanding preferred stock is noncumulative perpetual preferred stock with a liquidation preference of $100,000 per share. |
| | (b) | The carrying value of the Series C, Series D, Series E and Series F preferred stock is recorded net of issuance costs. |
excluding Sept. 20, 2025; and at a floating rate equal to the five-year treasury rate on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and including Sept. 20, 2025. The floating rate will initially reset on Sept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date. | | Notes to Consolidated Financial Statements
(continued)
| |
The table below presents the dividends paid on ourthe Parent’s preferred stock.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Preferred dividends paid | | | | | | | | | | | | | | | | | | | | | | | (dollars in millions, except per share amounts) | Depositary shares
per share | | 3Q20 | | 2Q20 | | 3Q19 | | YTD20 | | YTD19 | | | | | | | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | | | | | | | | | | Series A | | 100 | | (a) | | $ | 1,011.11 | | $ | 5 | | | $ | 1,022.22 | | $ | 5 | | | $ | 1,022.22 | | $ | 5 | | | $ | 3,044.44 | | $ | 15 | | | $ | 3,044.44 | | $ | 15 | | | | | | | | | | | | Series C | | 4,000 | | | | 1,300.00 | | 7 | | | 1,300.00 | | 8 | | | 1,300.00 | | 8 | | | 3,900.00 | | 23 | | | 3,900.00 | | 23 | | | | | | | | | | | | Series D | | 100 | | | | N/A | 0 | | | 2,250.00 | | 11 | | | N/A | 0 | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | | | | | | | | | | | | Series E | | 100 | | | | 962.65 | | 10 | | | 2,475.00 | | 25 | | | N/A | 0 | | | 3,437.65 | | 35 | | | 2,475.00 | | 25 | | | | | | | | | | | | Series F | | 100 | | | | 2,312.50 | | 23 | | | N/A | 0 | | | 2,312.50 | | 23 | | | 4,625.00 | | 46 | | | 4,625.00 | | 46 | | | | | | | | | | | | Series G | | 100 | | | | 1,579.72 | | 16 | | | N/A | 0 | | | N/A | 0 | | | 1,579.72 | | 16 | | | N/A | 0 | | | | | | | | | | | | Total | | | | | | $ | 61 | | | | $ | 49 | | | | $ | 36 | | | | $ | 146 | | | | $ | 120 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Preferred dividends paid | | | | | | | | (dollars in millions, except per share amounts) | Depositary shares per share | | | | 1Q20 | | 4Q19 | | 1Q19 | | | | Per share |
| Total
dividend |
| | Per share |
| Total
dividend |
| | Per share |
| Total
dividend |
| | Series A | | 100 |
| (a) | | $ | 1,011.11 |
| $ | 5 |
| | $ | 1,011.11 |
| $ | 5 |
| | $ | 1,000.00 |
| $ | 5 |
| | Series C | | 4,000 |
| | | 1,300.00 |
| 8 |
| | 1,300.00 |
| 8 |
| | 1,300.00 |
| 8 |
| | Series D | | 100 |
| | | N/A |
| — |
| | 2,250.00 |
| 11 |
| | N/A |
| — |
| | Series E | | 100 |
| | | N/A |
| — |
| | 2,475.00 |
| 25 |
| | N/A |
| — |
| | Series F | | 100 |
| | | 2,312.50 |
| 23 |
| | N/A |
| — |
| | 2,312.50 |
| 23 |
| | Total | | | | | | $ | 36 |
| | | $ | 49 |
| | | $ | 36 |
|
| | (a) | Represents Normal Preferred Capital Securities. |
N/A - Not applicable.
For additional information on the preferred stock, see Note 15 of the Notes to Consolidated Financial Statements in our 2019 Annual Report.
Note 14–Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | | March 31, 2020 | | Dec. 31, 2019 | | March 31, 2019 | | (in millions) | Pre-tax
amount |
| Tax
(expense)
benefit |
| After-tax
amount |
| | Pre-tax
amount |
| Tax
(expense)
benefit |
| After-tax
amount |
| | Pre-tax
amount |
| Tax
(expense)
benefit |
| After-tax
amount |
| | Foreign currency translation: | | | | | | | | | | | | Foreign currency translation adjustments arising during the period (a) | $ | (265 | ) | $ | (104 | ) | $ | (369 | ) | | $ | 292 |
| $ | 96 |
| $ | 388 |
| | $ | 27 |
| $ | 2 |
| $ | 29 |
| | Total foreign currency translation | (265 | ) | (104 | ) | (369 | ) | | 292 |
| 96 |
| 388 |
| | 27 |
| 2 |
| 29 |
| | Unrealized gain (loss) on assets available-for-sale: | | | | | | | | | | | | | Unrealized gain (loss) arising during period | 243 |
| (60 | ) | 183 |
| | (114 | ) | 37 |
| (77 | ) | | 322 |
| (83 | ) | 239 |
| Reclassification adjustment (b) | (9 | ) | 2 |
| (7 | ) | | 25 |
| (6 | ) | 19 |
| | (1 | ) | — |
| (1 | ) | | Net unrealized gain (loss) on assets available-for-sale | 234 |
| (58 | ) | 176 |
| | (89 | ) | 31 |
| (58 | ) | | 321 |
| (83 | ) | 238 |
| | Defined benefit plans: | | | | | | | | | | | | | Prior service cost arising during the period | — |
| — |
| — |
| | (1 | ) | — |
| (1 | ) | | — |
| — |
| — |
| | Net (loss) gain arising during the period | — |
| — |
| — |
| | (110 | ) | 32 |
| (78 | ) | | (11 | ) | 2 |
| (9 | ) | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 24 |
| (6 | ) | 18 |
| | 14 |
| (10 | ) | 4 |
| | 13 |
| (3 | ) | 10 |
| | Total defined benefit plans | 24 |
| (6 | ) | 18 |
| | (97 | ) | 22 |
| (75 | ) | | 2 |
| (1 | ) | 1 |
| | Unrealized gain (loss) on cash flow hedges: | | | | | | | | | | | | | Unrealized hedge (loss) gain arising during period | (13 | ) | 3 |
| (10 | ) | | 17 |
| (5 | ) | 12 |
| | 6 |
| (4 | ) | 2 |
| | Reclassification of net loss (gain) to net income: | | | | | | | | | | | | | Interest rate contracts - interest expense | — |
| — |
| — |
| | (8 | ) | 2 |
| (6 | ) | | — |
| — |
| — |
| | Foreign exchange (“FX”) contracts - staff expense | (1 | ) | — |
| (1 | ) | | (2 | ) | — |
| (2 | ) | | 1 |
| 2 |
| 3 |
| | Total reclassifications to net income | (1 | ) | — |
| (1 | ) | | (10 | ) | 2 |
| (8 | ) | | 1 |
| 2 |
| 3 |
| | Net unrealized (loss) gain on cash flow hedges | (14 | ) | 3 |
| (11 | ) | | 7 |
| (3 | ) | 4 |
| | 7 |
| (2 | ) | 5 |
| | Total other comprehensive (loss) income | $ | (21 | ) | $ | (165 | ) | $ | (186 | ) | | $ | 113 |
| $ | 146 |
| $ | 259 |
| | $ | 357 |
| $ | (84 | ) | $ | 273 |
|
| | (a) | Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information. |
| | (b) | The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense on the consolidated income statement. |
| | | Notes to Consolidated Financial Statements (continued) | |
Note 14–Other comprehensive income (loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Quarter ended | | | | | | | | | | | | | | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | | | | | | | | (in millions) | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | | | | | | | | | | | | | Foreign currency translation: | | | | | | | | | | | | | | | | | | | | | | | | Foreign currency translation adjustments arising during the period (a) | $ | 262 | | $ | 69 | | $ | 331 | | | $ | 104 | | $ | 11 | | $ | 115 | | | $ | (213) | | $ | (63) | | $ | (276) | | | | | | | | | | | | | | | Total foreign currency translation | 262 | | 69 | | 331 | | | 104 | | 11 | | 115 | | | (213) | | (63) | | (276) | | | | | | | | | | | | | | | Unrealized gain on assets available-for-sale: | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized gain arising during period | 297 | | (64) | | 233 | | | 989 | | (236) | | 753 | | | 88 | | (25) | | 63 | | | | | | | | | | | | | | Reclassification adjustment (b) | (9) | | 3 | | (6) | | | (9) | | 2 | | (7) | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | | Net unrealized gain on assets available-for-sale | 288 | | (61) | | 227 | | | 980 | | (234) | | 746 | | | 89 | | (25) | | 64 | | | | | | | | | | | | | | | Defined benefit plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 24 | | (4) | | 20 | | | 24 | | (5) | | 19 | | | 13 | | (3) | | 10 | | | | | | | | | | | | | | | Total defined benefit plans | 24 | | (4) | | 20 | | | 24 | | (5) | | 19 | | | 13 | | (3) | | 10 | | | | | | | | | | | | | | | Unrealized gain (loss) on cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | Unrealized hedge gain (loss) arising during period | 9 | | (1) | | 8 | | | 3 | | (1) | | 2 | | | (9) | | 4 | | (5) | | | | | | | | | | | | | | | Reclassification of net (gain) loss to net income: | | | | | | | | | | | | | | | | | | | | | | | | | Interest rate contracts - interest expense | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign exchange (“FX”) contracts - staff expense | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (2) | | 0 | | (2) | | | | | | | | | | | | | | | Total reclassifications to net income | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (1) | | 0 | | (1) | | | | | | | | | | | | | | | Net unrealized gain (loss) on cash flow hedges | 9 | | (1) | | 8 | | | 6 | | (2) | | 4 | | | (10) | | 4 | | (6) | | | | | | | | | | | | | | | Total other comprehensive income (loss) | $ | 583 | | $ | 3 | | $ | 586 | | | $ | 1,114 | | $ | (230) | | $ | 884 | | | $ | (121) | | $ | (87) | | $ | (208) | | | | | | | | | | | | | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information. (b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense on the consolidated income statement.
| | | | | | | | | | | | | | | | | | | | | | | | | Components of other comprehensive income (loss) | Year-to-date | | Sept. 30, 2020 | | Sept. 30, 2019 | | (in millions) | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | Foreign currency translation: | | | | | | | | Foreign currency translation adjustments arising during the period (a) | $ | 101 | | $ | (24) | | $ | 77 | | | $ | (157) | | $ | (80) | | $ | (237) | | | Total foreign currency translation | 101 | | (24) | | 77 | | | (157) | | (80) | | (237) | | | Unrealized gain on assets available-for-sale: | | | | | | | | | Unrealized gain (loss) arising during period | 1,529 | | (360) | | 1,169 | | | 794 | | (205) | | 589 | | Reclassification adjustment (b) | (27) | | 7 | | (20) | | | (7) | | 2 | | (5) | | | Net unrealized gain on assets available-for-sale | 1,502 | | (353) | | 1,149 | | | 787 | | (203) | | 584 | | | Defined benefit plans: | | | | | | | | | Net (loss) arising during the period | 0 | | 0 | | 0 | | | (11) | | 2 | | (9) | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 72 | | (15) | | 57 | | | 38 | | (8) | | 30 | | | Total defined benefit plans | 72 | | (15) | | 57 | | | 27 | | (6) | | 21 | | | Unrealized (loss) gain on cash flow hedges: | | | | | | | | | Unrealized hedge (loss) arising during period | (1) | | 1 | | 0 | | | (1) | | (2) | | (3) | | Reclassification of net loss (gain) to net income: | | | | | | | | | Interest rate contracts - interest expense | 0 | | 0 | | 0 | | | 1 | | 0 | | 1 | | | | | | | | | | | | | | | | | | | | | | | | | | | FX contracts - staff expense | 2 | | (1) | | 1 | | | (1) | | 2 | | 1 | | | Total reclassifications to net income | 2 | | (1) | | 1 | | | 0 | | 2 | | 2 | | | Net unrealized (loss) on cash flow hedges | 1 | | 0 | | 1 | | | (1) | | 0 | | (1) | | | Total other comprehensive income | $ | 1,676 | | $ | (392) | | $ | 1,284 | | | $ | 656 | | $ | (289) | | $ | 367 | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 17 for additional information. (b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the consolidated income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense on the consolidated income statement.
| | | Notes to Consolidated Financial Statements(continued) | |
Note 15–Fair value measurement
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy for fair value measurements is utilized based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. BNY Mellon’s own creditworthiness is considered when valuing liabilities. See Note 20 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for information on how we determine fair value and the fair value hierarchy.
The following tables present the financial instruments carried at fair value at March 31,Sept. 30, 2020 and Dec. 31, 2019, by caption on the consolidated balance sheet and by the three-level valuation hierarchy. We have included credit ratings information in certain of the tables because the information indicates the degree of credit risk to which we are exposed, and significant changes in ratings classifications could result in increased risk for us.
| | | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Sept. 30, 2020 | Total carrying
value | | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | | Available-for-sale securities: | | | | | | | Agency RMBS | $ | 0 | | $ | 24,733 | | $ | 0 | | $ | — | | $ | 24,733 | | | U.S. Treasury | 24,733 | | 0 | | 0 | | — | | 24,733 | | | Sovereign debt/sovereign guaranteed | 7,179 | | 6,914 | | 0 | | — | | 14,093 | | | Agency commercial MBS | 0 | | 9,942 | | 0 | | — | | 9,942 | | | Supranational | 0 | | 7,136 | | 0 | | — | | 7,136 | | | Foreign covered bonds | 0 | | 5,841 | | 0 | | — | | 5,841 | | | CLOs | 0 | | 4,657 | | 0 | | — | | 4,657 | | | Foreign government agencies | 0 | | 3,970 | | 0 | | — | | 3,970 | | | U.S. government agencies | 0 | | 3,478 | | 0 | | — | | 3,478 | | | Other ABS | 0 | | 2,930 | | 0 | | — | | 2,930 | | | Non-agency commercial MBS | 0 | | 2,711 | | 0 | | — | | 2,711 | | Non-agency RMBS (b) | 0 | | 1,941 | | 0 | | — | | 1,941 | | | State and political subdivisions | 0 | | 1,690 | | 0 | | — | | 1,690 | | | Corporate bonds | 0 | | 1,030 | | 0 | | — | | 1,030 | | | Commercial paper/CDs | 0 | | 357 | | 0 | | — | | 357 | | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | | Total available-for-sale securities | 31,912 | | 77,331 | | 0 | | — | | 109,243 | | | Trading assets: | | | | | | | Debt instruments | 3,181 | | 3,050 | | 0 | | — | | 6,231 | | Equity instruments (c) | 2,694 | | 0 | | 0 | | — | | 2,694 | | | Derivative assets not designated as hedging: | | | | | | | Interest rate | 4 | | 4,958 | | 0 | | (2,133) | | 2,829 | | | Foreign exchange | 0 | | 4,410 | | 0 | | (3,102) | | 1,308 | | | Equity and other contracts | 4 | | 11 | | 0 | | (3) | | 12 | | | Total derivative assets not designated as hedging | 8 | | 9,379 | | 0 | | (5,238) | | 4,149 | | | Total trading assets | 5,883 | | 12,429 | | 0 | | (5,238) | | 13,074 | | | Other assets: | | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | | Foreign exchange | 0 | | 56 | | 0 | | — | | 56 | | | Total derivative assets designated as hedging | 0 | | 56 | | 0 | | — | | 56 | | Other assets (d) | 113 | | 174 | | 0 | | — | | 287 | | Assets measured at NAV (d) | | | | | 184 | | | Subtotal assets of operations at fair value | 37,908 | | 89,990 | | 0 | | (5,238) | | 122,844 | | | Percentage of assets of operations prior to netting | 30 | % | 70 | % | 0 | % | | | | Assets of consolidated investment management funds | 360 | | 228 | | 0 | | — | | 588 | | | Total assets | $ | 38,268 | | $ | 90,218 | | $ | 0 | | $ | (5,238) | | $ | 123,432 | | | Percentage of total assets prior to netting | 30 | % | 70 | % | 0 | % | | |
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at March 31, 2020 | Total carrying
value |
| | (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| | Available-for-sale securities: | | | | | | | Agency RMBS | $ | — |
| $ | 26,691 |
| $ | — |
| $ | — |
| $ | 26,691 |
| | U.S. Treasury | 23,081 |
| — |
| — |
| — |
| 23,081 |
| | Sovereign debt/sovereign guaranteed | 7,070 |
| 5,840 |
| — |
| — |
| 12,910 |
| | Agency commercial MBS | — |
| 9,805 |
| — |
| — |
| 9,805 |
| | Foreign covered bonds | — |
| 5,272 |
| — |
| — |
| 5,272 |
| | Supranational | — |
| 4,348 |
| — |
| — |
| 4,348 |
| | CLOs | — |
| 4,098 |
| — |
| — |
| 4,098 |
| | Commercial paper/CDs | — |
| 2,814 |
| — |
| — |
| 2,814 |
| | Foreign government agencies | — |
| 2,764 |
| — |
| — |
| 2,764 |
| | Non-agency commercial MBS | — |
| 2,473 |
| — |
| — |
| 2,473 |
| | Other ABS | — |
| 2,220 |
| — |
| — |
| 2,220 |
| | U.S. government agencies | — |
| 2,213 |
| — |
| — |
| 2,213 |
| Non-agency RMBS (b) | — |
| 1,475 |
| — |
| — |
| 1,475 |
| | State and political subdivisions | — |
| 985 |
| — |
| — |
| 985 |
| | Corporate bonds | — |
| 818 |
| — |
| — |
| 818 |
| | Other debt securities | — |
| 1 |
| — |
| — |
| 1 |
| | Total available-for-sale securities | 30,151 |
| 71,817 |
| — |
| — |
| 101,968 |
| | Trading assets: | | | | | | | Debt instruments | 1,812 |
| 3,179 |
| — |
| — |
| 4,991 |
| Equity instruments (c) | 2,231 |
| — |
| — |
| — |
| 2,231 |
| | Derivative assets not designated as hedging: | | | | | | | Interest rate | 8 |
| 6,035 |
| — |
| (3,047 | ) | 2,996 |
| | Foreign exchange | — |
| 9,964 |
| — |
| (7,272 | ) | 2,692 |
| | Equity and other contracts | 6 |
| 11 |
| — |
| (9 | ) | 8 |
| | Total derivative assets not designated as hedging | 14 |
| 16,010 |
| — |
| (10,328 | ) | 5,696 |
| | Total trading assets | 4,057 |
| 19,189 |
| — |
| (10,328 | ) | 12,918 |
| | Other assets: | | | | | | | Derivative assets designated as hedging: | | | | | | | Foreign exchange | — |
| 187 |
| — |
| — |
| 187 |
| | Total derivative assets designated as hedging | — |
| 187 |
| — |
| — |
| 187 |
| Other assets (d) | 46 |
| 136 |
| — |
| — |
| 182 |
| Assets measured at NAV (d) | | | | | 158 |
| | Subtotal assets of operations at fair value | 34,254 |
| 91,329 |
| — |
| (10,328 | ) | 115,413 |
| | Percentage of assets of operations prior to netting | 27 | % | 73 | % | — | % | | | | Assets of consolidated investment management funds | 188 |
| 41 |
| — |
| — |
| 229 |
| | Total assets | $ | 34,442 |
| $ | 91,370 |
| $ | — |
| $ | (10,328 | ) | $ | 115,642 |
| | Percentage of total assets prior to netting | 27 | % | 73 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Sept. 30, 2020 | Total carrying
value | | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | | Trading liabilities: | | | | | | | Debt instruments | $ | 3,396 | | $ | 66 | | $ | 0 | | $ | — | | $ | 3,462 | | | Equity instruments | 26 | | 0 | | 0 | | — | | 26 | | | Derivative liabilities not designated as hedging: | | | | | | | Interest rate | 3 | | 4,243 | | 0 | | (2,551) | | 1,695 | | | Foreign exchange | 0 | | 4,522 | | 0 | | (3,631) | | 891 | | | Equity and other contracts | 0 | | 11 | | 0 | | (1) | | 10 | | | Total derivative liabilities not designated as hedging | 3 | | 8,776 | | 0 | | (6,183) | | 2,596 | | | Total trading liabilities | 3,425 | | 8,842 | | 0 | | (6,183) | | 6,084 | | Long-term debt (c) | 0 | | 400 | | 0 | | — | | 400 | | | Other liabilities – derivative liabilities designated as hedging: | | | | | | | Interest rate | 0 | | 803 | | 0 | | — | | 803 | | | Foreign exchange | 0 | | 194 | | 0 | | — | | 194 | | | Total other liabilities – derivative liabilities designated as hedging | 0 | | 997 | | 0 | | — | | 997 | | | Subtotal liabilities of operations at fair value | 3,425 | | 10,239 | | 0 | | (6,183) | | 7,481 | | | Percentage of liabilities of operations prior to netting | 25 | % | 75 | % | 0 | % | | | | Liabilities of consolidated investment management funds | 0 | | 4 | | 0 | | — | | 4 | | | Total liabilities | $ | 3,425 | | $ | 10,243 | | $ | 0 | | $ | (6,183) | | $ | 7,485 | | | Percentage of total liabilities prior to netting | 25 | % | 75 | % | 0 | % | | |
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product. (b)Includes $512 million in Level 2 that was included in the former Grantor Trust. (c)Includes certain interests in securitizations. (d)Includes seed capital, private equity investments and other assets.
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at March 31, 2020 | Total carrying
value |
| | (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| | Trading liabilities: | | | | | | | Debt instruments | $ | 1,101 |
| $ | 143 |
| $ | — |
| $ | — |
| $ | 1,244 |
| | Equity instruments | 64 |
| — |
| — |
| — |
| 64 |
| | Derivative liabilities not designated as hedging: | | | | | | | Interest rate | 14 |
| 5,261 |
| — |
| (3,479 | ) | 1,796 |
| | Foreign exchange | — |
| 11,854 |
| — |
| (8,382 | ) | 3,472 |
| | Equity and other contracts | 1 |
| 51 |
| — |
| (3 | ) | 49 |
| | Total derivative liabilities not designated as hedging | 15 |
| 17,166 |
| — |
| (11,864 | ) | 5,317 |
| | Total trading liabilities | 1,180 |
| 17,309 |
| — |
| (11,864 | ) | 6,625 |
| Long-term debt (c) | — |
| 397 |
| — |
| — |
| 397 |
| | Other liabilities – derivative liabilities designated as hedging: | | | | | | | Interest rate | — |
| 927 |
| — |
| — |
| 927 |
| | Foreign exchange | — |
| 46 |
| — |
| — |
| 46 |
| | Total other liabilities – derivative liabilities designated as hedging | — |
| 973 |
| — |
| — |
| 973 |
| | Subtotal liabilities of operations at fair value | 1,180 |
| 18,679 |
| — |
| (11,864 | ) | 7,995 |
| | Percentage of liabilities of operations prior to netting | 6 | % | 94 | % | — | % | | | | Liabilities of consolidated investment management funds | — |
| 1 |
| — |
| — |
| 1 |
| | Total liabilities | $ | 1,180 |
| $ | 18,680 |
| $ | — |
| $ | (11,864 | ) | $ | 7,996 |
| | Percentage of total liabilities prior to netting | 6 | % | 94 | % | — | % | | |
| | (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 $535 million in Level 2 that was included in the former Grantor Trust. |
| | (c) | Includes certain interests in securitizations. |
| | (d) | Includes seed capital, private equity investments and other assets. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying
value | | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | | Available-for-sale securities: | | | | | | | Agency RMBS | $ | 0 | | $ | 27,043 | | $ | 0 | | $ | — | | $ | 27,043 | | | U.S. Treasury | 15,431 | | 0 | | 0 | | — | | 15,431 | | | Sovereign debt/sovereign guaranteed | 7,784 | | 4,862 | | 0 | | — | | 12,646 | | | Agency commercial MBS | 0 | | 9,417 | | 0 | | — | | 9,417 | | | Foreign covered bonds | 0 | | 4,197 | | 0 | | — | | 4,197 | | | CLOs | 0 | | 4,063 | | 0 | | — | | 4,063 | | | Supranational | 0 | | 3,709 | | 0 | | — | | 3,709 | | | Foreign government agencies | 0 | | 2,643 | | 0 | | — | | 2,643 | | | Non-agency commercial MBS | 0 | | 2,178 | | 0 | | — | | 2,178 | | | Other ABS | 0 | | 2,143 | | 0 | | — | | 2,143 | | | U.S. government agencies | 0 | | 1,949 | | 0 | | — | | 1,949 | | Non-agency RMBS (b) | 0 | | 1,233 | | 0 | | — | | 1,233 | | | State and political subdivisions | 0 | | 1,044 | | 0 | | — | | 1,044 | | | Corporate bonds | 0 | | 853 | | 0 | | — | | 853 | | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | | Total available-for-sale securities | 23,215 | | 65,335 | | 0 | | — | | 88,550 | | | Trading assets: | | | | | | | Debt instruments | 1,568 | | 4,243 | | 0 | | — | | 5,811 | | Equity instruments (c) | 4,539 | | 0 | | 0 | | — | | 4,539 | | | Derivative assets not designated as hedging: | | | | | | | Interest rate | 4 | | 3,686 | | 0 | | (1,792) | | 1,898 | | | Foreign exchange | 0 | | 5,331 | | 0 | | (4,021) | | 1,310 | | | Equity and other contracts | 0 | | 19 | | 0 | | (6) | | 13 | | | Total derivative assets not designated as hedging | 4 | | 9,036 | | 0 | | (5,819) | | 3,221 | | | Total trading assets | 6,111 | | 13,279 | | 0 | | (5,819) | | 13,571 | | Other assets: | | | | | | | Derivative assets designated as hedging: | | | | | | | | | | | | | Foreign exchange | 0 | | 21 | | 0 | | — | | 21 | | | Total derivative assets designated as hedging | 0 | | 21 | | 0 | | — | | 21 | | Other assets (d) | 38 | | 179 | | 0 | | — | | 217 | | Assets measured at NAV (d) | | | | | 181 | | | Subtotal assets of operations at fair value | 29,364 | | 78,814 | | 0 | | (5,819) | | 102,540 | | | Percentage of assets of operations prior to netting | 27 | % | 73 | % | 0 | % | | | | Assets of consolidated investment management funds | 212 | | 33 | | 0 | | — | | 245 | | | Total assets | $ | 29,576 | | $ | 78,847 | | $ | 0 | | $ | (5,819) | | $ | 102,785 | | | Percentage of total assets prior to netting | 27 | % | 73 | % | 0 | % | | |
| | | | | | | | | | | | | | | | | | Assets measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying value |
| | (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| | Available-for-sale securities: | | | | | | | Agency RMBS | $ | — |
| $ | 27,043 |
| $ | — |
| $ | — |
| $ | 27,043 |
| | U.S. Treasury | 15,431 |
| — |
| — |
| — |
| 15,431 |
| | Sovereign debt/sovereign guaranteed | 7,784 |
| 4,862 |
| — |
| — |
| 12,646 |
| | Agency commercial MBS | — |
| 9,417 |
| — |
| — |
| 9,417 |
| | Foreign covered bonds | — |
| 4,197 |
| — |
| — |
| 4,197 |
| | CLOs | — |
| 4,063 |
| — |
| — |
| 4,063 |
| | Supranational | — |
| 3,709 |
| — |
| — |
| 3,709 |
| | Foreign government agencies | — |
| 2,643 |
| — |
| — |
| 2,643 |
| | Non-agency commercial MBS | — |
| 2,178 |
| — |
| — |
| 2,178 |
| | Other ABS | — |
| 2,143 |
| — |
| — |
| 2,143 |
| | U.S. government agencies | — |
| 1,949 |
| — |
| — |
| 1,949 |
| Non-agency RMBS (b) | — |
| 1,233 |
| — |
| — |
| 1,233 |
| | State and political subdivisions | — |
| 1,044 |
| — |
| — |
| 1,044 |
| | Corporate bonds | — |
| 853 |
| — |
| — |
| 853 |
| | Other debt securities | — |
| 1 |
| — |
| — |
| 1 |
| | Total available-for-sale securities | 23,215 |
| 65,335 |
| — |
| — |
| 88,550 |
| | Trading assets: | | | | | | | Debt instruments | 1,568 |
| 4,243 |
| — |
| — |
| 5,811 |
| Equity instruments (c) | 4,539 |
| — |
| — |
| — |
| 4,539 |
| | Derivative assets not designated as hedging: | | | | | | | Interest rate | 4 |
| 3,686 |
| — |
| (1,792 | ) | 1,898 |
| | Foreign exchange | — |
| 5,331 |
| — |
| (4,021 | ) | 1,310 |
| | Equity and other contracts | — |
| 19 |
| — |
| (6 | ) | 13 |
| | Total derivative assets not designated as hedging | 4 |
| 9,036 |
| — |
| (5,819 | ) | 3,221 |
| | Total trading assets | 6,111 |
| 13,279 |
| — |
| (5,819 | ) | 13,571 |
| Other assets: | | | | | | | Derivative assets designated as hedging: | | | | | | | Foreign exchange | — |
| 21 |
| — |
| — |
| 21 |
| | Total derivative assets designated as hedging | — |
| 21 |
| — |
| — |
| 21 |
| Other assets (d) | 38 |
| 179 |
| — |
| — |
| 217 |
| Assets measured at NAV (d) | | | | | 181 |
| | Subtotal assets of operations at fair value | 29,364 |
| 78,814 |
| — |
| (5,819 | ) | 102,540 |
| | Percentage of assets of operations prior to netting | 27 | % | 73 | % | — | % | | | | Assets of consolidated investment management funds | 212 |
| 33 |
| — |
| — |
| 245 |
| | Total assets | $ | 29,576 |
| $ | 78,847 |
| $ | — |
| $ | (5,819 | ) | $ | 102,785 |
| | Percentage of total assets prior to netting | 27 | % | 73 | % | — | % | | |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying
value | | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | | Trading liabilities: | | | | | | | Debt instruments | $ | 1,477 | | $ | 107 | | $ | 0 | | $ | — | | $ | 1,584 | | | Equity instruments | 73 | | 0 | | 0 | | — | | 73 | | | Derivative liabilities not designated as hedging: | | | | | | | Interest rate | 6 | | 3,244 | | 0 | | (1,986) | | 1,264 | | | Foreign exchange | 0 | | 5,340 | | 0 | | (3,428) | | 1,912 | | | Equity and other contracts | 3 | | 6 | | 0 | | (1) | | 8 | | | Total derivative liabilities not designated as hedging | 9 | | 8,590 | | 0 | | (5,415) | | 3,184 | | | Total trading liabilities | 1,559 | | 8,697 | | 0 | | (5,415) | | 4,841 | | Long-term debt (c) | 0 | | 387 | | 0 | | — | | 387 | | | Other liabilities – derivative liabilities designated as hedging: | | | | | | | Interest rate | 0 | | 350 | | 0 | | — | | 350 | | | Foreign exchange | 0 | | 257 | | 0 | | — | | 257 | | | Total other liabilities – derivative liabilities designated as hedging | 0 | | 607 | | 0 | | — | | 607 | | | Subtotal liabilities of operations at fair value | 1,559 | | 9,691 | | 0 | | (5,415) | | 5,835 | | | Percentage of liabilities of operations prior to netting | 14 | % | 86 | % | 0 | % | | | | Liabilities of consolidated investment management funds | 1 | | 0 | | 0 | | — | | 1 | | | Total liabilities | $ | 1,560 | | $ | 9,691 | | $ | 0 | | $ | (5,415) | | $ | 5,836 | | | Percentage of total liabilities prior to netting | 14 | % | 86 | % | 0 | % | | |
(a)ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product. (b)Includes $640 million in Level 2 that was included in the former Grantor Trust. (c)Includes certain interests in securitizations. (d)Includes seed capital, private equity investments and other assets.
| | | | | | | | | | | | | | | | | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying value |
| | (dollars in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Netting (a) |
| | Trading liabilities: | | | | | | | Debt instruments | $ | 1,477 |
| $ | 107 |
| $ | — |
| $ | — |
| $ | 1,584 |
| | Equity instruments | 73 |
| — |
| — |
| — |
| 73 |
| | Derivative liabilities not designated as hedging: | | | | | | | Interest rate | 6 |
| 3,244 |
| — |
| (1,986 | ) | 1,264 |
| | Foreign exchange | — |
| 5,340 |
| — |
| (3,428 | ) | 1,912 |
| | Equity and other contracts | 3 |
| 6 |
| — |
| (1 | ) | 8 |
| | Total derivative liabilities not designated as hedging | 9 |
| 8,590 |
| — |
| (5,415 | ) | 3,184 |
| | Total trading liabilities | 1,559 |
| 8,697 |
| — |
| (5,415 | ) | 4,841 |
| Long-term debt (c) | — |
| 387 |
| — |
| — |
| 387 |
| | Other liabilities – derivative liabilities designated as hedging: | | | | | | | Interest rate | — |
| 350 |
| — |
| — |
| 350 |
| | Foreign exchange | — |
| 257 |
| — |
| — |
| 257 |
| | Total other liabilities – derivative liabilities designated as hedging | — |
| 607 |
| — |
| — |
| 607 |
| | Subtotal liabilities of operations at fair value | 1,559 |
| 9,691 |
| — |
| (5,415 | ) | 5,835 |
| | Percentage of liabilities of operations prior to netting | 14 | % | 86 | % | — | % | | | | Liabilities of consolidated investment management funds | 1 |
| — |
| — |
| — |
| 1 |
| | Total liabilities | $ | 1,560 |
| $ | 9,691 |
| $ | — |
| $ | (5,415 | ) | $ | 5,836 |
| | Percentage of total liabilities prior to netting | 14 | % | 86 | % | — | % | | |
| | (a) | ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product. |
| | (b) | Includes $640 million in Level 2 that was included in the former Grantor Trust. |
| | (c) | Includes certain interests in securitizations. |
| | (d) | Includes seed capital, private equity investments and other assets. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | Total
carrying
value | | Ratings (a) | | Total
carrying value | | Ratings (a) | AAA/
AA- | A+/
A- | BBB+/
BBB- | BB+ and
lower | | AAA/
AA- | A+/
A- | BBB+/
BBB- | BB+ and
lower | | (dollars in millions) | (b) | (b) | Non-agency RMBS (c), originated in: | | | | | | | | | | | | | | | 2007-2020 | $ | 1,311 | | | 88 | % | 0 | % | 0 | % | 12 | % | | $ | 464 | | | 55 | % | 1 | % | 0 | % | 44 | % | | 2006 | 244 | | | 0 | | 23 | | 0 | | 77 | | | 291 | | | 0 | | 21 | | 0 | | 79 | | | 2005 | 243 | | | 4 | | 0 | | 7 | | 89 | | | 305 | | | 5 | | 2 | | 8 | | 85 | | | 2004 and earlier | 143 | | | 20 | | 9 | | 12 | | 59 | | | 173 | | | 22 | | 24 | | 4 | | 50 | | | Total non-agency RMBS | $ | 1,941 | | | 61 | % | 4 | % | 2 | % | 33 | % | | $ | 1,233 | | | 25 | % | 9 | % | 3 | % | 63 | % | | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | | 2009-2020 | $ | 2,711 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 2,178 | | | 98 | % | 2 | % | 0 | % | 0 | % | | Foreign covered bonds: | | | | | | | | | | | | | | | Canada | $ | 2,368 | | | 98 | % | 2 | % | 0 | % | 0 | % | | $ | 1,798 | | | 100 | % | 0 | % | 0 | % | 0 | % | | UK | 1,130 | | | 100 | | 0 | | 0 | | 0 | | | 984 | | | 100 | | 0 | | 0 | | 0 | | | Australia | 775 | | | 100 | | 0 | | 0 | | 0 | | | 431 | | | 100 | | 0 | | 0 | | 0 | | | Norway | 609 | | | 100 | | 0 | | 0 | | 0 | | | 287 | | | 100 | | 0 | | 0 | | 0 | | | Germany | 479 | | | 100 | | 0 | | 0 | | 0 | | | 357 | | | 100 | | 0 | | 0 | | 0 | | | Other | 480 | | | 100 | | 0 | | 0 | | 0 | | | 340 | | | 100 | | 0 | | 0 | | 0 | | | Total foreign covered bonds | $ | 5,841 | | | 99 | % | 1 | % | 0 | % | 0 | % | | $ | 4,197 | | | 100 | % | 0 | % | 0 | % | 0 | % | | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | | Germany | $ | 2,155 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,997 | | | 100 | % | 0 | % | 0 | % | 0 | % | | UK | 2,037 | | | 100 | | 0 | | 0 | | 0 | | | 3,318 | | | 100 | | 0 | | 0 | | 0 | | | Italy | 1,974 | | | 0 | | 0 | | 100 | | 0 | | | 1,260 | | | 0 | | 0 | | 100 | | 0 | | | France | 1,846 | | | 100 | | 0 | | 0 | | 0 | | | 1,272 | | | 100 | | 0 | | 0 | | 0 | | | Spain | 1,835 | | | 0 | | 5 | | 95 | | 0 | | | 1,453 | | | 0 | | 6 | | 94 | | 0 | | | Singapore | 949 | | | 100 | | 0 | | 0 | | 0 | | | 742 | | | 100 | | 0 | | 0 | | 0 | | | Canada | 732 | | | 100 | | 0 | | 0 | | 0 | | | 271 | | | 100 | | 0 | | 0 | | 0 | | | Ireland | 522 | | | 0 | | 100 | | 0 | | 0 | | | 301 | | | 0 | | 100 | | 0 | | 0 | | | Netherlands | 471 | | | 100 | | 0 | | 0 | | 0 | | | 791 | | | 100 | | 0 | | 0 | | 0 | | | Japan | 437 | | | 0 | | 100 | | 0 | | 0 | | | 274 | | | 0 | | 100 | | 0 | | 0 | | | Austria | 294 | | | 100 | | 0 | | 0 | | 0 | | | 240 | | | 100 | | 0 | | 0 | | 0 | | | Belgium | 253 | | | 100 | | 0 | | 0 | | 0 | | | 79 | | | 100 | | 0 | | 0 | | 0 | | | Hong Kong | 206 | | | 100 | | 0 | | 0 | | 0 | | | 411 | | | 100 | | 0 | | 0 | | 0 | | Other (d) | 382 | | | 51 | | 0 | | 18 | | 31 | | | 237 | | | 39 | | 4 | | 0 | | 57 | | | Total sovereign debt/sovereign guaranteed | $ | 14,093 | | | 65 | % | 7 | % | 27 | % | 1 | % | | $ | 12,646 | | | 73 | % | 5 | % | 21 | % | 1 | % | | Foreign government agencies: | | | | | | | | | | | | | | | Germany | $ | 1,483 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,131 | | | 100 | % | 0 | % | 0 | % | 0 | % | | Netherlands | 800 | | | 100 | | 0 | | 0 | | 0 | | | 678 | | | 100 | | 0 | | 0 | | 0 | | | Canada | 442 | | | 72 | | 28 | | 0 | | 0 | | | 71 | | | 0 | | 100 | | 0 | | 0 | | | France | 293 | | | 100 | | 0 | | 0 | | 0 | | | 42 | | | 100 | | 0 | | 0 | | 0 | | | Sweden | 276 | | | 100 | | 0 | | 0 | | 0 | | | 202 | | | 100 | | 0 | | 0 | | 0 | | | Finland | 246 | | | 100 | | 0 | | 0 | | 0 | | | 245 | | | 100 | | 0 | | 0 | | 0 | | | Other | 430 | | | 77 | | 23 | | 0 | | 0 | | | 274 | | | 79 | | 21 | | 0 | | 0 | | | Total foreign government agencies | $ | 3,970 | | | 94 | % | 6 | % | 0 | % | 0 | % | | $ | 2,643 | | | 95 | % | 5 | % | 0 | % | 0 | % |
(a)Represents ratings by S&P or the equivalent. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Details of certain available-for-sale securities measured at fair value on a recurring basis | March 31, 2020 | | Dec. 31, 2019 | Total carrying value |
| | Ratings (a) | | Total carrying value |
| | Ratings (a) | AAA/ AA- |
| A+/ A- |
| BBB+/ BBB- |
| BB+ and lower |
| | AAA/ AA- |
| A+/ A- |
| BBB+/ BBB- |
| BB+ and lower |
| | (dollars in millions) | (b) | (b) | Non-agency RMBS (c), originated in: | | | | | | | | | | | | | | | 2007-2020 | $ | 826 |
| | 79 | % | 1 | % | — | % | 20 | % | | $ | 464 |
| | 55 | % | 1 | % | — | % | 44 | % | | 2006 | 244 |
| | — |
| 22 |
| — |
| 78 |
| | 291 |
| | — |
| 21 |
| — |
| 79 |
| | 2005 | 258 |
| | 5 |
| 2 |
| 8 |
| 85 |
| | 305 |
| | 5 |
| 2 |
| 8 |
| 85 |
| | 2004 and earlier | 147 |
| | 22 |
| 23 |
| 6 |
| 49 |
| | 173 |
| | 22 |
| 24 |
| 4 |
| 50 |
| | Total non-agency RMBS | $ | 1,475 |
| | 48 | % | 6 | % | 2 | % | 44 | % | | $ | 1,233 |
| | 25 | % | 9 | % | 3 | % | 63 | % | | Non-agency commercial MBS originated in: | | | | | | | | | | | | | | | 2009-2020 | $ | 2,473 |
| | 100 | % | — | % | — | % | — | % | | $ | 2,178 |
| | 98 | % | 2 | % | — | % | — | % | | Foreign covered bonds: | | | | | | | | | | | | | | | Canada | $ | 2,207 |
| | 100 | % | — | % | — | % | — | % | | $ | 1,798 |
| | 100 | % | — | % | — | % | — | % | | UK | 1,109 |
| | 100 |
| — |
| — |
| — |
| | 984 |
| | 100 |
| — |
| — |
| — |
| | Australia | 605 |
| | 100 |
| — |
| — |
| — |
| | 431 |
| | 100 |
| — |
| — |
| — |
| | Norway | 495 |
| | 100 |
| — |
| — |
| — |
| | 287 |
| | 100 |
| — |
| — |
| — |
| | Germany | 465 |
| | 100 |
| — |
| — |
| — |
| | 357 |
| | 100 |
| — |
| — |
| — |
| | Other | 391 |
| | 100 |
| — |
| — |
| — |
| | 340 |
| | 100 |
| — |
| — |
| — |
| | Total foreign covered bonds | $ | 5,272 |
| | 100 | % | — | % | — | % | — | % | | $ | 4,197 |
| | 100 | % | — | % | — | % | — | % | | Sovereign debt/sovereign guaranteed: | | | | | | | | | | | | | | | UK | $ | 2,971 |
| | 100 | % | — | % | — | % | — | % | | $ | 3,318 |
| | 100 | % | — | % | — | % | — | % | | Germany | 2,168 |
| | 100 |
| — |
| — |
| — |
| | 1,997 |
| | 100 |
| — |
| — |
| — |
| | France | 1,577 |
| | 100 |
| — |
| — |
| — |
| | 1,272 |
| | 100 |
| — |
| — |
| — |
| | Spain | 1,546 |
| | — |
| 4 |
| 96 |
| — |
| | 1,453 |
| | — |
| 6 |
| 94 |
| — |
| | Italy | 1,390 |
| | — |
| — |
| 100 |
| — |
| | 1,260 |
| | — |
| — |
| 100 |
| — |
| | Singapore | 768 |
| | 100 |
| — |
| — |
| — |
| | 742 |
| | 100 |
| — |
| — |
| — |
| | Ireland | 462 |
| | — |
| 100 |
| — |
| — |
| | 301 |
| | — |
| 100 |
| — |
| — |
| | Netherlands | 387 |
| | 100 |
| — |
| — |
| — |
| | 791 |
| | 100 |
| — |
| — |
| — |
| | Austria | 347 |
| | 100 |
| — |
| — |
| — |
| | 240 |
| | 100 |
| — |
| — |
| — |
| | Canada | 345 |
| | 100 |
| — |
| — |
| — |
| | 271 |
| | 100 |
| — |
| — |
| — |
| | Hong Kong | 294 |
| | 100 |
| — |
| — |
| — |
| | 411 |
| | 100 |
| — |
| — |
| — |
| Other (d) | 655 |
| | 39 |
| 39 |
| — |
| 22 |
| | 590 |
| | 29 |
| 48 |
| — |
| 23 |
| | Total sovereign debt/sovereign guaranteed | $ | 12,910 |
| | 71 | % | 6 | % | 22 | % | 1 | % | | $ | 12,646 |
| | 73 | % | 5 | % | 21 | % | 1 | % | | Foreign government agencies: | | | | | | | | | | | | | | | Germany | $ | 1,161 |
| | 100 | % | — | % | — | % | — | % | | $ | 1,131 |
| | 100 | % | — | % | — | % | — | % | | Netherlands | 632 |
| | 100 |
| — |
| — |
| — |
| | 678 |
| | 100 |
| — |
| — |
| — |
| | Sweden | 250 |
| | 100 |
| — |
| — |
| — |
| | 202 |
| | 100 |
| — |
| — |
| — |
| | Finland | 240 |
| | 100 |
| — |
| — |
| — |
| | 245 |
| | 100 |
| — |
| — |
| — |
| | Other | 481 |
| | 72 |
| 28 |
| — |
| — |
| | 387 |
| | 67 |
| 33 |
| — |
| — |
| | Total foreign government agencies | $ | 2,764 |
| | 95 | % | 5 | % | — | % | — | % | | $ | 2,643 |
| | 95 | % | 5 | % | — | % | — | % |
(c) Includes $512 million at Sept. 30, 2020 and $640 million at Dec. 31, 2019 that were included in the former Grantor Trust. (d) Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $119 million at Sept. 30, 2020 and $134 million at Dec. 31, 2019.
| | | (a) | Represents ratings by S&P or the equivalent. |
| Notes to Consolidated Financial Statements(continued) | (b) | At March 31, 2020 and Dec. 31, 2019, sovereign debt/sovereign guaranteed securities were included in Level 1 and Level 2 in the valuation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy. |
| | (c) | Includes $535 million at March 31, 2020 and $640 million at Dec. 31, 2019 that were included in the former Grantor Trust. |
| | (d) | Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $113 million at March 31, 2020 and $134 million at Dec. 31, 2019. |
Assets and liabilities measured at fair value on a nonrecurring basis
Under certain circumstances, we make adjustments to the fair value of our assets, liabilities and unfunded lending-related commitments although they are not measured at fair value on an ongoing basis.
Examples would be the recording of an impairment of an asset and non-readily marketable equity securities carried at cost with upward or downward adjustments.
| | Notes to Consolidated Financial Statements(continued)
| |
The following table presents the financial instruments carried on the consolidated balance sheet by caption and level in the fair value hierarchy as of March 31,Sept. 30, 2020 and Dec. 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | | | | Total carrying
value | | | | | Total carrying
value | | (in millions) | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | Loans (a) | $ | 0 | | $ | 52 | | $ | 0 | | $ | 52 | | | $ | 0 | | $ | 58 | | $ | 0 | | $ | 58 | | Other assets (b) | 0 | | 113 | | 0 | | 113 | | | 0 | | 64 | | 0 | | 64 | | | Total assets at fair value on a nonrecurring basis | $ | 0 | | $ | 165 | | $ | 0 | | $ | 165 | | | $ | 0 | | $ | 122 | | $ | 0 | | $ | 122 | |
(a)The fair value of these loans decreased less than $1 million in the third quarter of 2020 and the fourth quarter of 2019, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses. (b)Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets measured at fair value on a nonrecurring basis | March 31, 2020 | | Dec. 31, 2019 | | | | | Total carrying value |
| | | | | Total carrying value |
| | (in millions) | Level 1 |
| Level 2 |
| Level 3 |
| | Level 1 |
| Level 2 |
| Level 3 |
| Loans (a) | $ | — |
| $ | 56 |
| $ | — |
| $ | 56 |
| | $ | — |
| $ | 58 |
| $ | — |
| $ | 58 |
| Other assets (b) | — |
| 102 |
| — |
| 102 |
| | — |
| 64 |
| — |
| 64 |
| | Total assets at fair value on a nonrecurring basis | $ | — |
| $ | 158 |
| $ | — |
| $ | 158 |
| | $ | — |
| $ | 122 |
| $ | — |
| $ | 122 |
|
| | (a) | The fair value of these loans decreased less than $1 million in the first quarter of 2020 and the fourth quarter of 2019, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses. |
| | (b) | Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt. |
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 March 31,Sept. 30, 2020 and Dec. 31, 2019, by caption on the consolidated balance sheet and by the valuation hierarchy.
| | | | | | | | | | | | | | | | | | | Summary of financial instruments | Sept. 30, 2020 | | (in millions) | Level 1 | Level 2 | Level 3 | Total
estimated
fair value | Carrying
amount | | Assets: | | | | | | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 106,185 | | $ | 0 | | $ | 106,185 | | $ | 106,185 | | | Interest-bearing deposits with banks | 0 | | 19,037 | | 0 | | 19,037 | | 19,027 | | | Federal funds sold and securities purchased under resale agreements | 0 | | 29,647 | | 0 | | 29,647 | | 29,647 | | | Securities held-to-maturity | 4,415 | | 43,043 | | 0 | | 47,458 | | 46,096 | | Loans (a) | 0 | | 54,475 | | 0 | | 54,475 | | 54,088 | | | Other financial assets | 4,104 | | 1,121 | | 0 | | 5,225 | | 5,225 | | | Total | $ | 8,519 | | $ | 253,508 | | $ | 0 | | $ | 262,027 | | $ | 260,268 | | | Liabilities: | | | | | | | Noninterest-bearing deposits | $ | 0 | | $ | 79,470 | | $ | 0 | | $ | 79,470 | | $ | 79,470 | | | Interest-bearing deposits | 0 | | 216,499 | | 0 | | 216,499 | | 216,842 | | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 15,907 | | 0 | | 15,907 | | 15,907 | | | Payables to customers and broker-dealers | 0 | | 23,514 | | 0 | | 23,514 | | 23,514 | | | Commercial paper | 0 | | 671 | | 0 | | 671 | | 671 | | | Borrowings | 0 | | 607 | | 0 | | 607 | | 607 | | | Long-term debt | 0 | | 27,457 | | 0 | | 27,457 | | 25,721 | | | Total | $ | 0 | | $ | 364,125 | | $ | 0 | | $ | 364,125 | | $ | 362,732 | |
(a) Does not include the leasing portfolio.
| | | | | | | | | | | | | | | | | | Summary of financial instruments | March 31, 2020 | | (in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Total
estimated
fair value |
| Carrying
amount |
| | Assets: | | | | | | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | — |
| $ | 146,535 |
| $ | — |
| $ | 146,535 |
| $ | 146,535 |
| | Interest-bearing deposits with banks | — |
| 22,689 |
| — |
| 22,689 |
| 22,672 |
| | Federal funds sold and securities purchased under resale agreements | — |
| 27,363 |
| — |
| 27,363 |
| 27,363 |
| | Securities held-to-maturity | 4,014 |
| 34,404 |
| — |
| 38,418 |
| 37,305 |
| Loans (a) | — |
| 61,482 |
| — |
| 61,482 |
| 61,174 |
| | Other financial assets | 5,091 |
| 1,198 |
| — |
| 6,289 |
| 6,289 |
| | Total | $ | 9,105 |
| $ | 293,671 |
| $ | — |
| $ | 302,776 |
| $ | 301,338 |
| | Liabilities: | | | | | | | Noninterest-bearing deposits | $ | — |
| $ | 96,600 |
| $ | — |
| $ | 96,600 |
| $ | 96,600 |
| | Interest-bearing deposits | — |
| 239,459 |
| — |
| 239,459 |
| 240,117 |
| | Federal funds purchased and securities sold under repurchase agreements | — |
| 13,128 |
| — |
| 13,128 |
| 13,128 |
| | Payables to customers and broker-dealers | — |
| 24,016 |
| — |
| 24,016 |
| 24,016 |
| | Commercial paper | — |
| 1,121 |
| — |
| 1,121 |
| 1,121 |
| | Borrowings | — |
| 1,767 |
| — |
| 1,767 |
| 1,767 |
| | Long-term debt | — |
| 27,521 |
| — |
| 27,521 |
| 27,097 |
| | Total | $ | — |
| $ | 403,612 |
| $ | — |
| $ | 403,612 |
| $ | 403,846 |
|
| | (a) | Does not include the leasing portfolio. |
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | Summary of financial instruments | Dec. 31, 2019 | | (in millions) | Level 1 | Level 2 | Level 3 | Total estimated
fair value | Carrying
amount | | Assets: | | | | | | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 95,042 | | $ | 0 | | $ | 95,042 | | $ | 95,042 | | | Interest-bearing deposits with banks | 0 | | 14,832 | | 0 | | 14,832 | | 14,811 | | | Federal funds sold and securities purchased under resale agreements | 0 | | 30,182 | | 0 | | 30,182 | | 30,182 | | | Securities held-to-maturity | 4,630 | | 30,175 | | 0 | | 34,805 | | 34,483 | | Loans (a) | 0 | | 54,194 | | 0 | | 54,194 | | 53,718 | | | Other financial assets | 4,830 | | 1,233 | | 0 | | 6,063 | | 6,063 | | | Total | $ | 9,460 | | $ | 225,658 | | $ | 0 | | $ | 235,118 | | $ | 234,299 | | | Liabilities: | | | | | | | Noninterest-bearing deposits | $ | 0 | | $ | 57,630 | | $ | 0 | | $ | 57,630 | | $ | 57,630 | | | Interest-bearing deposits | 0 | | 200,846 | | 0 | | 200,846 | | 201,836 | | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 11,401 | | 0 | | 11,401 | | 11,401 | | | Payables to customers and broker-dealers | 0 | | 18,758 | | 0 | | 18,758 | | 18,758 | | | Commercial paper | 0 | | 3,959 | | 0 | | 3,959 | | 3,959 | | | Borrowings | 0 | | 917 | | 0 | | 917 | | 917 | | | Long-term debt | 0 | | 27,858 | | 0 | | 27,858 | | 27,114 | | | Total | $ | 0 | | $ | 321,369 | | $ | 0 | | $ | 321,369 | | $ | 321,615 | |
(a) Does not include the leasing portfolio. | | | | | | | | | | | | | | | | | | Summary of financial instruments | Dec. 31, 2019 | | (in millions) | Level 1 |
| Level 2 |
| Level 3 |
| Total estimated
fair value |
| Carrying
amount |
| | Assets: | | | | | | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | — |
| $ | 95,042 |
| $ | — |
| $ | 95,042 |
| $ | 95,042 |
| | Interest-bearing deposits with banks | — |
| 14,832 |
| — |
| 14,832 |
| 14,811 |
| | Federal funds sold and securities purchased under resale agreements | — |
| 30,182 |
| — |
| 30,182 |
| 30,182 |
| | Securities held-to-maturity | 4,630 |
| 30,175 |
| — |
| 34,805 |
| 34,483 |
| Loans (a) | — |
| 54,194 |
| — |
| 54,194 |
| 53,718 |
| | Other financial assets | 4,830 |
| 1,233 |
| — |
| 6,063 |
| 6,063 |
| | Total | $ | 9,460 |
| $ | 225,658 |
| $ | — |
| $ | 235,118 |
| $ | 234,299 |
| | Liabilities: | | | | | | | Noninterest-bearing deposits | $ | — |
| $ | 57,630 |
| $ | — |
| $ | 57,630 |
| $ | 57,630 |
| | Interest-bearing deposits | — |
| 200,846 |
| — |
| 200,846 |
| 201,836 |
| | Federal funds purchased and securities sold under repurchase agreements | — |
| 11,401 |
| — |
| 11,401 |
| 11,401 |
| | Payables to customers and broker-dealers | — |
| 18,758 |
| — |
| 18,758 |
| 18,758 |
| | Commercial paper | — |
| 3,959 |
| — |
| 3,959 |
| 3,959 |
| | Borrowings | — |
| 917 |
| — |
| 917 |
| 917 |
| | Long-term debt | — |
| 27,858 |
| — |
| 27,858 |
| 27,114 |
| | Total | $ | — |
| $ | 321,369 |
| $ | — |
| $ | 321,369 |
| $ | 321,615 |
|
| | (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 certain long-term debt. The following table presents the assets and liabilities of consolidated investment management funds, at fair value.
| | | | | | | | Assets and liabilities of consolidated investment management funds, at fair value | | | | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | | Assets of consolidated investment management funds: | | | | Trading assets | $ | 215 |
| $ | 229 |
| | Other assets | 14 |
| 16 |
| | Total assets of consolidated investment management funds | $ | 229 |
| $ | 245 |
| | Liabilities of consolidated investment management funds: | | | | Other liabilities | 1 |
| 1 |
| | Total liabilities of consolidated investment management funds | $ | 1 |
| $ | 1 |
|
| | | | | | | | | Assets and liabilities of consolidated investment management funds, at fair value | | | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | | Assets of consolidated investment management funds: | | | | Trading assets | $ | 579 | | $ | 229 | | | Other assets | 9 | | 16 | | | Total assets of consolidated investment management funds | $ | 588 | | $ | 245 | | | Liabilities of consolidated investment management funds: | | | | | | | Other liabilities | 4 | | 1 | | | Total liabilities of consolidated investment management funds | $ | 4 | | $ | 1 | |
BNY Mellon values the assets and liabilities of its consolidated investment management funds using quoted prices for identical assets or liabilities in active markets or observable inputs such as quoted prices for similar assets or liabilities. Quoted prices for either identical or similar assets or liabilities in inactive markets may also be used. Accordingly, fair value best reflects the interests BNY Mellon holds in the economic performance of the consolidated investment management funds. Changes in the value of the assets and liabilities are recorded in the consolidated income statement as investment income of consolidated investment management funds and in the interest of investment management fund note holders, respectively.
We have elected the fair value option on $240$240 million of long-term debt. The fair value of this long-term debt was $397$400 million at March 31,Sept. 30, 2020 and $387 million at Dec. 31, 2019. The long-term debt is valued using observable market inputs and is included in Level 2 of the valuation hierarchy.
The following table presents the changes in fair value of long-term debt recorded in foreign exchange and other trading revenue in the consolidated income statement.
| | | | | | | | | | | Change in fair value of long-term debt (a) | | (in millions) | 1Q20 |
| 4Q19 |
| 1Q19 |
| | Foreign exchange and other trading revenue | $ | (10 | ) | $ | (1 | ) | $ | (5 | ) |
| | (a) | The changes in fair value are approximately offset by an economic hedge included in foreign exchange and other trading revenue. |
| | | | | | | | | | | | | | | | | | | Change in fair value of long-term debt (a) | | | | | | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | Foreign exchange and other trading revenue | $ | (1) | | $ | (2) | | $ | (3) | | $ | (13) | | $ | (15) | | |
(a) The changes in fair value are approximately offset by an economic hedge included in foreign exchange and other trading revenue.
| | | Notes to Consolidated Financial Statements (continued) | |
Note 17–Derivative instruments
We use derivatives to manage exposure to market risk, including interest rate risk, equity price risk and foreign currency risk, as well as credit risk. Our trading activities are focused on acting as a market-maker for our customers and facilitating customer trades in compliance with the Volcker Rule.
The notional amounts for derivative financial instruments express the dollar volume of the transactions; however, credit risk is much smaller. We perform credit reviews and enter into netting agreements and collateral arrangements to minimize the credit risk of derivative financial instruments. We enter into offsetting positions to reduce exposure to foreign currency, interest rate and equity price risk.
Use of derivative financial instruments involves reliance on counterparties. Failure of a counterparty to honor its obligation under a derivative contract is a risk we assume whenever we engage in a derivative contract. There were 0 counterparty default losses recorded in the firstthird quarter of 2020.
Hedging derivatives
We utilize interest rate swap agreements to manage our exposure to interest rate fluctuations. We enter into fair value hedges as an interest rate risk management strategy to reduce fair value variability by converting certain fixed rate interest payments associated with available-for-sale securities and long-term debt to floating interest rates. We also utilize interest rate swaps and forward exchange contracts as cash flow hedges to manage our exposure to interest rate and foreign exchange rate changes.
The available-for-sale securities hedged consist of U.S. Treasury, bonds, agency and non-agency commercial MBS, sovereign debt,debt/sovereign guaranteed, corporate bonds and foreign covered bonds. At March 31,Sept. 30, 2020, $16.5$14.5 billion par value of available-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $16.5$14.5 billion.
The fixed rate long-term debt instruments hedged generally have original maturities of five to 30 years. In fair value hedging relationships, debt is hedged with “receive fixed rate, pay variable rate” swaps. At March 31,Sept. 30, 2020, $13.9 billion par value of debt was hedged with interest rate swaps designated as fair value hedges that had notional values of $13.9 billion.
In addition, we utilize forward foreign exchange contracts as hedges to mitigate foreign exchange exposures. We use forward foreign exchange contracts as cash flow hedges to convert certain forecasted non-U.S. dollar revenue and expenses into U.S. dollars. We use forward foreign exchange contracts with maturities of 1215 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, Euro, Hong Kong dollar, Singapore dollar and Polish zloty used in revenue and expense transactions for entities that have the U.S. dollar as their functional currency. As of March 31,Sept. 30, 2020, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $291$319 million (notional), with a pre-tax lossgain of $10$5 million recorded in accumulated OCI. This lossgain will be reclassified to earnings over the next 12 months.
We also utilize forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. Forward points are designated as an excluded component and amortized into earnings over the hedge period. The unamortized derivative value associated with the excluded component is recognized in accumulated OCI. At Sept. 30, 2020, $140 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $140 million.
Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than one year. The derivatives employed are designated as hedges of changes in value of our foreign investments due to exchange rates. 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 March 31,Sept. 30, 2020, forward foreign exchange contracts with notional amounts totaling $7.2$7.9 billion were designated as net investment hedges.
In addition to forward foreign exchange contracts, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. Those non-derivative financial instruments designated as hedges of our net investments in foreign subsidiaries were all long-term liabilities of BNY Mellon and, at March 31,Sept. 30, 2020, had a combined U.S. dollar equivalent carrying value of $168$179 million.
| | | Notes to Consolidated Financial Statements (continued) | |
The following table presents the pre-tax gains (losses) related to our fair value and cash flow hedging activities recognized in the consolidated income statement.
| | | | | | | | | | | | | Income statement impact of fair value and cash flow hedges | | | | (in millions) | Location of gains (losses) | 1Q20 |
| 4Q19 |
| 1Q19 |
| | Interest rate fair value hedges of available-for-sale securities | | | | | | Derivative | Interest revenue | $ | (1,033 | ) | $ | 324 |
| $ | (383 | ) | | Hedged item | Interest revenue | 1,011 |
| (311 | ) | 376 |
| | Interest rate fair value hedges of long-term debt | | | | | | Derivative | Interest expense | 714 |
| (145 | ) | 185 |
| | Hedged item | Interest expense | (708 | ) | 144 |
| (184 | ) | | Foreign exchange fair value hedges of available-for-sale securities | | | | | Derivative (a) | Other revenue | 7 |
| 6 |
| 6 |
| | Hedged item | Other revenue | (7 | ) | (6 | ) | (5 | ) | | Cash flow hedge of interest rate risk | | | | | | Gain reclassified from OCI into income | Interest expense | — |
| 8 |
| — |
| | Cash flow hedges of forecasted FX exposures | | | | | | Gain (loss) reclassified from OCI into income | Staff expense | 1 |
| 2 |
| (1 | ) | | (Loss) gain recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | (15 | ) | $ | 22 |
| $ | (6 | ) |
| | (a) | Includes gains of less than $1 million in the first quarter of 2020 and the fourth quarter of 2019 and a gain of $1 million in the first quarter of 2019 associated with the amortization of the excluded component. At March 31, 2020 and Dec. 31, 2019, the remaining accumulated OCI balance associated with the excluded component was de minimis. |
| | | | | | | | | | | | | | | | | | | | | | | Income statement impact of fair value and cash flow hedges | | | | | (in millions) | Location of
gains (losses) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | Interest rate fair value hedges of available-for-sale securities | | | | | | | | | Derivative | Interest revenue | $ | 150 | | $ | 19 | | $ | (250) | | $ | (864) | | $ | (1,119) | | | | Hedged item | Interest revenue | (140) | | (15) | | 243 | | 856 | | 1,099 | | | | Interest rate fair value hedges of long-term debt | | | | | | | | | Derivative | Interest expense | (68) | | 47 | | 146 | | 693 | | 631 | | | | Hedged item | Interest expense | 66 | | (49) | | (145) | | (691) | | (627) | | | | Foreign exchange fair value hedges of available-for-sale securities | | | | | | | | Derivative (a) | Other revenue | 1 | | (5) | | 2 | | (11) | | 3 | | | | Hedged item | Other revenue | 1 | | 5 | | (2) | | 13 | | (2) | | | | Cash flow hedge of interest rate risk | | | | | | | | | (Loss) reclassified from OCI into income | Interest expense | 0 | | 0 | | (1) | | 0 | | (1) | | | | Cash flow hedges of forecasted FX exposures | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (Loss) gain reclassified from OCI into income | Staff expense | 0 | | (3) | | 2 | | (2) | | 1 | | | | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 10 | | $ | (1) | | $ | (5) | | $ | (6) | | $ | (15) | | |
(a) Includes gains of less than $1 million in the third quarter of 2020, second quarter of 2020 and third quarter of 2019 and gains of $1 million in the first nine months of 2020 and first nine months of 2019 associated with the amortization of the excluded component. At Sept. 30, 2020 and Dec. 31, 2019, the remaining accumulated OCI balance associated with the excluded component was de minimis.
The following table presents the impact of hedging derivatives used in net investment hedging relationships.
| | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments used in net investment hedging relationships | | (in millions) | | | | | | | Gain or (loss) recognized in accumulated OCI on derivatives | | | Gain or (loss) reclassified from accumulated OCI into income | | Derivatives in net investment hedging relationships | | Location of gain or (loss) reclassified from accumulated OCI into income | | 1Q20 |
| 4Q19 |
| 1Q19 |
| | 1Q20 |
| 4Q19 |
| 1Q19 |
| | FX contracts | $ | 437 |
| $ | (341 | ) | $ | (6 | ) | | Net interest revenue | $ | — |
| $ | — |
| $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments used in net investment hedging relationships | | | | (in millions) | | | | | | Derivatives in net investment hedging relationships | Gain or (loss) recognized in accumulated OCI on derivatives | | | Location of gain or (loss) reclassified from accumulated OCI into income | Gain or (loss) reclassified from accumulated OCI into income | | | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | FX contracts | $ | (289) | | $ | (45) | | $ | 252 | | $ | 103 | | $ | 322 | | | | Net interest revenue | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | |
The following table presents information on the hedged items in fair value hedging relationships.
| | | | | | | | | | | | | | | | | | | Hedged items in fair value hedging relationships | Carrying amount of hedged
asset or liability | | Hedge accounting basis adjustment increase (decrease) (a) | | | | | | | | | (in millions) | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | Available-for-sale securities (b)(c) | $ | 14,629 | | $ | 13,792 | | | $ | 1,650 | | $ | 687 | | | Long-term debt | $ | 14,889 | | $ | 13,945 | | | $ | 870 | | $ | 116 | |
(a) Includes $187 million and $53 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2020 and Dec. 31, 2019, respectively, and $136 million and $200 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2020 and Dec. 31, 2019, respectively. (b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was $140 million at Sept. 30, 2020 and $142 million at Dec. 31, 2019. (c) Carrying amount represents the amortized cost.
| | | | | | | | | | | | | | | | Hedged items in fair value hedging relationships | Carrying amount of hedged asset or liability | | Hedge accounting basis adjustment increase (decrease) (a) | | | | (in millions) | March 31, 2020 |
| Dec. 31, 2019 |
| | March 31, 2020 |
| Dec. 31, 2019 |
| Available-for-sale securities (b)(c) | $ | 16,559 |
| $ | 13,792 |
| | $ | 1,846 |
| $ | 687 |
| | Long-term debt | $ | 14,907 |
| $ | 13,945 |
| | $ | 849 |
| $ | 116 |
|
| | (a) | Includes $210 million and $53 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at March 31, 2020 and Dec. 31, 2019, respectively, and $178 million and $200 million of basis adjustment decreases on discontinued hedges associated with long-term debt at March 31, 2020 and Dec. 31, 2019, respectively. |
| | (b) | Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was $- million at March 31, 2020 and $142 million at Dec. 31, 2019. |
| | (c) | Carrying amount represents the amortized cost. |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table summarizes the notional amount and carrying values of our total derivative portfolio at March 31,Sept. 30, 2020 and Dec. 31, 2019.
| | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments on the balance sheet | Notional value | | Asset derivatives fair value | | Liability derivatives fair value | | | March 31, 2020 |
| Dec. 31, 2019 |
| | March 31, 2020 |
| Dec. 31, 2019 |
| | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | | Interest rate contracts | $ | 30,356 |
| $ | 28,365 |
| | $ | — |
| $ | — |
| | $ | 927 |
| $ | 350 |
| | Foreign exchange contracts | 7,524 |
| 8,390 |
| | 187 |
| 21 |
| | 46 |
| 257 |
| | Total derivatives designated as hedging instruments | | | | $ | 187 |
| $ | 21 |
| | $ | 973 |
| $ | 607 |
| Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | | Interest rate contracts | $ | 273,595 |
| $ | 306,790 |
| | $ | 6,043 |
| $ | 3,690 |
| | $ | 5,275 |
| $ | 3,250 |
| | Foreign exchange contracts | 924,891 |
| 848,961 |
| | 9,964 |
| 5,331 |
| | 11,854 |
| 5,340 |
| | Equity contracts | 1,269 |
| 3,189 |
| | 15 |
| 19 |
| | 51 |
| 5 |
| | Credit contracts | 165 |
| 165 |
| | 2 |
| — |
| | 1 |
| 4 |
| | Total derivatives not designated as hedging instruments | | | | $ | 16,024 |
| $ | 9,040 |
| | $ | 17,181 |
| $ | 8,599 |
| Total derivatives fair value (d) | | | | $ | 16,211 |
| $ | 9,061 |
| | $ | 18,154 |
| $ | 9,206 |
| Effect of master netting agreements (e) | | | | (10,328 | ) | (5,819 | ) | | (11,864 | ) | (5,415 | ) | | Fair value after effect of master netting agreements | | | | $ | 5,883 |
| $ | 3,242 |
| | $ | 6,290 |
| $ | 3,791 |
|
| | (a) | The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the consolidated balance sheet. |
| | (b) | For derivative transactions settled at clearing organizations, cash collateral exchanged is deemed a settlement of the derivative each day. The settlement reduces the gross fair value of derivative assets and liabilities and results in a corresponding decrease in the effect of master netting agreements, with no impact to the consolidated balance sheet. |
| | (c) | The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the consolidated balance sheet. |
| | (d) | Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging. |
| | (e) | Effect of master netting agreements includes cash collateral received and paid of $1,320 million and $2,856 million, respectively, at March 31, 2020, and $1,022 million and $618 million, respectively, at Dec. 31, 2019.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of derivative instruments on the balance sheet | Notional value | | Asset derivatives
fair value | | Liability derivatives
fair value | | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | | | Derivatives designated as hedging instruments: (a)(b) | | | | | | | | | | Interest rate contracts | $ | 28,441 | | $ | 28,365 | | | $ | 0 | | $ | 0 | | | $ | 803 | | $ | 350 | | | Foreign exchange contracts | 8,369 | | 8,390 | | | 56 | | 21 | | | 194 | | 257 | | | Total derivatives designated as hedging instruments | | | | $ | 56 | | $ | 21 | | | $ | 997 | | $ | 607 | | Derivatives not designated as hedging instruments: (b)(c) | | | | | | | | | | Interest rate contracts | $ | 206,771 | | $ | 306,790 | | | $ | 4,962 | | $ | 3,690 | | | $ | 4,246 | | $ | 3,250 | | | Foreign exchange contracts | 753,812 | | 848,961 | | | 4,410 | | 5,331 | | | 4,522 | | 5,340 | | | Equity contracts | 2,241 | | 3,189 | | | 15 | | 19 | | | 8 | | 5 | | | Credit contracts | 165 | | 165 | | | 0 | | 0 | | | 3 | | 4 | | | Total derivatives not designated as hedging instruments | | | | $ | 9,387 | | $ | 9,040 | | | $ | 8,779 | | $ | 8,599 | | Total derivatives fair value (d) | | | | $ | 9,443 | | $ | 9,061 | | | $ | 9,776 | | $ | 9,206 | | Effect of master netting agreements (e) | | | | (5,238) | | (5,819) | | | (6,183) | | (5,415) | | | Fair value after effect of master netting agreements | | | | $ | 4,205 | | $ | 3,242 | | | $ | 3,593 | | $ | 3,791 | |
(a)The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the consolidated balance sheet. (b) For derivative transactions settled at clearing organizations, cash collateral exchanged is deemed a settlement of the derivative each day. The settlement reduces the gross fair value of derivative assets and liabilities and results in a corresponding decrease in the effect of master netting agreements, with no impact to the consolidated balance sheet. (c) The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the consolidated balance sheet. (d)Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging. (e) Effect of master netting agreements includes cash collateral received and paid of $675 million and $1,620 million, respectively, at Sept. 30, 2020, and $1,022 million and $618 million, respectively, at Dec. 31, 2019.
Trading activities (including trading derivatives)
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk mitigating economic hedging in compliance with the Volcker Rule. The change in the fair value of the derivatives utilized in our trading activities is recorded in foreign exchange and other trading revenue on the consolidated income statement.
The following table presents our foreign exchange and other trading revenue.
| | | | | | | | | | | | Foreign exchange and other trading revenue | | (in millions) | 1Q20 |
| 4Q19 |
| 1Q19 |
| | Foreign exchange | $ | 253 |
| $ | 138 |
| $ | 160 |
| | Other trading revenue | 66 |
| 30 |
| 10 |
| | Total foreign exchange and other trading revenue | $ | 319 |
| $ | 168 |
| $ | 170 |
|
| | | | | | | | | | | | | | | | | | | | Foreign exchange and other trading revenue | | | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | | Foreign exchange | $ | 151 | | $ | 174 | | $ | 129 | | $ | 578 | | $ | 439 | | | | Other trading (loss) revenue | (14) | | (8) | | 21 | | 44 | | 47 | | | | Total foreign exchange and other trading revenue | $ | 137 | | $ | 166 | | $ | 150 | | $ | 622 | | $ | 486 | | |
Foreign exchange revenue includes income from purchasing and selling foreign currencies and currency forwards, futures and options. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities and non-foreign exchange derivatives.
We also use derivative financial instruments as risk mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were a gain of $12 million in the third quarter of 2020, a de minimis loss in the third quarter of 2019, a gain of $28 million in the second quarter of 2020, a loss of $41$1 million in the first quarternine months of 2020 and gainsa gain of $18$23 million in the first quarter of 2019 and $13 million in the fourth quarternine months of 2019.
| | | Notes to Consolidated Financial Statements(continued) | |
We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity
| | Notes to Consolidated Financial Statements(continued)
| |
measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one-dayone-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. The VaR model is one of several statistical models used to develop economic capital results, which are allocated to lines of business for computing risk-adjusted performance.
VaR methodology does not evaluate risk attributable to extraordinary financial, economic or other occurrences. As a result, the risk assessment process includes a number of stress scenarios based upon the risk factors in the portfolio and management’s assessment of market conditions. Additional stress scenarios based upon historical market events are also performed. Stress tests may incorporate the impact of reduced market liquidity and the breakdown of historically observed correlations and extreme scenarios. VaR and other statistical measures, stress testing and sensitivity analysis are incorporated into other risk management materials.
Counterparty credit risk and collateral
We assess the credit risk of our counterparties through regular examination of their financial statements, confidential communication with the management of those counterparties and regular monitoring of publicly available credit rating information. This and other information is used to develop proprietary credit rating metrics used to assess credit quality.
Collateral requirements are determined after a comprehensive review of the credit quality of each counterparty. Collateral is generally held or pledged in the form of cash and/or highly liquid government securities. Collateral requirements are monitored and adjusted daily.
Additional disclosures concerning derivative financial instruments are provided in Note 15.
Disclosure of contingent features in over-the-counter (“OTC”) derivative instruments
Certain OTC derivative contracts and/or collateral agreements contain credit-risk contingent features triggered upon a rating downgrade in which the counterparty has the right to request additional collateral or the right to terminate the contracts in a net liability position.
The following table shows the aggregate fair value of OTC derivative contracts in net liability positions that contained credit-risk contingent features and the value of collateral that has been posted.
| | | | | | | | | | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 5,958 | | $ | 3,442 | | | Collateral posted | $ | 6,384 | | $ | 3,671 | |
| | | | | | | | | | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 8,050 |
| $ | 3,442 |
| | Collateral posted | $ | 8,299 |
| $ | 3,671 |
|
| | (a) | (a) Before consideration of cash collateral. |
The aggregate fair value of OTC derivative contracts containing credit-risk contingent features can fluctuate from quarter to quarter due to changes in market conditions, composition of counterparty trades, new business or changes to the contingent features.
The Bank of New York Mellon, our largest banking subsidiary, enters into the substantial majority of our OTC derivative contracts and/or collateral agreements. As such, the contingent features may be triggered if The Bank of New York Mellon’s long-term issuer rating was downgraded.
The following table shows the fair value of contracts falling under early termination provisions that were in net liability positions for three key ratings triggers.
| | | | | | | | | Potential close-out exposures (fair value) (a) | | | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | If The Bank of New York Mellon’s rating changed to: (b) | | | | A3/A- | $ | 10 | | $ | 56 | | | Baa2/BBB | $ | 565 | | $ | 608 | | | Ba1/BB+ | $ | 3,113 | | $ | 2,084 | |
(a) The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating were to immediately drop to the indicated levels, and do not reflect collateral posted. (b) Represents ratings by Moody’s/S&P.
| | | | | | | | Potential close-out exposures (fair value) (a) | | | | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | If The Bank of New York Mellon’s rating changed to: (b) | | | | A3/A- | $ | 106 |
| $ | 56 |
| | Baa2/BBB | $ | 1,213 |
| $ | 608 |
| | Ba1/BB+ | $ | 4,766 |
| $ | 2,084 |
|
| | | (a) | The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating wereNotes to immediately drop to the indicated levels, and do not reflect collateral posted. |
| Consolidated Financial Statements(continued) | (b) | Represents rating by Moody’s/S&P. |
If The Bank of New York Mellon’s debt rating had fallen below investment grade on March 31,Sept. 30, 2020 and Dec. 31, 2019, existing collateral arrangements would have required us to post additional collateral of $30$31 million and $63 million, respectively.
| | Notes to Consolidated Financial Statements
(continued)
| |
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 March 31, 2020 | | | | | | | Gross assets recognized |
| Gross amounts offset in the balance sheet |
| | Net assets recognized in the balance sheet |
| Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments |
| Cash collateral received |
| Net amount |
| | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 4,103 |
| $ | 3,047 |
| | $ | 1,056 |
| $ | 369 |
| $ | — |
| $ | 687 |
| | Foreign exchange contracts | 8,984 |
| 7,272 |
| | 1,712 |
| 132 |
| — |
| 1,580 |
| | Equity and other contracts | 15 |
| 9 |
| | 6 |
| — |
| — |
| 6 |
| | Total derivatives subject to netting arrangements | 13,102 |
| 10,328 |
| | 2,774 |
| 501 |
| — |
| 2,273 |
| | Total derivatives not subject to netting arrangements | 3,109 |
| — |
| | 3,109 |
| — |
| — |
| 3,109 |
| | Total derivatives | 16,211 |
| 10,328 |
| | 5,883 |
| 501 |
| — |
| 5,382 |
| | Reverse repurchase agreements | 97,971 |
| 80,203 |
| (b) | 17,768 |
| 17,759 |
| — |
| 9 |
| | Securities borrowing | 9,613 |
| — |
| | 9,613 |
| 9,055 |
| — |
| 558 |
| | Total | $ | 123,795 |
| $ | 90,531 |
| | $ | 33,264 |
| $ | 27,315 |
| $ | — |
| $ | 5,949 |
|
| | (a) | Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. |
| | (b) | Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation (“FICC”), where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system. |
| | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative assets and financial assets at Dec. 31, 2019 | | | | | | | Gross assets recognized |
| Gross amounts offset in the balance sheet |
| | Net assets recognized in the balance sheet |
| Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments |
| Cash collateral received |
| Net amount |
| | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 2,394 |
| $ | 1,792 |
| | $ | 602 |
| $ | 207 |
| $ | — |
| $ | 395 |
| | Foreign exchange contracts | 4,861 |
| 4,021 |
| | 840 |
| 44 |
| — |
| 796 |
| | Equity and other contracts | 9 |
| 6 |
| | 3 |
| — |
| — |
| 3 |
| | Total derivatives subject to netting arrangements | 7,264 |
| 5,819 |
| | 1,445 |
| 251 |
| — |
| 1,194 |
| | Total derivatives not subject to netting arrangements | 1,797 |
| — |
| | 1,797 |
| — |
| — |
| 1,797 |
| | Total derivatives | 9,061 |
| 5,819 |
| | 3,242 |
| 251 |
| — |
| 2,991 |
| | Reverse repurchase agreements | 112,355 |
| 93,794 |
| (b) | 18,561 |
| 18,554 |
| — |
| 7 |
| | Securities borrowing | 11,621 |
| — |
| | 11,621 |
| 11,278 |
| — |
| 343 |
| | Total | $ | 133,037 |
| $ | 99,613 |
| | $ | 33,424 |
| $ | 30,083 |
| $ | — |
| $ | 3,341 |
|
| | (a) | Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. |
| | (b) | Offsetting of reverse repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system. |
| | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative assets and financial assets at Sept. 30, 2020 | | | | | | Gross assets recognized | Gross amounts offset in the balance sheet | | Net assets recognized in the balance sheet | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 3,183 | | $ | 2,133 | | | $ | 1,050 | | $ | 350 | | $ | 0 | | $ | 700 | | | Foreign exchange contracts | 4,043 | | 3,102 | | | 941 | | 33 | | 0 | | 908 | | | Equity and other contracts | 8 | | 3 | | | 5 | | 0 | | 0 | | 5 | | | Total derivatives subject to netting arrangements | 7,234 | | 5,238 | | | 1,996 | | 383 | | 0 | | 1,613 | | | Total derivatives not subject to netting arrangements | 2,209 | | — | | | 2,209 | | — | | — | | 2,209 | | | Total derivatives | 9,443 | | 5,238 | | | 4,205 | | 383 | | 0 | | 3,822 | | | Reverse repurchase agreements | 72,507 | | 54,629 | | (b) | 17,878 | | 17,852 | | 0 | | 26 | | | Securities borrowing | 11,769 | | — | | | 11,769 | | 11,216 | | — | | 553 | | | Total | $ | 93,719 | | $ | 59,867 | | | $ | 33,852 | | $ | 29,451 | | $ | 0 | | $ | 4,401 | |
(b)Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation (“FICC”), where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
| | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative assets and financial assets at Dec. 31, 2019 | | | | | | Gross assets recognized | Gross amounts offset in the balance sheet | | Net assets recognized
in the
balance sheet | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 2,394 | | $ | 1,792 | | | $ | 602 | | $ | 207 | | $ | 0 | | $ | 395 | | | Foreign exchange contracts | 4,861 | | 4,021 | | | 840 | | 44 | | 0 | | 796 | | | Equity and other contracts | 9 | | 6 | | | 3 | | 0 | | 0 | | 3 | | | Total derivatives subject to netting arrangements | 7,264 | | 5,819 | | | 1,445 | | 251 | | 0 | | 1,194 | | | Total derivatives not subject to netting arrangements | 1,797 | | — | | | 1,797 | | — | | — | | 1,797 | | | Total derivatives | 9,061 | | 5,819 | | | 3,242 | | 251 | | 0 | | 2,991 | | | Reverse repurchase agreements | 112,355 | | 93,794 | | (b) | 18,561 | | 18,554 | | 0 | | 7 | | | Securities borrowing | 11,621 | | — | | | 11,621 | | 11,278 | | — | | 343 | | | Total | $ | 133,037 | | $ | 99,613 | | | $ | 33,424 | | $ | 30,083 | | $ | 0 | | $ | 3,341 | |
(a)Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. (b)Offsetting of reverse repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2020 | Net liabilities recognized in the balance sheet | | | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 5,035 | | $ | 2,551 | | | $ | 2,484 | | $ | 2,477 | | $ | 0 | | $ | 7 | | | Foreign exchange contracts | 4,294 | | 3,631 | | | 663 | | 224 | | 0 | | 439 | | | Equity and other contracts | 8 | | 1 | | | 7 | | 0 | | 0 | | 7 | | | Total derivatives subject to netting arrangements | 9,337 | | 6,183 | | | 3,154 | | 2,701 | | 0 | | 453 | | | Total derivatives not subject to netting arrangements | 439 | | — | | | 439 | | — | | — | | 439 | | | Total derivatives | 9,776 | | 6,183 | | | 3,593 | | 2,701 | | 0 | | 892 | | | Repurchase agreements | 69,494 | | 54,629 | | (b) | 14,865 | | 14,863 | | 1 | | 1 | | | Securities lending | 1,002 | | — | | | 1,002 | | 961 | | — | | 41 | | | Total | $ | 80,272 | | $ | 60,812 | | | $ | 19,460 | | $ | 18,525 | | $ | 1 | | $ | 934 | |
(a)Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at March 31, 2020 | Net liabilities recognized in the balance sheet |
| | | | | | Gross liabilities recognized |
| Gross amounts offset in the balance sheet |
| | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments |
| Cash collateral pledged |
| Net amount |
| | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 6,181 |
| $ | 3,479 |
| | $ | 2,702 |
| $ | 1,452 |
| $ | — |
| $ | 1,250 |
| | Foreign exchange contracts | 10,705 |
| 8,382 |
| | 2,323 |
| 545 |
| — |
| 1,778 |
| | Equity and other contracts | 27 |
| 3 |
| | 24 |
| — |
| — |
| 24 |
| | Total derivatives subject to netting arrangements | 16,913 |
| 11,864 |
| | 5,049 |
| 1,997 |
| — |
| 3,052 |
| | Total derivatives not subject to netting arrangements | 1,241 |
| — |
| | 1,241 |
| — |
| — |
| 1,241 |
| | Total derivatives | 18,154 |
| 11,864 |
| | 6,290 |
| 1,997 |
| — |
| 4,293 |
| | Repurchase agreements | 92,057 |
| 80,203 |
| (b) | 11,854 |
| 11,823 |
| — |
| 31 |
| | Securities lending | 750 |
| — |
| | 750 |
| 717 |
| — |
| 33 |
| | Total | $ | 110,961 |
| $ | 92,067 |
| | $ | 18,894 |
| $ | 14,537 |
| $ | — |
| $ | 4,357 |
|
| | (a) | Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. |
| | (b) | Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system. |
| | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2019 | Net liabilities recognized in the balance sheet |
| | | | | | Gross liabilities recognized |
| Gross amounts offset in the balance sheet |
| | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments |
| Cash collateral pledged |
| Net amount |
| | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 3,550 |
| $ | 1,986 |
| | $ | 1,564 |
| $ | 1,539 |
| $ | — |
| $ | 25 |
| | Foreign exchange contracts | 4,873 |
| 3,428 |
| | 1,445 |
| 74 |
| — |
| 1,371 |
| | Equity and other contracts | 5 |
| 1 |
| | 4 |
| 2 |
| — |
| 2 |
| | Total derivatives subject to netting arrangements | 8,428 |
| 5,415 |
| | 3,013 |
| 1,615 |
| — |
| 1,398 |
| | Total derivatives not subject to netting arrangements | 778 |
| — |
| | 778 |
| — |
| — |
| 778 |
| | Total derivatives | 9,206 |
| 5,415 |
| | 3,791 |
| 1,615 |
| — |
| 2,176 |
| | Repurchase agreements | 104,451 |
| 93,794 |
| (b) | 10,657 |
| 10,657 |
| — |
| — |
| | Securities lending | 718 |
| — |
| | 718 |
| 694 |
| — |
| 24 |
| | Total | $ | 114,375 |
| $ | 99,209 |
| | $ | 15,166 |
| $ | 12,966 |
| $ | — |
| $ | 2,200 |
|
| | (a) | Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. |
| | (b) | Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system. |
| | | | | | | | | | | | | | | | | | | | | | | | | Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2019 | Net liabilities recognized
in the
balance sheet | | | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | | | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net amount | | Derivatives subject to netting arrangements: | | | | | | | | | Interest rate contracts | $ | 3,550 | | $ | 1,986 | | | $ | 1,564 | | $ | 1,539 | | $ | 0 | | $ | 25 | | | Foreign exchange contracts | 4,873 | | 3,428 | | | 1,445 | | 74 | | 0 | | 1,371 | | | Equity and other contracts | 5 | | 1 | | | 4 | | 2 | | 0 | | 2 | | | Total derivatives subject to netting arrangements | 8,428 | | 5,415 | | | 3,013 | | 1,615 | | 0 | | 1,398 | | | Total derivatives not subject to netting arrangements | 778 | | — | | | 778 | | — | | — | | 778 | | | Total derivatives | 9,206 | | 5,415 | | | 3,791 | | 1,615 | | 0 | | 2,176 | | | Repurchase agreements | 104,451 | | 93,794 | | (b) | 10,657 | | 10,657 | | 0 | | 0 | | | Securities lending | 718 | | — | | | 718 | | 694 | | — | | 24 | | | Total | $ | 114,375 | | $ | 99,209 | | | $ | 15,166 | | $ | 12,966 | | $ | 0 | | $ | 2,200 | |
(a)90 BNY MellonIncludes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions. (b)Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.
| | | Notes to Consolidated Financial Statements (continued) | |
Secured borrowings
The following table presents the contract value of repurchase agreements and securities lending transactions accounted for as secured borrowings by the type of collateral provided to counterparties.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase agreements and securities lending transactions accounted for as secured borrowings | | | March 31, 2020 | | Dec. 31, 2019 | | | Remaining contractual maturity | Total |
| | Remaining contractual maturity | Total |
| | (in millions) | Overnight and continuous |
| Up to 30 days |
| 30 days or more |
| | Overnight and continuous |
| Up to 30 days |
| 30 days or more |
| | Repurchase agreements: | | | | | | | | | | | U.S. Treasury | $ | 82,520 |
| $ | — |
| $ | — |
| $ | 82,520 |
| | $ | 94,788 |
| $ | 10 |
| $ | — |
| $ | 94,798 |
| | U.S. government agencies | 633 |
| — |
| 10 |
| 643 |
| | 594 |
| 16 |
| — |
| 610 |
| | Agency RMBS | 3,794 |
| — |
| 77 |
| 3,871 |
| | 4,234 |
| 774 |
| — |
| 5,008 |
| | Corporate bonds | 542 |
| — |
| 1,280 |
| 1,822 |
| | 266 |
| 236 |
| 1,617 |
| 2,119 |
| | Other debt securities | 527 |
| 681 |
| 1,011 |
| 2,219 |
| | 40 |
| 188 |
| 1,079 |
| 1,307 |
| | Equity securities | 215 |
| — |
| 767 |
| 982 |
| | 31 |
| 99 |
| 479 |
| 609 |
| | Total | $ | 88,231 |
| $ | 681 |
| $ | 3,145 |
| $ | 92,057 |
| | $ | 99,953 |
| $ | 1,323 |
| $ | 3,175 |
| $ | 104,451 |
| | Securities lending: | | | | | | | | | | | U.S. government agencies | $ | 7 |
| $ | — |
| $ | — |
| $ | 7 |
| | $ | 19 |
| $ | — |
| $ | — |
| $ | 19 |
| | Other debt securities | 196 |
| — |
| — |
| 196 |
| | 201 |
| — |
| — |
| 201 |
| | Equity securities | 547 |
| — |
| — |
| 547 |
| | 498 |
| — |
| — |
| 498 |
| | Total | $ | 750 |
| $ | — |
| $ | — |
| $ | 750 |
| | $ | 718 |
| $ | — |
| $ | — |
| $ | 718 |
| | Total borrowings | $ | 88,981 |
| $ | 681 |
| $ | 3,145 |
| $ | 92,807 |
| | $ | 100,671 |
| $ | 1,323 |
| $ | 3,175 |
| $ | 105,169 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Repurchase agreements and securities lending transactions accounted for as secured borrowings | | Sept. 30, 2020 | | Dec. 31, 2019 | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | | (in millions) | Overnight and continuous | Up to 30 days | 30 days or more | | Overnight and continuous | Up to 30 days | 30 days or more | | Repurchase agreements: | | | | | | | | | | | U.S. Treasury | $ | 60,350 | | $ | 0 | | $ | 0 | | $ | 60,350 | | | $ | 94,788 | | $ | 10 | | $ | 0 | | $ | 94,798 | | | Agency RMBS | 2,913 | | 675 | | 2 | | 3,590 | | | 4,234 | | 774 | | 0 | | 5,008 | | | Corporate bonds | 232 | | 64 | | 1,432 | | 1,728 | | | 266 | | 236 | | 1,617 | | 2,119 | | | Sovereign debt/ sovereign guaranteed | 128 | | 0 | | 1,151 | | 1,279 | | | 0 | | 22 | | 0 | | 22 | | | State and political subdivisions | 43 | | 39 | | 810 | | 892 | | | 38 | | 166 | | 1,077 | | 1,281 | | | U.S. government agencies | 610 | | 0 | | 0 | | 610 | | | 594 | | 16 | | 0 | | 610 | | | Other debt securities | 47 | | 44 | | 186 | | 277 | | | 2 | | 0 | | 2 | | 4 | | | Equity securities | 0 | | 53 | | 715 | | 768 | | | 31 | | 99 | | 479 | | 609 | | | Total | $ | 64,323 | | $ | 875 | | $ | 4,296 | | $ | 69,494 | | | $ | 99,953 | | $ | 1,323 | | $ | 3,175 | | $ | 104,451 | | | Securities lending: | | | | | | | | | | | Agency RMBS | $ | 180 | | $ | 0 | | $ | 0 | | $ | 180 | | | $ | 160 | | $ | 0 | | $ | 0 | | $ | 160 | | | U.S. government agencies | 1 | | 0 | | 0 | | 1 | | | 19 | | 0 | | 0 | | 19 | | | Other debt securities | 49 | | 0 | | 0 | | 49 | | | 41 | | 0 | | 0 | | 41 | | | Equity securities | 772 | | 0 | | 0 | | 772 | | | 498 | | 0 | | 0 | | 498 | | | Total | $ | 1,002 | | $ | 0 | | $ | 0 | | $ | 1,002 | | | $ | 718 | | $ | 0 | | $ | 0 | | $ | 718 | | | Total secured borrowings | $ | 65,325 | | $ | 875 | | $ | 4,296 | | $ | 70,496 | | | $ | 100,671 | | $ | 1,323 | | $ | 3,175 | | $ | 105,169 | |
BNY Mellon’s repurchase agreements and securities lending transactions primarily encounter risk associated with liquidity. We are required to pledge collateral based on predetermined terms within the agreements. If we were to experience a decline in the fair value of the collateral pledged for these transactions, we could be required to provide additional collateral to the counterparty, therefore decreasing the amount of assets available for other liquidity needs that may arise. BNY Mellon also offers tri-party collateral agency services in the tri-party repo market where we are exposed to credit risk. In order to mitigate this risk, we require dealers to fully secure intraday credit.
Note 18–Commitments and contingent liabilities
Off-balance sheet arrangements
In the normal course of business, various commitments and contingent liabilities are outstanding that are not reflected in the accompanying consolidated balance sheets.
Our significant trading and off-balance sheet risks are securities, foreign currency and interest rate risk management products, commercial lending commitments, letters of credit and securities lending indemnifications. We assume these risks to reduce interest rate and foreign currency risks, to provide customers with the ability to meet credit and liquidity needs and to hedge foreign currency and interest rate risks. These items involve, to varying degrees, credit, foreign currency and interest rate risks not recognized on the balance sheet. Our off-balance sheet risks are managed and monitored in manners similar to those used for on-balance sheet risks.
The following table presents a summary of our off-balance sheet credit risks.
| | | | | | | | | Off-balance sheet credit risks | March 31, 2020 |
| Dec. 31, 2019 |
| | (in millions) | | Lending commitments | $ | 47,732 |
| $ | 49,119 |
| Standby letters of credit (“SBLC”) (a) | 2,328 |
| 2,298 |
| | Commercial letters of credit | 113 |
| 74 |
| Securities lending indemnifications (b)(c) | 421,691 |
| 408,378 |
|
| | (a) | Net of participations totaling $146 million at March 31, 2020 and $146 million at Dec. 31, 2019. |
| | (b) | Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $56 billion at March 31, 2020 and $57 billion at Dec. 31, 2019.
|
| | (c) | Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $38 billion at March 31, 2020 and $37 billion at Dec. 31, 2019. |
| | | Notes to Consolidated Financial Statements (continued) | |
The following table presents a summary of our off-balance sheet credit risks.
| | | | | | | | | | Off-balance sheet credit risks | Sept. 30, 2020 | Dec. 31, 2019 | | (in millions) | | Lending commitments | $ | 47,658 | | $ | 49,119 | | Standby letters of credit (“SBLC”) (a) | 2,175 | | 2,298 | | | Commercial letters of credit | 87 | | 74 | | Securities lending indemnifications (b)(c) | 414,324 | | 408,378 | |
(a)Net of participations totaling $145 million at Sept. 30, 2020 and $146 million at Dec. 31, 2019. (b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $58 billion at Sept. 30, 2020 and $57 billion at Dec. 31, 2019. (c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $43 billion at Sept. 30, 2020 and $37 billion at Dec. 31, 2019.
The total potential loss on undrawn lending commitments, standby and commercial letters of credit, and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral.
Since many of the lending commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. A summary of lending commitment maturities is as follows: $32.0$31.0 billion in less than one year, $15.4$16.3 billion in one to five years and $314$336 million over five years.
SBLCs principally support obligations of corporate clients and were collateralized with cash and securities of $186$200 million at March 31,Sept. 30, 2020 and $184 million at Dec. 31, 2019. At March 31,Sept. 30, 2020, $1.7$1.6 billion of the SBLCs will expire within one year, $677$568 million in one to five years and $1 million over five years.
We must recognize, at the inception of an SBLC and foreign and other guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. The fair value of the liability, which was recorded with a corresponding asset in other assets, was estimated as the present value of contractual customer fees. The estimated liability for losses related to SBLCs and foreign and other guarantees, if any, is included in the allowance for lending-related commitments.
Payment/performance risk of SBLCs is monitored using both historical performance and internal ratings criteria. BNY Mellon’s historical experience is that SBLCs typically expire without being funded. SBLCs below investment grade are monitored closely for payment/performance risk. The table below shows SBLCs by investment grade:
| | | | | | | Standby letters of credit | March 31, 2020 |
| Dec. 31, 2019 |
| | | | Investment grade | 91 | % | 90 | % | | Non-investment grade | 9 | % | 10 | % |
| | | | | | | | | | Standby letters of credit | Sept. 30, 2020 | Dec. 31, 2019 | | | Investment grade | 87 | % | 90 | % | | Non-investment grade | 13 | % | 10 | % |
A commercial letter of credit is normally a short-term instrument used to finance a commercial contract for the shipment of goods from a seller to a buyer. Although the commercial letter of credit is contingent upon the satisfaction of specified conditions, it represents a credit exposure if the buyer defaults on the underlying transaction. As a result, the total contractual amounts do not necessarily represent future cash requirements. Commercial letters of credit totaled$113 $87 million at March 31,Sept. 30, 2020 and $74 million at Dec. 31, 2019.
We expect many of the lending commitments and letters of credit to expire without the need to advance any cash. The revenue associated with guarantees frequently depends on the credit rating of the obligor and the structure of the transaction, including collateral, if any. The allowance for lending-related commitments was $148$135 million at March 31,Sept. 30, 2020 and $94 million at Dec. 31, 2019.
A securities lending transaction is a fully collateralized transaction in which the owner of a security agrees to lend the security (typically through an agent, in our case, The Bank of New York Mellon) to a borrower, usually a broker-dealer or bank, on an open, overnight or term basis, under the terms of a prearranged contract.
We typically lend securities with indemnification against borrower default. We generally require the borrower to provide collateral with a minimum value of102% of the fair value of the securities borrowed, which is monitored on a daily basis, thus reducing credit risk. Market risk can also arise in securities lending transactions. These risks are controlled through policies limiting the level of risk that can be undertaken. Securities lending transactions are generally entered into only with highly rated counterparties.Securities lending indemnifications
| | | Notes to Consolidated Financial Statements(continued) | |
were secured by collateral of $443435 billion at atMarch 31,Sept. 30, 2020 and $428 billion at Dec. 31, 2019.
CIBC Mellon, a joint venture between BNY Mellon and the Canadian Imperial Bank of Commerce (“CIBC”), engages in securities lending activities. CIBC Mellon, BNY Mellon and CIBC jointly and severally indemnify securities lenders against specific types of borrower default. At March 31, Sept. 30, 2020 and Dec. 31, 2019, $56$58 billion and $57 billion, respectively, of borrowings at CIBC Mellon, for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, were secured by collateral of $60 $61 billion and $61 billion, respectively. If, upon a default, a borrower’s collateral was not sufficient to cover its related obligations, certain losses related to the indemnification could be covered by the indemnitors.
| | Notes to Consolidated Financial Statements(continued)
| |
Unsettled repurchase and reverse repurchase agreements
In the normal course of business, we enter into repurchase agreements and reverse repurchase agreements that settle at a future date. In repurchase agreements, BNY Mellon receives cash from and provides securities as collateral to a counterparty at settlement. In reverse repurchase agreements, BNY Mellon advances cash to and receives securities as collateral from the counterparty at settlement. These transactions are recorded on the consolidated balance sheet on the settlement date. At March 31,Sept. 30, 2020,, we had 0$150 million of unsettled repurchase agreements and $28.3 billion of0 unsettled reverse repurchase agreements which all settled the following business day.agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at March 31,Sept. 30, 2020. The tables below present our credit exposure in the financial institutions and commercial portfolios.
| | | | | | | | | | | Financial institutions portfolio exposure (in billions) | March 31, 2020 | | Loans |
| Unfunded commitments |
| Total exposure |
| | Securities industry | $ | 4.2 |
| $ | 24.5 |
| $ | 28.7 |
| | Banks | 7.5 |
| 1.1 |
| 8.6 |
| | Asset managers | 1.3 |
| 6.5 |
| 7.8 |
| | Insurance | 0.3 |
| 2.4 |
| 2.7 |
| | Government | 0.1 |
| 0.2 |
| 0.3 |
| | Other | 0.8 |
| 0.6 |
| 1.4 |
| | Total | $ | 14.2 |
| $ | 35.3 |
| $ | 49.5 |
|
| | | | | | | | | | | Commercial portfolio exposure (in billions) | March 31, 2020 | | Loans |
| Unfunded commitments |
| Total exposure |
| | Manufacturing | $ | 1.4 |
| $ | 3.7 |
| $ | 5.1 |
| | Services and other | 1.3 |
| 2.9 |
| 4.2 |
| | Energy and utilities | 0.7 |
| 3.5 |
| 4.2 |
| | Media and telecom | — |
| 0.9 |
| 0.9 |
| | Total | $ | 3.4 |
| $ | 11.0 |
| $ | 14.4 |
|
| | | | | | | | | | | | Financial institutions portfolio exposure (in billions) | Sept. 30, 2020 | | Loans | Unfunded
commitments | Total exposure | | Securities industry | $ | 2.8 | | $ | 22.3 | | $ | 25.1 | | | Asset managers | 1.2 | | 6.5 | | 7.7 | | | Banks | 6.1 | | 1.1 | | 7.2 | | | Insurance | 0.1 | | 2.7 | | 2.8 | | | Government | 0.1 | | 0.2 | | 0.3 | | | Other | 0.7 | | 0.7 | | 1.4 | | | Total | $ | 11.0 | | $ | 33.5 | | $ | 44.5 | |
| | | | | | | | | | | | Commercial portfolio exposure (in billions) | Sept. 30, 2020 | | Loans | Unfunded
commitments | Total exposure | | Services and other | $ | 1.0 | | $ | 3.5 | | $ | 4.5 | | | Manufacturing | 0.7 | | 3.8 | | 4.5 | | | Energy and utilities | 0.2 | | 4.0 | | 4.2 | | | Media and telecom | 0 | | 0.9 | | 0.9 | | | Total | $ | 1.9 | | $ | 12.2 | | $ | 14.1 | |
Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash and/or securities.
Sponsored Member Repo Program
BNY Mellon is a sponsoring member in the FICC sponsored member program, where we submit eligible overnight repurchase and reverse repurchase transactions in U.S. Treasury 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
| | | 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 March 31,Sept. 30, 2020 and Dec. 31, 2019, we have not recorded any material liabilities under these arrangements.
Clearing and settlement exchanges
We are a noncontrolling equity investor in, and/or member of, several industry clearing or settlement exchanges through which foreign exchange, securities, derivatives or other transactions settle. Certain of these industry clearing and settlement
| | Notes to Consolidated Financial Statements(continued)
| |
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 March 31,Sept. 30, 2020 and Dec. 31, 2019, we havedid not recordedrecord 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
| | | Notes to Consolidated Financial Statements(continued) | |
reasonably possible loss is up to $750 millionin excess of the accrued liability (if any) related to those matters.For matters where a reasonably possible loss is denominated in a foreign currency, our estimate is adjusted quarterly based on prevailing exchange rates. We do not consider potential recoveries when estimating reasonably possible losses.
The following describes certain judicial, regulatory and arbitration proceedings involving BNY Mellon:
Mortgage-Securitization Trusts Proceedings The Bank of New York Mellon has been named as a defendant in a number of legal actions brought by MBS investors alleging that the trustee has expansive duties under the governing agreements, including the duty to investigate and pursue breach of
| | Notes to Consolidated Financial Statements(continued)
| |
representation and warranty claims against other parties to the MBS transactions. NaN actions commenced in August 2014, December 2014, December 2015 and February 2017 are pending in New York federal court; 1 action commenced in November 2011 is pending in the Court of Appeals for the Tenth Circuit; and 1 action commenced in May 2016 is pending in New York state court. A New York federal court action filed in August 2014 has been dismissed.
Matters Related to R. Allen Stanford In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, (“SIB”), also controlled by Stanford, issued certificates of deposit (“CDs”). Some investors allegedly wired funds from their SGC accounts to purchase CDs. In 2009, the Securities and Exchange Commission (“SEC”) 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 2 putative class action proceedings against Pershing: one in November 2009 in Texas federal court, and one in May 2016 in New Jersey federal court. NaN lawsuits have been filed against Pershing in Louisiana, Florida and New Jersey federal courts in January 2010, January and February 2015, October 2015 and May 2016. The purchasers allege that Pershing, as SGC’s clearing firm, assisted Stanford in a fraudulent scheme and assert contractual, statutory and common law claims. 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. All of the cases that have been brought in federal court against Pershing and the case brought against The Bank of New York Mellon have been consolidated in Texas federal court for discovery purposes. On Dec. 19, 2019, the Court of Appeals for the Fifth Circuit affirmed the dismissal of 6 individual federal lawsuits brought under Florida law, which will also apply to four other similarly situated cases. On March 18, 2020, the plaintiffs in those lawsuits filed a Petition for Writ of Certiorari seeking permission to appeal to the United States Supreme Court. On Oct. 5, 2020, the United States Supreme Court denied the Petition. In July 2020, after being enjoined from pursuing claims before the Financial Industry Regulatory Authority, Inc. (“FINRA”), an investment firm filed an action against Pershing in Texas federal court. FINRA arbitration proceedings also have been initiated by alleged purchasers asserting similar claims.
Brazilian Postalis Litigation BNY Mellon Servicos Financeiros DTVM S.A. (“DTVM”), a subsidiary that provides asset services in Brazil, acts as administrator for certain investment funds in which a public pension fund for postal workers called Postalis-Instituto de Seguridade Social dos Correios e Telégrafos (“Postalis”) invested. On Aug. 22, 2014, Postalis sued DTVM in Rio de Janeiro, Brazil for losses related to a Postalis fund for which DTVM is administrator. Postalis alleges that DTVM failed to properly perform duties, including to conduct due diligence of and exert control over the manager. On March 12, 2015, Postalis filed a lawsuit in Rio de Janeiro against DTVM and BNY Mellon Administração de Ativos Ltda. (“Ativos”) alleging failure to properly perform duties relating to another fund of which DTVM is administrator and Ativos is manager. On Dec. 14, 2015, Associacão dos Profissionais dos Correios (“ADCAP”), a Brazilian postal workers association, filed a lawsuit in São Paulo against DTVM and other defendants alleging that DTVM improperly contributed to Postalis investment losses. On March 20, 2017, the lawsuit was dismissed without prejudice, and ADCAP has appealed that decision. On Dec. 17, 2015, Postalis filed 3 lawsuits in Rio de Janeiro against DTVM and Ativos alleging failure to properly perform duties with respect to investments in several other funds. On Feb. 4, 2016, Postalis filed a lawsuit in Brasilia against DTVM, Ativos and BNY Mellon Alocação de Patrimônio Ltda. (“Alocação de Patrimônio”), an investment management subsidiary, alleging failure to properly perform duties and liability for losses with
| | | Notes to Consolidated Financial Statements(continued) | |
respect to investments in various funds of which the defendants were administrator and/or manager. On Jan. 16, 2018, the Brazilian Federal Prosecution Service (“MPF”) filed a civil lawsuit in São Paulo against DTVM alleging liability for Postalis losses based on alleged failures to properly perform certain duties as administrator to certain funds in which Postalis invested or as controller of Postalis’s own investment portfolio. On April 18, 2018, the court dismissed the lawsuit without prejudice, and the MPF has appealed that decision. In addition, the Tribunal de Contas da Uniao (“TCU”), an administrative tribunal, has initiated two proceedings with the purpose of determining liability for losses to two investment funds administered by DTVM in which Postalis was the exclusive investor. On Sept. 9, 2020, TCU rendered a decision in one of the proceedings, finding DTVM and two former Postalis directors jointly and severally liable for approximately $41.7 million. TCU also imposed on DTVM a fine of approximately $1.8 million. DTVM has filed an administrative appeal of the decision. On Oct. 4, 2019, Postalis and another pension fund filed a request for arbitration in São Paulo against DTVM and Ativos alleging liability for losses to an investment fund for which DTVM was administrator and Ativos was manager. On Oct. 25, 2019, Postalis filed a lawsuit in Rio de Janeiro against DTVM and
| | Notes to Consolidated Financial Statements(continued)
| |
Ativos, Alocação de Patrimônio, alleging liability for losses in another fund for which DTVM was administrator and Alocação de Patrimônio and Ativos were managers. On June 19, 2020, a lawsuit was manager.filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator.
Brazilian Silverado Litigation DTVM acts as administrator for the Fundo de Investimento em Direitos Creditórios Multisetorial Silverado Maximum (“Silverado Maximum Fund”), which invests in commercial credit receivables. On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. - Banco Alemão in its capacity as custodian and Silverado Gestão e Investimentos Ltda. in its capacity as investment manager. The Fund alleges that each of the defendants failed to fulfill its respective duty, and caused losses to the Fund for which the defendants are jointly and severally liable.
German Tax Matters German authorities are investigating past “cum/ex” trading, which involved the purchase of equity securities on or shortly before the dividend date, but settled after that date, potentially resulting in an unwarranted refund of withholding tax. German authorities have taken the view that past cum/ex trading may have resulted in tax avoidance or evasion. European subsidiaries of BNY Mellon have been informed by German authorities about investigations into potential cum/ex trading by certain third-party investment funds, where one of the subsidiaries had acquired entities that served as depositary and/or fund manager for those third-party investment funds. We have received information requests from the authorities relating to pre-acquisition activity and are cooperating fully with those requests. We have not received any tax demand concerning cum/ex trading. In 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 connection with the acquisition of the subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.
Note 19–Lines of business
We have an internal information system that produces performance data along product and service lines for our 2 principal businesses and the Other segment. The primary products and services and types of revenue for our principal businesses and a description of the Other segment are presented in Note 24 of the Notes to Consolidated Financial Statements in our 2019 Annual Report.
Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
| | | Notes to Consolidated Financial Statements(continued) | |
Business results are subject to reclassification when organizational changes are made.made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no significant organizational changes in the second or third quarters of 2020. In the first quarter of 2020, we reclassified the results of certain services provided between the segments from noninterest expense to fee and other revenue. ThisThe intersegment activity is offseteliminated in the Other segment and relates to services that are also provided to third parties and provides consistency with the reporting of the revenues. This adjustment had no impact on income before taxes of the businesses. Also in the first quarter of 2020, we reclassified the results related to certain lending activities from the Wealth Management business to the Pershing business. These loans were originated by the Wealth Management business as a service to Pershing clients. This resulted in an increase in total revenue, noninterest expense and income before taxes in the Pershing business and corresponding decrease in the Wealth Management business. Prior periods have beenwere restated in the first quarter of 2020 for both reclassifications. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a prospective basis.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 2019 Annual Report.
The results of our businesses are presented and analyzed on an internal management reporting basis.
•Revenue amounts reflect fee and other revenue generated by each business and includesinclude revenue
| | Notes to Consolidated Financial Statements(continued)
| |
for services provided between the segments that are also provided to third parties. Fee and other revenue transferred between businesses under revenue transfer agreements is included within other revenue in each business. •Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated with clients using custody products is included in Investment Services. •Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds transfer pricing system that matches funds with the specific assets and liabilities of each business based on their interest sensitivity and maturity characteristics. •The provision for credit losses associated with the respective credit portfolios is reflected in each business segment. •Incentives expense related to restricted stock is allocated to the businesses. •Support and other indirect expenses, including services provided between segments that are not provided to third parties or not subject to a revenue transfer agreement, are allocated to businesses based on internally developed methodologies and reflected in noninterest expense. •Recurring FDIC expense is allocated to the businesses based on average deposits generated within each business. •Litigation expense is generally recorded in the business in which the charge occurs. •Management of the securities portfolio is a shared service contained in the Other segment. As a result, gains and losses associated with the valuation of the securities portfolio are generally included in the Other segment. •Client deposits serve as the primary funding source for our securities portfolio. We typically allocate all interest revenue to the businesses generating the deposits. Accordingly, accretion related to the portion of the securities portfolio restructured in 2009 has been included in the results of the businesses. •Balance sheet assets and liabilities and their related income or expense are specifically assigned to each business. Businesses with a net liability position have been allocated assets. •Goodwill and intangible assets are reflected within individual businesses.
| | | Notes to Consolidated Financial Statements(continued) | |
The following consolidating schedules present the contribution of our businesses to our overall profitability.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2020 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | | (dollars in millions) | | Total fee and other revenue | $ | 2,246 | | | $ | 871 | | (a) | $ | 20 | | | $ | 3,137 | | (a) | | Net interest revenue (expense) | 681 | | | 47 | | | (25) | | | 703 | | | | Total revenue (loss) | 2,927 | | | 918 | | (a) | (5) | | | 3,840 | | (a) | | Provision for credit losses | (10) | | | 12 | | | 7 | | | 9 | | | | Noninterest expense | 2,020 | | | 661 | | | 0 | | | 2,681 | | | | Income (loss) before income taxes | $ | 917 | | | $ | 245 | | (a) | $ | (12) | | | $ | 1,150 | | (a) | Pre-tax operating margin (b) | 31 | % | | 27 | % | | N/M | | 30 | % | | | Average assets | $ | 329,324 | | | $ | 30,160 | | | $ | 55,381 | | | $ | 414,865 | | |
| | | | | | | | | | | | | | | | | | | For the quarter ended March 31, 2020 | Investment
Services |
| | Investment
Management |
| | Other |
| | Consolidated |
| | | (dollars in millions) | | Total fee and other revenue | $ | 2,436 |
| | $ | 846 |
| (a) | $ | 30 |
| | $ | 3,312 |
| (a) | | Net interest revenue (expense) | 806 |
| | 52 |
| | (44 | ) | | 814 |
| | | Total revenue (loss) | 3,242 |
| | 898 |
| (a) | (14 | ) | | 4,126 |
| (a) | | Provision for credit losses | 149 |
| | 9 |
| | 11 |
| | 169 |
| | | Noninterest expense | 1,987 |
| | 695 |
| | 30 |
| | 2,712 |
| | | Income (loss) before income taxes | $ | 1,106 |
| | $ | 194 |
| (a) | $ | (55 | ) | | $ | 1,245 |
| (a) | Pre-tax operating margin (b) | 34 | % | | 22 | % | | N/M |
| | 30 | % | | | Average assets | $ | 304,089 |
| | $ | 30,543 |
| | $ | 50,646 |
| | $ | 385,278 |
| |
| | (a) | Total fee and other revenue includes net loss from consolidated investment management funds of $20 million, representing $38 million of losses and a loss attributable to noncontrolling interests of $18 million. Total revenue and income before income taxes are net of a loss attributable to noncontrolling interests of $18 million. |
| | (b) | Income before income taxes divided by total revenue. |
(b) Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended June 30, 2020 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | | (dollars in millions) | | Total fee and other revenue | $ | 2,339 | | | $ | 838 | | (a) | $ | 38 | | | $ | 3,215 | | (a) | | Net interest revenue (expense) | 768 | | | 48 | | | (36) | | | 780 | | | | Total revenue | 3,107 | | | 886 | | (a) | 2 | | | 3,995 | | (a) | | Provision for credit losses | 145 | | | 7 | | | (9) | | | 143 | | | | Noninterest expense | 1,989 | | | 658 | | | 39 | | | 2,686 | | | | Income (loss) before income taxes | $ | 973 | | | $ | 221 | | (a) | $ | (28) | | | $ | 1,166 | | (a) | Pre-tax operating margin (b) | 31 | % | | 25 | % | | N/M | | 29 | % | | | Average assets | $ | 335,288 | | | $ | 30,327 | | | $ | 49,744 | | | $ | 415,359 | | |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $39 million, representing $54 million of income and noncontrolling interests of $15 million. Total revenue and income before income taxes are net of noncontrolling interests of $15 million. (b)Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the quarter ended Sept. 30, 2019 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | | (dollars in millions) | | Total fee and other revenue (loss) | $ | 2,296 | | | $ | 838 | | (a) | $ | (6) | | | $ | 3,128 | | (a) | | Net interest revenue (expense) | 761 | | | 49 | | | (80) | | | 730 | | | | Total revenue (loss) | 3,057 | | | 887 | | (a) | (86) | | | 3,858 | | (a) | | Provision for credit losses | (15) | | | 0 | | | (1) | | | (16) | | | | Noninterest expense | 1,973 | | | 592 | | | 25 | | | 2,590 | | | | Income (loss) before income taxes | $ | 1,099 | | | $ | 295 | | (a) | $ | (110) | | | $ | 1,284 | | (a) | Pre-tax operating margin (b) | 36 | % | | 33 | % | | N/M | | 33 | % | | | Average assets | $ | 269,926 | | | $ | 27,840 | | | $ | 52,913 | | | $ | 350,679 | | |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $— million, representing $3 million of income and noncontrolling interests of $3 million. Total revenue and income before income taxes are net of noncontrolling interests of $3 million. (b)Income before income taxes divided by total revenue. N/M - Not meaningful.
| | | Notes to Consolidated Financial Statements (continued) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2020 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | | (dollars in millions) | | Total fee and other revenue | $ | 7,021 | | | $ | 2,555 | | (a) | $ | 88 | | | $ | 9,664 | | (a) | | Net interest revenue (expense) | 2,255 | | | 147 | | | (105) | | | 2,297 | | | | Total revenue (loss) | 9,276 | | | 2,702 | | (a) | (17) | | | 11,961 | | (a) | | Provision for credit losses | 284 | | | 28 | | | 9 | | | 321 | | | | Noninterest expense | 5,996 | | | 2,014 | | | 69 | | | 8,079 | | | | Income (loss) before income taxes | $ | 2,996 | | | $ | 660 | | (a) | $ | (95) | | | $ | 3,561 | | (a) | Pre-tax operating margin (b) | 32 | % | | 24 | % | | N/M | | 30 | % | | | Average assets | $ | 322,924 | | | $ | 30,343 | | | $ | 51,936 | | | $ | 405,203 | | |
(a)Total fee and other revenue includes net income from consolidated investment management funds of $39 million, representing $43 million of income and noncontrolling interests of $4 million. Total revenue and income before income taxes are net of noncontrolling interests of $4 million. | | | | | | | | | | | | | | | | | | | For the quarter ended Dec. 31, 2019 | Investment
Services |
| (a) | Investment
Management |
| (a) | Other |
| (a) | Consolidated |
| | | (dollars in millions) | | Total fee and other revenue | $ | 2,236 |
| | $ | 924 |
| (b) | $ | 794 |
| | $ | 3,954 |
| (b) | | Net interest revenue (expense) | 778 |
| | 47 |
| | (10 | ) | | 815 |
| | | Total revenue | 3,014 |
| | 971 |
| (b) | 784 |
| | 4,769 |
| (b) | | Provision for credit losses | (5 | ) | | — |
| | (3 | ) | | (8 | ) | | | Noninterest expense | 2,179 |
| | 731 |
| | 54 |
| | 2,964 |
| | | Income (loss) before income taxes | $ | 840 |
| | $ | 240 |
| (b) | $ | 733 |
| | $ | 1,813 |
| (b) | Pre-tax operating margin (c) | 28 | % | | 25 | % | | N/M |
| | 38 | % | | | Average assets | $ | 278,098 |
| | $ | 28,481 |
| | $ | 47,762 |
| | $ | 354,341 |
| |
| | (a) | Prior periods have been restated to reflect the reclassifications. |
| | (b) | Total fee and other revenue includes net income from consolidated investment management funds of $8 million, representing $17 million of income and noncontrolling interests of $9 million. Total revenue and income before income taxes are net of noncontrolling interests of $9 million. |
| | (c) | Income before income taxes divided by total revenue. |
N/M - Not meaningful.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | For the nine months ended Sept. 30, 2019 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | | (dollars in millions) | | Total fee and other revenue | $ | 6,690 | | | $ | 2,561 | | (a) | $ | 43 | | | $ | 9,294 | | (a) | | Net interest revenue (expense) | 2,348 | | | 175 | | | (150) | | | 2,373 | | | | Total revenue (loss) | 9,038 | | | 2,736 | | (a) | (107) | | | 11,667 | | (a) | | Provision for credit losses | (11) | | | (1) | | | (5) | | | (17) | | | | Noninterest expense | 5,917 | | | 1,916 | | | 103 | | | 7,936 | | | | Income (loss) before income taxes | $ | 3,132 | | | $ | 821 | | (a) | $ | (205) | | | $ | 3,748 | | (a) | Pre-tax operating margin (b) | 35 | % | | 30 | % | | N/M | | 32 | % | | | Average assets | $ | 263,631 | | | $ | 29,815 | | | $ | 49,683 | | | $ | 343,129 | | |
| | | | | | | | | | | | | | | | | | | For the quarter ended March 31, 2019 | Investment
Services |
| (a) | Investment
Management |
| (a) | Other |
| (a) | Consolidated |
| | | (dollars in millions) | | Total fee and other revenue | $ | 2,161 |
| | $ | 869 |
| (b) | $ | 18 |
| | $ | 3,048 |
| (b) | | Net interest revenue (expense) | 804 |
| | 67 |
| | (30 | ) | | 841 |
| | | Total revenue (loss) | 2,965 |
| | 936 |
| (b) | (12 | ) | | 3,889 |
| (b) | | Provision for credit losses | 8 |
| | 1 |
| | (2 | ) | | 7 |
| | | Noninterest expense | 1,981 |
| | 669 |
| | 49 |
| | 2,699 |
| | | Income (loss) before income taxes | $ | 976 |
| | $ | 266 |
| (b) | $ | (59 | ) | | $ | 1,183 |
| (b) | Pre-tax operating margin (c) | 33 | % | | 28 | % | | N/M |
| | 31 | % | | | Average assets | $ | 256,034 |
| | $ | 31,857 |
| | $ | 48,274 |
| | $ | 336,165 |
| |
| | (a) | Prior periods have been restated to reflect the reclassifications. |
| | (b) | Total fee and other revenue includes net income from consolidated investment management funds of $16 million, representing $26 million of income and noncontrolling interests of $10 million. Total revenue and income before income taxes are net of noncontrolling interests of $10 million. |
| | (c) | Income before income taxes divided by total revenue. |
(b) Income before income taxes divided by total revenue. N/M - Not meaningful.
Note 20–Supplemental information to the Consolidated Statement of Cash Flows
Non-cash investing and financing transactions that, appropriately, are not reflected in the consolidated statement of cash flows are listed below.
| | | | | | | | | | | | | | | | | Non-cash investing and financing transactions | Nine months ended Sept. 30, | | | (in millions) | 2020 | | 2019 | | | | Transfers from loans to other assets for other real estate owned | $ | 1 | | | $ | 1 | | | | | Change in assets of consolidated investment management funds | 343 | | | 120 | | | | | Change in liabilities of consolidated investment management funds | 3 | | | 13 | | | | | Change in nonredeemable noncontrolling interests of consolidated investment management funds | 149 | | | 102 | | | | | Securities purchased not settled | 846 | | | 804 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premises and equipment/capitalized software funded by finance lease obligations | 0 | | | 14 | | | | | Premises and equipment/operating lease obligations | 126 | | | 1,440 | | (a) | | | | | | | |
(a) Includes $1,244 million related to the adoption of ASU 2016-02, Leases, and $196 million related to new or modified leases.
| | | | | | | | | | | Non-cash investing and financing transactions | Three months ended March 31, | | (in millions) | 2020 |
| | 2019 |
| | | Change in assets of consolidated investment management funds | $ | 16 |
| | $ | 11 |
| | | Change in liabilities of consolidated investment management funds | — |
| | 1 |
| | | Change in nonredeemable noncontrolling interests of consolidated investment management funds | 8 |
| | 21 |
| | | Securities purchased not settled | 1,667 |
| | 1,407 |
| | | Securities matured not settled | 9 |
| | 680 |
| | | Premises and equipment/capitalized software funded by finance lease obligations | — |
| | 13 |
| | | Premises and equipment/operating lease obligations | 15 |
| | 1,281 |
| (a) | | Investment redemptions not settled | 37 |
| | — |
| |
BNY Mellon 105
| | | (a) | Includes $1,244 million related to the adoption of ASU 2016-02, Leases, and $37 million related to new or modified leases. |
| | | 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 firstthird quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| | | | Forward-looking Statements | |
Some statements in this Quarterly Report are forward-looking. These include all statements about the usefulness of Non-GAAP measures, the future results of BNY Mellon, our businesses, financial, liquidity and capital condition, results of operations, liquidity, risk and capital management and processes, goals, strategies, outlook, objectives, expectations (including those regarding our performance results, expenses, nonperforming assets, products, impacts of currency fluctuations, impacts of money market fee waivers, impacts of trends on our businesses, regulatory, technology, market, economic or accounting developments and the impacts of such developments on our businesses, legal proceedings and other contingencies), effective tax rate, net interest revenue, estimates (including those regarding expenses, losses inherent in our credit portfolios and capital ratios), intentions (including those regarding our capital returns and expenses, including our investments in technology and pension expense), targets, opportunities, potential actions, growth and initiatives, including the potential effects of the coronavirus pandemic on any of the foregoing.
In this report, any other report, any press release or any written or oral statement that BNY Mellon or its executives may make, words, such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “future”“future,” “potentially,” “outlook” and words of similar meaning, may signify forward-looking statements.
Actual results may differ materially from those expressed or implied as a result of a number of factors, including those discussed in “Risk Factors” in this Quarterly Report and our 2019 Annual Report, such as:
•a communications or technology disruption or failure within our infrastructure or the infrastructure of third parties that results in a loss of information, delays our ability to access information or impacts our ability to provide services to our clients may materially adversely affect our business, financial condition and results of operations; •a cybersecurity incident, or a failure to protect our computer systems, networks and information and our clients’ information against cybersecurity threats, could result in the theft, loss, unauthorized access to, disclosure, use or alteration of information, system or network failures, or loss of access to information; any such incident or failure could adversely impact our ability to conduct our businesses, damage our reputation and cause losses; •our business may be materially adversely affected by operational risk; •the coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted; •our risk management framework may not be effective in mitigating risk and reducing the potential for losses; •we are subject to extensive government rulemaking, policies, regulation and supervision; these rules and regulations have, and in the future may, compel us to change how we manage our businesses, which could have a material adverse effect on our business, financial condition and results of operations; •regulatory or enforcement actions or litigation could materially adversely affect our results of operations or harm our businesses or reputation; •our businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm; •failure to satisfy regulatory standards, including “well capitalized” and “well managed” status or capital adequacy and liquidity rules more generally, could result in limitations on our activities and adversely affect our business and financial condition; •a failure or circumvention of our controls and procedures could have a material adverse effect on our business, reputation, results of operations and financial condition; •the application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect the Parent’s liquidity and financial condition and the Parent’s security holders; •impacts from climate change, natural disasters, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations; •we are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by
| | | Forward-looking Statements (continued) | |
slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences;
| | Forward-looking Statements (continued)
| |
weakness and volatility in financial markets and the economy generally may materially adversely affect our business, results of operations and financial condition; •changes in interest rates and yield curves could have a material adverse effect on our profitability; •transitions away from and the anticipated replacement of LIBOR and other IBORs could adversely impact our business and results of operations; •the UK’s withdrawal from the EU may have negative effects on global economic conditions, global financial markets, and our business and results of operations; •we may experience losses on securities related to volatile and illiquid market conditions, reducing our earnings and impacting our financial condition; •the failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions and sovereign entities, and our assumption of credit and counterparty risk, could expose us to loss and adversely affect our business; •our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity; •we could incur losses if our allowance for credit losses, including loan and lending-related commitments reserves, is inadequate; •any material reduction in our credit ratings or the credit ratings of our principal bank subsidiaries, The Bank of New York Mellon or BNY Mellon, N.A., could increase the cost of funding and borrowing to us and our rated subsidiaries and have a material adverse effect on our results of operations and financial condition and on the value of the securities we issue; •new lines of business, new products and services or transformational or strategic project initiatives may subject us to additional risks, and the failure to implement these initiatives could affect our results of operations;
•we are subject to competition in all aspects of our business, which could negatively affect our ability to maintain or increase our profitability;
•our business may be adversely affected if we are unable to attract and retain employees; •our strategic transactions present risks and uncertainties and could have an adverse effect on our business, results of operations and financial condition; •tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition; •our ability to return capital to shareholders is subject to the discretion of our Board of Directors and may be limited by U.S. banking laws and regulations, including those governing capital and the approval of our capital plan, applicable provisions of Delaware law or our failure to pay full and timely dividends on our preferred stock; •the Parent is a non-operating holding company, and as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of dividends to its stockholders; and •changes in accounting standards governing the preparation of our financial statements and future events could have a material impact on our reported financial condition, results of operations, cash flows and other financial data.
Investors should consider all risk factors discussed in this Quarterly Report and our 2019 Annual Report and any subsequent reports filed with the SEC by BNY Mellon pursuant to the Exchange Act. All forward-looking statements speak only as of the date on which such statements are made, and BNY Mellon undertakes no obligation to update any statement to reflect events or circumstances after the date on which such forward-looking statement is made or to reflect the occurrence of unanticipated events. The contents of BNY Mellon’s website or any other websiteswebsite referenced herein are not part of this report.
| | | | Part II - Other Information | |
Item 1. Legal Proceedings.
The information required by this Item is set forth in the “Legal proceedings” section in Note 18 of the Notes to Consolidated Financial Statements, which portion is incorporated herein by reference in response to this item.
Item 1A. Risk FactorsFactors.
The following discussion supplements the discussion of risk factors that could affect our business, financial condition or results of operations set forth in Part I, Item 1A., Risk Factors, on pages 75 through 99 of our 2019 Annual Report. The discussion of Risk Factors, as so supplemented, sets forth our most significant risk factors that could affect our business, financial condition or results of operations. However, other factors, besides thatthose discussed below or in our 2019 Annual Report or other of our reports filed with or furnished to the SEC, also could adversely affect our business, financial condition or results.results of operations. We cannot assure you that the risk factors described below or elsewhere in this report and such other reports address all potential risks that we may face. These risk factors also serve to describe factors which may cause our results to differ materially from those described in forward-looking statements included herein or in other documents or statements that make reference to this Form 10-Q. See “Forward-looking Statements.”
The coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted.
The coronavirus pandemic has negatively affected the global economy, lowered equity market valuations, decreased liquidity in fixed income markets, created significant volatility and disruption in financial and equity markets, increased unemployment levels and disrupted businesses in many industries. This has resulted in increased demand on our transaction processing and clearance capabilities in many of our Investment Services businesses and volatility in the levels and mix of the assets under management of our AssetInvestment and Wealth Management business. Moreover, governmental actions in response to the pandemic are meaningfully influencing the interest rate environment, which has reduced, and is expected to continue to reduce, our net interest margin. As a result, we have granted and may continue to reduce our net interest margin and result in our grantinggrant money market fee waivers. The effects of the pandemic have resulted, and could continue to result, in higher and more volatile provisions for credit losses for financial instruments subject to ASU 2016-13, Financial Instruments -– Credit Losses: Measurement of Credit Losses on Financial Instruments, held by us. The continuing effects of the pandemic could also result in increased credit losses and charge-offs, particularly if our credit exposures continue to increase and as more clients and customers experience credit deterioration, as well as increased risk of other asset write-downs and impairments, including, but not limited to, equity investments, goodwill and intangibles. Any of these events could potentially result in a material adverse impact on our business.business and results of operations.
In addition, reliance on work-from-home capabilities by us, our clients and other industry participants, as well as the potential inability to maintain critical staff in operational facilities due to stay-at-home orders or operational precautions across jurisdictions, illness and quarantines present heightened cybersecurity, information security and operational risks. Any disruption to our ability to deliver services to our clients and customers could result in potential liability to our clients and customers, regulatory fines, penalties or other sanctions, increased operational costs or harm to our reputation.
The pandemic has resulted in an increase in our balance sheet and corresponding reductionvolatility in our capital ratios, in particular leverage ratios,risk-weighted assets, as we experience elevated deposit inflows.levels. Moreover, on March 15, 2020, we, along with the other member banks of the Financial Services Forum, announced that we would temporarily suspend share repurchases through the second quarter of 2020 to preserve capital and liquidity in order to further our objective of using our capital and liquidity to support our clients and customers. The pandemic may causeFurther, in June 2020, the Federal Reserve announced that it has required participating CCAR firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms would not be permitted, during the third quarter of 2020, to conduct open market common stock repurchases, to increase their common stock dividends or to pay common stock dividends that exceed average net income for the preceding four quarters. The Federal Reserve has extended these limitations to the fourth quarter and may further limitextend these limitations. Our ability to resume our common stock repurchase program and maintain our
| | | Part II - Other Information (continued) | |
common stock dividend depends on factors such as prevailing market conditions, our outlook for the economic environment, the performance of our business, the additional capital distributions.analysis required by the Federal Reserve, and whether the Federal Reserve keeps the limitations for the third and fourth quarters of 2020 in place for subsequent quarters.
The extent to which the pandemic impacts our business, financial condition, liquidity and results of operations, as well as our regulatory capital, will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, actions taken by governmental authorities in response to the pandemic, as well as the direct and indirect impact on us, our clients and customers, and third parties. To
| | Part II - Other Information (continued)
| |
the extentAs the pandemic adversely affects the United States or the global economy, or our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section
entitled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| | (c) | The following table discloses repurchases of our common stock made in the first quarter of 2020. All of the Company’s preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends. |
(c) The following table discloses repurchases of our common stock made in the third quarter of 2020. All of the Company’s preferred stock outstanding has preference over the Company’s common stock with respect to the payment of dividends. Issuer purchases of equity securities
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Share repurchases – third quarter of 2020 | | | | | Total shares
repurchased as
part of a publicly
announced plan
or program | Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at Sept. 30, 2020 | | | (dollars in millions, except per share amounts; common shares in thousands) | Total shares
repurchased | | Average price
per share | | | | July 2020 | $ | 5 | | | $ | 37.41 | | | $ | 5 | | | N/A | | | August 2020 | 2 | | | 37.96 | | | 2 | | | N/A | | | September 2020 | 8 | | | 35.81 | | | 8 | | | N/A | | Third quarter of 2020 (a) | 15 | | | $ | 36.65 | | | 15 | | | N/A | (b) |
| | | | | | | | | | | | | | | | | Share repurchases – first quarter of 2020 | | | | | Total shares repurchased as part of a publicly announced plan or program |
| Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at March 31, 2020 | | | | (dollars in millions, except per share amounts; common shares in thousands) | Total shares
repurchased |
| | Average price
per share |
| | | | January 2020 | 11,018 |
| | $ | 45.71 |
| | 11,018 |
| | $ | 1,415 |
| | | February 2020 | 8,850 |
| | 46.29 |
| | 8,850 |
| | 1,005 |
| | | March 2020 | 1,810 |
| | 39.62 |
| | 1,810 |
| | 933 |
| | First quarter of 2020 (a) | 21,678 |
| | $ | 45.44 |
| | 21,678 |
| | 933 |
| (b) |
| | (a) | Includes 1,924 thousand(a) Reflects shares repurchased at a purchase price of $87 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $45.47. |
| | (b) | Represents the maximum value of the shares authorized to be repurchased through the second quarter of 2020, including employee benefit plan repurchases. |
In June 2019, in connection with the employees’ payment of taxes upon the vesting of restricted stock.
(b) The Federal Reserve’s non-objectionReserve has announced that it will conduct additional analysis for all participating CCAR firms later this year and will not allow participating firms to our 2019 capital plan, BNY Mellon announced a share repurchase plan providing for the repurchase of up to $3.94 billion ofmake open market common stock startingrepurchases during the third or fourth quarter of 2020. We are permitted to continue to repurchase shares from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. N/A - Not applicable.
In June 2020, the Federal Reserve announced that it has required participating Comprehensive Capital Analysis and Review (“CCAR”) firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms were not permitted to conduct open market common stock repurchase in the third quarter of 2019 and continuing2020. On Sept. 30, 2020, the Federal Reserve extended the limitation on open market common stock repurchase through the secondfourth quarter of 2020. This new share
BNY Mellon intends to resume the common stock repurchase plan replaces all previously authorized share repurchase plans. The first quarter 2020 share repurchases were completed prior toprogram as early as possible, depending on factors such as prevailing market conditions, our outlook for the announcement, issued jointly by useconomic environment and the other members ofadditional capital analysis required by the Financial Services Forum, to temporarily suspend share repurchases through the second quarter of 2020.Federal Reserve.
Share repurchases may be executed through open market repurchases, in privately negotiated transactions or by other means, including through repurchase plans designed to comply with Rule 10b5-1 and other derivative, accelerated share repurchase and other structured transactions. The timing and exact amount of any common stock repurchases will depend on various factors, including market conditions and the common stock trading price; the Company’s capital position, liquidity and financial performance; alternative uses of capital; and legal and regulatory considerations.
Item 6. Exhibits.
The list of exhibits required to be filed as exhibits to this report appears below.
| | | | | | | | | | | | | | | | Exhibit No. | | Description | | Method of Filing | | 3.1 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 000-52710) as filed with the Commission on July 2, 2007, and incorporated herein by reference. | | 3.2 | | | | Previously filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-52710) as filed with the Commission on July 5, 2007, and incorporated herein by reference. | | 3.3 | | | | Previously filed as Exhibit 3.2 to the Company’s Registration Statement on Form 8A12B (File No. 001-35651) as filed with the Commission on Sept. 14, 2012, and incorporated herein by reference. | | 3.4 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on May 16, 2013, and incorporated herein by reference.
| | 3.5 | |
| | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on April 28, 2015, and incorporated herein by reference.
| | 3.6 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on Aug. 1, 2016, and incorporated herein by reference. | | 3.7 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on May 19, 2020, and incorporated herein by reference. | | 3.8 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on Nov. 3, 2020, and incorporated herein by reference. | | 3.9 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on April 10, 2019, and incorporated herein by reference. | 3.83.10 | | | | Previously filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-35651) as filed with the Commission on Feb. 13, 2018, and incorporated herein by reference. |
| | | Index to Exhibits (continued) | |
| | | | | | | | | | | | | | | | Exhibit No. | | Description | | Method of Filing | | 4.1 | | None of the instruments defining the rights of holders of long-term debt of the Parent or any of its subsidiaries represented long-term debt in excess of 10% of the total assets of the Company as of March 31, 2020.Sept. 30, 2020. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument. | | N/A | 31.110.1 | | | | Filed herewith. | | 10.2 | | | | Filed herewith. | | 31.1 | | | | Filed herewith. | | 31.2 | | | | Filed herewith. | | 32.1 | | | | Furnished herewith. | | 32.2 | | | | Furnished herewith. | | 101.INS | | Inline XBRL Instance Document. | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. | | 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith. | | 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith. | | 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith. | | 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith. | | 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith. | | 104 | | The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31,Sept. 30, 2020, 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: November 5, 2020 | By: | | | Date: May 7, 2020 | By: | | /s/ Kurtis R. Kurimsky | | | | Kurtis R. Kurimsky | | | | Corporate Controller | | | | (Duly Authorized Officer and | | | | Principal Accounting Officer of | | | | the Registrant) |
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