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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Quarterly Period Ended SeptemberJune 30, 20202021
or
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File No.Number 001-35651
THE BANK OF NEW YORK MELLON CORPORATION
(Exact name of registrant as specified in its charter)
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| Delaware | 13-2614959 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
240 Greenwich Street
New York, New York 10286
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code – (212) 495-1784
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | Trading
symbol(s) | Name of each exchange
on which registered |
| Common Stock, $0.01 par value | BK | New York Stock Exchange |
Depositary Shares, each representing 1/4,000th of a share of Series C Noncumulative Perpetual Preferred Stock | BK PrC | New York Stock Exchange |
| 6.244% Fixed-to-Floating Rate Normal Preferred Capital Securities of Mellon Capital IV | BK/P | New York Stock Exchange |
| (fully and unconditionally guaranteed by The Bank of New York Mellon Corporation) | | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
| Large accelerated filer | ☒ | | Accelerated filer | ☐ | |
| Non-accelerated filer | ☐ | | Smaller reporting company | ☐ | |
| | | | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of Sept.June 30, 2020, 886,135,8052021, 863,173,678 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
THE BANK OF NEW YORK MELLON CORPORATION
ThirdSecond Quarter 20202021 Form 10-Q
Table of Contents
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| Consolidated Financial Highlights (unaudited) | |
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Part I -– Financial Information | |
| Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk: | |
| General | |
| Overview | |
Key thirdsecond quarter 20202021 and subsequent events | |
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| Net interest revenue | |
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| Noninterest expense | |
| Income taxes | |
| Review of businesses | |
| Critical accounting estimates | |
| Consolidated balance sheet review | |
| Liquidity and dividends | |
| Capital | |
| Trading activities and risk management | |
| Asset/liability management | |
Off-balance sheet arrangements | |
| Supplemental information – Explanation of GAAP and Non-GAAP financial measures | |
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| Website information | |
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| Item 1. Financial Statements: | |
| Consolidated Income Statement (unaudited) | |
| Consolidated Comprehensive Income Statement (unaudited) | |
| Consolidated Balance Sheet (unaudited) | |
| Consolidated Statement of Cash Flows (unaudited) | |
| Consolidated Statement of Changes in Equity (unaudited) | |
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| Item 4. Controls and Procedures | |
| Forward-looking Statements | |
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Part II -– Other Information | |
| Item 1. Legal Proceedings. | |
Item 1A. Risk Factors. | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | |
| Item 6. Exhibits. | |
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| Index to Exhibits | |
| Signature | |
The Bank of New York Mellon Corporation (and its subsidiaries)
Consolidated Financial Highlights (unaudited)
| | | Quarter ended | | Year-to-date | | Quarter ended | | Year-to-date | |
(dollars in millions, except per share amounts and unless
otherwise noted) | (dollars in millions, except per share amounts and unless
otherwise noted) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | (dollars in millions, except per share amounts and unless
otherwise noted) | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 | |
| Results applicable to common shareholders of The Bank of New York Mellon Corporation: | Results applicable to common shareholders of The Bank of New York Mellon Corporation: | | Results applicable to common shareholders of The Bank of New York Mellon Corporation: | | |
| Net income | Net income | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | Net income | $ | 991 | | $ | 858 | | $ | 901 | | | $ | 1,849 | | $ | 1,845 | | |
| Basic earnings per share | Basic earnings per share | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.05 | | $ | 3.02 | | Basic earnings per share | $ | 1.14 | | $ | 0.97 | | $ | 1.01 | | | $ | 2.11 | | $ | 2.06 | | |
| Diluted earnings per share | Diluted earnings per share | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.04 | | $ | 3.01 | | Diluted earnings per share | $ | 1.13 | | $ | 0.97 | | $ | 1.01 | | | $ | 2.10 | | $ | 2.06 | | |
| | Fee and other revenue | Fee and other revenue | $ | 3,117 | | $ | 3,176 | | $ | 3,128 | | | $ | 9,625 | | $ | 9,272 | | Fee and other revenue | $ | 3,315 | | $ | 3,266 | | $ | 3,230 | | (a) | | $ | 6,581 | | $ | 6,524 | | (a) |
| Income from consolidated investment management funds | 27 | | 54 | | 3 | | | 43 | | 39 | | |
| Net interest revenue | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | Net interest revenue | 645 | | 655 | | 780 | | | 1,300 | | 1,594 | | |
| Total revenue | Total revenue | $ | 3,847 | | $ | 4,010 | | $ | 3,861 | | | $ | 11,965 | | $ | 11,684 | | Total revenue | $ | 3,960 | | $ | 3,921 | | $ | 4,010 | | | $ | 7,881 | | $ | 8,118 | | |
| Return on common equity (annualized) | Return on common equity (annualized) | 8.7 | % | 9.4 | % | 10.6 | % | | 9.4 | % | 10.3 | % | Return on common equity (annualized) | 9.8 | % | 8.5 | % | 9.4 | % | | 9.2 | % | 9.7 | % | |
Return on tangible common equity (annualized) – Non-GAAP (a) | 16.7 | % | 18.5 | % | 21.4 | % | | 18.5 | % | 21.1 | % | |
Return on tangible common equity (annualized) – Non-GAAP (b) | | Return on tangible common equity (annualized) – Non-GAAP (b) | 18.6 | % | 16.1 | % | 18.5 | % | | 17.3 | % | 19.4 | % | |
| Return on average assets (annualized) | Return on average assets (annualized) | 0.84 | % | 0.87 | % | 1.13 | % | | 0.90 | % | 1.12 | % | Return on average assets (annualized) | 0.88 | % | 0.76 | % | 0.87 | % | | 0.82 | % | 0.93 | % | |
| | Fee revenue as a percentage of total revenue | Fee revenue as a percentage of total revenue | 81 | % | 79 | % | 81 | % | | 80 | % | 79 | % | Fee revenue as a percentage of total revenue | 81 | % | 83 | % | 77 | % | (a) | | 82 | % | 78 | % | (a) |
| | Non-U.S. revenue as a percentage of total revenue | Non-U.S. revenue as a percentage of total revenue | 37 | % | 36 | % | 37 | % | | 37 | % | 36 | % | Non-U.S. revenue as a percentage of total revenue | 38 | % | 37 | % | 36 | % | | 38 | % | 36 | % | |
| | Pre-tax operating margin | Pre-tax operating margin | 30 | % | 29 | % | 33 | % | | 30 | % | 32 | % | Pre-tax operating margin | 32 | % | 29 | % | 29 | % | | 31 | % | 30 | % | |
| | Net interest margin | Net interest margin | 0.79 | % | 0.88 | % | 0.99 | % | | 0.89 | % | 1.10 | % | Net interest margin | 0.67 | % | 0.66 | % | 0.88 | % | | 0.67 | % | 0.94 | % | |
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (b) | 0.79 | % | 0.88 | % | 1.00 | % | | 0.89 | % | 1.11 | % | |
Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (c) | | Net interest margin on a fully taxable equivalent (“FTE”) basis – Non-GAAP (c) | 0.67 | % | 0.67 | % | 0.88 | % | | 0.67 | % | 0.94 | % | |
| Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (c) | $ | 38.6 | | $ | 37.3 | | $ | 35.8 | | | $ | 38.6 | | $ | 35.8 | | |
Assets under management (“AUM”) at period end (in billions) (d) | $ | 2,041 | | $ | 1,961 | | $ | 1,881 | | | $ | 2,041 | | $ | 1,881 | | |
Market value of securities on loan at period end (in billions) (e) | $ | 378 | | $ | 384 | | $ | 362 | | | $ | 378 | | $ | 362 | | |
Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (d) | | Assets under custody and/or administration (“AUC/A”) at period end (in trillions) (d) | $ | 45.0 | | $ | 41.7 | | $ | 37.3 | | | $ | 45.0 | | $ | 37.3 | | |
Assets under management (“AUM”) at period end (in billions) (e) | | Assets under management (“AUM”) at period end (in billions) (e) | $ | 2,320 | | $ | 2,214 | | $ | 1,961 | | | $ | 2,320 | | $ | 1,961 | | |
Market value of securities on loan at period end (in billions) (f) | | Market value of securities on loan at period end (in billions) (f) | $ | 456 | | $ | 445 | | $ | 384 | | | $ | 456 | | $ | 384 | | |
| Average common shares and equivalents outstanding (in thousands): | Average common shares and equivalents outstanding (in thousands): | | Average common shares and equivalents outstanding (in thousands): | |
| Basic | Basic | 889,499 | | 889,020 | | 933,264 | | | 891,050 | | 949,035 | | Basic | 869,460 | | 882,558 | | 889,020 | | | 876,006 | | 891,642 | | |
| Diluted | Diluted | 891,069 | | 890,561 | | 935,677 | | | 892,793 | | 951,876 | | Diluted | 873,475 | | 885,655 | | 890,561 | | | 879,409 | | 893,603 | | |
| | Selected average balances: | Selected average balances: | | Selected average balances: | |
| Interest-earning assets | Interest-earning assets | $ | 357,634 | | $ | 357,562 | | $ | 294,154 | | | $ | 346,418 | | $ | 287,964 | | Interest-earning assets | $ | 388,285 | | $ | 397,297 | | $ | 357,562 | | | $ | 392,766 | | $ | 340,749 | | |
| Total assets | Total assets | $ | 414,865 | | $ | 415,359 | | $ | 350,679 | | | $ | 405,203 | | $ | 343,129 | | Total assets | $ | 452,329 | | $ | 460,379 | | $ | 415,359 | | | $ | 456,332 | | $ | 400,318 | | |
| Interest-bearing deposits | Interest-bearing deposits | $ | 211,500 | | $ | 210,643 | | $ | 177,401 | | | $ | 206,610 | | $ | 168,339 | | Interest-bearing deposits | $ | 239,466 | | $ | 245,115 | | $ | 210,643 | | | $ | 242,275 | | $ | 204,138 | | |
| Noninterest-bearing deposits | Noninterest-bearing deposits | $ | 67,610 | | $ | 72,411 | | $ | 49,027 | | | $ | 66,869 | | $ | 52,168 | | Noninterest-bearing deposits | $ | 85,802 | | $ | 83,429 | | $ | 72,411 | | | $ | 84,622 | | $ | 66,494 | | |
| Long-term debt | Long-term debt | $ | 26,511 | | $ | 28,122 | | $ | 28,386 | | | $ | 27,285 | | $ | 28,108 | | Long-term debt | $ | 25,275 | | $ | 26,199 | | $ | 28,122 | | | $ | 25,734 | | $ | 27,677 | | |
| Preferred stock | Preferred stock | $ | 4,532 | | $ | 4,010 | | $ | 3,542 | | | $ | 4,029 | | $ | 3,542 | | Preferred stock | $ | 4,541 | | $ | 4,541 | | $ | 4,010 | | | $ | 4,541 | | $ | 3,776 | | |
| Total The Bank of New York Mellon Corporation common shareholders’ equity | Total The Bank of New York Mellon Corporation common shareholders’ equity | $ | 39,924 | | $ | 38,476 | | $ | 37,597 | | | $ | 38,693 | | $ | 37,392 | | Total The Bank of New York Mellon Corporation common shareholders’ equity | $ | 40,393 | | $ | 40,720 | | $ | 38,476 | | | $ | 40,556 | | $ | 38,070 | | |
| | Other information at period end: | Other information at period end: | | Other information at period end: | |
| Cash dividends per common share | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | | | $ | 0.93 | | $ | 0.87 | | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | | | $ | 0.62 | | $ | 0.62 | | |
| Common dividend payout ratio | Common dividend payout ratio | 32 | % | 31 | % | 29 | % | | 31 | % | 29 | % | Common dividend payout ratio | 27 | % | 32 | % | 31 | % | | 30 | % | 30 | % | |
Common dividend yield (annualized) | Common dividend yield (annualized) | 3.6 | % | 3.2 | % | 2.7 | % | | 3.6 | % | 2.6 | % | Common dividend yield (annualized) | 2.4 | % | 2.7 | % | 3.2 | % | | 2.4 | % | 3.2 | % | |
| Closing stock price per common share | Closing stock price per common share | $ | 34.34 | | $ | 38.65 | | $ | 45.21 | | | $ | 34.34 | | $ | 45.21 | | Closing stock price per common share | $ | 51.23 | | $ | 47.29 | | $ | 38.65 | | | $ | 51.23 | | $ | 38.65 | | |
| Market capitalization | Market capitalization | $ | 30,430 | | $ | 34,239 | | $ | 41,693 | | | $ | 30,430 | | $ | 41,693 | | Market capitalization | $ | 44,220 | | $ | 41,401 | | $ | 34,239 | | | $ | 44,220 | | $ | 34,239 | | |
| Book value per common share | Book value per common share | $ | 45.58 | | $ | 44.21 | | $ | 40.75 | | | $ | 45.58 | | $ | 40.75 | | Book value per common share | $ | 47.20 | | $ | 46.16 | | $ | 44.21 | | | $ | 47.20 | | $ | 44.21 | | |
Tangible book value per common share – Non-GAAP (a) | $ | 24.60 | | $ | 23.31 | | $ | 20.59 | | | $ | 24.60 | | $ | 20.59 | | |
Tangible book value per common share – Non-GAAP (b) | | Tangible book value per common share – Non-GAAP (b) | $ | 25.64 | | $ | 24.88 | | $ | 23.31 | | | $ | 25.64 | | $ | 23.31 | | |
| Full-time employees | Full-time employees | 48,600 | | 48,300 | | 48,700 | | | 48,600 | | 48,700 | | Full-time employees | 48,800 | | 48,000 | | 48,300 | | | 48,800 | | 48,300 | | |
Common shares outstanding (in thousands) | Common shares outstanding (in thousands) | 886,136 | | 885,862 | | 922,199 | | | 886,136 | | 922,199 | | Common shares outstanding (in thousands) | 863,174 | | 875,481 | | 885,862 | | | 863,174 | | 885,862 | | |
Consolidated Financial Highlights (unaudited) (continued)
| | Regulatory capital and other ratios | Regulatory capital and other ratios | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | Regulatory capital and other ratios | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 |
| Average liquidity coverage ratio (“LCR”) | Average liquidity coverage ratio (“LCR”) | 111 | % | 112 | % | 120 | % | Average liquidity coverage ratio (“LCR”) | 110 | % | 110 | % | 110 | % |
| Regulatory capital ratios: (f)(g) | Regulatory capital ratios: (f)(g) | | Regulatory capital ratios: (f)(g) | |
| Advanced: | Advanced: | | Advanced: | |
| Common Equity Tier 1 (“CET1”) ratio | Common Equity Tier 1 (“CET1”) ratio | 13.0 | % | 12.6 | % | 11.5 | % | Common Equity Tier 1 (“CET1”) ratio | 12.7 | % | 12.6 | % | 13.1 | % |
| Tier 1 capital ratio | Tier 1 capital ratio | 15.7 | | 15.4 | | 13.7 | | Tier 1 capital ratio | 15.3 | | 15.3 | | 15.8 | |
| Total capital ratio | Total capital ratio | 16.6 | | 16.3 | | 14.4 | | Total capital ratio | 16.0 | | 16.1 | | 16.7 | |
| Standardized: | Standardized: | | Standardized: | |
| CET1 ratio | CET1 ratio | 13.5 | % | 12.7 | % | 12.5 | % | CET1 ratio | 12.6 | % | 12.6 | % | 13.4 | % |
| Tier 1 capital ratio | Tier 1 capital ratio | 16.3 | | 15.6 | | 14.8 | | Tier 1 capital ratio | 15.2 | | 15.2 | | 16.1 | |
| Total capital ratio | Total capital ratio | 17.4 | | 16.6 | | 15.8 | | Total capital ratio | 16.2 | | 16.2 | | 17.1 | |
| | Tier 1 leverage ratio | Tier 1 leverage ratio | 6.5 | % | 6.2 | % | 6.6 | % | Tier 1 leverage ratio | 6.0 | % | 5.8 | % | 6.3 | % |
Supplementary leverage ratio (“SLR”) (g)(h) | Supplementary leverage ratio (“SLR”) (g)(h) | 8.5 | | 8.2 | | 6.1 | | Supplementary leverage ratio (“SLR”) (g)(h) | 7.5 | | 8.1 | | 8.6 | |
| | BNY Mellon shareholders’ equity to total assets ratio | BNY Mellon shareholders’ equity to total assets ratio | 10.5 | % | 9.9 | % | 10.9 | % | BNY Mellon shareholders’ equity to total assets ratio | 9.7 | % | 9.7 | % | 9.8 | % |
| BNY Mellon common shareholders’ equity to total assets ratio | BNY Mellon common shareholders’ equity to total assets ratio | 9.4 | | 8.9 | | 9.9 | | BNY Mellon common shareholders’ equity to total assets ratio | 8.7 | | 8.7 | | 8.8 | |
(a) In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(b) Return on tangible common equity and tangible book value per common share, Non-GAAP measures, exclude goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 4547 for the reconciliation of Non-GAAP measures.
(b)(c) See “Net interest revenue” on page 1011 for a reconciliation of this Non-GAAP measure.
(c)(d) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint venture with the Canadian Imperial Bank of Commerce, of $1.4$1.7 trillion at Sept.June 30, 2020,2021, $1.6 trillion at March 31, 2021 and $1.3 trillion at June 30, 2020 and $1.4 trillion at Sept. 30, 2019.2020.
(d)(e) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(e)(f) Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $63 billion at June 30, 2021, $64 billion at March 31, 2021 and $62 billion at Sept. 30, 2020 and June 30, 2020 and $66 billion at Sept. 30, 2019.2020.
(f)(g) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. For additional information on our capital ratios, see “Capital” beginning on page 36.38.
(g)(h) The SLR at Sept. 30,March 31, 2021 and Dec. 31, 2020 and June 30, 2020 reflect the exclusion of certain central bank placements and the temporary exclusion of U.S. Treasury securities from the leverage exposure.exposure, which increased our SLR by 68 basis points and 72 basis points, respectively. The temporary exclusion increased our consolidated SLR by 78 basis points at Sept. 30, 2020 and 40 basis points at June 30, 2020.ceased to apply beginning April 1, 2021. See “Capital” beginning on page 3638 for additional information.
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Part I -– Financial Information |
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| Items 2. and 3. Management’s Discussion and Analysis of Financial Condition and Results of Operations; Quantitative and Qualitative Disclosures about Market Risk |
General
In this Quarterly Report on Form 10-Q, references to “our,” “we,” “us,” “BNY Mellon,” the “Company” and similar terms refer to The Bank of New York Mellon Corporation and its consolidated subsidiaries. The term “Parent” refers to The Bank of New York Mellon Corporation but not its subsidiaries.
Certain business terms used in this report are defined in the Glossary included in our Annual Report on Form 10-K for the year ended Dec. 31, 20192020 (“20192020 Annual Report”).
The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the sectionssection titled “Forward-looking Statements” and “Risk Factors.Statements.”
Overview
Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a history of more than 235 years, BNY Mellon is a global company that manages and services assets for financial institutions, corporations and individual investors in 35 countries.
BNY Mellon has two business segments, Investment Services and Investment and Wealth Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell-side market participants, as well as leading institutional and wealth management clients globally.
The diagram below presents our two business segments and lines of business, with the remaining operations in the Other segment.
Key thirdsecond quarter 20202021 and subsequent events
Emily Portney named Chief Financial OfficerShare repurchase program and increase in cash dividend on common stock
In July 2020, Emily Portney was appointed Chief Financial Officer, succeeding Michael P. Santomassimo,June 2021, our Board of Directors approved the repurchase of up to $6.0 billion of common stock starting in the third quarter of 2021 and joinedcontinuing through the Company’s Executive Committee. Ms. Portney previously led the client management, sales and services teams for the Asset Servicing business globally and oversaw the Americas region for the Asset Servicing business. She has also previously held senior financial roles.fourth quarter of 2022.
CCAR andAdditionally, in July, our Board of Directors approved a 10% increase in the quarterly cash dividend on common stock, repurchasesfrom $0.31 to $0.34 per share. This increased quarterly cash dividend will be paid on Aug. 9, 2021.
In August 2020, the Federal Reserve announced that BNY Mellon’s stress capital buffer (“SCB”) requirement would be 2.5%, which equals the regulatory minimum, effective on Oct. 1, 2020.
The Federal Reserve also 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, 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.
Highlights of thirdsecond quarter 20202021 results
Net income applicable to common shareholders was $876$991 million, or $0.98$1.13 per diluted common share, in the thirdsecond quarter of 2020.2021. Net income applicable to common shareholders was $1.0 billion,$901 million, or $1.07$1.01 per diluted common share, in the thirdsecond quarter of 20192020. The highlights below are based on the thirdsecond quarter of 20202021 compared with the thirdsecond quarter of 2019,2020, unless otherwise noted.
•Total revenue of $3.8$4.0 billion decreased less than 1%, primarily reflecting:
•Fee revenue decreased 1%increased 4%, primarily reflecting the positive impact of higher money market fee waivers, partially offset by higher client activity and balances in Pershing and Asset Servicing, higher market values andmarkets, the favorable impact of a weaker U.S. dollar.dollar and higher client volumes, partially offset by money market fee waivers. (See “Fee and other revenue” beginning on page 7.)
•Other revenue decreased primarily reflecting lower gains related to seed capital investments. (See “Fee and other revenue” beginning on page 7.)
•Net interest revenue decreased 4%. The decrease would have been 8% larger due to the impact of the third quarter 2019 lease-related impairment of $70 million. The decrease17%, primarily reflectsreflecting lower interest rates on interest-earning assets,assets. This was partially offset by the benefit of lower funding and deposit and funding rates, higher deposits,lower debt balances, a larger securities portfolio and loanhigher deposit balances. (See “Net interest revenue” on page 10.11.)
•Provision for credit losses was a benefit of $9$86 million reflects a fairly consistentprimarily driven by an improvement in the macroeconomic outlook compared with the second quarter of 2020.forecast. (See “Consolidated balance sheet review -– Allowance for credit losses” beginning on page 28.31.)
•Noninterest expense increased 4%3%, 3% of which was due to the impact of the third quarter 2019 net reduction of reserves for a tax-related exposure of certain investment management funds. The remainder of the increase primarily reflects continued investments in technology,
higher professional, legal and other purchased services expense andreflecting the unfavorable impact of a weaker U.S. dollar, partially offset by lower staffinvestments in efficiency and business development (travelgrowth initiatives and marketing)higher revenue-related expenses. (See “Noninterest expense” on page 13.14.)
•Effective tax rate of 18.4%19.0%. (See “Income taxes” on page 13.14.)
Capital and liquidity
•CET1 ratio was 13.0% at Sept. 30, 2020, compared with 12.6% at June 30, 2020. The increase in the CET1 ratio primarily reflects capital2021, unchanged compared with March 31, 2021. Capital generated through earnings foreign currency translation and unrealized gains on securities available-for-sale, partiallywas offset by higher risk-weighted assets (“RWAs”) and capital deployed through dividend payments.common stock repurchases and dividends, and higher risk-weighted assets. (See “Capital” beginning on page 36.38.)
•Tier 1 leverage was 6.0% at June 30, 2021, compared with 5.8% at March 31, 2021. The increase reflects capital generation and lower average assets. (See “Capital” beginning on page 38.)
•Repurchased 12.8 million common shares for $618 million.
Highlights of our principal businesses
Investment Services
•Total revenue decreased 4%.
•Income before income taxes decreased 17%increased 3%.
•AUC/A of $38.6$45.0 trillion increased 8%21%, primarily reflecting higher market values, net new business client inflows and the favorable impact of a weaker U.S. dollar.
Investment and Wealth Management
•Total revenue increased 3%13%.
•Income before income taxes decreased 17%, driven by the third quarter 2019 tax-related reserve reduction.increased 48%.
•AUM of $2.0$2.3 trillion increased 9%18%, primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar (principally versus the British pound) and net inflows.
See “Review of businesses” and Note 1918 of the Notes to Consolidated Financial Statements for additional information on our businesses.
Impact of coronavirus pandemic on our business
TheSee “Impact of coronavirus pandemic has had a significant effect on the global macroeconomic environment. The following discussesour business” in our 2020 Annual Report for the areas of our business that have been impacted and could continue to be impacted by the currentcoronavirus pandemic and its effect on the global macroeconomic environment. The following updates those disclosures.
Since March 2020,Short-term interest rates have remained low through the vast majoritysecond quarter of our employees have worked from home. They have been fully operational with minimal disruption2021, which has continued to servicing our clients. However, our continued reliance on work-from-home arrangements may result in increased operational risks.
Market volatility associated with the performance of global equitylower net interest revenue and fixed income marketshigher money market fee waivers. This has been partially offset by higher average deposit balances and lower interest rates has had, and may continue to have, a considerable impact on all of our businesses. Our lower-risk diversified fee-based business model benefits from heightened volatility and a flight-to-quality on a relative basishigher money market balances compared with other credit-focused financial institutions.
Our Investment Services businesses were favorably impacted by higher client volumes in the first nine months of 2020 compared with the prior year. The significant increases in market volatility also resulted in increased client activity in foreign exchange, and higher asset servicing, clearing services in Pershing, as well as clearance and collateral management fee revenue. However, the heightened volumes and volatility were lower in the second and third quarters of 2020 compared with the first quarter of 2020.
This volatility, coupled withEquity market levels have continued to improve in the interest rate environment, also led to an increasefirst six months of 2021, resulting in deposit levels from the prior year as our clients increased the levels of cash placed with us. This favorably impacted net interest revenue. However, the low interest rate environment has more than offset that benefitasset-based fees in Investment Services and is expected to continue to reduce our net interest revenueInvestment and margin.Wealth Management.
GivenThe macroeconomic outlook continued to improve through the recent levelsfirst and second quarters of short-term interest rates, money market mutual fund fees have been waived and may continue to be waived, which reduced fee revenue2021, resulting in decreases in the secondallowance for credit losses and third quarters of 2020. See further discussion of money market fee waivers in “Fee and other revenue.”benefits to the provision for credit losses.
As discussed above under “Key third quarter 2020 events,” we and the other CCAR firms have suspended open marketThe restrictions on common stock dividends and share repurchases through the fourth quarter of 2020, and we continued our current quarterly common stock dividend of $0.31 per share. See “Recent regulatory developments” for additional information related to the 2020 CCAR.
The significant changes in market values during 2020 have impacted revenue related to seed capital investments (net of hedges) in our Investment and Wealth Management business, which benefited the second and third quarters of 2020 and negatively impacted the first quarter of 2020. The Investment and Wealth Management business continued to be negatively impacted by higher money market fee waivers in the second and third quarters of 2020.
During the first quarter of 2020, we purchased $2.2 billion of commercial paper and certificates of deposit (“CDs”) from affiliated money market mutual funds in order to provide liquidity support to the funds. We also purchased $650 million in the first quarter of 2020 and $1.1 billion in the second quarter of 2020 of commercial paper and CDs from third-party money market mutual funds and funded this purchase through the Federal Reserve Bank of Boston’s Money Market Mutual Fund Liquidity Facility (“MMLF”) program. At Sept.ended on June 30, 2020, commercial paper and CDs totaled approximately $650 million. See “Recent regulatory developments” in the First Quarter 2020 Form 10-Q for additional information on the MMLF.
The need to apply macroeconomic forecasting in the current environment in conjunction with the new expected credit loss accounting guidance has resulted in and may continue to result in heightened levels of credit loss provisioning. The continuing effects of the pandemic could also result in increased credit losses and charge-offs. The macroeconomic outlook in the third quarter of 2020 was fairly consistent with the second quarter of 2020.
In addition, a prolonged economic downturn may result in other asset write-downs and impairments, including, but not limited to, equity investments, goodwill and intangibles.2021.
It is difficult to forecast the impact of the coronavirus, together with related public health measures, on our results with certainty because so much depends on
how the health crisis evolves and its impact on the global economy, as well as actions taken by central banks and governments to support the economy.economy and the availability, use and effectiveness of vaccines.
The current macroeconomic environment has also resulted in responses by governmental and regulatory bodies. See “Recent regulatory developments”“Supervision and Regulation – Pandemic-Related Measures” in the first quarterour 2020 Form 10-QAnnual Report for additional information on legislative and regulatory developments in response to the coronavirus pandemic.
For further discussion of the current and potential impact of the coronavirus pandemic, see Item 1A. Risk“Risk Factors “The– 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.predicted,”
in our 2020 Annual Report.
Fee and other revenue
| | Fee and other revenue | Fee and other revenue | | | YTD20 | | Fee and other revenue | | | YTD21 | |
| 3Q20 vs. | | | vs. | | |
| (dollars in millions, unless otherwise noted) | | (dollars in millions, unless otherwise noted) | | 2Q21 vs. | | | vs. | |
| (dollars in millions, unless otherwise noted) | 3Q20 | 2Q20 | 3Q19 | 2Q20 | 3Q19 | | YTD20 | YTD19 | | YTD19 | | 2Q21 | 1Q21 | 2Q20 | | 1Q21 | 2Q20 | | YTD21 | YTD20 | | | YTD20 | |
| Investment services fees: | Investment services fees: | | | | | Investment services fees: | | | | |
Asset servicing fees (a) | Asset servicing fees (a) | $ | 1,168 | | $ | 1,173 | | $ | 1,152 | | — | % | 1 | % | | $ | 3,500 | | $ | 3,415 | | | 2 | % | | Asset servicing fees (a) | $ | 1,200 | | $ | 1,199 | | $ | 1,173 | | | — | % | 2 | % | | $ | 2,399 | | $ | 2,332 | | | | 3 | % | |
Clearing services fees (b) | Clearing services fees (b) | 397 | | 431 | | 419 | | (8) | | (5) | | | 1,298 | | 1,227 | | | 6 | | | Clearing services fees (b) | 435 | | 455 | | 431 | | | (4) | | 1 | | | 890 | | 901 | | | | (1) | | |
| Issuer services fees | Issuer services fees | 295 | | 277 | | 324 | | 6 | | (9) | | | 835 | | 866 | | | (4) | | | Issuer services fees | 281 | | 245 | | 277 | | | 15 | | 1 | | | 526 | | 540 | | | | (3) | | |
| Treasury services fees | Treasury services fees | 152 | | 144 | | 140 | | 6 | | 9 | | | 445 | | 412 | | | 8 | | | Treasury services fees | 160 | | 157 | | 144 | | | 2 | | 11 | | | 317 | | 293 | | | | 8 | | |
| Total investment services fees | Total investment services fees | 2,012 | | 2,025 | | 2,035 | | (1) | | (1) | | | 6,078 | | 5,920 | | | 3 | | | Total investment services fees | 2,076 | | 2,056 | | 2,025 | | | 1 | | 3 | | | 4,132 | | 4,066 | | | | 2 | | |
| Investment management and performance fees | Investment management and performance fees | 835 | | 786 | | 832 | | 6 | | — | | | 2,483 | | 2,506 | | | (1) | | | Investment management and performance fees | 889 | | 890 | | 786 | | | — | | 13 | | | 1,779 | | 1,648 | | | | 8 | | |
| Foreign exchange and other trading revenue | 137 | | 166 | | 150 | | (17) | | (9) | | | 622 | | 486 | | | 28 | | | |
| Foreign exchange revenue | | Foreign exchange revenue | 184 | | 231 | | 193 | | (c) | (20) | | (5) | | | 415 | | 438 | | (c) | | (5) | | |
| Financing-related fees | Financing-related fees | 49 | | 58 | | 49 | | (16) | | — | | | 166 | | 150 | | | 11 | | | Financing-related fees | 48 | | 51 | | 58 | | | (6) | | (17) | | | 99 | | 117 | | | | (15) | | |
| Distribution and servicing | Distribution and servicing | 29 | | 27 | | 33 | | 7 | | (12) | | | 87 | | 95 | | | (8) | | | Distribution and servicing | 27 | | 29 | | 27 | | | (7) | | — | | | 56 | | 58 | | | | (3) | | |
| Total fee revenue | | Total fee revenue | 3,224 | | 3,257 | | 3,089 | | (c) | (1) | | 4 | | | 6,481 | | 6,327 | | (c) | | 2 | | |
| Investment and other income | Investment and other income | 46 | | 105 | | 30 | | N/M | | 162 | | 108 | | | N/M | | Investment and other income | 89 | | 9 | | 132 | | (c) | N/M | | 98 | | 179 | | (c) | | N/M | |
| Total fee revenue | 3,108 | | 3,167 | | 3,129 | | (2) | | (1) | | | 9,598 | | 9,265 | | | 4 | | | |
| Net securities gains (losses) | 9 | | 9 | | (1) | | N/M | | 27 | | 7 | | | N/M | | |
| Net securities gains | | Net securities gains | 2 | | — | | 9 | | | N/M | | 2 | | 18 | | | | N/M | |
| Total other revenue | | Total other revenue | 91 | | 9 | | 141 | | | N/M | | 100 | | 197 | | | | N/M | |
| Total fee and other revenue | Total fee and other revenue | $ | 3,117 | | $ | 3,176 | | $ | 3,128 | | (2) | % | — | % | | $ | 9,625 | | $ | 9,272 | | | 4 | % | | Total fee and other revenue | $ | 3,315 | | $ | 3,266 | | $ | 3,230 | | | 2 | % | 3 | % | | $ | 6,581 | | $ | 6,524 | | | | 1 | % | |
| | Fee revenue as a percentage of total revenue | Fee revenue as a percentage of total revenue | 81 | % | 79 | % | 81 | % | | 80 | % | 79 | % | | | | Fee revenue as a percentage of total revenue | 81 | % | 83 | % | 77 | % | (c) | | 82 | % | 78 | % | (c) | | | |
| AUC/A at period end (in trillions) (c) | $ | 38.6 | | $ | 37.3 | | $ | 35.8 | | 3 | % | 8 | % | | $ | 38.6 | | $ | 35.8 | | | 8 | % | | |
AUM at period end (in billions) (d) | $ | 2,041 | | $ | 1,961 | | $ | 1,881 | | 4 | % | 9 | % | | $ | 2,041 | | $ | 1,881 | | | 9 | % | | |
AUC/A at period end (in trillions) (d) | | AUC/A at period end (in trillions) (d) | $ | 45.0 | | $ | 41.7 | | $ | 37.3 | | | 8 | % | 21 | % | | $ | 45.0 | | $ | 37.3 | | | | 21 | % | |
AUM at period end (in billions) (e) | | AUM at period end (in billions) (e) | $ | 2,320 | | $ | 2,214 | | $ | 1,961 | | | 5 | % | 18 | % | | $ | 2,320 | | $ | 1,961 | | | | 18 | % | |
(a) Asset servicing fees include the fees from the Clearance and Collateral Management business and also include securities lending revenue of $40$45 million in the thirdsecond quarter of 2020,2021, $45 million in the first quarter of 2021, $56 million in the second quarter of 2020, $43 million in the third quarter of 2019, $147$90 million in the first ninesix months of 20202021 and $135$107 million in the first ninesix months of 2019.2020.
(b) Clearing services fees are almost entirely earned by our Pershing business.
(c) In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(d) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.4$1.7 trillion at Sept.June 30, 2020,2021, $1.6 trillion at March 31, 2021 and $1.3 trillion at June 30, 2020 and $1.4 trillion at Sept. 30, 2019.2020.
(d)(e) Excludes securities lending cash management assets and assets managed in the Investment Services business.
N/M -– Not meaningful.
Fee and other revenue decreased less than 1% compared with the third quarter of 2019 and decreased 2%increased 4% compared with the second quarter of 2020. 2020 and decreased 1% compared with the first quarter of 2021. The increase compared with the second quarter of 2020 primarily reflects higher investment management and performance fees, asset servicing fees and treasury services fees, partially offset by lower financing-related fees and foreign exchange revenue.The decrease compared with the thirdfirst quarter of 20192021 primarily reflects lower issuer servicesforeign exchange revenue and clearing services fees, partially offset by higher asset servicing fees, investmentissuer services fees.
Other revenue decreased $50 million compared with the second quarter of 2020 and other income and treasury services fees.increased $82 million compared with the first quarter of 2021. The decrease compared with the second quarter of 2020 primarily reflects lower investment and other income, clearing services feesgains related to seed capital investments. The increase compared with the first
quarter of 2021 primarily reflects a $39 million impairment related to a renewable energy investment recorded in the first quarter of 2021, gains from other investments and foreign exchangedisposals, and higher other trading revenue, partially offset by higher investment management and performance fees and issuer services fees.income.
Money market fee waivers
Given the recent levels ofcontinued low short-term interest rates, money market mutual fund fees and other similar fees are being waived to protect investors from negative returns. The fee waivers have primarily impacted
clearing services fees fee revenues in Pershing and to a lesser extent revenue in our other businesses including investment management fees and distribution and servicing revenue in Investment and Wealth Management, and fees in other Investment Services businesses, but also resulted in lower distribution and servicing expense. The fee waivers also began to impact fee revenues in our other businesses in the second half of 2020. Money market fee waivers are highly sensitive to changes in short-term interest rates and are difficult to predict. Assuming no change in money market
balances, we expect to recover over 50% of the pre-tax income related to fee waivers with a 25 basis point increase in the Fed Funds rate and we expect to recover nearly 100% of the pre-tax income related to fee waivers when the Fed Funds rate increases 100 basis points.
The following table presents the impact of money market fee waivers on our consolidated fee revenue,
net of distribution and servicing expense. A majorityIn the second quarter of 2021, the net impact of money market fee waivers werewas $252 million, up from $188 million in the first quarter of 2021, driven by lowlower short-term interest rates.rates and higher money market balances.
| | Money market fee waivers | Money market fee waivers | | Money market fee waivers | |
| (in millions) | (in millions) | 3Q20 | 2Q20 | YTD20 | (in millions) | 2Q21 | 1Q21 | 2Q20 | | YTD21 | YTD20 |
| Investment services fees: | Investment services fees: | | Investment services fees: | |
| Asset servicing fees | Asset servicing fees | $ | (1) | | $ | — | | $ | (1) | | Asset servicing fees | $ | (42) | | $ | (22) | | $ | — | | | $ | (64) | | $ | — | |
| Clearing services fees | Clearing services fees | (57) | | (50) | | (116) | | Clearing services fees | (88) | | (74) | | (50) | | | (162) | | (59) | |
| Issuer services fees | Issuer services fees | (1) | | (1) | | (2) | | Issuer services fees | (15) | | (10) | | (1) | | | (25) | | (1) | |
| Treasury services fees | Treasury services fees | (3) | | (2) | | (5) | | Treasury services fees | (3) | | (3) | | (2) | | | (6) | | (2) | |
| Total investment services fees | Total investment services fees | (62) | | (53) | | (124) | | Total investment services fees | (148) | | (109) | | (53) | | | (257) | | (62) | |
| Investment management and performance fees | Investment management and performance fees | (42) | | (30) | | (86) | | Investment management and performance fees | (115) | | (89) | | (30) | | | (204) | | (44) | |
| Distribution and servicing revenue | Distribution and servicing revenue | (6) | | (3) | | (9) | | Distribution and servicing revenue | (13) | | (13) | | (3) | | | (26) | | (3) | |
| Total fee and other revenue | (110) | | (86) | | (219) | | |
| Total fee revenue | | Total fee revenue | (276) | | (211) | | (86) | | | (487) | | (109) | |
| Less: Distribution and servicing expense | Less: Distribution and servicing expense | 9 | | 7 | | 16 | | Less: Distribution and servicing expense | 24 | | 23 | | 7 | | | 47 | | 7 | |
| Net impact of money market fee waivers | Net impact of money market fee waivers | $ | (101) | | $ | (79) | | $ | (203) | | Net impact of money market fee waivers | $ | (252) | | $ | (188) | | $ | (79) | | | $ | (440) | | $ | (102) | |
| Impact to revenue by line of business (a): | Impact to revenue by line of business (a): | | Impact to revenue by line of business (a): | |
| Asset Servicing | Asset Servicing | $ | (4) | | $ | (1) | | $ | (5) | | Asset Servicing | $ | (50) | | $ | (29) | | $ | (1) | | | $ | (79) | | $ | (1) | |
| Pershing | Pershing | (73) | | (60) | | (142) | | Pershing | (99) | | (94) | | (60) | | | (193) | | (69) | |
| Issuer Services | Issuer Services | (2) | | (1) | | (3) | | Issuer Services | (22) | | (15) | | (1) | | | (37) | | (1) | |
| Treasury Services | Treasury Services | (1) | | — | | (1) | | Treasury Services | (16) | | (9) | | — | | | (25) | | — | |
| Investment Management | Investment Management | (28) | | (24) | | (66) | | Investment Management | (85) | | (61) | | (24) | | | (146) | | (38) | |
| Wealth Management | Wealth Management | (2) | | — | | (2) | | Wealth Management | (4) | | (3) | | — | | | (7) | | — | |
| Total impact to revenue by line of business | Total impact to revenue by line of business | $ | (110) | | $ | (86) | | $ | (219) | | Total impact to revenue by line of business | $ | (276) | | $ | (211) | | $ | (86) | | | $ | (487) | | $ | (109) | |
(a) The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.
We expect the impact from money market fee waivers, net of distribution and servicing expense, to be $135 million to $150approximate $225 million in the fourththird quarter of 2020. We also expect2021, based on implied forward rates and money market balances as of the quarterly run rateend of the second quarter of 2021. Fee waivers in 2021subsequent periods will continue to be atdependent on short-term interest rates and the higher end of that range. This impact may be partially offset depending on the levelslevel of money market balances.
Investment services fees
Investment services fees decreasedincreased 3% compared with the second quarter of 2020 and 1% compared with both the thirdfirst quarter of 2019 and second quarter of 20202021, reflecting the following:
•Asset servicing fees increased 1% compared with the third quarter of 2019 and decreased less than 1% compared with the second quarter of 2020. The increase compared with the third quarter of 2019 primarily reflects higher client volumes. The decrease2% compared with the second quarter of 2020 primarily reflects lower securities lending revenue driven by tighter spreads.
•Clearing services fees decreased 5%and was up slightly compared with the thirdfirst quarter of 2019 and 8% compared with the second quarter of 2020. The decrease compared with the third quarter of 2019 primarily reflects the impact of rate-driven money market fee waivers, partially offset by higher money market balances. The decrease compared with the second quarter of 2020 primarily reflects lower clearing volumes and higher rate-driven money market fee waivers.
•Issuer services fees decreased 9% compared with the third quarter of 2019 and increased 6% compared with the second quarter of 2020. The decrease compared with the third quarter of 2019 primarily reflects lower Depositary Receipts revenue.2021. The increase compared with the second quarter of 2020 primarily reflects seasonallyhigher client activity, market values and tri-party collateral management balances, partially offset by higher
money market fee waivers, and lower intraday credit fees and clearance volumes. The slight increase compared with the first quarter of 2021 primarily reflects higher tri-party collateral management balances, partially offset by higher money market fee waivers and lower clearance volumes.
•Clearing services fees increased 1% compared with the second quarter of 2020 and decreased 4% compared with the first quarter of 2021. The increase compared with the second quarter of 2020 primarily reflects higher market values, client activity and balances, partially offset by higher money market fee waivers. The decrease compared with the first quarter of 2021 primarily reflects lower clearance volumes, partially offset by higher market values.
•Issuer services fees increased 1% compared with the second quarter of 2020 and 15% compared with the first quarter of 2021. Both increases
primarily reflect higher Depositary Receipts revenue, partially offset by money market fee waivers in Corporate Trust. The increase compared with the second quarter of 2020 also reflects higher Corporate Trust revenue.
•Treasury services fees increased 9% compared with the third quarter of 2019 and 6%11% compared with the second quarter of 2020. The increase2020 and 2% compared with the thirdfirst quarter of 2019 primarily reflects lower compensating balance credits provided to clients driven by lower rates and higher money market balances.2021. The increase compared with the second quarter of 2020 primarily reflects higher payment volumes and other fees.volumes. The increase compared with first quarter of 2021 primarily reflects net new business.
See “Investment Services business” in “Review of businesses” for additional details.
Investment management and performance fees
Investment management and performance fees increased slightly compared with the third quarter of 2019 and 6%13% compared with the second quarter of 2020. The increase2020 and decreased slightly compared with the thirdfirst quarter of 2019 primarily reflects higher market values, the
favorable impact of a weaker U.S. dollar and higher performance fees, partially offset by the impact of money market fee waivers.2021. The increase compared with the second quarter of 2020 primarily reflects the impact of higher market values, and the favorable impact of a weaker U.S. dollar.dollar, higher performance fees and net inflows, partially offset by higher money market fee waivers. The decrease compared with the first quarter of 2021 primarily reflects the timing of performance fees and higher money market fee waivers, offset by the impact of higher market values, equity investment gains and net inflows. Performance fees were $14 million in the second quarter of 2021, $5 million in the second quarter of 2020 and $40 million in the first quarter of 2021. On a constant currency basis (Non-GAAP), investment management and performance fees decreased 1%increased 9% compared with the third quarter of 2019. Performance fees were $7 million in the third quarter of 2020, $2 million in the third quarter of 2019 and $5 million in the second quarter of 2020.
AUM was $2.0$2.3 trillion at Sept.June 30, 2020,2021, an increase of 9%18% compared with Sept.June 30, 2019,2020, primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar (principally versus the British pound) and net inflows.
See “Investment and Wealth Management business” in “Review of businesses” for additional details regarding the drivers of investment management and performance fees, AUM and AUM flows.
Foreign exchange and other trading revenue
| | | | | | | | | | | | | | | | | | |
| 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 and other trading revenue decreased 9% compared with the third quarter of 2019 and 17% compared with the second quarter of 2020.
Foreign exchange revenue is primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility, and the impact of foreign currency hedging activities.activities and foreign currency remeasurement gain (loss). In the thirdsecond quarter of 2020,2021, foreign exchange revenue totaled $151$184 million, an increasedecreases of 17% compared with the third quarter of 2019 and a decrease of 13%5% compared with the second quarter of 2020. The increase2020 and 20% compared with the thirdfirst quarter of 2019 primarily reflects the impact of foreign currency hedging activity.2021. The decrease compared with the second quarter of 2020 primarily reflects lower volatility, partially offset by higher volumes. The decrease compared with the first quarter of 2021 primarily reflects lower volumes and volatility. Foreign exchange revenue is primarily reported in the
Investment Services business and, to a lesser extent, the Investment and Wealth Management business and the Other segment.
Other trading losses totaled $14 millionFinancing-related fees
Financing-related fees, which are primarily reported in the third quarter of 2020 compared with other trading revenue of $21 million in the third quarter of 2019Investment Services business, include capital market fees, loan commitment fees and other trading losses of $8credit-related fees. Financing-related fees totaled $48 million in the second quarter of 2020.2021, $58 million in the second quarter of 2020 and $51 million in the first quarter of 2021. Both decreases primarily reflect lower derivative and fixed income trading and hedging, which is partially offset in net interest revenue. Other trading revenue is reported in all three business segments.underwriting fees.
Investment and other income
Investment and other income includes income or loss from consolidated investment management funds, seed capital gains or losses, other trading revenue or loss, renewable energy investments losses, corporate and bank-owned life insurance contracts, other investment gains or losses, gains or losses from disposals, expense reimbursements from our CIBC Mellon joint venture and other income or loss. The income or loss from consolidated investment management funds should be considered together with the net income or loss attributable to noncontrolling interests, which reflects the portion of the consolidated funds for which we do not have an economic interest and is reflected below net income as a separate line item on the consolidated income statement. Other trading revenue or loss primarily includes the impact of market-risk hedging activity related to our seed capital investments in investment management funds, non-foreign currency derivative
and fixed income trading, and other hedging activity. Investments in renewable energy generate losses in other income that are more than offset by benefits and credits recorded to the provision for income taxes. Other investment gains or losses includes fair value changes of non-readily marketable equity securities,
private equity and other investments. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Other income or loss includes various miscellaneous revenues.
The following table provides the components of investment and other income.
| | Investment and other income | Investment and other income | | Investment and other income | | |
| (in millions) | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (in millions) | 2Q21 | 1Q21 | 2Q20 | (a) | YTD21 | YTD20 | (a) | |
| Income from consolidated investment management funds | | Income from consolidated investment management funds | $ | 13 | | $ | 17 | | $ | 54 | | | $ | 30 | | $ | 16 | | | |
Seed capital gains (losses) (b) | | Seed capital gains (losses) (b) | 18 | | 3 | | 23 | | | 21 | | (8) | | | |
| Other trading (loss) revenue | | Other trading (loss) revenue | (1) | | (7) | | (8) | | | (8) | | 58 | | | |
| Renewable energy investment (losses) | | Renewable energy investment (losses) | (41) | | (81) | | (34) | | | (122) | | (68) | | | |
| Corporate/bank-owned life insurance | Corporate/bank-owned life insurance | $ | 33 | | $ | 36 | | $ | 33 | | $ | 105 | | $ | 95 | | | Corporate/bank-owned life insurance | 29 | | 33 | | 36 | | | 62 | | 72 | | | |
Other investments gains (c) | | Other investments gains (c) | 23 | | 11 | | 13 | | | 34 | | 6 | | | |
| Disposal gains | | Disposal gains | 6 | | — | | — | | | 6 | | — | | | |
| Expense reimbursements from joint venture | Expense reimbursements from joint venture | 23 | | 19 | | 21 | | 63 | | 59 | | | Expense reimbursements from joint venture | 25 | | 23 | | 19 | | | 48 | | 40 | | | |
| Asset-related gains | 4 | | 3 | | 2 | | 11 | | 4 | | | |
Seed capital gains (a) | 9 | | 23 | | — | | 1 | | 10 | | | |
| Other (loss) income | (23) | | 24 | | (26) | | (18) | | (60) | | | |
| Other income | | Other income | 17 | | 10 | | 29 | | | 27 | | 63 | | | |
| Total investment and other income | Total investment and other income | $ | 46 | | $ | 105 | | $ | 30 | | $ | 162 | | $ | 108 | | | Total investment and other income | $ | 89 | | $ | 9 | | $ | 132 | | | $ | 98 | | $ | 179 | | | |
(a) Excludes seed capitalIn the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(b) Includes gains related to consolidated investment management(losses) on investments in BNY Mellon funds which are reflected in operations of consolidated investment management funds.hedge deferred incentive awards.
(c) Includes strategic equity, private equity and other investments.
Investment and other income increased compared with the third quarter of 2019 and decreased compared withwas $89 million in the second quarter of 2020. The increase2021 compared with $132 million in the thirdsecond quarter of 2019 primarily reflects higher seed capital gains.2020 and $9 million in the first quarter of 2021. The decrease compared with the second quarter of 2020 primarily reflects the impact of foreign currency translation, a one-time feelower gains related to seed capital investments reflected in the Asset Servicing businessincome from consolidated investment management funds and seed capital gains (losses) line items. The increase compared with the first quarter of 2021 primarily reflects the $39 million impairment related to a renewable energy investment recorded in the secondfirst quarter of 20202021, gains from other investments and lower seed capital gains.disposals and higher other income.
Year-to-date 20202021 compared with year-to-date 20192020
Fee and other revenue increased 4%2% compared with the first ninesix months of 2019,2020, primarily reflecting higher foreign exchangeinvestment management and other trading revenue, performance fees and
asset servicing fees, clearing services feespartially offset by lower foreign exchange revenue and investment and other income.financing-related fees. The 28%8% increase in foreign exchangeinvestment management and other trading revenueperformance fees primarily reflects higher volatilitymarket values, the favorable impact of a weaker U.S. dollar, equity investment gains and volumes.net inflows, partially offset by higher money market fee waivers. The 2%3% increase in asset servicing fees primarily reflects
higher client volumes. The 6% increase in clearing services fees primarily reflects higher clearing volumesactivity, market values and money market balances,the favorable impact of a weaker U.S. dollar, partially offset by money market fee waivers.
The increasedecrease in
investment and other income revenue primarily reflects one-time fees in the Asset Servicing and Pershing businesses recorded in the first six months of 2020, an impairment related to a renewable energy investment recorded in the first quarter of 2021 and the impact of foreign currency translation.
lower derivative and fixed income trading results, partially offset by higher gains related to seed capital.
Net interest revenue
| | Net interest revenue | Net interest revenue | | | YTD20 | | Net interest revenue | | | YTD21 | |
| | 3Q20 vs. | | | vs. | | | 2Q21 vs. | | | vs. | |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 3Q19 | 2Q20 | 3Q19 | | YTD20 | YTD19 | | YTD19 | | (dollars in millions) | 2Q21 | 1Q21 | 2Q20 | 1Q21 | 2Q20 | | YTD21 | YTD20 | | YTD20 | |
| Net interest revenue – GAAP | Net interest revenue – GAAP | $ | 703 | | $ | 780 | | $ | 730 | | (10) | % | (4) | % | | $ | 2,297 | | $ | 2,373 | | | (3) | % | | Net interest revenue – GAAP | $ | 645 | | $ | 655 | | $ | 780 | | (2) | % | (17) | % | | $ | 1,300 | | $ | 1,594 | | | (18) | % | |
| Add: Tax equivalent adjustment | Add: Tax equivalent adjustment | 2 | | 2 | | 3 | | N/M | | 6 | | 11 | | | N/M | | Add: Tax equivalent adjustment | 3 | | 3 | | 2 | | N/M | | 6 | | 4 | | | N/M | |
Net interest revenue (FTE) – Non-GAAP (a) | Net interest revenue (FTE) – Non-GAAP (a) | $ | 705 | | $ | 782 | | $ | 733 | | (10) | % | (4) | % | | $ | 2,303 | | $ | 2,384 | | | (3) | % | | Net interest revenue (FTE) – Non-GAAP (a) | $ | 648 | | $ | 658 | | $ | 782 | | (2) | % | (17) | % | | $ | 1,306 | | $ | 1,598 | | | (18) | % | |
| | Average interest-earning assets | Average interest-earning assets | $ | 357,634 | | $ | 357,562 | | $ | 294,154 | | — | % | 22 | % | | $ | 346,418 | | $ | 287,964 | | | 20 | % | | Average interest-earning assets | $ | 388,285 | | $ | 397,297 | | $ | 357,562 | | (2) | % | 9 | % | | $ | 392,766 | | $ | 340,749 | | | 15 | % | |
| | | Net interest margin – GAAP | Net interest margin – GAAP | 0.79 | % | 0.88 | % | 0.99 | % | (9) | bps | (20) | bps | | 0.89 | % | 1.10 | % | | (21) | bps | | Net interest margin – GAAP | 0.67 | % | 0.66 | % | 0.88 | % | 1 | bps | (21) | bps | | 0.67 | % | 0.94 | % | | (27) | bps | |
Net interest margin (FTE) – Non-GAAP (a) | Net interest margin (FTE) – Non-GAAP (a) | 0.79 | % | 0.88 | % | 1.00 | % | (9) | bps | (21) | bps | | 0.89 | % | 1.11 | % | | (22) | bps | | Net interest margin (FTE) – Non-GAAP (a) | 0.67 | % | 0.67 | % | 0.88 | % | — | bps | (21) | bps | | 0.67 | % | 0.94 | % | | (27) | bps | |
(a) Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income.
N/M -– Not meaningful.
bps -– basis points.
Net interest revenue decreased 4% compared with the third quarter of 2019 and 10%17% compared with the second quarter of 2020.2020 and 2% compared with the first quarter of 2021. The decrease compared with the thirdsecond quarter of 2019 would have been 8% larger due to the impact of the third quarter 2019 lease-related impairment of $70 million. The decrease2020 primarily reflects lower interest rates on interest-earning assets, partially offset by the benefit of lower funding and deposit and funding rates, higher deposits,lower debt balances, a larger securities portfolio and loanhigher deposit balances. The decrease compared with the secondfirst quarter of 20202021 was primarily driven by lower interest rates on interest-earning assets, partially offset by the benefit of lower funding and deposit and funding rates and a larger securities portfolio.rates.
Net interest margin decreased 20 basis points compared with the third quarter of 2019 and 921 basis points compared with the second quarter of 2020.2020 and increased 1 basis point compared with the first quarter of 2021. The decreases reflectdecrease compared with the second quarter of 2020 primarily reflects the factors mentioned above.
Average interest-earning assets increased 22% compared with the third quarter of 2019 and increased slightly9% compared with the second quarter of 2020.2020 and decreased 2% compared with the first quarter of 2021. The increase compared with the thirdsecond quarter of 20192020 primarily reflects a larger securities portfolio and higher interest-bearing deposits with the Federal Reserve and other central banks.banks, a larger securities portfolio and higher loan balances. The decrease compared with the first quarter of 2021 primarily reflects lower interest-bearing deposits with the Federal Reserve and other central banks, partially offset by higher loan balances.
Average non-U.S. dollar deposits comprised approximately 25% of our average total deposits in the thirdsecond quarter of 2020.2021. Approximately 40% of the average non-U.S. dollar deposits in the thirdsecond quarter of 20202021 were euro denominated.
Net interest revenue in future quartersperiods will depend on the level and mix of client deposits and deposit rates, as well as the level and shape of the yield curve, which may result in lower yields on interest-earning assets.
Due to lower interest rates, net interest revenue has been trending lower and we expect net interest revenue to decrease in 2021 compared with 2020.
Year-to-date 20202021 compared with year-to-date 20192020
Net interest revenue decreased 3%18% compared with the first ninesix months of 2019. The decrease would have been 3% larger due to the impact of the third quarter 2019 lease-related impairment of $70 million. The decrease is2020, primarily driven by lower interest rates on interest-earning assets, partially offset by the benefit of lower deposit and funding rates, higher deposits,a larger securities portfolio, higher deposit balances and loanlower debt balances. The decrease in the net interest margin primarily reflects the factors mentioned above.
Average interest-earning assets increased 20%15% compared with the first ninesix months of 2019.2020. The increase primarily reflects a larger securities portfolio and higher interest-bearing deposits with the Federal Reserve and other central banks.banks and a larger securities portfolio.
| | Average balances and interest rates | Average balances and interest rates | Quarter ended | Average balances and interest rates | Quarter ended |
| | Sept. 30, 2020 | | | June 30, 2020 | | Sept. 30, 2019 | | June 30, 2021 | | | March 31, 2021 | | June 30, 2020 |
| (dollars in millions; average rates annualized) | (dollars in millions; average rates annualized) | Average
balance | Interest | Average
rates | | | Average
balance | Interest | | Average
rates | | Average balance | Interest | | Average rates | | (dollars in millions; average rates annualized) | Average
balance | Interest | Average
rates | | | Average
balance | Interest | | Average
rates | | Average balance | Interest | | Average rates |
| Assets | Assets | | | | | | | | Assets | | | | | | | |
| Interest-earning assets: | Interest-earning assets: | | | | | | | | Interest-earning assets: | | | | | | | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 90,670 | | $ | (10) | | (0.04) | % | | | $ | 94,229 | | $ | (7) | | | (0.03) | % | | $ | 60,030 | | $ | 102 | | | 0.67 | % | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 114,564 | | $ | (25) | | (0.09) | % | | | $ | 125,930 | | $ | (16) | | | (0.05) | % | | $ | 94,229 | | $ | (7) | | | (0.03) | % |
| Interest-bearing deposits with banks (primarily foreign banks) | Interest-bearing deposits with banks (primarily foreign banks) | 19,202 | | 20 | | 0.42 | | | | 21,093 | | 40 | | | 0.76 | | | 15,324 | | 73 | | | 1.89 | | | Interest-bearing deposits with banks (primarily foreign banks) | 22,465 | | 11 | | 0.20 | | | | 21,313 | | 14 | | | 0.27 | | | 21,093 | | 40 | | | 0.76 | |
Federal funds sold and securities purchased under resale agreements (a) | Federal funds sold and securities purchased under resale agreements (a) | 30,342 | | 48 | | 0.63 | | | | 30,265 | | 61 | | | 0.82 | | | 40,816 | | 660 | | | 6.42 | | | Federal funds sold and securities purchased under resale agreements (a) | 27,857 | | 25 | | 0.36 | | | | 29,186 | | 32 | | | 0.44 | | | 30,265 | | 61 | | | 0.82 | |
| Margin loans | Margin loans | 12,870 | | 41 | | 1.24 | | | | 12,791 | | 40 | | | 1.28 | | | 10,303 | | 104 | | | 4.02 | | | Margin loans | 18,995 | | 49 | | 1.04 | | | | 15,891 | | 45 | | | 1.14 | | | 12,791 | | 40 | | | 1.28 | |
| Non-margin loans: | Non-margin loans: | | | | | | | | Non-margin loans: | | | | | | | |
| Domestic offices | Domestic offices | 30,053 | | 160 | | 2.12 | | | | 31,185 | | 172 | | | 2.21 | | | 29,285 | | 202 | | | 2.75 | | (b) | Domestic offices | 36,455 | | 173 | | 1.90 | | | | 31,218 | | 157 | | | 2.02 | | | 31,185 | | 172 | | | 2.21 | |
| Foreign offices | Foreign offices | 10,693 | | 39 | | 1.45 | | | | 12,743 | | 58 | | | 1.84 | | | 11,247 | | 85 | | | 2.97 | | | Foreign offices | 5,070 | | 15 | | 1.14 | | | | 9,680 | | 28 | | | 1.18 | | | 12,743 | | 58 | | | 1.84 | |
| Total non-margin loans | Total non-margin loans | 40,746 | | 199 | | 1.94 | | | | 43,928 | | 230 | | | 2.10 | | | 40,532 | | 287 | | | 2.81 | | (b) | Total non-margin loans | 41,525 | | 188 | | 1.81 | | | | 40,898 | | 185 | | | 1.82 | | | 43,928 | | 230 | | | 2.10 | |
| Securities: | Securities: | | | | | | | | Securities: | | | | | | | |
U.S. government obligations | U.S. government obligations | 30,073 | | 102 | | 1.36 | | | | 27,901 | | 105 | | | 1.52 | | | 19,315 | | 103 | | | 2.11 | | | U.S. government obligations | 33,212 | | 59 | | 0.71 | | | | 28,759 | | 63 | | | 0.90 | | | 27,901 | | 75 | | | 1.08 | |
U.S. government agency obligations | U.S. government agency obligations | 78,300 | | 328 | | 1.68 | | | | 74,583 | | 358 | | | 1.92 | | | 67,235 | | 418 | | | 2.49 | | | U.S. government agency obligations | 72,809 | | 244 | | 1.34 | | | | 77,623 | | 271 | | | 1.40 | | | 74,583 | | 341 | | | 1.83 | |
State and political subdivisions (c) | 1,500 | | 9 | | 2.51 | | | | 1,025 | | 7 | | | 2.98 | | | 1,217 | | 9 | | | 3.05 | | | |
Other securities (c) | 46,719 | | 69 | | 0.59 | | | | 45,511 | | 93 | | | 0.82 | | | 33,729 | | 148 | | | 1.75 | | | |
State and political subdivisions (b)(c) | | State and political subdivisions (b)(c) | 2,768 | | 14 | | 1.94 | | | | 2,526 | | 12 | | | 1.92 | | | 1,025 | | 7 | | | 2.98 | |
Other securities (b)(c) | | Other securities (b)(c) | 47,451 | | 112 | | 0.95 | | | | 47,030 | | 116 | | | 0.99 | | | 45,511 | | 140 | | | 1.23 | |
Total investment securities (c) | | Total investment securities (c) | 156,240 | | 429 | | 1.10 | | | | 155,938 | | 462 | | | 1.19 | | | 149,020 | | 563 | | | 1.51 | |
Trading securities (c) | Trading securities (c) | 7,212 | | 16 | | 0.91 | | | | 6,236 | | 18 | | | 1.13 | | | 5,653 | | 41 | | | 2.80 | | | Trading securities (c) | 6,639 | | 11 | | 0.72 | | | | 8,141 | | 19 | | | 0.95 | | | 6,236 | | 18 | | | 1.13 | |
Total securities (c) | Total securities (c) | 163,804 | | 524 | | 1.28 | | | | 155,256 | | 581 | | | 1.50 | | | 127,149 | | 719 | | | 2.25 | | | Total securities (c) | 162,879 | | 440 | | 1.08 | | | | 164,079 | | 481 | | | 1.18 | | | 155,256 | | 581 | | | 1.50 | |
Total interest-earning assets (c) | Total interest-earning assets (c) | $ | 357,634 | | $ | 822 | | 0.92 | % | | | $ | 357,562 | | $ | 945 | | | 1.06 | % | | $ | 294,154 | | $ | 1,945 | | | 2.63 | % | (b) | Total interest-earning assets (c) | $ | 388,285 | | $ | 688 | | 0.71 | % | | | $ | 397,297 | | $ | 741 | | | 0.75 | % | | $ | 357,562 | | $ | 945 | | | 1.06 | % |
| Noninterest-earning assets | Noninterest-earning assets | 57,231 | | | | | 57,797 | | | | | 56,525 | | | | | Noninterest-earning assets | 64,044 | | | | | 63,082 | | | | | 57,797 | | | | |
| Total assets | Total assets | $ | 414,865 | | | | | $ | 415,359 | | | | | $ | 350,679 | | | | | Total assets | $ | 452,329 | | | | | $ | 460,379 | | | | | $ | 415,359 | | | | |
| Liabilities | Liabilities | | | | | | | | Liabilities | | | | | | | |
| Interest-bearing liabilities: | Interest-bearing liabilities: | | | | | | | | Interest-bearing liabilities: | | | | | | | |
| Interest-bearing deposits: | Interest-bearing deposits: | | | | | | | | Interest-bearing deposits: | | | | | | | |
| Domestic offices | Domestic offices | $ | 102,767 | | $ | (4) | | (0.01) | % | | | $ | 102,135 | | $ | 15 | | | 0.06 | % | | $ | 82,663 | | $ | 267 | | | 1.28 | % | | Domestic offices | $ | 126,953 | | $ | (8) | | (0.02) | % | | | $ | 128,543 | | $ | (7) | | | (0.02) | % | | $ | 102,135 | | $ | 15 | | | 0.06 | % |
| Foreign offices | Foreign offices | 108,733 | | (25) | | (0.09) | | | | 108,508 | | (32) | | | (0.12) | | | 94,738 | | 170 | | | 0.71 | | | Foreign offices | 112,513 | | (41) | | (0.15) | | | | 116,572 | | (30) | | | (0.10) | | | 108,508 | | (32) | | | (0.12) | |
| Total interest-bearing deposits | Total interest-bearing deposits | 211,500 | | (29) | | (0.05) | | | | 210,643 | | (17) | | | (0.03) | | | 177,401 | | 437 | | | 0.98 | | | Total interest-bearing deposits | 239,466 | | (49) | | (0.08) | | | | 245,115 | | (37) | | | (0.06) | | | 210,643 | | (17) | | | (0.03) | |
Federal funds purchased and securities sold under repurchase agreements (a) | Federal funds purchased and securities sold under repurchase agreements (a) | 16,850 | | 6 | | 0.13 | | | | 14,209 | | 1 | | | 0.03 | | | 13,432 | | 443 | | | 13.08 | | | Federal funds purchased and securities sold under repurchase agreements (a) | 13,773 | | (5) | | (0.17) | | | | 15,288 | | (3) | | | (0.07) | | | 14,209 | | 1 | | | 0.03 | |
| Trading liabilities | Trading liabilities | 2,692 | | 2 | | 0.30 | | | | 1,974 | | 2 | | | 0.39 | | | 1,371 | | 8 | | | 2.33 | | | Trading liabilities | 2,282 | | 2 | | 0.38 | | | | 2,227 | | 3 | | | 0.53 | | | 1,974 | | 2 | | | 0.39 | |
| Other borrowed funds | Other borrowed funds | 873 | | 3 | | 1.40 | | | | 2,272 | | 7 | | | 1.30 | | | 1,148 | | 10 | | | 3.24 | | | Other borrowed funds | 298 | | 1 | | 2.21 | | | | 331 | | 2 | | | 2.01 | | | 2,272 | | 7 | | | 1.30 | |
| Commercial paper | Commercial paper | 2,274 | | — | | 0.09 | | | | 191 | | 1 | | | 1.02 | | | 3,796 | | 22 | | | 2.26 | | | Commercial paper | — | | — | | — | | | | — | | — | | | — | | | 191 | | 1 | | | 1.02 | |
| Payables to customers and broker-dealers | Payables to customers and broker-dealers | 18,501 | | — | | (0.01) | | | | 18,742 | | (1) | | | (0.01) | | | 15,440 | | 59 | | | 1.52 | | | Payables to customers and broker-dealers | 16,811 | | — | | (0.01) | | | | 17,691 | | (1) | | | (0.01) | | | 18,742 | | (1) | | | (0.01) | |
| Long-term debt | Long-term debt | 26,511 | | 135 | | 2.01 | | | | 28,122 | | 170 | | | 2.42 | | | 28,386 | | 233 | | | 3.24 | | | Long-term debt | 25,275 | | 91 | | 1.43 | | | | 26,199 | | 119 | | | 1.81 | | | 28,122 | | 170 | | | 2.42 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 279,201 | | $ | 117 | | 0.16 | % | | | $ | 276,153 | | $ | 163 | | | 0.24 | % | | $ | 240,974 | | $ | 1,212 | | | 1.99 | % | | Total interest-bearing liabilities | $ | 297,905 | | $ | 40 | | 0.05 | % | | | $ | 306,851 | | $ | 83 | | | 0.11 | % | | $ | 276,153 | | $ | 163 | | | 0.24 | % |
| Total noninterest-bearing deposits | Total noninterest-bearing deposits | 67,610 | | | | | 72,411 | | | | | 49,027 | | | | | Total noninterest-bearing deposits | 85,802 | | | | | 83,429 | | | | | 72,411 | | | | |
| Other noninterest-bearing liabilities | Other noninterest-bearing liabilities | 23,393 | | | | | 24,121 | | | | | 19,280 | | | | | Other noninterest-bearing liabilities | 23,317 | | | | | 24,556 | | | | | 24,121 | | | | |
| Total liabilities | Total liabilities | 370,204 | | | | | 372,685 | | | | | 309,281 | | | | | Total liabilities | 407,024 | | | | | 414,836 | | | | | 372,685 | | | | |
| Temporary equity | Temporary equity | | | | | | | | Temporary equity | | | | | | | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 82 | | | | | 74 | | | | | 64 | | | | | Redeemable noncontrolling interests | 57 | | | | | 85 | | | | | 74 | | | | |
| Permanent equity | Permanent equity | | | | | | | | Permanent equity | | | | | | | |
| Total The Bank of New York Mellon Corporation shareholders’ equity | Total The Bank of New York Mellon Corporation shareholders’ equity | 44,456 | | | | | 42,486 | | | | | 41,139 | | | | | Total The Bank of New York Mellon Corporation shareholders’ equity | 44,934 | | | | | 45,261 | | | | | 42,486 | | | | |
| Noncontrolling interests | Noncontrolling interests | 123 | | | | | 114 | | | | | 195 | | | | | Noncontrolling interests | 314 | | | | | 197 | | | | | 114 | | | | |
| Total permanent equity | Total permanent equity | 44,579 | | | | | 42,600 | | | | | 41,334 | | | | | Total permanent equity | 45,248 | | | | | 45,458 | | | | | 42,600 | | | | |
| Total liabilities, temporary equity and permanent equity | Total liabilities, temporary equity and permanent equity | $ | 414,865 | | | | | $ | 415,359 | | | | | $ | 350,679 | | | | | Total liabilities, temporary equity and permanent equity | $ | 452,329 | | | | | $ | 460,379 | | | | | $ | 415,359 | | | | |
Net interest revenue (FTE) – Non-GAAP (d) | Net interest revenue (FTE) – Non-GAAP (d) | | $ | 705 | | | | | $ | 782 | | | | $ | 733 | | | | Net interest revenue (FTE) – Non-GAAP (d) | | $ | 648 | | | | | $ | 658 | | | | $ | 782 | | | |
Net interest margin (FTE) – Non-GAAP (c)(d) | Net interest margin (FTE) – Non-GAAP (c)(d) | | 0.79 | % | | | | 0.88 | % | | | 1.00 | % | (b) | Net interest margin (FTE) – Non-GAAP (c)(d) | | 0.67 | % | | | | 0.67 | % | | | 0.88 | % |
Less: Tax equivalent adjustment (c) | | 2 | | | | | 2 | | | | 3 | | | | |
| Less: Tax equivalent adjustment | | Less: Tax equivalent adjustment | | 3 | | | | | 3 | | | | 2 | | | |
| Net interest revenue – GAAP | Net interest revenue – GAAP | | $ | 703 | | | | | $ | 780 | | | | $ | 730 | | | | Net interest revenue – GAAP | | $ | 645 | | | | | $ | 655 | | | | $ | 780 | | | |
| Net interest margin – GAAP | Net interest margin – GAAP | | 0.79 | % | | | | 0.88 | % | | | 0.99 | % | (b) | Net interest margin – GAAP | | 0.67 | % | | | | 0.66 | % | | | 0.88 | % |
(a) Includes the average impact of offsetting under enforceable netting agreements of approximately $43$41 billion for the thirdsecond quarter of 2020,2021, $37 billion for the first quarter of 2021 and $67 billion for the second quarter of 2020 and $68 billion for the third quarter of 2019.2020. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.15% for the second quarter of 2021, 0.19% for the first quarter of 2021 and 0.26% for the third quarter of 2020 and second quarter of 2020 and 2.42% for the third quarter of 2019.2020. On a Non-GAAP basis, excluding the impact of offsetting, the rate on federal funds purchased and securities sold under repurchase agreements would have been 0.04%(0.04)% for the thirdsecond quarter of 2020,2021, (0.02)% for the first quarter of 2021 and 0.00% for the second quarter of 2020 and 2.17% for the third quarter of 2019.2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.
(b) IncludesIn the second quarter of 2021, we reclassified the impact of hedging within the lease-related impairmentcategories comprising total investment securities to align the impact of $70 million. On a Non-GAAP basis, excludinghedging with the lease-related impairment,securities being hedged and reclassified prior periods to be comparable. The change reduced the yield on non-margin loans in domestic offices would have been 3.70%,income and average rates previously reported for U.S. government obligations and U.S. government agency obligations and increased the yield on total non-margin loans would have been 3.50%, the yield on total interest-earning assets would have been 2.72%income and the net interest margin and the net interest margin (FTE) – Non-GAAP would have been 1.09%. We believe providing theaverage rates excluding the lease-related impairment is useful to investors as it is more reflective of the actual rates earned.for Other securities.
(c) Average rates were calculated on an FTE basis, at tax rates of approximately 21%.
(d) See “Net interest revenue” on page 1011 for the reconciliation of this Non-GAAP measure.
| | Average balances and interest rates | Average balances and interest rates | Year-to-date | Average balances and interest rates | Year-to-date |
| | Sept. 30, 2020 | | Sept. 30, 2019 | | June 30, 2021 | | June 30, 2020 |
| (dollars in millions; average rates annualized) | (dollars in millions; average rates annualized) | Average balance | Interest | Average rates | | Average balance | Interest | Average rates | | (dollars in millions; average rates annualized) | Average balance | Interest | Average rates | | Average balance | Interest | Average rates |
| Assets | Assets | | Assets | |
| Interest-earning assets: | Interest-earning assets: | | Interest-earning assets: | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 88,442 | | $ | 63 | | 0.09 | % | | $ | 61,777 | | $ | 354 | | 0.75 | % | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 120,216 | | $ | (41) | | (0.07) | % | | $ | 87,316 | | $ | 73 | | 0.16 | % |
| Interest-bearing deposits with banks (primarily foreign banks) | Interest-bearing deposits with banks (primarily foreign banks) | 19,126 | | 118 | | 0.83 | | | 14,288 | | 200 | | 1.87 | | | Interest-bearing deposits with banks (primarily foreign banks) | 21,892 | | 25 | | 0.24 | | | 19,087 | | 98 | | 1.03 | |
Federal funds sold and securities purchased under resale agreements (a) | Federal funds sold and securities purchased under resale agreements (a) | 31,567 | | 505 | | 2.14 | | | 35,984 | | 1,702 | | 6.32 | | | Federal funds sold and securities purchased under resale agreements (a) | 28,518 | | 57 | | 0.40 | | | 32,187 | | 457 | | 2.86 | |
| Margin loans | Margin loans | 12,882 | | 168 | | 1.74 | | | 11,289 | | 358 | | 4.25 | | | Margin loans | 17,452 | | 94 | | 1.09 | | | 12,887 | | 127 | | 1.99 | |
| Non-margin loans: | Non-margin loans: | | Non-margin loans: | |
| Domestic offices | Domestic offices | 30,983 | | 570 | | 2.45 | | | 28,989 | | 755 | | 3.48 | | (b) | Domestic offices | 33,851 | | 330 | | 1.96 | | | 31,453 | | 410 | | 2.62 | |
| Foreign offices | Foreign offices | 11,532 | | 168 | | 1.95 | | | 10,576 | | 252 | | 3.18 | | | Foreign offices | 7,362 | | 43 | | 1.17 | | | 11,956 | | 129 | | 2.17 | |
| Total non-margin loans | Total non-margin loans | 42,515 | | 738 | | 2.32 | | | 39,565 | | 1,007 | | 3.40 | | (b) | Total non-margin loans | 41,213 | | 373 | | 1.82 | | | 43,409 | | 539 | | 2.49 | |
| Securities: | Securities: | | Securities: | |
U.S. government obligations | U.S. government obligations | 27,061 | | 316 | | 1.56 | | | 20,578 | | 335 | | 2.17 | | | U.S. government obligations | 30,998 | | 122 | | 0.80 | | | 25,538 | | 139 | | 1.10 | |
U.S. government agency obligations | U.S. government agency obligations | 73,992 | | 1,086 | | 1.96 | | | 66,191 | | 1,273 | | 2.56 | | | U.S. government agency obligations | 75,202 | | 515 | | 1.37 | | | 71,815 | | 728 | | 2.03 | |
State and political subdivisions (c) | 1,187 | | 24 | | 2.80 | | | 1,716 | | 37 | | 2.86 | | | |
Other securities (c) | 42,883 | | 247 | | 0.77 | | | 31,068 | | 456 | | 1.96 | | | |
State and political subdivisions (b)(c) | | State and political subdivisions (b)(c) | 2,648 | | 26 | | 1.93 | | | 1,029 | | 15 | | 3.02 | |
Other securities (b)(c) | | Other securities (b)(c) | 47,242 | | 228 | | 0.97 | | | 40,943 | | 283 | | 1.38 | |
Total investment securities (c) | | Total investment securities (c) | 156,090 | | 891 | | 1.14 | | | 139,325 | | 1,165 | | 1.67 | |
Trading securities (c) | Trading securities (c) | 6,763 | | 74 | | 1.46 | | | 5,508 | | 116 | | 2.80 | | | Trading securities (c) | 7,385 | | 30 | | 0.85 | | | 6,538 | | 58 | | 1.77 | |
Total securities (c) | Total securities (c) | 151,886 | | 1,747 | | 1.53 | | | 125,061 | | 2,217 | | 2.37 | | | Total securities (c) | 163,475 | | 921 | | 1.13 | | | 145,863 | | 1,223 | | 1.68 | |
Total interest-earning assets (c) | Total interest-earning assets (c) | $ | 346,418 | | $ | 3,339 | | 1.29 | % | | $ | 287,964 | | $ | 5,838 | | 2.71 | % | (b) | Total interest-earning assets (c) | $ | 392,766 | | $ | 1,429 | | 0.73 | % | | $ | 340,749 | | $ | 2,517 | | 1.48 | % |
| Noninterest-earning assets | Noninterest-earning assets | 58,785 | | | 55,165 | | | Noninterest-earning assets | 63,566 | | | 59,569 | | |
| Total assets | Total assets | $ | 405,203 | | | $ | 343,129 | | | Total assets | $ | 456,332 | | | $ | 400,318 | | |
| Liabilities | Liabilities | | Liabilities | |
| Interest-bearing liabilities: | Interest-bearing liabilities: | | Interest-bearing liabilities: | |
| Interest-bearing deposits: | Interest-bearing deposits: | | Interest-bearing deposits: | |
| Domestic offices | Domestic offices | $ | 101,610 | | $ | 181 | | 0.24 | % | | $ | 75,846 | | $ | 742 | | 1.31 | % | | Domestic offices | $ | 127,744 | | $ | (15) | | (0.02) | % | | $ | 101,025 | | $ | 185 | | 0.37 | % |
| Foreign offices | Foreign offices | 105,000 | | 13 | | 0.02 | | | 92,493 | | 518 | | 0.75 | | | Foreign offices | 114,531 | | (71) | | (0.13) | | | 103,113 | | 38 | | 0.07 | |
| Total interest-bearing deposits | Total interest-bearing deposits | 206,610 | | 194 | | 0.13 | | | 168,339 | | 1,260 | | 1.00 | | | Total interest-bearing deposits | 242,275 | | (86) | | (0.07) | | | 204,138 | | 223 | | 0.22 | |
Federal funds purchased and securities sold under repurchase agreements (a) | Federal funds purchased and securities sold under repurchase agreements (a) | 15,000 | | 282 | | 2.51 | | | 12,393 | | 1,146 | | 12.36 | | | Federal funds purchased and securities sold under repurchase agreements (a) | 14,526 | | (8) | | (0.12) | | | 14,064 | | 276 | | 3.95 | |
| Trading liabilities | Trading liabilities | 2,099 | | 11 | | 0.66 | | | 1,470 | | 26 | | 2.36 | | | Trading liabilities | 2,255 | | 5 | | 0.45 | | | 1,800 | | 9 | | 0.94 | |
| Other borrowed funds | Other borrowed funds | 1,286 | | 14 | | 1.50 | | | 2,295 | | 54 | | 3.11 | | | Other borrowed funds | 314 | | 3 | | 2.11 | | | 1,495 | | 11 | | 1.53 | |
| Commercial paper | Commercial paper | 1,352 | | 7 | | 0.70 | | | 2,718 | | 48 | | 2.35 | | | Commercial paper | — | | — | | — | | | 886 | | 7 | | 1.50 | |
| Payables to customers and broker-dealers | Payables to customers and broker-dealers | 17,879 | | 29 | | 0.22 | | | 15,736 | | 198 | | 1.68 | | | Payables to customers and broker-dealers | 17,249 | | (1) | | (0.01) | | | 17,564 | | 29 | | 0.33 | |
| Long-term debt | Long-term debt | 27,285 | | 499 | | 2.43 | | | 28,108 | | 722 | | 3.40 | | | Long-term debt | 25,734 | | 210 | | 1.63 | | | 27,677 | | 364 | | 2.62 | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | $ | 271,511 | | $ | 1,036 | | 0.51 | % | | $ | 231,059 | | $ | 3,454 | | 1.99 | % | | Total interest-bearing liabilities | $ | 302,353 | | $ | 123 | | 0.08 | % | | $ | 267,624 | | $ | 919 | | 0.69 | % |
| Total noninterest-bearing deposits | Total noninterest-bearing deposits | 66,869 | | | 52,168 | | | Total noninterest-bearing deposits | 84,622 | | | 66,494 | | |
| Other noninterest-bearing liabilities | Other noninterest-bearing liabilities | 23,913 | | | 18,760 | | | Other noninterest-bearing liabilities | 23,933 | | | 24,174 | | |
| Total liabilities | Total liabilities | 362,293 | | | 301,987 | | | Total liabilities | 410,908 | | | 358,292 | | |
| Temporary equity | Temporary equity | | Temporary equity | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 74 | | | 65 | | | Redeemable noncontrolling interests | 71 | | | 70 | | |
| Permanent equity | Permanent equity | | Permanent equity | |
| Total The Bank of New York Mellon Corporation shareholders’ equity | Total The Bank of New York Mellon Corporation shareholders’ equity | 42,722 | | | 40,934 | | | Total The Bank of New York Mellon Corporation shareholders’ equity | 45,097 | | | 41,846 | | |
| Noncontrolling interests | Noncontrolling interests | 114 | | | 143 | | | Noncontrolling interests | 256 | | | 110 | | |
| Total permanent equity | Total permanent equity | 42,836 | | | 41,077 | | | Total permanent equity | 45,353 | | | 41,956 | | |
| Total liabilities, temporary equity and permanent equity | Total liabilities, temporary equity and permanent equity | $ | 405,203 | | | $ | 343,129 | | | Total liabilities, temporary equity and permanent equity | $ | 456,332 | | | $ | 400,318 | | |
Net interest revenue (FTE) – Non-GAAP (d) | Net interest revenue (FTE) – Non-GAAP (d) | | $ | 2,303 | | | $ | 2,384 | | | Net interest revenue (FTE) – Non-GAAP (d) | | $ | 1,306 | | | $ | 1,598 | | |
Net interest margin (FTE) – Non-GAAP (c)(d) | Net interest margin (FTE) – Non-GAAP (c)(d) | | 0.89 | % | | 1.11 | % | (b) | Net interest margin (FTE) – Non-GAAP (c)(d) | | 0.67 | % | | 0.94 | % |
Less: Tax equivalent adjustment (c) | | 6 | | | 11 | | | |
| Less: Tax equivalent adjustment | | Less: Tax equivalent adjustment | | 6 | | | 4 | | |
| Net interest revenue – GAAP | Net interest revenue – GAAP | | $ | 2,297 | | | $ | 2,373 | | | Net interest revenue – GAAP | | $ | 1,300 | | | $ | 1,594 | | |
| Net interest margin – GAAP | Net interest margin – GAAP | | 0.89 | % | | 1.10 | % | (b) | Net interest margin – GAAP | | 0.67 | % | | 0.94 | % |
(a) Includes the average impact of offsetting under enforceable netting agreements of approximately $63$39 billion for the first ninesix months of 20202021 and $54$73 billion for the first ninesix months of 2019.2020. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.71%0.17% for the first ninesix months of 20202021 and 2.52%0.87% for the first ninesix months of 2019.2020. On a Non-GAAP basis, excluding the impact of offsetting, the rate on federal funds purchased and securities sold under repurchase agreements would have been 0.48%(0.03)% for the first ninesix months of 20202021 and 2.30%0.64% for the first ninesix months of 2019.2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.
(b) IncludesIn the second quarter of 2021, we reclassified the impact of hedging within the lease-related impairmentcategories comprising total investment securities to align the impact of $70 million. On a Non-GAAP basis, excludinghedging with the lease-related impairment,securities being hedged and reclassified prior periods to be comparable. The change reduced the yield on non-margin loans in domestic offices would have been 3.80%,income and average rates previously reported for U.S. government obligations and U.S. government agency obligations and increased the yield on total non-margin loans would have been 3.64%, the yield on total interest-earning assets would have been 2.74%, the net interest margin would have been 1.13%income and the net interest margin (FTE) – Non-GAAP would have been 1.14%. We believe providing theaverage rates excluding the lease-related impairment is useful to investors as it is more reflective of the actual rates earned.for Other securities.
(c) Average rates were calculated on an FTE basis, at tax rates of approximately 21%.
(d) See “Net interest revenue” on page 1011 for the reconciliation of this Non-GAAP measure.
Noninterest expense
| | Noninterest expense | Noninterest expense | | | YTD20 | | Noninterest expense | | | YTD21 | |
| | 3Q20 vs. | | | vs. | | | 2Q21 vs. | | | vs. | |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 3Q19 | 2Q20 | 3Q19 | | YTD20 | YTD19 | | YTD19 | | (dollars in millions) | 2Q21 | 1Q21 | 2Q20 | 1Q21 | 2Q20 | | YTD21 | YTD20 | | YTD20 | |
| Staff | Staff | $ | 1,466 | | $ | 1,464 | | $ | 1,479 | | — | % | (1) | % | | $ | 4,412 | | $ | 4,424 | | | — | % | | Staff | $ | 1,518 | | $ | 1,602 | | $ | 1,464 | | (5) | % | 4 | % | | $ | 3,120 | | $ | 2,946 | | | 6 | % | |
| Software and equipment | | Software and equipment | 365 | | 362 | | 345 | | 1 | | 6 | | | 727 | | 671 | | | 8 | | |
| Professional, legal and other purchased services | Professional, legal and other purchased services | 355 | | 337 | | 316 | | 5 | | 12 | | | 1,022 | | 978 | | | 4 | | | Professional, legal and other purchased services | 363 | | 343 | | 337 | | 6 | | 8 | | | 706 | | 667 | | | 6 | | |
| Software and equipment | 340 | | 345 | | 309 | | (1) | | 10 | | | 1,011 | | 896 | | | 13 | | | |
| Sub-custodian and clearing | | Sub-custodian and clearing | 132 | | 124 | | 120 | | 6 | | 10 | | | 256 | | 225 | | | 14 | | |
| Net occupancy | Net occupancy | 136 | | 137 | | 138 | | (1) | | (1) | | | 408 | | 413 | | | (1) | | | Net occupancy | 122 | | 123 | | 137 | | (1) | | (11) | | | 245 | | 272 | | | (10) | | |
| Sub-custodian and clearing | 119 | | 120 | | 111 | | (1) | | 7 | | | 344 | | 331 | | | 4 | | | |
| Distribution and servicing | Distribution and servicing | 85 | | 85 | | 97 | | — | | (12) | | | 261 | | 282 | | | (7) | | | Distribution and servicing | 73 | | 74 | | 85 | | (1) | | (14) | | | 147 | | 176 | | | (16) | | |
| Bank assessment charges | Bank assessment charges | 30 | | 35 | | 31 | | (14) | | (3) | | | 100 | | 93 | | | 8 | | | Bank assessment charges | 35 | | 34 | | 35 | | 3 | | — | | | 69 | | 70 | | | (1) | | |
| Amortization of intangible assets | | Amortization of intangible assets | 20 | | 24 | | 26 | | (17) | | (23) | | | 44 | | 52 | | | (15) | | |
| Business development | Business development | 17 | | 20 | | 47 | | (15) | | (64) | | | 79 | | 148 | | | (47) | | | Business development | 22 | | 19 | | 20 | | 16 | | 10 | | | 41 | | 62 | | | (34) | | |
| Amortization of intangible assets | 26 | | 26 | | 30 | | — | | (13) | | | 78 | | 89 | | | (12) | | | |
| Other | Other | 107 | | 117 | | 32 | | (9) | | 234 | | | 364 | | 282 | | | 29 | | | Other | 128 | | 146 | | 117 | | (12) | | 9 | | | 274 | | 257 | | | 7 | | |
| Total noninterest expense | Total noninterest expense | $ | 2,681 | | $ | 2,686 | | $ | 2,590 | | — | % | 4 | % | | $ | 8,079 | | $ | 7,936 | | | 2 | % | | Total noninterest expense | $ | 2,778 | | $ | 2,851 | | $ | 2,686 | | (3) | % | 3 | % | | $ | 5,629 | | $ | 5,398 | | | 4 | % | |
| | Full-time employees at period end | Full-time employees at period end | 48,600 | | 48,300 | | 48,700 | | 1 | % | — | % | | | | | Full-time employees at period end | 48,800 | | 48,000 | | 48,300 | | 2 | % | 1 | % | | 48,800 | | 48,300 | | | 1 | % | |
Total noninterest expense increased 4% compared with the third quarter of 2019 and decreased slightly3% compared with the second quarter of 2020. The increase2020 and decreased 3% compared with the thirdfirst quarter of 2019 primarily reflects a reduction of previously established reserves for a tax-related exposure of certain investment management funds that we manage, net of staff expense.2021. The increase compared with the third quarter of 2019 also reflects continued investments in technology, higher professional, legal and other purchased services expense and the unfavorable impact of a weaker U.S. dollar, partially offset by lower staff and business development (travel and marketing) expenses. The investments in technology are included in staff, professional, legal and other purchased services, and software and equipment expenses. The slight decrease compared with the second quarter of 2020 primarily reflects decreasesthe unfavorable impact of a weaker U.S. dollar, investments in mostefficiency and growth initiatives and higher revenue-related expenses. The investments in efficiency and growth initiatives are primarily included in staff, software and equipment, and professional, legal and other purchased services expenses. The decrease compared with the first quarter of 2021 primarily reflects lower staff expense categories,driven by increased expense for awards to retirement eligible employees recorded in the first quarter of 2021.
We expect total reported noninterest expense to increase approximately 3% for the full-year 2021 compared to 2020. This is driven by an unfavorable impact of foreign exchange rates, incremental investments in growth and efficiency opportunities and higher volume- and revenue-related expenses, partially offset by the impact of 2020 notable items, which were litigation expense, severance and real estate charges. Notable items comprised 1% of total noninterest expense in 2020. Noninterest expense could be impacted if foreign exchange rates change from June 30, 2021 levels, volume- and revenue-related expenses increase or there are unexpected charges or expenses.
Year-to-date 2021 compared with year-to-date 2020
Noninterest expense increased 4% compared with the first six months of 2020, primarily reflecting investments in efficiency and growth initiatives, the unfavorable impact of a weaker U.S. dollar and higher professional, legal and other purchased services expense.
Our investments in technology infrastructure and platforms are expected to continue. As a result, we expect to incur higher technology-relatedrevenue-related expenses, in 2020 than in 2019 and higher pension expense as a result of a lower expected rate of return on plan assets. These increases are expected to be offset by decreases in other expenses as we continue to manage overall expenses.
Year-to-date 2020 compared with year-to-date 2019
Noninterest expense increased 2% compared with the first nine months of 2019, primarily reflecting continued investments in technology and a reduction of previously established reserves for a tax-related exposure of certain investment management funds that we manage, net of staff expense recorded in 2019, partially offset by lower distribution and servicing, net occupancy and business development (travel and marketing) expense.expenses.
Income taxes
BNY Mellon recorded an income tax provision of $213$241 million (18.4%(19.0% effective tax rate) in the thirdsecond quarter of 2020, $246 million (19.1% effective tax rate) in the third quarter of 2019 and2021, $216 million (18.3% effective tax rate) in the second quarter of 2020.2020 and $221 million (19.2% effective tax rate) in the first quarter of 2021. For additional information, see Note 1110 of the Notes to Consolidated Financial Statements.
Review of businesses
We have an internal information system that produces performance data along product and service lines for our two principal businesses, Investment Services and Investment and Wealth Management, and the Other segment.
Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles (“GAAP”) used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
For information on the accounting principles of our businesses, see Note 1918 of the Notes to Consolidated Financial Statements. For information on the primary products and services in each line of business, the primary types of revenue by business and how our businesses are presented and analyzed, see Note 24 of the Notes to Consolidated Financial Statements in our 20192020 Annual Report.
Business results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no significantreclassification or 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. The intersegment activity is eliminated 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 a corresponding decrease in the Wealth Management business. Prior periods were restated in the first quarter of 2020 for both reclassifications.2021.
The results of our businesses may be influenced by client and other activities that vary by quarter. In the first quarter, staff expense typically increases reflecting the vesting of long-term stock awards for retirement-eligible employees. In the third quarter, Depositary Receipts revenue is typically higher due to an increased level of client dividend payments. Also in the third quarter, volume-related fees may decline
due to reduced client activity, and staff expense typically increases reflecting the annual employee merit increase. In the fourth quarter, we typically incur higher business development and marketing expenses; however, 2020 is expected to be differentwas an exception given the impact of the coronavirus pandemic. In our Investment and Wealth Management business, performance fees are typically higher in the fourth and first quarters, as those quarters represent the end of the measurement period for many of the performance fee-eligible relationships.
The results of our businesses may also be impacted by the translation of financial results denominated in foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. On a consolidated basis and in our Investment Services business, we typically have more foreign currency-denominated expenses than revenues. However, our Investment and Wealth Management business typically has more foreign currency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment and Wealth Management business more than the Investment Services business. However, currency fluctuations, in isolation, are not expected to significantly impact net income on a consolidated basis.
Fee revenue in Investment and Wealth Management, and to a lesser extent in Investment Services, is impacted by the value of market indices. At Sept.June 30, 2020,2021, we estimated that a 5% change in global equity markets, spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.03$0.04 to $0.06.$0.07.
See Note 1918 of the Notes to Consolidated Financial Statements for the consolidating schedules which show the contribution of our businesses to our overall profitability.
Investment Services business
| | | | YTD20 | | | | YTD21 | |
| (dollars in millions) | (dollars in millions) | | 3Q20 vs. | | | vs. | | (dollars in millions) | | 2Q21 vs. | | | vs. | |
| 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 | | YTD20 | YTD19 | | YTD19 | | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 | | YTD21 | YTD20 | | | YTD20 | |
| Revenue: | Revenue: | | | | | Revenue: | | | | |
| Investment services fees: | Investment services fees: | | | | | Investment services fees: | | | | |
Asset servicing fees (a) | Asset servicing fees (a) | $ | 1,156 | | $ | 1,164 | | $ | 1,147 | | $ | 1,138 | | $ | 1,138 | | (1) | % | 2 | % | | $ | 3,467 | | $ | 3,375 | | | 3 | % | | Asset servicing fees (a) | $ | 1,192 | | $ | 1,191 | | $ | 1,130 | | $ | 1,156 | | $ | 1,164 | | — | % | 2 | % | | $ | 2,383 | | $ | 2,311 | | | | 3 | % | |
Clearing services fees (b) | Clearing services fees (b) | 397 | | 431 | | 470 | | 421 | | 419 | | (8) | | (5) | | | 1,298 | | 1,228 | | | 6 | | | Clearing services fees (b) | 435 | | 455 | | 418 | | 397 | | 431 | | (4) | | 1 | | | 890 | | 901 | | | | (1) | | |
| Issuer services fees | Issuer services fees | 295 | | 277 | | 263 | | 264 | | 324 | | 6 | | (9) | | | 835 | | 866 | | | (4) | | | Issuer services fees | 281 | | 245 | | 257 | | 295 | | 277 | | 15 | | 1 | | | 526 | | 540 | | | | (3) | | |
| Treasury services fees | Treasury services fees | 152 | | 144 | | 149 | | 147 | | 139 | | 6 | | 9 | | | 445 | | 411 | | | 8 | | | Treasury services fees | 160 | | 157 | | 156 | | 152 | | 144 | | 2 | | 11 | | | 317 | | 293 | | | | 8 | | |
| Total investment services fees | Total investment services fees | 2,000 | | 2,016 | | 2,029 | | 1,970 | | 2,020 | | (1) | | (1) | | | 6,045 | | 5,880 | | | 3 | | | Total investment services fees | 2,068 | | 2,048 | | 1,961 | | 2,000 | | 2,016 | | 1 | | 3 | | | 4,116 | | 4,045 | | | | 2 | | |
| Foreign exchange and other trading revenue | 146 | | 178 | | 261 | | 151 | | 160 | | (18) | | (9) | | | 585 | | 470 | | | 24 | | | |
| Foreign exchange revenue | | Foreign exchange revenue | 152 | | 193 | | 163 | | 126 | | 164 | | (21) | | (7) | | | 345 | | 392 | | (c) | | (12) | | |
Other (c)(d) | Other (c)(d) | 100 | | 145 | | 146 | | 115 | | 116 | | (31) | | (14) | | | 391 | | 340 | | | 15 | | | Other (c)(d) | 116 | | 104 | | 111 | | 120 | | 159 | | 12 | | (27) | | | 220 | | 338 | | (c) | | (35) | | |
| Total fee and other revenue | Total fee and other revenue | 2,246 | | 2,339 | | 2,436 | | 2,236 | | 2,296 | | (4) | | (2) | | | 7,021 | | 6,690 | | | 5 | | | Total fee and other revenue | 2,336 | | 2,345 | | 2,235 | | 2,246 | | 2,339 | | — | | — | | | 4,681 | | 4,775 | | | | (2) | | |
| Net interest revenue | Net interest revenue | 681 | | 768 | | 806 | | 778 | | 761 | | (11) | | (11) | | | 2,255 | | 2,348 | | | (4) | | | Net interest revenue | 643 | | 645 | | 670 | | 681 | | 768 | | — | | (16) | | | 1,288 | | 1,574 | | | | (18) | | |
| Total revenue | Total revenue | 2,927 | | 3,107 | | 3,242 | | 3,014 | | 3,057 | | (6) | | (4) | | | 9,276 | | 9,038 | | | 3 | | | Total revenue | 2,979 | | 2,990 | | 2,905 | | 2,927 | | 3,107 | | — | | (4) | | | 5,969 | | 6,349 | | | | (6) | | |
| Provision for credit losses | Provision for credit losses | (10) | | 145 | | 149 | | (5) | | (15) | | N/M | | 284 | | (11) | | | N/M | | Provision for credit losses | (77) | | (79) | | 31 | | (10) | | 145 | | N/M | | (156) | | 294 | | | | N/M | |
| Noninterest expense (excluding amortization of intangible assets) | Noninterest expense (excluding amortization of intangible assets) | 2,002 | | 1,971 | | 1,969 | | 2,160 | | 1,952 | | 2 | | 3 | | | 5,942 | | 5,856 | | | 1 | | | Noninterest expense (excluding amortization of intangible assets) | 2,040 | | 2,084 | | 2,157 | | 2,002 | | 1,971 | | (2) | | 4 | | | 4,124 | | 3,940 | | | | 5 | | |
| Amortization of intangible assets | Amortization of intangible assets | 18 | | 18 | | 18 | | 19 | | 21 | | — | | (14) | | | 54 | | 61 | | | (11) | | | Amortization of intangible assets | 12 | | 17 | | 17 | | 18 | | 18 | | (29) | | (33) | | | 29 | | 36 | | | | (19) | | |
| Total noninterest expense | Total noninterest expense | 2,020 | | 1,989 | | 1,987 | | 2,179 | | 1,973 | | 2 | | 2 | | | 5,996 | | 5,917 | | | 1 | | | Total noninterest expense | 2,052 | | 2,101 | | 2,174 | | 2,020 | | 1,989 | | (2) | | 3 | | | 4,153 | | 3,976 | | | | 4 | | |
| Income before income taxes | Income before income taxes | $ | 917 | | $ | 973 | | $ | 1,106 | | $ | 840 | | $ | 1,099 | | (6) | % | (17) | % | | $ | 2,996 | | $ | 3,132 | | | (4) | % | | Income before income taxes | $ | 1,004 | | $ | 968 | | $ | 700 | | $ | 917 | | $ | 973 | | 4 | % | 3 | % | | $ | 1,972 | | $ | 2,079 | | | | (5) | % | |
| | Pre-tax operating margin | Pre-tax operating margin | 31 | % | 31 | % | 34 | % | 28 | % | 36 | % | | 32 | % | 35 | % | | | | Pre-tax operating margin | 34 | % | 32 | % | 24 | % | 31 | % | 31 | % | | 33 | % | 33 | % | | | | |
| | Securities lending revenue | Securities lending revenue | $ | 37 | | $ | 51 | | $ | 46 | | $ | 40 | | $ | 39 | | (27) | % | (5) | % | | $ | 134 | | $ | 123 | | | 9 | % | | Securities lending revenue | $ | 42 | | $ | 41 | | $ | 36 | | $ | 37 | | $ | 51 | | 2 | % | (18) | % | | $ | 83 | | $ | 97 | | | | (14) | % | |
| Total revenue by line of business: | Total revenue by line of business: | | | | | Total revenue by line of business: | | | | |
| Asset Servicing | Asset Servicing | $ | 1,354 | | $ | 1,463 | | $ | 1,531 | | $ | 1,411 | | $ | 1,411 | | (7) | % | (4) | % | | $ | 4,348 | | $ | 4,223 | | | 3 | % | | Asset Servicing | $ | 1,382 | | $ | 1,424 | | $ | 1,357 | | $ | 1,354 | | $ | 1,463 | | (3) | % | (6) | % | | $ | 2,806 | | $ | 2,994 | | | | (6) | % | |
| Pershing | Pershing | 538 | | 578 | | 653 | | 579 | | 575 | | (7) | | (6) | | | 1,769 | | 1,708 | | | 4 | | | Pershing | 590 | | 605 | | 563 | | 538 | | 578 | | (2) | | 2 | | | 1,195 | | 1,231 | | | | (3) | | |
| Issuer Services | Issuer Services | 435 | | 431 | | 419 | | 415 | | 466 | | 1 | | (7) | | | 1,285 | | 1,308 | | | (2) | | | Issuer Services | 405 | | 363 | | 385 | | 435 | | 431 | | 12 | | (6) | | | 768 | | 850 | | | | (10) | | |
| Treasury Services | Treasury Services | 323 | | 340 | | 339 | | 329 | | 312 | | (5) | | 4 | | | 1,002 | | 946 | | | 6 | | | Treasury Services | 319 | | 317 | | 325 | | 323 | | 340 | | 1 | | (6) | | | 636 | | 679 | | | | (6) | | |
| Clearance and Collateral Management | Clearance and Collateral Management | 277 | | 295 | | 300 | | 280 | | 293 | | (6) | | (5) | | | 872 | | 853 | | | 2 | | | Clearance and Collateral Management | 283 | | 281 | | 275 | | 277 | | 295 | | 1 | | (4) | | | 564 | | 595 | | | | (5) | | |
| Total revenue by line of business | Total revenue by line of business | $ | 2,927 | | $ | 3,107 | | $ | 3,242 | | $ | 3,014 | | $ | 3,057 | | (6) | % | (4) | % | | $ | 9,276 | | $ | 9,038 | | | 3 | % | | Total revenue by line of business | $ | 2,979 | | $ | 2,990 | | $ | 2,905 | | $ | 2,927 | | $ | 3,107 | | — | % | (4) | % | | $ | 5,969 | | $ | 6,349 | | | | (6) | % | |
| Average balances: | | | | | |
| Average balances: | | Average balances: | | | | |
| | Average loans | Average loans | $ | 40,308 | | $ | 43,113 | | $ | 41,789 | | $ | 38,721 | | $ | 37,005 | | (7) | % | 9 | % | | $ | 41,731 | | $ | 36,881 | | | 13 | % | | Average loans | $ | 46,845 | | $ | 43,468 | | $ | 41,437 | | $ | 40,308 | | $ | 43,113 | | 8 | % | 9 | % | | $ | 45,166 | | $ | 42,451 | | | | 6 | % | |
| Average deposits | Average deposits | $ | 263,621 | | $ | 268,467 | | $ | 242,187 | | $ | 215,388 | | $ | 208,044 | | (2) | % | 27 | % | | $ | 258,112 | | $ | 201,472 | | | 28 | % | | Average deposits | $ | 313,923 | | $ | 315,088 | | $ | 292,631 | | $ | 263,621 | | $ | 268,467 | | — | % | 17 | % | | $ | 314,502 | | $ | 255,327 | | | | 23 | % | |
|
(a) Asset servicing fees include the fees from the Clearance and Collateral Management business.
(b) Clearing services fees are almost entirely earned by our Pershing business.
(c) In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of the Notes to Consolidated Financial Statements for additional information.
(d) Other revenue includes investment management and performance fees, financing-related fees, distribution and servicing revenue, securities gains and losses and investment and other income.
N/M -– Not meaningful.
| | Investment Services business metrics | Investment Services business metrics | | 3Q20 vs. | | Investment Services business metrics | | 2Q21 vs. | |
| (dollars in millions, unless otherwise noted) | (dollars in millions, unless otherwise noted) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 | | (dollars in millions, unless otherwise noted) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 | |
AUC/A at period end (in trillions) (a) | AUC/A at period end (in trillions) (a) | $ | 38.6 | | $ | 37.3 | | $ | 35.2 | | $ | 37.1 | | $ | 35.8 | | 3 | % | 8 | % | | AUC/A at period end (in trillions) (a) | $ | 45.0 | | $ | 41.7 | | $ | 41.1 | | $ | 38.6 | | $ | 37.3 | | 8 | % | 21 | % | |
Market value of securities on loan at period end (in billions) (b) | Market value of securities on loan at period end (in billions) (b) | $ | 378 | | $ | 384 | | $ | 389 | | $ | 378 | | $ | 362 | | (2) | % | 4 | % | | Market value of securities on loan at period end (in billions) (b) | $ | 456 | | $ | 445 | | $ | 435 | | $ | 378 | | $ | 384 | | 2 | % | 19 | % | |
| Pershing: | Pershing: | | | Pershing: | | |
Net new assets (U.S. platform) (in billions) (c) | Net new assets (U.S. platform) (in billions) (c) | $ | 12 | | $ | 11 | | $ | 31 | | $ | 33 | | $ | 19 | | N/M | | Net new assets (U.S. platform) (in billions) (c) | $ | 40 | | $ | 28 | | $ | 28 | | $ | 12 | | $ | 11 | | N/M | |
Average active clearing accounts (U.S. platform) (in thousands) | Average active clearing accounts (U.S. platform) (in thousands) | 6,556 | | 6,507 | | 6,437 | | 6,340 | | 6,283 | | 1 | % | 4 | % | | Average active clearing accounts (U.S. platform) (in thousands) | 6,889 | | 6,757 | | 6,635 | | 6,556 | | 6,507 | | 2 | % | 6 | % | |
| Average long-term mutual fund assets (U.S. platform) | Average long-term mutual fund assets (U.S. platform) | $ | 597,312 | | $ | 547,579 | | $ | 549,206 | | $ | 573,475 | | $ | 547,522 | | 9 | % | 9 | % | | Average long-term mutual fund assets (U.S. platform) | $ | 730,954 | | $ | 678,556 | | $ | 630,086 | | $ | 597,312 | | $ | 547,579 | | 8 | % | 33 | % | |
| Average investor margin loans (U.S. platform) | Average investor margin loans (U.S. platform) | $ | 9,350 | | $ | 9,235 | | $ | 9,419 | | $ | 9,420 | | $ | 9,222 | | 1 | % | 1 | % | | Average investor margin loans (U.S. platform) | $ | 12,097 | | $ | 10,937 | | $ | 10,097 | | $ | 9,350 | | $ | 9,235 | | 11 | % | 31 | % | |
| Clearance and Collateral Management: | Clearance and Collateral Management: | | | Clearance and Collateral Management: | | |
Average tri-party collateral management balances (in billions) | Average tri-party collateral management balances (in billions) | $ | 3,417 | | $ | 3,573 | | $ | 3,724 | | $ | 3,562 | | $ | 3,550 | | (4) | % | (4) | % | | Average tri-party collateral management balances (in billions) | $ | 3,898 | | $ | 3,638 | | $ | 3,555 | | $ | 3,417 | | $ | 3,573 | | 7 | % | 9 | % | |
(a) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.7 trillion at June 30, 2021, $1.6 trillion at March 31, 2021, $1.5 trillion at Dec. 31, 2020, $1.4 trillionat Sept. 30, 2020 and, $1.3 trillion at June 30, 2020, $1.2 trillion at March 31, 2020, $1.5 trillionat Dec. 31, 2019 and$1.4 trillion at Sept. 30, 2019.2020.
(b) Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $63 billion at June 30, 2021, $64 billion at March 31, 2021, $68 billion at Dec. 31, 2020 and $62 billion at Sept. 30, 2020 and June 30, 2020, $59 billion at March 31, 2020, $60 billion at Dec. 31, 2019 and $66 billion at Sept. 30, 2019.2020.
(c) Net new assets represent net flows of assets excluding dividends and interest (e.g., net cash deposits and net securities transfers) in customer accounts in Pershing LLC, a U.S. broker-dealer.
N/M -– Not meaningful.
Business description
BNY Mellon Investment Services provides business services and technology solutions to entities including financial institutions, corporations, foundations and endowments, public funds and government agencies. Our lines of business include: Asset Servicing, Pershing, Issuer Services, Treasury Services and Clearance and Collateral Management. For information on the drivers of the Investment Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements in our 20192020 Annual ReporReportt..
We are one of the leading global investment services providers with $38.6$45.0 trillion of AUC/A at Sept.June 30, 2020.2021.
The Asset Servicing business provides a comprehensive suite of solutions. As one of the largest global custody and fund accounting providers and a trusted partner, we offer services for the safekeeping of assets in capital markets globally as well as alternative investment and structured product strategies. We provide custody and foreign exchange services, support exchange-traded funds and unit investment trusts and provide our clients outsourcing capabilities. Our robust digital and data offerings enable us to provide fully integrated technology solutions for our clients. We deliver securities lending and financing solutions on both an agency and principal basis. Our agency securities lending program is one of the largest lenders of U.S. and non-U.S. securities, servicing a lendable asset pool of
approximately $4.3$5.0 trillion in 34 separate markets.
Our market-leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.
Pershing provides execution, clearing, custody, business and technology solutions, delivering dependable operational support to broker-dealers, wealth managers and registered investment advisors (RIAs)(“RIAs”) globally.
The Issuer Services business includes Corporate Trust and Depositary Receipts. Our Corporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial services. We are a leading provider to the debt capital markets, providing customized and market-driven solutions to investors, bondholders and lenders. Our Depositary Receipts business drives global investing by providing servicing and value-added solutions that enable, facilitate and enhance cross-border trading, clearing, settlement and ownership. We are one of the largest providers of depositary receipts services in the world, partnering with leading companies from more than 50 countries.
Our Treasury Services business provides globalis a leading provider of payments, liquidity management and trade finance services for financial institutions, corporations and the public sector.
Our Clearance and Collateral Management business clears and settles equity and fixed-income
transactions globally and serves as custodian for tri-party repo collateral worldwide. We are the primary provider of U.S. government securities clearance and a provider of non-U.S. government securities clearance. Our collateral services include collateral management, administration and segregation. We offer innovative solutions and industry expertise which help financial institutions and institutional investors with their liquidity, financing, risk and balance sheet challenges. We are a leading provider of tri-party collateral management services with an average of $3.4$3.9 trillion serviced globally, including approximately $2.4$2.7 trillion of the U.S. tri-party repo market at Sept.June 30, 2020.2021.
Review of financial results
AUC/A of $38.6$45.0 trillion increased 8%21% compared with Sept.June 30, 2019,2020, primarily reflecting higher market values, net new business client inflows and the favorable impact of a weaker U.S. dollar. AUC/A consisted of 34%38% equity securities and 66%62% fixed-income securities at Sept.June 30, 20202021 and Sept.33% equity securities and 67% fixed-income securities at June 30, 2019.2020.
Total revenue of $2.9$3.0 billion decreased 4% compared with the thirdsecond quarter of 20192020 and 6%decreased slightly compared with the secondfirst quarter of 2020.2021. The drivers of total revenue by line of business are indicated below.
Asset Servicing revenue of $1.4 billion decreased 4% compared with the third quarter of 2019 and 7%6% compared with the second quarter of 2020.2020 and 3% compared with the first quarter of 2021. The decrease compared with the thirdsecond quarter of 2019 primarily reflects2020 includes lower net interest rates,revenue, higher money market fee waivers and lower foreign exchange revenue, partially offset by higher client depositsactivity and market values. The decrease compared with the first quarter of 2021 primarily reflects lower foreign exchange revenue and higher money market fee waivers.
Pershing revenue of $590 million increased 2% compared with the second quarter of 2020 and decreased 2% compared with the first quarter of 2021. The increase compared with the second quarter of 2020 primarily reflects higher market values, client volumes.activity and balances, partially offset by higher money market fee waivers. The decrease compared with the first quarter of 2021 primarily reflects lower
clearance volumes, partially offset by higher market values.
Issuer Services revenue of $405 million decreased 6% compared with the second quarter of 2020 and increased 12% compared with the first quarter of 2021. The decrease compared with the second quarter of 2020 primarily reflects higher money market fee waivers and lower net interest revenue in Corporate Trust, partially offset by higher Depositary Receipts revenue. The increase compared with the first quarter of 2021 primarily reflects higher Depositary Receipts revenue, partially offset by higher money market fee waivers in Corporate Trust.
Treasury Services revenue of $319 million decreased 6% compared with the second quarter of 2020 and increased 1% compared with the first quarter of 2021. The decrease compared with the second quarter of 2020 primarily reflects lower foreign exchange volumes, lower net interest revenue, a one-time fee recorded in the second quarter of 2020rates and lower securities lending revenue driven by tighter spreads.
Pershing revenue of $538 million decreased 6% compared with the third quarter of 2019 and 7% compared with the second quarter of 2020. The decrease compared with the third quarter of 2019 primarily reflects the impact of rate-drivenhigher money market fee waivers, partially offset by higher payment volumes and deposits. The increase compared with the first quarter of 2021 primarily reflects higher net interest revenue and net new business, partially offset by higher money market balances. The decreasefee waivers.
Clearance and Collateral Management revenue of $283 million decreased 4% compared with the second quarter of 2020 primarily reflects lower clearing volumes and higher rate-driven money market fee waivers.
Issuer Services revenue of $435 million decreased 7% compared with the third quarter of 2019 and increased 1% compared with the secondfirst quarter of 2020. The decrease compared with the third quarter of 2019 primarily reflects lower Depositary Receipts revenue. The increase compared with the second quarter of 2020 primarily reflects seasonally higher Depositary Receipts revenue, partially offset by lower net interest revenue.
Treasury Services revenue of $323 million increased 4% compared with the third quarter of 2019 and decreased 5% compared with the second quarter of 2020. The increase compared with the third quarter of 2019 primarily reflects higher client deposits and money market balances.2021. The decrease compared with the second quarter of 2020 primarily reflects lower net interest revenue, intraday credit fees and clearance volumes, partially offset by higher payment volumes.
Clearance and Collateral Management revenue of $277 million decreased 5%tri-party collateral management balances. The increase compared with the thirdfirst quarter of 2019 and 6% compared with the second quarter of 2020. The decrease compared with the third quarter of 20192021 primarily reflects lower investment income due to the fourth quarter 2019 sale of an equity investment. The decrease compared with the second quarter of 2020 primarily reflectshigher tri-party collateral management balances, partially offset by lower clearance volumes and net interest revenue.volumes.
Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with regulations and reduce their operating costs.
Noninterest expense of $2.0$2.1 billion increased 2%3% compared with both the third quarter of 2019 and the second quarter of 2020. The increase2020 and decreased 2% compared with the thirdfirst quarter of 2019 was primarily driven by continued investments in technology.2021. The increase compared with the second quarter of 2020 primarily reflects higher staff expense and the unfavorable impact of a weaker U.S. dollar.
Year-to-date 2020 compared with year-to-date 2019
Total revenue of $9.3 billion increased 3% compared with the first nine months of 2019. Asset Servicing revenue of $4.3 billion increased 3%, primarily reflecting higher foreign exchangedollar, investments in efficiency and other trading
revenue, higher volumes from existing clientsgrowth initiatives and higher market values,revenue-related expenses. The decrease compared with the first quarter of 2021 primarily reflects lower staff and litigation expenses, partially offset by higher revenue-related expenses.
Year-to-date 2021 compared with year-to-date 2020
Total revenue of $6.0 billion decreased 6% compared with the first six months of 2020. Asset Servicing revenue of $2.8 billion decreased 6%, primarily reflecting lower net interest revenue.revenue, higher money market fee waivers and lower foreign exchange revenue, partially offset by higher client activity and market values. Pershing revenue of $1.8$1.2 billion increased 4%decreased 3%, primarily reflecting higher money market balances and clearing volumes,fee waivers, partially offset by the impact of rate-driven moneyhigher market fee waivers.values and client volumes. Issuer Services revenue of $1.3 billion
$768 million decreased 2%10%, primarily reflecting lower Depositary Receiptsnet interest revenue partially offset by new businessand higher money market fee waivers in Corporate Trust. Treasury Services revenue of $1.0 billion increased$636 million decreased 6%, primarily reflecting lower interest rates and higher money market balances, client depositsfee waivers, partially offset by higher payment volumes and net interest revenue.deposits. Clearance and Collateral
Management revenue of $872$564 million increased 2%decreased 5%, primarily reflecting growth in collateral management and clearance volumes and higherlower net interest revenue, partially offset by lower investment income due to the fourth quarter 2019 sale of an equity investment.intra-day credit fees and clearance volumes.
Noninterest expense of $6.0$4.2 billion increased 1%4% compared with the first ninesix months of 20192020 primarily reflecting continuedreflects investments in technology, partially offset by lower business development (travelefficiency and marketing)growth initiatives, the unfavorable impact of a weaker U.S. dollar, higher revenue-related expenses and litigation expense.
Investment and Wealth Management business
| | | | YTD20 | | | | YTD21 | |
| | 3Q20 vs. | | | vs. | | | 2Q21 vs. | | | vs. | |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 | | YTD20 | YTD19 | | YTD19 | | (dollars in millions) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 | | YTD21 | YTD20 | | YTD20 | |
| Revenue: | Revenue: | | | | | Revenue: | | | | |
Investment management fees (a) | Investment management fees (a) | $ | 828 | | $ | 782 | | $ | 812 | | $ | 836 | | $ | 830 | | 6 | % | — | % | | $ | 2,422 | | $ | 2,471 | | | (2) | % | | Investment management fees (a) | $ | 876 | | $ | 850 | | $ | 839 | | $ | 828 | | $ | 782 | | 3 | % | 12 | % | | $ | 1,726 | | $ | 1,594 | | | 8 | % | |
| Performance fees | Performance fees | 7 | | 5 | | 50 | | 48 | | 2 | | N/M | N/M | | 62 | | 35 | | | 77 | | | Performance fees | 14 | | 40 | | 45 | | 7 | | 5 | | N/M | 180 | | | 54 | | 55 | | | (2) | | |
Investment management and performance fees (b) | Investment management and performance fees (b) | 835 | | 787 | | 862 | | 884 | | 832 | | 6 | | — | | | 2,484 | | 2,506 | | | (1) | | | Investment management and performance fees (b) | 890 | | 890 | | 884 | | 835 | | 787 | | — | | 13 | | | 1,780 | | 1,649 | | | 8 | | |
| Distribution and servicing | Distribution and servicing | 31 | | 34 | | 43 | | 44 | | 45 | | (9) | | (31) | | | 108 | | 134 | | | (19) | | | Distribution and servicing | 28 | | 28 | | 29 | | 31 | | 34 | | — | | (18) | | | 56 | | 77 | | | (27) | | |
Other (a) | Other (a) | 5 | | 17 | | (59) | | (4) | | (39) | | N/M | | (37) | | (79) | | | N/M | | Other (a) | 34 | | 25 | | 27 | | 5 | | 17 | | N/M | | 59 | | (42) | | | N/M | |
Total fee and other revenue (a) | Total fee and other revenue (a) | 871 | | 838 | | 846 | | 924 | | 838 | | 4 | | 4 | | | 2,555 | | 2,561 | | | — | | | Total fee and other revenue (a) | 952 | | 943 | | 940 | | 871 | | 838 | | 1 | | 14 | | | 1,895 | | 1,684 | | | 13 | | |
| Net interest revenue | Net interest revenue | 47 | | 48 | | 52 | | 47 | | 49 | | (2) | | (4) | | | 147 | | 175 | | | (16) | | | Net interest revenue | 47 | | 48 | | 50 | | 47 | | 48 | | (2) | | (2) | | | 95 | | 100 | | | (5) | | |
| Total revenue | Total revenue | 918 | | 886 | | 898 | | 971 | | 887 | | 4 | | 3 | | | 2,702 | | 2,736 | | | (1) | | | Total revenue | 999 | | 991 | | 990 | | 918 | | 886 | | 1 | | 13 | | | 1,990 | | 1,784 | | | 12 | | |
| Provision for credit losses | Provision for credit losses | 12 | | 7 | | 9 | | — | | — | | N/M | | 28 | | (1) | | | N/M | | Provision for credit losses | (4) | | 4 | | (8) | | 12 | | 7 | | N/M | | — | | 16 | | | N/M | |
| Noninterest expense (excluding amortization of intangible assets) | Noninterest expense (excluding amortization of intangible assets) | 653 | | 650 | | 687 | | 722 | | 582 | | — | | 12 | | | 1,990 | | 1,888 | | | 5 | | | Noninterest expense (excluding amortization of intangible assets) | 669 | | 702 | | 678 | | 653 | | 650 | | (5) | | 3 | | | 1,371 | | 1,337 | | | 3 | | |
| Amortization of intangible assets | Amortization of intangible assets | 8 | | 8 | | 8 | | 9 | | 10 | | — | | (20) | | | 24 | | 28 | | | (14) | | | Amortization of intangible assets | 8 | | 7 | | 9 | | 8 | | 8 | | 14 | | — | | | 15 | | 16 | | | (6) | | |
| Total noninterest expense | Total noninterest expense | 661 | | 658 | | 695 | | 731 | | 592 | | — | | 12 | | | 2,014 | | 1,916 | | | 5 | | | Total noninterest expense | 677 | | 709 | | 687 | | 661 | | 658 | | (5) | | 3 | | | 1,386 | | 1,353 | | | 2 | | |
| Income before income taxes | Income before income taxes | $ | 245 | | $ | 221 | | $ | 194 | | $ | 240 | | $ | 295 | | 11 | % | (17) | % | | $ | 660 | | $ | 821 | | | (20) | % | | Income before income taxes | $ | 326 | | $ | 278 | | $ | 311 | | $ | 245 | | $ | 221 | | 17 | % | 48 | % | | $ | 604 | | $ | 415 | | | 46 | % | |
| | Pre-tax operating margin | Pre-tax operating margin | 27 | % | 25 | % | 22 | % | 25 | % | 33 | % | | 24 | % | 30 | % | | | | Pre-tax operating margin | 33 | % | 28 | % | 32 | % | 27 | % | 25 | % | | 30 | % | 23 | % | | | |
Adjusted pre-tax operating margin – Non-GAAP (c) | Adjusted pre-tax operating margin – Non-GAAP (c) | 29 | % | 28 | % | 24 | % | 27 | % | 37 | % | | 27 | % | 33 | % | | | | Adjusted pre-tax operating margin – Non-GAAP (c) | 35 | % | 30 | % | 34 | % | 29 | % | 28 | % | | 33 | % | 26 | % | | | |
| Total revenue by line of business: | Total revenue by line of business: | | | | | Total revenue by line of business: | | | | |
| Investment Management | Investment Management | $ | 641 | | $ | 621 | | $ | 620 | | $ | 692 | | $ | 608 | | 3 | % | 5 | % | | $ | 1,882 | | $ | 1,870 | | | 1 | % | | Investment Management | $ | 700 | | $ | 698 | | $ | 714 | | $ | 641 | | $ | 621 | | — | % | 13 | % | | $ | 1,398 | | $ | 1,241 | | | 13 | % | |
| Wealth Management | Wealth Management | 277 | | 265 | | 278 | | 279 | | 279 | | 5 | | (1) | | | 820 | | 866 | | | (5) | | | Wealth Management | 299 | | 293 | | 276 | | 277 | | 265 | | 2 | | 13 | | | 592 | | 543 | | | 9 | | |
| Total revenue by line of business | Total revenue by line of business | $ | 918 | | $ | 886 | | $ | 898 | | $ | 971 | | $ | 887 | | 4 | % | 3 | % | | $ | 2,702 | | $ | 2,736 | | | (1) | % | | Total revenue by line of business | $ | 999 | | $ | 991 | | $ | 990 | | $ | 918 | | $ | 886 | | 1 | % | 13 | % | | $ | 1,990 | | $ | 1,784 | | | 12 | % | |
| Average balances: | Average balances: | | | | | Average balances: | | | | |
| Average loans | Average loans | $ | 11,503 | | $ | 11,791 | | $ | 12,124 | | $ | 12,022 | | $ | 12,013 | | (2) | % | (4) | % | | $ | 11,805 | | $ | 12,184 | | | (3) | % | | Average loans | $ | 11,871 | | $ | 11,610 | | $ | 11,497 | | $ | 11,503 | | $ | 11,791 | | 2 | % | 1 | % | | $ | 11,742 | | $ | 11,958 | | | (2) | % | |
| Average deposits | Average deposits | $ | 17,570 | | $ | 17,491 | | $ | 16,144 | | $ | 15,195 | | $ | 14,083 | | — | % | 25 | % | | $ | 17,070 | | $ | 14,831 | | | 15 | % | | Average deposits | $ | 17,466 | | $ | 19,177 | | $ | 18,144 | | $ | 17,570 | | $ | 17,491 | | (9) | % | — | % | | $ | 18,317 | | $ | 16,817 | | | 9 | % | |
(a) Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests. Additionally, other revenue includes asset servicing fees, treasury services fees, foreign exchange and other trading revenue and investment and other income.
(b) On a constant currency basis, investment management and performance fees decreased 1%increased 9% (Non-GAAP) compared with the thirdsecond quarter of 2019.2020. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 4547 for the reconciliation of this Non-GAAP measure.
(c) Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 45 for the reconciliation of this Non-GAAP measure.47.
N/M -– Not meaningful.
| | AUM trends | AUM trends | | 3Q20 vs. | | AUM trends | | 2Q21 vs. | |
| (dollars in billions) | (dollars in billions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | 2Q20 | 3Q19 | | (dollars in billions) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | 1Q21 | 2Q20 | |
AUM at period end, by product type: (a) | AUM at period end, by product type: (a) | | | AUM at period end, by product type: (a) | | |
| Equity | Equity | $ | 149 | | $ | 141 | | $ | 120 | | $ | 154 | | $ | 147 | | 6 | % | 1 | % | | Equity | $ | 187 | | $ | 173 | | $ | 170 | | $ | 149 | | $ | 141 | | 8 | % | 33 | % | |
| Fixed income | Fixed income | 241 | | 224 | | 211 | | 224 | | 211 | | 8 | | 14 | | | Fixed income | 272 | | 261 | | 259 | | 241 | | 224 | | 4 | | 21 | | |
| Index | Index | 350 | | 333 | | 274 | | 339 | | 321 | | 5 | | 9 | | | Index | 440 | | 419 | | 393 | | 350 | | 333 | | 5 | | 32 | | |
| Liability-driven investments | Liability-driven investments | 788 | | 752 | | 705 | | 728 | | 742 | | 5 | | 6 | | | Liability-driven investments | 841 | | 802 | | 855 | | 788 | | 752 | | 5 | | 12 | | |
| Multi-asset and alternative investments | Multi-asset and alternative investments | 193 | | 185 | | 171 | | 192 | | 182 | | 4 | | 6 | | | Multi-asset and alternative investments | 222 | | 214 | | 209 | | 193 | | 185 | | 4 | | 20 | | |
| Cash | Cash | 320 | | 326 | | 315 | | 273 | | 278 | | (2) | | 15 | | | Cash | 358 | | 345 | | 325 | | 320 | | 326 | | 4 | | 10 | | |
| Total AUM by product type | Total AUM by product type | $ | 2,041 | | $ | 1,961 | | $ | 1,796 | | $ | 1,910 | | $ | 1,881 | | 4 | % | 9 | % | | Total AUM by product type | $ | 2,320 | | $ | 2,214 | | $ | 2,211 | | $ | 2,041 | | $ | 1,961 | | 5 | % | 18 | % | |
| Changes in AUM: (a) | Changes in AUM: (a) | | | Changes in AUM: (a) | | |
| Beginning balance of AUM | Beginning balance of AUM | $ | 1,961 | | $ | 1,796 | | $ | 1,910 | | $ | 1,881 | | $ | 1,843 | | | | Beginning balance of AUM | $ | 2,214 | | $ | 2,211 | | $ | 2,041 | | $ | 1,961 | | $ | 1,796 | | | |
| Net inflows (outflows): | Net inflows (outflows): | | | Net inflows (outflows): | | |
| Long-term strategies: | Long-term strategies: | | | Long-term strategies: | | |
| Equity | Equity | (4) | | (2) | | (2) | | (6) | | (4) | | | | Equity | (3) | | — | | (2) | | (4) | | (2) | | | |
| Fixed income | Fixed income | 1 | | 4 | | — | | 5 | | 2 | | | | Fixed income | 8 | | 8 | | 5 | | 1 | | 4 | | | |
| Liability-driven investments | Liability-driven investments | 14 | | (2) | | (5) | | (3) | | (4) | | | | Liability-driven investments | 11 | | 8 | | 15 | | 14 | | (2) | | | |
| Multi-asset and alternative investments | Multi-asset and alternative investments | (3) | | — | | (1) | | 3 | | (1) | | | | Multi-asset and alternative investments | 1 | | (2) | | — | | (3) | | — | | | |
| Total long-term active strategies inflows (outflows) | 8 | | — | | (8) | | (1) | | (7) | | | | |
| Total long-term active strategies inflows | | Total long-term active strategies inflows | 17 | | 14 | | 18 | | 8 | | — | | | |
| Index | Index | (3) | | 9 | | 3 | | (5) | | (3) | | | | Index | (5) | | 3 | | (3) | | (3) | | 9 | | | |
| Total long-term strategies inflows (outflows) | 5 | | 9 | | (5) | | (6) | | (10) | | | | |
| Total long-term strategies inflows | | Total long-term strategies inflows | 12 | | 17 | | 15 | | 5 | | 9 | | | |
| Short-term strategies: | Short-term strategies: | | | Short-term strategies: | | |
| Cash | Cash | (10) | | 11 | | 43 | | (7) | | 11 | | | | Cash | 13 | | 19 | | 5 | | (10) | | 11 | | | |
| Total net (outflows) inflows | (5) | | 20 | | 38 | | (13) | | 1 | | | | |
| Total net inflows (outflows) | | Total net inflows (outflows) | 25 | | 36 | | 20 | | (5) | | 20 | | | |
| Net market impact | Net market impact | 41 | | 143 | | (91) | | (20) | | 66 | | | | Net market impact | 79 | | (36) | | 93 | | 41 | | 143 | | | |
| Net currency impact | Net currency impact | 44 | | 2 | | (61) | | 62 | | (29) | | | | Net currency impact | 2 | | 3 | | 57 | | 44 | | 2 | | | |
| | Ending balance of AUM | Ending balance of AUM | $ | 2,041 | | $ | 1,961 | | $ | 1,796 | | $ | 1,910 | | $ | 1,881 | | 4 | % | 9 | % | | Ending balance of AUM | $ | 2,320 | | $ | 2,214 | | $ | 2,211 | | $ | 2,041 | | $ | 1,961 | | 5 | % | 18 | % | |
| Wealth Management client assets (b) | Wealth Management client assets (b) | $ | 265 | | $ | 254 | | $ | 236 | | $ | 266 | | $ | 259 | | 4 | % | 2 | % | | Wealth Management client assets (b) | $ | 305 | | $ | 292 | | $ | 286 | | $ | 265 | | $ | 254 | | 4 | % | 20 | % | |
(a) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(b) Includes AUM and AUC/A in the Wealth Management business.
Business description
Our Investment and Wealth Management business consists of two distinct lines of business, Investment Management and Wealth Management. Our investment firms deliver a highly diversified portfolio of investment strategies independently, and through our global distribution network, to institutional and retail clients globally. BNY Mellon Wealth Management provides investment management, custody, wealth and estate planning, and private banking services.services, investment servicing and information management. See pages 1619 and 1720 of our 20192020 Annual Report for additional information on our Investment and Wealth Management business.
Review of financial results
AUM increased 9%18% compared with Sept.June 30, 20192020 primarily reflecting higher market values, the favorable impact of a weaker U.S. dollar (principally versus the British pound) and net inflows.
Net long-term strategy inflows were $5$12 billion in the thirdsecond quarter of 2020,2021, driven by inflows of liability-driven investmentand fixed income investments, partially offset by outflows of index and equity funds. Short-term strategy outflowsinflows were $10$13 billion in the thirdsecond quarter of 2020.2021. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.
Total revenue of $918$999 million increased 3% compared with the third quarter of 2019 and 4%13% compared with the second quarter of 2020.2020 and 1% compared with the first quarter of 2021.
Investment Management revenue of $641$700 million increased 5% compared with the third quarter of 2019 and 3%13% compared with the second quarter of 2020.2020 and increased slightly compared with the first quarter of 2021. The increase compared with the thirdsecond quarter of 20192020 primarily reflects the impact of hedging activities in the third quarter of 2019, higher market values, the favorable impact of a weaker U.S. dollar, and higher performance fees and net inflows, partially offset by the impact of money market fee waivers. The slight increase compared
with the first quarter of 2021 primarily reflects the impact of higher market values, equity investment gains (net of hedges), including seed capital, and net inflows, partially offset by the timing of performance fees and higher money market fee waivers.
Wealth Management revenue of $299 million increased 13% compared with the second quarter of 2020 primarily reflects higher market values and the favorable impact of a
weaker U.S. dollar, partially offset by lower seed capital gains, net of hedges.
Wealth Management revenue of $277 million decreased 1%2% compared with the thirdfirst quarter of 2019 and increased 5% compared with2021. Both increases primarily reflect the second quarterimpact of 2020. The decrease compared with the third quarter of 2019 primarily reflects lower net interest revenue. The comparisons with the third quarter of 2019 and second quarter of 2020 reflect higher market values offset by a shift to lower fee investment products.values.
Revenue generated in the Investment and Wealth Management business included 41%38% from non-U.S. sources in the thirdsecond quarter of 2020,2021, compared with 39% in the third quarter of 2019 and 40% in the second quarter of 2020.2020 and 38% in the first quarter of 2021.
Noninterest expense of $661$677 million increased 12% compared with the third quarter of 2019 and increased slightly3% compared with the second quarter of 2020.2020 and decreased 5% compared with the first quarter of 2021. The increase compared with the thirdsecond quarter of 2020 primarily reflects the unfavorable impact of a
weaker U.S. dollar and higher staff expense, partially offset by lower distribution and servicing expense. The decrease compared with the first quarter of 20192021 primarily reflects the net reduction of reserves for a tax-related exposure of certain investment management funds in the third quarter of 2019.lower staff expense.
Year-to-date 20202021 compared with year-to-date 20192020
Total revenue of $2.7$2.0 billion decreased 1%increased 12% compared with the first ninesix months of 2019.2020. Investment Management revenue of $1.9$1.4 billion increased 1%13% primarily reflecting higher market values, the favorable impact of hedging activitiesa weaker U.S. dollar, and higher performance fees,equity investment gains (net of hedges), including seed capital, partially offset by an unfavorable change in the mix of AUM and the impact ofhigher money market fee waivers. Wealth Management revenue of $820$592 million decreased 5%increased 9%, primarily reflecting lower net interest revenue, partially offset by higher market values.
Noninterest expense of $2.0$1.4 billion increased 5%2% compared with the first ninesix months of 2019,2020, primarily reflecting the net reductionunfavorable impact of reserves for a tax-related exposure of certain investment management funds in the third quarter of 2019.weaker U.S. dollar and higher staff expense, partially offset by lower distribution and servicing expense.
Other segment
| | | (in millions) | (in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | | 3Q19 | YTD20 | YTD19 | | (in millions) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | YTD21 | YTD20 | | |
| Fee revenue (loss) | $ | 11 | | $ | 29 | | $ | 21 | | $ | 817 | | (a) | $ | (5) | | $ | 61 | | $ | 36 | | | |
| Net securities gains (losses) | 9 | | 9 | | 9 | | (23) | | | (1) | | 27 | | 7 | | | |
| Total fee and other revenue (loss) | 20 | | 38 | | 30 | | 794 | | | (6) | | 88 | | 43 | | | |
| Fee revenue | | Fee revenue | $ | 13 | | $ | 9 | | $ | 11 | | $ | 7 | | $ | 10 | | $ | 22 | | $ | 16 | | (a) | |
| Other revenue | | Other revenue | 9 | | (36) | | (28) | | 13 | | 28 | | (27) | | 52 | | (a) | |
| Total fee and other revenue | | Total fee and other revenue | 22 | | (27) | | (17) | | 20 | | 38 | | (5) | | 68 | | | |
| Net interest (expense) | Net interest (expense) | (25) | | (36) | | (44) | | (10) | | | (80) | | (105) | | (150) | | | Net interest (expense) | (45) | | (38) | | (40) | | (25) | | (36) | | (83) | | (80) | | | |
| Total (loss) revenue | (5) | | 2 | | (14) | | 784 | | | (86) | | (17) | | (107) | | | |
| Total revenue | | Total revenue | (23) | | (65) | | (57) | | (5) | | 2 | | (88) | | (12) | | | |
| Provision for credit losses | Provision for credit losses | 7 | | (9) | | 11 | | (3) | | | (1) | | 9 | | (5) | | | Provision for credit losses | (5) | | (8) | | (8) | | 7 | | (9) | | (13) | | 2 | | | |
| Noninterest expense | Noninterest expense | — | | 39 | | 30 | | 54 | | | 25 | | 69 | | 103 | | | Noninterest expense | 49 | | 41 | | 64 | | — | | 39 | | 90 | | 69 | | | |
| (Loss) income before income taxes | $ | (12) | | $ | (28) | | $ | (55) | | $ | 733 | | | $ | (110) | | $ | (95) | | $ | (205) | | | |
| (Loss) before income taxes | | (Loss) before income taxes | $ | (67) | | $ | (98) | | $ | (113) | | $ | (12) | | $ | (28) | | $ | (165) | | $ | (83) | | | |
| | Average loans and leases | Average loans and leases | $ | 1,805 | | $ | 1,815 | | $ | 1,961 | | $ | 1,974 | | | $ | 1,817 | | $ | 1,861 | | $ | 1,789 | | | Average loans and leases | $ | 1,804 | | $ | 1,711 | | $ | 1,794 | | $ | 1,805 | | $ | 1,815 | | $ | 1,757 | | $ | 1,887 | | | |
(a) Includes a gainIn the first quarter of 2021, we reclassified certain items within total revenue on salethe consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 of an equity investment.the Notes to Consolidated Financial Statements for additional information.
See page 1821 of our 20192020 Annual Report for additional information on the Other segment.
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. The intersegment activity is eliminated 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.
Review of financial results
FeeTotal revenue net securities gains (losses) and net interest expense includeincludes corporate treasury and other investment activity, including hedging activity which offsets betweenhas an offsetting impact in fee and other revenue and net interest expense.
Fee and other revenue increaseddecreased $16 million compared with the third quarter of 2019 and decreased $18 million compared with the second quarter of 2020. The increase2020 and increased $49 million compared with the thirdfirst quarter of 2019 primarily reflects higher corporate treasury activity and equity investment income.2021. The decrease compared with the second quarter of 2020 was impacted by lower net securities gains. The increase compared with the first quarter of 2021 primarily reflects an impairment of a renewable energy investment recorded in the first quarter of 2021.
reflects lower corporate treasury activity and equity investment income.
Net interestNoninterest expense decreased $55 million compared with the third quarter of 2019 and $11increased $10 million compared with the second quarter of 2020. The decrease compared with the third quarter of 2019 primarily reflects the lease-related impairment of $70 million recorded in the third quarter of 20192020 and corporate treasury activity. The decrease compared with the second quarter of 2020 primarily reflects corporate treasury activity.
Noninterest expense decreased $25$8 million compared with the thirdfirst quarter of 2019 and $39 million compared with the second quarter of 2020.2021. Both decreasesincreases primarily reflects lowerreflect higher staff expense.
Year-to-date 20202021 compared with year-to-date 20192020
Loss(Loss) before income taxes decreased $110increased $82 million compared with the first ninesix months of 2019.2020. Total lossfee and other revenue decreased $90$73 million, primarily reflecting the lease-relatedan impairment of $70 milliona renewable energy investment recorded in the thirdfirst quarter of 20192021 and corporate treasury activity.lower net securities gains. Noninterest expense decreased $34increased $21 million compared with the first ninesix months of 2019,2020, primarily reflecting lowerhigher staff expense and higher intersegment eliminations, partially offset by higher pension expense.
Critical accounting estimates
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in our 20192020 Annual Report and in Note 2 of the Notes to Consolidated Financial Statements in this Form 10-Q.Report. Our critical accounting estimates are those related to the allowance for credit losses, fair value of financial instruments and derivatives, goodwill and other intangibles and litigation and regulatory contingencies, as referenced below.
| | | | | |
| Critical accounting estimates | Reference |
| Allowance for credit losses | First quarter 2020 Form 10-Q,Annual Report, pages 19-20.24-26, and “Allowance for credit losses.” |
| Fair value of financial instruments and derivatives | 20192020 Annual Report, pages 23-24.26-28. |
| Goodwill and other intangibles | 20192020 Annual Report, pages 24-25 and second quarter 2020 Form 10-Q, page 21.28-29.
Also see below. |
| Litigation and regulatory contingencies | “Legal proceedings” in Note 1817 of the Notes to Consolidated Financial Statements. |
Goodwill and other intangible assets
BNY Mellon’s business segments include six reporting units for which goodwill impairment testing is performed on an annual basis. The Investment Services segment is comprised of four reporting units and the Investment and Wealth Management segment is comprised of two reporting units.
In the second quarter of 2021, we performed our annual goodwill impairment test on all six reporting units using an income approach to estimate fair
values of each reporting unit. Estimated cash flows used in the income approach were based on management’s projections as of March 31, 2021. The discount rate applied to these cash flows was 10% and incorporated a 6% market equity risk premium. Estimated cash flows extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame.
As a result of the annual goodwill impairment test of the six reporting units, no goodwill impairment was recognized. The fair values of all six of the Company’s reporting units were substantially in excess of the respective reporting units’ carrying value. The Investment Management reporting unit, with $7.3 billion of allocated goodwill, which is one of the two reporting units in the Investment and Wealth Management segment, exceeded its carrying value by approximately 25%. For the Investment Management reporting unit, in the future, small changes in the assumptions, such as changes in the level of AUM and operating margin, could produce a non-cash goodwill impairment. See “Critical accounting estimates” in our 2020 Annual Report for additional information on the annual goodwill impairment test.
Consolidated balance sheet review
One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators.
We also seek to undertake overall liquidity risk, including intraday liquidity risk, that stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.
At Sept.June 30, 2020,2021, total assets were $428$467 billion, compared with $382$470 billion at Dec. 31, 2019.2020. The increasedecrease in total assets was primarily driven by higher securities and lower
interest-bearing deposits with the Federal Reserve and other central banks, resulting from significant deposit inflows.partially offset by higher loans. Deposits totaled $296$339 billion at Sept.June 30, 2020,2021, compared with $259$342 billion at Dec. 31, 2019.2020. The increasedecrease reflects the current macroeconomic environment.lower interest-bearing deposits in both non-U.S. and U.S. offices, partially offset by higher noninterest-bearing deposits (principally U.S. offices). Total interest-bearing deposits as a percentage of total interest-earning assets were 58%61% at Sept.June 30, 20202021 and 62%63% at Dec. 31, 2019.2020.
At Sept.June 30, 2020,2021, available funds totaled $159$183 billion, which include cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. This compares with available funds of $145$196 billion at Dec. 31, 2019.2020. Total available funds as a percentage of total assets were 37%39% at Sept.June 30, 20202021 and 38%42% at Dec. 31, 2019.2020. For additional information on our available funds, see “Liquidity and dividends.”
Securities were $155$155.9 billion, or 36%33% of total assets, at Sept.June 30, 2020,2021, compared with $123$156.4 billion, or 32%33% of total assets, at Dec. 31, 2019.2020. The increasedecrease primarily reflects investments in U.S. Treasury securities,lower agency residential mortgage-backed securities (“RMBS”), supranational securities, and
U.S. government agency securities and a decrease in unrealized pre-tax gain, partially offset by an increase in the unrealized pre-tax gain.U.S. Treasury securities. For additional information on our securities portfolio, see “Securities” and Note 3 of the Notes to Consolidated Financial Statements.
Loans were $63.5 billion, or 14% of total assets, at June 30, 2021, compared with $56.5 billion, or 12% of total assets, at Dec. 31, 2020. The increase was
primarily driven by higher margin loans and overdrafts. For additional information on our loan portfolio, see “Loans” and Note 4 of the Notes to Consolidated Financial Statements.
Loans were $55.5Long-term debt totaled $25.6 billion or 13% of total assets, at Sept.June 30, 2020, compared with $55.02021 and $26.0 billion or 14% of total assets, at Dec. 31, 2019. The increase was primarily driven by higher overdrafts2020. Redemptions, a maturity and commercial real estate loans, partially offset by lower loans to financial institutions. For additional information on our loan portfolio, see “Loans” and Note 5 of the Notes to Consolidated Financial Statements.
Long-term debt totaled $26.1 billion at Sept. 30, 2020 and $27.5 billion at Dec. 31, 2019. Maturities and redemptions were partially offset by issuances and an increasea decrease in the fair value of hedged long-term debt.debt were partially offset by issuances. For additional information on long-term debt, see “Liquidity and dividends.”
The Bank of New York Mellon Corporation total shareholders’ equity increaseddecreased to $44.9$45.3 billion at
Sept. June 30, 20202021 from $41.5$45.8 billion at Dec. 31, 2019.2020. For additional information, see “Capital.”
Country risk exposure
The following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of Sept.June 30, 2020,2021, as well as certain countries with higher-riskhigher risk profiles, and is presented on an internal risk management basis. We monitor our exposure to these and other countries as part of our internal country risk management process.
The country risk exposure below reflects the Company’s risk to an immediate default of the counterparty or obligor based on the country of residence of the entity which incurs the liability. If there is credit risk mitigation, the country of residence of the entity providing the risk mitigation is the country of risk. The country of risk for securities is generally based on the domicile of the issuer of the security.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Country risk exposure at Sept. 30, 2020 | Interest-bearing deposits | | | | | | | | Total exposure | |
| (in billions) | Central banks | Banks | | Lending (a) | | Securities (b) | | Other (c) | | |
| Top 10 country exposure: | | | | | | | | | | | |
| United Kingdom (“UK”) | $ | 15.7 | | $ | 0.7 | | | $ | 1.2 | | | $ | 4.0 | | | $ | 2.1 | | | $ | 23.7 | | |
| Germany | 14.9 | | 0.6 | | | 0.7 | | | 4.3 | | | 0.3 | | | 20.8 | | |
| Japan | 17.4 | | 1.3 | | | — | | | 0.6 | | | 0.1 | | | 19.4 | | |
| Canada | — | | 2.5 | | | 0.1 | | | 3.9 | | | 1.1 | | | 7.6 | | |
| Belgium | 5.9 | | 0.2 | | | 0.1 | | | 0.3 | | | — | | | 6.5 | | |
| China | — | | 2.8 | | | 1.5 | | | — | | | 0.2 | | | 4.5 | | |
| Ireland | 0.7 | | 0.1 | | | 1.3 | | | 0.6 | | | 1.4 | | | 4.1 | | |
| France | — | | — | | | 0.1 | | | 2.7 | | | 0.2 | | | 3.0 | | |
| Luxembourg | 0.6 | | 0.2 | | | 0.2 | | | 0.1 | | | 1.8 | | | 2.9 | | |
| South Korea | 0.1 | | 0.7 | | | 1.8 | | | — | | | 0.1 | | | 2.7 | | |
| Total Top 10 country exposure | $ | 55.3 | | $ | 9.1 | | | $ | 7.0 | | | $ | 16.5 | | | $ | 7.3 | | | $ | 95.2 | | (d) |
| | | | | | | | | | | |
| Select country exposure: | | | | | | | | | | | |
| Italy | $ | 0.1 | | $ | 0.4 | | | $ | — | | | $ | 2.0 | | | $ | — | | | $ | 2.5 | | |
| Brazil | — | | — | | | 0.9 | | | 0.1 | | | 0.1 | | | 1.1 | | |
| Total select country exposure | $ | 0.1 | | $ | 0.4 | | | $ | 0.9 | | | $ | 2.1 | | | $ | 0.1 | | | $ | 3.6 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Country risk exposure at June 30, 2021 | Interest-bearing deposits | | | | | | | | Total exposure | |
| (in billions) | Central banks | Banks | | Lending (a) | | Securities (b) | | Other (c) | | |
| Top 10 country exposure: | | | | | | | | | | | |
| United Kingdom (“UK”) | $ | 19.6 | | $ | 0.4 | | | $ | 1.6 | | | $ | 3.4 | | | $ | 3.8 | | | $ | 28.8 | | |
| Germany | 22.2 | | 0.6 | | | 0.6 | | | 4.3 | | | 0.5 | | | 28.2 | | |
| Japan | 18.2 | | 0.9 | | | — | | | 0.5 | | | 0.2 | | | 19.8 | | |
| Belgium | 8.6 | | 0.7 | | | 0.1 | | | 0.2 | | | — | | | 9.6 | | |
| Canada | — | | 3.9 | | | 0.3 | | | 3.7 | | | 1.2 | | | 9.1 | | |
| Netherlands | 4.3 | | — | | | 0.3 | | | 2.0 | | | 0.1 | | | 6.7 | | |
| Luxembourg | 1.4 | | 0.1 | | | 0.2 | | | 0.1 | | | 2.8 | | | 4.6 | | |
| China | — | | 2.5 | | | 1.3 | | | — | | | 0.1 | | | 3.9 | | |
| Ireland | 0.7 | | 0.2 | | | 0.4 | | | 0.2 | | | 2.3 | | | 3.8 | | |
| France | — | | 0.4 | | | — | | | 2.8 | | | 0.3 | | | 3.5 | | |
| Total Top 10 country exposure | $ | 75.0 | | $ | 9.7 | | | $ | 4.8 | | | $ | 17.2 | | | $ | 11.3 | | | $ | 118.0 | | (d) |
| | | | | | | | | | | |
| Select country exposure: | | | | | | | | | | | |
| Italy | $ | 0.1 | | $ | — | | | $ | — | | | $ | 1.7 | | | $ | — | | | $ | 1.8 | | |
| Brazil | — | | — | | | 0.9 | | | 0.1 | | | 0.4 | | | 1.4 | | |
| Total select country exposure | $ | 0.1 | | $ | — | | | $ | 0.9 | | | $ | 1.8 | | | $ | 0.4 | | | $ | 3.2 | | |
(a) Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.
(b) Securities include both the available-for-sale and held-to-maturity portfolios.
(c) Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.
(d) The top 10 country exposures comprise approximately 75% of our total non-U.S. exposure.
Based on our internal country risk management process at Sept. 30, 2020, our largest country risk exposure was to the UK, which withdrew from the European Union (“EU”) on Jan. 31, 2020. For additional information, see “Other Matters - UK’s Withdrawal from the EU (“Brexit”)” and“Risk
Factors - 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” both included in our 2019 Annual Report.
Events in recent years have resulted in increased focus on Italy and Brazil. The country risk exposure to Italy primarily consists of investment grade sovereign debt. The country risk exposure to Brazil is primarily short-term trade finance loans extended to large financial institutions. We also have operations in Brazil providing investment services and investment management services.
Securities
In the discussion of our securities portfolio, we have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications for our securities portfolio could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.
The following table shows the distribution of our total securities portfolio.
| | Securities portfolio | Securities portfolio | June 30, 2020 | | 3Q20
change in
unrealized
gain (loss) | Sept. 30, 2020 | | Fair value as a % of amortized cost (a) | Unrealized
gain (loss) | | % Floating rate (b) | | Ratings (c) | Securities portfolio | March 31, 2021 | | 2Q21 change in unrealized gain (loss) | June 30, 2021 | | Fair value as a % of amortized cost (a) | Unrealized
gain (loss) | | % Floating rate (b) | | Ratings (c) |
| | | BBB+/
BBB- | BB+
and
lower | A1+/A2 & SP-1+ | | | | BBB+/
BBB- | BB+
and
lower | A1+/A2 & SP-1 | |
| (dollars in millions) | (dollars in millions) | Fair
value | | Amortized
cost | Fair
value | | AAA/
AA- | A+/
A- | Not
rated | (dollars in millions) | Fair
value | | Amortized cost (a) | Fair
value | | AAA/
AA- | A+/
A- | Not
rated |
| Agency RMBS | Agency RMBS | $ | 60,401 | | | $ | 47 | | $ | 61,348 | | $ | 62,922 | | | 103 | % | $ | 1,574 | | | 16 | % | | 100 | % | — | % | — | % | — | % | — | % | — | % | Agency RMBS | $ | 58,831 | | | $ | 66 | | $ | 53,154 | | $ | 53,944 | | | 101 | % | $ | 790 | | | 14 | % | | 100 | % | — | % | — | % | — | % | — | % | — | % |
| U.S. Treasury | U.S. Treasury | 28,651 | | | 83 | | 26,454 | | 26,964 | | | 102 | | 510 | | | 42 | | | 100 | | — | | — | | — | | — | | — | | U.S. Treasury | 30,595 | | | (28) | | 34,112 | | 34,267 | | | 100 | | 155 | | | 53 | | | 100 | | — | | — | | — | | — | | — | |
Sovereign debt/sovereign guaranteed (d) | Sovereign debt/sovereign guaranteed (d) | 16,868 | | | 8 | | 14,908 | | 15,086 | | | 101 | | 178 | | | 10 | | | 67 | | 7 | | 25 | | 1 | | — | | — | | Sovereign debt/sovereign guaranteed (d) | 14,571 | | | (6) | | 14,098 | | 14,209 | | | 101 | | 111 | | | 16 | | | 75 | | 5 | | 19 | | 1 | | — | | — | |
| Agency commercial mortgage-backed securities (“MBS”) | Agency commercial mortgage-backed securities (“MBS”) | 11,731 | | | 45 | | 11,340 | | 11,777 | | | 104 | | 437 | | | 32 | | | 100 | | — | | — | | — | | — | | — | | Agency commercial mortgage-backed securities (“MBS”) | 11,730 | | | 72 | | 11,360 | | 11,678 | | | 103 | | 318 | | | 30 | | | 100 | | — | | — | | — | | — | | — | |
| Supranational | Supranational | 5,484 | | | 5 | | 7,121 | | 7,176 | | | 101 | | 55 | | | 46 | | | 100 | | — | | — | | — | | — | | — | | Supranational | 7,505 | | | — | | 8,121 | | 8,157 | | | 100 | | 36 | | | 56 | | | 100 | | — | | — | | — | | — | | — | |
Foreign covered bonds (e) | Foreign covered bonds (e) | 5,598 | | | 14 | | 5,777 | | 5,841 | | | 101 | | 64 | | | 35 | | | 99 | | 1 | | — | | — | | — | | — | | Foreign covered bonds (e) | 6,542 | | | (10) | | 6,752 | | 6,793 | | | 101 | | 41 | | | 35 | | | 100 | | — | | — | | — | | — | | — | |
| U.S. government agencies | U.S. government agencies | 5,056 | | | 8 | | 5,566 | | 5,646 | | | 101 | | 80 | | | 21 | | | 100 | | — | | — | | — | | — | | — | | U.S. government agencies | 5,469 | | | 43 | | 5,446 | | 5,460 | | | 100 | | 14 | | | 25 | | | 100 | | — | | — | | — | | — | | — | |
| Collateralized loan obligations (“CLOs”) | Collateralized loan obligations (“CLOs”) | 4,432 | | | 44 | | 4,707 | | 4,657 | | | 99 | | (50) | | | 100 | | | 99 | | — | | — | | — | | — | | 1 | | Collateralized loan obligations (“CLOs”) | 4,754 | | | (1) | | 5,137 | | 5,139 | | | 100 | | 2 | | | 100 | | | 99 | | — | | — | | — | | — | | 1 | |
| Non-agency commercial MBS | | Non-agency commercial MBS | 2,948 | | | 41 | | 3,181 | | 3,263 | | | 103 | | 82 | | | 24 | | | 99 | | 1 | | — | | — | | — | | — | |
Foreign government agencies (f) | Foreign government agencies (f) | 3,575 | | | 4 | | 3,924 | | 3,967 | | | 101 | | 43 | | | 29 | | | 94 | | 6 | | — | | — | | — | | — | | Foreign government agencies (f) | 2,697 | | | (4) | | 2,693 | | 2,708 | | | 101 | | 15 | | | 13 | | | 92 | | 8 | | — | | — | | — | | — | |
| State and political subdivisions | | State and political subdivisions | 2,649 | | | 27 | | 2,610 | | 2,621 | | | 100 | | 11 | | | — | | | 83 | | 10 | | — | | — | | 6 | | 1 | |
Non-agency RMBS (g) | | Non-agency RMBS (g) | 2,509 | | | (5) | | 2,391 | | 2,530 | | | 106 | | 139 | | | 50 | | | 74 | | 4 | | — | | 11 | | — | | 11 | |
| Other asset-backed securities (“ABS”) | Other asset-backed securities (“ABS”) | 2,743 | | | 8 | | 2,903 | | 2,930 | | | 101 | | 27 | | | 25 | | | 99 | | — | | — | | 1 | | — | | — | | Other asset-backed securities (“ABS”) | 2,628 | | | (1) | | 2,446 | | 2,456 | | | 100 | | 10 | | | 19 | | | 100 | | — | | — | | — | | — | | — | |
| Non-agency commercial MBS | 2,602 | | | 34 | | 2,565 | | 2,684 | | | 105 | | 119 | | | 23 | | | 100 | | — | | — | | — | | — | | — | | |
Non-agency RMBS (g) | 1,672 | | | 14 | | 1,864 | | 2,013 | | | 108 | | 149 | | | 55 | | | 60 | | 5 | | 2 | | 20 | | — | | 13 | | |
| State and political subdivisions | 1,196 | | | (1) | | 1,676 | | 1,705 | | | 102 | | 29 | | | 1 | | | 83 | | 13 | | 3 | | — | | — | | 1 | | |
| Corporate bonds | Corporate bonds | 831 | | | — | | 988 | | 1,030 | | | 104 | | 42 | | | — | | | 19 | | 64 | | 17 | | — | | — | | — | | Corporate bonds | 2,238 | | | 50 | | 2,348 | | 2,347 | | | 100 | | (1) | | | — | | | 16 | | 68 | | 16 | | — | | — | | — | |
| Commercial paper/CDs | 3,392 | | | (4) | | 650 | | 652 | | | 100 | | 2 | | | 55 | | | — | | — | | — | | — | | 100 | | — | | |
| | Other | Other | 1 | | | — | | 1 | | 1 | | | 100 | | — | | | — | | | — | | — | | — | | — | | — | | 100 | | Other | 1 | | | — | | 1 | | 1 | | | 100 | | — | | | — | | | — | | — | | — | | — | | — | | 100 | |
| Total securities | Total securities | $ | 154,233 | | (h) | $ | 309 | | $ | 151,792 | | $ | 155,051 | | (h) | 102 | % | $ | 3,259 | | (h)(i) | 27 | % | | 95 | % | 2 | % | 3 | % | — | % | — | % | — | % | Total securities | $ | 155,667 | | (h) | $ | 244 | | $ | 153,850 | | $ | 155,573 | | (h) | 101 | % | $ | 1,723 | | (h)(i) | 31 | % | | 96 | % | 2 | % | 2 | % | — | % | — | % | — | % |
(a) Amortized cost reflects historical impairments, but does not include the impactand is net of the allowance for credit losses.
(b) Includes the impact of hedges.
(c) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(d) Primarily consists of exposure to Germany, UK, France, Italy, SpainUK, Singapore and Singapore.Spain.
(e) Primarily consists of exposure to Canada, UK, Australia and Norway.
(f) Primarily consists of exposure to Germany, the Netherlands, Canada, France and Canada.Sweden.
(g) Includes RMBS that were included in the former Grantor Trust of $538$451 million at March 31, 2021 and $416 million at June 30, 2020 and $512 million at Sept. 30, 2020.2021.
(h) Includes net unrealized losses on derivatives hedging securities available-for-sale (including terminated hedges) of $1,817$634 million at March 31, 2021 and $927 million at June 30, 2020 and $1,650 million at Sept. 30, 2020.2021.
(i) Includes unrealized gains of $1,897$1,129 million at Sept.June 30, 20202021 related to available-for-sale securities, net of hedges, and $1,362$594 million related to held-to-maturity securities.
The fair value of our securities portfolio, including related hedges, was $155.1$155.6 billion at Sept.June 30, 2020,2021, compared with $122.7$156.3 billion at Dec. 31, 2019.2020. The increasedecrease primarily reflects investmentslower agency RMBS and a decrease in unrealized pre-tax gain, partially offset by an increase in U.S. Treasury agency RMBS, supranational and U.S. government agency securities and an increase in unrealized pre-tax gain.securities.
Included in the securities portfolio at Sept.At June 30, 2020 were $159 million of commercial paper and $198 million of CDs purchased from affiliated money market mutual funds in order to provide liquidity support to the funds. Additionally, at Sept. 30, 2020, the securities portfolio included $295 million of commercial paper and CDs purchased from money market mutual funds managed by third parties and funded through the MMLF program.
At Sept. 30, 2020,2021, the securities portfolio had a net unrealized gain, including the impact of related hedges, of $3.3$1.7 billion, compared with $796 million$3.2 billion at Dec. 31, 2019.2020. The increasedecrease in the net unrealized pre-tax gain, including the impact of hedges, was primarily driven by lowerhigher market interest rates.
The fair value of the available-for-sale securities totaled $107.6 million$102.7 billion at Sept.June 30, 2020,2021, net of hedges, or 69%66% of the securities portfolio, net of hedges. The fair value of the held-to-maturity securities totaled $47.5 million$52.9 billion at June 30, 2021, or 31%34% of the securities portfolio, net of hedges.
The unrealized gain (after-tax) on our available-for-sale securities portfolio, net of hedges, included in
accumulated other comprehensive income (“OCI”) was $1.4 billion$854 million at Sept.June 30, 2020,2021, compared with $361 million$1.5 billion at Dec. 31, 2019.2020. The increasedecrease in the unrealized gain, net of tax, was primarily driven by lowerhigher market interest rates.
At Sept.June 30, 2020, 95%2021, 96% of the securities in our portfolio were rated AAA/AA-, unchanged when compared with 95% at Dec. 31, 2019.2020.
See Note 43 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 1514 of the Notes to Consolidated Financial Statements for details of securities by level in the fair value hierarchy.
The following table presents the amortizable purchase premium (net of discount) related to the securities portfolio and accretable discount related to the 2009 restructuring of the securities portfolio.
| Net premium amortization and discount accretion of securities (a) | Net premium amortization and discount accretion of securities (a) | | | Net premium amortization and discount accretion of securities (a) | | |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | | (dollars in millions) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | |
| Amortizable purchase premium (net of discount) relating to securities: | Amortizable purchase premium (net of discount) relating to securities: | | | Amortizable purchase premium (net of discount) relating to securities: | | |
| Balance at period end | $ | 2,050 | | $ | 1,693 | | $ | 1,555 | | $ | 1,319 | | $ | 1,308 | | | |
Estimated average life remaining at period end (in years) | 3.8 | | 3.7 | | 3.8 | | 4.3 | | 4.2 | | | |
| Balance at period-end | | Balance at period-end | $ | 2,067 | | $ | 2,195 | | $ | 2,283 | | $ | 2,050 | | $ | 1,693 | | |
Estimated average life remaining at period-end (in years) | | Estimated average life remaining at period-end (in years) | 4.4 | | 4.3 | | 3.9 | | 3.8 | | 3.7 | | |
| Amortization | Amortization | $ | 161 | | $ | 125 | | $ | 101 | | $ | 100 | | $ | 95 | | | Amortization | $ | 183 | | $ | 189 | | $ | 181 | | $ | 161 | | $ | 125 | | |
| Accretable discount related to the prior restructuring of the securities portfolio: | Accretable discount related to the prior restructuring of the securities portfolio: | | | Accretable discount related to the prior restructuring of the securities portfolio: | | |
| Balance at period end | $ | 133 | | $ | 145 | | $ | 159 | | $ | 163 | | $ | 171 | | | |
Estimated average life remaining at period end (in years) | 5.7 | | 5.8 | | 6.1 | | 6.3 | | 6.3 | | | |
| Balance at period-end | | Balance at period-end | $ | 118 | | $ | 121 | | $ | 130 | | $ | 133 | | $ | 145 | | |
Estimated average life remaining at period-end (in years) | | Estimated average life remaining at period-end (in years) | 6.1 | | 5.9 | | 5.6 | | 5.7 | | 5.8 | | |
| Accretion | Accretion | $ | 9 | | $ | 10 | | $ | 11 | | $ | 12 | | $ | 13 | | | Accretion | $ | 9 | | $ | 12 | | $ | 8 | | $ | 9 | | $ | 10 | | |
(a) Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were recorded on a level yield basis.
Loans
| | Total exposure – consolidated | Total exposure – consolidated | Sept. 30, 2020 | | Dec. 31, 2019 | Total exposure – consolidated | June 30, 2021 | | Dec. 31, 2020 |
| (in billions) | (in billions) | Loans | Unfunded
commitments | Total
exposure | | Loans | Unfunded
commitments | Total
exposure | (in billions) | Loans | Unfunded
commitments | Total
exposure | | Loans | Unfunded
commitments | Total
exposure |
| Non-margin loans: | Non-margin loans: | | Non-margin loans: | |
| Financial institutions | Financial institutions | $ | 11.0 | | $ | 33.5 | | $ | 44.5 | | | $ | 12.5 | | $ | 34.4 | | $ | 46.9 | | Financial institutions | $ | 10.7 | | $ | 32.4 | | $ | 43.1 | | | $ | 11.2 | | $ | 32.8 | | $ | 44.0 | |
| Commercial | Commercial | 1.9 | | 12.2 | | 14.1 | | | 1.8 | | 12.6 | | 14.4 | | Commercial | 1.7 | | 12.3 | | 14.0 | | | 1.4 | | 12.7 | | 14.1 | |
| Subtotal institutional | Subtotal institutional | 12.9 | | 45.7 | | 58.6 | | | 14.3 | | 47.0 | | 61.3 | | Subtotal institutional | 12.4 | | 44.7 | | 57.1 | | | 12.6 | | 45.5 | | 58.1 | |
| Wealth management loans and mortgages | Wealth management loans and mortgages | 15.9 | | 0.9 | | 16.8 | | | 16.2 | | 0.8 | | 17.0 | | Wealth management loans and mortgages | 17.5 | | 1.1 | | 18.6 | | | 16.4 | | 1.1 | | 17.5 | |
| Commercial real estate | Commercial real estate | 6.0 | | 3.2 | | 9.2 | | | 5.6 | | 3.6 | | 9.2 | | Commercial real estate | 6.1 | | 3.5 | | 9.6 | | | 6.1 | | 3.2 | | 9.3 | |
| Lease financings | Lease financings | 1.1 | | — | | 1.1 | | | 1.1 | | — | | 1.1 | | Lease financings | 0.9 | | — | | 0.9 | | | 1.0 | | — | | 1.0 | |
| Other residential mortgages | Other residential mortgages | 0.4 | | — | | 0.4 | | | 0.5 | | — | | 0.5 | | Other residential mortgages | 0.3 | | — | | 0.3 | | | 0.4 | | — | | 0.4 | |
| Overdrafts | Overdrafts | 4.0 | | — | | 4.0 | | | 2.7 | | — | | 2.7 | | Overdrafts | 4.3 | | — | | 4.3 | | | 2.7 | | — | | 2.7 | |
| Other | Other | 1.7 | | — | | 1.7 | | | 1.2 | | — | | 1.2 | | Other | 2.1 | | — | | 2.1 | | | 1.9 | | — | | 1.9 | |
| Subtotal non-margin loans | Subtotal non-margin loans | 42.0 | | 49.8 | | 91.8 | | | 41.6 | | 51.4 | | 93.0 | | Subtotal non-margin loans | 43.6 | | 49.3 | | 92.9 | | | 41.1 | | 49.8 | | 90.9 | |
| Margin loans | Margin loans | 13.5 | | 0.1 | | 13.6 | | | 13.4 | | 0.1 | | 13.5 | | Margin loans | 19.9 | | 0.1 | | 20.0 | | | 15.4 | | 0.1 | | 15.5 | |
| Total | Total | $ | 55.5 | | $ | 49.9 | | $ | 105.4 | | | $ | 55.0 | | $ | 51.5 | | $ | 106.5 | | Total | $ | 63.5 | | $ | 49.4 | | $ | 112.9 | | | $ | 56.5 | | $ | 49.9 | | $ | 106.4 | |
At Sept.June 30, 2020,2021, total lending-related exposure of $105.4$112.9 billion decreased 1%increased 6% compared with Dec. 31, 2019,2020, primarily reflecting lower exposure to financial institutions,higher margin loans, overdrafts and wealth management loans and mortgages, partially offset by higher overdrafts.
Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 56%51% of our total exposure at Sept.June 30, 20202021 and 58%55% at Dec. 31, 2019.2020. Additionally, most of our overdrafts relate to financial institutions.
Financial institutions
The financial institutions portfolio is shown below.
| Financial institutions portfolio exposure (dollars in billions) | Financial institutions portfolio exposure (dollars in billions) | Sept. 30, 2020 | | Dec. 31, 2019 | Financial institutions portfolio exposure (dollars in billions) | June 30, 2021 | | Dec. 31, 2020 |
| Loans | Unfunded
commitments | Total
exposure | % Inv.
grade | % due
<1 yr. | | Loans | Unfunded
commitments | Total
exposure | Loans | Unfunded
commitments | Total
exposure | % Inv.
grade | % due
<1 yr. | | Loans | Unfunded
commitments | Total
exposure |
| Securities industry | Securities industry | $ | 2.8 | | $ | 22.3 | | $ | 25.1 | | 97 | % | 99 | % | | $ | 2.9 | | $ | 23.4 | | $ | 26.3 | | Securities industry | $ | 2.4 | | $ | 20.2 | | $ | 22.6 | | 97 | % | 99 | % | | $ | 2.3 | | $ | 21.6 | | $ | 23.9 | |
| Asset managers | Asset managers | 1.2 | | 6.5 | | 7.7 | | 98 | | 83 | | | 1.3 | | 6.4 | | 7.7 | | Asset managers | 1.5 | | 6.9 | | 8.4 | | 98 | | 81 | | | 1.4 | | 6.4 | | 7.8 | |
| Banks | Banks | 6.1 | | 1.1 | | 7.2 | | 85 | | 97 | | | 7.4 | | 1.1 | | 8.5 | | Banks | 6.0 | | 1.1 | | 7.1 | | 85 | | 95 | | | 6.7 | | 1.1 | | 7.8 | |
| Insurance | Insurance | 0.1 | | 2.7 | | 2.8 | | 100 | | 16 | | | — | | 2.7 | | 2.7 | | Insurance | 0.2 | | 3.0 | | 3.2 | | 100 | | 22 | | | 0.1 | | 2.8 | | 2.9 | |
| Government | Government | 0.1 | | 0.2 | | 0.3 | | 100 | | 47 | | | 0.1 | | 0.3 | | 0.4 | | Government | 0.1 | | 0.2 | | 0.3 | | 100 | | 44 | | | 0.1 | | 0.2 | | 0.3 | |
| Other | Other | 0.7 | | 0.7 | | 1.4 | | 96 | | 53 | | | 0.8 | | 0.5 | | 1.3 | | Other | 0.5 | | 1.0 | | 1.5 | | 96 | | 44 | | | 0.6 | | 0.7 | | 1.3 | |
| Total | Total | $ | 11.0 | | $ | 33.5 | | $ | 44.5 | | 95 | % | 89 | % | | $ | 12.5 | | $ | 34.4 | | $ | 46.9 | | Total | $ | 10.7 | | $ | 32.4 | | $ | 43.1 | | 96 | % | 87 | % | | $ | 11.2 | | $ | 32.8 | | $ | 44.0 | |
The financial institutions portfolio exposure was $44.5$43.1 billion at Sept.June 30, 2020,2021, a decrease of 5%2% compared with Dec. 31, 2019,2020, primarily reflecting a decrease in loans to banks and unfunded commitmentslower exposure to the securities industry.industry and banks portfolios, partially offset by higher exposure to the asset managers portfolio.
Financial institution exposures are high quality,high-quality, with 95%96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept.June 30, 2020.2021. Each customer is assigned an internal credit rating, which is mapped to an equivalent external rating agency grade based upon a number of dimensions, which are continually evaluated and may change over time. For ratings of non-U.S. counterparties, our internal credit rating is generally capped at a rating equivalent to the sovereign rating of the country where the counterparty resides, regardless of the internal credit rating assigned to the counterparty or the underlying collateral.
The exposure to financial institutions is generally short-term, with 87% of the exposures expiring within one year. At June 30, 2021, 16% of the exposure to financial institutions had an expiration within 90 days, compared with 18% at Dec. 31, 2020.
In addition, 75%71% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.
The exposure to financial institutions is generally short-term, with 89% of the exposures expiring within one year. At Sept.June 30, 2020, 61% of the exposure to financial institutions had an expiration within 90 days, compared with 18% at Dec. 31, 2019.
Secured intraday credit facilities represent approximately 40% of the exposure in the financial institutions portfolio and are reviewed and reapproved annually.
At Sept. 30, 2020,2021, the secured intradayintra-day credit provided to dealers in connection with their tri-party repo activity totaled $18.9$17.2 billion and was included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit.
Our banks exposure primarily relates to our global trade finance. These exposures are short-term in nature, with 97% due in less than one year. The investment grade percentage of our banks exposure was 85% at Sept. 30, 2020, compared with 77% at Dec. 31, 2019. Our non-investment grade exposures are primarily trade finance loans in Brazil.
The asset managers portfolio exposure is high-quality, with 98% of the exposures meeting our investment grade equivalent ratings criteria as of Sept.June 30, 2020.2021. These exposures are generally short-term liquidity facilities, with the majority to regulated mutual funds.
Our banks exposure primarily relates to our global trade finance. These exposures are short-term in nature, with 95% due in less than one year. The investment grade percentage of our banks exposure was 85% at both June 30, 2021 and Dec. 31, 2020. Our non-investment grade exposures are primarily trade finance loans in Brazil.
Commercial
The commercial portfolio is presented below.
| | Commercial portfolio exposure | Commercial portfolio exposure | Sept. 30, 2020 | | Dec. 31, 2019 | Commercial portfolio exposure | June 30, 2021 | | Dec. 31, 2020 |
| (dollars in billions) | (dollars in billions) | Loans | Unfunded
commitments | Total
exposure | % Inv.
grade | % due
<1 yr. | | Loans | Unfunded
commitments | Total
exposure | (dollars in billions) | Loans | Unfunded
commitments | Total
exposure | % Inv.
grade | % due
<1 yr. | | Loans | Unfunded
commitments | Total
exposure |
| Services and other | $ | 1.0 | | $ | 3.5 | | $ | 4.5 | | 94 | % | 37 | % | | $ | 0.6 | | $ | 3.7 | | $ | 4.3 | | |
| Manufacturing | Manufacturing | 0.7 | | 3.8 | | 4.5 | | 94 | | 21 | | | 0.9 | | 4.2 | | 5.1 | | Manufacturing | $ | 0.6 | | $ | 3.9 | | $ | 4.5 | | 96 | % | 18 | % | | $ | 0.5 | | $ | 4.1 | | $ | 4.6 | |
| Energy and utilities | Energy and utilities | 0.2 | | 4.0 | | 4.2 | | 89 | | 5 | | | 0.3 | | 3.7 | | 4.0 | | Energy and utilities | 0.3 | | 4.0 | | 4.3 | | 89 | | 5 | | | 0.3 | | 3.9 | | 4.2 | |
| Services and other | | Services and other | 0.7 | | 3.5 | | 4.2 | | 95 | | 40 | | | 0.6 | | 3.8 | | 4.4 | |
| Media and telecom | Media and telecom | — | | 0.9 | | 0.9 | | 93 | | 3 | | | — | | 1.0 | | 1.0 | | Media and telecom | 0.1 | | 0.9 | | 1.0 | | 93 | | 11 | | | — | | 0.9 | | 0.9 | |
| Total | Total | $ | 1.9 | | $ | 12.2 | | $ | 14.1 | | 93 | % | 20 | % | | $ | 1.8 | | $ | 12.6 | | $ | 14.4 | | Total | $ | 1.7 | | $ | 12.3 | | $ | 14.0 | | 93 | % | 20 | % | | $ | 1.4 | | $ | 12.7 | | $ | 14.1 | |
The commercial portfolio exposure was $14.1$14.0 billion at Sept.June 30, 2020,2021, a decrease of 2%1% from Dec. 31, 2019,2020, primarily driven by lower exposure in the manufacturing portfolio, partially offset by increased exposure into the services and other and energy and utilities portfolios.portfolio.
We have $734$676 million of total direct exposure to the oil and gas industry at June 30, 2021, most of which is reflected in the energy and utilities portfolio in the table above. This exposure is to exploration and production, refining and integrated companies and was 65% investment grade at Sept.June 30, 20202021 and 91%66% at Dec. 31, 2019.2020.
Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.
| | Percentage of the portfolios that are investment grade | Percentage of the portfolios that are investment grade | | Percentage of the portfolios that are investment grade | |
| | Quarter ended | | Quarter ended | |
| | Sept. 30, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | June 30, 2020 | |
| Financial institutions | Financial institutions | 95 | % | 95 | % | 96 | % | 95 | % | 95 | % | Financial institutions | 96 | % | 96 | % | 95 | % | 95 | % | 95 | % | |
| Commercial | Commercial | 93 | % | 92 | % | 94 | % | 96 | % | 95 | % | Commercial | 93 | % | 92 | % | 92 | % | 93 | % | 92 | % | |
Wealth management loans and mortgages
Our wealth management exposure was $16.8$18.6 billion at Sept.June 30, 2020,2021, compared with $17.0$17.5 billion at Dec. 31, 2019.2020. Wealth management loans and mortgages primarily consist of loans to high-net-worth individuals, which are secured by marketable securities and/or residential property. Wealth management mortgages are primarily interest-only, adjustable-rate mortgages with a weighted-average loan-to-value ratio of 62% at origination. Less than 1% of the mortgages were past due at Sept.June 30, 2020.2021.
At Sept.June 30, 2020,2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California -– 22%; New York - 17%– 16%; Massachusetts - 10%– 9%; Florida - 8%– 9%; and other - 43%– 44%.
Commercial real estate
The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.
| | Composition of commercial real estate portfolio by asset class | Composition of commercial real estate portfolio by asset class | Sept. 30, 2020 | | Dec. 31, 2019 | Composition of commercial real estate portfolio by asset class | June 30, 2021 | | Dec. 31, 2020 |
| | Total
exposure | Percentage secured (a) | | Total
exposure | Percentage secured (a) | | Total
exposure | Percentage secured (a) | | Total
exposure | Percentage secured (a) |
| (in billions) | (in billions) | | (in billions) | |
| | Residential | Residential | $ | 3.2 | | 87 | % | | $ | 3.1 | | 86 | % | Residential | $ | 3.4 | | 82 | % | | $ | 3.3 | | 86 | % |
| Office | Office | 2.8 | | 76 | | | 3.1 | | 77 | | Office | 2.6 | | 77 | | | 2.8 | | 75 | |
| Retail | Retail | 1.0 | | 52 | | | 1.0 | | 57 | | Retail | 0.9 | | 57 | | | 1.0 | | 52 | |
| Mixed-use | Mixed-use | 0.8 | | 20 | | | 0.6 | | 24 | | Mixed-use | 0.7 | | 21 | | | 0.7 | | 22 | |
| Hotels | Hotels | 0.6 | | 19 | | | 0.6 | | 17 | | Hotels | 0.6 | | 20 | | | 0.6 | | 20 | |
| Healthcare | Healthcare | 0.3 | | 10 | | | 0.3 | | — | | Healthcare | 0.4 | | 22 | | | 0.4 | | 25 | |
| Other | Other | 0.5 | | 24 | | | 0.5 | | 21 | | Other | 1.0 | | 11 | | | 0.5 | | 23 | |
| Total commercial real estate | Total commercial real estate | $ | 9.2 | | 64 | % | | $ | 9.2 | | 65 | % | Total commercial real estate | $ | 9.6 | | 60 | % | | $ | 9.3 | | 64 | % |
(a) Represents the amount of secured exposure in each asset class.
Our commercial real estate exposure totaled $9.2$9.6 billion at Sept.June 30, 20202021 and $9.3 billion at Dec. 31, 2019.2020. Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. Loans are approved on the basis of existing or projected cash flows and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage, and in many instances, involve some level of recourse to the developer.
At Sept.June 30, 2020,2021, the unsecured portfolio consistsconsisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both primarily investment grade.
At Sept.June 30, 2020,2021, our commercial real estate portfolio consisted of the following concentrations: New York metro - 39%– 35%; REITs and real estate operating companies - 36%– 40%; and other -– 25%.
Lease financings
The lease financings portfolio exposure totaled $1.1$0.9 billion at Sept.June 30, 20202021 and $1.0 billion at Dec. 31, 2019.2020. At Sept.June 30, 2020,2021, approximately 98% of leasing exposure was investment grade, or investment grade equivalent and consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment and real estate.equipment. The largest component of our lease residual value exposure is freight-related rail cars.
freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in the U.S.Germany and Germany.the U.S.
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $423$339 million at Sept.June 30, 20202021 and $494$389 million at Dec. 31, 2019.2020. Included in this portfolio at Sept.June 30, 20202021 were $76$59 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007, of which 19% of the serviced loan balance was at least 60 days delinquent.2007.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients 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
Margin loan exposure of $13.6$20.0 billion at Sept.June 30, 20202021 and $13.5$15.5 billion at Dec. 31, 20192020 was collateralized with marketable securities. Borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. Margin loans included $3.6$7.3 billion at Sept.June 30, 20202021 and $4.6 billion at Dec. 31, 20192020 related to a term loan program that offers fully collateralized loans to broker-dealers.
Allowance for credit losses
Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a customer consists of funded loans, unfunded contractual commitments to lend, standby letters of credit (“SBLC”) and overdrafts associated with our custody and securities clearance businesses.
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 of the Notes to Consolidated Financial Statements for the significant accounting policy related to allowance for credit losses on loans and lending-related commitments.
The following table details changes in our allowance for credit losses.
| | Allowance for credit losses activity | Allowance for credit losses activity | Sept. 30, 2020 | | June 30, 2020 | | | Dec. 31, 2019 | Sept. 30, 2019 | Allowance for credit losses activity | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | | June 30, 2020 |
| (dollars in millions) | (dollars in millions) | Dec. 31, 2019 | June 30, 2021 |
| | | Beginning balance of allowance for credit losses | Beginning balance of allowance for credit losses | $ | 475 | | | $ | 329 | | | | $ | 224 | | $ | 241 | | Beginning balance of allowance for credit losses | $ | 419 | | $ | 501 | | $ | 486 | | | $ | 329 | |
| | Provision for credit losses | Provision for credit losses | 9 | | | 143 | | | | (8) | | (16) | | Provision for credit losses | (86) | | (83) | | 15 | | | 143 | |
| | Net recoveries (charge-offs): | Net recoveries (charge-offs): | | | | Net recoveries (charge-offs): | | | |
| Loans: | Loans: | | | | Loans: | | | |
| Financial institutions | | Financial institutions | 2 | | — | | — | | | — | |
| Other residential mortgages | Other residential mortgages | 1 | | | 3 | | | | — | | — | | Other residential mortgages | — | | 2 | | — | | | 3 | |
| Commercial | — | | | — | | | | — | | (1) | | |
| Wealth management loans and mortgages | | Wealth management loans and mortgages | — | | (1) | | — | | | — | |
| | Other financial instruments | | Other financial instruments | — | | — | | — | | | — | |
| Net recoveries | | Net recoveries | 2 | | 1 | | — | | | 3 | |
| | Other financial instruments | 1 | | | — | | | | N/A | |
| Net recoveries (charge-offs) | 2 | | | 3 | | | | — | | (1) | | |
| | Ending balance of allowance for credit losses | Ending balance of allowance for credit losses | $ | 486 | | | $ | 475 | | | | $ | 216 | | $ | 224 | | Ending balance of allowance for credit losses | $ | 335 | | $ | 419 | | $ | 501 | | | $ | 475 | |
| | Allowance for loan losses | Allowance for loan losses | $ | 325 | | | $ | 302 | | | | $ | 122 | | $ | 127 | | Allowance for loan losses | $ | 269 | | $ | 327 | | $ | 358 | | | $ | 302 | |
| Allowance for lending-related commitments | Allowance for lending-related commitments | 135 | | | 152 | | | | 94 | | 97 | | Allowance for lending-related commitments | 50 | | 73 | | 121 | | | 152 | |
| Allowance for financial instruments | 26 | | (a) | 21 | | (a) | | N/A | |
Allowance for financial instruments (a) | | Allowance for financial instruments (a) | 16 | | 19 | | 22 | | | 21 | |
| Total allowance for credit losses | Total allowance for credit losses | $ | 486 | | | $ | 475 | | | | $ | 216 | | $ | 224 | | Total allowance for credit losses | $ | 335 | | $ | 419 | | $ | 501 | | | $ | 475 | |
| | Non-margin loans | Non-margin loans | $ | 41,993 | | | $ | 42,488 | | | | $ | 41,567 | | $ | 44,417 | | Non-margin loans | $ | 43,624 | | $ | 42,839 | | $ | 41,053 | | | $ | 42,488 | |
| Margin loans | Margin loans | 13,498 | | | 12,909 | | | | 13,386 | | 10,464 | | Margin loans | 19,923 | | 17,893 | | 15,416 | | | 12,909 | |
| Total loans | Total loans | $ | 55,491 | | | $ | 55,397 | | | | $ | 54,953 | | $ | 54,881 | | Total loans | $ | 63,547 | | $ | 60,732 | | $ | 56,469 | | | $ | 55,397 | |
| | Allowance for loan losses as a percentage of total loans | Allowance for loan losses as a percentage of total loans | 0.59 | % | | 0.55 | % | | | 0.22 | % | 0.23 | % | Allowance for loan losses as a percentage of total loans | 0.42 | % | 0.54 | % | 0.63 | % | | 0.55 | % |
| Allowance for loan losses as a percentage of non-margin loans | Allowance for loan losses as a percentage of non-margin loans | 0.77 | | | 0.71 | | | | 0.29 | | 0.29 | | Allowance for loan losses as a percentage of non-margin loans | 0.62 | | 0.76 | | 0.87 | | | 0.71 | |
| Allowance for loan losses and lending-related commitments as a percentage of total loans | Allowance for loan losses and lending-related commitments as a percentage of total loans | 0.83 | | | 0.82 | | | | 0.39 | | 0.41 | | Allowance for loan losses and lending-related commitments as a percentage of total loans | 0.50 | | 0.66 | | 0.85 | | | 0.82 | |
| Allowance for loan losses and lending-related commitments as a percentage of non-margin loans | Allowance for loan losses and lending-related commitments as a percentage of non-margin loans | 1.10 | | | 1.07 | | | | 0.52 | | 0.50 | | Allowance for loan losses and lending-related commitments as a percentage of non-margin loans | 0.73 | | 0.93 | | 1.17 | | | 1.07 | |
(a) Includes allowance for credit losses on federal funds sold and securities purchased under resale agreements, available-for-sale securities, held-to-maturity securities, accounts receivable, cash and due from banks and interest-bearing deposits with banks.
N/A - Not applicable.
The provision for credit losses was a benefit of $9$86 million in the third quarter of 2020 reflects a fairly consistent macroeconomic outlook compared with the second quarter of 2020.2021, primarily driven by an improved macroeconomic forecast.
We had $13.5$19.9 billion of secured margin loans on our balance sheet at Sept.June 30, 20202021 compared with $13.4$15.4 billion at Dec. 31, 2019.2020. We have rarely suffered a loss on these types of loans. As a result, we believe that the ratio of allowance for loan losses and lending-related commitments as a percentage of non-
marginnon-margin loans is a more appropriate metric to measure the adequacy of the reserve.
The allowance for loan losses and allowance for lending-related commitments represent management’s estimate of lifetime expected losses in our credit portfolio. This evaluation process is subject to numerous estimates and judgments. To the extent actual results differ from forecasts or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs.
Based on an evaluation of the allowance for credit losses as discussed in “Critical accounting estimates” and Note 2 of the Notes to Consolidated Financial Statements,estimates,” in our 2020 Annual Report, we have allocated our allowance for loans and lending-related commitments as presented below.
| | | | | | | | | | | | | | | | | | | | | |
| Allocation of allowance for loan losses and lending-related commitments | Sept. 30, 2020 | | June 30, 2020 | | | Dec. 31, 2019 | Sept. 30, 2019 |
| | |
| Commercial real estate | 84 | % | | 81 | % | | | 35 | % | 35 | % |
| Commercial | 6 | | | 9 | | | | 28 | | 27 | |
| Financial institutions | 2 | | | 4 | | | | 9 | | 9 | |
| Other residential mortgages | 4 | | | 3 | | | | 6 | | 6 | |
Wealth management (b) | 3 | | | 2 | | | | 9 | | 9 | |
| Lease financings | 1 | | | 1 | | | | 2 | | 1 | |
| Foreign | — | | (a) | — | | | (a) | 11 | | 13 | |
| Total | 100 | % | | 100 | % | | | 100 | % | 100 | % |
| | | | | | | | | | | | | | |
| Allocation of allowance for loan losses and lending-related commitments | |
| June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | June 30, 2020 |
|
| Commercial real estate | 90 | % | 91 | % | 89 | % | 81 | % |
| Commercial | 3 | | 2 | | 3 | | 9 | |
| Financial institutions | 2 | | 2 | | 2 | | 4 | |
| Other residential mortgages | 3 | | 2 | | 3 | | 3 | |
Wealth management (a) | 1 | | 2 | | 2 | | 2 | |
| Lease financings | 1 | | 1 | | 1 | | 1 | |
| Total | 100 | % | 100 | % | 100 | % | 100 | % |
(a) The allowance related to foreign exposure has been reclassified to the respective classes of financing receivables.
(b) Includes the allowance for credit losses on wealth management mortgages.
The allocation of the allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the losses.
Our allowance for credit losses is sensitive to a number of inputs, most notably the credit ratings assigned to each borrower, as well as macroeconomic forecast assumptions that are incorporated in our estimate of credit losses through the expected life of the loan portfolio. Thus, as the macroeconomic environment and related forecasts change, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. If each credit were rated one grade better, the quantitative allowance would have decreased by $119$84 million, and if each credit were rated one grade worse, the quantitative allowance would have increased by $146$112 million. Our multi-scenario based macroeconomic forecast used in determining the Sept.June 30, 20202021 allowance for credit losses consisted of three recessionary scenarios, each of varying severity and duration.scenarios. The baseline scenario reflects moderate and flat GDP growth and unemployment recovery across most key variables, whereas thebut with declining commercial real estate prices that begin to recover later in 2021. The upside scenario is principally a V-shapedreflects faster GDP growth and unemployment recovery and less severe commercial real estate declines than the baseline. The downside scenario is reflective of W-shaped recoverycontemplates negative GDP growth and increasing unemployment throughout 2021 and steeper declines in GDP and unemployment and deeper reductions in assetcommercial real estate prices compared tothan the baseline. WeConsistent with the first quarter of 2021, we placed the most weight on our baseline scenario, with the remaining weighting resulting in slightly
the downside scenario than the upside scenario. From a sensitivity perspective, at Sept.June 30, 2020,2021, if we had applied 100% weighting to the downside scenario, the quantitative allowance for credit losses would have been approximately $245$150 million higher.
Nonperforming assets
The table below presents our nonperforming assets.
| | | | | | | | | | | | | |
| Nonperforming assets | Sept. 30, 2020 | | Dec. 31, 2019 | |
| (dollars in millions) | | | | |
| Nonperforming loans: | | | | | | | |
| Other residential mortgages | $ | 56 | | | $ | 62 | | | | | |
| Wealth management loans and mortgages | 27 | | | 24 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total nonperforming loans | 83 | | | 86 | | | | | |
| Other assets owned | 1 | | | 3 | | | | | |
| Total nonperforming assets | $ | 84 | | | $ | 89 | | | | | |
| Nonperforming assets ratio | 0.15 | % | | 0.16 | % | | | | |
Nonperforming assets ratio, excluding margin loans | 0.20 | | | 0.21 | | | | | |
Allowance for loan losses/nonperforming loans (a) | 391.6 | | | 141.9 | | | | | |
Allowance for loan losses/nonperforming assets (a) | 386.9 | | | 137.1 | | | | | |
Allowance for loan losses and lending-related commitments/nonperforming loans (a) | 554.2 | | | 251.2 | | | | | |
Allowance for loan losses and lending-related commitments/nonperforming assets (a) | 547.6 | | | 242.7 | | | | | |
(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 Statement for additional information. | | | | | | | | | | | | | |
| Nonperforming assets | June 30, 2021 | | Dec. 31, 2020 | |
| (dollars in millions) | | | | |
| Nonperforming loans: | | | | | | | |
| Other residential mortgages | $ | 39 | | | $ | 57 | | | | | |
| Wealth management loans and mortgages | 24 | | | 30 | | | | | |
| | | | | | | |
| Commercial real estate | 26 | | | 1 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total nonperforming loans | 89 | | | 88 | | | | | |
| Other assets owned | 1 | | | 1 | | | | | |
| Total nonperforming assets | $ | 90 | | | $ | 89 | | | | | |
| Nonperforming assets ratio | 0.14 | % | | 0.16 | % | | | | |
| Nonperforming assets ratio, excluding margin loans | 0.21 | | | 0.22 | | | | | |
| Allowance for loan losses/nonperforming loans | 302.2 | | | 406.8 | | | | | |
| Allowance for loan losses/nonperforming assets | 298.9 | | | 402.2 | | | | | |
| Total allowance for credit losses/nonperforming loans | 358.4 | | | 544.3 | | | | | |
| Total allowance for credit losses/nonperforming assets | 354.4 | | | 538.2 | | | | | |
BNY Mellon 29Nonperforming assets increased slightly compared with Dec. 31, 2020, reflecting higher commercial real estate loans, offset by lower other residential mortgages and wealth management loans and mortgages.
Lost interest
Interest revenue would have increased by $1 million in the thirdsecond quarter of 2020,2021, first quarter of 2021, second quarter of 2020, and the third quarter of 2019 and $4$2 million in the first ninesix months of 20202021 and $3 million in the first ninesix months of 2019,2020, if nonperforming loans at period-end had been performing for the entire respective periods.
Loan modifications
Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as troubled debt restructurings (“TDRs”): The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the Interagency Guidance. See Note 2 1
of the Notes to Consolidated Financial Statements of our 2020 Annual Report for additional details on this guidance. Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance and we have elected to apply both, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic. We modified loans of $106$3 million in the thirdsecond quarter of 2020 and2021, $282 million in the second quarter of 2020.2020 and $6 million in the first quarter of 2021. Nearly all of the modifications were short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate loans. We also modified loans of $56 million in the third quarter of 2020, a majority of which were commercial real estate loans, by providing long-term loan payment modifications and an extension of maturity. We did not identify any of the modifications as TDRs. None of these loans were reported as past due or nonperforming at Sept.At June 30, 2020. At Sept. 30, 2020,2021, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $174$77 million. We modified residential mortgage loans of $4 million in the third quarter of 2019.
Deposits
Increased volatility coupled with the interest rate environment has led to an increase in deposit levels as our clients increased the levels of cash placed with us. Total deposits were $296.3$338.7 billion at Sept.June 30, 2020, an increase2021, a decrease of 14%1%, compared with $259.5$341.5 billion at Dec. 31, 2019.2020. The decrease reflects lower interest-bearing deposits in both non-U.S. and U.S. offices, partially offset by higher noninterest-bearing deposits (principally U.S. offices).
Noninterest-bearing deposits were $79.5$94.1 billion at Sept.June 30, 2020,2021 compared with $57.6 billion at Dec.
31, 2019. Interest-bearing deposits were $216.8 billion at Sept. 30, 2020, compared with $201.9$83.8 billion at Dec. 31, 2019. See “Impact of coronavirus pandemic on our business” for additional information.2020. Interest-bearing deposits were $244.6 billion at June 30, 2021, compared with $257.7 billion at Dec. 31, 2020.
Short-term borrowings
We fund ourselves primarily through deposits and, to a lesser extent, other short-term borrowings and long-term debt. Short-term borrowings consist of federal funds purchased and securities sold under repurchase agreements, payables to customers and broker-dealers, commercial paper and other borrowed funds. Certain short-term borrowings, for example, securities sold under repurchase agreements, require the delivery of securities as collateral.
Information related to federal funds purchased and securities sold under repurchase agreements is presented below.
| Federal funds purchased and securities sold under
repurchase agreements | | | Quarter ended | | | Quarter ended | |
| (dollars in millions) | (dollars in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | (dollars in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 | |
| Maximum month-end balance during the quarter | Maximum month-end balance during the quarter | $ | 17,248 | | $ | 14,512 | | $ | 16,967 | | | Maximum month-end balance during the quarter | $ | 14,071 | | $ | 15,863 | | $ | 14,512 | | |
Average daily balance (a) | Average daily balance (a) | $ | 16,850 | | $ | 14,209 | | $ | 13,432 | | | Average daily balance (a) | $ | 13,773 | | $ | 15,288 | | $ | 14,209 | | |
Weighted-average rate during the quarter (a) | Weighted-average rate during the quarter (a) | 0.13 | % | 0.03 | % | 13.08 | % | | Weighted-average rate during the quarter (a) | (0.17) | % | (0.07) | % | 0.03 | % | |
Ending balance (b) | Ending balance (b) | $ | 15,907 | | $ | 14,512 | | $ | 11,796 | | | Ending balance (b) | $ | 12,425 | | $ | 15,150 | | $ | 14,512 | | |
Weighted-average rate at period end (b) | Weighted-average rate at period end (b) | 0.16 | % | 0.00 | % | 11.70 | % | | Weighted-average rate at period end (b) | (0.25) | % | (0.12) | % | 0.00 | % | |
(a) Includes the average impact of offsetting under enforceable netting agreements of $42,862$41,173 million in the thirdsecond quarter of 2020,2021, $37,377 million in the first quarter of 2021 and $66,606 million in the second quarter of 2020 and $67,519 million in the third quarter of 2019.2020. On a Non-GAAP basis, excluding the impact of offsetting, the weighted-average rates would have been 0.04%(0.04)% for the thirdsecond quarter of 2020,2021, (0.02)% for the first quarter of 2021 and 0.00% for the second quarter of 2020 and 2.17% for the third quarter of 2019.2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates paid.
(b) Includes the impact of offsetting under enforceable netting agreements of $54,629$41,122 million at Sept.June 30, 2020,2021, $33,544 million at March 31, 2021 and $48,615 million at June 30, 2020 and $60,094 million at Sept. 30, 2019.2020.
Fluctuations of federal funds purchased and securities sold under repurchase agreements reflect changes in overnight borrowing opportunities. The fluctuationsdecrease of the weighted-average rates compared with Sept.June 30, 20192020 and June 30, 2020 primarily reflectreflects lower interest rates and repurchase agreement activity with the Fixed Income Clearing Corporation (the “FICC”),
where we record interest expense gross, but the ending and average balances reflect the impact of offsetting under enforceable netting agreements. This activity primarily relates to government securities collateralized resale and repurchase agreements executed with clients that are novated to and settle with the FICC.
Information related to payables to customers and broker-dealers is presented below.
| | Payables to customers and broker-dealers | Payables to customers and broker-dealers | | Payables to customers and broker-dealers | |
| | Quarter ended | | | Quarter ended | |
| (dollars in millions) | (dollars in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | (dollars in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 | |
| Maximum month-end balance during the quarter | Maximum month-end balance during the quarter | $ | 24,188 | | $ | 25,012 | | $ | 19,103 | | | Maximum month-end balance during the quarter | $ | 23,704 | | $ | 25,124 | | $ | 25,012 | | |
Average daily balance (a) | Average daily balance (a) | $ | 23,847 | | $ | 23,944 | | $ | 18,619 | | | Average daily balance (a) | $ | 23,760 | | $ | 24,772 | | $ | 23,944 | | |
Weighted-average rate during the quarter (a) | Weighted-average rate during the quarter (a) | (0.01) | % | (0.01) | % | 1.52 | % | | Weighted-average rate during the quarter (a) | (0.01) | % | (0.01) | % | (0.01) | % | |
| Ending balance | Ending balance | $ | 23,514 | | $ | 25,012 | | $ | 18,364 | | | Ending balance | $ | 23,704 | | $ | 23,827 | | $ | 25,012 | | |
| Weighted-average rate at period end | Weighted-average rate at period end | (0.01) | % | (0.01) | % | 1.34 | % | | Weighted-average rate at period end | (0.01) | % | (0.01) | % | (0.01) | % | |
(a) The weighted-average rate is calculated based on, and is applied to, the average interest-bearing payables to customers and broker-dealers, which were $18,501$16,811 million in the thirdsecond quarter of 2020,2021, $17,691 million in the first quarter of 2021 and $18,742 million in the second quarter of 2020 and $15,440 million in the third quarter of 2019.2020.
Payables to customers and broker-dealers represent funds awaiting reinvestment and short sale proceeds payable on demand. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.
Information related to commercial paper is presented below.
| | | | | | | | | | | | | | |
| Commercial paper | | | | |
| Quarter ended | | | |
| (dollars in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | | |
| Maximum month-end balance during the quarter | $ | 5,000 | | $ | 665 | | $ | 5,692 | | | | |
| Average daily balance | $ | 2,274 | | $ | 191 | | $ | 3,796 | | | | |
| Weighted-average rate during the quarter | 0.09 | % | 1.02 | % | 2.26 | % | | | |
| Ending balance | $ | 671 | | $ | 665 | | $ | 3,538 | | | | |
| Weighted-average rate at period end | 0.09 | % | 0.02 | % | 1.88 | % | | | |
| | | | | | | | | | | | | | |
| Commercial paper | Quarter ended | | | |
| (dollars in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 | | | |
| Maximum month-end balance during the quarter | $ | — | | $ | — | | $ | 665 | | | | |
| Average daily balance | $ | — | | $ | — | | $ | 191 | | | | |
| Weighted-average rate during the quarter | — | % | — | % | 1.02 | % | | | |
| Ending balance | $ | — | | $ | — | | $ | 665 | | | | |
| Weighted-average rate at period end | — | % | — | % | 0.02 | % | | | |
The Bank of New York Mellon issuesis authorized to issue commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or
subject to voluntary prepayment. The fluctuationsdecrease in the commercial paper balancescompared with June 30, 2020 primarily reflect fundingreflects the continuation of investments in short-term assets.elevated deposit levels.
Information related to other borrowed funds is presented below.
| | Other borrowed funds | Other borrowed funds | | | Other borrowed funds | Quarter ended | |
| Quarter ended | | |
| (dollars in millions) | (dollars in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | (dollars in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 | |
| Maximum month-end balance during the quarter | Maximum month-end balance during the quarter | $ | 948 | | $ | 2,451 | | $ | 1,358 | | | Maximum month-end balance during the quarter | $ | 451 | | $ | 348 | | $ | 2,451 | | |
| Average daily balance | Average daily balance | $ | 873 | | $ | 2,272 | | $ | 1,148 | | | Average daily balance | $ | 298 | | $ | 331 | | $ | 2,272 | | |
| Weighted-average rate during the quarter | Weighted-average rate during the quarter | 1.40 | % | 1.30 | % | 3.24 | % | | Weighted-average rate during the quarter | 2.21 | % | 2.01 | % | 1.30 | % | |
| Ending balance | Ending balance | $ | 420 | | $ | 1,628 | | $ | 820 | | | Ending balance | $ | 451 | | $ | 348 | | $ | 1,628 | | |
| Weighted-average rate at period end | Weighted-average rate at period end | 1.66 | % | 1.37 | % | 3.16 | % | | Weighted-average rate at period end | 2.51 | % | 2.05 | % | 1.37 | % | |
Other borrowed funds primarily include borrowings from the Federal Home Loan Bank, the Federal Reserve Bank of Boston under the MMLF program, overdrafts of sub-custodian account balances in our Investment Services businesses, finance lease liabilities and borrowings under lines of credit by our Pershing subsidiaries. Borrowings from the Federal Reserve Bank of Boston under the Money Market Mutual Fund Liquidity Facility (the “MMLF”) program are also included in other borrowed funds at June 30, 2020. Overdrafts typically relate to timing differences for settlements. The decrease in other borrowed funds compared with Sept.June 30, 2019 primarily2020 reflects a decreasedecline in borrowings from the Federal Home Loan Bank, partially offset by borrowings from the Federal Reserve Bank of Boston under the MMLF program. The decreaseincrease in other borrowed funds compared with June 30, 2020 primarilyMarch 31, 2021 reflects lower borrowings from the Federal Reserve Bankhigher overdrafts of Boston under the MMLF program.sub-custodian account balances in our Investment Services businesses.
Liquidity and dividends
BNY Mellon defines liquidity as the ability of the Parent and its subsidiaries to access funding or convert assets to cash quickly and efficiently, or to roll over or issue new debt, especially during periods of market stress, at a reasonable cost, and in order to meet its short-term (up to one year) obligations. Funding liquidity risk is the risk that BNY Mellon cannot meet its cash and collateral obligations at a reasonable cost for both expected and unexpected cash flow and collateral needs without adversely affecting daily operations or our financial condition. Funding liquidity risk can arise from funding mismatches, market constraints from the inability to convert assets into cash, the inability to hold or raise
cash, low overnight deposits, deposit run-off or contingent liquidity events.
Changes in economic conditions or exposure to credit, market, operational, legal and reputational
risks also can affect BNY Mellon’s liquidity risk profile and are considered in our liquidity risk framework. See “Impact of coronavirus pandemic onFor additional information, see “Risk Management – Liquidity Risk” in our business” for additional information.2020 Annual Report.
The Parent’s policy is to have access to sufficient unencumbered cash and cash equivalents at each quarter-end to cover maturities and other forecasted debt redemptions, net interest payments and net tax payments for the following 18-month period, and to provide sufficient collateral to satisfy transactions subject to Section 23A of the Federal Reserve Act. As of Sept.June 30, 2020,2021, the Parent was in compliance with this policy.
For additional information on our liquidity policy, see “Risk Management - Liquidity Risk” in our 2019 Annual Report.
We monitor and control liquidity exposures and funding needs within and across significant legal entities, branches, currencies and business lines, taking into account, among other factors, any
applicable restrictions on the transfer of liquidity among entities.
BNY Mellon also manages potential intraday liquidity risks. We monitor and manage intraday liquidity against existing and expected intraday liquid resources (such as cash balances, remaining intraday credit capacity, intraday contingency funding and available collateral) to enable BNY Mellon to meet its intraday obligations under normal and reasonably severe stressed conditions.
We define available funds for internal liquidity management purposes as cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. The following table presents our total available funds at period end and on an average basis.
| | Available funds | Available funds | Sept. 30, 2020 | Dec. 31, 2019 | Average | Available funds | June 30, 2021 | Dec. 31, 2020 | Average |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | Dec. 31, 2020 | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| Cash and due from banks | Cash and due from banks | $ | 4,104 | | $ | 4,830 | | $ | 4,332 | | $ | 4,102 | | $ | 5,250 | | $ | 4,343 | | $ | 5,063 | | | Cash and due from banks | $ | 5,154 | | $ | 5,938 | | $ | 5,720 | | $ | 4,102 | | $ | 5,830 | | $ | 4,348 | | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | 106,185 | | 95,042 | | 90,670 | | 94,229 | | 60,030 | | 88,442 | | 61,777 | | | Interest-bearing deposits with the Federal Reserve and other central banks | 126,355 | | 141,775 | | 114,564 | | 125,930 | | 94,229 | | 120,216 | | 87,316 | | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | 19,027 | | 14,811 | | 19,202 | | 21,093 | | 15,324 | | 19,126 | | 14,288 | | | Interest-bearing deposits with banks | 21,270 | | 17,300 | | 22,465 | | 21,313 | | 21,093 | | 21,892 | | 19,087 | | |
| Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 29,647 | | 30,182 | | 30,342 | | 30,265 | | 40,816 | | 31,567 | | 35,984 | | | Federal funds sold and securities purchased under resale agreements | 29,762 | | 30,907 | | 27,857 | | 29,186 | | 30,265 | | 28,518 | | 32,187 | | |
| Total available funds | Total available funds | $ | 158,963 | | $ | 144,865 | | $ | 144,546 | | $ | 149,689 | | $ | 121,420 | | $ | 143,478 | | $ | 117,112 | | | Total available funds | $ | 182,541 | | $ | 196,234 | | $ | 170,824 | | $ | 182,149 | | $ | 149,689 | | $ | 176,456 | | $ | 142,938 | | |
| Total available funds as a percentage of total assets | Total available funds as a percentage of total assets | 37 | % | 38 | % | 35 | % | 36 | % | 35 | % | 35 | % | 34 | % | | Total available funds as a percentage of total assets | 39 | % | 42 | % | 38 | % | 40 | % | 36 | % | 39 | % | 36 | % | |
Total available funds were $159.0$182.5 billion at Sept.June 30, 2020,2021, compared with $144.9$196.2 billion at Dec. 31, 2019.2020. The increasedecrease was primarily due to higherlower interest-bearing deposits with the Federal Reserve and other central banks, partially offset by higher interest-bearing deposits with banks.
Average non-core sources of funds, such as federal funds purchased and securities sold under repurchase agreements, trading liabilities, commercial paper and other borrowed funds and commercial paper were $19.7$17.1 billion for the ninefirst six months ended Sept. 30, 2020of 2021 and $18.9$18.2 billion for the ninefirst six months ended Sept. 30, 2019.of 2020. The increasedecrease primarily reflects an increase inlower other borrowed funds and commercial paper, partially offset by higher federal funds purchased and securities sold under repurchase agreements partially offset by decreases in commercial paper and other borrowed funds.
trading liabilities.
Average foreign deposits, primarily from our European-based Investment Services businesses,business, were $105.0$114.5 billion for the ninefirst six months ended Sept. 30, 2020, of 2021,
compared with $92.5$103.1 billion for the ninefirst six months ended Sept. 30, 2019.of 2020. Average interest-bearing domestic deposits were $101.6$127.7 billion for the ninefirst six months ended Sept. 30, 2020of 2021 and $75.8$101.0 billion for the ninefirst six months ended Sept. 30, 2019.of 2020. The increase primarily reflects increased client activity.
Average payables to customers and broker-dealers were $17.9$17.2 billion for the ninefirst six months ended Sept. 30, 2020of 2021 and $15.7$17.6 billion for the ninefirst six months ended Sept. 30, 2019.of 2020. Payables to customers and broker-dealers are driven by customer trading activity and market volatility.
Average long-term debt was $27.3$25.7 billion for the ninefirst six months ended Sept. 30, 2020of 2021 and $28.1$27.7 billion for the ninefirst six months ended Sept. 30, 2019.of 2020.
Average noninterest-bearing deposits increased to $66.9$84.6 billion for the ninefirst six months ended Sept. 30, 2020of 2021 from $52.2$66.5 billion for the ninefirst six months ended Sept. 30, 2019,of 2020, primarily reflecting client activity.
A significant reduction in our Investment Services business would reduce our access to deposits. See
“Asset/ “Asset/liability management” for additional factors that could impact our deposit balances.
Sources of liquidity
The Parent’s three major sources of liquidity are access to the debt and equity markets, dividends from its
subsidiaries, and cash on hand and cash otherwise made available in business-as-usual circumstances to the Parent through a committed credit facility with our intermediate holding company (“IHC”).
Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings, which are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Credit ratings at Sept.June 30, 20202021 | | | | | | | |
| | Moody’s | | S&P | | Fitch | | DBRS |
| Parent: | | | | | | | |
| Long-term senior debt | A1 | | A | | AA- | | AA |
| Subordinated debt | A2 | | A- | | A | | AA (low) |
| Preferred stock | Baa1 | | BBB | | BBB+ | | A |
Outlook -– Parent | Stable | | Stable | | Stable | | Stable |
|
| The Bank of New York Mellon: | | | | | | | |
| Long-term senior debt | Aa2 | | AA- | | AA | | AA (high) |
| Subordinated debt | NR | | A | | NR | | NR |
| Long-term deposits | Aa1 | | AA- | | AA+ | | AA (high) |
| Short-term deposits | P1 | | A-1+ | | F1+ | | R-1 (high) |
| Commercial paper | P1 | | A-1+ | | F1+ | | R-1 (high) |
| | | | | | | |
| BNY Mellon, N.A.: | | | | | | | |
| Long-term senior debt | Aa2 | (a) | AA- | | AA | (a) | AA (high) |
| Long-term deposits | Aa1 | | AA- | | AA+ | | AA (high) |
| Short-term deposits | P1 | | A-1+ | | F1+ | | R-1 (high) |
| | | | | | | |
Outlook -– Banks | Stable | | Stable | | Stable | | Stable |
(a) Represents senior debt issuer default rating.
NR -– Not rated.
Long-term debt totaled $26.1$25.6 billion at Sept.June 30, 20202021 and $27.5$26.0 billion at Dec. 31, 2019. Maturities2020. Redemptions of $2.05$2.3 billion, a maturity of $500 million and redemptions of $2.35 billion were partially offset by issuances of $2.25 billion and an increasea decrease in the fair value of hedged long-term debt.debt were partially offset by issuances of $2.7 billion. The Parent had $800 millionhas $1.5 billion of 2.45% senior notes scheduled tolong-term debt that will mature in the remainder of 2020. These notes were redeemed in October 2020 at par plus accrued and unpaid interest.2021.
In November 2020,July 2021, the Parent issued 582,500 depositary shares, each representing a 1/100th interest$500 million of fixed rate senior notes maturing 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, 2021,2026 at an annual interest rate equal to 3.70% from the original issue date to but excluding, March 20, 2026;of 1.05% and $500 million of fixed rate senior notes maturing in 2031 at a floatingan annual interest 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 Noncumulative Perpetual Preferred Stock, $100,000 liquidation preference per share (the “Series C Preferred Stock”)1.80%. 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. Deferred fees of approximately $15 million will be realized as preferred stock dividends upon redemption.
The Bank of New York Mellon may issue notes and CDs. At Sept.June 30, 20202021 and Dec. 31, 2019 there were $137 million and $1.1 billion, respectively, of CDs outstanding. At Sept. 30, 2020, and Dec. 31, 2019, $30 million and $1.3 billion, respectively, of notes were outstanding. There were no CDs outstanding at June 30, 2021 and $100 million was outstanding at Dec. 31, 2020.
The Bank of New York Mellon also issues commercial paper that matures within 397 days from the date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. There was no commercial paper outstanding at June 30, 2021 and Dec. 31, 2020. The average commercial paper outstanding was $1.4 billion$886 million for the ninefirst six months ended Sept. 30, 2020 and $2.7 billion for the nine months ended Sept. 30, 2019. Commercial paper outstanding was $671 million at Sept. 30, 2020 and $4.0 billion at Dec. 31, 2019.of 2020.
Subsequent to Sept.June 30, 2020,2021, our U.S. bank subsidiaries could declare dividends to the Parent of approximately $973 million,$1.6 billion, without the need for a regulatory waiver. In addition, at Sept.June 30, 2020,2021, non-bank subsidiaries of the Parent had liquid assets of approximately $1.6$3.3 billion. Restrictions on our ability to obtain funds from our subsidiaries are discussed in more detail in “Supervision and Regulation -– Capital Planning and Stress Testing -– Payment of Dividends, Stock Repurchases and Other Capital Distributions” and in Note 19 of the Notes to
Consolidated Financial Statements, both in our 20192020 Annual Report.
Pershing LLC has uncommitted lines of credit in place for liquidity purposes which are guaranteed by the Parent. Pershing LLC has two separate uncommitted lines of credit amounting to $350 million in aggregate. AverageThere were no borrowings under these lines were $4 million, in aggregate, in the thirdsecond quarter of 2020.2021. Pershing Limited, an indirect UK-based subsidiary of BNY Mellon, has threetwo separate uncommitted lines of credit amounting to $350$269 million in aggregate. Average borrowings under
these lines were $4$14 million, in aggregate, in the thirdsecond quarter of 2020.
BNY Mellon Capital Markets, LLC also has an uncommitted line of credit in place for $100 million for liquidity purposes. There were no borrowings under this line in the third quarter of 2020.2021.
The double leverage ratio is the ratio of our equity investment in subsidiaries divided by our consolidated Parent company equity, which includes our noncumulative perpetual preferred stock. In short, the double leverage ratio measures the extent to which equity in subsidiaries is financed by Parent company debt. As the double leverage ratio increases, this can reflect greater demands on a company’s cash flows in order to service interest payments and debt maturities. BNY Mellon’s double leverage ratio is managed in a range considering the high level of unencumbered available liquid assets held in its principal subsidiaries (such as central bank deposit placements and government securities), the Company’s cash generating fee-based business model, with fee revenue representing 81% of total revenue in the thirdsecond quarter of 2020,2021, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 115.4%114.4% at Sept.June 30, 20202021 and 116.9%114.3% at Dec. 31, 2019,2020, and within the range targeted by management.
Uses of funds
The Parent’s major uses of funds are repurchases of common stock, payment of dividends, principal and interest payments on its borrowings, acquisitions and additional investments in its subsidiaries.
In August 2020,May 2021, a quarterly cash dividend of $0.31 per common share was paid to common shareholders. Our common stock dividend payout ratio was 32%27% for the thirdsecond quarter of 2020.2021.
In July 2021, our Board of Directors approved a 10% increase in the thirdquarterly cash dividend on common stock, from $0.31 to $0.34 per share. This increased quarterly cash dividend will be paid on Aug. 9, 2021.
In the second quarter of 2020,2021, we repurchased 15.1 thousand12.8 million common shares from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock, at an average price of $36.65$48.17 per common share, for a total cost of less than $1$618 million.
In June 2020,2021, our Board of Directors approved the Federal Reserve announced that it would require participating CCAR firms, including us,repurchase of up 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$6.0 billion of common stock starting in 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 limitations2021 and continuing through the fourth quarter of 2020.2022.
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. See “Recent regulatory developments” for additional information on the 2021 CCAR. Also see “Supervision and Regulation – Capital Planning and Stress Testing – Payment of Dividends, Stock Repurchases and Other Capital Distributions” in our 2020 Annual Report for additional information related to the 2020 CCAR.
Liquidity coverage ratio (“LCR”)
U.S. regulators have established an LCR that requires certain banking organizations, including BNY Mellon, to maintain a minimum amount of unencumbered high-quality liquid assets (“HQLA”) sufficient to withstand the net cash outflow under a hypothetical standardized acute liquidity stress scenario for a 30-day time horizon.
The following table presents BNY Mellon’s consolidated HQLA at Sept.June 30, 2020,2021, and the average HQLA and average LCR for the thirdsecond quarter of 2020.2021.
| | | | | |
| Consolidated HQLA and LCR | Sept.June 30, 20202021 |
| (dollars in billions) |
Securities (a) | $ | 120121 | |
Cash (b) | 103126 | |
Total consolidated HQLA (c) | $ | 223247 | |
| |
Total consolidated HQLA – average (c) | $ | 213236 | |
| Average LCR | 111110 | % |
(a) Primarily includes securities of U.S. government-sponsored enterprises, U.S. Treasury, sovereign securities, U.S. Treasury, U.S. agency and investment-grade corporate debt.
(b) Primarily includes cash on deposit with central banks.
(c) Consolidated HQLA presented before adjustments. After haircuts and the impact of trapped liquidity, consolidated HQLA totaled $163$170 billion at Sept.June 30, 20202021 and averaged $154$160 billion for the thirdsecond quarter of 2020.2021.
BNY Mellon and each of our affected domestic bank subsidiaries were compliant with the U.S. LCR requirements of at least 100% throughout the thirdsecond quarter of 2020.2021.
Statement of cash flows
The following summarizes the activity reflected on the consolidated statement of cash flows. While this information may be helpful to highlight certain macro trends and business strategies, the cash flow analysis may not be as relevant when analyzing changes in our net earnings and net assets. We believe that in addition to the traditional cash flow analysis, the discussion related to liquidity and dividends and asset/liability management herein may provide more useful context in evaluating our liquidity position and related activity.
Net cash provided byused for operating activities was $5.9$345 million in the six months ended June 30, 2021, compared with net cash provided by operations of $5.1 billion in the ninesix months ended Sept.June 30, 2020, compared with $2.6 billion in2020. In the ninesix months ended Sept.June 30, 2019.2021 cash flows used for operations primarily resulted from changes in accruals, partially offset by earnings. In the ninesix months ended Sept.June 30, 2020, cash flows provided by operations primarily resulted from earnings and changes in trading assets and liabilities. In the nine months ended Sept. 30, 2019, cash flows provided by operations primarily resulted from earnings, partially offset by changes in trading assets and liabilities.accruals.
Net cash provided by investing activities was $3.9 billion in the six months ended June 30, 2021, compared with net cash used for investing activities was $44.3of $58.7 billion in the ninesix months ended Sept.June 30, 2020, compared with $5.2 billion in
2020. In the ninesix months ended Sept.June 30, 2019.2021, net cash provided by investing activities primarily reflects change in interest-bearing deposits with the Federal Reserve and other central banks, partially offset by net changes in loans and changes in interest-bearing deposits with banks. In the ninesix months ended Sept.June 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 changeschange in interest-bearing deposits with the Federal Reserve and other central banks partially offset byand changes in federal funds sold and securities purchased under resale agreements.
Net cash used for financing activities was $3.5 billion in the six months ended June 30, 2021, compared with net cash provided by financing activities was $38.1of $53.4 billion in the ninesix months ended Sept.June 30, 2020, compared with $3.5 billion in2020. In the ninesix months ended Sept.June 30, 2019. In the nine months ended Sept. 30, 2020,2021, net cash provided byused for financing activityactivities primarily reflects repayments of long-term debt, changes in deposits, changes in payables to customers and broker-dealers and treasury stock acquired, partially offset by net proceeds from the issuance of long-term debt and change in federal funds purchased and securities sold under repurchase agreements, partially offset by changes in commercial paper.agreements. In the ninesix months ended Sept.June 30, 2019,2020, net cash provided by financing activities primarily reflects changes in deposits and net proceeds from the issuance of long-term debt,payables to customers and broker-dealers, partially offset by repayments of long-term debt, changes in federal funds purchased andcommercial paper.
securities sold under repurchase agreements, changes in other borrowed funds and 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 | |
| Capital data | | Capital data | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 |
| (dollars in millions, except per share amounts; common shares in thousands) | | (dollars in millions, except per share amounts; common shares in thousands) |
| Average common equity to average assets | Average common equity to average assets | 9.6 | % | 9.3 | % | 10.7 | % | Average common equity to average assets | 8.9 | % | 8.8 | % | 9.3 | % |
| | At period end: | At period end: | | At period end: | |
| BNY Mellon shareholders’ equity to total assets ratio | BNY Mellon shareholders’ equity to total assets ratio | 10.5 | % | 9.9 | % | 10.9 | % | BNY Mellon shareholders’ equity to total assets ratio | 9.7 | % | 9.7 | % | 9.8 | % |
| BNY Mellon common shareholders’ equity to total assets ratio | BNY Mellon common shareholders’ equity to total assets ratio | 9.4 | % | 8.9 | % | 9.9 | % | BNY Mellon common shareholders’ equity to total assets ratio | 8.7 | % | 8.7 | % | 8.8 | % |
| Total BNY Mellon shareholders’ equity | Total BNY Mellon shareholders’ equity | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | Total BNY Mellon shareholders’ equity | $ | 45,281 | | $ | 44,954 | | $ | 45,801 | |
| Total BNY Mellon common shareholders’ equity | Total BNY Mellon common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | Total BNY Mellon common shareholders’ equity | $ | 40,740 | | $ | 40,413 | | $ | 41,260 | |
BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | BNY Mellon tangible common shareholders’ equity – Non-GAAP (a) | $ | 22,127 | | $ | 21,779 | | $ | 22,563 | |
| Book value per common share | Book value per common share | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | Book value per common share | $ | 47.20 | | $ | 46.16 | | $ | 46.53 | |
Tangible book value per common share – Non-GAAP (a) | Tangible book value per common share – Non-GAAP (a) | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | Tangible book value per common share – Non-GAAP (a) | $ | 25.64 | | $ | 24.88 | | $ | 25.44 | |
| Closing stock price per common share | Closing stock price per common share | $ | 34.34 | | $ | 38.65 | | $ | 50.33 | | Closing stock price per common share | $ | 51.23 | | $ | 47.29 | | $ | 42.44 | |
| Market capitalization | Market capitalization | $ | 30,430 | | $ | 34,239 | | $ | 45,331 | | Market capitalization | $ | 44,220 | | $ | 41,401 | | $ | 37,634 | |
| Common shares outstanding | Common shares outstanding | 886,136 | | 885,862 | | 900,683 | | Common shares outstanding | 863,174 | | 875,481 | | 886,764 | |
| | | Cash dividends per common share | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | | Cash dividends per common share | $ | 0.31 | | $ | 0.31 | | $ | 0.31 | |
| Common dividend payout ratio | Common dividend payout ratio | 32 | % | 31 | % | 20 | % | Common dividend payout ratio | 27 | % | 32 | % | 39 | % |
| Common dividend yield | Common dividend yield | 3.6 | % | 3.2 | % | 2.4 | % | Common dividend yield | 2.4 | % | 2.7 | % | 2.9 | % |
(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 4547 for a reconciliation of GAAP to Non-GAAP.
The Bank of New York Mellon Corporation total shareholders’ equity increaseddecreased to $44.9$45.3 billion at Sept.June 30, 20202021 from $41.5$45.8 billion at Dec. 31, 2019.2020. The increasedecrease primarily reflects earnings,common stock repurchases, dividend payments and unrealized gainslosses on assetssecurities available-for-sale, and the issuance of preferred stock in May 2020, partially offset by common stock repurchases and dividend 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 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.
Deferred fees of approximately $15 million will be realized as preferred stock dividends upon redemption.earnings.
The unrealized gain (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated OCIother comprehensive income was $1.4 billion$854 million at Sept.June 30, 2020,2021, compared with $361 million$1.5 billion at Dec. 31, 2019.2020. The increasedecrease in the unrealized gain, net of tax, was primarily driven by lowerhigher market interest rates.
In the ninefirst six months ended Sept. 30, 2020,of 2021, we repurchased 21.829.6 million common shares at an average price of $45.43$44.49 per common share for a total of $988 million, nearly all$1.3 billion under the share repurchase program that was in place through the second quarter of which were repurchased prior2021.
In December 2020, the Federal Reserve released the results of the second round of CCAR stress tests during 2020 and extended the restriction on common stock dividends and open market common stock repurchases applicable to participating CCAR BHCs, including us, to the first quarter of 2021, with certain modifications. In March 2021, the Federal Reserve extended these restrictions through the second quarter of 2021. The temporary suspension ofrestrictions on dividends and share repurchases ended for BNY Mellon after June 30, 2021. Starting in March 2020.the third quarter of 2021, BNY Mellon will continue to be subject to the normal constraints under the stress capital buffer (“SCB”) framework.
In June 2020,2021, the Federal Reserve announced that it would require participating CCAR firms, including us,released the results of its stress tests for 2021. Our Board of Directors subsequently authorized the repurchase of up to update and resubmit their capital plans and that, as a result, unless otherwise approved by$6.0 billion of common shares over the Federal Reserve, participating firms were not permitted, duringsix quarters
beginning in 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 limitations2021 and continuing through the fourth quarter of 2020.2022. This new share repurchase plan replaces all previously authorized share repurchase plans. See “Recent regulatory developments” for additional information on the 2021 CCAR results.
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”)BHCs and banks, including BNY Mellon and our bank subsidiaries, in accordance with established quantitative measurements. For the Parent to maintain its status as a financial holding company (“FHC”), our U.S. bank subsidiaries and BNY Mellon must, among other things, qualify as “well capitalized.” As of Sept.June 30, 20202021 and Dec. 31, 2019,2020, 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 20192020 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 20192020 Annual Report and “Recent regulatory developments” in this Form 10-Q.Report.
The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.
| | 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 | | Consolidated and largest bank subsidiary regulatory capital ratios | June 30, 2021 | | March 31, 2021 | | Dec. 31, 2020 | |
| Well capitalized | | Minimum required | | Capital
ratios | | Capital
ratios | | Capital
ratios | | Well capitalized | | Minimum required | | Capital
ratios | | Capital
ratios | | Capital
ratios | |
| (a) | | | (a) | |
Consolidated regulatory capital ratios: (b) | Consolidated regulatory capital ratios: (b) | | | Consolidated regulatory capital ratios: (b) | | |
| Advanced Approaches: | Advanced Approaches: | | | Advanced Approaches: | | |
| CET1 ratio | CET1 ratio | N/A | (c) | 8.5 | % | | 13.0 | % | | 12.6 | % | | 11.5 | % | | CET1 ratio | N/A | (c) | 8.5 | % | | 12.7 | % | | 12.6 | % | | 13.1 | % | |
| Tier 1 capital ratio | Tier 1 capital ratio | 6 | % | | 10 | | | 15.7 | | | 15.4 | | | 13.7 | | | Tier 1 capital ratio | 6 | % | | 10 | | | 15.3 | | | 15.3 | | | 15.8 | | |
| Total capital ratio | Total capital ratio | 10 | | | 12 | | | 16.6 | | | 16.3 | | | 14.4 | | | Total capital ratio | 10 | | | 12 | | | 16.0 | | | 16.1 | | | 16.7 | | |
| Standardized Approach: | Standardized Approach: | | | Standardized Approach: | | |
| CET1 ratio | CET1 ratio | N/A | (c) | 8.5 | % | | 13.5 | % | | 12.7 | % | | 12.5 | % | | CET1 ratio | N/A | (c) | 8.5 | % | | 12.6 | % | | 12.6 | % | | 13.4 | % | |
| Tier 1 capital ratio | Tier 1 capital ratio | 6 | % | | 10 | | | 16.3 | | | 15.6 | | | 14.8 | | | Tier 1 capital ratio | 6 | % | | 10 | | | 15.2 | | | 15.2 | | | 16.1 | | |
| Total capital ratio | Total capital ratio | 10 | | | 12 | | | 17.4 | | | 16.6 | | | 15.8 | | | Total capital ratio | 10 | | | 12 | | | 16.2 | | | 16.2 | | | 17.1 | | |
| Tier 1 leverage ratio | Tier 1 leverage ratio | N/A | (c) | 4 | | | 6.5 | | | 6.2 | | | 6.6 | | | Tier 1 leverage ratio | N/A | (c) | 4 | | | 6.0 | | | 5.8 | | | 6.3 | | |
SLR (d)(e) | SLR (d)(e) | N/A | (c) | 5 | | | 8.5 | | | 8.2 | | | 6.1 | | | SLR (d)(e) | N/A | (c) | 5 | | | 7.5 | | | 8.1 | | | 8.6 | | |
| The Bank of New York Mellon regulatory capital ratios: (b) | The Bank of New York Mellon regulatory capital ratios: (b) | | | The Bank of New York Mellon regulatory capital ratios: (b) | | |
| Advanced Approaches: | Advanced Approaches: | | | Advanced Approaches: | | |
| CET1 ratio | CET1 ratio | 6.5 | % | | 7 | % | | 17.2 | % | | 17.1 | % | | 15.1 | % | | CET1 ratio | 6.5 | % | | 7 | % | | 16.7 | % | | 16.8 | % | | 17.1 | % | |
| Tier 1 capital ratio | Tier 1 capital ratio | 8 | | | 8.5 | | | 17.2 | | | 17.1 | | | 15.1 | | | Tier 1 capital ratio | 8 | | | 8.5 | | | 16.7 | | | 16.8 | | | 17.1 | | |
| Total capital ratio | Total capital ratio | 10 | | | 10.5 | | | 17.4 | | | 17.2 | | | 15.2 | | | Total capital ratio | 10 | | | 10.5 | | | 16.8 | | | 17.0 | | | 17.3 | | |
| Tier 1 leverage ratio | Tier 1 leverage ratio | 5 | | | 4 | | | 6.9 | | | 6.7 | | | 6.9 | | | Tier 1 leverage ratio | 5 | | | 4 | | | 6.1 | | | 6.1 | | | 6.4 | | |
SLR (d) | SLR (d) | 6 | | | 3 | | | 8.5 | | | 8.4 | | | 6.4 | | | SLR (d) | 6 | | | 3 | | | 8.0 | | | 8.2 | | | 8.5 | | |
(a) Minimum requirements for Sept.June 30, 20202021 include minimum thresholds plus currently applicable buffers. The U.S. global systemically important banks (“G-SIB”) surcharge of 1.5% is subject to change. The countercyclical capital buffer is currently set to 0%. Effective Oct. 1, 2020, theThe stress capital buffer (“SCB”) requirement is 2.5%, equal to the regulatory minimum and replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios.
(b) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average total assets.
(c) The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs.
(d) The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures. The SLR at Sept. 30, 2020 and June 30, 2020 reflects the exclusion of certain central bank placements from leverage exposure.
(e) The consolidated SLR at Sept. 30, 2020March 31, 2021 and June 30,Dec. 31, 2020 reflects the temporary exclusion of U.S. Treasury securities from thetotal leverage exposure which increased our consolidated SLR by 7868 basis points and 4072 basis points, respectively. The temporary exclusion ceased to apply beginning April 1, 2021.
Our CET1 ratio determinedunder the Standardized Approach was 12.6% at June 30, 2021 and was 13.1% at Dec. 31, 2020 under the Advanced ApproachesApproaches. The decrease was 13.0% at Sept. 30, 2020primarily driven by common stock repurchases, unrealized losses on securities available-for-sale, dividend payments and 11.5% at Dec. 31, 2019. Thean increase primarily reflects capital generated through earnings and unrealized gains on assets available-for-sale,in RWAs, partially offset by capital deployedgenerated through common stock repurchased, prior to the temporary suspension of share repurchases that began in March 2020, and dividend payments.earnings.
Our operational loss risk model is informed by external losses, including finesCapital ratios vary depending on the size of the balance sheet at period-end and penalties levied against institutionsthe 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 financial services industry, particularly those that relate to businesses in which we operate, andbalance sheet as a result external losses havewhole are higher. In addition, when markets experience significant volatility or stress, our balance sheet size may increase considerably as client deposit levels increase.
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.
38Under the Advanced Approaches, our operational loss risk model is informed by external losses, including fines and penalties levied against institutions in the financial services industry, particularly those that relate to businesses in which we operate, and as a result external losses have impacted and could in the future impact the amount of capital that we are required to hold.
The following table presents our capital components and RWAs.
| | Capital components and risk-weighted assets | | Capital components and risk-weighted assets | |
| Capital components and risk-weighted assets | Sept. 30, 2020 | June 30, 2020 | Dec. 31, 2019 | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
| CET1: | CET1: | | CET1: | |
| Common shareholders’ equity | Common shareholders’ equity | $ | 40,385 | | $ | 39,165 | | $ | 37,941 | | Common shareholders’ equity | $ | 40,740 | | $ | 40,413 | | $ | 41,260 | |
| Adjustments for: | Adjustments for: | | Adjustments for: | |
Goodwill and intangible assets (a) | Goodwill and intangible assets (a) | (18,585) | | (18,515) | | (18,725) | | Goodwill and intangible assets (a) | (18,613) | | (18,634) | | (18,697) | |
| Net pension fund assets | Net pension fund assets | (275) | | (270) | | (272) | | Net pension fund assets | (308) | | (321) | | (319) | |
| Equity method investments | Equity method investments | (298) | | (297) | | (311) | | Equity method investments | (305) | | (307) | | (306) | |
| Deferred tax assets | Deferred tax assets | (51) | | (48) | | (46) | | Deferred tax assets | (55) | | (53) | | (54) | |
| Other | Other | (5) | | — | | (47) | | Other | (3) | | (8) | | (9) | |
| Total CET1 | Total CET1 | 21,171 | | 20,035 | | 18,540 | | Total CET1 | 21,456 | | 21,090 | | 21,875 | |
| Other Tier 1 capital: | Other Tier 1 capital: | | Other Tier 1 capital: | |
| Preferred stock | Preferred stock | 4,532 | | 4,532 | | 3,542 | | Preferred stock | 4,541 | | 4,541 | | 4,541 | |
| Other | Other | (92) | | (89) | | (86) | | Other | (101) | | (97) | | (106) | |
| Total Tier 1 capital | Total Tier 1 capital | $ | 25,611 | | $ | 24,478 | | $ | 21,996 | | Total Tier 1 capital | $ | 25,896 | | $ | 25,534 | | $ | 26,310 | |
| Tier 2 capital: | Tier 2 capital: | | Tier 2 capital: | |
| Subordinated debt | Subordinated debt | $ | 1,248 | | $ | 1,248 | | $ | 1,248 | | Subordinated debt | $ | 1,248 | | $ | 1,248 | | $ | 1,248 | |
| Allowance for credit losses | Allowance for credit losses | 474 | | 463 | | 216 | | Allowance for credit losses | 326 | | 409 | | 490 | |
| Other | Other | (6) | | (6) | | (11) | | Other | (6) | | (1) | | (10) | |
| Total Tier 2 capital – Standardized Approach | Total Tier 2 capital – Standardized Approach | 1,716 | | 1,705 | | 1,453 | | Total Tier 2 capital – Standardized Approach | 1,568 | | 1,656 | | 1,728 | |
| Excess of expected credit losses | Excess of expected credit losses | 228 | | 217 | | — | | Excess of expected credit losses | 45 | | 127 | | 247 | |
| Less: Allowance for credit losses | Less: Allowance for credit losses | 474 | | 463 | | 216 | | Less: Allowance for credit losses | 326 | | 409 | | 490 | |
| Total Tier 2 capital – Advanced Approaches | Total Tier 2 capital – Advanced Approaches | $ | 1,470 | | $ | 1,459 | | $ | 1,237 | | Total Tier 2 capital – Advanced Approaches | $ | 1,287 | | $ | 1,374 | | $ | 1,485 | |
| Total capital: | Total capital: | | Total capital: | |
| Standardized Approach | Standardized Approach | $ | 27,327 | | $ | 26,183 | | $ | 23,449 | | Standardized Approach | $ | 27,464 | | $ | 27,190 | | $ | 28,038 | |
| Advanced Approaches | Advanced Approaches | $ | 27,081 | | $ | 25,937 | | $ | 23,233 | | Advanced Approaches | $ | 27,183 | | $ | 26,908 | | $ | 27,795 | |
| | Risk-weighted assets: | Risk-weighted assets: | | Risk-weighted assets: | |
| Standardized Approach | Standardized Approach | $ | 156,698 | | $ | 157,290 | | $ | 148,695 | | Standardized Approach | $ | 169,885 | | $ | 167,510 | | $ | 163,848 | |
| Advanced Approaches: | Advanced Approaches: | | Advanced Approaches: | |
| Credit Risk | Credit Risk | $ | 95,881 | | $ | 95,647 | | $ | 95,490 | | Credit Risk | $ | 101,282 | | $ | 99,398 | | $ | 98,262 | |
| Market Risk | Market Risk | 3,077 | | 2,793 | | 4,020 | | Market Risk | 3,010 | | 3,599 | | 4,226 | |
| Operational Risk | Operational Risk | 64,150 | | 60,900 | | 61,388 | | Operational Risk | 65,088 | | 64,038 | | 63,938 | |
| Total Advanced Approaches | Total Advanced Approaches | $ | 163,108 | | $ | 159,340 | | $ | 160,898 | | Total Advanced Approaches | $ | 169,380 | | $ | 167,035 | | $ | 166,426 | |
| | Average assets for Tier 1 leverage ratio | Average assets for Tier 1 leverage ratio | $ | 394,945 | | $ | 394,394 | | $ | 334,869 | | Average assets for Tier 1 leverage ratio | $ | 432,954 | | $ | 440,968 | | $ | 417,982 | |
| Total leverage exposure for SLR | Total leverage exposure for SLR | $ | 300,265 | | $ | 297,300 | | $ | 362,452 | | Total leverage exposure for SLR | $ | 346,455 | | $ | 314,334 | | $ | 304,823 | |
(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 | 3Q202Q21 |
| (in millions) |
| CET1 – Beginning of period | $ | 20,03521,090 | |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | 876991 | |
| Goodwill and intangible assets, net of related deferred tax liabilities | (70)21 | |
| Gross CET1 generated | 8061,012 | |
| Capital deployed: | |
Common stock dividend paymentsdividends (a) | (279)(273) | |
| Common stock repurchases | (618) | |
| Total capital deployed | (279)(891) | |
| Other comprehensive income: | |
| Unrealized gain on assets available-for-sale | 76 | |
| Foreign currency translation | 32951 | |
Unrealized gainloss on assets available-for-salecash flow hedges | 227(3) | |
| Defined benefit plans | 20 | |
Unrealized gain on cash flow hedges | 825 | |
| |
| Total other comprehensive income | 584149 | |
Additional paid-in capital (a)(b) | 3978 | |
| Other additions (deductions): | |
Embedded goodwill | (1) | |
| Net pension fund assets | (5)13 | |
| Embedded goodwill | 2 | |
| Deferred tax assets | (3)(2) | |
| Other | (5)5 | |
Total other deductionsadditions | (14)18 | |
| Net CET1 generated | 1,136366 | |
| CET1 – End of period | $ | 21,17121,456 | |
(a) Includes dividend-equivalents on share-based awards.
(b) Primarily related to stock awards, the exercise of stock options and stock issued for employee benefit plans.
The following table shows the impact on the consolidated capital ratios at Sept.June 30, 20202021 of a $100 million increase or decrease in common equity, or a $1 billion increase or decrease in RWAs, quarterly average assets or total leverage exposure.
| | Sensitivity of consolidated capital ratios at Sept. 30, 2020 | |
| Sensitivity of consolidated capital ratios at June 30, 2021 | | Sensitivity of consolidated capital ratios at June 30, 2021 |
| | | Increase or decrease of | | Increase or decrease of |
| (in basis points) | (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: | | CET1: | |
| Standardized Approach | Standardized Approach | 6 | bps | 9 | bps | Standardized Approach | 6 | bps | 7 | bps |
| Advanced Approaches | Advanced Approaches | 6 | | 8 | | Advanced Approaches | 6 | | 8 | |
| | Tier 1 capital: | Tier 1 capital: | | Tier 1 capital: | |
| Standardized Approach | Standardized Approach | 6 | | 10 | | Standardized Approach | 6 | | 9 | |
| Advanced Approaches | Advanced Approaches | 6 | | 10 | | Advanced Approaches | 6 | | 9 | |
| | Total capital: | Total capital: | | Total capital: | |
| Standardized Approach | Standardized Approach | 6 | | 11 | | Standardized Approach | 6 | | 10 | |
| Advanced Approaches | Advanced Approaches | 6 | | 10 | | Advanced Approaches | 6 | | 10 | |
| | Tier 1 leverage | Tier 1 leverage | 3 | | 2 | | Tier 1 leverage | 2 | | 1 | |
| | SLR | SLR | 3 | | 3 | | SLR | 3 | | 2 | |
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.
EffectiveFrom April 1, 2020 custody banks, including BNY Mellon and The Bank of New York Mellon, are permitted to exclude certain central bank placements from leverage exposure used in the SLR calculation. Also, effective April 1, 2020 and lasting through March 31, 2021, BHCs arewere permitted to temporarily exclude U.S. Treasury securities from thetotal leverage exposure used in the SLR calculation. This temporary exclusion increased our consolidated SLR by 7868 basis points at Sept. 30, 2020March 31, 2021 and 4072 basis points at June 30,Dec. 31, 2020. See “SupervisionThe temporary exclusion also impacted the TLAC and Regulation”LTD calculations. BNY Mellon and The Bank of New York Mellon, as custody banks, will continue to be able to exclude certain central bank placements from the total leverage exposure used in ourthe SLR calculation, consistent with the amendments to the SLR finalized by the U.S. banking agencies in 2019 Annual Reportpursuant to the Economic Growth, Regulatory Relief, and “Recent regulatory developments” in our First Quarter 2020 Form 10-Q for additional information.Consumer Protection Act.
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,floor, effective as of Oct. 1, 2020. The SCB replaces the current 2.5% capital conservation buffer for Standardized Approach capital ratios.ratios for CCAR BHCs. The SCB does not apply to bank subsidiaries, which remain subject to the static 2.5% capital conservation buffer. See “Recent regulatory developments” for additional information on the SCB.
The SCB final rule generally eliminates the requirement for prior approval of common stock repurchases in excess of the distributions in a firm’s capital plan, provided that such distributions are consistent with applicable capital requirements and buffers, including the SCB. 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”distributions as described earlier in this Quarterly Report on Form 10-Q.“Capital.”
Total Loss-Absorbing Capacity (“TLAC”)
The final TLAC rule establishing external TLAC, external long-term debt (“LTD”) and related requirements for U.S. G-SIBs, including BNY Mellon, at the top-tier holding company level became effective on Jan. 1, 2019. The following summarizes the minimum requirements for BNY Mellon’s external TLAC and external LTD ratios, plus currently applicable buffers.
| | | | | | | | |
| As a % of RWAs (a) | As a % of total leverage exposure |
| Eligible external TLAC ratios | Regulatory minimum of 18% plus a buffer (b) equal to the sum of 2.5%, the method 1 G-SIB surcharge (currently 1%), and the countercyclical capital buffer, if any | Regulatory minimum of 7.5% plus a buffer (c) equal to 2%
|
| Eligible external LTD ratios | Regulatory minimum of 6% plus the greater of the method 1 or method 2 G-SIB surcharge (currently 1.5%) | 4.5% |
(a) RWA is the greater of Standardized and Advanced Approaches.
(b) Buffer to be met using only CET1.
(c) Buffer to be met using only Tier 1 capital.
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 | TLAC and LTD ratios | Sept. 30, 2020 | TLAC and LTD ratios | June 30, 2021 |
| | Minimum
required | Minimum ratios
with buffers | | | Minimum
required | Minimum ratios
with buffers | |
| | Ratios | | Ratios |
| Eligible external TLAC: | Eligible external TLAC: | | Eligible external TLAC: | |
| As a percentage of RWA | As a percentage of RWA | 18.0 | % | 21.5 | % | 27.8 | % | As a percentage of RWA | 18.0 | % | 21.5 | % | 28.2 | % |
| As a percentage of total leverage exposure | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 15.1 | % | As a percentage of total leverage exposure | 7.5 | % | 9.5 | % | 13.8 | % |
| | Eligible external LTD: | Eligible external LTD: | | Eligible external LTD: | |
| As a percentage of RWA | As a percentage of RWA | 7.5 | % | N/A | 11.4 | % | As a percentage of RWA | 7.5 | % | N/A | 11.6 | % |
| As a percentage of total leverage exposure | As a percentage of total leverage exposure | 4.5 | % | N/A | 6.2 | % | As a percentage of total leverage exposure | 4.5 | % | N/A | 5.7 | % |
N/A – Not applicable.
If BNY Mellon maintains risk-based ratio or leverage TLAC measures above the minimum required level, but with a risk-based ratio or leverage below the minimum level with buffers, we will face constraints on dividends, equity repurchases and discretionary executive compensation based on the amount of the shortfall and eligible retained income.
Trading activities and risk management
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk mitigatingrisk-mitigating hedging in compliance with the Volcker Rule. The risk from market-making activities for customers is managed by our traders and limited in total exposure through a system of position limits, value-at-risk (“VaR”) methodology and other market sensitivity measures. VaR is the potential loss in value due to adverse market movements over a defined time horizon with a specified confidence level. The calculation of our VaR used by management and presented below assumes a one-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. VaR facilitates comparisons across portfolios of different risk characteristics. VaR also captures the diversification of aggregated risk at the firm-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 1716 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) | VaR (a) | 3Q20 | Sept. 30, 2020 | VaR (a) | 2Q21 | June 30, 2021 |
| (in millions) | (in millions) | Average | Minimum | Maximum | (in millions) | Average | Minimum | Maximum |
| Interest rate | Interest rate | $ | 2.1 | | $ | 1.7 | | $ | 2.6 | | $ | 2.2 | | Interest rate | $ | 2.2 | | $ | 1.6 | | $ | 2.7 | | $ | 1.9 | |
| Foreign exchange | Foreign exchange | 2.6 | | 2.0 | | 3.7 | | 2.5 | | Foreign exchange | 2.6 | | 1.9 | | 3.7 | | 2.3 | |
| Equity | Equity | 0.3 | | 0.1 | | 0.6 | | 0.1 | | Equity | 0.1 | | — | | 0.3 | | 0.2 | |
| Credit | Credit | 2.2 | | 1.5 | | 3.5 | | 2.3 | | Credit | 1.8 | | 1.4 | | 2.6 | | 2.0 | |
| Diversification | Diversification | (3.8) | | N/M | (3.7) | | Diversification | (3.7) | | N/M | (3.5) | |
| Overall portfolio | Overall portfolio | 3.4 | | 2.4 | | 4.6 | | 3.4 | | Overall portfolio | 3.0 | | 2.5 | | 4.5 | | 2.9 | |
| | | | | | | | | | | | | | |
VaR (a) | 1Q21 | March 31, 2021 |
| (in millions) | Average | Minimum | Maximum |
| Interest rate | $ | 2.1 | | $ | 1.6 | | $ | 2.7 | | $ | 2.5 | |
| Foreign exchange | 2.7 | | 2.2 | | 3.9 | | 3.0 | |
| Equity | 0.1 | | 0.1 | | 0.9 | | 0.1 | |
| Credit | 1.8 | | 1.3 | | 2.8 | | 2.2 | |
| Diversification | (3.5) | | N/M | N/M | (4.3) | |
| Overall portfolio | 3.2 | | 2.5 | | 4.9 | | 3.5 | |
| | | | | | | | | | | | | | |
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) | VaR (a) | 3Q19 | Sept. 30, 2019 | VaR (a) | YTD21 | |
| (in millions) | (in millions) | Average | Minimum | Maximum | (in millions) | Average | Minimum | Maximum |
| Interest rate | Interest rate | $ | 4.7 | | $ | 3.7 | | $ | 7.3 | | $ | 4.3 | | Interest rate | $ | 2.1 | | $ | 1.6 | | $ | 2.7 | | |
| Foreign exchange | Foreign exchange | 3.0 | | 1.8 | | 5.1 | | 3.3 | | Foreign exchange | 2.7 | | 1.9 | | 3.9 | | |
| Equity | Equity | 0.9 | | 0.6 | | 1.2 | | 1.1 | | Equity | 0.1 | | — | | 0.9 | | |
| Credit | Credit | 1.0 | | 0.5 | | 2.0 | | 1.6 | | Credit | 1.8 | | 1.3 | | 2.8 | | |
| Diversification | Diversification | (3.5) | | N/M | (3.6) | | Diversification | (3.6) | | N/M | |
| Overall portfolio | Overall portfolio | 6.1 | | 4.0 | | 8.2 | | 6.7 | | Overall portfolio | 3.1 | | 2.5 | | 4.9 | | |
| VaR (a) | VaR (a) | YTD20 | | VaR (a) | YTD20 | |
| (in millions) | (in millions) | Average | Minimum | Maximum | (in millions) | Average | Minimum | Maximum |
| Interest rate | Interest rate | $ | 3.4 | | $ | 1.7 | | $ | 11.3 | | | Interest rate | $ | 4.0 | | $ | 2.1 | | $ | 11.3 | | |
| Foreign exchange | Foreign exchange | 3.0 | | 1.7 | | 6.3 | | | Foreign exchange | 3.2 | | 1.7 | | 6.3 | | |
| Equity | Equity | 0.7 | | 0.1 | | 2.3 | | | Equity | 0.9 | | 0.4 | | 2.3 | | |
| Credit | Credit | 3.0 | | 1.2 | | 12.1 | | | Credit | 3.5 | | 1.2 | | 12.1 | | |
| Diversification | Diversification | (5.3) | | N/M | | Diversification | (6.1) | | N/M | |
| Overall portfolio | Overall portfolio | 4.8 | | 2.4 | | 14.3 | | | Overall portfolio | 5.5 | | 3.1 | | 14.3 | | |
| | | | | | | | | | | | |
VaR (a) | YTD19 | |
| (in millions) | Average | Minimum | Maximum |
| Interest rate | $ | 4.3 | | $ | 3.2 | | $ | 7.3 | | |
| Foreign exchange | 3.2 | | 1.8 | | 6.4 | | |
| Equity | 0.8 | | 0.6 | | 1.2 | | |
| Credit | 0.8 | | 0.4 | | 2.0 | | |
| Diversification | (3.3) | | N/M | N/M | |
| Overall portfolio | 5.8 | | 4.0 | | 9.5 | | |
(a)VaR exposure does not include the impact of the Company’s consolidated investment management funds and seed capital investments.
N/M -– Because the minimum and maximum may occur on different days for different risk components, it is not meaningful to compute a minimum and maximum portfolio diversification effect.
The interest rate component of VaR represents instruments whose values are predominantly driven by interest rate levels. These instruments include, but are not limited to, U.S. Treasury securities, swaps, swaptions, forward rate agreements, exchange-traded futures and options, and other interest rate derivative products.
The foreign exchange component of VaR represents instruments whose values predominantly vary with the level or volatility of currency exchange rates or interest rates. These instruments include, but are not limited to, currency balances, spot and forward transactions, currency options and other currency derivative products.
The equity component of VaR consists of instruments that represent an ownership interest in the form of domestic and foreign common stock or other equity-linked instruments. These instruments include, but are not limited to, common stock, exchange-traded funds, preferred stock, listed equity options (puts and calls), OTC equity options, equity total return swaps, equity index futures and other equity derivative products.
The credit component of VaR represents instruments whose values are predominantly driven by credit spread levels, i.e., idiosyncratic default risk. These instruments include, but are not limited to, 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 thirdsecond quarter of 2020,2021, interest rate risk generated 29%33% of average gross VaR, foreign exchange risk generated 36%39% of average gross VaR, equity risk generated 4%1% of average gross VaR and credit risk generated 31%27% of average gross VaR. During the thirdsecond quarter of 2020,2021, our daily trading loss did not exceedexceeded our calculated VaR amount of the overall portfolio.portfolio on one occasion.
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) | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | June 30, 2020 |
|
| Revenue range: | Number of days |
| Less than $(2.5) | — | | — | | 2 | | 4 | | 6 | |
| $(2.5) – $0 | 7 | | 6 | | 12 | | 10 | | 12 | |
| $0 – $2.5 | 22 | | 17 | | 11 | | 23 | | 17 | |
| $2.5 – $5.0 | 25 | | 21 | | 26 | | 16 | | 15 | |
| More than $5.0 | 10 | | 17 | | 11 | | 12 | | 14 | |
(a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net interest revenue.
Trading assets include debt and equity instruments and derivative assets, primarily interest rate and foreign exchange contracts, not designated as hedging instruments. Trading assets were $13.1$15.5 billion at Sept.June 30, 20202021 and $13.6$15.3 billion at Dec. 31, 2019.2020.
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 $6.1$6.5 billion at Sept.June 30, 20202021 and $4.8$6.0 billion at Dec. 31, 2019.2020.
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 Sept.June 30, 2020,2021, our OTC derivative assets, including those in hedging relationships, of $4.2$4.8 billion included a credit valuation adjustment (“CVA”) deduction of $39$28 million. Our OTC derivative liabilities, including those in hedging relationships, of $3.6$3.3 billion included a debit valuation adjustment (“DVA”) of $1 million related to our own credit spread. Net of hedges, the CVA decreased by $3$1 million and the DVA was unchangedincreased by less than $1 million in the thirdsecond quarter of 2020,2021, which increased foreign exchange and other trading revenue by $3$1 million. The net impact decreased foreign exchange and other trading revenue by $1
million in the first quarter of 2021 and $2 million in the second quarter of 2020 and increased foreign exchange and other trading revenue by $1 million in the third quarter of 2019.2020.
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) | Foreign exchange and other trading counterparty risk rating profile (a) | | Foreign exchange and other trading counterparty risk rating profile (a) | |
| | Quarter ended | | Quarter ended |
| | Sept. 30, 2020 | June 30, 2020 | March 31, 2020 | Dec. 31, 2019 | Sept. 30, 2019 | | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | Sept. 30, 2020 | June 30, 2020 |
| | Rating: | Rating: | | Rating: | |
| AAA to AA- | AAA to AA- | 54 | % | 56 | % | 56 | % | 54 | % | 55 | % | AAA to AA- | 52 | % | 45 | % | 46 | % | 54 | % | 56 | % |
| A+ to A- | A+ to A- | 20 | | 18 | | 24 | | 24 | | 24 | | A+ to A- | 19 | | 26 | | 28 | | 20 | | 18 | |
| BBB+ to BBB- | BBB+ to BBB- | 17 | | 18 | | 14 | | 17 | | 16 | | BBB+ to BBB- | 24 | | 22 | | 18 | | 17 | | 18 | |
BB+ and lower (b) | BB+ and lower (b) | 9 | | 8 | | 6 | | 5 | | 5 | | BB+ and lower (b) | 5 | | 7 | | 8 | | 9 | | 8 | |
| Total | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | Total | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % |
(a) Represents credit rating agency equivalent of internal credit ratings.
(b) Non-investment grade.
Asset/liability management
Our diversified business activities include processing securities, accepting deposits, investing in securities, lending, raising money as needed to fund assets and other transactions. The market risks from these activities include interest rate risk and foreign exchange risk. Our primary market risk is exposure to movements in U.S. dollar interest rates and certain foreign currency interest rates. We actively manage interest rate sensitivity and use earnings simulation and discounted cash flow models to identify interest rate exposures.
An earnings simulation model is the primary tool used to assess changes in pre-tax net interest revenue. 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. 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) | Estimated changes in net interest revenue
(in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | Estimated changes in net interest revenue
(in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 |
Up 200 bps parallel rate ramp vs. baseline (a) | Up 200 bps parallel rate ramp vs. baseline (a) | $ | 608 | | $ | 591 | | $ | 187 | | Up 200 bps parallel rate ramp vs. baseline (a) | $ | 890 | | $ | 1,024 | | $ | 591 | |
Up 100 bps parallel rate ramp vs. baseline (a) | Up 100 bps parallel rate ramp vs. baseline (a) | 343 | | 349 | | 74 | | Up 100 bps parallel rate ramp vs. baseline (a) | 477 | | 551 | | 349 | |
Down 100 bps parallel rate ramp vs. baseline (a) | Down 100 bps parallel rate ramp vs. baseline (a) | 418 | | 315 | | (45) | | Down 100 bps parallel rate ramp vs. baseline (a) | 430 | | 384 | | 315 | |
Long-term up 50 bps, short-term unchanged (b) | Long-term up 50 bps, short-term unchanged (b) | 144 | | 153 | | 115 | | Long-term up 50 bps, short-term unchanged (b) | 123 | | 120 | | 153 | |
Long-term down 50 bps, short-term unchanged (b) | Long-term down 50 bps, short-term unchanged (b) | (164) | | (173) | | (119) | | Long-term down 50 bps, short-term unchanged (b) | (132) | | (116) | | (173) | |
(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 down 100 basis point scenario was impacteddecreases in the ramp up sensitivities compared with March 31, 2021 are primarily driven by a changedecrease in our deposit assumptions. Specifically, we increasedlevels and the amountimpact of hedging long-term debt.
While the net interest revenue sensitivity scenarios calculations assume static deposit balances to which wefacilitate consistent period-over-period comparisons, it is likely that a portion of the recent monetary policy-driven deposit inflows would pass through negative central bank ratesrun-off in rising rate environments, such as the scenario.up 100 bps and up 200 bps parallel ramps. Noninterest-bearing deposits are particularly sensitive to changes in short-term rates.
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 $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 20192020 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”)GAAP information, which exclude goodwill and intangible assets, net of deferred tax liabilities. We believe that the return on tangible common equity – Non-GAAP is additional useful information for investors because it presents a measure of those assets that can generate income, and the tangible book value per common share – Non-GAAP is additional useful information because it presents the level of tangible assets in relation to shares of common stock outstanding.
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 | Return on common equity and tangible common equity reconciliation | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | Return on common equity and tangible common equity reconciliation | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 |
| (dollars in millions) | (dollars in millions) | (dollars in millions) |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 876 | | $ | 901 | | $ | 1,002 | | $ | 2,721 | | $ | 2,881 | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation – GAAP | $ | 991 | | $ | 858 | | $ | 901 | | $ | 1,849 | | $ | 1,845 | |
| Add: Amortization of intangible assets | Add: Amortization of intangible assets | 26 | | 26 | | 30 | | 78 | | 89 | | Add: Amortization of intangible assets | 20 | | 24 | | 26 | | 44 | | 52 | |
| Less: Tax impact of amortization of intangible assets | Less: Tax impact of amortization of intangible assets | 7 | | 6 | | 7 | | 19 | | 21 | | Less: Tax impact of amortization of intangible assets | 5 | | 6 | | 6 | | 11 | | 12 | |
| Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | 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 | | Adjusted net income applicable to common shareholders of The Bank of New York Mellon Corporation, excluding amortization of intangible assets – Non-GAAP | $ | 1,006 | | $ | 876 | | $ | 921 | | $ | 1,882 | | $ | 1,885 | |
| | Average common shareholders’ equity | Average common shareholders’ equity | $ | 39,924 | | $ | 38,476 | | $ | 37,597 | | $ | 38,693 | | $ | 37,392 | | Average common shareholders’ equity | $ | 40,393 | | $ | 40,720 | | $ | 38,476 | | $ | 40,556 | | $ | 38,070 | |
| Less: Average goodwill | Less: Average goodwill | 17,357 | | 17,243 | | 17,267 | | 17,304 | | 17,328 | | Less: Average goodwill | 17,517 | | 17,494 | | 17,243 | | 17,506 | | 17,277 | |
| Average intangible assets | Average intangible assets | 3,039 | | 3,058 | | 3,141 | | 3,062 | | 3,176 | | Average intangible assets | 2,975 | | 3,000 | | 3,058 | | 2,987 | | 3,073 | |
| Add: Deferred tax liability – tax deductible goodwill | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,103 | | 1,132 | | 1,103 | | Add: Deferred tax liability – tax deductible goodwill | 1,163 | | 1,153 | | 1,119 | | 1,163 | | 1,119 | |
| Deferred tax liability – intangible assets | Deferred tax liability – intangible assets | 666 | | 664 | | 679 | | 666 | | 679 | | Deferred tax liability – intangible assets | 675 | | 665 | | 664 | | 675 | | 664 | |
| Average tangible common shareholders’ equity – Non-GAAP | Average tangible common shareholders’ equity – Non-GAAP | $ | 21,326 | | $ | 19,958 | | $ | 18,971 | | $ | 20,125 | | $ | 18,670 | | Average tangible common shareholders’ equity – Non-GAAP | $ | 21,739 | | $ | 22,044 | | $ | 19,958 | | $ | 21,901 | | $ | 19,503 | |
| Return on common shareholders’ equity – GAAP | Return on common shareholders’ equity – GAAP | 8.7 | % | 9.4 | % | 10.6 | % | 9.4 | % | 10.3 | % | Return on common shareholders’ equity – GAAP | 9.8 | % | 8.5 | % | 9.4 | % | 9.2 | % | 9.7 | % |
| Return on tangible common shareholders’ equity – Non-GAAP | Return on tangible common shareholders’ equity – Non-GAAP | 16.7 | % | 18.5 | % | 21.4 | % | 18.5 | % | 21.1 | % | Return on tangible common shareholders’ equity – Non-GAAP | 18.6 | % | 16.1 | % | 18.5 | % | 17.3 | % | 19.4 | % |
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 | Book value and tangible book value per common share reconciliation | Sept. 30, 2020 | June 30,
2020 | Dec. 31, 2019 | Sept. 30, 2019 | | Book value and tangible book value per common share reconciliation | June 30, 2021 | March 31, 2021 | Dec. 31, 2020 | June 30, 2020 | |
| (dollars in millions, except per share amounts and unless otherwise noted) | (dollars in millions, except per share amounts and unless otherwise noted) | | (dollars in millions, except per share amounts and unless otherwise noted) | |
| BNY Mellon shareholders’ equity at period end – GAAP | BNY Mellon shareholders’ equity at period end – GAAP | $ | 44,917 | | $ | 43,697 | | $ | 41,483 | | $ | 41,120 | | | BNY Mellon shareholders’ equity at period end – GAAP | $ | 45,281 | | $ | 44,954 | | $ | 45,801 | | $ | 43,697 | | |
| Less: Preferred stock | Less: Preferred stock | 4,532 | | 4,532 | | 3,542 | | 3,542 | | | Less: Preferred stock | 4,541 | | 4,541 | | 4,541 | | 4,532 | | |
| BNY Mellon common shareholders’ equity at period end – GAAP | BNY Mellon common shareholders’ equity at period end – GAAP | 40,385 | | 39,165 | | 37,941 | | 37,578 | | | BNY Mellon common shareholders’ equity at period end – GAAP | 40,740 | | 40,413 | | 41,260 | | 39,165 | | |
| Less: Goodwill | Less: Goodwill | 17,357 | | 17,253 | | 17,386 | | 17,248 | | | Less: Goodwill | 17,487 | | 17,469 | | 17,496 | | 17,253 | | |
| Intangible assets | Intangible assets | 3,026 | | 3,045 | | 3,107 | | 3,124 | | | Intangible assets | 2,964 | | 2,983 | | 3,012 | | 3,045 | | |
| Add: Deferred tax liability – tax deductible goodwill | Add: Deferred tax liability – tax deductible goodwill | 1,132 | | 1,119 | | 1,098 | | 1,103 | | | Add: Deferred tax liability – tax deductible goodwill | 1,163 | | 1,153 | | 1,144 | | 1,119 | | |
| Deferred tax liability – intangible assets | Deferred tax liability – intangible assets | 666 | | 664 | | 670 | | 679 | | | Deferred tax liability – intangible assets | 675 | | 665 | | 667 | | 664 | | |
| BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 21,800 | | $ | 20,650 | | $ | 19,216 | | $ | 18,988 | | | BNY Mellon tangible common shareholders’ equity at period end – Non-GAAP | $ | 22,127 | | $ | 21,779 | | $ | 22,563 | | $ | 20,650 | | |
| Period-end common shares outstanding (in thousands) | Period-end common shares outstanding (in thousands) | 886,136 | | 885,862 | | 900,683 | | 922,199 | | | Period-end common shares outstanding (in thousands) | 863,174 | | 875,481 | | 886,764 | | 885,862 | | |
| | Book value per common share – GAAP | Book value per common share – GAAP | $ | 45.58 | | $ | 44.21 | | $ | 42.12 | | $ | 40.75 | | | Book value per common share – GAAP | $ | 47.20 | | $ | 46.16 | | $ | 46.53 | | $ | 44.21 | | |
| Tangible book value per common share – Non-GAAP | Tangible book value per common share – Non-GAAP | $ | 24.60 | | $ | 23.31 | | $ | 21.33 | | $ | 20.59 | | | Tangible book value per common share – Non-GAAP | $ | 25.64 | | $ | 24.88 | | $ | 25.44 | | $ | 23.31 | | |
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 | Constant currency reconciliation – Consolidated | 3Q20 | 3Q19 | 3Q20 vs. | Constant currency reconciliation – Consolidated | 2Q21 | 2Q20 | 2Q21 vs. |
| (dollars in millions) | (dollars in millions) | 3Q19 | (dollars in millions) | 2Q20 |
| Investment management and performance fees – GAAP | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | Investment management and performance fees – GAAP | $ | 889 | | $ | 786 | | 13 | % |
| Impact of changes in foreign currency exchange rates | Impact of changes in foreign currency exchange rates | — | | 11 | | | Impact of changes in foreign currency exchange rates | — | | 31 | | |
| Adjusted investment management and performance fees – Non-GAAP | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % | Adjusted investment management and performance fees – Non-GAAP | $ | 889 | | $ | 817 | | 9 | % |
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 | Constant currency reconciliation – Investment and Wealth Management business | | 3Q20 vs. | Constant currency reconciliation – Investment and Wealth Management business | | 2Q21 vs. |
| (dollars in millions) | (dollars in millions) | 3Q20 | 3Q19 | 3Q19 | (dollars in millions) | 2Q21 | 2Q20 | 2Q20 |
Investment management and performance fees – GAAP | Investment management and performance fees – GAAP | $ | 835 | | $ | 832 | | — | % | Investment management and performance fees – GAAP | $ | 890 | | $ | 787 | | 13 | % |
| Impact of changes in foreign currency exchange rates | Impact of changes in foreign currency exchange rates | — | | 11 | | | Impact of changes in foreign currency exchange rates | — | | 31 | | |
| Adjusted investment management and performance fees – Non-GAAP | Adjusted investment management and performance fees – Non-GAAP | $ | 835 | | $ | 843 | | (1) | % | Adjusted investment management and performance fees – Non-GAAP | $ | 890 | | $ | 818 | | 9 | % |
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 | Pre-tax operating margin reconciliation – Investment and Wealth Management business | | Pre-tax operating margin reconciliation – Investment and Wealth Management business | |
| (dollars in millions) | (dollars in millions) | 3Q20 | 2Q20 | 1Q20 | 4Q19 | 3Q19 | YTD20 | YTD19 | (dollars in millions) | 2Q21 | 1Q21 | 4Q20 | 3Q20 | 2Q20 | YTD21 | YTD20 |
| Income before income taxes – GAAP | Income before income taxes – GAAP | $ | 245 | | $ | 221 | | $ | 194 | | $ | 240 | | $ | 295 | | $ | 660 | | $ | 821 | | Income before income taxes – GAAP | $ | 326 | | $ | 278 | | $ | 311 | | $ | 245 | | $ | 221 | | $ | 604 | | $ | 415 | |
| | Total revenue – GAAP | Total revenue – GAAP | $ | 918 | | $ | 886 | | $ | 898 | | $ | 971 | | $ | 887 | | $ | 2,702 | | $ | 2,736 | | Total revenue – GAAP | $ | 999 | | $ | 991 | | $ | 990 | | $ | 918 | | $ | 886 | | $ | 1,990 | | $ | 1,784 | |
Less: Distribution and servicing expense | Less: Distribution and servicing expense | 85 | | 86 | | 91 | | 93 | | 98 | | 262 | | 283 | | Less: Distribution and servicing expense | 74 | | 75 | | 76 | | 85 | | 86 | | 149 | | 177 | |
| Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 833 | | $ | 800 | | $ | 807 | | $ | 878 | | $ | 789 | | $ | 2,440 | | $ | 2,453 | | Adjusted total revenue, net of distribution and servicing expense – Non-GAAP | $ | 925 | | $ | 916 | | $ | 914 | | $ | 833 | | $ | 800 | | $ | 1,841 | | $ | 1,607 | |
| Pre-tax operating margin – GAAP (a) | Pre-tax operating margin – GAAP (a) | 27 | % | 25 | % | 22 | % | 25 | % | 33 | % | 24 | % | 30 | % | Pre-tax operating margin – GAAP (a) | 33 | % | 28 | % | 32 | % | 27 | % | 25 | % | 30 | % | 23 | % |
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 29 | % | 28 | % | 24 | % | 27 | % | 37 | % | 27 | % | 33 | % | Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a) | 35 | % | 30 | % | 34 | % | 29 | % | 28 | % | 33 | % | 26 | % |
(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 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 quartersquarter ended March 31, 2020 and June 30, 20202021 and “Supervision and Regulation” in our 20192020 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.Mellon.
CCAR Refiling, Limitations and SCB2021 Results
In light of the changes in the financial markets and the economy, inOn June 2020, the Federal Reserve announced that all banking institutions subject to CCAR, including BNY Mellon, are required to resubmit their capital plans. On Sept. 17, 2020,24, 2021, the Federal Reserve released the supervisory scenariosresults of its stress tests for 2021. The Federal Reserve also notified BNY Mellon that its indicative SCB requirement for the resubmission, which was submitted on Nov. 2, 2020.
Also in September 2020, the Federal Reserve extended through the fourth quarter of 2020 the limitations on capital distributions and 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 Aug. 10, 2020, the Federal Reserve announced the individual CCAR firms’ SCBs. The BNY Mellon SCB requirement ispresent stress test cycle will be 2.5%, which equals the regulatory minimum, and is unchanged compared to the capital conservation bufferfloor. BNY Mellon expects that previously applied.its final SCB will be confirmed later in 2021. The SCB becamewill be effective on Oct. 1, 2020.2021.
The temporary restrictions on dividends and share repurchases imposed as a result of the coronavirus pandemic ended for BNY Mellon after June 30, 2021. Starting in the third quarter of 2021, BNY Mellon will continue to be subject to the normal constraints under the SCB framework. 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 20192020 Annual Report.
Capital, LiquidityConsistent with the SCB framework, BNY Mellon increased its quarterly common stock dividend to $0.34 per share in the third quarter of 2021 and TLAC Reliefour Board has authorized the repurchase of up to $6.0 billion of common shares over the six quarters beginning in the third quarter of 2021 and continuing through the fourth quarter of 2022. This new share repurchase plan replaces all previously authorized share repurchase plans.
On Sept. 29, 2020, the Federal Reserve, the FDIC and the OCC (the “Agencies”) finalized without changes an interim final rule issued in March 2020 that neutralizes the regulatory capital and liquidity coverage ratio effects for institutions that participate in the Federal Reserve’s MMLF.NSFR Compliance Date
Similarly, in August 2020,The final NSFR rule became effective on July 1, 2021. Under the Agencies finalized without change an interim final rule, issuedthe NSFR is expressed as a ratio of available stable funding to the required stable funding amount. BNY Mellon is required to maintain an NSFR of 1.0 and is in March 2020 that revisedcompliance with the definition of “eligible retained income”NSFR. NSFR disclosure requirements will be effective in 2023.
EU/UK Trade and Cooperation Agreement
The EU-UK Trade and Cooperation Agreement (“EU-UK Agreement”) entered into force and became provisionally effective on Jan. 1, 2021. The EU-UK Agreement was ratified by the European Parliament in April 2021 and became fully effective. Under the EU-UK Agreement, the EU and UK have agreed to make their best endeavors to ensure that internationally agreed standards in the financial services sector for regulation and supervision are implemented and applied in their territory and establish a framework for structured regulatory cooperation on financial services. For more gradualinformation regarding the automatic restrictionsimpact of Brexit on capital distributions, such as share repurchases, dividend payments,the UK regulatory framework and bonus payments. Inrelated developments, see “Supervision and Regulation – Effects of ‘Brexit’ on UK Regulatory Framework” in the same final rulemaking,2020 Annual Report.
Financial Services Act 2021 (UK)
The Financial Services Act 2021 (previously the Federal Reserve also finalized the March 2020 interim final rule that made correspondingFinancial Services Bill 2020) received royal assent and entered into force in April 2021. The Financial Services Act 2021 makes several changes to the TLAC buffer requirements. The final rule is effectiveUK financial services regulatory framework. This includes providing the framework for implementation of the elements of the EU Capital Requirements Regulation 2 (“CRR2”) that do not already form part of EU retained law in the UK, and the framework for implementation of the EU Investment Firms Directive / Regulation (“IFD/IFR”) in the UK (modified for the UK environment as of Jan. 1, 2021.“UK IFPR”).
Also in August 2020, the Agencies finalized a current expected credit loss (“CECL”) final rule that is substantially similarThe Financial Services Act 2021 grants rulemaking powers to the interim final rule issuedPrudential Regulatory Authority (“PRA”) with respect to UK capital requirements directive/regulation matters, and the Financial Conduct Authority (“FCA”), with respect to UK IFPR matters. The Financial Services Act 2021 also enables Her Majesty’s Treasury to set commencement dates for various UK CRR2/UK IFPR provisions. Pursuant to this authority, Her Majesty’s Treasury has confirmed that the UK’s version of the CRR2 (“UK CRR2”) and the UK IFPR will come into effect on Jan. 1, 2022. For more information regarding the CRR2 and the UK IFPR, see “Supervision and Regulation – Operations and Regulations Outside the United States” and “Supervision and Regulation – Effects of ‘Brexit’ on UK Regulatory Framework” in March 2020. The final rule permits banking organizations to temporarily delay the estimated2020 Annual Report.
effects of CECL on regulatory capital until Jan. 1, 2022 and then to phase in those effects through Jan. 1, 2025. Under the final rule, during 2020 and 2021, the adjustment to CET1 capital reflects the change in retained earnings upon adoption of CECL at Jan. 1, 2020 plus 25% of the increase in the allowance for credit losses since Jan. 1, 2020. BNY Mellon has not yet elected to apply this final rule. See Note 2 of the Notes to Consolidated Financial Statements for additional information 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 third quarter of 2020.
For additional information regarding the interim final rulemakings noted above, see “Recent regulatory developments – Capital, Liquidity and TLAC Relief” in our First Quarter 2020 Form 10-Q.
Net Stable FundingEU Leverage Ratio
On Oct. 20, 2020,June 28, 2021, the Agencies issuedCRR2 leverage ratio became a final net stable funding ratio (“NSFR”) rule that implements a quantitative measure of funding stability over a one-year horizon, and is applicable to certain large banking organizations, including BNY Mellon. Under the 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,binding requirement for example, unsecured debt instruments issued by U.S. or foreign G-SIBs, among other entities, to meet TLAC requirements or similar foreign requirements as well as any other unsecured debt instruments pari passu or subordinated to such debt instruments. The rule is effective on April 1, 2021. The impact of the final rule is not expected to be material to BNY Mellon.
ECB Declaration of Exceptional Circumstances
In September 2020, the European Central Bank (“ECB”) issued a declaration of exceptional circumstances, which is in effect from Sept. 26, 2020 to June 27, 2021, and which, as a result of the so-called “quick-fix” to the Capital Requirements Regulation (“CRR”) earlier in the year, has the effect of allowingEU credit institutions, subject to direct ECB supervision, such as The Bank of New York Mellon SA/NV, to disclose their leverage ratios excludingNV. The European Central Bank (“ECB”) granted an optional exclusion for central bank deposits (as well asfrom the leverage ratios absent this exclusion). Theratio calculation that came into effect on the same date and will expire on March 31, 2022. It replaces the central bank deposits exclusion granted by the ECB in April 2020 in relation to the leverage ratio requirement is currently not binding on EU credit institutions but will become a binding requirement as part of the CRR 2, on June 28, 2021. The ECB declaration also has the effect of providing relief for subsidiaries of G-SIBs, such asreporting requirements. The Bank of New York Mellon SA/NV underis planning to use the binding internal TLAC requirement.exclusion.
For additional information regarding the so-called CRR “quick-fix”, see “Recent regulatory developments – ‘CRR Quick-Fix’” in our Second Quarter 2020 Form 10-Q.
Other matters
48 BNY Mellon
In April 2021, New York state adopted legislation that provides a statutory fallback mechanism to replace LIBOR with a benchmark rate based on SOFR for New York-law governed contracts that reference U.S. dollar LIBOR and either have no fallback provisions or provisions that are based on LIBOR. The New York legislation also has a safe harbor regarding the selection and use of that SOFR-based benchmark rate.
The U.S. bank regulators have issued guidance strongly encouraging banking organizations to cease using U.S. dollar LIBOR as a reference rate in new contracts as soon as practicable and in any event by Dec. 31, 2021. We are continuing to work to facilitate an orderly transition from interbank offered rates, including LIBOR, to alternative reference rates for us and our clients.
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 (@BNYMellon) and other social media channels as additional means of disclosing information to the public. The information disclosed through those channels may be considered to be material. The contents of our website or social media channels referenced herein are not incorporated by reference into this Quarterly Report on Form 10-Q.
| | |
| Item 1. Financial Statements |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Income Statement (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | |
| | Quarter ended | | Year-to-date | | | June 30, 2021 | March 31, 2021 | June 30, 2020 | | | June 30, 2021 | June 30, 2020 | |
| (in millions) | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | (in millions) | |
| Fee and other revenue | Fee and other revenue | | | Fee and other revenue | |
| Investment services fees: | Investment services fees: | | | Investment services fees: | |
| Asset servicing fees | Asset servicing fees | $ | 1,168 | | $ | 1,173 | | $ | 1,152 | | | $ | 3,500 | | $ | 3,415 | | | Asset servicing fees | $ | 1,200 | | $ | 1,199 | | $ | 1,173 | | | $ | 2,399 | | $ | 2,332 | | |
| Clearing services fees | Clearing services fees | 397 | | 431 | | 419 | | | 1,298 | | 1,227 | | | Clearing services fees | 435 | | 455 | | 431 | | | 890 | | 901 | | |
| Issuer services fees | Issuer services fees | 295 | | 277 | | 324 | | | 835 | | 866 | | | Issuer services fees | 281 | | 245 | | 277 | | | 526 | | 540 | | |
| Treasury services fees | Treasury services fees | 152 | | 144 | | 140 | | | 445 | | 412 | | | Treasury services fees | 160 | | 157 | | 144 | | | 317 | | 293 | | |
| Total investment services fees | Total investment services fees | 2,012 | | 2,025 | | 2,035 | | | 6,078 | | 5,920 | | | Total investment services fees | 2,076 | | 2,056 | | 2,025 | | | 4,132 | | 4,066 | | |
| Investment management and performance fees | Investment management and performance fees | 835 | | 786 | | 832 | | | 2,483 | | 2,506 | | | Investment management and performance fees | 889 | | 890 | | 786 | | | 1,779 | | 1,648 | | |
| Foreign exchange and other trading revenue | 137 | | 166 | | 150 | | | 622 | | 486 | | | |
| Foreign exchange revenue | | Foreign exchange revenue | 184 | | 231 | | 193 | | (a) | | 415 | | 438 | | (a) |
| Financing-related fees | Financing-related fees | 49 | | 58 | | 49 | | | 166 | | 150 | | | Financing-related fees | 48 | | 51 | | 58 | | | 99 | | 117 | | |
| Distribution and servicing | Distribution and servicing | 29 | | 27 | | 33 | | | 87 | | 95 | | | Distribution and servicing | 27 | | 29 | | 27 | | | 56 | | 58 | | |
| Total fee revenue | | Total fee revenue | 3,224 | | 3,257 | | 3,089 | | (a) | | 6,481 | | 6,327 | | (a) |
| Investment and other income | Investment and other income | 46 | | 105 | | 30 | | | 162 | | 108 | | | Investment and other income | 89 | | 9 | | 132 | | (a) | | 98 | | 179 | | (a) |
| Total fee revenue | 3,108 | | 3,167 | | 3,129 | | | 9,598 | | 9,265 | | | |
| | Net securities gains (losses) | 9 | | 9 | | (1) | | | 27 | | 7 | | | |
| Net securities gains | | Net securities gains | 2 | | 0 | | 9 | | | 2 | | 18 | | |
| Total other revenue | | Total other revenue | 91 | | 9 | | 141 | | (a) | | 100 | | 197 | | (a) |
| Total fee and other revenue | Total fee and other revenue | 3,117 | | 3,176 | | 3,128 | | | 9,625 | | 9,272 | | | Total fee and other revenue | 3,315 | | 3,266 | | 3,230 | | | 6,581 | | 6,524 | | |
| 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 | Net interest revenue | | | Net interest revenue | |
| Interest revenue | Interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | Interest revenue | 685 | | 738 | | 943 | | | 1,423 | | 2,513 | | |
| Interest expense | Interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | Interest expense | 40 | | 83 | | 163 | | | 123 | | 919 | | |
| Net interest revenue | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | Net interest revenue | 645 | | 655 | | 780 | | | 1,300 | | 1,594 | | |
| Total revenue | Total revenue | 3,847 | | 4,010 | | 3,861 | | | 11,965 | | 11,684 | | | Total revenue | 3,960 | | 3,921 | | 4,010 | | | 7,881 | | 8,118 | | |
| Provision for credit losses | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | Provision for credit losses | (86) | | (83) | | 143 | | | (169) | | 312 | | |
| Noninterest expense | Noninterest expense | | | Noninterest expense | |
| Staff | Staff | 1,466 | | 1,464 | | 1,479 | | | 4,412 | | 4,424 | | | Staff | 1,518 | | 1,602 | | 1,464 | | | 3,120 | | 2,946 | | |
| Software and equipment | | Software and equipment | 365 | | 362 | | 345 | | | 727 | | 671 | | |
| Professional, legal and other purchased services | Professional, legal and other purchased services | 355 | | 337 | | 316 | | | 1,022 | | 978 | | | Professional, legal and other purchased services | 363 | | 343 | | 337 | | | 706 | | 667 | | |
| Software and equipment | 340 | | 345 | | 309 | | | 1,011 | | 896 | | | |
| Sub-custodian and clearing | | Sub-custodian and clearing | 132 | | 124 | | 120 | | | 256 | | 225 | | |
| Net occupancy | Net occupancy | 136 | | 137 | | 138 | | | 408 | | 413 | | | Net occupancy | 122 | | 123 | | 137 | | | 245 | | 272 | | |
| Sub-custodian and clearing | 119 | | 120 | | 111 | | | 344 | | 331 | | | |
| Distribution and servicing | Distribution and servicing | 85 | | 85 | | 97 | | | 261 | | 282 | | | Distribution and servicing | 73 | | 74 | | 85 | | | 147 | | 176 | | |
| Bank assessment charges | Bank assessment charges | 30 | | 35 | | 31 | | | 100 | | 93 | | | Bank assessment charges | 35 | | 34 | | 35 | | | 69 | | 70 | | |
| Amortization of intangible assets | | Amortization of intangible assets | 20 | | 24 | | 26 | | | 44 | | 52 | | |
| Business development | Business development | 17 | | 20 | | 47 | | | 79 | | 148 | | | Business development | 22 | | 19 | | 20 | | | 41 | | 62 | | |
| Amortization of intangible assets | 26 | | 26 | | 30 | | | 78 | | 89 | | | |
| Other | Other | 107 | | 117 | | 32 | | | 364 | | 282 | | | Other | 128 | | 146 | | 117 | | | 274 | | 257 | | |
| Total noninterest expense | Total noninterest expense | 2,681 | | 2,686 | | 2,590 | | | 8,079 | | 7,936 | | | Total noninterest expense | 2,778 | | 2,851 | | 2,686 | | | 5,629 | | 5,398 | | |
| Income | Income | | | Income | |
| Income before income taxes | Income before income taxes | 1,157 | | 1,181 | | 1,287 | | | 3,565 | | 3,765 | | | Income before income taxes | 1,268 | | 1,153 | | 1,181 | | | 2,421 | | 2,408 | | |
| Provision for income taxes | Provision for income taxes | 213 | | 216 | | 246 | | | 694 | | 747 | | | Provision for income taxes | 241 | | 221 | | 216 | | | 462 | | 481 | | |
| Net income | Net income | 944 | | 965 | | 1,041 | | | 2,871 | | 3,018 | | | Net income | 1,027 | | 932 | | 965 | | | 1,959 | | 1,927 | | |
| Net (income) attributable to noncontrolling interests related to consolidated investment management funds | (7) | | (15) | | (3) | | | (4) | | (17) | | | |
| Net (income) loss attributable to noncontrolling interests related to consolidated investment management funds | | Net (income) loss attributable to noncontrolling interests related to consolidated investment management funds | (5) | | (5) | | (15) | | | (10) | | 3 | | |
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 937 | | 950 | | 1,038 | | | 2,867 | | 3,001 | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 1,022 | | 927 | | 950 | | | 1,949 | | 1,930 | | |
| Preferred stock dividends | Preferred stock dividends | (61) | | (49) | | (36) | | | (146) | | (120) | | | Preferred stock dividends | (31) | | (69) | | (49) | | | (100) | | (85) | | |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 991 | | $ | 858 | | $ | 901 | | | $ | 1,849 | | $ | 1,845 | | |
| | |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Income Statement (unaudited) (continued)
| | Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation | | 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 | |
| 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 | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation used for the earnings per share calculation | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 | |
| (in millions) | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | (in millions) | March 31, 2021 | June 30, 2021 | June 30, 2020 | |
| Net income applicable to common shareholders of The Bank of New York Mellon Corporation | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 876 | | $ | 901 | | $ | 1,002 | | | $ | 2,721 | | $ | 2,881 | | | Net income applicable to common shareholders of The Bank of New York Mellon Corporation | $ | 991 | | $ | 901 | | | |
| Less: Earnings allocated to participating securities | Less: Earnings allocated to participating securities | 1 | | 1 | | 3 | | | 5 | | 12 | | | Less: Earnings allocated to participating securities | 1 | | 1 | | 1 | | | 2 | | 4 | | |
| 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 | 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 | | | 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 | $ | 990 | | $ | 857 | | $ | 900 | | | $ | 1,847 | | $ | 1,841 | | |
| | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | |
| Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 | |
| (in thousands) | (in thousands) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | (in thousands) | March 31, 2021 | June 30, 2021 | June 30, 2020 | |
| Basic | Basic | 889,499 | | 889,020 | | 933,264 | | | 891,050 | | 949,035 | | | Basic | 869,460 | | 889,020 | | | |
| Common stock equivalents | Common stock equivalents | 2,173 | | 2,044 | | 3,811 | | | 2,522 | | 4,484 | | | Common stock equivalents | 4,315 | | 3,824 | | 2,044 | | | 3,904 | | 2,866 | | |
| Less: Participating securities | Less: Participating securities | (603) | | (503) | | (1,398) | | | (779) | | (1,643) | | | Less: Participating securities | (300) | | (727) | | (503) | | | (501) | | (905) | | |
| Diluted | Diluted | 891,069 | | 890,561 | | 935,677 | | | 892,793 | | 951,876 | | | Diluted | 873,475 | | 885,655 | | 890,561 | | | 879,409 | | 893,603 | | |
| Anti-dilutive securities (a) | Anti-dilutive securities (a) | 1,485 | | 1,578 | | 3,701 | | | 1,828 | | 4,269 | | | Anti-dilutive securities (a) | 547 | | 4,133 | | 1,578 | | | 807 | | 2,052 | | |
(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 | | Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | |
| Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | Quarter ended | | Year-to-date | | Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 | |
| (in dollars) | (in dollars) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | (in dollars) | March 31, 2021 | June 30, 2021 | June 30, 2020 | |
| Basic | Basic | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.05 | | $ | 3.02 | | | Basic | $ | 1.14 | | $ | 1.01 | | | |
| Diluted | Diluted | $ | 0.98 | | $ | 1.01 | | $ | 1.07 | | | $ | 3.04 | | $ | 3.01 | | | Diluted | $ | 1.13 | | $ | 0.97 | | $ | 1.01 | | | $ | 2.10 | | $ | 2.06 | | |
See accompanying unaudited Notes to Consolidated Financial Statements.
| | |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Comprehensive Income Statement (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | Quarter ended | | Year-to-date | |
| | Quarter ended | | Year-to-date | | | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 | |
| (in millions) | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | (in millions) | | |
| Net income | Net income | $ | 944 | | $ | 965 | | $ | 1,041 | | | $ | 2,871 | | $ | 3,018 | | | Net income | $ | 1,027 | | $ | 932 | | $ | 965 | | | $ | 1,959 | | $ | 1,927 | | |
| Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | | Other comprehensive income (loss), net of tax: | | |
| Foreign currency translation adjustments | Foreign currency translation adjustments | 331 | | 115 | | (276) | | | 77 | | (237) | | | Foreign currency translation adjustments | 51 | | (150) | | 115 | | | (99) | | (254) | | |
| Unrealized gain on assets available-for-sale: | | | |
| Unrealized gain arising during the period | 233 | | 753 | | 63 | | | 1,169 | | 589 | | | |
| Unrealized gain (loss) on assets available-for-sale: | | Unrealized gain (loss) on assets available-for-sale: | | |
| Unrealized (loss) gain arising during the period | | Unrealized (loss) gain arising during the period | 77 | | (703) | | 753 | | | (626) | | 936 | | |
| Reclassification adjustment | Reclassification adjustment | (6) | | (7) | | 1 | | | (20) | | (5) | | | Reclassification adjustment | (1) | | 0 | | (7) | | | (1) | | (14) | | |
| Total unrealized gain on assets available-for-sale | 227 | | 746 | | 64 | | | 1,149 | | 584 | | | |
| Total unrealized gain (loss) on assets available-for-sale | | Total unrealized gain (loss) on assets available-for-sale | 76 | | (703) | | 746 | | | (627) | | 922 | | |
| Defined benefit plans: | Defined benefit plans: | | | 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 | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 20 | | 19 | | 10 | | | 57 | | 30 | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost | 25 | | 22 | | 19 | | | 47 | | 37 | | |
| Total defined benefit plans | Total defined benefit plans | 20 | | 19 | | 10 | | | 57 | | 21 | | | Total defined benefit plans | 25 | | 22 | | 19 | | | 47 | | 37 | | |
| Net unrealized gain (loss) on cash flow hedges | 8 | | 4 | | (6) | | | 1 | | (1) | | | |
| Net unrealized (loss) gain on cash flow hedges | | Net unrealized (loss) gain on cash flow hedges | (3) | | (3) | | 4 | | | (6) | | (7) | | |
Total other comprehensive income (loss), net of tax (a) | Total other comprehensive income (loss), net of tax (a) | 586 | | 884 | | (208) | | | 1,284 | | 367 | | | Total other comprehensive income (loss), net of tax (a) | 149 | | (834) | | 884 | | | (685) | | 698 | | |
| Total comprehensive income | Total comprehensive income | 1,530 | | 1,849 | | 833 | | | 4,155 | | 3,385 | | | Total comprehensive income | 1,176 | | 98 | | 1,849 | | | 1,274 | | 2,625 | | |
| Net (income) attributable to noncontrolling interests | (7) | | (15) | | (3) | | | (4) | | (17) | | | |
| Other comprehensive (income) loss attributable to noncontrolling interests | (2) | | 0 | | 3 | | | 0 | | 1 | | | |
| Net (income) loss attributable to noncontrolling interests | | Net (income) loss attributable to noncontrolling interests | (5) | | (5) | | (15) | | | (10) | | 3 | | |
| Other comprehensive loss attributable to noncontrolling interests | | Other comprehensive loss attributable to noncontrolling interests | 0 | | 0 | | 0 | | | 0 | | 2 | | |
| Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 1,521 | | $ | 1,834 | | $ | 833 | | | $ | 4,151 | | $ | 3,369 | | | Comprehensive income applicable to shareholders of The Bank of New York Mellon Corporation | $ | 1,171 | | $ | 93 | | $ | 1,834 | | | $ | 1,264 | | $ | 2,630 | | |
(a) Other comprehensive (loss) income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $584$149 million for the quarter ended Sept.June 30, 2020,2021, $(834) million for the quarter ended March 31, 2021, $884 million for the quarter ended June 30, 2020, $(205)$(685) million for the quartersix months ended Sept.June 30, 2019, $1,2842021 and $700 million for the ninesix months ended Sept.June 30, 2020 and $368 million for the nine months ended Sept. 30, 2019.2020.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Balance Sheet (unaudited)
| | | Sept. 30, 2020 | Dec. 31, 2019 | | June 30, 2021 | Dec. 31, 2020 |
| (dollars in millions, except per share amounts) | (dollars in millions, except per share amounts) | (dollars in millions, except per share amounts) |
| Assets | Assets | | Assets | |
Cash and due from banks, net of allowance for credit losses of $5 at Sept. 30, 2020 (a) | $ | 4,104 | | $ | 4,830 | | |
| Cash and due from banks, net of allowance for credit losses of $2 and $4 | | Cash and due from banks, net of allowance for credit losses of $2 and $4 | $ | 5,154 | | $ | 6,252 | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | 106,185 | | 95,042 | | Interest-bearing deposits with the Federal Reserve and other central banks | 126,355 | | 141,775 | |
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 | | |
| Interest-bearing deposits with banks, net of allowance for credit losses of $1 and $3 (includes restricted of $4,317 and $3,167) | | Interest-bearing deposits with banks, net of allowance for credit losses of $1 and $3 (includes restricted of $4,317 and $3,167) | 21,270 | | 17,300 | |
| Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 29,647 | | 30,182 | | Federal funds sold and securities purchased under resale agreements | 29,762 | | 30,907 | |
| Securities: | Securities: | | 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 | | |
| Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 and less than $1 (fair value of $52,919 and $49,224) | | Held-to-maturity, at amortized cost, net of allowance for credit losses of less than $1 and less than $1 (fair value of $52,919 and $49,224) | 52,325 | | 47,946 | |
| Available-for-sale, at fair value (amortized cost of $101,525 and $105,141, net of allowance for credit losses of $9 and $11) | | Available-for-sale, at fair value (amortized cost of $101,525 and $105,141, net of allowance for credit losses of $9 and $11) | 103,581 | | 108,495 | |
| Total securities | Total securities | 155,339 | | 123,033 | | Total securities | 155,906 | | 156,441 | |
| Trading assets | Trading assets | 13,074 | | 13,571 | | Trading assets | 15,520 | | 15,272 | |
| Loans | Loans | 55,491 | | 54,953 | | Loans | 63,547 | | 56,469 | |
Allowance for credit losses (a) | Allowance for credit losses (a) | (325) | | (122) | | Allowance for credit losses (a) | (269) | | (358) | |
| Net loans | Net loans | 55,166 | | 54,831 | | Net loans | 63,278 | | 56,111 | |
| Premises and equipment | Premises and equipment | 3,617 | | 3,625 | | Premises and equipment | 3,442 | | 3,602 | |
| Accrued interest receivable | Accrued interest receivable | 489 | | 624 | | Accrued interest receivable | 492 | | 510 | |
| Goodwill | Goodwill | 17,357 | | 17,386 | | Goodwill | 17,487 | | 17,496 | |
| Intangible assets | Intangible assets | 3,026 | | 3,107 | | Intangible assets | 2,964 | | 3,012 | |
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 | | |
| Other assets, net of allowance for credit losses on accounts receivable of $4 and $4 (includes $1,222 and $1,009, at fair value) | | Other assets, net of allowance for credit losses on accounts receivable of $4 and $4 (includes $1,222 and $1,009, at fair value) | 25,333 | | 20,955 | |
| Total assets | Total assets | $ | 428,398 | | $ | 381,508 | | Total assets | $ | 466,963 | | $ | 469,633 | |
| Liabilities | Liabilities | | Liabilities | |
| Deposits: | Deposits: | | Deposits: | |
| Noninterest-bearing (principally U.S. offices) | Noninterest-bearing (principally U.S. offices) | $ | 79,470 | | $ | 57,630 | | Noninterest-bearing (principally U.S. offices) | $ | 94,081 | | $ | 83,854 | |
| Interest-bearing deposits in U.S. offices | Interest-bearing deposits in U.S. offices | 111,703 | | 101,542 | | Interest-bearing deposits in U.S. offices | 130,344 | | 133,479 | |
| Interest-bearing deposits in non-U.S. offices | Interest-bearing deposits in non-U.S. offices | 105,139 | | 100,294 | | Interest-bearing deposits in non-U.S. offices | 114,245 | | 124,212 | |
| Total deposits | Total deposits | 296,312 | | 259,466 | | Total deposits | 338,670 | | 341,545 | |
| Federal funds purchased and securities sold under repurchase agreements | Federal funds purchased and securities sold under repurchase agreements | 15,907 | | 11,401 | | Federal funds purchased and securities sold under repurchase agreements | 12,425 | | 11,305 | |
| Trading liabilities | Trading liabilities | 6,084 | | 4,841 | | Trading liabilities | 6,451 | | 6,031 | |
| Payables to customers and broker-dealers | Payables to customers and broker-dealers | 23,514 | | 18,758 | | Payables to customers and broker-dealers | 23,704 | | 25,085 | |
| Commercial paper | 671 | | 3,959 | | |
| | Other borrowed funds | Other borrowed funds | 420 | | 599 | | Other borrowed funds | 451 | | 350 | |
Accrued taxes and other expenses | Accrued taxes and other expenses | 5,347 | | 5,642 | | Accrued taxes and other expenses | 5,213 | | 5,696 | |
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 | | |
Other liabilities (including allowance for credit losses on lending-related commitments of $50 and $121, also includes $582 and $1,110, at fair value) (a) | | Other liabilities (including allowance for credit losses on lending-related commitments of $50 and $121, also includes $582 and $1,110, at fair value) (a) | 8,626 | | 7,517 | |
| Long-term debt (includes $400 and $400, at fair value) | | Long-term debt (includes $400 and $400, at fair value) | 25,629 | | 25,984 | |
| Total liabilities | Total liabilities | 383,051 | | 339,780 | | Total liabilities | 421,169 | | 423,513 | |
| Temporary equity | Temporary equity | | Temporary equity | |
| Redeemable noncontrolling interests | Redeemable noncontrolling interests | 179 | | 143 | | Redeemable noncontrolling interests | 169 | | 176 | |
| Permanent equity | Permanent equity | | 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 | | |
| Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 45,826 shares | | Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 45,826 and 45,826 shares | 4,541 | | 4,541 | |
| Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,388,316,851 and 1,382,306,327 shares | | Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,388,316,851 and 1,382,306,327 shares | 14 | | 14 | |
| Additional paid-in capital | Additional paid-in capital | 27,741 | | 27,515 | | Additional paid-in capital | 28,006 | | 27,823 | |
| Retained earnings | Retained earnings | 33,821 | | 31,894 | | Retained earnings | 35,540 | | 34,241 | |
| Accumulated other comprehensive loss, net of tax | Accumulated other comprehensive loss, net of tax | (1,359) | | (2,638) | | Accumulated other comprehensive loss, net of tax | (1,670) | | (985) | |
| Less: Treasury stock of 495,515,086 and 473,760,338 common shares, at cost | (19,832) | | (18,844) | | |
| Less: Treasury stock of 525,143,173 and 495,542,796 common shares, at cost | | Less: Treasury stock of 525,143,173 and 495,542,796 common shares, at cost | (21,150) | | (19,833) | |
| Total The Bank of New York Mellon Corporation shareholders’ equity | Total The Bank of New York Mellon Corporation shareholders’ equity | 44,917 | | 41,483 | | Total The Bank of New York Mellon Corporation shareholders’ equity | 45,281 | | 45,801 | |
| Nonredeemable noncontrolling interests of consolidated investment management funds | Nonredeemable noncontrolling interests of consolidated investment management funds | 251 | | 102 | | Nonredeemable noncontrolling interests of consolidated investment management funds | 344 | | 143 | |
| Total permanent equity | Total permanent equity | 45,168 | | 41,585 | | Total permanent equity | 45,625 | | 45,944 | |
| Total liabilities, temporary equity and permanent equity | Total liabilities, temporary equity and permanent equity | $ | 428,398 | | $ | 381,508 | | Total liabilities, temporary equity and permanent equity | $ | 466,963 | | $ | 469,633 | |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 of the Notes to Consolidated Financial Statements for additional information.
See accompanying unaudited Notes to Consolidated Financial Statements.
| | |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Cash Flows (unaudited)
| | | Nine months ended Sept. 30, | | | Six months ended June 30, |
| (in millions) | (in millions) | 2020 | 2019 | | (in millions) | 2021 | | 2020 | |
| Operating activities | Operating activities | | | Operating activities | | |
| Net income | Net income | $ | 2,871 | | $ | 3,018 | | | Net income | $ | 1,959 | | | $ | 1,927 | | |
| Net (income) attributable to noncontrolling interests | (4) | | (17) | | | |
| Net (income) loss attributable to noncontrolling interests | | Net (income) loss attributable to noncontrolling interests | (10) | | | 3 | | |
| Net income applicable to shareholders of The Bank of New York Mellon Corporation | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 2,867 | | 3,001 | | | Net income applicable to shareholders of The Bank of New York Mellon Corporation | 1,949 | | | 1,930 | | |
| Adjustments to reconcile net income to net cash provided by (used for) operating activities: | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | | Adjustments to reconcile net income to net cash provided by (used for) operating activities: | | |
Provision for credit losses (a) | Provision for credit losses (a) | 321 | | (17) | | | Provision for credit losses (a) | (169) | | | 312 | | |
| Pension plan contributions | Pension plan contributions | (18) | | (30) | | | Pension plan contributions | (16) | | | (12) | | |
| Depreciation and amortization | Depreciation and amortization | 1,175 | | 971 | | | Depreciation and amortization | 938 | | | 744 | | |
| Deferred tax (benefit) | Deferred tax (benefit) | (351) | | (185) | | | Deferred tax (benefit) | 274 | | | (363) | | |
| Net securities (gains) | Net securities (gains) | (27) | | (7) | | | Net securities (gains) | (2) | | | (18) | | |
| Change in trading assets and liabilities | Change in trading assets and liabilities | 1,736 | | (1,880) | | | Change in trading assets and liabilities | 176 | | | 171 | | |
| Change in accruals and other, net | Change in accruals and other, net | 200 | | 714 | | | Change in accruals and other, net | (3,495) | | | 2,361 | | |
| Net cash provided by operating activities | 5,903 | | 2,567 | | | |
| Net cash (used for) provided by operating activities | | Net cash (used for) provided by operating activities | (345) | | | 5,125 | | |
| Investing activities | Investing activities | | | Investing activities | | |
| Change in interest-bearing deposits with banks | Change in interest-bearing deposits with banks | (3,808) | | (1,503) | | | Change in interest-bearing deposits with banks | (2,924) | | | (3,710) | | |
| Change in interest-bearing deposits with the Federal Reserve and other central banks | Change in interest-bearing deposits with the Federal Reserve and other central banks | (9,775) | | (7,171) | | | Change in interest-bearing deposits with the Federal Reserve and other central banks | 13,409 | | | (18,117) | | |
| Purchases of securities held-to-maturity | Purchases of securities held-to-maturity | (23,507) | | (5,390) | | | Purchases of securities held-to-maturity | (5,449) | | | (14,499) | | |
| Paydowns of securities held-to-maturity | Paydowns of securities held-to-maturity | 6,291 | | 3,501 | | | Paydowns of securities held-to-maturity | 5,869 | | | 3,541 | | |
| Maturities of securities held-to-maturity | Maturities of securities held-to-maturity | 5,477 | | 2,274 | | | Maturities of securities held-to-maturity | 834 | | | 1,836 | | |
| Purchases of securities available-for-sale | Purchases of securities available-for-sale | (56,860) | | (33,929) | | | Purchases of securities available-for-sale | (25,820) | | | (44,865) | | |
| Sales of securities available-for-sale | Sales of securities available-for-sale | 10,824 | | 7,482 | | | Sales of securities available-for-sale | 7,624 | | | 8,414 | | |
| Paydowns of securities available-for-sale | Paydowns of securities available-for-sale | 7,300 | | 5,260 | | | Paydowns of securities available-for-sale | 7,081 | | | 4,416 | | |
| Maturities of securities available-for-sale | Maturities of securities available-for-sale | 21,113 | | 20,006 | | | Maturities of securities available-for-sale | 8,999 | | | 12,241 | | |
| Net change in loans | Net change in loans | (537) | | 1,478 | | | Net change in loans | (7,017) | | | (610) | | |
| Sales of loans and other real estate | Sales of loans and other real estate | 10 | | 147 | | | Sales of loans and other real estate | 1 | | | 2 | | |
| Change in federal funds sold and securities purchased under resale agreements | Change in federal funds sold and securities purchased under resale agreements | 525 | | 3,071 | | | Change in federal funds sold and securities purchased under resale agreements | 1,129 | | | (6,516) | | |
| Net change in seed capital investments | Net change in seed capital investments | 20 | | 68 | | | Net change in seed capital investments | (55) | | | 19 | | |
| Purchases of premises and equipment/capitalized software | Purchases of premises and equipment/capitalized software | (956) | | (1,112) | | | Purchases of premises and equipment/capitalized software | (465) | | | (623) | | |
| Proceeds from the sale of premises and equipment | | Proceeds from the sale of premises and equipment | 27 | | | 0 | | |
| | Dispositions, net of cash | | Dispositions, net of cash | 8 | | | 0 | | |
| Other, net | Other, net | (417) | | 588 | | | Other, net | 648 | | | (275) | | |
| Net cash (used for) investing activities | (44,300) | | (5,230) | | | |
| Net cash provided by (used for) investing activities | | Net cash provided by (used for) investing activities | 3,899 | | | (58,746) | | |
| Financing activities | Financing activities | | | Financing activities | | |
| Change in deposits | Change in deposits | 35,736 | | 13,207 | | | Change in deposits | (1,428) | | | 47,576 | | |
| Change in federal funds purchased and securities sold under repurchase agreements | Change in federal funds purchased and securities sold under repurchase agreements | 4,299 | | (2,447) | | | Change in federal funds purchased and securities sold under repurchase agreements | 1,214 | | | 3,155 | | |
| Change in payables to customers and broker-dealers | Change in payables to customers and broker-dealers | 4,627 | | (1,332) | | | Change in payables to customers and broker-dealers | (1,360) | | | 6,260 | | |
| Change in other borrowed funds | Change in other borrowed funds | (183) | | (2,422) | | | Change in other borrowed funds | 107 | | | 1,036 | | |
| Change in commercial paper | Change in commercial paper | (3,288) | | 1,599 | | | Change in commercial paper | 0 | | | (3,294) | | |
| Net proceeds from the issuance of long-term debt | Net proceeds from the issuance of long-term debt | 2,245 | | 2,246 | | | Net proceeds from the issuance of long-term debt | 2,691 | | | 2,246 | | |
| Repayments of long-term debt | Repayments of long-term debt | (4,400) | | (4,250) | | | Repayments of long-term debt | (2,750) | | | (3,000) | | |
| Proceeds from the exercise of stock options | Proceeds from the exercise of stock options | 36 | | 51 | | | Proceeds from the exercise of stock options | 32 | | | 33 | | |
| Issuance of common stock | Issuance of common stock | 9 | | 19 | | | Issuance of common stock | 6 | | | 6 | | |
| Issuance of preferred stock | Issuance of preferred stock | 990 | | 0 | | | Issuance of preferred stock | 0 | | | 990 | | |
| Treasury stock acquired | Treasury stock acquired | (988) | | (2,286) | | | Treasury stock acquired | (1,317) | | | (988) | | |
| | Common cash dividends paid | Common cash dividends paid | (838) | | (834) | | | Common cash dividends paid | (550) | | | (560) | | |
| Preferred cash dividends paid | Preferred cash dividends paid | (146) | | (120) | | | Preferred cash dividends paid | (100) | | | (85) | | |
| | Other, net | Other, net | 36 | | 23 | | | Other, net | (6) | | | 15 | | |
| Net cash provided by financing activities | 38,135 | | 3,454 | | | |
| Net cash (used for) provided by financing activities | | Net cash (used for) provided by financing activities | (3,461) | | | 53,390 | | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (10) | | (57) | | | Effect of exchange rate changes on cash | (41) | | | (50) | | |
| Change in cash and due from banks and restricted cash | Change in cash and due from banks and restricted cash | | | Change in cash and due from banks and restricted cash | | |
| Change in cash and due from banks and restricted cash | Change in cash and due from banks and restricted cash | (272) | | 734 | | | Change in cash and due from banks and restricted cash | 52 | | | (281) | | |
| Cash and due from banks and restricted cash at beginning of period | 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 beginning of period | 9,419 | | | 7,267 | | |
| Cash and due from banks and restricted cash at end of period | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | Cash and due from banks and restricted cash at end of period | $ | 9,471 | | | $ | 6,986 | | |
| Cash and due from banks and restricted cash | Cash and due from banks and restricted cash | | | Cash and due from banks and restricted cash | | |
| Cash and due from banks at end of period (unrestricted cash) | Cash and due from banks at end of period (unrestricted cash) | $ | 4,104 | | $ | 6,718 | | | Cash and due from banks at end of period (unrestricted cash) | $ | 5,154 | | | $ | 4,776 | | |
| Restricted cash at end of period | Restricted cash at end of period | 2,891 | | 2,274 | | | Restricted cash at end of period | 4,317 | | | 2,210 | | |
| Cash and due from banks and restricted cash at end of period | Cash and due from banks and restricted cash at end of period | $ | 6,995 | | $ | 8,992 | | | Cash and due from banks and restricted cash at end of period | $ | 9,471 | | | $ | 6,986 | | |
| Supplemental disclosures | Supplemental disclosures | | | Supplemental disclosures | | |
| Interest paid | Interest paid | $ | 1,166 | | $ | 3,528 | | | Interest paid | $ | 145 | | | $ | 1,013 | | |
| Income taxes paid | Income taxes paid | 1,112 | | 697 | | | Income taxes paid | 266 | | | 756 | | |
| Income taxes refunded | Income taxes refunded | 23 | | 445 | | | Income taxes refunded | 10 | | | 11 | | |
(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 | | 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) | (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 | (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 | | |
| Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 4,541 | | $ | 14 | | $ | 27,928 | | $ | 34,822 | | $ | (1,819) | | $ | (20,532) | | $ | 262 | | $ | 45,216 | | (a) | $ | 187 | |
| | Shares issued to shareholders of noncontrolling interests | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 21 | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 6 | |
| Redemption of subsidiary shares from noncontrolling interests | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (1) | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (22) | |
| Other net changes in noncontrolling interests | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 132 | | 132 | | | 0 | | Other net changes in noncontrolling interests | — | | — | | 9 | | — | | — | | — | | 77 | | 86 | | | (2) | |
| Net income | Net income | — | | — | | — | | 937 | | — | | — | | 7 | | 944 | | | — | | Net income | — | | — | | — | | 1,022 | | — | | — | | 5 | | 1,027 | | | — | |
| Other comprehensive income | Other comprehensive income | — | | — | | — | | — | | 584 | | — | | — | | 584 | | | 2 | | Other comprehensive income | — | | — | | — | | — | | 149 | | — | | — | | 149 | | | — | |
| Dividends: | Dividends: | | Dividends: | |
Common stock at $0.31 per share | Common stock at $0.31 per share | — | | — | | — | | (279) | | — | | — | | — | | (279) | | | — | | Common stock at $0.31 per share | — | | — | | — | | (273) | | — | | — | | — | | (273) | | | — | |
| Preferred stock | Preferred stock | — | | — | | — | | (61) | | — | | — | | — | | (61) | | | — | | Preferred stock | — | | — | | — | | (31) | | — | | — | | — | | (31) | | | — | |
| | Repurchase of common stock | | Repurchase of common stock | — | | — | | — | | — | | — | | (618) | | — | | (618) | | | — | |
| | Common stock issued under employee benefit plans | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | |
| | Stock awards and options exercised | Stock awards and options exercised | — | | — | | 33 | | — | | — | | — | | — | | 33 | | | — | | Stock awards and options exercised | — | | — | | 64 | | — | | — | | — | | — | | 64 | | | — | |
| Balance at Sept. 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,741 | | $ | 33,821 | | $ | (1,359) | | $ | (19,832) | | $ | 251 | | $ | 45,168 | | (a) | $ | 179 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,006 | | $ | 35,540 | | $ | (1,670) | | $ | (21,150) | | $ | 344 | | $ | 45,625 | | (a) | $ | 169 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $39,165$40,413 million at March 31, 2021 and $40,740 million at June 30, 2020 and $40,385 million at Sept. 30, 2020.2021.
(b) Includes dividend-equivalents on share-based awards.
| | | The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity | | 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) | (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 | (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 | | |
| Balance at Dec. 31, 2020 | | Balance at Dec. 31, 2020 | $ | 4,541 | | $ | 14 | | $ | 27,823 | | $ | 34,241 | | $ | (985) | | $ | (19,833) | | $ | 143 | | $ | 45,944 | | (a) | $ | 176 | |
| | Shares issued to shareholders of noncontrolling interests | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 17 | | Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 23 | |
| | Redemption of subsidiary shares from noncontrolling interests | | Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (30) | |
| Other net changes in noncontrolling interests | Other net changes in noncontrolling interests | — | | — | | 0 | | — | | — | | — | | 3 | | 3 | | | 0 | | Other net changes in noncontrolling interests | — | | — | | (33) | | — | | — | | — | | 114 | | 81 | | | 18 | |
| Net income | Net income | — | | — | | — | | 950 | | — | | — | | 15 | | 965 | | | — | | Net income | — | | — | | — | | 927 | | — | | — | | 5 | | 932 | | | — | |
| Other comprehensive income | — | | — | | — | | — | | 884 | | — | | — | | 884 | | | 0 | | |
| Other comprehensive (loss) | | Other comprehensive (loss) | — | | — | | — | | — | | (834) | | — | | — | | (834) | | | 0 | |
| Dividends: | Dividends: | | Dividends: | |
Common stock at $0.31 per share | Common stock at $0.31 per share | — | | — | | — | | (278) | | — | | — | | — | | (278) | | | — | | Common stock at $0.31 per share | — | | — | | — | | (277) | | — | | — | | — | | (277) | | | — | |
| Preferred stock | Preferred stock | — | | — | | — | | (49) | | — | | — | | — | | (49) | | | — | | Preferred stock | — | | — | | — | | (69) | | — | | — | | — | | (69) | | | — | |
| Repurchase of common stock | Repurchase of common stock | — | | — | | — | | — | | — | | (3) | | — | | (3) | | | — | | Repurchase of common stock | — | | — | | — | | — | | — | | (699) | | — | | (699) | | | — | |
| | Common stock issued under employee benefit plans | Common stock issued under employee benefit plans | — | | — | | 6 | | — | | — | | — | | — | | 6 | | | — | | Common stock issued under employee benefit plans | — | | — | | 5 | | — | | — | | — | | — | | 5 | | | — | |
| | Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | | |
| | Stock awards and options exercised | Stock awards and options exercised | — | | — | | 52 | | — | | — | | — | | — | | 52 | | | — | | Stock awards and options exercised | — | | — | | 133 | | — | | — | | — | | — | | 133 | | | — | |
| Balance at June 30, 2020 | $ | 4,532 | | $ | 14 | | $ | 27,702 | | $ | 33,224 | | $ | (1,943) | | $ | (19,832) | | $ | 112 | | $ | 43,809 | | (a) | $ | 157 | | |
| | Balance at March 31, 2021 | | Balance at March 31, 2021 | $ | 4,541 | | $ | 14 | | $ | 27,928 | | $ | 34,822 | | $ | (1,819) | | $ | (20,532) | | $ | 262 | | $ | 45,216 | | (a) | $ | 187 | |
(a)Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,603$41,260 million at Dec. 31, 2020 and $40,413 million at March 31, 2020 and $39,165 million at June 30, 2020.2021.
| | |
The Bank of New York Mellon Corporation (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)(continued)(b) Includes dividend-equivalents on share-based awards.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity |
(in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock |
| Balance at 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 (and its subsidiaries) |
Consolidated Statement of Changes in Equity (unaudited)(continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity |
(in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock |
| Balance at March 31, 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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$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, 2020 | $ | 4,541 | | $ | 14 | | $ | 27,823 | | $ | 34,241 | | $ | (985) | | $ | (19,833) | | $ | 143 | | $ | 45,944 | | (a) | $ | 176 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Shares issued to shareholders of noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | 29 | |
| Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (52) | |
| Other net changes in noncontrolling interests | — | | — | | (24) | | — | | — | | — | | 191 | | 167 | | | 16 | |
| Net income | — | | — | | — | | 1,949 | | — | | — | | 10 | | 1,959 | | | — | |
| Other comprehensive (loss) | — | | — | | — | | — | | (685) | | — | | — | | (685) | | | 0 | |
| Dividends: | | | | | | | | | | |
Common stock at $0.62 per share (b) | — | | — | | — | | (550) | | — | | — | | — | | (550) | | | — | |
| Preferred stock | — | | — | | — | | (100) | | — | | — | | — | | (100) | | | — | |
| Repurchase of common stock | — | | — | | — | | — | | — | | (1,317) | | — | | (1,317) | | | — | |
| | | | | | | | | | |
| Common stock issued under employee benefit plans | — | | — | | 10 | | — | | — | | — | | — | | 10 | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| Stock awards and options exercised | — | | — | | 197 | | — | | — | | — | | — | | 197 | | | — | |
| Balance at June 30, 2021 | $ | 4,541 | | $ | 14 | | $ | 28,006 | | $ | 35,540 | | $ | (1,670) | | $ | (21,150) | | $ | 344 | | $ | 45,625 | | (a) | $ | 169 | |
(a) Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $41,260 million at Dec. 31, 20182020 and $37,578$40,740 million at Sept.June 30, 2019.2021.
(b) Includes dividend-equivalents on share-based awards.
| | |
| The Bank of New York Mellon Corporation (and its subsidiaries) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| The Bank of New York Mellon Corporation shareholders | Nonredeemable
noncontrolling
interests of
consolidated
investment
management
funds | Total
permanent
equity | | Redeemable
non-
controlling
interests/
temporary
equity |
(in millions, except per
share amount) | Preferred stock | Common
stock | Additional
paid-in
capital | Retained
earnings | Accumulated other comprehensive (loss), net
of tax | Treasury
stock |
| Balance at Dec. 31, 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 | — | | — | | — | | — | | — | | — | | — | | — | | | 34 | |
| Redemption of subsidiary shares from noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | | (16) | |
| Other net changes in noncontrolling interests | — | | — | | (5) | | — | | — | | — | | 13 | | 8 | | | (2) | |
| Net income (loss) | — | | — | | — | | 1,930 | | — | | — | | (3) | | 1,927 | | | — | |
| Other comprehensive income (loss) | — | | — | | — | | — | | 700 | | — | | — | | 700 | | | (2) | |
| Dividends: | | | | | | | | | | |
Common stock at $0.62 per share | — | | — | | — | | (560) | | — | | — | | — | | (560) | | | — | |
| Preferred stock | — | | — | | — | | (85) | | — | | — | | — | | (85) | | | — | |
| Repurchase of common stock | — | | — | | — | | — | | — | | (988) | | — | | (988) | | | — | |
| | | | | | | | | | |
| Common stock issued under employee benefit plans | — | | — | | 15 | | — | | — | | — | | — | | 15 | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| Preferred stock issued | 990 | | — | | — | | — | | — | | — | | — | | 990 | | | — | |
| Stock awards and options exercised | — | | — | | 177 | | — | | — | | — | | — | | 177 | | | — | |
| | | | | | | | | | |
| | | | | | | | | | |
| 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 $37,941 million at Dec. 31, 2019 and $39,165 million at June 30, 2020.
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 to its subsidiaries.
Basis of presentation
The accounting and financial reporting policies of BNY Mellon, a global financial services company, conform to U.S. generally accepted accounting principles (“GAAP”) and prevailing industry practices. For information on our significant accounting and reporting policies, see Note 1 in our 20192020 Annual Report.
The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments necessary, consisting of normal recurring adjustments, for a fair presentation of financial position, results of operations and cash flows for the periods presented have been made. These financial statements should be read in conjunction with our 20192020 Annual Report.
In order to combine items of a similar nature within total revenue and to simplify our income statement presentation, in the first quarter of 2021, we made the following reporting changes.The reclassifications had no impact on consolidated total revenue or total revenue for the business segments.Prior periods were reclassified to be comparable with the current period presentation.
•Other trading revenue was reclassified from foreign exchange and other trading revenue to investment and other income.
•Foreign exchange and other trading revenue was renamed foreign exchange revenue.
•The impact of foreign currency remeasurement was reclassified from investment and other income to foreign exchange revenue.
•Income (loss) from consolidated investment management funds was reclassified to investment and other income.
•Investment and other income was reclassified from fee revenue to other revenue. Other revenue includes investment and other income and net securities gains (losses).
In addition, the assets and liabilities of consolidated investment management funds were reclassified to other assets and other liabilities, respectively, on the consolidated balance sheet.The reclassifications had no impact on total assets or total liabilities. Prior periods were reclassified to be comparable with the current period presentation.
The table below summarizes the effects of the reclassifications on the consolidated income statement.
| | | | | | | | | |
| Consolidated income statement reclassifications | | Quarter ended | Year-to-date |
| June 30, 2020 | June 30, 2020 |
| (in millions) |
| | | |
| Before reclassifications | | | |
| Foreign exchange and other trading revenue | | $ | 166 | | $ | 485 | |
| Total fee revenue | | $ | 3,167 | | $ | 6,490 | |
| Investment and other income | | $ | 105 | | $ | 116 | |
| Income from consolidated investment management funds | | $ | 54 | | $ | 16 | |
| | | |
| After reclassifications | | | |
| Foreign exchange revenue | | $ | 193 | | $ | 438 | |
| Total fee revenue | | $ | 3,089 | | $ | 6,327 | |
| Investment and other income | | $ | 132 | | $ | 179 | |
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The table below summarizes the effects of the reclassifications on the business segments.
| | | | | | | | | |
| Business segment reclassifications | | | | | |
| (in millions) | | | | | YTD20 |
| Investment Services business | | | | | |
| Before reclassifications | | | | | |
| Foreign exchange and other trading revenue | | | | | $ | 439 | |
| Other revenue | | | | | $ | 291 | |
| | | | | |
| After reclassifications | | | | | |
| Foreign exchange revenue | | | | | $ | 392 | |
| Other revenue | | | | | $ | 338 | |
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| Other segment | | | | | |
| Before reclassifications | | | | | |
| Fee revenue | | | | | $ | 50 | |
| Net securities gains | | | | | $ | 18 | |
| | | | | |
| After reclassifications | | | | | |
| Fee revenue | | | | | $ | 16 | |
| Other revenue | | | | | $ | 52 | |
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Notes to Consolidated Financial Statements (continued) |
|
Certain additional immaterial reclassifications have been made to prior periods to place them on a basis comparable with the current period presentation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates based upon assumptions about future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current conditions and how we expect them to change in the future, it is reasonably possible that actual conditions could be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition.
Note 2–Accounting changesAcquisitions and new accounting guidancedispositions
The following accounting guidance was adoptedIn the fourth quarter of 2020, BNY Mellon entered into agreements to sell 2 legal entities, with one of the sales closing in the first quarter of 2021 and the other closing in July 2021. BNY Mellon recorded a total after-tax loss of $34 million on these transactions in the fourth 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)
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The table below presents the reconciliation of the allowance for credit losses (pre-tax).
| | | | | |
Allowance for credit losses | |
(in millions) | |
Allowance for credit losses – Dec. 31, 2019 | $ | 216 | |
Impact of adopting ASU 2016-13: | |
Securities | 7 | |
Loans (a)
| (69) | |
Other | 3 | |
Total impact of adoption of ASU 2016-13 | (59) | |
Reclassification of credit-related reserves on accounts receivable | 4 | |
Allowance for credit losses – Jan. 1, 2020 | $ | 161 | |
(a) Includes $48 million related to loans and $21 million for lending-related commitments.
Significant accounting policies
Loans
Loans are reported at amortized cost, net of any unearned income and deferred fees and costs. Certain loan origination and upfront commitment fees, as well as certain direct loan origination and commitment costs, are deferred and amortized as a yield adjustment over the lives of the related loans. Loans held for sale are carried at the lower of cost or fair value.
Troubled debt restructuring/loan modifications
A modified loan is considered a troubled debt restructuring (“TDR”) if the debtor is experiencing financial difficulties and the creditor grants a concession to the debtor that would not otherwise be considered. A TDR may include a transfer of real estate or other assets from the debtor to the creditor, or a modification of the term of the loan. Credit losses related to TDRs are accounted for under an individual evaluation methodology (see “Allowance for credit losses” below). Credit losses for anticipated TDRs are accounted for similarly to TDRs and are identified when there is a reasonable expectation that a TDR will be executed with the borrower and when we expect the modification to affect the timing or amount of payments and/or the payment term.
Due to the coronavirus pandemic, there have been two forms of relief provided for classifying loans as TDRs: The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and the Interagency
Guidance (as defined below). Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic.
The CARES Act, which became law on March 27, 2020, provides that financial institutions may, subject to certain conditions, elect to temporarily suspend the U.S. GAAP requirements with respect to loan modifications related to the coronavirus pandemic that were current as of Dec. 31, 2019 and that would otherwise be identified and treated as TDRs.
This TDR relief is applicable to modifications that were made from March 1, 2020 until the earlier of Dec. 31, 2020 or 60 days from the date the national emergency related to the coronavirus pandemic officially ends.
Various banking regulators issued guidance in the April 7, 2020 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (revised)” (“Interagency Guidance”) on loan modification treatment pursuant to which financial institutions can apply the U.S. GAAP requirements for loan modifications. In accordance with this guidance, a loan modification is not considered a TDR if the modification is related to the coronavirus pandemic, the borrower had been current when the modification program was implemented, and the modification includes payment deferrals for not more than six months.
Nonperforming assets
Commercial loans are placed on nonaccrual status when principal or interest is past due 90 days or more, or when there is reasonable doubt that interest or principal will be collected.
When a first or second lien residential mortgage loan reaches 90 days delinquent, it is subject to an individual evaluation of credit loss and placed on nonaccrual status.
When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed against current period interest revenue. Interest receipts on nonaccrual loans are recognized
| | |
Notes to Consolidated Financial Statements(continued)
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as interest revenue or are applied to principal when we believe the ultimate collectability of principal is in doubt. Nonaccrual loans generally are restored to an accrual basis when principal and interest become current and remain current for a specified period.
“Allowance for credit losses” below provides additional information regarding the individual evaluation of credit losses for nonperforming loans.
Allowance for credit losses
The accounting policy for estimating credit losses related to financial assets measured at amortized cost, including loans and lending-related commitments changed beginning in the first quarter of 2020 as a result of the adoption of ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU also included targeted amendments with respect to credit losses for available-for-sale debt securities. The accounting policy for determining the allowances has been identified as a “critical accounting estimate” as it requires us to make numerous complex and subjective estimates and assumptions relating to amounts which are judgmental and inherently uncertain.
Credit quality is monitored by management and is reflected within the allowance for credit losses. The allowance represents management’s estimate of expected credit losses over the expected contractual life of the financial instruments as of the balance sheet date. The allowance methodology is designed to provide procedural discipline in assessing the appropriateness of the allowance.
A quantitative methodology and qualitative framework is used to estimate the allowance for credit losses. The qualitative framework is described in further detail within “Allowance for credit losses - Other” below. The quantitative component of our estimate uses models and methodologies that categorize financial assets based on product type, collateral type, and other credit trends and risk characteristics, including relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of the recorded amounts. The allowance may be determined using various methods, including discounted cash flow methods, loss-rate methods, probability of default methods or other methods that we determine to be appropriate.
We estimate our expected credit losses using the probability of default method for the majority of our financial assets. We measure expected credit losses of financial assets on a collective (pool) basis when similar risk characteristics exist. For a financial asset that does not share risk characteristics with other assets, expected credit losses are measured based on an individual evaluation method.
In our estimate, with the exception of our small home equity line of credit portfolio, available-for-sale debt securities, and individually evaluated financial assets, we utilize a multi-scenario macroeconomic forecast which includes a weighting of baseline, stronger near-term growth and moderate recession scenarios. This approach allows us to develop our estimate using a wide span of economic input variables. Our baseline scenario reflects a view on likely performance of each global region and the other two scenarios are designed relative to the baseline scenario. The scenarios include both a reasonable and supportable forecast period as well as a reversion period. The reasonable and supportable forecast is typically over a two- to three-year horizon, followed by a reversion period in which the economic data reverts to long-term historical experience. In general, the forecasts across the alternative economic scenarios tend to revert toward the long-term trends after the forecast period, which is the period in which the confidence interval is considered reasonable and supportable. The speed at which the scenario specific forecasts revert is based on observed historical patterns of mean reversion that are reflected in our model parameter estimates. Certain macroeconomic variables such as unemployment or home prices take longer to revert after a contraction, though specific recovery times are scenario-specific. Reversion will usually take longer the further away the scenario specific forecast is from the historical mean. On a quarterly basis, within a developed governance structure, we update these scenarios for current economic conditions and may adjust the scenario weighting based on our economic outlook.
Allowance for credit losses - Loans and lending-related commitments
The allowance for credit losses on loans is presented as a valuation allowance to loans, and the allowance for credit losses on lending-related commitments is recorded in other liabilities. The components of the allowance for credit losses on loans and lending-
| | |
Notes to Consolidated Financial Statements(continued)
|
|
related commitments consist of the following three elements:
•a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits;
•a pooled allowance component for residential mortgage loans; and
•an asset-specific allowance component involving individually evaluated credits of $1 million or greater.
The first element, a pooled allowance component for higher risk-rated and pass-rated commercial and institutional credits, is based on our expected credit loss model. Individual credit analyses are performed on such loans before being assigned a credit rating. All borrowers are collectively evaluated based on their credit rating. The loss expected in each loan incorporates the borrower’s credit rating, facility rating and maturity. The loss given default, derived from the facility rating, incorporates a recovery expectation, and for unfunded lending exposures, an estimate of the use of the facility at default (usage given default). The borrower’s probability of default is derived from the associated credit rating. For each of the different parameters, specific credit models are developed for each segment of our portfolio, including commercial loans and lease financing, commercial real estate, financial institutions, and other. Segmentation is established based on risk characteristics of the loans and how risk is monitored. We use both internal and external data in the development of these parameters. In estimating the term of the exposures and resulting effect on the measurement of expected credit loss, we consider the impact of potential prepayments as well as the effect of borrower extension options. Borrower ratings are reviewed at least annually and are periodically mapped to third-party databases, including rating agency and default and recovery databases, to ensure ongoing consistency and validity. Higher risk-rated loans and lending-related commitments are reviewed quarterly.
The second element, a pooled allowance component for residential mortgage loans, is determined by first segregating our mortgage pools into two categories: (i) our wealth management mortgages and (ii) our legacy mortgage portfolio disclosed as other residential mortgages. We then apply models to each portfolio to predict prepayments, default rates and
loss severity. We consider historical loss experience and use a loan-level, multi-period default model which further segments each portfolio by product type including first lien fixed rate mortgages, first lien adjustable rate mortgages, second lien mortgages, and interest-only mortgages. We calculate the mortgage loss up to loan contractual maturity and embed a reasonable and supportable forecast and macroeconomic variable inputs which are described above. For home equity lines of credit, probability of default and loss given default are based on external data from third-party databases due to the small size of the portfolio and limited internal data. Our legacy mortgage portfolio and home equity line of credit portfolios represent small sub-segments of our mortgage loans.
The third element, individually evaluated credits, is based on individual analysis of loans of $1 million and greater which no longer share the risk characteristics with other loans. Factors we consider in measuring the extent of expected credit loss include the payment status, collateral value, the borrower’s financial condition, guarantor support, the probability of collecting scheduled principal and interest payments when due, anticipated modifications of payment structure or term for troubled borrowers, and recoveries if they can be reasonably estimated. We measure the expected credit loss as the difference between the amortized cost basis in the loan and the present value of the expected future cash flows from the borrower which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. We generally consider nonperforming loans as well as loans that have been or are anticipated to be modified under a troubled debt restructuring for individual evaluation given the risk characteristics of such loans.
Allowance for credit losses - Securities - Debt
When estimating expected credit losses, we segment our available-for-sale and held-to-maturity debt securities portfolios by major asset class. This is influenced by whether the security is structured or non-structured (i.e., direct obligation), as well as the issuer type.
Debt securities are classified as available-for-sale securities when we intend to hold the securities for an indefinite period of time or when the securities may be used for tactical asset/liability management
| | |
Notes to Consolidated Financial Statements(continued)
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purposes and may be sold from time to time to effectively manage interest rate exposure, prepayment risk and liquidity needs. Available-for-sale securities are measured at fair value. The difference between fair value and amortized cost represents the unrealized gains or losses on assets classified as available-for-sale, and is recorded net of tax as an addition to, or deduction from, other comprehensive income, unless we determine that this difference or a portion thereof represents an expected credit loss. If we determine that a credit loss exists, the amount is recognized as an allowance for credit losses in securities - available-for sale, with a corresponding adjustment to the provision for credit losses. We evaluate credit losses at the individual security level and do not recognize credit losses if the fair value exceeds amortized cost, and if we determine that a credit loss exists, we limit the recognition of the loss to the difference between fair value and amortized cost. In our determination of whether an expected credit loss exists, we routinely conduct periodic reviews and examine various quantitative and qualitative factors that are unique to each portfolio, including the severity of the unrealized loss position, agency rating, credit enhancement, cash flow deterioration and other factors. The measurement of an expected credit loss is then based on the best estimate of the present value of cash flows to be collected from the debt security. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. Changes to the present value of cash flows due to the passage of time are recognized within the allowance for credit losses.
We estimate expected credit losses for held-to-maturity debt securities using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on held-to-maturity debt securities are recorded in securities - held-to-maturity. The components of the credit loss calculation for each major portfolio or asset class include a probability of default and loss given default and their values depend on the forecast behavior of variables in the macroeconomic environment. For structured debt securities, we estimated expected credit losses at the individual security level and use a cash flow model to project principal losses. Generally, cash flows are discounted at the effective interest rate implicit in the debt security. The difference is reflected in the allowance for credit losses, and changes to the present
value of cash flows due to the passage of time are recognized within the allowance for credit losses.
We currently do not require an estimate of expected credit losses to be measured and recorded for U.S. Treasury securities, agency debt securities, as well as other debt securities that meet certain conditions that are based on a combination of factors such as guarantees, credit ratings, and other credit quality factors. These assets are monitored within our established governance structure on a recurring basis to determine if any changes are warranted.
Allowance for credit losses – Other financial instruments
We also estimate expected credit losses associated with margin loans, reverse repurchase agreements, security lending indemnifications, and deposits with third-party financial institutions using a similar methodology as described in the first allowance element within “Allowance for credit losses - Loans and lending-related commitments” above. The allowance for credit losses on reverse repurchase agreements are recorded in federal funds sold and securities purchased under resale agreements; the allowance for credit losses on securities lending indemnifications is recorded in other liabilities and the allowance for credit losses on deposits with third-party financial institutions is recorded in cash and due from banks or interest-bearing deposits with banks. Our reverse repurchase agreements are short term and subject to continuous overcollateralization by our counterparties and timely collateral replenishment, when necessary. As a result, we estimate the expected credit loss related to the uncollateralized portion of the asset at the balance sheet date, if any, and when there is a reasonable expectation that the counterparty will not replenish the collateral in compliance with the terms of the repurchase agreement. This method is also applied to margin lending arrangements and securities lending indemnifications.
Allowance for credit losses - Other
We do not apply our credit loss measurement methodologies to accrued interest receivable balances related to our loan, debt securities and deposits with third party financial institutions assets given our nonaccrual policy that requires charge-off of interest receivable when deemed uncollectible. Accrued interest receivable related to these instruments is
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Notes to Consolidated Financial Statements(continued)
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presented in total with other interest-bearing instruments in the consolidated balance sheet. Accrued interest receivable related to each major loan class is disclosed within our credit quality disclosure in Note 5.
Our policy for credit losses related to purchased financial assets requires an evaluation to be performed prior to the effective purchase date to determine if more than an insignificant decline in credit quality has occurred during the period between the origination and purchase date, or, in the case of debt securities, the period between the issuance and purchase date. If we purchase a financial asset with more than insignificant deterioration in credit quality, the measurement of expected credit loss is performed using the methodologies described above, and the credit loss is recorded as an allowance for credit losses on the purchase date. Subsequent to purchase, changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the allowance. We evaluate various factors in the determination of whether a more than an insignificant decline in credit quality has occurred and these factors vary depending upon the type of asset purchased. Such factors include changes in risk rating and/or agency rating, collateral deterioration, payment status, purchase price, credit spreads, and other factors. We did not purchase any such assets during the first nine months of 2020 and did not own such assets as of Sept. 30, 2020.
We apply a separate credit loss methodology to accounts receivables to estimate the expected credit losses associated with these short-term receivables which historically have not resulted in significant credit losses. The allowance for credit losses on accounts receivable is reflected in other assets.
The qualitative component of our estimate for the allowance for credit losses is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, management determines the qualitative allowance each period based on an evaluation of various internal and environmental factors which include: scenario weighting and sensitivity risk, credit concentration risk, economic conditions and other considerations. We may also make adjustments for idiosyncratic
risks. Once determined in the aggregate, our qualitative allowance is then allocated to each of our financial instrument portfolios except for debt securities and those instruments carried in other assets based on the respective instruments’ quantitative allowance balances. The allocation of this additional allowance for credit losses is inherently judgmental, and the entire allowance for credit losses is available to absorb credit losses regardless of the nature of the loss.
Note 3–Acquisitions and dispositions
We sometimes structure our acquisitions with both an initial payment and later contingent payments tied to post-closing revenue or income growth. There were 0 contingent payments in the third quarter of 2020. Contingent payment totaled $3 million in the first nine months of 2020.
At Sept. 30, 2020, we are potentially obligated to pay additional consideration which, using reasonable assumptions, could range from $5 million to $10 million over the next two 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 Sept.June 30, 20202021 and Dec. 31, 2019.2020.
| | |
Notes to Consolidated Financial Statements(continued)
|
|
| | Securities at Sept. 30, 2020 | Gross
unrealized | Fair
value | |
| Securities at June 30, 2021 | | Securities at June 30, 2021 | Gross
unrealized | Fair
value |
| | Amortized cost | Gross
unrealized | | Amortized cost |
| (in millions) | (in millions) | Fair
value | (in millions) | Gains | Losses |
| Available-for-sale: | Available-for-sale: | | Available-for-sale: | |
| Agency RMBS | $ | 24,262 | | $ | 526 | | $ | 55 | | |
| U.S. Treasury | U.S. Treasury | 23,166 | | 1,568 | | 1 | | 24,733 | | U.S. Treasury | $ | 24,731 | | $ | 881 | | $ | 175 | | $ | 25,437 | |
| Agency residential mortgage-backed securities (“RMBS”) | | Agency residential mortgage-backed securities (“RMBS”) | 17,522 | | 366 | | 45 | | 17,843 | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 13,925 | | 169 | | 1 | | 14,093 | | Sovereign debt/sovereign guaranteed | 13,093 | | 128 | | 26 | | 13,195 | |
| Supranational | | Supranational | 8,066 | | 44 | | 15 | | 8,095 | |
| Agency commercial mortgage-backed securities (“MBS”) | Agency commercial mortgage-backed securities (“MBS”) | 9,299 | | 646 | | 3 | | 9,942 | | Agency commercial mortgage-backed securities (“MBS”) | 7,377 | | 483 | | 6 | | 7,854 | |
| Supranational | 7,069 | | 68 | | 1 | | 7,136 | | |
| Foreign covered bonds | Foreign covered bonds | 5,777 | | 64 | | 0 | | 5,841 | | Foreign covered bonds | 6,752 | | 46 | | 5 | | 6,793 | |
| Collateralized loan obligations (“CLOs”) | Collateralized loan obligations (“CLOs”) | 4,696 | | 5 | | 44 | | 4,657 | | Collateralized loan obligations (“CLOs”) | 5,137 | | 6 | | 4 | | 5,139 | |
| U.S. government agencies | | U.S. government agencies | 3,242 | | 118 | | 10 | | 3,350 | |
| Non-agency commercial MBS | | Non-agency commercial MBS | 3,181 | | 110 | | 11 | | 3,280 | |
| Foreign government agencies | Foreign government agencies | 3,924 | | 46 | | 0 | | 3,970 | | Foreign government agencies | 2,693 | | 20 | | 5 | | 2,708 | |
| U.S. government agencies | 3,300 | | 180 | | 2 | | 3,478 | | |
| State and political subdivisions | | State and political subdivisions | 2,595 | | 24 | | 13 | | 2,606 | |
Non-agency RMBS (a) | | Non-agency RMBS (a) | 2,341 | | 149 | | 13 | | 2,477 | |
| Other asset-backed securities (“ABS”) | Other asset-backed securities (“ABS”) | 2,903 | | 31 | | 4 | | 2,930 | | Other asset-backed securities (“ABS”) | 2,446 | | 17 | | 7 | | 2,456 | |
| 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 | Corporate bonds | 988 | | 43 | | 1 | | 1,030 | | Corporate bonds | 2,348 | | 35 | | 36 | | 2,347 | |
| Commercial paper/certificates of deposit (“CDs”) | 355 | | 2 | | 0 | | 357 | | |
| | Other debt securities | Other debt securities | 1 | | 0 | | 0 | | 1 | | Other debt securities | 1 | | 0 | | 0 | | 1 | |
Total securities available-for-sale (b)(c) | Total securities available-for-sale (b)(c) | $ | 105,684 | | $ | 3,694 | | $ | 135 | | $ | 109,243 | | Total securities available-for-sale (b)(c) | $ | 101,525 | | $ | 2,427 | | $ | 371 | | $ | 103,581 | |
| Held-to-maturity: | Held-to-maturity: | | Held-to-maturity: | |
| Agency RMBS | Agency RMBS | $ | 37,086 | | $ | 1,117 | | $ | 10 | | $ | 38,193 | | Agency RMBS | $ | 35,632 | | $ | 673 | | $ | 201 | | $ | 36,104 | |
| U.S. Treasury | U.S. Treasury | 3,288 | | 103 | | 0 | | 3,391 | | U.S. Treasury | 9,381 | | 72 | | 9 | | 9,444 | |
| Agency commercial MBS | | Agency commercial MBS | 3,983 | | 77 | | 15 | | 4,045 | |
| U.S. government agencies | U.S. government agencies | 2,266 | | 5 | | 4 | | 2,267 | | U.S. government agencies | 2,204 | | 2 | | 34 | | 2,172 | |
| Agency commercial MBS | 2,041 | | 107 | | 0 | | 2,148 | | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 983 | | 41 | | 0 | | 1,024 | | Sovereign debt/sovereign guaranteed | 1,005 | | 28 | | 2 | | 1,031 | |
| Commercial paper/CDs | 295 | | 0 | | 0 | | 295 | | |
| | Supranational | | Supranational | 55 | | 0 | | 0 | | 55 | |
| Non-agency RMBS | Non-agency RMBS | 70 | | 3 | | 1 | | 72 | | Non-agency RMBS | 50 | | 3 | | 0 | | 53 | |
| Supranational | 52 | | 1 | | 0 | | 53 | | |
| State and political subdivisions | State and political subdivisions | 15 | | 0 | | 0 | | 15 | | State and political subdivisions | 15 | | 0 | | 0 | | 15 | |
| Total securities held-to-maturity | Total securities held-to-maturity | $ | 46,096 | | $ | 1,377 | | $ | 15 | | $ | 47,458 | | Total securities held-to-maturity | $ | 52,325 | | $ | 855 | | $ | 261 | | $ | 52,919 | |
| Total securities | Total securities | $ | 151,780 | | $ | 5,071 | | $ | 150 | | $ | 156,701 | | Total securities | $ | 153,850 | | $ | 3,282 | | $ | 632 | | $ | 156,500 | |
(a) Includes $512$416 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$9 million. The allowance for credit lossprimarily relates to CLOs. See Note 2 for additional information.
(c) Includes gross unrealized gains of $25$225 million and gross unrealized losses of $49$85 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains are primarily related to agency commercial MBS and losses are primarily related to AgencyU.S. Treasury securities and agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Securities at Dec. 31, 2019 | Gross
unrealized | | |
| Securities at Dec. 31, 2020 | | Securities at Dec. 31, 2020 | Gross
unrealized | |
| | Amortized cost | Gross
unrealized | Fair
value | | Amortized cost | Fair
value |
| (in millions) | (in millions) | (in millions) | Gains | Losses |
| Available-for-sale: | Available-for-sale: | | Available-for-sale: | |
| U.S. Treasury | | U.S. Treasury | $ | 23,557 | | $ | 1,358 | | $ | 21 | | $ | 24,894 | |
| Agency RMBS | Agency RMBS | $ | 27,022 | | $ | 164 | | $ | 143 | | $ | 27,043 | | Agency RMBS | 21,919 | | 479 | | 51 | | 22,347 | |
| U.S. Treasury | 14,979 | | 472 | | 20 | | 15,431 | | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 12,548 | | 109 | | 11 | | 12,646 | | Sovereign debt/sovereign guaranteed | 12,202 | | 190 | | 1 | | 12,391 | |
| Agency commercial MBS | Agency commercial MBS | 9,231 | | 203 | | 17 | | 9,417 | | Agency commercial MBS | 8,605 | | 625 | | 2 | | 9,228 | |
| Supranational | | Supranational | 7,086 | | 75 | | 1 | | 7,160 | |
| Foreign covered bonds | Foreign covered bonds | 4,189 | | 15 | | 7 | | 4,197 | | Foreign covered bonds | 6,658 | | 68 | | 1 | | 6,725 | |
| CLOs | CLOs | 4,078 | | 1 | | 16 | | 4,063 | | CLOs | 4,706 | | 7 | | 10 | | 4,703 | |
| Supranational | 3,697 | | 18 | | 6 | | 3,709 | | |
| Foreign government agencies | Foreign government agencies | 2,638 | | 7 | | 2 | | 2,643 | | Foreign government agencies | 4,086 | | 49 | | 0 | | 4,135 | |
| U.S. government agencies | | U.S. government agencies | 3,680 | | 174 | | 1 | | 3,853 | |
| Other ABS | | Other ABS | 3,135 | | 32 | | 3 | | 3,164 | |
| Non-agency commercial MBS | Non-agency commercial MBS | 2,134 | | 46 | | 2 | | 2,178 | | Non-agency commercial MBS | 2,864 | | 159 | | 6 | | 3,017 | |
| Other ABS | 2,141 | | 7 | | 5 | | 2,143 | | |
| U.S. government agencies | 1,890 | | 61 | | 2 | | 1,949 | | |
Non-agency RMBS (a) | Non-agency RMBS (a) | 1,038 | | 202 | | 7 | | 1,233 | | Non-agency RMBS (a) | 2,178 | | 157 | | 9 | | 2,326 | |
| State and political subdivisions | State and political subdivisions | 1,017 | | 27 | | 0 | | 1,044 | | State and political subdivisions | 2,270 | | 39 | | 1 | | 2,308 | |
| Corporate bonds | Corporate bonds | 832 | | 21 | | 0 | | 853 | | Corporate bonds | 1,945 | | 50 | | 1 | | 1,994 | |
| Commercial paper/certificates of deposit (“CDs”) | | Commercial paper/certificates of deposit (“CDs”) | 249 | | 0 | | 0 | | 249 | |
| Other debt securities | Other debt securities | 1 | | 0 | | 0 | | 1 | | Other debt securities | 1 | | 0 | | 0 | | 1 | |
Total securities available-for-sale (b) | $ | 87,435 | | $ | 1,353 | | $ | 238 | | $ | 88,550 | | |
Total securities available-for-sale (b)(c) | | Total securities available-for-sale (b)(c) | $ | 105,141 | | $ | 3,462 | | $ | 108 | | $ | 108,495 | |
| Held-to-maturity: | Held-to-maturity: | | Held-to-maturity: | |
| Agency RMBS | Agency RMBS | $ | 27,357 | | $ | 292 | | $ | 46 | | $ | 27,603 | | Agency RMBS | $ | 38,355 | | $ | 1,055 | | $ | 14 | | $ | 39,396 | |
| U.S. Treasury | U.S. Treasury | 3,818 | | 28 | | 3 | | 3,843 | | U.S. Treasury | 2,938 | | 90 | | 0 | | 3,028 | |
| U.S. government agencies | | U.S. government agencies | 2,816 | | 4 | | 6 | | 2,814 | |
| Agency commercial MBS | Agency commercial MBS | 1,326 | | 21 | | 3 | | 1,344 | | Agency commercial MBS | 2,659 | | 105 | | 2 | | 2,762 | |
| U.S. government agencies | 1,023 | | 1 | | 2 | | 1,022 | | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 756 | | 31 | | 0 | | 787 | | Sovereign debt/sovereign guaranteed | 1,050 | | 42 | | 0 | | 1,092 | |
| Non-agency RMBS | Non-agency RMBS | 80 | | 4 | | 1 | | 83 | | Non-agency RMBS | 58 | | 3 | | 0 | | 61 | |
| Foreign covered bonds | 79 | | 0 | | 0 | | 79 | | |
| Supranational | Supranational | 27 | | 0 | | 0 | | 27 | | Supranational | 55 | | 0 | | 0 | | 55 | |
| State and political subdivisions | State and political subdivisions | 17 | | 0 | | 0 | | 17 | | State and political subdivisions | 15 | | 1 | | 0 | | 16 | |
| Total securities held-to-maturity | Total securities held-to-maturity | $ | 34,483 | | $ | 377 | | $ | 55 | | $ | 34,805 | | Total securities held-to-maturity | $ | 47,946 | | $ | 1,300 | | $ | 22 | | $ | 49,224 | |
| Total securities | Total securities | $ | 121,918 | | $ | 1,730 | | $ | 293 | | $ | 123,355 | | Total securities | $ | 153,087 | | $ | 4,762 | | $ | 130 | | $ | 157,719 | |
(a) Includes $640$487 million that was included in the former Grantor Trust.
(b) The amortized cost of available-for-sale securities is net of the allowance for credit loss of $11 million. The allowance for credit loss primarily relates to CLOs.
(c) Includes gross unrealized gains of $32$75 million and gross unrealized losses of $65$44 million recorded in accumulated other comprehensive income related to securities that were transferred from available-for-sale to held-to-maturity. The unrealized gains are primarily related to agency commercial MBS and losses are primarily related to Agencyagency 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,losses, on a gross basis.
| | Net securities gains (losses) | Net securities gains (losses) | | | Net securities gains (losses) | | |
| (in millions) | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (in millions) | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| Realized gross gains | Realized gross gains | $ | 10 | | $ | 16 | | $ | 1 | | $ | 38 | | $ | 18 | | | Realized gross gains | $ | 6 | | $ | 12 | | $ | 16 | | $ | 18 | | $ | 28 | | |
| Realized gross losses | Realized gross losses | (1) | | (7) | | (1) | | (11) | | (10) | | | Realized gross losses | (4) | | (12) | | (7) | | (16) | | (10) | | |
| Recognized gross impairments | 0 | | 0 | | (1) | | 0 | | (1) | | | |
| Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | | |
| | Total net securities gains | | Total net securities gains | $ | 2 | | $ | 0 | | $ | 9 | | $ | 2 | | $ | 18 | | |
| | |
Notes to Consolidated Financial Statements(continued)
|
|
The following table presents pre-tax net securities gains (losses) by type.
| | Net securities gains (losses) | Net securities gains (losses) | | | Net securities gains (losses) | | |
| (in millions) | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (in millions) | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| Foreign government agencies | $ | 5 | | $ | 2 | | $ | 0 | | $ | 7 | | $ | 0 | | | |
| Supranational | | Supranational | $ | 0 | | $ | 0 | | $ | 6 | | $ | 0 | | $ | 6 | | |
| U.S. Treasury | U.S. Treasury | 1 | | 1 | | 0 | | 7 | | 4 | | | U.S. Treasury | 0 | | (4) | | 1 | | (4) | | 6 | | |
| | 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 | Other | 2 | | (2) | | (1) | | 4 | | (2) | | | Other | 2 | | 4 | | 2 | | 6 | | 6 | | |
| Total net securities gains (losses) | $ | 9 | | $ | 9 | | $ | (1) | | $ | 27 | | $ | 7 | | | |
| Total net securities gains | | Total net securities gains | $ | 2 | | $ | 0 | | $ | 9 | | $ | 2 | | $ | 18 | | |
In the second quarter of 2021, U.S. Treasury securities and agency commercial MBS with an aggregate amortized cost of $5.95 billion and fair value of $5.96 billion were transferred from available-for-sale securities to held-to-maturity securities to reduce the impact of changes in interest rates on accumulated other comprehensive income.
Allowance for credit losses -– Securities
In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. The allowance for credit losses related to securities was $7$10 million on Jan. 1,at June 30, 2021 and $11 million at Dec. 31, 2020, and $12 million at Sept. 30, 2020. The increase reflects additional credit deterioration inprimarily relates to the available-for-sale CLO portfolio. For additional information about the review of securities under previous other-than-temporary impairment guidance, refer to Notes 1 and 4, both Notes to Consolidated Financial Statements, in our 2019 Annual Report.
Credit quality indicators -– Securities
At Sept.June 30, 2020,2021, the gross unrealized losses on the securities portfolio were primarily attributable to an increase in credit 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, $49$85 million of the unrealized losses at Sept.June 30, 20202021 and $65$44 million at Dec. 31, 20192020 reflected in the available-for-sale sections of the tables below relate to certain securities (primarily AgencyU.S. Treasury securities and agency RMBS) that were transferred in the second quarter of 2021 and prior periods from available-for-sale to held-to-maturity. The unrealized losses will be amortized into net
| | |
Notes to Consolidated Financial Statements (continued) |
|
interest revenue over the contractual lives of the securities. The transfer created a new cost basis for the securities. As a result, if these securities have experienced unrealized losses since the date of transfer, the corresponding fair value and unrealized losses would be reflected in the held-to-maturity sections ofsecurities portfolio in the following tables. We do not intend to sell these securities, and it is not more likely than not that we will have to sell these securities.
| | |
Notes to Consolidated Financial Statements(continued)
|
|
The following table showstables show the aggregate fair value of available-for-sale securities with a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more without an allowance for credit losses.
| Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Sept. 30, 2020 (a) | Less than 12 months | | 12 months or more | | Total | |
Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | |
Available-for-sale securities in an unrealized loss position without an allowance for credit losses at June 30, 2021 (a) | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at June 30, 2021 (a) | Less than 12 months | | 12 months or more | | Total |
| Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses |
| (in millions) | (in millions) | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | (in millions) | |
| Agency RMBS | Agency RMBS | | Agency RMBS | $ | 1,303 | | $ | 10 | | | $ | 520 | | $ | 35 | | | $ | 1,823 | | $ | 45 | |
| U.S. Treasury | U.S. Treasury | 1,041 | | 1 | | | 0 | | 0 | | | 1,041 | | 1 | | U.S. Treasury | 5,451 | | 175 | | | 0 | | 0 | | | 5,451 | | 175 | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 1,069 | | 1 | | | 119 | | 0 | | | 1,188 | | 1 | | Sovereign debt/sovereign guaranteed | 2,988 | | 26 | | | 120 | | 0 | | | 3,108 | | 26 | |
| Agency commercial MBS | Agency commercial MBS | 566 | | 1 | | | 306 | | 2 | | | 872 | | 3 | | Agency commercial MBS | 917 | | 5 | | | 292 | | 1 | | | 1,209 | | 6 | |
| | Foreign covered bonds | | Foreign covered bonds | 1,196 | | 5 | | | 14 | | 0 | | | 1,210 | | 5 | |
| Supranational | Supranational | 1,583 | | 1 | | | 127 | | 0 | | | 1,710 | | 1 | | Supranational | 1,603 | | 15 | | | 133 | | 0 | | | 1,736 | | 15 | |
| CLOs | CLOs | 3,449 | | 31 | | | 579 | | 13 | | | 4,028 | | 44 | | CLOs | 741 | | 1 | | | 402 | | 3 | | | 1,143 | | 4 | |
| | Foreign government agencies | | Foreign government agencies | 793 | | 5 | | | 0 | | 0 | | | 793 | | 5 | |
| U.S. government agencies | U.S. government agencies | 99 | | 2 | | | 0 | | 0 | | | 99 | | 2 | | U.S. government agencies | 1,155 | | 10 | | | 0 | | 0 | | | 1,155 | | 10 | |
| Other ABS | Other ABS | 675 | | 2 | | | 229 | | 2 | | | 904 | | 4 | | Other ABS | 962 | | 6 | | | 158 | | 1 | | | 1,120 | | 7 | |
| Non-agency commercial MBS | Non-agency commercial MBS | 358 | | 6 | | | 194 | | 4 | | | 552 | | 10 | | Non-agency commercial MBS | 651 | | 11 | | | 101 | | 0 | | | 752 | | 11 | |
| Non-agency RMBS (b) | Non-agency RMBS (b) | 636 | | 3 | | | 97 | | 6 | | | 733 | | 9 | | Non-agency RMBS (b) | 1,102 | | 9 | | | 242 | | 4 | | | 1,344 | | 13 | |
| State and political subdivisions | State and political subdivisions | 262 | | 4 | | | 2 | | 0 | | | 264 | | 4 | | State and political subdivisions | 1,043 | | 13 | | | 15 | | 0 | | | 1,058 | | 13 | |
| Corporate bonds | Corporate bonds | 173 | | 1 | | | 0 | | 0 | | | 173 | | 1 | | Corporate bonds | 1,403 | | 36 | | | 0 | | 0 | | | 1,403 | | 36 | |
| Total securities available-for-sale (c) | Total securities available-for-sale (c) | $ | 11,037 | | $ | 56 | | | $ | 3,755 | | $ | 79 | | | $ | 14,792 | | $ | 135 | | Total securities available-for-sale (c) | $ | 21,308 | | $ | 327 | | | $ | 1,997 | | $ | 44 | | | $ | 23,305 | | $ | 371 | |
(a) Includes $370 million$6.0 billion of securities with an unrealized loss of greater than $1 million.
(b) Includes $22$1 million of securities with an unrealized loss of less than $1 million for less than 12 months and $1$7 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 $50 million gross unrealized losses for less than 12 months and gross unrealized losses of $49$35 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 AgencyU.S. Treasury securities and agency RMBS and will be amortized into net interest revenue over the contractual lives of the securities. There were 0 gross unrealized losses for less than 12 months.
The following table presents the temporarily impaired securities under the disclosure guidance that existed prior to the adoption of ASU 2016-13 and shows the aggregate fair value of available-for-sale securities with a continuous unrealized loss position for less than 12 months and those that have been in a continuous unrealized loss position for 12 months or more.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Temporarily impaired securities at Dec. 31, 2019 | Less than 12 months | | 12 months or more | | Total | |
Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 31, 2020 (a) | | Available-for-sale securities in an unrealized loss position without an allowance for credit losses at Dec. 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) | (in millions) | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | | Fair
value | Unrealized
losses | (in millions) | |
| Available-for-sale: | Available-for-sale: | | Available-for-sale: | |
| Agency RMBS | Agency RMBS | $ | 8,373 | | $ | 33 | | | $ | 5,912 | | $ | 110 | | | $ | 14,285 | | $ | 143 | | Agency RMBS | $ | 850 | | $ | 4 | | | $ | 1,965 | | $ | 47 | | | $ | 2,815 | | $ | 51 | |
| U.S. Treasury | U.S. Treasury | 1,976 | | 16 | | | 766 | | 4 | | | 2,742 | | 20 | | U.S. Treasury | 4,253 | | 21 | | | 0 | | 0 | | | 4,253 | | 21 | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 4,045 | | 10 | | | 225 | | 1 | | | 4,270 | | 11 | | Sovereign debt/sovereign guaranteed | 1,349 | | 1 | | | 135 | | 0 | | | 1,484 | | 1 | |
| Agency commercial MBS | Agency commercial MBS | 1,960 | | 12 | | | 775 | | 5 | | | 2,735 | | 17 | | Agency commercial MBS | 440 | | 1 | | | 266 | | 1 | | | 706 | | 2 | |
| Foreign covered bonds | Foreign covered bonds | 1,009 | | 4 | | | 690 | | 3 | | | 1,699 | | 7 | | Foreign covered bonds | 468 | | 1 | | | 90 | | 0 | | | 558 | | 1 | |
| Supranational | | Supranational | 1,041 | | 1 | | | 132 | | 0 | | | 1,173 | | 1 | |
| CLOs | CLOs | 1,066 | | 2 | | | 1,499 | | 14 | | | 2,565 | | 16 | | CLOs | 1,849 | | 6 | | | 579 | | 4 | | | 2,428 | | 10 | |
| Supranational | 1,336 | | 6 | | | 360 | | 0 | | | 1,696 | | 6 | | |
| Foreign government agencies | 1,706 | | 2 | | | 47 | | 0 | | | 1,753 | | 2 | | |
| U.S. government agencies | | U.S. government agencies | 160 | | 1 | | | 0 | | 0 | | | 160 | | 1 | |
| | Other ABS | | Other ABS | 449 | | 2 | | | 226 | | 1 | | | 675 | | 3 | |
| Non-agency commercial MBS | Non-agency commercial MBS | 525 | | 2 | | | 45 | | 0 | | | 570 | | 2 | | Non-agency commercial MBS | 468 | | 4 | | | 170 | | 2 | | | 638 | | 6 | |
| 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 | | |
Non-agency RMBS (b) | | Non-agency RMBS (b) | 973 | | 3 | | | 103 | | 6 | | | 1,076 | | 9 | |
| State and political subdivisions | State and political subdivisions | 0 | | 0 | | | 16 | | 0 | | | 16 | | 0 | | State and political subdivisions | 273 | | 1 | | | 2 | | 0 | | | 275 | | 1 | |
| Corporate bonds | Corporate bonds | 82 | | 0 | | | 21 | | 0 | | | 103 | | 0 | | Corporate bonds | 282 | | 1 | | | 0 | | 0 | | | 282 | | 1 | |
| Total securities available-for-sale (b) | $ | 23,012 | | $ | 92 | | | $ | 10,774 | | $ | 146 | | | $ | 33,786 | | $ | 238 | | |
Total securities available-for-sale (c) | | Total securities available-for-sale (c) | $ | 12,855 | | $ | 47 | | | $ | 3,668 | | $ | 61 | | | $ | 16,523 | | $ | 108 | |
|
(a) Includes $2$1.6 billion of securities with an unrealized loss of greater than $1 million.
(b) Includes $16 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)(c) Includes gross unrealized losses of $65$44 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 Agencyagency 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 showstables show the credit quality of the held-to-maturity securities. We have included certain credit ratings information because the information can indicate the degree of credit risk to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.
| Held-to-maturity securities portfolio at Sept. 30, 2020 (a) | | Ratings (b) | |
| Held-to-maturity securities portfolio at June 30, 2021 | | Held-to-maturity securities portfolio at June 30, 2021 | | Ratings (a) |
| | Net unrealized gain | | | BB+
and
lower | A1+/A2/SP-1+ | | | Net unrealized gain (loss) | | | BB+
and
lower | A1+/A2/SP-1 | |
| (dollars in millions) | (dollars in millions) | Amortized
cost | | AAA/
AA- | A+/
A- | BBB+/
BBB- | Not
rated | (dollars in millions) | Amortized
cost | | AAA/
AA- | A+/
A- | BBB+/
BBB- | Not
rated |
| Agency RMBS | Agency RMBS | $ | 37,086 | | | $ | 1,107 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | Agency RMBS | $ | 35,632 | | | $ | 472 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
| U.S. Treasury | U.S. Treasury | 3,288 | | | 103 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | U.S. Treasury | 9,381 | | | 63 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| U.S. government agencies | U.S. government agencies | 2,266 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | U.S. government agencies | 2,204 | | | (32) | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Agency commercial MBS | Agency commercial MBS | 2,041 | | | 107 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Agency commercial MBS | 3,983 | | | 62 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Sovereign debt/sovereign guaranteed (c)(b) | Sovereign debt/sovereign guaranteed (c)(b) | 983 | | | 41 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Sovereign debt/sovereign guaranteed (c)(b) | 1,005 | | | 26 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Commercial paper/CDs | 295 | | | 0 | | | 0 | | 0 | | 0 | | 0 | | 100 | | 0 | | |
| | Non-agency RMBS | Non-agency RMBS | 70 | | | 2 | | | 39 | | 46 | | 2 | | 12 | | 0 | | 1 | | Non-agency RMBS | 50 | | | 3 | | | 24 | | 59 | | 1 | | 15 | | 0 | | 1 | |
| Supranational | Supranational | 52 | | | 1 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | | Supranational | 55 | | | 0 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| State and political subdivisions | State and political subdivisions | 15 | | | 0 | | | 6 | | 2 | | 6 | | 0 | | 0 | | 86 | | State and political subdivisions | 15 | | | 0 | | | 5 | | 2 | | 5 | | 0 | | 0 | | 88 | |
| | Total held-to-maturity securities | Total held-to-maturity securities | $ | 46,096 | | | $ | 1,362 | | | 99 | % | 0 | % | 0 | % | 0 | % | 1 | % | 0 | % | Total held-to-maturity securities | $ | 52,325 | | | $ | 594 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
(a) In the first quarter of 2020, we adopted new accounting guidance included in ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, on a prospective basis. See Note 2 for additional information.
(b) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(c)(b) Primarily consists of exposure to France, UK and Germany.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Held-to-maturity securities portfolio at Dec. 31, 2020 | | | | Ratings (a) |
| | | Net unrealized gain (loss) | | | | | BB+
and
lower | A1+/A2/SP-1 | |
| (dollars in millions) | Amortized
cost | | | AAA/
AA- | A+/
A- | BBB+/
BBB- | Not
rated |
| Agency RMBS | $ | 38,355 | | | $ | 1,041 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
| U.S. Treasury | 2,938 | | | 90 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| U.S. government agencies | 2,816 | | | (2) | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Agency commercial MBS | 2,659 | | | 103 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
Sovereign debt/sovereign guaranteed (b) | 1,050 | | | 42 | | | 98 | | 0 | | 0 | | 0 | | 2 | | 0 | |
| | | | | | | | | | |
| Non-agency RMBS | 58 | | | 3 | | | 28 | | 55 | | 2 | | 14 | | 0 | | 1 | |
| Supranational | 55 | | | 0 | | | 100 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| State and political subdivisions | 15 | | | 1 | | | 6 | | 2 | | 6 | | 0 | | 0 | | 86 | |
| | | | | | | | | | |
| Total held-to-maturity securities | $ | 47,946 | | | $ | 1,278 | | | 100 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
(a) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(b) Primarily consists of exposure to France, UK and Germany.
Maturity distribution
The following table shows the maturity distribution by carrying amount and yield (on a tax equivalent basis) of our securities portfolio.
| | Maturity distribution and yields on securities at Sept. 30, 2020 | U.S. Treasury | | U.S. government
agencies | | State and political
subdivisions | | Other bonds, notes and debentures | | Mortgage/
asset-backed | | |
| Maturity distribution and yields on securities at June 30, 2021 | | Maturity distribution and yields on securities at June 30, 2021 | U.S. Treasury | | U.S. government
agencies | | State and political
subdivisions | | Other bonds, notes and debentures | | Mortgage/
asset-backed | |
| (dollars in millions) | (dollars in millions) | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Total | (dollars in millions) | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Amount | Yield (a) | | Total |
| Securities available-for-sale: | Securities available-for-sale: | | Securities available-for-sale: | |
| One year or less | One year or less | $ | 4,405 | | 1.11 | % | | $ | 25 | | 2.55 | % | | $ | 549 | | 1.49 | % | | $ | 11,186 | | 0.44 | % | | $ | — | | — | % | | $ | 16,165 | | One year or less | $ | 2,881 | | 1.57 | % | | $ | 45 | | 0.20 | % | | $ | 382 | | 1.90 | % | | $ | 8,424 | | 0.49 | % | | $ | — | | — | % | | $ | 11,732 | |
| Over 1 through 5 years | Over 1 through 5 years | 10,546 | | 1.28 | | | 1,866 | | 0.85 | | | 570 | | 3.16 | | | 17,769 | | 0.61 | | | — | | — | | | 30,751 | | Over 1 through 5 years | 8,494 | | 1.25 | | | 1,808 | | 0.88 | | | 540 | | 2.64 | | | 18,877 | | 0.52 | | | — | | — | | | 29,719 | |
| Over 5 through 10 years | Over 5 through 10 years | 6,517 | | 1.57 | | | 1,468 | | 2.51 | | | 223 | | 1.88 | | | 3,240 | | 0.56 | | | — | | — | | | 11,448 | | Over 5 through 10 years | 11,183 | | 1.28 | | | 1,358 | | 2.39 | | | 1,378 | | 1.53 | | | 5,667 | | 0.79 | | | — | | — | | | 19,586 | |
| Over 10 years | Over 10 years | 3,265 | | 3.11 | | | 119 | | 2.06 | | | 348 | | 2.22 | | | 233 | | 0.62 | | | — | | — | | | 3,965 | | Over 10 years | 2,879 | | 3.11 | | | 139 | | 1.98 | | | 306 | | 2.28 | | | 171 | | 0.54 | | | — | | — | | | 3,495 | |
| Mortgage-backed securities | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,327 | | 2.18 | | | 39,327 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 31,454 | | 2.24 | | | 31,454 | |
| Asset-backed securities | Asset-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 7,587 | | 1.72 | | | 7,587 | | Asset-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 7,595 | | 1.44 | | | 7,595 | |
| Total | Total | $ | 24,733 | | 1.57 | % | | $ | 3,478 | | 1.60 | % | | $ | 1,690 | | 2.26 | % | | $ | 32,428 | | 0.55 | % | | $ | 46,914 | | 2.10 | % | | $ | 109,243 | | Total | $ | 25,437 | | 1.51 | % | | $ | 3,350 | | 1.53 | % | | $ | 2,606 | | 1.91 | % | | $ | 33,139 | | 0.56 | % | | $ | 39,049 | | 2.09 | % | | $ | 103,581 | |
| Securities held-to-maturity: | Securities held-to-maturity: | | Securities held-to-maturity: | |
| One year or less | One year or less | $ | 785 | | 1.43 | % | | $ | 0 | | 0 | % | | $ | 0 | | 0 | % | | $ | 307 | | 1.99 | % | | $ | — | | — | % | | $ | 1,092 | | One year or less | $ | 1,379 | | 1.91 | % | | $ | 0 | | 0 | % | | $ | 1 | | 5.54 | % | | $ | 48 | | 0.24 | % | | $ | — | | — | % | | $ | 1,428 | |
| Over 1 through 5 years | Over 1 through 5 years | 2,503 | | 1.90 | | | 1,253 | | 0.82 | | | 2 | | 5.66 | | | 946 | | 0.67 | | | — | | — | | | 4,704 | | Over 1 through 5 years | 4,831 | | 0.97 | | | 408 | | 0.66 | | | 1 | | 5.69 | | | 930 | | 0.69 | | | — | | — | | | 6,170 | |
| Over 5 through 10 years | Over 5 through 10 years | 0 | | 0 | | | 564 | | 1.13 | | | 0 | | 0 | | | 32 | | 0.92 | | | — | | — | | | 596 | | Over 5 through 10 years | 3,171 | | 1.18 | | | 1,513 | | 1.08 | | | 0 | | 0 | | | 82 | | 0.60 | | | — | | — | | | 4,766 | |
| Over 10 years | Over 10 years | 0 | | 0 | | | 449 | | 2.28 | | | 13 | | 4.76 | | | 45 | | 0.35 | | | — | | — | | | 507 | | Over 10 years | 0 | | 0 | | | 283 | | 2.16 | | | 13 | | 4.75 | | | 0 | | 0 | | | — | | — | | | 296 | |
| Mortgage-backed securities | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,197 | | 2.57 | | | 39,197 | | Mortgage-backed securities | — | | — | | | — | | — | | | — | | — | | | — | | — | | | 39,665 | | 2.32 | | | 39,665 | |
| Total | Total | $ | 3,288 | | 1.79 | % | | $ | 2,266 | | 1.19 | % | | $ | 15 | | 4.91 | % | | $ | 1,330 | | 0.96 | % | | $ | 39,197 | | 2.57 | % | | $ | 46,096 | | Total | $ | 9,381 | | 1.18 | % | | $ | 2,204 | | 1.14 | % | | $ | 15 | | 4.89 | % | | $ | 1,060 | | 0.66 | % | | $ | 39,665 | | 2.32 | % | | $ | 52,325 | |
(a)Yields are based upon the amortized cost of securities.securities and do not reflect the impact of hedging.
| | |
Notes to Consolidated Financial Statements(continued)
|
|
Pledged assets
At Sept.June 30, 2020,2021, BNY Mellon had pledged assets of $141 billion, including $108$111 billion pledged as collateral for potential borrowings at the Federal Reserve Discount Window and $5$7 billion pledged as collateral for borrowing at the Federal Home Loan Bank. The components of the assets pledged at Sept.June 30, 20202021 included $123 billion of securities, $11$13 billion of loans, $6$5 billion of trading assets and less than $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, 2019,2020, BNY Mellon had pledged assets of $118$141 billion, including $80$113 billion pledged as collateral for potential borrowing 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 Dec. 31, 20192020 included $98$124 billion of securities, $13$11 billion of loans, $7$6 billion of trading assets and less
| | |
Notes to Consolidated Financial Statements (continued) |
|
than $1 billion of interest-bearing deposits with banks.
At Sept.June 30, 20202021 and Dec. 31, 2019,2020, pledged assets included $23$22 billion and $29$18 billion, respectively, for which the recipients were permitted to sell or repledge the assets delivered.
At Sept. 30, 2020, we pledged commercial paper and CDs totaling $295 million as collateral to the Federal Reserve Bank of Boston to secure non-recourse borrowings under the Federal Reserve’s Money Market Mutual Fund Liquidity Facility (“MMLF”) program.
We also obtain securities as collateral, including receipts under resale agreements, securities borrowed, derivative contracts and custody agreements, on terms which permit us to sell or repledge the securities to others. At Sept.June 30, 20202021 and Dec. 31, 2019,2020, the market value of the securities received that can be sold or repledged was $112$111 billion and $153$121 billion, respectively. We routinely sell or repledge these securities through delivery to third parties. As of Sept.June 30, 20202021 and Dec. 31, 2019,2020, the market value of
securities collateral sold or repledged was $80$65 billion and $107$84 billion, respectively.
Restricted cash and securities
Cash and securities may be segregated under federal and other regulations or requirements. At Sept.June 30, 20202021 and Dec. 31, 2019,2020, cash segregated under federal and other regulations or requirements was $3$4 billion and $2$3 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 $4$2 billion at Sept.June 30, 20202021 and $1$6 billion at Dec. 31, 2019.2020. 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 5–4–Loans and asset quality
Loans
The table below provides the details of our loan portfolio.
| | Loans | Loans | Sept. 30, 2020 | Dec. 31, 2019 | Loans | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
| Domestic: | Domestic: | | Domestic: | |
| Commercial | Commercial | $ | 1,839 | | $ | 1,442 | | Commercial | $ | 1,653 | | $ | 1,356 | |
| Commercial real estate | Commercial real estate | 5,987 | | 5,575 | | Commercial real estate | 5,888 | | 6,056 | |
| Financial institutions | Financial institutions | 4,915 | | 4,852 | | Financial institutions | 4,544 | | 4,495 | |
| Lease financings | Lease financings | 482 | | 537 | | Lease financings | 356 | | 431 | |
| Wealth management loans and mortgages | Wealth management loans and mortgages | 15,805 | | 16,050 | | Wealth management loans and mortgages | 17,358 | | 16,211 | |
| Other residential mortgages | Other residential mortgages | 423 | | 494 | | Other residential mortgages | 339 | | 389 | |
| Overdrafts | Overdrafts | 899 | | 524 | | Overdrafts | 1,409 | | 651 | |
| Other | Other | 1,616 | | 1,167 | | Other | 2,009 | | 1,823 | |
| Margin loans | Margin loans | 11,220 | | 11,907 | | Margin loans | 17,022 | | 13,141 | |
| Total domestic | Total domestic | 43,186 | | 42,548 | | Total domestic | 50,578 | | 44,553 | |
| Foreign: | Foreign: | | Foreign: | |
| Commercial | Commercial | 102 | | 347 | | Commercial | 16 | | 73 | |
| Commercial real estate | Commercial real estate | 5 | | 7 | | Commercial real estate | 161 | | 0 | |
| Financial institutions | Financial institutions | 6,097 | | 7,626 | | Financial institutions | 6,188 | | 6,750 | |
| Lease financings | Lease financings | 596 | | 576 | | Lease financings | 567 | | 559 | |
| Wealth management loans and mortgages | Wealth management loans and mortgages | 121 | | 140 | | Wealth management loans and mortgages | 174 | | 146 | |
| Other (primarily overdrafts) | Other (primarily overdrafts) | 3,106 | | 2,230 | | Other (primarily overdrafts) | 2,962 | | 2,113 | |
| Margin loans | Margin loans | 2,278 | | 1,479 | | Margin loans | 2,901 | | 2,275 | |
| Total foreign | Total foreign | 12,305 | | 12,405 | | Total foreign | 12,969 | | 11,916 | |
Total loans (a) | Total loans (a) | $ | 55,491 | | $ | 54,953 | | Total loans (a) | $ | 63,547 | | $ | 56,469 | |
(a) Net of unearned income of $285$255 million at Sept.June 30, 20202021 and $313$274 million at Dec. 31, 20192020 primarily related to domestic and foreign lease financings.
| | |
Notes to Consolidated Financial Statements(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 | | | |
| Allowance for credit losses activity for the quarter ended June 30, 2021 | | Allowance for credit losses activity for the quarter ended June 30, 2021 | Wealth management loans and mortgages | | Other
residential
mortgages | | |
| (in millions) | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | Wealth management loans and mortgages | | Other
residential
mortgages | | Total | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | Total |
| Beginning balance | Beginning balance | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | | $ | 454 | | Beginning balance | $ | 11 | | $ | 365 | | $ | 7 | | $ | 2 | | $ | 6 | | | $ | 9 | | | $ | 400 | |
| | Charge-offs | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | (1) | | | (1) | |
| Recoveries | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | 1 | | Recoveries | 0 | | 0 | | 2 | | 0 | | 0 | | | 1 | | | 3 | |
| Net recoveries | Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 1 | | | 1 | | Net recoveries | 0 | | 0 | | 2 | | 0 | | 0 | | | 0 | | | 2 | |
Provision (a) | Provision (a) | (13) | | 14 | | (5) | | 0 | | 4 | | | 5 | | | 5 | | Provision (a) | (3) | | (76) | | (2) | | 0 | | (1) | | | (1) | | | (83) | |
Ending balance (b) | Ending balance (b) | $ | 27 | | $ | 386 | | $ | 11 | | $ | 3 | | $ | 15 | | | $ | 18 | | | $ | 460 | | Ending balance (b) | $ | 8 | | $ | 289 | | $ | 7 | | $ | 2 | | $ | 5 | | | $ | 8 | | | $ | 319 | |
| Allowance for: | Allowance for: | | | | Allowance for: | | | | | |
| Loan losses | Loan losses | $ | 14 | | $ | 270 | | $ | 7 | | $ | 3 | | $ | 13 | | | $ | 18 | | | $ | 325 | | Loan losses | $ | 3 | | $ | 248 | | $ | 4 | | $ | 2 | | $ | 4 | | | $ | 8 | | | $ | 269 | |
| Lending-related commitments | Lending-related commitments | 13 | | 116 | | 4 | | 0 | | 2 | | | 0 | | | 135 | | Lending-related commitments | 5 | | 41 | | 3 | | 0 | | 1 | | | 0 | | | 50 | |
| Individually evaluated for impairment: | Individually evaluated for impairment: | | | | Individually evaluated for impairment: | | | | | |
Loan balance | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 17 | | (c) | $ | 0 | | | $ | 17 | | Loan balance | $ | 0 | | $ | 26 | | $ | 0 | | $ | 0 | | $ | 17 | | | $ | 1 | | | $ | 44 | |
| Allowance for loan losses | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | Allowance for loan losses | 0 | | 3 | | 0 | | 0 | | 0 | | | 0 | | | 3 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $4$3 million for the thirdsecond quarter 2020.2021.
(b) Includes $8$4 million of allowance for credit losses related to foreign loans, primarily financial institutions.
(c) Includes collateral dependentcollateral-dependent loans of $17$44 million with $25$50 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 | | | |
| Allowance for credit losses activity for the quarter ended March 31, 2021 | | Allowance for credit losses activity for the quarter ended March 31, 2021 | Wealth management loans and mortgages | | Other
residential
mortgages | | |
| (in millions) | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | Wealth management loans and mortgages | | Other
residential
mortgages | | Total | (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | Total |
| | | Beginning balance | Beginning balance | $ | 26 | | $ | 208 | | $ | 18 | | $ | 13 | | $ | 9 | | | $ | 14 | | | $ | 288 | | Beginning balance | $ | 16 | | $ | 430 | | $ | 10 | | $ | 2 | | $ | 8 | | | $ | 13 | | | $ | 479 | |
| Charge-offs | Charge-offs | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | Charge-offs | 0 | | 0 | | 0 | | 0 | | (1) | | | 0 | | | (1) | |
| Recoveries | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | 3 | | Recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 2 | | | 2 | |
| Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | | 3 | | | 3 | | |
| Net (charge-offs) recoveries | | Net (charge-offs) recoveries | 0 | | 0 | | 0 | | 0 | | (1) | | | 2 | | | 1 | |
Provision (a) | Provision (a) | 14 | | 164 | | (2) | | (10) | | 2 | | | (5) | | | 163 | | Provision (a) | (5) | | (65) | | (3) | | 0 | | (1) | | | (6) | | | (80) | |
Ending balance (b) | Ending balance (b) | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | | $ | 12 | | | $ | 454 | | Ending balance (b) | $ | 11 | | $ | 365 | | $ | 7 | | $ | 2 | | $ | 6 | | | $ | 9 | | | $ | 400 | |
| Allowance for: | Allowance for: | | | | Allowance for: | | | | | |
| Loan losses | Loan losses | $ | 23 | | $ | 244 | | $ | 11 | | $ | 3 | | $ | 9 | | | $ | 12 | | | $ | 302 | | Loan losses | $ | 4 | | $ | 303 | | $ | 4 | | $ | 2 | | $ | 5 | | | $ | 9 | | | $ | 327 | |
| Lending-related commitments | Lending-related commitments | 17 | | 128 | | 5 | | 0 | | 2 | | | 0 | | | 152 | | Lending-related commitments | 7 | | 62 | | 3 | | 0 | | 1 | | | 0 | | | 73 | |
| Individually evaluated for impairment: | Individually evaluated for impairment: | | | | Individually evaluated for impairment: | | | | | |
Loan balance | Loan balance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 18 | | (c) | $ | 0 | | | $ | 18 | | Loan balance | $ | 0 | | $ | 26 | | $ | 0 | | $ | 0 | | $ | 18 | | | $ | 1 | | | $ | 45 | |
| Allowance for loan losses | Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | | 0 | | | 0 | | Allowance for loan losses | 0 | | 5 | | 0 | | 0 | | 0 | | | 0 | | | 5 | |
(a) Does not include the provision for credit losses benefit related to other financial instruments of $(20)$3 million for the first quarter 2021.
(b) Includes $3 million of allowance for credit losses related to foreign loans, primarily financial institutions.
(c) Includes collateral-dependent loans of $45 million with $59 million of collateral at fair value.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses activity for the quarter ended June 30, 2020 | Wealth management loans and mortgages | Other
residential
mortgages | | | | | Total |
| (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | | |
| 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 (c) | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 18 | | $ | 0 | | | | | | $ | 18 | |
| Allowance for loan losses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | | | | | 0 | |
(a) Does not include the provision for credit losses benefit 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 dependentcollateral-dependent loans of $18 million with $26 million of collateral at fair value.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses activity for the six months ended June 30, 2021 | Wealth management loans and mortgages | Other
residential
mortgages | | | Total |
| (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings | |
| Beginning balance | $ | 16 | | $ | 430 | | $ | 10 | | $ | 2 | | $ | 8 | | $ | 13 | | | | $ | 479 | |
| | | | | | | | | |
| | | | | | | | | |
| Charge-offs | 0 | | 0 | | 0 | | 0 | | (1) | | (1) | | | | (2) | |
| Recoveries | 0 | | 0 | | 2 | | 0 | | 0 | | 3 | | | | 5 | |
| Net recoveries (charge-offs) | 0 | | 0 | | 2 | | 0 | | (1) | | 2 | | | | 3 | |
Provision (a) | (8) | | (141) | | (5) | | 0 | | (2) | | (7) | | | | (163) | |
| Ending balance | $ | 8 | | $ | 289 | | $ | 7 | | $ | 2 | | $ | 5 | | $ | 8 | | | | $ | 319 | |
| | |
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 $1,247Does not include provision for credit losses benefit related to other financial instruments of $6 million of domestic overdrafts, $10,177 million of margin loans and $1,143 million of other loans at Sept. for the six months ended June 30, 2019.2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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). | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for credit losses activity for the six months ended June 30, 2020 | Wealth management loans and mortgages | Other
residential
mortgages | | Foreign | Total |
| (in millions) | Commercial | Commercial
real estate | Financial
institutions | Lease
financings |
| 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 | | 3 | | | 0 | | 3 | |
| Net recoveries | 0 | | 0 | | 0 | | 0 | | 0 | | 3 | | | 0 | | 3 | |
Provision (a) | 23 | | 282 | | 2 | | 0 | | 3 | | (6) | | | 0 | | 304 | |
| Ending balance | $ | 40 | | $ | 372 | | $ | 16 | | $ | 3 | | $ | 11 | | $ | 12 | | | $ | 0 | | $ | 454 | |
(b)(a) Does not include provision for credit losses related to other financial instruments of $12$8 million for the ninesix months ended Sept.June 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 | |
| | |
Notes to Consolidated Financial Statements (continued) |
|
Nonperforming assets
The table below presents our nonperforming assets.
| | Nonperforming assets | Nonperforming assets | Sept. 30, 2020 | Dec. 31, 2019 | Nonperforming assets | June 30, 2021 | | Dec. 31, 2020 |
| | Recorded investment | | Recorded investment | | Recorded investment |
| | With an
allowance | Without an allowance | | | With an
allowance | Without an allowance | | | With an
allowance | Without an allowance | |
| (in millions) | (in millions) | Total | (in millions) | Total | | Total |
| Nonperforming loans: | Nonperforming loans: | | Nonperforming loans: | |
| | Other residential mortgages | Other residential mortgages | $ | 56 | | $ | 0 | | $ | 56 | | $ | 62 | | Other residential mortgages | $ | 38 | | $ | 1 | | $ | 39 | | | $ | 57 | | $ | 0 | | $ | 57 | |
| Wealth management loans and mortgages | Wealth management loans and mortgages | 10 | | 17 | | 27 | | 24 | | Wealth management loans and mortgages | 6 | | 18 | | 24 | | | 10 | | 20 | | 30 | |
| Commercial real estate | | Commercial real estate | 26 | | 0 | | 26 | | | 1 | | 0 | | 1 | |
| Total nonperforming loans | Total nonperforming loans | 66 | | 17 | | 83 | | 86 | | Total nonperforming loans | 70 | | 19 | | 89 | | | 68 | | 20 | | 88 | |
| Other assets owned | Other assets owned | 0 | | 1 | | 1 | | 3 | | Other assets owned | 0 | | 1 | | 1 | | | 0 | | 1 | | 1 | |
| Total nonperforming assets | Total nonperforming assets | $ | 66 | | $ | 18 | | $ | 84 | | $ | 89 | | Total nonperforming assets | $ | 70 | | $ | 20 | | $ | 90 | | | $ | 68 | | $ | 21 | | $ | 89 | |
At Sept.June 30, 2020,2021, 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 | Past due loans and still accruing interest | Sept. 30, 2020 | | Dec. 31, 2019 | Past due loans and still accruing interest | June 30, 2021 | | Dec. 31, 2020 |
| | | Days past due | Total
past due | | Days past due | Total
past due | | Days past due | Total
past due | | Days past due | Total
past due |
| (in millions) | (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 | (in millions) | 30-59 | 60-89 | ≥90 | 30-59 | 60-89 | ≥90 |
| Wealth management loans and mortgages | Wealth management loans and mortgages | $ | 20 | | $ | 1 | | $ | 0 | | $ | 21 | | | $ | 22 | | $ | 5 | | $ | 0 | | $ | 27 | | Wealth management loans and mortgages | $ | 27 | | $ | 1 | | $ | 0 | | $ | 28 | | | $ | 54 | | $ | 1 | | $ | 0 | | $ | 55 | |
| Commercial real estate | | Commercial real estate | 21 | | 0 | | 0 | | 21 | | | 19 | | 16 | | 0 | | 35 | |
| Other residential mortgages | Other residential mortgages | 7 | | 0 | | 0 | | 7 | | | 8 | | 3 | | 0 | | 11 | | Other residential mortgages | 3 | | 0 | | 0 | | 3 | | | 3 | | 1 | | 0 | | 4 | |
| Financial institutions | Financial institutions | 0 | | 0 | | 0 | | 0 | | | 1 | | 30 | | 0 | | 31 | | Financial institutions | 0 | | 0 | | 0 | | 0 | | | 11 | | 0 | | 0 | | 11 | |
| Commercial real estate | 9 | | 0 | | 0 | | 9 | | | 6 | | 12 | | 0 | | 18 | | |
| Total past due loans | Total past due loans | $ | 36 | | $ | 1 | | $ | 0 | | $ | 37 | | | $ | 37 | | $ | 50 | | $ | 0 | | $ | 87 | | Total past due loans | $ | 51 | | $ | 1 | | $ | 0 | | $ | 52 | | | $ | 87 | | $ | 18 | | $ | 0 | | $ | 105 | |
Loan modifications
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”), the relevant provisions of which were extended by the Consolidated Appropriations Act, 2021, and the Interagency Guidance. See Note 21 of the Notes to Consolidated Financial Statements in our 2020 Annual Report for additional details on the CARES Act, Consolidated Appropriations Act, 2021, and Interagency Guidance. Financial institutions may account for eligible loan modifications either under the CARES Act or the Interagency Guidance. The
Company has elected to apply both the CARES Act and the Interagency Guidance, as applicable, in providing borrowers with loan modification relief in response to the coronavirus pandemic. We modified loans of $106$3 million in the thirdsecond quarter of 2020 and2021, $282 million in the second quarter of 2020.2020 and $6 million in the first quarter of 2021. Nearly all of the modifications were
short-term loan payment forbearances or modified principal and/or interest payments. These loans were primarily residential mortgage and commercial real estate loans. We also modified loans of $56 million in the third quarter of 2020, a majority of which were commercial real estate loans, by providing long-term loan payment modifications and an extension of maturity. We did not identify any of the modifications as troubled debt restructurings (“TDRs”). None of these loans were reported as past due or nonperforming at Sept.TDRs. At June 30, 2020. At Sept. 30, 2020,2021, the unpaid principal balance of the loans modified under the CARES Act or Interagency Guidance was $174$77 million. We modified other residential mortgage loans of $4 million in the third quarter of 2019.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Credit quality indicators
Our credit strategy is to focus on investment-grade clients that are active users of our non-credit services. Each customer is assigned an internal credit rating,
which is mapped to an external rating agency grade equivalent, if possible, based upon a number of dimensions, which are continually evaluated and may change over time.
The tabletables below providesprovide information about the credit profile of the loan portfolio by the period of origination.
| | Credit profile of the loan portfolio | Credit profile of the loan portfolio | | Sept. 30, 2020 | Credit profile of the loan portfolio | | June 30, 2021 |
| | Revolving loans | | | Revolving loans | |
| | Originated, at amortized cost | Amortized cost | Converted to term loans - Amortized cost | | Accrued
interest
receivable | | Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued
interest
receivable |
| (in millions) | (in millions) | YTD20 | 2019 | 2018 | 2017 | 2016 | Prior to 2016 | Total (a) | (in millions) | YTD21 | 2020 | 2019 | 2018 | 2017 | Prior to 2017 | Total (a) |
| Commercial: | Commercial: | | Commercial: | |
| Investment grade | Investment grade | $ | 153 | | $ | 73 | | $ | 96 | | $ | 450 | | $ | 57 | | $ | 0 | | $ | 893 | | $ | 0 | | $ | 1,722 | | | Investment grade | $ | 583 | | $ | 20 | | $ | 0 | | $ | 0 | | $ | 207 | | $ | 57 | | $ | 635 | | $ | 0 | | $ | 1,502 | | |
| Non-investment grade | Non-investment grade | 85 | | 61 | | 7 | | 0 | | 0 | | 0 | | 66 | | 0 | | 219 | | | Non-investment grade | 94 | | 23 | | 0 | | 0 | | 0 | | 0 | | 50 | | 0 | | 167 | | |
| Total commercial | Total commercial | 238 | | 134 | | 103 | | 450 | | 57 | | 0 | | 959 | | 0 | | 1,941 | | $ | 1 | | Total commercial | 677 | | 43 | | 0 | | 0 | | 207 | | 57 | | 685 | | 0 | | 1,669 | | $ | 1 | |
| Commercial real estate: | Commercial real estate: | | Commercial real estate: | |
| Investment grade | Investment grade | 611 | | 1,065 | | 542 | | 543 | | 385 | | 430 | | 175 | | 0 | | 3,751 | | | Investment grade | 1,161 | | 450 | | 818 | | 116 | | 279 | | 556 | | 378 | | 0 | | 3,758 | | |
| Non-investment grade | Non-investment grade | 160 | | 526 | | 604 | | 159 | | 367 | | 152 | | 244 | | 29 | | 2,241 | | | Non-investment grade | 652 | | 153 | | 605 | | 402 | | 76 | | 222 | | 155 | | 26 | | 2,291 | | |
| Total commercial real estate | Total commercial real estate | 771 | | 1,591 | | 1,146 | | 702 | | 752 | | 582 | | 419 | | 29 | | 5,992 | | 8 | | Total commercial real estate | 1,813 | | 603 | | 1,423 | | 518 | | 355 | | 778 | | 533 | | 26 | | 6,049 | | 7 | |
| Financial institutions: | Financial institutions: | | Financial institutions: | |
| Investment grade | Investment grade | 60 | | 238 | | 47 | | 125 | | 14 | | 165 | | 8,471 | | 0 | | 9,120 | | | Investment grade | 514 | | 101 | | 0 | | 0 | | 0 | | 82 | | 8,233 | | 0 | | 8,930 | | |
| Non-investment grade | Non-investment grade | 98 | | 36 | | 0 | | 0 | | 0 | | 0 | | 1,758 | | 0 | | 1,892 | | | Non-investment grade | 37 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,765 | | 0 | | 1,802 | | |
| Total financial institutions | Total financial institutions | 158 | | 274 | | 47 | | 125 | | 14 | | 165 | | 10,229 | | 0 | | 11,012 | | 13 | | Total financial institutions | 551 | | 101 | | 0 | | 0 | | 0 | | 82 | | 9,998 | | 0 | | 10,732 | | 13 | |
| Wealth management loans and mortgages: | Wealth management loans and mortgages: | | Wealth management loans and mortgages: | |
| Investment grade | Investment grade | 31 | | 80 | | 11 | | 149 | | 56 | | 85 | | 7,235 | | 0 | | 7,647 | | | Investment grade | 58 | | 16 | | 75 | | 5 | | 153 | | 144 | | 9,063 | | 0 | | 9,514 | | |
| Non-investment grade | Non-investment grade | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 63 | | 0 | | 63 | | | Non-investment grade | 2 | | 0 | | 0 | | 0 | | 0 | | 0 | | 38 | | 0 | | 40 | | |
| Wealth management mortgages | Wealth management mortgages | 781 | | 1,082 | | 682 | | 1,267 | | 1,622 | | 2,748 | | 34 | | 0 | | 8,216 | | | Wealth management mortgages | 988 | | 1,063 | | 929 | | 583 | | 1,012 | | 3,374 | | 29 | | 0 | | 7,978 | | |
| Total wealth management loans and mortgages | Total wealth management loans and mortgages | 812 | | 1,162 | | 693 | | 1,416 | | 1,678 | | 2,833 | | 7,332 | | 0 | | 15,926 | | 29 | | Total wealth management loans and mortgages | 1,048 | | 1,079 | | 1,004 | | 588 | | 1,165 | | 3,518 | | 9,130 | | 0 | | 17,532 | | 27 | |
| Lease financings | Lease financings | 126 | | 19 | | 17 | | 10 | | 25 | | 881 | | 0 | | 0 | | 1,078 | | 0 | | Lease financings | 17 | | 92 | | 16 | | 11 | | 6 | | 781 | | 0 | | 0 | | 923 | | 0 | |
| Other residential mortgages | Other residential mortgages | 0 | | 0 | | 0 | | 0 | | 0 | | 423 | | 0 | | 0 | | 423 | | 2 | | Other residential mortgages | 0 | | 0 | | 0 | | 0 | | 0 | | 339 | | 0 | | 0 | | 339 | | 1 | |
| Other loans | Other loans | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,658 | | 0 | | 1,658 | | 1 | | Other loans | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 2,064 | | 0 | | 2,064 | | 1 | |
| Margin loans | Margin loans | 3,553 | | 0 | | 0 | | 0 | | 0 | | 0 | | 9,945 | | 0 | | 13,498 | | 7 | | Margin loans | 5,408 | | 1,900 | | 0 | | 0 | | 0 | | 0 | | 12,615 | | 0 | | 19,923 | | 8 | |
| Total loans | Total loans | $ | 5,658 | | $ | 3,180 | | $ | 2,006 | | $ | 2,703 | | $ | 2,526 | | $ | 4,884 | | $ | 30,542 | | $ | 29 | | $ | 51,528 | | $ | 61 | | Total loans | $ | 9,514 | | $ | 3,818 | | $ | 2,443 | | $ | 1,117 | | $ | 1,733 | | $ | 5,555 | | $ | 35,025 | | $ | 26 | | $ | 59,231 | | $ | 58 | |
(a) Excludes overdrafts of $3,963$4,316 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Credit profile of the loan portfolio | | | | | Dec. 31, 2020 |
| | | | | | | Revolving loans | | |
| Originated, at amortized cost | Amortized cost | Converted to term loans – Amortized cost | | Accrued
interest
receivable |
| (in millions) | 2020 | 2019 | 2018 | 2017 | 2016 | Prior to 2016 | Total (a) |
| Commercial: | | | | | | | | | | |
| Investment grade | $ | 128 | | $ | 18 | | $ | 71 | | $ | 420 | | $ | 57 | | $ | 0 | | $ | 493 | | $ | 0 | | $ | 1,187 | | |
| Non-investment grade | 142 | | 0 | | 6 | | 0 | | 0 | | 0 | | 94 | | 0 | | 242 | | |
| Total commercial | 270 | | 18 | | 77 | | 420 | | 57 | | 0 | | 587 | | 0 | | 1,429 | | $ | 2 | |
| Commercial real estate: | | | | | | | | | | |
| Investment grade | 778 | | 1,010 | | 458 | | 543 | | 312 | | 346 | | 127 | | 0 | | 3,574 | | |
| Non-investment grade | 285 | | 619 | | 643 | | 159 | | 376 | | 144 | | 229 | | 27 | | 2,482 | | |
| Total commercial real estate | 1,063 | | 1,629 | | 1,101 | | 702 | | 688 | | 490 | | 356 | | 27 | | 6,056 | | 8 | |
| Financial institutions: | | | | | | | | | | |
| Investment grade | 132 | | 146 | | 47 | | 125 | | 13 | | 156 | | 8,760 | | 0 | | 9,379 | | |
| Non-investment grade | 84 | | 36 | | 0 | | 0 | | 0 | | 0 | | 1,746 | | 0 | | 1,866 | | |
| Total financial institutions | 216 | | 182 | | 47 | | 125 | | 13 | | 156 | | 10,506 | | 0 | | 11,245 | | 12 | |
| Wealth management loans and mortgages: | | | | | | | | | | |
| Investment grade | 18 | | 85 | | 11 | | 147 | | 59 | | 112 | | 7,786 | | 0 | | 8,218 | | |
| Non-investment grade | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 54 | | 0 | | 54 | | |
| Wealth management mortgages | 1,117 | | 1,044 | | 637 | | 1,188 | | 1,515 | | 2,546 | | 38 | | 0 | | 8,085 | | |
| Total wealth management loans and mortgages | 1,135 | | 1,129 | | 648 | | 1,335 | | 1,574 | | 2,658 | | 7,878 | | 0 | | 16,357 | | 27 | |
| Lease financings | 116 | | 18 | | 14 | | 9 | | 20 | | 813 | | 0 | | 0 | | 990 | | 0 | |
| Other residential mortgages | 0 | | 0 | | 0 | | 0 | | 0 | | 389 | | 0 | | 0 | | 389 | | 1 | |
| Other loans | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 1,904 | | 0 | | 1,904 | | 1 | |
| Margin loans | 4,614 | | 0 | | 0 | | 0 | | 0 | | 0 | | 10,802 | | 0 | | 15,416 | | 8 | |
| Total loans | $ | 7,414 | | $ | 2,976 | | $ | 1,887 | | $ | 2,591 | | $ | 2,352 | | $ | 4,506 | | $ | 32,033 | | $ | 27 | | $ | 53,786 | | $ | 59 | |
(a) Excludes overdrafts of $2,683 million. Overdrafts occur on a daily basis primarily in the custody and securities clearance business and are generally repaid within two business days.
Commercial loans
The commercial loan portfolio is divided into investment grade and non-investment grade categories based on the assigned internal credit ratings, which are generally consistent with those of the public rating agencies. Customers with ratings consistent with BBB- (S&P)/Baa3 (Moody’s) or better are considered to be investment grade. Those clients with ratings lower than this threshold are considered to be non-investment grade.
Commercial real estate
Our income-producing commercial real estate facilities are focused on experienced owners and are
structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities.
Financial institutions
Financial institution exposures are high quality, with 95%96% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Sept.June 30, 2020.2021. In addition, 75%71% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody. The exposure to financial
| | |
Notes to Consolidated Financial Statements(continued)
|
|
institutions is generally short-term, with 89%87% 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
| | |
Notes to Consolidated Financial Statements (continued) |
|
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 Sept.June 30, 2020,2021, less than 1% of the mortgages were past due.
At Sept.June 30, 2020,2021, the wealth management mortgage portfolio consisted of the following geographic concentrations: California -– 22%; New York - 17%– 16%; Massachusetts - 10%– 9%; Florida - 8%– 9%; and other - 43%– 44%.
Lease financingfinancings
At Sept.June 30, 2020,2021, the lease financings portfolio consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment and real estate.equipment. The largest component of our lease
residual value exposure is freight-related rail.rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S. and Germany.
Other residential mortgages
The other residential mortgagemortgages portfolio primarily consists of 1-4 family residential mortgage loans and
totaled $423$339 million at Sept.June 30, 20202021 and $494$389 million at Dec. 31, 2019.2020. These loans are not typically correlated to external ratings. Included in this portfolio at Sept.June 30, 20202021 were $76$59 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007, of which 19% of the serviced loan balance was at least 60 days delinquent.2007.
Overdrafts
Overdrafts primarily relate to custody and securities clearance clients and totaled $4.0$4.3 billion at Sept.June 30, 20202021 and $2.7 billion at Dec. 31, 2019.2020. Overdrafts occur on a daily basis 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 $13.5$19.9 billion of secured margin loans at Sept.June 30, 2020,2021, compared with $13.4$15.4 billion at Dec. 31, 2019.2020. 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 at Sept.June 30, 20202021 were fully secured with high quality collateral. As a result, there was 0 allowance for credit losses related to these assets at Sept.June 30, 2020.2021.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Note 6–5–Goodwill and intangible assets
Goodwill
The tables below provide a breakdown of goodwill by business.
| | | | | | | | | | | | | | |
Goodwill by business
(in millions) | Investment
Services | Investment and Wealth
Management | Other | Consolidated |
| Balance at Dec. 31, 2019 | $ | 8,332 | | $ | 9,007 | | $ | 47 | | $ | 17,386 | |
| Foreign currency translation | 21 | | (50) | | 0 | | (29) | |
Other (a) | 47 | | 0 | | (47) | | 0 | |
| Balance at Sept. 30, 2020 | $ | 8,400 | | $ | 8,957 | | $ | 0 | | $ | 17,357 | |
| | | | | | | | | | | | | | |
Goodwill by business
(in millions) | Investment
Services | Investment
and Wealth
Management | Other | Consolidated |
| Balance at Dec. 31, 2020 | $ | 8,456 | | $ | 9,040 | | $ | 0 | | $ | 17,496 | |
| Dispositions | 0 | | (5) | | 0 | | (5) | |
| Foreign currency translation | (21) | | 17 | | 0 | | (4) | |
| Balance at June 30, 2021 | $ | 8,435 | | $ | 9,052 | | $ | 0 | | $ | 17,487 | |
| | | | | | | | | | | | | | |
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 | (24) | | (109) | | 0 | | (133) | |
Other (a) | 47 | | 0 | | (47) | | 0 | |
| Balance at June 30, 2020 | $ | 8,355 | | $ | 8,898 | | $ | 0 | | $ | 17,253 | |
(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)
| Intangible assets – net carrying amount by business
(in millions)
| Investment
Services | Investment and Wealth Management | Other | Consolidated | 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 | | |
| Balance at Dec. 31, 2020 | | Balance at Dec. 31, 2020 | $ | 608 | | $ | 1,555 | | $ | 849 | | $ | 3,012 | |
| Disposition | | Disposition | 0 | | (6) | | 0 | | (6) | |
| Amortization | Amortization | (54) | | (24) | | 0 | | (78) | | Amortization | (29) | | (15) | | 0 | | (44) | |
| Foreign currency translation | Foreign currency translation | 1 | | (4) | | 0 | | (3) | | Foreign currency translation | 0 | | 2 | | 0 | | 2 | |
| Balance at Sept. 30, 2020 | $ | 625 | | $ | 1,552 | | $ | 849 | | $ | 3,026 | | |
| Balance at June 30, 2021 | | Balance at June 30, 2021 | $ | 579 | | $ | 1,536 | | $ | 849 | | $ | 2,964 | |
| Intangible assets – net carrying amount by business
(in millions) | Intangible assets – net carrying amount by business
(in millions) | Investment
Services | Investment and Wealth Management | Other | Consolidated | 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 | | |
| Balance at Dec. 31, 2019 | | Balance at Dec. 31, 2019 | $ | 678 | | $ | 1,580 | | $ | 849 | | $ | 3,107 | |
| Amortization | Amortization | (61) | | (28) | | 0 | | (89) | | Amortization | (36) | | (16) | | 0 | | (52) | |
| Foreign currency translation | Foreign currency translation | (1) | | (6) | | 0 | | (7) | | Foreign currency translation | 0 | | (10) | | 0 | | (10) | |
| Balance at Sept. 30, 2019 | $ | 696 | | $ | 1,579 | | $ | 849 | | $ | 3,124 | | |
| Balance at June 30, 2020 | | Balance at June 30, 2020 | $ | 642 | | $ | 1,554 | | $ | 849 | | $ | 3,045 | |
| | |
Notes to Consolidated Financial Statements (continued) |
|
The table below provides a breakdown of intangible assets by type.
| | Intangible assets | Intangible assets | Sept. 30, 2020 | | Dec. 31, 2019 | Intangible assets | June 30, 2021 | | Dec. 31, 2020 |
| (in millions) | (in millions) | Gross
carrying
amount | Accumulated
amortization | Net
carrying
amount | Remaining
weighted-
average
amortization
period | | Gross
carrying
amount | Accumulated
amortization | Net
carrying
amount | (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) | Subject to amortization: (a) | | Subject to amortization: (a) | |
| Customer contracts—Investment Services | Customer contracts—Investment Services | $ | 1,482 | | $ | (1,228) | | $ | 254 | | 10 years | | $ | 1,520 | | $ | (1,214) | | $ | 306 | | Customer contracts—Investment Services | $ | 1,060 | | $ | (853) | | $ | 207 | | 10 years | | $ | 1,435 | | $ | (1,199) | | $ | 236 | |
| Customer relationships—Investment and Wealth Management | Customer relationships—Investment and Wealth Management | 711 | | (563) | | 148 | | 10 years | | 712 | | (544) | | 168 | | Customer relationships—Investment and Wealth Management | 697 | | (573) | | 124 | | 9 years | | 705 | | (564) | | 141 | |
| Other | Other | 64 | | (21) | | 43 | | 14 years | | 64 | | (16) | | 48 | | Other | 58 | | (18) | | 40 | | 14 years | | 59 | | (15) | | 44 | |
| Total subject to amortization | Total subject to amortization | 2,257 | | (1,812) | | 445 | | 10 years | | 2,296 | | (1,774) | | 522 | | Total subject to amortization | 1,815 | | (1,444) | | 371 | | 10 years | | 2,199 | | (1,778) | | 421 | |
Not subject to amortization: (b) | Not subject to amortization: (b) | | Not subject to amortization: (b) | |
| Tradenames | 1,292 | | N/A | 1,292 | | N/A | | 1,293 | | N/A | 1,293 | | |
| Tradename | | Tradename | 1,295 | | N/A | 1,295 | | N/A | | 1,295 | | N/A | 1,295 | |
| Customer relationships | Customer relationships | 1,289 | | N/A | 1,289 | | N/A | | 1,292 | | N/A | 1,292 | | Customer relationships | 1,298 | | N/A | 1,298 | | N/A | | 1,296 | | N/A | 1,296 | |
| Total not subject to amortization | Total not subject to amortization | 2,581 | | N/A | 2,581 | | N/A | | 2,585 | | N/A | 2,585 | | Total not subject to amortization | 2,593 | | N/A | 2,593 | | N/A | | 2,591 | | N/A | 2,591 | |
| Total intangible assets | Total intangible assets | $ | 4,838 | | $ | (1,812) | | $ | 3,026 | | N/A | | $ | 4,881 | | $ | (1,774) | | $ | 3,107 | | Total intangible assets | $ | 4,408 | | $ | (1,444) | | $ | 2,964 | | N/A | | $ | 4,790 | | $ | (1,778) | | $ | 3,012 | |
(a) Excludes fully amortized intangible assets.
(b) Intangible assets not subject to amortization have an indefinite life.
N/A – Not applicable.
Estimated annual amortization expense for current intangibles for the next five years is as follows:
| For the year ended
Dec. 31, | For the year ended
Dec. 31, | Estimated amortization expense (in millions) | For the year ended
Dec. 31, | Estimated amortization expense (in millions) |
| 2020 | | $ | 104 | | |
| 2021 | 2021 | | 81 | | 2021 | | $ | 81 | |
| 2022 | 2022 | | 63 | | 2022 | | 63 | |
| 2023 | 2023 | | 52 | | 2023 | | 53 | |
| 2024 | 2024 | | 45 | | 2024 | | 45 | |
| 2025 | | 2025 | | 38 | |
Impairment testing
The goodwill impairment test is performed at least annually at the reporting unit level. Intangible assets not subject to amortization are tested for impairment annually or more often if events or circumstances indicate they may be impaired.
BNY Mellon’s 3 business segments include 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 6six reporting units conducted in the second quarter of 2020, 2021, 0 goodwill impairment was recognized.
Note 7–6–Other assets
The following table provides the components of other assets presented on the consolidated balance sheet.
| | Other assets | Other assets | Sept. 30, 2020 | Dec. 31, 2019 | Other assets | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
| Corporate/bank-owned life insurance | Corporate/bank-owned life insurance | $ | 5,276 | | $ | 5,219 | | Corporate/bank-owned life insurance | $ | 5,327 | | $ | 5,301 | |
| Accounts receivable | Accounts receivable | 3,549 | | 3,802 | | Accounts receivable | 4,693 | | 3,619 | |
| Fails to deliver | Fails to deliver | 2,192 | | 1,671 | | Fails to deliver | 3,911 | | 1,371 | |
| Software | Software | 1,832 | | 1,590 | | Software | 1,944 | | 1,884 | |
| Prepaid pension assets | Prepaid pension assets | 1,599 | | 1,464 | | Prepaid pension assets | 1,646 | | 1,556 | |
| Equity in a joint venture and other investments | Equity in a joint venture and other investments | 1,190 | | 1,102 | | Equity in a joint venture and other investments | 1,331 | | 1,259 | |
| Qualified affordable housing project investments | | Qualified affordable housing project investments | 1,096 | | 1,145 | |
| Renewable energy investments | Renewable energy investments | 1,057 | | 1,144 | | Renewable energy investments | 1,090 | | 1,206 | |
| Qualified affordable housing project investments | 997 | | 1,024 | | |
| Income taxes receivable | | Income taxes receivable | 738 | | 599 | |
| Assets of consolidated investment management funds | | Assets of consolidated investment management funds | 561 | | 487 | |
| Prepaid expense | Prepaid expense | 522 | | 491 | | Prepaid expense | 561 | | 477 | |
| Federal Reserve Bank stock | Federal Reserve Bank stock | 478 | | 466 | | Federal Reserve Bank stock | 475 | | 479 | |
| Income taxes receivable | 332 | | 388 | | |
| Seed capital | Seed capital | 200 | | 184 | | Seed capital | 271 | | 215 | |
| Fair value of hedging derivatives | Fair value of hedging derivatives | 56 | | 21 | | Fair value of hedging derivatives | 77 | | 19 | |
Other (a) | Other (a) | 1,499 | | 1,655 | | Other (a) | 1,612 | | 1,338 | |
| Total other assets | Total other assets | $ | 20,779 | | $ | 20,221 | | Total other assets | $ | 25,333 | | $ | 20,955 | |
(a) At Sept.June 30, 20202021 and Dec. 31, 2019,2020, other assets include $8$7 million and $22$7 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
| | |
Notes to Consolidated Financial Statements (continued) |
|
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 $112$144 million at Sept.June 30, 20202021 and $61$129 million at Dec. 31, 20192020 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.
| | Adjustments on non-readily marketable equity securities | Adjustments on non-readily marketable equity securities | Life-to-date | Adjustments on non-readily marketable equity securities | Life-to-date |
| (in millions) | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | (in millions) | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 |
| Upward adjustments | Upward adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 3 | | $ | 42 | | Upward adjustments | $ | 6 | | $ | 0 | | $ | 2 | | $ | 6 | | $ | 6 | | $ | 59 | |
| Downward adjustments | Downward adjustments | 0 | | 0 | | 0 | | 0 | | (1) | | (4) | | Downward adjustments | 0 | | 0 | | 0 | | 0 | | 0 | | (4) | |
| Net adjustments | Net adjustments | $ | 4 | | $ | 2 | | $ | 1 | | $ | 10 | | $ | 2 | | $ | 38 | | Net adjustments | $ | 6 | | $ | 0 | | $ | 2 | | $ | 6 | | $ | 6 | | $ | 55 | |
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$1.1 billion at both Sept.June 30, 20202021 and Dec. 31, 2019.2020. Commitments to fund future investments in qualified
affordable housing projects totaled $388$450 million at Sept.June 30, 20202021 and $422$514 million at Dec. 31, 20192020 and are recorded in other liabilities.liabilities on the consolidated balance sheet. A summary of the commitments to
fund future investments is as follows: 2020 – $40 million; 2021 – $187$132 million; 2022 – $99$110 million; 2023 – $151 million; 2024 – $36 million; 20242025 – $1 million; and 20252026 and thereafter – $25$20 million.
Tax credits and other tax benefits recognized were $35$38 million in the thirdsecond quarter of 2020,2021, $38 million in the first quarter of 2021, $38 million in the second quarter of 2020, $39 million in the third quarter of 2019, $111$76 million in the first ninesix months of 20202021 and $117$76 million in the first ninesix months of 2019.2020.
Amortization expense included in the provision for income taxes was $30$32 million in the thirdsecond quarter of 2020,2021, $32 million in the first quarter of 2021, $31 million in the second quarter of 2020, $33 million in the third quarter of 2019, $92$64 million in the first ninesix months of 20202021 and $97$62 million in the first ninesix months of 2019.2020.
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 | Investments valued using NAV | Sept. 30, 2020 | | | Dec. 31, 2019 | | Investments valued using NAV | June 30, 2021 | | | Dec. 31, 2020 | |
| (in millions) | (in millions) | Fair value | Unfunded
commitments | | | Fair value | Unfunded
commitments | | (in millions) | Fair value | Unfunded
commitments | | | Fair value | Unfunded
commitments | |
Seed capital (a) | Seed capital (a) | $ | 44 | | | $ | 11 | | | | $ | 59 | | | $ | 0 | | | Seed capital (a) | $ | 57 | | | $ | 17 | | | | $ | 52 | | | $ | 22 | | |
Private equity investments (SBICs) (b) | Private equity investments (SBICs) (b) | 97 | | | 55 | | | | 89 | | | 55 | | | Private equity investments (SBICs) (b) | 110 | | | 57 | | | | 102 | | | 52 | | |
Other (c) | Other (c) | 43 | | | 0 | | | | 33 | | | 0 | | | Other (c) | 46 | | | 0 | | | | 47 | | | 0 | | |
| Total | Total | $ | 184 | | | $ | 66 | | | | $ | 181 | | | $ | 55 | | | Total | $ | 213 | | | $ | 74 | | | | $ | 201 | | | $ | 74 | | |
(a)(a) Primarily includes leveraged loans and structured credit funds, which are generally not redeemable. Distributions from such investments will be received as the underlying investments in the funds, which have lives of sixthree to 11 years at Sept.both June 30, 20202021 and lives of six years at Dec. 31, 2019,2020, 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 8–7–Contract revenue
Fee and other 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 20192020 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 20192020 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 and other revenue on the consolidated income statement. The following table presents fee and other revenue, disaggregated by type, 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 principlesGAAP, which is used for consolidated financial reporting.
| | Disaggregation of contract revenue by business segment | Disaggregation of contract revenue by business segment | Disaggregation of contract revenue by business segment | |
| | Quarter ended | | Quarter ended |
| | Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 (a) | | June 30, 2021 | | March 31, 2021 | | June 30, 2020 |
| (in millions) | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | IS | IWM | Other | Total | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | | IS | IWM | Other | Total |
| Fee revenue - contract revenue: | | |
| Fee and other revenue – contract revenue: | | Fee and other revenue – contract revenue: | |
| Investment services fees: | Investment services fees: | | Investment services fees: | |
| Asset servicing fees | Asset servicing fees | $ | 1,143 | | $ | 25 | | $ | (13) | | $ | 1,155 | | | $ | 1,147 | | $ | 25 | | $ | (15) | | $ | 1,157 | | | $ | 1,106 | | $ | 20 | | $ | (5) | | $ | 1,121 | | Asset servicing fees | $ | 1,175 | | $ | 24 | | $ | (16) | | $ | 1,183 | | | $ | 1,175 | | $ | 25 | | $ | (18) | | $ | 1,182 | | | $ | 1,147 | | $ | 25 | | $ | (15) | | $ | 1,157 | |
| Clearing services fees | Clearing services fees | 397 | | 0 | | 0 | | 397 | | | 431 | | 0 | | 0 | | 431 | | | 419 | | 0 | | 0 | | 419 | | Clearing services fees | 435 | | 0 | | 0 | | 435 | | | 455 | | 0 | | 0 | | 455 | | | 431 | | 0 | | 0 | | 431 | |
| Issuer services fees | Issuer services fees | 296 | | 0 | | 0 | | 296 | | | 277 | | 0 | | 0 | | 277 | | | 324 | | 0 | | 0 | | 324 | | Issuer services fees | 281 | | 0 | | 0 | | 281 | | | 245 | | 0 | | 0 | | 245 | | | 277 | | 0 | | 0 | | 277 | |
| Treasury services fees | Treasury services fees | 153 | | 1 | | (2) | | 152 | | | 144 | | 0 | | 1 | | 145 | | | 140 | | 0 | | 0 | | 140 | | Treasury services fees | 164 | | 0 | | (1) | | 163 | | | 159 | | 0 | | 1 | | 160 | | | 144 | | 0 | | 1 | | 145 | |
| Total investment services fees | Total investment services fees | 1,989 | | 26 | | (15) | | 2,000 | | | 1,999 | | 25 | | (14) | | 2,010 | | | 1,989 | | 20 | | (5) | | 2,004 | | Total investment services fees | 2,055 | | 24 | | (17) | | 2,062 | | | 2,034 | | 25 | | (17) | | 2,042 | | | 1,999 | | 25 | | (14) | | 2,010 | |
| Investment management and performance fees | Investment management and performance fees | 4 | | 838 | | (3) | | 839 | | | 4 | | 792 | | (5) | | 791 | | | 4 | | 829 | | (4) | | 829 | | Investment management and performance fees | 4 | | 870 | | (4) | | 870 | | | 4 | | 883 | | (5) | | 882 | | | 4 | | 792 | | (5) | | 791 | |
| Financing-related fees | Financing-related fees | 13 | | 1 | | 1 | | 15 | | | 23 | | 1 | | 0 | | 24 | | | 14 | | 0 | | 0 | | 14 | | Financing-related fees | 16 | | 0 | | 0 | | 16 | | | 20 | | 0 | | 0 | | 20 | | | 23 | | 1 | | 0 | | 24 | |
| Distribution and servicing | Distribution and servicing | (2) | | 31 | | 0 | | 29 | | | (7) | | 34 | | 0 | | 27 | | | (12) | | 45 | | 0 | | 33 | | Distribution and servicing | 0 | | 28 | | (1) | | 27 | | | 1 | | 28 | | 0 | | 29 | | | (7) | | 34 | | 0 | | 27 | |
| Investment and other income | Investment and other income | 57 | | (33) | | (2) | | 22 | | | 62 | | (41) | | 3 | | 24 | | | 72 | | (50) | | 0 | | 22 | | Investment and other income | 32 | | (7) | | 0 | | 25 | | | 36 | | (11) | | 0 | | 25 | | | 62 | | (41) | | 3 | | 24 | |
| 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 | | |
| Total fee and other revenue – contract revenue | | Total fee and other revenue – contract revenue | 2,107 | | 915 | | (22) | | 3,000 | | | 2,095 | | 925 | | (22) | | 2,998 | | | 2,081 | | 811 | | (16) | | 2,876 | |
Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b) | | Fee and other revenue – not in scope of Accounting Standards Codification (“ASC”) 606 (a)(b) | 229 | | 37 | | 44 | | 310 | | | 250 | | 18 | | (5) | | 263 | | | 258 | | 27 | | 54 | | 339 | |
| Total fee and other revenue | | Total fee and other revenue | $ | 2,336 | | $ | 952 | | $ | 22 | | $ | 3,310 | | | $ | 2,345 | | $ | 943 | | $ | (27) | | $ | 3,261 | | | $ | 2,339 | | $ | 838 | | $ | 38 | | $ | 3,215 | |
(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 asset servicing fees, 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)(b) The revenue in the Investment and Wealth Management business segment includesis net of income from(loss) attributable to noncontrolling interests related to consolidated investment management funds net of noncontrolling interests, of $20 millionin the third quarter of 2020, $39$5 million in the second quarter of 20202021 and $—first quarter of 2021 and $15 millionin the thirdsecond quarter of 2019.2020.
IS -– Investment Services business segment.
IWM -– Investment and Wealth Management business segment.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Disaggregation of contract revenue by business segment | Disaggregation of contract revenue by business segment | Year-to-date | Disaggregation of contract revenue by business segment | | |
| | Sept. 30, 2020 | | Sept. 30, 2019 (a) | | Year-to-date |
| | | June 30, 2021 | | June 30, 2020 | |
| (in millions) | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | (in millions) | IS | IWM | Other | Total | | IS | IWM | Other | Total | |
| Fee revenue - contract revenue: | | |
| Fee and other revenue – contract revenue: | | Fee and other revenue – contract revenue: | | |
| Investment services fees: | Investment services fees: | | Investment services fees: | | |
| Asset servicing fees | Asset servicing fees | $ | 3,417 | | $ | 73 | | $ | (39) | | $ | 3,451 | | | $ | 3,282 | | $ | 60 | | $ | (19) | | $ | 3,323 | | Asset servicing fees | $ | 2,350 | | $ | 49 | | $ | (34) | | $ | 2,365 | | | $ | 2,274 | | $ | 48 | | $ | (26) | | $ | 2,296 | | |
| Clearing services fees | Clearing services fees | 1,298 | | 0 | | 0 | | 1,298 | | | 1,228 | | 0 | | (1) | | 1,227 | | Clearing services fees | 890 | | 0 | | — | | 890 | | | 901 | | 0 | | 0 | | 901 | | |
| Issuer services fees | Issuer services fees | 836 | | 0 | | 0 | | 836 | | | 866 | | 0 | | 0 | | 866 | | Issuer services fees | 526 | | 0 | | 0 | | 526 | | | 540 | | 0 | | 0 | | 540 | | |
| Treasury services fees | Treasury services fees | 446 | | 1 | | (1) | | 446 | | | 412 | | 1 | | 0 | | 413 | | Treasury services fees | 323 | | 0 | | 0 | | 323 | | | 293 | | 0 | | 1 | | 294 | | |
| Total investment services fees | Total investment services fees | 5,997 | | 74 | | (40) | | 6,031 | | | 5,788 | | 61 | | (20) | | 5,829 | | Total investment services fees | 4,089 | | 49 | | (34) | | 4,104 | | | 4,008 | | 48 | | (25) | | 4,031 | | |
| Investment management and performance fees | Investment management and performance fees | 13 | | 2,492 | | (12) | | 2,493 | | | 12 | | 2,503 | | (12) | | 2,503 | | Investment management and performance fees | 8 | | 1,753 | | (9) | | 1,752 | | | 9 | | 1,654 | | (9) | | 1,654 | | |
| Financing-related fees | Financing-related fees | 64 | | 2 | | 1 | | 67 | | | 47 | | 0 | | 1 | | 48 | | Financing-related fees | 36 | | 0 | | 0 | | 36 | | | 51 | | 1 | | 0 | | 52 | | |
| Distribution and servicing | Distribution and servicing | (21) | | 108 | | 0 | | 87 | | | (39) | | 134 | | 0 | | 95 | | Distribution and servicing | 1 | | 56 | | (1) | | 56 | | | (19) | | 77 | | 0 | | 58 | | |
| Investment and other income | Investment and other income | 191 | | (124) | | 1 | | 68 | | | 210 | | (147) | | 0 | | 63 | | Investment and other income | 68 | | (18) | | 0 | | 50 | | | 134 | | (91) | | 3 | | 46 | | |
| 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 – contract revenue | | Total fee and other revenue – contract revenue | 4,202 | | 1,840 | | (44) | | 5,998 | | | 4,183 | | 1,689 | | (31) | | 5,841 | | |
Fee and other revenue – not in scope of ASC 606 (a)(b) | | Fee and other revenue – not in scope of ASC 606 (a)(b) | 479 | | 55 | | 39 | | 573 | | | 592 | | (5) | | 99 | | 686 | | |
| Total fee and other revenue | Total fee and other revenue | $ | 7,021 | | $ | 2,555 | | $ | 88 | | $ | 9,664 | | | $ | 6,690 | | $ | 2,561 | | $ | 43 | | $ | 9,294 | | Total fee and other revenue | $ | 4,681 | | $ | 1,895 | | $ | (5) | | $ | 6,571 | | | $ | 4,775 | | $ | 1,684 | | $ | 68 | | $ | 6,527 | | |
(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 asset servicing fees, 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)(b) The revenue in the Investment and Wealth Management business segment includes is net of income from (loss) attributable to noncontrolling interests related to consolidated investment management funds net of noncontrolling interests, of $39$10 million in the first ninesix months of 20202021 and $22$(3) million in the first ninesix months of 2019.2020.
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 $2.5$2.7 billion at Sept.June 30, 20202021 and $2.4 billion at Dec. 31, 2019.2020.
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 $57$113 million at Sept.June 30, 20202021 and $32 million at Dec. 31, 2019.2020. Accrued revenues recorded as contract assets are usually billed on an annual basis.
Both receivables from customers and contract assets are included in other assets on the consolidated balance sheet.
Contract liabilities represent payments received in advance of providing services under certain contracts and were $187$189 million at Sept.June 30, 20202021 and $168$167 million at Dec. 31, 2019.2020. Contract liabilities are included in other liabilities on the consolidated balance sheet. Revenue recognized in the thirdsecond quarter of 20202021 relating to contract liabilities as of June 30, 2020March 31, 2021 was $65$67 million. Revenue recognized in the first ninesix months of 20202021 relating to contract liabilities as of Dec. 31, 20192020 was $95$83 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 $77$67 million at Sept.June 30, 20202021 and $86$73 million at Dec. 31, 2019.2020. 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 second quarter of 2021, second quarter of 2020 $16and first quarter of 2021 and $10 million in the first ninesix months of 20202021 and $17 million in the first ninesix months of 2019.2020.
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) |
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fulfillment of the performance obligation, and totaled $12$18 million at Sept.June 30, 20202021 and $16$15 million at Dec. 31, 2019.2020. 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 purchased services and other expenses on the consolidated income statement and totaled less than $1 million in the thirdsecond quarter of 2020 and third quarter of 2019,2021, $2 million in the second quarter of 2020, and $4less than $1 million in the first nine monthsquarter of 2020 and first nine months of 2019. There were 0 impairments recorded on capitalized contract costs2021, $1 million in the first ninesix months of 2021 and $3 million in the first six 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 9–8–Net interest revenue
The following table provides the components of net interest revenue presented on the consolidated income statement.
| | Net interest revenue | Net interest revenue | Quarter ended | | Year-to-date | Net interest revenue | Quarter ended | | Year-to-date |
| (in millions) | (in millions) | Sept. 30, 2020 | June 30, 2020 | Sept. 30, 2019 | | Sept. 30, 2020 | Sept. 30, 2019 | | | (in millions) | June 30, 2021 | March 31, 2021 | June 30, 2020 | | June 30, 2021 | June 30, 2020 |
| Interest revenue | Interest revenue | | | Interest revenue | |
| Deposits with the Federal Reserve and other central banks | Deposits with the Federal Reserve and other central banks | $ | (10) | | $ | (7) | | $ | 102 | | | $ | 63 | | $ | 354 | | | | Deposits with the Federal Reserve and other central banks | $ | (25) | | $ | (16) | | $ | (7) | | | $ | (41) | | $ | 73 | |
| Deposits with banks | Deposits with banks | 20 | | 40 | | 73 | | | 118 | | 200 | | | | Deposits with banks | 11 | | 14 | | 40 | | | 25 | | 98 | |
| Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 48 | | 61 | | 660 | | | 505 | | 1,702 | | | | Federal funds sold and securities purchased under resale agreements | 25 | | 32 | | 61 | | | 57 | | 457 | |
| Margin loans | Margin loans | 41 | | 40 | | 104 | | | 168 | | 358 | | | | Margin loans | 49 | | 45 | | 40 | | | 94 | | 127 | |
| Non-margin loans | Non-margin loans | 199 | | 230 | | 287 | | (a) | 738 | | 1,007 | | (a) | | Non-margin loans | 188 | | 185 | | 230 | | | 373 | | 539 | |
| Securities: | Securities: | | | Securities: | |
| Taxable | Taxable | 499 | | 556 | | 669 | | | 1,649 | | 2,062 | | | | Taxable | 415 | | 450 | | 556 | | | 865 | | 1,150 | |
| Exempt from federal income taxes | Exempt from federal income taxes | 7 | | 6 | | 7 | | | 19 | | 29 | | | | Exempt from federal income taxes | 11 | | 9 | | 6 | | | 20 | | 12 | |
| Total securities | Total securities | 506 | | 562 | | 676 | | | 1,668 | | 2,091 | | | | Total securities | 426 | | 459 | | 562 | | | 885 | | 1,162 | |
| Trading securities | Trading securities | 16 | | 17 | | 40 | | | 73 | | 115 | | | | Trading securities | 11 | | 19 | | 17 | | | 30 | | 57 | |
| Total interest revenue | Total interest revenue | 820 | | 943 | | 1,942 | | | 3,333 | | 5,827 | | | | Total interest revenue | 685 | | 738 | | 943 | | | 1,423 | | 2,513 | |
| Interest expense | Interest expense | | | Interest expense | |
| | Deposits | Deposits | (29) | | (17) | | 437 | | | 194 | | 1,260 | | | | Deposits | (49) | | (37) | | (17) | | | (86) | | 223 | |
| Federal funds purchased and securities sold under repurchase agreements | Federal funds purchased and securities sold under repurchase agreements | 6 | | 1 | | 443 | | | 282 | | 1,146 | | | | Federal funds purchased and securities sold under repurchase agreements | (5) | | (3) | | 1 | | | (8) | | 276 | |
| Trading liabilities | Trading liabilities | 2 | | 2 | | 8 | | | 11 | | 26 | | | | Trading liabilities | 2 | | 3 | | 2 | | | 5 | | 9 | |
| Other borrowed funds | Other borrowed funds | 3 | | 7 | | 10 | | | 14 | | 54 | | | | Other borrowed funds | 1 | | 2 | | 7 | | | 3 | | 11 | |
| Commercial paper | Commercial paper | 0 | | 1 | | 22 | | | 7 | | 48 | | | | Commercial paper | 0 | | 0 | | 1 | | | 0 | | 7 | |
| Customer payables | Customer payables | 0 | | (1) | | 59 | | | 29 | | 198 | | | | Customer payables | 0 | | (1) | | (1) | | | (1) | | 29 | |
| Long-term debt | Long-term debt | 135 | | 170 | | 233 | | | 499 | | 722 | | | | Long-term debt | 91 | | 119 | | 170 | | | 210 | | 364 | |
| Total interest expense | Total interest expense | 117 | | 163 | | 1,212 | | | 1,036 | | 3,454 | | | | Total interest expense | 40 | | 83 | | 163 | | | 123 | | 919 | |
| Net interest revenue | Net interest revenue | 703 | | 780 | | 730 | | | 2,297 | | 2,373 | | | | Net interest revenue | 645 | | 655 | | 780 | | | 1,300 | | 1,594 | |
| Provision for credit losses | Provision for credit losses | 9 | | 143 | | (16) | | | 321 | | (17) | | | | Provision for credit losses | (86) | | (83) | | 143 | | | (169) | | 312 | |
| Net interest revenue after provision for credit losses | Net interest revenue after provision for credit losses | $ | 694 | | $ | 637 | | $ | 746 | | | $ | 1,976 | | $ | 2,390 | | | | Net interest revenue after provision for credit losses | $ | 731 | | $ | 738 | | $ | 637 | | | $ | 1,469 | | $ | 1,282 | |
(a) Includes the impact of a lease-related impairment of $70 million.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Note 10–9–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 | Net periodic benefit (credit) cost | Quarter ended | Net periodic benefit (credit) cost | Quarter ended |
| Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | June 30, 2021 | | March 31, 2021 | | June 30, 2020 |
| (in millions) | (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 | (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 | Service cost | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | | Service cost | $ | 0 | | $ | 3 | | $ | 0 | | | $ | 0 | | $ | 4 | | $ | 0 | | | $ | 0 | | $ | 3 | | $ | 0 | |
| Interest cost | Interest cost | 39 | | 7 | | 2 | | | 39 | | 6 | | 1 | | | 44 | | 8 | | 2 | | Interest cost | 34 | | 7 | | 1 | | | 34 | | 6 | | 1 | | | 39 | | 6 | | 1 | |
| Expected return on assets | Expected return on assets | (80) | | (10) | | (2) | | | (79) | | (9) | | (2) | | | (84) | | (11) | | (1) | | Expected return on assets | (75) | | (8) | | (1) | | | (75) | | (9) | | (2) | | | (79) | | (9) | | (2) | |
| Other | Other | 22 | | 2 | | (1) | | | 21 | | 3 | | 0 | | | 13 | | 0 | | (1) | | Other | 24 | | 3 | | 0 | | | 25 | | 4 | | 0 | | | 21 | | 3 | | 0 | |
| Net periodic benefit (credit) cost | Net periodic benefit (credit) cost | $ | (19) | | $ | 2 | | $ | (1) | | | $ | (19) | | $ | 3 | | $ | (1) | | | $ | (27) | | $ | 0 | | $ | 0 | | Net periodic benefit (credit) cost | $ | (17) | | $ | 5 | | $ | 0 | | | $ | (16) | | $ | 5 | | $ | (1) | | | $ | (19) | | $ | 3 | | $ | (1) | |
| | Net periodic benefit (credit) cost | Net periodic benefit (credit) cost | Year-to-date | Net periodic benefit (credit) cost | Year-to-date |
| | Sept. 30, 2020 | | Sept. 30, 2019 | | June 30, 2021 | | June 30, 2020 |
| (in millions) | (in millions) | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | | Domestic
pension
benefits | Foreign
pension
benefits | Health
care
benefits | (in millions) | Domestic pension benefits | Foreign pension benefits | Health care benefits | | Domestic pension benefits | Foreign pension benefits | Health care benefits |
| Service cost | Service cost | $ | 0 | | $ | 9 | | $ | 0 | | | $ | 0 | | $ | 9 | | $ | 0 | | Service cost | $ | 0 | | $ | 7 | | $ | 0 | | | $ | 0 | | $ | 6 | | $ | 0 | |
| Interest cost | Interest cost | 117 | | 20 | | 4 | | | 133 | | 24 | | 5 | | Interest cost | 68 | | 13 | | 2 | | | 78 | | 13 | | 2 | |
| Expected return on assets | Expected return on assets | (239) | | (29) | | (5) | | | (252) | | (34) | | (5) | | Expected return on assets | (150) | | (17) | | (3) | | | (159) | | (19) | | (3) | |
| Other | Other | 65 | | 8 | | (2) | | | 39 | | 1 | | (2) | | Other | 49 | | 7 | | 0 | | | 43 | | 6 | | (1) | |
| Net periodic benefit (credit) cost | Net periodic benefit (credit) cost | $ | (57) | | $ | 8 | | $ | (3) | | | $ | (80) | | $ | 0 | | $ | (2) | | Net periodic benefit (credit) cost | $ | (33) | | $ | 10 | | $ | (1) | | | $ | (38) | | $ | 6 | | $ | (2) | |
Note 11–10–Income taxes
BNY Mellon recorded an income tax provision of $213$241 million (18.4%(19.0% effective tax rate) in the thirdsecond quarter of 2020, $246 million (19.1% effective tax rate) in the third quarter of 2019 and2021, $216 million (18.3% effective tax rate) in the second quarter of 2020.2020 and $221 million (19.2% effective tax rate) in the first quarter of 2021.
Our total tax reserves as of Sept.June 30, 20202021 were $85$117 million compared with $173$119 million at Dec. 31, 2019.2020. If these tax reserves were unnecessary, $85$117 million would affect the effective tax rate in future periods. We recognize accrued interest and penalties, if applicable, related to income taxes in income tax expense. Included in the balance sheet at Sept.June 30, 20202021 is accrued interest, where applicable, of
$23 $31 million. The additional tax expense related to interest for the ninesix months ended Sept.June 30, 20202021 was $5$4 million, compared with $9$3 million for the ninesix months ended Sept.June 30, 2019.2020.
It is reasonably possible the total reserve for uncertain tax positions could decrease within the next 12 months by approximately $15$1 million as a result of adjustments related to tax years that are still subject to examination.
Our federal income tax returns are closed to examination through 2016. Our New York State andincome tax returns are closed to examination through 2014. Our New York City income tax returns are closed to examination through 2012. Our UK income tax returns are closed to examination through 2015.2018.
| | |
Notes to Consolidated Financial Statements(continued)
|
|
Note 12–11–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
| | |
Notes to Consolidated Financial Statements (continued) |
|
realization of tax credits. The projects, which are structured as limited partnerships and limited liability companies, are also VIEs, but are not consolidated.
The following table presents the incremental assets and liabilities included in the consolidated balance
sheet as of Sept.June 30, 20202021 and Dec. 31, 2019.2020. 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated investments | June 30, 2021 | | Dec. 31, 2020 |
| (in millions) | Investment
Management
funds | Securitization | Total
consolidated
investments | | Investment
Management
funds | Securitization | Total
consolidated
investments |
| Trading assets | $ | 544 | | | $ | 400 | | $ | 944 | | | $ | 482 | | | $ | 400 | | $ | 882 | |
| Other assets | 17 | | | 0 | | 17 | | | 5 | | | 0 | | 5 | |
| Total assets | $ | 561 | | (a) | $ | 400 | | $ | 961 | | | $ | 487 | | (b) | $ | 400 | | $ | 887 | |
| | | | | | | | | |
| Other liabilities | $ | 7 | | | $ | 400 | | $ | 407 | | | $ | 3 | | | $ | 400 | | $ | 403 | |
| Total liabilities | $ | 7 | | (a) | $ | 400 | | $ | 407 | | | $ | 3 | | (b) | $ | 400 | | $ | 403 | |
| Nonredeemable noncontrolling interests | $ | 344 | | (a) | $ | 0 | | $ | 344 | | | $ | 143 | | (b) | $ | 0 | | $ | 143 | |
(a) Includes voting model entities (“VMEs”) with assets of $226$160 million, liabilities of $1$2 million and nonredeemable noncontrolling interests of $31$40 million.
(b) Includes VMEs with assets of $50$314 million, liabilities of $1$3 million and nonredeemable noncontrolling interests of $1$76 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 Sept.June 30, 20202021 and Dec. 31, 2019,2020, the following assets and liabilities related to the VIEs where we are
not the primary beneficiary were included in our consolidated balance sheets and primarily related to accounting for our investments in qualified affordable housing and renewable energy projects.
The maximum loss exposure indicated in the following table below relates solely to our investments in, and unfunded commitments to, the VIEs.
| | Non-consolidated VIEs | Non-consolidated VIEs | Sept. 30, 2020 | | Dec. 31, 2019 | Non-consolidated VIEs | June 30, 2021 | | Dec. 31, 2020 |
| (in millions) | (in millions) | Assets | Liabilities | Maximum
loss exposure | | Assets | Liabilities | Maximum
loss exposure | (in millions) | Assets | Liabilities | Maximum
loss exposure | | Assets | Liabilities | Maximum
loss exposure |
Securities - Available-for-sale (a) | $ | 206 | | $ | 0 | | $ | 206 | | | $ | 208 | | $ | 0 | | $ | 208 | | |
Securities – Available-for-sale (a) | | Securities – Available-for-sale (a) | $ | 212 | | $ | 0 | | $ | 212 | | | $ | 217 | | $ | 0 | | $ | 217 | |
| Other | Other | 2,278 | | 388 | | 2,675 | | | 2,400 | | 422 | | 2,822 | | Other | 2,400 | | 450 | | 2,865 | | | 2,565 | | 514 | | 3,096 | |
(a) Includes investments in the Company’s sponsored CLOs.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Note 13–12–Preferred stock
The Parent has 100 million authorized shares of preferred stock with a par value of $0.01 per share. The following table summarizes the Parent’s preferred stock issued and outstanding at Sept.June 30, 20202021 and Dec. 31, 2019.2020.
| Preferred stock summary (a) | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) | Preferred stock summary (a) | Total shares issued and outstanding | | Carrying value (b) |
| | (in millions) | | (in millions) |
| | Sept. 30, 2020 | Dec. 31, 2019 | Sept. 30, 2020 | Dec. 31, 2019 | | June 30, 2021 | Dec. 31, 2020 | June 30, 2021 | Dec. 31, 2020 |
| | Per annum dividend rate | | Per annum dividend rate |
| Series A | 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 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 | 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 D | 4.500% to but excluding June 20, 2023, then a floating rate equal to the three-month LIBOR plus 2.46% | 5,000 | | 5,000 | | | 494 | | 494 | |
| Series E | 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 E | 4.950% 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 | 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 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 | 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 | | Series G | 4.700% to but excluding Sept. 20, 2025, then a floating rate equal to the five-year treasury rate plus 4.358% | 10,000 | | 10,000 | | | 990 | | 990 | |
| Series H | | Series H | 3.700% to but excluding March 20, 2026, then a floating rate equal to the five-year treasury rate plus 3.352% | 5,825 | | 5,825 | | | 577 | | 577 | |
| Total | Total | 45,826 | | 35,826 | | | $ | 4,532 | | $ | 3,542 | | Total | 45,826 | | 45,826 | | | $ | 4,541 | | $ | 4,541 | |
(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, Series G and Series GH 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
excluding Sept. 20, 2025; and at a floating rate equal to the five-year treasury rate on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and including Sept. 20, 2025. The floating rate will initially reset on Sept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
The table below presents the dividends paid on the Parent’s preferred stock.
| | Preferred dividends paid | Preferred dividends paid | | | Preferred dividends paid | | | |
| (dollars in millions, except per share amounts) | (dollars in millions, except per share amounts) | Depositary shares
per share | | 3Q20 | | 2Q20 | | 3Q19 | | YTD20 | | YTD19 | | (dollars in millions, except per share amounts) | Depositary shares
per share | | 2Q21 | | 1Q21 | | | 2Q20 | | YTD21 | | YTD20 |
| Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend | | (dollars in millions, except per share amounts) | Depositary shares
per share | | Per share | Total
dividend | | Per share | Total
dividend | | | Per share | Total
dividend | | Per share | Total
dividend | | Per share | Total
dividend |
| Series A | 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 A | | $ | 1,011.11 | | $ | 5 | | | $ | 1,011.11 | | $ | 5 | | | | $ | 1,022.22 | | $ | 5 | | | $ | 2,022.22 | | $ | 10 | | | $ | 2,033.33 | | $ | 10 | |
| Series C | 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 C | | 4,000 | | | N/A | | N/A | | | 1,300.00 | | 8 | | | N/A | | 2,600.00 | | 16 | |
| Series D | Series D | | 100 | | | N/A | 0 | | | 2,250.00 | | 11 | | | N/A | 0 | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | | | Series D | | 100 | | | 2,250.00 | | 11 | | | N/A | — | | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | | | 2,250.00 | | 11 | |
| Series E | Series E | | 100 | | | 962.65 | | 10 | | | 2,475.00 | | 25 | | | N/A | 0 | | | 3,437.65 | | 35 | | | 2,475.00 | | 25 | | | Series E | | 100 | | | 911.68 | | 9 | | | 924.82 | | 9 | | | | 2,475.00 | | 25 | | | 1,836.50 | | 18 | | | 2,475.00 | | 25 | |
| Series F | Series F | | 100 | | | 2,312.50 | | 23 | | | N/A | 0 | | | 2,312.50 | | 23 | | | 4,625.00 | | 46 | | | 4,625.00 | | 46 | | | Series F | | 100 | | | N/A | — | | | 2,315.50 | | 23 | | | | N/A | — | | | 2,315.50 | | 23 | | | 2,312.50 | | 23 | |
| Series G | Series G | | 100 | | | 1,579.72 | | 16 | | | N/A | 0 | | | N/A | 0 | | | 1,579.72 | | 16 | | | N/A | 0 | | | Series G | | 100 | | | N/A | — | | | 2,350.00 | | 24 | | | | N/A | — | | | 2,350.00 | | 24 | | | N/A | — | |
| Series H | | Series H | | 100 | | | 925.00 | | 6 | | | 1,408.06 | | 8 | | | | N/A | | 2,333.06 | | 14 | | | N/A |
| Total | Total | | $ | 61 | | | $ | 49 | | | $ | 36 | | | $ | 146 | | | $ | 120 | | | Total | | $ | 31 | | | $ | 69 | | | | $ | 49 | | | $ | 100 | | | $ | 85 | |
(a) Represents Normal Preferred Capital Securities.
N/A -– Not applicable.
In December 2020, all of the outstanding shares of the Series C preferred stock were redeemed.
All of the outstanding shares of the Series A preferred stock are owned by Mellon Capital IV, a 100% owned finance subsidiary of the Parent, which will pass through any dividend on the Series A preferred stock to the holders of its Normal Preferred Capital Securities. The Parent’s obligations under the trust and other agreements relating to Mellon Capital IV
have the effect of providing a full and unconditional guarantee, on a subordinated basis, of payments due on the Normal Preferred Capital Securities. No other subsidiary of the Parent guarantees the securities of Mellon Capital IV.
For additional information on the preferred stock, see Note 15 of the Notes to Consolidated Financial Statements in our 20192020 Annual Report.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Note 14–13–Other comprehensive income (loss)
| | Components of other comprehensive income (loss) | Components of other comprehensive income (loss) | Quarter ended | | Components of other comprehensive income (loss) | Quarter ended |
| Sept. 30, 2020 | | June 30, 2020 | | Sept. 30, 2019 | | Components of other comprehensive income (loss) | June 30, 2021 | | March 31, 2021 | | June 30, 2020 |
| (in millions) | (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 | | (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: | | | Foreign currency translation: | |
Foreign currency translation adjustments arising during the period (a) | Foreign currency translation adjustments arising during the period (a) | $ | 262 | | $ | 69 | | $ | 331 | | | $ | 104 | | $ | 11 | | $ | 115 | | | $ | (213) | | $ | (63) | | $ | (276) | | | Foreign currency translation adjustments arising during the period (a) | $ | 38 | | $ | 13 | | $ | 51 | | | $ | (127) | | $ | (23) | | $ | (150) | | | $ | 104 | | $ | 11 | | $ | 115 | |
| Total foreign currency translation | Total foreign currency translation | 262 | | 69 | | 331 | | | 104 | | 11 | | 115 | | | (213) | | (63) | | (276) | | | Total foreign currency translation | 38 | | 13 | | 51 | | | (127) | | (23) | | (150) | | | 104 | | 11 | | 115 | |
| Unrealized gain on assets available-for-sale: | | | |
| Unrealized gain arising during period | 297 | | (64) | | 233 | | | 989 | | (236) | | 753 | | | 88 | | (25) | | 63 | | | |
| Unrealized gain (loss) on assets available-for-sale: | | Unrealized gain (loss) on assets available-for-sale: | |
| Unrealized gain (loss) arising during period | | Unrealized gain (loss) arising during period | 106 | | (29) | | 77 | | | (926) | | 223 | | (703) | | | 989 | | (236) | | 753 | |
Reclassification adjustment (b) | Reclassification adjustment (b) | (9) | | 3 | | (6) | | | (9) | | 2 | | (7) | | | 1 | | 0 | | 1 | | | Reclassification adjustment (b) | (2) | | 1 | | (1) | | | 0 | | 0 | | 0 | | | (9) | | 2 | | (7) | |
| Net unrealized gain on assets available-for-sale | 288 | | (61) | | 227 | | | 980 | | (234) | | 746 | | | 89 | | (25) | | 64 | | | |
| Net unrealized gain (loss) on assets available-for-sale | | Net unrealized gain (loss) on assets available-for-sale | 104 | | (28) | | 76 | | | (926) | | 223 | | (703) | | | 980 | | (234) | | 746 | |
| Defined benefit plans: | Defined benefit plans: | | | Defined benefit plans: | |
| Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 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 | | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 27 | | (2) | | 25 | | | 28 | | (6) | | 22 | | | 24 | | (5) | | 19 | |
| Total defined benefit plans | Total defined benefit plans | 24 | | (4) | | 20 | | | 24 | | (5) | | 19 | | | 13 | | (3) | | 10 | | | Total defined benefit plans | 27 | | (2) | | 25 | | | 28 | | (6) | | 22 | | | 24 | | (5) | | 19 | |
| 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 | | | |
| Unrealized (loss) gain on cash flow hedges: | | Unrealized (loss) gain on cash flow hedges: | |
| Unrealized hedge gain arising during period | | Unrealized hedge gain arising during period | 0 | | 0 | | 0 | | | 1 | | 0 | | 1 | | | 3 | | (1) | | 2 | |
| Reclassification of net loss (gain) to net income: | | Reclassification of net loss (gain) to net income: | |
| | Foreign exchange (“FX”) contracts - staff expense | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (2) | | 0 | | (2) | | | |
| FX contracts – staff expense | | FX contracts – staff expense | (4) | | 1 | | (3) | | | (5) | | 1 | | (4) | | | 3 | | (1) | | 2 | |
| Total reclassifications to net income | Total reclassifications to net income | 0 | | 0 | | 0 | | | 3 | | (1) | | 2 | | | (1) | | 0 | | (1) | | | Total reclassifications to net income | (4) | | 1 | | (3) | | | (5) | | 1 | | (4) | | | 3 | | (1) | | 2 | |
| Net unrealized gain (loss) on cash flow hedges | 9 | | (1) | | 8 | | | 6 | | (2) | | 4 | | | (10) | | 4 | | (6) | | | |
| Net unrealized (loss) gain on cash flow hedges | | Net unrealized (loss) gain on cash flow hedges | (4) | | 1 | | (3) | | | (4) | | 1 | | (3) | | | 6 | | (2) | | 4 | |
| Total other comprehensive income (loss) | Total other comprehensive income (loss) | $ | 583 | | $ | 3 | | $ | 586 | | | $ | 1,114 | | $ | (230) | | $ | 884 | | | $ | (121) | | $ | (87) | | $ | (208) | | | Total other comprehensive income (loss) | $ | 165 | | $ | (16) | | $ | 149 | | | $ | (1,029) | | $ | 195 | | $ | (834) | | | $ | 1,114 | | $ | (230) | | $ | 884 | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 1716 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 staffother expense on the consolidated income statement.
| | Components of other comprehensive income (loss) | Components of other comprehensive income (loss) | Year-to-date | Components of other comprehensive income (loss) | Year-to-date |
| | Sept. 30, 2020 | | Sept. 30, 2019 | | June 30, 2021 | | June 30, 2020 |
| (in millions) | (in millions) | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | | Pre-tax
amount | Tax
(expense)
benefit | After-tax
amount | (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: | | Foreign currency translation: | |
Foreign currency translation adjustments arising during the period (a) | Foreign currency translation adjustments arising during the period (a) | $ | 101 | | $ | (24) | | $ | 77 | | | $ | (157) | | $ | (80) | | $ | (237) | | Foreign currency translation adjustments arising during the period (a) | $ | (89) | | $ | (10) | | $ | (99) | | | $ | (161) | | $ | (93) | | $ | (254) | |
| Total foreign currency translation | Total foreign currency translation | 101 | | (24) | | 77 | | | (157) | | (80) | | (237) | | Total foreign currency translation | (89) | | (10) | | (99) | | | (161) | | (93) | | (254) | |
| Unrealized gain on assets available-for-sale: | | |
| Unrealized gain (loss) arising during period | 1,529 | | (360) | | 1,169 | | | 794 | | (205) | | 589 | | |
| Unrealized (loss) gain on assets available-for-sale: | | Unrealized (loss) gain on assets available-for-sale: | |
| Unrealized (loss) gain arising during period | | Unrealized (loss) gain arising during period | (820) | | 194 | | (626) | | | 1,232 | | (296) | | 936 | |
Reclassification adjustment (b) | Reclassification adjustment (b) | (27) | | 7 | | (20) | | | (7) | | 2 | | (5) | | Reclassification adjustment (b) | (2) | | 1 | | (1) | | | (18) | | 4 | | (14) | |
| Net unrealized gain on assets available-for-sale | 1,502 | | (353) | | 1,149 | | | 787 | | (203) | | 584 | | |
| Net unrealized (loss) gain on assets available-for-sale | | Net unrealized (loss) gain on assets available-for-sale | (822) | | 195 | | (627) | | | 1,214 | | (292) | | 922 | |
| Defined benefit plans: | Defined benefit plans: | | 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) | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 72 | | (15) | | 57 | | | 38 | | (8) | | 30 | | Amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost (b) | 55 | | (8) | | 47 | | | 48 | | (11) | | 37 | |
| Total defined benefit plans | Total defined benefit plans | 72 | | (15) | | 57 | | | 27 | | (6) | | 21 | | Total defined benefit plans | 55 | | (8) | | 47 | | | 48 | | (11) | | 37 | |
| 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 | | |
| Unrealized gain (loss) on cash flow hedges: | | Unrealized gain (loss) on cash flow hedges: | |
| Unrealized hedge gain (loss) arising during period | | Unrealized hedge gain (loss) arising during period | 1 | | 0 | | 1 | | | (10) | | 2 | | (8) | |
| Reclassification of net (gains) losses to net income: | | Reclassification of net (gains) losses to net income: | |
| | FX contracts - staff expense | 2 | | (1) | | 1 | | | (1) | | 2 | | 1 | | |
| | FX contracts – staff expense | | FX contracts – staff expense | (9) | | 2 | | (7) | | | 2 | | (1) | | 1 | |
| Total reclassifications to net income | Total reclassifications to net income | 2 | | (1) | | 1 | | | 0 | | 2 | | 2 | | Total reclassifications to net income | (9) | | 2 | | (7) | | | 2 | | (1) | | 1 | |
| Net unrealized (loss) on cash flow hedges | Net unrealized (loss) on cash flow hedges | 1 | | 0 | | 1 | | | (1) | | 0 | | (1) | | Net unrealized (loss) on cash flow hedges | (8) | | 2 | | (6) | | | (8) | | 1 | | (7) | |
| Total other comprehensive income | $ | 1,676 | | $ | (392) | | $ | 1,284 | | | $ | 656 | | $ | (289) | | $ | 367 | | |
| Total other comprehensive (loss) income | | Total other comprehensive (loss) income | $ | (864) | | $ | 179 | | $ | (685) | | | $ | 1,093 | | $ | (395) | | $ | 698 | |
(a) Includes the impact of hedges of net investments in foreign subsidiaries. See Note 1716 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 staffother expense on the consolidated income statement.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Note 15–14–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 20192020 Annual Report for
information on how we determine fair value and the fair value hierarchy.
The following tables present the financial instruments carried at fair value at Sept.June 30, 20202021 and Dec. 31, 2019,2020, 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 | |
| Assets measured at fair value on a recurring basis at June 30, 2021 | | Assets measured at fair value on a recurring basis at June 30, 2021 | Total carrying
value |
| (dollars in millions) | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Total carrying
value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) |
Assets: | | Assets: | |
| Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| U.S. Treasury | | U.S. Treasury | $ | 25,437 | | $ | 0 | | $ | 0 | | $ | — | | $ | 25,437 | |
| Agency RMBS | Agency RMBS | $ | 0 | | $ | 24,733 | | $ | 0 | | $ | — | | $ | 24,733 | | Agency RMBS | 0 | | 17,843 | | 0 | | — | | 17,843 | |
| U.S. Treasury | 24,733 | | 0 | | 0 | | — | | 24,733 | | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 7,179 | | 6,914 | | 0 | | — | | 14,093 | | Sovereign debt/sovereign guaranteed | 5,734 | | 7,461 | | 0 | | — | | 13,195 | |
| Supranational | | Supranational | 0 | | 8,095 | | 0 | | — | | 8,095 | |
| Agency commercial MBS | Agency commercial MBS | 0 | | 9,942 | | 0 | | — | | 9,942 | | Agency commercial MBS | 0 | | 7,854 | | 0 | | — | | 7,854 | |
| Supranational | 0 | | 7,136 | | 0 | | — | | 7,136 | | |
| Foreign covered bonds | Foreign covered bonds | 0 | | 5,841 | | 0 | | — | | 5,841 | | Foreign covered bonds | 0 | | 6,793 | | 0 | | — | | 6,793 | |
| CLOs | CLOs | 0 | | 4,657 | | 0 | | — | | 4,657 | | CLOs | 0 | | 5,139 | | 0 | | — | | 5,139 | |
| U.S. government agencies | | U.S. government agencies | 0 | | 3,350 | | 0 | | — | | 3,350 | |
| Non-agency commercial MBS | | Non-agency commercial MBS | 0 | | 3,280 | | 0 | | — | | 3,280 | |
| Foreign government agencies | Foreign government agencies | 0 | | 3,970 | | 0 | | — | | 3,970 | | Foreign government agencies | 0 | | 2,708 | | 0 | | — | | 2,708 | |
| U.S. government agencies | 0 | | 3,478 | | 0 | | — | | 3,478 | | |
| State and political subdivisions | | State and political subdivisions | 0 | | 2,606 | | 0 | | — | | 2,606 | |
Non-agency RMBS (b) | | Non-agency RMBS (b) | 0 | | 2,477 | | 0 | | — | | 2,477 | |
| Other ABS | Other ABS | 0 | | 2,930 | | 0 | | — | | 2,930 | | Other ABS | 0 | | 2,456 | | 0 | | — | | 2,456 | |
| 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 | Corporate bonds | 0 | | 1,030 | | 0 | | — | | 1,030 | | Corporate bonds | 0 | | 2,347 | | 0 | | — | | 2,347 | |
| Commercial paper/CDs | 0 | | 357 | | 0 | | — | | 357 | | |
| | Other debt securities | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | |
| Total available-for-sale securities | Total available-for-sale securities | 31,912 | | 77,331 | | 0 | | — | | 109,243 | | Total available-for-sale securities | 31,171 | | 72,410 | | 0 | | — | | 103,581 | |
| Trading assets: | Trading assets: | | Trading assets: | |
| Debt instruments | Debt instruments | 3,181 | | 3,050 | | 0 | | — | | 6,231 | | Debt instruments | 1,752 | | 1,449 | | 0 | | — | | 3,201 | |
Equity instruments (c) | Equity instruments (c) | 2,694 | | 0 | | 0 | | — | | 2,694 | | Equity instruments (c) | 7,542 | | 0 | | 0 | | — | | 7,542 | |
| Derivative assets not designated as hedging: | Derivative assets not designated as hedging: | | Derivative assets not designated as hedging: | |
| Interest rate | Interest rate | 4 | | 4,958 | | 0 | | (2,133) | | 2,829 | | Interest rate | 4 | | 3,670 | | 0 | | (1,601) | | 2,073 | |
| Foreign exchange | Foreign exchange | 0 | | 4,410 | | 0 | | (3,102) | | 1,308 | | Foreign exchange | 0 | | 6,774 | | 0 | | (4,073) | | 2,701 | |
| Equity and other contracts | Equity and other contracts | 4 | | 11 | | 0 | | (3) | | 12 | | Equity and other contracts | 1 | | 5 | | 0 | | (3) | | 3 | |
| Total derivative assets not designated as hedging | Total derivative assets not designated as hedging | 8 | | 9,379 | | 0 | | (5,238) | | 4,149 | | Total derivative assets not designated as hedging | 5 | | 10,449 | | 0 | | (5,677) | | 4,777 | |
| Total trading assets | Total trading assets | 5,883 | | 12,429 | | 0 | | (5,238) | | 13,074 | | Total trading assets | 9,299 | | 11,898 | | 0 | | (5,677) | | 15,520 | |
| Other assets: | Other assets: | | Other assets: | |
| Derivative assets designated as hedging: | Derivative assets designated as hedging: | | Derivative assets designated as hedging: | |
| | Foreign exchange | Foreign exchange | 0 | | 56 | | 0 | | — | | 56 | | Foreign exchange | 0 | | 77 | | 0 | | — | | 77 | |
| Total derivative assets designated as hedging | Total derivative assets designated as hedging | 0 | | 56 | | 0 | | — | | 56 | | Total derivative assets designated as hedging | 0 | | 77 | | 0 | | — | | 77 | |
Other assets (d) | Other assets (d) | 113 | | 174 | | 0 | | — | | 287 | | Other assets (d) | 494 | | 438 | | 0 | | — | | 932 | |
| Total other assets | | Total other assets | 494 | | 515 | | 0 | | — | | 1,009 | |
Assets measured at NAV (d) | Assets measured at NAV (d) | | 184 | | Assets measured at NAV (d) | | 213 | |
| 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 | Total assets | $ | 38,268 | | $ | 90,218 | | $ | 0 | | $ | (5,238) | | $ | 123,432 | | Total assets | $ | 40,964 | | $ | 84,823 | | $ | 0 | | $ | (5,677) | | $ | 120,323 | |
| Percentage of total assets prior to netting | Percentage of total assets prior to netting | 30 | % | 70 | % | 0 | % | | Percentage of total assets prior to netting | 33 | % | 67 | % | 0 | % | |
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Liabilities measured at fair value on a recurring basis at Sept. 30, 2020 | Total carrying
value | |
| Liabilities measured at fair value on a recurring basis at June 30, 2021 | | Liabilities measured at fair value on a recurring basis at June 30, 2021 | Total carrying
value |
| (dollars in millions) | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Total carrying
value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) |
Liabilities: | | Liabilities: | |
| Trading liabilities: | Trading liabilities: | | Trading liabilities: | |
| Debt instruments | Debt instruments | $ | 3,396 | | $ | 66 | | $ | 0 | | $ | — | | $ | 3,462 | | Debt instruments | $ | 3,536 | | $ | 39 | | $ | 0 | | $ | — | | $ | 3,575 | |
| Equity instruments | Equity instruments | 26 | | 0 | | 0 | | — | | 26 | | Equity instruments | 121 | | 0 | | 0 | | — | | 121 | |
| Derivative liabilities not designated as hedging: | Derivative liabilities not designated as hedging: | | Derivative liabilities not designated as hedging: | |
| Interest rate | Interest rate | 3 | | 4,243 | | 0 | | (2,551) | | 1,695 | | Interest rate | 2 | | 3,162 | | 0 | | (2,063) | | 1,101 | |
| Foreign exchange | Foreign exchange | 0 | | 4,522 | | 0 | | (3,631) | | 891 | | Foreign exchange | 0 | | 6,175 | | 0 | | (4,531) | | 1,644 | |
| Equity and other contracts | Equity and other contracts | 0 | | 11 | | 0 | | (1) | | 10 | | Equity and other contracts | 3 | | 94 | | 0 | | (87) | | 10 | |
| Total derivative liabilities not designated as hedging | Total derivative liabilities not designated as hedging | 3 | | 8,776 | | 0 | | (6,183) | | 2,596 | | Total derivative liabilities not designated as hedging | 5 | | 9,431 | | 0 | | (6,681) | | 2,755 | |
| Total trading liabilities | Total trading liabilities | 3,425 | | 8,842 | | 0 | | (6,183) | | 6,084 | | Total trading liabilities | 3,662 | | 9,470 | | 0 | | (6,681) | | 6,451 | |
Long-term debt (c) | Long-term debt (c) | 0 | | 400 | | 0 | | — | | 400 | | Long-term debt (c) | 0 | | 400 | | 0 | | — | | 400 | |
| Other liabilities – derivative liabilities designated as hedging: | | |
| Other liabilities: | | Other liabilities: | |
| Derivative liabilities designated as hedging: | | Derivative liabilities designated as hedging: | |
| Interest rate | Interest rate | 0 | | 803 | | 0 | | — | | 803 | | Interest rate | 0 | | 469 | | 0 | | — | | 469 | |
| Foreign exchange | Foreign exchange | 0 | | 194 | | 0 | | — | | 194 | | Foreign exchange | 0 | | 106 | | 0 | | — | | 106 | |
| 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 derivative liabilities designated as hedging | | Total derivative liabilities designated as hedging | 0 | | 575 | | 0 | | — | | 575 | |
| Other liabilities | | Other liabilities | 1 | | 6 | | 0 | | — | | 7 | |
| Total other liabilities | | Total other liabilities | 1 | | 581 | | 0 | | — | | 582 | |
| Total liabilities | Total liabilities | $ | 3,425 | | $ | 10,243 | | $ | 0 | | $ | (6,183) | | $ | 7,485 | | Total liabilities | $ | 3,663 | | $ | 10,451 | | $ | 0 | | $ | (6,681) | | $ | 7,433 | |
| Percentage of total liabilities prior to netting | Percentage of total liabilities prior to netting | 25 | % | 75 | % | 0 | % | | Percentage of total liabilities prior to netting | 26 | % | 74 | % | 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$416 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 | |
| Assets measured at fair value on a recurring basis at Dec. 31, 2020 | | Assets measured at fair value on a recurring basis at Dec. 31, 2020 | Total carrying
value |
| (dollars in millions) | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Total carrying
value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) |
Assets: | | Assets: | |
| Available-for-sale securities: | Available-for-sale securities: | | Available-for-sale securities: | |
| U.S. Treasury | | U.S. Treasury | $ | 24,894 | | $ | 0 | | $ | 0 | | $ | — | | $ | 24,894 | |
| Agency RMBS | Agency RMBS | $ | 0 | | $ | 27,043 | | $ | 0 | | $ | — | | $ | 27,043 | | Agency RMBS | 0 | | 22,347 | | 0 | | — | | 22,347 | |
| U.S. Treasury | 15,431 | | 0 | | 0 | | — | | 15,431 | | |
| Sovereign debt/sovereign guaranteed | Sovereign debt/sovereign guaranteed | 7,784 | | 4,862 | | 0 | | — | | 12,646 | | Sovereign debt/sovereign guaranteed | 5,909 | | 6,482 | | 0 | | — | | 12,391 | |
| Agency commercial MBS | Agency commercial MBS | 0 | | 9,417 | | 0 | | — | | 9,417 | | Agency commercial MBS | 0 | | 9,228 | | 0 | | — | | 9,228 | |
| Supranational | | Supranational | 0 | | 7,160 | | 0 | | — | | 7,160 | |
| Foreign covered bonds | Foreign covered bonds | 0 | | 4,197 | | 0 | | — | | 4,197 | | Foreign covered bonds | 0 | | 6,725 | | 0 | | — | | 6,725 | |
| CLOs | CLOs | 0 | | 4,063 | | 0 | | — | | 4,063 | | CLOs | 0 | | 4,703 | | 0 | | — | | 4,703 | |
| Supranational | 0 | | 3,709 | | 0 | | — | | 3,709 | | |
| Foreign government agencies | Foreign government agencies | 0 | | 2,643 | | 0 | | — | | 2,643 | | Foreign government agencies | 0 | | 4,135 | | 0 | | — | | 4,135 | |
| U.S. government agencies | | U.S. government agencies | 0 | | 3,853 | | 0 | | — | | 3,853 | |
| Other ABS | | Other ABS | 0 | | 3,164 | | 0 | | — | | 3,164 | |
| Non-agency commercial MBS | Non-agency commercial MBS | 0 | | 2,178 | | 0 | | — | | 2,178 | | Non-agency commercial MBS | 0 | | 3,017 | | 0 | | — | | 3,017 | |
| Other ABS | 0 | | 2,143 | | 0 | | — | | 2,143 | | |
| U.S. government agencies | 0 | | 1,949 | | 0 | | — | | 1,949 | | |
Non-agency RMBS (b) | Non-agency RMBS (b) | 0 | | 1,233 | | 0 | | — | | 1,233 | | Non-agency RMBS (b) | 0 | | 2,326 | | 0 | | — | | 2,326 | |
| State and political subdivisions | State and political subdivisions | 0 | | 1,044 | | 0 | | — | | 1,044 | | State and political subdivisions | 0 | | 2,308 | | 0 | | — | | 2,308 | |
| Corporate bonds | Corporate bonds | 0 | | 853 | | 0 | | — | | 853 | | Corporate bonds | 0 | | 1,994 | | 0 | | — | | 1,994 | |
| Commercial paper/CDs | | Commercial paper/CDs | 0 | | 249 | | 0 | | — | | 249 | |
| Other debt securities | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | | Other debt securities | 0 | | 1 | | 0 | | — | | 1 | |
| Total available-for-sale securities | Total available-for-sale securities | 23,215 | | 65,335 | | 0 | | — | | 88,550 | | Total available-for-sale securities | 30,803 | | 77,692 | | 0 | | — | | 108,495 | |
| Trading assets: | Trading assets: | | Trading assets: | |
| Debt instruments | Debt instruments | 1,568 | | 4,243 | | 0 | | — | | 5,811 | | Debt instruments | 1,803 | | 3,868 | | 0 | | — | | 5,671 | |
Equity instruments (c) | Equity instruments (c) | 4,539 | | 0 | | 0 | | — | | 4,539 | | Equity instruments (c) | 5,775 | | 0 | | 0 | | — | | 5,775 | |
| Derivative assets not designated as hedging: | Derivative assets not designated as hedging: | | Derivative assets not designated as hedging: | |
| Interest rate | Interest rate | 4 | | 3,686 | | 0 | | (1,792) | | 1,898 | | Interest rate | 5 | | 4,477 | | 0 | | (1,952) | | 2,530 | |
| Foreign exchange | Foreign exchange | 0 | | 5,331 | | 0 | | (4,021) | | 1,310 | | Foreign exchange | 0 | | 7,688 | | 0 | | (6,392) | | 1,296 | |
| Equity and other contracts | Equity and other contracts | 0 | | 19 | | 0 | | (6) | | 13 | | Equity and other contracts | 0 | | 2 | | 0 | | (2) | | 0 | |
| Total derivative assets not designated as hedging | Total derivative assets not designated as hedging | 4 | | 9,036 | | 0 | | (5,819) | | 3,221 | | Total derivative assets not designated as hedging | 5 | | 12,167 | | 0 | | (8,346) | | 3,826 | |
| Total trading assets | Total trading assets | 6,111 | | 13,279 | | 0 | | (5,819) | | 13,571 | | Total trading assets | 7,583 | | 16,035 | | 0 | | (8,346) | | 15,272 | |
Other assets: | Other assets: | | Other assets: | |
| Derivative assets designated as hedging: | Derivative assets designated as hedging: | | Derivative assets designated as hedging: | |
| | Foreign exchange | Foreign exchange | 0 | | 21 | | 0 | | — | | 21 | | Foreign exchange | 0 | | 19 | | 0 | | — | | 19 | |
| Total derivative assets designated as hedging | Total derivative assets designated as hedging | 0 | | 21 | | 0 | | — | | 21 | | Total derivative assets designated as hedging | 0 | | 19 | | 0 | | — | | 19 | |
Other assets (d) | Other assets (d) | 38 | | 179 | | 0 | | — | | 217 | | Other assets (d) | 504 | | 285 | | 0 | | — | | 789 | |
| Total other assets | | Total other assets | 504 | | 304 | | 0 | | — | | 808 | |
Assets measured at NAV (d) | Assets measured at NAV (d) | | 181 | | Assets measured at NAV (d) | | 201 | |
| 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 | Total assets | $ | 29,576 | | $ | 78,847 | | $ | 0 | | $ | (5,819) | | $ | 102,785 | | Total assets | $ | 38,890 | | $ | 94,031 | | $ | 0 | | $ | (8,346) | | $ | 124,776 | |
| Percentage of total assets prior to netting | Percentage of total assets prior to netting | 27 | % | 73 | % | 0 | % | | Percentage of total assets prior to netting | 29 | % | 71 | % | 0 | % | |
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Liabilities measured at fair value on a recurring basis at Dec. 31, 2019 | Total carrying
value | |
| Liabilities measured at fair value on a recurring basis at Dec. 31, 2020 | | Liabilities measured at fair value on a recurring basis at Dec. 31, 2020 | Total carrying
value |
| (dollars in millions) | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) | Total carrying
value | (dollars in millions) | Level 1 | Level 2 | Level 3 | Netting (a) |
Liabilities: | | Liabilities: | |
| Trading liabilities: | Trading liabilities: | | Trading liabilities: | |
| Debt instruments | Debt instruments | $ | 1,477 | | $ | 107 | | $ | 0 | | $ | — | | $ | 1,584 | | Debt instruments | $ | 2,287 | | $ | 35 | | $ | 0 | | $ | — | | $ | 2,322 | |
| Equity instruments | Equity instruments | 73 | | 0 | | 0 | | — | | 73 | | Equity instruments | 11 | | 0 | | 0 | | — | | 11 | |
| Derivative liabilities not designated as hedging: | Derivative liabilities not designated as hedging: | | Derivative liabilities not designated as hedging: | |
| Interest rate | Interest rate | 6 | | 3,244 | | 0 | | (1,986) | | 1,264 | | Interest rate | 2 | | 3,878 | | 0 | | (2,348) | | 1,532 | |
| Foreign exchange | Foreign exchange | 0 | | 5,340 | | 0 | | (3,428) | | 1,912 | | Foreign exchange | 0 | | 7,622 | | 0 | | (5,484) | | 2,138 | |
| Equity and other contracts | Equity and other contracts | 3 | | 6 | | 0 | | (1) | | 8 | | Equity and other contracts | 7 | | 34 | | 0 | | (13) | | 28 | |
| Total derivative liabilities not designated as hedging | Total derivative liabilities not designated as hedging | 9 | | 8,590 | | 0 | | (5,415) | | 3,184 | | Total derivative liabilities not designated as hedging | 9 | | 11,534 | | 0 | | (7,845) | | 3,698 | |
| Total trading liabilities | Total trading liabilities | 1,559 | | 8,697 | | 0 | | (5,415) | | 4,841 | | Total trading liabilities | 2,307 | | 11,569 | | 0 | | (7,845) | | 6,031 | |
Long-term debt (c) | Long-term debt (c) | 0 | | 387 | | 0 | | — | | 387 | | Long-term debt (c) | 0 | | 400 | | 0 | | — | | 400 | |
| Other liabilities – derivative liabilities designated as hedging: | | |
| Other liabilities: | | Other liabilities: | |
| Derivative liabilities designated as hedging: | | Derivative liabilities designated as hedging: | |
| Interest rate | Interest rate | 0 | | 350 | | 0 | | — | | 350 | | Interest rate | 0 | | 666 | | 0 | | — | | 666 | |
| Foreign exchange | Foreign exchange | 0 | | 257 | | 0 | | — | | 257 | | Foreign exchange | 0 | | 441 | | 0 | | — | | 441 | |
| 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 derivative liabilities designated as hedging | | Total derivative liabilities designated as hedging | 0 | | 1,107 | | 0 | | — | | 1,107 | |
| Other liabilities | | Other liabilities | 1 | | 2 | | 0 | | — | | 3 | |
| Total other liabilities | | Total other liabilities | 1 | | 1,109 | | 0 | | — | | 1,110 | |
| Total liabilities | Total liabilities | $ | 1,560 | | $ | 9,691 | | $ | 0 | | $ | (5,415) | | $ | 5,836 | | Total liabilities | $ | 2,308 | | $ | 13,078 | | $ | 0 | | $ | (7,845) | | $ | 7,541 | |
| Percentage of total liabilities prior to netting | Percentage of total liabilities prior to netting | 14 | % | 86 | % | 0 | % | | Percentage of total liabilities prior to netting | 15 | % | 85 | % | 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$487 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 | Details of certain available-for-sale securities measured at fair value on a recurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | Details of certain available-for-sale securities measured at fair value on a recurring basis | June 30, 2021 | | Dec. 31, 2020 |
Total
carrying
value | | Ratings (a) | | Total
carrying value | | Ratings (a) | 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 | AAA/
AA- | A+/
A- | BBB+/
BBB- | BB+ and
lower | | AAA/
AA- | A+/
A- | BBB+/
BBB- | BB+ and
lower |
| (dollars in millions) | (dollars in millions) | (b) | Total
carrying value | (dollars in millions) | (b) | Total
carrying value |
Non-agency RMBS (c), originated in: | Non-agency RMBS (c), originated in: | | Non-agency RMBS (c), originated in: | |
| 2007-2020 | $ | 1,311 | | | 88 | % | 0 | % | 0 | % | 12 | % | | $ | 464 | | 55 | % | 1 | % | 0 | % | 44 | % | |
| 2008-2021 | | 2008-2021 | $ | 1,828 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,548 | | | 100 | % | 0 | % | 0 | % | 0 | % |
| 2007 | | 2007 | 135 | | | 0 | | 4 | | 0 | | 96 | | | 179 | | | 12 | | 3 | | 0 | | 85 | |
| 2006 | 2006 | 244 | | | 0 | | 23 | | 0 | | 77 | | | 291 | | | 0 | | 21 | | 0 | | 79 | | 2006 | 207 | | | 0 | | 24 | | 0 | | 76 | | | 237 | | | 0 | | 23 | | 0 | | 77 | |
| 2005 | 2005 | 243 | | | 4 | | 0 | | 7 | | 89 | | | 305 | | | 5 | | 2 | | 8 | | 85 | | 2005 | 193 | | | 3 | | 6 | | 1 | | 90 | | | 227 | | | 3 | | 0 | | 7 | | 90 | |
| 2004 and earlier | 2004 and earlier | 143 | | | 20 | | 9 | | 12 | | 59 | | | 173 | | | 22 | | 24 | | 4 | | 50 | | 2004 and earlier | 114 | | | 18 | | 9 | | 5 | | 68 | | | 135 | | | 19 | | 10 | | 11 | | 60 | |
| Total non-agency RMBS | Total non-agency RMBS | $ | 1,941 | | | 61 | % | 4 | % | 2 | % | 33 | % | | $ | 1,233 | | | 25 | % | 9 | % | 3 | % | 63 | % | Total non-agency RMBS | $ | 2,477 | | | 75 | % | 3 | % | 0 | % | 22 | % | | $ | 2,326 | | | 69 | % | 3 | % | 1 | % | 27 | % |
| Non-agency commercial MBS originated in: | Non-agency commercial MBS originated in: | | Non-agency commercial MBS originated in: | |
| 2009-2020 | $ | 2,711 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 2,178 | | | 98 | % | 2 | % | 0 | % | 0 | % | |
| 2009-2021 | | 2009-2021 | $ | 3,280 | | | 99 | % | 1 | % | 0 | % | 0 | % | | $ | 3,017 | | | 99 | % | 1 | % | 0 | % | 0 | % |
| Foreign covered bonds: | Foreign covered bonds: | | Foreign covered bonds: | |
| Canada | Canada | $ | 2,368 | | | 98 | % | 2 | % | 0 | % | 0 | % | | $ | 1,798 | | | 100 | % | 0 | % | 0 | % | 0 | % | Canada | $ | 2,294 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 2,552 | | | 100 | % | 0 | % | 0 | % | 0 | % |
| UK | UK | 1,130 | | | 100 | | 0 | | 0 | | 0 | | | 984 | | | 100 | | 0 | | 0 | | 0 | | UK | 1,313 | | | 100 | | 0 | | 0 | | 0 | | | 1,259 | | | 100 | | 0 | | 0 | | 0 | |
| Australia | Australia | 775 | | | 100 | | 0 | | 0 | | 0 | | | 431 | | | 100 | | 0 | | 0 | | 0 | | Australia | 866 | | | 100 | | 0 | | 0 | | 0 | | | 951 | | | 100 | | 0 | | 0 | | 0 | |
| Norway | Norway | 609 | | | 100 | | 0 | | 0 | | 0 | | | 287 | | | 100 | | 0 | | 0 | | 0 | | Norway | 719 | | | 100 | | 0 | | 0 | | 0 | | | 703 | | | 100 | | 0 | | 0 | | 0 | |
| Germany | Germany | 479 | | | 100 | | 0 | | 0 | | 0 | | | 357 | | | 100 | | 0 | | 0 | | 0 | | Germany | 625 | | | 100 | | 0 | | 0 | | 0 | | | 494 | | | 100 | | 0 | | 0 | | 0 | |
| Other | Other | 480 | | | 100 | | 0 | | 0 | | 0 | | | 340 | | | 100 | | 0 | | 0 | | 0 | | Other | 976 | | | 100 | | 0 | | 0 | | 0 | | | 766 | | | 100 | | 0 | | 0 | | 0 | |
| Total foreign covered bonds | Total foreign covered bonds | $ | 5,841 | | | 99 | % | 1 | % | 0 | % | 0 | % | | $ | 4,197 | | | 100 | % | 0 | % | 0 | % | 0 | % | Total foreign covered bonds | $ | 6,793 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 6,725 | | | 100 | % | 0 | % | 0 | % | 0 | % |
| Sovereign debt/sovereign guaranteed: | Sovereign debt/sovereign guaranteed: | | Sovereign debt/sovereign guaranteed: | |
| Germany | Germany | $ | 2,155 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,997 | | | 100 | % | 0 | % | 0 | % | 0 | % | Germany | $ | 3,429 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 2,222 | | | 100 | % | 0 | % | 0 | % | 0 | % |
| France | | France | 1,898 | | | 100 | | 0 | | 0 | | 0 | | | 1,697 | | | 100 | | 0 | | 0 | | 0 | |
| Italy | | Italy | 1,724 | | | 0 | | 0 | | 100 | | 0 | | | 2,010 | | | 0 | | 0 | | 100 | | 0 | |
| Singapore | | Singapore | 1,209 | | | 100 | | 0 | | 0 | | 0 | | | 984 | | | 100 | | 0 | | 0 | | 0 | |
| Spain | | Spain | 1,081 | | | 0 | | 9 | | 91 | | 0 | | | 1,920 | | | 0 | | 5 | | 95 | | 0 | |
| UK | UK | 2,037 | | | 100 | | 0 | | 0 | | 0 | | | 3,318 | | | 100 | | 0 | | 0 | | 0 | | UK | 1,041 | | | 100 | | 0 | | 0 | | 0 | | | 1,089 | | | 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 | Canada | 732 | | | 100 | | 0 | | 0 | | 0 | | | 271 | | | 100 | | 0 | | 0 | | 0 | | Canada | 662 | | | 100 | | 0 | | 0 | | 0 | | | 572 | | | 100 | | 0 | | 0 | | 0 | |
| Hong Kong | | Hong Kong | 472 | | | 100 | | 0 | | 0 | | 0 | | | 29 | | | 100 | | 0 | | 0 | | 0 | |
| Japan | | Japan | 399 | | | 0 | | 100 | | 0 | | 0 | | | 408 | | | 0 | | 100 | | 0 | | 0 | |
| Netherlands | | Netherlands | 350 | | | 100 | | 0 | | 0 | | 0 | | | 491 | | | 100 | | 0 | | 0 | | 0 | |
| Austria | | Austria | 293 | | | 100 | | 0 | | 0 | | 0 | | | 256 | | | 100 | | 0 | | 0 | | 0 | |
| Ireland | Ireland | 522 | | | 0 | | 100 | | 0 | | 0 | | | 301 | | | 0 | | 100 | | 0 | | 0 | | Ireland | 241 | | | 0 | | 100 | | 0 | | 0 | | | 252 | | | 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) | Other (d) | 382 | | | 51 | | 0 | | 18 | | 31 | | | 237 | | | 39 | | 4 | | 0 | | 57 | | Other (d) | 396 | | | 67 | | 0 | | 0 | | 33 | | | 461 | | | 73 | | 0 | | 0 | | 27 | |
| Total sovereign debt/sovereign guaranteed | Total sovereign debt/sovereign guaranteed | $ | 14,093 | | | 65 | % | 7 | % | 27 | % | 1 | % | | $ | 12,646 | | | 73 | % | 5 | % | 21 | % | 1 | % | Total sovereign debt/sovereign guaranteed | $ | 13,195 | | | 73 | % | 6 | % | 20 | % | 1 | % | | $ | 12,391 | | | 62 | % | 6 | % | 31 | % | 1 | % |
| Foreign government agencies: | Foreign government agencies: | | Foreign government agencies: | |
| Germany | $ | 1,483 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 1,131 | | | 100 | % | 0 | % | 0 | % | 0 | % | |
| Netherlands | Netherlands | 800 | | | 100 | | 0 | | 0 | | 0 | | | 678 | | | 100 | | 0 | | 0 | | 0 | | Netherlands | $ | 916 | | | 100 | % | 0 | % | 0 | % | 0 | % | | $ | 847 | | | 100 | % | 0 | % | 0 | % | 0 | % |
| Canada | Canada | 442 | | | 72 | | 28 | | 0 | | 0 | | | 71 | | | 0 | | 100 | | 0 | | 0 | | Canada | 543 | | | 77 | | 23 | | 0 | | 0 | | | 511 | | | 75 | | 25 | | 0 | | 0 | |
| France | France | 293 | | | 100 | | 0 | | 0 | | 0 | | | 42 | | | 100 | | 0 | | 0 | | 0 | | France | 283 | | | 100 | | 0 | | 0 | | 0 | | | 305 | | | 100 | | 0 | | 0 | | 0 | |
| Sweden | Sweden | 276 | | | 100 | | 0 | | 0 | | 0 | | | 202 | | | 100 | | 0 | | 0 | | 0 | | Sweden | 276 | | | 100 | | 0 | | 0 | | 0 | | | 281 | | | 100 | | 0 | | 0 | | 0 | |
| Norway | | Norway | 251 | | | 100 | | 0 | | 0 | | 0 | | | 273 | | | 100 | | 0 | | 0 | | 0 | |
| Finland | Finland | 246 | | | 100 | | 0 | | 0 | | 0 | | | 245 | | | 100 | | 0 | | 0 | | 0 | | Finland | 196 | | | 100 | | 0 | | 0 | | 0 | | | 225 | | | 100 | | 0 | | 0 | | 0 | |
| Germany | | Germany | 30 | | | 100 | | 0 | | 0 | | 0 | | | 1,473 | | | 100 | | 0 | | 0 | | 0 | |
| Other | Other | 430 | | | 77 | | 23 | | 0 | | 0 | | | 274 | | | 79 | | 21 | | 0 | | 0 | | Other | 213 | | | 54 | | 46 | | 0 | | 0 | | | 220 | | | 55 | | 45 | | 0 | | 0 | |
| Total foreign government agencies | Total foreign government agencies | $ | 3,970 | | | 94 | % | 6 | % | 0 | % | 0 | % | | $ | 2,643 | | | 95 | % | 5 | % | 0 | % | 0 | % | Total foreign government agencies | $ | 2,708 | | | 92 | % | 8 | % | 0 | % | 0 | % | | $ | 4,135 | | | 95 | % | 5 | % | 0 | % | 0 | % |
(a) Represents ratings by S&P or the equivalent.
(b) At Sept.June 30, 20202021 and Dec. 31, 2019,2020, sovereign debt/sovereign guaranteed securities were included in Level 1 and Level 2 in the valuation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy.
(c) Includes $512$416 million at Sept.June 30, 20202021 and $640$487 million at Dec. 31, 20192020 that were included in the former Grantor Trust.
(d) Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $119$129 million at Sept.June 30, 20202021 and $134$125 million at Dec. 31, 2019.2020.
| | |
Notes to Consolidated Financial Statements (continued) |
|
Assets and liabilities measured at fair value on a nonrecurring basis
Under certain circumstances, we make adjustments to the fair value of our assets, liabilities and unfunded lending-related commitments, although they are not measured at fair value on an ongoing basis.
Examples would be the recording of an impairment of
an asset and non-readily marketable equity securities carried at cost with upward or downward adjustments.
The following table presents the financial instruments carried on the consolidated balance sheet by caption and level in the fair value hierarchy as of Sept.June 30, 20202021 and Dec. 31, 2019.2020.
| | Assets measured at fair value on a nonrecurring basis | Assets measured at fair value on a nonrecurring basis | Sept. 30, 2020 | | Dec. 31, 2019 | Assets measured at fair value on a nonrecurring basis | June 30, 2021 | | Dec. 31, 2020 |
| Total carrying
value | | | Total carrying
value | | | Total carrying
value | | | Total carrying
value |
| (in millions) | (in millions) | Level 1 | Level 2 | Level 3 | | Level 1 | Level 2 | Level 3 | (in millions) | Level 1 | Level 2 | Level 3 | | | Level 1 | Level 2 | Level 3 |
Loans (a) | Loans (a) | $ | 0 | | $ | 52 | | $ | 0 | | $ | 52 | | | $ | 0 | | $ | 58 | | $ | 0 | | $ | 58 | | Loans (a) | $ | 0 | | $ | 45 | | $ | 0 | | | $ | 45 | | | $ | 0 | | $ | 48 | | $ | 0 | | $ | 48 | |
Other assets (b) | Other assets (b) | 0 | | 113 | | 0 | | 113 | | | 0 | | 64 | | 0 | | 64 | | Other assets (b) | 0 | | 145 | | 0 | | | 145 | | | 0 | | 131 | | 0 | | 131 | |
| Total assets at fair value on a nonrecurring basis | Total assets at fair value on a nonrecurring basis | $ | 0 | | $ | 165 | | $ | 0 | | $ | 165 | | | $ | 0 | | $ | 122 | | $ | 0 | | $ | 122 | | Total assets at fair value on a nonrecurring basis | $ | 0 | | $ | 190 | | $ | 0 | | | $ | 190 | | | $ | 0 | | $ | 179 | | $ | 0 | | $ | 179 | |
(a)The fair value of these loans decreased less than $1 million in both the thirdsecond quarter of 20202021 and the fourth quarter of 2019,2020, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses.
(b)Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt.
Estimated fair value of financial instruments
The following tables present the estimated fair value and the carrying amount of financial instruments not carried at fair value on the consolidated balance sheet at Sept.June 30, 20202021 and Dec. 31, 2019,2020, by caption on the consolidated balance sheet and by the valuation hierarchy.
| | Summary of financial instruments | Summary of financial instruments | Sept. 30, 2020 | Summary of financial instruments | June 30, 2021 |
| (in millions) | (in millions) | Level 1 | Level 2 | Level 3 | Total
estimated
fair value | Carrying
amount | (in millions) | Level 1 | Level 2 | Level 3 | Total
estimated
fair value | Carrying
amount |
| Assets: | Assets: | | Assets: | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 106,185 | | $ | 0 | | $ | 106,185 | | $ | 106,185 | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 126,355 | | $ | 0 | | $ | 126,355 | | $ | 126,355 | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | 0 | | 19,037 | | 0 | | 19,037 | | 19,027 | | Interest-bearing deposits with banks | 0 | | 21,275 | | 0 | | 21,275 | | 21,270 | |
| Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 0 | | 29,647 | | 0 | | 29,647 | | 29,647 | | Federal funds sold and securities purchased under resale agreements | 0 | | 29,762 | | 0 | | 29,762 | | 29,762 | |
| Securities held-to-maturity | Securities held-to-maturity | 4,415 | | 43,043 | | 0 | | 47,458 | | 46,096 | | Securities held-to-maturity | 10,475 | | 42,444 | | 0 | | 52,919 | | 52,325 | |
Loans (a) | Loans (a) | 0 | | 54,475 | | 0 | | 54,475 | | 54,088 | | Loans (a) | 0 | | 62,517 | | 0 | | 62,517 | | 62,355 | |
| Other financial assets | Other financial assets | 4,104 | | 1,121 | | 0 | | 5,225 | | 5,225 | | Other financial assets | 5,154 | | 1,149 | | 0 | | 6,303 | | 6,303 | |
| Total | Total | $ | 8,519 | | $ | 253,508 | | $ | 0 | | $ | 262,027 | | $ | 260,268 | | Total | $ | 15,629 | | $ | 283,502 | | $ | 0 | | $ | 299,131 | | $ | 298,370 | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Noninterest-bearing deposits | Noninterest-bearing deposits | $ | 0 | | $ | 79,470 | | $ | 0 | | $ | 79,470 | | $ | 79,470 | | Noninterest-bearing deposits | $ | 0 | | $ | 94,081 | | $ | 0 | | $ | 94,081 | | $ | 94,081 | |
| Interest-bearing deposits | Interest-bearing deposits | 0 | | 216,499 | | 0 | | 216,499 | | 216,842 | | Interest-bearing deposits | 0 | | 243,703 | | 0 | | 243,703 | | 244,589 | |
| Federal funds purchased and securities sold under repurchase agreements | Federal funds purchased and securities sold under repurchase agreements | 0 | | 15,907 | | 0 | | 15,907 | | 15,907 | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 12,425 | | 0 | | 12,425 | | 12,425 | |
| Payables to customers and broker-dealers | Payables to customers and broker-dealers | 0 | | 23,514 | | 0 | | 23,514 | | 23,514 | | Payables to customers and broker-dealers | 0 | | 23,704 | | 0 | | 23,704 | | 23,704 | |
| Commercial paper | 0 | | 671 | | 0 | | 671 | | 671 | | |
| | Borrowings | Borrowings | 0 | | 607 | | 0 | | 607 | | 607 | | Borrowings | 0 | | 642 | | 0 | | 642 | | 642 | |
| Long-term debt | Long-term debt | 0 | | 27,457 | | 0 | | 27,457 | | 25,721 | | Long-term debt | 0 | | 26,463 | | 0 | | 26,463 | | 25,229 | |
| Total | Total | $ | 0 | | $ | 364,125 | | $ | 0 | | $ | 364,125 | | $ | 362,732 | | Total | $ | 0 | | $ | 401,018 | | $ | 0 | | $ | 401,018 | | $ | 400,670 | |
(a) Does not include the leasing portfolio.
| | |
Notes to Consolidated Financial Statements (continued) |
|
| | Summary of financial instruments | Summary of financial instruments | Dec. 31, 2019 | Summary of financial instruments | Dec. 31, 2020 |
| (in millions) | (in millions) | Level 1 | Level 2 | Level 3 | Total estimated
fair value | Carrying
amount | (in millions) | Level 1 | Level 2 | Level 3 | Total estimated
fair value | Carrying
amount |
| Assets: | Assets: | | Assets: | |
| Interest-bearing deposits with the Federal Reserve and other central banks | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 95,042 | | $ | 0 | | $ | 95,042 | | $ | 95,042 | | Interest-bearing deposits with the Federal Reserve and other central banks | $ | 0 | | $ | 141,775 | | $ | 0 | | $ | 141,775 | | $ | 141,775 | |
| Interest-bearing deposits with banks | Interest-bearing deposits with banks | 0 | | 14,832 | | 0 | | 14,832 | | 14,811 | | Interest-bearing deposits with banks | 0 | | 17,310 | | 0 | | 17,310 | | 17,300 | |
| Federal funds sold and securities purchased under resale agreements | Federal funds sold and securities purchased under resale agreements | 0 | | 30,182 | | 0 | | 30,182 | | 30,182 | | Federal funds sold and securities purchased under resale agreements | 0 | | 30,907 | | 0 | | 30,907 | | 30,907 | |
| Securities held-to-maturity | Securities held-to-maturity | 4,630 | | 30,175 | | 0 | | 34,805 | | 34,483 | | Securities held-to-maturity | 4,120 | | 45,104 | | 0 | | 49,224 | | 47,946 | |
Loans (a) | Loans (a) | 0 | | 54,194 | | 0 | | 54,194 | | 53,718 | | Loans (a) | 0 | | 53,586 | | 0 | | 53,586 | | 55,121 | |
| Other financial assets | Other financial assets | 4,830 | | 1,233 | | 0 | | 6,063 | | 6,063 | | Other financial assets | 6,252 | | 1,160 | | 0 | | 7,412 | | 7,412 | |
| Total | Total | $ | 9,460 | | $ | 225,658 | | $ | 0 | | $ | 235,118 | | $ | 234,299 | | Total | $ | 10,372 | | $ | 289,842 | | $ | 0 | | $ | 300,214 | | $ | 300,461 | |
| Liabilities: | Liabilities: | | Liabilities: | |
| Noninterest-bearing deposits | Noninterest-bearing deposits | $ | 0 | | $ | 57,630 | | $ | 0 | | $ | 57,630 | | $ | 57,630 | | Noninterest-bearing deposits | $ | 0 | | $ | 83,854 | | $ | 0 | | $ | 83,854 | | $ | 83,854 | |
| Interest-bearing deposits | Interest-bearing deposits | 0 | | 200,846 | | 0 | | 200,846 | | 201,836 | | Interest-bearing deposits | 0 | | 257,287 | | 0 | | 257,287 | | 257,691 | |
| Federal funds purchased and securities sold under repurchase agreements | Federal funds purchased and securities sold under repurchase agreements | 0 | | 11,401 | | 0 | | 11,401 | | 11,401 | | Federal funds purchased and securities sold under repurchase agreements | 0 | | 11,305 | | 0 | | 11,305 | | 11,305 | |
| Payables to customers and broker-dealers | Payables to customers and broker-dealers | 0 | | 18,758 | | 0 | | 18,758 | | 18,758 | | Payables to customers and broker-dealers | 0 | | 25,085 | | 0 | | 25,085 | | 25,085 | |
| Commercial paper | 0 | | 3,959 | | 0 | | 3,959 | | 3,959 | | |
| Borrowings | Borrowings | 0 | | 917 | | 0 | | 917 | | 917 | | Borrowings | 0 | | 563 | | 0 | | 563 | | 563 | |
| Long-term debt | Long-term debt | 0 | | 27,858 | | 0 | | 27,858 | | 27,114 | | Long-term debt | 0 | | 27,306 | | 0 | | 27,306 | | 25,584 | |
| Total | Total | $ | 0 | | $ | 321,369 | | $ | 0 | | $ | 321,369 | | $ | 321,615 | | Total | $ | 0 | | $ | 405,400 | | $ | 0 | | $ | 405,400 | | $ | 404,082 | |
(a) Does not include the leasing portfolio.
Note 16–15–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 | Assets and liabilities of consolidated investment management funds, at fair value | | Assets and liabilities of consolidated investment management funds, at fair value | |
| | Sept. 30, 2020 | Dec. 31, 2019 | | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
| Assets of consolidated investment management funds: | Assets of consolidated investment management funds: | | Assets of consolidated investment management funds: | |
| Trading assets | Trading assets | $ | 579 | | $ | 229 | | Trading assets | $ | 544 | | $ | 482 | |
| Other assets | Other assets | 9 | | 16 | | Other assets | 17 | | 5 | |
| Total assets of consolidated investment management funds | Total assets of consolidated investment management funds | $ | 588 | | $ | 245 | | Total assets of consolidated investment management funds | $ | 561 | | $ | 487 | |
| Liabilities of consolidated investment management funds: | Liabilities of consolidated investment management funds: | | Liabilities of consolidated investment management funds: | |
| | Other liabilities | Other liabilities | 4 | | 1 | | Other liabilities | 7 | | 3 | |
| Total liabilities of consolidated investment management funds | Total liabilities of consolidated investment management funds | $ | 4 | | $ | 1 | | Total liabilities of consolidated investment management funds | $ | 7 | | $ | 3 | |
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 as income (loss) from consolidated investment management funds, which is included in investment and other income in the consolidated income statement as investment income of consolidated investment management funds and in the interest of investment management fund note holders, respectively.statement.
We have elected the fair value option on $240 million of long-term debt. The fair value of this long-term debt was $400 million at Sept.June 30, 20202021 and $387$400 million at Dec. 31, 2019.2020. 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 exchangeother trading revenue which is included in investment and other trading revenueincome in the consolidated income statement.
| Change in fair value of long-term debt (a) | Change in fair value of long-term debt (a) | | Change in fair value of long-term debt (a) | |
| | (in millions) | (in millions) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (in millions) | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| Foreign exchange and other trading revenue | $ | (1) | | $ | (2) | | $ | (3) | | $ | (13) | | $ | (15) | | | |
| Investment and other income – other trading revenue | | Investment and other income – other trading revenue | $ | 0 | | $ | 0 | | $ | (2) | | $ | 0 | | $ | (12) | | |
(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 17–16–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 thirdsecond quarter of 2020.2021.
Hedging derivatives
We utilize interest rate swap agreements to manage our exposure to interest rate fluctuations. We enter into fair value hedges as an interest rate risk management strategy to reduce fair value variability by converting certain fixed rate interest payments associated with available-for-sale securities and long-term debt to floating interest rates. We also utilize interest rate swaps and forward exchange contracts as cash flow hedges to manage our exposure to interest rate and foreign exchange rate changes.
The available-for-sale securities hedged consist of U.S. Treasury, agency and non-agency commercial MBS, sovereign debt/sovereign guaranteed, corporate bonds and foreign covered bonds. At Sept.June 30, 2020, $14.52021, $24.4 billion par value of available-for-sale securities were hedged with interest rate swaps designated as fair value hedges that had notional values of $14.5$24.4 billion.
The fixed rate long-term debt instruments hedged generally have original maturities of five to 30 years. In fair value hedging relationships, fixed rate debt is hedged with “receive fixed rate, pay variable rate” swaps. At Sept.June 30, 2020, $13.92021, $22.6 billion par value of debt was hedged with interest rate swaps designated
as fair value hedges that had notional values of $13.9$22.6 billion.
In addition, we utilize forward foreign exchange contracts as hedges to mitigate foreign exchange exposures. We use forward foreign exchange contracts as cash flow hedges to convert certain forecasted non-U.S. dollar revenue and expenses into U.S. dollars. We use forward foreign exchange contracts with maturities of 15 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, Euro, Hong Kong dollar, Polish zloty, Singapore dollar and Polish zlotyeuro used in revenue and expense transactions for entities that have the U.S. dollar as their functional currency. As of Sept.June 30, 2020,2021, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $319$360 million (notional), with a net pre-tax gain of $5$2 million recorded in accumulated OCI. ThisOver the next 12 months, a gain of $3 million will be reclassified to earnings over the next 12 months.earnings.
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.June 30, 2020, $1402021, $147 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $140$147 million.
Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than one year. The derivatives employed are designated as hedges of changes in value of our foreign investments due to exchange rates. The change in fair market value of these forward foreign exchange contracts is reported within foreign currency translation adjustments in shareholders’ equity, net of tax. At Sept.June 30, 2020,2021, forward foreign exchange contracts with notional amounts totaling $7.9$8.4 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
| | |
Notes to Consolidated Financial Statements (continued) |
|
designated as hedges of our net investments in foreign subsidiaries were all long-term liabilities of BNY Mellon and, at Sept.June 30, 2020,2021, had a combined U.S. dollar equivalent carrying value of $179$181 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 | Income statement impact of fair value and cash flow hedges | | | | Income statement impact of fair value and cash flow hedges | | | |
| (in millions) | (in millions) | Location of
gains (losses) | 3Q20 | 2Q20 | 3Q19 | YTD20 | YTD19 | | (in millions) | Location of gains (losses) | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| Interest rate fair value hedges of available-for-sale securities | Interest rate fair value hedges of available-for-sale securities | | | Interest rate fair value hedges of available-for-sale securities | | |
| Derivative | Derivative | Interest revenue | $ | 150 | | $ | 19 | | $ | (250) | | $ | (864) | | $ | (1,119) | | | Derivative | Interest revenue | $ | (325) | | $ | 791 | | $ | 19 | | $ | 466 | | $ | (1,014) | | |
| Hedged item | Hedged item | Interest revenue | (140) | | (15) | | 243 | | 856 | | 1,099 | | | Hedged item | Interest revenue | 322 | | (785) | | (15) | | (463) | | 996 | | |
| Interest rate fair value hedges of long-term debt | Interest rate fair value hedges of long-term debt | | | Interest rate fair value hedges of long-term debt | | |
| Derivative | Derivative | Interest expense | (68) | | 47 | | 146 | | 693 | | 631 | | | Derivative | Interest expense | 22 | | (353) | | 47 | | (331) | | 761 | | |
| Hedged item | Hedged item | Interest expense | 66 | | (49) | | (145) | | (691) | | (627) | | | Hedged item | Interest expense | (21) | | 351 | | (49) | | 330 | | (757) | | |
| Foreign exchange fair value hedges of available-for-sale securities | Foreign exchange fair value hedges of available-for-sale securities | | | Foreign exchange fair value hedges of available-for-sale securities | | |
Derivative (a) | Derivative (a) | Other revenue | 1 | | (5) | | 2 | | (11) | | 3 | | | Derivative (a) | Foreign exchange revenue | (1) | | 8 | | (5) | | 7 | | (12) | | |
| Hedged item | Hedged item | Other revenue | 1 | | 5 | | (2) | | 13 | | (2) | | | Hedged item | Foreign exchange revenue | 1 | | (7) | | 5 | | (6) | | 12 | | |
| 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 | Cash flow hedges of forecasted FX exposures | | | Cash flow hedges of forecasted FX exposures | | |
| | (Loss) gain reclassified from OCI into income | Staff expense | 0 | | (3) | | 2 | | (2) | | 1 | | | |
| Gain (loss) reclassified from OCI into income | | Gain (loss) reclassified from OCI into income | Staff expense | 4 | | 5 | | (3) | | 9 | | (2) | | |
| Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 10 | | $ | (1) | | $ | (5) | | $ | (6) | | $ | (15) | | | Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships | | $ | 2 | | $ | 10 | | $ | (1) | | $ | 12 | | $ | (16) | | |
(a) Includes gains of less than $1 million in the thirdsecond quarter of 2020,2021, first quarter of 2021, second quarter of 2020, and third quarter of 2019 and gains of $1 million in the first ninesix months of 20202021 and first ninesix months of 20192020 associated with the amortization of the excluded component. At Sept.June 30, 20202021 and Dec. 31, 2019,2020, 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 | Impact of derivative instruments used in net investment hedging relationships | | | Impact of derivative instruments used in net investment hedging relationships | | |
| (in millions) | (in millions) | | | | (in millions) | | | |
| Derivatives in net investment hedging relationships | 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 | | 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 | | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | | | 2Q21 | 1Q21 | 2Q20 | YTD21 | YTD20 | |
| FX contracts | FX contracts | $ | (289) | | $ | (45) | | $ | 252 | | $ | 103 | | $ | 322 | | | | Net interest revenue | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | | FX contracts | $ | (62) | | $ | 82 | | $ | (45) | | $ | 20 | | $ | 392 | | | | 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 | Hedged items in fair value hedging relationships | Carrying amount of hedged
asset or liability | | Hedge accounting basis adjustment increase (decrease) (a) | Hedged items in fair value hedging relationships | Carrying amount of hedged
asset or liability | | Hedge accounting basis adjustment increase (decrease) (a) |
| | | (in millions) | (in millions) | Sept. 30, 2020 | Dec. 31, 2019 | | Sept. 30, 2020 | Dec. 31, 2019 | (in millions) | June 30, 2021 | Dec. 31, 2020 | | June 30, 2021 | Dec. 31, 2020 |
Available-for-sale securities (b)(c) | Available-for-sale securities (b)(c) | $ | 14,629 | | $ | 13,792 | | | $ | 1,650 | | $ | 687 | | Available-for-sale securities (b)(c) | $ | 24,330 | | $ | 17,536 | | | $ | 927 | | $ | 1,428 | |
| Long-term debt | Long-term debt | $ | 14,889 | | $ | 13,945 | | | $ | 870 | | $ | 116 | | Long-term debt | $ | 23,159 | | $ | 14,784 | | | $ | 482 | | $ | 783 | |
(a) Includes $187$159 million and $53$177 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept.June 30, 20202021 and Dec. 31, 2019,2020, respectively, and $136$89 million and $200$118 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept.June 30, 20202021 and Dec. 31, 2019,2020, 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$147 million at Sept.June 30, 20202021 and $142$148 million at Dec. 31, 2019.2020.
(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 Sept. 30, 2020 and Dec. 31, 2019.portfolio.
| | Impact of derivative instruments on the balance sheet | Impact of derivative instruments on the balance sheet | Notional value | | Asset derivatives
fair value | | Liability derivatives
fair value | 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 | | June 30, 2021 | Dec. 31, 2020 | | June 30, 2021 | Dec. 31, 2020 | | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | | (in millions) | |
Derivatives designated as hedging instruments: (a)(b) | Derivatives designated as hedging instruments: (a)(b) | | Derivatives designated as hedging instruments: (a)(b) | |
| Interest rate contracts | Interest rate contracts | $ | 28,441 | | $ | 28,365 | | | $ | 0 | | $ | 0 | | | $ | 803 | | $ | 350 | | Interest rate contracts | $ | 46,961 | | $ | 31,360 | | | $ | 0 | | $ | 0 | | | $ | 469 | | $ | 666 | |
| Foreign exchange contracts | Foreign exchange contracts | 8,369 | | 8,390 | | | 56 | | 21 | | | 194 | | 257 | | Foreign exchange contracts | 8,916 | | 8,706 | | | 77 | | 19 | | | 106 | | 441 | |
| Total derivatives designated as hedging instruments | Total derivatives designated as hedging instruments | | | $ | 56 | | $ | 21 | | | $ | 997 | | $ | 607 | | Total derivatives designated as hedging instruments | | | $ | 77 | | $ | 19 | | | $ | 575 | | $ | 1,107 | |
Derivatives not designated as hedging instruments: (b)(c) | Derivatives not designated as hedging instruments: (b)(c) | | Derivatives not designated as hedging instruments: (b)(c) | |
| Interest rate contracts | Interest rate contracts | $ | 206,771 | | $ | 306,790 | | | $ | 4,962 | | $ | 3,690 | | | $ | 4,246 | | $ | 3,250 | | Interest rate contracts | $ | 231,744 | | $ | 198,865 | | | $ | 3,674 | | $ | 4,482 | | | $ | 3,164 | | $ | 3,880 | |
| Foreign exchange contracts | Foreign exchange contracts | 753,812 | | 848,961 | | | 4,410 | | 5,331 | | | 4,522 | | 5,340 | | Foreign exchange contracts | 852,013 | | 813,003 | | | 6,774 | | 7,688 | | | 6,175 | | 7,622 | |
| Equity contracts | Equity contracts | 2,241 | | 3,189 | | | 15 | | 19 | | | 8 | | 5 | | Equity contracts | 6,998 | | 5,142 | | | 6 | | 2 | | | 93 | | 37 | |
| Credit contracts | Credit contracts | 165 | | 165 | | | 0 | | 0 | | | 3 | | 4 | | Credit contracts | 165 | | 165 | | | 0 | | 0 | | | 4 | | 4 | |
| Total derivatives not designated as hedging instruments | Total derivatives not designated as hedging instruments | | $ | 9,387 | | $ | 9,040 | | | $ | 8,779 | | $ | 8,599 | | Total derivatives not designated as hedging instruments | | $ | 10,454 | | $ | 12,172 | | | $ | 9,436 | | $ | 11,543 | |
Total derivatives fair value (d) | Total derivatives fair value (d) | | $ | 9,443 | | $ | 9,061 | | | $ | 9,776 | | $ | 9,206 | | Total derivatives fair value (d) | | $ | 10,531 | | $ | 12,191 | | | $ | 10,011 | | $ | 12,650 | |
Effect of master netting agreements (e) | Effect of master netting agreements (e) | | (5,238) | | (5,819) | | | (6,183) | | (5,415) | | Effect of master netting agreements (e) | | (5,677) | | (8,346) | | | (6,681) | | (7,845) | |
| Fair value after effect of master netting agreements | Fair value after effect of master netting agreements | | $ | 4,205 | | $ | 3,242 | | | $ | 3,593 | | $ | 3,791 | | Fair value after effect of master netting agreements | | $ | 4,854 | | $ | 3,845 | | | $ | 3,330 | | $ | 4,805 | |
(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$1,022 million and $1,620$2,026 million, respectively, at Sept.June 30, 2020,2021, and $1,022$1,552 million and $618$1,051 million, respectively, at Dec. 31, 2019.2020.
Trading activities (including trading derivatives)
Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk mitigatingrisk-mitigating economic hedging in compliance with the Volcker Rule. The change in the fair value of the derivatives utilized in our trading activities is recorded in foreign exchange revenue and investment and other trading revenueincome on the consolidated income statement.
The following table presents our foreign exchange revenue and other trading revenue.
| | | | | | | | | | | | | | | | | | |
| 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 and other trading revenue |
| (in millions) | 2Q21 | 1Q21 | 2Q20 | | YTD21 | YTD20 | | |
| Foreign exchange revenue | $ | 184 | | $ | 231 | | $ | 193 | | (a) | $ | 415 | | $ | 438 | | (a) | |
| Other trading (loss) revenue | (1) | | (7) | | (8) | | (a) | (8) | | 58 | | (a) | |
| | | | | | | | |
(a) In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 for additional information.
Foreign exchange revenue includes income from purchasing and selling foreign currencies, and
currency forwards, futures and options.options as well as foreign currency remeasurement. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities, and trading and economic hedging activity with non-foreign exchange derivatives.
We also use derivative financial instruments as risk mitigatingrisk-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 gaingains of $12$13 million in the thirdsecond quarter of 2020, a de minimis loss in the third quarter of 2019, a gain of2021, $28 million in the second quarter of 2020, a loss of $1$10 million in the first nine monthsquarter of 20202021 and a gain of $23 million in the first nine months of 2019.
| | |
Notes to Consolidated Financial Statements (continued) |
|
million in the first six months of 2021 and a loss of $13 million in the first six months of 2020.
We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one-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 contingentcredit 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 contingentcredit risk-contingent features and the value of collateral that has been posted.
| | | Sept. 30, 2020 | Dec. 31, 2019 | | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
Aggregate fair value of OTC derivatives in net liability positions (a) | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 5,958 | | $ | 3,442 | | Aggregate fair value of OTC derivatives in net liability positions (a) | $ | 5,244 | | $ | 5,235 | |
| Collateral posted | Collateral posted | $ | 6,384 | | $ | 3,671 | | Collateral posted | $ | 5,711 | | $ | 5,568 | |
(a) Before consideration of cash collateral.
The aggregate fair value of OTC derivative contracts containing credit-risk contingentcredit 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 waswere 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) | Potential close-out exposures (fair value) (a) | | Potential close-out exposures (fair value) (a) | |
| | Sept. 30, 2020 | Dec. 31, 2019 | | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
If The Bank of New York Mellon’s rating changed to: (b) | If The Bank of New York Mellon’s rating changed to: (b) | | If The Bank of New York Mellon’s rating changed to: (b) | |
| A3/A- | A3/A- | $ | 10 | | $ | 56 | | A3/A- | $ | 56 | | $ | 79 | |
| Baa2/BBB | Baa2/BBB | $ | 565 | | $ | 608 | | Baa2/BBB | $ | 507 | | $ | 813 | |
| Ba1/BB+ | Ba1/BB+ | $ | 3,113 | | $ | 2,084 | | Ba1/BB+ | $ | 3,102 | | $ | 2,859 | |
(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.
| | |
Notes to Consolidated Financial Statements (continued) |
|
If The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept.June 30, 20202021 and Dec. 31, 2019,2020, existing collateral arrangements would
have required us to post additional collateral of $31$43 million and $63$41 million, respectively.
Offsetting assets and liabilities
The following tables present derivative and financial instruments and their related offsets. There were no derivative instruments or financial instruments subject to a legally enforceable netting agreement for which we are not currently netting.
| | Offsetting of derivative assets and financial assets at Sept. 30, 2020 | | |
| Offsetting of derivative assets and financial assets at June 30, 2021 | | Offsetting of derivative assets and financial assets at June 30, 2021 | |
| | 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 | | | 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) | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount |
| Derivatives subject to netting arrangements: | Derivatives subject to netting arrangements: | | Derivatives subject to netting arrangements: | |
| Interest rate contracts | Interest rate contracts | $ | 3,183 | | $ | 2,133 | | | $ | 1,050 | | $ | 350 | | $ | 0 | | $ | 700 | | Interest rate contracts | $ | 2,412 | | $ | 1,601 | | | $ | 811 | | $ | 239 | | $ | 0 | | $ | 572 | |
| Foreign exchange contracts | Foreign exchange contracts | 4,043 | | 3,102 | | | 941 | | 33 | | 0 | | 908 | | Foreign exchange contracts | 6,186 | | 4,073 | | | 2,113 | | 107 | | 0 | | 2,006 | |
| Equity and other contracts | Equity and other contracts | 8 | | 3 | | | 5 | | 0 | | 0 | | 5 | | Equity and other contracts | 7 | | 3 | | | 4 | | 0 | | 0 | | 4 | |
| Total derivatives subject to netting arrangements | Total derivatives subject to netting arrangements | 7,234 | | 5,238 | | | 1,996 | | 383 | | 0 | | 1,613 | | Total derivatives subject to netting arrangements | 8,605 | | 5,677 | | | 2,928 | | 346 | | 0 | | 2,582 | |
| Total derivatives not subject to netting arrangements | Total derivatives not subject to netting arrangements | 2,209 | | — | | | 2,209 | | — | | — | | 2,209 | | Total derivatives not subject to netting arrangements | 1,926 | | — | | | 1,926 | | — | | — | | 1,926 | |
| Total derivatives | Total derivatives | 9,443 | | 5,238 | | | 4,205 | | 383 | | 0 | | 3,822 | | Total derivatives | 10,531 | | 5,677 | | | 4,854 | | 346 | | 0 | | 4,508 | |
| Reverse repurchase agreements | Reverse repurchase agreements | 72,507 | | 54,629 | | (b) | 17,878 | | 17,852 | | 0 | | 26 | | Reverse repurchase agreements | 59,689 | | 41,122 | | (b) | 18,567 | | 18,555 | | 0 | | 12 | |
| Securities borrowing | Securities borrowing | 11,769 | | — | | | 11,769 | | 11,216 | | — | | 553 | | Securities borrowing | 11,195 | | — | | | 11,195 | | 10,344 | | — | | 851 | |
| Total | Total | $ | 93,719 | | $ | 59,867 | | | $ | 33,852 | | $ | 29,451 | | $ | 0 | | $ | 4,401 | | Total | $ | 81,415 | | $ | 46,799 | | | $ | 34,616 | | $ | 29,245 | | $ | 0 | | $ | 5,371 | |
(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 | | |
| Offsetting of derivative assets and financial assets at Dec. 31, 2020 | | Offsetting of derivative assets and financial assets at Dec. 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 | | | 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) | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount | (in millions) | (a) | Financial instruments | Cash collateral received | Net amount |
| Derivatives subject to netting arrangements: | Derivatives subject to netting arrangements: | | Derivatives subject to netting arrangements: | |
| Interest rate contracts | Interest rate contracts | $ | 2,394 | | $ | 1,792 | | | $ | 602 | | $ | 207 | | $ | 0 | | $ | 395 | | Interest rate contracts | $ | 2,972 | | $ | 1,952 | | | $ | 1,020 | | $ | 311 | | $ | 0 | | $ | 709 | |
| Foreign exchange contracts | Foreign exchange contracts | 4,861 | | 4,021 | | | 840 | | 44 | | 0 | | 796 | | Foreign exchange contracts | 7,128 | | 6,392 | | | 736 | | 146 | | 0 | | 590 | |
| Equity and other contracts | Equity and other contracts | 9 | | 6 | | | 3 | | 0 | | 0 | | 3 | | Equity and other contracts | 2 | | 2 | | | 0 | | 0 | | 0 | | 0 | |
| Total derivatives subject to netting arrangements | Total derivatives subject to netting arrangements | 7,264 | | 5,819 | | | 1,445 | | 251 | | 0 | | 1,194 | | Total derivatives subject to netting arrangements | 10,102 | | 8,346 | | | 1,756 | | 457 | | 0 | | 1,299 | |
| Total derivatives not subject to netting arrangements | Total derivatives not subject to netting arrangements | 1,797 | | — | | | 1,797 | | — | | — | | 1,797 | | Total derivatives not subject to netting arrangements | 2,089 | | — | | | 2,089 | | — | | — | | 2,089 | |
| Total derivatives | Total derivatives | 9,061 | | 5,819 | | | 3,242 | | 251 | | 0 | | 2,991 | | Total derivatives | 12,191 | | 8,346 | | | 3,845 | | 457 | | 0 | | 3,388 | |
| Reverse repurchase agreements | Reverse repurchase agreements | 112,355 | | 93,794 | | (b) | 18,561 | | 18,554 | | 0 | | 7 | | Reverse repurchase agreements | 78,828 | | 59,561 | | (b) | 19,267 | | 19,252 | | 0 | | 15 | |
| Securities borrowing | Securities borrowing | 11,621 | | — | | | 11,621 | | 11,278 | | — | | 343 | | Securities borrowing | 11,640 | | — | | | 11,640 | | 11,166 | | — | | 474 | |
| Total | Total | $ | 133,037 | | $ | 99,613 | | | $ | 33,424 | | $ | 30,083 | | $ | 0 | | $ | 3,341 | | Total | $ | 102,659 | | $ | 67,907 | | | $ | 34,752 | | $ | 30,875 | | $ | 0 | | $ | 3,877 | |
(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 | | |
| Offsetting of derivative liabilities and financial liabilities at June 30, 2021 | | Offsetting of derivative liabilities and financial liabilities at June 30, 2021 | Net liabilities recognized in the balance sheet | |
| | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | |
| (in millions) | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net liabilities recognized in the balance sheet | Net amount | (in millions) | (a) | Cash collateral pledged | Net liabilities recognized in the balance sheet | Net amount |
| Derivatives subject to netting arrangements: | Derivatives subject to netting arrangements: | | Derivatives subject to netting arrangements: | |
| Interest rate contracts | Interest rate contracts | $ | 5,035 | | $ | 2,551 | | | $ | 2,484 | | $ | 2,477 | | $ | 7 | | Interest rate contracts | $ | 3,619 | | $ | 2,063 | | | $ | 1,556 | | $ | 1,486 | | $ | 70 | |
| Foreign exchange contracts | Foreign exchange contracts | 4,294 | | 3,631 | | | 663 | | 224 | | 0 | | 439 | | Foreign exchange contracts | 5,793 | | 4,531 | | | 1,262 | | 497 | | 0 | | 765 | |
| Equity and other contracts | Equity and other contracts | 8 | | 1 | | | 7 | | 0 | | 0 | | 7 | | Equity and other contracts | 93 | | 87 | | | 6 | | 0 | | 0 | | 6 | |
| Total derivatives subject to netting arrangements | Total derivatives subject to netting arrangements | 9,337 | | 6,183 | | | 3,154 | | 2,701 | | 0 | | 453 | | Total derivatives subject to netting arrangements | 9,505 | | 6,681 | | | 2,824 | | 1,983 | | 0 | | 841 | |
| Total derivatives not subject to netting arrangements | Total derivatives not subject to netting arrangements | 439 | | — | | | 439 | | — | | — | | 439 | | Total derivatives not subject to netting arrangements | 506 | | — | | | 506 | | — | | — | | 506 | |
| Total derivatives | Total derivatives | 9,776 | | 6,183 | | | 3,593 | | 2,701 | | 0 | | 892 | | Total derivatives | 10,011 | | 6,681 | | | 3,330 | | 1,983 | | 0 | | 1,347 | |
| Repurchase agreements | Repurchase agreements | 69,494 | | 54,629 | | (b) | 14,865 | | 14,863 | | 1 | | 1 | | Repurchase agreements | 52,216 | | 41,122 | | (b) | 11,094 | | 11,093 | | 1 | | 0 | |
| Securities lending | Securities lending | 1,002 | | — | | | 1,002 | | 961 | | — | | 41 | | Securities lending | 1,331 | | — | | | 1,331 | | 1,253 | | — | | 78 | |
| Total | Total | $ | 80,272 | | $ | 60,812 | | | $ | 19,460 | | $ | 18,525 | | $ | 1 | | $ | 934 | | Total | $ | 63,558 | | $ | 47,803 | | | $ | 15,755 | | $ | 14,329 | | $ | 1 | | $ | 1,425 | |
(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 | | |
| Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2020 | | Offsetting of derivative liabilities and financial liabilities at Dec. 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 | | | Gross liabilities recognized | Gross amounts offset in the balance sheet | | Gross amounts not offset in the balance sheet | |
| (in millions) | (in millions) | (a) | Financial instruments | Cash collateral pledged | Net liabilities recognized
in the
balance sheet | Net amount | (in millions) | (a) | Cash collateral pledged | Net liabilities recognized
in the
balance sheet | Net amount |
| Derivatives subject to netting arrangements: | Derivatives subject to netting arrangements: | | Derivatives subject to netting arrangements: | |
| Interest rate contracts | Interest rate contracts | $ | 3,550 | | $ | 1,986 | | | $ | 1,564 | | $ | 1,539 | | $ | 25 | | Interest rate contracts | $ | 4,533 | | $ | 2,348 | | | $ | 2,185 | | $ | 2,115 | | $ | 70 | |
| Foreign exchange contracts | Foreign exchange contracts | 4,873 | | 3,428 | | | 1,445 | | 74 | | 0 | | 1,371 | | Foreign exchange contracts | 7,280 | | 5,484 | | | 1,796 | | 143 | | 0 | | 1,653 | |
| Equity and other contracts | Equity and other contracts | 5 | | 1 | | | 4 | | 2 | | 0 | | 2 | | Equity and other contracts | 37 | | 13 | | | 24 | | 7 | | 0 | | 17 | |
| Total derivatives subject to netting arrangements | Total derivatives subject to netting arrangements | 8,428 | | 5,415 | | | 3,013 | | 1,615 | | 0 | | 1,398 | | Total derivatives subject to netting arrangements | 11,850 | | 7,845 | | | 4,005 | | 2,265 | | 0 | | 1,740 | |
| Total derivatives not subject to netting arrangements | Total derivatives not subject to netting arrangements | 778 | | — | | | 778 | | — | | — | | 778 | | Total derivatives not subject to netting arrangements | 800 | | — | | | 800 | | — | | — | | 800 | |
| Total derivatives | Total derivatives | 9,206 | | 5,415 | | | 3,791 | | 1,615 | | 0 | | 2,176 | | Total derivatives | 12,650 | | 7,845 | | | 4,805 | | 2,265 | | 0 | | 2,540 | |
| Repurchase agreements | Repurchase agreements | 104,451 | | 93,794 | | (b) | 10,657 | | 10,657 | | 0 | | 0 | | Repurchase agreements | 69,831 | | 59,561 | | (b) | 10,270 | | 10,270 | | 0 | | 0 | |
| Securities lending | Securities lending | 718 | | — | | | 718 | | 694 | | — | | 24 | | Securities lending | 1,035 | | — | | | 1,035 | | 983 | | — | | 52 | |
| Total | Total | $ | 114,375 | | $ | 99,209 | | | $ | 15,166 | | $ | 12,966 | | $ | 0 | | $ | 2,200 | | Total | $ | 83,516 | | $ | 67,406 | | | $ | 16,110 | | $ | 13,518 | | $ | 0 | | $ | 2,592 | |
(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.
| | |
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 | Repurchase agreements and securities lending transactions accounted for as secured borrowings | Repurchase agreements and securities lending transactions accounted for as secured borrowings |
| | Sept. 30, 2020 | | Dec. 31, 2019 | | June 30, 2021 | | Dec. 31, 2020 |
| | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total | | Remaining contractual maturity | Total |
| (in millions) | (in millions) | Overnight and continuous | Up to 30 days | 30 days or more | | Overnight and continuous | Up to 30 days | 30 days or more | (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: | Repurchase agreements: | | Repurchase agreements: | |
| U.S. Treasury | U.S. Treasury | $ | 60,350 | | $ | 0 | | $ | 0 | | $ | 60,350 | | | $ | 94,788 | | $ | 10 | | $ | 0 | | $ | 94,798 | | U.S. Treasury | $ | 44,545 | | $ | 47 | | $ | 0 | | $ | 44,592 | | | $ | 62,381 | | $ | 0 | | $ | 0 | | $ | 62,381 | |
| Corporate bonds | | Corporate bonds | 243 | | 184 | | 1,480 | | 1,907 | | | 190 | | 218 | | 1,436 | | 1,844 | |
| Sovereign debt/sovereign guaranteed | | Sovereign debt/sovereign guaranteed | 433 | | 0 | | 1,244 | | 1,677 | | | 0 | | 0 | | 0 | | 0 | |
| Agency RMBS | Agency RMBS | 2,913 | | 675 | | 2 | | 3,590 | | | 4,234 | | 774 | | 0 | | 5,008 | | Agency RMBS | 1,239 | | 0 | | 0 | | 1,239 | | | 3,117 | | 0 | | 80 | | 3,197 | |
| 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 | State and political subdivisions | 43 | | 39 | | 810 | | 892 | | | 38 | | 166 | | 1,077 | | 1,281 | | State and political subdivisions | 31 | | 27 | | 749 | | 807 | | | 66 | | 40 | | 864 | | 970 | |
| U.S. government agencies | U.S. government agencies | 610 | | 0 | | 0 | | 610 | | | 594 | | 16 | | 0 | | 610 | | U.S. government agencies | 726 | | 0 | | 0 | | 726 | | | 425 | | 0 | | 0 | | 425 | |
| Other debt securities | Other debt securities | 47 | | 44 | | 186 | | 277 | | | 2 | | 0 | | 2 | | 4 | | Other debt securities | 63 | | 14 | | 115 | | 192 | | | 7 | | 21 | | 138 | | 166 | |
| Equity securities | Equity securities | 0 | | 53 | | 715 | | 768 | | | 31 | | 99 | | 479 | | 609 | | Equity securities | 0 | | 75 | | 1,001 | | 1,076 | | | 0 | | 21 | | 827 | | 848 | |
| Total | Total | $ | 64,323 | | $ | 875 | | $ | 4,296 | | $ | 69,494 | | | $ | 99,953 | | $ | 1,323 | | $ | 3,175 | | $ | 104,451 | | Total | $ | 47,280 | | $ | 347 | | $ | 4,589 | | $ | 52,216 | | | $ | 66,186 | | $ | 300 | | $ | 3,345 | | $ | 69,831 | |
| Securities lending: | Securities lending: | | Securities lending: | |
| Agency RMBS | Agency RMBS | $ | 180 | | $ | 0 | | $ | 0 | | $ | 180 | | | $ | 160 | | $ | 0 | | $ | 0 | | $ | 160 | | Agency RMBS | $ | 167 | | $ | 0 | | $ | 0 | | $ | 167 | | | $ | 161 | | $ | 0 | | $ | 0 | | $ | 161 | |
| U.S. government agencies | 1 | | 0 | | 0 | | 1 | | | 19 | | 0 | | 0 | | 19 | | |
| Other debt securities | Other debt securities | 49 | | 0 | | 0 | | 49 | | | 41 | | 0 | | 0 | | 41 | | Other debt securities | 86 | | 0 | | 0 | | 86 | | | 52 | | 0 | | 0 | | 52 | |
| Equity securities | Equity securities | 772 | | 0 | | 0 | | 772 | | | 498 | | 0 | | 0 | | 498 | | Equity securities | 1,078 | | 0 | | 0 | | 1,078 | | | 822 | | 0 | | 0 | | 822 | |
| Total | Total | $ | 1,002 | | $ | 0 | | $ | 0 | | $ | 1,002 | | | $ | 718 | | $ | 0 | | $ | 0 | | $ | 718 | | Total | $ | 1,331 | | $ | 0 | | $ | 0 | | $ | 1,331 | | | $ | 1,035 | | $ | 0 | | $ | 0 | | $ | 1,035 | |
| Total secured borrowings | Total secured borrowings | $ | 65,325 | | $ | 875 | | $ | 4,296 | | $ | 70,496 | | | $ | 100,671 | | $ | 1,323 | | $ | 3,175 | | $ | 105,169 | | Total secured borrowings | $ | 48,611 | | $ | 347 | | $ | 4,589 | | $ | 53,547 | | | $ | 67,221 | | $ | 300 | | $ | 3,345 | | $ | 70,866 | |
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 18–17–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.
| | |
Notes to Consolidated Financial Statements (continued) |
|
The following table presents a summary of our off-balance sheet credit risks.
| | Off-balance sheet credit risks | Off-balance sheet credit risks | Sept. 30, 2020 | Dec. 31, 2019 | Off-balance sheet credit risks | June 30, 2021 | Dec. 31, 2020 |
| (in millions) | (in millions) | (in millions) |
| Lending commitments | Lending commitments | $ | 47,658 | | $ | 49,119 | | Lending commitments | $ | 47,098 | | $ | 47,577 | |
Standby letters of credit (“SBLC”) (a) | Standby letters of credit (“SBLC”) (a) | 2,175 | | 2,298 | | Standby letters of credit (“SBLC”) (a) | 2,182 | | 2,265 | |
| Commercial letters of credit | Commercial letters of credit | 87 | | 74 | | Commercial letters of credit | 98 | | 60 | |
Securities lending indemnifications (b)(c) | Securities lending indemnifications (b)(c) | 414,324 | | 408,378 | | Securities lending indemnifications (b)(c) | 495,340 | | 469,121 | |
(a)Net of participations totaling $145$129 million at Sept.June 30, 20202021 and $146$154 million at Dec. 31, 2019.2020.
(b)Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $58$61 billion at Sept.June 30, 20202021 and $57$62 billion at Dec. 31, 2019.2020.
(c)Includes cash collateral, invested in indemnified repurchase agreements, held by us as securities lending agent of $43$47 billion at Sept.June 30, 20202021 and $37$41 billion at Dec. 31, 2019.2020.
The total potential loss on undrawn lending commitments, standby and commercial letters of credit, and securities lending indemnifications is equal to the total notional amount if drawn upon, which does not consider the value of any collateral.
Since many of the lending commitments are expected to expire without being drawn upon, the total amount does not necessarily represent future cash requirements. A summary of lending commitment maturities is as follows: $31.0$29.5 billion in less than one year, $16.3$17.0 billion in one to five years and $336$638 million over five years.
SBLCs principally support obligations of corporate clients and were collateralized with cash and securities of $200$131 million at Sept.June 30, 20202021 and $184$194 million at Dec. 31, 2019.2020. At Sept.June 30, 2020, $1.62021, $1.5 billion of the SBLCs will expire within one year, $568$702 million in one to five years and $1 millionNaN 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 | Standby letters of credit | Sept. 30, 2020 | Dec. 31, 2019 | Standby letters of credit | June 30, 2021 | Dec. 31, 2020 |
| | Investment grade | Investment grade | 87 | % | 90 | % | Investment grade | 86 | % | 82 | % |
| Non-investment grade | Non-investment grade | 13 | % | 10 | % | Non-investment grade | 14 | % | 18 | % |
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 $87$98 million at Sept.June 30, 20202021 and $74$60 million at Dec. 31, 2019.2020.
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 $135$50 million at Sept.June 30, 20202021 and $94$121 million at Dec. 31, 2019.2020.
A securities lending transaction is a fully collateralized transaction in which the owner of a security agrees to lend the security (typically through an agent, in our case, The Bank of New York Mellon) to a borrower, usually a broker-dealer or bank, on an open, overnight or term basis, under the terms of a prearranged contract.
We typically lend securities with indemnification against borrower default. We generally require the borrower to provide collateral with a minimum value of 102% of the fair value of the securities borrowed, which is monitored on a daily basis, thus reducing credit risk. Market risk can also arise in securities lending transactions. These risks are controlled through policies limiting the level of risk that can be undertaken. Securities lending transactions are generally entered into only with highly rated counterparties. Securities lending indemnifications
| | |
Notes to Consolidated Financial Statements (continued) |
|
counterparties. Securities lending indemnifications were secured by collateral of $435522 billion at Sept.June 30, 20202021 and $428493 billion at Dec. 31, 2019.2020.
CIBC Mellon, a joint venture between BNY Mellon and the Canadian Imperial Bank of Commerce (“CIBC”), engages in securities lending activities. CIBC Mellon, BNY Mellon and CIBC jointly and severally indemnify securities lenders against specific types of borrower default. At Sept.June 30, 20202021 and Dec. 31, 2019, $582020, $61 billion and $57$62 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 $61$64 billion and $61$66 billion, respectively. If, upon a default, a borrower’s collateral was not sufficient to cover its related obligations, certain losses related to the indemnification could be covered by the indemnitors.
Unsettled repurchase and reverse repurchase agreements
In the normal course of business, we enter into repurchase agreements and reverse repurchase agreements that settle at a future date. In repurchase agreements, BNY Mellon receives cash from and provides securities as collateral to a counterparty at settlement. In reverse repurchase agreements, BNY Mellon advances cash to and receives securities as collateral from the counterparty at settlement. These transactions are recorded on the consolidated balance sheet on the settlement date. At Sept.June 30, 2020,2021, we had $150 million$2.6 billion of unsettled repurchase agreements and 0$6.4 billion of unsettled reverse repurchase agreements.
Industry concentrations
We have significant industry concentrations related to credit exposure at Sept.June 30, 2020.2021. The tables below present our credit exposure in the financial institutions and commercial portfolios.
| | | | | | | | | | | |
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 | |
| | | | | | | | | | | |
Financial institutions portfolio exposure (in billions) | June 30, 2021 |
| Loans | Unfunded
commitments | Total exposure |
| Securities industry | $ | 2.4 | | $ | 20.2 | | $ | 22.6 | |
| Asset managers | 1.5 | | 6.9 | | 8.4 | |
| Banks | 6.0 | | 1.1 | | 7.1 | |
| Insurance | 0.2 | | 3.0 | | 3.2 | |
| Government | 0.1 | | 0.2 | | 0.3 | |
| Other | 0.5 | | 1.0 | | 1.5 | |
| Total | $ | 10.7 | | $ | 32.4 | | $ | 43.1 | |
| | | | | | | | | | | |
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 | |
| | | | | | | | | | | |
Commercial portfolio exposure (in billions) | June 30, 2021 |
| Loans | Unfunded
commitments | Total exposure |
| Manufacturing | $ | 0.6 | | $ | 3.9 | | $ | 4.5 | |
| Energy and utilities | 0.3 | | 4.0 | | 4.3 | |
| Services and other | 0.7 | | 3.5 | | 4.2 | |
| Media and telecom | 0.1 | | 0.9 | | 1.0 | |
| Total | $ | 1.7 | | $ | 12.3 | | $ | 14.0 | |
Major concentrations in securities lending are primarily to broker-dealers and are generally collateralized with cash and/or securities.
Sponsored Member Repo Programmember 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 1716 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 indemnifications for several reasons. In addition to
| | |
Notes to Consolidated Financial Statements (continued) |
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indemnifications for several reasons. In addition to the lack of a stated or notional amount in a majority of such indemnifications, we are unable to predict the nature of events that would trigger indemnification or the level of indemnification for a certain event. We believe, however, that the possibility that we will have to make any material payments for these indemnifications is remote. At Sept.June 30, 20202021 and Dec. 31, 2019,2020, we have not recorded any material liabilities under these arrangements.
Clearing and settlement exchanges
We are a noncontrolling equity investor in, and/or member of, several industry clearing or settlement exchanges through which foreign exchange, securities, derivatives or other transactions settle. Certain of these industry clearing and settlement exchanges require their members to guarantee their obligations and liabilities and/or to provide liquidity support in the event other members do not honor their obligations. We believe the likelihood that a clearing or settlement exchange (of which we are a member) would become insolvent is remote. Additionally, certain settlement exchanges have implemented loss allocation policies that enable the exchange to allocate settlement losses to the members of the exchange. It is not possible to quantify such mark-to-market loss until the loss occurs. Any ancillary costs that occur as a result of any mark-to-market loss cannot be quantified. In addition, we also sponsor clients as members on clearing and settlement exchanges and guarantee their obligations. At Sept.June 30, 20202021 and Dec. 31, 2019,2020, we did not record any material liabilities under these arrangements.
Legal proceedings
In the ordinary course of business, The Bank of New York Mellon Corporation and its subsidiaries are routinely named as defendants in or made parties to pending and potential legal actions. We also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal). Claims for significant monetary damages are often asserted in many of these legal actions, while claims for disgorgement, restitution, penalties and/or other remedial actions or sanctions may be sought in governmental and regulatory matters. It is inherently difficult to predict the eventual outcomes of such matters given their complexity and the particular facts and circumstances at issue in each of these matters.
However, on the basis of our current knowledge and
understanding, we do not believe that judgments, settlements or orders, if any, arising from these matters (either individually or in the aggregate, after giving effect to applicable reserves and insurance coverage) will have a material adverse effect on the consolidated financial position or liquidity of BNY Mellon, although they could have a material effect on our results of operations in a given period.
In view of the inherent unpredictability of outcomes in litigation and regulatory matters, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, or (iii) the matters involve novel legal theories or a large number of parties, as a matter of course there is considerable uncertainty surrounding the timing or ultimate resolution of litigation and regulatory matters, including a possible eventual loss, fine, penalty or business impact, if any, associated with each such matter. In accordance with applicable accounting guidance, we establish accruals for litigation and regulatory matters when those matters proceed to a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. We regularly monitor such matters for developments that could affect the amount of the accrual, and will adjust the accrual amount as appropriate. If the loss contingency in question is not both probable and reasonably estimable, we do not establish an accrual and the matter continues to be monitored for any developments that would make the loss contingency both probable and reasonably estimable. We believe that our accruals for legal proceedings are appropriate and, in the aggregate, are not material to the consolidated financial position of BNY Mellon, although future accruals could have a material effect on the results of operations in a given period. In addition, if we have the potential to recover a portion of an estimated loss from a third party, we record a receivable up to the amount of the accrual that is probable of recovery.
For certain of those matters described here for which a loss contingency may, in the future, be reasonably possible (whether in excess of a related accrued liability or where there is no accrued liability), BNY Mellon is currently unable to estimate a range of reasonably possible loss. For those matters described here where BNY Mellon is able to estimate a reasonably possible loss, the aggregate range of such reasonably possible loss is up to $735 million in
| | |
Notes to Consolidated Financial Statements (continued) |
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reasonably possible loss is up to $750 million in excess of the accrued liability (if any) related to those matters. For matters where a reasonably possible loss is denominated in a foreign currency, our estimate is adjusted quarterly based on prevailing exchange rates. We do not consider potential recoveries when estimating reasonably possible losses.
The following describes certain judicial, regulatory and arbitration proceedings involving BNY Mellon:
Mortgage-Securitization Trusts Proceedings
The Bank of New York Mellon has been named as a defendant in a number of legal actions brought by MBS investors alleging that the trustee has expansive duties under the governing agreements, including the duty to investigate and pursue breach of representation and warranty claims against other parties to the MBS transactions. NaN actions commenced in December 2014, December 2015 and February 2017 are pending in New York federal court; and 1 action commenced in May 2016 is pending in New York state court. A New York federal court action filed in August 2014 has been dismissed.
Matters Related to R. Allen Stanford
In late December 2005, Pershing LLC (“Pershing”) became a clearing firm for Stanford Group Co. (“SGC”), a registered broker-dealer that was part of a group of entities ultimately controlled by R. Allen Stanford (“Stanford”). Stanford International Bank, also controlled by Stanford, issued certificates of deposit (“CDs”). Some investors allegedly wired funds from their SGC accounts to purchase CDs. In 2009, the Securities and Exchange Commission charged Stanford with operating a Ponzi scheme in connection with the sale of CDs, and SGC was placed into receivership. Alleged purchasers of CDs have filed 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. NaNAfter dismissals, 3 lawsuits have been filedremain against Pershing in Louisiana Florida and New Jersey federal courts, which were filed 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 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. This action has been resolved. Various alleged Stanford CD purchasers asserted similar claims in FINRA arbitration proceedings, alsoall of which have been initiated by alleged purchasers asserting similar claims.settled or decided.
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 May 20, 2021, the court in one of those lawsuits entered a $3 million judgment against DTVM and Ativos, which DTVM and Ativos intend to appeal. 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)
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|
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
| | |
Notes to Consolidated Financial Statements (continued) |
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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 UniaoUnião (“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$45 million. TCU also imposed on DTVM a fine of approximately $1.8$2 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 March 26, 2021, DTVM and Ativos filed a lawsuit challenging the decision rendered by the Arbitration Court with respect to its jurisdiction over the case. On Oct. 25, 2019, Postalis filed a lawsuit in Rio de Janeiro against DTVM and Alocação de Patrimônio, alleging liability for losses in another fund for which DTVM was administrator and Alocação de Patrimônio and Ativos were managers. On June 19, 2020, a lawsuit was filed in federal court in Rio de Janeiro against DTVM, Postalis, and various other defendants alleging liability against DTVM for certain Postalis losses in an investment fund of which DTVM was administrator. On Feb. 10, 2021, Postalis and another pension fund served DTVM in a lawsuit filed in Rio de Janeiro, alleging liability for losses in another investment fund for which DTVM was administrator and the other defendant was manager.
Brazilian Silverado Litigation
DTVM acts as administrator for the Fundo de Investimento em Direitos Creditórios Multisetorial Silverado Maximum (“Silverado Maximum Fund”), which invests in commercial credit receivables. On June 2, 2016, the Silverado Maximum Fund sued DTVM in its capacity as administrator, along with Deutsche Bank S.A. - Banco Alemão in its capacity as custodian and Silverado Gestão e Investimentos Ltda. in its capacity as investment manager. The Fund alleges that each of the defendants failed to fulfill its respective duty, and caused losses to the Fund for which the defendants are jointly and severally liable.
German Tax Matters
German authorities are investigating past “cum/ex” trading, which involved the purchase of equity securities on or shortly before the dividend date, but settled after that date, potentially resulting in an unwarranted refund of withholding tax. German authorities have taken the view that past cum/ex trading may have resulted in tax avoidance or evasion. European subsidiaries of BNY Mellon have been informed by German authorities about investigations into potential cum/ex trading by certain third-party investment funds, where one of the subsidiaries had acquired entities that served as depositary and/or fund manager for those third-party investment funds. We have received information requests from the authorities relating to pre-acquisition activity and are cooperating fully with those requests. 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 November and December 2020, we received secondary liability notices from the German tax authorities totaling approximately $150 million related to pre-acquisition activity in various funds for which the entities we acquired were depositary and/or fund manager. We have appealed the notices. In connection with the acquisition of the subject entities, we obtained an indemnity for liabilities from the sellers that we intend to pursue as necessary.
Note 19–18–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 20192020 Annual Report.
| | |
Notes to Consolidated Financial Statements (continued) |
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Business accounting principles
Our business data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principlesGAAP which is used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance.
| | |
Notes to Consolidated Financial Statements(continued)
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Business results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no significant organizationalreclassification or organization 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. The intersegment activity is eliminated 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 were restated in the first quarter of 2020 for both reclassifications.2021.
The accounting policies of the businesses are the same as those described in Note 1 of the Notes to Consolidated Financial Statements in our 20192020 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 include revenue for services provided between the segments that are also provided to third parties. Fee and other revenue transferred between businesses under revenue transfer agreements is included within other revenue in each business.
•Revenues and expenses associated with specific client bases are included in those businesses. For example, foreign exchange activity associated with clients using custody products is included in Investment Services.
•Net interest revenue is allocated to businesses based on the yields on the assets and liabilities generated by each business. We employ a funds transfer pricing system that matches funds with the
specific assets and liabilities of each business based on their interest sensitivity and maturity characteristics.
•The provision for credit losses associated with the respective credit portfolios is reflected in each business segment.
•Incentives expense related to restricted stock and RSUs 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) |
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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 | | |
| For the quarter ended June 30, 2021 | | For the quarter ended June 30, 2021 | Investment
Services | | Investment
and Wealth Management | | Other | | Consolidated | |
| (dollars in millions) | (dollars in millions) | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | (dollars in millions) |
| Total fee and other revenue | Total fee and other revenue | Total fee and other revenue | $ | 2,336 | | | $ | 952 | | (a) | $ | 22 | | | $ | 3,310 | | (a) |
| Net interest revenue (expense) | Net interest revenue (expense) | 681 | | | 47 | | | (25) | | | 703 | | | Net interest revenue (expense) | 643 | | | 47 | | | (45) | | | 645 | | |
| Total revenue (loss) | Total revenue (loss) | 2,927 | | | 918 | | (a) | (5) | | | 3,840 | | (a) | Total revenue (loss) | 2,979 | | | 999 | | (a) | (23) | | | 3,955 | | (a) |
| Provision for credit losses | Provision for credit losses | (10) | | | 12 | | | 7 | | | 9 | | | Provision for credit losses | (77) | | | (4) | | | (5) | | | (86) | | |
| Noninterest expense | Noninterest expense | 2,020 | | | 661 | | | 0 | | | 2,681 | | | Noninterest expense | 2,052 | | | 677 | | | 49 | | | 2,778 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | $ | 917 | | | $ | 245 | | (a) | $ | (12) | | | $ | 1,150 | | (a) | Income (loss) before income taxes | $ | 1,004 | | | $ | 326 | | (a) | $ | (67) | | | $ | 1,263 | | (a) |
Pre-tax operating margin (b) | Pre-tax operating margin (b) | 31 | % | | 27 | % | | N/M | | 30 | % | | Pre-tax operating margin (b) | 34 | % | | 33 | % | | N/M | | 32 | % | |
| Average assets | Average assets | $ | 329,324 | | | $ | 30,160 | | | $ | 55,381 | | | $ | 414,865 | | | Average assets | $ | 383,330 | | | $ | 30,370 | | | $ | 38,629 | | | $ | 452,329 | | |
(a) Total fee and other revenue, includes net income from consolidated investment management funds of $20 million, representing $27 million of income and noncontrolling interests of $7 million. Totaltotal revenue and income before income taxes are net of noncontrolling interests of $7$5 million.
(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 | | |
| For the quarter ended March 31, 2021 | | For the quarter ended March 31, 2021 | Investment
Services | | Investment
and Wealth Management | | Other | | Consolidated | |
| (dollars in millions) | (dollars in millions) | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | (dollars in millions) |
| Total fee and other revenue | |
| Total fee and other revenue (loss) | | Total fee and other revenue (loss) | $ | 2,345 | | | $ | 943 | | (a) | $ | (27) | | | $ | 3,261 | | (a) |
| Net interest revenue (expense) | Net interest revenue (expense) | 768 | | | 48 | | | (36) | | | 780 | | | Net interest revenue (expense) | 645 | | | 48 | | | (38) | | | 655 | | |
| Total revenue | 3,107 | | | 886 | | (a) | 2 | | | 3,995 | | (a) | |
| Total revenue (loss) | | Total revenue (loss) | 2,990 | | | 991 | | (a) | (65) | | | 3,916 | | (a) |
| Provision for credit losses | Provision for credit losses | 145 | | | 7 | | | (9) | | | 143 | | | Provision for credit losses | (79) | | | 4 | | | (8) | | | (83) | | |
| Noninterest expense | Noninterest expense | 1,989 | | | 658 | | | 39 | | | 2,686 | | | Noninterest expense | 2,101 | | | 709 | | | 41 | | | 2,851 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | $ | 973 | | | $ | 221 | | (a) | $ | (28) | | | $ | 1,166 | | (a) | Income (loss) before income taxes | $ | 968 | | | $ | 278 | | (a) | $ | (98) | | | $ | 1,148 | | (a) |
Pre-tax operating margin (b) | Pre-tax operating margin (b) | 31 | % | | 25 | % | | N/M | | 29 | % | | Pre-tax operating margin (b) | 32 | % | | 28 | % | | N/M | | 29 | % | |
| Average assets | Average assets | $ | 335,288 | | | $ | 30,327 | | | $ | 49,744 | | | $ | 415,359 | | | Average assets | $ | 385,054 | | | $ | 32,066 | | | $ | 43,259 | | | $ | 460,379 | | |
(a) Total fee and other revenue, includestotal revenue and income before income taxes are net income from consolidated investment management funds of $39 million, representing $54 million of income and noncontrolling interests of $15$5 million.
(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, 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) |
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| | For the nine months ended Sept. 30, 2020 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | |
| For the six months ended June 30, 2021 | | For the six months ended June 30, 2021 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | |
| (dollars in millions) | (dollars in millions) | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | (dollars in millions) |
| Total fee and other revenue | |
| Total fee and other revenue (loss) | | Total fee and other revenue (loss) | $ | 4,681 | | | $ | 1,895 | | (a) | $ | (5) | | | $ | 6,571 | | (a) |
| Net interest revenue (expense) | Net interest revenue (expense) | 2,255 | | | 147 | | | (105) | | | 2,297 | | | Net interest revenue (expense) | 1,288 | | | 95 | | | (83) | | | 1,300 | | |
| Total revenue (loss) | Total revenue (loss) | 9,276 | | | 2,702 | | (a) | (17) | | | 11,961 | | (a) | Total revenue (loss) | 5,969 | | | 1,990 | | (a) | (88) | | | 7,871 | | (a) |
| Provision for credit losses | Provision for credit losses | 284 | | | 28 | | | 9 | | | 321 | | | Provision for credit losses | (156) | | | 0 | | | (13) | | | (169) | | |
| Noninterest expense | Noninterest expense | 5,996 | | | 2,014 | | | 69 | | | 8,079 | | | Noninterest expense | 4,153 | | | 1,386 | | | 90 | | | 5,629 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | $ | 2,996 | | | $ | 660 | | (a) | $ | (95) | | | $ | 3,561 | | (a) | Income (loss) before income taxes | $ | 1,972 | | | $ | 604 | | (a) | $ | (165) | | | $ | 2,411 | | (a) |
Pre-tax operating margin (b) | Pre-tax operating margin (b) | 32 | % | | 24 | % | | N/M | | 30 | % | | Pre-tax operating margin (b) | 33 | % | | 30 | % | | N/M | | 31 | % | |
| Average assets | Average assets | $ | 322,924 | | | $ | 30,343 | | | $ | 51,936 | | | $ | 405,203 | | | Average assets | $ | 384,187 | | | $ | 31,213 | | | $ | 40,932 | | | $ | 456,332 | | |
(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. Totaltotal revenue and income before income taxes are net of noncontrolling interests of $4$10 million.
(b) Income before income taxes divided by total revenue.
N/M -– Not meaningful.
| | For the nine months ended Sept. 30, 2019 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | |
| For the six months ended June 30, 2020 | | For the six months ended June 30, 2020 | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | |
| (dollars in millions) | (dollars in millions) | Investment
Services | | Investment and Wealth
Management | | Other | | Consolidated | | (dollars in millions) |
| Total fee and other revenue | Total fee and other revenue | Total fee and other revenue | $ | 4,775 | | | $ | 1,684 | | (a) | $ | 68 | | | $ | 6,527 | | (a) |
| Net interest revenue (expense) | Net interest revenue (expense) | 2,348 | | | 175 | | | (150) | | | 2,373 | | | Net interest revenue (expense) | 1,574 | | | 100 | | | (80) | | | 1,594 | | |
| Total revenue (loss) | Total revenue (loss) | 9,038 | | | 2,736 | | (a) | (107) | | | 11,667 | | (a) | Total revenue (loss) | 6,349 | | | 1,784 | | (a) | (12) | | | 8,121 | | (a) |
| Provision for credit losses | Provision for credit losses | (11) | | | (1) | | | (5) | | | (17) | | | Provision for credit losses | 294 | | | 16 | | | 2 | | | 312 | | |
| Noninterest expense | Noninterest expense | 5,917 | | | 1,916 | | | 103 | | | 7,936 | | | Noninterest expense | 3,976 | | | 1,353 | | | 69 | | | 5,398 | | |
| Income (loss) before income taxes | Income (loss) before income taxes | $ | 3,132 | | | $ | 821 | | (a) | $ | (205) | | | $ | 3,748 | | (a) | Income (loss) before income taxes | $ | 2,079 | | | $ | 415 | | (a) | $ | (83) | | | $ | 2,411 | | (a) |
Pre-tax operating margin (b) | Pre-tax operating margin (b) | 35 | % | | 30 | % | | N/M | | 32 | % | | Pre-tax operating margin (b) | 33 | % | | 23 | % | | N/M | | 30 | % | |
| Average assets | Average assets | $ | 263,631 | | | $ | 29,815 | | | $ | 49,683 | | | $ | 343,129 | | | Average assets | $ | 319,689 | | | $ | 30,435 | | | $ | 50,194 | | | $ | 400,318 | | |
(a) Total fee and other revenue, includes net income from consolidated investment management funds of $22 million, representing $39 million of income and noncontrolling interests of $17 million. Totaltotal revenue and income before income taxes are net of noncontrolling interests of $17$(3) million.
(b) Income before income taxes divided by total revenue.
N/M -– Not meaningful.
Note 20–19–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 | Six months ended June 30, | | | |
| (in millions) | 2021 | | 2020 | | | |
| Transfers from loans to other assets for other real estate owned | $ | 1 | | | $ | 0 | | | | |
| Change in assets of consolidated investment management funds | 74 | | | 215 | | | | |
| Change in liabilities of consolidated investment management funds | 4 | | | 3 | | | | |
| Change in nonredeemable noncontrolling interests of consolidated investment management funds | 201 | | | 10 | | | | |
| Securities purchased not settled | 866 | | | 1,730 | | | | |
| Securities sold not settled | 100 | | | 0 | | | | |
| | | | | | |
| Available-for-sale securities transferred to held-to-maturity | 5,945 | | | 0 | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Premises and equipment/operating lease obligations | 56 | | | 66 | | | | |
| | | | | | |
| | |
| 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 thirdsecond quarter of 20202021 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, deposits, impacts of trends on our businesses, regulatory, technology, market, economic or accounting developments and the impacts of such developments on our businesses, legal proceedings and other contingencies), human capital management (including related ambitions, objectives, aims and goals), effective tax rate, net interest revenue, estimates (including those regarding expenses, losses inherent in our credit portfolios and capital ratios), intentions (including those regarding our capital returns and expenses, including our investments in technology and pension expense), targets, opportunities, potential actions, growth and initiatives, including the potential effects of the coronavirus pandemic on any of the foregoing.
In this report, any other report, any press release or any written or oral statement that BNY Mellon or its executives may make, words, such as “estimate,” “forecast,” “project,” “anticipate,” “likely,” “target,” “expect,” “intend,” “continue,” “seek,” “believe,” “plan,” “goal,” “could,” “should,” “would,” “may,” “might,” “will,” “strategy,” “synergies,” “opportunities,” “trends,” “ambition,” “objective,” “aim,” “future,” “potentially,” “outlook” and words of similar meaning, may signify forward-looking statements.
Actual results may differ materially from those expressed or implied as a result of a number of factors, including those discussed in “Risk Factors” in this Quarterly Report and our 20192020 Annual Report, such as:
•our risk management framework, models and processes may not be effective in mitigating risk and reducing the potential for losses;
•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;
•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; anyinformation. 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; thesesupervisionthat impact our operations. Changes to and introduction of new 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,financial condition, 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;reputation;
•we are dependent on fee-based business for a substantial majority of our revenue and our fee-based revenues could be adversely affected by slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences;
•weakness and volatility in financial markets and the economy generally may materially adversely affect our business, financial condition and results of operations;
| | |
Forward-looking Statements (continued) |
|
slowing in market activity, weak financial markets, underperformance and/or negative trends in savings rates or in investment preferences;
��weakness and volatility in financial markets and the economy generally may materially adversely affect our business, results of operations and financial condition;
•changes in interest rates and yield curves couldhave had, and may in the future continue to 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;
•transitions away from and the replacement of LIBOR and other interbank offered rates could adversely impact our business, financial condition and results of operations;
•following the end of the transition period, the UK and the EU have not agreed to alternatives to the “passporting rights,” which may result in negative effects on global economic conditions, global financial markets, and our business, financial condition and results of operations;
•the failure or perceived weakness of any of our significant clients or counterparties, many of whom are major financial institutions andor sovereign entities, and our assumption of credit and counterparty risk, could expose us to loss and adversely affect our business;
•we could incur losses if our allowance for credit losses, including loan and lending-related commitment reserves, is inadequate or if our expectations of future economic conditions deteriorate;
•our business, financial condition and results of operations could be adversely affected if we do not effectively manage our liquidity;
•we could incur losses if the Parent is a non-operating holding company, and as a result, is dependent on dividends from its subsidiaries and extensions of credit from its IHC to meet its obligations, including with respect to its securities, and to provide funds for share repurchases and payment of dividends to its stockholders;
•our allowance for credit losses,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 loanthose governing capital and lending-related commitments reserves, is inadequate;capital planning, applicable provisions of Delaware law and our failure to pay full and timely dividends on our preferred stock;
•any material reduction in our credit ratings or the credit ratings of our principal bank subsidiaries, The Bank of New York Mellon or BNY Mellon, N.A., could increase the cost of funding and borrowing to us and our rated subsidiaries and have a material adverse effect on our business, financial condition and results of operations and financial condition and on the value of the securities we issue;
•the application of our Title I preferred resolution strategy or resolution under the Title II orderly liquidation authority could adversely affect the Parent’s liquidity and financial condition and the Parent’s security holders;
•new lines of business, new products and services or transformational or strategic project initiatives 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, retain and retainmotivate employees;
•our strategic transactions present risks and uncertainties and could have an adverse effect on our business, financial condition and results of operationsoperations;
•our businesses may be negatively affected by adverse events, publicity, government scrutiny or other reputational harm;
•climate change concerns could adversely affect our business, affect client activity levels and financial condition;damage our reputation;
•impacts from natural disasters, climate change, acts of terrorism, pandemics, global conflicts and other geopolitical events may have a negative impact on our business and operations;
•tax law changes or challenges to our tax positions with respect to historical transactions may adversely affect our net income, effective tax rate and our overall results of operations and financial condition;
•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 20192020 Annual Report and any subsequent reports filed with the SEC by BNY Mellon pursuant to the Exchange Act. All forward-looking statements speak only as of the date on which such statements are made, and BNY Mellon undertakes no obligation to update any statement to reflect events or circumstances after the date on which such forward-looking statement is made or to reflect the occurrence of unanticipated events. The contents of BNY Mellon’s website or any other website referenced herein are not part of this report.
| | |
Part II -– Other Information |
|
Item 1. Legal Proceedings.
The information required by this Item is set forth in the “Legal proceedings” section in Note 1817 of the Notes to Consolidated Financial Statements, which portion is incorporated herein by reference in response to this item.
Item 1A. Risk Factors.
The following discussion supplements the discussion of risk factors that could affect our business, financial condition or results of operations set forth in Part I, Item 1A., Risk Factors, on pages 75 through 99 of our 2019 Annual Report. The discussion of Risk Factors, as so supplemented, sets forth our most significant risk factors that could affect our business, financial condition or results of operations. However, other factors, besides those discussed below or in our 2019 Annual Report or other of our reports filed with or furnished to the SEC, also could adversely affect our business, financial condition or results of operations. We cannot assure you that the risk factors described below or elsewhere in this report and such other reports address all potential risks that we may face. These risk factors also serve to describe factors which may cause our results to differ materially from those described in forward-looking statements included herein or in other documents or statements that make reference to this Form 10-Q. See “Forward-looking Statements.”
The coronavirus pandemic is adversely affecting us and creates significant risks and uncertainties for our business, and the ultimate impact of the pandemic on us will depend on future developments, which are highly uncertain and cannot be predicted.
The coronavirus pandemic has negatively affected the global economy, decreased liquidity in fixed income markets, created significant volatility and disruption in financial and equity markets, increased unemployment levels and disrupted businesses in many industries. This has resulted in increased demand on our transaction processing and clearance capabilities in many of our Investment Services businesses and volatility in the levels and mix of the assets under management of our Investment and Wealth Management business. Moreover, governmental actions in response to the pandemic are meaningfully influencing the interest rate environment, which has reduced, and is expected to continue to reduce, our net interest margin. As a
result, we have granted and may continue to grant money market fee waivers. The effects of the pandemic have resulted, and could continue to result, in higher and more volatile provisions for credit losses for financial instruments subject to ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, held by us. The continuing effects of the pandemic could also result in increased credit losses and charge-offs, particularly if our credit exposures increase and as more clients and customers experience credit deterioration, as well as increased risk of other asset write-downs and impairments, including, but not limited to, equity investments, goodwill and intangibles. Any of these events could potentially result in a material adverse impact on our business and results of operations.
In addition, reliance on work-from-home capabilities by us, our clients and other industry participants, as well as the potential inability to maintain critical staff in operational facilities due to stay-at-home orders or operational precautions across jurisdictions, illness and quarantines present heightened cybersecurity, information security and operational risks. Any disruption to our ability to deliver services to our clients and customers could result in potential liability to our clients and customers, regulatory fines, penalties or other sanctions, increased operational costs or harm to our reputation.
The pandemic has resulted in an increase in our balance sheet and volatility in risk-weighted assets, as we experience elevated deposit levels. Moreover, on March 15, 2020, we, along with the other member banks of the Financial Services Forum, announced that we would temporarily suspend share repurchases through the second quarter of 2020 to preserve capital and liquidity in order to further our objective of using our capital and liquidity to support our clients and customers. Further, in June 2020, the Federal Reserve announced that it has required participating CCAR firms, including us, to update and resubmit their capital plans and that, as a result, unless otherwise approved by the Federal Reserve, participating firms would not be permitted, during the third quarter of 2020, to conduct open market common stock repurchases, to increase their common stock dividends or to pay common stock dividends that exceed average net income for the preceding four quarters. The Federal Reserve has extended these limitations to the fourth quarter and may further extend these limitations. Our ability to resume our common stock repurchase program and maintain our
| | |
Part II - Other Information (continued)
|
|
common stock dividend depends on factors such as prevailing market conditions, our outlook for the economic environment, the performance of our business, the additional capital analysis required by the Federal Reserve, and whether the Federal Reserve keeps the limitations for the third and fourth quarters of 2020 in place for subsequent quarters.
The extent to which the pandemic impacts our business, financial condition, liquidity and results of operations, as well as our regulatory capital, will depend on future developments, which are highly uncertain and cannot be predicted, including the
scope and duration of the pandemic, the effectiveness of our work-from-home arrangements, actions taken by governmental authorities in response to the pandemic, as well as the direct and indirect impact on us, our clients and customers, and third parties. As the pandemic adversely affects the United States or the global economy, or our business, financial condition, liquidity or results of operations, it may also have the effect of heightening many of the other risks described in the section entitled “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) The following table discloses repurchases of our common stock made in the thirdsecond quarter of 2020.2021. 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 – second quarter of 2021 | | | | | Total shares
repurchased as
part of a publicly
announced plan
or program | Maximum approximate dollar value of shares that may yet be purchased under the publicly announced plans or programs at June 30, 2021 | | |
| (dollars in millions, except per share amounts; common shares in thousands) | Total shares
repurchased | | Average price
per share | | | |
| April 2021 | 12,063 | | | $ | 48.01 | | | 12,063 | | | $ | 3,171 | | | |
| May 2021 | 507 | | | 50.07 | | | 507 | | | 3,146 | | | |
| June 2021 | 264 | | | 51.94 | | | 264 | | | 3,132 | | | |
Second quarter of 2021 (a) | 12,834 | | | $ | 48.17 | | | 12,834 | | | $ | 6,000 | | (b) | |
(a) ReflectsIncludes 70 thousand shares repurchased at a purchase price of $3 million from employees, primarily in connection with the employees’ payment of taxes upon the vesting of restricted stock. The average price per share of open market repurchases was $48.20.
(b) The Federal Reserve has announced that it will conduct additional analysis for all participating CCAR firms later this year and will not allow participating firmsRepresents the maximum value of the shares to make open market common stock repurchases duringbe repurchased through the third or fourth quarter of 2020. We are permitted to continue to2022 under the share repurchase plan announced in June 2021 and includes shares from employees, primarilyrepurchased in connection with the employees’ payment of taxes upon the vesting of restricted stock.employee benefit plans.
N/A - Not applicable.
In JuneDecember 2020, in connection with the Federal ReserveReserve’s release of the second round of CCAR stress tests during 2020, we announced a share repurchase plan approved by our Board of Directors. This program provided for the repurchase of up to $4.451 billion from the third quarter of 2020 through the third quarter of 2021. Any repurchases during that it has required participating Comprehensive Capital Analysis and Review (“CCAR”) firms, including us, to update and resubmit their capital plans and that, asperiod were made in a result, unless otherwise approvedmanner consistent with any applicable distribution limitations imposed by the Federal Reserve, participating firms were not permittedReserve.
In June 2021, in connection with the Federal Reserve’s release of the 2021 CCAR stress tests, we announced a share repurchase program approved by our Board of Directors providing for the repurchase of up to conduct open market$6.0 billion of common stock repurchasebeginning in the third quarter of 2020. On Sept. 30, 2020, the Federal Reserve extended the limitation on open market common stock repurchase2021 and continuing through the fourth quarter of 2020.2022. This new share repurchase plan replaced all previously authorized share repurchase plans.
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.
Share repurchases may be executed through open market repurchases, in privately negotiated transactions or by other means, including through repurchase plans designed to comply with Rule 10b5-1 and other derivative, accelerated share
repurchase and other structured transactions. The timing and exact amount of any common stock repurchases will depend on various factors, including market conditions and the common stock trading price; the Company’s capital position, liquidity and financial performance; alternative uses of capital; and legal and regulatory limitations and considerations.
Item 6. Exhibits.
The list of exhibits required to be filed as exhibits to this report appears below.
| | | | | | | | | | | | | | |
| Exhibit No. | | Description | | Method of Filing |
| 3.1 | | | | |
| 3.2 | | Certificate of Amendment to the The Bank of New York Mellon Corporation’s Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on April 9, 2019. | | |
| 3.3 | | Certificate of Designations of The Bank of New York Mellon Corporation with respect to the Series A Noncumulative Preferred Stock, dated June 15, 2007. | | |
3.3 | | | | 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 | | | | |
| 3.5 | |
| | |
| 3.6 | | | | |
| 3.7 | | | | |
| 3.8 | | | | |
| 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. |
3.10 | | | | |
| | |
Index to Exhibits (continued) |
|
| | | | | | | | | | | | | | |
| Exhibit No. | | Description | | Method of Filing |
| 4.1 | | None of the instruments defining the rights of holders of long-term debt of the Parent or any of its subsidiaries represented long-term debt in excess of 10% of the total assets of the Company as of Sept.June 30, 20202021. The Company hereby agrees to furnish to the Commission, upon request, a copy of any such instrument. | | N/A |
| 10.1 | | | | |
| 10.2 | | | | |
| 22.1 | | Filed herewith.Subsidiary Issuer of Guaranteed Securities. | | |
| 31.1 | | | | |
| 31.2 | | | | |
| 32.1 | | | | |
| 32.2 | | | | |
| 101.INS | | Inline XBRL Instance Document. | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document. | | Filed herewith. |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | Filed herewith. |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | Filed herewith. |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. | | Filed herewith. |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | Filed herewith. |
| 104 | | The cover page of the Company’s Quarterly Report on Form 10-Q for the quarter ended Sept.June 30, 20202021, formatted in inline XBRL. | | The cover page interactive data file is embedded within the inline XBRL document and included in Exhibit 101. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| THE BANK OF NEW YORK MELLON CORPORATION |
| (Registrant) |
| | | | | | | | | | | |
| | | |
Date: NovemberAugust 5, 20202021 | By: | | /s/ Kurtis R. Kurimsky |
| | | Kurtis R. Kurimsky |
| | | Corporate Controller |
| | | (Duly Authorized Officer and |
| | | Principal Accounting Officer of |
| | | the Registrant) |
