BANK OF NEW YORK MELLON CORPORATION (THE) General
In this Quarterly Report on Form 10-Q, references to "our," "we," "us," "BNY Mellon ," the "Company" and similar terms refer toThe Bank of New York Mellon Corporation and its consolidated subsidiaries. The term "Parent" refers toThe 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 endedDec. 31, 2019 ("2019 Annual Report").
The following should be read in conjunction with the Consolidated Financial Statements included in this report. Investors should also read the sections titled "Forward-looking Statements" and "Risk Factors."
Overview
Established in 1784 byAlexander Hamilton , we were the first company listed on theNew 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 (formerly Investment 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.
[[Image Removed: businesseschart2q20.jpg]]
Key second quarter 2020 and subsequent events
InJuly 2020 ,Emily Portney was appointed Chief Financial Officer, succeedingMichael P. Santomassimo , and joined the Company's Executive Committee.Ms. Portney previously led the client management, sales and services teams for the Asset Servicing business globally and oversaw theAmericas region for the Asset Servicing business. She has also previously held senior financial roles.
CCAR and common stock repurchases
InMarch 2020 , we and the other members of theFinancial Services Forum announced the temporary suspension of share repurchases until the end of the second quarter of 2020 to preserve capital and liquidity in order to further the objective of using capital and liquidity to support clients and customers. 4BNY Mellon -------------------------------------------------------------------------------- OnJune 25, 2020 , theFederal Reserve released the results of its annual stress tests for 2020 and additional sensitivity analyses that theFederal Reserve conducted in light of the coronavirus pandemic. TheFederal Reserve also notifiedBNY Mellon that its stress capital buffer ("SCB") requirement will be 2.5%, which equals the regulatory floor. The SCB will be effective onOct. 1, 2020 . TheFederal 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 theFederal 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. TheFederal Reserve also stated that it may extend these limitations quarter-by-quarter.
Highlights of second quarter 2020 results
Net income applicable to common shareholders was$901 million , or$1.01 per diluted common share, in the second quarter of 2020. Net income applicable to common shareholders was$969 million , or$1.01 per diluted common share, in the second quarter of 2019. The highlights below are based on the second quarter of 2020 compared with the second quarter of 2019, unless otherwise noted.
• Total revenue of
• Fee revenue increased 2% primarily reflecting higher fees in Pershing and
Asset Servicing, partially offset by money market fee waivers, lower
investment management fees and the unfavorable impact of a stronger U.S.
dollar. (See "Fee and other revenue" beginning on page 7.)
• Net interest revenue decreased 3% primarily reflecting lower interest
rates on interest-earning assets, partially offset by the benefit of lower
deposit and funding rates and higher deposits, securities portfolio and
loans. (See "Net interest revenue" on page 10.)
• Provision for credit losses was
downgrades and the continuation of the challenging
macroeconomic outlook. (See "Consolidated balance sheet review - Allowance for credit losses" beginning on page 29.) • Noninterest expense increased 1% primarily reflecting the continued
investments in technology and higher staff and pension expenses, partially
offset by lower business development (travel and marketing) expense and the
favorable impact of a stronger
page 13.)
• Effective tax rate of 18.3%. (See "Income taxes" on page 13.)
Capital and liquidity
• CET1 ratio was 12.6% under the Advanced Approaches at
with 11.3% under the Standardized Approach at
the CET1 ratio primarily reflects capital generated through earnings and
unrealized gains on assets available-for-sale, partially offset by capital
deployed through dividend payments. (See "Capital" beginning on page 37.)
• Tier 1 capital increased
of preferred stock. (See "Capital" beginning on page 37.)
Highlights of our principal businesses
Investment Services • Total revenue increased 3%.
• Fee revenue increased 5%.
• Income before income taxes decreased 8%.
• AUC/A of
inflows, market values and net new business, partially offset by the unfavorable impact of a strongerU.S. dollar. Investment and Wealth Management • Total revenue decreased 3%.
• Income before income taxes decreased 15%.
• AUM of
and net inflows, partially offset by the unfavorable impact of a stronger
dollar (principally versus the British pound).
See "Review of businesses" and Note 19 of the Notes to Consolidated Financial Statements for additional information on our businesses.
BNY Mellon 5 --------------------------------------------------------------------------------
Impact of coronavirus pandemic on our business
The coronavirus pandemic has had a significant effect on the global macroeconomic environment. The following discusses the areas of our business that have been impacted and could continue to be impacted by the current environment.
At the end of
Market volatility associated with the performance of global equity and fixed income markets 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 basis compared with other credit-focused financial institutions. Our Investment Services businesses were favorably impacted by higher client volumes in the first and second quarters 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 quarter compared with the first quarter of 2020. This volatility coupled with the interest rate environment also led to an increase 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 begun to more than offset that benefit and is expected to continue to reduce our net interest revenue and margin. Given the recent levels of short-term interest rates, money market mutual funds have begun to waive fees, which reduced fee revenue in the second quarter of 2020. See further discussion of money market fee waivers in "Fee and other revenue." As discussed above under "Key second quarter 2020 and subsequent events," we and the other members of theFinancial Services Forum announced inMarch 2020 that we would suspend share repurchases through the second quarter of 2020. Additionally, in connection with theFederal Reserve's release of the CCAR results inJune 2020 ,BNY Mellon announced that it will not conduct open market common stock repurchases in the third quarter of 2020, as required of all participating CCAR firms, and will continue the current quarterly common stock dividend of$0.31 per share. See "Recent regulatory developments" for additional information related to the 2020 CCAR results. 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 quarter of 2020 and negatively impacted the first quarter of 2020. Also, in the second quarter, the Investment and Wealth Management business was negatively impacted by higher money market fee waivers. 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 theFederal Reserve Bank of Boston's Money Market Mutual Fund Liquidity Facility ("MMLF") program. 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. 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. 6BNY Mellon
-------------------------------------------------------------------------------- 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, its impact on the global economy as well as actions taken by central banks and governments to support the economy.
The current macroeconomic environment has also resulted in responses by governmental and regulatory bodies. See "Recent regulatory developments" 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 Factors "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."
Fee and other revenue
Fee and other revenue YTD20
2Q20 vs. vs.
(dollars in millions, unless
otherwise noted) 2Q20 1Q20 2Q19 1Q20 2Q19 YTD20 YTD19 YTD19
Investment services fees:
Asset servicing fees (a) $ 1,173 $ 1,159 $ 1,141 1 % 3 % $ 2,332 $ 2,263 3 %
Clearing services fees (b) 431 470 410 (8 ) 5 901 808 12
Issuer services fees 277 263 291 5 (5 ) 540 542 -
Treasury services fees 144 149 140 (3 ) 3 293 272 8
Total investment services fees 2,025 2,041 1,982 (1 ) 2 4,066 3,885 5
Investment management and
performance fees 786 862 833 (9 ) (6 ) 1,648 1,674 (2 )
Foreign exchange and other
trading revenue 166 319 166 (48 ) - 485 336 44
Financing-related fees 58 59 50 (2 ) 16 117 101 16
Distribution and servicing 27 31 31 (13 ) (13 ) 58 62 (6 )
Investment and other income 105 11 43 N/M N/M 116 78 N/M
Total fee revenue 3,167 3,323 3,105 (5 ) 2 6,490 6,136 6
Net securities gains 9 9 7 N/M N/M
18 8 N/M
Total fee and other revenue
Fee revenue as a percentage of total revenue 79 % 81 % 79 % 80 % 78 % AUC/A at period end (in trillions) (c)$ 37.3 $ 35.2 $ 35.5 6 % 5 %$ 37.3 $ 35.5 5 % AUM at period end (in billions) (d)$ 1,961 $ 1,796 $ 1,843 9 % 6 %$ 1,961 $ 1,843 6 %
(a) Asset servicing fees include the fees from the Clearance and Collateral
Management business and also include securities lending revenue of
million in the second quarter of 2020,
2020,
six months of 2020 and
(b) Clearing services fees are almost entirely earned by our Pershing business.
(c) 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
of
trillion at
(d) Excludes securities lending cash management assets and assets managed in the
Investment Services business.
N/M - Not meaningful.
Fee and other revenue increased 2% compared with the second quarter of 2019 and decreased 5% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 primarily reflects higher investment and other income, asset servicing fees and clearing services fees, partially offset by lower investment management and performance fees. The decrease compared with the first quarter of 2020 primarily reflects lower foreign exchange and other trading revenue, investment management and performance fees and clearing
services fees, partially offset by higher investment and other income.
Money market fee waivers
Given the recent levels of short-term interest rates, money market mutual fund
fees and other similar fees have begun to be waived to protect investors from
negative returns. The fee waivers are initially primarily impacting clearing
services fees in Pershing, and to a lesser extent revenue in our other
BNY Mellon 7
--------------------------------------------------------------------------------
businesses including investment management fees and distribution and servicing
revenue in Investment Management (formerly Asset Management) and fees in other
Investment Services businesses, but also result in lower distribution and
servicing expense. Money market fee waivers are highly sensitive to changes in
short-term interest rates and are difficult to predict, but are expected to grow
over the coming quarters.
The following table presents the impact of money market fee waivers on our
consolidated fee revenue, net of distribution and servicing expense. A majority
of the money market fee waivers were driven by low short-term interest rates. An
increase in money market balances in the second quarter 2020 compared with the
first quarter 2020 resulted in an approximate $50 million increase in total fee
and other revenue which partially offset the increase in money market fee
waivers.
Money market fee waivers
(in millions) 2Q20 1Q20
Investment services fees:
Clearing services fees $ (50 ) $ (9 )
Issuer services fees (1 ) -
Treasury services fees (2 ) -
Total investment services fees (53 ) (9 )
Investment management and performance fees (30 ) (14 ) Distribution and servicing revenue
(3 ) -
Total fee and other revenue (86 ) (23 )
Less: Distribution and servicing expense 7 -
Net impact of money market fee waivers
Impact to revenue by line of business: Asset Servicing$ (1 ) $ - Pershing (60 ) (9 ) Issuer Services (1 ) - Investment Management (24 ) (14 )
Total impact to revenue by line of business
Note: The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.
Assuming quarter-end money market balances, we expect the impact from fee waivers, net of lower distribution and servicing expense, to increase in the third quarter of 2020 by approximately$30 million to$45 million and to increase an incremental$25 million in the fourth quarter of 2020, for a full run rate of approximately$135 million to$150 million . This impact may be partially offset depending on the levels of money market balances.
Investment services fees
Investment services fees increased 2% compared with the second quarter of 2019 and decreased 1% compared with the first quarter of 2020 reflecting the following: • Asset servicing fees increased 3% compared with the second quarter of 2019
and 1% compared with the first quarter of 2020. Both increases primarily
reflect higher volumes from existing clients.
• Clearing services fees increased 5% compared with the second quarter of 2019
and decreased 8% compared with the first quarter of 2020. The increase
compared with the second quarter of 2019 primarily reflects higher money
market balances and clearing volumes, partially offset by the impact of
rate-driven money market fee waivers. The decrease compared with the first
quarter of 2020 primarily reflects the impact of rate-driven money market fee
waivers and lower clearing volumes, partially offset by higher money market
balances.
• Issuer services fees decreased 5% compared with the second quarter of 2019
and increased 5% compared with the first quarter of 2020. The decrease
compared with the second quarter of 2019 primarily reflects lower Depositary
quarter of 2020 primarily reflects higher Depositary Receipts fees.
•
and decreased 3% compared with the first quarter of 2020. The increase
compared with the second quarter of 2019 primarily reflects higher liquidity
fees. The decrease compared with the first quarter of 2020 primarily reflects
lower payment volumes and other fees.
See the "Investment Services business" in "Review of businesses" for additional details.
Investment management and performance fees
Investment management and performance fees decreased 6% compared with the second quarter of 2019 and 9% compared with the first quarter of 2020. The decrease compared with the second quarter of 2019 primarily reflects money market fee waivers, the unfavorable change in the mix of AUM since the second quarter of 2019 and the unfavorable impact of 8BNY Mellon -------------------------------------------------------------------------------- a strongerU.S. dollar (principally versus the British pound). The decrease compared with the first quarter of 2020 primarily reflects the timing of performance fees and money market fee waivers. On a constant currency basis (Non-GAAP), investment management and performance fees decreased 5% compared with the second quarter of 2019. Performance fees were$5 million in the second quarter of 2020,$2 million in the second quarter of 2019 and$50 million in the first quarter of 2020. AUM was$2.0 trillion atJune 30, 2020 , an increase of 6% compared withJune 30, 2019 , primarily reflecting higher market values and net inflows, partially offset by the unfavorable impact of a strongerU.S. dollar (principally versus the British pound).
See "Investment and Wealth Management business" in "Review of businesses" for additional details regarding the drivers of investment management and performance fees, AUM and AUM flows.
Foreign exchange and other trading revenue
Foreign exchange and other trading revenue (in millions) 2Q20 1Q20 2Q19 YTD20 YTD19 Foreign exchange$ 174 $ 253 $ 150 $ 427 $ 310 Other trading (loss) revenue (8 ) 66 16
58 26
Total foreign exchange and other trading revenue
Foreign exchange and other trading revenue was unchanged compared with the second quarter of 2019 and decreased 48% compared with the first 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. In the second quarter of 2020, foreign exchange revenue totaled$174 million , an increase of 16% compared with the second quarter of 2019 and a decrease of 31% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 reflects higher volatility partially offset by the negative impact of foreign currency translation hedging (mostly offset in investment and other income). The decrease compared with the first quarter of 2020 reflects lower volumes and volatility and the negative impact of
foreign currency translation hedging. 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$8 million in the second quarter of 2020 compared with other trading revenue of$16 million in the second quarter of 2019 and other trading revenue of$66 million in the first quarter of 2020. Both decreases primarily reflect the impact of Investment Management seed capital hedging activities. Other trading revenue is reported in all three business segments.
Investment and other income
The following table provides the components of investment and other income.
Investment and other income (in millions) 2Q20 1Q20 2Q19 YTD20
YTD19
Corporate/bank-owned life insurance
62
Expense reimbursements from joint venture 19 21 19 40
38
Asset-related gains 3 4 1 7
2
Seed capital gains (losses) (a) 23 (31 ) 8 (8 )
10
Other income (loss) 24 (19 ) (17 ) 5 (34 ) Total investment and other income$ 105 $ 11 $ 43 $ 116 $
78
(a) Excludes seed capital gains related to consolidated investment management
funds, which are reflected in operations of consolidated investment
management funds.
Investment and other income increased compared with both the second quarter of 2019 and first quarter of 2020. Both increases primarily reflect equity investment gains, including seed capital investments, foreign currency translation gains and a one-time fee in the Asset Servicing business. The increase compared with the first quarter of 2020 was partially offset by a one-time fee in the Pershing business recorded in the first quarter of 2020.
Year-to-date 2020 compared with year-to-date 2019
Fee and other revenue increased 6% compared with the first six months of 2019,
primarily reflecting higher foreign exchange and other trading revenue, clearing
services fees, asset servicing fees and investment and other income. The 44%
increase in foreign exchange and other trading revenue primarily reflects higher
volatility and volumes. The 12% increase in clearing services fees primarily
reflects
BNY Mellon 9-------------------------------------------------------------------------------- higher transaction fees and money market balances, partially offset by money market fee waivers. The 3% increase in asset servicing fees primarily reflects higher volumes from existing clients. The increase in
investment and other income revenue primarily reflects one-time fees in the Pershing and Asset Servicing businesses.
Net interest revenue
Net interest revenue YTD20
2Q20 vs. vs.
(dollars in millions) 2Q20 1Q20 2Q19 1Q20 2Q19 YTD20 YTD19 YTD19
Net interest revenue -
GAAP $ 780 $ 814 $ 802 (4 )% (3 )% $ 1,594 $ 1,643 (3 )%
Add: Tax equivalent
adjustment 2 2 4 N/M N/M 4 8 N/M
Net interest revenue
(FTE) -
Non-GAAP (a) $ 782 $ 816 $ 806 (4 )% (3 )% $ 1,598 $ 1,651 (3 )%
Average interest-earning
assets $ 357,562 $ 323,936 $ 287,417 10 %
24 %
Net interest margin - GAAP 0.88 % 1.01 % 1.12 % (13 ) bps (24 ) bps 0.94 % 1.16 % (22 ) bps Net interest margin (FTE) - Non-GAAP (a) 0.88 % 1.01 % 1.12 % (13 ) bps (24 ) bps 0.94 % 1.16 % (22 ) 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 3% compared with the second quarter of 2019 and 4% compared with the first quarter of 2020. The decrease compared with the second quarter of 2019 primarily reflects lower interest rates on interest-earning assets, partially offset by the benefit of lower deposit and funding rates and higher deposits, securities portfolio and loans. The decrease compared with the first quarter of 2020 was primarily driven by lower interest rates on interest-earning assets. This was partially offset by the benefit of lower deposit and funding rates, higher securities portfolio and the impact of hedging activities (primarily offset in foreign exchange and other trading revenue).
Net interest margin decreased 24 basis points compared with the second quarter of 2019 and 13 basis points compared with the first quarter of 2020. Both decreases primarily reflect lower asset yields and higher interest-earning assets, partially offset by lower deposit rates.
Average interest-earning assets of$358 billion in the second quarter of 2020 increased 24% compared with the second quarter of 2019 and 10% compared with the first quarter of 2020. Both increases primarily reflect higher interest-bearing deposits with theFederal Reserve and other central banks and securities portfolio.
Average non-
Net interest revenue in future quarters will depend on the level and mix of client deposits, deposit rates, as well as the level and shape of the yield curve, which may result in lower yields on interest-earning assets.
Year-to-date 2020 compared with year-to-date 2019
Net interest revenue decreased 3% compared with the first six months of 2019, primarily driven by lower interest rates on interest-earning assets, partially offset by the benefit of lower deposit and funding rates and higher deposits, securities portfolio and loans. The decrease in net interest margin primarily reflects lower asset yields and higher interest-earning assets, partially offset by lower deposit and funding rates and higher deposits and securities portfolio. Average interest-earning assets of$341 billion in the first six months of 2020 increased 20% compared with the first six months of 2019. The increase primarily reflects higher interest-bearing deposits with theFederal Reserve and other central banks, securities portfolio and loans. 10BNY Mellon -------------------------------------------------------------------------------- Average balances and interest rates
Quarter ended
June 30, 2020 March 31, 2020 June 30, 2019
(dollars in millions; average Average Average Average Average Average Average
rates annualized) balance Interest rates balance Interest rates balance Interest rates
Assets
Interest-earning assets:
Interest-bearing deposits with
the Federal Reserve and other
central banks $ 94,229 $ (7 ) (0.03 )% $
80,403
58 1.37 13,666 64 1.87
Federal funds sold and
securities purchased under
resale agreements (a) 30,265 61 0.82 34,109 396 4.67 38,038 568 5.99
Margin loans 12,791 40 1.28 12,984 87 2.69 10,920 119 4.36
Non-margin loans:
Domestic offices 31,185 172 2.21 31,720 238 3.02 29,492 284 3.86
Foreign offices 12,743 58 1.84 11,170 71 2.55 9,961 81 3.29
Total non-margin loans 43,928 230 2.10 42,890 309 2.89 39,453 365 3.71
Securities:
U.S. government obligations 27,901 105 1.52 23,175 108 1.87 18,870 103 2.19
U.S. government agency
obligations 74,583 358 1.92 69,046 400 2.32 66,445 428 2.58
State and political
subdivisions (b) 1,025 7 2.98 1,033 8 3.06 1,735 13 2.89
Other securities (b) 45,511 93 0.82 36,375 86 0.95 30,770 157 2.04
Trading securities (b) 6,236 18 1.13 6,840 40 2.36 5,764 39 2.72
Total securities (b) 155,256 581 1.50 136,469 642 1.88 123,584 740 2.40 Total interest-earning assets (b)
$ 357,562 $ 945 1.06 %$ 323,936 $ 1,572 1.95 %$ 287,417 $ 1,969 2.74 % Noninterest-earning assets 57,797 61,342 54,967 Total assets$ 415,359 $ 385,278 $ 342,384 Liabilities Interest-bearing liabilities: Interest-bearing deposits: Domestic offices$ 102,135 $ 15 0.06 % $
99,915
108,508 (32 ) (0.12 ) 97,717 70 0.29 93,365 181 0.78
Total interest-bearing deposits 210,643 (17 ) (0.03 ) 197,632 240 0.49 167,545 432 1.04
Federal funds purchased and
securities sold under
repurchase agreements (a) 14,209 1 0.03 13,919 275 7.96 11,809 372 12.64 Trading liabilities
1,974 2 0.39 1,626 7 1.61 1,735 11 2.47
Other borrowed funds 2,272 7 1.30 719 4 2.27 2,455 20 3.36
Commercial paper 191 1 1.02 1,581 6 1.56 2,957 18 2.43
Payables to customers and
broker-dealers 18,742 (1 ) (0.01 ) 16,386 30 0.73 15,666 69 1.76
Long-term debt 28,122 170 2.42 27,231 194 2.83 27,681 241 3.45
Total interest-bearing
liabilities $ 276,153 $ 163 0.24 % $ 259,094 $ 756 1.17 % $ 229,848 $ 1,163 2.03 %
Total noninterest-bearing
deposits 72,411 60,577 52,956
Other noninterest-bearing
liabilities 24,121 24,229 18,362
Total liabilities 372,685 343,900 301,166
Temporary equity
Redeemable noncontrolling
interests 74 66 53
Permanent equity
Total The Bank of New York
Mellon Corporation
shareholders' equity 42,486 41,206 41,029
Noncontrolling interests 114 106 136
Total permanent equity 42,600 41,312 41,165
Total liabilities, temporary
equity and permanent equity $ 415,359 $ 385,278 $ 342,384
Net interest revenue (FTE) -
Non-GAAP (c) $ 782 $ 816 $ 806
Net interest margin (FTE) -
Non-GAAP (b)(c) 0.88 % 1.01 % 1.12 %
Less: Tax equivalent adjustment
(b) 2 2 4
Net interest revenue - GAAP $ 780 $ 814 $ 802
Net interest margin - GAAP 0.88 % 1.01 % 1.12 %
(a) Includes the average impact of offsetting under enforceable netting
agreements of approximately
billion for the first quarter of 2020 and
of 2019. 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 0.26% for the second quarter of 2020, 1.39% for the first quarter
of 2020 and 2.57% for the second quarter of 2019. 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 0.00% for the
second quarter of 2020, 1.18% for the first quarter of 2020 and 2.39% for the
second quarter of 2019. We believe providing the rates excluding the impact
of netting is useful to investors as it is more reflective of the actual
rates earned and paid.
(b) Average rates were calculated on an FTE basis, at tax rates of approximately
21%.
(c) See "Net interest revenue" on page 10 for a reconciliation of this Non-GAAP
measure.
BNY Mellon 11-------------------------------------------------------------------------------- Average balances and interest rates
Year-to-date
June 30, 2020 June 30, 2019
(dollars in millions; average rates Average Average Average Average
annualized) balance Interest rates balance Interest rates
Assets
Interest-earning assets:
Interest-bearing deposits with the Federal
Reserve and other central banks $ 87,316 $ 73 0.16 % $ 62,665 $ 252 0.80 %
Interest-bearing deposits with banks
(primarily foreign banks) 19,087 98 1.03 13,761 127 1.86
Federal funds sold and securities purchased
under resale agreements (a) 32,187 457 2.86 33,528 1,042 6.26
Margin loans 12,887 127 1.99 11,790 254 4.35
Non-margin loans:
Domestic offices 31,453 410 2.62 28,838 553 3.85
Foreign offices 11,956 129 2.17 10,235 167 3.30
Total non-margin loans 43,409 539 2.49 39,073 720 3.71
Securities:
U.S. government obligations 25,538 213 1.68 21,220 232 2.21
U.S. government agency obligations 71,815 758 2.11 65,660 855 2.60
State and political subdivisions (b) 1,029 15 3.02 1,969 28 2.80
Other securities (b) 40,943 179 0.88 29,715 308 2.08
Trading securities (b) 6,538 58 1.77 5,435 75 2.81
Total securities (b) 145,863 1,223 1.68 123,999 1,498 2.42
Total interest-earning assets (b) $ 340,749 $ 2,517 1.48 % $ 284,816 $ 3,893 2.75 %
Noninterest-earning assets 59,569 54,476
Total assets $ 400,318 $ 339,292
Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:
Domestic offices $ 101,025 $ 185 0.37 % $ 72,381 $ 475 1.32 %
Foreign offices 103,113 38 0.07 91,353 348 0.77
Total interest-bearing deposits 204,138 223 0.22 163,734 823 1.01
Federal funds purchased and securities sold
under repurchase agreements (a) 14,064 276 3.95 11,865 703 11.95
Trading liabilities 1,800 9 0.94 1,521 18 2.37
Other borrowed funds 1,495 11 1.53 2,878 44 3.08
Commercial paper 886 7 1.50 2,171 26 2.43
Payables to customers and broker-dealers 17,564 29 0.33 15,887 139 1.76
Long-term debt 27,677 364 2.62 27,966 489 3.48
Total interest-bearing liabilities $ 267,624 $ 919 0.69 % $ 226,022 $ 2,242 2.00 %
Total noninterest-bearing deposits 66,494 53,765
Other noninterest-bearing liabilities 24,174 18,494
Total liabilities 358,292 298,281
Temporary equity Redeemable noncontrolling interests 70 65 Permanent equity Total The Bank of New York Mellon Corporation shareholders' equity 41,846 40,829 Noncontrolling interests 110 117 Total permanent equity 41,956 40,946 Total liabilities, temporary equity and permanent equity$ 400,318 $ 339,292 Net interest revenue (FTE) - Non-GAAP (c)$ 1,598 $ 1,651 Net interest margin (FTE) - Non-GAAP (b)(c) 0.94 % 1.16 % Less: Tax equivalent adjustment (b) 4 8 Net interest revenue - GAAP$ 1,594 $ 1,643 Net interest margin - GAAP 0.94 % 1.16 %
(a) Includes the average impact of offsetting under enforceable netting
agreements of approximately
the impact of offsetting, the yield on federal funds sold and securities
purchased under resale agreements would have been 0.87% for the first six
months of 2020 and 2.59% for the first six months of 2019. 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
0.64% for the first six months of 2020 and 2.39% for the first six months of
2019. We believe providing the rates excluding the impact of netting is
useful to investors as it is more reflective of the actual rates earned and
paid.
(b) Average rates were calculated on an FTE basis, at tax rates of approximately
21%.
(c) See "Net interest revenue" on page 10 for a reconciliation of this Non-GAAP
measure.
12 BNY Mellon
--------------------------------------------------------------------------------
Noninterest expense
Noninterest expense YTD20
2Q20 vs. vs.
(dollars in millions) 2Q20 1Q20 2Q19 1Q20 2Q19 YTD20 YTD19 YTD19
Staff $ 1,464 $ 1,482 $ 1,421 (1 )% 3 % $ 2,946 $ 2,945 - %
Software and equipment 345 326 304 6 13 671 587 14
Professional, legal and other
purchased services 337 330 337 2 - 667 662 1
Net occupancy 137 135 138 1 (1 ) 272 275 (1 )
Sub-custodian and clearing 120 105 115 14 4 225 220 2
Distribution and servicing 85 91 94 (7 ) (10 ) 176 185 (5 )
Bank assessment charges 35 35 31 - 13 70 62 13
Business development 20 42 56 (52 ) (64 ) 62 101 (39 )
Amortization of intangible
assets 26 26 30 - (13 ) 52 59 (12 )
Other 117 140 121 (16 ) (3 ) 257 250 3
Total noninterest expense $ 2,686 $ 2,712 $ 2,647 (1 )% 1 % $ 5,398 $ 5,346 1 %
Full-time employees at period
end 48,300 47,900 49,100 1 % (2 )%
Total noninterest expense increased 1% compared with the second quarter of 2019
and decreased 1% compared with the first quarter of 2020. The increase compared
with the second quarter of 2019 primarily reflects the continued investments in
technology and higher staff and pension expenses, partially offset by lower
business development (travel and marketing) expense and the favorable impact of
a stronger U.S. dollar. The investments in technology are included in staff,
software and equipment, and professional, legal and other purchased services
expenses. The decrease compared with the first quarter of 2020 primarily
reflects lower other and business development (travel and marketing) expenses
and the favorable impact of a stronger U.S. dollar, partially offset by higher
software and equipment and sub-custodian and clearing expenses.
Our investments in technology infrastructure and platforms are expected to
continue. As a result, we expect to incur higher technology-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 1% compared with the first six months of 2019, primarily reflecting the continued investments in technology and higher software and equipment, staff and pension expenses, partially offset by the favorable impact of a strongerU.S. dollar and lower business development (travel and marketing) expense.
Income taxes
BNY Mellon recorded an income tax provision of$216 million (18.3% effective tax rate) in the second quarter of 2020,$264 million (20.5% effective tax rate) in the second quarter of 2019 and$265 million (21.6% effective tax rate) in the first quarter of 2020. For additional information, see Note 11 of the Notes to Consolidated Financial Statements.BNY Mellon 13 --------------------------------------------------------------------------------
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 (formerly Investment 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 used for consolidated financial reporting. These measurement principles are designed so that reported results of the businesses will track their economic performance. For information on the accounting principles of our businesses, see Note 19 of the Notes to Consolidated Financial Statements. For information on the primary products and services in each line of business, the primary types of revenue by business and how our businesses are presented and analyzed, see Note 24 of the Notes to Consolidated Financial Statements in our 2019 Annual Report. Business results are subject to reclassification when organizational changes are made. There were no significant organizational changes in the second quarter of 2020. The results are also subject to refinements in revenue and expense allocation methodologies, which are typically reflected on a prospective basis. 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. This activity is offset 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. 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, volume-related fees may decline due to reduced client activity. In the third quarter, 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 different 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 theU.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
See Note 19 of the Notes to Consolidated Financial Statements for the consolidating schedules which show the contribution of our businesses to our overall profitability.
14BNY Mellon --------------------------------------------------------------------------------
Investment Services business
YTD20
2Q20 vs. vs.(dollars in millions) 2Q20 1Q20 4Q19 3Q19
2Q19 1Q20 2Q19 YTD20 YTD19 YTD19 Revenue: Investment services fees: Asset servicing fees (a)$ 1,164 $ 1,147 $ 1,138 $ 1,138 $ 1,126 1 % 3 %$ 2,311 $ 2,237 3 % Clearing services fees (b) 431 470 421 419 411 (8 ) 5 901 809 11 Issuer services fees 277 263 264 324 291 5 (5 ) 540 542 - Treasury services fees 144 149 147 139 140 (3 ) 3 293 272 8 Total investment services fees 2,016 2,029 1,970 2,020 1,968 (1 ) 2 4,045 3,860 5 Foreign exchange and other trading revenue 178 261 151 160 153 (32 ) 16 439 310 42 Other (c) 145 146 115 116 112 (1 ) 29 291 224 30 Total fee and other revenue 2,339 2,436 2,236 2,296
2,233 (4 ) 5 4,775 4,394 9 Net interest revenue 768 806 778 761
783 (5 ) (2 ) 1,574 1,587 (1 ) Total revenue
3,107 3,242 3,014 3,057 3,016 (4 ) 3 6,349 5,981 6
Provision for credit
losses 145 149 (5 ) (15 ) (4 ) N/M N/M 294 4 N/M
Noninterest expense
(excluding amortization
of intangible assets) 1,971 1,969 2,160 1,952 1,943 - 1 3,940 3,904 1
Amortization of
intangible assets 18 18 19 21 20 - (10 ) 36 40 (10 )
Total noninterest
expense 1,989 1,987 2,179 1,973 1,963 - 1 3,976 3,944 1
Income before income
taxes $ 973 $ 1,106 $ 840 $ 1,099 $ 1,057 (12 )% (8 )% $ 2,079 $ 2,033 2 %
Pre-tax operating
margin 31 % 34 % 28 % 36 % 35 % 33 % 34 %
Securities lending $ 51 $ 46 $ 40 $ 39 $ 40 $ 97 $ 84
revenue 11 % 28 % 15 %
Total revenue by line
of business:
Asset Servicing $ 1,463 $ 1,531 $ 1,411 $ 1,411 $ 1,397 (4 )% 5 % $ 2,994 $ 2,812 6 %
Pershing 578 653 579 575 572 (11 ) 1 1,231 1,133 9
Issuer Services 431 419 415 466 446 3 (3 ) 850 842 1
Treasury Services 340 339 329 312 317 - 7 679 634 7
Clearance and
Collateral Management 295 300 280 293 284 (2 ) 4 595 560 6
Total revenue by lineof business$ 3,107 $ 3,242 $ 3,014 $ 3,057 $ 3,016 (4 )% 3 %$ 6,349 $ 5,981 6 % Average balances: Average loans$ 43,113 $ 41,789 $ 38,721 $ 37,005 $ 36,404 3 % 18 %$ 42,451 $ 36,818 15 % Average deposits$ 268,467 $ 242,187 $ 215,388 $ 208,044 $ 201,146 11 % 33 %$ 255,327 $ 198,131 29 %
(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) 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.
BNY Mellon 15-------------------------------------------------------------------------------- Investment Services business metrics (dollars in millions, unless otherwise 2Q20 vs. noted) 2Q20 1Q20 4Q19 3Q19 2Q19 1Q20 2Q19 AUC/A at period end (in trillions) (a)$ 37.3 $ 35.2 $ 37.1 $ 35.8 $ 35.5 6 % 5 % Market value of securities on loan at period end (in billions) (b)$ 384 $ 389 $ 378
Pershing:
Net new assets (U.S. platform) (in billions) (c)$ 11 $ 31 $ 33 $ 19 $ 21 N/M N/M Average active clearing accounts (U.S. platform) (in thousands) 6,507 6,437 6,340 6,283 6,254 1 % 4 % Average long-term mutual fund assets (U.S. platform)$ 547,579 $ 549,206 $ 573,475 $ 547,522 $ 532,384 - % 3 % Average investor margin loans (U.S. platform)$ 9,235 $ 9,419 $ 9,420
Clearance and Collateral Management: Average tri-party collateral management balances (in billions)$ 3,573 $ 3,724 $ 3,562 $ 3,550 $ 3,400 (4 )% 5 %
(a) Consists of AUC/A primarily from the Asset Servicing business and, to a
lesser extent, the Clearance and Collateral Management, Issuer Services and
Pershing businesses. Includes the AUC/A of
2019 and
(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
clients, which totaled
2020,
billion at
(c) Net new assets represent net flows of assets (e.g., net cash deposits and net
securities transfers) in customer accounts in
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 2019 Annual Report.
We are one of the leading global investment services providers with
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 ofU.S. and non-U.S. securities, servicing a lendable asset pool of approximately$4.0 trillion in 34 separate markets. Our market-leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.
Pershing provides execution, clearing, custody, business and technology solutions, delivering dependable operational support to broker-dealers, wealth managers and registered investment advisors (RIAs) globally.
The Issuer Services business includesCorporate Trust and Depositary Receipts. OurCorporate 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 global payments, liquidity management and trade finance services for financial institutions, corporations and the public sector.
16BNY Mellon -------------------------------------------------------------------------------- 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 ofU.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$3.6 trillion serviced globally including approximately$2.6 trillion of theU.S. tri-party repo market. Review of financial results AUC/A of$37.3 trillion increased 5% compared withJune 30, 2019 , primarily reflecting higher client inflows, market values and net new business, partially offset by the unfavorable impact of a strongerU.S. dollar. AUC/A consisted of 33% equity securities and 67% fixed-income securities atJune 30, 2020 and 35% equity securities and 65% fixed-income securities atJune 30, 2019 . Total revenue of$3.1 billion increased 3% compared with the second quarter of 2019 and decreased 4% compared with the first quarter of 2020. The drivers of total revenue by line of business are indicated below. Asset Servicing revenue of$1.5 billion increased 5% compared with the second quarter of 2019 and decreased 4% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 reflects higher foreign exchange and other trading revenue, partially offset by lower net interest revenue. The decrease compared with the first quarter of 2020 reflects lower foreign exchange and other trading revenue and net interest revenue. Total revenue in the second quarter of 2020 also benefited from higher volumes from existing clients and a one-time fee. Pershing revenue of$578 million increased 1% compared with the second quarter of 2019 and decreased 11% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 primarily reflects higher money market balances and clearing volumes, partially offset by the impact of rate-driven money market fee waivers. The decrease compared with the first quarter of 2020 primarily reflects the impact of rate-driven money market fee waivers, a one-time fee recorded in the first quarter of 2020 and lower clearing volumes, partially offset by higher money market balances. Issuer Services revenue of$431 million decreased 3% compared with the second quarter of 2019 and increased 3% compared with the first quarter of 2020. The decrease compared with the second quarter of 2019 reflects lowerDepositary Receipts and Corporate Trust fees. The increase compared with the first quarter of 2020 primarily reflects higher Depositary Receipts fees. Treasury Services revenue of$340 million increased 7% compared with the second quarter of 2019 and increased slightly compared with the first quarter of 2020. The increase compared with the second quarter of 2019 primarily reflects higher net interest revenue driven by deposit growth and higher fees. Clearance and Collateral Management revenue of$295 million increased 4% compared with the second quarter of 2019 and decreased 2% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 primarily reflects higher net interest revenue and growth in collateral management and clearance volumes, mostly from non-U.S. clients. The decrease compared with the first quarter of 2020 primarily reflects lower collateral management fees. 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. The provision for credit losses of$145 million in the second quarter of 2020 primarily reflects increased downgrades and the continuation of the challenging macroeconomic outlook.
Noninterest expense of
BNY Mellon 17 --------------------------------------------------------------------------------
continued investments in technology, offset by lower staff expense.
Year-to-date 2020 compared with year-to-date 2019
Total revenue of$6.3 billion increased 6% compared with the first six months of 2019. Asset Servicing revenue of$3.0 billion increased 6%, primarily reflecting higher foreign exchange and other trading revenue and higher volumes from existing clients, partially offset by lower net interest revenue. Pershing revenue of$1.2 billion increased 9%, primarily reflecting higher clearing volumes and money market balances, partially offset by the impact of rate-driven money market fee waivers. Issuer Services revenue of$850 million increased 1%, primarily reflecting higherDepositary Receipts and Corporate Trust fees. Treasury Services revenue of$679 million increased 7%, primarily reflecting higher fees and net interest revenue. Clearance and Collateral Management revenue of$595 million increased 6%, primarily reflecting growth in collateral management and clearance volumes and higher net interest revenue. Noninterest expense of$4.0 billion increased 1% compared with the first six months of 2019 primarily reflecting continued investments in technology, partially offset by lower business development (travel and marketing) and staff expenses. Investment and Wealth Management business (formerly Investment Management business) YTD20 2Q20 vs. vs. (dollars in millions) 2Q20 1Q20 4Q19 3Q19 2Q19 1Q20 2Q19 YTD20 YTD19 YTD19 Revenue: Investment management fees (a)$ 782 $ 812 $ 836 $ 830 $ 831 (4 )% (6 )%$ 1,594 $ 1,641 (3 )% Performance fees 5 50 48 2 2 N/M 150 55 33 67 Investment management and performance fees (b) 787 862 884 832 833 (9 ) (6 ) 1,649 1,674 (1 ) Distribution and servicing 34 43 44 45 44 (21 ) (23 ) 77 89 (13 ) Other (a) 17 (59 ) (4 ) (39 ) (23 ) N/M N/M (42 ) (40 ) N/M Total fee and other revenue (a) 838 846 924 838 854 (1 ) (2 ) 1,684 1,723 (2 ) Net interest revenue 48 52 47 49 59 (8 ) (19 ) 100 126 (21 ) Total revenue 886 898 971 887 913 (1 ) (3 ) 1,784 1,849 (4 ) Provision for credit losses 7 9 - - (2 ) N/M N/M 16 (1 ) N/M Noninterest expense (excluding amortization of intangible assets) 650 687 722 582 646 (5 ) 1 1,337 1,306 2 Amortization of intangible assets 8 8 9 10 9 - (11 ) 16 18 (11 ) Total noninterest expense 658 695 731 592 655 (5 ) - 1,353 1,324 2 Income before income taxes$ 221 $ 194 $ 240 $ 295 $ 260 14 % (15 )%$ 415 $ 526 (21 )% Pre-tax operating margin 25 % 22 % 25 % 33 % 29 % 23 % 28 % Adjusted pre-tax operating margin - Non-GAAP (c) 28 % 24 % 27 % 37 % 32 % 26 % 32 % Total revenue by line of business: Investment Management (formerly Asset Management)$ 621 $ 620 $ 692 $ 608 $ 622 - % - %$ 1,241 $ 1,262 (2 )% Wealth Management 265 278 279 279 291 (5 ) (9 ) 543 587 (7 ) Total revenue by line of business$ 886 $ 898 $ 971 $ 887 $ 913 (1 )% (3 )%$ 1,784 $ 1,849 (4 )% Average balances: Average loans$ 11,791 $ 12,124 $ 12,022 $ 12,013 $ 12,205 (3 )% (3 )%$ 11,958 $ 12,271 (3 )% Average deposits$ 17,491 $ 16,144 $ 15,195 $ 14,083 $ 14,615 8 % 20 %$ 16,817 $ 15,211 11 %
(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 4% (Non-GAAP) compared with the second quarter of 2019. See
"Supplemental information - Explanation of GAAP and Non-GAAP financial
measures" beginning on page 45 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.
N/M - Not meaningful. 18BNY Mellon
-------------------------------------------------------------------------------- AUM trends 2Q20 vs. (dollars in billions) 2Q20 1Q20 4Q19 3Q19 2Q19 1Q20 2Q19 AUM at period end, by product type: (a) Equity$ 141 $ 120 $ 154 $ 147 $ 152 18 % (7 )% Fixed income 224 211 224 211 209 6 7 Index 333 274 339 321 322 22 3 Liability-driven investments 752 705 728 742 709 7 6 Multi-asset and alternative investments 185 171 192 182 184 8 1 Cash 326 315 273 278 267 3 22 Total AUM by product type$ 1,961 $ 1,796 $ 1,910 $ 1,881 $ 1,843 9 % 6 % Changes in AUM: (a) Beginning balance of AUM$ 1,796 $ 1,910 $ 1,881 $ 1,843 $ 1,841 Net inflows (outflows): Long-term strategies: Equity (2 ) (2 ) (6 ) (4 ) (2 ) Fixed income 4 - 5 2 (4 ) Liability-driven investments (2 ) (5 ) (3 ) (4 ) 1 Multi-asset and alternative investments - (1 ) 3 (1 ) 1 Total long-term active strategies (outflows) - (8 ) (1 ) (7 ) (4 ) Index 9 3 (5 ) (3 ) (22 ) Total long-term strategies inflows (outflows) 9 (5 ) (6 ) (10 ) (26 ) Short-term strategies: Cash 11 43 (7 ) 11 2 Total net inflows (outflows) 20 38 (13 ) 1 (24 ) Net market impact 143 (91 ) (20 ) 66 42 Net currency impact 2 (61 ) 62 (29 ) (16 ) Ending balance of AUM$ 1,961 $ 1,796 $ 1,910 $ 1,881 $ 1,843 9 % 6 %
Wealth Management client assets (b)
(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 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. See pages 16 and 17 of our 2019 Annual Report for additional information on our Investment and Wealth Management business.
Review of financial results
AUM increased 6% compared withJune 30, 2019 primarily reflecting higher market values and net inflows, partially offset by the unfavorable impact of a strongerU.S. dollar (principally versus the British pound). Net long-term strategy inflows were$9 billion in the second quarter of 2020, primarily resulting from inflows of index funds. Short-term strategy inflows were$11 billion in the second quarter of 2020. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.
Total revenue of
Investment Management revenue of$621 million decreased slightly compared with the second quarter of 2019 and increased slightly compared with the first quarter of 2020. The decrease compared with the second quarter of 2019 primarily reflects the unfavorable change in the mix of AUM since the second quarter of 2019 and the impact of money market fee waivers, partially offset by equity investment gains (net of hedges), including seed capital. The increase compared with the first quarter of 2020 primarily reflects equity investment gains (net of hedges), including seed capital, partially offsetBNY Mellon 19 --------------------------------------------------------------------------------
by the timing of performance fees and the impact of money market fee waivers.
Wealth Management revenue of$265 million decreased 9% compared with the second quarter of 2019 and 5% compared with the first quarter of 2020. Both decreases primarily reflect lower net interest revenue and a shift within portfolios to lower fee asset classes. Revenue generated in the Investment and Wealth Management business included 40% from non-U.S. sources in the second quarter of 2020, compared with 38% in the second quarter of 2019 and 42% in the first quarter of 2020. Noninterest expense of$658 million increased slightly compared with the second quarter of 2019 and decreased 5% compared with the first quarter of 2020. The increase compared with the second quarter of 2019 primarily reflects higher continued investments in technology. The decrease compared with the first quarter of 2020 primarily reflects lower staff and other expenses.
Year-to-date 2020 compared with year-to-date 2019
Total revenue of$1.8 billion decreased 4% compared with the first six months of 2019. Investment Management revenue of$1.2 billion decreased 2% primarily reflecting an unfavorable change in the mix of AUM, equity investment losses (net of hedges), including seed capital, and the impact of fee waivers, partially offset by higher performance fees and market values. Wealth Management revenue of$543 million decreased 7% reflecting lower net interest revenue. Noninterest expense of$1.4 billion increased 2% compared with the first six months of 2019, primarily reflecting higher professional, legal and other purchased services expense and higher investments in technology, partially offset by the favorable impact of a strongerU.S. dollar (principally versus the British pound). Other segment (in millions) 2Q20 1Q20 4Q19 3Q19 2Q19 YTD20 YTD19 Fee revenue (loss)$ 29 $ 21 $ 817 $ (5 ) $ 24 $ 50 $ 41 Net securities gains (losses) 9 9 (23 ) (1 ) 7 18 8 Total fee and other revenue (loss) 38 30 794 (6 ) 31 68 49 Net interest (expense) (36 ) (44 ) (10 ) (80 ) (40 ) (80 ) (70 ) Total revenue (loss) 2 (14 ) 784 (86 ) (9 ) (12 ) (21 ) Provision for credit losses (9 ) 11 (3 ) (1 ) (2 ) 2 (4 ) Noninterest expense 39 30 54 25
29 69 78
(Loss) income before income taxes
Average loans and leases$ 1,815 $ 1,961 $ 1,974 $ 1,817
See page 18 of our 2019 Annual Report for additional information on the Other segment.
Review of financial results
Fee revenue, net securities gains (losses) and net interest expense include corporate treasury and other investment activity, including hedging activity which offsets between fee revenue and net interest expense.
Fee revenue increased
equity investment income, partially offset by sequentially lower foreign currency translation gains.
Net interest expense decreased
Noninterest expense increased$10 million compared with the second quarter of 2019 and$9 million compared to the first quarter of 2020, primarily reflecting higher staff expense. 20BNY Mellon
--------------------------------------------------------------------------------
Year-to-date 2020 compared with year-to-date 2019
Losses before taxes decreased
Critical accounting estimates
Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements in our 2019 Annual Report and in Note 2 of the Notes to Consolidated Financial Statements in this Form 10-Q. 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, pages 19-20. Fair value of financial instruments 2019 Annual Report, pages 23-24. and derivativesGoodwill and other intangibles 2019 Annual Report, pages 24-25 and First quarter 2020 Form 10-Q, pages 20-21. Also, see below. Litigation and regulatory "Legal proceedings" in Note 18 of the Notes contingencies to Consolidated Financial Statements.
In the second quarter of 2020, 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 ofMarch 31, 2020 . The discount rate applied to these cash flows was 10% and incorporated a 7% 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 five of the Company's reporting units were substantially in excess of the respective reporting units' carrying value.The Investment Management (formerly Asset Management) reporting unit, with$7.2 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 5%. 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 2019 Annual Report for additional information on the annual goodwill impairment test. As ofJune 30, 2020 , if the discount rate applied to the estimated cash flows was increased or decreased by 25 basis points, the fair value of the Investment Management reporting unit would decrease or increase by 4%, respectively. Similarly, if the long-term growth rate was increased or decreased by 10 basis points, the fair value of the Investment Management reporting unit would increase or decrease by approximately 1%, respectively.
Consolidated balance sheet review
One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators. We also seek to undertake overall liquidity risk, including intraday liquidity risk, that stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.
At
BNY Mellon 21 -------------------------------------------------------------------------------- securities and interest-bearing deposits with theFederal Reserve and other central banks, resulting from significant deposit inflows. Deposits totaled$305 billion atJune 30, 2020 , compared with$259 billion atDec. 31, 2019 . The increase reflects the current macroeconomic environment. Total interest-bearing deposits as a percentage of total interest-earning assets were 59% atJune 30, 2020 and 62% atDec. 31, 2019 . The higher level of client deposits received in the first six months of 2020 was primarily placed in the securities portfolio or with theFederal Reserve and other central banks. AtJune 30, 2020 , available funds totaled$172 billion which include cash and due from banks, interest-bearing deposits with theFederal 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 billion atDec. 31, 2019 . Total available funds as a percentage of total assets were 39% atJune 30, 2020 and 38% atDec. 31, 2019 . For additional information on our available funds, see "Liquidity and dividends." Securities were$155 billion , or 35% of total assets, atJune 30, 2020 , compared with$123 billion , or 32% of total assets, atDec. 31, 2019 . The increase in securities primarily reflects investments inU.S. Treasury securities, agency residential mortgage-backed securities ("RMBS"), sovereign debt/sovereign guaranteed securities, commercial paper/CDs and an increase in unrealized pre-tax gain. For additional information on our securities portfolio, see "Securities" and Note 4 of the Notes to Consolidated Financial Statements.
Loans were
primarily driven by higher overdrafts and higher loans in the commercial portfolio, partially offset by lower loans in the financial institutions portfolio. For additional information on our loan portfolio, see "Loans" and Note 5 of the Notes to Consolidated Financial Statements.
Long-term debt totaled$27.6 billion atJune 30, 2020 and$27.5 billion atDec. 31, 2019 . Issuances of$2.25 billion and an increase in the fair value of hedged long-term debt were partially offset by maturities and a redemption. For additional information on long-term debt, see "Liquidity and dividends."
Country risk exposure
The following table presentsBNY Mellon's top 10 exposures by country (excluding theU.S. ) as ofJune 30, 2020 , as well as certain countries with higher-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. 22BNY Mellon --------------------------------------------------------------------------------
Country risk exposure at
June 30, 2020 Interest-bearing deposits
(in billions) Central banks Banks Lending (a) Securities (b) Other (c) Total exposure
Top 10 country exposure:
United Kingdom ("UK") $ 15.0 $ 0.5 $ 1.4 $ 5.6 $ 2.3 $ 24.8
Germany 16.7 0.7 0.7 4.3 0.3 22.7
Japan 19.2 0.9 0.2 0.7 0.1 21.1
Canada - 2.3 0.2 4.4 0.9 7.8
Belgium 5.9 0.5 0.2 0.5 - 7.1
China - 2.9 1.5 - 0.1 4.5
France - 0.1 - 3.1 0.3 3.5
Ireland 0.7 0.1 0.3 0.7 1.5 3.3
Luxembourg 0.8 - 0.1 0.1 1.8 2.8
Spain - 0.2 - 2.4 0.1 2.7
Total Top 10 country
exposure $ 58.3 $ 8.2 $ 4.6 $ 21.8 $ 7.4 $ 100.3 (d)
Select country exposure:
Italy $ 0.1 $ 0.4 $ - $ 1.1 $ - $ 1.6
Brazil - - 1.2 0.1 0.1 1.4
Total select country
exposure $ 0.1 $ 0.4 $ 1.2 $ 1.2 $ 0.1 $ 3.0
(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 80% of our total non-
exposure.
Based on our internal country risk management process at June 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
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 a reduction in the fair value of our securities portfolio.
BNY Mellon 23
--------------------------------------------------------------------------------
The following table shows the distribution of our total securities portfolio.
Securities
portfolio
Fair Ratings (b)
March 31, 2Q20 value
2020 change in June 30, 2020 as a % of BB+
(dollars in Fair unrealized Amortized Fair amortized Unrealized AAA/ A+/ BBB+/ and A1+/A2 & Not
millions) value gain (loss) cost value cost (a) gain (loss) AA- A- BBB- lower SP-1+ rated
Agency RMBS $ 57,074 $ 455 $ 58,874 $ 60,401 103 % $ 1,527 100 % - % - % - % - % - %
U.S. Treasury 24,825 (31 ) 28,224 28,651 102 427 100 - - - - -
Sovereign
debt/sovereign
guaranteed (c) 13,833 47 16,698 16,868 101 170 75 6 18 1 - -
Agency commercial
mortgage-backed
securities ("MBS") 11,416 159 11,339 11,731 103 392 100 - - - - -
Foreign covered
bonds (d) 5,349 62 5,548 5,598 101 50 100 - - - - -
Supranational 4,339 27 5,434 5,484 101 50 100 - - - - -
U.S. government
agencies 3,346 29 4,984 5,056 101 72 100 - - - - -
Collateralized loan
obligations
("CLOs") 4,098 149 4,526 4,432 98 (94 ) 99 - - - - 1
Foreign government
agencies (e) 2,761 14 3,536 3,575 101 39 95 5 - - - -
Commercial
paper/CDs 3,465 5 3,386 3,392 100 6 - - - - 100 -
Other asset-backed
securities ("ABS") 2,220 56 2,724 2,743 101 19 99 - 1 - - -
Non-agency
commercial MBS 2,446 140 2,517 2,602 103 85 100 - - - - -
Non-agency RMBS (f) 1,548 66 1,537 1,672 109 135 50 8 2 24 - 16
State and political
subdivisions 1,001 12 1,166 1,196 103 30 76 22 - - 1 1
Corporate bonds 818 28 789 831 105 42 19 68 13 - - -
Other 1 - 1 1 100 - - - - - - 100
Total securities $ 138,540 (g) $ 1,218 $ 151,283 $ 154,233 (g) 102 % $ 2,950 (g)(h) 94 % 2 % 2 % - % 2 % - %
(a) Amortized cost reflects historical impairments.
(b) Represents ratings by
(c) Primarily consists of exposure to
(d) Primarily consists of exposure to
(e) Primarily consists of exposure to
(f) Includes RMBS that were included in the former
at
(g) Includes net unrealized losses on derivatives hedging securities
available-for-sale (including terminated hedges) of
(h) Includes unrealized gains of
available-for-sale securities, net of hedges.
The fair value of our securities portfolio, including related hedges, was $154.2
billion at June 30, 2020 , compared with $122.7 billion at Dec. 31, 2019 . The
increase primarily reflects investments in U.S. Treasury securities, agency
RMBS, sovereign debt/ sovereign guaranteed securities, commercial paper/CDs and
an increase in unrealized pre-tax gain. At June 30, 2020 , the securities
portfolio, including the impact of interest rate swap hedges, is 74% fixed rate
and 26% floating rate.
Included in the securities portfolio at June 30, 2020 were $1.2 billion of
commercial paper and $697 million of CDs purchased from affiliated money market
mutual funds in order to provide liquidity support to the funds. Additionally,
at June 30, 2020 , the securities portfolio included $1.5 billion of commercial
paper and CDs purchased from money market mutual funds managed by third parties
and funded through the MMLF program.
At June 30, 2020 , the securities portfolio had a net unrealized gain, including
the impact of related hedges, of $3.0 billion , compared with $796 million at
Dec. 31, 2019 . The increase in the net unrealized pre-tax gain was primarily
driven by lower market interest rates.
The unrealized gain (after-tax) on our available-for-sale securities portfolio,
net of hedges, included in accumulated other comprehensive income ("OCI") was
$1.2 billion at June 30, 2020 , compared with $361 million at Dec. 31, 2019 . The
increase in the unrealized gain, net of tax, was primarily driven by lower
market interest rates.
At
24BNY Mellon --------------------------------------------------------------------------------
See Note 4 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 15 of the Notes to
Consolidated Financial Statements for details of securities by level in the fair value hierarchy.
The following table presents the amortizable purchase premium (net of discount) related to the securities portfolio and accretable discount related to the 2009 restructuring of the securities portfolio. Net premium amortization and discount accretion of securities (a) (dollars in millions) 2Q20 1Q20 4Q19 3Q19 2Q19 Amortizable purchase premium (net of discount) relating to securities: Balance at period end$ 1,693 $ 1,555 $ 1,319 $ 1,308 $ 1,315 Estimated average life remaining at period end (in years) 3.7 3.8 4.3 4.2 4.5 Amortization$ 125 $ 101 $ 100 $ 95 $ 91 Accretable discount related to the prior restructuring of the securities portfolio: Balance at period end$ 145 $ 159 $ 163 $ 171 $ 181 Estimated average life remaining at period end (in years) 5.8 6.1 6.3 6.3 6.3 Accretion$ 10 $ 11 $ 12 $ 13 $ 13
(a) Amortization of purchase premium decreases net interest revenue while
accretion of discount increases net interest revenue. Both were recorded on a
level yield basis.
Loans
Total exposure -
consolidated June 30, 2020 Dec. 31, 2019
Unfunded Total Unfunded Total
(in billions) Loans commitments exposure Loans commitments exposure
Non-margin loans:
Financial institutions $ 10.8 $ 35.5 $ 46.3 $ 12.5 $ 34.4 $ 46.9
Commercial 2.4 11.8 14.2 1.8 12.6 14.4
Subtotal institutional 13.2 47.3 60.5 14.3 47.0 61.3
Wealth management loans and
mortgages 15.9 0.9 16.8 16.2 0.8 17.0
Commercial real estate 6.2 3.2 9.4 5.6 3.6 9.2
Lease financings 1.0 - 1.0 1.1 - 1.1
Other residential mortgages 0.5 - 0.5 0.5 - 0.5
Overdrafts 4.2 - 4.2 2.7 - 2.7
Other 1.5 - 1.5 1.2 - 1.2
Subtotal non-margin loans 42.5 51.4 93.9 41.6 51.4 93.0
Margin loans 12.9 0.1 13.0 13.4 0.1 13.5
Total $ 55.4 $ 51.5 $ 106.9 $ 55.0 $ 51.5 $ 106.5
At June 30, 2020 , total exposures of $106.9 billion increased slightly compared
with Dec. 31, 2019 , primarily reflecting higher overdrafts, partially offset by
lower financial institutions exposure and margin loans.
Our financial institutions and commercial portfolios comprise our largest
concentrated risk. These portfolios comprised 57% of our total exposure at
BNY Mellon 25 --------------------------------------------------------------------------------
Financial institutions
The financial institutions portfolio is shown below.
Financial institutions June 30, 2020 Dec. 31, 2019 portfolio exposure Unfunded Total % Inv. % due Unfunded Total (dollars in billions) Loans commitments exposure grade <1 yr. Loans commitments exposure Securities industry$ 1.6 $ 24.5 $ 26.1 98 % 99 %$ 2.9 $ 23.4 $ 26.3 Banks 7.0 1.1 8.1 82 98 7.4 1.1 8.5 Asset managers 1.3 6.3 7.6 99 84 1.3 6.4 7.7 Insurance 0.1 2.7 2.8 100 16 - 2.7 2.7 Government 0.1 0.2 0.3 100 64 0.1 0.3 0.4 Other 0.7 0.7 1.4 96 55 0.8 0.5 1.3 Total$ 10.8 $ 35.5 $ 46.3 95 % 90 %$ 12.5 $ 34.4 $ 46.9
The financial institutions portfolio exposure was
Financial institution exposures are high quality, with 95% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification atJune 30, 2020 . 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. In addition, 75% of the financial institutions exposure is secured. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.
The exposure to financial institutions is generally short-term with 90% of the
exposures expiring within one year. At
financial institutions had an expiration within 90 days, compared with 18% at
AtJune 30, 2020 , the secured intraday credit provided to dealers in connection with their tri-party repo activity totaled$20.6 billion and was included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit. Secured intraday credit facilities represent nearly half of the exposure in the financial institutions portfolio and are reviewed and reapproved annually.
Our banks exposure primarily relates to our global trade finance. These
exposures are short-term in nature, with 98% due in less than one year. The
investment grade percentage of our bank exposure was 82% at
The asset managers portfolio exposure is high-quality, with 99% of the exposures meeting our investment grade equivalent ratings criteria as ofJune 30, 2020 . These exposures are generally short-term liquidity facilities, with the majority to regulated mutual funds. 26BNY Mellon
--------------------------------------------------------------------------------
Commercial
The commercial portfolio is presented below.
Commercial portfolio exposure June 30, 2020 Dec. 31, 2019
Unfunded Total % Inv. % due Unfunded Total
(dollars in billions) Loans commitments exposure grade <1 yr. Loans commitments exposure
Manufacturing $ 1.1 $ 3.5 $ 4.6 94 % 15 % $ 0.9 $ 4.2 $ 5.1
Services and other 1.1 3.3 4.4 94 33 0.6 3.7 4.3
Energy and utilities 0.1 4.1 4.2 89 4 0.3 3.7 4.0
Media and telecom 0.1 0.9 1.0 93 - - 1.0 1.0
Total $ 2.4 $ 11.8 $ 14.2 92 % 16 % $ 1.8 $ 12.6 $ 14.4 The commercial portfolio exposure was
We have$741 million of total direct exposure to the oil and gas industry, 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 atJune 30, 2020 and 91% atDec. 31, 2019 .
Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.
Percentage of the portfolios that are investment grade
Quarter ended
March 31, June 30,
June 30, 2020 2020 Dec. 31, 2019 Sept. 30, 2019 2019
Financial institutions 95 % 96 % 95 % 95 % 95 %
Commercial 92 % 94 % 96 % 95 % 95 %
Wealth management loans and mortgages
Our wealth management exposure was$16.8 billion atJune 30, 2020 , compared with$17.0 billion atDec. 31, 2019 . 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 atJune 30, 2020 .
At
BNY Mellon 27 --------------------------------------------------------------------------------
Commercial real estate
The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.
Composition of commercial real estate portfolio
by asset class June 30, 2020 Dec. 31, 2019
Total Percentage Total Percentage
(in billions) exposure secured exposure secured
Office $ 3.2 40 % $ 3.1 40 %
Residential 3.1 44 3.1 44
Retail 1.0 9 1.0 8
Hotels 0.6 2 0.6 2
Mixed-use 0.6 2 0.6 2
Healthcare 0.3 1 0.3 -
Other 0.6 2 0.5 4
Total commercial real estate $ 9.4 65 % $ 9.2 65 %
Our commercial real estate exposure totaled $9.4 billion at June 30, 2020 ,
compared with $9.2 billion at Dec. 31, 2019 . Our income-producing commercial
real estate facilities are focused on experienced owners and are structured with
moderate leverage based on existing cash flows. Our commercial real estate
lending activities also include construction and renovation facilities. Our
client base consists of experienced developers and long-term holders of real
estate assets. Loans are approved on the basis of existing or projected cash
flows and supported by appraisals and knowledge of local market conditions.
Development loans are structured with moderate leverage, and in many instances,
involve some level of recourse to the developer.
At June 30, 2020 , the unsecured portfolio consists of real estate investment
trusts ("REITs") and real estate operating companies, which are both primarily
investment grade.
At
Lease financings
The lease financings portfolio exposure totaled$1.0 billion atJune 30, 2020 and$1.1 billion atDec. 31, 2019 . AtJune 30, 2020 , approximately 98% of leasing exposure was investment grade, or investment grade equivalent and consisted of exposures backed by well-diversified assets, primarily large-ticket transportation equipment and real estate. The largest component of our lease residual value exposure is freight-related rail cars. Assets are both domestic and
foreign-based, with primary concentrations in the
Other residential mortgages
The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled$450 million atJune 30, 2020 and$494 million atDec. 31, 2019 . Included in this portfolio atJune 30, 2020 were$81 million of mortgage loans purchased in 2005, 2006 and the first quarter of 2007, of which 25% of the serviced loan balance was at least 60 days delinquent.
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$13.0 billion atJune 30, 2020 and$13.5 billion atDec. 31, 2019 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$3.6 billion atJune 30, 2020 andDec. 31, 2019 related to a term loan program that offers fully collateralized loans to broker-dealers. 28BNY Mellon --------------------------------------------------------------------------------
Allowance for credit losses
Our credit strategy is to focus on investment grade clients who are active users of our non-credit services. Our primary exposure to the credit risk of a
customer consists of funded loans, unfunded contractual commitments to lend,
standby letters of credit ("SBLC") and overdrafts associated with our custody
and securities clearance businesses.
The following table details changes in our allowance for credit losses.
Allowance for credit losses activity June 30, Dec. 31, June 30, (dollars in millions) 2020 March 31, 2020 2019 2019 Beginning balance of allowance for credit losses$ 329 $ 216$ 224 $ 248 Impact of adopting ASU 2016-13 N/A (55 ) (a) N/A N/A Provision for credit losses 143 169 (a) (8 ) (8 ) Net recoveries (charge-offs): Loans: Other residential mortgages 3 - - 2 Wealth management loans and mortgages - - - (1 ) Other financial instruments - (1 ) N/A N/A Net recoveries (charge-offs) 3 (1 ) - 1 Ending balance of allowance for credit losses$ 475 $ 329
Allowance for loan losses$ 302 $ 140$ 122 $ 146 Allowance for lending-related commitments 152 148 94 95 Allowance for financial instruments 21 (b) 41 (b) N/A N/A Total allowance for credit losses$ 475 $ 329$ 216 $ 241 Non-margin loans$ 42,488 $ 49,253 $ 41,567 $ 41,794 Margin loans 12,909 13,115 13,386 10,602 Total loans$ 55,397 $ 62,368 $ 54,953 $ 52,396 Allowance for loan losses as a percentage of total loans 0.55 % 0.22 % 0.22 % 0.28 % Allowance for loan losses as a percentage of non-margin loans 0.71 0.28 0.29 0.35 Allowance for loan losses and lending-related commitments as a percentage of total loans 0.82 0.46 0.39 0.46 Allowance for loan losses and lending-related commitments as a percentage of non-margin loans 1.07 0.58 0.52 0.58
(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.
Includes the reclassification of credit-related reserves on accounts
receivable of $4 million .
(b) 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
We had$12.9 billion of secured margin loans on our balance sheet atJune 30, 2020 compared with$13.4 billion atDec. 31, 2019 . 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-margin loans is a more appropriate metric to measure the adequacy of the reserve. Reverse repurchase agreements atJune 30, 2020 were fully secured with high quality collateral. As a result, there was no allowance for credit losses related to these assets atJune 30, 2020 . This compares to an$18 million allowance atMarch 31, 2020 . The decrease is driven by a reduction in exposure and improvement in collateral liquidity and values related to reverse repurchase agreements collateralized by non-agency debt securities.
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
BNY Mellon 29 --------------------------------------------------------------------------------
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, we have allocated our allowance for loans and lending-related commitments as presented below.
Allocation of allowance for
loan losses and
lending-related commitments June 30, 2020 March 31, 2020 (a) Dec. 31, 2019 June 30, 2019 Commercial real estate 81 % 72 % 35 % 30 % Commercial 9 9 28 32 Foreign - - (b) 11 13 Financial institutions 4 6 9 9 Wealth management (c) 2 3 9 8 Other residential mortgages 3 5 6 6 Lease financings 1 5 2 2 Total 100 % 100 % 100 % 100 %
(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.
(b) The allowance related to foreign exposure has been reclassified to the
respective classes of financing receivables.
(c) 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 allowance would have decreased by$125 million , and if each credit were rated one grade worse, the allowance would have increased by$202 million . Our multi-scenario based macroeconomic forecast used in determining theJune 30, 2020 allowance for credit losses consisted of three recessionary scenarios, each of varying severity and duration. The baseline scenario reflects moderate recovery across most key variables, whereas the upside scenario is principally a V-shaped recovery, and the downside scenario is reflective of W-shaped recovery in GDP and unemployment and deeper reductions in asset prices compared to the baseline. We placed the most weight on our baseline scenario, with the remaining weighting resulting in slightly more weight placed on the downside scenario than the upside scenario. From a sensitivity perspective, atJune 30, 2020 , if we had applied 100% weighting to the downside scenario, the allowance for credit losses would have been approximately$245 million higher.
Nonperforming assets
The table below presents our nonperforming assets.
Nonperforming assets Dec. 31, 2019 (dollars in millions) June 30, 2020 Nonperforming loans: Other residential mortgages $ 58 $ 62 Wealth management loans and mortgages 28 24 Total nonperforming loans 86 86 Other assets owned 2 3 Total nonperforming assets $ 88 $ 89 Nonperforming assets ratio 0.16 % 0.16 % Nonperforming assets ratio, excluding margin loans 0.21 0.21 Allowance for loan losses/nonperforming loans (a) 351.2 141.9 Allowance for loan losses/nonperforming assets (a) 343.2 137.1 Allowance for loan losses and lending-related commitments/nonperforming loans (a)(b) 527.9 251.2 Allowance for loan losses and lending-related commitments/nonperforming assets (a)(b) 515.9 242.7
(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.
(b) Total allowance for credit losses includes both the allowance for credit
losses on loans and lending-related commitments.
Lost interest
Interest revenue would have increased by $1 million in the second quarter of
2020 and first quarter of 2020, $4 million in the second quarter of 2019, $3
million in the first six months of 2020 and $7 million in the first six months
of 2019, if nonperforming
30 BNY Mellon --------------------------------------------------------------------------------
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") and the Interagency
Guidance. See Note 2 of the Notes to Consolidated Financial Statements 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 totaling $282 million in the second quarter of 2020 by
providing short-term loan payment forbearances or modified principal and/or
interest payments. We did not identify these modifications as TDRs. These loans
were primarily residential mortgage and commercial real estate loans. During the
loan modification period, these loans are not reported as nonperforming or past
due. We modified other residential mortgage loans totaling less than $1 million
in both the second quarter of 2019 and first quarter of 2020.
Deposits
Increased volatility coupled with the interest rate environment led to an increase in deposit levels as our clients increased the levels of cash placed with us. Total deposits were$305.5 billion atJune 30, 2020 , an increase of 18%, compared with$259.5 billion atDec. 31, 2019 . Noninterest-bearing deposits were$78.1 billion atJune 30, 2020 compared with$57.6 billion atDec. 31, 2019 . Interest-bearing deposits were$227.4 billion atJune 30, 2020 compared with$201.9 billion atDec. 31, 2019 . See "Impact of coronavirus pandemic on our business" for additional information.
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
(dollars in millions) June 30, 2020 March 31, 2020 June 30, 2019
Maximum month-end balance during the
quarter $ 14,512 $ 16,644 $ 12,127
Average daily balance (a) $ 14,209$ 13,919 $
11,809
Weighted-average rate during the quarter (a) 0.03 % 7.96 % 12.64 % Ending balance (b) $ 14,512$ 13,128 $
11,757
Weighted-average rate at period end (b) 0.00 % 3.93 %
14.43 %
(a) Includes the average impact of offsetting under enforceable netting
agreements of
in the first quarter of 2020 and
2019. On a Non-GAAP basis, excluding the impact of offsetting, the
weighted-average rates would have been 0.00% for the second quarter of 2020,
1.18% for the first quarter of 2020 and 2.39% for the second quarter of 2019.
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
$48,615 million atJune 30, 2020 ,$80,203 million atMarch 31, 2020 and$78,433 million atJune 30, 2019 . Fluctuations of federal funds purchased and securities sold under repurchase agreements reflect changes in overnight borrowing opportunities. The decreases in the weighted-average rates compared withJune 30, 2019 andMarch 31, 2020 primarily reflect lower interest rates and repurchase agreement activity with theFixed Income Clearing Corporation ("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.BNY Mellon 31 --------------------------------------------------------------------------------
Information related to payables to customers and broker-dealers is presented below.
Payables to customers and broker-dealers
Quarter ended
(dollars in millions) June 30, 2020 March 31, 2020 June 30, 2019
Maximum month-end balance during the
quarter $ 25,012 $ 24,016 $ 19,149
Average daily balance (a) $ 23,944 $ 20,629 $ 18,679
Weighted-average rate during the
quarter (a) (0.01 )% 0.73 % 1.76 %
Ending balance $ 25,012 $ 24,016 $ 18,946
Weighted-average rate at period end (0.01 )% 0.28 % 1.73 %
(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
quarter of 2020 and $15,666 million in the second quarter of 2019.
Payables to customers and broker-dealers represent funds awaiting re-investment 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) June 30, 2020 March 31, 2020 June 30, 2019
Maximum month-end balance during the
quarter $ 665 $ 3,379 $ 8,894
Average daily balance $ 191 $ 1,581 $ 2,957
Weighted-average rate during the
quarter 1.02 % 1.56 % 2.43 %
Ending balance $ 665 $ 1,121 $ 8,894
Weighted-average rate at period end 0.02 % 1.57 % 2.35 %
The Bank of New York Mellon 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. The fluctuations in the commercial paper balances
primarily reflect funding of investments in short-term assets.
Information related to other borrowed funds is presented below.
Other borrowed funds
Quarter ended
(dollars in millions) June 30, 2020 March 31, 2020 June 30, 2019
Maximum month-end balance during the
quarter $ 2,451 $ 1,544 $ 2,732
Average daily balance $ 2,272 $ 719 $ 2,455
Weighted-average rate during the
quarter 1.30 % 2.27 % 3.36 %
Ending balance $ 1,628 $ 1,544 $ 1,921
Weighted-average rate at period end 1.37 % 2.01 % 3.84 %
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. Overdrafts typically relate to timing differences for settlements.
The decrease in other borrowed funds compared with June 30, 2019 primarily
reflects a decrease in borrowings from the Federal Home Loan Bank , partially
offset by borrowings from the Federal Reserve Bank of Boston under the MMLF
program. The increase in other borrowed funds compared with March 31, 2020
primarily reflects higher borrowings from the Federal Reserve Bank of Boston
under the MMLF program, partially offset by lower overdrafts of sub-custodian
account balances in our Investment Services businesses and borrowings from the
Federal Home Loan Bank .
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
32 BNY Mellon
--------------------------------------------------------------------------------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 affectBNY Mellon's liquidity risk profile and are considered in our liquidity risk framework. See "Impact of coronavirus pandemic on our business" for additional information. 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 ofJune 30, 2020 , 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 enableBNY 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 theFederal 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 Average (dollars in millions) June 30, 2020 Dec. 31, 2019 2Q20 1Q20 2Q19 YTD20 YTD19 Cash and due from banks $ 4,776 $ 4,830$ 4,102 $ 4,595 $ 5,083 $ 4,348 $ 4,969 Interest-bearing deposits with theFederal Reserve and other central banks 112,728 95,042 94,229 80,403 61,756 87,316 62,665 Interest-bearing deposits with banks 18,045 14,811 21,093 17,081 13,666 19,087 13,761 Federal funds sold and securities purchased under resale agreements 36,638 30,182 30,265 34,109 38,038 32,187 33,528 Total available funds$ 172,187 $ 144,865 $ 149,689 $ 136,188 $ 118,543 $ 142,938 $ 114,923 Total available funds as a percentage of total assets 39 % 38 % 36 % 35 % 35 % 36 % 34 %
Total available funds were
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, were$18.2 billion for the six months endedJune 30, 2020 and$18.4 billion for the six months endedJune 30, 2019 . The decrease primarily reflects a decrease in other borrowed funds and commercial paper, partially offset by an increase in federal funds purchased and securities sold under repurchase agreements. Average foreign deposits, primarily from our European-based Investment Services businesses, were$103.1 billion for the six months endedJune 30, 2020 , compared with$91.4 billion for the six months endedJune 30, 2019 . Average interest-bearing domestic deposits were$101.0 billion for the six months endedJune 30, 2020 and$72.4 billion for the six months endedJune 30, 2019 . The increase primarily reflects increased client activity. Average payables to customers and broker-dealers were$17.6 billion for the six months endedJune 30, 2020 and$15.9 billion for the six months endedJune 30, 2019 . Payables to customers and broker-dealers are driven by customer trading activity and market volatility.BNY Mellon 33 --------------------------------------------------------------------------------
Average long-term debt was
Average noninterest-bearing deposits increased to
A significant reduction in our Investment Services business would reduce our access to deposits. See
"Asset/liability management" for additional factors that could impact our deposit balances.
Sources of liquidity
The Parent's 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
Moody's S&P Fitch DBRS
Parent:
Long-term senior debt A1 A AA- AA
Subordinated debt A2 A- A AA (low)
Preferred stock Baa1 BBB BBB+ A
Outlook - Parent Stable Stable Stable Stable
The Bank of New York Mellon :
Long-term senior debt Aa2 AA- AA AA (high)
Subordinated debt NR A NR NR
Long-term deposits Aa1 AA- AA+ AA (high)
Short-term deposits P1 A-1+ F1+ R-1 (high)
Commercial paper P1 A-1+ F1+ R-1 (high)
BNY Mellon, N.A.:
Long-term senior debt Aa2 (a) AA- AA (a) AA (high)
Long-term deposits Aa1 AA- AA+ AA (high)
Short-term deposits P1 A-1+ F1+ R-1 (high)
Outlook - Banks Stable Stable Stable Stable
(a) Represents senior debt issuer default rating.
NR - Not rated.
Long-term debt totaled$27.6 billion atJune 30, 2020 and$27.5 billion atDec. 31, 2019 . Issuances of$2.25 billion and an increase in the fair value of hedged long-term debt were partially offset by maturities of$1.75 billion and a redemption of$1.25 billion . The Parent has$2.2 billion of long-term debt that will mature in the remainder of 2020.
In
InMay 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 an aggregate liquidation preference of$1 billion . The Parent will pay dividends on the Series G Preferred Stock, if declared by its board of directors on eachMarch 20 andSeptember 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 designation) on the date that is three business days prior to the reset date plus 4.358% for each reset period, from and includingSept. 20, 2025 . The floating rate will initially reset onSept. 20, 2025 and subsequently on each date falling on the fifth anniversary of the preceding reset date.
34BNY Mellon --------------------------------------------------------------------------------
outstanding. At
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. The average commercial paper outstanding was$886 million for the six months endedJune 30, 2020 and$2.2 billion for the six months endedJune 30, 2019 . Commercial paper outstanding was$665 million atJune 30, 2020 and$4.0 billion atDec. 31, 2019 . Subsequent toJune 30, 2020 , ourU.S. bank subsidiaries could declare dividends to the Parent of approximately$796 million , without the need for a regulatory waiver. In addition, atJune 30, 2020 , non-bank subsidiaries of the Parent had liquid assets of approximately$1.6 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 in our 2019 Annual Report.Pershing LLC has uncommitted lines of credit in place for liquidity purposes which are guaranteed by the Parent.Pershing LLC has three separate uncommitted lines of credit amounting to$750 million in aggregate. There were no borrowings under these lines in the second quarter of 2020.Pershing Limited , an indirectUK -based subsidiary ofBNY Mellon , has three separate uncommitted lines of credit amounting to$350 million in aggregate. Average borrowings under these lines were$31 million , in aggregate, in the second 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 second quarter of 2020. 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 79% of total revenue in the second quarter of 2020, and the dividend capacity of our banking subsidiaries. Our double leverage ratio was 116.6% atJune 30, 2020 and 116.9% atDec. 31, 2019 , 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
InMarch 2020 , we and the other members of theFinancial Services Forum announced the temporary suspension of share repurchases until the end of the second quarter of 2020 to preserve capital and liquidity in order to further the objective of using capital and liquidity to support clients and customers. In the second quarter of 2020, we repurchased 61.2 thousand common shares from employees, primarily in connection with the employees' payment of taxes upon the vesting of restricted stock, at an average price of$43.59 per common share for a total cost of$3 million . In connection with theFederal Reserve's release of the CCAR results inJune 2020 ,BNY Mellon announced that it will not conduct open market common stock repurchases in the third quarter of 2020 and will resume the common stock repurchase program as early as possible, depending on factors such as prevailing market conditions, our outlook for the economic environment, the additional capital analysis required by theFederal Reserve , and whether theFederal Reserve keeps the limitations for the third quarter of 2020 in place for subsequent quarters. TheFederal Reserve has announced that it will conduct additional analysis for all participating CCAR firms, including us, later this year and will not allow participating firms to make open market commonBNY Mellon 35 --------------------------------------------------------------------------------
stock repurchases during the third quarter of 2020. See "Recent regulatory developments" for additional information related to the 2020 CCAR results.
Liquidity coverage ratio ("LCR")
U.S. regulators have established an LCR that requires certain banking organizations, includingBNY 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
Consolidated HQLA and LCR (dollars in billions) June 30, 2020 Securities (a) $ 125 Cash (b) 107 Total consolidated HQLA (c) $ 232 Total consolidated HQLA - average (c) $ 210 Average LCR 112 %
(a) Primarily includes securities of
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
and averaged $156 billion for the second quarter of 2020.
BNY Mellon and each of our affected domestic bank subsidiaries were compliant
with the U.S. LCR requirements of at least 100% throughout the second quarter of
2020.
Statement of cash flows
The following summarizes the activity reflected on the consolidated statement of
cash flows. While this information may be helpful to highlight certain macro
trends and business strategies, the cash flow analysis may not be as relevant
when analyzing changes in our
net earnings and net assets. We believe that in addition to the traditional cash
flow analysis, the discussion related to liquidity and dividends and
asset/liability management herein may provide more useful context in evaluating
our liquidity position and related activity.
Net cash provided by operating activities was $5.1 billion in the six months
ended June 30, 2020 , compared with net cash used for operating activities of
$2.5 billion in the six months ended June 30, 2019 . In the six months ended June
30, 2020 , cash flows provided by operations primarily resulted from earnings and
changes in accruals. In the six months ended June 30, 2019 , cash flows used for
operations primarily resulted from changes in accruals and trading activities,
partially offset by earnings.
Net cash used for investing activities was $58.7 billion in the six months ended
June 30, 2020 , compared with $11.4 billion in the six months ended June 30,
2019 . In the six months ended June 30, 2020 , net cash used for investing
activities primarily reflects net changes in securities, change in
interest-bearing deposits with the Federal Reserve and other central banks and
changes in federal funds sold and securities purchased under resale agreements.
In the six months ended June 30, 2019 , net cash used for investing activities
primarily reflects changes in federal funds sold and securities purchased under
resale agreements, partially offset by changes in loans.
Net cash provided by financing activities was $53.4 billion in the six months
ended June 30, 2020 , compared with $13.2 billion in the six months ended June
30, 2019 . In the six months ended June 30, 2020 , net cash provided by financing
activity reflects changes in deposits and payables to customers and
broker-dealers, partially offset by changes in commercial paper. In the six
months ended June 30, 2019 , net cash provided by financing activities primarily
reflects changes in deposits and changes in commercial paper, partially offset
by repayment of long-term debt, changes in federal funds purchased and
securities sold under repurchase agreements and changes in other borrowed funds.
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