BNY Bank of New York Mellon 10-K 2023-12-31 section summaries

Business overview

BNY Mellon (NYSE: BK) is a global custody, asset servicing, investment management and wealth services company. At December 31, 2023, it had $47.8 trillion in assets under custody and/or administration and $2.0 trillion in assets under management. Its principal segments are Securities Services; Market and Wealth Services; and Investment and Wealth Management. The Other segment includes leasing, corporate treasury and securities portfolio activities, derivatives and other trading, insurance, renewable energy and other corporate investments, and certain business exits.

Subsidiaries and oversight

The principal U.S. banking subsidiaries house Securities Services and certain Market and Wealth Services activities, as well as Wealth Management and some Pershing activities. Most Investment Management and Pershing businesses operate through non-bank subsidiaries. BNY Mellon SA/NV is the company’s main continental European banking subsidiary; it operates across multiple European countries and focuses on global custody, asset servicing and collateral management. Banking subsidiaries are subject to U.S. and non-U.S. regulatory oversight, and U.S. bank deposits are FDIC-insured to the extent provided by law.

Workforce and human capital

BNY Mellon had approximately 53,400 full-time employees globally at year-end 2023; approximately 55% were outside the U.S. This included about 11,000 employees in EMEA, 18,400 in APAC and 800 in other locations, primarily Brazil.

Women represented 40% of the global workforce, 44% of the U.S. workforce and 40% of the Executive Committee. U.S. employees from underrepresented racial or ethnic backgrounds represented 39% of the workforce; people from these backgrounds made up 28% of the Executive Committee and 30% of the Board. Four of the six standing Board committees were chaired by a director diverse by race or gender.

The company emphasizes inclusion, employee development, wellbeing and workplace flexibility, and identifies its ability to attract, retain and develop talent as important to competition. Retirement plans included approximately 43,100 participants in the U.S. 401(k), 7,400 participants in the frozen U.S. defined-benefit plan and 18,000 participants in non-U.S. defined-benefit plans.

Competition and risks

BNY Mellon faces intense competition from financial institutions and technology providers across custody, clearing, collateral management, investment management, wealth management and related services. Competition depends on service and execution, product range, performance, technology, price, reputation and access to capital. The company notes potential disadvantages relative to firms not subject to similarly extensive regulation, the entry of new providers enabled by technological advances, heightened regulatory restrictions, and inflationary conditions that may make talent retention and development more difficult.

2023 financial performance

Revenue grew 6.9%, driven primarily by a 24.0% increase in net interest revenue; fee and other revenue rose 2.2%. Net interest margin expanded to 1.25% from 0.97% (0.68% in 2021). Higher noninterest expense and the larger credit-loss provision partly offset revenue growth. Net income increased 28.4% year over year, although 2023 earnings and diluted EPS remained below 2021.

In February 2024, BNY Mellon revised its 2023 results to include an additional $127 million pre-tax ($97 million after-tax) noninterest expense for the FDIC special assessment. The revision reflected new FDIC information on expected losses related to the failures of Silicon Valley Bank and Signature Bank.

Business scale and returns

AUC/A reached a year-end high relative to 2022, while AUM remained below its 2021 level. AUM excludes assets managed outside the Investment and Wealth Management segment. BNY Mellon operates across Securities Services, Market and Wealth Services, and Investment and Wealth Management.

Capital and shareholder measures

CET1 was also 11.2% in 2021. Tangible book value per common share is a non-GAAP measure that excludes goodwill and intangible assets net of deferred tax liabilities. Full-time employees increased to 53,400 from 51,700 in 2022 and 49,100 in 2021.

2023 financial highlights

Total revenue increased 7%, led by 24% growth in net interest revenue, mainly from higher interest rates, partly offset by balance-sheet size and mix. Fee revenue declined 1%: lower foreign-exchange volatility, AUM-flow mix and the prior-year divestiture outweighed money-market fee-waiver abatement, net new business and the effect of accelerated amortization of Russia-related deferred costs in Q1 2022. Investment and other revenue benefited mainly from the absence of the Q4 2022 securities-portfolio repositioning loss, partly offset by a Q4 2023 fair-value reduction in contingent consideration.

Reported earnings in both years included negative notable items. In 2023 these included the FDIC special assessment, severance, the contingent-consideration fair-value reduction related to a prior divestiture, litigation reserves and net losses on disposals. In 2022 they included Investment Management goodwill impairment, securities-portfolio repositioning losses, severance, litigation reserves, accelerated amortization of Russia-related depositary-receipt service costs and net disposal gains.

The 2023 provision for credit losses was $119M, primarily reflecting reserve increases for commercial real estate exposure and changes in the macroeconomic forecast. Noninterest expense rose 2%, driven by the Q4 FDIC special assessment, higher investment and revenue-related expenses, and inflation. Offsets included the prior-year goodwill impairment, efficiency savings and a prior-year divestiture.

Assets under custody/administration and assets under management

AUC/A increased 8%, primarily reflecting higher market values. AUM also rose 8%, as higher market values and a weaker U.S. dollar more than offset cumulative net outflows.

Capital

The CET1 ratio strengthened as earnings and a net increase in accumulated other comprehensive income more than offset common-stock repurchases and dividends. The higher Tier 1 leverage ratio reflected lower average assets.

Fee and other revenue

Fee and other revenue increased 2% in 2023 after declining 3% in 2022. Fee revenue fell 1% in 2023; its share of total revenue decreased from 81% in 2021 to 79% in 2022 and 74% in 2023. The decline reflected lower FX volatility, AUM-flow mix and a prior-year divestiture, partly offset by the end of money-market fee waivers and net new business.

Investment services fees rose 4%, reflecting waiver abatement, net new business, higher clearance volumes and collateral balances, higher sweep-balance fees, and the absence of prior-year accelerated amortization of Russia-related depositary-receipt service costs. Lower client activity and lost Pershing business partly offset growth.

Investment management and performance fees declined 7% in 2023 (also 7% in constant currency), primarily due to a prior-year divestiture and AUM-flow mix, partly offset by waiver abatement. Performance fees were $81M, compared with $75M in 2022.

Foreign exchange revenue fell 23% as market volatility and transaction volumes declined. FX revenue is also affected by realized spreads, hedging and currency remeasurement. Financing-related fees increased 10% as higher commitment and standby-letter-of-credit fees outweighed lower underwriting fees. Distribution and servicing fees rose 14%, mainly due to money-market fee-waiver abatement; related expenses are recorded in noninterest expense and partly offset the revenue’s income impact.

Assets under custody/administration and management

AUC/A increased 8% in 2023, primarily on higher market values, after declining 5% in 2022. Its 2023 mix was 35% equity and 65% fixed income, versus 33% and 67%, respectively, in 2022. AUC/A includes CIBC Mellon assets of $1.7T at year-end 2023, $1.5T in 2022 and $1.7T in 2021.

AUM increased 8% in 2023, reflecting higher markets and a weaker U.S. dollar, partly offset by cumulative net outflows; it had declined 25% in 2022. AUM excludes assets managed outside the Investment and Wealth Management business segment.

Investment and other revenue detail

Investment and other revenue recovered by $367M in 2023, mainly because the prior year included a $449M securities-portfolio repositioning loss. The improvement was partly offset by a 2023 reduction in the fair value of contingent consideration from a prior-year divestiture. Renewable-energy investment losses are more than offset by tax benefits and credits. Consolidated investment-fund income or loss should be considered together with the related attribution to noncontrolling interests.

Net interest revenue

BNY Mellon’s net interest revenue (NIR) growth slowed to 24% in FY2023 from 34% in FY2022. Higher interest rates drove the increase, partly offset by a smaller average interest-earning asset base and changes in balance-sheet mix. Net interest margin (NIM) expanded in both years.

FTE adjustments do not affect net income. Average interest-earning assets declined 4% in FY2023, following a 6% decline in FY2022. In FY2023, lower average securities, loans and bank deposits were partly offset by higher deposits with the Federal Reserve and other central banks.

Average interest and balances

Despite the lower average earning-asset base, sharply higher interest income more than offset increased interest expense, supporting NIR growth. Average interest-bearing liability balances rose while average interest-bearing deposit balances were nearly flat.

Reported rates on federal funds sold/resale agreements and purchased/repo agreements are materially affected by enforceable netting. Average netting was approximately $111B in FY2023, compared with $43B in FY2022. Excluding netting, FY2023 yields/rates were 5.22%/5.10%, versus 1.77%/1.67% in FY2022; reported rates of 27.38%/32.62% in FY2023 therefore do not directly reflect the underlying rates.

Average non-U.S.-dollar deposits represented approximately 25% of average total deposits in both FY2023 and FY2022. Euro deposits were approximately 45% of average non-U.S.-dollar deposits in FY2023, up from 40% in FY2022.

BNY Mellon expected FY2024 NIR to decrease from FY2023, based on market-implied forward rates as of December 31, 2023. The outlook depends substantially on the level and mix of client deposits.

Related expenses and taxes

Noninterest expense increased 2% in FY2023, following a 13% increase in FY2022. FY2023 included a $632M accrual for the FDIC special assessment. Higher investment and revenue-related expenses and inflation also contributed; efficiency savings, the prior-year $680M Investment Management goodwill impairment and a prior-year divestiture partly offset the increases. Excluding notable items, expense rose 3% in FY2023 (non-GAAP). Year-end employees increased 3% to 53,400 from 51,700.

Management expected reported FY2024 expense to decrease, primarily because FY2023 included notable items such as the FDIC assessment, severance and litigation reserves; excluding notable items, FY2024 expense was expected to be flat.

Excluding notable items, the FY2022 tax provision was $930M at a 19.1% effective rate (non-GAAP).

Business-segment basis and outlook

BNY reports segment results using internal management accounting rather than GAAP; there were no segment reclassifications or organizational changes in 2023. Results are seasonal: first-quarter expenses reflect vesting of retirement-eligible employees’ stock awards, merit increases affect staff costs, third-quarter client activity can influence results, and fourth-quarter marketing costs are typically higher. The 2024 merit increase takes effect in March, affecting first- and second-quarter staff-expense comparisons. Investment and Wealth Management performance fees are generally higher in the fourth and first quarters.

Foreign-exchange movements can affect segment growth, particularly in Investment and Wealth Management, but are not expected on their own to significantly affect consolidated net income. BNY estimated that a 5% change in global equity markets, spread evenly through 2023, would affect fee revenue by less than 1% and diluted EPS by $0.04–$0.07.

Segment financial results

Securities Services revenue grew 7%, slower than its 11% growth in 2022, as higher net interest revenue was partly offset by nearly flat fee revenue. Its provision for credit losses increased to $99M. Market and Wealth Services revenue grew 11%, matching 2022’s pace; expense growth reflected investment, revenue-related and inflation costs, partly offset by efficiency savings.

Business-line revenue

Asset Servicing grew 5%, supported by higher net interest revenue, net new business and the abatement of money-market fee waivers, but partly offset by lower foreign-exchange revenue and client activity. Investment-services fees were $3.898B versus $3.918B, and FX revenue was $488M versus $584M. Issuer Services grew 16%, with higher net interest revenue, net new business, the end of money-market fee waivers, and accelerated amortization in 2022 of deferred depositary-receipt costs related to Russia contributing to the comparison. Its investment-services fees were $1.121B versus $1.009B.

Pershing’s 10% revenue growth reflected the abatement of money-market fee waivers, higher net interest revenue and sweep-balance fees, partly offset by lower client activity and lost business. Treasury Services grew primarily on higher net interest revenue. Clearance and Collateral Management benefited from higher net interest revenue, U.S. collateral balances and U.S. government clearance volumes.

Selected operating metrics

Securities Services AUC/A growth primarily reflected higher market values. Its agency securities-lending program had an approximately $4.9T lendable asset pool across 34 markets. Market and Wealth Services AUC/A growth reflected higher market values and net client inflows; Pershing AUC/A rose to $2.5T from $2.3T. Pershing’s lower net new assets reflected deconversion of a regional-bank client acquired in May 2023. Clearance and Collateral Management serviced approximately $4.6T of the U.S. tri-party repo market at year-end.

Average Securities Services deposits declined 8% to $168.411B from $183.990B, while average loans were nearly flat at $11.207B versus $11.245B. In Market and Wealth Services, average deposits declined 7% to $85.785B from $91.749B, and average loans declined 9% to $37.502B from $41.300B.

Market and regulatory shifts toward lower-fee asset-management products pressure investment-services fees and client margins, while creating outsourcing opportunities as clients seek regulatory compliance and lower operating costs. BNY is developing digital-asset custody and fund-services capabilities, but their 2023 effect on assets, liabilities, revenue and expenses was de minimis.

Investment and Wealth Management

FY2023 financial results

Dollars in millions.

Total revenue declined 11% in FY2023; net interest revenue fell 27%, following an 18% increase in FY2022. Total fee and other revenue declined 10%, after a 14% decline in FY2022. Investment management and performance fees decreased 7% on a constant-currency basis. Distribution and servicing fees rose 26% in FY2023, following a 71% increase in FY2022. The reported fee and other revenue figures are net of income attributable to noncontrolling interests in consolidated investment funds. For context, FY2021 total revenue was $4,042, total fee revenue was $3,782, and investment management and performance fees were $3,590.

Investment Management revenue decreased 13%, reflecting a lower fair value of a contingent consideration receivable, the prior-year divestiture and AUM mix, partly offset by the abatement of money-market fee waivers and seed-capital gains. Wealth Management revenue decreased 7%, primarily due to product mix and lower net interest revenue. Non-U.S. sources generated 33% of segment revenue, compared with 35% in FY2022.

FY2022 income before taxes included a $680 goodwill impairment in the Investment Management reporting unit. FY2021 income before taxes was $1,230. Excluding notable items, pretax income decreased 28% in FY2023, following a 39% decrease in FY2022. FY2023 noninterest expense included $2,746 excluding impairment and intangible amortization, plus $20 of amortization. The year-over-year expense decline reflected the prior-year impairment and divestiture and efficiency savings, partly offset by investment- and revenue-related expenses and inflation.

Pre-tax operating margin was 12% in FY2023, versus 1% in FY2022 and 30% in FY2021; adjusted margin was 14%, 2% and 33%, respectively. Excluding notable items and net of distribution and servicing expense, adjusted margin was 19% in FY2023 versus 24% in FY2022.

Assets, flows and business drivers

Segment AUM increased 8% year over year but remained below $2.434 trillion at year-end FY2021. FY2023’s increase reflected $121 billion of market appreciation and $37 billion of favorable currency impact, partly offset by $20 billion of net outflows. Long-term strategies had $25 billion of outflows: $13 billion from long-term active strategies and $12 billion from index strategies. Active-strategy flows included equity outflows of $12 billion, fixed-income outflows of $4 billion, liability-driven investment inflows of $12 billion, and multi-asset and alternative outflows of $9 billion. Cash strategies had $5 billion of inflows. By comparison, FY2022 had $18 billion of net inflows but was affected by negative market impact of $471 billion, negative currency impact of $113 billion and divestitures of $32 billion. Wealth Management client assets were below FY2021’s $321 billion.

FY2023 AUM by product was $605 billion in liability-driven investments, $459 billion in index, $390 billion in cash, $205 billion in fixed income, $170 billion in multi-asset and alternatives, and $145 billion in equity. Management fees depend on AUM levels and mix: actively managed equity, multi-asset and alternative assets generally earn higher percentage fees than fixed-income, liability-driven, cash or indexed products. Management cited growing demand for lower-fee products and performance-based fees as market and regulatory trends, making market performance and net new AUM important revenue drivers.

The segment combines seven specialist investment firms and a global distribution platform with Wealth Management’s investment, custody, planning, private banking and servicing offerings. BNY Mellon sold Alcentra in November 2022 but continues to offer its capabilities in sub-advised funds and select regions, provide asset-servicing support, and exclusively distribute its products in Japan.

Other segment

Dollars in millions.

FY2023 total revenue comprised negative $21 million of total fee and other revenue and $102 million of net interest expense. Investment and other revenue improved from FY2022, primarily because FY2022 included a net loss from repositioning the securities portfolio. Noninterest expense increased primarily due to the FDIC special assessment. The segment reported a $252 million pretax loss in FY2021. It includes leasing, corporate treasury and securities portfolio activities, derivatives and trading, corporate and bank-owned life insurance, renewable-energy and other corporate investments, and certain business exits.

International operations and regional performance

International clients generated 36% of BNY’s revenue in both 2023 and 2022. International operations’ net income increased to $2.0B from $1.7B. At year-end 2023, international operations managed 51% of BNY’s AUM, down from 53% a year earlier. Approximately 55% of employees were outside the U.S.: about 11,000 in EMEA, 18,400 in APAC and 800 in other locations, primarily Brazil.

EMEA revenue increased 4%, primarily reflecting higher net interest revenue and net new business in Securities Services and Market and Wealth Services. These gains were partly offset by lower Investment and Wealth Management revenue, driven by the prior-year divestiture, AUM-flow mix and lower market values. EMEA revenue mix was 60% Securities Services, 21% Market and Wealth Services, and 19% Investment and Wealth Management.

APAC revenue rose 14%, primarily due to higher net interest revenue in Securities Services and Market and Wealth Services. Its revenue mix was 56% Securities Services, 32% Market and Wealth Services, and 12% Investment and Wealth Management.

International business and currency exposure

International activities include custody and asset servicing, global payments, investment management, securities clearance and settlement, fiduciary and trade and cash services, and foreign exchange trading in more than 100 currencies. Translation of foreign-currency results and balances—primarily involving the British pound and euro—affects revenue, expenses, AUC/A and AUM: a weaker U.S. dollar increases their translated value, while a stronger dollar reduces it.

Country exposures and higher-risk jurisdictions

At December 31, 2023, BNY’s top 10 non-U.S. country exposures totaled $75.3B, approximately 70% of total non-U.S. exposure.

Across these countries, exposure consisted of $40.8B in central-bank interest-bearing deposits, $5.2B in bank deposits, $6.5B in lending, $15.8B in securities and $7.0B in other exposure.

Brazil exposure was $1.3B, primarily short-term trade-finance loans to large financial institutions. Russia exposure was $0.4B, consisting of cash balances, and could increase if BNY receives client cash subject to distribution restrictions. BNY stopped new Russian banking business and suspended investment-management purchases of Russian securities; at year-end, Russian securities were less than 0.1% of AUC/A and less than 0.01% of AUM. Israel exposure was $165M, primarily investment-grade short-term interest-bearing deposits and OTC derivatives maturing within six months.

Critical accounting estimates and impairment risks

Credit-loss estimates

BNY estimates lifetime expected credit losses using quantitative models and qualitative adjustments. The models consider probability of default, loss given default and exposure at default, and incorporate three macroeconomic scenarios—baseline, upside and downside—that are updated quarterly. At December 31, 2023, the downside scenario had the greatest weight, followed by baseline and upside. The baseline assumed slightly rising GDP growth, stable unemployment and declining commercial real estate (CRE) prices through the end of 2024; the downside assumed negative GDP growth through Q1 2024, rising unemployment and a sharper CRE-price decline than in the baseline.

The quantitative allowance was sensitive to scenario weighting and credit assumptions:

These are sensitivities, not management forecasts. Actual results, borrower ratings or management judgments differing from assumptions could cause the allowance to vary materially.

Individually evaluated assets—including generally nonperforming or modified loans—are assessed based on borrower condition, collateral, guarantor support and expected recoveries, rather than the portfolio macroeconomic model. For available-for-sale debt securities, BNY individually assesses the credit-loss component of unrealized losses using discounted expected cash flows. Qualitative adjustments address risks that may not be fully captured by the models, including concentrations, economic conditions, scenario weighting and borrower-specific risks.

Goodwill and intangible assets

At December 31, 2023, BNY had $16.3 billion of goodwill, $2.6 billion of indefinite-lived intangible assets and $274 million of other amortizing intangible assets. Goodwill and indefinite-lived intangibles are not amortized and are subject to impairment testing.

BNY performed interim goodwill impairment tests for Investment Management in each quarter of 2023 and recorded no impairment. The reporting unit had $6.1 billion of allocated goodwill; at December 31, 2023, its estimated fair value exceeded carrying value by approximately 5%, using a 10.5% discount rate. A 25-basis-point increase or decrease in that rate would lower or raise estimated fair value by 4%, respectively. A 10-basis-point increase or decrease in long-term growth would raise or lower fair value by approximately 1%, respectively.

The annual Q2 2023 goodwill test of the other five reporting units, using a 10% discount rate, found fair values substantially above carrying values; no goodwill impairment was recognized. Annual testing of indefinite-lived intangibles also resulted in no impairment. However, a $698 million Investment Management customer-relationship intangible had only approximately 7% fair-value headroom over carrying value. Long-range cash-flow projections and discount-rate assumptions make goodwill and intangible values sensitive to changes; shifts in these assumptions could result in future material noncash impairment charges.

Other significant estimates

Accruals for litigation and regulatory contingencies require significant management estimates and judgment.

Balance sheet, funding and securities

Deposits increased primarily because of higher interest-bearing deposits in U.S. and non-U.S. offices, partly offset by lower non-interest-bearing deposits, principally in the U.S. Interest-bearing deposits rose to 66% of interest-earning assets from 58%. Available funds increased to 38% of assets from 34%. Long-term debt rose as issuances exceeded the effects of maturities and repurchases.

Securities declined mainly due to lower U.S. Treasury and non-U.S. government holdings. The securities portfolio’s fair value, including related hedges, was $123.3B, compared with $139.3B a year earlier; its net unrealized loss, including hedges, narrowed to $7.0B from $9.4B, primarily as securities moved closer to maturity.

The securities table’s net unrealized loss includes $1.767B of net unrealized gains on derivatives hedging AFS securities. Securities rated AAA/AA- remained 99% of the portfolio. Premium amortization, which reduces net interest revenue, fell to $167M in 2023 from $362M in 2022 and $655M in 2021.

Lending exposures and credit quality

Total lending-related exposure fell 2%. Financial-institution and commercial clients together represented 46% of total exposure, down from 47%. Financial-institution exposure declined primarily because of lower securities-industry exposure; it included $17.1B to securities-industry clients, of which asset managers represented $9.4B. Investment-grade borrowers accounted for 92% of financial-institution exposure (95% in 2022; 96% in 2021) and 94% of commercial exposure, unchanged from 2021. The company focuses on investment-grade borrowers that also use its non-credit services.

Financial-institution exposure also included $13.5B of secured intraday credit to dealers for tri-party repo activity, backed by high-quality liquid collateral. Margin loans are collateralized by marketable securities, with borrowers required to maintain daily collateral above 100% of loan value. CRE exposure included $2.6B in office loans; the New York metro area represented 36% of CRE exposure. Wealth-management mortgages had less than 1% past due. Overdrafts generally are repaid within two business days. The loan portfolio included $9.76B maturing after 15 years, mainly wealth-management mortgages.

Equity investments

Renewable-energy investment returns include tax credits, deductions and project cash distributions; pre-tax investment losses are recorded in investment and other revenue.

Credit quality and reserves

BNY focuses its credit strategy on investment-grade clients that actively use its non-credit services. Credit exposure includes funded loans, unfunded commitments, standby letters of credit, and custody and securities-clearance overdrafts. Reserve growth and rising problem loans were concentrated in commercial real estate (CRE); the allowance reflects management’s estimate of lifetime expected losses and depends on forecasts and judgment, so actual losses may differ.

The higher provision primarily reflected increased CRE reserves and changes in the macroeconomic forecast. The allowance for loan losses and lending-related commitments rose to $390M from $254M, with CRE representing a greater share.

The remaining allowance for credit losses—covering other financial instruments—was $24M at Dec. 31, 2023, compared with $38M a year earlier.

Nonperforming assets

Nonperforming assets more than doubled, primarily because of CRE loans. As problem assets increased, allowance coverage ratios declined.

Deposits and funding

Deposits, which BNY describes as a low-cost and stable funding source, increased 2% as higher interest-bearing balances in U.S. and non-U.S. offices more than offset lower noninterest-bearing balances, principally in U.S. offices.

Uninsured domestic deposits generally are demand balances above FDIC insurance limits. Uninsured time deposits at Dec. 31, 2023 were $647M domestic and $675M foreign, compared with $161M and $5M, respectively, in 2022.

BNY funds primarily through deposits, supplemented by short-term borrowings and long-term debt. Short-term funding includes repurchase agreements and federal-funds activity, customer and broker-dealer payables, commercial paper, and other borrowings. Customer payables can fluctuate with trading activity and market volatility, and certain repos require collateral. FICC-related repo balances reflect enforceable netting, while related interest expense is recorded gross. Other borrowings include Federal Home Loan Bank funding, settlement-related custody overdrafts, lease liabilities, and Pershing subsidiary line-of-credit borrowings.

Liquidity and funding

Available funds increased to $157.511 billion at Dec. 31, 2023, from $138.152 billion at Dec. 31, 2022, rising from 34% to 38% of total assets. The increase primarily reflected higher central-bank deposits and federal funds sold/resale agreements, partly offset by lower interest-bearing bank deposits.

Average available funds were $148.888B in 2023, $144.763B in 2022, and $168.555B in 2021.

Average non-core funding increased to $25.0B in 2023 from $16.9B in 2022, mainly due to greater federal funds purchased/repo funding and other borrowings. Average interest-bearing domestic deposits rose to $123.5B from $111.5B, while average foreign deposits declined to $88.8B from $101.9B and average noninterest-bearing deposits fell to $59.2B from $85.7B, primarily reflecting client activity. Average customer and broker-dealer payables decreased to $14.4B from $17.1B. BNY Mellon cautions that a significant reduction in Securities Services and Market and Wealth Services client activity could reduce its access to deposits.

Period-end long-term debt was $31.3B at Dec. 31, 2023, versus $30.5B at Dec. 31, 2022. During 2023, debt issuances totaled $6.5B and maturities and repurchases totaled $6.1B; the increase also reflected higher fair value of hedged debt. The Parent had $4.9B of long-term debt maturing in 2024. Parent senior-debt ratings were A1/A/AA-/AA from Moody’s/S&P/Fitch/DBRS, respectively; Moody’s outlook for the Parent was positive, while bank outlooks were mixed.

The Parent’s liquidity sources include debt and equity markets, subsidiary dividends, cash, and an IHC committed credit facility. After year-end, U.S. bank subsidiaries could pay approximately $1.7B in dividends to the Parent without a regulatory waiver; Parent non-bank subsidiaries held approximately $3.2B of liquid assets at year-end. The double-leverage ratio was 120.5% at both Dec. 31, 2023 and Dec. 31, 2022, within management’s target range. Management cites liquid assets at principal subsidiaries, fee-based cash generation, and bank-subsidiary dividend capacity as supporting liquidity; fee revenue represented 74% of 2023 total revenue.

Regulatory liquidity

The consolidated LCR and NSFR remained above their respective 100% minimum requirements. BNY Mellon and affected domestic bank subsidiaries complied with liquidity requirements throughout 2023.

Cash flows

Operating cash flow in 2023 mainly reflected earnings and changes in accruals and other items; 2022 also benefited from changes in trading assets and liabilities. Investing cash flows primarily reflected movements in central-bank deposits and federal funds sold/resale agreements, partly offset by securities-portfolio changes. Financing cash uses in 2023 included long-term debt repayments, changes in customer and broker-dealer payables, and share repurchases; these were partly offset by debt issuance and deposit changes.

Dividends and repurchases

BNY Mellon paid $1.5B in common and preferred dividends in 2023, with a 41% common dividend payout ratio. It repurchased 55.8 million common shares at an average $46.66 per share, totaling $2.6B. In December 2023, the Parent redeemed all outstanding Series D noncumulative perpetual preferred stock.

Capital and shareholder returns

BNY Mellon’s capital position strengthened in 2023. Total and common shareholders’ equity increased, and tangible common equity grew; equity growth primarily reflected earnings and improved unrealized gains on available-for-sale (AFS) securities, partly offset by repurchases and dividends. The after-tax net unrealized loss on AFS securities, net of hedges, narrowed as securities moved closer to maturity.

The company repurchased 55.8M shares during 2023 at an average $46.66 per share, for $2.6B. Of the $5.0B repurchase authorization approved in January 2023, $2.396B remained available at year-end. In Q4, it repurchased 10.036M shares at an average $44.85. The quarterly common dividend rose 14%, from $0.37 to $0.42 per share beginning in Q3. Full-year dividends were $1.58 per share, versus $1.42 in 2022; the payout ratio was 41% versus 49%, and dividend yield was 3.0% versus 3.1%. The parent redeemed all outstanding Series D noncumulative perpetual preferred stock in December.

Regulatory capital

The consolidated CET1 ratio under the Advanced Approaches is the effective risk-based CET1 measure because regulatory ratios use the lower of the Advanced and Standardized approaches. BNY Mellon and its U.S. bank subsidiaries were “well capitalized” at both year-ends.

The consolidated Tier 1 leverage ratio improved mainly because average assets declined. The subsidiary Bank of New York Mellon also strengthened its ratios:

CET1 increased $606M, from $18.032B to $18.638B. Net income applicable to common shareholders contributed $3.051B; repurchases and common dividends used $2.604B and $1.262B, respectively. Other comprehensive gain contributed $1.073B, including $881M from AFS securities and $272M from foreign-currency translation; additional paid-in capital added $400M. Goodwill and intangible assets, net of related deferred tax liabilities, reduced CET1 by $43M. Thus, earnings were more than offset by distributions before the contribution from OCI and other items.

Advanced Approaches RWA comprised $87.299B of credit risk, $3.380B of market risk, and $70.925B of operational risk. CET1 deductions included $17.253B for goodwill and intangible assets, net of specified tax effects.

Loss-absorption capacity and capital risks

External total loss-absorbing capacity (TLAC) ratios exceeded minimums including buffers: 30.3% of RWA versus 21.5%, and 15.6% of total leverage exposure versus 9.5%. Eligible external long-term debt was 15.0% of RWA against a 7.5% minimum, and 7.7% of leverage exposure against a 4.5% minimum. Falling below buffered TLAC requirements could constrain dividends, repurchases, and discretionary executive compensation. The Federal Reserve kept BNY Mellon’s stress capital buffer at the 2.5% regulatory floor for Oct. 1, 2023–Sept. 30, 2024; bank subsidiaries remain subject to the static 2.5% capital conservation buffer.

Capital ratios may vary with client trading and deposit activity, market stress, balance-sheet size, model calibration and approvals, and regulatory changes. Under Advanced Approaches, external industry operational losses, including fines and penalties, inform the operational-loss model and can raise required capital. Failure to meet capital or “well capitalized” standards could limit activities and adversely affect financial condition.

Trading activities and risk management

BNY Mellon’s trading is primarily customer market-making and trade facilitation. Hedging is conducted subject to the Volcker Rule, and risk is managed through position limits, VaR and other sensitivity measures. VaR is a one-day, 99%-confidence historical-simulation measure that incorporates nonlinear product characteristics and portfolio diversification. It does not capture longer-horizon extreme losses, changes in market liquidity or every possible future market move, and excludes consolidated investment-management funds and seed-capital investments.

Trading VaR

Overall portfolio VaR declined in 2023. No daily trading loss during the year exceeded overall portfolio VaR.

Interest-rate risk accounted for 41% of 2023 average gross VaR, foreign exchange 37%, equity 3% and credit 19%.

Daily trading revenue distribution

Trading revenue includes realized and unrealized gains and losses, primarily from customer FX transactions, derivatives and securities trades; it excludes commissions, underwriting fees and net interest revenue.

Trading balances and derivative valuation

Trading assets were $10.1B at Dec. 31, 2023, compared with $9.9B a year earlier; trading liabilities were $6.2B, up from $5.4B. These balances primarily comprise debt and equity instruments and FX and interest-rate derivatives not designated as hedges.

Net of hedges, CVA and DVA each increased $1M in 2023, together increasing other trading revenue by less than $1M; no realized loss was charged off against CVA reserves. In 2022, net-of-hedges CVA increased $4M and DVA increased $7M, increasing other trading revenue by $3M. Derivative fair values reflect both BNY’s and counterparties’ credit ratings and observable CDS spreads, making valuations sensitive to changes in either party’s credit spreads.

Counterparty exposure

FX and other trading counterparty exposure, net of collateral, declined to $2.165B at Dec. 31, 2023, from $2.616B a year earlier, while the mix shifted toward non-investment-grade counterparties.

Rating deterioration could increase counterparty credit risk.

Interest-rate risk

BNY Mellon’s primary market risk is exposure to U.S. dollar and certain foreign-currency interest rates. Its 12-month net interest revenue (NIR) simulation assumes an instantaneous rate shock, static deposit balances and mix, and no mitigating management actions. Results depend on uncertain assumptions—including deposit pricing and behavior, spreads, prepayments and derivatives—so actual outcomes may differ materially; modeled results should not be extrapolated to more severe shocks.

Estimated change in 12-month NIR

The larger modeled benefit from rising rates and larger modeled loss from falling rates versus Sept. 30, 2023, primarily reflect higher cash and deposit balances in the latest quarter. The Dec. 31, 2022 long-term down-rate sensitivity reflects a 100 bps long-term decline with short-term rates unchanged.

Deposit balances and mix materially influence NIR, particularly noninterest-bearing deposits, whose sensitivity is not captured by the model’s static-balance assumption. An instantaneous $5B increase or decrease in U.S. dollar noninterest-bearing deposits would increase or reduce the modeled NIR benefit in the +100 bps scenario by approximately $290M, respectively; the impact would be smaller if the deposit change included both interest-bearing and noninterest-bearing balances. When short-term rates are low, money-market mutual fund and similar fees are typically waived to protect investors from negative returns.

Structural balance-sheet sensitivity

At Dec. 31, 2023, estimated changes in economic value of equity (EVE), excluding potential management actions, were:

Rising rates can reduce the fair value of available-for-sale securities and adversely affect reported equity and regulatory capital. Fixed liabilities do not receive a corresponding accounting-value adjustment, even when their economic value rises, creating an accounting asymmetry.

Foreign-exchange risk

BNY Mellon seeks to fund foreign-currency assets with liabilities in the same currency where practical. It uses FX contracts when suitable same-currency liabilities are unavailable or undesired, and hedges translation effects. Forward FX contracts protect net investments in foreign operations, which totaled $14B across 19 currencies at Dec. 31, 2023.

Risk management framework and governance

BNY Mellon’s enterprise risk framework covers operational, market, credit, liquidity, model and strategic risks. Risks are identified quarterly and inform the Company’s risk appetite, enterprise stress testing and capital planning. The Board Risk Committee reviews and approves the Risk Appetite Statement and key risk metrics at least annually. Enterprise stress testing is conducted through the Internal Capital Adequacy Assessment Process under CCAR and Dodd-Frank enhanced prudential standards.

The Company uses a Three Lines of Defense model: business management owns and manages risk; independent Risk and Compliance, reporting to the Chief Risk Officer, establishes standards and challenges business decisions; and Internal Audit independently assesses controls and governance, reporting to the Board Audit Committee. The Board Risk and Audit Committees consist entirely of independent directors. The senior management Senior Risk and Control Committee, chaired by the Chief Risk Officer and including the CEO, CFO and General Counsel, oversees the framework. Its committees address balance-sheet, credit, operational, technology, compliance, AML, product-approval, regulatory-remediation and recovery/resolution risks.

Principal risk exposures and controls

• Operational, technology and resiliency risk: Transaction-processing or control failures, fraud, business interruption, cyberattacks, unauthorized access to confidential information, third-party failures, and legal or regulatory actions could cause financial loss and reputational damage. Technology risk is treated as part of operational risk, and operational resiliency—including continuity of critical services and important service providers—is a top priority. The Business Services Framework supports disaster recovery, business continuity, IT asset management, application transformation and mainframe modernization. Business management owns resiliency, Technology and Operations execute it, and second-line functions provide oversight.

• Market risk: Direct trading exposure is generally limited, with trading activity primarily supporting clients. More significant exposure comes from interest-rate and credit-spread movements in the investment portfolio and the balance sheet’s sensitivity to interest rates, which can affect asset/liability management and net interest revenue. Changes in collateral values also create indirect exposure through securities financing and derivatives. Oversight includes stress testing and VaR limit monitoring for trading activity.

• Credit risk: Institutional lending is the primary source of credit risk. Exposures also arise from client-related deposits and intraday credit supporting processing, loan and securities books, FX, and off-balance-sheet commitments—including lending commitments, letters of credit and securities-lending indemnifications. The Company manages exposure by counterparty, industry, country and portfolio, with approvals escalated as needed to the Chief Risk Officer. It uses risk-adjusted underwriting, syndications, asset sales, credit enhancements, collateralization and netting to limit on- and off-balance-sheet exposure.

  Expected-loss assessments incorporate exposure at default, probability of default and loss given default; institutional unfunded commitments also receive usage-given-default estimates. Borrowers and counterparties are rated on an 18-grade scale that maps to probability of default, while transactions receive five-grade loss-given-default ratings reflecting collateral, guarantees and seniority. The Risk Modeling and Analytics Group develops and regularly evaluates expected-loss methods and inputs; an independent Credit Risk Review Group within Internal Audit reviews loan files and credit ratings.

• Liquidity risk: Liquidity is essential to payment processing and client settlement. Risks include cash-flow mismatches, deposit runoff, inability to monetize assets or obtain or refinance funding, stressed markets, and increased collateral needs. A credit-rating downgrade could prompt deposit outflows, increase secured-transaction margin requirements and impair refinancing capacity. Governance includes Board-approved risk tolerance, ALCO, independent risk oversight and Treasury Risk Committee validation of internal stress-testing methods and assumptions. The Company monitors cash, investment-portfolio quality, intraday liquidity and potential needs in normal and stressed conditions, using the Liquidity Coverage Ratio and internal liquidity stress testing.

• Model risk: Model design or use errors, or stress conditions that invalidate assumptions, may cause operational, market, credit or liquidity losses and reputational harm. Controls include development standards, validation of new models, change controls and ongoing performance monitoring. Risk is assessed at both individual-model and aggregate levels, with independent Model Risk Management oversight, Board-approved tolerances and Board reporting.

Strategic and cross-enterprise risks

BNY Mellon’s strategy emphasizes organic growth, quality solutions, operating efficiency and technology-enabled offerings. Execution depends on delivering scalable, financially viable solutions that meet client expectations, achieving economies of scale, and attracting and retaining talent while protecting the Company’s financial profile. Disruptive technology, geopolitical events, slowing economies and changing client preferences could undermine growth, competitive positioning or client service if the Company does not respond promptly. Innovation is intended to be balanced against risks to the financial position and core strategy.

Data risks include failures in data production, confidentiality, quality, integrity, availability or retention. The enterprise data framework addresses architecture, governance, quality, protection, usage and ethics; data risk is also considered in new products and services, including AI applications. ESG risks—including physical and transition climate risks and social and governance factors—may affect credit portfolios, strategy, operational resilience, regulatory demands, reputation and financial performance. Reputational harm involving the Company or associated parties could affect earnings, capital, liquidity, brand and enterprise value.

Cybersecurity

BNY Mellon said cybersecurity threats had no material effect on its business strategy or operations during 2023. It nevertheless treats cyber risk as a priority that shapes resource allocation, operations and risk management, amid increasingly frequent and severe attacks on financial institutions and evolving threats. The company cautions that future incidents could materially affect it.

Cybersecurity risk is managed through a Three Lines of Defense model:

• First line: The Information Security Division (ISD), led by the Chief Information Security Officer, handles threat intelligence, monitoring, incident response and day-to-day cyber risk management. Incidents are classified by severity; certain events can activate enterprise-wide resiliency processes and escalation to management and Board committees. Third-party providers are assessed through a governance framework, with controls—including contractual requirements or additional safeguards—scaled to assessed risk.
• Second line: Technology Risk Management and Risk & Compliance independently review and challenge ISD’s work.
• Third line: Internal Audit provides independent assessment.

Management is responsible for managing material cybersecurity risks, with oversight by the Board. The Board Risk Committee oversees the risk-management framework and related policies and practices. The Technology Committee and the full Board receive regular cybersecurity updates and have protocols for escalating incidents; the Audit Committee oversees Internal Audit. At the management level, the Technology Oversight Committee reviews ISD reporting and escalates significant matters to the Board Technology Committee. The Technology Risk Committee reviews significant incidents and may escalate issues to senior risk and Board committees.

The company identifies rising sector-wide cyber threats and potential vulnerabilities involving third-party service providers as continuing challenges. Senior technology, security and technology-risk leaders have prior cybersecurity and technology experience at large companies and financial institutions.

Supervision and regulation

BNY Mellon is a Federal Reserve-supervised financial holding company (FHC) operating across banking, custody and trust, investment management, broker-dealer, derivatives and other regulated businesses. Its FHC status depends on the company and its U.S. depository subsidiaries remaining well capitalized and well managed, and on subsidiaries maintaining at least a satisfactory Community Reinvestment Act rating. Failure could limit activities, acquisitions or other regulatory benefits. The Federal Reserve’s large-financial-institution rating system assesses capital, liquidity, governance and controls; BNY Mellon must meet specified ratings in all three components to qualify as well managed. Its broad U.S. and international footprint—and overlapping banking, securities, investment, payments and fund-service rules—creates substantial compliance obligations and exposure to regulatory change.

Capital, liquidity and proposed rule changes

The Parent relies primarily on subsidiary dividends and other payments, including credit extensions from its intermediate holding company (IHC), to meet obligations and fund dividends and share repurchases. Bank dividends are subject to earnings and undivided-profits limits, and may require regulatory approval; regulators can restrict payments deemed unsafe or that could leave a bank undercapitalized. The IHC also faces restrictions on distributions, and its committed credit lines terminate if Parent resolution becomes imminent.

BNY Mellon submits annual capital plans and undergoes regulatory and company-run stress testing. The Federal Reserve set its 2023 stress capital buffer at 2.5%, the floor, in addition to a separate 2.5% Advanced Approaches capital conservation buffer. Its 2023 G-SIB surcharge was 1.5%; the U.S. countercyclical buffer was 0%. Minimum leverage requirements include a 4% leverage ratio and a 3% supplementary leverage ratio (SLR); U.S. G-SIBs must maintain SLR above 5%, and their bank subsidiaries generally need at least 6% to qualify as well capitalized. A custody-bank rule permits qualifying central-bank deposits to be excluded from the SLR denominator, subject to limits.

U.S. G-SIB external total loss-absorbing capacity (TLAC) must meet the greater of 18% of risk-weighted assets plus a CET1-only buffer (including a 2.5% conservation buffer, the applicable G-SIB surcharge and any countercyclical buffer), or 7.5% of total leverage exposure plus a 2% Tier 1-only buffer. Minimum eligible external long-term debt is the greater of 6% of risk-weighted assets plus the higher applicable G-SIB surcharge, or 4.5% of total leverage exposure. Eligible instruments are subject to restrictions. The Federal Reserve, OCC and FDIC proposed substantial capital-rule revisions in July 2023, including new standardized credit and operational-risk approaches and revised market-risk rules. Other proposals would change G-SIB surcharge calculations and TLAC requirements; BNY Mellon was assessing their effects. A proposed $400,000 minimum denomination and partial recognition of debt with less than two years to maturity were among the TLAC changes under consideration.

Federal Reserve rules require liquid-asset buffers for projected 30-day funding needs, in addition to LCR and NSFR requirements. As of Dec. 31, 2023, the Parent and domestic bank subsidiaries complied with applicable U.S. LCR rules, and BNY Mellon met the NSFR minimum of 1.0. Additional requirements include stress testing, cash-flow projections, contingency funding plans and unencumbered liquid assets. Standardized capital rules may also increase risk weights for certain exposures and provide less favorable treatment for repo-style transactions than the Advanced Approaches.

Resolution and deposit insurance

BNY Mellon’s single-point-of-entry resolution strategy would place the Parent into bankruptcy while supporting operating subsidiaries through the IHC. A binding support agreement requires the Parent to transfer intercompany loans and most cash to the IHC and continue transferring cash and other liquid assets. Regulators found no deficiencies or shortcomings in the company’s 2021 targeted resolution plan; BNY Mellon submitted a full plan dated July 1, 2023. An unacceptable plan could lead to stricter capital, leverage or liquidity requirements, activity or growth restrictions, or divestitures. BNY Mellon SA/NV is subject to EU internal TLAC and EU/UK minimum requirements for own funds and eligible liabilities (MREL), which can require eligible liabilities to be written down or bailed in.

Bank resolution can impose losses on creditors: U.S. deposit liabilities and certain receiver expenses have priority over other unsecured claims, and depositors at non-U.S. branches may fare worse than U.S.-office depositors. The FDIC can transfer assets and liabilities, repudiate burdensome contracts and, under the orderly liquidation authority, resolve systemically important firms outside ordinary bankruptcy. BNY Mellon entities engaged in covered qualified financial contract activities have adhered to applicable resolution-stay protocols.

Following the 2023 failures of Silicon Valley Bank and Signature Bank, the FDIC’s estimated losses subject to its special assessment rose from approximately $16.3 billion at adoption in November 2023 to $20.4 billion in February 2024. The assessment is charged quarterly at 3.36 basis points—approximately 13.4 basis points annualized—on the applicable estimated uninsured-deposit base as of Dec. 31, 2022, with the first $5 billion excluded under the allocation method. Collection began Jan. 1, 2024, initially over eight quarters, with extension or a final assessment possible. BNY Mellon recorded approximately $632 million of noninterest expense in Q4 2023 for its assessment. The FDIC also estimated $13 billion of Deposit Insurance Fund losses from First Republic Bank’s resolution. U.S. deposits are insured up to $250,000 per depositor per bank.

Other regulatory and compliance developments

Rules governing trading and counterparties include Volcker Rule limits on proprietary trading and covered funds; BNY Mellon is classified as a “moderate trading” bank, allowing a tailored compliance program. Derivatives rules impose registration, reporting, recordkeeping and margin requirements, and The Bank of New York Mellon is registered as a security-based swap dealer. G-SIB single-counterparty limits cap net exposure at 25% of Tier 1 capital to an unaffiliated counterparty and 15% to a major counterparty.

SEC money-market-fund amendments require liquidity fees for institutional prime and institutional tax-exempt funds when daily net redemptions exceed 5% of net assets, and raise minimum daily and weekly liquid assets from 10% and 30% to 25% and 50%, respectively. Expanded fund-name rules require an 80% investment policy for additional fund names, including certain ESG-related terms. Other proposed rules could expand investment-adviser custody obligations and impose additional oversight and reporting.

AML rules require risk-based programs, customer due diligence, beneficial-owner procedures and suspicious-activity reporting. Cybersecurity requirements include regulatory notification within 36 hours for certain significant incidents and SEC disclosure generally within four business days after determining an incident is material, along with annual reporting on cyber-risk management and board oversight. GDPR and other privacy rules add obligations and potential penalties. The company also faces evolving climate and ESG requirements, including California emissions and climate-risk reporting laws, EU sustainability reporting for five subsidiaries, UK climate-risk expectations and forthcoming anti-greenwashing requirements.

Internationally, BNY Mellon is subject to EU and UK banking, investment-firm and fund rules, including MiFID II/MiFIR, AIFMD, UCITS V, EMIR and related regimes affecting transparency, client conduct, custody and recordkeeping. EU and UK Basel 3.1 reforms were expected to take effect in January 2025 under separate frameworks; Brexit-related divergence may require jurisdiction-specific operational and compliance changes. Further rulemaking and supervisory focus—following banking-sector failures and the Credit Suisse acquisition by UBS—could add restrictions or costs.

Risk factors

BNY faces interconnected operational, technology, market, credit, liquidity, regulatory, strategic and reputational risks that could disrupt client services, increase costs or losses, constrain its activities, and harm revenue, capital or access to funding.

Operations, technology and cybersecurity

BNY processes complex, high volumes of transactions across jurisdictions, systems and third parties. Errors, delays, fraud, misconduct or failures in controls and risk models could cause losses, client disruption, regulatory action and reputational damage. Models depend on assumptions and historical data that may prove unreliable in unfamiliar or stressed conditions; severe market changes can also undermine assumed correlations and hedges. Automation and AI may amplify errors, while mistakenly transferred digital assets may be difficult or impossible to recover.

Cyberattacks, outages, system upgrades, remote-access failures and loss or alteration of confidential data could interrupt transactions and settlement, create liability and remediation costs, and lead to litigation or sanctions. Exposure is widened by cloud services, remote work and reliance on vendors, downstream providers, market utilities and other interconnected institutions. Concentrated providers, limited visibility into third-party controls and dependencies in particular geographies heighten the risk; in some arrangements BNY may be liable for third-party or sub-custodian losses. Attacks may go undetected or remain difficult to assess, complicating containment and disclosure. SEC rules require disclosure of certain material cyber incidents, potentially before investigations are complete.

BNY has begun using AI, including generative AI, in products, services and processes. Wider adoption may bring regulatory scrutiny and risks involving confidentiality, cybersecurity, privacy, intellectual property, ethics and litigation. Digital-asset services also depend on emerging technologies and, in some cases, third-party or decentralized networks outside BNY’s control. Intellectual-property disputes, including unsettled questions about AI ownership and licensing, could result in defense costs, damages, licensing fees or discontinued services.

Markets and revenue

Fee-based businesses generated 74% of FY2023 total revenue, leaving BNY exposed to lower asset values, weaker markets, reduced client activity and changing investment preferences. Market declines can reduce assets under management or administration, seed-capital values and related fees; weaker investment performance can undermine client retention and new-asset growth. Shifts toward lower-fee products and performance-fee arrangements can also pressure fees and potentially affect the value of the Investment Management reporting unit and goodwill.

Revenue in foreign exchange, securities lending, clearing, settlement, payments, trading and capital markets depends on client activity, transaction volumes and, in some businesses, spreads and market volatility. Interest rates affect net interest revenue and margin through the yield curve, deposit mix and funding costs. Rapidly rising or persistently high rates may increase funding costs, reduce non-interest-bearing deposits, lower fixed-income asset values, increase borrower defaults and contribute to fund redemptions. Higher long-term rates can increase AOCI and reduce tangible common equity and regulatory capital ratios. Conversely, falling short-term rates or a flat or inverted curve may compress margins, prolong money-market fee waivers and affect mortgage-backed securities through faster prepayments. Benchmark transitions could create operational disruption, ineffective hedges, contractual disputes and uncertainty in pricing and revenue estimates.

At December 31, 2023, securities were approximately 31% of consolidated total assets; approximately 61% of the portfolio was available-for-sale (AFS), carried at fair value with unrealized gains and losses in AOCI, and 39% was held-to-maturity (HTM), carried at amortized cost. AFS valuation changes affect CET1 capital. HTM securities may be difficult to sell without significant issuer credit deterioration, and illiquid markets can make valuations less certain and less realizable. Credit losses beyond allowances, or changes in the intent or ability to hold AFS securities, could affect earnings.

Credit, counterparty and liquidity

BNY’s exposures arise from lending, intraday credit, settlement, clearing, trading, custody and securities lending. Weakness or failure among financial institutions, sovereigns, governments or other counterparties can cause direct losses and broader market stress. Clearinghouse or exchange memberships may require support for member defaults, potentially without a limit. Volatility can increase settlement overdrafts and short-term credit exposure, while falling collateral values, valuation disputes or difficulty selling and syndicating positions may increase concentrations, risk-weighted assets, and capital and funding costs. Commercial real estate exposure includes concentration in the New York metropolitan area. In certain agency securities-lending transactions, BNY may have to replace unreturned securities and bear a shortfall if collateral and liquidation proceeds are insufficient; it may also incur losses on certain reverse-repurchase investments of cash collateral. Sub-custodian cash and operations in emerging or underdeveloped markets add counterparty, jurisdictional and asset-transfer risks.

Client deposits are an important, relatively low-cost funding source, but may run off following market volatility, high rates, downgrades, adverse publicity, legal or regulatory events, or concerns about uninsured deposits. Social media can accelerate withdrawals. Replacing deposits with more expensive funding or reducing assets could lower net interest revenue. Market stress may also increase intraday funding needs, collateral calls and credit-line draws; impaired market access could force BNY to use or sell unencumbered assets, potentially at a discount. Deposits may rise during uncertainty but can have high runoff risk and may be placed in low-yielding liquid assets. Liquidity and funding are further affected by LCR, NSFR, G-SIB surcharge, TLAC and resolution-planning requirements, including foreign-subsidiary liquidity rules. Regulatory changes to liquidity treatment of securities could also affect funding flexibility and capital sensitivity.

Regulation, capital and the Parent

Capital, liquidity, stress-testing, resolution and other banking requirements may constrain growth, operations, acquisitions and capital returns, or require asset sales, additional funding, business changes or divestitures. LCR and NSFR can require substantial holdings of generally lower-yielding liquid assets; uncertainty over stable-deposit classifications could result in ratio shortfalls and regulatory action. Changes to risk-weighted-asset calculations and liquidity frameworks could also affect required capital and funding.

The Parent is a non-operating holding company reliant mainly on subsidiary distributions and intermediate holding company (IHC) credit to meet obligations and fund taxes, dividends and repurchases. Legal, regulatory, capital, liquidity and safety-and-soundness restrictions may limit transfers; funds are managed by legal entity, restricting their movement. Common dividends and repurchases are discretionary and may be constrained by capital and TLAC buffers, CCAR outcomes, Federal Reserve actions, law and unpaid preferred dividends. Downgrades could raise funding costs, reduce market access and trigger additional collateral requirements or termination rights.

Under BNY’s Title I single-point-of-entry resolution strategy, Parent security holders, including unsecured debt holders, could incur significant losses or lose their entire investment; if the strategy fails, the broader company’s liquidity and financial condition could worsen. Title II resolution could also place losses on Parent shareholders and unsecured creditors. Failure to meet capital or liquidity standards, or deficiencies in resolution plans, could lead to restrictions, heightened requirements or divestitures.

Compliance, execution and broader shocks

BNY’s global operations expose it to evolving and sometimes conflicting rules on client-asset safeguarding, privacy, cybersecurity, data localization, digital assets, AI, climate and ESG, as well as anti-corruption, AML, sanctions and embargo requirements. Violations or investigations can bring fines, remediation, business restrictions and reputational harm; proceedings may span jurisdictions, take years and produce losses materially above recorded accruals or disclosed contingencies. Privacy and recordkeeping rules also create operational burdens. The move from T+2 to T+1 U.S. securities settlement, required in 2024, increases dependence on industry participants and creates technology and execution risks. Following Russia’s invasion of Ukraine in 2022, BNY ceased originating new banking business there and suspended Investment Management purchases of Russian securities.

Competition, including from fintechs and less-regulated providers, may pressure pricing and profitability. New products and transformational projects—including real-time payments, global collateral management, Wove and digital-asset custody—require investment and may fail to win approvals, launch successfully or achieve expected revenue. Acquisitions, disposals, joint ventures and alliances bring integration, valuation, partner, legal and execution risks; acquisitions may create goodwill that could later be impaired.

Geopolitical conflict, sanctions, terrorism, pandemics, natural disasters and climate-related physical or transition risks may disrupt BNY, clients, vendors and markets. Climate regulation, inconsistent or incomplete data, and competing ESG expectations may raise costs, affect reputation and client relationships, or constrain business. Tax-law changes and challenges to tax positions may alter provisions, effective tax rates and capital returns. Changes in accounting standards and estimates—especially for credit-loss allowances, goodwill and intangible assets, and litigation contingencies—may materially alter reported results; goodwill impairment tests rely on long-range assumptions about assets, attrition, margins, growth, costs, regulation and rates, and a prolonged downturn or modest assumption changes could trigger a material non-cash impairment.

Recent accounting developments

• ASU 2023-02 — renewable-energy tax-credit investments: BNY plans to adopt the standard on January 1, 2024, retrospectively for eligible investments. Adoption is expected to reduce retained earnings by approximately $100 million after tax through December 31, 2023; BNY expects future positive net-income impacts to recover this amount. For 2024, the company estimates quarterly increases of $40 million–$50 million in both investment and other revenue and the income-tax provision. Before adoption, these investments generated losses in investment and other revenue that were more than offset by tax benefits and credits. BNY expects no material effect on restated 2022 or 2023 net income or EPS, though comparative results for both years will be updated.

• ASU 2023-07 — segment reporting: The standard will require additional annual and interim segment disclosures, including significant expenses regularly provided to the chief operating decision maker (CODM), the CODM’s title and position, and how the CODM uses segment profit measures to assess performance and allocate resources. It applies to annual periods beginning after December 15, 2023; BNY is evaluating the disclosure impact.

• ASU 2023-09 — income-tax disclosures: The standard will require additional annual disaggregation of income-tax rate reconciliations and taxes paid. It applies prospectively, with a retrospective option, to annual periods beginning after December 15, 2024, and to interim periods in fiscal years beginning after December 15, 2025. BNY is evaluating the disclosure impact.

Non-GAAP financial measures

BNY Mellon supplements GAAP results with non-GAAP measures to help investors assess performance in a way that reflects management’s view of its businesses. Tangible-basis measures exclude goodwill and intangible assets, net of deferred tax liabilities. The company considers return on tangible common equity and tangible book value per common share useful indicators of returns generated from tangible assets and tangible assets per share.

BNY Mellon also presents revenue, expense and related profitability measures excluding specified notable items. Potential revenue adjustments include a securities-portfolio repositioning loss, a reduction in the fair value of contingent consideration from a prior-year divestiture, disposal gains or losses, and Russia-related revenue reductions—primarily accelerated amortization of deferred costs for depositary receipt services. Expense adjustments may include goodwill impairment, the FDIC special assessment, severance and litigation reserves. Litigation reserves represent probable and reasonably estimable loss-contingency accruals and exclude ordinary business-related legal fees.

Related adjusted measures include pre-tax income, common net income, diluted EPS, returns on common and tangible common equity, pre-tax operating margin and the effective tax rate.

Other adjustments and comparisons

For investment management and performance fees and noninterest expense, BNY Mellon provides constant-currency growth rates by applying current-period exchange rates to prior-period revenue, separating underlying changes from foreign-exchange effects. For Investment and Wealth Management, it also reports an adjusted pre-tax operating margin that deducts distribution and servicing expenses passed through to third-party fund distributors or servicers, supporting comparison with industry competitors.

The company may discuss forward-looking non-GAAP measures, such as expense targets excluding notable items. It does not reconcile such measures to GAAP when it cannot estimate the required amounts meaningfully or accurately without unreasonable effort; those amounts could be significant to future results.

BNY Mellon — FY2023 adjusted pre-tax operating margin

BNY Mellon’s 2023 results improved modestly on an adjusted basis, while investment-management fees declined and Investment and Wealth Management’s underlying adjusted margin compressed.

Consolidated results

GAAP revenue rose 7% year over year, while adjusted revenue, which excludes notable items, increased 5%. GAAP noninterest expense grew 2%; adjusted expense rose 2.7%. The prior-year expense increase was steeper: FY2022 GAAP noninterest expense rose 13% from FY2021, while expense excluding notable items and foreign-exchange impacts increased 8%.

Notable revenue items included a $144 million reduction in the fair value of a contingent-consideration receivable and a $6 million disposal loss in 2023. FY2022 adjustments included an $88 million Russia-related revenue reduction, a $449 million securities-portfolio repositioning loss, and a $26 million disposal gain. Notable expenses in 2023 included a $632 million FDIC special assessment, $267 million of severance, and $94 million of litigation reserves. FY2022 included a $680 million goodwill impairment, $215 million of severance, and $134 million of litigation reserves. These items reduced diluted EPS by $1.18 in 2023 and $1.69 in 2022.

Investment and Wealth Management

The segment’s adjusted income before taxes declined 28%, and fees fell 7%. Its adjusted margin excluding notable items declined to 19% from 24%, showing underlying margin compression despite the comparison with a prior year burdened by goodwill impairment.

Across the company, investment-management and performance fees declined 7% to $3,058 million from $3,295 million; adjusting for constant currency did not change the reported decline.

Returns and tangible capital

At year-end, tangible common shareholders’ equity increased to $19,278 million from $18,686 million, and tangible book value per common share rose to $25.39 from $23.11. Common shares outstanding declined to 759.344 million from 808.445 million. FY2023 year-end BNY Mellon shareholders’ equity was $40,874 million, including $4,343 million of preferred stock; goodwill was $16,261 million and intangible assets were $2,854 million.

For FY2022, the GAAP effective tax rate was 23.1%, compared with an adjusted rate of 19.1% excluding notable items.

Rate-volume analysis (2023 vs. 2022; 2022 vs. 2021)

In 2023, higher rates substantially increased interest revenue, but funding costs rose sharply and lower average balances created a much larger volume headwind than in 2022.

2023 interest revenue and expense changes

Key interest revenue changes included federal funds sold and securities purchased under resale agreements, up $5,941 million, primarily from rates (+$5,884 million); interest-bearing deposits at central banks, up $3,522 million, primarily from rates (+$3,264 million); loans, up $1,917 million from rates (+$2,031 million), partly offset by lower volume (−$114 million); and total securities, up $1,839 million from rates (+$2,094 million), partly offset by lower volume (−$255 million).

Interest expense increases were led by federal funds purchased and securities sold under repurchase agreements, up $5,765 million (+$4,941 million from rates and +$824 million from volume), and interest-bearing deposits, up $5,537 million (+$5,507 million from rates and +$30 million from volume). Long-term debt expense rose $851 million, primarily from rates (+$726 million), while payables to customers and broker-dealers increased $410 million.

Overall, rate-driven gains in asset interest revenue were largely absorbed by repricing of funding, especially repurchase agreements and deposits. Interest revenue figures marked (b), including total interest revenue, are presented on a fully taxable-equivalent (FTE) basis.

Forward-Looking Statements and Key Risks

BNY Mellon’s forward-looking statements address expected financial performance, liquidity and capital, net interest revenue, expenses, credit losses, capital returns, technology investment, strategy and products, and regulatory and market developments. These statements are uncertain, are not guarantees of future results, and actual outcomes may differ materially. BNY Mellon generally undertakes no obligation to update them.

Key risks that could affect the company’s outlook include:

• Revenue and market conditions: A substantial majority of revenue is fee-based and may decline with weaker market activity, falling or underperforming markets, or adverse savings and investment trends. Interest-rate changes can affect profitability and capital, while volatile or illiquid markets may cause realized or unrealized securities losses.
• Credit, counterparties and liquidity: The failure or perceived weakness of significant clients or counterparties—including major financial institutions and sovereign entities—could result in credit, concentration or counterparty losses. Credit-loss reserves may be insufficient if economic conditions deteriorate. Weak liquidity management or failure to meet capital, liquidity, “well-capitalized” or “well-managed” standards could constrain operations.
• Parent-company funding and capital returns: The non-operating Parent relies on subsidiary dividends and extensions of credit from its IHC to meet obligations and fund share repurchases, taxes and common dividends. Capital returns remain subject to Board discretion and to banking regulation, Delaware law and timely payment of preferred dividends. Credit-rating downgrades could increase funding costs; resolution under Title I or Title II could adversely affect Parent liquidity and security holders.
• Operations and technology: Processing errors or delays, ineffective risk models or controls, and disruptions at BNY Mellon or third parties could cause losses, service interruptions, reputational harm or other financial damage. Cyber incidents and system or network failures could compromise information, disrupt services and impair business operations.
• Regulatory, legal, tax and reputational exposure: Extensive, changing regulation may require operational changes. Enforcement actions, litigation, failure to meet regulatory standards or reputational damage could harm results. Tax-law changes or challenges to historical tax positions could affect net income and the effective tax rate; accounting-standard changes could materially alter reported results.
• Execution, competition and external events: New products, business lines, strategic projects and transactions carry execution risks and may not achieve expected results. Competition may constrain profitability, and difficulty attracting or retaining employees could impair execution. ESG and climate-related issues may affect client activity and increase regulatory or reputational exposure. Geopolitical events, terrorism, disasters, pandemics and climate effects may disrupt the business.

Glossary and internal controls

• Assets under custody and/or administration (AUC/A) includes client assets BNY holds or administers, counting each asset once. It excludes performance and risk analytics, transfer agency, and asset aggregation services.
• Assets under management (AUM) includes client assets managed actively or passively, as well as hedges supporting customer liabilities. These assets and liabilities are not on BNY Mellon’s balance sheet.
• Credit and capital terms: Credit valuation adjustment (CVA) refers to counterparty credit risk on OTC derivatives; debit valuation adjustment (DVA) refers to BNY Mellon’s own credit risk on those derivatives. Economic capital is the capital needed to absorb potential losses while meeting a one-year solvency target.
• Liquidity and ratings: High-quality liquid assets (HQLA) are unencumbered assets expected to retain value and be convertible to cash during liquidity stress. Investment grade means Moody’s Baa3 or higher, or S&P, Fitch, or DBRS BBB- or higher; equivalent internal ratings may apply to unrated securities.
• Transaction and industry terms: A repo is a securities sale with an agreement to repurchase; a reverse repo is a securities purchase with an agreement to resell. Other defined terms include CAMELS bank-rating factors, global systemically important banks (G-SIBs), depositary receipts, REITs, and sub-custodians.

Management assessed internal control over financial reporting as effective as of December 31, 2023, using the COSO 2013 framework. KPMG, the independent auditor of the 2023 financial statements, also reported on the effectiveness of internal control over financial reporting.

KPMG concluded that BNY Mellon’s internal control over financial reporting was effective in all material respects as of December 31, 2023, and reported no material weaknesses. KPMG also issued an unqualified opinion on the consolidated financial statements for 2023, 2022, and 2021. The report was dated February 28, 2024. KPMG cautioned that internal controls provide reasonable, not absolute, assurance against preventing or detecting misstatements, and that their effectiveness may change in future periods.

BNY FY2023 financial results

Revenue growth reflected a sharp increase in net interest revenue in the higher-rate environment, partly offset by lower foreign exchange and investment management and performance fees. Higher bank assessment charges and credit-loss provisions weighed on results, while FY2022 had included a substantial goodwill impairment.

Total revenue rose 6.9%; net interest revenue increased 24.0%, as higher interest revenue was partly absorbed by a steep increase in interest expense. Noninterest expense rose 2.2%. Net income and diluted EPS increased despite higher credit provisions and bank assessments, with the comparison also benefiting from the $680M goodwill impairment recorded in FY2022.

Other comprehensive income was $1.073B, versus a $3.766B loss in FY2022, largely due to a smaller unrealized loss on available-for-sale securities and positive foreign-currency translation. Comprehensive income applicable to shareholders was $4.359B, compared with a $1.180B loss.

Balance sheet and capital

Subtracting goodwill and other intangible assets from BNY shareholders’ equity implies tangible common equity of approximately $21.759B. Deposits increased overall, but the mix shifted notably from noninterest-bearing deposits toward interest-bearing U.S. deposits.

Securities remained a material exposure. At year-end 2023, held-to-maturity securities were carried at $49.578B amortized cost, against $44.711B fair value; at year-end 2022, they were $56.194B amortized cost and $49.992B fair value. Available-for-sale securities were carried at $76.817B fair value, against $80.678B amortized cost, compared with $86.622B fair value and $92.484B amortized cost a year earlier. Both portfolios’ fair values were below amortized cost, although the disclosed gaps narrowed year over year.

Cash flow and shareholder actions

Operating cash flow fell substantially, principally reflecting much smaller cash sources from trading-asset and liability changes and from accruals and other items. Financing outflow narrowed as deposit changes shifted from a large cash outflow in FY2022 to a cash inflow in FY2023. During FY2023, BNY repurchased $2.604B of common stock, paid $1.262B of common dividends, and redeemed $500M of preferred stock. Shares outstanding, calculated as issued shares less treasury shares, declined from approximately 808.4446M at December 31, 2022 to 759.3441M at December 31, 2023.

Business and significant judgments

BNY Mellon provides financial services to institutions, corporations and high-net-worth individuals through Securities Services, Market and Wealth Services, and Investment and Wealth Management. Management identifies the allowance for credit losses, goodwill and other intangible assets, and litigation and regulatory contingencies as its most significant accounting estimates. These estimates depend on assumptions and judgment; actual economic or market conditions may differ materially from those assumed.

Credit-loss estimates and credit exposure

Expected credit losses are estimated over the expected contractual life of financial instruments using quantitative models and qualitative adjustments. For most financial assets, BNY uses probability-of-default methods, groups assets with similar risk characteristics, and considers historical experience, current conditions and economic forecasts. Forecasts generally include baseline, upside and downside scenarios, refreshed quarterly and reweighted as the outlook changes. Allowance overlays address risks that models may not capture, including scenario sensitivity, concentrations, economic conditions and borrower-specific factors.

Commercial credit models incorporate borrower and facility ratings, maturity, recoveries and expected use of unfunded commitments. Commercial real estate models consider property values and income by geography and property type, along with probability of default and loss given default. Higher-risk credits are reviewed quarterly. Residential mortgages are modeled separately for wealth-management and other mortgages purchased primarily in 2023 and the legacy portfolio, with estimates incorporating prepayments, defaults and loss severity. Home-equity estimates use third-party data because the portfolio is small and internal data are limited.

Loans of $1 million or more that no longer share risk characteristics with other loans, including nonperforming and certain modified or expected-to-be-modified loans, are generally evaluated individually. Assessment considers repayment status, collateral, borrower finances, guarantors, expected cash flows and potential modifications.

For available-for-sale (AFS) debt securities, credit losses are assessed individually and recognized through an allowance and provision, limited to the difference between fair value and amortized cost; no credit loss is recognized if fair value exceeds amortized cost. Structured-security estimates use probability-of-default and loss-severity models with macroeconomic forecasts. Held-to-maturity (HTM) securities use a similar multi-scenario approach, with structured securities modeled individually. BNY does not currently estimate expected credit losses for U.S. Treasury and agency debt securities and certain other securities meeting specified credit-quality or guarantee conditions; these are monitored through recurring governance reviews.

Other exposures include margin loans, reverse repurchase agreements, securities-lending indemnifications and deposits with third-party financial institutions. Reverse repos are short-term and continuously overcollateralized; estimated losses generally relate to uncollateralized amounts when collateral is not expected to be replenished. A similar approach applies to margin lending and securities-lending indemnifications. Accrued interest receivable is excluded from the loss methodologies and charged off when interest is deemed uncollectible. BNY purchased no assets with more than insignificant credit deterioration in 2023 or 2022 and held none at either year-end; short-term accounts receivable have not historically generated significant credit losses.

Investments, consolidation and financial instruments

BNY consolidates a variable-interest entity when it has both power over the activities most affecting the entity’s economic performance and potentially significant exposure to its losses or benefits. Primary-beneficiary status is reassessed when relevant contractual arrangements or variable interests change. Other entities are generally consolidated when BNY controls their financial and operating policies, typically through at least 50% voting ownership.

At Dec. 31, 2023, significant equity-method investments included CIBC Mellon Global Securities Services Company (50% ownership; $607 million book value) and Siguler Guff (20%; $234 million). Equity-method earnings are reported in applicable fee or investment-revenue lines. Renewable-energy investments use the hypothetical liquidation at book value method; pretax losses are recorded in investment and other revenue, while associated tax benefits and credits reduce income-tax expense.

Debt securities are classified as AFS, HTM or trading. AFS securities are carried at fair value, with unrealized gains and losses generally recorded net of tax in other comprehensive income (OCI); HTM securities are carried at amortized cost, net of expected credit losses; trading securities are carried at fair value with realized and unrealized changes in earnings. For transfers from AFS to HTM, unrealized amounts at the transfer date remain in accumulated OCI and are amortized into net interest revenue. A debt security is written down to fair value through earnings if BNY intends to sell, or is more likely than not required to sell, before recovering its cost.

Equity securities are generally carried at fair value, with changes in earnings, subject to cost-based exceptions for specified institutional stocks and investments without readily determinable fair values. Loans are carried at amortized cost, net of deferred fees and costs; loans held for sale are carried at the lower of cost or fair value. Commercial loans generally enter nonaccrual status at 90 days past due or when collection is doubtful; first- and second-lien residential mortgages are individually evaluated and placed on nonaccrual at 90 days delinquent. Accrued interest is reversed on nonaccrual loans, and return to accrual generally requires payments to be current for a specified period. Resale and repurchase agreements are treated as collateralized financings; resale agreements are fully collateralized with high-quality liquid securities and generally are not assigned a credit-loss allowance. Certain same-counterparty, same-maturity transactions are netted when enforceable agreements permit.

Revenue, expenses and other accounting policies

Fee revenue is recognized as performance obligations are satisfied. Performance fees are recognized when earned and determinable, subject to constraints where reversal remains possible; fees subject to clawback are deferred until collection is determined. Nonrefundable outsourcing implementation fees and qualifying setup costs are recognized or amortized over the service relationship, with remaining deferred amounts recognized if a contract terminates early. Net interest revenue uses the effective-yield method. Internal-use software costs are capitalized for projects providing new or significantly improved functionality or longer-term operational benefits, then amortized in software and equipment expense.

Goodwill and indefinite-lived intangible assets are tested annually or when impairment indicators arise; impairment testing requires complex, subjective assumptions. Legacy leveraged leases entered before Dec. 31, 2018 remain under prior accounting guidance, with changes in significant assumptions affecting income recognition and other-than-temporary impairment of residual values reflected in net interest revenue.

Foreign-currency balance-sheet items are translated at period-end rates. Translation effects for foreign entities with non-U.S.-dollar functional currencies are recorded in OCI, while transaction exchange effects are included in foreign-exchange revenue. Acquisition contingent consideration is initially measured at fair value, with subsequent liability changes in other noninterest expense; divestiture gains or losses are recorded in investment and other revenue.

Benefits, taxes, derivatives and cash flow

Pension actuarial gains and losses generally reflect differences between actual and assumed experience and changes in discount rates or other assumptions. Amounts exceeding 10% of the greater of projected benefit obligations or market-related plan assets are generally amortized over active employees’ future service periods. U.S. plans and the largest foreign plan, in the UK, have frozen benefit accruals; qualifying unrecognized actuarial gains and losses for these plans are amortized over participants’ average future life expectancy, capped at 15 years. Expected asset returns reflect asset-class forecasts and expected allocations, while a five-year smoothing method is used for market-related asset values.

Share-based compensation is generally recognized in staff expense over the vesting period, with forfeitures estimated. Grants with retirement-eligible vesting features are expensed by the date an employee first becomes retirement-eligible. Certain performance share units subject to compensation-committee discretion are equity-classified and marked to market through earnings during vesting; market-condition awards use grant-date fair value over the service period, subject to service requirements. Severance expense is recognized when management commits to a qualifying separation action and the liability can be reasonably estimated.

Deferred taxes reflect temporary differences at enacted rates expected when they reverse; valuation allowances are established when realization of deferred tax assets is not more likely than not. Tax positions must meet a more-likely-than-not recognition threshold, and tax-related interest and penalties are included in income-tax expense.

Derivatives are carried at fair value and reported net by counterparty, including cash collateral when enforceable netting agreements apply. Trading-derivative gains and losses are generally recorded in foreign-exchange or investment and other revenue. Non-trading derivatives are primarily used for asset-liability management. Hedge accounting requires documented risk-management objectives and ongoing effectiveness monitoring at least quarterly: fair-value hedge changes generally affect earnings, qualifying cash-flow hedge changes initially enter OCI and are reclassified when the hedged item affects earnings, and net-investment hedge currency effects are recorded in OCI, net of tax. If a forecast transaction ceases to be probable, related OCI is immediately reclassified to earnings.

EPS uses the two-class method to allocate earnings to common shareholders and participating securities, including certain unvested awards with non-forfeitable dividend rights. Diluted EPS reflects the more dilutive of the treasury-stock and two-class methods. Cash is defined as cash and due from banks; distributions from equity-method investees are operating cash flows, while excess returns are investing cash flows.

Accounting changes

BNY adopted two accounting updates effective January 1, 2023:

• ASU 2022-01 — Fair-value hedging: The update expands portfolio-layer fair-value hedging to permit multiple hedged layers in one closed portfolio, include non-prepayable assets, and use additional eligible hedging instruments. It also provides guidance and disclosure requirements for hedge basis adjustments. BNY did not elect the one-time adoption option to transfer held-to-maturity securities to available-for-sale, but may apply portfolio-layer hedging prospectively.
• ASU 2022-02 — Loan modifications and write-offs: The update removes creditor accounting guidance for troubled debt restructurings and requires disclosures about qualifying loan modifications and current-period gross write-offs by loan origination year. BNY adopted the revised loan-modification guidance on January 1, 2023; the impact was immaterial.

Acquisitions, dispositions and contingent consideration

At Dec. 31, 2023, BNY’s acquisition-related contingent earnout payables had a fair value of approximately $20 million; estimated payments over the following year ranged from $20 million to $25 million. During FY2023, BNY paid $15 million of contingent consideration and recorded a $7 million increase in earnout payables in other expense.

Contingent earnout receivables had a fair value of approximately $30 million, with potential receipts of $20 million to $45 million over the next four years. BNY collected no contingent receipts in FY2023. Reduced collection expectations resulted in approximately $140 million of net decreases in earnout receivables, recorded as a reduction of investment and other revenue.

FY2022 dispositions

• Alcentra: BNY sold Alcentra on Nov. 1, 2022, receiving $350 million in cash at closing, plus contingent consideration tied to performance thresholds. The sale resulted in an $11 million pre-tax loss and a $40 million after-tax loss. Alcentra had $32 billion of AUM at Oct. 31, 2022, concentrated in credit strategies. BNY removed $434 million of related goodwill from its consolidated balance sheet.
• HedgeMark: BNY sold HedgeMark on Aug. 1, 2022, recording a $37 million pre-tax gain and receiving an equity interest in the buyer. $13 million of related goodwill was removed.

FY2021 acquisitions

BNY’s FY2021 acquisitions expanded its funds-industry solutions, custody and depositary services, and investment capabilities. Milestone Group, which provides funds-industry business solutions, and Nykredit’s depositary and custody activities were added to Securities Services. Optimal Asset Management, whose patented software includes direct-indexing solutions, was added to Market and Wealth Services. The acquisitions were associated with $99 million of goodwill and $70 million of intangible assets.

Securities portfolio

BNY Mellon’s securities portfolio contracted in 2023. Unrealized losses also declined as interest-rate pressure eased; the losses were attributed primarily to higher interest rates since purchase or transfer, rather than identified credit deterioration.

The largest AFS holdings by fair value at Dec. 31, 2023 were non-U.S. government securities ($18.382B), U.S. Treasuries ($16.604B), agency residential mortgage-backed securities (RMBS; $13.111B) and agency commercial mortgage-backed securities ($7.729B). HTM holdings were concentrated in agency RMBS ($29.740B amortized cost; $26.248B fair value) and U.S. Treasuries ($9.123B amortized cost; $8.511B fair value).

AFS securities in an unrealized-loss position

HTM credit quality

The HTM portfolio was reported as 100% AAA/AA- overall, with limited exceptions among small non-agency RMBS and other-debt positions. At Dec. 31, 2023, non-agency RMBS with $26M amortized cost was rated 25% AAA/AA-, 54% A, 2% BBB, 17% BB+ and lower, and 2% not rated. Other debt securities included $12M of unrated holdings.

Securities results and portfolio repositioning

FY2022 included $507M of losses in “other,” largely associated with portfolio repositioning: $337M related to state and political subdivisions and $177M to corporate bonds. In 2022, BNY transferred securities with $6.2B amortized cost and $6.1B fair value from AFS to HTM to reduce interest-rate effects on accumulated other comprehensive income (AOCI). Related AOCI marks are amortized into net interest revenue over the securities’ contractual lives. At Dec. 31, 2023, the transferred securities carried $250M of gross unrealized gains and $146M of losses in AOCI, compared with $347M of gains and $179M of losses at Dec. 31, 2022.

Contractual maturities

Yields are based on amortized cost and exclude related hedging derivatives.

Pledged assets and collateral

Securities received as collateral that BNY could sell or repledge rose to $212B from $115B; securities collateral actually sold or repledged increased to $180B from $78B. These amounts highlight the scale of BNY’s collateral intermediation and the related liquidity and operational exposures.

Loan portfolio

Total loans, net of unearned income, increased to $66.879B at Dec. 31, 2023, from $66.063B at Dec. 31, 2022. The largest loan categories and other notable balances were:

Overdrafts primarily arise from custody and securities-clearance activity and are generally repaid within two business days.

Credit-loss allowance and asset quality

The allowance for credit losses on loans and lending-related commitments rose to $390M, comprising $303M for loan losses and $87M for lending-related commitments, from $254M at year-end 2022. CRE accounted for much of the increase:

FY2023 allowance activity included $131M of provision, $3M of charge-offs, and $8M of recoveries (net recoveries of $5M). The CRE allowance included $141M of provision during the year. The $131M provision excludes a $12M benefit related to other financial instruments.

At year-end, $303M of loans were individually evaluated for impairment, including $290M of CRE loans; the related loan-loss allowance was $76M. These loans were collateral-dependent and had $348M of collateral fair value. CRE loans were the principal driver of higher nonperforming loans. Other residential mortgage and wealth-management mortgage nonperforming balances were $24M and $19M, respectively. Past-due loans still accruing included $339M of financial-institution exposure, which was collected after year-end.

Portfolio characteristics and collateral

BNY Mellon says its lending strategy focuses on investment-grade clients that use its non-credit services. Financial-institution exposure was 92% investment grade, 62% secured, and 83% due within one year at Dec. 31, 2023.

CRE lending focuses on experienced owners and moderate leverage supported by existing cash flows, and includes construction and renovation facilities. Wealth-management loans are generally secured by customers’ investment-management or custody accounts. Wealth-management mortgages are primarily interest-only, adjustable-rate loans to high-net-worth borrowers; their weighted-average loan-to-value ratio at origination was 61%, and less than 1% were past due. Mortgage geographic concentrations were California 21%, New York 14%, Florida 11%, Massachusetts 8%, and other 46%.

Margin loans are secured by marketable securities, require daily collateral exceeding 100% of loan value, and have rarely resulted in losses. Capital-call financing is secured by private-equity fund investors’ capital commitments and the funds’ rights to call capital. Reverse repurchase agreements were fully secured by high-quality collateral and had no related allowance at either year-end.

Borrower modifications

During 2023, two CRE loans with $71M aggregate recorded investment and a $15M unfunded commitment were modified by extending their maturity dates; one subsequently matured during the year. Six other residential mortgage loans with $2M aggregate recorded investment received payment, maturity, or interest-rate modifications. In 2022, 10 loans with $14M aggregate recorded investment were modified.

Lease assets and liabilities

At Dec. 31, 2023, BNY’s operating-lease liabilities exceeded its right-of-use (ROU) assets by $231 million, up from $184 million a year earlier. There were no finance-lease ROU assets or liabilities at year-end 2023; at year-end 2022, finance-lease ROU assets were $11 million and liabilities were zero.

Operating leases had a weighted-average remaining term of 9.4 years and a weighted-average discount rate of 3.11% at year-end 2023, compared with 10.0 years and 2.68% at year-end 2022. The 2022 finance-lease remaining term was 0.8 years, with a 1.27% discount rate. Lease terms extend up to 15 years; some include extension or termination options.

Lease expense and cash flows

Total lease expense declined to $224 million in FY2023, primarily reflecting lower operating-lease expense; higher variable expense partly offset that decrease. Sublease income was $34 million.

Operating-lease commitments

Undiscounted operating-lease payments total $1.556 billion, including substantial payments after 2028. Deducting $200 million of imputed interest produces the recognized liability of $1.356 billion.

These commitments reflect ongoing occupancy and facilities obligations. BNY may sublease some or all of certain office spaces or lease terms; sublease income was $34 million in FY2023.

Goodwill

Net goodwill increased in 2023 primarily due to $111M of favorable foreign-currency translation. The prior-year decline reflected a $680M impairment, $447M of dispositions, and $235M of unfavorable currency translation from Dec. 31, 2021 to Dec. 31, 2022. The impairment was recorded in Q3 2022, was non-cash, and did not affect liquidity, tangible common equity, or regulatory capital ratios.

BNY tests goodwill annually across six reporting units and performs interim tests when circumstances warrant. The Investment Management reporting unit, which had $6.1B of allocated goodwill at year-end 2023, was tested quarterly; no impairment was recorded. Its estimated fair value exceeded carrying value by only approximately 5%, using projected cash flows and a 10.5% discount rate. The other five reporting units were tested in Q2 using a 10% discount rate and had fair values substantially above carrying values. Investment Management’s valuation depends on assumptions about AUM levels and mix, market values, operating margins, and long-term growth; changes in assumptions or discount rates could lead to a material future non-cash impairment.

Intangible assets

The $47M decline in net intangible assets primarily reflected $57M of amortization, partly offset by $10M of favorable currency translation.

Amortizable intangibles had a $1.605B gross carrying amount and a 10-year remaining weighted-average amortization period. Their 2023 net balance comprised customer contracts—Securities Services ($164M; 10 years), customer contracts—Market and Wealth Services ($7M; 3 years), customer relationships—Investment and Wealth Management ($74M; 8 years), and other intangibles ($29M; 13 years). Indefinite-lived intangibles comprised $1.292B of tradenames and $1.288B of customer relationships; they are tested for impairment annually or more frequently if warranted.

Estimated amortization expense is $49M in 2024, $43M in 2025, $34M in 2026, $28M in 2027, and $24M in 2028.

Note 8 — Other assets

Other assets increased modestly to $25.985B at Dec. 31, 2023, from $25.855B a year earlier. Accounts receivable rose, while fails to deliver and derivative cash collateral receivable declined.

Non-readily marketable equity securities measured using the measurement alternative had a carrying value of $479M at year-end 2023, compared with $445M in 2022. Their carrying value reflects cost adjusted for impairment and observable transactions, rather than readily determinable fair value. Observable-price changes and impairments are recognized in investment and other revenue.

Life-to-date net adjustments were $282M, comprising $335M of upward adjustments and $53M of downward adjustments.

Affordable housing investments, made primarily to meet Community Reinvestment Act requirements, were $1.213B at year-end 2023, down from $1.298B in 2022. Related future funding commitments, recorded in other liabilities, were $596M versus $614M.

Investments valued using net asset value (NAV) totaled $153M at year-end 2023, compared with $138M in 2022; unfunded commitments were $42M and $53M, respectively.

Seed capital is generally redeemable on request, subject to underlying funds’ liquidation and notice periods. Private equity investments, primarily in SBICs, have no redemption rights; distributions depend on liquidation of underlying investments, which have 10-year lives.

Note 9 — Deposits

Time deposits of $250,000 or more totaled $1.5B at Dec. 31, 2023, compared with $1.4B in 2022. Scheduled maturities of total time deposits were:

Contract revenue and revenue drivers

Fee revenue is primarily variable and sensitive to client asset values (AUC/A and AUM), transaction activity, securities-lending volumes and spreads, and investment performance. Most Securities Services and Market and Wealth Services revenue is recognized over time; transaction-based services are generally recognized on the trade date. Investment-management fees depend on AUM mix and fee schedules, while performance fees are recognized when determinable at the end of the measurement period.

Contract revenue by fee category and segment ($ millions; year ended Dec. 31; 2023 / 2022):

Total contract revenue was $12,066 million in 2021, and total fee and other revenue was $13,301 million. Investment and Wealth Management investment-management and performance fees were $3,553 million in 2021, then declined to $3,290 million in 2022 and $3,057 million in 2023. Investment and Wealth Management segment amounts are net of income or loss attributable to noncontrolling interests in consolidated funds.

Net interest revenue

Net interest revenue increased as higher interest revenue on interest-earning assets was accompanied by sharply higher funding costs.

Major interest-revenue increases included Federal Reserve and other central-bank deposits ($4.541B in 2023, versus $1.019B in 2022), federal funds sold and resale agreements ($7.141B versus $1.200B), and loans ($3.916B versus $1.999B). Major interest-expense increases were on domestic deposits ($4.703B versus $0.980B), foreign deposits ($2.421B versus $0.607B), and federal funds purchased and repurchase agreements ($6.699B versus $0.934B).

Contract balances and costs

BNY recognized $114 million of 2023 revenue from the contract-liability balance at Dec. 31, 2022. Amortization of capitalized sales incentives was $16 million in 2023, $19 million in 2022, and $20 million in 2021. No unsatisfied performance obligations are reported beyond those covered by ASC 606 practical expedients, including short-term contracts and services for which revenue is recognized at the amount invoiced.

Income taxes

The 2023 tax provision rose from 2022 but remained below 2021. Current tax expense increased to $1.223B from $613M, while deferred taxes shifted from $155M of expense to a $423M benefit. The deferred benefit primarily reflected depreciation and amortization, the FDIC special assessment accrual, and unrealized securities gains. Tax credits reduced the 2023 effective tax rate by 5.6 percentage points; the 2022 rate included a 3.9-percentage-point impact from goodwill impairment.

Deferred taxes and tax exposures

BNY recorded a $130M valuation allowance: $96M related to U.S. foreign tax credit carryforwards that begin expiring in 2029, and $34M related to an unrealized capital loss. Management considers these benefits more likely than not to go unrealized, but expects to realize its remaining deferred tax assets.

Approximately $1.2B of foreign-subsidiary earnings were permanently reinvested abroad, with no provision for local distribution taxes. Repatriation could result in up to $150M of tax.

If the 2023 unrecognized tax reserves are no longer required, their release would benefit future effective tax rates by $109M. Reserves could decline by approximately $9M within 12 months due to examination-related adjustments.

Long-term debt

Long-term debt totaled $31.257B at Dec. 31, 2023, compared with $30.458B a year earlier. The 2023 balance comprised $28.886B of fixed-rate senior debt, $1.226B of floating-rate senior debt, and $1.145B of subordinated debt.

Variable interest entities

BNY’s VIE interests include investment-management funds that earn management fees and, for some funds, performance fees. BNY may provide start-up or seed capital, but the funds are primarily financed by customer investments. BNY also invests in unconsolidated affordable-housing and renewable-energy projects, which are structured to generate returns mainly through tax credits.

Consolidated investment-management fund VIEs

Assets of consolidated VIEs are available only to settle those VIEs’ liabilities and investors’ ownership liquidation requests, including requests related to BNY’s seed capital. Creditors of these VIEs have no recourse to BNY’s general credit. BNY reported no financial or other support to VIEs beyond its contractual requirements.

VME amounts included in the consolidated VIE totals were:

Non-consolidated VIEs

Non-consolidated VIEs primarily relate to affordable-housing and renewable-energy investments.

Maximum loss exposure is limited to BNY’s investments and unfunded commitments.

Shareholders’ equity and distributions

BNY Mellon had 759.344092 million common shares outstanding at Dec. 31, 2023. In July 2023, it increased its quarterly common dividend by 14%, from $0.37 to $0.42 per share. Under the $5.0 billion repurchase authorization effective Jan. 1, 2023, the company repurchased 55.8 million shares for $2.6 billion, at an average price of $46.66 per share. The authorization replaced prior plans.

Preferred stock

Preferred stock carrying value declined to $4.343 billion at Dec. 31, 2023, from $4.838 billion a year earlier. Issued and outstanding preferred shares decreased to 43.826 million from 48.826 million, principally because BNY Mellon redeemed all Series D shares in December 2023. The redemption resulted in approximately $10 million of deferred fees recognized as preferred dividends.

Preferred dividends were $235 million in FY2023, compared with $211 million in FY2022 and $207 million in FY2021. FY2023 dividends by series were: A, $29 million; D, $42 million (including approximately $10 million of deferred fees recognized upon redemption); F, $46 million; G, $47 million; H, $22 million; and I, $49 million.

All outstanding preferred shares are noncumulative and perpetual, carry a $100,000-per-share liquidation preference, and are not convertible or exchangeable. Several series have floating-rate exposure after their fixed-rate periods: Series A pays the greater of three-month SOFR plus 0.565% or 4.000%; Series F pays 4.625% through Sept. 20, 2026, then SOFR plus 3.131%; Series G pays 4.700% through Sept. 20, 2025, then the five-year Treasury rate plus 4.358%; Series H pays 3.700% through March 20, 2026, then the five-year Treasury rate plus 3.352%; and Series I pays 3.750% through Dec. 20, 2026, then the five-year Treasury rate plus 2.630%. Series F–I may be redeemed beginning on their respective reset dates, subject to Federal Reserve approval. Failure to pay preferred dividends can restrict common dividends and share repurchases.

Temporary equity, representing the redemption value of redeemable noncontrolling interests arising from equity-classified share-based payment arrangements, was $85 million at Dec. 31, 2023, down from $109 million at Dec. 31, 2022.

Regulatory capital

BNY Mellon and its U.S. bank subsidiaries were classified as well capitalized at both year-end 2023 and year-end 2022. Consolidated capital ratios improved year over year:

The Bank of New York Mellon’s SLR exceeded the 6% well-capitalized threshold by 2.6 percentage points.

At Dec. 31, 2023, consolidated capital above applicable thresholds was $4.902 billion for CET1, $6.807 billion for Tier 1, and $4.797 billion for total capital. For The Bank of New York Mellon, the corresponding excesses were $11.962 billion, $10.017 billion, and $7.572 billion. Consolidated excess capital above leverage thresholds was $7.611 billion for Tier 1 leverage and $7.280 billion for SLR; the bank subsidiary’s amounts were $5.158 billion and $6.286 billion, respectively. Falling below regulatory capital standards could lead to restrictions on activities and other sanctions.

Note 16: Other comprehensive income (loss)

Amounts in $ millions; OCI figures are after tax unless otherwise noted.

Other comprehensive income (loss)

Total pre-tax OCI was income of $1,255 in 2023, compared with losses of $4,644 in 2022 and $1,433 in 2021. The related tax effects were an expense of $182 in 2023 and benefits of $878 and $207 in 2022 and 2021, respectively.

• Foreign currency translation: 2023 included a pre-tax gain of $204 and a tax benefit of $68. The 2022 and 2021 losses reflected pre-tax losses of $455 and $313, with tax expenses of $148 and $63, respectively. This component includes hedges of net investments in foreign subsidiaries.
• AFS securities: The 2023 after-tax gain comprised $829 of unrealized gains arising and $52 of reclassification adjustments. In 2022, the after-tax loss comprised $3,245 of unrealized losses and $338 of reclassification adjustments; in 2021, it comprised $1,147 of unrealized losses and a $4 reclassification adjustment gain. Reclassified amounts are recorded as net securities gains (losses) in investment and other revenue. Pre-tax AFS OCI was a gain of $1,168 in 2023 and losses of $3,849 in 2022 and $1,520 in 2021; the corresponding tax expense/(benefit) was $287, $(942) and $(369).
• Defined benefit plans: Pre-tax losses were $126 in 2023 and $332 in 2022, while 2021 had a pre-tax gain of $409. Tax benefits were $40 and $82 in 2023 and 2022; 2021 had tax expense of $102. The 2023 amount included a $1 after-tax foreign-exchange adjustment. Amortization of prior service credit, net loss and initial obligation was an after-tax loss of $10 in 2023, compared with income of $56 in 2022 and $88 in 2021; these amounts were recorded in other expense.
• Cash-flow hedges: Pre-tax OCI was a gain of $9 in 2023 and losses of $8 and $9 in 2022 and 2021, respectively. Net reclassifications to income were gains of $1 in 2023 and $6 in 2022, and a loss of $9 in 2021.

Accumulated other comprehensive income (loss)

Accumulated OCI attributable to BNY Mellon shareholders improved by $1,073 in 2023 after declining by $3,753 in 2022. The 2023 improvement primarily reflected a reversal of part of the substantial 2022 AFS securities loss and positive foreign-currency translation.

Stock-based compensation

Stock-based compensation expense for awards with retirement-eligibility vesting and for RSUs increased in 2023. The RSU-related income-tax benefit also rose.

Non-vested RSUs and PSUs

At Dec. 31, 2023, BNY Mellon had authority under its April 2023 Long-Term Incentive Plan to issue 44,948,591 additional awards, all as restricted stock or RSUs. Non-vested RSUs and PSUs increased from 15,086,135 at Dec. 31, 2022 to 16,456,716 at Dec. 31, 2023.

Unrecognized compensation cost for non-vested RSUs and PSUs was $350 million at Dec. 31, 2023, expected to be recognized over a weighted-average 2.3 years. The outstanding awards represent future compensation expense and potential share dilution.

The total fair value of RSUs and PSUs vested increased to $305 million in 2023 from $264 million in 2022 and $240 million in 2021. Excess tax benefits/(expenses) on vested shares were $3 million in 2023, $16 million in 2022 and $(8) million in 2021.

Performance share units

Executive Committee target PSU awards were 577,549 in 2023, compared with 513,101 in 2022 and 648,973 in 2021. Vesting is assessed after three years. Seventy percent of the award is tied to return on tangible common shareholders’ equity (ROTCE) and 30% to total shareholder return (TSR); total payout is capped at 150% of target and remains subject to Compensation Committee discretion. Because of that discretion, the ROTCE portion is marked to market in earnings. The TSR portion’s grant-date fair value is recognized over the service period, provided the employee renders service.

Subsidiary awards and stock options

Subsidiary incentive awards generally vest over three to five years. Once restrictions lapse, employees may sell shares back to BNY Mellon at a price generally based on the subsidiary’s fair value; BNY Mellon may have a call right in certain cases.

No stock options were granted in 2023 or 2022, and none were outstanding at either year-end. Earlier option exercises generated $15 million of intrinsic value and $9 million of cash proceeds in 2022, compared with $48 million and $50 million, respectively, in 2021.

Employee benefit plans

Plan structure and changes

Defined benefit pension plans cover approximately 7,400 U.S. and 18,000 non-U.S. employees. U.S. plans have been closed to new participants since Dec. 31, 2010, and U.S. defined benefit accruals were frozen effective June 30, 2015. The largest foreign plan, covering certain U.K. employees, was frozen effective Dec. 31, 2018; affected employees began earning defined contribution benefits on Jan. 1, 2019.

Funded status and obligations

Amounts at Dec. 31:

Pension obligation actuarial losses in 2023 were primarily due to lower discount rates; foreign-plan losses also reflected higher assumed inflation. In 2022, higher discount rates drove actuarial gains. Discount rates used to measure 2023 year-end obligations were 5.25% for domestic pension and healthcare plans, 4.44% for foreign pension plans, and 4.65% for foreign healthcare plans. Pre-tax actuarial losses in AOCI at year-end 2023 were $1.637B for domestic pension plans and $242M for foreign pension plans.

Periodic benefit cost (credit)

Benefit credits principally reflect expected returns on plan assets offsetting interest cost. Expected asset-return assumptions used for 2023 pension expense were 6.75% domestic and 6.38% foreign, compared with 5.375% and 2.40%, respectively, in 2022.

Cash requirements and plan assets

Expected 2024 contributions are $12M to domestic and $9M to foreign pension plans, $8M to domestic healthcare plans, and less than $1M to foreign healthcare plans. Expected benefit payments over 2024–2033 total $2.628B for domestic pension plans and $400M for foreign pension plans; healthcare payments are $73M domestic and $1M foreign.

At year-end 2023, domestic pension assets were 62% fixed income, 34% equities, 3% alternatives, and 1% cash. Foreign pension assets were 74% fixed income, 13% equities, 11% alternatives, and 2% cash. Pension plans held no BNY Mellon stock. Most assets in the fair-value hierarchy were Level 1 or Level 2, with no Level 3 assets. An additional $283M was valued using NAV, including $83M in venture capital/partnership interests with no redemption rights and $164M in funds of funds, generally redeemable monthly with 30–45 days’ notice.

Defined contribution plans and company-stock exposure

The U.S. 401(k) matches 100% of employee contributions up to 7% of eligible base pay, subject to a $16,000 per-participant limit. Eligible employees earning under $100,000 also received a $750 annual non-elective contribution.

The company cannot contribute to the ESOP.

Parent Corporation financial information

Results

The increase in parent revenue in 2023 primarily reflected higher dividends from bank subsidiaries. Interest expense also rose substantially year over year. FY2023 net income included $276M of equity in undistributed subsidiary net income: a $313M loss from banks and $589M of income from nonbanks.

Balance sheet

The parent’s assets were predominantly investments in and advances to subsidiaries.

Cash flows

FY2023 financing activity included $6.055B of long-term debt repayments and $5.988B of debt issuance, as well as $2.604B of treasury stock acquired, a $500M preferred stock redemption and $1.487B of cash dividends paid.

Capital returns, subsidiary funding and constraints

A January 2023 Board authorization permits up to $5.0B of common-share repurchases, replacing prior plans. Bank subsidiaries declared dividends of $3.5B in 2023, $1.0B in 2022 and $2.5B in 2021. At year-end 2023, U.S. bank subsidiaries could pay the parent approximately $1.7B without a regulatory waiver; nonbank subsidiaries held approximately $3.2B of liquid assets. Bank subsidiaries exceeded applicable minimum capital requirements and buffers.

Subsidiary dividends remain subject to statutory earnings tests, regulatory consent in certain circumstances, capital requirements and supervisory guidance. Federal Reserve rules limit credit from a bank to any affiliate to 10% of the bank’s regulatory capital and aggregate credit to the Parent and affiliates to 20%; collateralization of 100%–130% is required depending on collateral type.

Under the single-point-of-entry resolution strategy, the intermediate holding company (IHC) is responsible for supporting designated subsidiaries and receives cash and liquid assets from the Parent, subject to the Parent’s near-term needs. The IHC also provides subordinated funding notes and a committed line for near-term obligations. In severe stress, the line automatically terminates and amounts outstanding become due; the Parent must transfer most remaining assets to the IHC. This could leave the Parent unable to meet its obligations and lead to earlier bankruptcy proceedings.

The Parent guarantees Pershing LLC and Pershing Limited uncommitted credit lines and may guarantee or indemnify other subsidiary obligations. Maximum exposure under general indemnifications cannot be estimated because they generally have no stated notional amount; management considers a material payment remote. The Parent may also be required to remedy impairment of capital stock in certain national bank subsidiaries.

Fair-value measurements

At Dec. 31, 2023, BNY Mellon’s recurring fair-value measurements were predominantly based on observable inputs. There were no Level 3 recurring assets or liabilities at year-end 2023, consistent with 2022.

Before netting, recurring fair-value assets comprised $25.300B of Level 1 and $70.939B of Level 2 measurements; liabilities comprised $2.548B of Level 1 and $10.963B of Level 2. Level 1 represented 26% of assets and 19% of liabilities before netting, compared with 37% and 18%, respectively, in 2022.

Available-for-sale securities

The decline in recurring fair-value assets was driven notably by lower U.S. Treasury and non-U.S. government securities, partly offset by increases in agency RMBS and CLOs. Approximately 99% of securities were valued using pricing sources with reasonable price transparency; the remainder were generally valued using observable inputs.

Most derivatives were Level 2, valued with models using observable market parameters. Derivative values are sensitive to changes in BNY Mellon’s own credit spreads and counterparties’ credit spreads. Where markets are less active or inputs such as correlation and recovery rates are unobservable, valuations may incorporate liquidity adjustments and management estimates. Management cautions that such valuations may not represent net realizable value or future fair values, and different assumptions or methodologies could produce different estimates.

Selected securities credit quality

Non-agency RMBS totaled $1.740B, and non-agency commercial MBS totaled $2.935B. The Brazilian non-investment-grade exposure increased from $123M in 2022.

Nonrecurring fair-value measurements

All nonrecurring fair-value assets were Level 2.

The fair value of loans subject to nonrecurring measurement declined $3M in 2023, with an offset to the allowance for credit losses.

Financial instruments not carried at fair value

Held-to-maturity securities’ estimated fair value was $4.867B below carrying amount at year-end 2023, compared with a $6.202B shortfall in 2022. Long-term debt fair value was also below carrying amount in both years.

BNY elected the fair value option for selected assets and liabilities not otherwise required to be measured at fair value, including assets and liabilities of consolidated investment management funds and subordinated notes tied to certain equity investments.

Fair-value-option balances

Fund assets and liabilities are included in other assets and other liabilities, respectively, on BNY’s consolidated balance sheet. They are valued using quoted prices for identical or similar instruments and other observable inputs; fair-value changes are recorded in income (loss) from consolidated investment management funds within investment and other revenue. The subordinated notes are included in other assets, valued using observable market inputs, and classified as Level 2.

Note 22 — Commitments and contingent liabilities

BNY Mellon’s largest off-balance-sheet exposure is securities-lending indemnifications. The stated potential loss on undrawn lending commitments, letters of credit and securities-lending indemnifications equals their full notional amount if drawn, before collateral; the company expects most lending commitments and letters of credit to expire without funding.

Off-balance-sheet exposures

The indemnification totals exclude CIBC Mellon client borrowings for which BNY Mellon acts as agent: $59B in 2023, secured by $62B of collateral, compared with $64B and $68B, respectively, in 2022. BNY Mellon, CIBC Mellon and CIBC jointly and severally indemnify lenders for specified borrower defaults. Securities lending is generally collateralized at a minimum of 102% of the fair value of securities lent, with collateral monitored daily; counterparties are generally highly rated.

Lending commitments mature as follows: $27.2B in less than one year, $18.9B in one to five years and $421M after five years. Standby-letter-of-credit maturities are $1.3B, $512M and $8M, respectively. At year-end 2023, 74% of standby letters of credit were investment-grade and 26% non-investment-grade, compared with 75% and 25% in 2022.

Portfolio concentrations and unsettled transactions

Financial-institution exposure was concentrated in securities firms ($17.1B), asset managers ($9.4B) and banks ($7.8B). Commercial exposure was led by services and other ($4.6B), manufacturing ($4.1B), and energy and utilities ($4.1B). Securities-lending concentrations are primarily broker-dealers.

BNY Mellon also guarantees sponsored clients’ obligations under the FICC sponsored-member Treasury and agency repo program. It mitigates exposure through security interests in client collateral and transaction rights.

Legal, regulatory and other contingent matters

BNY Mellon considers its existing legal accruals appropriate and not material to its consolidated financial position, but additional accruals could materially affect results in a particular period. For matters with reasonably possible losses that can be estimated, aggregate exposure is up to $700M in excess of related accrued liabilities, if any; some matters cannot currently be estimated. The company considers material payments under described indemnifications and insolvency of clearing and settlement exchanges remote. Potential exchange loss-allocation assessments cannot be quantified before an event, and no material liabilities were recorded for those arrangements.

In Postalis-related Brazilian proceedings, a 2021 TCU decision found DTVM and former Postalis directors jointly and severally liable for approximately $50M and imposed an approximately $2M fine. An injunction obtained in 2022 suspended that decision while an annulment action proceeds. Separately, a 2022 judgment against DTVM and an affiliate was reduced on appeal to approximately $2M; another 2022 judgment imposed approximately $20M of joint and several liability and was appealed. Other Postalis suits allege losses in administered funds, and an arbitration was suspended in 2023 after a court annulled the panel’s jurisdiction ruling; appeals were filed. The Silverado Maximum Fund also alleges that DTVM and other defendants failed to meet their duties, but no amount or resolution was reported.

In German cum/ex tax matters involving historical activity by third-party funds and acquired BNY subsidiaries, BNY received secondary-liability notices totaling approximately $150M at then-prevailing exchange rates. It appealed, is cooperating with information requests and intends to pursue an indemnity from the sellers of the acquired entities as necessary. A German court found the relevant funds’ trading unlawful but said it would refrain from action against the subsidiary to expedite proceedings against unrelated individuals.

In mortgage-securitization litigation, dismissal of one federal action was affirmed in April 2023 while other actions remain pending. A previously dismissed Stanford-related class action against BNY Mellon was reinstated on appeal in December 2022 and returned for further proceedings. BNY is also cooperating with SEC and CFTC inquiries into business communications on unapproved electronic platforms and recordkeeping; Pershing LLC is subject to SEC requests concerning Rule 15c3-3 and other regulations. No findings, penalties or quantified exposures were reported for these inquiries.

Derivative instruments

BNY uses derivatives to manage interest-rate, foreign-exchange (FX), equity-price and credit risks, and to make markets for customers and facilitate customer trades under the Volcker Rule. Notional amounts represent transaction volume, not credit exposure. BNY limits risk through offsetting positions, netting and collateral; it recorded no counterparty-default losses in 2023.

Derivative notionals

The large non-designated FX notional primarily reflects trading and customer activity and should not be interpreted as risk exposure.

Fair value and netting

In 2023, master netting and collateral reduced gross derivative assets by $8.256B and gross liabilities by $7.090B.

Hedging activity and accounting effects

At year-end 2023, interest-rate swaps designated as fair-value hedges had matching notionals covering $30.1B par value of available-for-sale (AFS) securities and $22.7B par value of long-term debt.

Fair-value hedge gains and losses largely offset in the income statement. In 2023, swaps on AFS securities recorded a $631M loss in interest revenue, largely offset by a $629M gain on the hedged items. Debt swaps recorded a $366M gain in interest expense, largely offset by a $365M loss on hedged items. The total pre-tax income-statement effect of fair-value and cash-flow hedging relationships was a $3M loss in 2023, compared with a $4M gain in 2022 and a $13M gain in 2021.

Forward contracts hedging forecasted FX revenue and expenses had $674M notional at year-end 2023 and a $3M pre-tax gain in accumulated other comprehensive income (AOCI); $4M of gains were expected to be reclassified into earnings over the next 12 months. FX forwards designated as net-investment hedges totaled $10.4B notional. The gain (loss) recognized in AOCI was a $285M loss in 2023, versus a $631M gain in 2022 and a $261M gain in 2021. No non-derivative instruments hedged foreign net investments at year-end 2023.

Trading and economic hedging

BNY monitors trading risk using position limits, 99%-confidence, one-day value-at-risk (VaR), stress scenarios and sensitivity analysis. Management cautions that VaR does not capture extraordinary events or all risks from liquidity and correlation breakdowns.

Counterparty and downgrade exposure

The Bank of New York Mellon enters into the substantial majority of BNY’s OTC contracts, concentrating downgrade-trigger exposure at that subsidiary.

Offsetting assets and liabilities

At Dec. 31, 2023, gross assets and liabilities subject to the offsetting disclosures were substantially higher than a year earlier, primarily because of increased reverse repurchase and repurchase agreement activity. After balance-sheet offsetting, recognized net assets and liabilities also increased, while the residual net asset amount declined and the residual net liability amount rose.

Assets subject to offsetting

BNY’s balance-sheet offsetting for reverse repurchase agreements reflects FICC net settlement of government securities through Fedwire. Foreign-exchange contracts accounted for most derivative asset balances.

Liabilities subject to offsetting

Secured borrowings and collateral

Secured borrowings, measured at contract value, totaled $165.174B at Dec. 31, 2023, compared with $72.657B a year earlier. Most were overnight and continuous.

Repo collateral shifted notably toward U.S. Treasuries and Agency RMBS: U.S. Treasuries were $130.238B in 2023 versus $63.788B in 2022, and Agency RMBS were $26.831B versus $1.953B.

Risk and controls

Repo and securities-lending activity primarily exposes BNY to liquidity risk: a decline in the fair value of pledged collateral could require additional collateral, reducing assets available for other liquidity needs. In tri-party repo collateral agency services, BNY also faces credit risk and requires dealers to fully secure intraday credit. No derivatives or financial instruments were subject to legally enforceable netting agreements for which BNY was not currently netting.

Business segments

BNY Mellon reports three principal segments—Securities Services, Market and Wealth Services, and Investment and Wealth Management—plus Other. Segment results use management accounting rather than GAAP; there were no segment reclassifications in 2023. Segment revenue includes specified intersegment services, and net interest revenue is allocated using funds-transfer pricing. Segment income before tax is net of income or loss attributable to noncontrolling interests in consolidated investment-management funds.

Stronger net interest revenue across the three principal segments supported 2023 results. Securities Services and Market and Wealth Services also grew fee revenue. Investment and Wealth Management’s revenue remained below its 2021 level ($4.042B), but its pre-tax income recovered from $48M in 2022; it had been $1.230B in 2021. Other’s revenue loss narrowed, but its pre-tax loss widened as noninterest expense rose to $956M from $278M. Other includes corporate treasury and securities-portfolio activity, derivatives and other trading, leasing, insurance, renewable-energy and other corporate investments, and certain business exits.

Consolidated results

International operations and geographic results

International revenue increased 6.8% in FY 2023, while income before taxes rose 19.2% and net income rose 22.0%. In contrast, period-end international assets declined 4.1% from FY 2022, continuing the decrease from FY 2021. The company cautions that geographic income and expenses depend on subjective allocations, so results by geography are not precisely separable.

UK exposure

UK-domiciled international operations represented approximately $29.1B of assets and $2.4B of revenue in FY 2023—7% of total assets and 14% of total revenue. The comparable FY 2022 amounts were $31.7B and $2.2B (8% and 14%); FY 2021 amounts were $37.9B and $2.4B (9% and 15%). Long-lived assets are primarily located in the U.S. and are not significant relative to total assets.

Other items and subsequent adjustment

Securities that had matured but were not settled totaled $1.840B in FY 2023, versus $385M in FY 2022. Available-for-sale securities transferred to held-to-maturity were $6.067B in FY 2022 and $13.800B in FY 2021.

After the FDIC published new loss estimates in February 2024 for the Silicon Valley Bank and Signature Bank closures, BNY Mellon increased its estimated special-assessment expense by $127M pretax ($97M after tax). The original $505M estimate was recorded in Q4 2023; FY 2023 results include the additional adjustment.

Independent auditor’s report

KPMG issued unqualified opinions that BNY Mellon’s consolidated financial statements for 2023, 2022 and 2021 fairly present its financial position, results of operations and cash flows in accordance with U.S. GAAP, and that internal control over financial reporting was effective as of December 31, 2023. The report identifies three critical audit matters involving significant estimation or valuation judgment; these matters did not modify either opinion.

• Credit-loss allowances: At December 31, 2023, the allowance for loan losses was $303 million, and the allowance for lending-related commitments was $87 million. KPMG identified the quantitative pooled allowance for higher-risk-rated and pass-rated commercial and institutional credits and commercial real estate loans as a critical audit matter. The estimates depend on probability-of-default and loss-given-default models, estimated facility amounts at default, credit-risk ratings, collateral and property-market factors, weighted macroeconomic forecast scenarios, and qualitative adjustments. KPMG emphasized the subjectivity of the models’ assumptions, forecast scenarios and weights, and credit ratings.

• Litigation and regulatory contingencies: Identifying and measuring accruals for litigation and regulatory matters was a critical audit matter because outcomes and potential losses are uncertain and require significant judgment. BNY Mellon disclosed that, at December 31, 2023, aggregate reasonably possible losses for matters it could reasonably estimate were up to $700 million in excess of any related accrued liability. This is a possible-loss exposure, not an accrued amount or a certain loss.

• Investment Management goodwill: Goodwill totaled $16.3 billion at December 31, 2023, including $6.1 billion allocated to the Investment Management reporting unit. KPMG identified valuation of that reporting unit’s goodwill as a critical audit matter because the income-based fair-value estimate is sensitive to the discount rate and long-term growth rate. The report does not state that a goodwill impairment was recorded.

Directors and executive officers

As of February 28, 2024, Joseph J. Echevarria was Board Chair, and Robin Vince was President and Chief Executive Officer and a director. The other directors were Linda Z. Cook, Jeffrey A. Goldstein, M. Amy Gilliland, K. Guru Gowrappan, Ralph Izzo, Sandra E. (Sandie) O’Connor, Elizabeth E. Robinson, and Alfred W. (Al) Zollar. Their disclosed outside experience included energy, financial services, technology, consulting, government contracting, and private equity.

Other listed senior leaders and their responsibilities were:

The filing designated Catherine M. Keating, Jayee Koffey, Senthil Kumar, Kurtis R. Kurimsky, J. Kevin McCarthy, Dermot McDonogh, Roman Regelman, Hanneke Smits, and Robin Vince as executive officers.

Five-year shareholder performance

For the five years ended December 31, 2023, BNY Mellon’s stock performance lagged both comparison indexes. With dividends reinvested, a $100 investment in BNY Mellon common stock grew to $128.40, a 28.4% cumulative return, compared with $176.00 (76.0%) for the S&P 500 Financials Index and $207.20 (107.2%) for the S&P 500 Index. Benchmark returns were market-capitalization weighted.