Bank of New York Mellon Corp (BNY) FY 2022 MD&A

Overview

Established in 1784 by Alexander Hamilton, we were the first company listed on the New York Stock Exchange (NYSE: BK). With a history of more than 235 years, BNY Mellon is a global company dedicated to helping its clients manage and service their financial assets throughout the investment life cycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment and wealth management and investment services in 35 countries.

BNY Mellon has three business segments, Securities Services, Market and Wealth Services and Investment and Wealth Management, which offer a comprehensive set of capabilities and deep expertise across the investment lifecycle, enabling the Company to provide solutions to buy-side and sell-side market participants, as well as leading institutional and wealth management clients globally.

The diagram below presents our three business segments and lines of business, with the remaining operations in the Other segment.

For additional information on our business segments, see “Review of business segments” and Note 24 of the Notes to Consolidated Financial Statements.

Key 2022 events

Alcentra

On Nov. 1, 2022, we completed the sale of BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”). At Oct. 31, 2022, Alcentra had $32 billion in AUM concentrated in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.

Repositioning the securities portfolio

In the fourth quarter of 2022, we took actions to reposition the securities portfolio to improve the trajectory of our net interest revenue. We sold approximately $3 billion of longer-dated lower yielding municipal and corporate bonds. These securities were replaced with significantly higher yielding securities. As a result of the repositioning, we recorded net securities losses of $449 million (pre-tax) in investment and other revenue.

Goodwill impairment

In the third quarter of 2022, we recorded a $680 million impairment of the goodwill associated with the Investment Management reporting unit, which

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was driven by lower market values and a higher discount rate. This goodwill impairment represents a non-cash charge and did not affect BNY Mellon’s liquidity position, tangible common equity or regulatory capital ratios. See “Critical accounting estimates” for additional information.

Leadership succession

In March 2022, Todd Gibbons announced his decision to retire as Chief Executive Officer (“CEO”) and member of the Board of Directors effective Aug. 31, 2022. The Board of Directors appointed Robin Vince to the position of President and CEO after Mr. Gibbons retired. Since 2020, Mr. Vince had served as Vice Chair of BNY Mellon and CEO of Global Market Infrastructure, which includes BNY Mellon’s Pershing, Treasury Services, and Clearance and Collateral Management lines of business, as well as Markets & Execution Services.

Dermot McDonogh joined BNY Mellon on Nov. 1, 2022, and effective Feb. 1, 2023, succeeded Emily Portney as the Chief Financial Officer (“CFO”). Ms. Portney served as the CFO since July 19, 2020, and has assumed a new position leading the Company’s Asset Servicing business.

Summary of financial highlights

We reported net income applicable to common shareholders of $2.4 billion, or $2.90 per diluted common share, in 2022, including the negative impact of notable items. Notable items in 2022 include goodwill impairment in the Investment Management reporting unit, a net loss from repositioning the securities portfolio, severance expense, litigation reserves, the accelerated amortization of deferred costs for depositary receipts services related to Russia and net gains on disposals (reflected in investment and other revenue). Excluding notable items, net income applicable to common shareholders was $3.7 billion (Non-GAAP), or $4.59 (Non-GAAP) per diluted common share, in 2022. In 2021, net income applicable to common shareholders of BNY Mellon was $3.6 billion, or $4.14 per diluted common share, including the negative impact of notable items. Notable items in 2021 include litigation reserves, severance expense and net gains on disposals (reflected in investment and other revenue). Excluding notable items, net income applicable to common shareholders was $3.6

billion (Non-GAAP), or $4.24 (Non-GAAP) per diluted common share, in 2021.

The highlights below are based on 2022 compared with 2021, unless otherwise noted.

•Total revenue increased 3%, or 6% (Non-GAAP) excluding notable items, primarily reflecting:

•Fee revenue was essentially flat primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar and the accelerated amortization of deferred costs for depositary receipts services related to Russia, partially offset by lower money market fee waivers. (See “Fee and other revenue” beginning on page 6.)

•Investment and other revenue decreased, primarily reflecting the net loss from repositioning the securities portfolio. (See “Fee and other revenue” beginning on page 6.)

•Net interest revenue increased 34%, primarily driven by higher interest rates on interest-earning assets, partially offset by higher funding expense. (See “Net interest revenue” beginning on page 9.)

•The provision for credit losses was $39 million compared with a benefit of $231 million. The increase was primarily driven by changes in the macroeconomic environment forecast. (See “Allowance for credit losses” beginning on page 34.)

•Noninterest expense increased 13%, primarily reflecting the goodwill impairment in the Investment Management reporting unit and higher severance expense and litigation reserves. Excluding notable items, noninterest expense increased 5% (Non-GAAP), primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by an approximately 3% favorable impact of a stronger U.S. dollar. (See “Noninterest expense” on page 12.)

•Effective tax rate of 23.1%, or 19.1% excluding notable items (Non-GAAP), primarily goodwill impairment, in 2022. (See “Income taxes” on page 12.)

•Return on common equity (“ROE”) was 6.5% for 2022. Excluding notable items, the adjusted ROE was 10.3% (Non-GAAP) for 2022.

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•Return on tangible common equity (“ROTCE”) was 13.4% (Non-GAAP) for 2022. Excluding notable items, the adjusted ROTCE was 21.0% (Non-GAAP) for 2022.

See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of the Non-GAAP measures.

Metrics

•AUC/A totaled $44.3 trillion at Dec. 31, 2022 compared with $46.7 trillion at Dec. 31, 2021. The 5% decrease primarily reflects lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business. (See “Fee and other revenue” beginning on page 6.)

•AUM totaled $1.8 trillion at Dec. 31, 2022 compared with $2.4 trillion at Dec. 31, 2021. The 25% decrease primarily reflects lower market values, the unfavorable impact of a stronger U.S. dollar and the divestiture of Alcentra, partially offset by net inflows. (See “Investment and Wealth Management business segment” beginning on page 18.)

Capital and liquidity

•Our CET1 ratio calculated under the Advanced Approaches was 11.2% at Dec. 31, 2022 and 11.2% under the Standardized Approach at Dec. 31, 2021. This primarily reflects capital generated through earnings, lower risk-weighted assets (“RWAs”) and the impact of the Alcentra sale, offset by the net decrease in accumulated other comprehensive income and capital

deployed through dividends. (See “Capital” beginning on page 40.)

•Our Tier 1 leverage ratio was 5.8% at Dec. 31, 2022, compared with 5.5% at Dec. 31, 2021. The increase reflects lower average assets, partially offset by a decrease in capital. (See “Capital” beginning on page 40.)

Highlights of our principal business segments

Securities Services

•Total revenue increased 11%.

•Income before taxes increased 13%.

•Pre-tax operating margin of 21%.

Market and Wealth Services

•Total revenue increased 11%.

•Income before taxes increased 10%.

•Pre-tax operating margin of 44%.

Investment and Wealth Management

•Total revenue decreased 12%.

•Income before taxes decreased 96%; or 39% excluding notable items (Non-GAAP).

•Pre-tax operating margin of 1%; adjusted pre-tax operating margin of 24% excluding notable items (Non-GAAP).

See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of the Non-GAAP measures. See “Review of business segments” and Note 24 of the Notes to Consolidated Financial Statements for additional information on our business segments.

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Fee and other revenue

(a)    Excludes seed capital gains (losses) related to consolidated investment management funds.

(b)    Consists of AUC/A primarily from the Asset Servicing line of business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth Management lines of business. Includes the AUC/A of CIBC Mellon of $1.5 trillion at Dec. 31, 2022, $1.7 trillion at Dec. 31, 2021 and $1.5 trillion at Dec. 31, 2020.

(c)    Excludes assets managed outside of the Investment and Wealth Management business segment.

N/M – Not meaningful.

Fee revenue was essentially flat compared with 2021, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar and the accelerated amortization of deferred costs for depositary receipts services related to Russia in the first quarter of 2022, partially offset by lower money market fee waivers.

Investment and other revenue decreased $418 million in 2022 compared with 2021, primarily reflecting the net loss from repositioning the securities portfolio.

Money market fee waivers

In recent years, low short-term interest rates resulted in money market mutual fund fees and other similar fees being waived to protect investors from negative returns. The fee waivers impacted fee revenues in most of our businesses, but also resulted in lower distribution and servicing expense. Money market fee waivers are highly sensitive to changes in short-term interest rates and, due to increases in interest rates in the second half of 2022, have abated.

The following table presents the impact of money market fee waivers on our consolidated fee revenue, net of distribution and servicing expense. In 2022, the net impact of money market fee waivers was $306 million, down from $916 million in 2021, driven by higher interest rates.

(a)    The line of business revenue for management reporting purposes reflects the impact of revenue transferred between the businesses.

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Investment services fees

Investment services fees increased 3% compared with 2021, primarily reflecting lower money market fee waivers and higher client activity, partially offset by the impact of prior year lost business in Pershing and Corporate Trust, the unfavorable impact of a stronger U.S. dollar, lower market values and the accelerated amortization of deferred costs for depositary receipts services related to Russia in the first quarter of 2022.

AUC/A totaled $44.3 trillion at Dec. 31, 2022, a decrease of 5% compared with Dec. 31, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business. AUC/A consisted of 33% equity securities and 67% fixed-income securities at Dec. 31, 2022 and 37% equity securities and 63% fixed-income securities at Dec. 31, 2021.

See “Securities Services business segment” and “Market and Wealth Services business segment” in “Review of business segments” for additional details.

Investment management and performance fees

Investment management and performance fees decreased 8% compared with 2021, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar, the mix of cumulative net inflows, the impact of the Alcentra divestiture and lower equity income, partially offset by lower money market fee waivers. Performance fees were $75 million in 2022 and $107 million in 2021. On a constant currency basis (Non-GAAP), investment management and performance fees decreased 4% compared with 2021. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of Non-GAAP measures.

AUM was $1.8 trillion at Dec. 31, 2022, a decrease of 25% compared with Dec. 31, 2021, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar and the divestiture of Alcentra, partially offset by net inflows.

See “Investment and Wealth Management business segment” in “Review of business segments” for additional details regarding the drivers of investment

management and performance fees, AUM and AUM flows.

Foreign exchange revenue

Foreign exchange revenue is primarily driven by the volume of client transactions and the spread realized on these transactions, both of which are impacted by market volatility, the impact of foreign currency hedging activities and foreign currency remeasurement gain (loss). In 2022, foreign exchange revenue increased 3% compared with 2021, primarily reflecting higher volatility, partially offset by lower volumes. Foreign exchange revenue is primarily reported in the Securities Services business segment and, to a lesser extent, the Market and Wealth Services and Investment and Wealth Management business segments and the Other segment.

Financing-related fees

Financing-related fees, which are primarily reported in the Market and Wealth Services and Securities Services business segments, include capital market fees, loan commitment fees and credit-related fees. Financing-related fees decreased 10% in 2022 compared with 2021, primarily reflecting lower capital market fees, including underwriting fees.

Distribution and servicing fees

Distribution and servicing fees earned from mutual funds are primarily based on average assets in the funds and the sales of funds that we manage or administer, and are primarily reported in the Investment Management business. These fees, which include 12b-1 fees, fluctuate with the overall level of net sales, the relative mix of sales between share classes, the funds’ market values and money market fee waivers.

Distribution and servicing fees were $130 million in 2022 compared with $112 million in 2021, driven by lower money market fee waivers. The impact of distribution and servicing fees on income in any one period is partially offset by distribution and servicing expense paid to other financial intermediaries to cover their costs for distribution and servicing of mutual funds. Distribution and servicing expense is recorded as noninterest expense on the income statement.

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Investment and other revenue

Investment and other revenue includes income or loss from consolidated investment management funds, seed capital gains or losses, other trading revenue or loss, renewable energy investments losses, income from corporate and bank-owned life insurance contracts, other investment gains or losses, gains or losses from disposals, expense reimbursements from our CIBC Mellon joint venture, other income or loss and net securities gains or losses. The income or loss from consolidated investment management funds should be considered together with the net income or loss attributable to noncontrolling interests, which reflects the portion of the consolidated funds for which we do not have an economic interest and is reflected below net income as a separate line item on the consolidated income statement. Other trading revenue or loss primarily includes the impact of market-risk hedging activity related to our seed capital investments in investment management funds, non-foreign currency derivative and fixed income trading, and other hedging activity. Investments in renewable energy generate losses in investment and other revenue that are more than offset by benefits and credits recorded to the provision for income taxes. Other investment gains or losses includes fair value changes of non-readily marketable strategic equity, private equity and other investments. Expense reimbursements from our CIBC Mellon joint venture relate to expenses incurred by BNY Mellon on behalf of the CIBC Mellon joint venture. Other income includes various miscellaneous revenues.

The following table provides the components of investment and other revenue.

(a)    Includes gains (losses) on investments in BNY Mellon funds which hedge deferred incentive awards.

(b)    Includes strategic equity, private equity and other investments.

(c)    Includes a net loss of $449 million related to the repositioning of the securities portfolio.

Investment and other revenue was a loss of $82 million in 2022 compared with revenue of $336 million in 2021. The decrease primarily reflects the net loss from repositioning the securities portfolio.

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Net interest revenue

(a)    Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with industry practice. The adjustment to an FTE basis has no impact on net income.

N/M – Not meaningful.

bps – basis points.

Net interest revenue increased 34% compared with 2021, primarily reflecting higher interest rates on interest-earning assets, partially offset by higher funding expense.

Net interest margin increased 29 basis points compared with 2021. The increase primarily reflects the factors mentioned above.

Average interest-earning assets decreased 6% compared with 2021. The decrease primarily reflects lower interest-bearing deposit assets and lower securities balances, partially offset by higher loan balances.

Average non-U.S. dollar deposits comprised approximately 25% of our average total deposits in 2022 and 2021. Approximately 40% of the average non-U.S. dollar deposits in 2022 and 2021 were euro-denominated.

Net interest revenue in future periods will depend on the level and mix of client deposits and deposit rates, as well as the level and shape of the yield curve. Based on the market implied forward interest rates as of the reporting date, we expect net interest revenue for the year ended Dec. 31, 2023 to increase when compared to the year ended Dec. 31, 2022.

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(a)    Includes the average impact of offsetting under enforceable netting agreements of approximately $43 billion in 2022 and $45 billion in 2021. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 1.77% for 2022 and 0.16% for 2021, and the rate on federal funds purchased and securities sold under repurchase agreements would have been 1.67% for 2022 and (0.01)% for 2021. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.

(b)    Interest income includes fees of $2 million in 2022 and $3 million in 2021. Nonaccrual loans are included in average loans; the associated income, which was recognized on a cash basis, is included in interest income.

(c)    Average rates were calculated on an FTE basis, at tax rates of approximately 21% for both 2022 and 2021.

(d)    See “Net interest revenue” on page 9 for the reconciliation of this Non-GAAP measure.

(e)    Includes the Cayman Islands branch office, which existed through August 2021.

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(a)    Includes the average impact of offsetting under enforceable netting agreements of approximately $57 billion in 2020. On a Non-GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 0.62%, and the rate on federal funds purchased and securities sold under repurchase agreements would have been 0.39% for 2020. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned and paid.

(b)    Interest income includes fees of $6 million in 2020. Nonaccrual loans are included in average loans; the associated income, which was recognized on a cash basis, is included in interest income.

(c)    Average rates were calculated on an FTE basis, at tax rates of approximately 21% in 2020.

(d)    See “Net interest revenue” on page 9 for the reconciliation of this Non-GAAP measure.

(e)    Includes the Cayman Islands branch office.

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Results of Operations (continued)

Noninterest expense

Total noninterest expense increased 13% compared with 2021. The increase primarily reflects goodwill impairment in the Investment Management reporting unit and higher severance expense and litigation reserves. Excluding notable items, noninterest expense increased 5% (Non-GAAP), primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by an approximately 3% favorable impact of a stronger U.S. dollar. The investments in growth, infrastructure and efficiency initiatives are primarily included in staff, software and equipment, and professional, legal and other purchased services expenses. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of the Non-GAAP measure.

We expect noninterest expense for the year ended Dec. 31, 2023 to increase, but at a slower pace when compared with the year ended Dec. 31, 2022; the increase is driven by higher revenue-related expenses and higher investments in growth, infrastructure and efficiency initiatives, as well as the impact of inflation, partially offset by the benefit of efficiency initiatives.

Income taxes

BNY Mellon recorded an income tax provision of $768 million (23.1% effective tax rate) in 2022. Excluding notable items, the income tax provision was $930 million (19.1% effective tax rate) (Non-GAAP) in 2022. The income tax provision was $877 million (18.9% effective tax rate) in 2021. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of the Non-GAAP measure. For additional information, see Note 12 of the Notes to Consolidated Financial Statements.

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Review of business segments

We have an internal information system that produces performance data along product and service lines for our three principal business segments: Securities Services, Market and Wealth Services and Investment and Wealth Management, and the Other segment.

Business segment accounting principles

Our business segment data has been determined on an internal management basis of accounting, rather than the generally accepted accounting principles (“GAAP”) used for consolidated financial reporting. These measurement principles are designed so that reported results of the business will track their economic performance.

For information on the accounting principles of our business segments, the primary products and services in each line of business, the primary types of revenue by line of business and how our business segments are presented and analyzed, see Note 24 of the Notes to Consolidated Financial Statements.

Business segment results are subject to reclassification when organizational changes are made, or for refinements in revenue and expense allocation methodologies. Refinements are typically reflected on a prospective basis. There were no reclassification or organizational changes in 2022.

The results of our business segments may be influenced by client and other activities that vary by quarter. In the first quarter, staff expense typically increases reflecting the vesting of long-term stock awards for retirement-eligible employees. Prior to 2022, in the third quarter, staff expense typically increased reflecting the annual employee merit increase. In 2022, this increase was reflected in the second quarter. In the third quarter, volume-related fees may decline due to reduced client activity. In the fourth quarter, we typically incur higher business

development and marketing expenses; however, 2020 was an exception due to the impact of the coronavirus pandemic. In our Investment and Wealth Management business segment, performance fees are typically higher in the fourth and first quarters, as those quarters represent the end of the measurement period for many of the performance fee-eligible relationships.

The results of our business segments may also be impacted by the translation of financial results denominated in foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. On a consolidated basis and in our Securities Services and Market and Wealth Services business segments, we typically have more foreign currency-denominated expenses than revenues. However, our Investment and Wealth Management business segment typically has more foreign currency-denominated revenues than expenses. Overall, currency fluctuations impact the year-over-year growth rate in the Investment and Wealth Management business segment more than the Securities Services and Market and Wealth Services business segments. However, currency fluctuations, in isolation, are not expected to significantly impact net income on a consolidated basis.

Fee revenue in the Investment and Wealth Management business segment, and to a lesser extent the Securities Services and Market and Wealth Services business segments, is impacted by the global market fluctuations. At Dec. 31, 2022, we estimated that a 5% change in global equity markets, spread evenly throughout the year, would impact fee revenue by less than 1% and diluted earnings per common share by $0.04 to $0.07.

See Note 24 of the Notes to Consolidated Financial Statements for the consolidating schedules which show the contribution of our business segments to our overall profitability.

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Securities Services business segment

(a)    Other fees primarily includes financing-related fees.

(b)    Included in investment services fees reported in the Asset Servicing line of business.

(c)    Consists of AUC/A primarily from the Asset Servicing line of business and, to a lesser extent, the Issuer Services line of business. Includes the AUC/A of CIBC Mellon of $1.5 trillion at Dec. 31, 2022 and $1.7 trillion at Dec. 31, 2021 and $1.5 trillion at Dec. 31, 2020.

(d)    Represents the total amount of securities on loan in our agency securities lending program. Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $68 billion at Dec. 31, 2022, $71 billion at Dec. 31, 2021 and $68 billion at Dec. 31, 2020.

N/M – Not meaningful.

Business segment description

The Securities Services business segment consists of two distinct lines of business, Asset Servicing and Issuer Services, which provide business solutions across the transaction lifecycle to our global asset owner and asset manager clients. We are one of the leading global investment services providers with $31.4 trillion of AUC/A at Dec. 31, 2022. For information on the drivers of the Securities Services

fee revenue, see Note 10 of the Notes to Consolidated Financial Statements.

The Asset Servicing business provides a comprehensive suite of solutions. We are one of the largest global custody and front-to-back outsourcing partners. We offer services for the safekeeping of assets in capital markets globally as well as fund accounting services, exchange-traded funds servicing, transfer agency, trust and depository, front-to-back

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capabilities as well as data and analytics solutions for our clients. We deliver foreign exchange, and securities lending and financing solutions, on both an agency and principal basis. Our agency securities lending program is one of the largest lenders of U.S. and non-U.S. securities, servicing a lendable asset pool of approximately $4.5 trillion in 34 separate markets. Our market-leading liquidity services portal enables cash investments for institutional clients and includes fund research and analytics.

The Issuer Services business includes Corporate Trust and Depositary Receipts. Our Corporate Trust business delivers a full range of issuer and related investor services, including trustee, paying agency, fiduciary, escrow and other financial services. We are a leading provider to the debt capital markets, providing customized and market-driven solutions to investors, bondholders and lenders. Our Depositary Receipts business drives global investing by providing servicing and value-added solutions that enable, facilitate and enhance cross-border trading, clearing, settlement and ownership. We are one of the largest providers of depositary receipts services in the world, partnering with leading companies from more than 50 countries.

Review of financial results

AUC/A of $31.4 trillion decreased 9% compared with Dec. 31, 2021, primarily reflecting lower market values and the unfavorable impact of a stronger U.S. dollar, partially offset by client inflows and net new business.

Total revenue of $8.0 billion increased 11% compared with 2021. The drivers of total revenue by line of business are indicated below.

Asset Servicing revenue of $6.3 billion increased 11% compared with 2021, primarily reflecting higher net interest revenue, lower money market fee waivers and higher client activity, partially offset by the unfavorable impact of a stronger U.S. dollar and lower market values.

Issuer Services revenue of $1.7 billion increased 11% compared with 2021, primarily reflecting higher net interest revenue and lower money market fee waivers, partially offset by the accelerated amortization of deferred costs for depositary receipts services related to Russia.

Market and regulatory trends are driving investable assets toward lower fee asset management products at reduced margins for our clients. These dynamics are also negatively impacting our investment services fees. However, at the same time, these trends are providing additional outsourcing opportunities as clients and other market participants seek to comply with regulations and reduce their operating costs.

Noninterest expense of $6.3 billion increased 8% compared with 2021, primarily reflecting higher investments in growth, infrastructure and efficiency initiatives, as well as the impact of inflation, partially offset by the favorable impact of a stronger U.S. dollar.

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Market and Wealth Services business segment

(a)    Other fees primarily include financing-related fees.

(b)    Consists of AUC/A from the Clearance and Collateral Management and Pershing businesses.

(c)    Net new assets represent net flows of assets (e.g., net cash deposits and net securities transfers, including dividends and interest) in customer accounts in Pershing LLC, a U.S. broker-dealer.

N/M – Not meaningful.

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Business segment description

The Market and Wealth Services business segment consists of three distinct lines of business, Pershing, Treasury Services and Clearance and Collateral Management, which provide business services and technology solutions to entities including financial institutions, corporations, foundations and endowments, public funds and government agencies. For information on the drivers of the Market and Wealth Services fee revenue, see Note 10 of the Notes to Consolidated Financial Statements.

Pershing provides execution, clearing, custody, business and technology solutions, delivering operational support to broker-dealers, wealth managers and registered investment advisors (“RIAs”) globally.

Our Treasury Services business is a leading provider of global payments, liquidity management and trade finance services for financial institutions, corporations and the public sector.

Our Clearance and Collateral Management business clears and settles equity and fixed-income transactions globally and serves as custodian for tri-party repo collateral worldwide. We are the primary provider of U.S. government securities clearance and a provider of non-U.S. government securities clearance. Our collateral services include collateral management, administration and segregation. We offer innovative solutions and industry expertise which help financial institutions and institutional investors with their financing, risk and balance sheet challenges. We are a leading provider of tri-party collateral management

services with an average of $5.3 trillion serviced globally including approximately $4.2 trillion of the U.S. tri-party repo market at Dec. 31, 2022.

Review of financial results

AUC/A of $12.7 trillion increased 8% compared with Dec. 31, 2021, primarily reflecting net client inflows, partially offset by lower market values and the impact of a stronger U.S. Dollar.

Total revenue of $5.3 billion increased 11% compared with 2021. The drivers of total revenue by line of business are indicated below.

Pershing revenue of $2.5 billion increased 10% compared with 2021, primarily reflecting lower money market fee waivers and higher fees on sweep balances, partially offset by the impact of prior year lost business.

Treasury Services revenue of $1.5 billion increased 15% compared with 2021, primarily reflecting higher net interest revenue and lower money market fee waivers.

Clearance and Collateral Management revenue of $1.3 billion increased 11% compared with 2021, primarily reflecting higher net interest revenue and higher U.S. government clearance volumes.

Noninterest expense of $2.9 billion increased 10% compared with 2021, primarily reflecting higher investments in growth, infrastructure and efficiency initiatives and higher revenue-related expenses, as well as the impact of inflation, partially offset by the impact of the stronger U.S. dollar.

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Results of Operations (continued)

Investment and Wealth Management business segment

(a)    On a constant currency basis, investment management and performance fees decreased 5% (Non-GAAP) compared with 2021. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of this Non-GAAP measure.

(b)    Other fees primarily includes investment services fees.

(c)    Investment and other revenue and total fee and other revenue are net of income attributable to noncontrolling interests related to consolidated investment management funds.

(d)    Excluding notable items, income before income taxes decreased 39% (Non-GAAP) compared with 2021. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of this Non-GAAP measure.

(e)    Net of distribution and servicing expense. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of this Non-GAAP measure.

(f)    Excluding notable items and net of distribution and servicing expense, the adjusted pre-tax operating margin was 24% (Non-GAAP) in 2022. See “Supplemental Information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 104 for the reconciliation of this Non-GAAP measure.

N/M – Not meaningful.

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(a)    Excludes assets managed outside of the Investment and Wealth Management business segment.

(b)    Includes AUM and AUC/A in the Wealth Management line of business.

Business segment description

Our Investment and Wealth Management business segment consists of two distinct lines of business, Investment Management and Wealth Management, which have a combined AUM of $1.8 trillion as of Dec. 31, 2022.

BNY Mellon Investment Management is a leading global asset manager and consists of our seven specialist investment firms and global distribution network to deliver a highly diversified portfolio of investment strategies to institutional and retail clients globally.

Our Investment Management model provides specialized expertise from seven respected investment firms offering solutions across every major asset class, with backing from the proven stewardship and

global presence of BNY Mellon. Each investment firm has its own individual culture, investment philosophy and proprietary investment process. This approach brings our clients clear, independent thinking from highly experienced investment professionals.

The investment firms offer a broad range of actively managed equity, fixed income, alternative and liability-driven investments, along with passive products and cash management. Our six majority-owned investment firms are as follows: ARX, Dreyfus, Insight Investment, Mellon, Newton Investment Management and Walter Scott. BNY Mellon owns a non-controlling interest in Siguler Guff.

In November 2022, BNY Mellon sold Alcentra. As part of the sale agreement, Investment Management will continue to offer Alcentra’s capabilities in BNY Mellon’s sub-advised funds and in select regions via its global distribution platform. BNY Mellon will continue to provide Alcentra with ongoing asset servicing support.

In addition to its investment firms, Investment Management has multiple global distribution entities, which are responsible for distributing the investment solutions developed and managed by the investment firms, as well as responsibility for management and distribution of our U.S. mutual funds and certain offshore money market funds.

BNY Mellon Wealth Management provides investment management, custody, wealth and estate planning, private banking services, investment servicing and information management. BNY Mellon Wealth Management has $269 billion in client assets as of Dec. 31, 2022, and more than 30 offices in the U.S. and internationally.

Wealth Management clients include individuals, families and institutions. Institutions include family offices, charitable gift programs and endowments and foundations. We work with clients to build, manage and sustain wealth across generations and market cycles.

The wealth business differentiates itself with a comprehensive wealth management framework called Active Wealth that seeks to empower clients to build and sustain long-term wealth.

BNY Mellon 19

Results of Operations (continued)

The results of the Investment and Wealth Management business segment are driven by a blend of daily, monthly and quarterly averages of AUM by product type. The overall level of AUM for a given period is determined by:

•the beginning level of AUM;

•the net flows of new assets during the period resulting from new business wins and existing client inflows, reduced by the loss of clients and existing client outflows; and

•the impact of market price appreciation or depreciation, foreign exchange rates and investment firm acquisitions or divestitures.

The mix of AUM is a result of the historical growth rates of equity and fixed income markets and the cumulative net flows of our investment firms as a result of client asset allocation decisions. Actively managed equity, multi-asset and alternative assets typically generate higher percentage fees than fixed-income and liability-driven investments and cash. Also, actively managed assets typically generate higher management fees than indexed or passively managed assets of the same type. Market and regulatory trends have resulted in increased demand for lower fee asset management products and for performance-based fees.

Investment management fees are dependent on the overall level and mix of AUM and the management fees expressed in basis points (one-hundredth of one percent) charged for managing those assets. Management fees are typically subject to fee schedules based on the overall level of assets managed for a single client or by individual asset class and style. This is most common for institutional clients where we typically manage substantial assets for individual accounts.

Performance fees are generally calculated as a percentage of a portfolio’s performance in excess of a benchmark index or a peer group’s performance.

A key driver of organic growth in investment management and performance fees is the amount of net new AUM flows. Overall market conditions are also key drivers, with a significant long-term economic driver being growth of global financial assets.

Net interest revenue is determined by loan and deposit volumes and the interest rate spread between customer rates and internal funds transfer rates on loans and deposits. Expenses in the Investment and Wealth Management business segment are mainly driven by staff and distribution and servicing expenses.

Review of financial results

AUM of $1.8 trillion decreased 25% compared with Dec. 31, 2021, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar and the divestiture of Alcentra, partially offset by net inflows.

Net long-term strategy inflows were $30 billion in 2022, driven by inflows of liability-driven investments, partially offset by outflows of fixed income, equity and multi-asset and alternative investments. Short-term strategy outflows were $12 billion in 2022.

Total revenue of $3.6 billion decreased 12% compared with 2021. The drivers of total revenue by line of business are indicated below.

Investment Management revenue of $2.4 billion decreased 16% compared with 2021, primarily reflecting lower market values, the unfavorable impact of a stronger U.S. dollar, the mix of cumulative net inflows, lower seed capital results and the impact of the Alcentra divestiture, partially offset by lower money market fee waivers.

Wealth Management revenue of $1.2 billion decreased 4% compared with 2021, primarily reflecting lower market values, partially offset by higher net interest revenue.

Revenue generated in the Investment and Wealth Management business segment included 35% from non-U.S. sources in 2022, compared with 38% in 2021.

Noninterest expense of $3.5 billion increased 24% compared with 2021, primarily reflecting goodwill impairment in the Investment Management reporting unit and investments in growth initiatives, partially offset by the favorable impact of a strong U.S. dollar.

20 BNY Mellon

Results of Operations (continued)

Other segment

Segment description

The Other segment primarily includes:

•the leasing portfolio;

•corporate treasury activities, including our securities portfolio;

•derivatives and other trading activity;

•corporate and bank-owned life insurance;

•renewable energy and other corporate investments; and

•certain business exits.

Revenue primarily reflects:

•net interest revenue (expense) and lease-related gains (losses) from leasing operations;

•net interest revenue (expense) and derivatives and other corporate treasury activities;

•other revenue from certain business exits;

•investment and other revenue from corporate and bank-owned life insurance, gains (losses) associated with investment securities and other assets, including renewable energy; and

•fee revenue from the elimination of the results of certain services provided between segments, which are also provided to third parties.

Expenses include:

•direct expenses supporting leasing, investing and funding activities; and

•expenses not directly attributable to Securities Services, Market and Wealth Services and Investment and Wealth Management operations.

Review of financial results

Loss before taxes was $775 million in 2022 compared with $252 million in 2021.

Investment and other revenue decreased $388 million compared with 2021, primarily reflecting a $449 million net loss from repositioning the securities portfolio, partially offset by an impairment for a renewable energy investment recorded in 2021.

Noninterest expense increased $117 million compared with 2021, primarily reflecting higher severance expense.

International operations

Our primary international activities consist of asset servicing in our Securities Services business segment, global payment services in our Market and Wealth Services business segment and investment management in our Investment and Wealth Management business segment.

Our clients include central banks and sovereigns, financial institutions, asset managers, insurance companies, corporations, local authorities and high-net-worth individuals and family offices. Through our global network of offices, we have developed a deep understanding of local requirements and cultural needs, and we pride ourselves on providing dedicated service through our multilingual sales, marketing and client service teams.

At Dec. 31, 2022, approximately 50% of our total employees (full-time and part-time employees) were based outside the U.S., with approximately 10,600 employees in EMEA, approximately 16,100 employees in APAC and approximately 900 employees in other global locations, primarily Brazil.

We are a leading global asset manager. Our international operations managed 53% of BNY

BNY Mellon 21

Results of Operations (continued)

Mellon’s AUM at Dec. 31, 2022 and 60% at Dec. 31, 2021.

In Europe, we maintain capabilities to service Undertakings for Collective Investment in Transferable Securities and alternative investment funds. We offer a full range of tailored solutions for investment companies, financial institutions and institutional investors across most European markets.

We are a provider of non-U.S. government securities, fixed income and equities clearance, settling securities transactions directly in European markets, and using a high-quality and established network of local agents in non-European markets.

We have extensive experience providing trade and cash services to financial institutions and central banks outside of the U.S. In addition, we offer a broad range of servicing and fiduciary products to financial institutions, corporations and central banks. In emerging markets, we lead with custody, global payments and issuer services, introducing other products as the markets mature. For more established markets, our focus is on global investment services.

We are also a full-service global provider of foreign exchange services, actively trading in over 100 of the world’s currencies. We serve clients from trading desks located in Europe, Asia and North America.

Our financial results, as well as our levels of AUC/A and AUM, are impacted by translation from foreign currencies to the U.S. dollar. We are primarily impacted by activities denominated in the British pound and the euro. If the U.S. dollar depreciates against these currencies, the translation impact is a higher level of fee revenue, net interest revenue, noninterest expense and AUC/A and AUM. Conversely, if the U.S. dollar appreciates, the translated levels of fee revenue, net interest revenue, noninterest expense and AUC/A and AUM will be lower.

International clients accounted for 36% of revenues in 2022, compared with 38% in 2021. Net income from international operations was $1.7 billion in 2022, compared with $1.8 billion in 2021.

In 2022, revenues from EMEA were $4.0 billion, compared with $4.1 billion in 2021. The 4% decrease primarily reflects lower revenue in the Investment and Wealth Management business segment, partially offset by higher revenue in the Securities Services business segment. The decrease in revenue in the Investment and Wealth Management business segment primarily reflects the unfavorable impact of a stronger U.S. dollar and lower market values. The increase in revenue in the Securities Services business segment primarily reflects higher net interest revenue, partially offset by the unfavorable impact of a stronger U.S. dollar.

The Securities Services, Investment and Wealth Management and Market and Wealth Services business segments generated 55%, 25% and 20% of EMEA revenues, respectively. Net income from EMEA was $880 million in 2022, compared with $1.0 billion in 2021.

Revenues from APAC were $1.13 billion in 2022, compared with $1.14 billion in 2021. The 1% decrease primarily reflects lower revenue in the Investment and Wealth Management business segment, partially offset by higher revenue in the Securities Services business segment. The decrease in Investment and Wealth Management revenue was primarily driven by the unfavorable impact of a stronger U.S. dollar and lower market values.

The Securities Services, Market and Wealth Services and Investment and Wealth Management business segments generated 54%, 32% and 14% of APAC revenues, respectively. Net income from APAC was $432 million in 2022, compared with $445 million in 2021.

For additional information regarding our international operations, including certain key subjective assumptions used in determining the results, see Note 25 of the Notes to Consolidated Financial Statements.

22 BNY Mellon

Results of Operations (continued)

Country risk exposure

The following table presents BNY Mellon’s top 10 exposures by country (excluding the U.S.) as of Dec. 31, 2022, as well as certain countries with higher-risk profiles, and is presented on an internal risk management basis. We monitor our exposure to these and other countries as part of our internal country risk management process.

The country risk exposure below reflects the Company’s risk to an immediate default of the counterparty or obligor based on the country of residence of the entity which incurs the liability. If there is credit risk mitigation, the country of residence of the entity providing the risk mitigation is the country of risk. The country of risk for securities is generally based on the domicile of the issuer of the security.

(a)    Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.

(b)    Securities include both the available-for-sale and held-to-maturity portfolios.

(c)    Other exposure includes over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.

(d)    The top 10 country exposure comprises approximately 70% of our total non-U.S. exposure.

(e)    Represents cash balances with exposure to Russia.

Events in recent years have resulted in increased focus on Brazil. The country risk exposure to Brazil is primarily short-term trade finance loans extended to large financial institutions. We also have operations in Brazil providing investment services and investment management services.

The war in Ukraine has increased our focus on Russia. The country risk exposure to Russia consists of cash balances related to our securities services businesses and may increase in the future to the extent cash is received for the benefit of our clients that is subject to distribution restrictions. BNY Mellon has ceased new banking business in Russia and suspended investment management purchases of Russian securities. At Dec. 31, 2022, less than 0.1% of our AUC/A and less than 0.01% of our AUM consisted of Russian securities. We will continue to work with multinational clients that depend on our custody and record keeping services to manage their exposures.

Critical accounting estimates

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements. Certain of these policies include critical accounting estimates which require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting estimates are those related to the allowance for credit losses, goodwill and other intangibles and litigation and regulatory contingencies. Management has discussed the development and selection of the critical accounting estimates with the Company’s Audit Committee.

Allowance for credit losses

The allowance for credit losses covers financial assets subject to credit losses and measured at amortized cost, including loans and lending-related

BNY Mellon 23

Results of Operations (continued)

commitments, held-to-maturity securities, certain securities financing transactions and deposits with banks. The allowance for credit losses is intended to adjust the carrying value of these assets by an estimated amount of credit losses that we expect to incur over the life of the asset. Similarly, the allowance for credit losses on lending-related commitments and other off-balance sheet financial instruments is meant to capture the credit losses that we expect to recognize in these portfolios as of the balance sheet date.

A quantitative methodology and qualitative framework is used to estimate the allowance for credit losses.

The quantitative component of our estimate uses models and methodologies that categorize financial assets based on product type, collateral type, and other credit trends and risk characteristics, including relevant information about past events, current conditions and reasonable and supportable forecasts of future economic conditions that affect the collectability of the recorded amounts. For the quantitative component, we segment portfolios into various major components including commercial loans and lease financing, commercial real estate, financial institutions, residential mortgages, and other. The segmentation of our debt securities portfolios is by major asset class and is influenced by whether the security is structured or non-structured (i.e., direct obligation), as well as the issuer type. The components of the credit loss calculation for each major portfolio or asset class include a probability of default, loss given default and exposure at default, as applicable, and their values depend on the forecast behavior of variables in the macroeconomic environment. We utilize a multi-scenario macroeconomic forecast which includes a weighting of three scenarios: a baseline and upside and downside scenarios and allows us to develop our estimate using a wide span of economic variables. Our baseline scenario reflects a view on likely performance of each global region and the other two scenarios are designed relative to the baseline scenario. This approach incorporates a reasonable and supportable forecast period spanning the life of the asset, and includes both an initial estimated economic outlook component as well as a reversion component for each economic input variable. The length of each of the two components depends on the underlying financial instrument, scenario, and underlying economic input variable. In general, the

initial economic outlook period for each economic input variable under each scenario ranges between several months and two years. The speed at which the scenario-specific forecasts revert to long-term historical mean is based on observed historical patterns of mean reversion at the economic variable input level that are reflected in our model parameter estimates. Certain macroeconomic variables such as unemployment or home prices take longer to revert after a contraction, though specific recovery times are scenario-specific. Reversion will usually take longer the further away the scenario-specific forecast is from the historical mean. On a quarterly basis, and within a developed governance structure, we update these scenarios for current economic conditions and may adjust the scenario weighting based on our economic outlook. The Company uses its best judgment to assess these economic conditions and loss data in estimating the allowance for credit losses and these estimates are subject to periodic refinement based on changes to underlying external or Company-specific historical data.

In the quantitative component of our estimate, we measure expected credit losses using an individual evaluation method if the risk characteristics of the asset is no longer consistent with the portfolio or class of asset. For these assets we do not employ the macroeconomic model calculation but consider factors such as payment status, collateral value, the obligor’s financial condition, guarantor support, the probability of collecting scheduled principal and interest payments when due, and recovery expectations if they can be reasonably estimated. For loans, we measure the expected credit loss as the difference between the amortized cost basis of the loan and the present value of the expected future cash flows from the borrower which is generally discounted at the loan’s effective interest rate, or the fair value of the collateral, if the loan is collateral dependent. We generally consider nonperforming loans as well as loans that have been or are anticipated to be modified and classified under a troubled debt restructuring for individual evaluation given the risk characteristics of such loans.

Available-for-sale debt securities are recorded at fair value. When an available-for-sale debt security is in an unrealized loss position, we employ a methodology to identify and estimate the credit loss portion of the unrealized loss position. The measurement of expected credit losses is performed at the security level and is based on our best single

24 BNY Mellon

Results of Operations (continued)

estimate of cash flows, on a discounted basis; however, we do not specifically employ the macroeconomic forecasting models and scenarios summarized above.

The qualitative component of our estimate for the allowance for credit losses is intended to capture expected losses that may not have been fully captured in the quantitative component. Through an established governance structure, management determines the qualitative allowance each period based on an evaluation of various internal and environmental factors which include: scenario weighting and sensitivity risk, credit concentration risk, economic conditions and other considerations. We have made and may continue to make adjustments for idiosyncratic risks.

To the extent actual results differ from forecasts or management’s judgment, the allowance for credit losses may be greater or less than future charge-offs and recoveries.

Our allowance for credit losses is sensitive to a number of inputs, most notably the credit ratings assigned to each borrower as well as macroeconomic forecast assumptions that are incorporated in our estimate of credit losses through the expected life of the loan portfolio. Thus, as the macroeconomic environment and related forecasts change, the allowance for credit losses may change materially. The following sensitivity analyses do not represent management’s expectations of the deterioration of our portfolios or the economic environment, but are provided as hypothetical scenarios to assess the sensitivity of the allowance for credit losses to changes in key inputs. If commercial real estate property values were increased 10% and all other credits were rated one grade better, the quantitative allowance would have decreased by $36 million, and if commercial real estate property values were decreased 10% and all other credits were rated one grade worse, the quantitative allowance would have increased by $71 million. Our multi-scenario based macroeconomic forecast used in determining the Dec. 31, 2022 allowance for credit losses consisted of three scenarios. The baseline scenario reflects slowing GDP growth through mid-2023, slightly rising unemployment through the end of 2023, and slightly declining commercial real estate prices through the end of 2023. The upside scenario reflects strong GDP growth in early 2023, declining unemployment and higher commercial real estate prices compared

with the baseline. The downside scenario contemplates negative GDP growth through the third quarter of 2023, increasing unemployment through the first quarter of 2024 and lower commercial real estate prices than the baseline. At Dec. 31, 2022, we placed the most weighting on our baseline and downside scenarios, with the remaining weighting placed on the upside scenario. From a sensitivity perspective, at Dec. 31, 2022, if we had applied 100% weighting to the downside scenario, the quantitative allowance for credit losses would have been approximately $83 million higher.

Goodwill and other intangibles

We initially record all assets and liabilities acquired in purchase acquisitions, including goodwill, indefinite-lived intangibles and other intangibles, in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Goodwill, indefinite-lived intangibles and other intangibles are subsequently accounted for in accordance with ASC 350, Intangibles – Goodwill and Other. The initial measurement of goodwill and intangibles requires judgment concerning estimates of the fair value of the acquired assets and liabilities. Goodwill ($16.2 billion at Dec. 31, 2022) and indefinite-lived intangible assets ($2.6 billion at Dec. 31, 2022) are not amortized but are subject to tests for impairment annually or more often if events or circumstances indicate it is more likely than not they may be impaired. Other intangible assets are amortized over their estimated useful lives and are subject to impairment if events or circumstances indicate a possible inability to realize the carrying value.

Goodwill

BNY Mellon’s business segments include six reporting units for which annual goodwill impairment testing is performed in accordance with ASC 350, Intangibles – Goodwill and Other.

The goodwill impairment test compares the estimated fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. However, if the carrying amount of the reporting unit were to exceed its estimated fair value, an impairment loss would be recorded.

BNY Mellon 25

Results of Operations (continued)

Determining the fair value of a reporting unit is subject to uncertainty as it is reliant on estimates of cash flows that extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame. In the future, changes in the assumptions or the discount rate could produce a material non-cash goodwill impairment.

In the second quarter of 2022, we performed our annual goodwill impairment test on all six reporting units using an income approach to estimate the fair values of each reporting unit. Estimated cash flows used in the income approach were based on management’s projections as of April 1, 2022. The discount rate applied to these cash flows was 10%.

As a result of the annual goodwill impairment test of the six reporting units, no goodwill impairment was recognized. The fair values of four of the Company’s reporting units were substantially in excess of the respective reporting units’ carrying value. The Issuer Services reporting unit, with $2.4 billion of allocated goodwill, which is one of the two reporting units in the Securities Services business segment, exceeded its carrying value by approximately 10%. The Investment Management reporting unit, with $7.2 billion of allocated goodwill, which is one of the two reporting units in the Investment and Wealth Management segment, exceeded its carrying value by approximately 6%.

An interim test is performed when events or circumstances occur that may indicate that it is more likely than not that the fair value of any reporting unit may be less than its carrying value.

In the third quarter 2022, due to decreases in market values and the related outlook as well as increased market interest rates, we performed an interim goodwill impairment test of the Investment Management reporting unit which had $7.0 billion of allocated goodwill. The fair value of the Investment Management reporting unit was determined to be 7% below its carrying value, resulting in a goodwill impairment charge of $680 million. This goodwill impairment represents a non-cash charge and did not affect BNY Mellon’s liquidity position, tangible common equity or regulatory capital ratios. The cash flow estimates for the Investment Management reporting unit are impacted by projections of the level and mix of assets under management, market values, operating margins and long-term growth rates.

We determined the fair value of the Investment Management reporting unit using an income approach based on management’s projections as of Sept. 30, 2022. The discount rate applied to these cash flows was 10.5% compared with the 10% discount rate used in the annual impairment test conducted in the second quarter of 2022. The increase was driven by a higher risk free rate. In the third quarter of 2022, we determined it was not necessary to perform an interim goodwill impairment test for our other reporting units.

In the fourth quarter of 2022, due to results of the third quarter 2022 interim impairment test and the macroeconomic conditions, we performed an additional interim goodwill impairment test of the Investment Management reporting unit, which had $6.0 billion of allocated goodwill after the sale of Alcentra on Nov. 1, 2022. The fair value of the Investment Management reporting unit exceeded its carrying value by approximately 3%. We determined the fair value of the Investment Management reporting unit using an income approach based on management’s projections as of Dec. 31, 2022. The discount rate applied to these cash flows was 10.5%.

As of Dec. 31, 2022, if the discount rate applied to the estimated cash flows was increased or decreased by 25 basis points, the fair value of the Investment Management reporting unit would decrease or increase by 4%, respectively. Similarly, if the long-term growth rate was increased or decreased by 10 basis points, the fair value of the Investment Management reporting unit would increase or decrease by approximately 1%, respectively.

Intangible assets

Key judgments in accounting for intangible assets include useful life and classification between goodwill and indefinite-lived intangible assets or other intangible assets requiring amortization.

Indefinite-lived intangible assets ($2.6 billion at Dec. 31, 2022) are evaluated for impairment at least annually by comparing their fair values, estimated using discounted cash flow analyses, to their carrying values. As a result of the annual evaluation, no impairment was recognized, however, a $700 million indefinite-lived intangible asset related to customer relationships in the Investment Management business exceeded its carrying value by approximately 3%.

26 BNY Mellon

Results of Operations (continued)

Other amortizing intangible assets ($329 million at Dec. 31, 2022) are evaluated for impairment if events and circumstances indicate a possible impairment. Such evaluation of other intangible assets would be initially based on undiscounted cash flow projections.

See Notes 1 and 7 of the Notes to Consolidated Financial Statements for additional information regarding goodwill, intangible assets and the annual and interim impairment testing.

Litigation and regulatory contingencies

Significant estimates and judgments are required in establishing an accrued liability for litigation and regulatory contingencies. For additional information on our policy, see “Legal proceedings” in Note 22 of the Notes to Consolidated Financial Statements.

Consolidated balance sheet review

One of our key risk management objectives is to maintain a balance sheet that remains strong throughout market cycles to meet the expectations of our major stakeholders, including our shareholders, clients, creditors and regulators.

We also seek to undertake overall liquidity risk, including intraday liquidity risk, that stays within our risk appetite. The objective of our balance sheet management strategy is to maintain a balance sheet that is characterized by strong liquidity and asset quality, ready access to external funding sources at competitive rates and a strong capital structure that supports our risk-taking activities and is adequate to absorb potential losses. In managing the balance sheet, appropriate consideration is given to balancing the competing needs of maintaining sufficient levels of liquidity and complying with applicable regulations and supervisory expectations while optimizing profitability.

At Dec. 31, 2022, total assets were $406 billion, compared with $444 billion at Dec. 31, 2021. The decrease in total assets was primarily driven by lower securities and interest-bearing deposits with the Federal Reserve and other central banks, partially offset by higher other assets. Deposit liabilities totaled $279 billion at Dec. 31, 2022, compared with $320 billion at Dec. 31, 2021. The decrease primarily reflects lower noninterest-bearing (principally U.S.

offices), interest-bearing deposits in U.S. offices and interest-bearing deposits in Non-U.S. offices. Total interest-bearing deposit liabilities as a percentage of total interest-earning assets were 58% at Dec. 31, 2022 and 60% at Dec. 31, 2021.

At Dec. 31, 2022, available funds totaled $138 billion and includes cash and due from banks, interest-bearing deposits with the Federal Reserve and other central banks, interest-bearing deposits with banks and federal funds sold and securities purchased under resale agreements. This compares with available funds of $155 billion at Dec. 31, 2021. Total available funds as a percentage of total assets were 34% at Dec. 31, 2022 and 35% at Dec. 31, 2021. For additional information on our available funds, see “Liquidity and dividends.”

Securities were $143 billion, or 35% of total assets, at Dec. 31, 2022, compared with $159 billion, or 36% of total assets, at Dec. 31, 2021. The decrease primarily reflects unrealized pre-tax losses and lower agency residential mortgage-backed securities (“RMBS”), partially offset by higher U.S. Treasury securities. For additional information on our securities portfolio, see “Securities” and Note 4 of the Notes to Consolidated Financial Statements.

Loans were $66 billion, or 16% of total assets, at Dec. 31, 2022, compared with $68 billion, or 15% of total assets, at Dec. 31, 2021. The decrease was primarily driven by lower margin loans, partially offset by higher overdrafts, capital call financing and wealth management mortgages. For additional information on our loan portfolio, see “Loans” and Note 5 of the Notes to Consolidated Financial Statements.

Long-term debt totaled $30 billion at Dec. 31, 2022 and $26 billion at Dec. 31, 2021. Issuances were partially offset by redemptions and maturities and a decrease in the fair value of hedged long-term debt. For additional information on long-term debt, see “Liquidity and dividends” and Note 13 of the Notes to Consolidated Financial Statements.

The Bank of New York Mellon Corporation total shareholders’ equity decreased to $41 billion at Dec. 31, 2022 from $43 billion at Dec. 31, 2021. For additional information, see “Capital” and Note 15 of the Notes to Consolidated Financial Statements.

BNY Mellon 27

Results of Operations (continued)

Securities

In the discussion of our securities portfolio, we have included certain credit ratings information because the information can indicate the degree of credit risk

to which we are exposed. Significant changes in ratings classifications could indicate increased credit risk for us and could be accompanied by an increase in the allowance for credit losses and/or a reduction in the fair value of our securities portfolio.

The following table shows the distribution of our total securities portfolio.

(a)    Amortized cost reflects historical impairments, and is net of the allowance for credit losses.

(b)    Includes the impact of hedges.

(c)    Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.

(d)    Primarily consists of exposure to Germany, United Kingdom, France, Singapore, Canada and Italy.

(e)    Primarily consists of exposure to Canada, United Kingdom, Australia, Germany and Norway.

(f)    Primarily consists of exposure to Canada, Norway, Netherlands, Sweden, France and Denmark.

(g)    Includes net unrealized losses on derivatives hedging securities available-for-sale (including terminated hedges) of $590 million at Dec. 31, 2021 and net unrealized gain (including terminated hedges) of $2,678 million at Dec. 31, 2022.

(h)    At Dec. 31, 2022, net unrealized losses of $3,184 million related to available-for-sale securities, net of hedges, and $6,202 related to held-to-maturity securities.

The fair value of our securities portfolio, including related hedges, was $139.3 billion at Dec. 31, 2022, compared with $158.0 billion at Dec. 31, 2021. The decrease primarily reflects unrealized pre-tax losses and lower agency RMBS, partially offset by an increase in U.S. Treasury securities.

At Dec. 31, 2022, the securities portfolio had a net unrealized loss, including the impact of related hedges, of $9.4 billion, compared with a net unrealized gain, including the impact of related hedges, of $384 million at Dec. 31, 2021. The increase in the net unrealized loss, including the impact of hedges, was primarily driven by higher market interest rates.

The fair value of the available-for-sale securities totaled $89.3 billion at Dec. 31, 2022, net of hedges, or 64% of the securities portfolio, net of hedges. The fair value of the held-to-maturity securities totaled $50.0 billion at Dec. 31, 2022, or 36% of the securities portfolio.

The unrealized loss (after-tax) on our available-for-sale securities portfolio, net of hedges, included in accumulated other comprehensive income was $2.4 billion at Dec. 31, 2022, compared with an unrealized gain (after-tax), net of hedges, of $362 million at Dec. 31, 2021. The increase in the unrealized loss, net of tax, was primarily driven by higher market interest rates.

28 BNY Mellon

Results of Operations (continued)

At Dec. 31, 2022, 99% of the securities in our portfolio were rated AAA/AA-, compared with 96% at Dec. 31, 2021.

See Note 4 of the Notes to Consolidated Financial Statements for the pre-tax net securities gains (losses) by security type. See Note 20 of the Notes to Consolidated Financial Statements for securities by level in the fair value hierarchy.

The following table presents the amortizable purchase premium (net of discount) related to the securities portfolio and accretable discount related to the 2009 restructuring of the securities portfolio.

(a)    Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both are recorded on a level yield basis.

Equity investments

We have several equity investments recorded in other assets. These include equity method investments, including renewable energy, investments in qualified affordable housing projects, Federal Reserve Bank stock, seed capital and other investments. The following table presents the carrying values at Dec. 31, 2022 and Dec. 31, 2021.

(a)    Includes strategic equity, private equity and other investments.

(b)    Includes investments in BNY Mellon funds which hedge deferred incentive awards.

For additional information on the fair value of certain seed capital investments and our private equity investments, see Note 8 of the Notes to Consolidated Financial Statements.

Renewable energy investments

We invest in renewable energy projects to receive an expected after-tax return, which consists of allocated renewable energy tax credits, tax deductions and cash distributions based on the operations of the project. The pre-tax losses on these investments are recorded in investment and other revenue on the consolidated income statement. The corresponding tax benefits and credits are recorded to the provision for income taxes on the consolidated income statement.

BNY Mellon 29

Results of Operations (continued)

Loans

At Dec. 31, 2022, total lending-related exposure was $117.7 billion, an increase of 1% compared with Dec. 31, 2021, primarily reflecting higher exposure in the capital call financing portfolio, higher overdrafts and higher exposure to the commercial real estate, wealth management loans, wealth management mortgages and financial institutions portfolios, partially offset by lower margin loans.

Our financial institutions and commercial portfolios comprise our largest concentrated risk. These portfolios comprised 47% of our total exposure at both Dec. 31, 2022 and Dec. 31, 2021. Additionally, most of our overdrafts relate to financial institutions.

Financial institutions

The financial institutions portfolio is shown below.

The financial institutions portfolio exposure was $41.4 billion at Dec. 31, 2022, an increase of 1% compared with Dec. 31, 2021, primarily reflecting higher exposure in the asset managers, banks and insurance portfolios, partially offset by lower exposure in the other portfolio.

Financial institution exposures are high-quality, with 95% of the exposures meeting the investment grade equivalent criteria of our internal credit rating classification at Dec. 31, 2022. Each customer is assigned an internal credit rating, which is mapped to

an equivalent external rating agency grade based upon a number of dimensions, which are continually evaluated and may change over time. For ratings of non-U.S. counterparties, our internal credit rating is generally capped at a rating equivalent to the sovereign rating of the country where the counterparty resides, regardless of the internal credit rating assigned to the counterparty or the underlying collateral.

The exposure to financial institutions is generally short-term, with 85% of the exposures expiring

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within one year. At Dec. 31, 2022 and Dec. 31, 2021, 17% of the exposure to financial institutions had an expiration within 90 days.

In addition, 64% of the financial institutions exposure is secured at Dec. 31, 2022. For example, securities industry clients and asset managers often borrow against marketable securities held in custody.

At Dec. 31, 2022, the secured intraday credit provided to dealers in connection with their tri-party repo activity totaled $16.1 billion and was included in the securities industry portfolio. Dealers secure the outstanding intraday credit with high-quality liquid collateral having a market value in excess of the amount of the outstanding credit. Secured intraday credit facilities represent approximately 39% of the

exposure in the financial institutions portfolio and are reviewed and reapproved annually.

The asset managers portfolio exposure is high-quality, with 98% of the exposures meeting our investment grade equivalent ratings criteria as of Dec. 31, 2022. These exposures are generally short-term liquidity facilities, with the majority to regulated mutual funds.

Our banks portfolio exposure primarily relates to our global trade finance. These exposures are short-term in nature, with 97% due in less than one year. The investment grade percentage of our banks exposure was 86% at Dec. 31, 2022, compared with 88% at Dec. 31, 2021. Our non-investment grade exposures are primarily trade finance loans in Brazil.

Commercial

The commercial portfolio is presented below.

The commercial portfolio exposure was $13.4 billion at Dec. 31, 2022, a decrease of 4% from Dec. 31, 2021, primarily driven by lower exposure in the energy and utilities, media and telecom and services and other portfolios.

Our credit strategy is to focus on investment grade clients that are active users of our non-credit services. The following table summarizes the percentage of the financial institutions and commercial portfolio exposures that are investment grade.

Wealth management loans

Our wealth management loan exposure was $10.9 billion at Dec. 31, 2022, compared with $10.3 billion at Dec. 31, 2021. Wealth management loans

primarily consist of loans to high-net-worth individuals, a majority of which are secured by the customers’ investment management accounts or custody accounts.

Wealth management mortgages

Our wealth management mortgage exposure was $9.2 billion at Dec. 31, 2022, compared with $8.6 billion at Dec. 31, 2021. Wealth management mortgages primarily consist of loans to high-net-worth individuals, which are secured by residential property. Wealth management mortgages are primarily interest-only, adjustable-rate mortgages with a weighted-average loan-to-value ratio of 61% at origination. Less than 1% of the mortgages were past due at Dec. 31, 2022.

At Dec. 31, 2022, the wealth management mortgage portfolio consisted of the following geographic concentrations: California – 22%; New York – 15%; Florida – 10%; Massachusetts – 8%; and other – 45%.

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Commercial real estate

The composition of the commercial real estate portfolio by asset class, including percentage secured, is presented below.

(a)    Represents the percentage of secured exposure in each asset class.

Our commercial real estate exposure totaled $10.1 billion at Dec. 31, 2022 and $9.3 billion at Dec. 31, 2021. Our income-producing commercial real estate facilities are focused on experienced owners and are structured with moderate leverage based on existing cash flows. Our commercial real estate lending activities also include construction and renovation facilities. Our client base consists of experienced developers and long-term holders of real estate assets. Loans are approved on the basis of existing or projected cash flows and supported by appraisals and knowledge of local market conditions. Development loans are structured with moderate leverage, and in many instances, involve some level of recourse to the developer.

At Dec. 31, 2022, the unsecured portfolio consisted of real estate investment trusts (“REITs”) and real estate operating companies, which are both primarily investment grade.

At Dec. 31, 2022, our commercial real estate portfolio consisted of the following concentrations: New York metro – 36%; REITs and real estate operating companies – 29%; and other – 35%.

Lease financings

The lease financings portfolio exposure totaled $657 million at Dec. 31, 2022 and $731 million at Dec. 31, 2021. At Dec. 31, 2022, approximately 99% of leasing exposure was investment grade, or investment grade equivalent and consisted of exposures backed by well-diversified assets, primarily real estate and large-ticket transportation equipment. The largest

components of our lease residual value exposure were to aircraft and freight-related rail cars. Assets are both domestic and foreign-based, with primary concentrations in Germany and the U.S.

Approximately 78% of the portfolio is additionally secured by highly rated securities and/or secured by letters of credit from investment grade issuers. Counterparty rating equivalents at Dec. 31, 2022, were as follows:

•40% were A or better, or equivalent;

•59% were BBB; and

•1% were non-investment grade.

Other residential mortgages

The other residential mortgages portfolio primarily consists of 1-4 family residential mortgage loans and totaled $345 million at Dec. 31, 2022 and $299 million at Dec. 31, 2021. Included in this portfolio at Dec. 31, 2022 were $97 million of fixed rate jumbo mortgage loans purchased in 2022 with a weighted-average loan-to-value ratio of 70% at origination.

Overdrafts

Overdrafts primarily relate to custody and securities clearance clients and are generally repaid within two business days.

Capital call financing

Capital call financing includes loans to private equity funds that are secured by the fund investors’ capital commitments and the funds’ right to call capital.

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Other loans

Other loans primarily include loans to consumers that are fully collateralized with equities, mutual funds and fixed-income securities.

Margin loans

Margin loan exposure of $16.9 billion at Dec. 31, 2022 and $22.5 billion at Dec. 31, 2021 was

collateralized with marketable securities. Borrowers are required to maintain a daily collateral margin in excess of 100% of the value of the loan. Margin loans included $6.0 billion at Dec. 31, 2022 and $7.7 billion at Dec. 31, 2021 related to a term loan program that offers fully collateralized loans to broker-dealers.

Maturity of loan portfolio

The following table shows the maturity structure of our loan portfolio.

Interest rate characteristic

The following table shows the interest rate characteristic of loans maturing after one year.